"Photographer at Old Orchard House, Old Orchard, Maine"
Ilargi: Some things are more equal than others. Always have been. Just maybe not always the same things. Which makes me think of Marie-Antoinette fleeing the cake-eaters in her stagecoach. It also makes me think of this:
If this well keeps leaking for three or four months, it's Katie bar the door[Stuart] Smith, [a lawyer in New Orleans, who's suing BP] on behalf of fishermen, the Louisiana Environmental Action Network and four large hotels, alleges that BP and others were "grossly negligent" in allowing the blowout to occur. [..] Because the spill has been lingering offshore, the plaintiffs who can claim damages so far are mostly out-of-work fishermen and tourist resorts that are getting cancellations. As rich as BP is, "if this well keeps leaking for three or four months, it's Katie bar the door," Smith said. "I don't think they have enough money."
BP has been shown off late to be a crummy crappy sort of organization, which -with the full faith and credit of the UK and US government- has cut all corners it could find, and then made some more to cut. And now BP has been exposed, and people like Mr. Smith are dead-set to make BP pay, while the company itself is frantically trying to mitigaste its losses through lawyers it couldn't even really afford anymore if it were to pay full damages to all parties.
Which in turn makes my warped brain wonder what the difference is between BP and, say, Goldman Sachs. Environmental disaster, financial disaster, what’s the difference? Is it just that the latter is harder to prove? I don’t know, for one thing you’d think the reward, hence the incentive, would be greater too. Yes, BP has destroyed the livelihood of fishermen and "hospitality workers". So they should be sued for that. But the Wall Street cabal has destroyed the entire economies of entire countries, as well as countless building blocks that formed the foundation of these economies. Towns, pension funds, you name it. No matter how bad Deepwater Horizon will turn out to be, the Vampire Squid disaster will be many times worse, even if it takes longer for it to trickle down to people's conscious brains.
So why is no-one, 2-3 years after the economy started collapsing, suing the Squid? Why does it instead receive ever more funds from the very people it financially strangled? Isn't that the oddest thing, if you think about it? Of course, the fact that there's trillions of public funds now stashed away in Wall Street firms, without which they'd no longer exist, complicates the matter enormously. As a lawyer, you could potentially win huge settlements for your clients, but they’d sort of end up paying for them out of their own pockets.
We've been through California, which elects to let its poor rot so it can continue to support its rich. New York State intends to lay off -another- 10,000 employees. Illinois owes billions it doesn't have. Idaho delays Medicaid payments. All these sudden bursts of creativity, what a spectacle it is. Harrisburg, PA Controller Dan Miller advises the city to declare bankruptcy. I would advise an additional 10,000 US cities to do the same. At least when you’re first in line, you may get some help. This time next year there'll be a long waiting list. That is, unless Obama et al figure out another mirror trick, and saw the lady in half yet one more time. But I wouldn't be stoo ure the lady hasn't gotten tired of that act yet.
Those 10,000 US cities, and all the counties and states they find themselves in, are -all but a precious few- at the end of their financial rope. All but a few have voted in ridiculously rosy budgets, and now they see their revenues tank. Some will install sneaky speed traps to increase revenues, others will try to raise property taxes on homes plunging in value. All will fail to restore a sound budget. Millions of government workers will be laid off nationwide, which all by itself guarantees further declines in revenue. Which will lead to more lay-offs, all of which will lead to further drops in real estate prices, which lowers tax revenues etc. You have to admit one thing: it's not a terribly hard storyline to follow. It couldn't be easier if you had seen this film before.
Obama's mortgage modification programs are slumping along, getting more tragically laughable as they go forward. All they are and ever were is a backdoor to transfer money to banks. The rate at which they've helped any real persons is too low to speak of. And of course those things could never have worked. You have one arm of government spending citizens' funds to prop up home prices, and another arm trying to firmly lock those same citizens into loans at those artificially elevated levels, and yet another shifting the bad loans from private lenders to the "public domain". It may all rinse, but it will soon no longer repeat.
The US Treasury announces a $1.6 billion loss on a loan to Chrysler, GM announces an $865 million creative accounting profit because it wants investors (who’ll be sure taxpayers' dough will support them all), and Obama announces a commission that will investigate how the Gulf of Mexico became one huge dead zone.
The President should have a commission investigate how the whole country became one. A financial dead zone.
Instead he insists it just ain’t so. Yeah, that’s right, just like BP does.
Limitless oil and limitless credit are but different manifestations of what makes systems work, and eventually, inevitably, kills them.
Katie bar the door indeed.
A Deflationary Red Flag In The U.S. Dollar
by TPC
If the chart below doesn’t grab your attention then few things will. In my opinion, the performance of the dollar is the surest evidence of the kind of environment we’re currently in. The surging dollar is a clear sign that inflation is not the concern of global investors. This is almost a sure sign that deflation is once again gripping the global economy and should be setting off red flags for equity investors around the world.The recent action in the dollar is eerily reminiscent of the peak worries in the credit crisis when deflation appeared to be taking a death grip on the global economy and demand for dollars was extremely high. The recent 16% rally in the dollar is a sign that investors are once again worried about the continuing problem of debt around the world and they’re reaching for the safety of the world’s reserve currency – the dollar. As asset prices decline and bond yields collapse this is a clear sign that inflation is not the near-term concern, but rather that the debt based deflationary trends continue to dominate global economic trends.
This is exactly the kind of market action we saw leading up to Lehman Brothers. In 2008 the dollar rallied as signs of deflation began to sprout up. This was an instant red flag for anyone who understood the deflationary forces at work (and a total surprise for the inflationistas). The dollar ultimately rallied 26% from peak to trough. Coincidentally, the dollar had rallied 16% from trough to peak just prior to the Lehman collapse when the dollar surge accelerated.
Of course, the inflationistas will argue that gold is rising in anticipation of inflation. In my opinion, this is incorrect. First of all, if inflation were a major global concern the Goldman Sachs Commodity Index wouldn’t be almost 65% off its all-time high and just 33% above its 2009 low. Second, and perhaps most importantly, bond yields around the globe wouldn’t be plummeting if there were rampant inflationary fears. For a much more detailed analysis on the reasons why inflation is not a near-term concern please see here.
As for the gold rally, I think it’s clear gold is rallying in anticipation of its potential to become a future reserve currency. The potential demise of the Euro has become a rally cry for inflationistas who don’t understand that the Euro is in fact another single currency system (like the gold standard) which is destined to fail. In the near-term, the rise in gold is likely justified as fear mongering and misguided governments increase demand for the yellow metal. Ultimately, I believe investors will realize that there is little to no inflation in the global economy and that the non-convertible floating exchange systems (such as the USD and JPY) are fundamentally different from the flawed currency system in place in Europe.
Debt deflation continues to plague the global economy. Thus far, policymakers have been unable to fend off this wretched beast and I attribute this largely to the widespread misconceptions regarding our monetary systems. This extends to the very highest levels of government and the misconceptions regarding the EMU, the Euro and the vast differences in their monetary system have only exacerbated the problems and are likely to further worsen the global deflationary threat. The ignorance on display here borders on criminal in my opinion as governments impose harsh injustices on their citizens due entirely to their own lack of understanding.
I’ve mentioned repeatedly over the course of the last 18 months that government responses to the credit crisis were misguided and unlikely to resolve the structural problems. I’ve also mentioned that this was something I have sincerely hoped I would be wrong about as the consequences have the potential to be enormously destructive. Unfortunately, the policy responses have been so tragically misguided that I now believe the global economy is on the cusp of a potential double dip. And as Richard Koo says, the second dip has the potential to be far worse than the first because investor confidence is shattered (which is clearly the case on the back of the recent market crash). Policymakers are doing little to rectify confidence and have in fact, through their ignorance of the way in which our monetary system actually functions, only increased the global risks in the economy. The dollar is the surest sign of the lack of faith in the policy response and an enormous red flag for risk markets. Allocate accordingly.
PS - There is a video going around called “Melt-up” and it is receiving a HUGE amount of attention on the internet. It is regarding the recent melt-up in stocks and how the U.S. is about to enter an inflationary spiral and a currency collapse. I would recommend to the good readers here at TPC to ignore this video. It is 100% factually incorrect (well, more like 75%) and full of the same fear mongering misconceptions that fuel the asset destroying portfolio strategies of well known inflationistas (we all know the names). Videos like these are based on the same misconceptions regarding the monetary system that have actually led to the current debacle. Positioning yourself for hyperinflation and a U.S. dollar collapse has been a recipe for disaster and will continue to be a recipe for disaster as debt deflation remains the single greatest risk to the global economy.
Now This Is A Deflationary Collapse
by Joe Weisenthal and Kamelia Angelova - Business Insider
Dr. Copper's prognoses for the world economy is very grim. Even as the market managed to produce some gains, the bellwether metal got crushed today, and over the last month its taken a monster loss. How come? Well, growth fears, a surging dollar, and perhaps a real slowdown in China to name a few things. A return to recession in Europe isn't helping much.
Deflation Is The Primary Trend
by David Rosenberg - Gluskin Shef
- Credit is contracting.
- Wage rates are stagnating.
- Money supply growth is vanishing
- The U.S.dollar is strong.
- Commodities have peaked.
- U.S. home prices are rolling over...again.
- Lumber prices tumbling (down nearly 17% from April 2010 highs)
- Wal-Mart is cutting prices on 10,000 items.
- Home Depot just cut prices on flowers, fertilizers, lawn equipment and outdoor furniture.
- TacoBell is offering two dollar combo meals.
- The April U.S. retail sales report hinted at deflation in groceries, electronics, apparel and sporting goods.
Given all these, the U.S . bond market looks poised to outperform. Nuff said.
The Small Business Credit Crunch
by Meredith Whitney - Wall Street Journal
The next several weeks will be critically important for politicians, regulators and the larger U.S. economy. First, over the next week Capitol Hill will decide on potentially game-changing regulatory reform that could result in the unintended consequences of restricting credit and further damaging small businesses. Second, states will approach their June fiscal year-ends and, as a result of staggering budget gaps, soon announce austerity measures that by my estimates will cost between one million to two million jobs for state and local government workers over the next 12 months.
Typically, government hiring provides a nice tailwind at this point in an economic recovery. Governments have employed this tool through most downturns since 1955, so much so that state and local government jobs have ballooned to 15% of total U.S. employment.
However, over the next 12 months, disappearing state and local government jobs will prove to be a meaningful headwind to an already fragile economic recovery. This is simply how the math shakes out. Collectively, over 40 states face hundreds of billions of dollars in budget gaps over the next two years, and 49 states are constitutionally required to balance their accounts annually. States will raise taxes, but higher taxes alone will not be enough to make up for the vast shortfall in state budgets. Accordingly, 42 states and the District of Columbia have already articulated plans to cut government jobs.
So the burden on the private sector to create jobs becomes that much more crucial. Just to maintain a steady level of unemployment, the private sector will have to create one million to two million jobs to offset government job losses.
Herein lies the challenge: Small businesses, half of the private sector (and the most important part as far as jobs are concerned), have been heavily impacted by this credit crisis. Small businesses created 64% of new jobs over the past 15 years, but they have cut five million jobs since the onset of this credit crisis. Large businesses, by comparison, have shed three million jobs in the past two years.
Small businesses continue to struggle to gain access to credit and cannot hire in this environment. Thus, the full weight of job creation falls upon large businesses. It would take large businesses rehiring 100% of the three million workers laid off over the past two years to make a substantial change in jobless numbers. Given the productivity gains enjoyed recently, it is improbable that anything near this will occur.
Unless real focus is afforded to re-engaging small businesses in this country, we will have a tragic and dangerous unemployment level for an extended period of time. Small businesses fund themselves exactly the way consumers do, with credit cards and home equity lines. Over the past two years, more than $1.5 trillion in credit-card lines have been cut, and those cuts are increasing by the day. Due to dramatic declines in home values, home-equity lines as a funding option are effectively off the table. Proposed regulatory reform—specifically interest-rate caps and interchange fees—will merely exacerbate the cycle of credit contraction plaguing small businesses.
If banks are not allowed to effectively price for risk, they will not take the risk. Right now we need banks, and particularly community banks, more than ever to step in and provide liquidity to small businesses. Interest-rate caps and interchange fees will more likely drive consumer credit out of the market and many community banks out of business.
Clearly, the issue of recharging the securitization market as an alternative source of liquidity is one that needs to be addressed over time, but politicians should not force rash regulatory reforms when significant portions of our economy remain fragile. The very actions designed to "protect" the consumer, such as rate caps and interchange fees, will undoubtedly take more credit away from the consumer.
It is important now to support any and all lending activities that would enable small businesses to begin hiring again. If the regulatory reform passes with rate-cap and interchange regulation amendments incorporated, small businesses will be hurt rather than helped. Politicians and regulators need to appreciate the core structural challenges facing unemployment in the U.S. Elected officials know better than most that an employed voter is better than an unemployed voter. They should improve their odds of re-election and do the right thing on regulatory reform.
Gerald Celente: The greatest bank robbery in world history
The turmoil that has stricken Greece has spread to Romania and Ireland. This crisis may be spreading worldwide as the debt crisis continues, there have been reports that it may spread to Japan, one of the biggest economies in the world. Gerald Celente says that this is the greatest bank robbery in history and it is the banks that are doing the stealing.
China stocks slide 5% as retail investors flee
by Lu Jianxin and Edmund Klamann - Reuters
China's key stock index tumbled more than 5 percent on Monday to its lowest close in a year, led by property stocks, as retail investors fled the market after a month-long rout sparked by the government's severe clampdown on surging property prices. The Shanghai Composite Index .SSEC closed at 2,559.9 points, its lowest close since May 4, 2009, and posted its biggest one-day percentage drop in more than eight months as panic selling emerged in the afternoon. The index has dropped nearly 20 percent in about a month.
"If you look at the thin volume of the market, you know that much of the fall in the index is not based on reality," said Wu Xiong, senior trader at Rosefinch Investment, a private equity fund. "It's a psychological problem that has long plagued China's stock market: Retail investors stay in the market only for quick profits."
While the day's volume of 88 billion yuan ($12.89 billion) was up from Friday's 82 billion yuan, it was the third-lowest turnover figure in two months, suggesting an exodus by retail investors, who traditionally account for more than two-thirds of market turnover. Losing Shanghai A shares overwhelmed gainers by 887 to 18. Wu and several other traders said the index should have the potential to rebound at any time as market fundamentals, including China's economy and corporate earnings, had not changed much over the past several weeks despite the market slump.
Shanghai has been one of the world's worst-performing major stock markets this year, with a 22 percent slide in the same league as the nearly 25 percent loss in the key Athens index .ATG and Madrid's .IBEX 22 percent decline. Analysts were unwilling to predict where the index may find support, however, given the panic that had set in among investors and a lack of positive news for the market.
Property stocks bore the brunt of the market's downtrend again on Monday, with Gemdale Corp, one of the day's top-10 shares by traded volume, falling 8.4 percent while sector heavyweight China Vanke dropped 5.3 percent. Chinese Premier Wen Jiabao said recently that China should keep housing prices from rising excessively, the Xinhua news agency reported over the weekend, signalling that Beijing's campaign against property speculation is not over.
Haitong Securities analyst Zhang Qi said the market had become starved of funds in recent weeks as retail investors saw poor prospects for making quick profits from stock trading. Zheng Weigang, head of investment at Shanghai Securities, added: "There was panic selling from retail investors, whose confidence has been battered by the recent market slump."
The Extreme Frustration Of Unemployed Americans
by Michael Snyder
When Barack Obama visited Buffalo recently, he was greeted by a billboard advertisement with a very pointed message about unemployment. In just a few words it summarized the frustrations of an entire region. The billboard along I-190 had this very simple message for Obama: "Dear Mr. President, I need a freakin job. Period. Sincerely, inafj.org." As word about this billboard got out, it quickly made headlines all over the United States.
Why? Well, the truth is that millions of hard working Americans are extremely frustrated about their lack of work right now. When you don't have a job and you can't provide for your family, very little else seems to matter. In fact, according to a recent Gallup poll, unemployment is now the second most important issue to American voters. The number one issue is the economy.
The reality is that the American people don't want excuses. They want jobs. And some are getting so desperate that they are even putting up billboards to express their frustrations.
So who sponsored the billboard in Buffalo? Well, it was actually sponsored by a group organized by Buffalo businessman Jeff Baker. It turns out that Baker lost his own small business 15 months ago. His business had employed 25 people, and when he was forced to close it he described it as "the most heartbreaking situation" of his entire life.Baker's group, INAFJ ("I Need A Freakin Job"), says that they are not about playing politics. What they want is only one thing.
Jobs.
They want someone to put the American people back to work. Baker recently explained it this way....
"Nothing else matters unless the American people are working."
In some areas of the United States, the situation is beyond desperate. Detroit is a great example of this. Not only does the city resemble a war zone at this point, but Detroit's mayor says that the unemployment rate in his city is somewhere around 50 percent.
So how in the world is a major city supposed to function when 40 to 50 percent of the people living there can't get the work that they need?
The sad thing is that Detroit used to be one of the most prosperous areas in the United States. Once upon a time, the auto industry was booming and there were lots of great jobs available for blue collar workers.
But that all seems so far away now.
For decades, the politicians in Washington D.C. have allowed (or even encouraged) the offshoring of our manufacturing jobs, and now we are a nation with a dwindling manufacturing base that is rapidly bleeding cash.
In fact, the U.S. trade deficit widened for the second consecutive month in March to its highest level since December 2008. Every single month we buy much more from the rest of the world than they buy from us. That means that wealth is constantly flowing out of this nation, and no end to the bleeding is in sight.
The truth is that America's twin deficits (the trade deficit and the massive U.S. government budget deficit) are absolutely destroying the financial condition of this nation. For years and years economists have warned that these deficits would bring about a day of reckoning at some point, and now that day is here.
We are told by the media that we have entered an economic recovery, but with tens of millions of Americans not able to get the work that they need, most people are not convinced. In fact, a new poll shows that 76 percent of Americans believe that the U.S. economy is still in a recession.
But this is nothing compared to what is coming. The truth is that the United States is rapidly becoming a service economy. Service jobs pay less than manufacturing jobs do, and the rapid advance of technology in recent decades has made human labor increasingly unnecessary. That means that the "system" does not need our labor as much as it once did.
This is leading to a situation where there is a widening gap between the "haves" and the "have nots". In fact, the bottom 40 percent of those living in the United States now collectively own less than 1 percent of the nation’s wealth. But not everyone has been hurting during this financial crisis. Did you know that the number of millionaires in the United States rose 16 percent to 7.8 million in 2009?
Not only that, but an analysis of income-tax data by the Congressional Budget Office a few years ago found that the top 1% of households in the United States own nearly twice as much of the corporate wealth as they did just 15 years ago.The elite are getting richer, while at the same time tens of millions of other Americans are finding it increasingly more difficult to survive.That is why groups like INAFJ are becoming so popular. They are tapping into the frustration of the growing number of Americans who are desperately trying to make it from month to month. The following is a short video that INAFJ posted on YouTube about their organization....
So do have a story of economic frustration that you would like to share with the world?
Have you found yourself working harder and harder for less and less?
Does it seem like you come up short at the end of every month no matter how hard you try?
The Revenue Limits of Tax and Spend
by David Ranson - Wall Street Journal
Whether rates are high or low, evidence shows our tax system won't collect more than 20% of GDP
The Greeks have always been trendsetters for the West. Washington has repudiated two centuries of U.S. fiscal prudence as prescribed by the Founding Fathers in favor of the modern Greek model of debt, dependency, devaluation and default. Prospects for restraining runaway U.S. debt are even poorer than they appear.
U.S. fiscal policy has been going in the wrong direction for a very long time. But this year the U.S. government declined to lay out any plan to balance its budget ever again. Based on President Obama's fiscal 2011 budget, the Congressional Budget Office (CBO) estimates a deficit that starts at 10.3% of GDP in 2010. It is projected to narrow as the economy recovers but will still be 5.6% in 2020. As a result the net national debt (debt held by the public) will more than double to 90% by 2020 from 40% in 2008. The current Greek deficit is now thought to be 13.6% of a far smaller GDP. Unlike ours, the Greek insolvency is not too large for an international rescue.
As sobering as the U.S. debt estimates are, they are incomplete and optimistic. They do not include deficit spending resulting from the new health-insurance legislation. The revenue numbers rely on increased tax rates beginning next year resulting from the scheduled expiration of the Bush tax cuts. And, as usual, they ignore the unfunded liabilities of social insurance programs, even though these benefits are officially recognized as "mandatory spending" when the time comes to pay them out.
The feds assume a relationship between the economy and tax revenue that is divorced from reality. Six decades of history have established one far-reaching fact that needs to be built into fiscal calculations: Increases in federal tax rates, particularly if targeted at the higher brackets, produce no additional revenue. For politicians this is truly an inconvenient truth.
The nearby chart shows how tax revenue has grown over the past eight decades along with the size of the economy. It illustrates the empirical relationship first introduced on this page 20 years ago by the Hoover Institution's W. Kurt Hauser—a close proportionality between revenue and GDP since World War II, despite big changes in marginal tax rates in both directions. "Hauser's Law," as I call this formula, reveals a kind of capacity ceiling for federal tax receipts at about 19% of GDP.
What's the origin of this limit beyond which it is impossible to extract any more revenue from tax payers? The tax base is not something that the government can kick around at will. It represents a living economic system that makes its own collective choices. In a tax code of 70,000 pages there are innumerable ways for high-income earners to seek out and use ambiguities and loopholes.
The more they are incentivized to make an effort to game the system, the less the federal government will get to collect. That would explain why, as Mr. Hauser has shown, conventional methods of forecasting tax receipts from increases in future tax rates are prone to over-predict revenue. For budget planning it's wiser and safer to assume that tax receipts will remain at a historically realistic ratio to GDP no matter how tax rates are manipulated. That leads me to conclude that current projections of federal revenue are, once again, unrealistically high.
Like other empirical "laws," Hauser's Law predicts within a range of approximation. Changes in marginal tax rates do not make a perceptible difference to the ratio of revenue to GDP, but recessions do. When GDP falls relative to its potential, tax revenue falls even more. History shows that, in an economy with no "output gap" between GDP and potential GDP, a ratio of federal revenue to GDP of no more than 18.3% would be realistic.
In this form, Hauser's Law provides a simple basis for testing the validity of any government's revenue projections. Today, since the economy already suffers from a large output gap that is expected to take many years to close, 18.3% must be a realistic upper limit on the ratio of budget revenues to GDP for years to come. Any major tax increase will reduce GDP and therefore revenues too.
But CBO projections based on the current budget show this ratio reaching 18.3% as early as 2013 and rising to 19.6% in 2020. Such numbers implicitly assume that the U.S. labor market will get back to sustainable "full employment" by 2013 and that GDP will exceed its potential thereafter. Not likely. When the projections are tempered by the constraints of Hauser's Law, it's clear that deficit spending will grow faster than the official estimates show.
Freddie and Fannie won't pay down your mortgage
by Tami Luhby - CNN
Pressure is mounting on loan servicers and investors to reduce troubled homeowners' loan balances...but the two largest owners of mortgages aren't getting the message. Fannie Mae and Freddie Mac, which are controlled by the federal government, do not lower the principal on the loans they back, instead opting for interest rate reductions and term extensions when modifying loans.
But their stance is out of synch with the Obama administration, which is seeking to expand the use of principal writedowns. In late March, it announced servicers will be required to consider lowering balances in loan modifications. And just who would tell Fannie and Freddie to start allowing principal reductions? The Obama administration. Asked whether they will implement balance reductions, the companies and their regulator declined to comment. The Treasury Department also declined to comment.
What's holding them back is the companies' mandate to conserve their assets and limit their need for taxpayer-funded cash infusions, experts said. If Fannie and Freddie lower homeowners' loan balances, they are locking in losses because they have to write down the value of those mortgages. Essentially, that means using tax dollars to pay people's mortgages. The housing crisis has already wreaked havoc on the pair's balance sheets. Between them, they have received $127 billion -- and recently requested another $19 billion -- from the Treasury Department since they were placed into conservatorship in September 2008, at the height of the financial crisis.
Housing experts, however, say it's time for Fannie and Freddie to start reducing principal. Treasury and the companies have already set aside $75 billion for foreclosure prevention, which can be spent on interest-rate reductions or principal write downs. "Treasury has to bite the bullet and get Fannie and Freddie to participate," said Alan White, a law professor at Valparaiso University. "It's all Treasury money one way or the other."
Though servicers are loathe to lower loan balances, a growing chorus of experts and advocates say it's the best way to stem the foreclosure crisis. Homeowners are more likely to walk away if they owe far more than the home is worth, regardless of whether the monthly payment is affordable. Nearly one in four borrowers in the U.S. are currently underwater. "Principal reduction in the long run will lower the risk of redefault," said Vishwanath Tirupattur, a Morgan Stanley managing director and co-author of the firm's monthly report on the U.S. housing market. "It's the right thing to do."
Meanwhile, a growing number of loans backed by Fannie and Freddie are falling into default. Their delinquency rates are rising even faster than those of subprime mortgages as the weak economy takes its toll on more credit-worthy homeowners. Fannie's default rate jumped to 5.47% at the end of March, up from 3.15% a year earlier, while Freddie's rose to 4.13%, up from 2.41%. On top of that, the redefault rates on their modified loans are far worse than on those held by banks, according to federal regulators.
Some 59.5% of Fannie's loans and 57.3% of Freddie's loans were in default a year after modification, compared to 40% of bank-portfolio mortgages, according to a joint report from the Office of Thrift Supervision and Office of the Comptroller of the Currency. This is part because banks are reducing the principal on their own loans, experts said. So, advocates argue, lowering loan balances now can actually save the companies -- and taxpayers -- money later. "It can be a financial benefit to Fannie Mae and Freddie Mac and the taxpayer," said Edward Pinto, who was chief credit officer for Fannie in the late 1980s.
What might force the companies' hand is another Obama administration foreclosure prevention plan called the Hardest Hit Fund, which has charged 10 states to come up with innovative ways to help the unemployed and underwater. Four states have proposed using their share of the $2.1 billion fund to pay off up to $50,000 of underwater homeowners' balances, but only if loan servicers and investors -- including Fannie and Freddie -- agree to match the writedowns. State officials are currently in negotiations with the pair. "We remain optimistic that we can get a commitment from Fannie, Freddie and the banks to contribute to this strategy," said David Westcott, director of homeownership programs for the Florida Housing Finance Corp., which is spearheading the state's proposal.
Euro Zone Likes a Weaker Currency, Up to a Point
by Jack Ewing - New York Times
In Europe, businesses are generally giddy to see the euro fall and exports rise. But the currency’s plunge in recent days is starting to make the Continent nervous. After falling to an 18-month low relative to the dollar last week, the euro declined again early Monday, falling at one point to a new four-year low. For exporters like the German carmaker Daimler, the decline has been a boon. Sales of its Mercedes-Benz models surged 22 percent in the United States during the first four months of the year, and those sales in dollars are worth 15 percent more when converted to euros than they would have been at the beginning of the year.
But the volatility of the euro — sliding more than 8 percent in the last month — is unnerving managers at factories across the Continent, even at Daimler in Stuttgart. More than anything at this point, Europe longs for stability. And business people worry that the euro sell-off reflects a broader loss of faith in the common currency. "The volatility can really create a lot of problems," said Olaf Wortmann, a business-cycle specialist at the German Engineering Federation, a manufacturers’ association. Sharp currency swings complicate contracts with foreign suppliers and upset investment plans, he said.
"A cheaper euro helps us in certain markets," agreed Christoph Liedtke, a spokesman for SAP, a maker of business software based in Walldorf, Germany. But, he said, "We have a strong interest in a stable currency. The stronger the currency fluctuations, the more difficult it is for all companies." The euro’s decline accelerated last week after European Union leaders agreed on a nearly $1 trillion aid package intended to guarantee that Greece, Spain and other countries could pay their debts. The European Central Bank also began buying government and corporate debt to prevent a market freeze. The moves were unprecedented.
Businesses generally applauded the huge commitment to stabilize the euro area, and stocks ended the week higher. But after a brief rally last Monday morning, the euro began moving in the opposite direction. Investors are concerned that the central bank’s relentless focus on price stability is now in question, analysts said. Investors were also shaken by the abrupt reversal in policy. On Thursday, the president of the European Central Bank, Jean-Claude Trichet, had insisted that its governing council not even discuss bond purchases.
"They have lost credibility because they are now acting against their own talk from before," said Jürgen von Hagen, a professor of economics at the University of Bonn. Faced with the need to supply cash to European banks, the central bank will have to keep its benchmark interest rate at 1 percent for the foreseeable future, said Jörg Krämer, chief economist at Commerzbank in Frankfurt.
The Federal Reserve is likely to begin raising interest rates sooner than the European Central Bank, Mr. Krämer said, making it more attractive for investors to hold assets in dollars. He predicts that inflation will rise to an annual rate of 3 or 4 percent in coming years, rather than the official target of about 2 percent. Mr. Trichet insists that the central bank will never deviate from its mandate to preserve price stability. "Those who believe — or even worse, are suggesting — that we will tolerate inflation in the future are making a grave error," he told the German magazine Der Spiegel.
The euro, which was trading around $1.25 on Friday, is still above "purchasing power parity," the point at which the currencies are aligned with how much they buy in the real world. The fair value of the euro is about $1.20, analysts say. If the euro settles at something close to parity, businesses will be happy. But experience shows that rarely happens. "The exchange rates always over- or undershoot," said Mr. Wortmann of the Engineering Federation. "We wouldn’t be happy about an undervalued euro."
To be sure, a big euro devaluation would be good for some of the countries that have the most serious problems. Besides alarming debt levels, countries like Greece, Spain and Portugal have allowed wages to rise faster than productivity, and now have trouble competing on world markets. A depressed euro would make their products cheaper in foreign markets, and help restore competitiveness. A stronger dollar would also help tourism, which is an important industry in Mediterranean countries. Bookings from the United States at Silversea Cruises are up about 10 percent, said Manfredi Lefebvre d’Ovidio, deputy chairman of the cruise ship operator. But he attributes most of the gain to the improved American economy.
For most exporters, though, a cheaper euro brings problems as well as advantages. Oil and raw materials, which are often priced in dollars, become more expensive. Currency hedging, like any other kind of insurance, becomes more expensive when the risk rises, as it does during big exchange rate moves. Many international companies have moved some of their manufacturing abroad, in part to cushion themselves against currency fluctuations.
SMA Solar Technology, a maker of inverters for solar plants that is based in Niestetal, Germany, is setting up a factory in Denver that is expected to employ 700 people, partly to serve the American market but also to guard against a gyrating euro. "SMA will be able to reduce transportation and interim storage costs as well as currency exchange risks," Günther Cramer, the company’s chief, said in a statement.
For such companies, a swing in the dollar-euro rate may simply be a wash. While Daimler cars made in Germany become more profitable, Daimler S.U.V.’s made in Tuscaloosa, Ala., and exported outside the United States — as more than half are — become less profitable in euro terms. Mr. Wortmann said that the machinery makers in the Engineering Federation were more concerned about the state of world trade and the health of the European economy than they were about the dollar-euro exchange rate. "Demand is what is decisive," Mr. Wortmann said. "We are getting one or the other new contract, but it’s not a flood."
Most French expect Paris to default
by Ralph Atkins - Financial Times
Europeans and Americans see a plausible chance of their governments defaulting in the next decade, with the French emerging from among the largest nations as most nervous about their country’s public finances. Some 53 per cent of those polled in France thought it was likely that their government would be unable to meet its financial commitments within 10 years, according to a Financial Times/Harris opinion poll published on Monday.Just 27 per cent said it was unlikely. Americans were only slightly less worried, with 46 per cent saying default was likely, against 33 per cent who saw it as unlikely.The results highlighted how worries about public sector finances, initially focused on Greece, have generated worldwide concern. A €750bn emergency European Union rescue plan, backed by central banks, helped calm financial markets last week. But the package failed to assuage worries about the long-term sustainability of many countries’ finances and the euro fell sharply. Jean-Claude Trichet, European Central Bank president, told Germany’s Spiegel magazine at the weekend that doubts being cast over governments’ creditworthiness "is a problem for almost all industrialised countries".
French nervousness reflected the size of the country’s public sector deficit, which was expected to be about 8 per cent of gross domestic product this year. In the US, the deficit was expected to be bigger, possibly 11 per cent of GDP. In contrast, the British appeared relatively unperturbed about the prospect of a default, even though the UK deficit was forecast to reach about 12 per cent of GDP this year. Only a third of the British people polled thought a government default was likely in the next 10 years.The Spanish were also less worried than the French and Americans, in spite of a deficit ratio expected to approach double digits this year. About 35 per cent of Spaniards said a default was likely. Germans, at 28 per cent, were the least worried. But the survey also showed confidence that governments would still be able to fund welfare and other spending programmes. The Spanish were the most optimistic – in spite of their country being forced to announce fresh austerity measures last week to cut the deficit: 86 per cent of Spanish respondents were confident that their government would still be able to pay for a "reasonable state pension" in the future and 93 per cent thought healthcare spending was secure.
More than 50 per cent in the UK, France, Italy and the US thought reasonable public pension provision would remain. But the Germans were gloomier – with only 42 per cent expressing confidence. German pessimism about the future of the welfare state was reflected in a speech on Friday by Angela Merkel, chancellor, which warned that "we cannot live beyond our means for ever". A special international tax on banks was supported by more than 60 per cent of those polled in Europe and 44 per cent in the US.
There was strong opposition to more general tax increases to fund government spending without increasing debt levels further. Opposition was strongest in Italy and France, where 72 per cent and 69 per cent were opposed. But opposition was noticeably weaker in the US and UK, at 52 per cent and 49 per cent. The FT/Harris poll was conducted online between April 27 and May 4 among 6,318 adults in France, Germany, the UK, Italy, Spain and the US.
Fears Intensify That Euro Crisis Could Snowball
by Nelson D. Schwartz and Eric Dash
After a brief respite following the announcement last week of a nearly $1 trillion bailout plan for Europe, fear in the financial markets is building again, this time over worries that the Continent’s biggest banks face strains that will hobble European economies. In a sign of the depth of the anxiety, the euro fell Friday to its lowest level since the depth of the financial crisis, as investors abandoned the currency as well as stocks in favor of gold and other assets seen as offering more safety, Nelson D. Schwartz and Eric Dash report in The New York Times. In trading early Monday morning, the euro declined again, managing at one time to reach a four-year low relative to the dollar.
The president of the European Central Bank, Jean-Claude Trichet, in an interview published Saturday, warned that Europe was facing "severe tensions" and that the markets were fragile. For Europe’s banks, the problems are twofold. Short-term borrowing costs are rising, which could lead institutions to cut back on new loans and call in old ones, crimping economic growth. At the same time, seemingly safe institutions in more solid economies like France and Germany hold vast amounts of bonds from their more shaky neighbors, like Spain, Portugal and Greece.
Investors fear that with many governments groaning under the weight of huge deficits, the debt of weaker nations that use the euro currency will have to be restructured, deeply lowering the value of their bonds. That would hit European financial institutions hard, and may ricochet through the global banking system. Bourses and bank shares in Europe plunged on Friday because of these fears, with Wall Street following suit. Shares were also down in Tokyo and Australia in early trading on Monday.
"This bailout wasn’t done to help the Greeks; it was done to help the French and German banks," said Niall Ferguson, an economic historian at Harvard. "They’ve poured some water on the fire, but the fire has not gone out." The European rescue plan, totaling 750 billion euros, is intended to head off the risk of default but would vastly increase borrowing. That could hamstring Europe’s nascent recovery. Indeed, it was too much debt that caused the problem in the first place: a new report by the International Monetary Fund warns that "high levels of public indebtedness could weigh on economic growth for years."
The world’s budget deficit as a percentage of gross domestic product now stands at 6 percent, up from just 0.3 percent before the financial crisis. If public debt is not lowered back to precrisis levels, the I.M.F. report said, growth in advanced economies could decline by half a percentage point annually.
To be sure, not all of the trends are negative. A lower euro will actually make European exports — be it German automobiles or Italian leather — more affordable and more competitive around the world. And Greece, Spain and Portugal took the first steps last week toward enacting austerity measures that would reduce their budget deficits. Those steps were not enough to prevent a flare-up in money market funds, a crucial but little-noticed corner of the financial system in which American investors provide more than $500 billion in short-term loans to help European banks finance their daily operations.
The cash comes from conservative funds that hold the savings of big American corporations and individual American consumers. So far, the proposed rescue package has failed to ease worries at these funds, which have cut back on loans to European banks and are demanding higher rates and quicker repayment. "More people are making the yes or no decision to pull out of the market and keep their money closer to home," said Lou Crandall, the chief economist of Wrightson ICAP, a money market research firm.
Initially, it was Greek and Portuguese banks that got the cold shoulder from American lenders. But over the last two weeks big banks in Spain, Ireland and Italy have struggled to secure short-term funds from the United States as the anxiety has spread. By Friday, even banks in solid European economies like France, Germany and the Netherlands were caught in the undertow, according to market analysts and traders. "Investors are waiting to see whether the stability package can be put into place," said Alex Roever, a short-term fixed-income analyst for J.P. Morgan Securities. "Until investors get a better feel, we are hung in limbo."
Because of the pullback by American lenders, the rate banks charge one another for overnight loans, known as Libor for the London Interbank Offered Rate, has been steadily climbing. And the significance of Libor stretches far beyond Europe’s shores: that is the benchmark that helps determine the interest rate on many mortgages and credit cards held by American consumers.
Bank borrowing rates are still well below where they were at the height of the crisis. Fears that the problems in Europe could rebound in the United States, however, led the Federal Reserve to restart lines of credit to the European Central Bank and other central banks in conjunction with the European rescue package announced a week ago. The move ensured that European institutions would be able to borrow dollars to lend to their clients, but that is more expensive than relying on private investors.
"We didn’t do so out of any special love for Europe," Narayana R. Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, told a group of small-business owners in Wisconsin on Thursday. "We’re American policy makers, and we make decisions to keep the American economy strong." However, he said, "The liquidity problems in European markets were showing signs of creating dangerous illiquidity problems in our own country’s financial markets."
That is not the only domino that could fall.
While the direct exposure of American banks to Greece is minimal, American financial institutions are closely intertwined with many big European banks, which in turn have large investments in the weaker European nations. For example, Portuguese banks owe $86 billion to their counterparts in Spain, which in turn owe German institutions $238 billion and French banks $220 billion. American banks are also big owners of Spanish bank debt, holding nearly $200 billion, according to the Bank for International Settlements, a global organization serving central bankers.
Furthermore, financial policy makers find themselves running out of weapons in their arsenal. After borrowing trillions to stimulate their economies and ease credit concerns during the last wave of fear in late 2008 and early 2009, governments cannot borrow trillions more without risking higher inflation and shoving aside other borrowers like individuals and companies. Short-term interest rates, already near zero in the United States, cannot be lowered any further. And vital steps like raising taxes or cutting spending increases could snuff out the beginnings of a recovery in northern Europe and worsen the pain in recession-battered economies like Spain, where unemployment recently passed 20 percent.
With the exception of wartime, "the public finances in the majority of advanced industrial countries are in a worse state today than at any time since the industrial revolution," Willem Buiter, Citigroup’s top economist, wrote in a recent report. "Restoring fiscal balance will be a drag on growth for years to come."
Forget the wolf pack – the ongoing euro crisis was caused by EMU
by Ambrose Evans-Pritchard - Telegraph
Jean-Claude Trichet tells us the world faced a second Lehman crash in the days and hours before EU leaders launched their €720bn (£612bn) defence fund. If the European Central Bank’s president is correct, we are in trouble. The EU-IMF package is already unravelling. What will the West do for its next trick?
Mr Trichet was ash-white at the Brussels summit a week ago. He distributed charts of credit stress to every eurozone leader. By the time he had finished his hair-raising discourse, everybody round the table finally understood what they faced. "The markets had ceased to function," he told Der Spiegel. "There is still a risk of contagion. It can happen extremely fast, sometimes within hours."
The spreads on Greek, Iberian, and Irish bonds have, of course, dropped since the ECB stepped in with direct purchases. But the euro rally fizzled fast, to be followed by a fresh plunge to a 18-month low of $1.24 against the dollar. European bank stocks have buckled again. Spain’s IBEX index fell 6.6pc in capitulation fever on Friday. Geneva professor Charles Wyplosz said EU leaders made the error of overselling up their "shock and awe" package before establishing any political mechanism to mobilise such sums. "The fund is an empty shell," he wrote at Vox EU. "Worse still, crucial principles have been sacrificed for the sake of unconvincing announcements."
Brussels was unwise to talk of smashing the "wolf pack" speculators and defeat the "worldwide organised attack" on the eurozone. As Napoleon said, if you set out to take Vienna, take Vienna. Besides, the language of the EU priesthood – ex-ECB board member Tomasso Padoa-Schioppa talks of the advancing battalions of the "anti-euro army" – frightens Chinese and Mid-East investors needed to soak up EU debt. These metaphors are a mental flight from the issue at hand, which is that vast imbalances – masked by EMU, indeed made possible only by EMU – have been decorked by the Greek crisis and now pose a danger to the entire world.
One can only guess what Mr Trichet meant when he said we are living through "the most difficult situation since the Second World War, and perhaps the First". Is this worse than Credit Anstalt in the summer of 1931, the event that brought down central Europe’s banking system and tipped Europe into depression? Or was Mr Trichet alluding to something else after witnessing the Brussels tantrum by President Nicolas Sarkozy? According to El Pais, Mr Sarkozy threatened to pull France out of the euro and break the Franco-German axis at the heart of the EU project unless Germany capitulated. To utter such threats is to bring them about. You cannot treat Germany in that fashion.
Chancellor Angela Merkel has put the best face on a deal that has so damaged her leadership. "If the euro fails, then Europe fails and the idea of European unity fails," she said. Too late, I think. The German nation is moving on. I was struck by a piece in the Frankfurter Allgemeine proposing a new "hard currency" made up of Germany, Austria, Benelux, Finland, the Czech Republic, and Poland, but without France. The piece entitled The Alternative says deflation policies may push Greece to the brink of "civil war" and concludes that Europe would better off if it abandoned the attempt to hold together two incompatible halves. "It can be done," the piece says.
What makes this crisis so dangerous is not just that Europe’s banks are still reeling, with wafer-thin capital ratios. The new twist is that markets are no longer sure whether sovereign states are strong enough to shoulder rescue costs. The IMF warned in last week’s Fiscal Monitor that the tail risk of a "widespread loss of confidence in fiscal solvency" could no longer be ignored. By 2015 public debt will be 250pc in Japan, 125pc in Italy, 110pc in the US, 95pc in France, and 91pc in the UK.
There is a way out of this crisis, but it is not the policy of wage deflation imposed on Ireland, Greece, Portugal, and Spain, with Italy now also mulling an austerity package. This can only lead to a debt-deflation spiral. The IMF admits that Greece’s public debt will rise to 150pc of GDP even after its squeeze, and that Spain’s budget deficit will still be 7.7pc of GDP in 2015.
The only viable policies – short of breaking up EMU or imposing capital controls – is to offset fiscal cuts with monetary stimulus for as long it takes. Will it happen, given the conflicting ideologies of Germany and Club Med? Probably not. The ECB denies that it is engaged in Fed-style quantitative easing, vowing to sterilise its bond purchases "euro for euro". If they mean it, they must doom southern Europe to depression. No democracy will immolate itself on the altar of monetary union for long.
Berlin calls for eurozone budget laws
by Daniel Schäfer and Ben Hall - Financial Times
The German government is to press other eurozone countries to adopt their own versions of Berlin’s balanced budget law as part of a set of sweeping reforms to stabilise the euro. Germany last year enshrined in its constitution a law that prohibits the federal government from running a deficit of more than 0.35 per cent of gross domestic product by 2016. German states will not be allowed to run any deficit after 2020. Applied across the eurozone, that would imply much tighter fiscal discipline than the bloc’s existing rules requiring deficits of less than 3 per cent of GDP.
Wolfgang Schäuble, the German finance minister, is working on a set of sweeping reforms for the stricken eurozone, which he will present on Friday at the first meeting of a working group set up to consider closer economic policy co-operation. Finance ministers meet on Monday to discuss the €750bn eurozone and International Monetary Fund rescue plan for Greece, which failed to prevent the euro hitting fresh lows against the dollar last week. They will also look at the latest austerity measures announced by Spain and Portugal.
A German government official told the Financial Times that one of Mr Schäuble’s proposals would be for other eurozone countries to adopt similar fiscal constraints to Germany’s Schuldenbremse – as the law is known. "Something like that would be a good idea for other countries to have – although it might take on different shapes and forms for each member of the eurozone," the official said. The severity of the euro crisis could give impetus to Berlin’s proposed reforms, which would have been unthinkable even six months ago.
The idea has won the the backing of the Austrian government. "Considering the high indebtedness in Europe, I am in favour of a Schuldenbremse," Josef Pröll, Austria’s finance minister, told German newspaper Die Welt. "This would lead to a clear cap on new debt, strict budgetary discipline and balanced budgets in Europe," he said. Many governments are likely to balk at the idea of a fiscal rule such as Germany’s, which does not distinguish between underlying deficits and those attributable to weak growth, although there is flexibility for severe recessions and natural disasters.
But national rules targeting a cyclically adjusted balance – taking into account the state of the economy – could win wide support. Nicolas Sarkozy, the French president, is in favour of some form of balanced budget rule with constitutional force. He might even back the idea on Thursday when the Elysée Palace is holding a summit of ministers, local authorities, employers and unions to discuss ways of slashing France’s public deficit, which is due to reach 8 per cent of gross domestic product this year. Michel Camdessus, former managing director of the International Monetary Fund, is due to publish a review in the next few days on how such a budget rule might be applied in France.
Berlin is anxious to tighten fiscal discipline in the eurozone after reluctantly agreeing last week to the €750bn rescue package. The debate came as Angela Merkel, German chancellor, urged Europe quickly to tackle the gap between weaker and stronger member states. "We’ve done no more than buy time for ourselves to clear up the differences in competitiveness and in budget deficits of individual eurozone countries," she said. "If we simply ignore this problem we won’t be able to calm down this situation," Ms Merkel added at the annual meeting of the German Federation of Trade Unions.
Greeks work more, owe less than Germans
According to many accounts of the financial crisis in Europe, one reason intervention has been slow is that it is hard to convince Germans, widely seen by themselves and others as hard-working, thrifty and virtuous, to "bail out" those lazy, spendthrift Greeks. This bit of OECD data on hours worked per worker (via Economix) runs contrary to the stereotypes: That is, according to the OECD, the average Greek worker logs 2120 hours per year - 690 more than a German worker.
Twice As Many Homeowners Kicked Out Of Obama Foreclosure Program As Given Permanent Relief, New Data Show
by Shahien Nasiripour - Huffington Post
More than twice as many homeowners were kicked out of the Obama administration's signature foreclosure-prevention program last month as were granted permanent relief, new data released Monday show.
More than 123,000 homeowners were bounced from the administration's Home Affordable Modification Program in April versus about 60,000 who were offered five-year plans of lowered monthly payments. This is the first month since the administration started reporting cancellation figures that the number of canceled modifications outpaced the number of new permanent modification offers.
The number of canceled modifications skyrocketed 82 percent in April compared to March.
"I think it's important to remember that our focus has been on getting homeowners in trial modifications through the decision," said Phyllis Caldwell, chief of Treasury's Homeownership Preservation Office, during a conference call with reporters. "As those decisions get made, it's certainly expected that there would be some that would fall out of HAMP and be considered for other foreclosure alternatives."
"The number is a very, very small percentage of the total amount of permanent modifications," Caldwell added.
More than 295,000 homeowners currently are in five-year modification plans, which are considered "permanent" because the interest rate won't increase very much over the life of the loan. Interest rates are at historic lows.
There were more cancellations in April than there were new permanent and trial modifications combined. The number of cancellations was about 27 percent higher than the number of new trial and permanent plans, according to Treasury Department data.
"I think it's great to take these numbers in context... with the broad efforts to stabilize the housing market," said David Stevens, chief of the Federal Housing Administration. Stevens pointed out that home prices and the number of new foreclosures have started to stabilize. He credited the administration's efforts in keeping down interest rates with helping homeowners to refinance their existing mortgages into lower rates, resulting in lower payments.
Trial modifications have been offered to more than 1.2 million homeowners during the year-long program.
"You know, while enabling eligible homeowners to modify their mortgages is vital to addressing the housing crisis with HAMP, it's also extremely important to keep this in context that this is just one part of the administration's comprehensive approach to assisting homeowners and stabilizing the housing market," said Stevens, assistant secretary for housing at the Department of Housing and Urban Development.
"We don't claim that the housing market is totally out of the woods, but it's certainly showing signs of stabilizing," added Herbert M. Allison Jr., assistant secretary for financial stability at the Treasury Department.
Allison pointed to the fact that the program, part of the administration's $75 billion effort to stem the rising tide of foreclosures, initially allowed homeowners to state their income when applying for three-month trial plans, rather than submitting documents proving their income. That's played a large role in the number of cancellations, he said.
The program lowers homeowners' monthly payments by reducing their mortgage payments to 31 percent of their monthly income. Beginning in June, the initiative will require homeowners to prove their income before qualifying for a trial modification. Mortgage servicers have already begun to apply this upcoming requirement.
Allison predicted that by June, after servicers clear through the stated-income trial mods, "we will see a higher level of permanent modifications."
The conversion rate of eligible trial plans to permanent status is currently at about 30 percent, Treasury data show. Allison said it "eventually will be about 100 percent" since servicers will be requiring documentation up front.
He cautioned that "perhaps" more homeowners also will be bounced from the program.
GM Posts $865 Million Net Income in Push for IPO
by Katie Merx and David Welch - Bloomberg
General Motors Co. reported first- quarter net income of $865 million, helped by higher production and smaller discounts, as the maker of the GMC Terrain and the Chevrolet Equinox works toward an initial public offering. Operating profit was $1.2 billion in the first three months of the year, and the company generated $1 billion in free cash flow, Detroit-based GM said today in a statement. Revenue rose 40 percent from the same period a year earlier to $31.5 billion.
Chief Executive Officer Ed Whitacre has said reporting a profit is a necessary milestone as the biggest U.S. automaker seeks freedom from government ownership. GM, which emerged from bankruptcy protection in July, is considering a return to the auto-lending business to make its offering more appealing to investors, people familiar with the plans said last week. "The unfortunate process of bankruptcy is yielding positive results," Rebecca Lindland, an analyst at IHS Global Insight in Lexington, Massachusetts, said today in an interview. "It certainly keeps them on track for an IPO."
GM North America and the company’s international operations each had profits before interest and taxes of $1.2 billion, while the automaker had a $500 million loss in Europe. GM’s 8.375 percent bonds due in July 2033 rose 1.625 cents to 36.5 cents on the dollar at 9:15 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt was issued by predecessor General Motors Corp. and will convert into equity in the new GM.
U.S. Auto Sales
GM’s sales in the U.S. rose 16.8 percent to 475,253 vehicles in the first quarter from 406,770 a year earlier, according to researcher Autodata Corp. Industry-wide, U.S. sales gained 15.5 percent in the period after falling to 10.4 million last year, the worst since 1982. The annualized rate for the first quarter was about 11 million cars and trucks. GM trimmed its U.S. customer discounts in the first quarter by an average of $230 per vehicle, or 6.7 percent, to $3,222, according to Autodata.
Profit was helped by higher output than a year earlier, when GM cut spending to try to avoid bankruptcy. The automaker built 667,085 vehicles in North America in the first quarter, an 8.5 percent increase from the fourth quarter, according to Michael Robinet, vice president of global forecasting for CSM Worldwide in Northville, Michigan. GM will produce 2.7 million vehicles on the continent this year, a 44 percent increase from 2009, CSM said.
"This is a good, useful step on the road to the IPO," GM Chief Financial Officer Chris Liddell told reporters today. GM is planning to reinstate at least 666 dealers and will have to build hundreds of cars to fill the lots and introduce new models, Robinet said. "The product renaissance is relatively strong," CSM’s Robinet said. "They have new stuff coming next year and the year after." GM posted a fourth-quarter loss of $3.4 billion and used $1.9 billion in cash. For the third quarter, a period that began with the end of bankruptcy on July 10, GM said generated $3.3 billion in cash and lost $1.15 billion on what it called a managerial basis. It reported a net profit, including the company’s recapitalization.
Higher Prices
First-quarter profit was helped by higher prices and lower fixed costs after GM transferred hourly retirees’ health costs to an independent trust, said Kirk Ludtke, senior vice president for CRT Capital Group LLC in Stamford, Connecticut. GM filed for protection from creditors on June 1, 2009, and emerged on July 10 with Whitacre, 68, as chairman. He took on the chief executive officer’s job in December and has shuffled management and cut brands to four from eight. The old General Motors Corp. had a $5.98 billion net loss in the first quarter of 2009.
The company has repaid $8.4 billion in U.S. and Canadian loans it assumed as it emerged from bankruptcy and is seeking to return to profit before offering shares publicly, allowing the U.S. to sell the 61 percent stake it acquired in the $50 billion bailout.
Bank Talks
The U.S. Treasury is talking with banks including Greenhill & Co., Lazard Ltd. and Perella Weinberg Partners about advising the department on the company’s return to public trading, a person with direct knowledge of the matter said last week. "They’re doing the right things in terms of paying down debt," said Mark Oline, head of corporate ratings at Fitch Ratings in New York. "They still don’t have all of their products refreshed." GM hasn’t issued any new debt since exiting bankruptcy and has no rating. The company and rival Ford Motor Co. will need profits and cash flow to attain investment-grade credit status, Oline said. "In both cases, it’s a very long road to get there," he said.
GM has said it needs better performance from its Opel unit in Europe. Opel Chief Executive Officer Nick Reilly told the Tagesspiegel newspaper this month that sales in Western Europe won’t return to 2007 levels for at least five years. GM decided to keep Opel in November after negotiating a deal to sell the Ruesselsheim, Germany-based unit to Canada’s Magna International Inc. and Russian lender OAO Sberbank.
Marketing Changes
Whitacre also has sought to retool the company’s marketing arm, changing U.S. sales and marketing leadership three times since December. On May 5, he hired Nissan Motor Co.’s Joel Ewanick as vice president of marketing to replace Susan Docherty, who held the job for two months and will be reassigned. Ewanick will be responsible for delivering more sales as the company devotes marketing resources to fewer brands. GM is focusing on Chevrolet, Buick, GMC and Cadillac in the U.S., selling Saab and shutting down Saturn, Pontiac and Hummer.
New UK Chancellor Osborne braced for cuts
by Lionel Barber, George Parker and Chris Giles - Financial Times
George Osborne will on Monday create an independent fiscal watchdog to rectify what he claims are "fixed" Treasury forecasts, as he prepares public opinion for a painful round of spending cuts and tax rises in next month’s Budget. The chancellor will name Sir Alan Budd as the interim head of the Office for Budget Responsibility, charged with looking into the Treasury books and preparing a "proper set of national accounts". Sir Alan is a former chief economic adviser to the Treasury.
In his first newspaper interview since arriving at the Treasury, Mr Osborne claimed that under Labour "forecasts were fiddled in order to help the government to present the sort of Budget it wanted to present". His decision to hand over the Treasury’s responsibility for growth and public finance forecasting to a new body has some parallels with Gordon Brown’s first act as chancellor: handing over monetary policy to an independent Bank of England.
But the OBR’s remit to produce new forecasts in time for the June "emergency" Budget is also in keeping with the time-honoured practice of incoming governments finding unexpected public accounts horrors. "We are finding all sorts of skeletons in various cupboards and all sorts of decisions taken at the last minute," Mr Osborne said. "By the end, the previous government was totally irresponsible and has left this country with absolutely terrible public finance."
Mr Osborne declined to give details, other than a "performance-related" bonus scheme for top civil servants, which he says is too widely disbursed. He will cut it by two-thirds, saving £15m. But the first big step towards filling the published £163bn deficit will be taken this week when he sets out details of how he intends to find £6bn of efficiency savings. Although Vince Cable, business secretary, has insisted some of that money is recycled into job creation projects, Mr Osborne told the Financial Times "the majority" would be used to pay down the deficit.
Mr Osborne also hinted that taxes may have to rise higher than he had expected to plug the hole, suggesting the Liberal Democrats had toned down his aim of splitting the fiscal tightening on an 80:20 ratio between spending cuts and tax rises. "I said that as a rule of thumb – I said it didn’t have to be exactly 80:20," he said. The coalition agreement speaks only of the "main burden of deficit reduction" being borne by reduced public spending. The chancellor declined to comment on whether he might raise VAT rates, only repeating his campaign assertion that he had no plans to do so.
Interviewed on the BBC on Sunday, David Cameron, prime minister, pointedly refused to rule out any increase in VAT, saying "you’ll have to wait for the first Budget". But the chancellor believes voters will "see the benefits more quickly than is expected". He hopes fruits of a sound and expanding economy will feed through well before the next election, slated for May 2015. Mr Osborne also stood by his plan to cut headline corporation tax rates, even if it meant removing some allowances popular with manufacturers.
Meanwhile, the chancellor shared Mr Cable’s concern about bank pay and bonuses, and said he would consider a new tax on bank profits and remuneration under an IMF-sponsored global agreement, as well as his proposed bank levy.
'There's No Money Left,' U.K. Minister Learns From Predecessor
by Robert Hutton - Bloomberg
Arriving for work at the U.K. Treasury last week, the incoming chief secretary, David Laws, found a note from his predecessor, Liam Byrne, offering advice on the job. According to Laws, it read: "Dear Chief Secretary, I’m afraid to tell you there’s no money left." "Which was honest," Laws, whose position is the No. 2 in the Treasury after the chancellor of the exchequer, told a press conference in London today. "But slightly less than I was expecting."
The note underscores the task facing Britain’s coalition government as it seeks to reconcile demand for improved health and education services with promises to reduce the largest budget deficit since World War II. It was also in the tradition of Reginald Maudling, Conservative chancellor of the exchequer from 1962 to 1964. Leaving his residence after election defeat, he was reported by James Callaghan, his successor, to have remarked, "Sorry, old cock, to leave it in this shape.
Whatever happened to Ireland?
by Morgan Kelly - VoxEU
The Celtic Tiger faces severe challenges. This column argues that the Irish government’s commitment to absorb the losses of its banking system may well lead to a Greek-style debt ratio by 2012. It is a test-in-waiting for the EU, but one that could be solved by a debt for equity swap to cover the losses of Irish banks.
From basket case to superstar and back again – or almost. One has to wonder: How did all this happen? How did an economy where employment doubled and real GNP quadrupled during the “Celtic Tiger” era from 1990 to 2007, come to have GNP contract by 17% by late-2009 (with further falls forecast for 2010), the deepest and swiftest contraction suffered by a western economy since the Great Depression? The adjustments faced by the nation are monumental (see Cotter 2009 and Honohan and Lane 2009).
Two boomsThe key to understanding what happened to Ireland is to realise that while GNP grew from 5% to 15% every year from 1991 to 2006, this Celtic Tiger growth stemmed from two very different booms. First, the 1990s saw rising employment associated with increased competitiveness and a quadrupling of real exports. As Ireland converged to average levels of western European income around 2000 it might have been expected that growth would fall to normal European levels. Instead growth continued at high rates until 2007 despite falling competitiveness, driven by a second boom in construction. I analyse this second boom, the Irish bubble, in a recent CEPR Discussion Paper (Kelly 2010).
Credit bubbleIreland went from getting about 5% of its national income from house building in the 1990s – the usual level for a developed economy – to 15% at the peak of the boom in 2006–2007, with another 6% coming from other construction. In effect, the Irish decided that competitiveness no longer mattered, and that the road to riches lay in selling houses to each other.
However, driving the construction boom was another boom, in bank lending. As Figure 1 shows, back in 1997 when Ireland’s economy really was among the world’s best performing, Irish banks lent sparingly by international standards. Lending to the non-financial private sector was only 60% of GNP, compared with 80% in Britain and most Eurozone economies. The international credit boom saw these economies experience a rapid rise in bank lending, with loans increasing to 100% of GDP on average by 2008.
These rises were dwarfed, however, by Ireland, where bank lending grew to 200% of national income by 2008. Irish banks were lending 40% more in real terms to property developers alone in 2008 than they had been lending to everyone in Ireland in 2000, and 75% more to house buyers.
Figure 1. Bank lending to households and non-financial firms as a percentage of GDP (GNP for Ireland), 1997 and 2008.
This tripling of credit relative to GNP distorted the Irish economy profoundly. Its most visible impact was on house prices. In 1995 the average first-time buyer took out a mortgage equal to three years’ average industrial earnings, and the average house cost 4 years’ earnings. By the bubble peak in late 2006, the average first-time buyer mortgage had risen to 8 times average earnings, and the average new house now cost 10 times average earnings, with the average Dublin second-hand house costing 17 times average earnings (see Figures 2 and 3).
As the price of new houses rose faster than the cost of building them, investment in housing rose. By 2007, Ireland was building half as many houses as Britain, which has 14 times its population.
The flow of new mortgages peaked in the third quarter of 2006, and then fell rapidly. By the middle of 2007 the Irish construction industry was in clear trouble, with unsold units beginning to accumulate. More than one-sixth of housing units are now estimated to be vacant.
Figure 2. Irish house prices relative to average industrial earnings, 1980 – 2009
Figure 3. Irish new house prices and first time buyer mortgages relative to average industrial earnings, 1990 – 2009
Banking collapseThis property slowdown was bad news for an Irish banking system which had lent, usually without collateral, an amount equal to two-thirds of GNP to property developers to finance building projects and make speculative land purchases. Share prices of Irish banks fell steadily from March 2007, with the crisis coming to a head in late September 2008 with a run in wholesale markets on the joint-second largest Irish bank, Anglo Irish. After aggressive denials that the banking system faced any difficulties, the Irish government has been forced to improvise a series of increasingly desperate and expensive responses.
As well as guaranteeing the deposits and most bonds of Irish banks, the Irish government has currently spent, or committed itself to spend, around €40 billion on a National Asset Management Agency to buy non-performing development loans from banks, and to invest around €30 billion in Irish banks. Despite this large injection (equivalent to half of GNP), Irish banks remain moribund.
While the Irish government bailout deals with bank losses on loans to property developers, it does nothing about their two other problems: a heavy reliance on wholesale funding; and the prospect of further large losses on mortgages and business loans.
Half of Irish bank funding comes from international wholesale markets. Without continued government guarantees of their borrowing and, more problematically, continued access to ECB emergency funding, the operations of the Irish banks do not appear viable. Borrowing in bond markets at 6% to fund mortgages yielding 3% is not a sustainable activity, and Irish banks face no choice but to shrink their balance sheets. Should Irish bank lending return to normal international levels, our results indicate that property prices will return to an equilibrium two thirds below peak levels, with larger falls possible in the medium term as the flow of new lending is curtailed sharply.
The third problem facing Irish banks is their mortgages. With house prices down by around 40%, renewed emigration, and unemployment tripled to above 13%, Irish banks face substantial mortgage defaults. For comparison, in Florida and Arizona, whose investor fuelled housing bubbles closely resembled the Irish one, 25% of mortgages are non-performing.
On top of the continued disintegration of its banking system, Ireland faces two other problems: unemployment and government deficits. Private sector employment has fallen by 16%, while the number of males aged 20-24 in work has halved. The collapse in Irish competitiveness (wages have risen over 40% relative to its main trading partners since 2000) which cannot be solved by a devaluation, will frustrate efforts to reverse this decline.
Debt crisisFifteen fat years allowed the Irish government to cut income taxes, increase spending and still run a budget surplus. Between 2007 and 2009 however, tax revenue fell by 20%, while expenditure rose by 9%, moving the state from a balanced budget to a deficit of 12% of GDP. In contrast to its inept handling of the banking crisis, the Irish government has moved decisively to reduce expenditure and increase tax rates, and appears on target to reduce its deficit to 3% of GDP by 2012.
Ireland’s government debt is still moderate. At the end of 2009 gross debt was 65% of GDP and, after subtracting the state pension reserve and pre-funded borrowing, net debt was 40% of GDP. Assuming that deficit targets are not missed too badly, gross debt should still be under 85% of GDP by the end of 2012.
ConclusionsThis debt would probably be manageable, had the Irish government not casually committed itself to absorb all the gambling losses of its banking system. If we assume – optimistically, I believe – that Irish banks eventually lose one third of what they lent to property developers, and one tenth of business loans and mortgages, the net cost to the Irish taxpayer will be nearly one third of GDP.
Adding these bank losses to its national debt will leave Ireland in 2012 with a debt-GDP ratio of 115%. But if we look at the ratio in terms of GNP, which gives a more realistic picture of the Ireland’s discretionary tax base, this is a debt-GNP ratio of 140% – above the ratio that is currently sinking Greece. Even if bank losses are only half as large as we expect, Ireland is still facing a debt-GNP ratio of 125%.
Ireland is like a patient bleeding from two gunshot wounds. The Irish government has moved quickly to stanch the smaller, fiscal hole, while insisting that the litres of blood pouring unchecked through the banking hole are “manageable”. Capital markets may not continue to agree for long, triggering a borrowing crisis which will start, most probably, with a run on Irish banks in inter-bank markets.
Ireland may therefore present an early test of the EU bailout fund. However, in contrast to Greece, Ireland’s woes stem almost entirely from its banking system, and could be swiftly and permanently cured by a resolution which shares the losses of Irish banks with the holders of their €115 billion of bonds through a partial debt for equity swap.
CDS Traders Face Mandatory Reporting Requirements in Europe
by Ben Moshinsky - Bloomberg
Sovereign credit-default swap transactions face mandatory reporting rules in the wake of the Greek debt crisis, the European Union’s top financial services lawmaker said today. Michel Barnier, the EU’s financial services commissioner, said he would deal with the sovereign CDS market "very severely" to "ensure the responsibility" of market participants. He said the European Commission will propose the rules for sovereign CDS in October.
"These people don’t like being out in the light of day," Barnier told journalists at a press conference in Brussels today. "We’ll flood them with light." German Chancellor Angela Merkel and French President Nicolas Sarkozy have called for curbs on speculating with sovereign credit-default swaps, which many blame for exacerbating Greece’s fiscal woes. The EU last month proposed that the Financial Stability Board, the group set up by the G-20 to monitor global financial trends, should "closely examine the role" of CDS on sovereign bond spreads.
Credit-default swaps are derivatives that pay the buyer face value if a borrower -- a country or a company -- defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit- default swaps buy insurance on bonds they don’t own.
The holes in pension funds are now so huge they're swallowing up buildings
by Julia Finch - The Observer
Can black holes in final salary scheme pension funds be filled with property? Last week, Sainsbury and Marks & Spencer did just that. Sainsbury has committed £750m of its "unencumbered" property to its pension fund to close a shortfall in its fund of £1.2bn, while M&S announced a very similar deal: a property partnership with its £5bn pension fund, in place since January 2007, will run for 15 years longer than previously planned, until 2032.
The pensions advisory industry is jubilant. Their fees will keep rolling in because these are free assets that can be shoved into an ailing fund to keep it going. Much better to grab a bit of property off the sponsoring company than admit the pension fund is bust and cannot meet its commitments. PricewaterhouseCoopers says it is currently advising 33 "major UK employers" on the use of more than £5bn of non-cash funding in this way.
But there is a good deal of scepticism about whether the pension fund valuations are fair. Finance directors think most pension accounting is make-believe; the bulk of the pensions advisory industry has few kind words for the benchmarks used to devise deficit totals. And if a deficit is really the result of strict accounting standards that bear little relation to the long-term value of assets, then any game to get around the rules is perfectly reasonable.
While employees still banking on final salary pensions will cheer the development, shareholders should be wary. There is no such thing as free money, so the pensioners' gain is their loss. If the company goes bust, the pension gets the property and not them. Of course, they are told M&S and Sainsbury are far from going bust and that Britain will go down the plughole before those retailers run into trouble. But the banks said that, and look how safe they turned out to be.
In the end, final salary schemes are too expensive. Years ago, companies and unions should have seen the problems coming and struck a deal to make them cheaper. Instead they watched while low interest rates, a flatlined stock market and increasing life expectancy tore them apart, leaving younger workers on the worst occupational pensions imaginable.
Illinois Has $4.5 Billion In Unpaid Bills, $1.75 Billion Due June 10
by Distressed Volatility
The April 2010 Illinois Comptroller Quarterly, by Illinois Comptroller Daniel Hynes, stated they had $4.496 Billion in unpaid bills and $1.75 Billion + interest that must be repaid on June 10. Below is part of the quarterly report (PDF here). Also check out the daily cash balance chart comparing 2007-2010. Higher taxes coming?Cash Position Deteriorates As State Begins To Repay Short-Term Borrowing
Through the first three quarters of fiscal year 2010, the state's cash flow position continued to deteriorate with the backlog of General Revenue Fund bills reaching historic levels. At the end of March, the volume of unpaid bills from the General Funds in the Comptroller's Office stood at $4.496 billion while at this time last year payables totaled $3.401 billion. Just as significantly, the state has had to prioritize critical payments such as debt service and other obligations vital to the operating of state programs such as General State Aid to Education. The state has also had to accelerate large Medicaid disbursements in order to continue qualifying for increased federal stimulus funding revenues. As a result, the backlog includes unpaid transfers and vouchers from the first quarter of the fiscal year and those delays have become increasingly problematic.
In March, the state made the first payment of $506 million towards $2.25 billion in short- term borrowing loans that were issued to address fiscal year 2009 bills. The remaining $1.75 billion plus interest must be repaid by June 10th of this year, further exacerbating cash flow issues for the remainder of the fiscal year."
California budget: A question of values
by Patty Fisher - San Jose Mercury News
The Burlingame City Council took an unusual approach to closing its $2.9 million budget gap last week. Faced with closing the Easton branch library, a 67-year-old neighborhood treasure known for its extensive children's book collection and twice-weekly story hours, the council offered residents this deal: Want your library to stay open? Fine. Just come up with $70,000 in private donations. By the end of the meeting, library supporters, including well-heeled residents of nearby Hillsborough, had pledged $4,500 and were confident they could raise the rest.
Welcome to California in the post-socialistic era. Basic services that we once expected government to provide to all of us, regardless of our ability to pay, are increasingly available only to those who can afford them. Basics like food, shelter, child care, a quality education and even libraries. Read through Gov. Arnold Schwarzenegger's revised state budget proposal and you'll see what I mean. With a $19 billion gap to close, obviously the governor had tough choices to make. But there was a pattern to his choices. He chose to eliminate welfare altogether and cut child care for low-income families, in-home supportive services, Medi-Cal and mental health. Programs established to help the neediest among us: the poor, the sick, the elderly.
What do we value?
What happens if we eliminate them? More single mothers and their children will be homeless and hungry. More mentally ill people will be in jail. More old people will be forced to move into nursing homes. At his news conference Friday, the governor defended his proposals by saying we just can't afford to take care of these folks right now. "We need to bring the economy back as quickly as possible," he said, "so we can afford all those programs that reflect our values."
I found that an odd choice of words. Values aren't something we can discard when times get tough. Either we value caring for the needy, or we don't. I believe we do. I hope we do. If this budget is adopted, our values will be put to the test. As much as Americans scoff at the welfare state, it sure makes life easier. Without it, who is going to care for poor kids while their mothers work, look after shut-ins, buy food for low-income seniors and take in the homeless? We've become accustomed to government doing those things so we can be blissfully unaware that we are surrounded by needy people. After the budget cuts, don't expect those people to just disappear.
Saving senior lunches
This morning in San Jose, hundreds of seniors are expected to rally outside City Hall in support of neighborhood senior nutrition programs that are likely to close as part of a $2.2 million budget cut to community centers. Grandmas and grandpas, many who struggle to afford groceries, will talk about how important it is for seniors to get out, socialize and have balanced meals. In handwritten notes to council members, they will plead for compassion.
No one on the council wants to take food away from old ladies. But with the city trying to close a $118.5 million budget hole, the oldsters will have to stand in line with the all the other folks who feel their programs — homework centers, arts education, police and fire services — are untouchable. Perhaps the seniors should take a lesson from folks up in Burlingame and try passing the hat. How much would you pay to keep food on their table?
Idaho delays medicaid payments to hospitals, nursing facilities
by Zach Whitney - KLEW TV
The Idaho Department of Health and Welfare is suspending Medicaid payments to certain providers until the first week of July. The announcement came after the department discovered the Medicaid program will fall short of the state general fund requirements by millions of dollars. "It's not something that we want to do," said District 1 & 2 Operations Manager Ron Beecher. "Over the years we've been able to be very prompt. Last year because of budget concerns we had to delay the payments by a week. This year the budget shortfall that we're looking at is about $133 million and that's very significant. There's a number of strategies that had to be used to regain this."
Beecher said state regulations dictate that 90 percent of medicaid providers, which includes private doctors, be paid within 30 days. The remaining 10 percent, hospitals and nursing facilities, can be delayed up to 12 weeks. St. Joseph Regional Medical Center Chief Financial Officer Tom Safley said the delay is unfortunate, but shouldn't affect patient care. "No, they won't,"said Safley. "Not nine weeks and again with Idaho Medicaid being about 5% of revenue we can certainly manage around this. This is kind of a short term inconvenience and we'll manage through it."
Skilled nursing facilities will be affected more by the payment delays. At these facilities Medicaid payments make up a higher percentage of the overall revenue. None of the facilities in Lewiston were immediately available for comment. The Department of Health and Welfare released a statement Monday saying they have set up a website to ask for the public's input on ways to address the now almost $250 million deficit
New York Gov. Paterson threatens cutting 10,000 jobs
by Fredric U. Dicker and Brendan Scott - NY Post
Gov. Paterson has put massive state employee layoffs "on the radar screen" after being told the no-layoff pledge he signed with public employee unions last year is not legally binding, The Post has learned. The administration has estimated that up to 10,000 job cuts would be needed to reach the governor's target, an official said. Paterson's new tack follows a federal court ruling last week that temporarily blocked his $30 million-a-week plan to put 100,000 workers on furlough. Now, he's weighing pink slips if the furlough offensive fails in subsequent court hearings. "Layoffs are on the radar screen," said a source.
A legislative source told The Post that Assembly Speaker Sheldon Silver is "warming to layoffs" because the unions appear "inflexible toward any other workforce savings." The Assembly and the Senate both endorsed Paterson's goal of $250 million in general workforce cuts in nonbinding budget resolutions passed in March. But the governor and lawmakers remain deadlocked on how to close an estimated $9.2 billion deficit more than six weeks after the budget deadline passed.
Meanwhile, legislative leaders have told the governor they don't believe a "memorandum of understanding" the administration inked with unions in exchange for their endorsement of a less generous pension program is legally binding -- if only because it wasn't signed by Paterson. The document signed July 22 by Paterson's deputy director for employee relations, John Currier, vows "no layoff or threat of layoff" until Dec. 31, 2010. "Where in the law is [Currier] allowed to sign such a binding agreement?" one administration insider asked.
Leaders of the Civil Service Employees Association and the Public Employees Federation contend the pledge is ironclad. They argue a state judge ruled as much in March, when the court granted the CSEA a temporary injunction against 18 layoffs at state mental-health facilities. Paterson settled out of court, and the question was never fully resolved. He is expected to make a final decision on layoffs after a May 26 federal court hearing on the furlough issue.
A mass layoff would be one of the costliest ways to trim payroll, because the state must pay workers for back wages and unused leave. "I'm going to wait until after the court's decision to go in that direction," Paterson said Thursday in a radio interview. "What we're saying is [furloughs are] the best way, we think, to handle this. Everybody takes a little hit so that some don't have to take the ultimate hit."
Harrisburg Controller Dan Miller: Bankruptcy is city's best option
by Dan Miller - The Patriot-News
Harrisburg is insolvent. Our obligations exceed our assets. Despite passing a $64.7 million general fund budget, we will be fortunate if we collect $57 million in revenue this year. We began 2010 with a deficit of $7.7 million that must be addressed. Our insolvency becomes more glaring when we add the $68 million of guaranteed debt service payments required to pay for Harrisburg Authority debt. There has been much written and spoken about selling or leasing city assets to "fix" the existing city financial crisis. On the surface it might seem that selling assets to make debt payments is a responsible approach.
However, asset sales are a short-term "solution" that increases the long-term burden on city residents and employees. It is a sure way to guarantee a tax increase. It is this type of band-aid approach that put the city in its current financial crisis. The best strategy for an insolvent city is to protect assets, not sell them — especially to an opportunistic investor looking to make huge profits. Jacob Frydman of LambdaStar’s parking garage lease was a bad proposal two years ago when City Council rightly rejected it.
In Chicago, a similar long-term lease has turned into a complete fiasco for residents. A knowledgeable and responsible review of that deal reveals the problems it would create for Harrisburg for decades to come as documented by the Chicago inspector general’s report. Harrisburg’s insolvency is real, and selling assets only exacerbates the problem. Why is selling or leasing assets such a bad idea? The most obvious reason is that the only assets with significant value, (parking, water, sewer) generate significant annual revenue for our general fund. In 2009, these three entities contributed $18.6 million to our total General Fund Revenue of $60.2 million. That is more than 30 percent of total receipts and exceeded real estate tax receipts by almost $3 million.
Selling these assets means this revenue (and any future growth) never returns to the city — it is gone forever. If we lease parking for 75 years, few of us will ever see the natural end of that lease. Proponents of asset sales have not addressed how this lost revenue will be recouped. Unfortunately, the answer involves: a large (130 percent) tax increase, massive cuts to public services, especially public safety or some combination of both. If we sell assets, we are left precisely where we are now — insolvent. The difference is we will be two years down the road with less annual revenue and fewer assets to solve the problem.
Harrisburg is insolvent so let’s accept that fact and embrace bankruptcy. It is the only sane solution and a constructive one. After seeing our travails in the media, Chriss Street, treasurer of Orange County, Calif., called me. Orange County went into bankruptcy in the late 1990s, and he wanted to share his experience and provide advice. From his perspective, bankruptcy was a blessing for Orange County. It also was insolvent, and bankruptcy allowed it to reduce debt to an affordable level and begin a path to sound fiscal health. Just two years after filing, it had access to the lending markets.
In seven years, it had an AA bond rating — well above Harrisburg’s current junk bond status. Now it has cash reserves in hand, which increase every month. I asked him if there was any downside to bankruptcy. His immediate and only response was "humiliation." I think we can live with that, compared with the alternative. Treasurer Street also said that selling assets is exactly the wrong move in our situation. He suggests that Wall Street has a problem with bankruptcy, not Harrisburg. Our job is to negotiate with bondholders for reductions in interest and principal on the outstanding debt. The sooner we say no to Wall Street, the sooner real negotiations can begin and the sooner a workable solution will be found.
The city, county, authority and bondholders agreeing to a workable plan that shares the burden seems unlikely. Some seem to think we should avoid bankruptcy and, in theory, I agree. But we already are insolvent; the worst already has occurred. Using bankruptcy as a tool toward fiscal stability is a huge advantage and sensible solution. Experienced bankruptcy attorney Gregg Miller spoke to city council several weeks ago about Chapter 9, municipal bankruptcy. Council was informed that municipal bankruptcy is much different from personal or business bankruptcy.
The main objective of Chapter 9 is debt reduction. Gregg Miller stated that bondholders could be forced to make a reasonable settlement. Harrisburg could not be forced to sell assets, and no one could be assigned to manage the city; council and the Mayor would still be in control. Municipal bankruptcy exists to help cities in our situation. It may sound bad but, fiscally, it makes good sense. As for those who want us to honor the debt we incurred, I agree that is the ideal. The incinerator retro-fit project, however, was never ideal from the start. The Wall Street financiers that bought and sold these bonds never believed in the project.
This project was insolvent and was never going to repay the bonds from operations. That is why the city’s and county’s guarantees were required to make the bond marketable. No investment is 100 percent risk free and certainly not the incinerator, which has a dubious history. Our legal, financial and bond professionals should have known better. Wall Street should have known better and now it must bear some of the cost. Selling assets is a false "solution" that will only result in a long-term burden on city residents. We all need to face the fact that Harrisburg is insolvent, embrace the only real and comprehensive solution, bankruptcy, and pursue it sooner rather than later.
Dan Miller, CPA, is Harrisburg controller and a former city council member.
Dear Krugman: We ARE Greece
by Chilbonking
Professor Krugman, in your op-ed piece at WSJ titled "We’re Not Greece" on May 13, you raise some valid points, but in all respect sir, I don’t think that you really see what’s going on out "in the trenches".Point 1 (US As a Safe Haven):
In your article, you specifically state: "One answer is that we have a much lower level of debt — the amount we already owe, as opposed to new borrowing — relative to G.D.P. True, our debt should have been even lower. We’d be better positioned to deal with the current emergency if so much money hadn’t been squandered on tax cuts for the rich and an unfunded war. But we still entered the crisis in much better shape than the Greeks."
True, the amounts that we already owe (which in all fairness ballooned during the Bush years to fund 2 wars, which you discuss in your article) were relatively low compared to the GDP rate at that time under much rosier growth assumptions. The record rate of change of the national debt in the past 2 years relative to a deteriorating "real" GDP has changed the picture considerably. When you have such a large structural problem of unemployment, is it really fair to attribute the transfer payments from the Government to the official GDP figures to say that we are growing? Programs like ‘Cash For Clunkers’ basically takes future growth and pushes it ahead to the present, which truly distorts the underlying picture.
If our Government cannot reduce the rate of change of spending for the country, all we are doing is keeping our foot on the accelerator in a Toyota that has bad brakes. Eventually, at some point we are going to run out of road or gas. If we can reduce the rate of change in spending (i.e. slowly take our foot off the accelerator), we can at least attempt to bring our debt problems in line. I haven’t seen that from our administration and their plans for the future.
Point 2 (The US Has A Clear Path To Recovery)
You state "The U.S. economy has been growing since last summer, thanks to fiscal stimulus and expansionary policies by the Federal Reserve. I wish that growth were faster; still, it’s finally producing job gains — and it’s also showing up in revenues. Right now we’re on track to match Congressional Budget Office projections of a substantial rise in tax receipts. Put those projections together with the Obama administration’s policies, and they imply a sharp fall in the budget deficit over the next few years."
I have to disagree with you. Based on my research out in the trenches (collar counties of Chicago and Chicago proper, as well as the boroughs of NYC) I don’t see real economic growth. The small businesses that I talk to do not see growth. The throngs of unemployed people (many of whom are long term unemployed) do not see real growth in terms of jobs. Yes, there are jobs being created Mr. Krugman, but those jobs are temporary in nature. Many state unemployment rules dictate that you must work X hours before becoming eligible to receive unemployment benefits (again), however these ‘temporary’ jobs have a duration that lasts just typically under that requirement.
So, while the recipient of that temporary job has immediate income coming in, that income will not be put as quickly injected back into the overall economy. The temporarily employed person (hopefully) is going to save that money (almost assuredly the wages will be substantially lower than the person’s previous job) because they know that within X period of time, they will be back at square one. Many will try to reduce their debt burden, which, inherently is a good thing, but they will find themselves back at square one once the temporary job is over. Census workers are a case in point. The ‘growth’ that is occurring in the jobs market is only short term, and I’m willing to bet that when the Census is completed, you’re going to see a spike in the unemployment rate, which will reverse the "gains" made during the 1st and 2nd quarters of this year.CBO’s projections of a substantial rise in tax receipts is laughable, as are the projections of the Obama administration. If business spending is constrained due to arduous regulations designed to stifle growth, that is going to ripple through the economy. The incomes of the employed people won’t grow in this environment, which means that the amounts of taxes collected by the Government will decrease. I implore you to ask a middle class worker in the Chicago area which suffers from a crippling structure of taxes (City, County, State, Federal – similar to NYC, only our taxes at the City and County levels are substantially higher) what an increase in taxes at the Federal level will do to their ability to spend.
Point 3: "We Demand More Than We Pay For"
In your op-ed, you blast the assertion that many people are making in calling for the reduction in entitlement programs. You state: "That said, we do have a long-run budget problem. But what’s the root of that problem? "We demand more than we’re willing to pay for," is the usual line. Yet that line is deeply misleading. First of all, who is this "we" of whom people speak? Bear in mind that the drive to cut taxes largely benefited a small minority of Americans: 39 percent of the benefits of making the Bush tax cuts permanent would go to the richest 1 percent of the population."
Greece has the same entitlement problem, most notably people thought that they could work for 40 years and that the Government would be there for them to "bail them out" and provide them all with cushy pensions in their retirement years. The same thing goes for the average US citizen, who has already shown that they cannot accept personal responsibility for their actions. You saw it with the housing bubble: when prices were rising, people took all of the credit for building their "net worth" – what’s worse, they kept leveraging up and discussing it at cocktail parties about how many HELOC’s they had. When the music stopped, instead of accepting responsibility for their borderline reckless behavior (some of it actually borders on the edge of criminality – knowingly lying about one’s income, debt levels in order to obtain that HELOC to keep up with their counterparts at cocktail parties), these same people, many of whom actually get a tax "refund" and therefore don’t really pay any taxes (or very little at all) cried foul at the easiest target around – us evil bankers.
My point is simple, Professor Krugman: If you had 40-50 years in which to save for your retirement, and you chose not to do so, collective society should not have to pay extra taxes for you to continue to try to live your life keeping up with the Joneses. Everyone decries leaving debt around for future generations, however this is what is happening today. The younger generation, with already unacceptably high unemployment rates (around 27%) is now being forced to pay for those who have had their shot at the brass ring of life. While we are trying (hopefully) to save for our retirements so that we don’t end up in the cycle of depending on the Government to subsidize our way of life into retirement, we are being saddled with paying for the previous generation who failed to do so and now look to absolve all personal responsibility and shift the blame to someone else.
If the economy doesn’t see robust growth, which I honestly don’t believe we will—growth that creates real (not Government or temporary) jobs (remember, Government must create clear, business-friendly regulations that do not penalize or demonize businesses for becoming successful), we are going to find ourselves in the same position as Greece. The debt issued over the last 2 years in addition to the 8 years of debt created is not going to go down. We will become a nation that is much like the person who pays the minimum monthly balance (almost 100% interest), kicking the can down the road so that future generations are paying for the mistakes that the existing generations have created. Did President Obama say in his campaign that "he was not going to kick the can down the road" several times? What are we doing presently?
What’s so different about Greece, where people dodge paying taxes, but still believe that they are entitled to be taken care of by the Government while saddling the younger generation with all of the burden for their past mistakes? There has to be some vicious cuts to these entitlement programs – it will not be popular, it will be very painful, but it should serve as a lesson to future generations of what not to do. It should hopefully engrain in the younger generation that it is up to them to save for their retirements. Financial literacy needs to improve vastly in this nation to achieve that. What we do now will determine the next century for this nation.
Bankers Confirm Wall Street's Barbarianism
by Andrew Sheng
A 1987 Hollywood movie called Wall Street featured Michael Douglas as Gordon Gecko, a rich, powerful and ruthless broker who teaches a young disciple that "greed is good." Coming out this summer will be a new film, Wall Street 2, also starring Michael Douglas.And we've been watching the real show recently from Washington. That's where Wall Street bankers defended themselves before the Senate Subcommittee on Investigations and the Financial Crisis Inquiry Committee. The more they protested their innocence, the more they proved Gordon Gecko is not fictitious but a real-life character.
In investigating the role of investment banks in the financial crisis, the subcommittee looked at the 2004-2007 period. It found that bankers securitized high-risk mortgages, received fat fees, and pushed these mortgage packages to investors who thought they were buying good assets because they trusted Wall Street bankers and credit rating agencies.
The investment bankers magnified risk by re-securitizing toxic mortgages securities into collateralized debt obligations (CDOs), sold them, and then used credit default swaps (CDS) and index trading to hedge their own risks. In emails among themselves, the traders flaunted the fact that their products were crap. Thank you, Wall Street, for such honesty after the fact. We Asians bought some of that crap, thinking you were selling safe products.
Because they knew these mortgages were risky, the investment bankers shorted the mortgage market. That means they sold more than they bought. So when the CDOs market collapsed, the banks profited through their large amounts of short positions.
Moreover, a clear conflict developed between clients and proprietary traders. The subcommittee found investment banks did not disclose to clients that they themselves had traded billions of dollars in such mortgage-related assets for their own proprietary benefit. Some products were packaged to allow special clients to short the market. Then the products were sold to other investors without telling them that they were designed for being shorted. In other words, they sold what they were shorting or knew was bad, while telling clients they could profit from trading such assets.
I think Asian financial regulators should look into how many of these products were sold in Asia.
What was their defense? One senator asked investment bankers repeatedly whether they felt a duty to act in the best interests of clients. Only one in four affirmed such a duty. This means Wall Street's culture is all about treating clients as suckers, because adults are supposed to know what they're doing. But some of these adults are local government treasurers, or managers of corporate, pension and insurance funds, who did not fully understand that these well-dressed, highly educated and trusted Wall Street bankers were selling toxic products. Unfortunately, taxpayers and savers are now paying for this gross dereliction of fiduciary trust.
The highly paid bankers just don't get it. Why should they? They have already laughed all the way to the bank with fat bonuses. The man in the street can expect such behavior from street gangs, but not from revered bankers. They are supposed to be the crme de la crme of society. Our children actually aspire to join them. God help them.
One cynical newspaper commentator said the outcome of the Senate hearings was that both sides won. The investment bankers proved that what they were doing was not illegal, and the senators shamed the bankers enough to pass bank reform bills.
One of the most astute comments came from a senator who said those in trusted positions should know the difference between what is legal and what is proper. This gets to the core of charges against Lehman Brothers. The firm's bankruptcy lawyer said that it reported US$ 40 billion in September 2008, but that it did not reveal that a substantial portion of that amount was encumbered or otherwise illiquid. Furthermore, the firm used the infamous Repo 105 to hide the fact that, if not for Repo 105, the net leverage would be higher than reported.
In the currency wars of our modern age, we trust bankers as much as we trust our soldiers to defend national frontiers. In the 1980s, there was a famous book about corporate Wall Street raiders called Barbarians at the Gate. It was later made into a movie. Wall Street raiders, aided by investment bankers, acted like Huns breaking down the Great Wall.In testifying to the financial crisis committee, U.S. Treasury Secretary Tim Geithner referred to an ample number of examples during the crisis during which "regulators did not use the authority they had early enough or strongly enough to contain risks in the system. But a principal cause of the crisis was the failure to provide legal authority to constrain risk in this parallel financial system."
"When people look back at this crisis, when they look at the excessive risks taken by large financial institutions, the natural inclination is to move those risky activities elsewhere," Geithner said. "To create stability, some argue, we should just separate banks from 'risk.'"
But he said that, in important ways, that is exactly what caused this crisis.
Geithner said the lesson for us and the financial system "is that we cannot make the economy safe by taking functions central to the business of banking, functions necessary to help raise capital for businesses and help businesses hedge risk, and move them outside banks, and outside the reach of strong regulation."Mr. Secretary, I agree with you at the conceptual level. But the best system in the world will not work if those who defend the system still think that greed at any cost is good. Without trust and integrity, no system will protect us from barbarians at the gate.
Andrew Sheng is Chief Advisor to China Banking Regulatory Commission
Nassim Taleb Says Focus on Specific Trades in Selloff Misguided
Speedy New Traders Make Waves Far From Wall Street
by Julie Creswell - New York Times
Above the Restoration Hardware in this Jersey Shore town, not far from the Navesink River, lurks a Wall Street giant. Here, inside the humdrum offices of a tiny trading firm called Tradeworx, workers in their 20s and 30s in jeans and T-shirts quietly tend high-speed computers that typically buy and sell 80 million shares a day. But on the afternoon of May 6, as the stock market began to plunge in the "flash crash," someone here walked up to one of those computers and typed the command HF STOP: sell everything, and shutdown.
Across the country, several of Tradeworx’s counterparts did the same. In a blink, some of the most powerful players in the stock market today — high-frequency traders — went dark. The result sent chills through the financial world. After the brief 1,000-point plunge in the stock market that day, the growing role of high-frequency traders in the nation’s financial markets is drawing new scrutiny.
Over the last decade, these high-tech operators have become sort of a shadow Wall Street — from New Jersey to Kansas City, from Texas to Chicago. Depending on whose estimates you believe, high-frequency traders account for 40 to 70 percent of all trading on every stock market in the country. Some of the biggest players trade more than a billion shares a day. These are short-term bets. Very short. The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said.
But some in Washington wonder if ordinary investors will pay a price for this sort of lightning-quick trading. Unlike old-fashioned specialists on the New York Stock Exchange, who are obligated to stay in the market whether it is rising or falling, high-frequency traders can walk away at any time. While market regulators are still trying to figure out what happened on May 6, the decision of high-frequency traders to withdraw from the marketplace is under examination. Did their decision create a market vacuum that caused prices to plunge even faster?
"We don’t know, but isn’t that the point? How are we ever going to find out what’s going on with these high-frequency traders?" said Senator Edward E. Kaufman, Democrat of Delaware, who wants the Securities and Exchange Commission to collect more information on high-frequency traders. "Whenever you have a lot of money, a lot of change, little or no transparency, and therefore, no regulation, you have the potential for a market disaster," Senator Kaufman added. "That’s what we have in high-frequency trading."
Some high-frequency traders welcome the closer scrutiny. "We are not a no-regulation crowd," said Richard Gorelick, a co-founder of the high-frequency trading firm RGM Advisors in Austin, Tex. "We were all created by good regulation, the regulation that provided for more competition, more transparency and more fairness." But critics say the markets have become unfair to investors who cannot invest millions in high-tech computers. The exchanges offer incentives, including rebates, which can add up to meaningful profits for high-volume traders as well.
"The market structure has morphed from one that was equitable and fair to one where those who get the greatest perks, who have the speed, have all of the advantages," said Sal Arnuk, who runs an equity trading firm in New Jersey. High-frequency traders insist that they provide the market with liquidity, thus enabling investors to trade easily. "The benefits of the liquidity that we bring to the markets aren’t theoretical," said Cameron Smith, the general counsel for high-frequency trading firm Quantlab Financial in Houston. "If you can buy a security with the knowledge that you can resell it later, that creates a lot of confidence in the market."
The high-frequency club consisting of 100 to 200 firms are scattered far from the canyons of Wall Street. Most use their founders’ money to trade. A handful are run from spare bedrooms, while others, like GetCo in Chicago, have hundreds of employees. Most of these firms typically hold onto stocks for a few seconds, minutes or hours and usually end the day with little or no position in the market. Their profits come in slivers of a penny, but they can reap those incremental rewards over and over, all day long.
What all high-frequency traders love is volatility — lots of it. "It was like shooting fish in the barrel in 2008. Any dummy who tried to do a high-frequency strategy back then could make money," said Manoj Narang, the founder of Tradeworx. A quiet man with a quick wit and a boyish enthusiasm, Mr. Narang, 40, looks like he came out of central casting from the dot-com era. Wearing jeans, a gray T-shirt and a New York Yankees hat, he takes a seat in front of his computer terminal and quietly answers questions about his business, glancing occasionally at the Yankees game in one of the windows on his PC.
After graduating from M.I.T., where he majored in math and computer science, Mr. Narang bounced around Wall Street trading desks before starting Tradeworx in the late 1990s. At the time, Wall Street was at the beginning of a technological evolution that has changed the way stocks are traded, opening a variety of platforms beyond the trading floor. The Tradeworx computers get price quotes from the exchanges, decide how to trade, complete a risk analysis and generate a buy or sell order — in 20 microseconds. The computers trade in and out of individual stocks, indexes and exchange-traded funds, or E.T.F.’s, all day long. Mr. Narang, for the most part, has no idea which stocks Tradeworx is buying or selling.
Showing a computer chart to a visitor, Mr. Narang zeroes in on one stock that had recently been a winner for the firm. Which stock? Mr. Narang clicks on the chart to bring up the ticker symbol: NETL. What’s that? Mr. Narang clicks a few more times and answers slowly: "NetLogic Microsystems." He shrugs. "Never heard of it," he says. If high-frequency traders crave volatility, why did Tradeworx and others turn off their computers on May 6?
Mr. Narang said Tradeworx could not tell whether something was wrong with the data feeds from the exchanges. More important, Mr. Narang worried that if some trades were canceled — as, indeed, many were — Tradeworx might be left holding stocks it did not want. Now that the dust has settled, however, he has mixed feelings. "Several high-frequency trading firms that I know about stayed in the market that day," he said, "and had their best day of the year."
Quest for oil leaves trail of damage across the globe
by Tom Knudson - McClatchy
Like many of her neighbors, Celina Harpe is angry about the oil pollution at her doorstep. No longer can she eat the silvery fish that dart along the shore near her home. Even the wind that hurries over the water reeks of oil waste. "I get so mad," she said. "I feel very sad." Harpe, 70, isn't a casualty of the oil spill in the Gulf of Mexico. She lives in a remote corner of Alberta, Canada, where another oil field that's vital to the United States is damaging one of the world's most important ecosystems: Canada's northern forest.
Across the globe, people such as Harpe in oil-producing regions are watching the catastrophe in the Gulf with a mixture of horror, hope and resignation. To some, the black tide is a global event that finally may awaken the world to the real cost of oil. "This is a call to attention for all humanity," said Pablo Fajardo, a lawyer in Ecuador who's suing Chevron over oil pollution in the Amazon on behalf of 30,000 plaintiffs. "Oil has a price," he added, "but water, life and a clean environment are worth much more."
Others say previous oil disasters haven't changed things much, and this one won't, either. "We're addicted to oil, so the beat will go on," said Richard Thomas, an environmentalist in Newfoundland, Canada, where drilling rigs pepper the coast. "Oil companies will make absolutely sure we don't check ourselves into hydrocarbon rehab anytime soon."
There's no denying that the rust-red plumes of oil and tar balls in the Gulf of Mexico are a potential ecological calamity for American Southern shores. More than half the petroleum consumed in this country, however, is imported from other countries, where damage from exploration and drilling is more common but goes largely unnoticed. No one's tallied the damage worldwide, but it includes at least 200 square miles of ruined wildlife habitat in Alberta, more than 18 billion gallons of toxic wastewater spilled into the rainforests of Ecuador and a parade of purple-black oil slicks that skim across Africa's Niger Delta, where more than 2,000 polluted sites are estimated to need cleaning up.
"The Gulf spill can be seen as a picture of what happens in the oil fields of Nigeria and other parts of Africa," Nnimmo Bassey, a human rights activist and the head of Environmental Rights Action, the Nigeria chapter of Friends of the Earth, said in an e-mail. "We see frantic efforts being made to stop the spill in the USA," Bassey added. "In Nigeria, oil companies largely ignore their spills, cover them up and destroy people's livelihood and environments."
Despite calls for more domestic drilling and new sources of energy, America's reliance on foreign oil has climbed steadily over the years, from 44.5 percent of consumption in 1995 to 57 percent in 2008. "Spills, leaks and deliberate discharges are happening in oil fields all over the world, and very few people seem to care," said Judith Kimerling, a professor of law and policy at the City University of New York and the author of "Amazon Crude," a book about oil development in Ecuador. "No one is accepting responsibility," Kimerling said. "Our fingerprint is on those disasters because we are such a major consumer of oil."
The United States burns through 19.5 million barrels of oil a day, one-quarter of the world's consumption, more than China, Japan, India and Russia combined. That's 2.7 gallons a day for every man, woman and child, one of highest rates in the world. The biggest hope for paring the nation's dependence on foreign oil lies in the Gulf of Mexico and along the Alaska and California coasts, but that treasure remains largely untapped. Offshore production has dropped in recent years, from 2.3 million barrels a day in 2003 to 1.8 million in 2008.
The Gulf spill is likely to shrink output even more and increase foreign imports. "We must find a way to do this more safely," Sen. Mary Landrieu, D-La., said at a Senate hearing last Tuesday. If oil production moves abroad, Landrieu said, "We will export some of these problems to countries less equipped and less inclined to prevent this kind of catastrophic disaster." Others, however, say that such drilling closer to home is too risky.
In California, where imports of foreign oil are a record 48 percent, Gov. Arnold Schwarzenegger recently pulled his support for an offshore project, citing concerns over the spill in the Gulf. Similar shifts have occurred elsewhere, including Florida and Virginia, where some lawmakers who once supported drilling now are distancing themselves from it. "You turn on the television and see this enormous disaster, you say to yourself, 'Why would we want to take that kind of risk?' " Schwarzenegger said at a news conference.
In poor countries such as Ecuador, people don't have a choice. "The impacts here have been enormous," said Esperanza Martinez, Ecuador coordinator for the international environmental group Oilwatch. "We calculate 1 million hectares" — 2.5 million acres — "have been deforested." Four decades of spills and leaks by oil companies there, including some from the United States, have fouled thousands of miles of jungle streams and wetland zones. "What does this all mean to the people? It means high levels of illness in the petroleum zones, where they have 30 percent more cancer," Martinez said. "The worst indicators of poverty are right next to petroleum sites."
For its part, the Western States Petroleum Association, which represents U.S. oil companies, argues that tapping America's offshore oil is more responsible, but the Gulf spill will only make that more difficult, said Catherine Reheis-Boyd, the group's president. "We have to re-earn the confidence, relearn the lessons and move on to explore and access these resources domestically, so we can reduce our dependence on foreign oil," Reheis-Boyd said.
Much of California's disdain for drilling stems from a 1969 well blowout near Santa Barbara that killed some 3,700 seabirds and captured nationwide attention. By historic standards, it was a significant but not gigantic spill: More than 3 million gallons leaked, compared with 11 million from the Exxon Valdez in Alaska in 1989 and four million gallons so far from the BP Deepwater Horizon explosion in the Gulf. The Santa Barbara spill had a super-sized impact, however, jump-starting an era of environmental activism and helping to inspire the first Earth Day a year later.
"A lot of the oil ended up on the coast, where people are highly sensitized to their environment and activist by nature," said Tupper Hull, the vice president of strategic communications for the Western States Petroleum Association. "Oil spills are terrible things to see," he said. "They have a visual and visceral and emotional impact on people that cannot be trivialized." The Santa Barbara spill "set off a chain of events that created an orthodoxy on this issue," he said. "It was a game-changer, not unlike what's now taking place in the Gulf of Mexico."
The pollution-control efforts in the Gulf are said to be unprecedented. They include the deployment of more than 100 miles of protective booms and the use of more than 400,000 gallons of chemical dispersant to break up the oil. Scores of state and federal agencies are helping, too, including the Army National Guard. That doesn't happen in Nigeria, the fourth-largest source of foreign oil in the U.S., according to Bassey, the environmental leader. "Officially, there are over 2,000 oil spill sites that need environmental remediation," he said.
In Nigeria, oil firms "wield the big stick and work with state security to silence complaints," Bassey charged. "Pollution impacts fisheries, agriculture and human health. Thanks to the industry, life expectancy is lowest in the oil communities." Last year, Amnesty International published a report on the Niger Delta region, saying, "Oil spills, waste dumping and gas flaring are endemic." Shell, one of the major operators in the Delta, acknowledges that conditions are difficult.
On its website it says that most pollution isn't its fault, however. "Most oil spills — 98 percent by volume in 2009 — are the direct result of militancy and other criminal activity," the company said. However, Omoyele Sowore, a Nigerian environmentalist in the U.S., called West Africa "the wild, wild west of pollution. It's lawless." Oil companies pollute "with impunity," he said. "There are no consequences."
In northern Alberta, where oil companies are mining tarlike sands, converting them to crude and piping about 830,000 barrels a day south to the United States, indigenous people such as Harpe have complained for years about pollution, illness and the destruction of wildlife habitat. "It doesn't matter what we say," Harpe said by phone from her home along the Athabasca River in the booming "oil sands" region. "It seems to go in one ear and out the other. We are being ignored."
"What we're seeing in the Gulf is very acute, whereas what's unfolding in the oil sands is much more chronic," said Dan Woynillowicz, the director of external relations for the Pembina Institute, a Calgary environmental group. "As a result, the scale and consequence are not catching the attention of the U.S. media, public and politicians, despite the fact that U.S. oil demand is driving the expansion of oil sands development."
The Canadian Association of Petroleum Producers says the disturbance is manageable and the mined areas can be reclaimed. "We will mitigate our impact on the land while maintaining regional ecosystems and biodiversity," the group says on its website. In the Third World, oil companies operate differently from the way they do in Canada or the United States, activists say. "When they go into a country like Ecuador or Peru, where there is no meaningful regulation, they take advantage of that," charged Kimerling, the law professor. "They are more careless, and go in with an attitude that they can do whatever they want.
"The U.S. government has not shown any interest in the environmental disasters that are being caused by our companies in other countries." "I think they should," she added. "When we have oil spills in this country we care, we respond, we do everything possible to try to minimize damage. "But when our companies spill oil in other countries — and those governments don't respond — we don't, either. It sends a chilling message that we don't care."
Lawyers lining up for class-action suits over oil spill
by Steven Mufson and Juliet Eilperin - Washington Post
On April 21, with the Deepwater Horizon drilling rig still in flames, John W. Degravelles and a group of other lawyers sued for damages. In the first of at least 88 suits filed since the disaster, they were seeking compensation for the widow of a Transocean worker who went missing and is presumed dead. It marked the beginning of legal action that is spreading as inexorably as the oil that threatens the wildlife and economy of five states along the Gulf of Mexico.
"On Thursday, I could smell the oil and, being a toxic tort lawyer, I realized that the fact that you're smelling something means that you're inhaling something," Stuart Smith, a New Orleans lawyer, said this month when breezes were carrying the scent of the oil slick toward the city. Smith, who has sued major oil companies before, immediately contacted toxicologists and air monitors to start doing tests that could be used as evidence.
The law firms now assembling are members of the all-star team of plaintiffs' attorneys. They have experience suing big companies over asbestos, tobacco, oil company waste, breast implants and Chinese drywall. They have represented Ecuadoran shrimp farmers and New York lobstermen, patients who have swallowed Vioxx and investors who lost money on shares of Enron. And their ranks include the likes of Erin Brockovich, Robert F. Kennedy Jr. and former partners of Johnnie L. Cochran Jr.
"When we put together the team for tobacco . . . it was the A-team of lawyers, and this is the same thing developing here," said Mike Papantonio, who cut his teeth on asbestos litigation and is a partner in Florida-based Levin, Papantonio, Thomas, Mitchell, Echsner & Proctor. The firm says it has won $2.5 billion in jury verdicts, including a dozen of more than $10 million each.
The prospects of getting big dollars in this case are good, too, lawyers say. They are eyeing BP, one of the five biggest publicly owned companies in the world; Transocean, the largest offshore driller in the world; Halliburton, the big oil services firm; and Cameron, maker of the well's failed blowout preventer. Anadarko Petroleum and Mitsui, BP's partners in the offshore lease, also are liable. Unlike the Exxon Valdez tanker accident, which happened in Alaska's remote Prince William Sound, the current spill could have a much bigger economic impact because the Gulf of Mexico is a busy home to valuable fisheries, tourism and shipping.
Vast potential
Smith, suing on behalf of fishermen, the Louisiana Environmental Action Network and four large hotels, alleges that BP and others were "grossly negligent" in allowing the blowout to occur. Damage includes removal costs, property damage and the loss of income and profits for people and businesses. Because the spill has been lingering offshore, the plaintiffs who can claim damages so far are mostly out-of-work fishermen and tourist resorts that are getting cancellations. As rich as BP is, "if this well keeps leaking for three or four months, it's Katie bar the door," Smith said. "I don't think they have enough money." He said fishing beds might need one or two generations to recover.
Some lawyers say the case also offers a chance to take on the oil industry's political ties. Papantonio wants to depose the person who ran the Minerals Management Service under President George W. Bush to find out why the agency did not require certain types of safety devices. "I want to talk about the mindset of this company, because that becomes probative for a company that was so reckless that it becomes manslaughter, and that affects whether there should be punitive damages," Papantonio said.
The first legal battle will be over the location of the trial. A panel will consolidate all the suits in one court for efficiency and to avoid discrepancies in rulings. The plaintiffs' attorneys will choose an executive committee. This approach has been used in 30 to 40 large class-action suits. BP and Transocean want the case to be heard in Houston, seen as friendly to the oil business. Some plaintiffs want the case heard in Louisiana, while others prefer Mississippi or Florida.
"I've been suing oil companies for pollution almost exclusively for 23 years," Smith said. "And oil companies are the meanest, nastiest defendants in the country. They just don't care; they have so much money." The plaintiffs' attorneys have a good bit of money, too. In a West Virginia lawsuit against DuPont, plaintiffs' attorneys spent $12 million to prepare and present their case. The initial jury verdict awarded the plaintiffs $500 million; the lawyers typically get about 30 percent.
One firm gearing up to fight BP is Weitz & Luxenberg, which has handled Vioxx and asbestos cases as well as medical malpractice and automobile accidents. Brockovich, whose battle against Pacific Gas & Electric over toxic chromium leaks was dramatized in the 2000 film starring Julia Roberts, is helping drum up clients by headlining events sponsored by the firm in Pensacola, Fla., on Thursday and in Bayou La Batre, La., on Friday.
Longtime adversaries
Many of the firms have sued oil companies for years. Smith successfully sued Chevron two decades ago for not warning workers that they were cleaning pipes clogged with radioactive materials sucked from reservoirs. His firm, Smith Stag, was co-lead counsel in a case that won $300 million from Exxon for damages from radioactive contamination.
Lawyers recruited by Smith to fight BP include Robert McKee, a partner with Fort Lauderdale, Fla.-based Krupnick Campbell Malone Buser Slama Hancock Liberman & McKee. McKee has a unique résumé: He has spent 16 years litigating over the toxic effect of organic molecules on Ecuadoran farmed shrimp. McKee has sued large banana growers for damage to shrimp farms caused by pesticide runoff from Ecuadoran farms; all but two of the cases have been resolved, with two trials pending against DuPont in South Florida.
One unusual aspect of the case is that the federal government could pay damages, too, especially if plaintiffs show that its oversight was lax. An Oil Spill Liability Trust Fund, established by the 1990 Oil Pollution Act, can pay out as much as $1 billion for each spill. Although the Oil Pollution Act says that damaged parties must first seek payment from "the responsible party" in a spill, they need to decide within 90 days whether they would rather seek money from the federal trust fund.
Each choice carries a risk. BP's liability is capped at $75 million under the law unless a court finds it guilty of gross negligence, willful misconduct or failure to comply with federal safety standards. BP chief executive Tony Hayward has indicated that his company is willing to pay more than $75 million for "legitimate" claims, and Congress might lift that cap retroactively.
On Saturday, Interior Secretary Ken Salazar and Homeland Security Secretary Janet Napolitano wrote to Hayward saying they expect BP to fully pay claimants without a cap and without seeking reimbursement from U.S. taxpayers or the spill trust fund.
Donald A. Carr, a partner at Pillsbury Winthrop Shaw Pittman who practices environmental law, said state governments also are going to be aggressive in seeking financial compensation, particularly because they are struggling with tight budgets. "This is an opportunity. You don't have to be cynical to see that," Carr said. And the case will be a marathon. Papantonio, 56, said he expects to be retired by the time it is over. This might not be the biggest spill ever, but he said the location means that "this will dwarf anything we've seen."
BP Says Tube Is Getting Over One-Fifth of Gushing Oil
by AP
BP PLC said Monday it was siphoning more than one-fifth of the oil that has been spewing into the Gulf for almost a month, as worries escalated that the ooze may reach a major ocean current that could carry it through the Florida Keys and up the East Coast. BP PLC chief operating officer Doug Suttles said Monday on NBC's "Today" that a mile-long tube was funneling a little more than 1,000 barrels—42,000 gallons—of crude a day from a blown well into a tanker ship.
The company and the U.S. Coast Guard have estimated about 5,000 barrels—210,000 gallons—have been spewing out each day. Engineers finally got the contraption working on Sunday after weeks of failed solutions—however, millions of gallons of oil are already in the Gulf of Mexico.
A researcher told the Associated Press that computer models show the oil may have already seeped into a powerful water stream known as the loop current, which could propel it into the Atlantic Ocean. A boat is being sent later this week to collect samples and learn more. "This can't be passed off as 'it's not going to be a problem,'" said William Hogarth, dean of the University of South Florida's College of Marine Science.
"This is a very sensitive area. We are concerned with what happens in the Florida Keys." BP engineers remotely guiding robot submersibles had worked since Friday to place the tube into a 21-inch pipe nearly a milebelow the sea. After several setbacks, it was working, though Mr. Suttles acknowledged there was still work to be done to get the device working at full capacity.
BP failed in several previous attempts to stop the leak, trying in vain to activate emergency valves and lowering a 100-ton container that got clogged with icy crystals. They have used chemicals to disperse the oil. Tar balls have been sporadically washing up on beaches in several states, including Mississippi where at least 60 have been found. But so far, oil has not washed ashore in great quantities.
Mr. Hogarth said a computer model shows oil has already entered the loop current, while a second shows the oil is 3 miles from it—still dangerously close. The models are based on weather, ocean current and spill data from the U.S. Navy and the National Oceanic and Atmospheric Administration, among other sources. Mr. Hogarth said it's still too early to know what specific amounts of oil will make it to Florida, or what damage it might do to the sensitive Keys or beaches on Florida's Atlantic coast. He said claims by BP that the oil would be less damaging to the Keys after traveling over hundreds of miles from the spill site were not mollifying.
Damage is already done, with the only remaining question being how much more is to come, said Paul Montagna, from the Harte Research Institute for Gulf of Mexico Studies at Texas A&M University. "Obviously the quicker they plug this the better, but they are already having a tremendous effect on the environment," he said. "In the end, we have to figure out how much is actually pouring into the Gulf."
BP had previously said the tube, if successful, was expected to collect most of the oil gushing from the well. Crews will slowly ramp up how much it siphons over the next few days. They need to move slowly because they don't want too much frigid seawater entering the pipe, which could combine with gases to form the same ice-like crystals that doomed the previous containment effort. Two setbacks over the weekend illustrate how delicate the effort is. Early Sunday, hours before a steady connection was made, engineers were able to suck a small amount of oil to the tanker, but the tube was dislodged. The previous day, equipment used to insert the tube into the gushing pipe at the ocean floor had to be hauled to the surface for readjustment.
The first chance to choke off the flow for good should come in about a week. Engineers plan to shoot heavy mud into the crippled blowout preventer on top of the well, then permanently entomb the leak in concrete. If that doesn't work, crews also can shoot golf balls and knotted rope into the nooks and crannies of the device to plug it, Wells said. The final choice to end the leak is a relief well, but it is more than two months from completion.
Top officials in President Barack Obama's administration cautioned that the tube "is not a solution." "We will not rest until BP permanently seals the wellhead, the spill is cleaned up, and the communities and natural resources of the Gulf Coast are restored and made whole," Secretary of Homeland Security Janet Napolitano and Secretary of the Interior Ken Salazar said in a joint statement.
Interior official who oversees offshore drilling for MMS resigns
by Juliet Eilperin - Washington Post
The top Interior Department official who oversees offshore oil and gas drilling for the Minerals Management Service will retire on May 31, The Washington Post has learned. Chris Oynes, who oversaw oil and gas leasing in the Gulf of Mexico for 12 years before being promoted in 2007 to associate director for offshore energy and minerals management, informed colleagues in an e-mail that he will step down. He has come under fire from former MMS officials for being too close to the industry he regulated.
The news came as Interior Secretary Ken Salazar unveiled a series of reforms to change the way the department conducts onshore oil and gas drilling. He said they would "establish a more orderly, open, and environmentally sound process for developing oil and gas resources on public lands. The BP oil spill is a stark reminder of how we must continue to push ahead with the reforms we have been working on and which we know are needed."
Salazar announced in January he was examining the procedures for how the department oversees oil and gas drilling on land. In the wake of the April 20 offshore drilling disaster in the Gulf of Mexico, he has accelerated the timetable for the overhaul. The new policy will rein in the use of categorical "exclusions" -- the waivers that Bureau of Land Management officials gave to energy companies so they did not have to conduct a detailed environmental analysis of their drilling projects. These analyses are required under the National Environmental Policy Act.
BP and the 'Little Eichmanns'
by Chris Hedges
Cultures that do not recognize that human life and the natural world have a sacred dimension, an intrinsic value beyond monetary value, cannibalize themselves until they die. They ruthlessly exploit the natural world and the members of their society in the name of progress until exhaustion or collapse, blind to the fury of their own self-destruction. The oil pouring into the Gulf of Mexico, estimated to be perhaps as much as 100,000 barrels a day, is part of our foolish death march. It is one more blow delivered by the corporate state, the trade of life for gold. But this time collapse, when it comes, will not be confined to the geography of a decayed civilization. It will be global.
Those who carry out this global genocide—men like BP’s Chief Executive Tony Hayward, who assures us that "The Gulf of Mexico is a very big ocean. The amount of oil and dispersant we are putting into it is tiny in relation to the total water volume’’—are, to steal a line from Ward Churchill, "little Eichmanns." They serve Thanatos, the forces of death, the dark instinct Sigmund Freud identified within human beings that propels us to annihilate all living things, including ourselves. These deformed individuals lack the capacity for empathy. They are at once banal and dangerous. They possess the peculiar ability to organize vast, destructive bureaucracies and yet remain blind to the ramifications. The death they dispense, whether in the pollutants and carcinogens that have made cancer an epidemic, the dead zone rapidly being created in the Gulf of Mexico, the melting polar ice caps or the deaths last year of 45,000 Americans who could not afford proper medical care, is part of the cold and rational exchange of life for money.
The corporations, and those who run them, consume, pollute, oppress and kill. The little Eichmanns who manage them reside in a parallel universe of staggering wealth, luxury and splendid isolation that rivals that of the closed court of Versailles. The elite, sheltered and enriched, continue to prosper even as the rest of us and the natural world start to die. They are numb. They will drain the last drop of profit from us until there is nothing left. And our business schools and elite universities churn out tens of thousands of these deaf, dumb and blind systems managers who are endowed with sophisticated skills of management and the incapacity for common sense, compassion or remorse. These technocrats mistake the art of manipulation with knowledge.
"The longer one listened to him, the more obvious it became that his inability to speak was closely connected with an inability to think, namely, to think from the standpoint of somebody else," Hannah Arendt wrote of "Eichmann in Jerusalem." "No communication was possible with him, not because he lied but because he was surrounded by the most reliable of all safeguards against words and the presence of others, and hence against reality as such."
Our ruling class of technocrats, as John Ralston Saul points out, is effectively illiterate. "One of the reasons that he is unable to recognize the necessary relationship between power and morality is that moral traditions are the product of civilization and he has little knowledge of his own civilization," Saul writes of the technocrat. Saul calls these technocrats "hedonists of power," and warns that their "obsession with structures and their inability or unwillingness to link these to the public good make this power an abstract force—a force that works, more often than not, at cross-purposes to the real needs of a painfully real world."
BP, which made $6.1 billion in profits in the first quarter of this year, never obtained permits from the National Oceanic and Atmospheric Administration. The protection of the ecosystem did not matter. But BP is hardly alone. Drilling with utter disregard to the ecosystem is common practice among oil companies, according to a report in The New York Times. Our corporate state has gutted environmental regulation as tenaciously as it has gutted financial regulation and habeas corpus. Corporations make no distinction between our personal impoverishment and the impoverishment of the ecosystem that sustains the human species. And the abuse, of us and the natural world, is as rampant under Barack Obama as it was under George W. Bush. The branded figure who sits in the White House is a puppet, a face used to mask an insidious system under which we as citizens have been disempowered and under which we become, along with the natural world, collateral damage. As Karl Marx understood, unfettered capitalism is a revolutionary force. And this force is consuming us.
Karl Polanyi in his book "The Great Transformation," written in 1944, laid out the devastating consequences—the depressions, wars and totalitarianism—that grow out of a so-called self-regulated free market. He grasped that "fascism, like socialism, was rooted in a market society that refused to function." He warned that a financial system always devolved, without heavy government control, into a Mafia capitalism—and a Mafia political system—which is a good description of our corporate government. Polanyi warned that when nature and human beings are objects whose worth is determined by the market, then human beings and nature are destroyed. Speculative excesses and growing inequality, he wrote, always dynamite the foundation for a continued prosperity and ensure "the demolition of society."
"In disposing of a man’s labor power the system would, incidentally, dispose of the physical, psychological, and moral entity ‘man’ attached to that tag," Polanyi wrote. "Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as victims of acute social dislocation through vice, perversion, crime, and starvation. Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed. Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts in primitive society. Undoubtedly, labor, land, and money markets are essential to a market economy. But no society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance as well as its business organizations was protected against the ravages of this satanic mill."
The corporate state is a runaway freight train. It shreds the Kyoto Accords in Copenhagen. It plunders the U.S. Treasury so speculators can continue to gamble with billions in taxpayer subsidies in our perverted system of casino capitalism. It disenfranchises our working class, decimates our manufacturing sector and denies us funds to sustain our infrastructure, our public schools and our social services. It poisons the planet. We are losing, every year across the globe, an area of farmland greater than Scotland to erosion and urban sprawl. There are an estimated 25,000 people who die every day somewhere in the world because of contaminated water. And some 20 million children are mentally impaired each year by malnourishment.
America is dying in the manner in which all imperial projects die. Joseph Tainter, in his book "The Collapse of Complex Societies," argues that the costs of running and defending an empire eventually become so burdensome, and the elite becomes so calcified, that it becomes more efficient to dismantle the imperial superstructures and return to local forms of organization. At that point the great monuments to empire, from the Sumer and Mayan temples to the Roman bath complexes, are abandoned, fall into disuse and are overgrown. But this time around, Tainter warns, because we have nowhere left to migrate and expand, "world civilization will disintegrate as a whole." This time around we will take the planet down with us.
"We in the lucky countries of the West now regard our two-century bubble of freedom and affluence as normal and inevitable; it has even been called the ‘end’ of history, in both a temporal and teleological sense," writes Ronald Wright in "A Short History of Progress." "Yet this new order is an anomaly: the opposite of what usually happens as civilizations grow. Our age was bankrolled by the seizing of half the planet, extended by taking over most of the remaining half, and has been sustained by spending down new forms of natural capital, especially fossil fuels. In the New World, the West hit the biggest bonanza of all time. And there won’t be another like it—not unless we find the civilized Martians of H.G. Wells, complete with the vulnerability to our germs that undid them in his War of the Worlds."
The moral and physical contamination is matched by a cultural contamination. Our political and civil discourse has become gibberish. It is dominated by elaborate spectacles, celebrity gossip, the lies of advertising and scandal. The tawdry and the salacious occupy our time and energy. We do not see the walls falling around us. We invest our intellectual and emotional energy in the inane and the absurd, the empty amusements that preoccupy a degenerate culture, so that when the final collapse arrives we can be herded, uncomprehending and fearful, into the inferno.
71 comments:
"BP Says Tube Is Getting Over One-Fifth of Gushing Oil....a mile-long tube was funneling a little more than 1,000 barrels—42,000 gallons—of crude a day from a blown well into a tanker ship."
I guess the 5,000 barrels a day Big Lie* being pimped by the Big White House has 'legs'.
*(The expression was coined by Adolf Hitler, when he dictated his 1925 book Mein Kampf, for a lie so "colossal" that no one would believe that someone "could have the impudence to distort the truth so infamously." ~Wiki~)
Obama's Große Lüge for the Oil Rupture is intentional. This should give any remaining supporters a glimpse of his real mettle.
I stepped on my calculator, what is one fifth of 70,000 bpd?
If it were the more likely 100,000 bpd, I could do it in my head.
I've been watching the reporting on the BP-BS "siphon" (godhelpus- another perfectly good clear word shot totally to hell) with great interest.
So far they're consistent- they're getting more than 1,000 bbls a day. What they are no longer mentioning (they did, at first) is that their suction pipe is a great big 4 inches in diameter. And they're sucking crude oil, at around 2°C.
I'd really like to see that! They gotta have one helluva upsucker machine up top. And that mile of pipe better be seriously strong. One little momentary slowdown, and the upper pipe could collapse under that kind of suction.
And never mind that the real spill rate is way higher than the legendary 5,000 bbls.
Sigh.
To me this looks like a fabulous chance to set some precedent. Does BP own the Gulf? Ok, yes, they do; but the entire world doesn't think so.
Yet they keep preventing outside researchers from investigating; and even the US Gummint is denied access to much of what goes on.
Well, the hell you say. Here, bucko- have a big fat battalion of Marines, and 5 destroyers. NOW tell me I can't look at your videos.
The entire world would cheer.
Gerald Celente rocks.
Does he get any play on the MSM in Usakistan or just Russia Today internet?
Interesting that the Meltup video should use him so "liberally," though he has never come out as a hyperinflationista. Meltup is 2+2=5. Most Usacos don't have the raw data for the **2+2**. Celente is part of that valid raw data, but he certainly doesn't come up with 5. He also knows the truth about 9/11 but only makes that known in somewhat snide asides. He picks his battles. The man is no dummy.
Durden coined the term "meltup" as a piece of irony to describe how the HFT, the IB's, and the Fed were using S&P future options usually during off trading hours, to move the equity markets upwards against low volume. But it only works against low volume. When the volume becomes large and the herd panics, they will be helpless. The Wile E. Coyote moment is about to end. Whether one believes that the future is in the stars or not, Crawford's August 1 date is looking mighty plausible.
While I read TAE regularly, I don’t often post. However, in keeping with Ilargi’s occasional references to music, I propose a new theme song in honor of the recently departed Ronnie James Dio—“Falling off the Edge of the World” (a fitting tune from when he was singing for Black Sabbath). Here is one of the verses that seems to fit the world today:
Look out! there's danger! no where to run!
It seems like desperate measures but sometimes it has to be done
Over, it's over at last
There's a message inside as we build a new life from the past
Indeed, it is time for us to start thinking about building new lives from the past.
A link to a recent live performance:
http://www.youtube.com/watch?v=vn6XhVoY9EE
Why doesn't anyone talk about the impact of the corporate model. It creates amoral creatures that suck the life out of our wealth creating machines. That's why the western economies are failing and wealth creation moving to Communist China.
Last weekend I spoke with the VP of a community bank in Kansas that is in serious trouble from bad loans in commercial real estate from its Arizona branches. They may soon be sold or shut down.
This guy struck me as quite affable and a smart cookie about the nuts and bolts of running a bank--he ain't stupid.
However, I was amazed at his answer, when I asked how he felt about the different way regulators treat his bank compared to Goliaths like CitiGroup. He felt that there was no difference. It's just that the government has determined that CitiGroup is too big to fail. Really, he said that.
I might also add that he later expressed doubts about the citizenship status of President Obama.
Apparently, the brainwashing from the MSM has been so effective that even an intelligent bank executive will submit like an abused mule to the whip of Goldman et. al.
I despair.
@ Chuck, " wealth creation moving to China".
I don't think so. The Chinese may become wealthy but it will be wealth drawn from outside China. China does not have eco wealth to develop.
Bottom line is economy is born of ecology.
I am having a dyslexia experience with the word " rupture". I keep reading " rapture" !
Is this the " SIGN " ?
Will we see the chosen lifted up
while the rest of us are left mopping up?
Re: Tax revenue
In the past ten days I have heard of two people getting ticketed for nothing really.
One female acquaintance in Florida recently got a ticket in the mail for $40 because apparently she had stopped at a stop sign for only 2 seconds instead of the legally mandated 4 seconds. It was captured by a camera set up for this purpose. She had no idea of her malfeasance until the bill came in the mail. This $40 dollars represents half a days work for this person and the state confiscated it for a 2 second "transgression".
Another was here in PA. A friend got ticketed for parking in a legal spot but his crime was that he was over 12 inches from the curb (on an infrequently traveled residential back street) and that apparently is illegal now.
This is the new model....tax collection via armed thug. They should just triple the local police forces and send everybody out with a daily "revenue" goal that exceeds the cost of thier daily pay and benefits and these localities will be in the black in no time.
@ Chuck
"Why doesn't anyone talk about the impact of the corporate model. It creates amoral creatures that suck the life out of our wealth creating machines."
Could not agree more. The "left" are correct in thier distrust of corporations and the "right" is correct in thier distrust of government but they both miss the mark because niether position recognizes that it is the concentration of power in both the corporate form and the government form that is the problem.
Both are unnatural and both act as encroachments on human will and human energy flow. There can be a place for both but not even close to the scale and scope that they exist now. The big lie that we have been told is that we somehow need these institutions for our prosperity, happiness, and security when nothing could be further from the truth. Life is pretty simple really and the formula for happiness is equally as simple. It is the manipulators and schemers who wish to entrap us and make us fearful of what our lives would look like without these influences. We don't need big corporations for our jobs and income, we don't need the existing banks, and we don't need big government that inserts itself in every aspect of our lives making those that depend on the system fearful, weak minded and spineless.
We will not move forward until we collectivly act to throw off these shackles and take back control of our lifes, our minds, and our time and energies.
True wealth is living in sustained ecological harmony. The modern industrial/financial economy is in the business of wealth extraction and concentration, as exemplified by BP.
Anyone here think HFT trading can keep us elevated indefinitely in spite of herd sentiment being negative? Computer programs don't have emotions, and they are responsible for 80% of trading that takes place. I'm not saying to the moon on the indices, but I am saying we could consolidate and chop in a narrow range for a long long time. Kind of like Marc Faber postulates we will.
an interesting datum regarding popular attitudes:
John Tierney, NYT techno-optimism pimp, published a column titled:
"Doomsayers Beware, a Bright Future Beckons"
I very very seldom read his stuff, it's very predictable. But, I wanted the take on doomerism.
Interestingly, as of this morning, my fairly rude comment is the #1 most recommended by his readers.
http://tinyurl.com/25tn99r
You can get to the whole story by the link at the top.
Sorry, I didn't have the time to expand the discussion w/ Stoneleigh regarding energy claims against others. Time and AE march on.
Discussing the characteristics of competing claims is valuable. How else will the claims be sorted out? The 'washout' argument that suggests that all claims have zero ultimate value is both too easy and dishonest. Regardless of what happens in this or that market, the world will still spin. Some of the claims will matter, regardless!
Another issue is the matter of responsibility/blame.
Living in the modern world, it's rapidly 'one group's fault' and not some other group's. Ironically, the group in the administrative crosshairs is the one lacking means to resolve the finance dilemma. Default? Marc Faber suggests that all nations will default and from here it is hard to see any nation that is solvent.
The rich Vatican is overburdened with sex abuse claims. Innovative Israel by its military commitments. China? That country is a gigantic currency trap not much different from (insolvent) Spain or Ireland.
There are too many finance claims against shrinking physical production be that the output of machines or the 'development' of resorts. Claims multiply like rabbits. I have part ownership of a house in New Orleans. By virtue of this I can make a claim against BP for its oil spill. See how easy it is? Modernity creates claims against itself as the byproduct of waste which is its primary product.
In the end, we individuals all default. We step into the grave giving the finger to the rest of the world. Modernity is a childish reflection of our mortality. We die and will take the world down with us.
One reflection of the ongoing crisis is that the claims of finance are subordinate natural claims. I realize this is a shocking concept. That silent and agreeable nature would manifest its claims through the finance system by undermining it is something never considered by the creators and operators of that system. While Goldman- Sachs' claims can be negated by a Court inside bankruptcy (default) or by restructuring, the claims made by physics are non- negotiable. The crude oil dumped into the ocean cannot be removed by writ as the President has certainly discovered, the energy removed from the future by wasteful use last week cannot be likewise re- constituted elsewhere. That there are no guarantees for retiree claims or those of sovereigns should be no surprise as all are sculpted upon an armature of prior claims on nature. Arbitraging thermodynamic claims has distorted finance to the point where it is becoming non- functional right under our noses.
Ilargi can quibble about the priority of claims but the onrush of events speaks for itself. Bernie Madoff and his investment co- conspirators indeed accumulated claims but they did not burn a trillion barrels of easy to extract crude oil for nothing – leaving future generations with nothing. The US is fighting two wars go gain control of oil resources. The same US is not interested in prosecuting finance malefactors. What are the priorities, again?
The outcome of this expansion of natural claims is a money regime that it has fallen and can't get up. The failure is the product of decades of waste and zero returns upon that waste. The only surprise here is that the denouement has taken so long to arrive.
@Wolf at the Door sez: “This $40 dollars represents half a days work for this person and the state confiscated it for a 2 second "transgression".”
Jesus I don’t know how people make it. I guess they kind of don’t. 15 years ago if someone had said “this is what you’ll be making in 2010” I have thought it decent (good but by no means wealthy by any stretch of the imagination). After 3+ years of no raise, watching how many rounds of layoffs (phew made it through “that round”), etc, etc, etc I can tell you there’s little "stress cracks" starting to appear.
Maybe we need a TAE misery index. On the other hand VK suggested a poll of some sort at one point and as I recall the suggestion was shot-down post-haste.
Never mind the “Photographer at the Old Orchard House.” Who’s the guy standing in the door??
Life was just as much fun for Germans vacationing in Greece as the byproduct of the sale of German automobiles in Greece as it was for the Greeks who bought those automobiles. The question now is 'where is the finance/energy return on the use of those automobiles?' Both the Greek and German - and everyone else - must answer, 'nowhere'.
Modernity has so insinuated itself into our habitual lives that we take it all for granted. That the 'taking for granted' part is under scrutiny is suggestive. The deep nature of the scrutiny itself suggests issues are beyond the accumulation of abstract claims/debt or mis- organization of management to the benefits of managers.
Our Business As Usual approach to natural claims has been to ignore/externalize them. This process worked for awhile during the heyday of Ronald Reagan when politics opened oil wells around the world and vast acreages for real estate development. The land and the oil (and the water and soil and Phosphorus and rare earth metals and waste carrying capacity) were 'free' and could therefor be kept off the development balance sheets. Doesn't this off balance sheet calculation sound familiar? Extend and pretend has legs, now thermodynamics arrives to bite the world in the wallet.
Our culture is a continuum; our kulture of waste is a continuum as well. Vance Packard wrote 'The Wastemakers' in 1960, WWII was a waste, so was the Depression and the great boom that preceded it. Waste is integral to modernity, to industrial production at scale, to centralization and monopoly, to inefficiency and Jevon's Paradox and Liebig's Law. We are things, we live in a physical universe, we waste now and pay for it later - we wasted ten or twenty years ago and are going to pay for it now.
Boy oh boy, are we gonna pay.
Ilargi asked:
"So why is no-one, 2-3 years after the economy started collapsing, suing the Squid? Why does it instead receive ever more funds from the very people it financially strangled?"
From my interpretation of recent news headlines, that is exactly what IS happening beginning with the SEC's civil lawsuit and now fraud charges. A quick google query reveals The Washington post reporting on May 4th, six shareholder suits filed alledging fiduciary breach. Goldman also issued a statement saying that it expects to be hit with more charges of fraud and cease-and-desist orders.
There are also investigations being launched by other nations such as Australia, Greece, and Germany. If you apply the tip-of-the-iceberg rule and add fuel-to-fire minus the sum of collective ADD and the inertia constant divided by any individual sense of responsibility plus/minus more major catastrophic acts of nature, I think the days of the "TBTF era" may well be numbered.
In regards to the oil spill, ain't nothing gonna make it all better. Ever. You cannot do a comb-over for Chernobyl, Bhopal or the Gulf Oil Spill. BP cannot afford it???
WE cannot afford it and that trumps anything they have said to this point.
This is so sickening... As a child I was always awed by the beauty of the Florida Keys.
"TAMPA — University scientists are forecasting that oil from the spill off Louisiana could reach Florida's Key West by Sunday.
University of South Florida researchers said Tuesday the southern arm of the massive spill has entered or is near the so-called loop current, which circulates in the Gulf and takes water south to the Florida Keys and the Gulf Stream. The Gulf Stream could eventually take the oil up Florida's Atlantic coast.
Twenty tar balls were found by the Coast Guard off Key West on Monday. They are being tested to see if they came from the Louisiana spill or elsewhere. Tar balls can occur naturally or come from other sources such as ships.
USF scientists use currents, wind forecasts and other elements to make their predictions."
http://www.naplesnews.com/news/2010/may/18/scientists-spill-could-reach-fla-keys-sunday/
Steve from Virginia,
Glad to see you've regained your balance. That's the kind of writing I remember you doing in the past.
RE.: Oil gusher, laval gusher ... survival ... Waste, disaster
Its all about defining the right TIME LINE.
Circle of life
http://www.youtube.com/watch?v=oLpgRSCHa8I&feature=related
From the day we arrive on the planet
And blinking, step into the sun
There's more to be seen than can ever be seen
More to do than can ever be done
Some say eat or be eaten
Some say live and let live
But all are agreed as they join the stampede
You should never take more than you give
(Chorus)
In the Circle of Life
It's the wheel of fortune
It's the leap of faith
It's the band of hope
Till we find our place
On the path unwinding
In the Circle, the Circle of Life
Some of us fall by the wayside
And some of us soar to the stars
And some of us sail through our troubles
And some have to live with the scars
There's far too much to take in here
More to find than can ever be found
But the sun rolling high
Through the sapphire sky
Keeps the great and small on the endless round
(Chorus repeats)
On the path unwinding
In the Circle, the Circle of Life.
From last article by Chris Hedges:
"Cultures that do not recognize that human life and the natural world have a sacred dimension, an intrinsic value beyond monetary value, cannibalize themselves until they die."
Absolutely true! We're dead!
The corporate model sucks the life out of wealth creating organizations because it is in no ones interest to fight for entity survival or behave as a responsible citizen. Stockholders are not owners with a stake in the long term survival, but mere gamblers focused on a quick buck. Management sacrifices long-term wealth creating capability by liquidating productive resources to maximize short term profits. Nobody takes responsibility,only the money.
The focus needs to be on correcting these perverse incentives, rather than what government is doing to address the carnage.
Now that the energy crisis vs. financial crisis issue has been laid to rest (har har har) I thought I'd ask for comments about another easy one. Keynesian solutions to the financial crisis. For an easy an accessible starting point, please look at Dean Baker's piece over at Counter Punch today: http://www.counterpunch.org/baker05182010.html
If the disappearance of money, the 'lubricant for the economy' is the problem, why not just add a quart or ten? As Baker and all the Keynesian's point out, if there's high unemployment and tremendous under-utilization the effect should be, so they say, to get growth rather than inflation in the economy. Payment streams would increase in volume thus lowering the risk of defaults. Wouldn't that lower interest rates?
Of course, it calls into question the whole role of banking and the power of bankers. But that's a political question. Leaving aside for the moment legitimate questions of malinvestment, longer term energy usage issues, mental habits and even politics -- just as a thought experiment in pure finance -- why wouldn't the Keynesian approach work as at least an ameliorative to deflation? I'm asking this seriously. I don't know the answer and I'm seeking the opinions of people here who are probably much smarter and certainly far more knowledgeable than me on these topics.
Richard Russell in today's Dow Theory Letter:
Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country. They'll retort, "How the dickens does Russell know -- who told him?" Tell them the stock market told him."
.
Early this morning I was going to say 'the Chris Hedge Article was a killer (and brilliant of course'). Then I got distracted and on to something else.
Ahimsa - thanks for reading my mind!
Yes indeedy - we're a goner. Frankly - I'm more sorry for the 'innocent' creatures then us humans. We don't deserve this beautiful planet one iota.
I'm not sure if this TED talk by Jeremy Jackson titled How We Wrecked the Oceans has been linked at TAE in the last couple days. A friend told me to watch it a few days ago and I see today that Dave Cohen also has an article about it, so I figured I should pass it on. I haven't been able to watch it just yet, myself.
If you've not heard of it, you should have by now. The most dangerous weapon invented by the human mind, Net Present Value.
The horror this formula evokes in me, the damage this one formula has done to the planet is incredible. It has turned everything into an object, a thing, for extracting cash.
NPV = Cash/(1 + discount rate)^t
Looks innocuous enough doesn't it. Don't be fooled, this and it's cousins the Internal Rate of Return and Payback Period have brought the world to it's knees. So what is it? What NPV does is that it allows the profitability and viability of a venture, project etc to be tested. Is it viable enough to proceed, given current capital costs? If we put up plant X in so and so location and country, what returns will we get over time? If lets say we put in 10 Million dollars today and the factory generates 1 Million dollars every year for the next 20 years, given a discount rate of 10% (the rate at which money loses value over time (inflation) + returns desired) is the project worth it?
So they plug this in the formula above and voila! They get a nice NPV of around $85 Mn. So they're like wow! Awesome! 85 Mn is definitely bigger than 10 Mn. So this is a project worth investing in! Right? Well, no, not yet, because, putting up that factory or whatnot, involves costs. For now let's assume that labour costs, overhead and power costs are around 20 Mn over 20 years for this project as labour is really, really cheap. One could almost argue it's slave labour ;) So now that little cost benefit analysis still leaves the investor with a neat little profit of $55 Mn over the long run! Yaay! So the investors are happy, the financiers are happy, people get jobs and stuff gets made for everyone to buy, buy, buy, retail therapy. Everyone seems cool with it, right? Wrong!
What if the 10 Mn initial cost includes tearing down ancient rainforests? What if they involve destroying communities and livelihoods and olden ways of life. Well, that doesn't count now does it. The rainforest just lying there doesn't generate cash does it. The tribal peoples or the old way of life doesn't generate cash too. Culture, forests, ecosystems are not tangible like cash is, these are intangibles, those only matter to people with a heart, not corporations!! So it has no tangible NPV, all those things are intangible, only felt. I have learnt that what is of value in this world has no way of being measured. And so the trees are torn down, the seas are over fished, the deserts spread and old communities are evicted from their land to make way for oil platform developments and dams and generic stores in urban jungles so people can sit in the same coffee shops and ecogeeks can complain about the drab and dreary environment modern society creates. It's so tragic :( , I'll have a frappucino please, extra caramel.
Continued from above...
I'll tell you another neat little trick economists use in their hunting practices, one to hide pollution, environmental damage, climate change, hidden health costs etc from us i.e. society at large. It is encoded in a little word known as Externalization. So when putting up the factory involves pollution of river systems and fragile ecological environments, when the toxification of the land causes health problems to the workers and the people of the surrounding area. Well guess what? The cost of that is conveniently not included in the NPV. Why, the company gets special concessions by the Govt, "Don't you worry about that, you invest here and we'll take care of the problems!" Pollution? The people will pay for it. Health costs? The people will pay for it. Lasting damage done? You kidding me!? The people will keep paying for that one. Of course the politicians are then lavished upon by the corporations for their help in externalizing these costs thus dealing tremendous profits for shareholders and CEO's alike.
So all the private benefits are retained, costs are socialized and the NPV formula moves along, requiring the conversion of more and more resources, land, labour, seas, nations, cultures and spiritual capital into cash at a faster and faster rate, as the ponzi scheme involving ever more returns requires NPV to feed on your family, your life, your culture, your dreams and your very soul for the good old green stuff. Moolah baby!
Our world has been NPV'ed. We are not the MTV generation, we are the NPV generation. Where the future doesn't matter because if you discount far enough cash becomes valueless, nothing, meaningless. The only thing that has value is now, today, nothing else. At any price, any cost. It's a sick self fulfilling prophecy if you think about it. The formula says cash is meaningless in the future, so we must extract full value today to give more to ourselves right now, our shareholders as well. Yet in doing so we undermine our very existence as a species. We dam the rivers and ecosystems, we destroy old ways of life and living, culture is left barren as we immolate it in the name of cash, we destroy the climate and ourselves in the process of generating cash today as tomorrow it will be worthless anyway. It's enough to drive one insane, a treadmill to hell!
Anyway I can hear the cries from Wall St, "All hail NPV." The single most destructive formula in the history of mankind. "All hail the Interest rate", no concept has undermined freedom, people and culture more than it. It is a creation of man but like the matrix, we are trapped by it. We watch helplessly, beguiled by it, unaware of it's power to change human behavior, to convert kids into monsters. In creating these instruments we sought solace, security and splendour, instead it has culminated in us ending up with no security, no solace and no place to escape. You couldn't make this $hit up. Peace out.
CJB (from yesterday),
You state that holding gold only makes sense if all debt is paid off, you have cash on hand and some control over essentials for daily life. Can you get specific about what you mean by "cash on hand, and some control over the essentials for daily life"? Obviously food and shelter are elements in the essentials catagory, but are there things other than that which you clasify as essentials? Does cash on hand mean paper dollars stuffed in a can and buried in the yard, or does it mean some sort of investment? I don't trust the government or the banking system, so I can't imagine putting any real wealth into their hands. The markets are rigged as well, so what does that leave if not gold or silver?
Sorry for the delayed reply. I am traveling.
It sounds to me from your later post that your situation is enviable. That kind of community working together is what others should be working towards. It's much easier to cover the essential collectively than it is individually. What those essentials are will depend on your circumstances. They would certainly include food and water, but also likely fuel of some kind for heating/cooling/cooking/transport/operating machines, spare parts for essential things. I would suggest making a list of everything you could not live without and then think about how you might be able to achieve control over your supply of it. If you have a dependency you cannot cover, that is a vulnerability. All you can do is minimize your vulnerabilities.
As for cash on hand I mean exactly that. You need whatever passes for cash wherever you happen to live, so that you can purchase essentials you cannot produce and pay property taxes (which will be going up). Whatever that cash is worth compared to other currencies, that is less important than what it is worth relative to food etc at home.
As for gold, if you have your other bases covered, think you can sit on it for a long time, and understand the risk of having something everyone wants, it will be a good investment, as it will hold it's value over the long term. It has done so for thousands of years. However, if you would have to sell into a buyers market (ie be forced to sell in the next 2-5 years), you would be better off with cash now. Definitely don't trust the banking system as it is effectively insolvent already.
Government finances in the US should be improved by the events in Europe, as the US will benefit from a flight to safety. Short term treasuries are the next best thing to cash right now. They're a cash equivalent because they're liquid, and should remain so for longer than most things. They're not a long term bet, but they should help you to navigate the deleveraging period.
If you can afford todays prices without debt, and could still have cash on hand as well, then you might want to purchase hard goods earlier, in order to buy yourself any necessary learning time. I am not talking about the very expensive items, but about cheaper things.
I see that TAE and other bloggers (maybe it’s just me but lately Karl D reads like a Stoneleigh primer)are in rare dark form these days. Of course, a shaft of light always manages to somehow illuminate the donation plate. But that’s just the way things work in the blogosphere and in nature too--just when the raccoons get out of hand a pack of coyotes come to the rescue.
Oh well the clock is ticking regardless, and It‘s Good To Be Alive even when looking down a dirty alley at the ever-increasing disenfranchised--my kind of people.
Stoneleigh,
What is a "short term treasury" in England? A National Savings account? The paperwork says "because NS&I is backed by HM Treasury, any money you invest with us is 100% secure." Is that as good as it gets?
Caith,
I England that would be gilts. While they should be secure for a while, I think they will see trouble before the US equivalent, as Europe is in the firing line for the speculators at the moment. Europe's difficulties should buy the US some time as a 'safe haven'. The UK's finances are in terrible shape. Trouble may not be far off.
Stoneleigh or.....
Any thoughts on how places like Switzerland,
Lichtenstein will fare with the Swiss Franc? when 'it' all comes a tumbling down -Just wondered since they are not in the Eurozone.
Thanking all for any thoughts in advance.
Curious Yellow :)
Stoneleigh
Thank you for your reply.
Most of our power presently comes from the grid. We chill and freeze our food, run our water plant, sewage treatment plant and all other sources from the grid. Our heat is mostly natural gas as is our cooking fuel. Being so heavily reliant on these sources is of concern. There have been a few discussions around solar, but nothing too substantial at this time. My wish is that we consider solar to power our food storage, water plant and sewage treatment plant, but not being an expert in the field, it makes it a little difficult to know the most practical direction. Also, do we have the time to research the system best suited to our needs and then have it installed?
Presently we have large generator for emergency backup power, but requires cheap and abundant fuel.
We here do have somewhat of an advantage in that we have a basic foundational agreement on how we approach life, but that does not mean that everyone is willing to embrace the world that is coming. For some, even for me at times, it is depressing and worrying. As a result there is the habit to turn off. Others simply are not willing to look at the matter, hoping that someone will do something, someone will fix it all. This is the challenge for me and a few others who have been willing to face this full on. It is so apparent that we are in the midst of change on a scale that is hard to grasp, and there is no magic solution that can be applied to every circumstance. We have all become so lazy. We don't know how to think for ourselves anymore. We have grown up in and have been conditioned by a world where all of our needs have come to be seen as entitlements. We expect cheap, abundant everything. What a shock this will be for the majority of those who inhabit the United States.
From where I sit the single greatest challenge that faces us here and abroad is not how we will raise our food, clothe ourselves and find shelter, but rather how we can transition from a world in which very little thought was needed in order to survive, where very little real cooperation was needed. The depth of what we think of as cooperation in the dying paradigm has been stopping at red lights and to go on green, but even that seems to be going out the window. How do we inspire people to work together, to share together and to reap the fruits of that cooperation. I am concerned that much of the transition will be "every man for himself". I pray with all that I am that we find some degree of agreement, some measure of understanding and generosity, to work together in facing the enormous challenges that await us in the days ahead.
Thank you Stoneleigh and Ilargi for the service that you are providing to any who will receive it.
Is it good to be alive?
Seriously??
I wonder, anymore... Is our existence not just delaying or worsening the inevitable?
jal - hiss- boo! for Elton John and his Disney music!
:-)
Here is my friend Blackfeet story-teller troubadour Jack Gladstone, singing The Circle of Life- which he wrote 15 years before The Lion King.
http://www.youtube.com/watch?v=WHy_xM9GCt0
Not the best recording; but documentary proof!
Here's a professional recording- he uses the same people who handle the Dixie Chicks.
http://www.youtube.com/watch?v=kjukpfyasxk&feature=related
warning- Jack can get addictive, and may make you feel good.
@ Greenpa
"warning- Jack can get addictive, and may make you feel good."
I'm going to miss being alive.
jal
You guys are fun! But youse should get real.
Most seem to think ts 'is' gthtf sometime very soon and Stoneleigh tells us to be prepared with, what? - a few weeks or months supplies? Cash under the pillow? Friends/communities who think similarly? Really - that easy?
So this economic, political & social tsunami is going to last only for a few weeks or maybe a couple or so months - and then we'll be OK if we 'prepared'? Very droll!
Or is the idea of 'preparation' to be 'last man standing'?
If it IS going to be as bad as I & S and many posters believe, do you really think there's escape?
Take it on the chin, boys & girls. We are where we are for very good reasons (the inescapable,iron law of Karma. And we're now experiencing karma on a personal, nation state and world level...simultaneously. Wow! Wouldn't miss it for quids! )
Cop out is not possible. Sorry to disappoint.
Your plans are worthless. You either will..or won't survive. That's it.
Wolf at the Door said...
"We will not move forward until we collectivly act to throw off these shackles and take back control of our lifes, our minds, and our time and energies."
Start locally. It is difficult to conceive of this happening on a grand collective scale – it would most likely be perverted by people wanting power or people wanting to do "good".
Greenpa said...
John Tierney, NYT techno-optimism pimp, published a column titled:
"Doomsayers Beware, a Bright Future Beckons"
I like this quote from the article...
"Dr. Ridley expects bottom-up innovators to prevail. His prediction for the rest of the century: “Prosperity spreads, technology progresses, poverty declines, disease retreats, fecundity falls, happiness increases, violence atrophies, freedom grows, knowledge flourishes, the environment improves and wilderness expands.”
Translation: most middle-class people and the wealthy (screw the rest of the world they don't count) have had access to cheap, shoddy trinkets and cheap credit giving the illusion of wealth; technological gadgets, the vast majority of which detract from our lives, abound in number, and ride on the shoulders of a few useful ones; poverty must be declining because the middle-class appears richer, or did before 2008 anyway (PS screw the rest of the world); by sterilising everything in our world, including poisoning the water we drink, and reclassifying diseases we don't like as something else, we have eliminated a host of diseases in developed countries and through reclassification and creative number crunching, a few in developing countries too – even though we don't know what to do with the host of new chronic ones popping up; fecundity falls in developed countries because most people are too selfishly leading hedonistic lives to want lots of kids, and has nothing to do with the real reason it should fall – because our population has exceeded the carrying capacity of the planet – and it's only those "poor" people who are really contributing to the population problem now; having more "stuff" must make people happier, therefore happiness is spreading ; most people in developed countries are too doped up on TV and dope and XBox, and the youth brought up sheltered, so violence, despite a growing population violence remains about the same (PS – screw the rest of the world – violence there doesn't count... unless it is dropping); freedom grows...
Heh, okay, I can't go on. Freedom grows? Is this the freedom the US has brought to the middle east, or the freedom that it has sought to protect at home?
Knowledge flourishes. Yep. Where to start...
Environment improves and wilderness spreads. Wow. Okay... what does this guy smoke?
'Living without Money' an article today at cnn.com tells of one man who gave it all up as an experiment. He appears to be thriving like a hot house plant.
Nice article worth a read. Refreshing break from the doom and gloom.
:)
@ NZSanctuary
"Start locally. It is difficult to conceive of this happening on a grand collective scale – it would most likely be perverted by people wanting power or people wanting to do "good"."
Absolutely could not agree more. That is the nature of the manipulators who control these malignant manifestations of human power and control that we call Corporations and Big Gov't. These institutions are agents of complexity and most of this complexity serves no other purpose than to redirect the "benefits" generated by this complexity into the literal and figurative pockets of the elites at the expense of all of the rest of us.
It's a huge problem and rationality and reason can probably only prevail, as you say, in small local pockets (if at all) as our collapse proceeds apace.
@spr...Stoneleigh's advice serves particular outcomes such as a bank holiday, such as the trucks not getting to the grocery store etc.
I call her advice " scramble time". Making such preparations buys me time to assess the situation, to perhaps find more solutions to the as yet unknown face of crisis.
Stoneleigh's advice also encourages me to rethink what my needs and desires are and to recognize the difference between them. I find value in this exercise.
Your point is well taken though...
Karl, Banksters, and lots of oral sex
http://market-ticker.denninger.net/archives/2331-The-German-Government-Has-Had-Enough.html
CJB,
Most of our power presently comes from the grid. We chill and freeze our food, run our water plant, sewage treatment plant and all other sources from the grid.
Could the group of you together afford community-scale renewable power generation? I'm not sure from what you write what kind of demand you would have to supply. Typically one would reduce demand to the bare minimum before trying to supply what's left with renewables. You don't say where you are, but the local climate will obviously make a difference as to what it makes sense to do. You may not need to power freezers in the winter for instance if you live somewhere cold enough to build an outdoor icebox.
Our heat is mostly natural gas as is our cooking fuel. Being so heavily reliant on these sources is of concern.
That is indeed a worry, as natural gas will be in short supply at some point. In the northeast, the dependence on natural gas is huge. You might want to look into wood stoves and solar cookers to give your self an alternative. Basically you would ideally have several ways of achieving each essential function, depending on what inputs you end up with.
Also, do we have the time to research the system best suited to our needs and then have it installed?
You would have some time, but not a lot. A sense of urgency would be entirely appropriate here. I would be happy to come and speak to your community if it's anywhere near the various places I'm visiting. I'm in the northeast right now (Vermont today).
We here do have somewhat of an advantage in that we have a basic foundational agreement on how we approach life, but that does not mean that everyone is willing to embrace the world that is coming.
That helps, but you will need more unity on what is coming and what needs to be done. Otherwise hardship will cause division at exactly the wrong time.
We have all become so lazy. We don't know how to think for ourselves anymore. We have grown up in and have been conditioned by a world where all of our needs have come to be seen as entitlements. We expect cheap, abundant everything. What a shock this will be for the majority of those who inhabit the United States.
Quite so. What is coming will be an enormous shock to the system. We will be living in an entirely different world. Some people will adjust, but many others will not. I want to increase people's odds if I possibly can, although there are indeed no magic solutions.
From where I sit the single greatest challenge that faces us here and abroad is not how we will raise our food, clothe ourselves and find shelter, but rather how we can transition from a world in which very little thought was needed in order to survive, where very little real cooperation was needed.
Exactly. This is an extremely important point.
How do we inspire people to work together, to share together and to reap the fruits of that cooperation. I am concerned that much of the transition will be "every man for himself". I pray with all that I am that we find some degree of agreement, some measure of understanding and generosity, to work together in facing the enormous challenges that await us in the days ahead.
That is indeed the challenge. Building relationships of trust is critical, and that is much better done before things get difficult. Afterwards suspicion will rule the day and building cooperative structures will be much harder. I want to turn virtual communities into real ones if at all possible, because that's what will matter when push comes to shove.
Oh! Oh!
Trouble could be in the air... The Grey swan might awaken!
Zero Hedge and The Market Ticker are discussing how the banksters and the advisors were in bed together as they were converting Grannie’s savings into bonuses for themselves.
See, How Goldman's "Recommended Top Trades" Cost Clients Billions And Contributed To Goldman's Perfect Record
---
Nations Over Banks (Who Serve Only Themselves)
jal
SPR,
Should we all just lie down and die? Or party while we can and then flame-out?
Why should people not do whatever they can to improve their situation? While the challenges will be huge, I think preparations can make a difference, especially community-building initiatives. There are no guarantees obviously, but we can only do what we can do, and that is vastly better than doing nothing IMO. For one thing, a sense of purpose is the best antidote to depression. If people keep their heads and take it one step at a time, they have a much better chance. I want to improve those chances, which means helping to keep people in a constructive frame of kind (while still being realistic ).
Jim Stanford at Relentlessly Progressive Economics takes a look at the prospects for a further downturn in Canada's economy over the next year, based on a discussion with Steve Keen (who we all know and love, of course) in Sydney.
Stanford notes that all the "recovery" since the slump of 2009 has been driven by private household debt accumulation (and a lot of it) and to some extent by government borrowing; corporate borrowing has remained stagnant. After going through the math, he concludes that the situation is extremely fragile, and that a mere slowdown in private household debt accumulation and/or government debt spending (stimulus, whatever you want to call it) could tip the scales back over into a downturn.
"The arithmetic insight here is that it doesn’t take an actual contraction in debt to bring about a real recession. Just slowing or stopping new debt creation will do the trick - because our economy has become structurally dependent on a continuing “fix” of debt to pay for the stuff we produce."
As the first comment to the article says, "As you so rightly point out, we are potentially just caught up in a different phase of this debt cycle contra the US and our debt ravaged consumption burst draws nigh."
Did any banks close on Friday?
Hey, Jal, I count on you for this information:)
The only problem with fishing is it gives you too much thinking time, and I've thought up a new worry lately.
This is way out of my area of expertise so I beg knowledgable respondants to stifle any mirth at my ignorance.
OK here goes.... In the water cycle i.e. evaporation-condensation-precipitation, surface water is drawn up into the atmosphere, ergo, will not the oil spillage - considering the vast quantities we are talking about here - become a problem as it will be present within the vapour being drawn upwards, and eventually come back down to earth as "oil" rain, much like "acid" rain of the ''80 s ??, the only difference I can see is that the pollution then was pumped directly into the passing clouds and atmosphere.
Is there a filtering/cleansing action that takes place as vapour rises from the sea?, or is the oil on the surface too dense to be drawn up?
Sorry Ilargi, I cant for the life of me see how the financial disaster can possibly be as bad as the gulf leak even if it stops right now today. beggaring the population and poisoning the planet are very different tragedies.
Z.
One thing I have been trying to communicate strongly is a sense of urgency. The time around rally tops is a time of complacency. Watch the markets, as where finance leads, the real economy will follow. IMO the markets are telling us that the rally is over, which means that fear will follow. We should see far more dramatic moves to the downside in this phase of the decline. People need to take action to protect themselves now.
Stoneleigh said "While the challenges will be huge, I think preparations can make a difference"
Yes, I so agree, and that is why I keep reading TAE to guide me and others in preparations. Much appreciation to both you and Ilargi.
But, there are some (most?) people who are still in denial and rather than to prepare for something that would need them to live differently, would rather be dead. It is sad, because without cooperation with our family, friends, and neighbors, we probably all will be dead sooner than later.
@zander...to continue your questions...will the oil slick inhibit the evaporation cycle and what would be the consequence of that to climate. No evaporation means no rain means no crops etc....BP says the spill is " modest". Such a comfort,eh, to know that. Modesty is always a good:)
Stoneleigh
I have sensed the "urgency" you speak of in a lot of the past month's posts and repsonses from you both. TAE is invaluable, thanks.
Z.
scandia said...
Did any banks close on Friday?
Hey, Jal, I count on you for this information:)
---
Hi!
Yes, 4.
I was just scanning the blog, and lost where the discussion on those 4 banks was happening.
However,
Bookmark http://www.portalseven.com/
Use their subject tabs. Lots of info
jal
OMG, this is really, really bad....Oil Slick Entering Open Ocean Waters.
A startling new image released by NASA today shows a massive column of oil extending out Southeast towards the open ocean.
This column has not been visible in any satellite photos taken so far and will no doubt change the estimated extent of the Gulf of Mexico oil spill disaster.
Wolf at the Door-
Just stumbled across this one and it brought to mind your comment from yesterday.
Workers asked to return bonuses after 16 years
AWRENCEVILLE, Ga. – About 180 county employees in suburban Atlanta are being asked to return thousands of dollars the county says they were overpaid 16 years ago.
Gwinnett County's chief financial officer, Aaron Bovos, calls it a project to "clean up receivables and to eliminate outstanding obligations."
The county is seeking to collect more than $39,000 from employees who received bonuses in their paychecks in 1994. Authorities blamed the overpayments on a payroll anomaly when the county adjusted employees' payroll cycles.
Employees can apply the money to vacation leave or make a cash payment.
http://tinyurl.com/2fphwol
can anyone tell me if stoneleigh's washington dc presentation time and location have been nailed down?
my cousin lives there and i want to make him aware of it---
or he will provide me with an excuse that he already made plans...
thanks---
@ Scandia,
Oh great, more oil worries, thanks a bunch :)
BTW, didn't catch it all as my radio only works intermittently when I'm away but the story I got was that the head of RC chuirch in Ireland, Cardinal Brady, first name probably Ian is refusing to step down despite his mishandling (complicity more like) of the abuse scandal. Well it's perfectly simple, if he won't stand down, run him down with a traction engine and grind him into the dirt where he belongs, afterwards sell pieces of decorative pontiff plate with the proceeds going to a childrens welfare charity. yeah?
Z.
@ frank A.
Bloody hell, you do have to wonder just where this is all going to end.
Z.
Can't agree AT ALL that the financial disaster is worse than ecological.
As bad as it is - the economic slow down may be a mitigating factor in climate problems.
But the oil spill will likely cause irreparable harm to the ecosystem.
Jal, bookmark the FDIC: Failed Bank List page and you won't have to ever wonder again which banks failed when. It gets updated as soon as they officially announce a bank going down.
Oh, did you notice that the Chicago area bank that Obama was deeply involved with, Shorebank, was going to be shut down but Goldman Sachs stepped in to rescue it? Wow, how much more blatant do we have to be, boys and girls? Goldman Bails Out ShoreBank As Wall Street Tries To Win Back Favor With Obama.
To those of you bothering to read BP's lies, did they say whether it was actually 1000 barrels per day or 1000 barrels of fluid per day (which would be the original oil/seawater mix)? That difference is important but might be part of the entire web of lies to deceive people.
Greenpa, to tell the truth they may not need much "suction" up top at all if the pressures are as high as has been previously reported (thousands of PSI and a few reports of the low tens of thousands of PSI).
Chuck, China is no different. They have corporations too, just governed slightly differently. If you produce good GDP numbers, you are a hero and if not, you get a bullet to the back of the head, since the biggest corporation of them all, China itself, owns all its little subsidiaries.
Lots of people have talked about corporations before, both here and elsewhere, just not recently. Start with the US SCOTUS 19th century decision granting them some rights and you see that the road downhill took a sharp turn and increased in slope from there.
Stoneleigh
Our community is located in western US, elevation 5,600 ft. Our winters are typically mild, snow and at times cold temps. Summers can get hot, but typically not hummid. We are located in a somewhat rural area on 360 acres with one third of that wooded, the rest baically grassy meadows for our grass fed beef. We don't yet have our own breeding stock for the cattle. We currently have around 80 full time residents that range in age from 1 year to 85. The age is mostly concentrated around 45-55. Not desireable. It would be nice to have young strong backs with willing hearts. I would estimate that we have 20 buildings used for housing, a number of those house as many as 10 in single rooms and small homes that house 1 to 2 persons. We also have 4 shared public facilities that are used for communal dining, meeting and event spaces. Two of those buildings are quite large. One of them houses our dining room that seats 150, commercial kitchen, living room and meeting room that holds up to 100. The other large building is a meeting space that seats in theater style 415.
That gives you a little feel for our set up.
Can you recommend a site to visit for "community scale renewable power generation"? It will prove to be interesting to see how much of our current situation will be useable.
Thanks again for the assistance! It is love made visible.
For TAE readers in eastern NC, southeastern NC, and northeastern SC, please take note that Stoneleigh will be making a presentation in Wilmington, NC on Tuesday, May 25, 2010.
The location is at the Community Action Center, 317 Castle Street, Wilmington, NC 28401. Feel free to contact me (Steve Lee) at (910) 791-4877 for more info. (Yes, I know it's not good to put your number on the Internet; mine's already plastered all over anyway.)
If you’re a cash-strapped, out-of-town TAE reader and need a place to stay in Wilmington that night, I can arrange low-cost/no-cost accommodations.
@ Ahimsa...thinking of you and all Floridians as I read that the oil has reached the South Loop around Florida...
@Jal, thanks for the update on bank closures and the reference site.
By the way, I appreciate your contributions here.
One thing I have been trying to communicate strongly is a sense of urgency. The time around rally tops is a time of complacency. Watch the markets, as where finance leads, the real economy will follow. IMO the markets are telling us that the rally is over, which means that fear will follow. We should see far more dramatic moves to the downside in this phase of the decline. People need to take action to protect themselves now.
Since time seems to be of the essence, may I suggest that the upcoming blog posts deal with what types of preparations one can make at this point in time?
We thought we were prepared for future reality, but we realized that having debt was going to be problematic. So, we sold our homestead because it was a huge debt burden.
We are also selling off most of our non essentials, but now we are sort of just floating here, renting, waiting for the down turn to come, hoping that it is pushed off into the future a bit more as we figure out what to do. We have even considered moving out of this country (US) as staying here seems to be fraught with all sorts of extraordinary dangers.
I do understand that we still have some time to make preps, but I would like to hear what our hosts and others here recommend as the 'hour draws near'. Coming from having a huge garden and knowledge about our micro-climate to living in a small city in a rental home is a bit overwhelming and sort of leaves us paralyzed.
I also am aware that these sorts of discussions flare up every now and then in the comments and that the primers make many suggestions as well.
But maybe as we begin our final approach, our pilots can get on the intercom and let us passengers know exactly what we should be doing before we land? Or maybe we should just buckle our seat belts, close our eyes, and hope for the best? We feel that we are doing that more these days, rather than taking definite actions.
@ Frank A. Thanks for that link to the spill. I got straight into the comments. Some good questions being asked there. Why indeed is the administration allowing BP full command of this disaster? Could be several answers like maybe the gov't doesn't have the money to fund a clean-up?
Furthermore as this spill is now in open ocean how long will other nations now under threat sit back and allow BP control? What will the impact be if the oil hits the Gulf Stream?
Why is BP being protected by this administration?
Is it time for the UN to get involved?
Bottom line is there may be no solution but to sit back and " suck up " the consequences.
So much for " modest" spill....
@Frank A
Mighty spooky photo, looks kinda like a Giant Black Swan's neck from orbit.
New post up.
Teutonic Hyperbole
.
@ El G -No Problem
Thanks found Bill Bonner talk and looked at your pictures of Capilla del Monte - looks idyllic and best wishes for your new found venture,
He gives a good discussion on why inflation will not occur and backs up I & S
http://commoditywatch.podbean.com/mf/feed/5qbcs2/BillBonner.mp3
and Celente is great!
.
When and where is Stoneleigh going to be in the upper Midwest? Thanks.
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