Coal miner at end of the day's work
Montour No. 4 mine of the Pittsburgh Coal Company near Pittsburgh, PA
Ilargi: Two consecutive US governments, both with economic teams led by "alumni" from Goldman Sachs and other Wall Street firms, have put $23.7 trillion in US taxpayer money at risk to rescue their former -and often future- employers. This has bought the main banks the chance to be left intact for a while longer (but only for a while), because the only thing people now can see is the veil the banks hide behind, the most costly layer of veneer in history.
The ratings agencies, as we are now finding out, will also be allowed to continue as they were. So if they can fool enough people into thinking the recession is over, and it's time to get back into the market or you'll miss out on all matter of grandiose opportunities, there's nothing to prevent another round of securitizing more purchases their buyers can't afford. These buyers, if you look behind the veneer, are in fact borrowing their neighbors's money for their purchases, without ever having gotten -or asked for- the neighbors' permission.
A government that feels it has the moral right to confiscate and then lend out their citizens' -potential- future income, in order to make sure the utterly and irredeemably bankrupt banks which its executives have strong incestuous links to, may survive, it's all of it quite a spectacle.
If we would read similar tales about civilizations long gone, if stories like these were told in books about the Mayans or the Greeks, we would shake our heads and count ourselves lucky that we were not living in such crazy times. But we do live today, and we somehow have come to see it as normal.
We accept the madness because we are addicted to promises of riches and recovery, because we are afraid to lose what it is we have. The further away the recovery, the crazier the stories must become to keep the addiction alive. Well, the stories can't get much more insane than the ones we are fed today, and we still believe them. And if someone says it's getting too crazy now, that this just won't fly, we accuse them of abandoning all hope, in the same vein that any faithful flock will claim their god defies explanation.
"No recovery in California until 2011", says one of today's headlines. But that is not what is happening. California will never recover. The best it can now hope for is perhaps a semblance of tranquility years down the line. There will be thousands of miles of non-maintained blacktop in the after all not so Golden state soon, water systems will start sputtering, sewage systems will clog up, and garbage removal will be a hit and miss at best in many places.
The state will have to defend its actions in dozens of courtrooms, which will in all likelihood make it ungovernable. And what happens today in California will very soon spread to most other states in the US (47 of whom have serious budget problems, and fast dropping revenues), and to many countries elsewhere on the planet. 99% of all government budgets rely on far too rosy predictions of tax revenues and other sources of income. They're all accidents waiting to happen.
We started saying years ago that these things would happen, and they're here. States, counties, municipalities, they're all falling apart all over the place, and there's no way back for them in their present forms.
It's time for reflection for everyone. And it's high time for those of us who still can, to go look after the weakest among us, the people their governments don't care about. There is one voice in America who registers them better than any other. Joe Bageant:
"There's no time for rigorous scientific analysis. Nor need.
We can see the guy next door who's drinking himself to death because, "I never did have a good job, just heavy labor, but now I'm all busted up, got no insurance and no job and it looks like I'll never have another one and I've got four more years to go before Social Security."
He doesn't need scientific proof. He doesn't need another job either. He needs a cold beer, a soft armchair, some Tylenol PM and a modest guarantee of security for the rest of his life. Freedom from fear and toil and illness.
And furthermore, Sister, we cannot see much evidence that other, more elite people's scientific analysis of our lives has ever benefited us much. When you're fucked, you know it. You don't need scientific verification."
These people are today's reality. Your reality. Obama and Bernanke and Lloyd Blankfein are not. At best, they're their own reality. More likely they’re as fake as their promises. Posers.
America's White Underclass
by Joe Bageant
When seeing ain't believing, somebody's blind
"We're starting to hear a little discussion about the white underclass... Mainly because so many middle class folks are terrified of falling into it."
"White underclass" is a term I've used often in my writing, and most American readers seem to know what I mean. They've got eyes and live in the same nation I do. But in a sudden burst of journalistic responsibility, I decided that if I am going to throw around the word underclass, then I should offer some clearer, perhaps more scientific definition.
So I started writing this with a pile of published research papers before me. Now they are in the trash can by my side. Looking down on them, I can see the gobbledygook titles, the stuff of which government policy and political platforms are made. They run together in slurry of the language of our society's commissars: Concerning-Prevalence-Growth-and-Dynamics-Concentrated Urban Poverty Areas- block-level vs. tract-level segregation-800-tract-tables-urban abstracts-Defining-and-Measuring-the-Underclass-from-The Journal of Policy Analysis and Management-statistical-summary-of…
What I find is that nobody in social science seems to agree on the term, or, being firmly placed in the true white middle class themselves, even agree if such a thing as a white underclass exists. You can't smell the rabble from the putting green. To others, some blacks for example, the term white underclass is an oxymoron, or maybe yet another new white social code word to be deciphered. I can't blame them for their wariness. You have to be an American to even get these code words. For instance, for all practical purposes and to most Americans, regardless of race, the term "middle class" means "white." Plain and simple. We all know that, even members of the "black middle class."
Middle class also has implications of people's occupations, usually white collar occupations, though it also includes some of the ever thinning ranks of blue-collar workers. But this comes down to describing human beings solely in terms of their jobs in the capitalist labor marketplace, and assumptions about income and whether one takes their daily shower before they go to work or after they come home. By that definition, anyone of working age who doesn't have a steady job of the right type, for whatever reason, is in some sort of "economic underclass."
In other words, they are the people that middle class folks feel should damned well be working, if they are over age 18 and have a pulse. ("If I gotta do time in this meaningless workhouse of a nation, you do too!") This underclass includes any people of color seen on the street at midday during the week, single mothers, and paraplegics too, now that the middle class is paying taxes for handicap parking spaces and wheelchair access to the public shitters.
Another way we define underclass is as "losers." People who cannot talk, think, or act like middle class professional and managerial workers, people who cannot even be posers. There is absolutely no excuse for these people. We've got television 24/7 to show'em how to behave. They could learn to act like the blue collar workers we see on the endless reruns of The King of Queens (an American sitcom about a parcel service delivery truck driver.). They could at least be funny and amiable fer godz sake.
From reading the studies, I can see that social scientists dislike plural nouns, and thus shun the word losers. So they call this the "educational underclass." Either way, it comes down to folks too wooly and uncurried for office water cooler society. Nobody is denying that they all should have jobs, of course, just nowhere near the water cooler.
Yes, eight to eighty, crippled blind or crazy, Americans generally agree that every man or woman in America should have a full-time job, except those women who manage to snag a wealthy man. They are exempt, as are the middle class commissariat's own beer guzzling spawn keeping the pizza delivery and the all-night video arcade businesses thriving in college towns across the republic.
Then you've got your moral underclass. Like the rest of us, they come in two major varieties -- male and female. Females who don't bother to get married before they have babies (the non-technical term is "welfare sluts"), and men who have things more serious on their national police state blotters than a parking ticket. "Non-mainstreamers," in socio-demographic speak. Many of these are men who say, "Screw it, I ain't gonna even bother to work my ass off and be treated like dirt for six bucks an hour. I'd rather shoot pool." Me too.
The unwed mothers come in two varieties. There are those who decide they want children, but are choosy about the husband that traditionally comes with the deal. And there are those who are so young and naive due to cultural circumstance and environment they do not know what this country does to, not for, single mothers. They often find themselves working at least part time (workfare), yet permanently institutionalized into poverty by our social services industry, instead of being lifted out of it. More than 45 percent of U.S. single mothers are poor, compared five percent in Sweden and Finland, where no stigma is attached and substantial public resources are applied to child health and development. But research done in Europe shows that even if U.S. women had a zero rate of single motherhood, poverty among American women would still be higher than in European and other socially advanced nations.
Armchair sociologist that I am, I have a theory about this: Millions of American women are in poverty because they are paid poverty wages. I could be wrong, I often am, but there seems to be a connection between poverty and money. I started developing this theory when I was in a Melbourne, Australia hotel and learned from a single mother hotel housekeeper there that she made $19 an hour, had government assisted childcare and was going to college at night toward becoming a medical technician. Hmmm Over here we tell single mothers, "Get a six dollar an hour job or get married bitch! Workfare, baby, workfare." Then too, contrary to the American middle class belief system, out-of-wedlock babies are increasing at all levels of white American society. Even more contrary to popularly held notions, as many of these children turn out to be as well adjusted people as do children of the middle class. But for damned sure poorer in most cases.
And finally we have simple snottiness as a line of underclass demarcation -- one's manner of physical gesture or accent. Believe me from personal experience, a Southern accent in America is no ticket to the top. But even with a Southern accent, if you talk like a college grad, don't wear bib overhauls or gang banger gear, and appear to know where South America is on a map, Americans will deem you middle class. Actually, if you smile a lot, and sound like any sort of white customer service type, it will fly. It's called having the appropriate social and cultural skill set. Yeah, right, appropriate to be hired as a telemarketer so you can piss people off by interrupting their dinner hour.
But even if you gather aluminum cans from dumpsters for a living, with effort, you can "pass" like light skinned black folks used to do in this country. As testimony to this, I, who am a high school dropout with a Southern accent, have successfully managed entire magazine publishing groups for a living. (The secret is balls). If I'd been black or Hispanic though, I'd have been distributing the urinal cakes in the rest rooms at night. So yes, there is a slight edge to whiteness, though not nearly as much as minorities assume. Still, you gotta make the most of that little edge.
In the end, race, gender or sexual preference are just moving parts of the class machine, with middle class perceptions setting the standard. You can indeed be black or queer, but with the properly buffed patina of white middle class mojo you can make it to the top, or near to the top of the heap (in America, proximity to the top of our cultural garbage heap is everything. All the rest of us are mere consumer refuse, as the Michael Jackson Morbidity Festival demonstrated.
You can even be celebrated as an icon of diversity if you act white and middle class enough. Obama is Harvard white guy enough, Ellen DeGeneres is going strong ten years after coming out, gay Congressman Barney Franks still gets reelected. They've all got white middle class mojo. Al Sharpton on the other hand, has cootie mojo. (Tip for Al: They need golf cart drivers at the Congressional Country Club. A year of that and you'd know all you need to know about the white mojo shtick. Because you can watch Obama play golf there).
When it comes to the underclass, there is no arguing that some people are members because they are so damned uneducated they cannot count their toes or read well enough to fill out a job app, the causes of which are too deep and tangled to go into at the moment. Others just don't care to do the smiling grammatically correct wimp assed customer service zombie thing. They prefer swinging a bigger hammer than that -- doing real work, like America used to do. And doing it without kissing ass, which is why they are called the "permanently jobless."
As sociologist Christopher Jencks points out, "There is no absolute standard dictating what people need to know in order to get along in society. There is however, an absolute rule that you get along better if you know what the elite knows than if you do not." He also cautions that "the term underclass combines so many different meanings that social scientists must use it with extreme care."
Which is fine. But I'm no social scientist. If in my travels and experience in American life I see tens of millions of Americans being screwed silly by a handful of chiselers at the top, or if I see one percent of Americans earning as much annually as the bottom 45 percent of Americans, then that 45 percent is an underclass. When I see a 70 year old man on his second pacemaker limping through Wal-mart as a "greeter" so he can pay at least something on last winter's heating bill this month, then he is part of an underclass. When I see the humiliated single mom waitress tugging downward on the ridiculously short red plastic skirt she must wear at the Hooter's type joint so her crotch won't show, she's part of an underclass of humiliated and socially oppressed people. Screw the hairsplitting about who qualifies as underclass and what color they are. Just fix it. Or reap the consequences.
We're finally starting to hear a little discussion about the white underclass in this country. Mainly because so many middle class folks are terrified of falling into it. Frankly, I hope they do. We've got room for them. All the lousy, humiliating jobs have not yet been outsourced. The Devil still has plenty for them to do down here.
Call all of this anecdotal evidence. You won't be the first. I was on a National Public Radio show last year with a couple of political consultants, demographers as I remember. One, a lady, was obviously part of the Democratic political syndicate, the other was part of the Republican political mob. The Democratic expert said dismissively of my remarks, "Well! Some people here seem to believe anecdotal evidence is relevant." Meaning me. I held my tongue. But what I wanted to say was this:Sister, most of us live anecdotal lives in an anecdotal world. We survive by our wits and observations, some casual, others vital to our sustenance. That plus daily experience, be it good bad or ugly as the ass end of a razorback hog. And what we see happening to us and others around us is what we know as life, the on-the-ground stuff we must deal with or be dealt out of the game. There's no time for rigorous scientific analysis. Nor need.
We can see the guy next door who's drinking himself to death because, "I never did have a good job, just heavy labor, but now I'm all busted up, got no insurance and no job and it looks like I'll never have another one and I've got four more years to go before Social Security." He doesn't need scientific proof. He doesn't need another job either. He needs a cold beer, a soft armchair, some Tylenol PM and a modest guarantee of security for the rest of his life. Freedom from fear and toil and illness.
And furthermore, Sister, we cannot see much evidence that other, more elite people's scientific analysis of our lives has ever benefited us much. When you're fucked, you know it. You don't need scientific verification.
I wanted to say that on the radio. But I didn't. The little white guy mojo voice in my head told me not to. So I just laughed good naturedly. Like any other good American. May God forgive me.
CIT Hit With Interest Rate More Than 25 Times Libor
Pacific Investment Management Co., Centerbridge Partners LP and the four other bondholders that put up $2 billion in financing for CIT Group Inc. made an instant $100 million on an investment analysts say is almost risk free. CIT, the 101-year-old commercial lender struggling to retire $1 billion of debt maturing next month, agreed to pay a 5 percent fee to the creditors and annual interest of at least 13 percent. On top of that, the New York-based company pledged assets worth more than five times the amount of the loan as collateral.
“The terms are egregious,” said Dwayne Moyers, the chief investment officer at Fort Worth, Texas-based SMH Capital Advisors, which oversees $1.4 billion, including more than $70 million of CIT bonds. “They ripped the faces off everyone with these terms.” CIT, led by Chairman and Chief Executive Officer Jeffrey Peek, said in a regulatory filing yesterday that the loan doesn’t solve the funding challenges and it may be forced to seek bankruptcy protection unless holders of $1 billion in floating-rate notes due Aug. 17 accept 82.5 cents on the dollar for the debt.
The securities fell 2.7 cents to 82.6 cents on the dollar as of 4:36 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The company’s $500 million of 4.125 percent notes maturing in November fell 7 cents to 61.5 cents on the dollar, Trace data show. CIT shares fell 11 cents to 87 cents in New York Stock Exchange composite trading. Besides Newport Beach, California-based Pimco, the manager of the world’s biggest bond fund, and Centerbridge of New York, the debt holders providing the financing are Boston-based hedge fund Baupost Group LLC, Capital Research & Management Co. of Los Angeles, Oaktree Capital Management LLC and Silver Point Capital LP in Greenwich, Connecticut, people familiar with the deal said. London-based Barclays Plc is arranging the funding.
Howard Marks, chairman of Los Angeles-based Oaktree and spokespeople for Silver Point, Capital Research and Barclays, declined to comment. Officials at Baupost, Centerbridge and Pimco didn’t return calls seeking comment. “The board of directors believed it was in the best interest for all stakeholders,” Curt Ritter, a CIT spokesman, said of the financing. He declined to comment on the terms of the loan.
CIT rejected over the weekend a General Electric Co. offer of at least $2 billion in loans backed by aircraft, four people familiar with the matter said. While less costly and requiring less collateral than the loans from bondholders, funds wouldn’t have been available until July 31, said two of the people, who didn’t want to be identified because the offer wasn’t public. CIT gave details on the rescue funding in the regulatory filing. The company, which has lost $3 billion in the last eight quarters, also said it expects to report a $1.5 billion loss for the second quarter.
Bondholders made $2 billion available immediately and promised another $1 billion by the end of the month. The group received a 5 percent commitment fee on the 2 ? year loan, amounting to $100 million on the $2 billion already provided. They will receive a 1 percent annual payment on the amount that’s not drawn upon, the company said. The book value of the collateral must be more than five times the amount of the loan and the so-called fair value must be more than triple the debt, the filing said. If CIT wants to retire the loan early, it must pay a 2 percent exit fee in addition to a prepayment premium of 6.5 percent on the amount it wants to reduce, the filing said. The 6.5 percent will decline to zero over 18 months.
Interest will be set at 10 percentage points more than the London interbank offered rate, which will have a floor of 3 percent. Three-month Libor was set at 0.502 percent today. Even if CIT fails, the bondholder group will probably make money because of the collateral, according to Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. The lenders have “virtually 100 percent assurance” they’d be able to recoup all their money in a bankruptcy, said Sameer Gokhale, an analyst with Keefe Bruyette & Woods Inc. in New York.
“This is called Don Corleone financing,” Egan said, referring to the patriarch in the organized-crime family depicted in the 1972 film, “The Godfather.” “You can’t lose money on this deal.” Outside of the “urban underworld,” Egan, 52, said he couldn’t recall seeing a loan backed by as much collateral that paid interest rates so high. “These terms would make a pawn- shop operator blush.”
Bankruptcy loans arranged this year have an average interest rate of 7.25 percentage points more than Libor, compared with 5.3 percentage points in 2008, Bank of America Merrill Lynch analysts led by Jeffrey Rosenberg wrote in a report last month. So-called debtor-in-possession loans never exceeded 4 percent over Libor before that, they said. The most actively traded high-yield loans had an interest margin of 6.1 percentage points over Libor as of July 21, according to Standard & Poor’s LCD unit. High-yield, or leveraged, loans are rated below Baa3 by Moody’s Investors Service and less than BBB- by S&P. CIT’s senior unsecured debt is rated Ca by Moody’s and CC by S&P.
The rescue package offers CIT time to avert a bankruptcy, said Renee Dailey, a partner at Bracewell & Giuliani LLP in Hartford, Connecticut. The company said yesterday that $7 billion in unsecured debt comes due through June 30. CIT hasn’t been able to sell corporate bonds in more than a year and has been denied access to the Federal Deposit Insurance Corp.’s program to issue government-backed securities. It turned to bondholders after failing to win U.S. government assistance. “The new money does provide the company another chance to avoid a bankruptcy filing and generally a bankruptcy means destruction of value,” Dailey said.
CIT’s floating-rate notes due in August have climbed from a record low of 70.5 cents at the end of last week.
The company has said its bankruptcy would put 760 manufacturing clients at risk of failure and “precipitate a crisis” for as many as 300,000 retailers, according to internal documents. Exxel Outdoors Inc. is “scrambling” to find alternative funding because of CIT’s difficulties, Harry Kazazian, chief executive officer of the Haleyville, Alabama-based maker of sleeping bags and tents, said yesterday. A failure of CIT would also lessen financing options for franchisees of Dunkin’ Brands Inc., owner of the Dunkin’ Donuts and Baskin-Robbins chains, Michelle King, a spokeswoman for the Canton, Massachusetts-based company, said in an e-mailed statement last week.
Microsoft Corp., the world’s largest software maker, said it plans to work with a number of financial institutions after ending its agreement with CIT. Customers that already used CIT to pay for Microsoft products will continue to get financing from the lender, Stacie Sloane, a spokeswoman for the Redmond, Washington-based company, said in a statement. The software company had signed an exclusive agreement with CIT beginning in France and Switzerland in 2006, and expanded the deal to other countries in 2007. Microsoft declined to say how much financing is provided to customers.
Bondholders that didn’t participate in the rescue financing may fare worse in a CIT bankruptcy because so much of the assets are pledged as collateral, said Adam Cohen, founder of debt research firm Covenant Review LLC in New York. “As a CIT unsecured bondholder you’re better off than you were on Friday, but if they go into bankruptcy you’re not going to be too happy other holders jumped ahead of you,” Cohen said.
SMH Capital’s Moyers said he doesn’t expect the company to file for bankruptcy. If it does, bondholders will try to reclaim assets backing the loan, he said. “Cost, when you’re on the verge of filing for bankruptcy, becomes less of an issue,” said Mike Taiano, an analyst with Sandler O’Neill & Partners LP in New York. “It’s a pretty ironclad deal from the lenders’ perspective, given the amount of assets that are behind it as well as the rate and fees they’re getting.”
Bernanke Says Commercial Property May Pose Risk for Economy
Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market. Bernanke, testifying before the Senate Banking Committee today, urged lenders to modify “problem” mortgages to avert defaults. Christopher Dodd, the Connecticut Democrat who chairs the panel, told Bernanke that “some have suggested” the commercial market “may even dwarf the residential mortgage problems” in the U.S.
The state of commercial real estate was one of the most- asked-about subjects in questioning by lawmakers so far in Bernanke’s two days of testimony on the economy. Bernanke said today in the Senate and yesterday at the House Financial Services Committee that it’s too early to tell how effective the Fed’s main initiative in the area will be. The Term Asset-Backed Securities Loan Facility, a Fed emergency program that lends to investors to purchase securities backed by consumer and business loans, began accepting commercial mortgage-backed securities as collateral last month.
Fed policy makers will extend the TALF, currently scheduled to expire Dec. 31, should they judge financial markets are still “some distance from normal operation,” Bernanke said today. “We will certainly be monitoring the situation, and if markets continue to need support, we will be extending the final date of that program,” Bernanke said It “may be appropriate” for the government and Congress to consider “fiscal” steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today, while noting no proposal on the subject has emerged.
U.S. commercial property prices fell 7.6 percent in May from a month earlier, bringing the total decline to 35 percent since the market’s peak, Moody’s Investors Service said in a report this week. Commercial properties in the U.S. valued at more than $108 billion are now in default, foreclosure or bankruptcy, almost double than at the start of the year, Real Capital Analytics Inc. said earlier this month. Yesterday, more than a half-dozen members of the House panel mentioned or asked Bernanke about the topic, with Chairman Barney Frank saying there’s a “great deal of fear” that a wave of commercial defaults will produce economic problems similar to those caused by residential mortgages.
“As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices -- and so, more pressure on commercial real estate,” Bernanke said yesterday. “We are somewhat concerned about that sector and are paying very close attention to it. We’re taking the steps that we can through the banking system and through the securitization markets to try to address it.” One of the main issues for the industry is that the market for debt backed by commercial mortgages “has completely shut down,” the Fed chief said yesterday.
US banks warn on commercial property
Two of America’s biggest banks, Morgan Stanley and Wells Fargo, on Wednesday threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loans. The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.
The failing health of the $6,700bn commercial property market, which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery. Colm Kelleher, Morgan Stanley’s chief financial officer, said he did not see the light “at the end of the commercial real estate tunnel yet”, after the bank reported a $700m writedown on its $17bn commercial property portfolio in the second quarter. “Peak to trough, you have already had a pretty nasty correction in the market but it is still not looking very good at the moment,” he said after Morgan Stanley reported its third straight quarterly loss.
Wells Fargo saw non-performing loans in commercial real estate jump 69 per cent, from $4.5bn to $7.6bn in the second quarter as the economic downturn caused developers and office owners to fall behind in their mortgage payments. Shares in the San Francisco-based bank were down more than 3 per cent at $24.55 in the early afternoon in New York as the increase in commercial non-performing loans undermined news of its best-ever quarterly profit. Morgan Stanley shares dipped before moving higher.
Ben Bernanke, chairman of the Federal Reserve, was repeatedly questioned by lawmakers on commercial real estate while testifying to Congress on Wednesday. Mr Bernanke warned that a continued deterioration in commercial property, where prices have fallen by about 35 per cent since the market’s peak and defaults have been rising sharply, would present a “difficult” challenge for the economy.
He added that one of the main problems was that the market for securities backed by commercial mortgages had “completely shut down”. The widespread weakness in commercial real estate is a crucial issue for US banks, especially regional lenders that ramped up their exposure to local developers in the easy credit boom that preceded the crisis. “The commercial real estate market is soft, and most of the big banks are seeing the same kind of thing,” said Howard Atkins, chief financial officer of Wells Fargo.
Ratings agency model left largely intact
Big banks are not the only ones whose income is soaring on the back of commissions and fees from selling and trading the huge amounts of debt being sold by governments, banks and companies. Credit rating agencies, the biggest of which are Moody’s Investors Service and Standard & Poor’s, have also seen a surge in revenue, as most debt that is issued – government-backed or not – comes with a credit rating for which the borrower pays a fee. Indeed, the ratings business is doing so well that some analysts have raised revenues forecasts. Craig Huber, analyst at Barclays Capital, this week raised his share price target for both Moody’s and McGraw-Hill, owner of S&P, for this very reason.
The ratings agencies remain central to the debt markets and their business models today remain largely intact, in spite of widespread claims that they exacerbated the credit crisis. The criticism centres on the fact that Moody’s, S&P and Fitch gave triple A ratings to hundreds of billions of dollars of bonds backed by risky mortgages – but these securities have since been downgraded and are now in many cases worthless. Ratings continue to be written into the official criteria used by many investors to define what debt they can and cannot buy. They are also still central to risk assessments by regulators and other official agencies. Ironically, some of the biggest investors and borrowers are suing the rating agencies.
The largest pension fund in the US, the California Public Employees’ Retirement System, has filed a suit against the three leading rating agencies over potential losses of more than $1bn over what it says are “wildly inaccurate” triple A ratings. That is just one of many. S&P currently faces around four dozen separate law suits from investors and institutions. In the past, most lawsuits have failed because rating agencies are protected by the first amendment right to free speech. Their ratings are an “opinion” and therefore subject to free speech protections. Whether this will continue to be the case is a key factor in the debate about the future of the industry.“We are all watching the Calpers suit,” says Donald Ross, global strategist at Boyd Watterson Asset Management. “It may be dismissed like many other suits have been on the basis of free speech, but it has the potential to restructure the credit rating business model.” This week’s proposed legislation by the US Treasury to reform rating agencies is not widely regarded as fundamentally changing the business of ratings, even though it does put more controls in place.
Already, rating agencies have themselves undertaken reviews aimed at restoring confidence in their ratings, particularly on the structured finance part of the business which includes bonds backed by loans like mortgages and where most of the controversies have been. This week, a decision by S&P to upgrade bonds backed by commercial mortgages to triple A, just a week after severely cutting them from triple A, highlights the clout of ratings (and the scope to confuse investors). It also highlights the potential for controversy in areas such as commercial real estate where further losses are looming. Without a triple A rating, those bonds would not be eligible for inclusion in government-backed funding programmes and their value would plunge.
Michael Barr, Treasury’s assistant treasury secretary for financial institutions, portrayed the proposed legislation as an attempt to ensure that better information is put into the market and to encourage the right incentives for the issuance of ratings. Other models, including the investor-paid model also have inherent conflicts of interest that would pose problems, he said. No matter what the reforms, “we are not going to be able to eliminate the need for investors to use their own judgement ... The one thing we want to make clear ... no investor should take as a blind matter of faith what the rating’s judgement is,’’ Mr Barr said this week. The SEC, which has created a new group of examiners to oversee the sector, is looking for ways to reduce reliance on credit ratings.
Mary Shapiro, chairman of the Securities and Exchange Commission, said at a Congressional hearing that new rules would be put forward later this summer. She said one would require issuers to disclose preliminary ratings to get rid of “pernicious’’ ratings shopping (when a company solicits a preliminary rating from an agency but only pays for and discloses the highest rating it receives); disclose information underlying the ratings; look at sources of revenue disclosure and performance history of ratings over one-, five- and 10-year periods; and see how the SEC could get investors to do additional due diligence of their own.
“While the Administration’s proposals are well-intentioned, they are easily criticised as merely cosmetic,” says Joseph Grundfest, a law professor at Stanford University. “If you really want change you have to recognise that the industry is dominated by two agencies and the SEC should create a new category of agencies owned by investors.” Mr Grundfest says case law has shown that opinions by ratings agencies are protected by the first amendment right to free speech. “No matter how much the SEC fulminates against the rating agencies their first amendment protections will be there.”
The status of rating agencies means they have access to information that is not made public, information they do not need to disclose, and this is one reason they are supposed to have better insights into companies and deals than ordinary investors might. It is this special status that some believe should be targeted. “When an opinion has regulatory power, which is what ratings have, it has to come with some accountability,” says Arturo Cifuentes, principal with Atacama Partners, a financial advisory firm. “It is not enough to say it is just an opinion, because it carries more weight than that in the financial system.”
‘Workable’ rules emerge in Europe
In Europe, lawmakers have already approved legislation that requires credit rating agencies seeking to operate in the European Union to register and be supervised for the first time. In late April, the outgoing European Parliament voted overwhelmingly in favour of regulations that were drawn up after criticism of the role played by agencies in the run-up to the financial crisis, and of the way in which they rated complex debt and mortgage-related products. The new regime, which requires agencies to apply to the Paris-based Committee of European Securities Regulators for registration and then be overseen on a day-to-day basis by “colleges” of relevant national securities regulators, is due to become fully operational in 2010.
It will impose strict rules on CRAs ranging from disclosure of the models and methods on which they base their ratings to corporate governance standards, such as the presence of at least two independent board directors whose remuneration is not tied to the agency’s performance. The EU’s action on CRAs encountered some criticism initially because of some of the details in the drafting, and also because of the desire of officials to push ahead on a regional basis rather than pursue some form of global initiative. Since then, however, both politicians and industry participants – including investors and agencies themselves – have acknowledged that amendments made during the legislation’s passage have largely resolved problems on the first score, and there seems to be general agreement that “workable” rules have resulted.
In April, some agencies also said that they hoped the new regime would have the positive effect of improving the markets’ trust in their operations. “The initiative should play an important part in building confidence in credit ratings and markets in the [European] region,” said Standard & Poor’s, for example. But S&P also stressed that there needed to be “consistent application” of the rules by the different regulators in the EU, and said it looked forward to discussing their practical application with the securities watchdogs.
Day of economic reality still to dawn for UK households
We don’t have detailed data on the state of the economy before the Second World War: back then economic statistics simply weren’t fetishised in the way they are today. So we have to rely on the National Institute for Economic and Social Research’s word for it that the first three months of this year saw the worst contraction in UK output since the General Strike of 1926.
It is a startling fact, but should probably not come as a surprise. Nasty as the Depression was for the US, Britain came through the 1930s pretty well; moreover the cautious nature of Bank of England financial regulation back then meant we also got away with a relatively mild recession, with no bank collapses. This time around we have had a devaluation of similar proportions, but, more than offsetting that, a financial crisis of far greater magnitude. Moreover, the expansion of the welfare state since then means that, like it or not, Britain’s national debt will swell to unprecedented peacetime proportions.
Bearing all of this in mind – the worst contraction since the 1920s, the biggest fiscal mess in non-wartime history, the likely rise in corporate insolvencies predicted in the NIESR report, the emergence of the worst wage deflation since comparable records began in 1964 – why is it then that this doesn’t yet feel like a depression-style crisis? In part it is because the social impact of economic downturns takes some time to bed in: unemployment lags changes in economic output, and it will take some time before it peaks.
It is also the result of the avowed policy of this and other Governments to anaesthetise the economy in the short term with lower interest rates and tax cuts, at the cost of subduing the recovery as the drugs wear off. The results are spelt out in NIESR’s report: they expect a “sharp change in household behaviour over the next few years” – borrowing less, spending less. A rise in household savings is a good thing: we have been borrowing too much for too long. But it will go hand in hand with a far less zippy economy than we grew used to for more than a decade. This hasn’t yet sunk in, but at some point it will have to.
Harvard’s Feldstein Sees Risk of ‘Double-Dip’ Recession in U.S.
The U.S. recession may not be coming to an end and there is a risk the economy may experience a “double-dip” contraction, said Martin Feldstein, a professor of economics at Harvard University. “There is a real danger this is going to be a double dip and that after six months or so we’ll have some more bad news,” Feldstein, the former head of the National Bureau of Economic Research and Reagan administration adviser, said today in an interview on Bloomberg Television. “We could slide down again in the fourth quarter.”
The economy could “flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said. “There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy. Feldstein said Federal Reserve Chairman Ben S. Bernanke, whose term in office as chairman expires Jan. 31, should be reappointed to a second four-year term by President Barack Obama.
Bernanke has “done a very good job and I think he should be reappointed,” Feldstein said. Bernanke is due to present his semi-annual monetary-policy testimony to Congress today. Feldstein said Bernanke in his testimony today would have to “reassure the Congress and the public” that inflation won’t be allowed to get out of control following the reduction in interest rates and the addition of liquidity to credit markets. He said there “are a number of technical ways” that the Fed can contain inflation and that it would be politically difficult to increase borrowing costs at a time of high unemployment, Feldstein said.
U.S. Home Prices Have Smallest Decline in 10 Months
U.S. home prices had the smallest annual drop in 10 months, signaling the free fall of property values is abating in the three-year housing slump at the center of a global recession. Prices declined 5.6 percent in May from a year earlier and rose 0.9 from April, the Federal Housing Finance Agency in Washington said today. Economists expected a 0.2 percent drop for the month, according to the median of 16 estimates in a Bloomberg survey.
“We saw a rebound of home prices in some parts of the country in part because the share of distressed sales dipped,” said Thomas Lawler, a former Fannie Mae economist who’s an independent consultant in Leesburg, Virginia. “That’s not any solace to anyone losing his shirt.” Five U.S. regions showed price increases in May from April, the FHFA said. Job losses and record foreclosures have deterred buyers and slashed U.S. home prices 33 percent since the July 2006 peak, according to the S&P/Case-Shiller index. The highest unemployment since 1983 and the biggest foreclosure rate on record thwarted government efforts to revive real estate demand.
The area that includes California had the biggest one-month gain from April, at 2.7 percent. The South Atlantic region that includes Florida saw a 1.4 percent increase in May. Prices in New England fell 2 percent and in the region that includes New York and New Jersey dropped 0.1 percent. Every region of the U.S. saw price declines in May from a year earlier, the FHFA said. California dropped the most, at 14 percent. The South Atlantic slid 6.6 percent and the New York and New Jersey region was down 4.3 percent.
“The distress in the housing market was not caused by unemployment, but now we are seeing a wave of delinquencies and foreclosures by people who, if they had kept their jobs, would be unlikely to default,” Lawler said. The unemployment rate rose to 9.5 percent in June, the highest since 1983, bringing the total number of lost jobs to about 6.5 million since the recession started in December 2007, the Labor Department said. Home prices in 20 major U.S. metropolitan areas dropped 18.1 percent in April from a year earlier, according to the S&P/Case-Shiller index.
The Federal Reserve is trying to keep rates low and spark a housing recovery by purchasing as much as $1.25 trillion in mortgage-backed securities to free up funding for home loans. Home-loan rates fell to a record low twice in April, helped by the Fed’s program. Rates started climbing in May along with Treasury yields on investor concern that a greater supply of debt being sold to fund government spending will fuel inflation. In June the average 30-year rate reached a 2009 high of 5.59 percent, according to Freddie Mac. Last week the rate was 5.14 percent, down from 5.2 percent a week earlier, according to the McLean, Virginia-based mortgage buyer.
President Barack Obama has pledged to spend $275 billion to help keep as many as 9 million Americans in their homes. The government is offering incentives to servicers, the companies that administer loans, to modify terms for delinquent borrowers or refinance mortgages that exceed the value of homes. Those efforts may not be able to keep up with the number of Americans falling behind on loan payments. The U.S. delinquency rate rose to a seasonally adjusted 9.12 percent in the first quarter and the share of loans entering foreclosure rose to 1.37 percent, the Mortgage Bankers Association said in a May 28 report. Both figures were the highest in records going back to 1972.
One in every eight Americans is now late on a home-loan payment or already in foreclosure, according to Jay Brinkmann, chief economist for the Washington-based bankers’ group. U.S. foreclosure filings -- notices of default, auction or bank seizure -- rose to a record in 2009’s first half, according to RealtyTrac Inc., an Irvine, California-based seller of real estate data. More than 1.5 million properties, one in every 84 U.S. households, received a foreclosure filing, RealtyTrac said in a July 16 report. That was a 15 percent increase from a year earlier.
The FHFA index tracks price changes for properties financed with mortgages owned or securitized by government-controlled Fannie Mae, the largest U.S. mortgage buyer, and Freddie Mac, which is No. 2. It excludes foreclosed properties bought with cash or financed with so-called FHA loans guaranteed by the Federal Housing Administration.
Ron Paul Opening Statement Fed Hearing 07/21/2009
Maryland plans $750 million in budget cuts
Health care providers who serve Medicaid patients will get paid less, the University System of Maryland will hire fewer faculty members and 40 state workers will lose their jobs as part of $280 million in budget cuts proposed by Gov. Martin O'Malley. The Democratic governor has compiled a list of budget cuts to be presented today to the Board of Public Works, a three-member body that can approve midyear budget adjustments when the General Assembly is not in session. But the cutbacks won't end there: O'Malley plans up to $470 million in further budget cuts before Labor Day. The next round of spending reductions will target aid to local governments and state employee compensation, O'Malley said during a news conference.
With tax revenues plummeting because of the recession, the governor has had to repeatedly cut spending to keep the state budget balanced, as required by law. The exercise has stirred criticism not only from those whose interests are affected but also from fiscal conservatives who say the budget is still too bloated. "It's been a seemingly never-ending effort to try to maintain fiscal responsibility," O'Malley said, while emphasizing that Maryland's finances are in better shape than many states'. Since taking office, O'Malley has reduced spending by more than $3 billion, but the state's operating budget has shrunk by a much smaller amount as spending on certain programs has increased. And the size of Maryland's overall budget, which includes federal funds such as the economic stimulus money received this year, has grown over the past three years.
The governor is facing a shortfall of about $1.5 billion next year, though that could be less depending on how many long-term spending reductions O'Malley makes for the fiscal year that began this month. Of the $280 million in proposed budget cuts, about $130 million would be one-time savings. "The real problem is the gap between revenues and our commitments," said Warren G. Deschenaux, the legislature's chief fiscal analyst. Among the hardest hit in this round of proposed budget cuts would be Medicaid providers. The governor plans to save $24 million by paying only for hospital stays of a certain length under Medicaid, $23 million by reducing Medicaid rates for nursing homes and $13 million by taking away an inflation increase for providers of community mental health, substance abuse and other services.
The limit on hospital payments would disproportionately hurt facilities that serve large numbers of poor patients, such as financially troubled Bon Secours Hospital in Baltimore, said Nancy Fiedler, a spokeswoman for the Maryland Hospital Association. Hospitals end up eating the cost to care for patients who stay longer than the Medicaid limit, she said. Another concern is that health care providers might drop Medicaid patients, said Gene M. Ransom, executive director for MedChi, the state medical society.
"We have a network of community health facilities, doctors and other providers willing to take a loss and take Medicaid patients," he said. "But obviously at some point in time there's a breaking point, and people say they can't take it anymore." With federal funding cuts possible on top of state cuts, some nursing homes might be forced to close, said Joseph DeMattos, president of the Health Facilities Association of Maryland, whose members care for 20,000 residents in homes and assisted-living facilities. "The governor said these budget cuts would be difficult and unpopular, and they are," DeMattos said.
The University System of Maryland would receive a cut of more than $17 million from operating expenses and $20 million that it must transfer from its fund balance. While the budget action does not jeopardize O'Malley's promise of extending a freeze on tuition for a fourth consecutive year, Chancellor William E. Kirwan said the system would not be able to hire as many adjunct or part-time faculty members or to offer as many courses, and that it would have to cut student services. "There's no doubt a cut of this magnitude will have a real impact on what we can do," Kirwan said.
Other proposed budget reductions include the elimination of retention bonuses for nurses and correctional officers, a $3 million cut to funding for stem-cell research, a $2 million cut to a Chesapeake Bay cleanup fund, and a $5.5 million reduction in the Maryland Lottery's advertising budget. O'Malley said he wanted to shield K-12 education from budget cuts, pointing to a separate report Tuesday that Baltimore public schools showed remarkable gains in test scores over the past five years. He also said that he wanted to avoid the "mass layoffs" that other states have implemented. He told legislative leaders on Monday that he is considering furloughs for state employees.
The governor also is considering cutting aid to counties and Baltimore City that is used to support police, health and other programs, though he said he wanted to sit down with local leaders before making those decisions, noting that they often have better ideas for where to trim. In expectation of future budget cuts, Baltimore Mayor Sheila Dixon has directed agency heads to identify 5 percent reductions to their spending plans for this year, said Scott Peterson, her spokesman. Peterson stressed that Dixon wants the agencies to "start looking and preparing" for cuts, but has not ordered any yet."
Budget Agreement Deepens California's Pain
The budget deal struck by California Gov. Arnold Schwarzenegger and statehouse leaders is expected to hurt a broad band of state residents and crimp the state's recovery from the current, deep recession. Fiscal experts said the negative effects of the budget plan, crafted in an attempt to keep the state solvent, will offset much of the intended beneficial effects of President Barack Obama's federal stimulus package. California's economic decline, economists predicted, will last longer than downturns in other states. They said the proposed cuts in the budget deal will compound the continuing impact from other recessionary blows, including an 11.6% state unemployment rate, widespread foreclosures on homes and depressed real-estate values.
Mr. Schwarzenegger and legislative leaders Monday evening agreed to close the budget shortfall by slashing $15.6 billion in spending. The major cuts include $6 billion from kindergartens and community colleges, $2.8 billion from other higher education, $1.3 billion saved through state-worker furloughs, $1.3 billion cut from a state health-care plan and $1.2 billion trimmed from prison spending. The state, the nation's most populous, also would take $4.7 billion from its already cash-strapped cities and counties. Rank-and-file lawmakers are set to vote on the budget plan Thursday.
Mr. Schwarzenegger and Democratic leaders said they had no choice but to make the cuts for California's long-term and short-term health. Among other things, the budget package would likely stop credit-rating agencies from further, imminent downgrades to the state's credit rating, said Gabriel Petek, an analyst at Standard and Poor's. The gap-closing plan is crucial for the state's ability to continue borrowing money and to resume pumping money into its economy in the form of payments to creditors being paid with IOUs since July 2.
But Mr. Petek cautioned that California's rating, already the lowest of the 50 states, still has the potential to be downgraded because the budget deal relies on "unconventional" fixes and its revenue forecast may be too optimistic.
"There will be less of a stimulus effect rising from the federal government policies by an amount that's obvious," said Roger Noll, a Stanford University economist, commenting on the cuts. "That will mean there will be slower recovery than otherwise would have been the case."
The ripple effects on the rest of the nation of California's fix for its budget deficit -- $26 billion through June 2010 -- may be muted, said Steve Levy, director of the Center for Continuing Study of the California Economy. "It's a $26 billion issue in a $12 trillion [U.S.] economy," he said. Not all economists are pessimistic about the long-term effects of the cuts on California. While transfer of revenue from local governments to the state will affect small and rural counties, said Stanford's Mr. Noll, "for the state as a whole, this is too bad, but it is not a disaster."
The deal also calls for raising $1 billion in revenue by selling an insurance fund, as well as for raising $100 million by drilling for oil off the Santa Barbara coast. After the cuts and the drawdowns from cities and counties, the plan addresses what remains of the deficit with one-time fixes and accounting maneuvers that economists said don't solve the state's long-term problems. One such gimmick involves pushing state-worker paychecks from June 2010 to July 2010, which is in the next fiscal year. "The budget is a pure Band-aid," said Mr. Noll, the Stanford economist. "It just transfers the problem to next year."
The $26 billion shortfall -- in a $92 billion general-fund budget running through June 2010 -- comes after the state took measures in February to close most of a $42 billion gap for fiscal years 2009 and 2010. In all, assuming lawmakers approve the latest budget deal, the state will have dealt with a cumulative gap of about $60 billion for the two fiscal years. In the short term, some struggling cities and counties may be forced to consider bankruptcy as the state draws on their coffers. Home foreclosures likely will rise slightly as school districts lay off teachers and hundreds of thousands of state workers lose 14% of their paychecks through three-day-a-month furloughs.
Mary Canoy, 42 years old, is a mother of three in Hawaiian Gardens, a city in Los Angeles County, who is working on a degree at Cypress College. Ms. Canoy expects that her monthly welfare check will drop again under the new plan. It already was reduced to $694 in July from $723 a month. "That $29 is exactly my car insurance bill," she said, adding that she likely will sell her car. "So I can't take my kids to school, I can't take myself to school, I can't take myself to a job," she added. "It just perpetuates poverty."
Budget to reshape the Golden State
Roads will be rougher, classrooms fuller and textbooks more tattered. The odds of encountering someone fresh out of prison will almost certainly be higher. If the budget deal crafted by Gov. Arnold Schwarzenegger and top legislative leaders is passed by the Legislature and survives the inevitable court challenges, California will undergo perhaps the biggest downscaling of government in its history. The state will be reshaped, at least for the short term, into a domain that is more efficient by necessity, but also noticeably shabbier, less generous and possibly more dangerous.
Those who will notice the biggest changes will be students and the poor as class sizes increase and health and welfare benefits shrink. The pace of government-sponsored redevelopment will slow, and some state parks will close. "These cuts are real, they're going to be felt, they're going to be seen," said state Supt. of Public Instruction Jack O'Connell. Details remained vague Tuesday about precisely how the cuts would be made, but enough trickled out to allow a general overview.
Educators seemed cautiously optimistic that the cuts would not be quite as grave as feared, and that the trims and layoffs they made in anticipation of the lean state budget would be sufficient. "Man, I sure hope so," said Ron Lebs, deputy superintendent of the Capistrano Unified School District in Orange County. "This has been a tough budget year all the way around." His 51,000-student district has already cut $25 million from its budget for the upcoming school year, in part by laying off 140 of its approximately 2,250 teachers, increasing class sizes for its youngest students, eliminating funding for junior varsity sports coaches and reducing spending on programs for gifted students, music and the arts.
O'Connell said the budget includes provisions that eliminate state funding for new textbooks for five years, get rid of a requirement that special education students must pass the high school exit exam to obtain a high school diploma and reduce the minimum length of the school year from 180 days to 175. The superintendent and others said they were pleased that Proposition 98, which requires that roughly 40% of the state budget be earmarked for education, was not suspended. There was concern, however, that the budget deal was not specific about when schools might be repaid for past cuts.
Gayle Pollard-Terry, a spokeswoman for the Los Angeles Unified School District, said leaders of the state's largest district thought they had made sufficient -- and painful -- cuts to get through the next school year, including laying off about 2,000 teachers. But conflicting reports suggested that the state reductions could require the district to undertake another round of trims, she said.
Higher education officials were relieved that the CalGrant program, which offers cash grants to lower- and middle-income college students and had been considered for elimination, had apparently been saved. But that was about the only relief in sight. The state will cut funding to both the University of California and California State University systems by about 20%. And campuses throughout the state are cutting class offerings, raising student fees and instituting furlough plans for faculty and staff.
Miriam Ibarra, 31, of Victorville, sighed when she heard about the budget cuts affecting the Healthy Families program, the low-cost medical insurance program for the working poor. About half the children enrolled in the program appear likely to lose their healthcare. "It would really affect me because I don't have any other kind of insurance," she said. "Honestly, I don't even know what I would do" without it. Ibarra's husband is a truck driver who doesn't get health benefits because he is self-employed. Ibarra, a stay-at-home mom, and her husband go without health insurance. But the Healthy Families program covers the couple's two children, ages 14 and 10, for a premium of about $10 a month, with $5 co-pays for some visits.
Ginny Puddefoot, a spokeswoman for the Managed Risk Medical Insurance Board, the state agency that operates the program, said she is expecting about $124 million in cuts, in addition to an existing $20-million shortfall. Since the federal government kicks in $2 for each $1 the state spends on the program, she said the total loss will be about $432 million out of a total budget of slightly more than $1 billion. CalWorks, a welfare-to-work program, also is targeted for large cuts. Raymond Greer, 26, an unemployed security guard, already saw his family's CalWorks grant cut from $723 to $665 earlier this year, and now is looking at the possibility of further cuts of up to half his monthly grant. "We survive on this," Greer said as he stopped by a social services office in South Los Angeles with his girlfriend and twin 1-year-old sons. "Don't start taking from the people that don't have anything."
Officials with local redevelopment agencies described the $700 million in cuts they were facing as catastrophic and began planning a lawsuit and a public relations campaign to try to reverse the decision. "They are stopping the one economic development program that the state of California has -- in the worst economic climate in 70 years," said Cecila Estolano, chief executive of the city of Los Angeles' Redevelopment Agency, which is the state's largest.
Estolano estimates that the cut would cost her agency $72 million this year, potentially putting 2,300 construction jobs at risk. Because redevelopment agencies partner with private companies to do projects in redevelopment areas, Estolano estimated that the state's cut also could mean the loss of more than $360 million in private investment in the city. Among the threatened projects in Los Angeles, according to the agency, are an affordable housing project in Hollywood, a shopping center in Reseda and a park planned for the downtown industrial area.
The redevelopment agencies could benefit in the long term under a long-shot proposal being floated by Senate Minority Leader Dennis Hollingsworth (R-Murrieta). Although it would still cut the agencies' budgets, it would allow them to extend their powers to subsidize development by 30 to 40 years. In exchange, they would give the state 10% of any increase in property tax revenue. The state would borrow at least $7.4 billion against those future revenues to avoid making cuts to local governments. The proposal reportedly came from lobbyists for the City of Industry, which is seeking an extension of its expiring redevelopment program to develop land near a proposed National Football League stadium, which would be privately developed.
No group is angrier than local government officials, some of whom see the proposal to raid their coffers for roughly $2 billion in revenue as nothing short of robbery. "The bottom line is that the state is going to balance its budget on the backs of municipalities," Los Angeles City Councilman Dennis Zine said. "I am really mad," Glendale City Manager Jim Starbird said. "This is irresponsible. And the Big Five [state leaders] came out of that meeting patting each other on the back and smiling."
The city of Los Angeles stands to lose at least $186 million in state funding: $120 million in property tax revenue and $66 million in gas tax revenue. The latter cut represents almost all the money that the city receives from gas taxes, which are used for street repair and maintenance. The rest would be cut from the city's general fund, and it wasn't clear Tuesday what programs would be hit. Los Angeles County officials said they were facing a budget gap that would be created by state leaders taking $301.9 million that had been guaranteed to the county under Proposition 1A, the 2004 constitutional amendment that was designed to protect local revenues from state encroachment. "We just don't have $300 million sitting around," said the county's chief executive, William T Fujioka.
Orange County will be hit with a loss of approximately $89 million to $93 million, in addition to cuts in health and welfare services, said Frank Kim, an official in the county's executive office. That is expected to include about $37 million from the county's general fund, up to $35 million in transportation funds, about $4 million from the Parks Department, about $3 million from the libraries and $5 million from flood control. The state budget also calls for selling the Orange County Fairgrounds. The Fair Board is considering buying it from the state and forming a nonprofit to run it.
What may prove to be the most controversial element of the budget is a plan to reduce the state's prison population by nearly 27,000 inmates. The plan would save $1.2 billion in the coming fiscal year by granting inmates early release for making progress in rehabilitation programs, allowing some to finish their sentences under electronic monitoring at home, and changing some felonies to misdemeanors so that convicts would go to county jails rather than state prisons.
At the same time, the state will be cutting funds to counties, prompting L.A. County Sheriff Lee Baca to complain that he is being left in a no-win situation. He summarized his choices: "Either close jails or take cops off the streets. Both are unacceptable to me." Baca said he is joining the Los Angeles County Board of Supervisors in a lawsuit against the state, claiming that by dipping into local revenues, the state would be violating the law. The sheriff has been a longtime friend and political ally of Schwarzenegger. "The governor, I think, is stuck," he said. "He is playing the cards the Legislature dealt him."
The state's conservation and resource agencies -- which generally don't have dedicated funding sources -- depend on bonds or the general fund and are especially vulnerable to cuts. Given that, the state parks system may have dodged a bullet. The agreement calls for a $70-million cut, about half the agency's annual budget. But legislators were able to find $62 million to backfill for this year only, leaving the parks with an $8-million shortfall. That is expected to force the closure of some parks, but is a far better scenario than the governor's proposal to close 220 parks, or 80% of the nation's largest state park system.
Roy Stearns, a spokesman for the parks agency, said officials were still examining the options, but Traci Verardo-Torres, vice president of government affairs for the California State Parks Foundation, said there is no question that some parks will be closed. The organization estimates as many as 30 parks will be shuttered. Left unresolved is where state parks funding will come from next year. "The governor's offer was to totally cut the state parks from the general fund over two years. The legislation has agreed with him on the first step, for this year at least," she said. "Where do we go next year?"
Pinch of Reality Threatens the California Dream
Even in the 1930s, Woody Guthrie warned America in a Dust Bowl song that the California dream could not be had on the cheap. Yet relative to other places, the state has historically been a pretty good bargain, with a low-cost, enviable higher education system, subsidized energy and an abundance of services for those down on their luck. But three decades of staggering population growth combined with three high-impact recessions, budgeting by ballot box, federal mandates, an unusual tax structure and the rising cost of social services have finally produced disastrous results, and the ramifications are reaching across every aspect of life in this state.
The California dream is, for now, delayed, as demonstrated by the budget state lawmakers and the governor agreed upon late Monday. At no point in modern history has the state dealt with its fiscal issues by retreating so deeply in its services, beginning this spring with a round of multibillion-dollar budget cuts and continuing with, in total, some $30 billion in cuts over two fiscal years to schools, colleges, health care, welfare, corrections, recreation and more. The rest of the nation, which has historically looked to California as a model for fierce economic independence and freewheeling innovation, may now see that the state looks like every place else — just with better beaches.
“We are now the state that can’t,” said Stephen Levy, the director of the Center for Continuing Study of the California Economy, a private research organization in Palo Alto. “It can’t agree on its water problem. It can’t balance its budget, it can’t decide what to do with prisoners, and it’s still fussing about its immigrants. And this is not the end of our economic problems. This is the beginning.” California, of course, has weathered economic ups and downs for decades and rebounded in ways that left the rest of the nation eating its dust. The downturn in the defense industry in the 1990s, followed by plummeting housing prices, was met with a huge technology boom. When that fell apart, the state roared back with a real estate boom.
But in the past, the state contended with its problems through a mix of taxes and cuts. Earlier this year, Gov. Arnold Schwarzenegger and his fellow Republicans agreed to increases in sales and vehicle-licensing taxes, but this time, they refused to approve any tax increase, and the Democrats had too few votes to force one. And the protracted national recession has delivered a big hit on the state’s greatest source of revenue, income taxes on rich people. Further, the state’s structural deficit has become exceedingly pronounced after years of accounting tricks and borrowing.
The result is that Californians will find state offices closed three days a month. The poor will go without health care in a state that practically invented the health care safety net and as some financially embattled states seek to expand coverage for children. Classroom sizes are about to explode, and state universities are furloughing professors, cutting class offerings and reassessing, in the case of the University of California, whether the system can remain one of excellence for residents. All of this did not creep up overnight.
Expansive growth in the first half of the 20th century led to rising housing prices and infrastructure growth, which came with higher taxes to pay for it all. Those increases created an antitax rebellion that begot Proposition 13 in the 1970s, a voter-led initiative that artificially depressed property taxes and shifted school financing burdens to the state. It also led to the onset of a culture of ballot initiatives that have hamstrung state budgeters by earmarking money for programs with one vote and taking away the ability to pay for them with others.
The state’s population — over 38 million today from 23.6 million in 1980 — has also meant a growing need for costly services for the poor, especially when revenues are declining. (In the 1930s, when Mr. Guthrie was warning that people needed do-re-mi to live here, no one was on Medicaid.) While the state’s property taxes are below average, its personal income tax rate and levies on capital gains are among the highest; so unlike states that pass the tax burden around, California can become disastrously imbalanced.
“Volatility is a challenge for budgeting,” said Jed Kolko, the associate director of the Public Policy Institute of California, a nonpartisan research organization in San Francisco. Now, local governments, schools, the state university system and state agencies find themselves unable to provide the services residents have been used to receiving. “Compared to the post-World War II era, an in-migrant to California now faces higher cost housing, lower quality K-12 schools, and more expensive higher education,” said Daniel J. B. Mitchell, a professor emeritus at the School of Public Affairs at the University of California, Los Angeles.
“He or she also faces job opportunities that more or less mirror what is available on average elsewhere in the U.S.,” Professor Mitchell said. The fallout is already evident. Summer school was canceled in many districts. In Eureka, near the Oregon border, the Old Town Dental Center is about to close. Its patient base is 90 percent Medicaid, and the state’s program will no longer pay for anything beyond tooth extractions. “There are a lot of people that are just not showing up,” said Nicole Eleck, the receptionist there. “Half our patients are saying, ‘If something bothers me, I will wait until it needs to get pulled.’ ”
Herrmann Spetzler, the chief executive of Open Door Community Health Centers, which operates 10 clinics in rural northern California, said clinics that are the only providers for miles around might close. “If you sit in our waiting room, you will see the faces of everyone who lives in our region,” he said. “There is the local judge, the policeman, the mom with kids and the homeless person. In my health centers, we’ve had $5 million in cut since July, and we don’t know what the future will bring.”
What comes next is anybody’s guess, but it may be that California’s standing as paradise is meeting an organic end. “In the end, we do not know for sure whether the California public really wants the California dream anymore,” said Bruce E. Cain, a professor of political science at the University of California, Berkeley. “The population is too diverse to have a common vision of what it wants to provide to everyone. Some people want the old dream, some want the gated privatized version, and some would like to secede and get away from it all.”
No recovery in California until 2011, forecast says
Unemployment in California and Los Angeles County will increase well into 2010, continuing to exceed the highest levels since at least the end of World War II, according to a local economist whose projections for the Southland economy are among the most negative to date. Continued sluggishness in key industries such as construction, retail, international trade and hospitality will keep the state from a full recovery until 2011, said the report, released by the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp.
Personal income will drop 2% in the state this year, the report said, the first annual decline since 1938. "Most people haven't experienced anything like this in their lifetimes," said Jack Kyser, founding economist of the Kyser Center. California's jobless rate, which was 11.6% in June, will average 12.6% next year, according to Kyser, who also projected that Los Angeles County's unemployment rate will be even higher, averaging 12.8% in 2010. The county's jobless rate was 11.3% last month.
Home construction will continue to fall, and the commercial real estate market will go through more distress as vacancies climb, the report predicts. As a result, it says, Los Angeles County will lose 168,000 jobs this year, led by the manufacturing sector, which is projected to shed 38,800 positions. Some areas outside Los Angeles County are expected to fare even worse. In San Bernardino and Riverside counties, where unemployment already tops 13%, the jobless rate will climb next year to an average of 14.7%, the forecast said.
"The Inland Empire will experience a longer and deeper recession than the rest of Southern California," the report said. Escalating foreclosures and falling home values have created the region's "worst-ever economic crisis." The Inland Empire has lost 80,000 jobs in the last year alone, battered by the slowdown in international trade. The region is a major distribution hub for companies that move goods from the ports of Los Angeles and Long Beach to the rest of the country.
Even quiet Ventura County is in for a rough ride, pulled down by layoffs at corporate giants Countrywide Financial and Amgen. The county will shed 5.1% of its jobs in 2009, pushing average unemployment for 2010 to 10.3%, the forecast said. Ventura posted a jobless rate of 10.2% last month, up from 5.9% in June 2008. "Whatever the problem seems to be these days, Ventura County has more of it," the report said. The Kyser Center report may be a little too glum, said Esmael Adibi, an economist at Chapman University in Orange. "To me, it looks very pessimistic," Adibi said. Kyser predicts the state will lose 694,000 jobs this year, but Adibi's figure is 37% lower, at 437,000 jobs lost.
Monday's resolution of the state's budget crisis is more reason to be optimistic about the future, Adibi said, especially because the governor didn't raise taxes. The psychological effect of the agreement shouldn't be underestimated, he said. What's more, federal stimulus money will buffer some of the cuts in education and transportation. "A big puzzle today got solved, and that's good news," he said. Kyser did not agree that the budget fix would help matters. Losses in revenue will continue to dog municipalities throughout the state, he said, potentially even pushing some into bankruptcy. Budget cuts will make it even more difficult to create jobs.
"The news from Sacramento is going to create more problems next year," he said. "It could even get worse." The Kyser Center forecast also measures the health of key economic drivers in Southern California, including aerospace, trade and motion picture production. Some of the key drivers are in danger of shrinking permanently, Kyser said. Aerospace could shrivel if the Defense Department cuts funding for Boeing's C-17 cargo aircraft program and commercial air travel continues to lag.
As international trade stays slow, ports in Canada and Texas and on the East Coast will try to lure business from Los Angeles. Production in the motion picture industry is increasingly taking place out of state, and cutbacks in advertising are hurting the broadcast TV industry. Perhaps hardest hit is apparel and textile manufacturing, once a key regional driver. In Los Angeles County the industry will shrink 14% between 2008 and 2010, shedding 13,300 jobs, the report said.
Impact of California's Proposed Budget Fix May Be Felt at All Levels
California, famous for leading, on Tuesday showed the way into the deepening darkness that awaits every state groping to reconcile budget deadlines with collapsing revenue streams. The $26 billion deal Gov. Arnold Schwarzenegger (R) and Democratic legislative leaders are asking lawmakers to approve Thursday would plug the deficit in California, the nation's largest state. But the total shortfall facing all 50 states through fiscal 2011 is estimated at nearly 10 times that figure, or $230 billion, according to state budget officers.
And even advocates acknowledge the hard-won package of service cuts and borrowing, announced three weeks after the June 30 budget deadline, would tide over the Golden State for just a matter of months. "Just fix it," said Christian J. Lopez, 21, chucking a baby seat onto the mound of belongings that held in place just long enough for him to slide shut the minivan door in a post office parking lot. "Shouldn't be that hard." It always is, though. California fell into a recession as much as a year before the country at large, caught short by the burst of the real estate bubble, a bubble that had been driven by the implied promise that things would always be just a little bit better here.
Reality hit hard, and not only for citizens. The 11.6 percent unemployment rate, exceeded in only five states, was catastrophic for a state budget that relies inordinately on income taxes. A February effort by Schwarzenegger and lawmakers to bridge the gap in part by hiking fees was beaten back soundly by voters in May. The latest plug was fashioned from the ledgers of local governments and the pages of the calendar. The governor and leading lawmakers found revenue by taking back money from cities and counties and by accelerating withholding on income tax into the immediate future, when by all accounts, money will be even harder to come by.
About a third of the money would be diverted from accounts that must be repaid. Under ballot provisions approved by the voters -- whose direct involvement in lawmaking is among the many factors complicating California's budget process -- lawmakers must maintain certain funding levels for K-12 education and pay back cities and counties within three years. Meanwhile, local jurisdictions are howling. "There are lots of seminal moments these days. This is one of them," said Salinas Mayor Dennis Donohue. The central California city of 150,000, known as "Salad Bowl to the World," is proposing a 1-cent sales tax increase, to 9.75 cents on the dollar, in part because of what the mayor called "the uncertainties of Sacramento."
"It's very clear there are starting to be strong sentiments not only for reform, but to move resources and some power from Sacramento to local jurisdictions," he said. "We're part of a vanguard who are trying to be more independent." Stephen Levy, director of the Center for Continuing Study of the California Economy, said the crisis facing states overshadows even more dramatic problems among cities and counties, where most services are delivered. "We are definitely a harbinger of the dilemma more at the Salinas level," Levy said. "Cities are in deep trouble across the United States, because when the recovery comes, it will help income taxes first. But sales taxes and property taxes, which is what cities live on, will take a while."
A proposed $15 billion cut to services is lower than many advocates feared. In Contra Costa County, a suburb of Oakland, the director of Aging and Adult Services braced for cutting 2,000 of the 8,000 seniors receiving in-home support services. On Tuesday, John Cottrell learned the figure may be as low as 400 and concentrated on less dependent seniors, "those who need medication reminders, light cleaning and cooking," he said.
"I'm not even worried so much about today, but tomorrow. What happens then?" Cottrell asked. "The very time when you have these crises, we all get our benefits and services cut when people need it. Medi-Cal and food stamp lines are coming out the doors. They're cutting our staff. Phone lines are ringing off the hook with complaints." "Our lines are long, our workers are short, and tempers are short," he said. The impact is felt at all levels. State offices have been closed at least one Friday a month since Schwarzenegger ordered employee furloughs. At Prunedale's cooperative preschool near Salinas, tuition went up $100 a month when the school lost funding for adult education programs.
"They sent a note saying they'll let us know the next round of cuts," said Tisha Morales, 29, who drops off Mateo, 3, at the preschool on her way to her job as a registered dental assistant. "Nobody's getting raises this year, either, and tuition's going up." The bottom is not in sight. Nationwide, general revenue entering state coffers is expected to drop 2.2 percent this fiscal year, the first decrease since the 1983 recession, according to the National Association of State Budget Officers. So far, 42 states have responded by paring about $31 billion from budgets, the group said.
How the books were balanced -- tax and fee hikes, cuts to schools and services, or a painfully calculated blend of both -- varied from legislature to legislature. "Just the fact that these budget gaps are so large, and for a lot of states this is the toughest situation since the Great Depression, you're seeing every option explored," said Todd Haggerty, an analyst for the National Conference of State Legislatures. "There's 50 different ways these states approach these things. "California always stands out just because of its sheer size. Other states do kind of look over there to see what California's actually doing."
Bernanke Seeks to Wall Off Rate Policy From Congress
Federal Reserve Chairman Ben S. Bernanke sought to cordon off the central bank’s independence on monetary policy from congressional scrutiny as lawmakers challenged its authority on everything from currency swaps to emergency loans. The 55-year-old Fed chairman yesterday stepped up his defense of the central bank as it faces a bill with 275 legislator-sponsors to repeal immunity from audits of monetary policy. Bernanke told the House Financial Services Committee that Fed actions helped avert a credit “collapse,” and gave Congress its own task: cut “unsustainable” budget deficits.
As lawmakers embark on the biggest financial-regulation overhaul in generations, “everything is up for grabs,” including Fed independence, said Christopher Rupkey, chief financial economist in New York at Bank of Tokyo-Mitsubishi UFJ Ltd. It would “open a Pandora’s box” for Congress’s Government Accountability Office to probe monetary policy, he said. At stake is the future structure of the 95-year-old central bank, which was conceived to stem financial panics and is charged with achieving stable prices and maximum employment. Bernanke’s remarks yesterday showed he’s open to relinquishing some powers, while retaining autonomy on setting interest rates and oversight of consumer finance.
“You definitely have to read this testimony in the context of the political backdrop,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “They said they helped to improve financial conditions and they warned not to tread on their independence or the economy is really going to suffer,” he said, referring to Fed officials. Bernanke, appearing before the Senate Banking Committee in Washington today in his second day of semiannual testimony on the economy and monetary policy, presented a written statement that was identical to yesterday’s at the House panel.
The Fed is more popular with investors and economists than with Congress, polls suggest. Almost 75 percent of investors surveyed in the first Quarterly Bloomberg Global Poll this month said they have a favorable view of Bernanke. By almost a three- to-one margin, they said he has earned another four-year term when his current one expires in January. Bernanke said in his remarks yesterday that while financial markets “remain stressed,” there have been “notable improvements” in recent months, with many “traced in part to policy actions taken by the Federal Reserve to encourage the flow of credit.”
That opening didn’t faze some members of the House panel. Representative Alan Grayson, a Florida Democrat, questioned what authority the Fed used to lend hundreds of billions of dollars through currency swaps to central banks around the world. “One of the arrangements is $9 billion for New Zealand -- that works out to $3,000 for every single person who lives in New Zealand,” Grayson said. “Wouldn’t it have been better to extend that kind of credit to Americans rather than New Zealanders?”
Bernanke countered that “we are lending to all U.S. financial institutions in exactly the same way” and that “we have a longstanding legal authority to do swaps with other central banks.” Representative Ron Paul, the Texas Republican who wrote the bill to allow the GAO to audit Fed monetary policy, told Bernanke his proposed legislation “has nothing to do with interference with monetary policy.” Bernanke noted that there are already questions about whether the Fed will be able to raise interest rates from historic lows without political interference.
“If we were to raise interest rates at a meeting and someone in the Congress didn’t like that and said ‘I want the GAO to audit that decision,’ wouldn’t that be viewed as an interference?” he told Paul. Lawmakers have sought greater scrutiny over the Fed after blaming it for failing to police lending practices during the credit boom that began to burst in 2007, sparking what has become the deepest U.S. recession in at least half a century. The Obama administration’s proposed revamp of financial regulations would have the Fed stripped of powers over consumer finance, while at the same time making it the new overseer of all financial firms big enough to pose a risk to the system. It would also subject the Fed’s ability to make emergency loans to approval by the Treasury.
Bernanke yesterday said the Fed has done a “good job” protecting consumers and ought to keep authority in that area. He indicated he accepts the need for Treasury oversight of extensions of emergency credit. Neither House Democrats nor Republicans have fully endorsed the administration’s plan. Representative Jeb Hensarling, a Texas Republican, said “the Fed should be focused on monetary policy, pure and simple.” Representative Barney Frank, the Massachusetts Democrat who chairs the House Financial Services panel, said Bernanke didn’t make a convincing argument to keep consumer protection powers at the Fed.
“He is better at it than Alan Greenspan,” Frank said, referring to the Bernanke predecessor legislators have faulted for failing to employ the Fed’s rule-writing authority on lending practices. “But it is simply not at the center of their concern the way it will be at a separate agency.” Bernanke separately urged Congress and the administration to lay out a plan that would bring the budget deficit down to a “sustainable” level of 2 percent to 3 percent of gross domestic product, from a projected ratio of about 13 percent this year. Much of the shortfall stems from the $787 billion fiscal stimulus -- which Bernanke said is too soon to judge for its effectiveness -- and the Treasury’s financial-rescue efforts.
“Unless we demonstrate a strong commitment to fiscal sustainability, we risk having neither financial stability nor durable economic growth,” the Fed chairman said in his testimony. Meantime, the Fed chief laid out his own exit strategy from the central bank’s efforts to combat the crisis. The central bank has expanded credit to the economy by $1.1 trillion in the past year through emergency loans and backstops for financial markets. The mixing of monetary policy with what economists call credit policy, or loans to specific organizations or markets, invited the scrutiny of Congress, economists said. “Bernanke has led the Fed into uncharted waters,” said Gerald O’Driscoll, a senior fellow at the Cato Institute and former vice president at the Dallas Fed. “There is nominal legal independence, but less and less real independence over time.”
Morgan Stanley Posts 3rd Straight Quarterly Loss
Morgan Stanley reported its third consecutive quarterly loss on Wednesday, the latest indication of the challenges it faces as it tries to pull itself out of the financial crisis. The bank said that its net loss was $1.26 billion, or $1.10 a share, which included a charge to repay government bailout money. That compared with earnings of $1.06 billion, or $1.02 a share, in the period a year earlier. The loss from continuing operations was $159 million, or $1.37 a share, in the second quarter. In the first quarter, Morgan Stanley had reported a loss of $177 million. Morgan shares were down 1.6 percent in mid-morning trading after being down almost 6 percent.
The results were in sharp contrast to rivals Goldman Sachs and JPMorgan Chase, which both reported strong second-quarter profits last week. Those two banks in particular have rebounded quickly, mostly by taking on more risk in trading for their customers. But Morgan Stanley, which was burned more severely by the crisis, has moved to reduce its risk taking and try to build a stable, less volatile firm.
While analysts say the approach may pay off in the long run, for now, Morgan’s continued losses are raising questions about the strategy being pursued by its chief executive John J. Mack. In a statement on Wednesday, Mr. Mack said “Morgan Stanley delivered improved performance across many of our businesses this quarter — including in investment banking where we were the number one adviser in global announced mergers and acquisitions, and saw strong gains in both equity and debt underwriting.”
Revenue was $5.4 billion, down 11 percent from the $6.1 billion a year ago. The bank’s results were weighed down by a one-off charge of around $850 million incurred when it repaid $10 billion of taxpayer support during the quarter. It also reported $2.3 billion of losses because of improving credit spreads. As the financial system heals, banks must record losses as their credit spreads improve because they are deemed more likely to pay off all their debt.
The bank continued to be troubled by its aggressive push into real estate just before the financial crisis. Howard Chen, an analyst at Credit Suisse, said in an interview before the second quarter results were published that at the end of the first quarter, Morgan’s gross exposure to real estate within its institutional securities business alone was about $17.2 billion, and that it had additional real estate investments of about $4.9 billion. He said losses because of the credit spreads and some of its real estate investments would continue to weigh on Morgan Stanley for some time.
Wednesday’s results included some bright spots, such as investment banking, where Morgan is still among the leaders in equity underwriting, and mergers and acquisitions, according to Dealogic. But the profits earned on these activities along with the depressed trading revenues were not enough to offset the real estate losses and charges. The company’s executives have described 2009 as a transition year and have called for patience as the bank attempts to refashion itself.
In particular, the bank — which sold a 21 percent stake to the Mitsubishi UFJ Financial Group last September for $9 billion — is trying to expand its footprint in wealth management. It entered a joint venture earlier this year with Citigroup’s Smith Barney brokerage unit to expand its brokerage business. The surge in trading profits recorded by Goldman Sachs in particular has prompted some analysts to question whether Morgan Stanley is being too cautious in its approach to risk.
But other experts say it is still too early to judge whether its business model will succeed. They say that risky trading could be reined in by regulations being considered in Washington, for example, requiring tougher capital requirements on the biggest firms, and that trading profits will be harder to come by once markets normalize. Earlier this week, Morgan shook up its fixed-income trading business by hiring Jack DiMaio from Credit Suisse to be its global head of interest rate, credit and currency trading.
Andrew Kuritzkes, a partner in the financial practice at the consultancy Oliver Wyman, said competitors like Morgan Stanley “are going to bounce back”.” “A big new element,” he said, “will be regulation which is likely to be a game changer.” Charles Calomiris, a finance professor at Colombia University business school, said Morgan Stanley’s strategy of limiting risk might be wise given so much uncertainty about policy coming from Washington as well as the volatile markets. “This is a good time to be conservative,” Mr. Calomiris said.
Wells Fargo’s Bad Loans Rise in Quarter; Shares Drop
Wells Fargo & Co., the biggest U.S. home lender this year, said bad loans jumped in the second quarter as the recession made it harder for borrowers to keep up with payments. The bank dropped 6.6 percent in New York trading. Assets no longer collecting interest climbed 45 percent to $18.3 billion as of June 30 from the first quarter, the San Francisco-based bank said today in a statement. The increase was disclosed as Wells Fargo reported second-quarter net income soared 81 percent to a record $3.17 billion.
Wells Fargo added to credit reserves amid a 26-year high in unemployment and rising commercial real estate delinquencies. While the acquisition of Wachovia Corp. in January bolstered deposits and home lending, the bank must stanch losses from defaults in California and option adjustable-rate mortgages, ranked among the riskiest loans issued during the housing boom. “We’re not out of the woods in terms of credit quality,” said Jennifer Thompson, an analyst at Portales Partners LLC in New York. She has a “hold” rating on Wells Fargo, because “with the company more exposed to some higher-risk markets, I’d rather wait for a better entry point,” Thompson said.
Wells Fargo, whose biggest shareholder is Warren Buffett’s Berkshire Hathaway Inc., fell $1.68 to $23.67 at 9:31 a.m. in New York Stock Exchange composite trading, and sold for as little as $23.51. The bank declined 14 percent this year through yesterday. Profit for the quarter equaled 57 cents per diluted share, compared with $1.75 billion, or 53 cents, a year earlier, the bank said. Revenue almost doubled to $22.5 billion. The increase in bad assets, including a $5.3 billion rise in loans that aren’t accruing interest, was tied to Wachovia mortgages, the cost of modifications, the difficulty of liquidating holdings, and the deterioration of commercial real estate, Wells Fargo said.
The cost of loans written off as uncollectible jumped 35 percent from the first quarter to $4.39 billion, including $984 million of Wachovia assets, more than double the previous period. The charge-offs widened to 2.11 percent of loans from 1.54 percent in the first quarter, exceeding the 1.85 percent estimate of Sterne Agee & Leach Inc. analyst Adam Barkstrom. Wells Fargo took writedowns on Wachovia’s riskiest loans at the time of the takeover through so-called purchase accounting. The company said today that losses increased in the portion of the Wachovia portfolio that hadn’t been viewed as impaired at the time.
The bank said it generated $14.2 billion toward satisfying the Federal Reserve’s Supervisory Capital Assessment Program, surpassing the $13.7 billion requirement. The process will be completed at the end of the third quarter, Wells Fargo said. Wells Fargo is the last of the top four U.S. banks to post results. Bank of America Corp., the biggest U.S. lender, said last week that second quarter profit fell 5.5 percent on higher loan losses. JPMorgan Chase & Co., the second-largest U.S. bank reported its first profit increase since 2007 on record investment-banking fees. Citigroup Inc. had a loss, excluding a $6.7 billion gain from selling control of the Smith Barney brokerage unit, as consumer and business loan defaults rose.
Of the four, only New York-based JPMorgan has repaid its bailout funds distributed by the Treasury last year. Wells Fargo said last month it will repay its $25 billion loan “at the earliest practical date.” The lender probably won’t be able to pay back the funds within the next year to 18 months unless it raises more capital, wrote Sanford C. Bernstein & Co. analyst John McDonald, in a report this week. Wells Fargo added $700 million to build credit reserves, a decline from the first quarter’s $1.3 billion increase. The company incurred a $565 million special assessment fee from the Federal Deposit Insurance Corp. along with a merger-related and restructuring expense of $244 million.
Mortgage originations in the U.S. surged 40 percent in the second quarter to $625 billion, according to estimates from Inside Mortgage Finance publisher Guy Cecala. Wells Fargo reported mortgage banking income of $3 billion in the quarter on $129 billion of originations. In California, unemployment hovered at a record 11.6 percent in June, compared with a nationwide average of 9.5 percent. Six of the state’s cities are among the 10 with the highest foreclosure rates in the U.S., according to RealtyTrac Inc., an Irvine, California-based company that keeps data on repossessed homes. “Credit quality is going to get worse,” said Thompson at Portales Partners. “The question is how much does it deteriorate and in what categories.”
Doubts Slow Financial Regulation Overhaul on Capitol Hill
The Obama administration's effort to swiftly overhaul supervision of financial markets is running into trouble on Capitol Hill, with some Democrats balking at key elements of the plan. Democrats are unsure they can muster enough votes to support the administration's plan to create a new consumer-products regulator, and expand the powers of the Federal Reserve. On Tuesday, Massachusetts Democratic Rep. Barney Frank, who chairs the House Financial Service Committee, delayed until September a vote on a regulator to oversee consumer products, such as mortgages and credit cards.
The administration plans an aggressive effort to rebuild support for the overhaul, including a series of public speeches intended to remind lawmakers why the efforts must move forward. "We're very much in the thick of this, and it's an all-out push on a number of fronts," Treasury assistant secretary Michael Barr said. Treasury Deputy Secretary Neal Wolin will try to sell parts of the plan on Wednesday to a group of bank executives in Washington. Administration officials also hope to release draft legislation outlining how their plan would consolidate supervision, and increase oversight of large institutions. Treasury Secretary Timothy Geithner is expected to try and sell the proposal on Friday to Mr. Frank's committee, where the reception has been lukewarm.
Treasury's efforts come as several members of Congress have grown more critical of the plan. Some Democratic senators, including Virginia Sen. Mark Warner, have questioned whether the Fed should be given more power. Lawmakers have also complained that the package is too complex, and hasn't been adequately vetted. The delay announced by Rep. Frank is significant because it could push back other votes on the proposal. Lawmakers are "simply overwhelmed," Rep. Spencer Bachus (R., Ala.) said at a hearing Tuesday. The "proposals are complex," and the "ramifications are hard to gauge," he said.
Obama administration officials are concerned that chances for reform will fade as the economy recovers. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) said he was still "very optimistic" this could get done by the end of the year. "The administration has a very bold plan," Sen. Dodd said. "It's clearly one that needs more work." The regulatory-reform proposal is the latest effort by the administration to run into trouble in Washington. President Barack Obama's health-care push is also facing resistance from lawmakers in both parties who are concerned about the plan's costs.
In June, President Obama proposed sweeping new rules for financial markets, pushing tougher federal standards for issues such as executive compensation, credit-rating agencies and consumer protection. It would also empower the government to take over and break up large financial institutions, and create a new national bank regulator after closing down the Office of Thrift Supervision.
The proposal would have ramifications for financial institutions of all sizes, though it could have a bigger impact on the operations of large firms, such as Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc. and Wells Fargo & Co., by requiring higher reserve requirements and intensifying oversight of credit they extend. The lack of a key lawmaker who embraces the entire package poses a problem for the administration. Rep. Frank and Sen. Dodd support only parts of the plan. There is also discord within the government, as top officials from the Fed and Federal Deposit Insurance Corp. have questioned parts of the proposal.
Many critics say it would overwhelm the financial sector with regulation, stifle innovation and create so much bureaucracy that it could become nearly impossible for consumers to access credit. The drumbeat of criticism has frustrated supporters who say there is only a short window for Congress to adopt major changes. "We're missing a tremendous opportunity to do some good," said John Taylor, president of the National Community Reinvestment Coalition, who supports tough consumer-protection rules. "It's all very disappointing."
Credit-Card Disputes Tossed Into Disarray
Two major arbitration firms are backing away from the business of resolving disputes between customers and their credit-card and cellphone companies, throwing into disarray a controversial system that prevents unhappy consumers from filing lawsuits. The American Arbitration Association said Tuesday it will stop participating in consumer-debt-collection disputes until new guidelines are established. Its decision came two days after another big group, the National Arbitration Forum, said it would stop accepting new cases as of Friday.
Their retreat has big implications for credit-card and cellphone companies, which generally require customers to agree to mandatory arbitration. They argue arbitration is less expensive and time-consuming for both parties than going to court. Consumer advocates have criticized the practice for years, saying consumers often don't realize they are waiving their right to sue when they sign contracts with the companies. Critics also say the arbitration process favors companies over consumers. The National Arbitration Forum said companies prevail over consumers in 94% of such cases. Credit-card companies defend those results, arguing that there is typically a long paper trail proving the customers owe the amounts in dispute.
It is the latest trouble for the credit-card industry, which is being hit hard by rising delinquencies and defaults amid recession. To fight the losses, card issuers are scaling back on credit and getting tougher on late-paying customers. The industry is also sorting through a new federal law that will restrict some fees, limit interest-rate increases and require companies to provide more disclosure to customers. "This is going to present significant operational and logistical issues for banks that issue credit cards," said Chris Daniel, a lawyer for Paul, Hastings, Janofsky & Walker LLP in Atlanta, who specializes in the banking industry and who isn't involved in the case.
Although arbitration long has been controversial, the current situation developed rapidly starting last week when the Minnesota attorney general's office sued the National Arbitration Forum, based in St. Louis Park, Minn., over the way it handled disputes. Among other things, the lawsuit contended that NAF didn't disclose that it has financial ties to the debt-collection industry, violating Minnesota laws against consumer fraud, deceptive trade practices and false advertising.
The two sides reached a swift settlement on Sunday, with NAF agreeing to stop taking new consumer-debt cases nationwide beginning this Friday. "This is an issue beyond any one problem company," said Minnesota Attorney General Lori Swanson. "It is a systemic industrywide problem. Consumers are giving away rights without even knowing it." An official with AAA said the group, which is a not-for-profit, will stop taking debt-collection arbitrations "until some standards or safeguards are established."
A spokeswoman for NAF, a closely held, for-profit company, said it made the decision to stop doing credit-card arbitrations because it was being hit with a wave of lawsuits. "It has just come to the point where the forum has decided to stop administering consumer arbitrations," said Christina Doucet, a spokeswoman for NAF. The practice of arbitrating consumer-debt-collection disputes is also gaining attention in Washington, where a congressional subcommittee is scheduled to hold a hearing on the topic Wednesday. Ms. Swanson was scheduled to testify before the subcommittee.
The issue of mandatory arbitration has also been raised in President Barack Obama's proposals for regulatory reform. A proposed new consumer-protection agency "should be directed to gather information and study mandatory arbitration clauses in consumer financial services and products contracts to determine to what extent, and in what contexts, they promote fair adjudication and effective redress," the White House proposal said. Banks were working yesterday to assess the situation. Neither the arbitration groups nor the banks disclose the number of cases resolved through the process.
The NAF processed 214,000 consumer-debt obligation claims in 2006, according to the Minnesota lawsuit. The NAF oversees more than 1,000 attorneys and former judges who handle the cases. J.P. Morgan Chase & Co., one of the nation's biggest credit-card companies, uses both arbitration organizations to resolve disputes. The company said yesterday it "is continuing to evaluate the inclusion of an arbitration provision" in consumer contracts. Arbitration requirements are prevalent in the cellphone industry.
"It's just quicker and cheaper to arbitrate -- the people who don't like it are trial attorneys," said John Taylor, a spokesman for Sprint Nextel Corp., the nation's third-largest wireless carrier by customers. Sprint uses arbitration most often to resolve customer-service and collection disputes, he said. Some courts have taken aim at carriers' attempts to mandate arbitration. In 2005, the California Court of Appeal denied a motion by Cingular Wireless (now part of AT&T Inc.) to compel individual arbitration in a case dealing with early-contract-termination fees. The court said the arbitration language in the carrier's contract was "unconscionable and unenforceable." The U.S. Supreme Court declined to hear Cingular's appeal.
America is for now still blowing bubbles
Although many market and economic observers quarrel over whether the Obama administration’s involvement in the private sector upholds the American principals of contract law, private investment and capitalism, this discussion misses the most important point for investors. The question is not whether there is a battle between socialism and capitalism, but whether the US economy is on a path to mimic Japan’s.
Financial history shows that bubbles create capacity, which is no longer needed once they deflate. An inevitable and intense period of consolidation follows. For example, the internet bubble gave rise to hundreds of publicly traded dot-com companies, many of which either merged with other technology companies or went out of business once the bubble deflated. Similarly, the gold rush of the 1800s led to construction of outposts that subsequently became ghost towns after that bubble subsided.
The global economy has experienced during this decade the biggest credit bubble in our lifetimes, and virtually every industry in every country benefited. In fact, all the growth stories of the past decade (such as China, emerging market infrastructure, residential housing, hedge funds, private equity and commodities) are capital intensive investments that benefited from easy access to cheap capital. The global credit bubble seems to have created a global economic bubble.
History would suggest, therefore, that there should now be massive overcapacity in the global economy. That is indeed the case. Global capacity utilisation was recently at generational lows. Ignoring this history, the goal of Washington’s policies has been to stymie the inevitable consolidation, keeping companies operating – and employing voters – rather than managing the consolidation to maximise the economic benefit. History says that Washington’s is an unwise and ultimately fruitless strategy.
Certainly, there may be short-term gains in an economy by keeping a bubble’s unnecessary capacity alive (this may explain the recent improvement in economic statistics), but the continued misallocation of capital significantly hinders longer-term growth. Washington’s tact has not been unusual. Politicians everywhere are naturally fearful of post-bubble consolidation because it always means higher unemployment and voter distress. As a result, policies in post-bubble environments tend to sustain an economy’s unneeded capacity, with the hope that economic growth will rebound so the economy can eventually grow into and soak up those excesses.
Japan’s post-bubble strategy during the 1990s supported excess capacity and stymied the post-bubble consolidation forces. Companies were deemed “too big to fail”, and excess capacity (particularly in the financial sector) was kept alive. Basic economics states that significant overcapacity leads to lower product prices, and Japan’s policies accordingly resulted in an extended period of deflation. Japan did have some inflation during its “lost decade”, courtesy of China’s boom, which soaked up Japan’s excesses. However, deflation returned to Japan and overcapacity grew once the Chinese economy cooled.
US policymakers made a clear choice to follow a Japanese-like route when they declared that a select group of financial institutions were too big to fail, and devised the troubled asset relief programme (Tarp), term asset-backed securities loan facility, and public-private investment programme. The bankruptcies of General Motors and Chrysler may seem to run counter to this contention, because the government took swift action to reduce unnecessary productive capacity, but it will be interesting to see how the government deals with the resulting consolidation within the industries that supply carmakers.
Recent private sector support for CIT Group – which saved the lender from failure – may be a good deal for investors who bought CIT’s debt at a discount, but it is clear that lending capacity will not be reduced as much as it would under a full CIT bankruptcy. If CIT had failed, some rightly feared that lending to smaller companies might have been constrained. However, the government could have encouraged other Tarp-funded institutions to lend to small businesses rather than continuing to allow bailed-out institutions to make outsized trading profits. If public policies insist on maintaining excess financial sector capacity, then at least utilise that excess capacity productively for the economy.
Many observers claim that comparisons between the US and Japanese economies are inaccurate because the US economy is more “dynamic” and less “rigid”. There are, of course, differences between the two economies, but it seems increasingly clear that both the US public sector and, with CIT, now the private sector too are working against post-bubble consolidation, slowing the economy’s dynamism and increasing rigidity. A California roll is an American version of a maki, a type of sushi. It is based on Japanese tradition, but has a decided American flavour. Similarly, the actions of the US’s public and private sectors seem to mimic Japan’s. Although the markets’ short-term reactions might correctly be positive, investors should be wary that the US will be an American version of Japan’s moribund economy.
U.S. to cover pensions for Delphi workers
The government’s pension insurance agency said today that it will take over the pension plans for 70,000 current and future hourly and salaried retirees at Delphi Corp., saying the Troy-based auto supplier can't afford to keep its pension plans. The move will cap pension payments to retirees depending upon a person’s age, potentially reducing benefits for Delphi’s current and future retirees. For example, the cap is $54,000 a year for a person who is 65 years old, and lower for younger retirees. The agency does not insure supplemental benefits usually offered to bridge younger retirees to their social security payments.
The Pension Benefit Guaranty Corp. will take over six Delphi pension plans that together have an $8 billion shortfall. The PBGC said in a statement this morning that the process of taking over the pension could take several months.
“The PBGC is stepping in to protect the Delphi Pensions because the restructuring Delphi cannot afford to maintain its pension pans and General Motors has stated it will note assume them,” the agency said in a statement.
GM is Delphi’s former parent and spun off Delphi in 1999. Delphi has been in Chapter 11 bankruptcy protection since October 2005. In a deal announced June 1, Delphi said GM was to address the supplier's hourly pension plan because a contract between GM and the UAW required the automaker to address any shortfall in the hourly plan. But the automaker has reversed course. Delphi said in a statement Tuesday night that it believes it won't be violating union contracts by terminating its hourly pension, but said it would wait to do so until a bankruptcy court can make a decision on that matter.
Goldman owes Paulson a $1 billion bonus
Cheers for King Henry -- world's greatest nudger
Welcome back King Henry! The same week Congress brutally grilled former Treasury Secretary Henry Paulson for strong-arming Bank of America into the Merrill Lynch deal last fall, J.P. Morgan Chase, Citi, Morgan Stanley, Bank of America, and Hank's old buddies at the Goldman Conspiracy were all wildly cheering him. His power play with TARP's billions last fall saved Wall Street and the world's banking system from a total collapse worse than the 1930s Great Depression.
Cheering? Yes, record second-quarter profits were cheers for King Henry. Wall Street banks know Hank is the world's greatest nudger. You probably thought Obama gets credit as the first president to bring nudgers to Washington, specifically the two behavioral economists, Cass Sunstein and Richard Thaler, co-authors of "Nudge: Improving Decisions about Health, Wealth and Happiness." No, President Bush deserves the credit for bringing Paulson on board three years earlier. But Paulson has kept such a low profile since leaving office six months ago, he could have been in a witness protection program.
Then suddenly, bam! He's in the limelight again. And he came out fighting, with an aggressive self-defense in the recent congressional hearings that challenged how he pressured Bank of America into buying Merrill. What a contrast. Obama's nudgers are academicians. Their idea of nudging has a soft liberal touch. For example, simply telling nurses that they are supposed to remind doctors to wash their hands. That's one extreme: A gentle elbow nudge to someone's ribs to get attention. King Henry's at the other extreme, where nudging includes any action that influences, encourages, cajoles, shoves, prods, persuades -- anything to get people to do your bidding. Lobbyists, CEOs, congressmen, they're all nudging, all the time, using anything necessary to get results. It's not new, they've been nudging forever.
The recent grilling of Paulson took me back to those dark days last October, just before the election, as the world's credit markets, banking system and economies were about to fall off a cliff and trigger a second Great Depression. Back then I wrote a column titled "Paulson's new 'Global Banking Corp.' IPO." In the column, I outlined the plot points for a sequel to Oliver Stone's 1989 hit movie, "Wall Street," with Hank Paulson as a new prototype for Gordon Gekko, emerging from the slammer after 20 years.
In the plot, I saw Gekko planning his big post-release move, preparing for a bigger global empire, honing his skills by operating like a Mafia Don running his gang from inside a super-max, running a hedge fund from his cell on a smuggled-in laptop. The new subtitle could read: "The Nudger Who Outdid Ponzi and Madoff, and Got Away with It." The first 10 plot points in my "Wall Street" sequel last October covered Paulson's history, starting with his days working in the Nixon White House. These plot points are already falling into place in less than eight months. In fact, No. 11 is proving amazingly prescient.
Here's what I wrote in October: Wall Street's dead? No way! The Street's alive, will survive and thrive. Paulson's Bonanza sets up the greatest moral hazard in world history. Our bad boys got away with a scam. Taxpayers are stuck with their toxic waste. Then, once freed, Wall Street comes roaring back with a new bull next year. The financial sector lost almost half its stock value since last summer's peak, $1 trillion. Our greedy financial geniuses must quickly invent new tricks to satisfy shareholders who lost billions and are now demanding higher earnings and stock prices. Banks must start blowing a newer, bigger, more lethal bubble.
Flash forward: Today Wall Street is blowing a new, bigger bubble. The earnings being reported just three quarters after near systemic failure are proof Wall Street has indeed "come roaring back with a new bull," even though the economy continues sinking. And that's why one scene should be added to my script: The Paulson character should get a $1 billion bonus from his old firm for all his high-powered behind-the-scenes nudging as Treasury Secretary. In fact, the Goldman Conspiracy should capitalize his "Paulson Global Banking Corp."
After all, King Henry's earned the title as the world's greatest nudger by nudging billions of hard-earned dollars out of taxpayers' pockets, while nudging billions of Wall Street's toxic assets back into those same taxpayers' pockets. In real life, the Goldman Conspiracy owes Paulson, their benevolent nudger, a mega-bonus now that they're back in a business-as-usual mode.
And lest you ever forget Paulson's contributions, here are ten of the best plot points that ought to be in the sequel to "Wall Street." All of them clearly support the claim that the great Hank Paulson is the world's greatest nudger and clearly deserves a $1 billion bonus for all he's done for Goldman:
- While chief executive of the Goldman Conspiracy for years before he took over the U.S. Treasury, he helped create the global $523 trillion derivatives bubble building into the 2007-2008 credit meltdown.
- Back in August 2006, he privately warned the White House: "Over-the-counter derivatives [were] an example of financial innovation that could, under certain circumstances, blow up in Wall Street's face and affect the whole economy." Yet to the last minute he said they were "contained."
- Paulson left Goldman with a personal fortune of $700 million, which was put in a tax-free trust when he became Secretary. He needed to protect it, and his legacy.
- Paulson was Wall Street's Trojan horse when the derivative markets collapsed last fall when he nudged Congress into protecting so-called "too big to fail" banks rather than protect the banking system itself and the American taxpayer.
- When the meltdown pushed Paulson back in the center ring, he took command with a mini-memo nudging Congress into giving Wall Street $787 billion TARP money, with his old buddies in the Goldman Conspiracy in a favored position.
- If you believe his critics, Paulson nudged two of Goldman's strongest competitors into bankruptcy, and nudged the system into protecting AIG's debt obligations to Goldman.
- He nudged Bernanke's Fed into protecting the Goldman Conspiracy as a new "too big to fail" commercial bank, with guarantees on debt, which helped their stock triple from lows of $50, and helped in their recent $1 billion bond sale.
- His nudges made possible ten $100 million trading days this year for their quants' use trading algorithms that they admit manipulate markets for insider profits.
- Thanks in part to his nudging, the Goldman Conspiracy is already back with a whopping $3.4 billion quarterly profits, and average bonuses on track to hit a record $700,000.
- And it'll get worse. In his recent Rolling Stone story, "The Great American Bubble Machine," Matt Taibbi details Goldman's "gangster economics" strategy, which has worked for them since the 1930s Great Depression. They are already setting up a new global derivatives bubble: "As envisioned by Goldman, the fight to stop global warming will become a 'carbon market' worth a trillion a year."
So that's why Paulson's been silent, waiting patiently to cash in on engineering this brilliant takeover of the American government by the banking industry.
On Thursday, Part 2 on how Henry Paulson's "power nudges" reveal why behavioral economics is in a war with the classical economics that has driven American capitalism since Adam Smith on through Milton Friedman and Reaganomics, into a war with Bush, Paulson and conservative political ideology.
Ilargi: No lack of silly plans these days, and given the various states of denial about where we find ourselves, which are actively encouraged by authorities, that should be no surprise. Here’s an economics professor who wants to give people who actually can pay their mortgages, but don’t feel like doing so, the option to lower their payments in exchange for giving banks "half of the future upside" of the loan. Waiter, I'll have what he's having.
- People who cannot pay need help first
- Lowering the principal to today's value is useless if prices keep falling. Most modification schemes are based on the faulty “present value" idea.
- Banks will fight this till death comes. Which it will for many if this were accepted. If only because what the professor calls an "added benefit", i.e. banks having to come clean about the health of their balance sheets, is the last thing they want.
And it's silly to launch the notion that "we'll be hard-pressed to get [banks to open their books] any other way" as a plus for this plan. That confuses the relative positions of the cart and the horse.If we -as in our elected government- want the books to be opened, all we have to do is say so. Apparently, though, that’s not what "we" want.
Time For A New Mortgage Plan: Debt-For-Equity Swaps
Obama's mortgage modification plan has, for all intents and purposes, failed. It's too complex, there's too much resistance from banks, and there are not enough resources in place to rapidly restructure existing terms.
So, what's the answer? Just let millions more homeowners default? No, says professor Luigi Zingales, of the University of Chicago's Booth School of Business. Zingales' answer is something similar to the debt restructuring that bankrupt corporations go through: debt-for-equity swaps in which not only monthly payments but actual principal owed is reduced.
In Zingales' plan, homeowners who are more than 20 percent underwater on their mortgages would have the right to reset the value of the loan to the house's current value -- in exchange for giving half of the future upside to the bank. From the bank's perspective, this plan would have the same drawback as today's mortgage modifications: It would force an immediate writeoff.
But if homeowners were given the option, the banks wouldn't have any choice. This plan would have the added benefit of banks having to come clean about the health of their balance sheets and the value of their loans, which we'll be hard-pressed to get any other way.
Obama’s Strategy to Reverse Manufacturing’s Fall
If the Obama administration has a strategy for reviving manufacturing, Douglas Bartlett would like to know what it is. Buffeted by foreign competition, Mr. Bartlett recently closed his printed circuit board factory, founded 57 years ago by his father, and laid off the remaining 87 workers. Last week, he auctioned off the machinery, and soon he will raze the factory itself in Cary, Ill. “The property taxes are no longer affordable,” Mr. Bartlett said glumly, “so I am going to tear down the building and sit on the land, and hopefully sell it after the recession when land prices hopefully rise.”
Though manufacturing has long been in decline, the loss of factory jobs has been especially brutal of late, with nearly two million disappearing since the recession began in December 2007. Even a few chief executives, heading companies that have shifted plenty of production abroad, are beginning to express alarm. “We must make a serious commitment to manufacturing and exports. This is a national imperative,” Jeffrey R. Immelt, chairman and chief executive of General Electric, said in a speech last month, while acknowledging that G.E. was enriched by its overseas operations too. President Obama, agreeing in effect, has declared, “The fight for American manufacturing is the fight for America’s future.”
The United States ranks behind every industrial nation except France in the percentage of overall economic activity devoted to manufacturing — 13.9 percent, the World Bank reports, down 4 percentage points in a decade. The 19-month-old recession has contributed noticeably to this decline. Industrial production has fallen 17.3 percent, the sharpest drop during a recession since the 1930s. So far, however, Mr. Obama’s administration has not come up with a formal plan to address the rapid decline. Instead, it has pursued ad hoc initiatives — bailing out General Motors and Chrysler, for example, and pushing green energy by supporting the manufacture of items like wind turbines and solar panels.
“We want to make sure that we grow a manufacturing base for renewable energy,” said Matthew Rogers, a senior adviser in the Energy Department, explaining that this is being accomplished in part by “accelerating loan guarantees from zero” in the Bush years. Xunming Deng, a physicist and the chairman of the Xunlight Corporation, sees himself as a beneficiary of what he describes as the Obama administration’s more flexible loan guarantees. His factory in Toledo, Ohio, with 100 employees, is in the early stages of making solar panels, and Dr. Deng is already planning to quadruple the plant’s size.
He has applied to the Energy Department for a $120 million loan guarantee. If he gets it, he will not have to pay the hefty fees charged for loan guarantees before Mr. Obama took office. “Getting rid of that fee makes the loan guarantee very attractive and very helpful,” Dr. Deng said. “We can’t grow as fast without it.” Beyond energy, the administration’s approach gradually outlines the elements of a manufacturing policy — what Lawrence H. Summers, director of the National Economic Council, described as “a number of things to support manufacturing.”
The auto bailout, for all its improvisations, served notice that the administration would probably rescue any giant manufacturer it deemed too big (or too iconic) to fail, and would help the suppliers of failing giants transition to other industries. The Buy America clause in the stimulus package pointedly favors the purchase of American-made goods for infrastructure projects. The Commerce Department is adding $100 million, more than double the current outlay, to a program that helps American manufacturers operate more effectively.
And trade agreements negotiated by the Bush administration — agreements that would make the United States more open to imported manufactured goods — have been allowed to languish in Congress. “The administration’s policy is evolving in the right direction,” said Representative Sander M. Levin, Democrat of Michigan, who is particularly concerned about auto imports. “I think they have essentially shed the political chains that prevented government from having a role in manufacturing. They are working their way toward what makes sense.”
Not everyone agrees. “Bush and Obama,” Mr. Bartlett said scornfully, “one is as bad as the other in terms of manufacturing policy.” He acknowledged that the recession was the immediate reason for the demise of his family’s business. But what really did it in, he said in an interview, was the competition from less expensive Chinese circuit boards — less expensive, he argued, because the Chinese undervalue their currency and this administration, like the ones before it, lets them get away with it. “Our orders went from $8 million at an annual rate to $4 million, which was not enough to make money,” he said.
Mr. Bartlett, who is co-chairman of an organization called the Fair Currency Coalition, said that Chinese competitors charged only $1 for each printed circuit board sold in this country, while he charged $1.40. Like many economists and government officials, he says he believes the Chinese currency is artificially undervalued. As a countermeasure, he said the Obama administration should impose a 40 percent tariff on imported Chinese goods. “I can compete against Chinese entrepreneurs, and Chinese labor cost is not that big a factor,” he said, “but I cannot compete against the Chinese government’s manufacturing policies.”
Manufacturing has long been viewed as an essential pillar of a powerful economy. It generates millions of well-paid jobs for those with only a high school education, a huge segment of the population. No other sector contributes more to the nation’s overall productivity, economists say. And as manufacturing weakens, the country becomes ever more dependent on imports of merchandise, computers, machinery and the like — running up a trade deficit that in time could undermine the dollar and the nation’s capacity to sustain so many imports.
One tactic for strengthening the manufacturing sector, in the administration’s view, would be a shift in tax policy. The research and development tax credit, which is now subject to renewal by Congress, would be made permanent, encouraging much more R.& D. among manufacturers, a senior Commerce Department official argued. And foreign taxes paid on profits earned overseas would not be deductible in this country until the profits were repatriated, a restriction that might discourage locating factories abroad. The goal is to arrest manufacturing’s dizzying decline. It “was the pillar on which we built the middle class,” said Thea Lee, policy director for the A.F.L.-C.I.O., “and it is hard to see how you rebuild the middle class without reviving manufacturing.”
Too big to fail? Wall Street, we have a problem
The moon vehicle system was based on a modular design. One advantage of such a design – that failure in one component is less likely to compromise the whole – was demonstrated on the Apollo 13 mission. The astronauts were brought back safely to earth despite an explosion that damaged systems on the principal craft. Any engineer will tell you of the importance of making complex systems robust. You need inspections to prevent failure, to be sure: but since failures are inevitable it is equally important to try to ensure that the consequences of such failure are contained.
This observation is as relevant to economic and financial systems as to technological ones. Designing them with components too important to fail is a prelude to disaster, as we know. In the financial sector, the problem of disruptive linkages between components has become known as the problem of systemic risk – a term that is used in several different ways. Often it describes macro-prudential risk, which arises mainly from the ability of financial market participants to persuade each other of absurd things. The cyclical booms and busts that result damage the non-financial economy, and economic policy can counteract this.
Regulation should take away the punch-bowl as the party is starting, as William McChesney Martin, Federal Reserve chairman for nearly two decades until 1970, had it. But this is not a politically popular course. It is much easier, in the style of Alan Greenspan, to persuade yourself that what is plainly a party is just an outburst of rational exuberance. The traditional systemic risk was the run on the bank. When deposit-taking institutions failed, the people at the front of the queue got their money back and those at the end got nothing. This process created the potential for any element of doubt about a bank’s solvency to jeopardise not just the bank, but all banks. In 1933, that process brought the US economy to a halt. But adequate deposit protection deals with this problem.
The recent issue has been counterparty risk. Credit risk in wholesale financial markets means that exposures that seem to be matched may turn out not to be when it matters – and this fear is what prompted the rescue of Bear Stearns and AIG. But to treat this problem as systemic risk to be dealt with by public authorities is to cast the government as an unpaid credit insurer. There are two objections to such a course, both overwhelming. One is that it is simply not an appropriate thing for taxpayers to do. They make their contributions to build schools and hospitals, not to subsidise Masters of the Universe in transactions of little, if any, social benefit. The second objection is that government intervention gets in the way of the development of market mechanisms for solving the problem of counterparty risk.
These complications risk distraction from the key issue: the main source of systemic risk is within large financial conglomerates themselves. The financial products group at AIG brought down America’s leading insurer, and 120,000 people with it. It was based in London and employed barely 100 of these people. At Royal Bank of Scotland, with 170,000 employees around the world, the business was crippled by activities that more than 169,000 of them did not know about and were not engaged in.
If you unscrew the box on most modern domestic appliances, you will find it contains a small number of modules. The normal way of fixing such appliances is to take out the defective unit and replace it. If this seems a costly solution, remember that it has given us appliances that need little servicing, function reliably for years and are easy to repair – none of which can be said of our financial system. We should learn lessons from the Apollo programme and the people who design our television sets. Modular constructions are more robust. In the business context, modularity means that different activities are conducted through different corporate vehicles.
China’s Magic Numbers
China, [last] Thursday, announced its second-quarter gross domestic product-a big deal here. It's not just the Chinese government's top priority but a nearly sacrosanct number. Growth came in at an astounding 7.9 percent. But could China's GDP really grow that fast even with the collapse of global trade? Economists at top brokerages and investment banks say yes. Debate raged a decade ago over whether or not to trust the data or how much officials at various layers were fudging the numbers. But now the question is mostly forgotten because alternative data is so hard to come by. Some independent economists and academics still have lingering doubts, however.
The concept of GDP isn't native to China; officials refer to it, more often than not, by those three letters rather than their Chinese translation. But like Communism, the imported ideology that reigned before it, no other country has revered the economic indicator on such a massive scale. The fixation with semi-scientific numbers hearkens back to Maoist days, when surreal statistics for steel and grain production took center stage. Nowadays, boosting the GDP seems to be just about the highest form of public service. Premier Wen Jiabao said in March, "An 8 percent GDP expansion is the government's pledge and responsibility."
At nearly every level of the bureaucracy, officials tally GDP growth of their district and report it up the line. By county, city, and province, their bonuses and promotions have been largely based on two factors: local GDP growth and the rate of compliance with the one-child policy. The latter has in recent years dropped out of the equation, giving officials plenty of motivation to fiddle with the data. Analysts in certain years actually suspected more underreporting than overreporting, and data collection probably still skips over some private-sector growth.
But today disbelief centers on how GDP growth could be so robust amid deflation, falling foreign-direct investment, collapsing trade, plunging corporate profits, and, most notably, waning electricity usage. China is probably the only country in the world to ever report positive GDP growth and shrinking power consumption at the same time.
On the other hand, common knowledge erroneously has it that exports are the main driver of China's GDP growth, especially since Treasury Secretary Timothy Geithner accused Beijing of brutally suppressing the renminbi, the people's currency. The fact is, exports have never accounted for more than a third, some put it at a tenth. The greater contributor by far has been domestically funded fixed-asset investment-including glittering, empty skyscrapers, parallel superhighways, and even plans to build two high-speed trains, both running between Hangzhou and Shanghai. That factor has been even more magnified this year by China's $586 billion stimulus package targeting infrastructure.
After giving up on debating GDP accounting methods, critics turned their attention to the quality of growth, which even Communist Party officials have clamored to condemn as unsustainable and hazardously driven by government spending rather than domestic consumption. There's a widespread perception abroad that China is a capitalist paradise. But half of China's GDP comes from government investment and expenditure, making its public sector, by some estimates, proportionately twice as big as India's and those of most emerging markets-and still growing. This is a problem because returns on capital use by state-owned firms are far poorer than by private firms.
A boost to the GDP may simply not translate into real economic growth. The government stimulus has also prodded banks to release a tidal wave of credit, less than 5 percent of which has gone to small and midsize enterprises. Hogging the bank loans, state-backed firms now have enough funds to eat up their private competitors, though the private sector remains the country's major source of employment. Speaking of which, unemployment data in China is sorely lacking and, as a result, largely ignored by most investors and economists. Since GDP trumps all, analysts can hail China as recession-proof, even after officials estimate some 20 million to 25 million jobs were lost among migrant workers. Whether or not GDP grew by 7.9 percent in the second quarter, the average Chinese person definitely did not get 7.9 percent richer.
China to spend reserves to grow overseas
-Beijing will use its central bank's international reserves, No. 1 in the world, to accelerate Chinese business expansion overseas, the country's premier said. "We should hasten the implementation of our 'going out' strategy and combine the utilization of foreign exchange reserves with the 'going out' of our enterprises," Wen Jiabao told Chinese diplomats. Wen said Beijing also wanted Chinese companies to increase China's share of global exports, The Financial Times reported.
The "going out" strategy is a catchphrase for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina Co., owned by China's biggest oil producer; Aluminum Corporation of China Ltd., the country's largest aluminum producer; China Telecom Corp., its largest fixed-line and mobile-phone provider; and Bank of China Ltd, one of China's big four commercial banks. Wen did not elaborate on how much of the $2.132 trillion in international reserves would be channeled to Chinese enterprises. HSBC Holdings PLC chief China economist Qu Hongbin said the decision was part of a Chinese strategy to reduce its reliance on the U.S. dollar as a reserve currency.
Beware of China Buying U.S. Assets -- Is It Too Late for America?
As the president and founder of an international financial consulting company that works closely with Chinese companies seeking to go public on U.S. stock market exchanges, I see the enormity of China's global financial influence and power on a daily basis. American assets are at such low historical values, they are prime targets for China. China's international reserves are over $2 trillion and the potential of what China can buy in the United States is colossal. I fear it may be too late for America, but I strongly believe as a nation that we should be significantly more concerned and proactive about protecting our assets.
I'm a proud American businessman and father committed to ensuring a bright future for my children. I grew up hearing and believing that America is the richest and most entrepreneurial country in the world. Today, as I travel to China regularly and see the entrepreneurial zeal and energy of the Chinese, I no longer believe that America is the golden land. We need a collective kick in the pants to help us figure out how to reinvent our economy and rebuild our collective, national self-esteem.
In June, I was interviewed by Fox Business Network's Alexis Glick about China's shopping for assets in the U.S., including their pending purchase of the Hummer brand and sizable stake in U.S. Treasury bills along with former GM Executive and consultant Rob Kleinbaum. Kleinbaum said he believed that the sale was a positive development for the U.S. as it would create more jobs in the U.S. The idea of Americans selling a major brand such as Hummer and justifying it by saying this sale creates jobs here in the U.S. makes little sense to me. Creating assets and being more competitive globally is how you increase employment in the U.S. You can't sell assets in perpetuity to create jobs. You cannot sell off assets and survive long term.
In addition to talking the talk, we need to walk the walk toward real change. As the United States begins to start legislating that power companies generate more electricity from renewable sources, China has already invested billions to remake itself into a green energy super-power. China is already committed to the ensuring that their transportation infrastructure is world-class with 250 mph railroads while Americans hobble along with old-world railroads. We will see China buying more and more major US assets over the years to come. Chinese investors who want to buy foreign assets below $10M now face little red tape and are encouraged to apply online while the Ministry of Commerce maintains oversight for the larger transactions.
While aspiring American home-owners face almost insurmountable odds to secure a mortgage, and home builders struggle to secure credit lines, the Chinese, who were the fourth largest group of foreign buyers last year, snapped up homes across the U.S. at a median price of $450,000 according to the U.S. National Association of Realtors. We've only seen the tip of the iceberg. China's shopping spree in the United States has just begun. I believe our best defense as Americans is to embrace the work ethic and values that made this country great. We need to be the most innovative and inventive and strive to continually conquer new markets. The Chinese work day and night to ensure their future is better and brighter for generations to come. Let's embrace that work ethic again here so we can ensure that America is a land of plenty for our children.
UK government debt: almost 9p of each £1 in tax will be needed to pay the interest
The cash eaten up by interest payments on Government debt will more than double in the next four years as investors take fright at Britain's ballooning budget deficit, the country's leading independent forecaster has warned. Within four years, almost 9p in every pound of tax paid by British individuals and companies will be spent directly on servicing the Government's debt, rather than on services such as hospitals and police, or the costs of running defence or the welfare state, according to new calculations. At present, the debt interest costs an average of around 5p for every pound in tax.
The National Institute of Economic and Social Research said that costs of servicing government debt will rise from £25.6bn this fiscal year to £50.7bn in 2013/14, due to a combination of higher interest rates and a far greater debt burden. The warning underlines the cost facing taxpayers as the Government debt rises at the fastest rate in peacetime history. Families will have to endure a stinging combination of public spending cuts and tax increases over the coming years as a result, NIESR said. It came as newly-released official figures showed that the black hole in the Government's accounts is growing at the fastest rate in history.
The figures, published today in NIESR's latest assessment of the British economy, underline the fiscal crisis facing Britain as a direct result of the financial and economic crisis. The Treasury has had to contend with a sudden collapse in tax revenues from City firms and struggling businesses, alongside a sharp increase in the cost of benefits for the rising ranks of the unemployed. NIESR also pointed out that the fall in Gross Domestic Product during the first quarter was likely to have been the sharpest since the General Strike of 1926. And although it predicted that the economy would be growing again before the end of the year, it cautioned that GDP figures for the second quarter, out on Friday, would show another sharp fall in Britain's economic output.
By NIESR's calculation, annual Government borrowing will still be above the £120bn mark in 2013-14, perhaps as much as £160bn if the Budget assumptions for spending were upheld. A phalanx of forecasters, including the International Monetary Fund and the Organisation for Economic Co-operation and Development, have warned that unless the UK brings spending under control, it may struggle to raise cash on capital markets. In practice, this means the Government will be forced to pay higher interest rates on its bonds, potentially pushing up debt interest costs even higher than forecast by NIESR.
Robert Stheeman, chief executive officer of the Debt Management Office admitted yesterday that a possible downgrade in Britain's credit rating would push up these costs, though he denied that it would threaten Britain's ability to sell bonds. "I'm not trying to sound complacent about it, but I generally don't think it would," he said. "Ultimately, it could affect the price at which we're selling gilts, and I think very often you see movements in yields immediately after any rating agency has made an announcement, so that could indeed affect us. My sense is that for overseas investors, to be seriously concerned you'd have to see not just one but possibly several downgrades." The Treasury borrowed some £13bn in June – the biggest amount ever for that month of the year, according to the Office for National Statistics.
Some $5 trillion on financial support since the crisis began, but almost nothing has reached the most vulnerable countries
Supachai Panitchpakdi, head of the UN Conference on Trade and Development (UNCTAD), said the financial crisis had exposed the deep failings of growth models adopted in Africa, the Pacific, and parts of Asia, usually under pressure from the West. "Some advanced countries may be seeing an end to the crisis but it’s still darkness at the end of tunnel for the least developed, and many of them are going backwards. We’re talking about a billion malnourished people," he said in London.
Capital flows to poorer states and export earnings have together collapsed by $2 trillion since the credit crunch began. "This is an alarming trend, and it’s not a result of their own doing," he said. Mr Supachai said the world had spent some $5 trillion on financial support since the crisis began but almost nothing has reached the most vulnerable countries. "There is very little trickle down," he said. While Eastern Europe has been rescued by the International Monetary Fund, the world’s 49 "least developed countries’ (LDCs) are too poor to meet the loan conditions.
UNCTAD said market ideology has distorted the structure of farming in many of these countries over the years and prevented them creating light industries and processing needed to move up the manufacturing ladder. "The market-led reforms since the early 1980s have, to a large extent, failed to correct this deep-seated weakness," said the agency’s annual report. Decrying a "false dichotomy" between the virtues of the free market and the alleged vice of state dirigisme, it said there is much to learn from the calibrated "industrial policies" of Malaysia, Sweden, Taiwan, and Finland.
"Not all decisions made by governments are always rational. Governments are subject to capture by special interests. The same criticisms, however, apply equally to the market," it said. UNCTAD said the commodity boom of recent few years masked the underlying problems, as well as leaving countries exposed to sudden shocks and debt crises. The claim may raise eyebrows among those in the City who think that a "commodity supercycle" driven by China has transformed the prospects of mineral-rich states, despite the price correction over the last year.
The UN’s tilt towards "smart dirigisme" would have caused apoplexy in Washington under the Bush Administration, and will remind some critics of development orthodoxies in the 1960s. It may receive a less chilly reception from President Barack Obama and his Democratic Congress. As global leadership shifts ineluctably from West to East it is no longer possible in any case to ignore the success of Asia’s state-led systems. The ideological baton is passing.
The Guardian Institutions of Hierarchy
by Paul Bodhisantra Chefurka
One aspect of human culture that seems irresistible to the ancient status-seeking part of our brain is the development of hierarchies. The encoding of personal status and power into social structures is evident in the tribes and troops of all the great apes, but human beings have gone much further. We built an entire globe-spanning civilization on the foundation of hierarchy.
One inevitable effect of social hierarchies (in fact the effect that made our global civilization possible) is the consolidation of power. As new power comes into a hierarchic social system it flows preferentially to the top. As the system develops, even the small amount of power available to those at the bottom of the social pyramid is removed and ends up concentrated at the top in a power elite. This becomes a positive feedback loop: the more power is consolidated at the top, the easier the consolidation becomes.
This consolidation of power is seen in all social hierarchies. As you would expect, our most hierarchic societies, from ancient Egypt to Stalinist Russia to the USA, exhibit it most profoundly.
You can think of this effect as a form of social reverse osmosis, in which power is pumped through a semi-permeable membrane up a gradient from social regions of low power concentration to regions of high concentration, with class boundaries forming the membrane between them.
Physical reverse osmosis requires both a semi-permeable membrane and a pump, so it's logical to look for similar mechanisms in this social metaphor. What drives social power from low to high concentrations? And what keeps the semi-permeable membrane of social class boundaries intact so that the whole system can function?
In our metaphor of reverse osmosis, these mechanisms are provided by what I call the Guardian Institutions. These are the corporate, economic, financial, political, legal, religious, educational and communications institutions that form the structural skeleton of our civilization.
Corporations and businesses cooperate with economic and financial institutions to set the value of work and control the money supply. In this role it doesn't make any difference whether an economy is capitalist, socialist or communist. The core beliefs it guards are always the same: ownership and growth. In our Western civilization these institutions are the pumps that move power (transfigured into wealth) away from the powerless and to the powerful.
Political institutions encode, enshrine and manage the application of social power. Politics is the institution that legitimizes all the others. Because of its unique ability to make laws and its access to legalized violence to defend them, politics is the primary self-defense mechanism of the power hierarchy of civilization. In this view it doesn't matter if the political system is democratic or authoritarian, capitalist or socialist, liberal or fascist, feudal, monarchic or dictatorial. As long as the political system can make laws and use institutionalized violence (i.e. police) to enforce them, any political system will fulfill this core function. From this point of view the differences between them are largely cosmetic. Even the differences between parties in a democratic system are a useful irrelevancy – useful to those in power by giving the powerless a calming illusion of control. Politics as a social system invariably works to the benefit of those at the tip of the power pyramid.
Legal institutions enforce the norms of the hierarchy in ways too numerous to count. These range from the protection of privilege (one law for the rich, one for the poor) to the preferential defense of property rights over human rights. Along with the police force it empowers, the legal system is the tip of the spear that keeps the power-holders safe from the powerless. In the terms of our metaphor, legal institutions maintain the integrity of the semi-permeable membrane of social class.
Religious institutions (as distinct from the religions they purport to enshrine) are primarily normative social structures. Many incorporate an overt message that we should be content with things as they are. There are often injunctions against questioning authority, as all authority is seen to devolve from the supernatural – as it has ever since the shamans of the early agricultural era. Like legal institutions, they guard the integrity of social classes, though in our civilization the role of religion has been handed over largely to the legal sphere with its more overt control mechanisms.
Educational institutions teach successive generations how the system works. It gives those at the tip of the pyramid the tools to integrate into it and manipulate it. At the same time it trains everyone involved to see the pyramid of hierarchy as the only possible way the world can work. Those who do not accede to the top of the system learn to be content that the perceived order is natural, inevitable, beneficial, and unquestionable. An interesting twist in modern education is that we are now taught that the rights of the powerful are acquired through merit rather than birth (though many PhDs have learned otherwise).
Communications media reinforce the message of the inevitability and beneficence of our social hierarchy by enlisting people in the power/growth/ownership paradigm. They do this through overt messages like advertising, covert messages embedded in the story lines of entertainment and of course the selective editing and presentation style of news programs. People who are programmed by this constant messaging come to regard any values that challenge the existing structure as incomprehensible, self-evidently absurd, dangerous or even insane.
From this perspective, the various organizations through which the power elite manifest in our civilization – the World Economic Forum, the Bilderberg Group, The Family, Skull and Bones and all the rest – are not, in and of themselves, the problem. They are merely the ways in which the tip of our civilization's power hierarchy has organized itself along lines of common interest. The underlying, unspoken goal of all of them is the efficient maintenance and enhancement of a structure that works to their advantage. If they were emasculated or dismantled, other such organizations would spring up to replace them.
So what can we (those of us who are egalitarian or simply powerless and have not swallowed the soma of our culture) do about this situation? It's a tough question, because as I said above, I don't think that directly attacking the organizations themselves will work over the long run. Getting rid of one of them would be like cutting out a skin lesion that is simply a visible metastasis of a systemic cancer. The body of our civilization is riddled with this particular cancer, and has been for at least the last few hundred years. Perhaps the only real solution lies in a civilizational death and rebirth, but that's a fairly ... ummm... unpopular notion, especially to those at the tip of the power hierarchy.
180 comments:
Ilargi(whoever you are): that was powerful stuff. I suggest you identify yourself and just let it go.
It needs to be said with a name and a face. Besides, who gives a shit?
Dennis
Another great post, "I" Man.
I'd like "Sting's" music even if I never saw him or knew his real name.
...and TAE's self-appointed Greek chorus keeps on keepin' on...XD
@ Jim yesterday:
You are not alone, Jim. I think most people probably encounter the same situation when trying to talk to family members and friends about peak oil, financial contraction, etc.
It took me a few years of slowly introducing ideas to my wife to get her to agree to buying land, and plan for a "different" kind of life...
dennis (Doc)
Whoever you are, why don't you post as "Herbert"?
And Herbert, how do you know his name isn't actually "Ilargi"?
This is a good one Ilargi.I commend you.Joe B is the best voice one can hear for a heartfelt understanding of just plain folks.I have read a lot of his stuff on line...but have shied away from his books...[I am getting where I do not like to read "too intense"material now..as the logical part of me shuts down and the anger clouds my thoughts/feeling too much.]The rational discussion I find here may spark some fire once in a while...But el g and others have set the right tone to rationally and quietly describe and discuss the end of the american experiment.
Greed Won..the people lost....
As has been said,we will witness the destruction of O-man,and the rise of the Nutcake right way way too soon for my liking...or at least this is the way it starting to look...as has been often quoted"History does not repeat itself...but it does rhyme"..
Almost limerick time
snuffy
Snuffy: "But el g and others have set the right tone to rationally and quietly describe and discuss the end of the american experiment."
Snuffy, you're certainly one of the "and others".
Amazing what TAE has become.
Also amazing how Stoneleigh deals with trolls. Was it el G who first used Saint Stoneleigh?
Trolls notwithstanding, this is one cool community. Thanks everybody.
From yesterday.
Bukko,
I am familiar with Ferfal's writings. It may well be true for Argentina's recent past but I hope very much that Australia's future will be different. Well, there are far fewer pistols around for starters.
I have some ideas and we are not going there empty-handed. We are rather fortunate in some respects. My wife is a family physician and I have a number of useful skills. Most importantly, I have always been lucky and that is going to be even more important, IMHO.
Above all, we want to miss out on Europe returning to business-as-usual - warring states. I think the energy and genius of Europeans has been directed outwards for a couple of centuries and now it will be forced inwards. I really don't want to participate.
Since I am much too old to think of working the land or any such thing, I am thinking in terms of owning the land and making sure it is used properly. A lot of landowners seem to be very short term in their approach and are in debt to the banks. That is why forestry is one possibility. BTW, I am familiar with the recent financial disasters in Australia forestry. I am not sure whether it was bad luck or a dose of Madoff.
"Trolls notwithstanding, this is one cool community. Thanks everybody."
*who's that billygoat trip trapping over my bridge*
All this billy-goats guffing about trolling only shows me that there's alot of insecure people here who hold a strong belief that results, for the moment until the collapse actually comes..., in cognitive dissonance expressed as anger and incredulity towards any nay-saying argument questioning the accepted prophecy.
By definition any nay-sayer, even if all that is proposed is a refinement to the prophecy rather than a denial of it, is going to find an argumentative response and must therefore argue in return.
Such contributions will be characterised as trolling by those suffering the greatest degree of internal dissonance. OTOH they should be welcomed by those seeking to minimise dissonance with the actual reality, even if the counter argument is rejected.
By the above definition of trolling I think a troll is a higher calling than a billy goat, so consider me a Troll on a Roll.
Scep
In Lanzarote, one of the Canary islands, is a cave system left by lava flows. It's on many levels, like a huge piece of honeycomb.
It's dimly lit, and tourists are shown round.
In one chamber, tourists are encouraged to look down, through a hole in the floor, into a vast cavern system below. There's no rail, or rope, and we all dutifully peered in to the abyss.
Then *ping* the guide throws a stone over the 'edge' - and the illusion - a reflection of the roof in a 2 inch puddle - is shattered.
Suddenly, visitors realise, they are all standing in much small chamber, looking into a puddle.
I'd like to thank Ilargi and Stoneleigh for pulling back the curtain, exposing the wise guy with the levers, and for throwing stones.
Their patience in dealing with dissenters, when just comprehending the sheer scale and scope of what we're dealing with would lever most people's brains clean out from between their ears, is worthy of respect.
Trolls not withstanding, I'm delighted (as I hope I&S are) with the breadth and depth of knowledge shown by the commenters.
I get a lot of flak for pointing people TAE way, for trying to dispel the BAU myth [how about this, re the 'top of the great pyramid' primer:
"It is millenarial, sophomoric fantasy material. Lots of end-of-the-world predictions padded with irrelevant examples and non-sequiturs.
You'll get a far more entertaining apocalyptic lob on in any one of a million zombie books or nuclear war novels (try On The Beach by Nevil Shute). This stuff is rubbish and boring and it's not even well written."
...but I'm getting more of a rhino hide these days.
A quote from George Monbiot springs to mind:
"Tell people things they already know, and they will love you. Tell them things they don't know, and they will hate you."
I don't know what makes some people more receptive to 'bigger truths', whilst some people just don't want to know (yet) - I guess some of it could be as Bill Hicks (R.I.P) famously said:
"The world is like a ride at an amusement park. And when you choose to go on it, you think that it's real because that's how powerful our minds are.
And the ride goes up and down and round and round. It has thrills and chills, and it's very brightly coloured, and it's very loud and it's fun, for a while.
Some people have been on the ride for a long time, and they begin to question - is this real, or is this just a ride?
And other people have remembered, and they come back to us. They say 'Hey! Don't worry, don't be afraid, ever, because, this is just a ride.'
And we...kill those people. Ha ha ha. 'Shut him up! We have a lot invested in this ride. SHUT HIM UP! Look at my furrows of worry. Look at my big bank account and family. This just has to be real.' It's just a ride. But we always kill those good guys who try and tell us that, you ever notice that? And let the demons run amok. But it doesn't matter because: it's just a ride. And we can change it anytime we want. It's only a choice. No effort, no work, no job, no savings, and money. A choice, right now, between fear and love. The eyes of fear want you to put bigger locks on your doors, buy guns, close yourselves off. The eyes of love, instead, see all of us as one. Here's what you can do to change the world, right now, to a better ride. Take all that money that we spend on weapons and defence each year, and instead spend it feeding, clothing and educating the poor of the world, which it would many times over, not one human being excluded, and we could explore space, together, both inner and outer, for ever, in peace."
A question ... If I'm considering keeping some funds in in cold hard cash, what are the safest ways and places to keep it?
What are the best ways to protect wads of notes against fire, theft or other risks? (Also, what are the other risks? Those are the main ones I can think of.)
What would be the maximum you would feel comfortable keeping in cash? Thanks for any thoughts.
Take all that money that we spend on weapons and defence each year, and instead spend it feeding, clothing and educating the poor of the world, which it would many times over, not one human being excluded, and we could explore space, together, both inner and outer, for ever, in peace."
Sounds nice, should be done, sounds pretty rational too but the world we see today is a collective expression of humanity. The world we live in, is a grand chess game of 'inclusive fitness', where those who deny the other group resources are better of genetically. Their children are healthier and are more likely to reproduce and carry on the legacy of those genes.
When the US elite absorbs as much wealth as it can from the people below, it is not because they are immoral or set out to do so, they just do it because the accumulation of wealth and power seems natural to them. If I was a multi millionaire, I'd like to be a billionaire! I wouldn't really think I am hurting someone else. I reckon, that it's a sexual battle. Where men are battling for ever greater rights to the wealth pie to impress women. And this behaviour plays out on a society wide scale, countries fighting over resources and the winner gets a surplus, which means a higher standard of living, greater prosperity, power, etc.
It's been shown in biology that the females in the species are hugely attracted by status, which can be represented by physique, feathers, wealth, power, the alpha male. This plays out within countries and amongst countries as well. But that doesn't mean that this is a good thing. An adaptation can be good now but horrible later e.g. those reindeers with the huge horns, they evolved because the bigger the horns the more attractive they are to females and the more they can push back the competing males but the process got so out of hand that today those horns are so huge that they have actually curtailed the growth of the species as the maintenance of the horns requires a large amount of resources and is very dangerous to the safety of the males.
I fear this is the trajectory humans are on, we have evolved to exploit every possible niche of the environment, to dominate it. We have gathered surplus and are abundant all over the world but we are undercutting the very resources that support us. The trees have mostly been cut, the soil has been eroded by a huge extent, the climate is rapidly altering, the oceans have huge areas of dead zones and garbage patches, the land is full of toxins and the rivers full of rubbish.
It is the very success of humanity and especially that of the West that will lead to it's downfall. Ironic but that is the way of the world, the fallen hero.
Interestingly VK, a good reason for the demographic transition is exactly the empowerment of women, now freed to a greater extent to make thier own choices about whether to bear children or not.
Societies like italy and japan, where attitudes towards women continue to be very old fashioned, are the ones about to suffer from the greatest population decline.
While its bad for the economic structure we have now, the rise of the power of women could be seen as a good thing, and it plays exactly into what I have been saying about the falling cost of capital.
Scep,
Despite your attempt to applied the mantle of troll to yourself I disagree. In my mind trolls come in three general catagories.
1. Dumb - those that post a totally unfounded piece of garbage with no coherent thought to back it up and then reply only once or twice to queries for further thoughts.
2. Vitriolic - those that come blazing in and are argumentative about everything to the point of slowly diverting the stream of discussion to banality and frustration on other contributors' parts.
3. Pot-shotters - those that call a bunch of names and keep the level of conversation mired in ad hominem.
You do not fall into any of those catagories. You have added to the conversation here, even if most of the frequent contributors here disagree with your analysis of how things will play out.
Thank you EB. I shall continue to post here as long as I find it productive. Being called a troll doesn't really hurt my feelings -
(lets face it, anyone who has tried explaining economic realities to loved one in effect gets the kind of reaction along the lines of 'you are a troll, you're mad, stop bothering me').
- but when serious discussion of issues constantly degrades into name calling and general ignorant rudeness (of which I don't believe I am guilty) its impossible to maintain any kind of debate, and frankly if this is the way its going to go I can't be bothered.
llargi has suggested my analysis is childish, and someone else suggested my responses are juvenille. I won't respond to questions which end with that kind of insult.
Further, this site is the work of its authors, and if they don't wish me to post here they only have to say and I'll go elsewhere.
If they would rather I stayed then all this name calling nonsense really ought to come to an end.
While your at it read Joe Bageant’s The Great American Media Mind Warp
@ scepticus
I believe women should have a lot more say in society.
Atleast half of the seats in Parliament, Congress etc should be reserved for women. Heck, half of the boards on Wall Street should be reserved for women.
Testosterone is dangerous!!
@Brimstone
“The U.S. dollar will die before the end of Obama’s Presidency.”
dying dollar to be replaced ( Max Keiser)
Scepticus,
I'm grateful to you for posting, for all of the reasons others have mentioned. While I find I&S's theoretical picture compelling, it does seem to me that they (Ilargi in particular) have consistently underestimated the ability and the will of the elite to keep the confidence game rolling.
On the other hand while I think you appreciate the will of the elite, and the bag of financial and economic tricks at its disposal, you perhaps overestimate its political ability to maintain the status quo. Others have pointed this out, of course, that negative interest rates would be viewed as a kind of official crime, and millions would just withdraw their cash from the financial system.
But I wonder about these issues with respect to your outline of our political economy from a few days back. Do you think that the feudal/fascist core of our social organization, and the illusory nature of our "market" and our "democracy" will become more apparent to many more people in the next 5-10 years? If so do you not think that this new consciousness will destabilize the entire arrangement?
Thanks.
from the post Llargi:
"If we -as in our elected government- want the books to be opened, all we have to do is say so. Apparently, though, that’s not what "we" want."
This is the real crime in my eyes. The total disconnect from reality between "the voters" and the politicians. Were way beyond 'letter writing' campaigns.
The visual that popped into my head when I read that was the video of the Romanian despot Nicolae Ceauşescu prior to his impeding execution, also on video. It's as if he doesn't believe what's absolutely going to happen to him and his wife shortly. Not even in front of the firing squad.
The Ah-merican kulture when into psychotic break mode decades ago.
Reagan was it's first public face.
Taking the solar panels off the Whitehouse roof as one of his first 'symbolic acts' was the checked flag for outright death wish behavior. There was no looking back from then on. Just the Glorification of Living Large.
Living beyond our collective means.
Living in wonder beyond the Wild Blue Yonder.
~ The Straw Man 'I wish I had a Brain' ~
Brendan,
I have been as angry about the bare faced looting of taxpayers as the next peasant, but what is going on here is not new.
What has happened is that the top have lost control to some extent and as such their mask has slipped, and what we see (those of us who are looking) is ugly.
However the ugly face is the same ugly face which has stared down at us from the castle walls for time immemorial, and because we haven't seen the visage of power openly exposed for some time, it's a bit of a shock. In some ways, its our fault for not looking while they were giving us what we wanted.
I must say some of my anger against the system (though not against individual perps like Fred Godwin and Blankcheck) has dissipated somewhat as I have discovered some of the popular myths about things like fractional reserve banking and inflation are incorrect.
In my view what is going to have to happen is that both TPTB and the people are going to have to have a discussion at some point about these matters and some accomodation is going to have to be reached.
The way its always worked is that the top persuade the bottom what they want, give them that and then take the rest.
Trouble is, what the bottom wants is no longer what they used to want, so the top will need to move to accomodate that. In my view this will result in some musical chairs at the top, however it may take the retirement of the boomer generation from the top of the power structure for this change to really happen.
Stanley Kubrick nailed American culture with 'Doctor Strangelove" .
All the clinical signs were laid out there for all to see.
[discussing the Doomsday machine]
President Merkin Muffley:
How is it possible for this thing to be triggered automatically and at the same time impossible to untrigger?
Dr. Strangelove:
Mr. President, it is not only possible, it is essential. That is the whole idea of this machine, you know. Deterrence is the art of producing in the mind of the enemy... the FEAR to attack. And so, because of the automated and irrevocable decision-making process which rules out human meddling, the Doomsday machine is terrifying and simple to understand... and completely credible and convincing.
And regarding the negative interest rates, I think if TPTB did enact them then that would be the clearest signal they could possibly send that they are actually a force for the net good and not evil, because those -ve rates would require a significant change in the infrastructure of power.
The idea of -ve rates being theft is IMO a big mistake on the part of the people, however I have to forgive them because they've had the opposite idea (money is a store of wealth) drummed into their heads for 3 centuries. As such I view the emergence of the austrian economic school and the associated libertarian movement as one very clever propaganda tools of certain aspects of the elite.
"both TPTB and the people are going to have to have a discussion at some point about these matters and some accomodation is going to have to be reached."
Too late, were already in "the automated and irrevocable decision-making process which rules out human meddling.."
The die is cast, the Process is on rails, stop with the 'negotiating' stance, it's part of the grief stages, you're bargaining with a brick wall.
How is it that people are not marching in the street RIGHT NOW? We have been dumbed down so much it is really frightening. It is like watching 1984 in 2009. People just dutifully doing whatever the MSM wants them to do.
anon I'm afraid I disagree. Certainly there is a particular problem in the US, but in other, older nations, the process of negotiation between the top and bottom is better practiced.
Take a look at norway or sweden, or even france. These countries have a long history of reconciling the wishes of nobility and peasants via a variety of means.
The very fact norway has saved huge amounts of its oil wealth in a public fund rather than giving it to oil barons to buy decorated commodes with should indicate that responsible government is possible and being practiced in the world today.
The relatively short, semi-anarchic history of the US makes the inevitable ossification of US society into nobility and peasantry particularly difficult for the american psyche.
I often find it helpful to try and understand current events from simultaneously a worldwide and a long term historical perspective, which helps put the inevitable anger in the correct context.
"I won't respond to questions which end with that kind of insult."
Why don't I make that easier for you, and hereby ban you.
Re Scepticus's mention of Norway
My movie group watched the re-released enlarged edit of Igmar Bergman's Fanny and Alexander, one of the finest films ever made. It explored Swedish society in the early 20th century. This culture may explain why the oil thugs didn't steal it all in Norway. Worth a another watch. The visual imagery alone produces near ecstasy.
Bigelow
Thanks for that other Bageant link.
Also,
Are anon undersigned "scep" and registered Scepticus posts from the same entity?
That is totally ridiculous Ilargi. On what grounds would you ban Scepticus? What exactly are the rules around here?
Scepticus:
brendantmoran at google mail
I'd appreciate knowing where else you post.
Thanks.
Yeah, that was my post El G. llargi has made his decision and as promised I'll repect it.
I won't return here as yet another anon detractor following this post either, life is far too short.
Good luck to you all.
I've been reading this blog for about nine months, and as I've said before am very grateful for Stoneleigh's learning and generosity, and Ilargi's passion and diligence.
But over and over, it seems, the most intelligent and knowledgeable posters get driven from this forum. A sad and troubling pattern.
"That is totally ridiculous Ilargi. On what grounds would you ban Scepticus? What exactly are the rules around here?"
I'm guessing that it's because Ilargi doesn't believe that Scep gets either the stakes or the scale of the problem involved and his continued refusal to cede is detracting from the main flow.
A bit like being stuck in a service station arguing over the receipt for a coffee when you need to be back on the motorway.
Or something.
I think we'll see this theme reoccur time and again, ultimately about perceptions of scale.
Is the problem small but near, or is it huge, but far away?
Father Ted
Unfortunately, I have a feeling, and this is what Ilargi is trying to inculcate, that the problem is massive, and stomping all over us as we speak.
Ilargi
"Why don't I make that easier for you, and hereby ban you."
Because it's a terrible idea?
Ilargi said...
"I won't respond to questions which end with that kind of insult."
"Why don't I make that easier for you, and hereby ban you."
NO... NO... ILARGI ! Don't do that. This playing catch with scep is fun... and Jim and I need some humor in our lives! ;-)
VKwrote:
" When the US elite absorbs as much wealth as it can from the people below, it is not because they are immoral or set out to do so, they just do it because the accumulation of wealth and power seems natural to them. If I was a multi millionaire, I'd like to be a billionaire! I wouldn't really think I am hurting someone else. "
Nonsense, but thanks for the revelation. It more or less confirms what I suspect of many posters--including Ilargi and Stoneleigh--on this site: a strong lean toward the economic and political right.
But there you have it. The sons and daughters of the Reagan revolution giving us the philosophical lowdown on the human condition.
Be afraid, be very afraid.
Aesthete
First, I don't agree with Scepticus's ideas which basically say that when push comes to shove that the ruling elites will prevent total immediate collapse, and that there is a way for them to kick the can down the road for at least several more years.
Scepticus has been intelligent, rational, courteous, and usually responded to counter arguments. I found Stoneleigh's dismantling of his positions very educational.
Calling his positions childish and then banning him for his comment that he will not respond to that sort of insult is total over reaction. Whether calling a position "childish" is an actual insult is open to its own debate, and simply refusing to respond to what was perceived as an insult is, IMO, totally acceptable behavior. I regard Scepticus as the "loyal opposition" though I am a back bencher "in the majority party" of this blog.
Coy Ote points out that Scepticus is a distraction from pressing, disastrous matters. Well, we each have to build our own lifeboats locally. We have gone too far down the road of corporate fascism to effect our whoring federal "representatives." Scepticus has not diverted me in the least from my own feeble attempts to deal with the apocalypse (other than making this lip reader spend a little more time on the comment section and a little less packing).
Catherine Austin Fitts - Swine Flu - Depopulation?
As trillions of dollars were shifted out of America by legal and illegal means to reinvest in Asia and emerging markets and to build a global military empire, we left a sovereign nation economic model behind. Finally, the expense and corruption of empire resulted in bailouts of $12-14 trillion, delivering a new financial war chest to the people leading the financial engineering. Now we have exploding unemployment, an exploding federal deficit, an Inspector General for the TARP bailout program predicting that the ultimate bailout cost could rise to $23.7 trillion and a Congressional Budget Director who is concluding that we can no longer afford the social safety net. That is, unless you change the actuarial assumptions in the budget – like life expectancy. Lowering immune systems and increasing toxicity levels combined with poor food, water and terrorizing stress will help do the trick.
http://solari.com/blog/?p=3532
Lots of interesting comments
Aesthete
I have to shut down this laptop and get to work, but I have to stop to say that calling I&S and VK right wing is the strangest thing I have heard in quite a while - and I attract strange things.
They are simply behavioral Darwinists, and feel that both the "nice" things and less than nice things about human behavior are outcomes of the Darwinist scheme. I see humans as a hybrid of an animal meat puppet vehicle and a spiritual entity along for the ride, often in conflict, and only ascribe the Darwin thing to the meat puppet. But calling them right wing is quite bizarre.
Ilargi,
Thanks for the thought-provoking expose, "The Guardian Institutions of Hierarchy" by Paul Bodhisantra Chefurka. It mirrors my thoughts greatly.
Chefurka says:
"So what can we (those of us who are egalitarian or simply powerless and have not swallowed the soma of our culture) do about this situation? It's a tough question, because as I said above, I don't think that directly attacking the organizations themselves will work over the long run. Getting rid of one of them would be like cutting out a skin lesion that is simply a visible metastasis of a systemic cancer. The body of our civilization is riddled with this particular cancer, and has been for at least the last few hundred years. Perhaps the only real solution lies in a civilizational death and rebirth, but that's a fairly ... ummm... unpopular notion, especially to those at the tip of the power hierarchy."
Perhaps the only solution is on an individual level. I would say drop out of the system by not participating in its institutions and lifestyle as much as possible.
Indeed, even if civilization started all over again and there were a lot of evolved or "enlightened" individuals, there will always be a few at least who lust for power and will spoil it for the rest.
Oh my gawd! It has just been announced on CBC RAdio One that the Bank of Canada has declared the recession over! Even more the Bk of Canada expects to double the growth of the US next year because Cdn consumers are better positioned and more confident. Looks like Mark Carney is still placing his bet on a revival of Cdn consumer madness and debt creation.
Well, I have to tell him that many former Cdn consumers are just discovering the sweet pleasant side of less is more. Perhaps he is so confident of a return to growth because his polling reveals that the majority want what he wants.
As a Cdn citizen I feel deeply discouraged by this confidence game news release to-day....I have been very naive. What else would one expect from a governor of the Bank whose mentorship was at Goldman. The world-wide reach of those tenacles is revealed here in Canada to-day.
This announcement underminds my efforts to awaken family and friends....
Perhaps this announcement will accelerate the euphoric state that I anticipate?
Re banning Scepticus
I'm with Ilargi on this. It is his blog (and Stoneleigh's, of course) and Scepticus represents the antithesis of Ilargi's thoughts and tirelessly continues to challenge the main focus of this blog, which is according to my interpretation:
"Prepare yourselves, your families and communities for the coming tsunami of collapse in all its different dimensions because the ruling oligarchy (government and its institutions) or corporatocracy are on the side of the elites and will do nothing for us, the little people."
Has it occurred to anyone that Scepticus could be a well-disguised infiltrator? Sometimes the knowledgeable, polite and soft-spoken infiltrators are the most difficult to unmask.
scepticus
"llargi has suggested my analysis is childish, and someone else suggested my responses are juvenile. I won't respond to questions which end with that kind of insult."
Unless of it is part of a 'game', that is a childish reason for not continuing a conversation. How about asking ilargi to give an explanation for his 'opinion'. Let us see if it has some basis as an insult or not. I haven't had time read your comments other than finding where they started so can't comment on your 'analysis', but it looks from those first comments that, rather than a discussion, you might have an agenda to promote. (would you mind summarizing your position and save me a lot of time in finding your past comments?)
-draino-
A great piece by Cindy Sheehan:
"Obama: More Polished Than the Last Puppet"
http://informationclearinghouse.info/article23121.htm
Scandia,
"It has just been announced on CBC RAdio One that the Bank of Canada has declared the recession over! Even more the Bk of Canada expects to double the growth of the US next year because Cdn consumers are better positioned and more confident."
My head is in my hands. -_-
Found the relevant link detailing the Bank of Canada's announcement that we're out of recession. Calloo, callay.
Check out the graph in that link. Recorded data shows us heading dowwwwn. But virtually tomorrow on the graph, which is to say, in the projected future only, we suddenly start heading upward fiercely.
Mark Carney and the BoC are still playing the same game of "recovery is just around the corner".
Assholes.
Why don't I make that easier for you, and hereby ban you.
Sad Ilargi. You really cannot handle points of view that exceed your own and intellects that challenge yours, outside of Stoneleigh's.
Sad, sad intellectual dwarf. Sad, sad little blog.
I think I read it more for the humor in Ilargi's childish little rants than anything else :-)
I'm reading Joe Bageant's "Deer Hunting With Jesus" and last night as I sat down with it I wrote on the jacket.
"California is now headed into the darkness. The rest of these United States of America will soon enough follow."
"The darkness is where the final battle is to be fought. And there can only be one escape to the light."
"The wealth of the wealthiest must be seized by the rest of us. Their property, their mansions and villas and extra homes, their factories, farms and mines must be taken. The instruments of their rule, their banks must be shuttered, their insurance schemes shut down."
"If California is the bellwether, the wealthy will fight up to and beyond societal collapse to stay in their privileged place. They will take their chances in a state without schools, police, firefighters and nurses, without courts and even the rule of their law."
"It has just been announced on CBC RAdio One that the Bank of Canada has declared the recession over! Even more the Bk of Canada expects to double the growth of the US next year because Cdn consumers are better positioned and more confident."
Sweat break!
The first step to setting a bear trap is to pull the jaws apart and lock them.
Stoneleigh's predictions are right on schedule and rolling along the tracks uphill to the cliff. S&P500 at 975 at noon, up over 2% on the morning. I am not going to get upset about this - it is inevitable. Also, your typical north American is going to need a good whup upside the head to wake up. Of course, as Naomi Klein is wont to document, they will wake up in the death spiral. I feel very sorry for the helpless decent people, but as to the Limbaugh listeners - fuckem.
Of course it's these guys and gals who will exercise the fascist coup when they are not skinning moose and stealing the taxpayers money. I see a fascist coup as essentially inevitable before Obama's term expires, and it will be marked by extreme racism against people of African decent and Latinos. ( If it weren't for the bizarre courage and rectitude of Smedley Butler, the Fighting Quaker, FDR would have been deposed as well). Even the Jews may once again be caught up in this turbulence due to their large representation in USA investment banking. What may save them this time is the practical alliance of our homegrown fascists and Dominionists with the racist and expansionist government of Israel. Many of our three and four star generals believe that the State of Israel must be preserved to trigger the Apocalypse and Rapture. No shit! Gen. Jack D. Ripper lives!
I'm outa here. I may be jumping from the frying pan into the fire, but I am damn sure that I am jumping out of the frying pan. And yes, trolls, I won't let the door slam me in the ass on the way out.
Ahimsa
How would you define an "infiltrator," and how would they differ from our run-of-the-mill poster here?
Ahmisa,
Your posts are very instructive and need to be made an example of. They are self-righteous, misanthropic, paranoid, and incoherent.
You quote Chefurka as saying:
“Perhaps the only real solution lies in a civilizational death and rebirth, but that's a fairly ... ummm... unpopular notion, especially to those at the tip of the power hierarchy."
Can you wonder, Ahimsa, that this is an unpopular notion? What is the use of lusting after civilizational death? And can you explain how that will look, concretely? I mean are you serious?
You then write:
Perhaps the only solution is on an individual level. I would say drop out of the system by not participating in its institutions and lifestyle as much as possible.
Well do it already, Ahimsa. Why do you need to come on here and proselytize daily about vegetarianism, energy, violence, politics, and on and on? Perhaps it’s because you have a real and natural human desire for fellowship in these causes that you feel are so important. That’s a scary desire, though, and one that leaves you vulnerable, so you quickly check that desire in what you write next:
Indeed, even if civilization started all over again and there were a lot of evolved or "enlightened" individuals, there will always be a few at least who lust for power and will spoil it for the rest.
There it is, isn’t it? Allow me to point out that you don’t sound so “egalitarian” here, Ahimsa. Some are enlightened, like you for instance, and some are not. And those others are always going to spoil it for you, so you figure why shouldn’t the whole thing (humanity, civilization, life) be written off, just so that you can protect your feelings of superiority? Talk about childish.
In your next post you get even sillier. You write:
Re banning Scepticus
I'm with Ilargi on this. It is his blog (and Stoneleigh's, of course) and Scepticus represents the antithesis of Ilargi's thoughts and tirelessly continues to challenge the main focus of this blog, which is according to my interpretation:
"Prepare yourselves, your families and communities for the coming tsunami of collapse in all its different dimensions because the ruling oligarchy (government and its institutions) or corporatocracy are on the side of the elites and will do nothing for us, the little people."
The blog is about the collapse of the financial system, which is an accomplished fact. We have not seen a lot of the political and social consequences of that collapse that I&S have predicted. We may yet see them, but surely to any open-minded reader Scepticus’s contrarian views on the consequences of financial collapse are important and worth considering. Certainly if one’s hatred of humanity is so great that one can’t abide the thought of anything other than the complete destruction of civilization, then one might have a serious problem with Scepticus’ positions. But I don’t think you represent the majority, Ahimsa.
Finally:
Has it occurred to anyone that Scepticus could be a well-disguised infiltrator? Sometimes the knowledgeable, polite and soft-spoken infiltrators are the most difficult to unmask.
Ahimsa, you’re as Stalinist in your logic as you are in your emotional make-up.
Ilargi
Was there an article from Stoneleigh today? My brother said he saw one this morning. I can't find it.
" gregfb said...
Ilargi
Was there an article from Stoneleigh today? My brother said he saw one this morning. I can't find it."
No, There wasn't.
RE: the unemployed worker who needs a beer and some tylenol PM -- that's a recipe for liver failure. Which may indeed give him the health insurance he needs for his other problems, but isn't conducive to long life. Or life outside a nursing home.
RE: the woman in California who says she has to sell her car, so she will have to drop out of school because she can't get there and can't take her kids to school -- as far as I can tell, California still has bus service. Can she not use the bus? Can she not put her kids on the bus? Can she not carpool? Can they not WALK anywhere? When I was a single mom college student walks of 3 to 4 miles in Arizona heat to go to the grocery store were not uncommon. We did it because it was necessary, and it wasn't bad.
RE: Ilargi banning Scepticus -- gotta go with Ilargi on this one. Scepticus seemed to me from the start to be a 'plant' of some sort. If you can keep the attention on the infighting in the comments, you can keep the attention off the important stuff, the information in the blog itself. Besides, if Scepticus wants to create a blog of his own to debunk TAE, he is more than welcome to do so. Ilargi and Stoneleigh pay the bills for this one however.
JMHO.
-Susan
Karl Denninger notes that the US Treasury is going to try to auction of $235 BILLION of debt in one week, next week.
HOLY !@#!! Treasury Auction Schedule
Portions of prior auctions have not gone over with foreign investors leaving the Fed to buy the remaining T-Bills - aka, monetizing the debt. But there's been no scheme like Scepticus laid out to increase reserve rates in order to sandbag that extra money. Instead, monetized debt appears to be driving the rising stock market in one last super sucker's rally.
Scepticus, we can argue about whether your theory would work or not, and I do not think it would, but the reality is that your scenario is not how it's being played out. I would also note that the monetized debt is being distributed very unevenly, basically to "the players" while everyone else is still feeling the larger effects of global deflation. So the cash assets of one small group are being deliberately inflated while everyone else appears to be suffering deflation. That, to me, appears to be a simple theft from one group to another.
I think that this is going to end rather badly.
Ilargi, that was great of you to post Joe Bageant's piece:-) God, how true it is, when you're fucked you know it and you don't any experts to tell you.
Un abrazo,
John
I'll support the idea that if Scepticus wants to continue his arguments / discussions he can do so at his own blog.
Yes he has livened up the discussion here but frankly we are going through a dead period now in midsummer with not much excitement. They may be plenty of that in the months to come. Livening up the discussion is not a reason to support someone who, after a number of postings clearly not to the taste of the host (Ilargi) continues relentlessly.
I have enjoyed reading the resulting postings and would certainly read what Scepticus had to say and any ensuing discussions were they to take place somewhere else. The short term effect was that Ilargi's comments seldom appeared in the comments section of his own blog. The long term effect might be that Ilargi became disillusioned about continuing the blog. I hope not.
The Scepster has become unbearably tedious, refusing to even acknowledge how serious the Meltdown has become. It not a f*cking Sim City Game dickwad.
Proposing a 'dialogue' between the vampire squid and the serfs?
Come on, get real.
I don't need any 'intellectual stimulation' on possible pie-in-your-eye Jiminy Fecking Cricket wishingful thinking.
How about discussing the velocity of money in the coming Barter Economy as it relates to local script currencies because That, friends and neighbors, is a real issue with real on the ground implications.
The Scepster would dismiss it as 'alarmist' or some nonsense because of course, it will never get that bad.
His psychotic break with the current Reality Based Community lights up like a Neon Diner sign flashing, "Eat Here" on the road into Twin Peaks.
If you love someone,set them free.
Free as in, get off your lazy ass and start your own blog. It would actually involve a lot of hard work, unlike vast sections of the former F.I.R.E. economy are uses to.
All his groupies here would undoubtedly flock to his throne like a bevy of Heathers.
Go for it girls!
~ A Day Late and a Trillons Dollars Short ~
Greyzone
KD: "I'm increasing my stock of things that "will never go to zero" and keeping my ear to the ground. The "short the phone book but make sure you get out fast before you get trampled" moment approaches - mark my words."
What do you think Karl meant exactly by "but make sure you get out fast before you get trampled" moment approaches? " I think he is referring to getting out of his (yet to be placed) short positions. How would they be trampled? I have my own ideas, but I want to hear yours.
Re Scepticus
I am reconsidering. I think we gained something from the debate, particularly Stoneleigh's rebuttals, but I am starting to agree that it was time for Scepticus to move on, perhaps to his own blog. He certainly got the time and space for a fair hearing of his ideas here. He claimed that he wanted expert criticism of them. Well, he got it from I&S & VK and also greyzone. Time to move on.
Wow I didn't realize my belief in Darwinism and evolution was right wing? I always thought that would make me left wing, not being a conservative christian and all *chuckle*.
The market move upward today is quite euphoric! DOW in the 9000 range, It could well go all the way past 10,000 easily the way it's going. We can see the euphoria/ desperation in the media. Recession ending, all will go well.
I'm walking on sunshine! :)
Enjoy your summer folks, nothing to worry about as long as you live in bubble land!
El G,
Of course it's these guys and gals who will exercise the fascist coup when they are not skinning moose and stealing the taxpayers money. I see a fascist coup as essentially inevitable before Obama's term expires, and it will be marked by extreme racism against people of African decent and Latinos.
This is exactly my worry. I don't see Mr Obama finishing his term, given what is going to hit the fan within the next year, and I see unthinking ignorant people blaming him and everyone who looks like him for the whole debacle. This would be a tragedy of epic proportions. The last thing the US needs is that kind of racial division at a time when people have to work together.
Of course the kind of psychological milieu we are moving into will encourage exactly this sort of counter-productive behaviour, where lack of trust and a blame-game lead people to cause far more damage to the social fabric than need have been the case. Most of us here have never seen anything like the flip side to the optimistic mood we have lived with for most of the time since the early 1980s. In many other parts of the world people know only too well, but here it will come as a huge shock.
The cooperative spirit that I value more than anything is under threat as never before.
You know the old chestnut about not bringing a knife to a gun fight.
I think Scepticus is a good full turn behind on the financial reality learning curve.
It sounds like he would bring a pillow to a gun fight.
~ Just Getting in Touch with My Inner Squid ~ ;>)
Ahimsa, yes it occurred to me that septic might be a plant. Moreover, plants are inclined to work in tag teams.
Stock market over 9k. Happy days are here again!
Oh my, oh my ... so I've been falsely accused of hating humanity and advocating the destruction of civilization? Good grief ...
Aesthete,
It more or less confirms what I suspect of many posters--including Ilargi and Stoneleigh--on this site: a strong lean toward the economic and political right.
LOL - you haven't been reading here long have you:)
We're more often faced with accusations from financial types and liberterians of being closet communists, but then we do aspire to create and live in a commune, so I suppose that's not so surprising. Ilargi's stated position is that he only has one wing, and it's a left wing. Neither of us is remotely libertarian.
My instincts are progressive, but I see so much ignorance and naivete in the progressive agenda around here, that I can't buy into it. Too often it promises everything to everyone and refuses to recognize human nature or real politik. I think it important to recognize reality, but aspire to cooperative efforts where at all possible. However, cooperative efforts cannot be mandated as state communists have attempted (with disasterous results). Nor do they work at large-scale. This is why local efforts to build trust and work together are so important. That is the scale these initiatives work at, and where they can make an enormous difference.
I hate banning people, and I very rarely do. I don’t know what the assertion is based on that this happens all the time at TAE, we've banned less than a handful people through time. I remember only one, but there may have been one or two more. If you look at what I get thrown at my head here on a daily basis, I don't think I can be accused of overreacting.
I don‘t see scepticus as a troll, that's a different category altogether. I see him/her more as the annoying uncle or aunt -the every-family-has-one type- who knows everything better. Scepticus doesn't (didn't) engage in dialogue, but looks instead for a platform to do a monologue. It may seem like (s)he reacts to what people say, but in fact (s)he picks out what suits him/her to further the point (s)he's making. El. G is right that Stoneleigh's comments are good reading, but the answers are not, they're just repetitions of what's gone before.
I would suggest scepticus get his/her own space, where (s)he can do what(s)he wants. Claiming to be an expert on money and savings, and that Stoneleigh and I are so darn wrong, that a commenter who warns of deflation should "get a grip", that, in reaction to a comment on the stages of the grief process, (s)he is an expert on that as well, it all fits a pattern that bores me to tears personally, and has taken up tons of space daily for the past week.
The word childish may not be the optimum choice for this monetization plan (Bring out your Debt, Bring out your Debt!!), and I used it only in reaction to someone calling my initial reply to it childish. Naive may be a better term. Semantics aside, you simply can't monetize $200 trillion in debt. It's like an energy site getting into a discussion about a claim of the next form and source of cheap limitless energy. How do you react to that? There comes a point when you strongly suggest, with Homer Simpson, that people take a look at thermodynamics. You can't escape the 2nd law anymore than you can escape paying off your debt. Drawn-out "exchanges" about ways to postpone either are just a waste of space.
But that's not interesting anymore to me now. Neither me nor Stoneleigh have come away with the impression there's been a truly serious attempt to reply to our comments (though she obviously has 1000 times more patience than I have). That has nothing to do with us being challenged per sé, we have lived that for years. It’s about the notion of an impenetrable wall of seemingly endless monologue in the face of so many other things that need time and attention. Hey, one of our most cherished commenters is heading for the hills!
Write down your ideas, and post them somewhere. Why clutter up the comments section of The Automatic Earth? How does that make sense? How is that the best way to spread your ideas, if you think they’re so valuable? If I go over to another website and start telling whoever runs the site, in a thousands words per comment, that they are utterly wrong and I know much better, and if they answer and I just repeat myself, rinse and repeat, what reaction should I expect?
And if I then read this morning that (s)he will not respond to what I say, in my own house, what are my options exactly? I think taking a break is a pretty civilized one.
Re Scepticus - I find the debates between our gentle hosts and those who challenge them very instructive. I found this to be the case with North and Stoneleigh, for instance. While I can understand it would be annoying to have to constantly fend off illiterate and uninformed positions, I didn't view Scepticus' as such. Reading his carefully crafted arguments and then I & S's rebuttals helps me to better understand finance in general and their respective positions in particular. This kind of discussion, occurring as it does in the comments section, in no way impedes one's ability to access Ilargi's intros and the posted materials. If people find it distracting in the comments, it is quite easy to skip over those posts. In the end, Ilargi may be right in his characterization of Scepticus' positions, but it is the explanation of why that is most helpful to this newby who is trying to absorb and understand a lot of new stuff.
El G,
Please put us on your mailing list for your travels. We'd love to know how you get on :)
@ Brunswickian
"Ahimsa, yes it occurred to me that septic might be a plant. Moreover, plants are inclined to work in tag teams."
Well, if that's the most "damage" that "they" can do to this blog, we are in good shape. Just made me think a little harder, which admittedly is painful.
Ahimsa,
Well, you certainly took as "broadside." Stiff upper lip.
Stoneleigh --
Do you have any thoughts on high how the market might go before a major reversal? For the S&P, I've seen numbers between 1050 and 1200.
Re: the ban. This is Ilargi's house and we're guests. I&S have committed their hearts, lives, integrity, and extraordinary minds to communicating with friends at a time of historic phase change--for free unless we choose to donate. Despite all my efforts in prepping, skill-building, and fostering community, I give my own survival a 10% probability in the next 10 years, but during those years I'm sure I'll have cause to think gratefully of TAE (and the friends here) because perhaps the only thing worse than taking a bullet is to never have seen it coming.
CS said:
Father Ted
But the interwebz said:
"This video is not available in your country due to copyright restrictions."
Damn!!! CS, which clip did you reference?
Father Ted: the funniest television in English. Ever. In the history of the world. Really.
Soli
Ahimsa,
Mr Chefurka is a dear friend of ours whom Ilargi and I have known since we started writing together. In the last year he's dealt with our collective predicament by going through an inner journey that has led to great personal transformation. The new name is a reflection of his new identity.
CS and Soli,
I haven't seen an episode of Father Ted since I left the UK. Thanks for reminding me :)
Woodsy Gardener,
Trolls notwithstanding, this is one cool community. Thanks everybody.
Thanks from me too. This community means a great deal to me. There are so few people I can talk to in my immediate vicinity, and half of the ones I do talk to think I'm crazy. This place keeps me sane :)
Malcolm Martin,
I highly recommend Deer Hunting with Jesus. It's a great read but an author who's heartfelt and frank writing I greatly admire. His book is truly though-provoking.
The very fact norway has saved huge amounts of its oil wealth in a public fund rather than giving it to oil barons to buy decorated commodes with should indicate that responsible government is possible and being practiced in the world today.
This culture may explain why the oil thugs didn't steal it all in Norway. Worth a another watch. The visual imagery alone produces near ecstasy.
Once again, I must point out that the general perception of Norway and the reality are somewhat out of line, IMHO.
Essentially, the oil (real wealth) was converted to bits of paper (apparent wealth). Most of it was exported for a fraction of the current price and the fields are in decline. Furthermore, the investment banks that are advising as to how this paper wealth should be used are the very same outfits that are constantly being roundly condemned on this blog. I can assure you that when Norway needs the money to buy real things, the paper will be largely worthless.
The way things have turned out is precisely the way the USA, the large oil companies and Wall Street wanted it to. It was not by accident, it was by design.
@scepticus
The idea of -ve rates being theft is IMO a big mistake on the part of the people, however I have to forgive them because they've had the opposite idea (money is a store of wealth) drummed into their heads for 3 centuries.
I think you have it backwards. Throught the history of civilization, whatever commodity that could serve as a store of wealth would typically be used as a medium of exchange. People did not use fresh meat as money, because it would go bad fast and would therefore not be able to store value. You're basically advocating using raw meat as money.
If any government is dumb enough to try this, people will find other means of storing their hard-earned cash. Gold and Silver are two obvious candidates for this.
Nassim,
Above all, we want to miss out on Europe returning to business-as-usual - warring states. I think the energy and genius of Europeans has been directed outwards for a couple of centuries and now it will be forced inwards. I really don't want to participate.
In a nutshell, this is why I left Europe. I love Europe, but I think its future is balkanization. IMO Britain is rapidly sliding towards fascism as the entire foundation of its economy - cheap oil and cheap credit - is pulled out from under it over a short period of time. Where will Britain even get enough money to import the food and energy it will need? How will it heat all the big houses it has built in recent years?
I can't recall if this was linked in the TAE comments or somewhere else over the last couple days, but I just read "Peak Civilization": The Fall of the Roman Empire, a presentation over at Oil Drum Europe that is quite ambitious and enjoyable, and ties in to many of the ideas discussed by Stoneleigh in Entropy and Empire. It attempts to sketch a model for resource depletion and general unsustainable costs of rising complexity applicable to the collapse of the western Roman Empire.
Nassim,
Furthermore, the investment banks that are advising as to how this paper wealth should be used are the very same outfits that are constantly being roundly condemned on this blog. I can assure you that when Norway needs the money to buy real things, the paper will be largely worthless.
Agreed. This money is not invested in assets that will hold their value. The wealth that Norway think it has will not be available to benefit Norwegians when they need it. It will have disappeared like everyone's pension funds and the investments that fund insurance. Pots of money are sitting ducks. They have already been gambled away through the securitization process.
El Gall - "Coy Ote points out that Scepticus is a distraction from pressing, disastrous matters."
I did somewhat, but with tongue in cheek as well. As a teacher you know that learning should be fun! I enjoyed (and sometimes chuckled)scep and I&S back and forth and wish it would continue. Even I garnered some economic methodology from it, although I have yet to find a fault--let alone a chasm--in Stoneleigh's basic expressions.
Hang in the EG, you are fun too! and a pretty sharp jack-of-all trades.
You people really have shown your true colors, especially you Ilargi.
Ilargi bans scepticus for the same reason he believes the information on his blog is a threat to the power elite.
You are a wimp, Ilargi. You cannot handle an alternative view. Your closed-mindedness and willingness to crush anyone who disagrees with you are not good assets going forward. Do you have nothing more to learn?
I have read most every post on this blog, and nearly every comment. Even in a group of people that claim to 'get it', you have an inability to perceive intentions and meaning in what other people are saying. The way people's ideas and postings have been interpreted here reminds me of a game I played as child. You whisper a message to the person sitting next to you. They whisper the message you told them to the person sitting next to them. This goes on until the message reaches the last person in line at which point he reveals the message that was whispered to him. The fun of the game is that the message is nowhere close to the original. It all gets 'lost in translation'. The fact that you people keep claiming that scepticus has some sort of agenda or that other dissension indicates troll activity, illustrates your inability to interpret information as it is presented to you. You come to this place with a pre-planned biased way of thinking that precludes you to accept or even digest another view. These other views, you claim, represent delusion and false hope. People with different views, you say, must believe that the future is bright and we will return to growth. You people really need to fucking relax and take a deep breath. I am beginning to see that maybe the reason you are all here ranting about the collapse of society is because you have to most to fear, and your ranting is nothing more than a projection of those fears.
I invited scepticus to post here after reading him over at Mish's site. This comments section had become stale, a cheerleading section. I am sorry that Ilargi cannot handle the discussion.
I always wondered who Ilargi might be, but now I know he is but a child. This leads me to believe that his book smarts might just be that. What is your real world experience? For all we know you are all in your 20's- so goddamn sure of yourselves.
The overall point is that even if you are equipped with your book knowledge of history and your coveted theory of deflation based on your 'synthesized knowledge', you still don't have any idea what is going to happen. You can rant all you want on this blog claiming some hidden understanding, but the fact is, the world will go on and will probably do so in a way that is far from your projections.
It is you against the world. Everyone else is wrong. Good luck to you. You will need it.
I used to be a fan of Joe Bageant until he posted an incredibly bigoted screed about younger people written by one of his readers.
The content was abhorrent on its face, but the writer compounded his ignorance with obvious and repeated errors in grammar and spelling. I was deeply disappointed that Mr. Bageant would prominently post such valueless content.
Not that it matters much long term. I'm in a decent position financially and mentally, but my urban quarters don't give me much leeway to prep for what's coming.
One of my folks lives on a potentially excellent doomstead, but I'm having trouble convincing them to plant a few tomato plants in the backyard.
It looks like I'll be winging my adaptation to the coming downfall. I got a guitar, I wonder if it's too late to get a gun?
Dow approaching 9100!!
How far can this go?
It is you against the world. Everyone else is wrong. Good luck to you. You will need it.
'Don't let the door hit you in your sorry ass on your way out!'
Posers and Losers
What a perfect title for the people who banned, and agree with the banning of Scepticus.
Ahimsa,
Falsely accused? I responded directly to what you wrote. So either the accusations are true, or you are not a very good writer.
Blogger thethirdcoast said...
"One of my folks lives on a potentially excellent doomstead, but I'm having trouble convincing them to plant a few tomato plants in the backyard."
A few tomato plants ain't gonna make it.
Anonymous
Regarding your attack on Ilargi. It's so easy to condemn. The spirit of condemnation, accusation and blame are never constructive. You would be better off aligning yourself with constructive attitudes.
What do you call people who hang around posers and losers?
You could call them Brunswickian, Ahimsa, thetinfoilhatsociety, draino, etc.
Thirdcoast-
Do you have a link to that?
Thanks.
Ahimsa said:
Sometimes the knowledgeable, polite and soft-spoken infiltrators are the most difficult to unmask.
Hmmm. That sounds like Stoneleigh.
Hi Soli, try "I'm in Brazil, honest!" then small/far away? to watch the father ted clip. Welcome relief in these tricky times.
Thought it might strike a chord Stoneleigh :)
I've been on a forum since 1992 which has just banned someone, for the first time. Yeah there's the usual cries of heavy handed behaviour, but it does change the timbre of the place for the better imho.
I think I recognise this phase in a forum's/blog's evolution - the one that TAE is going through now.. The next step tends to be moderators and or a registration system/'thread based' forum.
I don't know if you've considered passing on the policing, it can work well, I get the sense that these internecine conflicts are rather time consuming and detract from the biggger picture.
cheers
The FED is going to try to monetize the Treasury debt. I have read that they are creating dollars, giving them to other central banks to buy Treasuries on the FED's behalf and changing reporting requirements to hide this. Ilargi is right, they can't monetize this deficit. Other than some other new back-handed criminal behavior what else can be done? Either the U.S. defaults first or "investors" totally run away from the auctions first.
I am concerned this will happen in a few months time, not next year. There is the end of the value of $$$ increasing. You don't want to hold dollars after that do you? Dollar death. My head hurts.
A 3:25
"You people really have shown your true colors, especially you Ilargi.
I invited scepticus to post here after reading him over at Mish's site. This comments section had become stale, a cheerleading section. I am sorry that Ilargi cannot handle the discussion. "
Hmmmm. Maybe this was an invasion of a dissident body snatcher group from planet Mish. I read Mish every day, but gave up on his comments over a year ago. Time for more tin foil.
I guess the question about whether Scepticus should have been banned really comes down to what is the purpose of the TAE blog. Is it a blog to discuss in a somewhat academic way the nature of economics as one might in a graduate course in a liberal university, or is it a teaching and training blog to help people of like mind prepare, as best we can, for the coming eventualities? Reminds me of the special creation debates when I was teaching. There were a lot of god fearing people out in Colorado. You spend all your time debating that one subject to death with students who know almost no science and you never get around to teaching biology.
So why do these newcomers care so much if we have "become stale" and are chasing our own tales (sic) or parroting our gurus? What's it to them? Why don't they move on to a more accommodating blog, or better yet, create their own? I think the truth is if they created their own blog it would be stale faster than day old bread. I am beginning to regard them as parasites because they can't create their own nourishment. So move on littl' doggies to greener pastures. Yeah, we are Jim Jones strychnine kool-aide drinking zombie idiots fixated on a death wish. It's contagious so don't try to cure us. You might catch it. Just move on. Leave us to our little roach motel.
euggh!
scepticus - you are banned? for polite well-modulated discourse?
smells like putrecine. a corpse? a dead blog? or just someone's bad beard day?
stoneleigh - please rescue this bog!
ilarghi - take a break!
Stoneleigh and others have referred to the work of " Traintor". I think I have the name wrong...
Would someone kindly post the writers full name and recommend one of his books? I am becoming quite interested in system theories.
Bigelow
What is "dollar death?" Hyperinflation? A forex dive against other currencies? What's it mean?
Bloody Paradise
Oh my! They are throwing the golden apple of discord into our ranks now. Will St. Stoneleigh pick it up? Tune in for the next exciting episode.
How amusing, not. Move on little doggies. There are tens of thousands of blogs to molest (think of them as children) or you might even start your own. Then you could ban me :-) But first I would want to read your crap.
buzzard man
"..So why do these newcomers care so much if we have "become stale" and are chasing our own tales (sic) or parroting our gurus? What's it to them?..."
The proper netiquette name for this is a "concern troll".
Their MO is always some variation of feigned 'concern' for the well being of their 'host site'.
"All gosh, how ya doing, just brought over some brownies, say I hope you don't mind, but this place could stand some tidying up. Can I just make a few suggestions, I've seen this before and I wouldn't want ya to suffer because of it..."
So thoughtful and friendly and well spoken, don't ya know.
Gag me with a spoon. No, wait, gag them with a spoon, a big giant mixing spoon if possible.
'Concern trolls' are a variant of the trojan horses of Blog Malware.
Thankfullly, there processing power is quite small, probability due to being skrunched up inside a wooden horse for so long.
Over and Out,
Sky King
ps bloody paradise is a concern troll's "Heather in Waiting". A concern Peep. Look out, Cat fight!
@ Garth:
This was the piece Mr. Bageant published that I found offensive:
In firelight and darkness
Plenty of youth bashing along with an accompanying streak of "Internet Tough Guy"/survivalist to boot.
I also found the author's errors compounded the poor content, particularly his inability to correctly spell the name of his alleged birth region. Said author is in NO position to continually rant about how the youth should, in his words, "Go look it up!!!"
@ ogardener:
Yes, I realize that a few tomato plants will not cut it. I was merely trying to express my frustrations trying to convince a family member to prepare for the future.
Also, I am loving the chorus' complete lack of irony today!
"How far can this go?"
Could be infinity or it could be zero, invest accordingly.
Also, I am loving the chorus' complete lack of irony today!
No I just fold them and put them away.
thethirdcoast
"Said author is in NO position to continually rant about how the youth should, in his words, "Go look it up!!!""
That is precisely what Bageant points out, and why he posts the piece. Bageant is surrounded by folks like the writer, and deals with him -and them- as he knows best. Pretend to agree (I know where you're coming from), and once they think you're like them, undermine their points.
As Joe can, he does it eloquently. Not at all in the vein of the original diatribe, from where I'm sitting, but a heartfelt defense of the younger generation, i.e, that opposite:
"So let me add this final observation of my own, one in which I am completely convinced: There are far, far more people under 35 who "get it" about planetary entitlement and the ecosystem than there are people in our age group who get it.
They are as frustrated as we are. Many of them also do a far better job of living up to their planetary eco responsibility -- inasmuch as that is even possible in a corporate state that thwarts every effort -- than I dare say you and I do.
If I am unfortunate enough to be around when nature pulls the plug on our virulent species, then may I be fortunate enough to be sitting around their campfire."
@el gall or 'sky king' ?? whatever that might mean . . . .
what on earth are you talking about?
what is a concern troll?
why don't you write, in English rather than in clever i-smart/E-code what you mean?
In case I was being a bit too net-poetic: what I really meant to say was - Scepticus can be as sceptical as he likes, can't he? It's up to the the rest of ye all to deal with/demolish his position.
He's so wrong - we're so right = he's dust.
I thought that was how these things went. Then suddenly it's 'chat/argue/chat/argue' = BAN
Not exactly encouraging for the others . . . poor delicate flowers out there, wondering if now was the moment to join in the discussion.
Richard Williams in Languedoc ( ask for email or phone no. - I believe in glasnost - clarity and openness in all things. I'll even give you my bank account number - there's nothing in it)
The story of the day so far
Profits decline, stocks rally. It is a market melt up as Zero Intelligence puts it!
Microsoft sales down 17%, wasn't GE down 17% as well. These two are pretty good indicators of the US economy.
For comic relief, courtesy the New Scientist, Feb 2005 issue.
A model that assumes stock market traders have zero intelligence has been found to mimic the behaviour of the London Stock Exchange very closely.
Toyota will likely close an auto plant for the first time in the company's history. The Fremont plant also happens to be the last auto manufacturing facility in California.
Into the darkness.
http://www.latimes.com/business/la-fi-toyota-plant-closing24-2009jul24,0,3706960.story
Scandia,
I think you're looking for Joseph Tainter's book The Collapse of Complex Societies. It is very educational. The piece on TOD about the fall of Rome that's been linked to twice recently draws heavily on his thought process.
Apple was only down 1%. Must have done something right.
http://globaleconomicanalysis.blogspot.com/2009/07/electrical-demand-plunges-in-ontario.html
Mish is calling for a "technical" end to the recession in both the United States and Canada. Looks like he is calling for a japanese-style lost decade. With government expenditures and the economy already having fallen off a cliff, this sounds about right.
alright - now I don't know who I'm swiping at.
There's a Sky King (hmmm great name) bugging me for something I've said. No ref.
There's refence to being a heather in waiting , erm, and a concern peep.
This is all from a seemingly very active blog member . . . who refuses to reveal anything about him/her/self.
No past - no present - and presumably, no future.
No photos - no friends - no connections. No nothing.
An awfull lot of this blog, Ilaghi's blog is like this. No fiends no community no links no ties no history no nuthink.
There is a distinct smell of putrescine here. Messing about in the bowels of the cadaver.
Greetings Nassim,
It sure sounds strange reading you're heading off to Melbourne to prepare for the worst there. I used to live there, did my University course there. Beautiful city, very European, cafe culture, artsy etc.
But I'm not so sure It really is a good spot for preparing? Sure Australia has really good universal health care, decent public transport and good weather but when it's hit by the full force of the economic depression, cities might not be a good place to be.
Though some places like Tasmania or the smaller towns in Victoria and NSW might well be good places to grow your own food and build community. If I had stayed one more year there, I would've gotten my Permanent Residency but I decided to come back on the basis of my readings and I got the push I needed from the advice of Gail the Actuary on TOD and Ilargi.
My degree was entirely to do with finance :( and as I expect the FIRE industry to end up in smoke, I couldn't really venture into that. I have lots of family and friends back here so that's really beneficial.
What worries me most is spiking crime, it has always been dangerous here though the last few years were considerably quiet, the crime rate has soared in the last 6 weeks (anecdotally). So sometimes I do wonder if I had been better of in Melbourne but then I think about what the situation will be like one year from now with soaring unemployment, racism could increase greatly :( and I'm left befuddled. Don't really have many options I feel, maybe just hope to weather the storm. Am having a tough time myself convincing my family and friends to prepare.
Best wishes to you in your preparations though!
@ Ilargi:
Ouch!
You may not be the only one here who needs more shuteye!
El g,dark matter...
the e-mail the old bird has is good...my email/files/and a whole lotta stuff went into the void.I got some of it back,But no e-mail..contact when needed..
It was not intentional that I missed you at Estacadas park
snuffy
Does anyone know how the economies of Australia/New Zealand are holding up in the downturn? Most of the talk around here revolves around the US/Canada/UK.
@ EBrown, Yes, that is the author/book I was looking for. Thanks!
3rdcoast
I can but hope that means what I hope it does.
I hope while you are considering the banning option you eliminate the various anonymi of this commentarium, Ilargi. That's my 2 cents worth. Carry on.
@ Anon 7:31
Steve Keen is a great read for that part of the world.
www.debtdeflation.com/blogs
Also the Oz/ NZ economies are headed where the US and Europe go - a massive depression. Expect very very high unemployment, 40% plus, sharply falling wages and a massive decline in living standards.
Australian and NZ home prices are way over valued as you can see here,
http://www.whocrashedtheeconomy.com/realhouseprices1880to2008.gif
China's buying spree has helped Oz considerably but with the next leg down on the crisis, all illusions will be shattered. There is a very close link between deleveraging (reduction in assets and liabilities) and unemployment as Steve Keen explains, as Australians pay back their huge debt levels (though smaller then the US and UK), unemployment will soar.
http://business.smh.com.au/business/weve-lost-36-of-wealth-20090626-cztp.html
AUSTRALIAN households have lost an extraordinary 36 per cent of their financial wealth since the economic crisis began.
Estimates from the Australian Bureau of Statistics put combined household wealth at just short of $787 billion at the end of March, down from a peak of $1246 billion in September 2007.
The total includes household wealth held in cash, bank deposits, bonds and shares, but net of borrowing. Significantly it excludes wealth held in the form of superannuation and real estate, and both of these have also dived since the crisis began.
Ilargi, I have yet to see you rise to a challenge. You get irate and dismissive almost immediately, the dialogue ends (usually badly) after one or two comments.
I can't quite understand why you're so touchy. You run an excellent blog here. You are a very, very gifted writer, and your daily roundups bring excellent choices. Plus, together with Stoneleigh you have a record of calling this crisis better than almost everyone else.
It's your blog, and your choice how to deal with challenges, but banning scepticus is not doing you any good. If you personally are not interested in taking part in the debate, that's fine, but I can't see why you should be stopping the debate altogether.
@ Anon 7:31
Yes, as a New Zealander, I think VK is right. For NZ news, you can always visit http://www.interest.co.nz/ - which gives a variety of local perspectives on financial and economic news here.
The NZ Families Commission is also running a project surveying NZ families on how they feel they are faring in the economic downturn - http://www.thecouch.org.nz/member/home/
From my perspective as a person in the capital city of Wellington, everyone here talks about 'the recession' or 'the economic downturn'. It comes up in conversation with friends, acquaintances, and strangers at the bus stop on a fairly regular basis.
I know a lot of contract workers, as opposed to people in 9-5 jobs, and there is a general awareness that there is a lot less contract work around now. (And we contract workers don't often show up in employment stats!) In my circles, people are certainly worried about employment.
In general, most people I know don't see this from the same perspective as I do (with the exception of my Transition Towns friends) ... but they still are aware that even a recession such as we have had to date will have far-reaching and ongoing effects ...
Extremly late with a comment, but Ilargi I was so moved by your intro. The best I have ever read.
That's good, VK, i'll put it in the upcoming thread.
What do you call people who hang around posers and losers?
You could call them Brunswickian, Ahimsa, thetinfoilhatsociety, draino, etc.
Logically then, you consider yourself a poser and/or loser.
Gotta work on that self-image.
one more comment, and it will probably be my last one here.
The course of action you are suggesting to readers, as a service to the public - your "lifeboat" - demands difficult decisions. You yourselves have taken this path, so for you it may seem easier now. But for most people it is not.
I have a baby and a partner. We have very little money and we live in a part of town that... well, just today somebody got shot down the road. So, for example, for me to take out my money from the bank and keep it at home seems very risky. For other people, it would be selling their mortgaged home to get out of debt.
I follow you on the need to build resilience, and that short term sacrifices could prove a small price to pay. But you are suggesting that people will make very drastic changes. It's not easy.
So for me to follow your advice, I need to weigh what you're saying. This is why I would like to see you respond to challenges, and defend your world view; or at least hear other opinions here that engage directly with what your saying and see what I think for myself. With all my respect to Stoneleigh, I am not going to simply take her word when she says "Deflation is coming and it's like a Tsunami". When it's the future of my family, and I'm trying to weigh one risk against another, I want to be convinced that I'm not doing a huge mistake.
Snuffy,
I figured as much because you mentioned a while ago that you had an email problem. I'll let you know next time I'm over that way.
My favorite site on the net. One suggestion though. Since the Intro usually come a little late in the day, I'd date it one day ahead of time -that way it feels nice and fresh all day long.
Silly ... yeah ... but still.
I am prepared to debate with all comers, as often I think this helps people to understand where we're coming from a little better. Time can be an issue though. I can't deal with a large number of comments per day, however much I might want to.
I prefer to have discussions with people who are at least open to the possibility that they might have something to learn by being here. If there's an assumption that the newcomer knows everything, they don't seem to be listening to counter-arguments and they tell us condescendingly that we don't understand the fundamentals, then there's less point in engaging them in debate.
suicide kitten -"... this may be my last one..."
"When it's the future of my family, and I'm trying to weigh one risk against another, I want to be convinced that I'm not doing a huge mistake."
Then I suggest you stick around here... TAE... I have found it to be very helpful as I think about current events and make preparations, etc.
Don't attach yourself to any one idea, any one set of predictions, any one commentor, but read it all with a completely open and rigorous mind!
These folks are sharp and spew out a wealth of food for thought! Hang around and you will see that.
I prefer to have discussions with people who are at least open to the possibility that they might have something to learn by being here. If there's an assumption that the newcomer knows everything, they don't seem to be listening to counter-arguments and they tell us condescendingly that we don't understand the fundamentals, then there's less point in engaging them in debate.
Wow! Do you have anything to learn, Stoneleigh?
http://www.usdebtclock.org/
Zoiks! Must see
A 9:13:
I think she may be done "synthesizing"!
Thanks GYC,
That has real meaning for me.
* TAE posters have shown their true colors; TAE poster are the right wing progeny of Reagan; Reagan's first act was to take the solar panels off the White House; Be very afraid because TAEers may take your solar panels; TAEers should align themselves with constructive attitudes; TAE is like a pond in a cave; Aesthete is here to drop a pebble in that pond
* Stoneleigh tells us things we already know and we love her for it; Ilargi tells us things we don't know and we hate him for it
* Life is like a roller coaster ride: It is an automated and irrevocable process which rules out human meddling; It is not real or dangerous unless you just drank a quart of Sunny D; Keep your hands and feet inside the car and have fun
* Americans mistakenly believe money is a store of value; Norwegians are wiser and used massive oil revenues to buy enough lutefisk to last the whole country for 500 years; Now THAT'S a store of value
* Women are attracted by status, especially big horns; Women deserve their own big horns; Women should have half the seats in congress and 3/4 of the congressional bathrooms; Testosterone is dangerous and should be kept out of reach of children
* Scepticus came here from Mishland; Scepticus won't give Ilargi his coffee receipt so Ilargi can get back on his high horse and be off to the freeway; Playing catch with scepticus is fun; Scepticus is intelligent, rational and curteous; Banning scepticus is a terrible idea; Banning scepticus is a great idea; Negative interest rates will be the dawning of the age of Aquarius
* Ilargi underestimates the powers of the power that be to keep the powers that be in power
* The bottom and the top should discuss things more; They should have coffee, see a Norwegian movie, go home, take off their clothes and see what happens
* It's my blog and I can ban if I want to ... You would ban too if it happened to you
* The recession is technically over except for those who are technically screwed
* Three types of trolls: Dopey, Grumpy and Insulty; Scepticus is not a troll; Ahimsa may be a troll or a plant or an infiltrator; Softspoken, polite, well mannered posters are the worst kind of trolls; Let's take them out back and kick the shit out of them; Dwarves are worse than trolls
* Word of the day: PUTRESCINE n. A poisonous, colorless, foul-smelling ptomaine produced by the decarboxylation of ornithine, especially in decaying animal tissue which is irresistible to vultures
Suicide Kitten
I appreciate your situation, and the specific problems it brings along. I don't believe, though, that it gives you a free pass to criticize either Stoneleigh or me. Stoneleigh has 3 adolescent kids. That is a big puzzle going forward. How many do you have?
Don't judge too fast. We're not here to flaunt our own advantages. And that is, come to think of it, a pretty insulting assumption. You may be better off asking for advice than pushing off against Stoneleigh. Your choice.
Down the line, we have no definite clue who will be the most vulnerable, or what part of the world will be. the We simply try to do the best we can, for ourselves and for you. No need for you to drag that down, we never gave you one inch of a reason for that, though insecurity and fear may have made you think otherwise (I'm reaching here, I don't know you).
There is an email address in the left hand column of our site. I suggest you contact Stoneleigh directly through that. You won't regret it. And that's all i can do for now.
Ilargi or Stoneleigh,
How big a part of the ecomomy will barter become in your opinion? Any ideas on choice barter items? Thanks!
Brilliant!
Hats off to occasional summary! :D
Anon @9:13,
Wow! Do you have anything to learn, Stoneleigh?
Of course. The tag line for my emails is Ancora imparo - I am still learning. Learning is a life-long process, and no matter what one may know, there are always more pieces of the puzzle that could bring the big picture into sharper focus.
However, I do have a good degree of confidence in my grasp of the fundamentals. I know what I believe, and I know why I believe it, as I have spent many years constructing my big picture. For instance, if someone were to come here and dispute the laws of thermodynamics, I wouldn't find it worth my while to debate them. There are certain things I consider to be established facts, although that is not to say everyone would necessarily agree.
When push comes to shove, I only have a certain amount of time I can devote to this because I work full-time and have a family to think of, so I have to be somewhat selective in how I spend my time.
VK. I'm with you.
"Stoneleigh tells us things we already know and we love her for it; Ilargi tells us things we don't know and we hate him for it"
That's one good line. Then again, I predict that within 5 minutes of me posting this, there'll be an adolescent in some time-zone or another protesting its beauty.
The HorroR The HorroR.
anon9:13 PM
"Wow! Do you have anything to learn...."
This is a classic condescending non-concern troll. It's what we in the Field like to technically describe as 'the other side of the Gollum'.
Pay special attention to the tell tale imitation 'echolalea' like repetition in the non-concern troll's juvenile non-responses.
Their cognitive processor is generally very underpowered and it often end up sucking on it's own tailpipe in a regressive feedback loop. Much like the Federal Reserve in fact, they see this exercise of 'eating their own barf' as a sign of cleverness and creativity.
That's all for today.
Concern Trolls and Their Pathological Variants 101 will resume next Wednesday.
There will be a quiz on this later class. Any questions?
The tag line for my emails is Ancora imparo - I am still learning. Learning is a life-long process, and no matter what one may know, there are always more pieces of the puzzle that could bring the big picture into sharper focus.
I prefer to have discussions with people who are at least open to the possibility that they might have something to learn by being here.
It is funny that Ilargi chose the title 'Cocksure' a few days ago in an attempt to ridicule the chutzpa of the power players.
Yet, aren't you, Ms. Stoneleigh, quite a bit cocksure yourself?
To be so wedded to your 'fundamentals' reminds me of the last US president. In such a fluid world, don't you think it is dangerous to be static in your learning?
Book smarts does not equal street smarts.
I very rarely think of any posters here as trolls. I find it more constructive to take them at face value and engage on that basis. People ask all sorts of honest questions, and assuming malice on their part up-front is discourteous. This is my community and I value it highly.
Yoa Carole,
You're all hat and no horse.
Where's your beef?
Something tells me Carole Fletcher is genuine and simply doesn't get much of anything. Other than that, I think I'll have to delete a lot of stuff. Yawn.
Carole Fletcher,
To be so wedded to your 'fundamentals' reminds me of the last US president. In such a fluid world, don't you think it is dangerous to be static in your learning?
I don't think of my position as static. I prefer the term consistent. The big picture has not changed, so why should I change my assessment of it?
There's such a thing as being so open-minded that one's brains fall out ;)
Book smarts does not equal street smarts.
Hey! They should add that tag line to the Bank of Sweden Prize in the Memory of Alfred Nobel.
I very rarely think of any posters here as trolls. I find it more constructive to take them at face value and engage on that basis. People ask all sorts of honest questions, and assuming malice on their part up-front is discourteous. This is my community and I value it highly.
Maybe you should rub some of that logic onto your partner Ilargi.
"in the same vein that any faithful flock will claim their god defies explanation"
Very true about all little "g" gods that people follow. On the other hand, those that are faithful to the one and only big "G" God, Jesus Christ know the truth of that statement.
Terry
Stoneleigh:
What are your thoughts on Mish's call that the recession may be technically over?
http://globaleconomicanalysis.blogspot.com/2009/07/electrical-demand-plunges-in-ontario.html
I don't think of my position as static. I prefer the term consistent. The big picture has not changed, so why should I change my assessment of it?
This might actually be a direct quote of George W. Bush.
After reading the primers, I think any reasonably intelligent person, while maybe not totally agreeing with everything in there, would at least understand the basic premise of the site.
My understanding of the basic premise here is that very poor decisions about living within our collective means that were made decades ago have come to fruition here and now and have locked us into the roller coaster for a very steep ride back down to a 'balance point' with Nature.
'As Above, So Below'
Does shooting the messenger forestall the future?
Depends on the message and the messenger, but never for long IMHO.
Arnold,
What are your thoughts on Mish's call that the recession may be technically over?
Mish is not exactly optimistic:
"Nearly everyone is overestimating the rebound in jobs and consumer spending while ignoring or discounting the likelihood of a double dip recession, not just in the US, but globally. Odds still favor a harsh double dip recession, or a lingering L-shaped recession sapped by higher taxes and weak consumer demand, where the economy flirts with recession for years to come."
I am far more bearish than Mish is, and vastly more so than the Bank of Canada. The bank is just engaged in mindless cheerleading, confidence tricks, or both. IMO the depression has barely begun. This rebound is just a sucker rally.
As for electricity demand in Ontario, that sector in that location happens to be where I make my living. Demand is down due to reduced economic activity, combined with a rotten summer that's meant almost no one is using air-conditioning at what would normally be the peak demand period of the year. Demand has much further to fall as economic activity is only in the very early stages of decline.
Cutting back on supply will make life difficult later on, although I'm certainly not sorry to see the province back away from building nuclear plants. They're still $40 billion in debt from the last suite of nukes they built, and those are already at or near the end of their design life. Ontario's history with nuclear plants has not been a particularly happy one.
The problem is that much of Ontario's generating capacity will need to be replaced in relatively few years. I would rather see it replaced now when we can still afford it, in order to avoid an unpleasant supply squeeze later. It pays to dig your well before you're thirsty.
Stoneleigh:
Thanks. I know that you think that there is going to be a major decline in economic activity, but do you think that this decline will manifest itself in very negative GDP numbers? I think Mish was simply expecting no growth for a number of years. What are your thoughts on this?
I should clarify. Mish is expecting an economic zero, economic stangnation. That is certainly more optimistic and positive than your scenario.
Stoneleigh:
A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.
-- Ralph Waldo Emerson
Remember that figures dont lie, but liers can figure. I thinke we could see a GDP print of positive for the next three quarters or more, but is it real?? I see dislocation everywhere and this must end, probably badly.
Best site on the net, keep up the great work!
I need a drink.
“Consistency is contrary to nature, contrary to life. The only completely consistent people are dead.”
--- Huxley
“Consistency is the last refuge of the unimaginative.”
--- Oscar Wilde
I know Mish is bearish and all, but it does seem strange to me that he doesn't see things getting much worse than they are today. I know things are bad for those who have lost their jobs, and really bad for those falling off the back of the proverbial unemployment payments wagon. Almost daily he posts graphs or interviews that demonstrate things could get significantly worse, for a lot of people. I suppose he must believe we're in for a lost decade in the West...huh.
On an anecdotal level, there are MANY small businesses that have closed up shop in the Philadelphia suburbs over the last year. I recently moved back to the town I grew up in for a few weeks. Driving from the interstate exit to the abode the route passes through about a mile of light industry/warehouse and big box retail, a mile of residential, and a mile of park. The park is unchanged as one would expect. The residential area has had numerous "for sale" signs for about 18 months and is little changed from the last time I was in these parts. The business district has way more "for rent" signs than I ever remember seeing before. I counted seven such signs in about a mile (the most one would ever see in prior days was one, maybe two, but never for long). This is in an area where teh buildings are at least 25 years old so one would imagine mortgages are managable or paid off - I guess the tenets couldn't keep it together... CRE is going to be obliterated, not simply decimated. New buildings are going to have to compete with many older with little to no mortgage.
EBrown this is exactly my point. He is looking at an economic zero. Basically a static situation as the one we have now. IMO, that would be good all things considering.
hmmm, let me type 'consistency' into Bartlett's and copy/paste all contrarian quotes I can find.
Genius!
Seriously, why don't you intelligently try to critique any of I&S 's arguments.
Anon with the quotes - I get what you're up to, but anyone can play that game, see below. Applying those quotes willy nilly as you would do opens anything to debate. I'm sorry, but I'm just not interested in talking or reading about many things that are scientifically settled - the theory of evolution being a prime example many still deny. I am totally consistent in my understanding of the dynamics of evolution through selective pressures be they predatory, sexual, or environmental.
Stoneleigh's example of thermodynamics is another field that this applies to.
Perhaps Stoneleigh makes a cognitive error in conflating rigorously tested and retested theories with her assessment of the drivers of financial manias. If so I am make the same error all the time since I buy TAE's explanations of how the world works. I've yet to find a blog with better predictors... and the more a hypothesis is tested the more credence it can be given...
“In baseball, my theory is to strive for consistency, not to worry about the numbers. If you dwell on statistics you get shortsighted, if you aim for consistency, the numbers will be there at the end.” Tom Seaver
“Part of courage is simple consistency.” Peggy Noonan
Seriously, why don't you intelligently try to critique any of I&S 's arguments.
BECAUSE THAT GETS YOU BANNED!
I laud Stoneleigh on her calm and Ilargi on his patience. I'd find it hard not to ban the slinky people.
"Some people are like Slinkies - not good for much but you still can't help but smile when you push them down the stairs."
@el gallinazo
"Dollar death" as in death of the dollar. Que shock & awe & repudiation by the world, intro the all new New Dollar. It has happened before. It can happen again, usually on arranged terms benefiting insiders.
Damn, the comment section is shuddering again.
I laud Stoneleigh on her calm and Ilargi on his patience. I'd find it hard not to ban the slinky people.
"Some people are like Slinkies - not good for much but you still can't help but smile when you push them down the stairs."
“Yogi's teacher: You don't know anything, do you Berra?
Yogi: I don't even suspect anything, sir.”
http://en.wikiquote.org/wiki/Yogi_Berra
CS,
thanks for reminding me about the sagacious Mr Hicks-he was quite prescient, wasn't he?
Arnold,
I know that you think that there is going to be a major decline in economic activity, but do you think that this decline will manifest itself in very negative GDP numbers? I think Mish was simply expecting no growth for a number of years. What are your thoughts on this?
I think GDP is going to fall off a cliff. It fell by 25% in the Soviet Union during their collapse. We can expect something at least as bad IMO, and probably worse, as this time it's global.
I intend to go one being consistent in my view of the world. Watch this space to see if it plays out the way I think it will.
Intelligent, respectful and open-minded debate will not get you banned, especially if you manage not dominate the comment threads or drown out other discussions. If you have something to bring to the table that you think we could learn from then by all means bring it.
Stoneleigh, Doesn't Hydro Quebec have enough capacity to make Ontario fat and happy electricity wise for a long time to come even assuming what you don't assume, growth?
New post up.
Just wanted to say that thanks to the consistent vision, insights and dedication of Ilargi and Stoneleigh since early TOD days, this has become one of my favorite internet communities for gaining a deeper understanding of how to live adaptively in these increasing tumultuous times.
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