Thursday, May 14, 2009

May 14 2009: Them's Fighting Words

Samuel H. Gottscho May the good lord shine a light on you December 15, 1931
River House, 52nd Street and East River. Parapet, 27th floor, New York

Ilargi: As reported exhaustively, GM, in its present state, has only weeks left to live. So does California. The state, successfully terminated by the Terminator (though it'd be unfair to blame it all on his incompetent head), has brainstormed its way into two new bound-to-fail solutions for all its different -but still the same- conundrums.

First, Arnold wants TARP funds. He may get some, but that’s not what those funds are for, and California is not the only squeezed state by any means.

Second, the pièce de résistance of 2009 politics to date, the state of California plans to forcibly confiscate -property- tax revenues from lower levels of government in order to cover its own holes. Never mind that counties and municipalities themselves see their revenues fall off a cliff steep enough to scare a bodybuilding Austrian mountain goat.

I read that this morning, and couldn't believe it. I guess we can now wait for Washington to impose taxes on Californians that will further empty Sacramento coffers. Do unto others as you.... How do you measure despair?

Florida's biggest mortgage lender, BankUnited, doesn't have weeks to live; it has days, if that. For many hundreds of car dealerships and their employees, tomorrow will be the last day of business. Given the average size of a dealership, that means a lot of square feet of empty commercial real estate, and a lot of additional downward pressure on prices and on the local banks that hold the loans for the properties.

Citigroup and AIG have a bit more time, they may last a few months longer. Not because they are healthier, you might argue the opposite is the case. They live on for a while just because they are bigger. And they are "connected". Still, they are also connected to their past business and that makes their situation hopeless. Citi sits on mammoth piles of bad loans, securities and derivatives. Former personnel at Ameriquest, America's largest subprime mortgage lender, which Citi acquired in 2007, claims 90% of their loans are set to default. Its derivatives involvement makes AIG such a giant black hole that one can imagine all too well the fear on Wall Street that it may drag off all of Lower Manhattan down the waters of the Hudson into a parallel universe, never to be heard from again.

But I'm getting carried away; I intended to talk about something else: homes. As you may know, I have for a long time said that home prices, in the US and many other places, will fall 80% or more from their peaks. All I have to do now is sit back and wait for that prediction to come true. Which it will, there are no other options available, it just takes time for people to understand why. Very few homes would sell these days stateside without Fannie Mae and Freddie Mac, which are nothing but government vehicles to buy your neighbor a home with your money.

So far, Fannie and Freddie have received some $70 billion in bail-out checks. Today, the US Office of Management and Budget reports that they will need at least $92.2 billion next year. But those are just the losses that cannot be hidden, there are hundreds of billions more that should be written down, but are not. Alt-A and OptionARM resets are bound to raise the loss numbers manifold. How about half a trillion this time next year? And then there will come a day when the government will not be able to buy all mortgages, which means no more homes will be sold to people who can't pay cash. And the few that still can may think twice.

Mike White, a mortgage broker in Chicago, explains in Our American Homes. They All Fall Down - Much Further that a simple math extrapolation of the Case/Shiller index indicates that US home prices will fall 45% more from their current prices, and 62% in total peak to trough. A broker who advises people to rent, maybe there's still hope.

What Mike ignores in his simple model is that even Robert Shiller himself, as I often have, has predicted that because of the huge and rapid movement in prices, they are bound to violently swing way below the bottom the index seems to point to. That is what I’ve always maintained, and it confirms my prediction of an 80%+ loss. In the past few years, there have been quite a few graphs like the one of the Case/Shiller index, with data based on historical price ranges, and it always seemed very simple to me that prices would have to come back to the trendline. And then break it downward, as least as much as it had broken it on the upside. I’m not saying that to pound my chest, but because there are still millions walking wide open eyed into a debt servitude trap, whereas this has been obvious for a long time. The graph below from the ContraryInvestor is 3 years old. Once you've seen this, how hard is it to see the rest?

And there's more. You can look at these graphs and not see more than a 50-60% drop in home prices, if you take the high road and the sunny scenario. But what you miss, then, is that it is that 50-60% drop that will of necessity lead to an additional 20-30% drop, because it will tear apart the entire economic system. The vast majority of mortgage holders owe more than 20% on their loans, so the vast majority will be underwater. Equity will virtually disappear, and what will remain is debt; lots of it. At the end of 2009, there will probably be about 20 million Americans without a job, which makes it impossible to pay off any debts. There will be tens of millions more who do have work, but still can't afford to pay back what they owe. Clusterstock's Henry Blodget this morning assembled some good stats in The Problem With Debt , which I think may open some eyes to what is going on, and what will inevitably come next. Here's Blodget:
A couple of years back, the value of US residential real estate was about $25 trillion. Mortgage debt constituted about 45% of that ($11 trillion) and owner equity 55% ($13 trillion). (Very rough numbers) Now, the value of the US housing market is down almost 30% and headed to, arguably, down 40%.  In other words, if the peak value was $25 trillion, the current value is about $18 trillion, and the trough value will be about $15 trillion. So what will happen to homeowner equity?  It will drop by 70%.

Ouch.  And by the way, that percentage holds regardless of what the actual peak value of the housing market was, as long as you start with 45% debt-to-value. Also, most of that equity is owned by folks who own their houses outright. And what happens if you have a more typical debt-to-value ratio--say, 80% debt? Then, unfortunately, your equity IS going to zero. In fact, it will only take a 20% fall in the house price for that to happen. That's why so many households are now underwater.

That's also why lot of consumer households will get wiped out. (By the way, this is what killed all those Wall Street banks. Unlike consumers, they didn't have 45% debt-to-value ratios or even 80% debt-to-value ratios. They had 97%-debt-to-equity ratios. So it didn't take much of a decline in equity to blow them to smithereens.)

The reason I think this is an interesting example is that it not only shows how much equity can get lost, but also how easy it is to slip into negative equity. And of course, as you can see, Henry’s examples are based on very conservative (40% instead of my 80%) loss estimates. Not only compared to mine, but also to Mike White and Robert Shiller's figures. And that means, look at the graphs and look at the numbers, that tens of millions of Americans will soon not just be underwater, but underwater to the tune of hundreds of thousands of dollars. On top of that, millions will lose their homes because of it, and are likely to lose their jobs as well.

That entire situation will drive down real estate prices further, rinse and repeat, until you wind up with a society that simply cannot function properly any longer. Schwarzenegger's threat looks like an act of war, or at least them's fighting words. And that's not all right. Arnie today should focus on getting people out of tent cities with dignity, not on flexing his muscles. If we all choose to go there, we'll be using each other for stuffing come Thanksgiving.

Our American Homes. They All Fall Down - Much Further
Apply Linear Logic. Home Prices Abandon Value. Karma Runs Away

A simple explanation of the future of home values based upon broad sound fact is never a bad place to start. So let's revisit an educated guess based on the best data – the Case Shiller index. What is really happening out there? If you review the trend line, and the math, the number is surprisingly bad. It says property values will fall more than 40% from TODAY'S LEVEL.

So what do you do about numbers which appear impossibly bad? Maybe running for the hills makes sense? It’s also obvious that if you can sell your home, and you don’t really want to keep it, then you should sell it. And if you are thinking of buying a home, it’s better to make renting your first priority. Wait to see where values stabilize. If prices are already at their bottom today, you will lose very little appreciation which today’s buyers achieve (should they be so lucky).

There may be some who would like to shoot the messenger, and call this reading pessimistic. Remember such an argument suffers because math is neither pessimistic nor optimistic. Math is right or wrong. And data is either right or wrong. Check the math. If there are errors I want to correct them. If you have better pricing data, or more positive reasonable assumptions then the Case Shiller chart, please send them along.  My opinion is that any guess on future values should begin with this chart.

The peak-to-bottom number is also worth reviewing. The total loss in property values, when we hit bottom, is estimated to be greater than 60%. If chart one and two are reasonably accurate, the implication is that mortgage investment holders will continue to experience enormous losses. The recent positive movement in the stock market is divorced from and blind to the future which these charts foretell. One or the other is wrong.

Ilargi: Clusterstock's Henry Blodget provides some numbers that I think are probably good to repeat, since many may not understand this intuitively.

The Problem With Debt
15.4 million homeowners now owe more on their houses than their houses are worth, up from 13.6 million four months ago.  The number will probably top 20 million when all is said and done.  To mark this sad stat, we've updated our post from last fall on the power of leverage.

As Warren Buffett succinctly observed, anything multiplied by zero is zero. Put differently, when the value of the asset drops below the value of the debt used to buy it, poof. Nowhere is this concept more important than in the housing market.  A couple of years back, the value of US residential real estate was about $25 trillion. Mortgage debt constituted about 45% of that ($11 trillion) and owner equity 55% ($13 trillion). (Very rough numbers)

Now, the value of the US housing market is down almost 30% and headed to, arguably, down 40%.  In other words, if the peak value was $25 trillion, the current value is about $18 trillion, and the trough value will be about $15 trillion.  So what will happen to homeowner equity?  It will drop by 70%.

Value: $25 trillion
Mortgage Debt: $11 trillion
Homeowner Equity: $14 trillion

Value: $15 trillion
Mortgage Debt: $11 trillion
Homeowner Equity: $4 trillion

Ouch.  And by the way, that percentage holds regardless of what the actual peak value of the housing market was, as long as you start with 45% debt-to-value.  Also, most of that equity is owned by folks who own their houses outright.

And what happens if you have a more typical debt-to-value ratio--say, 80% debt?  Then, unfortunately, your equity IS going to zero.  In fact, it will only take a 20% fall in the house price for that to happen.  That's why so many households are now underwater.

House Value:  $500,000
Mortgage (80%): $400,000
Equity: $100,000

House Value (down 40%):  $300,000
Mortgage (80%): $400,000
Equity: -$100,000

That's also why lot of consumer households will get wiped out. 

(By the way, this is what killed all those Wall Street banks.  Unlike consumers, they didn't have 45% debt-to-value ratios or even 80% debt-to-value ratios. They had 97%-debt-to-equity ratios.  So it didn't take much of a decline in equity to blow them to smithereens.)

What about stock portfolios?

The worst peak-to-trough stock market drop was 1929-1932, when the S&P 500 dropped 86%.  Horrific, but not zero.  (Unless you were carrying margin debt).  But here's keeping our fingers crossed that the S&P 500 bottomed when it was down 56%. 

And, to close on a happier note, here are some things that almost definitely aren't going to zero:

  • Consumers that have enough cash flow that they won't get forced out of their houses when their equity is zero (the house prices will eventually recover, and then the same leverage will work on the upside).
  • Investors who don't panic and sell stocks at the bottom.  As long as the portfolio is diversified and the companies don't go bankrupt--see below--the prices will eventually come back.
  • Companies with no debt and strong cash flow that would still generate cash if you cut their revenue significantly. 
A few prominent examples of such companies in tech-land? Apple, Microsoft, Google, Cisco.

New jobless rise more than expected to 637,000
New jobless claims rose more than expected last week due partly to an increase in layoffs by the automobile industry, while the number of people continuing to receive unemployment benefits set a record for the 15th straight week The Labor Department said Thursday the number of new claims rose to a seasonally adjusted 637,000, from a revised 605,000 the previous week. That's above analysts' expectations of 610,000. The increase comes after initial claims dropped in four of the previous five weeks, which raised hopes that the wave of layoffs announced earlier this year has crested and that the recession was nearing a bottom.

A department analyst said most of the increase was due to auto layoffs. Economists estimate Chrysler LLC has laid off 27,000 workers in the wake of its April 30 bankruptcy filing. General Motors Corp. has said it will temporarily shut 13 factories beginning later this month through July, potentially affecting 25,000 workers. Still, many economists expect the downward trend in jobless claims to return once the impact of the auto industry's job cuts has passed. Also Thursday, the department said wholesale prices climbed 0.3 percent last month, larger than the 0.1 percent gain economists had expected. The biggest jump in food costs in more than a year offset a second monthly decline in the price of energy products.

Even with the larger-than-expected gain last month, wholesale prices over the past year have fallen 3.7 percent, the biggest 12-month decline since 1950. While falling prices can raise fears about deflation, economists believe the efforts by the Federal Reserve to combat the recession will prevent a dangerous bout of falling prices. In another sign of labor market weakness, the tally of people continuing to receive benefits increased to 6.56 million from 6.36 million, setting a record for the 15th straight week and worse than analysts expected. The continuing claims data lags initial claims by one week. The large number of people on the jobless benefit rolls is a sign that unemployed workers are having difficulty finding new positions.

Economists are closely watching the health of the labor market. If layoffs continue at a rapid pace, consumers could cut back further on spending and prolong the recession. New applications for jobless benefits have declined since reaching 674,000 in late March, the highest level in the current recession. But claims remain elevated. Weekly initial claims were 375,000 a year ago. The four-week average of claims, which smooths out volatility, rose to 630,500, after falling for four straight weeks. Still, the average remains nearly 30,000 below its high in early April, a drop that economists at Goldman Sachs and JPMorgan Chase & Co. have said indicates that the economic downturn is bottoming out.

There have been other signs the pace of job cuts is moderating, though still brutal. Employers eliminated 539,000 jobs in April, the fewest in six months and below the average of 700,000 in the first quarter of this year. Still, more than 5.7 million jobs have been lost since the recession began in December 2007. The jobless rate rose to 8.9 percent in April, the Labor Department said last week. Many economists expect unemployment to hit 10 percent by year's end.

More job cuts have been announced recently. Steel giant ArcelorMittal said Wednesday it will eliminate nearly 1,000 positions at an Indiana steel plant in July, while DuPont said last week it will cut 2,000 jobs. Among the states, Illinois reported the largest increase in initial claims, which it attributed to layoffs in the construction and manufacturing industries. The next biggest increases were in Kansas, Puerto Rico, Indiana and Ohio. New York reported the largest drop in claims of 13,386, which it said was due to fewer layoffs in the transportation and service industries. The next largest drops were in Michigan, North Carolina, Massachusetts and Connecticut. The state data is for the week ending May 2, one week behind the initial claims data.

Meet Your Landlords: Fannie And Freddie
The foreclosure crisis has saddled plenty of lenders with homes they never wanted to own. As usual, Fannie Mae and Freddie Mac are suffering at a grander scale. The government-controlled mortgage financiers now own more than one in every nine foreclosed properties, according to data provider RealtyTrac and the companies' recent regulatory filings. Fannie Mae and Freddie Mac have nearly doubled their inventory of seized property in the last year: Fannie directly owns 64,000 single-family homes and smaller Freddie owns 29,000. That's about the same number of households as in Madison, Wisc. Since there was a moratorium on foreclosures for much of the last two quarters, both companies say their holdings are about to expand significantly.

Rick Sharga, vice president of RealtyTrac, says it's inevitable that Fannie Mae and Freddie Mac will have to seize more properties. "While neither company had a large holding of subprime loans, the next wave of foreclosure activity, driven by unemployment, will include more of the loan types that both GSEs specialize in--30-year, fixed, prime conforming loans," he said. This is great news for down-on-their-luck borrowers--Fannie and Freddie are eager to help with modifications or short-term loans--but bad news for taxpayers. That's because managing foreclosed properties is basically about losing as little money as possible. Since their sole mission is to help stabilize the troubled housing market; these two are likely to be losing more than any profit-making enterprise could stomach.

In what could be a stroke of genius or a costly quagmire, the two government-sponsored enterprises launched programs during the quarter to keep broke borrowers in their former homes, allowing them to rent at market rates after their property has been seized. While Freddie will let former owners or tenants stick around, Fannie will only let renters stay put and the foreclosed home is kept on the market. Fannie estimates there are approximately 1,800 units eligible for the program; hundreds of lease applications are in-process, according to spokeswoman Amy Bonitatibus. Freddie declined to comment on how many renters it currently has or expects to have. But being a landlord is a tough business. Especially when you have very little say in who your tenant is. "It sounds good, but it ignores that there's upkeep and a whole lot of issues involved," said Guy Cecala, publisher of Inside Mortgage Finance. "In some areas rent won't even cover taxes."

In the best case, by seizing homes, Fannie and Freddie will turn non-performing loans into cash-producing assets and maintain their properties' value until the market mends. Or it will end up costing taxpayers a bundle if Fannie and Freddie's foray into being landlords goes south. A side effect of a growing rental program could be fewer foreclosure listings, at least for Freddie, because this pulls homes off the market. Both companies have said they are eager to grow their rental programs. Underreporting their brick and mortar holdings, or simply releasing their inventory in a controlled manner, has another benefit for the larger market because it softens the impact that a flood of extra homes would have on home prices. "It may be better for the housing market--and therefore the GSE loan portfolios," said RealtyTrac's Sharga.

But Cecala says that servicers and lenders tell him the GSEs are unloading some properties in declining markets at fire-sale prices. "I've been hearing Fannie Mae has been selling [foreclosed properties] for $5,000 in some areas," he said. "It's not that they've gotten a lot of better at selling these properties; they've just lowered their expectations." Meanwhile, both companies ramped up loan modifications during the quarter: Freddie inked deals to ease terms on 24,623 mortgages, up from 4,246 a year earlier; Freddie completed 23,000 workouts, compared with 1,500 the year before. Freddie also took a voluntary hit of $2 billion buying loans. Why volunteer for pain? So mortgages can be modified and people can live in their homes, says Freddie Mac spokesman Michael Cosgrove. Fannie spends a similar $2.6 billion buying loans but doesn't consider it a loss. "A certain portion of these loans will cure over time," said Fannie's Amy Bonitatibus. Both companies have said that their modification efforts will end up hurting their bottom line and trigger more cash infusions from Treasury

Government Grossly Underestimates Fannie and Freddie's Capital Needs
The U.S. “Office of Management and Budget” released a grim report on the capital requirements of Fannie Mae and Freddie Mac: at least $92.2 BILLION next year, alone. The one thing we know for certain regarding any and every budget projection for the U.S. government which looks out even a year in advance is that it will grossly understate reality. Based on a myriad areas of flawed “analysis” and fraudulent “statistics”, a much more realistic ball-park assessment would be to triple that estimate, meaning that these financial black-holes will require more than a quarter of a TRILLION dollars in 2010, alone.

The first area where the government is grossly underestimating the magnitude of losses is regarding the carnage which will be experienced in the U.S. housing market through just the mortgage-resets. As reported in “U.S. Mortgage Crisis to get MUCH worse in 2010-11”, the housing market is nowhere near a peak in foreclosures (with another new, all-time record just set in April), as a graph from that earlier piece demonstrates unequivocally.

By the time 2010 begins, the U.S. housing market will have fallen in aggregate, by an average of 40%, and will still be plummeting downwards due to massive over-supply and a continuing deluge of “short-sales” and foreclosure sales. Few, if any of those with mortgages resetting in 2010 will have any equity in their homes. By this time, most of these “chumps” will have realized how utterly foolish it is to continue making large payments on a home which they don't own at all – when they could buy or rent elsewhere, much cheaper, simply by walking away. Those who would consider making payments, just to help bail-out “fat cat” bankers, may not have any choice when they lose their jobs. In the real world, the U.S. is on track to lose an additional 20 million jobs this year, as demonstrated by the weekly lay-offs, combined with last year's monthly numbers.

click to enlarge

The second area where this government report is seriously flawed is that it is based on the utterly fraudulent numbers of the U.S. government concerning house prices. “Official” government propaganda was that U.S. house prices increased in January and February – yet even the hopelessly optimistic NAR (“National Association of Realtors”) just reported a 14% drop in 1st quarter prices this year. The much more respected Case-Schiller Index puts that number above 18%. Continuing with the fraudulent analysis, the U.S. government has vowed that it can keep interest rates at historic lows. This is deceit of the worst kind. With foreigners rapidly losing their appetite for any kind of U.S. paper, the U.S. government is now dumping the largest glut of U.S. Treasuries on an already-saturated market which has clearly topped.

Is the U.S. government prepared to “buy up” more than $1 TRILLION of its own Treasuries (this year, alone), and pay the huge price of a collapse in the U.S. dollar (from “monetizing” all that debt)? If not, U.S. interest rates must soar much higher to attract tight-fisted foreign investors. To summarize, with insanely optimistic projections for home prices, employment, and interest rates guiding it, the Office of Management and Budget has grossly underestimated the capital requirements for Fannie Mae and Freddie Mac – and the only way to come up with the hundreds of billions needed by these bankrupt behemoths is to send “Helicopter” Ben back to his printing-press.

The Mystery of 'Frannie's' Great Divide
Before Fannie Mae and Freddie Mac became penny stocks, investors learned that it paid to keep a close eye on their accounting. Now, the mortgage giants are propped up by huge government infusions, and taxpayers are the ones that need to be vigilant. Looking at Fannie's and Freddie's first-quarter numbers, one area that jumps out is credit expenses, which primarily reflect the amount added to the loan-loss reserve. At issue: Why was Fannie's $20.9 billion credit expense more than double Freddie's $9.1 billion? Credit expenses matter. They account for a large slug of the companies' huge losses. Those, in turn, determine how much taxpayer support Fannie and Freddie get. For example, to ensure solvency, Fannie has asked for $19 billion this quarter, and Freddie, $6.1 billion.

Fannie's credit expenses should be larger, given its mortgage exposure is 40% larger than Freddie's. But Fannie's cumulative credit expense over the past five quarters is almost double Freddie's. True, Alt-A mortgages and loans to borrowers in particularly stressed housing markets make up more of Fannie's book, but only slightly. What's more, in recent quarters, Freddie's charge-offs, or unrecoverable loans, have been consistently far lower than Fannie's. In the first quarter, Freddie had $1 billion vs. Fannie's $3.4 billion. Freddie also has a lower share of borrowers going past due, often the precursor to a charge-off. Perhaps we are seeing evidence that Freddie was a much better lender than Fannie. That seems a stretch, given the apparent similarities in how they did business. For now, though, the divergent credit numbers are a mystery. Long-suffering taxpayers might like it solved.

Bids due Thursday for struggling BankUnited
Final bids are due Thursday for ailing BankUnited, the largest bank headquartered in Florida. John Kanas, former chief executive of New York's North Fork Bancorp, is thought to be leading an effort to acquire the bank's parent, Coral Gables-based BankUnited Financial Corp. Kanas, 62, is an adviser to billionaire Wilbur Ross, a Palm Beach resident. Carlyle Group and Blackstone Group LP, owner of the Boca Resort and Club, also are expected to be part of the bid. BankUnited was ordered last month by federal regulators to find a merger partner or buyer. The bank, hammered by problem loans made during the housing boom, said last year it had "substantial doubt" about its ability to survive.

BankUnited and Kanas could not be reached to comment Wednesday. The Office of Thrift Supervision and the Federal Deposit Insurance Corp. declined to comment. Kanas, who sold North Fork to Capital One Financial Corp. in 2006 for $13.2 billion, is a respected banker who delivers solid results, said Miami banking analyst Ken Thomas. But he and his group are Wall Street players who will buy low, build the bank back up and then sell it, Thomas said. "What would be best for the consumers is for a bank to come in that's going to be here for the long haul," Thomas said, mentioning TD Banknorth of Portland, Maine, and U.S. Bank in Minnesota as ideal candidates to take over BankUnited. Goldman Sachs Group Inc. and Toronto-Dominion Bank, Canada's second-largest lender by assets, also are said to be interested in BankUnited. J.C. Flowers & Co., the New York private-equity company run by J. Christopher Flowers, could bid as well.

This week, BankUnited told the Securities and Exchange Commission that its loss in the quarter ended March 31 rose to $443.1 million from a loss of $65.8 million. The bank said it was unable to file complete results, citing, among other factors, "adverse market conditions" and "material weaknesses in internal control over financial reporting." The bank's stock has fallen more than 80 percent in the past year. Its shares on the Nasdaq Stock Market closed Wednesday at 76 cents, down 84 cents. BankUnited, founded in 1984, had total assets of $14 billion as of June 30. It has more than 80 offices in Florida, including 16 in Palm Beach County and 23 in Broward County.

US 'sham' bank bail-outs enrich speculators, says buy-out chief
The US Treasury’s effort to stabilise the banking system through the TARP programme is a hopelessly ill-conceived policy that enriches speculators at public expense, according to the buy-out firm supposed to be pioneering the joint public-private bank rescues. "The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside," said Mark Patterson, chairman of MatlinPatterson Advisers. The comments are likely to infuriate Tim Geithner, the US Treasury Secretary, because MatlinPatterson took advantage of the TARP’s matching funds to buy Flagstar Bancorp in Michigan. His confession appears to validate concerns that the bail-out strategy is geared towards Wall Street.
Under the convoluted deal agreed earlier this year, MatlinPatterson has come to own 80pc of the shares while the US government has ended up with under 10pc. Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable. "It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society," he said, speaking at the Qatar Global Investment Forum.

Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. "At least the British are not hiding the bail-out," he said. MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months. "This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance," he said. "Alfa hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well," he said.

Like many bears, Mr Patterson expects the great crunch to end in deliberate inflation, deemed a lesser evil than outright depression. "The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road," he said. Matlin Patterson, however, has missed the Spring rebound, the most powerful rise in equities in over 70 years. "We shorted the equity rally because we thought it was lunatic. We’ve kept adding positions seven times, and we’re still holding," he said. Ouch!

Cities brace for shutdown of auto dealerships
With struggling automakers expected to announce the shutdown of thousands of dealerships starting today, cities are bracing for a wave of blight. The closings will dump thousands of large, oddly configured parcels into an already reeling commercial real estate market. Many are likely to remain empty for a long time, monuments to the decline of the U.S. auto industry and the intensity of this recession. Chrysler told a Bankruptcy Court today that it will break its contracts with 789 dealerships nationwide. General Motors Corp. will tell 1,000 to 1,200 dealers Friday that it will not renew their franchises. The automaker plans to eventually close a total of 2,600 operations.

In California, the moves will have far-reaching implications for dozens of cities, which depend on sales tax revenue from the dealerships to fund substantial portions of their budgets. The dealerships join a growing list of retailers felled by the dour economy: Sites that once held Mervyn's, Circuit City and Linens 'n Things stores remain empty except for a few locations. And as difficult as it has been to sell or lease those properties, at least they can be easily adapted for other uses. Car dealerships, on the other hand, are special-purpose properties that are hard to adapt. "There are not a lot of uses that can go right back into a dealership," said Jodi Meade, director of the automotive properties group at real estate brokerage CB Richard Ellis. "Usually they have to scrape it" and start over to make way for another business.

San Bernardino, for example, had 12 dealerships when the economy was booming. Now there are just seven -- and it's unclear whether more will be felled with the GM and Chrysler announcements. At an abandoned Cadillac dealership, weeds poke through cracks in the asphalt. Vandals have painted graffiti over the Chevrolet logo at another site. Windows are broken and dead grass from a once-tended lawn covers the ground. One of the car lots, now called Arrowhead Motors, is operating only because a credit union had so many repossessed vehicles that it decided to go into the auto business. "The whole model of auto sales through dealership networks is open to question," said Jim Morris, chief of staff to San Bernardino Mayor Patrick J. Morris.

Finding a car seller for the Arrowhead Motors site was a coup for the city, which is struggling to figure out what to do with its empty car lots, Jim Morris said. Auto dealership sites have lost a third to half of their value compared with the peak about three years ago, Meade said. Battered by the poor market for new cars, 145 California dealerships closed last year, Meade said, dropping the total to about 1,590. Closures included dealers for imports such as Toyota and Kia, as well as the U.S. Big Three of Ford, Chrysler and GM. Many of the sites are zoned for retail uses, which subtracts from their appeal at a time when most the nation's retailers are struggling to hold their ground or closing stores.

It's not clear how many GM and Chrysler dealers will close in California, but experts say the empty storefronts will most certainly be difficult to sell or lease. "It's the worst time to sell," said commercial real estate lender Jeff Friedman, co-chief executive of Mesa West Capital. "The challenges are enormous." Throughout the state, local governments are struggling to keep their auto dealerships alive, because most have become reliant on the big-ticket sellers to provide a steady stream of sales tax income. Since Proposition 13 limited California property taxes in 1978, many cities have encouraged the construction of malls and other retail uses that bring in sales taxes to fund the municipal budget. Car dealerships are now among the biggest generators of tax revenue.

Cerritos, which boasts that it is home to the world's largest auto mall, with 24 franchises, relies on sales taxes to provide a third of its $98-million annual budget, City Manager Arthur Gallucci said. Although its dealerships still operate, sales tax revenue in Cerritos fell 21% in the fourth quarter compared with a year earlier. In Glendale, car dealers kick in up to $4 million to the annual budget. Tustin receives about $5 million, a quarter of the Orange County city's budget, and late last year Director of Finance Ronald Nault said there had been a "frightening" drop in collections. Although Chrysler and GM won't shut all their dealerships on the same day, the fact that so many are coming onto the market is going to make it even harder to resell and reuse them, said Andrew Sobel, co-founder of Los Angeles real estate investment firm Brentwood Capital Partners.

Sobel's company owns a property that is an example of another problem with trying to sell or lease an auto dealership: It can be difficult to convert the site to another use. Brentwood Capital bought a former Mazda dealership in Culver City in 2005 but has been unable to get approval from the city to build the housing and retail complex it hopes to erect. Many cities are desperately trying to hold on to their dealerships, loath to allow them to be used for other purposes because that would mean a loss of important sales tax revenue. In San Bernardino, mayor's aide Morris said the city would try to keep its remaining auto stores alive, rather than push for them to be converted for other purposes. "Until someone can tell us the era of the auto center is dead," Morris said, the city will try to preserve its dealership cluster. San Bernardino has even helped dealers with advertising and promotion, a strategy other cities have also embraced.

Palmdale is trying an even more direct approach. Since February, people who buy a new car in the city's auto mall can get a $300 gift certificate from the city, Mayor Jim Ledford said. The cities of Victorville and Norco lent dealers hundreds of thousands of dollars to stay afloat. And with good reason. Although car lots in desirable locations could be snatched up by competitors or real estate investors, dealerships in areas hard-hit by the economy -- particularly in Riverside and San Bernardino counties -- may have few suitors, industry experts said. "It would take a very bold individual to want to purchase land in the Inland Empire at this point," said Friedman, the commercial real estate lender. "It would actually be easier to sell ice to Eskimos than to sell land in Riverside."

California Treasurer Wants TARP Funds For States
California's Treasury Bill Lockyer is calling on U.S. Treasury Secretary Timothy Geithner to allow states access to the remaining Troubled Asset Relief Program, or TARP, funds. Lockyer is requesting that Geithner open up TARP funds to states struggling with rising unemployment and declining tax revenues. In a letter sent Wednesday to Geithner, Lockyer warned of potentially devastating impacts on state and local governments without access to TARP for debt relief. "If we cannot obtain our usual short-term cash flow borrowings there could be devastating impacts on the ability of the state or other governments to provide essential services to their citizens," Lockyer said.

"Such a scenario could also cause major disruption to financial markets." The foreclosure crisis hit California especially hard, and the state has taken several steps - including stopping spending on public projects, delaying income tax refunds, and a shortened workweek for some public employees, just to stay afloat. The state needs short-term borrowing, which is "highly unlikely" to be obtained through banks, Lockyer warned. Therefore, Lockyer is proposing that Geithner lead the charge to create a TARP program to help states, prompting banks to make short-term credit available for state and local governments.

California's fiscal crisis is about to hit home
ICynicism and contempt. Isn't there anything new from the state's budget mismanagers? Not judging by what local government leaders heard from Gov. Arnold Schwarzenegger on Monday. He told them to brace themselves for more. He said that he plans to release two summaries of his budget today. One optimistically assumes that the budget propositions on Tuesday's ballot will pass (something that is increasingly unlikely). The other -- based on defeat at the polls -- will contain, among other nasty surprises, a forced loan from cities and counties to the state for 8% of their property tax revenues. According to the League of California Cities, L.A. would be forced to loan the state $67.7 million. The county would be particularly hard hit, giving up as much as $250 million. The overall impact on local government -- and your neighborhood -- is estimated at just over $2 billion.

Taking 8% of the property taxes now used to fund local governments would force deep cuts in the services and programs delivered by your city and county. Worse, a property tax shift fixes nothing. The state is obligated to repay the local governments -- with interest -- in three years. That just kicks the state's deficit down the road. This might make cynical sense for termed-out legislators and Schwarzenegger. But the state will have dug itself a deeper hole from which it's less likely to recover. Forced lending is a provision of a proposition voters approved in 2004, which was supposed to stop the state's dipping into the funds for city and county services. Between 1991 and 2003, the state budget had shifted more than $40 billion from cities, counties and redevelopment agencies to pay for state programs. Voters who overwhelmingly supported curbs on extractions from local governments probably thought they had put a firewall between their neighborhood and the cynical and contemptuous authors of the state budget. It turns out that the wall of separation is dangerously porous.

Taking from local governments comes at a time when they are struggling to cope with the lower property and sales tax revenues that have come with declining property values and curtailed spending. My city has budgeted carefully, put reserves aside for rainy days and taken care to keep programs and services in line with revenues. We thought we might be lucky, that fiscal good sense would get us through these tough times. Our reward is the state's indifference. Some cities and counties will probably try to replace the state's grab by borrowing, using the state's obligation to pay back its loans as collateral. Other local governments will try to use federal stimulus funds to make up for the state's borrowing. But that certainly isn't what Congress had in mind.

Instead of using the stimulus money to create jobs and preserve neighborhoods, cities and counties will be getting from Washington only to give to Sacramento. And if local borrowing can't replace lost revenue, or if stimulus funding can't be shifted under federal regulations, local governments would still have to cut services and programs. In recognition of local government's fragility, the Department of Finance wants the governor to wait until after December to put the squeeze on cities and counties. Any sooner and some cities and counties simply could not pay. Given their own declining revenues, cities and counties have begun mandatory work furloughs, laid off employees, threatened public safety jobs and cut back on park and library programs just as summer begins.

Some cities are in even worse shape. Privately, there is talk among city managers that as many as 60 of California's 480 cities may be teetering on the edge of insolvency even without the state's latest move. Some cities have already gone over the cliff. Only a light push would send a few more over. The quality of life in California's neighborhoods will be part of the wreckage. Closed libraries mean kids won't have a place to go after school. Unsupervised parks means they won't have a safe place to play. Furloughed workers won't be available to process your business license, check your building plans or deal with your complaint. Everyday life -- the level at which local government works -- will be harder and coarser.

Government by cynics and the contemptuous has its own ugly logic. Forced state loans may only be another scare tactic to get people to support the budget propositions on Tuesday's ballot. Except that fear seems to have lost its power, according to recent polling. Now I'm truly afraid. A neighborhood is as intricate a social ecosystem as a tropical rain forest, a web of interdependencies. Your trash is hauled away. Your street is swept. Needs you don't even know you have are met by the people in local government. The fabric of neighborhood life is tearing, the people who hold it together are running out of options, and cities and counties are about to be run over by a state government bankrupt of ideas. Neighborhoods will suffer.

Ilargi: A bit more on the stimulus package. Remember all the talk on infrastructure, dressed in terms like shovel-ready? 3 months later, a total of 11 million !! has been spent on highway projects. Anybody have the idea that was not what was pictured? One thing is certain: the stimulus package will not do ANYTHING AT ALL to smoothen the pain of the depression we're in. Because we're in it now, and it’‘s not working now.

Stimulus Aid Trickles Out, but States Seek Quicker Relief
Nearly three months after President Obama approved a $787 billion economic stimulus package, intended to create or save jobs, the federal government has paid out less than 6 percent of the money, largely in the form of social service payments to states. Although administration officials say the program is right on schedule, they have actually spent relatively little so far. The stimulus bill has directly injected around $45.6 billion into the economy, mostly to help states cover the costs of Medicaid and unemployment benefits, one-time $250 checks that were mailed to Social Security recipients last week, and income tax cuts that began to take effect this spring.

Although states around the country are beginning roadwork projects, the Department of Transportation had spent only about $11 million on highway projects through the first week of May. The intent of the stimulus program was to pump money into the economy quickly, and many members of Congress said at the time of its passage that speed was of the essence. But the huge program has been a challenge to administer for both a new administration and for states and local governments grappling with their own fiscal problems. Some states and cities are beginning to complain that the money has yet to reach them. Others have been slow to get their paperwork to Washington; Virginia has yet to send the Transportation Department its list of road projects.

At the same time, some economists have questioned the administration’s claims that the bill has saved or created 150,000 jobs. Obama administration officials, however, say the pace of the stimulus program is on schedule, and even if the federal checks are not yet in the mail the effects of the stimulus are beginning to reverberate: the promise of the federal money has been enough to get states to start construction work and to retain some jobs that were in jeopardy. Vice President Joseph R. Biden Jr., who writes in a report on the stimulus bill to be released this week that it remains "ahead of schedule in most programs," said in a telephone interview Tuesday that the bill was helping people grapple with the recession, getting money to the states and into the economy, and laying a foundation for long-term aspirations like high-speed rail.

"We’re 85 days into a two-year program here — we’re trying to get the money out as quickly as we can, but not too quickly, so we don’t end up really screwing up here," Mr. Biden said. "Because we’re talking about big dollars here, these are big numbers, this is unprecedented. And in 85 days we’ve gotten tens of billions of dollars out the door, and so far — knock on wood — no real big problems, no real big glitches." The Transportation Department has committed to pay for more than $10.5 billion worth of projects across the country, which an official there likened to signing the paperwork for a new car before the check has cleared. Those commitments have spurred at least 20 states to award contracts and begin paying road crews; some contractors are staffing up, or postponing layoffs, in the hopes of winning some of that work.

And the federal I.O.U.’s — the government has made $88 billion worth of commitments so far — have saved jobs in many areas. Columbus, Ohio, which sent layoff notices to its entire class of 26 police recruits in January, decided to rehire the class in February when it learned it would get a Justice Department grant. Alabama plans to keep 3,800 teachers whose jobs were in jeopardy, knowing that education stimulus money will soon be on its way. Utah is planning to rehire or retain about 45 probation and parole agents, court clerks, crime lab technicians, investigators and counselors on the promise of expected stimulus aid. Nonetheless, to the frustration of some local governments, the federal spigot has been more trickle than flood, and states are facing such fiscal pressure that many are cutting jobs anyway.

When the Senate recently held a hearing on the spending of the stimulus money, Ray Scheppach, the executive director of the National Governors Association, told lawmakers that "to one extent this hearing is premature." He reminded them that most of the stimulus funds "remain in the hands of the federal government." When the bill was still in Congress, the need for speed was so important that the Obama administration agreed to funnel much of the money through existing programs to accelerate the process. The bill’s Republican opponents questioned the bill’s short-term effects, seizing on a Congressional Budget Office report that found that much of the spending would be pushed into later years.

Now, a federal government that has often been caricatured as profligate has begun trying to spend money as quickly as possible and has become fixated, to use the new Washington catch phrase, with "getting money out the door." The Obama administration has committed to spending 70 percent of the money, or $550.9 billion, within the first two years. By that benchmark, an administration official said, the government is 8 percent toward its goal. There has been skepticism of the administration’s claim of creating or saving 150,000 jobs. While it can be difficult to count jobs that were saved, as opposed to those that were created, Peter Morici, an economist at the University of Maryland, said that trends in state and local government employment "just do not support that claim." Other economists have been more supportive of the administration.

Mr. Biden said the stimulus had created some public works jobs, generated work at factories that expect to benefit from the work and kept many state and local governments from laying off workers, since stimulus aid will help them balance their budgets. But getting the money out can be a cumbersome process at times. Virginia, the last state to submit a list of transportation projects, is trying to get the work done as its Transportation Department is shedding 1,000 positions. Jeffrey Caldwell, a State Transportation Department spokesman, said that the agency had sought bids on some of the jobs anyway, so work could begin quickly when the list was done. Last week, the government reported spending more than $10 billion in stimulus money, and officials said that the speed would increase as the program grows. "In baseball terms, I think there’s going to be real pace on the ball here," Mr. Biden said in the interview. "I think that what you’re going to see happen here is the velocity of this will increase not just arithmetically, but geometrically here. At least, we’ve got to make that happen."

Ilargi: Very revealing video. Over 90% of loans issued by a New Jersey Ameriquest desk are considered likely to fail. CItigroup holds vaults full of bonds based on them. 90% of all loans sold by the biggest subprime seller in the nation. And Citigroup is still being kept alive. Amazing.

Mortgage Fraud Scandal Brewing: Ameriquest, Citigroup

The Almighty Renminbi?
by Nouriel Roubini

The 19th century was dominated by the British Empire, the 20th century by the United States. We may now be entering the Asian century, dominated by a rising China and its currency. While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted. Sooner than we think, the dollar may be challenged by other currencies, most likely the Chinese renminbi. This would have serious costs for America, as our ability to finance our budget and trade deficits cheaply would disappear.

Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined — and the pound lost its status as the main global reserve currency — when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets. The resulting downfall of the dollar may be only a matter of time.

But what could replace it? The British pound, the Japanese yen and the Swiss franc remain minor reserve currencies, as those countries are not major powers. Gold is still a barbaric relic whose value rises only when inflation is high. The euro is hobbled by concerns about the long-term viability of the European Monetary Union. That leaves the renminbi. China is a creditor country with large current account surpluses, a small budget deficit, much lower public debt as a share of G.D.P. than the United States, and solid growth. And it is already taking steps toward challenging the supremacy of the dollar. Beijing has called for a new international reserve currency in the form of the International Monetary Fund’s special drawing rights (a basket of dollars, euros, pounds and yen). China will soon want to see its own currency included in the basket, as well as the renminbi used as a means of payment in bilateral trade.

At the moment, though, the renminbi is far from ready to achieve reserve currency status. China would first have to ease restrictions on money entering and leaving the country, make its currency fully convertible for such transactions, continue its domestic financial reforms and make its bond markets more liquid. It would take a long time for the renminbi to become a reserve currency, but it could happen. China has already flexed its muscle by setting up currency swaps with several countries (including Argentina, Belarus and Indonesia) and by letting institutions in Hong Kong issue bonds denominated in renminbi, a first step toward creating a deep domestic and international market for its currency.

If China and other countries were to diversify their reserve holdings away from the dollar — and they eventually will — the United States would suffer. We have reaped significant financial benefits from having the dollar as the reserve currency. In particular, the strong market for the dollar allows Americans to borrow at better rates. We have thus been able to finance larger deficits for longer and at lower interest rates, as foreign demand has kept Treasury yields low. We have been able to issue debt in our own currency rather than a foreign one, thus shifting the losses of a fall in the value of the dollar to our creditors. Having commodities priced in dollars has also meant that a fall in the dollar’s value doesn’t lead to a rise in the price of imports.

Now, imagine a world in which China could borrow and lend internationally in its own currency. The renminbi, rather than the dollar, could eventually become a means of payment in trade and a unit of account in pricing imports and exports, as well as a store of value for wealth by international investors. Americans would pay the price. We would have to shell out more for imported goods, and interest rates on both private and public debt would rise. The higher private cost of borrowing could lead to weaker consumption and investment, and slower growth.

This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order. The United States must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles. For the last two decades America has been spending more than its income, increasing its foreign liabilities and amassing debts that have become unsustainable. A system where the dollar was the major global currency allowed us to prolong reckless borrowing. Now that the dollar’s position is no longer so secure, we need to shift our priorities. This will entail investing in our crumbling infrastructure, alternative and renewable resources and productive human capital — rather than in unnecessary housing and toxic financial innovation. This will be the only way to slow down the decline of the dollar, and sustain our influence in global affairs.

China’s Heart of Gold
In China, many people refer to the dollar as mei jin, or "American gold." Government officials, businessmen and people on the street all use the term. So if a Chinese person tells you that he owes you 100 American gold, don’t expect a big fortune, because he’s planning to pay you $100. Chinese impressions of the American dollar as the gold standard were so deeply entrenched that they survived President Richard Nixon’s 1971 delinking of gold and the greenback. Around 30 years ago, China’s foreign exchange reserves were as little as $167 million. At one important meeting in the late 1970s, Deng Xiaoping, the leader of China, prophesied to an audience of top government officials: "Comrades, just imagine! One day we may have a foreign reserve as big as $10 billion!" Silence fell on the audience, because that figure seemed so improbable. After a long pause, Deng went on to tell the unconvinced crowd: "Comrades, just imagine! With 10 billion American gold, how much China can do!"

Deng’s view of the dollar reflected his admiration for many positive elements of American capitalism. In November 1986, I served as Deng’s interpreter when he met with John Phelan, the chairman of the New York Stock Exchange, who was visiting Beijing. During the meeting, Deng told him: "You are the rich capitalists with great wealth, and China is still very poor with little wealth. You know finance and capital markets very well. You need to teach China a lot about finance and capital markets. One day in the future, China will also have its own stock exchange." That was the prelude to China’s rapid economic growth. China’s foreign reserves are now close to $2 trillion, and around $1.5 trillion of it is invested in dollar assets. With the global financial crisis, the attention of the world often focuses on this huge pile of American dollars in Chinese hands.

What many don’t remember is that for years, there was either a shortage or a feared shortage of American dollars. In the 1980s, for example, the government required everyone to convert dollars into the Chinese currency, the renminbi, which literally means "people’s money." As a result, American gold became a status symbol. Despite the mandatory conversion into renminbi, many people held onto their dollars, or bought them at inflated exchange rates, if they could find a seller at all. No one knows for sure when the tide started to turn, or the exact moment when American gold started its slow but seemingly irreversible loss of luster. But now, many shops in China no longer accept dollar-based credit cards issued by foreign banks (the customer pays in dollars, but the shopkeeper is paid in renminbi) and foreigners cannot convert American dollars into renminbi beyond a given quota.

In the past, people held dollars for no immediate purpose. Today, they are more likely to keep them only if they need them to send their children abroad for school, travel or to do business in another country. Over all, the government is becoming more worried about the safety of its investments in the United States, which are largely in Treasury bonds and quasi-sovereign securities issued by Fannie Mae and Freddie Mac. Beijing recently called for a greater role in international trade for the special drawing rights currency of the International Monetary Fund. But China is also fully aware that the United States can veto an I.M.F. decision. China’s call was more meant to sound an alarm to the United States.

Many Chinese people increasingly fear the rapid erosion of the American dollar. The United States may want to consider offering inflation-protection measures for China’s existing investments in America, and offer additional security or collateral for its continued investments. America should also provide its largest creditor with greater transparency and information. We still call the dollar American gold. But the United States should not assume that this will never change.

Japan 'would avoid dollar bonds'
Japan's opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected. The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar. Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits. But, he added, it would continue to buy bonds only if they were denominated in yen - the so-called samurai bonds. "If it's [in] yen, it's going to be all right," Mr Nakagawa said in an interview with the BBC World Service. "We propose that we would buy [the US bonds], but it's yen, not dollar."

However observers say that, while the move would be a remarkable policy shift, it was unlikely that Mr Nakagawa's party will win the forthcoming election, due before mid-September, despite the unpopularity of the ruling Liberal party. Such yen-denominated bonds would mean that America, rather than Japan, would be exposed to the risk of future falls in the value of the US currency. Mr Nakagawa's demand echoes doubts about the future of the dollar expressed earlier this year by the Chinese Premier and the governor of China's central bank. Both China and Japan have run large trade surpluses with the US for many years and have tended to invest the dollar surpluses in safe US Treasury bonds. But both countries are worried that the value of these foreign exchange holdings could be jeopardised by a fall in the dollar.

Beijing, for example, has said it will issue its own bonds to fund any further lending to the International Monetary Fund and is believed to be diversifying out of dollars and into euros. Japan faces a particularly difficulty because unlike China, its currency has been floating freely on international markets and the fall in the value of the dollar, relative to the yen, has hit Japanese exporters hard. However a rapid exit from holding dollars would weaken the US currency further, making Japanese exports even more expensive in the US. This means that any decision to switch to samurai bonds would have to be carefully managed so as to not exacerbate the situation, economists say.

US banks swamped as refi fever takes hold
The rush of US homeowners to refinance mortgages at lower rates is creating a boom in the home lending business, prompting banks to hire thousands of new employees and put them to work on extra shifts to process mountains of paper. "Many of them work all day, go home and have dinner with their families, then go back to the office and put in a few more hours, because there’s work to be done," said Greg Gwizdz, national sales manager of the Wells Fargo home mortgage unit. Lenders could originate up to $2,780bn of new mortgages this year, the Mortgage Bankers Association says. Statistics from mortgage financiers Fannie Mae and Freddie Mac suggest 80 per cent of that activity could involve refinancing.

With interest rates for 30-year fixed rate mortgages at around 5 per cent, US homeowners could save close to $18bn on their mortgage repayments this year if they refinance, according to economists at Freddie Mac. The process is taking longer than in past booms because of the disappearance of easily handled "no-documentation" mortgages - a product that played a signficant role in causing the subprime lending crisis. Ken Lewis, Bank of America chief executive, said on Monday his company was adding 6,000 workers to beef up its mortgage capabilities. Wells also has added mortgage staff, although it won’t give out specific numbers. However, even with extra workers, brokers are struggling. "It’s amazing how much paperwork is involved for each application," said Sandy Wagner, a mortgage broker with Preferred Empire. "It’s hard for the brokers to keep up."

Customers, too, have been frustrated by processing delays. "It’s a challenge", said Mr Gwizdz of Wells, which handled $83bn in mortgage applications in March alone. "Consumers need to understand that and have proper expectations. The days of taking it from application to close in 30 days right now are over". However, Guy Cecala, publisher of Inside Mortgage Finance, said the diminishing number of lenders would create fatter profit margins for banks than in past refinancing booms. "Historically, the mortgage industry has not made money on the origination side", he said. "But today, it’s a lender’s market as opposed to a borrower’s market. We haven’t seen that in a long time."

JP Morgan's notes weaken as bond rally fizzles
A $2.5 billion issue of notes sold by JP Morgan Chase & Co on Wednesday weakened in secondary trading on Thursday in the latest sign that a corporate bond rally is starting to sputter. Yield spreads on the five-year notes widened by about 7 basis points to 282 basis points more than Treasuries, according to MarketAxess. They had traded as wide as 295 basis points over Treasuries earlier in the session. The JP Morgan deal is the latest of several corporate bond sales to trade poorly in recent weeks after a glut of supply gave the market a heavy tone.

Investors have turned more cautious on corporate bonds after a massive tightening in yield spreads left less upside in the market, especially as weak economic data signals that no quick end to the recession is in sight. "I just think the tone out there has drastically changed and for the most part people are a little jumpy," said Richard Lee, head of fixed income at New York broker-dealer Wall Street Access. "There's still a lot of supply in the pipeline. As issues trade poorly, the buyside gets jumpy and they demand a much bigger discount to get into the next deal."

Whereas companies a few weeks ago were able to sell new bonds with just a 10 to 15 basis-point yield premium over outstanding issues, that will likely grow to 50 to 60 basis points or more as new issues trade poorly, he said. Investors began to feel cautious about a six-week rally in corporate bonds after a bond sale by Dow Chemical last week turned in a poor performance. Spreads on Dow's new 10-year notes have widened by 69 basis points from where they were issued to 594 basis points over Treasuries, while its five-year notes have widened 58 basis points to 608 basis points, according to MarketAxess.

The longer-dated portions of a three-part bond sale by Microsoft Corp have also traded poorly. Spreads on a 30-year bond have widened by 12 basis points to 117 basis points, while 10-year notes have widened by 2 basis points to 107 basis points, according to MarketAxess. Technology companies in general are weakening in the corporate bond market amid worries that customers will cut orders as the recession drags on. Spreads on IBM's 7.625 percent notes due in 2018 have widened to 229 basis points after starting the week at 185 basis points, according to MarketAxess. "I like corporate spreads in general but I do think we're going to have a very, very choppy market for a while," said Lee of Wall Street Access.

Intel Hit With $1.45 Billion Fine In Europe
Intel Corp. was fined a record $1.45 billion by the European Union on Wednesday for using strong-arm sales tactics in the computer chip market _ a penalty that could turn up the pressure on U.S. regulators to go after the company, too. The fine against the world's biggest chip maker represents a huge victory for Intel's Silicon Valley rival, Advanced Micro Devices Inc., or AMD, the No. 2 supplier of microprocessors to PC makers. AMD has sued Intel and lobbied regulators around the world for the past five years, complaining that Intel was penalizing PC makers in the U.S. and abroad for doing business with AMD. Although the U.S. Federal Trade Commission is also investigating, AMD seems to have found its most sympathetic ear in Europe.

EU Competition Commissioner Neelie Kroes said Intel has harmed millions of European consumers by "deliberately acting to keep competitors out of the market." "Intel did not compete fairly, frustrating innovation and reducing consumer welfare in the process," she said. The commission told Intel to immediately stop some sales practices in Europe, though it wouldn't say what those were. Intel said it was "mystified" about what it was supposed to change but would comply while it appeals the fine. The Santa Clara, Calif., company also defended its sales practices _ which include rebates to big Intel customers _ as legitimate. "This is really just a matter of competition at work, which is something I think we all want to see, versus something nefarious," Intel CEO Paul Otellini said in a conference call with reporters.

AMD Chief Executive Dirk Meyer said the decision was "an important step toward establishing a truly competitive market." "We are looking forward to the move from a world in which Intel ruled, to one which is ruled by customers," Meyer said in a statement. The biggest previous fine levied by the European Union for anticompetitive behavior was $1.3 billion, brought against Microsoft Corp. last year. Whether Intel could face punishment in the U.S. remains to be seen. But the EU's fine against Intel could push the issue to the forefront for the Obama administration. "If there was ever a time not to appear to be a large firm behaving badly, this would be it, as the financial collapse has the U.S. and EU competing for which government is the most proactively protecting consumer rights," warned Rob Enderle, a technology industry analyst. "This judgment makes Intel the ball in what is likely an international game of one-upmanship."

The Obama administration signaled this week that antitrust enforcement would be pursued more vigorously than in the Bush administration, whose Justice Department filed only three anti-monopoly cases, all involving mergers. Yet the Justice Department has been silent on whether it is investigating Intel. The Federal Trade Commission investigation of Intel could result in the agency asking a court to order Intel to alter its practices. A spokeswoman for the FTC declined to comment. Stephen Kinsella, a lawyer specializing on European antitrust law, cautioned that Europe is known for its aggressive antitrust enforcement and that a case brought against Intel in the U.S. or elsewhere might be milder. The EU fine is "hugely significant because it's Intel, and the amounts at stake are enormous," he said. But "it is known that the commission takes a very hard line on this type of behavior."

The Intel-vs.-AMD fight exposes an ugly part of the business for microprocessors, which essentially are the brains of personal computers. Unlike other parts of the PC industry that have lots of competitors, microprocessors come from only two sources. Intel has about 80 percent of the market, and AMD _ headquartered a few miles away in Sunnyvale _ has the rest. That means a victory for one is a defeat for the other. The process of getting a chip into a computer and onto the shelves has two main steps, and AMD has cried foul about Intel's behavior at both stages.

First, a computer maker has to agree to buy the chips. In that stage, AMD has alleged, Intel has illegally used its dominant position by offering huge rebates to PC makers that promise to buy lots of Intel's chips. AMD argues that the discounts can effectively make some chip orders free, and that it would have to lose money on sales in order to keep up. The case before the European Commission alleges that Intel illegally undermined AMD with computer makers Acer, Dell, Hewlett-Packard, Lenovo and NEC. In AMD's U.S. lawsuit against Intel, set to go to trial next year in Delaware, executives from Gateway complained that Intel's threats of retaliation for working with AMD beat them "into guacamole." The lawsuit also quotes Toshiba officials saying Intel's financial incentives amounted to "cocaine."

Second, chip makers help persuade stores to carry PCs with their processors inside, and pay the retailers to help promote the machines. In the case before the EU, regulators said Intel paid Germany's biggest electronics retailer to stock only Intel-based computers at its MediaMarkt superstores _ even in Dresden, where many AMD chips are made. Kinsella, the specialist on European antitrust law, said "loyalty rebate" programs are common, but become a problem when dominant companies use them. In a similar European case, tire maker Michelin was fined in 2001 over its rebate program in France. Kinsella said the accusation that Intel paid companies specifically not to use AMD's products would set this case apart from others. "If that's true," he said, "that would be pretty far out there in terms of examples of abuse." Investors were expecting the Intel fine and seemed unfazed. Intel stock lost 8 cents to close at $15.13. AMD was up 3 cents at $4.38.

Intel: Antitrust Agencies Are Testing the Limits
EU: Intel Now "Sponsor of the European Taxpayer"

Antitrust regulators around the world, led chiefly by the European Commission, are testing the limits of the law in their pursuit of Intel and its practice of offering rebates to computer manufacturers and IT retailers, Intel Senior Vice President Bruce Sewell said Wednesday. He spoke to journalists shortly after the European Commission found Intel guilty of abusing its dominant position in the microprocessor chip market in Europe, at the expense of its only significant rival, Advanced Micro Devices. The Commission fined Intel a record €1.06 billion (US$1.44 billion) and ordered it to stop handing out rebates to PC manufacturers and retailers on condition of near or total exclusivity. It also ordered the firm to stop paying PC makers to delay the launch of models equipped with AMD chips.

Antitrust authorities in South Korea and Japan have also found fault with Intel's marketing methods, including rebates, and the U.S. Federal Trade Commission (FTC) and New York Attorney General's office are both investigating Intel for abuse of its monopoly position. "Today's ruling isn't against rebates, just the rebates that abuse a market position," competition commissioner Neelie Kroes said during a press conference convened to announce the antitrust decision. It is, she said, a very clear cut case of abuse of a dominant position. "I can't imagine it's unclear what has to stop." But Intel's Sewell said it is very unclear."I am mystified as to what it is we are being asked to change," he said, adding that the ruling fails to distinguish between permissible and illegal rebates.

Intel said it will appeal the ruling, a process that could take several years. And in what appeared to be a rebuke of antitrust authorities the world over, Sewell said: "There's been an evolution in antitrust law and how rebates are to be conducted by dominant companies. We see a line of thought coming mainly from the European Commission -- but also in Korea and Japan -- that rebates can be anti-competitive." "Antitrust agencies are testing the boundaries of the law," he said. Last year Korea's Fair Trade Commission fined Intel $25 million and ordered it to stop paying PC manufacturers rebates in return for excluding AMD chips. Intel is appealing the ruling. In 2005, the Japan Fair Trade Commission ruled that Intel had violated the country's anti-monopoly laws by illegally forcing full or partial exclusivity with five Japanese PC makers in return for rebates.

Sewell said the company settled with the Japanese authorities and escaped being fined after agreeing not to apply certain types of rebates. "In Japan, we were told to stop certain types of rebates which we weren't even using, never had done. Three years on nothing in that market has changed and no one is contesting whether we are in compliance," he said. As for the U.S., Sewell said he read the comments by Christine Varney, the new chief of the antitrust division of the Justice Department "with great interest" and vowed to work closely "with all agencies."

Earlier this week, Varney effectively called an end to eight years of inertia in the department she has taken over. The Obama administration will vigorously enforce antimonopoly laws and work more like the Commission in tackling monopoly abuse, she said. Not one antitrust case was pursued under the two Bush administrations. Kroes welcomed Varney's comments. "They give me a huge positive feeling. The more competition authorities join with us the better," she said, adding she was confident there would be a close working relationship in antitrust across the Atlantic.

Little oversight of AIG before its $180 billion bailout
In the eight months before AIG received a taxpayer bailout that now stands at $180 billion, top officials at the firm’s main federal regulator paid scant attention to the troubled insurer.
Then Office of Thrift Supervision (OTS) Director John Reich and then Deputy Director Scott Polakoff held no meetings dedicated to AIG until a 45-minute conference call on Sept. 15, according to a review of 2008 calendars. The next day, AIG got $85 billion as part of a bailout that has since more than doubled. Overall, a review of calendars for six key agency officials that The Hill obtained under the Freedom of Information Act indicates that AIG garnered little attention from high-ranking OTS officials in Washington, particularly when compared with other firms under their jurisdiction, which were the subjects of many specific meetings.

Five officials, including Polakoff and Reich, had at least 37 calls or meetings regarding Washington Mutual before the bank was taken into government receivership on Sept. 25, 2008. Four agency officials had a total of at least eight meetings about IndyMac before it failed on July 11, 2008. OTS, which is housed in the Treasury Department, contends that top officials did discuss AIG before the September 2008 conference call. “To suggest that calendar entries could begin to reflect the scope of OTS supervision of the institutions the agency regulates is nonsense,” OTS said in a statement responding to a set of detailed questions from The Hill. “Attempting to draw conclusions or infer insights from calendar entries is an exercise supported by scant facts and heavy doses of guesswork, supposition and lack of knowledge of the supervisory process.”

Before this spring, when million-dollar bonuses became synonymous with AIG, the firm was known primarily as one of the world’s largest insurers. At the federal level, it fell under the OTS’s principal oversight on financial issues, and almost six months to the day before that conference call, officials lower down at the agency had spotted troubling signs at AIG. In testimony to Congress on Wednesday, AIG Chief Executive Edward Liddy, who came to the company after the bailout began, said OTS “simply lacked the capacity and the ability to adequately supervise” AIG’s investments in the complicated financial instruments at the heart of the crisis. AIG did not respond to questions from The Hill about how often the firm met or talked with OTS. OTS spokesman William Ruberry said senior agency officials discussed AIG during internal calls and at a series of monthly “regional managers group” meetings and quarterly “high risk” meetings that appear on the calendars.

The agency would not provide minutes or notes to those meetings, however, because they contain “confidential supervisory information,” Ruberry said. OTS did not respond to questions about why agency officials had meetings dedicated solely to Washington Mutual, IndyMac and other firms. Top officials also spent time having lunch with and traveling to talk with heads of other companies, including some not even under the agency’s direct responsibility. On March 7, 2008, Polakoff and John Bowman, now the acting OTS director, went to Charlotte, N.C., where Bank of America is headquartered, for a meeting about the bank. Reich would also call Ken Lewis, the firm’s embattled CEO, throughout 2008. The agency has come under a flurry of criticism for lax oversight and for bending to the will of firms seeking deregulation of the financial industry. Many are now in the wreckage strewn by the financial crisis: Countrywide, IndyMac, Washington Mutual and AIG.

“AIG was pretty much allowed to do whatever they want,” said Rep. Elijah Cummings (D-Md.), who has aggressively investigated the insurance firm. “With this failure to properly supervise, it probably made the problems at AIG worse.” Henry Paulson, President Bush’s Treasury secretary during the period covered by The Hill’s review, recommended scrapping the OTS more than a year ago, before the worst of the crisis hit. Only one of the six key OTS officials and his staff appeared to have had more frequent discussions regarding AIG in the months before the September 2008 bailout. Timothy Ward, OTS deputy director over examinations, supervision and consumer protection, had several meetings regarding AIG in the months leading up to mid-September. In the second week in May 2008, for example, Ward traveled to Bangkok, Thailand, where his calendar indicates he discussed AIG.

According to Ward’s calendar, staff associated with his division also had meetings regarding AIG in Amsterdam, Netherlands; Basel, Switzerland; Bermuda; London and New York. Polakoff has acknowledged OTS could have done more to oversee AIG. In written testimony before the Senate Banking Committee this March, Polakoff said that the regulator “fell short” in its oversight of the risky credit default swaps that contributed to the firm’s downfall. (Polakoff is currently on suspension while officials investigate the agency’s oversight on a separate matter.) OTS set up the Complex and International Organizations (CIO) division in 2004 to oversee large firms such as AIG. But by 2007, government watchdog agencies were concerned the division lacked the necessary resources and specialized skills to carry out its job.

The Government Accountability Office issued a report in March 2007 that found CIO officials were just beginning to draw up a “formal supervisory plan” and were “looking to develop more systematic risk analyses.” March of the following year was a critical time for OTS oversight of AIG. Polakoff said in testimony that OTS on March 3, 2008 communicated “significant supervisory problems” about the firm. A week later, C.K. Lee, CIO’s managing director, sent a letter to AIG lawyers that downgraded the firm’s examination rating. Polakoff testified that OTS had a “progressive level of severity in our supervisory criticism,” regarding AIG’s “risk management, corporate oversight, and financial reporting.” The letter cited a “material weakness” in AIG’s oversight of the firm’s financial products division — the group that expanded deep into the world of credit default swaps. Liddy has said that division functioned as an “internal hedge fund.” AIG is in the process of closing it down.

The March 10 letter requested that AIG submit a “corrective action plan” a month later. That response itself came more than a month late. In May, AIG raised roughly $20 billion, Polakoff said in testimony. And on Aug. 28, OTS reviewed the response and “ultimately accepted” the plan. The AIG bailout began 19 days later. On Sept. 16, 2008, federal regulators committed $85 billion to AIG in the first of four bailouts. Lee was also in transition, becoming OTS Western region director in July. At the same time, the agency shifted responsibility for daily interactions with AIG from CIO to the New York regional office, Ruberry said. After the bailout began, top OTS officials spent more time talking and meeting specifically about AIG. They had more than 25 calls or meetings about AIG after government money started flowing. One of the first of those meetings occurred 15 days after the insurance giant’s initial bailout. On Wednesday, Oct. 1, 2008, the “regional managers group” meeting scheduled at 8:30 a.m. had a specific title: “AIG Discussion.”

Ilargi: Good short video's at HuffPost trying to explain derivatives. Most remarkable may be Julie Satow's statement that since Obama came to power, nothing at all has been done to clean up the mess at AIG, the center of the scheme. Which means trillions upon trilions of dollars in toxicity are left to simmer, waiting for a spark that will set off the big blast.

Credit Derivatives Explained: A Guide To The Economic Meltdown
On Monday, our own Sam Stein offered readers a glimpse into the past, examining the lawmakers and economists who saw, in the repeal of the Glass-Steagall Act, a looming economic disaster. Sam's story gives credit where credit is due -- identifying the key players who got it right. And as we continue to cover the economic recovery, this will continue to be a constant theme here: beating back against the "no one saw it coming" conventional wisdom by honoring those that did get it right, and shining a light on those who, even now, might be getting it wrong. But beyond that, there is also the street-level view of our economic problems, which from my perspective looks like an immensely complicated system that ran aground on a combination of greed and its own unaccountable complexities.

There is, I think, an urgent need to lend more people a more fundamental insight into the ideas and interactions that shape the financial sector of the economy. Yet the conventional business media is still awash in jargon-spewing drones that only too recently indulged in the sale of a bogus boom time that was never supposed to end. Even post-collapse, their reporting is filled with cliquish eye-rolling and facile flash-card analysis. There is an urgent need to simply decode, define, and explain the basics to more people. For while it's one thing to know, for example, that there were lawmakers who fought against the repeal of the Glass-Steagall Act, knowing what the Glass-Steagall Act was enacted to do is another thing entirely.

So rather than take the position that 'the plebes will never understand our divine Wall Street arcana,' we're going to take responsibility for laying out and explaining basic ideas. What's needed to forestall the next economic crisis, in my opinion, is a public that's well-armed with knowledge, about even basic things. And I figured, what the hell, if I can learn this stuff, anyone can. So, we shall be launching a series of videos, featuring HuffPo's Business editor Julie Satow and myself, in which Julie patiently -- VERY PATIENTLY -- explains what happened in the economy these past few years, what the basic terms you hear bandied about mean, what key laws and regulations do, and how the whole thing connects. And hopefully, our readership and commenters can make suggestions, offer insight, and ask questions of their own.

This project is also the first collaboration between the Huffington Post and the American News Project, who have long been dedicated to public-interest journalism, and who have generously agreed to point cameras at me as I struggle to learn. Julie and I shot a two-part pilot episode to begin with, which is posted below and which we hope you enjoy. The topic is Credit Derivatives. Yes, that might not be the ideal place to begin. To borrow from Jarvis Cocker: I don't know why but I had to start it somewhere, so I started there.

Sallie Mae cut to junk by Moody's, slams decision
Sallie Mae was downgraded to "junk" status by Moody's Investors Service, which cited concerns about the big U.S. student loan provider's ability to generate earnings and cash flow after the Obama administration asked Congress to cut subsidies to lenders. Sallie Mae, whose formal name is SLM Corp, criticized the downgrade, calling it "unfortunate" and "premature." Students may obtain college loans by borrowing directly from the federal government or by taking out government-subsidized loans from private lenders. In his 2010 federal budget proposal submitted in February, President Barack Obama called for shifting most of the nation's $90 billion of student lending into the direct-loan program, hoping to save taxpayers more than $4 billion a year. Moody's late Wednesday lowered Reston, Virginia-based Sallie Mae's senior unsecured debt rating two notches to "Ba1," its highest junk grade, from "Baa2." It also cut Sallie Mae's short-term rating to "Not Prime" from "Prime-2."

The rating outlook is negative, meaning another downgrade is possible within about two years. Obama's proposal would end by July 2010 the Federal Family Education Loan Program, which generated the vast majority of the $150 billion of loans on Sallie Mae's balance sheet as of March 31, the company's quarterly report shows. Moody's said abandoning the FFELP would end Sallie Mae's traditional role as a lender in the federal student loan program, and turn the company into an originator and servicer, in competition with other vendors. The rating agency said this could leave Sallie Mae with a lower earnings and cash flow stream that could persist "as profits from servicing loans for the U.S. government are likely to be heavily scrutinized." It said a Sallie Mae proposal for schools to choose vendors, and for vendors to get incentives, may fail because of strong support for the administration's proposal.

Sallie Mae Chief Executive Albert Lord called the downgrade "unfortunate and surprising" given the company's financial health and the fact that the FFELP remains in place. "This seems to us inappropriately speculative and very premature," he said. Last month, Sallie Mae posted a $47.8 million first-quarter net loss applicable to common shareholders as unsettled credit markets squeezed lending margins. Core profit, excluding changes in derivative values, totaled $13.9 million. Standard & Poor's, a McGraw-Hill Cos unit, rates Sallie Mae's long-term and short-term debt "BBB-minus" and "A-3," respectively, its lowest investment grades, with a negative outlook. Shares of Sallie Mae fell 18 cents to $5.24 in premarket trading. They had closed at $8.39 on Feb. 25 and fell to $5.80 the next day, when Obama released his budget plan.

Fear and Looting in America: Innovation or Casino Capitalism?
Every time someone calls for new financial regulations, Wall Street hoists the bloody flag of financial innovation: "If you regulate us, you will stifle innovation!" Every time I hear this, my blood pressure spikes because I know it's a lie but I can't really prove it. We now know for certainty that Wall Street's latest and greatest innovations, like synthetic collateralized debt obligations, have been a disaster. They increased systemic risk while piling up lavish profits for Wall Street traders. And they contributed absolutely nothing to the real economy. I'm now a card carrying Luddite.

"Not so," I'm told by financial pundits. Wall Street's fantasy finance does help the real economy by dispersing risk, reducing capital costs and by making more capital available for investment in tangible goods and services. Those innovations, insiders say, means there will be more plants, equipment, R&D, and infrastructure throughout the country. Even National Public Radio reporters who have boldly investigated Wall Street scams succumb to this mythology. Here's how NPR's Adam Davidson put it during an interview about toxic derivatives that milked five Wisconsin school districts for nearly $200 million:
"Over the last thirty years, there have been a series of financial innovations that have just been plain good. They have allowed city governments, local governments, to get money more cheaply, which means more hospitals, more schools, betters sewers, you know, just basic good public services, and that whole system may be permanently broken by this crisis."

I love his reporting, but I found myself screaming at the radio: "Prove it! Show me some evidence!" I keep hoping that someone will look at the facts instead of assuming fantasy finance is real. Well, finally someone did. Hallelujah! Adam S. Posen and Marc Hinterschweiger reviewed the data and discovered that the dramatic rise in derivative financial products over the last several years did not lead to new capital formation. Furthermore, they found that the new products were traded among financial institutions and not within the real economy at all. As they put it: "There only seems to be a weak link, if any, between the growth of the newest complex -- and now proven dangerous if not toxic -- financial products and real corporate investment."

In short, these innovations had nothing to do with real economic growth. They were new casino games -- a series of financial bets that made Wall Street filthy rich... at our expense. For a while they helped local government get money more cheaply. But now they've cost those same governments tens of millions. That's gambling, not sound finance. So how do we stop the proliferation of what Ben Bernanke called "exotic and opaque" financial instruments? Most government officials believe that careful regulations can tame the excesses without driving Wall Street overseas or stifling productive innovations. George Soros offers a more drastic solution. He wants to ban any derivative product that the average public official can't understand. Now that's a financial innovation with promise.

Eliot Spitzer: Not enough systemic change

Max Keiser on money laundering through Israel

Jim Cramer On Jon Stewart: "One Day He'll Answer For It"
Jim Cramer answered TIME readers' "10 Questions" this week, and while the full questions, answers, and video aren't yet online, a press release reveals that Cramer had forceful words when it came to Jon Stewart. Regarding their infamous head-to-head earlier this year, Cramer said:
No one wants to suffer a beat-down. No one wants to be humiliated or embarrassed. I was shocked at [host Jon Stewart's] behavior. I wish he knew about my background, and I wish he knew about a lot of things that I had done, because I think he would've thanked me instead of attacked me...I think the attack on CNBC and the attacks on me were gravely misplaced. It was rather remarkable in that it was so clear that his goal was to just destroy me. One day he'll answer for it.
Cramer has been vocal about his displeasure with Stewart since their March meeting, but this excerpt is the first in which Cramer implies that he will be seeking payback for the treatment.

Moscow warns of future energy wars
Russia has warned that military conflicts over energy resources could erupt along its borders in the near future, as the race to secure oil and gas reserves gains momentum. A Kremlin policy paper, which maps out Russia's main challenges to national security for the next decade, said "problems that involve the use of military force cannot be excluded" in competition for resources. The National Security Strategy's release coincides with a deadline for countries around the world to submit sea bed ownership claims to a United Nations commission, including for the resource-rich Arctic.

The paper, signed off by Dmitry Medvedev, Russia's president, says international relations in the next 10 years will be shaped by battles over energy reserves. "The attention of international politics in the long-term perspective will be concentrated on the acquisition of energy resources," it said. "Amid competitive struggle for resources, attempts to use military force to solve emerging problems can't be excluded. "The existing balance of forces near the borders of the Russian Federation and its allies can be violated," it added.

The document said regions including the Middle East, the Barents Sea, the Arctic, the Caspian Sea and Central Asia could all be at the centre of competing claims for resources. Russia, the world's biggest natural gas producer, has already accused the United States, with which it shares a small sea border, of coveting its mineral wealth. But Moscow is also finding its control over natural gas exports under threat, as the European Union seeks alternative supply routes that would bypass Russia and the Ukraine. The country is also embroiled in a territorial dispute with Norway over claims to the Arctic sea bed, where around 25 per cent of the world's untapped reserves are believed to lie underneath the ice.

The National Security Strategy also pointed to the US and Nato as major threats to global security. It criticised a US plan to deploy a global missile shield in Eastern Europe, which has already infuriated Russia. "The opportunity to uphold global and regional security will substantially narrow if elements of the US worldwide missile defence system are deployed in Europe," the document said. But it added Russia would pursue a "rational and pragmatic" foreign policy and avoid a new arms race. The document said Moscow would seek an "equal and full-fledged strategic partnership" with Washington "on the basis on coinciding interests".

$12 Billion Withdrawn Before Madoff Arrest
About $12 billion was pulled out of accounts at Bernard L. Madoff’s firm in 2008, according to several people briefed on an analysis of Mr. Madoff’s business records. About $6 billion, or half, was taken out in just the three months before the financier was arrested in December and charged with operating an extensive Ponzi scheme, these people said. Those figures offer a bit of hope for Mr. Madoff’s thousands of defrauded customers. Under federal law, the trustee overseeing the Madoff bankruptcy can sue to retrieve that money from the investors who withdrew it.

Indeed, the trustee, Irving H. Picard of Baker & Hostetler, filed two lawsuits on Tuesday seeking the return of a total of $6.1 billion, which he estimated had been withdrawn over the last decade. One case seeks the return of $5.1 billion from various trust funds and partnerships run by Jeffry M. Picower, a prominent Palm Beach, Fla., investor whose charitable foundation was considered one of the notable victims of Mr. Madoff’s fraud. Mr. Picard also sued to recover $1 billion withdrawn last year by Harley International, a hedge fund based in the Cayman Islands and administered by a unit of the Dutch bank Fortis.

Both lawsuits were filed in Federal Bankruptcy Court in Manhattan. And both assert that the defendants, as professional investors, should have realized that their profits were too high and too consistent — and Mr. Madoff’s paperwork and procedures were too sloppy — to be legitimate. But the complaint against Mr. Picower goes further, accusing him of participating in a web of transparently false transactions with Mr. Madoff that were aimed at compensating him for "perpetuating the Ponzi scheme" at the expense of other investors. In 1999, for example, one of Mr. Picower’s accounts posted an annual profit of more than 950 percent, the suit said. That account was one of two that reported annual returns from 1996 to 1999 ranging from 120 percent to more than 550 percent, the suit said.

In other accounts, backdated transactions generated billions of dollars of fictional year-end losses and one account grew by 30 percent in just two weeks in 2006 — thanks to trades that purportedly occurred months before the account was even opened. A lawyer for Mr. Picower and his wife, Barbara, who was also named as a defendant, denied the allegations. "Mr. and Mrs. Picower considered themselves friends of the Madoffs for over 35 years," said the lawyer, William D. Zabel of Schulte Roth & Zabel. "They were totally shocked by his fraud and were in no way complicit in it." Mr. Zabel added: "They lost billions in personal assets, and most dear to them, all of the assets of their esteemed foundation." The Picower Foundation closed its doors after Mr. Madoff’s arrest.

According to people familiar with the analysis of Mr. Madoff’s cash records, most of the $12 billion that flowed out of his fraudulent money-management operation last year was withdrawn by various "feeder funds," which had raised cash from investors and pooled it to invest with Mr. Madoff. Several of those feeder funds have already been the targets of lawsuits by Mr. Picard, who is searching for assets to be shared among customers who lost what they believed to be almost $65 billion in the Ponzi scheme. It is not clear where the cash taken out of the Madoff accounts is located, or how much of it can be recovered through litigation. In the lawsuit seeking to recover more than $1 billion withdrawn by Harley International, Mr. Picard asserts that the fund should have detected the fraud before investing more than $2 billion of its clients’ money.

According to that complaint, Harley International made 14 transfers out of its Madoff account over the last six years, including $425 million that was withdrawn three months before the Ponzi scheme became public. A spokeswoman for Harley International, Jamie Moss, did not return calls seeking comment. In the complaint, Mr. Picard said Harley International, which invested client money with Mr. Madoff since at least 1996, received "unrealistically high and consistent annual returns" of about 13.5 percent. That outpaced the swings in the stock index on which Mr. Madoff had apparently based his trading strategy. Trading records indicate that the Madoff firm, Bernard L. Madoff Investment Securities, made at least 148 stock trades in Harley International’s account in the last decade at prices that did not match the trading range for those stocks on the dates the trades supposedly occurred.

Mr. Picard claims those trades should have raised red flags for "any investment professional managing the account." The Harley lawsuit is similar to one Mr. Picard has filed recently against J. Ezra Merkin, the New York financier who lost over $2 billion investing with Mr. Madoff. The lawsuit against Mr. Picower mirrors similar allegations Mr. Picard made in a complaint against Stanley Chais, an investment manager and prominent Los Angeles philanthropist. Both investors have said they intend to fight the lawsuits. Mr. Picard has raised about $1 billion in assets for Mr. Madoff’s victims, but the lawsuits filed in the last two weeks could push that number much higher. Mr. Madoff pleaded guilty on March 12 to running the biggest Ponzi scheme in history. He is scheduled to be sentenced next month and faces 150 years in prison.

Sickness of the savers
China’s economy has turned the corner. Government banks have been lending at a rapid rate, factory output is rising again and the local stock market is blazing ahead. But just how quickly the world’s most populous country emerges from the global economic crisis will depend, in part, on places such as the cancer ward of Jingdong hospital in Sanhe, not far from Beijing, and how they treat patients like Cao Jun. Aged 13, Jun was diagnosed a few months ago with leukaemia. His parents managed to get him into the hospital, a Sino-US joint venture, and have been impressed with the level of care. "The doctors and nurses have been very helpful and are doing everything they can to assist us," says his father, Cao Jirui. But Mr Cao now works in part-time jobs after losing his position in a factory and, with little money left, he knows his son will not be able to stay much longer. "My son’s disease is bleeding our family financially dry," he says.

Patients who cannot afford to treat serious illness are an all too common feature of any developing country. But they are particularly important in China for two reasons. The failings of the healthcare system have become a large source of political discontent, the biggest blot on the Communist party’s claims to be substantially improving the welfare of ordinary Chinese. In addition, health insurance has become a central issue in the country’s immediate economic future. For all the signs that China is beginning to rebound, the government has only won half the battle. To return to rapid rates of expansion, the country will need to find new sources of growth to replace stagnant exports, and that means boosting consumption.

If the US economy stored up problems for itself through consuming too much, China has distorted its economy by saving too much and spending too little. In recent years, the savings rate has risen as high as 50 per cent of gross domestic product, including the retained earnings of state-owned companies, and even families with incomes of less than $200 a year still save 18 per cent of their income, according to the World Bank. One of the main underlying causes is the weakness of the social safety net. Many Chinese put a large chunk of their wages into bank accounts because they are worried about pensions, education expenses and – most of all – the prospect of a big hospital bill if a family member falls seriously ill.

Last month the government announced reforms that promise a clinic in every village by the end of 2011 and by 2020 a universal health insurance system that is "safe, efficient, convenient and affordable". The success of this plan could be crucial to China’s medium-term economic performance. "China will not establish a more consumer-based economy until there is a stronger health insurance system in place," says He Fan, an economist at the Chinese Academy of Social Sciences. Indeed, one of the ironies of the current crisis in global capitalism is that China’s recovery – which will have a large impact on how well the rest of the world economy performs over the next few years – partly depends on its success in implementing the western-style social welfare that industrialised countries themselves increasingly struggle to fund.

At the same time, the failings of China’s health system are the dark side of the past three decades of economic reforms. Under Mao Zedong, improvements in healthcare were one of the main achievements. The strengths of the Maoist system are often exaggerated – the "barefoot doctors" sent out to work in villages were often barely educated and poorly prepared to provide medical treatment. But with the introduction of simple antibiotics and improvements in public hygiene, the results were impressive. Life expectancy rose from 35 in 1952 to 68 in 1982. But in the 1980s – when China started reforming its economy – this system was in effect dismantled. Clinics on farm communes were often closed when land was redistributed. In the cities, state-owned companies and other public sector organisations started pulling out of providing healthcare. The government also put less focus on health spending, which fell from 3 per cent of GDP in the Mao era to below 2 per cent by the late 1990s.

China’s health indicators have continued to improve but at a slower pace than in many developing countries that have often not enjoyed such rapid economic growth. A recent World Bank study noted that "China has gone from being an overachiever to being an underachiever" in terms of health improvements. Remarkably, China’s Communist government accounts for a smaller proportion of national health spending than in the US. The result has been to throw responsibility for healthcare on to patients, who pay for about 60 per cent of it. Relative to income, a stay in a hospital in China is more expensive than in any other big country. Over the past few years, a string of government reports have outlined the problems. Researchers discovered that one-third of people who had been told to go to hospital failed to do so – and of those, three-quarters blamed the cost. In a 2005 report, the research arm of the State Council, the country’s cabinet, admitted that efforts to reform healthcare since the 1980s had been "basically a failure".

Problems involve not just the level of funding but also the way the system is organised. Chinese hospitals suffer from the sort of unfettered capitalism that China has criticised so heavily in western banks. Under some estimates, as much as 40 per cent of revenues at hospitals come from profits from drug sales, to which doctors’ salaries are linked. As a result, there are huge incentives for doctors to overprescribe on expensive medicines and tests. The government tries to control drug prices and hospital profit margins but hospitals find ways around the rules. Corruption in hospitals is also a problem, with patients complaining about the bribes they regularly need to pay. The treatment Cao Jun has received reflects some of these problems. He first started experiencing severe fevers two years ago but the clinic in the rural area of Hebei province, where the family lives, gave him only simple medicines. "No one there had any idea that he could have such a serious disease," says his father.

The family have a relative who is a party official in Hebei, through whom they were able to get Jun into the hospital near Beijing, but he cannot stay there forever. "We have been here for nearly a month and there is only so much we can ask of our relative," says Cao Jirui. "When we go back home, I don’t know what we will do." The political and economic cost of these failings has not been lost on China’s leaders. Since they took office in 2003, President Hu Jintao and Wen Jiabao, prime minister, have talked frequently about improving healthcare, and recent months have brought a flurry of announcements about funding and reforms. After last year committing themselves to providing universal coverage for health insurance, last month they spelt out more concrete targets, promising to have 90 per cent of citizens covered by 2011 and everyone insured by 2020.

The health ministry is to introduce rules to try and prevent hospitals from making a profit on drug sales. In rural areas, a fixed salary scheme for doctors is being tried out, taking away the link between drug sales and their salaries. There are also promises of big increases in funding. Spending by the central government on healthcare – which provides a part of the overall health budget – has been increasing by more than 20 per cent in recent years. In January, Mr Wen pledged Rmb850bn ($125bn, £81bn, €91bn) for healthcare reform over the next three years, although it is unclear how much of this will be money that would not already be in the budget – Tang Jun at the Chinese Academy of Social Sciences says that 60 per cent will be new funds but Caijing, a business magazine, reported recently that little of the Rmb850bn will be new.

Big increases in spending would be good news for multinational pharmaceuticals companies, especially at a time when they are under intense pressure in the US. However, basic health insurance is likely to lean more towards generic versions of established drugs rather than more expensive new patented medicines. A large part of the extra funding will also go into building new hospitals and clinics.
For some health experts, these reforms amount to an ambitious and important scaling-up of public healthcare. They point out that the government has now committed to making health insurance a basic right. "The announcements and substantial funding for reforms demonstrate strong political commitment," says Sarah Barber, a researcher at the Beijing office of the World Health Organisation. "There are many pilots ongoing throughout the country and we will probably see major breakthroughs in some regions with sufficient human and financial resources." But poorer regions will find it harder to make progress, she adds. Liu Guo’en, a management professor at Peking University, says it will be "a long process" but adds: "It is a big step forward for China."

Many Chinese economists and health experts are unconvinced, however, that the latest reforms will have any immediate impact on savings habits and on spurring a shift to more consumption.
For a start, coverage under the insurance plans is limited – for rural residents, it will be Rmb120 a year, compared with an average in-patient hospital bill of Rmb4,000. Most local governments provide additional subsidies, especially for serious illness, but patients usually end up with substantial bills. Researchers at Tokyo University, who examined the pilot programmes for rural health insurance, found the impact on health expenditures by individuals only modest. A drawback of the current system – that patients need to pay the hospital up front in cash, being reimbursed only later – will still be in place. That means even insured patients will still need a pot of savings to cover bills.

"I do not think the recently announced measures will have significant impacts on people’s saving and consumption decisions," says Xu Xiaonian, an economist at China Europe International Business School in Shanghai. "The so-called reforms are not really changes to the current system but window-dressing." Moreover, can China afford big new increases in spending? The central government is in a strong financial position but more than half the new money is expected to come from local and regional authorities, which are already are under heavy budgetary pressure from the slowing economy and have little room to borrow. "The good thing about this plan is they have established the aim of covering all people," says Mr Tang at the social sciences academy.

"But people will still face heavy pressure from healthcare costs." The urge to save is likely to recede but will not disappear overnight. Desperate people seek desperate remedies. The site of the latest scandal to expose the problems in China’s health system is a shabby building that looks on to a dilapidated courtyard in a village on the outskirts of Beijing. For the past few years, this has been a makeshift and unlicensed kidney dialysis clinic. The 17 people who used the clinic all faced the same situation: their basic health insurance did not come close to covering the cost of their dialysis treatment. So they clubbed together, bought some second-hand equipment and, following advice from friends and acquaintances, treated themselves.

Sun Yongqin, a 28-year-old from a rural area of Shanxi province in northern China, started suffering serious kidney problems in 2006. She needed dialysis three times a week but the local government health insurance programme covered only a small portion of the Rmb400 ($59, €43, £38) cost per treatment. "These were huge sums of money not covered by the insurance," she says. "My husband and I borrowed money from friends and relatives, but after a few months we had spent all our savings." She came to the makeshift clinic in Tongzhou, which charged only what was needed to keep it going, in late 2006 and was appalled at first by the dirty conditions. "But I was dying, so what else could I do?" The clinic eventually attracted the attention of local health officials and this year it was closed down on safety grounds. Ten of the group are still living in the village but the dialysis machinery has been taken away.

Not all the patients are that upset. Wu Yan, a 35-year-old, says the health system in her husband’s home town in Hubei province has improved a lot in recent years, the result of increased funding. The couple are applying for insurance offered to low-wage families who are registered urban residents. "If we get that, I will be able to do dialysis twice a week for free, which is good enough," she says. But outside the cities, the coverage is much less extensive. Ms Sun, who is a registered resident in a rural area of Shanxi province, says she was given 11 free treatments by the Tongzhou authorities when they closed the clinic, but now that they have finished she has been told to go back home and ask for treatment there. "In my home town, they will pay for only half the treatment cost and that does not cover medicines," she says. "I do not know what I am going to do next."


jal said...

Here are the results.
(In my opinion: A lot of talk meaning nothing. The participants of this blog, eventhough they lack the degrees, are doing a much better job of analyzing and dissecting the financial system.)
Reflections from PI’s economics conference, May 1-4 2009
Lee Smolin summarizes his impressions:
The comment section is not much better than the talks.

P.I. is suppose to be where the brightest minds gather and where thinking out of the box is accepted. Unfortunately, they could not see the “systematic problem” and the “peaks” and as a result missed an opportunity to come up with an approach to a sustainable model for a finite world.
Now, I got to go and finish reading the bad news on today's posting.

getyourselfconnected said...

excellent post as usual. California was on my mind tonight as well and considering the hardball games the public employees are playing and the states willingness to do whatver it takes to keep those jobs and benefits I asked the question:
"Do governments exist to provide services for the citizen taxpayers or do citizen taxpayers exist to provide jobs and benefits for public employees?"

Your answer to that depends on your point of view.

Anonymous said...

Interview with Gillian Tett of the FT on her book "Fools Gold" on the NPR program Fresh Air:

The lady can write and speak in very clear terms about the origins of this mess.

VK said...

Regarding the stress tests that were carried out on the banks. One question that popped into my mind recently is, why haven't the european banks been subject to such tests or asian banks for that matter. Surely the systemic risk is not limited to american banks, it could come from anywhere. What happens for eg if some eastern european country defaults and a western european bank is badly damaged in the process. If it holds substantial assets in the US, then it is very likely to begin selling them of at any price simply to raise capital. This results in huge downward pressure on assets in america and banks will then have accurate mark to market prices. This could well wipe them out as any pretence is knocked right out of them. Since this is a global crisis, the risk could come from anywhere really. The stress tests were a sham to begin with but failing to take into account other large global players is one of the biggest blots on the whole exercise.

Anonymous said...

Sure prices can fall 90% I saw this happen.

Sale History
10/19/2004: $173,000
06/03/1998: $63,000
12/10/1997: $85,492
03/03/1995: $15,000
02/26/1993: $81,500

They didn't stay there long and someone made a killing off that little purchase in March of 95. Seen this movie before.

VK said...

Regarding brazil, wouldn't investing in that country be a good idea? I have very limited knowledge about the history and economy of brazil but they are offering 10% plus returns on their govt bonds. For a country with rich natural resources, a vibrant ethanol based energy industry, a fairly educated population and regional supremacy. It does seem very attractive just like brazilian women and their samba football :-) The country's government also seems quite stable. Sure they are being affected by the global crisis but if we're investing in govt bonds might as well get some decent returns unless the real is expected to collapse versus the usd. So any ideas on brazil from the board?

getyourselfconnected said...

I am of the opinion that if you think the US banks are bad, then their European counterparts are twice as bad as far as leverage and capital cushion shortfalls go. Banking insolvency, its the next big thing.

Anonymous said...

Ilargi hopped into the vista cruiser with this most recent post and provided a view as sweeping as the image gracing today's blog. And I must admit, the view is anything but "pastoral."

Persephone said...

Excellent post today Ilargi!

It's like watching a slow motion train wreck.
Even Prechter is on the front page of Reuters tonight.

Stocks still face deflationary collapse: Prechter
"It's not the start of a new bull market," said Prechter, chief executive at research company Elliott Wave International in Gainesville, Georgia. "Our models are (showing) right now that it is a much bigger bear market than most people realize, something along the lines of 1929-1932," he told Reuters in a wide ranging interview. "It's a very rare event," he added.

"I think the next leg down will be at least as severe if not more severe than what we just experienced. So you want to stay on the side of safety," he said.

Anonymous said...

WTF? From the article "The problem with debt":
"The worst peak-to-trough stock market drop was 1929-1932, when the S&P 500 dropped 86%."

That fizzing sound is the authors credibility. The S&P 500 wasn't back around then. It was created in late 1950's.

A very glaring, and repeated error there. Any Economics geek should've spotted that one.

Anonymous said...

For the article beginning 'Government Grossley...'The graph link is Here

=Shrinking logbog-

Starcade, now from Leviathan said...

Federal troops will be needed to keep any degree of order in California, and it won't be much past this summer.

The state of California WILL FAIL unless something is done to either increase taxes or decrease its population.

There is no other way to put it.

Starcade, now from Leviathan said...


The citizenry exists to pay for government.

The citizenry lives at the pleasure of same.

In fact, the only reason, bluntly, for people to actually "work" anymore is a function of whether you actually believe the system _could_, plausibly, function -- and whether it's worth it (on an individual or collective level) to continue to play along.

That is the reason, bluntly, that they are trying everything they can (beyond all semblance of reason) to save an American car industry (as one example, there are many others) which is long dead. Jobs, such as they exist at all, only exist to keep those who might riot quiet and busy.

Your response to VK: Basically, even those who think we are completely fucked believe that Europe is fucked worse -- and that, really, is the only way one can really believe that the United States (in any form whatsoever) can survive this, because, at that point, if the USA goes, the era of the nation-state is entirely dead. It would be one (world) government, or no government at all (anarchy).

Ilargi said...

Shrinking logbog MAY 14, 2009 9:23 PM
For the article beginning 'Government Grossley...'The graph link is Here

The existing link works fine for me, I see no problem.

Swampfox said...

The nation state is already dead. As if multi-national corporations didn't already hint at the nation state's demise, 9/11 and the int'l war on terror sealed the deal.


Great post. Certainly one of your best from a technical perspective. My favorite is Lord of More. That said, I don't get your socialist leanings. Come on over to the Austrian camp.

Anonymous said...

I believe that you have a slight miscalculation in your housing equity calculation. You state multiple time that house prices have receded 30% from peak and have 40% to go and yet your equity calculation does not reflect this. The following calculation does...
Peak 500,000
30% drop 150,000
Current Value 350,000
40% drop (projected) 140,000
Expected Value 210,000
Mortgage 400,000
Neg Equity 180,000

farewell life as we know it!

getyourselfconnected said...

Starcade (is that an old wrestling title?) I think you have some good points, and it is those precepts that I am trying to draw attention to. We really do not need many (if not almost all) of the "services" the governments offer, but when bled slow and low no one notices. I would wish for some rise from somulence, but you never know.

getyourselfconnected said...

If you have a spare 5 minutes I would be very interested in your 2 answers to the questions I postulated in tonight's blog. Thanks in advance, whether you do or not.

Bigelow said...

Ilargi or Stoneleigh,

There is a very small chance that pre-existing derivative contracts won’t suffer major implosions. The government now wants new derivative contracts to conform to standards via exchanges. At this point do you think that anything will do any good? Banning them all and not bailing them out won’t happen.

Anonymous said...


Yes, working fine now, code was merely missing an 'h' on the http when I tried it. If there is a next time I will just refer any problem to you, likely less confusion that way.

-Shrinking logbog-

chrism said...

I commend Ilargi for the excellent coverage on this blog, but I haven't yet seen anybody provide a solution to our economic woes. The real answer is very elegant, and I think many people understand it intuitively. The answer is to monetize production, instead of monetizing debt. If you value raw material production at parity with the costs of production--labor and interest, there is enough income, through the trade turn, to keep the whole economy solvent. If you install appropriate tariffs, not too big, not too small, you force the economies to other nations to price their production at par with yours. Think about it. We don't have a raw material problem. We still have plenty of that. We don't have a labor problem. We still have a lot of people to do the work. We don't have a money problem. We can always print as much as we want. We have an income problem! Income is production X price. If you don't have the proper price, you need to borrow to make up the difference. And when you create a Federal Reserve System or a Central Bank, you can make borrowing perpetual, and when you do that, you can eventually control all the property and wealth and put everyone in servitude.

If you want to learn more about this, look up Charles Walters book, "Unforgiven" or "Raw Material Economics"

Chris M

Anonymous said...

Russia warns of war within a decade over Arctic oil and gas riches

Starcade, now from Leviathan said...

Swampfox: At the moment, the concept still exists.

With the death of the USA, there will either be only one government (and that will be the NWO One World Government whatever-you-wish-to-believe-in-in-that-regard) or there will be NONE (total rule by the gun, maybe a tribal-level situation, but that's it).

getyourselfconnected: Yeah, it was meant as a tribute to the old NWA Crockett-era Starrcade cards, except that had 2 R's.

The thing is that people have to realize that they are not working _for anything_ anymore. The Horatio Alger myth is GONE. The whole concept of getting an education and getting ahead by hard work and dedication is dead, and studies have shown this irrefutably.

Makes me wonder why I didn't just bust some heads open in high school. If I knew then what I knew now, blood would've run in those halls.

Anonymous said...


About that explanation of derivatives from Huffington Post, I thought each derivative down the line in the derivative chain would be slightly diminished in value and fee until there was a minimal risk to any. In the explanation it seemed to me to be merely a direct whole transfer of the debt down the line. Is that done for simplicity sake or is my picture incorrect.

-waning pond-

Anonymous said...

"Fannie Mae and Freddie Mac, which are nothing but government vehicles to buy your neighbor a home with your money."

Great turn of phrase, pretty much sums up the 'circle jerk'

A breathtaking summary by Ilargi of the creek we are collectively up without a paddle.

Loved the Contrary Investor chart with the snarky note:

"Shall we just say we've broken out of a long term channel to the upside"

Had the median US home Price remained "in the channel" it would have been about 60$billion in 2009, instead of at it's nose bleed 140$billion.

As the young folks would say, "Ya know, like there's no oxygen at 140$b altitude Dude."

It's as if the airplane were all strapped into had it's cabin depressurized at the edge of the stratosphere, instead of the more breathable Troposphere.

I don't see the little oxygen masks dropping down from the overhead to help us regain consciousness.

I wonder if the pilots have their masks on.

Looks like a Very Hard Landing.

jal said...

I like the following:

In what could be a stroke of genius or a costly quagmire, the two government-sponsored enterprises launched programs during the quarter to keep broke borrowers in their former homes, allowing them to rent at market rates after their property has been seized. While Freddie will let former owners or tenants stick around, Fannie will only let renters stay put and the foreclosed home is kept on the market. Fannie estimates there are approximately 1,800 units eligible for the program; hundreds of lease applications are in-process, according to spokeswoman Amy Bonitatibus. Freddie declined to comment on how many renters it currently has or expects to have. But being a landlord is a tough business. Especially when you have very little say in who your tenant is. "It sounds good, but it ignores that there's upkeep and a whole lot of issues involved," said Guy Cecala, publisher of Inside Mortgage Finance. "In some areas rent won't even cover taxes."
Hey! The gov. is taking care of housing “street people” before they get in the street. It’s a new kind of subsidized housing project.

Anonymous said...

"In the explanation it seemed to me to be merely a direct whole transfer of the debt down the line."

That in a nutshell is the core concept of a Ponzi scheme.

Derivatives, when used as instruments of Speculation instead of the original idea as instruments of spreading risk (like insurance) transformed into The Spawn of Satan.

Derivatives in their present malignant metastasized incarnations are all four horsemen of the Apocalypse rolled into one dripping gargantuan monstrous blob.

I'd tell you to run for your life, but as another poster correctly pointed out, there's no place on Earth left to run to.

The Derivative Beast will find you Anywhere, even in the 'Green Zone', it's that big.

Anonymous said...

The Derivative Beast is larger than the entire planet's combined 'wealth' several times over.

Anonymous said...

Jeff Walser, FDIC Economist, Charged With Attempted Bank Robbery

Seems an FDIC economist lost his mind at the utter corruption he was witnessing and decided to just steal money the old fashion way instead of facilitating Timmy Two-Lips and the Goldman Mafia from doing it with the Federal government itself.

Anonymous said...

anon 12:06

"That in a nutshell is the core concept of a Ponzi scheme."

No it is not!

-foaming pondzi-

Anonymous said...

It might be califoniathat is the fuse...if calf. blows sky high...martial law ect then everything else falls into place quickly.Isnt it said everything "starts" in californa?
Maybe the collapse does too...


Starcade, now from Leviathan said...

Anon 0009: I think the latest numbers I came up with basically put the multiplier of derivatives over the entire wealth of the planet at over 25.

Starcade, now from Leviathan said...

Snuffy: I would not put it past -- and, in fact, it's going to have to go down if they want a state of California (in any condition) in 12 months or so.

(I think, more like, come about October...)

VK said...

Starcade which blogs or books do you read which influence your views of insta-doom? Sometimes your views seem crazy but the fact is that society can and does implode rapidly from time to time eg rwandan massacre of 94 or post soviet russia.

Anonymous said...

Starcade which blogs or books do you read which influence your views of insta-doom? Sometimes your views seem crazy but the fact is that society can and does implode rapidly from time to time eg rwandan massacre of 94 or post soviet russia.

Anonymous said...

Chris M:

Unfortunately one premise is wrong - we do not have plenty of resources. Good soil, fresh water, energy, some metals, etc., are all problematic at current levels of consumption.

Stoneleigh said...

This intro is now a diary over at Daily Kos.

Anonymous said...

Would the US government open its borders to allow alien to come in and soak up the excess debt and get the economy moving again?

Just a thought.

MikeB said...

Did Max Keiser just say he wishes 23,000 traders had been murdered during 9/11???

Well, that ought to help out his credibility.

Anonymous said...

"Did Max Keiser just say he wishes 23,000 traders had been murdered during 9/11???

he sais that the people wished that more traders were dead in the 911 fiasco, smarten up!

Freddy el Desfibradddor said...

About the FDIC economist who was arrested for trying to rob a bank -

as I read the story, he was already disemployed, and with no way to pay for his dialysis treatments for kidney failure, he decided to commit suicide with his bank robbery - either by dying during the attempt, or not informing his captors he needed dialysis if taken into custody -

but he lost his nerve

Although he claimed to have a bomb with him, he was lying

A very sad story

Anonymous said...

Max is prone to hyperbole, but his underlying point with that comment is about an accusation regarding JP Morgan and Goldman traders (traitors) actually selling billions of dollars of US Treasury t-bills that they had no authority to sell. Essentially counterfeit T-Bills which can never be redeemed at Treasury because they were never officially issued.

I don't know the details of the charge, but if true, it constitutes an astonishing criminal act and would further seriously undermine the T-Bill at a point in history that would be truly catastrophic.

Talk about a 'bond dislocation'.
Even if it were not true, it could still undercut the flagging credibility of US government debt.

Anybody know more about this story of fake T-bills being sold internationally?

Freddy el Desfibradddor said...

In what could be a stroke of genius or a costly quagmire, the two government-sponsored enterprises launched programs during the quarter to keep broke borrowers in their former homes, allowing them to rent at market rates after their property has been seized. While Freddie will let former owners or tenants stick around, Fannie will only let renters stay put and the foreclosed home is kept on the market. Letting former homeowers [the spelling is intentional] become market-rate tenants is a very reasonable proposal by Dean Baker of the Center for Economic and Policy Research. The advantages in minimizing disruption at the family and neighborhood level are clear, and although the lender has to accept rent instead of trying to re-sell the house, under current conditions they may well be better off.

Anonymous said...

Just the rumor of fake T-bills could sink further offerings.

Just what the Chinese want to hear.

Anonymous said...

Great point Freddy, such a simple common sense answer.

Probably why it will never be taken seriously.

el gallinazo said...

My solution to the CDS "problem:"

1) Make any future use illegal immediately with mandatory max security time upon conviction.

2) Declare all individuals and corporations that trucked in these WMD legally insane and incompetent, and their transactions thus null and void.

3) Declare all pay-offs already made to be returned (with the AIG ones returned directly to the treasury in order to sponsor the weenie roast - see below).

4) Order all bets/premiums returned to the wagerers with prevailling interest.

5) Break up all corporation that trucked in this crap into small bite sized chunks and let them fail.

6) When 1-5 is complete, take all the paperwork involved and use it to fuel a giant weenie roast on the Washington Mall. Start off roasting the Big Weenies (Geithner, Summers, Bernanke, Phil Gramm, Rubin) a la Savonarola. The remaining weenies (all beef Kosher to avoid controversy) can be supplied by the treasury as part of the stimulus.

End of that story.

Anonymous said...

Jesse is up early this morning with this insight :

The Decline of Monetarism: Our Next Financial Crisis

-dividing pond_

Anonymous said...

So many things could sink this market...thats why the bubble will pop soon...

Its interesting that peak oil is on the radar now...folks are starting to collectivly look at all the bullseyes painted on various parts of the body politic,and saying,why yes,this too coul sink MY boat...

One of my wifes children[grown woman]is consitering Brazil,w/her sig. other.He is down there now scouting property w/friends,and making noises like a long term move.As they neither speak portugese,I don't know how well thought this plan is...we shall see.
Heres the big question.When,do we,colectively,get the "Willi E. Coyote"moment?.The time/moment it is clear to the most casual observer that...

"We're not in Kansas anymore,ToTo."!?

And things start to fly off in strange directions...
When?,I wonder..
time to work..


jal said...

Why are 6 insurance co. now taking TARP?
We have just barely started the disaster seasons with a fire in Cal. and a couple of tornadoes in the M.W.

Tripwire said...

Peak 500,000
30% drop 150,000
Current Value 350,000
40% drop (projected) 140,000
Expected Value 210,000
Mortgage 400,000
Neg Equity 180,000
And let's not forget:Combined principal and interest on a $400,000 mortgage loan @ 6% over thirty years (i.e. the actual price to eventually be paid for the property):

*Tax deduction will vary
*Does not include property taxes and maintenance

jal said...

My turn to play with the numbers.

I have $1,000,000 of assets, (real estate), generating a revenue of 10%, ($100,000).
You come along and say that those assets are only worth $500,000, (50%).
My revenue from those assets are still $100,000.
Gee! That means that I don’t need to change my way of doing things.
Now, my assets are generating a revenue of 20%. I’m doing twice as good as before. ;-)

el gallinazo said...

Re Max Keiser

When he said "hundreds of trillions" in counterfeit treasuries, I had to rewind. I wish he had supplied more details. At a few percent of that number, they would certainly have enough to completely control the major indices. We will never know the percentage of the suckers rally which is herding and which is manipulation. My feeling is that TBTB can pop it anytime they want but I think that they will try to get the S&P over 1000 before they (my mental image is of the roadrunner) hit the (Acme) plunger.

Tripwire said...

* And, doesn't include down payment, if any.

The decision whether or not to walk away also largely depends on:

1. Ability to continue to make payments, and
2. Inflation (cannot be known)

If one doesn't like the property, or hoped to sell before the end of the term, then one might be inclined to walk away. If one plans on staying there for 30 years, inflation could eventually catch up and, if wages keep pace with inflation, some nominal value could remain, but how much exactly is impossible to predict.

Seems to me the smart thing to do, as our hosts have suggested, is to wait out the downturn and then pay cash.

el gallinazo said...


Are you serious or just being facetious?

el gallinazo said...


What happens when "the international bond market says 'no mas?'" You have both often referred to this as the game stopper.

Please give your best predictions of how this will play out over the months. Specifically in regards to forex, interest rates (treasury, corporate, and personal), money and credit supply, and cost of living.

David said...

"Heres the big question.When,do we,colectively,get the "Willi E. Coyote"moment?.The time/moment it is clear to the most casual observer that..."


The moment that U6 tops 25%.

People will realize, "Oh sh*t, wasn't that the unemployment during the Depression? Wow, maybe we REALLY ARE in a New Depression now!! Maybe, we, uh . . . uh . .. should DO something about it!"

Of course, at that point unemployment will actually be north of 30%, and the two-thirds of Americans that still have jobs will be too frightened to really do anything but hide under the covers.

D. Benton Smith said...

re: Max Keiser

To say Max Keiser is prone to hyperbole is like saying Socrates was prone to loaded questions.

Max Keiser is the MESSIAH of hyperbole, yet doesn't actually indulge in it himself.

All he really does is tell the audience what it already knows but is afraid to articulate. And you gotta love that BORED 'give me an effing break!' laconic delivery.

His genius is in knowing that to audiences who are habituated to hearing only tortuous lies, public domain fact SOUNDS so inflammatorily dangerous!

Max Keiser is to spin as MRSA is to penicillin. A one man pandemic. I hope the world catches it.

el gallinazo said...


Except for Native Americans, all our ancestors picked up what stuff they could carry, said good-bye to friends and relatives, and headed here for grander pastures. Tough call. My father came to the USA at the age of 7 from Austria speaking no English. His family was starving from the postwar blockage. When he left, there was not a cat or dog on the streets of Vienna. He would talk about eating government issue bread that was mainly sawdust. He came to the USA in 1921 and at the age of 17 entered the Great Depression.

Regarding your step-daughter, who knows what the right move is? Stoneleigh is certainly correct that staying within the nexus of friends and kin is a really big factor in the staying put side of the ledger, but there are so many other factors. Orlov also sees this as very important in relationship to security. OTOH, Orlov might say that the Greater Depression in parts of Brazil might be like falling out of a second floor window, while in NYC it might be like falling out of the sixth floor.

jal said...

el gallinazo said...

Are you serious or just being facetious?
Who me???
Since my portfolio is outperforming yours then I should get a larger bonus. ;-)

Anonymous said...

I'd like to hear more thoughts on the notion that many securities are 'counterfeit'. In the broadest sense, the epidemic of non-delivery of a variety of 'traded on a promise' securities that never show their pointed little heads is a form of counterfeiting.

As in, yeh those future contracts you bought, well, uh, they're in the mail, yeh, that's the ticket, they're in the mail, why didn't I think of that earlier.

There are many 'investment vehicles' that just "forgot to show up at maturity."

It's not thief or fraud. They're just sitting on cinder blocks somewhere ;>)

Anonymous said...

Apologies to Frank Zappa.

"Is that a Real futures contract or is that a Sears futures contract"

Ilargi said...

"getyourselfconnected said...
If you have a spare 5 minutes I would be very interested in your 2 answers to the questions I postulated in tonight's blog. Thanks in advance, whether you do or not.
MAY 14, 2009 10:30 PM "

GYC, I'm sorry, but I don't think I know exactly what questions you're referring to. Also sorry that I missed this question; it's a bit much at times.

el gallinazo said...


"Who me???
Since my portfolio is outperforming yours then I should get a larger bonus. ;-)"

I doubt that is correct. I still have almost doubled my non T-Bill speculation money since the "crisis" started. As to your bonus - I am sure you are deserving. Perhaps you should speak with Liddy or Twolips?

Anonymous said...

"What happens when "the international bond market says 'no mas?'" You have both often referred to this as the game stopper."

Imagine finding out the millions you hold in T-Bills are fake.

It's insult upon injury. You weren't sure they would be worth much if they were 'genuine'.

Reminds me of a holiday dinner where someone brought 'artificial margarine'. My brother in law says,"Hey, wait a minute, I thought margarine was artificial butter, what does that make this stuff?"

Submit your advice said...

FWIW I closed my RIG short today for a tidy bowl o' whack. I think with the market this crazy the rules of 1. short term 2. strictly fun money and 3. only ducks in barrels should apply. Everything else is too scary.

Anonymous said...

Keiser has to be more explicit about these hundreds of trillions of counterfeit US treasuries he claims were passed off by the investment banks. Since treasuries are almost money, this number seems really unlikely. If it is true, then Justice will have to prosecute and the Treasury treat the bonds as they would any counterfeit currency, otherwise the whole country goes down in flames. TAEers buying their bills from Treasury Direct could not get counterfeits.

Anonymous said...

I agree, Max K needs to greatly expand on this bogus T-Bill issue. It is very dangerous if even partially true.

Anonymous said...

say i buy a house for $200,000...

say the appraised value shot up to $275,000 while i lived in it for 5 years...

this +$75,000 is considered equity--- imaginary money...

say the market sours and the value drops to $150,000...

now my equity is -$50,000... again- imaginary....

if i don't sell- i don't lose anything... if my payment is fixed, what exactly is the problem?

everyone, everywhere will be in a very similar situation... if things descend to the doom level that i have imagined-- who in the hell is going to be kicking you out of your home?

i think all the old rules fly out the window in the scenarios presented here and in panzner's book- financial armageddon....

i think it would be wise to get into a home at these interest rates-- and stake your claim- know your neighbors- grow your food- and be ready for the worst...

i don't think anyone is going to be taking anyone's home in the coming years....

VK said...

What makes us happy?

An interesting read on a longitudinal study done by Harvard from 1940's till present. It followed around 270 men including President John F Kennedy and their mental well being and progress through life. The results are quite interesting and startling.

One interesting point I found was that to be loved is difficult.

el gallinazo said...

Anon 2:22

"if i don't sell- i don't lose anything... if my payment is fixed, what exactly is the problem?"

The problem is that because of the collapse of the economy you will probably be unemployed or, if employed, earning a small fraction of what your mortgage monthly payment was based on. But your monthly payment remains fixed. Due to deflation, your real, as opposed to nominal, monthly payment has gone up hugely.

As to doubting the foreclosures because everyone is in the same boat, perhaps a bit of reading of what went down in the '30's might change this tune. There was civil disobedience that interfered with evictions then to be sure, but it was the exception to the rule.

Mike said...

A wild ass guess on my part would be so many people would be defaulting.. the banks will lose out to the local townships and the state.. if you can pay your taxes.. you can stay in the home.

No sheriff will toss you, his job might be dependent on you paying your local tax, he might think, screw the bank, pay your tax and you can stay.

This has been a tough one.. I plan on staying and not selling and dealing with my mortgage which is about the amount that I would be paying in rent locally (with the still in place Fed mortgage tax deduction which is sure to be slammed shut soon).

I will just lose the option of "cashing" out any equity that I may have acrued over the past 12 years as we know this will soon continue to crash.

My neck of the woods on Long Island has not seen the cascading of events that Cali, Nev, NM or Fla has seen, but it has taken a pretty sizable 20% reduction in the past 9-12 mos.

I think I would rather sit tight right now, deal with my mortgage payment, "hope" I keep my engineering job and pay my local real estate taxes while I can. But I've had better plans. I wish I found I&S and TAE a helluva lot sooner than 9 mos ago. I am in crash anlysis mode, 24/7.. my wife can only handle so much scenario madness per day.

There are 5 of us in our family, so I like the idea of trying to keep some piece of property and knowing my neighbors "somewhat" to do some very small gardening.

I feel like it might be too late to move closer to family and start over with learning new neighbors and a new house and the problems those will possess.

If I sell, then rent and cram all 5of us into a 2 or 3 bedroom apartment as I wait for the sky to fall, I am concerned about "stashing" my new found equity position in a bank doomed for failure, or short term T-Bills which could also be doomed for failure. I would have no assets to fall back on at all, even a leveraged asset that the bank could theoretically control in TSHTF time seems like its better than none at all right now. If I&S are right and we see 80% off the peak, I hope I can stay above water on that disaster scenario.

Although Gold is a nice option, I do not plan on unloading my whole equity position in Gold, I feel queasy about staying in that position 100% as well.

My quasi-hard asset is my house, although not completely debt free, the chaotic nature of the uncoming shit storm makes the next move a difficult play.

I would hope that if TSHTF CONgress would allow me and my wife to crack open our accumulated 401ks and flip them to the mortgage payment, but that seems like a very hopeful position, I know better than to think the 401k money is mine as much as SS will be mine in 20 years.

Storing some food, keeping no credit card debt, working on the garden, buying a few bartering assets and waiting for the sun to come up tomorrow.

Time to listen to some Richard Thompson and wait for the new TAE post.

Starcade, now from Leviathan said...


This one.

Ticker Forum.

Some of Survival Blog.

And then I just look at one simple conclusion I came to a number of years ago: The numbers required to keep the engine going DO NOT ADD UP.

Functionally, on Tuesday, the voters of the state of California will vote on the survival of their state. The actions which will be required when (and I do not believe any of the propositions will pass) the propositions fail will require California to expel a significant number of people from the state if they want it to survive.

You may think I'm off the wall, but keep in mind what I just said before your response: The entire wealth of the world is not 1/25th of the amount of the derivative mess on which everything is built here.

Anonymous said...

“The other Fannie Mae fraud is the simple bond certificate counterfeit, just plain paper printing without bother of Wall Street involvement. That fraud helped to run up the total Fannie Mae fraud past the $1 trillion mark. Given the sleazy guys who ran Fannie Mae, and all the protection run for it by politicians averse to reform, the fraud was quite easy. Who would want to question a shiny Fannie bond, a device which powered the great housing boom?”
Breakdown Approaches Climax

Anonymous said...

'The Worst Is Yet to Come', - commentary and video Jesse's Café Américain

-Jesse' cool contrasts nicely to a video of, ranting raving and rocking, Howard Davidowitz.

illuminated Pond-

Starcade, now from Leviathan said...

Re: The unemployed bank robber

There are so many people for whom this will be the future. Either they're going to have to rob someone, die hungry, or be taken out in the attempt. Another way I truly believe TPTB wants the herd culled.

Re: "Homeowers"

Has anyone ever seen to consider that the whole purpose of these "mortgages" was simply not only to subjugate the people to the slavery of bad credit, but also that the "loans" were nothing short of rent instruments anyway??

Anon 0928 Re: Fake T-Bills:

The USA will default. All the T-Bills are now, essentially, fakes (except the very short-term instruments -- and I think that's one of the reasons that this kind of stuff really _could_ take place.

Think: Just what is "the good faith and credit of the United States of America" anymore?

el gallinazo:

The only problem with your CDS solution is the same problem Denninger has with his solution of locking up all the people who were complicit in all of this.

There would be no US companies left of any real circumstance, and there would be no US government left of any real circumstance. You'd end up with about a handful of Representatives, maybe a Senator or two, and no Cabinet or Administration at all.

snuffy: I think part of the reason the others are seeing bullseyes on the body politic is that those bullseyes are on _THEM_.

el gallinazo Re: Max and the trillions in fake stuff:

He may be talking about the CDS/derivative swap market.

David: And, at the rate things are going, U6 at 25%+ is not that far away. We're already at 15.8 (20% if you actually use the formulas which used to be used...)

We're already at the Wile E. Coyote moment of off the cliff. When "Wile E." looks down is when the first real social unrest hits the table because the system can no longer be sustained. The results, then, become rather immediate.

Starcade, now from Leviathan said...

Anon 1422: Two points:

1) The real problem, for a lot of people, is that, because the entire economy revolved around people who cannot live without their cars, vacations, plasma TV's, etc., people used that +$75K for the above.

Remember: Order can only be kept when enough people have enough incentive to play along.

2) Who in the Hell is going to be throwing you out of your home? I can think of a military force (or military-like force) having the authority to do so -- and throw you into a slave camp on top of it! -- real soon.

VK: Re: "to be loved is difficult"

People care more about their affiliations than their principles. And they don't tend to gravitate to people who do not believe the same things they do.

Like begets like.

Anonymous said...

anony: "Anybody know more about this story of fake T-bills being sold internationally?"

Heck of a story, all right. Wish I did know more. Jim Willie claims to know more, but even in his subscription newsletter he's heavy on the dark hints and light on the legal exhibits. I'd ignore him, if only he didn't make sense so darned often.

gallizano: "When he said "hundreds of trillions" in counterfeit treasuries, I had to rewind. I wish he had supplied more details. At a few percent of that number, they would certainly have enough to completely control the major indices."

That's also a heck of a story. At this point I'd pay good money for a list of indices that aren't being controlled through OTC trading. Srlsy.

anony: "I wonder if the pilots have their masks on."

:-) And of those who do, I wonder how many have jumped.

Reluctant Poseidon Hamster

FB said...


Just read the 10 May issue on the failure of the economic system and the end of growth. Always very sobering to see such words spelled out clearly. I also wonder who really has a grasp on the implications.

With a friend on Sunday, I gave a 90-minute presentation, with a significant amount of supportive data, on the crisis (primarily finance and energy, very little on the environment) during the national congress of the French Esperanto association.

Esperantists are interesting people because they are generally intelligent (almost all multi-lingual) idealists confronted on a daily basis with the harsh reality of all of past history, i.e. the dominant language is that of the current power. So they are accustomed to having to think outside the box and I thought it would be interesting to see how they react to the information my friend and I supplied.

I was not disappointed. They understood. Not a single person in the room of 60 expressed any doubts about the validity of our arguments and two or three even added to the eco/fin information I supplied.

But, I also had the impression that they did not grasp the consequences for themselves, in their own lives. That is probably normal, because I am not sure that I grasp the consequences myself.

The discussion was thoughtful, substantive, productive, but we might as well of been talking about life on another planet. Nothing has hit home yet.

I wonder how long that will last.


el gallinazo said...


"At this point I'd pay good money for a list of indices that aren't being controlled through OTC trading."

Where you gonna find good money? If you tell me, I'll keep it secret.

VK said...

From the What makes us happy article,

"For 30 years, Denmark has topped international happiness surveys. But Danes are hardly a sanguine bunch. Ask an American how it’s going, and you will usually hear “Really good.” Ask a Dane, and you will hear “Det kunne være værre (It could be worse).” “Danes have consistently low (and indubitably realistic) expectations for the year to come,” a team of Danish scholars concluded. “Year after year they are pleasantly surprised to find that not everything is getting more rotten in the state of Denmark.”"

Aaah, Denmark sounds like my kind of place!

Ahimsa said...


I must be Danish ... :)


Thanks for the informative articles. I'm still learning about derivatives... :)

Anonymous said...

gallinazo: "Where you gonna find good money? If you tell me, I'll keep it secret."

I borrowed it from you.

Reluctant Poseidon Hamster

el gallinazo said...


I wasn't being personal. The good money thing was just referring to all the major currencies seeming to be going down the toilet.

Anonymous said...

gallinazo: "I wasn't being personal."

Totally got it. I was making the follow-on joke. i.e.:

"My money's not good, but I borrowed it from you, fellow taxpayer. So let's keep the hard-money panic on the down-low, 'k? Ontday elltay inachay."


Reluctant Poseidon Hamster

Anonymous said...

October 26+/- - Another Web Bot Hit Shapes Up“Oh-oh. Here we go again. Calendar watch time. I can't remember how long ago I told you to put a circle on October 26th (plus or minus a week or so) but that was when Iran would be attacked but oh, my frigging goodness, have you see the "Report: U.S., Allies Put October Deadline on Progress from Iran"?

This is all starting to become almost 'other-worldly' too clear to me: Markets will come down over the next couple of weeks to the high seven thousands on the Dow, we get one more pop up to the 9,600 level. The 'troubles' socially come to visit France and then the U.K. And then here in the U.S.

The n we get the bombing of Iran by Israel in late October, about which time, the U.S. government will be contemplating use of its 'continuity of government' plans due to social unrest brought about by (what else?) economic collapse. And that in turn sets a 4-week temporal 'timer' that brings us to the part where South Korea receives a nuke or two from the North. And then things get bad.
Now, whether this all works out precisely doesn't really matter because the meme - thought virus if you will - is out and about. And that in itself is curious to know about in advance.

Oh, and it means Elaine and I already have our NIOSH P100 full-face masks. The dust going global by early November threatens to cross from the conceptual to the physical layer of life. Like we need it. For more on this boundary between layers, see today's "Coping" section.”

Ilargi said...

New post up