Weekend Economists Masquerade Weekend Feb. 4-7, 2010

[Demeter]

As promised we go to on a masquerade. We will attend the Opera to see the Phantom, drop in on Carnivale across the globe, and pick out our masks from

http://images.google.com/images?q=mask+images&oe=utf-8&rls=org.mozilla:en-US:official&client=firefox-a&um=1&ie=UTF-8&ei=LI9sS_SOBYOKNI3nqdcE&sa=X&oi=image_result_group&ct=title&resnum=1&ved=0CBoQsAQwAA

and other sites.

So to start us off, we have a lovely ballad provided by Miles Coltrane:

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


How we wish it were true already! Until the PPT and Bernanke and Geithner and their foreign counterparts all concede defeat, or unfettered market forces finally overwhelm them utterly, we will be taking many more turns on the merry-go-round of Globalism and Hitman Economics. Hold onto your wig, and buckle up!

[Demeter]

1. What Happened to Democracy? Robert B. Reich

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

Nobody seems to be talking about the reforms needed to clean up democracy.

Which programs should be cut, which entitlements pared back, and which taxes raised in order to reduce the long-term budget deficit? Hmmm. Let's convene a commission and have it decide. At least this is what several members of Congress and the Obama White House are proposing.

Commissions are a default mechanism when politicians want to hand off difficult issues to "experts." But reducing the long-term budget deficit has almost nothing to do with expertise. It's about our nations' values and priorities. These choices are supposed to be made democratically.

Democracy requires at least three parts: Important decisions are made in the open. The public and its representatives have an opportunity to debate and influence them. And those who make the big decisions are accountable to voters.

But these principles are in retreat. The Troubled Assets Relief Program began with a virtual blank check from Congress. Treasury officials then secretly decided which companies would receive hundreds of billions of dollars. Why these companies were chosen and not others remains a mystery. For months, the Treasury didn't even disclose the identities of the major banks that the giant insurer American International Group repaid in full with its bailout money.

The Federal Reserve, meanwhile, has gone far beyond its traditional role of setting short-term interest rates. It has bought up massive amounts of debt -- -mortgage debt, Treasury bills, and debt instruments from quasi-public agencies. No one outside the Fed knows the ultimate beneficiaries, the criteria used by the Fed for making these commitments, or even how much debt the Fed is buying.

Even if the economic emergency justified such secrecy -- and it's hard to see exactly why it would -- the emergency is over, yet closed-door decision-making continues. Will Treasury use what's left of TARP to help stimulate more jobs and, if so, how? Will the Fed stop buying mortgage-backed securities? No one knows.

The same pattern is evident on other issues. Congress can't decide whether or how to limit the pay of financial executives. So where does the issue end up? The Fed says it will decide whether pay levels are appropriate. The House and Senate can't agree on what to do about climate change. Who decides? The Environmental Protection Agency concludes it has authority to regulate carbon emissions under the Clean Air Act.

The debate over health-care reform looked like democratic deliberation until you realize the key negotiations that framed the deal occurred behind closed doors, between the White House and Big Pharma and Big Insurance. The administration promised these industries some 30 million new paying customers. In return, it agreed not to oppose the plan. Big Pharma even placed a firm limit on how much it would cut its costs over the next 10 years -- $80 billion, and not a penny more. How do I know this? Not because this crucial deal was made in public but because it was leaked to the press.

Personally, I want the government to limit the pay of financial executives, regulate greenhouse gases, and reform health care. And no one wanted a financial meltdown. But I'm appalled by the process that's been used to reach these objectives.

A big piece of the problem is that Washington is so overrun by lobbyists representing moneyed interests that it's become almost impossible to make policy in the open. If the Treasury and Fed tried to decide publicly which industries and firms should get hundreds of billions, they'd be inundated. Wall Street lobbyists are blocking real financial reform. The energy industry has filled the House's cap-and-trade bill with special subsidies and exemptions. Big Pharma and Big Insurance would have killed off the health-care reform if they hadn't been bought off. When it comes to the long-term deficit, Congress is incapable of acting.

But the answer isn't to give up on democracy. Back-room policy-making can succumb to private interests just as easily as lobby-infested legislatures can (much of the public suspects the Treasury of being too cozy with Wall Street as it is). The real answer is to recommit ourselves to cleaning up democracy. This means adequate public financing for congressional and presidential candidates who refuse private funding, more constraints on lobbyists, tighter rules for who must register as a lobby-ist, fuller disclosure, and tougher rules on the revolving door between public service and private gain.

Yet nobody seems to be talking about these sorts of reforms. They don't appear on Obama's agenda. True, they don't generate lots of public excitement, and they're murderously difficult to enact. But without them our democracy doesn't stand a chance.

[Joe Chi Minh]

8. 'Commissions are a default mechanism when politicians want to hand off

difficult issues to "experts.'"

Just provided their finding will be that the fault was systemic, so nobody's to blame.

[Dr.Phool]

17. It's called the cowards way out.

"Nothing I could do. they made the decision, not me."

Spineless bastards want to be held blameless.

[Joe Chi Minh]

40. I see them, rather, as crooks. But same difference, I suppose. The 9/11

Commission's finding must be the ultimate classic! As a journalist described it as akin to the evasion of a young child: "The lamp broke...."

[Demeter]

19. It's a Charade, All Right

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

[Demeter]

2. THE BANKSTERS SUBTHREAD

Those engines of destruction get stored here...

[Demeter]

3. Italy Seizes Bank of America, Dexia Assets Amid Probe (Update2)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aWJC2mYeMKqg&pos=5

Italy’s financial police are seizing 73.3 million euros ($102 million) of assets from Bank of America Corp. and a unit of Dexia SA as part of a probe into an alleged derivatives fraud in the region of Apulia.

Police are investigating losses on derivatives linked to the sale of 870 million euros of bonds sold by the regional government in 2003 and 2004, according to an e-mail from the prosecutor’s office in Bari today. The banks misled the municipality, located in the heel of Italy, on the economic advantages of the transaction and concealed their fees, the prosecutor said.

The region, also known as Puglia, joins more than 519 Italian municipalities that face 990 million euros in derivatives losses, according to data compiled by the Bank of Italy. In Milan, prosecutors seized assets from four banks including JPMorgan Chase & Co. and UBS AG in April and requested they stand trial for alleged fraud. Hearings started this month.

“Italy, like other countries, is full of these examples,” said Dario Loiacono, a banking lawyer in Milan who isn’t involved in the case. “It’s the result of the unavoidable asymmetry of information between the banks and the municipal borrowers.”

Police are sequestering a further 30 million euros that the municipality was set to place in a fund managed by the banks on Feb. 6, the prosecutor said. The magistrate also asked that Charlotte, North Carolina-based Bank of America be stopped from doing business with Italian municipalities for two years. A hearing is slated for next month.

Merrill Lynch

A spokesman for Bank of America in London declined to comment. Dexia Crediop SpA doesn’t have derivatives contracts with the region, the Rome-based Dexia unit said in an e-mailed statement. An official for the bank declined further comment.

Merrill Lynch, bought by Bank of America in January 2009, managed the bond sales for Apulia in 2003 and 2004. The bank didn’t provide the municipality with appropriate information on the financing, said the prosecutor. Officials at the municipality didn’t speak English, and contracts weren’t translated into Italian.

Merrill also recommended that Apulia seek advice from an international law firm, without disclosing that Merrill itself had a long-standing business relationship with the law firm, the prosecutor said.

Prosecutors allege that when the banks arranged swaps and created a fund that invests money the region set aside to repay the bonds in 2023, they misled the region about the economic advantages of the transaction. Banks skewed the swaps to their advantage to hide fees, the prosecutor said.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in interest rates or weather.

The seizure of Apulia’s semi-annual repayment of the bond will neither affect the interest payments bondholders receive nor will it affect the final repayment, the prosecutor said. Apulia is rated A1 by Moody’s Investors Service, four levels below the top investment grade.

[Demeter]

20. Wynton Marsalis Carnival Of Venice

http://www.youtube.com/watch?v=0-jDld11jhw

[Demeter]

4. No More Tarp for Citi, But TBTF Lingers

http://www.onwallstreet.com/news/citi-repays-tarp-2665027-1.html

That may as well have been the first bullet point on the news releases announcing Citigroup Inc.'s plans for repaying the Troubled Asset Relief Program and canceling a loss-sharing agreement with the government on more than $300 billion of loans and securities. For while Citigroup gets to escape the pay czar, and the Treasury Department gets to claim a key victory, the taxpayer gets no relief from the burden of too-big-to-fail institutions — only a "debt of gratitude" from Citigroup Chief Executive Vikram Pandit and a promise that the company will do more to help homeowners and other borrowers in need.

The real bullet points atop Citi's release were confined to logistics, including a breakdown of the more than $20 billion it plans to raise in the capital markets; a timetable for the shedding of the government's stake in the stock; and a totaling of the dividends paid or accrued under the Tarp investment, which will reach $3.1 billion by Dec. 31.

For its part, the Treasury Department dispensed with bullet points altogether, getting right to this statement: "We are pleased that Citigroup is moving ahead with plans to pay the taxpayers back. Treasury has repeatedly stated that the United States never intended to be a long-term shareholder in private companies. As banks replace Treasury investments with private capital, confidence in the financial system increases, government's unprecedented involvement in the private sector diminishes, and taxpayers are made whole."

But really, it is only explicit support for Citigroup that is being transferred into the private sector. And even that may be overstating things, if the government ends up having to swoop in again with a rescue that shifts the burden right back onto taxpayers.

"We have turned every really large bank, every systemically dangerous institution, into a government-sponsored enterprise, and everybody knows it in the marketplace," said William K. Black, an associate professor of law and economics at the University of Missouri, Kansas City, and a former senior deputy chief counsel of the Office of Thrift Supervision.

"There is no reason to believe that Citi is even remotely healthy," he added.

Citigroup executives declined to make themselves available to comment Monday, but no doubt Black's assessment is one with which Pandit would disagree. In a presentation accompanying its news release, Citi touted its 9.1% Tier 1 common ratio at the end of the third quarter — 9% on a pro forma basis, adjusted for the mechanics of the Tarp repayment — as outshining the 8.4% pro forma ratio for Bank of America Corp., the 8.2% ratio at JPMorganChase & Co. and the 5.2% ratio at Wells Fargo & Co.

"As I have stated many times over the past year, we planned to exit Tarp only when we were convinced that it was prudent to do so," Pandit said in Citi's news release. "By any measure of financial strength, Citi is among the strongest banks in the industry, and we are in a position to support the economic recovery."

But if "by any measure of financial strength" he meant profits, his assertion is shaky at best.

After showing two quarters of profits at the start of the year, Citi swung to a loss in the third quarter, as credit costs tied to loans and charge cards offset gains from its trading desks.

As Credit Suisse banking analyst Moshe Orenbuch points out, "Earnings are the first defense against credit losses. Capital is only the second defense."

In the absence of a stronger earnings trail, Tarp gave Citi the bridge it needed to regain its footing. "Citi raised a significant amount of capital, much of which was dilutive to their existing shareholders. And at the same time some of the government programs worked, and some of the asset values that they were afraid might deteriorate significantly have stabilized," said Orenbuch, who has a "neutral" rating on the stock.

The government's support did not come cheaply for Citi. In July, the government swapped its initial $25 billion investment in preferred shares for common stock, while private holders of the company's preferred securities were persuaded to do the same, diluting the existing shareholder base.

The $20 billion Citi got in a second bailout in late 2008 came with an 8% dividend attached, making the money more expensive than the 5% capital that other banks got through Tarp.

The loss-sharing agreement cost Citi another $7.1 billion in trust-preferred securities, $1.8 billion of which are being canceled now that the agreement is being unwound. The loss of the agreement also adds $144 billion to Citi's risk-weighted assets.

But a source close to Citi has said the company was deseparate to get out from under the pay restrictions established by the special master overseeing compensation at the seven institutions requiring the most public aid. Indeed, Citi will shed the "exceptional financial assistance" label beginning in 2010, meaning it can pay more and worry less about having its best employees poached, particularly on the investment banking side of the business.

That is a dangerous message for the government to be sending, though, Black said. "The idea that we would let systemically dangerous institutions like Citi go back to exactly the pattern that helped lead us to the financial crisis — that is the absolute travesty here."

But Linus Wilson, a finance professor at the University of Louisiana at Lafayette, who has been tracking Tarp returns, said Citi's repayment benefits taxpayers, particularly with respect to the end of the loss-sharing agreement.

"This, by far, was the 800-pound gorilla that you were worried was going to walk into the room, and it seems like we're still retaining most of the insurance premiums" that Citi paid for the agreement, he said.

But "until the implicit guarantee is really put off the table, and I don't think we're at that stage yet, that's going to make it easier for large institutions like Citi and B of A to raise capital," Wilson said.

[Demeter]

25. EMI’s £100m plea to meet Citi loan terms

http://www.ft.com/cms/s/0/268b86c2-1104-11df-9a9e-00144feab49a.html

Guy Hands will have to ask investors in his Terra Firma private equity group to inject about another £100m after admitting that EMI’s recorded music business will not be able to meet the terms of its loans from Citigroup this year, according to people familiar with its accounts.

The accounts show that EMI Music will fall far short of critical covenants on its debt when these are tested between March and December this year and could suffer further shortfalls next year. The news sets the stage for a dramatic test of investors’ faith in Mr Hands, who paid £4.2bn for EMI just before debt markets collapsed...

[Demeter]

11. CIA Spooks Expand Into Financial Services Work By Rocky Vega

http://dailyreckoning.com/cia-spooks-expand-into-financial-services-work/

The CIA already has its hands full with counterterrorism and at least two wars… so it seems like the perfect time to enter just one more quagmire. As if the ethics of the CIA haven’t been questioned quite enough of late, a recently-revealed policy allows operatives to work in the corporate world — including the moral bedrock of our nation that is the financial services sector — as consultants in skills such as “deception detection.”

One popular spook employer: Boston-based Business Intelligence Advisors or, as they are also known, the BIA. One satisfied customer? None other than Goldman Sachs.

According to Politico:

“… sources familiar with the CIA’s moonlighting policy defend it as a vital tool to prevent brain-drain at Langley, which has seen an exodus of highly trained, badly needed intelligence officers to the private sector, where they can easily double or even triple their government salaries. The policy gives agents a chance to earn more while still staying on the government payroll.

“A government official familiar with the policy insists it doesn’t impede the CIA’s work on critical national security investigations. This official said CIA officers who want to participate in it must first submit a detailed explanation of the type of work involved and get permission from higher-ups within the agency.”

Well that makes us feel a whole lot better. As long as completely opaque top secret documents stuffed with classified material indicate that the espionage-like corporate work is A-OK, we can all sleep soundly. The CIA has a still-recently sullied reputation for ambiguously interpreting international laws when operatives simply stick to their day jobs. It’s difficult to imagine the liberties they could be willing to take when, in the evening, they really let their hair down.

Poltico has the full hard-to-swallow details in its coverage of how CIA agents are moonlighting in the corporate world:

http://www.politico.com/news/stories/0110/32290.html#ixzz0eIFPhHBh

[Demeter]

21. Phantom of the Opera--Tim Rice!

http://www.youtube.com/watch?v=Ej1zMxbhOO0

[Demeter]

23. Lazard breaks ranks and speeds up pay-outs

http://www.ft.com/cms/s/0/e34c42fa-10f6-11df-9a9e-00144feab49a.html

Lazard broke ranks with its Wall Street rivals on Wednesday by accelerating promised cash payments to staff in the fourth quarter in a move that pushed the 162-year-old investment bank into the red.

While Goldman Sachs and Morgan Stanley have deferred bonuses in an attempt to tie rewards more closely to long-term performance, Lazard has moved the other way, eliminating deferred cash payments in an aggressive bid to retain and recruit top bankers.

The bank is also accelerating the payment of deferred cash awarded in 2008, and speeded up the vesting of restricted stock promised to Bruce Wasserstein, the former chief executive who died in October.

In total Lazard set aside $615.5m for pay and benefits in the final quarter, compared with $221.9m the year before.

Lazard, which makes most of its income from advisory and asset management fees and received no government assistance during the financial crisis, said its pay policy would help it lure staff from rivals.

“We take no risks that threaten our firm,” Ken Jacobs, chief executive, told the Financial Times. “Without question, the kinds of things we’ve done position us competitively to attract and retain great people.”

The actions resulted in a fourth-quarter loss of $142.4m, or $1.64 a share. Even excluding one-time charges, Lazard’s results fell short of analysts’ expectations.

In the same period of 2008, it earned $38m, or 50 cents a share. Its shares slipped 88 cents, or 2.15 per cent, to $40.12 in afternoon trading.

Fourth-quarter net revenues jumped 32 per cent to $494.8m on strong gains in restructuring advice and asset management.

[Demeter]

32. Banks concede reform is inevitable

http://www.ft.com/cms/s/0/c8ecd5e6-10f6-11df-9a9e-00144feab49a.html

Paul Volcker and Barack Obama have either thrown the world into chaos or given the cause of global bank regulation new impetus – it depends on your point of view. But one thing is for certain: the twin US initiatives to derisk banks and tax them according to their size – the Volcker rule and the Obama levy as they have been dubbed – have seized the attention of bankers and regulators around the world.

The US last month first made clear that it wanted to exact a levy of 0.15 per cent on any bank balance sheet over $50bn. Then it said that banks should no longer engage in what it felt were riskier practices – investing in hedge funds, private equity or proprietary trading, the archetypal casino-style betting of bank funds for a quick profit.

As part of that second crackdown, US officials said banks would not be able to grow beyond their current share of the market.

Underpinning both initiatives is a crackdown on institutions deemed “too big to fail” – an area regulators admit had not been settled via the international supervisory authorities, such as the Financial Stability Board and the Basel Committee on Banking Supervision, until the US political intervention.

There are at least four competing ideas under discussion among regulators, politicians and bankers. These include the extension of existing regulatory initiatives; the introduction of contingency capital planning; the rewriting of rules around different capital instruments, such as bank bonds; and a full-scale adoption at the level of the Group of 20 countries of a form of the Obama levy.

Many bankers, like Frédéric Oudéa, head of Société Générale, who last week bemoaned the politicisation of bank regulation, argue the first of those ideas will be sufficient.

According to such thinking, the drive by the Basel committee to pile additional capital requirements on the riskier activities of banks – such as prop trading, or banks trading on their own account – makes explicit bans unnecessary.

But the consensus view is that banks are going to have to submit to more radical concessions. Several regulators, including the Basel committee, are considering the merits of a contingent capital regime, which would put bondholders at risk of conversion into equity if a bank’s capital strength falls below a pre-defined level. The so-called contingent convertible instruments, or CoCos, are in their infancy, but Lloyds Banking Group issued £9bn of them late last year in a move that regulators believe could set an attractive precedent for other banks.

Some think such contingency planning does not go far enough. One big European bank is pursuing an agenda to put all investors on the line in the event of a bank’s failure – a radical proposal that would necessitate a rewriting of company law. “What you really need,” says the bank’s chief executive, “is a resolution framework that specifies that 100 per cent of a bank’s equity is wiped out, 50 per cent of subordinated debt goes and, say, 25 per cent of senior debt.”

It is the US proposals of the past few weeks that have really got people talking, however, polarising opinion at home and abroad. While Asian regulators have stayed out of the debate, Europeans have criticised aspects of the US administration’s effort to shrink what it sees as banks’ risky businesses – prop trading, hedge funds and private equity.

“The situation is completely different here and the system that was in place has not worked badly and does not need to be overhauled,” said one French government official. Pierre de Lauzun, deputy director-general of the French Banking Federation, told the Financial Times: “The content of the Obama plan is not convincing because it would be difficult to enforce and it won’t change things significantly. In France we prefer to go with the Basel process.”

The French and the German governments generally oppose any moves to split up their universal banks, arguing that their biggest banks survived the crisis relatively intact and that splitting them could lead to instability rather than a safer system.

Europeans are more divided on the question of whether to tax banks to pay for future financial rescues. Some, such as Juergen Stark of the European Central Bank, worry about the “moral hazard” of setting up a fund – either with taxpayer money, or via a bank levy – because it would temper the disincentive to fail.

But the camp backing a global levy seems bigger. Last week, two prominent bankers – Bob Diamond, president of Barclays, and Josef Ackermann, chief executive of Deutsche Bank and chairman of the Institute of International Finance – said they backed just such a tax. Regulators including Mario Draghi, governor of the bank of Italy and chairman of the global Financial Stability Board, and Philip Hildebrand, governor of the Swiss central bank, are also supportive.

Hector Sants, chief executive of UK Financial Services Authority, on Wednesday said the UK “recognises the importance of making sure the taxpayer does not ultimately bear the cost of financial failures”, though he cautioned that “the mechanism for achieving this needs further debate”.

In the end, bankers and regulators agree a combination of at least some, if not all, of the ideas under discussion will probably be implemented in some form. And of those, a global levy is the one that appears to be gaining support fastest.

“It’s virtually inevitable,” says Sir David Walker, author of a recent report on bank corporate governance, and a senior adviser to Morgan Stanley. “It’s the most likely thing you could get international agreement around.”

[Demeter]

58. Banks told to comply on bonuses or lose UK banking licences in shock FSA ultimatum

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7141221/Banks-told-to-comply-on-bonuses-or-lose-UK-banking-licences-in-shock-FSA-ultimatum.html

Investment banks have been told that every bonus issued must comply with the regulatory guidelines – or they face having their licences to operate in Britain revoked.

In an extraordinary ultimatum that has shocked some of the City's biggest companies, the Financial Services Authority (FSA) told bank bosses that 60pc of all pay must be deferred, with no exceptions, even for those whose contracts conflicting with the edict.

Many of the global players have in recent weeks made representations to the City watchdog, in particular about pre-existing employment contracts that guarantee bonuses over a year or more. But their appeals have been met with the FSA's toughest yet response.

One pay executive in a major bank told The Daily Telegraph: "The message came back that while the FSA agreed that it does not have jurisdiction over contractual law, it does have jurisdiction over issuing bank licences in London, and that we should go away and unwind the contracts."

Bankers at Merrill Lynch are among the first affected. Those with pre-existing contracts were told about the FSA's tough stance on Friday when their bonuses were agreed.

One Merrill Lynch employee said: "We thought that contracts would be immune from changes but were told by bosses that their hands were tied and there was nothing they could do, the regulator had put its foot down."

Banks that have not yet told staff about the bonus payouts are now scrambling to ensure that they are comply with the FSA rules.

Senior directors are concerned that the stance could result in the banks facing a series of legal challenges from individuals with pre-existing contracts. Headhunters say that banks including Barclays Capital and Nomura have lured star performers by offering them large guaranteed bonuses.

One headhunter said: "Many of these contracts have guarantees that 50pc of the bonus will be paid in cash. These are tricky things to unpick. But cleverly, the FSA has put the onus on the banks to unwind the contracts, rather than itself getting embroiled in a complex legal row."

Banks' senior directors have complained that the FSA's position on bonuses has shifted radically throughout the year, particularly in recent months since the Government announced its tax on bonuses and President Barack Obama unveiled his radical proposals to restrict Wall Street.

One said: "They have clearly gained confidence and they've thrown down the gauntlet. It's been very confusing and disruptive."

The FSA's position is the culmination of nearly a year of debate over how to curb huge sums paid out in remuneration by banks. In March, the regulator wrote to the bosses of the major investment institutions explaining that it was preparing a code designed to limit excessive pay in the aftermath of the financial crisis.

The consultation was followed in August by the publication of guidelines that demanded pay had to be calculated in relation to overall over risks.

The FSA issued guidelines on best practice for remuneration committees as well as recommendations for deferrals, claw-backs and a lower proportion of cash payouts.

When it found that some companies still planned to award multi-year guarantees and cash bonuses in the face of mounting political and public controversy, the regulator began to take a harder line.

In October, Lord Turner, chairman of the FSA, said he had "a range of levers'' at his disposal to block "excessive bonus payments''. "We will be talking to banks about whether their bonus pools are appropriate and if they aren't we will have a full and frank discussion with them,'' he said. At the time Lord Turner declined to detail the measures available to him.

The FSA said it would conduct spot checks to examine contracts and also threatened to force those breaching the rules to hold higher amounts of capital to compensate for the perceived extra risk. But privately bankers argued that the FSA would never be able to sweep away the rule of law.

One executive faced with dealing with the new ultimatum said: "It was pretty amazing but we actually chuckled because it's the sort of hard ball we would have played if we'd been in the FSA's shoes."

[Joe Chi Minh]

79. Too funny! And now I note in the final sentence, they think so too!

They've got more backbone than our politicians.

[ozymandius]

90. Wow! And just think: Gramm Leach Bliley was enacted because mainly of British competition.

If Glass Steagall were not repealed then American banks would lose their competitive edge with overseas banks who had delved into "financial innovation" - as the bizarro logic went at the time.

I am eager to see this kind of innovation in ultimatums enacted here too.

[Demeter]

33. Geithner attacks level of bonuses at AIG

http://www.ft.com/cms/s/0/087e9378-10db-11df-975e-00144feab49a.html

Tim Geithner, US Treasury secretary, on Wednesday sought to channel congressional anger at bankers’ bonuses as he criticised payments at AIG as “outrageous” and the insurance group’s travails as “an outrageous failure of policy”.

Under fire from some Democrats in Congress, Mr Geithner gave a punchy performance at a hearing of the House Ways and Means Committee, telling lawmakers to approve a $90bn fee on the largest banks.

“What happened in AIG was an outrageous failure of policy,” said Mr Geithner as he brought up the matter himself. “As a country we should have never let a company take on a scale of risk that could threaten the stability of the financial system.”

“Now, if you join with us in passing this proposed fee on our largest financial institutions... you’ll be able to say that the American taxpayer will not pay a penny for what happened at AIG,” he said.

AIG will pay about $100m on Wednesday to 200 staff at its financial products unit after they agreed to reductions in their pay-outs. “Those contracts were outrageous,” said Mr Geithner. “They should never have been permitted.”

He praised Ken Feinberg, the administration’s special master on pay, as a “brave, smart, tough man. He did a very good job of negotiating down those payments.”

AIG, which was rescued by the government in 2008, has haunted Mr Geithner, with lawmakers of both parties complaining about $27bn in payments made to the insurance group’s counterparties from the New York Federal Reserve when he was president of the institution.

In his testimony, largely borrowed from remarks made to the Senate on Tuesday, Mr Geithner blamed the Republican administration of George W. Bush for leaving the country’s budget in a perilous position with a deep deficit.

It was the Treasury secretary’s third appearance before Congress in nine days and his most confident yet, ranging over a broad range of budgetary and non-budgetary topics and batting away Republican questions.

[Demeter]

35. His Theme Song: Wishing You Were Somehow Here Again

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

[burf]

45. Well, now that the miracle recovery

in the last hour of today's trading is history, now comes the announcement of the bonuses for the big boys.

From MarketWatch: Goldman Sachs' CEO and four other executives split a pool of restricted stock
worth $45 million

J.P. Morgan's chief stands to rake in $17 million

http://www.marketwatch.com/

But I guess or political leadership will continue to play "Kabuki on the Potomac". Oh, those terrible fat cats. We are so outraged at the level of compensation. Blah, blah, blah. Perhaps they will send a strongly worded letter to those people! That will shake them up. But sure as hell, our elected officials will be glad to accept campaign money from those very fat cats. What a friggin' joke.

[Dr.Phool]

49. One bank closed so far this evening.

Community Development Bank, FSB, Ogema, Minnesota, Assumes All of the Deposits of 1st American State Bank of Minnesota, Hancock, Minnesota

FOR IMMEDIATE RELEASE
February 5, 2010
Media Contact:
LaJuan Williams-Young
Phone: [phone]
Email: [e-mail]

1st American State Bank of Minnesota, Hancock, Minnesota was closed today by the Minnesota Department of Commerce, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Community Development Bank, FSB, Ogema, Minnesota, to assume all of the deposits of 1st American State Bank of Minnesota.

The two branches of 1st American State Bank of Minnesota will reopen on Monday as branches of Community Development Bank, FSB. Depositors of 1st American State Bank of Minnesota will automatically become depositors of Community Development Bank, FSB. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers should continue to use the former 1st American State Bank of Minnesota branches until they receive notice from Community Development Bank, FSB that it has completed systems changes to allow other Community Development Bank, FSB branches to process their accounts as well.

This evening and over the weekend, depositors of 1st American State Bank of Minnesota can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2009, 1st American State Bank of Minnesota had approximately $18.2 million in total assets and $16.3 million in total deposits. Community Development Bank, FSB did not pay the FDIC a premium to assume all of the deposits of 1st American State Bank of Minnesota. In addition to assuming all of the deposits, Community Development Bank, FSB agreed to purchase essentially all of the failed bank's assets.

The FDIC and Community Development Bank, FSB entered into a loss-share transaction on $11.7 million of 1st American State Bank of Minnesota's assets. Community Development Bank, FSB will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers. For more information on loss share, please visit: http://www.fdic.gov/bank/individual/failed/lossshare/index.html.

Customers who have questions about today's transaction can call the FDIC toll-free at 1-800-523-8159. The phone number will be operational this evening until 9:00 p.m., Central Standard Time (CST); on Saturday from 9:00 a.m. to 6:00 p.m., CST; on Sunday from noon to 6:00 p.m., CST; and thereafter from 8:00 a.m. to 8:00 p.m., CST. Interested parties also can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/1stamerican.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $3.1 million. Community Development Bank, FSB's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. 1st American State Bank of Minnesota is the 16th FDIC-insured institution to fail in the nation this year, and the third in Minnesota. The last FDIC-insured institution closed in the state was Marshall Bank, N.A., Hallock , January 29, 2010.

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5. Humor Section

Mark Fiore on Deficit Destruction:

http://www.markfiore.com/political-cartoons/watch-newly-frugal-guy-attack-the-deficit-animation-mark-fiore

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6. PREDICTIONS

Also known as the opinion section, or Pessimists vs. Optimists

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7. Ready for the Bust in the Economy By Bill Bonner

http://dailyreckoning.com/ready-for-the-bust-in-the-economy/

...Thursday, investors must have felt like they'd rather be somewhere else. The Dow registered a loss of 268 points. Gold took a $49 beating.

We won't know for sure until Friday (today). If it is another bad day - as it probably will be - then it will be clear that the last stage of the bear market has arrived. This should be the final drop...when stocks should go down to their ultimate bear market low.

Where will that be? We don't know. Maybe Dow 5,000. Maybe lower. One way or another every major bull market needs a major bear market. The two go together like yin and yang, Abbott and Costello, or gin and tonic. Take one out of the picture and the other one no longer makes any sense.

We've had our bull market. It took the Dow from under 1,000 to over 14,000 in the space of 26 years. We've had a bubble too. The party was a lot of fun for everyone.

Now, it's time to clean up. It's time for the bust in the economy...and the bear market in stocks. That's just the way it works. Sorry.

If this bear market is going to correct the entire bull market from 1982 onward, it has to take prices back to the levels they were when it began. Back then, you could buy the Dow (from memory) for about 5 times earnings. Now, (we're not doing any research here...just broadly remembering the figures...) it's at about 20 times earnings. If those numbers are correct, you'd expect the final low to come in about a quarter of where it is now...or about 2,500.

Another way to look at it is to ask ourselves what the Dow of '82 would be today, adjusted for consumer price inflation. We don't know the answer to that either...but we'll guess that it would be about 4 times what it was then - or about 4,000.

So, now we have a range... We know roughly where this market could be headed - if it is the yang we're expecting. And if that's where it is going, a South Pacific island paradise would be a good place from which to watch it get there.

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9. Watch out, England’s Shut the Quantitative Easing Spigot By Rocky Vega

http://dailyreckoning.com/watch-out-englands-shut-the-quantitative-easing-spigot/

Today the Bank of England finally put the kibosh on quantitative easing (QE), after it wrapped up £200 billion of asset purchases last week. It’s a big step in a return to normal monetary policy and a substantial vote of confidence in the recovery. That’s a vote that could easily prove foolhardy, but is certainly bold… which is good too, right?

It’s not that continuing the QE is a better strategy… it’s just that the UK may have benefited most from never having begun a stimulus program at all. If nothing had been done in the first place it would have, at the very least, saved the current hassle of deciding when to return to doing nothing once again.

According to The New York Times, it gave Chancellor Alistair Darling a fine opportunity to wax enthusiastic about the program coming to a close:

“‘That’s a decision for the MPC (Monetary Policy Committee) which is rightly independent of government, but I think their decision was right,’ he added in a transcript of part of the interview released by the Treasury.

“When asked about U.S. bond fund Pimco saying high government debt meant gilts were ‘resting on a bed of nitroglycerine,’ Darling said: ‘In the markets people say things for different reasons, if you look at the commentators as a whole they rather take a more sensible view.’

“Darling also said he saw no prospect of Britain, which has a record budget deficit, facing similar troubles to Greece.”

Perhaps it’s reassuring to some UK citizens that, despite the record budget deficit, he sees no prospect of sovereign debt troubles in Britain. Though, those who are a bit skeptical may be better off.

The move has the funny odor of a contrary indicator. Much like his complaint about Pimco, it sounds an awful lot like Darling is just talking his book.

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10. 3 Problems With the Biggest Bubble in History By Rocky Vega

http://dailyreckoning.com/3-problems-with-the-biggest-bubble-in-history/

So much speculation is being focused on asset bubbles – where they are, how large they may be, and how much time they have left – while a much bigger bubble looms. That bubble is China’s $2.4 trillion in foreign currency reserves. According to William Pesek, we are witnessing “China’s currency reserves grew by more than the gross domestic product of Norway in 2009.”

The bubble is inflating at a rapid pace and on a massive scale. Although there’s abundant concern about the trillions held by China, few have viewed the problem as another bubble, nor have they considered what that similarity may mean.

Pesek outlines three reasons why this is a problem:

“One, it’s a massive and growing pyramid scheme… China aims to diversify out of U.S. Treasuries into other assets and commodities. The question that governments are grappling with is which markets are deep enough to absorb China’s riches? Gold? Oil? Euro-area debt? The Madoff family’s next Ponzi scheme?

“…Two, reserves are dead money…These huge sums of money could be used to improve infrastructure, education, health care and reducing carbon emissions. Never before have we seen such a misallocation of such vast resources…

“Three, reserves add to overheating risks. When policy makers buy dollars, they need to sell local currency, increasing its availability and boosting the money supply. Next they sell bonds to mop up excess money in economies. It’s an imprecise science that often leads to accelerating inflation.”

The trillions burning a hole in China’s pocket is not exactly chump change, and it’s interesting to consider how its growth has become like an overheated pyramid scheme of dead, fiat money. Eventually, and no one knows when, that money is going to start chasing something, and again, no one knows exactly what it may chase. Those unanswered questions leave a great deal of room for uncertain and profound outcomes.

You can read William Pesek’s opinion on the matter in his Bloomberg article on how the biggest bubble in history is growing every day:

http://www.bloomberg.com/apps/news?pid=20601039&sid=a4mPCXeGTl4Y

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12. Housing Market Update: What’s Lurking in the Shadow Market? By Addison Wiggin

http://dailyreckoning.com/housing-market-update-whats-lurking-in-the-shadow-market/

Supply and demand in the housing market remain seriously out of whack. The Commerce Department reports housing vacancies remain near record levels. And a staggering 21% of housing units built since 2000 sit empty. That’s a whole lot of cheap drywall and expensive countertops.

But it’s likely to be only half the story. “People focusing on the Multiple Listing Service (MLS) data for an accurate picture of the current housing market are missing the bigger picture,” writes the inimitable Dr. Housing Bubble. “This is like looking at Mercury and thinking you have a full picture of our solar system. This is the data that most in the public will be able to see without digging deeper into foreclosure and pre-foreclosure data, and this is what is now widely known as the shadow inventory.”

In short, banks have been holding back on the shadow inventory, thus artificially lowering the supply of homes on the market.

Using Los Angeles as an example, a quick scan shows 6,901 homes for sale. Which seems like a small amount of inventory for a big area. But when you look at the shadow market — those homes that are distressed, bank owned or scheduled for auction — it’s twice as big as the regular market.

In Los Angeles, an additional 6,583 notice of defaults have been filed, 4,264 home auctions are scheduled and 3,376 are now real estate owned.

“You can listen to the same dubious folks that missed the biggest collapse since the Great Depression,” the doctor says, “or you can spend a few minutes looking at the data above and putting 2 and 2 together.” The path ahead is not good for housing values.

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13. The Coming Trade War By Addison Wiggin

http://dailyreckoning.com/the-coming-trade-war/

We write today’s edition with the ghosts of Smoot and Hawley lurking over our shoulder. And Winston Churchill whispering “jaw-jaw” is better than “war-war.”

Jawing is what United States and China have been doing for the last 24 hours. Very indirect, beating-around-the-bush jawing, but jawing nonetheless.

Yesterday, President Obama told Senate Democrats he hoped to pressure China to abide by trade agreements, without specifying what agreements China was breaking or how. And then he implied the U.S.-China trade balance is out of whack because the yuan is overvalued relative to the dollar, without mentioning China by name.


US-China Trade Balance

“One of the challenges that we’ve got to address internationally is currency rates,” said the president, “and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price.”

Today, China hit back, with equally glancing blows. A spokesman for the foreign ministry said the value of the yuan is not the main reason for China’s trade surplus with the U.S., without specifying what that main reason is. He’d only say, “At the moment… the level of the yuan is close to reasonable and balanced.”

Ordinarily, we’d blow this off. A year ago, not-yet Treasury Secretary Tim Geithner dropped the incendiary term “currency manipulation” during his Senate confirmation hearings. He then backed off. And Chinese students laughed at him. You remember all that.

Back then, the Obamanians were high. They were going to rescue millions of homeowners from foreclosure. Thought they’d already whipped unemployment. And had a supermajority to cram health insurance reform through.

What a difference a year makes. Now the electorate is looking surly. Nothing like picking a fight with your largest creditor to get voters riled up again. Couple this latest exchange with the tension-building factors we cited on Tuesday — especially the sale of U.S. military equipment to Taiwan — and we appear to sit at a more delicate juncture than we did a year ago.

What a mess. But, oh, so much fun, too!

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14. Volcker Swiftly, Violently Shot Down by Congress By Rocky Vega

http://dailyreckoning.com/volcker-swiftly-violently-shot-down-by-congress/

Yesterday, former Federal Reserve chairman Paul Volcker finally gave his testimony to Congress on “Volcker’s Rule,” which is his plan to restrict risky trading by commercial banks. Today, we report back that the effort to bridle the wild and too big to fail horses of Wall Street is looking pretty much dead in the water.

According to The Wall Street Journal:

“Mr. Volcker’s testimony was at once a brilliant articulation of the structural dangers of Wall Street as it stands and a forceful warning. He clarified the most controversial part of the rule, the ban on proprietary trading for commercial banks.

“A bank ‘trading for its own account, it will almost inevitably find itself, consciously or inadvertently, acting at cross purposes to the interests of an unrelated commercial customer of a bank,’ he said in prepared testimony…

“…But given the reaction of committee members, the Volcker Rule appears to be doomed. By the end of his testimony the dais was nearly empty. Big bank stocks rallied. The only question now is whether the bill will be gutted or euthanized like failed investment banks would have been under the Volcker plan.”

There it is. Perhaps there’s a chance something could yet come of his hope for the nation, but it seems for the most part unlikely. Read more description of Volcker’s testimony at The Wall Street Journal’s coverage of Volcker and reform defeated:

http://online.wsj.com/article/SB10001424052748704259304575043593510790062.html

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36. Faber’s Take on US Debt, “We’re All Doomed” By Rocky Vega

http://dailyreckoning.com/fabers-take-on-us-debt-were-all-doomed/

In an interview on CNBC’s Squawk Box Europe — beginning 5 minutes into the clip – Gloom, Boom, & Doom Report editor Marc Faber discusses overpaid US government workers, the lurking certainty of tax increases, and the spectacular failure of state pension fund managers who bought assets at peak prices, got out at the bottom, and now face $2 trillion in unfunded liabilities.

As the video show, Faber simply cannot imagine how the US debt problem can be solved and concludes, “It’s a total disaster, we’re all doomed… we’re doomed.”

See more in the clip below, which came to our attention via The Mess That Greenspan Made.

http://www.youtube.com/watch?v=mHsVCE0-smE&feature=player_embedded

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15. Ben Bernanke: The Very Model of a Modern Pliant Bureaucrat

http://dailyreckoning.com/ben-bernanke-the-very-model-of-a-modern-pliant-bureaucrat/

Federal Reserve Chairman Ben S. Bernanke was a safe bet to win the Senate’s vote for a second term. ”Safe” is what the senators want and Bernanke passed the test. He is not a man inclined to make bold decisions. A former university administrator, his institutional mind will be just as slow to foresee the next financial crisis as it was incapable of forecasting the last.

Despite obvious signs the financial system was about to burst, Congress had no desire to touch Fannie Mae, Freddie Mac, and the banks’ expanding mortgage securitization machine (i.e., derivatives), that made Washington and Wall Street so rich.

Having replaced Alan Greenspan as chairman on February 1, 2006, Bernanke performed according to script. He dismissed the worrywarts. In June 2006, Chairman Bernanke told an International Monetary Fund (IMF) gathering: “ur banks are well capitalized and willing to lend.” In the same month, he stamped his imprimatur on the most destitute sector of the economy: “U.S. households overall have been managing their personal finances well.” In November 2006, he calmed fears about subprime lending. Before an audience promoting community development, Bernanke celebrated the rise of subprime mortgages: from only 5 percent of the market in 1995, 20 percent of new mortgage loans were subprime by 2005. (He did advise “greater financial literacy” for “borrowers with lower incomes and education levels.”)

In May 2007, Chairman Bernanke gave an appraisal one expects from a short-sighted bureaucrat: “e believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

Bernanke’s specialty is organization. Filing subprime mortgages into a manila folder appealed to the chairman’s tidy mind. John Cassidy discussed Bernanke’s strength in the New Yorker: “In 1996, Bernanke became chairman of the Princeton economics department, a job many professors regard as a dull administrative diversion from their real work. Bernanke, however, embraced the chairmanship…. bridged a long-standing departmental divide between theorists and applied researchers….” A colleague explained Bernanke’s considerable skill: “Ben is very good at… giving people the feeling they have been heard in the debate….”

Bernanke gives senators the same feeling (with some admirable exceptions, who know Bernanke’s cordial and vague representations are a variant on his predecessor’s, Alan Greenspan). The IMF did not want to hear America’s banks were undercapitalized. The community developers did not want to know subprime lending was an odious racket that was bound to topple. The nation’s most revered economist assured audiences that all was fine.

On December 3, 2009, the Senate Banking Committee held a reconfirmation hearing (prior to the full Senate voting on Bernanke’s second term). The Fed chairman was given great credit for leading the nation through the recent financial crisis. Committee members congratulated Chairman Bernanke for his brilliant restoration of the U.S. financial system.

He was reprimanded, however, for not anticipating the crisis and expressed requisite contrition. Bernanke thought banks should have held more capital and that the banking system had not employed adequate risk management controls. Committee members nodded in solemn agreement.

In truth, the too-big-to-fail banks are bigger, more unstable, and even more undercapitalized than before the bubble burst in 2007. As for risk management tools, Bernanke is full of talk but has done nothing to restrain either the growth of derivatives or to require reserves be held against derivative exposure.

At the December 3 hearing, the Fed chairman stated that he did not see any asset bubbles emerging. This seemed to reassure the senators who ignored the fatuity of even asking his opinion given that he thought banks were well-capitalized in 2006 and did not see the housing bubble.

As night follows day, Bernanke ignores a signal akin to one the derivative markets offered ahead of the 2007 meltdown. Then, there were wide expectations of loan defaults. Investors hedged this risk in the credit-default swap (CDS) market. The CDS market grew from $14 trillion to $42 trillion from January 2006 to June 30, 2007. Any line of business growing at such a rate should alarm bank regulators.

Ben Bernanke, the nation’s leading bank regulator, did not understand that banks could not honor trillions of dollars of claims once the defaults occurred. It was the CDS market that left Bear, Stearns; Lehman Brothers; Goldman, Sachs; and AIG either insolvent or close to it.

Today, galloping derivative growth has moved to interest-rate protection. The fear is of a government bond bubble. Ten-year Treasury bonds yield 3.7% during the greatest money-printing experiment in the nation’s history. Investment managers are protecting themselves against a higher 10-year Treasury yield. (With interest-rate derivative contracts, banks will have to pay the purchasers if rates rise to a specified level.)

During the first six months of 2009, the volume of contracts offering protection against rising yields of Treasury bonds with maturities of 5 years or longer rose from $109 trillion to $150 trillion. When rates rise, banks may once again default on their commitments.

Bernanke aims to please. He told the senators in December 2009 a reevaluation of his zero-percent fed funds rate “will require careful analysis and judgment.” The chairman will raise the rate “in a smooth and timely way.” This paralysis to action fits the stereotype of a municipal data-entry clerk. Bernanke certified his tremulous loyalty when he told an audience on November 16: “It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value…. It’s not obvious to me in any case that there’s any large misalignments currently in the U.S. financial system.”

Only an apparatchik could believe an economy with zero-percent interest rates is in balance. The purchasers of interest-rate protection (which is not cheap) believe differently, but Ben Bernanke is the man for the Senate. The chairman’s mandate for his second them is to ignore the obvious, deflect attention from the megabanks’ inherent instability, and to accept blame for his ignorance after the deluge.

For more of Frederick Sheehan's perspective you can visit his blog at www.AuContrarian.com.

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37. Bernanke Has that Gilbertian Quality, as Does Geithner

I can see old Gilbert, scratching away, tearing them to shreds in bouncy rhyme to music by Sir Arthur....

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38. Exposed: Bernanke's "Skimming Operation" By Mike Whitney

http://www.informationclearinghouse.info/article24575.htm

The reappointment of Fed chairman Ben Bernanke means that the opportunity for change has passed and the reform movement is dead. It means that and that derivatives trading, off-balance sheet operations, securitization, dark pools and high frequency trading will go on much as they have before. It means that the public will continue to be gouged so that a handful of Wall Street sharpies can rake in obscene profits using complex "financial innovations" and over-leveraged debt instruments. It means that the entire system will continue to be put at risk to protect the interests of investment banks and hedge funds. It means that the subsidies, the preferential treatment, and the bailouts will continue to fuel populist rage and exacerbate deepening divisions in society. It means that the status quo has been preserved and that it's "business as usual".

No reform movement will succeed as long as Bernanke is at the Fed. He's an agent of the big banks and a Wall Street loyalist. He's also the author of "Too Big To Fail", the controversial theory which provides unlimited state support for financial institutions that are deemed too large or interconnected to fail. TBTF means that capitalism's vital market-clearing function can avoided if one is rich or powerful enough. Bernanke repealed capitalism to save his friends.

The Fed's role in the housing fiasco, goes way beyond Alan Greenspan's low interest rates which helped to ignite a frenzy of speculation. It's clear now, that both Greenspan and Bernanke knew that the multi-trillion dollar credit expansion, was based on mortgages to applicants who had no way of repaying the money they had borrowed. It was a complete scam. Recent testimony by FDIC chairman Sheila Bair before the Financial Crisis Inquiry Commission (Jan 14, 2010) provides many of the details. Naturally, Bair's testimony has been ignored by the media.

Sheila Bair: "Federal consumer protections from predatory and abusive mortgage-lending practices are established principally under the Home Ownership and Equity Protection Act (HOEPA), which is part of the Truth in Lending Act (TILA). TILA and HOEPA regulations are the responsibility of the Board of Governors of the Federal Reserve System (FRB) and apply to both bank and non-bank lenders.

HOEPA, which was enacted in 1994, contains specific statutory protections for a narrow category of high cost loans used for mortgage refinancings. These protections include restrictions on prepayment penalties, balloon payments, and extensions of credit without consideration of a borrower's ability to repay. HOEPA defines these high cost loans in terms of threshold levels for either interest rates or points and fees. Many of the toxic mortgage products that were originated to fund the housing boom did not fall within the high cost loan definition under HOEPA. However, many of these toxic products could have been regulated and restricted under another provision of HOEPA that requires the Federal Reserve to prohibit acts or practices in connection with any mortgage loan that it finds to be unfair or deceptive, or acts and practices associated with refinancing of mortgage loans that it finds abusive or not otherwise in the interest of the borrower.

PROBLEMS IN THE SUBPRIME MORTGAGE MARKET WERE IDENTIFIED WELL BEFORE MANY OF THE ABUSIVE MORTGAGE LOANS WERE MADE. A joint report issued in 2000 by HUD and the Department of the Treasury entitled Curbing Predatory Home Mortgage Lending noted that a very limited number of borrowers benefit from HOEPA's protections because of the high thresholds that a loan must exceed in order for the protections to apply. THE REPORT ALSO FOUND THAT CERTAIN TYPES OF SUBPRIME LOANS APPEAR TO BE HARMFUL OR ABUSIVE IN PRACTICALLY ALL CASES. To address these issues, THE REPORT MADE A NUMBER OF RECOMMENDATIONS INCLUDING THAT THE FEDERAL RESERVE USE ITS HOEPA AUTHORITY TO PROHIBIT CERTAIN UNFAIR DECEPTIVE AND ABUSIVE PRACTICES BY LENDERS AND THIRD PARTIES. During hearings held in 2000, consumer groups urged the Federal Reserve to use its HOEPA rulemaking authority to address concerns about predatory lending. Both the House and Senate held hearings on predatory abuses in the subprime market in May 2000 and July 2001, respectively...."

Bernanke--who followed developments in housing in great detail--didn't lift a finger to stop the predatory lending until 2008 when he finally used his authority to restrict activities in just one small area of the market, closed-end mortgage loans.

Shiela Bair again: "For this new category of higher priced mortgage loans, these changes address many of the abuses which led to the current housing crisis and help assure that mortgage borrowers have stronger, more consistent consumer protections, regardless of the lender they are using or the state where they reside. The rule imposes an "ability to repay" standard in connection with higher-priced mortgage loans. For these loans, the rule underscores a fundamental rule of underwriting: that all lenders, banks and nonbanks, should only make loans where they have documented a reasonable ability on the part of the borrower to repay. The rule also restricts abusive prepayment penalties."

So, you see, that even after the media had started exposing the hijinx that were rampant in the mortgage market, Bernanke still refused to act, or rather, only used his regulatory powers on one narrow part of the market. At the very least, Bernanke's failure to respond makes him criminally negligent in the biggest ripoff in US history.

Sheila Bair again: "We believe that an 'ability to repay' standard should be required for all mortgages, including interest-only and negative-amortization mortgages and home equity lines of credit (HELOCs). Interest-only and negative-amortization mortgages must be underwritten to qualify the borrower to pay a fully amortizing payment. Otherwise, the consequences we have seen during this crisis will recur."

Bernanke even refused to enforce the most basic "common sense" regulation, that loan applicants be able to prove that they have the ability to repay their mortgages. No wonder Bair's testimony appears nowhere in the mainstream media; it provides concrete evidence of the Fed's culpability.

But, why? Why would Bernanke refuse to act even though he could see that markets would plummet and millions would lose their homes in foreclosure?

William Seidman, the former head of the FDIC, figured it out back in 1993 when he was cleaning up after the S&L crisis. He said:

“Instruct regulators to look for the newest fad in the industry and examine it with great care. The next mistake will be a new way to make a loan that will not be repaid.”

That's it in a nutshell. The banks didn't care if the loans were repaid because they got their money "up front" on volume originations. That's why they were so eager to issue mortgages to people with no income, no collateral, no job, and a bad credit history. It was all a gigantic skimming operation, where banks and brokers got their cut and then bailed out before the whole thing blew up. Bair's testimony shows that the Fed knew what was going on; knew that the loans were garbage, knew that people were being victimized, knew that eventually the bubble would burst and the economy would go into a long-term nosedive.

Bernanke's job was simple; just look the other way while fatcat banksters steal as much as possible.

Don't believe me? Read Bair's testimony. http://www.fdic.gov/news/news/speeches/chairman/spjan1410.html

[AnneD]

86. Yes.....

he remains an Englishman.


www.youtube.com/watch?v=MPZBzHBg0Yc&feature=related


A longer version.
www.youtube.com/watch?v=W2x_0rXADSY

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18. Everybody Off the Beach! By Bill Bonner

http://dailyreckoning.com/everybody-off-the-beach/

Last August, it was reported that deflation in Japan had reached a new record. Prices were dropping at the fastest pace 38 years. By November, it was duration, rather than depth, that got the press’s attention. Prices had been going down for 10 months in a row. Then, last week an update:

“Japan Deflation Hits a Record Pace,” reported the BBC. Prices in Japan were falling faster than they ever had since they began keeping track in 1970. The tide has gone out so far; beachcombers can’t remember when there was so much beach to comb. But what follows is not offered as a prediction, but only out of curiosity. We don’t know how this will turn out. Could it end in hyperinflation? Maybe.

Prices fall in Japan. The yen rises. And the government uses every trick in the book – and some as yet unpublished – to knock it down. If you are in a position to borrow money from the central bank, the bankers will give it to you at practically zero interest. And if your neighborhood wants a bridge or a community center, that too will be forthcoming from the Japanese government. No government has ever been so generous. At least, not without going broke. For every yen the government squeezes from its taxpayers, it returns more than 2 yen in public spending.

Investors must think the trend is eternal. Or perhaps they don’t think at all. They lend money to the world’s most spendthrift major government for 10 years in exchange for a yield of only 1.310%.

The drama of this story is an old and familiar one. Deeply flawed heroes at the world’s central banks and treasury departments think they can do a better job of guiding the economy than the markets themselves. It is they who set the price for short-term money, for example, not willing borrowers and lenders. They are the ones who fight the correction every inch of the way. They are also the ones you don’t want to stand behind; every shot they take backfires.

In France, the savings rate, as percentage of revenue, has gone up for the last 16 months, to 17% – the highest rate in 27 years. This comes as the Sarkozy government follows the lead of the US and Japan, with a deficit of about 8%…compared to 10% in the US and even higher in Japan. This is not the first time this has happened in France. The previous savings rate peak came when the Mitterrand government was trying to stimulate the economy out of the slump of the early ’80s. The more the government tries to stimulate spending by running deficits, the more people try to protect themselves by saving.

While the drama continues throughout the world, the story is most advanced in Japan. Which is to say, the central bankers have gotten themselves into deeper trouble. Martin Wolf of The Financial Times and Richard Koo of Nomura Securities applaud their performance. But by trying to suppress a correction in the private sector, Japan’s central bankers have stretched out a slump over two decades and set up the nation for a bigger crisis in the public sector. And there is nothing they can do about it. Their fiscal stimulus no longer stimulates. Their monetary inflation no longer inflates. And every quack cure they offer brings the patient closer to the grave. You might think they’d give up. Instead, they increase the dosage. Fiscal stimulus hits a new record, right along with deflation.

But it’s the final act that interests us. With public debt at nearly 200% of GDP and 700% of tax revenues, we shouldn’t have to wait much longer. Given the track record, we have to assume that it will be the exact opposite of what central bankers expect. They are aiming for the whimper of newborn growth. More likely, they will get the bang of hyperinflation.

The Japanese were recently among the champion savers of the world. Directly or indirectly, these savings financed the government’s stimulus efforts. Banks, pension plans, insurance companies – all bought government bonds as a safe way to store wealth. The government then drew upon this stored up wealth to finance its bridges to nowhere and its other boondoggles. The result is a misunderstanding on its way to becoming a disaster. The typical Japanese person looks forward to his retirement with a mountain of savings in his backyard. He believes he still has his cake. The government, however, has eaten it.

Higher savings rates typically produce lower prices, for a while. Currencies rise. Even in Weimar Germany, there was a period in 1920 when the mark rose. Falling prices would seem to be proof that the money is still there. But the real money is gone. Then, suddenly, people notice that their savings are nothing but paper. The tide turns. Confidence disappears. The big wave of accumulated savings hits the marketplace like a tsunami. Desperate people try to get rid of paper. They want something solid to hold onto. Long-term bonds, the most vulnerable to inflation, are exchanged for cash. Cash and government securities flood the market. Prices soar. Middle-class savers drown. Meek debtors, relieved of their burdens in the flood, inherit the world. So do the arrogant debtors in the government. And the shrewd speculators. And then central bankers return to their desks and come up with a new plan.

[Demeter]

22. Think of Me==Phantom

http://www.youtube.com/watch?v=XjM1Lrsb7I8&NR=1

[Demeter]

39. Global Insolvency, How will the U.S. Service its Debt? By: Bob Chapman

ABANDON HOPE, ALL YE WHO ENTER HERE:

http://www.informationclearinghouse.info/article24584.htm

[Demeter]

16. US Dollar Hammers the Euro By Chuck Butler

http://dailyreckoning.com/us-dollar-hammers-the-euro/

The big stock sell off that I’ve warned about since last year, looks like it has finally arrived… Bringing with it my biggest fears that the link between all the risk assets, had not been broken completely, and this link has turned into a bloodletting on currencies and commodities.

OK… So I got that out of the way, front and center this morning! You know… Ever since I began writing about a big stock sell off, I told you that, should the link remain in place, and the currencies and commodities have adverse reactions, then we would come to the fork in the road. The people that bought currencies and commodities to keep up with their neighbors, in hopes of being able to brag about their returns at the next bar-b-que, will panic and sell, making the sell-off even worse. The people that bought these risk assets for the “right reason”, which was to diversify their investment portfolios, so that not all their investments were denominated in dollars, and to provide a hedge against further potential losses by the dollar, and to reduce their overall risk for their investment portfolio, will just batten down the hatches, hunker down, and ride this out… And… If anything, look to pick up more of these risk assets at cheaper levels as we go along.

So… I was at the booth here at the Orlando Money Show, and a fellow walked up to me and said, “Gold is down $45, what do you have to say about that?” I said, “WOW!” sounds like a bad day at Red Rock for gold, did you buy some at $45 cheaper than yesterday’s price?” He was stunned that I came back like that… For he was simply trying to rub it in my face!

What happened yesterday to cause this bloodletting in stocks, currencies and commodities? Well, it just so happens to be the Weekly Initial Jobless Claims that first scared the bejeebers out of the risk takers… The Weekly Initial Jobless Claims showed that layoffs – which every analyst (except me!) was thinking were getting better – were picking up in January, with last week’s total at 480,000! This total got people/investors thinking that the rose-colored glasses they had been wearing regarding the US economy had to be stripped off of them!

Now… Fundamentally speaking… Had the currencies and commodities gotten back to fundamentals, and broken that chain that existed in the risk assets with stocks since the collapse of Lehman Brothers, then yesterday’s data would have deep-sixed the dollar, and sent the currencies and commodities soaring higher… Instead we had this to deal with!

Did you see where the Bureau of Labor Statistics (BLS) announced yesterday that they would have to make a one-time adjustment to the labor statistics, subtracting 824,000 jobs from the totals that they had added last year in error? You know… The “ghost jobs” that I had labeled years ago… I’m sure that announcement had a lot to do with the bloodletting yesterday also!

All this, and today we’ll see the color of the January Jobs Jamboree! The Jobs Jamboree will print this morning, and is expected to show more job losses to follow up last month’s 85,000 job losses… Of course I showed you last month that the “somewhat real figure” was 144,000 job losses, but we won’t let that get in the way of the BLS cooking the books!

I was talking to some wonderful, intelligent people last night about the Jobs Jamboree, and explained that the markets were always too dippy about the “number of jobs created”, for those figures never told you if the jobs created were high paying jobs, or low paying jobs… How could you make a call for the economy without knowing that?

So… I always said that it mattered less about the jobs created, but more about the Average Hourly Earnings and the Average Hours Worked… This is the data that the market participants should be really taking their direction from!

Enough on these job figures for crying out loud, Chuck! Can’t you think of something else to write about? Why, yes, I do believe I can!

Well… It looks like the Swiss National Bank (SNB) took the weaker currency price for the Swiss franc (CHF), and decided to take a double barrel shot at the franc, by selling it (intervening) overnight…

Shame, shame on the SNB! Selling your own currency! I had just highlighted the franc as one of my fave currencies yesterday, only to read about this intervention by the SNB overnight! UGH! Well, I’m reminded of a saying that can be used here. I used to work with a guy in the brokerage house with whom I began my investment career, (Stifel Nicolaus) who would tell me all the time… “Hey, if you liked the stock at $50, you’re going to love it at $45!”…

The debt problems of the PIGS (Portugal, Italy, Greece and Spain) took another chunk out of the euro (EUR) overnight… Quite frankly, this is beginning to sound like a broken record… Look, Greece is but 2% of the European Union… What percent is California to the US? Well, I don’t really know, but what I do know is that California is the 8th largest economy in the world, so, it’s percentage piece to the US would be much higher than 2%!

European Central Bank President, Trichet, tried his best yesterday, to convince the markets that euro region should not be punished for Greece’s debt problems… And in my opinion, he’s right! But… The markets will do what the markets will do, no matter what central bankers say…

I’m really beginning to grow tired of this debt talk and the euro taking hits over and over again because of it…

Of course, as I told the crowd yesterday in my presentation… “Yes, the dollar can rally, and will rally from time to time; think of it as circuit breakers, to keep the dollar from going into a tailspin on the slippery slope down.”

OK… Enough on that too!

In Australia overnight, the Reserve Bank of Australia (RBA), who just the other day surprised the markets and left their interest rates unchanged, made upward revisions to both GDP and CPI, and maintained that their internal interest rate, which will continue higher in 2010 to 5%…

Even this rosy picture, couldn’t stop the selling… So… I have to think that this is all panic driven, and profit taking, and then more panic driven…

Then there was this… Yesterday, I saw that former Bank of America Chief, Ken Lewis was being sued by New York Attorney General Andrew Cuomo for defrauding investors and the government when buying Merrill Lynch… I think the gloves come off here, folks… Under oath, I think Lewis will point to Paulson and Bernanke and say they made him do it, and then those two will have to answer questions under oath… Ahhh… We finally get to the cheese that binds here, eh?

To recap… The currencies and commodities have not broken the chain to stocks and are getting hammered as the BIG stock sell off that I’ve feared since June of last year, appears to be taking place…finally. Increased job layoffs were the Keymaster here, and we will get further info on the labor picture when the January Jobs Jamboree numbers get printed today…

[Ghost Dog]

87. Breakdown of the Gold Market by Jim Willie -(Paper-Gold Masquerade)

A great disconnect exists in the gold market between the exchange futures contract price (the paper price) and the gold bullion paid price for transactions (the physical price). The differential in price is growing wider, enough to place tremendous pressure on the gold market itself. Look not to the gold premium paid for purchases, but to high volume purchases in the tens of million$. In mid-December, almost every demand for gold contract delivery was matched by a cash delivery, complete with 25% bonus premium offered. The officials even produced a new ledger item called 'Cash For Delivery' that was necessary to balance their badgered books. It prompted little attention. Some call it a basic bribe. Others call it a technical default.

Fast approaching is the event of GAME OVER for London, a condition that has already reached critical level, according to a key reliable source of information with London connections and direct experience with its market events. How long can a major metals exchange sell contracts but have miniscule supply of gold in their vaulted possession? The paper gold market and the physical gold bullion market have finally separated in a practical manner, meaning actual gold has almost no role anymore in London paper contract settlement. The absence of gold in London requires extraordinary tactics to settle contracts and to obtain gold bullion. Red tape procedures delay delivery for individuals, and bribes accompany gold delivery demands as standard practice. The London Bullion Market Assn has almost zero gold, its supply having been drained in high volumes since early December, a process currently in acceleration.

The opportunity to convert fiat money into precious metal at prices considered reasonable is also vanishing. The London gold banker said, "There is going on a lot more than meets the eye. The physical system is actually consolidating bigtime and is organizing itself with lightning speed, totally hidden from pretty much anyone, even the so-called insiders. The paper precious metal market and the physical precious metal market have defacto disconnected. The paper and physical gold markets currently operate in parallel universes. The outflow of physical metal from bank vaults is happening at a mind bending pace."

...

The world is approaching a climax event. Sure, many analysts have made such a claim for months. But with Europe in flux, the USCongress in flux, the Persian Gulf in flux, the US-China trade battles escalating, and USTreasury debt finance recognized more and more as monetized printing press activity, we are truly approaching a climax event as gold metal has exited the London market. The trigger event is unknown. It will likely not be directly related to the above event fronts. It will probably be a typical garden variety event pertaining to the far from ordinary stresses tied to the ongoing crisis in the credit market, gold market, and currency market.

The financial press is critically important precisely now, for not spilling the facts on the current gold market breakdown and divergence. Much of the pressures are hidden though, since the financial press networks report only the official paper-based prices. Do not expect to read in Reuters or Bloomberg or the Associated Press or Wall Street Journal or the New York Times or Investors Business Daily or Barrons that a grotesque gold shortage exists in the London metals exchange or at the COMEX in New York and Chicago. They will not report that London is virtually drained of gold, yet still sells gold contracts. Accurate news reporting would accelerate the breakdown and remove the possibility for time extension. The press will not report that billionaires are emptying their gold bullion accounts at rapidfire pace, out of gross distrust of the bankers, since gold leasing has illegally been standard practice for many years.

...

Last August 2009, a busload of former key employees from the USDept Treasury and Wall Street firms arrived in Brussels Belgium. They turned themselves in to legal authorities in an attempt to avoid eventual prosecution. They came loaded with evidence, documents, emails, testimony, boxes of CDs, and much more. They won asylum in exchange for turning state's evidence. The Brussels Serious Fraud Squad is running with the data. All indications point to a strategic decision made by the Brussels Interpol squad. Their target is London, because it lies at the center of the syndicate enforcement of the fiat currency system, where the gold suppression is centered, where the greatest point of weakness exists, where the absence of gold is most glaring to make them vulnerable. London is the weakest link in the Ponzi Scheme chain, known as the global monetary system with USDollar price mechanism and USTreasury Bond reserve component in banks.

...

The gold price will experience a remarkable divergence. As the collapse approaches, the paper gold price (from futures contracts) will decline while the physical gold price (from bullion purchases) will rise sharply. The differential will grow gradually at first, then burst into a grotesque price disparity. When this occurs, expect darkness to fall upon the gold market. At this point, pure speculation follows. My expectation is for the official gold metal exchanges to shut down, at least temporarily. They have no gold, after all, so there aint nuthin to sell! To remain open only aggravates their contract and legal risk. Look for prosecutions of middle level officials from the exchanges, heavy police pressures put on them, and deals cut to bring down the kingpins. This is standard police procedure. Lawsuits are the wild card, hard to control, difficult to predict.

Pressures build that contribute toward the divergence. Whenever large deliveries are made in recent months from the gold exchanges, a new rigorous procedure must be followed. Delivery verification involves strict assayer information like certificates and dates and firm names and stamps. Before autumn 2009, such procedures were unheard of. One can make two conclusions. First, the buyers are distrustful of the gold bullion quality, amidst prevalent stories of not just 80-year old bottom of the barrel London gold bar quality, but of tungsten bars with gold plating. My sources tell of widespread cooperation toward data gathering for the documentation of the pathways that prove broad tungsten bar fraud. The risk is palpable, as murder threats hang over the project. These are after all syndicates, and they have had full control of the government treasuries ever since 1992, when Robert Rubin infiltrated the scene as US Treasury Secretary from his former Goldman Sachs currency trading post.

My expectation is when the breakdown comes, several key locations across the world will post and publish their actual transaction prices without names. They will vary somewhat. Even today, the Hong Kong gold spot price differs from the London gold spot price by $10 to $20 per ounce. This is standard, and reflects different demand levels against different supply levels. However, in the not too distant future, several key locations will herald their actual gold prices, which will be averaged, thus enabling the first true gold prices in a few decades.

/... http://www.financialsense.com/fsu/editorials/willie/2010/0203.html

[Demeter]

93. Jesus, Mary and Joseph! They Wouldn't Dare! Would They?

To sell gold on paper, gold that doesn't exist, to people frantic to get something of value for their fiat money....We wouldn't need Madame La Guillotine. The PTB would eat each other, and good riddance to them!

That would be the beginning of the end of this madness--the ultimate bubble popping. If any Treasury Secretary thinks he can shake down the US citizenry AGAIN for their small store of precious metals, He'll be in for a BIG surprise. People aren't as meek and trusting of their government as they were on April 3, 1933 (why do things like this happen on MY birthday? Can't they pick on some other date?)

http://www.ronpaulforums.com/showthread.php?t=126556

http://www.the-privateer.com/1933-gold-confiscation.html

[Demeter]

24. Fresh spat over ‘cash for clunkers’ scheme

http://www.ft.com/cms/s/0/17abac7e-1125-11df-a6d6-00144feab49a.html

The US on Wednesday criticised guidelines issued by Japan for its “cash for clunkers” programme, as a disagreement over American carmakers’ access to the plan flared up again.

Ron Kirk, US trade representative, said he was “disappointed” with Japan’s decision to judge the eligibility of US cars according to their emissions in city traffic only, instead of combined city and highway traffic. This, Mr Kirk said, would “limit the number of US auto models that qualify” for the programme.

Washington and Tokyo have been arguing for months over access to Japan’s year-old “eco-friendly vehicle purchase programme”, and appeared to have found common ground last month when Japan said it would open up opportunities for American carmakers, such as General Motors, Ford and Chrysler.

But the guidelines issued by Japan on Wednesday dampened hopes of a deal. Opposition in the US to Japan’s cash for clunkers plan grew after last August, when Japanese carmakers such as Toyota and Honda benefited heavily from the US cash for clunkers programme.

“This is completely unacceptable. The Japanese have broken their promise. They said they would allow American cars to participate in their programme but now have rigged the rules so that few can,” said Gary Peters, a Michigan Democrat.

Charles Rangel and Sander Levin, senior Democrats on the House ways and means committee, which has jurisdiction over trade, have written to Mr Kirk requesting that he continue his “engagement with the government of Japan in order to ensure that imported US vehicles are eligible for the eco-car programme not only in theory, but in practice”.

Stephen Collins, president of the American Automotive Policy Council, which represents the “Big Three” US carmakers in Washington, said: “This change does not begin to approach the openness of the US cash for clunkers programme that provided Japanese automakers with nearly half of the benefits.”

Japanese officials have attributed the fact that no US car models qualified for the programme to their dirtier engines. The Japanese embassy in Washington could not be reached for comment but one aide quoted by Reuters said the guidelines reflected “really technical, scientific decision-making”.

Imported cars accounted for only 7 per cent of vehicles sold in Japan in 2008, with US carmakers selling 14,000, according to the importers’ association.

[Demeter]

26. BAE to pay almost $450m to end bribery case

http://www.ft.com/cms/s/0/8134d35a-126a-11df-8d73-00144feab49a.html

BAE Systems was on Friday night preparing to plead guilty to criminal charges and pay one of the biggest ever fines over alleged corporate bribery after striking a deal to end transatlantic corruption probes that have entangled it for years.

The deal will cost the group almost $450m (£288m) – the bulk of it in the US – but should prevent it from being barred from government defence contracts in the US and elsewhere that underpin its business.

The deal – in Britain’s biggest and most politically contentious corporate corruption case– immediately sparked debate over whether the BAE had got off lightly after eight years of investigation in London and Washington.

Under the settlement, the first co-ordinated transatlantic deal in a corporate bribery case, BAE has agreed to pay a $400m fine in the US and plead guilty to one charge of conspiring to make false statements to the government in connection with regulatory filings and undertakings.

In Britain, the company is set to pay £30m and plead guilty to a minor accounting offence. Unlike the US, Britain has ruled out prosecuting any individuals.

BAE said it accepted full responsibility for what it described as the “shortcomings” in its operations.

Dick Olver, chairman, said the company had “systematically enhanced its compliance policies and processes” in the years since the conduct occurred. It had previously denied all wrongdoing.

The penalties are among the three largest exacted by the US Department of Justice over corruption allegations, although BAE’s admitted failings are relatively light compared with those confessed by other companies that have paid big fines, such as Halliburton and Germany’s Siemens.

While the UK settlement involves admissions of wrong-doing only in relation to the company’s sale of a radar system to Tanzania, the broader US deal covers central Europe as well as the company’s huge Saudi Arabian arms sales.

The Department of Justice said its investigation was ongoing.

The BAE case has had a high international profile since Tony Blair’s government drew heavy criticism three years ago for applying pressure that led the Serious Fraud Office to scrap its investigation into Saudi Arabian arms contracts worth tens of billions of pounds on grounds of national security.

Campaign Against Arms Trade, the pressure group, said it was “shocked and angered” by the SFO settlement, which meant there would be “no opportunity to discover the truth behind alleged bribery and corruption in the many BAE deals”.

BAE has always denied bribery.

[Demeter]

27. Music of the Night - The Phantom of the Opera

http://www.youtube.com/watch?v=4HWNKDmlnnQ&feature=related

[Demeter]

28. The Busted US Economy DailyReckoning.com

As the nearby chart illustrates in grisly detail, the US government has amassed $1.8 trillion of new indebtedness during the last 15 months. Astonishingly, each and every one of the last 15 months produced a deficit, including the tax-collection month of April, which had produced a surplus for 26 straight years.

So how much is $1.8 trillion, anyway?

Well, let's see... It's about 13% of US GDP. $1.8 trillion is also about double what the IRS collected from all individual taxpayers last year. In other words, if every American taxpayer had simply agreed to double his or her tax payments last year, the nation could have avoided this whole deficit mess.

For one final bit of perspective, $1.8 trillion is more than double the total debt America had accumulated during its first 200 years as a nation. America's debt load did not crack the trillion-dollar level until after 1980. These days, we rack up 200 years worth of debt every six months or so.

Thus, from a purely mathematical standpoint, trillion-dollar annual deficits seem incongruous with 30-year Treasury bonds yielding less than 5%. Less than 20%, maybe.

The initiatives that are aggravating America's runaway budget deficits are so mindless and uncoordinated they are, to paraphrase White House Chief of Staff, Rahm Emmanuel, "profanely moronic." As these moronic initiatives pile trillion-dollar deficits atop one another, Treasury bond yields might go to 20% at some point...or the dollar might go to three euros...or both.

[Demeter]

29. More Doom and Gloom

The issue isn't whether the government can satisfy demands of investors looking to liquidate assets and hold dollars. As long as Treasury yields remain low, the government can create limitless amounts of new credit to satisfy investor demand for default-free government liabilities (Treasuries and paper money).

Instead, the real risk facing financial markets over the next few years is whether investors will remain willing to hold cash and Treasuries at low yields. Cash has no intrinsic value beyond the belief that it can be exchanged for goods and services. The value of Treasury securities depends on investors' willingness to hold them, despite the near certainty that trillions in new Treasury securities will flood the market over the next decade.

The high unemployment/low capacity utilization argument is theoretical, antiquated, and based on a fairly closed, manufacturing-oriented economy. In this theoretical economy, unemployed workers continually bid the price of their labor lower until supply and demand for labor reach equilibrium at lower prices.

Today's US labor market does not work that way. The work force is very specialized. A laid-off automotive engineer is not likely to underbid the salary of nursing graduates for an open nursing position. Instead, those who have left the labor pool are collecting unemployment benefits without contributing to the aggregate supply of goods and services. When the claims on goods and services grow faster than actual supply, prices rise. The conditions for hyperinflation arise when an economy's productivity collapses and supply of government liabilities overwhelms demand (as confidence in the value of those paper government notes collapses).

The Federal Reserve promotes the "low capacity utilization" case for low inflation so it can keep subsidizing the wounded banks with easy money. But the market could lose confidence in the Fed's theory if the CPI remains stubbornly high at the same time as unemployment remains high. The market would express this view by selling off long-duration Treasuries, which increases yields. If this happens, the Fed will have to tighten policy to restore the market's confidence in the integrity of paper dollars. Fed tightening would lead to a reacceleration of the unwinding of the commercial real estate bubble.

Consensus view on Treasury supply required to fund budget deficits: "Even though US household savings may absorb just a few hundred billion in Treasuries in 2010, foreign investors and US banks will buy enough to keep yields from rising."

Alternative view: Several sources estimate that the US Treasury must auction roughly $2.5 trillion in new securities in 2010. Some of the proceeds will retire maturing securities, while the balance will finance the budget deficit.

The majority of the Treasury securities auctioned in 2009 were bills with very short maturity. The average interest rate paid on the Treasury bills auctioned over the past year is roughly 1%. But recently, Treasury auctions have been weighted more toward the longer maturities. Supply could overwhelm demand, causing prices to fall and yields at auctions to rise.

Because banks are choosing to defend their souring bubble-vintage loans, and writing them off slowly over time, they won't have the capacity in the "hold to maturity" section of their balance sheets to absorb as many Treasury securities as the market expects. If banks had flushed most of their bad loans off their balance sheets in 2009, they would have capacity to absorb perhaps hundreds of billions in Treasury securities in 2010. But they didn't.

There is a scenario in which domestic demand for US Treasuries could exceed new supply in 2010: another stock market meltdown similar to the one in late 2008. If enough investors flee stocks in a panic and invest the proceeds into Treasuries, yields could go down.

But considering that the government has committed its balance sheet to bailing out the financial system, that scenario is unlikely. More likely is a scenario in which investors question the integrity of the US balance sheet. The way to do that is to sell Treasuries. This scenario would be negative for the stock market, likely sparking the next leg of the secular bear market - a leg that involves several years of the S&P 500 trending gently lower under a rising interest rate environment. But it wouldn't likely involve a 2008-style panic liquidation of stocks.

Consensus view on the existing stock of Treasuries held by foreign investors: "Year after year, Treasury bears predict that foreign appetite for US Treasuries will weaken, but they keep buying. Foreign central banks will maintain their appetite for Treasuries because they have to keep their currencies cheap or pegged to the US dollar."

Alternative view: Foreign investors must be willing to hold Treasuries at a yield that compensates them for the risk that inflation and interest rates might go up in the future. If these investors fear that future inflation, interest rates, and deficits will remain dangerous, they won't buy more Treasuries until yields rise to higher levels.

A financial market that's evolved to a state at which it requires a perpetually growing inflow of new money to remain stable is a Ponzi scheme. The market for tech stocks in 2000 and real estate in 2006 had evolved into a Ponzi.

Those who argue that foreign creditors will never sell Treasuries because it's "not in their best interest" should explain why investors sold tech stocks or housing when they were in bubbles. Surely, it wasn't in the best interest of tech bulls to sell. Selling meant prices would fall, thereby damaging the value of tech stock positions. But they sold aggressively, because they perceived it to be in their best interests.

The situation of foreign creditors holding an unpayable mountain of debt of a trading partner is a classic "prisoner's dilemma." A prisoner's dilemma is a situation in game theory in which two parties might not cooperate even if cooperation is in their best interest. China and Japan might both conclude that buying more US Treasuries is not in their best interest. If they both stop buying at the same time, prices will fall and yields will rise.

[Demeter]

31. Point of No Return

http://www.youtube.com/watch?v=Dp4UqGxOeHk&feature=related

[Demeter]

30. First Bank Failure of the Evening

1st American State Bank of Minnesota, Hancock, Minnesota was closed today by the Minnesota Department of Commerce, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Community Development Bank, FSB, Ogema, Minnesota, to assume all of the deposits of 1st American State Bank of Minnesota.

The two branches of 1st American State Bank of Minnesota...As of December 31, 2009, had approximately $18.2 million in total assets and $16.3 million in total deposits. Community Development Bank, FSB did not pay the FDIC a premium to assume all of the deposits of 1st American State Bank of Minnesota. In addition to assuming all of the deposits, Community Development Bank, FSB agreed to purchase essentially all of the failed bank's assets.

The FDIC and Community Development Bank, FSB entered into a loss-share transaction on $11.7 million of 1st American State Bank of Minnesota's assets. Community Development Bank, FSB will share in the losses on the asset pools covered under the loss-share agreement...$3.1 million. Community Development Bank, FSB's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. 1st American State Bank of Minnesota is the 16th FDIC-insured institution to fail in the nation this year, and the third in Minnesota. The last FDIC-insured institution closed in the state was Marshall Bank, N.A., Hallock , January 29, 2010.

[Demeter]

48. I'm breaking for the evening--somebody update on the failures?

http://www.fdic.gov/bank/individual/failed/banklist.html

[Dr.Phool]

50. Well, I updated the one you already posted.

If I see any more, I'll post em.

[DemReadingDU]

51. Looks like just that 1 bank this Friday

Maybe the bank got a reprieve due to all the snow.

[Demeter]

52. Looks Like One Measly Bank Is All

After last weekend's nearly $2 Billion blowout, I suppose the money got scarce.

[Demeter]

34. New Zealand jobless rate rises to 10-year high

http://www.ft.com/cms/s/0/8c3037c0-113b-11df-a6d6-00144feab49a.html

A spike in expatriate New Zealanders returning home has helped push the country’s unemployment rate to a more than 10 year high of 7.3 per cent, adding to concerns the southern nation’s emergence from its worst recession in decades will be slow.

Economists had expected the unemployment rate for the three months to December to reach 6.8 per cent, up from 6.5 per cent for the quarter ended September, but the higher than expected increase was blamed on a rise in new workforce entrants.

New Zealand’s rate of net migration growth reached its highest level in more than five years at the end of 2009. On top of fewer New Zealanders heading abroad to work, the country’s statistician said arrivals of New Zealanders who had lived abroad for more than 12 months rose to 26,100 in 2009, a figure 11 per cent higher than the long term average.

Close to 600,000 of New Zealand’s 4.3m population are estimated to live abroad, with bulk in Australia followed by the UK and US.

Paula Bennett, social development and employment minister, said the unemployment surge was the result of more people joining the workforce.

“Net migration is part of this picture. New Zealanders are coming home and staying home, choosing to ride out a global recession in New Zealand,” she said.

Scott Bradley, an entrepreneur who lived in the UK for 10 years, said he had not found full-time employment since returning to New Zealand last year.

“A lot of expats who made money overseas are returning home,” the 40-year old said. “You can make money down here. I’m still trying to find business development funding but I’m optimistic about the opportunities in the Asia Pacific basin.”

Chris Tennent-Brown, New Zealand economist at Commonwealth Bank of Australia, said the headline jobless numbers, which showed unemployment among 15 to 24-year-olds rising to 18.4 per cent, had disappointed.

“Anything with a seven in front of it makes us look a lot closer to countries like the UK and other struggling economies rather than Australia,” he said. Australia’s unemployment rate has recently fallen to 5.6 per cent.

He said New Zealanders had retuned home because of the global downturn.

“They are not coming home because it’s a buoyant market but it’s not as bad as the UK and the US,” he said. ”In those countries unemployment is higher and it’s also much more expensive to live.”

However, he believed more New Zealanders would again seek work overseas once conditions offshore improve.

The jobless figures come after the country recorded unexpectedly sluggish growth in the third quarter in 2009 of just 0.2 per cent, with economists forecasting growth of 0.5 per cent in the three months ended December.

The country’s unemployment rate is now at its highest level since the quarter ended June 1999 and it is forecast to reach 7.5 per cent later this year.

In seasonally adjusted terms, the number of unemployed rose to 168,000 at the end of 2009.

[Demeter]

41. FHA Defaults Foreshadow A Crush Of Foreclosures By Dina ElBoghdady and Dan Keating

http://www.washingtonpost.com/wp-dyn/content/article/2010/02/01/AR2010020103527.html

[Demeter]

42. Like the Phantom, This Crisis Has Been Many Variations on a Theme

The Phantom of the Opera may refer to:

Literature

* The Phantom of the Opera, 1910 novel by French author Gaston Leroux
* Phantom (novel), 1990 adaptation by Susan Kay

Musicals

* The Phantom of the Opera (1976 musical), adapted by Ken Hill
* The Phantom of the Opera (1986 musical), adapted by Andrew Lloyd Webber, and the longest-running musical in Broadway history
* Phantom (musical), adapted in 1991 by Maury Yeston

Songs

* "The Phantom of the Opera" (song), from the Andrew Lloyd Webber musical
* "Phantom of the Opera" (song), by Iron Maiden

Film

* The Phantom of the Opera (1925 film)
* Phantom of the Opera (1943 film)
* The Phantom of the Opera (1962 film)
* The Phantom of the Opera (1989 film)

* The Phantom of the Opera (1990 miniseries)
* The Phantom of the Opera (1998 film)
* The Phantom of the Opera (2004 film)

Radio

* The Phantom of the Opera (2001 radio), drama produced for National Public Radio
* The Phantom Of The Opera (2007 radio), drama produced by Big Finish, adapted by Barnaby Edwards

[Demeter]

43. China cancels 80% of Iraq debt

http://www.google.com/hostednews/afp/article/ALeqM5jtPYdjfbN0UVUnW8IwkAHTCRcOzg

China has agreed to cancel 80 percent of the 8.5-billion-dollar debt it is owed by Iraq, the finance ministry in Baghdad said in an official statement on Tuesday.

It said a bilateral agreement was signed in Beijing, without specifying the date, and that China's ambassador to Iraq had met officials in Baghdad to confirm the agreement.

The statement added that the two countries entered into trade deals valued at 3.8 billion dollars in 2009.

In Beijing, foreign ministry spokesman Ma Zhaoxu told AFP "China and Iraq have reached an agreement not long ago... to substantially cancel the debts Iraq owes to Chinese companies."

"China has long been assisting Iraq to realise stability and development by offering aid, cutting debts and helping its economic restoration," he said in a faxed statement.

Beijing "exempted in 2007 all the debts Iraq owed to the Chinese government," the statement added, without giving specific figures.

State-owned Chinese oil firm CNPC has clinched some of the biggest deals in the Iraqi oil sector since the US-led invasion that toppled Saddam Hussein in 2003.

It was the leading member of a successful consortium bidding for the Halfaya field in southern Iraq in December.

The Chinese firm had already signed a deal last year, along with Britain's BP, to ramp up production at Iraq's biggest oil field, Rumaila.

Those two deals are in addition to a contract signed in 2008 by CNPC to develop another oil field south of Baghdad, giving it a major presence among foreign energy firms operating in the conflict-wracked country.

[Demeter]

46. Another Version of Phantom Came out in 1943

http://www.youtube.com/watch?v=B7764zEZiTs&feature=related

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

http://www.youtube.com/watch?v=CSkaaxETDC8

http://www.youtube.com/watch?v=RtY44cSD_f8&feature=related

[Demeter]

59. China to Impose Dumping Penalties on U.S. Chicken (Update3)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZn.JBcfIubI&pos=9

China, the largest market for U.S. chicken, will impose anti-dumping duties of as much as 105.4 percent on imports of American poultry products, threatening to deepen a trade rift.

Importers of U.S. broiler-chicken products will be required to pay after an investigation showed they had caused “material damage” to local suppliers by selling at below-market prices, the Ministry of Commerce said in a statement on its Web site, citing a preliminary ruling. The duties are effective Feb. 13.

The ruling may further strain trade relations between the U.S. and China, which began its investigation in September, two weeks after the U.S. imposed tariffs on Chinese tire shipments. Ties have soured over proposed U.S. arms sales to Taiwan and President Barack Obama’s plan to meet the Dalai Lama this month.

“This is probably a result of political tension, although a trade war between the two economies is unlikely,” said Li Qiang, a managing director of Shanghai JC Intelligence Co. China consumed almost 800,000 metric tons of U.S. chicken in 2008, valued at $722 million, according to the USA Poultry & Egg Export Council.

China’s chicken probe also was a response to a decision by Congress that effectively bans imports of cooked poultry, James Sumner, the president of the poultry export council, said on Sept. 14.

Trade Spat

The U.S. and China, with $409 billion in annual trade, have been engaged in a spat over allegations of dumping and subsidies. China says U.S. complaints are signs of protectionism, while the U.S. says it’s enforcing trade rules. World Trade Organization judges agreed last month to review whether tariffs on Chinese tires are proper.

Imports by Pilgrim’s Pride Corp. will be levied with an 80.5 percent preliminary duty and Tyson Foods Inc. imports 43.1 percent, according to the ministry.

“We just heard the ruling, and we are a bit surprised,” said Hu Jijun, the chief China representative of the U.S. Poultry & Egg Export Council, when reached by telephone. The group will be meeting with the ministry to seek clarification, he said.

Still Assessing

Tyson, based in Springdale, Arkansas, is “still assessing” the impact of the ruling, Chief Executive Officer Donnie Smith said. About 14 percent of Tyson’s $1.6 billion of international chicken sales were to China during the 2009 fiscal year, according to the company’s Web site.

“We haven’t had a chance yet to sort out all the issues associated with the potential anti-dumping,” Smith said today on a conference call with analysts. He declined to comment further.

Mike Cockrell, the chief financial officer of Sanderson Farms Inc., said he won’t be in a position to comment until he has seen a copy of the order translated from Chinese.

“We are certainly aware of the order, and it’s going to take up a good portion of my day trying to figure out what they have done,” Cockrell said from Laurel, Mississippi.

China, EU

China’s trade relations with the European Union have also been strained, with Beijing yesterday complaining to the World Trade Organization against the European Union’s anti-dumping measures targeting leather shoes made in China.

Beijing submitted its request for WTO consultations with the EU after bilateral talks failed to address its concern, Yao Jian, a Ministry of Commerce spokesman, said in a statement on the ministry’s Web site. In December, the EU prolonged tariffs of as much as 16.5 percent on leather shoes from China and Vietnam for 15 months to help producers in the bloc counter below-cost, or “dumped,” imports.

[Dr.Phool]

44. The mask comes off the Household Survey.

I was just watching the Ed Show. Not Mr. Ed, but the guy on MSNBC.

He had an economist from the University of Maryland on the show. A Peter Morici. He said the reasons for the wild discrepancies in the survey comes from the people surveyed. They call a home, and if anyone in that household worked as little as one hour that week, they were considered employed. He said that the majority of the increase this week came from NEWLY SELF-EMPLOYED respondents. They could have gone out and shoveled snow, or done lawn maintenance for a couple of hours, and they were considered employed in this survey.

Not my idea of a job, or a job program.

[Demeter]

47. A Parody?

http://www.youtube.com/watch?v=appIbv6fjYc

Julie Andrews vs. Carole Burnett

[Demeter]

53. Geithner says low risk of double-dip recession

I DIDN'T PUT THIS UNDER PREDICTIONS==BECAUSE I THINK WE NEED A DELUSIONS CATEGORY--

http://news.yahoo.com/s/ap/20100206/ap_on_bi_ge/us_geithner_economy

Treasury Secretary Timothy Geithner says the US has a low risk of a double-dip recession.

Geithner (guy-tner) told ABC News in an interview that will air Sunday on "This Week" that the U.S. is at a lower risk "than at any time over the last 12 months or so." He said the economy is growing at the most rapid rate in six years during the last quarter of the year. And he believes the country is in "the process of healing."

The Dow finished slightly up Friday after falling 268 points on growing worries about the global economy the previous day. The outlook for jobs became a bit less bleak when the government released January's unemployment rate showing an unexpected decline from 10 percent to 9.7 percent. It was the first drop in seven months.

[Demeter]

54. Goldman CEO Blankfein gets $9M stock bonus for 09

http://news.yahoo.com/s/ap/20100205/ap_on_bi_ge/us_goldman_sachs_executive_pay

Goldman Sachs Group Inc. CEO Lloyd Blankfein is getting a $9 million stock bonus for 2009, a modest payday by Wall Street standards that appears aimed at quelling criticism of the bank's compensation practices.

Blankfein will receive more than 58,000 shares of restricted stock that can't be cashed in for five years, the bank said in a securities filing Friday. Blankfein will receive no cash as part of his bonus.....

Earlier Friday, JPMorgan Chase & Co. said CEO Jamie Dimon received a $16 million stock bonus, making him the highest paid CEO among the nation's largest banks that have announced their pay plans.

Morgan Stanley CEO James P. Gorman received a stock bonus valued at $8.1 million for 2009. Gorman was co-president of the bank for that period. He replaced John Mack as CEO last month. Mack, who remains chairman, received no bonus for 2009 or the previous two years...

Under Blankfein's leadership, Goldman earned a record $4.79 billion profit in the last three months of 2009. But Goldman bolstered its fourth-quarter profits by slashing the size of its bonus pool in a move aimed at quashing criticism of outsized paydays at elite New York investment banks.

Blankfein received compensation valued at $42.9 million during fiscal 2008, virtually all of it coming from stock and options awarded for his previous year's performance.

He got no performance-based pay for his work in fiscal 2008, when Goldman reported its first quarterly loss since becoming a public company and its stock fell more than 60 percent amid the deepening credit crisis.

Aside from not being able to sell the stock for five years, Goldman's top 30 executives' stock awards could be taken back by the bank in cases where the employees took too large a risk or failed to raise concerns about risk in the company.

Under JPMorgan's new pay structure, Dimon will be restricted from selling 75 percent of his total accumulated JPMorgan stock until he leaves the company, spokesman Joe Evangelisti said. In addition, JPMorgan's board can recoup the entire 2009 stock bonus under any circumstances, Evangelisti said....



Dimon received no bonus for 2008. He received a $27.8 million bonus for 2007, just before the financial crisis began to accelerate. Since then, JPMorgan has solidified its status as one of the nation's top banks. Dimon led the bank to four profitable quarters in 2009, including a $3.28 billion profit in the final three months of the year.

Even as furor over bank bonuses has grown, JPMorgan increased pay for its workers in 2009. The average pay per employee rose to $121,124 in 2009 from $101,110 a year earlier. The average pay in the investment banking division was about $380,000....

[Demeter]

55. McKinsey on Deleveraging, “Painful, Lasting 6 to 7 Years” By Rocky Vega

http://dailyreckoning.com/mckinsey-on-deleveraging-painful-lasting-6-to-7-years/

Top management consulting firm McKinsey & Company seems to be catching on to the fact that, as Marc Faber so succinctly put it, we’re all doomed. Its McKinsey Global Institute has put out a January report with extensive findings on debt and deleveraging in world economies as a result of the global credit bubble collapse.

Here’s a description of several of the consequences:

“Leverage levels are still very high in some sectors of several countries—and this is a global problem, not just a U.S. one.

“To assess the sustainability of leverage, one must take a granular view using multiple sector-specific metrics. The analysis has identified ten sectors within five economies that have a high likelihood of deleveraging.

“Empirically, a long period of deleveraging nearly always follows a major financial crisis.

“Deleveraging episodes are painful, lasting six to seven years on average and reducing the ratio of debt to GDP by 25 percent. GDP typically contracts during the first several years and then recovers.

“If history is a guide, many years of debt reduction are expected in specific sectors of some of the world’s largest economies, and this process will exert a significant drag on GDP growth.”

Basically, the findings show that leverage problems still exist in many areas and, even where unwinding has begun to take place, there remains a great deal of pain to come.

This report came to our attention via The Business Insider and the full document is available here, “Debt and deleveraging: The global credit bubble and its economic consequences.”

http://www.mckinsey.com/mgi/publications/debt_and_deleveraging/index.asp

[Demeter]

56. Commodity Currencies Take a Hit By Chuck Butler (FROM JAN 25)

http://dailyreckoning.com/commodity-currencies-take-a-hit/

I will say something here that might tick a few writers off, but I don’t care… One would think that given the problems of Greece, and a nascent (at best) economic recovery, the euro would have lost more ground versus the dollar… I’ll let you in on a little secret that these guys who are calling for a collapse of the euro don’t know… The euro is the second most liquid currency in the world, behind the dollar. And right now…liquidity is in!

It certainly appears that the euro’s decline/correction has been “tamed”… And the reason? Traders are now preferring liquidity over economic performance… Now… This doesn’t mean that the correction can’t go further, pushing the euro and other currencies lower versus the dollar… What it says is that if traders really want to see the euro lower, they are going to have to work at it… Harder.

The commodity currencies of Australia (AUD), New Zealand (NZD), Canada (CAD), Norway (NOK), Brazil (BRL), and South Africa (ZAR), have been out of favor since the announcement by China last week that they would attempt to “tweak” their economy – which is central bank parlance for: “slow the economy down, but keep it running, just don’t let it overheat”

So… To me, this “out of favor” situation with the commodity currencies is being a little overblown at this point… China said they were going to “tweak” their economy, they didn’t say they were going to “shut it down”!

And then the oil-producing commodity currencies are getting a double whammy with the fall of the price of oil…

But to me… The oil thing is crazy talk… If the recessions around the world are coming to an end, as the economists say, then the demand for oil will be increasing, not decreasing! But, that’s just me thinking logically, right?

Speaking of economies coming out of recession… The UK is the last major economy to come out of recession, as it booked a positive GDP for the fourth quarter of 2009. Now, don’t get all lathered up about pound sterling (GBP)… The Office for National Statistics said that compared with the third quarter, gross domestic product in the three months to the end of December increased 0.1%. Compared with the fourth quarter of 2008, GDP fell 3.2%.

That’s right… The positive figure was a measly 0.1%… But hey, it was positive, and that’s all that counts in the “ending the recession” game…

Well… What have we here? Is this for real? OK, I know I have your attention now… Did you see that the US government has proposed a spending freeze? WOW! I mean, after you’ve spent $1.9 trillion (that’s already in this year’s budget) what more could you find to spend money on? I find this laughable… But, a good sign at the same time.

Yes, look for this announcement at the president’s State of the Union address, tomorrow night… A three-year spending freeze… Of course, that doesn’t include defense spending… Which I guess is a good thing, considering we’re fighting two wars right now… So, on one hand, I find this laughable, because before health care was deep-sixed by the people of Massachusetts last week, there’s no way the President would have made this announcement of a spending freeze… On the other hand, though… It’s the first sign, that maybe, just maybe, spending can be lassoed in and brought under control… Of course, that’s a long and winding road, which leads me to your door, but… You’ve got to start somewhere!

Of course, what will the president do if the economy does experience a double dip like I’ve said I believe it will? You know darn well that there will be calls for more stimulus spending… Then what’s a president to do? Well, maybe he won’t say, “watch my lips, no more spending”… HA!

Speaking of budget deficits… Did you see where Greece issued $28 billion in new 5-year, high yielding bonds? That’s four times what the Grecian government thought they might sell! So… Maybe, just maybe, Greece won’t be the immediate problem that everyone has made them out to be! Of course, Greece will have the US’s problem in the future, when the bonds come due… But for now, I do believe this hurdle has been cleared.

And… Speaking of double dipping… Could the US housing market be heading there? Yesterday, we saw a very interesting report that certainly suggests that may be the case… Existing-home sales sank 16.7% in December to a 5.45 million annual rate, according to the National Association of Realtors. The drop, which came after three straight increases that were fed by a government tax credit, was worse than forecast…

With unemployment at 17% (yes, I know the government says it’s only 10%, but they don’t count all the people that are unemployed!) Anyway, how can home sales rise, without major damage to the home prices? I truly believe that we’ll see a double dip in the housing sector, with price damage leading the way… Which could lead to more foreclosures, and the circle doesn’t get broken… UGH!

OK… In Germany this morning… Germany’s Business Confidence, as measured by the think tank IFO, came in stronger than expected, defying the naysayers of Germany’s recovery! The Business Confidence index printed at 95.8, from the previous print of 94.7…

You know… I’ve been following these foreign economies since 1992, when I began trading foreign bonds, and writing the Pfennig, and one thing I’ve noticed over the years is that the IFO think tank does a good job of giving the markets indicators as to how strong German GDP will be… So, if that remains in place, and I don’t see any reason to believe it wouldn’t, I would look for stronger German GDP growth.

I also saw a headline go across one of my screens this morning that said Brazil’s January Consumer Confidence Index rose to 116.4 from 114.1 in December, last month… So… Things in Brazil are going well, economically… We just have that Sovereign Wealth Fund gumming up the works for the real’s value versus the dollar… This is where the sharks begin to circle, for they smell blood, and that’s the Sovereign Wealth Fund’s cash being spent on making the real weaker. Contrarians would look at this and say… Buy Brazil while the sharks are still circling, for when they feel the Sovereign Wealth Fund’s cash has run out, they will strike, and strike with a force!

But, that’s just my opinion, I could be wrong there…

Yesterday we saw existing home sales decline, and today we’ll get the S&P/CaseShiller Home Price Index for November… We’ll also see consumer confidence, and of course the board games all get out as the FOMC meeting begins today…

To recap… The dollar has reversed the gains the currencies made the past couple of days, as China and S&P’s downgrade of Japan’s outlook, sent the risk takers hiding, and the risk aversion campers came out of the woodwork… Are we really going to announce a spending freeze here in the US? And German Business Confidence continues to get stronger…

[Demeter]

57. CULLING FROM THE PAST

In this section, I'm putting items of interest that date back to early January and before. I've run out of fresh emails. and now get to reduce the backlog.

My hope is that some of those aged emails have been superseded by recent events, and so only those items still news worthy will be posted. Some things don't et fixed, or are classic: these are my targets.

[Demeter]

64. Don't Blame Citigroup For The Latest Outrage--It Was Tim Geithner's Fault Henry Blodget

http://www.businessinsider.com/henry-blodget-dont-blame-citigroup-for-the-latest-outrage-it-was-all-tim-geithners-fault-2009-12?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+%28ClusterStock%29

A few days ago, we flamed Citigroup and Tim Geithner for once again screwing taxpayers with the bungled TARP exit.

A Wall Street friend writes to say that our scorn for Citi was actually misplaced, that it was all the Treasury's fault:

Citi management has been responsible for countless prior sins, but this one belongs to Uncle Sam.

I've been negative on the stock, in part because being that deep in hock to the government creates unpredictable, unquantifiable and open ended risk. So professionally, this week's debacle was great for me. But as a taxpayer/shareholder of Citi I'm totally outraged and this whole thing is an example of how this mindless popular outrage at "Wall Street" for all the world's problems creates adverse consequences that hurt everyone.

Start with the simple fact that the most unusual and disagreeable fact about Citi versus all the other troubled banks out there was that the government owned a third of the shares. I can't tell you how many people say "We won't buy it till they're out."

So in the fall, some 38 BILLION shares trade in the market at above $4. The Singapore government sells more than a billion shares for a $1.6B profit and the Kuwaiti government sells over a billion shares for a $1.1B profit. Had our government sold our shares, we could have had a $5-$6B profit. All the hedge funds were eargerly awaiting a $5-$10 billion block trade in the stock, thinking that it would be a positive catalyst. We were all constantly wondering "Where is it? What are they waiting for?"

Surely this would have been the rational thing to do. The government would still have effective control because the TARP preferreds and the ring-fence agreement were the mechanisms of control. But selling the common would have been great for everyone. The government could have said "See. Partial Victory. We got most of our money back at a profit." Citi. could have said, "See, we're making progress on our privatization." It had WIN/WIN written all over it and the market would have embraced it and made Citi's access to capital to repay TARP a lot easier.

Well... Treasury didn't want to do it that way. Instead, they insist on holding the stock until the preferreds are repaid. This dramatically limits Citi's universe of buyers.

Next, they don't give them any break on the consideration for the ring fence. Normally when you cancel an insurance policy you get a refund.... Next, let's make them do it the week before Christmas, oh yes and then--just to put the cherry on top of the whole confection--let's pressure Wells Fargo into doing a $10 billion stock deal right as we're trying to build the deal book....

Could the Treasury have made it any more difficult for Citigroup? Its like one of those old Westerns where the guy walks into a bar and the bad hombres there pummel him for the next 45 minutes until every stool and bottle has been broken over his body.

And the sad thing, aside from the fact that the taxpayers may never see $4.50 again, is that it makes capital harder to raise and therefore more expensive for everyone. That it turn makes credit more constrained and expensive for all the borrowers.

This whole thing was an outrage. I can't think of a single reason, other than maybe just dumb, blind anger at "Wall Street" for why one would have acted the way the government did.

[Demeter]

65. John Mack Again Skips His Bonus

http://online.wsj.com/article/SB10001424052748703523504574603892932437488.html?mod=WSJ_hps_LEFTWhatsNews

Morgan Stanley Chief Executive John Mack won't take a year-end bonus, according to a memo to all Morgan Stanley employees Friday, reviewed by Dow Jones Newswires.

This is the third consecutive year that Mr. Mack will forgo a bonus.

The board had wanted to reward him for helping guide the firm through the financial crisis and eventually returning the firm to profitability, according to a person familiar with the ...

[Demeter]

66. Show Us the E-Mail By ELIOT SPITZER, FRANK PARTNOY and WILLIAM BLACK

http://www.nytimes.com/2009/12/20/opinion/20partnoy.html?_r=2

WE end this extraordinary financial year with news that the Treasury is in discussions with American International Group about selling the taxpayers’ 80 percent ownership stake in that company. The government recently permitted several banks to break free of its potential oversight by repaying loans made during the rescue. But with respect to A.I.G., the Treasury should not move so fast. There is one job left to do.

A.I.G. was at the center of the web of bad business judgments, opaque financial derivatives, failed economics and questionable political relationships that set off the economic cataclysm of the past two years. When A.I.G.’s financial products division collapsed — ultimately requiring a federal bailout of $180 billion — those who had been prospering from A.I.G.’s schemes scurried for taxpayer cover. Yet, more than a year after the rescue began, crucial questions remain unanswered. Who knew what, and when? Who benefited, and by exactly how much? Would A.I.G.’s counterparties have failed without taxpayer support?

The three of us, as experienced investigators and prosecutors of financial fraud, cannot answer these questions now. But we know where the answers are. They are in the trove of e-mail messages still backed up on A.I.G. servers, as well as in the key internal accounting documents and financial models generated by A.I.G. during the past decade. Before releasing its regulatory clutches, the government should insist that the company immediately make these materials public. By putting the evidence online, the government could establish a new form of “open source” investigation.

Once the documents are available for everyone to inspect, a thousand journalistic flowers can bloom, as reporters, victims and angry citizens have a chance to piece together the story. In past cases of financial fraud — from the complex swaps that Bankers Trust sold to Procter & Gamble in the early 1990s to the I.P.O. kickback schemes of the late 1990s to the fall of Enron — e-mail messages and internal documents became the central exhibits in our collective understanding of what happened, and why.

So far, prosecutors and regulators have been unable to build such evidence into anything resembling a persuasive case against any financial institution. Most recently, a jury acquitted Bear Stearns employees of fraud related to the collapse of the subprime mortgage market, in part because available e-mail messages suggested the employees had done nothing wrong.

Perhaps A.I.G.’s employees would also be judged not guilty. But we would like to see the record to find out. As fraud investigators, we would like to examine the trading patterns of A.I.G.’s financial products division, and its communications with Goldman Sachs and other bank counterparties who benefited from the bailout. We would like to understand whether the leaders of A.I.G. understood that they were approaching a financial Armageddon, and whether they alerted their counterparties, regulators and shareholders to the impending calamity.

We would like to see how A.I.G. was able to pay huge bonuses to its officers based on the short-term income they received from counterparties for selling guarantees that, lacking adequate loss reserves, the companies would never be able to honor. We would also like to know what regulators knew, and what they did with the information they had obtained.

Congress wants answers, too. This month, during hearings on Ben Bernanke’s nomination to a second term as chairman of the Federal Reserve, several senators fumed about being denied access to his A.I.G.-related documents.

No doubt, some of the e-mail messages contain privileged conversations among lawyers. Others probably include private information that is irrelevant to A.I.G.’s role in the crisis. But the vast majority of these documents could be made public without legal concern. So why haven’t the Treasury and the Federal Reserve already made sure the public could see this information? Do they want to protect A.I.G., or do they worry about shining too much sunlight on their own performance leading up to and during the crisis?

A.I.G.’s board of directors, a distinguished group of senior business executives, holds the power to decide whether to publish the e-mail messages and other documents. But those directors serve at the behest of A.I.G.’s shareholders. And while small shareholders of public corporations generally do not have the right to force publication of internal documents, in this case one shareholder — the taxpayer — holds an 80 percent stake. Anyone with such substantial ownership has effective control over corporate decisions, even if the corporation is a large public one.

Our stake is held by something called the A.I.G. Credit Facility Trust, whose three trustees are Jill M. Considine, a former chairman of the Depository Trust Company and a former director of the Federal Reserve Bank of New York; Chester B. Feldberg, a former New York Fed official who was chairman of Barclays Americas from 2000 to 2008; and Douglas L. Foshee, chief executive of the El Paso Corporation and chairman of the Houston branch of the Federal Reserve Bank of Dallas.

Ultimately, these three trustees wield all the power at A.I.G., and have the right to vote out the 11 directors if the directors are unwilling to publish the e-mail messages. In other words, if these three people ask A.I.G.’s board to post the messages and other documents, the board will have no choice but to comply. Ms. Considine, Mr. Feldberg and Mr. Foshee have the opportunity to be among the most effective and influential investor advocates in history. Before A.I.G. escapes, they should demand the evidence.

The longer it remains hidden, the less likely we will be to answer many questions about the A.I.G. collapse and the larger economic crisis — including the most important one: how do we prevent a repeat? Time is the enemy of effective investigation; records disappear, memories fade. The documents should be released — without excuses, or delay.

Eliot Spitzer is a former attorney general and governor of New York. Frank Partnoy is a professor of law at the University of San Diego. William Black is a professor of economics and law at the University of Missouri-Kansas City.

[Demeter]

67. Yves Smith Comments: Call for AIG Open Source Investigation (and Goldman Implications)

http://www.nakedcapitalism.com/2009/12/spitzer-partnoy-black-call-for-aig-open-source-investigation-and-goldman-implications.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

This is a good proposal, but I have a far more basic question: why was no forensic work done as a requirement of the bailouts? The Swiss Federal Banking Commission required UBS to perform an extensive investigation of exactly what it did so wrong that it needed a government handout, and it hired (presumably at the insistence of the regulators) third parties to conduct the investigation. It provided considerably more detail than any bank has provided so far of how a firm with a solid franchise drove itself into an abyss.

Why has there been NO serious investigation of ANY kind of the recipient of such extraordinary taxpayer largesse? Why has virtually NOTHING been demanded of them? Why the unseemly rush to let them off the hook and let them “pay back the TARP”? This is completely unwarranted in the case of AIG, which has had its deal with the government retraded in AIG’s favor a full four times. Why has AIG at every turn gotten a better and better deal, each time at the public’s expense, and is now allowed to lobby that it should be freed of its obligations? No private sector lender would allow a troubled borrower that could not meet its commitments to renegotiate and get IMPROVED terms. The inability to meet the terms of the original funding (one on terms private sector lenders were willing to consider, and that per Sorkin, AIG itself proposed) only strengthens the case to continue with the original plan, which is to break up AIG and sell the pieces for what they can fetch. This is the course that would yield the highest returns to the public, and that program will not produce a systemic event, which should be the ONLY offsetting consideration. There is no business rationale to have an agglomeration of diverse insurance businesses, particularly one that has been as badly managed as AIG (Sorkin’s account also reveals a shocking lack of financial and operational controls).

So why have there been no investigations? In AIG, the Goldman conspiracy theorists have a real case. Consider this commentary from a reader who was a senior executive at a monoline, on an article that looked like a PR effort to get ahead of a possible source of trouble for Goldman. The Wall Street Journal story noted that Goldman guaranteed $23 billion of CDOs with AIG and allegedly made a mere $50 million…. which is utter bullshit. Normal CDO originating spread are 1.25% to 1.5%. Its profits on these deals, separate on how it might have booked its trades with AIG, was at least $287.5 million. Even more important, a some of these trades were part of its Abacus program, which was a series of synthetic CDOs that it used to lay off its real estate risk (both RMBS and CMBS). In other words, the “short subprime” trade that everyone has lauded Goldman for was in part, if not in significant measure, borne by taxpayers.

The most curious part of this pattern is that Goldman used ONLY AIG for its CDO guarantees; all other banks also used the monolines to a significant degree. So Goldman would benefit far more than other firms from an AIG rescue; they would all still lose out on their monoline exposures.

The monolines started hitting the wall before Goldman did; in fact, their wobbly state played a direct role in the failure of the auction rate securities market (Feb 2008), when it became clear that Eric Dinallo’s efforts to create a bailout for Ambac and MBIA were likely to come to naught (the monolines were major guarantors of municipal paper, and municipalities were major issuers of ARS). Both retail investors and municipalities suffered as a result (retail investors who needed access to their funds but could not get liquidity; issuers who had to pay penalty rates because their maturing paper could not be rolled). The monolines, who Goldman had not used, were allowed to twist in the wind, but AIG was rescued. And Goldman hands are far from clean. From a reader who was a senior executive at a monoline on the WSJ story:

I find it amazing that after stuffing AIG with $23 billion of CDOs, which lead to AIG failing, Goldman’s spokesman has the audacity to blame the problem on AIG. meanwhile, Goldman researchers and CFO were criticizing Merrill and Citi for taking on so much exposure to the other bond insurers and insisting that these insurers not get bailed out. It also highlights again how outrageous it was that Goldman and the others gold paid off at par for taking a combination of CDO and AIG risk while the rest of the world (investors and insurers) got burned for taking CDO risk. The Goldman spokesperson acts indignant at the suggestion that somehow they shouldn’t have gotten this. This was the scam they played with the Fed.

While the subprime deals and CDOs were obviously going bad, an argument was made by many people at the time that the aggressive mark downs by AIG acelerated the death spiral for the market. It is pretty clear, here and elsewhere, that Goldman was the one that initiated the mark downs of collateral value. it would be interesting to explore this all the way through. Though not discussed in this article, Goldman shorted subprime through the Abacus deals, and perhaps elsewhere. this gave them an incentive to force mark downs. the intermediation deals described in the article, combined with AIG’s collateral posting, gave them another incentive to be agressive with mark downs. they were acting like they wanted to grab the money before anyone else could get their hands on it. this would have raised some issues in an AIGFP bankruptcy. (note – Hank Greenberg suggested that this was going on in his october 2008 testimony but there was a chorus of attacks on him for being a crook and unreliable, thanks to his problems with Spitzer.)

So here we have the pattern:

1. Goldman creates or sells $23 billion (or more) of CDOs and stuffs them into AIG.

2. Goldman proclaims to the world they have no exposure to CDOs and warns that banks and insurers with CDO exposure will get downgraded.

3. Goldman initiates the mark downs of CDOs with AIG and others, acelerating the market’s downward spiral.

4. Huge mark to market losses lead insurer and bank credit to freeze, short term markets to lock up, ABCP to collapse.

5. AIG posts as much collateral as it has to Goldman, who has more aggressively marked down the exposure.

6. Bond insurers are downgraded, banks begin commutations with them.

7. AIG fails, Fed steps in, Goldman gets bailed out at par.

Yves here. This looks like no accident. I suspect it was no accident. And no one in authority wants to find out where the truth lies.

[Demeter]

60. Gene Patents Under Legal Attack

http://www.wired.com/wiredscience/2010/02/gene-patent-lawsuit/

Federal court hearings continued Tuesday on a lawsuit that could transform biotechnology in the United States by eliminating gene patents.

The case hinges around the claims of Utah-based Myriad Genetics on BRCA1 and BRCA2, a pair of genes closely linked to breast and ovarian cancer. Myriad “owns” the genes, and says its patents make it possible to profit on diagnostic tests. The company argues that if you remove the patents, the tests — indeed, commercial biotechnology as we know it — will vanish.

A coalition of civil rights, research and women’s health groups is fighting the patents. They argue that Myriad’s claims stifle innovation by discouraging researchers from looking at the genes, which are still not fully understood, and say Myriad’s monopoly limits women’s health choices. More broadly, the claims set a precedent for other gene patents, which now cover about one-fifth of the human genome.

“Allowing patents on genetic material imposes real and severe limits on scientific research, learning and the free flow of information,” said Chris Hansen, an attorney with the America Civil Liberties Union, in a press release.

At Tuesday’s hearing, defense attorney Brian Poissant insisted that “‘women would not even know they had BRCA gene if it weren’t discovered’ under a system that incentivizes patents,” reported GenomeWeb Daily News.

But much of the scientific community rejects Myriad’s case. Roughly 150,000 researchers are represented by associations that have filed court briefs supporting the plaintiffs. Among them are the American Medical Association, American Society of Human Genetics and March of Dimes.

In his recent book, The Language of Life: DNA and the Revolution in Personalized Medicine, National Institutes of Health director Francis Collins also argued against broad gene patents.

“The information contained in our shared instruction book is so fundamental, and requires so much further research to understand its utility, that patenting it at the earliest stage is like putting up a whole lot of unnecessary toll booths on the road to discovery,” he wrote.

In May, the court rejected Myriad’s request that the case be thrown out without a trial. During Tuesday’s hearing, the plaintiffs asked to be declared victorious without a trial. A decision is expected to take several months.

If the court rules against Myriad, patents involving genes and other biological products won’t be eliminated altogether. Instead, claims will need to be made on specific types of tests or modifications, rather than the discovery of something that exists in nature. The ACLU likened Myriad’s claim to that of someone who patents gold after panning a few nuggets from a stream.

A case memo filed by the plaintiffs called Myriad’s prediction of industry doom “pure hyperbole.” They cited a 1931 Supreme Court decision that struck down the American Fruit Company’s claimed ownership of fresh fruit.

“To be sure, the fruit industry survived,” wrote the plaintiffs.

Read More http://www.wired.com/wiredscience/2010/02/gene-patent-lawsuit/#ixzz0ekvlvdey

[DemReadingDU]

61. anybody have snow!

I think we have about 6-8 inches, but it is so windy that it is blowing everywhere into drifts. DC has 30 inches! I think that is a record.

Edit: Now it is reported it could be 10-12 inches of snow in our area, or more. It's really windy and blowing around.

[Dr.Phool]

63. No snow here!

:evilgrin:

I might even fire up the Hawg later.

[Demeter]

68. If Anything, I Have Less Snow Today Than Yesterday

The storm didn't cross the Ohio border. But it's getting cold again.

[DemReadingDU]

62. What happened to Information Clearing House?

What happened to this website?

I get this message
"Sorry, we couldn't find www.informationclearinghouse.info "

[Demeter]

75. I would guess the Server Is Down

Sorry. It may come back later today.

[DemReadingDU]

77. Different error. Looks like the website is gone

Probably from lack of donations.

[Demeter]

82. I just got an email! It's coming back!

Information Clearing House Newsletter
News You Won't Find On CNN
February 06, 2010
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Hi,
I just wanted to let you know that
we are experiencing some problems with the www.informationclearinghouse.info <http://r20.rs6.net/tn.jsp?et=1103012840693&s=62166&e=001AWuQlbSDsA7N5TzWHzYDba4HqBxan3F9ElX6-hlg_1cG3nUIJOtBDOGklStGV0sjcFQGjewd4_JCwKTjKGOYSvHFaDdfFS6p_ORE4i15Ut8Egkqb0mzUq1kw4_hlZCOaArsrFXQKCTQ=>
website. Everything should be restored to normal within the next 24
hours. I am working on the newsletter and should be able to send it out
early Sunday (tomorrow) when the website is back online.
Thanks to those of you who were
kind enough to bring this problem to my attention.
Peace and Joy
Tom

[DemReadingDU]

84. Yay! They're back now

"Everything should be restored to normal within the next 24
hours."

Maybe they were hacked?

[Hugin]

80. It is coming up fine now... (About the SMWEI)

In answer to your question about the SMWEI asked earlier this week... It's basically an index with values between -100.0 and 100.0 designed to reflect the economic outlook of the middle-class in the US.

-100.0 being the worst possible and 100.0 being the best conceivable conditions.

A measure of zero would indicate a status-quo situation where the middle-class is not experiencing decline or growth.

My comment was about the fact that in setting up the Index, I had noticed that the only time the value of the index had approached or exceeded the zero value was in the late '90s. Prior to the elimination of, say... The banking regulations.

Currently the index is standing at around -70.0... Not good. :/

[DemReadingDU]

81. Ah, so it is up now, that's good

And thanks for the SMWEI update, I couldn't remember the specifics.
-70.0 is not good at all, and I don't see it getting positive any time soon

[Demeter]

69. Is the Need for Simple Stories Getting in the Way of Banking Reform?

http://www.nakedcapitalism.com/2010/02/is-the-need-for-simple-stories-getting-in-the-way-of-banking-reform.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Let’s acknowledge the obvious: there are a lot of not trivial impediments to reining in the banking industry: the deregulation policies that put a comparatively small number of firms in charge of infrastructure critical to commerce; the fact that said firms have done a very good job at disguising the rents they collect; that those rents have now become so high as to allow the financial services industry to pay for a sizable lobbying effort to keep those favorable rules in place.

So any reform effort is up against very well heeled, very well placed incumbents. That makes it imperative that the case against its bad practices be compelling.

But are opponents doing themselves a disservice by demanding simple narratives as the way to rally opposition? Unfortunately, that’s a well documented human way of organizing information. Studies of jury decision-making have found that they do not proceed by weighing evidence, but by storytelling: to see what account of events they find most plausible.

An interesting essay on the crisis by Moe Tkacik in the Baffler, based on a reading of thirteen (!) crisis books, highlights this issue (Completely self serving aside: I am in the peculiar position of having a story in the same magazine, which by virtue of it being of the ones NOT put on line, appears to have been read by all of one person not associated with The Baffler, namely Felix Salmon, who was a good enough sport to say he enjoyed it throughly. This puts me in the odd position of having more people in my Long Suffering Circle of PrePublication Sanity Checkers having seen it than actual target readers).

This part of Tkacik’s essay caught my attention:

The above paragraph is excerpted from one of the most widely read texts to emerge from the financial crisis: the October 2008 farewell letter of a hedge fund manager named Andrew Lahde. The letter opens, “Dear Investor,” and closes with the words “goodbye and good luck”; in the fifteen months prior to authoring it Lahde had amassed a 1000 percent profit for his clients and increased his own net worth nearly a hundredfold by anticipating the foreclosure crisis.

The letter depicts Lahde’s success as a victory over a class of people variously termed the “Aristocracy,” “the low hanging fruit,” the “idiots whose parents paid for prep school, Yale, and then the Harvard MBA,” who “were (often) truly not worthy of the education they received (or supposedly received)” but rose to the commanding heights anyway because they “had all the advantages (rich parents) that I did not.” Condemning politicians for repeatedly rejecting legislation that “would have reigned (sic) in the predatory lending practices” and bemoaning “a dearth of worthy philosophers in this country,” the letter challenged George Soros and other great minds to convene a meeting to devise a new form of government devoted to fostering a genuine meritocracy. “Capitalism worked for two hundred years, but times change, and systems become corrupt,” Lahde wrote….

Like Lahde, (federal judge Richard) Posner is pessimistic about the nation’s financial future, and he blames the coming full-scale “depression” upon a neglectful regulatory structure and an academy that had been “asleep at the switch.” The chief difference between the two seems to be their esteem for other capitalists. Where Lahde saw a financial industry peopled with mediocre trust fund kids who had traded their souls for Crackberries and Wellbutrin, Posner defends bankers “whose IQs exceed my own” as “brilliant.”….

..the rationally self-interested John Galt clones who seem to inform Judge Posner’s views are decidedly less believable characters than the rich-kid conformists Lahde indicts. And in a way, Lahde’s mixture of sympathy and contempt for his fellow financiers bodes better for the future of the American economy than does Posner’s soft bigotry of subprime moral standards. This is not an ancillary concern. If capitalism has failed, and socialism has failed, and the only remaining option is some improved version of the drab “mixed economy” that currently exists, then we are living in a perilous ideological vacuum.

Yves here. In particular, Tkacik notes that Posner calls for:

….a concise, constructive, jargon and acronym-free, nontechnical, unsensational, light-on-anecdote, analytical examination of the major facts of the biggest U.S. economic disaster in my lifetime….

I think a lot of people would like to see that too. And the very desire for something that simple is a huge impediment to reform.

Of all the things Posner asked for, the red herring is “non-technical”. I submit it is not possible to have an adequate description of the crisis without digging into, exposing, and explaining matters that ARE technical. Now that can probably be broken down in a way to make it accessible to laypeople but it will require a willingness to learn a bit.

Let us put it another way: Would ANYONE with an operating brain cell have demanded a “nontechnical” explanation of the Challenger disaster? Rocket failures are actually not uncommon, but even though the terrain and the forensic methods were presumably familiar, no one would expect the investigation NOT to be technical. It had to have been a materials, mechanical, electronic, programming, or human failure (or a combination of the above). Investigators had to look at how the flight came apart to determine the precise nature of the failure.

The disaster that befell the global economy took place in a vastly more complex, less well charted system. Moreover, most people accept that looting took place, they just don’t know how, exactly (and they may not be able to articulate it as looting, but they get that big bonuses and big bailouts should not co-exist). How can probing the looting mechanisms NOT be a critical step? And that by nature IS going to be a technically-oriented exercise.

Moreover, the attempt to reduce complex phenomena to simple accounts can be misleading, even counter-productive. The Depression took place eighty years ago, and economists and financial historians are still debating its causes and what remedies were effective. What is disconcerting is that the dominant narratives seek to attribute the depth of the downturn and the halting progress out of it to either poor monetary policy or poor and later inconsistent fiscal policy (most people forget that there was a steep recovery before the second leg downwards in 1937, when fiscal stimulus was withdrawn).

But single factor explanations of complex phenomenon are dubious. That period also included considerable financial reform (deposit insurance, the securities laws of 1933 and 1934), and both debt destruction via default and bankruptcy, as well as via restructuring, the Home Owners Loan Corporation, which refunded mortgages that had been five year bullets (not sure how much principal amortization, but there was still a large balance after five years) into twenty to twenty-five year fixed rate. It should be noted that even though the HOLC was seen as a risky gimmick at the time, the maturity matching was a much better fit than the old loans, which were of much shorter maturity than typical ownership, and the five year bullet simply created considerable rollover risk. Perversely, now with society more mobile (both physically and materially) and with homeowners refinancing more often, we have a maturity mis-match the other way, with fifteen to thirty year mortgages when relatively few people occupy the same house long enough to pay their mortgages off (and let us not forget that transaction costs are high….).

So the desire for simple narratives has likely clouded our understanding of the Great Depression. It may be that a whole series of elements are necessary but not sufficient individually for a sustained recovery to take place. Or there may be a significant “time heals all wounds” component: that a certain amount of debt writeoff/restructuring needs to take place for other interventions to have sustained impact.

Humans find abstractions and models useful in separating noise out from underlying, durable relationship. But the desire to find patterns can lead observers to see ones where the support is tenuous, or focus on some at the expense of others which may be just as valid. I hope enough of the people seeking to understand the crisis avoid falling for seductive, but potentially incomplete, explanations.

[Demeter]

70. How the Volcker Rule Misses the Shadow Banking System

http://www.nakedcapitalism.com/2010/02/how-the-volcker-rule-misses-the-shadow-banking-system.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

On the one hand, debating the merits of the Volcker Rule may seem a tad academic, given the rousing opposition it is encountering from Congress (and you have to love the world of politics: the biggest obstacle is, basically, “We sorta have a deal, you can’t retrade it!” Funny how banks and AIG get to redo their deals on quick notice, but the poor chump public? Not a chance). But it is worth pursuing nevertheless for two reasons. First, reform talk is not going to go away because the phony reforms are insufficient to prevent future train wrecks. So this line of thinking may well be revisited. Second, and more important, this discussion will hopefully help clarify the objections I raised recently, and probably did not articulate clearly enough for all readers.

My major focus of concern was Volcker’s pronouncement that he saw public funds backstopping commercial banks, but not investment banks. He therefore recommended that commercial banks be prohibited from engaging in proprietary trading (which he chose to define more broadly than private equity fund and prop desks, and to include speculation on customer dealing desks, which he was confident could be defined, although he offered no specific metrics). The problem is that he depicted this sort of trading as “part of the natural realm of investment banks”. He does not want investment banks to be backstopped, and thinks that (and restricting commercial banks’ trading activities) will solve the problem. He does admit that there is a wee bit of a problem with “systemically significant non-banks” but he seems not to grasp the essence of the problem: that the reason these firms are “systemically significant” is that they both crucial to the operation of the global debt markets (making them essential to commerce worldwide) and enmeshed via financial mechanisms (repos) and risk transfer devices (particularly credit default swaps) which means if any one of these key players goes down, it risks bringing the entire system down.

i on the ball patriot used an electrical metaphor:

Picture this – a smooth running parallel circuit of vanilla greed banks …

Imagine it is as if the preexisting structure was set up as a nice little circuit of vanilla greed banks, all happily wired in parallel, with wire mains of sufficient capacity to supply funds from the big battery of the taxpayer to the individual banks. To keep the circuit running smoothly, the treasury, the fed, and the congress, acted in concert as a regulator, and controlled the flow of funds from the taxpayer battery to the individual banks in this parallel circuit of banks. It was a relatively efficient circuit.

Now picture this – a not so smooth rewired combination series parallel circuit …

The wealthy ruling elite (fill in your own villain here), through an array of various deceptive means, hijacked the government and took control of the fed, the treasury, and the congress, and had the existing simple fairly well regulated parallel circuit described above drastically rewired.

Through their machinations they created a new combination series parallel circuit with twenty or so much bigger banks wired in series, with high capacity wires, right off the tax payer charged battery. This series string of big banks now fed the simple smoothly running parallel circuit of smaller banks. They also increased the wire size of the mains of that parallel section of the circuit, but not the feeder wires to the individual smaller banks in that parallel circuit, to insure that the big banks would always have maximum flow of funds.

The effect of this new circuit was twofold;

1. If any of the big banks failed the whole circuit went dead (too big to fail), but smaller banks could fail and the funds from the tax payer battery would keep flowing to the big guys and the other smaller banks.

2. The big banks, by acting in concert, could now, in the aggregate, control the entire circuit to;

a. Allow a free flow pass through of funds to create cheap credit and a huge global bubble — which they certainly did.

b. Pop the bubble by creating grossly over leveraged counterfeit derivative products that would effectively rattle, shake, and instill trillions of dollars of mistrust in the new system circuit, and at the same time have the effect of; frightening consumers into a savings mode and further depressing the popped bubble economy, and, also make the smaller banks unwilling to lend for lack of good investments in the now fully depressed environment (green shoot bullshit aside).

c. Allow them, the big banks, to further drain the taxpayer charged battery by engaging in greater unregulated speculative schemes so as to create a rinse and repeat condition until the tax payer battery goes completely dead.

Yves here. I differ with him that popping the bubble was part of a plan; I see it as simply an inevitable outcome of too many people making short term decisions and not caring that the long term was unlikely to work out well. But you get result (c) independent of how (b) came about...

LENGTHY ANALYSIS WITH GRAPHIC PORN FOLLOWS: WELL WORTH THE READ

[Demeter]

71. Never short a country with $2 trillion in reserves?

http://mpettis.com/2010/02/never-short-a-country-with-2-trillion-in-reserves/

GOOD SLAPDOWN OF THOMAS FRIEDMAN AND LOOK AT CHINA'S BUBBLE-BLOWING TECHNIQUES

[Demeter]

72. Greece Gets The Green Light, But Will It All Work? by Edward Hugh: Barcelona

http://globaleconomydoesmatter.blogspot.com/2010/02/greece-gets-green-light-but-will-it-all.html

DISCUSSION OF GREECE'S PLANS FOR RECOVERY

[Demeter]

76. My big fat Greek conspiracy theory

http://www.ft.com/cms/s/0/da5c40da-1283-11df-a611-00144feab49a.html

The Greek debt crisis prompts an interesting question: why Greece, and why now? True, successive Greek governments have studiously ignored the principle of fiscal discipline, and even doctored data to conceal their mischief. Suspicion, therefore, is fully warranted, but Greek fiscal laxity is not new. Furthermore, even accounting for accounting slippages, the Greek budget deficit for 2009-2010 is likely to be lower, possibly much lower, than those in the UK and US, according to Organisation for Economic Co-operation and Development projections. Nor is Greek public debt unusual, by current standards. It is about half that of Japan and lower than Italy’s. So why Greece and why now? Here is my conspiracy theory.

Greek debt offers a nice return, exceeding by some 3 percentage points the yield offered by German debt. This difference is aptly called a risk premium, reflecting the market’s assessment of the probability that the Greek authorities will default and of the size of the default. The Greek government has no intention whatsoever of defaulting and no reason to do so, since its situation is no worse than in many other countries. Yet it may be forced to do so if markets refuse to provide the financing. The first step in my theory is the non-controversial conclusion that the only reason why the Greek government might default is market pressure.

What is troubling is the insistence among market participants that eurozone governments will rescue their Greek confrère. It echoes what bankers said after the interbank market seized up in August 2007: the crisis will only end when banks are bailed out. They were right, no matter how immoral the outcome eventually was. We now hear bond markets saying they enjoy cashing in the risk premium but that governments should make sure that the risk never occurs. Taxpayers, once again, are invited to transform a highly lucrative risky business into a safe one.

Why should governments fall into that trap? One popular story is that, while Greece is relatively small – so a default there would not create much of a problem – the real risk is contagion. Markets never miss a chance to warn that Greece would only be the first shoe to drop; Portugal, Spain and Italy would soon follow. This is why, understandably, these governments are ready to bail out Greece. But why should Germany and France join in? Here comes the second step of my conspiracy theory.

Rumour has it that some large German and French banks have a significant exposure to Greek debt. Rumour also has it that the same banks have yet to recognise much of their losses on US subprime mortgages. Now things start hanging together. France and Germany can allow Greece to default, but not some big, systemically important European banks.

However, the moral hazard of bailing out Greece is no smaller than that of bailing out Goldman Sachs, not only because it makes a mockery of fiscal responsibility, but because it amounts to bailing out big European banks that have benefited for far too long from government forbearance. The stakes, again, are huge.

The US Congress recently grilled former Treasury Secretary Henry Paulson and his successor Tim Geithner, as it tries to determine whether they were too generous to banks with taxpayers’ money when AIG collapsed. Their defence is that they had precious little time to think things through as they faced the abyss. Fair enough. Their European counterparts have had plenty of time to ponder the very same issue. If they bail Greece out, one day they will have to be grilled too, and they will have no good answer.

The writer is professor of economics at the Graduate Institute, Geneva

[Demeter]

73. Unemployment number decline is all about seasonal adjustments Posted by Edward Harrison

http://www.creditwritedowns.com/2010/02/unemployment-number-decline-is-all-about-seasonal-adjustments.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+creditwritedowns+%28Credit+Writedowns%29

A lot of people are questioning the unemployment rate of 9.7% in the face of a –20,000 non-farm payroll print. How could we be losing jobs and have the unemployment rate drop? It would seem people are dropping out of the labor force.

However, I have now parsed the household survey data and most of the data seems reasonable. The labor force participation rate actually ticked up slightly (both seasonally adjusted and unadjusted) – as did the number of people not in the labor force who wanted a job (unadjusted only). This is what we would expect.

What sticks out is the seasonal adjustment for the number of persons employed and unemployed.



In December 2009, there were 15.267 million people unemployed on a seasonally-adjusted basis. This ticked down to 14.837 in January 2010, a fairly large drop of 430,000. Meanwhile the unadjusted numbers go the other direction – massively. In December 2009, the number of unemployed persons was 14.740 million. This rose 1.4 million to 16.147 million. Therefore, we saw a swing of over 1.8 million between what the unadjusted and the seasonally adjusted data are saying about who’s unemployed. The number of people employed increased by over 500,000 on a seasonally-adjusted basis, while it decreased by over 1.1 million on an unadjusted basis. That’s a swing of 1.6 million.



Bottom line: the unemployment rate downtick has nothing to do with people dropping out of the workforce; it is an statistical aberration due entirely to seasonal adjustments in the household survey in the number of people employed and unemployed.

[Demeter]

74. Unemployment Rate as Cruel Farce

http://jessescrossroadscafe.blogspot.com/2010/02/non-farm-payrolls-benchmark-revision.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

Regarding that 'surprise drop' in unemployment to 9.7%, this is the result of people falling off the unemployment benefits radar, and becoming discouraged. It is essentially meaningless, if not downright misleading.

One may as well solve an unemployment problem by shipping people to Australia. Well, that does have some historical precedent. Hard to tell who has gotten the better deal on that one, at least over the long run.

A better measure of unemployment is the Labor Force Participation Rate, which provides information about the total number of people employed as a percent of the population, without benefit of official banishment.



That number continued to drop again in January, from 64.9% to 64.6%.

Here is a chart from the good folks at Calculated Risk that shows the employment situation in context with other post World War II recessions.



"Recession" hardly does it justice, does it?

[DemReadingDU]

78. Bailing out AIG: 'The Single Most Drastic Error in Policy in Modern History'

2/6/10 'The Single Most Drastic Error in Policy in Modern History'
http://www.financialarmageddon.com/2010/02/the-single-most-drastic-error-in-policy-in-modern-history.html

PBS Newshour has posted a brief but fascinating interview with David Stockman, Director of the Office of Management & Budget during the Reagan era. Despite -- or, perhaps, because of -- his political and financial industry background, he pulls few punches in his remarks about the financial crisis and its aftermath. Here are a few excerpts:

On the relationship between Wall Street and Washington --

DAVID STOCKMAN: ...we have gotten into this syndrome, I think, over the last 20 years, where policy of the Treasury and of the Fed has been dictated by Wall Street, that, if Wall Street threatens to have a hissy fit, or the stock market is going to go down, the Fed has basically capitulated and is creating a very unstable and dangerous financial system in our economy.

On the AIG bailout --

DAVID STOCKMAN: The fact is, the heart of the bailout was AIG. That was $80 billion worth of CDS that was going to go sour.

PAUL SOLMAN: CDS meaning?

DAVID STOCKMAN: Credit default swaps, OK? And we weren't bailing out AIG. We were bailing out the banks, because the banks had bought a lot of low-caliber or subprime loans, wrapped some insurance around it from AIG, and said, presto, we have a AAA, a security on our balance sheet.

They didn't. They had garbage on their balance sheet. And the bailout was to make sure that they didn't suffer multi $10 billion write-downs on that AIG-supported loan.

PAUL SOLMAN: So, if you had been in the administration after Lehman Brothers, you wouldn't have supported bailing out AIG?

DAVID STOCKMAN: No, absolutely not. It was the single most, you know, drastic error in policy in modern history, going back to the 1930s. This was exactly the wrong thing to do.

It's destroyed any basis for fiscal discipline in the United States. I was a member of Congress, and I know how they think. And they think by analogy. If you did it for John, you have got to do it for Bob. There is no way that any congressman is ever going to vote against farm subsidies or ethanol subsidies or housing subsidies or anything else, refrigerator subsidies, once we have made this tremendous bailout for Wall Street, and we stepped into AIG.

On the outlook for tax rates --

DAVID STOCKMAN: I think the lesson of the last 25 years is that it doesn't work. You can keep cutting taxes until you reach the point where this year -- or the year just ended, we spent $3.6 trillion, and we only collected $2.2 trillion.

So, we are now so far out of kilter that it's irrelevant. Taxes are going to have to be raised. And the beast needs to be trimmed back. But it can't be starved enough to even begin to cope with our fiscal problem. And this is where I think all the politicians are faking in both parties, but the Republicans especially.

The Republicans think their mission in life is to cut taxes. Sorry, game -- game over. We're now in the tax-raising business. And we're going to be in the tax-raising business for the next decade.

To read the full transcript, click here
and video appx 7.5. minutes
http://www.pbs.org/newshour/bb/business/jan-june10/makingsense_02-05.html

[Demeter]

83. Shocking Honesty

Of course, he's safely out of the game now, and can speak his mind and the truth.

[Demeter]

85. Are You Enjoying the Masquerade?

http://www.youtube.com/watch?v=FwoLNtUuCVk&NR=1

I don't know why I am so puny this weekend, but tomorrow is another day. Sleep well, all!

And if that Phantom fellow shows up, you know what to do!

Ask the President to have a seat.

[Dr.Phool]

88. Commenter on Automatic Earth.

Then I have a third bit as well. This is a comment sent as a private email by a highly appreciated frequent commenter at The Automatic Earth, a Mr. L. Gallinazo. I thought it'd be worth sharing, and so did he. Just something for you to chew on.

The last thing that a loan shark wants is that you pay off your loan. You just have to be able and willing to keep paying the interest on the loan. Baseball bats are often used as incentives. The sovereign debt crises are caused by the population at large expecting to get services for their taxes and the elites and their politicians expecting to be able to steal most of those taxes. Of course the elites are already stealing huge amounts in the "private sector", but as the Duchess of Windsor once said, "One can never be too rich or too thin." So they reach a compromise which is to go deeper into debt. The elites get to steal and the citizens get some services.

But now the debts, even at historically low rates of interest, are becoming unpayable because they have become too large and because tax receipts are crumbling as the economies crumble. Well, the elites have a solution - they call it austerity, meaning the populace gets nothing for their taxes and the elites get it all. Of course Usacos and Canadians are too dumbed down to understand this, but Europeans, with the probable exception of the UK, are more sophisticated and have not let the elites totally take over all mass modes of influence. So we are heading to a Mexican stand-off. (Which, for you Europeans and Africans, is when two gamblers are holding their revolvers, hammers cocked and finger on the trigger, into each others bellies under the card table.)

Of course there will be a bail out, the only question is whether it will be by the EU itself or the IMF. Anything to kick the can down the road for another couple of months. As Ilargi surmised some time ago, the only reason that this has not been announced is that the EU is using the tempest to lower the forex rate against the dollar and yen. And the yuan also as it is pegged to the dollar once again. If a country as significant as Greece (our cradle of western civilization) is allowed to default on its debt, it marks the end game of the international banking system. As a recent column by Mish (whose policies toward labor I despise) pointed out, when the 14 year olds of the world start asking their countries, "Why should I pay off your friggin' credit card," it's the end of the line. So the banksters' private debt has been transferred to sovereign, and unless Jesus returns, there is no one left to hand it off to.

[Hugin]

89. "The last thing a loan shark wants is you pay off your loan."

A quote well worth remembering.

[DemReadingDU]

91. Simon Johnson: Europe Risks Another Global Depression

2/7/10 Europe Risks Another Global Depression by Simon Johnson

The entirely pointless G7 meeting this weekend only served to underline the fact that Europe is again entering a serious economic crisis.

At the end of the meeting yesterday, Treasury Secretary Tim Geithner told reporters, “I just want to underscore they made it clear to us, they the European authorities, that they will manage this with great care.”

But the Europeans are not being careful – and it’s not just about Greece any more. Worries about government debt and associated public sector liabilities (e.g., because banking systems are in deep trouble) have spread through the eurozone to Spain and Portugal. Ireland and Italy are next up for hostile reconsideration by the markets, and the UK may not be far behind.

What are the stronger European countries, specifically Germany and France, doing to contain the self-fulfilling fear that weaker eurozone countries may not be able to pay their debt – this panic that pushes up interest rates and makes it harder for beleaguered governments to actually pay?

The Europeans with deep-pockets are doing nothing – except insist that all countries under pressure cut their budgets quickly and in ways that are probably politically infeasible. This kind of precipitate fiscal austerity contributed directly to the onset of the Great Depression in the 1930s.
.
.
The IMF cannot help in any meaningful way. And the stronger EU countries are not willing to help – in part because they want to be tough, but also because they do not have effective mechanisms for providing assistance-with-strings. Unconditional bailouts are simple – just send a check. Structuring a rescue package that will garner support among the German electorate – whose current and future taxes will be on the line – is considerably more complicated.

The financial markets know all this and last week sharpened their swords. As we move into this week, expect more selling pressure across a wide range of European assets.

As this pressure mounts, we’ll see cracks appear also in the private sector. Significant banks and large hedge funds have been selling insurance against default by European sovereigns. As countries lose creditworthiness – and, under sufficient pressure, very few government credit ratings will hold up – these financial institutions will need to come up with cash to post increasing amounts of collateral against their derivative obligations (yes, the same credit default swaps that triggered the collapse last time).

Remember that none of the opaqueness of the credit default swap market has been addressed since the crisis of September 2008. And generalized counter-party risk – the fear that your insurer will fail and this will bring down all connected banks – raises its ugly head again.

In such a situation, investors scramble for the safest assets available – “cash”, which actually (and ironically, given our budget woes) means short-term US government securities. It’s not that the US is in good shape or even has anything approaching a credible medium-term fiscal framework, it’s just that everyone else is in much worse shape.

Another Lehman/AIG-type situation lurks somewhere on the European continent, and again our purported G7 (or even G20) leaders are slow to see the risk. And this time, given that they already used almost all their fiscal bullets, it will be considerably more difficult for governments to respond effectively when they do wake up.

more...
http://baselinescenario.com/2010/02/07/europe-risks-another-global-depression/

[Demeter]

92. Obama recommits to healthcare reform, rallies Democrats

http://www.marketwatch.com/story/obama-recommits-to-health-care-reform-2010-02-06?siteid=YAHOOB

President Barack Obama criticized Republicans Saturday as a do-nothing party and recommitted his administration to health-insurance reform.

In a 22-minute speech before the Democratic National Committee at the Capital Hill Hilton, Washington, D.C., the president said he also recognized people's frustration over the slow progress of government, and tried to rally party members.

"I know we've gone through a tough year, but we've gone through tougher years," he said.

"When unemployment is 9.7%, when we are still digging ourselves out of an extraordinary recession, people are going to be frustrated, and they're going to be looking to the party in power to try to fix it," Obama said. "And when you've got another party that says, we don't want to do anything about it, of course people are going to be frustrated."

Obama said the way to future economic growth was through clean energy, saying the nation that leads the field will also lead the global economy, as well as education and health insurance reform.

"In case there's any confusion out there, let me be clear: I am not going to walk away from health insurance reform," he said. "Health care should not be a privilege, but a fundamental right."

SO, THE ON AGAIN/ OFF AGAIN HEALTH CARE IS "ON". WE MIGHT AS WELL CALL HIM THE GREAT VACILLATOR. WHAT FOUL DEFORMITY WILL ISSUE FORTH NEXT? OR IS THIS ONLY AN EXERCISE IN REPUBLICAN-BASHING?

I TRULY CAN'T GET UP MUCH ENTHUSIASM FOR BASHING THE GOP, MYSELF. THE POOR DEARS ARE SO PATHETIC, MY SENSE OF HONESTY AND COMPASSION, NOT TO MENTION GRATITUDE FOR KILLING THE INSURANCE COMPANY SUBSIDY BILL, MAKES ME WANT TO PROTECT THEM, AND SHEPHERD THEM TO CLEAN WATERS, WHERE THEY MIGHT TAKE MEDICARE FOR EVERYBODY AND LIE DOWN SAFELY...

[Demeter]

94. I Now Know Why I Feel So Listless--Catching a cold

The fact that it's 14F and dropping might have something to do with it....

[Dr.Phool]

97. I hope you don't get the one I had.

It knocked me and my wife on our asses for almost 3 weeks. I just got over it on Wed., but it feels like it's coming back. Same with the wife.

Start taking medication immediately.

[Demeter]

107. I Think You Must Have Flu, Doc

I just have a simple virus and it's too frigging cold. I'm taking zinc and vitamins and the rest. It helps. Nothing helps the cold weather, though.

Flu will take at least 6 weeks and more like 3 months to get over, if the depression it engenders doesn't get you first.

[Demeter]

95. Last Rites for the USA By Cindy Sheehan

http://www.informationclearinghouse.info/article24604.htm

A U.S. Supreme Court case decision from 1886, The County of Santa Clara v. the Southern Pacific Railroad (SPRR), is the reason today that the U.S. is a corporate empire.

Many people mistakenly believe that corporations were given the same rights (not just privileges) as persons in this Supreme Court decision, but nothing could be farther from the truth - the reason my nation is such a dysfunctional system now is not because of a Supreme Court decision, nor a law passed by Congress, nor by a referendum of the people: it's because of a single statement, one sentence, spoken by a Supreme Court Chief Justice before the hearing even began.

The founders of the U.S. did not like corporations and for the first few decades of the existence of this nation, corporations were only given limited "privileges" and not "rights," but after the 14th Amendment to the Constitution was ratified in 1868 - which extended equal protection under the law to all male citizens of the U.S regardless of race - attorneys for the corporations recognized the opportunity that had been gifted to them and started to scheme for corporate personhood.

After many assaults against common law, finally a perfect test case came up before the Supreme Court, the previously referenced case. The case was brought before the Supremes because the SPRR (the Halliburton of the 19th Century) objected to the fact the state of California would not allow it to deduct mortgage costs on its vast holdings from its before tax income as could private citizens.

The Supreme Court did not even try that case to grant corporate personhood - the reason corporations now have 14th Amendment protections is because of a statement made by Chief Justice Waite: "The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does."

This one sentence changed the frame of North American politics in a very corrupt way. 1886 is when the "noble experiment" of representative republicanism died. Despite some populist stabs at "anti-trust" laws and labor unionism, today we find that the U.S. system of government is "by and for" the corporations.

On Thursday, January 21, 2010 - a (little noticed) U.S. Supreme Court decision took our critically ill republic that has been on life support and effectively murdered it.

Our elections have been compromised and the presidential candidates have been chosen for us by the tyranny of the oligarchy for many decades, and we the people of the U.S. are allowed to cast our votes to give us the appearance that we have a voice in our nation, but now with the decision in the recent United Citizens v. The Federal Elections Commission even any appearance of representation for the people has been overturned.

In this decision, the Supreme Court removed limits from corporate campaign expenditures stating that even limiting these contributions in the first place put restrictions on a corporations' 1st Amendment rights to free speech.

Corporations have long held sway over our government and the soft fascism of corporate control has been running things behind the scenes.

However, the decision in United Citizens v. The Federal Elections Commission that expanded a mouth-less and mindless corporation's freedom of speech has effectively gagged 300 million more of us that don't have billions of dollars to buy the votes of our politicians who are just extensions of such crime cartels as Goldman Sachs, anyway.

I believe that United Citizens v. The FEC will go down in the history books as one of the most important, and most destructive Supreme Court decisions in U.S. history and we should just drop all pretense at democracy and call our leaders President Goldman and VP Sachs.

Cindy Sheehan - Cindy Sheehan is a US peace activist and founder of Peace of the Action, an anti-war organization that promotes profound structural change in the US.

[Demeter]

96. Markets Fail When Humans Are Unregulated By Paul Craig Roberts

http://www.informationclearinghouse.info/article24600.htm

...If people who use markets are not regulated, they issue fraudulent financial instruments.
They leverage assets with absurd amounts of debt. They market their instruments with fraudulent investment grade ratings. They deal themselves aces.

Did Greenspan not know this? Was he a victim of a theory or an enabler of greed unleashed by the absence of regulation?

The way to bring socialists and capitalists together is to recognize that markets are efficient and that self-interested human behavior requires social regulation.

The failure to regulate financial markets has produced enormous losses to all Americans except the super-rich. But the U.S. government is guilty of an even greater failure. Washington has not only permitted but also encouraged the unemployment of its citizens by enabling greed-driven corporations to send American jobs abroad in order to maximize profits for CEOs’ bonuses, shareholders, and Wall Street.

As Ralph Gomory has made clear, economic theory has been shattered, because there is no longer any connection between the profits of American companies and the welfare of Americans. The profits of American companies are derived from the cheap labor in offshored locations and are at the expense of the American work force.

This dispossession of American labor has been heralded by offshoring’s pimps in the major universities as “the New Economy.”

The “New Economy” is a hoax like most everything else the bought-and-paid-for-media feeds to Americans. There is no new economy. There is an unemployed economy. The headlined unemployment rate is just over 10 percent. The real unemployment rate, as measured by the current methodology is 17 percent. The unemployment rate as measured by the methodology of 1980 is 22 percent.

If jobs offshoring is a benefit to America, as the hired pimps of the transnational corporations claim, why is more than one-fifth of the U.S. work force unemployed? Why does the U.S. have the largest trade deficits in world history? Why is the U.S. dollar losing value over time to other tradable currencies?

Greed and elected representatives, who are toadies to special interests, are decimating the American economy.

Consider President Obama’s budgets for 2010 and 2011. The combined red ink is $2.9 trillion. No one anywhere in the world has this kind of money to lend to Washington. How will these massive deficits, never before experienced on earth, be financed? They can only be financed by the Federal Reserve destroying its own balance sheet by its purchase of toxic financial instruments from the banks thereby providing the banks with cash with which to buy the Treasury’s bonds, or by the Federal Reserve itself purchasing the Treasury’s bonds by creating new money, or by another collapse in equity values that sends investors fleeing into “safe” Treasury bonds.

American power is on the precipice, about to fall. Perhaps it is a good thing. The world will be rid of bullying, of invasions of innocent countries based on blatant lies, of torture and murder of woman and children, of redistribution of income from the poor to the rich.

The criminal record accumulated by the United States makes it the least indispensable country on earth.

[Joe Chi Minh]

102. Wow! What an insightful article. It might have been written by fabled arch-populist, Adam Smith,

yet, extraordinarily, it was written by a former Reagan employee!

Smith's Hidden Hand wasn't the market, it was providential synergies, consequent upon grace being allowed to build upon nature - the all too defectible nature of merchants, who should be teated by government as dedicated, if thoroughly untrustworthy, menials.

PS: Thank you for the Valentine, dear Sender.

[InkAddict]

98. Behind the Masks: Follow the Money -

Big investment blows up:

http://www.cnn.com/2010/US/02/07/connecticut.explosion/index.html?hpt=T1

Two people have been confirmed dead, said Middletown, Connecticut, police Sgt. Chuck Jacobucci, but authorities expect the number to rise since they are still searching for people.

More than 100 emergency service units, including fire, police and emergency management, were responding, he said.

Middlesex Hospital in Middletown, about 15 miles from Hartford, Connecticut, said it was receiving patients from the blast, which occurred about 11:30 a.m. at the Kleen Power Plant.


http://www.highbeam.com/doc/1G1-179192719.html
April 21, 2008

Goldman Sachs has gone out to a host of project finance banks with a view to bringing five to six joint arrangers into its circa $1 billion financing for Kleen Energy Systems' 520 MW plant in Middletown, Conn.

Goldman Sachs has gone out to a host of project finance banks with a view to bringing five to six joint arrangers into its circa $1 billion financing for Kleen Energy Systems' 520 MW plant in Middletown, Conn. As first reported by PFR last Monday, banks are being asked to commit $150-200 million, with the expectation they will hold $75-100 million before retail syndication launches later this month

(13 Banks Commit for 80%; William Corvo's, possibly still a Middletown councilman, outfit O&G Industries: 20%)

More research required on WHO BOUGHT IN AND WHO SWAPPED FOR WHAT??????????

http://www.highbeam.com/doc/1G1-207957678.html
Sept. 17, 2009

CHICAGO -- Fitch Ratings has affirmed the 'BBB-' ratings of Kleen Energy Systems, LLC's (Kleen) $435 million term loan A due 2018 and $295 million term loan B due 2024 (the term loans). The ratings are based on Kleen's projected financial performance during the term of the tolling agreement, and the potential for technical performance shortfalls remains the primary credit concern. The rating affirmation reflects construction progress that is generally consistent with the sponsor's original expectations. Fitch has no reason to believe that O&G Industries (O&G), the EPC contractor, will fail to achieve substantial completion on-time and within budget.

GUESS THAT WON'T BE HAPPENING ANY TIME SOON ...SOP, it was the workers and their families who will take the hit for the HITMEN.

[InkAddict]

99. More here w/graphic (PDF warning)

http://www.eifgroup.com/graphics/FINAL%20EIF%20ReprintNP.pdf


Reprint from ProjectFinance March, 2009
Deal of the Year 2008

[Demeter]

101. Wow. That's What they get for Violating the Blue Laws

Those poor people. I see massive lawsuits....

[InkAddict]

103. It Gets Better, Demeter, according to DUer Hannah Bell

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x7663685

From the complete OP:

a william corvo is listed as a former member of oss; same person? relation?

http://www.namebase.org/xcoo/William-J-Corvo.html

so, is this corvo cia family?

phil armetta said to be silent partner:

http://caterwauled.blogspot.com/2007/12/trash-talk.html
http://www.justice.gov/usao/ct/Press2007/20070427.html

[Dr.Phool]

100. The Puppy Bowl is on.

No politics, No Tebows, just puppies.

Except at half time. They ruin it with cats.

[Demeter]

104. How To Make The World's Easiest $1 Billion Henry Blodget

FOR THOSE OF US WHO HAVEN'T MADE A NEW YEAR'S RESOLUTION YET

http://www.businessinsider.com/henry-blodget-how-to-make-the-worlds-easiest-10-billion-2009-12

With all the banks paying back the TARP money, some folks are assuming that the great Wall Street bailout is finally coming to an end.

But of course it isn't!

Taxpayers are still guaranteeing all big bank bonds
(Too Big To Fail) and subsidizing huge bank earnings and bonuses with absurdly low interest rates.

But instead of bellyaching about it, you might as well just smile and cash in. After all, that's what Wall Street's doing.

So here's how to make the world's easiest $1 billion:

STEP 1: Form a bank.

STEP 2: Round up a bunch of unemployed friends to be "bankers."

STEP 3: Raise $1 billion of equity. (This is the only tricky step. And it's not that tricky. See below.*)

STEP 4: Borrow $9 billion from the Fed at an annual cost of 0.25%.

STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45%

STEP 6: Sit back and watch the cash flow in.

At this spread, you should be earning at least 4% per year on your $10 billion of capital, or $400 million. Sure, there's some risk that the Fed will grow a backbone and raise short rates, but there's not much risk. (They have an economy to fix and banks to secretly recapitalize). And in any event, if the Fed raises short rates, making your $1 billion will just take a bit longer. (And if they REALLY raise rates, causing you to actually lose money, it will be someone else's problem.)

You'll have made $400 million in a single year! So pay yourself a fat salary for all your hard work. And pay your "bankers" fat salaries for all their hard work (But don't worry--your bankers won't actually have to do anything. You'll just need one of them to borrow the money from the Fed and buy the Treasuries, which he will be able to do part-time.) At the end of the year, celebrate. It's bonus time!

Don't be greedy. Pay yourself and your bankers the industry-standard compensation ratio of 50% of revenue. Your revenue was $400 million, so that creates a $200 million bonus pool. Pay each of your unemployed friends bankers, say, $1 million. And give yourself the rest for being such a smart entrepreneur and creating all the jobs and value.

Now, you've already made at least $150 million, so it doesn't really matter what happens next. But you're in this for the world's easiest $1 billion, right?

So proceed to Step 7.

STEP 7: Go public. After bonuses, your bank will be earning about $200 million a year, your capital ratio will be super-strong (10% equity-to-debt!), and your balance sheet will be clean as a whistle (all risk-free Treasuries!). So you ought to be able to persuade investors to pay you at least 20-times earnings, or a valuation of $4 billion. Sell 25% of the company for $1 billion.

STEP 8: Use your $1 billion of new equity to borrow another $9 billion at 0.25% from the Fed. Buy another $9 billion of Treasuries. Collect another $400 million a year. Pay yourself and your team bonuses that are twice as large as last year's. You deserve it! And you're now about $500 million to the good.

STEP 9: Wait for your stock to double or triple, which won't take long given your amazing growth trajectory and clean balance sheet. When your market cap hits $10 billion, sell another 10% of the company for $1 billion. Now you're really ready to grow.

STEP 10: If you want to get fancy and get nice profiles written about you in business magazines, start buying branch networks from defunct banks (the FDIC will pay you to take them) and start making actual loans. Also, start hiring trading desks to gamble on things more exotic than Treasuries. Yes, all this sounds risky, but just remember--the risk isn't yours, and you're already $500 million to the good.

STEP 11: Sell $500 million of your stock to a "strategic investor" and let the rest ride. Don't worry, if your traders and loan officers turn out to be idiots or the Fed suddenly raises rates, the taxpayers will handle it. And you've already made your $1 billion.

So, congratulations, you're now a billionaire! Now all there is left to do is celebrate!





* If you've been paying attention, you will note that the only potentially tricky step in this process is the "raise $1 billion of equity." Where, exactly, are you going to get $1 billion of equity? Well, you will have to do some selling there.

Basically, you'll have to tell a few investors about your awesome new business plan (see above) that will earn them returns of at least 20% on their equity from Day 1. A 20% return on equity is a lot, especially when the return is largely risk free. So you should have no problem raising that $1 billion of equity.

Given the government's desperate desire to get banks to start lending again, you might also want to try to hit up the government for some funds. The pitch will be simple: Old banks aren't lending because they're hiding embedded losses and need to protect their balance sheets. You don't have that problem. You'll use the equity to LEND. (And you will use it to lend! You don't have to say that you're going to lend it to the US government. None of the other banks are saying that.)

[Demeter]

105. Just when you thought the big banks had maxed out their chutzpah account, think again.

How Banks Fleece the Unemployed By Barbara Koeppel

http://www.consortiumnews.com/2009/121509b.html

While posting breathtaking profits in the last two quarters – Wells Fargo’s $3.2 billion, Citigroup’s $3 billion and Chase’s $2.7 billion – U.S. banks have figured out a way to squeeze some extra dollars from those who can least afford it, the unemployed.

Here’s how it works. In the past two years, states have been overwhelmed with unemployment claims. Always eager to serve, America’s banks offered a deal the states couldn’t refuse.

Sign a contract — which won’t cost you a dime — and send us your weekly unemployment funds, the banks said. In return, we’ll issue our VISA or MasterCard debit cards to your laid-off workers, on which we’ll post their benefits electronically.

Thirty states signed on with the usual suspects — Citi, Wells Fargo, JPMorgan Chase, Bank of America — and some smaller ones, too. More states are lining up.

In a stroke, states dropped all their costs for printing and mailing checks. Andrew James, with North Carolina’s Employment Security Commission, told me that in the past year, his state saved a whopping $10 million. During the same time, Nevada saved $800,000, Maryland $400,000 and West Virginia $340,000.

But if the system is good for the states, it's great for the banks. A February 2009 Associated Press article noted that Missouri’s Central Bank, which won that state’s contract, could reap $6.3 million this year alone.

The banks profit from interest earned on the funds the states deposit with them until the money is posted onto the debit cards. Then there’s the money the banks get from retailers where the unemployed shop with their cards — from 2 percent to 3 percent per transaction.

But such sums are not large enough, it seems. So the banks have figured how to extract more money from the millions of unemployed now using the debit cards. The devil’s in the fees.

Nickel and Diming

The cards can be beneficial to some of the unemployed, like those who otherwise would pay whopping fees to cash checks because they don’t have bank accounts.

And, at first glance, many of the terms seem reasonable enough: Free cash withdrawals from tellers at banks that honor VISA or MasterCard (over 90 percent in the United States) and from ATMs owned by the banks with the contracts (plus one or two others in their networks).

However, in practice, the various fees add up. For example, withdrawals are free — but only to a point. In Maryland, Citicorp gets $1.50 a pop after four free ATM withdrawals a month; in Nevada, Wells Fargo gets $1.25 after two free ones; in Texas, Chase gets $1.50 after only one free withdrawal a week and Missouri’s Central Bank, which offers no free ATM withdrawals, rakes in $1.75 each and every time.

If the bank offering the debit card doesn’t have an ATM in a neighborhood or small town, it’s even worse: Card-holders must use out-of-network ATMs, which spell double trouble. A first fee goes to the bank with the contract — Chase charges $2.75 in West Virginia and Wells Fargo gets $1.25 in Nevada.

A second fee — from $2 to $4 — goes to the out-of-network bank that owns the ATM, if the recipient doesn’t have an account there. Thus, one withdrawal can cost over $5. These expenses can mushroom, since recipients use ATMs six to 10 times a month, according to the AP article.

Penalties for transactions denied due to insufficient funds, whether at ATMs or stores, are another costly affront: $1.50 in West Virginia and Michigan, and $1 in Texas — though the banks, which use electronic systems — needn’t process anything. Only a few plans, as in Kansas, charge nothing.

To avoid penalties, the jobless must find out how much money is on their cards. But here’s another catch: In Nevada, they get one free ATM balance inquiry a month. After that, the price tag is 50 cents a throw. In Michigan, it’s $1 for every one after the first (per week). In Texas, inquiries are free at Chase ATMs, but 50 cents at all others.

So it’s a costly Catch-22. To avoid fees for declined transactions, the jobless must pay to know what's on the card, to ensure that a purchase or other transaction won't exceed the total.

Lost Cards

If a card is lost, tack on more. A few banks give the first one gratis, but the next cost $5 each (in Kansas and Maryland) or $7.50 (in Michigan). In North Carolina, Comerica gets $5, period — no freebies allowed.

Most banks charge nothing for cash withdrawn inside, from tellers, but some levy fees after the first visit in a week or month: $5 in Texas and $4 in Michigan.

The promise that retailers will give free cash-backs to debit-card users often is another myth.

In Berkeley Springs, West Virginia, the one hardware store in town doesn’t give cash back. Nor do the two gas stations. The 7-11 turns over $10 tops.

Food Lion allows up to $100 per purchase — but as the customer service rep told me, “Only if we have the cash.” And, most stores (even in big cities) don’t in the early morning or at night.

Could the debit-card terms change and the plans still work — for the banks, states and unemployed?

Judi Conti, at the National Employment Law Project, says the states could easily negotiate better deals to reduce the fees. Also, recipients should be able to decide if they want their payments in checks, direct deposits to their bank accounts – which carry no fees at all – or debit cards.

“The banks,” she contends, “could do this and still make an honest profit.”

At present, a few states offer direct deposits — but most don’t. The Workforce West Virginia spokesman told me his state was going to start this “sometime soon.” When? It’s not yet decided.

For now, those without jobs who are trying to stretch every dollar from unemployment insurance are finding the banks eager to nibble away at even those modest sums.

Barbara Koeppel is a free-lance investigative reporter based in Washington DC.

[Demeter]

106. Well, Aren't You Sweeties!

Thanks for the hearts, fellas! I love you guys!