National Style Show models, Washington
OC: Today's essay comes to us from a man I first met shortly after I became aware of peak oil 3 years ago. We both spent lots of time on The Oil Drum and decided to meet up in person. Soon after, we became a 'group' with the addition of Stoneleigh and others.
GliderGuider was already well versed in energy and population problems and began giving talks in the neighbourhood to anyone who would listen. Heck, he was even on the supper hour news. But it was going out for beers with Stoneleigh and, later, Ilargi that really opened up both of our minds to the nearest iceberg; financial collapse.
GliderGuider: A comment by a reader at The Automatic Earth has me ruminating this morning:
I know the our situation is vastly different from the state of the world in Roman times, but the idea that we could be on the brink of a fundamental reset of civilization is intriguing, to say the least.
I've been convinced for several years that we are looking at the convergence of a set of wicked interlocking global problems -- ecological problems (climate chaos, the death of the oceans, fresh water shortages etc.), energy shortages due to fossil fuel depletion, and overpopulation with the resulting pressure on the global food supply. This convergence is happening under the umbrella of the current global financial collapse that constrains our ability to respond to any of these problems individually, let alone any further problems that might emerge from interactions between them.
This unfortunate collision makes the future of our civilization very murky indeed. Writers like James Howard Kunstler, John Michael Greer, Carolyn Baker and Sharon Astyk (along with people like Stoneleigh and Ilargi at The Automatic Earth) have been warning about the possibility of a generalized, unrecoverable collapse of modern civilization for a while now. They have generally been derided by the mainstream as millennialist prophets of doom -- driven more by their own subconscious fears and dark desires, their research full of confirmation bias.
The events unfolding around us now, however, cast their optimistic mainstream critics in a somewhat different light. None of them -- even the Roubinis and Krugmans – have fully appreciated the severity of the world’s financial predicament. Their comforting bromides (and even their more pessimistic utterances) have been overwhelmed by events on a weekly basis. It has become clear that for all their careful analysis of trunks and tails, nobody truly understood the shape of the entire elephant.
This evident failure of comprehension brings their entire analysis into disrepute. And that should make us ask – if they failed to comprehend the underpinnings of a calamity in their own domain, what does that say about the possibility that they also failed to understand the dangers being trumpeted by the doomers they have derided?
After all, we are seeing the same outcome in the climate crisis as in the financial one – the trends are uniformly negative, and are unfolding much faster than the professionals in either field predicted. There are new signs from world bodies like the International Energy Agency that the same situation is developing with respect to the world’s oil supply – the more pessimistic members of the Peak Oil crowd appear to be heading for vindication.
So, following a “major, rapid contraction” (aka collapse), could our civilization end up staying on the mat, unable to rise from the ashes of our former glory? That’s unknowable of course, but hardly inconceivable. Several factors give that speculation some foundation.
The first confounding factor is the spectre of irreversible climate change. That could irreparably damage the world’s food production capacity through shifts in rainfall and the reduction of snow and glacial cover that supplies much of the world’s fresh water for agriculture.
The second factor is the permanent depletion of the compact, high-density, transportable energy supply represented by fossil fuels. We’re putting a lot of effort into developing electrical alternatives, of course. There are two major challenges in the way, though. The first is the relative infancy of the industry, and the fact that it will require both capital and fossil fuels to enable its continued growth. The second longer term problem is that the use of electricity requires a higher level of technology in the infrastructure needed to manufacture, distribute, store and convert it into work. This may not seem like much of a a problem today, but if our global industrial civilization goes into a decline, growing parts of the world may find the maintenance of such infrastructure increasingly difficult.
A third factor that may get in the way of recovery is the depletion of easily-recoverable resources such as metals. The decline in the average quality of various ores being mined today is well documented, and is likely to continue. While recycling can recover much of the metal currently discarded as waste, recycling facilities capable of producing enough output to feed our civilization’s needs do not yet exist. They would face the same hurdles as the build-out of electrical supplies I described above.
You might think that such a situation will take so long to develop that we will be able to address the situation before it gets quite that dire.
One consideration that works against that hope is that human beings are not, for all their cleverness, fully rational creatures. Research has shown that most of our “rational” decisions are made at a deeply unconscious level, to be dressed up with rational justifications only upon their emergence into the conscious mind some time later. The truth of this proposition can be seen all around us in the competition between environmental remediation and economic imperatives, in the obstruction of alternative energy development, in our repeated creation of financial bubbles -- in all the myriad ways in which we as a society work tirelessly against our own best interests as individuals and as a species.
Even worse, events have recently shown a terrifying ability to outstrip our expectations, in both speed and severity. We may not have nearly as much time left as we think. A lack of time coupled with an inability to respond rationally (or even to accept the evidence of our eyes) does not bode well for the future of this civilization.
It’s conceivable that our current civilization will never regain its feet after this storm has burst upon us. We will endure as a species no matter what happens, of course, and it’s even probable that we will rise to new heights. It’s also quite possible that the rebirth of this Phoenix will take a long, long time and that those new heights will be unrecognizable to someone raised in today’s world of 401(k)’s, Credit Default Swaps, automobiles and gigantic concrete cities.
Accord Developing on Auto Aid That Bush Can Support
The Bush administration believes there is agreement with Congress on the “basic principles” for a bailout of U.S. automakers, White House spokeswoman Dana Perino said today. Discussions are “moving toward” a package that President George W. Bush can support, Perino told reporters at a briefing. “It sounds like we have agreement on those basic principles that would be required for a bill that the president could sign,” she said.
“We haven’t seen the language yet,” she said. “And as we understand it,” Republicans in Congress also haven’t seen the language in the measure Democratic leaders are shaping, she said. U.S. lawmakers are working to reach an agreement on automaker aid that may set such conditions as when to name a so- called “car czar” and whether to replace executives. Congress is considering loans for at least the $14 billion General Motors Corp. and Chrysler LLC say they need to keep operating through March 31.
House Speaker Nancy Pelosi, said she expects to bring legislation to the floor this week. The Senate plans to return to work today; the House reconvenes tomorrow. Michigan Senator Carl Levin said he expects an administrator to be selected during the next 60 to 90 days who will make sure that “there will be real oversight.” A draft proposal from the White House would create a “financial viability adviser” within the U.S. Commerce Department that would be responsible for helping automakers achieve a plan for long-term financial success.
The adviser could provide financing to an automaker to keep operating for no more than three and a half months. The financing would be supplied only if the adviser concludes the automaker will otherwise go bankrupt during the period of negotiating the plan and if stakeholders are negotiating in good faith.
Dodd Calls for Firing GM’s Wagoner, Chrysler Merger
Senate Banking Committee Chairman Chris Dodd said General Motors Corp. Chief Executive Richard Wagoner should be replaced as a condition for federal aid and Chrysler LLC may have to merge to survive. "You’ve got to consider new leadership," Dodd said on CBS’s "Face the Nation." Wagoner, he said, "has to move on." GM spokesman Steve Harris said he didn’t interpret Dodd’s comments as making Wagoner’s exit a condition for aid, adding that the company management, employees and dealers "all feel like Rick is the right guy to lead us at difficult time."
Lawmakers are putting together a $15 billion plan intended to help keep GM and Chrysler afloat and negotiations are underway between congressional Democrats and the Bush administration over what conditions for restructuring will be required. The House and Senate are returning this week specifically to consider the measure. At least some GM board members would be willing to leave if it were a requirement of Congress for receiving aid, said a person familiar with GM board deliberations. President-elect Barack Obama, asked on NBC’s "Meet the Press," whether the management of the automaker should be allowed to stay, said "it may not be the same for all the companies."
Later, at a press conference in Chicago, Obama said that if the management team "that’s currently in place doesn’t understand the urgency of the situation and is not willing to make the tough choices and adapt to these new circumstances, then they should go." "If, on the other hand, they are willing, able and show themselves committed to making those important changes, then that raises a different situation," Obama said. Dodd said that GM is in the "worst shape." "Chrysler, is, I think, basically gone, probably ought to be merged," Dodd said. Ford Motor Co. is the healthiest domestic automaker, he said.
Chrysler spokeswoman Lori McTavish said it would be "inappropriate for the company to comment on the speculation." "We are completely focused on securing a working capital bridge loan for Chrysler," she said. Senate approval of the legislation remains in doubt, some lawmakers said. Alabama Republican Senator Jeff Sessions said he has "doubts it will pass, but it’s a lot closer than it was" when automakers were asking for $34 billion. Senator Richard Shelby of Alabama said he supports a filibuster, a procedural tactic which stalls legislation to allow endless debate. Sixty votes are needed to end filibusters.
"I think we need to debate it and that’s what filibusters allow and this week would be a good time to do it," Shelby said.
He called the auto bailout "a bridge loan to nowhere," on the "Fox News Sunday" program today. Dodd warned that a filibuster "may be the end" of efforts to aid automakers until the next session of Congress in January. Michigan Senator Carl Levin, a Democrat who supports aid to the automakers, said on "Fox News Sunday" that he expects lawmakers to finish writing legislation in the next 24 hours to loan money to the automakers. "Obviously that’s a much more complicated question as to whether the votes are there," Levin said. "What I’m confident of is that the bill will be introduced."
Dodd said that "the votes are there" for a carmaker bailout.
"Even if people don’t like this idea, none of us want to wake up Jan. 1 and discover we don’t have an industry to save," Dodd said. The chief executives of GM and Chrysler testified at hearings this week that they need a combined $14 billion to keep operating through March 31. "The last thing I want to see is the auto industry disappear," Obama said. Still, he added that any loans or assistance must be tied to restructuring of the companies.
Major Issue in Big 3 Aid Is Final Cost
So what will it cost to fix Detroit's Big Three automakers? Now that Congress has signaled its willingness to help the ailing car companies with short-term loans, that question has gained new urgency — particularly for President-elect Barack Obama, who will inherit the crisis in Detroit when he takes office. The ultimate price tag for a new and improved American auto industry may be as unfathomable as questions about the potential harm to the economy if any of the companies were allowed to collapse.
But estimates of the final bill are rising rapidly, particularly as the economy weakens and car sales keep falling. A comprehensive bailout for General Motors, the Ford Motor Company and Chrysler could cost as much as $125 billion, and even the companies themselves are hard pressed to dispute that figure. Mark Zandi, chief economist of Moody's Economy.com, testified before Congress last week that the Big Three's request for $34 billion in loans "will not be sufficient for them to avoid bankruptcy at some point in the next two years." He said from $75 billion to $125 billion would be needed to pay for a full-scale reorganization of the automakers.
Lawmakers have indicated they may give G.M. and Chrysler about $15 billion in emergency aid to keep them in business until the spring, when the Obama administration and the new Congress can craft a longer-term rescue plan. Throughout four hearings on Capitol Hill, the chief executives of G.M., Ford and Chrysler have tried to assure lawmakers that all they need is temporary assistance until the sick economy and the depressed auto market recover.
G.M.'s chairman and chief executive, Rick Wagoner, tried to assure Congress last week that G.M. can be profitable again with $18 billion in federal loans and an aggressive reorganization plan. "Our plan is far reaching and extensive," Mr. Wagoner said. "It is a different way of thinking and our team is committed to achieving it." Still, there are many variables that could derail the Big Three's recovery plans. Despite an infusion of $700 billion into financial institutions, there are few signs that car loans are becoming more available to consumers — a critical component in any rebound in vehicle sales, which have fallen to their lowest level in 25 years in the United States.
Important foreign markets in Europe and Asia are also deteriorating, further reducing revenues at G.M. and Ford. And Detroit is also facing huge bills — interest payments on their enormous debt loads, large contributions to health care trusts for retired hourly workers as well as tens of billions of dollars in expenses to meet stringent new government fuel-economy requirements. The magnitude of the companies' obligations left some lawmakers groping for answers during the testimony of the Big Three executives.
"Do we know what we're doing? Do we know what we're trying to achieve?" asked Representative Peter King, Republican of New York. "If I was reasonably convinced that the money was going to work, I would support it." Detroit has lost tens of billions of dollars in recent years; credibility has evaporated among investors and analysts who have seen a series of reorganization efforts and new products fail to produce a lasting turnaround.
The fact that the companies first asked for $25 billion in mid-November, then upped the ante to $34 billion two weeks later hardly gave lawmakers confidence in the automakers' current plans. "I don't want to send you home again because it's going to get more expensive in another two weeks," Representative Gary L. Ackerman, Democrat of New York, said at last Friday's hearing. Because it is the biggest and most troubled of the automakers, G.M. generated the most skepticism with its plan. The company says that it needs $10 billion to get through March, another $2 billion for the remainder of 2009, and a $6 billion line of credit beyond that.
But this is a company that has lost $20 billion so far this year, spent $2 billion a month in cash since July, and consistently missed its sales targets and financial benchmarks. G.M. has already cut its American work force in half in the last three years. Yet its latest reorganization plan calls for downsizing its brands and dealerships and cutting another 30,000 jobs — without addressing how it would generate new revenue.
Because G.M. also has more than $60 billion in debt outstanding and a bill for $21 billion in retiree health care benefits coming due, experts cannot see how it will survive with temporary government loans. "Even with the most generous assumptions as to operating results and carefully adhering to G.M.'s proposed restructuring, G.M is still a highly distressed company and likely to go bankrupt, probably within in one year," said Professor Edward I. Altman, of the Stern School of Business at New York University.
Despite the willingness of the United Auto Workers union to make concessions on job security and health care payments, G.M. desperately needs its bondholders and other creditors to allow it to revamp its debt payments. G.M. could accomplish those ends if it sought bankruptcy protection, but the company maintains steadfastly that a Chapter 11 filing would ruin its already shaky reputation among consumers.
In a bankruptcy proceeding, the U.A.W. would be in jeopardy of losing its $28-an-hour wage scale and its long-term health care benefits. The union's president, Ron Gettelfinger, argued during the hearings that Congress should appoint a trustee or oversight committee with authority to force concessions from G.M.'s debtors. "What Congress can and should do is put in place a process that would require all the stakeholders to participate outside of bankruptcy," Mr. Gettelfinger said.
But a federally appointed "car czar" would hardly have the same legal authority as a bankruptcy judge to demand that bondholders, for example, take equity in exchange for reducing their debt. The situations at Ford and Chrysler are a little different, but both companies still have large obligations to debtors and union health care trusts. While Mr. Obama has repeatedly said that Chapter 11 is not preferable for the companies, several lawmakers see bankruptcy as the only viable way for the Big Three to get a fresh start as smaller, less-indebted entities.
"They could come out leaner and more vibrant and more successful," Senator Jeff Sessions, a Republican from Alabama, said Sunday in an appearance on CBS's "Face the Nation." "This is the way to save jobs." Beside debts and legacy costs, Detroit faces substantial costs to meet new federal fuel-efficiency requirements for cleaner vehicles. The automakers have said it may require $100 billion to remake their fleets, far beyond the $25 billion program that Congress approved to help the companies meet the new standards.
The mounting cost issues obscure what lies at the heart of the Big Three's current cash crisis — a shrinking share of a vehicle market that has sunk to levels not seen since the 1980s. G.M., Ford and Chrysler have based their turnaround plans and loan requests on market projections that would have seemed outrageously low just a year ago. G.M., for example, is tying its profitability to maintaining at least a 20 percent share of an annual United States sales market of about 13 million vehicles. That level is far below the 16 million in annual sales that the industry has achieved in recent years, but in line with the depressed levels of 2008.
Obama to focus on stimulus not deficit
Barack Obama on Sunday spelled out his plans for the biggest infrastructure investment in the US for half a century. The president-elect argued that with the economy reeling, his incoming administration could not afford to worry about a spiralling budget deficit. Mr Obama's proposals for government works on roads, bridges, internet broadband and school buildings, together with energy efficiency measures and health spending, are far more detailed than the normal announcements during a time of transition.
At a time of deepening economic gloom – with half a million jobs lost last month alone – president George W. Bush has been largely absent from the recent economic debate. Mr Obama is highlighting his concern at the depth of the recession he will inherit, while fast-tracking his plans to counter it. "Things are going to get worse before they get better," Mr Obama said on Sunday on NBC's Meet The Press. He emphasised that his plans represented the largest US infrastructure programme since the federal highway system in the 1950s.
"The key is making sure we jump-start the economy in a way that doesn't just deal with the short term, doesn't just create jobs immediately, but also puts us on a glide path for long-term sustainable economic growth." Noting the US budget deficit might surpass $1,000bn (€785bn) before his spending plans are factored in, Mr Obama added: "We understand that we've got to provide a blood infusion to the patient right now to make sure that the patient is stabilised. And that means that we can't worry short term about the deficit. We've got to make sure that the economic stimulus plan is large enough to get the economy moving."
He wanted a strong set of financial regulations to make banks, credit ratings agencies, mortgage brokers and others "much more accountable and behave much more responsibly. I am absolutely confident that if we take the right steps over the coming months that not only can we get the economy back on track but we can emerge leaner, meaner and ultimately more competitive and more prosperous," Mr Obama said at a subsequent press conference. "The thing that we have to do right now is to have a bold economic recovery plan . . . We are not going to simply write a bunch of cheques and let them be spent without some very clear criteria as to how this money is going to benefit the . . . economy and put people back to work."
As Mr Obama's comments were broadcast, Democrats in Congress continued negotiations with the Bush administration on a deal to provide US car companies with about $15bn in loans to survive the next three months. Following last month's job figures, which heightened fears of the knock-on effects of the possible failure of one or more of the Detroit Three carmakers, Nancy Pelosi, speaker of the House of Representatives, scaled back her objections to providing them with emergency funding from a programme intended to boost energy efficiency.
The Democrats had previously insisted the loans come from the US's Troubled Assets Relief Programme, Tarp, a stance Mr Bush resisted. On Sunday, congressional Democrats and the White House said talks were proceeding well. Any long-term decision on the car industry, however, would be left to the newly elected Congress, which meets in January, and the Obama administration.
US task: Put jobless into jobs
Needed: a job plan. Suddenly beset by the worst monthly layoffs since 1974, Americans are starting to struggle with how to find employment for the millions who are losing jobs in the recession. Should government spend billions on retraining programs, create tax incentives for businesses that hire new workers, fund green infrastructure projects, or just provide massive Depression-era make-work programs? The answers to those questions will involve a key issue: whether the unemployed will have the right skills and be in the right location to take advantage of new jobs.
President-elect Obama has described the outlines of a recovery plan that would create more than 2 million jobs. On Saturday, in a weekly radio address, he cited plans to upgrade roads and schools as part of what would be the biggest infrastructure investment since the 1950s. Mr. Obama's comments follow the Labor Department's report last Friday that the United States lost 533,000 jobs and the unemployment rate rose to 6.7 percent in November. Over the past three months, job losses have totaled 1.2 million, a statistic that implies that a sharp contraction of the economy is under way. "These numbers basically provide support for Obama to have a program in place in January," says John Silvia, chief economist at Wachovia Economics Group in Charlotte, N.C.
The size of the November layoffs shocked economists. The layoffs spread to almost every sector – from manufacturing to services, which accounted for 70 percent of the layoffs. "This is stunning, in the sense of a deer caught in the headlights," says Stuart Hoffman, chief economist for PNC Financial Services in Pittsburgh. "We are seeing a total collapse in consumer confidence in the economy, and business is laying people off and not hiring." Many economists expect the Obama administration to present a massive economic stimulus program. Bernard Baumohl of the Economic Outlook Group in Princeton, N.J., anticipates a $500 billion to $1 trillion plan, possibly spread over two years. "It's going to be targeted to the kinds of programs that have a multiplier effect on the economy," he says.
One target is likely to be construction, which has been hard hit by the recession. At its peak in 2007, about 1 million people were involved in heavy construction. That number is now down to 946,000, according to the Department of Labor. For every $1 billion in government infrastructure spending, 28,000 new jobs are created, according to a federal study quoted by Kenneth Simonson, chief economist at the Associated General Contractors of America. But only about 25 percent of those jobs are for construction workers. Another 25 percent are supplying industries, such as for concrete or lumber. The rest are jobs like retail and others created indirectly because workers are spending money.
Still, many workers may find they have to change professions or locations to find work. "One thing we have learned is that you need a lot of flexibility and capacity to move around geographically and occupationally," says Don Grimes, senior research specialist at the Institute for Research on Labor, Employment, and the Economy at the University of Michigan at Ann Arbor. In addition, says Mr. Grimes, citing the experience of past recessions, most people who find new employment will take a pay cut. "That is almost universally true," he says.
In past recessions, certain industries, such as the steel industry, have been decimated. "Tens of thousands of them ended up retiring," he says. "Some ended up working at Home Depots or Wal-Marts and ended up with a lower quality of life than they were expecting." For the most part, Grimes says, job-retraining programs have also not worked. "I know some [programs] were running in Michigan for laid-off auto workers," he says. "But as soon as the auto industry turned around, they went back to their jobs, short-circuiting their training." Some jobs may be lost permanently, says economist David Wyss of Standard & Poor's in New York. For example, some jobs in finance and real estate may not return. "There are probably too many real estate brokers," he says. "They are reemployable and can usually get a new job once they get the training."
Finding new jobs for people involved in retail and some parts of the service sector could be more difficult, Mr. Wyss says. "People are not buying goods, and those that are go to Wal-Mart, who hires fewer employees." Sometimes in the past, small businesses have absorbed workers. But those jobs, too, are disappearing, says Richard DeKaser, chief economist at National City, a Cleveland bank, which surveys Midwest business. "We're finding small business has trimmed its hiring plans," he says. Some areas that are still hiring may not help those being laid off. This includes healthcare. Even in November, the Department of Labor reports that this sector added 34,000 jobs. "It's pretty recession-proof, especially for doctors and nurses," says Wyss.
For others, it may just be a matter of time for the economy to begin to respond to stimulus, says Sung Won Sohn, an economics professor at the Smith School of Business, California State University. "There is no short-term fix," says Mr. Sohn. "The fastest thing you can do is ask people to show up for work, and the government will find make-work projects like cleaning streets or building houses and bridges.
How Freddie Mac halted regulatory drive
When the Washington Nationals played their first-ever baseball game in the nation's capital in April 2005, two congressmen who oversaw mortgage giant Freddie Mac had choice seats -- courtesy of the very company they were supposed to be keeping an eye on. Efforts to tighten government regulation were gaining support on Capitol Hill, and Freddie Mac was fighting back. The baseball tickets for home opener were means of influence.
According to confidential company documents obtained by The Associated Press, Reps. Bob Ney, R-Ohio, and Paul Kanjorski, D-Pa., spent the evening in hard-to-obtain seats near the Nationals dugout with Freddie Mac executive Hollis McLoughlin and four of Freddie Mac's in-house lobbyists. Kanjorski declined comment through a spokeswoman. Ney ultimately served a federal prison term after pleading guilty to trading political favors for a golf trip to Scotland, other gifts and campaign donations in the Jack Abramoff lobbying scandal.
The Nationals tickets were bargains for Freddie Mac, part of a well-orchestrated, multimillion-dollar campaign to preserve its largely regulatory-free environment, with particular pressure exerted on Republicans who controlled Congress at the time. Internal Freddie Mac budget records show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich were recruited with six-figure contracts. Freddie Mac paid the following amounts to the firms of former Republican lawmakers or ex-GOP staffers in 2006:
--Sen. Alfonse D'Amato of New York, at Park Strategies, $240,000.
--Rep. Vin Weber of Minnesota, at Clark & Weinstock, $360,297.
--Rep. Susan Molinari of New York, at Washington Group, $300,062.
--Susan Hirschmann at Williams & Jensen, former chief of staff to House Majority Leader Tom DeLay, R-Texas, $240,790.
Freddie Mac's chairman and chief executive, Dick Syron, and McLoughlin, senior vice president for external relations, used Clark and Weinstock extensively, Weber said in an e-mail Friday. "I personally met with the CEO several times and with Hollis and his team regularly," Weber said in the e-mail. "Clark and Weinstock worked effectively and intensely for Freddie Mac under Dick Syron and Hollis McLoughlin."
The tactics worked -- for a time. Freddie Mac was able to operate with a relatively free hand until the housing bubble ultimately burst in 2007. Now Freddie Mac and its sister company, Fannie Mae, are in financial collapse and under government control. Congress is investigating how it all happened. Lawmakers have planned a hearing Tuesday. The records obtained by the AP reflect growing concern within Freddie Mac over a chorus of criticism from Republicans worried that Freddie Mac and Fannie Mae had grown too big. The two companies owned or guaranteed over $5 trillion in mortgages.
The Bush administration and Federal Reserve Chairman Alan Greenspan were sounding the alarm about the potential threat to the nation's financial health if the fortunes of the two mammoth companies turned sour. They did eventually, when they took on $1 trillion worth of subprime mortgages and when their traditional guarantee business deteriorated. Commercial banks regarded Freddie Mac and Fannie Mae as competitors and were anxious to pick up business that would result from scaling back the two companies.
Pushing back, Freddie Mac enlisted prominent conservatives, including Gingrich and former Justice Department official Viet Dinh, paying each $300,000 in 2006, according to internal records. Gingrich talked and wrote about what he saw as the benefits of the Freddie Mac business model. Dinh wrote a legal analysis of private property rights that viewed a hypothetical government-enforced sale of Freddie Mac assets as constitutionally suspect.
In 2005, Freddie Mac hired political consultant Frank Luntz, a Washington fixture whose specialty is choosing the right buzz words to achieve a particular goal. The records AP obtained do not cover 2005 and Freddie Mac refuses to confirm that it brought Luntz on board. But four people familiar with events at Freddie Mac at the time confirmed the Luntz hire. All four spoke on condition of anonymity, saying they fear reprisals if their names were revealed. Luntz did not respond to efforts to contact him through his office.
The AP previously described, in October, how Freddie Mac thwarted efforts to bring a tough regulatory bill sponsored by Republican Sens. Chuck Hagel of Nebraska, John Sununu of New Hampshire, Elizabeth Dole of North Carolina and John McCain of Arizona to a full Senate vote. At a meeting days after Hagel's bill went to the full Senate, Syron and McLoughlin berated the company's in-house lobbyists for failing to keep Hagel's bill corralled in committee, said the four people familiar with events at Freddie Mac at the time.
Freddie Mac shifted into high gear, secretly paying a Republican consulting firm, Washington-based DCI Group, $2 million to kill Hagel's legislation. The covert lobbying campaign targeted Republican senators in 2005-06. According to the newly obtained records, DCI's deployment was part of a broader campaign that targeted mainly Republicans on Capitol Hill.
The internal Freddie Mac documents show that 17 of the lobbying firms and consultants paid in 2006 were specifically directed to focus on Republicans and four on Democrats, with varying targets for the rest. McLoughlin hired his own personal political strategist, Republican consultant Harry Clark, paying Clark's firm $440,494 in 2006 out of McLoughlin's executive office budget, according to the records obtained by AP.
Even the office that served as the sole source of federal regulation over Freddie Mac was targeted. Lobbyist Geoffrey P. Gray was paid $240,000 in 2006 to focus in part on the Office of Federal Housing Enterprise Oversight, according to the records. Last week, Gray did not return calls to his office. On Friday, Freddie Mac declined to comment. A lawyer for Syron, one of the scheduled witnesses at Tuesday's congressional hearing on the collapse of Freddie Mac and Fannie Mae, did not return a phone call seeking comment. Syron has left the company. McLoughlin remains in his post at Freddie Mac.
Modifying the Mortgage Giants
After the government announced last month that Fannie Mae and Freddie Mac would take new steps to modify tens of thousands of mortgages to make them more affordable, some executives expressed concerns that the moves could weaken their already struggling companies. Fannie Mae's chief executive, Herbert M. Allison Jr., acknowledged these fears in a staffwide message. "As we take further steps to aid homeowners, some employees are asking about the potential cost to the company of modifying loans to help distressed borrowers," he wrote. "Our challenge is to keep families in their homes and support the mortgage markets."
In the long-running contest between profits and public policy at Fannie and Freddie, public policy is winning. Fannie and Freddie have always had to strike a balance between the imperative of profit-maximizing, shareholder-owned institutions and the public mission of firms charged with ensuring affordable housing. But since the government seized the firms in early September, the balance has shifted. "We're tilting toward the public mission of the company to safeguard homeowners," Allison said in an interview.
Last week, sources said the Treasury Department was strongly considering a plan to use Fannie Mae and Freddie Mac to dramatically force down what Americans pay for home loans. The plan would require that Fannie and Freddie buy 30-year, fixed-rate mortgages if they have a 4.5 percent interest rate, the lowest in history. In turn, the Treasury would purchase these loans from the companies. Allison, Freddie chief executive David M. Moffett and the federal regulator who hired them, James B. Lockhart III, must walk a fine line. Taking steps to support the housing market and help borrowers could cost the firms, depriving them of revenue and forcing them to assume even riskier investments. And the Treasury has put taxpayer money on the line for up to $200 billion in losses at the companies.
But doing too little could delay a housing recovery as more homes fall into foreclosure and people have trouble getting home loans. That could also hurt the bottom line. "If housing prices continue to fall, losses will mount at Fannie and Freddie," Lockhart said. "There's no doubt that the sooner we can get stability to the mortgage market, the better off they will be." There are other questions -- for instance whether the companies will eventually resume their traditional rivalry as private enterprises or remain under government control indefinitely. The unusual hybrid nature of Fannie Mae and Freddie Mac dates back 40 years when they were chartered by Congress to supply financing to the mortgage market and support affordable housing.
With the government still insisting that the firms pursue both a public policy agenda and profitability, executives have yet to resolve how far they should tilt toward the former. Using identical language, the companies said in recent financial disclosures that the various goals "create conflicts in strategic and day-to-day decision making that will likely lead to less than optimal outcomes for one or more, or possibly all, of these objectives." In the past three months, Fannie and Freddie have announced they are modifying tens of thousands of mortgages, suspending foreclosures and evictions during the holiday season, canceling fees to back home loans and expanding their purchases of mortgages and mortgage-backed securities.
The moves are in part a reversal of what Fannie and Freddie were doing before being taken over. This summer, the companies were raising fees and buying fewer mortgages with the goal of conserving cash and building up their financial cushion to withstand billions in losses in the mortgage market meltdown. More broadly, in the latter years of the housing boom, Fannie and Freddie often put shareholder profit first, moving into riskier areas of the mortgage business in search of higher returns. Within weeks of the government's takeover, several senior executives at both firms left as the new chief executives installed their own teams. More recently, Freddie's treasurer, Timothy Bitsberger, who, a source said, privately argued that the company shouldn't expand its portfolio of mortgages in the face of a collapsing market, resigned. Bitsberger, a former Treasury official and Wall Street trader, declined to comment.
Other executives with experience in the mortgage market would also like to leave because the companies are no longer the high-flying finance houses they once were, according to current and former executives. But these senior employees are staying because the companies have put in place cash retention programs and there are no jobs to be had on Wall Street. One source of tension inside the firms was the decision by their new chief executives to cancel a planned increase in the fees that Fannie and Freddie charge when they buy mortgages from lenders, bundle them, guarantee them against default and then sell them to investors. The fees would have been passed on to borrowers, increasing the cost of home loans. Some at Fannie and Freddie argued the fees were necessary given the losses the companies were facing
"They were thinking about it from an economic standpoint. They made a strong case that it would maximize their profits," Lockhart said. "On the other hand it would have been the wrong thing to do for housing market." Lockhart urged that the fee increase be canceled, and the companies ultimately closed ranks around this position. What the companies ought to be doing under government control has at times been perplexing. Initially, the Treasury tapped Fannie and Freddie to help run a program buying troubled assets from banks and other financial firms, according to two people familiar with the matter. Then, the Treasury abandoned the effort in favor of injecting capital into banks.
No initiative has been more illustrative of the shift at the companies than their efforts to prevent foreclosures. When the government took over Fannie and Freddie, neither Lockhart nor Treasury Secretary Henry M. Paulson Jr. mentioned combating foreclosures as a goal. At the time, the government wanted Fannie and Freddie to pump cash into the mortgage market with the hope of reducing interest rates. The accelerating crisis in the financial markets this fall made that very difficult by undermining Fannie and Freddie's efforts to obtain affordable financing.
Last week, in an acknowledgment that Fannie and Freddie couldn't fix the home loan market by themselves, the Treasury and Federal Reserve announced a $500 billion program to buy mortgages, which has already helped lower mortgage interest rates. Weeks before that announcement, with the firms' efforts to buy mortgages running into trouble because of the financial crisis, Fannie and Freddie's agenda was already focused on preventing foreclosures. In mid-November, Lockhart made a high-profile announcement that Fannie and Freddie would establish a new program to modify mortgages. The program targets borrowers who are three months late on their payments. These borrowers would have their mortgages modified so that their monthly payment equals 38 percent of their income -- by extending the loan term to 40 years, reducing the interest rate and even delaying payment on part of the principal.
The program had critics inside and outside government. The Federal Deposit Insurance Corp.'s chairman, Sheila C. Bair, who has tussled with the Bush administration over her desire to use part of the government's bailout fund to modify mortgages, said at the time that Fannie and Freddie's plan "falls short of what is needed to achieve wide-scale modifications of distressed mortgages." Bruce Marks, executive director of the Neighborhood Assistance Corporation of America, called the plan just "symbolism." "Very few people will qualify," he said, "and the people who do qualify will pay such a high percentage of their income for their mortgage payments that they will have very little left for the basic necessities."
Marks held a protest with 100 people in October outside Fannie's Wisconsin Avenue headquarters, and Allison invited him inside, talking with him for an hour in the first of two meetings. Although critical, Marks credited Allison with being open-minded. "He was not afraid to ask the questions, to push the issue and to voice his opinion," Marks said. In late November, Lockhart, Allison and Moffett made their first pilgrimage to the office of Rep. Barney Frank (D-Mass.), chairman of the influential House Financial Services Committee. Frank, who had complained that the administration was not doing enough to help struggling borrowers, had invited the three men to learn how they would address foreclosures.
Sitting side by side, Lockhart, Allison and Moffett explained what they were doing but added that other firms owned most of the country's distressed mortgages and needed to take big steps, too. Fannie and Freddie are now considering additional steps, including reducing the amount of income applied toward a mortgage and modifying loans before they become delinquent, according to people familiar with the companies' plans. "We're not going to be bound by past policies, traditions and habits," Allison said. "And we're going to take a very open and unfettered look at how we're operating."
Huge Treasury Sales Benefit From Yields
The U.S. government could sell more than $400 billion in Treasury notes and bills in the final weeks of the year to cover its soaring funding needs, and it looks like it will continue to get the money on the cheap. In normal times, digesting such a massive amount of supply in such a short period would send yields soaring, as investors usually demand higher returns to accommodate the flood of securities. But these are far from normal times. Not even such a staggering amount of paper is expected to curb the government-bond market's move toward lower yields.
Last week, Treasury yields, which move inversely to prices, hit record lows as bleak data pointed to a deepening recession and persistently falling prices in the U.S. That helped the long end of the yield curve in particular, which suffers the most from rising prices, as these eat into bonds' fixed returns. The 30-year bond yield touched a record low of 3% during Friday trading before ending at 3.110%. The benchmark 10-year Treasury yield edged up on Friday but dropped 0.302 percentage point over the week to 2.657%. Annualized three-month Treasury-bill yields teetered close to zero.
These trends should remain in place in the final weeks of the year, when demand for Treasurys also tends to rise as investors tidy up their books ahead of year-end accounts closing. "The market is in survivor mode," said Ward McCarthy, managing director at Stone & McCarthy. "So many horrible things have happened and the economy is in such bad shape. The smart thing to do is to hide in Treasurys." Besides the dire economic outlook, there is also the prospect that the Federal Reserve could start to buy longer-term government debt in an effort to keep long-term yields low to help struggling consumers. Already Friday, the Fed bought some $5 billion in agency debt, part of a $100 billion plan to support the housing market.
Treasury-note auctions this week include a three-year note sale on Wednesday and a 10-year note reopening on Thursday. The following week, just before the Christmas holiday, Treasury will sell two- and five-year notes. In addition, the Treasury is expected to sell hundreds of billion of dollars in Treasury bills in the next few weeks. Mr. McCarthy expects to see a minimum of $25 billion in three-year notes on offer, $10 billion in 10-year notes, $36 billion in two-year notes and $26 billion in five-year notes, for a total of $97 billion. Treasury-bill issuance could exceed $325 billion, he said. "There will be plenty of Treasury coupons to buy," Mr. McCarthy said, "and I suspect there will be plenty of people to buy them."
Friday's crushing jobs report, which saw U.S. companies shed jobs at the fastest rate in more than 30 years in November, has raised expectations that the new administration will push through another stimulus package to help the wilting economy. That would mean even more Treasury issuance ahead, but investors don't appear to be worried. "Supply does not yet seem to be a concern for the market," said Lou Brien, a market strategist at DRW Holdings in Chicago. Steve Rodosky, head of Treasury and derivatives trading at Pimco, said Treasury yields are likely to remain low until the housing market stabilizes. "Without the stabilization of housing prices, you are still in a period of asset deflation," he said.
Fed still has other tools to employ - Boston Fed’s Rosengren
The U.S. Federal Reserve is running out of room to cut interest rates further but it has other tools it can employ and fiscal policy could start to play a bigger role in spurring the recession-mired economy, a top Fed official said on Monday. "Given that interest rates cannot be negative, further monetary-policy actions are limited by the zero lower bound for interest rates," Boston Federal Reserve President Eric Rosengren said in remarks prepared for delivery to a conference in Geneva, Switzerland.
"While other monetary policy tools can be employed, increasingly many observers and commentators are suggesting that fiscal stimulus will be an important element of economic recovery," he said. Rosengren, who won't assume a voting seat on the Fed's policy-setting committee until 2010, also said the U.S. central bank's emergency credit facilities have lessened the risk financing would not be available over year-end, although short-term credit markets remained strained.
"The improvement in what was a very large spread has been greatly aided by the various short-term credit facilities established by the Federal Reserve," he said. "The facilities have also reduced the risk that financing would not be available over the year end, as many commercial-paper issuers have now financed themselves beyond that point. But despite these improvements, short-term credit markets remained strained," Rosengren said.
The Fed has rolled out a raft of unprecedented liquidity programs in its battle against the worst financial crisis in 80 years. They include facilities to restore lending by money market mutual funds and purchase short-term debt issued by companies. The programs supplemented an aggressive interest-rate cutting cycle that has taken the benchmark federal funds rate down to 1.0 percent. Primary dealers polled by Reuters on Friday expect the Fed to cut interest rates to 0.5 percent or lower at its meeting this month. That would be the lowest on records dating to July 1954.
Rosengren said short-term credit markets and the housing market would have to recover before financial markets can return to normal. "We need to see some improvement in the housing market before financial markets will resume a more normal state," he said. "A number of proposals have been floated to help stem foreclosures but to date there has been relatively modest progress." He said the crisis provides a reason to reassess a regulatory framework that was ill-prepared for the types of liquidity shocks that have roiled markets.
"The current crisis provides the opportunity and impetus to re-examine a regulatory framework that originated in the Great Depression," Rosengren said, adding that international cooperation was becoming more important. "Future regulatory design must allow for innovation without increasing risk to the financial infrastructure and the real economy," he said. "To the extent that more assets move to be exchange traded, counterparty risk is reduced and transparency is increased."
He also said it was important to ensure public efforts to stabilize financial markets do not lead market participants to take excessive risks in the future. "Ideally, situations requiring public support should occur only after losses have been borne by equity holders and existing management and directors have been held responsible for the losses." "In the U.S. the central bank can provide liquidity to the market place, but decisions to take on credit risk that pose substantial risk to the taxpayers should ideally be in the hands of the Treasury Department," he said.
It's not inflation that did us in, it's the borrowing
WARNING: The following comment benefits from the wisdom of hindsight. It's an idea that's crossed my mind several times in the past decade but now I'm sure of it: for all that time the world's central bankers have been on the wrong tram, worrying about inflation when they should have been worrying about excessive borrowing. It's the old case of generals still fighting the last war.
The aim of the game of macro-economic management is to keep the economy growing steadily so as to keep unemployment low. The trick is to work out what factor is the main threat to unemployment. We were well into the Great Inflation of the 1970s and '80s before most economists accepted that inflation was the great threat and that the way to achieve strong employment growth was counter-intuitive: fight inflation first.
The developed economies' policy makers flirted with monetarism and money-supply targeting, then with a continuous bias in favour of restrictive settings, and finally settled on inflation targeting. At the same time the fashion, in the English-speaking economies particularly, turned towards privatisation, deregulation and generally reduced government intervention in the economy. We did more of this than most.
Most of the developed economies managed to get on top of inflation during the '80s, though it wasn't clear Australia had "broken the stick of inflation" until the early '90s.
By then the central bankers of the world had reconsecrated themselves to eternal vigilance against inflation. This was their job above all others. No one else really cared about controlling inflation, so it was down to them.
What too few people noticed was that the success in keeping inflation low owed less to the central bankers' vigilance than to the way micro-economic reform had made markets more competitive and flexible, and thus less inflation-prone. Reduced government intervention in markets had greatly diminished the role of cost-push inflation, leaving excessive demand as the only potential inflationary threat.
Many people identified China's emergence as a major exporter as a significant medium-term source of downward pressure on the world price of manufactures, but few noticed the demise of domestically based cost-push inflation pressure. In particular, few are conscious that, whereas excessive wage growth was the bane of the Great Inflation, wages haven't misbehaved in any of the English-speaking economies for the best part of two decades.
The ultimate demonstration of that is right before our eyes: even with our economy travelling close to full employment for the past few years, wages growth stayed disciplined. Truly, the labour market has changed. So in their pursuit of macro stability, the central bankers have spent the past decade or more focused on the wrong variable. (Which is not to say our Reserve Bank was wrong to hit the brakes when it saw our economy reaching full capacity. What else could it have done?)
Turns out the inflation they should have been worried about was in the prices of assets such as houses and shares, not goods and services. You can't have bubbles in asset markets without the ready availability of credit. And it's been the long build-up in debt on the balance sheets of households, businesses (via the private equity craze) and financial institutions (hedge funds, investment banks and even commercial banks) that's at the heart of the global financial crisis and the global recession it's feeding.
It's not the advent of derivatives, wrongheaded as they may now be revealed (and though they facilitated the urge to borrow), it's that the institutions caught holding those derivatives were so highly geared. And when mighty financial institutions rock on their foundations, the people whose confidence is knocked hardest are those business people and home owners with the guiltiest conscience about how much they've borrowed.
If Australia is really hit hard by the global troubles it will be because of what we bring to the party: a heavily indebted household sector. If we have a severe recession it will mean that not since the early '80s have we had a recession caused by wage-driven inflation. Rather, the two recessions we've experienced since then will have been caused by the collapse of credit-fuelled asset booms and the need to repair balance sheets: bank and business balance sheets in the early '90s, household balance sheets now.
This is the point that's yet to sink in: recessions come not from excessive braking to control inflation, but from excessive borrowing and the bursting of asset bubbles. These days we have balance sheet-driven recessions. To give it its due, our Reserve Bank devoted its annual conference to the study of asset prices and monetary policy as long ago as 2003.
The perceived problem then was, what do you do when you see an asset bubble building but don't have a conventional inflation problem and so find it hard to justify raising interest rates? This insight achieved nothing, however, because other central banks, particularly the Americans, weren't greatly troubled by the problem. They should have been and, no doubt, now are.
The difficulty then was in thinking of an instrument that could be used to discourage borrowing other than raising rates. Impose direct controls on lending? Oh no, not in an era of financial deregulation. But now that their failure to act before has seen them giving blanket government guarantees of bank deposits, buying shonky bonds and taking shares in every financial institution that threatens to fall over, perhaps the world's central bankers are prepared to be a little less purist.
Perhaps governments should be setting ceilings on the proportion of share and property values that can be borrowed against. Perhaps that proportion should be adjustable by the authorities as we move through the cycle. Perhaps we should reinstitute direct controls on bank lending. Certainly we should rework the Basel II rules on the capital adequacy of banks to stop them being pro-cyclical. Whatever measures we come up with, this surely is the most important lesson to learn from the global financial crisis and its aftermath: we must find a way to prevent excessive borrowing
Defaulting countries reach out to IMF and financial fixers
Exactly one year on from having its resources slashed and it relevance questioned, the International Monetary Fund has put record amounts of emergency loans to work. A staggering $41.8bn (£28.6bn) of cash was carved up in November alone between Iceland, Hungary, Serbia, Ukraine and Pakistan, with a further $10bn bail-out being finessed this weekend to pull Turkey back from possible default.
But the IMF is not the only one saving sovereign states. The buccaneers of restructuring, already busy breathing oxygen into the lungs of debt-choked companies, like retailer Baugar, are parleying what they do for corporates, multi-nationals and financial institutions into a tool kit to help them fix the breakdown of entire finance ministries and the economies they run.
One restructuring boss who has been advising several governments said: "The game has moved on. Now it is not just companies, it is entire countries that need our services. They need to be restructured and that will mean outside help." But some of the crews manning the lifeboats will include firms that prospered greatly in the days before the storm clouds had gathered and have themselves been partly blamed for causing the tempest.
Names such as Blackstone, Goldman Sachs, Credit Suisse and Deloitte who earned billions of pounds in the deal and debt frenzy are now at the forefront of clearing up its aftermath. Kari Hale, strategy partner at Deloitte's, says that good advice could mean the difference between survival and going bust. Mr Hale was on the Anderson team that along with McKinsey and Credit Suisse rode in to repair the systemic failure of the Swedish banking system in 1991.
Along with his boss at the time, Mark Carawan, who is now head of internal audit at Barclays, 70 senior partners at the three advisory powerhouses spent 180 days tearing apart the financial structures of the Scandinavian state and rebuilding the entire system with a mandate for change and a unified strategy. The good bank/bad bank format they used in Sweden – like the current American TARP fund where the toxic debt of the likes of AIG and Lehman have been dumped – became the template exported to other places where the IMF also lent money to, including Korea, Venezuela and Thailand.
But as the world economy grew and defaulting countries became a distant memory, the celebrated engineers of state administrations became redundant and teams were closed down and the professionals moved to other more common place projects. Now, the call has again been sounded and re-cast corporate fanciers, private equity principles and auditors are, with a gleam in their eyes, again making up the rank and file of the restructuring world.
Blackstone, which advised the UK government on Northern Rock, was drafted into Iceland, where KPMG is also doing some work. Amongst other European projects, the American private equity firm is working in the Ukraine alongside Credit Suisse, which has also seen its client list grow with Government mandates such as Kazakhstan, Belgium and project based work for the UK Treasury on RBS, Lloyds and HBOS.
Experts predict countries in freefall calling in the financial fixers or making deals with the IMF could include Latvia, Bulgaria, even Ireland, Greece and Italy. At its inception in the 1940's, the IMF was created up to help countries with bombed out balance sheets amidst the post-war yearning for a global economic security. Representatives from 45 countries met in the town of Bretton Woods, New Hampshire in the United States and agreed on a framework for international co-operation to be set up after the Second World War.
Over the years it developed a special trust fund for low income countries lent money at 0.5pc interest rates to help reduce poverty and foster global market stability. But essentially, the IMF acts as a safety-net and insurance policy for its 185 member states. The members pay a subscription and at times of financial crisis the IMF can offer medium term debt until a commercial solution can be arranged. It also sends out its economists to spot problems and early warning signs of systemic economic failure.
The oil shock of the 1970s and South American inspired debt crisis of the 1980s led to sharp increases in IMF lending – including its biggest at the time – a $3.9bn loan in 1976 to Jim Callaghan's cash-strapped UK Government. But in a world awash with cheap debt and exuberant trade surpluses, the Fund slipped from the forefront of the world stage and became regarded as at best diminished and at worst irrelevant.
Only a year ago the IMF's managing director Dominique Strauss-Kahn, a former finance minister in the French government and also a one-time presidential candidate announced the fund had to cut up to 15 per cent of its workforce in a desperate attempt to sort out its finances as demand for its loans continued to weaken. But now, thanks to a recent $100bn commitment from Japan, the Fund is sitting on more than $300bn ready to help rescue a dozen more countries that could face default within the next few months.
There is increasing pressure on Middle Eastern countries to follow Japan's example which has helped create a brand new short term liquidity facility. Before this, the IMFs loans lasted five years. But the new product allows countries that are still fundamentally financially healthy but need quick access to cash to take out a three month loans at market rates. No money has been drawn from this facility yet but Turkey could be the first.
Caroline Atkinson, an IMF director and part of the 24-strong management team of the institution, says the Fund has geared up at this time of unprecedented financial crisis and could again start re-hiring, this time from the financial sector. "We are able to distribute money in just a matter of weeks if needed," says Ms Atkinson. "We run very lean three to six person teams that get into the crisis countries and negotiate funding packages directly with the government in very quick turn-around times," she said.
Mr Strauss-Kahn's former colleague Simon Johnson – who a year ago was the IMFs chief economist, says: "There will be many many more countries out there who will be calling on the IMF. "They didn't know it then but the world had drunk Kool-Aid. They believed the story that things would always be good and could only get better." Mr Johnson, now a senior fellow at the Peterson Institute and professor at MIT's Sloane school of Management said: "There is a systemic shift in the action the global economy needs," he said. "And the IMF is best placed to deliver what is needed."
India unveils $4bln economic stimulus package
India on Sunday announced an extra four billion dollars in spending to help shield the country's economy from the impact of the global financial crisis. The government said it would also ensure a substantial increase in expenditure for next year's budget, without giving a specific figure. The new measures follow a cut in interest rates by India's central bank on Saturday to stimulate the economy, which has been hit by the global recession.
Confidence has been undermined further by attacks in the financial capital Mumbai that killed 163 people, including more than two dozen foreigners. "The government has decided to seek authorisation for additional planned expenditure of up to 200 billion rupees (four billion dollars) in the current (financial) year," Prime Minister Manmohan Singh's office said in a statement.
"The government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity." Under the package, the government said that various categories of value-added tax would be cut by four percent to increase spending.
To boost exports, the government announced extra allocation of 70 million dollars for a host of incentive schemes. Exports fell by 12 percent in October and the government has cut its export target for the year to 175 billion dollars from 200 billion. The stimulus package also includes measures to boost infrastructure spending, small and medium businesses, and labour-intensive export sectors such as textiles and handicrafts.
The additional expenditure will further expand India's fiscal deficit, which widened 60 percent to 73 billion dollars between April and October from the same period a year earlier. "The fiscal deficit will be worse. We don't have a number on what that it will be," Montek Singh Ahluwalia, deputy chairman of the government's planning commission told reporters after the announcement.
On Saturday, the Reserve Bank of India reduced its repo rate -- the rate at which it lends to commercial banks -- to 6.5 percent, and its reverse repo rate --- the rate at which it borrows overnight -- to 5.0 percent. Singh, who recently took control of the finance ministry, last week forecast growth of 7.5 percent for the year to March 2009. Economists say growth could be as low as 6.8 percent this year and 5.5 percent the following year.
The government said it was concerned about the impact of the global meltdown on its economy. Amit Mitra, secretary general of industry body FICCI, welcomed the announcement, saying: "It should help in imparting some momentum to the economy to overcome the current slowdown." But he added that the government should focus more on exports in the next package.
Spectre of deflation returns to haunt Japan
Deflation, the financial spectre that stalked Japanese industry for nearly a decade, may be returning to the world's second-biggest economy in a "perfect storm" of crashing commodity prices and a surging yen. Fears of deflation are rising around the world, as the economic slowdown and the threat of deepening recession in the United States have hit the cost of raw materials.
The Baltic Dry Index - the principal gauge of what it costs to move materials around the world - has tumbled by 95 per cent since its highs earlier in the year. Manufacturers are struggling to push through price increases as commodity prices fall and a strong yen has boosted the buying power of retailers, pushing down prices on the Japanese high street.
The return of deflation to the Japanese economy would come within 18 months of its supposed slaying last year. Japan's long era of deflation, when prices were static or falling despite the ultra-low cost of borrowing, dented the national appetite for risk and investment. Since 1998, the challenge of stimulating consumer spending, capital expenditure and price rises has obsessed Japan's financial authorities: many believe that the economy is inherently geared towards the phenomenon and that it was resolved only because of record commodity and energy price inflation.
With the key input prices in freefall, the deflationary spiral - whereby manufacturers find it difficult to raise prices - appears set to begin again. The slowdown in China's construction and manufacturing growth is contributing to lower commodity prices and is prompting manufacturers to lower prices of finished goods as competition intensifies.
Many deflationary examples are emerging in Japan. Steelmakers, who were able to pass 30 per cent price rises on to carmakers and other manufacturers this year, are being hounded by customers for price cuts after iron ore and silicomanganese spot prices tumbled. Prices of steel plates and some large construction joists have fallen by more than 30 per cent in recent weeks. The glass industry has raised sheet glass prices for use in buildings and cars by about 15 per cent for the first time since 2000, but more rises are now unlikely.
For more than five years, Japanese chemicals, fibre and specialist plastic manufacturers have been hammering at their corporate customers to accept higher prices, but falling oil and hydrocarbon prices have taken the punch out of their bargaining power. The price-cutting spiral is evident in Japan's electronics industry. Within the past two weeks, the price of a 32in LCD panel has fallen by an average of 8.7 per cent. A 17in screen - of the sort used to make a PC monitor - costs half what it did in the summer.
On the high street, sales are rising at cheap clothes shops while the strong yen has boosted the buying power of department stores and luxury goods retailers. The yen's surge is being passed on to customers in the form of discounted Louis Vuitton bags. Good for consumers, but, analysts say, bad for retailers and the economy.
Economic clouds gather as Spain faces recession
For years, it has been a staple of daytime television, alongside the inane chat, creaky old movies and decorating do's and don'ts - the "let's-go-live-in-the-sun" show, in which Stoke and Stoke Newington are swapped for, much more often than not, Spain. But now it has an evil twin. You may have seen it. The we're-not-celebrities-but-please-get-us-out-of-here show, in which the dream has gone horribly wrong. And it is symptomatic of the wider malaise that has gripped what was once a land of boom and money.
After a decade in which per capita income doubled - and household debt tripled - the Spanish economic fiesta is well and truly over. More than 40,000 workers are losing their jobs each week, a far higher rate than elsewhere in Europe. Unemployment is at 2.99 million, a 12-year record of 12.8 per cent of the workforce and the highest unemployment rate in the eurozone.
And there is no respite in sight. According to Pedro Solbes, the Economy Minister: "There is a risk the unemployment rates will be worse next year." In November, the grim jobless figures were compounded by a further decline in the services sector as activity, new orders and employment plunged to a record low. The Markit Purchasing Market Index, which covers service companies ranging from hotels to insurance brokers, dropped to 28.2 in November from 32.2 in October, the sharpest monthly decline since figures were first collected in 1999. The figure is drastically below the 50 level where growth begins.
And underpinning it all is the Spanish construction industry, which accounts for 9 per cent of GDP. It has collapsed. After those years of boom, more than 150 property companies have gone bust so far this year, going into administration as debts mounted and they were unable to pay back creditors. Metrovacesa, one of Spain's biggest property companies, reached a debt-for-equity deal this week with six creditor banks, which will take a 54 per cent stake in the business.
In doing so, it became the second big property company to fall into the hands of its creditors this year, after Colonial suffered the same fate in April. Martinsa Fadesa, once one of the biggest real estate firms in Spain, went into adminstration in July. According to Sergio Diaz Valverde, an economist at Caja Madrid: "What started in the construction sector has extended to the entire economy."
Thus, after more than a decade of the highest growth in the eurozone, Spain's GDP decreased by 0.2 per cent in the third quarter. By the end of the year, it is expected that Spain will officially be in recession. José Luís Rodríguez Zapatero, the Prime Minister, has budgeted more than €50 billion (£43.5 billion) on stimulus measures to combat what analysts believe will be the country's worst recession in half a century.
The Government announced an €11 billion emergency spending package last month focused on public construction projects, as well as aid for tourism and car manufacturing. With the country's largest companies struggling to pay their creditors, many are shedding jobs. Consumer confidence is dwindling, with house prices sinking by as much as 10 per cent in big cities such as Madrid and Barcelona.
Car sales, another key indicator of the health of the economy, halved last month. Many manufacturers, including Nissan, Ford and General Motors, are cutting jobs in an increasingly desperate effort to reduce costs. Yet through the gathering clouds, some see sunlight. Alfredo Pastor, a macroeconomics specialist at the IESE Business School in Barcelona, is more optimistic than many. "I think we will see slow growth of between 0 and 0.1 per cent for the next two or three years," he said.
Moreover, the country's banking sector has not suffered the same fate as Britain's. There have been no Northern Rocks. Instead, the two main banks, Santander and BBVA, have - so far - remained largely untouched by the present global financial crisis. The "big two" concentrated on commercial banking, rather than investment banking or derivatives, which have struck down institutions elsewhere.
More strict regulations, introduced by the Bank of Spain after Spain's last slump, also stopped most Spanish banks from lending recklessly. Francisco González, the chief executive of BBVA, said: "We'll pass through a storm, there will be wounds - but those who emerge will be winners." The 45 smaller savings banks, which are more closely involved with mortgages and hence more at risk from the housing slump, may be subject to mergers. Two in the Basque Country have already merged.
Even when Spain begins to emerge from the crisis, deep problems will remain. Productivity grew by an average of only 0.3 per cent a year between 1990 and 1997, according to figures from the Oorganisation for Economic Co-operation and Development. It estimated that between 1998 and 2006, total productivity fell by 0.2 per cent annually.
There are more than one million unsold new homes - enough for four to five years of sales at current levels - and bad loans that could triple to 9 per cent of outstanding debt by 2010, according to Credit Suisse. Education levels are consistently low. One in three secondary pupils drops out. There has also been a brain-drain as the most talented Spaniards seek higher-paying jobs abroad.
According to Professor Pastor, all this indicates that if the country is to emerge from its slump, it must change: "Spain must improve to get away from its dependence on construction and tourism," he said. "We must improve our education, productivity and learn how to keep our most talented people." It must, in short, learn to rely far less on the things that attracted all those Britons to the Costas in the first place.
Chill wind blowing
-- 2.99m The present total of unemployed in Spain
-- 40,000 Number of people who are losing their jobs each week
-- 12.8% Proportion of the workforce that is now idle
-- 12 years since the situation was looking so bleak
Dutch economy to move into recession next year
The Dutch economy is set to shrink for the first time since the early 1980s next year, according to the latest prediction from the government's economic forecasting body CPB published on Monday. The CPB puts the decline at 0.75 percent in 2009 and says companies which depend on exports will bear the brunt of the downturn. In 2010, the economy will pick up again, with growth reaching 1 percent, the organisation says. "Nevertheless, the uncertainty surrounding the timing of the recovery remains great," the CPB said. "Financial crises tend to last longer than a dip in the economic cycle."
The figures are the first from the CPB to incorporate the effect of the credit crisis. In September, when the government presented its 2009 spending plans, the organisation said the economy would grow by 1.25 percent next year. The new figures also indicate that unemployment is set to rise to 6.5 percent, or by 200,000 people, by 2010. Currently, the official Dutch unemployment rate is around 2.6 percent, the lowest in Europe. But the CPB says that "lower commodity and energy prices will dampen inflation, which will benefit spending power." On average, spending power will rise 1.75 percent next year, with inflation falling to 1.5 percent.
The new CPB forecast also says that the government's budget deficit will reach 2.4 percent in 2010, due to lower tax and gas income and increased spending on social benefits. Nevertheless, it would be wrong for the government to start cutting costs. "These are unusual times. It would not be sensible to squeeze the economy even more," CPB chief Coen Teulings said. On Friday Dutch prime minister Jan Peter Balkenende admitted for the first time that the Netherlands was heading for recession.
UK: Company crashes set to hit record next year
Record numbers of companies will go bankrupt next year with 200,000 insolvencies in Europe alone and "an explosion" of failed businesses in the US, according to the world's largest credit insurer. The US will see 62,000 companies go bust next year, compared with 42,000 this year and 28,000 last year, says a report by Euler Hermes, part of German insurer Allianz.
The absolute numbers, however, pale in comparison with the figures from western Europe, where the larger number of small companies mean insolvencies are expected to rise by a third from 149,000 last year to 197,000 next. "The financial crisis will increase the risk of bankruptcy dramatically, particularly next year," said Romeo Grill, chief economist at Euler Hermes. "There will be an explosion in the US but also big rises in Europe and especially the UK."
Mr Grill said he expected most company failures in Europe to be focused around the struggling car, retail and textile sectors as well as logistics. The country with the highest number of insolvencies expected for next year is France with 63,000. But in Europe, Spain, Ireland and the UK are forecast to see the most dramatic rises. Nearly four times as many Spanish companies will go bust next year as in 2007 while it will be nearly double in Ireland and the UK with 640 and 38,000 businesses respectively.
Japan, the only Asian country in the survey, will also be hit with the number of bankruptcies rising from 14,000 last year to 17,000 next. All countries except Japan will see more insolvencies than in the previous downturn of 2001-02. The Euler Hermes report comes after Moody's, the ratings agency, forecast last month that defaults among companies with junk ratings below investment grade will rise from last year's 1 per cent to 10 per cent next year. But the Euler Hermes survey is more comprehensive as relatively few companies have any kind of credit rating.
Companies around the world have complained about getting credit. The volume of new loans arranged for companies globally has fallen off a cliff this year and deteriorated even faster during the past two months. Syndicated lending to investment-grade and junk-rated borrowers has roughly halved in both Europe and the US compared with last year but remained stable in Asia, according to data providers Dealogic. One difference in this downturn is that larger companies appear to be suffering as much as their smaller counterparts.
Tens of thousands of UK home owners could have their mortgage paid by banks
Tens of thousands of home owners could have their mortgage paid by banks if interest rates continue to fall unless their terms and conditions are changed, experts said. The bizarre situation - where banks actually end up paying customers for having a home loan – could emerge as a result of plunging interest rates, they explained. It affects borrowers with tracker mortgages, who have seen their monthly mortgage repayments shrink after the Bank of England cut interest rate by three percent in as many months.
The majority of borrowers with a tracker deal pay the bank rate, plus a percentage on top. But some deals available just over a year ago allowed borrowers to pay the bank rate minus a percentage. If the bank rate falls much further - and there are widespread predictions of a zero rate - these borrowers could be paying 'negative interest' on their mortgage. Peter O'Donovan, of independent financial advisers Bestinvest, said: "It is possible that we may be heading towards a very surreal situation where lenders may end up having to pay borrowers as they head into negative interest. "Borrowers on these products should certainly start looking at the small print in their offer letters to make the most of any opportunity that arises." The company said 40,000 to 50,000 may end up paying negative interest on their mortgage if interest rates continue to fall.
Ray Boulger, of mortgage brokers John Charcol, said: “I think they will have to pay borrowers if their bank rate falls far enough to mean that the pay rate is negative and lenders won’t have a leg to stand on unless they made it clear to borrowers before they signed up to the mortgage.” Eddie Goldsmith, of property law firm Goldsmith Williams, said the issue could end up in the courts. He said: “There are a lot of worried lenders at the moment as they would have never have anticipated this situation. “There’s no simple solution because it is not a black and white situation.” HBOS had previously offered a tracker, paying a rate of base rate minus 0.76 percentage points, through its specialist lending arm BM Solutions. If the Bank of England cut interest rates to 0.5 per cent, borrowers would - in theory - be paying negative interest of 0.26 per cent on their mortgage.
Lenders insisted, however, that interest would never actually be paid to customers for having a home loan. They said customers would not be liable to pay any interest for so long as the tracker rate is at or below 0 per cent - they would simply be required to repay capital or, in the case of interest-only mortgages, there would be no monthly payment. A spokesman for Lloyds TSB, which previously offered a tracker of 1.01 per cent below the bank rate through its brand Cheltenham & Gloucester, said: "The mortgage loan agreement and loan conditions clearly refer to interest being charged or payable by the customer.
"Similarly, where a savings account interest rate tracks below the base rate, we could never reasonably suggest that the customer pays us interest where the rate falls below per cent." Interest rates are widely predicted to fall below 1 per cent next year. Ed Stansfied, an economist at Global Economics: "It is looking increasingly likely that they will go below 1 per cent. And in the next few years, people should be thinking of the bigger picture and thinking of interest rates at - or very near to - 0 per cent." Lenders introduced so-called collars on trackers mortgages to limits how far rates can fall. Not all lenders apply these interest rate floors and those that do apply different levels - for example, Abbey has a collar of just 0.001 per cent.
An Abbey spokesman said: "This is a nominal amount to make sure that customers do not go into negative interest, otherwise we would be paying them interest on their mortgage, which would in effect be savings." With interest rates falling, borrowers may be tempted to switch to a better deal. But early redemption penalties and arrangement fees may not make it worthwhile and expert warned borrowers to do the calculations carefully before switching deals. A spokesman for HBOS said: "The amount of interest for tracker mortgages and other products is calculated in accordance with the terms and conditions. "Since interest is by definition a payment by the borrower to the lender for money lent to him, interest can range from zero upwards. Consequently, should the rate of interest payable reach zero percent, it cannot go any lower and for the period of time when the rate is zero percent, the loan is interest-free."
Banks angry at Gordon Brown's call for retail rate cut
Gordon Brown faces a showdown with banks this week after they accused him of deliberately distorting the arguments over interest rates. The Prime Minister insisted on Friday that the big high street lenders follow the 1 percentage point base rate cut announced by the Bank of England on Thursday. But his comments have angered the leading banks, which have authorised a public assault on the Prime Minister, in spite of the £600 billion lifeline to the industry by Mr Brown in October.
The head of the British Bankers' Association (BBA) will tell the Government today that it is ignoring the plight of hard-pressed banks and giving borrowers false expectations of cheap loans. In a direct challenge to Mr Brown, Angela Knight, the BBA's chief executive, said: "Many who call on banks to 'pass it on' are unaware of these issues; others, for various reasons, choose to ignore them."
The banks say that they cannot pass on the full cut because the cost of borrowing has not fallen on the wholesale money markets, where they borrow. Writing in the Sunday Telegraph, Ms Knight said that comments, such as those by Mr Brown, were of no help to borrowers: "It does nothing for savers, either, many of whom are retired and rely on their savings."
Ms Knight concluded her remarks with a direct appeal to the Government to stop laying the blame for expensive lending at banks' doors. "When it comes to the banks, it might be uncomfortable but we would do better to understand a little more before leaping to instant condemnation." Lord Mandelson, the Business Secretary, will hold talks today with the Small Business Finance Forum, which consists of the five leading banks, the BBA and the Federation of Small Businesses (FSB), to discuss business lending. Alistair Darling, the Chancellor, and Lord Mandelson will meet members of the lenders' panel tomorrow.
HSBC said yesterday that it would make £1 billion of extra funding available to Britain's small businesses and increase its planned UK mortgage fund to £15 billion in 2009, a 20 per cent increase on 2008. However, a spokesman for the FSB said: "While we welcome HSBC's move, we need to see it trickle down to branch level, where managers are consistently refusing credit." The FSB singled out Barclays for failing to produce measures to help small businesses since the start of the credit crisis.
It said that 30 per cent of small businesses had reported an increase in the cost of finance in the past two months and that almost 40 per cent of 5,000 members canvassed were thinking about closing down. Figures from Companies House released today show that company start-ups have plummeted also to their lowest level since the dotcom crash in 2001. Just over 23,800 companies were founded in November, a 34 per cent decline on two years ago.
Lord Mandelson warns: No blank cheque for UK plc
IN a stark warning to British industry Lord Mandelson, the business secretary, has said there is no "blank cheque" to rescue troubled firms. Mandelson said in an interview with The Sunday Times it was up to individual companies to sort out their own future if they ran into trouble: "Those that have invested and lent money to businesses have the first responsibility and self-interest in helping firms survive. "Businesses faced with trouble will need to look at restructuring, debt will need to be rescheduled and sometimes debt will need to be swapped for equity," he said.
And he warned: "We will not be supporting companies with flawed business plans and companies with no prospect of recovery. "It will need to be clear that the government is acting as lender of last resort. We are not going to step in when banks and other lenders are capable of doing it themselves." This will come as a blow to Britain's car industry which has already asked the government for help. Jaguar Land Rover, owned by the Indian conglomerate Tata, wants a £1 billion bailout and Vauxhall, owned by General Motors, is also asking for financial aid.
However, Mandelson has not closed the door completely on the car industry. He said that, faced with "potentially the worst economic situation for generations", there may be cases that justify an exception to the rule. Companies that fall into this bracket are those where the collapse would have a dramatic effect on an area in terms of unemployment and falling business confidence.
The other exception is businesses that specialise in areas that Britain will need if we are to become a "more broader-based knowledge-driven and low-carbon economy". Mandelson declined to identify to which sectors this would apply, but it is thought that businesses which focus on the creation of "green collar" jobs would be given a high priority. He said: "We will look at cases that are either so big and will have such a public impact or a business that has such potential and technological capability that we would want that company to survive in order to make a strong future contribution."
The responsibility for deciding whether companies fall into either bracket will fall to the shareholder executive. However, Mandelson stressed: "There is no open cheque-book but a series of tough tests." He said there was not a queue of companies outside his door. "I don't expect such a queue to form and one will not be welcomed. But it is known that firms in the automotive sector have had discussions with us," he said. "We have made it clear they need to look to alternative sources of lending before they can expect a response from the government."
Tomorrow Mandelson will meet senior bankers to see what they are doing to help small businesses that are in trouble. Separately, John Denham, the secretary of state for skills, is urging companies that are moving to short-time working to use the spare capacity to train their staff. He is calling on companies that are introducing shorter working weeks or planning to have periods of downtime to work with their local colleges and Learning and Skills Councils to develop training programmes which can help companies to survive the recession more effectively.
Black clouds hanging over UK services sector
The severity of the economic slowdown is underlined today by the sharply deteriorating outlook for the services and commercial property sec-tors. Job losses in the services industry are expected to accelerate after business slumped in the three months to November, a Confederation of British Industry (CBI) report shows. Consumer and business services companies were both hit hard by falls in volumes and profitability as customers reined in their spending.
Employment in services has so far weathered the economic slowdown better than other industries such as financial services. But with companies predicting faster falls in business and profitability, bigger job losses are on the way. The survey sees companies suffering the twin pressures of the credit crisis and the sharp economic slow-down. Business services such as law-yers and accountants are cutting back investment plans in anticipation of weakening demand, while consumer services said the cost of credit would limit capital expenditure.
Ian McCafferty, the CBI's chief economic adviser, said: "With consumers continuing to tighten their belts, companies operating in consumer services, such as leisure and personal care, are continuing to find trading conditions very challenging. The decline in volumes and profits in business and professional services is expected to accelerate over the months ahead.
"So far, job losses have been relatively small across the whole of the service sector, but with firms predicting faster falls in volumes, values and profitability in the next quarter, we can expect to see significant job losses in the coming months." The gloomy prognosis follows last week's slew of grim economic data, which prompted the Bank of England to slash interest rates to a 37-year low. Closely watched surveys of manufacturing, services and residential property showed the UK economy grinding to a halt.
The commercial property sector faces another two years of plunging capital values that will take the peak-to-trough fall to at least 50 per cent, outstripping the slumps of the 1970s and early 1990s, The Royal Institution of Chartered Surveyors (Rics) predicts. The biggest declines are expected in the office sector, where capital values are forecast to drop by a further 30-35 per cent, taking the total fall to more than 60 per cent. Office rents and values have already been hit hard by the crisis in financial services and with further big job losses forecast for the City and other financial centres, demand for space will be severely reduced.
Retail property will face similar pressures and further falls in values of up to 30 per cent. Woolworths and The Pier were forced into administration last week, with many more retailers expected to fold before the recession ends.
Manufacturing declines will be less steep, dropping up to 20 per cent over the next three years, helped by the weakening pound and a slow global recovery towards 2011, Rics said. Rents for commercial property are predicted to fall for a further three years, putting extra pressure on capital values. The investment market will also be hurt by a dearth of financing due to rising defaults and credit spreads. Rics senior economist Oliver Gilmartin said: "We are only half way through the price correction in the commercial property market, with values set to fall through 2009 and 2010 as rental declines gather pace. Transaction activity is set to rise, however, as more sellers become willing to accept lower bid prices."
The scale of the commercial property slump was highlighted last week when Metrovacesa, the Spanish real estate company, was forced to take a loss of more than £250m on its purchase of HSBC's Canary Wharf HQ. Metrovacesa was unable to refinance an £810m bridging loan from HSBC and sold the tower back to the bank for £838m after buying it last year for £1.09bn.
The grim outlook spells further bad news for banks such as HBOS, whose corporate banking arm built a big book of commercial property lending. Barclays was forced to cut its dividend in 1992 after the banks went on a lending binge to commercial property companies.
Producer prices tumble in November as inflation falls sharply
The prices UK manufacturers are paying for their raw materials and charging for their goods both fell back sharply in November, providing further evidence that inflationary pressures are rapidly easing. Input prices - those paid by manufacturers - fell by 3.3pc on the Producer Prices Index, compared with October, mainly as a result of much lower oil prices. The fall, which was the fifth monthly decline in a row, brought the year-on-year rise in input prices down to a 14-month low of 7.5pc in November, compared with 15.4pc in October and a peak of 34.1pc in June.
Similarly the prices charged to customers - output prices - fell by 0.7pc according to the latest PPI, marking the fourth successive monthly fall, again driven by an 8.3pc fall in the price of petroleum-related products and the lower cost of food. It brought the annual growth of output prices to an 11-month low of 5.1pc in November from 6.7pc in October and a record peak of 10pc in July. The November PPI is a further clear sign that inflationary pressures are easing in the UK, and will give the Bank of England's Monetary Policy Committee even more room to cut interest rates as a result. The bank rate is now 2pc, and economists expect the MPC to make another reduction at its next meeting in January.
Some economists, including Paul Dales at Capital Economics, believe that the PPI gives an indication that deflation is increasingly the threat facing the UK economy. "The further fall in UK producer prices in November provides more evidence that deflation is now becoming the greatest policy concern," he said. "Given that the manufacturing sector is facing its worst downturn since the early 1980s, core prices are likely to fall back in the coming months. Overall, these numbers support our view that the MPC needs to cut interest rates even further to stave off the threat of deflation." Oil climbed back above the $40 a barrel, rising $2.44 to $42.18 on suggestions that Saudi Arabia will make even bigger supply cuts to some of its Asian and European customers next month. The major oil supplier stepped up its efforts to halt the steep slide in prices.
Britain's economy overtaken by France
Britain's economy has been overtaken by France and could fall behind Italy's next year, according to leading economists. New figures show that the economic crisis has pushed Britain well down the international league table. The UK is now the sixth largest economy in the world, behind America, Japan, China, Germany and France. Economists said the fall reflected the pound's slump to record lows against the euro.
A year ago the UK economy was 8 per cent bigger than that of France, measured by gross domestic product (GDP). Now it is 14 per cent smaller, according to figures from the Centre for Economics and Business Research (CEBR). "An overvalued sterling has inflated the UK's claims to be among the top five world economies," said Ben Read, an economist with the CEBR. "The drastic reduction in sterling's value has accelerated the inevitable process of the UK falling down the league table of world economies, as India and Brazil catch up and overtake the UK's national output. "Where the UK's comparative output 'benefited' from sterling's rapid rise up to 2007, we now see the UK overtaken by France, despite both countries seeing a fairly similar economic performance over the past year."
At present Britain's GDP is 6 per cent bigger than that of Italy. But according to CEBR, it will drop below Italy's next year. Britain became a bigger economy than Italy in the final months of John Major's government in 1997 and two years later became a bigger economy than France, thanks to strong British growth and a high pound. For most of Tony Blair's time as prime minister, Britain's was the fourth largest economy in the world, before China overtook it in 2006.
UK office space set to halve in value
In the latest sign of the severity of the economic slump, the Royal Institution of Chartered Surveyors (RICS) warned that the scale of the commercial property slump now dwarfed any other in recent memory. It coincides with news of more disappointing high street sales and a warning from business lobby group the CBI that worse is to come for Britain's services sector, which is set to inflict "significant job losses" on the workforce.
The RICS said that the commercial property downturn will stretch into 2011 and will exceed the slump experienced in both the 1970 and 1990 recessions. Capital values have already tumbled 25pc since the start of the credit crisis in June last year and the surveyors' group predicted another 25pc fall, with at least 16pc next year and 10pc in 2010. In its latest examination of the sector, senior economist Oliver Gilmartin said: "We are only halfway through the price correction in the commercial property market, with values set to fall through 2009 and 2010 as rental declines gather pace."
The scale of the slump adds to concern within the City, since banks have provided billions of pounds worth of loans to commercial property groups, which are now in growing risk of widespread default. As a result, any recovery in the investment market over the next two years looks highly unlikely, RICS concluded.
However, the slump could prove an opportunity for foreign investors to buy up vast stretches of Britain's commercial property. Consultants say the weakness of sterling, attractive yields and the prospect of picking up "trophy" office blocks cheaply will bring them back into the market next year. Despite the slide in capital values and rents, commercial property yields in Britain are now among the highest in the developed world and are providing an additional magnet for foreign investors.
The RICS is forecasting the start of a gradual recovery in 2011 helped by low interest rates, a recovery in the world economy and improving valuations. As the property market slides, there is little respite elsewhere in the economy. The CBI warned that the services sector, which accounts for three-quarters of UK economic growth, is suffering its worst drop in activity since records began a decade ago and urged employees to prepare for a rush of redundancies in the coming months.
It said profitability for both consumer and business services were falling at unprecedented rates, as the general appetite for spending dries up. CBI chief economic adviser Ian McCafferty said: "So far, job losses have been relatively small across the whole of the services sector, but with firms predicting faster falls in volumes, values and profitability in the next quarter, we can expect to see significant job losses in the coming months." The British Retail Consortium is tomorrow expected to announce a sharp drop in high street sales in November. Staff and partners at Knight Frank, the commercial property consultancy and estate agent, shared more than £81m from a bonus and earnings pool last year.
But the partners face a substantial fall this year after a 40pc slump in business since the start of the new financial year in April. The 3,280 staff, up 28pc, benefited from a bonus pool of £46.4m on top of salaries in the year to April, while the earnings of 46 partners, at an average of £780,000, cost another £35.8m. Pre-tax profits slipped almost 7pc to £59.2m on turnover up 17pc to almost £334m. Nick Thomlinson, senior partner and chairman, is cautiously optimistic about the outlook and, despite the slide in business, expects the firm to be profitable.
Nuclear bunker hit by credit crunch
Auctioneers have knocked more than £40,000 off the asking price of a secure shelter underneath the Hampshire Downs despite its potential for a conversion into an eight-bedroom home. The 7,000 square feet nuclear bunker outside Twyford, near Winchester, was priced at more than £300,000 when it was first put up for sale in February, but bids are now being sought for between £240,000 and £260,000.
The facility, protected by 2ft thick concrete walls and six-inch deep steel doors, was decommissioned in 1997 and has been used as office space. Kevin Gilbert, of Clive Emson Auctioneers, said it could be converted into "a fantastic hobbit-style residence" but admitted the work would cost a lot of money. The property has water, electricity and a kitchen and a car park that could be turned into a garden. It is being sold at auction on 16 December.
OC: Read the next two articles together. The first is from AP; the second from the Chicago Tribune. The Tribune is considering filing for bankruptcy protection according to the Wall Street Journal but, really, the local rag can only think of half as many things to say as AP? Odd.
Obama: Workers staging sit-in 'absolutely right'
President-elect Barack Obama is weighing in on behalf of workers staging a sit-in on the factory floor of their former Chicago employer to protest abruptly losing their jobs last week. Obama told a news conference Sunday that Republic Windows and Doors should follow through on its commitments to the 200 workers, who say they won't leave the plant until they are assured they'll receive their severance and vacation pay.
"The workers who are asking for the benefits and payments that they have earned, I think they're absolutely right and understand that what's happening to them is reflective of what's happening across this economy," Obama said. Illinois Attorney General Lisa Madigan also said her office was investigating the company, which has not commented on the sit-in. To their amazement, the workers have become a national symbol for thousands of employees laid off nationwide as the economy continues to sour. "We never expected this," said Melvin Maclin, a factory employee and vice president of the local union that represents the workers. "We expected to go to jail."
The Rev. Jesse Jackson delivered turkeys, pledging the support of his Chicago-based civil rights group, Rainbow/PUSH Coalition. "These workers deserve their wages, deserve fair notice, deserve health security," Jackson said. "This may be the beginning of long struggle of worker resistance finally." Leah Fried, an organizer for the United Electrical Workers union that represents the workers, said the company told the union that Bank of America has canceled its financing. The bank had said in a statement that it wasn't responsible for Republic's financial obligations to its employees.
One of the factory's workers, Silvia Mazon, said in Spanish that she needs the money owed to her for an $1,800 monthly house payment. The 40-year-old from Cicero said she has enough money saved to survive for one month. "We're making history," she said. Rep. Jan Schakowsky, an Illinois Democrat, called it the start of a movement. "This story has resonated around the world," she said.
Plant sit-in in 4th day; meeting scheduled
A meeting is scheduled this afternoon between bank officials and a workers union for the former Republic Windows and Doors, officials said. The 200 workers have been staging a sit-in on the factory floor of their former Chicago employer since Friday to protest abruptly losing their jobs. The workers are demanding severance and vacation pay. They have attracted media attention and become a national symbol for thousands of employees laid off nationwide as the economy continues to sour. Illinois Atty. Gen. Lisa Madigan says her office is investigating the company.
President-elect Barack Obama told a news conference Sunday that the company should follow through on its commitments to the workers. Leaders say they've been trying to get Republic's creditor, the Bank of America, to reinstate the company's line of credit and save hundreds of jobs. The bank has said it isn't responsible for Republic's financial obligations to its employees.
Dow Chemical to Cut 5, 000 Jobs and Close 20 Plants
Dow Chemical Co. said Monday it will slash 5,000 full-time jobs -- about 11 percent of its total work force -- close 20 plants and sell several businesses to reign in costs amid the economic recession. The company, one of the largest chemical makers in the world, expects the moves to save about $700 million per year by 2010. Dow also will temporarily idle 180 plants and prune 6,000 contractors from its payroll.
''We are accelerating the implementation of these measures as the current world economy has deteriorated sharply, and we must adjust ourselves to the severity of this downturn,'' Chief Executive and Chairman Andrew N. Liveris said in a statement. The Midland, Mich.-based company expects ''the new Dow'' to be comprised of three units: joint ventures; performance products; and health and agriculture, advanced materials and other market-facing businesses.
The reorganization comes just days after the company closed on its K-Dow Petrochemicals joint venture with a company controlled by the Kuwait government. Dow is slated to close on its $15.3 billion buyout of Rohm & Haas Co. early next year, a deal it hopes will help it grow into the high-margin specialty chemicals market. The company expects that deal to results in about $800 million in savings over time.
Last week Dow rival DuPont said it would cut 2,500 jobs and warned it won't turn a profit in the fourth quarter due to a slowdown in the automotive and construction markets. Shares of Dow Chemical jumped 75 cents, or 4 percent, to $19.75 in premarket trading, having closed Friday at $19. The stock is still worth less than half of its 52-week high of $45.50, set nearly a year ago.
Investors turn the screw on buy-out groups
Some of the world's biggest buy-out groups are coming under pressure from cash-strapped investors to reduce their commitments after Permira's unprecedented offer to let its backers off the hook for €1.5bn. Those most at risk are funds with poor records, such as Apollo Global Management, which owns companies that have faced or are facing Chapter 11 bankruptcy filings, or Terra Firma, which is struggling to turn round the EMI music group. Permira hopes fund move will appease investors.
While banks are being forced to cut back on their use of debt and hedge funds are seeing a rush of requests for their money, private equity bosses have long boasted they have money locked up for a decade. But now investors are turning the screw to discuss renegotiating the terms of these previously rock solid commitments. Buy-out groups that have only recently raised huge new funds or just started to invest, such as TPG Capital in the US and CVC in the UK, could also face pressure from investors.
"When you are told to get out of town, it's better to pretend you are leading a parade," says the co-founder of one leading US private equity firm. "We are preparing for the notion that large [investors] will band together to make demands."
But today many investors in private equity funds are considering something akin to a buyer's strike. While most pension funds – the bulk of the money for private equity – say they have no trouble meeting calls for money, endowments and foundations have been hit by losses and some may no longer be able to afford to write cheques they promised. "If the S&P drops to say 600, everyone's life will become more difficult," says the head of investor relations at another large private equity firm. "Everyone is on edge out there."
Permira was the first to make concessions partly because it had one very large, cash-strapped investor – a fairly unique factor. But at the same time, many of the companies it owns in its Permira IV fund are in trouble – and Permira is hardly unique in that. Now that private equity firms have to carry the companies they own on their books at market value rather than at cost, investors are holding their breath to see how drastically they have been marked down at year end. If those writedowns on the value of the companies are significant investors may become more aggressive in seeking to cut their promised commitments.
M&A to Decline 30% in 2009 as Government-Forced Deals Dominate
Forced sales demanded by creditors and government-brokered transactions may provide the only consolation for bankers in what promises to be the slowest year for mergers and acquisitions since 2004. Bankers at Barclays Capital and Nomura Holdings Inc. say the value of deals may decline 30 percent in 2009 to about $2 trillion. Takeovers so far this year are down 36 percent from the same period in 2007, reducing the fees paid to banks by 34 percent to an estimated $63 billion, according to data compiled by Bloomberg and New York-based research firm Freeman & Co.
“These are the worst conditions for many years, as bad as or worse than the early 1990s, perhaps as bad as the mid-1970s,” said Philip Keevil, 62, senior partner in London at Compass Advisers LLP and former head of European mergers at Salomon Smith Barney Inc. “There will be a flood of strategic deals in the new year out of necessity, including government-forced mergers among banks and insurance companies.”
More than a third of the 20 biggest acquisitions announced in the fourth quarter were government-induced, Bloomberg data show. The Dutch government took control of Fortis’s assets in the Netherlands after Belgium’s largest financial-services company ran out of short-term funding in October. Paris-based BNP Paribas SA, France’s biggest bank, acquired units from Brussels-based Fortis in Belgium and Luxembourg. The Kremlin is pushing for banks to merge, including the possible combination of MDM Bank and Ursa Bank to form Russia’s second-largest private lender.
“Governments will be acting as arbitrators and twisting people’s elbows if necessary,” said Frederick Lane, 59, a former co-head of mergers at Donaldson, Lufkin & Jenrette who now runs Boston-based Lane Berry & Co. American International Group Inc., the New York-based insurer controlled by the U.S. government, is under pressure to sell about $60 billion of assets. New York-based Citigroup Inc., which has received $45 billion in federal cash, plans to find a buyer for its Japanese trust-banking unit. And Royal Bank of Scotland Group Plc, 58 percent-owned by the U.K. government, may shed its insurance operations and a stake in Bank of China Ltd.
“In Europe, any major consolidation is likely to come from government-sponsored rescues,” analysts led by Stefan Slowinski at Paris-based Societe Generale SA wrote in a note to clients last week. “Banks that can think about expanding outside of government rescues will do so on a piecemeal basis.” The Societe Generale analysts offered an even gloomier forecast than the ones from London-based Barclays and Nomura in Tokyo: They say completed deals next year may drop to 4,000 from 8,000 this year, the lowest level since 1995.
A combination of declining revenue and rising borrowing costs may drive companies to shed assets at low prices. Buyers are picking over the remains of Circuit City Stores Inc., the second-largest electronics retailer in the U.S., and century-old London-based Woolworths Group Plc after both collapsed in November. Three U.S. automakers seeking $34 billion in federal funds also may have to sell units.
The collapse of New York-based securities firm Lehman Brothers Holdings Inc., which in September filed the largest bankruptcy in U.S. history, raised corporate borrowing costs to the highest level since at least 1999, according to indexes compiled by Merrill Lynch & Co. That has limited the appetite of companies for mergers and acquisitions and jeopardized the ability of some to repay debt maturing next year. Borrowing has never been so expensive for U.S. companies with non-investment-grade ratings -- below Baa3 at Moody’s Investors Service and BBB- at Standard & Poor’s -- Merrill indexes show.
Bond buyers increased the extra yield they charge non- investment-grade companies to 2,054 basis points, or 20.5 percent more than government debt last week, the highest level since Merrill started collating daily data almost a decade ago. Investment-grade companies are paying a record 655 points more than similar-maturing government debt, the indexes show. A basis point is one-hundredth of a percentage point.
“In this environment, it isn’t unusual to see an otherwise strong company be crippled by both a downturn in its business, and a liquidity crisis,” said Paul Parker, the New York-based head of M&A at Barclays Capital, which bought Lehman’s North American investment-banking unit in September. “Default rates will continue to rise over the foreseeable future and will lead to meaningful restructuring of many companies.” That may provide an opportunity for leveraged buyout firms. Blackstone Group LP and Apollo Management LP, both based in New York, are among the companies investing in distressed debt.
“Everyone is turning to distress and proffering that it may be one of the best opportunities,” said Thomas Barrack, founder of Los Angeles-based investment firm Colony Capital LLC. “The problem is that everyone who has invested on that basis during the past 12 months has been wrong.” Prices for high-risk, high-yield loans in the U.S. dropped to 67 cents on the dollar in December from about 90 cents in April, when firms including Apollo and Blackstone negotiated to buy more than $12 billion of debt from Citigroup, the fifth- biggest U.S. bank by market value, and Deutsche Bank AG, Germany’s largest bank, according to New York-based Standard & Poor’s.
As many as 135 companies were in danger of breaching targets set by their banks as recently as October, S&P reported. With newspaper and TV advertising revenue declining, Sam Zell’s Tribune Corp. may not garner enough cash from asset sales to avoid violating loan covenants, S&P said last month. Appetite for the large takeovers that fueled the boom of the past two years has vanished. Australia’s BHP Billiton Ltd., the world’s biggest mining company, abandoned its $66 billion offer for London-based Rio Tinto Group on Nov. 25, and BCE Inc., Canada’s largest phone company, said on Nov. 26 that the economic slump may stop its $42 billion takeover from closing.
“You are less likely to see deal sizes beyond the $20 billion mark in 2009,” said Larry Slaughter, the London-based co-head of European M&A at JPMorgan Chase & Co., the biggest U.S. bank by market value. “The balance-sheet capacity of the banking system will make it tough to finance much bigger” transactions, he said. That may help drive smaller deals, as robust companies buy competitors weakened by the tight credit markets. “Every sector will have a handful of acquisitive companies that can take advantage of relatively strong equity and credit positions,” said Michael Boublik, co-head of Americas M&A at New York-based Morgan Stanley, the fifth-ranked mergers adviser in the U.S. this year.
Chinese and Japanese companies may be the most active buyers in 2009, bankers said. Japanese companies will use their cash and take advantage of the strong yen to make purchases abroad. Tokyo- based Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, invested $9 billion in Morgan Stanley, the largest outlay made by a Japanese company outside the country this year, according to Bloomberg data. “Japan is likely to continue to feature highly in outbound M&A, as it benefits from a lower cost of borrowing and a stronger yen, while China remains a key draw for investors and a source of outbound M&A,” said Richard Griffiths, Hong Kong-based managing director at Royal Bank of Scotland’s M&A unit.
As the collapse of the subprime mortgage market roiled Wall Street, it has also moved the rankings of advisers on takeovers. JPMorgan, which purchased Bear Stearns & Cos. in a government- brokered takeover, climbed from fourth place last year to second this year behind New York-based Goldman Sachs Group Inc., the world’s No. 1 M&A adviser since 2000. “We are bullish about our ability to pick up market share,” said Hernan Cristerna, London-based co-head of European mergers and acquisitions at JPMorgan. “We are hoping to continue to outperform the market.”
BCE Lenders May Sidestep C$10 Billion in Losses If Buyout Fails
The takeover of BCE Inc., Canada’s biggest phone company, may collapse this week, averting at least C$10 billion ($7.9 billion) in losses for banks led by Citigroup Inc. and Deutsche Bank AG once eager to finance the deal. The C$52 billion purchase by Ontario Teachers’ Pension Plan and a group of U.S. private-equity firms hit a roadblock last month when auditors at KPMG LLC said it probably would leave the Montreal-based parent of Bell Canada insolvent. It’s been in jeopardy for months because with debt markets frozen, the lenders would have trouble selling C$34 billion in bonds and loans needed by the buyers to pay for BCE.
The company’s executives are seeking to persuade KPMG to change its opinion so the leveraged buyout, which values BCE at almost twice its current market price, can close as scheduled by Dec. 11. The banks, weakened by a combined $95 billion in credit losses and writedowns since last year, may prefer the accountants to hold firm. That outcome would also give the buyers the option to walk away or renegotiate terms that reflect the financial market meltdown and global recession.
“If the deal dies, BCE will be upset the most,” said Elizabeth Nowicki, a law professor at Tulane University in New Orleans who specializes in mergers and acquisitions. “The banks will be spared big losses, and no sponsor wants to do a deal for which they can’t even get a solvency opinion.” That’s a reversal from June 2007, when BCE executives had to be coaxed into going private by Ontario Teachers’, Canada’s third-largest pension-fund manager, and co-investors Providence Equity Partners Inc., Madison Dearborn Partners LLC and Merrill Lynch & Co. Banks lined up to provide financing for the offer, which valued BCE at C$42.75 a share.
The offer is 47 percent more than the current market price, leaving at least C$16 billion hanging in the balance for the company’s shareholders. “We continue to work closely with KPMG and the purchasers to seek to satisfy all the closing conditions,” Mark Langton, a BCE spokesman, said yesterday. Representatives for the buyers and banks declined to comment or couldn’t immediately be reached.
Last week, some of the buyers floated an alternative to the LBO. They approached BCE and the lenders with a plan to purchase C$8 billion to C$10 billion in preferred securities for about a 20 percent stake, people familiar with the plan said last week. The banks balked at arranging the C$7 billion to C$8 billion in investment-grade debt to fund the fallback transaction, the people said. That decision leaves the buyout in limbo with three days until the deadline. BCE said it never received a new offer.
Leveraged loans, which are usually used to finance an LBO, are trading at an average of about 70 cents on the dollar, according to Standard & Poor’s. High-yield bonds, also an LBO staple, are trading at 58 cents. While the details of the financing package haven’t been disclosed, using the highest of those market prices would mean the banks would have to write down at least 30 percent of the C$34 billion of debt used to purchase all of BCE.
Citigroup, based in New York, has committed to provide about 40 percent of the debt, while Frankfurt-based Deutsche Bank is responsible for about 28 percent, according to two people familiar with the matter. Royal Bank of Scotland Group PLC of Edinburgh and Canada’s Toronto-Dominion Bank agreed to cover 22 percent and 10 percent. “Syndicating that deal would be really tough and the arrangers would likely hold a lot of paper,” said Steven Miller, a managing director at Standard & Poor’s in New York. “If they had to sell, it’s unclear where the deal would clear.”
The BCE transaction, which would be the second-largest LBO on record, is the last vestige of a boom that saw $1.47 trillion in deals announced from 2006 through June 2007, according to data compiled by Bloomberg. The credit crisis, coupled with contracting economies worldwide, contributed to more than $55 billion of LBOs falling through since August 2007. Among those were the purchases of SLM Corp., the student lender known as Sallie Mae, by investors led by J.C. Flowers & Co., and of credit-card processor Alliance Data Systems Corp. by Blackstone Group LP.
Other transactions were salvaged when the private-equity firms agreed to take minority stakes in lieu of completing LBOs. Earlier this year, Fortress Investment Group LLC and Centerbridge Partners LP scrapped their $6.1 billion takeover of racetrack and casino owner Penn National Gaming Inc. and instead paid the company $225 million and bought $1.25 billion in preferred shares.
Other private-equity firms have sought to get out of deals as the economic picture worsens, including Apollo Global Management LLC, which used a solvency opinion to seek cancellation of its acquisition of Huntsman Corp. If BCE can’t complete the takeover, the next step is unclear. The company’s shares traded as low as C$32.30 in October. The stock plunged 34 percent to C$25.25 on Nov. 26, the day BCE said KPMG had issued its preliminary solvency opinion. They closed C$22.85 on Dec. 5 in Toronto.
“BCE and its shareholders are the big losers,” Nowicki said.
Housing starts fall almost 19%
Housing starts in Canada fell almost 19 per cent in November from October, driven by a sharp decline in condominium construction, Canada Mortgage and Housing Corp. reported Monday. The statistics reflect the "new reality" in the home-building market, CMHC's chief economist Bob Dugan said in releasing the report. The seasonally adjusted annual rate of housing starts was 172,000 units in November, down from 211,000 units in October.
Bank economists said the decline was far steeper than had been expected, with the biggest drop on condominium starts, "which fell a whopping 29.1 per cent month over month," Toronto-Dominion Bank economist Charmaine Buskas said in a note to clients. "This report coincides with our expectation that the Canadian housing market is unwinding," Ms. Buskas said. Still, Ms. Buskas said, while the pace of the decline in November might seem quite steep, "it should not be confused with any of the dynamics in the U.S. housing market.
"Instead, the expectation going forward is for an orderly correction in Canadian housing activity consistent with the business cycle," she added. Mr. Dugan said the number of housing starts in November was "consistent with our forecast, which calls for more moderate activity of 212,000 units this year, and 178,000 units next year." Pent-up demand has been satisfied, particularly in the condominium sector, he said. Overall, housing starts in urban areas moderated in all regions of the country, with British Columbia and Ontario particularly hard hit.
Urban starts in November declined to 17,900 units in British Columbia, from 27,900 in October. In Ontario, urban starts fell to 54,700 units from 78,900 in October. Urban starts in Prairie centres moderated to 23,500 from 26,900 and, in Quebec, urban housing starts slipped to 41,100 from 41,300 in October. "Note that at the beginning of the new millennium, Canada posted strong housing start levels given a pent-up demand that existed then," Mr. Dugan said. "Over the last few years, this excess demand gradually decreased, and our forecast for 2008 and 2009 reflects this new reality, with housing starts more aligned with long-run demographic demand," Mr. Dugan said.
Mr. Buskas said the dip in November housing starts could be partly attributed to poor weather, "but the primary driver, of course, is retrenchment in demand… "There was a surprising resilience in housing activity earlier in the year, and so housing starts maintained some firmness earlier on. However, on a year-to-date basis, housing starts in urban areas have decreased by 3.9 per cent as compared to the same period in 2007," Ms. Buskas noted.
Merkel Backpedals on Climate
German Chancellor Angela Merkel has long been on the front lines in the battle against climate change. But with the economy in a downturn, she may be changing her tune. It used to be that when environmentalists looked to Berlin, they saw one of their closest allies in the fight against climate change. For much of the last three years, Chancellor Angela Merkel has made the fight to reduce global CO2 emissions a signature issue of her government. On Monday, though, Merkel finds herself under fire from many of her former allies. In a Monday article in the mass-circulation tabloid Bild, Merkel said that she will not approve any European Union climate rules "that endanger jobs or investments in Germany."
The Green Party in Berlin, which has for years had to stand by and watch as Merkel appropriated one of its central issues, was quick to react. "Merkel has abdicated her position as climate chancellor," said Bärbel Höhn, acting floor leader for the Greens in parliament. "The fact that the chancellor is trying to play the issue of jobs off against the environment shows her economic ignorance and her amnesia when it comes to climate issues." The environmental and development group Oxfam echoed the sentiment, saying that "with her behavior, Ms. Merkel has demonstrated to developing countries that protecting climate-harming industries in Germany is more important than preventing a global climate catastrophe."
Merkel's comments come ahead of the European Union summit in Brussels this Thursday and Friday. In addition to the financial crisis, heads of state and government from the 27 member states will be looking to approve the bloc's much-touted package of rules aimed at reducing CO2 emissions. The package aims to reduce overall bloc emissions by 20 percent by 2020 relative to 1990 levels. Part of that package was a rule to require all new cars to emit just 130 grams of CO2 per kilometer travel, averaged over a manufacturer's entire fleet. In an agreement reached last week, the original deadline of 2012 was staggered and will now come into full effect in 2015. Fines on companies not meeting the target were also lowered.
Apart from the auto industry, however, there are a number of other sticking points, with numerous EU countries trying to secure exceptions for their domestic industries. Poland's efforts to be granted concessions due to its heavily coal-reliant energy sector have received the most press. But Merkel too is looking for exceptions for Germany's steel, chemical and cement factories. German Economics Minister Michael Glos, in Brussels for a meeting of EU ministers on the bloc's energy policy, echoed Merkel's pre-summit comments on Monday. "It is incredibly important that competitiveness of German industry not be endangered by the climate package," he said.
It wasn't just environmental groups who were critical of Merkel on Monday. Former German Environment Minister Klaus Töpfer, of Merkel's own Christian Democrats, told the Cologne daily Kölner Stadt-Anzeiger on Monday that "climate policy cannot be treated as disposable when it comes to proposals regarding economic stimulus. Doing so is acting irresponsibly from both an economic and environmental perspective. Only those who are ahead environmentally can create the jobs of the future. Climate friendly production is the solution to the crisis, not the cause."
In her interview with Bild, Merkel also said that she is planning a meeting for next Sunday in the Berlin chancellery to discuss possible further steps to combat the financial and economic crises. In addition to Foreign Minister Frank-Walter Steinmeier, Finance Minister Peer Steinbrück, Labor Minister Olaf Schulz and Economics Minister Glos, a number of representatives from the banking industry will likewise be invited as will economics experts. Merkel has been heavily criticized for what many see as a hesitant reaction to the worsening economy in Germany and the rest of Europe. Seemingly in answer to such criticism, the chancellor told Bild: "The point of the meeting next Sunday is a collective analysis to obtain the most clarity possible about the economic developments we can expect in 2009. I will continue to keep all options open. But I am not a fan of daily speculation about new possibilities."
China offers $10B to help Brazil offshore oil
Brazil's top energy official says China wants to provide $10 billion to help develop massive new oil fields in deep water off the coast of Rio de Janeiro. Mines and Energy Minister Edison Lobao told the Folha de S. Paulo newspaper China will offer the financing to Brazil's state oil company, Petroleo Brasileiro SA (PBR).
Lobao says the United Arab Emirates also has offered to develop fields. He says Brazil is ready to tap its foreign reserves of $207 billion for exploration if needed. A ministry spokesman has confirmed Lobao's comments, which were published Monday. Petrobras made the discoveries of between 50 billion and 70 billion barrels over the past year.
North Sea oil firm up for sale
OILEXCO, the ailing North Sea oil producer, has been put up for sale just two weeks after it was forced to scrap a disastrous effort to raise fresh capital. Morgan Stanley has opened a data room for prospective bidders and has already received interest from larger rivals BG Group, Talisman Energy and Petro-Canada. Maersk, the Danish shipping giant, is also mulling a bid.
Oilexco hired Morgan Stanley last month to help it find sources of funding. This came after it cancelled a $180m (£123m) bond and share issue the day after publishing a prospectus because it was poorly received by investors. The decision to look for a buyer is a stunning reversal for a group that was once a darling of the sector. This summer Oilexco was worth more than $2.5 billion. The company has since lost more than 90% of its value as attempts to refinance debt with a syndicate of banks led by Royal Bank of Scotland have faltered. RBS agreed a 10-month repayment extension for £70m of a £100m loan due next month, but talks are continuing on the remaining £30m.
Morgan Stanley is running the sale alongside efforts to find fresh finance, possibly in the form of mezzanine debt and alternative sources of capital. Oilexco has been caught out by a dwindling cash pile, a large cost base and a heavy reliance on the capital markets to fund an aggressive drilling programme. It needs to make nearly $600m in debt and rig-contract payments in the next year alone, according to company filings. The oil price, meanwhile, continues to plumb new lows, hitting $39.57 last Friday.
Sources expect it to be forced into a sale or the disposal of prize assets like the Huntington field, one of the most significant North Sea discoveries in recent years. "If you want to look at a case study for the impact of the credit crunch on independent oil companies, this is it," said a banker. "This is a mighty fall from grace. It calls into question the fundamental model of [exploration and production] companies and shows the fragility of these businesses."
The activity around Oilexco is part of a long-predicted wave of deals in the sector that is beginning to materialise. China's state-owned chemical company is nearing a deal to buy most of the assets of London-listed Soco International in a deal worth up to £900m. Sinochem, which made an approach to Soco in October, has lined up financing from BNP Paribas to support a possible deal. Although advisers have discussed a takeover of the whole company, the Chinese giant's main interest lies in the firm's Vietnamese acreage, where it has 500m barrels of recoverable reserves. Meanwhile, British fund manager Ashmore Group has paid $524m for a 40% stake in the Philippines' largest oil refiner, Petron.
Crude's collapse oiled the Bank's wheels
Another week, another point off Bank rate, coupled with a 0.75 point cut by the European Central Bank. The dive in official interest rates towards zero is an extraordinary facet of an extraordinary time. After a cascade of bad news, notably very weak purchasing managers' surveys for manufacturing, construction and services, the Bank had no option but to go for another cut that only a few weeks ago would have been regarded as unthinkable.
Activity is sliding fast everywhere, and certainly in all advanced economies. The OECD reckons the fourth quarter will see the biggest gross-domestic-product declines in this recession (Britain contracted by 0.5% in the third) and it feels that way. Much depends on when policy actions, including aggressive rate cuts, start to have an impact.
Members of the Bank's monetary policy committee (MPC), having taken these dramatic steps, are feeling a bit misunderstood. They think people do not appreciate the pressures they were under until recently to balance rising inflation - and people's heightened expectations of future inflation - and recession.
And, while I would have liked to see them cut aggressively much sooner, they have a point. In August, before the near-meltdown in the global banking system that started with Lehman Brothers' bankruptcy in mid-September, only two forecasters out of 44 monitored by the Treasury were predicting outright recession in 2009. They were Standard Chartered and Peter Warburton's Economic Perspectives.
The consensus among forecasters was that Bank rate would remain at 5% until the end of the year, falling only gradually to 4.25% by the end of 2009. Inflation would remain above the 2% target throughout. Things have changed, and they have changed dramatically. We know about the damage this most deadly phase of the financial crisis has inflicted on growth and confidence. It has also transformed inflation prospects, and one useful measure of this is the oil price. In August, economists expected the price to average $115 a barrel in 2009.
It had come down from its July record of $147 but most did not expect it to come down much more. Last week Brent crude dropped below $40, a figure that seems strangely familiar. The oil price and I go back a long way. Having repeatedly said the price rise was a spike, significantly driven by speculation, I found myself at odds with many apparent experts and many readers.
T Boone Pickens, the legendary US energy investor, said oil would never again go below $100 a barrel and his view was echoed by many lesser lights. Some journalists went out of their way to deny a speculative element in the spike, even as some investment banks continued to pump up the oil story and funds poured into commodity-index futures. Arjun Murti, Goldman Sachs's energy strategist, said the price could reach $200 in the second half of this year and plenty of rival banks pushed the rising oil story. Jeff Rubin, chief economist at CIBC World Markets, was also a $200 man.
Peak-oil enthusiasts explained every price rise as further evidence that global production had reached its maximum. Weekly rags spouted "sell your house, buy commodities" nonsense. I hope nobody did. The more the financial crisis dragged on, at least until the September-October tumult, the more oil bulls became certain the price of crude would continue to rise. That seemed illogical to me. Even before the latest banking troubles the world economy was heading into a period of slower growth and restricted oil demand.
That did not stop the vested interests, like Chakib Khelil, the Opec president, who predicted a rise to $170 this year, or Alexei Miller, chief executive of Gazprom, who summoned journalists to an awayday in Deauville to say the price would hit $250 "in the foreseeable future". We have to be thankful they were wrong, though not before such views, in helping to drive the oil price higher, did a lot of damage. The scale of the market turbulence and intense banking strains of recent weeks took everybody by surprise and hastened the fall in the oil price because some investors were forced to unwind their speculative positions. But its main effect was to bring forward the inevitable.
In the short term, then, this is unalloyed good news. The full-year effect of a sustained oil drop from nearly $150 to $40 a barrel is, according to Mark Cliffe, global head of financial-market research at ING, a $2,700 billion transfer from producing to consuming countries. This is a tax cut much bigger than the one western governments are implementing.
More directly, the oil fall has liberated the Bank, and other central banks, in spectacular fashion. The mainstream view now is that retail-price inflation will go negative during 2009 and consumer-price inflation will skate close to zero. Will it go below zero and, in a recessionary environment, usher in a long and potentially devastating period of deflation – a falling price level? The danger of that is not that people delay purchases in anticipation of further price falls; that is an everyday story on the high street. It is that debt, already at high levels, becomes even more burdensome by rising in real terms.
The Treasury, which sees consumer-price inflation falling to 0.5% by the end of next year, thinks it will then bounce. "Inflation is forecast to move a little above the 2% target following the reversal of the Vat cut and as the lagged effects of sterling depreciation on import prices continue to feed through," it said in the prebudget report.
Part of the path of inflation, however, is dependent on oil. After previous recessions the oil hangover was long. In the mid1980s and 1998 the price touched $10 a barrel as demand took time to recover.
The medium-term supply-demand balance for oil should be tight enough to avoid that happening again and, indeed, it would not be a good thing if it did. Already weak oil prices and funding shortages are scaling back exploration and development. The appropriate price of oil is one that encourages marginal fields to be brought on stream. If it falls too far below present levels, says the International Energy Agency, we will be storing up supply problems for the future by discouraging development.
The fall in the oil price is a good thing. Like many good things, however, you can have too much of it.
PS: As a paid-up member of what George Magnus calls the "boomerangst" generation - baby-boomers worried about their retirement - I have been reading his book, The Age of Aging with interest. The golden age of retirement, which in Britain probably meant people retiring on good company pensions in the 1990s, is over, at least in the private sector. Boomers retiring now, after the stock-market carnage of the past 12 months, are particularly badly hit.
According to Magnus, UBS's senior economic adviser, defined-contribution plans in Britain have lost between 30% and 40% of their value in the past year, while those in the US have fallen by about $2 trillion. We will all, it seems, have to work longer. That's easy to think about when the job market is strong. In a recession the opposite is likely to occur.
After the triumph of Obama, Europe needs to abolish Nato
Europe has to give up its feudal status towards the US, acknowledge that Afghanistan is a lost cause and exchange Nato for a Euro-Asian security union. Europe must take advantage of the election of Barack Obama to no longer let its place in the world depend on decisions in Washington, DC. Emancipation of Europe is badly needed. The urgent cases that the American president probably wants to tackle, are now not under control. If Europe passes by on new chances, it will almost certainly get drawn into global developments that serve no one, except weapon producers. Aside from a small group of addicted atlantics, Europeans to the west of the Polish and Czech border do not share American enemy fantasies.
In the past years, Americans have shown little sense of reality in determining their self interest. America has a great need of artificial enemies. To be able to be elected, Obama had no chance but to present himself as a potentially powerful commander in chief and that implied that he had to go along in the generally accepted vision that the US is under attack from many sides and needs to wage a pretended war against terrorism. This last thing is, without an enemy that can surrender, immediately a farce and a fatal lie that has enabled abuse of power by the Bush government. The political exploitation of fear by the Bush government has brought us Europeans uncertainties, tensions and unnecessary wars in Iraq and Afghanistan, in which torture and violation of various international treaties is seen as collateral. Europeans who had never expected this from their strongest ally from the Cold War, therefore felt a great sense of relief with the election of Obama. But that sense of relief comes too early. It is still a guess what Obama really thinks of the supposedly enemy world, even though his apparent particular intelligence and common sense give hope.
But even when he understands that for example continuing to fight against the Taliban can only lead to more and bigger misery; that a radical end to further provocation and alienation of Russia is needed, and the promotion of a neo-cold-war atmosphere; that Chavez of Venezuela is not a dictator and does not have to be an enemy; that Pakistan needs to be dealt with with great caution; that colossal size, an enormous competition potential and 'undemocratic' governing are no reasons to see China already as an inevitable future enemy; that the policy of Israel in the Gaza strip is unendurable; that the large-scale loss of American influence in the world is in the first place the result of abolishing diplomacy by Washington for eight years. Even if he understands all these things well, and wants to correct as much as possible, even then he faces much more than Republican opponents: an own politically corrupt party, an own country that is doing horribly bad by eight years of mismanagement, and a primarily dumb media world that he will need to convince.
What Obama nor anyone else controls, is the unpleasant fact that the US seems to be unable to live without enemies out of psychological and institutional reasons. To start with the second: something exists that was christened by president Eisenhower in his parting speech as military-industrial complex. The alarming images that he summoned in his warning have become reality into the details, especially in the last eight years. It has nothing to do with truculent officers, as some think, but with a Keynesian engine under the American economy. A large number of Congress members is for their reelection dependent of the defence industry in their districts. It would take a political genius with the power of Hercules to use military expenditures for roads, bridges and other infrastructure, with a comparable electoral benefit for Congress members as a result.
The psychological reason is more difficult to grasp and is still not sufficiently valued by the European economic elite. The American nation is almost addicted to continuous proof that it has a superior status and operates in the world as a positive, salvation-bringing, moral power. In their widespread national imagination, Americans assume that their country is essential for the order in the world. In the strategic bed of the Cold War, Europeans have lost the urge to dismiss such ideas. In order to keep in believing in moral superiority, many American congratulate themselves regularly. Proof of this was visible in the election of a non-white president that was followed by the much-heard triumphant yell: only in America! That Americans also discredit themselves often, is the other side of this narcissism.
The first and especially the second World War were wonderful opportunities to confirm the world image of good and evil. And the Cold War seemed to be made for it. The end of it brought besides joy also trauma for America, because with it disappeared the main calibration point of political bonafides on every level of public activity. Without bad guys there are no good guys, at least none that can continuously prove themselves as such. The necessity of enemies for own moral use dates back to before the current president George W. Bush. But he knew how to hit the sensitive American nerves when he painted the world as a battlefield between good and evil after the attacks on September 11. And he could be reelected via a campaign that was completely based on the fear for the dangers from the corner of evil. Currently, there is much talk about drawing a line under the America of the last eight years, but many American commentaries point to the fact that the illusions from that period, together with the neoconservative agenda, are being held high by the so-called liberal hawks. These are the left-liberal hawks, that have settled into American nationalism.
The European willingness to help Obama with his heavy task, is very much present. In the end, Europeans help themselves with it. After January 21, requests can be expected from the Obama government. Thomas Friedman, columnist for The New York Times, who is considered in politically educated Washington more as an exemplary weather vane than as a sensible analyst, gives an idea of what could be the content and tone of these requests. In a recent column, he challenged Europe and countries in Asia: you applaud our choice for Obama, but when will you start doing something for us? He meant more troops for Afghanistan and more severe sanctions against Tehran.
Dutch minister of foreign affairs Maxime Verhagen (Christian Democrats) thought it wise to already show his willingness to keep on fighting alongside America in Afghanistan. With that he does not do Obama, Europe or Afghanistan a favour. Obama's election promise to act more forcefully against the Taliban was necessary to win in a nation that was being lied to for many years with the message these isolated living tribes are a real threat to America. Obama's plans for Afghanistan are already seen as one of his weaker spots. William Pfaff, an infallible political indicator, concludes that Afghanistan, together with indecisiveness on withdrawal from Iraq can be the downfall of his presidency. Both the American voters as the majority of the people and the government of Iraq want America to withdraw.
When Obama is able to end the empty fantasy of the war against terrorism and can make his country feel relatively comfortable as the still largest industrial power in a world without plausible enemies, then he will take a large step back to the relatively stable and peace-loving world order that had arisen at the end of the twentieth century, mainly thanks to America. A European Union, or part of it, that tells the world that it backs again the Charter of the UN and the hence attained international law, would really benefit the position of the idealistic Obama.
But the EU can do more. Especially point resolutely to Afghanistan as a lost cause. Even though we are talking about the future here, we have to consider it a political fact of which the validity rests on experience, historical knowledge and logical analysis of experts. Part of the more worrisome recent developments is the urge of distinguished American circles to enforce the feeling of being under attack with new Cold War fantasies. The relation between America and Russia is still a main latch around which the world turns. This relation has been seriously disrupted in recent years by a semi-extorted, misplaced economic-political transformation that has caused indescribable misery and poverty. Added to this were broken promises to Russia of a political-strategic nature.
No one has benefited, especially not Europe, from the missile defence in Poland and the Czech Republic by the Bush government, its digging into the Ukraine and Georgia, and its hammering on continuous expansion of Nato towards the East. Here a number of lines collide that make it hard for Obama, but at the same time give him the opportunity to accomplish a real change, with European support.
For many American policymakers and political analysts, history repeats itself with events like this and few presidential advisers and policymakers have a three-dimensional view of the world. Therefore, Europeans that plead for an independent approach are quickly disqualified in Washington as unreliable allies. That is what happened with the opposing Schröder and Chirac before the American invasion of Iraq.
But then why does the much-discussed alliance exist? With about a thousand military bases and battle installations, America made our planet into a garrison. Nato has become a tool of that, and the idea that it protects Europeans is laughable. With the choice for Obama, America has been given a chance to free itself from the ideological freedom spasm that manifests itself as continuation of the Cold War. The Bush government acted as the leader of a criminal nation. Europe made that easier by aligning itself as a collection of lieges that let itself be bullied. They could not raise an official voice to assure the rest of the world that the European people do not believe at all in preventive warfare.
Does Europe have a chance to change, like America? The financial crisis has brought stronger to light the much-criticised internal strife of Europe. But the blockade of political integration in Europe is inseparably connected with the outsourcing of European policy in the area of defence and foreign policy to the American administrator. The media are crowded with suggestions of what a US under Obama should do. The idea that something may be expected from Europe, apart from continuation of the liege status, is not mentioned.
An initiative to abolish Nato would be a welcome sign of guts, peacefulness and strategic understanding of the world. The alternative of involving Russia more in the continuation of the alliance has failed so far. But a new start could be made as a step to a Euro-Asian security organisation in a new fashion. The heavily leaking American security umbrella above Europe can be folded. On second thought, it does not sound too strange that Obama can only benefit from European countries retaking their own responsibility, but then collectively, for their foreign policy, for the first time since the Second World War. Obama demonstrates a potential for statesmanship and seems to posses good instincts. Does Europe have the ability to approach him on the same level?
Murders Jump in Obama’s Back Yard as Chicago Cuts Police Hires
The recession is stinging in President-elect Barack Obama's hometown, where the Chicago Police Department is slowing hiring even as murders increase.
Murders in Chicago rose 16 percent in the first 10 months of the year. The city’s homicide rate is triple New York’s and double that of Los Angeles. Thirteen pupils have died from gunfire since the semester began in September, said Mike Vaughn, a spokesman for Chicago Public Schools. “When economic prospects go down, crime goes up,” said Rev. Marshall Hatch, 50, pastor of New Mount Pilgrim Missionary Baptist Church on the city’s west side.
“This is exactly the worst time to cut police manpower.” The council’s decision to reduce police hiring next year by about half, to 200 officers, will save $10 million. The budget also requires firing as many as 759 workers in other departments. “This is a historic deficit that the city is faced with,” said Laurence Msall, president of the Civic Federation, a non- profit research group. “The fear now is the downturn in the economy will create even more criminal activity.”
Unemployment in metropolitan Chicago, the third-largest U.S. city, rose to 6.9 percent in October from 4.9 percent a year earlier. Mayor Richard Daley told reporters after a city council meeting last month that several corporations had warned him of plans for deep job cuts next year. The city’s revenue will shrink by $187 million in 2009 while expenses will increase by $302 million, Msall said. Revenue will total about $5.97 billion, he said. Some murders occurred a little more than a mile from Obama’s home in the southside neighborhood of Kenwood. The violence has tempered joy over his election, officials said.
“It’s a tragedy that people are dying,” said Jody Weis, 50, Chicago's police superintendent. “It does mar an otherwise tremendous celebration.” Obama wasn’t available to comment on the recent upsurge in Chicago murders, said Reid Cherlin, a spokesman for his transition office. In a speech last year at a Chicago church, Obama called for more police to combat gangs, more after-school programs for vulnerable children, and more attention among parents to the needs of young people.
So far this year, murder has claimed more lives in Chicago than during all of 2008. The total stood at 482 on Dec. 4, up from 443 last year. It’s the most since 2003, when 601 people were murdered. The record was 970 homicides in 1974, said Monique Bond, a Chicago Police Department spokeswoman. The rate of one homicide for every 5,878 residents compares with one in 11,322 for Los Angeles as of Nov. 29 and one in 17,294 for New York as of Nov. 30, according to U.S. Census Bureau data and local police. Chicago’s population is 2.83 million.
The 13 deaths among schoolchildren exceed eight murders a year earlier. The sight of murdered classmates’ empty desks is traumatizing for children, said Arne Duncan, chief executive officer of Chicago Public Schools. Academic research doesn’t show a link between hard times and murders, said Gary Slutkin, a public health professor at the University of Illinois at Chicago. It does tie economic slumps to an increase in robberies, he said. “Everybody doesn’t go nuts when times are tough, but lots of people feel the need for more money,” he said.
The deteriorating economy exacerbates problems with gangs, guns and drugs, Daley said at a press conference last month. “People will go to a lot of substance abuse, they’ll go to alcohol,” Daley said. “People take this real personal when they lose their jobs, lose their homes.” All crimes reported to Chicago police through October rose 3.5 percent, including a 9.2 percent increase in robberies.
“Chicago still looks shiny and pretty along the lake, but that hasn’t cured the problems faced by all parts of society,” said Dick Simpson, a political science professor at the University of Illinois at Chicago. Weis, who was named to his post a year ago, said he is confident that murders will decline in 2009 even with fewer police. He previously was special agent in charge of the Federal Bureau of Investigation’s Philadelphia office. He came on board after Daley had disbanded the department’s Special Operations Section, which targeted gangs. Seven former SOS officers are awaiting trial for crimes including armed violence, said Andy Conklin, a spokesman for the Cook County state’s attorney. Weis launched the Mobile Strike Force to replace SOS and promised closer supervision.
Racial politics have hamstrung the city’s ability to combat gangs, which have about 75,000 members locally, said Simpson, a former alderman. “Chicago never quite accepted the idea of taking police out of white areas and moving them to minority areas,” Simpson said. “The aldermen don’t want their areas underserved.”
Weis said 400 gang-squad officers still will be assigned to neighborhoods, while also being available for redeployment if violence flares elsewhere in the city. Timuel Black, 89, a professor emeritus at City Colleges of Chicago, blamed increased murders in part on the demolition of dozens of high-rise public housing projects. “Gang members are no longer concentrated in the neighborhoods where they once were,” Black said. “There’s terrible strife as they take over new territory.”
City budget crisis looms as reserve cash withers
The credit card is maxed out and now it’s time to pay. That’s the mindset of at least one New Orleans City Council member as well as government accountability experts who say the city’s time of living on borrowed money is up, requiring a serious effort to get lean and mean when it comes to city spending. Mayor C. Ray Nagin told council members Dec. 1 — the council’s deadline to deliver a balanced budget — that the city is “headed for a financial train wreck” under its 2009 spending plan. There are those who say he is, on this count, on the right track.
The Bureau of Governmental Research, a public policy watchdog group, agrees with Nagin in the sense that the council’s decision to use one-time federal loans and reserve funds to plug budget holes is not a move toward fiscal responsibility. “It’s pretty clear this city has been living on borrowed money since the storm,” BGR President Janet Howard said. “They’re cutting non-recurring revenues — they’re not even revenues, they’re loan funds — instead of cutting spending. The game’s up next year. There’s clearly fat in that budget. (City leaders) have got to identify the frills.”
Councilwoman Shelley Midura provided the lone vote against allocating the final $10 million left in a $240-million pot of federal community disaster loan funds to plug an estimated budget shortfall stemming from a combination of decreased revenue, investments gone bad and emergency spending during Hurricane Gustav’s mandatory evacuation. After voting against Nagin’s 10-mill property tax increase, the council moved $14 million from the city’s reserves to make up the difference from the $24 million the tax increase would have provided. Midura said moving $14 million from city reserves will leave the city with a “precariously low” backup fund.
The most responsible approach, Midura said, would be for the council to tackle a problem she says is not going away: paying for more services than the city can afford. She proposed a 2.5 percent increase cap on department budgets, excluding priorities such as criminal justice, infrastructure and blight removal. Initially, it seemed, the rest of the council supported that plan but by the weekend leading into Dec. 1, focus “was all about the CDLs,” Midura said. “I felt there was very little desire to take a scalpel to the departments and the reality is the city can’t afford the services it provides,” Midura said. “We needed the barest minimum for 2009, things like streetlights, the DA’s office and the public defender. There are definite areas we can cut. I equate it to the bread you make sure is on the table before you get out the dessert.”
But many of Midura’s colleagues claimed using the disaster loans was a safe gamble because they are hopeful President-elect Barack Obama will forgive the loans. “Hope” was a word used by nearly all council members who commented on their stance just before the Dec. 1 votes.
Council President Jackie Clarkson said she would have preferred slashing budgets by 5 percent across the board, except for crime fighting and infrastructure, but felt the consensus leaned toward using the disaster loan money.
Clarkson says she does not agree with Nagin’s “train wreck” assessment, saying higher taxes would surely have created a train wreck scenario. “The loans are going to be forgiven — that’s play money,” Clarkson said. “It’s not real debt. And we will have built revenues by 2010.” That increased revenue will come from property taxes from projects such as Federal City and the biomedical industry, and “from people coming home,” Clarkson said. “I think we’re in for hard financial times in 2010, but I think we have the opportunity to create revenue,” she said. “We’re the open door of opportunity for the rest of the country. We have a stable banking market, a stable property market and a stable tax credit program.”
But to a degree, future revenues are uncertain and spending is what can be controlled, Midura said. And the city’s coffers could be looking at a cavernous hole. The bridge loan it acquired after Katrina comes due for $25 million annual payments for five years in December 2009. The city also wants to sell about $130 million in bonds next year, but buyers may pass since the city would have only 5 percent cash in reserves to back the bonds.
For this reason, Nagin’s veto pen will likely be applied to the council’s movement of $14 million in reserve funds and the $10 million from CDLs. Howard said with what the city is facing, leaders absolutely must focus on streamlining. “Households all over the city are doing this,” said Howard. “You know, how much are we spending on PR in this city, on vehicles, on trash contracts that far exceed the cost in Jefferson (Parish). “If they’re going to deal with the real financial issues, they need to start doing it now. It can’t wait until November. Period.”•
Downturn impacts local demand for mental health care
The holiday decorations are up and so are unemployment rates. That's not all that's up; with the arrival of the holidays and hard economic times comes an increase in the number of those suffering from depression. Washington County's unemployment rate has jumped two percent in the last few months but is still lower than the national average. However, it's small consolation for those who are looking at job layoffs and reductions in work hours. The loss of a job along with associated work benefits such as insurance is hard any time of year, but especially now with the holidays. "We are seeing a lot of depression now," licensed clinical social worker Kraig Stephens said.
Stephens, who works for the Community Counseling Center of Southern Utah, said the number of clients the center is seeing has increased - especially down in Mesquite at the Mesquite Health Center where in the last week, 500 people were laid off by Black Gaming. Kurtis Kendall, regional manager of Behavioral Health Care for the southwest region of Intermountain Healthcare, said signs and symptoms of depression include sadness, hopelessness, irritability, loss of or increased sleep patterns, and no longer taking pleasure in activities that used to give pleasure. Kendall said while some people get the holiday blues and wintertime sadness, it's a lot different than clinical depression which often requires counseling and/or medication.
Often with clinical depression, there are some physical illnesses which coincide with the depression such as heart attack, cancer, stroke, HIV, diabetes or asthma. People with a chronic disease are more prone to depression and Kendall said the depression is often overlooked. Even with treatment - counseling and medication, symptoms of depression don't go away quickly."It takes time for medications to work," Kendall said. "People need to stick with their treatment and when they start feeling better, not stop taking the medication." Medication is preferred over counseling or talk therapy and Kendall said there are self-help books to help people overcome symptoms of depression.
Other self-help ideas include exercise, getting enough sleep and - especially around the holidays - to pace yourself and don't take on more than you can handle. While higher rates of depression and suicide are typically associated with the holidays, Kendall said studies have shown that the rates are actually higher in the spring when aftereffects of the holidays such as higher credit card bills and debt are kicking in. Some people may be able to deal with depression on their own, or with the help of support groups, and others may need treatment. Others still start having thoughts of suicide and Kendall said the hospital has crises workers to help those with suicidal thoughts. There is also a national crisis life line which operates 24/7 available to those with thoughts of suicide and their family members.
Both Stephens and Kendall said one way to get over depression is to get out and help others. Kendall said locally there are numerous volunteer opportunities available, especially around the holidays and may help get some people out of the depressive cycle. "Doing things for others is one of the best ways to overcome depression," Kendall said. Volunteering also helps with people suffering from depression who may be alone or dealing with the loss of a loved one by getting out and interacting with others.
Stephens said people with depression, especially because of a job loss, should look at this time as an opportunity to go back to school and enhance job skills which will put them in a better position when the economy turns around. Volunteering and building job skills may also bring new opportunities Stephens said. Also, for those who have lost a job and may need assistance, Stephens said people should acquaint themselves with the resources available to help them through these tough times such as Heating Assistance and Dixie Care and Share.
For medical services, the Doctors Volunteer Clinic is available for those meeting the income eligibility levels and the Southwest Utah Community Health Center not only accepts Medicare and Medicaid patients but has a sliding fee scale for people without insurance. The Doctors Volunteer Clinic also has mental health counseling as does the Community Counseling Center which Stephens said does have some charity care as well as a sliding fee scale. Quoting Minister Robert H. Schuller, Stephens said "tough times never last, but tough people do" and said during these tough times, hope is essential."You can't discount this idea of hope and the hope that things will get better, Stephens said.
The Brightest Are Not Always the Best
In 1992, David Halberstam wrote a new introduction for the 20th-anniversary edition of "The Best and the Brightest," his classic history of the hubristic J.F.K. team that would ultimately mire America in Vietnam. He noted that the book’s title had entered the language, but not quite as he had hoped. "It is often misused," he wrote, "failing to carry the tone or irony that the original intended."
Halberstam died last year, but were he still around, I suspect he would be speaking up, loudly, right about now. As Barack Obama rolls out his cabinet, "the best and the brightest" has become the accolade du jour from Democrats (Senator Claire McCaskill of Missouri), Republicans (Senator John Warner of Virginia) and the press (George Stephanopoulos). Few seem to recall that the phrase, in its original coinage, was meant to strike a sardonic, not a flattering, note. Perhaps even Doris Kearns Goodwin would agree that it’s time for Beltway reading groups to move on from "Team of Rivals" to Halberstam.
The stewards of the Vietnam fiasco had pedigrees uncannily reminiscent of some major Obama appointees. McGeorge Bundy, the national security adviser, was, as Halberstam put it, "a legend in his time at Groton, the brightest boy at Yale, dean of Harvard College at a precocious age." His deputy, Walt Rostow, "had always been a prodigy, always the youngest to do something," whether at Yale, M.I.T. or as a Rhodes scholar. Robert McNamara, the defense secretary, was the youngest and highest paid Harvard Business School assistant professor of his era before making a mark as a World War II Army analyst, and, at age 44, becoming the first non-Ford to lead the Ford Motor Company. The rest is history that would destroy the presidency of Lyndon Johnson and inflict grave national wounds that only now are healing.
In the Obama transition, our Clinton-fixated political culture has been hyperventilating mainly over the national security team, but that’s not what gives me pause. Hillary Clinton and Robert Gates were both wrong about the Iraq invasion, but neither of them were architects of that folly and both are far better known in recent years for consensus-building caution (at times to a fault in Clinton’s case) than arrogance. Those who fear an outbreak of Clintonian drama in the administration keep warning that Obama has hired a secretary of state he can’t fire. But why not take him at his word when he says "the buck will stop with me"? If Truman could cashier Gen. Douglas MacArthur, then surely Obama could fire a brand-name cabinet member in the (unlikely) event she goes rogue.
No, it’s the economic team that evokes trace memories of our dark best-and-brightest past. Lawrence Summers, the new top economic adviser, was the youngest tenured professor in Harvard’s history and is famous for never letting anyone forget his brilliance. It was his highhanded disregard for his own colleagues, not his impolitic remarks about gender and science, that forced him out of Harvard’s presidency in four years. Timothy Geithner, the nominee for Treasury secretary, is the boy wonder president of the Federal Reserve Bank of New York. He comes with none of Summers’s personal baggage, but his sparkling résumé is missing one crucial asset: experience outside academe and government, in the real world of business and finance. Postgraduate finishing school at Kissinger & Associates doesn’t count.
Summers and Geithner are both protégés of another master of the universe, Robert Rubin. His appearance in the photo op for Obama-transition economic advisers three days after the election was, to put it mildly, disconcerting. Ever since his acclaimed service as Treasury secretary in the Clinton administration, Rubin has labored as a senior adviser and director at Citigroup, now being bailed out by taxpayers to the potential tune of some $300 billion. Somehow the all-seeing Rubin didn’t notice the toxic mortgage-derivatives on Citi’s books until it was too late. The Citi may never sleep, but he snored.
Geithner was no less tardy in discovering the reckless, wholesale gambling that went on in Wall Street’s big casinos, all of which cratered while at least nominally under his regulatory watch. That a Hydra-headed banking monster like Citigroup came to be in the first place was a direct byproduct of deregulation championed by Rubin and Summers in Clinton’s Treasury Department (where Geithner also served). The New Deal reform they helped repeal, the Glass-Steagall Act, had been enacted in 1933 in part because Citigroup’s ancestor, National City Bank, had imploded after repackaging bad loans as toxic securities in the go-go 1920s.
Well, nobody’s perfect. Given that John McCain’s economic team was headlined by Carly Fiorina and Joe the Plumber, the country would be dodging a fiscal bullet even if Obama had picked Suze Orman. But I keep wondering why the honeymoon hagiography about the best and the brightest has been so over the top. Washington’s cheerleading for our new New Frontier cabinet superstars has seldom been interrupted by tough questions about Summers’s Harvard career or Geithner’s record at the Fed. For that, it’s best to turn to the business press: Andrew Ross Sorkin at The New York Times, for one, has been relentless in trying to ferret out Geithner’s opaque role in the catastrophic decision to let Lehman Brothers fail.
No doubt the Pavlovian ovations for the Obama team are in part a reaction to our immediate political past. After eight years of a presidency that valued cronyism over brains (or even competence) and embraced an anti-intellectualism apotheosized by Sarah Palin, it’s a godsend to have a president who puts a premium on merit. I also wonder if a press corps that underrated Obama’s political prowess for much of the campaign, demeaning him as a professorial wuss next to the brawny Clinton and McCain, is now overcompensating for that mistake. No one wants to miss out a second time on triumphal history in the making.
This, too, is a replay of what happened when Kennedy arrived, beating out the more seasoned Richard Nixon and ending eight years of Eisenhower rule. "Rarely had a new administration received such a sympathetic hearing at a personal level from the more serious and respected journalists of the city," Halberstam wrote. "The good reporters of that era, those who were well educated and who were enlightened themselves and worked for enlightened organizations, liked the Kennedys and were for the same things the Kennedys were for." They couldn’t imagine that "men who were said to be the ablest to serve in government in this century" would turn out to be architects of America’s "worst tragedy since the Civil War."
Post-Iraq, we’re unlikely to rush into a new Vietnam. But we ignore the past’s lessons at our peril. In his 20th-anniversary reflections, Halberstam wrote that his favorite passage in his book was the one where Johnson, after his first Kennedy cabinet meeting, raved to his mentor, the speaker of the House, Sam Rayburn, about all the president’s brilliant men. "You may be right, and they may be every bit as intelligent as you say," Rayburn responded, "but I’d feel a whole lot better about them if just one of them had run for sheriff once."
Halberstam loved that story because it underlined the weakness of the Kennedy team: "the difference between intelligence and wisdom, between the abstract quickness and verbal facility which the team exuded, and true wisdom, which is the product of hard-won, often bitter experience." That difference was clearly delineated in Vietnam, where American soldiers, officials and reporters could see that the war was going badly even as McNamara brusquely wielded charts and crunched numbers to enforce his conviction that victory was assured.
In our current financial quagmire, there have also been those who had the wisdom to sound alarms before Rubin, Summers or Geithner did. Among them were not just economists like Joseph Stiglitz and Nouriel Roubini but also Doris Dungey, a 47-year-old financial blogger known as Tanta, who died of cancer in Upper Marlboro, Md., last Sunday. As the Times obituary observed, "her first post, in December 2006, took issue with an optimistic Citigroup report that maintained that the mortgage industry would ‘rationalize’ in 2007, to the benefit of larger players like, well, Citigroup." It was months before the others publicly echoed her judgment.
For some of J.F.K.’s best and brightest, Halberstam wrote, wisdom came "after Vietnam." We have to hope that wisdom is coming to Summers and Geithner as they struggle with our financial Tet. Clearly it has not come to Rubin. Asked by The Times in April if he’d made any mistakes at Citigroup, he sounded as self-deluded as McNamara in retirement. "I honestly don’t know," Rubin answered. "In hindsight, there are a lot of things we’d do differently. But in the context of the facts as I knew them and my role, I’m inclined to think probably not."
Since that interview, 52,000 Citigroup employees have been laid off but not Rubin, who remains remorseless, collecting a salary that has totaled in excess of $115 million since 1999. You may be touched to hear that he is voluntarily relinquishing his bonus this Christmas. Rubin hasn’t been seen in a transition photo op since Nov. 7, and in the end Obama chose Paul Volcker as chairman of his Economic Recovery Advisory Board. This was a presidential decision not only bright but wise.
So, you want to save the economy?
During the panic of 1907, the nation's most powerful banker, J. P. Morgan, brokered a solution to the crisis behind the closed doors of his personal library in New York City. Faced with the total collapse of the financial system, Morgan gathered together the nation's banking titans into one wing of the library and locked the door, refusing to let them out until they had pledged to help one another through the crisis.Morgan stopped the panic in its tracks, and his modus operandi - hammering out deals in secrecy - has become the conventional method of managing threats to the nation's economy.
This year, the response to the crisis on Wall Street started that way, too. As venerable Lehman Brothers teetered on collapse, the nation's top bankers gathered in the offices of the Federal Reserve for a closed-door meeting at which the Treasury secretary urged them to rescue the beleaguered firm on their own. When that effort failed, Secretary Henry Paulson demanded Congress cough up three quarters of a trillion dollars to buy up bad assets, submitting next to nothing to make his case. The message was simple enough: Trust us - we know what we're doing.
This time, however, something strange happened. A sprawling network of experts in economics and finance began picking apart the Paulson plan - live, in public, on blogs. Despite the vitriol the bloggers dished out - "Why You Should Hate the Treasury Plan" was one of the more temperate postings - this wasn't a bunch of hacks howling from the sidelines. Their numbers included some of the nation's top academic economists, such as Paul Krugman, Nouriel Roubini, and Tyler Cowen, along with a host of financial-industry insiders who actually knew a great deal about credit default swaps, collateralized debt obligations, and all the other esoteric instruments at the heart of the crisis.
As the bailout plan unfolded, the bloggers offered historical context along with cutting critiques of the proposal. More important still, they offered counterproposals: direct capital injections into banks, for example, or direct purchases of mortgages. Many of their readers began badgering their senators and representatives to oppose the plan. A few weeks later, Congress rebuffed Paulson, sending shockwaves through global financial markets.
Though it's still unclear how much credit the blogs can take for shaping Washington's response to the crisis, it's already evident that policy makers charged with monitoring and fixing the markets are no longer operating alone. A fast-moving, highly informed economics blogosphere now tracks and critiques their every move. The result is that this may be the first national crisis to be hashed out by experts in full public view. The blogs offer a rolling crash course in economics as authoritative as any textbook, but far more accessible. It's a conversation that's simultaneously esoteric and irreverent, combining technical discussions of liquidity traps and yield curves with profane putdowns and heckling headlines. In the process, the bloggers have helped to democratize policy making, throwing open the doors on the messy business of everything from declaring a recession to structuring the most expensive government bailout in history.
Late last month, Barry Ritholtz, who runs the financial blog The Big Picture, tried to convey to his readers the cost of the ongoing bailout of the financial system. Using inflation-adjusted numbers put together by a research group, he showed that the money spent (or pledged) thus far was larger than the combined cost of the Louisiana Purchase, the Marshall Plan, the New Deal, the Vietnam War, and the nation's entire space program. Within a week, readers of his blog had converted the data into pie charts and graphs. By then, his analysis had become part of the national conversation on the bailout, cited by everyone from conservative columnist David Brooks to liberal talk-show host Rachel Maddow. This type of influence was hard to foresee when Ritholtz, then a strategist at an investment bank, launched his blog in 2002 to share his musings on the financial markets. Readership grew slowly, and interest from the so-called mainstream media was not immediately forthcoming.
The same could be said of the academic economists who were starting to put their ideas online: Berkeley's Brad DeLong, for example, George Mason University's Tyler Cowen, and New York University's Nouriel Roubini, all of whom began blogging in 2003 or shortly thereafter. In a sense, economics was a field made for blogging: Its ideas advance by disputatious back-and-forth, and not surprisingly these professors took to gently (or not so gently) mocking one another's writings, even engaging in lengthy arguments that stretched out over days, if not weeks. Meanwhile, financial-industry insiders like Ritholtz were adopting the same take-no-prisoners approach to their topic. Some, like the bloggers on a site called Angry Bear, mixed politics and economics, featuring left-leaning rants by a small circle of largely anonymous bloggers. One such blogger, a retired veteran of Wall Street who signed his posts "Calculated Risk," had established his own blog in January 2005.
Calculated Risk quickly developed a cult following for its sophisticated analysis of economic data, for rapidly crunching numbers into readable graphs, and for the knowledgeable posts of Tanta, a guest blogger with razor-sharp prose and an almost limitless enthusiasm for exposing the inner workings of the mortgage industry. Tanta had worked as a mortgage banker, and the blog created an instant platform for this one thoughtful - and worried - insider. Today, her posts have become legendary as a prescient warning cry about the current financial meltdown.
When the subprime crisis broke late in the summer of 2007, the blogs leapt into action, unpacking, dissecting, and making sense of the gathering storm. Many journalists discovered the blogs at this time, too, using them to remedy gaps in their knowledge of obscure issues like securitzation and structured investment vehicles. Many issues first raised on blogs began to migrate to the front pages of major newspapers and magazines. In a subtle but important sense, the way America saw the crisis was being shaped by blog posts. "The real leverage of blogs is that journalists read them," says Yves Smith, creator of Naked Capitalism, a hard-hitting blog that covers Wall Street. Barry Ritholtz of The Big Picture agrees. "The blogs are influencing what is put on the table for debate."
Tyler Cowen, who co-writes the blog Marginal Revolution, believes that their influence is on the rise, and that policy makers in Washington have started paying attention to what the blogs say. One published report by the Federal Reserve formally cited a post by the mortgage blogger Tanta. "The top blogs," Cowen says, "are being read at the highest level." If so, the news they are delivering is not especially reassuring. Aside from the generally dim view of how the government has handled the crisis thus far, what really emerges from the blogs is a cacophony of views on how to proceed. Expert opinion, seen up close, is a thick tangle of dissent.
With the government considering a major stimulus spending package, the economics blogs are now buzzing with debates over what really caused the Great Depression, as well as what finally cured it - and whether we're heading down the same road now. While it may seem discouraging for the public to see that the field's top minds disagree so drastically about what to do, many bloggers believe there's a larger benefit to hashing these things out in public: it's much harder for real errors in thinking to take root. "Any major blogger who makes a mistake is corrected in five minutes," says Cowen. Yves Smith agrees: "It's a version of the Wikipedia effect, with people correcting each other."
There have been times over the past year when the economics blogs settled into a rough consensus. When Paulson first proposed the Troubled Assets Relief Program, or TARP, economics bloggers from across the political spectrum promptly raised questions and objections, zeroing in on the now-defunct notion that the government should buy up the "toxic" securities sitting on the balance sheets of banks and other financial institutions.
One blog, Mish's Global Economic Trend Analysis, played a particularly activist role, instructing its many readers to write their senators and representatives. Money manager Mike "Mish" Shedlock saw traffic on his blog increase by 50 percent during this period. "All the bloggers' traffic went soaring at this point," he says. "One weekend we filled up the voice mail of every congressional rep in the country."
As the incoming Obama administration appoints its top economic advisers, what little consensus existed at that juncture is fast disappearing. The nomination of Tim Geithner as next secretary of the treasury was greeted with enthusiastic applause by some bloggers and barely concealed contempt by others, with Shedlock labeling him a "Keynesian clown." Talk of a massive federal spending plan to stimulate the economy plan has elicited equally divided reactions.
But the fractious economics blogosphere has also, clearly, become a community. Last week, the author of Calculated Risk announced that his co-blogger Tanta had died of ovarian cancer at age 47. The news flashed from blog to blog, eliciting tributes by everyone from ordinary readers to the Nobel Prize-winning economist Paul Krugman. Tanta had a graduate degree in English, it turned out; her name was Doris Dungey, and her formidable financial expertise came from a job inside the mortgage industry coupled with deep curiosity about a complex problem. Her obituary ran in the New York Times, and when it did, it was the first time most of her devoted readers had seen her real name.
84 comments:
A thousand-year depression!
Very fun stuff there! I'm just trying to just focus on Suntrust Bank today and go from there.
I love this site, you do a great job and I get more out of it than any blog, because it's in depth, smart, funny, great graphics and a nice change of pace from all the other crap out there!
Apparently we need some rules:
1. Name calling should be reserved for the most evil of do-ers. That typically means no one who posts here. I will try to follow this one better myself.
2. Poetry is fine. But limit it to half a page. And no more than a couple per day. (The reason for the last deletion)
3. No promotion of stocks, particularly those on the pink sheets, particularly for companies that are promising perpetual motion or other pie-in-the-sky. We deal in reality here. Besides, algae belongs on theoildrum.
4. Be religious if you like. Just not here.
Stoneleigh
Continuing from yesterday on oil costs. - To cut to our differences.
Many projects that were in the works are now to be abandoned or put on the back burner because of the fall in the price of oil. I see this as a good thing not a bad thing. That oil is not going anywhere It is still going to be there later when we really do need it. This will extend the 'undulating plateau' at the top of Hubbert's Peak. It we had grabbed it all now much of it would have been wasted anyway. Maybe we will put it to better use later.
So the question becomes will we be able to develop these resources later? – I see no reason why not. Sooner or later this crunch will end – the insane excesses of this credit bubble will be washed away and things start up again. There will be pain before this happens – maybe a lot of pain but nothing terminal (I hope). The oil will be there and we will go get it. As far as 'the money to go back and pickup where we left off ' . It will be there because if we really need it we can always 'create it out of thin air'. I'm not being facetious there.
As to 'peak fossil fuels' – none of this makes that problem go away. This is problem that must be addressed but on that issue this credit blowout may in fact be a help and not a hindrance.
As far as the coming 'Resource Wars' this is of course possible but we always must look to who most benefits from the propagation of this idea. I would guess that it would be the same folks that profit from the 'War on Terror' and the 'resurgence of Russia' as a threat to “Democracy'. Yep, your friend and mine, the good old 'Military Industrial Complex'.
It’s conceivable that our current civilization will never regain its feet after this storm has burst upon us. We will endure as a species no matter what happens, of course, and it’s even probable that we will rise to new heights. It’s also quite possible that the rebirth of this Phoenix will take a long, long time and that those new heights will be unrecognizable to someone raised in today’s world of 401(k)’s, Credit Default Swaps, automobiles and gigantic concrete cities.
-Eh? Half the world lives on less than 2 dollars a day. For those who have never seen 401k's, CDS and gigantic concrete cities. It's not going to make much of an impact. A vast majority of humanity has been mired in a "great depression" for millenia and have been carrying on and will carry on.
A well-written intro, Glider. You capture the convergent fundamental issues affecting our future growth quite well. This will be a good post to recommend to family and friends.
Once again, OC, great work collating everything. The amount of news coming in day after day is almost getting overwhelming.
el gallinazo said...
“If we went about it sensibly and utilized our remaining fossil fuel reserves to marshal radiant energy (mainly wind, solar, bio, and tidal) we could probably generate as much energy as we currently are doing from nuclear and fossil. This would also essentially stop any addition to green house gas emission other than methane emission from the flatulence of politicians. Even under these more ideal conditions, I don't think 6-7 billion people are sustainable, and human instinct and current social structure make this conversion nearly impossible anyway. I agree with Jay Hanson that we are headed for resource wars which will probably turn nuclear. The cockroaches will probably thrive afterwards.”
Fossil fuels are needed to build the new infrastructure. But, there is more short term profit to bleeding every last dollar out of the old paradigm.
In the for what it is worth department:
Revolutionary Device Can Harness Energy From Slow-Moving Rivers and Ocean Currents; Provide Enough Power for the Entire World can join Geothermal Power Could Meet World’s Annual Energy Needs 250,000 Times Over.
Good stuff about bad stuff!!
My 2 cents: I currently feel that "recovery" is, in this environment, a misnomer. To me recovery implies returning to a state of being with which has some familiarity. I sure don't think that's gonna happen. I too see a confluence of events that make me shiver. and what's "funny" is that sometimes I'll be so honed in on one dynamic---the economy for example---that I'll come up for a breath and go, "...oh ya, the environment is totally hosed!!..." It's a cataclysmists jackpot!
I agree about Nouriel and Krugman: brilliant minds who have a serious stake in the survival of the status quo...which is fine, but which may cloud their arguments a tad.
It's great to see a post here by GuilderGuider; I always enjoy his posts on The Oil Drum. BTW, his explanation of how we got here is also quite good: http://www.paulchefurka.ca/Politics.html
Hey doc holiday,
What's up with Suntrust? (Just mildly curious since they hold my mortgage).
I'm still waiting to see proof that alternatives can replace oil.
If they are as promising as that, then why aren't they competing commercially with oil now.
As to providing equivalent power to nuclear or oil, nuclear doesn't even stack up to oil. It takes 100 nuclear reactors to match 1% of the energy we get from oil.
Now this isn't electricity, it's raw BTUs. Oil has that much potential power in it.
Even as the metal ore we get declines in quality, so does the oil we burn. Future generations just may not have the equipment, energy and free time to drill for oil in the places we drill now.
In a century, our civilization may well be powered by wind, wood and charcoal again.
Doc Holiday - can you elaborate, please on why you're focusing on Suntrust and what's going on with it?
Hey, my bad, OC,
my stories are unpractical and my posts are too long,
worse, they dont seem to go anywhere,
and I follow a strange capitalist cosmology at times,
but Im only trying to make sense of things in my own way,
while trying to build a lifeboat as best I can.
I'll do my best to shut up about gravity soon,
keep it shorter and more practical,
and post any boring stories or cryptic poetry
in smaller chunks at the very ends of the rattles.
Thanks for the great work, anyway.
“Cyclical terms like ‘recession’ and ‘depression’ are looking less appropriate by the day. It’s like calling the period between the fall of Rome and the Renaissance a ‘depression’.”
Holy crap, one of my comments made it on the Debt Rattle! I feel like I just got my name mentioned in the newspaper. :-)
When I first wrote this last week, it almost didn’t make the cut because it seemed too over the top. It reminds me of the non-trivial percentage of Christians that always seem to believe that they are just about to witness the end times (Not a judgment on these folk, just making a point). There’s a certain amount of hubris to assume that the precise point in history you happen to inhabit is going to be ground zero for a phase shift big enough to be talked about for centuries to come.
That being said, the convergence of environmental, energy, and financial catastrophes appear to be giving birth to such a phase shift; something that will be seen as an important marker in human civilization. How it will rank in history’s “big ones” is still to be determined, and will be largely influenced by how effective our leaders are at mitigation.
On some level, the detractors of Peak Oil, Climate Change, or those sounding the alarm about financial collapse see these communities as no different as all the generations of end-timers that have come before. The curse of Cassandra exists because so many dire predictions don’t come to pass. Until they do.
Perhaps it will be impossible to get the message out to the general public until they can see it unfolding for themselves. The implications for society are simply too big, the shift in perception required to understand is simply too great.
Bigelow - I was quite prepared for the "slow moving water" device to be moronic, as such things often are - but it might not be.
After looking at the ideas generated in the last 5 years for trying to harvest wave power- it really seems evident to me that we've barely begun actually thinking about it. Could be some interesting stuff there.
One weak point in that one- it uses a lot of springs. Whether metallic or something else man made- they will age, weaken, and have to be replaced= expense. Bamboo springs, now... hm..
To the generous editors of this Blog. Please do a search on a man (now a very old and wise man) named Wendell Berry. He wrote about the Agiculture issues we face today over twenty years ago.
GliderGuider's intro brought to my mind an old and mostly forgotten cob-webbed covered Isaac Asimov & Foundation series... condensing "30,000 years of Dark Ages and barbarism" to a mere 1k depression.
Hari Seldon would just luv it!
lolololololololol!!!!!!!!!
"...The president-elect argued that with the economy reeling, his incoming administration, could not afford to worry about a spiralling budget deficit."
Barack "Yogi Berra" Obama
So does Obama know a glide path goes down?
concerning the fear of gravity,
Have you noticed how people on teevee, mostly both cnn and bcc world, have these strange stress-factors in their voices now?
I first noticed this when the bailout proposal was rejected, I was watching the proceedings, and the news anchor on cnn seemed absolutely terrified, unlike anything Ive seen.
This would make sense, as we were all threatened with immediate financial armaggedon were that thing not to pass.
Then it happened again when
the bailout was passed.
Lately, even the weather people seem scared shitless, sometimes with trembling voices, at least in the broadcasts that I recieve
here in Europe.
thing is, I think these vocal stress-factors are unconsciously picked up by the viewers, propagating this fear most efficiently, and much beyond their control.
Did anyone catch that one sqeek-blab on the european edition of CNBC about two months back where one of the anchors passionately called bullshit and derided any further attempts to restart the ponzis?
He seems to have calmed down now.
"...The president-elect argued that with the economy reeling, his incoming administration, could not afford to worry about a spiralling budget deficit."
Oh Crap.
El Gallinazo,
I should point out that it wasn't the timing of this particular rally that I would stake my life on. In my exchange with Insider, he said we would see a lasting bottom at DJIA 5000-6000 before Christmas, and I said that while it was possible we might hit that level, I would stake my life on that not proving to be a lasting bottom.
The situation isn't particularly clear at the moment (markets are like that sometimes where the balance of probabilities is, well, fairly balanced). We seem to have been in a volatile sideways pattern for the last month or so. We could see a larger rally take off now, or the sideways move could continue with large swings in both directions. If the latter pattern is unfolding then we could still see another spike lower before a longer rally begins. There will definitely be a rally, but the timing is still rather up in the air.
Call me Captain Obvious. Peak Oil is real. Oil used to deliver 100+ times the energy output than it took to get it. Now the world average energy out to energy in is slipping badly and ramping up more supply is increasingly difficult.
I think Peak Energy is different matter. Wind, geothermal and tidal all have that big energy payback to energy spent to get them. The difficulty is building an entirely new energy infrastructure while everything is devoted to propping up and guarding the old predatory oil structure and dodging things falling down around you.
There were nascent alternative energy options in the 1970’s responding to spiking oil prices, oil got cheap again and bb-bye alternatives. Criminal finance has caused our new depression rather than peak oil, but one side effect is the “shakeout” of alternative energy companies, again.
Corporate controlled governments may renew a switch to alternative energies. There is no guarantee who benefits or looses will be any different than the previous paradigm.
Anon @5:27,
Lately, even the weather people seem scared shitless, sometimes with trembling voices, at least in the broadcasts that I receive
here in Europe.
thing is, I think these vocal stress-factors are unconsciously picked up by the viewers, propagating this fear most efficiently, and much beyond their control.
This is exactly how unconscious emotional signals are transmitted. What they say is less important than how they say it, although what they say will also tend to confirm the mood of the herd, however they have to rationalize the news in order to do so.
In optimistic times bad news is ignored or explained away, while in pessimistic times good news is overlooked. Whatever the market does, people will find a supposedly causal event to hang it on.
"This is exactly how unconscious emotional signals are transmitted. " oh, yeah.
I know Stoneleigh knows this; but for those outside the Bio circle- this is not a matter of opinion; it's a matter of many many very solid double-blind studies.
TampaSteve:
Thanks a million (or a billion or a few trillion, who's counting?) for the idea of the Rome-to-Renaissance interregnum.
I'd been searching for some time for a way to drive home the point that civilizations can go down permanently, recovery doesn't have to occur on a generational timescale, and what ultimately rises from the debris may not look like the original with added wind turbines.
It's surprisingly easy to see how our civilization arrived at this sorry state, even from a deep root-cause perspective (the one I favour because it neatly avoids all those tiresome arguments about the relative merits of different technologies or whose bailout package is best). I've written a lot about that on my own web site, and it goes in such uncomfortable directions as the anarcho-primitivist analysis of the influence of totalitarian agriculture on our Cartesian dualist sense of self.
It's also quite easy to figure out where we are -- the shape of our current predicament -- so long as one is willing to embrace a certain number of "Oh shit!" realizations, and accept the abandonment of certain hopes.
Figuring out where we are likely to go from here is where all the fun begins. It's obvious that our civilization is looking at an inflection point, but projecting past such a point is, as mathematicians say, "a hard problem."
Given the resource paucity and the ecological degradation that the next cycle of civilization will have to contend with, I'm satisfied that technology as we understand it will have very little to do with our climb up the r-phase of our next adaptive cycle (http://www.resalliance.org/570.php).
As a result I've come to believe that the drivers for our next kick at the can will be completely orthogonal to the analysis/domination paradigm that has characterized the last several thousand years of this one. But such speculation strays way too close to religion, and I don't want to tick off my good friend "OC". Instead, I'll ask gentle readers to infer their own conclusions, with help from the lessons taught by a caterpillar's pupa...
This was a great post - and very timely as it's this blog in particular that is helping me.
I am in the process of cashing out my MFs which are with various companies via a mutual fund salesperson.
I spoke with two banks today - very different receptions. One very helpful, so I'll do my business with them. The other wanted to call in their manager after I was adamant I wanted to cash out - even though the markets rebounded today.
I could hear the staff in the background of this second bank ecstatic that funds were up today.
The person I spoke to told me the markets always do come back, showed me that market graph and said it dipped more in 2002 then bounced back and will do so again.
It was so weird sitting there listening to this person speak, admitting things are very bad, but the top economists around the world are all fervently working to turn things around and things will improve in about six months time. I was further told we've hit bottom, and can only go up really from here. I was told this with a patronizing tone, and educated on the meaning of capitulation.
If it wasn't for TAE, I probably would still be listening to that person who sold me the various name mutual funds/insurance stuff and if I had begun to doubt him and gone to this second bank, I'd be listening to it all and gullibly taking it in!
Instead, I'm getting a great education by everyone who participates at TAE!
And I sense my mutual fund salesperson and the person at that second bank are either very evasive to save their own hides, or about to lose them.
Kluane
Greenpa
For me the ultimate stressed out voice has always been Condi Rice. When I hear her voice it brings me immediately to the chamber of horrors and I want to go running from the room screaming. She is wound so tight, it's a miracle that she can hold it together at all. Wouldn't want her high spiked black leather boots anywhere in my vicinity.
Stoneleigh,
It is true that you never gave an exact time frame for the suckers' rally. Several months ago you thought it might start in December or January and run through the spring, if I recall correctly, but that was not connected with your later "bet my life" prediction.
Coincidently,
Mish came on today with an article about this complete with Elliott wave charts.
http://globaleconomicanalysis.blogspot.com
/2008/12/bullish-looking-charts-s-500-
nasdaq-bkx.html
For the S&P500, he sees us in a rally which will take it into the 1000's and then a fall back to 600.
Also,
it seems that Obama is going to put the bulk of the new funny money into roads and bridges. More of the Kunstlerian nightmare malinvestment. Heaven help us!
Greenpa, as you probably already know, I have not had a TV for well over 30 years. Saturday, my physical therapist was telling me how the government is issuing $40 vouchers so people can go buy the new digital/analog converters for their TV, so they don't miss any of the extremely valuable transmissions available for their viewing absorption, excuse me, pleasure.
That fact got me thinking and the stress comments did, too. BTW, until 1975 I was actually employed in production and broadcast, so I have quite a few first hand experiences of the manipulations possible in the media, both conscious, subconscious and even at the non-thought reactionary level.
I highly recommend avoiding visual and audio media as much as possible. Think about it at least.
Anonymous poet: Hey, I actually kinda like the poetry (although I can't speak for S/I on this matter). But long posts of any sort mostly don't get read anyway so it's a bit of a waste
GG: You make me sound like a curmudgeon. Thank you.
For anyone who missed the link to GG's personal website of horrors, it is paulchefurka.ca.
Rumor: I actually thought there were too many articles but I just couldn't cut anything. Stoneleigh and Ilargi sent me a dozen each plus all the ones from you, FB, A, Linda and Bryan. Crazy. I don't know whether there's just more happening now or whether I'm not being selective enough.
Kluane,
My friend Judy, a retired school teacher, had about $400k in stocks. I told her to dump them last May. She tried, but her broker always talked her out of it in a patronizing way. "Little woman, just let me take care of it. Don't worry your pretty little head." He sounds exactly like Foghorn Leghorn. He was in his late 70's, and we referred to him as "the geezer." Finally, just before the big August drop, we got on an extension together. I think the S&P500 was about 1300 then. She told him to do exactly what I said. I then told him to sell everything in her portfolio and buy 13 week treasuries with it. (All this stuff was in an IRA). He called me an idiot. I told him that this idiot was going to put a lawyer on his ass for malfeasance if he didn't do it today. Saved her about $100k. These brokers ands financial advisors belong in the fifth level of hell.
Hm-m...a thousand year depression. Now we're talking scale!
Back down in my newbie brain I seize this segway to my pet peeve. Whenever the many pundits predict we'll start to see a levelling in the 4 quarter 2009 and slow recovery beginning in 2010 I eagarly read on looking for their argument in support of that position. There never is one.
Hard to ignore the argument put forward by those that say the centre cannot hold. Please those that see recovery in 2010 give me the argument.
el gallinazo
I agree with your remark that FPs belong deep down in hell. I also want to tell you that I have a lot of respect for what you have to say. Your friend was very fortunate to have you help her. I got burned because I found this site too late.
It's amazing at how naive I have been - or maybe just too trusting of those who manage my money. But not anymore.
Kluane
Re: Chaos & Clues,
Hey, just started looking at Suntrust because of some issues with Fitch, e.g:
In connection with the placement of SunTrust Bank's (SunTrust) long-term Issuer Default Rating (IDR) on Rating Watch Negative, Fitch Ratings has placed the long-term ratings of municipal bonds with letters of credit provided by SunTrust on Rating Watch Negative.
> Just looking at that and wondering what it implies, but seems like something to watch...
I should say I'm anon, but wanted to add this other Suntrust tidbit (sorry if this is OT).
SunTrust calls note on upscale Hasentree development
http://triangle.bizjournals.com/triangle/stories/2008/12/08/story1.html?b=1228712400%5E1743770
We decided that the bank has deeper pockets than we do,” MacNair says. “We stepped aside and did what’s best for the development.”
Uh, huh...
"Almost 53 percent of borrowers whose loans were modified in the first quarter of this year re-defaulted by being more than 30 days overdue, John Dugan, head of the Treasury Department’s Office of the Comptroller of the Currency, said today in remarks prepared for a housing conference in Washington"
He was very surprised how quickly the carefully crafted MOD were again turning sour. Its my contention that the mortgage MOD crowd is a good carney in the coal mine for what will happen to many if not most of the current consumers in America. Those homeowners requiring a MOD of their mortgage also have no or little access to credit either via the home ATM or standard credit cards. They are trying to service a debt load that also requires additonal taxes, maintenance and emergency expenses all on their weekly paycheck. With credit rationing moving into the consumer end more and more consumers will be without any credit availability leaving them to budget and live on the cash income they are able to generate and emergency funds would be their savings if any. My own take is that MOD failure rates will probably hit 90% or more over time as folks without credit access need to find the most cost effective housing in order to survive. Once they are no longer tied to the house payment they can be free to rent a wide variety of housing and move quickly if necessary. Most consumers view the economy through a rear view mirror of surplus credit and asset inflation and hope to somehow hold on while the real economy is quickly rationing credit with deflating assets the norm.
There are lots of “free” thinkers reading this blog.
There are scenarios being proposed of what could happen if ??? but there are no proposed long term solutions.
There is one solution to all the problems that have been raised that none of those “free” thinkers have spent time evaluation. Here it is. Think about it.
We are within reach of doing DNA research into the recessive genes that we once possed and can even contemplate enhancing their abilities. (within 100 years)
1. An improved digestive system.
2. An improved immune system.
3. Re activation our DNA memory.
4. Re activating and improving our fur coat.
It would mean that you could drink from a puddle of dirty water and even get nourishment while your fur coat protects you from the heat or the cold.
This is not the blog for discussion of this topic. I just raised it as the possible long term solution of the survival of the specie in a world of depleted resources. Just helping evolution/adatation of the species trying to catch up to a environment that is evolving faster than what the specie can do.
jal
I have a solution for all the auto workers and financial experts who cannot get a job in the "economic stimulus package".
Turn off the trafic lights and hire them as flagman/women.
jal
Good idea, jal. Give humans a rumen (that could become a public mantra like "If the glove don't fit, you must acquit"), and we could skip the middlemen like cellulosic ethanol. Or maybe we could develop a human rumen that converts cellulose directly to ethanol.
Jay Hanson and Dieoff.org
Posted by Nate Hagens on July 24, 2006 - 10:37am
Topic: Miscellaneous
Tags: dieoff, evolution, net energy, peak oil, thermodynamics [list all tags]
There are many layers of the Peak Oil onion. One man who has peeled away most of them, largely out of the public eye, is Jay Hanson. Jay is the quintessential Peak Oil autodidact. After a successful career in software design, his ongoing quest for knowledge about energy, evolution and the environment culminated in a massive internet reference hub for these topics called DIEOFF.ORG. In 1997 he predicted we would invade and occupy Iraq for their oil. (link). Jay has been intensely studying and researching topics central to energy and evolution nearly full time for 15 years, (4 of which spent solo on a yacht in the Pacific). I know many of the readers of theoildrum got their first exposure to the concept of Peak Oil through Jays writings and research and were active readers of his dieoff listserv( GreyZone, Darwinian, Angry Chimp and Totoneila, to name a few).
As such, I feel privileged that Jay will be visiting Robert Rapier, myself and some friends in August to discuss his latest ideas, research and predictions regarding society in the face of peak oil. He is particularly interested in working out a 'logic' framework on the human behavioral aspects of everyday life, and believes we can parse much of our behaviour into a simple set of 'if-then' analog algorithms, evolutionarily designed, context dependent.
Jay had it right when few knew what the meaning of overshot was.
"Turn off the trafic lights and hire them as flagman/women"
Won't be enough traffic to justify that.
Thanks GliderGuider for a most interesting introducton. As one who has not had much of an interest in peak oil or mining, I really haven't read up much on them. There is however no doubt that both are finite resources and obviously the most accessible was used first.
I once had a conversation with someone who was involved in oil exploration. He stated that many productive oil finds were capped because government taxation policy made it un-economic to produce more than a specific quantity from them. I believe that you will find that when the general supply of oil is exhausted that countries like the UK, US, Australia, Russia, etc will still have reserves within their sphere of control for military purposes.
On the climate issue, much of the crisis factor is because people like Bob Dole have claimed it to be a crisis. Climate has always been variable. In medieval times temperatures were much warmer than they are today as evidenced by the polar ice cores, archeological finds of agriculture in Greenland, the architecture of medieval Europe, the extent of farming in Scaninavia. However that warming was likely not man-made, nor the signficant cooling that followed, to the extent of the Thames freezing as evidenced by paintings from that time.
It maybe that the early 21st century was slightly warmer, than the last decade of the 20th, BUT in most cases temperatures were on par with the 1970's.
While there are many that doubt the existence of critical climate change, there are many many more that doubt that the suggested measures will be effective at making a difference. It might be too little to light, or maybe it is more like throwing ice fragments off the deck of the Titanic. Makes you feel like you are doing something, but what will be, will be.
LOL
Lots of "free" thinkers on this blog.
jal
There is however no doubt that both are finite resources and obviously the most accessible was used first
Well, there's not no doubt that oil is a finite resource. There is the abiotic oil theory (which compliments the man-made global warming denial theory nicely.)
Non-thinking is not Free Thinking.
In terms of the financial crisis, the long term system that seems most ideal would be something similar to the Pennsylvannia model of Ben Franklin's era as described in "Web of Debt".
Money issued by the government with no debt, debt issued by the government with interest coming back to the government, and no taxation because government funded by interest from the debt they extended.
This would be a quantum difference where our governments would be the lenders and not the borrowers.
It appeared to work brilliantly in the American colonies.
The big question is how do we THERE from HERE?
Well, there's not no doubt that oil is a finite resource. There is the abiotic oil theory (which compliments the man-made global warming denial theory nicely.)
That must make me strange because I reckon the fossil fuels are finite, (at least within short time-frames), but deny man-made global warming (at least from CO2 emmissions).
I do however think we are taking huge risks by the extent of our global forest destructions. What is the quality of the air going to be like when we have removed the 'lungs of the earth'.
The answers are in the questions
Wrong questions ... wrong answers.
jal
How are you folks living in The Great White North taking your suspension of Parliament and subsequent (no stimulus package) Harper El Presidente these days?
Some think it very serious.
http://www.youtube.com/watch?v=8UNhhsMARJg&videos=zEyZH1olyiM"
20K military (trained urban warfare specialists) enlisted to "help out" on US soil "in case of emergency" doesn't quite seem like a walk in the park to me either and I think that's pretty serious considering historical usage of military personnel in regulating civilian discontent.
Jal,
As long as we're pipe-dreaming our way to gene therapy solutions for the current nexus of finance/environment/energy problems I want
1. Chlorophyl impregnated skin that can photosynthesize.
2. Giant bat wings. (Batman is cool and I love flying)
3. Greater capacitance of my blood vessels (my entire vasculature) that will allow me to double my effective blood supply. That way if I have a flying accident and many/most hospitals don't offer needed trauma services I'll have a better shot. Plus, having double my blood supply would make it possible for me to hold my breath for ages... Maybe I'll take webbed, XXL feet too.
Kerrysl,
in regards to capping wells I have a question not too different from one I asked you about climate change. How long ago did this friend of yours tell you many wells were capped?
Earlier this year when gasoline prices were still on their rip ride towards the stratosphere I worked with a nurse who claimed several times that her uncle worked in the oil industry and there were wells capped left and right. I patiently explained peak oil to her and she then told me about her uncle's claims of capped wells all over the place, so "it must be a conspiracy". Finally I had the brains to ask her "when her uncle told her about all the capped wells." Her answer, back in the mid 1980s. Well, in the 1980s there were a bunch of wells capped off in Texas and Oklahoma due to the price per barrel of oil falling out from under producers feet.
The other thing is a "capped well" is not necessarily a potentially productive one. My wife's uncle lives in New Mexico and claims there are tons of capped wells all over the place that the Feds won't allow the gas companies to produce from. I think the more compelling answer to a capped well is that the company that drilled it didn't find what it was looking for, especially since he has some historic distorions in his frame too.
I'm interested by both of these people because they draw their desired conclusions from what appears to me to be their particular bugaboo. That nurse doesn't trust oil companies and so she blamed them for their collusion and price fixing (asking her why they didn't do the same thing back in 1998 when gasoline was less than $1.00/gallon drew no real response). My wife's uncle blames the Federal government for everything so clearly, to him, it must be the feds stymieing capitalists who want to extract gas and oil (asking why the Feds allow so many other productive wells to go on producing doesn't draw much of a response). And neither of them was enlightened by my efforts! What nerve!
Kerry,
This is the third time that you have brought up your climate skeptic/denial of man made global warming. The first time you mentioned it incidentally and caught lots of flak for it. The second time you made a point of arguing it, you caught more flak, and I accused you of having deeply held beliefs that were resistant to arguments and facts. You're pushing the issue again today, confirming my suspicion that it is a deeply held belief that you think is valid and worthy of consideration. It is my opinion that you are latching on to this theory because you hold some strong conviction which requires that man not be responsible for global warming. We can but heads over this, I can try to shame you into conforming, we can present our arguments and counterarguments, but you are not going to convince anyone here and no one is going to convince you. It is a waste of time for both of us.
I would like you to stop bringing this up for two reasons. The first is that I believe you are wrong. We simply disagree. We are at an impasse and can not proceed. So there is no point continuing with the debate, time will tell. The second is that it adds nothing to the discussion here. I'm not going to trouble you again about this, but every time you bring this up someone here will respond and there is no point rehashing this endlessly. It is only going to generate animosity and lessen your standing with regard to your other input.
EBrown asked,
in regards to capping wells I have a question not too different from one I asked you about climate change. How long ago did this friend of yours tell you many wells were capped?
The conversation happened sometime around the late 90's. He was very specific that capping was due government financial policy. Production upto a certain rate received lenient tax treatment, whereas production over a certain amount incurred tax penalty. As such, if recovery costs were over certain amount, it made the well unprofitable and it was capped. With a flat tax treatment, the well would have been profitable. I believe he held a positon as a geologist.
team10tim said;
This is the third time that you have brought up your climate skeptic/denial of man made global warming. ... I would like you to stop bringing this up for two reasons. The first is that I believe you are wrong. We simply disagree. We are at an impasse and can not proceed. So there is no point continuing with the debate, time will tell. The second is that it adds nothing to the discussion here. I'm not going to trouble you again about this, but every time you bring this up someone here will respond and there is no point rehashing this endlessly. It is only going to generate animosity and lessen your standing with regard to your other input.
Hi team10tim,
I bring it up, because it is mentioned in the articles. To say nothing, would be silent agreement with the posted articles, AND I don't agree, or more neutrally question some aspect of them.
I don't have a belief that man couldn't possibly be the cause. Man has demonstrated time and time again his neglect and destruction of environment for personal gain, so we could entirely be responsible. However, I think on this one it is rather prideful for us think that we are significant enough to wield that much influence over something as large as the atmosphere.
It would be similar to us thinking that out activities here on earth were affecting the orbit of Jupiter. I think the scale is wrong.
It maybe humbling, but I am more inclined to believe that inter-stellar radiation and solar radiation and their interactions have a far greater impact upon our atmosphere than we mere men do. I could very well be wrong, but all I am really saying is that the jury is really out on who is right and who is wrong.
Stoneleigh has mentioned several times about human behaviour and how we tend to do the wrong thing or fail to perceive the obvious, and I agree.
I have however over time, concluded that in a debate of ideas, when side B responds to side A's stated opinion with anger, animosity, disgust or revilement, that it is indeed side B's argument that loses a degree of public standing.
I am sure that I&S have suffered this same fate when their polite reasoned argument has been met with an over the top impassioned resistence. The level of passion in a statement is not a reflection of its accuracy.
wars...
US war to grab oil?? Iran this time??
and Russia would be happy, 'cose that would drive prices of oil up...
but China would not be happy, probably...
so, WW III then?
baa said...
wars...
US war to grab oil?? Iran this time??
and Russia would be happy, 'cose that would drive prices of oil up...
but China would not be happy, probably...
so, WW III then?
Well Iraq 1 & 2 were both over oil, as was Iraq v Kuwait. Germany's interest in Africa was partly minerals (and maybe oil) as well as hurting British & French empirial colonies.
Most wars have been over control of land and either what it has, or what can be done with it.
Future wars (and there will be wars), will likely be for similar reasons.
Japan & China's rise to economic power are actually wars but ones fought with economic means rather than guns.
kerrysl,
It seems to me your entire disbelief rests on two pivotal points: your scepticism of the integrity of climatologists in general and the inaccessibility of the science itself; and your total disbelief in the capacity of human activity to materially affect Earth at the global scale.
Climate scientists are probably no more honest or no more deceitful than the general population. If this is the case, then climatologists are no more or no less likely to create bad or false science in order to promote their “agenda” than any of the rest of us are likely to engage in similar behaviour when advancing our agendas. It would seem that what we have are most scientists engaged most of the time in mostly ethical research, trying to elucidate the interaction between human activity and natural climate variation.
As for the “we just have to take their word for it” tripe, you don’t. Most of the work and data are publicly accessible. You can find it in papers and letters published in journals, and in textbooks. Your ignorance of the science itself is why the science is inaccessible, not because climatologists are trying to pull a fast one on you. Just as particle physics is most likely inaccessible to you, not because physicists are trying to pull the wool over your eyes, but because you don’t understand the science and don’t have the mathematical tools to validate the conclusions being reached.
In order to validate or invalidate the science, simply become well versed in the science itself, and become a competent user of the mathematical tools used by the science. Then, when you draw your conclusions, at least you’ll know what you’re talking about.
CO2 was demonstrated to be a “greenhouse gas” before the turn of the 19th century, let alone the 21st. There were flaws in the calculations as to the effect the rising CO2 levels already present would have. These weren’t a function of a flaw in the science, but the lack of adequate mathematical tools, and the use of systems theories and modelling, all yet to have been created at the time.
As for the capacity of human activity to affect the Earth’s systems at the global scale, I would submit the role of fluorocarbons in the degradation of the polar ozone layer is a fairly decent case in point. Human activity clearly moderated the normal functioning of the ozone layer and when fluorocarbons were removed from use the ozone layer recovered. That seems a sufficiently global example. If human activity could have affected the ozone layer it’s reasonable to assume that human activity could also affect other “global” processes.
Long before science and mathematics, as we conceive of them today, human activity was busy permanently affecting its habitat. The vast cedar forests of the fertile crescent we’re all but totally denuded. There is evidence both in the historical record and other physical evidence to confirm this. Here we are, thousands of years later and, oddly, those forests have never recovered and we’re left with the deserts we’re far more familiar with.
The same in North Africa, the former breadbasket of the Roman empire. A land once fertile enough to feed not only itself but both the emperor and his people was reduced to the desert we now know it as today. If, long before the rise of industrial scale human activity such essentially permanent changes from human activity could happen, wouldn’t it be a reasonable perspective to assume our industrial scale activities would have industrial scale effects?
While the Earth may appear to us as individuals as “vast,” it still remains finite. Being finite limits its capacity to absorb “shocks to the system” and still remain in the stable state we’ve come to know and love. In fact, depend upon for survival. To assume human activity cannot impact Earth systems at a global scale is a grave error. All dynamic systems are capable of large changes when exposed to small perturbations. What may appear to be a small amount of CO2 to you, may in fact be a more than adequate perturbation to cause the system to transition from one stable state to another stable state. A journey you might not enjoy and a new state you might very well not like as much as the one we have now.
Financial institution provide service as intermediaries of the capital and debt markets. They are responsible for transfer the fund from investor to company in need of those funds.
Patent Attorneys, Inventors, Entrepreneurs, Animation Production Companies, Comic Book Publishers, Consulting Firms, Temp Services, Contract Labor,Distributors, Syndications, Financial Institutions
For climate "discussions" from now on, go to realclimate.org. Stay there for a month, read it all, and then come back without ever mentioning the topic again. I did not build this site to see it be dragged into nonsensical talk. Go tell your religious views to the experts at Real Climate, if you must, but not here.
Anonymous 2:37:
You say:
-Eh? Half the world lives on less than 2 dollars a day. For those who have never seen 401k's, CDS and gigantic concrete cities. It's not going to make much of an impact. A vast majority of humanity has been mired in a "great depression" for millenia and have been carrying on and will carry on.
One of the last truly frightening articles I wrote was on the state of Africa over the next 30 years. It's posted here: Africa in 2040. The outcome of that analysis even scared me.
It's indeed possible for people to carry on at less than 2 dollars a day. However, given the challenges the world now faces, it may not be possible for all of us to keep on like that.
The analysis in that article was done before the current financial tsunami came ashore. A global depression will make the plight of the bottom half of the world's population that much worse as international food aid funds dry up like the desert sands.
The URL in the above post got messed up. The correct URL is
http://www.paulchefurka.ca/Africa/Africa.html
Sorry about that.
"It's also quite easy to figure out where we are -- the shape of our current predicament -- so long as one is willing to embrace a certain number of 'Oh shit!' realizations, and accept the abandonment of certain hopes."
GliderGuider - Thanks for the topic yesterday; you did an excellent job expanding on the idea of the need of more “big picture” thinking in all of this…
Regarding the above, I think you’ve hit on the cogitative dissonance of the general public that we’ve all been frustrated by at one point or another. Just to accept what’s happening in the financial world (ignoring resource limits, population, and environmental damage) would require most people to change how they perceive the rest of their lives playing out. That’s a bitter pill to swallow. Even with all the black swans starting to dot the sky, my better half still thinks I’m nuts. I have a vision of the two of us in a bread line, and she’ll be talking about how this is just a temporary thing – we’ll be back on our feet in no time. :-)
Hi Goritsas,
Thank you for the time and effort that you obviously put into your post. I take your point about fluorocarbons. It is a very good counter-argument.
I also appreciate that you say If human activity could have affected the ozone layer it’s reasonable to assume that human activity could also affect other “global” processes.
I agree on both counts it could. "Could" suggests an element of doubt, and that is what exists 'an element of doubt'. However what is promoted throughout the media is 'an absolute definite'. That to me is deception. It is exactly like saying "Invest in this stock and it WILL make you a great profit", when the truth is, it MIGHT or it possibly MIGHT NOT. The maker of the above statement could be liable for losses incurred, whereas to have said the latter would have been truthful.
You also said; Most of the work and data are publicly accessible. You can find it in papers and letters published in journals, and in textbooks. Your ignorance of the science itself is why the science is inaccessible, not because climatologists are trying to pull a fast one on you.
2 points. 1. it was not me who said it was inaccessable science but a direct quote from the article itself about the inaccessable calculations. That is not to say that science isn't incredibly complex. My brother-in-law is most of the way through his PhD in Molecular Chemistry. My wife and I read one of his papers. While we mostly understood the abstract, from page one onwards it was like reading a foreign language.
2. Much of the data is not publicly accessible. Have you ever tried to get raw historic temp data. NASA's GISS is one good source, but there are some who criticise that source, also most of the data is only monthly mean temp, not the actual daily min/max data. The other problem is that just about every station has multiple months of missing data, especially from the mid 90's onwards. Most climate authorities have made available lots of historic precipitation data, but not the temperature data. That can only be acquired at a cost outside the reach of a casual enquirer.
In my country temp data was accessible a few years ago, but has now been removed from our Bureau's website, that carries a statement about them providing precipitation data in the first instance and temps will come later, so that people get the impression that it was never previously available, which is more deceptive behaviour. Believe me, not everything is as it seems.
Re: the comments on tv coverage.
By far the best, I believe is Bloomberg's Hong Kong anchor, Bernard Lo.
He seems to understand all the financial and energy problems and it wouldn't surprise me if he reads TOD and TAE
I believe he's on at 7pm Eastern in the US and then again at midnight. International viewers of Bloomberg get more of him and uncut.
Great to see you posting here Glider Guider - a warm welcome :)
TampaSteve
"Regarding the above, I think you’ve hit on the cogitative dissonance of the general public that we’ve all been frustrated by at one point or another."
My nexus of friends on this island are very progressive and also involved in "new age" holistic attitudes. They are very concerned about me, thinking that my "doomer" talk is a sign of clinical depression. There is a very common Rastafarian bumper sticker here, "Positive I Think." Most of this group regards it as an act of moral superiority to think "positively." I, OTOH, think it is an act of moral superiority to think.
I then refer to Aesop's fable about the ant and the grasshopper, and how the ant was a negative obsessive doomer about this winter thing, and what a blythe spirit the grasshopper was until it froze and starved to death. When my friends blow off my research and advice, I just think now, "it's your karma." Of course, having a wife in the blythe spirit camp is another story. I am currently unattached, but there was a blythe spirit in this group who I was sort of interested in a year or so ago. Then I thought, "I'd be better off strapping on a 50 pound weight belt on my next dive."
el gallinazo:
I find myself in a similar uncomfortable situation. One of the things that got me past my morbid multi-year dread of the onrushing reality train was my involvement with a local "personal transformation" group. These are wonderful people and I love them all dearly, but I find myself biting my tongue when topics of positive thinking are raised. There's a common belief that expressing one's desires or beliefs can alter the course of universe (as exemplified in the current new-age crazes of The Secret and The Law of Attraction).
While I do believe that the universe is more quantum than most people realize, and so is in some way observer-driven, I have a hard time with the "Wishing will make it so" and "Clap for Tinkerbelle" crowd.
Reality is what it is. The more we learn about it and the more effectively we learn to deal with it the better. However, for all of their embracing of Taoist "yin-yang" concepts, many of my newest and dearest friends aren't terribly receptive to examining the dark side of the coin.
We all need to accept that if we don't deal with reality, eventually reality will deal with us.
Gliderguider
Yes, the universe is a lot more quantum than most people think and 90% of our reality is projected outward. (Well, most people think that collapsing the Psi function is sitting on a whoppee cushion.) The paradox between "positivism" and reality is only apparent. It is how one reacts to "reality" which determines whether one is "positive" or not. Skewing reality to appear to be positive is another story. It is simply delusional. Real positivism is a sort of non-warrior "tough as a woodpecker's lips" approach.
Taking a more Zen approach to the situation seems to help. Positioning yourself to minimize your pain down the road is good, and by all means keep fighting the good fight, but you also have to prepare emotionally. I’m trying to let go of the fear and dread, of the frustration of not being able to convince loved ones to do the same… I’m a lot closer now than I was a year ago, thanks in no small part to TAE.
If I’m among the ones that don’t make it, I’ll have no regrets. At least I’ll go into the night with eyes open.
LOL
Lots of "free" thinkers on this blog.
jal
With all due to respect and probable throat-clearing, it is my experience that derision has never been an effective method of promoting creativity. In fact, for many people, criticism and competition cause the exact opposite to occur.
You could make a judgment about people who don't think or act the way you do, if you like. That's where the "free" comes into the thinking. Just know that it probably does more to reinforce your own opinion than anything else.
Roccman
Hanson in the piece also said:
"I doubt that more than a few hundred people worldwide (perhaps far less) would be able to really understand the issues I raise in this paper."
Perhaps ol' Jay got too far down the rabbit hole there?
Team10tim said:
"having deeply held beliefs that were resistant to arguments and facts"
- a common condition I would say
"I can try to shame you into conforming"
- Yes lets try to shame people into conforming - always a good tactic.
ogardener
- no worries - at least on the prorogue and no stimulus part
Oh yes
How about a 1000 DAY depression?
Wild Gypsy: "it is my experience that derision has never been an effective method of promoting creativity."
Generally true. But what do you do about the totally delusional, who are completely fact-proof? My favorite example is the small-town mechanic who pushed, for over a year, the brilliant idea that electric cars could be recharged for free if you just put a wind generator on each one- making electricity from the speed of travel. He had a good following, too.
ogarener, as for the Cdn political situation I have clarity which is there is no party in Ottawa that can fix the economic crisis. Each will continue the well worn path of feeding our money to the banks, will create jobs in dying industries. I have been very active politically all my life. No more. I'm busy preparing...I like the word, " emergence" that I encountered in Kunstler's writing. Something will emerge and hopefully I'll be well placed to participate.
Quote Wild Gypsy
With all due to respect and probable throat-clearing, it is my experience that derision has never been an effective method of promoting creativity. In fact, for many people, criticism and competition cause the exact opposite to occur.
You could make a judgment about people who don't think or act the way you do, if you like. That's where the "free" comes into the thinking. Just know that it probably does more to reinforce your own opinion than anything else. end Quote
WOW!!
This is the biggest misscommunication that I've ever done.
My LOL was just that ... I found the responses funny and insightfull.
quote #1
Good idea, jal. Give humans a rumen (that could become a public mantra like "If the glove don't fit, you must acquit"), and we could skip the middlemen like cellulosic ethanol. Or maybe we could develop a human rumen that converts cellulose directly to ethanol.
#2
"Turn off the trafic lights and hire them as flagman/women"
Won't be enough traffic to justify that.
end Quotes
----
Let's not pursue the missunderstanding
jal
Wild Gypsy said...
You could make a judgment about people who don't think or act the way you do, if you like. That's where the "free" comes into the thinking.
Or, just maybe, the “free” comes into the thinking as “unbounded,” “not limited by preconceptions,” “beyond the contemporary,” or…
Hey choose a perspective by all means, but, just for a change, choose one that’s not derived by your opposition to another’s, really. It’s not terrible becoming. But, then again, ignorance never is.
jal: "WOW!! This is the biggest misscommunication that I've ever done."
Jeez, kid, you need to get out more! :-)
And I've got this project where we're inserting blue-green algae into chicken embryos, to convert feathers into nitrogen-fixing photovoltaic panels. We expect to have our prototypes working in about 5 years.
Tuttavia, essa si scioglie.
Greenpa said...
And I've got this project where we're inserting blue-green algae into chicken embryos, to convert feathers into nitrogen-fixing photovoltaic panels. We expect to have our prototypes working in about 5 years.
What a loser. We’ve already licensed our technology to an undisclosed Andean firm for use with condors. We had a deal with a firm based in a country with a massive coastline for use in albatross. Sadly, nobody could find a fucking albatross when we needed one. Seems they spend most of their time “off shore.” A lot like the rich and famous.
http://www.timesonline.co.uk/tol/driving/jeremy_clarkson/article5292547.ece
cheryl,
Was that a car review? Holy moly - you know the popular mood is sinking when a car reviewer spends more time dwelling in the doom and gloom section than actually writing about on his purported topic.
Jal, here is where I picked up my perception of your meaning... you wrote prior:
There are lots of “free” thinkers reading this blog.
There are scenarios being proposed of what could happen if ??? but there are no proposed long term solutions.
There is one solution to all the problems that have been raised that none of those “free” thinkers have spent time evaluation. Here it is. Think about it.
One of the biggest problems I have when I read statements such as this and I encounter them a lot when listening to folks is the broad generalizations made that categorize people. When I read statements like these, I never do know who the author is referring to. Is this all my problem that I never know how to take it?
What is the difference between saying "There are lots of X-people here, why don't they do such and such..." and saying, "We are all X-people, why can't we do such and such..." ???
If you didn't intend your statement as particularly derisive then I apologize. Most of the generalizations I encounter when reading usually are. For an example, consider the word sheeple. Perhaps you do or do not subscribe to it's use but it is widely used.
goritsas, you wrote:
Or, just maybe, the “free” comes into the thinking as “unbounded,” “not limited by preconceptions,” “beyond the contemporary,” or…
Well, this is along the lines of what I was thinking. Taking into account that people are not actually sheep, but human beings who may or may not have the ability to consciously influence their own evolutionary course, I have been just considering the following scenario which was recently presented to me.
The internet will soon be widely available to more and more people including those in impoverished nations. Many of these people will have vastly different reference points of experience, culture, education, and perception.
The hope is that the internet would prove for them as valuable a resource as it is believed to be for the nations that currently utilize it, for education, dissemination of information and the free discourse of ideas, for networking on a global scale and for exchange of political, social and economic currency in whatever form that takes.
So, I am sitting here imagining the blogosphere experience people from these other nations coming onto the scene trying to assimilate conversations such as these.
Barriers and limitations come in many forms. Are they all the product of ignorance? If so, whose ignorance?
So back to the 1000 year depression...
I agree that the situation we're seeing now can be seen more as the fall of an empire than a measly depression.
However...
As a historian and anthropologist, I don't think the time scale will be the same. As technology and communication improve, historical cycles speed up. Imagine the rise and fall of empires like Babylon, Persia, China, Maya, Egypt and Rome BCE. We're talking a thousand years. Same with the middle ages, mostly due to the loss of knowledge (Don't we love Vandals!)
However as technology and communication improved, the Imperial Cycle sped up.
So hopefully the fall of the US and Europe won't last 1000 years, but I'll argue that the affects, though shorter lived will be much more intense due to the rise of technology and communication.
Basically we've lost the ability by and large for self sustanance (look at the enclosure movement of the 1700s!)
Therefore more people will die faster and the feudalistic wars will be bloodier.
Hopefully I'm just a Scrooge here, but I'm trying to put another slant on this situation.
Well, I for one knew that jal's comment about LOL & free thinkers was said with enjoyment of the responses. And it's nice to know that I am not the only one who laughs at my own attempted humor :-)
Kluane - Thank you
Point of internet etiquette? Can one have trolls on blog comments or is the term restricted to news groups?
Again, I suggest that we all stop wasting our time with a topic that has been handled very well already on this how to deal with a denialist website.
Note that everything is so predictable in the discussion, and that all attempts to reason are a total waste of time.
"Denialist says something wacky...
Commenter or blogger corrects their mistake...
Denialist says same thing, changes argument slightly...
Commenter or blogger again corrects their mistake...
Denialist says something even wackier, says it disproves all of a field of science...
Commenter or blogger, exasperated, corrects it and threatens disemvowelment...
Denialist restates original wacky argument...
Commenter or blogger's head explodes, calls denialist an idiot.
Denialist says he won because commenter or blogger resorted to ad hominem."
There is nothing interesting about this process, once someone is clearly identifiable as such a type, you can bang your head against this wall as much as you want, it will not matter, you are wasting your time trying to reason with them. It's exactly like trying to talk to a 3 year old, don't bother, and don't further flatter the person by actually engaging them once you've determined that they are in fact one of these brain-damaged individuals.
kerrysl, just stop this junk, you're boring and all your ideas are predictable, as are your methods, so much so that the guys who wrote the webpage above list them all. So stop flattering yourself, you can't learn or reason, if you could you'd stop coming to such stupid conclusions and beliefs.
Sorry, but you're not worth talking to, ilargi, I suggest you just start deleting them, that's what I'd do if this were my blog, then they can find some other blog and scream and yell about being censored, which fits right into various stages of what that page lists.
Yeah, as Ilargi has demanded from afar, let's just drop the topic. As someone who recently completed a 10 day fast, I learned restraint. I no longer eat or read road kill.
Hey kerrysl, have you heard that our president-elect was actually born in Kenya, his Hawaii birth certificate is a forgery, and his real name is Osama bin Obama?
Ilargi said:
For climate "discussions" from now on, go to realclimate.org. Stay there for a month, read it all, and then come back without ever mentioning the topic again. I did not build this site to see it be dragged into nonsensical talk. Go tell your religious views to the experts at Real Climate, if you must, but not here.
Hi Ilargi,
Certainly I will accede to your request. It is after all your site.
Sorry for the earlier cross post, I didn't see your quoted above post until after I had hit the publish button, but I did want to thank goritsas for his time and effort.
I am aware of the site you mentioned and have read there before. I'm also aware of climateaudit.org as well as worldclimatereport. There are more than one side to the topic, but as you say it is not the main focus of this site.
Also since the majority are happy with the accepted group-think here, I will just happily glean the necessary financial stuff and let everyone happily continue in their own idea path. Better not challenge anyones accepted ideas.
Post a Comment