Weekend Economists' Triple Whammy Weekend February 12-14, 2010

[Demeter]

Welcome all to another hodgepodge of economic news, speculation, analysis, black humor,

(is there any other kind? well, there's sexist, scatological, and slapstick, but the first two are inappropriate in most contexts, and the latter is hard to render in text).

And Culture, with a Capital C. Mostly.

This weekend we have an abundance of built-in holidays to celebrate:

1)Presidents' Day, a confab of Lincoln's and Washington's Birthdays, once beloved of car dealers and cherry pie fans

2)Chinese New Year! It is the Year of the Tiger (I'll say it is) Gung Hay Fat Choy, y'all, wear the lucky color red and get two for one with the next event, and eat well.

3)And of course, that scourge of the loveless, Valentine's Day. Sigh. Never having had a proper Valentine's day even when courted or wed, I cannot comment much on this, except to say, if you are having a good one, don't flaunt it in the face of those who AREN'T! Thank you. this has been a public service announcement.

No doubt there are other special commemorations for these three days; do post them if you've got them. Oh, and any information about economic events would also be greatly appreciated!

George Washington
Sara Jordan Publishing

Listen to this song.

This song is available on The Presidents' Rap.

We take so much for granted in America today.
There've been so many changes; things weren't always this way.
In 1789, you see, our country was so small,
Only four million people, just thirteen states in all.

We had a Constitution, but no one really knew
Just how the government would work or who would see it through.
The man who was chosen to be President first
Came from Virginia, the place of his birth.

Verse 1:
It is said that George Washington cut down a cherry tree
And when he was caught he said, "I cannot tell a lie."
It was this kind of honesty and courage that stayed with him
To help guide America until the day he died.

During George Washington's time as President,
Congress passed the Bill of Rights.
He made many treaties with foreign nations,
So we could live in peace and not have to fight.

Bridge:
He fought against the French when they
threatened the colonies.
He tried his best to protect his home.
He once surrendered to superior forces
But he did his duty the best way known.

Chorus:
All these things helped Washington be President.
He tried to do his best since his life began.
We all should follow Washington's example.
Always try to do the best that you can.

Verse 2:
In 1759, he married Martha Custis
And settled down to life on his farm so fine.
In 1774, he was a delegate
When the Continental Congress met for the first time.

Chosen in '75 as General and Commander-in-Chief
Of the army that would battle for our freedoms and rights
The people were hoping for a quick victory
But he knew that it would be a very long fight.

The Army spent a cold and dreary winter
Deep in the forest of Valley Forge.
But Washington was brave and never got discouraged.
He did his duty the best way known.

Verse 3:
Finally the British were forced to surrender
At Yorktown in 1781.
Washington returned to his home in Virginia,
All the while thinking that his work was done.

In 1787 he went to Philadelphia
To work on the Constitution there,
Creating a form of Federal government
That every person would find equal and fair.

Bridge:
In 1789, he was elected President
The banner of freedom was finally flown
He served for two terms, leading America
He did his duty the best way known.

Chorus:
All these things helped Washington be President.
He tried to do his best since his life began.
We all should follow Washington's example:
Always try to do the best that you can.

http://www.songsforteaching.com/sarajordan/geowashington.htm

see link for recording

[Demeter]

1. No Bank Failures Yet

No doubt the FDIC is on holiday. Isn't it sentimental? Banks delay foreclosing on homes for Xmas, FDIC spares banks on federal holidays, etc. If only this kind of feeling were a 24/7/365 kind of thing...

[CatholicEdHead]

21. Some of it could also be the east coast snowstorms

making it hard to actually get to failing banks this week.

[Robbien]

60. Georgia Gives Banks More Rope , banks can lend all they want whenever they want

The No. 1 state in bank failures is making it easier for survivors to deepen their exposure to a single borrower.

Georgia Gov. Sonny Perdue, a Republican, signed into law Thursday a bill that allows banks chartered by the state to exceed current lending limits if a borrower hasn't fallen behind on payments.

For decades, it was illegal for such banks to pour more than 25% of their total capital into an existing lending relationship secured with collateral or more than 15% to an unsecured borrower.


http://online.wsj.com/article/SB10001424052748704337004575059823971151054.html



Insanity reigns supreme in Georgia

[CatholicEdHead]

61. Great, this will continue to mean busy FDIC Fridays in the Peachtree State

We can all rock to it come a future Friday night.

http://www.youtube.com/watch?v=vmaF6IOODFc&feature=related

http://www.youtube.com/watch?v=rl2TVsiVe88

[Warpy]

2. As someone who shared #3, especially when wed

I think we need to say it loud, say it proud:

"I CAN BUY MY OWN DAMN CANDY!"

Especially since we get to hit the day after sales.

[Demeter]

6. I was thinking more of Jewelry and Flowers, Myself

Once he brought me a small yellow plush duck. Go figure. He thought I was two years old, maybe? Oh, and a very cheap and sleazy nightgown. Not even what a guy would call sexy.

[Dr.Phool]

13. I bought my wife some earrings, and gave them to her this morning.

So she could wear them to work.

She already lost one.

[Demeter]

14. Insurance, Doc, That's What It's For

[Warpy]

28. Were you #2, #3 or #4?

Apparently marriage was a much better deal for him, he's done it several more times.

I got the slutwear and once he brought me a bottle of orange liqueur, years after I'd quit drinking because it triggered migraines.

I finally told him I'd rather he not surprise me with anything and just let it go.

Then I left.

[Demeter]

30. First, but not only

[DemReadingDU]

29. and then you get twice as much chocolates to eat

for the same amount of money! I love those 1/2 price day-after sales at my favorite chocolates store!

[Dr.Phool]

3. A rant from Denninger. Goes after Ann Coulter, Repukes, Dems.

Ann Coulter, one of the most-partisan commentators out there in the media, had this to say recently:

How about just punishing the guilty? The Democrats can't do that because the list of Wall Street's biggest offenders may turn out to be eerily similar to the list of Obama's biggest campaign contributors.

How about punishing the guilty Ann? How about punishing one JOHN JACKASS MCCAIN, who Henry Paulson personally credits for being the reason TARP passed?

"As he was falling behind in the polls it would have been very easy for him to demagogue that issue, playing the populist card," he said. "And if he had come out against what he were trying to do we wouldn't have got it I believe. We wouldn't have had the TARP legislation passed and we would have been left defenseless."

Oh wait! Henry Paulson was a Republican Treasury Secretary too!

Employees from Goldman Sachs gave more to the Obama campaign than any other organization except the University of California -- with Citigroup and JPMorgan Chase quickly following in sixth and seventh place.

Absolutely correct. Goldman gave money to the winner. Big stinking surprise - NOT.

Whatever Obama has in mind for punishing the financial industry, I promise you, he won't punish his friends. After JPMorgan CEO Jamie Dimon took a $17 million bonus this week, and Goldman CEO Lloyd Blankfein got a $9 million bonus, Obama said he didn't begrudge them their bonuses, saying, "I know both those guys."

Well that may well be true, but can you point to anything that Republicans did in their eight years in office prior to President Obama that actually reined in the outrageous fraud and abuse served up upon the world's investors - not to mention everyday Americans - by Wall Street?

Let's see.... I think I'll list a few things that the Rethuglicans have done to our nation, since Ann has done such a great job of bagging on the Democraps.

"Bankruptcy Reform" - but only for "the little people" - that is, you and I. We can't declare bust if we have a good income and discharge all our debts - but corporations still can!

State laws prohibiting predatory lending: Who directed their justice department to file suit to block these laws? That would be George W "I hope you get bit by a snake on your ranch" Bush, right? Yep. Ann charges:

Obama, like the rest of his party, is an ideologue who doesn't understand or particularly like the free market. He fundamentally believes in the efficacy of the welfare state, whether the beneficiary is a layabout single mother or a rich Wall Street banker.

Oh really? Obama voted against the bankruptcy screw job Ann while he was a Senator. You forget that, right? Yes, he didn't have much Senatorial record, but he did have that to his credit.

Further, "the free market" that Ann promotes under "Rethuglican" administrations turned into "I can rape you so long as I wear a ski mask and you can't identify me."

That's the Republican's view of a "free market."

I'm not saying that the Democrats have a particularly better view of it, by the way. They'll just stick you up face-first, stuffing the gun up your nose while having their way.

In either case you get violated but at least with the Democrats it seems you get kissed first - even if the kiss is delivered by cold steel.

But instead of AIG going bankrupt and Goldman taking a hit, the U.S. taxpayer made good on AIG's securities insurance. In a deal arranged by former Goldman CEO and current Obama BFF, Hank Paulson, Goldman ended up being paid -- by you -- an astonishing 100 cents on the dollar.

Uh, who's Treasury Secretary was Henry Paulson again Ann? Have you gone insane or did you just need to avoid bagging on the progenitor of this train wreck - George W. Bush?

More to the point, why didn't Bush fire Paulson in September - or even sooner? He was still President then, you know - two little words that he refused to speak Ann. One can only conclude that Bush was perfectly happy with Hank's looting - er - "performance."

See, it was Bush's SEC that admitted Hank Paulson (while he was running Government Sachs) to their august chambers and then, at his request, removed the leverage limits that formerly constrained investment banks. Bear Stearns and Lehman Brothers both collapsed due to this excessive leverage - they each had more than double the former legal limit when they blew up. But for the BUSH SEC decision, neither would have collapsed and, more importantly, the last three years of the Housing Bubble could not have occurred.

Those last three years, by the way, were the most toxic. They also featured the famous Goldman "Abacus" CDOs that weren't really backed by anything other than a hedge fund deciding it wanted to short residential subprime - of course that little fact wasn't disclosed clearly and promiscuously to the poor bastards that were unfortunate enough to believe that Goldman was actually selling valuable securities to them in the form of those Abacus tranches! They got violated too, courtesy of the great Republican "Free Market" that Ann feels is so defensible.

Now it's a bit unfair to just bag on Goldman, although they're certainly a popular whipping boy. See, they were hardly alone. Countrywide "Fast and Sleazy" Financial anyone? Got a pulse? Buy a house! Lehman, Bear, Countrywide, New Century and dozens more - all ranged the American land, picking the pockets of millions through trickery, deceit and worse with explicit support and active legal interference run by The Bush White House.

How about Ben Bernanke? Who appointed him? Oh, that would be George W. Bush, right? Do the limits of The Federal Reserve Act mean anything? Apparently not - if you're a Republican.

Ann finishes with this:

Republicans should defend any investment houses that never benefited from a government bailout. But anyone who took huge gambles, lost and got bailed out with taxpayer money should be tortured and then shot, miraculously brought back to life, tortured some more, then shot a few more times.

When Ann is prepared to begin her list with Hank Paulson and Ben Bernanke, along with John McCain (who Paulson asserts could have single-handled stopped the bailouts) I might tend to agree with her.

Her web page runs an ad for a T-shirt that says "I'd rather be waterboarding." I can't agree more. We can start with the aforementioned jackasses who destroyed The American Economy, beginning with the top of the pyramid - those regulators who, under the Bush White House, watched investors and ordinarily Americans alike be serially violated by every Wall Street Bankster and their minion scammers scattered across the "fruited plain", denuding it to feed their yachts' thirst for fuel - and the new house in The Hamptons.

Oh, and Ann might want to consider that had RINO McCain actually done this he'd have 1600 Pennsylvania Avenue stamped on his envelopes - as his return address.

We will not solve this problem until we put away the partiscam garbage that people like Coulter run and face reality: BOTH political parties are equally guilty in this regard. Both embraced the mathematically impossible for more than two decades as a means of disguising and justifying their profligacy when it comes to public spending (Medicare Part D anyone?), either failing to understand or simply ignoring the realities of compound growth and interest.

Now, trapped in a box of their own design and construction Republicans and Democrats alike are trying to eat one another in a partisan flame-fest that accomplishes exactly nothing other than making the problem worse. Neither is willing to accept that we have made promises we cannot keep - and thus we must be straight with The American People and tell them we are breaking them so they can prepare to be on their own in this regard. Neither will cut the cord from Wall Street to Washington DC - there are 200+ year old fraud statutes that are more than sufficient as the predicates to bring charges for the most-egregious acts of these "Masters of The Universe" during the bubble years - we need no new laws, the existing, old-fashioned ones would do just fine.

No, President Obama's plans, along with those of Harry Reid and Nancy Pelosi will not make things better. But neither will claims that The Republicans have a "better idea."

I've yet to hear either party stand up and say "if you ripped someone off during the last decade, no matter how you did it, you are going to jail!" as the central theme in their campaign, yet that is exactly what we need to hear - across this land - if we are to reclaim this nation from the brink of a financial collapse that still looms large to this day.
Facebook Partisan Attacks WILL NOT Solve The Problem

http://market-ticker.denninger.net/

[Demeter]

5. I Wouldn't Go So Far As to Call GS et al. "Friends"

Bagmen, maybe, or puppetmasters. Campaign financiers. But not Friends. Not unless Obama is more delusional than I've suspected...

[Demeter]

4. Bill Bonner of Daily Reckoning.Com Recently Returned to the US After Years Abroad

and has this to say:

"...That's the problem with living in the country you come from. Your own people disappoint you. Or at least, those running your government. Living overseas is a pleasure. The imbeciles are fun to watch. But here...we cringe when we hear the news. We turn green when we read the paper. And TV? Can't bear it. These are our people. Our race. Our countrymen. Ay yi yi..."

Tell us about it, Bill. You at least dodged W and Reagan and Monicagate...

[Demeter]

7. Beware of Greeks Bearing Bonds!

anything Greek goes here. I'm sure there will be a lot of it.

[Demeter]

8. Go Tell it to the Spartans: Drop Dead

BILL BONNER IS OF COURSE REFERRING TO THE GREEK SPARTANS, SO ALL YOU MICHIGAN STATE PEOPLE NORTH OF ME CAN JUST CALM DOWN....


http://dailyreckoning.com/go-tell-it-to-the-spartans-drop-dead/

IN A RELATED ARTICLE

“Bailout” Breaking Down the Language Barrier By Bill Bonner

Well, the Greek story was big this week. 'The Big Fat Greek Meltdown,' as Justice Litle calls it. It pushed stocks and bonds down early in the week. By the end of the week it was pushing them up.

What happened in the meantime? Well, the euro-feds made it appear that they were going to do the same dumb things our own feds did. They said they were going to fix the situation. Just like the US fixed Fannie Mae and AIG!

There are 27 different nations in the European Union. And guess how many languages? Two-hundred and thirty. That surprised us too. Spain alone has 6 official languages.

But without doing any real research on the subject, we have discovered one word which is common to all these languages: bailout. Yes, dear reader, it was 'bailout'...spoken in hundreds of different languages and dialects...that lit a fire under the financial markets late this week. The embers were still hot yesterday; the Dow rose 106 points. Gold had it best day in weeks - up 18 bucks.

But doth a single bailout a real boom make?

Let us rephrase that. Will bailing out the spendthrift Greeks really make American businesses more profitable?

You know the answer. It won't. In fact, it will make them less profitable. What it does is allow the Greeks to continue spending in the style to which they've become accustomed. And if the Greeks are going to do that you can bet that the Irish aren't going to want cut back. Or the Portuguese. To say nothing of the Italians. And what about the English?

Bailing out the Greeks is a big mistake. But it's a mistake everyone seems to want to make. There's probably a Latin dictum for this sort of thing. But since we don't know what it is, we'll have to coin the phrase ourselves: Imbecility begets imbecility; especially when the bankers come out ahead.

What did you think? Who do you think the Greeks owe money to? That's right, the big banks are behind this. They've got hundreds of billions at stake in Greece. If the Greeks can't pay, the banks take a hit. Since no one wants the bankers to take a loss - except for us - once again, the feds are coming to the rescue.

Oh...why does this make US businesses LESS profitable? Well, it's a marginal thing. But what we're witnessing is a shift of economic power away from the private sector towards the public sector. Private businesses no longer borrow like they used to. Now, the feds do the borrowing and the spending. That leaves less capital...and less spending power...in private hands. Ergo, businesses will find it harder to make money.

They'll also find it harder to make money because interest rates will rise. Instead of letting the bad credit risks default, the feds weaken all credit. They're giving debt a bad name, in other words. The risk of default for the particular country goes down; the risk of default of the entire system increases. After all, the debt doesn't disappear. It has to be paid by someone. Sooner or later. Guess who that will be?

[Demeter]

10. Dollar Index Up: A Momentary Safe Haven from Greek Debt By Addison Wiggin

http://dailyreckoning.com/dollar-index-up-a-momentary-safe-haven-from-greek-debt/

The Greeks have put Wall Street in a headlock for more than 24 hours now. Let’s recap…

* Before market open yesterday: Greek debt deal announced, traders rejoice. Futures up
* After market open: Traders realize there are no specifics to the deal. Market down
* By midday: European Council president clarifies – the EU stands ready to help Greece, but help isn’t actually needed right now. Best of all worlds. Market up
* After market close: German Chancellor Angela Merkel let it be known Athens would have to get its own act together and, in the words of the UK Guardian, she “brushed aside all questions of financial support.” Bummer.

Is Frau Merkel acting wisely? Behold…

Fourth-quarter German GDP figures just came out…and they’re flat. Not good after two consecutive quarters of growth. Year over year, the German economy shrank 1.7%.

French fourth-quarter GDP came in better than expected, up 0.6%. The Eurozone as a whole grew barely – 0.1%.

This news sent the euro to a nine-month low against the dollar, at $1.3533. The dollar index in turn is up to 80.75, a seven-month high. For now, as long as the euro looks shaky, the dollar retains its sheen as a safe haven. For now…

The US Treasury auctioned $16 billion in 30-year bonds yesterday, and it didn’t go very well. Before the auction began, yields were 4.68%. Afterward 4.72%. Clearly, buyers are getting more nervous about the notion of going “long America” for the next three decades. The bid-to-cover ratio looked lousy, at 2.36.

Maybe all this talk of who’s going to be “the next Greece” is rather beside the point when debt is weighing everyone down – including the keeper of the world’s reserve currency.

“All governments will eventually default, including the US,” says Marc Faber – except for a handful like Singapore that have their debts more or less under control.

This comment drew gasps, first of horror, then of outrage, from CNBC anchors Sue Herera and Dennis Kneale. You can watch for yourself here – the moment of truth comes around 2:15.

Still, the guardians of the Temple of the Perpetual Bull gave Faber a chance to explain himself. “In the developed world, we have huge debt to GDP, in terms of government debt to GDP and unfunded liabilities that will come due, and these unfunded liabilities are so huge that eventually these governments will all have to print money before they default.”

[Demeter]

11. Greek Debt Crisis: Overstating the Obvious By Addison Wiggin

http://dailyreckoning.com/greek-debt-crisis-overstating-the-obvious/

Alas, the markets will worry about housing on another day… Today, they’re still feverish with the swine flu. The smallest of the PIGS – Greece – is still a cause for concern…and hallucinations. The Dow and S&P shot up 1.5% yesterday, their best day in more than a month, on rumor that the EU was assembling a debt bailout for the Greeks.

“Greece is not a critical weight-bearing pillar of the euro house of cards,” counters our Alan Knuckman, advising resource traders on how to process concern over the PIGS. “It must be noted that Greek GDP is rather small – when compared with individual US states, it sizes up between No. 13 Massachusetts and No. 12 Michigan.

“As a native Michigander, that makes me think…” Knuckman ponders on. “I am inclined to separate local difficulties from concerns of potential global downfall. Michigan, home of Detroit and the longest freshwater shoreline in the county, is in the process of fighting through the impact of the Big 3 auto manufacturers’ demise, and holding on mainly because we’re Built Ford Tough. But a setback in Detroit shouldn’t be responsible for a downfall of the US currency – and likewise I don’t believe this much weight should be placed on Greece.

“Put another way, I cannot see the over 200 inches of annual snowfall in my hometown solving the water crisis in California any more than Greece taking down the EU.”

“I’m actually confident Greece will do whatever is necessary to meet conditions to remain a member of the euro to qualify for financing by the ECB,” George Soros told the press yesterday. We hasten to add, despite all his political controversies, Soros made his mega-fortune trading currencies – most notably, shorting the pound at its moment of weakness.

“I think the markets are generally concerned on sovereign debt and Greece is at the forefront of that issue.”

Amen.

“If countries remain biased toward continuing with loose fiscal and monetary policies to support growth,” Nouriel Roubini adds, “rather than focusing on fiscal consolidation, investors will become increasingly concerned about fiscal sustainability and gradually move out of debt markets they have long considered ’safe havens.’

“Most central banks will withdraw liquidity starting in 2010, but government financing needs will remain high thereafter. Monetization and increased debt issuances by governments in the developed world will raise inflation expectations. These governments will have to offer higher real yields or investors will move to more attractive emerging markets.”

[Demeter]

12. EU stops short of immediate aid for Greece

http://www.ft.com/cms/s/0/d49a915e-173f-11df-94f6-00144feab49a.html

A pledge by the European Union to stand by crisis-hit Greece punctured hopes in the financial markets yesterday of a swift rescue and raised fears of renewed selling.

Efforts by Nicolas Sarkozy and Angela Merkel, the French and German leaders, to paper over differences between Berlin and Paris on how to deal with the Greek debt crisis led to a summit statement in Brussels that stopped short of providing immediate support for Athens.

The leaders of the 27-nation bloc promised “determined and co-ordinated action if needed to safeguard stability” of the eurozone, which has been shaken by turmoil in bond markets amid fears that Greece’s debt problems could spread.

The accord amounted to an implicit assurance to help Athens if it had problems in refinancing debt in April and May.

But the lack of a detailed bail-out plan underwhelmed investors in financial markets. While global stocks and bonds made modest gains, the euro fell 0.9 per cent against the dollar.

Herman van Rompuy, the EU’s permanent president, described the deal as a “political statement” saying leaders had not come up with a detailed rescue package because Greece had not asked for assistance.

Mr Sarkozy said: “We have committed to a show of solidarity, transparency and discipline.”

The EU endorsed Greece’s plans to cut its budget deficit by 4 percentage points of gross domestic product this year.

The agreement lays out a set of guidelines that Greece will be expected to follow if it is to be given financial support, most probably from Germany, France and some other eurozone countries. Athens would be expected to “do whatever is necessary including adopting additional measures” to eliminate the deficit by 2012.

“The EU stands by Greece,” said Ms Merkel. “But first and foremost, Greece must implement its programme.”

Berlin, traditionally the EU’s paymaster, is, acutely conscious that the German public is unlikely to welcome any initiative open to the interpretation that the country’s taxpayers will pick up the bill for decades of Greek profligacy, manipulation of financial statistics, public sector corruption and tax evasion.

Jonathan Loynes, an economist at Capital Economics, said the agreement was “disappointing. It seems to amount to little more than a vague statement of support for Greece”. Steven Major, at HSBC, said: “It all hangs on whether the implicit guarantees go down well with the markets. If they don’t, then there could be a sell-off.”

[Demeter]

40. Greece set to cut chief executives’ pay

http://www.ft.com/cms/s/0/e9107d98-15c2-11df-ad7e-00144feab49a.html

Greece on Tuesday cut salaries of chief executives at state-controlled corporations as part of new tax and income measures aimed at reducing the budget deficit and averting an international bail-out.

George Papaconstantinou, finance minister, said chief executives’ salaries would be capped at €5,000 a month ($6,890, £4,390) – the same as cabinet ministers – and their allowances would be reduced.

There will also be a pay freeze and a 10 per cut in allowances that together amount to a 4 per cent pay cut for more than 500,000 public sector workers.

The measures came at a tense moment in Greece with two days of strikes and demonstrations starting on Wednesday by civil service and communist-led unions in protest against the Socialist government’s austerity programme.

Air traffic controllers and transport workers will join the 24-hour walk-out by Adedy, the civil service union on Wednesday, shutting down all flights in and out of Athens international airport, and halting bus and subway services around the capital.

But recent opinion polls show more than two-thirds of Greeks are willing to support the government’s economic programme.

“There is strong popular backing for measures agreed with the European Union,” said Yannis Stournaras, director of IOBE, an Athens economic think-tank. The tax and incomes package was finalised at an emergency cabinet meeting before George Papandreou, prime minister, departed for a special EU summit at which leaders will examine the Greek government’s progress with its economic rescue effort.

“We are in the process of clawing back lost credibility,” Mr Papaconstantinou told the Financial Times.

Greece is anxious to demonstrate its commitment to a three-year stability plan aimed at cutting the budget deficit from 12.7 per cent to 2.8 per cent of gross domestic product and curbing a swollen public debt. The plan has already been tightened in response to pressure from the European Commission and is due to be approved next week by EU finance ministers.

The tax package included an amnesty “along the lines followed by Italy”, the finance minister told the FT, enabling Greeks to repatriate funds held abroad without fear of prosecution for tax evasion.

The government is keen to attract back an estimated €5bn of deposits moved abroad after Greece’s debt crisis began last December, as well as part of an estimated €60bn held by Greeks in bank accounts elsewhere in Europe.

Mr Papaconstantinou also warned of a rigorous crackdown on tax evasion. “There will be intensive electronic cross-checking of all business activity,” he said.

Legislation to increase the excise tax on petrol – a measure demanded by the Commission – was rushed into parliament on Tuesday night.

[Demeter]

42. Berlin looks to build Greek ‘firewall’

http://www.ft.com/cms/s/0/83de2cae-15a9-11df-ad7e-00144feab49a.html

Financial markets surged on Tuesday on hopes of a European rescue plan for Greece, as officials in Berlin admitted it was looking at how to construct a “firewall” to prevent the debt crisis spiralling out of control.

A German government official said that the steep decline in the euro and pressure on bond prices had forced Berlin to ”take a significant step” in how to deal with the crisis.

Germany is worried that any flight out of Greek assets, especially government bonds, could hit its banks and those in other eurozone countries.

As the eurozone’s dominant economy, Germany would be expected to take the lead in marshalling financial support for a Greek bail-out. There are fears the crisis could spread to other eurozone states with big deficits such as Spain and Portugal.

”We’ve had to face up to the fact that what is now a Greek problem could turn into a European one,” the official said.

”We’re thinking about what we should do if the crisis spills from Greece into other euro countries. So it’s more about finding firewalls, containing the problem, than principally about helping the Greeks.” He added there were ”no concrete plans” as yet.

Michael Meister, a senior German parliamentarian, was quoted as saying that help was possible under certain circumstances and that Wolfgang Schäuble, finance minister, would brief lawmakers on Wednesday about options for helping Greece either bilaterally or at EU level.

Angela Merkel’s spokesman denied any decision had been taken

[Demeter]

9. Greece is Shaking Confidence in the Euro By Rocky Vega

http://dailyreckoning.com/greece-is-shaking-confidence-in-the-euro/


02/12/10 Stockholm, Sweden – In a spirited three-way discussion Professor Joseph Stiglitz, Spanish Ambassador to the UK Carles Casajuana, and Hugh Hendry of Eclectia Asset Management argue about how the debt crisis in Greece is hammering away at confidence in the euro.

Here’s a choice line from Stiglitz:

“The CDS spread, that bet on a default of the US government is going up. Does anyone believe that the US government is going to default? The fact is the US government can print money… you can bet on whether or not there’s inflation, but to bet on a default is literally absurd.”

Don’t know… considering the new budget, default doesn’t sound that absurd. Can we bet on both?

This video came to our attention via The Business Insider. You can view the clip from BBC’s Newsnight below:

http://www.youtube.com/watch?v=E4MAifsp-8E&feature=player_embedded

[DemReadingDU]

62. Hugh Hendry

text from the video...
So called expert Professor Joseph Stiglitz and Spanish Ambassador to the UK Carles Casajuana argue with a Hugh Hendry (for Electica Asset Management) who is betting on the Euro currency falling and failing. The Hugh Hendry talks a lot of sense, where the expert talks none.
***

Be sure to watch Hendry's expressions

[DemReadingDU]

63. Hugh Hendry and Nassim Taleb February 2010

2/7/10
More truth from Hendry, he starts speaking appx 3 minutes into the video

http://www.youtube.com/watch?v=YQ2otZqmNKE

[Demeter]

15. The Banksters Sub Thread

The people we love to hate--their story:

[Demeter]

16. Goldman wins bookrunner role in AIA listing

http://www.ft.com/cms/s/0/79447718-1747-11df-94f6-00144feab49a.html

Goldman Sachs has been chosen as one of the banks that will manage the $10bn-plus listing of AIG’s Asian unit – in spite of the political controversy over Goldman’s actions during the insurer’s near-collapse in 2008.

People close to the situation said Goldman was one of seven banks that had been selected as bookrunners for the initial public offering of AIA, AIG’s flagship life insurance division.

AIA’s listing on the Hong Kong stock market, which is expected later this year, is crucial to AIG’s plans to start repaying the $80bn-plus it owes the US authorities.

Goldman’s selection underlines its strength as an equity underwriter in Asia and the fact that the political storm in the US over its role during AIG’s crisis has not soured its relations with the insurer and its government paymasters.

The US government owns 80 per cent of AIG after bailing it out in September 2008.

Goldman’s role, alongside Citigroup, Credit Suisse, Bank of America Merrill Lynch and UBS, as well as two Chinese lenders, will ensure that the Wall Street firm shares in the estimated $300m in fees the giant IPO is expected to generate.

Bookrunners will receive a lower proportion of the fees than Morgan Stanley andDeutsche Bank, the two global co-ordinators for the AIA share sale.

However, competition for bookrunner roles had been particularly fierce because of the IPO’s size. It is expected to be the world’s largest this year.

Members of Congress have attacked the government’s decision to rescue AIG and pay its counterparties, including Goldman, billions of dollars owed under derivatives contracts without demanding a discount, as a back-door rescue of the banks. Goldman’s critics have also questioned its aggressive stance in demanding collateral on derivatives from AIG before the insurer ran into deep trouble in 2008.

Goldman has rebuffed the attacks, saying it would not have lost money had AIG gone under and arguing that it had not been particularly aggressive in asking for collateral.

Both Goldman and AIG declined to comment on Thursday.

The selection of the seven bookrunners, representing almost every global bank with capability to assist with the IPO, will come as a huge relief to those involved as it will also allow them to claim “league table” credit for the large deal. The overseas arms of China Construction Bank and Industrial and Commercial Bank of China will also be acting as bookrunners on the IPO.

Separately, AIG is close to announcing the expected sale of Alico, its international insurance arm, to MetLife for about $15bn.

GOLDMAN'S SHOULD DO IT PRO BONO, IMO

[Demeter]

22. ‘Volcker rule’ gives Goldman stark choice

http://www.ft.com/cms/s/0/121fe9d0-1753-11df-94f6-00144feab49a.html

Goldman Sachs and other banks should give up their bank status if they want to avoid the ban on proprietary trading proposed by the White House, Paul Volcker, head of President Barack Obama’s Economic Recovery Advisory Board, said.

“The implication for Goldman Sachs or any other institution is, do you want to be a bank?” Mr Volcker said in a video interview with the Financial Times. “If you don’t want to follow those rules, you want to go out and do a lot of proprietary stuff, fine, but don’t do it with a banking licence.”

....Institutions that give up their bank status to continue proprietary trading would lose “the special privileges of a bank”. “Don’t expect the support you would get from being a bank within the club of insured deposits and access to the Federal Reserve and all the loving attention you get as a bank organisation,” Mr Volcker said.

Goldman declined to comment but executives say that if the Volcker Rule is passed, it would probably sell its deposit-taking bank, which is an insignificant part of Goldman’s $900bn-plus balance sheet.

However, Goldman leaders do not believe they would have to give up the financial holding company status acquired at the height of the 2008 crisis to escape the rule’s ban on in-house trading.

Mr Volcker said giving up bank status would not allow financial institutions to “escape from all oversight and regulation . . . you’re going to be subject to some capital restraints, some leverage restraints, liquidity provisions”.

He argued that a key to drawing this distinction between banks and non-banks would be the creation of a robust “resolution authority” with the power and resources to take over and close down a non-bank. “The whole point of this is importantly to get at the moral hazard problem . . . these non-banks, if they get in trouble, are not going to be saved. Their creditors can’t sit there and say, I’m going to be protected. The management can’t expect to stay in office. The stockholders can expect to lose.”

Mr Volcker said the resolution process for non-banks would be “euthanasia rather than life support and that’s a big difference”. He said the US should press ahead with the Volcker Rule unilaterally if necessary, but that a consensus on the plan between the US, UK, Germany and France was both preferable and achievable.

VOLCKER UNGAGGED!

[Demeter]

19. Private banking chiefs scramble to Asia

http://www.ft.com/cms/s/0/1896d04c-1746-11df-94f6-00144feab49a.html

The world’s largest financial groups, including JPMorgan Chase and HSBC, are scrambling to relocate their private banking chiefs to Asia to focus on opportunities in the fast-growing region.

HSBC is in advanced discussions to move Chris Meares, the global head of its private bank, from London to Hong Kong. A decision is expected shortly, according to people familiar with the matter. Its private bank has more than $400bn (€292bn) under management.

There are more than 2.4m dollar millionaires in Asia Pacific with a combined wealth of $7,400bn, according to the latest data from Merrill Lynch and Capgemini. The region is forecast to overtake North America as the world’s largest pool of wealth by 2013.

Douglas Wurth, the head of JPMorgan’s international private banking unit, relocated from New York to Hong Kong this week.

The New York-based bank manages about $450bn in private banking assets, half outside the US, and targets individuals with at least $25m to invest.

“The amount of wealth being created in China, India and south-east Asia is incredible,” said Mr Wurth.

But while Asia offers huge attractions for the industry, accessing many of its richest markets remains a challenge. China, the region’s biggest source of growth, tightly controls the movement of money offshore as well foreign banks’ operations onshore.

Wealth management in Asia is also a disproportionate growth driver for some global investment banks. Credit Suisse said on Thursday that a quarter of last year’s SFr44bn (€30bn) net inflows to its private bank came from Asia – a region that accounted for only 10 per cent of the bank’s group net revenues.

[Demeter]

37. Rothschild to appoint first non-family chief

http://www.ft.com/cms/s/0/c1c8e99e-15bf-11df-ad7e-00144feab49a.html

The Rothschild banking dynasty is to appoint a non-family member as chief executive for the first time in its 212-year history, as the group seeks to adapt its management structure to the post-crisis climate.

Nigel Higgins, a 27-year veteran of the company who has co-headed the investment banking business for the past decade, will become chief executive of the family holding company in March, taking over from David de Rothschild.

Mr Rothschild – he and his son are the only two Rothschild family members involved in the business – will remain as executive chairman.

“We all know that organisations that stay static and don’t change go backwards, not forwards,” Mr Rothschild told the Financial Times.

The dynasty traces its roots to 1798, when 21-year-old Nathan Mayer Rothschild arrived in England from Germany to start a textile business. With the Channel blockade of the Napoleonic wars making exports difficult, Nathan turned by 1809 to London’s financial markets to make his fortune.

Within a decade, his four brothers had established banking houses in Paris, Vienna, Naples and Frankfurt.

Rothschild has about 900 investment bankers worldwide, with its advisory business fairly evenly split between mergers and acquisitions work and corporate finance. The group has a smaller operation in private banking and asset management.

Mr Higgins, who joined the firm as a graduate, described the change as “evolutionary rather than revolutionary”. He said that to split the chairman’s and chief executive’s roles would free Mr Rothschild to pursue opportunities.

The group recently closed its first private equity fund, a €600m (£527m) investment vehicle seeded by Rothschild staff as well as outside investors, as it seeks to diversify revenue streams from advisory work.

Mr Higgins said the sense of “instability” and “mistrust” at some larger investment banks in the aftermath of the financial crisis had also formed opportunities for the bank, in terms of recruiting senior people as well as in winning market share.

John Kingman, former chief of UK Financial Investments, was one of the firm’s most recent high-profile recruits.

THEY WILL BE SORRY, I BETCHA!

[Demeter]

38. UBS reels as private bank hit by exodus

http://www.ft.com/cms/s/0/1ebad322-154a-11df-8f05-00144feab49a.html

UBS revealed on Tuesday it suffered a sharp acceleration of outflows from its once powerhouse private bank in the fourth quarter, underlining the scale of the problems facing the Swiss banking group.

Net outflows from the private bank doubled to SFr33bn ($31bn) in the fourth quarter from the previous three months, bringing the total for 2009 to SFr90bn – an amount more than the size of most Swiss private banks.

Overshadowing a return to profitability by UBS, the withdrawals came after Sfr107bn of outflows in 2008 and compared with invested assets at the end of December of Sfr960bn.

The outflows were swollen by factors such as last autumn’s Italian tax amnesty and the sale of a Brazilian subsidiary, but UBS acknowledged staff defections and uncertainties about Swiss bank secrecy would hurt flows for some time.

Oswald Grübel, chief executive, argued the tide would turn as clients and staff regained confidence in the bank because of restored profitability.

Net earnings amounted to SFr1.21bn in the fourth quarter, with profits boosted by a much lower accounting charge of just SFr24m on the value of the bank’s own debt, and a SFr480m tax credit, as well as sharply lower costs. The fourth quarter result compared with a SFr564m loss in the previous three months, and reduced the loss for 2009 to SFr2.74bn from SFr21.29bn the previous year.

Group earnings were boosted by swingeing cost cuts and staff reductions, both running ahead of schedule. It paid out bonuses for group staff of Sfr3bn in 2009. up from Sfr1.7bn in 2008.

“The net new money was the most important figure in these results and at SFr33.2bn outflows it was far worse than expected,” said Peter Thorne, analyst at Helvea, the Swiss brokerage.

The Italian tax amnesty alone triggered outflows of SFr22.8bn, although UBS retained SFr14.3bn within the group, vindicating its strategy of creating an “onshore” private banking network in neighbouring countries. However, net outflows from even core clients in Switzerland surged to SFr5.9bn compared with SFr3.9bn in the third quarter, although flows in Asia Pacific did turn positive.

Pre-tax profits in private banking rose by 40 per cent to SFr1.11bn, quarter on quarter, thanks to lower costs. Earnings before tax in investment banking amounted to SFr297m, compared with a pre tax loss of SFr1.37bn in the third quarter.

A shrinking balance sheet boosted UBS’s tier one ratio – a key measure of capital strength – to 15.4 per cent at year end, compared with 15 per cent on September 30 and 11 per cent at the end of 2008. The core tier one ratio – excluding hybrid capital instruments – was 11.9 per cent. Total assets dropped by 21 per cent year on year to SFr919bn, while total risk weighted assets fell by 32 per cent to SFr207bn.

[Demeter]

45. UBS cuts bonuses after missing profit targets (A WHOPPING 10%!)

http://www.ft.com/cms/s/0/4c919aae-1673-11df-bf44-00144feab49a.html

UBS, one of the banks hardest hit by the financial crisis, will not award senior staff SFr300m ($281m) in cash bonuses after failing to hit internal profit targets – a stark sign of how pay reforms are hitting bankers’ wallets.

Like many big banks, UBS has overhauled its bonus structure to more closely align pay with long-term performance. This includes the introduction of a novel “malus” system and allowing the bank to claw back payments if results fall short of targets.

It emerged on Wednesday that UBS would not disburse about SFr300m – nearly 10 per cent of its total bonus pool – to senior staff because the bank failed to make a net profit for 2009, a condition of its so-called “Conditional Variable Compensation Plan”.

Oswald Grübel, chief executive, said he expected affected executives, including many of the bank’s top earners, to be “realistic” about pay, given the highly charged climate.

“Bank salaries and bonuses are politically influenced and have become a controversial public topic as never before,” Mr Grübel told employees.

“The CVCP and equity-based compensation primarily affect colleagues who have a relatively high total compensation. I expect them especially to be realistic and to exemplify this attitude among their peers and team members.”

UBS insiders said the fact that the plan would not pay out this year did not come as a huge surprise, given the bank’s struggle to recover from record outflows at its once-powerhouse private bank and more than $50bn of subprime mortgage-related writedowns.

About SFr2bn of UBS’s net loss for 2009 is attributable to an accounting charge on the rising value of its own debt.

UBS raised its bonus pool for 2009 by 32 per cent to SFr2.9bn, in part to stem further defections after shedding more than 12,000 staff after cutting bonuses in 2008.

The CVCP plan, announced last February, set aside SFr900m in cash to be paid out in three equal tranches in 2010, 2011 and 2012, on condition that the group returned to profitability under European accounting standards and received no further bail-outs from the Swiss government.

The bank said the decision not to pay out this year would not prejudice prospects for 2011, but stressed that the sums allocated would not be carried forward.

[Demeter]

39. BofA and Citi warned over credit ratings

http://www.ft.com/cms/s/0/e7f8289e-15b7-11df-ad7e-00144feab49a.html

The planned overhaul of US financial rules prompted Standard & Poor’s to warn on Tuesday it might downgrade the credit ratings of Citigroup and Bank of America on concerns that the shake-up would make it less likely that the banks would be bailed out by US taxpayers if they ran into trouble again.

The move came in spite of S&P admitting that Citi and BofA, two of the world’s largest lenders, had bolstered their balance sheets with fresh capital and improved performance in recent months.

The credit rating agency revised its outlook on Citi and BofA from stable to negative, implying that there is a one-in-three chance that it will downgrade the two banks’ single A credit ratings over the next six months to two years.

“The outlook revision reflects our increased uncertainty about the US government’s willingness to provide additional extraordinary support to highly systemically important financial institutions in a way that will benefit debt holders,” it said in a statement.

BofA said that it was “premature to speculate on what effect, if any, proposed legislation would have on the financial services industry or on Bank of America”, adding it had ­“significantly strengthened its capital”.

Citi declined to comment on the S&P move but said it was “among the best capitalised banks in the industry”.

Congress is still discussing proposals to give regulators a new “resolution authority” to wind down large financial institutions. The new powers could enable regulators to force creditors of failing institutions to ­suffer losses on their debt.

During the crisis, creditors of most financial groups fared better than equity holders – who saw their shares plunge in value – as the US government’s bail-outs preserved the value of their debt.

Citi and BofA were among the biggest recipients of federal aid, receiving $45bn (€32.6bn) each as their losses mounted. They have since repaid the funds but the government still owns a 27 per cent stake in Citi.

Goldman Sachs and Morgan Stanley, two other banks that received federal aid during the crisis, have already been put on negative outlook.

[Demeter]

43. Global bank tax near, says Brown

http://www.ft.com/cms/s/0/23a35d16-1692-11df-aa09-00144feab49a.html

Gordon Brown said on Wednesday the world’s leading economies were close to agreeing a global bank tax, amid hopes in Downing Street that a deal can be concluded at the G20 summit in Canada in June.

Mr Brown believes that opinion has shifted decisively in favour of a globally co-ordinated tax after President Barack Obama’s move last month to raise $90bn (£57.7bn) from a US bank levy.

The tax could cost the financial services sector tens of billions of pounds a year.

The prime minister has strongly advocated some kind of charge on banks. “I’m interested in the way support is building up for international action,” he said in an interview with the Financial Times.

Last year, Mr Brown mooted a tax on bank transactions – a so-called Tobin tax – as one of a number of options to make sure the “contribution banks make to society is properly captured”.

The US immediately shot down that option, but the International Monetary Fund has been looking at other ideas.

Mr Brown believes that the IMF will endorse a global bank levy before its April meeting in Washington.

Downing Street hopes an agreement in principle can then be agreed by world leaders at the G20 summit in June, although the implementation of the levy and the detail of how it would work could take longer.

“People are now prepared to consider the best mechanism by which a levy could be raised,” Mr Brown said.

He thought the IMF would propose a method that would be “somewhat different” from the tax on wholesale funding proposed by Mr Obama.

Other options would be for a tax on bank profits, turnover or remuneration. But the IMF is expected to shy away from branding the levy as “an insurance scheme” because doing so might encourage banks to think they would automatically be covered by the taxpayer if they ran into trouble again.

Mr Brown insisted he was not attacking banks or their wealthy employees for ideological reasons. On the new 50p top rate of tax, he said: “We didn’t want to raise the top rate of tax.” He added: “We have no desire to have a tax rate that is higher than necessary.”

The prime minister said those with the “broadest shoulders” should pay more, and insisted that the tax would raise “a substantial amount of additional money”. He admitted: “It’s not as high as you would like it to be because of avoidance.”

[Po_d Mainiac]

65. Screw u Ben...where'd the money go

Now, two Manhattan tribes appear to be squaring off: On one side are the news media — among them The Associated Press, The Wall Street Journal and The New York Times, which also has a FOIA bailout suit and has agreed to be bound by the Second Circuit ruling. On the other side are the banks — JPMorgan Chase, Citibank, Bank of America and others — which, of course, have fallen in behind the Fed

“The documents that Bloomberg seeks are central to understanding the government’s response to the most cataclysmic financial crisis in America since the Great Depression.

http://www.nytimes.com/2010/02/14/nyregion/14fed.html?partner=rss&emc=rss

[DemReadingDU]

67. Bloomberg News vs. Federal Reserve Board Briefs

In November 2008, Bloomberg News sued the Federal Reserve Board under the Freedom of Information Act for details of where bailout money went at the height of the financial crisis. The court ruled in Bloomberg's favor but the Federal Reserve appealed. A group called the Clearing House Association, a consortium of the world's largest financial institutions, intervened and won the right to join the appeal. This document contains legal briefs pertaining to the appeal from each of the three parties.

http://documents.nytimes.com/bloomberg-news-vs-federal-reserve-bank-briefs#p=1

or

http://graphics8.nytimes.com/packages/images/nytint/docs/bloomberg-news-vs-federal-reserve-bank-briefs/original.pdf


206 pages

[ozymandius]

69. Wall St. Helped Greece to Mask Debt Fueling Europe’s Crisis

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels. ...

It had worked before. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means. ...

As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

http://www.nytimes.com/2010/02/14/business/global/14debt.html?ref=business

---

Where there's smoke - there's Goldman Sachs.

[ozymandius]

70. Roubini on Greece's Impending Default Crisis

Nouriel Roubini, Dr. Doom, wrote a piece on Forbes magazine in whih he says the credibility of the euro and European institutional arrangements is on the line.

"At their Jan. 18, 2009, meeting, eurozone finance ministers kept pressure on Greece to fulfill its commitment to cut its budget deficit below 3% of gross domestic product by 2012. In February the eurozone finance ministers will more fully evaluate the country's spending plans and recommend a timetable for Greece to trim its deficit, estimated at close to 13% of GDP in 2009.

Since the eurozone is a monetary union with a no-bailout clause rather than a political or fiscal union with the associated fiscal federalism, budget cuts to contain the explosion of Greek public debt are urgently needed. In 2010 a sustainable fiscal adjustment must be delivered to restore policy credibility, market confidence and ECB/EU member-state solidarity".

Roubini says that the current and latest default crisis was trigegred by three coinciding events:

1. Greece's sharp budget deficit revisions from as low as 3.7% of GDP to 12.7% in October,
2. the announcement of the beginning of the ECB's exit strategies,
3. the Dubai default

....

Going forward, once Greece has delivered what the EU Commission, ratings agencies and stakeholders in the markets judge to be an adequate pound of flesh, we expect the ECB to take on a more constructive stance, especially in view of the stricter collateral requirements that will be put in place by the end of 2010. The risks of not doing so would entail a judgment that Greece could, in theory, be surgically removed from the eurozone without starting a domino effect in other countries with high or escalating public debt burdens, some of which are far larger economies and hence could have an impact on the regional and global financial and economic systems. Alternatively, a sovereign upgrade to A- by two ratings agencies after the budget effort meets approval could also be part of the solution".

http://shockedinvestor.blogspot.com/2010/02/roubini-on-greeces-impending-default.html

[Demeter]

82. I Always Thought There Was Something Opportunistic About Dubai Defaulting

Getting out first as the house of cards collapses, in hopes that the consequences are minimized.

[Demeter]

113. NEW POST: RBS in line for loss on German property portfolio

http://www.ft.com/cms/s/0/3d5a1b2e-19ac-11df-af3e-00144feab49a.html

Royal Bank of Scotland is sitting on a loss of several hundred million pounds after being forced to take back the keys on £1.8bn (€2.1bn) in German properties bought at the peak of the market by a fund run by Morgan Stanley.

In one of the largest paper real estate losses so far for a UK bank, RBS has taken control of a portfolio of 28 properties, mostly located in the Rhine-Main and Berlin areas.

RBS lent about €1.9bn to acquire the portfolio in the summer of 2007, underlining how far banks were prepared to go to finance property investments during the market boom, often requiring little of the investor’s own equity.

The value of the portfolio is thought to have dropped significantly since the acquisition, which was made with a view that the income could be improved through new lettings and sales could be struck at higher prices. However, the crash in the property market and the economic slump meant this strategy proved unsuccessful.

The Morgan Stanley-managed real estate fund has given back the keys to the portfolio, leaving RBS with a large amount of German property.

The bank’s global restructuring team is overseeing the process and is expected to hold on to the properties until they have regained some of the value lost...
Argoneo, an asset manager mostly owned by Morgan Stanley, will continue to look after the properties for a fee, according to Europroperty.

Analysts have warned that UK banks could become some of the largest property owners in the country as they continue to work through extensive problem loan books.

Many of the loans made during the boom years are either in breach of covenant or default following the sharp fall in values, which has meant that the banks are having to decide whether to continue to support borrowers or take control of the properties or the companies that own them.

RBS and Lloyds are the most exposed, having competed aggressively to provide debt to the booming market, with loan books far in excess of £100bn.

[Demeter]

17. US power groups to merge in $4.7bn deal

http://www.ft.com/cms/s/0/d2d5c546-171c-11df-afcf-00144feab49a.html

ARE THEY INSANE? WHO PERMITTED THIS?

FirstEnergy agreed on Thursday to acquire Allegheny Energy for $4.7bn in an all-stock deal that would create one of the largest utility groups in the US.

The combined company would have 10 regulated power utilities across seven states; Pennsylvania, Ohio, Maryland, New Jersey, New York, Virginia and West Virginia. It would have 24,000 megawatts of generating capacity from coal, nuclear, natural gas, oil and renewable power.

Some analysts think a deal between FirstEnergy and Allegheny could lead to more tie-ups in the utility sector, which they say is ripe for consolidation. Karl Miller, founder of MMC Energy, noted that the US has more than 250 mid-size and large utilities and distribution companies.

But regulators have scuttled previous merger attempts by utilities. FPL, which owns Florida’s largest utility, abandoned a $11.4bn takeover attempt of Constellation Energy group in 2006 after a face-off with regulators in Maryland, where Constellation is based. Exelon, a utility based in Chicago, dropped its plan in 2006 to buy Public Service Enterprise Group of New Jersey amid concerns by regulators in that state.

In both cases, legislators raised concerns that the combined utility groups could lead to higher power rates.

Anthony Alexander, FirstEnergy president and chief executive officer, said he did not anticipate any problem with regulators, given two of the six states involved do not require formal approval, and in the other four the companies have good relationships with regulators.

“We have very strong ... customer satisfaction ratings in those states. We are active in the communities,” Mr Alexander said.

FirstEnergy said it expected to close the deal with Allegheny in 12 to 14 months. They expect the combined company, which would have more than 6m customers, to have $16bn in annual revenue and $1.4bn in annual net income, combining year-end 2009 figures.

Under the agreement, Allegheny shareholders would receive 0.667 shares of FirstEnergy common stock for each share of Allegheny they own. Based on the closing stock prices for both companies on Wednesday, Allegheny shareholders would receive a value of $27.65 per share, or a total of $4.7bn. FirstEnergy also will assume about $3.8bn in Allegheny debt.

The offer represents a premium of 31.6 per cent to the closing price of Allegheny on Wednesday, and a 22.3 per cent premium to the average stock price of Allegheny over the last 60 days.

[Demeter]

18. Motorola plans to split into two

http://www.ft.com/cms/s/0/1af62dd4-1754-11df-94f6-00144feab49a.html

Motorola, the US mobile phone and electronics group, plans to split itself into two separate publicly quoted companies in the first quarter of next year, the company announced on Thursday.

As expected, Motorola’s struggling mobile phone division and its set-top box business will be folded into one company led by Sanjay Jha, Motorola’s co-chief executive who has been in charge of the mobile devices division.

The other company, comprising Motorola’s enterprise mobility unit and its wireless networking business, will be run by Greg Brown, currently Motorola’s other co-chief executive. Its main products will include rugged two-way radios, mobile computers, secure public safety systems, portable scanning and RFID (radio frequency ID) systems and wireless network infrastructure.

The two companies will be split through a tax-free stock distribution to Motorola shareholders. The mobile handsets and home business will own the Motorola brand and will license it royalty-free to the enterprise and networking company.The two new companies will both account for about half of Motorola’s $22bn revenues last year...

[Demeter]

20. IMF floats plan to raise inflation targets

http://www.ft.com/cms/s/0/f9f4067e-1758-11df-87f6-00144feab49a.html

International Monetary Fund economists are challenging economic orthodoxy on Friday by suggesting that many pre-crisis policy tools should be redesigned and some sacred cows considered for slaughter.

A staff paper co-authored by Olivier Blanchard, IMF chief economist, says the financial and economic crisis has “exposed flaws in the pre-crisis policy framework” and “forces us to think about the architecture of post-crisis macroeconomic policy”.

Suggestions include raising inflation targets from about 2 per cent to about 4 per cent so that monetary policy can better respond to shocks; automatic lump-sum payments for poorer families if unemployment rises above certain thresholds; exchange-rate intervention for smaller economies that depend heavily on trade; and giving central banks huge new regulatory tools so they can smooth the path of the economy.

The political momentum behind many of the ideas is absent, Mr Blanchard accepted. The IMF is taking a gamble by spelling out the flaws in current thinking, even if it is in a staff paper rather than formal recommendations.

Some of the tools suggested have been used in the crisis, but boosting the Federal Reserve’s powers, for instance, is highly controversial in the US.

The suggestion that inflation targets should be raised to 4 per cent will cause many central bankers to choke on their breakfasts, since they have spent their whole careers gaining and preserving the credibility of keeping inflation at levels close to 2 per cent.

‘If we had had more margin to play with on interest rates, we would probably have had to use fiscal policy less ‘
Olivier Blanchard, IMF chief economist

Mr Blanchard said the idea of raising inflation targets should not be seen as outlandish. “If we had had more margin to play with on interest rates, we would probably have had to use fiscal policy less ,” he told the Financial Times. He recognised that higher inflation and higher interest rates in normal times would have costs, but they might be a price worth paying because they would make monetary policy more effective in crisis periods.

“Nobody knows the cost of inflation – between 2 per cent and 4 per cent – so I think people could get used to 4 per cent and the distortions could be small,” said Mr Blanchard

He stressed that higher inflation targets were only one of many ideas that should be considered. He was particularly hopeful that the idea of central bankers having many policy tools, rather than just interest rates, would gain momentum.

The paper suggests giving central bankers “cyclical regulatory tools”, including bank capital ratios to limit or expand leverage, liquidity ratios to regulate liquidity, loan-to-value limits to control domestic mortgage borrowing and margin requirements to have some control over equities.

For decades, central bankers’ only tool has been the interest rate. Some economists have suggested these should be used more actively to “lean against the wind” of credit markets. But Mr Blanchard robustly rejected such an approach. “ strikes me as totally stupid,” he said.

The paper recognises that fiscal policy became a vital tool for boosting demand in the crisis, and says its success should be formalised with measures such as “temporary transfers targeted at low-income or liquidity-constrained households”.

Many emerging markets needed to keep exchange rates stable, he said. They should stop saying they simply followed inflation targets, when active policies to stabilise exchange rates “were more sensible than their rhetoric”.

[Demeter]

23. China! Ah, so, for the Lunar New Year and Beyond

The Chinese subthread

[Demeter]

24. Keeping an Eye on 13-F Filings By Addison Wiggin

http://dailyreckoning.com/keeping-an-eye-on-13-f-filings/

13-F filings. Usually, they’re like watching grass grow — unless someone from Berkshire Hathaway is involved. Tuesday was a little different.

In short, 13-Fs are the form institutional investors have to send the SEC when moving $100 million or more. This 13-F, dear reader, is one everyone should see:



13-F Filings

These investments weren’t all made in the fourth quarter of 2009. And they total less than $10 billion. But still… the biggest holder of the US national debt is slowly purchasing a very diverse set of US enterprises.

THERE'S A LOT OF TURKEYS ON THAT LIST THAT I WOULDN'T TAKE FOR FREE

[Demeter]

26. Your Chinese New Year Questions Answered

http://en.wikipedia.org/wiki/Chinese_New_Year

[Demeter]

41. China confirmed as world’s top exporter

http://www.ft.com/cms/s/0/35de8406-155c-11df-8f05-00144feab49a.html

China overtook Germany last year to become world export champion, official figures confirmed on Tuesday.

December trade figures for Germany highlighted the hit Europe’s largest economy took in 2009 from the collapse in global economic confidence at the start of the year. German goods’ exports fell by 18.4 per cent compared with the previous year – the biggest year-on-year fall since 1950, according to the federal statistics office....

[Demeter]

25. Fake Coup is Best Solution to Resolve US Debt By Rocky Vega

Long live Octavia, absolver of American debt!

If it is in fact true that it’s too difficult to have giant sandworms eat the debt, or to hide the nation in some kind of mysterious fog, or to create a plan for mass, widespread amnesia… well, in that case, then a fake overthrow of the government probably is the best solution.

See the video AT LINK for what is perhaps America’s most reasonable hope for fiscal salvation.

http://www.theonion.com/content/video/u_s_government_stages_fake_coup?utm_source=videoembed">U.S. Government Stages Fake Coup To Wipe Out National Debt</a>

[Demeter]

35. Dilbert's Valentine to Pointy Haired Bosses Everywhere

Background to this cartoon:

The Pointy Hair Boss has been assassinated by a spontaneous coup by his subordinates in previous days....

http://dilbert.com/dyn_file/str_strip/81609/gif/strip.print/


To see the whole series:

http://dilbert.com/strips/


This adventure started on Feb. 3.

[Demeter]

36. Mark Fiore on Valentine Gifts for Liberals

http://www.markfiore.com/political-cartoons/watch-dogboy-mr-dan-valentines-day-animation-mark-fiore

[Demeter]

27. I Still Have a Ton of Stuff, But My Eyes Won't Stay Open

I believe Monday is a federal holiday and the markets will be closed, in which case I should have stated up top that this will be a 4 day thread, or more likely, a two-part, four day thread.

With any luck, it will put a serious dent in the email backlog. I DID get down to 70 at one point...

So, sweet dreams! Post some love songs, especially if they can form an ironic commentary to the news of the day.

Of course, any economic stuff is okay, too!

[Demeter]

31. Do Check Out McCamy Taylor's Post on Corporate Welfare Queens

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x7702316

An encyclopedic recounting of recent events.

[Demeter]

32. And snagglepuss Posts: Why can't Americans make things? Two words: business school.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x517616

[Demeter]

33. Marketplace Whistling Past the Graveyard: Relax, it's just a correction

http://www.marketwatch.com/story/relax-its-just-a-correction-2010-02-13?siteid=YAHOOB

Commentary: The basic rules of investing are still the same By Howard Gold

....

"According to Morgan Stanley's European equity strategist Teun Draaisma, history's big 'relief rallies' average about 70% -- about the rebound that stock markets have had -- and this is followed by a 25% 'correction,' as part of the ongoing bear market that typically follows a big shock," writes John Authers in the Financial Times.

That would get us back down to about Dow 8,000, which I don't expect, barring a serious economic shock or a more severe financial crisis than that of Greece.

But I also don't think there's much more left in this bull, which has acted like a live-fast-die-young rock n' roller. The economy will continue to improve, but unemployment will remain stubbornly high and there's so much debt hanging over consumers and governments that it's hard to see what would keep the fires burning.

The bull market of the 2000s was propelled by ridiculously low interest rates and lax lending practices that ignited a housing and spending boom. Add two wars, two mammoth tax cuts, and unfunded government spending and you had all you needed to inflate a bubble. Only now that it's popped do we see how empty it all was.

We couldn't do the same thing now if we wanted to. The heat is on to cut spending and raise revenues. Bank bailouts and economic-stimulus plans have left governments throughout the developed world grappling with World War II-level debt loads, and newly frugal consumers simply can't shop 'till they drop, because many of them have dropped already. Businesses are uneasy about new regulations that may be coming down the pike.

Those are the fundamental reasons I believe we're still in a long-term bear market for stocks.

Yes, we'll see a cyclical economic recovery, and maybe half of the market's big move reflects that. (The other half is just relief the whole system didn't come crashing down around our ears.)

And yes, the market will rally again. But unless something fundamental changes, I'm pretty sure the Dow won't get near its October 2009 closing high above 14,000 any time soon.

For most of us, that means we'll stay invested in stocks based on our age and risk tolerance and will put extra money into the market only as part of a solid investment plan.

But I wouldn't throw extra money at this moving train -- even if it looks like it's leaving the station -- because it's winding its way through some very treacherous terrain indeed.

Howard R. Gold is executive editor of MoneyShow.com . The views expressed here are his own.

[Demeter]

34. Will The U.S. Economy Recover This Time? By Richard Clark

http://www.opednews.com/populum/print_friendly.php?p=Will-The-U-S-Economy-Rec-by-Richard-Clark-100206-709.html

...When an empire is as badly run as ours has been, there is no way it is going to be "blessed" in the long run. (God is no longer going to be able to "bless' America.) Soon enough we will be faced with an inescapable conclusion: Our empire and its poisonous fruits are about to destroy the entire fabric of our society and doom us to the same sort of irrelevance that Spain experienced by the nineteenth century. Hopefully we citizens will come to see in time that the vast wealth we expend on our permanent struggle for domination of the globe and for the enrichment of our parasitic military and executive classes, if diverted to useful investments, could make us the wealthiest and healthiest society in history. If so, we must rise up against our purblind financial elites (who are unable to even conceive of life without the privileges of global and societal domination) before they can foreclose those options in favor of continuing the self-destructive path we are currently on. These people are quite literally insane, and we must not allow them to go on and on with no accountability whatsoever, feeding their megalomaniacal sense of entitlement with the same frenzy with which we middle-class consumaholics (those of us who haven't yet been dropped into the underclass) -- feed our seemingly bottomless gullets.

[Demeter]

44. Venezuela auctions off two major oil projects

http://www.ft.com/cms/s/0/fcab3374-16c7-11df-aa09-00144feab49a.html

Venezuela auctioned off two major projects in the oil-rich Orinoco Belt on Wednesday night to international oil companies, requiring investments of up to $30bn.

Although three projects were tendered in the Orinoco’s Carabobo block over a year ago, only two were assigned – Carabobo 1 to a consortium including Spain’s Repsol, and Carabobo 3 to a consortium including the US’s Chevron.

“We have put the Orinoco Belt at the world’s disposal,” said President Hugo Chavez, who claims that it is the largest oil field in the world, with around 270bn barrels of recoverable reserves.

“We need international investment. Alone we would not be able to develop these reserves,” he said, highlighting that Venezuela would nevertheless maintain control of the reserves.

PDVSA, Venezuela’s state oil company, will keep a 60 per cent stake in both projects, which will require investments of around $15bn each and have the capacity to produce at least 400,000 barrels per day (bpd) each. Mr Chavez said that existing projects in the Orinoco Belt are producing up to 600,000 bpd.

Repsol will have an 11 per cent stake in its project, the same as consortium partners Petronas of Malaysia and ONGC of India, with two other Indian companies taking the remaining 7 per cent, according to a Repsol statement.

Chevron teamed up with three Japanese companies – Mitsubishi, Jogmec, and Inpex – and Venezuela’s Suelopetrol.

The consortium that was assigned Carabobo 1 will pay the government a signing bonus of $500m, while the consortium developing Carabobo 3, considered to be more promising, is to pay $1.05bn. Both groups will pay an extra $1bn to PDVSA in financing.

Venezuela’s energy minister, Rafael Ramirez, said that the projects – which require the construction of complex and expensive “upgraders” to refine the extra heavy oil found in the Orinoco – could be fully operational by 2016, although early production could begin by 2013. The projects are expected to have a life span of 25 to 40 years.

[Demeter]

46. How a New Jobless Era Will Transform America

http://www.theatlantic.com/doc/201003/jobless-america-future

...There is unemployment, a brief and relatively routine transitional state that results from the rise and fall of companies in any economy, and there is Unemployment—chronic, all-consuming. The former is a necessary lubricant in any engine of economic growth. The latter is a pestilence that slowly eats away at people, families, and, if it spreads widely enough, the fabric of society. Indeed, history suggests that it is perhaps society’s most noxious ill.

The worst effects of pervasive joblessness—on family, politics, society—take time to incubate, and they show themselves only slowly. But ultimately, they leave deep marks that endure long after boom times have returned. Some of these marks are just now becoming visible, and even if the economy magically and fully recovers tomorrow, new ones will continue to appear. The longer our economic slump lasts, the deeper they’ll be.

If it persists much longer, this era of high joblessness will likely change the life course and character of a generation of young adults—and quite possibly those of the children behind them as well. It will leave an indelible imprint on many blue-collar white men—and on white culture. It could change the nature of modern marriage, and also cripple marriage as an institution in many communities. It may already be plunging many inner cities into a kind of despair and dysfunction not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years.

The Long Road Ahead

Since last spring, when fears of economic apocalypse began to ebb, we’ve been treated to an alphabet soup of predictions about the recovery. Various economists have suggested that it might look like a V (a strong and rapid rebound), a U (slower), a W (reflecting the possibility of a double-dip recession), or, most alarming, an L (no recovery in demand or jobs for years: a lost decade). This summer, with all the good letters already taken, the former labor secretary Robert Reich wrote on his blog that the recovery might actually be shaped like an X (the imagery is elusive, but Reich’s argument was that there can be no recovery until we find an entirely new model of economic growth)....

The economy now sits in a hole more than 10 million jobs deep—that’s the number required to get back to 5 percent unemployment, the rate we had before the recession started, and one that’s been more or less typical for a generation. And because the population is growing and new people are continually coming onto the job market, we need to produce roughly 1.5 million new jobs a year—about 125,000 a month—just to keep from sinking deeper.

Even if the economy were to immediately begin producing 600,000 jobs a month—more than double the pace of the mid-to-late 1990s, when job growth was strong—it would take roughly two years to dig ourselves out of the hole we’re in. The economy could add jobs that fast, or even faster—job growth is theoretically limited only by labor supply, and a lot more labor is sitting idle today than usual. But the U.S. hasn’t seen that pace of sustained employment growth in more than 30 years. And given the particulars of this recession, matching idle workers with new jobs—even once economic growth picks up—seems likely to be a particularly slow and challenging process.

The construction and finance industries, bloated by a decade-long housing bubble, are unlikely to regain their former share of the economy, and as a result many out-of-work finance professionals and construction workers won’t be able to simply pick up where they left off when growth returns—they’ll need to retrain and find new careers. (For different reasons, the same might be said of many media professionals and auto workers.) And even within industries that are likely to bounce back smartly, temporary layoffs have generally given way to the permanent elimination of jobs, the result of workplace restructuring. Manufacturing jobs have of course been moving overseas for decades, and still are; but recently, the outsourcing of much white-collar work has become possible. Companies that have cut domestic payrolls to the bone in this recession may choose to rebuild them in Shanghai, Guangzhou, or Bangalore, accelerating off-shoring decisions that otherwise might have occurred over many years....

“We haven’t seen anything like this before: a really deep recession combined with a really extended period, maybe as much as eight years, all told, of highly elevated unemployment,” Shierholz told me. “We’re about to see a big national experiment on stress.”

...But in fact a whole generation of young adults is likely to see its life chances permanently diminished by this recession. Lisa Kahn, an economist at Yale, has studied the impact of recessions on the lifetime earnings of young workers. In one recent study, she followed the career paths of white men who graduated from college between 1979 and 1989. She found that, all else equal, for every one-percentage-point increase in the national unemployment rate, the starting income of new graduates fell by as much as 7 percent; the unluckiest graduates of the decade, who emerged into the teeth of the 1981–82 recession, made roughly 25 percent less in their first year than graduates who stepped into boom times.

But what’s truly remarkable is the persistence of the earnings gap. Five, 10, 15 years after graduation, after untold promotions and career changes spanning booms and busts, the unlucky graduates never closed the gap. Seventeen years after graduation, those who had entered the workforce during inhospitable times were still earning 10 percent less on average than those who had emerged into a more bountiful climate. When you add up all the earnings losses over the years, Kahn says, it’s as if the lucky graduates had been given a gift of about $100,000, adjusted for inflation, immediately upon graduation—or, alternatively, as if the unlucky ones had been saddled with a debt of the same size.

When Kahn looked more closely at the unlucky graduates at mid-career, she found some surprising characteristics. They were significantly less likely to work in professional occupations or other prestigious spheres. And they clung more tightly to their jobs: average job tenure was unusually long. People who entered the workforce during the recession “didn’t switch jobs as much, and particularly for young workers, that’s how you increase wages,” Kahn told me. This behavior may have resulted from a lingering risk aversion, born of a tough start. But a lack of opportunities may have played a larger role, she said: when you’re forced to start work in a particularly low-level job or unsexy career, it’s easy for other employers to dismiss you as having low potential. Moving up, or moving on to something different and better, becomes more difficult.

“Graduates’ first jobs have an inordinate impact on their career path and ,” wrote Austan Goolsbee, now a member of President Obama’s Council of Economic Advisers, in The New York Times in 2006. “People essentially cannot close the wage gap by working their way up the company hierarchy. While they may work their way up, the people who started above them do, too. They don’t catch up.” Recent research suggests that as much as two-thirds of real lifetime wage growth typically occurs in the first 10 years of a career. After that, as people start families and their career paths lengthen and solidify, jumping the tracks becomes harder.

This job environment is not one in which fast-track jobs are plentiful, to say the least. According to the National Association of Colleges and Employers, job offers to graduating seniors declined 21 percent last year, and are expected to decline another 7 percent this year. Last spring, in the San Francisco Bay Area, an organization called JobNob began holding networking happy hours to try to match college graduates with start-up companies looking primarily for unpaid labor. Julie Greenberg, a co-founder of JobNob, says that at the first event, on May 7, she expected perhaps 30 people, but 300 showed up. New graduates didn’t have much of a chance; most of the people there had several years of work experience—quite a lot were 30-somethings—and some had more than one degree. JobNob has since held events for alumni of Stanford, Berkeley, and Harvard; all have been well attended (at the Harvard event, Greenberg tried to restrict attendance to 75, but about 100 people managed to get in), and all have been dominated by people with significant work experience.

When experienced workers holding prestigious degrees are taking unpaid internships, not much is left for newly minted B.A.s. Yet if those same B.A.s don’t find purchase in the job market, they’ll soon have to compete with a fresh class of graduates—ones without white space on their résumé to explain. This is a tough squeeze to escape, and it only gets tighter over time.

Strong evidence suggests that people who don’t find solid roots in the job market within a year or two have a particularly hard time righting themselves. In part, that’s because many of them become different—and damaged—people. Krysia Mossakowski, a sociologist at the University of Miami, has found that in young adults, long bouts of unemployment provoke long-lasting changes in behavior and mental health. “Some people say, ‘Oh, well, they’re young, they’re in and out of the workforce, so unemployment shouldn’t matter much psychologically,’” Mossakowski told me. “But that isn’t true.”

Examining national longitudinal data, Mossakowski has found that people who were unemployed for long periods in their teens or early 20s are far more likely to develop a habit of heavy drinking (five or more drinks in one sitting) by the time they approach middle age. They are also more likely to develop depressive symptoms. Prior drinking behavior and psychological history do not explain these problems—they result from unemployment itself. And the problems are not limited to those who never find steady work; they show up quite strongly as well in people who are later working regularly.

Forty years ago, Glen Elder, a sociologist at the University of North Carolina and a pioneer in the field of “life course” studies, found a pronounced diffidence in elderly men (though not women) who had suffered hardship as 20- and 30-somethings during the Depression. Decades later, unlike peers who had been largely spared in the 1930s, these men came across, he told me, as “beaten and withdrawn—lacking ambition, direction, confidence in themselves.” Today in Japan, according to the Japan Productivity Center for Socio-Economic Development, workers who began their careers during the “lost decade” of the 1990s and are now in their 30s make up six out of every 10 cases of depression, stress, and work-related mental disabilities reported by employers.

DAMAGED, OR DISILLUSIONED? CERTAINLY LESS LIKELY TO BECOME CORPORATE DRONES, GLADLY DOING ANYTHING FOR THE POINTY-HAIRED BOSS!

WOULD THERE HAVE BEEN A WATERGATE REVOLUTION, WITHOUT NIXON'S UNLUCKY OIL SHOCK?

[Demeter]

47. Greek vs. California CDS Prices: Twins or Distant Cousins

http://dailyreckoning.com/greek-vs-california-cds-prices-twins-or-distant-cousins/

Let’s begin today’s edition with a riddle:

What location in the world is famous for its sun-drenched beaches, azure seas, arid Mediterranean climate, rugged coastlines, olive trees, earthquakes, smoggy cities, hedonistic mythology, dismal government finances and well-preserved antiquities?

That’s right, California.

If you answered “Greece”, you did not read the riddle carefully. The antiquities of Newport Beach are far better preserved than anything you could find in Athens. Furthermore, Greece’s government finances are not merely “dismal,” they are horrific.

California is facing a budget deficit this year of about $40 billion, which is roughly equivalent to 2% of the state’s $2 trillion economy (GSP). That’s dismal. But over on the Mediterranean, Greece’s budget deficit is on track to hit $50 billion, which is a very big number for an economy that is one fifth the size of California’s. In fact, that’s a horrific number. What’s more, Greece’s accumulated debt totals $443 billion – a whopping 113% of GDP.

Neither California nor Greece can print their own currencies, of course. So both of these borrowers must rely on traditional remedies, like cost-cutting and bailouts…or just bailouts. This is where the chart below comes into play. It tracks the pricing of credit default swaps (CDS) on 5-year bonds from California and Greece. (Simply stated, a CDS is an insurance policy against default. The higher the CDS price, the higher the cost of the insurance. At the moment, the price of a 5-year Greek CDS is about 375 basis points, meaning it would cost about $375,000 to ensure $10 million worth of Greek government bonds for five years).



Greek vs. Californa CDS Prices

For most of the last 15 months, CDS investors have been assigning a higher probability to a California default than to a Greek default. About a month ago, however, investors changed their minds…but not by much. At yesterday’s quotes of 375 bps for the Greek CDS and 325 bps for the California one, the pricing differential between the two is little more than a rounding error. So what do these CDS prices imply? Are the finances of California and Greece merely the twin sons of different mothers?

Probably not.

The sky-high prices of California CDS may have more do with the state’s sky-high profile than its large deficits. According to yesterday’s CDS prices, for example, California (and Greece) were both riskier credits than El Salvador, Bulgaria, Lebanon or Kazakhstan. Heck, they were riskier than New Jersey. Greece might belong in this company. California probably does not.

Net-net, the surprising similarity between California and Greek CDS prices probably says more about their respective prospects of a bailout than about their underlying finances. California’s finances are poor, but so far the federal government has refrained from offering assistance. Greece’s finances are abysmal, but the nations at the core of the European Union are rushing to help.

So what’s all the fuss about? Why would France, for example, worry about saving Greece? The answer may be that France doesn’t care about Greece at all. But France does care about France.

As it turns out, French banks are sitting on $75 billion worth of loans to Greece. Even more troubling, French banks are sitting on another $775 billion worth of loans to the other “Club O’ Med” countries (Portugal, Spain, Ireland, and Italy) that reside on the fringes of EU viability.

Therefore, as London’s Daily Telegraph observes, “Germany face a Hobson’s Choice: if loan guarantees for Greece turn into a slippery slope towards implicit support for the whole of the ‘Club O’ Med’ (Portugal, Spain, Ireland, and Italy), EU creditors could be tainted by contingent liabilities worth trillions. Yet failure to reach a deal risks a sovereign version of the Lehman crisis.”

No wonder then that Germany and France are diving into the water to rescue the drowning Greeks. But did you ever see how a drowning man treats a lifeguard? The lifeguard dives into the water and speeds toward the drowning man. Once the lifeguard arrives, however, the drowning man, in an effort to keep his own head above water, grabs hold of the lifeguard and plunges him under the water.

The lifeguards in Europe may be slipping under the waves already. During the brief period of time that the French and Germans have contemplated a Greek rescue package, the perceived risk of a French government default has more than doubled, according to CDS pricing. At the same time, 10-year French and German bond yields have both jumped about 15 basis points.



French 5-Year CDS Prices

CALIFORNIA COULD RAISE MONEY THROUGH TAXATION. EVEN GREECE COULD DO THAT!--AND THERE THEY GO AGAIN WITH THE CDS, BETTING ON FAILURE AND THEREBY CAUSING IT!

[Demeter]

48. An Insider’s View of the Real Estate Train Wreck: real estate entrepreneur Andy Miller

http://dailyreckoning.com/an-insiders-view-of-the-real-estate-train-wreck/


...Real estate entrepreneur Andy Miller... has been singularly successful in pretty much all aspects of the real estate market, including financing and developing large projects – such as shopping centers, apartment communities, office buildings, and warehouses – from one end of the country to the other. His expertise has also allowed him to build an impressive business providing assistance to large financial institutions that need help in dealing with problem commercial real estate loans. As you might suspect, business is booming.

Back in 2007, however, what most intrigued me about Andy was that he had been almost alone among his peer group in foreseeing the coming end of the real estate bubble, and in liquidating essentially all of his considerable portfolio of projects near the top. There are people who think they know what’s going on, and those who actually know – Andy very much belongs in the latter category... he had spoken at several industry events before the real estate collapse and had been all but booed off the stage for his dire outlook.

So far, Andy’s real estate forecasts continue to come true. As you’ll read in the following excerpt from my latest interview with Andy, who now spends considerable time each day helping the nation’s biggest banks cope with growing stacks of problem loans, he remains deeply concerned about the outlook for real estate.

GALLAND: No one has been more right on the housing market in recent years. So, what’s coming next? Some of the housing numbers in the last few months look a little less ugly. Could housing be getting ready to get well?

MILLER: I don’t think so.

For all intents and purposes, the United States home mortgage market has been nationalized without anybody noticing. Last September, reportedly over 95% of all new loans for single-family homes in the US were made with federal assistance, either through Fannie Mae and the implied guarantee, or Freddie Mac, or through the FHA.

If it’s true that most of the financing in the single-family home market is being facilitated by government guarantees, that should make everybody very, very concerned. If government support goes away, and it will go away, where will that leave the home market? It leaves you with a catastrophe, because private lenders for single-family homes are nervous. Lenders that are still lending are reverting to 75% to 80% loan to value. But that doesn’t help a homeowner whose property is worth less than the mortgage. So when the supply of government-facilitated loans dries up, it’s going to put the home market in a very, very bad place.

Why am I so certain that the federal government will have to cut back on its lending? Because most of the financing is done via the bond market, through Ginnie Mae or other government agencies. And the numbers are so big that eventually the bond market is going to gag on the government-sponsored paper.

The public doesn’t have any idea of the scale of the guarantees the government is taking on through Fannie, Freddie, and FHA. It’s huge. If people understood what the federal government has done and subjected the taxpayers to, there would be a public outrage. But you can’t get people to focus on it, and it’s very esoteric, it’s very hard to understand. But it’s not something the bond market won’t notice. The government can’t keep doing what it has been doing to support mortgage lending without pushing interest rates way up.

Refinancings of single-family homes are very interest-rate sensitive. Consumers have their backs against the wall. They have too much debt. Refinancing their maturing mortgages or their adjustable-rate mortgages is very problematic if rates go up, but that’s exactly where they’re headed. So anyone who’s comforted by current statistics on single-family homes should look beyond the data and into the dynamics of the market. What they’ll find is very alarming.

GALLAND: On that topic, recent data I saw was that something like 24% of the loans FHA backed in 2007 are now in default, and for those generated in 2008, 20% are in default, and the FHA is out of money.

MILLER: Fannie Mae had a $19 billion loss for the third quarter of 2009, and they are now drawing on their facility with the US Treasury. We have all forgotten that Fannie and Freddie are still being operated under a federal conservatorship. On Christmas Eve, the agency announced that it was going to remove all the caps on the agencies.

GALLAND: So what about commercial real estate?

MILLER: When I saw what was happening in the housing market, I liquidated all my multi-family apartments, shopping centers, and office buildings. I liquidated all my loan portfolios, and I’m happy I did.

It occurred to me in 2005 and 2006 that the commercial world had to follow suit. Why? Because it’s a normal progression. Obviously, when single-family homes decline in value, multi-family apartments decline in value. And when consumers hit the wall with spending and debt, that’s going to have an impact on retailers that pay for commercial space.

Furthermore, the financing for retail properties had gotten ludicrous. The conduits were making loans that they advertised as 80% of property value when they originated them, but in reality the loan-to-value ratios were well over 100%. And I say that to you with absolute, categorical certainty, because I was a seller and nobody knew the value of the properties that I was selling better than I did. I had operated some of them for 20 years, so I knew exactly what they were bringing in. I knew what the operating expenses were, and I knew what the cap rates were. And, you know, the underwriting on the loan side and the purchasing side of these assets was completely insane. It was ludicrous. It did not reflect at all what the conduits thought they were doing. They were valuing the properties way too aggressively.

I became very bearish about the commercial business starting in late ‘05.

GALLAND: Beyond the obvious, that the real estate market has taken pretty significant hits and some banks have been dragged under by their bad loans, what has really changed in real estate since the crash?

MILLER: I think the first thing that changed was that people learned that prices don’t go up forever. Lenders also saw that underwriting guidelines for commercial real estate loans, especially in the securitization markets, were erroneous. They realized that some of their properties had been financed too aggressively, but still, I don’t think even at the fall of Lehman, anybody was predicting a wholesale collapse in commercial real estate.

But they did see they should be more circumspect with loan underwritings. In fact, after the fall of Lehman, they completely stopped lending. I think they realized we had been living in Fantasyland for 10 years. And that was the first change – a mental adjustment from Alice in Wonderland to reality.

Today it’s clear that commercial properties are not performing and that values have gone down, although I’ve got to tell you, the denial is still widespread, particularly in the United States and on the part of lenders sitting on and servicing all these real estate portfolios. People still do not understand how grave this is.

To be continued…

[DemReadingDU]

123. good article

[Demeter]

49. 2 Ex-Workers Accuse Blackwater Security Company of Defrauding the U.S. for Years

http://www.nytimes.com/2010/02/11/us/11suit.html

Two former employees of Blackwater Worldwide have accused the private security company of defrauding the government for years by filing bogus receipts, double billing for the same services and charging government agencies for strippers and prostitutes, according to court documents unsealed this week.

In a December 2008 lawsuit, the former employees said top Blackwater officials had engaged in a pattern of deception as they carried out government contracts in Iraq and Afghanistan, and in Louisiana in the aftermath of Hurricane Katrina.

The lawsuit, filed under the False Claims Act, also asserts that Blackwater officials turned a blind eye to “excessive and unjustified” force against Iraqi civilians by several Blackwater guards.

Blackwater has earned billions of dollars from government agencies in the years since the Sept. 11 attacks, when the company won contracts to protect American diplomats in Iraq and Afghanistan. The former employees who filed the lawsuit, a married couple named Brad and Melan Davis, said there was little financial oversight of the money.

Last year, an audit by the special inspector general for Iraq reconstruction and the State Department’s inspector general found that the State Department had overpaid Blackwater $55 million because the company had failed to adequately staff its teams assigned to protect American diplomats in Iraq.

The documents detailing the Davises’ accusations were unsealed after the Justice Department declined to join in the case against Blackwater, which last year changed its name to Xe Services. A Xe spokeswoman did not return a message seeking comment about the case.

In an interview on Wednesday, Ms. Davis said that she and her husband had decided to proceed with the case because “it’s the right thing to do,” and that it was time for “the truth from inside the company” to be made public. If the government is able to recover money from Blackwater as a result of the lawsuit, the Davises could claim a percentage as whistleblowers.

Mr. Davis, a former Marine, performed a number of jobs for the company, including working as a private security guard in Iraq.

Ms. Davis was fired from the company, and she is challenging the legality of her dismissal. Mr. Davis voluntarily resigned from the company.

According to the lawsuit, Ms. Davis raised concerns about the company’s bookkeeping with her bosses in March 2006, when she was handling accounts for the company’s contracts with the Federal Emergency Management Agency and the Department of Homeland Security. The lawsuit claims she was told to “back off,” and that she “would never win a medal for saving the government money.”

Ms. Davis also asserts that a Filipino prostitute in Afghanistan was put on the Blackwater payroll under the “Morale Welfare Recreation” category, and that the company had billed the prostitute’s plane tickets and monthly salary to the government.

She also said Blackwater management used a subsidiary company, Greystone Ltd., to double bill the government for plane tickets between the United States and Amman, Jordan, which served as a transit point for the company’s employees in Iraq.

[Demeter]

50. DEAN BAKER ON JOB CREATION: Make It Work

BAKER ADVOCATES FDR STRATEGY

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

[DemReadingDU]

51. Columbus Ohio National Century Financial - Rebecca Parrett's sister arrested

2/13/10 Sister was e-mailing fugitive, feds say
Women allegedly planned to meet soon in Mexico

The sister of the fugitive National Century founder had planned to move to Mexico to be with her by Valentine's Day, officials said.

But yesterday, Linda Case, 66, of Grove City, was arrested at her home and jailed pending a detention hearing on Tuesday in federal court.

Case, who was charged with obstruction of justice and lying to investigators, was accused of e-mailing her sister Rebecca S. Parrett regularly since 2008.

Federal agents intercepted the e-mails, which indicated that Parrett was hiding in Mexico.

Assistant U.S. Attorney Douglas W. Squires, one of the prosecutors who handled the National Century trials, said yesterday that he couldn't discuss Case's arrest.

Parrett, 61, has been a fugitive since disappearing after her trial in March 2008. She was convicted of crimes connected to the $1.9 billion fraud involving National Century Financial Enterprises, a company that provided financing to small health-care providers.

She was sentenced last year in absentia to 25 years in prison for nine fraud-related convictions.

National Century collapsed in November 2002, and at least 275 health-care companies failed as a result. It was the largest case of private-sector fraud in U.S. history, and 10 people were convicted because of it.

According to the criminal complaint against Case, she has been communicating with Parrett in Mexico since at least September 2008 but repeatedly has denied to law enforcement that she had any contact with Parrett or knew her location.

As recently as Jan. 25, Case told federal agents that her sister might be living in Nicaragua or Costa Rica. In the same interview, Case said she was planning to move to Veracruz, Mexico, with her daughter and son-in-law.

The complaint says deputy U.S. marshals read e-mails between Case and Parrett, who they said used code words and phrases to disguise details. In the e-mails, Parrett told Case how to conceal their e-mail communications and said she had moved several times because she feared being recognized.

Case and Parrett had planned to meet in Mexico, the e-mails indicated, and Parrett wanted her mother to move there also.

In the back-and-forth between the sisters in September, Parrett advised Case to get a second mortgage on her Grove City home to finance the move to Mexico.

"Just don't let people know where you are going and what you are doing," Parrett wrote.

Later that month, Parrett suggested that Case try to bring travel documents for Parrett to use, the complaint says.

"I've gotten by all this time without ever using an ID, amazing," Parrett wrote. "The thing I cannot do is travel and there is a particular place I would really like to go further south but I will explain more later."

On Jan. 18, Case wrote to Parrett that she would travel soon to Mexico with her seven cats and a dog and cross the border at McAllen, Texas. Once she was settled, she planned to fly back to the United States and "take Mom back down with me," according to the complaint.

http://www.dispatch.com/live/content/local_news/stories/2010/02/13/parrott_sister.ART_ART_02-13-10_B1_RLGJ2VI.html?sid=101


Link backwards to previous articles
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3860332&mesg_id=3860388

[Demeter]

53. Guess It Runs in the Family

Amazing story--thanks for keeping up with it.

[Demeter]

52. Oh. My. God. Obama Clueless By Paul Krugman

KRUGMAN IS REFERRING TO OBAMA'S COMMENTS CONCERNING THE BONUSES AT GOLDMAN AND JP MORGAN FOR THEIR CEOS, BLANKFEIN AND DIMON....

http://krugman.blogs.nytimes.com/2010/02/10/clueless/


....Oh. My. God.

First of all, to my knowledge, irresponsible behavior by baseball players hasn't brought the world economy to the brink of collapse and cost millions of innocent Americans their jobs and/or houses.

And more specifically, not only has the financial industry has been bailed out with taxpayer commitments; it continues to rely on a taxpayer backstop for its stability. Don't take it from me, take it from the rating agencies:

The planned overhaul of US financial rules prompted Standard & Poor's to warn on Tuesday it might downgrade the credit ratings of Citigroup and Bank of America on concerns that the shake-up would make it less likely that the banks would be bailed out by US taxpayers if they ran into trouble again.

The point is that these bank executives are not free agents who are earning big bucks in fair competition; they run companies that are essentially wards of the state. There's good reason to feel outraged at the growing appearance that we're running a system of lemon socialism, in which losses are public but gains are private. And at the very least, you would think that Obama would understand the importance of acknowledging public anger over what's happening.

But no. If the Bloomberg story is to be believed, Obama thinks his key to electoral success is to trumpet "the influence corporate leaders have had on his economic policies."

We're doomed.

[DemReadingDU]

57. Krugman: We're doomed.

Oh. My. God.

Krugman actually said this. we are doomed.

:scared:

[bread_and_roses]

74. More on Obama the Lackwit - and a triple whammy for the triple whammy WE

http://www.commondreams.org/view/2010/02/14

Lead, Follow, or Get Out of the Way

by David Michael Green

So now there's going to be a bipartisan health care summit, eh? Woo-hoo.

Is that sorta like the jobs summit we just had, one full year into the reign of Obama, despite that all twelve of those months has been riddled with severe economic cancer? And hasn't that summit just really produced a raft of good solutions to the unemployment crisis?

... He has entirely blown the good will which attended his inauguration one year ago, such that even if he were to be serious about dealing with jobs now, it's not clear that he would be trusted enough to be taken seriously, and it's not clear that he could even reap the political benefit from any success he might actually produce.

This was the stupidest imaginable of strategic decisions by this White House.

Lots more in that vein, most pertinent to this thread being this:

Now comes the triple whammy of the apocalypse, as the products from these policies come home to roost in a serious way. First, deregulating everything in sight so that the rapist class could have its unfettered way with all of us has produced the inevitable reckoning with reality now screening in your neighborhood as "The Great Recession". Second, the unsustainable pattern of profligate borrowing has become - go figure - unsustainable, and we are now seeing the beginning of serious movements toward reeling back spending on popular government programs, just when they are needed most. And third, the structural changes that have been promulgated over the last three decades leave most Americans poorly positioned to even hope for a path to economic recovery. Roughly speaking then, the middle class have been tossed out of the plane, their primary parachute was defectively fabricated by a deregulated corporation trying to save money on production, and their emergency chute was stolen out of the pack and sold on the black market called Wall Street. (emphasis added)

[DemReadingDU]

77. Yeh, it's coming

Good article, last few paragraphs...


Barack Obama and his congressional co-conspirators in cowardice will soon be toast, the victims - both directly through their own inadequacies and indirectly through their unwillingness to counter attacks upon them by the most destructive elements of American politics - of their own failings of character.

But because of those failings, and because at the moment the bottom was falling out they would neither lead, follow nor get out of the way, they are not the only folks right now staring down the business end of the shotgun that is the future of America.

We are, too.
Indeed, far more than they.
http://www.commondreams.org/view/2010/02/14

[truedelphi]

79. That is some brilliant writing. Thank you for posting those. n/t

[truedelphi]

78. Since late February of 2008, Obama has done his best to

Appear like somebody that we all would really like to sit down and chug a beer with.

Banking crisis, and economic collapse. Why shouldn't he just compare the situation to baseball players, we all know how the populace likes its baseball players.

Never mind that the two things are not comparable - Obama is "banking" on us Americans as not being able to connect all the dots. (His chief of staff even calls us progressives "retards.")

And now that he has the office he sought for two years, now he discounts us, and this is sad, because he apparently is forgetting how just as we threw George W out of the WH (figuratively speaking - George really had to leave as he was at the end of his second term) so too can we make Mr Obama depart in November of 2012.


We are not as dumb as you and Rahm think we are, Mr President. Just as Sarah Palin might meet her Waterloo in Mr Scott Brown, so too might Obama meet his Waterloo in Grayson or some other interloper who steps up to the plate (to use a baseball metaphor) and slugs one out of the park for We the People.

[Tansy_Gold]

94. Why baseball players and other athletes make so much money

1. They have only a few years in which to make that kind of money.

Most professional athletes -- there are rare exceptions -- have short playing careers, usually around 10 years on average, and those careers can be cut even shorter by injury. Banksters, on the other hand, continue to "work" and pull down their obese salaries well past the normal retirement age for regular working people.

2. They are independent contractors who must hire and pay for their staff.

A highly-paid athlete has a business manager, an accountant, a trainer, a publicist, etc., all of whom he/she has to pay for out of that salary. Banksters often have their staff -- everything from chauffeur to pilot and crew of the corporate jet -- provided at no cost by their corporation.

3. Athletes are paid on the basis of performance, not only in terms of their contribution to team victories but in terms of their ability to bring in paying fan$$$.

Banksters are paid because they are.

4. Many atheletes belong to unions which negotiate on their behalf.

Athletes belong to unions because they know they are the workers, whose bodies are exploited for the benefit of the owners. (See Lawrence O'Donnell going after the former CEO of WWE.) All of us should have such powerful unions.




Obama has just shown he doesn't know what he's taking about. He's clueless and out of touch, except when it comes to his good buddies in the aristo class.




Tansy Gold, White Sox fan who has a Luis Aparicio autographed baseball sitting on her piano

[truedelphi]

119. I am agreeing with you, except that the person typing this is a

Fan of the Cubs!

[Tansy_Gold]

122. That's okay

I harbor no animosity toward fans of other teams EXCEPT fans of the yankees and of the dodgers. I can even tolerate cowboys fans. Cubs is okay. ;-)

And I should add, too, that the number of athletes who make substantial non-playing incomes -- endorsements, acting or political careers, etc. -- is very few and far between.

Not that I think it's time to start feeling sorry for the poor players who are only making $5 million a year; they're still well paid for playing a game. The point is that athletes -- and to a certain extent that other over-paid group, entertainers -- often have very little control over their careers and may have huge expenses that must be deducted from their huge earnings. The comparison of them to banksters and other greedy bastard CEOs is ignorant, stupid, and totally wrong.



Tansy Gold

[truedelphi]

124. BTW you were one of the people I would have

Hearted, if income was not so erratic. (Though better days seem like they may be arriving soon for Mr D. and myself.)

So consider yourself as being one extra hearted.

And let's hope there is a Cubs/White Sox World Series (With my hopes on the Cubs as the end victors.)

[Demeter]

54. Globalization Is Killing The Globe: Return to Local Economies By Thom Hartmann

http://www.huffingtonpost.com/thom-hartmann/globalization-is-killing_b_454091.html

Globalization is killing Europe, just as it's already wiped out much of the American middle class.

Spain and Greece are facing immediate crises that many other European nations see on the near horizon: aging boomer workers are retiring with healthy benefit packages, but the younger workers who are paying for those benefits aren't making anything close to the income (or, therefore, paying the taxes) that their parents did.

Globalists/corporatists/conservative "free market" and "flat earth" advocates say this is a great opportunity to cut benefits for the old folks (and for the young folks in the future), thus bringing the countries budgets back into balance, and this story is the main corporate media storyline.

But it overlooks the real issue (and the real solution): how globalization is killing these nations' economies and what can be done about it.

From the days of Adam Smith, classical economics pointed out that manufacturing and extraction are the only two ways to "create wealth."

"Wealth" is different from "income." Wealth is value, which endures at least for some time. Income is simply compensation for work. If you wash my car for $10 and I mow your lawn for $10, we have a GDP of $20 and it looks like we both have income and economic activity. But no wealth has been created, just income.

On the other hand, if I build your car, I'm creating something of value. And if you turn my lawn into a small farm that produces food we can all eat, you're creating something of value. Not only do we have an "economy" with a "GDP," we also have created wealth.

A stick on the ground has no commercial value, but if you add labor to it by carving it into an axe handle -- a thing of commercial value -- you have "created wealth." Similarly, metals in the ground have no commercial value, but when you add labor to them by extracting, refining, and forming them into products, you "create wealth." Even turning seeds and dirt and cows into hamburgers is a form of manufacturing and creates wealth.

This is the "Wealth of Nations" that titled Adam Smith's famous 1776 book.

On the other hand, when a trader at Goldman Sachs makes a "profit" trading stocks, bonds, or currencies, no wealth whatsoever is created. In fact, to the extent that that trader takes millions in commissions, pay, and bonuses, he's actually depleting the wealth of the nation (particularly to the extent that he moves his money offshore to save or invest, as many do).

To use the United States as an example, in the late 1940s and early 1950s manufacturing accounted for a high of 28 percent of our total gross domestic product (and much of the rest of the economy like agriculture that, in a classical sense is "manufacturing" wasn't even included in those numbers), and when Reagan came into office it was at a strong 20 percent. Today it's about ten percent of our GDP.

What this means is that we're creating less wealth here, because we're not making much anymore. (And the biggest growth in American manufacturing has been in the military sector, where goods are made that are then destroyed when they explode over foreign cities, causing even more of our wealth to vanish.)

The main effect of the globalism fad of the past 30 yearrs -- lowering the protective barriers to trade that countries for centuries have used to make sure their own local economies are self-sufficient -- has been to ship manufacturing (the creation of wealth) from developed nations to developing nations. Transnational corporations love this, because in countries with lower labor costs and few environmental and safety regulations, it's more profitable to manufacture products. They then sell those products in the "mature" countries -- the places that used to manufacture -- and people burn through the wealth they'd accumulated in the earlier manufacturing days (home equity, principally, along with savings and lines of credit) to buy these foreign-manufactured goods.

At first, it looks like a good deal to consumers in developed nations. Goods are cheaper! But over a decade or two or three, as the creation of real wealth is reduced and the residue of the old wealth is spent, the developed nations become progressively poorer and poorer. At the same time, the "developing" nations become wealthier -- because those are the places that are producing real wealth.

Which brings us to Spain and Greece -- and the problem of all developed nations including the USA. So long as globalism continues apace, the transnational corporations and their CEOs will continue to become fabulously wealthy. But, more importantly, they also acquire the political power that comes with that control of economies.

So they tell us that instead of putting back into place tariffs, domestic content laws, and other "protectionist" policies that built America from the time the were first proposed by Alexander Hamilton in 1791 (and largely adopted by Congress in 1793) until they were dismantled by Reagan/Bush/Clinton/Bush, we should instead simple "accept the reality" that we're "living beyond our means" and we have to "cut back our wages and social programs."

In other words, they get richer, our nations become poorer, and national sovereignty is reduced.

Nations -- and in large countries like the USA, even states -- must again rebuild their manufacturing base and become locally self-sufficient, so their own consumers are buying products manufactured by their own workers.

"But won't that make Wal-Mart's stuff more expensive?" whine the flat-earthers.

Yes, it will. But most Americans (and Greeks and Spaniards) would gladly pay 10 percent more for the goods in their stores if their paychecks were 20 percent higher. And manufacturing paychecks have always been higher, because manufacturing is where "true wealth" is generated (thus the basis for most union movements, which further guarantee healthy worker income and benefits).

The transnational corporations benefiting from globalization are also, in most cases, the transnational corporations that own our media, so even the word globalization is rarely heard in reports on economic crises around the world.

But globalization is the villain here, and one that needs to be taken in hand and brought under control quickly if we don't want to see virtually the nations of the world end up subservient to corporate control, a new form of an ancient economic system known as feudalism.

[Tansy_Gold]

55. Regarding the hearts, and the donors

I'm rarely at a loss for words, but this issue of the DU hearts has left me pretty much silent all week. Now that I have a little free time, I want to say a few things, both to those who put those little doodads at the bottom of my posts and those to whom I gave hearts.

First, the people to whom I give these tiny tokens of my esteem. I couldn't donate very much to DU, but enough to distribute some recognition. No, I won't tell you who you are or how many of you got hearts. I wish I could have given more. There are at least 50 DUers I would have liked to honor, for their wisdom, their humor, their knowledge and willingness to share it, for their dedication to finding the information we all need and getting it out here to us. But also for the work these DUers do away from the computer screen, out in the real world where it really counts. :yourock: is probably my favorite DU smiley, and I use it frequently because it's the best way I know to express my frequent admiration for all that you wonderful DUers do. Unfortunately, even though I didn't lose my "job" this past week, I'm still not in the bankster income category so I have to be cautious with my cash. So to those of you who got my hearts, I wish I could have given you much more. And to those of you who didn't get one from me, well, I checked to see that most of you got at least one from someone else anyway. I hope you'll all think of these as collective expressions of truly heartfelt appreciation.

Second, to the people who gave me hearts. Thank you, thank you, thank you a million billion brazilian times. When I saw the first one, I broke down and cried. You're the friends who live in my computer, and I guess I'm a friend who lives in yours, but to me these hearts are the measure of how much we've touched each other's lives in one way or another. I hope that the hearts you've given me will prove to be not only a "reward" for any good I've done in the past but also a reminder to continue to do good in the coming days and weeks and months. I have felt a bit underappreciated the past two weeks because of the stupid, stupid crap going on with this job, and I know that it represents the "real" world and the hearts on DU are, well, kinda fluffy and fuzzy and not real at all and don't buy dog food or pay the electric bill, but once again DU has shown that even what we do in the imaginary world of cyberspace has consequences in the real world. Knowledge is power, the power to change minds and change lives and, yes, even to change hearts.

Thank you. Thank you all.



Tansy Gold

[Demeter]

56. Well Said, and Ditto

Thanks to all the Valentines! You are greatly appreciated.

[DemReadingDU]

58. Ditto

Appreciate the hearts given to me, Thank you cyber friends.

:loveya:

[kickysnana]

59. Ditto. n/t

[Hugin]

64. Yer not getting away that easy!

Come here, you! I'm gonna put a big old sloppy wet heart right there at the bottom of your posts! Hehehehe!

Muhwahahahaha! :evilgrin:


Now! Where's that Demeter! :yoiks:

[Tansy_Gold]

66. .

:yourock:

[ozymandius]

68. I confess.

I am responsible for one - maybe more hearts. They were given in appreciation of your insight, wit and rapier sharp verbal acuity. Your virtual self here naturally evokes respect and affection.

:yourock:

Edited to add my sincere appreciation for all the hearts people have tossed my way. "Secret Admirer" has been really busy over the weekend.

[Dr.Phool]

71. Morning kick!

And thanks for all the lovely hearts. I'd bet almost all of them came from this forum and SMW. Who would have thought that being a big smart-ass was so lovable?

[Dr.Phool]

72. Ow! that hurts.

I just threatened my wife, at dogpoint, that she should buy me some margaritas for Valentines Day.

She said, "OK, but I'll have to look better".

I said, "After a few margaritas, you will". Uh oh

:spank: :spank: :spank: :spank: :spank: :spank: :spank: :spank: :spank: :spank:

[ozymandius]

73. Oh dear.

I hope this wasn't your last post forever, Dr. Phool.

[Po_d Mainiac]

75. A couple are cruising the isles at a supermarket

A pile of suitcase beer tagged at $6.99/case grabs his attention...2 cases get dumped into the cart

"We can't afford that", affirms the wife..Husband removes the brew..

2 isles later the wife grabs a jar of skin cream on sale for $41.50 "wow $10 off" she exclaims

"What's that for" asks the thirsty husband.

"Makes me look younger and more attractive" she affirms.

In idiot mode the husband states "So does beer, and it's cheaper"

Over the loudspeaker..MAN DOWN, bio clean-up and first aid crews please report woman's cosmetics, isle 7

[Po_d Mainiac]

76. remove all sharps from the home ASAP...n/t

[Demeter]

80. Well, Everybody Must Have Overdosed on Chocolate Sunday!

I know I did.

Yes, still on this thread. Happy Presidents' Day everyone. More to follow...

[Tansy_Gold]

103. The only chocolate was the bits on the candy in my

English Toffee Temptation ice cream just before bed.

The BF is a lackwit, so we won't go there.

I'm actually on schedule to finish the paid work -- yes, I still have my little ca$h gig -- early and may have time not only to peruse the wonderful things you post for us but to reply to them as well.



Tansy Gold, watching another lovely day dawn in central Arizona

[Demeter]

81. Asia stocks drop, with many markets closed for holiday; GREECE STILL IN FOCUS

http://www.marketwatch.com/story/asia-stocks-drop-with-many-markets-closed-for-hol-2010-02-15?siteid=YAHOOB

..."Investors were looking ahead to a meeting this week of European Union finance ministers and whether there will be further details on how the EU will help Greece manage its debt problems.

"I think they are going to play hardball with Greece and they are not going to give them money for nothing, but I still think the risk is on the upside in terms of achieving a detailed plan of support," said Patersons Securities Senior Private Client Adviser Chris Blair. ..."

[Demeter]

83. The Inflationary Depression By Bob Chapman

http://www.informationclearinghouse.info/article24642.htm

THIS IS A MASSIVE INVESTOR SUMMARY--I HAVE PICK OUT A FEW ITEMS TO HIGHLIGHT...

...Not only is the US bankrupt, but also so is the rest of the world. It is now only a question of when the dominos will fall. It looks like the first wave in the collapse of the bear market rally is underway. Bonds will follow with higher interest rates and eventually commodities will be hit. Only gold and silver will survive, as the bankers and Wall Street complete their destruction of the world economy....

There is no possibility that quantitative easing can be curtailed and that means debt will continue to grow exponentially. By way of example in 2007 public debt as a percentage of GDP was 62% and this year it will be 94%; in England 44% to 82%; in the G-20 62% to 85%; in Europe an average of 63% to 85%, excepting Italy at 104% to 120%, and in Japan 188% to 227%. Over the next two years some of these nations are going to default, never mind Ireland, Greece, Portugal, Spain and Eastern Baltic Europe, which are well on the way to being basket cases. Due to current economic conditions these nations cannot generate revenue sufficient to even pay the service on the debt. Revenues are off 11% in the US and they are headed lower. In the President’s budget $100 billion is earmarked for incentives for job creation and $25 billion for the states that are generally incapable of even paying unemployment compensation. Forty states are on the edge of bankruptcy. The President wants to double the aid to education in a totally failed system. Governmental debt is growing at a rate of more than 20%. Then we can pencil in the bailout programs and the bankruptcy of Fannie Mae, Freddie Mac, Ginnie Mae, FHA, AIG and GM. The 19 major banks are still insolvent. They are all keeping two sets of books and mark-to- model, not to market. That means their assets are worth what they say they are. The collapse of the credit crisis is still underway. All the kings’ horses and all the kings’ men cannot put America back together again....

Ten banks control 70% of US deposits and they are all broke. The FDIC has $93 billion. 2,055 banks are in serious trouble. If 1,000 go under the cost would be $500 billion. The banks have already paid the FDIC fees due over the next three years. The FDIC does have a $500 billion line of credit with the Treasury and we wonder if government dares use it. Of course the banking cartel – monopoly – the Federal Reserve can always print more money and inflate the debt away.

Sources in Washington tell us the administration expects Congress to pass another $150 billion stimulus plan to augment the new budget. That should carry the economy through the election. It is not the $500 billion the White House had in mind, but it is what they will have to work with. Incidentally, half of what government spends is borrowed.

...Over the past year we have recounted numerous times that there has been no restructuring of the US economy or Europe for that matter. All that has been done is that sovereigns have absorbed trillions of dollars in private sector debt and crappy paper and issued trillions of dollars of debt to support more stimuli and crappy paper absorption.



If we have entered a new crisis phase in which sovereign nations have to bailout out other sovereign by issuing more debt, the final crisis stage will occur when the market revolts against the debt of the nations that bailed out other sovereigns. This is checkmate.

AND MORE DOOM AND GLOOM--HOPE YOU HAVE SOME CHOCOLATE LEFT!

[Demeter]

84. The End of Influence: What Happens When Other Countries Have America's Money

http://www.informationclearinghouse.info/article24653.htm


...Who has the money now? What can they do with it? What are they holding? The smallest big batch of money held by other people is simply cash: greenbacks. Perhaps $450 billion, perhaps more, circulates abroad in cash, in hundred-dollar bills. Some countries, such as Panama and Ecuador, have formally gone over to a dollar economy. In other countries (such as Lebanon), cash dollars are widely used. Then, of course, many individuals and organizations prefer the anonymous convenience of hundred-dollar bills: drug dealers; arms merchants; Russian operators; Argentines and Eastern Europeans with doubts about their local currency; rich and not-so-rich Chinese, who live in a cash economy where the largest Chinese currency note in circulation is 100 yuan (about $15). Though not often discussed in polite company, seigniorage, that is, the ability to coin or print cash (the right held by a feudal seigneur) and have other folks hold it, is valuable: Those who hold the $100 bills have, for many, many years, been providing a substantial loan to the U.S. government -- and it's interest free!

The bigger big batches of dollar-denominated and U.S.-located assets -- and they are very big indeed -- are not cash but are rather investments. A great deal is held by private foreign individuals and organizations: Japanese housewives, German doctors, Scottish pension funds, Dutch companies, Colombian drug lords, Japanese insurance companies, sons of Gulf sheiks, and Russian "businessmen."

This money is private money. It belongs to market players -- people, companies, organizations, and institutions looking for the highest returns at the lowest risk. Much of the money is in the hands of the governments and rulers of oil-producing states (or in the hands of whatever or whoever holds their money). Truly great piles of U.S. obligations are in the hands of the governments of Asia. Japan holds about $1 trillion in reserves (which comes to almost $9,000 per U.S. household). Taiwan, Hong Kong, and Singapore together hold something like $500 billion. Korea sits on another $200 billion.

But it's China that is the biggest holder of U.S. obligations, with some $2.5 trillion in "reserves," the lion's share of it in U.S. debt obligations. America owes unimaginably large amounts of money to lenders (such as China), about $20,000 per American household, three-fourths of China's GDP, a fact worth repeating, a fact that makes rapid repayment impossible.

Proverbs 22:7 instructs us: "The borrower is servant to the lender." But the lesson requires some exegesis to fit smoothly into context. The burden of the U.S. foreign debt may be better explained by the oft-repeated Wall Street wisecrack, which we repeat: When you owe the bank $1 million, the bank has got you; when you owe the bank $1 billion, you've got the bank.

From The End of Influence: What Happens When Other Countries Have the Money by Stephen S. Cohen and J. Bradford DeLong. Excerpted by arrangement with Basic Books, a member of the Perseus Books Group.

[Demeter]

85. A Greek Crisis is Coming to America By Niall Ferguson

http://www.ft.com/cms/s/f90bca10-1679-11df-bf44-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Ff90bca10-1679-11df-bf44-00144feab49a.html%3Fnclick_check%3D1&_i_referer=http%3A%2F%2Fwww.informationclearinghouse.info%2Farticle24650.htm&nclick_check=1

It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate.

There is of course a distinctive feature to the eurozone crisis. Because of the way the European Monetary Union was designed, there is in fact no mechanism for a bail-out of the Greek government by the European Union, other member states or the European Central Bank (articles 123 and 125 of the Lisbon treaty). True, Article 122 may be invoked by the European Council to assist a member state that is “seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”, but at this point nobody wants to pretend that Greece’s yawning deficit was an act of God. Nor is there a way for Greece to devalue its currency, as it would have done in the pre-EMU days of the drachma. There is not even a mechanism for Greece to leave the eurozone.

That leaves just three possibilities: one of the most excruciating fiscal squeezes in modern European history – reducing the deficit from 13 per cent to 3 per cent of gross domestic product within just three years; outright default on all or part of the Greek government’s debt; or (most likely, as signalled by German officials on Wednesday) some kind of bail-out led by Berlin. Because none of these options is very appealing, and because any decision about Greece will have implications for Portugal, Spain and possibly others, it may take much horse-trading before one can be reached.

Yet the idiosyncrasies of the eurozone should not distract us from the general nature of the fiscal crisis that is now afflicting most western economies. Call it the fractal geometry of debt: the problem is essentially the same from Iceland to Ireland to Britain to the US. It just comes in widely differing sizes.

What we in the western world are about to learn is that there is no such thing as a Keynesian free lunch. Deficits did not “save” us half so much as monetary policy – zero interest rates plus quantitative easing – did. First, the impact of government spending (the hallowed “multiplier”) has been much less than the proponents of stimulus hoped. Second, there is a good deal of “leakage” from open economies in a globalised world. Last, crucially, explosions of public debt incur bills that fall due much sooner than we expect

For the world’s biggest economy, the US, the day of reckoning still seems reassuringly remote. The worse things get in the eurozone, the more the US dollar rallies as nervous investors park their cash in the “safe haven” of American government debt. This effect may persist for some months, just as the dollar and Treasuries rallied in the depths of the banking panic in late 2008.

Yet even a casual look at the fiscal position of the federal government (not to mention the states) makes a nonsense of the phrase “safe haven”. US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.

Even according to the White House’s new budget projections, the gross federal debt in public hands will exceed 100 per cent of GDP in just two years’ time. This year, like last year, the federal deficit will be around 10 per cent of GDP. The long-run projections of the Congressional Budget Office suggest that the US will never again run a balanced budget. That’s right, never.

The International Monetary Fund recently published estimates of the fiscal adjustments developed economies would need to make to restore fiscal stability over the decade ahead. Worst were Japan and the UK (a fiscal tightening of 13 per cent of GDP). Then came Ireland, Spain and Greece (9 per cent). And in sixth place? Step forward America, which would need to tighten fiscal policy by 8.8 per cent of GDP to satisfy the IMF.

Explosions of public debt hurt economies in the following way, as numerous empirical studies have shown. By raising fears of default and/or currency depreciation ahead of actual inflation, they push up real interest rates. Higher real rates, in turn, act as drag on growth, especially when the private sector is also heavily indebted – as is the case in most western economies, not least the US.

Although the US household savings rate has risen since the Great Recession began, it has not risen enough to absorb a trillion dollars of net Treasury issuance a year. Only two things have thus far stood between the US and higher bond yields: purchases of Treasuries (and mortgage-backed securities, which many sellers essentially swapped for Treasuries) by the Federal Reserve and reserve accumulation by the Chinese monetary authorities.

But now the Fed is phasing out such purchases and is expected to wind up quantitative easing. Meanwhile, the Chinese have sharply reduced their purchases of Treasuries from around 47 per cent of new issuance in 2006 to 20 per cent in 2008 to an estimated 5 per cent last year. Small wonder Morgan Stanley assumes that 10-year yields will rise from around 3.5 per cent to 5.5 per cent this year. On a gross federal debt fast approaching $1,500bn, that implies up to $300bn of extra interest payments – and you get up there pretty quickly with the average maturity of the debt now below 50 months.

The Obama administration’s new budget blithely assumes real GDP growth of 3.6 per cent over the next five years, with inflation averaging 1.4 per cent. But with rising real rates, growth might well be lower. Under those circumstances, interest payments could soar as a share of federal revenue – from a tenth to a fifth to a quarter.

Last week Moody’s Investors Service warned that the triple A credit rating of the US should not be taken for granted. That warning recalls Larry Summers’ killer question (posed before he returned to government): “How long can the world’s biggest borrower remain the world’s biggest power?”

On reflection, it is appropriate that the fiscal crisis of the west has begun in Greece, the birthplace of western civilization. Soon it will cross the channel to Britain. But the key question is when that crisis will reach the last bastion of western power, on the other side of the Atlantic.

The writer is a contributing editor of the FT and author of ‘The Ascent of Money: A Financial History of the World‘

[Demeter]

86. VIDEO: MAX FABER: Sovereign Debt Crisis Will Spread World-Wide, U.S. Debt Is Unsafe

http://www.informationclearinghouse.info/article24652.htm

[Demeter]

87. A NEW SUBTHREAD: FORECLOSURE REPORTS!

Oh joy.

[Demeter]

88. The Coming Foreclosure and Commercial Real Estate Storms

http://www.cbsnews.com/blogs/2010/02/11/business/econwatch/entry6198016.shtml

When you read that foreclosure filings fell 10% in January from December, don't get too excited. According to Realty Trac, foreclosures are 15% higher than they were a year ago and there's likely to be an increase in foreclosure activity in the next few months, as the government's crappy mortgage modification program continues to fail.

James J. Saccacio, CEO of RealtyTrac noted that "if history repeats itself we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan modification programs or the new short sale and deed-in-lieu of foreclosure alternatives works." In other words, another storm is a-brewing in the housing market.

The continued reluctance of banks to tackle the foreclosure problem is astounding. There's near-universal agreement that principal reduction is the key, but we are left with lame programs, like this one announced yesterday by CitiMortgage. The so-called "strategic non-foreclosure" continues the "extend and pretend" policy that bank lenders have pursued over the past year.

From the banks' point of view, the longer they keep you on the hook, the better it is for them. Avoiding the mess of foreclosure allows them to keep the fictitious valuations on their books and in this new Citi program, ensures that some of the costs of carrying the dud loan get transferred to the borrower, who in all likelihood, will end up defaulting. Some experts believe that a new round of foreclosures could trigger a double-dip in housing prices.

As if the foreclosure mess weren't enough to keep you up at night, today we're also digesting a new report from the Congressional Oversight Panel (that's Elizabeth Warren & Co, the TARP watchdogs) about the looming storm in the commercial real estate market. The report predicts a wave of losses, totaling $200-$300 billion, from commercial real estate loans could "trigger economic damage that could touch the lives of nearly every American."

Here's how the dire analysis plays out: "when commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities." The report reminds us that the failure of community banks would further restrict small business access to capital, just the economic recovery is occurring.

Don't put away those shovels just yet - two potential storms could be coming.

[Demeter]

89. February foreclosure forecast: Bleak to bleaker

http://www.examiner.com/x-30970-Atlanta-Mortgage-Industry-Examiner~y2010m2d12-February-foreclosure-forecast-Bleak-to-bleaker

...This next wave will not be of home owners who purchased using the more dangerous adjustable rate mortgages or other sub-prime loans. Homeowners in this round of foreclosures will consist mainly of mortgagors who have standard, 30 year fixed rate loans including those who made down payments of up to 20% or more....In all with increasing unemployment and housing values down as much as 30% on average nationally and foreclosures exceeding 300,000 for 11 months straight it is difficult to imagine the housing market or economy improving any time soon. Predictions likely are accurate that foreclosures will continue to stay at a higher level as even better prepared home owners begin to default on their loans in the coming months.

[Demeter]

90. Dallas/Fort Worth quarterly foreclosure postings jump 22%

http://dallas.bizjournals.com/dallas/stories/2010/02/08/daily40.html?surround=etf&ana=e_article

[Demeter]

91. Click Here The Biz Beat Metro Atlanta foreclosures skyrocket this month

http://blogs.ajc.com/business-beat/2010/02/08/metro-atlanta-foreclosures-skyrocket-this-month/

[Demeter]

92. Foreclosure numbers may foretell delinquency surge

http://www.startribune.com/business/84070102.html

...January marked the 11th straight month with more than 300,000 properties receiving a foreclosure filing. The numbers could stay above that level as unemployed homeowners who have tried to keep up with their mortgages start missing monthly payments.

Mortgage financier Fannie Mae reported in late January that the rate of borrowers who have a conventional loan on a house and are seriously delinquent was 5.29 percent in November, more than double the rate of 2.13 percent in November 2008. Borrowers are considered seriously delinquent if they are past due by three months or more or are in foreclosure....

[Demeter]

93. US banks facing $1.4tn crisis over commercial property loans

http://www.guardian.co.uk/business/2010/feb/11/banks-crisis-commercial-property-loans

America's fragile high street banks are bracing themselves for a fresh financial crunch as a wave of commercial property mortgages go sour on offices, shops and factories, causing losses of up to $300bn (£192bn) hitting nearly 3,000 small- and medium-sized financial institutions.

A congressional oversight panel charged with scrutinising the Obama administration's bailout efforts has warned that $1.4tn of loans covering commercial premises will reach maturity between 2011 and 2014. After a plunge in property prices, nearly half of these loans are underwater, with borrowers owing more than their underlying property is worth.

An analysis by the panel found that 2,988 of America's 8,100 banks have potentially dangerous exposure to commercial property loans. The impact could damage hopes of a US economic recovery and could cause a further squeeze in the availability of credit to consumers and businesses....

[Tansy_Gold]

130. We've been hearin' this CRE moaning and groaning and doomsaying for

what, a year now? So when is the bust actually gonna, ya know, bust?

I'm tired o' waitin'.





Tansy Gold

[Demeter]

95. Credit Suisse Declares the U.S. a Riskier Investment Than Indonesia

POT CALLING THE KETTLE BLACK?

http://washingtonindependent.com/76529/credit-suisse-declares-the-u-s-a-riskier-investment-than-indonesia

Amid fears that Switzerland might come to an agreement with the United States on banking privacy and tax evasion disclosures, Credit Suisse issued a report identifying those countries it determined to have the highest risks of default on their sovereign debts. Number 16 on the list was the United States, based primarily on its 2009 budget deficits and government debt.

Countries ranked less likely to default include corruptocracy Kazakhstan, less-than-reform-minded Indonesia, the debt-ridden Philippines and violence-ridden Colombia...

[Demeter]

96. Welcome to boarded-up Britain: One in eight shops now stand empty as recession hits high streets

http://www.dailymail.co.uk/news/article-1250214/One-shops-stand-recession-hits-Britains-high-streets.html

[proudohioan]

105. Looks like East Cleveland.

[Demeter]

107. Or Any Main St. in Michigan

[proudohioan]

112. Yeah, I hear you there......

it just breaks my heart to see the utter (and totally unnecessary) devastation that's taken place in our inner-cities and inner-ring suburbs. It almost looks like a war zone.

[Demeter]

97. Collapse of the euro is 'inevitable': Bailing out the Greek economy futile says FRENCH banking chief

http://www.dailymail.co.uk/news/worldnews/article-1250433/Greece-debt-bailout-EU-leaders-split-euro-crisis.html

The European single currency is facing an 'inevitable break-up' a leading French bank claimed yesterday.

Strategists at Paris-based Société Générale said that any bailout of the stricken Greek economy would only provide 'sticking plasters' to cover the deep- seated flaws in the eurozone bloc...

Read more: http://www.dailymail.co.uk/news/worldnews/article-1250433/Greece-debt-bailout-EU-leaders-split-euro-crisis.html#ixzz0fbiFfEDu

[Demeter]

98. It Is Too Late To Prevent The Collapse Of The G-7

http://www.informationclearinghouse.info/article24675.htm

Greece Is Irrelevant, We Are All Now Insolvent By Tyler Durden

ZeroHedge: -- For Greece, with on and off balance sheet liabilities at over 800%, it's game over. For the Eurozone, with the same ratio at about 500%, it is also game over. For the US, at 500%+, it is, you guessed it (sorry Joseph Stiglitz), game over, but since we have the printers, it will simply take a little longer. Following up on yesterday's popular post on prevailing delusions as captured by Albert Edwards' colleague Dylan Grice, we present Albert's latest outlook. Please don't read this if you want to keep believing there is any hope left for the (developed) world.

But first some aeral photography from Dylan Grice, indicating just how far the US government is willing to go to get the population stoked about owning fixed (shouldn't it be called broken really?) income. With British QE over, and the country still to implement the same criminal annuitizing of 401(k)s that Uncle Sam is contempltating in order to make "Buy Bonds" a "voluntary" option one can't really decline, maybe letters on modern architecture building blocks is all that would works. As Edwards says: "I'm not sure leaving man-sized building blocks around the City of London is really going to make an awful lot of difference, but I suppose when your public sector deficit is around 13% of GDP, every little bit helps!"

So back to Greece, the Eurozone, and policy response in general, Edwards places the causes (and "solutions") of the escalating problem precisely where it belongs: at the core of the Keynesian systemic outlook flaw.

A major divergence of views in the market at the moment concerns what governments should be doing with their outsized fiscal deficits. Economists seem to be polarised between those who think governments should be rapidly cutting fiscal deficits to avoid impending insolvency and/or a surge in bond yields, and those who believe this will be totally counterproductive and that deficits should stay very large. Behind this controversy probably lies the key to the economic outlook.

To Edwards, and to ever more hedge fund investors judging by the jump back in Greece Bund spreads which just broke the most recent technical resistance level of 300 bps, Greece is nothing more than Russia and LTCM (or Bear Stearns as the case may be).

The situation in Greece following hard on the heels of similar solvency issues in Dubai feels to me very much like the Russian default and LTCM blow-up in 1998. For the blow-ups that year were a direct follow-on from the Asian crisis a year earlier a different chapter in the same book. There will be more crises to follow Greece, both inside and outside of the eurozone.

The outcome of broken Keynesian policy (by definition) will be ugly, and will destroy the eurozone. We said it some time ago, and SocGen has now also confirmed this bearish perspective.

My own view of developments, for what it is worth, is that any "help" given to Greece merely delays the inevitable break-up of the eurozone. But, for me, the problem is not the size of the government deficit and the solvency or otherwise of the governments in the PIGS (Portugal, Ireland, Greece and Spain - we deliberately exclude Italy).

The problem for the PIGS is that years of inappropriately low interest rates resulted in overheating and rapid inflation, even though interest rates might well have been appropriate for the eurozone as a whole. Rapid inflation has led to overvalued bilateral real exchange rates (they do still notionally exist) for the PIGS and in most cases yawning double-digit current account deficits. With most trade done with other eurozone countries, the root problem for the PIGS is lack of competitiveness within the eurozone – an inevitable consequence of the one size fits all interest rate policy. Even if the PIGS governments could slash their fiscal deficits, as Ireland is attempting, to maintain credibility with the markets in the short term, the lack of competitiveness within the eurozone needs years of relative (and probably given the outlook elsewhere, absolute) deflation. Hence the PIGS public sector deficit will inevitably remain large as a direct consequence of this weak growth outlook.

As noted earlier on Zero Hedge, in Europe the population is a little less brainwashed by the moronic happenings on prime time TV, so while in America the destruction of the economic system, as trillions are transferred to the kleptocracy which knows fully well the end game is nigh, results in some sighs of desperation at best, in Europe the outcome will be somewhat more violent.

In my opinion this will not be tolerated by the electorates in these countries. Unlike Japan or the US, Europe has an unfortunate tendency towards civil unrest when subjected to extreme economic pain. Consigning the PIGS to a prolonged period of deflation is most likely to impose too severe a test on these nations. And the political "consensus" within the PIGS to remain in the eurozone could falter in the face of another of Europe's unfortunate tendencies -the emergence of small extreme parties to take advantage of any unrest. My own view is that there is little "help" that can be offered by the other eurozone nations other than temporary confidence-giving "sticking plasters" before the ultimate denouement: the break-up of the eurozone.

And in case you were wondering why all European leaders are powerless to provide a bailout proposal that actually has a snowball's chance in hell of doing something/anything to help Greece, read on. Alternatively, if you want to find out why any plan suggested on Monday will be thoroughly useless and once digested by the market will cause another major crash, read on as well.

The pressure to tighten fiscal policy from current nose-bleed levels of deficits is not just an issue for crisis hit Greece. It is an issue for virtually all economies. It is a particular issue for the US and UK with structural (cyclically adjusted) general government deficits of almost 10% of GDP (according to the OECD)! There is a ferocious debate ongoing between those who believe there needs to be a rapid reduction in these deficits to avoid some combination of insolvency/default/rapid inflation and those who believe that there should be even more fiscal stimulus. The debate is loud and opinions are tending to be polarised.

My own view on this is that obviously we should never have got into this wholly avoidable mess in the first place. But having got here, there really is no way out that does not trigger a major market-moving upheaval. Ultimately economic prosperity over the past decade has been a sham: a totally unsustainable Ponzi scheme built on a mountain of private sector debt.GDP has simply been brought forward from the future and now it's payback time. The trouble is that, as the private sector debt unwinds, there is no political appetite to allow GDP to decline to its "correct" level as this would involve a depression. So burgeoning public sector deficits and Quantitative Easing are required to maintain the fig-leaf of continued prosperity.

And here is the topic that will dominate over all pundit round table discussions in the next weeks: the entire world is insolvent, although some are more insolvent than others. Greek total net liabilities (on and off balance sheet) to GDP are 800%! EU: at 470%, the US, at over 500%. There is no way out but default....

MORE DOOM AND GLOOM AND GLOAT AT LINK

[Tansy_Gold]

118. And the very term "Ponzi scheme" is used to describe it

If there are only two alternatives -- "cutting deficit" and "spending spending spending" -- why is the solution never to raise taxes on the rich?

The whole world isn't insolvent. AIG paid out huge bonuses. Goldman Sachs paid out huge bonuses. The rich continue to get richer no matter what.

So what if "the markets" experience some turmoil? If that's the price for returning the world to sanity, I'd say it's a fucking bargain. It beats a 1789-style revolution all to hell




Tansy Gold

[Demeter]

99. The Retrogression New Phase, Not Just Another Recession By Ismael Hossein-zadeh

http://www.informationclearinghouse.info/article24670.htm

It is becoming increasingly clear that the financial meltdown of 2008 and the subsequent economic contraction that continues to this day represent more than just another recessionary cycle. More importantly, they represent a structural change, a new phase, the phase of the dominance of “finance capital,” as the late Austro-German political economist Rudolf Hilferding put it.

Although the current domination of our economy by finance capital seems new, it is in fact a throwback or “retrogression” (as financial expert Michael Hudson puts it) to the capitalism of the late 19th and early 20th centuries, that is, the capitalism of monopolistic big business and gigantic financial institutions. The rising economic and political influence of powerful financial interests in the early 20th century led a number of political economists (such as John Hobson, Rudolf Hilferding and Vladimir Lenin) to write passionately on the ominous trends of those developments—developments that significantly contributed to the eruption of the two World Wars and precipitated the devastating Great Depression of the 1930s, by creating an unsustainable asset price bubble in the form of overblown stock prices.

The harrowing experience of the Great Depression, followed by the devastating years of World War II, generated momentous social upheavals and extensive working class struggles worldwide. The ensuing “threat of revolution,” as F.D.R. put it, and the “menacing” pressure from below prompted reform from above—hence, the New Deal reforms in the US and socialist/Social-Democratic reforms in Europe. Combined, these historic developments significantly curtailed the size and the influence of big business and powerful financial interests—alas, only for a while.

As those reforms saved Western capitalism from more radical social changes, they also provided grounds for its regeneration and expansion. By the 1970s, finance capital, headed by major US banks, had risen, once again, to its pre-Depression levels of concentration, of controlling the major bulk of national resources, and of shaping economic policy. Since then, big banks have created a number of financial instabilities and economic crises—usually through predatory, sub-prime loan pushing or unsustainable debt bubbles. These include the “Third World debt crisis” of the 1980s and 1990s, the 1997-98 financial crises in Southeast Asia and Russia, the tech or dot.com bubble of the 1990s in the U.S. and other major market economies, and the latest, housing/real estate bubble that burst in 2008.

A number of characteristics distinguish the stage of the dominance of finance capital from lower phases of capitalist development. Under liberal capitalism of the competitive industrial era, a long cycle of economic contraction would usually wipe out not only jobs and production, but also the debt burdens that were accumulated during the long cycle of expansion that preceded the cycle of contraction. In the stage of finance capital, however, debt overhead is propped up through its monetization, or socialization, even during a most severe financial meltdown such as that which occurred in 2008. Indeed, due to the influence of the powerful financial interests, national or taxpayers’ debt burden is further exacerbated by the government’s generous bailout plans of the bankrupt financial giants, that is, by simply transferring or converting private to public debt.

In The Class Struggle in France, Karl Marx wrote, “Public credit rests on confidence that the state will allow itself to be exploited by the wolves of finance.” Today we see more clearly how the “wolves of finance” are hollowing out national treasuries and subjecting governments to unsustainable debt burdens. This explains the near bankruptcy not only of the US Government but also of many of the European states, especially those of Greece, Ireland, Spain, Portugal and a number of East European countries. Proposed government “solution” in all these cases is to have the general public pay for the gambler’s debt—in the form of extensive cuts in essential social programs and drastic reductions in living standards.

A major hallmark of the age of finance capital is domination of the State and/or political process by the financial oligarchy. Bank- or finance-friendly policies of the government have been facilitated largely through generous pouring of money into the election of “favorite” policy makers. Extensive deregulations that led to the 2008 financial crisis, the scandalous bank bailout in response to the crisis, and the failure to impose effective restraints on Wall Street after the crisis can all be traced to Wall Street's political power. Wall Street spent more than $5 billion on federal campaign contributions and lobbying from 1998 to 2008, and its fervent spending on the purchase of politicians continues unabated.

Michael Hudson, Distinguished Research Professor at University of Missouri (Kansas City), aptly calls this ominous process of the buying out of policy-makers by major contributors to their election “privatization of the political process.” Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan administration, likewise argues that the political system “is monopolized by a few powerful interest groups that…have exercised their power to monopolize the economy for the benefit of themselves.”

Such sentiments regarding the class nature of the State are corroborations of Vladimir Lenin’s characterization of the capitalist state as “the executive committee of the ruling class.” Lenin was often scoffed at by the capitalist ruling elites when he made this statement over ninety years ago; they deviously dismissed him as having overstated his case. Perhaps it is time to dust off and read old copies of Lenin’s The State and Revolution, if only to better understand the incestuous politico-business relationship between the State and the financial oligarchy of our time.

Another hallmark of the stage of finance capital is that, under the influence of the powerful financial interests, government intervention in national economic affairs has come to essentially mean implementation of neoliberal or supply-side restructuring policies. Government and business leaders have for the last several decades used severe recessionary cycles as opportunities to escalate application of neoliberal economic measures in order to reverse or undermine the New Deal reforms. Naomi Kline has called this strategy of using periods of economic crisis to reverse the gains of the New Deal and other reform programs “the shock doctrine”—a strategy that takes advantage of the overwhelming crisis times to apply supply-side austerity programs and redistribute national resources from the bottom up. This explains how under the Bush-Obama administrations the financial oligarchy has been able to use the failure of the Lehman Brothers and the specter of “apocalyptic” failure of other financial giants to extract their gambling losses from the public purse.

It is generally believed that neoliberal supply-side economic policies began with the election of Ronald Reagan as the president. Evidence shows, however, that efforts at undermining the New Deal economics in favor of returning to the old-time religion of market fundamentalism began long before Reagan arrived in the White House. As Alan Nasser, emeritus professor at the Evergreen State College in Olympia (Washington), points out, “The foundations of neoliberalism were established in economic theory by liberal Democrats at the Brookings Institution, and in political practice by the Carter administration.”

Neither President Clinton changed the course of neoliberal corporate welfare policies, nor is President Obama hesitating to carry out those policies. His administration has made available more than $12 trillion in cash infusions, loans and guarantees to the financial industry, but for state governments that are facing massive budget deficits, it has thus far provided only one quarter of 1 percent of that amount in federal stimulus funds—about $30 billion. The White House is sitting by while states across the country lay off workers and slash spending on education, health care and other essential social programs.

The left/liberal supporters of President Obama who bemoan his “predicament in the face of brutal Republican challenges” should look past the president’s liberal/populist posturing. Evidence shows that, contrary to Barack Obama’s claims, his presidential campaign was heavily financed by the Wall Street financial titans and their influential lobbyists. Large Wall Street contributions began pouring into his campaign only after he was thoroughly vetted by the powerful Wall Street interests and was deemed a viable (indeed, ideal) candidate for presidency.

On ideological or philosophical grounds too President Obama is closer to the neoliberal, supply-side tradition than the New Deal tradition. This is clearly revealed, for example, in his The Audacity of Hope, where he shows his disdain for “...those who still champion the old time religion, defending every New Deal and Great Society program from Republican encroachment, achieving ratings of 100% from the liberal interest groups. But these efforts seem exhausted…bereft of energy and new ideas needed to address the changing circumstances of globalization. . . .” It is no accident that Mr. Obama has surrounded himself by neoliberal economic experts and financial advisors such as Larry Summers, Timothy Geithner, and Ben Bernanke.

Not only has the major bulk of the Obama administration’s anti-recession assistance been devoted to the rescue of the Wall Street financial magnates, but also the relatively small stimulus spending is funneled largely through the Wall Street (mainly through generous government loans and tax incentives) in the hope that this would create jobs. This stands in sharp contrast to what F.D.R. did in the earlier years of the Great Depression: creating jobs directly and immediately by the government itself.

The main purpose of the administration’s (or, shall we say, of the ruling kleptocracy, both Democratic and Republican) strategy of delaying direct job creation is to stall, and fraudulently keep the hopes of the unemployed alive, until the massive supply-side corporate welfare giveaways would eventually begin to gradually trickledown and slowly create jobs. In the absence of compelling pressure from below, this neoliberal scheme of further weakening the working class may eventually succeed. But even if successful, the jobs thus created would be supply-side jobs, subsistence or below-subsistence jobs, which would be grabbed by desperate workers at any price/wage, not union jobs that would pay decent wages and benefits.

Political theatrics within the ruling circles over “how to create jobs” should not mask the fact that delays in job creation are deliberate: they are designed to further subdue American workers and bring down their wages and benefits in line with those of workers in countries that compete with the U.S. in global workers. It is part of the insidious neoliberal race to the bottom, to the lowest common denominator in terms of international labor costs. It is, indeed, an application of the IMF’s notorious Structural Adjustment Program of austerity measures that have been vigorously pursued in many less-developed countries for decades—with disastrous results.

It is no accident that President Obama frequently pleads with the unemployed Americans to “be patient,” and “keep hope alive.” What he really means to say is: “look, we have invested trillions of dollars through bailout schemes and other supply-side recovery measures. So, please be patient and wait until they come to fruition and benefit you through trickledown effects.” At least, Ronald Reagan had the honesty and integrity to explicitly defend or promote his supply-side philosophy. Perhaps that is why Barack Obama can be called Ronald Reagan in disguise.

In the wake of the 2008 financial meltdown, many left/liberal economists envisioned an opportunity: a reversion back to the Keynesian-type economic policies. One year later, it is increasingly becoming clear that such expectations amounted to no more than wishful thinking—a dawning recognition that, regardless of the resident of the White House, economic policies are nowadays heavily influenced by the powerful financial interests.

The view that economic policy would be switched back to the Keynesian or New Deal paradigm by default stems from the rather naïve supposition that policy making is a simple matter of technical expertise or economic know-how, that is, a matter of choice—between good or “regulated capitalism” and bad or “neoliberal capitalism.” A major reason for such hopes or illusions is a perception of the State that its power is above economic or class interests; a perception that fails to see the fact that national policy-making apparatus is largely dominated by a kleptocratic elite that is guided by the imperatives of big capital, especially finance capital.

Historical evidence shows, however, that more than anything else the Keynesian or New Deal reforms were a product of the pressure from the people. Economic policy-making is not independent of politics and/or policy-makers who are, in turn, not independent of the financial interests they are supposed to discipline or regulate. Stabilization, restructuring or regulatory policies are often subtle products of the balance of social forces, or outcome of the class struggle. Policies of economic restructuring in response to major crises can benefit the masses only if there is compelling pressure from the grassroots. In the absence of an overwhelming pressure from below (similar to that of the 1930s), Keynesian or New Deal economic reforms could remain a (fondly-remembered) one-time experience in the history of economic reforms.

Ismael Hossein-zadeh, author of The Political Economy of U.S. Militarism, teaches Economics at Drake University, Des Moines, Iowa.

[bread_and_roses]

101. "a kleptocratic elite" - about sums it up

I was - don't ask me why, masochism I guess - browsing other fora here and came across the woo-hooing over Biden vs Cheney - as if a TV appearance made any difference at all to anything. As if it were anything but some fluff and fodder for the talking heads. I almost posted a reply to that effect, but then thought, what's the use? Anyone who can view Mr. Credit Card Company as some sort of hero has blinkers on bigger than those they use on draft horses.

It comes down to this, and nothing but this: Obama and the Democratic majority went into office with the people behind him and the power to create a massive jobs/infrastructure/green economy program, the power to control the banks, and the power to enact universal health care. They didn't. Instead, trillions of $$ of the people's wealth has been transferred to the Banksters.

That's it. That's all there is.

It is indeed a hard rain a-comin'

[DemReadingDU]

104. It is indeed a hard rain a-comin'

When something financial comes up in my circle of family and friends, I try to tell them we are living in a global financial Ponzi. And someday it will implode because all Ponzis do.

I ask them if the remember hearing about Bernie Madoff? Oh yeh, they say his victims lost all their money. Yep that is what will happen when the global financial Ponzi implodes...we will all become like Bernie Madoff's victims.

Most just roll their eyes, still disbelieving me.

[bread_and_roses]

106. Send them this: "The Economic Elite Have Engineered an Extraordinary Coup"

http://www.alternet.org/economy/145667/the_economic_elite_have_engineered_an_extraordinary_coup%2C_threatening_the_very_existence_of_the_middle_class

Current statistical societal indicators clearly demonstrate that a strategic attack has been launched and an analysis of current governmental policies prove that conditions for 99 percent of Americans will continue to deteriorate. The Economic Elite have engineered a financial coup and have brought war to our doorstep...and make no mistake, they have launched a war to eliminate the U.S. middle class...

Casualties of Economic Terrorism, Surveying the Damage

The devastating numbers across-the-board on the economic front are staggering...

America is the richest nation in history, yet we now have the highest poverty rate in the industrialized world with an unprecedented amount of Americans living in dire straights and over 50 million citizens already living in poverty.

The government has come up with clever ways to downplay all of these numbers, but we have over 50 million people who need to use food stamps to eat, and a stunning 50 percent of U.S. children will use food stamps to eat at some point in their childhoods. Approximately 20,000 people are added to this total every day. In 2009, one out of five U.S. households didn't have enough money to buy food. In households with children, this number rose to 24 percent, as the hunger rate among U.S. citizens has now reached an all-time high.

We also currently have over 50 million U.S. citizens without health care. 1.4 million Americans filed for bankruptcy in 2009, a 32 percent increase from 2008. As bankruptcies continue to skyrocket, medical bankruptcies are responsible for over 60 percent of them, and over 75 percent of the medical bankruptcies filed are from people who have health care insurance. We have the most expensive health care system in the world, we are forced to pay twice as much as other countries and the overall care we get in return ranks 37th in the world.

In total, Americans have lost $5 trillion from their pensions and savings since the economic crisis began and $13 trillion in the value of their homes. During the first full year of the crisis, workers between the age of 55 - 60, who have worked for 20 - 29 years, have lost an average of 25 percent off their 401k. "Personal debt has risen from 65 percent of income in 1980 to 125 percent today." Over five million U.S. families have already lost their homes, in total 13 million U.S. families are expected to lose their home ...

He goes on...incarceration rates, the real unemployment numbers, the over-work and under-payment of those who still have a job....

The compilation is beyond staggering. And this is only part 1!

[Demeter]

109. We Need to Use Economic Jujitsu

and let the banksters overthrow themselves...

Jujutsu (柔術, jūjutsu?), ("jujitsu") or Jiu-Jitsu, literally meaning the "art of softness", or "way of yielding", is a collective name for Japanese martial art styles including unarmed and armed techniques. Jujutsu evolved among the samurai of feudal Japan as a method for defeating an armed and armored opponent without weapons. Due to the ineffectiveness of striking against an armored opponent, the most efficient methods for neutralizing an enemy took the form of pins, joint locks, and throws. These techniques were developed around the principle of using an attacker's energy against him, rather than directly opposing it.<1>

http://en.wikipedia.org/wiki/Jujutsu

And once the banksters are down, we have to take on the politicians. Without their muscle boys, it ought to be easy....

[DemReadingDU]

111. and lobbyists, and CEOs too.

[DemReadingDU]

110. Looking forward to Part 2

That is amazing documentation, bookmarking it. Unfortunately, nobody I know will read it, they have other priorities...too busy with work, kids, hobbies, exotic vacations. For what is going on today, ignorance is not bliss.

[Demeter]

108. An Excellent Post Mortem for 2009

It seems just about hopeless, as far as top-down goes.

[Demeter]

100. The Monopolization of America By Russell Mokhiber

"Corporate Crime Reporter" http://corporatecrimereporter.com/barrylynn021310.htm

You walk into your local convenience store and head to the cold walk-in beer room in the back.

The choice is overwhelming.

Budweiser, Michelob, Bud Light, Busch Light, Stella Artois, Grolsch, Kirin,Tsingtao, Corona, Negra Modelo, Rolling Rock, Widmer, Miller and Coors.

In fact, all of these beers are controlled by two companies.

MillerCoors under the direction of South African Breweries (SAB) and AnheuserBusch In Bev.

Two multinational corporations controlling the beer choices of 300 million Americans.

And it's not just beer.

One single multinational corporation dominates the world supply of eyeglass stores.

One dominates the milk supply.

Barry Lynn goes down the list of industries.

And he finds a similar story across the board.

A handful of multinational corporations controlling each industry - or the supply chains of each industry.

Such dominant monopolies were illegal just thirty years ago.

But that all changed with Ronald Reagan and Robert Bork.

A corporatist oligarchy took hold.

President Obama has promised aggressive antitrust enforcement.

But Lynn says it's pie in the sky.

"It will take more than a lawsuit or two to overthrow America's corporatist oligarchy and restore a model of capitalism that protects our rights as property holders and citizens," Lynn argues in his new book - Cornered: The New Monopoly Capitalism and the Economics of Destruction (Wiley, 2010).

Antitrust law was developed to protect the political economy from extreme concentrations of corporate power.

Then came Reagan and Bork.

In 1978, Bork said we should have a consumer welfare test.

If economic concentration is good for the consumer - think Wal-Mart - then let it be.

Never mind the citizen.

In 1981, William Baxter, head of Reagan's Antitrust Division, announced that he would be guided by "an efficiency test."

"When Baxter first talked to the press in 1981, he said - we are going to impose an efficiency test," Lynn told Corporate Crime Reporter last week. "Those were the words he used. It was only a little bit later that they framed it as a consumer welfare test. And Robert Bork came up with that. Bork's book - The Antitrust Paradox - came out in 1978 and he floated this idea of a consumer welfare test."

"It took Baxter a couple of years to get the messaging together. They locked into the consumer welfare test. And it helped to bring along so many folks in the consumer movement. And for some reason, after focusing on safety, which is a fantastic thing that Ralph Nader did, they began fixating on prices. And there is a whole political analysis as to why they began fixating on prices. What groups were they targeting with that fixation?"

"In 1981, that marked a revolutionary change in how we applied our anti-monopoly laws. No longer was the primary consideration political. The primary consideration was prices and consumer welfare."

Lynn says that Bork didn't understand why the consumer movement didn't come after him on the consumer welfare test.

"In 1993, Bork put out a second edition of the Antitrust Paradox," Lynn said. "And in the introduction, he says - I don't understand what happened here. I thought the socialists were doing to come out and fight us tooth and nail on this. And they never did. We didn't think we were going to get this through. And we did." Mention the word "socialist" in this context, and Lynn sees red.

"In this country, the group that tends to point its finger and calls the other people socialists most effectively tends to win," Lynn said.

"And when they win - they get to socialize their own risks."

"So, you have this elite in this country that for a generation has been raving about socialism."

"And what were they doing in the meantime? They were socializing all of their risks."

"As was laid bare to us in September 2008. Larry Summers put it best - what the bankers did, he said, was they privatized all of their profits and socialized all of their risks."

"You really have to target the other people and call them socialists."

"We have just seen the most massive era of socialization in this country that we've ever seen."

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. He is also founder of singlepayeraction.org.

[DemReadingDU]

102. toon: American Idle

http://3.bp.blogspot.com/_nSTO-vZpSgc/S3gfhsNuPnI/AAAAAAAAH08/GKSR_0uXaFY/s400/Sunday+Funnies+2010-02014+American+Idle.jpg


http://globaleconomicanalysis.blogspot.com/2010/02/mish-sunday-funnies-2010-02-14-american.html

[Demeter]

114. BATTLE OF THE BEANCOUNTERS: Deloitte chief reignites accounting debate

http://www.ft.com/cms/s/0/a9f70208-19aa-11df-af3e-00144feab49a.html

Two of the world’s biggest accounting firms are reigniting the dispute over the way banks account for losses – raising doubts over the long-awaited convergence of global reporting standards.

Jim Quigley, global head of “Big Four” accounting firm Deloitte Touche Tohmatsu, has proposed that banks account for losses in two radically different ways to meet the opposing demands of politicians and accountants.

He has told the Financial Times he is an “advocate” of banks making loan loss provisions for “incurred losses” separately from “expected losses” – and reporting them in two different lines in their accounts.

However, PwC, the world’s largest accounting firm, has criticised the proposal, saying it would “muddy the waters”.

Mr Quigley’s proposal comes as accountants are grappling with politicians and regulators over how banks make provision for their losses in the wake of the financial crisis. The lack of consensus threatens agreement on a global set of accounting standards by mid 2011 – an aim of the Group of 20 nations – and follows disputes over the use of fair value or mark-to-market accounting, experts say.

Politicians and regulators have blamed the current system of “incurred losses” – whereby companies may make provision for loan losses only as these occur – for exacerbating the crisis by encouraging a cyclical approach to risk management.

But that view is questioned by many accountants and bankers who argue that “incurred losses” give investors clarity. Accountants and bankers are sceptical about the “expected loss” model, which they fear raises the risk of “cookie jar” accounting, whereby executives put funds aside during years of bumper profits only to release them later to cover up bad performance.

Mr Quigley told the FT: “One way we can bridge some of the current conflicts in financial reporting is with transparency. The two-line idea accomplishes that transparency objective.”

However, PwC has said it is opposed to putting two lines in the income statement.

The debate over the use of “expected losses” centres on whether banks should judge their provisioning over a matter of months or over the life cycle of the loan – and whether the provisions should be taken through profit and loss.

[Demeter]

115. Asia to reverse IT outsource trend

http://www.ft.com/cms/s/2/da68826a-19a3-11df-af3e-00144feab49a.html

Spending on IT outsourcing will grow faster among Asian companies than their western counterparts in 2010, Dell Services estimates, reversing the trend of recent years that has seen more western groups buying services from India and China.

Jim Champy, chairman of Dell Services’ consulting practice, says IT outsourcing is set to rise in Asian markets as the region’s companies begin to modernise their business processes and technology systems in a build-out that could last decades.

“We see, as most providers do, the Asian markets growing faster – clearly more than Europe, and certainly faster than the US,” Mr Champy told the Financial Times.

“What it would feel like to me is two to three times faster, percentage-wise.”

His comments come as the IT and business process outsourcing industry, which handles everything from computer systems and software to billing and customer records, is seeking a different direction following the economic crisis.

At India’s principal IT conference last week, organised by the industry body Nasscom, a report by KPMG and the Asian-Oceanian Computing Industry Organisation predicted a sharp rise in Asia’s share of the world’s IT services spend.

It forecast that Asia would account for 26.3 per cent of the global consumption of IT and business-process outsourcing services in the next decade, up from nearly 20 per cent currently.

This increase represents a reversal of the trend whereby Indian IT companies have sent executives to developed markets to try to steal business from established western outsourcing consultancies, such as IBM and Accenture.

The Indian outsourcing industry has thrived as a result. Over the past two decades, it has grown into a multibillion-dollar industry that Nasscom expects to generate exports of $56bn by March next year.

[Demeter]

116. Investors abandon junk bonds

http://www.ft.com/cms/s/0/76bdffbc-19a1-11df-af3e-00144feab49a.html

Investors are selling out of “junk” bonds at the fastest rate since September 2005, in the latest indication that concerns over sovereign debt are spreading to other credit markets.

In the week that ended on Wednesday, nearly $1bn was withdrawn from US funds that hold high-yield corporate bonds (junk bonds), according to Lipper FMI – the largest outflow in almost four and a half years.

As a result, the past month has seen the biggest sell-off of US junk bonds since the equity market bottomed out in March 2009, said Martin Fridson, chief executive of Fridson Investment Advisors, which specialises in high-yield bonds.

Spreads – the difference between the yields on junk bonds compared with US Treasury bonds – have widened by more than 100 basis points since January 11, and now stand at about 700 basis points, as measured by the Bank of America Merrill Lynch Index.

“Though corporate fundamentals are quickly improving, credit is not immune from sovereign risks,” noted analysts at Morgan Stanley.

“If the result of sovereign problems is fiscal tightening and higher rates, a double-dip recession becomes an increasing possibility. This outcome would dent, if not fully derail, the ­positive trend in corporate ­fundamentals.”

Junk bonds, issued by com­panies with credit ratings below investment grade, soared in price last year as investors poured more than $30bn into bond funds, in search of higher returns at a time when official interest rates were at all-time lows. This demand for higher yields led to record bond issuance, allowing even cash-strapped companies to ­refinance.

That meant fewer corporate defaults than had been feared – creating a virtuous circle that saw the returns for early junk-bond investors exceed 50 per cent.

However, in the last week, US high-yield bond funds and exchange-traded funds saw outflows of $984m – the highest since the week of September 28 2005, according to Lipper FMI. The redemptions pushed the trailing four-week average sales figure to an outflow for the first time since March.

The net asset value of bond funds tracked by Lipper fell $1.6bn in the week, owing to market declines, the largest such drop since November 2008 in the thick of the downturn.

Whether the outflows signal the end of the junk-bond rally depends on whether the financial problems in Greece are resolved or spread, Mr Fridson said. ”If the problem persists or worsens, it would be bad news for every ’risky’ asset out there, including high-yield bonds.”

But he added: ”People may be surprised at how fast the market snaps back because it is still so punitive for investors to remain in cash.”

[Demeter]

117. SEE THIS "EXTRA" ON GREEK FRAUD

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=4269781&mesg_id=4269781

ANOTHER SHAMELESSLY STOLEN ITEM

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x4269861

ON SPECULATORS ATTACKING SPAIN

[ozymandius]

120. Goldman Goes Rogue – Special European Audit To Follow

...
We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November. These actions are fundamentally destabilizing to the global financial system, as they undermine: the eurozone area; all attempts to bring greater transparency to government accounting; and the most basic principles that underlie well-functioning markets. When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail. ...

Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way.

But the affair is now out of Ben Bernanke’s hands, and quite far from people who are easily swayed by the White House. It goes immediately to the European Commission, which has jurisdiction over eurozone budget issues. Faced with enormous pressure from those eurozone countries now on the hook for saving Greece, the Commission will surely launch a special audit of Goldman and all its European clients.

This audit should focus on ten sets of questions.

1. Which eurozone governments have worked with Goldman, and on what basis, over the past decade? All actions prior to and after the introduction of the euro need to be thoroughly reexamined.

2. What transactions has Goldman facilitated and how has that affected the reporting of European government debt? (Under the Maastricht Treaty, eurozone government debt is not supposed to exceed 60 percent of GDP.)

3. In the case of Greece, the accusation is that Goldman deliberately and in a premeditated manner conspired to hide the true degree of government debt. Is this true, and to what extent has Goldman helped other countries engage in similar transactions, e.g., countries now seeking entry to the eurozone?

4. What is the full extent of Greek and other government liabilities, if these are accounted for properly? Without this reckoning, it is impossible to design a proper level of European Union (or any other) support for weaker eurozone countries.

5. Are there non-eurozone countries that have also been aided and abetted by Goldman in this fashion? For example, are the UK and Switzerland implicated – and thus endangered?

6. Has Goldman extolled the virtues of government debt in Greece, or other countries, while at the same time helping to deceive investors on the true risks inherent in those debts? What were Goldman’s own holdings of these securities?

7. Is there evidence that Goldman has structured similar transactions for the private sector – enabling companies to conceal the level of their true indebtedness? Have securities issued by such firms also been endorsed by Goldman to the buying public?

8. Were Goldman’s US-based supervisors aware of Goldman’s activities in Greece and other eurozone countries? Did they condone activities that undermine the integrity of the European Union?

9. Where was the European Central Bank while all of this was happening? Has the ECB become dangerously enraptured with the new Wall Street and its “techniques”?

10. Did any responsible official really think that what Goldman was constructing was really some sort of productivity-enhancing financial innovation – as opposed to a sophisticated form of scam?

The Federal Reserve must cooperate fully with this investigation. Ordinarily, the Fed might be tempted to sit on useful information, but they can now feel themselves in Senator Bob Corker’s crosshairs. Republican Senator Corker is willing to cooperate with Senator Dodd on financial sector reform, opening up the possibility of legislation that will pass the Senate, but he wants the Fed to lose its supervisory powers. If the Fed refuses to help – willingly and fully - the European Commission with bringing Goldman to account, that will just strengthen the hand of Senator Corker and his allies.

If the Federal Reserve were an effective supervisor, it would have the political will sufficient to determine that Goldman Sachs has not been acting in accordance with its banking license. But any meaningful action from this direction seems unlikely.

Instead, Goldman will probably be blacklisted from working with eurozone governments for the foreseeable future; as was the case with Salomon Brothers 20 years ago, Goldman may be on its way to be banned from some government securities markets altogether. If it is to be allowed back into this arena, it will have to address the inherent conflicts of interest between advising a government on how to put (deceptive levels of) lipstick on a pig and cajoling investors into buying livestock at inflated prices.

http://baselinescenario.com/2010/02/14/goldman-goes-rogue-–-special-european-audit-to-follow/

[Demeter]

125. So, THAT'S What Happened to Salomon Brothers!

I always wondered...but I couldn't read the WSJ anymore when it went all "Morning in America" red-white and blue Reagan....

[ozymandius]

121. I have a feeling that many, many Goldman Sachs employees are working their asses off today.

EU Seeks Greek Swaps Disclosure After Ministry Probe (Update2)

Eurostat, the EU statistics office, gave Greece until the end of the month to provide more information on the swaps, which do not necessarily break EU rules, European Commission spokesman Amadeu Altafaj told reporters in Brussels today. Standard & Poor’s and Fitch Ratings are also questioning Greece over its use of the swaps, said two people with direct knowledge of the situation, who declined to be identified because the talks are private. ...

Greek Finance Minister George Papaconstantinou said today the country’s use of swaps agreements was “at the time legal.” The contracts are no longer legal, and Greece doesn’t use them, he said during a question-and-answer session at a conference in Brussels today. ...

“Goldman Sachs broke the spirit of the Maastricht Treaty, though it is not certain it broke the law,” Michael Meister, financial affairs spokesman for German Chancellor Angela Merkel’s Christian Democrats, said today in a telephone interview. “What is certain is that we must never leave this kind of thing lurking in the shadows again.” ...

The Goldman Sachs transaction consisted of a cross-currency swap of about $10 billion of debt issued by Greece in dollars and yen, Sardelis said. That was swapped into euros using a historical exchange rate, a mechanism that implied a reduction in debt and generated about $1 billion of funding for that year, Sardelis said. Luxembourg-based Eurostat and the rating companies were both aware of the plan, he said. ...

Sardelis said the agreement was restructured “a couple” of times while he was in office. He left in 2004 and joined Banca IMI, the investment-banking unit of Italy’s Intesa Sanpaolo SpA. He said the fees, or the spread, that Goldman Sachs was paid on the contract were “reasonable.” The New York-based firm made about $300 million from the agreement, the New York Times reported Feb. 14.

Key GS brokers are wisely keeping their pieholes shut. It looks like their actions in Europe are going to cost them hundreds of millions in future business deals.

[Demeter]

126. May I Do My Best Red Queen Imitation (I AM Wearing Red today!)

Off with their heads!

[Demeter]

127. Bush missing? Jimmy Stewart dead? Doomsday ticking?

http://www.marketwatch.com/story/10-short-term-ideas-to-beat-debt-doomsday-2010-02-15?siteid=YAHOOB

Join America's new "mad as hell" club. You want short-term investing "solutions?" Stick with me, today we have 10 fabulous short-term solutions, solid tips for readers worried about the coming "Debt Bomb Explosion."

Jack's challenge got me thinking: "Paul, your latest column is another example of breathless fear-mongering without any trace of a solution for the predicted Armageddon. I cannot find any value in your Chicken Little rantings. So I have to conclude that you are simply an idiot."
In volatile market, stand pat

What to do when market volatility strikes? WSJ's Intelligent Investor columnist Jason Zweig says unless you're a real investment professional -- and maybe even then -- sometimes the best trading move is not to trade at all.

OK, OK, I get it. We will get you the solutions you need to invest successfully in the short-term. But first, you're going to sit through 10 more reality checks exposing Wall Street's dark conspiracy to control the American mind, your money and world markets. This is what I see, a steady stream of warnings that also reveals why most investors focus mainly on short-term "solutions," why you tune out long-term "solutions," and why the Debt-Bomb Explosion moves inexorably closer. Listen closely:

1.

Trillions in debt: Minneapolis billboard, a grinning George W. Bush. Caption: "Miss me yet?" He never left. His short-term Reaganomic solutions still haunt us taxpayers. Trillions in debt. But worse: Millions have forgotten his tragic legacy.
2.

Wall Street reforms dying: Then a BusinessWeek review of Boston University. economist Larry Kotlikoff's new book "Jimmy Stewart is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking." He argues for radical financial reforms, warning that Obama's in Wall Street's pocket, "putting a Band-Aid on cancer." Earlier in "The Coming Generational Storm: What You need to Know about America's economic future" we heard his long-term warnings of the coming collapse of Medicare and Social Security. No one listened then either.
3.

Obama approves Fat-Cat bonuses: Former IMF economist Simon Johnson warns: Obama "Still Doesn't Get It." Bloomberg reports: When asked about J.P. Morgan Chase boss Jamie Dimon's $17 million bonus and the $9 million for Goldman Sachs CEO Lloyd Blankfein, Obama said: "I know both, savvy businessmen. Like most Americans, I don't begrudge people success or wealth." They're not "people."
4.

Class warfare ahead: Next, more proof Obama really "doesn't get it:" Only 4% of folks making over $100,000 fit the new Northwestern University study of unemployment. In contrast, Americans in the bottom fifth suffer most, 37%-50% are underemployed. Warning: This widening wealth gap is more dangerous than terrorist's threats.
5.

Doomsday clock's ticking: Then, comments from Barron's about Hong Kong economist Marc Faber's warning: "Zero Hour, America's debt is junk." Listening to Faber's "DoomBoomGloom.com" messages you can even hear the countdown tick, tick, ticking till the "Debt-Bomb Explosion." Till the third Wall Street meltdown of the 21st century. The "Great Depression II." Till Palin and the "Tea Party of No" not only advocate a new "American Revolution," but trigger one ... Tick, tick, tick ...
6.

The warnings are relentless: USA Today says Wall Street's "bastardizing ETFs," creating a "treacherous" casino extracting more fee and commission revenues.
7.

Next, a Bloomberg-BusinessWeek headline: "Wall Street's New Flight to Risk" about leveraging the Fed's cheap money in "exotic bonds."
8.

Then Atlantic warns: America's $1.7 trillion commercial real estate bubble is "about to meltdown."
9.

And The Economist warns: "New dangers for the world economy: When the crisis started, governments helped save the world economy. Now they are the problem." We hear those same fears from TARP's watchdog: The "government bailout has increased the risk of deeper economic crisis."
10.

And Foreign Policy magazine predicts: By 2040 China's GDP will explode to $123 trillion (three times America's), but China's central bank is already doing what Bernanke won't, increasing bank reserves to dampen a bubble, another show of their growing power.

These red flags scream: "New meltdown, dead ahead." And yet, most investors still can't grasp the futility of trading in a market totally controlled by Wall Street's "too-political-to-fail" bankers who manipulate clueless politicians with lots of campaign cash. Investors want short-term solutions because we've been brainwashed into believing short-term is all that matters. We've lost the ability to see or think long-term. We're blind, deaf, in denial.

But still I listened: You don't want long-term solutions, don't want to hear about any "Swiss Family Robinson" plans urging you to buy a well-stocked, self-sustaining farm in the mountains, away from populated areas.

And now I also realize that on a deeper psychological level you only want short-term solutions because in your heart-of-hearts you fear there is no "long-term" future to invest in, because America has no "long-term" future. Because you hear the "Doomsday Clock" ticking, hear Faber warn: America's clock's at "Zero Hour." ....

[Demeter]

128. So he offers this:

The top-10 short-term investing tips you need in 2010

So here are the short-term "solutions" you want, 10 "suggestions for approaching the uncertain investment world in the years ahead." They come from one of America's most-respected financial newsletters, the latest Insight by Gary Shilling and Fred Rossi. Shilling has been a Forbes columnist for 27 years and is one of America's leading conservative economists.

If you insist on short-term trading -- something guys like Bogle, Buffett, Ellis and others call a "loser's game" because of huge fees and commissions Wall Street skims off the top of our returns -- these 10 rules add a measure of caution counterbalancing the endless, reckless hype coming from Wall Street's Fat-Cat Bankers pushing a 2010 recovery:

1.

"Expect the secular bear market in stocks to persist."
2.

"Be prepared for a volatile, risky investment climate" in 2010 and beyond.
3.

Before you buy titles like Jim Cramer's new "Getting Back to Even," Shilling warns that "attempts to catch up may only increase losses."
4.

And please "be aware that alternative investments may be fruitful, but can also be volatile, highly leveraged, illiquid and unpredictable" -- in short, big losers.
5.

Cash is king and dividends are your queen: "Investments that pay cash here and now such as stocks with meaningful dividends and high quality bonds."
6.

If you're worried that "Treasury bond yields may seem low," please remember that "their prices will jump if yields decline meaningful."
7.

"Rebalancing a portfolio assumes a reversion to the mean, but amounts to selling winners and buying losers," a strategy that may not be the wisest in 2010.
8.

"Double-digit returns on most assets are unlikely in future years, so many pension-fund investment target rates remain too high," and could easily trigger losses.
9.

"Assume interest rates will remain low, so the present value of future liabilities will be high." Unfortunately, low rates are also blowing a new bubble.
10.

"Most of all, remember that there's no such thing as free lunch," warns Shilling. "If an investment looks too good to be true, it probably is!"

Bottom line, never trust Wall Street: Shilling especially warns against believing Wall Street's self-serving conclusion that government bailouts stabilized markets and will result in a "sharp economic recovery in 2010 and later." Wrong. "Consumers have crossed a watershed from 25 years of borrowing and spending to a saving spree." and "increased saving will slow economic growth in the next decade."

Worse yet, "deleveraging, weak commodity prices, increased government regulation, protectionism and deflation" will also extend the "secular bear market" for years. On the bright side, Shilling sees real "opportunities in dividend-paying stocks, Treasury bonds, the dollar, small luxuries and productivity enhancers."

OK, there you have the 10 short-term "solutions" you want. Will they help? Unlikely in the long run. Why? Because in the final analysis, all investing strategies, short or long, have nothing to do with market fundamentals, nor trading systems, nor the economy. Nothing.

Investing in the 21st century is totally dependent on America's dysfunctional political system, which is adrift in a fog bank of treacherous icebergs. America has lost its moral compass. We're guided by narrow-minded politicians manipulated by Wall Street's greedy casino bosses addicted to short-term "solutions."

Wall Street's dark conspiracy is destroying capitalism, taking down democracy with it ... nobody sees past the end of their noses ... the blind are leading the blind ... while everybody pretends that short-term strategies are the "solution" to the long-term "Debt-Bomb" that just keeps tick, tick, ticking ... silently counting down till the Doomsday Clock hits "Zero Hour" ... then explodes.

[Demeter]

129. That's a Nice Note To End On: Just In Time for Ash Wednesday!

Eat, drink and be merry, for tomorrow, we die--t.