"Bathing hour on the beach at Seabreeze, Daytona Beach, Florida"
Ilargi: Just as it’s getting harder by the day to figure out which is the biggest disaster, the Deepwater Horizon spill or the Obama government's reaction to it, it's also good to ask which is worse off (and for how long), the Gulf coast or the entire country. Or, for those in dire need of consolation, the entire western world.
And sure, there's patches of light, someone finding a job, selling a house or managing to retire with full benefits. But that doesn't change the overall picture one bit: the trend is downward, with no sign of a halt in sight.
Some country, some government will still try their hands at stimulus of one kind or another. But, given the situation in the bond markets, the stock markets and the economy as a whole, the next stimulus may well prove to be the last. More people will lose their jobs, and they will not spend. Tax revenues will keep falling, leading to more job losses. Which lead to decreased tax revenues. And so on. With rising lay-offs, jobless numbers and foreclosures, you can't have economic growth, and without that growth, nobody can pay off their debt. It's as simple as it is dangerous.
I'm not even going to try to be comprehensive, just a few examples should do.
The new British government, only a few days old, starts off with a brave -or is that blind?- vengeance, says the London Times:
300,000 jobs in Britain's public sector face the axeAt least 300,000 Whitehall and other public sector workers may lose their jobs as the coalition government sets to work cutting the £156 billion budget deficit. As George Osborne, the chancellor, prepares to unveil the first £6 billion of cuts, the full scale of the job losses that will follow has begun to emerge. [..] "The outgoing chief secretary [Liam Byrne] said it all, there is no money," said a Treasury source. "There is no time either."
While the first wave of cuts will mainly target Whitehall waste, more severe reductions of up to 25% in some departmental budgets will follow in a comprehensive spending review in the autumn. Detailed research by The Sunday Times shows that at least 300,000 workers, including civil servants and frontline staff, will lose their jobs over the next few years. Some estimates suggest that the number of job losses could reach 700,000.
Ilargi: Irish economics professor Morgan Kelly sounds a mighty big alarm bell:
Bank bailouts will make Ireland insolventIt is no longer a question of whether Ireland will go bust, but when. Unlike Greece, our woes do not stem from government debt, but instead from the government’s open-ended guarantee to cover the losses of the banking system out of its citizens’ wallets. Even under the most optimistic assumptions about government spending cuts and bank losses, by 2012 Ireland will have a worse ratio of debt to national income than the one that is sinking Greece.
On the face of it, Ireland’s debt position does not appear catastrophic. At the start of the year, Ireland’s government debt was two- thirds of GDP: only half the Greek level. [..]
What will sink us, unfortunately but inevitably, are the huge costs of the bank bailout. We can gain a sobering perspective on the impossible disproportion between the bailout and our economic resources by looking at the US. The government there set aside $700 billion (€557 billion) to buy troubled bank assets, and the final cost to the American taxpayer is about $150 billion. These sound like, and are, astronomical numbers. But when you translate from the leviathan that is America to the minnow that is Ireland, it would be equivalent to the Irish Government spending €7 billion on Nama, and eventually losing €1.5 billion in the process. Pocket change by our standards.
Instead, our Government has already committed itself to spend €70 billion (€40 billion on the National Asset Management Agency – Nama – and €30 billion on recapitalising banks), or half of the national income. That is 10 times per head of population the amount the US spent to rescue itself from its worst banking crisis since the Great Depression. Having received such a staggering transfusion of taxpayer funds, you might expect that the Irish banks would now be as fit as fleas. Instead, they are still in intensive care [..]
Ilargi: Even the Germans are conceding defeat, though they, like all others, will never come out and say that their measures kill any prospect for growth. That bit they all reserve for later.
Berlin prepares for €10 billion yearly cuts, tax risesThe German government is to begin a drastic budget austerity programme next year to set an example to the rest of the eurozone, and comply with a "debt guillotine" that has been written into the German constitution. The cuts are expected to total at least €10bn ($13bn, £9bn) a year until 2016, a government officials said. Tax rises as well as reduced spending are likely to be considered[..]
The cuts are consistent with repeated promises by Angela Merkel, the chancellor, and Mr Schäuble, to reduce their €80bn record net borrowing requirement from next year. But the scale of the measures is likely to shock the other 15 members of the eurozone who have to impose austerity programmes as part of the €750bn stabilisation package for the common currency. They were hoping Germany would be the one source of economic growth for the monetary area.
Ilargi: Inevitably, the mastodont supply of sovereign debt can only be sold at the expense of the corporate debt market, which may just about dry up one of these days. What we may see then is that small businesses can’t get loans, and their larger brethern can't sell their bonds. Result: more job losses.
Corporate bond sales poised for worst month in a decadeCorporate bond sales are poised for their worst month in a decade, while relative yields are rising the most since Lehman Brothers Holdings Inc.’s collapse, as the response by lawmakers to Europe’s sovereign debt crisis fails to inspire investor confidence. Companies have issued $47 billion of debt in May, down from $183 billion in April and the least since December 1999, data compiled by Bloomberg show. The extra yield investors demand to hold company debt rather than benchmark government securities is headed for the biggest monthly increase since October 2008 [..]
Investors are fleeing all but the safest securities on concern European leaders won’t be able to coordinate a response to rising levels of government debt from Greece to Spain, while U.S. legislation threatens to curb credit and hurt bank profits. The rate banks say they charge each other for three-month loans in dollars has almost doubled since February. "This is a quintessential liquidity crisis," said William Cunningham [..] at Boston-based State Street Corp.[..]
"It’s not inconceivable to imagine a situation where the markets behave so poorly, the liquidity behaves so badly, and risk-tolerance just evaporates that -- particularly in Europe -- consumers contract, businesses stop hiring and stop investing, and economic activity halts."
Ilargi: David Goldman at Asia Times supplies a brief summary of what goes on today:
The Next Shoe to Drop Will be US Data…The big drop in the stock market came after several pieces of bad news:
- Unemployment claims rose to 471,000 vs expectations of 439,000 in the week ended May 15;
- One in seven American mortgages is behind in payments;
- Foreclosures reached a record as the banks work through their backlog;
- Mortgage applications last week fell to the lowest level since the survey was conducted;
- Commercial real estate prices continue to fall.
Ilargi: However, not everyone's desolate. Your tax dollars still keeps a few fine citizens up in the air:
Wall Street perks: "Marie Antoinette could fit into this crowd without missing a beat"Some of the nation's biggest financial firms have increased the perks and benefits they pay their chief executives, despite the glaring spotlight from a public fed up with handsome bonuses at bailed-out Wall Street banks. The lavish fringe benefits included country club dues, chauffeured drivers, personal financial planning services, home security systems and parking. Some increases were in perks that Obama administration officials consider among the most egregious, such as corporate aircrafts for personal travel.
J.P. Morgan Chase awarded its chairman and chief executive, Jamie Dimon, $91,000 in personal travel on the company jet in 2009, up from about $54,000 the previous year. His total perks increased 19 percent, to $266,000. Dimon, along with Goldman Sachs chief executive Lloyd Blankfein and McLean-based Capital One chief executive Richard Fairbank, also received sharply higher perks related to personal and home security.
"Marie Antoinette could fit into this crowd without missing a beat," said Nell Minow, co-founder of the Corporate Library, which found in recent studies of several thousand U.S. companies that more chief executives received club memberships than a year earlier, and companies paid more to cover executives' personal use of corporate planes. "Many people would think the solution would be not to be so provocative of unrest and unhappiness, but no, they're saying, 'Go ahead and do that, just build bigger walls around your house.' "
Ilargi: We all know how Marie Antoinette ended. How Jamie Dimon is different from her, I can't tell. Money must be a lethal addiction.
Which is something not everybody has to worry about. An increasing number of Americans need to focus on just their next meal instead. Or where they’ll sleep tonight. How to clothe and feed their children. To top it off, a lot of well-fed and -dressed politicians resort to calling them lazy. A full cool million Americans won’t even be eligible for the emergency extension programs soon. When you get to that kind of numbers, you have to wonder how much longer this can go on before dramatic events come set in stone.
Long-Term Unemployment: No Help For The 99ersThis week Congress will consider legislation to reauthorize extended unemployment benefits for the rest of the year. It's going to be an epic fight: Republicans in the Senate will likely do everything they can to stand in the way of a bill projected to add $123 billion to the deficit, forcing Dem leadership to round up a supermajority for a last-minute Friday vote before Congress adjourns for its Memorial Day recess. Too bad the jobs crisis, in a big way, has already left this bill in the dust.
Hundreds of thousands of people have exhausted their extended unemployment benefits. In some states, laid-off workers can receive checks for 99 weeks -- and that's all they're going to get. This bill isn't for the "99ers" and there's no proposal on deck to give them additional weeks of benefits. "What's frustrating is that our government doesn't seem to think this is an important issue," said Christy Blake, a 35-year-old mother of two in Fruitland, Md. "We didn't put ourselves here. It wasn't our choice. [..]
Meanwhile, members of Congress are losing their appetite even for renewing existing benefits. Several members of the House and Senate have flirted with the idea that unemployment checks make people too lazy to look for work.[..]
More than a million people will probably be in Blake's boat by the end of the year. She's one of 19,000 in Maryland to have exhausted all available benefits, according to the state's labor department. As of last week, 65,400 people had exhausted benefits in New York -- up from 57,000 at the end of April. In Michigan, it's 34,900. In Illinois, 22,000. In Pennsylvania, 35,200. In California, 110,609. In Florida, the number had climbed to 130,000 before May and currently stands at 193,000.
Ilargi: But the worst tragedies over the next while will play out at state level. In Arizona, a mother would need child care so she can go to work, But she can only get that care if she’s unemployed... We’ll see a lot of these crazy cuts, executed by overzealous and underinformed civil servants.
Cuts to Child Care Subsidy Drive Mothers to WelfareAble-bodied, outgoing and accustomed to working, Alexandria Wallace wants to earn a paycheck. But that requires someone to look after her 3-year-old daughter, and Ms. Wallace, a 22-year-old single mother, cannot afford child care. Last month, she lost her job as a hair stylist after her improvised network of baby sitters frequently failed her, forcing her to miss shifts. She qualifies for a state-run subsidized child care program. But like many other states, Arizona has slashed that program over the last year, relegating Ms. Wallace’s daughter, Alaya, to a waiting list of nearly 11,000 eligible children.
Despite a substantial increase in federal support for subsidized child care, which has enabled some states to stave off cuts, others have trimmed support, and most have failed to keep pace with rising demand, according to poverty experts and federal officials. That has left swelling numbers of low-income families struggling to reconcile the demands of work and parenting, just as they confront one of the toughest job markets in decades.
The cuts to subsidized child care challenge the central tenet of the welfare overhaul adopted in 1996, which imposed a five-year lifetime limit on cash assistance. Under the change, low-income parents were forced to give up welfare checks and instead seek paychecks, while being promised support — not least, subsidized child care — that would enable them to work. Now, in this moment of painful budget cuts, with Arizona and more than a dozen other states placing children eligible for subsidized child care on waiting lists, only two kinds of families are reliably securing aid: those under the supervision of child protective services — which looks after abuse and neglect cases — and those receiving cash assistance.
Ilargi: In view of all this, how could you still be surprised to see poor children see the quality of their education tumble ever more as well, so their chances of getting a decent job go down as they go through school. Something tells me many of them will at one point be labeled "lazy".
Summer School Canceled In Cash-Strapped DistrictsAmber Bramble had to scramble to arrange summer plans for her 5- and 7-year-old daughters after their suburban Kansas City school district gutted its summer school program this spring. Her daughters were among about 2,500 of the Raymore-Peculiar district's 6,000 students who enrolled for free last summer in a program that combined traditional subjects with enrichment classes like music. But with state funding uncertain, the district decided to focus this year on about 800 students who either need to make up credits to graduate or are struggling to keep up with classmates.
Across the country, districts are cutting summer school because it's just too expensive to keep. The cuts started when the recession began and have worsened, affecting more children and more essential programs that help struggling students. And in districts like Raymore-Peculiar, although lawmakers ultimately decided to maintain summer school funding, they made the decision so late in the session that many administrators already had eliminated or scaled back the programs.
The cuts come even as President Barack Obama and Education Secretary Arne Duncan call for longer school days and shorter summer breaks. But in many states districts cutting summer school outnumber those using stimulus money to expand their offerings. "At a time when we need to work harder to close achievement gaps and prepare every child for college and career, cutting summer school is the wrong way to go," Duncan said in a written statement. "These kids need more time, not less."
Ilargi: So which is worse, the Gulf coast or the nation? You don’t have to pick, don’t worry about it. Save your energy for something or someone more deserving of your worries.
This is where we stand on the coast:
Oil spill now stretches 150 miles wide, 12 miles deep[..] With oil pushing at least 12 miles into Louisiana's marshes and two major pelican rookeries now coated in crude, Jindal said the state has begun work on chain of berms, reinforced with containment booms, that would skirt the state's coastline.[..]
The spill's impact now stretches across 150 miles, from Dauphin Island, Ala. to Grand Isle, La. On Sunday, oil reached an 1,150-acre oyster ground leased by Belle Chasse, La., fisherman Dave Cvitanovich. He said cleanup crews were stringing lines of absorbent boom along the surrounding marshes, but that still left large clumps of rust-colored oil floating over his oyster beds. Mature oysters might eventually filter out the crude and become fit for sale, but this year's crop of spate, or young oysters, will perish. "Those will die in the oil," Cvitanovich said. "It's inevitable."
Ilargi: A team of White House luminaries apparently flew over the coast today, 34 days after the Deepwater Horizon rig blew up. White House press secretary Robert Gibbs angrily insisted that "we where there from day one". Pity nobody saw you. The president has named a commission that will report back in 6 months. Me, I shudder to think what the Louisinana coast will look like 6 months from now.
And tomorrow will bring more of the same.
300,000 jobs in Britain's public sector face the axe
by Jonathan Oliver - Times Online
At least 300,000 Whitehall and other public sector workers may lose their jobs as the coalition government sets to work cutting the £156 billion budget deficit. As George Osborne, the chancellor, prepares to unveil the first £6 billion of cuts, the full scale of the job losses that will follow has begun to emerge. The initial savings to be announced will target such items as civil servants’ perks, which include taxis, flights and hotel accommodation. The package will also include a £513m cut in the budgets for quangos, with some being abolished altogether. "The outgoing chief secretary [Liam Byrne] said it all, there is no money," said a Treasury source. "There is no time either."
While the first wave of cuts will mainly target Whitehall waste, more severe reductions of up to 25% in some departmental budgets will follow in a comprehensive spending review in the autumn. Detailed research by The Sunday Times shows that at least 300,000 workers, including civil servants and frontline staff, will lose their jobs over the next few years. Some estimates suggest that the number of job losses could reach 700,000. These will include tens of thousands of health service managers as well as many thousands of doctors and nurses, according to internal documents from the National Health Service.
Three out of the 10 strategic health authorities have disclosed that they will reduce their headcounts by a total of 30,132, an average of 8.7%. If these cuts were replicated nationwide, the total job losses would amount to 120,000. A similar analysis of 75 local authorities suggests that at least 100,000 council workers across the country will lose their jobs. Thousands of police officers and their civilian support staff will lose their posts, with the Metropolitan police alone forecasting 445 job cuts. About 20,000 jobs will be lost at the Ministry of Defence as the department faces a demand to reduce its administrative costs by 25%. Ministry insiders say the cuts are set to hit military personnel, including some frontline soldiers.
Ministers have tried to insist that any public sector job losses would be mainly among the "penpushing" bureaucrats, but answers received under freedom of information requests suggest that a wide variety of different professions will be hit. Meanwhile, David Cameron, who has given up motorcycle outriders and reduced the number of ministerial drivers since becoming prime minister, has let it be known that he will personally foot the bill for the refurbishment of his Downing Street accommodation. Cameron’s family will move into the two-bedroom apartment above No 10 this week, while a new kitchen is installed in the larger flat over No 11. "Any costs above the standard existing allowance will be met by David and [his wife Samantha]," said a Downing Street source.
The first wave of cuts is likely to include severe restrictions on Whitehall travel and accommodation. A Treasury audit of Whitehall spending, which was carried out over the past week, has revealed how officials spend £125m a year on taxis, £320m on hotels and £70m on flights. The audit also reveals that the government spends £580m a year on office furniture, £1 billion on advertising and £700m on other marketing and media.
Ministers are promising a "bonfire of quangos", which over the past 13 years have become bywords for Whitehall waste and political cronyism. The organisations set to be axed include the Qualifications and Curriculum Development Agency, which employs 723 people, the South East England Development Agency, which has 270 staff, and the 40strong Infrastructure Planning Commission. The Skills Funding Agency, which employs 1,200 people, is also likely to be closed, along with the Higher Education Funding Council for England. They will be replaced by a new Council for Adult Skills and Higher Education. Vince Cable’s Department for Business, Innovation and Skills will bear the brunt of the initial cuts, making savings of £900m.
The axe is expected to fall on grants announced in the final days of the Labour government, including an £8m payment towards the refurbishment of Blackpool Tower. The Foreign Office is expected to announce the closure of some overseas offices shortly. An audit has revealed widespread waste where different British government agencies operate out of separate sites in the same city. For example, £20m could be saved by merging four offices in Abuja, the Nigerian capital, occupied by the high commission, the Border Agency, the Department for International Development and the British Council.
Even ministries whose overall budgets will be ringfenced are having to find cost savings, which will be reinvested in frontline services. The Department of Health, for example, is expected to end its £275,000 funding of dance classes and competitions. With the Ministry of Defence facing spiralling costs for big procurement projects, Liam Fox, the defence secretary, is considering bringing in Bernard Grey, an independent consultant, as a minister in the Lords. Most of the large cuts will follow a strategic defence review that will get under way later this year.
£3bn nuclear fallout
Labour left a multi-billion-pound black hole in its nuclear power budget, which could force ministers to implement bigger cuts elsewhere in Whitehall, coalition sources claimed this weekend. They alleged that future costs of safe waste disposal had not been properly accounted for in spending budgets, amounting to a £850m shortfall next year, £950m in 2012-13 and £1.1 billion by 2013-14. The issue was judged so serious it was discussed at the cabinet’s first meeting. "We will have to look at it very carefully because we can’t do cuts to nuclear decommissioning and safety," said one insider.
No sacred cows as UK cuts begin
by Jonathan Oliver, Isabel Oakeshott and Marie Woolf - Sunday Times
Last Wednesday night, in committee room 6 of the House of Commons, the "old politics" was fighting a rearguard action. David Cameron was trying to face down an insurrection from Tory backbenchers concerned about the scale of his concessions to the Liberal Democrats. The 1922 committee of the parliamentary party has traditionally been the gathering point of Conservative dissent. Now the prime minister was attempting to change its rules to bring it closer to the coalition’s heart by allowing ministers to play an active role on the committee. The malcontents were furious at his meddling. The issue had to be put to a vote. A win for Cameron would see off the rebels, for the moment at least, while a defeat would be catastrophic.
As MPs trooped into the committee room to make their choice, it was clear that Patrick McLoughlin, the Tory chief whip, who is in charge of maintaining party discipline, was taking no chances. Two of his henchmen stood by the battered metal ballot box with their arms crossed, as MPs posted their voting forms. "It was supposed to be a secret ballot, but it was hard to fill in our forms without the whips catching a glimpse of where we had marked our crosses," said one MP. "This was more like Robert Mugabe’s Zimbabwe than the mother of parliaments." Many ministers in the coalition government, including Cameron himself, did not vote in person, but instead faxed over proxy ballots. Potentially rebellious backbenchers stuck in their constituencies were not offered this facility.
Cameron won the day, but it was hardly a resounding victory — especially for a prime minister barely a week into the job. He may have won the backing of 168 of his MPs, but 118 voted against him. Put another way, if the same number of his own side had rebelled in a House of Commons vote, the government would have been about 80 votes short of victory. After the unreal euphoria of the coalition’s first days, where Cameron and Nick Clegg, his deputy, promised to create a "new politics", serious doubts are being raised about how long their administration can last.
On Thursday, the cabinet managed a convincing display of unity as Cameron, Clegg and their colleagues marched side by side to the launch of the final coalition agreement. Theresa May, the Conservative home secretary, even offered to do a foxtrot with Vince Cable, the ballroom-dancing Lib Dem business secretary (Cable politely declined). The Lib Dems can still hardly believe how things have turned out. "Just look at the coalition agreement: it’s pretty much all there," said one minister, referring to the inclusion of many of the party’s policies in the government’s plan of action.
Behind the scenes, however, there are growing tensions in Tory ranks. MPs complain that their Lib Dem partners are getting it too much their own way. Clegg’s tail is wagging the Cameron dog, they say. For many Tories, the moment that defined the week was Clegg’s impassioned defence of the Human Rights Act. "We will be seeking to actively promote greater public understanding of the rights that people already enjoy," said the deputy prime minister. The Brussels-inspired human rights culture inspires hatred of an almost religious intensity among many Tories. The coalition agreement, however, made it clear that Cameron’s pledge to review Britain’s relationship with the European convention on human rights had been tossed into the long grass. "I’m dismayed, for very good reason," said Bill Cash, the right winger.
For the moment, the cracks are being successfully covered, but for how much longer? Tomorrow George Osborne, the chancellor, will announce £6 billion of Whitehall efficiency savings, a taster for the draconian cuts that will come in the emergency budget on June 22 and the three-year spending review in the autumn. Only then will it start to become clear whether this government can go the full five years.
Last week a succession of cabinet ministers trooped through the doors of the Treasury to meet David Laws, the Lib Dem chief secretary and the man in charge of overseeing the cuts to come. As they sat down in Laws’s first-floor office overlooking St James’s Park, the ministers were each given the first indication of the size of the reductions they would have to make in their budgets. Some ministers emerged relieved from their talks with Laws, who yesterday described the choice facing the government as between "the unpalatable and the disastrous".
Michael Gove’s schools budget is likely to be almost unscathed, although cuts will have to be made to other areas of spending under his control such as the SureStart centres for toddlers. Laws is a former Lib Dem education spokesman and is sympathetic to Gove’s goal of creating "free schools" run by parents, voluntary organisations or businesses. Other ministers came out of their Treasury meetings crestfallen. Eric Pickles has been told that the £12 billion annual budget of his Department for Communities and Local Government will have to be cut by up to 20% in real terms over three years. For Pickles this will mean taking a lot of heat from angry local authority leaders, many of them Tories, who will have to prune services to stay within their budgets.
Also facing some tough choices will be Jeremy Hunt, the culture secretary. His department’s budget is one of the smallest in Whitehall, at about £5 billion, but it is likely to take a huge hit in percentage terms. Tomorrow’s efficiency savings announcement, which will be fronted by Osborne and Laws, is seen as a "downpayment" on the bigger cuts to come. "We said during the election campaign that in-year savings could be made without derailing the recovery or damaging public services," said one Tory cabinet minister. "What we are about to announce is all about efficiency savings — doing more with a little less. The ordinary citizen should not notice any difference."
The Treasury was this weekend tight-lipped about the details of these initial cuts. In a speech last week, however, Osborne gave some broad hints: "We will do what you have all done over the last two years — renegotiate contracts, cut out discretionary spending, control recruitment and reduce overheads." An area that is being targeted for large early cuts is information technology. Some large contacts — especially those signed in the dying days of the last Labour administration — could be scrapped.
The Sunday Times has learnt that large IT suppliers such as IBM and Hewlett-Packard have been put on notice that they might be expected to reduce the value of their contracts by 20-30%. Across all areas, 70 big suppliers to the government will be asked to renegotiate deals to find cost reductions. Other areas that are likely to be cut are property costs and travel and consultancy budgets. There will also be a freeze on public sector recruitment. A particular target will be quangos, which mushroomed under Labour. Ministers have been told to scrutinise those relating to their department and more than £500m in savings are expected to be identified this year. "Ones that are functional are okay, while ones that are bloated aren’t," said one minister.
The Equality and Human Rights Commission, headed by Trevor Phillips, and the Environment Agency are expected to be told to slim down, as will the quangos that administer the national lottery. In the longer term, there will be a Treasury purge of civil servants’ and ministers’ perks. Officials have found the government spends £125m a year on taxis, more than £320m on hotels and more than £70m on flights. On top of this is the £580m spent on office furniture, £1 billion on advertising and a further £700m on other marketing and media. All will be pruned back.
Big asset sales are also being considered. The £1.5 billion privatisation of Channel 4, rejected by successive regimes, is firmly back on the agenda. Cable has even suggested that the road network could be privatised. In an interview with The Sunday Times, he said: "There is no ideological opposition to asset sales. If we can get good value for money for something then we will look at it." His colleagues at the Department for Transport insist there is no plan to privatise the roads, but Cable’s off-the-cuff remarks show that there will be few sacred cows. In a hint of what might follow some ministers are already arguing in private that their departments should be saved from the axe.
William Hague, the foreign secretary, is understood to be resisting cuts to his department, complaining to Osborne that sterling’s weakness means overseas missions are already making savings. "William is determined to ensure that not a single embassy or consulate has to shut," said an ally. As the pressure from the Treasury increases, other cabinet cuts refuseniks may start to emerge.
A government moving "from an age of plenty to an age of austerity", as Laws put it yesterday, is hard enough to keep together when it is composed of just one party. In a coalition, the tensions are going to be even more powerful. The 35-page coalition document contains many true blue Tory principles: strong defence, tough immigration curbs and welfare reform aimed at removing the feckless. Ultimately, however, it is a product of Lib Dem chutzpah. Britain’s third party, which pulled in just 23% of the popular vote and lost seats in the election, has achieved all its central manifesto aims. Voting reform and raising the income tax threshold to help the low paid are now key goals of the coalition. The Lib Dems have even forced the Tories to recognise that Britain has to come off the sidelines to be a "positive participant" in the European Union.
As important as what is in the document is what is omitted. Here, reading between lines, the Lib Dems have secured other victories. Anyone looking for any mention of a policy on road building will be disappointed. That’s because there isn’t one — or, more precisely, there is a policy of building no new roads. One irritated Tory said: "The Lib Dems recognised that cuts would have to be made to the transport budget but were determined their pet policy areas of rail, buses and cycling would be protected. They are ‘intensely relaxed’ to see road building is taking the strain." The membership of powerful cabinet committees, announced last week, shows how deeply the Lib Dems have woven themselves into the fabric of government.
Most key committees have a Lib Dem deputy chairman and at least one other minister from the party. Arguably the most important committee, home affairs, which deals with constitutional reform and public services, is chaired by Clegg, who will sit on five of the nine main committees. Despite being a party of government, the Lib Dems are also planning, with Tory connivance, to keep hold of £2m of public money that helps opposition parties. The Lib Dems have argued that they would have to sack dozens of researchers doing valuable parliamentary work if the so-called Short money is cut. Already the exodus of Lib Dem staff to Whitehall jobs has left the party’s headquarters in disarray. "There aren’t any staff left," said one senior Lib Dem.
The Tory high command is divided on how to deal both with the Lib Dems and the nascent rebellion in its own ranks. The more radically minded "Cameroons", such as Steve Hilton, the Tory leader’s director of strategy, and Oliver Letwin, the cabinet office minister and policy guru, believe the failure to secure an overall majority on May 6 was a blessing. "It has allowed them to junk a lot of the extreme nonsense that they never believed in and was there solely to placate the right and fashion a more progressive government in line with their own views," said a Tory insider.
Hard-nosed pragmatists such as Osborne take a different view. They are convinced that the Lib Dem flirtation with coalition government will extract a heavy price for the third party at the next election. Those left-leaning voters who backed the Lib Dems in the hope of keeping out the Tories will desert them. Osborne is privately confident that a dozen or more Lib Dem seats, particularly in the southwest and suburban London, will fall to the Tories next time.
Cameron’s more pressing problem is how to manage the insurrection on the Tory back benches, especially as the inevitable public disquiet over cuts grows. Those, like Hilton, who have a genuine belief in the new Liberal-Conservative mission have been urging Cameron to use this battle with the right to define himself, much as Tony Blair set himself against the left in the 1990s with the abolition of clause 4 of the Labour constitution. They believe he should press home his victory in the 1922 committee ballot by using the payroll vote — the loyal cadre of ministers — to keep Graham Brady, the independent-minded MP, from seizing the chairmanship. Others want the Tory leader to adopt a more conciliatory stance, however.
Feelings are running high and some MPs are considering the establishment of a "continuity 1922 committee", in effect a "2010 committee", where the back benches would have their own independent voice. Urged on by McLoughlin, Cameron appears to be edging this weekend towards a ceasefire with the right. Yesterday, in a newspaper interview, the prime minister attempted to reassure Tory supporters of his credentials, saying: "I am still a low-tax Conservative. Born one; lived one; will die one."
A compromise is also being thrashed out where ministers this time would opt out of the 1922 vote and Brady would be allowed to win. "It is much better to have someone like Brady in an official shop steward capacity where he can act as a mediator of disputes, rather than try to control everything and then end up with everything splintering," said a cabinet minister. Cameron spent the second half of last week on the diplomatic trail visiting President Nicolas Sarkozy in Paris and Chancellor Angela Merkel in Berlin. Guards of honour, obsequious ambassadors and fireside chats with foreign leaders can do much to boost the ego of a prime minister. As Cameron returns home this weekend, however, he must again confront the limiting world of coalition politics.
Bank bailouts will make Ireland insolvent
by Morgan Kelly - Irish TImes
It is no longer a question of whether Ireland will go bust, but when. Unlike Greece, our woes do not stem from government debt, but instead from the government’s open-ended guarantee to cover the losses of the banking system out of its citizens’ wallets. Even under the most optimistic assumptions about government spending cuts and bank losses, by 2012 Ireland will have a worse ratio of debt to national income than the one that is sinking Greece.
On the face of it, Ireland’s debt position does not appear catastrophic. At the start of the year, Ireland’s government debt was two- thirds of GDP: only half the Greek level. (The State also has financial assets equal to a quarter of GDP, but so do most governments, so we will focus on the total debt.) Because of the economic collapse here, the Government is adding to this debt quite quickly. However, in contrast to its inept handling of the banking crisis, the Government has taken reasonable steps to bring the deficit under control. If all goes to plan we should be looking at a debt of 85 to 90 per cent of GDP by the end of 2012.
This is quite large for a small economy, but it is manageable. Just about. What will sink us, unfortunately but inevitably, are the huge costs of the bank bailout. We can gain a sobering perspective on the impossible disproportion between the bailout and our economic resources by looking at the US. The government there set aside $700 billion (€557 billion) to buy troubled bank assets, and the final cost to the American taxpayer is about $150 billion. These sound like, and are, astronomical numbers. But when you translate from the leviathan that is America to the minnow that is Ireland, it would be equivalent to the Irish Government spending €7 billion on Nama, and eventually losing €1.5 billion in the process. Pocket change by our standards.
Instead, our Government has already committed itself to spend €70 billion (€40 billion on the National Asset Management Agency – Nama – and €30 billion on recapitalising banks), or half of the national income. That is 10 times per head of population the amount the US spent to rescue itself from its worst banking crisis since the Great Depression. Having received such a staggering transfusion of taxpayer funds, you might expect that the Irish banks would now be as fit as fleas. Instead, they are still in intensive care, and will require even larger transfusions before they can fend for themselves again.
It is hard to think of any institution since the League of Nations that has become so irrelevant so fast as Nama. Instead of the resurrection of the Irish banking system we were promised, we now have one semi-State body (Nama) buying assets from other semi-states (Anglo) and soon-to-be semi-States (AIB and Bank of Ireland), while funnelling €60 million a year in fees to lawyers, valuers and associated parasites. What ultimately matters for national solvency, however, is not how much the State invests in its banks, but how much it is likely to lose. It is alright to invest €70 billion, or even €100 billion, to rescue your banking system if you can reasonably expect to get back most of what you spent. So how much are the banks and, thanks to the bank guarantee, you the taxpayer, likely to lose?
Let’s start with the €100 billion of property development loans. We’ll be optimistic and say the loss here will be one-third. Remember, Anglo has already owned up to losing about €25 billion of its €75 billion portfolio, so we have almost reached that third without looking at AIB and Bank of Ireland. I think the final loss will be more than half, but we’ll keep with the third to err on the side of optimism. Next there are €35 billion of business loans. Over €10 billion of these loans are to hotels and pubs and will likely not be seen again this side of Judgment Day. Meanwhile, one-third of loans to small and medium enterprises are reported already to be in arrears. So, a figure of a 20 per cent loss again seems optimistic.
Finally, we have mortgages of €140 billion, and other personal lending of €20 billion. Current mortgage default figures here are meaningless because, once you agree a reduction of mortgage payments to a level you can afford, Irish banks can still pretend that your loan is performing. Banks in the US typically get back half of what they loaned when they foreclose, but losses here could be greater because banks, fortunately, find it hard to take away your family home. So Irish banks could easily be looking at mortgage losses of 10 per cent but, to be conservative, we will say five.
So between developers, businesses, and personal loans, Irish banks are on track to lose nearly €50 billion if we are optimistic (and more likely closer to €70 billion), which translates into a bill for the taxpayer of over 30 per cent of GDP. The bank guarantee may have looked like "the cheapest bailout in the world, so far" in September 2008, but it is not looking that way now. Adding these bank losses on to the national debt means we are facing a debt by late 2012 of 115 per cent of GDP. If we are lucky.
There is more. The ability of a government to service its debts depends on its tax base. In Ireland the proper measure of tax base, at least when it comes to increasing taxes, is not GDP (including profits of multinational firms, who will walk if we raise their taxes) but GNP (which is limited to Irish people, who are mostly stuck here). While for most countries the two measures are the same, in Ireland GDP is a quarter larger than GNP. This means our optimistic debt to GDP forecast of 115 per cent translates into a debt to GNP ratio of 140 per cent, worse than where Greece is now.
And even this catastrophic number assumes that our economy does not contract further. For the last two years the Irish economy has not been shrinking, so much as vaporising. Real GNP and private sector employment have already fallen by one-sixth – the deepest and swiftest falls in a western economy since the Great Depression. The contraction is far from over, to judge from the two economic indicators I pay most attention to. Redundancies have been steady at 6,000 per month for the last nine months. Insolvencies are 25 per cent higher than this time last year, and are rippling outwards from construction into the rest of the economy.
The Irish economy is like a patient bleeding from two gunshot wounds. The Government has moved competently to stanch the smaller, budgetary hole, while continuing to insist that the litres of blood pouring unchecked from the banking hole are "manageable". Capital markets are unlikely to agree for much longer, triggering a borrowing crisis for Ireland. The first torpedo, most probably, will be a run on Irish banks in inter-bank markets, of the sort that sank Anglo in 2008. Already, Irish banks are struggling to find lenders to leave money on deposit for more than a week.
Ireland is setting itself up to present an early test of the shaky EU commitment to bail out its more spendthrift members. Probably we will end up with a deal where the European Central Bank buys Irish debt and provides continued emergency funding to Irish banks, in return for our agreeing a schedule of reparations of 5-6 per cent of national income over the next few decades. To repay these reparations will take swingeing cuts in spending and social welfare, and unprecedented tax rises. A central part of our "rescue" package is certain to be the requirement that we raise our corporate taxes to European levels, sabotaging any prospect of recovery as multinationals are driven out.
The issue of national sovereignty has for so long been the monopoly of republican headbangers that it is hard to know whether ordinary, sane Irish people still care about it. Either way, we will not be having it around much longer. We have long since left the realm of easy alternatives, and will soon face a choice between national bankruptcy and admitting the bank guarantee was a mistake. Either we cut the banks loose, or we sink ourselves. While most countries facing bankruptcy sit passively in denial until they sink – just as we are doing – there is one shining exception: Uruguay. When markets panicked after Argentina defaulted in 2002, Uruguay knew it could no longer service its large external debt. Instead of waiting for a borrowing crisis, the Uruguayans approached their creditors and pointed out they faced a choice.
Either they could play tough and force Uruguay into bankruptcy, in which case they would get almost nothing back, or they could agree to reduce Uruguay’s debt to a manageable level, and get back most of what they lent. Realising Uruguay’s problems were largely not of its own making, and that it had never stiffed its creditors in the past, the lenders agreed to a debt restructuring, and Uruguay was able to return to debt markets within a few months.
In one way, our position is a lot easier than Uruguay’s, because our problem is bank debt rather than government debt. Our crisis stems entirely from the Government’s gratuitous decision on September 29th, 2008, to transform the IOUs of Seán FitzPatrick, Dermot Gleeson and their peers into quasi-sovereign instruments of the Irish state. Our borrowing crisis could be solved before it even happens by passing the same sort of Special Resolution legislation that the Bank of England enacted after the Northern Rock crisis. The more than €65 billion in bonds that will be outstanding by the end of September when the guarantee expires could then be turned into shares in the banks: a debt for equity swap.
We need to explain that the Irish State has always honoured its debts in the past, and will continue to do so. However, the State is a distinct entity from its banks and, having learned the extent of the banks’ recklessness, we now have no choice but to allow the bank guarantee to lapse and to share the banks’ losses with their bondholders. It must be remembered that when these bonds were issued they had no government guarantee, and the institutions that bought them did so in full knowledge that they could default, and charged an appropriate rate of interest to compensate themselves for this risk.
Freed of the impossible bank debt, the Irish State could concentrate on the other daunting problems left by its decade-long credit binge: unemployment, lack of competitiveness and indebted households. The banks would be soundly capitalised and able to manage themselves free of political interference. There are two common objections to sharing the banks’ losses with their bondholders, both of them specious. The first is that nobody would lend to Irish banks afterwards. However, given that soon nobody will be lending to Irish banks anyway, this is not an issue. Either way, the Irish State and banks are facing a period of relying on emergency funding. After a debt-for-equity swap, Irish banks, which were highly profitable before they fell into the clutches of their current "management", will be carrying little debt, making them attractive credit risks.
The second objection is that Ireland would be sued in every court in Europe. Again wrong. Under the EU’s winding-up directive, the government that issues a bank’s licence has full power to resolve the bank under its own laws. Of course, expecting politicians to sort out the Irish banks is pure fantasy. Like their British and American counterparts, Irish politicians have spent too long believing that banks were the root of national prosperity to understand that their interests are frequently inimical to those of the rest of the economy. The architect of Uruguay’s salvation was not one of its politicians, but a technocrat called Carlos Steneri. The one positive development in Ireland in recent months is that control of the banking system has passed from the Government to similar technocrats.
This transfer did not take place without a struggle – one that was entirely missed by the media. When Anglo announced they wanted to take over Quinn Insurance despite the objections of the Financial Regulator, journalists seemed to view this as just another case of Anglo being Anglo. They should have remembered that Anglo cannot now turn on a radiator unless the Department of Finance says so, and what was going on instead was a direct power struggle between the Financial Regulator and the Minister for Finance. Having been forced to appoint a credible Financial Regulator and Central Bank governor – first-rate ones, in fact – the Government must do what they say. Were either Elderfield or Honohan to resign, Irish bonds would straight away turn to junk.
Now you understand the extraordinary shift in power that lay behind the seeming non-headline in this newspaper last month: "Lenihan expresses confidence in regulator". The great macroeconomist Rudiger Dornbusch observed that crises always take a lot longer to happen than you expect but, once started, they move with frightening rapidity. Or, as Hemingway put it, bankruptcy happens "Slowly. Then all at once." We can only hope that the Central Bank is using whatever time remains to us as an independent State to devise an intelligent Plan B – or is it Plan C?
Berlin prepares for €10 billion yearly cuts, tax rises
by Quentin Peel - Financial Times
The German government is to begin a drastic budget austerity programme next year to set an example to the rest of the eurozone, and comply with a "debt guillotine" that has been written into the German constitution. The cuts are expected to total at least €10bn ($13bn, £9bn) a year until 2016, a government officials said. Tax rises as well as reduced spending are likely to be considered, in spite of a previous promise by the coalition to put tax cuts at the centre of its programme. Lower state subsidies and the abolition of tax exemptions and allowances are a top target.
Wolfgang Schäuble, finance minister, suggested, in an interview published on Sunday, that reforms of unemployment and social benefits could provide some of the savings if they helped to boost employment rates. He promised that there would be no budget "trickery" in the cuts, and that education and training would be protected. His proposal was instantly condemned by the centre-left opposition Social Democrats as an attack on the poor. Sigmar Gabriel, SPD leader, called instead for tax rises on the bankers and speculators who had caused the crisis.
The cuts are consistent with repeated promises by Angela Merkel, the chancellor, and Mr Schäuble, to reduce their €80bn record net borrowing requirement from next year. But the scale of the measures is likely to shock the other 15 members of the eurozone who have to impose austerity programmes as part of the €750bn stabilisation package for the common currency. They were hoping Germany would be the one source of economic growth for the monetary area.
The eurozone crisis, and German calls for urgent agreement on international financial market regulation, will be top of the agenda when Tim Geithner, the US Treasury Secretary, meets Mr Schäuble in Berlin on Thursday. Mr Geithner, who was expected to criticise lack of consultation over Berlin’s unilateral move last week to ban naked short selling, has called for Germany to do more to boost domestic demand. Mr Schäuble insists he cannot do so by deficit spending.
The German savings plan is intended to bring the budget deficit down from more than 5 per cent of gross domestic product to 3 per cent – in line with the long-standing EU stability and growth pact target – by 2013, Mr Schäuble said. It was also needed to meet the new debt rule in the German constitution, which calls for a cut in the structural deficit, excluding cyclical effects, to 0.35 per cent of GDP by 2016. Ms Merkel has summoned a closed-door conference of the leading members of her centre-right coalition in two weeks to decide on guidelines for the proposed cuts to be laid out in the 2011 budget. Strains were emerging in public, however, between the coalition’s parties and within Ms Merkel’s Christian Democratic Union, over where the cuts should fall, and whether also to raise taxes.
Mr Schäuble rejected the suggestion of a regional baron of the ruling party – Roland Koch, CDU prime minister in the state of Hesse – that cuts should cover education, research and care services. "Savings in those areas would be wrong," Mr Schäuble told the Frankfurter Allgemeine newspaper. "They would reduce the chances of increasing our growth potential." Three CDU state premiers, including Mr Koch, have called for targeted tax increases to be considered. They would be opposed by the Free Democrats, junior partners in the coalition, who have had to delay their plans for a €16bn tax-cutting package, and the Bavaria-based Christian Social Union.
ECB steps up emergency sovereign bond purchases
by James Wilson and David Oakley
The European Central Bank has stepped up its efforts to shore up eurozone debt markets by buying another €10bn of government bonds in the last week but bankers expect the programme will have to be intensified amid continued market fragility. The purchases - announced on Monday - bring the ECB’s bond-buying to about €26.5bn since it announced the unprecedented programme two weeks ago, in support of a €750bn "shock and awe" rescue package adopted by eurozone governments and the International Monetary Fund to try to arrest a gathering sovereign debt crisis. So far the policy has had a limited effect, with confidence in the eurozone further hit by last week’s surprise German ban on some types of short-selling.
Market participants say nervous international investors are likely to sell at any sign of uncertainty or doubts over the eurozone economy and bond markets, suggesting the ECB will have to intervene regularly over the coming weeks. Traders say the bulk of the buying by the ECB last week followed the German decision to ban naked short selling on stocks and eurozone government bonds, which spooked the markets and led to sharp falls in the euro. Gary Jenkins, head of fixed income research at Evolution, said: "The ECB was forced into the market after the German move to steady investors’ nerves. It shows how vulnerable the market is to a sell-off and how the ECB may have to intervene a lot more over the coming weeks and months."
The most recent bond purchases extend a dramatic ECB policy U-turn this month in the face of what it said were "dysfunctional" markets, a result of fading confidence in Greece and other heavily indebted eurozone countries. Buying government bonds was an emergency step that the ECB was highly reluctant to take, fearing it would compromise the bank’s independence and thus damage its credibility. The bank has not said which bonds it is buying, nor revealed a target amount. It revealed a week ago that its bond purchases in the first week of the programme amounted to €16.5bn. With trading volumes in government debt extremely low as many investors sit on the sidelines because of the uncertain economic outlook, it only takes a few trades to send the market sharply lower. This in turn could prompt further selling as confidence is eroded, bankers say.
With a combined €2,400bn in outstanding government debt of Portugal, Greece, Spain, Italy and Ireland – the peripheral eurozone economies – investors say the ECB may have to buy up to €600bn. This would raise question marks over the central bank’s ability to "sterilise" these purchases – draining an equivalent amount of money from the system by taking deposits from commercial banks, which the ECB is doing on a weekly basis. By sterilising the bond purchases the ECB hopes to ensure the policy remains neutral in terms of impact on the money supply and the bank’s monetary policy. It wants to avoid so-called "quantitative easing" - expanding the money supply and thus stoking inflation, as some of the ECB’s more hawkish members fear.
Corporate bond sales poised for worst month in a decade
by John Glover and Caroline Hyde - Bloomberg
Corporate bond sales are poised for their worst month in a decade, while relative yields are rising the most since Lehman Brothers Holdings Inc.’s collapse, as the response by lawmakers to Europe’s sovereign debt crisis fails to inspire investor confidence. Companies have issued $47 billion of debt in May, down from $183 billion in April and the least since December 1999, data compiled by Bloomberg show. The extra yield investors demand to hold company debt rather than benchmark government securities is headed for the biggest monthly increase since October 2008, Bank of America Merrill Lynch’s Global Broad Market index shows.
Investors are fleeing all but the safest securities on concern European leaders won’t be able to coordinate a response to rising levels of government debt from Greece to Spain, while U.S. legislation threatens to curb credit and hurt bank profits. The rate banks say they charge each other for three-month loans in dollars has almost doubled since February. "This is a quintessential liquidity crisis," said William Cunningham, head of credit strategies and fixed-income research at Boston-based State Street Corp.’s investment unit, which oversees almost $2 trillion. "It’s not inconceivable to imagine a situation where the markets behave so poorly, the liquidity behaves so badly, and risk-tolerance just evaporates that -- particularly in Europe -- consumers contract, businesses stop hiring and stop investing, and economic activity halts."
Yields on corporate bonds average 188 basis points more than government debt, up from the low this year of 142 on April 21, Bank of America Merrill Lynch’s index shows. The last time spreads widened faster was October 2008, when they soared 108 basis points, or 1.08 percentage point, to 467. Junk bonds issued in the U.S. have been especially hard hit, with spreads expanding 141 basis points this month to 702, contributing to a loss of 3.78 percent. Leveraged loans, or those rated speculative grade, have also tumbled. The S&P/LSTA U.S. Leveraged Loan 100 Index ended last week at 89.23 cents on the dollar, from 92.90 cents on April 26.
The market turmoil has made banks reluctant to lend to each other. The London interbank offered rate, or Libor, for three- month loans in dollars reached 0.497 percent on May 21, the highest since July 24. Libor has been climbing on concern about the quality of banks’ collateral amid the euro-region’s financial crisis. Citigroup Global Markets Inc. strategist Neela Gollapudi in New York said in a report that the rate may reach 1.5 percent "over the next several months" after the U.S. Senate approved a financial-regulation overhaul that may increase banks’ uncertainty about how they will be able to fund themselves.
Risk Aversion
"We’re seeing risk aversion intensifying, as well as a widening of risk aversion across asset classes," said Peter Chatwell, an interest-rate strategist at Credit Agricole Corporate and Investment Bank in London. "That raises concern over counterparty risk and is pushing rates higher in the interbank market." Traders in the forward market are betting the premium of the three-month dollar London interbank offered rate, or Libor, over what investors expect the overnight federal funds rate to average -- known as the Libor-OIS spread -- will climb to about 42 basis points next month and about 61 basis points by September, according to UBS AG data. The spot spread was about 27 basis points May 21.
The spread, a gauge of banks’ reluctance to lend, surged to a record 364 basis points on Oct. 10, 2008 as Lehman’s collapse froze credit markets. Overnight index swaps, or OIS, shows where traders expect the Federal Reserve’s overnight effective rate will average for the term of the swap. Turmoil in financial markets was exacerbated last week when German Chancellor Angela Merkel stepped up calls for regulation and forbade some types of short-selling without consulting her European partners. In a short-sale an investor bets on the decline in a security’s price. Nations including France and the Netherlands said they didn’t plan to follow Germany’s lead.
"Policy makers have different views and priorities in different countries," said Jamie Stuttard, head of European and U.K. fixed income at Schroder Investment Management in London. "Almost inevitably they aren’t speaking with one voice." The latest concerns about the fiscal health of nations, and of the banks that hold their bonds, are surfacing as the economic backdrop shows signs of worsening.
More Americans unexpectedly filed applications for unemployment benefits last week as Labor Department figures showed initial jobless claims rose by 25,000 to 471,000, the highest level for a month and exceeding the median forecast of economists surveyed by Bloomberg. An index of U.S. leading indicators fell 0.1 percent in April, a sign the economic expansion may slow in the second half of the year, Conference Board data showed on May 20.
The ZEW Center for European Economic Research in Mannheim, Germany said last week its index of investor and analyst expectations in Europe’s largest economy fell the most since Lehman collapsed. The euro is swinging between gains and losses after weakening to a four-year low against the dollar last week. The currency shared by the 16 members of the euro region last traded at $1.2503. "De-risking by investors and regulatory uncertainty are combining to create deteriorating liquidity in fixed-income markets," debt strategists at New York-based JPMorgan Chase & Co. said in a report dated May 21. "Look for the flight to liquidity to persist, liquidity differentials to widen, and less liquid asset classes to cheapen in the near term."
Sales Postponed
Volkswagen AG, Europe’s largest carmaker, postponed a planned 686.3 million-euro sale of securities backed by Spanish car loans on May 10. Stefan Rolf, a Braunschweig-based spokesman, identified cited adverse market conditions. Eurasian Natural Resources Corp., a London-based iron ore and alumina miner, delayed a debut dollar-denominated note sale this month because of market volatility, people familiar with the matter said. Towergate Partnership Ltd., Europe’s largest independent insurance broker, postponed a 665 million-pound ($961 million) sale of high-yield bonds on May 13 until markets improve, said people with knowledge of the deal.
The last benchmark-sized sales of 500 million euros or more in Europe were by Casino Guichard-Perrachon SA, Europe’s biggest retailer, and Aeroports de Paris SA in April. "If companies want to come to the market now in size they’d have to pay a higher premium to do so," said Felix Freund, a Frankfurt-based money manager at Union Investment GmbH, which oversees 160 billion euros of assets. "Companies are generally well funded from last year’s record issuance and from high cash positions on their balance sheets."
Of the companies covered by Morgan Stanley’s credit strategists, 70 percent reduced their leverage ratios in the first quarter, up from about 50 percent two quarters earlier, according to a report published by the firm on May 21. For investment-grade companies, cash remains at "multi-year’ highs of 23 percent relative to debt, and 15 percent for speculative- grade borrowers, the firm said. ‘‘Given the backup in spreads over the past month, as well as the deleveraging we expect this year, risk-adjusted valuations have gone from roughly fair to once again cheap,’’ Morgan Stanley strategists Rizwan Hussain and Adam Richmond wrote in the report. Even so, the cost to protect against losses on corporate bonds with credit-default swaps remains elevated.
Default Risk
The Markit CDX North America Investment Grade Index Series 14 rose May 20 to near its 10-month high of 127.79 basis points on May 6, before slipping back to 119.25 basis points as of 5:51 p.m. in New York on May 21. In Europe, the Markit iTraxx Crossover Index of 50 mostly junk-rated companies has climbed 206 basis points this month to 632, the highest level since Aug. 19, according to JPMorgan data. The cost of protecting against losses on sovereign debt also rose, with the Markit iTraxx SovX Western Europe Index surging 35 basis points to 143. Greece jumped 84 basis points to 726, Portugal climbed 60 basis points to 335 and Spain increased 52.5 basis points to 209.5, CMA prices show.
Risk declined in Asia-Pacific today as stocks rose on speculation Europe’s debt crisis will delay action by China’s government to cool the country’s property market. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 1 basis point to 149 as of 11.56 a.m. in Hong Kong, according to Credit Agricole CIB. An iTraxx risk benchmark for Australia fell 5 basis points, CMA data show. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a credit-default swap contract protecting 10 million euros ($12.5 million) of debt from default for five years is equivalent to 1,000 euros a year.
Emerging Markets
In emerging markets, spreads on bonds widened in four of the past five weeks, ending at 337 basis points on average on May 21, according to JPMorgan prices. That’s up from the low this year of 230 on April 15. Traders are reducing bets that borrowing costs will rise in Brazil, one of the biggest emerging markets. In the nation’s overnight interest-rate futures market, the yield on contracts due in January fell six basis points, or 0.06 percentage point, on May 21 to 10.93 percent.
The yield declined 15 basis points last week, the biggest drop since the five-day period ended March 19. ‘‘This all showed that the authorities haven’t really been co-operating with each other," said Paul Owens, a credit analyst at Liontrust Investment Services Ltd. in London, which managed the equivalent of $1.8 billion as of Dec. 30. Widening bond spreads "are a measure of the seriousness of the risks and the wider and more uncertain range of outcomes," he said.
The Next Shoe to Drop Will be US Data…
by David Goldman - Asia Times
Nemesis always enters through the unwatched door. Investors are watching Europe, while the next big disappointment well might come from US economic data. Just when you thought that the recovery was in the bag, in turns out that the data on which you formed that conclusion are shaky.The big anomaly in the US data lies between rising unemployment claims and (supposedly) robust job growth. It’s possible, of course, that some businesses are laying off (and we saw an increase in manufacturing layoffs during April) while others are hiring. But a better explanation was suggested by UBS analysts in a note to clients two weeks ago–most of the 290,000 jump in new jobs in March was due to a “benchmark revision” based on the Labor Department’s guesses about new business formation.
Dissecting The Somewhat Suspect Payroll Data – As we suggested in yesterday’s Comments, Friday’s non-farm payroll numbers got swallowed up by the on-going worries about Greece. But, the "jump" of 290,000 new jobs was a big topic on the weekend talk shows. There was a lot of "we’ve turned the corner" portrayals.
Longtime readers know I’ve thought some of the improvement in the data was "suspect" (to be kind). For the last eight weeks, Initial Unemployment Claims have averaged 450,000 per week. So, over the last four weeks, 1.8 million people were laid off. How does that fit in with the claim that 290,000 new jobs were created? The obvious answer is that it doesn’t.
So, let’s drill down into the payroll numbers to see what’s going on. The CES Birth/Death adjustment added 188,000 of those jobs. Birth/Death does not refer to people but to businesses. The BLS guesses how many new companies opened versus how many closed their doors. The BLS then uses that guess to guess again how many jobs those business created or lost.
Another 66,000 of the new jobs came from census hiring. Those are temporary jobs and those folks will be laid off later in the year. Speaking of temporary, another 26,000 of the new jobs were non-census temporary. Let’s recap. A guess produced 188,000 of the jobs, 66,000 were census and 26,000 were temporary. Thus, it seems 280,000 of the 290,000 "new jobs" were either temporary or the result of guesswork. Some turn. Some corner.The trouble with these estimates is that it appears that small business was still shedding employment rather than adding to it during April. According to the National Federation of Independent Business, April was the 27th consecutive month of small business layoffs.
April marked the 27th consecutive month in which small businesses either shed more or the same number of jobs that they added, according to a monthly survey to be released Tuesday by the National Federation of Independent Business, a trade group in Washington, D.C. Since July 2008, employment per firm has fallen steadily each quarter, logging the largest reductions in the survey’s 35-year history. Going forward, more small-business owners say they plan to eliminate jobs compared with those that expect to create new jobs over the next three months.The big drop in the stock market came after several pieces of bad news:
- Unemployment claims rose to 471,000 vs expectations of 439,000 in the week ended May 15;
- One in seven American mortgages is behind in payments;
- Foreclosures reached a record as the banks work through their backlog;
- Mortgage applications last week fell to the lowest level since the survey was conducted;
- Commercial real estate prices continue to fall.
The reports from the grass roots of the economy remain negative.The DIscover Small Business Watch Index has bounced from the bottum but still shows a contraction of small business activity.
- April results show a surge in the number of small business owners who say economic conditions for their own businesses are getting better: 30 percent of them say the climate will get better in the next six months, compared to only 20 percent who answered that way in March. Of the remaining respondents; 48 percent say the climate is getting worse, but that number is down from 53 percent in March.
- When asked about their intentions to invest in their businesses, 23 percent say they would increase spending, up from 18 percent in March, while 43 percent still plan to decrease spending, which is down from 52 percent in March; 31 percent say they will make no changes.
- Small business owners who say the current economy is good or excellent was 13 percent in April, up from 7 percent in March and the highest it has been in 20 months; 29 percent rate the economy as fair, and 57 percent think it’s poor.
- The outlook for the direction of the economy improved: 31 percent say it is getting better, up from 22 percent in March; while 52 percent say it’s getting worse, down from 58 percent the prior month; and 14 percent aren’t sure.
- Cash flow issues eased slightly: Fewer owners said their businesses encountered temporary cash flow issues in the past 90 days that caused them to hold off on paying some bills: 51 percent said they did not experience cash flow issues in April, compared with 47 percent in March. Those owners who had cash flow issues dropped from 46 percent in March to 45 percent in April.
Wall Street perks: "Marie Antoinette could fit into this crowd without missing a beat"
by Tomoeh Murakami Tse - Washington Post
Some of the nation's biggest financial firms have increased the perks and benefits they pay their chief executives, despite the glaring spotlight from a public fed up with handsome bonuses at bailed-out Wall Street banks. The lavish fringe benefits included country club dues, chauffeured drivers, personal financial planning services, home security systems and parking. Some increases were in perks that Obama administration officials consider among the most egregious, such as corporate aircrafts for personal travel.
J.P. Morgan Chase awarded its chairman and chief executive, Jamie Dimon, $91,000 in personal travel on the company jet in 2009, up from about $54,000 the previous year. His total perks increased 19 percent, to $266,000. Dimon, along with Goldman Sachs chief executive Lloyd Blankfein and McLean-based Capital One chief executive Richard Fairbank, also received sharply higher perks related to personal and home security.
"Marie Antoinette could fit into this crowd without missing a beat," said Nell Minow, co-founder of the Corporate Library, which found in recent studies of several thousand U.S. companies that more chief executives received club memberships than a year earlier, and companies paid more to cover executives' personal use of corporate planes. "Many people would think the solution would be not to be so provocative of unrest and unhappiness, but no, they're saying, 'Go ahead and do that, just build bigger walls around your house.' "
A review of the 29 largest publicly traded financial companies that received federal aid found that nearly one in three increased fringe benefits for their chief executives. Those raises contrast with the belt-tightening that many Americans have experienced during the recession. They also occurred as 20 of the firms cut perks last year, after an increase in 2008, according to figures in corporate securities filings provided by Equilar, a compensation data services firm.
Last year, executives at the firms surveyed received perks and benefits worth more than $140,000 on average, compared with $380,000 in 2008. Individually, chief executives at nine of the banks received total fringe benefits worth more than the previous year. The analysis does not include relocation costs and related taxes, typically one-time fees that can skew year-over-year comparisons. All of the banks were operating with taxpayer funding for at least part of last year, although 14 had returned the money by year's end.
The overall decline took place in part because of strict limits on perks imposed by the Obama administration for 2009 at companies receiving the most assistance. For example, at Ally Financial, the financing arm of General Motors formerly known as GMAC Financial Services, chief executive Michael A. Carpenter received perks worth just $35, compared with the $4.8 million awarded to his predecessor, Alvaro G. De Molina, in 2008.
While the sweeteners translate to a drop in the pool of money that could have gone to shareholders or been reinvested in the business, activist stockholders and corporate governance groups argue that they are symptomatic of a larger problem. "It's a very powerful indicator of something we are learning to care about more and more, and that is the board's ability to say no to the CEO," Minow said. "If it can't say no to the CEO on a club membership, then how can we expect them to say no to an acquisition or some other decision that is not in the interest of shareholders? We have found over and over again that it is a leading indicator of a board that is not providing effective oversight."
Companies say that perks are useful in attracting talent and that they benefit shareholders as well because private jets and chauffeured drivers help keep busy and high-profile chief executives safer and more efficient. "Security expenditures could be considered more of an issue about risk than an executive perk," Capital One spokeswoman Tatiana Stead said in an e-mail, adding that the company for years has covered Fairbank's security expenses, which can fluctuate. "As founder, chairman, and CEO, Rich Fairbank is critical to our business and this expenditure has never been a significant annual expense."
While perks have long been a focus of criticism by corporate governance-minded activists, the benefits -- about $4 million in total among the chief executives of the 29 financial firms -- are drawing increased scrutiny in today's tough economy and interest in Washington to clamp down on excessive pay. Both the House and Senate versions of the financial regulation overhaul bill include provisions that would give shareholders an advisory, up-or-down vote on executive compensation packages. The legislation also includes measures that would give stockowners more say in electing board directors.
Meanwhile, Kenneth R. Feinberg, President Obama's pay czar, who ruled last year that perks at firms receiving the most taxpayer assistance should not exceed $25,000 per executive, is reviewing pay practices at the more than 400 financial institutions that received Troubled Assets Relief Program funds. The principles guiding his review, to be made public within weeks, are similar to those he used with the most troubled firms, according to people familiar with the matter.
Although Feinberg does not have authority to impose changes at the broader group of firms receiving TARP money, the powers granted to Feinberg through legislation allow him to review compensation, and "where appropriate, negotiate appropriate reimbursements." "The significance is greater than the dollar value alone," said Brandon Rees, deputy director of AFL-CIO's office of investment. "It illustrates the power of CEOs to dictate every term in their compensation agreement . . . If the CEO wants to go to Aspen, or the South of France for his vacation, and wants to fly on the corporate jet, well then, he should expend the vast sums of compensation shareholders have given him to do that."
The $123 Billion Tab For Job And Tax Bill
by Douglas A. McIntyre - 24/7 Wall Street
The bill known as H.R. 4213, The American Jobs and Closing Tax Loopholes Act, may clear Congress in the next few days. It would extend eligibility for unemployment insurance benefits, COBRA health care tax credits and other critical programs that families and communities depend on through December 31, 2010. In other words, it would help millions of the unemployed. Another major part of the legislation would close tax loopholes for wealthy investment fund managers and foreign operations of multinational companies.
The goals of the programs may be noble, but they will cost taxpayers $123 billion over the next two years. None of this money is in the budget. It is hard to gauge how many times voters will countenance Congress increasing unemployment payments. The new bill provides for 52-week weeks of extended benefits. The Emergency Unemployment Compensation (EUC) program will be extended through the end of the year.
As usual, the its advocates and by The Congressional Budget Office have differing estimates on how much the bill will cost. Late Friday, the CBO reported that the the legislation would increase the deficit by $123 billion for 2010 and 2011. That number rises to $141 billion for the 2010 to 2015 period. The agency said, "The bill would extend benefits under the unemployment insurance program, at a total cost of about $47 billion, and it would extend (for an additional six months) the increase in the federal share of Medicaid costs that was originally enacted in the American Recovery and Reinvestment Act of 2009."
Like every other program on top of the President’s budget, an additional burden is placed on the Treasury to increase borrowing and, probably the cost of money. The CBO estimates that debt service for the American deficit will hit $700 billion in 2020. That makes the government’s ability to fund Social Security, Medicare, and Medicaid more difficult. An aging population will find that its retirement will be more expensive to fund. Some expect that some baby boomers will not get their "fair share" of entitlement programs. The Administration and Congress have decided to help the unemployed short-term and those retiring in a decade will pay for it.
Long-Term Unemployment: No Help For The 99ers
by Arthur Delaney - Huffington Post
This week Congress will consider legislation to reauthorize extended unemployment benefits for the rest of the year. It's going to be an epic fight: Republicans in the Senate will likely do everything they can to stand in the way of a bill projected to add $123 billion to the deficit, forcing Dem leadership to round up a supermajority for a last-minute Friday vote before Congress adjourns for its Memorial Day recess. Too bad the jobs crisis, in a big way, has already left this bill in the dust. Hundreds of thousands of people have exhausted their extended unemployment benefits. In some states, laid-off workers can receive checks for 99 weeks -- and that's all they're going to get. This bill isn't for the "99ers" and there's no proposal on deck to give them additional weeks of benefits.
"What's frustrating is that our government doesn't seem to think this is an important issue," said Christy Blake, a 35-year-old mother of two in Fruitland, Md. "We didn't put ourselves here. It wasn't our choice. I have been diligently looking for work." Blake told HuffPost she received her last biweekly $618 unemployment check in February. She said she lost her job as an accounting associate with the city of Fruitland in September 2008 (jobless Marylanders can get 73 weeks of benefits). She said she's three months behind on rent and has no idea how she'll pay the $205.63 electric bill that came with a May 28 cutoff warning. She said she's applied for jobs at Walmart, Target and McDonald's without any luck. She has no idea what to do.
Meanwhile, members of Congress are losing their appetite even for renewing existing benefits. Several members of the House and Senate have flirted with the idea that unemployment checks make people too lazy to look for work. Most recently, Rep. Kathy Dahlkemper (D-Pa.) told the Washington Post that businesses in her district wanted to start hiring but were getting few applicants because Congress had given the unemployed so many weeks of benefits. "Now, whether that's true or not, I'm still trying to decipher," said Dahlkemper. "But I think it's something we really need to look at." Blake is concerned about the situation: "I think it really stinks," she said. "It's beyond stinking."
More than a million people will probably be in Blake's boat by the end of the year. She's one of 19,000 in Maryland to have exhausted all available benefits, according to the state's labor department. As of last week, 65,400 people had exhausted benefits in New York -- up from 57,000 at the end of April. In Michigan, it's 34,900. In Illinois, 22,000. In Pennsylvania, 35,200. In California, 110,609. In Florida, the number had climbed to 130,000 before May and currently stands at 193,000.
People who've been out of work for longer than six months constitute 45.9 percent of the total unemployed. Those out of work at least a year make up 23 percent. Only two-thirds of the country's 15.3 million unemployed receive benefits when they lose their jobs in the first place. Dean Baker, co-director of the progressive Center for Economic and Policy Research, said that while he supported extending benefits in principle, "It's a bit hard to push an argument that the benefits should be extended when so many people are getting nothing." Some families ineligible for unemployment benefits can get on welfare, formally known as Temporary Assistance for Needy Families. The total number of TANF caseloads has risen to 4.6 million as of December after a steady monthly increase from 4.1 million the previous year.
Policy experts say the program serves far fewer families than it should. Pamela Robinette of Philadelphia told HuffPost she lost her job as an administrative assistant in April 2008 and received her final unemployment check in March. She can't turn to TANF -- her children are grown. "If I'm kicked out of my apartment, I can always live in my car," she said. Robinette said she thought she could move in with her mother in Texas -- but her sister and daughter are already there. "I'm 53 years old -- to move back in with mommy after all this time, it's degrading," she said. "I think the American government is screwing its citizens."
After a Tuesday vote, the House will send the measure to the Senate, where Democrats will need to file a time-consuming cloture motion to proceed to a final vote at the end of the week. Aside from unemployment benefits, the bill includes tax breaks for individuals and businesses and $2.5 billion to extend a jobs subsidy program through 2010 that will have funded 185,000 jobs through September (Republicans are targeting the program; Democrats didn't stand up for it when they had a chance to extend its funding in March). An enterprising layoff victim in California garnered more than 20,000 signatures for a petition demanding Congress give the long-term jobless additional weeks of benefits, but few members of the House or Senate have indicated that they support the idea.
Deficit Crisis Threatens Ample Benefits of European Life
by Steven Erlanger - New York Times
Across Western Europe, the "lifestyle superpower," the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II. Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism.
Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. They have also translated higher taxes into a cradle-to-grave safety net. "The Europe that protects" is a slogan of the European Union. But all over Europe governments with big budgets, falling tax revenues and aging populations are experiencing rising deficits, with more bad news ahead. With low growth, low birthrates and longer life expectancies, Europe can no longer afford its comfortable lifestyle, at least not without a period of austerity and significant changes.
The countries are trying to reassure investors by cutting salaries, raising legal retirement ages, increasing work hours and reducing health benefits and pensions. "We’re now in rescue mode," said Carl Bildt, Sweden’s foreign minister. "But we need to transition to the reform mode very soon. The ‘reform deficit’ is the real problem," he said, pointing to the need for structural change. The reaction so far to government efforts to cut spending has been pessimism and anger, with an understanding that the current system is unsustainable.
In Athens, Aris Iordanidis, 25, an economics graduate working in a bookstore, resents paying high taxes to finance Greece’s bloated state sector and its employees. "They sit there for years drinking coffee and chatting on the telephone and then retire at 50 with nice fat pensions," he said. "As for us, the way things are going we’ll have to work until we’re 70." In Rome, Aldo Cimaglia is 52 and teaches photography, and he is deeply pessimistic about his pension. "It’s going to go belly-up because no one will be around to fill the pension coffers," he said. "It’s not just me; this country has no future."
Changes have now become urgent. Europe’s population is aging quickly as birthrates decline. Unemployment has risen as traditional industries have shifted to Asia. And the region lacks competitiveness in world markets. According to the European Commission, by 2050 the percentage of Europeans older than 65 will nearly double. In the 1950s there were seven workers for every retiree in advanced economies. By 2050, the ratio in the European Union will drop to 1.3 to 1. "The easy days are over for countries like Greece, Portugal and Spain, but for us, too," said Laurent Cohen-Tanugi, a French lawyer who did a study of Europe in the global economy for the French government. "A lot of Europeans would not like the issue cast in these terms, but that is the storm we’re facing. We can no longer afford the old social model, and there is a real need for structural reform."
In Paris, Malka Braniste, 88, lives on the pension of her deceased husband. "I’m worried for the next generations," she said at lunch with her daughter-in-law, Dominique Alcan, 49. "People who don’t put money aside won’t get anything." Ms. Alcan expects to have to work longer as a traveling saleswoman. "But I’m afraid I’ll never reach the same level of comfort," she said. "I won’t be able to do my job at 63; being a saleswoman requires a lot of energy." Gustave Brun d’Arre, 18, is still in high school. "The only thing we’re told is that we will have to pay for the others," he said, sipping a beer at a cafe. The waiter interrupted, discussing plans to alter the French pension system. "It will be a mess," the waiter said. "We’ll have to work harder and longer in our jobs."
Figures show the severity of the problem. Gross public social expenditures in the European Union increased from 16 percent of gross domestic product in 1980 to 21 percent in 2005, compared with 15.9 percent in the United States. In France, the figure now is 31 percent, the highest in Europe, with state pensions making up more than 44 percent of the total and health care, 30 percent. The challenge is particularly daunting in France, which has done less to reduce the state’s obligations than some of its neighbors. In Sweden and Switzerland, 7 of 10 people work past 50. In France, only half do. The legal retirement age in France is 60, while Germany recently raised it to 67 for those born after 1963.
With the retirement of the baby boomers, the number of pensioners will rise 47 percent in France between now and 2050, while the number under 60 will remain stagnant. The French call it "du baby boom au papy boom," and the costs, if unchanged, are unsustainable. The French state pension system today is running a deficit of 11 billion euros, or about $13.8 billion; by 2050, it will be 103 billion euros, or $129.5 billion, about 2.6 percent of projected economic output. President Nicolas Sarkozy has vowed to pass major pension reform this year. There have been two contentious overhauls, in 2003 and 2008; the government, afraid to lower pensions, wants to increase taxes on high salaries and increase the years of work.
But the unions are unhappy, and the Socialist Party opposes raising the retirement age. Polls show that while most French see a pension overhaul as necessary, up to 60 percent say working past 60 is not the answer. Jean-François Copé, the parliamentary leader for Mr. Sarkozy’s center-right party, says that change is painful, but necessary. "The point is to preserve our model and keep it," he said. "We need to get rid of bad habits. The Germans did it, and we can do the same."
More broadly, many across Europe say the Continent will have to adapt to fiscal and demographic change, because social peace depends on it. "Europe won’t work without that," said Joschka Fischer, the former German foreign minister, referring to the state’s protective role. "In Europe we have nationalism and racism in a politicized manner, and those parties would have exploited grievances if not for our welfare state," he said. "It’s a matter of national security, of our democracy." France will ultimately have to follow Sweden and Germany in raising the pension age, he argues. "This will have to be harmonized, Europeanized, or it won’t work — you can’t have a pension at 67 here and 55 in Greece," Mr. Fischer said.
The problems are even more acute in the "new democracies" of the euro zone — Greece, Portugal and Spain — that embraced European democratic ideals and that Europe embraced for political reasons in the postwar era, perhaps before their economies were ready. They have built lavish state systems on the back of the euro, but now must change. Under threat of default, Greece has frozen pensions for three years and drafted a bill to raise the legal retirement age to 65. Greece froze public-sector pay and trimmed benefits for state employees, including a bonus two months of salary. Portugal has cut 5 percent from the salaries of senior public employees and politicians and increased taxes, while canceling big projects; Spain is cutting civil service salaries by 5 percent and freezing pay in 2011 while also chopping public projects.
But all three need to do more to bolster their competitiveness and growth, mostly by changing deeply inflexible employment rules, which can make it prohibitively expensive to hire or fire staff members, keeping unemployment high. Jean-Claude Meunier is 68, a retired French Navy official and headhunter, who plays bridge to "train my memory and avoid Alzheimer’s." His main worry is pension. "For years, our political leaders acted with very little courage," he said. "Pensions represent the failure of the leaders and the failure of the system." In Athens, Mr. Iordanidis, the graduate who makes 800 euros a month in a bookstore, said he saw one possible upside. "It could be a chance to overhaul the whole rancid system," he said, "and create a state that actually works."
European cities on the edge of a debt crisis
by Elena Moya - Observer
While relaxing on the back of a gondola, the millions of tourists who drift by the Palazzo Diedo, Gradenigo or San Casciano in Venice don't generally know that what they're looking at are the roots of another European debt crisis. For in a desperate move by the Italian city to shore up its books, these three historic Venetian sites have been put up for sale.
A quarter of Venice's income comes from the City-owned casino near the famous Rialto bridge, where thousands of tourists gamble, unaware that they're funding the city's battle against rising lagoon levels, or paying for its world-renowned carnival. But a credit crunch-led drop in tourism has starved the municipal coffers, and forced the city into new fundraising ventures. Venice recently created an 18-property fund, valued at €82m (£71.3m), expected to be sold within three to five years.
"The lower income from the casino has decreased our expense capacity, so the fund structure gave us half of the value, €40m in cash, ahead of the sales," said Paolo Di Prima, director of financial investment at Comune di Venezia – the city hall. Downgraded by Moody's earlier this month but still within investment grade status, Venice is "not desperate, as before we had an excellent position, and now we're in a good one", Di Prima says.
The crisis in the eurozone is making headlines at the moment, but at a lower level another debt storm is slowly brewing. European cities and regions are expected to flood the market this year, all anxious to fund ballooning deficits. Local and regional government borrowing is expected to reach a historical peak of nearly €1.3 trillion, according to credit ratings agency Standard & Poor's (S&P). The bulk will come from the highly decentralised German Länder (states) and from the deficit-ridden Spanish regions, which face severe central government transfer cuts. Regions also face higher borrowing costs and, most likely, further credit downgrades.
"We expect a significant increase in [debt] issuance in Germany; German borrowers have huge refinancing needs and they're running deficits," said Myriam Fernandez, head of European local and regional government ratings at S&P. "And in Spain, where there is a need to roll over debt, and there are high deficits in 2010, we could see further downgrades for local and regional governments."
S&P recently cut the rating of Madrid, whose debt is expected to remain between 155%-170% of expected revenues until 2012.
Madrid went through a spending spree during the boom years, investing millions in infrastructure projects, such as covering up the ring road around the capital. Valencia also spent huge sums in international attention-grabbing events such as the America's Cup or a Formula One grand prix. "These events don't have any capacity to generate economic growth and now they will have to rush to issue debt," said Andres Rodriguez-Pose, a professor of economic geography at the London School of Economics. "They will have fewer transfers from the central government and will need to cut their budgets brutally."
Catalonia also suffered the S&P axe, as the credit ratings agency said the region's "high debt burden is likely to persist in the long term". But the downgrade won't affect the government's ability to tap international markets, claims Ferran Sicart, general director for financial policy at the Catalan government. As with other senior civil servants, he faces a possible 15% salary cut as the region tries to shrink its deficit. Catalonia needs to raise €9.4bn this year, almost twice as much as last year, and plans to use its industrial and tourism base, as well as the strong Barcelona brand to attract investors. Catalan officials have now added Japan to the usual roadshow spots of London, Paris and Frankfurt.
"The weight of international investors in our public debt has slightly diminished – there's also more competition, so we have to reach out to investors, through meetings and roadshows," Sicart says. "We need to raise more money because of a fall in tax-intake, mostly linked to the construction sector." But as much admiration as Catalan officials receive for Barcelona – and its successful football team – Catalonia still needs to pay higher interest rates than it did before financial turbulence hit the markets earlier this month.
In contrast, the German state of North Rhine-Westphalia can get away with forking out just 0.35% above the sovereign German bund rate. The biggest local borrower in Europe, it plans to raise €27bn this year – one third of it through bonds. "We take advantage as German bonds are seen as a safe haven – and we offer a bit more than German sovereign bonds," says Eckhard Helms, the state's treasurer, in his office in Dusseldorf. "We tell investors we're reliable. I don't compare myself to Spanish regions, but the market seems to make differences."
Germany's richest and most populous state isn't immune to the global recession, though: North Rhine-Westphalia needs to raise €3bn more than last year, "because we have lower tax income, and because we had to issue short-term bonds following the collapse of Lehman Brothers two years ago", Helms says. An established player in international markets, the state plans to issue more than €1bn worth of securities soon, and to do so it will send representatives around around Europe, Asia and the Middle East. The US is not a target market as regulatory costs are too expensive, Helms says.
Cities don't have the financial fuel of nations or global corporations, which pay multimillion-pound mandates to globetrotting investment bankers to find them investors. Also gone are the days when Wall Street firms took potential financiers bear-hunting in Poland to earn a stock market listing appointment. For cities and regions, a few tapas in Madrid or a book explaining the charms of Düsseldorf are what's on offer.
They also face competition from newcomers such as Spain's autonomous communities of Aragon or Galicia, and above all, they face anxious investors, who are even more risk-averse following the Greek debt meltdown. The Basque government, in northern Spain, has postponed a trip to market a bond issue of more than €1bn, a banker involved in the situation claims. "The market is shut, nobody's doing anything," the banker says. "Money can't be kept in a drawer but it was shut two weeks ago, and it will have to reopen."
There are other more traditional problems, of course. S&P says the Italian city of Naples faces "structural problems in generating liquidity". What does this mean? "Tax collection rates are very low. They raise taxes, but they don't collect them – it's not a problem of large indebtedness", Fernandez says. European regions had traditionally borrowed from public finance specialist banks such as Germany's Depfa, or Dexia in Belgium. That has now changed. "That traditional base, the public sector banks, is not operational anymore," says Philip Brown, Citigroup's head of public sector origination. "And in this climate, investors are now very sensitive to countries with large debt."
Despite the challenges, rating agencies don't foresee any local financing catastrophe. According to S&P, most west European-rated cities and regions are still far from the lowest "junk" credit rating – giving them room and credibility to manoeuvre. But the situation is rather different in eastern Europe. Cities such as Istanbul are rated as junk – as Turkey is still recovering from the severe financial crisis there 10 years ago. "Most non-investment grade ratings are in eastern Europe, in countries such as Russia, as they have weak economies and have had liquidity problems in the past – they also lack the financial sophistication that comes with decades of experience in capital markets," S&P's Fernandez says.
Latvia's capital city, Riga, is on the edge of a junk rating amid its "dependence on sharply diminishing revenue sources, the lack of authority over the city's tax revenue and pressures arising from off-balance-sheet financing schemes," Moody's recently said. In 2005, Riga borrowed €440m from Deutsche Bank to build a bridge over the Daugava river, which was recorded as a "trade payable," instead of outright debt. The city changed the policy two years later, adding the sum to its debt pile.
But however bad it gets, Despite ballooning deficits, European regions and cities can expect the state to bail them out: hence they are not expected to follow counterparts in the US, where municipalities bear all of the financial responsibility. In the US, Orange County and cities such as Vallejo, California, or Bridgeport, Connecticut, have gone bust over the past few years, and the entire state of California has been on the brink of collapse.
"California has a political system where everything is based on referendums, so they always say they can't raise taxes, so they don't have resources for anything," said Rodriguez-Pose. California's governor Arnold Schwarzenegger last year stopped buying school textbooks, in a desperate move to cut costs.
In Europe, the explosion of local and regional funding may be putting cities and regions under intense strain, upsetting central governments and not generating enough fees for bankers. The fight between their politicians to attract funds will be "brutal," Rodriguez-Pose warns.But for once, citizens seem to be the only winners: research shows the higher the level of local financial independence, the happier local residents are. Let's hope the cities can stay above water.
A short history of European debt
Lenders have not always put pressure on borrowers. At some point, it was the other way around. According to Carmen Reinhart and Kenneth Rogoff, authors of "This Time is Different: Eight Centuries of Financial Folly", a king's promise to repay could often be removed as easily as the lender's head. In the middle ages, whole families were slaughtered simply to seize their lands and wealth.
A few centuries later, after the 1400s, Italian city-states such as Venice, Genoa or Florence developed more sophisticated markets, where loans were traded after being issued. But this period also saw the first true international debt crisis. By then, Italian merchants lent huge amounts to England, a less financially sophisticated country, which was only just starting to generate wealth through natural resources such as wool.
The Italian loans, which funded wars between England and France, were in trouble after Edward III of England defaulted in 1340, following a series of military failures. News of the default hit Florence, causing a bank run on the lenders' doors, and ultimately leading to the collapse of the Peruzzi Bank.
England wasn't able to fend off its serial defaulter tag until the 1688 revolution strengthened the powers of parliament. Italy, however, didn't learn from its mistakes, and became a big lender to Spain's worldwide exploratory forays and battles. Costly ventures such as the Invincible Armada led to a series of defaults, making Spain, with 13 failures, the country with the worst record in Europe. Germany and France follow with eight. Greece has just five.
"We Are On Schedule for a Very, Very Long Bear Market," Prechter Says
by Aaron Task - Tech Ticker
The global selloff in stocks accelerated Thursday, sending the Dow down 3.6% to 10,068 while the S&P 500 lost 3.9% to 1,071.59 and the Nasdaq shed 4.1% to 2,204. All major U.S. averages are now down for the year and at least 10% below their 2010 highs, meaning the downturn has officially entered "correction" territory. Unfortunately (for bulls), there's much more selling ahead, according to Robert Prechter, president of Elliott Wave International and author of Conquer the Crash. "We should be in for [another] week or two of pretty serious selling," Prechter says. "They'll be bounces along the way...but I think this should last a long time. We should be on schedule for a very, very long bear market period."
In the near-term, the veteran market watcher predicts a "dramatic increase in volatility," beyond what's already occurred. The CBOE Volatility Index (VIX) rose another 30% today and is now up about 180% from its late April lows. Notably, today's selling occurred despite a rally in the euro amid reports of central bank intervention. Joe Brusuelas of Brusuelas Analytics says, "The capitulation in today's market has more to do with the unwinding of the easy money [carry] trade on commodities," which fell again today, with notable weakness in energy and palladium. Meanwhile, Treasury prices continued to benefit from the "risk aversion" trade with the yield on the benchmark 10-year note falling to 3.21%.
Other than to say "a long way down," Prechter wouldn't say how much further he thinks the market will fall, suggesting a repeat of the 1930-32 scenario when "extremely sharp rallies" kept investors interested and "feeling like a bottom [was] forming." Anyone familiar with Prechter knows he's been predicting doom for a long time so it's tempting to dismiss his latest warning -- a veritable repeat of what he said here in February. But he's not a perma-bear and did turn bullish ahead of the bottom in March 2009.
More dramatically, in 1978 he co-authored Elliott Wave Principle - Key To Market Behavior, which predicted a great bull market similar to the 1942-1966 rally. By his own admission, Prechter underestimated the extent of that historic rally, which ran from 1982-2000 and saw the Dow rise 1,500% from 777 to 11,723. Prechter says the market has spent the past 10 years building a "major head and shoulders" top from those 2000 highs, even though they were exceeded in 2007. Ultimately, he expects a "corrective mode that's going to retrace virtually the entire" 1982-2000 bull market. "The best place for most people to be is in cash" and equivalents, he says. "You want maximum liquidity until this thing blows over."
Editor's note: We did NOT interview Prechter because the market was tumbling; [this] appearance was scheduled earlier [last] week. Sometimes it's better to be lucky than good...
Prechter: Bank Reform Will Shrink Credit and Kill the Economy
by Peter Gorenstein - Tech Ticker
The Senate version of financial regulation is bad for business on Wall Street. "Some analysts estimate it could cut the profits of major financial institutions by roughly 20%," reports the Wall Street Journal. It’s also bad for the economy, says Robert Prechter, president of Elliott Wave International. Prechter believes the measures are doing the exact opposite of their intention. "Even though they (the government) want credit to expand, because that’s the base of inflation, they’re doing everything they can to restrict it," he tells Aaron in this clip.
"On one hand we have the Fed trying to jawbone banks into lending but the government is doing everything it can to curtail the lending," he continues, noting the Senate’s bill will mean smaller bank profits, which in turn means less money to lend. It also plays into Prechter's thesis that the economy is headed for deflation and depression. Prechter coined the term "socionimcs" -- the belief social moods drives economic, financial and political behavior -- says it’s just the beginning of this movement. "All this behavior is classic, eventually we’re going to see an increase in protectionism," he says. "It’s just the way people behave. They can’t help themselves."
Even $1 Trillion Can't Save the Euro, But Gold Is No Haven, Prechter Says
by Peter Gorenstein - Tech Ticker
It looks like it’ll take more than a trillion dollars to bring buyers back to the stock market. European markets continue to fall Friday despite Germany’s approval of the massive euro zone bailout. The major European indexes are each falling 2% in intraday trading. The euro, however, is getting a slight boost. It's off its recent four-year lows and is now trading for more than $1.25. Still, sentiment remains negative on the future of the euro. Usually a contrarian, Robert Prechter of Elliott Wave International isn’t so inclined when it comes to the euro. Near term, the euro might rebound, but he says it’s entirely possible the European Union will break up in the next 10 years.
Of course, the euro’s recent loss has been the dollar’s gain. Prechter predicted a strong move in the dollar on Tech Ticker over a year ago. "The dollar appeared to be on the verge of disintegrating last November," he tells Aaron in the accompanying clip. "I thought that was one of the best contrary opportunities I’ve ever seen.' Prechter is less enthusiastic now that everyone is piling into the dollar. "The dollar is no longer a bargain," he says. "I don’t think the bull market is over but I think the best of it for the time being is over."
Meanwhile, the most popular alternative to currencies, gold, isn’t such a good buy either, according to the veteran market watcher. "It’s losing upside momentum at the same time more people are getting more enamored with it," he notes. Contrary to popular belief, "gold tends to rise when the economy is expanding not when it’s in recession," according to Prechter’s research. And, as we’ll discuss in more detail in another clip, Prechter thinks deflation and economic depression are a foregone conclusion.
Nouriel Roubini said the bubble would burst and it did. So what next?
by Jonathan Sibun - Telegraph
The dismal science? Don't believe a word of it. If Nouriel Roubini's New Year's Eve invitations were anything to go by, economics is far from the dour affair it once was. Holed up in the Caribbean island of St Bart's, Roubini was forced to choose between two parties. The first hosted by Chelsea owner Roman Abramovich, the second by Colonel Gaddafi's son Hannibal. While dancing the night away with a Russian oligarch or the son of a Libyan dictator might not be everyone's glass of Cristal, the invitations show just how far the New York university professor has come in the celebrity stakes.
Just three years earlier, Roubini had been the object of derision in the economics community as he prophesied a US housing market crash, financial crisis and partial collapse of the banking sector. Today, as an adviser to governments and central bankers and much feted in the media, he's well aware of the power of being right. "In my line of business your reputation is based on being right," he says. "The publicity is just noise. Certainly with a global crisis, the dismal scientists are having some prominence, even if most of the economics profession actually failed to predict it."
The 51-year-old, widely known as Dr Doom, is in town to publicise his new book Crisis Economics, a crash course in the financial crisis and what can be done to avoid another. The book does little to suggest he is uncomfortable with his nickname. Where Roubini is concerned, the great recession has some way to run. "The crisis is not over; we are just at the next stage. This is where we move from a private to a public debt problem," he says, his speech the mongrel drawl of a man who was born in Turkey to Iranian parents, raised in Israel and Italy and lives in New York. "We socialised part of the private losses by bailing out financial institutions and providing fiscal stimulus to avoid the great recession from turning into a depression. But rising public debt is never a free lunch, eventually you have to pay for it."
As eurozone leaders panic and markets continue to dive, Roubini believes Greece will prove to be just the first of a series of countries standing on the brink. "We have to start to worry about the solvency of governments. What is happening today in Greece is the tip of the iceberg of rising sovereign debt problems in the eurozone, in the UK, in Japan and in the US. This... is going to be the next issue in the global financial crisis." It already is. And Roubini claims to have foreseen it as far back as 2006. "I was writing about the PIGS [Portugal, Italy, Greece and Spain] six to nine months before everyone else, I was worried about the future of the monetary union back in 2006," he says. "At the World Economic Forum I outraged a policy official by suggesting the monetary union might break up."
Roubini has sandwiched a visit to the The Daily Telegraph's offices between a private meeting with Bank of England Governor Mervyn King – "I regularly meet with policy makers. I don't know if it's even worth mentioning" – and a talk at the London School of Economics. I ask him if I can see his LSE speech. "I haven't written one. I never prepare a speech, I don't even have notes. I usually just speak out of my own thoughts; stream of consciousness."
It's a manner he adopts when we meet. Looking over my shoulder, declining eye contact, he moves seamlessly between what he describes as the economist's usual suspects – "the US, eurozone, Japan, China, emerging markets, inflation, deflation, markets" – as he must when teaching his 400 students in New York. The prognosis for all the suspects save China and the emerging markets is grim, little wonder given the backdrop of a 3.8pc drop in the FTSE last week and panic among investors spooked by German chancellor Angela Merkel's short-selling ban. The ban has been dismissed as fiddling while Rome, or rather the eurozone, burns.
Roubini believes Greece's problems will see the country forced to restructure its debt and raises the longer term prospect of a breakdown of the union with the potential exits of Greece, Spain and Portugal. Could it survive such a blow? "Well you could think of a world where there is a eurozone with only a core of really strong economies around Germany," he says. "But the process that would lead to one or more countries leaving the union would be so disruptive that the euro as a major reserve currency would be severely damaged."
Like many economists, Roubini does not talk in absolute predictions. It is all about what could happen in worse case scenarios. But he argues they are only becoming more likely under current political leadership, the UK's new Conservative-Liberal coalition included. "I am worried about the hung parliament. Whenever you have divided, weak or multi-party governments, budget deficits tend to be higher. It is harder to make the necessary sacrifices." He dismisses the £6bn of cuts announced by the coalition as "small compared to what is needed", but rejects the idea that the UK is worse off than many of its peers.
"In the US there is a lack of bipartisanship between Democrats and Republicans, in Germany Merkel has just lost the majority in her legislature, in Japan you have a weak and ineffective government, in Greece you have riots and strikes," he says. "The point is that a lot of sacrifices will have to be made in these countries but many of the governments are weak or divided. It is that political strain that markets are worried about. The view is: you can announce anything, we'll see whether you're going to implement it." This, he explains, is the ultimate challenge facing governments.
"If you're pushing through austerity while there is growth that's one thing, but if you're pushing it through while the recession is deepening, politically that is harder to sell. And the eurozone doesn't just need fiscal consolidation but also structural reform to increase productivity and restore competitiveness," he says. Germany is the blueprint, Roubini points out, but "it took a decade for them to see the benefits of structural reform and corporate restructuring". "If Spain and Portugal start today, you'll see the short-term cost without the long-term benefit and they might run out of political time," he says. "That's why I worry about several eurozone members having to restructure their debt, or deciding that the benefits of staying in the monetary union are less than the cost of it."
The prognosis for the UK is, at least, a little less alarming. An independent currency gives it a few more levers to pull – quantitative easing means default is unlikely to be an issue. But that comes with its own challenges. "Eventually inflation will go up and that erodes the real value of public debt," Roubini says. "In that scenario the value of the pound will fall sharply. It could even become disorderly and that could damage the economy, the financial markets and also the role of the pound as a reserve currency." Yet another challenge for Government then. Whether the coalition can live up to it remains to be seen. And whether it thinks it has to.
Roubini is adamant that the great recession is not over. But a temporary economic pick-up, which would convince governments that reform is unnecessary, could bring its own problems. "People asked me why I saw there was a bubble and my question was why others didn't. During the bubble everybody was benefiting and losing a sense of reality," he says. "And now, since there is the beginning of economic recovery – however bumpy that might be – in some sense people are already starting to forget what happened two years ago. Banks are going back to business as usual and bonuses are back to levels that are outrageous by any standards. There is actually a backlash against even moderate reforms that governments are trying to pass."
Reform, Roubini insists, is necessary, recovery or not. "We are still in the middle of this crisis and there is more trouble ahead of us, even if there is a recovery. During the great depression the economy contracted between 1929 and 1933, there was the beginning of a recovery, but then a second recession from 1937 to 1939. If you don't address the issues, you risk having a double-dip recession and one which is at least as severe as the first one." Roubini has built his reputation on such forecasts. So, given the real reputation builder was forecasting the crisis, has he been one of the few to enjoy the troubled times of the past few years?
"We are witnessing the worst global economic crisis in the last 60 to 70 years and for an economist that offers an opportunity," he says. "So it has been interesting, but the damage financially and economically has been so severe and so many people have suffered. Anybody involved has to bear that in mind." Perhaps the dismal science was a fair moniker after all
Hugh Hendry Shorts China, Betting on 1920s Japan-Like Crash
by Kevin Hamlin - Bloomberg Business Week
British hedge fund manager Hugh Hendry is betting China’s "credit bubble" will burst, causing its economy to contract and triggering a global crisis. Hendry’s Eclectica Asset Management has bought options on 20 companies in international markets that will profit from "a dramatic collapse" of China’s growth that’s been fueled by an unprecedented lending boom, Hendry said in a May 17 telephone interview from London.
Hendry joins hedge fund manager James Chanos and Harvard University professor Kenneth Rogoff in warning of a potential crash in China. The nation’s 13 trillion yuan ($1.9 trillion) of new lending in the past 16 months, bigger than the economies of South Korea, Taiwan and Hong Kong combined, is spurring industrial capacity expansion in the same way Japanese credit built inventory during and after World War I, Hendry said. "There are striking parallels with Japan in the 1920s, when ultimately the whole system collapsed," said Hendry, 41, whose firm manages $420 million in assets. "China could precipitate a much greater crisis elsewhere in the world."
Japan’s export boom collapsed after the war amid excess global capacity, slashing growth and sparking a stock-market crash and bank runs. Hendry’s flagship Eclectica Fund, a global macro hedge fund with $180 million in assets, may gain almost $500 million from its options if China’s economy plunges into a recession, he said. The options cost the fund about 1.5 percent of its net asset value annually, Hendry said.
Lending Binge
China’s vulnerability to a crash comes from the "inherent instability" created by a lending binge for infrastructure projects that’s "unprecedented in 400 years of economic history," Hendry said. The country is also exposed to exports to a U.S. economy that could shrink from $14.6 trillion at the end of March to $10 trillion within 10 years, he said. Chinese officials allowed lending to surge starting in late 2008 to fight the global financial crisis. New loans rose to a record 9.59 trillion yuan in 2009 and banks advanced another 3.38 trillion yuan in the first four months this year.
"China’s at the mercy of a credit bubble," Hendry said. "Once you’ve unleashed the genie it’s out there. They are ultimately unstable and it’s that instability that creates their demise." The Shanghai Composite index of stocks has plunged 21 percent this year, the worst-performing index in Asia, as investors sold Chinese assets on concern a withdrawal of stimulus spending and a slowdown in construction could choke off growth after an 11.9 percent expansion in the first quarter.
Property Crackdown
China has cracked down on property market speculation and drained cash from the financial system via three increases this year in the proportion of deposits banks must hold as reserves. China’s bubble may burst within a year or it may take three years, as Citigroup Inc. economists Willem Buiter and Shen Minggao estimate, Hendry said. Hendry co-founded Eclectica in 2005 after six years at Odey Asset Management, where he won What Investment magazine’s fund- manager-of-the-year award in 2003 for the CF Odey Continental European Fund.
China says too early to exit fiscal stimulus
by Xinhua
It remains too early for China to carry out an exit strategy by phasing out fiscal stimulus, Chinese Minister of Commerce Chen Deming said here on Friday. "There are still a lot of uncertainties in the world economy. Therefore we believe it is too early for us to talk about an exit strategy from our stimulus package," Chen told reporters after a meeting with European Union (EU) Trade Commissioner Karel De Gucht. "The Chinese government will continue to implement a proactive fiscal policy and a moderately easy monetary policy," he added.
Chen said the current debt crisis spreading in the euro zone just highlighted how fragile the global economic recovery is and world governments should remain alert to trade protectionism. "There is still uncertainties and tough way ahead. As the world is going through an economic recovery, countries across the world need to make concerted efforts to stand against protectionism and support liberalization of trade and investment," he said.
China halts tightening: no new property taxes for another 3 years
by Xin Zhiming - China Daily
China will not launch taxes on holdings of more than one residential apartment for at least another three years, a government think tank official has said. Meanwhile, many economists continue to warn that the country's economy could slow down amidst property tightening policies and outside uncertainties. "Taxes on holding of residential properties is impossible at least for another three years," Huang Hanquan, assistant director of the industrial institute of the National Development and Reform Commission (NDRC), the nation's top economic policymaking agency, was quoted by China Times as saying on Sunday.
As China's home prices continue to soar amid growing public complaint, the authorities have issued a series of tightening policies, with some experts forecasting that taxing more than one residential property could deal a final blow to the housing sector. The new tax, which is quite similar to a property tax, will increase the cost of holding more than one apartment and thus prevent speculation, which is considered the major factor for surging home prices. Huang's comment, if true, would be the latest official confirmation that no further major tightening measures are in the pipeline.
It would mean lifting of the Damocles sword currently hanging over the developers and the real estate stocks in the domestic A-share market. The stock market has suffered several big-margin sell-offs in recent weeks due to concerns of pending taxation measures against the sector. Chinese laws have such taxes on commercial properties, but changes in the taxation on residential housing would require revision of existing laws, which would first need to get the nod from the central government, Huang said. Rumors have been flying that the local governments would launch such taxes, which is impossible in the near term, he said.
Analysts said the failure to launch such taxes is because the overall economy faces multiple uncertainties and if further tightening measures are taken, the slow-down of the real estate sector, which accounts for about one-fourth of the country's fixed-asset investment, could dampen investment and drag down the country's economic growth. "Once the real estate market and the stock market both enter the downward track, they would, in turn, affect economic growth," said Wang Jian, executive secretary-general of China Society of Macroeconomics.
"The downward pressure on the Chinese economy is increasing," said Liu Yuanchun, a senior economist at the school of economics at Renmin University of China. Control of heavy energy-consuming industries, changing export prospects, and possible yuan appreciation would all have the potential to slow economic growth, he said. The European debt crisis, meanwhile, would also affect investor confidence in the economy, analysts said, making policymakers more cautious over making any major tightening actions, including those aimed at the real estate sector.
U.S. presses China on trade as China warns on risks
by Arshad Mohammed and Glenn Somerville - Reuters
The United States on Sunday pressed China to give "fair access" for foreign companies, and China stressed the risks both economies face from Europe's debt woes, ahead of top-level talks in Beijing. Speaking in China's commercial epicenter, Shanghai, a day before the start of the Strategic and Economic Dialogue (S&ED) in Beijing, Secretary of State Hillary Clinton stressed the importance of U.S. economic concerns for relations with China.
"In the coming days, officials at the highest levels of our two governments will be discussing issues of economic balance and competition," Clinton said in a speech given in a vast hangar at Shanghai airport, referring to the Beijing meeting. "Transparency in rule making and standard setting, non-discrimination, fair access to sales to private sector and government purchasers alike, the strong enforcement of intellectual property rights are all vitally important in the 21st century global economy," Clinton told the audience of U.S. and Chinese business executives.
"American companies want to compete in China," she said, standing in front of a Boeing 737. "They want to sell goods made by American workers to Chinese consumers with rising income and increasing demand." Clinton's remarks underscored how large economic concerns will loom at the two-day S&ED meeting, jostling for attention with a range of other issues, including North Korea. The United States' annual trade gap with China fell to $226.8 billion in 2009, down from a record $268.0 billion in 2008. But the Obama administration is keen to lift exports and employment, and the deficit remains a point of friction with Beijing.
The imbalance has fueled accusations from the U.S. Congress and manufacturing sector that China is manipulating its currency for an unfair trade advantage by keeping the price of its yuan artificially low against the dollar. But U.S. and Chinese officials have stressed that the meeting in Beijing will not be dominated by the yuan.
In comments published on Sunday, China's Finance Minister Xie Xuren said cooperation with Washington was all the more important in the face of the European debt crisis. "At present, risks from European sovereign debt have increased factors of instability in the course of global economic recovery," Xie wrote an essay published in the Washington Post and on his Ministry's website (www.mof.gov.cn).
China and the United States must "each protect macro economic stability and strengthen macro-economic policy coordination, to consolidate the trend toward global economic recovery," Xie wrote.
Xie's remarks jarred those of a senior Treasury Department official who said ahead of the talks with China that Europe's crisis should have only minimal impact on the global recovery as governments put in place counter-measures.
There has been speculation that China may delay letting its yuan currency rise in value -- as Washington has urged -- out of concern that its exports to Europe will suffer. The U.S. Treasury official, who spoke on condition of anonymity, repeated it was China's choice to decide what to do about its currency peg but expressed hope Beijing would keep boosting domestic consumption and rely less on exports.
Procurement Rules Under Challenge
Clinton followed other U.S. officials who have sought to concentrate attention on policies that they claim may unfairly impede U.S. companies hunting for customers in China. U.S. officials say they are particularly worried about China's "indigenous innovation" program to promote home-grown technology, which they say is creating barriers to foreign companies seeking to win government supply contracts for high-tech equipment, energy technology and other sophisticated products.
China says its procurement rules do not unfairly discriminate against foreign companies, but also last month partly modified those rules after rising criticism from U.S. and European companies and governments. The Chinese Finance Minister Xie said that his country and the United States both benefited from their trade and should oppose protectionism.
‘100% Protected’ Isn’t as Safe as It Sounds
by Gretchen Morgenson - New York Times
Brokers selling complex securities that they once contended were safe and sound have saddled individual investors with billions in losses since the credit bubble burst. Remember auction-rate securities? Those were peddled to investors as just as good as cash — until they no longer were after that market seized up in 2008. Questions about how Wall Street marketed yet another complex product, sold as solid and secure, are now emerging in investor arbitration cases. The instrument is named, inaptly as it turns out, "100 percent principal protected absolute return barrier notes."
These securities are essentially zero-coupon notes sweetened by tying the return, in part, to the performance of an equity index, like the Standard & Poor’s 500 or the Russell 2000. The securities promise to return an investor’s principal, typically at the end of 18 months, with the added gain from the index’s performance if that index trades within a certain range. Brokerage firms often issued these securities.
For an investor in one of these notes to earn the return of the index as well as get the principal back, the index cannot fall 25.5 percent or more from its level at the date of issuance. Neither can it rise more than 27.5 percent above that level. If the index exceeds those levels during the holding period, the investors receive only their principal back. Convoluted enough for you? Yet, these securities appear to have been sold to conservative individuals whose financial market forays were usually limited to certificates of deposit. Many of these investors, to their great misfortune, bought principal-protected notes issued by Lehman Brothers. They are now worth pennies on the dollar.
Corinne and Gregory Minasian were two of these investors who, at the suggestion of their broker at UBS, sunk almost $100,000 — more than half of their savings — into Lehman notes in early 2008. They lost everything and have filed an arbitration case against the firm to recover their losses. The Minasians are a retired couple who live on Long Island. They contend that their UBS broker pushed the investment when one of their C.D.’s matured. The broker failed to explain the risks in the security, the Minasians said, and did not provide them with a prospectus. They did not even know their investment had been issued by Lehman Brothers until the firm collapsed.
"I am not a sophisticated investor," said Mr. Minasian, a former engineer who is 68. "Many years ago I dabbled in the stock market, but I learned my lessons. Over the past 10 to 15 years my wife and I invested in C.D.’s." But that approach changed in January 2008, when, according to the Minasians, their UBS broker began calling with an investment idea — principal-protected notes. "We questioned him over and over," Mr. Minasian said. "We initially told him we weren’t sure and that we wanted to think it over. Maybe the next day he called us and told us he was putting his father into the same notes and his father is very conservative."
The Minasians said they decided to buy the instrument because they were assured by UBS, a financial adviser they had dealt with for years, that it was safe. The thing was called a "principal protected" note, after all. Eight months later, Lehman went bankrupt. The note was virtually worthless. Mrs. Minasian, 67, said she and her husband did not receive notice of problems with the investment until mid-October, when they received a form letter from UBS saying the value of their investment was "unavailable." "I opened the letter and said, ‘Why are we getting this?’ " Mrs. Minasian said. "As I read it and we were wondering if it in fact did pertain to us, my heart sank. I almost fell on the floor."
UBS sold $1 billion of these notes to investors. Commissions were 1.75 percent, far higher than those generated on sales of C.D.’s. When Mr. Minasian asked about the commission, he says, his broker said there was none. A spokeswoman for UBS, Karina Byrne, said, "UBS properly sold Lehman structured products to UBS clients, following all regulatory requirements, well-established sales practices and client disclosure guidelines." Client losses, she added, were the result of the "unprecedented failure" of Lehman Brothers.
Jacob H. Zamansky, the securities lawyer representing the Minasians, filed an arbitration claim against UBS on their behalf in late March. He says he has two dozen investors across the country telling similar stories of brokers recommending these securities without any explanation of their risks. Some UBS brokers are also telling him that they, too, feel they were misled about the risks in these securities. "These are very opaque products that should not be sold to individual investors," Mr. Zamansky said. "Nobody understands what the product is."
In the Minasians’ complaint, they also contend that UBS was in a position to have known that Lehman was in trouble and therefore should not have sold the securities to investors. According to the report of the Lehman bankruptcy examiner, UBS was one of the firms that helped Lehman conduct its now-infamous Repo 105 transactions, helping it mask the leverage it had on its books. Ms. Byrne said that the examiner’s report did not suggest that the banks that conducted those trades acted inappropriately.
As Lehman’s cash crisis grew in the spring of 2008, it ramped up the issuance of these notes. But some brokers at UBS stopped selling Lehman Brothers notes at this time, Mr. Zamansky said. He said some inside UBS seemed to recognize that Lehman was vulnerable. In March 2008, for example, after Bear Stearns collapsed, a UBS analyst wrote of the "harsh reality that some investors will think of Lehman as next on the list for the confidence/liquidity crisis." The Minasians were not advised about any of these matters, Mr. Zamansky said. Now the retirees are unsecured creditors awaiting a minuscule payout in the Lehman bankruptcy.
"If the inner workings and true risks of these notes were ever honestly disclosed, no retail investor would buy one," Mr. Zamansky said. He has asked for a full recovery of the Minasians’ losses from UBS. The Securities Litigation and Consulting Group, a financial economics consulting firm, analyzed 14 issues of these principal-protected notes and found that more than half of them carried a yield of less than 2 percent. More than half the time, the analysis concluded, "Investors would be better off investing in Treasury securities." Add these securities to the growing pile of Wall Street inventions that benefit ... wait for it, wait for it ... Wall Street.
Suddenly, the Rating Agencies Don’t Look Untouchable
by David Segal - New York Times
Ron Grassi will admit that when he decided to sue the three major rating agencies in early 2009, he was too enraged to think about his odds. A retired family law specialist who lives in California, he filed his suit in a low boil a few months after $40,000 in Lehman Brothers corporate bonds he owned all but vanished when the investment bank collapsed. At first, he was furious at the bank. But then he decided the true villains were the rating agencies that had stamped those now-worthless bonds with high grades.
"My friends were complaining and moaning about what had happened on Wall Street, but nobody was doing anything about it," says Mr. Grassi, 69. "By sheer coincidence, there’s a state court a few blocks from where I live in Tahoe City, and one day I walked down there, filled out a two-page form and sued." Since then, he has forced the defendants — Standard & Poor’s, Moody’s and Fitch — to spend a small fortune on legal fees. At one hearing, the companies sent no less than nine lawyers. Unfortunately for Mr. Grassi, little else about his lawsuit has gone as planned. Currently he’s appealing a judge’s decision in March to dismiss his case.
His solo legal assault is unique, but his results, it turns out, are not. There are roughly 30 lawsuits aimed at the rating agencies, and though many of the battles, including Mr. Grassi’s, are still unfolding, this much is clear: in the realm of private litigation, so far, the rating agencies are winning. Of the 15 motions to dismiss already acted on by judges, the rating agencies have prevailed 12 times, according to the Standard & Poor’s legal team, which keeps a running tally. In addition, five cases have been dropped.
"We’re making good progress in the courts and believe the remaining claims are without merit," says Ted Smyth, an executive vice president at McGraw-Hill, which owns S.& P. Michael Adler, a Moody’s spokesman, says that "in many cases these suits have been found to be without merit, and we will continue to vigorously defend against these suits as appropriate." Fitch declined to comment. It’s an impressive run of victories, of a piece with the industry’s nearly perfect litigation record over the years. But it is just about the only good news the rating agencies can point to these days.
The streak of dismissals notwithstanding, several major lawsuits against the rating agencies have survived the pretrial phase and might — emphasis on might — end with huge jury verdicts or expensive settlements. In addition, a newly emboldened Congress is on the verge of overhauling financial regulation and could rewrite the rules of the industry. For S.& P., Moody’s and Fitch, this is a war on two fronts. And while fought in vastly different realms — in courts and in Washington — the fights have this in common: either could wind up costing the rating agencies vast sums of money.
"I’m not seeing any signals that hedge funds are pouring in to short these stocks, like we saw with Lehman and Bear Stearns," says Adam Savett of RiskMetrics, a corporate advisory firm. "But if the ratings agencies lose some of these battles, and especially if we see a big jury verdict, there will be blood in the water, and the sharks are going to swim." The threat from Washington is relatively new. For months, it looked as though S.& P., Moody’s and Fitch would escape the regulatory overhaul relatively unscathed.
But on Thursday the Senate passed a bill that included two notable ratings-related amendments. The first, by Senator George LeMieux, Republican of Florida, would strip from federal laws a requirement that a variety of institutional buyers — including banks, insurers and money market funds — buy only products stamped with a high grade by a rating agency. The idea is to encourage bond buyers to conduct their own research, or think creatively about outsourcing that job, instead of reflexively relying on S.& P., Moody’s and Fitch. The big three rating agencies, the amendment’s supporters hope, would no longer be the default raters for Wall Street.
Then there’s the amendment from Senator Al Franken, Democrat of Minnesota, which is an attempt to upend the conflict of interest that has been at the heart of the rating agencies for some 30 years. Currently, bond issuers pay for grades to their products, giving rating agencies a financial incentive to provide high grades. Senator Franken’s amendment calls for the creation of a Credit Rating Agency Board, essentially a committee that would pair issuers with rating agencies.
The goal is to break the direct link between issuers and raters and theoretically reduce the financial incentives that led to so many wildly inflated grades. It’s an idea that is even more revolutionary than it sounds, because the committee could turn the handful of smaller and newer rating agencies — which have barely registered in terms of market share — into players. If the amendment works as planned, the three-way oligopoly that has long dominated the ratings business could be doomed.
As Congress appears to have roused itself to action, so too has the Securities and Exchange Commission. Moody’s recently disclosed that the commission had warned that it might sue the company. At issue are a number of former Moody’s executives who allowed some European derivatives to keep their high ratings even after it became clear that the grades were the result of a computer glitch. The particulars of the suit, however, aren’t as important as the signal that it has sent. "This along with the Goldman Sachs lawsuit is a clear indication that the S.E.C. wants us to believe that it’s getting tougher," says Lawrence White, a professor of economics at New York University. "The S.E.C. wants the world to know that the cop is back on the beat."
It’S too early to say what Washington’s legislative and regulatory actions portend for the rating agencies, but already they have altered the sense, prevalent as recently as three months ago, that these companies are in a business so complicated, and operating in an economy so fragile, that it is best to leave them undisturbed. Perhaps legislators have been emboldened to fiddle with our nation’s troubled financial machinery because the economy is stronger, making any tinkering less threatening to the entire contraption. Maybe it is part of a populist anger over Wall Street bonuses and the banks’ exceptionally strong earnings reports. Whatever the cause, the atmospherics have changed.
A similar shift might be happening in the courts, though if Ron Grassi’s lawsuit is any indication, beating the rating agencies legally is still a very difficult maneuver. The origins of his case can be traced to 2004, when he and his wife, Sally, were looking for very safe investments for their retirement years. A broker explained that the high ratings awarded by the three agencies — A+ from S.& P., A1 from Moody’s, AA-1 from Fitch — were proof the Lehman bonds were all but risk-free. They expected that by 2023, they would have their $40,000 in principal back, plus $90,000.
Two months after Lehman’s collapse in September 2008, Mr. Grassi called Lehman’s bankruptcy committee. A representative there said he could expect pennies on the dollar. "Then I started thinking that the real culprit here isn’t Lehman," says Mr. Grassi. "The only reason I bought those bonds is because the ratings agencies said the bonds were investment grade. But at the time, Lehman was loaded with all of these incredibly risky mortgage-backed securities. No one who actually studied Lehman’s books could possibly have described the company’s bonds as investment grade."
After he filed his suit, he converted the guest room in his three-bedroom home into what he calls the "war room." A set of bunk beds was soon piled high with documents and books about the financial crisis. When his case was moved to federal court — because he was suing out-of-state defendants — he bought an introductory guide to federal civil procedure. At a hearing in July, he squared off against a crowded bench of opposing lawyers, including Floyd Abrams, a renowned First Amendment attorney and S.& P.’s lead counsel in these cases. ("We talked about our favorite New York delis," says Mr. Grassi.)
One of Mr. Abrams’s arguments, as he put it in a recent phone interview, is that "it can’t be the case that any of the millions of people who purchased a particular bond can bring a lawsuit against a rating agency or an auditor, saying it turned out to be wrong." In March, Judge Dale A. Drozd in Sacramento seemed to agree with that reasoning when he granted the rating agencies’ motion to dismiss the case. Essentially, the judge contended that since Mr. Grassi never had contact with a rating agency representative before buying the bonds, the companies didn’t owe him a "duty" — a legal obligation that could form the basis of a negligence claim.
The issue of duty is just one of a batch of defenses that have long given the rating agencies a kind of legal force field that has yet to be breached. Several judges have rejected the idea that the rating agencies worked so closely with the investment banks that they were essentially co-underwriters. And a 77-year-old regulation exempts rating agencies from the definition of "experts" who can be sued. "It’s important to understand," says Joel Laitman of the law firm Cohen Milstein Sellers & Toll, which has seen two of its five lawsuits against the agencies dismissed, "they’re winning because this is not a level playing field."
As for the apparent conflict of interest built into the rating agencies’ business model — judges have ruled that it has been around so long and is so widely known that it isn’t a cause of action. And, of course, the rating agencies have long and successfully argued that their grades are just opinions about the future and therefore entitled to robust First Amendment protections, like those afforded journalists. The success of these and other defenses has kept a number of potential litigants on the sidelines, say experts, and that includes state attorneys general. After attorneys general in Ohio and Connecticut sued the rating agencies, it looked for a moment as though the companies would face a collective assault similar to the one that forced cigarette makers into a global, multibillion-dollar settlement in 1998.
But since March, when Connecticut filed, no other attorney general has jumped in. "I don’t have a good explanation," says Ohio’s attorney general, Richard Cordray. "I fully expected more states to join by now." But the rating agencies have lost several skirmishes in court that could prefigure disaster for them. Two judges have rejected their First Amendment defense. In one case involving a $5.86 billion structured investment vehicle sold by Cheyne Capital, a federal judge in Manhattan, Shira Scheindlin, ruled that the First Amendment wasn’t a defense because rating agencies had, in this instance, "disseminated their ratings to a select group of investors rather than to the public at large," as part of a private placement.
The First Amendment might also fail in "public at large" cases if judges find that the rating agencies didn’t actually believe the grades they were selling. As legal scholars put it, there is no free speech protection when it comes to matters of fraud.
Ultimately, it’s hard to predict where these lawsuits are going because the past might be a less-than-useful indicator about what will happen to these cases in the future. During the years of subprime mortgage mania, the rating agencies conducted themselves in ways they never had before — awarding investment grades to bonds that even analysts in the company thought were risky, allegedly trampling their own internal safeguards to manage the issuer-pays conflict of interest, and so on. The legal arguments offered by the rating agencies are time-tested, but the facts are new.
"If these cases were to gather momentum and create an industry-challenging level of damages, it could well change the behavior of the ratings agencies," says Kevin LaCroix, a lawyer with OakBridge Insurance Services who has closely followed the litigation. Once again, the precedent here is the cigarette companies, which agreed to a wide range of restrictions and new regulations after the master settlement. "But we’re nowhere near that point yet," notes Mr. LaCroix.
What is happening with the rating agency lawsuits is what happens every time an industry is attacked through the courts en masse — the plaintiffs lawyers learn from each ruling, including the dismissals, then fine-tune their arguments and refile. That is exactly what Mr. Grassi is doing as he attempts to restart his lawsuit with an amended complaint. He admits that if someone came to him now with a case like his, he’d talk the client out of suing. The odds are too long; the costs are too high.
Then again, he is representing himself, so his expenses are far less than $1,000. And even if this exercise proves futile, he’s having a great time "poking back" at Wall Street, as he puts it. "When you’re retired," he says, "you’ve got time to do dumb things." And, he happily notes, any time he files a motion he sends copies to 17 different lawyers at the three rating agencies. Given that there have been more than 90 pleadings so far, and given that many of these lawyers bill at well over $500 an hour, he assumes that his case has already cost the company far more than he could ever hope to recover.
Mr. Abrams, the lawyer for S.& P., declined to get specific about the billings from his law firm: "I’d rather not get into it. You’d fall off your chair."
Rep. Alan Grayson Introduces the War Is Making You Poor Act
Rep. Grayson introduces a bill to cut separate funding for the wars in Iraq and Afghanistan, and uses the money to eliminate federal income taxes on every American's first $35,000 of income. Cosponsors of this bill include Ron Paul, Walter Jones, John Conyers, Lynn Woolsey, and Dennis Kucinich.
Financial Overhaul Bill Poses Big Test for Lobbyists
by Eric Lichtblau and Edward Wyatt - New York Times
Last Wednesday, Representative David Scott, Democrat of Georgia, mingled with insurance and financial executives and other supporters at a lunchtime fund-raiser in his honor at a chic Washington wine bar before rushing out to cast a House vote. Nearby, supporters of Representative Michael E. Capuano, Democrat of Massachusetts, gathered that evening at a Capitol Hill town house for a $1,000-a-head fund-raiser. Just as that was wrapping up, Representative Peter T. King, Republican of New York, was feted by campaign donors at nearby Nationals Park at a game against the Mets.
It was just another day in the nonstop fund-raising cycle for members of the House Financial Services Committee, which has become a magnet for money from Wall Street and other deep-pocketed contributors, especially as Congress moves to finalize the most sweeping new financial regulations in seven decades. Executives and political action committees from Wall Street banks, hedge funds, insurance companies and related financial sectors have showered Congressional candidates with more than $1.7 billion in the last decade, with much of it going to the financial committees that oversee the industry’s operations.
In return, the financial sector has enjoyed virtually front-door access and what critics say is often favorable treatment from many lawmakers. But that relationship, advantageous to both sides for many years, is now being tested in ways rarely seen, as the nation’s major financial firms seek to call in their political chits to stem regulatory changes they believe will hurt their business. The biggest flash point for many Wall Street firms is the tough restrictions on the trading of derivatives imposed in the Senate bill approved Thursday night. Derivatives are securities whose value is based on the price of other assets like corn, soybeans or company stock.
The financial industry was confident that a provision that would force banks to spin off their derivatives businesses would be stripped out, but in the final rush to pass the bill, that did not happen. The opposition comes not just from the financial industry. The chairman of the Federal Reserve and other senior banking regulators opposed the provision, and top Obama administration officials have said they would continue to push for it to be removed. And Wall Street lobbyists are mounting an 11th-hour effort to remove it when House and Senate conferees begin meeting, perhaps this week, to reconcile their two bills.
Lobbyists say they are already considering the possible makeup of the conference panel to focus on office visits and potential fund-raising. The House’s version of the bill does not include the tougher derivatives ban, and Wall Street lobbyists said one chief target would be Representative Barney Frank, the Massachusetts Democrat who leads the Financial Services Committee and shepherded the House bill. Others include Representative Paul E. Kanjorski, the Pennsylvania Democrat with a senior role on the House financial services panel, and Representative Collin C. Peterson, Democrat of Minnesota, who leads the House Agriculture Committee, which has jurisdiction over futures contracts and derivatives.
"This is not the end of the process," said David Hirschmann, senior vice president of the Chamber of Commerce, which has spent more than $3 million to lobby against parts of the bill. He said the chamber planned to keep fighting for a loosening of the regulatory restrictions — first in the House-Senate conference, then in the implementation phase after final passage of a bill, and "if all else fails," in court.
Scott Talbott, a senior executive at the Financial Services Roundtable, a lobbying group that represents about 100 of the largest financial companies, said his group had already begun meeting with House members it believes will be important in getting the derivatives restrictions stripped from the Senate bill. While the industry’s objections are widely known this late in the debate, Mr. Talbott said that the way to press the case was to meet with lawmakers and their aides as often as they could. "There’s no substitute for old-fashioned gumshoe lobbying," Mr. Talbott said. "The staff here knows it. We offer to resole their shoes when they wear them out."
Along with the aggressive lobbying, of course, comes general political support from the industry, and political consultants and campaign strategists said the recent strain in relations between Wall Street and Congress had not slowed the flood of money yet. A few lawmakers have indicated that they will curtail fund-raising from Wall Street firms in the regulatory debate because of fears of a possible conflict. For instance, Senator Blanche Lincoln, the Arkansas Democrat who has led the push to restrict banks from trading in derivatives, said after the Securities and Exchange Commission sued Goldman Sachs that she would no longer take contributions from the firm and scrapped a possible fund-raiser with it.
Members of the House and Senate financial committees have been frequent recipients of Wall Street’s largess, and as the three fund-raisers last Wednesday for financial service members indicated, that trend shows little sign of abating. So far in the 2010 election cycle, members of the financial committees have far outpaced those of other committees in fund-raising parties by holding 845 events, according to the Sunlight Foundation, a Washington nonprofit group that tracks fund-raisers.
Asked about the Nationals Park fund-raiser, Mr. King, who voted against the toughened regulations passed by the House and who for years has received significant contributions from the financial industry, said through a spokesman: "Judge me by my record. I am proud of my integrity." While the list of attendees at last week’s fund-raisers are not yet publicly available, the spokesman for Mr. King said that 3 of the 20 tickets sold were "associated with Wall Street."
The money from the financial sector goes not only to high-profile leaders of the financial committees — like Mr. Frank in the House and Senator Christopher J. Dodd, the Connecticut Democrat who sponsored the bill in the Senate, or Senator Richard C. Shelby of Alabama, the leading Republican on the banking committee — but also to less-prominent committee members who may ultimately play a role in important votes, according to a new analysis provided to The New York Times by Citizens for Responsibility and Ethics in Washington, a nonpartisan group.
The group’s analysis found that the 14 freshmen who serve on the House Financial Services Committee raised 56 percent more in campaign contributions than other freshmen. And most freshmen on the panel, the analysis found, are now in competitive re-election fights. "It’s definitely not accidental," said Melanie Sloan, the director of the ethics group. "It appears that Congressional leaders are deliberately placing vulnerable freshmen on the Financial Services Committee to increase their ability to raise money."
Take Representative John Adler, Democrat of New Jersey. Mr. Adler is a freshman in Congress with no real national profile, yet he has managed to raise more than $2 million for his re-election, more than any other freshman, the analysis found. That is due in large part, political analysts say, to his spot on the Financial Services Committee. (Securities and investment firms and insurers were among his biggest contributors, according to data from the Center for Responsive Politics, a nonprofit research group in Washington.)
Mr. Adler’s campaign says the Wall Street money has never influenced his votes, and aides point to his stance in supporting legislation generally opposed by the financial industry. "No one has a better record of standing up for taxpayers and consumers," said Geoff Mackler, his campaign manager. But Mr. Adler’s likely Republican opponent, Jon Runyan, has seized on the contributions from financial firms as evidence of what he calls "shameless hypocrisy" by Mr. Adler in his dealings with Wall Street. "He’s bashing them for their practices while taking money from them," Mr. Runyan said in an interview. "He’s playing both sides. That may be business as usual in D.C., but to the average person, it doesn’t smell right."
As Reform Takes Shape, Relief on Wall Street
by Eric Dash And Nelson D. Schwartz - New York Times
The financial reform legislation making its way through Congress has Wall Street executives privately relieved that the bill does not do more to fundamentally change how the industry does business. Despite the outcry from lobbyists and warnings from conservative Republicans that the legislation will choke economic growth, bankers and many analysts think that the bill approved by the Senate last week will reduce Wall Street’s profits but leave its size and power largely intact. Industry officials are also hopeful that several of the most punitive provisions can be softened before it is signed into law.
Though there is anger in some quarters, other financial executives seem resigned to the changes, acknowledging that after the industry’s excesses set the stage for the deepest recession since the 1930s, there were bound to be major reforms. "While I don’t agree with everything in the bill, given everything that’s happened during the financial crisis, it was inevitable that new regulation would come to Wall Street," said Donald B. Marron, the former chief executive of PaineWebber and now the head of Lightyear Capital, a New York private equity firm. "Despite these new rules, Wall Street will continue to provide the same important business services because the same needs are still there — creating liquidity; financing governments, corporations and individuals; and providing financial advice and products."
Many executives spent the weekend trying to assess the impact of the legislation, which has yet to take final form. With some crucial differences between the House and Senate versions of the bill remaining, lawmakers will confer over the next few weeks and try to reach a final version before Congress’s Fourth of July recess. But Wall Street’s initial verdict seems to be that it could have been much more draconian. "If you talk to anyone privately, there’s a sigh of relief," said one veteran investment banker who insisted on anonymity because of the delicacy of the issue. "It’ll crimp the profit pool initially by 15 or 20 percent and increase oversight and compliance costs, but there’s no breakup of any institution or onerous new taxes."
The reaction of the market to the legislation echoed that view. Stocks of financial institutions performed well on Friday, with shares of JPMorgan Chase and Morgan Stanley each up 5 percent. Richard Ramsden, an analyst for Goldman Sachs, estimated that the bill passed by the Senate on Thursday would initially cut profits by as much as 20 percent, a sizable bite, but hardly catastrophic given the sharp rebound in earnings since the depth of the financial crisis. Big banks and brokerage firms, experts said, will adjust to the changes, creating new revenue streams to make up for reduced profits, and find ways to work around the new regulations. In other words, the industry’s landscape may not be facing an earthquake, after all.
"The health care bill is going to transform the structure of health care exponentially more than this legislation on financial regulation is going to change Wall Street," said Roger C. Altman, the chairman of Evercore Partners and deputy Treasury secretary in the Clinton administration. "It’s not even close." There is still much in the bill to irritate big financial firms, like a ban on owning hedge funds, as well as stepped-up oversight and scrutiny of things as varied as derivatives trading and debit card fees. "We aren’t crying poverty," said Scott E. Talbott, a lobbyist for the Financial Services Roundtable, an industry group representing big financial firms. "We are crying overreaction and overregulation."
Still, it could have been worse. The Senate rejected rules that would have broken up huge banks considered "too big to fail," or imposed limits on their size. Caps on how much banks can charge credit card holders to borrow also fell by the wayside. And the long-established wall between trading and commercial banking, which was torn down in 1999, will not be going back up. Another reason for relief, several bankers said, is that neither the Senate version of the bill nor the one passed by the House in December includes more populist provisions that have gained a foothold in Europe, like a tax on financial transactions or on individual bonuses.
It is also possible that the new regulations could actually benefit Wall Street by saving it from some of its worst instincts. The big bets that undid Lehman Brothers and Bear Stearns, and forced the government to step in to save companies like the American International Group, will be harder to make, because of new regulatory agencies with beefed-up powers and higher capital requirements to protect against losses. Some experts predict that Wall Street, like water overcoming a dam, will easily adapt to the new regulations, or at least exploit what loopholes do remain and thrive again.
When Congress split off commercial banking from investment banking in the early 1930s, after the Crash of 1929, there were predictions that Wall Street was hamstrung and businesses would not be able to raise capital as a result, said Charles Geisst, a professor of finance at Manhattan College. "Almost all of the same arguments that you’re hearing today were made then," Professor Geisst said. "It’s hard to keep them down, they ultimately find a way. I’m sure they’re finding a way to work around these new rules even before they’ve passed."
The business that is likely to change most is the trading of derivatives, the complex instruments considered to be among the main culprits of the financial crisis. These securities, largely traded in the shadows rather than on exchanges like stocks, propelled an outsize portion of trading profits at firms like JPMorgan, Goldman Sachs and Morgan Stanley in recent years. But the lack of disclosure and the absence of standard prices also meant that derivatives increased risk and volatility, while also making companies dangerously intertwined in the event of a crisis.
A Senate proposal calls for Wall Street firms to wall off their derivatives businesses and place them in subsidiaries requiring substantially more capital. That would be a major blow — but this provision faces opposition from the both the financial industry and federal banking regulators, and is likely to be shelved or watered down before final passage. The most likely outcome, according to industry officials, is a compromise that would allow banks to continue offering derivatives to clients in order to hedge risks. Trading would be shifted to clearinghouses or onto exchanges, and banks would be required to put up more collateral to cushion against losses.
These changes would make the system safer and more transparent, but they would erode profitability in what had been one of Wall Street’s most lucrative areas. Mr. Ramsden, the Goldman analyst, estimates that the legislative changes could reduce the financial industry’s earnings by 4 percent, though individual firms could be hit harder. Still, the derivatives sector is simply too much a part of Wall Street to just simply vanish, according to John R. Chrin, a former financial services investment banker and teaching fellow at Lehigh University.
"This legislation is not going to kill the business," Mr. Chrin said. Even if profit margins are reduced, he added, they will still compare favorably to more traditional banking activities like commercial lending. Wall Street firms are already investing money to upgrade the computer systems that drive derivatives trading in order to make them more efficient, as a way to compensate for what are almost certain to be leaner times ahead.
Cuts to Child Care Subsidy Drive Mothers to Welfare
by Peter S. Goodman - New York Times
Able-bodied, outgoing and accustomed to working, Alexandria Wallace wants to earn a paycheck. But that requires someone to look after her 3-year-old daughter, and Ms. Wallace, a 22-year-old single mother, cannot afford child care. Last month, she lost her job as a hair stylist after her improvised network of baby sitters frequently failed her, forcing her to miss shifts. She qualifies for a state-run subsidized child care program. But like many other states, Arizona has slashed that program over the last year, relegating Ms. Wallace’s daughter, Alaya, to a waiting list of nearly 11,000 eligible children.
Despite a substantial increase in federal support for subsidized child care, which has enabled some states to stave off cuts, others have trimmed support, and most have failed to keep pace with rising demand, according to poverty experts and federal officials. That has left swelling numbers of low-income families struggling to reconcile the demands of work and parenting, just as they confront one of the toughest job markets in decades.
The cuts to subsidized child care challenge the central tenet of the welfare overhaul adopted in 1996, which imposed a five-year lifetime limit on cash assistance. Under the change, low-income parents were forced to give up welfare checks and instead seek paychecks, while being promised support — not least, subsidized child care — that would enable them to work. Now, in this moment of painful budget cuts, with Arizona and more than a dozen other states placing children eligible for subsidized child care on waiting lists, only two kinds of families are reliably securing aid: those under the supervision of child protective services — which looks after abuse and neglect cases — and those receiving cash assistance.
Ms. Wallace abhors the thought of going on cash assistance, a station she associates with lazy people who con the system. Yet this has become the only practical route toward child care. So, on a recent afternoon, she waited in a crush of beleaguered people to submit the necessary paperwork. Her effort to avoid welfare through work has brought her to welfare’s door. "It doesn’t make sense to me," she says. "I fall back to — I can’t say ‘being a lowlife’ — but being like the typical person living off the government. That’s not what I’m trying to do. I’m trying to use this as a backbone, so I can develop my own backbone."
As the American social safety net absorbs its greatest challenge since the Great Depression, state budget cuts are weakening crucial components. Subsidized child care — financed by federal and state governments — is a conspicuous example. When President Clinton signed into law the changes he declared would "end welfare as we know it," he vowed that those losing government checks would gain enough support to enable their transition to the workplace. "We will protect the guarantees of health care, nutrition and child care, all of which are critical to helping families move from welfare to work," Mr. Clinton pledged in a radio address that year.
Now, with the jobless rate hovering near double digits and 6.7 million people unemployed for six months or longer, some states are rolling back child care. "We’re really reneging on a commitment and a promise that we made to families," said Patty Siegel, executive director of the California Child Care Resource and Referral Network, an advocacy organization. "You can’t expect a family with young children to get on their feet and get jobs without child care."
As part of last year’s package of spending measures aimed at stimulating the economy, the Obama administration added $2 billion for subsidized child care programs for 2009 and 2010, on top of the expected $5 billion a year. The administration has proposed a $1.6 billion increase for 2011. But even as this extra money has limited cuts and enabled some states to expand programs, officials acknowledge that it has not kept pace with the need. "To say that we are in a difficult environment in terms of state budgets would be the understatement of the century," said Sharon Parrott, an adviser to Kathleen Sebelius, the secretary of health and human services, which administers federal grants to states for child care. "It’s just not possible for the federal government to fill the entire hole, but the Recovery Act has provided critical help."
Even some architects of the mid-1990s welfare overhaul now assert that low-income families are being denied resources required to enable them to work. "We’re going the wrong way," said Ron Haskins, a senior fellow at the Brookings Institution who was a Republican Congressional aide and was instrumental in shaping welfare changes. "The direction public policy should move is to provide more of these mothers with subsidies. To tell people that the only way they can get day care is to go on welfare defeats the purpose of the whole thing."
Here in Tucson — a city of roughly 500,000 people, sprawling across a parched valley dotted by cactus — Jamie Smith, a 23-year-old single mother, once had subsidized child care. That enabled her to work at Target, where she earned about $8 an hour. She paid $1.50 a day for her 3-year-old daughter, Wren, to stay at a child care center. The state picked up the rest. She was aiming to resume college and then find a higher-paying job. But in December, she missed by a day the deadline to extend her subsidy. When she went to the state Department of Economic Security to submit new paperwork, she learned that all new applicants were landing on a waiting list.
Ms. Smith sought help from Wren’s father to look after their daughter. But he had his own job delivering pizza, limiting his availability. "Some days, I’d just have to call in sick," she said. By March, she had missed so many days that Target put her on a leave of absence, telling her to come back after securing stable child care, she said. Without the state program, she sees no viable options. She, too, is contemplating going on welfare. "It’s a blow to my own self-image and self-worth as a person who can take care of myself," she says. "I’m totally able, physically and intellectually, to continue working. But I can’t work without child care, and I can’t afford child care without work."
A Major Cost
In many low-income working families, child care is one of the largest expenditures after housing. Among families with working mothers and incomes below the poverty line — $18,310 for a family of three — child care absorbs nearly a third of total household budgets, according to census data. Yet long before the recession assailed state budgets, subsidized child care was not reaching the vast majority of families in need. In 2000, only one in seven children whose families met federal eligibility requirements received aid, according to an analysis by the Center for Law and Social Policy, which advocates for expanded programs. In 2003, the Bush administration found that in the smaller group of children eligible under more restrictive state criteria, only 30 percent received subsidized care.
Until the Obama administration increased financing last year, federal support for subsidized child care had been steady for a decade. From 2001 to 2008, direct federal spending for subsidized child care through the Child Care and Development Fund — the primary source — nudged up to $5 billion a year, from about $4.6 billion, according to the Department of Health and Human Services. During the same years, the number of children receiving subsidized child care under the program fell to 1.6 million in 2008, from an average of 1.8 million a month in 2001. Data for last year has yet to be compiled, but federal officials and poverty experts assume the number of families eligible for help has climbed, given broad cuts in working hours and other sources of income.
At least nine states, including Illinois and Indiana, used increased federal aid through the stimulus package to begin offering child care support to parents looking for work. Thus they expanded the case loads of such programs or lengthened the duration of the benefits, according to data compiled by the National Women’s Law Center, an advocacy group in Washington. But at least nine other states, including Arizona, Michigan, Massachusetts and North Carolina, have cut access to subsidized child care programs or the amounts they pay. New Hampshire, Nevada and New Mexico resorted to waiting lists. Ohio reduced its income eligibility from twice the poverty line to 150 percent — $33,075 annually for a family of four.
"The social safety net was always in patches, and now it’s more frayed," said Helen Blank, director of leadership and public policy at the National Women’s Law Center. "For a single mom, it’s a lottery in many states whether she gets child care or not." This year, California altered its welfare reform program, cutting $215 million from child care financing given to counties and allowing families with young children to draw aid without looking for work. But it also means that those who want to pursue careers may effectively be consigned to the old welfare system, receiving monthly checks without support like child care. "These women desperately want to be off cash aid," said Ms. Siegel, at the California Child Care Resource and Referral Network. "That door has essentially been shut."
Last week, Gov. Arnold Schwarzenegger proposed scrapping California’s entire welfare-to-work program, including child care and cash assistance, as the state grapples with a $19 billion budget shortfall — an action that would eliminate aid for roughly a million children. In Arizona last year, stimulus funds prevented budget cuts that would have eliminated care for 15,000 eligible children. But as the budget crisis has ground on, the state has added names of eligible children to the wait list, a term that social service agencies deride as a euphemism. "It’s really a turn-away list," says Bruce Liggett, executive director of the Arizona Child Care Association, a Phoenix-based advocacy group. "The program has been shut down."
For Mr. Liggett, this amounts to a bitter turn. In the mid-1990s, he was a deputy director of the Arizona Department of Economic Security, where he helped put in place the new welfare-to-work program. "We’ve seen devastating cuts," he says. "For those families working to stay off welfare, we’re denying help. Welfare reform in Arizona is certainly a broken promise."
Path to Welfare
Alexandria Wallace grew up in a middle-class home topped by Spanish tile, with a swimming pool out back and a view of jagged reddish mountains. Her decline from work to welfare began in the spring of 2009. She was working three days a week at a call center for Verizon Wireless, earning about $9.50 an hour while attending beauty school at night to earn a license as a cosmetologist. She aimed to use earnings from that profession as a springboard to nursing school. Alaya was enrolled at a child care center, with a state subsidy, and Ms. Wallace was pleased with the girl’s experiences there — singing songs, learning to share. But when Ms. Wallace sent in the forms to extend the program, she received a rude surprise: a recent raise — less than 50 cents an hour — had bumped her above the income limit.
With no one to watch her daughter on a regular basis, she quit her job at the call center and began working at her mother’s thrift store for $7.50 an hour while she finished beauty school. Ms. Wallace reapplied for child care. Now she qualified, but she landed on the wait list. She shared a two-bedroom apartment with a couple and their 5-year-old daughter, and she sometimes paid them $25 to look after Alaya. But the woman worked, and the man seemed more interested in his PlayStation than the children, Ms. Wallace said. "I’d come home from work in the afternoon, and Alaya would still be in her pajamas," she said. "It’s so hard to find someone to really take care of your kid."
Her younger brother sometimes helped, but reluctantly and irregularly. A classmate at beauty school offered to watch Alaya during the day. In exchange, Ms. Wallace took care of her friend’s 18-month-old boy every evening. Her days tending to customers gave way to nights caring for a baby in a cramped apartment while cooking dinner and cleaning her house. Alaya was jealous and demanded extra attention. Ms. Wallace was perpetually exhausted. Still, this arrangement provided enough stability that Ms. Wallace began cutting hair at a nearby salon. Her first month, she brought home about $500. She felt confident her clientele would grow. Then, her friend canceled the swap, forcing Ms. Wallace to bring Alaya to the salon, where she tried to keep her occupied with cartoons in a back room.
Soon her car broke down, forcing her to rely on family and the public bus to get to work, which did not always happen. Her boss had been kind, but patience wore thin. "She was like, ‘Your baby sitter bailed on you, your car broke down. What do you have left?’ " Ms. Wallace said. "She said, ‘If you can’t get something worked out, I’m going to have to let you go.’ " Even after she lost that job, Ms. Wallace remained confident she could find another. Then it dawned on her. Given the state of the social safety net, unemployment might provide the solution. She could qualify for cash assistance, which would require her to enroll in a state jobs program and would include help securing child care. "It’s something I have to do to get where I need to go," she said.
She plans to stay on cash assistance long enough to gain child care, then find another job. She would then lose cash assistance, but could hang onto child care as long as her income stayed below the eligibility limit. These were her thoughts as she stood in an airless office, amid the sounds of unhappy children in the arms of tired women, waiting to hand in the forms to receive welfare. "Oh no," she said, peeking inside a white envelope full of documents and spotting a brown smudge. "My kid got chocolate on her birth certificate." She ducked into the ladies room and dabbed the stain with wet paper towel.
When she stepped outside an hour later, beneath a pounding Arizona sun, $220 a month was headed her way. Her daughter was waiting at her parents’ house. Her future — a working car, a steady job — was waiting out there, too, she told herself, though it had a way of coming in and out of focus. "I’m just trying to get my life situated to where I can look beyond the day to day," she said. "I hope it all falls together the way it all fell apart."
Summer School Canceled In Cash-Strapped Districts
by Heather Hollingsworth - Huffington Post
Amber Bramble had to scramble to arrange summer plans for her 5- and 7-year-old daughters after their suburban Kansas City school district gutted its summer school program this spring. Her daughters were among about 2,500 of the Raymore-Peculiar district's 6,000 students who enrolled for free last summer in a program that combined traditional subjects with enrichment classes like music. But with state funding uncertain, the district decided to focus this year on about 800 students who either need to make up credits to graduate or are struggling to keep up with classmates.
Across the country, districts are cutting summer school because it's just too expensive to keep. The cuts started when the recession began and have worsened, affecting more children and more essential programs that help struggling students. And in districts like Raymore-Peculiar, although lawmakers ultimately decided to maintain summer school funding, they made the decision so late in the session that many administrators already had eliminated or scaled back the programs.
The cuts come even as President Barack Obama and Education Secretary Arne Duncan call for longer school days and shorter summer breaks. But in many states districts cutting summer school outnumber those using stimulus money to expand their offerings. "At a time when we need to work harder to close achievement gaps and prepare every child for college and career, cutting summer school is the wrong way to go," Duncan said in a written statement. "These kids need more time, not less." With the Raymore-Peculiar district trimming its program, Bramble's daughters were unable to participate. "I think it gets them out of the rhythm," she said. "You lose the momentum."
An American Association of School Administrators survey found that 34 percent of respondents are considering eliminating summer school for the 2010-11 school year. That's a rate that has roughly doubled each year, from 8 percent in 2008-09 to 14 percent in 2009-10. Noelle Ellerson, a public policy analyst for the group who managed the study, said the cuts illustrate how strapped school districts are. Experts say studies show summer break tends to widen the achievement gap between poor students and their more affluent peers whose parents can more easily afford things like educational vacations, camps and sports teams.
On average, low-income children fall between two and three months behind in reading skills over the summer while their middle-income peers stagnate or make very slight gains, said Ron Fairchild, chief executive officer of the Baltimore-based National Summer Learning Association. He said both low- and higher-income students lose ground in math. "Most people generally think summer is a great time for kids to be kids, a time for something different, a time for all kinds of exploration and enrichment," Fairchild said. "Our mythology about summer learning really runs counter to the reality of what this really is like for kids in low-income communities and for their families when this faucet of public support shuts off."
The cuts are not isolated to Missouri. In New York, the East Aurora Union Free School District in suburban Buffalo is dropping a summer program that had served several dozen struggling first- to sixth-graders, said Superintendent Jim Bodziak. In Indiana, the New Albany-Floyd County Consolidated School Corporation, located across the river from Louisville, Ky., suspended its traditional summer school. It had offered enrichment courses as well as classes for kindergarten to 12th-graders who were falling behind their classmates. But this year it will only offer online classes for high-schoolers needing to make up credits to graduate.
In financially strapped California, summer cutbacks continue this year, with the Pasadena Unified School District among those paring back its program. The district is keeping its summer classes for high school students needing to make up credits to graduate but canceling other summer programs. "I know they are struggling with trying to put in summer school," said Pam Slater, a California Department of Education spokeswoman. "Many at the local level are limited to those who need tutoring to pass the high school exit exam. I know a lot of the subjects I used to take in summer school aren't offered because of the funding situation."
In Missouri, the talk of cuts has been a jolt because of the program's popularity. Last year, 480 out of 523 school districts offered summer school, serving about 34 percent of the state's total K-12 enrollment, according to the Missouri Department of Elementary and Secondary Education. Fairchild of the National Summer Learning Association said he was not aware of another state that has that high of a summer school participation percentage.
For years, Missouri districts actually made money offering summer school because of the way the state funded it. Some districts offered incentives – like gift cards – so students would attend in greater numbers. But that ended a few years back, and this year some lawmakers wanted to pare back state funding for summer school significantly because of budget problems. The cuts didn't win approval, but the issue could return. Brent Ghan, a spokesman for the Missouri School Boards' Association, said education funding is still at risk, especially since the state budget director has said $350 million in cuts will need to be made before the budget's approved, which should happen in mid-June.
Should there be cuts in basic funding for k-12 schools, state funding for summer school would take the same hit as would classes offered during the regular school term. And next year doesn't look any better. "I sadly suspect that the funding for summer school will be eliminated by next year," said Jeff Kyle, superintendent of the Raymore-Peculiar district. "I hope I'm wrong, but I don't think I am."
Spain Takes Over Ailing Bank Cajasur
by Christopher Bjork - Wall Street Journal
Spain's central bank early Saturday moved to take over Church-controlled savings bank Cajasur, a big step forward in its efforts to clean up the country's ailing mutually owned banks. The move comes at a time of rising concerns over Spanish creditworthiness. Earlier this month, the European Union put together a giant financial backstop to ease concerns that Spain and other countries could default on their debt. Spanish banks have encountered increasing difficulties getting funding in international markets.
CajaSur's failure is the second in Spain since the start of the global financial crisis more than two years ago, and comes at a critical time for a banking system that until now has been able to resist intense pressures from the global financial crisis. The bulk of the country's 44 savings banks, which account for about half of Spain bank business, are currently scrambling to restructure via mergers, and the central bank is pressuring lenders to move quickly.
Many of the savings banks grew faster than their listed peers during the country's decade-long construction and real estate boom, in part because they lent more to real estate developers. As the housing bubble started to deflate and the economy went into recession six quarters ago, Spanish banks saw their bad loans rise at unprecedented speed. The consolidation and cleanup of the country's savings bank is one of Spain's main challenges on top of 20% unemployment and a widening budget deficit from the country's central government. The central bank said in its release that the failure won't affect the Spanish banking system as a whole.
A spokesman for Spain's savings bank association CECA said CajaSur was a special case. He doubted there will be any more interventions among savings banks because, he said, the rest of the sector "is healthy." A spokeswoman for the banking association AEB, which represents the listed banks, said: "We trust that the Bank of Spain will be able to manage the situation in CajaSur as well as handling the restructuring of the financial system."
Privately, though, bankers have become increasingly frustrated with the Bank of Spain's handling of the crisis. They complain that the central bank acted too late when it intervened Caja Castilla-La Mancha in March last year, and that it has made the same mistake again with CajaSur. "They need to be more proactive to avoid causing alarm, act ahead of time and not at the last moment," one person familiar with the matter said on Saturday.
CajaSur, based in the Southern Spanish city of Cordoba, has €13 billion ($16.35 billion) in loans and holds 0.6% of the total assets in the Spanish financial system. CajaSur, which was founded by the Roman Catholic church of Cordoba in 1864, was considered the weakest link among the savings banks. It reported a net loss of €596 million last year, plus another €114 million in the first quarter this year, and its solvency had deteriorated significantly by a fast-growing pool of souring loans.
Bank of Spain officials estimate it would need a capital injection of at least €500 million to restore its solvency. In a press release, the Bank of Spain said CajaSur's management has been fired, and that the bank will be provisionally managed by three administrators from the Spanish state-funded bank bailout fund. The fund will recapitalize CajaSur and provide it with the necessary liquidity for it to continue operating. It will also determine whether to auction it off, sell some of its assets, or liquidate it.
The failure may put renewed pressure on Spanish stock and bond prices Monday, adding to already significant market volatility. Fears about Spain's economy have blazed up over the last month after a €110 billion bailout package for Greece from the International Monetary Fund and other euro-zone governments, which officials hoped would act as a firewall against further contagion, failed to convince international investors that Athens wouldn't eventually default on its debts.
The market tensions prompted the European Union to put in place a €500 billion financial backstop for countries most affected by the spreading sovereign debt crisis that started in Greece. The International Monetary Fund pledged an additional €250 billion and the European Central Bank said it would start buying European government debt. The only other Spanish savings bank that failed since the start of the crisis, Caja Castilla-La Mancha, was sold to another peer last year. The boards of CajaSur and larger peer Unicaja agreed to merge in August last year. However, CajaSur had been reluctant to accept the conditions of Unicaja's merger proposal, particularly regarding labor issues and layoffs.
Late Friday night, CajaSur's board—which includes six priests—notified the central bank that it had rejected the merger, prompting the regulator to jump in. Cordoba's bishop Demetrio Fernandez justified the decision to walk away by saying that the Church "was prepared to lose it all to save jobs at CajaSur." "There was no other alternatives than to die of asphyxiation or to call on a higher authority to come to our rescue, before it was too late," he said in an interview published on Catholic news website Infocatolica.
Europe's deflation torture is a gift to the Far Left
by Ambrose Evans-Pritchard
If Europe’s ultra-Left has so far reaped little dividend from the great "Crisis of Capitalism", this will surely change as the eurozone’s 1930s policies of wage deflation sap the credibility of the governing centre and the EU itself.
The tragedy of the interwar years in Germany was that the Social Democrats - then the world’s foremost socialist party - became fatally tainted by acquiescing in Bruning’s deflation torture from 1930 to 1932. They did so, of course, because they dared not confront the orthodoxies of the Gold Standard.
By then the fixed-exchange mechanism had gone horribly wrong - in much the same way that EMU has gone horribly wrong - because the surplus countries were not recycling demand to maintain equilibrium. It had become a job-destruction machine. The result in Germany was the Reichstag election of July 1932 when the Communists and Nazis won over the half the seats.
As historian Simon Schama wrote over the weekend in the Financial Times - "The world teeters on the brink of a new age of rage: we face a tinderbox moment" - there is typically a lag-time between economic shocks and social fury. Luckily there is no Fascist threat this time. It is the (more benign) Marxist Left that stands to gain.
Perma-slump has already chipped at the left flank of the ruling Socialists in Portugal. The Communist Party (PCP) and the Maoists and Trotskyists of the Left Bloc together won 18pc of the vote in September 2009, leaving premier Jose Socrates with the lonely task of enforcing yet more austerity by minority government.
Communist leader Jerónimo de Sousa said last week that the country was being reduced to a "protectorate of Brussels", cowed into submission by financial blackmail. He invoked the civil war in 1383 when the country rallied heroically to expel the foreign opressor - with English help, the "ultimato inglês" as he calls it - from Portuguese soil.
"It is not just the Communists who are worrying about this. There are a great numbers of Portuguese who are concerned that this country built over the centuries, for better or worse, on a foundation of sovereignty and independence is endangered by accepting everything that comes from Brussels without a trace of patriotism. The EU’s claim of economic and social cohesion is just propaganda," he told Publico.
"Monetary union is not in the interests of Portugal or the Portugese people. The economy has ended up the way it is for fundamental reasons, not because of some curse, or some Plague of Egypt descending on Portugal. If we don’t go to the root of the matter we will face yet harsher measures, in a spiral towards the abyss," he said (my loose translation).
What this comes down to is "ownership" of austerity policies. It is hard enough for the elected parliament of an ancient and sovereign nation to impose cuts - as Britain discovered in September 1931 when Royal Navy ratings at Invergordon refused to set sail after the Admirality docked pay by a shilling - but what is the charisma and ordaining legitimacy of an EU council of ministers meeting behind closed doors in Brussels?
Portugual is not unique. I spent Saturday delving into the subcultures of Italy’s Rifondazione Comunista, Spain’s Izquierda Unida, Olivier Besancenot’s Parti Anti-Capitaliste in France, and Germany’s Linke (Left). While it is too early to talk of a pan-European revolt against EMU-deflation, the Left is starting to offer the only coherent critique of what has gone wrong with monetary union and why there can be no durable solution until the EU creates full fiscal union (which creates its own problems of permanent subsidies, as from Visigoth Lombardy to Berber Sicily under the lira) or until this latter day Gold Standard is broken into viable halves.
It was refreshing to read "The Euro Burns" by Michael Schlecht, Die Linke’s economic guru, arguing that the primary cause of Euroland’s crisis is "German wage-dumping". He shows from Eurostat data that German labour costs rose 7pc between 2000 and 2008, compared to 34pc in Ireland, 30pc in Spain, Portugal, and Italy, 28pc in Greece and Holland, and 20pc in France. Again, my loose translation.
Germany ran an accumulated trade surplus of €1,261bn over the period, while Spain ran a deficit of €598bn, and Portugal €273bn. This shell game was kept afloat by recycling German capital to Club Med debt markets beyond sustainable levels until it all blew up over Greece. The Club Med victims are now trapped.
"Had Britain not been able to create breathing space by devaluing the pound, the situation for England would perhaps be even graver than for Greece. No wonder nobody in Britain is even thinking about joining the euro," he said. Quite so.
Berlin prides itself on German wage discipline, insisting that others should do the same. Chancellor Merkel implicitly blames the euro debacle on (allegedly) feckless Greeks and Latins, but the logic of EMU is that cultural Germans must meet cultural Latins half way. Her quid pro quo for the €750bn EMU "shield" is ultra-austerity in the South.
This belt-tightening is intellectually absurd, comes too late to rebalance EMU, and has now run amok. Spain is cutting public sector wages by up to 7pc this year. Greece has swallowed a de facto cut of 16pc. Italy is preparing a wage freeze as part of a €25bn austerity plan over two years. France has joined with plans for a three-year freeze and a hair-shirt clause in the constitution. Pre-EMU Romania is cutting wages by 25pc, so that take that you wimps. Romania’s police union has vowed to bring down the government, threatening to "do what we did in 1989, when we overthrew the dictatorship".
The IMF’s Dominique Strauss-Kahn is having second thoughts about a synchronized fiscal squeeze across half Europe. "Growth in Europe is by far too low. Germany and the other countries must urgently do more to accelerate growth. The whole world is watching this and is losing confidence in Europe," he said.
The Left always warned that EMU was a "Bankers’ Ramp", an instrument of creditor control that would lock in reactionary policies. Little did they know how extreme this would prove to be. Greece is having to go through the harshest fiscal cuts ever attempted in a developed economy under its EU-IMF plan, without offsetting exchange and monetary stimulus. The agony is pointless. The IMF admits that Greece’s public debt will rise from 120pc to 150pc of GDP by 2014. The country is already past the point of no return.
Such a policy is not in the interests of Greek society. Greece should leave the euro and carry out a controlled default, sharing the pain with foolhardy creditors. The EU is preventing this cure: either to protect bond-holders - ie, French and German banks - giving them time to shuffle off their bad debts onto EU taxpayers; or because Brussels refuses as a matter of ideological principle to countenance any step back, ever, in the sacrosanct Project.
It is undeniable that Europe needs to master its debts but not by tipping a clutch of countries into debt-deflation, a policy that will cause each to feed off the crisis of its neighbours in a self-feeding downward spiral. The only way out is for the European Central Bank to lift Club Med off the deflation reefs by monetary stimulus, and allow these economies to work off their debt in an orderly fashion without shrinking nominal GDP. That means quantitative easing a l’outrance - not "sterilising" bond purchases it has done so far - and that in turn means that Germany must accept 5pc inflation.
Will Germans tolerate such an outcome? The civil peace of Europe demands that they do, but I am not hopeful. The Bundestag vote to authorise Germany’s €147bn share of the EMU "shield" has already caused apoplexy. "One of the gravest errors of decision in the history of the Federal Republic of Germany," said Hans Werner Sinn, head of the IFO Institute.
Bavarian politician Peter Gauweiler is launching a legal challenge at Germany’s constitutional court to block the rescue, arguing that the "contractual foundations of monetary policy" as fixed by the Maastricht Treaty have been breached. The legal cases are piling up. It is remarkable that so much time has been spent by City analysts combing through Greek data to gauge the risk of default, yet so little time has been spent thinking about these cases at Karlsruhe. How many have read the court’s rulings on Maastricht and Lisbon? Yet the "tail-risk" is nuclear.
The North-South divide within EMU has been allowed to go so far that any solution must now be offensive to either side, and therefore will be resisted. The euro is becoming an engine of intra-European tribal hatred. Brilliant work, Monsieur Delors.
Cannes: How the bankers fleeced the world
by Andrew O'Hehir - Salon.com
Director Charles Ferguson on his smash Cannes doc, which indicts the financial sector as a "criminal industry"
If you don't quite get what happened to the global economy over the last two years, or who's at fault, you're not alone. Indeed, that's nearly everyone's situation. The big crash of 2008 and 2009 and its ongoing ripple effects -- such as the European fiscal crisis that's rendering my visit to France a little cheaper every day -- seemed to come from nowhere as if by natural causes, as unpredictable and unmanageable as the Icelandic volcano or a Gulf Coast hurricane.
Charles Ferguson is here to tell the world that the crisis that wiped out trillions of dollars in wealth, threw millions of people out of their homes and out of work, and further widened the gulf between rich and poor was no accident. It was a crime. Ferguson, a former software entrepreneur and policy-wonk scholar turned filmmaker, is definitely no left-wing bomb-thrower or closet Marxist. But he plays one in the movies, you might say. His new documentary, "Inside Job" -- arguably the smash hit of Cannes so far -- offers a lucid and devastating history of how the crash happened, who caused it and how they got away with it.
Furthermore, Ferguson argues, if we don't stop those people -- preferably by removing them from power, arresting them and sending them to prison -- they will certainly do it again. "Inside Job" is as elegant, penetrating and well researched as Ferguson's Iraq war film, "No End in Sight," but it's a hell of a lot angrier. To the discomfiture of some antiwar viewers, Ferguson struck a nuanced position on the war itself: It might have been a reasonable idea, in theory, and might have worked out if it hadn't been managed by a coalition of ideologues, incompetents and idiots.
This story is quite different. There was nothing reasonable or decent or redeemable about the world of high finance, in Ferguson's judgment, by the time the 21st-century bubble reached its peak around 2006. As he illustrates with a damning parade of interviews, images and public testimony, the financial industry had ridden 20-plus years of manic free-market deregulation and neoliberal fiscal policy from one crisis to the next, surfing a rising tide of greed and corruption. (There are several people in this movie, prominent among them former George W. Bush advisor Glenn Hubbard and Harvard economics chairman John Y. Campbell, who will rue the day they agreed to talk to Ferguson.)
In a captivating conversation with former New York Gov. Eliot Spitzer (who looks here like a knight in shining armor, believe it or not) Ferguson suggests that the financial industry has become a criminal class insulated from society, where profit justifies everything and morality and ethics, not to mention basic human decency, are totally irrelevant. Gaining remarkable access to a wide range of financial insiders, experts and academics, he builds a persuasive case that by conquering Washington with piles of campaign money and conquering the economics discipline with free-market ideology (and more piles of money), the financial industry built a fortress of deregulation that allowed it to plunder the peasantry with no control or oversight.
In one amazing sequence, we watch Goldman Sachs executives testify to Congress, admitting that at the height of the housing bubble, they sold their clients mortgage-backed securities they knew were likely to become worthless. Indeed, they had almost certainly been designed to become worthless, because Goldman was betting its own money on a big-time housing collapse that would turn the paper it was selling its biggest institutional clients into junk. So it was that municipal and state employees' pension funds were wiped out, while senior executives at investment banks -- even those that went bust -- walked away with hundreds of millions of dollars. In many cases, they simply stole that money from you and me, or from our parents and grandparents.
In case you think the whole thing can be blamed on Ronald Reagan and George W. Bush and deregulation-crazed congressional Republicans, it can't. Bill Clinton's economic and fiscal policies were shaped and implemented by Wall Street insiders who joined his administration, and he signed numerous major acts of deregulatory legislation. After a year in office, Barack Obama has done little more than reshuffle the chairs, leaving the same investment-bank insiders and free-market ideologues who blew up the store to plaster it back together again. As one commentator notes in the film, whether Democrats or Republicans hold power, we have a permanent "Wall Street government."
You'll definitely hear more about "Inside Job" before it reaches U.S. theaters, most likely in September. (Given the response here, Sony Pictures Classics is mulling pushing that forward.) I met Charles Ferguson, a lean, intense fellow in his mid-50s, for a post-breakfast conversation at a restaurant overlooking the Cannes beachfront.
I've seen both your film and Oliver Stone's "Wall Street" sequel here, which both tackle approximately the same subject matter. He's built his movie around the financial term "moral hazard," which interested me. What you show in the film -- a situation where we've deregulated the entire universe and created a strong disincentive for people to behave ethically -- isn't that the ultimate illustration of moral hazard?
Yes. Deregulation permitted, allowed and created an industry where moral hazard was the norm and the universal condition. And people took advantage. When there is moral hazard one usually finds that people take advantage and in this case a whole industry took advantage.
In a two-hour film, you can't go into much depth about how the deregulatory process began. But is it your perception that the deregulation of, say, the Reagan years and thereafter started from a pure ideological position? Or was it influenced from the beginning by the financial firms who had a great deal to gain?
The latter. Well, it was a combination of the two; it wasn't just that. It was both of those things. And you saw in the '80s for the first time the beginnings of this very unholy alliance between the financial services industry and the academics who pushed the free-market ideological-intellectual agenda. We talk a little bit about that in the film. About the fact that Charles Keating paid Alan Greenspan to write him a consulting letter, for example. We actually have a lot more material on that that was in a rough cut of the film, which I took out for reasons of length and I have many regrets about.
We have an awful lot of very interesting material that I took out purely for reasons of length or narrative continuity. One extraordinary thing that we have is a filmed interview, sometime in the late 1980s, with Sen. William Proxmire who at the time was the chairman of the Senate Banking Committee. He says in an extremely blunt, direct way: My committee was bought off by the savings and loan industry, which led to the passage of the Garn-St. Germain Act of 1982, following which there was this extraordinary wave of criminality. So the money was there from the beginning -- both money and ideology. Over time I think the money has come to be even more dominant. Now, of course there are people who still believe in free-market ideology, but that's not the core of what's going on; the core of what's going on is the money.
This may be forcing a parallel, but this occurred to me after seeing your film: At the beginning of Marxism-Leninism, you have leaders who believe in what they're selling. I think we can posit that Lenin and Trotsky believed that they were changing the world for the better, history was on their side, and so forth. Maybe Stalin did too -- at least at first. By the end of the Soviet state, you have a completely corrupt environment in which nobody, including the leadership, actually believes in the Communist future. I wonder if we're seeing a speeded-up version of that same ideological decay in the world of free-market capitalism.
I think that's an extremely accurate and perceptive analogy. And it's also of course a very disturbing one. The idea that the United States is being taken over by this utterly cynical group of people who know that this is a rigged game and just kind of gives lip service. I think that there's a lot of that. The United States has changed over the past 30 years. America has changed. And it really is time I think for the American people to unchange it.
Well, there's an obvious corollary question about the way American politics is financed. These guys have taken very effective advantage of the way Congress works and the way congressional elections work to fund candidates, control the process and control and actually write legislation. It's not quite enough to throw the bums out. We have to remake the political process as well. It's an extremely daunting problem to deal with, isn't it?
It is an extremely daunting problem, but I wouldn't say that I'm entirely pessimistic about it. There have been times before in history where a country, a government, got taken over by some bad people who did some bad things and the population threw them out. I think there's a reasonable analogy in that regard with Watergate. There's a situation where one could have said -- and many people did say -- "Look, how are you going to get rid of the president? How are you going to get rid of a whole administration?" We did.
Just because the system has been taken over doesn't mean that that always has to be the case. I am reasonably optimistic that over time the American people are getting angrier about this. That's happening now. Will they get angry enough? Will there be enough action? We don't know yet.
One manifestation of that, I suppose, is the Tea Party movement. One can put a positive spin on that, and say that it represents a kind of popular or populist anger. But if it's just this nativist, incoherent rage, ultimately in thrall to an ideology that winds up supporting the corporate status quo that you're talking about, that's a real problem.
It is a real problem, and situations like this are dangerous and unstable in a number of ways. The Great Depression gave us Franklin Roosevelt, but it also gave us Adolf Hitler. When a system is under stress and things get extreme and people are angry, they call for reform but they are also vulnerable to exploitation, and that is disturbing. Despite the rise of the Tea Party, I would still say that on balance the popular reaction in America now is in a good direction. I think that most people who are getting upset about this are getting upset about it in the right way and for the right reasons.
You make very clear in the film that this is not a partisan divide, in the sense that one party has been for the bankers and one party has been against them. Both parties are up to their eyeballs in Wall Street money and have made no effort to separate themselves, isn't that fair?
Yes, that is completely fair.
Does there need to be some kind of insurrection within either or both of the political parties for things to change?
Yes. One possibility is a movement from within the political parties. The other is the rise of a third party. What's happened in Great Britain recently is kind of interesting in that regard. It's not the same but there are a number of similarities. The rise of the Liberal Democrats in Britain has a lot to do with the same kind of forces, and with the sense that the Labour Party was taken over by the financial services industry in very much the same way as the Democratic Party has been.
Is our political culture so dominated by an individualist ideology, and by a private sector bias, that we can't go back to the era of serious financial regulation? You look at the healthcare debate, and a very modest level of reform is referred to in some quarters as a government takeover. Doesn't that ideology serve the interests of the bankers?
I actually don't think that's much of a problem in this case. One can be very entrepreneurial and individualistic and even pro-business and still be against bank robbery and against fraud. And that's kind of where we're at. I myself am entrepreneurial and pro-business. I started a software company and I think that's a fine thing to do. It's not like I'm ashamed of that -- quite the contrary. I've spoken to many business people, particularly people in high technology, who are furious at what happened. Absolutely furious. Because they make real things and they contribute to the economy and they find their businesses and themselves significantly hurt by these people who basically robbed the country, the world. So I think reform of the financial system is perfectly compatible with the American ethos. I don't think that's the difficulty. I think the difficulty is just these people are wealthy and powerful and they're not going to give up easily.
In your film we see recent congressional testimony -- it was actually in April -- where Goldman Sachs executives talk about how they sold securities that they were betting against. It's shocking to realize that they were, apparently in good faith, selling people securities that they believed were going to fail, while actually betting that they would fail.
I wouldn't say "in good faith." [Laughter.]
Perhaps that's the wrong phrase, yes. It's hard to imagine how someone in that world justifies that behavior to themselves as ethical. Does that question not even come up?
When they're doing the business I don't think it comes up. And in fact, in a number of conversations I've had with bankers, I've been struck that they find it kind of surprising that somebody would raise ethical questions. They don't find it surprising that legal questions could be raised. "Could I get in trouble?" That's a discussion they're very familiar with. But, "Is this right or wrong?" That's not a discussion they have often.
That's the thing people may find difficult to comprehend. As you depict it, this industry has completely absorbed the idea that there is no right and wrong, there's only making money. That would be shocking to a large number of people, don't you think?
I think probably so. It was shocking to me. It's not like I didn't know that there were greedy people in the financial world. When I started making the film I knew that there had to have been some bad behavior, but I had no idea that on a very large scale people had designed securities with the intention of selling them and gambling on their failure. I was stunned when I discovered it.
You have a fascinating conversation with Eliot Spitzer in the film, where you suggest that the financial sector has become an enormous criminal enterprise. You were talking just now about having been a high-tech entrepreneur, and what he says about the differences between the two worlds is very interesting.
I asked him about what seemed to be this very striking, distinctive, unique level of criminality in finance, which is not restricted to the behavior that led to this crisis. There have been many other examples of criminal behavior in finance. There are now three major banks that have been convicted of large-scale money laundering for Iran. Just a few days ago, ABN AMRO signed -- I love this charming phrase -- a "deferred prosecution agreement" and agreed to pay a $500 million fine because they did it too. So it's an industry that has a very high level of criminality. It has become, I personally think, a criminal industry.
I asked Spitzer about that: Why this industry? I have some experience with high technology and the same thing doesn't happen. He agreed with me, but we actually didn't show his full answer. His full answer was: Look, high technology is an industry where you create money by doing something different. In contrast, finance is really kind of zero-sum. It's a trading game, it's a gambling game. There's a relatively fixed pool of money, but there's a lot of money and the way you make more, as a banker, is by making sure that someone else makes less. It's really hard to keep that industry ethical without appropriate legal and regulatory controls. If Intel made microprocessors that blew up the computers they're in, Intel would go out of business. The same is not true for financial services. It was a very sobering moment, actually.
You cover the question of executive compensation in the film, the insane and obscene salaries and bonuses these guys take home. But is that a largely symbolic question, or does it speak to the corruption of the system?
Oh, it's an extremely real question. First of all it's a very obvious symptom and example of the corruption of the system, but it's much more than that. It's also systemically important. These people do these things because they can make money doing them and get away with it. And if they couldn't, they would behave differently. If there's a place in the world where you can make a billion dollars by being a criminal, that place is going to attract criminals. And if you have a system that is appropriately regulated so the only way that you can make money is by doing something worthwhile, you are not going to attract criminals to run that industry.
We now have a situation where the way that you can make the most money is by doing criminal things. And you get away with it. You can even destroy your own company. In some cases, destroying your company is the way that you make the most money. And that's bad. Personally, from the experience of researching and making this film, I think that legal controls on the structure of executive compensation are a very important part of fixing this.
By the way, from the experience of starting my software company, I can tell you that people in high technology are extremely aware of this. I dealt with the venture capital firm that invested in my company and they were extremely clear. They said: You're going to get a salary. It's going to be $100,000 a year. It's never going to go up. You will never get a bonus. You will have no outside activities of any kind. You will not make a dime doing anything else. Your stock will vest over five years. And if you want to make money, you make that stock worth something. Period. It's really simple.
U.S. Wasn't Ready for Major Spill
by Jeffrey Ball, Stephen Power and Neil King - Wall Street Journal
Despite Mature Off-Shore Oil Operations, Gulf Crews Are Improvising With Chemicals, Protective Boom And Outdated Maps
Crude gushing into the Gulf of Mexico and washing ashore in Louisiana is exposing how ill-prepared the U.S. has been to respond to a major offshore oil spill. In the fight to limit environmental damage from the month-old spill—which is on track to rival the 1989 Exxon Valdez disaster in size—BP PLC executives, government officials, and scientists are learning as they go, even though the industry has been drilling in the Gulf for decades and has 77 rigs operating there, according to ODS-Petrodata, a research firm. The Environmental Protection Agency says it is still assessing the ecological effect of the 600,000 gallons of chemicals that BP has sprayed into the Gulf to break up the oil so far. As of Sunday, the agency and BP were locked in a standoff over whether to continue using the same chemical dispersant.
Some scientists researching the spill don't have the right instruments to measure the spill or to study its impact. Maps that federal officials are using to identify priority areas to protect from spreading oil are outdated. And the Coast Guard says the country lacks enough plastic piping, or "boom," to keep the incoming oil away from the coast. "The national system did not contemplate you would have to do all that at once," Coast Guard Commandant Thad Allen told a Senate committee last week, referring to laying boom across a coastline as big as the Gulf's.
Sunday, on CNN's "State of the Nation," Mr. Allen likened the effort to address the Gulf oil spill to fighting a multifront war, as officials work to respond to oil coming ashore in southern Louisiana, tar balls in Alabama and Mississippi and the still-leaking well. He said BP had the means to cap the spill and that "our responsibility is to conduct proper oversight to make sure they do that." But Interior Department Secretary Ken Salazar said at a news conference in Houston Sunday that the U.S. would "push BP out of the way" if it didn't stop the leak and adequately clean up. Mr. Salazar and Secretary of Homeland Security Janet Napolitano will visit Louisiana on Monday to inspect the response to the BP oil spill.
BP Chief Executive Tony Hayward told his staff, in an email Friday, that he was frustrated by the company's failure to stop the leak and warned an attempt to do so as early as Tuesday could fail. Mr. Hayward said that BP's plan to cap the well using heavy drilling fluids, a process known as "top kill," would be "another first for this technology at these water depths and so, we cannot take its success for granted." And a BP spokesman said Sunday that the amount of oil BP now is siphoning from the leak has declined to 1,360 barrels a day, compared with 5,000 barrels BP said it had been collecting last week, as more of the oil evades the insertion pipe.
The White House insists it is doing everything possible to fight the spill, which began with an explosion April 20 on the Deepwater Horizon rig as it was drilling a subsea well for BP. On CBS's "Face the Nation" Sunday, White House press secretary Robert Gibbs dismissed media critics who have said the spill would become the Obama administration's Katrina, the hurricane that devastated New Orleans in 2005. In the case of Katrina, Mr. Gibbs said, the federal government didn't response in the beginning. With the BP incident, "we were there immediately. We have been there ever since," he said. Yet, signs that the spill is overwhelming the U.S. environmental infrastructure can be seen in the dispute between BP and the EPA over the chemicals BP is using to break up the oil slick.
BP has been spraying unprecedented quantities of Corexit 9500, which the EPA approved for use on oil spills although EPA tests show it is more toxic to certain sea life than some other dispersants the agency has also approved. BP has been spraying the chemicals on the Gulf's surface and in smaller amounts directly at the well on the sea floor, a tactic never before tried at these depths and approved on May 15. Then, last Thursday, amid mounting questions in the media and on Capitol Hill, the EPA changed course. It told BP to switch to less-toxic dispersants by Sunday night. But, according to a letter from BP that the EPA released over the weekend, the oil company wants to keep using Corexit. BP says alternatives raise other environmental questions and are not available in sufficient volume for this spill.
The EPA said Sunday that it would "continue to review and discuss the science" through the Sunday-night deadline and then decide what to do. Some scientists fault the federal government for not having investigated dispersants more fully earlier. Knowledge of dispersants' environmental effect is limited because the government "had virtually no money to put into that research," Nancy Kinner, a professor of civil and environmental engineering at the University of New Hampshire, said at a congressional hearing last week.
Although thousands of people are working to fight the spill, basic questions about its environmental impact remain. One is how much oil is spewing into the gulf. Scientists' estimates vary widely—from some 5,000 barrels a day to more than 50,000 barrels a day. The National Oceanic and Atmospheric Administration chief, Jane Lubchenco, said last week that efforts to measure the leak have been delayed in part because they would require sending more robots to the ocean floor. That would increase the chance that the robots might impede eachother's work and lead to an accident, she said. Federal officials say 16 robots already are working in the vicinity of the leaking well to try to plug it.
A government team spent the weekend crunching reams of existing data—from video footage and pressure readings to overhead imagery—to try to come up with a more accurate estimate by early this week. Equally unclear is how the leaking oil is affecting undersea life. Earlier this month, a research vessel sponsored by the National Oceanic and Atmospheric Administration produced water samples from the Gulf that researchers said suggested oil was collecting in a plume deep below the water's surface. But scientists analyzing the samples say they are of limited value because they were taken with equipment not designed for oil.
The researchers on the ship took the samples using bottles designed to test for substances that dissolve in water—but oil doesn't, said Edward Overton, an emeritus professor of environmental sciences at Louisiana State University who is analyzing some of the samples. The oil stuck to many of the research bottles, he said, potentially skewing lab results."This is not a very satisfactory way to do it," Mr. Overton said of the water-sampling method. "Unfortunately, it's all that we've got out there right now." Additional research ships are heading out to study the water.
Onshore, authorities are responding to the spill with more than a decade-old maps that assess the environmental sensitivity of U.S. coastal areas—maps that spill responders use to prioritize areas they want to protect from oil. NOAA said last week that it would cost $11 million to update the environmental-sensitivity maps—money NOAA hasn't had.
Anger directed at White House over oil spill role
by Stephanie Kirchgaessner and Anna Fifield - Financial Times
The Obama administration is facing a rising tide of anger against its handling of the Deepwater Horizon oil spill and acknowledged on Sunday that it did not have the technical capabilities to step in and fix the gusher on its own. Under scrutiny, the White House delivered mixed messages about BP’s role in the Gulf of Mexico disaster. Ken Salazar, secretary of the interior, lashed out against the company at a news conference on Sunday, saying it had missed "deadline after deadline" in attempts to seal the oil well and he was ready to "push [BP] out of the way" if necessary.
But Thad Allen, the coast guard commandant in charge of co-ordinating the administration’s response, said he trusted Tony Hayward, BP chief executive, and stopping the leak was ultimately in the hands of private industry. "They have the eyes and ears that are down there. They are necessarily the modality by which this is going to get solved," Mr Allen told CNN.
The sense of helplessness may turn into a big political problem for Barack Obama, elected president on a promise that he would be more competent and responsive in times of national crisis than his predecessor, George W. Bush. An editorial in The Times-Picayune, a New Orleans newspaper, castigated the administration on Sunday for appearing "timid" in its dealing with BP since the rig explosion. Mr Obama at the weekend created an independent national commission to study the Gulf spill and make recommendations on how to prevent future spills. The commission, to be headed by former Florida governor and senator Bob Graham and former Environmental Protection Agency chief William Reilly, is due to report in six months.
In a statement on Monday, Mr Hayward said: "We are committed to providing the American people with the information they need to understand the environmental impact from the spill and the response steps that have been taken." He added: "BP is working hand-in-hand with federal, state and local governments to gather data on the seabed and in the water, and to incorporate those lessons so that we can continually improve the effectiveness of our response efforts".
BP said the cost of the response to date amounted to about $760m, including the cost of the spill response, containment, relief well drilling, grants to the Gulf states, claims paid and federal costs. It said it was too early to quantify other potential costs and liabilities. Separately, the White House is set to release its findings by the end of this week following an initial 30-day probe into the Deep?water accident, which killed 11 men. The report is expected to include recommendations on how the administration should handle deepwater and other offshore drilling applications.
Bruce Babbitt, former secretary of the interior under Bill Clinton, said that, given the administration’s limited ability to stop the leak, Mr Obama needed to "regain the confidence of the American public" by ensuring that the "deep dysfunctions" in the oil industry would be dealt with. The oil industry had in effect been self-regulating for years, he said. He urged the administration to issue an extended moratorium on some offshore drilling, at least for a year, while an independent body studied the spill and its causes.
Nature Conservancy faces potential backlash from ties with BP
by Joe Stephens - Washington Post
In the days after the immensity of the oil spill in the Gulf of Mexico became clear, some Nature Conservancy supporters took to the organization's Web site to vent their anger. "The first thing I did was sell my shares in BP, not wanting anything to do with a company that is so careless," wrote one. Another added: "I would like to force all the BP executives, the secretaries and the shareholders out to the shore to mop up oil and wash the birds." Reagan De Leon of Hawaii called for a boycott of "everything BP has their hands in."
What De Leon didn't know was that the Nature Conservancy lists BP as one of its business partners. The Conservancy also has given BP a seat on its International Leadership Council and has accepted nearly $10 million in cash and land contributions from BP and affiliated corporations over the years. "Oh, wow," De Leon said when told of the depth of the relationship between the nonprofit group she loves and the company she hates. "That's kind of disturbing."
The Conservancy, already scrambling to shield oyster beds from the spill, now faces a different problem: a potential backlash as its supporters learn that the giant oil company and the world's largest environmental organization long ago forged a relationship that has lent BP an Earth-friendly image and helped the Conservancy pursue causes it holds dear. The crude emanating from BP's well threatens to befoul a number of alliances between energy conglomerates and environmental nonprofits. At least one group, Conservation International, acknowledges that it is reassessing its ties to the oil company, with an eye toward protecting its reputation.
"This is going to be a real test for charities such as the Nature Conservancy," said Dean Zerbe, a lawyer who investigated the Conservancy's relations with its donors when he worked for the Senate Finance Committee. "This not only stains BP, but, if they don't respond properly, it also stains those who have been benefiting from their money and their support." Some purists believe environmental groups should keep a healthy distance from certain kinds of corporations, particularly those whose core mission poses risks to the environment. They argue that the BP spill shows the downside to what they view as deals with the devil.
On the other side are self-described pragmatists who, like the Conservancy, see partnering with global corporations as the best way to create large-scale change. "Anyone serious about doing conservation in this region must engage these companies, so they are not just part of the problem but so they can be part of the effort to restore this incredible ecosystem," Conservancy chief executive Mark Tercek wrote on his group's Web site after criticism from a Conservancy supporter.
The Arlington County-based Conservancy has made no secret of its relationship with BP, just one of many it has forged with multinational corporations. The Conservancy's Web site lists BP as a member of its International Leadership Council. BP has been a major contributor to a Conservancy project aimed at protecting Bolivian forests. In 2006, BP gave the organization 655 acres in York County, Va., where a state wildlife management area is planned. In Colorado and Wyoming, the Conservancy has worked with BP to limit environmental damage from natural gas drilling.
Until recently, the Conservancy and other environmental groups worked alongside BP in a coalition that lobbied Congress on climate-change issues. And an employee of BP Exploration serves as an unpaid Conservancy trustee in Alaska. "We are getting some important and very tangible outcomes as a result of our work with the company," said Conservancy spokesman Jim Petterson.
Reassessing ties
The Conservancy has long positioned itself as the leader of a nonconfrontational arm of the environmental movement, and that position has helped the charity attract tens of millions of dollars annually in contributions. A number have come from companies whose work takes a toll on the environment, including those engaged in logging, home building and power generation. Conservancy officials say their approach has allowed them to change company practices from within, leverage the influence of the companies and protect ecosystems that are under the companies' control. They stress that contributions from BP and other corporations make up only a portion of the organization's total revenue, which exceeds half a billion dollars a year.
And the Conservancy is far from the only environmental nonprofit with ties to BP. Conservation International has accepted $2 million in donations from BP over the years and partnered with the company on a number of projects, including one examining oil-extraction methods. From 2000 to 2006, John Browne, who was then BP's chief executive, sat on the nonprofit's board. In response to the spill, the nonprofit plans to review its relationship with the company, said Justin Ward, a Conservation International vice president. "Reputational risk is on our minds," Ward acknowledged.
The Environmental Defense Fund, which has a policy of not accepting corporate donations, joined with BP, Shell International and other major corporations to form the Partnership for Climate Action, which promotes "market-based mechanisms" to reduce greenhouse gas emissions. And about 20 energy and environmental groups, including the Conservancy, the Sierra Club and Audubon, joined with BP Wind Energy to form the American Wind and Wildlife Institute, which works to protect wildlife through "responsible" development of wind farms.
A rude awakening
On May 1, Tercek posted a statement on the Conservancy's site, writing that it was "difficult to fathom the tragedy" that was unfolding but that "now is not the time for ranting." He made no mention of BP. Nate Swick, a blogger and dedicated bird watcher from Chapel Hill, N.C., chastised Tercek on the site for not adequately disclosing the Conservancy's connections to BP and for not working to hold the company accountable. Swick said in an interview that he considered BP's payments to the organization to be an obvious attempt at "greenwashing" its image. "You have to wonder whether the higher-ups in the Nature Conservancy are pulling their punches," said Swick, who added that he admires the work the Conservancy does in the field.
A Conservancy official quickly responded to Swick's accusations, laying out the organization's ties with BP. A subsequent post by Tercek named BP and said the spill demonstrated the need for a new energy policy that would move the United States "away from our dependence on oil." "The oil industry is a major player in the gulf," he said. "It would be naive to ignore them." There might be a sense of the past among long-timers at the Conservancy.
Years ago, worried officials quietly assembled focus groups and found that most members saw a partnership with BP as "inappropriate." The 2001 study, obtained by The Washington Post, found that many Conservancy members felt a relationship with an oil company was "inherently incompatible." And to a minority of members, accepting cash from these types of companies was viewed as "the equivalent of a payoff."
BP refuses EPA order to switch to less-toxic oil dispersant
by Margot Roosevelt and Carolyn Cole - Los Angeles Times
Oil washes ashore on 50 miles of Louisiana shoreline as tensions mount over how to treat the spill in the Gulf of Mexico. BP has rebuffed demands from government officials and environmentalists to use a less-toxic dispersant to break up the oil from its massive offshore spill, saying that the chemical product it is now using continues to be "the best option for subsea application."
On Thursday, the U.S. Environmental Protection Agency gave the London-based company 72 hours to replace the dispersant Corexit 9500 or to describe in detail why other dispersants fail to meet environmental standards. The agency on Saturday released a 12-page document from BP, representing only a portion of the company's full response. Along with several dispersant manufacturers, BP claimed that releasing its full evaluation of alternatives would violate its legal right to keep confidential business information private.
But in a strongly worded retort, the EPA said that it was "evaluating all legal options" to force BP to release the remaining information "so Americans can get a full picture of the potential environmental impact of these alternative dispersants." So far, 715,000 gallons of dispersant has been applied since the April 20 explosion of the Deepwater Horizon rig, mostly on the spill's surface. The chemical has also been released near the leaking pipe on the seafloor.
Government officials have justified both uses, saying that if oil reaches the shore, it would do more environmental harm than if it were dispersed off the coast. Dispersants break oil into droplets that decompose more quickly. But scientists worry that extensive use of the chemicals in the BP spill is increasing marine life's exposure to the toxins in oil. "While the dispersant BP has been using is on the agency's approved list, BP is using this dispersant in unprecedented volumes and, last week, began using it underwater at the source of the leak — a procedure that has never been tried before," the EPA noted last week, acknowledging that "much is unknown about the underwater use of dispersants."
In the company's May 20 letter to the EPA and the Coast Guard, responding to the EPA's directive, BP operations chief Doug Suttles wrote that only five products on the EPA's approved list meet the agency's toxicity criteria. And only one, besides Corexit, is available in sufficient quantities in the next 10 to 14 days, it said. But that alternative product, Sea Brat #4, according to BP, contains a chemical that could degrade into an endocrine disruptor, a substance that creates hormonal changes in living creatures, and could persist in the environment for years.
As the tensions over how to treat the spill escalated, reddish-brown washes of oil, 2 inches thick in places, soiled Louisiana beaches. Hundreds of workers scooped up gooey piles of sand and stuffed them into plastic bags. "It is worse today than on the past two days," said Darren Smith, 43, sweating from his work raking sand at a wildlife refuge on Elmer's Island. "There's definitely more oil, and it's just going to keep coming."
No booms protected the Elmer's Island beach because the National Guard had focused on building dams to divert oil from the wetlands behind the beach. A few miles away at Port Fourchon, plastic barriers that looked like pompoms were strung together along the beach but did a poor job of keeping out the oil. More than 50 miles of Louisiana shoreline has been contaminated so far.
Gulf Oil Spill: Cleaning Wetlands May Be Impossible, Scientists Say
by Matthew Brown - Huffington Post
The gooey oil washing into the maze of marshes along the Gulf Coast could prove impossible to remove, leaving a toxic stew lethal to fish and wildlife, government officials and independent scientists said. Officials are considering some drastic and risky solutions: They could set the wetlands on fire or flood areas in hopes of floating out the oil. They warn an aggressive cleanup could ruin the marshes and do more harm than good. The only viable option for many impacted areas is to do nothing and let nature break down the spill.
More than 50 miles of Louisiana's delicate shoreline already have been soiled by the massive slick unleashed after the Deepwater Horizon rig burned and sank last month. Officials fear oil eventually could invade wetlands and beaches from Texas to Florida. Louisiana is expected to be hit hardest. On Saturday, a major pelican rookery was awash in oil off Louisiana's coast. Hundreds of birds nest on the island, and an Associated Press photographer saw some birds and their eggs stained with the ooze. Nests were perched in mangroves directly above patches of crude. Plaquemines Parish workers put booms around the island, but puddles of oil were inside the barrier. "Oil in the marshes is the worst-case scenario," said Coast Guard Adm. Thad Allen, the head of the federal effort to contain and clean up the spill.
Also Saturday, BP told federal regulators it plans to continue using a contentious chemical dispersant, despite orders from the Environmental Protection Agency to look for less toxic alternatives. BP said in a letter to the EPA that Corexit 9500 "remains the best option for subsea application."
Oil that has rolled into shoreline wetlands coats the stalks and leaves of plants such as roseau cane – the fabric that holds together an ecosystem that is essential to the region's fishing industry and a much-needed buffer against Gulf hurricanes. Soon, oil will smother those plants and choke off their supply of air and nutrients. In some eddies and protected inlets, the ochre-colored crude has pooled beneath the water's surface, forming clumps several inches deep. With the seafloor leak still gushing at least hundreds of thousands of gallons a day, the damage is only getting worse. Millions of gallons already have leaked so far.
Coast Guard officials said the spill's impact now stretches across a 150-mile swath, from Dauphin Island, Ala. to Grand Isle, La. Over time, experts say weather and natural microbes will break down most of the oil. However, the crude will surely poison plants and wildlife in the months – even years – it will take for the syrupy muck to dissipate. Back in 1989, crews fighting the Exxon Valdez tanker spill – which unleashed almost 11 million gallons of oil into Alaska's Prince William Sound – used pressure hoses and rakes to clean the shores. The Gulf Coast is just too fragile for that: those tactics could blast apart the peat-like soils that hold the marshes together.
Hundreds of miles of bayous and man-made canals crisscross the coast's exterior, offering numerous entry points for the crude. Access is difficult and time-intensive, even in the best of circumstances. "Just the compaction of humanity bringing equipment in, walking on them, will kill them," said David White, a wetlands ecologist from Loyola University in New Orleans. Marshes offer a vital line of defense against Gulf storms, blunting their fury before they hit populated areas.
Louisiana and the federal government have spent hundreds of millions of dollars rebuilding barriers that were wiped out by hurricanes, notably Katrina in 2005. They also act as nursery grounds for shrimp, crabs, oysters – the backbone of the region's fishing industry. Hundreds of thousands of migratory birds nest in the wetlands' inner reaches, a complex network of bayous, bays and man-made canals.
To keep oil from pushing deep into Louisiana's marshes, Gov. Bobby Jindal and officials from several coastal parishes want permission to erect a $350 million network of sand berms linking the state's barrier islands and headlands. That plan is awaiting approval from the U.S. Army Corps of Engineers. After surveying oil-stricken areas Saturday, Plaquemines Parish President Billy Nungesser said the berms were the marshes' last hope. "It's getting in between all the cane and it's working through from one bayou to the next," he said.
Smaller spills have been occurring in the marshes for decades. In the past, cleanup crews would sometimes slice out oiled vegetation and take it to a landfill, said Andy Nyman with Louisiana State University. But with the plants gone, water from the gulf would roll in and wash away the roots, turning wetlands to open water. Adm. Allen said that where conditions are right, crews could set fire to oil-coated plants. Nyman and other experts, though, warn it's tricky. If the marsh is too wet, the oil won't burn. Too dry, the roots burn and the marsh can be ruined.
BP PLC – which leased the sunken rig and is responsible for the cleanup – said Saturday that cleanup crews have started more direct cleanup methods along Pass a Loutre in Plaquemines Parish. Shallow water skimmers were attempting to remove the oil from the top of the marsh. Streams of water could later be used in a bid to wash oil from between cane stalks. In other cases, the company will rely on "bioremediation" – letting oil-eating microbes do the work. "Nature has a way of helping the situation," said BP spokesman John Curry.
But Nyman said the dispersants could slow the microbes from breaking down the oil. White, the Loyola scientist, predicted at least short-term ruin for some of the wetlands he's been studying for three decades. Under a worst-case scenario, he said the damage could exceed the 217 square miles of wetlands lost during the 2005 hurricane season. "When I say that my stomach turns," he said.
Oil spill now stretches 150 miles wide, 12 miles deep
by Greg Bluestein and Matthew Brown- AP
As officials approached to survey the damage the Gulf oil spill caused in coastal marshes, some brown pelicans couldn't fly away Sunday. All they could do was hobble. Several pelicans were coated in oil on Barataria Bay off Louisiana, their usually brown and white feathers now jet black. Pelican eggs were glazed with rust-colored gunk, and new hatchlings and nests were also coated with crude. It is unclear if the area can even be cleaned, or if the birds can be saved. It is also unknown how much of the Gulf Coast will end up looking the same way because of a well that has spewed untold millions of gallons of oil since an offshore rig exploded more than a month ago. "As we talk, a total of more than 65 miles of our shoreline now has been oiled," said Louisiana Gov. Bobby Jindal, who announced new efforts to keep the spill from spreading.
A mile-long tube operating for about a week has siphoned off more than half a million gallons in the past week, but it began sucking up oil at a slower rate over the weekend. Even at its best the effort did not capture all the oil leaking, and the next attempt to stanch the flow won't be put into action until at least Tuesday. With oil pushing at least 12 miles into Louisiana's marshes and two major pelican rookeries now coated in crude, Jindal said the state has begun work on chain of berms, reinforced with containment booms, that would skirt the state's coastline.
Jindal, who visited one of the affected nesting grounds Sunday, said the berms would close the door on oil still pouring from a mile-deep gusher about 50 miles out in the Gulf. The berms would be made with sandbags and sand hauled in; the U.S. Army Corps of Engineers also is considering a broader plan that would use dredging to build sand berms across more of the barrier islands.
At least 6 million gallons of crude have spewed into the Gulf, though some scientists have said they believe the spill already surpasses the 11 million-gallon 1989 Exxon Valdez oil spill off Alaska as the worst in U.S. history. Obama administration officials continued defending their response while criticizing that of BP PLC, which leased the rig and is responsible for the cleanup. U.S. Interior Secretary Ken Salazar said he is "not completely" confident that BP knows what it's doing. "If we find they're not doing what they're supposed to be doing, we'll push them out of the way appropriately," Salazar said. But federal officials have acknowledged that BP has expertise that they lack in stopping the deep-water leak.
In Barataria Bay, orange oil had made its way a good 6 inches onto the shore, coating grasses and the nests of brown pelicans in mangrove trees. Just six months ago, the birds had been removed from the federal endangered species list. The pelicans struggled to clean the crude from their bodies, splashing in the water and preening themselves. One stood at the edge of the island with its wings lifted slightly, its head drooping -- so encrusted in oil it couldn't fly. Wildlife officials tried to rescue oil-soaked pelicans Sunday, but they suspended their efforts after spooking the birds. They weren't sure whether they would try again. U.S. Fish and Wildlife spokeswoman Stacy Shelton said it is sometimes better to leave the animals alone than to disturb their colony.
Pelicans are especially vulnerable to oil. Not only could they eat tainted fish and feed it to their young, but they could die of hypothermia or drowning if they're soaked in oil. Globs of oil have soaked through containment booms set up in the area. Plaquemines Parish President Billy Nungesser said BP needed to send more booms. He said it would be up to federal wildlife authorities to decide whether to try to clean the oil that has already washed ashore. "The question is, will it do more damage because this island is covered with the mess?" Nungesser said.
Officials have considered some drastic solutions for cleaning the oil -- like burning or flooding the marshes -- but they may have to sit back and let nature take care of it. Plants and pelican eggs could wind up trampled to death by well-meaning humans. If the marshes are too dry, setting them ablaze could burn plants to the roots and obliterate the wetlands. Flooding might help by floating out the oil, but it also could wash away the natural barriers to flooding from hurricanes and other disasters -- much like hurricanes Katrina and Rita washed away marshlands in 2005. State and federal officials spent millions rebuilding the much-needed buffer against tropical storms.
The spill's impact now stretches across 150 miles, from Dauphin Island, Ala. to Grand Isle, La. On Sunday, oil reached an 1,150-acre oyster ground leased by Belle Chasse, La., fisherman Dave Cvitanovich. He said cleanup crews were stringing lines of absorbent boom along the surrounding marshes, but that still left large clumps of rust-colored oil floating over his oyster beds. Mature oysters might eventually filter out the crude and become fit for sale, but this year's crop of spate, or young oysters, will perish. "Those will die in the oil," Cvitanovich said. "It's inevitable."
Each day the spill grows, so does anger with the government and BP. U.S. Environmental Protection Agency chief Lisa P. Jackson was headed Sunday to Louisiana, where she planned to visit with frustrated residents. Secretary of the Interior Ken Salazar and Secretary of Homeland Security Janet Napolitano were to lead a Senate delegation to the region on Monday to fly over affected areas and keep an eye on the response. The leak may not be completely stopped until a relief well is dug, a project that could take months. Another effort that BP said will begin Tuesday at the earliest will shoot heavy mud, and then cement, into the blown well, but that method has never been attempted before in mile-deep water and engineers are not sure it will work.
The only thing that has kept leaking oil out of the Gulf so far is the mile-long tube siphoning oil from the well to a ship. BP spokesman John Curry told The Associated Press on Sunday that it siphoned some 57,120 gallons of oil within the past 24 hours, a sharp drop from the 92,400 gallons of oil a day that the device was sucking up on Friday. The amount BP has collected in the mile-long tube has varied since it was installed last week. The device was siphoning 42,000 gallons of oil a day early that week, but at times Thursday, the siphon was collecting oil at a rate of as much as 210,000 gallons a day.
BP refused to provide day-by-day figures on how much oil the tube was diverting. Curry said the rate is expected to vary widely, in part because it is not just oil but also natural gas that is leaking. On Sunday, for instance, the siphon collected more than 7 million cubic feet of gas. The head of the Senate's environmental committee, Democrat Barbara Boxer of California, has asked the Justice Department to determine whether BP made false and misleading claims about its ability to prevent a serious oil spill. White House Press Secretary Robert Gibbs also told CBS' "Face the Nation" on Sunday that Justice Department officials have been to the region gathering information about the spill. However, he wouldn't say whether the department has opened a criminal investigation.
President Barack Obama has named a special independent commission to review what happened. The spill began after the Deepwater Horizon oil rig exploded off the coast of Louisiana on April 20, killing 11 workers; the rig sank two days later. The 6 million-gallon figure for the spill is based on an initial BP estimate that about 210,000 gallons were spilling out each day. It became obvious the company had been underestimating the leak Thursday, when it started siphoning the oil at a 210,000-gallon-a-day rate while more crude spilled into the water.
"It’s BP’s Oil"
by Mac McClelland - Mother Jones
Elmer's Island, even after all the warnings, looks worse than I imagined. Pools of oil black and deep stretch down the beach; when cleanup workers drag their rakes along an already-cleaned patch of sand, more auburn crude oozes up. Beneath the surface lie slimy washed-up globules that, one worker says, are "so big you could park a car on them."It's Saturday, May 22nd, a month into the BP spill, and I've been trying to get to Elmer's Island for the past two days. I've been stymied at every turn by Jefferson Parish sheriff's deputies brought in to supplement the local police force of Grand Isle, a 300-year-old settlement here at the very southern tip of Louisiana.
Just seven miles long and so narrow in some spots that you can see from the Gulf side to the inland side, Grand Isle is all new clapboard and vinyl-sided bungalows since Katrina, but still scrappy—population 1,500, octuple that in tourist season. It's also home to the only route to Elmer's, a barrier island to the west. I arrived on Thursday with my old University of New Orleans lit prof, John Hazlett; a tandem kayak is strapped to his Toyota Tacoma. At the turn to Elmer's Island Road, a deputy flags us down. Can't go to Elmer's; he's just "doing what they told me to do." We continue on to Grand Isle beach, where toddlers splash in the surf. Only after I've stepped in a blob of crude do I realize that the sheen on the waves and the blackness covering a little blue heron from the neck down is oil.
The next day, cops drive up and down Grand Isle beach explicitly telling tourists it is still open, just stay out of the water. There are pools of oil on the beach; dolphins crest just offshore. A fifty-something couple, Southern Louisianians, tell me this kind of thing happened all the time when they were kids; they swam in rubber suits when it got bad, and it was no big deal. They just hope this doesn't mean we'll stop drilling.The blockade to Elmer's is now four cop cars strong. As we pull up, deputies start bawling us out; all media need to go to the Grand Isle community center, where a "BP Information Center" sign now hangs out front.
They take these bags to a plant and separate out the sand so they can process the oil.
Inside, a couple of Times-Picayune reporters circle BP representative Barbara Martin, who tells them that if they want passage to Elmer they have to get it from another BP flack, Irvin Lipp; Grand Isle beach is closed too, she adds. When we inform the Times-Pic reporters otherwise, she asks Dr. Hazlett if he's a reporter; he says, "No." She says, "Good." She doesn't ask me. We tell her that deputies were just yelling at us, and she seems truly upset. For one, she's married to a Jefferson Parish sheriff's deputy. For another, "We don't need more of a black eye than we already have.""But it wasn't BP that was yelling at us, it was the sheriff's office," we say.
"Yeah, I know, but we have…a very strong relationship."
"What do you mean? You have a lot of sway over the sheriff's office?"
"Oh yeah."
"How much?"
"A lot."
When I tell Barbara I am a reporter, she stalks off and says she's not talking to me, then comes back and hugs me and says she was just playing. I tell her I don't understand why I can't see Elmer's Island unless I'm escorted by BP. She tells me BP's in charge because "it's BP's oil."
"But it's not BP's land."
"But BP's liable if anything happens."
"So you're saying it's a safety precaution."
"Yeah! You don't want that oil gettin' into your pores."
"But there are tourists and residents walking around in it across the street."
"The mayor decides which beaches are closed." So I call the Grand Isle police requesting a press liason, only to get routed to voicemail for "Melanie" with BP. I call the police back and ask why they gave me a number for BP; they blame the fire chief.
I reach the fire chief. "Why did the police give me a number for BP?" I ask.
"That's the number they gave us."
"Who?"
"BP."
When I tell Chief Audrey Chaisson that I would like to get a comment on Barbara's intimations—and my experience so far—that BP is running the show, he says he'll meet me in a parking lot. He pulls in, rolls down the window of his maroon Monte Carlo, and tells me that I can't trust the government or big corporations. When everyone saw the oil coming in as clear as day several days before that, BP insisted it was red tide—bacteria. Chaisson says he's half-Indian and grew up here and just wants to protect the land.
When I tell him BP says the inland side of the island is still clean, he spits. "They're fucking liars. There's oil over there. It's already all up through the pass." The spill workers staying at my motel later tell me they've been specifically instructed by BP not to talk to any media, but they're pissed because BP tried to tell them that the crude they were swimming around in to move oil containment boom was red tide, dishwashing-liquid runoff, or mud.The next morning at breakfast, the word at Sarah's Restaurant is that the island will have to be shut down; the smell of oil was so strong last night one lady had to shut all her windows and turn on her AC; if her asthma keeps up like this, she'll need to go on her breathing machine tonight.
Another problem is that after surface cleanup, raking the sand brings up more oil.
I've corralled Irvin Lipp, who drives me and a few wire photographers out to Elmer's. (He's tells ruefully that me he has history with Mother Jones, having once been a flack for Dupont.) The shoreline is packed with men in hats and gumboots and bright blue shirts. Nearly all are African-American, all hired from around New Orleans. They tell me they've been standing in these exact same spots for three days. It's breathtakingly hot. They rake the oil and sand into big piles; other workers collect the piles into big plastic bags, and still other workers take them to a plant where the sand is separated out and sent to a hazardous-waste dump and the oil goes on for processing.
Then the tide comes in with more oil and everybody starts all over again. Ten dollars an hour. Twelve hours a day. When I joke with one worker that he should pocket the solid gobs of oil he's digging up to show me how far beneath the sand they go, he stops dead and asks me if BP's still trying to use the oil they all collect. "Aw, I knew it!" he says. Another leans on his rake to ask me, "Have they at least shut the oil off yet?" He randomly picks three spots in a three-foot-wide expanse of sand that he's already raked clean and drops his rake in an inch deeper to show me how the oil bubbles up from underneath. He can't count how many times he's raked this same spot in the 33 hours he's worked it since Thursday, but one thing he's sure of, he says, is that he'll be standing right here tomorrow and the next day, too.
87 comments:
Just watched the video of Ruppert giving an excellent hour-long talk in Vermont link here. Someone here recently said he watched it and found Ruppert a pessimist--I couldn't disagree more. He's a compassionate realist.
If he were a pessimist he would have mentally imploded a long time ago. It takes a lot of hope in human nature to keep going as he does, given his tactical analysis of social structures. He doesn't see much danger of the US becoming a fascist state because there are not enough troops for a country this size. Instead, he sees occassional Green Zones protecting essential infrastructure, such as ports, with the rest becoming anarchy and feudal. Was also interested to hear his assessment of how long to expect the internet lasting. He said he told the board of his CollapseNet to expect no more than two more years of operation--anymore than that is lucky.
Several times I heard him use phrases I've found myself using many times when speaking to groups, such as when someone laughed after he predicted the DOW soon being at 4,000, he stopped and said, "Don't scoff! They say I've been right 80% of the time.... I do this to stay sane!"
Each of us does what we must to stay sane and he does so by helping people adjust to new realities. Good stuff.
http://www.dailyjobcuts.com/
There is more than enough money to go around.
If U.I. runs out ... If welfare runs out ... If pension runs out ...
If you don’t have health care ...
Here is a testimony of a worker with a secure job.
”He can't count how many times he's raked this same spot in the 33 hours he's worked it since Thursday, but one thing he's sure of, he says, is that he'll be standing right here tomorrow and the next day, too.
Go to the gulf of mexico for a job. Don’t let the rich call you lazy.
Take their money with a smile.
jal
"We can gain a sobering perspective on the impossible disproportion between the bailout and our economic resources by looking at the US. The government there set aside $700 billion (€557 billion) to buy troubled bank assets, and the final cost to the American taxpayer is about $150 billion."
Not true. The vast bulk of the U.S. bailout is being done through the FED; the TARP money is only a small fraction.
The Canadian ‘good banks’ myth
Ric,
Well said! Agree that Ruppert is a "compassionate realist."
Gubbermint not going to take over in the Gulf. It would be a non-starter for a half dozen reasons. Well at least at this point. We all need to wrap our brains around nationalizing the banking system (which we're no where near) then maybe we can talk about doing with big oil.
"Dispersants" at 5000 feet... on top of toxic all they seem to do is gum it all up so it sorta floats by under the containment booms right on into the marshes.
...unfortunately, the dispersants since they introduced at 5,000 feet have thrown us a whammy. We're not able to fight the oil on the surfaces as we had planned, it's rolling in underneath, and it is in our wetlands, unfortunately.
Following yesterday's 'How to Make an HTML Link' mini-tutorial, I have a special item for the HTML-challenged like myself --the bookmarklet.
If you care, read about the bookmarklet here.
Bookmarklet - Wikipedia, the free encyclopedia
But basically, a bookmarklet is just a handy little program. I put them in my bookmark bar, which on Safari and Firefox and Chrome, is right under the address of the website you are looking at. You can just drag the bookmarklets into the bookmark bar and click away--just that easy. The bookmarklet I use everyday is to email the webpage I am reading to my friends. I click the bookmarklet, it opens up my mail program, pastes the web URL into the message and puts the title of the webpage into the subject line. I type my friend's name and press send.
So anyhow, if you want to paste an HTML URL into your TAE comments so people can click on it, here is a bookmarklet that writes the HTML for you.
Bookmarklets
Scroll about halfway down the page and drag the Link To This Page bookmarklet to your bookmark bar. In Safari, this will not automatically copy to my clipboard, so I must copy it.
Then, if other TAE readers are NOT using this handy tool (what an outrage) here is a bookmarklet to make all URLs into links.
25 essential browsing bookmarklets from TechRadar.com
Again, about halfway down, drag the Linkify to your bookmark bar.
And finally, the email bookmarklet, to better inundate your friends with TAE.
Absolutely Fabulous Browser Bookmarklet Things • Perishable Press
About a third of the way down, Email URL Bookmarklet Thing, drag, drop and enjoy.
Eric Sprott had a great interview on BNN where he mentioned this and I am paraphrasing here;
GDP vs Borrowing
We here all this talk of Chinese GDP shooting up 8-10% but at the same time the amount of money they have injected into the economy has been sensationally large.
Assuming Chinese GDP is $4 Trillion (I think it much smaller), a 10% growth rate would equate to $400 Bn in growth of 'assets', while they've injected about $2.6 Trillion into the economy. That's a return on investment of about 15% only. They should be getting a 115% return on it with their huge injection.
Same with the US, a $400 Bn growth in GDP, while having a $1.6 Trillion deficit is moot. That's a worthless return. No one would call you a rich fellow if you increased your assets by 1 unit and your debt load by 4 units. That's asking for trouble.
In that article about how Ireland's government is headed for starvation by trying to pay off the banks, writer Morgan Kelly was too polite to say it's like the Irish Potato Famine all over again.
While Irish people were starving in the early 1840s, the island was exporting grain and meat to England to repay debts. Now Ireland's going to be exporting euros instead of pigs (or PIIGS) but people are going to suffer almost the same. And it's not the cruel English government making them do it -- it's Ireland's own .gov (with impetus from Brussels, New York, The City, eh?)
OK, enough's enough. Quit the scary posts.
Seriously tho' the dyke is more fingers than bricks now and we must be near a big event/recognition/turning point that will take things into the mainstream... which brings me to Mike Ruppert, for me, he is spot on for long periods then all of a sudden he'll say something or go off on a tangent that makes him seem cranky ( to me at least) and kinda throws me a bit, still I'd rather have him inside the tent pissing out, and his Vermont talk was a great watch.
When i get back in a couple of days I'm going to try the link lark lest I get a visit in the night from the convenience police.
Z
And BTW, UK markets in big trub this morning, DJI looks like opening 200 down, Maybe Edinburgh will be on fire by the time I get back.
Z.
@ Ilargi and Stoneleigh
Question Re: Capital Controls
Martin Wolf at the Financial Times has started in interesting blog discussion regarding capital controls.
What types of capital controls are we likely to see in the future? I have been trying to remember the various capital controls that I&S have predicted. Please correct me if I'm wrong and add or subtract from the list below.
1) Banning gold ownership
2) Banning the conversion of domestic currency into foreign currency
3) Banning the movement of assets out of the country to foreign financial institutions
4) Forcing Sovereign debt owners to accept longer maturities rather than principal repayment.
5) Restrictions on bank withdrawals
6) Restrictions on Money Market Fund Redemptions
6) Greater restrictions on retirement fund liquidations
7) Reissuing the currency in a new form
In what sequence are the capital controls listed above are likely to occur? I would predict that restrictions on bank account, retirement account, and money market withdrawals would be the first steps.
Listed below is an excerpt from Martin Wolf's blog post. I must say, it's a sure sign of the desperate times in which we live that Martin Wolf and the Financial Times would even dare to entertain this type of discussion.
Martin Wolf:
"What do governments do when it becomes expensive to borrow? They promise to mend their ways, of course. But, by now, it is often too late: nobody believes them. So they tell the central bank to buy their bonds, which starts a run on the currency. Pegged exchange rates collapse and floating exchange rates fall. Inflation becomes an imminent threat. At this point, desperate governments look for ways to force institutions to hold their bonds, willy nilly. This is the point at which financial repression begins: banks are forced to hold government bonds, for “liquidity”; pension funds are forced to hold government bonds, for “safety”; interest rate ceilings are imposed on private lending; to prevent “usury”; and, if all else fails, exchange controls are imposed, to ensure nobody can easily escape from such regulations."
The BP situation is scary for several reasons.
Firstly, they have known all along that they will be unable to plug this mess, but they have cajoled a trusting public into thinking that they have their best boffins on the job. As Jon Stewart put it, I think they had their best people in the big room where they were looking for oil, not the little broom cupboard-sized 'stopping the oil' room.
Secondly, to see the extent to which they are blocking access by independent people to the site makes my blood boil (e.g. independent = anyone who has a clue about the environment who isn't on their payroll). They've told every ecologist and marine scientist I know 'ummm... if we got your specialists on-board, you'd know too much, and that'd be a litigious risk we can't take...' fo shizzle.
We'll all be on-board eventually (it was too late when the rig exploded, but never mind that), but what I'd like to know is why is it that the first people on the scene at the site of an ecological disaster (and the people in charge of that disaster) are lawyers?
Also, US Federal governmental compliance with an NGO... Seriously, WTF are the US State and Federal governments doing, blocking independent access by accredited people who understand the risks?? You've got fishermen out there inhaling carcinogens, desperate to save their livelihoods, yet those in the know are blocked from coming near to the 'site' (hard to block the eastern seaboard of the USA, but you can keep your facade in place for a while yet).
I've seen it all before. BP are all "you are a liability if you enter the area..." rather than the truth, which is "If people catch wind of this, we're screwed... media clampdown, only possible with governmental assistance". People on the frontline, living in the oil-soaked marshlands... get them the hell outta there. Tell the world about the risks associated with inhaling benzene, toluene, ethylbenzene and the xylenes (not to mention all those delicious polycyclic aromatic hydrocarbons). Come on, oil people, come clean!!!
What a joke. The oil industry is never going to come clean, and they are the worst people on the planet to have in charge of this mess because they will continue to put their own needs first.
The point. They are missing it. All of them.
:(
Ed -
You may want to add "restrictions to the size of cash transactions" to the list.
Zerohedge has a post about one part of Italy's new austerity package where the government is banning all cash transactions greater than 5000 euros "in an effort to crack down on tax evasion."
The comments are also worth perusing. One mentions capital controls in Europe in 2010, and there is this one:
This is exactly how Argentina started. Then they rioted and burned shit.
Only the first to panic managed to preserve any of their wealth.
Re.: BP TAR SANDS
The great depression had the gov doing "make work project"
NOw BP is going to be doing the "make work projects" for the gov.
The BP tar sands are where the jobs will be created.
Don't worry about "about the risks associated with inhaling benzene, toluene, ethylbenzene and the xylenes (not to mention all those delicious polycyclic aromatic hydrocarbons). ".
Unionize, get protected clothing supplied and if things go bad your health insurance will cover you and if disabled you will get a disability insurance.
If you die ... there will be more people ready to take your place.
Nothing new ... it has happened before.
jal
Moday was a historical moment.
The S&P500 broke its winning streak of 10 consecutive increases. It looks like today could be another day of lost.
jal
Ant Whisperer said...
Tell the world about the risks associated with inhaling benzene, toluene, ethylbenzene and the xylenes (not to mention all those delicious polycyclic aromatic hydrocarbons).
The point. They are missing it. All of them.
--------------------------------
Possibly in need of a dire consulation fix? Not to worry, me thinks the Ants will inherit the Earth.
http://tinyurl.com/27688qf
Some hopeful news for Ottawa. For those of you who aren't familiar with the city, it sports a rather distinctive feature: the Greenbelt, a rather large crescent of non-urbanized land, some of which is farmland, ringing the core of the city. (It used to ring the whole city, but about 10 years ago Ottawa amalgamated with suburbs outside of the Greenbelt, so technically it runs through the city now.) The Greenebelt is controlled by the National Capital Commission, a somewhat autocratic federal agency that runs a good chunk of land in and around the our national capital, exclusive from municipal control. It's a weird situation.
Anyway, according to these reports (one, two and three), the NCC *may* be taking a new direction with farming in the Greenbelt by fostering "sustainable", local farms/farmers to supply food to the city core's farmer's markets. Looks like Ottawa's significant hippie/yuppie bloc and, dare I say it, transition town-affiliated interests may be accomplishing something pretty significant here. Fingers crossed.
soundOfSilence said...
"Gubbermint not going to take over in the Gulf. It would be a non-starter for a half dozen reasons. Well at least at this point. We all need to wrap our brains around nationalizing the banking system (which we're no where near) then maybe we can talk about doing with big oil."
Absolutely true, in the "regular" world.
What I was suggesting would be a "cutting the Gordian Knot" event- an action entirely outside the expectations of everyone involved; an "unthinkable" action.
Which Big Al did, nonetheless. And; many historians suggest his cutting the knot demoralized his opponents, and encouraged his own soldiers to the point of altering the outcome of the situation.
Actions like Big Al's are incredibly rare in history. The probability is vanishingly small. But not zero.
And- this is an absolutely fabulous opportunity; the "spill" is increasingly viewed as a horrendous, and URGENT catastrophe- which requires urgent and extraordinary action.
Which might make the actions just a little more thinkable. And the potential REactions more visible and predictable.
The entire world would rejoice, if the US Marines just suddenly appeared and occupied all BP facilities; and announced, "BP is hereby DRAFTED into the US Military. You are under military law. 100% of your resources are now under our control, and available for our use. ALL employees of BP are, of course, drafted; since they form integral parts of BP."
:-)
Ok, remember - "Vanishingly small- but no zero."
Hey look; the entire Financial Industry lives eats and breathes fantasy. Maybe we should learn from them.
ric2 said...
Ed -
You may want to add "restrictions to the size of cash transactions" to the list.
I saw Ed G's post and I've been waiting for something relevant to the whole cash transaction limit to come up to throw that question out. Scrolling down I see you beat me to it.
Wasn't a cash transaction limit at least proposed a couple months back by one of the other EU countries (Greece for the same purpose –insure tax collection???)
Anything in the primers I’ve missed?
Watching the Gulf of Mexico Die.
This is very disturbing. Oh man!
Can someone help me understand and interpret the following?
Does "restrictions to the size of cash transactions" mean, for example, that if I want to buy a piece of land with cash for $40,000 I cannot do so? Why would governments do this? Wouldn't it contribute and intensify the collapsing of the economy? Would cash transaction restrictions be enacted in the USA during deflation or "toward the end" when hyperinflation hits? Or anytime???!!!
And- regarding the possibility of Cutting The Gordian Crap - BP has presented us with THE imminent excuse to draft them- their refusal to follow a lawful directive. The EPA directed - did not ask - them to cease using their current version of Corexit; and use something less toxic. They have, simply refused.
Um. What?
The legalities of it all are moot, as we know. With that one act, however, BP has given their opponents an arguing point that will keep the lawsuits in court, undecided, for the next 2 or 3 centuries. More reason to simply act.
It really seems clear to me, at this point, that the US Coast Guard in the Gulf has been a wholly owned subsidiary of the oil industry for quite some time.
Virtually all of Admiral Thad Allen's press statements read exactly like those of the Catholic Church- at the time of the Spanish Inquisition.
"Well, gee, it's not optimal, but you can't just throw them out!"
No one, of course, considers removing BP staff and machines. Just their overseers.
God Bless Wikipedia!!
"On September 9, 2005, Allen was given full command of the Bush administration's Hurricane Katrina onsite relief efforts. Secretary of Homeland Security Michael Chertoff elevated Allen following the removal of Federal Emergency Management Agency Director Michael D. Brown from that position"
!!!!!!!!WTF!!!!!!!!!!!!?????????????
The idiot MSM hasn't picked up on the fact (took me 5 seconds) that Adm Allen was THE guy in charge of Bush's Katrina Katastrophe???????
Spread it around, folks. Reason for removal. Today.
@Ahimsa
You can’t with cash or a “cash instrument(s)” exceeding [what ever] limit.
Cash is a pile of dollar bills. An example of a cash instrument would be a money order. To correct my 1st sentence at this point... yes you can (with “cash”) but it’s a “reportable event” as far as the government is concerned IRS 8300 (due to money laundering and related concerns).
Cash is well... cash. Money orders for example are considered “cash” because it’s untraceable (you could go to 5 different banks and get 5 mo’s for $8,000 and each "transaction" is under the 10K limit)... but it does become reportable at the hypothetical closing. A check (cheque) is not cash because where the money is coming from is traceable ...all your bank records (part of the reason you as to why you “better have a good explanation for any ‘out of the ordinary deposits’” in the 4 to 6 months leading up to real estate purchases).
The gov't won't draft BP. they will give the contract to Blackwater or whatever the name of the dark force is these days.
@Greenpa
The entire world would rejoice, if the US Marines just suddenly appeared and occupied all BP facilities; and announced, "BP is hereby DRAFTED into the US Military.
Ouch... I don't know if the world sole "super-power" doing that would lead to any rejoicing. :-) I could point to certain events in history that lead to "no one saw that out-comes a few short years later."
...their refusal to follow a lawful directive. The EPA directed - did not ask - them to cease using their current version of Corexit; and use something less toxic. They have, simply refused.
You're going to open a can 'o worms depending on where you go on that. Posse Comitatus - my guess is BP has "person-hood" and we're getting close to the military carring out law enforcement.
Anyway gotta run...
Frank A,
Yes, very disturbing. Sooo heartbreaking. I'm starting to feel trapped in SWFL.
@FrankA...In that video it was said that the dispersants are not harmful, approved by EPA? A contrary opinion to what I've been reading elsewhere?
The more unseemly parts of BP's corporate culture are evidently heavy on dominant sociopathy and suicidal nihilism, more than most, even.
I shall once more advocate the use of a nuclear detonation to seal the infernal rupture, while also acknowledging the possible drawbacks.
It seems extreme only if the lower bound estimates of expelled volumes, 5,000, were correct.
At 50,000 or more it seems to enjoy a favorable risk analysis when considering the amount of catastrophe yet to be averted, and this may still be the only way to stop it without having to wait for the relief well, another month or two.
Russia has apparently sealed several land-based oil ruptures by nuclear blasts in the past, though deepwater detonation is obviously more problematic.
If there had been adequate contingency plans to begin with, which should have included a full exploration of the available nuclear options, the rupture could have been successfully sealed the same week it started.
Depending on the specific consistency of the local seabed and substrata, a low-yield nuclear detonation might not be feasible, as there could be a unreasonably high chance that such an attempt would catastrophically backfire, and would not only fail to seal the rupture but would open up additional fissures along the wellhead and perhaps compact the reservoir, thus further increasing pressure and volume expelled.
The detonation would cause a hydrodynamic shockwave and possibly a minor seismic event, which would damage the remaining infrastructure on the ocean floor, this should not cause any significant tidal waves but would at this point unfavorably interact with the massive submersed plume and complicate containment, if any.
It may not be possible to produce the desired effect without irreparably damaging the commercial exploitability of the reservoir itself, if there's any left, which would put this option at the bottom of any profit-based contingency list.
Moreover, it may not be possible to keep such a detonation secret, thus creating an unfavorable precedent for legitimately utilising tactical nuclear weapons by any nations with offshore deepwater drilling to quickly seal high-pressure ruptures of this magnitute.
The ecological damage from radioactivity would actually be negligible compared to that of the oil itself, equivalent to a few days worth of discharge at worst, since it would ideally involve only a small device producing appropriately half-lived isotopes that would minimally disperse into the oceanic foodchain.
I'm still hearing people say there might be no choice but to allow the entire reservoir to empty into the ocean, if the rupture were truly unsealable and even the relief well made no difference. Surely a timely nuclear blast to fuse it shut, even if risky, would be preferable to this, or indeed to any of the pathetically inadequate attempts at mitigation conjured up thus far, except maybe that top-hat sarcophagus thing, which sounded okay in theory.
This whole situation will have severe consequences for the palatability and feasiblilty of deepwater oil exploitation in general, diminishing the profit margins on such projects by realligning the price of associated risk and greatly decreasing the aggregate oil production to be expected from these sources, thus increasing the steepness of post-peak production decline, which doesn't help.
Ah, clarity...
From Wiki
In a hierarchy, members are promoted so long as they work competently. Sooner or later they are promoted to a position at which they are no longer competent (their "level of incompetence"), and there they remain, being unable to earn further promotions. This principle can be modeled and has theoretical validity.[1] Peter's Corollary states that "in time, every post tends to be occupied by an employee who is incompetent to carry out his duties" and adds that "work is accomplished by those employees who have not yet reached their level of incompetence".
Peter is in charge of the Gulf, Wall Street, White House, Congress.....
The Peter Principle splains everything.
If only BP was spending half as much effort plugging the oil leaks as they are plugging the media leaks.
Who exactly decided that dispersing the oil was a good idea? They haven't made it any safer, less toxic, or less prone to creating anoxic areas in the Gulf. All dispersing does is spread out the damage to a wider, deeper area, as well as adding more toxic synthetics (like butoxyethanol) to the mess.
If you want to clean up the oil, first stop spilling it. Then, pick it up. Don't pretend that you're making it "go away" simply because you've made it invisible but more readily taken up by the biota.
I wonder how much crude a banker, lobbyist, or BP exec would absorb if they were tied together into a boom?
I am - as usual - truly appalled at the silence, or completely incompetent communications, of academics in the case of the oil spill.
There is a basic problem with plugging it that so far as I know has gone completely unmentioned. There is no doubt in my mind that the BP engineers know all about it. And so do their bosses, who are keeping it quiet.
It's called fluid dynamics. Here's the big problem- plugging a pipe sounds easy. But-
This pipe is 21" in diameter. And it has ~13,000 feet of oil in it.
The oil is moving. Fairly fast. And it is likely moving faster all the time, as the well pipe gets hotter and hotter (the oil that deep is probably quite hot, ergo less viscous).
Moving fluids have inertia, and momentum. In this case; it's huge.
What they're trying to do, pretty literally, is stop an elephant moving at 10 miles an hour, by sticking a finger in its trunk.
That could all be explained with real calculations by all the engineering professors on the planet.
But instead, they're all sitting at their computers, watching the news.
Sound of Silence. sure. "You're going to open a can 'o worms depending on where you go on that. Posse Comitatus - my guess is BP has "person-hood" and we're getting close to the military carring out law enforcement."
moot, moot, moot, moot.
I got news for all you herders in training out here.
The fait accompli is how the big boys do it.
The herd goes and looks at the law, and dithers; as we're trained to do. The herders DO it first. And let YOU figure it out, later (ie, never).
No emergency should ever be wasted. To coin a phrase.
@ Greenpa
Look at the longer time line ...
All the easy oil has been extracted.
US needs jobs.
Cleaning up will last many years of work for thousands of people.
What cannot be cleaned up will be available to future generations. They will need the gulf coast tar sands.
Since this event could be the "straw that breaks the camels back", (not enough money to go around), then other degradations of the environment would be avoided, thereby, making a better place for future generations.
Remember, if you mix one spoonful of honey with one spoonful of shit you get 2 spoonful of shit which you can use as fertilizer.
jal
EPA Defends Use Of Controversial Chemical Corexit
http://tinyurl.com/38babfe
@Scandia
Indeed, that comment near the end of the video by the reporter (Jeff Kauffman) would seem to contradict what we have been hearing and reading recently. It's enough for me to believe my lying eyes though. The look on Sam's face (and the avoidance of contact by the degreaser scrubber guy) sure made it look harmful enough. I don't need corroboration from a government agency.
Ed Gorey,
1) Banning gold ownership
2) Banning the conversion of domestic currency into foreign currency
3) Banning the movement of assets out of the country to foreign financial institutions
4) Forcing Sovereign debt owners to accept longer maturities rather than principal repayment.
5) Restrictions on bank withdrawals
6) Restrictions on Money Market Fund Redemptions
6) Greater restrictions on retirement fund liquidations
7) Reissuing the currency in a new form
In what sequence are the capital controls listed above are likely to occur? I would predict that restrictions on bank account, retirement account, and money market withdrawals would be the first steps.
Your list of capital controls is very much what I would expect to see, along with restrictions on the size of cash transactions as others have mentioned. I agree with your assessment of which ones would come first, with the addition of restrictions on cash transfers out of the country.
Things like converting short term bonds into long term (in the US) and potentially reissuing the currency would likely take much longer. In other countries, especially parts of Europe those risks could be higher or more immediate. The single currency is essentially a currency peg with stronger than usual commitment to that concept. If the speculators decide to challenge that commitment though, the speculators would ultimately win.
In Europe the primary loyalty is national rather than supranational, whereas in the US one is primarily American rather than having primary loyalty to a particular state (with perhaps certain exceptions). That makes a big difference to whether a currency will stand or will fragment. In Europe I can see the Eurozone being much reduced in size over the next couple of years, so the risk of a currency change in the European periphery is significant IMO. That makes life difficult when considering holding cash. One could consider holding USD for a while, but not for too long in case an eventual reissuing of American currency could deprive foreigners of USD purchasing power.
Asia and the EU should consider getting a PPT and GS ROBO- computers.. When you can go from 400 down and be close to even by the end of the day, you've got it made. John
Re: Currency Restrictions
Interesting sign 'o the times for me yesterday. I am drawing down my 401K in $7500 increments. About a month ago, I took the check to my bank, deposited $1500 and took the rest out in cash. Yesterday, same bank, same check, same transaction. They made me deposit the entire check from my broker and then write a check back to the bank for a "withdrawal".
I am glad I am almost done with this process. I just wish there was something bigger than $100 bills...
SoundofSilence,
Thank you for your thorough response and linking to IRS 8300.
Nimrod- "I am glad I am almost done with this process. I just wish there was something bigger than $100 bills..."
I understand- and I don't know your entire stash plan; but most of ours is in 20's.
100s are the most commonly counterfeited.
That doesn't mean I suspect you have fake 100's; what it means is when you NEED the money, really need it; the person who has you over the barrel will use that as an excuse to jack up his price.
And our metallic portion is silver not gold- because nobody who has 10 gallons of gas, when you desperately need it- is going to admit to having change for a 100, or a krugerrand. "gosh, sorry, take it or leave it."
To me, the inconvenience of the bulk is greatly offset by the security aspects. And since you can't carry much- nobody can steal much, either.
Just reading on Breibart that the Obama administration supports the Vatican in a pedophile case. The Pope has decided to hide behind a secular skirt called sovereign immunity. Some diplomatic perk I'd say!
Does this mean that the Vatican has carte blanche now to screw the kids?
Maybe its the Pope who doesn't like overweight children?
Really folks, if the Church and now the government won't protect the children what now?
"BP Gulf catastrophe typifies corporate behavior in America"
http://www.naturalnews.com/028863_British_Petroleum_Gulf_of_Mexico.html
Excerpt:
BP, of course, can simply ignore the order to ease off its use of chemical dispersants, just like it ignored rules and regulations about drilling for oil in the ocean in the first place. And that's the problem here: When corporations are allowed to run the show, they will inevitably take shortcuts that compromise the health of their customers or the environment.
The same thing is true with Big Pharma, which basically runs the FDA, FTC and CDC. What BP is doing to the Gulf of Mexico, Big Pharma is doing to the health of the world population. And yet because it is so incredibly profitable to poison people with dangerous prescription medications, the pharmaceutical industry has the financial influence to dominate the actions of government regulators...
The sad truth is that this disaster in the Gulf of Mexico isn't an aberration. It's just business as usual in the corporatocracy known as the United States of America, Inc. The corporations run this country, and they do whatever they want, regardless of how many people are killed, how many laws are broken or how many miles of coastline are utterly destroyed by chemical contamination. They operate with utter disregard for anything resembling ethics or honesty.
Corporate greed knows no limits. If corporate executives could profit another billion dollars by destroying the entire Gulf of Mexico, do you have any doubt they would pursue that course of action? Your life has no value to them. Marine life has no value to them. The health of the world's oceans have no value to them. They only value one thing: The bottom line profit they can produce at any cost.
British Petroleum = Big Pharma = Big Food = Big Agriculture = the Military Industrial Complex.
For those who are still wondering why the total crash is taking so long...
http://www.nytimes.com/2010/05/27/fashion/27skinWEB.html
oh, yeah; Polka Dot Gallows material there.
Stoneleigh said "One could consider holding USD for a while, but not for too long in case an eventual reissuing of American currency "
Assuming some people still have extra dollars in cash at home, what happens to those dollars if the gov reissues a different currency? Unless there is a receipt that showed the money originally came from a bank, why would the gov believe that, thinking the money could have been 'laundered'.
Define Orwellian.
New York Times, May 22nd
Title: "Strategies - Shortsighted Investors Pay in the Long Run"
"IF you’ve got money in the stock market, take a deep breath: It’s one of those moments........For long-term diversified investors......it probably makes sense to ride out the storm, and, maybe, add to your holdings"
-------------------
Washington Post, May 25
Title: "Don't fear market turmoil -- invest safely and save"
"The best-sounding investment your 401(k) may offer -- the target-date fund that gets more conservative as you get older -- deserves special scrutiny. If it's a Vanguard target fund, it's okay."
----------------------
The Wall Street Journal, May 26
Title: "Common Sense: More Than Ever, Keep the Focus Long-Term"
"The correction that made such a brief appearance two weeks ago has returned, this time apparently to stay. For me, that means opportunity."
In other news the Trans Alaska Pipeline is shut down following a spill. Yeah that one owned in part by BP.
Atticle over on ZH.
"My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!"
Lynnewood Hall, the Peter Widener Estate, was once the grandest gilded age mansion in countryside surrounding Philadelphia.
Lynnewood Hall 1939
Today, Lynnewood Hall is vacant shell with tall grass and saplings growing in the front yard.
Lynnewood Hall 2007
In 10 or 20 years, I wonder what will become of the grand mansions that dot the landscape surrounding places like Greenwich, Connecticut. Will they decline or will their grandeur magnify?
I wonder what the late Leona - only the little people pay taxes - Helmsley's Mansion will look like.
Dunnellen Hall
If you ask me, that's one tacky $55 million estate. The same goes for home of Hedge Fund king Steven Cohen.
Money can't buy class
What will become of these places? It's hard to say, but I think about this topic a lot since it distills the issue of what kind of society we'll be living in. I'll note that the first picture of Lynnewood Hall was taken in 1939. From that picture it's clear that not everyone in the USA was feeling the pinch of the Great Depression.
@scandia
Can't find that story on .. do you mean Breitbart? Hated wading through that cesspool of a site. I'd go elsewhere for news if I were you.
Banks are being forced to take back their bad loans.
http://tinyurl.com/2asjcp8
The government-sponsored enterprises (GSEs) Fannie Mae (FNM: 0.9147 -2.28%) and Freddie Mac (FRE: 1.15 -3.36%) forced lenders to repurchase $3.1bn of mortgages out of their securities and off their books in Q110, up 64% from nearly $1.9bn one year earlier.
"We conduct reviews of delinquent loans and, when we discover loans that do not meet our underwriting and eligibility requirements, we make demands for lenders to repurchase these loans or compensate us for losses sustained on the loans, as well as requests for repurchase or compensation for loans for which the mortgage insurer rescinds coverage," Fannie said in the regulatory filing.
"Enforcing repurchase obligations with lender customers who have the financial capacity to perform those obligations could also negatively impact our relationships with such customers and ability to retain market share," Freddie said.
At fellow mortgage finance giant Ginnie Mae, lenders bought back $15.5bn of loans in Q110, up from $4.9bn in the year-ago quarter.
That means that the gov. is making the banks eat their crap to the tune of $3.1bn + $15.5bn = $18.4bn in Q110. At that rate we are looking at $73.6bn for the year. Those are not peanuts.
jal
Stoneleigh:
You have mentioned that some European countries will be completely impoverished. You indicated that this will be Spain's fate. Do you think that this will be Italy's fate as well? Do you see Spain and Italy reverting back to the Peseta and Lira respectively? Which country of the two will be "better" off? Italy has higher debt levels, and a more complex (read: material driven lifestyle) but they also have a more stable producer economy with high agricultural output and a more developed industrial base.
It was nice,for awhile,to ignore the world and work on the sailboat.[New tires before transport]This craft is a gem in the rough.In the 1960s ,they weren't quite sure just how strong fiber-glass was,so they overbuilt the hell out of the first production runs...which means I have a small boat built like a tank.No stress cracks.Double hull,w/stingers,Shoal draft.Pretty good sails.1 bent spreader which I will work on this week."Plan B",will be a snug ,comfortable movable nest should I need to "go refugee",as well as a good way for me to forget the insanity thats going on.
I think we are all forgetting the fact[or I should say my best guess]that the reason for this administration appearing "blindsided"and stupefyingly dense is the pressure that BP is exerting on all levels of government now...finding out the front guy is the same sick nutbag that ran Katrina is why I always read your posts Greenpa.
[Wish I could Invite you and a few more of the TAEs for a long weekend w/bonfires,guitars,dancing and general merriment before thing start to slide on down the hill.]
Also,there may be quite a bit more happening over in Asia that the press is reporting,or that those not there on the ground are aware off.I think we are having the last summer of "quiet"for a long,long,time.enjoy it.The news is being manipulated so much now I expect to see some black swan type things come "out of the blue" soon.My brother has to go to Thailand to get his wifes kid[wants to raise the kid here]and will have to make a trip there soon.I am not happy about that one bit.Christ I hope it cools down a bit.
I was annoyed at myself for missing the opportunity to plant my garden seed 2 weeks ago.Now that everyone who has/did will see their seed rot in the ground from 2 weeks of cold rain here in the northwest,not so much...
I have 3.5 months before I have to go on the road again,so busy busy busy.Just wish this rain would fade away like it is supposed to this time of year...
Bee good,or
Bee careful
snuffy
So for those of us who have to diversify savings in Euros because we live in the questionable periphery - I´m thinking an account in a Danish, Norwegian or Swedish bank is the best option? My other choices are GB, Morocco, Switzerland, Turkey?
I guess it´s too soon to reconsider Iceland.
ALERT:
Stoneleigh urgently needs a projector and screen for her talk tomorrow, May 27, in Rockville, Maryland.
Anyone?
Please write to StoneleighTravels@gmail.com or leave a message here.
.
I ask for tolerance as I am going to ask a " dumb question". I feel after a 2 year tutelage under Ilargi/Stoneleigh and this board I should be able to answer it myself. Alas I cannot.
My question is about the bank tax levy being proposed by central gov'ts. Would it not be simpler to close that window where banks go to borrow cheap money? Without that cheap money the " soaring " bank profits would not exist to be taxed. The proles would not be suffering austerity. Why do central gov'ts prefer to tax AFTER the horse has left the barn so to speak?
Cripes, the US is not what it once aspired to be, that's for sure. This is just pathetic:
Republicans argued Tuesday that it would put the nation's finances at risk if Congress gave aiing Sept. 11 responders a permanent, guaranteed program to ensure they get health care.
Calling the Sept. 11 Health and Compensation Act a new "entitlement program" like Medicare, GOP members of the House Energy and Commerce Committee argued the nation already has too much that it must pay for. They said obligating the feds for lifetime care of tens of thousands of 9/11 responders was too much of a burden.
Cramer is now looking, pushing, approves, supports more financial regulations.
http://maddmoney.net/jim-cramers-special-interview-video-senator-ted-kaufman/
Jim Cramer’s Special Interview Video: Senator Ted Kaufman
Posted on May 25, 2010
Jim Cramer interviews Ted Kaufman, mans up, admits he was wrong on HFT, and explains why he changed his tune.
jal
Was just invited to the lake, Lake Huron to be precise...be back in a couple of days...No online access! Yikes!
Yves Smith has a pretty impressive and impassioned rant about Obama and BP over at her site. I question some of her cavalier references to nuclear detonation and bringing in other oil companies to do independent work on stopping the leak (the latter of which is shown to be a canard in the comments) but for the most part she is right on spot.
is simply stunning. First, the BP chairman essentially puts his company on an equal footing as the United States, implying their relation is not merely reciprocal, but equal... And his posture “this is just one problem like others, no biggie” is an offense to common sense and decency.
Many readers have pointed to signs that BP’s order of battle in combatting the leak is seeking to maximize recovery rather than minimize damage, again a sign of backwards priorities. The widely cited gold standard for crisis management, Johnson & Johnson’s 1982 Tylenol tamperings, had the company immediately doing whatever it took, no matter how uneconomical it seemed, to protect the public. BP instead has been engaging in old school conduct: keep a wrap on information as long as possible, minimize outside input, and (presumably) contain costs.
What is worse is the complete lack of any apology or sign of remorse... The inability to perceive the need to fake remorse shows how wildly out of touch many corporate leaders are with reality.
... And BP’s outsized institutional ego is making mincemeat of Obama. It is clear that the Administration has NO Plan B if BP continues to get nowhere. And it has tolerated less than comprehensive disaster responses.
Gosh, where have we recently encountered the government having no Plan B with regard to a systemic corporate-borne crisis threatening the country and/or world?
Rumor said...
Cripes, the US is not what it once aspired to be, that's for sure.
Naw, history is rhyming again. Check out the role of the great Generals Douglas MacArthur, Dwight D. Eisenhower, and George S. Patton. And on the side of the angels once again, General Smedley Butler, the Fighting Quaker and greatest hero of the American military.
http://en.wikipedia.org/wiki/Bonus_Army
Fair enough, El G, although the US was supposed to be a different place post-WWII. Rich, proud and compassionate enough to take of its own, etc. And they still are rich enough, of course. I wasn't so surprised that this would be done - the US has really been letting down its veterans for a long time now - but that it would be done so openly. They are really letting the veneer slip now. Another ominous sign, perhaps.
I enjoyed reading about the Bonus March again, particularly Eleanor Roosevelt's tea time chat. I had almost forgotten about it. Thanks for that!
"Could Millions Die From Gulf Oil Spill?"
http://www.youtube.com/watch?v=JTiDVbXMCBg
Yes, according to a marine toxicologist interviewed above. The dispersant being used by BP is extremely toxic.
To the predatory corporations, sentient beings and the Earth are just commodities to be exploited.
@Rumor
May 26, 2010 9:56 AM
Calling the Sept. 11 Health and Compensation Act a new "entitlement program" like Medicare, GOP members of the House Energy and Commerce Committee argued the nation already has too much that it must pay for.They said obligating the feds for lifetime care of tens of thousands of 9/11 responders was too much of a burden.
You can bet your sweet bippy that if their beloved chimp were pResident they would somehow find the money.
"Rumor said...
Yves Smith has a pretty impressive and impassioned rant about Obama and BP over at her site.
In other words, Yves has nothing to say that I haven't already said multiple times. So what's the use of a lengthy quote here?
Ilargi,
In other words, Yves has nothing to say that I haven't already said multiple times. So what's the use of a lengthy quote here?
I like it and wanted to share. Obviously. If you could leave the link I posted, sans quoted portion, I would appreciate it.
With respect, you having said something doesn't mean it isn't worth listening to anyone else.
If you think it's simply a egregious use of space, that is up to you, but given the format of the Rattle itself, that argument would ring a bit hollow.
Report on Stoneleigh’s Presentation in Wilmington, NC
35 people—many of whom were mostly oblivious to peak oil and the idea of deflationary collapse—showed up to hear a dense, jam-packed presentation from Stoneleigh. Some people seemed restless, perhaps even skeptical, but the majority were deeply engaged with both the presentation and the following Q and A. Everyone seemed impressed with Stoneleigh’s depth of knowledge and understanding. No question went unanswered! Several regular TAE readers drove very long distances to attend, but most people were local.
Rebecca and I had the privilege of hosting Stoneleigh at our home, and we all enjoyed one another’s company and conversation immensely. Stoneleigh even got a chance to experience a wind-whipped walk on Wrightsville Beach, NC, as the beach was pounded by a northeaster hovering offshore.
For me, an important part of the experience was, at last, being in the presence of a kindred spirit. Jim, a TAE reader who drove up from Spartanburg, SC, seemed to feel the same. It is often a lonely path in preparing for a greatly contracted future; with Stoneleigh, Jim, and others physically sharing the same space to talk about these matters, loneliness evaporated. Virtual communities are great, but physical presence and eye contact, in the context of authentic, personal conversation permit genuine community to arise.
If Stoneleigh speaks near you there are therefore two things (at least) to be gained: 1) the direct transmission of her knowledge and understanding, and 2) the chance to personally connect with others of a like mind.
I think we need one of the more statistically inclined here to come up with a new Index.
Not sure what a good acronym would be (always crucial) but the function would be a Rate of Shit Hitting The Fan.
You could have different indices for US, EU, Global, etc.
My own strong impression is that the rate and mass of shit hitting fans has accelerated considerably since Jan. 1, 2010.
But we really need a way to quantify it. :-)
SFX could work, but it's taken.
Just seems to me that there is a lot more shit, in a lot more fans, all over the world, than not so long ago.
The Huffington Post should take this one on, yes? Anybody got an in there?
Snuffy,
I warned people here back in February, (early March?) that the PNW would be in for a wet spring. Thought it would be warmer though. I know of at least one farmer in Wa. Cnty who has had a hard time getting his fields planted this year. If my beds were not raised my garden would be drowning as well, small as it is.
Rumor, As far as I can tell, other than the actual act of preparing for and making war, and corporate welfare, the Republicans have no interest in anything or anyone else. In that theme, thanks for the Grayson Video TAE powers that be.
Greenpa,
Your proposed index already exists here :)
Drab Matter - Oh, My Lord! now that's scary!
:-) you only have to click on a few of their links to see they are not being funny.
Not exactly my index - :-) - but not a bad model for a way to start assembling the uh - Excrement Increment.
As The Empires Crumble Dept.
http://money.cnn.com/2010/05/26/news/companies/road_striping/index.htm
Shortage of road paint= contractors not paid ...
And here we go: "If this thing is not fixed today, the president doesn't have any choice and he better go in and completely take over, perhaps with the military in charge," Nelson said Wednesday in an interview with CNN.
http://www.cnn.com/2010/POLITICS/05/26/lawmakers.oil.spill/index.html
You realize, of course; whether the military do take over or not is not the only factor here. Simply raising the possibility will have rippling ramifications throughout all herds.
There are no good choices in the Gulf of Mexico, just some choices that may be less bad than others. Obama gets to be the patsy for BP here because he chose to be the patsy for BP.
If the oil rupture is not plugged today, it will likely become the largest "fast" ecological disaster in human history. (Some disasters have occurred over centuries and were worse and larger but harder for humans to really digest because of the time scales involved.)
Regarding links, if you use Firefox there is an addon called CoLT. CoLT will provide a new entry in the right click menu that allows you to save a link on a page or even a link to the page you currently are in as HTML, BBCode, and various other formats. It makes cutting and pasting links extremely easy.
ok, one more, then I'm shutting up for the moment.
http://www.cnn.com/2010/OPINION/05/25/honore.oil.spill/index.html
So far, I like this general a lot-
"The No. 1 rule when dealing with disaster is to figure out which rules you need to break. Rules are designed for when everything is working. A democracy is based on trust. BP has proved it can't be trusted."
ok, I lied. hey, it's the fashion.
From that same general-
" remember when we were evacuating New Orleans on Saturday following Katrina. We pushed the survivors to the airport and a major called and said the pilots refused to fly the plane without a manifest and there was trouble with weapons scanners.
I told him to direct everyone to put the people on the planes as fast as possible, and we would to do the manifest en route or on landing. As a result, we flew 16,000 people out of NOLA airport in less than seven hours."
If BP remains in charge, BP foots the bill for cleanup. But if the GOV steps in, then the taxpayers foots the bill for cleanup?
Punxsutawney said...
"Rumor, As far as I can tell, other than the actual act of preparing for and making war, and corporate welfare, the Republicans have no interest in anything or anyone else."
I am technically a life long Republican though actually more of a malthusian independent and economic conservative with libertarian leanings. Have been a contributer to Republicans for Choice. For literate Republicans not interested in making war I recommend The American Conservative http://www.anconmag.com. It was established in recent years at an antidote to the war mongers at The Weekly Standard.
Ahimsa,
I know that you will be interested in this news report from the Bahamas. Are there any warnings being posted in your area?
The worst natural disaster to hit the Gulf Coast is likely to reach local coastlines by the weekend, according to Chief Climatological Officer Michael Stubbs, who said a shift in wind patterns is expected to propel the oil slick towards The Bahamas.
Next stop, eastern seaboard and beyond. What a nightmare!
On Republics is today's contribution by Joe Costello. It is a short, but thoughtful, lamentation on America's current state of affairs vis a vis the parallel to the decline of the Roman Empire. Worthwhile reading, imo.
From today's report on the Paisley/Burberry Road to the Apocalypse we have overpaid, crybaby, millionaire NFL athletes whining about playing in cold weather:
Whiners
All I can say is that I've played multiple pickup football games in 10-15F weather and 15 mph breezes in shorts and I'm no worse for wear.
Personally, I take this as another sign how soft and luxury-addicted Usakistan society is becoming.
New post up.
Economics and the Nature of Political Crisis
.
Greenpa said...
"For those who are still wondering why the total crash is taking so long..."
Greenpa, your Polka Dot Gallows contributions are great! I also find them terrifying! Keep them coming...
Post a Comment