Tuesday, January 13, 2009

January 13 2009: The Study Of Scarcity

Russell Lee Ten cents March 1939
Mexican barber. San Antonio, Texas

Ilargi: Our friend Dan W. at Ashes ashes moves into rhyme:

Dan W:
There Once Was A Fellow Named Chet

There once was a fellow named Chet
Who accumulated way too much debt
With his credit cards maxed
And his house and car taxed
Our "friend" could do nothing but fret

For years he had gambled and spent
‘til he nary had even a cent
But he appeared to be healthy
Pretended ‘twas wealthy
So when he asked, more money was lent

Every night when his wife went to sleep
Chet would conjure new profits to reap
Then from out of the blue
Chet knew what to do
He’d make billions by fleecing some sheep

In a flash Chet was so very merry
For with only some nice stationary
His business was flying
Happy people were buying
Not a soul was the least bit wary

The reason for all of the glee
People thought they'd make money for free
Hook, line and sinker
Nary a free thinker
Bought all heard on CNBC

Within months the investors were many
Though Chet ne’er invested a penny
He took all the dough
And away he did go
He spent madly, he didn’t save any

Chet never dreamed he’d get caught
As he sailed ‘round the world on his yacht
He just kept mailing letters
To assuage all the betters
By convincing them they’d hit the jackpot

In time Chet had squandered his riches
And despite all of his newfangled pitches
When the investors came calling
Chet kept on stonewalling
Holding on by the seat of his britches

In the vault at Chet’s business address
Was the evidence of his excess
Leveraged 300 to 1
Chet was almost undone
Though any guilt he'd refuse to confess

In desperation Chet picked up the phone
And he begged his two friends for a loan
One was named Ben Bernanke
The other called Hanky
From them Chet found out he wasn’t alone

“There are others in debt just like me?”
“Who went on a huge gambling spree?”
Hank and Ben nodded yes
It was really a mess
From Morgan Stanley to AIG

So off to Capitol Hill
Flew Ben and Hanky to offer a bill
They looked oh so humble
That without barely a grumble
They were given a trillion to spill

(The truth of the matter of course
Is that Congressmen have no remorse
They too live like kings
On the wealth a thief brings
and they'll defend all their gold with brute force)

When Chet heard of the great news
He nearly jumped out of his shoes
And he got a huge sum
And was told to play dumb
If queried how, to politely refuse

And what did Chet do with the cash?
Did he pay down his debts in a flash?
Well, with no regrets
He made some new bets
And 10 billion away he did stash

And Chet’s buddies came up with a plan
To cover their friend's Ponzi scam
“ne’er admit fault”
“and lock up your vault”
If need be just go on the lamb

“As long as we keep up the lying”
“And make sure vaults are closed to eyes prying”
“we can keep you afloat”
“your survival promote”
“Despite the truth we’re belying”

The key to the success of their plot
And the way they would never get caught
The FED would keep spending
Put off defaults pending
Toxic assets would slowly be bought

Eventually the world would be saved
The end of an era off staved
And thank god the masses
Who sit on their asses
Would remain forever enslaved

But what's the real truth you may wonder
It's the Everest of debt we are under
Chet’s but an example
A miniscule sample
Of our nation’s terrible blunder

We've been ruined by the avaricious
Dishonest, and blindly ambitious
But who could compete
With the lies of Wall Street
And acts so very pernicious

Unregulated OTC tradings
Fraudulent housing loan ratings
More naked shorting
Oversight never thwarting
Thieves as legit masquerading

Accountants keep cooking the books
To keep the trail off of the crooks
professional thieves
All our money receives
While we're left looking like schnooks

We trusted Hanky and Ben
And thousands of other like men
We gave them our gold
And untruths we were told
And then blindly we did it again

And now the future looks bleak
Our wealth disappears every week
As the deficits rise
One must surmise
A collapse looms right as we speak

There's no way to fend off the trauma
When it goes, well look out mama!
Bond dislocation
Deadly deflation
And another trillion from Mr. Obama

Our obsession with John Maynard Keynes
Has seriously corroded our brains
"Spend and be saved!"
Completely depraved
Like heroin deep in your veins

But the Chet’s of the world will still thrive
Such well laid plans they contrive
While the rest of us starve
All the riches they’ll carve
Thieves always manage to survive

And now it’s the end of this story
A tale that’s both gruesome and gory
Of money and greed
And how some will mislead
Anyone to promote their own glory

Ilargi: More from the brilliant Two Johns. Eat your heart out, Jon Stewart and Stephen Colbert. I'll post part two tomorrow.

The Last Bubble—Barack Obama
The picture of Barack Obama standing between Bush Senior and Bush Junior in the Oval Office, along with Clinton and Carter in a hands-across-the-presidencies motif that Obama requested, gave me the creeps. Philosophy can be defined as the uncovering and examining of hidden assumptions--premises that haven’t been vetted. President-elect Obama and his team are running ahead with (and away from) premises they haven’t examined with regard to America and its economy. Obama is trying to ‘jump start’ a junk economy, but it’s dead and gone. How many billions will they flush down the drain before they realize it?

When he finally does see the light, Barack will face a choice—articulate an entirely new vision for America in the context of the global economy (that is, humankind as a whole); or stay stuck in the doldrums for years, maybe a decade. Continuing to think in terms of “giving our children the chance to live out their dreams in a world that’s never been more competitive” is a guarantee they’ll live in a country that is neither cooperative nor competitive. One of the unexamined ideas of team Obama is that economic activity is solely a function of buying and selling, and that if they can just ‘jump start’ the buying and selling again, economic health will return.

In a glutted market, economic activity isn’t primarily a function of demand and supply. At some point (which we’ve reached), the pursuit of glut runs out of gas. Then it becomes a matter of people’s priorities. Americans are finally beginning to realize that things can’t fill their emptiness. After people have enough food, and adequate shelter and clothing, the market reflects what they think is important. In other words, people’s values.

It’s an interesting exercise to speculate (pardon the pun) what percentage of unnecessary stuff comprises the American economy. The percentage of junk (unnecessary stuff people buy with ‘discretionary income’ or on credit, out of advertising-whetted appetites, class consciousness, fads, or passing desires) went from an estimated 35% of GDP in 1965 to 65% in 2005. That’s a lot of glut. But that is a word you never hear in America—‘glut.’ Economists and politicians use words like ‘overhang’ to describe an excess of things. This reflects another unexamined assumption about economic activity—that it can be reduced to mechanical analysis, terminology, and correction.

Simply put, the rich and powerful of America have promoted for decades buying as much junk as possible, big and small, by providing seemingly endless lines of credit to do so. The housing bubble was just the latest, greatest expression of this trend, turning millions of formerly solvent people into speculators, while selling mortgages to anyone who could put a signature to paper. No amount of ‘jump-starting’ will put life back into a battery that’s dead. As some economists have said, we didn’t have a sub-prime loan crisis; we have a sub-prime economy crisis.

Barack Obama sees and sets forth a false choice. He thinks he has to choose between the divisive partisan politics that characterized the Clinton and Bush eras, or a patriotic appeal to “put the urgent needs of our nation above our own narrow interests.” At the core level, Obama thinks he can bring us all together as Americans to solve our economic problems, but there are tens of millions of people for whom being an American no longer means much.

On one side are the countless ranks of the completely self-concerned, people who are patriotic when it serves their interests or appeals to their transitory emotions. On the other side are people who emotionally perceive themselves first as world citizens rather than American citizens. The latter are a distinct minority, to be sure, but our numbers are growing. “I don’t believe it’s too late to change course,” Obama said in an important pre-inaugural speech on 9 January. But it is too late to ‘jump start’ the America we’ve known since World War II, and it has been for well over a decade. It isn’t, however, too late for humanity, and that is the way ahead for America.

In short, it’s not the economy, stupid; it is the fact that the American spirit died years ago, and it’s just showing up in the political economy now. How can America regain its soul (or, to put it in terms Americans understand, our economic vitality)? Only when enough of its people, and its president, deeply place America in the context of humanity, and cease putting humanity in the context of America, will this nation have a rebirth.

Government Finds Itself in Hole, Keeps Digging
If it seems incongruous for elected officials to talk about budget discipline in the same breath as trillion-dollar deficits, it is. President-elect Barack Obama is being encouraged by economists of all stripes to err on the side of doing too much to get the economy moving again. The bidding starts at $775 billion; only the naive believe it will stop there. While Obama was in Washington pushing his agenda last week, the Congressional Budget Office was pouring cold water on the rollout. CBO projects a federal deficit of $1.2 trillion in fiscal 2009, 8.3 percent of gross domestic product, the biggest share of GDP ever with the exception of the periods during the two world wars.

The CBO estimates do not take into account the fiscal stimulus package, a.k.a. the American Recovery and Reinvestment Plan. That package will find a new urgency after Friday’s employment report for December closed the book on 2008 and its 2.6 million job losses, the biggest decline since the end of World War II. Even scarier for those who measure the size of government by how much it spends is the projected jump in outlays to 25 percent of GDP, according to CBO, the highest since 1945. If economics is, as it’s sometimes defined, the study of scarcity, then resources available to the private sector just got a whole lot scarcer.

Obama held up government as the only solution to the current problems. “Only government can provide the short-term boost necessary to lift us from a recession this deep and severe,” he said in a Jan. 8 speech at George Mason University in Fairfax, Virginia. “Only government can break the vicious cycles that are crippling our economy.” He neglected to say that only government can borrow trillions of dollars at miniscule interest rates. With yields on Treasury bills close to zero, I’m surprised the government hasn’t come up with a plan to borrow forward. Why not capitalize on the demand for super-safe T-bills and sell three-month bills one year from today?

How long the U.S. can count on the kindness of foreigners is an open question, not to mention a potential Armageddon scenario for the Federal Reserve if the dollar collapses. Confronted with a fiscal situation that is bad and getting worse, what’s the government to do? Even some groups dedicated to fiscal discipline concede the government has a responsibility to offset the decline in private demand. That the discretionary spending binge comes at a time when the retiring baby boomers are adding to existing strains on the government’s retirement and health-care systems (Social Security and Medicare) is an unlucky twist of fate -- or perhaps a needed wake-up call.

The challenge is “doing what’s necessary in the short-term without aggravating what’s already a monumental long-term problem,” says Susan Tanaka, director of citizens’ education at the Peter G. Peterson Foundation, a group dedicated to increasing public awareness about America’s fiscal future. The spending and tax cuts “should be temporary, targeted and efficient,” she says. “There is never an excuse for wasting money.” Some of Obama’s supposed $300 billion in tax cuts -- credits for workers who pay no income tax, for instance -- is government spending by another name. (The first step in greater transparency is telling it like it is.) Even in the face of $56.4 trillion of unfunded promises for future Social Security and Medicare beneficiaries -- $483,000 per household -- some economists are arguing that bigger (fiscal stimulus) is better. They cite statistics showing that every $1 of public spending translates into $1.50 of GDP.

If that’s the case, “why not do it every year?” says Andy Laperriere, managing director at the ISI Group in Washington. The way he sees it, if consumers use the $150 billion of “tax cuts” to pay down credit-card debt, “we have $150 billion in government debt,” the burden of which ultimately falls on the taxpayer. The transaction boosts “short-term GDP at the expense of long-term GDP,” he says. “The only way the stimulus package makes sense is to halt a downward spiral, to stop a freefall,” he says. Obama promises the stimulus package will be kosher (pork- free, in other words). Management consultant McKinsey & Co. will be looking over his shoulder to ferret out any government waste and inefficiencies. (Former McKinsey consultant Nancy Killefer was named to the new post of chief performance officer.) And all those bridges that will be part of infrastructure spending? I have one or two to sell you.

The dire state of federal finances presents an opportunity to educate the public, make the costs of government programs more transparent and “change the political environment so lawmakers can make the decisions they need to make,” Tanaka says. “We talk about finding ‘efficiencies’ in health care, but these are euphemisms for not being able to get the volume of services we’re used to,” she says. “Everybody wants coverage. What are they willing to pay for it?” Medical care may appear to be “free” to employees whose insurance premiums are paid by the company, but “it’s not free,” Tanaka says. “It’s coming out of wages.” Until voters accept that there’s no free lunch, it’s hopeless to expect politicians to get the message.

World Economic Forum warns of rising risks
The risk of serious fiscal crises in developed countries has “doubled if not tripled”, according to the World Economic Forum’s report on global risks ahead of the gathering of government and business leaders in Davos later this month. The report predicts that massive government spending to shore up financial systems will threaten countries such as the US, UK, France, Italy, Spain and Australia, which are already in a precarious fiscal position. Coupled with the risk of a hard economic landing in China – defined as growth slowing to below 6 per cent – the effects would “significantly damage the weakening global economy”, the report says.

The global credit crisis that accelerated in the wake of the collapse of US investment bank Lehman Brothers last September has caused a seizure in the financial industry and threatens a long-term credit drought for individuals and companies. This has already exacerbated the normal business cycle and has led to fears of a global economic slump and a continuing collapse in asset prices. Daniel Hofmann, group chief economist at Zurich Financial Services, a contributor to the report, said that while falling asset values and other big financial risks had already materialised on 2008 it would be premature to think that the worst was past. “There is a worse risk of fiscal crisis in a developed economy this year compared with last year. This risk has doubled if not tripled recently,” he said. “One of the biggest [financial] risks is that short-term crisis fighting may induce business and governments to lose the long-term perspective on risk.”

However, in addressing the rising risks related to the potential freezing or breakdown of corporate supply chains, Mr Hofmann said the WEF did not see any need for governments to intervene as there was no apparent systemic component to these risks. “Government action should be only for systemic failure. So, for the banking system, yes; for car manufacturers, no,” he said. The other big risks highlighted in the report, published on Tuesday, were gaps in global governance and issues relating to natural resources and climate change, such as problems with the supply of food, water and energy. John Drzik, chief executive of consultants Oliver Wyman, said one of the lessons of the financial crisis was the realisation of how interconnected global systems had become. He said this was equally important in all areas of risk in the modern world, including food, water and energy.

The cutting off of gas supplies to countries such as Bulgaria after an argument between Ukraine and Russia is one big, recent example of this. “We have now an opportunity to realise and look at other risks through the same lenses [as financial interconnectedness],” he said. However, the risks presented by the consolidation of the banking industry in the wake of the crisis into fewer, larger institutions was not a concern of the report. Sheana Tambourgi, head of the WEF’s global risk network, said: “In the next year, we will look at whether this creates new risks.” Mr Hofmann added: “Crisis is a catalyst for strong structural change. It is not our place to predict the future structure of the financial industry. It would be ridiculous for us to posit the potential emergence of new players.”

Ilargi: Dean Balker tells the story as it is. Governments should protect their citizens, not their banks. Alas, they do the opposite. Still, when Baker says :"This proposal is very simple and costless", he's losing sight of reality. It's not costless, it's just cheaper than all other proposals so far.

Right to Rent: Helping Homeowners Without Throwing Money at Banks
We got into the current economic crisis because many very smart people with outstanding credentials were unable to use simple arithmetic. If they knew arithmetic, they would have been able to see an $8 trillion housing bubble that was right in front of their faces. The basic story was incredibly simple and obvious, at least as far back as 2002. After just following the overall rate of inflation for the hundred years from 1895 to 1995, house prices began to hugely outpace the rate of inflation in the mid-90s. Not coincidentally, this run-up in house prices paralleled the run-up in stock prices.

As was the case with Japan, the United States had a stock bubble and real estate bubble growing side by side. Unlike Japan, where the two bubbles crashed simultaneously, the crash of the stock bubble fed the growth of the real estate bubble in the United States. By 2002, nationwide house prices had increased by almost 30 percent above their trend levels. By their peak in 2006, they had increased by almost 80 percent above their trend level, creating more than $8 trillion in housing bubble wealth. The inability of economists and the financial industry to see this enormous bubble was the basis for the current crisis. Remarkably, most discussions of housing policy still ignore the bubble.

It is often argued that we need to stabilize house prices. In many markets this is a desirable goal. However, in many markets in California, Florida, and the Northeast, where the bubble has not yet fully deflated, it would be counter-productive to try to sustain house prices at bubble-inflated levels. Prices in these markets will eventually fall to their trend levels; the only question is how fast. Unfortunately, many of the same policy wizards who wanted low and moderate-income families to buy homes at bubble-inflated prices in the years from 2002-2007, would still want them to buy houses at bubble-inflated prices today. They somehow think that the best way to accumulate wealth is to own a home that is falling in value.

Even worse, they want to use lots of taxpayer dollars to keep people in homes in which they have no equity. Representative Barney Frank is one of the key villains in this story. His top priority is to use the TARP money to pay banks for their bad mortgages, so that people can stay in homes with no equity. This one is really baffling as economic or social policy. Should we pay a bank $20,000 in order to keep a homeowner in a home in which they have zero equity? How about $30,000? How about $50,000?

It costs a bit more than $3,000 a year to pay for a kid's health care under the State Children's Health Insurance Program. We can all understand the benefit of health care for kids. Is it worth 17 kid-years of health care to keep someone in a home in which they have no equity? There is a simple no cost, no bureaucracy alternative to Frank's plan to hand tens of billions to banks. (Remember, the banks get the checks under Frank's plan, not the homeowners.) We can simply temporarily change the rules on foreclosure to give people facing foreclosure the right to rent their homes at the market rent.

This is extremely simple and can go into effect the day after Congress passes the rule change. Judges or the court officers handling a foreclosure would be required to ask the homeowner whether they want to stay in their house as a renter. If they say yes, there would be an appraisal of the market rent of the home, and the homeowner would then have the option to stay in the house for a substantial period of time (e.g. 10 years), paying the market rent. This would immediately give the homeowners facing foreclosure security in their housing. If they like the house, the neighborhood, the schools for their kids, they would have the right to stay there. It would also end the problem for neighborhoods of empty foreclosed houses. And, it would give banks real incentive to negotiate terms that allow people to stay in their homes as owners.

This proposal is very simple and costless. It is also possible to build onto this proposal with mechanisms that facilitate the transition to renters or allow buyback options as Bernard Wasow of the Century Foundation and Daniel Alpert from Westwood Capital have proposed. But, the key point here is that it is simple to find a way to help homeowners that doesn't help banks, if we are prepared to give the issue a bit of original thought. Fear of original thought among our top policy experts was the problem that got us into this enormous mess. We should not let the same group of failed experts perpetuate the damage that they caused by their fear of thinking.

S&P threatens to strip Spain of top AAA rating
Standard & Poor's has threatened to strip Spain of its coveted AAA rating as the country's budget deficit explodes, offering the clearest warning to date that even wealthy states are running out of room to borrow. The move caused fury in Madrid and revived fears in the currency and bond markets about the underlying health of Europe's monetary union. Spanish officials are irked that S&P has placed Spain's debt on "CreditWatch Negative", a notch lower than the "outlook" alert issued on Irish bonds last week. It is the first time that a AAA country has suffered such a harsh verdict since the start of the global financial crisis. Such a move typically precedes a downgrade within weeks but the finance ministry insisted last night this would not be allowed to happen. "There's not going to be a rating downgrade because we are taking measures to overcome the crisis," it said.

Trevor Cullinan and Myriam Fernández, the agency's analysts, said the housing crash had set off a downward spiral in Spain that would drive the budget deficit above 6pc by 2006, double the EU's Maastricht limit. "We expect a substantial worsening in the Kingdom's public finances," it said, predicting 2pc contraction in 2009 and a long slump as years of credit excess are slowly purged. Spain is discovering the limits of action within the eurozone. It can no longer let its currency take the strain, or follow the US, Switzerland, Sweden, Britain, in slashing rates. Indeed, Frankfurt raised eurozone rates last July at a time when Spain's housing crash was already under way. Unemployment has surged to 13.4pc, breaking the 3m barrier. Michael Klawitter, from Dresdner Kleinwort, said Spain was now crumbling on every front. "Tax revenue is collapsing. There is a banking crisis and a massive deterioration linked to housing.

It is arguable that Spain has already let matters go past the point of no return," he said. "We are going to see fresh talk about the sustainability of monetary union and it is going to get messy. Spain is the most pro-EMU of the big states so there has not been any backlash against EMU, but who knows what will happen," he said. Ian Stannard, a currency strategist at BNP Paribas, said Spain needs to raise €70bn (£63bn) this year on the bond markets, both to roll over old debts and to pay for a fiscal rescue package worth 1pc of GDP. Europe's bond supply will reach €765bn this year, up 15pc from 2008. It is far from clear whether the markets can absorb so much debt. Although Spain's public debt is modest at under 40pc of GDP, this may not prevent a downgrade. "The economy is less resilient than any other AAA state. It is more dependent on real estate and tourism, and there is very high corporate debt. Household debt is close to levels in Britain and the US," said Mr Fernandez.

OECD warns over growth in China, Germany and Russia as downturn goes global
China, Germany and Russia are showing the fastest pace of deterioration among large economies as the entire global system succumbs to a "deep slowdown", according to the Organisation for Economic Co-operation and Development. The warning came as China's Banking Commission said it would prove "exceptionally difficult" to meet the country's 8pc growth target for 2009, the level seen as crucial to prevent unemployment from rising and setting off civic unrest. "The downside risk to the Chinese economy is even worse than expected," said the chief regulator, Liu Mingkang.

The OECD's gauge of "Leading Indicators" which gives warning of trend changes a few months in advance shows an abrupt rupture in Asia and among commodity producers, with the most damage surfacing in countries with an export surplus that depend on sending goods abroad. The index for Russia has seen the sharpest slide, falling 4.3 in November, China fell 3.1 and Germany was down 2.0, the worst performer in the G5 bloc for the third month in a row. China's exports began to fall in November as the global recession wrought havoc on the textile, toy and steel industries. The central bank has cut interest rates fives times in the past three months and let the yuan slip. Premier Wen Jiabao said Beijing will broaden its $600bn (405bn) fiscal stimulus package by bringing forward investment in science and technology projects.

This may include plans for Chinese-built passenger jets able to match Boeing and Airbus. "Our aim is to be the first to recover from the financial crisis," he said. Mark Williams, from Capital Economics, said the stimulus would not gain traction until the end of the year. "We think that growth could fall as low as 5pc this year [down from double-digit rates in the boom]. This is more bad news for commodity producers," he said. Charles Dumas, from Lombard Street Research, said countries that rely too much on exports to fuel growth are starting to pay the price as they are at the mercy of forces beyond their control. "Chinese, Japanese and German exports have crashed," he said.

"Savings gluttons suddenly look worse than deficit countries." China has been spending 40pc of GDP on business investment, creating huge excess capacity geared to world markets. It is no longer tenable to keep building factories at this rate. "Business capital spending is driven by exports," Mr Dumas added. The question is whether Beijing can stimulate demand at home fast enough to offset belt-tightening by Chinese workers afraid of losing their jobs. The OECD's data shows that Britain took its punishment early but is now declining at a slower rate than other major countries, suggesting that radical action by the Bank of England has begun to cushion the economy. India and Brazil have both begun to tip over after holding up well in the early stages of the crisis, driving the final nails into the coffin of the BRICs (Brazil, Russia, India, China) story promoted by eager City banks at the height of the boom at least for now. It seems every corner of the world has at last been drawn into the vortex of recession.

Citi: The Losses Keep Coming
Beyond any gains that come from a brokerage deal, investors expect more pain from souring loans to consumers, commercial real estate, and businesses. There are a few reasons why news of Citigroup's potential sale of Smith Barney depressed investors on Monday. It's not just that CEO Vikram Pandit is retreating from his earlier statements that there would be no great deviation of strategy. It's that the turnabout is a red-flashing warning signal that the bank needs yet more fresh cash to make up for coming losses. Among the culprits: souring loans to consumers, commercial real estate investors, and assorted small and midsize businesses.

The consequences of bad lending in those areas during the credit bubble have yet to hit Citi, whose stock price tumbled 1.15, or 17%, on Jan. 12, to 5.60. But they're coming this year and next on a storm path like the subprime mortgage hurricane before them. Also, even though the government wrote Citi a huge insurance policy in November on $306 billion of toxic real estate assets, the bank faces a massive deductible: Citi must cover the first $29 billion of losses from those assets. "We may have to come back to the issues that were at the heart of original congressional action, which was about the toxic assets," says Peter Peyser, a senior principal with Blank Rome, a government affairs firm in Washington. "The judgment was made that capital purchases were more important immediately, and that may well be true. But the capital purchase has not been by itself the thing that unlocks the credit markets and gets the banks lending to one another, much less consumers and businesses."

The partial sale of Smith Barney to Morgan Stanley, expected to be announced after a board vote later this week, would give Citigroup an aftertax gain of up to $6 billion, according to reports from the Associated Press. But that's likely an iota compared with what the big bank is harboring in losses in the form of souring mortgage and other real estate-related securities. By some estimates Citi will post an eye-popping $10 billion more in losses when the numbers come in for the fourth quarter. The company will discuss the quarterly and full-year 2008 results on the morning of Thursday, Jan. 22. The bank has lost about $18 billion in the past four quarters. It is also sitting on a portfolio of toxic assets that have been marked down from their original value by some $49 billion during the same time frame.

In a credit cycle that is expected to be more severe than any other in the past, Standard & Poor's anticipates that the bank will have another tough year and possibly four more quarters of losses this year, according to a new report issued on Jan. 8. "Of greatest concern," says the S&P report, "are the $68 billion home equity loan portfolio and the high-loan-to-value loans underwritten with limited documentation, which are suffering steeply escalating losses." The report also underscores that potential losses on other types of assets are not covered by any government guarantee, including those in the credit-card business, which the report cites will likely surpass those recorded in previous credit downturns. Some $166 billion in foreign-consumer loans are also outside any implicit U.S. government guarantees.

Even though the government has pumped some $45 billion into Citi's coffers and has backstopped the losses for poorly performing assets, the market still has yet to gain confidence in a recovery of either the real estate sector or the overall economy. Many large, institutional investors are questioning the government's strategy of injecting troubled institutions with ever more cash. They view the infusions as giant sinkholes that don't address the problem of dispensing with the bad assets. A growing contingent of investors believe that far more draconian measures are required to get the economy and the banking industry back on its feet.

"Confidence and optimism have no foundation if people and businesses have no money," says Lynn Tilton, CEO of Patriarch Partners, a private equity investor. "The U.S. banking system is insolvent. [We] need to take losses and deleverage. I am frightened by the fact that no one seems to know what to do and that money will get spent with no positive effect. Banks are not lending. They are using every opportunity to pull loans and force liquidations. Something must change, and quickly."

Bank of the United States
At first glance, Citigroup's endorsement last week of a Senate plan to allow bankruptcy judges to break mortgage contracts looks like a scene from "Goodfellas." Since October, the government has invested $52 billion in Citi, while agreeing to eat up to $249 billion in losses on the bank's toxic real estate portfolio. And so it's really hard to say no when those Washington "investors" call for a favor. In the 1990 Martin Scorsese movie, a restaurant owner realizes too late that a partner big enough to protect him is big enough to take everything he has. As Ray Liotta narrates, "Now he's got Paulie as a partner. Any problems, he goes to Paulie. Trouble with a bill, to Paulie . . . But now he has to pay Paulie."

The problem with Citi's capitulation is that it means that not just Citi will have to pay the Beltway outfit if the bill passes. Other banks, borrowers and taxpayers will also suffer. In fact, this deal is looking more and more like a case of Citi colluding with its new political owners in order to force competing banks to break contracts and take more losses. This kind of politicized banking is precisely why the Bank of the United States was shut down in the 19th century. After years of resisting, Citi has suddenly signed off on Senator Dick Durbin's plan to allow judges to rewrite mortgage contracts for borrowers in Chapter 13 bankruptcy. Under the Illinois Democrat's plan, which is earmarked for inclusion in the pending stimulus bill, judges could reduce the amount of principal, lower the interest rate, and change the length of the mortgage term.

Until Washington embraced the politics of housing panic, even sensible Democrats recognized that allowing such mortgage "cramdowns" was a terrible idea, sure to punish future borrowers with higher rates as lenders calculate the increased risk. The Congressional Budget Office warned in January 2008 that such a change could result in higher interest rates for homeowners and bigger caseloads in bankruptcy courts. In 2007, 16 House Democrats signed a letter opposing similar legislation. They realized that the consequences would fall hardest on those hoping to buy a home, if markets logically respond by setting mortgage interest rates closer to those on, for example, auto loans or credit cards. A bankruptcy judge is now free to reduce amounts owed on many types of consumer debt. For mortgages, the iron-clad requirement to pay off the loan or lose the house is precisely to encourage lower rates on a less risky investment.

Supreme Court Justice John Paul Stevens described the importance of this principle in 1993 in Nobelman v. American Savings Bank: "At first blush it seems somewhat strange that the Bankruptcy Code should provide less protection to an individual's interest in retaining possession of his or her home than of other assets. The anomaly is, however, explained by the legislative history indicating that favorable treatment of residential mortgages was intended to encourage the flow of capital into the home lending market." Mr. Durbin argues that borrowers won't be able to enjoy the benefits of a cramdown until they first make an effort to negotiate new terms with their lenders before declaring bankruptcy. Also, to counter the perception that they are harming the mortgage market, Mr. Durbin and Senate colleagues Chris Dodd and Chuck Schumer are proposing that cramdowns only be available for mortgage contracts signed before their bill becomes law. But of course lenders will have every reason to assume that, whenever the going gets tough, Washington will let future borrowers break contracts too.

Mr. Durbin and his allies have tried and failed several times to break the cramdown opposition, and they believe Citi finally gives them the club to prevail. As Mr. Schumer noted in a press release, "Citigroup's support means that the dam has broken across the banking industry. We now have a real chance to pass this legislation quickly." Talking point number one for Democrats is that if giant Citigroup is for this plan, why would anyone oppose it? In fact, Citigroup may support this plan precisely because it isn't a big player in the mortgage market. Sure, it has some dodgy mortgage-backed securities on its books, but they've been written down and the feds cover 90% of losses beyond $29 billion in any case. When it comes to making loans, however, Citi originates less than 10% of American mortgages. Citi is falling further behind J.P. Morgan Chase, which acquired Washington Mutual; Wells Fargo, which acquired Wachovia; and Bank of America, which bought Countrywide.

J.P. Morgan's mortgage business is now twice the size of Citi's, while Wells and BofA each originate almost three times as much dollar volume as Citi. So in agreeing to Mr. Durbin's offer, Citi is also volunteering its competitors to write down more mortgages, giving Citi a comparative advantage. But the unintended consequences could make even Citi rue the day it got in bed with the goodfellas on Capitol Hill. If the possibility of this refinancing-via-bankruptcy encourages more people to declare bankruptcy, that would mean additional losses on Citi's credit cards and auto loans. Having spent the past year committing taxpayer trillions to support American banks, Washington now seems not to mind at all if its latest bailout drives up bank losses on mortgages, credit cards and other loans. The Senate could soon make Paulie look like a reasonable business partner.

Banks gird for commercial property collapse
Banks had to slash the value of their holdings in residential mortgage-backed securities aggressively last year as the U.S. housing market collapsed and home prices fell. Now, a looming spike in commercial real estate loan defaults could cause even more pain. Though securitization of commercial mortgages all but stopped last year as credit markets tightened and the global economy slipped into a recession, more than $230 billion in bonds backed by the loans were issued in 2007, according to Commercial Mortgage Alert, a publication tracking the industry.

As the commercial real estate market withers, banks holding the securities could be forced to take big write-downs, further battering already bruised balance sheets. Some of the biggest financial institutions have huge, potentially troublesome commercial real estate stakes, Standard & Poors data shows. Based on information in their most recent financial reports, Citigroup and Barclays each had more than $20 billion worth of commercial mortgage-related investments. Merrill Lynch, acquired by Bank of America last year, had some $19.7 billion in such investments, according to S&P.

The commercial real estate market’s increasing weakness could lead to a big jump in the default rate on those securities, Fitch Ratings said in a report last week. Worrisome stuff. Indeed, default rates for securities issued over the past few years, when the real estate market was at its zenith, could increase two-and-a-half times, from 0.6% last year to 1.5% in 2009. “Loans originated at market peaks experienced from 2005 through 2007 will face increasing defaults as real estate performance declines during the stressed economic climate of 2009 and beyond,” said Fitch Managing Director Eric Rothfeld in a statement.

More defaults could lead banks to write down their commercial real estate loan and CMBS holdings. Such a scenario would seem to be a lock. As companies buffeted by the sour economy laid off workers, scaled back or cancelled plans to expand and put off new investments in office space in the second half of last year, rents fell and demand for newly constructed buildings evaporated. Some who borrowed to build or buy commercial real estate may find it hard to pay back that debt now.

“After several years of strong and often spectacular growth, transaction volume declined precipitously in 2008 and market fundamentals began to weaken as a lack of capital and a lack of confidence forced investors and corporate tenants to the sidelines,” NAI Global, a commercial real estate group, reported in its year-end review of the market. Banks worldwide have reported write-downs and credit losses of $741 billion since mid-2007, according to data compiled by Bloomberg.

Giant Bank in Probe Over Ties to Madoff
Spanish prosecutors are investigating how Europe's second-largest bank, Banco Santander SA, lost more than €2.3 billion ($3.1 billion) for clients by investing with Bernard L. Madoff. Santander itself lost just €17 million. Prosecutors said Monday they want to know the details of Santander's relationship with Mr. Madoff's firm and when Santander knew about problems related to it. Mr. Madoff, left free on bail by a judge's ruling Monday, greatly extended his reach through an international network of feeder funds that funneled their clients' money into his alleged pyramid scheme. Santander was among the most active of these, bringing wealthy clients from all over Latin America and Europe into Mr. Madoff's sphere.

The potential damage to the bank's reputation and profits is particularly acute in Latin America, where the bank does almost a third of its business and has planned to expand -- and where two-thirds of the losses were, said a person familiar with the matter. Santander's clients' losses from Madoff investments are by far the largest reported at a single bank. HSBC Holdings PLC, the only Europe-based bank bigger than Santander by market value, has said it has $1 billion of exposure. Much smaller enterprises feeding to Mr. Madoff include those run by two relatives of Santander Chairman Emilio Botín -- his son Javier Botín-Sanz and son-in-law Guillermo Morenés.

Santander has largely skirted damage from the global financial crisis. Mr. Botín talked proudly last year about how the bank had avoided troubles experienced by other institutions by sticking to commercial banking and shunning exotic financial instruments. The bank had become a rare corner of stability, buying up more distressed banks whose value had plummeted. Last July, Mr. Botín appeared via video before 500 bankers at a gala award dinner in London, reminding them, "Santander is one of the few banks to have successfully come through the financial turbulence of last year, unaffected by toxic financial instruments." In the address, recorded in Santander's headquarters outside Madrid, he went on to admonish the gathered bankers: "If you don't fully understand an instrument, don't buy it. If you would not buy for yourself a specific product, don't try to sell it."

Spain's anticorruption prosecutor will be looking closely at the relationship between Santander, the investment fund Fairfield Greenwich Group, and the Madoff funds, the prosecutor's office said. Investigators said they want to know why Mr. Botín sent one of his chief lieutenants to see Mr. Madoff in New York just weeks before the scheme collapsed. Rodrigo Echenique, who has been close to Mr. Botín for many years, visited Mr. Madoff in his New York office at the end of November. Investigators say they want to know whether Santander was aware of any problems at Mr. Madoff's firm then. Santander declined to comment on the trip or make Mr. Botín available for comment. Mr. Echenique also declined to comment on the trip.

Investigators say they also are focusing on the role of Fairfield partner Andres Piedrahita, a Colombian who lives in Madrid. He funneled client money into the Madoff funds, and according to marketing materials he also managed at least one other fund on Santander's behalf that had losses from Mr. Madoff's alleged fraud. Mr. Piedrahita and Fairfield declined to comment. The prosecutor also is looking into Santander's Swiss-based hedge-fund unit, Optimal Investment Services SA. Investigators want to know whether managers at Optimal knew of problems at Mr. Madoff's operations when it marketed his funds to investors, a spokesman for the prosecutor's office said.

Investigators said a third issue they are looking at is the resignation of Manuel Echeverría, who presided over the Optimal fund while it built its relationship with Mr. Madoff. He left the bank on June 30 after 19 years there. Five colleagues also quit at the same time. Mr. Echeverría said in an interview that he left because Santander was trying to sell its asset-management business last year. The sale was dropped after the bank failed to find a buyer. "This was totally unrelated" to the imminent losses at Optimal or the collapse of Mr. Madoff's alleged scheme five months later, he said of the departures. "We decided to leave for totally different reasons."

Mr. Echeverría noted that only one of 12 funds managed by Optimal was exposed to Mr. Madoff's alleged fraud. "I had built a business that was very diversified," Mr. Echeverría said. "It wasn't only a Madoff business." Analysts and investors point out that the fund concerned -- Optimal Strategic U.S. Equity -- accounted for nearly 39% of Optimal's total assets under management, saying that was an unusually large proportion. Santander said that it commissioned Mr. Madoff's firm to "execute its investments within the framework Optimal established for this fund." The bank declined to elaborate. Mr. Echeverría and his five colleagues are now at a Geneva wealth-management company called Notz, Stucki. About two-thirds of losses incurred by Santander clients were borne by investors in Latin America, said a person familiar with the matter. Santander has the largest market share there, and Optimal was marketed there before it was brought to Spain in the past few years.

Santander clients in Mexico took the largest hit, losing close to $400 million. Argentine clients lost around $350 million, and Brazilian clients lost some $300 million, the person said, adding that all told as many as 3,000 Latin American clients lost money. Customers typically invested 10% to 20% of their assets in the Optimal Strategic fund, Santander's main Madoff vehicle, which marketing materials called a low-risk product. But some invested up to 80%, the person said. A number of Santander clients are threatening to remove their remaining funds, and some are contemplating suing the bank for negligence, people familiar with the matter say. "Some clients have approached me to explore the matter," says Ernesto Canales, a leading corporate lawyer in Monterrey, Mexico's industrial capital.

Months later, pall still hangs over muni market
The municipal bond market is facing dramatic changes in 2009 following a series of developments in 2008 that shook investor confidence and hurt issuers’ ability to raise needed money. Retail investors instead of institutions are now in the buyside drivers seat. “We’re basically expecting that muni issuance will be at whatever level retail demand can meet,” Phil Fischer, a muni strategist at Merrill Lynch, said about 2009. “It’s a very different market.”

Tax-exempt issuers will need major help to stay afloat. “We need relief like a reversal in the economy or a handout from Uncle Sam,” said Richard Ciccarone, a managing director at McDonnell Investment Management in Oak Brook Illinois, referring to federal help for states and local governments. Without some help or change on the economic front, Mr. Ciccarone said more municipal bankruptcies and bond defaults may be in the cards. In the second half of 2008, Mr. Fischer said he realized that problems in the muni market were not isolated events, but part of a fundamental shift in how tax-exempt bonds are bought and sold.

“This is about as radical a change we’ve seen,” Mr. Fischer told Reuters. “We knew about it very quickly, because in 2007 the insurers and the auction market got into trouble,” he said of the market’s rocky state at the start of 2008. “But it really came home to roost when the property and casualty insurers shifted from net buyers to net sellers.” The list of events in 2008 included: most muni bond insurers lost their top ratings due to exposure to subprime mortgages; the auction-rate market froze and trapped investors and issuers; underlying muni ratings lost credibility; huge market liquidity providers like Bear Stearns; investors fled tax-free mutual funds; cross-over buying stalled and yields shot higher.

Finally, insurance companies like American International Group that had reliably bought up munis started selling. “You can’t look back at any year and see so many factors that had gone negative for municipals all at once,” Mr. Ciccarone said. The market experienced “very extreme” bifurcation, Mr. Fischer said. The buyside, once dominated by institutional investors, is now the domain of retail buyers, who rarely look beyond highly rated bonds due in 10 years, he said. An exodus out of tax-exempt muni funds began in September and has shown no sign of abating, increasing selling pressure in the already-troubled market, according to Mr. Fischer. And muni bonds with less than stellar ratings are saddled with high yields.

Merrill Lynch’s Municipal Master Index had a negative 3.95% total return for 2008. While the index for triple-A-rated bonds was slightly positive, the return on triple-B-rated debt was negative 22.38%. One of the best examples of how out of whack municipals became is in their current relationship with taxable U.S. Treasuries. Top-rated munis began 2008 yielding a normal 85% of 30-year Treasuries and 79% of 10-year government bonds, according to Municipal Market Data. On Friday, 30-year munis yielded nearly 180% and 10-year munis yielded 146% of comparable Treasuries, marking an astounding turnaround in the relationship between the two markets.

While Treasuries benefited from a flight to quality out of the plummeting stock market, munis remained suspect due to their laundry list of problems. Yields on triple-A-rated 30-year munis flirted with 6% in mid-October reaching 5.94%. For lower-rated debt yields were much higher. A-rated, 30-year hospital bond yields hit a peak of 7.60% in mid-December, according to MMD. Yields on 30-year California bonds reached 6.76% on December 15 as the state’s severe budget situation continued to unfold. Volatility for 30-year munis was at the highest level in at least 10 years, according to MMD.

Obama stimulus would lift economy, Bernanke says
U.S. Federal Reserve Board chairman Ben Bernanke says a stimulus package being crafted by President-elect Barack Obama and Congress could provide a “significant boost” to the sinking economy. But Mr. Bernanke warns that such a recovery won't last unless other steps are taken to stabilize the shaky financial system. Although Mr. Bernanke has previously endorsed the notion for a fresh round of government stimulus to lift the country out of a recession, it marks the first time the Fed chief has referenced the roughly $800-billion (U.S.) recovery plan now being worked on by Mr. Obama, who takes office next week. Mr.Obama envisions a blend of tax cuts and increased government spending, including on big public works projects, to make up the stimulus plan.

Mr. Bernanke, who didn't weigh in on the details of the evolving package, made clear that such a recovery plan was needed as part of a broader, multi-pronged government response to combat the worst financial crisis to hit the U.S. and the global economy since the 1930s. “The incoming administration and the Congress are currently discussing a substantial fiscal package that, if enacted, could provide a significant boost to economic activity,” Mr. Bernanke said in a speech to the London School of Economics. “In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” he warned. “History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively.”

Bernanke to Diagram Policy That Is All Over the Map
Ben Bernanke hasn't spoken publicly since the Federal Reserve's December decision to push its target interest rate to near zero and use unconventional lending and asset-purchase programs to revive the economy. On Tuesday, the Fed chairman will offer a detailed discussion of the strategy in a speech at the London School of Economics. His task is to provide a sense of order to central-bank policy at a time when order has disappeared, in part because of the Fed's own ad hoc approach to the crisis. Central bankers generally live in a rules-bound world in which they use a single lever -- the short-term interest rate -- to keep inflation and economic growth within narrow boundaries.

Mr. Bernanke is rewriting the rules. He will lay out how the Fed got here and try to address some of the issues the central bank will face. One issue: With the interest rate at zero and no longer an effective signal of Fed policy, what should the Fed target? Some officials think it should set parameters for how much cash it is pumping into the banking system. Mr. Bernanke isn't crazy about this approach. Pumping money into the banking system -- known in some circles as quantitative easing -- doesn't mean banks will lend it. He would rather focus on the Fed's new lending and asset-purchase programs, such as its efforts to buy commercial paper and mortgage-backed securities.

That is actual money that helps bring down the cost of borrowing. But how far should the Fed push the programs? Minutes of the Fed's December meeting suggest a debate broke out on the subject. Some more-hawkish regional Fed bank presidents may want clearly defined objectives for the growth of the Fed's balance-sheet and money-pumping activities. They don't get final say, but Mr. Bernanke has to pay attention to them.

Another issue: What's the exit strategy? At some point, the Fed will have to take all this easy money away. Will it be able to easily sell the $500 billion portfolio of mortgage-backed securities it is building, and disengage companies from the lifeline of a government commercial-paper program, without causing another round of problems? His speech is part of a lecture series that honors Josiah Charles Stamp, a 20th-century British central banker who famously said banking was "conceived in iniquity and born in sin." Mr. Stamp would have been appalled to see the mess Mr. Bernanke is cleaning up today.

Bush to press Congress on Tarp funds
George W. Bush on Monday agreed to ask Congress to release the remaining $350bn of US bail-out funds, meeting a request from Barack Obama as the president-elect’s team tried to quell opposition to the move among legislators. Congressional aides said at least one and possibly both chambers of Congress could vote against releasing the funds. The president could veto any disapproval legislation, ensuring the $350bn is disbursed, but such a spectacle would test market nerves and undermine hopes of a strong start under Mr Obama.

The decision to seek the money came as US bank stocks plunged, with Citigroup off more than 17 per cent and Bank of America falling 12 per cent. The S&P 500 index lost 2.3 per cent on the day. Analysts blamed the falls on fears of bad fourth-quarter earnings, a possible forced restructuring at Citi, and the prospect that the Obama administration – under pressure from Congress – would impose harsh conditions on banks receiving further government capital. Mr Obama told reporters: “It is clear that the financial system, although improved from where it was in September, is still fragile and I felt it would be irresponsible for me – with the first $350bn already spent – to enter into administration without any potential ammunition.”

Dana Perino, White House press secretary, said Mr Bush had agreed to the request from Mr Obama to ask for the remaining $350bn allocated for the troubled asset relief programme. However, with opposition to releasing the remaining bail-out funds running high in Congress, a tough political fight lies ahead. John Boehner, the House Republican leader, said he would “oppose the release of these taxpayer funds” while Mitch McConnell, Senate Republican leader, said he would be “hard-pressed” to support it. Democratic congressional aides say a motion to express disapproval of the release would probably pass the House. In the Senate, some Republican votes may be needed to stop a disapproval motion passing.

In a bid to ward off a vote of disapproval, Lawrence Summers, incoming National Economic Council director, on Monday sent a letter to congressional leaders promising greater transparency and more restrictions on banks receiving bail-out funds – including constraints on dividend payouts and on takeover activity. Separately, Mr Bush warned in his final press conference before leaving office that the US would make a “huge mistake” by becoming a protectionist nation in response to the financial crisis. Mr Bush said he was disappointed Congress had not approved free trade deals his administration completed with Colombia, Panama and South Korea.

Oil falls below $37 a barrel
Oil prices fell below $37 (U.S.) a barrel Tuesday on expectations crude demand will weaken amid a severe global economic slowdown. By midday in Europe, light, sweet crude for February delivery was down 91 cents at $36.68 a barrel in electronic trading on the New York Mercantile Exchange. In London, February Brent crude fell 19 cents to $42.72 a barrel on the ICE Futures exchange. “After some transient end-of-year strength, it would appear that crude oil bears have once again found their groove,” said the Schork Report, edited by oil trader and analyst Stephen Schork.

Crude prices have fallen more than 25 per cent since reaching just above $50 a barrel last week as traders returned from the holiday break to find evidence of falling manufacturing and consumer spending across the globe. The February contract fell 8 per cent on Monday, or $3.24, to settle at $37.59 after Alcoa Inc., the world's third-largest aluminum company, reported a quarterly loss of $1.19-billion. Alcoa, the first component of the Dow Jones industrial average to post results, said last week it plans to lay off about 13 per cent of its global work force by the end of 2009 amid sinking prices and demand for the metal. The Dow fell 1.5 per cent Monday and has dropped 3.5 per cent this year.

“The negative sentiment we're seeing reflects the broad international macroeconomic outlook, which is considerably weaker, and what that means for energy consumption,” said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. Prices have fallen despite continued fighting between Israel and Hamas in Gaza. After initially spurring a jump in oil prices, the Gaza conflict has been largely ignored by traders because it hasn't affected major supplies and no oil-rich Middle East neighbours have become directly involved. “The impact on oil supply is obviously limited,” Mr. Moore said.

Prices of futures contracts for later this year are higher than the February contract on investor expectations that announced production cuts of 4.2 million barrels a day since September by the Organization of Petroleum Exporting Countries will begin to reduce global supply. The June contract trades at $50.40 a barrel. “There's some wariness that the OPEC actions may cause markets to tighten up,” said Mr. Moore, who expects oil to average $55 a barrel this year. “OPEC is starting to get concerned — again — and the ministers are determined to generate a rally,” said a report from U.S. energy consultancy Cameron Hanover, which urged the U.S. government to increase the level of its Strategic Petroleum Reserves.

“It would help raise prices to a level that could get OPEC feeling less vulnerable (and less likely to cut output again) at the same time that it would save the surplus for later,” Cameron Hanover said. Investors are also looking for signs that demand from emerging markets, which helped drive oil's rise to $147.27 a barrel in July, will rebound. “Growth concerns will dominate for the next few months,” said Robert Prior-Wandesforde, co-head of Asian economic research at HSBC in Singapore. “Commodity prices will start to improve as sentiment about China and India starts to turn later this year.” In other Nymex trading, gasoline futures rose 0.92 cent to $1.0933 a gallon. Heating oil advanced 0.99 cent to $1.4823 a gallon while natural gas for February delivery slid 3.9 cents to $5.503 per 1,000 cubic feet.

FDIC Seeks Aid Data
The Federal Deposit Insurance Corp. on Monday pushed the more than 5,000 banks it regulates to provide information on how they are using billions of dollars in government aid to help homeowners avoid foreclosure. The FDIC, led by Sheila Bair, said that banks should establish a monitoring process "to determine how participation in these federal programs has assisted institutions in supporting prudent lending and/or supporting efforts to work with existing borrowers to avoid unnecessary foreclosures." The agency wants information from banks that have used the liquidity, debt-guarantee or capital-injection programs by the Federal Reserve, Treasury Department or FDIC.

The FDIC's move is the latest example of government pressure on banks to show how lenders are using new government programs to help the broader economy. Critics have alleged that banks are hoarding the money. Lenders have countered that they are lending but trying to be prudent because of the uncertain economic conditions. The push from the FDIC comes as Congress is expected to demand even more limits on how banks use the money. The incoming Obama administration is considering new requirements to track how banks are using the money to lend and has vowed more transparency in the process.

These issues are expected to be debated this week as the Obama administration tries to assuage congressional concerns before it asks for the remaining $350 billion from the Troubled Asset Relief Program, which has injected capital into banks and other companies. The FDIC's request is unusual in that it isn't expected to be matched by other bank regulators. The FDIC said banks should include a summary of the new lending and other information in annual reports and financial statements.

Corporate loan defaults to cut into bank capital
Corporate loan losses to date have remained at or near their historical averages. But as recessionary pressures work their way through the economy, those losses are bound to escalate, putting further stress on banks’ capital. Residential subprime mortgage losses were the story of the tail end of 2007 and all of 2008. Now, analysts expect the carnage to spread throughout banks’ loan portfolios, further impeding businesses’ access to funds. "Going into 2009 the economic and credit quality fundamentals should be weak across-the-board,” wrote CreditSights analysts in a report last week.

The greatest pain for the banking sector is still likely to come from residential housing, but increasingly from non-subprime areas, like Alt-A mortgages, home equity lines of credit and even prime mortgages, analysts predict. That said, areas that were previously rather stable will be walloped, including commercial mortgage-backed securities and usually well-behaved commercial and industrial loan portfolios. That could spell serious trouble for lenders. “The recent deterioration in unemployment rates will result in rapidly rising C&I losses, and numerous banks are likely to be caught totally off-guard,” wrote Friedman Billings Ramsey analysts on Thursday. “As sharp increases in losses from C&I loans materialize, banks will be forced to push reserves significantly higher.”

Commercial and industrial loans comprise roughly 22% of the $7.2 trillion in loans on U.S. commercial banks’ balance sheets, according to Federal Reserve data released this month. Seasonally-adjusted charge-off rates of C&I loans have risen each quarter starting in the fourth quarter of 2006 through the third quarter of 2008, Fed data shows. In that time, the rate has more than tripled, from 0.30% to 0.99%. Deutsche Bank analyst Michael Mayo predicted in a research note last Monday that losses will hit the prior peak of 2.3%, a rate last reached during the 1991 and 2001 downturns.

Mr. Mayo noted several reasons why C&I losses could be even worse, including refinancing risk which can result in higher foreclosures, “important given a potential inability of many companies to refinance or roll over existing debt,” and the fact that companies are more levered today than a few decades ago, though less than in the early 1990s. Additionally, he said recovery levels may be less than in the past and pointed out “banks have had worse underwriting in certain categories such as leveraged loans (such as with ‘covenant-lite’ features), that implies other potential weak underwriting that is not yet clear.”

Those weaknesses may soon be revealed. Standard & Poor’s analyst Diane Vazza said on Thursday that “recessionary catalysts, including home price declines and unemployment rates, are still moving along their trajectories, and their effects on the rising cost of borrowing and escalation of corporate defaults are accelerating.” S&P noted that in the U.S., whether measured by credit grade, rating, or industry, debt spreads have widened to unprecedented levels. Such rising costs will make it more difficult to refinance debt soon coming due ($700 billion in the U.S. in the speculative-grade segment alone matures by 2011).

Some recent announcements from economic bellwethers highlight how quickly and unexpectedly economic conditions have deteriorated for companies. Intel Corp. announced last week that it expects fourth-quarter revenue to fall 23%, to $8.2 billion. That estimate is down 9% from the $9 billion Intel forecasted as recently as Nov. 12 and well off the $10.1 billion to $10.9 billion it had expected earlier. Similarly, Wal-Mart reduced its fourth-quarter earnings per share guidance last week to between $0.91 and $0.94 from the $1.03 to $1.0 estimate it provided Nov. 13.

But companies are suffering more than just profit shortfalls. And that’s bad news for the already beleaguered banking industry. The U.S. operations of LyondellBasell, the world’s third-largest petrochemical company, filed for bankruptcy last week, collapsing under massive debt and dwindling demand. The company was formed in December 2007 through Basell’s $12.7 billion acquisition of Lyondell Chemical, which it used billions of dollars in financing to execute.

One lender, UBS, said its credit exposure to LyondellBasell was included in the $4.7 billion of leveraged finance commitments it disclosed in its third quarter earnings, but declined to say how much was to LyondellBasell specifically. Citigroup, one of the company’s biggest creditors, disclosed it had direct gross exposure to LyondellBasell of $2.0 billion, against which it would take a fourth quarter pre-tax hit of $1.4 billion. In response to Citi’s disclosure, Ladenburg Thalmann analyst Richard Bove wrote in a research note, “The real risk here is that this is the start of C&I loan losses.”

Volatility Points to S&P 500 Gains With Widest Gap Since 1987
Options traders are betting stock swings in the Standard & Poor’s 500 Index will decrease at the fastest rate since the aftermath of the market crash in 1987, a sign that equities may keep rallying. The difference between the benchmark index’s historic volatility and a gauge of so-called implied volatility based on expected swings rose to the highest in 21 years, according to data compiled by Credit Suisse Group AG and Bloomberg. The gap widened as investors paid less to insure against price declines, sending the Chicago Board Options Exchange’s Three-Month Volatility Index lower.

Historical volatility must fall 25 percent to bring the measures into accord. The last time the difference was this wide, stocks climbed for two quarters, according to data compiled by Bloomberg. Declining volatility is usually bullish for equities because it shows growing investor confidence. “We know a lot more than we knew four months ago,” said Michael McCarty, chief equity and options strategist at Meridian Equity Partners Inc., a New York-based brokerage. “Any time you have less uncertainty you have less risk, which is positive for equities.” The S&P 500 gained 16 percent since reaching an 11-year low on Nov. 20 after President-elect Barrack Obama pledged to spend more than $1 trillion to revive the economy. The index still posted its worst year since the Great Depression in 2008 after lending froze and the U.S., Europe and Japan entered the first simultaneous recessions since World War II.

Stock swings increased as the collapse of Lehman Brothers Holdings Inc. in September and government actions to bail out banks heightened concern losses would worsen. The S&P 500’s three-month historic volatility has more than quadrupled since June to 62.97. That’s 15.62 points higher than the CBOE’s Three- Month Volatility Index, a measure of expected swings in the S&P 500. They were as much as 29.7 points apart in the past month. Stocks rallied the last time the difference was this large, just after the S&P 500 plunged 20 percent on Oct. 19, 1987. The index climbed 4.8 percent in the first quarter of 1988 and 12.4 percent that year. The VXO, a predecessor of today’s benchmark volatility index, decreased 31.7 percent in the first quarter and tumbled by 53 percent in 1988, its biggest annual drop.

“The volatility regime is going to shift significantly in the first quarter,” said Stu Rosenthal, who helps oversee $4 billion in volatility strategies at Volaris Volatility Management, a unit of Credit Suisse in New York. “The options market is predicting that the equity market will calm down.” The CBOE’s three-month index uses a methodology similar to the VIX, which measures the cost of using options as insurance against stock declines and is calculated from prices for S&P 500 options no more than 30 days from expiration. Options give the right without the obligation to buy or sell a security at a set price and date. Implied volatility is a measure of expected price fluctuations and the key gauge of options prices. Swings in the S&P 500 have been the biggest in the benchmark’s 80-year history.

There were 18 gains or drops of more than 5 percent since Sept. 29. That’s more than half of the 35 changes of that size since 1955, according to S&P analyst Howard Silverblatt and data compiled by Bloomberg. The VIX’s accuracy as a forecasting toll for stocks faltered last year. A calculation derived by traders from the VIX to predict the lowest level stocks were likely to reach was wrong from Sept. 29 to Oct. 30, the longest stretch ever. The VIX’s predictive value may be restored as volatility recedes. Last year’s record price swings aren’t likely to be duplicated, options traders said. “We saw some immense volatility in October and November,” said Randy Frederick, director of trading and derivative at Charles Schwab & Co. in Austin, Texas. “It’s going to be long time before we ever see that again.”

Brace for more Madoff scandals
Barack Obama’s economic team, already reeling from the financial meltdown, certainly doesn’t need any more headaches. But investigators and Washington officials say that they’re almost certainly going to face one unexpected problem in 2009: More Bernard Madoff-style corruption scandals. The ranking member on the House Financial Services Committee, Rep. Spencer Bachus (R-Ala.), says he’s confident there’s more bad news on the way. “History teaches us that if there is a gap in regulatory enforcement, there will not only be one offender that will be devious enough to slip through,” Bachus said. “Unfortunately, when the tide goes out you find out who’s swimming naked, and I suspect that Madoff was not the only one.”

Veteran fraud investigators, too, say they’re almost certain that other financial frauds are waiting to be discovered. “There are probably a lot of shocks out there still to come,” said Michael Varnum, a former chief of the FBI’s public corruption and economic crimes programs who’s now a senior vice president at the private investigative firm Corporate Risk International. “There is probably another Bernie Madoff out there,” Varnum said. The question then, is how to find the questionable firms? One way to search for them is to look for companies that exhibit the same red flags that investors say indicated that Madoff himself was running a scam.

The main red flag in Madoff’s case was that he never reported a down quarter. With the natural ups and downs of market trading, investigators say it’s nearly impossible to have continuous success. Are there other firms out there with unblemished quarterly records? Yes. According to research done for Politico by Morningstar Inc., there are 1,684 hedge funds that have disclosed their results for the past 20 consecutive quarters. Of those, Morningstar found that 34 have never reported a down quarter in the past five years. And of those 34, at least seven funds, or their parent firms, are in some way connected to the Madoff scandal as investors in Madoff’s operation. That leaves 27 firms that have a five-year track record of gains and no known connection to Madoff.

Varnum says that’s suspicious on its face. “It’s a red flag for me as a potential investor,” he said. “I’d look at that and say, ‘How could there not have been any down quarters?’ ” Indeed, one of the funds is run by an executive who has faced a series of lawsuits. To be sure, the time frame captured by the Morningstar data — the fourth quarter of 2003 to the third quarter of 2008 — was generally a good time to make money in the stock market — though it got much tougher in 2008. And many of the firms may be exactly what they purport to be: excellent, and perfectly legitimate, investors. Among funds of funds, or hedge funds that invest their money in other funds, such results are much more rare. Morningstar found that of 1,227 funds of funds that have reported 20 consecutive quarters of results, only four have failed to report a single down quarter in that time frame. And none of the four seems to be publicly connected to the Madoff scandal.

Shady subprime lenders creeping into federal mortgage program
The federal government is ill-equipped to stop the migration of predatory subprime lenders to the rapidly growing sector of U.S.-backed home loans, raising the specter of another cycle of lending abuses. The Federal Housing Authority lacks sufficient staff, adequate technology and legal authority to screen questionable lenders who seek to participate in the issuance of federally backed loans, Department of Housing and Urban Development officials told lawmakers late Friday.

One FHA lender in New York who was debarred for five years resumed operations using the same fraudulent practices, HUD assistant inspector general James Heist told the House Financial Services Committee. An Arizona lending company that filed for bankruptcy after its license was suspended by the state was reconstituted by one of the principal owners under a different name in the same location, Mr. Heist said. HUD approved the new entity to process federal loans last year, he said. “I see bad actors moving over to FHA because money has dried up,” said Rep. Maxine Waters (D-Ca.), a subcommittee chairwoman. The FHA is part of HUD.

The FHA’s oversight shortcomings aren’t limited to lenders. Its reviews of appraisers are “not adequate to reliably and consistently identify and remedy deficiencies,” Mr. Heist said. An audit found that the government’s roster of appraisers included 3,480 with expired licenses and 199 that had been disciplined by the state, he said. Subprime lenders who made deceptive or predatory loans to borrowers who lacked adequate income or credit histories have been pegged by many economists as being at the root of the financial crisis. The ensuing foreclosures contributed to the collapse of the home-loan market and Wall Street’s mortgage-backed securities business.

With the credit crunch and the demise of subprime loans, lender applications to participate in the FHA program for low- and middle-income homebuyers have soared. The FHA had over 3,300 approved lenders at the end of fiscal 2008, more than a four-and-a-half-fold increase from two years before, Mr. Heist said. Open applications for fiscal 2009 thus far total 1,007, of which 827 have already been approved. “The integrity and reliability of this crop of program loan originators, in our view, is unproven and, in light of the aggressive recent history of this industry, may pose a risk to the program,” he said.

FHA’s lender approval process “is largely manual,” Mr. Heist said. Dozens of systems that store federal housing data “have been obsolete for nearly two decades,” said HUD deputy assistant secretary Phillip Murray. Mr. Murray said that in the case of the sanctioned Arizona company whose principal started a new firm, the FHA lacked the authority to hold him responsible for disciplinary actions against the earlier firm. HUD is now preparing a rule to address this legal gap, a process that could take a year-and-a-half, he said.

GM May Lose as Many as 500 Dealers in U.S. This Year
General Motors Corp. said it may lose as many as 500 dealers in its home market this year, an increase from 350 last year, as the largest U.S. automaker works toward a goal of cutting 1,700 by 2012. The reduction will widen in part because of the strain of a fourth straight year of U.S. auto-sales declines and a company initiative to trim brands and emphasize only Chevrolet, Cadillac, GMC and Buick, GM North American President Mark LaNeve said in an interview today. GM may also have to spend more to convince some of its 6,400 dealers to consolidate, he said.

Culling dealerships and brands is part of GM’s plan that also includes trimming labor and debt costs to convince the U.S. Treasury Department that the Detroit-based automaker can survive and repay $13.4 billion in promised federal loans. GM has said it will fail without government loans. “We had 13,000 dealers 18 years ago, so we’ve already cut that in half,” LaNeve said at the North American International Auto Show in Detroit. “We don’t want them to close all at once because we figure we lose sales for 18 months after a dealership closes until other dealers pick up the business.”

The expected reduction of 400 to 500 dealers will include owners retiring without being replaced, outlets failing in the slowing economy and GM helping consolidate stores in markets with too many locations for the same brand, LaNeve said. He didn’t say how much GM is spending on closing dealerships. The automaker is considering the sale of its Hummer and Saab brands, weighing options for Saturn and shrinking Pontiac to as little as one model as part of the plan to meet terms of the government loans. GM has about 400 dealerships for Saturn and 100 each for Saab and Hummer, LaNeve said.

GM may keep Saturn as it undergoes a needed pruning of its brands, Chief Executive Officer Rick Wagoner said today in an interview of Bloomberg Television. The automaker has been meeting with Saturn dealers and hopes to “come to a conclusion in the near term,” he said. GM is trying to manage the process of trimming dealership to avoid the $1 billion cost incurred when it dropped the Oldsmobile brand in 2000, he said. GM provides 10 percent to 20 percent of the costs of combining outlets, with the rest from private funding, LaNeve said. The company’s share will probably rise if GM chooses to eliminate a brand, he said.

The company has already consolidated most of its Buick, Pontiac and GMC dealers into combined stores, said Susan Docherty, the North American vice president of the three brands. The combined outlets account for about 80 percent of the brands’ sales, and that will rise to 85 percent by the end of this year, she said. “We’re past the tipping point,” she said. “Tough economic times can be very cleansing.” GM has cut Buick from eight models in 2005 to three this year, and in the future will shrink Pontiac from its current six models, she said.

GM still considering terms of Canadian government loans
General Motors Corp. has not yet accepted the terms Ottawa and Ontario are attaching to the loans they have agreed to make to the company's Canadian unit, GM president Fritz Henderson says. “We need to have some dialogue in Canada about how this might help us,” Mr. Henderson said yesterday, adding that he has seen only a summary of the terms. “We want to make sure it fits within the overall viability plan for General Motors.”

Until those terms are signed, it's premature to talk about what the auto maker will seek in discussions with the Canadian Auto Workers union or how the size and structure of its dealership network in Canada might be affected as it restructures, he told a small group of reporters yesterday at the North American International Auto Show in Detroit. The key issue for the two Detroit auto makers that have received money from Washington – GM and Chrysler LLC – is demonstrating to the U.S. government that they are viable, including showing an ability to pay back the money Washington has lent them. GM and Chrysler have each received $4-billion (U.S.). There's another $9.4-billion to come.

The Canadian governments have offered GM $3-billion (Canadian) and Chrysler $1-billion. The terms of the Canadian loans are expected to be similar to the U.S. bailout package, including requirements that the companies reduce labour costs and change work rules to make them more competitive with Japanese-owned plants in North America. If Ottawa and Ontario make a similar demand, Canadian hourly labour costs would have to fall by about $18 an hour to match, for example, the $49 (U.S.) rates at the Toyota Motor Corp. assembly plant in Kentucky. Those figures are based on the Canadian dollar trading at par with the U.S. dollar.

But what's not clear, both industry executives and union officials said, is whether labour costs are supposed to be competitive with average costs at Japanese-owned plants or a particular plant. “What's the benchmark?” Ken Lewenza, president of the CAW asked yesterday. “That's the problem that we have.” Chrysler president Tom LaSorda said on Sunday that his company will begin discussions with the CAW next week. Mr. Lewenza said he's not sure what Chrysler will seek, but it has been clear from the onset of the crisis that the union will be asked to contribute.

GM has not approached the CAW directly about negotiations, he said, but “GM consistently calls and says ‘Ken, you have to be on alert. We have a mandate to get this done by the end of March.'” Any changes to the Canadian labour agreements should be extended to Ford Motor Co. manufacturing operations in Canada, David Mondragon, president of Ford Motor Co. of Canada Ltd., said in an interview at the show. “I would have every expectation that they would offer [the same reductions] to Ford and we would share in that,” Mr. Mondragon said.

With auto woes, Michigan bankers expect shaft from TARP
With the deadline for federal approval fast approaching, a summary of Michigan-based banks that have received funding from the U.S. Treasury as part of the Troubled Asset Relief Program is short and, from the perspective of local bankers, not so sweet. The Treasury has set a deadline of Jan. 15 for approving applications still pending. As of Dec. 29, according to the Treasury Web site, a total of $172.5 billion of the first round of $250 billion of TARP money has been disbursed to 208 banks nationwide. Two of them were headquartered in Michigan and none in Southeastern Michigan—Flint-based Citizens Republic Bancorp got $300 million and Ionia-based Independent Bank Corp. got $72 million.

That works out to two-tenths of one percent of the TARP funds invested so far going to state banks, a figure easily surpassed by Puerto Rico, whose Popular Inc. bank got $935 million. (It was announced on Dec. 29 that Detroit-based GMAC Financial Services would receive $5 billion but that money is not included for this story because GMAC is not a traditional bank.) One other state bank was approved for funding but declined the offer of $84 million—Midland-based Chemical Financial Corp. Many national and large regional banks that have branches in Michigan have been approved but analysts expect their lending in the state based on TARP money to be limited.

And in October, Pittsburgh-based PNC Financial Services Group announced it would use $5.2 billion of its $7.7 billion in TARP money to buy the beleaguered National City Corp. of Cleveland. National City had the second most bank branches in Michigan as of June 30, its 272 trailing Chase’s 297. Several area community bankers, who asked not to be named because their applications for TARP funding are still pending, fear the Treasury is hesitant to invest in state banks because of troubles in the auto industry and the local economy, which has been in recession far longer than other states.

“That’s a valid concern,” said Don Mann, regulatory liaison for the Lansing-based Michigan Association of Community Bankers and a bank regulator for the state of Michigan from 1970 to 2002 in what is now called the Office of Financial and Insurance Regulation. “Regulators aren’t going to talk about it. What they’ll say is — and I know because I was a regulator — “we treat all our children the same, we apply the metrics fairly.’ The same old baloney. The truth is I don’t hold out much hope for our community banks getting much TARP money because of the auto crisis. The regulators won’t say it publicly. They’re saying it privately, I know they are.”

Mr. Mann said that national and regional banks that have received TARP funding won’t lend much of it in Michigan, if any. He said they all have sharply reduced the number of commercial lenders and are cutting long-time commercial customers loose, even some of those with good credit. “The big banks are all saying, “Look at the auto industry. We’re pulling out.’” In December, the Associated Press contacted the 21 banks that had received at least $1 billion in TARP money to ask them their plans for the money and if any of it had been spent, on what? None provided specific answers.

Scott Talley, a vice president of communications for Comerica, said that the bank will use its TARP funding in all its existing markets, including Michigan. “Fifth Third Bank is open for business in Michigan,” said David Girodat, president and CEO of Fifth Third Bank, Eastern Michigan. “Like most other banks, we are selective with regard to certain distressed sectors. ... We are still pursuing qualified deals in Michigan.” “We are working closely with our federal regulators to ensure that Michigan institutions get their fair shake in the TARP application process, and we have every indication that is the case,” said Jason Moon, public information officer for OFIR.

“We think we’re getting hit harder by the federal regulators than the rest of the country,” said Michael Kus, managing member of the Auburn Hills law firm of Kus, Ryan & Associates, which specializes in legal issues affecting community banks. “I hate to use the word “redline,’ but there is a feeling that Michigan has been written off.” “We’re all hoping at some point they will unleash some money to Michigan bankers,” said Mr. Kus, who estimated more than half of Michigan’s 136 state chartered banks have applied for TARP funding. “The large institutions have absolutely stopped lending in Michigan. It’s the community bankers who will be making loans to small businesses, and they’ll be hamstrung if they don’t get TARP funding.”

Publicly traded banks had to apply for TARP money by Nov. 14. Private banks had a deadline of Dec. 8. Banks headquartered in Southeast Michigan that have applied include Dearborn Bancorp Inc., $28 million; Mt. Clemens-based Community Central Bancorp Inc., $12.6 million; New Liberty Bank of Plymouth, $2.8 million; Troy-based Flagstar Bancorp Inc., $260 million; PSB Group Inc. of Madison Heights, $11 million; and Paramount Bancorp Inc. of Farmington Hills, $7.5 million. “I’m not frustrated with the process. I didn’t expect to be on top of the list,” said Robert Krupka, president and CEO of New Liberty.

“I find it really ironic that they really need banks like mine to make loans at the street level, but we’ll be the last ones to see any benefit,” said one banker, who asked not to be named because his application was still pending. “It has you scratching your head. My clients are small businesses and small businesses provide a big chunk of the employment in this country.” “We’re small. They round numbers like us off,” said another banker. “Basically, Michigan is irrelevant.” “I’m afraid the Treasury is biased toward big banks,” said a third banker. “They’re happy to let the little ones fail.”

“It will be small banks that step forward and make loans in Michigan to make the economy grow. Big banks aren’t making loans in Michigan,” said Terry McEvoy, an equity analyst who covers Midwest banks for Oppenheimer & Co.. He said at least one major regional bank in Michigan he declined to name pays bounties to its commercial bankers for cutting customers loose and shrinking the portfolio. “That’s reflective of what is going on with big banks in that market,” he said. Mr. McEvoy said that the $3 million a small bank in Michigan might be hoping to get “is next to nothing when they’re talking about releasing the next $350 billion in bailout money, but that can really effect positive change on Main Street. But community XYZ is not a priority.”

Battle erupts over securities watchdog
Finance Minister Jim Flaherty is pushing ahead with the creation of a long-debated national securities regulator, igniting a battle with Quebec and Alberta just as Ottawa is seeking the provinces' help in reviving Canada's flagging economy. The row was sparked by the release yesterday of the final report of a panel Mr. Flaherty appointed to look at the decades-old fight over who should police the buying and selling of stocks and bonds.

Mr. Flaherty's seven-member committee, led by former Conservative cabinet minister Tom Hockin, ended 11 months of study by urging provinces to join a federal regime, saying the current system of 13 provincial and territorial bodies fails to guard against the sort of systemic failure in the United States that caused the financial crisis. Incensed at the very suggestion, Quebec and Alberta responded to the report by threatening a Supreme Court challenge of Mr. Flaherty's authority to establish a national commission. Unmoved, the Finance Minister vowed to establish a national regulator with willing provinces, something Mr. Hockin said could be done without Alberta and Quebec.

“Canada remains the only industrialized country without a single securities regulator,” Mr. Flaherty said at a press conference in Vancouver. “So, we are now ready to change that, with the goodwill and co-operation of our provincial and territorial partners.” Despite the immediate opposition, Mr. Flaherty said he is optimistic he can win agreement over the next year. British Columbia Finance Minister Colin Hansen said yesterday that his province can support a single national regulator, although further negotiations are needed. That represented a clear softening of the province's previous opposition, giving Mr. Flaherty a second ally among the big provinces to go with Ontario's support.

Mr. Flaherty will need all the help he can get to bring about a change that Canada has pledged to make as part of the international effort to avoid a repeat of the financial crisis. Manitoba's Finance Minister lined up with Quebec and Ontario, saying the federal government's desire for a national securities regulator risked poisoning this week's meeting between Prime Minister Stephen Harper and the premiers on reviving the country's flagging economy. “I wonder about the wisdom of pushing this forward unilaterally at a time when we need to be working together,” Greg Selinger said in an interview.

Alberta wasted no time in voicing its opposition, with Finance Minister Iris Evans issuing her government's threat in a statement minutes after Mr. Hockin completed his official release in a speech to the Vancouver Board of Trade. Quebec Premier Jean Charest said he, too, would consider a challenge if the federal government seeks to supersede his province's authority over financial markets. “Regardless of what the report states, the issue remains one of jurisdiction and that hasn't changed,” Mr. Charest told reporters in Quebec City. “It is a provincial jurisdiction.” The man whose report sparked the latest federal-provincial spat said Mr. Flaherty can move to set up a single regulator even without full support of the provinces.

Ottawa needs only five or six of Canada's 13 jurisdictions, accounting for two-thirds of market value, to have the critical mass necessary to go ahead with a single regulator, Mr. Hockin said in an interview. Mr. Hockin, who helped create Canada's banking regulator as a minister in Brian Mulroney's government, added he was disappointed with the provincial reaction. His 97-page report demonstrates considerable sympathy for the provinces' concern that a federal regulator would be dominated by Ontario, home to the Toronto Stock Exchange, the country's biggest stock market in Toronto.

Mr. Hockin and his fellow panelists proposed a decentralized commission that would include strong regional offices run by vice-commissioners. Those regional bureaus would ensure the existing provincial bodies remain in place as boots on the ground in every corner of the financial system. The regime Mr. Hockin envisions also would include a governing body to watch the watchdog, a separate tribunal to adjudicate the cases brought by the commission and panels devoted to the concerns of smaller companies and individual investors. And in a further effort to ensure regional influence, those entities could be based in any of Vancouver, Calgary, Toronto or Montreal, Mr. Hockin said.

“We don't want an OSC on steroids,” Mr. Hockin said in his speech, referring to the Ontario Securities Commission. The report was quickly endorsed by the Canadian Council of Chief Executives, which represents the heads of some of the country's biggest companies; the Canadian Bankers Association and the Investment Industry Association of Canada. While Mr. Hockin's various layers of oversight might appear as complicated as the current regime, a single commission at the core would make enforcement far more efficient and reduce costs for companies, said lawyer Kelley McKinnon, former chief litigation counsel at the OSC. “There is needless duplication out there,” Ms. McKinnon said in an intervie

UK government 'putting taxpayers' money at risk' with £2 billion loan scheme
Taxpayers' money will be put at risk if Gordon Brown goes ahead with a new £2 billion package to unblock the financial system. Amid growing warnings that the British economy is being choked by companies' inability to get credit from banks, ministers are considering new moves to encourage lending by guaranteeing private firms' lending from banks. The Daily Telegraph understands that Lord Mandelson, the Business Secretary, will within days set out details of a plan, first outlined in last autumn's pre-Budget report, to throw a credit lifeline to small businesses. The scheme could see the Government staking as much as £2 billion in order to support bank loans to companies worth as much as £20 billion.

Business lobbies say helping firms get credit is the only way to combat the slowdown, but Vince Cable, the Liberal Democrat economics spokesman, warned that the policy will end up costing taxpayers money because the state becomes liable when firms default on loans. He said: "It will obviously cost money. We know from past experience that with credit guarantee schemes the taxpayer ultimately finishes picking up the bill." Instead of underwriting loans, Dr Cable said that ministers should use their effective control over banks including RBS and Lloyds-TSB to make them lend more freely. He said: "The simple and obvious issue which has to be raised is why the partially-nationalised banks are not being required by the Government to maintain the flows of lending. "The Government seems to lack the bottle to break the banks' lending strike. It finds it much easier to use taxpayer-financed guarantees than to get tough on the taxpayers' behalf."

The Conservatives have also proposed a state loan guarantee scheme. George Osborne, the shadow chancellor, said that the plan was likely to prove more effective in helping the economy than the measures the Government has introduced so far. Mr Osborne said: "The Conservative idea is the right one. I am glad that the Government are now adopting Conservative ideas, but they need to do it in the right way, on the right scale, to help businesses that are currently going bust in the recession and accept that their policies - like the VAT cut - have not worked and have achieved nothing."

British house sales 'at lowest levels for 30 years'
The housing market slowed to a virtual halt at the end of last year as the number of properties sold reached a record low, the Royal Institution of Chartered Surveyors (RICS) said. It blamed the lack of mortgage finance for the lowest transaction levels in 30 years. Surveyors reported that potential buyers, including first-timers, had been unable to take advantage of falling house prices because lenders would not grant home loans at affordable interest rates to any but the most cash-rich investors.

RICS said that an average of 10.1 properties per surveyor had changed hands in the three months to December 2008, down from 10.6 in the three months to November, the lowest since it began to compile the survey in 1978. Simon Hickley, a surveyor at Maxey & Son, a East Anglian-focused business, said: “Without doubt the Christmas quiet period came early. Lack of lending to anyone without a big deposit is the main cause of the lack of activity in the market.” Although average house prices fell by 15.9 per cent last year to £153,048, according to Nationwide, buyers wishing to get on the ladder must find thousands of pounds extra to fund the size of deposit required by lenders.

Harsher lending policies have pushed up the average deposit that first-time buyers need from £11,791 in October 2007 to £21,198 in October last year, according to the Council of Mortgage Lenders. The best-buy interest rate on a mortgage for a buyer with a 40 per cent deposit is 3.99 per cent, against 6.39 per cent for a buyer with 5 per cent, according to Moneyfacts, a personal finance website. On a £150,000 home loan, the difference in monthly repayments between the two is £212. However, big reductions of as much as 40 per cent off asking prices and lower interest rates are luring buyers, as the number of inquiries rose for the second month in a row in December and at the fastest pace since August 2006, RICS said.

The proportion of surveyors reporting price falls also eased slightly, from 75.8 to 73.5 per cent in December, while the number of unsold homes rose by 1.1 per cent over the year to December to an average of 78.1 per agent as struggling homeowners decided to sell. Robert Bartlett, chief executive of Chesterton Humberts, the London-based estate agency, said: “While there was evidence of the traditional Christmas lull in December, with both transaction numbers and prices slipping, the number of viewings held was virtually equal to 2007 and the number of offers made exceeded last year's figures.” RICs said that the proportion of surveyors reporting falls had improved in the South East, East Anglia, Wales, the South West, Yorkshire, the East Midlands and Northern Ireland. It was stable in the North, North West and West Midlands but had got worse in Scotland.

British retailers suffer worst December on record
Britain's retailers suffered their worst December in at least 14 years despite a blizzard of promotions, stoking fears that more high-profile companies may go bust in the months ahead. In its monthly assessment of the sector, the British Retail Consortium revealed Tuesday that like-for-like sales, which strip out new stores and space, slumped 3.3 percent in December from the previous year. Total sales, which includes the additional space, fell by 1.4 percent. The like-for-like decrease was the seventh in a row while the total fall was the third. The consortium said that by both measures, this was the worst December since the survey began 14 years ago. Only food and footwear stores reported sales up on the previous year.

"These are truly dreadful numbers," said Stephen Roberston, the consortium's director-general. December's figures augur badly for retailers as sales during the month are key for earnings. Even with heavy discounting, consumers remained reluctant to part with their cash amid mounting unemployment fears and heightened personal debt levels. With general retailer Woolworths already having closed its doors for good and others, such as tea and coffee merchant Whittard of Chelsea and Land of Leather filing for bankruptcy protection, there are mounting fears that Britain's economic retrenchment will claim further victims, especially if December sales disappoint.

British Prime Minister Struggles Amid Economic Gloom
It wasn't long ago that British Prime Minister Gordon Brown was celebrated as the savior of the British economy. Now, with bad news mounting, his popularity is quickly falling. The photos were planned with meticulous care. Gordon Brown at the harbor; Gordon Brown at the factory; Gordon Brown spending time with the common folk. The British prime minister used the first working days of the new year to present himself as a decisive leader in times of crisis. For three days last week he toured through parts of Great Britain that are particularly threatened by recession: from London via Derby to Liverpool and onwards to Wales. The point was to listen and learn, as Brown said every chance he got. "We want to hear what you are saying, find out what's happening on the ground, find out from your experience what needs to change," Brown said in Liverpool.

In Derby, Brown visited the Rolls Royce jet engine factory, a company with a much-praised apprenticeship program. While there, Brown promised that he wanted to create 35,000 similar new trainee programs throughout the country in 2009. In Liverpool, European Capital of Culture in 2008, Brown inspected the newly refurbished docks and a museum that is currently under construction. Tourism, Brown intoned, is important for the future of the economy and could help the country out of the recession. And yet, no matter how hard the prime minister tried to exude optimism, his tour was accompanied by an unbroken series of bad economic tidings. And each new bit of bad news served to show more clearly than the last that Brown's brief stint as financial savior has come to a decisive end. His popularity is falling once again.

He had hardly started off on the first leg of his trip from London to Derby when the bottom started to fall out. News emerged that high street retailer Marks & Spencer was cutting 1,200 jobs and closing a number of stores. In Derby, Brown visited a branch of the fashion chain Viyella, which declared bankruptcy last week. In Liverpool on Thursday, Brown learned that Nissan was cutting 1,200 jobs from its factory in Sunderland. On the same day, the media reported that the British government intended to print money in an effort to finally put an end to the financial crisis. Brown denied the reports, but the opposition had a field day. Tory shadow finance minister George Osborne called it "the last resort of a desperate government." He said that Brown had led Britain to "the brink of bankruptcy."

And the bad news just kept coming. On Friday, as Brown was traveling through Wales and Britain's southwest, the news emerged that the London real estate giant Foxtons was fighting for its survival. Then, the CEO of the supermarket chain Sainsbury's, Justin King, slammed Brown's sales tax (value-added tax) cut from 17.5 percent to 15 percent, saying it was ineffective. He was the third top manager in three days to voice a similar criticism. Even the recent interest rate cut, which saw the Bank of England cut its benchmark rate to a record low of 1.5 percent on Thursday, has been blasted in the press for being ineffectual. The last rate cuts, commentators point out, also did nothing to loosen up the financial markets.

Brown, for his part, continues to put a brave face on things and does what he can to combat the growing mood of crisis in Britain. He held a cabinet meeting in Liverpool on Thursday as a symbol of his efforts to help the entire country face the economic downturn. In the 1980s, Liverpool became a symbol of the recession. This time around, Brown promised, he would not, in contrast to then Prime Minister Margaret Thatcher, give up on the port city. On Monday, he held a "job summit" in London at which he promised to spend £500 million (€500 million) to stop rising unemployment. On Tuesday, he is meeting with US Federal Reserve chief Ben Bernanke, and on Wednesday he is off to Berlin to consult with German Chancellor Angela Merkel. In short, Brown is doing everything that the head of government is expected to do when facing a crisis. But it doesn't seem to be working.

Even worse, his hyperactivity in the face of the never ending flood of negative headlines is making the British prime minister appear ineffectual. His Labour Party is once again losing support in the public opinion polls. According to the most recent poll from YouGov, backing for Labour hovers at just 34 percent while the Tories enjoy 41 percent support. Labour's rise in recent months seems to have come to a stop. Brown's personal approval ratings have likewise begun falling. "The 'Brown bounce' is coming to an end," the Independent wrote recently in an article headlined "Brown goes from boom to bust." A new survey of companies and top managers in Britain, carried out by ComRes, found that just 28 percent have confidence in Brown as a crisis manager. As recently as last October, that number was 42 percent. It is a loss of popularity that could very well affect the timing of the next elections in Britain.

Brown's term runs until 2010. But last autumn, when it appeared that Brown could do no wrong, many observers speculated that he might call early elections to take advantage of his popularity. Plus, commentators argued, the longer he waits, the worse the recession will get and thus, the more difficult it will be for Brown, as the incumbent, to win the election. Unemployment, for example, has already climbed over 2 million -- with further increases expected. The prime minister recently has repeated over and over again that an election in 2009 "is the last thing on my mind." During his tour through the country last week, he once again said that he isn't even planning to think about the election. Still, he hasn't explicitly ruled out the eventuality of an election this year either. And given current trends, it would appear that he can't really afford to wait.

UK trade deficit hits a record as weak pound fails to help
The UK’s trade deficit widened to a record level in November as a weaker pound failed to boost exports at a time when world demand for goods is collapsing. The trade gap ballooned to £8.3bn from £7.6bn in October, the highest level since records began in 1697, reflecting the fact that Britain is importing more from other countries than it is exporting. Economists had expected the deficit to narrow to £7.5bn because of sterling's sharp slide in the final few months of 2008. The gap was largely driven by falling exports to non European Union countries, mainly the US, the Office for National Statistics said.

The figures are likely to come as a blow to the Government which is putting together a new package of measures to prevent a deep recession turning into a slump. Policymakers at the Bank of England have been among those to argue that a weaker pound would help the UK through the recession by making its goods more competitively priced and therefore attractive to foreign buyers. The hope has been that an increase in exports would provide a much needed boost to the economy, helping to limit the scale of decline in 2009. “The impact of weaker sterling is being completely dwarfed by a collapse in world demand, but given the extent of the depreciation in the pound in the past few months, today’s figures showing such a significant widening of the trade gap are hugely disappointing,” said Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club.

However, demand is diminishing in the UK’s major export markets which are also struggling with a severe downturn at home. “One thing is for sure, the UK can’t rely on the global economy or the fall in the pound to drag it out of its deepest recession since the early 1980s,” said Paul Dales at Capital Economics. The pound fell by 27pc against the dollar during the course of 2008, and 23pc against the euro. As a result, the Centre for Economics and Business Research said there are already signs that the UK is readjusting to less favourable trade terms, with imports from the three biggest eurozone economies, France, Germany and Italy, all falling sharply in response to a weaker pound.

Cost of living going down
The cost of living has finally begun to fall, ending months of spiralling bills for families hit by rising petrol and household costs, research for the Daily Telegraph has disclosed. The Real Cost of Living Index showed negative inflation – or deflation – of 0.1 per cent in January, compared to inflation of 0.2 per cent the previous month. The index, which was started in June last year and shows the average annual rate of change in food, household and transport costs, reached a height in July of 10.8 per cent. Tim Newhouse, of price comparison site Moneysupermarket.com, said: "The Real Cost Of Living Index has thankfully entered a period of deflation, meaning the essentials of life are cheaper now than this time last year.

"Petrol prices have been falling – thanks to Opec and not the UK Government – and mortgage rates are on the way down due to the action of the Bank of England. All it will take now is for the six main energy companies to drop gas and electricity prices – in line with the falling price of wholesale gas – and people will have some real respite from the dark 12 months they had to endure in 2008." The Bank of England has cut the Bank rate drastically since October to its current level of 1.5 per cent, amid fears about deflation. Deflation can be a good thing in short bursts as falling prices help consumers buy cheaper goods, but it can also be damaging in the long term because it encourages people to defer spending. Moneysupermarket.com said Real Cost of Living Index deflation is good news as it only deals with daily essentials. It comes as petrol prices have started creeping up after six months of dropping on an almost daily basis. According to the AA, the average price of a litre of unleaded rose by a third of a penny to 86.28 pence yesterday (THURS).

The prices reflect the increases in the price of oil on the world markets in recent weeks amid fares of political instability in the Middle East. Paul Watters, head of AA Public Affairs, said: "We're hoping that this small increase in fuel prices is temporary, reflecting market concern with the conflict in Gaza and the dispute between Russia and Ukraine over gas. Other reports point to large stocks of oil and falling demand from the continued global economic downturn, which should continue to weigh down on prices. "This rise in prices sends drivers a clear message that low fuel costs are not here forever." A penny drop in average UK petrol prices last weekend followed by the rise yesterday illustrates just how sensitive oil prices still are to the same global disputes that plagued oil throughout 2006 and 2007 – despite the current recession. And, of course, we have another two pence in fuel duty and VAT to be added in the spring."

Germany Seals 50 Billion Euro Stimulus Plan
Germany's governing coalition has agreed on the details of the country's biggest economic stimulus package since World War II, worth a total of €50 billion. But critics say it won't be enough to combat recession. Germany's ruling political parties agreed on a two-year €50 billion stimulus plan, the biggest since World War II, at a meeting on Monday night to help Europe's largest economy weather the financial and economic crisis. The plan envisages €18 billion of new investment in the construction and repair of roads and the rail network and of schools and universities. Some of the money will also be used for faster Internet communication networks. Taxes are also being cut, with the tax threshold being raised to €8,004 from €7,664, and the entry rate of tax will be lowered to 14 percent from 15 percent on July 1.

The German system of "cold progression," under which taxpayers are shifted into higher tax brackets even when real incomes have not grown, is also going to be changed, thus bringing tax relief. Under the current system, the tax brackets aren't adjusted for inflation. Employees' health insurance contributions will be lowered, a measure that will cost the government around €9 billion and will benefit employees and employers in equal measure. Under the German system, they share the cost of social insurance contributions. The plan also includes incentives worth €2,500 euros for new car purchases if the purchaser deregisters a vehicle that is older than nine years. A one-off bonus of €100 is being paid per child and child benefit payments are being increased for the long-term unemployed. "The governing coalition has created the preconditions to give us the chance to emerge stronger from this crisis," Ronald Pofalla, the general secretary of Chancellor Angela Merkel's conservative Christian Democrats (CDU), told the N-tv television channel.

The center-left Social Democrats who share power with the CDU said families with two children would have an extra €400 to €500 in their pockets per year as a result of the package. In a separate measure, the parties also agreed to set up a €100 billion fund to protect firms that can't get enough financing as a result of the crisis. The firms will get state credit gurantees or direct loans from the government, but the government will not buy stakes in them. Germany's trade union federation and business lobbyists said the stimulus program didn't go far enough, while opposition parties and budget experts from within Merkel's own coalition warned that government borrowing would rise sharply. Germany's DGB trade union federation said the stimulus package was too small and that public investment would need to be twice as great as the planned €18 billion injection to have a major impact on the economy. DBG chairman Michael Sommer said the planned tax cuts would also fail to have much effect. "It won't do anything to boost consumer spending and the economy," Sommer told Deutschlandradio.

The German Federation of Chambers of Commerce and Industry (DIHK) said more corporate tax cuts were needed to help firms through the crisis. The Federation of German Taxpayers said the planned one-point cut in the entry level tax rate to 14 percent was "ridiculous" and calculated that an employee with annual income of €30,000 would only have an extra €15,50 in his pocket per month. The opposition liberal Free Democrats (FDP) and the Greens also criticized the deal, and the FDP said it would try to block the stimulus program in the Bundesrat upper house of parliament once it gets there. "The tax cut is minimal because the coalition focused on making election gifts to families and the car industry," said Otto Fricke of the FDP, chairman of the budget committee in the Bundestag lower house of parliament. The package will be presented to the Bundestag on Wednesday with the government hoping that it can be passed in early February. Given the number of seats controlled by Merkel's governing coalition, which pairs her CDU with the Social Democrats, passage through the Bundestag is seen as a sure thing.

The upper house of parliament, though, may be more dicey. The FDP will have the power to block legislation if it wins enough votes in a January 18 regional election in the state of Hesse to form a government with the CDU. But Finance Minister Peer Steinbrück said the economic impact of the package, which comes on top of a €31 billion plan agreed late last year, should not be underestimated. "A boost by almost €50 billion, together with the first economic package it's a total of €80 billion. I really would ask people to be careful about talking that down," Steinbrück told WDR2 radio. He added that Germany would not be able to meet EU budget deficit limits in 2010 as a result of the package. EU rules state that countries' budget deficits must not exceed 3 percent of gross domestic product. Despite the criticism, the package could give a boost to Merkel, who has been criticized in Germany and around Europe for her handling of the crisis so far. She is seeking to win a second term in a general election in September.

Russia says Ukraine blocks gas to Europe
Russia's state gas monopoly accused Ukraine of blocking transit of Russian gas to Europe hours after supplies were restarted, extending the bitter energy crisis that left large parts of Europe cold and dark. Gazprom began pumping gas into Ukraine shortly after 10 a.m. Moscow times (0700 GMT), but four hours later Gazprom's deputy chairman Alexander Medvedev said Ukraine's pipeline system had failed to carry it on to Europe. “Ukraine didn't open any export pipelines,” Mr. Medvedev said in a call-in with reporters. “They just shut down the entry of the pipeline in the direction of the Balkans. We don't have the physical opportunity to pump the gas to European customers.” Ukraine's state gas company Naftogaz declined comment.

Russia has accused Ukraine of stealing gas intended for Europe and only restarted supplies after a EU-led monitoring mission was deployed to gas metering and compressor stations across Ukrainian territory. The observer mission includes EU, Russian and Ukrainian officials and representatives of European energy companies. EU spokesman Ferran Tarradellas Espuny said, “very limited” amounts of gas started flowing to Ukraine and only through one entry point from Russia to Ukraine. He said EU monitors still do not have full and free access to dispatching centres in Kiev or Moscow to check the gas flow.

“The information that we have from our monitors in Russia is that little or no gas is currently flowing and we are not at this stage jumping to conclusions as to why this is the case,” said another EU spokeswoman, Pia Ahrenkilde Hansen. “This situation is obviously very serious and needs to improve rapidly.” Mr. Medvedev accused Ukraine of barring observers from a central control room for its pipeline network and underground gas storage in violation of an EU-brokered monitoring deal. Ukraine has fiercely denied the siphoning accusation, but Prime Minister Yulia Tymoshenko warned on Monday that Ukraine will have to use some gas from Russia as so-called “technical gas” to power compressors that push Europe-bound gas through its 23,000 miles (37,800 kilometres) of pipelines.

Gazprom has insisted it is Ukraine's duty to provide the gas. Gazprom spokesman Sergei Kupriyanov warned Tuesday that “the amount of Russian gas pumped into Ukraine's pipeline network must strictly correspond to the amount of gas flowing out of Ukraine.” Valentyn Zemlyansky, the spokesman for Ukraine's Naftogaz, said Ukraine will continue to use some of the Europe-bound gas as fuel for its pumping stations and denounced Gazprom's demands as an “attempt to put pressure on Ukraine.” “Where else will we take those volumes (of gas) from?” Mr. Zemlyansky said. Russia's President Dmitry Medvedev already has ordered Gazprom to reduce supplies if it again sees Ukraine siphoning gas, and suspend it completely if it believes Ukraine continuously steals gas.

Russia supplies about one-quarter of the EU's natural gas, 80 per cent of it shipped through Ukraine, and the disruption came as the continent was gripped by freezing temperatures in which at least 11 people have frozen to death. The gas cutoff has affected more than 15 countries, with Bosnia, Bulgaria, the Czech Republic, Hungary, Serbia and Slovakia among the worst hit. Sales of electric heaters have soared and thousands of businesses in eastern Europe have been forced to cut production or even shut down. Russia stopped gas supplies to Ukraine on Jan. 1 amid a contract dispute, but continued sending gas to Europe across the Ukrainian territory until Jan. 7 when it fully halted shipments over alleged Ukrainian theft.

Russia used the gas dispute to reaffirm its push for prospective gas pipelines under the Baltic and the Black Sea which would bypass Ukraine. But EU officials said the crisis should encourage a search for independent energy sources and supply routes, such as the U.S.-backed Nabucco pipeline that would carry Caspian energy resources circumventing Russia. While the current gas crisis was triggered by a pricing dispute, relations between the two ex-Soviet neighbours have been strained since the 2004 Orange Revolution in Ukraine led to the election of a pro-Western government in Kiev. Ukraine's efforts to join NATO and its support for the former Soviet republic of Georgia in its war with Russia in August has angered the Kremlin. Last week, U.S. officials had warned Russia not to use its energy resources as a weapon against Europe.

Russia still will not send natural gas to Ukraine for domestic consumption. The neighbours remained deadlocked over the price Ukraine should pay for gas in 2009 and the amount Russia should pay for transporting gas through Ukraine. Ukraine in 2008 paid $179.50 (U.S.) per 1,000 cubic meters of Russian gas and turned down Gazprom's proposal of $250 for 2009 — a substantial hike for the economically distressed country but still far below some $450 that European customers pay. The latest round of price talks ended Sunday without result.

Denmark: Biggest post-war export drop
The Confederation of Danish Industries (DI) forecasts the biggest drop in exports since World War II and unemployment to rise to 150,000. The latest DI forecast for the Danish economy makes gloomy reading. DI forecasts negative growth of 1.9 percent in 2009 levelling off at 0.3 percent, but still in minus territory, in 2010.

"The reason for our pessimistic view of growth is because as a small open economy, Denmark is hard hit by negative growth in all of our primary export markets," says DI Deputy CEO Ole Krog. DI expects exports to drop by 3.1 percent this year - the biggest drop since World War II, compared with growth of 5.3 percent in 2008. Exports are expected to grow again in 2010 by 0.7 percent. DI says it expects unemployment to have risen to some 150,000 by the end of 2015.


Ilargi: Sure, Bernie Madoff lost a lot of people a lot of money. But so did David Lereah. If you want to know what's wrong with America as a society, look no further.

Realtors' Former Top Economist Says Don't Blame the Messenger
On a recent weekday, David Lereah sat in the sunroom of his five-bedroom colonial house. The only sound was the yapping of his dog Maisy. Once one of the world's most-visible housing experts, Mr. Lereah is disconnected from his old life. The former chief economist for the National Association of Realtors says the group's top executives won't return his phone calls. He says he wasn't invited to the association's 100th birthday bash last May. Mr. Lereah, 55 years old, is one of many prognosticators who won professional accolades during the housing boom, only to see their reputations wither in the bust.

Throughout 2005, when home prices in the U.S. hit their fifth consecutive annual record, Mr. Lereah was on television so often his wife, Wendy, would catch him by accident. He flew first-class to meetings and speeches in places like Hawaii and Aspen, Colo., staying in suites at expensive resorts. His bosses awarded him more responsibility. That year, he published his second book, "Are You Missing the Real Estate Boom?" Mr. Lereah continued to make rosy statements amid growing signs of a housing downturn -- like this declaration in January 2007: "It appears we have established a bottom." A few months later, NAR announced that existing-home sales fell 2.6% in April from a month earlier and 10.7% from a year earlier.

Some critics pummeled Mr. Lereah for his optimism. Bloggers nicknamed him "Baghdad Dave," after the Iraqi information minister Mohammed al-Sahaf, called "Baghdad Bob," known for his pro-Iraq press briefings at the time of the U.S. invasion. Mr. Lereah, who says he left NAR voluntarily, says he was pressured by executives to issue optimistic forecasts -- then was left to shoulder the blame when things went sour. "I was there for seven years doing everything they wanted me to," he said, looking out his window to his tree-filled yard in this Washington suburb. Mr. Lereah now works at home, trying to rebuild his career and saddled with a sagging portfolio of real-estate investments.

A spokesman for NAR says Mr. Lereah used the same kind of forecasts in his book, which wasn't an NAR publication. NAR, which represents half the 2.6 million licensed real-estate agents in the country, has its critics. One concern is that while the organization collects and releases objective data about home sales, it also provides commentary on those statistics -- and has a mission to advance its members. Lawrence Roberts, author of "The Great Housing Bubble," says the Securities and Exchange Commission should regulate NAR the way it regulates financial advisers. "Realtors are currently able to make any statement they wish regarding the investment potential of real estate, no matter how ridiculous," he says.

"Realtors are the most trusted resource for real estate information," says the NAR spokesman in an email, adding that the group "has gathered the most comprehensive data on real estate in the world." The spokesman says that during his tenure Mr. Lereah was "solely responsible for the content of NAR forecasts and housing reports -- both the data and the interpretation." Among the who's who of experts and policy wonks now accused of irrational sunniness are former Federal Reserve Chairman Alan Greenspan and Robert Toll, chairman and CEO of Toll Brothers. But Mr. Lereah has gotten more than his share of the finger-pointing in part because he was such a public face during the housing boom.

Raised in the suburb of Long Beach, N.Y., Mr. Lereah says he decided he wanted to be an economist in high school. His first job was as an economics professor at Rutgers, then at the University of Virginia, and later as a regulator and economist at the Federal Deposit Insurance Corp. Mr. Lereah says he was recruited to NAR in 2000 with an offer in the "healthy six figures." During the boom years, Mr. Lereah was eager to profit himself. He snapped up condos, including two in Washington in 2003 and 2004 and one each in Tampa, Richmond, Va., Alexandria, Va., and Naples, Fla. By 2006, he says, he owned six condos worth between $150,000 and $400,000 apiece. In late 2005, the market began to fall, and in the third quarter of 2006 existing-home sales sank 12.7% from a year earlier. Mr. Lereah remained publicly upbeat, saying the market is "likely to pick up a bit" and arguing it was experiencing a "soft landing."

Soon, mainstream economists and the press were calling him out. "I thought it was criminal that he kept saying we'd reached bottom," says Ivy Zelman, former housing-market analyst at Credit Suisse and now head of her own housing-sector research firm. She says she dubbed Mr. Lereah "Mr. Liar-eah." Mr. Lereah says he was starting to worry about the housing market and tried to tone down his optimistic comments with phrases like "we also may be seeing some fallout from a decline in subprime lending." He says his critics nevertheless "became vicious." Mr. Lereah admits to one mistake: believing there would be no national housing crash. "I have to take the blame for that," he says. "I never thought it would be as bad as this."

In April 2007, Mr. Lereah left NAR, and after working about a year on a start-up venture, took some time off for a few months. He cruised around on his 29-foot sport-fishing boat and played golf at the country club. He eventually started consulting on the real-estate market again, this time to hedge funds and Japanese companies. Mr. Lereah now works in a small upstairs office that doubles as an exercise room. He has started his own company, Reecon Advisors, that puts out a weekly newsletter on the housing market and provides consulting services. "I feel I have such a refreshing view now because I'm not representing any interests," says Mr. Lereah. He charges $495 annually for the newsletter, and currently has fewer than 50 paying subscribers -- a number Mr. Lereah aims to increase to 1,500 by the end of this year.

"He's starting to make some money off it now, not much," says Mrs. Lereah. "We have an expensive lifestyle: a big house, a housekeeper once a week, college tuitions, the country club." Mrs. Lereah, a CPA who also works at home, decided the only way she and her husband could work in the same house was if they pretended they were at outside offices. They communicate during the day by email and cellphone. Every morning, Mr. Lereah drives to a Dunkin' Donuts or McDonald's and eats in the car, just as he would have on his commute to NAR. Mr. Lereah's real-estate portfolio has taken a hit. He says his 3,068-square-foot five-bedroom, 5 1/2-bathroom brick house has lost about 20% of its value in the past two years. (It is worth $780,000 now, according to Zillow.com.) His condos are down, too. He now says housing prices won't recover for some time.

His successor at NAR, Lawrence Yun, however, says things might be looking up. In his latest news release, Mr. Yun says that although the pending home-sales index based on contracts signed in November fell 5.3 from a year earlier, with a "proper real-estate focused stimulus measure," home sales could rise more than expected, by more than 10%, to 5.5 million, in 2009.

How to Understand a Trillion-Dollar Deficit
President-elect Barack Obama said Tuesday the deficit appears on track to hit $1 trillion soon. Speaking to reporters after meeting with top economic aides, Mr. Obama said: "Potentially we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on." Associated Press, January 6

Actually, the deficit is on track to hit $1.2 trillion this year, but what's $200 billion between friends? Seriously, what is it? To the average person, a number that big probably doesn't mean much. At some point long before the hundred-billion-dollar mark, large numbers simply become figures on the page, well beyond human scale and intuitive understanding. And yet as discussion about the economy and the impressive numbers that come along with it continue to dominate the news, it may be more important than ever to try to understand. Is a $700 billion financial industry bailout a lot? Is a $775 billion economic stimulus package enough?

Unfortunately, our puny human brains aren't particularly up to the task. Go back thousands of years and think about the simpler times of human existence. "We had a few friends, we had to be scared of a few animals. A trillion didn't come up very often," says Temple University mathematician John Allen Paulos, whose book Innumeracy addresses the topic. "There is a sense that when numbers are too big or too small, the brain just shuts off," says Colin Camerer, a professor of behavioral economics at the California Institute of Technology. "People either don't think about it at all or there is fear, an exaggerated reaction." The genius of our numbering system is that we can signify massive quantities in short spaces. One billion takes no longer to write than one million, points out Andrew Dilnot, an economist at Oxford University and author of The Numbers Game.

But that similarity trips us up when it comes time to imagine how those figures translate to the real world, where three more zeroes make all the difference. "My favorite way to think of it is in terms of seconds," says David Schwartz, a children's book author whose How Much Is A Million? tries to wrap young minds around the concept. "One million seconds comes out to be about 11 and a half days. A billion seconds is 32 years. And a trillion seconds is 32,000 years. I like to say that I have a pretty good idea what I'll be doing a million seconds from now, no idea what I'll be doing a billion seconds from now, and an excellent idea of what I'll be doing a trillion seconds from now."

A common strategy for beginning to understand big numbers is to devise visual representations. One time, sitting at a baseball game in Philadelphia, Paulos started counting seats along the first base line. Multiplying the number of seats in a row by the number of rows, Paulos came up with a section of the stadium that he figured contained about 10,000 seats — an image he can now think back to whenever a person starts talking about tens of thousands of a particular thing. When numbers get too large, though, that method breaks down. A stack of one trillion $1 bills would reach more than a quarter of the way to the moon — replacing one incomprehensible thought with another doesn't do much good.

We next move on to more formal manipulations. When trying to comprehend a trillion-dollar deficit, you might calculate how much money that represents per person in the United States. One trillion dollars divided by 300 million Americans comes out to $3,333. Then you search for a useful comparison. A convenient — though perhaps unsettling — comparison is to the amount of credit card debt carried by the average person in this country. That figure is $3,245. "So a good way of thinking about government debt financing is that it's similar to what the average person is doing," says Camerer.

In The Numbers Game, Dilnot and his co-author, journalist Michael Blastland, suggest dividing government spending by the number of citizens and the number of weeks in a year. A $700 billion bailout thereby translates into $45 per week for each American man, woman and child. Going one step further, it comes out to $6 a day. Are you willing to pay $6 a day to have a functioning financial system?  Just be careful once you start dividing and dividing again. It's often easy to come up with big denominators that make sense, though ultimately, too much dividing reduces numbers to another sort of uselessness. Six dollars a day is also 25 cents an hour, or less than half a penny a minute. Would you be willing to pay less than half a penny a minute? In a society where people routinely don't stop to pick up a penny off the ground, the better question might be: Is there anything you wouldn't be willing to pay half a penny for? It's something to think about.

Gross Bets on Washington After Housing Collapse Wager
The collapse of the U.S. housing market helped Bill Gross outperform 99 percent of his fund- manager peers over the past five years. Now he’s betting on securities that may benefit from rescue efforts in Washington. The 64-year-old co-chief investment officer at Pacific Investment Management Co. is urging investors to anticipate which assets will benefit as the government struggles to boost the economy. Last week he recommended municipal bonds, inflation- protected Treasuries and debt the U.S. government plans to buy. In the past six months, Gross bought senior bank debt, agency mortgage securities and preferred shares in financial companies, all before the government did the same.

Gross, who keeps the attention of investors through a combination of performance, monthly commentaries and television appearances, navigated through the worst credit crisis since the Great Depression, said Lawrence Jones, a senior mutual fund analyst with Morningstar Inc. Gross’s $128 billion Total Return Fund, the world’s largest bond fund, returned an average 5.4 percent annually over the past five years, in part by avoiding riskier debt and asset-backed securities as early as 2005. “If you are beating the competition, some people will idolize you,” said Jones, who is based in Chicago. “And some people will hate you and envy you. That’s a natural thing.” Morningstar named Gross manager of the year three times, including for 2007.

Newport Beach, California-based Pimco’s Total Return Fund rose 4.8 percent in 2008, while corporate and government bond funds tracked by Morningstar declined an average 8.1 percent, according to data compiled by Bloomberg. The $128 billion fund’s five-year return was better than 99 percent of its peers. Gross, a yoga enthusiast, credits a brainstorm that emerged while meditating with helping him steer clear of the credit market debacle that sent returns on high-risk, high-yield bonds down 26 percent in 2008. Gross wasn’t available for comment, Pimco spokesman Mark Porterfield wrote in an e-mail.

Now, Gross says debt sold by cities and states and some investment-grade companies is attractive. In early 2008, he started buying securities of New York-based JPMorgan Chase & Co. and Charlotte, North Carolina-based Bank of America Corp., viewing them as getting protection from the Federal Reserve. “It was a bold move,” Jones said. “Now we’re seeing a rebound in various risky assets. Pimco is placing its bets by sticking to companies at the top of the economy’s capital structure.”

Gross had his share of misses in the past year. Pimco held Lehman Brothers Holdings Inc. bonds in at least 12 of its funds, including the Total Return Fund, and Gross was buying the debt as recently as June 2008, data compiled by Bloomberg show. Lehman filed the world’s biggest bankruptcy in September. He started loading up on high-quality mortgage-backed securities guaranteed by Freddie Mac and Fannie Mae in 2008, while easing on Treasuries. Last year was the best for U.S. government debt since 1995, with a 14 percent gain, while municipal bonds lost 3.95 percent and Treasury Inflation- Protected Securities, or TIPS, lost 1.13 percent, according to data compiled by Merrill Lynch & Co.

Gross’s decision to back out of a $38 billion bond swap for GMAC LLC debt last year also helped drive his performance. The debt soared as much as 83 percent to 80.5 cents on the dollar after the auto financing company won approval to become a federally backed bank. Other holders participating in the exchange accepted as little as 60 cents on the dollar. Pimco’s prominence provides Gross with opportunities that aren’t available to all his rivals, said Geoff Bobroff, a mutual fund consultant in East Greenwich, Rhode Island. The firm, a unit of Munich-based Allianz SE, has about $790 billion in assets under management.

The Total Return Fund has 81 percent of its assets in mortgage-related securities and 16 percent in investment-grade corporate debt, two of the fund’s biggest positions as of Nov. 30, according to information posted on the company’s Web site. The fund’s biggest holding as of September was a 6 percent Fannie Mae mortgage bond, according to data compiled by Bloomberg. “A lot of his comments can be viewed as self-serving,” Bobroff said. “That’s the problem of a manager who is so visible in the marketplace. Is he touting current advice or is he touting what he’s already done?”

Pimco won a Fed contract in December as one of the four managers of a $500 billion program to purchase mortgage-backed securities. The company was also one of the managers selected to run the Commercial Paper Funding Facility in October. The firm was a top contender to manage toxic debt under the $700 billion Troubled Asset Relief Program, before Treasury Secretary Henry Paulson in November abandoned the plan to make debt purchases. “Pimco’s view is simple: shake hands with the government,” Gross wrote in his commentary this month. “Make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond.”

Gross, born in 1944 in the Ohio steel-company town of Middletown, graduated from Duke University with a psychology degree in 1966. He spent three years in the Navy and served in Vietnam. Gross joined Pimco after earning a master of business administration degree from the University of California in Los Angeles in 1971. He began using yoga more than a decade ago and credits his meditation sessions with clearing his head and helping him absorb unexpected news, such as a Fed half-point interest rate cut in January 2001. The news caught him in the middle of a “sun salutation,” which softened the blow, he said at the time.

Gross is also a stamp collector and says he turned $200 into $10,000 while playing blackjack for four months in Las Vegas after college. Forbes magazine ranked him as tied as the 227th wealthiest American in 2008, an improvement from 380th in 2007. “When you look across the fixed income space, he is the most visible,” Bobroff said. “For the next couple of years, fixed income will be the centerpiece of the marketplace. So Bill is going to get continued prominence.”

CEO Firings On the Rise As Downturn Gains Steam
A deepening labor market downturn that cost 524,000 Americans their jobs last month is even swelling the jobless rate for chief executives. William Watkins, ousted Monday at Seagate Technology LLC, is the sixth CEO of a publicly held company to be replaced in just the last eight days. His exit follows the departures last week of CEOs at Tyson Foods Inc., Borders Group Inc., Orbitz Worldwide Inc., Chico's FAS Inc. and Bebe Stores Inc.
Many experts view the changes as harbingers of significantly more turmoil in executive suites this year. Like other companies, these six corporations have been grappling with poor financial results, slumping stock prices and, in some cases, investor criticism.

An informal survey of management consultants, recruiters, investors and governance specialists pointed to several other CEOs whose jobs may be vulnerable: Rick Wagoner of General Motors Corp.; Vikram Pandit of Citigroup Inc.; Jonathan Schwartz of Sun Microsystems Inc.; Steve Odland of Office Depot Inc.; and Kenneth Lewis of Bank of America Corp. Officials at those companies said their CEOs retain the board's support or declined to comment.
CEO turnover "doubles in bad times," said Dirk Jenter, an assistant finance professor at Stanford University's business school, who recently analyzed 1,627 CEO changes between 1993 and 2001. Mr. Jenter found that CEOs are most vulnerable in a downturn when their employers' shareholder returns lag rivals.

Last year, 61 companies in the Standard & Poor's 500-stock index changed CEOs, up from 56 a year earlier, according to executive search firm Spencer Stuart. The number of such switches may increase this year, Mr. Jenter predicted. Boards typically oust CEOs a year or two after relative shareholder returns start to slip, he said. "As bad times drag on, you begin to examine the leader's response," observed Charles Elson, a director at HealthSouth Corp. and head of the Weinberg Center for Corporate Governance at University of Delaware's business school. Executives of corporations based outside the U.S. are leaving as well. Anglo-Australian mining company Rio Tinto PLC on Monday said Dick Evans, chief executive of its aluminum division, plans to retire and will leave the board on April 20. Norwegian electric power and aluminum producer Norsk Hydro ASA also said Monday its CEO is stepping down on March 30.

Seagate removed Mr. Watkins at the same time it announced plans to eliminate 10% of its workforce. The maker of computer disk drives warned of disappointing sales in December, and its shares have lost 80% of their value in the past year. They closed off about 16%, or 88 cents, at $4.76 in 4 p.m. composite trading Monday on the Nasdaq Stock Market. Borders and Tyson also had sharp share losses under their old CEOs. Borders shares fell about 97% under George Jones, who took over in July 2006. The turmoil extends to senior executives below the CEO. New chief executives often replace top lieutenants to create their own team. With the recession, "this is the most volatile environment I've seen in 30 years," observes Peter D. Crist, head of Crist|Kolder Associates, a search firm in Hinsdale, Ill.

Harry Pearce, chairman of Nortel Networks Corp. and a retired vice chairman of GM, also expects more CEO departures. "There's just enormous pressure" to replace CEOs amid the tough economic climate, Mr. Pearce said. Mr. Pearce thinks many of these changes will be ill-advised. "It's probably the worst time to make a change," Mr. Pearce said. Hiring a fresh leader during crisis "almost invites bad decisions" because a newcomer must act fast before fully grasping the business, Mr. Pearce said. He declined to comment on the future of Nortel Chief Executive Mike Zafirovski, who has been running the troubled telecommunications equipment maker since 2005. Switching CEOs is rarely a panacea. A June 2008 Wall Street Journal survey of 30 big companies that removed CEOs between January 2005 and June 2007 revealed that the shares of those companies had declined far more often than they had increased. (The survey excluded financial-services CEOs who had lost jobs amid the credit crisis.)

Several of the CEOs considered vulnerable this year are relative newcomers who have been unable to halt declines in their employers' fortunes. Mr. Pandit was named CEO at Citigroup in December 2007, amid multi-billion dollar losses tied to the mortgage crisis. But Citigroup remains unstable. It has required two capital injections from the federal government, and analysts expect the company to report another big loss later this month. Federal officials discussed removing Mr. Pandit as part of the second bailout, but decided that his ouster could destabilize the company, people familiar with the talks have said. Citigroup's lead independent director, Richard Parsons, said Sunday the board retains confidence in Mr. Pandit and is not considering his removal.

Bank of America's Mr. Lewis won praise last year for steering the bank through the worst of the mortgage mess, while acquiring Countrywide Financial Corp. and this year Merrill Lynch & Co. at bargain prices. Now, some analysts question whether those deals will ultimately hurt the bank, which halved its dividend in October. B of A shares have fallen more sharply than other banks in the past month. Mr. Lewis "is under a lot of pressure," Mr. Elson said. "He's someone to watch, given the bank's (recent) performance." A bank spokesman declined to comment. Sun has struggled to find a formula for consistent growth since the Internet boom. Mr. Schwartz replaced Sun co-founder Scott McNealy in 2006, but Sun continues to lag bigger rivals such as Hewlett-Packard Co. Sun posted a $1.68 billion loss in the fiscal first quarter ended in September, including a $1.45 billion writedown related to a 2005 acquisition. That occurred shortly before H-P reported better-than-anticipated earnings for its most recent fiscal quarter. Sun's shares fell about 75% last year; H-P's slid about 25%.

Mr. Schwartz is definitely on a hot seat, one Sun institutional investor said. But Southeastern Asset Management Inc., Sun's largest shareholder, last month said it fully backed Mr. Schwartz after Sun agreed to appoint two directors chosen by Southeastern. A Sun spokesman said its board "is fully supportive of its leadership team and strategy." Other potentially vulnerable CEOs face longer-standing problems. Mr. Wagoner has led GM since 2000, a period in which its market share has shrunk and its shares have fallen about 94%. Some members of Congress urged Mr. Wagoner to resign when GM sought a federal bailout last fall.

Mr. Wagoner has deflected calls to quit and GM directors have backed him publicly. He still "has the support of the board," said Tony Cervone, a GM spokesman. Office Depot lags larger rival Staples Inc., and recently halved plans for new store openings this year. Last year, dissident shareholders threatened a proxy fight, claiming that management used economic weakness as an excuse for its "persistent underperformance." Neil Austrian, the board's independent lead director, said in a statement that Mr. Odland "is doing everything possible" to improve performance. "We are confident that we have the right management team," he added.

Rhode Island Leads US Into Deep Recession
Larry Miller believed he would retire from the auto parts manufacturer where he first got a job as a newly married 26-year-old. That was two factory closings ago."The word 'loyalty' is gone," said Miller, shaking his head while sitting at his kitchen table. Since then he found a new job in Massachusetts, but his wife and his friend are still looking. "Someone in this state needs to be proactive," Miller said. "Without jobs, this country's nothing." Jobs are painfully lacking in Rhode Island, where unemployment stood at 9.3 percent in November, just behind the national leader Michigan. To the dismay of state leaders, this tiny state has persistently been a leader in joblessness as the recession deepens.

Rhode Island has been hurt by the same ills hammering the rest of the nation: falling housing prices, mortgage defaults and the credit crisis. But a combination of unique factors has deepened the pain. Long dependent on the shrinking manufacturing sector, Rhode Island never found a replacement as nearby states courted biotech and computing firms. Its work force remains geared for manufacturing-era jobs that no longer exist. Meanwhile, the state's population peaked in 2004 and has shrunk ever since. It's also getting older. While the state Department of Labor and Training expects growth in nursing homes, it fears the aging population could hurt other sectors.

In addition, the state has a large percentage of small employers, making it more vulnerable to downturns that stretch the resources of small firms. Multiple surveys fault the state for its heavy tax burden, and a long-running budget crisis has business owners worried about tax increases. Workers like Miller know the trouble firsthand. Manufacturing began a long-term decline more than two decades ago and never recovered. Economists worry that Rhode Islanders are not being trained for what comes next. While the number of jobs for high-school graduates is shrinking, Rhode Island lags the U.S. in the awarding of college degrees. Only 40 percent of jobs pay above the national average wage of $42,400.

As manufacturing declines, many remaining positions are in health services, tourism or nonprofits, frequently low-paying fields. The nonprofit Lifespan hospital network was Rhode Island's largest employer in December 2007. The state and federal governments came next, followed by another hospital chain and the Roman Catholic Diocese of Providence. "I would summarize Rhode Island's economy as information age, hold the information," said Leonard Lardaro, an economist at the University of Rhode Island. Like Rhode Island itself, the size of private employers here tends to be tiny. Federal surveys show Rhode Island is among the top fifth of states in the number of employers with less than 20 workers. In Rhode Island, those small firms represent nearly 90 percent of private employers.

Right now, small companies are feeling the squeeze. Christine Cunneen, chief executive officer of Hire Image, said she plans to move her headquarters to Florida to take advantage of a better economy and lower tax rates. Her small company screens employees hired by other firms for criminal records and other red flags in their backgrounds. After surviving a fire that wrecked her headquarters, Cunneen had to deal with a national recession that cut her sales more than 20 percent. By itself, the slowdown was manageable, Cunneen said. But then lenders stung by the national credit crisis began eliminating or reducing the loans that Cunneen considered a safety net for tough times. American Express tried shutting down her $50,000 line of credit because it was clamping down on small business lending. After several phone calls, the company relented _ for a limited period.

The tanking housing market also affected her credit access. Like many small employers, Cunneen had a line of credit tied to her home. When the real estate bubble popped, Bank of America cut Cunneen's $90,000 credit line to $20,000. She already tapped $10,000 for home improvements. The credit problems make Cunneen gun-shy just as she hopes to expand her business. Gov. Don Carcieri plans to put forward legislation to make it less risky for banks to lend to small firms here. "The reason I have that line of credit open in the first place was not to go out, you know, on vacations or buy new, fancy cars," Cunneen said. "That really was a safety net for my business."

Go East, young man? Californians look for the exit
Mike Reilly spent his lifetime chasing the California dream. This year he's going to look for it in Colorado. With a house purchase near Denver in the works, the 38-year-old engineering contractor plans to move his family 1,200 miles away from his home state's lemon groves, sunshine and beaches. For him, years of rising taxes, dead-end schools, unchecked illegal immigration and clogged traffic have robbed the Golden State of its allure. Is there something left of the California dream? "If you are a Hollywood actor," Reilly says, "but not for us."

Since the days of the Gold Rush, California has represented the Promised Land, an image celebrated in the songs of the Beach Boys and embodied by Silicon Valley's instant millionaires and the young men and women who achieve stardom in Hollywood. But for many California families last year, tomorrow started somewhere else. The number of people leaving California for another state outstripped the number moving in from another state during the year ending on July 1, 2008. California lost a net total of 144,000 people during that period - more than any other state, according to census estimates. That is about equal to the population of Syracuse, N.Y.

The state with the next-highest net loss through migration between states was New York, which lost just over 126,000 residents. California's loss is extremely small in a state of 38 million. And, in fact, the state's population continues to increase overall because of births and immigration, legal and illegal. But it is the fourth consecutive year that more residents decamped from California for other states than arrived here from within the U.S. A losing streak that long hasn't happened in California since the recession of the early 1990s, when departures outstripped arrivals from other states by 362,000 in 1994 alone.

In part because of the boom in population in other Western states, California could lose a congressional seat for the first time in its history. Why are so many looking for an exit? Among other things: California's unemployment rate hit 8.4 percent in November, the third-highest in the nation, and it is expected to get worse. A record 236,000 foreclosures are projected for 2008, more than the prior nine years combined, according to research firm MDA DataQuick. Personal income was about flat last year. With state government facing a $41.6 billion budget hole over 18 months, residents are bracing for higher taxes, cuts in education and postponed tax rebates. A multibillion-dollar plan to remake downtown Los Angeles has stalled, and office vacancy rates there and in San Diego and San Jose surpass the 10.2 percent national average.

Median housing prices have nose-dived one-third from a 2006 peak, but many homes are still out of reach for middle-class families. Some small towns are on the brink of bankruptcy. Normally recession-proof Hollywood has been hit by layoffs. "You see wages go down and the cost of living go up," Reilly says. His property taxes will be $1,300 in Colorado, down from $4,300 on his three-bedroom house in Nipomo, about 80 miles up the coast from Santa Barbara. California's obituary has been written before - "California: The Endangered Dream" was the title of a 1991 Time magazine cover story. The Golden State and its huge economy - by itself, the eighth-largest in the world - have shown resilience, weathering the aerospace bust, the dot-com crash and an energy crunch in recent years. But this time, the news just keeps getting worse.

A state board halted lending for about 2,000 public works projects in California worth more than $16 billion because the state could not afford them. A report by Sen. Barbara Boxer, D-Calif., last month said the state lost 100,000 jobs in the last year and the erosion of home prices eliminated over $1 trillion in wealth. "I don't think the California dream, per se, is over. It has become and will continue to become grittier," says New America Foundation senior fellow Gregory Rodriguez. "Now, perhaps, we have to reassess the California of our imagination."

Gov. Arnold Schwarzenegger is among those who say the state needs to create itself anew, rebuilding roads, schools and transit. "We've lived off the investments our parents made in the '50s and '60s for a long time," says Tim Hodson, director of the Center for California Studies at California State University, Sacramento. "We're somewhat in the position of a Rust Belt state in the 1970s." Financial adviser Barry Hartz lived in California for 60 years and once ran for state Assembly before relocating with his wife last year to Colorado Springs, Colo., where his son's family had moved. "The saddest thing I saw was the escalation of home prices to the point our kids, when they got married, could not live in the community where they lived and grew up," Hartz says. "Some people call that progress."

Universities offering in-state tuition to out-of-state students
For 20 years, Southern Illinois University's student numbers have languished, proving so vexing it cost a top administrator his job in 2006. Much of the problem, the chancellor contends, is that would-be students from Illinois bolted to other states on the promise of sweet tuition deals. Now, the university is fighting back: This fall, it will begin offering in-state tuition to first-year students from neighboring Missouri, Kentucky and Indiana. Across the country, a bidding war of sorts has developed over prospective students seeking bargains in a bad economy. While some universities have long tried to lure students across state lines with lower tuitions, such incentives are gaining popularity as the nation's financial meltdown has withered families' college savings and home equity to help pay soaring education costs.

"We're certainly seeing an acceleration of that" push to offer tuition cuts for its out-of-state scholars, said Bob Sevier, senior vice president of Iowa-based Stamats, a consultant to colleges and universities about marketing, student recruitment, fundraising and strategic planning. "It's something that should have been done a long time ago. This is not a gimmick. This is good public policy," Sevier said. And to Sam Goldman, Southern's chancellor, it's unavoidable. "We're in probably the most competitive environment I've ever seen in higher education right now," said Goldman. Other universities have similar designs on recruitment. In North Dakota, for example, the state's Board of Higher Education recently approved offering in-state tuition to out-of-state and international prospects.

That's something Minot State University last month pushed to make big use of by hiring two new recruiters, hoping to lure more students from Canada and Washington state. Such efforts come when "the economic downturn is kind of churning the college market a little bit," prompting many colleges and universities to evaluate ways to remain viable, Paul Hassen, a spokesman for the National Association of State Universities and Land Grant Colleges. "The higher education market changes constantly, and each institution has its own challenges and opportunities," he said. "Programs such as offering in-state rates to out-of-state students or some other way of packaging a pricing structure will occur. It's a matter of fiscal survivability." Last month, an independent report on American higher education flunks all but one state — California, which got a C — when it comes to affordability.

The biennial study by the National Center for Public Policy and Higher Education, which evaluates how well higher education is serving the public, found that almost everywhere the average family's cost of education is up. In Illinois, the average cost of attending a public four-year college has jumped from 19% of a family's income in 1999-2000 to 35% in 2007-2008. At Southern Illinois, tuition has jumped from $2,865 in 1999 to $6,975 this year for in-state students; during the same span, non-resident tuition ballooned from $5,730 to $17,437. The school's student numbers shrank by 1,650 along the way to 20,673 now — well below the 24,084 that went there in 1990. That lagging enrollment came to a head in November 2006, when the university's president, former five-term congressman Glenn Poshard, ousted Walter Wendler as the Carbondale school's chancellor.

"We're the only public university in the state losing students. We have to turn this around," Poshard said then. In trying to do just that, Southern Illinois University's board voted to extend in-state tuition to first-year students from Missouri, Kentucky and Indiana. After the first year, the students could qualify as Illinois residents. Such moves apparently have worked elsewhere. According to Hassen's group, Penn State from 2005 to 2008 has seen 47% more out-of-state students accepting offers from the school since it began offering a reduced tuition rate at 19 of its 20 campuses for the student's first two years. Other university systems, while also trying to pad out-of-state recruiting, aren't feeling as generous. University of California officials, for instance, reportedly are mulling expanding its out-of-state recruiting but not give those students in-state rates.

Out-of-state students in that university system now pay $20,000 a year more than in-staters — a premium that can be a handy revenue stream when the state's budget is tight. In Carbondale, Goldman says it's far too soon to tell whether Southern's tuition push to lure more out-of-state students is making a difference, though he insists the feedback so far has been encouraging. "I've bumped into people from out of state here who have said, told me point blank, that because we reduced it they are coming here," he said. For each student, "the tangible difference is $10,000. It's that much. It's like we're giving them a scholarship; it's not, truly, but that's the equivalency."

Pilot who bailed from plane under securities probe

A man whose financial management business is under investigation faked a life-or-death emergency in his private aircraft before secretly parachuting out and letting his plane crash in the Florida panhandle, authorities said Monday. The pilot, identified as Marcus Schrenker, 38, later checked into a hotel in Alabama under a fake name and then put on a black cap and fled into woods, authorities in Alabama said, according to the Santa Rosa County Sheriff's Office in Milton, Florida. Authorities are searching for Schrenker.

The manager of the airport in Indiana from which the six-seat Piper PA-46 took off Sunday said that no one else was on board at takeoff. The plane crashed Sunday night in a swampy, wooded area within 50 to 75 yards of some homes in East Milton, Florida, the sheriff's office said. An Indiana judge on Monday froze Schrenker's assets at the request of investigators looking into his business dealings, said Jim Gavin, spokesman for the Indiana secretary of state. Public documents list Schrenker as president of an Indianapolis agency called Heritage Wealth Management. Records also show Heritage Insurance Services at the same address. The address is listed in the telephone directory as the site of Icon Wealth Management.

Those three companies are under investigation for possible securities violations, according to Gavin. A search warrant was served in connection with that investigation December 31. The judge's asset-freezing order, which applies to Schrenker's wife and his three companies, is aimed at protecting investors, Gavin said. CNN's attempts to reach a representative for Schrenker were unsuccessful. The phone number for his business was disconnected, and public records do not list his home phone number. Schrenker "appears to have intentionally abandoned the plane after putting it on autopilot over the Birmingham, Alabama, area and parachuting to the ground" Sunday night, the sheriff's office said in a news release.

The plane crashed at 9:15 p.m. CT on Sunday in a swampy area of the Blackwater River in East Milton, authorities said. It's unclear what time Schrenker made the earlier distress call. He told air traffic controllers that the window of his plane had imploded and he was bleeding profusely. That call came in when the aircraft was about 35 miles southwest of Birmingham. Controllers tried to tell the pilot to divert the flight to Pell City, Alabama, but he did not respond. The plane appeared to have been put on autopilot around 2,000 feet altitude, said Sgt. Scott Haines, a spokesman for the Santa Rosa County Sheriff's Office. The plane had been scheduled to land in Destin, Florida, authorities said.

After the call came in, military aircraft were dispatched to intercept the plane. The jets spotted the Piper and deployed flares to illuminate the plane as it was flying and noticed that its door was open and the cockpit was dark, according to the Santa Rosa authorities. The jets continued to follow the plane until it crashed. Rescuers searched the area where the plane went down and began a search for the pilot. Meanwhile, Schrenker reportedly was more than 220 miles north of the crash site. The Santa Rosa County Sheriff's Office got a call at 2:26 a.m. Monday from the Childersburg Police Department in Alabama saying that a white male, identified as Schrenker by his Indiana driver's license, approached a Childersburg officer at a store.

Schrenker, who was wet from the knees down and had no injuries, told the officer that he had been in a canoeing accident with friends, the Santa Rosa Sheriff's Office said in a news release. Schrenker had goggles that looked like they were made for "flying," according to the release. The Childersburg police didn't know about the plane crash, so they took Schrenker to a nearby hotel, authorities said. When police found out about the crash, they went back to the hotel and entered Schrenker's room. He was not there, they said. According to Santa Rosa authorities, Schrenker had checked in under a fake name, paid for his room in cash and "put on a black toboggan cap and ran into the woods located next to the hotel." CNN affiliate WVTM obtained surveillance video from the Harpersville Motel that WVTM says shows Schrenker checking in. It also shows Schrenker putting on a black cap and leaving, the station reported.

Harpersville is 30 minutes east of Birmingham, and about 223 miles north of Milton, Florida, near where the wrecked plane was found. Federal investigators were helping in the probe. "The FBI is looking into the matter, along with other agencies," said Paul Draymond with the Birmingham, Alabama, FBI office. Kathleen Bergen, spokeswoman for the Federal Aviation Administration, said a "detailed review of radar data" and the fact that the plane had switched to autopilot suggested the pilot might have parachuted. The corporate plane does not have an ejection feature, said Steve Darlington, the airport manager of the Anderson Municipal Airport in Anderson, Indiana. Darlington described the pilot as "accomplished" and said he owns "a couple of airplanes" and flies regularly.


westexas said...

If our good friends the Feds are determined to "jump start" the economy with new lending, wouldn't it be easier just to lend directly to businesses, rather than pouring borrowed money into failing banks?

David said...


I hear we are having some deflation right now. Really?

Hmmmmm, let's take a look . . .

Have my rent payments gone down? Nope.

Have the supermarket food prices gone down? Nope

Have the utilities (electricity, natural gas, telephone, cable, etc.) prices gone down? Nope.

Have my health care/insurance costs gone down? Nope

Have my kids college education costs (tuition, board & room, expenses) gone down? Nope

Have my medical prescriptions prices gone down? Nope

Have the bridge and highway tolls gone down? Nope

Have my life and disability insurance prices gone down?

Have my income taxes gone down? Nope

Have my property taxes gone down? Nope

Have my sales taxes gone down? Nope

Soooooooo . . . exactly when does this deflation stuff kick in?

Please tell me, because I am greatly looking forward to all of my daily costs of living dropping like a rock.

For an excellent overview, by the redoutable Peter Schiff, of why the impending Bond Market Bubble bursting will trigger massive hyperinflation, please read

the essay at http://news.goldseek.com/EuroCapital/1231524773.php

His logic seems pretty airtight to me.

Ilargi said...

Why David

You're wrong, you're looking at the wrong things. But I'm sure you won't recognize them.

Questions you choose not to ask:

• Did the value of your home go down?

• Your 401k? Your pension fund?

• Gas at the pump perhaps?

Anyway, anyone proclaiming inflation today needs good teachers. And you know what? That's why we're here. Lucky you.

Ilargi said...

Jeffrey, lending to businesses is not even the point, though it's much better than handing out cash to bankrupt financials. What Obama should do, but what he won't, is guarantee the validity of every US citizen's deposits in the banking system. They could then have access to it through the post office, or even just the supermarket. But most importantly, let the banks go bellytitty up. If we don't then all their losses will have to be swallowed by the people. There is no reason for that other than that Paulson and Geithner and Obama have a vested interest in propping the system up. You and I do not, that's for sure. And that's why you're touching on a very crucial point. Only, the interests that are guarded are not yours, the interests that prevail are those that best serve those that have risen to prominence within the system that we see fail all around us. Everything they do is wrong for the greater good, but then, the greater good is not their concern. It's their own positions and situations. The banks are all broke. and cannot be saved. But imagine what AMerica would look like with all of them gone. It would obliterate most of the people who hold the reins today.

Shibbly said...

I too have noticed that the cost of living expenses have mostly gone up, especially food and medical, or stayed the same (except for gas).
Home and stock prices have gone down in the deflation, but the total day to day expenses of essential items have not.

Iconoclast421 said...

That picture raises an interesting question: I wonder what the "haircut to oil" ratio was during the great depression. That is, how many haircuts could you buy for one barrel of oil. In the great depression, it had to be at least 100 haircuts for one barrel of oil. Perhaps more. Today, you can buy about 4.

I think that number explains more than anything exactly what's wrong with our economy. Haircuts havent changed since the great depression. Yet somehow the market has been manipulated into believing that one barrel of oil, capable of doing the work of hundreds of laborers for hours, is only worth 4 measely haircuts. This is proof that the market is completely broken, and collapse is inevitable. The market will be closer to reality once you can buy at least 20 haircuts for a barrel of oil.

Anonymous said...

I have to agree with you about deflation.
According to the dictionary it is defined as a persistent decrease in the general price level of goods and services. The items Ilargi pointed to strike me as the unwinding of bubbles in certain sectors of the economy. Maybe we are in some kind of hybrid situation?

VK said...

- It would obliterate most of the people who hold the reins today.

Sounds like a case of competitive exclusion.

Courtesy of Wikipedia, competitive exclusion is a theory which states that two species competing for the same resources cannot stably coexist if other ecological factors are constant. Either of the two competitors will always overcome the other which leads to either the extinction of one of the competitors or an evolutionary or behavioural shift towards a different ecological niche.

We are hardwired to protect our self interest and of those who are just like us. In the last 40 years the mantra of "greed is good" has gained a lot of favour among popular culture.

Now it's coming to back to bite us. The last thing society needs is banks working in their self interest, we need them to work for the greater good (wishful thinking?). It seems that the very institutions that man created to protect him are the ones that will end up strangling him.

VK said...

At anon 5:08,
In our debt-based monetary system,

Inflation is the NET expansion in money and credit.

Deflation is the NET contraction in money and credit.

Going by these definitions, your cost of living may have gone up by 10% but if your stocks and home values decline by 50%, than you have a NET contraction. Hence it is deflationary.

50 Trillion in global wealth has been wiped out due to falling stocks and plummeting asset values by some estimates. So that's hugely deflationary.

Anonymous said...


Do you have time to explain 'your workings' to get to the figure of 90% from peak house price decreases?

I'm not doubting you at all - I'm just interested in the parameters you used.

Many thanks


Frank said...


I have to ask about your 65% of GDP is consumer crap number. As I understand it, all consumer spending is 70% of GDP, which would say that only 10% thereof is actually useful.
I honestly find that hard to believe.

Garth said...

I just finished Deer Hunting with Jesus. It's a quick, enjoyable, heartbreaking book. A little polemic at times, but mostly in a good way.

As for deflation/inflation, read the primers, check out MIsh, and if you feel the need go argue with Denninger. If you don't glean anything you find compelling from that, I doubt anything anyone says on this forum is going to change your mind.

VK said...

@ country slicker

I'll venture a guess, 67% of all credit in 2006 came from securitization, 33% came from banks. In the current debacle, securitization is semi - dead, hence the fall in profitability of the former investment banks, hence 67% of credit has disappeared while banks are hoarding the remaining cash to preserve themselves, so in effect 80-90% of credit will effectively disappear as the economy continues to worsen.

A home price is determined by demand and supply. Demand is weak due to increasing unemployment, lack of credit availability apart from those who have the best credit scores, negative wealth effect. While there is a glut of supply in homes.

So combine 80-90% of credit disappearing in the long run, GDP being cut by a possible 30-40%, unemployment at 20%+ and declining resources in terms of Natural Gas, Oil and huge drops in salaries and standards of living. And you can easily see why in the long run (5 years?) asset prices will drop steeply. (Cliff diving!)

Following Japan's credit bust, asset prices are still down 70% from their peak 19 years later and the Japanese still find that their homes are too expensive...OUCH. As the banks have been holding on to the property to prevent write downs...Banks everywhere and anywhere are a parasitic phenomenon.

Anonymous said...

Since there is a link, looks like Jim Kunstler is getting inspiration for a new book about political and social identity in a resource constrained world.

jal said...

When looking the unemployment of different sectors of the economy you would assume that since the financial sector colapsed that this would be where there would be the most job lost.

According to BNN … Financial service job cuts 110,000 or 2% world wide.

It appears that the other sectors of the economy are suffering much more since the average US unemployment is now over 7%.

The financial services are latched on really good and will stay to milk the system to the last drop.
How can the expenses, salaries, bonuses be covered by the spread on the deposits and the lending (4%?)

We need a new model. The financial service provider ceases to be a middleman, or credit intermediary. We need to have a pure service provider. The fact is that in the Internet age there is no need for credit intermediaries, whether private banks or central banks.

Dan said...

That whole "pay rent to stay in your home" thing is just silly. Who sets the rents and decides what "market prices" should be? What if those "market prices" are still unaffordable and they get evicted from the house that should have been foreclosed on?

There is no way to pollish this turd.

The whole system needs to be flushed down the toilet.

Sorry, but thems the breaks.

You break it, you bought it. That's all there is to it. Deflationary spirals resulting from the endgame of exponential growth can't be stopped until there's room in the world for growth again and all the debts have been paid/resources replenished.


There is no other eventuality...so you all might pray to get 5 or 10 years out of some debt scheme to inflate prices and jobs, but that just prolongs the inevitable and pushes the burden (with a further destroyed environment) onto your kids.

Ilargi said...

"Frank said...

I have to ask about your 65% of GDP is consumer crap number. As I understand it, all consumer spending is 70% of GDP, which would say that only 10% thereof is actually useful."

You lost me there quite early on. I have no idea what you're trying to say. Be more specific would help.

Anonymous said...

"The Last Bubble—Barack Obama "

Picture Obama as the Parrot salesman in the famous Monty Python skit, trying to be reassuring and explanatory about the nature of the Parrot.

Picture the Economy as the Parrot.

Picture the Public as the unfortunate individual who bought into the Parrot and is having a futile argument about getting a 'refund':

Obama: Remarkable bird, the Norwegian Blue, isn't it, eh? Beautiful plumage!

Public: Look, matey, I know a dead parrot when I see one, and I'm looking at one right now.

Obama: No no, h-he's not dead, he's, he's restin'!

Public: "...this parrot is definitely deceased, and when I bought it not half an hour ago, you assured me that its total lack of movement was due to it being tired and shagged out after a long squawk."

Obama: Well, he's... he's, ah... probably pining for the fjords."

Public: "It's not pinin!

It's passed on! This parrot is no more! It has ceased to be! It's expired and gone to meet its maker!

This is a late parrot!

It's a stiff! Bereft of life, it rests in peace! If you hadn't nailed him to the perch he would be pushing up the daisies! Its metabolical processes are of interest only to historians! It's hopped the twig! It's shuffled off this mortal coil! It's run down the curtain and joined the choir invisible! This.... is an EX-PARROT!


Anonymous said...

This evening, PBS is airing Niall Ferguson's "The Ascent of Money". It is a 4 hour show and the first two hours are tonight. I watched the preview and it looks good.

To David:
I have noticed that we seem to be in an interim time period where some services are charging higher prices because they don't understand that we are in deflation, yet their business is down, so they think they have to make up for lost revenue. Example: I took my cat to the vet and I was the only one there. The vet, 3 other employees, and the rent needed paid. They kept me an hour and I could see what was coming. I paid the wages and rent for that hour.

jal said...

When are you going to get rid of the cat?

Chaos said...

Ilargi said,
"Sure, Bernie Madoff lost a lot of people a lot of money. But so did David Lereah. If you want to know what's wrong with America as a society, look no further."

Highly agree, and thanks for posting the article. A careful study of the character of the US public is one of my primary interests, and it turns out to be quite depressing. So typical is our friend featured in this piece. Many people in my region are going to be experiencing similar misfortunes, and yet they do cling to their illusions; they are all they really possess, after all.

Anonymous said...

Iconoclast421 - As the East Texas field increased production, the price of oil fell to 10 cents a barrel. There were riots in Oklahoma. This precipitated the OPEC like regulation of the Texas Railroad Commission.
--I am not sure about 1939 but I recall paying 40 cents for a haircut in Amarillo Texas during the 40's.
R Wilson

SanderO said...

What has deflated is things where wealth resides - stocks, real estate etc.

So what is happening on the street? The income from investment, "things where wealth resides" is gone and so there is less cash in play. Credit used to be collateralized with tangible assets. But since they are deflating credit is evaporating.

That applies to consumer credit as well. People are not buying on / with credit. Sales are down, people are laid off and many things are cost more, because of rising fuel prices.

Apartment rents are not going down because that is a supply and demand deal. If there were an over abundance of apartments, it would be a buyer's market and there would be pressure pushing prices down... like if there was a die off of the population.

With little job security who would want to raise a family? Population growth going negative?

We're ina feedback feed forward whirl.

Stoneleigh said...

We seem to have some new people here today. I would suggest reading the primers, starting with Inflation Deflated. That gives the best overview of what deflation is and why that is what we are facing.

In short, deflation is not falling prices, but a contraction in the money supply relative to available goods and services. A contracting money supply, due to the evaporation of credit, removes price support across the board. So far asset prices are falling (since many 'assets' are not really assets at all, but liabilities), before consumer prices. As potential buyers tighten their grip on their wallets, consumer prices will also fall in the near future.

It is a mistake, however, to equate falling prices with greater affordability. Purchasing power will be falling faster than price this year, making those nominally lower prices less affordable than the higher prices used to be. Deflation will make everything less affordable, and rapidly too. Essentials will be the least affordable of all, as a much larger percentage of a much smaller money supply chases them.

Anonymous said...


When are you going to get rid of the cat?

This cat will be the last to go.

Anonymous said...


"Have my rent payments gone down? Nope."

Wow. In what part of the country do you live that rents haven't gone down? The places around me have all had decreases in rent.

More likely you weren't smart enough to either renegotiate with your landlord, or move to a cheaper place. Can't help you if you're an idiot.

That was a really bad example you gave.

Frank said...

>>The percentage of junk (unnecessary stuff people buy with ‘discretionary income’ or on credit, out of advertising-whetted appetites, class consciousness, fads, or passing desires) went from an estimated 35% of GDP in 1965 to 65% in 2005.<<

My understanding is that that 65% of GDP is total consumer spending. Yes it includes wide screen TVs. It also includes all the expenses for food, clothing, shelter, getting to work...all the useful and necessary things that people spend money on. Also, income needed for basic living expenses is not considered 'discetionay'.

I can't immediately quantify what fraction of that 65% is junk and what is not, but I find it implausible that less than half is highly desieable if not absolutely necessary.

scandia said...

Jal, Go easy on the cat lovers here...I will feed my cat till my last breath. Unless somebody nabs her for dinner!
I think it was in the article " The Last Bubble, Barak Obama" that I came across the phrase, " unvetted premises". Jumped off the page for me as I am just beginning a course in Critical Thinking. I am learning that an good argument must have form AND soundness - soundness meaning vetted premises.Listening and reading with the course material in the back of my mind has revealed the extent of unformed, unsound arguments made by our leaders.

Anonymous said...

IIargi,your response to westtex was insightful.The more I chew on it the more truth comes out.Tasty.

This has to be the basis of any rational actions taken to mitigate the problems each of us will face...I mean the understanding that those in power are doing there best to maintain the status quo,regardless of the consequence,or rationality of their actions.

The[very] dead parrot skit is a excellent way getting across the reality of things...

Bringing this term "competitive exclusion" to the discussion is the best way to gently help folks understand the wealthiest people have in fact created this system...for their benefit.

We are,as has been mentioned before"krill"to these creatures.In more ways than one.The primary source of food for the largest form of life on this planet,is[drum roll]krill.The largest mammals on earth swim endlessly filtering seawater for some of the tiniest for sustenance.

You can argue very easily that the "whales" in our society gain their power and place in the world by actions that,if examined,would appear incredibly destructive...sociopathic...nearly murderous to the lives of us "krill".
And when confronted..they will say.."its only business"or"let the market decide".Or worse yet,start on a social Darwinist type rant that shows how little connection they have to the "krill"

What has happened many times in history is when the "competitive exclusion"stakes become so high...the poor eat the rich.The French,the Russians,hell even the Tutsi have had this occur,usually with just enough warning for a few to escape

I once read a analysis that likened the wealthy...the managers..those that rule..to a parasite,but one that acted as a symbiont...with the relationship being benign,and essentially making civilization itself possible above the tribal /clan level.But,as the ruling class becomes more powerful,their excesses more rank and burdensome to the workers..as the empire grows,It sows the seed of its own destruction by weakening the workers ,destroying its base/food supply/environment.I think the current events we are witnessing are a quiet lesson in history being played out before our eyes.We will see/live thru the collapse of the most powerful,for a time,nation that has ever existed.

In living color no less.

[I have a chore that must be done at night.The small laser level I am using to level the walls of my greenhouse works best at low light levels,so work calls me with a small shrill voice]

Be good or be careful


Stoneleigh said...


I have been making special efforts to keep our Sparkie company while Ilargi is away. Fortunately she's never required much in the way of vet bills, and long may that continue.

Fortunately, for a household with sheep, alpacas, sled dogs, chickens and a cat, our vet bills are minimal. In a couple of months we will be adding an eight-week old livestock guardian dog (Hungarian Kuvasz), so shots will be required. We hope to breed them in time, as I'd rather have guard dogs than guns any day.

Forrest said...

When I propose the "let the banks fail" scenario, I often get the rebuttal:

"Then Everything stops. Trucks stop and delivery of food stops. Gas shortages begin. Everything grinds to a halt. We need to keep the wheels greased. Letting them fail is just anarchy and not even an option."

My answer is that these things are happening anyway, why waste Trillions? Where does it end, and how does it get better?

They don't have an answer to that, but I'm still branded an extremist, pessimist, and chicken-hawk. Folks think food storage is lunacy. I really think the vast majority are in Shock (enter:Doctrine).

It seems that the "people" have entered a lull, maybe with the stock market going sideways? Folks around me are not as scared about the Overall scene as much as they were in early December, or at least they aren't showing\talking about it (but my office is scared shitless about jobs).

el gallinazo said...


You confuse me. It it the cat or the arguments that are unvetted?

forrest said...

I'm struggling with the argument that TPTB are only interested in "enriching their friends" as if the banking class can be uniformily classified as pigs.

If you put farmers in charge of the economy, they would say, "We need to give more money to farmers and flow the economy through them."

We have bankers holding the money, and they think the best way to make things work is to flow money through banks.


el gallinazo said...


Why are you branded a chickenhawk? Bush, Rumsfeld, Cheney are chickenhawks because they talk a good war but they always "hide when the fasts bullets fly."

Besides, chickenhawks are not compañeros of gallinazos.

Stoneleigh said...


It seems that the "people" have entered a lull, maybe with the stock market going sideways? Folks around me are not as scared about the Overall scene as much as they were in early December, or at least they aren't showing\talking about it (but my office is scared shitless about jobs).

A sideways consolidation is a form of rally, in that the move finishes above where it started. A peak of a counter-trend move coincides with a relative peak in optimism, which is a set up for the next phase of the decline.

My current view is that we will see another spike low, with associated fear, before we get a longer and larger sucker rally (Obama's honeymoon period).

forrest said...

Whoops, I meant Chicken Little!

ha ha ha...

yes gallinazos, I'm a lover, not a fighter.

scandia said...

Gallinazo," ...the cats or the arguments that are unvetted?" Ha! Quick witted as well as " tough as a woodpecker's lips."

Forest,"...people have entered a lull..." I realize on thinking about the lull that it is me who is in a lull. I've stopped discussing economics unless someone initiates the discussion.
Someone's wise wife recently asked, " when do we be happy?" creating a lull effect for me as I ponder and act on that question.The lull effect could result from a collective holding the breath,not looking left nor right,crossing our fingers and our toes and never again stepping on a crack. I agree with you that there is this lull before the storm.

Stoneleigh, wouldn't it be perfect if a vet knocked on your door wanting to join " the family" there!
Raising guard dogs sounds like a very useful "product" to take to market in these uncertain,possibly dangerous times.

Anonymous said...

Apologies I missed thanking you yesterday - the Jan 12 comments section wrapped up before I had a chance to read your comments in depth.

Best wishes,


jal said...

Hi Scandia!
Don't get me wrong I love cats and dogs.
I've had working dogs (hunting and tracking)and working cats (mice, rats, and even wessels).

Anonymous said...

Back from the nights work....

scandia,now that you mention it,I think I sense that same slight lull of which you speak...except it is not just you...Maybe a collective holding of breath ..a focusing of all things..

Its a new year,a new helmsman,and a whole bunch of new political animals taking their place at the table at the zoo that is our .gov.

Many many things will go before the cats who share our lives.My favorite follows me over hill and dale at my side,looking for the occasional mouse I spook out while working.Sits on my lap during rants on the computer,Curls around my feet at night.

I like my cat more than the majority of human critters I meet.

I dearly hope Stoneleigh is correct,and some small hopes keep things wired together a bit longer, so I am able to complete a few more tasks before it becomes time to begin the "Low Profile" life.
As things deteriorate this year,I expect it will become wiser to reduce my time away from home,for security,as well as concentrating on the garden ,the bees,and the orchard.They will soon be the major issues in my life,the way things appear to be going.


da baron said...

I have lurked here with the intent to loom (a misdemeanor in some states), for quite some time now and have finally screwed up the nerve to leave a few comments. Your reaction might reveal that I should never have left the lurking phase, but let's see.

I would agree that any effort by our gov't to reprime the pump of consumer spending on frivolous and unecessary goods will put us
deeper in the debt hole we are in.

What if instead we used the mighty power of the gov't to borrow billions @ virtually 0% interest and then lend this money directly to consumers @ 3% on the condition they use it solely to reduce or eliminate their energy consumption.

This approach has the following benefits:
1. It controls how the money is spent. A tax rebate can go back to China in the form of a flat screen t.v.
2. While it would increase the indebtedness of the individual, the increase in debt payment would be more than offset by the decrease in utility bill. (My electricity and hot water is virtually free: the payments for p.v. and hot water panels are offset with no utility bills. And my loan was not 3%)
3. It should not increase the national debt, as the money is actually owed by individuals- the gov't is simply the conduit for low cost money.
4. Lower energy usuage lowers the balance of payments.
5. Job creation remains local, the learning curve for weatherization and solar installation relatively mild, and the implementation period quite short.
6. Anything that would lower our cost of energy would qualify: it could be hybrids, electric cars, micro hydro, etc. What matters is whether the monthly payments on the money spent is offset by the money not spent on energy.

This approach by-passes the leaches who are currently siphoning off trillions in unaccounted for tax dollars, keep down the price of energy, lower the balance of payments, and put people to work immediately. Pilot projects of this sort through utilities have resulted in miniscule default rates.

Have enjoyed lurking at this site and am in awe/intimidated by the level of discourse. The general level of doom can be a bit much sometimes, however, and while retreating to a small circle of friends may be the answer to some, it does not draw the nation together. We did pull together during WWII against tremendous obstacles, after all.

I owe tuition.

Mugabe said...

For today's musical entry from youtube, I would suggest Billy Joel, No Man's Land

Eugen said...

da baron
What if instead we used the mighty power of the gov't to borrow billions @ virtually 0% interest and then lend this money directly to consumers @ 3% on the condition they use it solely to reduce or eliminate their energy consumption.

I actually thought the same, maybe Obama will listen. But then again is more debt. If this is not possible, the future developments on infrastructure should have only one goal minimizing energy footprint. It will make hard times more bearable.

Gravity said...

Good news, everyone!

I've found another bunch of unfortunate victims to practice my dogmatic Gravity-based religion on.

Soon, there will only be the weight of knowing that consciousness has mass.

And the best thing is, its on a threaded forum, so any exposure will be voluntary, by choosing the specific item.

Good is voluntary,
or of its own accord.
Evil is involuntary,
or against its will.

Capital has mass, you know,
otherwise it would float away.
All four; Natural Capital,
Constructed Capital, Human Capital,
and Social Capital.

Anyway, as long as the roots of Industry remain planted firmly
in the soil of our nation,
the economic prospects will undoubtedly remain sunny...

Oh, never mind...
(goes back to gardening)

Weaseldog said...

Uncertain, on the previous thread, I posted just a short not on 'pop psychology', really to avoid a long discussion.

It would be hard to make that discussion directly relevant here. The Yahoo Group, AlasBabylon strays into such territory often.

VK said...

A busy day indeed!

Nortel files for bankruptcy, retail sales down 2.7% in the US for dec, twice what was expected. Deutsche Bank has a 6.4 billion write down.

Bigelow said...

“The Baltic Dry Index (BDI) which measures freight rates for bulk commodities such as iron ore and grains crashed several months ago, falling 96pc. The BDI – though a useful early-warning index – is highly volatile and exaggerates apparent ups and downs in trade. However, the latest phase of the shipping crisis is different. It has spread to core trade of finished industrial goods, the lifeblood of the world economy.”
Shipping rates hit zero as trade sinks Telegraph.co.uk

Anon of Florida said...

Its very interesting to see that the Mexican barber from 70 years ago looks like he just stepped out of an office building from today. The more things change, the more they stay the same.

Bigelow said...

Going around...

Source at the VP level of one of Wall Streets biggest just passed on the new name for the combined Morgan Stanley and Citigroup trading operation that's making the rounds in the pits today:


YD said...

Citimorg is good, but a tad gloomy, how about citistan?

YD said...

Kinda gets our level of "enlightened government right, don't ya think?

dl said...

Re: the Time article, "In a society where people routinely don't stop to pick up a penny off the ground, the better question might be: Is there anything you wouldn't be willing to pay half a penny for?"

What a flawed argument. Of course there are many things I'd be willing to pay half a penny for.

But the article fails to point out that you have to pay this every minute of the day. Go to sleep for 8 hours, and you have to deposit $2.40 in the tin. Forget to do this over the weekend and you're $14.40 out of pocket.

Sooner or later you will conclude that half a penny a minute is serious money, and there are any number of things for which 30 cents an hour is too much.

Anonymous said...

@Bigelow: "CitiMorg"

That was quite funny. Thanks for passing it along.

cyrille said...


Yes, it is deflation. At the place I work we spend around 130 millions euros a year in tenders. We used to add a few percent each year, and these year when it come with steel and tar, we added 10 to 20 %.
Now, entrepreneurs are so desperate to find somebody who really invest money and provide some work, that our last tender prices were 50 % of what we expected.
We plan to make as much investment as we can, and for sure we will get more than last year for our 130 millions. That means that every single euro is much worth in concrete and tar than last year, it gains value. That is the contrary of inflation. Thus, deflation.

DLev said...

RE "Let the banks fail" Ilargi to Westexas and Forrest's comment:

If banks are allowed to fail and do, how will people use their deposits that the government guarantees?

Does access to money through supermarkets or the post office mean that there will be a currency only economy, or will people be able to write checks against the supermarket or the post office?

If the Fed can issue credit, and the movement of funds in the economy can be accomplished without moving through banks (can it?) then everything need not stop. But if people can't write checks, or get loans, without banks, then everything does stop.

If that process is inevitable, might there not be some real benefit in delaying the inevitable? Time to prepare, for instance.

Anonymous said...

Sometimes, I wonder why I bother fighting so hard for the little guy. Whats the point if they are too stupid to listen? Say that reminds me.

Amazing. The worst economic and cultural crisis of all time will go down in history horribly misunderstood. What a pathetic bunch of ignorant fools we have become. Consumer junkie credit card morons. Perfect little victims.

Don’t believe one optimistic word from any public figure about the economy or humanity in general. They are all part of the problem. Its like a game of Monopoly. In America, the richest 1% now hold ALMOST 1/2 OF ALL UNITED STATES WEALTH. Unlike ‘lesser’ estimates calculated and spun low by our sold-out government and the greedy pigs they cater to, this includes all stocks, bonds, cash, offshore accounts, and material assets held by America’s richest 1%. Even that filthy pig Oprah Winfrey acknowledged that it was near 50% in 2006. Naturally, she put her own ‘humanitarian’ spin on it. Calling attention to her own ‘good will’. WHAT A DISGUSTING SELF-CENTERED SELF-PROMOTING HYPOCRITE SLOB. THE RICHEST ONE PERCENT HAVE LITERALLY MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. Don’t fall for any of their 'good will' ‘humanitarian’ CRAP. ITS A SHAM. THESE PEOPLE ARE CAUSING THE SAME PROBLEMS THEY PRETEND TO CARE ABOUT. THE EQUATION THEY STAND FOR ABSOLUTELY CAN NOT WORK. Ask any professor of economics. Money does not grow on trees. The government can’t just print up more on a whim. There are serious concequences for doing so. Regardless, there is always a relative limit to the wealth within ANY economy of ANY size. So when too much wealth accumulates at the top, the currency looses value, the middle class slip further into debt and the lower class further into poverty. A similar rule applies worldwide. The world’s richest 1% now own over 40% of ALL WORLD WEALTH. This is EVEN AFTER you account for all of this ‘good will’ ‘humanitarian’ BS from celebrities and executives. ITS A SHAM. As they get richer and richer, less wealth is left circulating beneath them. This is the single greatest underlying cause for the current US recession. The middle class can no longer afford to sustain their share of the economy. Their wealth has been gradually transfered to the richest 1%. One way or another, we suffer because of their incredible greed. We are talking about TRILLIONS of dollars which have been transfered FROM US TO THEM. All over a period of about 27 years. Thats Reaganomics for you. The wealth does not ‘trickle down’ as we were told it would. It just accumulates at the top. Shrinking the middle class and expanding the lower class. Causing a domino effect of socio-economic problems. But the rich will never stop. They just keep getting richer. Leaving even less of the pie for the other 99% of us to share. At the same time, they throw back a few tax deductible crumbs and call themselves ‘humanitarians’. Cashing in on the PR and getting even richer the following year. IT CAN’T WORK THIS WAY. Their bogus efforts to make the world a better place can not possibly succeed. Any ‘humanitarian’ progress made in one area will be lost in another. EVERY SINGLE TIME. IT ABSOLUTELY CAN NOT WORK THIS WAY. This is going to end just like a game of Monopoly. The current US recession will drag on for years and lead into the worst US depression of all time. The richest 1% will live like royalty while the rest of us fight over jobs, food, and gasoline. So don’t fall for any of this PR CRAP from Hollywood, Pro Sports, and Wall Street PIGS. ITS A SHAM. Remember: They are filthy rich EVEN AFTER their tax deductible contributions. Greedy pigs. Now, we are headed for the worst economic and cultural crisis of all time. Crime, poverty, and suicide will skyrocket. SEND A “THANK YOU” NOTE TO YOUR FAVORITE MILLIONAIRE. ITS THEIR FAULT. I’m not discounting other factors like China, sub-prime, or gas prices. But all of those factors combined still pale in comparison to that HUGE transfer of wealth to the rich. Anyway, those other factors are all related and further aggrivated because of GREED. If it weren’t for the OBSCENE distribution of wealth within our country, there never would have been such a market for sub-prime to begin with. IF IT WEREN’T FOR THE OBSCENE, UNREASONABLE, AND UNJUST DISTRIBUTION OF UNITED STATES WEALTH, THERE NEVER WOULD HAVE BEEN SUCH A MARKET FOR SUB-PRIME AND THERE NEVER WOULD HAVE BEEN A COLLAPSE IN THE HOUSING MARKET. Sub-prime did not cause the problem. It only accelerated the outcome. Which by the way, was another trick whipped up by greedy bankers and executives. IT MAKES THEM RICHER. The credit industry has been ENDORSED by people like Oprah Winfrey, Ellen DeGeneres, Dr Phil, and many other celebrities. IT MAKES THEM RICHER. In fact, they specifically endorsed Countrywide by name. The same Countrywide widely responsible for predatory adjustable rate sub-prime lending and the accelerated collapse of the housing market. ENDORSED BY OPRAH WINFREY, ELLEN DEGENERES, AND DR PHIL. Now, there are commercial ties between nearly every industry and every public figure. IT MAKES THEM RICHER. It also drives up the cost for nearly every product and service on the market. So don’t fall for their ‘good will’ BS. ITS A LIE. If you fall for it, then you’re a fool. If you see any real difference between the moral character of a celebrity, politician, attorney, or executive, then you’re a fool. No offense fellow citizens. But we have been mislead by nearly every public figure. We still are. Even now, they claim to be ‘hurting’ right along with the rest of us. As if gas prices actually effect the lifestyle of a millionaire. ITS A LIE. IN 2007, THE RICHEST 1% INCREASED THEIR AVERAGE BOTTOM LINE WEALTH AGAIN. On average, they are now worth over $4,000,000 each. Thats an all time high. As a group, they are now worth well over $17,000,000,000,000. THATS WELL OVER SEVENTEEN TRILLION DOLLARS. Another all time high. Which by the way, is much more than the entire middle and lower classes combined. Also more than enough to pay off our national debt, fund the Iraq war for a decade, repair our infrastructure, and bail out the US housing market. Still think that our biggest problem is China? Think again. Its the one percent club. That means every big name celebrity, athlete, executive, entrepreneur, developer, banker, and lottery winner. Along with many attorneys, doctors, and politicians. If they are rich, then they are part of the problem. Their incredible wealth was not ‘created’, ‘generated’, grown in their back yard, or printed up on their command. It was transfered FROM US TO THEM. Directly and indirectly. Its become near impossible to spend a dollar without making some greedy pig even richer. Don’t be fooled by the occasional loss of a millionaire’s fortune. Overall, they just keep getting richer. They absolutely will not stop. Still, they have the nerve to pretend as if they care about ordinary people. ITS A LIE. NOTHING BUT CALCULATED PR CRAP. WAKE UP PEOPLE. THEIR GOAL IS TO WIN THE GAME. The one percent club will always say or do whatever it takes to get as rich as possible. Without the slightest regard for anything or anyone but themselves. Reaganomics. Their idea. Loans from China. Their idea. NAFTA. Their idea. Outsourcing. Their idea. Downsizing. Their idea. Sub-prime. Their idea. High energy prices. Their idea. Oil ‘futures’. Their idea. Obscene health care charges. Their idea. The commercial lobbyist. Their idea. The multi-million dollar lawsuit. Their idea. The multi-million dollar endorsement deal. Their idea. $200 cell phone bills. Their idea. $200 basketball shoes. Their idea. $30 late fees. Their idea. $30 NSF fees. Their idea. $20 DVDs. Their idea. $50 event tickets. Their idea. $30 books. Their idea. $400 PC operating systems. Their idea. $60 video games. Their idea. Subliminal advertising. Their idea. Brainwash plots on TV. Their idea. Vioxx, and Celebrex. Their idea. Excessive medical testing. Their idea. The MASSIVE campaign to turn every American into a brainwashed, credit card, pharmaceutical, medical testing, love-sick, celebrity junkie. Their idea. IT WAS ALL THEIR IDEA. IT MAKES THEM RICHER. All of the above drive up the cost of living, shrink the middle class, concentrate the world’s wealth and resources, create a domino effect of socio-economic problems, and wreak havok on society. All of which have been CREATED AND ENDORSED by celebrities, athletes, executives, entrepreneurs, attorneys, and politicians. IT MAKES THEM RICHER. So don’t fall for any of their ‘good will’ ‘humanitarian’ BS. ITS A SHAM. NOTHING BUT TAX DEDUCTIBLE PR CRAP. In many cases, the ‘charitable’ contribution is almost entirely offset. Not to mention the opportunity to plug their name, image, product, and ‘good will’ all at once. Which is usually done just before or after the release of their latest commercial project. IT MAKES THEM RICHER. These filthy pigs even have the nerve to throw a fit and spin up a misleading defense with regard to ‘federal tax revenue’. ITS A SHAM. THEY SCREWED UP THE EQUATION TO BEGIN WITH. If the middle and lower classes had a greater share of the pie, they could easily cover a greater share of the federal tax revenue. They are held down in many ways because of greed. Wages remain stagnant for the majority because the executives, celebrities, athletes, attorneys, politicians, and entrepreneurs, are paid millions. They over-sell, over-charge, under-pay, outsource, cut jobs, and benefits to increase their bottom line. As their profits rise, so do the stock values. Which are owned primarily by the richest 5%. As more United States wealth rises to the top, the middle and lower classes inevitably suffer. This reduces the potential tax reveue drawn from those brackets. At the same time, it wreaks havok on middle and lower class communities and increases the need for financial aid. Not to mention the spike in crime because of it. There is a domino effect to consider. IT CAN’T WORK THIS WAY. But our leaders refuse to acknowledge this. Instead they come up with one trick after another to milk the system and screw the majority. These decisions are heavily influensed by the 1% club. Every year, billions of federal tax dollars are diverted behind the scenes back to the rich and their respective industries. Loans from China have been necessary to compensate in part, for the red ink and multi-trillion dollar transfer of wealth to the rich. At the same time, the feds have been pushing more financial burden onto the states who push them lower onto the cities. Again, the hardship is felt more by the majority and less by the 1% club. The rich prefer to live in exclusive areas or upper class communities. They get the best of everything. Reliable city services, new schools, freshly paved roads, upscale parks, ect. The middle and lower class communities get little or nothing without a raise in basic service charges or local tax increase. Which, they usually can’t afford. So the red ink flows followed by service cuts and lay-offs. All because of the OBSCENE distribution of bottom line wealth in this country. Anyway, when you account for all federal, state, local taxes, and fees, the middle class actually pay about the same rate as the rich. The devil is in the details. So when people forgive the rich for their incredible greed and then praise them for paying a greater share of the FEDERAL income taxes, its like nails on a chalk board. I can not accept any theory that our economy would suffer in any way with a more reasonable distribution of wealth. Afterall, it was more reasonable 30 years ago. Before Reaganomics came along. Before GREED became such an epidemic. Before we had an army of over-paid executives, bankers, celebrities, athletes, attorneys, doctors, investors, entrepreneurs, developers, and sold-out politicians to kiss their asses. As a nation, we were in much better shape. Strong middle class, free and clear assets, lower crime rate, more widespread prosperity, stable job market, lower deficit, ect. Our economy as a whole was much more stable and prosperous for the majority. WITHOUT LOANS FROM CHINA. Now, we have a more obscene distribution of bottom line wealth and resources than ever before. We have a sold-out government, crumbling infrastructure, energy crisis, home forclosure epidemic, credit crunch, weak US dollar, 13 figure national debt, and 12 figure annual shortfall. The cost of living is higher than ever before. Most people can’t even afford basic health care. ALL BECAUSE OF GREED. I really don’t blame the upper class in general. At least not as a group and not without exception. No economy could ever function without some reasonable scale of personal wealth and income. But it can’t be allowed to run wild like a mad dog. ALBERT EINSTEIN TRIED TO MAKE PEOPLE UNDERSTAND. UNBRIDLED CAPITALISM ABSOLUTELY CAN NOT WORK. TOP HEAVY ECONOMIES CAN NOT BE SUSTAINED. THEY ALWAYS COLLAPSE. Bottom line: The richest 1% will soon tank the largest economy in the world. It will be like nothing we’ve ever seen before. The American dream will be shattered. and thats just the beginning. Greed will eventually tank every major economy in the world. Causing millions to suffer and die. Oprah, Angelina, Brad, Bono, and Bill are not part of the solution. They are part of the problem. THERE IS NO SUCH THING AS A MULTI-MILLIONAIRE HUMANITARIAN. EXTREME WEALTH MAKES WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. WITHOUT WORLD PROSPERITY, THERE WILL NEVER BE WORLD PEACE OR ANYTHING EVEN CLOSE. GREED KILLS. IT WILL BE OUR DOWNFALL. Of course, the rich will throw a fit and call me a madman. Of course, they will jump to small minded conclusions about ‘jealousy’, ‘envy’, or ’socialism’. Of course, their ignorant fans will do the same. You have to expect that. But I speak the truth. If you don’t believe me, then copy this entry and run it by any professor of economics or socio-economics. Then tell a friend. Call the local radio station. Re-post this entry or put it in your own words. Be one of the first to predict the worst economic and cultural crisis of all time and explain its underlying cause. WE ARE IN BIG TROUBLE.

So what can we do about it? Well, not much. Unfortunately, we are stuck on a runaway train. The problem has gone unchecked for too many years. The US/global depression is comming thanks to the 1% club. It would take a massive effort by the vast majority to prevent it. Along with a voluntary sacrifice by the rich. THATS NOT GOING TO HAPPEN. But if you believe in miracles, then spend your money as wisely as possible. Especially in middle and lower class communities. Check the Fortune 500 list and limit your support of high profit/low labor industries (Hollywood, pro sports, energy, credit, pharmaceutical, cable, satelite, internet advertising, video, and music, cell phone, high fashion, jewelry, ect.). Cancel all but one credit card for emergencies only. Call the provider and demand a lower rate. Be persistent. You may get it. If you need a cell phone, then do your homework and find the best deal on a local pre-pay. If you want home internet access, then use the least expensive provider, and share accounts whenever possible. If you need to search, then use the less popular search engines. They usually produce the same results anyway. Don’t click on any internet ad. If you need the product or service, then look up the phone number or address and contact that business directly. Don’t pay to see any blockbuster movie. Instead, wait a few months and rent the DVD from a local store or buy it USED. Then loan it to a friend or family member. If you prefer the outing, then choose a film produced by the lesser known studeos with lower paid actors. If you want to see a big name game or event, then watch it in a local bar, club, or at home on network TV. Don’t buy any high end official merchendise and don’t support the high end sponsors. If its endorsed by a big name celebrity, then don’t buy it. If you can afford a new car, then make an exception for GM, Ford, and Dodge. If they don’t increase their market share soon, then a lot more people are going to get screwed out of their pensions and/or benefits. Of course, you must know by now to avoid those big trucks and SUVs unless you truly need one for its intended purpose. Don’t be ashamed to buy a foreign car if you prefer it. Afterall, those with the most fuel efficient vehicles consume a lot less foreign oil. Which accounts for a pretty big chunk of our trade deficit. Anyway, the global economy is worth supporting to some extent. Its the obscene profit margins, trade deficits, and BS from OPEC that get us into trouble. Otherwise, the global economy would be a good thing for everyone. Just keep in mind that the big 3 are struggling and they do produce a few smaller reliable cars. Don’t frequent any high end department store or any business in a newly developed upper class community. By doing so, you make developers richer and draw support away from industrial areas and away from the middle class communities. Instead, support the local retailer and the less popular shopping centers. Especially in lower or middle class communities. If you can afford to buy a home, then do so. But go smaller and less expensive. Don’t get yourself in too deep and don’t buy into the newly developed condos or gated communities. Instead, find a modest home in a building or neighborhood at least 20 years old. If you live in one of the poorer states, then try to support its economy first and foremost. Be on the lookout for commercial brainwash plots on TV. They are written into nearly every scene of nearly every show. Most cater to network sponsors and parent companies. Especially commercial health care. In particular, high profit pharmaceuticals and excessive medical testing. DON'T FALL FOR IT. Get off the couch and take care of your body the way nature intended. There is no substitute. If you must see a doctor then DEMAND that he/she give you more than 5 minutes of their undivided attention. Otherwise, dispute their unreasonable charges. Be prepared with written questions about your condition and get them answered on at a time. If they refuse, then dispute their unreasonable charges. If they prescribe excessive medical testing and find nothing new or signifigant, then dispute their unreasonable charges. If they prescribe a pharmaceutical, then ask for a generic. Better yet, concider a change in lifestyle or simple tolerance. If they still recommend the name brand pharmaceutical, then ask about any financial ties or conflict of interest. If they get offended, then dispute their unreasonable charges and consider a new doctor. If you must drug away your sniffles, aches, and pains, then at least do your homework. Be aware of the possible side-effects ahead of time. Don't be surprised to find yourself back a week or two later feeling worse. In which case, you should dispute their unreasonable charges. If you are diagnosed with another medical condition, then ask your doctor what he/she has done to rule out those possible side-effects. Otherwise, dispute their unreasonable charges. Don't let any greedy doctor treat you like a number, make you wait an hour, or rush you out of their office. Otherwise, dispute their unreasonable charges. Don't fall for this CRAP that doctors have no choice but to over-book their time or over-charge their patients because of high overhead. ITS A LIE. YOUR DOCTOR IS MOST LIKELY A MULTI-MILLIONAIRE. So don't fall for their CRAP. Demand their undivided attention and respect. Afterall, they took an oath. Do all of the above regardless of your coverage. Don't force your employer to cover the obscene and often fraudulent charges of a corrupt health care industry. Keep your guard up when watching ANY talk show. These people are not your friends. They are paid actors hired for their ability to plug network sponsors, coorporate partners, and parent companies. Nearly every segment is about marketing some over-priced product or service. Big business is fine on occasion depending on their ethics, profit margins, and profit sharing. Do your homework. If you want to support any legitimate charity, then do so directly. Never support any celebrity foundation. They spend most of their funding on PR campaigns, exotic travel, and high end accomodations for themselves. Thats right. Filthy rich public figures have been jet-setting the world in the name of 'humanity' for years. Riding in personal jets, staying in super-exclusive resorts, and living it up in exotic locations around the world the likes of which most people could never afford even if their lives depended on it. They bring along agents, advisors, publicists, hair, make-up, wardrobe, lighting, and photo crews who are also in it for themselves. They are paid six figures for their ability to schedule, manage, document, showcase, praise, and publicize the 'good will' of said public figures and their respective industries. Every possible expense is passed of as 'incidental' or 'necessary' and billed right back to some 'foundation' named after said public figure and/or respective industry. Every possible tax deduction is claimed. Which are incredibly vague and diverse thanks to our sold-out government. Deals are cut with major networks who agree to praise the 'humanitarian' effort of said public figures and plug their latest commercial project. Others from around the world pick up the story and save these industries billions in advertising every year. Resulting in higher profits and paychecks for the 1% club. When its all said and done more wealth is transfered from poor to rich. NOT the other way around. So don't support any charity named after a living celebrity. Don't be fooled by any affiliation or inspired by any short term short sighted progress report. Instead, go to Charitywatch.org and look up a top rated charity to support your favorite cause. Its all there. For example: 'Habitat For Humanity' is a top rated charity. They operate with a low overhead, volunteer workforce, and donated materials. They have built homes for the less fortunate in nearly every city nationwide. Including New Orleans. They do so as we speak. No similar effort can match their progress hour for hour or dollar for dollar. So there is no legitimate reason to support a slower, less efficient effort represented by a filthy rich Hollywood actor who flies in on a personal jet, takes most of the credit, and makes a deal with a major network for plugs just days before the premier of his latest film or DVD release. By doing so, you support not only the effort, but also the filthy rich actor. Concentrating more wealth and dumbing down our society further in the process. Instead, support 'Habitat For Humanity'. Its not perfect. It is affiliated with some big business. However, it is MUCH more efficient, effective, and less corrupt than 'Make It Right'. The difference is profound. In general, support the little guy as much as possible and the big guy as little as possible. Do your part to reverse the transfer of wealth away from the rich and back to the middle and lower classes. Unfortunately, there is no perfect answer. Jobs will be lost either way. Innocent children will starve and die either way. But we need to support the largest group of workers with the most reasonable profit margins. We also need to support LEGITIMATE charities (Check that list at Charitywatch.org). This is our only chance to limit the severity and/or duration of the comming US/global depression. In the meantime, don’t listen to Bernanke, Paulson, Bartiromo, Orman, Dobbs, Kramer, Pickens, Larson, OReiley, or any other public figure with regard to the economy. They are all plenty smart but I swear to you that they will lie right through their rotten teeth. IT MAKES THEM RICHER. These people work for big business. The ‘experts’ they cite also work for big business. They are all motivated by their desire to accumulate more wealth. THEY WILL LIE RIGHT THROUGH THEIR ROTTEN TEETH. So don’t fall for their tricks. Instead, look at the big picture. The economic problems we face have been mounting for well over 20 years. All of them caused or aggrivated by a constant transfer of wealth from poor to rich. Soon, it will cause the first ever GLOBAL DEPRESSION. Its not brain surgery. For the mostpart, Its simple math. Like I said, you are welcome to copy this entry and run it by any professor of economics or socio-economics. If thats not good enough, then look up what Albert Einstein had to say about greed, excess, extreme wealth, unbridled capitalism, and its horrible concequences. I speak the truth. GREED KILLS. IT WILL BE OUR DOWNFALL.

Its already underway. A massive campaign to divert our attention. Trump, Buffet, OReiley, Dobbs, Pickens, Norris, and several other well known filthy rich public figures have been running their mouths about the economy. Finally admitting a hint of severity after almost 2 years of denial. They even have the nerve to acknowledge the possibility of a US/global depression. Still, they refuse to acknowledge the single greatest underlying cause. Instead, they focus on policies, procedures, and circumstances that were born FROM the underlying cause. Dancing their way around the big picture. DON'T FALL FOR IT. Remember: Our national debt was way up BEFORE sub-prime. Consumer debt was way up BEFORE sub-prime. The cost of living was up BEFORE sub-prime. Wall Street profits were obscene BEFORE sub-prime. The middle class were loosing free and clear assets BEFORE sub-prime. Our infrastructure was in bad shape BEFORE sub-prime. Loans from China were taken out BEFORE sub-prime. The dollar was loosing value BEFORE sub-prime. So don’t let these cowardly filthy rich public figures divert your attention or limit your range of thought. THE CURRENT ECONOMIC CRISIS WAS NOT CAUSED BY A SINGLE POLICY OR PROCEDURE. IT WAS CAUSED PRIMARILY BY A MASSIVE TRANSFER OF WEALTH FROM POOR TO RICH. THIS ALSO REPRESENTS A MASSIVE CONCENTRATION OF CAPITAL WORLDWIDE. OTHERWISE, THERE WOULD NOT HAVE BEEN SUCH A MARKET FOR SUB-PRIME AND THERE WOULD NOT HAVE BEEN A GLOBAL CREDIT CRUNCH. MONEY DOES NOT GROW ON TREES AND IT DOES NOT JUST FLOAT AWAY. IT ONLY TRANSFERS FROM ONE PARTY TO ANOTHER. ALBERT EINSTEIN TRIED TO MAKE PEOPLE UNDERSTAND. GREED KILLS. IT WILL BE OUR DOWNFALL.

A word for those who respond with the usual ‘I know more than you. I spell better than you. I talk like an economist. Look how smart, knowledgable, and articulate I am’ crap. Let me say this in advance. I don’t claim to be an expert in this field. But I did go on record with these predictions long before any public figure uttered the word ‘recession’. I've done so 'on the air' and 'online'. Millions of you already know my voice. My first call was in September of '05'. I tried to explain that we will never have world peace without world prosperity and that we will never have world prosperity without a 'fair and reasonable pay-scale'. I also tried to explain the link between 'extreme wealth' and 'extreme poverty'. My call was immediately followed by attacks from so called 'patriots' who felt that my cause must have been to promote 'socialism' or 'bring down America'. Not warn her citizens. You may also remember me from chat rooms criticizing the 1% club and Hollywood humanitarians in particular. If you search long enough, you will find my early postings online from ‘05' and ‘06'. At first, they were written specifically to fit within a few hundred characters. Including the first draft of this rant. It started with one short paragraph predicting a 'total collapse of the US economy'. Others included phrases like 'game of Monopoly', 'recession is inevitable', 'global recession', 'greed kills', and 'the worst economic and cultural crisis of all time'. Some of which were eventually included here. From day 1, I have tried to explain the link between extreme wealth, poverty, and economic instability. My internet account was eventually cancelled for posting 'spam' in response to articles about the economy. In December of '06', I predicted market instability by spring of the following year. I did so 'on the air'. In January of '07', I called another morning talk show and spoke with a guest host who was filling in for a well known public figure. Again, I specifically predicted growing market instability, the current US recession, and the subsequent US/global depression.Which by the way, will be the worst of all time by far. In February of '07', Allen Greenspan acknowledged a 'one in three' chance of a US recession. I immediately called another talk radio show and guranteed AGAIN that it was iminent. I criticized Greenspan and tried to explain that it was not about 'odds' but instead a very simple equation with regard to distribution of income and wealth. I also gave credit to Albert Einstein who went on record with similar views in 1949. As far as I know, he was the first to do so. By late spring of '07', the market was rattled and the economic 'stimulus' in the works. Which turned out to be around $160,000,000,000. THATS ONE HUNDRED AND SIXTY BILLION DOLLARS. Well over 1% of our GDP. Deemed appropriate at the time by our leaders. In fact, Bush went on record with a claim that it was based on a mathematical formula and proven strategy. They said it would work. I immediately predicted that it would have little or no effect. By summer of '07' the stock market was more unstable. The housing market in decline. Again, I predicted that it would get MUCH worse. In September of '07', I predicted that our government would have no choice but to acknowledge a US recession by October of '08'. I also assured the audiance that our economy would "go down in a ball of flames" because of greed and that no recovery would EVER take place without a more reasonable distribution of wealth and resources. I have made these predictions 'on air' and 'online' literally hundreds of times. The first call was in September of '05'. Made to a well known public figure with a large audiance. The first blog post a month or so later. Prior to that, I had never even seen one. In fact, my very first post to a blog was written specifically to warn my fellow citizens about the comming US/global depression. Which I was already convinced at the time would be SEVERE within a decade. That was in October of '05'. At the time, there were literally only a few of us worldwide posting any such prediction online. I'm talking maybe a dozen searchable links. This particular rant began with one short paragraph in '06'. Like the others, it was originally intended to fit within a few hundred characters. At the time, I was unaware of any blogs which allowed for longer entries to be posted anonymously. This paragraph was first written in early-mid '08'. Its been updated several times. There has also been a running debate on iVillage.com which began in October of '07' (don't click on their ads). In February or March of '08', I refered specifically to the bank failures of the Great Depression and predicted that it was about to happen again. At the time, I was one of only a few worldwide to go on record with any such prediction. This was still several weeks to months before Greenspan, Paulson, Bartiromo, Orman, Kramer, O'Reiley, Larson, Bohanen, Dobbs, Celeste or any other well known public figure had acknowledged even a hint of severity. It was also several weeks before Fanny May and Freddie Mac made the news. I also predicted in March that our markets would end the year much lower than they began. Which was still contrary to what we were being told by any public figure. I was allowed to post but when my predictions came true, the site operators went back all the way to October of '07' and deleted nearly every one of my previous entries (they missed a few.). Their motive was obvious. They wanted to 'erase' my credibility. IVillage.com is directly affiliated with NBC, GE, Universal Studeos, Countrywide, CityBank, Capital One, Oprah Winfrey, Angelina Jolie, Brad Pitt, Ellen Degeneres, Dr Phil, and others who I persecute by name. All of which depend on the constant dumbing down of society. All of whom are partially responsible for the current economic crisis. None of which or whom have the GUTS to acknowledge the single greatest underlying cause. GREED. In fact, those who epitomoze it (all of the above) want my big mouth SHUT. For 3 solid years, I have been ripping on the 1% club for their incredible greed and hypocrisy. From day 1, my call has been for a more reasonable distribution of income, wealth, and resources. My warning that without it, we would face the worst economic and cultural crisis of all time. Since then, I’ve gone on record against people like Greenspan, Bernanke, Paulson, Laffer, O'Reiley, Bartiromo, Orman, Kramer, Larson, and Dobbs. So far, my predictions have been accurate. The public figures DEAD WRONG. Afterall, not one of them acknowledged even a hint of severity in '05', '06', or '07'. When they FINALLY did this year, they all said something to the effect of "None of us saw this comming.". LIARS. There were a few of us typing our fingers to the bone trying to warn people. There were a few of us calling talk radio shows almost daily trying to warn people. I was one of them. Again, I don't claim to be an expert in this field. But I do understand simple equations, basic economics, and cultural trends. I also realize that mainstream views are DEAD WRONG and based on LIES told by filthy rich public figures who will say whatever it takes to serve their own interests. GREED. Afterall, what kind of incredible MORON could even glance at the numbers and somehow think the equation could work? What kind of incredible MORON could possibly hope to sustain an economy based on a constant transfer of wealth from poor to rich? What the hell did they expect to happen when the middle class finally ran low on money to spend on over-priced crap like everything that I mentioned in that first long paragraph? What the hell were they thinking of? I'll tell you what. RICHES. FILTHY STINKING RICHES. Thats what. Now, they are spinning themselves dizzy trying to divert our attention. Mark my words: They will never acknowledge the downside of their own incredible greed. They will all come up with one campaign after another to blame the other guy, the other administration, the other politician, the other party, the other policy, the other industry, the other country, ect. Whatever it takes to dumb down our society. They will NEVER have the GUTS to acknowledge the single greatest underlying cause for this global economic crisis. GREED. Its not their knowledge I question. Its their character. GREED. Like I said. This is not brain surgery. For the mostpart, its simple math. When you concentrate the world’s wealth, you also concentrate its capital, and shrink the middle class along with the potential market for every major industry. Homes go unsold. Bills go unpaid. Jobs are lost. Banks fail. More products go unsold. More jobs are lost. More banks fail. and so on. and so on. and so on. It happened 80 years ago. It will happen again. This time on a catastrophic global scale. Throughout the cycle, the filthy rich will panic and tighten their grip. Concentrating the world’s wealth and resources even further, getting richer in the process, and ensuring the collapse of every major economy worldwide. Think it can’t happen? Think again. GREED KILLS. IT WILL BE OUR DOWNFALL.

Another thing. I don’t want credit for any of this. Otherwise, I would have given my full name a long time ago. I havn't. IT DOESN'T MATTER. I'm not selling a book and I'm not looking for any notoriety. As far as I’m concerned, you can put this entire rant in your own words and take credit for all of it. I don’t care. Just spread the word. Otherwise, the greatest injustice of all time will go down in history unchecked.

By the way. The bailout won’t work. IT WON’T WORK. The plan fails to address the fundamental problem. The middle class don’t need more credit. They need a reasonable share of the economic pie. They also need a lower cost of living and a chance to catch their breath. They need a break from all of the psychological marketing tricks and mass market BS. Most of all, they need to wake up and see the truth. GREED KILLS. IT WILL BE OUR DOWNFALL.

To my surprise, two public figures have found the courage to acknowledge this problem to some degree. On 11.07.07 former presidential candidate Ron Paul mentioned the massive transfer of wealth from poor to rich. He also hinted at the possibility of economic collapse. He did so on 'Face the Nation'. He was blacklisted almost immediately for doing so. On 9.28.08 former secretary of labor Robert Reich refered to the obscene levels of income inequality as part of a "recipe for disaster". He mentioned the richest one percent in particular. He did so on 'Late Night With Conan O'Brien'. As far as I know, Albert Einstein was the first to explain the link between extreme wealth and economic instability. He did so in 1949. He explained how the first Great Depression was actually caused by a massive transfer of wealth from poor to rich. He predicted that it would happen again. He was right. Amazing. The prosperity of an entire world is about to be compromised. Almost entirely because of greed. IT WILL BE OUR DOWNFALL.

Another word about the Great Depression. It really was a perfect storm. First, there was unprecidented economic growth. There was a massive building spree. There was a growing sense of optimism. There was a growing obsession for celebrities. The average American became a pathetic, brainwshed, consumer junkie, moron. All of this represented a MASSIVE transfer of wealth from poor to rich. Executives, entrepreneurs, celebrities, and share holders. When the middle class ran low on money to spend UP, DOWN, and ACROSS, the rich did what they felt necessary to maintain their disgusting profit margins and ill-gotten obscene levels of wealth as long as possible. They cut jobs. The small business owners did what they felt necessary to survive. They cut jobs. The losses were felt primarily by the little guy. This created a domino effect. The middle class shrunk and the lower class expanded. With less wealth in active circulation, banks failed by the hundreds. More jobs were lost. Unemployment reached 25% in 1933. The worst year of the Great Depression. The recovery involved a World War and higher taxes on the rich. With so many men in the service, so many women on the production line, and those higher taxes to help pay for it, the lions share of United States wealth was gradually transfered back to the middle class. This redistribution of wealth continued until the late seventies. At the time, the richest 1% reaped about 10% of all private income and held about 20% of all United States wealth. Far less than previous levels. The middle class had home equity, free and clear assets, and money in the bank. The tide began to change. Jimmy Carter was blamed for a recession that was caused by a number of global circumstances including greed. Then a short sighted pig by the name of Arthor Laffer came along. He convinced Ronald Reagan to grant massive tax breaks to the rich and their respective industries. His half-baked theory was that by doing so, unprecidented levels of economic growth could be achieved. He was right. Unfortunately, he failed to see or acknowledge the big picture. That 'economic growth' and 'actual prosperity' are two different things. Jobs don't 'create' wealth. They only transfer it from one party to another. The devil is in the details. Reaganomics, gave the rich and their respective industries the incentive to 'expand' and 'create jobs'. But those products and services were over-priced and then sold or billed right back to the people. Often, without their knowledge, understanding, or consent. Certainly without a clue about how the economy REALLY works. All of this resulted in higher profits for those at the top and stagnant wages for everyone else. So with Reaganomics, the transfer of wealth from poor to rich was kicked back into high gear. Here we are 27 years later. Another perfect storm. The big one. Not only have we become a nation of consumer junkie credit card morons. But we have also become fat, stupid, and programmed to live by drug and doctor. We spend most of our spare time on the couch getting brainwashed by public figures. Even worse, those public figures have re-defined any logical standard we ever had for 'good will'. Mother Teresa is dead. America's favorite 'humanitarian' is now a filthy rich multi-media pig who reaped a billion dollar fortune from the middle class by making damn sure they stay on that couch long enough to watch her show and read her magazine. Transforming them into pathetic, naive, love-sick fools who turn around and buy any product or service endorsed by their idol. The same goes for Ellen Degeneres and her respective audiance. In fact, every filthy rich well known public figure and every major industry have followed suit with a similar marketing strategy. Dumbing down our society and cashing in on bogus promises to make the world a better place. Amazing. EVERY big business, EVERY big celebrity, EVERY billionaire, and damn near every multi-millionaire on the planet have all taken up 'phylanthropy' or 'good will'. Those with the most money, also have the most power, and influense by far. They own or influense every government, manage every major industry, and the lion's share of life sustaining resources. They literally rule our world. Still, every major problem of modern society gets worse by the day. The world's wealth is more concentrated than ever before. Her life sustaining resources are in high demand, more expensive than ever, and squandered by the rich on extravogant living. Meanwhile, families loose their homes, retirees loose their pensions, heroes loose their lives, crime is up, and red ink flows in nearly every community. The global economy is in a state of crisis. The prosperity of an entire world is about to be compromised. Still, those with the most power, money, influense, and 'good will'. promise to make it all better. If only we continue to support them and buy any product or service with their name on it. IT IS A SHAM. GOOD WILL HAS BECOME BIG BUSINESS.

The point about our government printing up more money was that it can't be done "on a whim" and that there are serious concequences for doing so (weak dollar, higher gas prices, inflation). I never said that it can't be or hasn't been done at all. Afterall, those loans from China weren't infused in the form of Chinese currency. They were infused in the form of our own. Not given to the middle or lower classes but instead to the banks in the form of credit. Its done nothing but perpetuate the problem. It never has been and never will be the answer. Sorry if I wasn't explicit enough the first time. The original draft of this particular rant was written 2 years ago and intended to fit within 300 characters. Anyway, I'm no English major. So if any of you want to re-word this post, feel free to do so. Whatever it takes to make people understand.

A new president will be taking office soon. Backed up by a heavily democratic congress who have all campaigned on a promise to raise taxes on the rich. Unfortunately, this will be too little too late. Nowhere near enough to compensate for the incredible corruption of both major parties. Nowhere near enough to pay for the bailout. Nowhere near enough to stop that runaway train. There will be no change for the better. Obama's financial advisers are pigs. Warren Buffet is a pig. Oprah Winfrey is a pig. Obama himself is a multi-millionaire politician married to a multi-millionaire attorney. He has already run the most expensive political campaign in history. Some of it squandered on a $400 lobster feast for his wife. Financed for the mostpart by ordinary people who can't even afford a $400 lobster feast. It happened on Obama's watch. Probably more than once. He even had the nerve to ask those ordinary people to help pay off the campaign debt of another filthy rich multi-millionaire politician PIG (Hilary Clinton). I will admit that Barack Obama seems to have more character than most of his colleagues. Certainly more than Clinton, Gore, McCain, Palin, Bush, Cheney, Romney, Schwarznenager, Palosi, Kerry, Guliani, Kennedy, Bloomburg, or Edwards. He was probably a very good down to earth man at one time. The same goes for Joe Biden. Not anymore. Afterall, John McCain was also a very good down to earth man at one time. A true American hero. NOT ANYMORE. Now, he is a filthy rich politician pig married to a filthy rich big business pig. SOLD OUT. Mark my words: Obama and Biden will do the same. Whatever moral character they may have left, will be lost or heavily compromised while in office. Like the others, their administration will be riddled with scandals of greed and corruption. Like the others, they will succumb to the greatest epidemic ever faced by modern man. By far, the most intoxicating element of modern society. Greed. Simply the desire to get as rich as possible. It has the potential to blacken any heart. Break the will of any human being. Influense any government. Corrupt any society. Those who succumb to it are lost forever. You can not get through to these people. You can not make them understand. No matter how bad it gets for the little guy. No matter how many families loose their homes. No matter how many people go cold and hungry. No matter how many innocent children starve and die. No matter how much blood is shed. NO MATTER WHAT HAPPENS. The rich will ALWAYS blame the other guy. They will ALWAYS say or do whatever it takes to secure their own extreme personal wealth. When they 'give back', its only because they expect more in return. They will NEVER compromise their own bottom line. They will NEVER jeapordize their position in the 1% club. They will NEVER stand for a more reasonable distribution of wealth and resources. They will NEVER acknowledge greed as a form of evil. They will NEVER acknolwedge the potential it has to ruin EVERYTHING. They will NEVER admit the simple truth. GREED KILLS. IT WILL BE OUR DOWNFALL.

Ford, GM, and Dodge are begging the current admistration for some type of 'bridge loan' in order to avoid bankruptcy. The unions are begging for it. The people are divided. All because of a LIE. Again, we have been mislead. I'm not disputing their need. Its legit. I'm disputing the underlying cause. Competition my ass. China my ass. Japan my ass. Those factors are real but not fatal. They are also concequential. Not primary. Again, its GREED and CORRUPTION. Not only that of the auto executives and celebrities who demand millions to endorse the product but also within the health care industry. Thats right. Health care. The average doctor is a millionaire several times over. The average health care executive many times over. Both on average, are members of the 1% club. AGAIN, ITS THEIR FAULT. If it weren't for the OBSCENE health care charges, brainwash plots, and artificially inflated market, then the financial burden placed on Ford, GM, and Dodge wouldn't be anywhere near as high. They could easily match the labor of Honda, Toyota, and Hyndai who's workers are younger on average and not so demanding when it comes to 'health care'. In this case, the little guy is partly to blame for their incredible ignorance. They smoke, drink, get fat, fall for the most OBVIOUS health care scams, live by drug and doctor, kiss greedy doctor ass, drive up the cost of their own health care, demand full coverage, and then strike if they don't get it. Retired US auto workers on average are now causing their former employers to incur an additional $500,000 PER RETIREE in health care expenses over the span of their retirement. Those in the current workforce are partly to blame as well. Not for greed. Their wages are reasonable. But their health care demands are well in excess. If they would simply open their eyes, acknowledge the incredible greed and corruption within the health care industry, get off the couch, get off the pharmaceuticals, and take care of their own bodies, then their own cost of living would be lower, their health would be better, the market for their product would be higher, and the financial burden placed on Ford, GM, and Dodge would be MUCH lower. I'm not discounting other factors like gas prices, competition, and the US product line. But greed and ignorance wreak havok like no other elements of our society. They cause or allow the cost of living to rise and the middle class to shrink along with the potential market for every major industry. In this case, they also raise the financial burden placed on US auto makers. Mark my words: One or two US automakers will go bankrupt. They will do so regardless of any 'bridge loan'. Other well known foreign auto makers will follow. The entire manufacturing industry will become a shell of its former self. Millions of retirees will be cut off entirely. ALL BECAUSE OF GREED, CORRUPTION, AND IGNORANCE. The ripple effect is profound. IT WILL BE OUR DOWNFALL.

The feds have reduced their interest rate to an all time low. IT WON'T WORK. The same goes for any potential bailout for the US auto industry or any other. IT WON'T WORK. IT ABSOLUTELY POSITIVELY WILL NOT WORK. I would bet my life on it a hundred times over. Again, our own leaders refuse to acknowledge the single greatest drag on our economy. The single greatest underlying cause for the global economic crisis. GREED. They all refuse to acknowledge the downside. That idiot pig Arthor Laffer refuses to acknowledge it. Greenspan, Bernanke, and Paulson refuse to acknowledge it. Bush, Clinton, Kerry, Gore, Obama, and Kennedy refuse to acknowledge it. Lars Larson, Tammy Bruce, Lou Dobbs, Mike Gallagher, Suze Orman, Bill O'Reiley, Maria Bartiromo, Jim Kramer, Rush Limbaugh, and Jim Bohanan refuse to acknowledge it. Bill Gates, Warren Buffet, Oprah Winfrey, Richard Branson, and T-Boone Pickens refuse to acknowledge it. The same goes for all of their filthy-rich billionaire friends. All of the above are hypocrite pigs who don't have the guts to admit the simple truth. This is not brain surgery. For the mostpart, its simple math. WE ARE IN THIS MESS BECAUSE OF GREED. The world's richest one percent are now so incredibly rich that there simply isn't enough wealth circulating beneath them to sustain the global economy. Its on the brink of collapse. IT WILL COLLAPSE. We are now entering what will go down in history as the worst economic and cultural crisis of all time by far. You think its bad now? YOU AIN'T SEEN NOTHING YET. NOTHING. Trillions more in wealth/capital will be concentrated (Not lost. Concentrated.). Many more banks large and small will fail. Tens of millions will loose their savings (Transfered from poor to rich.). Even FDIC accounts will be forfeited (Yes they will. Yes they will. Yes they will.). Every major industry will become a shell of its former self. Unemployment will reach unprecidented levels. Millions of retirees will be cut off entirely. The lower class will become dominant. The financial aid system will fail miserably. The vast majority of those in need will have no access. Crime, poverty, and suicide will skyrocket. There will be riots and random acts of violence at banks, hospitals, and government buildings. The next generation will be left to fight in the crumbling streets over a shattered American dream. The rest of the world will have it even worse. So don't blame innocent people from other countries you idiots. Blame the rich. Blame the government. Blame the health care industry. Then blame yourselves for being so stupid for so many years. We have allowed a particular form of evil to grow out of control, intoxicate our society, consume our government, wreak havok on our own economy and culture, RUIN any chance we ever had at world prosperity, and jeapordize the very foundation of modern society. At the same time, we have allowed those who epitomize it to get away with calling themselves 'heroes' or 'humanitarians'. Putting a happy face on greed and dumbing down our society further in the process. THAT MEANS YOU. So wake up fellow citizens. Grow a spine. Don't fall for all of this 'good will' 'humanitarian' BS from the rich. IT IS A SHAM. NOTHING BUT TAX DEDUCTIBLE PR CRAP. Instead, look at the bottom line. IT'S F#@&#%$ OBSCENE. NOW GET IT THROUGH YOUR THICK SKULLS YOU IDIOTS. WE ARE IN THIS MESS BECAUSE OF GREED. AMERICA'S RICHEST ONE PERCENT NOW OWN ALMOST 1/2 OF ALL UNITED STATES WEALTH. THE WORLD'S RICHEST ONE PERCENT NOW OWN OVER 40% OF ALL WORLD WEALTH. THATS WAY TOO MUCH. THESE PEOPLE ARE NOT HEROES. THEY ARE NOT HUMANITARIANS. THEY ARE DISGUSTING HYPOCRITE SLOBS. IT DOES NOT MATTER HOW MUCH THEY GIVE BACK. THEY STILL KEEP WAY TOO MUCH. IT CAN'T WORK THIS WAY. IT ABSOLUTELY POSITIVELY CAN NOT WORK THIS WAY. IT NEVER HAS AND IT NEVER WILL. GREED KILLS. IT WILL BE OUR DOWNFALL.

1% CLUB PIGS: I've said it many times and I will say it many more. Greed is not the desire to break the law or intentionally oppress another human being. Greed is simply the desire to take more than your reasonable share of wealth or any limited resource. By doing so, you reduce the value of currency and raise the cost of living worldwide. You cause a domino-effect of socio-economic problems. You literally cause innocent people to suffer and die. YOU MAKE WORLD PROSPERITY MATHEMATICALLY AND PHYSICALLY IMPOSSIBLE. It does not matter how much you 'give back'. It matters how much you KEEP. This is why I will go to my grave with nothing but bleeding and burning hatred for all of you. Jealosy my ass. Low self-esteem my ass. Self-pity my ass. Anyone who still thinks that after reading all of this is a F&#@%$# MORON. You disgusting hypocrite pigs. I've noticed the little shots you've been taking at me and the cause I stand for. The psychological stunts. Thats right Will Smith, Angelina Jolie, Brad Pitt, Today Show pigs, Regis and Kelly, Ellen DeGeneres, Oprah Winfrey, Lars Larson, Bill O'Reiley, Lou Dobbs, Ann Coulter, Tammy Bruce, Laura Inghram. I've noticed the crafty elusive statements you've been making about greed and subtle insults directed at those very few of us who stand against it. I also know that you're well aware of this campaign and that you're trying to shut it down. YOUR TRICKS WILL NEVER WORK ON ME. Mark my words: No matter what you say or do, I will spend the rest of my life persecuting all of you for the disgusting, obscene, unjust, illogical, and immoral equation you stand for. I won't break any laws but I will make a lot of people understand. If you want to break my will, then you're going to have to break my neck first. and if you pull a stunt like that, then a lot of people will know what happened to me and why. I've planned in detail for it. Regardless, you pigs will not go down in history as heroes or humanitarians. Not if I can help it. We're in this mess primarily because of you. Its going to get MUCH worse primarily because of you. Thats what I believe and thats the message I intend to spread for the rest of my life. DEAL WITH IT.