"Mining town. Coming home from school, Osage, West Virginia"
Ilargi: It's possible that unequalled-in-our-times historian Simon Schama carries sufficient authority to have people heed his words. It’s probably more likely, though, that those for whom Schama’s bell intends to toll will react in the spirit of Joey Ramone's best rock 'n roll lines ever, the equally unequalled "I don’t care about history; 'cause that's not where I want to be".
For all the talk about the Great Depression and its self-professed scholars, experts and historians, precious little seems to have truly sunk in that has the weight to counter the "This time it's different" meme. Which is a bad idea, since, as Schama knows like few others, when it comes to rhyming, history can rival Shelley, Keats and Shakespeare sonnet for sonnet. We would all do well, our politicians and wealthiest most of all, to heed the picture Schama paints:
The world teeters on the brink of a new age of rage[..] in Europe and America there is a distinct possibility of a long hot summer of social umbrage.
Historians will tell you there is often a time-lag between the onset of economic disaster and the accumulation of social fury. In act one, the shock of a crisis initially triggers fearful disorientation; the rush for political saviours; instinctive responses of self-protection, but not the organised mobilisation of outrage. [..]
Act two is trickier. Objectively, economic conditions might be improving, but perceptions are everything and a breathing space gives room for a dangerously alienated public to take stock of the brutal interruption of their rising expectations. What happened to the march of income, the acquisition of property, the truism that the next generation will live better than the last? [..]
[..] the psychological impact of financial regulation is almost as critical as its institutional prophylactics. Those who lobby against it risk jeopardising their own long-term interests. Should governments fail to reassert the integrity of public stewardship, suspicions will emerge that, for all the talk of new beginnings, the perps and new regime are cut from common cloth. Both risk being shredded by popular ire or outbid by more dangerous tribunes of indignation.[..]
Those on the receiving end of punitive corrections - in public sector wages or retrenched social institutions - will lash out at their remote masters. Those in the richer north obliged to subsidise what they take to be the fecklessness of the Latins, will come to see not just the single currency, but the European project as an historic error and will pine for the mark or franc. Chauvinist movements will be reborn, directed at immigrants and Brussels dictats, with more destructive fury than we have seen since the war.[..]
Claims that Washington has been captured for socialism are preached on right-wing talk radio as gospel truth. As they did in the 1930s with Father Coughlin, the radio demonisers are pitch-perfect orchestrators of hatred for listeners in bewildered economic distress. Against this tide, facts are feeble weapons.
[..] if his government is to survive the November elections with a shred of authority, it will need Barack Obama to be more than a head tutor. It will need him to be a warrior of the word every bit as combative as the army of the righteous that believes it has the Constitution on its side, and in its inchoate thrashings, can yet bring down the governance of the American Republic.
Ilargi: Hear, hear. Unfortunately, Obama has elected to sit on his hands for over a month, and only then call a commission together to look into the true impact of the gusher in the Gulf of Mexico that threatens to be a disaster like few before, both within the United States and internationally. How he wishes to explain his 4 weeks not doing much of anything at all to the people of Louisiana, Alabama, Florida, Cuba and Mexico is hard to envision.
The modus operandi prevalent in Washington, to let the well-to-do culpable police themselves, whether they be Goldman Sachs or BP, carries an enormous political risk. And rightly so, because there is no indication anywhere to be seen that says this line of -in-action is in the best interest of the people who put their trust in the man.
White House Press Secretary Robert Gibbs may stammer some incoherent syllables on what the law does and does not allow the president to do, but none of that will amount to zilch once nobody can deny any longer that 10 or 20 times as much oil has been leaking, and still is, than both BP and the American government have been claiming all the way back to April 20.
Obama himself should have been on site from the earliest possible moment, taking advice from the best people he could find in the entire world, just in case BP was not telling the truth (for which it had great incentives), and just in case a worst case scenario would unfold when it came to closing the leak.
Exactly in the same way that he has shown while dealing with the financial quagmire the nation, and indeed the world, is sinking ever deeper into, Obama has proven one thing to everyone who cares to look and listen: He is not a leader. He simply lacks the qualities and the instinct required for the position. Which is a shame, for his voters, his followers and the nation as a whole; nonetheless, it's time to stop kidding ourselves.
And since the hopeful White (House) lies about an economic recovery are these days falling apart faster even than the oil can gush from the well-head, the lack of leadership looks set to have grave consequences for Americans, especially the most vulnerable among them. The finance crisis is like a viral affliction that attacks everywhere in the body at the same time. Keeping just the head intact and ready for TV is useless. To wit: Robert Wenzel at the Economic Policy Journal, quoted by ZH's Tyler Durden, has assembled a series of stats that Durden interprets as:
32 US States Now Officially Bankrupt[..] we now know that the majority of American states are currently insolvent, and that the US Treasury has been conducting a shadow bailout of at least 32 US states. Over 60% of Americans receiving state unemployment benefits are getting these directly from the US government, as 32 states have now borrowed $37.8 billion from Uncle Sam to fund unemployment insurance.
Ilargi: Personally, I would prefer "functionally bankrupt”, so as to avoid any discussion of the legal meaning of the term "officially" in this context, but, frankly, that wouldn't change anything of substance in the debate. The system is rotting from the inside. And, to use a metaphor, the head surgeon, who should be applying and inserting all the anti-biotics available to him, is focusing on a nose-job instead, so to speak. You better look good than feel good.
What's good for Wall Street is good for the nation. As goes the nose, so go the toes.
If the president could hold off the unemployment benefit calamity for a while longer (and we have to wonder how long that will be), he would still be -almost- instantly confronted with the next gusher. As the Financial Times reports:
Unfunded state pensions face prospect of becoming federal issueIllinois used to have a plan to pay off the gaping shortfall in the pension funds that pay retired teachers, university employees, state workers, judges and politicians [..] ... back in 1994, the state laid out a proposal that would have paid off most of what was then a $17 billion gap by 2011. But Illinois could not stick to the plan.
With financial year 2011 less than six weeks away, the pension arrears of the 1990s look quaint. Instead of a balanced system, the state faces unfunded liabilities of about $78 billion, the biggest pension hole in the US, and contributions of more than $4 billion for 2011, the largest single element of its $13 billion budget deficit. Illinois is the poster child of unfunded pensions in the US. But state retirement systems could become a national concern, new research shows.
Joshua Rauh, associate professor of finance at the Kellogg School of Management at Northwestern University said that, without reform, some state pensions might run out within the decade. [..] Mr Rauh said subsidising pension borrowing would cost a net $75 billion with new contributions to the national Social Security programme offsetting some of the subsidies. By his calculations, which assume [an] 8 per cent return, Illinois would run out by 2018 followed by Connecticut, New Jersey and Indiana in 2019. Some 20 states will have run out by 2025.
Ilargi: First, about the 8% return on investments: that is of course a preposterous assumption, akin to the desire to believe that the Deepwater Horizon well pumps only a few buckets per day into the ocean, and it will all go away by itself if only we close our eyes to it. Over the past 2-4 years, pension plans all over haven't gained 8%, they’ve lost enormous amounts of double-digit percentages of the money that pensions are supposed to be paid with. Without that ludicrous assumption, and with a more realistic zero percent return, Illinois pensioners are simply out of luck a handful years from now.
That is the real world. The one a leader deserving of the name would live in. The one there is, however, elects to have the nation continue to live in the hologram of extend and pretend and hope and change and belief we see crumbling all around us today. If the stock markets tank for another week or month the way they have lately, the crumbling will reveal cracks, which, once exposed to daylight, will become fissures, which in turn will cause the walls to start falling in on themselves. If the president continues to deal with these things the way he has so far with Wall Street and the Gulf of Mexico, Simon Schama's fears of summer mayhem will close in on all of us ever more. Not just those of us in the US, but on both sides of the Atlantic, and who knows in what other places around the globe.
The world teeters on the brink of a new age of rage
by Simon Schama - Financial Times
Far be it for me to make a dicey situation dicier but you can't smell the sulphur in the air right now and not think we might be on the threshold of an age of rage. The Spanish unions have postponed a general strike; the bloody barricades and the red shirts might have been in Bangkok not Berlin; and, for the moment, the British coalition leaders sit side by side on the front bench like honeymooners canoodling on the porch; but in Europe and America there is a distinct possibility of a long hot summer of social umbrage.
Historians will tell you there is often a time-lag between the onset of economic disaster and the accumulation of social fury. In act one, the shock of a crisis initially triggers fearful disorientation; the rush for political saviours; instinctive responses of self-protection, but not the organised mobilisation of outrage. Whether in 1789 or now, an incoming regime riding the storm gets a fleeting moment to try to contain calamity. If it is seen to be straining every muscle to put things right it can, for a while, generate provisional legitimacy.
Act two is trickier. Objectively, economic conditions might be improving, but perceptions are everything and a breathing space gives room for a dangerously alienated public to take stock of the brutal interruption of their rising expectations. What happened to the march of income, the acquisition of property, the truism that the next generation will live better than the last? The full impact of the overthrow of these assumptions sinks in and engenders a sense of grievance that 'Someone Else' must have engineered the common misfortune.
The stock epithet the French revolution gave to the financiers who were blamed for disaster, was "rich egoists". Our own plutocrats may not be headed for the tumbrils but the fact that financial catastrophe, with its effect on the "real" economy came about through obscure transactions designed to do nothing except produce short-term profit aggravates a sense of social betrayal. At this point, damage-control means pillorying the perpetrators: bringing them to book and extracting statements of contrition.
This is why the psychological impact of financial regulation is almost as critical as its institutional prophylactics. Those who lobby against it risk jeopardising their own long-term interests. Should governments fail to reassert the integrity of public stewardship, suspicions will emerge that, for all the talk of new beginnings, the perps and new regime are cut from common cloth. Both risk being shredded by popular ire or outbid by more dangerous tribunes of indignation.
At the very least, the survival of a crisis demands ensuring that the fiscal pain is equitably distributed. In the France of 1789, the erstwhile nobility became regular citizens, ended their exemption from the land tax, made a show of abolishing their own privileges, turned in jewellery for the public treasury; while the clergy's immense estates were auctioned for La Nation. It is too much to expect a bonfire of the bling but in 2010 a pragmatic steward of the nation's economy needs to beware relying unduly on regressive indirect taxes, especially if levied to impress a bond market with which regular folk feel little connection.
At the very least, any emergency budget needs to take stock of this raw sense of popular victimisation and deliver a convincing story about the sharing of burdens. To do otherwise is to guarantee that a bad situation gets very ugly, very fast.
So we face a tinderbox moment: a test of the strength of democratic institutions in a time of extreme fiscal stress. On the one hand, we should be glad that the mobilisation of public energy in elections can channel mass unhappiness into change. That is what we must believe could yet happen in Britain. Elsewhere the outlook is more forbidding. In the sinkhole that is the Eurozone, animus is directed at unelected bodies - the European Central Bank and International Monetary Fund - and is bound to build on itself.
Those on the receiving end of punitive corrections - in public sector wages or retrenched social institutions - will lash out at their remote masters. Those in the richer north obliged to subsidise what they take to be the fecklessness of the Latins, will come to see not just the single currency, but the European project as an historic error and will pine for the mark or franc. Chauvinist movements will be reborn, directed at immigrants and Brussels dictats, with more destructive fury than we have seen since the war.
The same kind of pre-lapsarian romanticism targeted at an elitist federal authority is raging through the US like a fever. The best way to understand the Tea Party, which has just scored its first victory with the libertarian Rand Paul defeating the choice of the official Republican party, is to see it as akin to the Great Awakenings and the Populist furies of the end of the 19th century. There are calls to abolish the Federal Reserve or in some cases Social Security, fuelled by the conspiratorial belief that it was an excess, not a deficit, of government regulation that brought on the financial meltdown.
Claims that Washington has been captured for socialism are preached on right-wing talk radio as gospel truth. As they did in the 1930s with Father Coughlin, the radio demonisers are pitch-perfect orchestrators of hatred for listeners in bewildered economic distress. Against this tide, facts are feeble weapons. When Senate Republicans succeed in briefly blocking financial regulation by representing it as an infringement on liberty not as a measure minimally needed for the security of the commonwealth, you know the mere truth needs help from the Presidential Communicator-in-Chief.
He is back on the stump, but as with the case for healthcare reform, his efforts are belated and cramped by misplaced obligations of civility. But if his government is to survive the November elections with a shred of authority, it will need Barack Obama to be more than a head tutor. It will need him to be a warrior of the word every bit as combative as the army of the righteous that believes it has the Constitution on its side, and in its inchoate thrashings, can yet bring down the governance of the American Republic.
Falling Euro Spurs Cautious Intervention Talk
by Bob Davis, Brian Blackstone and Dinny Mcmahon - Wall Street Journal
Officials in the U.S. and Europe concerned about the euro's decline are cautiously talking about a policy tool they haven't used in a decade: intervening in currency markets. Policy makers have been content to let markets set the value of the euro, which has fallen about 17% since early December, worrying U.S. exporters who face European competition and raising fear of inflation in Germany. Expectations of the prospects of intervention pushed up the euro to near $1.26, after the currency had slipped below $1.23 earlier. Late in the day, the euro traded at around $1.25.
Marco Annunziata, chief economist at UniCredit in London, figures the euro would have to fall to about $1.10 in a week or so to prompt policy makers to act. Such a fall could shake markets globally, boost interest rates in Europe, and threaten to undermine a global recovery. In a currency intervention, central banks buy large amounts of a weak currency in exchange for a strong currency, in hopes of reversing the weak currency's decline. But interventions often fail.
Neither the U.S. nor the euro zone has intervened in currency markets since 2000—and both have long been skeptical about the practice's effectiveness. The U.S. joined Europe, Japan, Britain and Canada in buying $3 billion to $5 billion of euros in September 2000 during a bout of euro weakness shortly after its introduction. Two months later, the European Central Bank bought more euros, when the currency was trading at about 87 cents—slightly less than half the high of about $1.60 it reached in April 2008. "I'm really concerned about the rapid [pace] of the fall of the exchange rate," said Jean-Claude Juncker, the head of euro-zone finance ministers, on Thursday, though he said he didn't think euro's level required "immediate action."
Ted Truman, a former international economics official in the Clinton and Obama Treasury departments, said that "it's right for authorities to be thinking about possibly protesting" the fall in the euro via intervention.
Though the U.S. and Europe have spent extraordinary sums to fight the global recession, and dramatically eased monetary policy, they have left currency markets alone, figuring that the ups and downs of their currencies should reflect fundamental economics. Federal Reserve Board Gov. Daniel Tarullo suggested the Fed wasn't pressing for an intervention. "We don't have other action under consideration" beyond the dollar swap lines to European banks that the Fed revived earlier this month, he said at Congressional hearing on Thursday. Problems in Europe could become "another source of risk to the U.S. recovery," he testified.
Many economists believe the euro is trading at an appropriate level, given Europe's troubled budget picture and diminished growth prospects. The €110 billion ($136 billion) Greek loan package, followed by a nearly $1 trillion loan commitment for other troubled European countries, underscored the region's financial frailty and raised the possibility that the ECB could print money and devalue the currency. European wrangling over how tightly to regulate financial markets has also put downward pressure on the euro.
Some European officials say they believe a gradual fall in the euro is an economic plus because it will make European exports less expensive. "If you ask [Airbus maker] EADS's boss about the impact of the fall of the euro on its earnings, I am sure he call tell you exactly what it is, down to the latest euro," said French Finance Minister Christine Lagarde at a Paris news conference.
A decision to act can take many forms, with the simplest being statements by influential officials warning, in coded language, that they may intervene. In June 2008, Federal Reserve Chairman Ben Bernanke warned about the perils of a weak dollar. That gave the U.S. currency a brief lift, but the Fed never actually intervened. A sustained turnaround didn't occur until more than a month later, when investors started flocking into the currency in search of safe havens as the financial crisis worsened. Another possibility is a coordinated statement by a group of influential countries, as occurred in September 2000.
The goal of such statements is to produce the desired outcome without taking the chance on an actual intervention that could backfire. One risk of acting: Investors might believe policy makers have misdiagnosed why currencies are rising and falling or don't have the will to deal with an underlying problem. That, in turn, could lead to even-more-jarring market moves. A big wild card is the role of China, with its $2.5 trillion in reserves. The Chinese have long said they want to diversify their funds, which are heavily weighted to the dollar, by increasing the share of euros. Analysts say there is a chance China could be persuaded to participate in a globally coordinated effort to prop up the euro if other nations can convince Beijing the move is in its interest.
Harvard University economist Jeffrey Frankel said Chinese participation would give a powerful boost to any action. "If you intervened now [without China], markets would probably call the bluff and governments would lose," he said. "If we had the Chinese on our side, that $2.5 trillion in reserves could be intimidating, even to markets." But it is unlikely Beijing would join in. China Investment Corp., China's $300 billion sovereign-wealth fund, didn't buy Greek bonds earlier this year, which would have helped to ease the country's problems. At the time, Jesse Wang, CIC's executive vice president, said responsibility for a bailout lay with the European Union.
Curious case of stress in the dollar funding markets
by Gillian Tett - Financial Times
What on earth is going on in the bowels of Europe's banks? That is a question that investors and regulators are now asking with growing urgency. Last week, European leaders unveiled a €750bn (£642bn, $927bn) aid package designed to remove market fears about weak eurozone countries such as Greece, Portugal and Spain, and by extension calm any funding pressures for eurozone banks. But something curious has been under way in the dollar funding markets. This week, the average cost banks in Europe need to pay to borrow dollars for three months has gone on rising: it was running at 46 basis points yesterday, up from 30bp earlier this month.
Meanwhile, the closely watched spread between the three-month dollar Libor and the "risk-free" Overnight Indexed Swap rate has risen to about 24bp. That does not signal as much stress as during the Lehman Brothers panic. However, it is worse than anything seen for almost a year, and that is worrying central bankers. The issue appears to relate to an estimated $500bn-odd funding gap haunting European banks. Until three years ago, central bankers and investors did not usually take notice of the currency in which banks funded themselves, since it was assumed modern financial markets had become so sophisticated banks would always be able to raise money anywhere.
But from 2007, it became painfully clear such faith was misplaced: when panic erupted, European banks found it hard to get dollars because their counterparts did not trust them and they could not borrow from the Federal Reserve. To cope, the Fed and European Central Bank eventually agreed to implement a temporary currency swap. And behind the scenes, European banks have been urging eurozone banks to curb use of dollar funds. This appears to have had some success. Central bank officials estimate that at the height of the Lehman panic, European banks had a trillion-dollar funding gap - meaning they needed to raise about $1,000bn from the markets, to fund entities such as structured investment vehicles holding US mortgage bonds that could not be funded with dollar deposits.
These days, however, the "good" news is that this funding gap is believed to have declined to half that amount as banks have unwound SIVs and sold dodgy US mortgage bonds. However, $500bn is still a very big number, and as tensions have risen across the eurozone, the dollar Libor market has once again become a flashpoint. More interesting, it has also become increasingly bifurcated between strong and weak banks. Late last week, for example, HSBC was reporting Libor rates well below those of West LB, apparently because there is more concern about German entities. To combat this problem, the ECB and Fed agreed last week to implement another dollar-euro swap But when the ECB offered short-term dollar funds last week, only $9bn was taken.
Some officials suspect that this is because the ECB has been supplying the wrong type of dollars: though it offered short-term funds last week, what European banks really need is medium and long-term dollar funds. Other financial officials, however, blame the rising Libor rate on a generalised sense of market fear that the €750bn package is still too vague to carry credibility. This fear is thought to be hurting weak banks because investors find it tough to work out whether to trust banks that rely on government support if they do not know how strong the government is.
Worse still, since many weak European banks hold Greek, Portuguese or Spanish bonds, doubts about the €750bn package also leave investors worried about those bank portfolios, and thus counterparty risk. Whatever the truth, US officials want their European counterparts to spell out exactly how that €750bn package will work. Meanwhile, the ECB is preparing to offer medium-term dollar funds. But in the coming days,plenty of central bank eyes will be watching that Libor dial with considerable unease.
32 US States Now Officially Bankrupt
by Tyler Durden - Zero Hedge
Courtesy of Economic Policy Journal we now know that the majority of American states are currently insolvent, and that the US Treasury has been conducting a shadow bailout of at least 32 US states. Over 60% of Americans receiving state unemployment benefits are getting these directly from the US government, as 32 states have now borrowed $37.8 billion from Uncle Sam to fund unemployment insurance.
The states in most dire condition, are, not unexpectedly, the unholy trifecta of California ($6.9 billion borrowed), Michigan ($3.9 billion), and New York ($3.2 billion). With this form of shadow bailout occurring, one can only wonder how many other shadow programs are currently in operation to fund states under the table with federal money.The full list of America's 32 insolvent states is below, sorted in order of bankruptedness.
Unfunded state pensions face prospect of becoming federal issue
by Nicole Bullock and Hal Weitzman
Illinois used to have a plan to pay off the gaping shortfall in the pension funds that pay retired teachers, university employees, state workers, judges and politicians, Dan Long recalls. Mr Long, director of the Commission on Government Forecasting and Accountability, the nonpartisan auditing arm of the Illinois state legislature, remembers that, back in 1994, the state laid out a proposal that would have paid off most of what was then a $17bn gap by 2011. But Illinois could not stick to the plan.
With financial year 2011 less than six weeks away, the pension arrears of the 1990s look quaint. Instead of a balanced system, the state faces unfunded liabilities of about $78bn, the biggest pension hole in the US, and contributions of more than $4bn for 2011, the largest single element of its $13bn budget deficit. Illinois is the poster child of unfunded pensions in the US. But state retirement systems could become a national concern, new research shows.
Joshua Rauh, associate professor of finance at the Kellogg School of Management at Northwestern University said that, without reform, some state pensions might run out within the decade. By 2030, as many as 31 states may not have the money to pay pensions. And, if these funds exhaust their assets, the size of payments for the benefits they have promised will be too large to cover through taxes, putting pressure on the federal government for a bail-out that could potentially cost more than $1,000bn, he says. "It is more than a local problem," Mr Rauh said. "The federal government could be on the hook."
Estimates put the unfunded liabilities at between $1,000bn and $3,000bn after years of states promising benefits but not contributing enough in both good times and bad to cover them. Many states base their calculations on an 8 per cent annual return and use an accounting method called smoothing, which staggers gains and losses over several years, two factors that some observers warn could mask the size of the shortfalls. The problem has come to the fore with the financial crisis and recession. Pension funds, like most money managers, suffered losses. The tax revenues that fund annual contributions to pensions, along with essential services such as healthcare and education, have plummeted, leaving little room to reimburse the losses.
States have begun reforms, with some lowering return expectations and raising employee contributions and retirement ages. Mr Rauh said such measures were cosmetic and states needed comprehensive, federally sponsored reform that would require closing the systems to new members, shifting state workers to Social Security and individual plans similar to those that are used by the private sector in order to obtain incentives to borrow to bridge the gaps.
Mr Rauh said subsidising pension borrowing would cost a net $75bn with new contributions to the national Social Security programme offsetting some of the subsidies. By his calculations, which assume the 8 per cent return, Illinois would run out by 2018 followed by Connecticut, New Jersey and Indiana in 2019. Some 20 states will have run out by 2025. Five states would never run out, including New York and Florida, and 17 other states have a horizon of 2030 or beyond.
Robert Megna, New York's budget director, said his state had had to make "tough choices" to keep funding its pensions despite budget shortfalls over the past few years. On March 31, the state made a nearly $1bn payment for the last fiscal year. "We had to make cuts: education, healthcare, local government support and not-for-profit providers," Mr Megna said of the last year's budget process. New York's governor has proposed borrowing from the pension system, which is about 94 per cent funded, as the state did after the September 11 attacks, and repaying it with interest if low tax collections persist, Mr Megna said.
For fiscal 2010, Illinois sold $3.5bn of bonds to pay for its annual contribution. But in an election year, there is no political support in Springfield, the capital of Illinois, for another bond issue, particularly since it requires a two-thirds majority in the state legislature. The most likely outcome is that the state will defer the issue to next year. "That'll have an impact in terms of lost investment opportunities, and they'll have to sell some of the portfolio to pay the pensions," said Mr Long.
US Senate Passes Finance Bill
by Greg Hitt and Damian Paletta - Wall Street Journal
The Senate on Thursday approved the most extensive overhaul of financial-sector regulation since the 1930s, hoping to avoid a repeat of the financial crisis that hit the U.S. economy starting in 2007. The legislation passed the Senate 59 to 39 and must now be reconciled with a similar bill passed by the House of Representatives in December, before it can be sent to President Barack Obama to be signed into law.
The controversial measure, supported by the Obama administration, sets up new regulatory bodies and restricts the actions of banks and other financial firms. It is designed to try to make order of the cascading regulatory chaos that ensued in 2008 when mammoth banks and some unregulated financial firms collapsed, and public funds were used to save them. Among other things, the legislation would:Derivatives, which are complex financial instruments, are often used to hedge risk. Speculative trading in the contracts led to losses at many banks in the 2008 crisis. "Simply, the American people are saying, 'you've got to protect us,' and we didn't back down from that," said Senate Majority Leader Harry Reid (D., Nev.). "When this bill becomes law, the joyride on Wall Street will come to a screeching halt." Opponents of the bill worry that the government is overreacting, and over-regulating the financial industry. They worry the measures will crimp the free flow of capital in the U.S. economy. "It will inevitably contract credit," said Sen. Judd Gregg (R., N.H.), who says the Senate bill "is probably undermining the system…probably making for a weaker system."
- Establish a new council of "systemic risk" regulators to monitor growing risks in the financial system, with the goal of preventing companies from becoming too big to fail and stopping asset bubbles from forming, such as the one that led to the housing crisis.
- Create a new consumer protection division within the Federal Reserve charged with writing and enforcing new rules that target abusive practices in businesses such as mortgage lending and credit-card issuance.
- Empower the Federal Reserve to supervise the largest, most complex financial companies to ensure that the government understands the risks and complexities of firms that could pose a risk to the broader economy.
- Allow the government in extreme cases to seize and liquidate a failing financial company in a way that protects taxpayers from future bailouts.
- Give regulators new powers to oversee the giant derivatives market, increasing transparency by forcing most contracts to be traded through third-parties instead of only between banks and their customers.
Sen. Gregg was one of 37 Republicans to vote against the 1,500-page bill. But the legislation ultimately passed with a narrow bipartisan majority. Four Republicans joined with 53 Democrats and the Senate's two independents in support of the package. Two Democrats voted against the bill, and two senators weren't present for the vote. Now Congress will need to reconcile the Senate bill with a companion House package adopted in December on a 223-202 vote, with 27 Democrats joining unanimous Republican opposition.
The outlines of the two bills are largely the same. But there are more than a dozen notable differences that will need to be reconciled during negotiations that are expected to start within days. Despite the differences, the Senate passage virtually ensures that some type of financial regulatory reform will be finalized by this summer. Leading the negotiations will be House Financial Services Chairman Barney Frank (D., Mass.), who has said he would like to have a compromise package by the end of June.
One flashpoint will be over the Federal Reserve. The House bill includes a provision that would allow the Government Accountability Office, the investigative arm of Congress, to audit emergency lending and some monetary policy decisions made by the Fed. The Senate bill would allow the GAO to study the emergency lending that occurred during the financial crisis, but it would not be authorized to audit decisions made in the future.
Another area of conflict is how to regulate trading of derivatives. Both bills require most derivatives to be traded through third parties, with the intent of increasing transparency. But the Senate bill goes farther by making it more difficult for companies to be exempt from the new rules. There's also a provision in the Senate bill that could force big banks to spin off their derivatives operations. Both bills would create a new council of federal regulators with broad authority to protect the financial system from the sort of "systemic" risk that spread rapidly through the economy in 2008. The House bill would let the council impose several forms of restriction, including requiring companies to set aside additional capital, if the council believes a firm has taken on too much risk. The Senate bill leaves that power to the Federal Reserve.
The House bill also includes a provision that would empower the government to force any bank to stop certain practices, or even divest certain operations, if regulators fear there is a risk posed to the broader economy. The Senate bill, meanwhile, includes a provision that would essentially force banks to stop "proprietary trading," or making market bets with their own capital. It would also make it more difficult for big banks to grow, by setting new limits on the amount of liabilities they can control. If a bank does fail, both bills would give the government more power—and resources—to break up the collapsing companies. Among other things, the House bill would create a $150 billion fund, financed by big financial companies, which would be used to unwind failed firms. The intent is to prevent taxpayers from having to pay the tab.
But opponents of the measure worry that regulators might be tempted to use the fund to prop up a failing firm. So the Senate bill has provisions under which a company would be liquidated and the bill for the work would be subsequently paid by a levy on large financial companies. The Senate bill would also try to force almost all failing financial companies through a bankruptcy-type process, while the House bill would make it easier for regulators to take over and bust up a failing firm without going through the courts.
For consumers, the House and Senate bills would expand protections, creating a new regulator with the autonomy to oversee a range of financial companies, from federally regulated banks to small finance companies. Under the House bill, the agency would be independent, while the Senate bill would place the consumer agency within the Federal Reserve.
Germany's Lower House Approves Euro-Zone Bailout
by Andrea Thomas - Wall Street Journal
Germany's Lower House of Parliament Friday approved the country's contribution of up to €147.6 billion ($184.7 billion) to a massive €750 billion bailout from European Union countries and the International Monetary Fund for euro-zone states on the verge of a default. After a heated debate, with criticism from opposition parties, the bill was backed by 319 of the 587 votes cast, while 195 abstained and 73 voted against it. The Upper House debate and vote is scheduled to start around midday Friday. An approval in the house representing Germany's 16 states is expected and German President Horst Köhler must then sign the bill before it becomes effective.
The Lower House approval was expected because of the majority held by the ruling conservative Christian Democratic Union, Christian Social Union and Free Democrats. But the package was controversial and their support came at a price--the government had to give in to their demands to campaign for a contribution from the financial sector to the costs of the current crisis. The opposition parties criticized this promise as too vague and said the decision on the package had been rushed through. German Finance Minister Wolfgang Schäuble lobbied for support of the package to support the euro, but said lessons must be learned.
"We must ensure that the sources of speculation will be abolished. And this means that we reduce deficits in all countries of the euro zone ... Secondly, we must strengthen the instruments of the [European] Stability and Growth Pact," Mr. Schäuble told the Lower House ahead of the vote. "We are campaigning for a decisive, strong Europe. We are committed to the stability of our common European currency. We are willing to assume responsibility for this."
Germany in a surprise move banned naked short-selling of shares in 10 leading German financial institutions and in euro government bonds, as of midnight Tuesday. Naked short selling involves the sale of an asset which isn't owned by the seller and isn't borrowed to cover the position while it is held. Some politicians have claimed the activity can be used to manipulate markets because the amount of naked short selling can dwarf sales of the underlying assets. Chancellor Angela Merkel also promised to campaign at the Group of 20 industrialized and developing nations for the introduction of a financial tax, on top of the introduction of a bank levy. Mr. Schäuble told the lower house that if there is no global agreement, Germany will lobby for a EU-wide or euro-zone wide introduction of a financial transaction tax, although he said it's not certain this will find support.
Deutsche Bundesbank President Axel Weber said Wednesday that parliamentary approval of Germany's contribution to the EU's rescue fund was crucial for the bloc's stability. "It's totally without alternative that we will finalize this decision this week," Mr. Weber said at a public hearing at the Lower House, adding that a "fast decision is important." The vote came after EU finance ministers earlier this month decided to give €440 billion in state guarantees for emergency loans to be provided by a special vehicle to heavily indebted member countries, with the European Union setting up a €60 billion emergency lending fund, while the International Monetary Fund will contribute a further €250 billion.
The German government has defended the massive bailout for the euro zone because of the deteriorated state of public finances in EU member states. "The recent intensification of the crisis has led to a deterioration of financing conditions in some member states in the shortest period of time to such a degree that can't be explained with fundamental data," the draft bill said. "A further acceleration of the situation would not only risk the default of these states but also result in a serious threat to the financial stability of the monetary union as a whole."
According to its share of the European Central Bank's capital, Germany's contribution to the pool of up to €440 billion in guaranteed loans would be €123 billion, but the contribution could be increased by 20% because it's unclear how many countries would provide loans. The countries with increasing financing problems are Portugal, Spain, Ireland and Italy.
Germany: Right and wrong on naked shorts
by Robert Peston - BBC
Those who criticise the German government for trying to restrict the use of naked shorts and credit default swaps (CDS) are - on the whole - concerned about the when and the how, rather than the whether. Or to put it another way, there are strong arguments for restricting the use of credit default swaps, or insurance policies for loans, in that their use exploded well beyond what could seen as sensible protection against loans going bad.
At their peak a couple of years ago, there were $60 trillion of extant credit default swaps, insuring loans with a value of around $6tn. This was the equivalent of taking out 10 buildings insurance policies on a single house, or 10 life policies on one individual. The point is that $6tn of credit default swaps would have provided appropriate cover for the risk that the loans might go bad. And just as you might feel a bit anxious if your neighbours took out nine insurance policies that would enrich them in the event that your house burns down or you pop your clogs, it is reasonable to fear that the other $54tn of CDS contracts were not all taken out with the purest of motives.
As I've pointed out before, many of these CDS contracts were a way of speculating in the fortunes of a business or a government, without the regulatory hassle of trading on a transparent, well-scrutinised, regulated exchange. If a hedge fund or speculator thought that a company, government or specially created investment product, such as a collateralised debt obligation, were going to the dogs, a CDS was (and is) a way of making a killing from their respective woes. And, perhaps best of all, that killing could be made well away from the prying eyes of media or regulators: it was the last frontier of a financial wild west.
None of which would have mattered all that much if - to coin a phrase - the cowboys in this financial Wild West had only hurt their own. The problem is that many of the world's biggest financial institutions, giant insurers such as AIG and assorted banks, couldn't resist the gold rush - but found themselves on the wrong side of these CDS deals. So when the speculators made profits, the insurers and banks made enormous losses. And the tab for these losses was eventually picked up by taxpayers, because (as you'll be tired of hearing by now) the damage to all our prospects would have been unbearable if we'd allowed these cornerstones of the economy to crumble.
All of which is a meandering explanation for why there is a powerful argument for reforming the CDS market. As you'll deduce, there is a strong case for banning naked CDSes, or the use of credit default swaps by those who don't actually own any of the relevant debt being insured. There are also good reasons for forcing all CDS trades through transparent, regulated exchanges and clearing houses, to provide some kind of verification that they're not being used for insider trading, and to ensure that counterparties to deals put up appropriate "margin" or cash when prices swing as proof that they have the wherewithal to honour the contracts.
Here's the thing however. It's quite possible to be the world's harshest critic of the explosive growth of credit default swaps and still take the view that the German government took leave of its senses on Tuesday night when it imposed a unilateral ban on their use in respect of the debt of eurozone governments. How so? Well, in the world as it is - as opposed to the world as we might like it to be - the financial institutions who use credit default swaps provide vital loans to eurozone governments and businesses. And if they're told that, at a stroke, they can't use those credit default swaps, well then investment climate for them in the eurozone is perceived to become harsher - and it becomes rational for them to seek to put their cash elsewhere.
The French finance minister, Christine Lagarde, has grasped the risk: she said yesterday that she was concerned that the German prohibition, if followed by other governments, would reduce liquidity in the eurozone government bond market - which, in theory, means that the price of those bonds would fall and would push up the cost of funds for eurozone governments. There's a time and a place for radical reform of financial markets. The place is probably the world as a whole, and not just one part of it - because unilateral national initiatives may either be ineffectual or may create dangerous distortions in the allocation of capital around the world.
And the time is probably when there's evidence that fiscal deficits in Europe are on a pronounced downward trend and economic recovery is entrenched. The worst time to alienate investors and banks by restricting how they invest is when they are anxious about the strains within the eurozone and can simply shift their money to other places where they feel more welcome.
Germany Forges Ahead on Reforming the Euro
by CGH- Der Spiegel
Berlin means business. In addition to pushing for increased regulation of hedge funds and of the financial markets, Chancellor Angela Merkel's government has drafted a list of proposals to revamp the European common currency. From suspending voting rights to national bankruptcy proceedings, the plan is far-reaching. The offensive now seems to have started in earnest. On Tuesday, European Union finance ministers announced efforts to both rein in hedge funds operating in Europe and to introduce a tax on financial transactions. Overnight, the German financial services regulator BaFin slapped a ban on certain types of short selling.
Chancellor Angela Merkel has also been working with her finance minister and economics minister on far-reaching changes to the treaty underpinning Europe's common currency, the euro. According to a draft paper respected German business daily Handelsblatt reported it had obtained on Wednesday, Merkel's government would like to see increased monitoring of member states' annual budget proposals, the introduction of stiff sanctions for those in violation of euro-zone debt rules and the suspension of voting rights in the European Council. Furthermore, Germany wants to establish bankruptcy proceedings for insolvent euro-zone countries. "A crisis like that in Greece cannot be allowed to be repeated in the currency union," the paper concludes, according to the Handelsblatt.
Uncertainty Rather than Regulatory Foresight?
Details from the draft, published on Wednesday, come on the heels of an agreement reached by EU finance ministers to pursue the increased regulation of hedge funds operating in Europe. Resolved despite opposition from Britain, the regulations would require hedge funds to register with regulators and divulge their trading strategies. The ban enacted on Tuesday night affects naked short-selling and the trading of naked credit default swaps involving euro-zone debt. The bans target two types of speculative trading that have been blamed for exacerbating the financial crisis and Europe's sovereign debt crisis. But markets have not reacted well to the move, with the euro falling below $1.22 in overnight trading. Many analysts have told the media that Germany's move smacked of uncertainty rather than regulatory foresight.
"Time and time again, EU leaders are coming up short in fighting their public relations war against speculators," Brian Varga, a trader with the investment firm Standard Chartered, told the Dow Jones news wire. "Markets would prefer that they focus on solving the real problems, not speculators, but rather economic imbalances." European leaders have been at pains in recent weeks to convince markets that the euro zone can survive an ongoing sovereign debt crisis which has seen Greece teeter on the brink of bankruptcy. Other countries, including Portugal and Spain, are also considered to be at risk. Merkel on Wednesday went before Germany's lower house of parliament, the Bundestag, to urge lawmakers to pass the €750 billion plan, agreed to by EU leaders early last week, aimed at propping up the euro.
'Incalculable Consequences'
"That is our historic task. If the euro fails, then Europe fails," she said. "The euro is in danger. If we do not avert this danger, then the consequences for Europe are incalculable and then the consequences beyond Europe are incalculable." The draft document on German proposals for changes in the euro's architecture is an attempt to avoid such disastrous scenarios. While many of the proposals in the draft have been publicly floated in recent weeks, the draft makes it clear that Berlin is serious about taking the lead as the euro zone struggles with a suddenly weak currency. German Finance Minister Wolfgang Schäuble is to present the draft to a European Union working group on Friday before it is considered at an upcoming EU summit.
According to the document, Germany would like to see annual budgets in euro-zone countries undergo a "strict and independent check." Berlin proposes that the job be taken over by the European Central Bank or by a collection of economic research institutes. In addition, the draft proposes stricter penalties for those countries that transgress euro-zone rules. "Euro-zone member states that do not conform to deficit reduction rules should temporarily be disallowed from receiving structural funds," the draft reads. In extreme cases, that funding could be permanently eliminated.
'New Culture of Stability'
Earlier this month, Schäuble had mentioned the possibility of suspending member states' votes should they find themselves in violation of European debt rules, an idea which is mentioned in the draft proposal. Should all else fail, the draft calls for a plan to be established for euro-zone members to declare bankruptcy.
Many of the measures proposed in the draft paper would likely require amendments to the recently passed Lisbon Treaty, a prospect that only recently would have dampened enthusiasm for far-reaching changes given the difficulties associated with approving that treaty. Now, though, the document makes clear, the situation has changed. "If we are interested in a lasting, stable framework for the currency union, we also have to accept the possibility that treaty amendments may become necessary." Merkel underlined the sentiment during her comments on Wednesday. "Europe," she said, "needs a new culture of stability."
'Perfect storm' as market tremors hit China, Europe and the US
by Ambrose Evans-Pritchard - Telegraph
Capitulation fever has swept global markets on triple fears of faltering recovery in the US, Chinese credit curbs and Europe's intractable escalating debt crisis. "It is the perfect storm," said Andrew Roberts, credit strategist at RBS. "People have been too complacent about risky assets. This is a global deflation scare and people need to get ready for falls in US and European bond yields to 2pc." Wall Street shares plunged 3pc after new jobless claims in the US rose to 471,000 last week, the biggest jump in three months. The S&P 500 index of shares fell to 1080, triggering automatic stop-loss sales as it crashed through support on its 200-day moving average.
The US Conference Board leading indicator turned negative in April, the first drop since the depths of the Great Recession. This follows data showing an 11pc slide in building permits, pointing to a double-dip slump in the US housing market later this year. Lumber prices have fallen 26pc from their peak in April. David Rosenberg from Gluskin Sheff said a fresh "train wreck" may be coming in the US mortgage market as rates on a wave of "option ARM" contracts reset upwards in September. This may compound a deflationary process already eating at the US economy as Washington's fiscal stimulus wears off and the effects of a stronger dollar feed through. Core inflation has dropped to the lowest since 1964.
Meanwhile, monetary tightening in China has begun to set off tremors. Shanghai's bourse has tumbled 20pc since mid-April (or 58pc from its 2007 peak), dragging down oil and base metals. This may prove more than a refreshing pause. Ben Simpfendorfer, RBS's China economist, said credit tightening since April was needed to cool the property bubble, but "regulatory tightening is not a precise science and there is a risk the measures cause an abrupt correction in property prices and construction. It might be that China provides the next surprise." Goldman Sachs said that there were signs "beneath the radar" that China may be slowing, citing reports that property sales had dropped 80pc in Beijing in the first half of May compared to a month earlier.
Above all, nothing has been resolved in Europe. The short-ban on bond trades this week by Germany's regulator BaFin comes as the Libor-OIS spread used to gauge strains in the interbank market flashes warning signs, rising to a nine-month high of 25 basis points. The iTraxx Crossover measuring corporate bond risk jumped 45 points to 620 yesterday. "The way the market is behaving right now suggests that investors are getting set for something nasty to happen," said Suki Mann from Societe Generale.
Regulatory clamp-downs are often symptomatic of stress. Wall Street crashed 28pc over eight days after the US Securities and Exchange Commission imposed a short ban in September 2008. While BaFin's move has been dismissed political posturing, the story may be more complicated. An internal BaFin note in February said German banks held €522bn of exposure to state bonds in Portugal, Italy, Ireland, Greece and Spain. It warned of "violent market disruptions" if contagion spread beyond Greece, triggering a "downward spiral in these countries, as in the case of Argentina".
Investors are baffled by the cacophony of voices in Europe. A day after German Chancellor Angela Merkel said the euro was in "existential danger", French finance minister Christine Lagarde replied that "the euro is absolutely not in danger". Details of last week's EU summit confirm early reports that Ms Merkel was ambushed by a French-led bloc, agreeing to demands for a €750bn rescue package for Club Med under duress. Karl Otto Pöhl, ex-head of the Bundesbank, told Der Spiegel that the bail-out offers no help to Greece. The country can never repay its debts and needs "partial" forgiveness. "This was about was about protecting German banks, especially the French banks, from debt write-offs," he said.
While Ms Merkel is likely to win backing for the rescue in the Bundestag on Friday, this does not settle the deeper issue of whether Germany will accept an EU debt union. Articles in the German media have questioned whether the country should remain part of EMU. "Should we bring back the Deutschemark?" screamed a front-page story in Bild Zeitung. Fresh cases challenging Germany's EMU membership are certain. France may have won a Pyhrric victory, securing a short-term triumph at the cost of alienating the German people and setting off a political process that may cause Germany to turn its back on EMU
A.I.G.’s Derivatives at European Banks Could Expose It to Debt Crisis
by Mary Williams Walsh - New York Times
The waves of financial trouble rippling across Europe could end up splashing at least one American institution: the taxpayer-owned American International Group. A.I.G. has sought to unwind its derivatives business, which gave it a big exposure to Europe. After an outcry over details disclosed last year about how the government’s bailout helped a number of European banks, the company intended to rid itself of the derivatives it sold to those institutions to help them comply with their capital requirements.
But its latest quarterly filing with regulators shows that the insurance behemoth still has significant exposure to those banks. A.I.G. listed the total notional value of these derivatives, credit-default swaps, as $109 billion at the end of March. That means if events in Europe turned sharply against A.I.G., its maximum possible loss on these derivatives would be $109 billion. No one is suggesting that is likely. Still, it would be a sore spot if A.I.G. once again had to make good on a European bank’s investment losses, even on a small scale. A spokesman for A.I.G., Mark Herr, declined to name the European banks that bought its swaps to shore up their capital.
A.I.G.’s stock has also fallen in recent days amid uncertainty over whether the continuing European debt crisis could set back an important, $35.5 billion asset sale. A.I.G.’s chief executive, Robert Benmosche, announced in March that the company would sell its big Asian life insurance business to Prudential of Britain, raising money to pay back part of its rescue loans. The transaction needs the approval of 75 percent of Prudential’s shareholders. Shares of A.I.G. fell seven consecutive trading days to close at $34.81 on Thursday. That was a drop of 23 percent since May 11. The shares recovered slightly on Friday, closing at $35.96.
A.I.G.’s swaps work something like bond insurance. The European banks that bought them could keep riskier assets on their books without running afoul of their capital requirements, because the insurer promised to make the banks whole if the assets soured. The contracts call for A.I.G.’s financial products unit to pay in cases of bankruptcy, payment shortfalls or asset write-downs. A.I.G. is also required to post collateral to the European banks under certain circumstances, but the company said it could not forecast how much.
It was the collateral provisions of a separate portfolio of credit-default swaps that caused A.I.G.’s near collapse in September 2008. Those swaps were tied to complex assets whose values were hard to track. The European bank assets now in question consist mostly of pooled corporate loans and residential mortgages. A.I.G. has said they are easier to evaluate and therefore less risky. A.I.G. had hoped these swaps would become obsolete at the end of 2009, when European banking was to have completed its adoption of a detailed new set of capital adequacy rules, known as Basel II. Since A.I.G.’s swaps were designed to help banks comply with the more simplistic previous regime, the insurer thought they would serve no useful purpose after the changeover and could be terminated without incident.
But international bank regulators have yet to fully adopt Basel II. A.I.G.’s first-quarter report said “it remains to be seen” which capital adequacy rules would be used in different parts of Europe. Mr. Herr said A.I.G. could not comment beyond the information already filed with regulators. In its first-quarter report, the insurer said the banks were holding the loans and mortgages in blind pools, making it hard to know how they would weather Europe’s storm. Some pools have fallen below investment grade. A.I.G. said the pools of loans and mortgages were not generally concentrated in any industry or country. They have an expected average maturity, over all, of a little less than two years. The company said it was getting regular reports on the blind pools and losses so far had been modest.
AIG Executives Won't Face Criminal Charges
by Amir Efrati - Wall Street Journal
Federal prosecutors will not bring criminal charges against current and former American International Group Inc. executives for their role surrounding financial contracts that nearly brought down the insurer about two years ago, according to people familiar with the matter. The decision brings to a close a criminal investigation that, while mostly under wraps, was widely followed. The September 2008 bailout of AIG was one of the biggest and most shocking of the financial crisis, as trading by a noninsurance unit brought down one of the most iconic financial companies world-wide.
The probe focused on Joseph Cassano, who headed a London-based unit of AIG called Financial Products, people familiar with the matter have said. Other executives at the unit, Andrew Forster and Tom Athan, also were targets of the investigation, these people said. "The system worked," said lawyers F. Joseph Warin and Jim Walden of Gibson, Dunn & Crutcher LLP, who represent Mr. Cassano, in a statement on Friday. "The large group of federal agents and prosecutors was diligent and professional throughout the investigation, and our client is grateful that they did their jobs by following the facts to the end."
David M. Brodsky and Richard Owens of Latham & Watkins LLP, who represented Mr. Forster, said Friday that "the facts were stronger than the emotions surrounding AIG's problems," and that they knew they could convince prosecutors "that our client at all times acted in good faith." A lawyer for Mr. Athan wasn't reached to comment, nor were representatives for the Justice Department and AIG.
The probe focused on whether the executives deceived investors and the firm's outside auditor about AIG's financial exposure from contracts known as credit-default swaps that were tied in part to mortgages, the people familiar with the matter said. As of last fall, the Justice Department had been planning to ask a grand jury in Brooklyn, N.Y., to consider indicting Mr. Cassano, people familiar with the matter have said. But after a series of meetings with the targets of their probe, prosecutors obtained information about Mr. Cassano's disclosures to AIG senior executives and AIG's outside auditor, PricewaterhouseCoopers LLP. That changed the course of the investigation, these people said. PricewaterhouseCoopers said it wouldn't comment on client matters.
Mr. Cassano, who lives in London, is no longer at AIG. Mr. Forster still works at the firm. Mr. Athan until recently has been at AIG but his status wasn't confirmed Friday night. The Securities and Exchange Commission hasn't ruled out bringing a civil-fraud lawsuit for securities violations, people familiar with the matter said. About 15 government representatives have been involved in the investigation, including prosecutors from the Justice Department's fraud section in Washington and the U.S. attorney's office in Brooklyn; lawyers from the Securities and Exchange Commission; and agents from the Federal Bureau of Investigation and the U.S. Postal Inspection Service, people familiar with the matter said.
AIG Financial Products entered into insurance-like contracts with other financial institutions that ended up being financially disastrous for AIG. When the mortgage market imploded, AIG had to hand over tens of billions of dollars worth of collateral to financial institutions that had entered into the contracts, known as credit-default swaps, with AIG. These collateral calls nearly felled the company and led to a massive government bailout that has generated intense public outrage and political scrutiny.
The Justice Department so far has had little success proving there was criminal wrongdoing at financial companies amid the financial crisis. In the first and only securities-fraud case against Wall Street executives in the wake of the credit crisis, two former hedge-fund managers at Bear Stearns were acquitted at trial after being accused of misleading their investors before their funds collapsed. But efforts continue. Federal prosecutors in Manhattan are currently probing whether any large Wall Street firms misled investors about complex, mortgage-related derivatives, people familiar with the matter have said.
14.01% of US mortgages delinquent or in foreclosure
by Amy Hoak - Market Watch
The percentage of loans in foreclosure or with at least one payment past due was a non-seasonally-adjusted 14.01% in the first quarter, down from 15.02% in the fourth quarter of 2009, the Mortgage Bankers Association said on Wednesday. But the seasonally adjusted delinquency rate for mortgages on one- to four-unit residential properties, which includes mortgages at least one payment past due but doesn't include those in foreclosure, rose to 10.06%, from 9.47%.
Mortgages in the foreclosure process hit a record high at a non-seasonally-adjusted 4.63%, up from 4.58% in the fourth quarter. "The issue this quarter is that the seasonally adjusted delinquency rates went up while unadjusted rates went down," said Jay Brinkmann, MBA's chief economist, in a news release. "Delinquency rates traditionally peak in the fourth quarter and fall in the first quarter and we saw that first quarter drop in the data. The question is whether the drop represents anything more than a normal seasonal decline or a more fundamental improvement."
New Survey Reveals Shocking Increase in Strategic Defaulters
by Steve Cook
A new survey of homeowners released today found that two out of five, or 41 percent, of homeowners would consider walking away from their mortgages if their homes were worth less than the amount they owed. The survey, by search site Trulia.com and RealtyTrac, the online marketplace for foreclosed properties, demonstrates the growing popularity of “strategic defaults, which were the subject of a 60 minutes segment last Sunday .
The Trulia-RealtyTrac survey produced the highest number yet of potential strategic defaulters. The percentage of foreclosures that were perceived to be strategic was 31 percent in March 2010, compared to 22 percent in March 2009 according to new data released two weeks ago from the team of researchers at the University of Chicago and Northwestern University that first identified the scope of “strategic default” behavior last year.
Some 288,992 foreclosures per quarter are strategic defaults, according to the U of C and Northwestern researchers. Translated into actual homeowners with a mortgage, the Trulia-RealtyTrac survey would produce about 21 million homeowners who would walk away from their homes if they were under water. More than 11.3 million homeowners — nearly one-fourth of all Americans with a mortgage — owe more on their loan than their home is now worth, according to a February report by FirstAmerican CoreLogic. More than 10 percent of people with mortgages owe 25 percent or more than their home is worth.
A key finding in the research on strategic defaults is the likelihood that homeowners will opt to walk away if they know others who have done so, or live in an area with a high percentage of foreclosures. Its findings, compared with actual rates of strategic default through the first quarter, suggest that the option is growing in popularity and acceptance, and will produce significantly more strategic defaults in the months to come unless property values suddenly improve. This May 2010 survey was conducted online within the United States by Harris Interactive via its QuickQuery(SM) online omnibus service on behalf of Trulia between May 10-12, 2010 among 2,596 U.S. adults aged 18 years and older. The sample included 1,690 homeowners, 1,137 of whom currently have a mortgage, and 832 renters.
Bank Profits Skyrocket; Big Banks Lead The Way
by Shahien Nasiripour - Huffington Post
Bank profits soared to their highest level in two years as near-zero interest rates and lower reserves for future losses allowed U.S. banks to book an $18 billion quarterly profit in the midst of a prolonged economic downturn. Big banks led the way, accounting for $15.6 billion, or nearly 87 percent, of the industry's total first-quarter profit, according to a Thursday report by the Federal Deposit Insurance Corporation. Defined as banks with more than $10 billion in assets, they account for about 78 percent of the industry's total assets.
Boosted by the lower cost of funds they enjoy versus their smaller competitors, the big banks' margin on interest rates -- the difference they pay in interest versus what they charge -- jumped to its highest level since 2002. Banks with more than $10 billion in assets also tripled their return on assets relative to the same period a year ago. It's the highest level since the third quarter of 2007. The industry as a whole paid $29.3 billion in interest in the three-month period ending in March, 32 percent lower than the same period last year and 65 percent lower than what banks paid two years ago. Though the industry also recorded less revenue off the interest they charge on loans and other credit products, the decline in banks' cost for funds outweighed the decline in what borrowers paid, enabling banks to record an easy profit, according to FDIC figures.
Big banks were the biggest beneficiaries of the low rates, paying just 0.90 percentage point interest for its funds, 48 basis points lower than banks with between $1-10 billion in assets. (A basis point is 0.01 percentage point.) The incredibly low cost of funds big banks enjoyed in the first quarter is 204 basis points lower than what they paid during the same period two years ago. It's a bigger drop than what their smaller competitors enjoyed. It's also the lowest rate the FDIC has ever recorded, according to records dating back to 1984.
The Federal Reserve's main policy-making body voted in April to continue keeping the main interest rate "exceptionally low" for an "extended period." The federal funds rate, the interest rate at which banks lend money to each other overnight, stood at 0.20 percentage point last month, according to Fed data. The FDIC noted that the surge in income was due to a decline in what banks set aside to cover future losses. The industry set aside $51.3 billion in the first quarter, a $10.2 billion decline from a year earlier. Banks made $5.6 billion that quarter.
Elsewhere in the FDIC report, the agency's figures show that banks recorded fewer newly-delinquent home loans relative to last quarter, a sign of encouragement that mortgage delinquencies may have peaked. And small banks continue to struggle relative to their bigger peers. The number of "problem" banks grew from 702 to 775 during the quarter as smaller banks continue to be hobbled by rising losses on commercial real estate loans.
"There will be more failures, to be sure," FDIC Chairman Sheila Bair said in a statement. "The banking system still has many problems to work through, and we cannot ignore the possibility of more financial market volatility. "But the positive signs I've outlined today suggest that the trends continue to move in the right direction," she added.
FDIC: 'Problem' Banks at 775
by Michael R. Crittenden - Wall Street Journal
A total of 775 banks, or one-tenth of all U.S. banks, were on the Federal Deposit Insurance Corp.'s list of "problem" institutions in the first quarter, as bad loans in the commercial real-estate market weighed on bank balance sheets. Poor loan performance in other sectors also continued to hurt banks, with the total number of loans at least three months past due climbing for the 16th consecutive quarter, FDIC officials said in a briefing on Thursday. "The banking system still has many problems to work through, and we cannot ignore the possibility of more financial market volatility," FDIC Chairman Sheila Bair said. There were 702 on the FDIC's "problem" bank list at the end of 2009 and 252 at the end of 2008.
FDIC officials said they expected the number of failed banks to peak this year after climbing steadily over the past three years. Regulators have shut 72 banks so far this year, more than double the number closed by this time last year. Ms. Bair said regulators were preparing for a steady pace of additional closures through the end of the year. A total of 237 banks have failed since the beginning of 2008. The failures continue to strain the FDIC's fund to protect consumer deposits, although officials signaled they were confident they had enough cash on hand to deal with the expected spate of failures, without having to assess new fees on the banking industry. The agency's deposit insurance fund stood at negative-$20.7 billion at the end of the first quarter, a slight improvement from the end of 2009.
"We have the necessary industry-funded resources to complete the cleanup," Ms. Bair said, in a reference to the fees that the agency assesses on banks for insuring their deposits. Banks, squeezed by problem loans and the continued recession, responded by reducing their lending. The industry's total loan balances grew by 3% during the quarter, but the increase was due to accounting changes that required banks to bring securitized assets back onto their balance sheets. Without taking into account these accounting changes, lending would have declined for the seventh straight quarter, as banks cut back across most major lending categories.
"There is a lot of credit distress still in the mortgage-portfolio area," FDIC Chief Economist Richard Brown said at the FDIC briefing. FDIC officials said they saw some signs for optimism. The total $18 billion, first-quarter profit reported by U.S. banks and thrifts was the highest since the first three months of 2008 and more than triple the profit recorded in the first quarter of last year. More than half of insured banks reported growth in net income during the quarter—the highest level in more than three years—and firms set aside less money to reserve for future losses.
The FDIC data suggested that the largest U.S. banks were faring better than their smaller rivals. The former enjoyed the largest year-over-year increase in earnings and saw the biggest reduction in loan-loss reserves, or the money they must set aside to account for future, expected losses on loans. Ms. Bair said the rate of decline in lending by larger banks also slowed in each of the past two quarters.
Beware an 'American Style' Federalized EU
by Ron Holland - LewRockwell.com
A Warning From South Carolina To Europe: Say No to EU Elite Plans for a Federalized Union
The state of South Carolina has been an independent republic and nation twice in history, first in March of 1776 and again in December of 1860. History here certainly shows how it is far easier to get into a political union than to get out again. In South Carolina, we have found that once in a voluntary union, the open door slams shut as political and monetary elites who benefit from this arrangement seldom give up their power to tax, inflate the currency, protect special interest monopoly rights and engage in mercantilism without fighting to retain their distant dictatorial controls. The photos above aren't of terror bombing of London, Berlin or Dresden but rather Columbia, SC on the left and Charleston on the right. There were no land battles fought in either city but rather Columbia was burned at the end of the war by union forces and the civilian areas of Charleston were targeted by a union naval bombardment which lasted longer than the World War Two German siege of Leningrad (St. Petersburg) Russia. “They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.” ~ Benjamin Franklin The corrupt, power-hungry EU elites like politicians here in America are always ready to use a crisis to advance their agenda of accumulating power, increasing taxes and controls over local governments and independent citizens. Contrary to their false promises that a political and monetary union would guarantee economic safety and monetary security, here in the US, the very opposite has been the case with our exploding national debt and long-term downtrend in the dollar. The call for a political and monetary union in Europe to counter the sovereign debt crisis is the dominate elite theme of the week from Europe to the United States echoed hourly on cable channels and in editorial written comments. Just a few minutes ago, one of the beautiful woman de jure reporters on a financial channel, again repeated the message with something to the effect, "what Europe needs is what we have here in the United States, one fiscal system, one political system and one country." Since Germany is the titular head of the EU, this subliminal message has a frightening historic ring to an earlier "One People, One Nation, One Leader" refrain repeated ad nauseam during another time in Germany. “We can’t have a monetary union without some form of economic and – er – political union.” ~ EU president Herman van Rompuy “It seems that the sovereign debt crisis could be acting as a catalyst for an ever closer union of European countries. The decisions taken this weekend first by European leaders and then by finance ministers mark a big leap towards a fiscal union in the euro area, we think.” ~ Elga Bartsch, European Chief Economist for Morgan Stanley To Europe we say, don't move from a failed monetary union to a failed political union to solve the problems created by your local and supra-national EU politicians. The world meltdown and now sovereign debt crisis was predominately caused by our Wall Street firms which offered your politicians sovereign debt scams guaranteed to fail. We have found giving politicians short-term debt financing to buy re-election is like giving unlimited heroine to a heroine addict as a solution to their addiction problem. This only works as long as the drugs are available. When the drug or credit ends, these power or drug addicts will do absolutely anything to maintain their addiction. Looking through the past false war propaganda, all too much of European and American history is made up of wars and economic dislocation created by politicians to advance their agenda and addiction to power and wealth. Don't make the mistake we made. A voluntary union or confederation of sovereign states approved by a vote of the state or nation's citizens can have many advantages but when this becomes a forced union, you can be assured that one day in the future, military force will be used to keep you in line. Hasn't Europe suffered enough already from wars caused by national politicians and economic and banking elites, why add another level of political scum to the volatile mixture. “Powerful government tends to draw into it people with bloated egos, people who think they know more than everyone else and have little hesitance in coercing their fellow man. Or as Nobel Laureate Friedrich Hayek said, "in government, the scum rises to the top.” ~ Dr. Walter Williams Here in South Carolina, when we look at the national debt, foreign empire wars without end and a two-party monopoly that works together to maintain the political and monetary elite controls over our currency and central bank, the national debts and liberties, we sometimes wish for a Third South Carolina Palmetto Republic. Do as we say and not as we did and you'll have the best of alternatives in the future. Currency competition between nations and the euro, more local control over your politicians and economic interests. "American style" government was to be envied and copied when we were a confederation and voluntary decentralized republic but today our centralized system has failed and the fighting for survival in Washington and Wall Street is one reason for the problems you face, certainly not the solution. If you want a government solution for individual nations and even the EU that protects liberties, then consider the most successful model in Europe: look at Switzerland and their limited decentralized confederation government. It is envied by investors and people who value freedom around the world but hated by socialists, empires and politicians everywhere. Trust me, I'm not just "Whistling Dixie"!
Grey areas in Chinese loans give pause for thought
by Gillian Tett - Financial Times
This spring, a curious type of underground banking is proliferating in parts of China. Called minjian jeidai , it enables Chinese companies to borrow short-term money from wealthy households, rather than banks, via a broker armed with a mobile phone. On paper, the practice seems almost logical. Many small and medium-sized companies in China are currently finding it hard to get loans from banks; and many Chinese households desperately need somewhere to put their money (other than the overheated property sector or falling stock market).
But there is a catch. Since the practice is illegal, lending rates are very high; moreover nobody knows how large this practice might be. In the City of Qingdao, which I happened to visit yesterday, for example, some bankers and officials "guessed" that minjian jeidai accounts for more than 10 per cent of local finance, a huge sum. "But nobody really knows," one official hastily added, officially, this practice does not even exist. This is thought-provoking stuff for investors trying to make sense of global financial markets. In recent days, as markets have gyrated violently, there has been a plethora of public hand-wringing about the dramas erupting in the eurozone. The markets are also being hit by financial regulation uncertainty.
However, on the other side of the world there is another, less discussed set of risks now: the uncertainties hanging over China (of which the mysterious activities of the minjian jeidai sector are but one, tiny example). To be sure, China has produced plenty of upbeat macro-economic news in recent months. And some observers remain very bullish about the country's outlook. Goldman Sachs, for example, sent a research note to its clients earlier this week that suggested that it was ridiculous for investors to spend too much time fretting about the eurozone's woes when it is emerging market countries such as China - not Europe - which are likely to provide the main motors of growth in the coming years. "China is about 14 times bigger than Greece," this note tartly declared, before concluding that China still appeared to be on track for steady, sustainable growth.
But not everyone is so upbeat. In the past month the Chinese stock market has tumbled 20 per cent, as local investors have taken fright at efforts by the Chinese government to cool the over-heated property market. In cities such as Qingdao, there is also concern about the degree to which Chinese exporters will suffer if there is now a fall in European demand as a result of the euro dramas. Then there is concern about the official side of Chinese finance (never mind all those underground banks). The People's Bank of China recently ordered China's large banks to raise their reserve requirement ratios to 17 per cent, partly because authorities want to allay fears that a credit binge last year could have created too many non-performing loans.
That is perfectly sensible. However, the Chinese government is also assuming in its growth projections that banks will advance some Rmb7,500bn ($1,100bn) worth of new loans over the next year. The only way banks can square that circle will be to raise vast quantities of capital; indeed, the big-four banks alone would need to raise almost Rmb300bn. But it seems highly unlikely that they will be able to do that unless stock markets rebound. So what then? Will the banks slash credit later this year, tipping the economy into a downturn? Will the Chinese government step in? Or is it possible that those "underground banks" might expand lending in a way that nobody expects? The only honest answer is that nobody knows.
This has at least two implications. For one thing - as my colleague Geoff Dyer observes - all this economic uncertainty and euro turmoil makes it very unlikely that the Chinese will agree to revalue the renminbi anytime soon. For another, the uncertainty also has the potential to inject a lot more volatility into global markets. After all, although a vague sense of optimism about China has underpinned the investment debate in the western world during the past year, the fact is that very few western investors really know that much about what is - or is not - happening at the grass roots in China now.
The pattern is not that different from the US housing market five years ago, when investors had vague assumptions that American property markets always rise, and thus gobbled up mortgage bonds - but ignored the granular details of how subprime loans worked. This time round, there is still reason to think that the China tale will have a better ending than the subprime saga; after all, the Chinese leadership is (generally) acting in sensible ways. But if that optimism turns out to be wrong, the future "shock" could be painful. Just remember, to quote Goldman Sachs, that China is 14 times bigger than Greece; and perhaps even more opaque.
Good News! Stocks Are Now Only 20% Overvalued!
by Henry Blodget - Business Insider
Two months ago, we noted the great disconnect between the stock market and the economy: Housing was rolling over, unemployment was barely improving, the government had shot its wad...and stocks were still powering higher.So much so that, on a cyclically adjusted PE (the only PE that matters), stocks had become 30% overvalued. So how are stock values looking now that the market is crashing again? Better, but still expensive.
Measured using our favorite valuation technique, Professor Shiller's cyclically adjusted PE analysis, the S&P 500 now has a PE of 19X. That's down from 23X just a few weeks ago. But it's still considerably above the long-term average (1880-2010) of about 16X.
Check out the chart below, from Professor Shiller's web site. The blue line is the cyclically adjusted PE ratio (CAPE) for the last 130 years. (The cyclically adjusted PE mutes the impact of the business cycle by averaging 10 years worth of earnings. This reduces the misleadingly low PEs you get at peak profit margins, like the ones in 2007, and the misleadingly high ones at trough profit margins, such as the ones we had last year).
Note a few things:
- The long-term average for the cyclically adjusted PE is about 16X.
- Stocks have spent vast periods above the average and vast periods below it, usually in multi-decade cycles
- We've just descended from the longest period of extreme overvaluation in history, suggesting (to us, anyway) that the next multi-decade cycle is likely to be below average
- At today's level, 10700 on the S&P, stocks are trading at a 19X CAPE, about 15%-20% above the long-term average
Blue line = cyclically adjusted PE; Red line = interest rates
Image: Professor Robert Shiller, Yale University
Now, you can also unfortunately see from the chart that valuation doesn't tell you anything about what will happen next. As the blue line shows, just because stocks are overvalued today doesn't mean they won't just get more overvalued. And they can stay even more overvalued for a decade or more.
But what the apparent overvaluation does tell you--or, at least, has told you in the past--is that your future long-term returns will likely be below average. There's a strong correlation between starting valuations and ending returns (high valuations lead to low returns and low valuations lead to high returns). And today's valuations can now be described as "high." (Not extreme, but high.)
Today's PE also clearly shows that stocks aren't "cheap" and that today's crash is not necessarily a "buying opportunity." Fair value for stocks is about 900 on the S&P 500. So it certainly wouldn't be surprising to see stocks trade back to that level and possibly below it.
Yes, you can argue that "it's different this time." You can argue that, since stocks have traded at an average CAPE of more than 20X for the past two decades, we're in a new normal. And you might be right. But they don't call "it's different this time" the "four most expensive words in the English language" for nothing.
You can also argue that "interest rates are low, so P/Es should be high." That argument is in vogue right now, because there's been an inverse correlation between P/Es and interest rates for the last couple of decades.
But take a look at the RED line in Professor Shiller's chart. The red line is interest rates. As you can see, if you go back more than a couple of decades, there's not much correlation. (In fact, as the great UK economist Andrew Smithers has observed, there's none.)
U.S. Corporate Bond Sales Slide on Contagion Concern
by Tim Catts - Bloomberg
Sales of U.S. corporate bonds fell 67 percent this week and issuance of high-yield company debt plunged to the lowest this year amid rising investor concern that a $1 trillion rescue package won’t help indebted European nations avoid default. Franklin Resources Inc., the manager of the Templeton mutual funds, sold $900 million of notes as it tapped the debt market for the first time in seven years and J.C. Penney Co., the third-largest U.S. department-store chain, issued $400 million of debt to lead $4.69 billion in corporate bond offerings, according to data compiled by Bloomberg.
Overall sales fell to the second-lowest this year while the dollar and U.S. Treasuries soared as speculation that Europe’s sovereign debt crisis is worsening led investors to sell risk- bearing assets including corporate bonds. Issuance is unlikely to accelerate while investors are concerned that euro-region countries such as Greece won’t meet their obligations, said Tom Farinaat Deutsche Insurance Asset Management. “There are continuing concerns, so issuance will be muted,” said Farina, who helps manage $188 billion of assets in New York. “I don’t think an event or even a series of events are going to occur in the near-term to normalize the market.” The extra yield investors demand to own investment-grade corporate debt instead of Treasuries rose 17 basis points to 196 basis points, the most since December, according to the Bank of America Merrill Lynch U.S. Corporate Master Index. Absolute yields rose to 4.42 percent from 4.39 percent. A basis point is 0.01 percentage point.
Spreads on high-yield, high-risk bonds widened 33 basis points to 692 basis points, the most since Feb. 16, Bank of America Merrill Lynch index data show. They have expanded 150 basis points since touching 542 on April 26, the data show. Yields rose to 9.13 percent from 8.71 percent. High-yield bonds are rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s. Investors withdrew more than $1 billion from high-yield bond funds this week, following $2.1 billion of redemptions a week earlier, according to EPFR Global. The moves reflected “uncertainty and heightened risk aversion,” EPFR analysts wrote in an e-mailed statement. This week’s corporate bond sales compare with $14 billion during the period ended May 14 and a 2010 average of $22.2 billion, Bloomberg data show.
Greek Protests
Greek police estimated that between 15,000 and 20,000 protesters marched in Athens yesterday amid the fourth general strike of the year. Greece tapped an emergency loan package to repay 8.5 billion euros ($10.6 billion) of 10-year bonds on May 19, helping it avoid the euro region’s first sovereign default. Yields on the 10-year U.S. Treasury bond, the market bellwether, fell as low as 3.20 percent, the least since October. The euro fell to near the lowest since April 2006 after Germany prohibited naked short-selling on sovereign debt. “You’re seeing liquidation across all asset classes, and it’s not just credit, it’s stocks and commodities and well,” said Joe Jackson, a money manager at Eagle Asset Management who helps oversee $18 billion in St. Petersburg, Florida. “Markets don’t like uncertainty, and we’re seeing a lot of uncertainty right now.” The S&P 500 Index fell 3.9 percent, the most in a year, and crude oil futures in New York touched $64.24, the lowest since July.
Penney Sells Debt
J.C. Penney, based in Plano, Texas, sold debt for the first time since 2007, Bloomberg data show. Proceeds from the $400 million high-yield sale were to be used to pay for a cash contribution to the company’s pension fund, according to a filing with the Securities and Exchange Commission. Dave & Buster’s Inc., the closely held operator of restaurant entertainment complexes, sold $200 million of eight- year notes. Issuers raised a total of $1 billion from high-yield bonds, the least since the week ended Jan. 1, Bloomberg data show. Companies have issued an average of $5.7 billion of speculative grade a week this year through May 14, Bloomberg data show.
Franklin Resources, based in San Mateo, California, boosted the size of its three-part offering on May 17 after initially marketing $750 million of notes, according to a person familiar with the offering who wasn’t authorized to discuss it publicly and declined to be identified.Investment-grade corporate debt issuance of $3.69 billion this week was 78 percent below the 2010 weekly average of $16.5 billion, Bloomberg data show.“No one is going to step out right now,” Eagle Asset Management’s Jackson said. “If you tried to aggressively sell in this environment, you wouldn’t be happy with where the bids are.”
Senate Set For Another Unemployment Fight: 'Congress Cannot Screw This Up Again'
by Arthur Delaney - Huffington Post
The Senate is all set for another fight to reauthorize extended unemployment benefits and other domestic aid provisions that will expire unless Congress acts before its Memorial Day recess. "Congress cannot screw this up again," said Andrew Stettner, deputy director of the National Employment Law Project. "They have to get this extension done before they go on the Memorial Day recess. We're nervous that they're starting this late in the game. It's the bare minimum of what they need to do."
The House will vote on the bill, titled the "American Jobs and Closing Tax Loopholes Act," on Tuesday, after which it will head over to the Senate. Then, assuming the upper chamber has already taken care of its war funding bill, senators will have a chance to offer amendments, which Senate Majority Leader Harry Reid (D-Nev.) is encouraging them not to do (since any changes would require another vote in the House). Reid will have to file one cloture motion to overcome a Republican filibuster, setting up a final vote near the end of the week. It's unlikely the Republicans will cooperate with any motions for "unanimous consent" to move faster.
"This is a jobs bill for endangered incumbent politicians, not the American people," said John Hart, a spokesman for Sen. Tom Coburn (R-Okla.), in an email to HuffPost. "The extenders bill will be another exhibit in the public's case against the Establishment." And there's been some grumbling among Democrats over one of the bill's funding sources -- a measure to close the "carried interest" loophole that allows investment fund managers to pay less than half as much as regular rich people in income taxes. Some Senate Dems pushed for Finance Committee chairman Sen. Max Baucus (D-Mont.) to go soft on fund managers. They failed: The bill Baucus and House Ways and Means Committee chairman Rep. Sandy Levin (D-Mich.) unveiled Thursday gave private equity lobbyists nothing to cheer about.
"This punitive, 157 percent tax hike on growth investment by real estate, venture, private equity and other firms will hurt those companies that are most desperately in need of capital to sustain or create jobs and drive growth," said Douglas Lowenstein, president of the Private Equity Council, in a statement. "It's about time that Washington stopped subsidizing mega-millionaires for managing other people's money," said U.S. PIRG's Nicole Tichon, who had been lobbying for the Senate to close the loophole. A preliminary estimate from the Joint Committee on Taxation says the carried interest offset will raise $18 billion over 10 years.
Congress faced almost the same situation before its previous recess at the end March, when deficit hawk Coburn objected to unanimous consent for speedy passage of a similar measure to extend unemployment benefits and other programs for 60 days. Instead of forcing a weekend vote, Democrats decided to adjourn. The programs lapsed on April 5, jeopardizing benefits for hundreds of thousands. When it reconvened the following week, Congress extended the jobless aid programs until June 1. The current bill will extend them for the rest of the year.
Among other things, including a "doc fix" to prevent a reduction in Medicare payments, subsidies for people who buy COBRA health insurance, and tax breaks for businesses, the bill reauthorizes existing benefits for the long-term unemployed. It does not provide for additional weeks of benefits, something thousands of jobless folks petitioned for in a grassroots effort.
Democrats proceed with $190 billion jobs, tax plan
by David Rogers - Politico
In a roll of the dice, Democrats moved Thursday to take up a roughly $190 billion-plus jobs and tax package next week, hoping to complete passage before Memorial Day and forestall threatened cuts that would affect the elderly and the unemployed.
An unwieldy amalgam of state aid, infrastructure investments, tax cuts and extended jobless benefits, the massive bill is a sleeping giant in this political year and uniquely captures the hard choices facing a government beset by record deficits and an uncertain economy.
Included are routine tax cut extensions but also landmark reforms and a quadrupling of the fees now paid by oil companies to cover damages for spills like the BP disaster in the Gulf. Going into November’s elections, the spending represents a huge, costly, almost defiant commitment by Democrats to preserve a safety net for the unemployed and restore stability to Medicare reimbursements — important to physicians and their elderly patients.
The debate now is a gamble, given the Republican opposition and political tides in the Senate. But asked whether he would have 60 votes to quell a filibuster, Senate Finance Committee Chairman Max Baucus (D-Mont.) answered flatly, “We will.” And House Ways and Means Committee Chairman Sander Levin (D-Mich.) released the 433-page text Thursday night in anticipation of floor action in the House early next week.
“There’s lots of positives and no choice,” Levin said bluntly. “The more people think of this, they’ll realize this is a jobs bill, and also we’re stepping up to the plate on provisions that need to be addressed.”
To reduce the deficit impact, tax writers have agreed to a series of revenue offsets worth close to $56 billion, including a temporary 24-cent-per-barrel increase in oil industry fees paid into a liability trust fund to cover damage claims from spills. The White House’s one penny-per-barrel increase— proposed just last week—pales by comparison, and the goal is to raise an estimated $10.6 billion over the next 10 years.
Another $14.4 billion more would be raised in the same period from tightening rules related to the foreign tax credit. But the most prolonged fight has been one pitting powerful venture capital and private-equity interests against a House-backed reform targeting investment fund partnerships who now shelter income as “carried interest” at the lower capital gains rate of 15 percent.
An estimated $18.7 billion would be raised over the next decade, and tax writers appear to be taking a blended approach to preserve some of the character of capital gains as a concession to the financial industry and its Senate allies.To the extent that carried interest reflects a return on invested capital, the bill would continue to tax it at capital gain rates. But to the extent that carried interest does not reflect a return on invested capital, the bill would require investment fund managers to treat 75 percent of the remaining carried interest as ordinary income taxed at a far higher rate.
Nonetheless, opponents argue that the result would be to effectively double the future tax burden of venture capital and private-equity partnerships. Even with the 75-25 split and allowing that the capital gains rate itself will be going up to 20 percent, the effective tax rate for such partnership income would be about 38.5 percent—almost twice as high.
There is genuine anger that provisions apply retroactively to deals begun years ago and, in some cases, sales of assets in a partnership could be treated as ordinary income — not capital gains.
“It’s a major reform. ... People faced up to the issues of equity,” Levin said, but at a time when Democrats’ political prospects depend on job creation, critics argue that the result is the opposite, hurting an economic engine that can make the nation more competitive.Here too is an example of how the heavy weight of growing federal debt has an impact on policy. The whole bill has been written under pressure to satisfy new pay-go rules to reduce the deficit. This puts a premium on finding offsets, but in this pursuit, tax writers risk ending up more preoccupied with their budget targets than the impact of policy.
On the spending side, the biggest single cost factor in the bill is the decision to devote close to $65 billion during the next 3½ years to try to stabilize Medicare reimbursements to physicians. The goal is to provide a modest, below inflation update for doctors, but then also allow time to introduce reforms that reward preventive and primary care and encourage accountable care organizations.
Republicans privately agree it is a bold effort to finally address flaws in a formula dating back to 1997. But the cost is substantial, and there is a quiet fury that the White House plunged ahead with comprehensive health care reform and didn’t address this immediate problem with the savings then available from Medicare.
Indeed, House Republicans were quick to jump on the deficit theme Thursday. When Democrats sent out their announcement under the heading “Jobs News,” Michigan Rep. Dave Camp, the ranking Republican on the Ways and Means panel, quickly countered that “This isn’t a tax-extender bill; it is a deficit-extender bill.”
Moderate Democrats like Nebraska Sen. Ben Nelson are already warning that the cost is too great, and Baucus must battle some of his Finance colleagues unhappy with the final “carried interest” agreement with Levin.
He has stubbornly resisted any carve out, for venture capital or real estate. “You have to be fair to all segments and all senators,” he said and in a hallway interview discouraged suggestions of last-minute changes. “It’s pretty well hammered down,” he said. “I think it’s going to pass the Senate.”
With the Memorial Day recess a week away, Democrats have little time, but that too can be an asset for the leadership. Jobless benefits for the long-term unemployed are set to expire in early June, and soon after a 21 percent cut in Medicare payments for physicians is scheduled to take effect.Short-term extensions could be adopted — as they have so often in the past. But to the extent that Republicans have made even these a time-consuming battle, Democrats see the current bill as their last, best chance to patch the safety net and clear the landscape through November. The dynamics are not so different, in fact, than the big debt ceiling fight this past winter, and, as much as they don’t like the choices before them, Democrats know that standing still is no option.
In fact the bill now is a big train pulled by a relatively small engine: an estimated $32.5 billion in extended tax cuts, some of which are clearly job-related. In the same vein, the spending includes $1 billion to fund summer jobs and an estimated $6.4 billion would go to Build America and Recovery Zone bond programs that support state and local public works.
Cash-strapped governors are promised $24 billion to forestall deeper cuts in Medicaid, the joint state-federal health care program for the poor and disabled. And the White House is also pursuing $23 billion more to help school districts avoid teacher layoffs next fall
Each program is a sequel of sorts to the giant recovery act approved in the first weeks of President Barack Obama’s administration. And, like the unemployment and health benefits for the long term jobless — costing close to $55 billion — it reflects the immense lasting burden of the economic downturn.
This might explain why the leadership finds it easier to break up segments in different pieces. If the teachers’ money were part of the big jobs and tax bill, it would certainly put its total cost over $200 billion. Instead, the plan is to try to add it to a smaller $58.8 billion war funding bill also coming before Congress before Memorial Day.
In truth, the $190 billion estimate for the jobs and tax bill is only a rough approximation until the Congressional Budget Office completes its scoring, and even then there are sure to be disputes as to how to count the many puts-and-takes in the giant measure—and its deficit impact.
Preliminary CBO and Joint Tax Committee tables Thursday night suggest three big components: $71.3 billion in emergency spending, the $65 billion commitment for Medicare, and the $56 billion in offsets on the revenue side. Added together, these would support a rough framework near $192 billion.
But in terms of the deficit, preliminary CBO estimates show a positive impact of increased government revenues of $40.3 billion over 10 years. At the same time, the added spending increase deficit projections by almost $170 billion, meaning the net impact is close to $128 billion over the next 10 years.
Democrats will argue that this is an acceptable price for maintaining the safety net as the nation tries to survive the economic downturn. Republicans will counter that the trend line is still toward more debt and there is no guarantee that a further extension of the benefits and state aid won’t be demanded in January.
No Deal Near for SEC, Goldman
by Susanne Craig and Kara Scannell - Wall Street Journal
Goldman Sachs Group Inc. and the Securities and Exchange Commission aren't close to reaching a settlement that would end the fraud lawsuit against the company and trader Fabrice Tourre, according to people familiar with the situation. Shares of the New York company jumped by as much as 5.4% near midday Friday, outpacing the Dow Jones Industrial Average and rivals Bank of America Corp. and Citigroup Inc., partly on speculation of a deal with the SEC. The agency accused Goldman in a suit filed April 16 in U.S. District Court in New York of selling a collateralized debt obligation called Abacus 2007-AC1 without disclosing that hedge-fund firm Paulson & Co. helped to pick some of the underlying mortgage securities and was betting on the financial instrument's decline.
Rumors that a settlement had been reached pushed Goldman shares higher in early New York Stock Exchange composite trading even as the Dow sank. The shares ended at $140.62, up 3.3%, or $4.52. Goldman and the SEC declined to comment. But people familiar with the matter said no agreement has been reached or is imminent. Preliminary settlement discussions held May 4 didn't include any specific terms, such as the amount of a fine or agreements Goldman could make with the SEC, according to a previous report by The Wall Street Journal.
Goldman Sachs Fraud Settlement May Hinge on How SEC Can Justify a Penalty
by Jesse Westbrook and David Scheer - Bloomberg
Analysts predict Goldman Sachs Group Inc. will pay $1 billion or more to settle a Securities and Exchange Commission fraud suit that triggered a 26 percent drop in the firm’s stock. Extracting such a record-setting penalty may be easier said than done. When it comes to presenting a settlement for court approval, the SEC will have to “have a good explanation and justification for the number,” said Donald Langevoort, a former SEC attorney who teaches securities law at Georgetown University in Washington.
Looming over negotiations between the SEC and Wall Street’s most profitable investment bank is a reminder from Judge Jed Rakoff that courts can reject settlements -- even when the SEC’s adversary is willing and able to pay. Rakoff, a U.S. district court judge in Manhattan, refused to sign off on a $33 million accord with Bank of America Corp. in September, noting that the SEC didn’t justify how it came up with the dollar amount.
A sanction in the range of $1 billion would be hard to justify based on the allegations in the Goldman Sachs complaint, according to James Coffman, a former SEC enforcement official who retired in 2007. That figure would be more than double what any Wall Street firm has agreed to pay as part of a civil settlement with authorities. Under one formula outlined in securities laws, the SEC could impose a maximum $15 million penalty on the bank to resolve fraud allegations that it misled buyers of mortgage- backed investments. That formula has been routinely ignored in enforcement cases and the SEC will seek more from a firm depicted as an icon of Wall Street greed at congressional hearings, Coffman said.
$1 Billion ‘Goalpost’
The SEC’s April 16 complaint accused Goldman Sachs of defrauding investors in a collateralized debt obligation linked to home loans. The firm concealed the fact that Paulson & Co., a New York-based hedge fund, picked components of the CDO and bet it would collapse, the agency said. Goldman Sachs, which underwrote and marketed the product in 2007, collected about $15 million in fees and Paulson reaped a $1 billion profit. The remaining investors lost more than $1 billion, according to the complaint.
Goldman Sachs, led by Chief Executive Officer Lloyd Blankfein, 55, has denied wrongdoing. Paulson hasn’t been accused of any impropriety and the firm’s founder, John Paulson, has said it didn’t market the transaction or have authority to select securities in the CDO. The $1 billion loss for investors has become the minimum “goalpost” that the public expects the SEC to reach, according to James Cox, a securities law professor at Duke University in Durham, North Carolina. A settlement would cost the firm “at least $1 billion, if not more, which they can easily pay,” Matt McCormick, an analyst at Bahl & Gaynor Inc. in Cincinnati, which manages about $2.8 billion, said in an April 30 Bloomberg Television interview. The firm “will do whatever it takes to get this away, or at least they should.”
As the agency’s first effort to punish a bank for creating and selling securities tied to subprime mortgages, the Goldman Sachs case will be dissected by the industry, in Congress and in the media, Coffman said. “There’s been a lot of attention paid to this on Capitol Hill and in the press,” said Coffman, who predicts Goldman Sachs will pay about $100 million. The SEC will consider “how much public interest there is in sending a strong message and coming up with a settlement that shows the cops are on the beat.”
Public statements from Goldman Sachs have softened in the month since the SEC announced its case as the firm’s image and stock price have taken a beating. In an April 16 press release, Goldman Sachs called the suit “completely unfounded” and pledged to “vigorously” defend its reputation. Four days later, co-General Counsel Greg Palm broached the idea of resolving the case, saying on a conference call with investors that “you always have the option” of settling if both sides forge an agreement. In the days following an April 27 Senate hearing where Goldman Sachs managers were accused of putting the firm’s interest ahead of clients, two executives at the firm who spoke on condition of anonymity said the company was eager to settle the SEC case in an attempt to contain the reputational damage.
Ramifications of Accord
The subject of how much money the firm may pay hasn’t been raised during early discussions between the SEC and Goldman Sachs, according to a person briefed on the matter, speaking anonymously because the talks were private. Negotiations are more likely to stall over the way the SEC ultimately describes the firm’s conduct, rather than the size of any fine, said two people familiar with Goldman Sachs’s thinking. Goldman would resist agreeing to a settlement that includes an allegation of fraud, because doing so could hurt the firm’s business, they said. Settling a fraud case would restrict Goldman Sachs and its employees from managing investment companies registered with the SEC, unless the bank got an exemption from the agency.
Goldman Sachs’s asset management unit currently oversees mutual funds, money-market funds and bond funds, according to its website. Goldman Sachs would also risk losing its ability to raise money quickly through securities sales without meeting certain regulatory burdens. The SEC and New York-based Goldman Sachs will have to litigate if they can’t agree on an accord.
The SEC suit cites the Securities Act of 1933 and the Securities Exchange Act of 1934. Both laws limit their most severe fines to either $650,000 per violation or the “pecuniary gain” reaped by the defendant. SEC investigators don’t have to follow those limitations if they can persuade companies to pay more, a majority of agency commissioners vote to approve the settlement and a judge signs off on the accord, said former SEC Commissioner Paul Atkins. “It’s basically what the two sides hammer out,” he said.
Goldman Sachs argues the $15 million in commissions it received for putting the CDO together were offset by more than $90 million the firm lost on its own stake in the transaction. ABN Amro Bank NV lost more than $840 million and Dusseldorf, Germany-based IKB Deutsche Industriebank AG lost most of its $150 million investment, according to the SEC. The SEC typically requires defendants in a settlement to pay a fine and return ill-gotten profits to victims.
Citigroup’s 2003 Settlement
Citigroup Inc. paid $400 million in 2003 to settle SEC and state allegations that its analysts hyped telecommunications stocks that its researchers privately thought were underperformers. The SEC said in its complaint that Citigroup made $790 million in revenue from underwriting telecom securities from 1999 through 2001, relying on analysts to “generate substantial profits” for the company’s investment bankers. Citigroup agreed to a $150 million fine, returned $150 million of ill-gotten gains, and paid $100 million to provide clients with independent research and investor education.
Bank of America, in the second-biggest agreement between the SEC and a bank in the past decade, paid $375 million in 2004 to settle claims the company didn’t disclose that some of its mutual funds allowed clients to make trades detrimental to other investors. Charlotte, North Carolina-based Bank of America paid a $125 million fine and $250 million in disgorgement. Its fine was 10 times the $12.5 million in revenue the SEC said it received from one of the hedge funds making improper trades.
Prudential Securities Inc. agreed in a 1993 settlement with the SEC and state regulators to pay $371 million in restitution and fines, and to fully compensate all investors who lost money in oil, gas and real estate partnerships it sold without disclosing the risks. Over time the company paid more than $1 billion to resolve claims dating back to the 1980s. Goldman Sachs remains the most profitable firm in Wall Street history. It earned $13.4 billion in 2009 and an additional $3.5 billion in the first three months of 2010. “Money hurts but limitations on business can hurt in a lot more ways and that can be the hurt that keeps on giving,” Coffman said.
U.K. Posts Record April Deficit as Budget Looms
by Craig Stirling - Bloomberg Business Week
Britain posted its largest April budget deficit since monthly records began in 1993, highlighting the scale of the squeeze to come as Chancellor of the Exchequer George Osborne prepares to deliver an emergency budget. The report sets the scene for what economists say will be the sharpest cuts in public spending for a generation. Osborne has ordered departments to find 6 billion pounds of savings this year and will set out further measures in his June 22 budget. “This is a hole that they’ll have to fill not just by spending cuts but also by tax rises,” said Peter Dixon, an economist at Commerzbank AG in London. “They have no room for maneuver.” The pound was little changed against the dollar at $1.4371 as of 1:52 p.m. in London.
Conservative Prime Minister David Cameron and his Liberal Democrat deputy Nick Clegg yesterday said their coalition government is united over the need for immediate action to reduce the deficit, which reached a post-war high of 11.1 percent of gross domestic product in the fiscal year to March. The newly created Office of Budget Responsibility, headed by former Bank of England policy maker Alan Budd, will produce new forecasts for the deficit before the emergency budget.
The public finances typically get a boost in April as quarterly installments of tax on company profits come in, and there are signs the recovery is starting to feed through. Current receipts rose 7.2 percent from a year earlier. In cash terms, VAT soared 34 percent, corporation tax gained 13 percent and national insurance contributions, a payroll tax, increased 22 percent. Government spending climbed 6.5 percent. There was also a 7.5 billion-pound downward revision to the deficit in the last fiscal year, 5.5 billion pounds of which came in March alone as higher receipts in April accrued to previous months. Net borrowing was 145.4 billion pounds rather than 152.8 billion pounds first reported. Excluding financial interventions, the Treasury’s main forecasting measure, the deficit was 156.1 billion pounds instead of 163.4 billion pounds.
The scale budget cuts will depend on the view Budd and his colleagues take on the permanent damage done to the public finances by the financial crisis and a record recession, said Gemma Tetlow, an economist at the Institute for Fiscal Studies in London. The last government estimated that hole to be 69 billion pounds. “The undershoot in borrowing last year in isolation might reduce this estimate, although many other factors such as their assessment of the amount of spare capacity in the economy will influence their final verdict,” Tetlow said. “The government will then have to decide how fiscal policy should respond.”
The looming deficit-cutting drive has overshadowed prospects for consumer spending. Osborne has pledged to cut the deficit at a faster pace than Gordon Brown’s Labour government had planned and refused to rule out raising the rate of value- added tax, a 17.5 percent levy on sales of goods and services. Next Plc, the second-largest U.K. clothing retailer, said on May 5 that it was “very cautious” on the outlook for households because “whatever form this action takes, it is likely that it will act to restrain growth in consumer spending.” A measure of cash entering and leaving the public sector showed an 8.8 billion-pound deficit in April. Economists predicted a 7 billion-pound shortfall, according to the median forecast in a Bloomberg survey. Net debt climbed to 893.4 billion pounds, or 62.1 percent of GDP.
Spain Passes Public Wage Cuts, Lowers Growth Outlook
by Emma Ross-Thomas - Bloomberg Business Week
Spain approved the first public wage cuts since returning to democracy in 1978 and reduced its economic growth forecast for next year as the government tries to tame the euro region’s third-largest budget deficit. Gross domestic product will grow 1.3 percent in 2011, less than a previous projection for 1.8 percent, and the government said the deficit will narrow to 6 percent of GDP next year from 11.2 percent in 2009. Wages for government workers will drop 5 percent in June. “We prefer to have a conservative forecast at the moment, a conservative forecast that’s due not just to the deficit- reduction in Spain but also to similar processes in other countries,” Finance Minister Elena Salgado said in an interview with RNE radio today. The measures were approved at yesterday’s weekly cabinet meeting.
Faced with a surge in borrowing costs and calls from European Union partners to slash the deficit, Spain is reducing salaries and freezing pensions in a U-turn that prompted unions to call a strike. The cuts, the deepest for at least 30 years, were announced last week in response to the EU’s 750 billion- euro ($935 billion) aid mechanism for debt-stricken euro members. “The measures are so unpopular, it’s the last thing you want to do, so it shows you really are serious,” said Michael Dicks, head of research at Barclays Wealth in London. “The worry is more how does the economy perform when you do 6 percent of GDP of fiscal tightening -- the rule of thumb is you’d knock 3 percentage points, at least, off your growth profile.”
Spain’s largest union, Comisiones Obreras, will probably call a general strike in protest, Efe newswire reported, citing Secretary General Ignacio Fernandez Toxo. No one at the union, which supported Greek workers in their strikes against austerity measures, could immediately confirm his comments. Unions, which Socialist Prime Minister Jose Luis Rodriguez Zapatero has courted since coming to power in 2004 and consulted on measures that affect them, have already called a public- sector strike for June 8. “If you’ve got strikes before you see the pain, before you probably see the economy contracting again, you worry about what that means six months down the line when the economy is failing to enjoy some sort of recovery and social and labor market tensions increase,” Dicks said.
Ratification Needed
The decree approved by the Cabinet yesterday goes into effect immediately and then needs to be ratified by parliament, where the ruling Socialist party doesn’t have a majority. The budget plan has dented the government’s popularity, with the opposition People’s Party extending its lead over the ruling Socialists to 9 percentage points, according to a poll published by El Pais on May 16. Facing regional polls this year and a parliamentary election in 2012, Zapatero said this week he wants to make “those who have the most” contribute most to the reduction in the deficit.
Salgado would only say today that any tax hike would be “very specific” and may remain in place for the duration of the economic crisis. The measure will affect those with assets of more than 2 million euros, El Mundo reported. Spain abolished in 2008 a wealth tax that charged a rate between 0.2 percent to 2.5 percent on assets above 600,000 euros and raised 2 billion euros a year. The government’s new growth forecast remains more optimistic than those of the European Commission and the International Monetary Fund, which see the Spanish economy expanding 0.8 percent and 0.9 percent, respectively. Salgado, whose government initially responded to the global recession with one of the largest stimulus programs in Europe, has said getting the budget under control has to take priority over growth.
The extra yield investors demand to hold Spanish 10-year bonds rather than the German equivalent rose to 139.4 basis points today from 138.6 basis points yesterday. That compares with a 14-year high of 164 basis points on May 7, three days before EU governments hammered out a mechanism to stop contagion from the Greek crisis spreading across the euro region. In return for that backstop, Spain and Portugal agreed to deeper budget cuts. Zapatero will also slash his own salary and that of cabinet colleagues by 15 percent, freeze pensions and scrap a 2,500 euro subsidy for new mothers. The government plans to cut the budget deficit to 4.4 percent of GDP in 2012 and 3 percent in 2013, in line with the EU ceiling.
Bank of Japan offers cheap loan scheme
by Robin Harding and Lindsay Whipp - Financial TImes
The Bank of Japan on Friday announced details of a scheme to encourage commercial banks to lend to riskier companies in growth industries, in order to strengthen “the foundations for economic growth”. The Japanese central bank said it would offer one-year, 0.1 per cent loans to eligible banks. It wants to encourage lending to companies in industries such as health and the environment. The policy marks an almost unprecedented move into industrial policy by a central bank. In essence, the BoJ will offer cheap finance to commercial banks that are willing to take on more risk, but it will not take any credit risk itself. That may limit the effectiveness of its move.
The cheap, one-year loans are likely to prove popular with banks even if there is no net increase in loans to growth companies. If markets judge that the BoJ will now keep rates “lower for longer” the policy may stimulate the economy by lowering six-month or one-year interest rates. Allan Bedwick, principal of the OGI global macro fund, said: “It’s meaningful without doubt. It should alleviate [pressure on the BoJ to pursue other measures] for now. Moving these operations to one year is quite out of the box for the BoJ.” The central bank will not accept the risky loans as collateral and commercial banks will still have to put up high-quality assets such as government bonds in order to borrow the cheap funds. It has also made clear that the policy is not a “quantitative easing” measure that will expand its balance sheet.
In the run-up to upper house elections in July, the BoJ is under political pressure to do more to end persistent deflation. Headline consumer prices fell by 1.1 per cent in March and the decline is set to accelerate as government cuts to high school tuition fees take effect. The new policy reflects the BoJ’s view that structural reforms to boost Japan’s growth rate, such as boosting investment in growth industries, are the only way to cure deflation. Structural reform is the government’s responsibility but the BoJ is trying to give a lead. “The root problem confronting the Japanese economy is a decline in the potential growth rate. I think that is the basic cause of Japan’s deflation,” said Masaaki Shirakawa, governor of the BoJ.
Deflation and a perception that growth prospects are weak have meant that bank lending has stagnated even with interest rates close to zero. But the stagnation also reflects a lack of willing borrowers judged by commercial banks to be good credit risks. That will not change even if the BoJ makes funds cheaper for the banks. The central bank on Friday said it was working on the operational details of the new plan. Its policy board kept overnight interest rates on hold at 0.1 per cent.
It also noted “developments regarding fiscal conditions in some European economies” as a downside risk to growth, but its economic commentary remained upbeat, suggesting that it does not yet see the problems in Europe or the weak euro as a serious threat to Japan’s growth. Preliminary estimates suggest that Japan’s economy grew at an annualised rate of 4.9 per cent in the first quarter of 2010. Domestic consumption improved slightly, but the growth was still driven by a recovery in exports.
'Trust me,' and other phrases that no longer fit
by John Crudele - NY Post
When was the last time you heard the phrase . . . ?* Dollar-Cost Averaging: Back in the olden days when it was presumed that stock prices would always go higher eventually -- mainly because your broker insisted that they would -- the Wall Street party line was that investors should buy more of the equities they owned whenever prices dipped.
The overall cost in dollars of a stock you already had in your portfolio would then have a lower and lower average as the market tanked -- which was, this brokers' theory went, a wonderful thing.
No more. If you had dollar-cost averaged over the last decade, you would have become broker and broker. (Hey, maybe that's why they call them that.)
* Privatize Social Security: This was (and still is) the preposterous notion that people like you and I should have been allowed to control some amount of the money we are supposed to have accumulated in the Social Security trust fund.
Wall Street is in favor of this because once the money has been freed from the clutches of Washington's trusteeship, the financial community can convince us to invest it in stocks. Big commissions!
The trouble was (and still is) that there really isn't a pile of money sitting someplace that represents the percentage of our paychecks siphoned off each week.
All that money has already been either paid out to recipients or lent to the US Treasury and replaced by government bonds, which -- of course -- can't be cut up and parceled out to you and me so we can invest in stocks.
So, even though having some of that money back is certainly attractive, you won't be hearing about privatizing Social Security again for a long while.
* Bottom Fishing:
It's the idea that once something is beaten to mush and sinks to the bottom of the ocean (or, in the case of a stock, to lower price levels) there's something of value left.
Sometimes there is. But you could also find a stock like Enron -- now worthless -- stuck to the bottom's sludge.
Bottom fishing was once one of Wall Street's favorite phrases. But no investment adviser these days can even say those two words with a straight face since nobody really knows where this market's bottom is.
* Buy and Hold:
Brokers used to tell this to all of their less-important clients. In simplest terms it means, "Ya' gotta be patient. Don't ask me why those stocks you just bought are down."
But the real meaning is this: "Look, I want you to hang onto these stocks for the long haul, preferably until I retire and you can bug your next broker instead of me."
Today's market is more for people who buy one minute and sell the next. So buy and hold is passé.
* Stocks Climb a Wall of Worry:
I never really understood the notion that the worse things got the better it was for stocks because they liked to climb a wall of worry.
This phrase is a close cousin to the old saying "things are always darkest before the dawn." Really, are they? Is that provable either by science or observation. I'll get up early tomorrow to see.
Sometimes stocks just crash into a wall of worry, like they have been doing for the last decade.
* Follow the Fed:
OK, this one I can buy.
When the Federal Reserve takes action it usually has an effect on the financial markets. That's undeniable.
But I still haven't heard the phrase used lately, which could either be because the Fed really hasn't done much but sit still for the past few years.
Or maybe it's because the central bank has been so incredibly irresponsible in its handling of the markets since the time Alan Greenspan was chairman.
You can't follow the Fed if the Fed is directionless.
* Buy Low and Sell High: What can I say? It's the wise-ass advice of all time, usually given in jest by brokers who can't answer the question: How can I make money in the stock market.
Haven't heard this phrase lately? Wall Street just isn't into wisecracks anymore.
* Dead-Cat Bounce:
PETA probably never liked this saying, but it meant that even an ugly market -- the dead cat in the analogy -- makes some sort of a comeback.
The phrase has fallen in disfavor along with all the other clever things Wall Street used to say.
So, the financial crisis has resulted in a lot of bad things. But there's one benefit: it has killed off some annoying clichés.
The Unbelievably Rampant Corruption On Wall Street
by Michael Snyder, Economic Collapse
In order for a financial system to be able to function properly, it is absolutely essential that the general population has faith in it. After all, who is going to want to invest in the stock market or entrust their money to big financial institutions if there is not at least the perception of honesty and fairness in the financial marketplace? For decades, the American people did have faith in Wall Street. But now that faith is being shattered by a string of recent revelations. It seems as though the rampant corruption on Wall Street is seeping up almost everywhere now.
In fact, some of the things that have come out recently have been absolutely jaw-dropping. The truth is that the corruption on Wall Street is much deeper and much more systemic than most of us ever dared to imagine. As the general public digests these recent scandals, it is going to result in a tremendous loss of faith in the U.S. financial system. Once faith in a financial system is lost, it can take years or even decades to get back. So how is the U.S. financial system supposed to work properly when large numbers of people simply do not believe in it anymore?Just consider some of the recent revelations of Wall Street corruption that have come out recently....
- Bloomberg is reporting that a massive network of big banks and financial institutions have been involved in blatant bid-rigging fraud that cost taxpayers across the U.S. billions of dollars. The U.S. Justice Department is charging that financial advisers to municipalities colluded with Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers, Wachovia and 11 other banks in a conspiracy to rig bids on municipal financial instruments.
Apparently what was going on was that it was decided in advance who would win the auctions of guaranteed investment contracts, which public entities purchase with the proceeds from municipal bond sales, and then other intentionally losing bids were submitted in order to make the process look competitive. The U.S. Justice Department claims that this fraud has been industry-wide and has been going on for years. In fact, at least four financial professionals have already pleaded guilty in this case.- An industry insider has come forward with "smoking gun" evidence that some of the biggest banks have been openly and blatantly manipulating the price of gold and silver. For a time it looked like the federal government was just going to ignore all of this fraud, but after substantial public uproar some action is indeed being taken. In fact, it has been reported that federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals markets.
- New York attorney general Andrew Cuomo is investigating whether eight major Wall Street banks purposely misled the big credit ratings agencies so that they would give their mortgage-backed securities AAA ratings that they did not deserve.
- There has been a ton of legal action surrounding mortgage-backed securities lately. For example, the Justice Department and the Securities and Exchange Commission are now investigating Morgan Stanley as part of a probe into whether Wall Street firms deliberately misled investors regarding the sale of mortgage-related securities.
- Goldman Sachs is getting most of the press about fraud in the mortgage-backed securities market these days. Of course Goldman is strenuously denying that it "bet against its clients" when it changed its position in the housing market in 2007. But we all know the truth at this point. The truth is that Goldman Sachs clearly bet against its clients and was involved in a whole lot of things that were even worse than that.
Many did not think the U.S. government would dare go after Goldman, but that is what we are starting to see. U.S. federal prosecutors have opened a criminal investigation into whether Goldman Sachs or its employees committed securities fraud in connection with its trading of mortgage-backed securities, and it will be very interesting to see if anything comes of that investigation.- But not everyone is being held accountable for their actions. The guy who helped bring down AIG is going to get off scott-free and is going to be able to keep the millions in profits that he made in the process.
- Entire U.S. cities have been victims of this rampant Wall Street fraud. In fact, it is now being alleged that the biggest banks on Wall Street are ripping off some of the largest American cities with the same kind of predatory deals that brought down the financial system in Greece.
- The really sad thing is that fraud is very, very lucrative. Executives at many of the big banks that received large amounts of money during the Wall Street bailouts are being lavished with record bonuses as millions of other average Americans continue to suffer economically. Even the CEOs of bailed-out regional banks are getting big raises. It must be really nice to be them.
So does all of this make you more likely or less likely to invest in the stock market? Do you think that the American people can see all of this and still believe that the financial system is "fair" and "honest"?The truth is that Wall Street is full of rip-off artists and fraudsters who don't even try to hide their greed anymore. It is as if a thousand junior Gordon Gekkos have been unleashed and they are all trying to be masters of the universe at any cost. But what they are doing is ripping the heart out of the U.S. financial system. If people lose faith in the system the system will ultimately fail. A financial system that allows open fraud and manipulation is operating on borrowed time.
So will the rampant corruption on Wall Street now be cleaned up? Only time will tell. But one thing is for certain. The American people will be watching.
Low estimate of oil spill's size could save BP millions in court
by Marisa Taylor, Renee Schoof and Erika Bolstad - McClatchy Newspapers
BP's estimate that only 5,000 barrels of oil are leaking daily from a well in the Gulf of Mexico, which the Obama administration hasn't disputed, could save the company millions of dollars in damages when the financial impact of the spill is resolved in court, legal experts say. A month after a surge of gas from the undersea well engulfed the Deepwater Horizon offshore drilling rig in flames and triggered the massive leak that now threatens sea life, fisheries and tourist centers in five Gulf coast states, neither BP nor the federal government has tried to measure at the source the amount of crude pouring into the water.
BP and the Obama administration have said they don't want to take the measurements for fear of interfering with efforts to stop the leaks. That decision, however, runs counter to BP's own regional plan for dealing with offshore leaks. "In the event of a significant release of oil," the 583-page plan says on Page 2, "an accurate estimation of the spill's total volume . . . is essential in providing preliminary data to plan and initiate cleanup operations."
Legal experts said that not having a credible official estimate of the leak's size provides another benefit for BP: The amount of oil spilled is certain to be key evidence in the court battles that are likely to result from the disaster. The size of the Exxon Valdez spill in Alaska, for example, was a significant factor that the jury considered when it assessed damages against Exxon. "If they put off measuring, then it's going to be a battle of dueling experts after the fact trying to extrapolate how much spilled after it has all sunk or has been carried away," said Lloyd Benton Miller, one of the lead plaintiffs' lawyers in the Exxon Valdez spill litigation. "The ability to measure how much oil was released will be impossible."
"It's always a bottom-line issue," said Marilyn Heiman, a former Clinton administration Interior Department official who now heads the Arctic Program for the Pew Environment Group. "Any company wouldn't have an interest in having this kind of measurement if they can help it." The size of the spill has become a high stakes political controversy that's put the Obama administration and the oil company on the defensive. In congressional testimony Wednesday, an engineering professor from Purdue University in West Lafayette, Ind., said that based on videos released Tuesday he estimated that the well was spewing at 95,000 barrels of oil, or 4 million gallons a day into the gulf.
The Obama administration Thursday demanded that BP publicly release all information related to the disaster. BP officials had pledged in congressional testimony to keep the public and government officials informed, Homeland Security Secretary Janet Napolitano and Environmental Protection Agency Administrator Lisa Jackson said in a letter to BP chief executive officer Tony Hayward. "Those efforts, to date, have fallen short in both their scope and effectiveness," they wrote.
That letter came after members of Congress made similar demands of BP, leading to the release Tuesday of the new videos. One showed oil still billowing from one underwater pipe, despite an insertion tube BP now says is capturing 5,000 barrels of crude a day _ its entire initial estimate of the spill. The other showed a previously unseen leak spewing clouds of crude from just above the well's dysfunctional blowout preventer.
The EPA on Thursday ordered BP to switch to a less toxic version of the chemical mix it's using to disperse the oil. The EPA also for the first time posted on its website BP's test data of the dispersant's use in deep water. Those orders came days after McClatchy reported doubts about the dispersant's safety and members of Congress made a similar demand. Scientists and environmentalists praised the government for demanding that more information be made public. "This is exactly the role the government needs to be playing — they need to be overseeing BP's actions to assure that health and natural resources are protected, as much as possible, and that information is available to the public," said Gina Solomon, a senior scientist with the Natural Resources Defense Council.
John Curry, a BP spokesman, said he hadn't seen the letter from Napolitano and Jackson and couldn't comment specifically, but added: "We're just trying to provide the information people are asking for at the same time we are trying to position a lot more resources to stop the flow of oil." Curry offered no new estimate of how much oil is flowing from the leaks, but acknowledged that capturing 5,000 barrels of oil a day in the insertion tube is evidence that the official 5,000-barrel per leak estimate is low. "We've said at best it's a highly imprecise estimate," Curry said. Curry said he knew of no efforts by BP to use its robotic equipment on the sea floor to measure the flow, but said that the efforts were entirely focused on containing the spill.
BP agreed Thursday to allow the posting of a live feed of the video of the oil spill, which lawmakers said would help scientists arrive at independent estimates of the spill. "I'm sitting here looking at it right now, and it ain't 5,000 barrels a day, I'll guarantee it," said Bob Cavnar, a Houston engineer and blogger who's been involved in oil and gas exploration and production. "In Houston, there's about 125,000, 150,000 engineers," he said. "And all the engineers can calculate what the flow is." The feed eventually was overwhelmed by the number of people trying to view it and was removed from congressional websites.
Calling the disaster site a "crime scene," Larry Schweiger, the president of the National Wildlife Federation, accused BP of a cover-up. "BP cannot be left in charge of assessing the damage or controlling the data from their spill," Schweiger said. "The public deserves sound science, not sound bites from BP's CEO."
White House press secretary Robert Gibbs denied that the government was trying to cover up the size of the spill. "The best and brightest minds in all of this government, and in the scientific community and in the world of commerce are focused on this problem. Everything that can be done is being done," he said. Sens. Bill Nelson of Florida and Barbara Boxer of California, both Democrats, called on the Justice Department to investigate BP's drilling permits to determine whether the company had misled the government by claiming it had the technology needed to handle a big spill.
Since the spill, BP has announced five different approaches to sealing the leak. Three of those have been at least partially used: a 78-ton containment dome that failed; a small "top hat" dome that was placed on the seafloor May 11 but hasn't been used, and the insertion tube now siphoning a fraction of the spill. Of the two others, the "junk shot," which would fire shredded tires and debris into the damaged blowout preventer, is rarely mentioned, and the "top kill," which would force mud into the blowout preventer, may be tried this weekend.
National Oceanic and Atmospheric Administration head Jane Lubchenco told reporters on Thursday that a team of government scientists was assembled this week, a month after the spill began, to try to come up with a better estimate of the leak's volume. She said the 5,000-barrel estimate was based on visual observations on the surface. "As the spill increased in size and began to break up it was no longer possible to use that effort, which is why we have shifted to using multiple paths to try to get at better estimates," she said.
Scientists have the instruments and the knowledge needed to figure out the flow rate, and several have complained publicly that they were turned down when they offered to help, as McClatchy reported Tuesday. "The decision was made that the first priority had to be to stop the flow," Lubchenco said. Robotic vehicles were being used for that purpose and there was limited space for more of them to operate there at the same time, she said.
Conflict of Interest Worries Raised in Spill Tests
by Ian Urbina - New York Times
Local environmental officials throughout the Gulf Coast are feverishly collecting water, sediment and marine animal tissue samples that will be used in the coming months to help track pollution levels resulting from the Deepwater Horizon oil spill. Hundreds of millions of dollars are at stake, since those readings will be used by the federal government and courts to establish liability claims against BP. But the laboratory that officials have chosen to process virtually all of the samples is part of an oil and gas services company in Texas that counts oil firms, including BP, among its biggest clients. Some people are questioning the independence of the Texas lab. Taylor Kirschenfeld, an environmental official for Escambia County, Fla., rebuffed instructions from the National Oceanic and Atmospheric Administration to send water samples to the lab, which is based at TDI-Brooks International in College Station, Tex. He opted instead to get a waiver so he could send his county’s samples to a local laboratory that is licensed to do the same tests.
Mr. Kirschenfeld said he was also troubled by another rule. Local animal rescue workers have volunteered to help treat birds affected by the slick and to collect data that would also be used to help calculate penalties for the spill. But federal officials have told the volunteers that the work must be done by a company hired by BP. “Everywhere you look, if you look, you start seeing these conflicts of interest in how this disaster is getting handled,” Mr. Kirschenfeld said. “I’m not a conspiracy theorist, but there is just too much overlap between these people.” The deadly explosion at the Deepwater Horizon oil rig last month has drawn attention to the ties between regulators and the oil and gas industry. Last week, President Obamasaid he intended to end their “cozy relationship,” partly by separating the safety function of regulators from their role in permitting drilling and collecting royalties. “That way, there’s no conflict of interest, real or perceived,” he said.
Critics say a “revolving door” between industry and government is another area of concern. As one example, they point to the deputy assistant secretary for land and minerals management at the Interior Department, Sylvia V. Baca, who helps oversee the Minerals Management Service, which regulates offshore drilling. She came to that post after eight years at BP, in a variety of senior positions, ranging from a focus on environmental initiatives to developing health, safety and emergency response programs. She also served in the Interior Department in the Clinton administration. Under Interior Department conflict-of-interest rules, she is prohibited from playing any role in decisions involving BP, including the response to the crisis in the gulf. But her position gives her some responsibility for overseeing oil and gas, mining and renewable energy operations on public and Indian lands.
Officials in part of what will remain of the Minerals Management Service, after a major reorganization spurred by the events in the gulf, will continue to report to her. “When you see more examples of this revolving door between industry and these regulatory agencies, the problem is that it raises questions as to whose interests are being served,” said Mandy Smithberger, an investigator with the nonprofit watchdog groupProject on Government Oversight. Interior officials declined to make Ms. Baca available for comment. A spokeswoman said Ms. Baca fully disclosed her BP ties, recused herself from all matters involving the company and was not currently involved in any offshore drilling policy decisions. Patrick A. Parenteau, a professor at Vermont Law School, said that concerns about conflicts of interest in the cleanup are cropping up for reasons beyond examples of coziness between the industry and regulators. He noted that because of the Oil Pollution Act of 1990, which was passed after the Exxon Valdez spill, polluters must take more of a role in cleanups.
“I do think the law brings the polluter into the process, and that creates complications,” Professor Parenteau said. “That doesn’t mean, however, that the government has to exit the process or relinquish control over decision-making, like it may be in this case.” Dismissing concerns about conflicts of interest at his lab, James M. Brooks, the president and chief executive of TDI-Brooks International, said his company was chosen because of its prior work for the federal government. “It is a nonbiased process,” he said. “We give them the results, and they can have their lawyers argue over what the results mean.” He added that federal officials and BP were working together and sharing the test results. Federal officials say that they remain in control and that the concerns about any potential conflicts are overblown. Douglas Zimmer, a spokesman for the United States Fish and Wildlife Service, said the agency simply did not have the staff to handle all the animals affected by the oil spill. BP has more resources to hire workers quickly, he said, and letting local organizations handle the birds would have been impractical and costly.
“I also just don’t believe that BP or their contractor would have any incentive to skew the data,” he said. “Even if they did, there are too many federal, state and local eyes keeping watch on them.” But Stuart Smith, a lawyer representing fishermen hurt by the spill, remained skeptical, saying that federal and state authorities had not fulfilled their watchdog role. Last month, for example, various state and federal Web sites included links that directed out-of-work fishermen to a BP Web site, which offered contracts that limited their right to file future claims against the company. This month, a federal judge in New Orleans, Helen G. Berrigan, struck down that binding language in the contracts. Collaboration between industry and regulators extends to how information about the spill is disseminated by a public affairs operation called the Joint Information Center. The center, in a Shell-owned training and conference center in Robert, La., includes roughly 65 employees, 10 of whom work for BP. Together, they develop and issue news releases and coordinate posts on Facebook and Twitter.
“They have input into it; however, it is a unified effort,” said Senior Chief Petty Officer Steve Carleton, explaining BP’s role in the shared command structure. He said such coordination in oil spill responses was mandated under federal law. But even if collaboration were not required, Mr. Zimmer said, it would be prudent because federal and state authorities could only gain from BP’s expertise and equipment. “Our priority has been to address the spill quickly and most effectively, and that requires working with BP — not in some needlessly adversarial way,” he said. In deciding where to send their water, sediment and tissue samples, state environmental officials in Florida and Louisiana said NOAA instructed them to send them to BB Laboratories, which is run by TDI-Brooks. Though Florida has its own state laboratory that is certified to analyze the same data, Amy Graham, a spokeswoman for the Department of Environmental Protection there, said the state was sending samples to B & B “in an effort to ensure consistency and quality assurance.”
Scott Smullen, a spokesman for NOAA, said that two other labs, Alpha Analytics andColumbia Analytical Services, had also been contracted, but officials at those labs said B & B was taking the lead role and receiving virtually all of the samples. The samples being collected are part of the Natural Resource Damage Assessment, which is the federal process for determining the extent of damage caused by a spill, the amount of money owed and how it should be spent to restore the environment. The samples are also likely to be used in the civil suits — worth hundreds of millions of dollars — filed against the companies and possibly the federal government. While TDI-Brooks and B & B have done extensive work for federal agencies like NOAA and the E.P.A., TDI-Brooks is also described by one industry partner on its Web site as being “widely acknowledged as the world leader in offshore oil and gas field exploration services.”
The Web site says that since 1996, it has “collected nearly 10,000 deep-water piston core sediment samples and heat flow stations for every major oil company.” Hundreds of millions of dollars are also likely at stake in relation to the oil-slicked animals that are expected to wash ashore in coming weeks. While Fish and Wildlife Service officials say that BP’s contractor will handle virtually all of the wildlife and compile data about how many — and how extensively — animals were affected by the spill, they add that they will oversee the process. The data collected will likely form the basis for penalties against BP relating to theMigratory Bird Treaty Act. In the case of the Exxon Valdez spill, Exxon was fined more than $100 million, partly for violations of that federal law.
Deepwater Horizon survivor describes horrors of blast and escape from rig
by Suzanne Goldenberg - Guardian
These things Stephen Davis cannot banish from his memory from that night of chaos aboard the Deepwater Horizon: the sensation of being flung into a wall by a powerful explosion, the desperate, muddy scramble on a deck lit only by the reflections from a huge pillar of flame; the look in men's eyes before they jumped 18 metres (60ft) into the water.
"You could taste the fumes, that godawful taste in your mouth," he said. "It was hard to breathe. The oxygen was being sucked out of the living quarters. "Then all of a sudden – just boom. It was the biggest explosion I ever heard in my life." Davis was hurled 5 metres into a wall. "The whole rig was vibrating and shaking," he said. "It's like we walked straight into hell."
One month on from the 20 April explosion on the offshore drilling rig, the true scale of the environmental and economic destruction wrought by a gushing oil well in the Gulf of Mexico has yet to entirely unfold. Scientists have yet to establish a firm estimate of how much oil and gas is spewing into the Gulf from the geyser on the ocean floor, or to determine its future course. Heavy patches of crude reached the marshes of Plaquemines, Louisiana this week and the Obama administration admitted the oil had got caught up in the powerful loop current, where it could reach the coral reefs of the Florida Keys. Once in the current, the oil could travel as far as Mexico or Cuba, Frank Muller-Karger, an oceanographer at the University of South Florida, told Congress this week.
For Davis, the events of that night, when the rig exploded killing 11 of the 126 crew, was only the beginning of his ordeal. He says he and other survivors were to spend the next 40 hours in isolation – barred from phoning their families – while his lawyers believe Transocean, the owners of the rig, readied its legal defences. Seventeen crew members were seriously injured in the incident.
For Barack Obama, whose officials are being held to account for their oversight of offshore drilling in congressional hearings this week, the disaster could be the defining event of his presidency.
For the companies involved in the disaster – BP, the well owner, Transocean, the rig owner, and subcontractors Halliburton and Cameron – that night was only the beginning of what lawyers predict will be one of the longest and most complicated court battles the US has ever seen. "This will be one of the biggest torts probably in the history of the United States," said Anthony Buzbee, a Houston lawyer who is representing Davis and nine other survivors who are seeking $5.5m (£3.7m) each in damages from Transocean and other firms. "These cases will be going on for many, many years." He said he was preparing litigation against two other firms who supplied equipment to the rig.
The day of 20 April had started like any other for Davis, a 36-year-old native of San Antonio, Texas. He spent most of his 12-hour shift in the centre of the rig, welding the transporter platform for the blowout preventer (BOP). Investigators see the failure of that safety device, which sits on the ocean floor, as one of the causes of the disaster. As Davis went off shift, he overheard an engineer say he was going to try to relieve the pressure on the BOP. Davis ate dinner, phoned his fiancee and son, worked out in the gym and returned to his quarters in the lower level of the rig.
During all that time – about three hours – he heard loud hisses as engineers worked to reduce the pressure building up from the ocean floor. Later, this would strike him as odd as relieving pressure is usually achieved quickly. He had been in bed watching TV for about 15 minutes when he heard the first bang. Initially he thought a crane might have dropped a piece of casing or a boom. Then the rig started shaking and the lights went out. He put a lifejacket on over his shorts and T-shirt, grabbed his tennis shoes and ran into the hallway.
Davis has been working on offshore rigs for seven years but had only been on the Deepwater Horizon four days. He did not know his way around. "My comfort zone was really small," he said. He had made it part way up the stairs towards the lifeboats on the middle deck when the walls caved in. Davis found another staircase. On deck, screaming workers were sliding through mud, looking for their designated lifeboats. The reserves of helicopter fuel and diesel caught fire and exploded. "People were panicking," he said. "They would look at you and just jump into the water. You could understand why if you looked behind you and saw all these explosions, you would think you were either going to burn up or jump."
Davis made it to lifeboat No 1. It was an 18 metre drop to the water and the lifeboat was overloaded, but the vessel did not capsize and its pilot guided it safely to the rig's supply vessel, the Damon Bankston. He watched the Deepwater Horizon burn from there. "We actually watched the derrick [a lifting device] melt from the starboard side of the rig as they airlifted the guys out. It was horrid, it was overwhelming, it was unbelievable."
By Davis's estimate, it took 12-15 minutes to get from the rig to the work boat, but it would take another 36-40 hours before they were to return to shore – even though there were dozens of boats in the area and Coast Guard helicopters airlifting the most severely injured to hospital. Some of the men were openly furious, while others, like Davis, were just numb. He says they were denied access to the onboard satellite phone or radio to call their families.
When the ship finally did move, it did not head for shore directly, stopping at two more rigs to collect and drop off engineers and coast guard crew before arriving at Port Fourchon, Louisiana. The company was ready for the men then, with portable toilets lined up at the dock for drug tests. The men were loaded on to buses, given a change of clothing and boxes of sandwiches, and taken to a hotel in Kenner, Louisiana, where finally they were reunited with their families.
Lawyers say the isolation was deliberate and that Transocean was trying to wear the men down so they would sign statements denying that they had been hurt or that they had witnessed the explosion that destroyed the rig. "These men are told they have to sign these statements or they can't go home," said Buzbee. "I think it's pretty callous, but I'm not surprised by it." Davis had been awake nonstop for about 50 hours by that point. He signed. Buzbee says most of the men did.
But that is unlikely to limit the lawsuits against the companies involved in the disaster. In addition to survivors, Buzbee is representing more than 100 oystermen, fishermen and seafood packers who are seeking economic damages. "Anyone whose livelihood depends on the water is going to have some sort of damage," he said. Dozens of other lawyers are also assembling cases. For Davis, though, it is still too early to think about his next step. Will he ever set foot on a rig again? He can't say. "For now, I'm just numb."
Gulf oil spill may be 19 times bigger than originally thought
by Renee Schoof and Lauren French - McClatchy Newspapers
The latest glimpse of video footage of the oil spill deep under the Gulf of Mexico indicates that around 95,000 barrels, or 4 million gallons, a day of crude oil may be spewing from the leaking wellhead, 19 times the previous estimate, an engineering professor told Congress Wednesday. The figure of 5,000 barrels, or 210,000 gallons, a day that BP and the federal government have been using for weeks is based on observations of the surface slick made by satellites and aircraft. Even NASA's satellite-based instruments, however, can't see deep into the waters of the gulf, where much of the oil from the gusher seems to be floating. The well is 5,000 feet below the surface.
Adm. Thad Allen, the commandant of the Coast Guard, said in an interview Wednesday that he'd had many conversations over the past week or more with other government science officials about how to get a more precise calculation of the flow, a better estimate of the total oil in the gulf since the April 20 explosion and an accurate assessment of what's happening to the oil on the surface. Allen said his advisers are considering putting sensors near the leak that would give a better understanding of the amount of oil entering the water. "It's coming together very nicely. I'm satisfied we'll have the right people," he said. It's not yet known when the equipment would be ready to use, he added.
Sonar equipment already has been used to try to figure out how well chemical dispersants are working at deep levels, Allen said. "I don't mean to be glib, but it's kind of hard to measure the amount of water you're putting on a fire while you're fighting a fire," he said. Federal agencies got as much equipment assembled as they could to keep the oil away from shore by skimming, burning and other measures, he said. There's also limited space for the robotic vehicles to work near the spill site as BP engineers try to contain the spill, which is the top priority, he said.
Allen announced plans to assemble the team of experts to measure the size of the spill during hearings on Tuesday. NOAA Administrator Jane Lubchenco said that it would be important, but difficult, to figure out the amount of oil from the ruptured wellhead.
Steve Wereley, an associate professor of mechanical engineering at Purdue University in West Lafayette, Ind., earlier this month made simple calculations from a single video BP released on May 12 and calculated a flow of 70,000 barrels a day, NPR reported last week. On Wednesday, Wereley told a House of Representatives Energy and Commerce subcommittee that his calculations of two leaks that are on videos BP released on Tuesday showed 70,000 barrels from one leak and 25,000 from the other.
He said the margin of error was about 20 percent, making the spill between 76,000 and 104,000 barrels a day. However, Wereley said he'd need to see videos that showed the flow over a longer period to get a better calculation of the mix of oil and gas from the wellhead. Rep. Ed Markey, D-Mass., who led the hearing, said he'd work to get that information from BP. "The true extent of this spill remains a mystery," Markey said. He said BP had said that the flow rate was not relevant to the cleanup effort. "This faulty logic that BP is using is . . . raising concerns that they are hiding the full extent of the damage of this leak."
Markey said he wrote to BP last week asking how it made its estimate and whether it had refused offers by scientists to provide better estimates. He said BP merely sent back an acknowledgement of the receipt of his letter, but didn't answer.
Richard Camilli, an associate scientist in the department of applied ocean physics and engineering at the Woods Hole Oceanographic Institution in Massachusetts, told Markey and others on the panel that he responded to a request for help from BP on May 1 to get a look inside the failed blowout preventer. Camilli develops instrument sensors and robotic technology to detect pollution in the ocean below the surface. He suggested using multi-beam sonar and an acoustic current profiler to measure the flow of oil and gas. That would help scientists determine if the blowout preventer was partially constricted and what happened to it, he said. BP was at first interested, but a few days later declined the offer.
Camilli said the same instruments could be used to estimate the total spill volume. Rep. Peter Welch, D-Vt., asked Camilli and the other scientists who testified if knowing the amount was important.
"Absolutely," Camilli said. "It's like balancing your checkbook. You have to know where the oil has gone, where the gas has gone, and what the eventual fate will be." Wereley said it's crucial to know the rate of the flow of oil to figure out what could stop it.
Frank Muller-Karger, a professor of biological oceanography and remote sensing at the University of South Florida, said it's important to know the real amount of the spill. In another hearing on Wednesday, the chair of the Senate Committee on Small Business and Entrepreneurship pressed officials from the Small Business Administration and the Government Accountability Office to streamline the loan process for business owners in the wake of the spill. Sen. Mary Landrieu, D-La., said she's concerned that small business will fail while waiting for financial relief. James Rivera, an associate administrator in the Small Business Administration, said his office made strides, streamlining the process for applicants and allowing existing borrowers to deter loan payments.
BP Collecting Less Oil From Gulf Leak
by Isabel Ordonez - Wall Street Journal
The amount of oil BP PLC is siphoning from a massive leak on the floor of the Gulf of Mexico has declined to 2,200 barrels a day, a company spokesman said Friday. The updated figure comes a day after the British oil company said it was siphoning 5,000 barrels of oil a day to a vessel on the surface, or as much crude as was officially estimated to be gushing out of a damaged well a mile below the surface. That suggested that far more than the estimated amount of oil is flowing into the Gulf.
The siphoning rate is "not always the same, it fluctuates," BP spokesman John Curry said in a phone interview, adding that the milelong tube connecting a damaged drilling pipe to the surface is also collecting 15 million cubic feet of natural gas. Mr. Curry said the company will provide details later Friday on the reasons why the rate declined from Thursday. BP shares were down 1.4% at $43.98 in midday trading in New York, even as the broader market recovered from Thursday's sharp sell-off. The company's stock has lost about a quarter of its value since the Deepwater Horizon rig it was leasing exploded April 20, killing 11, and then sank some 40 miles off the Louisiana coast.
Earlier Friday, BP challenged the accuracy of some third-party estimates that have put the amount of oil flowing from the spill at 50,000 barrels a day or higher. The company said in a statement Friday that these estimates were too high because they didn't take into account distortions in the shape of the leaking pipeline and the volume of gas that is escaping. Some scientists have estimated the leak could be more than 10 times the initial figure, based on observations of a large plume of oil deep beneath the surface of the Gulf. BP has been criticized for the uncertainties over the amount of oil that is leaking. The Obama administration on Thursday said BP wasn't doing enough to keep the government and public informed about the spill. Some lawmakers have accused BP of a "cover-up" over the size of the spill.
The tube that is siphoning oil, which was put in place last Sunday, was the first concrete sign of success in BP's efforts to contain the spill. Among other containment measures, the company continues to use chemical dispersants to break up the oil and is skimming oil from the surface of the water. Over the weekend, the company plans to attempt to clog up the well through an operation known as a "top kill." The strategy involves infusing the wellhead with heavyweight fluids.
Month after oil spill, why is BP still in charge?
by Matthew Daly - AP
Days after the Gulf Coast oil spill, the Obama administration pledged to keep its "boot on the throat" of BP to make sure the company did all it could to cap the gushing leak and clean up the spill.
But a month after the April 20 explosion, anger is growing about why BP PLC is still in charge of the response. "I'm tired of being nice. I'm tired of working as a team," said Billy Nungesser, president of Plaquemines Parish in Louisiana. "The government should have stepped in and not just taken BP's word," declared Wayne Stone of Marathon, Fla., an avid diver who worries about the spill's effect on the ecosystem.
That sense of frustration is shared by an increasing number of Gulf Coast residents, elected officials and environmental groups who have called for the government to simply take over. In fact, the government is overseeing things. But the official responsible for that says he still understands the discontent. "If anybody is frustrated with this response, I would tell them their symptoms are normal, because I'm frustrated, too," said Coast Guard Commandant Thad Allen. "Nobody likes to have a feeling that you can't do something about a very big problem," Allen told The Associated Press Friday.
Still, as simple as it may seem for the government to just take over, the law prevents it, Allen said. After the 1989 Exxon Valdez spill in Alaska, Congress dictated that oil companies be responsible for dealing with major accidents — including paying for all cleanup — with oversight by federal agencies. Spills on land are overseen by the Environmental Protection Agency, offshore spills by the Coast Guard. "The basic notion is you hold the responsible party accountable, with regime oversight" from the government, Allen said. "BP has not been relieved of that responsibility, nor have they been relieved for penalties or for oversight." He and Coast Guard Adm. Mary Landry, the federal onsite coordinator, direct virtually everything BP does in response to the spill — and with a few exceptions have received full cooperation, Allen said.
White House press secretary Robert Gibbs was even more emphatic. "There's nothing that we think can and should be done that isn't being done. Nothing," Gibbs said Friday during a lengthy, often testy exchange with reporters about the response to the oil disaster. There are no powers of intervention that the federal government has available but has opted not to use, Gibbs said. Asked if Obama had confidence in BP, Gibbs said only: "We are continuing to push BP to do everything that they can."
BP spokesman Neil Chapman said the federal government has been "an integral part of the response" to the oil spill since shortly after the April 20 explosion. "There are many federal agencies here in the Unified Command, and they've been part of that within days of the incident," said Chapman, who works out of a joint response site in Louisiana, near the site of the explosion of the Deepwater Horizon oil rig. Criticism of the cleanup response has spread beyond BP. On Friday, the Texas lab contracted to test samples of water contaminated by the spill defended itself against complaints that it has a conflict of interest because it does other work for BP.
TDI-Brooks International Inc., which points to its staffers' experience handling samples from the Exxon Valdez disaster, said the National Oceanic and Atmospheric Administration and the U.S. Fish and Wildlife Service helped audit the lab and approved its methods. "A typical state laboratory does not have this experience or capacity," TDI president James M. Brooks said. The company's client list includes federal and state agencies along with dozens of oil companies, among them BP, a connection first reported by The New York Times. TDI-Brooks said about half of the lab's revenue comes from government work.
Test results on Deepwater Horizon samples will figure prominently in lawsuits and other judgments seeking to put a dollar value on the damage caused by the spill. Deputy Interior Secretary David Hayes, who traveled to the Gulf the day after the explosion and has coordinated Interior's response to the spill, rejected the notion that BP is telling the federal government what to do. "They are lashed in," Hayes said of BP. "They need approval for everything they do." If BP is lashed to the government, the tether goes both ways. A large part of what the government knows about the oil spill comes from BP. The oil company helps staff the command center in Robert, La., which publishes daily reports on efforts to contain, disperse and skim oil.
Some of the information flowing into the command center comes from undersea robots run by BP or ships ultimately being paid by BP. When the center reported Friday that nearly 9 million gallons of an oil-water mixture had been skimmed from the ocean surface, those statistics came from barges and other vessels funded by BP. Allen, the incident commander, said the main problem for federal responders is the unique nature of the spill — 5,000 feet below the surface with no human access. "This is really closer to Apollo 13 than Exxon Valdez," he said referring to a near-disastrous Moon mission 40 years ago. "Access to this well-site is through technology that is owned in the private sector," Allen said, referring to remotely operated vehicles and sensors owned by BP.
Even so, the company has largely done what officials have asked, Allen said. Most recently, it responded to an EPA directive to find a less toxic chemical dispersant to break up the oil underwater. In two instances — finding samples from the bottom of the ocean to test dispersants and distributing booms to block the oil — BP did not respond as quickly as officials had hoped, Allen said. In both cases they ultimately complied. "Personally, whenever I have problem I call (BP CEO) Tony Hayward" on his cell phone, Allen said.
James Carville Takes On Obama On Oil Spill: He's 'Risking Everything' With 'Go Along With BP Strategy'
by Laura Bassett - Huffington Post
Democratic strategist James Carville and MSNBC anchor Chris Matthews, two reliable supporters of President Barack Obama, have issued withering critiques of the administration's handling of the Gulf oil spill. Carville, the famously outspoken Louisianian who was a chief political aide to Bill and Hillary Clinton, told CNN's Anderson Cooper on Thursday that the administration's response to the spill has been "lackadaisical" and that Obama was "naive" to trust BP to manage the massive clean-up effort.
"I think they actually believe that BP has some kind of a good motivation here," he said. "They're naive! BP is trying to save money, save everything they can... They won't tell us anything, and oddly enough, the government seems to be going along with it! Somebody has got to, like shake them and say, 'These people don't wish you well! They're going to take you down!'"
Carville also accused the White House of going along with what he called the "let BP handle it" strategy. "I'm as good a Democrat as most people, and I think this administration has done some good things. They are risking everything by this 'go along with BP' strategy they have that seems like, lackadaisical on this, and Doug is right, they seem like they're inconvenienced by this, this is some giant thing getting in their way and somehow or another, if you let BP handle it, it'll all go away. It's not going away. It's growing out there. It is a disaster of the first magnitude, and they've got to go to Plan B."
Likewise, Chris Matthews argued during a "Tonight Show" appearance that the President was to "acting a little like a Vatican Observer." "The President scares me," he said. "When is he actually going to do something? And I worry; I know he doesn't want to take ownership of it. I know politics. He said the minute he says, 'I'm in charge,' he takes the blame, but somebody has to. It's in our interest."
The Obama administration has thus far avoided the political backlash that President George W. Bush faced in the aftermath of Hurricane Katrina, in part by comprehensively documenting its actions in the Gulf and staying on message ("Fully engaged since Day One..."). But crude oil has now been erupting into the Gulf of Mexico for over a month, and the sense that the Obama administration is treating the spill as an urgent national emergency has diminished even as the impact of the disaster has magnified. Not until yesterday, critics note, a full 30 days after the oil rig explosion, did federal officials establish a technical team to measure the full extent of the spill.
Until now, the vast bulk of clean-up responsibilities have been left to BP, which isn't much closer to capping the oil leak now than it was weeks ago. The oil has already affected nearly 50 miles of sensitive marshlands on the Louisiana coastline, according to estimates by the National Oceanic and Atmospheric Association, and federal authorities have increased the no-fishing zone to 45,728 square miles in the Gulf of Mexico. BP has consistently downplayed the severity of the spill despite growing evidence that suggests otherwise, and their strategy to clean up the spill has involved the use of a toxic chemical dispersant that EPA officials warn may cause lasting damage to coastal ecosystems.
The EPA has now given BP 24 hours to begin using a less toxic dispersant, but Carville says the government's primary failure was trusting BP to handle the clean-up in the first place. "Right now I wouldn't trust BP to do anything," he said. "And nobody does."
87 comments:
In case you missed this earlier:
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 for that.
See flyer here!
* The black swan's recent forrays:
- Iceland Volcano disaster
- Greece debacle
- Deepwater Horizon catastrophe
Blackie, you doin' a heckuva job!
* Three cheers for the American homeowner; As TEOTWAWKI approaches he still pays his mortgage; The Liebeck v. McDonald's precedent says underwater homeowners can sue since bad mortgages have scalded their private parts
* Daily Obama Amalgam:
- He was top recepient of BP campain money
- He is paints himself into corners and then slips out
- He's deplorable
- He's just one piece of the puzzle
- He was expected to be an improvement from GWB but is exerementally runnier
- He is a shameless sociopath
- His budgetary priority is to blow people up
* Deepwate driling is the desparate act of a desparate species; The administration is coddling BP like they coddled BoA; BP's stock price is up; BP is screwing up the cleanup; TV Evangelists are scarier than oil spills; Double dip recession will be blamed on the oil spill; As oil disappears so will trees
* Because of environmental degradation we will sink below hunter-gatherer carrying capacity; North Korea may start Armageddon; VIX is up 26% in one day; Scientists have created new life form
* Guns:
- When it requires a gun to survive only survivors will have guns
- If dieoff is 98% a gun won't save you
- Principles are stronger than guns
- Buying a used Glock - $295 - becoming a hapless victim - priceless
- Non-violence only works among the civilized
- If you don't want to arm yourself to fight the unwashed hoardes, click your heels together three times and say, "There's no place like Utopia"
* Some are in limbo until the crash; Current events cause epiphanous claxons to go off inside sensitive heads; Even those who are hoping for collapse might not enjoy it but at least the cognitive dissonance will be less; If the world were to end tomorrow I would still comment on TAE today
* Cannibalism:
- It is common in human history
- Some request a Donner Pass Recipes Book
- Once your dead you might not care if you get eaten
- Now is a good time to get your teeth fixed; Boomers have notoriously tough flesh
- Cannibalism might be accompanied by caring and kindness; Would you like another helping of stock broker?
* The Deepwater Horizon Accident: It's a financial disaster; It's an ecological disaster; It's a financial disaster; It's an ecological disaster; Wait ... it's both; How much would you pay for a disaster like this? Don't answer yet, there's more ...
from previous:
Rototillerman said...
"Greenpa said, "I'll bet my shirt he wants to stir them up. Why, however, is beyond me."
If you've got a third of the country foaming at the mouth over a new world order, then that's two thirds of the country not worrying about ecological disaster or the implosion of the financial system (the other third are the political opposites drawn into defending Obama)."
Sure, the distraction aspect is very high. But I think it goes deeper, too. In this New Age Of Rage, why pump the rage up? Aimed at whom, ultimately?
Partly, I think Obi may be hoping that now that Rand Paul has stuffed both feet into his mouth, down past the epiglottis, perhaps this will induce him to now shoot himself in the foot...
And/or; the more riots we have before elections; particularly good race riots, the more support there will be for strong police. Lots of interesting things you can do with lots of cops.
I suspect there are like 3-4 levels in this one.
oh, yeah, and - the cops will have to be Federal. We really don't want KY reestablishing Jim Crow; and the local cops are in it up to their pointy hoods. so... Lots more Federal Marshalls- probably a new branch, or two...
I met up with a friend originally from Ethiopia who I haven't seen since before Obama became president. We used to talk politics. We resumed the conversation. He offered his observation that Obama is doing exactly what Bush did. He wonders if Obama is criticized because he is a black man. Valid question. And this is being asked in Canada.
More Than Just an Oil Spill by Bob Herbert -
Excellent short article in todays New York Times - under 'most popular' articles box on the right hand side.
@Greenpa, " lots more Federal marshalls..."
Well what else is one to do with the soon to be returning troops from Iraq and Afganistan?
Will the lucky few employed at home give up a job to the valiant and deserving soldier returned?
Expanding the Federal Marshalls serves more than one agenda.
"Bush DoJ sheltered BP executives from criminal probe"
http://digitaljournal.com/article/292341
Why would I shut off that oil spill if I feared that once I did I would never be allowed to reopen it again?
Must get those relief wells in first don'tcha know?!
MSM voices are never going to concede the economy is a Mark McGwire steroid trot around the bases. Unlike McGwire, however, the deep ball to center never made it over the fence; it was nothing but a pop fly, a firecracker dud on a soggy Fourth of July. Despite the obvious, mention of another economic depression is strictly avoided. Instead, some soothsayers attempt to diminish the lethality and magnitude of the current economic catastrophe by terming the Great Depression as just another recession. Tricky Devils.
The shiny new stimulus and bailout cleats looked pretty good at first on those same ol’ shoes. Good, that is, until it became obvious that shoes and cleats were never going to gain traction in a pond of quicksand. Yet, long before the opening bell of the bailout, some observers were already raising the victorious hand of deflation and perhaps raising it a little too gleefully at that.
Nonetheless, their prognostications will ultimately prove correct, IMO. It just feels too much like a hollow pit in the economic world that I observe and experience. Thus, the indisputable appearance of this low-chroma future looks about as pure and brightly saturated as lemon yellow into a batch of confused purple. But the tricky devils understand the best way to make a dull and dreary future look brighter is to place an even more dull and gray color right next to it.
I expect the MSM will soon be introducing The “Recession“ brothers, circa 1932 and 2010, to a far wider audience.
I can’t buy Ilargy’s excuse for Obama’s actions.
“He is not a leader. He simply lacks the qualities and the instinct required for the position.”
Ilargy is giving Obama an excuse which lets him of off the hook for his actions. I don’t think there is an excuse, he is doing exactly what he has/needs/wants to do given the political situation he is in.
I could easily go along with he is an actor doing what his directors are telling him to do. Or his role is to follow the agenda of the republicans while keeping the facade of a two party system.
If the Democrats are there to facilitate the Republicans then a lot and maybe all of what the Democrats say and do falls into place.
It could be a balancing act for the Democrats who have to say things that make us believe they are an opposition party while enabling Republican issues.
If you start again and assume that he and the Democrats are not dumb and they are doing what the have/have/need to do then you will be searching for why the hell did he/they do that? This may lead you to some very uncomfortable answers but they may be closer to correct than “he lacks the qualities . . .”
We give too many excuses for what the Democrats are doing instead of giving them credit for the bad they are doing.
It took me little time to collect 99 published excuses for the actions of the Democrats.
The latest 20 from THE EXCUSE LIST
79) most democrats, once they get their man elected abandon the winds. R. Reich Article
80) Reconciliation is too extreme a measure to use on a piece of legislation so important.
81) Use of reconciliation would infuriate Senate Republicans
82) Obama needs Republican votes on military policy so he doesn't dare antagonize them on health care.
83) Reid fears he can't even get 51 votes in the Senate now, after Scott Brown's win.
84) they're afraid it will jeopardize their chances of being reelected and may threaten their control over the House and Senate.
85) Republicans, the military and the press would jump on the same band wagon and accuse them of being weak …. of being wimps. Ellsberg
86) Does the Democratic leadership have the stomach to do the right thing?
87) Are they convinced that a public option would hurt them at the polls in November?
88) the approach to governing he (Obama) had in mind simply will not work. Unknown
89) There's nothing to stop them (Insurance Industry), since Democrats have no balls. Unknown
90) It's really hard to believe that so many Dem leaders are this stupid. Unknown
91) (Obama) he sort of subconsciously wants that? (One Term Prez) Unknown
92) Maybe Obama did this so he can point back to it as "doing something" when the next oil shock hits: (Bryon Boot Off-shore drilling)
93) While support Obama's policies as the better of two evils, he's too cautious and compromising. Unknown
94) (Obama) he has surrounded himself with an economic team that is extremely ignorant and conflicted unknown
95) congress is made up of weakling, avaristic, hypocrites, who are in no way in touch with the lower, middle and upper middle classes ProPeteB
96) But the Democratic leadership is not seizing on this advantage and on the opportunity presented by the SEC case against Goldman Sachs --Simon Johnson
97) key figures in the Democratic establishments are too worried about upsetting financial sector donors Simon Johnson
98) So the path that enables them to avoid confrontation of ideas is always the most attractive, even if it risks moving the Court to the Right. Greenwald
99) (Obama) He is not a leader. He simply lacks the qualities and the instinct required for the position. Ilargi
The news from the Gulf of Mexico is that there is no news. A massive spewage of crude oil into the ocean has become ordinary.
I wonder what Lady Gaga is up to?
Sez the New York Times:
Just about everything we know about the disastrous gulf oil spill we could have learned from Google Earth: thousands of miles of the Gulf of Mexico covered in oil slick or sheen, some of it headed for the Florida coast; almost 46,000 square miles, an area about the size of Pennsylvania, closed to fishing; miles of Louisiana marshland under siege from heavy oil.
But there is far more that we don’t know, either because the government has not extracted the information from BP or is not sharing it with the public.
Sharing information is at the bottom of the list of deficiencies. This government does not know how to govern.
Howcum the government didn't freeze BP's assets worldwide? That would guarantee BP's financial responsibility for the spill, wouldn't it? Howcum the Justice Department hasn't begun an investigation? Where is the Special Prosecutor? Howcum the President didn't order BP to drop everything else and use all of its resources to plug the leak? Where is BP's oil spill response teams and equipment? Why isn't the Federal government in court demanding a $2 million per day fine for oil discharge rule violations?
Where is the criminal investigation, the grand jury and the list of indictments promised? Where is the promise of BP executives and other responsible individuals - and there are many - facing accountability on the dock?
Long prison terms would serve to warn others!
Obama is the latest personification of the handwringing idiot Bill Clinton. In whose presidency all the TV's in the White House were tuned 24 hours to the Weather Channel. This so Clinton could fly to storm damage sites and commiserate with the myriad tornado and flood victims: feel their lousy- stinkin' pain.
Obama's variation on the theme of inept has been to send thousands of bureaucrats to New Orleans - at taxpayer expense of course - to no discernible effect.
Like most political entities today, Obama does not know how to govern.
In every case, the suffering public and the country as a whole becomes a prop for regals' posturing noblesse oblige, like G. W. Bush's patronizing appearance in New Orleans after Katrina.
http://economic-undertow.blogspot.com/2010/05/failure-to-govern.html
I'm at the point where I'm about to tell the people who would support cutting off social services:
"Shoot us first, or we shoot you."
It is not quite time yet for widespread social unrest in the US - isolated events maybe, but it will not take hold. Too many people still believe things get better. When teenage children are leaving home because their families can no longer feed them, then it will be time. If you have not watched the "Riding the Rails" documentary of kids stealing rides on railroads in the Great Depression, its a good way to get a feel for the level of desperation of that time.
I realize you like to present a spectrum of opinion rather than reinforcing one ideology, Ilargi. So I didn't take it too seriously when I read the Ron Holland bit about "don't make the same mistake South carolina made!" What a jerkoff.
He writes about how S.C. suffered because it chose "freedom" over union during the U.S. Civil War, but neglects to bring up the word "slavery." Holland's historical memory does go back far enough to bring up "Ein Reich, Ein Volk, Ein Fuhrer" and likens that to the current smothering Uniting of the States. Dude -- when you're defending human slavers in the Confederacy, you're ineligible to call other people Nazis!
Oh -- and he can't even spell "heroin" correctly. As Bigs Bunny would say, "Wotta maroon!"
Always good to see how the other side thinks, no matter how risible. Actually, the stupider, the better for larfs. But did you choose Holland because you liked his name, Ilargi?
scandia said...
I met up with a friend originally from Ethiopia who I haven't seen since before Obama became president. We used to talk politics. We resumed the conversation. He offered his observation that Obama is doing exactly what Bush did. He wonders if Obama is criticized because he is a black man. Valid question. this is being asked in Canada.
No, Obama's being criticized because he's doing exactly what Bush did.
bosuncookie,
Hey, Steve, you're a great organizer. Good work!
Peace!
@ Twilight:
For a hard-hitting documentary about youth riding the rails in modern times I can't recommend the episode of MTV's (this is not a joke) True Life: The Travelers enough.
Your mind will be blown that eMpTyV, purveyors of crap like the Real World and Jersey Shore, could produce such a gripping documentary about society's fringe. Review is available here:
True Life: The Travelers
@ memphis:
You are absolutely correct that Obama is being criticized because his actions have not deviated one iota from the prior WH occupant. Barack's actions are clearly for the benefit of moneyed, entrenched, primarily white corporate and Wall St. interests. This is an inarguable fact at this point in his reign.
Whether you believe the U.S. economy ever exited recession or not, a further decline is already baked in by numerous macro factors
"Two Scoop Special": Double-Dip Recession Guaranteed
Re: The bankrupt states;
A commenter to the ZH article named metastar presented the same data on borrowed unemployment monies as a more useful percentage of each state's GDP:
Michigan 1.18%
Indiana 0.81%
Wisconsin 0.71%
S.C. 0.70%
Penn. 0.68%
N.C. 0.64%
Kentucky 0.63%
Ohio 0.59%
R.I. 0.59%
California 0.45%
Idaho 0.44%
New Jersey 0.44%
Illinois 0.43%
Arkansas 0.42%
Nevada 0.38%
Missouri 0.38%
New York 0.34%
Connecticut 0.28%
Florida 0.26%
Minnesota 0.22%
Alabama 0.21%
Vermont 0.15%
Colorado 0.13%
Mass. 0.13%
Georgia 0.13%
Texas 0.11%
Virginia 0.11%
Kansas 0.09%
S.D. 0.08%
Maryland 0.06%
Delaware 0.02%
Tennessee 0.01%
Michigan is in a class by itself.
Gerald Celente is in fine fettle on Mad Max Keiser today.
Stock Market Investing Advice from the NYTimes:
I wonder who the NYTimes is looking out for?
"IF you’ve got money in the stock market, take a deep breath: It’s one of those moments........For long-term diversified investors, he said, it probably makes sense to ride out the storm, and, maybe, add to your holdings. “Keep your shoulder harness on, and your seatbelt secured, and your life should be O.K.,” he said.......There are even reasons to be encouraged by the health of the global economy, said Larry Hatheway, chief economist and chief strategist at UBS Investment Bank. While he acknowledged the negative effects of the “sovereign debt crisis” in Europe and myriad problems elsewhere, he also said: “Signs of growth are very strong and incoming data is beating expectations, and this is true in all major economies, in all major regions around the world.......Corporate profits are surging, Mr. Hatheway said........“We’ve got low rates, strong profits and strong growth,” he said. “That’s a pretty powerful combination to boost stock prices.”
Elg
I've been living on a diet of TAE logic, Bageant rant, and Celente broadcasts for some time now.
All meat and no bones ;)
Ilargi.
This post pinned a tail on the donkey for me in a way. ta.
A Ramone ref. is always a good idea aswell.
On a lighter note, I'm not a fan of his but Jose Mourinho might turn out to be the greatest manager of all time. he's a tactical genius.
Z.
Just reading a review of a book written in 1947 that has just been translated into English. It perhaps captures the current zeitgeist explaining the unexpected success of this translation.
The book, " Alone In Berlin" by Hans Fallada is about German resistance to the Nazis. A quote from the review caught my interest as perhaps a way to work on psychological preparation,
" a chilling portrayal of extreme fear under dictatorship" .
For the review see:
http://www.guardian.co.uk/books/2010/may/23/hans-fallada-thriller-surprise-hit
Karl D. hasWeekend Musings For 5/22.
( I’ll para-phrase and look into my crystal ball)
“The entire rally off the 2009 lows was an engineered fraud predicated on covering up insolvencies and permitting the asset-stripping that banks had practiced for the previous decade to not only continue but accelerate!”
Grannie’s savings have been taken by the financial establishment with the active participation of the political establishment!
“The only question remaining is whether we will do it voluntarily and accept the damage that must be recognized and be worked through, or whether it will happen by force via a market collapse.”
Let’s get real!
The system cannot be repaired!
Who got scammed by the system? Some of the wealthy middle class.
90% of the population don’t give a shit. They will lose nothing. They are living one paycheck away from bankruptcy. They tried to get something from the system when the getting was good. They know that the game is over and that the can is being kicked down the road. They will not go out into the street to restore the lost wealth to some of the “rich”.
Oh! What about the retirees who were promised or are receiving government pensions for helping the wealthy get even wealthier? Won’t they care and start a revolution? ( I’ve changed my mind about the grey swans.)
Naw! Those that still have their marbles know that its over. They only hope that system will be able to continue for the few years that they have left to live.
Oh! What about the pretend middle class? (Those that lived beyond their means?). Won’t they rise up against the titans, their masters? Naw! They know that the gig is up. A few tears. A few suicide. A few random organized marches. There will not be any sustainable red shirt protest from them.
Oh! What about the honest politicians and leaders? (Let’s say that would be you.) Would you put up your fortune/savings to run for office and then endanger your life and the life of your loved ones by opposing the wealthiest and most powerful people on the planet? You do not need to answer. Everyone knows the answer to that question. Your name is not jesus. You will not try to get rid of the money changers from operating on the steps of the temple.
Okay! So, what will be reality?
Reality is that “Yesterday is gone”. Prepare for a reset. Depending where you live, changes will be coming faster than you expect. You must be prepared to adapt. If your preparations are to perpetuate and continue yesterdays lifestyle then you should accept that on a longer time line, your preparations are irrelevant. The odds are against the survival of most “bloodlines”.
jal
@Steve From Virginia said...
Howcum the government didn't freeze BP's assets worldwide? That would guarantee BP's financial responsibility for the spill, wouldn't it? Howcum the Justice Department hasn't begun an investigation? Where is the Special Prosecutor? Howcum the President didn't order BP to drop everything else and use all of its resources to plug the leak? Where is BP's oil spill response teams and equipment? Why isn't the Federal government in court demanding a $2 million per day fine for oil discharge rule violations?
I think the answers to your questions go back to the secret oil meeting(s?) between Dick Cheney and big oil company executives when Cheney turned over the reigns of oil/energy policy making to these oil company creeps instead of Congress. Some democracy eh?
Continued…
Why does this seem so difficult to understand? Catton in Overshoot says that if the U.S. had decided to fix ecological load at the level in 1970, and achieve this by 1980, U.S. population would need to have been below that of 1890. VK contends the ecological loads found in Africa are not a problem. I’d suggest he look at the aid Africa, as a continent, receives from the OECD nations and the UN. Without both food aid and financial aid (both carrying capacity enlargements) Africa’s problems would be even more acute than they are at present. Does he really think Africa, as a continent, could, at the very least, feed itself unaided? What if Africa, as a continent, managed to industrialise to the same levels as those found in Western Europe on the eve of war in 1914? Is such as outcome possible? What about globally? Could a reduction in load to 1914 levels by the OECD and a load increase to 1914 levels by everybody else be possible? What about 1950 levels? What about 1850 levels? There are some population estimates that give 4 billion as an ecologically sustainable load. If we assume a 4 billion target sufficient, a population reduction of more than 2 billion is required. Let’s not forget global population exceeded 4 billion by 1975. Let’s assume a collective effort enables a graceful population decrease that returns the human population to 1975 levels. What will seventy years in overshoot mean for carrying capacity? Will carrying capacity recover in synchronicity with population reduction? Will it take the equivalent of another human lifetime to recover to 1975 levels? What if carrying capacity requires ten generations to recover?
GZ’s assertion global human population will experience a dramatic, and possibly permanent, decline, is entirely consistent with overshoot. Carrying capacity is always compromised when overshot. The likelihood carrying capacity will recover to pre-overshoot levels is entirely dependent upon the length of overshoot and the degree of overshoot. Assuming Catton’s 1970 levels by 1980 requires an 1890 population is correct, the U.S., alone, has been in overshoot since at least 1970.
Anyone that believes singing Kumbaya, meditating, seeing the best in everyone, being attuned to a higher power, yadda, yadda, yadda, will help and even resolve the predicament is in denial. Overshoot is always followed by die-off. Carrying capacity is reduced, possibly permanently; since load is exceeding carrying capacity, population reduction is inevitable. How one navigates that bottleneck may indeed be personal choice. Whether one navigates the bottleneck is not.
The response to GZ’s comments has been amazing. The idiotic figures suggested by VK being a case in point. GZ is simply confirming that human population far exceeds global carrying capacity and will experience the same population collapse as any animal population in similar circumstance. Once the fossil acreage, fish acreage, and trade acreage enlargements to carrying capacity have been accounted for, it becomes clear the current human population is in overshoot. As the expansive effect of these enlargements becomes reduced through drawdown, homo sapiens will continue to experience what some are calling the bottleneck. What is so difficult to understand? Fossil acreage, including water, is being depleted, and the rate of discovery of new fossil deposits is lagging the drawdown rate. Fish acreage is expected to have disappeared, with the exception of jelly fish, yum yum, by 2048. Right now trade acreage is under extreme pressure and as the global economy appears to be continuing to contract, this mechanism that transfers carrying capacity surpluses from one location to another is going to be reduced.
GZ’s proposition that some form of physical defence is an imperative to future survival seems rather reasonable. After all, isn’t survival an in-built evolutionary imperative? GZ has proven his evolutionary fitness through the existence of his offspring. He is simply suggesting that in order for his offspring, and future generations of his genetic line, to survive, and possibly flourish, some steps need to be taken in order to achieve that outcome. Gun’s appear to be one part off that overarching plan. That seems entirely in keeping with evolution. The incense brigade, Ahimsa and carpe diem spring immediately to mind (although carpe diem’s clearly privileged background makes her position suspect in these matters), apparently believe dieing in the spirit of love, peace, and harmony is a far more beautiful outcome than taking steps, even those that imply violence, such as guns, to enhance the survival of one’s genetic line. That may be a good thing, in the final analysis. I’m not sure we need more Ahimsas and carpe diems.
Kowalski's Worst Cae Scenario:
http://themeanoldinvestor.blogspot.com/2010/05/update-523-worst-case-scenario.html
live spill video feed.. tragic:
BP Live Oil Spill Cam
@goritsas
Isn't it contrary to your bloodline's interest to tell us wussies that we should arm ourselves? Why would you want to increase your future competition?
Ahisma,
Thanks for the compliment. What excites me most about Stoneleigh's Wilmington talk is that a number of people who will be attending are ordinary people for whom the ideas on TAE are decidedly foreign. Quite a few are also students of Buddhism. Pretty interesting. I hope to audiotape and videotape the talk.
Kimberly said...
"Stock Market Investing Advice from the NYTimes:
I wonder who the NYTimes is looking out for?
..., said Larry Hatheway..."
There's a hint. That was a truly beautiful example of herding noises, aimed straight at the slightly panicky cows. So completely devoid of any connection to reality as to be hilarious. (I'm serious about the beautiful; that one belongs in future textbooks.)
So, the NYT is still allowing "them" (Golem Sicks/Unca Buffet) full access to the organ.
It has one upside- for those making lists, Larry Hatheway and his cronies would be good additions.
I am glad to see the US is finally on the verge of "pushing BP out of the way." (Ken Salazar).
My guess- this will actually happen, with US Marines boarding appropriate BP facilities, in about 2 days.
After, of course, this nice heads-up which will allow BP to shred any and all evidence.
Still. It would be a good move, in many ways.
The Coast Guard is still saying "gosh we can't!" (NYT)
"The commandant of the United States Coast Guard, Admiral Thad Allen, said Sunday that the access that the BP oil conglomerate has to the mile-deep well site meant that the government could not take over the lead in efforts to stop the leak.
“They have the eyes and ears that are down there,” the admiral said on CNN’s “State of the Union” television news program. “They are necessarily the modality by which this is going to get solved.”
But later, at a news conference in Houston, Interior Secretary Ken Salazar said of BP that “if we find they’re not doing what they’re supposed to be doing, we’ll push them out of the way, appropriately.”
It was unclear exactly how that might happen or how Mr. Salazar’s comment could be squared with Adm. Allen’s sense that the government was dependent on BP’s help"
This is a gorgeous opportunity for the Federal Government to set a critical precedent. It's the perfect situation. I can't tell you how highly I recommend this be done.
Draft them. Draft BP, and everybody in the oil pool.
As we've discussed here before- corporations are legally considered "persons".
Ok. With the benefits of personhood- come the responsibilities. In time of great national need, any person in the USA is subject to federal draft. And that includes aliens, not just citizens, so quibbling about the nationality of BP is pointless.
ALL quibbling would be pointless, in fact; once it's done. This is the great advantage of having your own military. They show up. And they do it.
There is NO defense against the fait accompli.
I gotta tell ya; if the Supreme Court says corporations have a right to Free Speech- by damn they better well have the responsibilities that go with it.
All corporations should be subject to the draft; when the need is there.
Now THAT is a precedent I would love to see. And- you wanna guess how popular that would make the administration? There would be parties in the streets again; just like when Obi was elected.
Good find, Scandia, regarding Fallada's Alone in Berlin. Found this TimesOnline review here and noted this:
We grasp the near impossibility of innocence in a country that has itself become a criminal conspiracy.
Often have conversations with the wife about the efficacy of writing a screed and lighting myself afire in the quad. She points out it would take little effort for a reporter to find several students who'd be more than happy to say, "He was nuts!"
But, ultimately, the meaning of our actions are not their results. As Deveson says in his review:
"His and Anna's solitary and ineffective actions paradoxically transform their lives from obscurity to exaltation."
It's inevitable that we die, but humans are the only animal that can choose how. For me, the delimeter is Orlov's idea that we need to draw a line in the sand at preventing social collapse (belief in community). If we allow cultural collapase to occur (belief in goodness of others), we've become the enemy.
Cheers. :-)
There is a debate between Members of Parliament and the public in Canada. Our auditor general wants to audit the expenses of MP's. Probably for the first time in history all parties are in agreement that the audit not take place. Why? Because the public wouldn't understand,there are many ways to do things, the public would be unreasonable....blah,blah,blah.
I've been trying without success to call in to Rex Murphy on the radio. I would say if I could,
" Where have I heard this refrain before, that MP's can supervise themselves,regulate themselves. Ha! Sounds like Wall St. and the Banstas! And we know the rest of that story!
I would also say that, like charity, accountability begins at home.
How telling that all party leaderships are in agreement on such an issue.
Oh,as a member of the public I understand perfectly well!
I'm watching the live feed and noticed that there is a whitish material comming out of the will as well as oil. Is this sediment? Is this normal? Could it be an indication that the casing has failed? Denniger posted a rumor that the well had failed a negative pressure test before the disaster.
There is a lot of methane (NG) coming out as well. This stuff might be methane bubbles.
Greenpa said...
I am glad to see the US is finally on the verge of "pushing BP out of the way." (Ken Salazar).
My guess- this will actually happen, with US Marines boarding appropriate BP facilities, in about 2 days.
Do you have any links?? That piqued my interest... I ran over to yahoo news but didn't see much other than an article with some Salazar jaw-boning about missed deadline after deadline and Obama jaw-boning about breakdown of responsibility. Politicians are good at jaw-boning ... I'm singularly unimpressed.
Oh Lord - the Marines kicking down the door and taking over would be mildly interesting in so many ways I can't count.
It's hydrate. The black smoke is crude oil and the white smoke is methane.
At the temperature and pressure in this location, the escaping NG instantly combines with sea water to make a solid. (I think the wikipedia article is wrong about its density by the way -- why would it litter the sea FLOOR if it's lighter than water?)
http://en.wikipedia.org/wiki/Methane_clathrate
C’mon now, Bronco.
We’re not that stupid.
Our lame-duck mayor, Dave Bronconnier, gave a recent speech attacking the news coverage that has resulted from the fact the City of Calgary has been operating with the same kind of financial management system pioneered by crack addicts.
To wit: Keep huffing on the pipe until the money runs out.
The facts, as discovered by the city auditor, are as follows: The auditor found the city handed out contracts without competition about five times more often than the City of Toronto. Around $212 million in contracts grew to a staggering $959 million before they were done ... and in a lot of instances, the paperwork explaining the increase is nowhere to be found.
Lemme say that again:
Some of the paperwork explaining the increases is missing.
Try getting away with that crap where you work.
Hell, try getting reimbursed for two dozen pencils without paperwork where you’re employed
Arrogance entrenched at city hall
Re the spill in the Gulf
"What makes this an unprecedented anomalous event is access to the discharge site is controlled by the technology that was used for the drilling, which is owned by the private sector," [Coast Guard, Admiral Thad] Allen said. "They have the eyes and ears that are down there. They are necessarily the modality by which this is going to get solved," he added.
heh heh heh heh heh heh anyone up for an argument over privatizing mail delivery / military / police / fire departments / whatever ...because the private sector can do it betterer (sic) / fasterer (sic) / cheaperer (sic)
I can't see the well head anymore, they must have moved the camera. It billowed and looked like it was a fluid or fine particulate. Didn't their dome get plugged by methane hydrates? Maybe it's a slurry of those hydrates coming out of the well. Even then it probably would still indicate the casing has failed because I don't think such hydrates form in geologic deposits (as opposed to sedimentary deposits). Sorry, my understanding of geology is very rusty :)
Well, not the Coast Guard, but I would bet dollars to donuts that the US Navy has monitoring devices far superior to BP for depths in the 1-2 km range. Sunken Soviet nuclear launching U-boats and all that.
DIYer said...
"It's hydrate. The black smoke is crude oil and the white smoke is methane.
At the temperature and pressure in this location, the escaping NG instantly combines with sea water to make a solid. (I think the wikipedia article is wrong about its density by the way -- why would it litter the sea FLOOR if it's lighter than water?)"
Thank you DIYer. You got me to use up 45 minutes scanning the book referenced in footnote number 4 of the Wiki article.
The answer is contained in a paragraph in Chapter 5, p.62, last paragraph on the page. . It appears to be protected against copy and pasting. The density quoted is correct.
This article from the NYT is a very good example of O-man's "leadership" abilities.
“If the laws on our books are inadequate to prevent such an oil spill, or if we didn’t enforce those laws, I want to know it,” Mr. Obama said in his Saturday radio and Internet address. “I want to know what worked and what didn’t work in our response to the disaster, and where oversight of the oil and gas industry broke down. We know, for example, that a cozy relationship between oil and gas companies and agencies that regulate them has long been a source of concern.”
Mr. Obama said he wanted to hold both the government and BP accountable for the spill that continues to spew thousands of barrels of oil into the Gulf of Mexico each day. But he did not retreat from his plan to expand offshore oil drilling and in fact portrayed the commission as a means to make that possible despite the disaster.
“Because it represents 30 percent of our oil production, the Gulf of Mexico can play an important part in securing our energy future,” the president said. “But we can only pursue offshore oil drilling if we have assurances that a disaster like the BP oil spill will not happen again.”
Yeah, we can't fixate on the past. Hell, shit just happens y'all. Get used to it.
One would think the oil spill would get some media attention, but last 2 mornings almost no coverage at all. Makes me think its way worse than most think.
Africa doesn't need the Aid, it has always been a form of political and economic control by the West. Leave us alone and stop plundering our resources, Africa has long been hindered by Aid. We are so used to uncle IMF and World Bank reaching in and bailing us out that our political and economic systems are full of fraud, corruption and lethargy and can never progress. Kind of where you are headed to in the West.
Extreme die-off is just another form of fundamentalism. I'm not saying that die-off won't occur over the course of the Century, just that it won't be as bad. 20% of the World's population controls and consumes 80% of the World's resources. That means 80% live on hardly anything and still get by without the need to slaughter each other. It's easy to come up with examples where African societies have failed, how about some of our success stories with minimal consumption? Tanzania? Zambia? Botswana? Even at the height of the genocide in Rwanda, about 8-10% of the population was killed. 90% made it.
It's the culture, stupid! (Memetics)
Now I do think that we'll see a 50% decline in population in the next century as a result of the overshoot factors stated but seriously there is a lot of room for cutback. A lot can be learned and gleaned from poorer places in the world. Every kilo of meat requires 7 kilos of grain, there is space to cut energy consumption by 80-90%.
Also all this yak about kumbaya and meditation without knowing the latest scientific advances just shows the breadth and depth of ignorance about this practice. The latest scientific research has shown that meditation is as effective as anti-depressants.
http://www.timesonline.co.uk/tol/life_and_style/health/article7120338.ece
Over the years, a body of research has built up extolling the many benefits of meditation. Most recently the Mental Health Foundation said the NHS should prescribe meditation routinely for depression (at the moment only 1 in 20 GPs do). Scientific studies have shown that meditation - specifically, mindfulness-based cognitive therapy (MBCT), an NHS-approved, secular version of Buddhist mind-training - is at least as effective as antidepressants. Regular meditation can enlarge the parts of the brain that control emotion and reach right into the mind and strengthen it.
The world's happiest man: http://www.independent.co.uk/news/uk/this-britain/the-happiest-man-in-the-world-433063.html
To scientists, he is the world's happiest man. His level of mind control is astonishing and the upbeat impulses in his brain are off the scale.
Now Matthieu Ricard, 60, a French academic-turned-Buddhist monk, is to share his secrets to make the world a happier place. The trick, he reckons, is to put some effort into it. In essence, happiness is a "skill" to be learned.
...
MRI scans showed that he and other long-term meditators - who had completed more than 10,000 hours each - experienced a huge level of "positive emotions" in the left pre-frontal cortex of the brain, which is associated with happiness. The right-hand side, which handles negative thoughts, is suppressed.
getyourselfconnected said...
One would think the oil spill would get some media attention, but last 2 mornings almost no coverage at all. Makes me think its way worse than most think.
--------------------------------
5th grade was the first time that I remember being told about the Jews being put on the trains and sent on their way to the gas chambers. I remember the horror I felt that everyone silently knew that the Jews were being taken to their deaths, but the German people looked the other way and pretended that all was "business as usual".
This oil gusher is going to turn out to be the biggest crime against humanity that has ever happened in the history of the human race. There is no way to kill this monster.
WE are the Good Germans.
It is getting really difficult not to take a perverse delight in watching the US slide into this greasy sewer of its own making. At least Bubonic Plague was discriminating about its' victims. Only the human was culled. We on the other hand have ensured that our self induced extinction event will take out every living thing in the ocean, before it finally gets around to us.
Checking out the ocean currents to see what the farthest possible shore is from the Gulf of Mexico. It is looking like the Pacific Coast of North and South America will be the upcoming hot spots for migration. Pacific Canada would also be good except for the fact that they are deep water drilling there also.
On a lighter note, it appears that the season finale of Lost was a rousing success. Many heart felt, emotional outpourings over at Huffington Post, and nary a word anywhere else about our slow, impending, doom.
Anyone familiar with my comments here knows that I am not a big fan of Obummer. But I am also not a big fan of the rabies infested right wing, many of whom are either puppets of the oligarchs or just terminally stupid. One of their favorite themes is that under the Constitution, the O-man was not eligible to be president as he was born in either:
a) Kenya
b) Indonesia
c) Mars
d) All of the above
So I went to an on-line US Constitution site to see exactly what the document states and came up with this:
No person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President; neither shall any Person be eligible to that Office who shall not have attained to the Age of thirty-five Years, and been fourteen Years a Resident within the United States.
Now, I have not seen anyone argue that Obama's mother was not a citizen of the United States. I believe that it says under federal statue that the child of an American citizen, even if that child should see the light of day having the misfortune to be born in France, Switzerland, or Holland, is born as a citizen of the US, i.e. a Natural born citizen. Thus, logic tells me that Obama was born a citizen regardless of his place of birth and thus eligible to be President simply due to his mother's uncontested citizenship.
Am I missing something?
@VK: Keep in mind that most of what a person predicts about other humans' behaviour is a projection of what's in THEIR mind.
You are most likely a cooperative, kindly individual. So you forsee a future where people like you will prevail. Other people have minds that can't see complex solutions involving cooperation. Too socialistic. Easier to envision murder and cannibalism as a solution. Live or die. Black or white. Yes or no. Simple.
If TSHTF, it will be lonely to be a human-eating berserker. Those sorts won't be able to trust that anyone "has their back." They'll always be worried that someone is sneaking up behind them, holding a fork and a carving knife. They might knock off a few of their neighbours, but there will always be a quicker gun or an implacable posse of people ready to put down a murderous mad dog.
If I'm alive when the time comes, I'd rather be part of the herd of Cape buffalo than to be the lone ravening hyena. Better odds as a grass-eating, co-dependent buffalo than a solo slaughterer who can never sleep. Killers can't relax, can they? Always have to worry that they'll be taken by someone JUST LIKE THEM. They won't last as long as the herd.
It seems to me there is simply no hope, the world is incurably insane.
MAD
http://www.nytimes.com/2010/05/24/us/24moratorium.html?src=un&feedurl=http%3A%2F%2Fjson8.nytimes.com%2Fpages%2Fnational%2Findex.jsonp
MADDER
http://www.nytimes.com/2010/05/23/us/23drill.html
Z
Practicing a link with Zander's "madder" article. Click here to go to the article. We'll see if it works. Linda.
L.G. (Oh, you grand maker of plasma screens)
Thus, logic tells me that Obama was born a citizen regardless of his place of birth and thus eligible to be President simply due to his mother's uncontested citizenship.
Am I missing something?
His dad's citizenship?
.
@Zander, Loved that line " all systems are go"....one can only hope for luck as there is little room for an about face. With Lousiana deeply invested in the oil industry it would require the second coming to shift consciousness. Not good odds on that happening.
Re the influence peddling Duchess I am wondering why charges have not been laid? Is it not against the law to do what she did in the UK? She's flying around the globe free as a bird....currently a role model for a children's charity in LA. Duh....Have you heard what motivated the newspaper to set her up for the sting on film? There must be more to this story. One wouldn't do that unless the Duchess has a precious pattern of selling influence. Why did the press pick her? There must have been suspicions that required proof?
As for the Prince being " whiter than white " surely even he must have wondered why his ex wife wanted him to meet certain people? Very naive or complicit?
Looking like royalty are really a mob of backroom boys AND girls.
The image of her hauling out a suitcase of cash is SO-O tacky.
She is embarassed, has regrets, has bills to pay poor thing...that's it? No consequence under law?
We have the same scandale in Canada with the Guergis Affair.Our press just didn't get the kick back on film.
Excellent, Linda
Now let's see if Zander may also get the knack of it.
Here's the mold (try the Preview button first to see if it works):
To make a link, use:
[a href="URL article"] TITLE Article [/a]
in which [ and ] are replaced by < and >, respectively.
Don't worry, it's not hard.
.
Well, I just have to echo a few others and sadly note that Mish has become almost unreadable, with his anti-union histrionic rants. Kinda like reading Karl Denninger on peak oil, or something.
Obama's citizenship
Yes, El G, it is very simple - his mom was a citizen, therefore he is a natural-born citizen. The fact that so many people are willing to believe otherwise - and even Ilargi seems to suggest that it is reasonable to suppose that his father's foreignness could undue this - is just another indication of the strength of the Dark Side of the Force.
Carrying capacity under deindustrialization
VK is quite right that resource utilization by prosperous urbanites is much larger than that of the poor majority. Reduction of living standards will make a significant difference in lightening the planet's load.
On the other hand, I suppose that only a minority of the current population could be supported by traditional, pre-modern subsistence agriculture. Restricting liquid fuels and energy-intensive fertilizer, and reduction or cessation of food trade, would affect the urban poor as well as the urban and suburban rich, worldwide. Rate of change in the availability of renewable vs nonrenewable inputs to agriculture and food supply will make a BIG difference. Add in climate change and the uncertainties of the global political economy and you get a challenging situation.
It is in biopsychosocial systems that we live and breathe and have our being
I commend VK for pointing to the scientific evidence that how we think about things affects not only our talking, and our actions, but even the functioning of our organisms. To paraphrase a remark apparently wrongly attributed to Hermann Goering, whenever I hear someone sneer the word kumbaya, I reach for my pistol.
Metaphorically speaking.
Here’s to the Greeks. They know what to do when corporations pillage and loot their country. They know what to do when Goldman Sachs and international bankers collude with their power elite to falsify economic data and then make billions betting that the Greek economy will collapse.
more...
The Greeks Get It by Chris Hedges
Ilargi said...
His dad's citizenship?
Ilargi, we have an old saying about that. "Maternity is a fact, paternity is a theory."
@L G
I think the factor missing from your analysis is the quite visceral hatred of Negroes that still exists among too many of the folk who share our lack of skin coloration. They're just not quite as proud of it as they used to be. So they resort to scurrilous attacks that don't mention race. Therefore that controversy will never die because facts don't matter. Except for the one about him not being white.
Where his election does put us in a bind is that if he had the strength of conviction and leadership skills that we desperately need, and tried to use them, the haters would go bats**t crazy. In other words, we be screwed either way. It was not a fortuitous time for the majority to finally go color blind. Evidently a majority of the gods and goddesses have decided it's time to see what we're made of.
Good post, Ilargi. Somewhat off topic, but was anyone else struck by the image of the folks in W Virginia walking home? Not an obese individual in the bunch!
Ilargi said...
Excellent, Linda
Good grief I don't why I couldn't boil it down to that the other day when I posted the link to the example.
I started typing and quickly came to the conclusion that "this is going to be as intelligible as mud... or posting a link to www.w3.org."
I've always had this problem with the "KISS principle." In any event enough of that.
There are indications coming from FireDogLake and Naked Capitalism that there were a series of explosions on the seafloor around the Deepwater drilling site, which may have produced a much wider leak or series of leaks of oil and gas into the Gulf. If so, this would be... well, very bad. Negative words just fail me by now.
Bukko Canukko said...
“If I'm alive when the time comes, I'd rather be part of the herd of Cape buffalo than to be the lone ravening hyena.”
You miss the point entirely. It’s your conspecifics you need to worry about. Hyenas won’t be your problem, the psychopathic buffalo within your herd will.
The debate isn't whether Obama is a U.S. citizen; he is most CERTAINLY because at least one parent was a U.S. citizen (his mother) which automatically made him the same, regardless of WHERE he was born. That part is a no-brainer! My son had the "misfortune" of being born in Saudi Arabia - both parents were U.S. citizens - my son automatically was born a U.S. citizen. THE QUESTION, I believe, is can someone, such as my son, become president when he was born OUTSIDE of the United States. The issue is over the interpretation of "natural born citizen"... does natural born citizen mean having to be born on U.S. soil or not. Back to Obama, the issue is two-fold: how one interprets "natural born citizen" as eligibility for president, and, was he actually born in Kenya rather than Hawaii. It's complicated - but I wish people would drop the debate about whether or not he is a U. S. CITIZEN...of course he is...due to his mother's U.S. citizenship.
I have observed the scathing responses one receives when not perfectly articulate here...I'm not very articulate... hopefully I'm somewhat clear!
Leenks? Leenks!? I don need no steenkin leenks!
http://www.nytimes.com/2010/05/24/us/24spill.html
That one had changed its title.
BBC states it most clearly:
http://news.bbc.co.uk/2/hi/world/us_and_canada/10145011.stm
VK @12:48 AM
Thank you for saying it so well!
Indeed, mainstream Westerners have much to learn from the poor of the world and from Eastern spiritual traditions. The arrogance of our civilization and its lust for power (whether as individuals or institutions) is a great deterrent to that learning.
VK,
As for Africa not needing the aid, that has been a constant refrain for decades from some quarters and I agree absolutely. If it were up to me I’d suspend all aid, in any form, to Africa immediately. I’d call back all in transit shipments as well. If they haven’t been unloaded then they should return with full holds. I’d also ban, at least here in Britain, any and all charity fund raising destined for use outside the country. I’d hope other countries would follow suit. Of course, this would impact Africa. But that’s Africa’s issue to resolve, not ours. You should be lobbying your government to refuse any and all aid as a matter of urgency. Your nation’s well being is clearly at risk as long as you continue to accept aid.
El Galliowhoopwhoop-
"Thus, logic tells me that Obama was born a citizen regardless of his place of birth and thus eligible to be President simply due to his mother's uncontested citizenship.
Am I missing something?"
why yes, you are. :-)
There is no logic involved in this situation, anywhere. None, zero.
Abandon all logic, ye who enter the herd.
@ sv koho
I was struck by the danger of walking on the railway tracks.
It would never be tolerated today.
I was struck by the fact that the kids were not accompanied by the parents, ( for their safety). After all the world is full of lurking perverts.
jal
Ilargi
You are making me work.
"A natural child born to United States citizen parents while those parents are outside the United States is a United States citizen under most circumstances.
If the child was born on or after december 24,1952, at least one parent will be required to prove residence in the United States or its outlying possessions prior to the birth to establish United States citizenship for the child.
A natural child born to one United States citizen parent and one foreign national parent on or after December 24,1952 and before nov.14, 1986, may also have acquired United States citizenship at birth.
To establish this eligibility, the United States citizen parent must prove physical presence in the United States or its outlying possessions for a total period of ten years, with at least five of those years being after the age of fourteen. "
http://immigration-usa.com/ctz_chld.html
As a non-liar, I would interpret this to mean that a child born to a mother who is a citizen of the USA and who fulfills the requirements of the last paragraph, which Obama's mother did, is a natural born citizen as he is a citizen who need not be naturalized, i.e. go through all the bullshit.
I see no evidence that Obama was not born in Hawaii. The point that I am trying to make is:
1) Even if he were born in Kenya, Indonesia, or Mars, he would still be eligible to be President.
2) The far right Teabaggers are a bunch of freakin moroons.
@ Scandia
Seems if you're connected in the right places - and god knows there's plenty of them - anything goes.
@Ilargi
Believe me copying and pasting the URL from the toolbar is easier than the marathon you describe.
Z.
El G.,
There is an important distinction you seem to be missing in the “is he isn’t he“ discussion. Arnold Schwarzenegger, for example, cannot hold the office of president because he is not a natural born citizen, although he is a naturalized citizen. Simply going “through all the bullshit” is insufficient in the absence of a change in the Constitution. I bless the authors of the Constitution for their foresight. Thus, if Obama had been deemed to not be a natural citizen his presidency would be invalid. As his mother is clearly a natural born U.S. citizen who meets the criteria as quoted by you, Obama is clearly a natural born citizen. Regardless of the location of his birth. So, go Obama, go.
El G said:
"2) The far right Teabaggers are a bunch of freakin moroons."
Yes, and a bunch of racists/bigots!
Scandia, your friend from Africa was correct in assuming that a lot of the criticism of Obama coming from the far right is inspired by racism. The so-called progressives, though, when they criticize Obama is more due to the fact that in many instances (war hawkiness, bailout of banksters, selling out to corporations, Patriot Acts, foot-dragging on the environment, etc.) Obama functions as the neocons or Bush. Obama has deceived and betrayed progressives because he ran on a platform of "hope" and "Yes, we can."
@rumor...there are questions about the geology under the Gulf. Seems only BP knows what the make-up of the gulf floor is. Is it sand, is it salt, is it hard rock? Vital information I would think?
The response to this crisis sheds some understanding on the response to Katrina. Were the citizens of Lousiana, especially New Orleans, abandonned because TPTB already had concluded that continuing to drill for oil off the coast would eventually render Lousiana uninhabitable? Why waste money on a rescue/rebuild of only near to mid term value?
I recall Bush refusing help from around the world. Maybe he didn't want any prying eyes into the off shore drilling industry?
Who knows,eh? Just trying to resolve in my mind what happened when Katrina struck,why the fast and brutal response from the black shirted mercenaries.
Rumor said...
There are indications coming from FireDogLake and Naked Capitalism that there were a series of explosions on the seafloor around the Deepwater drilling site, which may have produced a much wider leak or series of leaks of oil and gas into the Gulf
I think perhaps people watching the live feed are thrown off by the fact that its angle changes, and then discuss what they think they see but isn't there.
.
Oh dear...looks like the Volker Rule did not pass the Senate. Looks like Goldman wins again!
@ Scandia "Oh dear...looks like the Volker Rule did not pass the Senate. Looks like Goldman wins again!"
Seems if you're connected in the right places - and god knows there's plenty of........Wait a minute !!
Z.
@VK The 7 kilos to one thing is most definitely not a requirement, merely the amount currently used in the US at this time for beef. Even in the US pork uses three and chicken 2.
The actual requirement is zero. I'll happily contract to sell you any reasonable amount of beef, veal, lamb and mutton that has eaten less than one kilo of grain _per_animal_.
I have a sweet deal for free stale bread for my pigs, so that is grain and I'm not giving up free. I can raise fowl in the summer with no grain, but admit I cannot overwinter next spring's parents without it.
The one kilo holdback is because if the sheep get out of the fence they immediately head for the chicken coop to eat their grain. freakin' junkies.
I'll admit that I'm not very up to date on the "natural born citizen" debate, however I do recall that congress passed a special resolution to delare that McCain was eligiable to become president (if so elected) - this being due to his being born on a US Military base in Panama (I think).
So, if being born on a military base to two US citiziens raises enough questions that Congress feels it needs to pass a special resolution, I can see where questions may arise over Obama's situation with a foriegn father (and therefor dual citizenship), etc etc.
I think you are incorrect in your assessment of President Obama's handling of the leak. I saw a great interview with Sylvia Earle, world-renowned scientist, by Chris Matthews and she was right. Our government does not have the technology and the know-how to deal with a leak at this depth and pressure, much less take things over. So Obama should replace BP -- with who?
And he's been on it with top advisors and scientists since the beginning. So, he should put on a scuba mask and swim down there himself?
No, his handling of this has been fine, with the exception of forcing BP to give an accurate figure of the leak to the public. And I'm sure those that need to know the exact number, in terms of containment of the well, know it.
What a surprise!!
'Regulators may never pinpoint May 6 crash cause' ...
http://www.reuters.com/article/idUSTRE64N3ED20100524
"No, his handling of this has been fine...
Yes, it's been absolutely stunning. And still is. He ain't done yet.
.
Re: Natural born citizen
I am a Canadian and therefore did not much study the US Constitution. A couple of questions:
When was that requirement for eligibility for President established? In other words, did the USA actually exist at that time? Did the requirement then mean that the candidate must have been born in America, as opposed to having immigrated to the American colonies as an adult?
Did it mean that one must have been born in one of the colonies that subsequently became USA?
I wonder if someone who was born in one of the non-original-thirteen could have become President if their state later joined the Union?
The whole concept of citizenship was quite loose for a long time, and my Loyalist ancestors later moved back and forth between countries in the early and middle 1800's without much fuss being made.
I wonder if the natural-born citizen clause makes more sense when taken in the context of the times?
To make it even simpler for making a link, this is what it should look like in the edit window:
<a href="http://www.intothegreyzone.com/">Into the Grey Zone</a>
and it produces this link:
Into the Grey Zone
NOTE: Do NOT copy what I have in this comment as I used special HTML codes to "display" the "less than" and "greater than" symbols used as angle brackets on a URL. Copying it directly may give you problems. Instead, enter your "<" and ">" characters by hand.
Bob (Your Uncle) said...
"I'll admit that I'm not very up to date on the "natural born citizen" debate, however I do recall that congress passed a special resolution to delare that McCain was eligiable to become president (if so elected) - this being due to his being born on a US Military base in Panama (I think)."
You are correct Bob that McInsane was born in the Panama Canal Zone, the son of a career navy guy who later became an full admiral.
However, rereading the law:
"A natural child born to one United States citizen parent and one foreign national parent on or after December 24,1952 and before nov.14, 1986, may also have acquired United States citizenship at birth."
McCane was born in 23 BC. Thus the special law.
Redbriars
The USA officially started when the Constitution was adopted by the 13 then sovereign states. What it basically states is that to be President, a person must be a citizen of the USA at the time of adoption (1789 I think). Thus a person could have been born in Britain and could have been President if he was a citizen at the time of adoption. But anyone born after 1789 had to be a natural born citizen. Thus by my ken, Arnold no but Barry yes, even if birthed on Mars. As I wrote earlier, the only reason I bring this up is to point out what maroons the Teabaggers are.
New post up.
And the beating goes on
.
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