STOCK MARKET WATCH, Friday September 4

[ozymandius]

Source: du

STOCK MARKET WATCH, Friday September 4, 2009

Bush Administration Officials Under Indictment = 2
Financial Sector Officials In Prison = 6

AT THE CLOSING BELL ON September 2, 2009

Dow... 9,344.61 +63.94 (+0.69%)
Nasdaq... 1,983.20 +16.13 (+0.82%)
S&P 500... 1,003.24 +8.49 (+0.85%)
Gold future... 997.70 +19.20 (+1.96%)
10-Yr Bond... 3.34 +0.04 (+1.18%)
30-Year Bond 4.16 +0.04 (+0.95%)

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U.S. FUTURES & MARKETS INDICATORS
NASDAQ FUTURES..............................................S&P FUTURES

Market Conditions During Trading Hours

GOLD, EURO, YEN, Loonie, Silver and US$

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This thread contains opinions and observations. Individuals may post their experiences, inferences and opinions on this thread. However, it should not be construed as advice. It is unethical (and probably illegal) for financial recommendations to be given here.

Read more: du

[ozymandius]

1. Market Observation

A Matter of Perspective
BY MICHAEL PANZNER

Talk that the economy is on the road to recovery is growing louder. On Monday, for example, MarketWatch reported that “economists say the recession is over.”

Not surprisingly, Wall Street has been quick to jump on the bandwagon. A recent Bloomberg survey of U.S. users, many of whom work in the financial industry, found that optimists on the economy nearly equaled pessimists for the first time since its Professional Confidence Index was introduced in November 2007.

Yet ordinary Americans aren’t buying it. In fact, a new CNN/Opinion Research Corporation poll reveals that 87% of those surveyed say the country remains mired in recession, a 13 percentage point jump from June’s tally.

Given how much closer-to-the-mark average Joes have been during the past few years when it comes to reading the economic tea leaves, especially in comparison to those who are supposedly in the know, it makes sense to bet on the amateurs.

http://www.financialsense.com/Market/wrapup.htm

[saigon68]

10. Another Outstanding Cartoon

Thanks again for brightening my day.

And I agree with "the amateurs" cited above

I see huge unemployment in my area, and the people in N.E. WI are being very cautious about spending any large amounts of money.

The hurt will come this fall and winter when the unemployment Comp benefits run out.

No new jobs created, AND no one is building any fast food joints either.

Have a good week-end Ozy

[ozymandius]

12. Thank you saigon68.

I see the same here in Atlanta. Businesses that rely on discretionary spending are just making-do if they are making it at all. Higher-end chain restaurants are pulling up tent stakes as a sign that they cannot meet desired profit levels. Those that I see thriving are geared for high volume traffic and low cost inventory.

Have a great weekend, too.

:hi:

[Dr.Phool]

19. Closing as fast as they open.

I drove up to South Carolina yesterday morning (left Fla. just after midnight). The last couple of times I was here, I flew or took Amtrak. The last time I drove through these towns (Marion, Mullins) was less than a year ago. I spotted new businesses, and restaurants that had opened since then, and are already closed.

I'll be riding around Myrtle Beach a little this week-end, and see what else is missing. My dad said tourism went over the cliff this year, especially since they started harrassing the bikers, and Bike Week makes up for about 40% of some places annual income. They stayed away in droves this year. Those that came, didn't enter MB.

[ozymandius]

2. Today's Reports

8:30 Average Workweek Aug
Briefing.com 33.1
Consensus 33.1
Prior 33.1

08:30 Hourly Earnings Aug
Briefing.com 0.0%
Consensus 0.1%
Prior 0.2%

08:30 Nonfarm Payrolls Aug
Briefing.com -265K
Consensus -230K
Prior -247K

08:30 Unemployment Rate Aug
Briefing.com 9.5%
Consensus 9.5%
Prior 9.4%

http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm

[UpInArms]

35. U.S. Aug. nonfarm payrolls fall 216,000 - unemployment rate rises to 9.7% - highest since June 1983

U.S. Aug. nonfarm payrolls fall 216,000
8:30am Today

U.S. Aug. unemployment rate rises to 9.7%
8:30am Today

U.S. Aug. average workweek steady at 33.1 hours
8:30am Today

U.S. Aug. average hourly earnings rise 0.3%
8:30am Today

U.S. June, July payrolls revised down 49,000
8:30am Today

U.S. unemployment rate highest since June 1983
8:30am Today

U.S. private-sector employment dips to 10-year low
8:30am Today

[Ghost Dog]

48. U-6 is now at 16.8%

U-6 is now at 16.8% and this "recovery" now only has two legs to stand on. No wages for the recovery and no credit availability for the recovery=no real recovery.

...

Based upon establishment survey data, the workforce is shrinking, those with jobs is shrinking and those without jobs is shrinking. Those not in the workforce, though, is increasing; much structural unemployment is buried and hidden among those who have left the workforce. In a growing economy, the only group growing is those not participating in the workforce.

...

9.7% worse than expected & market is up on top of yesterdays stick save... awesome.

/... http://seekingalpha.com/news/market_currents/post/31930

[Hugin]

64. Is it more than a coincidence that June 1983 is when I entered the workforce?

Ah, I remember it well... Reagan was President. The Dumbining was by then in full swing. The Supply-siders had become the darlings of Wall Street.

:hurl:

Sigh, I started off as a statistic... and nothing has changed.

[Ghost Dog]

38. Nonfarm payroll employment continued to decline in August (-216,000)

Nonfarm payroll employment continued to decline in August (-216,000),
and the unemployment rate rose to 9.7 percent, the U.S. Bureau of Labor
Statistics reported today. Although job losses continued in many of the
major industry sectors in August, the declines have moderated in recent
months.

Household Survey Data

In August, the number of unemployed persons increased by 466,000 to 14.9
million, and the unemployment rate rose by 0.3 percentage point to 9.7
percent. The rate had been little changed in June and July, after in-
creasing 0.4 or 0.5 percentage point in each month from December 2008
through May. Since the recession began in December 2007, the number of
unemployed persons has risen by 7.4 million, and the unemployment rate
has grown by 4.8 percentage points. (See table A-1.)

Among the major worker groups, the unemployment rates for adult men
(10.1 percent), whites (8.9 percent), and Hispanics (13.0 percent) rose
in August. The jobless rates for adult women (7.6 percent), teenagers
(25.5 percent), and blacks (15.1 percent) were little changed over the
month. The unemployment rate for Asians was 7.5 percent, not seasonally
adjusted. (See tables A-1, A-2, and A-3.)

...

About 2.3 million persons were marginally attached to the labor force
in August, reflecting an increase of 630,000 from a year earlier. (The
data are not seasonally adjusted.) These individuals were not in the
labor force, wanted and were available for work, and had looked for a
job sometime in the prior 12 months. They were not counted as unemployed
because they had not searched for work in the 4 weeks preceding the sur-
vey. (See table A-13.)

Among the marginally attached, the number of discouraged workers in
August (758,000) has nearly doubled over the past 12 months. (The data
are not seasonally adjusted.) Discouraged workers are persons not cur-
rently looking for work because they believe no jobs are available for
them. The other 1.5 million persons marginally attached to the labor
force in August had not searched for work in the 4 weeks preceding the
survey for reasons such as school attendance or family responsibilities.

/Report continues... http://stats.bls.gov/news.release/empsit.nr0.htm

[tclambert]

46. And the unemployment numbers are . . . bad.

No getting around it, August was bad for jobs. The raw number of jobs decreased. The unemployment rate increased by an amount we would consider pretty substantial in any other year. U-3 up .3% to 9.7%. U-6 up .5% to 16.8%.

Final assessment: Whoof.

[ozymandius]

3. Oil rises above $68 ahead of US jobs report

SINGAPORE – Oil prices peaked above $68 a barrel Friday in Asia as investors looked to a U.S. unemployment report later in the day for signs of economic recovery.

......

The Labor Department later Friday is scheduled to announce the August jobs report, one of the most closely watched indicators by investors. Economists expect the unemployment rate to edge up to 9.5 percent from 9.4 percent, while the number of layoffs is expected to slow to 225,000 from 247,000.

.....

In other Nymex trading, gasoline for October delivery was steady at $1.80 a gallon, and heating oil rose 0.55 cent to $1.74 a gallon. Natural gas fell 3.2 cents to $2.48 per 1,000 cubic feet.

http://news.yahoo.com/s/ap/oil_prices

[UpInArms]

30. Oct. crude gains 1% to $68.62 a barrel

Oct. crude gains 1% to $68.62 a barrel
8:16am Today

[ozymandius]

4. 1.3 million to lose jobless benefits by year's end

JACKSONVILLE, Fla. – Jobless since January, Donald Money has already moved in with his elderly parents, stopped going to the movies and started using less of his prescription medication so it will last longer.

This month, something else will fall by the wayside: Money's unemployment check. The 43-year-old former printing press operator is among the more than 1.3 million Americans whose unemployment insurance benefits will run out by the end of the year, placing extra strain on an economy that is just starting to recover from the worst downturn in a generation.

These are the most unfortunate of America's 14.5 million jobless: the ones whose benefits are drying up — in some cases after a record 18 months of government support.

.....

The government said Thursday that 570,000 laid-off workers filed new claims for unemployment benefits last week, while the number of people receiving benefits has risen to 6.23 million.

http://news.yahoo.com/s/ap/20090903/ap_on_bi_ge/us_unemployment_benefits_exhausted

[rfranklin]

13. Thank god these slackers will disappear from the stats...

and high "unemployment" will be a thing of the past!

[DemReadingDU]

17. and what are these people going to do?

No job, No income, No savings.
Food pantries running low. How are these people going to eat?
And where are they all going to live?

Maybe the government will extend the unemployment checks for 6 months?


Edit: This guy's last name is 'Money'. How ironic.

:eyes:

[tclambert]

21. A friend of mine said, "I own a gun. I'll always have a job."

"As long as there are party stores to rob."

[DemReadingDU]

39. Violence. That's what I fear. n/t

[Ghost Dog]

53. What about the availability of casual work "off the books"?

- Like, the kind of work unregistered immigrants currently do?

Or is that too dangerous over there?

[DemReadingDU]

57. Oh sure, that goes on, even before the recession.

Some people have always been paid 'under the table'. That way there are no government forms to fill out, no income taxes to be paid. This will expand as more and more people become jobless, and trade skills for food.

What I fear are the people who feel they are 'entitled'. A person may have extra food in their house that other people feel they are 'entitled' to eat, with nothing in exchange. Shove a gun in your face and rob you, just because they are 'entitled' to have whatever they want.
This is escalating in the city near me. Lots more robberies and murders. Not good.

[skoalyman]

55. morning everyone your all right I see skyhigh crime in our

future, unless they extend unemployment :nuke:

[DemReadingDU]

61. Unemployment compensation definitely subdues people

When people have money, they can buy food, maybe pay some rent. Tempers flare-up when people have nothing. Crimes escalate, and murders. Scary.

[Demeter]

36. The Truth About Unemployment

http://www.informationclearinghouse.info/article23253.htm



August 12, 2009 "Washington's Blog" -- -The mainstream news is citing the decline in unemployment from 9.5% to 9.4% in July as proof that the economy is stabilizing.

But is that true?

Distortions in the Numbers

Well, as the New York Times pointed out in July:

Include — as the Labor Department does when calculating its broadest measure of the job market — and the rate reached 23.5 percent in Oregon this spring, according to a New York Times analysis of state-by-state data. It was 21.5 percent in both Michigan and Rhode Island and 20.3 percent in California. In Tennessee, Nevada and several other states that have relied heavily on manufacturing or housing, the rate was just under 20 percent this spring and may have since surpassed it.

And see this.

The Times wrote a second article on August 7th pointing out that the unemployment rate had only declined because 400,000 people gave up their search for work and left the labor force. And see this.

Indeed, as the Times notes in a third article, Americans are going to China to look for work.

In addition, economists and financial analysts point out that auto workers who would normally be laid off this time of year have been retained because of changes to the auto industry from the auto bailouts.

For example, PhD economist John Williams wrote on August 7th:

July usually sees a regular pattern of planned automobile production line shutdowns to accommodate retooling for the new model year, but recent disruptions to the auto industry have changed pattern this year. Without the usual pattern of shutdowns, the government’s computers nonetheless responded by creating the usual offsetting boost in jobs, not only in the auto industry, but in supporting industries as well. The auto industry itself was alone among durable goods manufacturing industries in showing a reported, seasonally-adjusted monthly gain in July, up by 28,000 jobs.

Williams also said that certain distortions in unemployment figures are being caused by the severity of the financial crisis itself, but that - when these distortions subside in the months ahead - unemployment will increase. He also notes that official unemployment models tend to underestimate unemployment during recessions.

Indeed, if the aforementioned distortions are removed, Williams says that July unemployment figures would have actually increased slightly from June. Indeed, Williams says that accurate unemployment figures rose from 17.5% in December to 20.6% in July.

And Dave Rosenberg of Gluskin Sheff notes that tens of thousands of the new jobs in July were created by the government itself:

There have been large fluctuations in the federal government payroll too. After hiring a slew of Census workers in the spring, there were 57,000 layoffs in May-June and then we saw in today’s report that 12,000 federal workers were “hired” in July. Again, mathematically, this contributed about 20,000 to today’s headline number. In other words, and we have no intent on raining on anyone’s parade, there was about 100,000 non-recurring payrolls in that top-line figure. It may be dangerous to extrapolate today’s report into a view that we are about to fully turn the corner on the job market front.

Financial commentator Max Keiser says that unemployment is actually increasing and wages are falling. Keiser also says that the only sector in the U.S. which is actually strengthening is the military-industrial complex because of wars abroad. And see this.

And many economists point out that the length of time people are remaining unemployed is skyrocketing. As the Washington Post notes:

Another disturbing development was that the number of people out of work for 27 weeks or longer reached a record 5 million, accounting for a third of the unemployed. That suggests to some economists that those job losses were caused by structural changes in the economy and that many of those people won't be called back to work once the economy picks up. The longer people are out of work, the harder it becomes for them to find jobs and the more likely they are to exhaust savings or lose their homes to foreclosure.

No wonder even Paul Krugman writes:

That slight dip in the measured unemployment rate last month was probably a statistical fluke.


Where Is Unemployment Going From Here?

Unemployment is a "lagging" indicator. In other words, if the economy crashes in one month, unemployment will not peak until several months or years later.

So we have to ask 2 questions:

1) How bad were conditions in 2008 and early 2009?

and

2) What will conditions be in the future?

A look back at how bad conditions were shows that they were probably worse than those at the beginning of the Great Depression.

Says who?

Fed Chairman Bernanke and many other top economists (and see this).

Indeed, former Secretary of Labor Robert Reich wrote in April that the unemployment figures show that we are already in a depression.

And Chris Tilly - director of the Institute for Research on Labor and Employment at UCLA - points out that some populations, such as high school dropouts and African-Americans, are hit much harder than other populations. In other words, regardless of the population at large, these people are already experiencing depression-level unemployment. And see this and this.

Europe’s largest bank - RBS - warns:

Even if the economy starts to turn up the headwinds will be formidable,” warned. “The green shoots are short in duration and you need to be cautious about interpreting them. Even if growth returns, unemployment will rise for some time afterwards ...

What Will Future Conditions Look Like?

When he was presented with the July unemployment numbers, even President Obama tempered his enthusiasm by saying that the official unemployment numbers will rise to 10% later this year.

And the Federal Reserve predicted in July that high unemployment will cause the eventual economic recovery to be drawn out and weak for years to come. In other words, the Fed is worried that we're trapped in a vicious cycle, where a poor economy will lead to high unemployment numbers, and unemployment will lead to less consumer spending which will worsen the economy.
And former chief IMF economist Simon Johnson notes that a vicious cycle also exists between unemployment and property foreclosures:

Unemployment is always a lagging indicator, and given the record low number of average hours worked, it will turn around especially slowly this time. Until then, people will continue to lose their jobs and wages will remain flat, and any small rebound in housing prices is unlikely to help more than a few people refinance their way out of unaffordable mortgages. So unless the other part of the equation – monthly payments – changes, the number of foreclosures should just continue to rise.

And see this.

Moreover, a crash in commercial real estate is now picking up speed. Unlike the subprime mortgage meltdown - which affected mainly the biggest banks - the commercial meltdown will apparently affect a huge number of small to medium-sized banks.

Today, the Congressional Oversight Panel on the bailouts issued a report saying that small and medium sized banks are especially vulnerable, the report will say, in part they hold greater numbers of commercial real estate loans, "which pose a potential threat of high defaults."
Since those banks make many loans to small businesses, since credit is essential for many small businesses, commercial real estate is crashing even faster than residential, and industry experts forecast that the commercial real estate market won't bottom out for three more years, that could spell real trouble for employment by small businesses.

Indeed, largely because of the commercial real estate crash, the FDIC expects 500 banks to fail in coming months.

The Congressional Oversight Panel report also says that banks remain threatened by billions of dollars of bad loans on their balance sheets, more could fail if the economy worsens, and that - if unemployment rises sharply or the commercial real estate market collapses – the banking system could again crash:

The financial system vulnerable to the crisis conditions that was meant to fix...

Financial stability remains at risk if the underlying problem of toxic assets remains unresolved.

While the panel focuses on toxic loans, this holds true with toxic derivatives as well. As I have written in previous essays, the CDOs, CDS and other derivative side bets on the subprime and alt-a and commercial mortgages still haven't been reigned in, and they still have a high risk of bringing down the entire financial system unless they are either banned or brought to heel. The derivatives market is many times bigger than the world's real economy, and if that market crashes again, things could be bad, indeed.

Indeed:

In an interview on Reuters Television, the chairman of the congressional oversight panel, Elizabeth Warren, said no one even knows the value of the toxic assets still on banks' books.

VALUE OF TOXIC ASSETS UNKNOWN

"No one has a good handle how much is out there," Warren said. "Here we are 10 months into this crisis...and we can't tell you what the dollar value is."

Estimates are that "somewhere between $600 billion and $1.5 trillion in toxic assets (is) spread across the balance sheets of the small and the large banks," Warren said, adding: "That's a lot."

The government's entire strategy in dealing with the economic crisis was to try to artificially prop up the asset price of these toxic assets. Unfortunately, that strategy has failed miserably.

Another trend arguing for higher unemployment is the fact that consumers have undergone a generational shift in spending habits, and will be frugal for a long time to come. Indeed, even if the financial crisis hadn't occured, long-term demographic trends would have pushed for frugality for many years to come.


Likewise, corporations are still hoarding cash.

Finally, there is excess capacity in many sectors. As the Washington Post notes :

With fewer people and businesses willing to buy things, it will take longer for the economy to work off all the excess capacity that was built up during boom times.

Think of thousands of idled factories, acres of empty strip malls and ports packed with unsold automobiles ...

So what does it all mean?

I passionately hope, of course, that economic conditions improve and that unemployment declines.

I hope that my assessments are proven overly pessimistic, and the economy recovers quickly.

But people forget that there was a huge rally after the initial 1929 crash, before the bigger second wave down of the Great Depression hit.

People forget that unemployment did not hit 25% until the fourth year of the Great Depression.

Former International Monetary Fund Chief Economist and Harvard University Economics Professor Kenneth Rogoff and University of Maryland Economics Professor Carmen Reinhart forecast in February that unemployment could reach 22% within 4 years.

So while I hope and pray that unemployment numbers get better, they could get much worse.

[ozymandius]

5. Asian markets gain cautiously ahead of jobs report

CANBERRA, Australia – Most Asian markets rose in cautious trading Friday as investors looked ahead to a key U.S. jobs report for clues about the outlook for the world's largest economy — an important export market for Asia.

Trading has been jittery the last couple of weeks amid worries that the rally in global markets since March may have been overdone. China's stock market, which has been particularly volatile, edged higher by the afternoon.

.....

Hong Kong's Hang Seng index rose 105.69 points, or 0.5 percent, to 19,867.37, while Australia's S&P/ASX 200 index advanced 7.3 points, or 0.1 percent, to 4,436.9. In mainland China, the Shanghai Composite index climbed 6.03 points, or 0.2 percent, to 2,851.56, after surging 4.8 percent Thursday.

Japan's Nikkei 225 index, meanwhile, slipped 27.53 points, or 0.3 percent, to 10,187.11, and South Korea's Kospi slid 0.3 percent to 1,608.90.

http://news.yahoo.com/s/ap/20090904/ap_on_bi_ge/world_markets

[ozymandius]

6. Stimulus Credited for Lifting Economy, But Worries About Unemployment Persist

Half a year after Congress enacted the largest economic stimulus plan in the nation's history, the measure is contributing to what increasingly looks like a budding recovery, analysts say, but significant concern remains about rising unemployment and the initiative's contribution to the federal budget deficit.

.....

IHS Global Insight, an economic consulting firm, estimates that the stimulus has increased the 2009 gross domestic product by about 1 percent over what it otherwise would have been, with the benefit almost entirely in the second half of the year.

The firm also forecasts that the package will, in total, result in about 2 million more jobs than otherwise would have existed at the end of 2010. Moody's Economy.com estimates that the initiative will increase employment by 2.5 million jobs. Both estimates are below the 3 million to 3.5 million jobs the Obama administration estimated the package would create or save because the firms assumed more modest ripple effects from the stimulus spending than administration economists did.

.....

Yet even as the economy shows signs of improving, labor markets remain as weak as they have been in a generation, with unemployment at 9.4 percent. Just hours before Biden spoke, the Labor Department said that another 570,000 people filed new claims for unemployment insurance benefits last week, little changed from the previous week.

http://www.washingtonpost.com/wp-dyn/content/article/2009/09/03/AR2009090303317.html

[Demeter]

20. If This Is the Best Economy Money Can Buy, We're Freaking Doomed

Morning everybody. The Kid gave me the first cold of the season. I apologise in advance for the grumpiness.

[ozymandius]

7. Consumers patronize lower-price retailers in August

NEW YORK (MarketWatch) -- Retailers posted mixed August sales Thursday, with budget-conscious consumers continuing to favor lower-priced retailers and those carrying food and consumables over apparel and department stores.

.....

Overall, August sales continued to decline, by 2%, though that's the smallest drop since September 2008, according to trade group International Council of Shopping Centers. The group forecast September sales to also drop 2%.

.....

For the month, a shift of tax-free holidays in some states to August from July helped bolster demand at the start of the period. That, however, was more than offset by another calendar shift -- of the Labor Day holiday weekend into the month of September, analysts said. Costco Wholesale Corp., for instance, estimated that the Labor Day shift hurt its August sales by about 0.75 percentage points.

Combined August and September sales would serve as a better benchmark of whether Labor Day, students' return to school and some positive economic indicators, may start to turn things in retailers' favor heading toward the crucial holiday shopping season, they said.

http://www.marketwatch.com/story/sluggish-back-to-school-sales-dent-august-results-2009-09-03

[CatholicEdHead]

79. Shelves on local big box stores are starting to look a bit bare

There is alot of work done to make them appear to be full when they are half empty at best.

I have also heard of the hourly workers (wage slaves) having their hours cut back even more at the big box stores recently because of down sales.

[ozymandius]

8. Growth may slow to a 'crawl,' Fed's Fisher says

SANTA BARBARA, Calif. (Reuters) -- Dallas Federal Reserve Bank President Richard Fisher on Thursday said the United States should have a "good snap-back" from recession in the final months of 2009, but that future growth could be a "slow crawl."

.....

"It's encouraging and helpful and hopeful that we have a good third quarter and fourth quarter. But what is the rate of growth after that? And how do we get back to creating jobs?"

Fisher said it was too early to guess at the timing or pace of interest rate moves once the Fed starts to reverse its extremely easy monetary policy -- one that has left benchmark rates near zero since December 2008.

.....

Revenue growth at companies has "evaporated," and to preserve profits firms "will continue to focus on cost control, most painfully by shedding workers and driving those who remain on the payroll to higher levels of productivity."

Responding to a question from an audience member at the UCSB campus, which is perched on the Pacific shore, Fisher said he was "praying" that the U.S. jobless rate did not hit 10 percent, but saw no guarantee his prayers would be answered.

http://money.cnn.com/2009/09/04/news/economy/fed_fisher.reut/index.htm?postversion=2009090404

[ozymandius]

9. U.S. calls for global bank capital requirements

WASHINGTON (Reuters) -- The U.S. Treasury Department Thursday proposed tough international standards on capital and liquidity at banks, saying new rules are needed to reduce the risk of another global financial crisis.

The standards call for higher capital levels at all banks and even more stringent requirements for banks that could pose a threat to overall financial stability. They also call for a simple constraint on leverage for all banks, as well as strict but flexible liquidity regulations.

.....

The U.S. Treasury said a comprehensive new international agreement should be reached by the end of 2010 and that countries should implement the standards by the end of 2012.

.....

The Treasury said in its 14-page proposal that capital and liquidity rules need to be as uniform as possible across countries, and that they should be structured so as not to allow the re-emergence of an under-regulated financial sector outside of the banking system.

But it did not prescribe specific capital or leverage ratios.

http://money.cnn.com/2009/09/03/news/economy/Treasury_capital_requirements.reut/index.htm?postversion=2009090318

[ozymandius]

11. Rating Agencies Must Defend AAA Junk in Court (woo hoo!)

From Ritholtz:

I suspect we are FINALLY seeing the beginning of the endgame for the rating agencies.

“A U.S. judge refused to dismiss a lawsuit against Moody’s Investors Service Inc. and Standard & Poor’s, rejecting arguments that investors can’t sue over deceptive ratings of private-placement notes because those opinions are protected by free-speech rights.

U.S. District Judge Shira Scheindlin in New York rejected the ratings firms’ arguments yesterday, leaving them and Morgan Stanley to defend against fraud charges in a class-action lawsuit that alleges they hid the risks of an investment linked to subprime mortgages. The ruling may affect Fitch Group Inc. and other credit raters that have made similar arguments after investors lost money following their advice on subprime and other asset-backed investments.

Scheindlin said in her ruling that the First Amendment of the U.S. Constitution doesn’t apply in the case because the rating firms’ comments were distributed to a select group of investors and not to the general public.”

Whether there will be a misguided reprieve from the defenders of the status quo is beyond my wildest guess.

More from Bloomberg...

[ozymandius]

14. How Did Economists Get It So Wrong? (A long, thoughtful piece by Krugman)

.....

Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy. During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of collapse that happened last year. Meanwhile, macroeconomists were divided in their views. But the main division was between those who insisted that free-market economies never go astray and those who believed that economies may stray now and then but that any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed. Neither side was prepared to cope with an economy that went off the rails despite the Fed’s best efforts.

And in the wake of the crisis, the fault lines in the economics profession have yawned wider than ever. Lucas says the Obama administration’s stimulus plans are “schlock economics,” and his Chicago colleague John Cochrane says they’re based on discredited “fairy tales.” In response, Brad DeLong of the University of California, Berkeley, writes of the “intellectual collapse” of the Chicago School, and I myself have written that comments from Chicago economists are the product of a Dark Age of macroeconomics in which hard-won knowledge has been forgotten.

.....

II. FROM SMITH TO KEYNES AND BACK

The birth of economics as a discipline is usually credited to Adam Smith, who published “The Wealth of Nations” in 1776. Over the next 160 years an extensive body of economic theory was developed, whose central message was: Trust the market. Yes, economists admitted that there were cases in which markets might fail, of which the most important was the case of “externalities” — costs that people impose on others without paying the price, like traffic congestion or pollution. But the basic presumption of “neoclassical” economics (named after the late-19th-century theorists who elaborated on the concepts of their “classical” predecessors) was that we should have faith in the market system.

This faith was, however, shattered by the Great Depression. Actually, even in the face of total collapse some economists insisted that whatever happens in a market economy must be right: “Depressions are not simply evils,” declared Joseph Schumpeter in 1934 — 1934! They are, he added, “forms of something which has to be done.” But many, and eventually most, economists turned to the insights of John Maynard Keynes for both an explanation of what had happened and a solution to future depressions.

.....

By 1970 or so, however, the study of financial markets seemed to have been taken over by Voltaire’s Dr. Pangloss, who insisted that we live in the best of all possible worlds. Discussion of investor irrationality, of bubbles, of destructive speculation had virtually disappeared from academic discourse. The field was dominated by the “efficient-market hypothesis,” promulgated by Eugene Fama of the University of Chicago, which claims that financial markets price assets precisely at their intrinsic worth given all publicly available information. (The price of a company’s stock, for example, always accurately reflects the company’s value given the information available on the company’s earnings, its business prospects and so on.) And by the 1980s, finance economists, notably Michael Jensen of the Harvard Business School, were arguing that because financial markets always get prices right, the best thing corporate chieftains can do, not just for themselves but for the sake of the economy, is to maximize their stock prices. In other words, finance economists believed that we should put the capital development of the nation in the hands of what Keynes had called a “casino.”

http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=2&hp=&pagewanted=all

[tclambert]

23. "a company’s stock" "always accurately reflects the company’s value?"

Believers of that should take a look at Motors Liquidations Company (symbol: MTLQQ.PK). This is the "bad" GM created by bankruptcy court to technically "own" the assets the court will liquidate to pay creditors. It is inherently worthless, and will disappear completely at some point in the near future. Yet confused people, thinking they are investing in the "good" GM (which won't start trading any stock until next year), have kept this worthless stock trading in the $0.40 to $1.10 per share range.

[tclambert]

74. Long article, but a good one. I read every word. (Usually I sample.)

Especially liked the part about "behavioral economists." Those are the new breed who think it might be wise to look at real human behavior, ya know, psychological stuff, rather than assume as a foundation for your field that humans behave with perfect rationality.

Economists assuming humans always think rationally is in itself absolute proof that economists think irrationally.

What we need in order to really bring economics into the scientific realm is EXPERIMENTAL economics. That doesn't mean we have to start from scratch. We have unintentionally run many experiments. Economists just tend to ignore actual data in favor of theoretical models. LOOK AT THE FRAKKIN' DATA!

Trickle down doesn't work. Supply side doesn't work. De-regulating financial markets leads to speculative failures in an industry that cannot afford failures. Recessions and depressions happen when things get out of whack. And things get out of whack. Bubbles happen. Bad government makes it worse. Good government makes it better. Capitalism helps ambitious people get rich, but hurts poor people. Socialism costs rich people some of their wealth, but helps poor people. A hybrid system could provide an optimum solution. But where do you draw the lines between capitalism and socialism? That's what experimental economics could find out!

[ozymandius]

15. Have a nice day, folks.

It is time for me to prepare for school. Plus - family is in town through the weekend. So I will lurk when there's a spare moment.

ozymandius :hi:

[UpInArms]

16. dollar watch

http://quotes.ino.com/chart/?acs=NYBOT_DX&v=i

Last trade 78.395 Change -0.026 (-0.03%)

US Nonfarm Payrolls Contends with Thin Liquidity for the Dollar's Attention

http://www.dailyfx.com/story/topheadline/US_Nonfarm_Payrolls_Contends_with_1252006934692.html

For currency traders, the US Non-Farm Payrolls (NFP) release is an event that typically promises high volatility and can even signal the beginning for a new trend when the dollar is listless. Considering the volatile mix of current market conditions, the intensified focus on the pace of economic recovery and the congestion patterns the majors have been relegated to for the past three months; the stars seem to be aligning for this single event to catalyze a new phase for the currency.

However, the impact and reaction may not be so straightforward. Thin liquidity has contributed to the market’s inability to develop a trend; and the long US holiday weekend coming up will further dampen activity. Then again, shallow markets further exacerbate price swings and could more readily produce the long-awaited breakout. Let’s look into the factors that will determine whether the labor data can usher in a new trend or simply be ignored as the weekend nears.

Trade this news report live with DailyFX Currency Strategist John Kicklighter tomorrow morning: Trading US Non-Farm Payrolls

Taking Measure of Forecasts

Regardless of the exogenous, market dynamics surrounding the economic release; the data could fall flat if the data is in line with what market participants are pricing in and economists are forecasting. It is difficult to gauge the consensus from speculators as they use their predictions to position themselves. Therefore, price action in the lead up to the event is the most accurate barometer for sentiment. However, traders also base their projections on the official consensus. That is far easier to benchmark.

According to Bloomberg’s poll, the US economy likely lost a net 230,000 jobs through August. This would be the smallest contraction in a year; but not a significant improvement in pace from July. Decidedly less bullish is the expected uptick in the unemployment rate. The market was dealt a shock last month when Bureau of Labor Statistics reported an unexpected improvement in the jobless rate from its 26-year high 9.5 percent to 9.4 percent. This also happened to be the first improvement in this series since April of 2008. As one of the most lagging indicators for economic activity, this indicator clearly held significant meaning. Looking at the breakdown of analyst expectations, the forecast spread is relatively narrow (with a high of -100K and low of -365K) and evenly spread for those above and below the consensus. The rate on the other hand shows significant divergence. Altogether, the net change can easily induce surprise by a significant deviation and the percentage of unemployed can have a meaningful impact in all three scenarios (better, worse or in line with expectations).



...more...

Currency Market and Risk Appetite will Rediscover Volatility and Direction Soon

http://www.dailyfx.com/story/trading_reports/dynamic_carry_trade_basket/Currency_Market_and_Risk_Appetite_1252029609053.html

Risk appetite has diminished for months; yet the positive bias behind the capital markets has not faltered whilst traders sought out the fundamental fuel for the next trend. However, we may see a resolution on both the direction and intensity of sentiment soon as the technical and fundamental pressures build to a breaking point behind the scenes. Whether in the FX, stock, fixed income or any other speculative market; liquidity is acting as a dampener for price action. The height of the summer holiday season has drained the markets and the extended US holiday this coming week will certainly exacerbate the situation. Under such unusual circumstances, volatility can be artificially inflated; but news and meaningful trends are very difficult to establish. As the trading ranks begins to fill out once again next week, the technical congestion that has developed around the most liquid currency pairs will lead to breakouts. What’s more, with both the dollar-based Majors and the Japanese yen crosses in the same position; a break will likely be echoed across the market and further fuel an shift in sentiment itself. EURUSD would be an appropriate gauge for any new trends that develop. The most actively traded currency pair is not highly sensitive to risk appetite; but that works in our favor as it will follow a trend rather than mere volatility. For motivation, three months of congestion has turned into a terminal congestion pattern and the average true range (with a 10-day average) has fallen to its lowest level since February of 2008. A break is inevitable; but the next trend will likely rely on fundamentals.

While it isn’t necessary, we can point out more than a few catalysts that can reasonably revive sentiment trends. The most pressing indicator on deck is the US labor data. The non-farm payrolls (NFP) report is awell-known market mover. Furthermore, liquidity will be extraordinarily low for the event due to the US Labor Day holiday; and these warped conditions could easily leverage a response to an unexpected release. On the other hand, thin markets are not conducive to trends and momentum. Beyond this single event, there is also the G-20 meeting in London. This is a gathering of financial ministers which will look to establish framework for two, heavily discussed topics as of late: regulation and exit plans. European ministers have taken a unified stance that is calling for global limits on bank size and compensation. This is a longer-term concern and one that could ultimately be ignored as the markets show a tentative recovery at the risk of forming the next financial bubble. The more immediate concern is developing viable strategies to remove stimulus from the markets and more importantly the timing for such an endeavor. Policy agreements will likely be reached until the official September 24/25 meeting in Pittsburgh; but the rules drafted in the forthcoming gathering will likely be the end result. Despite these efforts though, the market’s direction will ultimately be decided by speculators. A six month advance in optimism has clearly outpaced fundamentals; and its isn’t likely that the latter will catch up to the former. Interest rate leaders (the ECB and RBA) have taken telegraphed a neutral stance and the OECD has said the global economy’s return to normal will be “protracted and slow.”



...more...

[Festivito]

18. Debt: 09/02/2009 11,797,543,701,288.38 (UP 4,625,530,451.95) (Small jump.)

(Debt up a third of a billion, FICA side up almost four and two-thirds billions. Good day and good Labor Day weekend to all.)

= Held by the Public + Intragovernmental(FICA)
= 7,481,532,410,836.93 + 4,316,011,290,451.45
UP 313,556,741.81 + UP 4,311,973,710.14

Source: Debt to the penny:
http://www.treasurydirect.gov/NP/BPDLogin?application=np

THINKING IN BILLIONS: Think 3 or 4 dollars per billion in a 307-Million person America.
If every American, man, woman and child puts in $3.25 each THAT'S 1B$.
A family of three: Mom, Dad, Child: $9.76, ABOUT TEN BUCKS for a 1B$ federal program.
I hope that is clear. However, I'd suggest using $3 per 1B$ to underestimate it.
Use $4 per 1B$ to overestimate the cost when thinking: Is the federal program worth it?
Aid to Dependant Children: 2B$/yr =$8/yr(a movie a year) Family of 3: $24/yr(an hour of bowling)

PERSONALIZED DEBT:
Every 10 seconds we net gain a another American, so at the end of the workday of the report, there should be 307,340,661 people in America.
http://www.census.gov/population/www/popclockus.html ON 08/24/2009 13:24 -> 307,261,605
Currently, each of these Americans owe $38,385.89.
A family of three owes $115,157.66. (And that is IN ADDITION to their mortgage.)

ANALYSIS:
There were 23 reports in the last 30 to 33 days.
The average for the last 23 reports is 5,577,928,338.42.
The average for the last 30 days would be 4,276,411,726.12.
The average for the last 33 days would be 3,887,647,023.75.
There were 252 reports in 365 days of FY2007 averaging 1.99B$ per report, 1.37B$/day.
There were 253 reports in 366 days of FY2008 averaging 4.02B$ per report, 2.78B$/day.
There were 75 reports in 112 days of GWB's part of FY2009 averaging 8.03B$ per report, 5.38B$/day.
There were 155 reports in 225 days of Obama's part of FY2009 averaging 7.50B$ per report, 5.20B$/day so far.
There were 230 reports in 337 days of FY2009 averaging 7.71B$ per report, 5.26B$/day.

PROJECTION:
There are 1,236 days remaining in this Obama 1st term.
By that time the debt could be between 13.5 and 18.3T$.
It could be higher. It could be lower.

HISTORICAL:
President's term begins and ends on Jan 20.
(Guess who might want to hide the Reagan Bush years. Jan 20 data is missing before 1993.)
01/20/1993 _4,188,092,107,183.60 WJC Inaugural
01/22/2001 _5,728,195,796,181.57 WJC (UP 1,540,103,688,997.97)
01/20/2009 10,626,877,048,913.08 GWB (UP 4,898,681,252,731.43)
09/02/2009 11,797,543,701,288.38 BHO (UP 1,170,666,652,375.30 so far since Obama took office.)

Fiscal Year ends: Sep 30
Borrowed in FY1993: (Maybe later.)
Borrowed in FY1994: 281,261,026,873.94
Borrowed in FY1995: 281,232,990,696.07
Borrowed in FY1996: 250,828,038,426.34
Borrowed in FY1997: 188,335,072,261.61
Borrowed in FY1998: 113,046,997,500.28
Borrowed in FY1999: 130,077,892,735.81
Borrowed in FY2000: _17,907,308,253.43 Bill alone
Borrowed in FY2001: 133,285,202,313.20 Bill and George
Borrowed in FY2002: 420,772,553,397.10 All George
Borrowed in FY2003: 554,995,097,146.46
Borrowed in FY2004: 595,821,633,586.70
Borrowed in FY2005: 553,656,965,393.18
Borrowed in FY2006: 574,264,237,491.73
Borrowed in FY2007: 500,679,473,047.25
Borrowed in FY2008: 1,017,071,524,650.01
Borrowed in FY2009: 1,772,818,804,375.90 so far this fiscal year, broken down below:
Borrowed in FY2009: 0,602,152,152,000.59 in part, from time during Bush reign.
Borrowed in FY2009: 1,170,666,652,375.30 in part, since Obama takes over.


LAST FIFTEEN REPORTS OF ADDITIONS TO PUBLIC DEBT(NOT FICA):
08/12/2009 +000,081,638,592.29 ------------*******
08/13/2009 +004,096,319,823.99 ------------*********
08/14/2009 +000,017,806,259.60 ------------*******
08/17/2009 +012,224,191,599.44 ------------********** Mon
08/18/2009 +036,282,270,009.21 ------------**********
08/19/2009 +000,703,521,737.77 ------------********
08/20/2009 +001,088,553,104.23 ------------*********
08/21/2009 +000,333,547,281.04 ------------********
08/24/2009 +000,472,040,908.69 ------------******** Mon
08/25/2009 +000,287,748,587.67 ------------********
08/26/2009 -000,466,043,865.86 ---
08/27/2009 +008,131,449,864.04 ------------*********
08/28/2009 +000,123,059,531.85 ------------********
09/01/2009 +087,210,147,628.98 ------------********** Tue
09/02/2009 +000,313,556,741.81 ------------********

150,899,807,804.75 Total of 15 above reports.

Heavy borrowing seems to start after 09/18/2008 while Bush was in power JUST BEFORE fiscal year end.
Bush admin borrowed $962,245,245,654.01 in those last 124 days in office crossing two fiscal years.
$360,093,093,653.42 in last 12 days of FY2008, and $602,152,152,000.59 in subsequent 112 days before leaving office.

For a prettier and more explanatory view of our nation's debt:
http://www.brillig.com/debt_clock

(Debt to the penny keeps changing. Stuff is missing. Best to keep our own history.) LAST REPORT:
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=4044050&mesg_id=4044082

[Festivito]

82. Debt: 09/03/2009 11,787,062,206,713.50 (DOWN 10,481,494,574.88) (Both down 5.)

(Debt down five billion, FICA side down five billion. Have a great Labor day weekend.)

= Held by the Public + Intragovernmental(FICA)
= 7,476,060,830,240.66 + 4,311,001,376,472.84
DOWN 5,471,580,596.27 + DOWN 5,009,913,978.61

Source: Debt to the penny:
http://www.treasurydirect.gov/NP/BPDLogin?application=np

THINKING IN BILLIONS: Think 3 or 4 dollars per billion in a 307-Million person America.
If every American, man, woman and child puts in $3.25 each THAT'S 1B$.
A family of three: Mom, Dad, Child: $9.76, ABOUT TEN BUCKS for a 1B$ federal program.
I hope that is clear. However, I'd suggest using $3 per 1B$ to underestimate it.
Use $4 per 1B$ to overestimate the cost when thinking: Is the federal program worth it?
Aid to Dependant Children: 2B$/yr =$8/yr(a movie a year) Family of 3: $24/yr(an hour of bowling)

PERSONALIZED DEBT:
Every 10 seconds we net gain a another American, so at the end of the workday of the report, there should be 307,349,301 people in America.
http://www.census.gov/population/www/popclockus.html ON 08/24/2009 13:24 -> 307,261,605
Currently, each of these Americans owe $38,350.7.
A family of three owes $115,052.11. (And that is IN ADDITION to their mortgage.)

ANALYSIS:
There were 23 reports in the last 30 to 31 days.
The average for the last 23 reports is 6,022,350,527.99.
The average for the last 30 days would be 4,617,135,404.79.
The average for the last 31 days would be 4,468,195,553.03.
There were 252 reports in 365 days of FY2007 averaging 1.99B$ per report, 1.37B$/day.
There were 253 reports in 366 days of FY2008 averaging 4.02B$ per report, 2.78B$/day.
There were 75 reports in 112 days of GWB's part of FY2009 averaging 8.03B$ per report, 5.38B$/day.
There were 156 reports in 226 days of Obama's part of FY2009 averaging 7.39B$ per report, 5.13B$/day so far.
There were 231 reports in 338 days of FY2009 averaging 7.63B$ per report, 5.21B$/day.

PROJECTION:
There are 1,235 days remaining in this Obama 1st term.
By that time the debt could be between 13.5 and 18.2T$.
It could be higher. It could be lower.

HISTORICAL:
President's term begins and ends on Jan 20.
(Guess who might want to hide the Reagan Bush years. Jan 20 data is missing before 1993.)
01/20/1993 _4,188,092,107,183.60 WJC Inaugural
01/22/2001 _5,728,195,796,181.57 WJC (UP 1,540,103,688,997.97)
01/20/2009 10,626,877,048,913.08 GWB (UP 4,898,681,252,731.43)
09/03/2009 11,787,062,206,713.50 BHO (UP 1,160,185,157,800.42 so far since Obama took office.)

Fiscal Year ends: Sep 30
Borrowed in FY1993: (Maybe later.)
Borrowed in FY1994: 281,261,026,873.94
Borrowed in FY1995: 281,232,990,696.07
Borrowed in FY1996: 250,828,038,426.34
Borrowed in FY1997: 188,335,072,261.61
Borrowed in FY1998: 113,046,997,500.28
Borrowed in FY1999: 130,077,892,735.81
Borrowed in FY2000: _17,907,308,253.43 Bill alone
Borrowed in FY2001: 133,285,202,313.20 Bill and George
Borrowed in FY2002: 420,772,553,397.10 All George
Borrowed in FY2003: 554,995,097,146.46
Borrowed in FY2004: 595,821,633,586.70
Borrowed in FY2005: 553,656,965,393.18
Borrowed in FY2006: 574,264,237,491.73
Borrowed in FY2007: 500,679,473,047.25
Borrowed in FY2008: 1,017,071,524,650.01
Borrowed in FY2009: 1,762,337,309,801.10 so far this fiscal year, broken down below:
Borrowed in FY2009: 0,602,152,152,000.59 in part from time during Bush reign.
Borrowed in FY2009: 1,160,185,157,800.42 in part since Obama takes over.


LAST FIFTEEN REPORTS OF ADDITIONS TO PUBLIC DEBT(NOT FICA):
08/13/2009 +004,096,319,823.99 ------------*********
08/14/2009 +000,017,806,259.60 ------------*******
08/17/2009 +012,224,191,599.44 ------------********** Mon
08/18/2009 +036,282,270,009.21 ------------**********
08/19/2009 +000,703,521,737.77 ------------********
08/20/2009 +001,088,553,104.23 ------------*********
08/21/2009 +000,333,547,281.04 ------------********
08/24/2009 +000,472,040,908.69 ------------******** Mon
08/25/2009 +000,287,748,587.67 ------------********
08/26/2009 -000,466,043,865.86 ---
08/27/2009 +008,131,449,864.04 ------------*********
08/28/2009 +000,123,059,531.85 ------------********
09/01/2009 +087,210,147,628.98 ------------********** Tue
09/02/2009 +000,313,556,741.81 ------------********
09/03/2009 -005,471,580,596.27 --

145,346,588,616.19 Total of 15 above reports.

Heavy borrowing seems to start after 09/18/2008 while Bush was in power JUST BEFORE fiscal year end.
Bush admin borrowed $962,245,245,654.01 in those last 124 days in office crossing two fiscal years.
$360,093,093,653.42 in last 12 days of FY2008, and $602,152,152,000.59 in subsequent 112 days before leaving office.

For a prettier and more explanatory view of our nation's debt:
http://www.brillig.com/debt_clock

(Debt to the penny keeps changing. Stuff is missing. Best to keep our own history.) LAST REPORT:
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=4045478&mesg_id=4045531

[Demeter]

22. This Economic Disaster: Story of IndyMac Video

Video - Lecture By William K. Black

William K. Black, the former litigation director of the Federal Home Loan Bank Board who investigated the Savings and Loan disaster of the 1980s, discusses the latest scandal in which a single bank, IndyMac, lost more money than was lost during the entire Savings and Loan crisis.

He will examine the political failure behind this economic disaster, in which not only massive fraud has taken place, but a vast transfer of wealth from the poor and middle class continues as the federal government bails out the seemingly reckless, if not the criminal.

Black teaches economics and law at the University of Missouri, Kansas City and is the author of The Best Way to Rob a Bank Is to Own One. (Run Time: 1 hour, 38 min.)

http://www.informationclearinghouse.info/article23243.htm

[Demeter]

58. Ozy--I Think This Should Be a SMW Permanent Link

at least until the present crisis morphs into something else....it is the most excellent lecture I've seen...

[ozymandius]

100. Adding to Tuesday's thread... n/t

[Demeter]

102. Thank You!

He's got a bunch of them--I'll have to seek them out.

[Demeter]

24. Fruit of the Loom protest over anti-union stand

http://uk.oneworld.net/article/view/163435/1/

Fruit of the Loom universities boycott nears 100 mark, as protest spreads to Britain*

Major student organisations in US and UK announce day of protest over clothing company's human rights violations in Honduras. They will show the magnitude of support for the boycott with a flood of phone calls, emails and colourful protests at company locations.

This Friday, university students in the US and the UK will hold their first-ever “Transatlantic Day of Action” targeting sweatshop abuses by billionaire investor Warren Buffett's clothing company, Fruit of the Loom-Russell Corporation. They are protesting at the closure of a factory after a union was formed, with a supervisor saying 'The workers will starve because they got involved in a union', according to independent reports. <1>

Students from People & Planet <2> and United Students Against Sweatshops <3> are targeting Russell Corporation and its parent company, Fruit of the Loom, over high-profile worker rights violations at the company's factories in Honduras, where Russell is the country's largest private employer. Nearly 100 universities are already boycotting the company, in the largest universities boycott in history: USAS has pushed 91 US universities to sever ties, including the Universities of California, Duke and Georgetown; and the Universities of York, Edinburgh, Birmingham and Birmingham City University in the UK.

Matt McMullen, a student next year at Derby University, said:

'Workers should be able to form a union to end dangerous working conditions and give themselves a good standard of living. Fruit of the Loom have taken away that right in Honduras and that's why students across the world are so angry. The boycott has spread like wildfire across the US and the UK, costing the company tens of millions of pounds. Unless the company reverse their decision there's a lot more to come.'

In the last two years, Russell fired nearly 2,000 employees from two separate factories simply because the employees spoke out against sweatshop conditions including unsanitary drinking water, wages too low to feed a family and verbal abuse. All of these actions violate universities' codes of conduct for clothing suppliers, and Russell has failed to remedy the violations, over eight months after universities raised concerns. The Workers Rights Consortium, an independent factory monitoring group, has reported extensively on Russell violations in Honduras <4>

[Demeter]

25. Geithner asks Congress to raise debt limit

http://www.presstv.ir/detail.aspx?id=102839§ionid=3510213

The US Treasury Secretary has asked Congress to increase the $12.1 trillion debt limit, saying a decision should be made in the next two months.

In a Friday letter to US lawmakers, Timothy Geithner said the Treasury projects that the current debt limit, last raised in February when the $787 billion economic stimulus legislation was passed, could be reached as early as mid October.

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," the letter said.

A Treasury spokeswoman declined to comment on the letter, Reuters reported.

Geithner did not request a specific increase in the letter; however, it is predicted that the Treasury would issue net new debt of as much as $2 trillion in the 2009 fiscal year, which ends September 30 and up to $1.6 trillion in the 2010 fiscal year.

"Congress has never failed to raise the debt limit when necessary," Geithner said, urging support of both Democrats and Republicans for the increase.

[Demeter]

51. Geithner's Editorial: Financial stability depends on more capital

http://www.ft.com/cms/s/0/638b9eb2-98ba-11de-aa1b-00144feabdc0.html?nclick_check=1

By Timothy Geithner

Published: September 3 2009 20:00 | Last updated: September 3 2009 20:00

A year ago, deep concerns about excessive leverage almost brought down the global financial system. The resulting panic severely damaged economies across the world and wiped out trillions of dollars in savings. Since at least the Great Depression, governments have recognised that financial breakdowns have devastating effects, and have put in place safety nets to limit the fall-out from instability.

These safety nets have a cost, because they insulate financial institutions from the full consequences of their actions and can diminish market discipline. We have sought to contain this moral hazard through regulation. We require financial institutions to maintain reserves and capital buffers in proportion to their risk so that they can absorb losses at their own expense, not at the taxpayer’s.

That regulatory framework failed last year. In the benign atmosphere before the crisis, government supervisors and those in the market underestimated risks building in the system. Major global financial institutions maintained capital levels that were too low, relied too heavily on unstable short-term funding, and their compensation plans rewarded excessive risk-taking. Larger banks often held less capital relative to their risks and used more leverage than smaller banks.

The resulting distortions helped make our global financial system dangerously fragile. As that system grew in size and complexity, it became more interconnected and vulnerable to contagion when trouble occurred.

This weekend, the Group of 20 will gather in London to move forward on reforms to put our global financial system on firmer ground. President Barack Obama has outlined a new regulatory framework that promotes stronger protections for consumers and investors and greater financial stability. Making the system safer requires a comprehensive approach including tougher regulation of derivatives, securitisation markets and credit rating agencies, new executive compensation standards and, critically, more powerful tools for governments to wind down firms that fail. We are working with our partners to ensure similar reforms are put in place around the world.

But at the core of our endeavour must be making capital standards for financial institutions stronger. In a recent paper sent to G20 finance ministers, I laid out my views on the principles that should shape a new international accord on capital standards. The fundamental principle is that capital and other regulatory requirements should be designed to ensure the stability of the system, not just the solvency of individual institutions. Such an approach requires a broad shift in the way capital and related regulations are designed.

First, capital requirements for banks simply must be higher across the board. Bringing more capital into the banking system is vital. It is equally crucial to hold the largest, most interconnected institutions, whether or not they own banks, to tougher standards than others.

Second, the regulatory framework also should put a greater emphasis on higher-quality forms of capital that best enable financial groups to absorb losses. Consistent with this principle, during good economic times, common equity should constitute a large majority of a bank’s Tier 1 capital.

Third, capital requirements and accounting rules should be more forward-looking and should reduce the system’s pro-cyclicality. The capital regime should require banks to hold a larger buffer over their minimum capital requirements during good times, to be available in bad times.

Fourth, banks should be subject to explicit liquidity standards designed to improve their resilience in the face of runs by creditors and prevent the build-up of liquidity risk in the financial system as a whole.

Finally, we need to improve the rules used to measure risks embedded in banks’ portfolios and the capital required to protect against them, and put greater constraints on banks’ use of leverage to dampen volatility.

Strengthening capital requirements is an essential part of a broader effort to modernise our regulatory framework so that the financial system is strong enough to withstand the failure of large, complex institutions. That is the most effective way to prevent the world from re-living the events of last autumn. And that is the challenge we must tackle in London, Pittsburgh and beyond.

The writer is US Treasury secretary

[Demeter]

60. Why, Timmy? So You Can Give It To Your 1000 Best Friends?

or buy a small nation for your retirement in exile? Purchase the next President?

[Demeter]

26. Hunger hits Detroit's (former) middle class

http://www.informationclearinghouse.info/article23226.htm

Food has long been an issue in this city without a major supermarket. Now demand for assistance is rising, affecting a whole new set of people.
By Steve Hargreaves,

August 08. 2009 "CNNMoney" -- DETROIT -- On a side street in an old industrial neighborhood, a delivery man stacks a dolly of goods outside a store. Ten feet away stands another man clad in military fatigues, combat boots and what appears to be a flak jacket. He looks straight out of Baghdad. But this isn't Iraq. It's southeast Detroit, and he's there to guard the groceries.

"No pictures, put the camera down," he yells. My companion and I, on a tour of how people in this city are using urban farms to grow their own food, speed off.

In this recession-racked town, the lack of food is a serious problem. It's a theme that comes up again and again in conversations in Detroit. There isn't a single major chain supermarket in the city, forcing residents to buy food from corner stores. Often less healthy and more expensive food.

As the area's economy worsens --unemployment was over 16% in July -- food stamp applications and pantry visits have surged.

Detroiters have responded to this crisis. Huge amounts of vacant land has led to a resurgence in urban farming. Volunteers at local food pantries have also increased.

But the food crunch is intensifying, and spreading to people not used to dealing with hunger. As middle class workers lose their jobs, the same folks that used to donate to soup kitchens and pantries have become their fastest growing set of recipients....

[Liberal_in_LA]

72. +1

[Demeter]

27. U.S. banks to make $38 billion from overdraft fees: report

http://www.reuters.com/article/newsOne/idUSTRE5790YM20090810

Banks in the United States are poised to make $38.5 billion in customer overdraft fees this year, the Financial Times said, citing research by Moebs Services.

A large portion of the revenue is likely to come from the most financially stretched consumers, according to the paper.

It said the research showed that many banks have increased charges on overdrafts and credit cards in order to boost profits.

The median bank overdraft fee rose this year by one dollar to $26, the paper said, citing the Moebs data.

"Banks are returning to a fee-driven model and overdraft fees are the mother lode," Mike Moebs, the company's founder was quoted by the paper as saying.

Overdraft fees accounted for more than 75 percent of service fees charged on customer deposits, the paper cited Moebs as saying.

Last year the U.S. Federal Reserve approved credit card rules to curb "unfair" practices such as surprise fees and interest rate hikes, and new mortgage lending rules are expected this summer. It is also mulling rules to give bank customers the chance to opt out of overdraft schemes that can involve fees.

[Demeter]

28. A Cure for an Ailing Economy Taxing the Rich

http://www.informationclearinghouse.info/article23232.htm



August 10, 2009 "Information Clearing House" --- Healthcare isn’t the only social ill in the U.S. that needs a serious remedy. The list is long and growing: state budget crises, unemployment, infrastructure, education, housing, food assistance, etc. These are all things that must be paid for, but the money seems to be in short supply. When a country is in as much debt as the U.S., – $12 trillion and counting — the tasks at hand seem all but unachievable.

And this is exactly what many politicians would like you to believe.

Fortunately, the seriousness of the crisis is forcing a return to a forgotten, “radical” debate. For the first time in decades, some mainstream media and politicians are posing an extremely controversial question: should we increase taxes on the rich — and if so, how much?

The debate is being open to the public for lack of other options. The social inequality in the U.S. has been rising for decades, and has now reached the point where most of the population has zero disposable income; millions owe much more than they own. The only people who have money to spare are the wealthy. Another reason to tax the rich is that “…tax increases on high-income residents are less harmful than spending cuts; wealthier taxpayers tend to pay higher taxes from savings, not money they would otherwise spend.” (The New York Times, August 3, 2009).

Not pursuing higher taxes on the rich is resulting in social devastation. Look no farther than California, where Governor Schwarzenegger proudly declared that the state budget deficit was balanced “without raising taxes.” Instead, the budget was balanced at the expense of education, health care, welfare, etc. The working class and poor bore nearly the full extent of the burden. This dynamic is quickly turning the country backwards to a world that resembles the last depression.

Indeed, during the great depression tax rates for the wealthiest were raised significantly, from 24% in 1929, to 79% in 1936. Again, it was economic necessity — combined with a growing working class insurgency — that determined the tax increase.

Tax rates for the wealthy remained high for decades — 90% at times — until Regan “revolutionized” the system. The man Obama speaks so highly of lowered the national income dramatically: taxes for the wealthiest individuals fell from 70% to 33% with both Democrats and Republicans voting for the reduction.

In an attempt to partially fund some of his campaign promises, Obama plans to allow the Bush Jr. tax cuts for the rich to expire, which will raise taxes on the wealthiest a mere 3%. This insufficient amount has caused an uproar in some sections of the elite who use their control over media outlets to vent their frustration — branding Obama as a “socialist” (an insult to actual socialists). Their outrage is genuine, since they believe that giving up a little may cause people to then demand they give up much more.

This increasingly venomous rhetoric against taxing the wealthy often comes with implied threats, the most common being: if you tax the super-wealthy and corporations, they will move themselves and their money oversees. Jobs will thus be lost; the economy will be sabotaged.

It must first be noted that the rich are already professional tax evaders, while corporations are giant welfare recipients. Tax “exemptions,” off-shore tax havens, and the type of logic that allows mega-billionaire Rupert Murdoch to pay 17% in taxes from his stock market “earnings” are just a few of the problems in our tax system that need correcting.

Correcting these numerous, irrational loopholes, while greatly increasing taxes on the wealthy and corporations is likely to create the predicted exodus of rich, for the same reasons that the wealthy Venezuelans and Cubans crowd the shores of Miami Beach.

If this were to happen, we needn’t stand idly by as they further bankrupt the country. Such a purposely destabilizing act would require their bank accounts be frozen, and their excess property seized. Although harsh sounding, one must remember that this money isn’t legitimately theirs in the first place: they’ve acquired these billions by de-industrializing the country, driving down wages and slashing benefits, betting on housing bubbles and other financial schemes, bank bailouts, etc. In effect, they’ve bankrupted tens of millions of people and — if threatened by higher taxes — want to take their stolen money and run.

It should also be pointed out that the very question of the rich fleeing from higher taxes proves a higher economic law: our economic system is completely owned and manipulated by a tiny majority of ultra-rich individuals, who shield themselves behind omnipotent sounding corporate names: Goldman Sachs, Wells Fargo, Boeing, etc. This is not a topic of abstract philosophizing, but the cause of the country’s economic crisis.

For decades the whole economy has been run by and for the interests of the corporate elite, with the recent bank bailouts proving this beyond any question — the federal treasury has been opened up for the mega-banks to grab trillions of dollars, with no questions asked.

This bankrupting of the country by bank bailouts and foreign wars is being used by sections of the elite to demand the end of a program long-hated by them: Social Security. The bedrock social program that many have referred to as “untouchable” is in danger of being molested by Obama’s corporate-dominated administration. And although Obama has hinted at the coming attack by repeatedly stating that “entitlement programs need to be reformed,” he has yet to be as blunt as the many recent articles appearing in national magazines and newspapers, intended to soften public opinion. The enormous national debt will be used as the pretext for the attack.

This cannot be allowed to happen; working people and the poor have sacrificed enough. The giant shift of wealth that has occurred in the last 40 years towards the wealthy must cease and be drastically reversed. For society to regain any semblance of equilibrium, wealth must be re-distributed on a magnificent scale, since any society that intends to meet the basic needs of its citizens — food, housing, health care, education, etc. — is utterly incompatible with the current situation, where a small group of billionaires enrich themselves off bursting financial bubbles and war profiteering.

The White House and Congress will do anything to avoid the urgently needed tax increases on the wealthy that the economic situation demands. All kinds of complicated tax increases on the working and middle-classes are likely to be proposed, such as the European-style Value Added Tax, and other taxes on consumption.

Labor unions and community organizations must unite to demand that the very wealthy – the top 5 percent of the population — and corporations pay for the economic crisis that they’ve manufactured. The enormous national debt and the dire need to maintain and expand social services make this demand especially urgent. There’s no time to waste.

And while placing the major burden of taxation on the rich who can afford it is an obvious necessity, a redistribution of existing wealth would be only a temporary solution to the current economic crisis. A basic restructuring of our society— taking political, economic, and social control out of the hands of the tiny group who have wielded power since the founding of this country— is the only road to a prosperous and sustainable future.


Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action (www.workerscompass.org). He can be reached at [e-mail]

[Ghost Dog]

70. Spain's (euro-socialist) govt. says it plans to raise only capital gains taxes

on eg. profits from financial market trading, speculative property deals, etc., and not raise anyone's income taxes. I'm not sure what they plan for company taxes yet...

They are debating directly with union leaderships and business representatives so as to reach consensus on a new "Sustainable Economy Law".

People previously unemployed whose unemployment benefits have run out and have no other source of income will receive €420 per month, with the plan now backdated to Jan 1st (was to be only from Aug 1st).

eg. http://www.elpais.com/articulo/economia/Zapatero/reune/sindicatos/empresarios/explicarles/Ley/Economia/Sostenible/elpepueco/20090904elpepueco_3/Tes

[Demeter]

29. How Corrupt is the Economic System of the U.S.A. Today?

http://www.informationclearinghouse.info/article23230.htm



August 10, 2009 "Political Cortex" -- That is the question. At one time the high standards of the American lifestyle were the envy of the world. That day is gone with the wind.
The 30 nation survey of the Organization for Economic Cooperation and Development in 2008 placed the poverty rate of the U.S.A. only above Mexico and Turkey. The economic gap between rich and poor in the U.S.A. was explained in this report in the Seattle Times December 15, 2008:

“In the United States, the richest 10 percent earn an average of $93,000 — the highest level in this 30 nation survey. The poorest 10 percent earn an average of $5,800 — about 20 percent lower than the average of the 30 nation survey.”

The top executives throughout the world all earn much less than the top executives in business than is the case with top U.S.A. executives.

Now the U.S.A.’s top executives are earning in some cases as high as 400 percent more than the average employee. This has demolished health care and pensions at many corporations.

An August 3 New York Times editorial revealed current U.S. economic statistics:

“Andrew Cuomo, the New York attorney general, revealed that Citigroup paid $5.33 billion in bonuses in 2008, despite losing $27.7 billion, and taking $45 billion bailout from TARP (government bailout money).

“Bank of America got $45 billion bailout from TARP, and paid $3.3 billion in bonuses.

“In all 738 Citigroup employees and 172 at Bank of America took bonuses of one million dollars or more last year.

“The Wall Street Journal reported that Citigroup paid the head of its energy trading unit $98.9 million in 2008, and could award him as much as $100 million this year.”

Some former bank executives at Washington Mutual are now suing Chase Bank, which took over Washington Mutual when the 119 year old, once stable banking institution collapsed.

It isn’t enough that Washington Mutual was brought to its tragic collapse through those high risk mortgages. These same bank executives were providing cash to borrowers, which destroyed Washington Mutual when they defaulted, contributing mightily to the two and a half millions foreclosures that occurred as a result of these risky practices.

Now they are suing Chase, claiming that contracts they executed with Washington Mutual entitled them to bonus money.

They demand this money, regardless of the obvious fact that their bank management brought about Washington Mutual’s collapse.

In the U.S.A. today, over 34 million people are on food stamps. In many cities their food banks are empty.

The U.S. banking system, which was bordering on collapse, was salvaged through a $700 billion plus bailout, which will be paid through taxpayer money. This bailout is on borrowed money which must be paid back with interest.....

When the North American Free Trade Agreement took the U.S. manufacturing base to the cheapest labor locations worldwide, the U.S. manufacturing base vanished.

The U.S. has suffered economically ever since!

[Demeter]

31. Wish You Weren't Here: The Devastating Effects of the New Colonialists

http://www.informationclearinghouse.info/article23237.htm


A new breed of colonialism is rampaging across the world, with rich nations buying up the natural resources of developing countries that can ill afford to sell. Some staggering deals have already been done, says Paul Vallely, but angry locals are now trying to stop the landgrabs

By Paul Vallely

August 10, 2009 "The Independent" -- Thousand of protesters took to the streets, waving the orange flags of the opposition. Before long, looting began. Buildings were set on fire. But the turning point came when a crowd moved from the main square towards the presidential palace. Amid the confusion, someone panicked and gave the order to the troops guarding the palace to open fire. Scores died. The leaders of the army decided they'd had enough and stormed the palace, causing the president to flee.

A typical African coup d'état? Not quite. Certainly there were allegations of corruption in high places. The president had bought a private jet – from a member of the Disney family – for his own personal use. He was accused of unnecessary extravagance, of mismanaging public funds and confusing the interests of the state with his own. But something else had whipped up the protesters in Antananarivo, the capital of Madagascar, earlier this year, when the government of Marc Ravalomanana was overthrown in the former French colony.

The urban poor were angry at the price of food, which had been high since the massive rise in global prices of wheat and rice the year before. Food-price rises hit the poor worse than the rest of us because they spend up to two-thirds of their income on food. But what whipped them into action was news of a deal the government had recently signed with a giant Korean multinational, Daewoo, leasing 1.3 million hectares of farmland – an area almost half the size of Belgium and about half of all arable land on the island – to the foreign company for 99 years. Daewoo had announced plans to grow maize and palm oil there – and send all the harvests back to South Korea.

Terms of the deal had not originally been made public. But then the news leaked, via the Financial Times in London, that the firm had paid nothing for the lease. Daewoo had promised to improve the island's infrastructure in support of its investment. "We will provide jobs for them by farming it, which is good for Madagascar," a Daewoo spokesman said. But the direct cash benefit to Madagascar would be zero – in a country which can barely produce enough food to feed itself: nearly half of the island's children under the age of five are malnourished.

The government of President Ravalomanana became the first in the world to be toppled because of what the United Nations' Food and Agriculture Organization recently described as "landgrabbing". The Daewoo deal is only one of more than 100 land deals which have, over the past 12 months, seen massive tracts of cultivable farmland across the globe bought up by wealthy countries and international corporations. The phenomenon is accelerating at an alarming rate, with an area half the size of Europe's farmland targeted in just the past six months.

To understand the impotent fury that provokes in impoverished farmers, consider the reaction if something similar happened in Britain. The international development policy consultant Mark Weston has a vivid image to help: "Imagine if China, following a brief negotiation with a British government desperate for foreign cash after the collapse of the economy, bought up the whole of Wales, replaced most of its inhabitants with Chinese workers, turned the entire country into an enormous rice field, and sent all the rice produced there for the next 99 years back to China," he suggests.

"Imagine that neither the evicted Welsh nor the rest of the British public knew what they were getting in return for this, having to content themselves with vague promises that the new landlords would upgrade a few ports and roads and create jobs for local people.

"Then, imagine that, after a few years – and bearing in mind that recession and the plummeting pound have already made it difficult for Britain to buy food from abroad – an oil-price spike or an environmental disaster in one of the world's big grain-producing nations drives global food prices sharply upwards, and beyond the reach of many Britons. While the Chinese next door in Wales continue sending rice back to China, the starving British look helplessly on, ruing the day their government sold off half their arable land. Some of them plot the violent recapture of the Welsh valleys."

Change the place names to Africa and the scenario is much less far-fetched. It is happening already, which is why many, including Jacques Diouf, head of the United Nations Food and Agriculture Organization, has warned that the world may be slipping into a "neo-colonial" system. Even that great champion of the free market, the FT, described the Daewoo deal as "rapacious" and warned it is but the most "brazen example of a wider phenomenon" as rich nations seek to buy up the natural resources of poor countries.

The extent of this new colonialism is vast. The buyers are wealthy countries that are unable to grow their own food. The Gulf states are at the forefront of new investments. Saudi Arabia, Bahrain, Kuwait, Oman, Qatar – which between them control nearly 45 per cent of the world's oil – are snapping up agricultural land in fertile countries such as Brazil, Russia, Kazakhstan, Ukraine and Egypt. But they are ' also targeting the world's poorest countries, such as Ethiopia, Cameroon, Uganda, Zambia and Cambodia.

The amounts of land involved are staggering. South Korean companies have bought 690,000 hectares in Sudan, where at least six other countries are known to have secured large land-holdings – and where food supplies for the local population are among the least secure anywhere in the world. The Saudis are negotiating 500,000 hectares in Tanzania. Firms from the United Arab Emirates have landed 324,000 hectares in Pakistan.

But they are not the only buyers. Countries with large populations such as China, South Korea and even India are acquiring swathes of African farmland to produce food for export. The Indian government has lent money to 80 companies to buy 350,000 hectares in Africa and recently lowered the tariffs under which Ethiopian agri-products can enter India. One of the biggest holdings of agriculture land in the world is a Bangalore-based company, Karuturi Global, which has recently bought huge areas in Ethiopia and Kenya.

Food is not all the new colonialists are after. About a fifth of the massive new deals are for land on which to grow biofuels. British, US and German companies with names such as Flora Ecopower have bought land in Tanzania and Ethiopia. The country whose name became a byword for famine at the time of the Live Aid concerts has had more than 50 investors sign deals or register an interest in the cultivation of biofuel crops on its soil.

From Ethiopia's point of view, the economic logic is straightforward: the country is an importer of oil and is therefore vulnerable to price fluctuations on the world market; if it can produce biofuels it will lessen that dependency. But at a cost. To keep the foreign biofuel investors happy, the government doesn't force any companies to carry out environmental impact assessments. Local activists claim that 75 per cent of the land allocated to foreign biofuel firms are covered in forests that will be cut down.

More worrying is the plan by a Norwegian biofuel company to create "the largest jatropha plantation in the world" by deforesting large tracts of land in northern Ghana. Jatropha, which can be cultivated in poor soil, produces oily seeds that can produce biodiesel. A local activist, Bakari Nyari, of the African Biodiversity Network, has accused the company of "using methods that hark back to the darkest days of colonialism... by deceiving an illiterate chief to sign away 38,000 hectares with his thumbprint". The company claims the scheme will bring jobs, but the extensive deforestation which would result would deprive local people of their traditional income from gathering forest products such as shea nuts.

The failed Daewoo land deal in Madagascar may have been intended to be the biggest landgrab planned to date, but it is far from the only one.

So what is the cause of this sudden explosion of land acquisition across the globe? It has its roots in the food crisis of 2007/8, when prices of rice, wheat and other cereals skyrocketed across the world, triggering riots from Haiti to Senegal. The price spike also led food-growing countries to slap export tariffs on staple crops to minimise the amounts that left their countries. That tightened the supply still further, meaning food prices were driven up more by a situation of policy-created scarcity than by supply and demand.

This situation also made many rich countries that are reliant on massive food imports question one of the fundamentals of the global economy: the idea that every country should concentrate on its best products and then trade. Suddenly having unimaginable quantities of cash from oil was not enough to guarantee you all the food you needed. The oil sheikhs of the Gulf states found that food imports had doubled in cost over less than five years. In the future it might get even worse. You could no longer rely on regional and global markets, they concluded. The rush to grab land began.

The logic was clear. The highly populous South Korea is the world's fourth-biggest importer of maize; the Madagascar deal would replace about half of Korea's maize imports, a Daewoo spokesman boasted. The Gulf states were equally open: control of foreign farmland would not only secure food supplies, it would eliminate the cut taken by middlemen and reduce its food-import bills by more than 20 per cent.

And the benefits could only increase. The fundamental conditions that had led to the global food crisis were unchanged, and might easily worsen. The UN predicts that by 2050, the world population will have grown by 50 per cent. Growing the food to feed nine billion people will place enormous pressure on the Earth, eroding soils, denuding forests and draining rivers. Climate change will make all that worse. Oil prices will continue to rise, and with them the cost of fertiliser and tractor fuel. Demand for biofuels would further cut land available for food crops. The 2007/8 price crunch might just be a foretaste of something worse. The times of plenty are already over. Next, there might not be enough food to go round, even for those with lots of money.

We have not really noticed it here, because the UK, like the US, still instinctively seems to place unlimited faith in the ability of the market to provide. But other countries have begun to devise a long-term strategic response.

The clearest public sign of that came in June when, just before the meeting of world leaders at the G8 in Italy, the Japanese prime minister, Taro Aso, asked: "Is the current food crisis just another market vagary?" He replied to his own question: "Evidence suggests not; we are undergoing a transition to a new equilibrium, reflecting a new economic, climatic, demographic and ecological reality."

But the market is having its say, too: the cost of land is rising. Prices have jumped 16 per cent in Brazil, 31 per cent in Poland, and 15 per cent in the midwestern United States. Veteran speculators such as George Soros, Jim Rogers and Lord Jacob Rothschild are snapping up farmland right now. Rogers – who between 1970 and 1980 increased the value of his equities portfolio by 4,200 per cent, and who made another fortune predicting the commodities rally in 1999 – last month said: "I'm convinced that farmland is going to be one of the best investments of our time."

After the disastrous involvement of financial speculators in housing – the global recession had its roots in the development of mortgage-based derivatives – it is hardly reassuring that the same financial whiz-kids are turning to land as a new source of profit. "The food and financial crises combined," says the Philippines-based food lobby group Grain, "have turned agricultural land into a new strategic asset."

In one way, that ought to be a good thing for poor countries. Land is what they have in plenty. And the agricultural sector in developing countries is in urgent need of capital. Aid once provided this, but the share of that which goes to farming fell from $20bn a year in the 1980s to just $5bn a year in 2007, according to Oxfam. A mere 5 per cent of aid now goes to rural-development agriculture, even though in the poorest places such as Africa, more than 70 per cent of the population rely on farming for their income. Decades of low investment have meant stagnating production and productivity.

Landgrab deals ought, at least, to rectify that by injecting much-needed investment into agriculture in these countries. That ought to bring new jobs and a steady income to the rural poor. It should bring new technology and know-how to local farmers. It should develop rural infrastructure, such as roads and grain-storage systems, to the good of the entire community. It should build new schools and health posts that will benefit all. It should give African governments much-needed taxes to invest in developing their countries. All of which should lessen dependency of food aid. Landgrabs should produce a win-win situation.

That was the kind of big billing which the government in Kenya gave to the deal it did recently with the state of Qatar. Just one per cent of land in the Arab emirate is cultivable, so Qatar is heavily reliant on food imports. The deal was that Qatar would get 40,000 hectares of land to grow food in return for building a $2.5bn deep-water port at Lamu in Kenya.

Unfortunately, even as the negotiations with Qatar proceeded, the Kenyan government was forced to announce a state of emergency because a third of Kenya's population of 34 million was facing food shortages. President Mwai Kibaki declared the situation a national disaster and appealed for international food relief. Hungry voters often fail to understand the long-term attractions of the economic advantages which could be brought to Kenya by creating what would be only its second deep-water port and opening up a third of the country – in the arid and neglected north-east – to development. This is a country, after all, where people kill for land, as was shown after the botched elections in 2007.

If the world food crisis tightens, as everyone seems to predict, it will become ever more unpalatable politically for a government such as Kenya's to countenance the massive export of food at a time of shortage. That is even more true in a continent as politically unstable as Africa.

There is, in any case, already fierce opposition from many to projects like this. The land offered to Qatar is in the Tana River delta. It is fertile with abundant fresh water but it is home to 150,000 farming and pastoralist families who regard the land as communal and graze 60,000 cattle there. They have threatened armed resistance. They are supported by opposition activists, who object less to the land being developed, but want it to grow food for hungry Kenyans. Then there are the environmentalists, who say a pristine ecosystem of mangrove swamps, savannah and forests will be destroyed.

The environment is another major worry in many of the great rash of land deals. Growing food crops in huge plantations is dominated by large-scale intensive monoculture production using large quantities of fertiliser and pesticides. The results are spectacular at first – which might satisfy the yen of the outside investors for short-term profit. But it risks damaging the long-term sustainability of tropical soils unsuited for intensive cultivation and can do serious damage to the local water table. It reduces the diversity of plants, animals and insect life and threatens the long-term fertility of the land through soil erosion, waterlogging or increased salinity. The intensive use of agrochemicals could lead to water-quality problems, and irrigating the land-holdings of foreign investors may take water away from other users.

Water is a key issue. In a sense, these aren't landgrabs so much as water grabs, suggests the chief executive of Nestlé, Peter Brabeck-Letmathe. With the land comes the right to draw the water beneath it, which could be the most valuable part of the deal. "Water withdrawals for agriculture continue to increase rapidly. In some of the most fertile regions of the world (America, southern Europe, northern India, north-eastern China), over-use of water, mainly for agriculture, is leading to sinking water tables. Groundwater is being withdrawn, no longer as a buffer over the year, but in a structural way, mainly because water is seen as a free good."

The world needs to begin to think more urgently about water. The average person in the world uses between 3,000 and 6,000 litres a day. Barely a tenth of that is used for hygiene or manufacturing. The rest is used in farming. And the world's lifestyle, with factors such as increased meat-eating, is exacerbating the problem. Meat requires 10 times more water per calorie than plants. Biofuels are one of the most thirsty products on the planet; it takes up to 9,100 litres of water to grow the soya for one litre of biodiesel, and up to 4,000 litres for the corn to be transformed into bioethanol. "Under present conditions, and with the way water is being managed," the Nestlé chief says, "we will run out of water long before we run out of fuel".

Indeed, in many places underground, aquifers are falling; in some regions by several metres a year. Rivers are running dry due to over-use. And the worst problems are in some of the world's most important agricultural areas. If current trends hold, Frank Rijsberman of the International Water Management Institute has warned, soon "we could be facing annual losses equivalent to the entire grain crops of India and the US combined". Between them, they produce a third of all the world's cereals.

Is there a way forward? The Washington-based International Food Policy Research Institute believes so. It has recently produced a report containing recommendations for a binding code of conduct to promote what Japan, the world's largest food importer, called for at the G8 in Italy – responsible foreign investment in agriculture in the face of the current pandemic of landgrabs.

It wants a code "with teeth" to ensure that smallholders being displaced from their land can negotiate mutually beneficial terms with foreign governments and multinationals. It wants measures to enforce any agreement, if promised jobs, wage levels or local facilities fail to materialise. It wants transparency, and it wants legal action in their home countries against firms that use bribes, rather than relying on prosecutions in the Third World. It wants respect for existing land rights – not just those which are written, but those which exist through custom and practice. It wants compulsory sharing of benefits, so that schools and hospitals get built and those living in areas around landgrabs get properly fed. It suggests shorter-term leases to provide a regular income to farmers whose land is taken away for other uses. Or, better still, it would like to see contract farming that leaves smallholders in control of their land but under contract to provide to the outside investor. It demands proper environmental impact assessments. And it says foreign investors should not have a right to export during an acute national food crisis.

No one is fooled that this will be easy. The local elites in developing countries have a vested interest in the lucrative deals on offer. The government in Cambodia has massively promoted landgrabbing, taking advantage of the fact that many land titles were destroyed under the terror of the Khmer Rouge. Mozambique has signed a $2bn deal that will involve 10,000 Chinese "settlers" on its land in return for $3m in military aid from Beijing. The strategic considerations are clear. "Food can be a weapon in this world," as Hong Jong-wan, a manager at Daewoo, put it.

But things are ratcheting up on the other side, too. Landgrabs are "a grave violation of the human right to food", in the words of Constanze von Oppeln of the big German development agency Welthungerhilfe, one of the most prominent campaigners in the field. She speaks for many who have no voice internationally – although they are making their presence felt well enough in their own countries. A huge public outcry erupted in Uganda when its government began talking to Egypt's ministry of agriculture about leasing nearly a million hectares to Egyptian firms for the production of wheat and maize destined for Cairo. Mozambicans have similarly resisted the settlement of the thousands of Chinese agricultural workers on its leased lands. Earlier this year, angry Filipinos successfully blocked a deal by the Philippines government with China which involved an astounding 1,240,000 hectares. And last month the same activists exposed what they call a "secret agricultural pact" between their government and Bahrain. With 80 per cent of the 90 million population landless, the deal is "unlawful and immoral", activists there say.

Food touches something very deep in the human psyche. Do not expect either side to give up without a fight.

[Robbien]

63. That is downright scary

There have been articles here and there about this or that land grab by foreign companies, but this essay puts it altogether where it appears to be a coordinated attack with the end result being just gruesome.

[Demeter]

65. I Doubt it will work, though

Unless you have a massive shipping industry, a massive infantry, and the will to invade on a regular basis, it won't work.

You'd have to have prisoner slavery in the fields, either native or imported. The world would have to have the infrastructure to support imperialism on this scale, and the blindness to let it pass. Multinationals couldn't do this--it wouldn't be profitable.

The nation's that cannot feed themselves cannot support this undertaking, nor can they afford to buy the produce from the predator-states.

It would take a level of complicity and megalomania that sane people cannot ignore and will not enable. And there are a lot of sane people out there. And they will fight for their food and their land.

Stalinism worked because Russia was so isolated, and the rest of the world was preoccupied. I don't think those conditions can be sustained any more.


NOTE: That doesn't mean somebody won't try...and a lot of suffering will result until the effort collapses from at-home crises and revolution abroad.

[Demeter]

32. The Next Fannie Mae

http://online.wsj.com/article/SB10001424052970204908604574334662183078806.html?mod=googlenews_wsj

Ginnie Mae and FHA are becoming $1 trillion subprime guarantors.

Much to their dismay, Americans learned last year that they “owned” Fannie Mae and Freddie Mac. Well, meet their cousin, Ginnie Mae or the Government National Mortgage Association, which will soon join them as a trillion-dollar packager of subprime mortgages. Taxpayers own Ginnie too.

Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this “phenomenal growth.” Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007. (See the nearby table.) Earlier this summer, Reuters quoted Anthony Medici of the Housing Department’s Inspector General’s office as saying, “Who would have predicted that Ginnie Mae and Fannie Mae would have swapped positions” in loan volume?

Ginnie’s mission is to bundle, guarantee and then sell mortgages insured by the Federal Housing Administration, which is Uncle Sam’s home mortgage shop. Ginnie’s growth is a by-product of the FHA’s spectacular growth. The FHA now insures $560 billion of mortgages—quadruple the amount in 2006. Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.

Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.

On June 18, HUD’s Inspector General issued a scathing report on the FHA’s lax insurance practices. It found that the FHA’s default rate has grown to 7%, which is about double the level considered safe and sound for lenders, and that 13% of these loans are delinquent by more than 30 days. The FHA’s reserve fund was found to have fallen in half, to 3% from 6.4% in 2007—meaning it now has a 33 to 1 leverage ratio, which is into Bear Stearns territory. The IG says the FHA may need a “Congressional appropriation intervention to make up the shortfall.”

The IG also fears that the recent “surge in FHA loans is likely to overtax the oversight resources of the FHA, making careful and comprehensive lender monitoring difficult.” And it warned that the growth in FHA mortgage volume could make the program “vulnerable to exploitation by fraud schemes . . . that undercut the integrity of the program.” The 19-page IG report includes a horror show of recent fraud cases.
<1fha>

If housing values continue to slide and 10% of FHA loans end up in default, taxpayers will be on the hook for another $50 to $60 billion of mortgage losses. Only last week, Taylor Bean, the FHA’s third largest mortgage originator in June with $17 billion in loans this year, announced it is terminating operations after the FHA barred the mortgage lender from participating in its insurance program. The feds alleged that Taylor Bean had “misrepresented” its relationship with an auditor and had “irregular transactions that raised concerns of fraud.”

Is anyone on Capitol Hill or the White House paying attention? Evidently not, because on both sides of Pennsylvania Avenue policy makers are busy giving the FHA even more business while easing its already loosy-goosy underwriting standards. A few weeks ago a House committee approved legislation to keep the FHA’s loan limit in high-income states like California at $729,750. We wonder how many first-time home buyers purchase a $725,000 home. The Members must have missed the IG’s warning that higher loan limits may mean “much greater losses by FHA” and will make fraudsters “much more attracted to the product.”

In the wake of the mortgage meltdown, most private lenders have reverted to the traditional down payment rule of 10% or 20%. Housing experts agree that a high down payment is the best protection against default and foreclosure because it means the owner has something to lose by walking away. Meanwhile, at the FHA, the down payment requirement remains a mere 3.5%. Other policies—such as allowing the buyer to finance closing costs and use the homebuyer tax credit to cover costs—can drive the down payment to below 2%.

Then there is the booming refinancing program that Congress has approved to move into the FHA hundreds of thousands of borrowers who can’t pay their mortgage, including many with subprime and other exotic loans. HUD just announced that starting this week the FHA will refinance troubled mortgages by reducing up to 30% of the principal under the Home Affordable Modification Program. This program is intended to reduce foreclosures, but someone has to pick up the multibillion-dollar cost of the 30% loan forgiveness. That will be taxpayers.

In some cases, these owners are so overdue in their payments, and housing prices have fallen so dramatically, that the borrowers have a negative 25% equity in the home and they are still eligible for an FHA refi. We also know from other government and private loan modification programs that a borrower who has defaulted on the mortgage once is at very high risk (25%-50%) of defaulting again.

All of which means that the FHA and Ginnie Mae could well be the next Fannie and Freddie. While Fan and Fred carried “implicit” federal guarantees, the FHA and Ginnie carry the explicit full faith and credit of the U.S. government.

We’ve long argued that Congress has a fiduciary duty to secure the safety and soundness of FHA through common sense reforms. Eliminate the 100% guarantee on FHA loans, so lenders have a greater financial incentive to insure the soundness of the loan; adopt the private sector convention of a 10% down payment, which would reduce foreclosures; and stop putting subprime loans that should have never been made in the first place on the federal balance sheet.

The housing lobby, which gets rich off FHA insurance, has long blocked these due-diligence reforms, saying there’s no threat to taxpayers. That’s what they also said about Fan and Fred—$400 billion ago.

[Demeter]

33. The Creeping Financial Lock-Up

http://www.informationclearinghouse.info/article23251.htm


US attempts to force the Swiss bank, UBS, to divulge information about US account holders to the IRS... are nothing less than an attack on Switzerland’s sovereignty in the form of its ability to establish and maintain its own banking laws.

This is the kind of arcane financial news that is easy to disregard. When people hear "Swiss bank accounts," they may brush off the attacks as the problems of the ultra rich. If only we were so "unfortunate" to have this kind of problem to worry about, right? Unfortunately, however, I think we do. I believe that there is far more to this than a temporary, one-time money grab by the IRS from tax evaders. I believe this is also very bad news even for us "wage slaves."

The day Mr. Huebert’s article appeared, the Justice Department announced that the US and Switzerland had reached an agreement in principle to settle the US lawsuit against UBS AG seeking the names of 52,000 account holders. No details of the agreement were released but, given the amount of leverage that the US can bring to bear on UBS’s operations in the United States, it would be astounding if UBS had not agreed to some major accommodation to US demands.

Let’s go back and supply a little context about how we get to this issue in the first place.

Like most countries, the US taxes its residents on income that they earn outside of the US. Unlike most countries, the US also taxes its nonresident citizens on their worldwide income. Solely by virtue of being born here, the US claims lifelong rights to your earning stream even if you take up permanent residency in another country. As a result, the US is constantly seeking ways, through treaties, laws or, now we see, international strong arm measures, to track the international financial transactions of its citizens, whether in the name of preventing drug trafficking, money laundering, tax evasion or other crimes.

US taxpayers are required to report, and pay taxes, on interest or other earnings derived from foreign accounts. Unlike US banks, which will send you and the IRS a Form 1099 each year, foreign banks do not have an obligation to report your earnings to the IRS. Accordingly, the IRS is keenly interested in finding out from you whether or not you have any such foreign accounts.

Schedule B to Form 1040 (used for reporting interest and dividends) asks, "At any time during (the previous year), did you have an interest in or a signatory or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account?" As described by the law firm of Bove & Langa in an on-line article about this matter, the answer to this question has serious potential consequences:

The question calls for nothing more than checking a "yes" or "no" box in response, but most taxpayers (and many tax preparers) just ignore it. The yes box or the no box, that’s it. There are no boxes that say, "maybe" or "I don’t understand the question," or "I decline to answer on the grounds that an answer may incriminate me." Maybe there should be such choices, since there are many who do not fully understand the serious implications of ignoring the question when such an account exists, or worse, of intentionally providing an incorrect answer, which, surprisingly, may include no answer at all. That is to say, intentionally leaving both boxes blank could be deemed a false answer by the IRS or a court."

In addition to this reporting obligation on Form 1040, a U.S. citizen, resident alien and even certain persons who are not resident but are doing business in the US with no other connection are also required, by the Bank Secrecy Act, to report the existence of a foreign account to the IRS on Treasury Department Form 90-22.1 if the combined total value of all such accounts exceeds $10,000 at any time during the year. The definition of the type of accounts that must be reported is very broad and includes even prepaid credit card and debit card accounts. The report must be filed even if the accounts generate no interest or other taxable income. As described by Bove & Langa, the penalties for a willful failure are quite severe:

"he civil penalties for failing to report the account on the prescribed form . . . can range from up to $10,000 for a "non-willful" failure, and for a willful failure the greater of $100,000 or half the balance in the foreign account. If criminal activities are involved, the monetary penalties are increased and may be accompanied by possible imprisonment for up to ten years. . . . ailure to maintain adequate records of the foreign account may result in additional civil and criminal penalties. The IRS states that records should be kept for five years."

As Mr. Huebert pointed out, while the IRS is seeking information about approximately some $20 billion in UBS accounts, because of the possibility that most people with these accounts may have been accurately reporting all earnings and paying all applicable income taxes on those earnings, it is possible that the IRS will not obtain all that much money, especially when judged against the current federal deficit. However, since the intentional failure to report an account can result in loss of one-half of the entire account, the IRS does indeed have a very strong financial motivation to obtain the UBS information, because even a relatively small number of noncompliant taxpayers with very large foreign accounts could generate sizable revenues. The threat of this penalty alone will give the IRS considerable leverage for nonreporting taxpayers to settle somewhere between the penalties for unintentional and intentional failure, likely resulting in considerable tax revenues from persons who honestly didn’t know they were violating the law.

More importantly, the IRS’s highly visible targeting of the "establishment" Swiss banking system will likely garner much greater future compliance with these reporting obligations, so that the IRS and US government will likely obtain detailed information about many more foreign accounts from people who have either intentionally hidden these accounts or who just want to "play it safe." In this regard, please note that TDF-90-22.1 requires the reporting individual to provide the account number of the account itself, as well as the names of the account holders and name and address of the financial institution, thus providing all the information necessary to enable the governmental to file tax liens, seek the freezing of accounts or other enforcement actions available to it under tax treaties or applicable foreign laws.

Still, it is very likely that these consequences will fall predominantly upon very high-income taxpayers. Unfortunately, the US strong arm tactics to compel foreign banks to disclose US account holders’ information are having an additional, and more disturbing effect on a far greater number of people, and one that is quite possibly also intended by our lords and masters. And that is this: to make it extremely difficult for Americans to have accounts abroad, and therefore to prevent both the safeguarding of wealth outside the United States and living outside of the United States.

According to this Forbes article, Americans are fast becoming pariahs of foreign banks. Because of US demands and pressures, foreign banks in countries around the world are deciding to close Americans' accounts, or are not permitting Americans to open new ones. In some cases, the banks are not terminating or rejecting new applications for just securities or investment accounts, but also current accounts, i.e., the standard checking accounts people use for their living expenses. In other words, the US is making it more difficult for you to live in another country, by creating international difficulties that, in the end, will seriously obstruct your ability to conduct everyday financial transactions in a foreign country. By creating high costs for foreign banks to permit US citizens to open and maintain even checking and savings accounts in foreign countries, US citizens will be unable to have the normal banking services they need to live in a foreign country, and will not be able to do things like pay rent, utilities, travel on public transportation and buy groceries.

Possibly the most unequivocal sign that distinguishes a totalitarian system from a relatively free society is the simple right to leave. In totalitarian societies, the "iron curtain" falls, and "citizens" are not free to leave. The people and their assets are effectively property of the state. They, and everything they produce, are "human resources" that belong to the government. The "citizens" are more accurately described as prisoners confined within their national borders.

The US government’s attacks on foreign financial institutions are one more means by which the US is slowly establishing controls that will prevent the populace from escaping their indentured servant status here, or just escaping, period. One of the effects of these attacks will be, to some extent, to lock American assets into American banks and keep funds here, onshore, where they are readily controllable, seizable and debasable. These attacks are a way of closing the borders, are the makings of a banking "Berlin Wall."

Slowly and methodically, we are being locked in. August 11, 2009

Jeff Snyder is an attorney who works in Manhattan. He is the author of Nation of Cowards – Essays on the Ethics of Gun Control, which examines the American character as revealed by the gun control debate. He occasionally blogs at The Shining Wire. Read this interview with him.

[Demeter]

34. Question for Bernanke: "Do You Have The Cojones To Raise Rates?"

http://www.informationclearinghouse.info/article23257.htm


By Mike Whitney

August 12, 2009 "Information Clearing House" -- Booyah. It's morning in America. The jobless numbers are stabilizing, the stock market is sizzling, quarterly earnings came in better than expected, traders have turned bullish, housing is showing signs of life, and clunker-swaps have given Detroit a well-needed boost of adrenalin. Even Cassandra economists --like Paul Krugman and Nouriel Roubini--have been uncharacteristically optimistic. Is is true; did we avoid a Second Great Depression? Is the worst really behind us?

Maybe. But there is only one way to find out for sure. Raise rates.

Bernanke should welcome the opportunity to show everyone how he's pulled the world's biggest economy back from the brink of disaster. All he needs to do is stop giving away free money, shut down a few of his so-called lending facilities, and stop manipulating interest rates by purchasing mortgage-backed securities (MBS) from Fannie and Freddie. How hard is that?

The S&P 500 has skyrocketed 48 percent since March 9. What's Bernanke waiting for; a 75 percent increase; a 100 percent increase??? How high do stocks have to go to convince Bernanke that the economy can stand on its own two feet without the torrent of cheap liquidity issuing from the Fed?

Bernanke can prove to his critics that the US economy doesn't need the Fed's monetization programs and price fixing; that it doesn't need the liquidity injections and the buying up of junk mortgages. ($80 billion last month alone) After all, as Bernanke opines, "The fundamentals of our economy are strong!"

Right. Now prove it.

All Bernanke has to do is boost rates by a point or two and demonstrate that he's willing to mop up some of the $13 trillion he's pumped into the financial markets. With just one announcement, the Fed chair could show our biggest creditor--China--that he's serious about defending the dollar and the trillion dollars of US Treasuries China purchased believing that the US was a responsible trading partner who would never write checks on an account that was overdrawn by $12 trillion. (The National Debt)

So, go ahead, Ben. Raise rates, shut down the printing presses, roll up the corporate welfare programs. Be a He-man. Make your critics eat their words.

This is from Bloomberg News 8-12-09:

"The Fed’s policy-setting Open Market Committee will today keep the target rate at zero to 0.25 percent and retain plans to buy as much as $1.45 trillion of housing debt by year-end to help secure a recovery, analysts said. The FOMC’s statement is expected at about 2:15 p.m. in Washington."

Hmmmmmm. So all the "green shoots" happy talk is pure gibberish, right? There is no recovery. Bernanke plans to continue flooding the financial system with cheap liquidity. It's all a fraud. Things aren't better; they're worse. Look at the facts.

There were 1.9 million foreclosures in 2009 in the first six months, and there will be another 1.5 before the end of the year. Is that better?

According to Bloomberg: "A glut of unsold homes is also pushing down prices. The 3.8 million homes for sale in June would take 9.4 months to sell at the current pace of transactions, according to the National Association of Realtors. The inventory turnover rate averaged 4.5 months in the six years from 2000 to 2005.....More than 18.7 million homes, including foreclosures, residences for sale and vacation homes, stood vacant in the U.S. during the second quarter. That compared with 18.6 million a year earlier, the U.S. Census Bureau said July 24

Total home sales fell 23.7 percent in June versus a year earlier." Bloomberg)

Massive supply, falling prices, record foreclosures, flagging demand--and according to Deutsche Bank--48 percent of all mortgages will be underwater by 2011. It's all bad.

Here's another clip from Bloomberg today 8-12-09:

"Home price declines in the U.S. ACCELERATED in the second quarter, dropping by a record 15.6 percent from a year earlier, as foreclosures weighed on values.

The median price of an existing single-family home dropped to $174,100, THE MOST IN RECORDS dating to 1979, the National Association of Realtors said today.

“I don’t think we’re at a bottom yet in home prices,” said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. “There’s also a pretty big shadow supply of houses. People are kind of waiting for the bottom but there’s a pent up supply out there.”...Home prices are tumbling even as mortgage rates remain near all-time lows. The average U.S. rate for a 30-year fixed home loan was to 5.22 percent last week, down from 5.25 percent the prior week." (Bloomberg)

The decline in housing prices is ACCELERATING, not slowing down. The historic collapse in real estate is ongoing and it is wiping out trillions in homeowner equity making it increasingly difficult for consumers to borrow on the diminishing value of their collateral. This is why foreclosures, defaults and personal bankruptcies are soaring. (According to the American Bankruptcy Institute: consumer bankruptcy filings reached 126,434 in July, a 34.3% increase year over year, and a 8.7% increase sequentially (116,365 in June). July's number is the highest monthly total since the October 2005 bankruptcy reform aka the Bankruptcy Abuse Prevention and Consumer Protection Act.)

This is why households and consumers can no longer spend as much as they had before the crisis. Credit lines are being pared back; personal savings are rising, and GDP (excluding fiscal stimulus) is shrinking.
Every one of the 3.5 million foreclosures represents hundreds of thousands of dollars the banks will never recoup. NEVER. That's why the rate of bank failures will be much greater than current estimates. The banks are facing a triple-whammy; soaring foreclosures, plummeting asset prices, and a meltdown in commercial real estate. The combo has created a gigantic capital-hole which is forcing the banks to slow lending even to applicants with flawless credit. The Fed has built up excess bank reserves by $800 billion, but it hasn't made a bit of difference. They banks are still not able to lend.

The uptick in housing last month reflects seasonal changes and a shifting of pain from the low end of the market to higher priced homes; nothing more. Homes that are priced over $1 million are now sitting on the market for 20 months; a lifetime in real estate parlance. High-end neighborhoods have turned into leper colonies. Zero interest; zero traffic. Expect a crash this year.

Now take a look at this from CNBC's Diana Olick:

"The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg," said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington.
According to Zillow's latest Homeowner Confidence Survey, 12 percent of homeowners said they would be "very likely" to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8 percent said "likely," while 12 percent said "somewhat likely."

Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million U.S. houses, condos and co-ops, Humphries said.
According to the National Association of Realtors, the market is currently on track to sell 4.89 million homes annually.

"At this pace, it would take about four years to run through this amount of backlogged inventory," he said.

"Shadow inventory has the potential to give us another leg down on home prices during the second half of the year," said Steven Wood, chief economist at Insight Economics in Danville, California. (Diana Olick, "Shadow inventory lurks over US housing recovery" CNBC)

The banks are using all types of accounting tricks to hide the real losses or the true value of downgraded assets. The only difference between a common crook and a commercial banker is a well-paid accountant.
The banking system is broken and its only going to get worse as the hammer comes down on the commercial real estate market. The Fed and Treasury are already working out the details for another stealth bailout that they'll initiate without Congress's approval. It's all very "hush-hush". The plan will involve more mega-leveraging of government liabilities. Bernanke has appointed himself the de facto Czar of Hedge Fund Nation, Clunkerville USA. An article in this week's Financial Times further illustrates how the Fed has transformed the economy into a riverboat casino:

"The Federal Reserve Bank of New York is aggressively hiring traders as its seeks to manage its burgeoning securities holdings, making the central bank one of Wall Street's most active recruiters of financial talent.
The New York Fed - the arm of the US central bank that implements its monetary policy - plans to increase the staff in its markets group to 400 by the end of the year - up from 240 at the end of 2007.

The Fed, which says that most of its new recruits come from private sector financial firms, is hiring employees as many banks, rating agencies, hedge funds and private equity groups shed staff. New York city officials recently estimated that the sector's woes would lead to a loss of up to 140,000 jobs.

The Fed's need for more traders is a direct consequence of the central bank's efforts to keep credit flowing through the US economy. The Fed has been buying fixed-income securities at such a rate that its assets have more than doubled to $2,000bn in the past year, leading the central bank to conclude that it needs more people to monitor the markets and to manage its credit risks." (Financial Times, "NY Fed in hiring spree as assets soar", Aline van Duyn)

Nice, eh? So now the Fed needs to enlist a gaggle of professional speculators just to keep all the balls in the air. What a joke. This isn't a rebound; it's just more hype. Here's Warren Buffett summing it up on CNBC:
"I get figures on 70-odd businesses, a lot of them daily. Everything that I see about the economy is that we've had no bounce. The financial system was really where the crisis was last September and October, and that's been surmounted and that's enormously important. But in terms of the economy coming back, it takes a while.... I said the economy would be in a shambles this year and probably well beyond. I'm afraid that's true."
"The economy is in a shambles". That's from the horse's mouth. Inventories are down 11 percent year-over-year, durable goods are down 10.4 percent y-o-y, industrial capacity is at record lows, manufacturing is still contracting, housing is in the tank, shipping and rail freight are scraping the bottom, retail is in a long-term funk, and--according to Krugman--the slight dip in unemployment was a statistical anomaly. Here's Bob Herbert's great summary of the unemployment data:

"Some 247,000 jobs were lost in July, a number that under ordinary circumstances would send a shudder through the country. It was the smallest monthly loss of jobs since last summer. And for that reason, it was seen as a hopeful sign. The official monthly unemployment rate ticked down from 9.5 percent to 9.4 percent....The country has lost a crippling 6.7 million jobs since the Great Recession began in December 2007...
The percentage of young American men who are actually working is the lowest it has been in the 61 years of record-keeping, according to the Center for Labor Market Studies at Northeastern University in Boston. Only 65 of every 100 men aged 20 through 24 years old were working on any given day in the first six months of this year. In the age group 25 through 34 years old, traditionally a prime age range for getting married and starting a family, just 81 of 100 men were employed.... The numbers are beyond scary; they’re catastrophic.

This should be the biggest story in the United States. When joblessness reaches these kinds of extremes, it doesn’t just damage individual families; it corrodes entire communities, fosters a sense of hopelessness and leads to disorder....

A truer picture of the employment crisis emerges when you combine the number of people who are officially counted as jobless with those who are working part time because they can’t find full-time work and those in the so-called labor market reserve — people who are not actively looking for work (because they have become discouraged, for example) but would take a job if one became available.

The tally from those three categories is a mind-boggling 30 million Americans — 19 percent of the overall work force.

This is, by far, the nation’s biggest problem and should be its No. 1 priority.("A Scary Reality" Bob Herbert, New York Times)

Sorry, Bob, the media has no time for unemployment news. It tends to undermine the positive vibes from green shoots stories.

The stock market rally has made it harder for people to see the truth. But the facts haven't changed. Deflation is setting in across all sectors and the economy has reset at a lower rate of economic activity. Housing prices are falling, consumer spending is slowing, layoffs are rising, and demand is getting weaker. That means growth will be sub-par for the foreseeable future. Here's an excerpt from a speech given by San Francisco Fed Janet Yellen drawing the same conclusion:

"I don’t like taking the wind out of the sails of our economic expansion, but a few cautionary points should be considered... a massive shift in consumer behavior is under way.. American households entered this recession stretched to the limit with mortgage and other debt. The personal saving rate fell from around 8 percent of disposable income two decades ago to almost zero. Households financed their lifestyles by drawing on increasing stock market and housing wealth, and taking on higher levels of debt. But falling house and stock prices have destroyed trillions of dollars in wealth, cutting off those ready sources of cash. What’s more, the stark realities of this recession have scared many households straight, convincing them that they need to save larger fractions of their incomes.... a rediscovery of thrift means fewer sales at the mall, and fewer jobs on assembly lines and store counters....

This very weak economy is, if anything, putting downward pressure on wages and prices. We have already seen a noticeable slowdown in wage growth and reports of wage cuts have become increasingly prevalent—a sign of the sacrifices that some workers are making to keep their employers afloat and preserve their jobs. Businesses are also cutting prices and profit margins to boost sales..... With unemployment already substantial and likely to rise further, the downward pressure on wages and prices should continue and could intensify....

If the economy fails to recover soon, it is conceivable that this very low inflation could turn into outright deflation. Worse still, if deflation were to intensify, we could find ourselves in a devastating spiral in which prices fall at an ever-faster pace and economic activity sinks more and more."

"Falling prices." "Deflation." "Devastating spiral." That's not the kind of honesty that one expects from a Fed chief. Yellen must not be drinking the lemonade.

And don't forget the banking system is still broken. Not a dime from the $700 billion TARP bailout was used to purchase toxic assets. The banks are still drowning in red ink. . Bernanke has known since last September when Lehman Bros. defaulted, that the bad assets would have to be removed before the economy could recover. An underwater banking system is a constant drain on public resources and a drag on growth. Bernanke knows this, but rather than remove the assets by nationalizing the banks or restructuring their debt (as he should have done) he expanded the Fed's balance sheet by $1.2 trillion which provided the liquidity that financial institutions pumped into the stock market. "Bernanke's Rally" has generated the capital the banks needed to keep them from writing-down their debts or filing for Chapter 11, but the problems still persist right below the surface. Just this week, Elizabeth Warren's Congressional Oversight Panel released a damning report which stressed the need to address the issue of toxic assets. According to the COP's report:

"Financial stability remains at risk if the underlying problem of toxic assets remains unresolved....

If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value. Banks will incur further losses on their troubled assets. The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix....

Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem. In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem.

The problem of troubled assets is especially serious for the balance sheets of small banks. Small banks‘ troubled assets are generally whole loans, but Treasury‘s main program for removing troubled assets from banks‘ balance sheets, the PPIP will at present address only troubled mortgage securities and not whole loans.

Given the ongoing uncertainty, vigilance is essential. If conditions exceed those in the worst case scenario of the recent stress tests, then stress-testing of the nation‘s largest banks should be repeated to evaluate what would happen if troubled assets suffered additional losses."

To sum up: There will be NO real recovery until the toxic assets problem is resolved. Unfortunately, the Treasury and Fed have shown that they intend to sweep this issue under the rug for as long as possible.

Toxic assets, falling home prices, widespread malaise in the credit markets are just part of the problem. The deeper issue is the dismal condition of the US consumer who has seen his home equity dissipate, his retirement funds sawed in half,his access to credit curtailed, and his job put at risk. Ordinary working class Americans now face what David Rosenberg calls, "the era of consumer frugality---new paradigm of savings, asset liquidation and debt repayment ." Life styles will have to be toned-down and living standards lowered to meet the new deflationary reality. More and more people will be forced to jettison their credit cards and live within their means. It's not the end of the world, but it does foreshadow a protracted period of negative growth, social unrest and persistent high unemployment. Here's how the Wall Street journal sums it up:

"A surprisingly large number of money managers and economists are warning that, despite the hopeful signs, the economy is still deep in the woods, not strong enough to support a long-running stock and bond recovery....Even after the recession ends, economists expect the gradual reduction of the nation's massive consumer debt to take years.

The debt data are striking. According to the Federal Reserve, total household indebtedness peaked at the end of 2007 at 132% of disposable income. That was by far the highest level since at least the end of World War II, nearly quadruple the 36% of 1952. By the end of March, with families boosting savings, repaying debt and defaulting, the ratio had fallen to 124%, a tad lower but still miles from the level of, say, 69% in the middle of 1985.
Consumer spending today accounts for two-thirds or more of economic output. But as they boost savings and cut borrowing, consumers can't be the drivers of economic growth that they were at the end of other recent recessions.

Consumer borrowing fell in June for the fifth consecutive month....

"Consumers are under significant financial pressure," Goldman notes in its report. "The weakness in household income -- partly resulting from the sharp slowdown in hourly wage growth -- will make it harder to raise saving without significant constraints on consumption."

As for home building and capital spending, two other possible growth motors, "we do not expect a 'traditional' rebound in these sectors, largely because the overhang of unused capacity in both the housing and business sectors remains enormous," Goldman said." ("Debt Burden to Weigh on Stocks", E.S. Browning and Annelena Lobb, Wall Street Journal)

Stock market euphoria can last a long time, but the laws of gravity still apply. The economy is in deep, deep trouble and Bernanke knows it or he'd be raising rates right now. The patient is still hemorrhaging my friends, and no amount of happy talk is going to stop the bleeding.

[Demeter]

50. Memo to Bernanke: "No Wage Growth; No Recovery" By Mike Whitney

http://www.informationclearinghouse.info/article23378.htm


August 28, 2009 "Information Clearing House" --- A recent poll shows that most economists now believe that the recession, which began in December 2007, will end in the third quarter of 2009. There's been an uptick in manufacturing and consumer confidence, and the decline in housing prices appears to be flattening out. Unfortunately, the return to positive GDP will likely be short-lived. The current surge in production is mainly the result of President Obama's fiscal stimulus and the rebuilding of inventories that were slashed after Lehman Bros defaulted in September, 2008. These factors should boost GDP for two or perhaps three quarters before the economy lapses back into recession. The most serious problems facing the economy have not yet been addressed or resolved. Consumer spending and bank lending are still contracting, and the banks are buried beneath $1.5 trillion in toxic assets and non-performing loans. Also, the wholesale credit system, (securitization) which provided up to 40 percent of the credit flowing into the economy, is barely operating. No one really knows whether the system is salvageable or not. On a fundamental level, the financial system is broken and neither the Fed's zero percent interest rates nor Obama's gigantic fiscal stimulus has reversed the prevailing downward trend. Capital has stopped moving; the velocity of money has slowed to a crawl. It's true, things are getting worse slower, but the signs of "recovery" are as faint and irregular as a dying man's breath.

The financial media has played a key role in restoring consumer confidence. Negative reports are air-brushed or shuffled to the back pages while modest improvements in housing, corporate earnings or "clunker" sales are splashed boldly across the headlines. Naturally, most of the media's attention has focused on the 6 month rally in the stock market. The S&P 500 has lunged ahead 52 percent from its March 9 low. But equities are merely reacting to the ocean of liquidity the Fed has poured into the financial system through its quantitative easing (QE) and liquidity swaps. Market analyst Andy Xie explains how it all works in his article "New Bubble Threatens a V-shaped Rebound":

"Central banks around the world, although they haven't done so deliberately, have created another liquidity bubble. It manifested itself first in surging commodity prices, next in stock markets, and lately in some property markets....

"A pure bubble tied to excess liquidity that affects one or many financial assets cannot last long. Its multiplier effect on the broad economy is limited. It could have a limited impact on consumption due to the wealth effect. As it neither stimulates the supply side nor boosts productivity, whatever story it is based on will have holes that become apparent to speculators. It doesn't take long for them to flee. Furthermore, a pure liquidity bubble without support from productivity can easily lead to inflation, which causes tightening expectations that trigger a bubble's burst.

What we are seeing now in the global economy is a pure liquidity bubble. It's been manifested in several asset classes. The most prominent are commodities, stocks and government bonds. The story that supports this bubble is that fiscal stimulus would lead to quick economic recovery, and the output gap could keep inflation down. Hence, central banks can keep interest rates low for a couple more years. And following this story line, investors can look forward to strong corporate earnings and low interest rates at the same time, a sort of a goldilocks scenario for the stock market.

What occurred in China in the second quarter and started happening in the United States in the third quarter seems to lend support to this view. I think the market is being misled. The driving forces for the current bounce are inventory cycle and government stimulus." Andy Xie, "New Bubble Threatens a V-Shaped Rebound" http://english.caijing.com.cn/2009-08-20/110227359.html

Fed chair Ben Bernanke's low interest rates and monetization programs have flooded the markets and created the illusion of economic recovery. But investors and consumers remain skeptical. In fact, (according to zero hedge) less than $400 billion has moved from Money Markets into stocks in the last 6 months even though the index value has increased by more than $2.7 trillion. So, where did the money come from? The Fed has taken trillions in toxic securities onto its balance sheet, thus, providing financial institutions with the liquidity they need to goose the stock market. With securitization in a shambles, the banks have fewer opportunities to meet earnings expectations. Lending is down, but speculation is up. Way up.

Bernanke knows that neither stimulus nor liquidity will fix the economy. That's because many of the financial institutions that took out loans from the Fed are technically insolvent. (Borrowing more money won't help if you're already drowning in red ink) Even so, he is committed to keeping the big banks afloat and patching together the flawed wholesale credit system any way he can. This is why Bernanke should never have been reappointed. True, he demonstrated impressive imagination and skill in pumping liquidity into the financial system, but he's done nothing to role up insolvent institutions or to purge toxic assets and non performing loans from the system. The Fed has merely provided enough taxpayer-funded scaffolding to keep a rotten system propped up a little longer. What good does that do?

As early as 2006, the Bank for International Settlements (BIS) warned that loose monetary policy and complex debt-instruments were increasing systemic risk and could trigger a 1930s-type slump. In June 2008, the UK Telegraph wrote:

"A year ago, the Bank for International Settlements startled the financial world by warning that we might soon face challenges last seen during the onset of the Great Depression. In a pointed attack on the US Federal Reserve, it said central banks would not find it easy to "clean up" once property bubbles have burst...

The fundamental cause of today's emerging problems was excessive and imprudent credit growth over a long period....The Fed and fellow central banks instinctively cut rates lower with each cycle to avoid facing the pain. The effect has been to put off the day of reckoning...

Should governments feel it necessary to take direct actions to alleviate debt burdens, it is crucial that they understand one thing beforehand. If asset prices are unrealistically high, they must fall. If savings rates are unrealistically low, they must rise. If debts cannot be serviced, they must be written off. To deny this through the use of gimmicks and palliatives will only make things worse in the end." (UK Telegraph)

Far from heeding the BIS's warning, Bernanke headed in the opposite direction, doing everything in his power to avoid price discovery and keep the price mortgage-backed securities (MBS) and other toxic assets artificially high by providing full-value, rotating loans to underwater financial institutions. At the same time the Fed was using public funds to prop up financial markets, Bernanke was shrugging off Congress's attempts to find out which companies secured the loans; how much the loans were worth, the terms under which they were issued, and the true "mark-to-market" value of the collateral accepted by the Fed. On Aug 24, 2009, a federal judge ruling on a case brought by Bloomberg News against the Fed decided that " The Federal Reserve must make public reports about recipients of emergency loans from U.S. taxpayers under programs created to address the financial crisis, a federal judge ruled." There's no doubt that the Fed will refuse to provide the relevant information as it would surely expose the Fed's cozy and collusive relationship with the nation's biggest banks. The Fed's stonewalling in the Bloomberg case and refusal to let Congress audit its books stands in sharp contrast with Bernanke's professed commitment to "transparency", a handy buzzword typically invoked by confidence men and charlatans when they feel noose tightening around their necks.

GREEN SHOOTS OR "SUGAR-HIGH"

The bond market has not been duped by the "green shoots" hype. As Paul Krugman points out on his blog,
"Net yields on most longer-term Treasury securities are lower today than they were at the end of May, even as the economy has shown signs of recovery. The 10-year T-note yield is at 3.45% today, down from 3.74% on May 27....There’s no hint in the data of fears about (a) crowding out (b) inflation (c) default." In other words, bonds are priced for deflation, which casts doubt on the rally in the stock market.

Deflation is now visible in every sector of the economy. The banks are facing major losses from dodgy assets and non performing loans (A recent article in US News and World Report predicted that the loss rate on bank loans could rise to 9.1 percent, worse than the 1930s.) financial institutions and households are continuing to deleverage and pay down debt, business investment is a record lows, and unemployment is soaring. Rising defaults, foreclosures and bankruptcies all add to the massive debt liquidation that has brought about a steady decline in economic activity.

Exports are down, so is trucking. Railroad freight is off 18 percent year-over-year. Department stores, building materials, restaurants, furniture sales, appliances, travel, retail, outdoor equipment, tech; down, down, down, down, down and down. You name it; it's down. Consumer credit is plummeting and personal savings are up. Industrial production is down, PPI down. Capacity utilization has slipped to 68.5 percent.(another record) There's so much slack in the system, inflation could be low for years. Commercial real estate--a $3.5 trillion industry--is plunging faster than residential housing. Corporate bond defaults are at record highs, Treasury yields are flat, and the dollar index is teetering at the brink. It's a wasteland.

The main problem is falling demand from stagnant wages. 30 years of anti-labor hysteria and trickle down economics has produced a system where GDP depends on ever-increasing amounts of personal debt. But that only works for so long. When the housing bubble burst in 2006, asset prices began to tumble, and the debt-to-equity ratio for millions of households slipped into the red. Now comes the digging out phase.

It is mathematically impossible for the economy to recover without a strong consumer, but consumer spending will continue to fade until household leverage returns to its long-term trend. (Household borrowing is presently 27 percent above normal trend; about $3 trillion) Economists Martin N. Baily, Susan Lund and Charles Atkins have written an invaluable "must read" analysis of the plight of the US consumer for McKinsey Global Institute titled: "Will U.S. Consumer Debt Reduction Cripple the Recovery?". Here's an excerpt:

"Between 2000 and 2007 US households led a national borrowing binge nearly doubling their outstanding debt to $13.8 trillion. The amount of US household debt amassed by 2007 was unprecedented whether measured in nominal terms, as a share of GDP (98%) or as a ratio of liabilities to personal disposable income (138%) But as the global financial and economic crisis worsened at the end of last year, a shift occurred; US households for the first time since WW2 reduced their debt outstanding......We show that the hit to consumption from household debt reduction, or "deleveraging" will depend on whether it is accompanied by personal income growth."

Over the past decade US household spending has served as the main engine of US economic growth. From 2000 to 2007 US annual personal consumption grew by 44%, from $6.9 trillion to $9.9 trillion--faster than either GDP or household income. Consumption accounted for 77% of real US GDP growth during this period--high by comparison with both US and international experience. The US spendthrift ways have fueled global economic growth as well. The US has accounted for one-third of the total growth in global private consumption since 1990....Powering the US spending spree through 2007 were three strong stimulants; a surge in household borrowing, a decline in saving, and a rapid appreciation of assets." (Martin N. Baily, Susan Lund and Charles Atkins, "Will U.S. Consumer Debt Reduction Cripple the Recovery?" McKinsey Global Institute. http://www.zerohedge.com/sites/default/files/McKindsey%20On%20Consumer%20Debt.pdf

To repeat: "Consumption accounted for 77% of real US GDP growth during this period."..."The US has accounted for one-third of the total growth in global private consumption."

It should be fairly obvious by now that US consumers are undergoing a generational shift and will not be able to lead the way out of the recession as they have in the past. Nor will they miraculously "bounce back" and provide demand for products made abroad. In fact, the export-driven model (Germany, South Korea, Japan, China) is sure to be challenged in ways that were unimaginable just two years ago. With credit lines being cut, and outstanding credit shrinking by trillions in the past year alone, and unemployment nudging 10 percent (16 percent in real terms) the consumer will not be the locomotive driving the global economy. Credit destruction, asset firesales, defaults, and foreclosures will continue for the foreseeable future choking off growth and pushing unemployment higher. Consumption patterns are changing dramatically, although their impact won't be fully-felt until government stimulus programs run out. That's when the signs of Depression will reappear once more.

This is why Bernanke should never have been reappointed as chairman. Bernanke understands the issues---underwater banks, overextended consumers, exotic debt-instruments (derivatives), and an out-of-control financial system--but he's refused to do anything about them. He's made no effort to re-regulate the financial system, but (oddly enough) wants Congress to reward his inaction by elevating him to "Chief Regulator". Go figure? He's also done nothing to determine which institutions can be saved and which should be taken into conservatorship and have their assets put up for auction. Instead, he's given a blanket guarantee to every brokerage house on Wall Street; their garbage paper can be easily traded for US Treasuries or liquidity at any of the Fed's handy-dandy lending facilities. That's not a sign of sound judgment; it's a sign of "regulatory capture". Bernanke is a push-over; Chairman Milquetoast. That's why Wall Street loves him; he gives them cheap capital with one hand and a pat on the back with the other.

It's no secret what's wrong with the economy; the banks are struggling and consumers are broke. But there are remedies, they simply require fresh thinking about regulation and how to maintain aggregate demand. (A boost in pay would be a good start) The real problem is the institutional bias of the Fed itself. The Central Bank's policies are shaped by its allegiance to its constituents, particularly the big banks. Anything that doesn't advance the objectives of the financial establishment, is just not on the Fed's radar. That's why Bernanke's lame efforts to revive the economy will continue to sputter, because we've gone as far as we can without fixing household balance sheets and purging the excessive debt from the system.

The Fed is an obstacle to change, which is why more and more people are starting to figure out that the Fed has got to go.

[Demeter]

68. How Bad Will It Get? By Mike Whitney

http://www.informationclearinghouse.info/article23422.htm



September 03, 2009 "Information Clearing House" -- -The U.S. economy is at the beginning of a protracted period of adjustment. The sharp decline in business activity, which began in the summer of 2007, has moderated slightly, but there are few indications that growth will return to pre-crisis levels. Stocks have performed well in the last six months, beating most analysts expectations, but weakness in the underlying economy will continue to crimp demand reducing any chance of a strong rebound. Bankruptcies, delinquencies and defaults are all on the rise, which is pushing down asset prices and increasing unemployment. As joblessness soars, debts pile up, consumer spending slows, and businesses are forced to cut back even further. This is the deflationary spiral Fed chairman Ben Bernanke was hoping to avoid. Surging equities and an impressive "green shoots" public relations campaign have helped to improve consumer confidence, but the hard data conflicts with the optimistic narrative reiterated in the financial media. For the millions of Americans who don't qualify for government bailouts, things have never been worse.

Kevin Harrington, managing director at Clarium Capital Management LLC, summed up the present economic situation in an interview with Bloomberg News: “If we have a recovery at all, it isn’t sustainable. This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later."

Reflecting on the Fed's unwillingness to force banks to report their losses on hard-to-value illiquid assets, Harrington added, “We haven’t fixed the problem. We’ve just slowed down the official recognition of it."

In the two years since the crisis began, neither the Fed nor policymakers at the Treasury have taken steps to remove toxic assets from banks balance sheets. The main arteries for credit still remain clogged despite the fact that the Bernanke has added nearly $900 billion in excess reserves to the banking system. Consumers continue to reduce their borrowing despite historically low interest rates and the banks are still hoarding capital to pay off losses from non performing loans and bad assets. Changes in the Financial Accounting Standards Board (FASB) rules for mark-to-market accounting of assets have made it easier for underwater banks to hide their red ink, but, eventually, the losses have to be reported. The wave of banks failures is just now beginning to accelerate. It should persist into 2011. The system is gravely under-capitalized and at risk. Christopher Whalen does an great job of summarizing the condition of the banking system in a recent post at The Institutional Risk Analyst:

"The results of our Q2 2009 stress test of the US banking industry are pretty grim. Despite all of the talk and expenditure in Washington, the US banking industry is still sinking steadily and neither the Obama Administration nor the Federal Reserve seem to have any more bullets to fire at the deflation monster. With the dollar seemingly set for a rebound and the equity and debt markets looking exhausted, one veteran manager told The IRA that the finish of 2009 seems more problematic than is usual and customary for the end of year.

Plain fact is that the Fed and Treasury spent all the available liquidity propping up Wall Street’s toxic asset waste pile and the banks that created it, so now Main Street employers and private investors, and the relatively smaller banks that support them both, must go begging for capital and liquidity in a market where government is the only player left. The notion that the Fed can even contemplate reversing the massive bailout for the OTC markets, this to restore normalcy to the monetary models that supposedly inform the central bank’s deliberations, is ridiculous in view of the capital shortfall in the banking sector and the private sector economy more generally." (2ndQ 2009 Bank Stress Test Results: The Zombie Dance Party Rocks On" Christopher Whalen, The Institutional Risk Analyst)

It's not just the banking system that's in trouble either. The stock market is beginning to teeter, as well. Bernanke's quantitative easing (QE) program has provided enough liquidity to push equities higher, but he's also created another bubble that's showing signs of instability. According to Charles Biderman, CEO of TrimTabs Investment Research, the Fed's bear market rally has run out of gas and company insiders are headed for the exits as fast as they can.In a Bloomberg interview Biderman said:

"Insider selling is 30 times insider buying, while corporate stock buybacks are non-existent. Companies are saying they don't want to touch their own stocks."..."When companies are heavy sellers (of their own stocks) and retail customers are borrowing to buy stocks; that's always been a sign of a market top."

The best-informed market participants believe that the 6-month rally is beginning to fizzle out. The consensus is that stocks are grossly overpriced and the fundamentals are weak. Bernanke's strategy has improved the equity position of many of the larger financial institutions but, unfortunately, there's been no spillover into the real economy. Money is not getting to the people who need it most and who can use it to get the economy moving again.

The economy cannot recover without a strong consumer. But consumers and households have suffered massive losses and are deeply in debt. Credit lines have been reduced and, for many, the only source of revenue is the weekly paycheck. That means everything must fall within the family budget. The rebuilding of balance sheets will be an ongoing struggle as households try to lower their debt-load through additional cuts to spending. But if wages continue to stagnate and credit dries up, the economy will slip into a semi-permanent state of recession. Washington policymakers--steeped in 30 years of supply side "trickle down" ideology--are not prepared to make the changes required to put the economy on a sound footing. They see the drop in consumption as a temporary blip that can be fixed with low interest rates and fiscal stimulus. They think the economy has just hit a "rough patch" between periods of expansion. But a number of recent surveys indicate that they are mistaken, and that "This time it IS different". Working people have hit-the-wall. Consumers will not be able to lead the way out of the slump.

According to a recent Gallup Poll:

"Baby boomers' self-reported average daily spending of $64 in 2009 is down sharply from an average of $98 in 2008. But baby boomers -- the largest generational group of Americans -- are not alone in pulling back on their consumption, as all generations show significant declines from last year. Generation X has reported the greatest spending on average in both years, and is averaging $71 per day so far in 2009, down from $110 in 2008....

Gallup finds significant declines among all generations in average reported daily spending in 2009 compared to 2008. Given that consumer spending is the primary engine of the U.S. economy, it's not clear how much the economy can grow unless spending increases from its current low levels. But spending may not necessarily be the best course of action for baby boomers as they approach retirement age and prepare to rely on Social Security and their retirement savings as primary sources of income. Indeed, the two generations consisting largely of retirement-age Americans consistently show the lowest levels of reported spending. ("BBoomers’ Spending, Like Other Generations’, Down Sharply)

TONS OF COMMENT AT LINK

[Demeter]

87. Skip the Happy Talk This Depression is just beginning By Mike Whitney

http://www.informationclearinghouse.info/article23182.htm

From August (first week)

Too bad Pulitzers aren't handed out for blog-entries. This year's award would go to Zero Hedge for its "The 'Money on the Sidelines' Fallacy" post. This short entry shows why the economy will continue its downward slide and why the US consumer will not get off the mat and resume spending as he has in the past. The fact is the Net Wealth of US Households has "declined from a peak of $22 trillion to just under $12 trillion in early March."

Ouch!

The problem is compounded by the fact that Total US Household debt, as of first quarter 2009, amounts to roughly $13 trillion, and has stayed within that range for the last 3 and a half years.

Zero Hedge:

"From the end of 2007 through Q1 of 2009, household equity has declined by 94%. Is it surprising that today's GDP number would have been a complete debacle if the consumer had been left alone to prop the U.S. economy, on whom 70% of the economy is reliant? Obama pulled a Hail Mary with the stimulus: without it there would be no debate America is in a depression right now." (http://www.zerohedge.com/article/money-sidelines-fallacy)

What does all this mean?

It means the consumer is down-for-the-count. His credit lines have been cut, his home equity eviscerated, and his checking account swimming in red ink. That spells trouble for an economy that's 70% dependent on consumer spending for growth....which brings us to another interesting point. The uptick in GDP last quarter was almost entirely the result of the surge in government spending; ie "fiscal and monetary stimulus". How long can that go on? How long will China keep slurping up US Treasuries rather than let their currency rise? Here's a clip from the Wall Street Journal on Friday:

"Shaky auctions of Treasury notes this week reignited concerns about whether the government can attract buyers from China and elsewhere to soak up trillions in new debt.

A fuse was lit this week when traders noted China's apparent absence from direct participation in two Treasury bond auctions. While China may have bought Treasurys just before the auctions, market participants read the country's actions as a worrying sign that China and other foreign investors may be ratcheting back purchases at a time when the U.S. is seeking to fund a $1.8 trillion budget deficit.

This week alone, the U.S. deluged the bond market with more than $200 billion in record-size sales. The U.S. has had little trouble finding buyers in recent months. But that demand is fading, and the Treasury market has become volatile."

Uncle Sam is goosing the bond market just like he is the stock market. (more on that later) Take a look at Treasury's latest bit of chicanery which appeared in the back pages of the Wall Street Journal in June:

"The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world's central banks are still willing to help absorb the avalanche of supply, mightn't be all that it seems.

When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.'s budget deficit.

But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners." ("Is foreign Demand as solid as it looks, Min zeng)

Hmmmm.

So, someone doesn't want you and me to know that foreign demand has gone to the dogs. That's not encouraging. So, they move the shells around the table and "Presto"---central banks and foreign investors can't get enough of those fetid T-Bills. What a racket.

This is what happens when monetary policy is handed over to bank-vermin and Ponzi-scam artists. Anything goes!

The Zero Hedge article shows that homeowners used the equity in their homes to fuel the soaring stock market.

Zero Hedge: "Most interesting is the correlation between Money Market totals and the listed stock value since the March lows: a $2.7 trillion move in equities was accompanied by a less than $400 billion reduction in Money Market accounts!

Where, may we ask, did the balance of $2.3 trillion in purchasing power come from? Why the Federal Reserve of course, which directly and indirectly subsidized U.S. banks (and foreign ones through liquidity swaps) for roughly that amount. Apparently these banks promptly went on a buying spree to raise the all important equity market, so that the U.S. consumer who net equity was almost negative on March 31, could have some semblance of confidence back and would go ahead and max out his credit card. Alas, as one can see in the money multiplier and velocity of money metrics, U.S. consumers couldn't care less about leveraging themselves any more."

You read that right! Only $400 billion of that fantastic 6 month "green shoots" stock market rally came from money market accounts. The rest ($2.3 trillion) was laundered through the banks and other financial institutions to create the appearance of recovery and to raise equity for underwater banks rather than forcing them into receivership (which is where they belong) Bernanke probably knew that congress wouldn't approve another TARP-type bailout for dodgy mortgage-backed assets, so he settled on this shifty plan instead. The only problem is, the banks are still broke, business investment is at historic lows, consumers are on the ropes, the unemployment lines are swelling, the homeless shelters are bulging, the pawn shops are bustling, tent cities are sprouting up everywhere, and according to MarketWatch, Corporate insiders have recently been selling their companies' shares at a greater pace than at any time since the top of the bull market in the fall of 2007."

Face it; the economy is in the crapper and Bernanke's trickery hasn't done a lick of good.


It's been two years since the crisis began and nothing... NOTHING has been done to fix the banking system or force the banks to write-down their shi**y assets to market. But the losses are real and no amount of Congressionally approved accounting hanky-panky (like suspending mark-to-market) will change a bloody thing.

So, how bad will it get?

Well, it depends on whether the FDIC decides to continue to allow financial institutions like Corus and Guaranty Banks to operate with "negative Tier 1 ratio" hoping that all the green shoots happy talk can turn insolvent institutions into thriving mega-banks. "Abrakadabra".

Karl Denninger explains this latest hoax in a recent entry on his site Market Ticker:

"So what's going on here?

Simple: An enormous number of banks are holding loans at or close to "par" that really aren't. They're holding mortgages at massively-inflated values, even on defaulted properties, and this is why you are not seeing more foreclosure sales - that is, why inventory is being held back. If they sell it the accountants will force recognition of the loss, which will render them instantly insolvent, but so long as they "extend and pretend" they are marking these loans way, way above recovery value. The upshot of this is that these firms' balance sheet claims on asset values are massively inflated, regulators know it, and they're intentionally ignoring it."

Bingo! It's all 100% fakery conducted right under the nose of the Fed, the Treasury and the FDIC.

How many hundreds of banks are being kept on life-support because the FDIC is down to its last few farthings and doesn't want to ignite a panic?

Stay tuned.

The banking system is insolvent and the fact that the politically-connected big banks talked their their friends at the Fed into pumping liquidity into equities so they could access the capital markets, doesn't change matters for the hundreds of local and regional banks that will be caught in next year's downdraft. Prepare for massive consolidation with G-Sax and JPM left to pick up former competitors for pennies on the dollar.


FIRING UP THE PRINTING PRESS

Keep in mind that Wall Street veterans knew from the very beginning that Bernanke's quantitative easing (QE) was a load of malarkey intended to justify keeping toxic asset prices artificially high while pumping trillions into the stock market. Here's former hedge fund manager Andy Kessler's analysis way back in May:

"On March 18, the Federal Reserve announced it would purchase up to $300 billion of long-term bonds as well as $750 billion of mortgage-backed securities. Of all the Fed's moves, this "quantitative easing" gets money into the economy the fastest -- basically by cranking the handle of the printing press and flooding the market with dollars (in reality, with additional bank credit). Since these dollars are not going into home building, coal-fired electric plants or auto factories, they end up in the stock market.

A rising market means that banks are able to raise much-needed equity from private money funds instead of from the feds. .....It's almost as if someone engineered a stock-market rally to entice private investors to fund the banks rather than taxpayers." (Andy Kessler "Was it a Sucker's Rally" Wall Street Journal)

What a swindle.

Bernanke's had a good go-of-it, juicing the market through the backdoor and concealing--as much as possible--who is still buying US Treasuries. (who knows; maybe it's the Fed buying its own paper offshore?!?) But what good will it do? The US consumer is broke; the tank is on empty. Household equity has declined by 94%, jobs are scarce, personal savings are rising, and families are cutting back and hunkering down. It will take a decade or more before household debt is whittled-away to a point where people can consume at pre-crisis levels. Another stock market bubble won't change a damn thing. This Depression is just beginning.

[Demeter]

88. The World Needs A Breather From The US. And they'll get it sooner than many think By Mike Whitney

http://www.informationclearinghouse.info/article23214.htm


August 14, 2009 "Information Clearing House" -- We're making this way too complicated. It's simple really.

The Fed has only one tool at its disposal; to create more money. Typically, the way the Fed adds to the money supply is by lowering interest rates. When the Fed lowers rates below the rate of inflation; they're basically selling dollars for under a buck. That's a good deal, so, naturally, speculators jump on it and trigger a credit expansion. What follows is a frenzy of market activity that ends in a housing, credit, tech or equity bubble. Eventually, the bubble bursts and the economy goes into a tailspin. Then, after a period of digging-out, the process resumes again. Wash, rinse, repeat. It's always the same.

The moral is: Cheap money creates bubbles; and bubbles move wealth from workers to rich motherf**kers. It's as simple as that. That's why the wealth gap is wider now than anytime since the Gilded Age. The rich own everything.

The Federal Reserve is the policy arm of the big banks and brokerage houses. Period. Ostensibly, its mandate is to maintain "price stability and full employment". Right. Anyone notice how many jobs the Fed has created lately? How about the dollar? Is it really supposed to zig-zag like it has been for the last decade? The central task of the Fed is to shift wealth from one class to another. And it succeeds at that task admirably.

The Fed's "mandate" is public relations claptrap. Bernanke hasn't lifted a finger for homeowners, consumers or ordinary working stiffs. "Yer on yer own. Just don't expect a handout. That's socialism!" All the doe is flowing upwards...according to plan. The Fed is a social engineering agency designed to serve as the de facto government behind the smokescreen of democratic institutions. Did you really think a black, two year senator with no background in foreign policy or economics was calling the shots?

Puh-leeese! Obama is a public relations invention who's used to cut ribbons, console the unemployed, and convince Americans they live in a "post racial" society. Right. (Just take a look at the footage from Katrina again)

The Fed has complete control over monetary policy and, thus, the country's economic future. Bernanke doesn't even pretend to defer to Congress anymore. Why bother? After Lehman caved in, Bernanke invoked the "unusual and exigent" clause in the Fed's charter and declared himself czar. Now he has absolute power over the nation's purse-strings.

The $13 trillion the Fed has committed to the financial system since the beginning of the crisis --via loans and outright purchases of mortgage-backed garbage and US sovereign debt--was never authorized by Congress. In fact, the Fed stubbornly refuses to even identify which institutions got the "loans", how much the loans were worth, what kind of collateral was accepted for the loans, or when the loans have to be repaid.

In truth, the loans are not loans at all, but gifts to the industry to keep asset prices artificially high so that the entire financial system does not come crashing down. Check this out:

"In an analysis written by economist Gary Gorton for the Federal Reserve Bank of Atlanta’s 2009 Financial Markets Conference titled, "Slapped in the Face by the Invisible Hand; Banking and the Panic of 2007", the author shows that mortgage-related securities ballooned from $492.6 billion in 1996 to $3,071.1 in 2003, while asset backed securities (ABS) jumped from $168.4 billion in 1996 to $1,253.1 in 2006. All told, more than $20 trillion in securitized debt was sold between 1997 to 2007. "

$20 trillion! How much of that feces paper--which is worth just pennies on the dollar-- is sitting on the balance sheets of banks and other financial institutions just waiting to blow up as soon as the Fed asks for its money back? And the Fed will never get its money back because the prices of complex securities and derivatives will never regain their pre-crisis values. Why? Because these derivatives are linked to underlying collateral (mortgages) which have already declined 33% from their peak and are headed lower still. Also, these toxic assets were sold as risk-free (many of them were rated triple A) and have now been exposed as extremely risky or fraudulent. Because these assets were heaped together in bundles to strip out their interest rates, they cannot be easily separated which means that they are worth considerably less than the 33% that has been lost on the underlying collateral (mortgages) The securitization markets are not expected to rebound for a decade or more, which means that the Fed will have to find other more-creative way to goose the credit system to avoid a downward spiral.

But how?

Zero percent interest rates haven't worked because qualified borrowers are cutting spending and saving their disposable income, while people who need to borrow, no longer meet the banks' tougher lending standards. Bank credit is shrinking even though excess bank reserves are nearly $900 billion. When banks stop lending, the economy contracts, business activity slows, unemployment soars and growth sputters.
Presently, the economy is still contracting, but at a slower pace than before. "Less bad" is the new "good". All the recession indicators are still blinking red--income, employment, sales, and production--all down big! But it doesn't matter because it's a "Green Shoots" rally; plenty of cheap liquidity for the markets and a freeway off-ramp (for sleeping) for the unemployed.

The Fed's lending facilities are designed to pump liquidity into the system and inflate another bubble by generating more debt. Unfortunately, most people accept Bernanke's feeble defense of these corporate-welfare programs and fail to see their real purpose. An example may help to explain how they really work:

Say you bought a house at the peak of the bubble in 2005 and paid $500,000. Then prices dropped 40% (as they have in Calif) and your house is now worth $300,000. If you only put 5% down, ($25,000) then you are underwater by $175,000. Which means that you own more on the mortgage than your house is currently worth. (This is essentially what has happened to the entire financial system. The equity has vaporized, so institutions are using dodgy accounting tricks instead of reporting their real losses.) So Bernanke comes along and gives you $175,000 no interest, rotating loan to you so that no one knows that you are really busted and you can continue spending just as you had before. Not bad, eh? This is what the lending facilities are all about. It is a charade to conceal the fact that a large portion of the nation's financial institutions are insolvent and propped up by state largess.

But there's more, too.

Now that Bernanke has given you $175,000 no interest, rotating loan; you expect that eventually he will ask for his money back. Right? So your only hope of saving your home, in the long run, is to engage in risky behavior, like dabbling the stock market. It's like playing roulette, except you have nothing to lose since you are underwater anyway.

This is exactly what the financial institutions are doing with the Fed's loans. They're betting on equities and hoping they can avoid the Grim Reaper.

Here's how former hedge fund manager Andy Kessler summed it up last week in the Wall Street Journal: "By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market." (Andy Kessler, "The Bernanke Market" Wall Street Journal)

Only a small portion of the money that has gone into the stock market in the last 6 months (since the March lows) has come from money markets. The fed's loans are being laundered into stocks via financial institutions that are rolling the dice for their own survival. The uptick in the markets has helped insolvent banks raise equity in the capital markets so they don't have to grovel to Congress for another TARP bailout.

Everybody's elated with Bernanke's latest bubble except working people who have seen their wages slashed by 4.5%, their credit lines cut, the home values plunge, and their living standards sink to third world levels.

And the Fed's spending-spree is not over yet; not by a long shot. The next wave of home foreclosures (already 1.9 million in the first half of 2009) is just around the corner--the Alt-As, option arms, prime loans. The $3.5 trillion commercial real estate market is capsizing. The under-capitalized banking system will need assistance. And there will have to be another round of fiscal stimulus for ailing consumers. Otherwise, foreign holders of US Treasurys will see that the US can no longer provide 25% of global demand and head for the exits.

Bernanke's back is against the wall. The only thing he can do is print more money, shove it though the back door of the stock exchange and keep his fingers crossed. The rest is up to CNBC and the small army of media cheerleaders.

There is some truth to the theory that Bernanke saved the financial system from a Chernobyl-type meltdown. But that doesn't change the facts. Accounts must be balanced; debts must be paid.
The Fed chief has committed $13 trillion to maintain the appearance of solvency. But the system is bankrupt. The commercial paper market, money markets, trillions of dollars of toxic debt instruments, and myriad shyster investment banks and insurance companies are now backed by the "full faith and credit" of the US Treasury. The financial system is now a ward of the state. The "free market" has deteriorated into state capitalism; a centralized system where all the levers of power are controlled by the Central Bank. If Bernanke's Politburo withdraws its loans--or even if he raises interest rates too soon-- the whole system will collapse.

The economy is now balanced on the rickety scaffolding of the dollar. As the Obama stimulus wears off, the rot in the economy will become more apparent. Household red ink is at record highs, so personal consumption will not rebound. That means US assets and US sovereign debt will become less attractive. Foreign capital will flee. The dollar will fall.

The world needs a breather from the US. And they'll get it sooner than many think.

[Demeter]

37. (Tony) Blair bank targeted in £8.5bn FSA probe

http://www.thisismoney.co.uk/markets/article.html?in_article_id=489457&in_page_id=3

The bank where Tony Blair is an adviser is the target of an unprecedented probe involving billions of pounds of customers' funds, the Daily Mail can disclose. Tony Blair was recruited for his 'advice and insight' by Jamie Dimon, chief executive of JP Morgan

JP Morgan Chase, whose chief executive Jamie Dimon last year recruited the former prime minister as an adviser, is being investigated by the City's watchdog, the Financial Services Authority for allegedly failing to keep track of £8.5bn of clients' money.

The FSA has called in a top firm of accountants to examine the bank's London activities after evidence emerged that JP Morgan had mixed customers' funds with its own.

Banks are meant to maintain a strict segregation of their own money from that which is held on behalf of clients.

But JP Morgan managers in London discovered last month that client and bank money used for trading futures and options - a way of speculating on movements in currencies, share prices and commodities - had apparently been put into a single pool.

They raised the alarm and notified the FSA. The scale of case is unprecedented, say City insiders. The FSA has penalised small firms in the past for mixing funds owned by clients and the banks themselves.

But this is thought to be the first case involving such a large household name.

JP Morgan Chase faces the threat of an unlimited fine if the watchdog decides enforcement action is necessary.

News of the FSA investigation will come as a huge embarrassment for the bank, which is valued on Wall Street at £100bn.

It is thought that the JP Morgan Chase problem dates back to late 2002. This followed the takeover of JP Morgan by Chase Manhattan two years earlier.

Assets were not segregated to protect clients as FSA rules demand, insiders believe.

When the issue first came to light last month and the FSA was told, the authority called in specialists from leading accountancy firm KPMG to investigate.

The cost of the probe - known as a section 166 review - will be met by the bank.

Sources say that KPMG's team of investigators has been working at JP Morgan Chase's offices on London Wall in the City, combing through records and e-mails and interviewing staff.

Bank employees who were involved in handling client funds in 2002 as well as those still responsible have been questioned. The KPMG team has been asked to find out what checks, if any, were made to ensure that clients' money has been kept safe and segregated.

The accountants have also been asked to calculate if clients lost out because they were not paid any interest they might have been due.

Senior figures at the bank could be reprimanded or even barred from working in the City if the FSA concludes that they were slack in setting up systems for separating customers' funds.

JP Morgan share price graphic enlarge

The accountants have been asked to deliver their preliminary findings to the FSA by the end of this month. A final report is due by the end of September. These reports will not be made public - unless the FSA subsequently decides that the bank should be punished.

JP Morgan Chase has been regarded as one of the more robust of the banks to emerge from last year's meltdown in the global financial system. Among the six largest US banks, it is the only one to have stayed consistently in the black since the recession began in 2007.

But it still took £15bn last year under the US government's programme to prop up the financial system. The money has since been repaid.

Last month, the bank reported quarterly earnings of £1.64bn, which was a major factor in spurring the recovery in its shares and in Wall Street prices as a whole.

A report last week showed that last year, the firm paid bonuses of £600,000 ($1m) or more to 1,626 employees. Of those, more than 200 received at least £1.8m. The top four earners received a total of nearly £45m between them.

JP Morgan Chase said: 'We have no comment.'

The FSA said: 'We wouldn't comment on whether we are doing an investigation.' KPMG also declined to comment.

How the former PM has reaped millions

Tony Blair was recruited by JP Morgan Chase in January last year.

The bank refuses to say how much he is paid for his part-time job, but the sum is reckoned to be more than £500,000 a year.

Jamie Dimon, CEO of JPMorgan Chase & Co
Jamie Dimon: JP Morgan Chase chief executive

At the time of the appointment, the bank said that Blair 'will advise JP Morgan Chase's chief executive officer and senior management team on a part-time basis - drawing upon his immense international experience to provide the firm with strategic advice and insight on global political issues and emerging trends.'

Jamie Dimon, JP Morgan's chief executive, said Blair would be 'enormously valuable' to the bank. 'There are only a handful of people in the world who have the knowledge and relationships he has.'

Blair said: 'They are a leading company at the cutting edge of the global economy... I look forward to advising them on how they approach the huge political and economic changes that globalisation brings.'

But the job provides only a small share of the ex-Prime Minister's earnings. He was taken on by financial services group Zurich to 'provide general guidance on developments and trends in the international political environment.'

He has also signed a contract to advise the government of Kuwait. And an advance on his memoirs is reckoned to have brought him £4.5m. But his biggest earnings are thought to come from speaking engagements. For a single half-hour speech in the Philippines earlier this year, Blair was paid more than £180,000.

Watchdog's tight rules on clients' funds

The Financial Services Authority has strict and detailed rules to prevent a financial institution from mixing up customers' money with its own. The bank must be able to tell what funds belong to which client and what funds are held for the firm itself.

Two full chapters of its rulebook are devoted to the protection of clients' money.

The City watchdog tells firms: 'The rules... are designed to restrict the commingling of client and the firm's assets and minimise the risk of the client's safe custody assets being used by the firm without the client's agreement or contrary to the client's wishes, or being treated as the firm's assets in the event of its insolvency.'

There is no suggestion of deliberate fraud in the JP Morgan Chase case.

But the FSA clamps down heavily on firms that 'commingle' funds because of the fear that if a bank goes bust, individual clients won't receive what is rightly theirs.

The FSA rules on client assets aim to protect customers' money by shielding it from the claims of creditors if the firm becomes insolvent.

The rules also aim to stop firms using client funds to finance their business activities.

'These requirements create a statutory trust, under which a firm must keep all client money separate from its own, and which "ring-fences" this client money from the claims of the general creditors of the firm should it fail,' according to the FSA.

[UpInArms]

42. this part needs disecting:

Tony Blair was recruited by JP Morgan Chase in January last year.

The bank refuses to say how much he is paid for his part-time job, but the sum is reckoned to be more than £500,000 a year.

Jamie Dimon, CEO of JPMorgan Chase & Co
Jamie Dimon: JP Morgan Chase chief executive

At the time of the appointment, the bank said that Blair 'will advise JP Morgan Chase's chief executive officer and senior management team on a part-time basis - drawing upon his immense international experience to provide the firm with strategic advice and insight on global political issues and emerging trends.'

Jamie Dimon, JP Morgan's chief executive, said Blair would be 'enormously valuable' to the bank. 'There are only a handful of people in the world who have the knowledge and relationships he has.'

Blair said: 'They are a leading company at the cutting edge of the global economy... I look forward to advising them on how they approach the huge political and economic changes that globalisation brings.'

But the job provides only a small share of the ex-Prime Minister's earnings. He was taken on by financial services group Zurich to 'provide general guidance on developments and trends in the international political environment.'

He has also signed a contract to advise the government of Kuwait. And an advance on his memoirs is reckoned to have brought him £4.5m. But his biggest earnings are thought to come from speaking engagements. For a single half-hour speech in the Philippines earlier this year, Blair was paid more than £180,000.

[Demeter]

43. Looks Like He Made Out Like a Bandit

Wonder what Boy George got?

We know Clinton was similarly rewarded....

[Ghost Dog]

73. This man has committed massive crimes against humanity. n/t

[Demeter]

76. The Line Forms on the Right (Get It?)

[Ghost Dog]

77. The line to become 1st "President of the European Union"?

:puke:

[Demeter]

83. No, The Line For Fascists Anonymous

[Robbien]

40. Judges’ Frustration Grows With Mortgage Servicers

PHOENIX — Bobbi Giguere had no luck in securing a loan modification from her mortgage servicer, Wells Fargo. For months, she had sent the bank the financial documents it requested to process her modification. But each time she called to check on the request, she was told to send her paperwork again.

On Thursday, something happened. She questioned a Wells Fargo official about the bank’s lack of response — under oath.

The spectacle of a high-ranking banking executive being grilled by an ordinary homeowner was the result of an unusual decision by Judge Randolph J. Haines of the United States Bankruptcy Court to summon a senior executive from Wells Fargo to appear in Mrs. Giguere’s bankruptcy case.

At the hearing, Judge Haines made it clear that he was acting out of concerns about Wells Fargo’s mortgage modification practices generally.

“This is certainly not an isolated case,” he said. “The kind of story I hear from this debtor is one that I and other bankruptcy judges around the country are hearing over and over and over again.”

. . .

Under preliminary questioning by one of the bank’s lawyers, Mr. Ohayon stated that Mrs. Giguere had repeatedly failed to provide a financial worksheet, a critical document in processing a loan modification.

Under cross-examination by Mrs. Giguere (who had a little assistance from Judge Haines), the bank’s defense withered. From her files, Mrs. Giguere produced a letter from Wells Fargo describing the paperwork that she needed to file for a loan modification. In the witness chair, Mr. Ohayon read the letter.

“Mrs. Giguere is right,” Mr. Ohayon concluded. “The letter did not ask for a financial worksheet.”

. . .

One of the biggest complaints by homeowners has been poor communication by mortgage servicers on the status of their applications for loan modifications. In the case of Mrs. Giguere, Wells Fargo decided back in March shortly after she faxed the bank her application that she did not qualify for the Home Affordable Modification Program.

She did not learn of the bank’s decision until Thursday.

“When did you tell the debtors that their loan was no longer being considered for modification?” Judge Haines asked Mr. Ohayon.

“We haven’t. They’ve never been told,” said Mr. Ohayon

. . .

The hearing with Wells Fargo did not result in any sanctions against the bank for its failure to provide timely information to Mrs. Giguere about her mortgage modification application.


more . . .

http://www.nytimes.com/2009/09/04/business/economy/04wells.html?hpw


Banksters only agree to modify loans if it can be worked to the benefit of the creditor, not to the benefit of the borrower. Thus most mod requests are denied.

Also, no banksters to date are reducing the principal amount of the loan when they do modify the few mortgages they agree to modify.

[Demeter]

41. Obama re-nominates Bernanke to stabilize markets

http://www.presstv.ir/detail.aspx?id=104449§ionid=3510203

4 More Years! 4 More Years!

Somebody get a remedial course in economics, the non-Chicago Style, for the White House?

[Demeter]

44. (Meredith) Whitney predicts more than 300 bank failures

http://www.calgaryherald.com/business/fp/Whitney+predicts+more+than+bank+failures/1917263/story.html

Meredith Whitney, the analyst who predicted that Citigroup Inc. would cut its dividend last year, said the number of U.S. bank failures will quadruple as lenders struggle with bad loans.

“There will be over 300 bank closures,” Ms. Whitney said in an interview with Bloomberg Television from Jackson Hole, Wyo. “The small-business owner on Main Street continues to see liquidity come away.”

Unemployment has risen to the highest since the early 1980s and Americans are falling behind on mortgage payments at a record pace, forcing regulators to seize 77 lenders in 2009, the most in 17 years. Colonial BancGroup Inc. was closed by the Federal Deposit Insurance Corp. and taken over by BB&T Corp. on Aug. 14 in the biggest failure since Washington Mutual Inc. collapsed in 2008.

The FDIC plans to ease rules to allow private-equity investors to acquire insolvent banks, the New York Times reported Friday, citing unidentified people briefed on the situation. The move would help reduce the number of failed banks the FDIC needs to support as their number increases, the newspaper said.

Ms. Whitney said that even though the panic of the financial crisis has passed, investors have been “overzealous” in estimating bank profits for the next few years. Analysts polled by Bloomberg project earnings for the industry will surge more than ninefold this year and 57% in 2010 as lenders recover from the worst crisis since the Great Depression.

“Many banks may be OK for while, but the real driver for the economy, which is consumer spending, I don’t expect that to come back anytime soon,” she said.

Financial companies in the Standard & Poor’s 500 Index have collectively rallied 135% in the past five months after falling to the lowest level since 1992.

[Demeter]

45. The Widening Gap In America's Two Tiered Society

http://www.informationclearinghouse.info/article23371.htm


August 26, 2009 "Information Clearing House" -- Americans, particularly ones from the middle class, need to realize that there are no core entitlements imparted by their government representatives, nor any other sources. They have none and should adjust their expectations accordingly.

If the U.S. populace somehow imagines that its members are viewed any differently than any other populations across the world that are used to produce maximal profits for the top economic class, there's a rude awakening in store ahead. Further, most legislators simply do not care whether middle and lower class interests are or aren't well served as long as they, themselves, can somehow make out well in the times ahead.

Besides, why should any Americans feel that they deserve to be treated more favorably by the transnational moneyed elites and their government backers than their counterparts across the rest of the world? As A. H. Bill reminds: "The richest 225 people in the world today control more wealth than the poorest 2.5 billion people. And... the three richest people in the world control more wealth than the poorest 48 nations."

Occasionally someone making a staggering amount of money in a crooked sort of way might raise a few officials' eyebrows or induce a mild reprimand. In addition, he might, occasionally, be singled out as the token fall guy so as to be made into a warning example as was Bernie Madoff. Most of the time, though, no action is usually undertaken to correct the situation when directors of major companies carry out activities that are, obviously, right on or over the edge of fraudulent practices.

As Barak Obama, perhaps hypocritically, chastened, “Under Republican and Democratic administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productive and sound business practices. We let the special interests put their thumbs on the economic scales.”

Yet, he, himself, showed no hesitation during his election campaign over collecting $40,925 from the bailout fund recipient and nearly bankrupt investment house Bear Stearns, $161,850 from the bailout fund recipient and mortgage underwriter Morgan Stanley, as well as benefits from countless other institutions that have received government favors at taxpayers' expense. As such, it's hard in actuality to deliver more than just a mild verbal rebuke about these organizations' modus operandi if one picks up a personal windfall from not meddling. Thus, the financial corruption continues at all levels of government.

A case in point is the self-serving oil trader Andrew Hall. His relationship with Citigroup's (C.N) Phibro energy-trading unit brought him approximately $100 million in 2008 despite that his parent company registered a net deficit of $18.7 billion for the same year and received $45 billion in TARP funds.

However, it's been pointed out that he could moderately adjust his current level of gain and continue to maintain the same procurement pattern if he manages to stay out of the limelight. If he follows this plan in the near future, his earnings and bonuses won't likely duplicate the $250 million personal compensation that he'd received in the past five years. Yet, he could still make out quite well all the same!

In any event, one has to question such lavish rewards considering that Citigroup suffered a 95% loss of its share value since 2007 in relation to which Phibro "occasionally accounts for a disproportionate chunk of Citigroup income." At the same time, the U.S. government will shortly be the owner of 34% of this company. Put more bluntly, is Andrew Hall's personal prosperity and propensity to add to his private art collect the best use of taxpayers' funds?

As long as he's a lavish beneficiary, would he care if they weren't? As the economist John Kenneth Galbraith once suggested: “The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.” Naturally, Andrew Hall aims to keep such a cozy arrangement intact.

Besides, his personal take is relatively inconsequential. It's a mere pittance contrasted to the almost two and a quarter billion dollars grand total -- roughly $2,217,800,000 -- that the top ten U.S. business moguls collectively grossed as their own recompense in 2008. <1>

At the same time, it cannot not be expected, in a market based economy, that political influence is not also a purchased commodity. Clearly, opinions are bought and sold just as easily as are any other products and services with payment being campaign funds, such as Obama's, from big industry; offers of high paying future jobs and other lavish advantages dangled as bait.

On account of this kind of shady deal, tax subsidies connected to executive pay amounted to $20 billion in 2008 according to United for a Fair Economy (UFE) and Institute for Policy Studies. (Imagine if this money, instead, were allocated towards improvements in public education, provision of a universal heath-care plan or any number of other programs that could uplift the American public as a whole.)

During the same period, average CEO pay, at $10.54 million, was 344% higher than typical worker pay. This disparity, also, is generally indicative of a trend that increasingly funnels wealth upward rather than having it more equitably distributed across class lines.

Another sign of this ascendant drift can be found in the change between the first Forbes 400 report (1982) and its 2008 version. In 1982, an entrepreneur only needed slightly more than $100 million dollars to get on the list. By 2008, he wouldn't be in the top 400 unless he'd garnered at least $1.3 billion. In other words, so much more wealth shot upward in the last twenty years that $100 million now is almost viewed as chump change in comparison to the new top gains.

In addition, Congressional reports have indicated that widespread tax avoidance tricks, like use of overseas banks that do not report amounts to the IRS, have cost taxpayers more than $2 billion annually. Certainly, these lost moneys could well be used to help people less fortunate. For example, the hidden $2 billion could be used to create job training programs for any of the one in nine Americans currently forced to rely on food stamps as an alternative to starvation.

To be eligible for such aid, a family of four, for example, has to have no more than $2,389 as its gross monthly income or 130% of the official poverty level and no more than $1,838 net monthly income or 100% of the poverty level. (There are few deductions and exceptions to the requirements allowed, along with limits for owned property value imposed, that further determine whether one meets qualifications.)

In other words, a typical household of four cannot receive this help if the gross income for the foursome exceeds $28,668 annually and, for an individual, the gross not to be surpassed is $14,088. Additionally, recipients cannot have a great deal of assets with a clearly defined, too high level of worth.

As such, they have to be nearly broke across the board. Meanwhile, it's clearly disgraceful that more than 27,651,388 Americans are so extremely poor they require food assistance to try to make ends meet.

Even that help, though, is often not enough to prevent further poverty and many folks are unable to avoid outright destitution across the so-called wealthy U.S.A. So next, they lose their homes... and they lose them in droves.

The huge portion of Americans who do so are staggering: While the number of U.S. foreclosure filings climbed by more than 81% in 2008, the total is still sharply rising in 2009. In relation, 300,000 homes foreclosed per month from March to May in 2009 and 1.8 million homes represented the anticipated total for the first half of the year. With such a backdrop, one out of every 398 homes received a filing in April and a whooping 6.4 million homes are anticipated to be in foreclosure by mid-2011. Simultaneously, a record number of individuals, also, applied for bankruptcy.

In a similar vein, the jobless rate, despite some minor dips downward, is still seemingly on the rise. Therefore, the current number of out of work adults could well exceed 20% if all of the hopeless ones, who are no longer collecting unemployment benefits and who gave up looking for opportunities, are added into the mix.

Moreover, they will not be able to jumpstart the economy so long as they cannot find work, and especially work at a living wage. After all, how can anyone make lots of purchases or take out bank loans if he has no reasonable income? So it follows that even more retail and wholesale stores, along with banks, will go belly up.

At the same time, the supply side of the market, itself, has created labor troubles. This is because goods have been overproduced. Consequently, there is overstock piled high in warehouses and shipping containers across the world ready to resume its path to the market once the spending reinitializes. However, spending cannot resume as long as the money has largely flowed to the top economic tier and away from average former and low wage workers, who can not expect to have decent paying jobs to create more goods until the current product glut diminishes.

In other words, consumers can't buy much when money's tight and work won't be provided when there's an oversupply of merchandise largely produced in second world sweatshops whose workers are paid so little that they hardly can put food on their own tables let alone make many more extravagant purchases -- ones like toothpaste, soap and shampoo. Besides, they, too, face employment opportunities diminishing because worldwide sales are down for many of the products that, previously, their companies too copiously produced.

Concurrently, the bailouts, oriented towards fixing the credit side of the equation, are not addressing these sorts of supply side problems. Therefore, they will not keep the financial collapse from worsening.

Alternately put, TARP and other payoffs to the self-serving, unconscionable banksters and Wall Street high rollers largely responsible for the downturn will not produce an abundance of jobs. So the reasonable salaries, ultimately needed to buy the wares to cause industrial output to resume, won't materialize any time soon.

It's rather simple to understand, really. So why don't Ben Bernanke and his colleagues seem to notice that massive job loss, itself, needs to be addressed posthaste? Why hasn't a public works program been initiated? Why don't they grasp that the act of offshoring all kinds of American jobs to maximize profits at the top tier does not ensure that products will be avidly snapped up by a greatly unemployed and underemployed public?

Since they, apparently, don't understand, the downturn, with a few small upward twists, will remain in its plunging slide, which in turn will create further layoffs. All the while, the über-wealthy and their corporate supporters, such as most members of Congress, will continue to pamper themselves with capital largely derived from struggling taxpayers and massive loans that raise the federal deficit.

More to the point, how could the slump not last when the affluent elites gamble away huge fortunes comprising of their own and others' money while manufacturing bubbles and Ponzi schemes in the process? How could anything change when they keep amassing more and more assets for themselves while indifferent to their impact on society as a whole?

Such practices as theirs, obviously, cannot sustain the American middle and under classes and it cannot buoy up the utmost bottom rung either. On account, scores of individuals of all ages continue to wind up in tent cities or ensconced on public park benches. (Supposedly, families with children represent the fastest growing subset of the homeless population in the U.S.A. at present and the average age of a homeless person is nine years old.)

When the upper-crust keeps getting richer by taking an ever greater portion of the overall wealth and government schemes assure that the process continues, nearly everyone else becomes increasingly cash poor. When every now and then big investors suffer hefty losses, the government steps in to shore them up again and again. However, this practice, clearly, does not help the populace in general. The evidence that it does not can be seen everywhere across the American landscape and the entire world.

It follows, then, that, "in the United States, wealth is highly concentrated in a relatively few hands. As of 2004, the top 1% of households (the upper class) owned 34.3% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.3%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.2%...", according to G. William Domhoff, a sociology professor at University of California at Santa Cruz. <2>

Another way to measure the shift in wealth is by noting some of the corporate trends, themselves. As Sarah Anderson and John Cavanagh, at the Institute for Policy Studies, point out:

1. Of the 100 largest economies in the world, 51 are corporations; only 49 are countries (based on a comparison of corporate sales and country GDPs).
2. The Top 200 corporations' sales are growing at a faster rate than overall global economic activity. Between 1983 and 1999, their combined sales grew from the equivalent of 25.0 percent to 27.5 percent of World GDP.
3. The Top 200 corporations' combined sales are bigger than the combined economies of all countries minus the biggest 10.
4. The Top 200s' combined sales are 18 times the size of the combined annual income of the 1.2 billion people (24 percent of the total world population) living in ''severe'' poverty.
5. While the sales of the Top 200 are the equivalent of 27.5 percent of world economic activity, they employ only 0.78 percent of the world's workforce. <3>

Especially exemplifying this type of corporate immensity is the Wal Mart company. For example, the Walton heirs have a collective worth of around $65 billion and over 1.7 billion shares, or 43%, of Wal Mart stock in addition to earning $29 billion off the stock price rise alone from November 2007 to June 2008.

Meanwhile, the Waltons pay their jean laborers in Nicaragua approximately $1.50/ day. Simultaneously, their average U.S. workers are given wages of about $12,000/ annum causing a full one half of Wal Mart's 720,000 employees to qualify for food stamps.

At the same time, the clearly exploitive Wal Mart business model is considered an unqualified success -- one that should be more often duplicated across the board. After all, it shows the capitalistic free market with its best possible outcome -- profits beyond imagination and the American Dream come true (for the few who manage to take unfair advantage of the actual wealth producers)!

Perhaps, though, the best way to look at the new arrangement between citizens, State and the rising corporate structures is through this superlative summation by Benito Mussolini:
The corporate State considers that private enterprise in the sphere of production is the most effective and useful instrument in the interest of the nation. In view of the fact that private organisation of production is a function of national concern, the organiser of the enterprise is responsible to the State for the direction given to production.

State intervention in economic production arises only when private initiative is lacking or insufficient, or when the political interests of the State are involved. This intervention may take the form of control, assistance or direct management. <4>
Even if Benito Mussolini's position has an alarmingly familiar ring to it, no one still should expect U.S. legislators to create laws any time soon that would enact tax code changes in order to remove subsidies that encourage overpayment to executives and that cost taxpayers $20 billion a year. Indeed, nobody should expect any major changes at all that would level the financial playing field, remove a sense of economic injustice or bring back jobs and reasonable wages to the American people.

As Joel H. Rassman, Toll Bros. CFO in 2006, explained about CEO Robert I. Toll's $20 million compensation while shareholders were suffering a 22% loss: "I have yet to meet the person who has enough money."

Like Toll, a majority of Congressional representatives, of whom many are multi-millionaires, apparently imagine that they never have quite enough for themselves and justify their dodgy choices accordingly. They, also, know who butters their bread and it surely is not the increasingly impoverished average U.S. citizens, who continue to be the indirect victims of corporate rapacity and pathetic corporate oversight by executives and Congressmen alike.

In relation, one wonders when a significant number of Americans will, finally, recognize that they've been had. Put another way by Andrew Greeley: "It should be no surprise that when rich men take control of the government, they pass laws that are favorable to themselves. The surprise is that those who are not rich vote for such people, even though they should know from bitter experience that the rich will continue to rip off the rest of us. Perhaps the reason is that rich men are very clever at covering up what they do."

This explanation in mind, we need not worry as much about the terrorists from abroad as the terrorists from above and the duped voters who repeatedly fall for political candidates pandering to this broadly malignant upper class. The latter bunch and their sycophantic legislative admirers, more than any foreign guerrillas, are leading the world's wealthiest nation into ever deeper ruin.

Emily Spence is an author living in Massachusetts. She has spent many years involved in human rights, environmental and social services efforts.

REFERENCES:

<1> Top CEO collected $702 mln in 2008: US survey - Yahoo! News
(http://news.yahoo.com/s/afp/20090813/ts_alt_afp/usbusinessexecutivepaypolitics_20090813190411).

<2> Who Rules America: Wealth, Income, and Power (http://sociology.ucsc.edu/whorulesamerica/power/wealth.html).

<3> CorpWatch : Top 200: The Rise of Corporate Global Power (www.corpwatch.org/article.php?id=377).

<4> Benito Mussolini, 1935, Fascism: Doctrine and Institutions, Rome, 'Ardita' Publishers. pp. 133-135.

LOTS OF COMMENTS AT LINK

[Demeter]

47. Bank collapse to cost Iceland $5bn

http://english.aljazeera.net/news/europe/2009/08/2009828133027288332.html

Iceland's parliament has approved a $5bn repayment plan to compensate Britain and the Netherlands for money lost after the collapse of an Icelandic internet bank last year.

The government has said it will repay $3.8bn to the UK government and $1.9bn to the Dutch government after they had to step in to reimburse depositors in Icesave, whose parent bank Landsbankinn filed for bankruptcy.

Under the plan, Iceland will reimburse the money, plus interest, starting in 2016, with payments spread over 15 years.

Johanna Sigurdardottir, the country's prime minister, said that her government "was hopeful that the Icesave issue would now be concluded in a mutually satisfactory manner".

Strong opposition

Thirty four poltiicians voted in favour of a bill to award the compensation in the 63-seat parliament, with 15 against and 14 abstentions.

Britain's finance ministry gave a cautious response, saying it supported Iceland's commitment to repay its debt but would carefully review conditions placed on the loan.

There had been strong opposition to the "Icesave bill" with critics arguing that it would put undue pressure on the tiny North Atlantic nation to force it into making repayments it could not afford.

There was also anger that the British government invoked anti-terrorism legislation to freeze Icesave's accounts in the UK.

The government had agreed a deal with Britain and the Netherlands in early June but many Icelanders were unhappy with the conditions.

After weeks of political jockeying, amendments were added to the bill setting a ceiling on the repayment based on the country's gross domestic product (GDP).

Banks' mistakes

Anger over the issue is unlikely to end with the bill's passage and those arguing that Iceland should stay outside of the European Union are expected to use the deal to stoke anti-Brussels sentiment.

Icelanders, already reeling from a crisis that has left many destitute, are furious over the idea of paying for mistakes made by private banks under the watch of other governments.

The Icelandic government had argued it had little choice but to make good on the debts if it wanted to ensure financial aid continued to flow.

About 400,000 savers placed money in the high-interest online Icesave account.

The British and Dutch governments eventually covered money lost in the accounts but had demanded repayment from Iceland.

Up to four per cent of Iceland's GDP could be paid to Britain in sterling terms from 2017 to 2023, and up to two per cent in euro terms to the Netherlands, according to a draft document of the bill.

[Demeter]

49. The Spend-And-Borrow Economy By Nouriel Roubini

http://www.informationclearinghouse.info/article23383.htm

What's the exit strategy from the monetary and fiscal easing?


August 28, 2009 "Forbes" -- In the last few months the world economy has been saved from a near-depression. That feat has been achieved by a range of extraordinary government stimulus measures: In the U.S. and in China, and to a lesser extent in Europe, Japan and other countries, governments have pumped liquidity, slashed policy rates, cut taxes, primed demand and ring-fenced and back-stopped the financial system. All of this has worked, but at a cost. Governments have been spending and borrowing like never before. The question now is: how do they stop?

This is not a simple problem. Restore normality too soon and the risk is that a weak recovery will double dip into a second and deeper recession. Restore it too late and inflation will already be ingrained.

Consider how much has been committed and how much has been spent. In the U.S. alone, when you add up the government's liquidity support measures, its re-capitalizations of banks, its guarantees of bad assets, its extension of deposit insurance and guarantees of unsecured bank debt, at least $12 trillion has been committed, and a quarter of that has already been spent. Along with the rise in spending there has also been a very large fiscal stimulus, pushing the federal budget deficit to 13% of gross domestic product this year. (Next year, on current plans, the deficit will fall back but still amount to 10% of GDP.)

Not all the measures adopted appear on the budgetary bottom line. As well as monetary easing and fiscal stimulus, the U.S. and other governments have resorted to unconventional measures to ease monetary conditions. In the U.S., Japan and the U.K., real interest rates have been pushed down to zero, and governments have resorted to buying long-dated securities, the goal of which--only partially achieved--was to hold down long-term interest rates.

The Fed, for example, has committed to spending $1.8 trillion on longer-dated Treasury bonds and other securities, but most of this spending is money the government has printed itself, simply by creating central bank monetary base. It doesn't add to the budget deficit, although it does add to the long-term risk profile of the government doing the spending as monetization of fiscal deficit can eventually be inflationary.

This massive escalation of central government spending and borrowing was necessary. For most of last year, governments lagged well behind the curve of the unfolding crisis. For too long policymakers continued to believe that the house-price bubble was an isolated aberration that would self-correct without impacting the wider economy, and that the unprecedented growth in household indebtedness was not a matter of concern. By the final quarter of last year, however, the global economy was in freefall, with industrial production, private demand, employment and broad GDP all contracting at a rate indicating something close to depression at hand. Policymakers suddenly went into corrective overdrive in late 2008--not a moment too soon.

The second-quarter GDP estimates for the U.S. show just how significant this aggressive front-loaded policy stimulus has been. While total GDP growth was sharply negative in the first quarter--around -5.6%--the rate of decline in the second quarter had moderated to around -1.5%. Credit this relative improvement to governmental monetary, fiscal and financial stimulus. The private components of GDP, private demand and capital expenditure, were actually still very weak. But government spending rose by 5.6%, breaking what otherwise would have been another quarter of headlong GDP contraction.

Necessary as the stimulus has been, it cannot go on indefinitely. Governments cannot run deficits of 10% or more of GDP, and they cannot go on doubling the monetary base, without eventually stoking inflation expectations, pushing up long-term interest rates and eventually eroding their very viability as sovereign borrowers. Not even the U.S. can do that.

The fiscal implications of the current policy package are particularly serious. For the time being, fiscal policy has been put at the service of survival, but the current price of survival is that net public debt is going to double as a share of GDP between 2008 and 2014. Even using the very optimistic forecasts of the Congressional Budget Office, which anticipate growth of around 4% over the next few years, the net debt burden will rise from 40% of GDP to 80%--that's an increase in the debt stock of about $9 trillion. The interest charge alone on that increased debt will be in the region of $300 billion to $400 billion a year, which in turn may mean more borrowing to pay the interest if primary deficits are not reduced. When governments reach the point where they are borrowing to pay the interest on their borrowing they are coming dangerously close to running a sovereign Ponzi scheme.

Ponzi schemes have a way of ending unhappily. To get out of the Ponzi trap, governments will have to raise taxes, or cut spending, or monetize the debt--or most likely do some combination of all three.

Monetization is already happening. This is where a government effectively prints money by allowing the central bank to create base money that is used to buy government debt, thereby increasing liquidity and holding down long-term interest rates (because the additional demand for these securities pushes up bond prices, thereby lowering the real interest rate the securities pay, as well as putting money into the pockets of the investors who have sold the securities).

Over time, monetization is inflationary, but the inflationary effect is insidious because it is not immediately visible. In the short run deflation will outplay inflation. In most developed countries today there is so much slack in economies, with weak demand and high unemployment, that prices cannot rise. The velocity of money is also weak, as financial institutions are receiving liquidity from central banks and hoarding it to rebuild their balance sheets, instead of lending it out. But as the economy recovers, these effects will abate, and the growth of the monetary base caused by monetization will eventually drive expected and actual inflation. And once markets start to anticipate that scenario, it may already be too late to avert an inflationary surge.

Simply issuing debt in the form of Treasury bonds offers no escape. The more debt a government issues, the higher the risk it will eventually face refinancing problems and/or default on that debt. Accordingly, investors will demand a higher return for investing in that debt, and that in turn will push up rates. Independent rating agencies have already downgraded the sovereign risk rating of countries like Greece and Ireland, and it cannot be ruled out that core economies of the OECD, including the U.S., could eventually be downgraded.

As it happens, there is little sign today of investors demanding a significantly higher risk premium on U.S. government debt. That is partly because private savings are increasing: Those savings have to be invested somewhere and investors are cautious about alternative investments. Foreign demand for U.S. bonds also remains robust so far. But this demand is unlikely to survive another big round of government-financed stimulus and bailout spending. And unfortunately, such a spending round is rather likely.

Consider that by the end of 2010 most of the tax cuts legislated by the Bush administration in 2001 and 2003 are due to expire. This means that there will be a sharp tax hike, including income taxes, capital gains taxes and taxes on dividends and estates. This hike--equivalent to around 1.5% to 2% of GDP--is already factored in to future calculations of government indebtedness. So if by next year the recovery proves as anemic as I expect, and if unemployment is around 10.5%-11%, as I also expect, then the pressure for another stimulus round early in 2010 will be strong.

A rough calculation goes like this: Stimulus money to keep the lid on rising unemployment is likely to be around $200 billion. Add to that the likely temporary partial extension of the Bush tax cuts and funding of the current administration's plans for universal health care (an additional bill of around $1.5 trillion over 10 years) and you get deficits close to12% of GDP.

This amounts to a fiscal train wreck. For the U.S., it means deficits could remain over 10% of GDP for years. Bond issuance will remain enormous, and it will mean that the Fed will almost certainly have to monetize a proportion of the debt by buying even more government or government-backed securities.

A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates and generating increased inflation expectations before a convincing return to growth takes hold. An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal and corporate loans rise too. It is unlikely that actual inflation will emerge this year or even next, but inflation expectations as reflected in long-term interest rates could well be rising later in 2010. This would represent a serious threat to economic recovery, which is predicated on the idea that the actual borrowing rates that individuals and businesses pay will remain low for an extended period.

Yet the alternative--the early withdrawal of the stimulus drug that governments have been dispensing so freely--is even more serious. The present administration believes that deflation is a worse threat than inflation. They are right to think that. Trying to rebuild public finances at a deflationary moment--a time when unemployment is rising, and private demand is still contracting--could be catastrophic, turning recovery into renewed recession.

History offers more than one example of this error. It happened in Japan in the late 1990s when the Japanese government feared the effects of fiscal deficits and of an increase in inflation as the economy was beginning to recover after almost a decade of deflation. Consumption taxes were raised too soon and the "zero interest rate policy" was abandoned. Within a year the economy was back in recession.

It also happened in the U.S. in the 1930s. President Roosevelt instituted a massive stimulus package when he came to office in 1933, to push the U.S. economy out of the depression, but by 1937 the administration was worrying that inflation was returning and that deficits were too large; so it cut spending and raised rates and the Fed tightened monetary policy. By 1938 the economy was heading back into near-depression.

So policymakers are between a rock and a hard place. Stop spending now and risk renewed recession and deeper deflation (stag-deflation). Keep spending now and risk renewed recession amid rising inflation expectations (stagflation).

Yet there is a space between the rock and the hard place. It is not a big space, but it is there.

Governments will have to manage perceptions. Today investors remain willing to bankroll federal spending without any clear or firm indication of how the fiscal crisis--and it is a crisis of extraordinary proportions--is going to be dealt with. That won't last. Clear indications will soon be needed as to how and when public finances will be repaired. That doesn't have to be accomplished soon--but it does have to be communicated soon.

Monetary policy can most likely remain looser for longer (in the developed economies at least)--as long as there is a clear commitment to fiscal consolidation. But a credible fiscal commitment to medium-term fiscal sustainability is vital, because that is what will open up the very narrow window that is the exit route from our current and unsustainable spend-and-borrow economy.

Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.

[Demeter]

52. Holding Wall Street Bankers Accountable-- Jim Hightower

http://www.creators.com/opinion/jim-hightower/holding-wall-street-bankers-accountable.html

Don't you wish that someone in authority, someone with an ounce of chutzpah, someone with his or her head screwed on right, would direct a few obvious, pointed, even rude questions to the Wall Street honchos who have ripped off America?

Questions like: Who, exactly, in your bank directed the rip-off? Who made these stupid decisions? Who — by name — is accountable for this mess?

The White House really doesn't seem interested in pressing these questions. The chairman of the Senate finance committee and the head of the house banking committee have been too polite to keep probing them. And, of course, Republican leaders don't even want to know the answers.

But, wait a second — who's this guy, this guy in New York who has dared to confront some of the biggest Wall Street elites and demand answers? You've probably never heard of Jed Rakoff, but he's a federal district judge whose Manhattan court gets many of the cases involving the financial powers.

He spent much of August grilling some bankers and bank regulators about the outrageous bonus payments that Merrill Lynch slipped to its top executives in the midst of last summer's Wall Street meltdown.

You might recall that Merrill had essentially collapsed in 2008, having lost an astonishing $27 billion dollars due to the greed and incompetence of its top investment bankers. Rather than letting this failed firm actually fail (as in, go kaput), however, the Bush regime engineered a quickie takeover of Merrill by Bank of America. The key to this rescue was you and I — $45 billion from us taxpayers were doled out to Bank of America to grease the merger.

But — shhhhh — just before the deal was complete, those slap-happy bankers at Merrill quietly paid themselves $3.6 billion in bonuses! The shareholders of both Merrill and B of A were not informed of this heist. Nor were the White House, the Congress, and such oversight agencies as the Securities and Exchange Commission.

Merrill's grab for the cookie jar was so underhanded and shameless that even the SEC was compelled to investigate.
This agency has become more of a Wall Street lapdog than watchdog, so it was not surprising that the agency officials concluded in early August that the whole sorry mess could be swept under the rug by assessing a measly $33 million fine on Merrill (which had become a fully owned subsidiary of Bank of America). Thirty-three million bucks is chump change to these banks. Come on, some of the bonuses paid to individual Merrill bankers were bigger than that!

Still, the SEC had ruled, so that was that. Except for one little detail: The agreement between the government and the banks had to be rubber-stamped by the federal court.

Enter Judge Rakoff. Far from wielding a rubber stamp, he refused to OK the agreement and immediately began demanding answers from the big-shots involved.

Noting that the banks had "effectively lied to their shareholders," he wanted to know the names of the liars, suggesting that those "who made the wrongful decisions" should be held personally accountable. Also, Rakoff pointedly asked the kind of questions that folks all across the country would ask if they had the chance, such as, "Do Wall Street people expect to be paid large bonuses in years when their company lost $27 billion?" The judge also went after the SEC, calling its meek fine "strangely askew" and bluntly telling the agency's lawyer that his feeble explanation for the low fine "seems so at war with common sense."

Bank and SEC officials are squawking and squirming, but Rakoff has not backed off even by an inch. After two full-fledged hearings, he still refuses to approve the sweetheart settlement and has set Sept. 9 for another hearing, demanding that both the banks and the agency present better explanations for their actions.

I like this guy! Can we dismiss Timothy Geithner and put Judge Rakoff in charge of the bailout scandal? Pretty please.

[Demeter]

54. Crooks, Computers, and the Coming Crash

http://www.kitco.com/ind/Summers/sep012009.html

As stocks continued to rally into September, one has to ask one’s self, “just who’s buying this rally?”

The answer?

Computers and no one else.

I’ve written extensively about the computer trading programs that are dominating this market. All told, High Frequency Trading Programs HFTPs control 70% of trading volume on the NYSE.

However, at this point, five stocks (yes only five) account for 40% of the trading volume on the market. Those five stocks: Citigroup, CIT Group, Fannie Mae, Freddie Mac, and AIG. Think about that, five stocks out of several thousand, are accounting for 40% of ALL trading.

And which five are they?

Five that are virtually guaranteed to be propped up by the government in one way or another (CIT indirectly through Goldman and other government-aligned groups). This summates today’s market like nothing else: folks are ONLY trading the investments that they know are on life support from the government.

That metaphor extends to the entire economy. Nearly 20% of incomes come from the government. More than 34 million Americans are on food stamps. This will continue. The government will extend unemployment and every other short-term “fix” it can. But it won’t do ANYTHING to create real job growth.

The life support metaphor extends to the financial system as well. The Fed has extended TRILLIONS to support virtually everything out there. Here’s a brief list of some of the more major items:

* The Federal Reserve cutting interest rates from 5.25-0.25% (Sept ’07-today)
* Bear Stearns / the Fed taking on $30 billion in junk mortgages (March ’08)
* The Fed opens up various lending windows to investment banks (March ’08)
* The SEC proposes banning short-selling on financial stocks (July ’08)
* Hank Paulson uses the blank check with Fannie/ Freddie spending $400 billion in the process (Sept ’08).
* The Fed takes over insurance company AIG (Sept ’08) for $85 billion.
* The Fed doles out $25 billion for the auto makers (Sept ’08)
* The Feds kick off the $700 billion Troubled Assets Relief Program (TARP) with the Government taking stakes in private banks (Oct ’08)
* The Fed offers to buy commercial paper (non-bank debt) from non-financial firms (Oct ’08)
* The Fed offers $540 billion to backstop money market funds (Oct ’08)
* The Feds agree to back up to $280 billion of Citigroup’s liabilities (Oct ’08).
* $40 billion more to AIG (Nov ’08)
* Feds agree to back up $140 billion of Bank of America’s liabilities (Jan ’09)
* Obama’s $787 Billion Stimulus (Jan ’09)
* Fed announces its plans to buy $300 billion of Treasuries (Mar ’09)

Most if not ALL major banks, the stock market, the debt market, and more are on Fed life support right now in one form or another. Take this life support away, and you have a full-scale collapse. I’m talking about 300 on the S&P 500 and 3,000 on the Dow.

And what a life support it is: SEE CHART AT LINK

The above chart is what you get when you throw trillions (literal trillions) at the financial system. But does throwing money around create sustained recovery? NOPE. I’ve often railed that the market is discounting an economic recovery that does not exist. However, I may have been wrong… at least in terms of what the market is discounting.

Today, I would argue that the market is discounting Ben Bernanke’s “juicing” of the system. The rise from 666 to 1,033 was the market announcing “this guy is going to throw as much money as he can at the crisis and it’s going to flow into the market.” This is a liquidity rally driven by non-thinking computer programs, not a rally based on fundamentals.

Speaking of which…

I’ve watched with first amusement, then disgust, and ultimately outrage as various pundits proclaimed Bernanke’s efforts “saved the financial system” or helped the US “weather the storm.” Bernanke did NO such thing. You could train a chimpanzee to hit the “print money” button at the Fed every-time the Fed phone rings with a Wall Street number and get the same results. To date, Bernanke has spent or put the taxpayer on the hook for some $24 TRILLION in bailouts, lending windows, and off balance sheet arrangements.

AND HE’S FIXED NOTHING.

Banks remain insolvent (if you marked their assets at market value, they’d all wipe out equity in a second), mortgages remain underwater, hundreds of thousands of Americans continue to lose their jobs every month, foreign investors grow increasingly distrustful of the dollar, and the financial system continues to have multiple black swans… all of which could bring about another CRASH.

Indeed, anyone looking to proclaim Bernanke as a savior should review the below video which shows that the guy DIDN’T HAVE A CLUE about the financial system/ economy from 2005-2007. Just click on the below image to watch (video should load in your Internet Browser). Prepare to see an Ivy-league educated guy who’s in charge of our monetary system NOT see the biggest housing bubble in US history OR the worst financial crisis since the ‘30s (an era on which he is an alleged expert).

Video of Bernanke’s mistakes:

(http://www.youtube.com/watch?v=HQ79Pt2GNJo)

However, to focus on Bernanke’s incompetence is to overlook his culpability in destroying Americans’ wealth. In the last 12 months alone, the man has committed perjury (he lied under oath about no longer monetizing debt), embezzlement ($24 trillion gone to banks at least $9 trillion of which no one, not even the head of oversight at the Fed, kept track of), fraud (any proclamation of green shoots or recovery is fraud), corruption (forcing Bank of America to buy Merrill Lynch), and more.

It would, in fact, be no exaggeration to say that Ben Bernanke is a financial criminal on a scale that makes Bernie Madoff look like Mr. Rogers. Madoff ripped off $50 billion. Bernanke is currently destroying the middle class in the US, trashing our currency, worsening EVERY Americans’ quality of life, and erasing any hopes of retirement for millions of Boomers.

In simple terms, Bailout Ben, in a mere year and a half, has overseen the destruction of 30% of US household wealth (from a housing and stock bubble he FAILED to see coming while working under Greenspan). He has yet to do a single thing to protect the average American or the dollar, but instead has opted to funnel trillions of taxpayer dollars over to Wall Street so that Goldman Sachs and friends could claim they’re not insolvent and pay themselves RECORD bonuses.

Indeed, Bernanke has re-created late 2007: the time when stocks went up day after day after day on lower volume and no fundamentals. Indeed, if I had to summate the entire market rally since July in one sentence it would be: insane euphoria and discounting of Fed pumping. The 2007 reference is not mere whimsy either.

Insider selling is at its highest ratio to insider buying since October 2007. The Relative Strength Index for the market recently hit levels we haven’t seen since October 2007. Corporate debt issuance is at October 2007 levels (companies issue as much debt as they can when stocks are up). 36% of investors are bullish and 24% bearish: a gap we haven’t seen since… October 2007.

Bernanke has literally re-created the sentiment of late 2007: a time when fundamentals didn’t mean a thing.

And that didn’t end well.

Folks, the US stock market is an enormous house of cards propped up by the biggest bubble-blower in history. Fundamentals have NOT improved, the economy continues to collapse (regardless of the GDP accounting gimmicks they use to claim we’re out of the recession), and stocks are at least 20-30% overvalued.

This mess will come unraveled. And it won’t be long…

I’ve put together a FREE Special Report detailing THREE investments that will explode when stocks start to collapse. I call it Financial Crisis “Round Two” Survival Kit. These investments will not only protect your portfolio from the coming carnage, they’ll also show you enormous profits: they returned 12%, 42%, and 153% last time stocks collapsed.

I’ll give you one hint: one of the investments is gold. But you probably already knew that. Anyone who’s been paying attention to the precious metal knows it’s setting the stage for a MAJOR breakout in the coming months.

However, to find out the other two investment ideas, you’ll have to download the FREE Special Report. Swing by www.gainspainscapital.com/roundtwo.html to pick up your copy today!

Good Investing!

Graham Summers

[Demeter]

56. For More Doom and Gloom, See the Weekend Economist Thread

I can't bear to post any more this morning...it's too depressing. No pun intended.

I think, in honor of Labor Day (in Memoriam of Labor Day, I should say), this weekend will be dedicated to the Workers of the World...we'll have a funeral while we're still alive to enjoy it, and can still afford it.

[Hugin]

59. Ha! Everybody knows the real gloom'n doomers are those people at the Insurance Companies.

Who picked up a copy of some actuarial tables and said to themselves, "Hmm... How can we make a buck off of this?"

Now, THAT is ghoulish. :scared:

[Demeter]

62. Morning, Hugin

Doom and Gloom and Ghoulishism are are very different things in my mind.

Doom and gloom is recognizing Reality. Ghouls advocate cannibalism, which is what everyone is gloomy about.

[Hugin]

66. Yes, I imagine like all things it depends on one's POV.

I'm not sure how much I'll be able to post over the weekend.

I have some personal business to attend to... :(

[Demeter]

67. That Bad? You're Frowning

I've got a big BBQ on Monday to produce--and a whole 14 people have bothered to RSVP. Bet you 50 show up. They don't get it--if you want food, you'd better tell us you are coming BEFORE the office closes on Friday night.

You'd think in a highly educated populace, courtesy was ingrained. Alas, the only thing I've seen ingrained is the Entitlement Syndrome, and Keeping One's Options Open.

[Hugin]

69. Mmm... BBQ.

This time of year I usually fire up the smoker and make up a supply of Turkey Legs. :9

[Ghost Dog]

71. (Aussie) WEEKEND ECONOMIST: Judgement week

While the timing of the RBA's (Royal Bank of Australia's) first move is occupying a lot of attention, the key force that is likely to dominate the 12 month outlook for financial markets is the attitude which markets adopt toward risk.

Markets remain transfixed with the issue of the risk trade. Through the second half of 2008 markets shunned risk. From around February, markets embraced risk. If investors want to embrace risk they will buy commodities, commodity currencies, credit, swaps (against bonds), and equities. They will sell US Treasuries, bonds issued by commodity economies (margins widen against Treasuries), and US dollars.

The catalyst for determining the risk sentiment is the US equity market. In early June, doubts emerged about the sustainability of the US equity market and investors started to move away from risk assets. However, the US results season in July revealed that 73 per cent of companies had exceeded market expectations. That was a misleading signal since the overperformance resulted from companies over achieving on cost cutting as evidenced by the sharp rise in the US unemployment rate – generally firms underperformed on revenue. Risk once again became popular for investors.

Developments over the last week are pointing to a possible return to risk aversion. The Dow fell for four consecutive days – the first time since May; the Vix Index of volatility rose by 10 per cent; the Shanghai Share Index closed the month down by 20 per cent; and there was a 15 basis point fall in US long bond rates.

We assess that US equity markets have run ahead of the capacity of the economy to deliver the earnings results required by the current pricing. While the 'bulls' point to $US2 trillion in uninvested funds waiting to join the market (and we cannot dismiss the possibility of a liquidity led final upswing) we favour the view that US equities are now expensive and the short-term growth outlook does not support current pricing. Issues with the undercapitalised financial sector and the overburdened and under-employed consumer will remain extreme headwinds for the US economy.

/.. http://www.businessspectator.com.au/bs.nsf/Article/WEEKEND-ECONOMIST-Judgement-week-pd20090904-VKA22?opendocument&src=rss

[tclambert]

75. Workers of the world? You mean the robots?

More robots than people manufacture things these days. There are more self-serve checkout lines at the supermarket than there are lines with human cashiers. And I heard there used to be people called "bank tellers."

[AnneD]

91. Have we done 9-5 yet

one of my fav quotable movies or perhaps Working Girl with one of the most upbeat theme songs by Carly Simon Let the River Run.

[Demeter]

92. That could certainly tie in with the theme

Not sure 9-5 to sustain a three day weekend, so let's put it in the mix.

[AnneD]

94. Are you kidding....

every other line is quotable...and Working Girl? OK let's add Office Space...Damn it feels good to be a gangsta.

[TheWatcher]

78. As I Predicted Yesterday.....

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=4044050&mesg_id=4045095

Snip:

DO NOT BE SURPRISED if tomorrow is not a big up day, to end the week Flat for the markets if they can manage it, because since the Unemployment Numbers come out tomorrow, they might want to have another celebration at how well they are screwing the working (mostly non-working, these days) Public. Lately The Unemployment Reports have been congratulatory Party Days for Wall Street, so be looking for that.

The Numbers of course will be quite an amusing Stand-Up Routine, I'm sure.

Let's see how brazen they are this time.

More People are out of work than last month, indicating that the job market continues to slowly improve, another sign that the Recession ended last month, and probably never existed in the first place. Fed Chief Ben Bernanke spoke briefly with reporters this morning as he prepared to depart for the long Labor Day Weekend: "As long as the slowing deterioration in jobs continues with no signs of a significant employment rebound, I think it's safe to say we are out of the woods, and we should see the economy pick up briskly in the first quarter of 2010. Slowing the bleeding is a positive trend, and the fear we have right now is that by not allowing things to follow their natural course by interfering with too much job creation, we risk undermining the foundation for the Recovery that we are currently seeing develop." Even with Unemployment Rates reaching as high as 37%, The Fed Chief remained confident that as long as it happened at a slower pace, The Economy could be blazing hot by as soon as the start of the second quarter next year.

Source- Yahoo, AP

You think I'm joking.

Watch it happen.

************************************************************************************************

Well So Far, it's right on schedule, isn't it.

Less Bad, Slow Bleeding, Unemployment at 9.7%

Recession Is Over.

Stocks rise as jobs report provides a little hope
Stocks rise after report shows slower pace of job cuts even as jobless rate creeps higher


NEW YORK (AP) -- A mixed report on the labor market in August contained enough kernels of hope to send stocks higher in light trading Friday.

The Dow Jones industrial average jumped 75 points but traders said the thin trading volume before the long holiday weekend made it difficult to draw conclusions about investor sentiment. Markets are closed Monday.

The Labor Department reported a slower pace of job losses last month but also an increase in the unemployment rate to 9.7 percent -- the highest since June 1983.

Analysts had been expecting the rate to increase to 9.5 percent after unexpectedly dipping to 9.4 percent in July. Most economists expect the unemployment rate to top 10 percent by early next year.

The report found that employers cut 216,000 jobs last month, fewer than the 276,000 lost in July and better than the 225,000 figure analysts had been expecting. It was the lowest level of job losses in a year, and traders said it was an encouraging sign that the labor market could righting itself.

Rising unemployment is widely seen as the economy's biggest hurdle to recovery, and concerns about it have been weighing on the stock market. As long as job losses remain high, consumers won't feel comfortable about spending money, which the U.S. economy badly needs in order to resume growth.

http://finance.yahoo.com/news/Stock-futures-creep-higher-apf-671400286.html?x=0&sec=topStories&pos=main&asset=&ccode=

"When you put it all together, you're seeing improvement in the labor market, but we have a ways to go before we're actually adding jobs," said Jack Bauer, senior economist at Manning & Napier.

:rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl:

SO what are you going to do Jack? Threaten Consumers into spending and buying up worthless shares of Stock in order to prevent the Nuclear Financial Bomb from going off before November or you'll torture us all to death?



I'm telling you kids, it Won't Be Long Now.....

[Hugin]

80. They're calling it 'healing' now...

The economy is 'healing'! :eyes:

Economies... Don't have 'green shoots' and they don't 'heal'. In a fact that might just surprise a few people... Economies are not even living creatures! Yes, it's TRUE!


They don't 'heal' like a living creature would... Economies lack the built in facility for 'healing'. (Especially, now... When they lack any sort of regulation.)

Economies are SYSTEMS! MACHINES! Man-made constructs! and as such they require intervention and regulatory mechanisms to function properly.

This 'healing' meme bullshit is obviously being sold by those very same Chicago-schoolers who came up with this all of this FREE MARKET MARKETS ARE SELF-REGULATING malarkey in the first place. :puhewk:

[AnneD]

93. Healing....

about as well as an open sore on a diabetic's foot.x(

[Ghost Dog]

84. Comment from an "Options Trader" at SeekingApha this morning:

... Meanwhile back in the USA - I’m all happy again because Uncle Rupert has a big headline in the WSJ that "Job Losses Moderate" so I guess everything is going fine and Bloomberg is going with the headline: "US Index Futures Gain on Jobs Data; S&P 500 Poised to Trim Drop for Week." Well, when you have Mayor Mike and Uncle Rupert all lovey-dovey like this, who are we to argue? Anyway, this was the plan I predicted yesterday and, as I said, we’re learning to love Mr. Stick as he gets more and more predictable and is starting to pay off like a cash machine as we anticipate the moves in the market. In a low-volume day like today anything can happen and we’ll see how our targets hold up, but the higher we go, the more likely we are to go a little more bearish into the three-day weekend.

Let’s watch oil at $67.50, if they can’t hold that we are likely to fall, but a lot of effort has been made to support the market today and I don’t think "THEY" will let it go to waste. Gold will be good to watch around $1,000, I’m nervous about inflation but not THAT nervous… Our key levels to retake and hold are: Dow 9,400, S&P 1,010, Nasdaq 2,000, NYSE 6,600 and Russell 575 - anything less than that is a real failure by the bulls today.

Have a great weekend.

/... http://seekingalpha.com/article/160006-options-trader-friday-outlook-drop-what-drop

(Reuters UK headline was "U.S. jobless rate rises to 26-year high", BTW).

[Ghost Dog]

89. U.S. Recovery Leaving Workers Jobless May Stoke Company Profits

Sept. 4 (Bloomberg) -- Employers kept Americans’ working hours near a record low in August, indicating that economic growth is poised to reward companies with added profits while postponing any recovery in the job market.

...

The preconditions for gains in payrolls, including giving the army of part-timers longer hours and taking on additional temporary employees, weren’t met last month. At the same time, with economic growth forecast to resume this quarter, the figures set the stage for a surge in worker productivity and drop in labor costs that will stoke corporate profits.

/... http://www.bloomberg.com/apps/news?pid=20601109&sid=adK82ggZxaL8

[Ghost Dog]

81. Video: "The Europeans are Coming": CNBC/Ayn Rand Institute, French

Ambassador:

http://www.cnbc.com/id/15840232?video=1238220054&play=1

See also:

EU finance ministers meet on common position at G20: http://news.xinhuanet.com/english/2009-09/02/content_11985369.htm

France ups pressure on bankers' bonuses: http://www.guardian.co.uk/business/2009/sep/04/g20-bankers-bonuses-lagarde

+ Plenty of other not-so dumbed-down reports out there...

[Demeter]

85. Trader on Bloomberg says markets are manipulated and volumes 'ficticious'.

http://www.youtube.com/watch?v=V4cRYI2x60Q

[Demeter]

86. NY AG: Banks Paid Bonuses That Were Substantially Greater Than The Banks' Net Income

New York Attorney General Andrew Cuomo's report on the bonus structures of the banking industry is out and — oh my— it's damning. The AG says that 3 banks, Goldman Sachs, Morgan Stanley, and JP. Morgan Chase, paid out bonuses that " were substantially greater than the banks' net income."

The report says that combined, these three firms earned $9.6 billion, paid bonuses of nearly $18 billion, and received TARP taxpayer funds worth $45 billion. Why did this happen? Because, according to Cuomo, when times were good the bankers rewarded themselves based on performance. When the economy started to sour — they decoupled the bonus structure from reality and kept rewarding themselves...

http://consumerist.com/5327382/ny-ag-banks-paid-bonuses-that-were-substantially-greater-than-the-banks-net-income

[Demeter]

90. About half of U.S. mortgages seen underwater by 2011

http://www.reuters.com/article/GCA-Housing/idUSTRE5745JP20090805


The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said...

[tclambert]

96. That traps a lot of people in their current homes because who wants to sell when you'd owe the bank

more than you get for selling? And Senator Al Franken pointed out that a lot of people feel trapped in their jobs because they or a family member has an illness, a "pre-existing condition" that a new employer's health insurance would refuse to cover.

And yet the terraists hate us for our freedoms.

[tclambert]

95. "Stocks Rally After Jobs Data" - AP

I'm just quoting the headline. That's as far as I'm willing to go with it.

Dow +1.03%
Nadaq +1.79%
S&P 500 +1.31%

Bad news for workers = good news for Wall Street? That is just not right.

[RUMMYisFROSTED]

97. "We don't have to pay them!"

:woohoo:

[Hugin]

99. They were relieved of the 'payroll problem' when the government started buying commercial paper

Last spring.

[Hugin]

98. Yep, Hugin's Rule calls for a joygasm in the Markets.

Actually, Hugin's Rule is stated...

"Bad news for the Middle-class will be met with an equal and opposite reaction on Wall Street."

The worse the news the higher they go... or so it seems.

[ozymandius]

101. In a phrase: "That's so fucked up."

Either the reporter is smoking crack or the reporter's source is smoking crack and the reporter is stupid. If this is the reason for averages to look like this:

Dow 9,441.27 96.66 (1.03%)
Nasdaq 2,018.78 35.58 (1.79%)
S&P 500 1,016.40 13.16 (1.31%)

then that is further confirmation of the irrational nature of stock markets. Furthermore - if the markets rallied on "less bad = the new good" psychology then that, too, is fucked up.