Tuesday, May 4, 2010

May 4 2010: Budgets full of pain

Lewis Wickes Hine Sea Urchin October 1909
"Truant hanging around boats in the harbor during school hours, Boston, Massachusetts"

Ilargi: Well, say what you will, but Angela Merkel gets what she wants. The Euro has dropped below $1.30 US, and that may prove to be a significant psychological barrier. But don’t blindly stare at stats like that. There is no end to Greece horror stories out there that see the EU, the Eurozone and Europe itself imploding (let's drill a relief well, or dump a 74-ton bunker on top of it, that should work).

What the Greek drama brings home is our very own personal reality. Or where do you think California's 30% drop in state revenues will lead? Do you really believe with numbers like that the state will be spared what’s coming to Hellas? The mayor of Fresno puts on the bravest face she could find in her Halloween closet to declare that the city of Fresno will be well positioned to come out of this economic storm.

Only, to get there, she's "responded with a budget that's filled with pain": she’ll fire hundreds of city workers, and outsource those services to the private sector (where, she claims, the just-fired workers could find jobs. Yay!!). One in 12 city workers will be laid off. Oh, yeah, and she declared a fiscal emergency in between firings. And so she'll use emergency funds to keep afloat both the city and her political career. Until those are gone too.

I don’t have the numbers handy right now, and I don’t really need to, do I, to show that the already gravely battered Austrian Terminator, who now appears to run on ultra-low battery power, did not base his budget for the present fiscal year on a 30% plunge in revenue. And that budget, we all remember well, already cut whatever could be cut and then some. Califoohhrniah, get ready for another cut, by about a third. And this one will hurt for real, trust me.

Nor is California an exception in the US. Try New York, New Jersey, Ohio, Michigan as budgets for the new fiscal year are due. And then eventually, everybody else, with no exception. Even Texas and North Dakota, the sole states that have so far done kind of well, will find out that being surrounded by impoverished neighbors is not a recipe for prosperity.

What awaits us all? First, take a look at the terms Greece has accepted (well, on paper), to get its €110 billion EU and IMF loans.
  • Cut budget deficit by 11% of GDP by 2013, through spending cuts valued at 7% of GDP and revenue increases valued at 4% of GDP.
  • Reduce budget deficit to 'well below' 3% of GDP by 2014.
  • Reduce debt-to-GDP ratio from 2013, with primary budget surpluses of at least 5% of GDP up to 2020.
  • Cut public-sector pay and pensions.
  • Raise average retirement age.
  • Increase value-added taxes and excise duties.
  • Deregulate the labor market and industries.
  • Privatize some state industries.
  • Cut public investment.
  • Crack down on tax evasion.

Obviously, the privatizing and outsourcing is straight out of 1950's IMF manuals, the ones that seduced such fine characters as Pinochet and Yeltsin. Bad for the people of Greece, real bad, and sure to lead to increased street battles and toppled governments, either tomorrow or 5-10 years from now.

But the main point in that list in the last one. "Crack down on tax evasion". As I wrote a while ago, John Mauldin had this great stat that I will probably never forget (barring Alzheimer). Only 6 people in the whole country of over 10 million filed a tax return in 2009 that said they made over €1 million. There’s 6 on very single inhabited island, if you ask me, and they have more islands then they know what to do with. There was this great story recently where only a very small number of an affluent neighborhood's Athens citizens had declared a swimming pool near their homes, and the government (?!) had chartered a plane to fly over the area that found tons of pools.

Ironically, this sort of thing may point to the idea that Greece isn't doing so bad after all. The country has a long standing history (shaped by occupations) of not paying taxes. If the Greeks can be made to pay their taxes, or even just for instance a third of what they legally owe, the entire Greek issue might be solved. I’ve seen numbers as large as $30 billion missed in revenues because of the "proud" evasion culture. But it may take a while: I’ve also read tales of people wanting to pay taxes, but unable to get through the bureaucracy and actually deliver their money.

Not that different from the US, though: 47% of Americans pay no federal income taxes, and when it comes to corporate taxes, dont’ get me started: the US may even put Greece to shame on that one.

Still, so, yes, that’s your foreland, wherever you live in the western world. And it could, and very probably will, get much worse.

Britain has a major election on Thursday, and for some reason (turn chaos into profit?) the bonds and sterling futures markets have decided to open at 1.00am local time. If the election results are too confusing for pundits to explain, expect a deep, low and loud sucking sound just off Blackfriars Bridge.

If you dare look a little deeper into your own future, though, try Latvia. It laid off one in 3 of its government workers (remember, it was "only" one in 12 in Fresno), and whoever was lucky enough to keep their jobs saw their pay cut by 25%. Private sector wages are down 30%, and unemployment stands at 23%. I would venture that the Latvians understand by now that there's no guarantee whatever that this is as bad as it will get. And neither should any of us who happen not to be proud citizens or Riga.

Today’s stock and forex exchange markets may be an aberration, or an anomaly, or anything you wish to call them. Still, the overall tendency stands, and while you wouldn’t be able to recognize it from watching Wall Street, a good albeit brief look at Sacramento, Fresno, Athens, London and Riga, Latvia should tell you all you need to know. It’s getting ever harder for incumbent power to keep pressure levels high enough to fool enough people into thinking the boat's not sinking. The credit crunch is a global phenomenon, always was.

I used the term "Beggar thy currency" a while ago, talking about Angela Merkel trying to bring down the Euro vs the USD. And as I said, she gets what she wants: a better exports position. But Chris Whalen today comes with one that fits government (and IMF) policy around the globe even much better: "Beggar thy citizen".

And to quote the Fresno mayor once again: what we will increasingly see are "budgets filled with pain". Please don’t be caught blindsided.

UK faces run on pound within hours of election as futures exchange opens early
by Phillip Inman

Britain could be battered by speculators on the international money markets within hours of the election result as the futures market in bonds and sterling has agreed to open for the first time at 1am on Friday. The City is concerned that a hung parliament could mean Britain is unable to take rapid action to cut its budget deficit and force a similar battle with bond dealers that the one that forced Greece to resort to €110bn (£95bn) a bailout package put together by the eurozone countries and the International Monetary Fund. 

Usually bond dealers would have to wait until the markets opened on the morning after an election to begin trading but the futures market in gilts – UK government bonds – is opening only three hours after the polls close and seven hours earlier than usual. The futures markets play a key role in determining how much interest the government pays on its debts and traders will be able to buy and sell futures contracts as constituency results are announced and the balance of power shifts between the three main parties.

Euronext Liffe, which runs the gilts futures exchange, said it was the first time technology had allowed the market to open early. A spokesman for Liffe said traders would also be allowed to bet on a collapse in sterling, which the shadow chancellor, George Osborne, has warned is likely if the outcome of the election is a hung parliament. Hundreds of millions of pounds could be won or lost during Friday morning as bond traders and foreign exchange dealers attempt to second guess the election. 

Bond fund managers have called for steep cuts in welfare spending by highly indebted European countries to avoid a repeat of the Greek crisis. Spain, Portugal and Ireland have already been targeted by speculators. Some economists have included Britain and Italy in the European "circle of doom" countries that ring the more financially secure nations of France and Germany. World stock markets remain jittery, with almost $1tn (£650bn) of worldwide equity value erased last week on concern that debt will spur defaults.

Last week the National Institute of Economic and Social Research (NIESR) said Britain was unlikely to come under the same pressure as Greece, Spain and Portugal because it was able to devalue its currency and trade its way out of recession. Britain remains the world's sixth-largest exporter in the world. Sterling has fallen from $2 before the crisis to $1.70 early this year to $1.50 last week, giving exporters a boost as prices of their goods fall. CMC Markets currency specialist Michael Hewson said ratings agencies were looking for anything that added to the risks of a country failing to pay down its debts – and their pens could be poised over the UK if political paralysis strikes. 

"Ratings agencies said they would review the UK's credit rating after the general election," he said. "They will want to see some clear intent from whoever is in power to rein in the deficit." Capital Economics' Jonathan Loynes said sterling would come under pressure from a hung parliament but the damage may not be as bad as widely feared. "Despite the main political parties' reluctance to engage in a proper debate about the fiscal crisis ahead of the election, there appears to be an implicit recognition of the scale of the problem," he said. NIESR and the respected Institute for Fiscal Studies thinktank both warned that the parties had to find extra cuts in spending or raise taxes to close the deficit. 

NIESR said an incoming government would need to find the equivalent of 6p in the £1 on income tax or £30bn to meet deficit reduction targets. It said: "We remain concerned that the chancellor's projections are based on overly optimistic forecasts for GDP growth and tax buoyancy." While Britain's debts are expected to peak at about 80% of national income, the country will need extra borrowing to fund state spending for several more years. The £163bn borrowed last year will be matched by about £152bn this year before falling to £82.5bn in extra borrowing in 2014-15. The debts will all add to the country's outstanding mortgage, which NIESR said would take a generation to pay off.

Nouriel Roubini, the New York University professor who forecast the US recession more than a year before it began, said he was gloomy about the prospects for the world economy, and government debt from the US to Japan and Greece would remain a problem for several years and lead to higher inflation or government defaults. "The bond vigilantes are walking out on Greece, Spain, Portugal, the UK and Iceland," said Roubini, a former adviser to the US. "The thing I worry about is the build-up of sovereign debt. Greece is just the tip of the iceberg, or the canary in the coal mine, for a much broader range of fiscal problems."

US federal tax collections bear bad news for states
by Lisa Lambert

The low amount of income taxes the U.S. government collected in April, the most important month for tax filing, shows that states will have a devastating drop in their collections this year, the Rockefeller Institute of Government said on Tuesday. "With the data now in hand, it's all over but the crying," said Institute Senior Fellow Donald Boyd in a statement. "There weren't any major changes in federal tax law that would have caused this revenue drop," he added. "And it is a pretty good indication that states, too, will have large year-over-year declines in April tax payment."

Federal tax collections that were not withheld from wage earners through April 30 were down 17.6 percent from a year earlier, according to the institute. States get a large share of revenue they use to pay for schools, roads, healthcare and other crucial services through income taxes. According to the National Conference of State Legislatures, last year six states received more than half of their annual revenue from personal income taxes, with more than two-thirds of Oregon's revenue generated by income tax. Many states set up their tax codes to mimic the U.S. tax regulations, and their collections move in sync with the federal government's. Because the deadline for paying income taxes is April 15, states collect the most taxes that month.

"At a minimum, the federal data tell us that states are not likely to get bailed out by good news in April, and that some will find that they face new shortfalls," Boyd said. Heading into tax day, fiscal year-to-date personal income tax collections were lagging the same period in fiscal 2009 in several states. Another drop in revenue could stress already tenuous budget situations in many states, he said. The fiscal years for almost all states ends on June 30 and they have been trying to draft budgets as the recession that began in 2007 continues to bite into their revenue. On the national level, there are many signs pointing to the end of the recession this year, and certain states are entering economic recovery. Still, states heal slowly from downturns because income tax revenues decline when residents suffer prolonged joblessness while the demand for social services such as healthcare spikes when people lose work.

30% plunge in California state revenue dashes hopes of an easy budget fix
by Shane Goldmacher

Legislators were hoping revenue would continue to exceed projections, forestalling deeper cuts and further tax hikes. But April's total was 30% below what was expected, leaving them with few options.

State tax collections plummeted unexpectedly in April, wiping out months of steady gains that legislators hoped would ease their budget troubles and restore California's economy faster than experts predicted. Such hope is now fading fast.

Revenue for April, the biggest revenue month because it is when most Californians pay their taxes, lagged projections by nearly 30% — roughly $3 billion, according to state officials. The drop was steep enough to erase improvements recorded in each of the four previous months. Economists and finance officials are scurrying to analyze the data to determine what caused the April swoon. Some suspect it sprang from new laws that changed the rhythm of tax payments. It could also reflect the growth in unemployed residents eligible for refunds.

The April collections came almost entirely from personal income taxes. Most corporate and sales taxes have not yet been reported. If they, too, come in below projections, the state's budget problem would grow worse. The decline sets Sacramento back as next month's deadline for passing a budget approaches. Lawmakers face a deficit of $18.6 billion — about 20% of general fund spending — with no easy options left for addressing it, as they have already cut state services severely and temporarily raised income, sales and vehicle taxes.

"One pillar of the budget solution just got destroyed, and there's nothing that can happen between now and June that can get back the $3 billion," said Stephen Levy, director of the Center for Continuing Study of the California Economy.

The retraction could mean even deeper cuts in government services — schools, healthcare for the poor and services for the elderly. Lawmakers may also be forced to consider more reductions in funds for public universities, as well as tax hikes. "It's hard to imagine how we're going to [balance the budget] without doing more severe damage to the economy," said state Sen. Denise Moreno Ducheny (D-San Diego), who chairs the Senate's budget committee.

For months, the Democrats who dominate the Legislature have hoped they would be able to balance the state's books with the help of an upswing in revenue, delaying any substantial budget cuts. "Folks were starting to be pretty optimistic that we were going to be able to bounce our way back from a big chunk of the problem," said Michael Cohen, a deputy in the state's nonpartisan Legislative Analyst's Office. Taxes came in above expectations each month from December through March.

"April basically wiped out those" gains, Cohen said. He said the state's economy, though on the mend, has been sending "all sorts of mixed messages." Corporations announced higher profits, but the state's stubborn unemployment rate reached a new high in March, 12.6%. Without jobs, Californians are paying fewer taxes and buying fewer goods, which depresses sales taxes.

To balance last year's budget, lawmakers tinkered heavily with the state tax code, speeding up the collection of taxes on businesses and individuals. One theory about the April revenue plunge is that those accelerated collections meant some taxes rolled into the Treasury months earlier. "The more changes that you make, the more unpredictable it is," said Assembly Budget Committee Chairman Bob Blumenfield (D-Woodland Hills).

Another possibility, economists said, is that many Californians were owed larger-than-expected income tax refunds after losing their jobs in 2009. Whether the revenue drop augurs an especially sluggish recovery is unclear. Fred Silva, a budget analyst with the good-government group California Forward, said the woeful April returns may reflect taxpayer income from the previous year's recession — not an up-to-date snapshot of the economy.

Ted Gibson, a former state economist, said this was not the first time rising revenue has been followed by a plunge. The flow of state tax revenue, he said, is notoriously hard to predict. He said the jolt earlier in the year merely "gave everybody an excuse to take a timeout on dealing with the budget. Now they are pretty much back to where they were. And unfortunately, very little has been done in the meantime."

Senate budget committee Vice Chairman Bob Dutton (R-Rancho Cucamonga), who has been critical of Democrats' approach, said, "It's creating a lot of pain the longer you wait to make the necessary changes." The Legislature's top two Democrats, Senate President Pro Tem Darrell Steinberg (D-Sacramento) and Assembly Speaker John A. Pérez (D-Los Angeles), spent Monday in Washington, pleading for aid from congressional and Obama administration officials. Steinberg said before leaving that their goal was to gather federal commitments for $3 billion to $4 billion.

Gov. Arnold Schwarzenegger is scheduled to update his proposed budget on May 14. The new fiscal year begins July 1.

Fresno, CA, Declares Fiscal Emergency
by Edward Harrison

Tax revenue at state and local governments has plummeted. With house prices in California down substantially, it is even more dire for municipalities there. The result will be widespread budget cuts and, where possible, income tax hikes. Budget cuts alone won’t get you there.

Below is one specific example in Fresno, California. They are taking money from their reserve fund to make ends meet. That is not sustainable. They are an example of the fiscal emergency coming to a local municipality near you.

I guarantee you this will have a negative impact on the economy and on house prices and foreclosures, a major reason I still give a double dip even odds.

Members of Congress Bet Against Stocks in Year of Financial Crisis
by Jason Zweig, Tom McGinty and Brody Mullins

Some members of Congress made risky bets with their own money that U.S. stocks or bonds would fall during the financial crisis, a Wall Street Journal analysis of congressional disclosures shows. Senators have criticized Goldman Sachs Group Inc. for profiting from the housing collapse. And Congress is considering legislation to curb Wall Street risk-taking, including the use of financial instruments known as derivatives and of leverage, or methods that amplify returns.

According to The Journal's analysis of congressional disclosures, investment accounts of 13 members of Congress or their spouses show bearish bets made in 2008 via exchange-traded funds—portfolios that trade like stocks and mirror an index. These funds were leveraged; they used derivatives and other techniques to magnify the daily moves of the index they track. There's no evidence the legislators and their spouses used privileged information or failed to follow rules on disclosure. Congressional rules permit lawmakers and their families to invest in—or bet against—publicly held companies they oversee through committee assignments, as well as broader markets or indices. While some made money, others lost.

Some of these legislators have publicly criticized practices such as short-selling, or betting on a security to decline. In February, Sen. Johnny Isakson (R., Ga.) argued on the Senate floor that "we don't need those speculating in the marketplace to take unfair advantage of the values of equities that are owned by Americans all over this country for the sake of making a buck on a short sale."

On Oct. 8 and 9, 2008—as the Federal Reserve was bailing out American International Group Inc.—an account Sen. Isakson held invested more than $30,000 in ProShares UltraShort 7-10 Year Treasury and UltraShort 20+ Year Treasury, the records show. These are "leveraged short" funds, designed to gain $2 for each $1 drop in the daily value of U.S. Treasury bonds.
Sen. Isakson said his account is professionally managed by Morgan Stanley Smith Barney and he has no control over it. "They make those decisions and I report what they do," Mr. Isakson said. "I put money away in my career so I can hopefully retire one day." Sen. Isakson said, "Short selling has a role to play in the market." He said he supports legislation to limit it but wouldn't prohibit it.

Such trading involving members of Congress or spouses "doesn't look real great when the economy is tanking and people are blaming the government," said former Rep. Joel Hefley (R., Colo.), once head of the House Ethics Committee. Still, he said, "You can't have people not using their best judgment on their investment portfolio." According to The Journal's analysis of the disclosures, collected by the Center for Responsive Politics, few members of Congress made more than a dozen securities trades in 2008. Typical trades were for a few hundred or a few thousand dollars.

While some lawmakers trade for their own accounts, others delegate trading to a spouse, stockbroker or financial adviser. A few legislators keep their money in blind trusts and don't know how it's invested. Jonathan Gillibrand, husband of New York Democratic Sen. Kirsten Gillibrand, made more than 250 transactions in options in his E*Trade account in 2008, when his wife was in the House, according to disclosures.

Almost all the trades were in put options, which convey the right to sell a stock or other instrument at a given price until a given date. At least 34 times, Mr. Gillibrand bought puts on stocks of home builders, including Beazer Homes USA Inc., Hovnanian Enterprises Inc., Meritage Homes Corp. and Ryland Group Inc. These were bets the builder stocks would fall; if they did, the puts' value would rise.

Mr. Gillibrand also bought call options on ProShares UltraShort Real Estate. Although call options are bullish bets, this trade, too, was a bet against the property market, because the ProShares fund is designed to rise $2 for each $1 fall in real-estate stocks. His profit or loss couldn't be determined. Sen. Gillibrand, in an April 22 news release on White House financial-regulatory proposals, praised the effort to "rein in excessive risk and leverage in the pursuit of short-term profits."

"The senator was referring to activity by some institutions that were leveraging in excess of 20 to one, using taxpayer money on extremely risky short-term bets rather than long-term strategies that benefit the broader economy," said spokesman Matt Canter. Any comparison of those remarks with her husband's trading "is wrong," he said, adding that the senator "was not involved in his trading." Her office declined to make Mr. Gillibrand available for comment.

As previously reported by The Journal, in 2008 Rep. Spencer Bachus (R., Ala.) made roughly four dozen trades in shares of ProShares UltraShort QQQ and its options, according to disclosure records. This fund is designed to go up twice as much as the Nasdaq 100 stock index goes down. Rep. Bachus makes his own trades through a Fidelity account. He is the ranking Republican on the House Financial Services Committee, which has legislative oversight over the capital markets.

"I don't trade on margin"—money borrowed from a broker to raise potential returns—Rep. Bachus said in an email, "and don't consider my investments leveraged to any risky extent." He added: "Never have I traded on nonpublic information, nor do I trade in financial stocks." Rep. Bachus made roughly $28,000 on his trades in options and leveraged ETFs in 2008, according to a Journal analysis, a figure he called "essentially correct." On July 14, 2008, Rep. Bachus said in a letter to Financial Services Committee Chairman Barney Frank that it was "quite apparent" the challenges facing mortgage companies Fannie Mae and Freddie Mac were caused partly by "short-seller activities." A spokesman for Rep. Bachus didn't respond to requests for comment on the letter.

Rep. Shelley Berkley (D., Nev.), a member of the House Ways and Means Committee, has been a critic of Wall Street. In a statement on the House floor Feb. 23, she said: "Representing Las Vegas, let me assure you, no casino on the planet behaves as irresponsibly and recklessly as Wall Street does. Wall Street ought to be ashamed, and take a lesson from the casino industry." An account held by her husband, Lawrence Lehrner, shows 57 trades in 2008 in ETFs designed to gain $2 for each $1 drop in the value of a market index, the disclosures show. Between July 25 and July 29, 2008—four months after Bear Stearns Cos. fell—records show four trades in and out of ProShares UltraShort Financial fund.

On Sept. 16, 2008, the day after Lehman Brothers filed for bankruptcy, the account added ProShares UltraShort S&P 500, a fund that thrives when blue-chip stocks tumble. It was sold over the next two days at a 5% profit, according to disclosures. The account earned a modest net profit of a little over $700 on the trades in leveraged funds in 2008, based on The Journal's analysis of trading records.

"All trades were done by a licensed money manager without any input from my husband or me," Rep. Berkley said. "This is exactly the way many people handle whatever monies they may have in the stock market. I know in our case, he operated wholly within the existing regulations." Her office declined to make her husband's money manager available for comment

Rahm Emanuel Working With Fed To Beat Back Audit
by Ryan Grim

The White House, Federal Reserve and Wall Street lobbyists are kicking up their opposition to an amendment to audit the Fed as a Senate vote approaches, Sen. Bernie Sanders (I-Vt.), the lead sponsor of the measure, said on Monday. Banking Committee Chairman Chris Dodd (D-Conn.), who is shepherding the bill through the Senate, told Sanders Monday afternoon that "there's a shot we'll be up tomorrow," Sanders told HuffPost.

In the spring of 2009, Sanders brought a similar amendment to the Senate floor and won 59 votes. Eight senators who voted against it then are now cosponsors of his current measure. "I think momentum is with us. But I've gotta tell you, that on this amendment, you're taking on all of Wall Street, you're taking on the Fed, obviously, and unfortunately you seem to be taking on the White House, as well. And that's a tough group to beat," said Sanders. He's been trading calls, he said, with Rahm Emanuel, the White House chief of staff.

Earlier on Monday, HuffPost reported that former Fed Chairman Alan Greenspan wanted dissent kept secret so that people outside the Fed wouldn't involve themselves in their debates.
"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting. "I'm a little concerned about other people getting into the debate when they know far less than we do."

Sanders said that Greenspan's comments are all the more reason for an audit. "I think it just adds a lot of weight to what we are trying to do," Sanders said. "It just points to the fact that if there was more transparency then it in fact would have allowed the debate to take place about the subprime mortgage [sic] unfolding crisis at that point. It may have prevented the horrendous recession that we're in now and the near collapse of the financial institutions." Democratic leadership has yet to decide if an amendment will need 51 or 60 votes for passage, but Sanders said he thought the decision would be made to go with 60.

Pelosi: Bush Administration Barred Officials From Briefing Congress On Impending Financial Crisis in Fall 2008
by Brian Beutler

Nearly two years after the Wall Street meltdown drove the U.S. economy to the brink of collapse, and forced the U.S. government to prop up major financial institutions with hundreds of billions of dollars, House Speaker Nancy Pelosi now claims that the Bush Administration prohibited its own top officials who were handling the emerging crisis from briefing Congress until a complete financial collapse was only hours away.

In little-noticed statements to reporters over the last few weeks, Pelosi has alleged that the Bush administration knew well in advance of its intervention that the financial crisis would hit, and that Congress would need to authorize a historic and unpopular bailout - but that top officials, including then-Treasury Secretary Henry Paulson, told her that they had been barred from briefing Congress about true extent of the crisis.

If accurate, the allegation could constitute a major indictment of the Bush administration, which may have worsened the crisis and resulting economic fallout by delaying the call for congressional action. Pelosi says the admissions from Bush administration officials that they had kept Congress in the dark came in private conversations between her and those officials in person and by phone. None of the other parties to those conversations would comment for this story. Nor is it clear if the Administration's alleged decision not to brief Congress earlier was a calculated strategy to avoid spooking the already shaky financial markets thus hastening the crisis or, as Pelosi suggests, a political calculation in advance of the 2008 presidential elections, or a combination of the two.

During her weekly press conference on April 15, a reporter asked Pelosi a seemingly innocuous question about taxes. Pelosi prefaced her response with a fairly standard litany: explaining the dire state of the U.S. economy inherited by President Obama and setting the blame at the foot of the Bush administration. But she also added this: "When [then-Senator Obama] accepted the nomination in Colorado, the [Bush] Administration had kept from the public the idea that, in a matter of weeks, the financial community would be in crisis, and we would need to pass the TARP legislation."

Much has been written about the days, weeks, and months leading up to the financial crisis, which culminated with Lehman Brothers declaring bankruptcy on September 14, 2008. We know, for instance, that Treasury officials in the Bush administration had conceived of a contingency plan along the lines of the TARP bailout months before they actually called for one: a "break the glass" Bank Recapitalization Plan. And it was no secret to anybody paying attention that the financial system had suffered major shocks throughout 2008. But Pelosi appeared to be saying that Paulson and others knew that the glass would have to be broken weeks before they begged her and other congressional leaders to step in.

To clarify, I followed up with her after that press conference.

Pelosi affirmed my interpretation of what she'd said.

She recounted to me the events of September 18, 2008 - some two weeks, she reminded me, after Barack Obama accepted the Democratic Presidential nomination in Denver. Lehman Brothers had just filed for bankruptcy four days earlier and the Federal Reserve had authorized the New York Fed to lend up to $85 billion to insurance giant AIG. That afternoon, she called Paulson to ask for a full briefing the next morning.

"They said, 'That will be too late. That will be too late. Tomorrow morning, 9 o'clock will be too late,'" Pelosi recalled.

In a meeting that evening with Congressional leaders and staff, Paulson, Fed Chairman Ben Bernanke, and others offered a dire assessment, and made an appeal for intervention that ultimately resulted in TARP. Bernanke and Paulson beseeched the legislators to act quickly, warning that, the entire U.S. economy might collapse in days without rapid intervention. But Pelosi had a question. "I asked them, and said, 'Why am I calling you - why didn't you call me?," Pelosi said.

In our initial conversation, that's where Pelosi stopped: "You go ask them what their response was to that question."

I reached out to Paulson multiple times over the last two weeks, but received no response*. Phil Swagel, who served as assistant secretary for economic policy at the Treasury department during the crisis, didn't have an answer to the question Pelosi says she asked. But he insisted that the department made the call on TARP based on the shocks that hit Wall Street that week of the Lehman Brothers bankruptcy and no earlier. "From my perspective, the TARP proposal was put forward as a result of the events of the week of September 14, notably the stresses in money markets (money market mutual funds and commercial paper)," Swagel told me via email.

Unable to reach Paulson, I circled back to Pelosi last week. This time she agreed to elaborate: "Here's what they said. They said, 'We were not allowed to tell Congress, but since you called, we're going to answer your questions.'"

Pelosi offered no hints as to why the Bush administration would prohibit its top lieutenants from speaking up about the need for federal intervention. Among their concerns might have been sowing panic that would have added further strains to financial markets already close to the breaking point. But Pelosi's comments suggest, though she declines to go farther, that election year politics played into the equation.

In his book, On The Brink, Paulson recounts the events of September 18th and the days leading up to TARP. Paulson notes that, hours prior to the meeting, Pelosi sought to include fiscal stimulus in any recapitalization plan, and that during the meeting, House Financial Services Committee Chairman Barney Frank pushed to include pay restrictions for participating executives, but that he resisted both ideas.

Paulson acknowledges that Pelosi did indeed place the phone call that resulted in the briefing that evening.
"On my way to the White House, Nancy Pelosi called to ask about the market. She had wanted me to come up the following morn with Ben [Bernanke] to brief the Democratic leadership. I related just how bad things were and told her we would have to go to the Hill that night to ask for emergency powers. She asked why it couldn't wait until the morning, and I replied it might be too late by then.

He does not, however, explain why the administration didn't approach Congress unprompted.

A spokesman for former President George W. Bush had no comment on this story.

I asked Senate Banking Committee Chairman Chris Dodd last week about Pelosi's charges and he said this is the first time he's heard such an allegation raised. But he seemed mostly unsurprised. "I said to Hank Paulson, 'Be Hank Paulson.'" Dodd told me. "If you listen to the White House, you're going to mess this up."

Two days after the September 18 meeting, the Treasury Department presented what came to be known as TARP to Congress. The original, three-page draft, would have ceded the Bush administration extraordinary authority to purchase assets from the private sector, barring oversight or judicial review. Congressional principals agreed to push ahead with a bailout, but refused to grant the executive branch all of the powers they were seeking. On September 29, House Republicans blocked the Emergency Economic Stabilization Act of 2008, pushing markets over a cliff and sending shudders through the White House and Wall Street. Days before, Paulson famously dropped to one knee and begged Pelosi to round up enough Democrats to pass the bill. But the Republicans ultimately delivered the votes they promised and TARP passed on round two, and was signed into law on October 3.

* Late update: Paulson spokeswoman Michele Davis emails to say "no one at Treasury ever felt in any way constrained by the White House from communicating with the Congress."

Cost of Goldman debt insurance soars
by Nicole Bullock, Francesco Guerrera and Justin Baer

The cost of insuring Goldman Sachs’ debt against default has risen to about the level of Morgan Stanley and Citigroup, two less profitable rivals,as Goldman’s regulatory woes take a toll on investors’ confidence and its standing on Wall Street. The risk ascribed to the bank by the derivatives markets has risen sharply following US regulators’ filing of civil fraud charges against Goldman last month. The cost of insuring $10m of Goldman’s debt using a five-year credit default swap (CDS) is $162,000 a year, according to Markit, an 80 per cent rise from the level before the charges were announced.

Goldman’s CDSs now trade at the same level as those of Morgan Stanley, which emerged from the financial crisis in worse shape, and just below CDSs on Citi, which had to be bailed out by the US government. On April 15, the day before the Securities and Exchange Commission’s complaint against Goldman, it cost about $30,000 less annually to insure the debt of Goldman than Citi’s or Morgan Stanley’s. The CDSs of Goldman and Morgan Stanley have not traded at the same level since October 2007, Markit data show. At the height of the credit crisis in autumn 2008, the cost of default protection on all banks soared to levels far exceeding yesterday’s levels. As the capital markets calmed and Goldman prospered, the cost of insuring against its default was typically lower than Citi and Morgan Stanley. Goldman, which denies the SEC’s charges, declined to comment yesterday.

Separately, Goldman yesterday revealed it had been hit by several lawsuits from disgruntled shareholders since the SEC’s charges. In a regulatory filing, Goldman said the bank, its executives and directors faced seven legal actions related to the bank’s mortgage-related trading activities. The lawsuits allege "breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment", the filing said. Goldman’s disclosure of the lawsuits contrasts with its decision not to reveal to shareholders the SEC’s formal warning in July that it intended to press civil charges. Some of the investors’ legal actions claim the directors breached their fiduciary duty to shareholders by failing to police Goldman’s mortgage-trading desk and not revealing the SEC’s probe.

Goldman Faces Suits Over CDOs
by Chad Bray

Goldman Sachs Group Inc. said it faces several lawsuits by shareholders alleging wrongdoing related to collateralized-debt obligations handled by the embattled securities firm.
The lawsuits were filed since April 22 in federal and state courts in New York, the company said in a securities filing. Goldman, its board of directors and "certain officers and employees" are accused in the suits of "breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment," according to the company.

Goldman also said the plaintiffs in a separate shareholder lawsuit in Delaware Chancery Court related to the firm's compensation amended their complaint with allegations "similar to those" in the new lawsuits. Goldman made no comment on the lawsuits in its securities filing but has denied any wrongdoing. Goldman was accused of fraud by the Securities and Exchange Commission in a lawsuit filed April 16. The SEC claims Goldman duped investors in a CDO called Abacus 2007-AC1 by failing to disclose that it was created with the help of hedge-fund firm Paulson & Co., which made a profit of about $1 billion when the investment collapsed in value.

Goldman included copies of six lawsuits in its filing, as well as a "demand letter" from the Louisiana Municipal Police Employees Retirement System that the company's board launch an internal probe of "officers and directors responsible for the Abacus 2007-AC1 incident." The legal mess has hurt Goldman's share price and also made derivatives that protect against a possible Goldman default more expensive. Monday, such derivatives were more expensive to buy to protect against a Goldman default than they were to protect against a Morgan Stanley default, according to data provider CMA. That means investors for the first time in more than a year view the more profitable Goldman as a riskier borrower than Morgan Stanley.

Separately, a lawyer for a proprietary trader charged criminally in a closely watched insider-trading case subpoenaed Goldman for copies of his trading records. Morris Fodeman, a lawyer for Michael Kimelman, requested that the company provide him with copies of trading records and monthly account statements for an account Mr. Kimelman had at Goldman. Mr. Kimelman is described as a trader at proprietary trading firm Quad Capital LLC and a registered representative of Lighthouse Financial Group, according to the court filing.

It isn't unusual for prosecutors or defendants to subpoena trading records in criminal cases if they believe that the records might help their case. Mr. Kimelman is one of the defendants charged in an alleged insider-trading ring that was uncovered as part of the insider-trading probe that has ensnared several hedge-fund managers, including Galleon Group founder Raj Rajaratnam. Mr. Kimelman has denied wrongdoing. Prosecutors from the U.S. Attorney's office in Manhattan have alleged Mr. Rajaratnam was at the center of a massive insider-trading ring that generated millions of dollars in improper trades. Mr. Rajaratnam has denied wrongdoing.

Mr. Kimelman was associated with Incremental Capital, a firm founded by Zvi Goffer, a former Galleon employee. Mr. Goffer has denied wrongdoing. A total of 21 people have been charged criminally in the probe by the U.S. Attorney's office. Of those charged, 11 people have pleaded guilty to criminal charges.

Senate's Goldman Probe Shows Toxic Magnification
by Carrick Mollenkamp And Serena Ng

Even at its peak, subprime lending accounted for a relatively small portion of overall mortgage lending. Yet losses from these mortgages caused deep damage to the financial system. Now, documents released by Senate investigators last week provide clues in understanding why the losses were so severe. The documents show how Wall Street banks packaged and repackaged the same risky bonds into securities that ultimately helped magnify the impact of defaulting subprime mortgages on the financial system.

In one case, a $38 million subprime-mortgage bond created in June 2006 ended up in more than 30 debt pools and ultimately caused roughly $280 million in losses to investors by the time the bond's principal was wiped out in 2008, according to data reviewed by The Wall Street Journal. This was a central finding of the Senate investigative panel probing Goldman Sachs Group Inc.'s actions in the mortgage market. In a memo last week, panel Chairman Sen. Carl Levin (D., Mich.) said Goldman's work "magnified the impact of toxic mortgages" by replicating mortgage securities in debt pools known as collateralized debt obligations as well as CDO derivatives, and also in an index that tracks subprime bonds.

The subprime mortgages that caused big losses generally were packaged into CDOs, in which dozens of mortgage-backed bonds were pooled together and slices of the CDOs were sold to investors. Another version of these CDOs didn't contain actual mortgage bonds but were linked to them via derivatives called credit-default swaps. Through the use of derivatives, banks created many of these synthetic CDOs using the same mortgage securities, all of which would rise or fall in value depending on how the mortgages were performing. With synthetic CDOs, those who had bet that the loans would perform well were on the hook if their performance deteriorated.

In effect, the documents said, Wall Street was "copying and pasting" what turned out to be the worst-performing securities of the mortgage boom. Such activity helped multiply opportunities for hedge funds and traders who wanted to short the housing market, but magnified the losses of those on the other side of the trades. To short a trade, in this instance, is to bet the housing market will turn down. "There was a limited number of similar bonds," said Darrell Duffie, a finance professor and derivatives authority at Stanford University. "So they are likely to show up in multiple deals."

An important moment in the housing cycle came in January 2006, a year before the downturn of the housing market had crystallized. That month, a consortium of banks, including Goldman and Deutsche Bank AG, with the help of a London data firm, launched an index, known as the ABX, which served as a proxy for subprime loans. For the first time, banks and hedge funds had an indicator of the prices of subprime-mortgage securities, and a somewhat active market to buy and sell credit protection against housing-market losses. There were four ABX indexes, each tied to 20 subprime bonds, some of which reappeared in numerous CDOs.

By late 2006, Goldman had a large bullish position on the ABX, because it had taken the other side of bearish bets by hedge-fund clients, according to the Senate documents. Subsequent deals would help reverse that position. One mortgage bond, Soundview Home Loan Trust 2006-OPT5 M8, was a component of the ABX and showed up in more than 30 CDOs.

The Soundview deal in June 2006 bundled together roughly $3.1 billion in subprime home loans made by Option One Mortgage Corp. to 15,746 individuals across the country, with a high concentration in California and Florida, two states that were among the worst hit by the housing downturn. The securities from the deal were sold in slices with different credit ratings, interest rates and risk levels. One slice of the Soundview bonds, called "M8," began making its way through Wall Street. About $38 million of the "M8" bond was issued, and it stood to lose money if roughly 5% of the loans in the pool were wiped out by losses.

In July 2006, the Soundview deal was picked by Wall Street banks to be one component of the ABX, and the Soundview M8 bond also was replicated in multiple CDOs. They included Hudson Mezzanine Funding 2006-1, a Goldman-arranged CDO, which took on a $15 million exposure to the Soundview M8 bond in late 2006, according to documents released last week by the Senate panel.

Hudson represented Goldman's bearish view on housing. According to the Senate inquiry, Goldman used the CDO to protect itself against losses by the $2 billion of assets referenced in the pool. Among the assets was $1.2 billion in bullish bets on bonds underpinning the ABX indexes. Goldman was the buyer of protection from Hudson, meaning that the bank had a bearish position on the same bonds.

The Soundview M8 bond appeared again in a CDO called Abacus 2007-AC1, the mortgage deal at the center of the Securities and Exchange Commission's civil-fraud lawsuit against Goldman. That CDO, which closed in April 2007, had a $22.2 million bullish position on the Soundview bond. Goldman has denied any wrongdoing in the case. Some Goldman employees appeared to be aware that the Soundview M8 bond was shaky by early 2007. In an April 2007 email, a Goldman employee included it in a list of what he called "dirty '06 originations," referring to the period in which lending standards loosened. By that time, about 8% of the loans in the Soundview pool already were at least 60 days past due.

In July 2007, Mizuho International PLC, a unit of Japan's Mizuho Financial Group Inc. and seeking to break into the CDO business, included the Soundview bond in a CDO called Delphinus CDO 2007-1. That CDO had a $13 million exposure to the Soundview M8 bond, according to documents reviewed by The Wall Street Journal. In all, more than $280 million of bullish positions on the Soundview M8 bond were in at least 30 CDOs underwritten by various banks, according to data reviewed by the Journal. As defaults among the subprime loans backing the deal mounted in 2007, the M8 bond's value fell. Its entire $38 million face amount eventually was wiped out.

Anthony Sanders, a real-estate finance professor and authority in securitization at George Mason University in Fairfax, Va., said the problem was that the same mortgage bonds ended up in many deals, potentially multiplying the losses. "Serious problems with common [asset-backed securities] deals can decimate all CDO deals," Mr. Sanders said.

Goldman Fined $450,000 on Short Sales
by Jacob Bunge

The Securities and Exchange Commission and the regulatory arm of NYSE Euronext disciplined the equities arm of Goldman Sachs & Co. for alleged violations of rules on short-selling stocks. In December 2008 and January 2009, Goldman Sachs Execution & Clearing LP allegedly failed to buy enough shares to cover short positions held by customers, according to a notice from NYSE Regulation.

The issue was compounded as the firm continued to accept hundreds of short-sale orders in stocks in which the firm had open fail-to-deliver positions. Short-selling is a practice in which investors borrow shares and sell them to another investor, with the aim of buying them back after their value has gone down. The practice is legal, but U.S. regulators have tightened rules to ensure that investors actually hold the shares that they are lending.

A spokesman for Goldman said the issued was the result of "an inadvertent, manual processing error" following the change to short-selling rules in October 2008. There was no financial impact on clients, he said. "We now have improved, automated processes in place to avoid future errors," the Goldman spokesman said.

The disciplinary action comes as Goldman Sachs Group Inc. grapples with SEC accusations of civil fraud tied to its dealings in the mortgage market, where the bank is accused of stacking the deck against its own clients. Goldman neither admitted nor denied the findings announced Tuesday. NYSE Euronext imposed a censure and a $450,000 fine on Goldman Sachs Execution & Clearing, an amount that will be reduced by a $225,000 civil monetary penalty related to proceedings instituted by the SEC, according to the notice.

FDIC Chair Sheila Bair Warns Against New Curbs on Bank Trading
by Damian Paletta

Federal Deposit Insurance Corp. Chairman Sheila Bair has urged lawmakers to scrap a controversial Senate plan that would force banks to spin off their derivatives businesses, saying it could destabilize banks and drive risk into unregulated parts of the financial sector. Coming from the head of the agency in charge of protecting deposits in the U.S. banking system, Ms. Bair's comments could command attention, particularly because she has often been critical of big banks, and has called for curbs on their activities. In this case, however, she's suggesting proposed curbs might go too far.

Ms. Bair's warning came in a three-page letter to key Senate lawmakers days before voting is expected to begin on a broader financial overhaul. Her letter echoed fears raised recently by Federal Reserve officials, who said in an unsigned memo that the provision "would impair financial stability" and "be highly disruptive and costly" for banks and their customers.

The unusual political pressure from regulators comes at an awkward time for Democrats and the Obama administration, as they try to shepherd the broader financial overhaul through the Senate. Some Democrats and administration officials also harbor concerns about the provision, but so far few have been willing to speak out, in part due to concerns that an intraparty spat might complicate their legislative strategy. Opposing the provision could also make critics appear to be siding with big banks, which make billions of dollars each year from their derivatives operations.

Derivatives are a type of complex financial product with a variety of functions. They are often used by manufacturing, energy, and agricultural companies to hedge against fluctuations in interest rates, currencies, or commodity prices. Many companies use these products safely to essentially buy insurance against risk, but derivatives have also exploded into a huge speculative trading business by banks.

There is little scrutiny over many of these contracts, and a largely unregulated derivative book is what nearly caused American International Group Inc. to collapse in 2008. Democrats and Republicans have said new rules are needed for derivatives, but they have been at odds over how best to revamp the market. Arguments by regulators that parts of the bill could destabilize financial markets could provide an opening for Republicans, who have argued that Democrats are rushing the bill through the Senate too quickly without debating controversial provisions.

In her Friday letter, addressed to Senate Agriculture Committee Chairman Blanche Lincoln (D., Ark.) and Senate Banking Committee Chairman Christopher Dodd (D., Conn.), Ms. Bair said the bill could force $294 trillion in derivatives contracts outside of federally regulated banks and into companies such as hedge funds and foreign banks "beyond the reach of federal regulation."

Republicans have been very critical of the provision, and Sen. Judd Gregg (R., N.H.) last week said that the legislation would chase the derivatives industry overseas and into dark corners.
The provision in question—Section 716 in the bill— was inserted by Ms. Lincoln several weeks ago. The lawmaker has said the provision would protect taxpayers by ensuring that risky practices such as derivatives trading were siphoned away from companies with deposit insurance or other taxpayer liabilities. Ms. Lincoln said in a statement, "I will review Chairman Bair's letter carefully and give it the consideration it deserves."

She insisted last week that the provision stay in as Democrats brought the package to the Senate floor for debate. Because of the chamber's complicated rules, this essentially means the provision could only be killed if 60 lawmakers unite to do so. One compromise some Democrats have considered offering would be to force banks to spin off their derivatives operations into an affiliate, stopping short of completely divesting from the business. Ms. Bair said such a change would still pose problems for regulators, because companies wouldn't have to hold as much reserves against the risk in affiliates, among other things.

"Banks are not perfect, but we do believe that insured banks as a whole performed better during this crisis because they are subject to higher capital requirements in both the amount and quality of capital," she wrote. The broader financial-overhaul bill would create sweeping new rules for financial markets by creating new consumer protection standards, giving the government more power to break up failing companies, and creating stricter oversight for big financial firms.

Regulation of derivatives has emerged as one of the most-divisive issues in recent weeks, with Democrats often at odds with each other over how strict the rules should be. Lawmakers from both parties are expected to offer multiple amendments to change the bill, and votes on amendments could come as early as Tuesday.

Lehman Plans a Tough Fight Against Banks on Loss Claims
by Mike Spector

Lehman Brothers Holdings Inc. panicked other investment banks as it careened toward collapse in 2008. Now, the bank is coming back to haunt some of Wall Street's best-known names in bankruptcy court. Lehman started presenting evidence last week in an effort to persuade a judge that Barclays PLC reaped an $11 billion windfall in a deal for Lehman's assets just after it filed for bankruptcy. That is just one of several legal fights Lehman's bankruptcy administrators are preparing to wage against other banks this year.

Bryan Marsal, Lehman's current chief executive and the co-founder of turnaround firm Alvarez & Marsal, has signaled he intends to get tough on banks that collectively filed more than $50 billion in claims for losses related to derivatives contracts. Lehman has declined to name banks it views as making outlandish claims. But banks making large claims include Goldman Sachs Group Inc., Bank of America Corp., Deutsche Bank AG, Credit Suisse Group and U.S. Bancorp. The banks declined to comment or didn't respond to requests for comment.

Some of them were trading partners with Lehman on derivatives contracts, while others engaged in other transactions with the investment bank that could cause disputes. Lehman is preparing to go after J.P. Morgan Chase & Co. over billions in collateral the bank demanded in the months and days before Lehman went under, according to people familiar with the matter. A J.P. Morgan spokesman declined to comment. Lehman entered into derivatives contracts with banks around the world tied to interest rates, bonds, currencies, commodities and stocks, among other things. Under the terms of the contracts, the banks tallied losses tied to Lehman's collapse.

In all, the claims exceed $50 billion, Lehman officials said. Lehman believes many of the banks' losses were theoretical and calculated during volatile markets, not reflecting actual damages. Mr. Marsal has said in court that many of the claims are "silly" and that some have been too aggressive with their claims. "When we peel the onion back, we rated the institutions from super-aggressive to moderately aggressive to aggressive," Mr. Marsal said in a recent interview. "We will either find a way to settle with these guys or this will go up to the judge."

Goldman filed a claim for more than $1.5 billion against Lehman for losses it associated with closing out a contract that governed some 29,000 transactions between the two banks. A person familiar with the situation said Goldman followed specific instructions in its derivatives contracts when calculating damages and would await guidance from Lehman's bankruptcy judge. Other banks made similar claims and Mr. Marsal declined to single out specific claims he found excessive.

Lehman fired an opening shot against such claimants last week, when it sued Japanese investment bank Nomura Holdings Inc. to undo more than $2 billion in claims. A Nomura representative said the bank expects to collect on its claim "in due course." Goldman, Deutsche Bank and Bank of America are among banks making claims exceeding $1 billion. Credit Suisse submitted a claim just under $1 billion, while U.S. Bancorp's U.S. Bank made some claims exceeding $5 billion.

J.P. Morgan acted as Lehman's main "clearing bank," meaning it served as a middleman between Lehman and third-party lenders, many of them other banks or institutional investors such as pension funds. In that role, J.P. Morgan demanded collateral from Lehman to cover its risk. Creditors complained soon after Lehman's bankruptcy that J.P. Morgan withheld billions in assets from Lehman, contributing to a liquidity crunch that caused the investment bank to collapse. Lehman's holding company pledged more than $14 billion in collateral to J.P. Morgan, said a person familiar with the situation.

As part of a revised guarantee agreement in early September 2008, J.P. Morgan demanded about $8.6 billion from Lehman just days before it filed for bankruptcy, according to a report by Lehman's bankruptcy examiner. Lehman felt it had to bow to J.P Morgan's demands or risk immediate collapse, people close to Lehman said. J.P. Morgan has said it was justified in demanding the collateral and has highlighted in court papers that it subsequently advanced more than $100 billion in credit to Lehman while the troubled investment bank negotiated a deal to sell most of its assets to Barclays.

People familiar with the situation said the two sides would likely engage in settlement talks before going to court over the pledged collateral. A legal complaint on the matter remains "on the shelf," a person familiar with the situation said. The two sides haven't had substantive talks yet, people familiar with the matter said. Lehman's bankruptcy examiner, Anton Valukus, found that Lehman could pursue a legal claim against J.P. Morgan for making "excessive collateral requests," though he labeled it "not a strong claim." The examiner said Lehman could have a legal claim to claw back $6.9 billion of the $8.6 billion pledged to J.P. Morgan in September 2008.

China May ‘Crash’ in Next 9 to 12 Months, Faber Says
by Shiyin Chen and Haslinda Amin

Investor Marc Faber said China’s economy will slow and possibly "crash" within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst. The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting "heavy," Faber said. The opening of the World Expo in Shanghai last week is "not a particularly good omen," he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.

"The market is telling you that something is not quite right," Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. "The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months." An index tracking Chinese stocks traded in Hong Kong dropped 1.8 percent today, the most in two weeks, after the central bank raised reserve requirements for the third time this year.

The Shanghai Composite has slumped 12 percent this year, Asia’s worst performer, as policy makers seek to rein in a lending boom that’s spurred record gains in property prices. China’s markets are shut for a holiday today. Copper touched a seven-week low and BHP Billiton Ltd., the world’s biggest mining company, fell the most since February on concern spending in the world’s third-largest economy will slow and after Australia boosted taxes on commodities producers. Rio Tinto Ltd., the third-largest, slid as much as 6 percent.

Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China. China is "on a treadmill to hell" because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade. 

The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7 percent across 70 cities in March from a year earlier, the most since data began in 2005. The government has stopped short of raising interest rates to contain property prices. Within an hour of the central bank announcement on reserve ratios, Finance Minister Xie Xuren said that officials remained committed to expansionary policies to cement the nation’s recovery.

The nation’s economy grew 11.9 percent in the first quarter, the fastest pace in almost three years. The government projects gross domestic product growth for the year of about 8 percent. The clampdown on property speculation may prompt investors to turn to the nation’s stock market, Faber said. Still, shares are "fully priced" and Chinese investors may instead become "big buyers" of gold, he said. BlackRock Inc. is among money managers reducing their holdings on Chinese stocks on expectations that economic growth has peaked.

The BlackRock Emerging Markets Fund has widened its "underweight" position for China versus the MSCI Emerging Markets Index to about 7.5 percent from 4.6 percent at the end of March, the fund’s London-based co-manager Dan Tubbs said. Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd, the nation’s three largest banks are trading near their lowest valuations on record as rising profits are eclipsed by concern bad loans will increase.

Citigroup Inc. warned in March that in a "worst case scenario," the non-performing loans of local-government investment vehicles, used to channel money to stimulus projects, could swell to 2.4 trillion yuan by 2011. Housing prices nationwide may fall as much as 20 percent in the second half of the year on government measures to curb speculation, BNP Paribas said April 23. Under a stress test conducted by the Shanghai branch of the China Banking Regulatory Commission in February, local banks’ ratio of delinquent mortgages would triple should home prices in the country’s commercial center decline 10 percent. Shanghai is projecting as many as 70 million visitors to the $44 billion World Expo, more than 10 times the number who traveled to the 2008 Beijing Olympics. More than 433,000 people visited the 5.3 square-kilometer (3.3 square-mile) park on its first weekend.

China slowdown fears add to debt worries
by Jamie Chisholm

Nagging concerns about the eurozone sovereign debt crisis and worries over an economic slowdown in China saw investors flee from risk on Tuesday. The FTSE All-World equity index plunged 1.8 per cent, while the euro slumped and industrial commodities declined. Gold hit new 2010 highs and US Treasuries rose as investors sought havens in the face of intense stress in markets linked to European fiscal woes.

• The reception given to news that China’s manufacturing activity was expanding at its slowest pace in six months sits in sharp contrast to reports from the US on Monday, which showed better than forecast manufacturing and personal consumption. The US figures had helped push Wall Street higher by 1.3 per cent, placing it within one more strong session of a fresh cyclical closing high. Sentiment in New York has also been helped by a good first-quarter earnings season, not just in the US but also in Asia and Europe. Shanghai stocks, on the other hand, fell another 1.2 per cent on Tuesday to a seven-month low. Investors in China, and elsewhere, fear that Beijing’s attempts to cool rampant speculation and economic overheating – banks’ reserve requirement ratios were again raised over the weekend – will cause a sharper slowdown than desired.

There is also the worry that a slackening of demand in China may be an early signal that the "inventory surge" enjoyed in most developed nations is starting to subside. If true, that would suggest the Chinese stock market's travails are not quixotic but a precursor to a poor summer for riskier assets. But for now, the market’s most immediate concern are the debilitating pulses of sovereign debt stress that regularly emanate from europe. Wall Street, in particular, has been been able to absorb these blows with barely a backward step over recent months. On Tuesday, however, it appeared the stoic exchange was succumbing to the latest barrage and the S&P 500 was down 1.6 per cent at 1,183. Analysts say an important support level waits at 1,175. The Vix index, a gauge of expected equity market volatility, spiked 17 per cent to 23.6, its highest in 11 weeks. Some investors are clearly getting nervous.

• The FTSE Asia-Pacific index fell 0.5 per cent, led lower by the Shanghai Composite closing at its lowest level since October. Property and bank stocks continued to suffer on the authorities’ drive to calm the real estate market. The Hang Seng in Hong Kong fell 0.2 per cent. Sydney fell 1 per cent after a tax increase on resource companies battered the sector and traders reacted to the central bank’s sixth interest rate rise since October. Tokyo was shut for a holiday. European bourses managed timid gains at the open, aided by Wall Street’s strong performance overnight. But major indices soon fell back on the China worries and after the euro relapsed as concerns over Greece refused to go away, hurting banks. The FTSE Eurofirst 300 fell 2.2 per cent, while London’s FTSE 100 lost 1.7 per cent. Miners took a battering as London-listed resource groups had their first chance to react to Australia’s tax hike. The Athens stock market fell 6.7 per cent, Lisbon was off 4.1 per cent and Madrid declined 4.4 per cent.

• The euro continued to struggle in the forex markets, as investors remained sceptical that the bail-out package for Greece agreed over the weekend represented the end of the eurozone’s fiscal problems. The single currency fell 1 per cent to $1.3058, a fresh 12-month low. The dollar index, which measures the buck against a basket of its peers, rose 0.9 per cent to 83.08 to a near one-year high. Sterling made little headway, despite a survey of manufacturing showing activity in the sector growing at its fastest pace since 1994.

• Symptoms of contagion in eurozone sovereign debt risk were apparent, with the yield on Portugal’s 10-year note up 39 basis points to 5.51 per cent and Spanish 10-year yields higher by 1 basis point to 4.11 per cent. Greek bonds initially rallied but later struggled. Greek 10-year yields rose 65 basis points to 9.54 per cent and 2-years jumped 333 basis points to 15.37 per cent. The cost of insuring Greek, Portuguese and Spanish government bonds against default rose 7, 16 and 13 per cent respectively. The yield on US 10-year benchmark Treasuries fell 6 basis points to 3.63 per cent on haven flows.

• The slowdown in Chinese manufacturing growth and the soaring greenback delivered a blow to dollar-denominated industrial commodities. Copper, the sector bellwether, dropped 2.9 per cent to $7,190 a tonne. Oil lost 2.4 per cent to $84.72 a barrel as worries about supply disruption caused by the Gulf of Mexico oil spill receded. Gold hit a new intraday high for the year of $1,193, and was later trading up 0.3 per cent at $1,194, as traders remained concerned about currency alternatives.

Fixed-Income Pros Fear 'Bond Fund Bubble'
by Ben Steverman

Good news for the economy could be very bad news for bond investors this year. It may come as a shock to the unprecedented number of retail investors who—fleeing the stock market and seeking stability—have poured their savings into fixed income over the past year, but rising interest rates can hurt the value of bond investments. With the U.S. Federal Reserve holding its federal funds rate near zero, short-term rates have nowhere to go but up.

The Fed said in a statement on Apr. 28 that it expects "exceptionally low levels of the federal funds rate for an extended period," but an improving economy could cause the Fed to change its stance. Economists' predictions vary, but typical is Jefferies Fixed Income's prediction that the Fed will begin raising rates in the first quarter of 2011. Although the economic environment still feels bleak to many Americans, a rebound could be swift, especially if stimulus from the Fed and the federal government proves successful. Data released on Apr. 30 showed that U.S. gross domestic product grew at an annual rate of 3.2 percent in the first quarter of 2010.

"Once those sparks catch fire, it's going to be a quick turn in the economy," predicts Lorenzo Newsome Jr., chief investment officer at Xavier Capital Management in Largo, Md. That will push up interest rates by the end of 2010 and "cause the value of investment-grade bonds to fall," he says. Feeling the impact could be millions of new, inexperienced, fixed-income investors. According to TrimTabs Investment Research, investors poured $467.2 billion into bond mutual funds in 2009 and a further $115.8 billion so far this year. By contrast, an average of $43 billion flowed annually into bond funds from 2003 to 2008.

"It's a bond fund bubble," says Marilyn Cohen, chief executive of Envision Capital Management in Los Angeles and author of the book Bonds Now!: Making Money in the New Fixed Income Landscape. Most of these new fund owners are "unsophisticated investors" who are unaware how much rising rates can hurt bonds, she says. (Because institutions and wealthy investors tend to buy securities directly, mutual fund customers tend to be retail investors.) "If we get a big spike in rates, there will be a mass panic," Cohen says.

Overlooking Risks In Equities, Bonds
Given the events of the past three years, individual investors' preference for bonds is understandable. Cash in money markets currently offers miniscule returns, while the U.S. stock market's perils became all too clear in 2008 and early 2009. According to TrimTabs, $11.9 billion has been pulled from U.S. equity funds in the last 12 months, even as the S&P 500, the broad stock market index, rose 76 percent since Mar. 9, 2009. "Before 2008, people were not really recognizing the risk in equity markets," says Eric Meermann, financial planner and portfolio manager at Palisades Hudson Financial Group in Scarsdale, N.Y.

Now, many may not recognize the risk in bond markets. "We foresee a rising interest rate environment, and investors need to be aware of the risks associated with that," says Ron Florance, director of asset allocation and strategy at Wells Fargo Private Bank. Bonds vary widely but there are two main types of risk embedded in all fixed income products: credit risk and interest rate risk. Credit risk is the risk that a bond issuer will not be able to pay, a possibility with which investors in Greece's government debt are currently contending. Interest rate risk is the possibility that—because of Federal Reserve action, a stronger economy, or fears of inflation—rates could rise.

A higher yield on a bond makes it more attractive to new investors but hurts its market value for current bondholders. There remain glimmers of hope for bond investors. "Rising rates are not a foregone conclusion," says J. Michael Martin, president of financial planning firm Financial Advantage in Columbia, Md. A weak economy could keep the Fed from raising interest rates. Even if the Fed raises short-term rates, long-term rates could remain low if the threat of inflation seems limited.

Long-Term Bonds Face Greatest Risk
If you own an individual bond, its market value may not be relevant to you. You can simply hold it until it matures, when—assuming the issuer remains creditworthy—you will be repaid in full. However, Martin notes, by holding onto the bond for so long, you may miss out on other investment opportunities. In a higher-interest-rate environment, for instance, other bonds may offer more income.

Most retail investors can't afford to own individual bonds, and even wealthier investors often prefer the lower costs and diversification of bond funds. Higher interest rates are likely to hurt the net value of these funds, particularly funds that hold long-term bonds, says Bill Larkin, fixed-income portfolio manager at Cabot Money Management in Salem, Mass. "Long-term [bonds] can really take a hit if the rate environment changes rapidly," Larkin says. Medium-term bond funds have greater flexibility to make up for market losses by moving into higher-yielding bonds, he says.

While Larkin suggests investors move from long-term to medium-term bond funds, he also suggests diversifying with an array of exchange-traded funds that includes exposure to gold, commodities, bonds, and stocks. Cohen suggests that investors also "take some profits off the table" and move out of longer-term bonds. She suggests safer, short-term bonds. For investors seeking a relatively stable alternative to bonds, Prudential Financial market strategist Quincy Krosby recommends high-quality, large-cap stocks.

Although many economists predict a strong economic recovery, the opinion is not unanimous. Economic events might wreak unexpected effects on the bond market, which Larkin calls "impossible to predict." The warning from investing pros to bond fund investors is that the bond market could be entering a period of higher-than-normal risk, and investors need to be aware of those dangers. The next three years could be interesting times for bonds, Florance says. "This is not time to get lazy with your fixed-income portfolio," he says.

Greece Gets Aid, Promises Austerity
by Charles Forelle, Nick Skrekas and Bob Davis

Euro-zone countries and the International Monetary Fund, seeking to halt a widening European debt crisis that has threatened the stability of the euro, agreed to extend Greece an unprecedented €110 billion ($147 billion) rescue in return for Draconian budget cuts. Under the three-year agreement announced here late Sunday, Greece would receive €80 billion in loans from other euro-zone members and €30 billion from the IMF. The planned rescue is the largest ever attempted by the IMF and a first for the 16-member euro zone. It still requires final approval from national governments.

The bailout removes the worry that Greece won't meet its immediate funding needs—€8.5 billion in borrowings due May 19. But it introduces fresh questions, among them whether the country can bear the harsh budget-cutting measures that are the price of the aid. The Greek government has promised to slash and then freeze public-sector wages, raise sin taxes, increase value-added taxes, impose a new levy on businesses, cut pension payments and raise retirement ages for some public-sector workers. The steps are expected to save the state €30 billion through 2013. Unions have vowed strikes to protest the deal.

"We have no other choices and no time," Greek Prime Minister George Papandreou said in a televised speech on Sunday. He vowed that his government won't "allow the country to become bankrupt." The prospect of a rescue has been controversial in Europe. Some euro-zone countries, led by Germany, worried that a bailout would set a dangerous precedent by encouraging other members to flout the bloc's deficit and debt rules. A rival faction, led by France, favored speedy intervention, viewing the crisis as a moment of truth, both for the 11-year-old common currency and the broader European Union. The divide delayed action, which some critics say worsened the crisis by allowing it to spread to other countries, raising concerns about the cohesion of the euro zone.

Even with the austerity measures, Greece now projects that its debt, which last year stood at 115% of its gross domestic product, will surpass 140% by 2014 before it begins declining. That is worse than was believed even a few weeks ago. The budget cuts will slash the deficit from 13.6% of GDP last year to 8.1% this year. Economic output will fall 4% this year, Greece says.

Harsh Medicine

Greece has promised to meet budget and debt goals.
  • Cut budget deficit by 11% of GDP by 2013, through spending cuts valued at 7% of GDP and revenue increases valued at 4% of GDP.
  • Reduce budget deficit to 'well below' 3% of GDP by 2014.
  • Reduce debt-to-GDP ratio from 2013, with primary budget surpluses of at least 5% of GDP up to 2020.
  • Cut public-sector pay and pensions.
  • Raise average retirement age.
  • Increase value-added taxes and excise duties.
  • Deregulate the labor market and industries.
  • Privatize some state industries.
  • Cut public investment.
  • Crack down on tax evasion.

Source: IMF

The attention-grabbing sum of €110 billion—just a few weeks ago, EU countries would say only that they'd offer €30 billion this year—is intended in part to quell talk of default. Yet it remains unclear whether the promised package will cover all of Greece's funding needs over the next three years, or if it will end up having to borrow even more. Over the past week, investors have increased their bets that the Greek government will succumb to social pressures and default on its debt to ease the heavy burden that debt payments place on state finances.

Greek Finance Minister George Papaconstantinou said Sunday there was no chance that Greece would default. Debt restructuring "was never on the table," said Poul Thomsen, the IMF's mission chief for Greece. Although such a measure could ease Greece's finances in the short term, it could restrict the country's ability to borrow in the future, he said. The bailout has been percolating since February, when euro-zone leaders promised to come to Greece's aid, if needed. Europe's hopes of resolving the crisis with vague rhetoric were short-lived, however. Investors responded to the uncertainty surrounding a rescue by dumping Greek assets, making it more expensive for the country to borrow and sparking fears that the crisis would spread.

Sunday's agreement capped a turbulent week in the markets that included a downgrade of Greece's debt to "junk" status—a move that all but locked Greece out of capital markets. Atop European leaders' list of worries is the effect of Greece's crisis on other fiscally precarious EU countries. Last week, investors shunned the debt of Portugal and Spain, in a dangerous sign that the credit spigot could tighten for others with debt and deficit problems—and potentially vastly increase the bailout tab for Europe's healthier nations. Downgrades last week of the Iberian countries' credit ratings heightened those concerns.

The tough cuts the government says are needed to brighten the grim fiscal picture already are meeting public resistance. In Athens on Saturday, tens of thousands joined a May Day protest in anticipation of the aid deal. Rioters threw Molotov cocktails at police, and marchers chanted "get out" to "the IMF and the European junta." A crude bomb damaged a bank branch Sunday. Union leaders said they will renew protests this week, and a widespread general strike is set for Wednesday.

The main opposition party, the conservative New Democracy Party, lashed out at the new budget cuts. "This is an even heavier dose of the medicine that got us here in the first in place and could kill the patient," party leader Antonis Samaras said in a televised statement. Mr. Samaras criticized the involvement of the IMF, which has pushed for tough fiscal restraint. The government, he said, imposed the IMF "onto the heads of the Greek people."

The deal could turn the IMF into a political scapegoat in Greece, a role the fund has often played in the past. Politicians and opposition leaders can attack it for its austerity demands, while making the required adjustments. That has happened most recently in Ukraine, where the IMF cut off its loan program for a time when the government, in the heat of an electoral campaign, failed to comply with certain financial conditions.

Greece's major unions, already vocal critics of the IMF, have vowed to take to the streets to protest the austerity measures. "We will start our new struggle with protests on Monday, Tuesday and the strike on Wednesday," said Spyros Papaspyros, president of the public-sector umbrella union ADEDY, referring to a general strike set for Wednesday. "We will fight for as long as it takes against this giant injustice."

Germany, whose population has been deeply skeptical of a bailout, will bear the largest share of the euro-zone contribution—€22.3 billion of the total. The euro-zone loans carry an interest rate of about 5%, compared with about 3% for the IMF contribution. Some €10 billion will be set aside as a "bank stabilization" fund for use if the condition of Greek financial institutions worsens.

Approval by the 16 euro-zone leaders is expected to come at a meeting on Friday. In addition, several countries, including Germany, must now put the bailout measure through their parliaments. German Chancellor Angela Merkel has put the legislation on a fast track for approval by the end of the week.

Greek Civil Servants Rebel Against Austerity Measures
by Björn Hengst

Greece's swollen bureaucracy is taking the hardest hits as the country struggles to fix its failing economy. Civil servants are responding with massive strikes. But critics say the country's public sector is inefficient, expensive and hopelessly overstaffed. Kostas Papantoniou is no revolutionary, but the 59-year-old's determination to stand up and fight the Greek government has grown considerably in the last few weeks. Papantoniou, who is deputy head of the civil servants' union ADEDY, has a picture of Che Guevara hanging on the wall next to his desk. It features Che's famous slogan: "Hasta la victoria siempre" ("Until the everlasting victory").

The members of Papantoniou's union are angry. When the Greek government presented its massive savings program on Sunday, deep cuts to the country's swollen state sector were at the top of the list. State employee benefits, already targeted for a 12 percent cut in a previous plan, will be cut by a further 8 percent. Employees will also lose special payments on holidays that could amount to losses of more than €3,000 ($3,940) per year. And on top of all that is a three-year public sector hiring freeze. Civil servants in Greece are widely seen as a privileged group. They make, on average, more than employees in the private sector, and their pensions are often generous.

Papantoniou is furious with the cuts. "We're disgusted with these measures," he says, adding that it's time to "clear up some myths." Papantoniou, who is an economics teacher by profession, fishes a sheet of paper out of his stack of files that gives a breakdown of Greece's budget. Everyone always talks about a million state employees, he says, but in reality there are only 650,000. "Look at this list," he says. "You only get to a million if you count people who work in companies the state owns stocks in." Besides, all this talk of supposedly high salaries for bureaucrats isn't true, he says: Eighty percent of state employees make between €700 and €1,500 a month. Only the top 20 percent make between €1,500 and €4,000.

There was a special meeting of the union council on Sunday just after the government released its plans. The decision was quick: A general strike on Tuesday, in addition to the strike that was already planned for Wednesday. Schools, ministries, public hospitals and government offices will come to a standstill for 48 hours. On Wednesday, the General Confederation of Greek Workers (GSEE), an umbrella grouping of private-sector unions, will join in. The public sector union is already trying to come up with other forms of protest. From demonstrations to street blockades, there are lots of possibilities, Papantoniou says. "We're going to be protesting constantly from now on."

Athens is already arguably the European capital of protests. In perhaps no other European metropolis are there quite so many strikes and demonstrations. Gessthimani Grafidou wants to be a part of the action. In the past, the 47-year-old elementary school principal says, she almost always took part in strikes and protests. This time around, Grafidou wants to take to the streets to publicize her loss of income. After 28 years of service, she was making €1,800 after deductions per month. Then came the savings package in March, which cut her salary by €125. The upcoming cuts will probably cost her another €75 a month. Her husband, who used to work for the now-privatized Olympic Airways, is unemployed and looking for a new job. "We don't have any financial wiggle room," Grafidou says.

The country feels humiliated. "The Great Sacrifice," runs the headline in Greek newspaper Ta Nea about the cuts that the government was forced to make to acquire €110 billion in credit from the EU and the International Monetary Fund. "The Great Odyssey Begins," writes the business newspaper Kerdos. There's hardly a Greek citizen not complaining. There's a feeling of bitterness that average citizens have to pay for the crisis while tax cheats are spared. That politicians made the mistakes that got Greece into this mess, but the people are now the suckers. That the country still spends outrageous amounts on its military.

As a result of tensions with Turkey, Greece spends around €14 billion on defense annually. Even despite the cuts, it is still planning to spend €6.7 billion in 2010. There are also, however, critics of the country's expensive public sector. Yannis Stournaras is not the type to complain about his country's situation. He prefers to take a sober look at the facts and figures. The 54-year-old, who was chief economist for the government of former Prime Minister Kostas Simitis, teaches economics at the University of Athens, heads the economics institute IOBE and is the best-known independent economist in Greece.

Sometimes, Stournaras wonders about his country. Why do all the museums close early in the afternoon? Why is the island of Delos, named to the UNESCO World Heritage list in 1990 and inhabited only by guards, only open until 3 p.m.? "These are foolish decisions," he says. "We're a country that depends on tourism. We should be making twice as much money on things like this." The public sector in Greece is totally inefficient, Stournaras says, adding that Greece needs to be further deregulated. The conservative government of former Prime Minister Kostas Karamanlis, who was voted out of office in October, made promises along those lines, he says, but instead kept expanding the public sector.

Stournaras also has harsh words for the new socialist government of Prime Minister Georgios (George) Papandreou. They took action too late, he says. Although the government corrected the predictions on the national deficit, from 6.7 to 12.7 percent, soon after the election, there were no consequences, because the Socialist party was too busy giving out positions in the new government, he says. At one point, Stournaras wrote the prime minister a letter: "Georgios, wake up!" Now Stournaras predicts tough times. The recession will get worse, he says, and consumption and investment will drop.

"But now we have no choice," Stournaras says. He's not, however, expecting vocal protests from a broad segment of the population. The cuts mainly hit the public sector, he says: "The people have suffered because of the bureaucrats' privileges." Kostas Papantoniou will be at the head of the march when the government employees take to the streets. "We're going to take up the fight," he says. It sounds like something Che Guevara might say.

Greece braces for "violent modernization"
by Noah Barkin and George Georgiopoulos

Greece reacted with a mix of resignation and outrage on Monday to a painful new austerity package from the government that newspaper editorials said would force a long-delayed "violent modernization" on the country. "The time to pay the bill has come, the time of responsibility for all of us tackling this crisis must become the big opportunity to modernize our public life, even if we have to bleed," said financial daily Kerdos.

Prime Minister George Papandreou's government unveiled the plan to overhaul Greece's debt-ridden economy on Sunday after talks with officials from the International Monetary Fund (IMF) and European Union (EU). It foresees a massive fiscal adjustment driven primarily by cuts in the country's bloated public sector, which makes up roughly a third of the workforce. A public sector pay freeze was extended until 2014 and treasured holiday bonuses will be scrapped for many employees. Pensions will also be cut.

Center-right newspaper Eleftheros Typos said the government was telling Greeks that they must die in order to live, describing the economic medicine it was doling out as "more harmful than the disease." Ta Nea, a centrist daily, said the way of life Greeks had become accustomed to had come to an end on Sunday, while center-left Eleftherotypia deemed the measures unfair because they would hit average wage earners and pensioners hardest.

Center-left Ethnos said the austerity would mean "asphyxiation" for the Greek people and a "violent modernization" for the economy, which according to new government projections will contract by 4.0 percent this year and 2.6 percent in 2011.

Papandreou met President Karolos Papoulias on Monday morning and requested a meeting of the heads of Greece's political parties to inform them in detail about the austerity package and seek their backing for it. "With the consent of the political and social forces we will make the changes that are needed to the political system and the economy that should have been made years ago," Papandreou said. "Now is the opportunity to make these changes." How the public reacts to the measures will be decisive in determining whether the government is successful in implementing them.

Smaller protests were expected on Monday ahead of nationwide strikes by public and private sector workers on Wednesday, which will offer a first glimpse of the extent of the anger with government plans. There are precedents for the massive fiscal adjustment that Greece is undertaking, but economists say the country faces a more difficult challenge because of the weak state of the economy and the expectation that it will continue contracting for the next two years.

To avoid "reform fatigue" the government is frontloading its fiscal measures with the goal of pushing the budget deficit down to 8.1 percent of gross domestic product (GDP) this year, from 13.6 percent in 2009. That could put huge pressure on the banking sector, which is likely to see its non-performing loans rise substantially. As part of the government's package with the EU and IMF, it plans to set up a special fund to recapitalize vulnerable banks.

Fingers on the button at the ECB
by Anatole Kaletsky

European governments, with the help of the International Monetary Fund, have finally produced a package big enough to avoid a default by Greece, at least for the next two to three years. This does not mean that the future of the euro has been permanently secured, but it does suggest that the immediate financial crisis is probably over. In the longer term, investors will continue to worry about the ability of the Greek Government to service its debts, but their worries will no longer have any effect on real economic conditions, because the Government’s financial needs for the next two to three years have been assured.

The only thing that could now cause a Greek default would be a failure by the Government to deliver on its promises so blatant that the EU and IMF would stop disbursing the promised €110 billion bailout. But while armchair analysts always love to speculate about a breakdown of public order and descent into anarchy, the experience of IMF austerity programmes in countries from Thailand, Indonesia and Mexico to Latvia, Romania and Hungary is that ordinary people are surprisingly willing to accept sacrifices when the government runs out of money.

As Valdis Dombrovskis, the Prime Minister of Latvia, remarked last Friday at the Munich Economic Summit: “Real reform starts when government money stops.” Mr Dombrovskis knows what he is talking about. His country has just performed the largest fiscal consolidation ever recorded. About 30 per cent of public sector jobs have gone; the wages of the government workers who remained have been cut by 25 per cent; and a government deficit of 20 per cent of GDP has been transformed into a surplus of 8 per cent in only two years. That is roughly five times the pace of the consolidation demanded of Greece.

But while Greece has now escaped its immediate liquidity crisis, the country’s bonds will continue to be viewed as a junk credits and the prospect of sovereign defaults within the eurozone is no longer unthinkable. Consider three implications from this sequence of events. The first will be that other weak governments in the eurozone will be perceived as serious credit risks. Portugal, even though it is far less indebted than Greece, will sooner or later suffer some Greek-style funding problems — and these, in turn, will raise questions about the bonds of the Spanish Government.

At that point, a second implication of this week’s bailout will come into play: other Club Med countries will not be bailed out in the same way as Greece. After all the controversy in Germany over the Greek rescue, the German political system simply could not come up with another bilateral loan for Portugal, never mind five or ten times as much money for Spain. In this sense, Greece could be the Bear Stearns of the euro crisis, with Portugal playing the part of Lehman Brothers. The question then will be how to save Spain. That country is clearly too big to fail, in the same way that AIG and Citibank were, and would have to be bailed out, regardless of cost. But this brings us to the third implication of the Greek package.

Greece was easy for Europe to bail out, despite the reluctance of German voters, because it was a small country. But Spain is too big to save, at least with direct loans from other European governments. Europe’s only serious hope of bolstering Spanish debt would have been to devise a collective solution, whereby the EU as a whole would offer members emergency fiscal support. This is what it did for Latvia, Hungary and Romania last year, when it authorised the sale of €50 billion of EU bonds, guaranteed by all EU governments. This was the solution I had expected in the case of Greece.

But by opting for bilateral support from individual governments in the case of Greece, EU leaders missed the chance to create a collective mechanism for eurozone fiscal bailouts — and this opportunity is now gone for ever, for a reason that almost nobody has yet noticed. With a Conservative-led government almost certain to take over, there will be no prospect of Britain agreeing to a new bond issue by the EU as a whole of the kind that might have been possible a month ago. Since the euro group on its own does not have the “legal personality” required to issue bonds, a collective rescue for the next troubled country is now out of the question.

What, then, will happen if investors in another Club Med bond market decide to go on strike? While Europe has no political or fiscal institution strong enough to arrange another rescue after the bailout of Greece, it does have a monetary institution with unlimited firepower. If Portugal or Spain get into trouble, the European Central Bank could step forward as a buyer of last resort for all Club Med bonds. By following the Federal Reserve Board and the Bank of England and announcing a quantitative easing programme worth about 10 per cent of the eurozone’s GDP, the ECB could easily finance all the Club Med countries’ budget deficits for the next year or two. This is exactly what the Bank of England has done in monetising the whole of the British Government’s borrowing requirement over the past 12 months.

Central bank lending directly to governments is legally prohibited by the “no-bailout” clause in the Maastricht Treaty, but the ECB could easily get round this by lending to Spanish and Portuguese banks, which in turn would lend to their national governments. More precisely, the Spanish banks would buy their Government’s bonds without limit if the ECB guaranteed to accept these as collateral without regard to credit risk.

These were essentially the terms offered yesterday by the ECB to any euro-area banks wishing to swap their Greek government bonds into cash. In future, Greek bonds will be exchangeable at par at the ECB, regardless of any credit downgrades the government might suffer. Significantly, the ECB has justified this unprecedented relaxation of its credit standards by citing the “strong commitment of the Greek Government to fully implement the [fiscal] programme. The Governing Council has assessed the programme and considers it to be appropriate.” Having made this decision for Greece, it will be only a small step for the ECB to extend the same concession to Portugal and then to Spain, provided that their governments agree to “appropriate” programmes.

For the ECB, unlimited lending to the Portuguese and Spanish governments, disguised behind the fig leaf of loans to their national banking systems, would be considered the nuclear option. European central bankers would be extremely reluctant to use it. But if the alternative was disintegration of the euro, the ECB would surely deploy this ultimate weapon, rather than simply capitulate to the markets.

Monetary union has delivered a 'German Europe' after all
by Ambrose Evans-Pritchard

We now know the answer to Henry Kissinger's question: "Who do I call if I want to call Europe?" Only one person matters. The Chancellor of Germany. Berlin was Europe's capital last week, basking in summer heat of 26 degrees. The heads of the European Central Bank and the International Monetary Fund (IMF) – both French, oddly – arrived as supplicants, pleading with Chancellor Angela Merkel and a stern finance committee of the Bundestag to save monetary union. Nowhere else mattered. The markets have stopped listening to Paris or Brussels. If the aim of Helmut Kohl and Francois Mitterrand at Maastricht was to tie down a "European Germany" with the silken chords of EMU, they failed. Monetary union has delivered a "German Europe" after all.

It has taken a Club Med bond crash and a contagion threat to German Landesbanken to force Berlin to blink. Backing for the €100bn (£87bn) bail-out for Greece – or €120bn, or €140bn – will be rushed through the Bundestag this week. Let us be clear what has happened. This is a one-off rescue. The money is in the form of bilateral loans, not an EU bond. Mrs Merkel has refused to be bounced into an EU debt union or into acceptance of fiscal federalism. By defending German sovereignty – as she must under the 1993 Maastricht ruling of her consititutional court – Mrs Merkel has left the eurozone in exactly the same dysfunctional state as it was when the Greek crisis first erupted, and therefore equally ill-equipped to cope with the next tremor.

The damage already done to EMU credibility is huge. "The crisis has shown to the whole world that Europe is unable to manage a monetary union: it has had to call in the IMF," said Wim Kosters, Monet Professor of European Economics at the Rhine-Westphalia Institute. "We created rules that nobody followed. It wasn't the Commission that put a stop to the game, the markets had to stop it," he said, to warm applause from German fund managers at a Euromoney forum in Berlin.

Across the street, Czech President Vaclav Klaus was enjoying equally warm applause at Humboldt University as he savaged Europe's "fair weather" currency with his usual gusto. "I thought I would be pelted with eggs and tomatoes. Something has changed in Europe," he said. Indeed it has. A German chancellor has talked of expelling EMU violators. A chorus of German MPs – Free Democrats and Bavarian Social Christians (CSU) – has said Greece should leave, that the "taboo" must be broken. Broken it is. EMU looks more like a fixed exchange rate system, and less like the sacred union, "with the solidarity of a nation", it was billed.

Nor is this rescue a done deal. Four German professors will file a complaint at the constitutional court days after the bill is signed. They will allege a breach of the EU's "no bail-out" clause (Article 125) and try to block loan transfers. They will cite the court's 1993 ruling that EMU is compatible with Basic Law only as long as it remains an area of "monetary order" and stability. The court will first have to decide whether to accept the case. This hiatus – probably a few days – might prove sobering for markets. If the court agrees to proceed, it will become even more sobering. Bielefeld law professor Frank Meyer thinks the case will go nowhere. The no bail-out clause says only that Germany cannot be forced to rescue an EMU member. It does not prohibit voluntary help. Mrs Merkel says the rescue is to ensure EMU stability, not to help Greece. This creates a legal loophole. Yet if the package is €120bn over three years, it clearly goes beyond liquidity support. Greece is being propped up.

When the next eruption hits, Germany's political class will be in a sour mood. Berlin is already gearing up for cuts to comply with its balanced budget law, newly written into the constitution. The crisis may come from Greece again, perhaps because Pasok leader George Papandreou cannot or will not deliver on the "great sacrifices" he unveiled yesterday, a cut of 16pc in effective public wages, and a further rise in VAT to 23pc; or because the policy of cutting the primary deficit by 10pc to 12pc of GDP in three years will tip the country into a death spiral. Athens said public debt will reach 140pc by 2014 even after the cuts.

Or the eruption may occur in Portugal or any other EMU state that has suffered a deep erosion of competitiveness, and is now trapped in a deflationary currency union at an overvalued rate. Each has its own slow-burning political fuse, regardless of contagion. What is undeniable is that Club Med and Ireland are being told to implement the same policies that crippled Europe in the early 1930s, that led to Laval's "deflation decrees" in France, and led in different ways to Hitler, Franco, Antonescu, and Metaxas in Greece. Is that a good idea?

Merkel’s Coalition Steps Up Calls for EU 'Orderly Insolvencies'
by Tony Czuczka

German Chancellor Angela Merkel’s coalition stepped up calls for allowing the "orderly" default of euro-region member states to avoid any repeat of the Greek fiscal crisis. The parliamentary leaders of the three coalition parties agreed in Berlin today to put a resolution to parliament alongside the bill on Greek aid calling for the European Union to revise rules for the euro to put pressure on countries that run deficits.

Merkel said in an interview with ARD television late yesterday that it’s time to learn lessons from the Greek bailout and raised the option of "an orderly insolvency" as a way to make sure creditors participate in any future rescue. "We want to move from crisis management to crisis prevention," Birgit Homburger, the parliamentary head of Merkel’s Free Democratic coalition partner, told reporters in Berlin after the coalition leaders meeting. "We have to do everything we can to ensure we never get into such a situation again."

Volker Kauder, the floor leader of Merkel’s Christian Democrats, said that the European Commission, the EU’s executive body, must be able to better examine the finances of member states to avert any rerun of what happened in Greece. "We quite urgently need something for the members of European Monetary Union that we also didn’t have during the banking crisis two years ago," Finance Minister Wolfgang Schaeuble told reporters yesterday. "Namely the possibility of a restructuring procedure in the event of looming insolvency that helps prevent systemic contagion risks".

Too Big To Jail? Executives Unscathed As Regulators Let Banks Report Criminal Fraud
by  David Heath, Huffington Post Investigative Fund

The financial crisis has spawned hundreds of criminal prosecutions for alleged fraud. Yet so far, defendants have been mostly minor players such as real-estate agents, mortgage brokers, borrowers and a few low-level bank employees. No senior executives at large financial institutions face criminal charges.

That's in stark contrast to prosecutions during the savings and loan scandal two decades ago, when the government's strategy targeted and snagged some of banking's most powerful players. The approach back then succeeded in sending scores of S&L executives to prison, as well as junk-bond king Michael Milken and business tycoon Charles Keating Jr.

One explanation for the difference may be that key bank regulators -- who did the detective work during the S&L crisis and sent more than 1,000 criminal referrals to prosecutors -- have this time left reporting fraud up to the banks themselves. Spokesmen for two chief regulators, the Comptroller of the Currency and the Office of Thrift Supervision, say that they have not sent prosecutors a single case for criminal prosecution.

An OTS spokesman said the agency, much like the banks themselves, does not see much evidence of criminal fraud inside the financial institutions. The spokesman, Bill Ruberry, citing the agency's enforcement director, said, "There may be some isolated cases, but certainly there's no widespread patterns."

That surprises William K. Black, a former OTS official who helped coordinate criminal investigations during the S&L crisis. "Dear God," Black said when told bank regulators haven't made any criminal referrals. "Not a single one?" Black sees many signs the the government is less aggressive than during the S&L era -- and could result in more bad behavior. "This crisis was not bad luck," he said. "It was done to us. When you bring those convictions, you hope that at least for a while to deter."

Banks have reported massive amounts of fraud to the Treasury Department but have not held themselves -- or their top executives -- responsible, instead pinning blame on borrowers, independent mortgage brokers, and others. That may account for the dearth of prosections against big fry. For instance, in California, among states where the mortgage meltdown hit hardest, the Huffington Post Investigative Fund identified 170 mortgage fraud prosecutions in federal courts. Only two are against employees of a regulated lender.

An Investigative Fund analysis shows that two-thirds of the 170 prosecutions are against mortgage brokers, real-estate professionals or borrowers -- the same groups blamed by the banks when they report suspicious activities to regulators.

Besides the absence of criminal referrals, other plausible factors for the lack of major prosecutions may include a skittishness among prosecutors about filing cases they could have trouble winning, and a severe decline in investigative resources. The FBI dramatically shifted resources away from white-collar crime after the 2001 terrorist attacks. To be sure, there are also notable differences between the S&L and current financial crisis, in the behavior of lenders during both periods, and between civil allegations of fraud and proving that someone committed a crime -- all of which could account for the lack of big prosecutions.

But interviews with several law enforcement authorities suggest another explanation: A lack of active assistance to prosecutors by bank regulators who played key roles during the S&L crackdown. Those regulators sent detailed reports to prosecutors of known and suspicious criminal activity. "Only the regulators can make a lot of these cases," Black said. "The FBI can make a few, but the regulators are the ones that understand the industry."

Under intense political pressure in the late 1980s, the Justice Department and thrift regulators developed a strategy to thoroughly investigate failed S&Ls for evidence of fraud and to focus their resources on the highest ranking executives. In the early years, between 1987 and 1989, there were more than 300 prosecutions. Some bank executives were already behind bars. In 1989, Woody Lemons, chairman of Vernon Savings and Loan in Texas, was sentenced to 30 years.

In June 1990, then-OTS director Timothy Ryan told Congress that his agency had established criminal-referral units in each of 12 district offices. In addition, more than 30 OTS employees were assigned as full-time agents of grand juries or assistant US attorneys to help prosecutions. And the agency prioritized prosecutions to a Top 100 list, targeting senior S&L executives and directors.

While data on criminal referrals during the S&L crisis is spotty, the Government Accountability Office reported that in the first ten months of 1992 alone -- a random snapshot -- financial regulators sent the Justice Department more than 1,000 cases for criminal prosecution. One study showed that 35 percent of criminal referrals in Texas -- ground zero for the S&L problems -- were against officers and directors.

This time, prosecutors are relying more heavily on banks to report suspicious activity to the Treasury Department. Banks are required to report known or suspected criminal violations, including fraud, on Suspicious Activity Reports designed for the purpose. In effect, the reports, which can be many pages in length, provide substantive leads for criminal investigations.

Black scoffs at the strategy of leaving it to banks to ferret out all the fraud. "Institutions will not make criminal referrals against the people who control the institutions," said Black.

A white-collar criminologist and law professor at the University of Missouri-Kansas City, he argues that there's ample evidence of fraud. Insiders working for lenders openly referred to loans they made without proof of income as "liar loans." Many banks actively sought inflated appraisals in their rush to make as many loans as possible. As previously reported by the Investigative Fund, such lending practices contributed to the demise of Washington Mutual.

Not everyone agrees that such a case can be successful. Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent. An investor in loans who documents fraud can force a bank to buy the loan back. But convincing a jury that executives intended to make fraudulent loans, and thus should be held criminally responsible, may be too difficult of a hurdle for prosecutors.

"It doesn't make any sense to me that they would be deliberately defrauding themselves," Wagner said. So far, only sporadic news reports suggest that the Justice Department has ongoing criminal investigations against major banks such as Washington Mutual and Countrywide, as well as investment bank Goldman Sachs.

Fewer Cops on the Beat

The Justice Department, in response to written questions from the Investigative Fund, acknowledged the absence of criminal referrals from financial regulators. Months into the financial crisis, a new Financial Fraud Enforcement Task Force, formed by President Obama last fall, was trying to work out communication problems between Justice and the regulatory agencies, according to the head of the task force, Robb Adkins. Adkins has said that criminal referrals from regulators have been "too often the exception to the rule."

At a Congressional hearing in December, Assistant Attorney General Lanny Breuer was asked why there have been no criminal cases brought yet against CEOs. "Don't for a moment think [these cases] aren't being investigated," Breuer replied. "They are complicated cases. It took a long time in hatching them and developing them. But they will be brought."

The system that tracks Suspicious Activity Reports, or SARs, detected a dramatic increase in mortgage fraud starting in 2003, when reports of mortgage fraud nearly doubled within a year from 5,400 to 9,500. By 2007, the number had exploded to 53,000. During those same years, many mortgage lenders dramatically lowered their lending standards. Banks often required no proof of income. Borrowers could even get loans without be able to repay them.

Yet in their reports, banks overwhelmingly have blamed others for fraud. Whenever a borrower's income was wrong on a loan application, the banks fingered borrowers 87 percent of the time and independent mortgage brokers 64 percent of the time, according to a 2006 Treasury analysis of the SARs. But the bank's own employees were almost never blamed -- only about four times in every 1,000 reports.

That might explain why so few prosecutions have targeted bank insiders.

Another reason for fewer prosecutions against bank employees is that the Federal Bureau of Investigation has far fewer agents working on the current crisis. Deputy Director John Pistole testified before Congress last year that the bureau had 1,000 people working on the S&L crisis at its height. That compares to about 240 agents working on mortgage fraud cases last year.

The FBI dramatically shifted its resources away from white-collar crime and to terrorism after the Sept. 11 attacks. "We just didn't have the cops on the beat" during the recent crisis, said Sen. Ted Kaufman, the Delaware Democrat who conducted a hearing on the lack of criminal prosecutions. "I was around during the savings and loan crisis [as a Congressional aide] and we had a lot more folks working it when it went down."

Even with additional funding from Congress, which Kaufman helped push through, the FBI is budgeted to have 377 people working mortgage fraud cases this year, about a third as many as during the S&L investigations.

Charges Harder to Prove?

Charges in the recent banking crisis may be harder to prove, said Robert H. Tillman, who teaches at St. John's University and who analyzed data about S&L prosecutions. Savings and loan executives who were convicted often personally approved large commercial loans for projects doomed to fail. Some would use federally insured deposits to pay themselves excessive salaries or to lend money to their own real estate projects. A few even took kickbacks.

This time, lending executives may have encouraged the making of bad loans, but they generally did not personally approve the loans, Tillman said. They didn't send emails telling the troops to make fraudulent loans but paid big commissions to loan offers who made risky loans. Then the executives were able to reap huge bonuses for making the company look so profitable.

So far, the biggest cases have been civil lawsuits brought by the Securities and Exchange Commission, including most recently a highly publicized securities fraud case against Goldman Sachs and one of its vice presidents, Fabrice P. Tourre. News reports suggest that a referral from the SEC's enforcement division to the Justice Department has led to a criminal inquiry.

Typically, federal authorities deal with massive financial scandals by picking a few cases they are confident they can win, said Henry Pontell, an expert on fraud at the University of California -- Irvine. This time, the administration may have been more focused on saving failing banks -- and an entire financial system -- than in prosecuting bank executives, Pontell said. Giving billions in bailout dollars to executives who encouraged fraudulent practices not only could complicate a case, it could prove embarrasing, he added.

Ilargi: Former Senator Hollings has some no-nonsense assessments of Washington and finance for you. Excellent read.

Do a Good Job: Interview With Senator Ernest Hollings
by Chris Whalen

The housing industry is always a hot topic in Washington but now doubly so. Readers of The IRA may have noticed that Treasury Secretary Tim Geithner has been growling menacingly at the loan servicers, chastising them for not meeting the expectations of the White House regarding modifications of delinquent loans.

"I want to be clear that we do not believe servicers are doing enough to help homeowners, not doing enough to help them navigate the difficult and often frightening process of avoiding foreclosure," Geithner said in prepared remarks. We wonder, are Secretary Geithner's remarks ever unprepared?

There's now something like three quarters of a million delinquent loans festering at the Federal Housing Administration, which for months now has been entertaining proposals for ways to deal with this backlog of NPLs. As with the FDIC's loan modification program, participants must promise to modify any loans purchased from FHA. Other than pricing, our question is logistical, namely who is going to populate such efforts? Every unsecured accountant, notary and loan origination professional in the lower 48 is pretty much engaged at present.

Now you might be tempted to think that the anxiety inside the Obama Administration has to do with a heartfelt desire to help Americans facing foreclosure or at least placate voters, but no. The priority of dealing with the FHA backlog is to prevent this credit cesspool from impacting the banks which originally wrote the loans. If the FHA should determine, for example, that the bank did not adequately document or diligence the loan, then the defaulted loan can be put back to the bank for repurchase.

We hear from our friend Paul Muolo at National Mortgage News that there is a brisk business going on in imperfectly documented loans, which are cleaned up and resold to FHA or the GSEs, kind of like used cars. Sadly there is no Carfax for previously owned mortgage securitizations.

Sometimes a defaulted loan is modified and sold again, proof again of the power of the resurrection. This situation kind of reminds us of when Fannie Mae and Freddie Mac did the same thing, modifying a defaulted loan and then repackaging it into a securitization for sale to investors. Poor underwriting standards for new and modified loans is one reason why default rates at the GSEs are running so far above "normal" expectations for credit loss experience. Notice that Senator Carl Levin (D-MI) is not grilling members of Fannie and Freddie management for selling hundreds of billions worth of "shit" to the taxpayer.

As 2010 continues, we expect to see the volume level of political invective directed against banks, servicers and anybody else in the residential home foreclosure food chain to increase. Just as the White House has found it expedient to throw Goldman Sachs (GS) under the political bus in April to start the political season, the rest of the banking industry will present a convenient target come September -- especially if we're are in the midst of a double-dip in home valuations by Labor Day.

Speaking of treats, in this issue of The IRA, we speak to an old friend, former Senator Ernest Hollings, the Democrat from South Carolina. Hollings was elected to the Senate in 1966 after a special election to fill the remaining term of Olin D. Johnston and served through 2004. He is a graduate of The Citadel, served in the US Army and then as governor of South Carolina before winning a seat in the state general assembly in 1948. Hollings is a social liberal and a fiscal hawk who regularly put his Senate colleagues to shame on issues such as Social Security and the budget. We spoke to Senator Hollings from his home in Charleston.

The IRA: Senator, thank you for taking time to speak with us. Our readers really appreciate your comments.

Hollings: I apologize for not getting back to you quicker but I've been out of pocket here.

The IRA: We'll get right to it. How do you assess the situation with the US economy?

Hollings: I got elected in 1948. In those days you had to do a good job to get reelected. I pushed a sales tax to help fund improvements in education, especially for black students. We had no black education in South Carolina in those days. But my point is that you had to do a good job, to be effective in those days. Not anymore. I can tell you for that crowd coming into Washington today reelection is the first order of business and that means money. In my last race, I raised $8.5 million which is $30,000 per week, every week for six years. It means that you can't get it all in your state and especially for me in a Republican state like South Carolina. You have to travel the country looking for money. You got to rely on the Senate campaign finance committee. Chuck Schumer put $15 million in at the end of Jim Webb's campaign and elected him to the Senate in Virginia. Schumer shocked 'em in Virginia. Same thing in Massachusetts with this fellow Scott Brown. He was nine points down and $14 million came in the last ten days of the campaign. He is now the Senator from Massachusetts.

The IRA: Nothing has changed then. They used to call it Tammany Hall, now its just Chuck Schumer. So we hear that members of Congress work three days a week and fund raise Friday through Monday?

Hollings: Yes. I used to travel for all of the members of the Senate to raise money, not just the members on my committee. I even went to a fund raiser for a fellow named Barrack Obama before he was elected to the Senate. Dick Durban asked me to go. Money, money, money, money. There is a cabal comprised of the big banks, Wall Street, corporate America and the Congress -- members of both parties -- and what they decide is about money. Corporate American is off shoring as fast as they can -- the jobs and the money and investment, the research and the development, really the whole economy. In the past three months, GM produced more cars in China than in the US. We own a Chinese company. You and I and the taxpayers own an interest in a Chinese company.

The IRA: American policy on trade today certainly represents a change from the years after WW I when tariffs were still in vogue with the Republicans.

Hollings: Oh, certainly does. Old Franklin Roosevelt he said look here, everybody's going to work 24/7, women are going to have jobs. Chrysler did the tanks, GM did the B-24s. And we had the wherewithal to manufacture. The War Production Act of 1950 required that we have the domestic manufacturing base for war materials. What's happened now, as long as they keep sending the contributions we'll keep sending jobs overseas. David Axelrod doesn't know anything about trade. And trade bills must originate in the Senate, so we don't do anything about trade.

The IRA: There is a lot of talk among Democrats about a value-added tax (VAT) to raise revenues. Do you think we should have a VAT or perhaps consider a tariff instead? Should America return to the era of Pax Republicana and high tariff protection for what is left of domestic industries?

Hollings: Both. And import quotas. Richard Nixon put in place a 10% tariff in 1971. The quotas are supposed to be when the production capacity is endangered, not bankrupt as it is today. And not just in the US. Down in Mexico you need a Marshall Plan to help that country. They don't just have an economic problem. They have a drug problem and a crime problem. The mayor of Juarez lives in El Paso. He only crosses the river when he has a large protective detail around him.

The IRA: Mexico is hurt badly by predatory trade practices from China. Fred Bergsten says China's currency policy represents a 25-40% subsidy for their exports. Why shouldn't the US, Mexico and Canada, through NAFTA, have a tariff to adjust? Why should we wait for China to adjust her currency?

Hollings: Unless and until we cut off the money politics and force Barrack Obama to lighten up on the campaigning and go to work on the economy, all of the economy, we are never going to pay the bill. I'm a governor. Every governor, every mayor, has got to pay next year's bill. He's figuring out how to keep his credit rating and pay the bills. But when we get to Washington, well, oh no, you become an economist and you've got a percent of the GNP. On Page 178 of the Obama budget he projects a fiscal deficit of no less than $1 trillion per year going out over a decade.

The IRA: That's quite a change from when you left the Senate in 2004.

Hollings: We handed George W. Bush surpluses as far as the eye can see in 2001. Obama's vision is deficits of $1 trillion per year. The Concord Coalition, Pete Peterson, all of the anti-deficit groups have got the lockjaw. They say nothing about this. The economists, Paul Krugman won't talk about trade war. He and the rest of them talk about "stimulate, stimulate" as though domestic adjustment is sufficient. Baloney. They all knew what was going on years ago. The recession started in December 2007 and Henry Paulson didn't move until 2008. Paulson put in $700 billion in stimulus. The Federal Reserve put in a $1 trillion. Obama put in his $800 billion. Now all the stimulus is spent and its 2010 and we are still losing jobs. Domestic stimulus is not working.

The IRA: As we discussed with Dick Alford last week, the Fed pretends that inflation is low while we import deflation via foreign imports. He pointed us to a 2005 speech by Fed Vice Chairman Don Kohn where he estimated that the decline in import prices since the mid-1990s has shaved between 1/2 and 1 percentage point off core inflation over the past ten years.

Hollings: That's exactly right. Microsoft wanted to bring in all of these engineers from India and China to do their grunt work up there in Redmond Washington. But it all comes back to the money thing. Senator Mike Mansfield used to have a vote on Monday morning to get a quorum for the Senate to do business and would keep us in session until Friday's at 5:00. Not anymore. Mondays and Fridays are gone. We fund raise. We love filibusters. We get a Republican and a Democrats to hold the floor and the rest go out and fund raise. We can go to California and New York and fund-raise, fund-raise.

The IRA: Do the members of the Senate take turns holding the floor?

Hollings: Yes. As soon as they threatened this week to bring out the cots for a filibuster on financial reform the Republicans said "no, you're playing dirty!" They said we'll agree, we'll agree. They never had a true filibuster and everything else on financial reform. We agree to have filibusters so that both sides can raise money.

The IRA: We often feel walking around Capitol Hill that it has become a soundstage. Real business does not seem to occur there any longer. It seems very corporate. All of the people have been out-sourced to lobbyists offices but somebody forgot to turn off the lights. Are we too critical?

Hollings: No. Look, you're elected and you come to Washington. You've got 30 plus staff and friends on the committee. You've got friends on the senatorial campaign committee. You got contacts with the lobbyists who are the direct source of money and you organize your staff to fund raise. In 2004, my last year in the Senate, I raised $600,000 for the Democratic campaign committee. Those girls in the committee worked me hard.

The IRA: Where do the people of the US obtain the leverage to change money politics? We've described the relationship between the Congress, the Fed and the Big Banks as "the alliance of convenience." How do you attack this problem and win? Money has been part of American politics for all long as we have been a nation.

Hollings: That's right. I am as frustrated as any. I speak and write but it has no effect on Larry Summers and Tim Geithner, who sank the trade policy. They want to keep Wall Street and the banks up and Goldman Sachs up. They don't give a damn about jobs or environmental safety of labor in Shanghai. As long as the market's up they think we have a good economy. The market's up my ass. We're broke. Everybody's broke. We have 12 % unemployment in South Carolina, where we have growing industries. Republicans and Democrats don't want to lead. All they talk about is "bipartisanship, bipartisanship." Hell, in 1993 we did not get a single Republican vote. We increased taxes on liquor, tobacco even Social Security. I couldn't get Sam Nunn's vote or Bennett Johnson's vote either, but old Al Gore broke the tie and we got it. We had eight years of the strongest economy and handed George Bush budget surpluses. Now both sides are saying "oh no, we're not going to raise the taxes." And then Obama comes in and gives tax breaks away in the stimulus package. It is ridiculous to manage our fiscal affairs in this way. The only way to fix it is to educate the public on what is going on. Rather than a "hue and cry" about Wall Street, we should be talking about how to fix our nation's finances.

The IRA: So how do you raise tax revenue with such a soft economy?

Hollings: I worked on this with the economists. A two percent VAT brings in more revenue than the corporate income tax.

The IRA: Do we get rid of the corporate tax? End the double taxation of corporate earnings?

Hollings: Yes. You could cancel the corporate tax. Put in a two percent VAT for general revenues and one percent for health care and perhaps a dedicated tax to reduce the debt. There is never a good time to raise taxes, but you could construct a VAT between three and five percent that decreases the deficit and pays for some of the things we need to do as a nation. You cut the corporate tax, just eliminate it.

The IRA: So is this the deal with the corporates: We reduce corporate taxes but also prohibit corporate action in politics? Get them out of politics entirely?

Hollings: Obama wants to promote exports. This gives corporations a huge lift in terms of profitability and competitiveness, and raises badly needed revenue. More than one hundred countries raise their revenue in this way. It is not a question of a tariff or quotas or a VAT, but all of the above. Freeze spending in Washington and make the government run itself back into a surplus with higher tax revenues. You cancel half of the political "earmarks" for spending projects. Remember that George Bush signed all of the spending bills from the Congress.

The IRA: That's how they do it in Texas. How do you see trade policy evolving in the US? Will there be a swing back to a more protectionist posture in Washington?

Hollings: There is not going to be a swing back, but a work back to protectionism. There is going to be a renewed focus on manufacturing and sourcing those product that are essential for our national security. But we need to focus on why we have a continued hole in the economy due to off-shoring jobs and spend less time and money on stimulus. We don't need a fiscal commission to tell us what to do next year. The White House is waiting on Erskine Bowles and Alan Simpson to report on the fiscal situation. The House and the third of the Senate who are up for reelection in 2012 won't vote for their recommendations.

The IRA: Attacking the banks has become very popular. The political fortunes of Blanche Lincoln (D-AR) were turned around by proposing limits on derivatives and her positions was relatively pro-industry at the end of the day. Democrats are certainly not getting much credit for health care reform.

Hollings: Well, by the time Obama got his deal they should have let it go and blamed the Republicans for blocking it for a year. We got Republican health care. Insurance companies are still in control.

The IRA: Barrack Obama really does come off as almost a liberal Republican politically. How do you feel about Obama as a life-long Democrat?

Hollings: Nobody wants to be seen disagreeing with him so we don't have much of an opposition. I like him and think he is smart. I think Obama is inexperienced and that he needs the right help and that's why I have been trying to help him. Larry Summers and [Treasury Secretary] Geithner ought to be fired immediately. And then let's stop competing in Washington and talking about the benefits of globalization. In fact, globalization is just nothing more than a trade war with production looking for a cheaper country to produce.

The IRA: Beggar thy citizen.

Hollings: They are going to China, they are going to India or Vietnam or wherever they can. Business is business. And we have come to a cul-de-sac in this country where we cannot produce many goods at a profit. If Christopher Whalen Manufacturing goes to the bank and says I can manufacturer this desk for x dollars, lend me $2 million to set up a factory. The banker will say well can you meet the price of the China place? Hollings Manufacturer has moved to China and can bring that desk into this country cheaper than you can manufacturer right here. The banker won't make the loan.

The IRA: In the neo-liberal world, we norte americanos are supposed to be stoic like our brothers and sisters in Mexico and say nothing as the Chinese and Indians take our jobs. So what happens in November to Obama and the Democrats?

Hollings: I am out of the loop now in terms of fund raising and the candidates, so I can't say generally. Looking at some of the incumbent governors like Charlie Crist, though, takes me back to what I was saying about doing a good job. Crist is doing a good job. He is personally popular. Whether or not Crist can get the money he needs in the state will be the deciding factor. The Republicans have gone crazy with the Tea Party and Sarah Palin, so they won't help him. The Democrats won't help him. So he has done the calculus and figures that he'll run as an independent and go against the party system.

The IRA: Maybe that the is pathway of change. Thanks for your time Senator.

Nobody Knows the Trouble We'll See
by James Moore

We might be powerless.

The oil flowing out from the seabed in the Gulf of Mexico may be under such great pressure that we do not possess technology to stop the tragedy. Chances are quite good we have no true sense of the dire nature of the situation. The facts that have been ascertained, however, lead to a dark scenario.

We know that the blowout preventers did not work but we do not know why. There are theories, though. The Deepwater Horizon rig was floating on pontoons about 5000 feet above the floor of the Gulf. When drillers struck an oil deposit, the bit was reported to be at about 18,000 feet, which is approximately three and a half miles beneath the platform. Does science even know what kind of pressure can be encountered at that depth, under almost a mile of water and two and half miles of rock?

BP and Transocean, which owns the rig, has said there was a maximum working pressure of 20,000 PSI but the system was able to handle a kickback pressure from gasses of about 60,000 PSI. The breakdown of the blowout preventers can be interpreted to mean the pressure coming up from the hole exceeded 60,000 PSI. Generally, various mixtures of mud circulate up and down the drill pipe to act as lubricants and equalize pressures encountered at great depth, and this process was said to be working at the time of the accident. Does this mean it's possible, even likely, that the Deepwater Horizon encountered pressures current technologies are not equipped to handle?

Although BP and Washington are trying very hard to convince the public that everything possible is being done to stem the flow of crude, there is seemingly little that might be accomplished. 5000 feet below the surface of the water with oil blasting out at tens of thousands of PSI, and wreckage from the giant rig scattered about, fixes are not easy to find. The latest plan is for a special funnel to be placed over the spout, which will then force the flow into a pumping channel. But how does a funnel get placed over the top of anything pushing at that kind of pressure? Consider that story to be an unrealistic solution.

A well blowout in 1979 offers a bit of context; except the Deepwater Horizon horror show is already about to transcend what happened in the Bay of Campeche off the coast of Mexico. The Ixtoc 1 rig blew and began to spew crude that flowed uninterrupted for nine months. Before the well was capped, 3,000,000 barrels of crude had drifted north to Texas and the northern coast of Mexico. The endangered Kemps-Ridley turtle, which nests along the border beaches, had to be airlifted to safety and has only begun in recent years to recover in population.

The Ixtoc disaster, however, is spit in the ocean compared to the British Petroleum apocalypse. Estimates are the current blowout is putting 200,000 gallons or 5000 barrels of crude per day into the waters of the Gulf. Ixtoc's blowout was not capped until two relief wells were drilled and completed at the end of those nine months, and regardless of optimistic scenarios from the federal government or BP, relieving the pressure on the current flow is probably the only way to stop the polluting release of oil. The only way to relieve that pressure is with additional wells. No one is going to honestly say how much time is needed to drill such wells but consider the scope of environmental damage we are confronting if it requires at least as long as Ixtoc. Nine months of 5000 barrels of crude per day ought to turn the Gulf of Mexico into a lifeless spill pond and set toxins on currents that will carry them to deadly business around the globe.

NOAA apparently believes the situation is on the verge of getting worse. A leaked memo suggests that the tangle of pipes on the ocean floor are covering and constraining two other release points. Pressure is likely to blow those loose and, according to NOAA, the gusher will increase by "orders of magnitude." In most interpretations, that phrase means a ten-fold rise in the flow, which will replicate the Ixtoc disaster in three days.

And there are no guarantees relief wells are the fix. That is a complicated project. They are drilled to intersect the main well and then concrete is forced down the holes to seal the leaking well. What do we do, if that doesn't work? Humans cannot function at 5000 feet of ocean depth and the mitigation efforts currently are being handled by robotic remotes. What is left to us as a solution other than an explosive device, which is often what is deployed during above ground blowouts? Given the pressures reported and the amount of flow, we may need a bunker-buster nuke to be placed over the wellhead. We can then begin to talk about the water pressures caused by burst at detonation and residual radiation. Is that a better or worse situation? Certainly, aquatic life in the Gulf of Mexico is doomed unless there is a reclusive genius to step forward and save us from our great failure.

The attorney general of Texas, Greg Abbot, informed reporters that it appears Texas will escape harm. Abbot's visionary powers must exceed his legal skills since there is no way to know when and even if the well will ever be capped. In fact, if there is no plug placed in the hole, it is not inconceivable that no part of the planet's oceans will escape harm. According to the non-profit, non-partisan Air and Waste Management Association, a quart of crude oil will make 150,000 gallons of water toxic to aquatic life. BP, which has been marketing itself as an energy company "beyond petroleum," is setting loose upon the planet what is quickly turning into humankind's worst environmental disaster.

Tone-deaf politicians, especially from Texas, are trying to manage public fears, which is exactly what the state's former governor attempted in 1979. Bill Clements, who was one of the founders of SEDCO and owned the Ixtoc platform, originally described concerns as "much ado about nothing." As oil moved toward the pristine beaches of the Padre Island National Seashore, his advice was to "pray for a hurricane." I confronted Clements on his lack of concern and he stuck his finger in my chest and told me the state was not hurt. Thirty years later the tar balls still roll in with shifts of tide and wind and oil was everywhere on the beach for years.

Anyone who thinks this tragedy is not going to result in massive kills of marine life is either blind, ignorant, or in denial. The one scenario that we all refuse to confront is the possibility that it is beyond our capabilities to stop this undersea blast of oil. If that is the case, the flow continues until the pressure eases, which might be years. How much ecological injury will that cause our planet?

NOAA Warned Interior It Was Underestimating Threat Of Serious Spill
by Dan Froomkin

National Oceanic & Atmospheric Administration officials last fall warned the Department of Interior, which regulates offshore oil drilling, that it was dramatically underestimating the frequency of offshore oil spills and was dangerously understating the risk and impacts a major spill would have on coastal residents. NOAA is the nation's lead ocean resource agency, and the warnings came in its response to a draft of the Obama Administration's offshore oil drilling plans. The comments were Web-published in October by the whistle-blowing group, Public Employees for Environmental Responsibility (PEER).

But NOAA's views were largely brushed aside as Obama went ahead and announced on March 31 that he would open vast swaths of American coastal waters to offshore drilling -- a plan now very much in doubt as a blown-out BP well in the Gulf of Mexico spews out an estimated 200,000 gallons of oil daily, for the 13th straight day. The memo, which NOAA Administrator Jane Lubchenco wrote was based on the agency's "extensive science, management and stewardship expertise related to oceans, coasts and marine ecosystem" recommended that Interior conduct "a more complete analysis of the potential human dimensions of offshore production."

NOAA complained that the draft report overstated the safety of offshore oil production by using information on frequency of spills from 1973 to 2004. NOAA pointed out there was a "substantial increase in spill volume in 2005, primarily due to spills associated with Hurricanes Katrina and Rita. Some of the damaged rigs and pipelines damaged during the 2004 and 2005 hurricane seasons continue to have episodic releases, and repairs have not been fully completed."

Citing Interior's own data, NOAA scolded it for asserting that it had "been many years since any substantial environmental impacts have been observed as a result of an oil spill caused by the [Outer Continental Shelf] production and transportation activities." NOAA also wrote that the administration's "analysis of the risk and impacts of accidental spills and chronic impacts are understated and generally not supported or referenced, using vague terms and phrases such as 'no substantive degradation is expected' and 'some marine mammals could be harmed.'"

NOAA didn't even take comfort in the fact that new technology and laws had reduced the frequency of major spills in the U.S. overall since 1990. Analysts including the Congressional Research Service "have questioned the trend in spills, suggesting that '[r]ecent annual data indicate that the overall decline of annual spill events may have stopped' and that '[t]he threat of oil spills raises the question of whether U.S. officials have the necessary resources at hand to respond to a major spill. There is some concern that the favorable U.S. spill record has resulted in a loss of experienced personnel, capable of responding quickly and effectively to a major oil spill.'"

UPDATE : NOAA officials Monday evening stressed the parts of their memo that were heeded by Interior. "NOAA's critical concerns were addressed in the comprehensive national offshore energy plan -- new drilling leases in the Arctic and the Aleutian Bay were halted," spokesman Scott Smullen told HuffPost. "In addition, the plan included more detailed assessments of the environmental impact on marine habitats and endangered species, as well climate change and ocean acidification."

Jeff Ruch, the head of the public-employee whistleblowing group, said that as in many other regulatory agencies, Obama political appointees in the Interior Department's notoriously troubled Minerals Management Service (MMS) have not taken enough steps to reverse the anti-environmental and anti-science policies of the Bush years. "For the most part, the Obama team is still the Bush team," Ruch told HuffPost, noting that beyond a thin layer of political appointees, offices like MMS are run by managers who were "promoted during the Bush years -- In many instances, promoted for basically violating the law. And from what we can tell, their conduct hasn't changed."

Futhermore, Ruch said, Obama "sees environmental issues as a political bargaining chip." Indeed, Obama's decision to increase offshore drilling was widely seen as a way of getting some Republican support for the administration's climate change bill.

Farmers Cope With Roundup-Resistant Weeds
by William Neuman and Andrew Pollack

For 15 years, Eddie Anderson, a farmer, has been a strict adherent of no-till agriculture, an environmentally friendly technique that all but eliminates plowing to curb erosion and the harmful runoff of fertilizers and pesticides. But not this year. On a recent afternoon here, Mr. Anderson watched as tractors crisscrossed a rolling field — plowing and mixing herbicides into the soil to kill weeds where soybeans will soon be planted.

Just as the heavy use of antibiotics contributed to the rise of drug-resistant supergerms, American farmers’ near-ubiquitous use of the weedkiller Roundup has led to the rapid growth of tenacious new superweeds. To fight them, Mr. Anderson and farmers throughout the East, Midwest and South are being forced to spray fields with more toxic herbicides, pull weeds by hand and return to more labor-intensive methods like regular plowing. "We’re back to where we were 20 years ago," said Mr. Anderson, who will plow about one-third of his 3,000 acres of soybean fields this spring, more than he has in years. "We’re trying to find out what works."

Farm experts say that such efforts could lead to higher food prices, lower crop yields, rising farm costs and more pollution of land and water. "It is the single largest threat to production agriculture that we have ever seen," said Andrew Wargo III, the president of the Arkansas Association of Conservation Districts.

The first resistant species to pose a serious threat to agriculture was spotted in a Delaware soybean field in 2000. Since then, the problem has spread, with 10 resistant species in at least 22 states infesting millions of acres, predominantly soybeans, cotton and corn. The superweeds could temper American agriculture’s enthusiasm for some genetically modified crops. Soybeans, corn and cotton that are engineered to survive spraying with Roundup have become standard in American fields. However, if Roundup doesn’t kill the weeds, farmers have little incentive to spend the extra money for the special seeds.

Roundup — originally made by Monsanto but now also sold by others under the generic name glyphosate — has been little short of a miracle chemical for farmers. It kills a broad spectrum of weeds, is easy and safe to work with, and breaks down quickly, reducing its environmental impact. Sales took off in the late 1990s, after Monsanto created its brand of Roundup Ready crops that were genetically modified to tolerate the chemical, allowing farmers to spray their fields to kill the weeds while leaving the crop unharmed. Today, Roundup Ready crops account for about 90 percent of the soybeans and 70 percent of the corn and cotton grown in the United States.

But farmers sprayed so much Roundup that weeds quickly evolved to survive it. "What we’re talking about here is Darwinian evolution in fast-forward," Mike Owen, a weed scientist at Iowa State University, said. Now, Roundup-resistant weeds like horseweed and giant ragweed are forcing farmers to go back to more expensive techniques that they had long ago abandoned.

Mr. Anderson, the farmer, is wrestling with a particularly tenacious species of glyphosate-resistant pest called Palmer amaranth, or pigweed, whose resistant form began seriously infesting farms in western Tennessee only last year. Pigweed can grow three inches a day and reach seven feet or more, choking out crops; it is so sturdy that it can damage harvesting equipment. In an attempt to kill the pest before it becomes that big, Mr. Anderson and his neighbors are plowing their fields and mixing herbicides into the soil.

That threatens to reverse one of the agricultural advances bolstered by the Roundup revolution: minimum-till farming. By combining Roundup and Roundup Ready crops, farmers did not have to plow under the weeds to control them. That reduced erosion, the runoff of chemicals into waterways and the use of fuel for tractors. If frequent plowing becomes necessary again, "that is certainly a major concern for our environment," Ken Smith, a weed scientist at the University of Arkansas, said.

In addition, some critics of genetically engineered crops say that the use of extra herbicides, including some old ones that are less environmentally tolerable than Roundup, belies the claims made by the biotechnology industry that its crops would be better for the environment. "The biotech industry is taking us into a more pesticide-dependent agriculture when they’ve always promised, and we need to be going in, the opposite direction," said Bill Freese, a science policy analyst for the Center for Food Safety in Washington.

So far, weed scientists estimate that the total amount of United States farmland afflicted by Roundup-resistant weeds is relatively small — seven million to 10 million acres, according to Ian Heap, director of the International Survey of Herbicide Resistant Weeds, which is financed by the agricultural chemical industry. There are roughly 170 million acres planted with corn, soybeans and cotton, the crops most affected. Roundup-resistant weeds are also found in several other countries, including Australia, China and Brazil, according to the survey.

Monsanto, which once argued that resistance would not become a major problem, now cautions against exaggerating its impact. "It’s a serious issue, but it’s manageable," said Rick Cole, who manages weed resistance issues in the United States for the company. Of course, Monsanto stands to lose a lot of business if farmers use less Roundup and Roundup Ready seeds. "You’re having to add another product with the Roundup to kill your weeds," said Steve Doster, a corn and soybean farmer in Barnum, Iowa. "So then why are we buying the Roundup Ready product?"

Monsanto argues that Roundup still controls hundreds of weeds. But the company is concerned enough about the problem that it is taking the extraordinary step of subsidizing cotton farmers’ purchases of competing herbicides to supplement Roundup. Monsanto and other agricultural biotech companies are also developing genetically engineered crops resistant to other herbicides.

Bayer is already selling cotton and soybeans resistant to glufosinate, another weedkiller. Monsanto’s newest corn is tolerant of both glyphosate and glufosinate, and the company is developing crops resistant to dicamba, an older pesticide. Syngenta is developing soybeans tolerant of its Callisto product. And Dow Chemical is developing corn and soybeans resistant to 2,4-D, a component of Agent Orange, the defoliant used in the Vietnam War. Still, scientists and farmers say that glyphosate is a once-in-a-century discovery, and steps need to be taken to preserve its effectiveness.

Glyphosate "is as important for reliable global food production as penicillin is for battling disease," Stephen B. Powles, an Australian weed expert, wrote in a commentary in January in The Proceedings of the National Academy of Sciences. The National Research Council, which advises the federal government on scientific matters, sounded its own warning last month, saying that the emergence of resistant weeds jeopardized the substantial benefits that genetically engineered crops were providing to farmers and the environment.

Weed scientists are urging farmers to alternate glyphosate with other herbicides. But the price of glyphosate has been falling as competition increases from generic versions, encouraging farmers to keep relying on it. Something needs to be done, said Louie Perry Jr., a cotton grower whose great-great-grandfather started his farm in Moultrie, Ga., in 1830.

Georgia has been one of the states hit hardest by Roundup-resistant pigweed, and Mr. Perry said the pest could pose as big a threat to cotton farming in the South as the beetle that devastated the industry in the early 20th century. "If we don’t whip this thing, it’s going to be like the boll weevil did to cotton," said Mr. Perry, who is also chairman of the Georgia Cotton Commission. "It will take it away."

Fears for crops as shock figures from America show scale of bee catastrophe
by Alison Benjamin

Disturbing evidence that honeybees are in terminal decline has emerged from the United States where, for the fourth year in a row, more than a third of colonies have failed to survive the winter. The decline of the country's estimated 2.4 million beehives began in 2006, when a phenomenon dubbed colony collapse disorder (CCD) led to the disappearance of hundreds of thousands of colonies. Since then more than three million colonies in the US and billions of honeybees worldwide have died and scientists are no nearer to knowing what is causing the catastrophic fall in numbers.

The number of managed honeybee colonies in the US fell by 33.8% last winter, according to the annual survey by the Apiary Inspectors of America and the US government's Agricultural Research Service (ARS). The collapse in the global honeybee population is a major threat to crops. It is estimated that a third of everything we eat depends upon honeybee pollination, which means that bees contribute some £26bn to the global economy.

Potential causes range from parasites, such as the bloodsucking varroa mite, to viral and bacterial infections, pesticides and poor nutrition stemming from intensive farming methods. The disappearance of so many colonies has also been dubbed "Mary Celeste syndrome" due to the absence of dead bees in many of the empty hives. US scientists have found 121 different pesticides in samples of bees, wax and pollen, lending credence to the notion that pesticides are a key problem. "We believe that some subtle interactions between nutrition, pesticide exposure and other stressors are converging to kill colonies," said Jeffery Pettis, of the ARS's bee research laboratory.

A global review of honeybee deaths by the World Organisation for Animal Health (OIE) reported last week that there was no one single cause, but pointed the finger at the "irresponsible use" of pesticides that may damage bee health and make them more susceptible to diseases. Bernard Vallat, the OIE's director-general, warned: "Bees contribute to global food security, and their extinction would represent a terrible biological disaster."

Dave Hackenberg of Hackenberg Apiaries, the Pennsylvania-based commercial beekeeper who first raised the alarm about CCD, said that last year had been the worst yet for bee losses, with 62% of his 2,600 hives dying between May 2009 and April 2010. "It's getting worse," he said. "The AIA survey doesn't give you the full picture because it is only measuring losses through the winter. In the summer the bees are exposed to lots of pesticides. Farmers mix them together and no one has any idea what the effects might be."

Pettis agreed that losses in some commercial operations are running at 50% or greater. "Continued losses of this magnitude are not economically sustainable for commercial beekeepers," he said, adding that a solution may be years away. "Look at Aids, they have billions in research dollars and a causative agent and still no cure. Research takes time and beehives are complex organisms."

In the UK it is still too early to judge how Britain's estimated 250,000 honeybee colonies have fared during the long winter. Tim Lovett, president of the British Beekeepers' Association, said: "Anecdotally, it is hugely variable. There are reports of some beekeepers losing almost a third of their hives and others losing none." Results from a survey of the association's 15,000 members are expected this month.

John Chapple, chairman of the London Beekeepers' Association, put losses among his 150 members at between a fifth and a quarter. Eight of his 36 hives across the capital did not survive. "There are still a lot of mysterious disappearances," he said. "We are no nearer to knowing what is causing them."

Bee farmers in Scotland have reported losses on the American scale for the past three years. Andrew Scarlett, a Perthshire-based bee farmer and honey packer, lost 80% of his 1,200 hives this winter. But he attributed the massive decline to a virulent bacterial infection that quickly spread because of a lack of bee inspectors, coupled with sustained poor weather that prevented honeybees from building up sufficient pollen and nectar stores.

The government's National Bee Unit has always denied the existence of CCD in Britain, despite honeybee losses of 20% during the winter of 2008-09 and close to a third the previous year. It attributes the demise to the varroa mite – which is found in almost every UK hive – and rainy summers that stop bees foraging for food.

In a hard-hitting report last year, the National Audit Office suggested that amateur beekeepers who failed to spot diseases in bees were a threat to honeybees' survival and called for the National Bee Unit to carry out more inspections and train more beekeepers. Last summer MPs on the influential cross-party public accounts committee called on the government to fund more research into what it called the "alarming" decline of honeybees.

The Department for the Environment, Food and Rural Affairs has contributed £2.5m towards a £10m fund for research on pollinators. The public accounts committee has called for a significant proportion of this funding to be "ring-fenced" for honeybees. Decisions on which research projects to back are expected this month.

Why Bees Matter
Flowering plants require insects for pollination. The most effective is the honeybee, which pollinates 90 commercial crops worldwide. As well as most fruits and vegetables – including apples, oranges, strawberries, onions and carrots – they pollinate nuts, sunflowers and oil-seed rape. Coffee, soya beans, clovers – like alfafa, which is used for cattle feed – and even cotton are all dependent on honeybee pollination to increase yields.

In the UK alone, honeybee pollination is valued at £200m. Mankind has been managing and transporting bees for centuries to pollinate food and produce honey, nature's natural sweetener and antiseptic. Their extinction would mean not only a colourless, meatless diet of cereals and rice, and cottonless clothes, but a landscape without orchards, allotments and meadows of wildflowers – and the collapse of the food chain that sustains wild birds and animals.

How to build a time machine
by Stephen Hawking

All you need is a wormhole, the Large Hadron Collider or a rocket that goes really, really fast

Stephen Hawking
'Through the wormhole, the scientist can see himself as he was one minute ago. But what if our scientist uses the wormhole to shoot his earlier self? He's now dead. So who fired the shot?'

Hello. My name is Stephen Hawking. Physicist, cosmologist and something of a dreamer. Although I cannot move and I have to speak through a computer, in my mind I am free. Free to explore the universe and ask the big questions, such as: is time travel possible? Can we open a portal to the past or find a shortcut to the future? Can we ultimately use the laws of nature to become masters of time itself?

Time travel was once considered scientific heresy. I used to avoid talking about it for fear of being labelled a crank. But these days I'm not so cautious. In fact, I'm more like the people who built Stonehenge. I'm obsessed by time. If I had a time machine I'd visit Marilyn Monroe in her prime or drop in on Galileo as he turned his telescope to the heavens. Perhaps I'd even travel to the end of the universe to find out how our whole cosmic story ends.

To see how this might be possible, we need to look at time as physicists do - at the fourth dimension. It's not as hard as it sounds. Every attentive schoolchild knows that all physical objects, even me in my chair, exist in three dimensions. Everything has a width and a height and a length.

But there is another kind of length, a length in time. While a human may survive for 80 years, the stones at Stonehenge, for instance, have stood around for thousands of years. And the solar system will last for billions of years. Everything has a length in time as well as space. Travelling in time means travelling through this fourth dimension.

To see what that means, let's imagine we're doing a bit of normal, everyday car travel. Drive in a straight line and you're travelling in one dimension. Turn right or left and you add the second dimension. Drive up or down a twisty mountain road and that adds height, so that's travelling in all three dimensions. But how on Earth do we travel in time? How do we find a path through the fourth dimension?

Let's indulge in a little science fiction for a moment. Time travel movies often feature a vast, energy-hungry machine. The machine creates a path through the fourth dimension, a tunnel through time. A time traveller, a brave, perhaps foolhardy individual, prepared for who knows what, steps into the time tunnel and emerges who knows when. The concept may be far-fetched, and the reality may be very different from this, but the idea itself is not so crazy.

Physicists have been thinking about tunnels in time too, but we come at it from a different angle. We wonder if portals to the past or the future could ever be possible within the laws of nature. As it turns out, we think they are. What's more, we've even given them a name: wormholes. The truth is that wormholes are all around us, only they're too small to see. Wormholes are very tiny. They occur in nooks and crannies in space and time. You might find it a tough concept, but stay with me.

Time travel through a wormhole
A wormhole is a theoretical 'tunnel' or shortcut, predicted by Einstein's theory of relativity, that links two places in space-time - visualised above as the contours of a 3-D map, where negative energy pulls space and time into the mouth of a tunnel, emerging in another universe. They remain only hypothetical, as obviously nobody has ever seen one, but have been used in films as conduits for time travel - in Stargate (1994), for example, involving gated tunnels between universes, and in Time Bandits (1981), where their locations are shown on a celestial map

Nothing is flat or solid. If you look closely enough at anything you'll find holes and wrinkles in it. It's a basic physical principle, and it even applies to time. Even something as smooth as a pool ball has tiny crevices, wrinkles and voids. Now it's easy to show that this is true in the first three dimensions. But trust me, it's also true of the fourth dimension. There are tiny crevices, wrinkles and voids in time. Down at the smallest of scales, smaller even than molecules, smaller than atoms, we get to a place called the quantum foam. This is where wormholes exist. Tiny tunnels or shortcuts through space and time constantly form, disappear, and reform within this quantum world. And they actually link two separate places and two different times.

Unfortunately, these real-life time tunnels are just a billion-trillion-trillionths of a centimetre across. Way too small for a human to pass through - but here's where the notion of wormhole time machines is leading. Some scientists think it may be possible to capture a wormhole and enlarge it many trillions of times to make it big enough for a human or even a spaceship to enter.

Given enough power and advanced technology, perhaps a giant wormhole could even be constructed in space. I'm not saying it can be done, but if it could be, it would be a truly remarkable device. One end could be here near Earth, and the other far, far away, near some distant planet.

Theoretically, a time tunnel or wormhole could do even more than take us to other planets. If both ends were in the same place, and separated by time instead of distance, a ship could fly in and come out still near Earth, but in the distant past. Maybe dinosaurs would witness the ship coming in for a landing.

The fastest manned vehicle in history was Apollo 10. It reached 25,000mph. But to travel in time we'll have to go more than 2,000 times faster

Now, I realise that thinking in four dimensions is not easy, and that wormholes are a tricky concept to wrap your head around, but hang in there. I've thought up a simple experiment that could reveal if human time travel through a wormhole is possible now, or even in the future. I like simple experiments, and champagne.

So I've combined two of my favourite things to see if time travel from the future to the past is possible.

Let's imagine I'm throwing a party, a welcome reception for future time travellers. But there's a twist. I'm not letting anyone know about it until after the party has happened. I've drawn up an invitation giving the exact coordinates in time and space. I am hoping copies of it, in one form or another, will be around for many thousands of years. Maybe one day someone living in the future will find the information on the invitation and use a wormhole time machine to come back to my party, proving that time travel will, one day, be possible.

In the meantime, my time traveller guests should be arriving any moment now. Five, four, three, two, one. But as I say this, no one has arrived. What a shame. I was hoping at least a future Miss Universe was going to step through the door. So why didn't the experiment work? One of the reasons might be because of a well-known problem with time travel to the past, the problem of what we call paradoxes.

Paradoxes are fun to think about. The most famous one is usually called the Grandfather paradox. I have a new, simpler version I call the Mad Scientist paradox.

I don't like the way scientists in movies are often described as mad, but in this case, it's true. This chap is determined to create a paradox, even if it costs him his life. Imagine, somehow, he's built a wormhole, a time tunnel that stretches just one minute into the past.

Stephen Hawking in a scene from Star Trek
Hawking in a scene from Star Trek with dinner guests from the past, and future: (from left) Albert Einstein, Data and Isaac Newton

Through the wormhole, the scientist can see himself as he was one minute ago. But what if our scientist uses the wormhole to shoot his earlier self? He's now dead. So who fired the shot? It's a paradox. It just doesn't make sense. It's the sort of situation that gives cosmologists nightmares.

This kind of time machine would violate a fundamental rule that governs the entire universe - that causes happen before effects, and never the other way around. I believe things can't make themselves impossible. If they could then there'd be nothing to stop the whole universe from descending into chaos. So I think something will always happen that prevents the paradox. Somehow there must be a reason why our scientist will never find himself in a situation where he could shoot himself. And in this case, I'm sorry to say, the wormhole itself is the problem.

In the end, I think a wormhole like this one can't exist. And the reason for that is feedback. If you've ever been to a rock gig, you'll probably recognise this screeching noise. It's feedback. What causes it is simple. Sound enters the microphone. It's transmitted along the wires, made louder by the amplifier, and comes out at the speakers. But if too much of the sound from the speakers goes back into the mic it goes around and around in a loop getting louder each time. If no one stops it, feedback can destroy the sound system.

The same thing will happen with a wormhole, only with radiation instead of sound. As soon as the wormhole expands, natural radiation will enter it, and end up in a loop. The feedback will become so strong it destroys the wormhole. So although tiny wormholes do exist, and it may be possible to inflate one some day, it won't last long enough to be of use as a time machine. That's the real reason no one could come back in time to my party.

Any kind of time travel to the past through wormholes or any other method is probably impossible, otherwise paradoxes would occur. So sadly, it looks like time travel to the past is never going to happen. A disappointment for dinosaur hunters and a relief for historians.

But the story's not over yet. This doesn't make all time travel impossible. I do believe in time travel. Time travel to the future. Time flows like a river and it seems as if each of us is carried relentlessly along by time's current. But time is like a river in another way. It flows at diff erent speeds in diff erent places and that is the key to travelling into the future. This idea was first proposed by Albert Einstein over 100 years ago. He realised that there should be places where time slows down, and others where time speeds up. He was absolutely right. And the proof is right above our heads. Up in space.

This is the Global Positioning System, or GPS. A network of satellites is in orbit around Earth. The satellites make satellite navigation possible. But they also reveal that time runs faster in space than it does down on Earth. Inside each spacecraft is a very precise clock. But despite being so accurate, they all gain around a third of a billionth of a second every day. The system has to correct for the drift, otherwise that tiny di fference would upset the whole system, causing every GPS device on Earth to go out by about six miles a day. You can just imagine the mayhem that that would cause.

The problem doesn't lie with the clocks. They run fast because time itself runs faster in space than it does down below. And the reason for this extraordinary e ffect is the mass of the Earth. Einstein realised that matter drags on time and slows it down like the slow part of a river. The heavier the object, the more it drags on time. And this startling reality is what opens the door to the possibility of time travel to the future.

Right in the centre of the Milky Way, 26,000 light years from us, lies the heaviest object in the galaxy. It is a supermassive black hole containing the mass of four million suns crushed down into a single point by its own gravity. The closer you get to the black hole, the stronger the gravity. Get really close and not even light can escape. A black hole like this one has a dramatic e ffect on time, slowing it down far more than anything else in the galaxy. That makes it a natural time machine.

I like to imagine how a spaceship might be able to take advantage of this phenomenon, by orbiting it. If a space agency were controlling the mission from Earth they'd observe that each full orbit took 16 minutes. But for the brave people on board, close to this massive object, time would be slowed down. And here the e ffect would be far more extreme than the gravitational pull of Earth. The crew's time would be slowed down by half. For every 16-minute orbit, they'd only experience eight minutes of time.

The Large Hadron Collider
Inside the Large Hadron Collider

Around and around they'd go, experiencing just half the time of everyone far away from the black hole. The ship and its crew would be travelling through time. Imagine they circled the black hole for five of their years. Ten years would pass elsewhere. When they got home, everyone on Earth would have aged five years more than they had.

So a supermassive black hole is a time machine. But of course, it's not exactly practical. It has advantages over wormholes in that it doesn't provoke paradoxes. Plus it won't destroy itself in a flash of feedback. But it's pretty dangerous. It's a long way away and it doesn't even take us very far into the future. Fortunately there is another way to travel in time. And this represents our last and best hope of building a real time machine.

You just have to travel very, very fast. Much faster even than the speed required to avoid being sucked into a black hole. This is due to another strange fact about the universe. There's a cosmic speed limit, 186,000 miles per second, also known as the speed of light. Nothing can exceed that speed. It's one of the best established principles in science. Believe it or not, travelling at near the speed of light transports you to the future.

To explain why, let's dream up a science-fiction transportation system. Imagine a track that goes right around Earth, a track for a superfast train. We're going to use this imaginary train to get as close as possible to the speed of light and see how it becomes a time machine. On board are passengers with a one-way ticket to the future. The train begins to accelerate, faster and faster. Soon it's circling the Earth over and over again.

To approach the speed of light means circling the Earth pretty fast. Seven times a second. But no matter how much power the train has, it can never quite reach the speed of light, since the laws of physics forbid it. Instead, let's say it gets close, just shy of that ultimate speed. Now something extraordinary happens. Time starts flowing slowly on board relative to the rest of the world, just like near the black hole, only more so. Everything on the train is in slow motion.

This happens to protect the speed limit, and it's not hard to see why. Imagine a child running forwards up the train. Her forward speed is added to the speed of the train, so couldn't she break the speed limit simply by accident? The answer is no. The laws of nature prevent the possibility by slowing down time onboard.

Now she can't run fast enough to break the limit. Time will always slow down just enough to protect the speed limit. And from that fact comes the possibility of travelling many years into the future.

Imagine that the train left the station on January 1, 2050. It circles Earth over and over again for 100 years before finally coming to a halt on New Year's Day, 2150. The passengers will have only lived one week because time is slowed down that much inside the train. When they got out they'd find a very diff erent world from the one they'd left. In one week they'd have travelled 100 years into the future. Of course, building a train that could reach such a speed is quite impossible. But we have built something very like the train at the world's largest particle accelerator at CERN in Geneva, Switzerland.

Deep underground, in a circular tunnel 16 miles long, is a stream of trillions of tiny particles. When the power is turned on they accelerate from zero to 60,000mph in a fraction of a second. Increase the power and the particles go faster and faster, until they're whizzing around the tunnel 11,000 times a second, which is almost the speed of light. But just like the train, they never quite reach that ultimate speed. They can only get to 99.99 per cent of the limit. When that happens, they too start to travel in time. We know this because of some extremely short-lived particles, called pi-mesons. Ordinarily, they disintegrate after just 25 billionths of a second. But when they are accelerated to near-light speed they last 30 times longer.

It really is that simple. If we want to travel into the future, we just need to go fast. Really fast. And I think the only way we're ever likely to do that is by going into space. The fastest manned vehicle in history was Apollo 10. It reached 25,000mph. But to travel in time we'll have to go more than 2,000 times faster. And to do that we'd need a much bigger ship, a truly enormous machine. The ship would have to be big enough to carry a huge amount of fuel, enough to accelerate it to nearly the speed of light. Getting to just beneath the cosmic speed limit would require six whole years at full power.

The initial acceleration would be gentle because the ship would be so big and heavy. But gradually it would pick up speed and soon would be covering massive distances. In one week it would have reached the outer planets. After two years it would reach half-light speed and be far outside our solar system. Two years later it would be travelling at 90 per cent of the speed of light. Around 30 trillion miles away from Earth, and four years after launch, the ship would begin to travel in time. For every hour of time on the ship, two would pass on Earth. A similar situation to the spaceship that orbited the massive black hole.

After another two years of full thrust the ship would reach its top speed, 99 per cent of the speed of light. At this speed, a single day on board is a whole year of Earth time. Our ship would be truly flying into the future.

The slowing of time has another benefit. It means we could, in theory, travel extraordinary distances within one lifetime. A trip to the edge of the galaxy would take just 80 years. But the real wonder of our journey is that it reveals just how strange the universe is. It's a universe where time runs at different rates in different places. Where tiny wormholes exist all around us. And where, ultimately, we might use our understanding of physics to become true voyagers through the fourth dimension. 


Michael T. B. S. said...

Ilargi, I came across this link over here: http://www.ourfuture.org/progressive-opinion/2010041727/nine-deficit-myths-we-cannot-afford

Its views are apparently diametrically opposed to this blog, which I'm a recurrent reader. Not being an expert, I really don't know what to think about it. Would it be possible for
you or Stoneleigh to comment on it?

el gallinazo said...

"Michael T. B. S. said...
Ilargi, I came across this link over here: http://www.ourfuture.org/progressive-opinion/2010041727/nine-deficit-myths-we-cannot-afford"

Up until a few couple of years ago, I would typify myself as a progressive. If this idiocy is representative of current "progressive" economic thought, I'm looking for my lighter to burn my card. Frankly, it's too stupid for I&S to waste their time on - it's even too stupid for me :-) It is almost Orwellian in its positions of equating opposites. I recommend that the commentariat read this link - it inspires shock and awe.

jal said...

The following is a blatant attempt to “pump your book”
Get out of money market, bonds, and buy stocks.

Fixed-Income Pros Fear 'Bond Fund Bubble'
by Ben Steverman

If the gov. was to increase interest it would be equivalent to pulling the trigger of the gun in its mouth. It would be suicide. However, the market might commit the murder.


Chaos said...

Ilargi said,

"...47% of Americans pay no income taxes"

Ouch! That little gem was repudiated pretty soundly this week or last, if I recall correctly. Cannot search for a link at this time. Of course, I do not disagree from the premise of this post, oh no, not at all. Just an unfortunate reference.

Ilargi said...


"Myth #6: Deficits and government borrowing takes away savings.

Reality: Deficits add to income and savings."

I know this to be true, for every time I spend more than I have, I end up richer than before.


Ilargi said...

Well, let's see that proof, Chaos. Note: I said federal income taxes.


Stoneleigh said...

Michael TBS,

There isn't one statement in that link that I would agree with. The writers seems to think that nothing bad can ever happen because central authorities have control over everything. I think they're living in cloud-cuckoo land. They're probably going to be really surprised when things come unglued in ways their theories tell them can't possibly happen.

Greenpa said...

Unfortunately, I must shed a little ray of sunshine into the gloom.


Re: the bees. I've got about 200 big apple trees I planted 30 years ago. They're in full flower right now.

There are bees all over them. Honeybees? no. Wild bees- thousands of them, in at least 20 different species I can easily distinguish. (used to have lots of wild honeybees, but they are indeed hard to find now.)

The horticulture experts will assure you very authoritatively that wild bees are just not capable of performing the industrial strength pollination services modern crops require. (Natives, you know, are rarely up to our standards...)

The difference between their orchards and mine though, is critical. They stop spraying insecticide for a week or so while the bees are trucked in to do their work. As soon as the bee hives are hauled off to fulfil their next contract- the sprayers get right back to work; with an average of something like twice a week; until harvest.

Wanna guess what happens to the local bees?

My apples haven't been sprayed with anything; not even dormant oil (for good reason) for 20 years.

Yep, I get some bumps on the apple skins, worse some years than others. It's really not that hard to live with. Particularly when you can watch the hundreds of beautiful and beautifully diverse wild bees at their annual community picnic.

And we don't have to peel the apples for pies or applesauce.

jal said...

@ el g

I want to add to what Stoneleigh said!

Nine Deficit Myths We Cannot Afford
By Lynn Parramore
April 27th, 2010

Yep! and here is her list of friendly aliens experts

—Pavlina R. Tcherneva, Assistant Professor, Franklin and Marshall College
—Stephanie Kelton, Associate Professor, University of Missouri-Kansas City, Missouri

—Marshall Auerback, Senior Fellow at the Roosevelt Institute and Warren Mosler, President, Valance Co.
—Randall Wray, Professor of Economics, University of Missouri-Kansas City, Missouri
—Yeva Nersisyan, Doctoral candidate in economics, University of Missouri-Kansas City, Missouri
—Warren Mosler, President, Valance Co.
—Marshall Auerback, Senior Fellow at the Roosevelt Institute and Rob Parenteau, sole proprietor of MacroStrategy Edge

I. M. Nobody said...

Michael TBS,

The human mind is wonderful,,,I mean you can think about a whole lots more than you can get.

--Brother Dave Gardner

soundOfSilence said...

"It’s a serious issue, but it’s manageable," said __________

You know that could just be the quote for the century. All that's needed is to fill in the bank with a name depending on whatever situation (financial meltdown, oil blowout, Frankenstein weeds, you name it mankind is on top of it) happens to be at hand.

Agent Orange Ready Corn... Yum!

Does anyone ever stop a wonder if (fill in the blank) is a good idea (it's rhetorical). God help us...

C.I.A. said...

Greenpa: that's such great news :) I don't know much about US native bee species, but I've been following the fate of Apis mellifera (the European Honeybee which is now globally ubiquitous and is used as the pollination workhorse for Homo sapiens) since I started studying entomology and ecology. One of my supervisors was actually shot at by a beekeeper here in Australia because he was doing research into the influence of Apis mellifera on the pollination of Australian native plants. He found that not only did these 'feral' bees exclude pollinators such as honeyeaters, they were also staggeringly inefficient at pollinating plants that had co-evolved with native bees, flies and also marsupials and birds. We continue to depend on European insects to pollinate European crops down under... I wonder if we could think outside the 200-year-old box and ease our dependency on this one species of insect?

C.I.A. said...

...(sorry about the confusion, I also go by the pseudonym 'Ant Whisperer')


ben said...

how many puppetmasters is Lloyd's of London boasting, again?

in the forum at drillingahead, Alan Fortune posts a warning letter from Lloyd's Registry Group, which provides 'business assurance' services (see: http://www.lr.org/lloyds-register-quality-assurance/who-we-are/business-assurance/index.aspx ) to both BP and Transocean:

"Reply by Alan Fortune 1 day ago
A gentle reminder of the responsibilities of all.

ALL of us agreed to a confidentiality clause, even if we are not aware of it, when we signed on.
This is done by employees, contract, or service company people.
This does not stop us from voicing our opinions, BUT, insurance or legal people will dispute that.
The enclosed is a sample of what is being sent as a reminder.


By now you have probably heard about the tragic incident onboard the Transocean Deepwater Horizon, a drilling rig under contract to BP, where a blowout took place while the rig was drilling in the Gulf of Mexico. Transocean and BP are clients of a number of entities within the Lloyd’s Register Group and therefore we are bound by confidentiality agreements not to divulge any information about our clients, or the services we provide, which is not in the public domain.

With many of our employees participating in industry conferences, client events and anniversary celebrations, and with continual news coverage of this incident around the world, it is vital that everyone is mindful of this requirement. Please be very careful about what you say, not only to members of the trade media, but to anyone you may speak to - colleagues, clients and personal contacts. You may express sympathy for those affected, but do not engage in any of the following:

1. speculation about any potential cause(s) of the incident
2. discussion of any work the Lloyd's Register Group has undertaken for Transocean or BP

If anyone presses you for more information, please let them know we are contractually obliged not to discuss our work for either client. All media questions should be directed to Stephanie Jones, Americas Communications Coordinator in Houston, or Mark Stokes, Group Communications Director.

If you have any questions, please let me know. Your co-operation in this matter is very much appreciated.


Mark Stokes"


ben said...

i blame the Feds.

publicly the Feds blame BP.

BP blames Transocean.

Transocean blames Halliburton (the cementers), or, alternatively, Cameron (the ram manufacturer).

Halliburton (implicated in 18 of 39 blowouts in Gulf of Mexico over the past 14yrs) blames anyone but itself, including Hyundai (builder of Deepwater Horizon).

Hyundai would love to blame North Korea.

the Kremlin reports, on authority of its Northern Fleet (which also reportedly blamed DARPA for the Haiti quake) that a North Korean suicide submarine left Havana on a cargo vessel April 18.

Obama sends SWAT teams across Gulf of Mexico. (An empire in decline.)

Hu Jintao pats Kim Jong-Il on head in Beijing this Monday.

(drawing) rings around the world.

Wolf at the Door said...

"Reality: Deficits add to income and savings."

This is how I know we are going down (beyond the airtight mathematical case). I know people who actually think like this. I know it is not fasionable to say so but I am going to be taking some very immature and not very kind pleasure in watching these people (who are currently posing as the "serious" adults in this drama) be completely, thoroughly, utterly discredited and humbled.

When Reality becomes the dominant theme as opposed to the masturbatory fantasies of the pumpers and partisan delusionals, It is going to realign our (pseudo) intellectual and finacial landscape with extreme prejudice.

Chaos said...

Re: Federal income taxes, and those who pay them

While technically true, this statistic obscures more than it illuminates. It ignores federal employment taxes, which, although they are supposed to be "dedicated," are in reality nothing of the sort, and have been rising for quite awhile now. I realize that you quoted this figure to make the comparison between Greece and the US, and the looming increases in taxes of all kinds, and not for the same purpose as most of the commentators in the US ("look at all the freeloaders!"), but because of its potential to mislead, it's not really the best statistic to use without some pretty extensive qualifiers. Good perspective here: http://www.nytimes.com/2010/04/14/business/economy/14leonhardt.html?src=me

I probably should have used "discredited" rather than repudiated...

Greenpa said...

The Polka Dot Morgue: Low Hanging Fruit.

note the temporary change in title.


An astonishing personal account, from an acclaimed author (theoretically intelligent) describing how she just sat and watched the flood waters rise, doing nothing- and will again.

These are the folks who will decrease the surplus population very quickly. There is something missing in their survival programming; most likely from the very long spell of fat living.

As a fellow evolutionary ecologist used to put it back in grad school- "No brain, no pain."

Dan said...

@ Michael T.B.S.

The deficit-myth folks also believe that the U.S. taxpayer will always strive to accumulate dollars in order to service his/his tax obligations. Part of their premise is that deficits per se don't matter, because in a fiat system we always have the operational ability to tweak numbers in FED reserve accounts, or add liquidity to 'the system' etc.

It is an interesting premise, in that it seeks to divorce operational realities from human nature and all of its attendant issues. YES, numbers in computers can be changed, but ignoring the human element is in a sense assuming we live in a Stepford Wives universe, without any of the pitfalls of such.

Certainly efforts to bring deficits down WILL have a significant deflationary impact (but that is NOT an endorsement of keeping deficits high).

My take on all of this stuff returns me every time to the supra-natural world of floating, fiat currencies in general. Our leaders' undying belief in the power of a floating currency may, in the short term, bring massive new wealth to the already wealthy. But, as we are seeing around the world, the middle class never benefits. In the end, all of the promises made under the bubble-regimes of the fiat existence come crashing down, and the workers get destroyed.

Wait until that moment in which Americans refuse to see the NEED for dollars (to pay their taxes) as being paramount. Kaboom.

Greenpa said...

SoundofSilence: "Does anyone ever stop a wonder if (fill in the blank) is a good idea (it's rhetorical). God help us..."

:-) Yes, indeed, some of us DO think about it. And speak about it. Voices crying in the wilderness- an ancient metaphor for an ancient problem.

I was one speaking loudly- to farmers (and researchers)- in 1995 - about ethanol from corn being a really, really bad idea.

I had many tell me, crankily- "well, I can't refute your arguments RIGHT NOW- but you're just wrong."

"Logic is the opiate of the educated". Our whole system runs on the fantasy that our decision making is based on facts and logic, and it SO totally IS NOT.

The real problem (and I have no good answers) is how to judge the various inputs- and actually base policies on the good ones, not the ones that result in corporate profits.

We DO think. Nobody listens.

Ilargi said...


Hold it right there!

"Wait until that moment in which Americans refuse to see the NEED for dollars (to pay their taxes) as being paramount. Kaboom."

Now, if I get the drift here, Americans not paying taxes would mean a larger deficit, which is good, because it means more savings. The less taxes paid and the bigger the deficit, the richer the country.

And no, just to avoid confusion, this does, or so I'm told, NOT mean that the government itself will (or needs to) spend less.


el gallinazo said...

Zero Hedge is posting a Scribd 26 page monograph at:



American Expatriation Guide: How to Divorce the U.S. Government
by a Former U.S. Citizen

Just downloaded it before it got hidden but haven't read it yet.

Your peripatetic buzzard is now exercising his flight muscles, and examining the magnetic lines of force for a long haul to Argentina in June. Panama is not really a divorce from the American Empire. It's more like leaving the marital dwelling to move in with a brother-in-law who is named Bubba and is retired military. Coincidentally, I was stupid enough to rent a house in Boquete which was perfect in almost all respects except that it was owned by a retired military guy named Bubba.

He is now a local investment counselor telling everyone to buy real estate because God won't be making anymore of it. I got SKY TV with the rental package but the porno section wasn't sponsored :-)
My novia, who has some phobias dealing with violent men and doesn't care to be with me in Charles Bronson mode when I walk around grumbling that I left my guns in Florida, hopped a plane to Santiago Chile to be with her dying mother.

When I rented it, I hadn't seen his email signature which reads:

"In God We Trust"


'If we ever forget that we're one nation under God, then we will be a nation gone under.' - Ronald Reagan

"We the people are the rightful masters of both Congress & the courts,
not to overthrow the Constitution, but overthrow the men who pervert the
Constitution." Abraham Lincoln

A veteran is someone who, at one point in their life wrote a blank check Made
Payable to 'The United States of America, ' for an amount of 'up to and
including their life.' That is Honor, and there are way too many people in This
Country who no longer understand anything about honor.'

Remember, the "government" cannot give anything to anyone - -
until "they" first take it away from someone else!

jal said...

Bank of Montreal alleges huge mortgage fraud
The Bank of Montreal is suing hundreds of people in Alberta, including lawyers, mortgage brokers and four of its own employees, in what is one of the largest alleged cases of mortgage fraud in Canadian history.
Legal documents obtained exclusively by CBC News allege the bank was the target of a sophisticated fraud operated by 14 inter-connected groups. The documents allege the scheme generated at least $140 million, about $70 million of which was for phoney mortgages.

el gallinazo said...


Isn't mortgage fraud suppose to be a criminal offense? Let's see what the current W wannabe running the Canadian gulag does in that department.

el gallinazo said...

Glad to see that the PPT is back at the NYFED after taking yesterday off and cranking up the Crays in the basement with a nitro blend.

jal said...

@ el g

The BMO case is just a canadian variation of house flipping that was rampart in the USA. BMO just doesn't like to be the one left on the hook.

Dan said...

@ Ilargi...

My comment on taxes was meant to be framed within the context of belief in a (fiat) currency. The only thing that gives the dollar value is the belief, by Americans, that we NEED those dollars to pay taxes to our government. Once we (en masse) come to view that NEED as erroneous, the value of the dollar literally disappears.

scandia said...

I have no knowledge base to comment on Hawkings ideas about time travel. I am interested in time though...Do we not time travel when we imagine the future or recall the past? I do think that we can affect form in the future by what we think/imagine to-day. I have read that we can even change events/forms of the past just by changing perspective/position in our memories/images of the past.
Seems to me the expressed desire is to be all of the 3 dimensions in a forth dimension. Wouldn't that be impossible? A forth dimension would be an entirely new configuration, not just an add on to the other three? Perhaps access to the 4th is gained from the 5th?
I am way way out of my league here but fascinated by the topic.

jal said...

Hi scandia.
Just for you ... start at the following blog and go to the next two blogs
GEOMETRY from PLANCK SCALE (scalars and vectors)

el gallinazo said...

Looks like the Euro is taking the A train into New York Harbor. A quantum chemist versus a Princeton economist and Turbo Timmy. There is no contest. They should forfeit the game, though that would eliminate all the fun for the investment banks, the credit rating agencies, and the hedge funds.

Greenpa said...

Polka Dot Gallows for the day:


"Lindsay Lohan to play Linda Lovelace in Lovelace biopic movie..."

Deep meaning in there somewhere.

Ahimsa said...

El G @ 10:53 AM,

OMG! I see why you're headed to Argentina. :)

Best wishes!

paul said...

Re Stephen Hawkings and time travel:

I am not very scientifically-inclined, but that might be an asset in thinking about this issue. (And this is really just a discussion point, not an argument--I have no answers, just questions.) Shouldn't the question of time travel really be focused on our perception of time? It seems strange to say that someone would spend 5 years of "their time" and end up 10 years in "the future." What is one person's year compared to another? Will the person only age 5 years? Or will traveling at 99.99 percent of the speed of light actually increase the aging process?

In other words, isn't a second really just our perception of what a second is? Granted, I am sure that a second is defined by some physics principle I don't know or understand.

Again, I admit I am out of my league in understanding the physics involved, but I think my point is more about semantics. What are the human consequences of time travel? Does it really mean what people think it means when Dr. Hawking explains it that way?

The issue makes me think of a point made by the author of "Shop Class as Soulcraft." His mathematics professor father was fascinated by the theoretical idea that tied shoelaces could come undone by pulling on the ends. The author pointed out that that could only happen in a theoretical world in which there was no friction, or something along those lines.

The point is, technically-inclined people sometimes have trouble conveying what it is they are trying to say to those who are not so scientifically savvy (how's that for alliteration?!).

el gallinazo said...


Now that the identity of Deep Throat has been revealed, I see the possibility of "Linda Lovelace does the FBI," with Lindsay Lohan in the title roll, as a crowd pleaser. Perhaps with Jonathan Winters in drag as J. Edgar Electrolux.

Also, been watching a little CNN international here in Panama. They seem to be spending about half their air time trying to psychoanalyze the suspect. Maybe 10% of that on the greatest ecological disaster since Homo sapiens invented the electric dildo. Their discussion of the Greek sovereign debt fiasco is titled "The Road to Recovery." Perhaps CNN **is** the electric dildo. Thank doG for the Internet.

Also, the SPY went green for 20 minutes. Those programmers in the basement of the NY FED are good, but unlimited free money doesn't hurt. Guess they are on leave from the Matrix.

Greenpa said...

Paul: "What is one person's year compared to another? Will the person only age 5 years?"


Physics is indeed a strange place. Time actually runs slower the faster you travel; it is not a subjective phenomenon.

Way back when jet aircraft were new, someone actually ran an experiment on this, using a bunch of very fancy chronometers. They kept some on the ground, and put some on a jet, which was then flown as fast as possible for a while- and indeed, the jet flown chronometers were measurably behind when they landed and compared them. (not a lot.) (gosh, I hope this is true, not an urban legend...) :-)

The headlines ran "Experiment Confirms Einstein Theory" . They run that headline about once every 5 years, I think, when something new gets measured- the old guy was seriously amazing.

jal said...

@ Paul

Re.: Time travel

There is none.

Time is reference frame dependent.
If everything is traveling/moving/changing at the same speed, THEN change/time is not detectable.

You cannot go back in time since there would have to be a universe that exist NOW in the past. (Frozen in time). The past universe no longer exist. It changed just as you did. All that exist is in the NOW.

el gallinazo said...

Time is still defined deterministically by Einstein in his Special Theory though the results may not be intuitive to the typical jogger. Heisenberg's Indeterminacy Principal may be defined with time as a factor though the indeterminacy of time is almost infinitesimal.

The second law of thermodynamics defines time's arrow though there is no understandable theoretical reason for it built on primary assumptions. To paraphrase Slick Willy, one must simply accept what is is.

My study of whoo whoo metaphysics indicates that time is mainly a construct of the physical brain operating in the physical universe.

el gallinazo said...


"You cannot go back in time since there would have to be a universe that exist NOW in the past. (Frozen in time). The past universe no longer exist. It changed just as you did. All that exist is in the NOW."

That is opinion accepted by most of the physicist herd.

paul said...

@ Greenpa, Jal, and El G

Thanks for your edifying responses. I knew I was stepping into something way out of my league. I only sort of understand what Hawkings wrote, and I only sort of understand your respective answers to my questions. Like Scandia, though, the issue fascinates me, so I appreciate all the input, even though I can't quite process it all.

rcg1950 said...

Even though he's a tough read, I like to see what Henry C.K. Liu has to say about things. This is from his most recent posting, apropos of deficits.

"Recently much noise has been made by fiscal hawks about the danger of high fiscal deficits and national debts. Yet the purported danger comes not from the size of the deficits or debt, but on how the proceeds from them are used. In recent decades, the US economy has suffered from such proceeds being spent on programs that were not conducive to sustainable economic growth or constructive to economic health.

During the course of World War I, US national debt multiplied 27 times to finance the nation’s participation in war, from $1 billion to $27 billion. The US military drafted 4 million men and sent over a million soldiers to France, solving the domestic unemployment problem overnight plus putting women into factories and creating a sharp rise in aggregate demand as troops had to be supported at a level of consumption exponentially higher than civilians could through market forces in peacetime. War was a blessing to the US economy as military demand put US industries humming at full capacity while the homeland was exempted from war damage.

Far from ruining the US economy, war production financed by public debt catapulted the country into the front ranks of the world’s leading economic and financial powers, because the US homeland was not affected by war damage and civilian consumption was curbed in the name of patriotism. The national debt turned out to be a blessing, because a good supply of government securities provided for a vibrant credit market and public sector spending created the rise in demand that private companies could satisfy profitably with a guaranteed market.

The truth is that the positive economic functionality of the national debt rests not so much on its level, high or low, but on how the debt is expended. When the national debt is use to expand economic production with full employment and rising wages, it will produce positive economic effects. But if the national debt is used to finance speculative profits achieved through pushing down wages via cross-border wage arbitrage, or to structure ballooning interest payments to service old debts by assuming more new debts, it will eventually drag the economy to a grinding halt by a crisis of debt implosion."

I. M. Nobody said...


I too have found Mr Liu to be a somewhat tough read (kind of a wordy bastard) but he seems to me to be one of the few thinkers on the subject that isn't usually using his mind to think about a whole lots more than we can get.

I would tend to agree with his point that how much you spend isn't nearly as important as what you spend it on. We have become remarkably good at misspending nearly all of it. Which, of course, can't possibly end well.

FB said...

@ Michael TBS

I have seen some very spacey writing in a number of fields, but the article you mentioned merits a prize. Do those people really think that the financial system can simply decide to suspend reality?

The logic is so odd that I am now wondering if the entire article is not a spoof. Are you sure it was not put out by the Onion?

@ EL G

Now that is a signature.


scandia said...

@ jal...thanks for the physicsforum link. I've saved it for deeper consideration. I love that phrase,"degree of freedom". Wish you lived nearby. I'd invite you over for wine and play with points,units and spheres :)

@Paul, you expressed what I was trying to grasp that time is about perception.
Also thinking about linquistics, our languaging for time. I note that time is a commodity, something we can waste,negotiate,invest,save,give away,steal,speed up or slow down,even kill...Rare it is that human contracts/vows/promises lack a time frame.

Greenpa said...

2 Polka Dot Gallows bits in one day!

just too tasty to pass up-


el gallinazo said...

Greenpa said...
2 Polka Dot Gallows bits in one day!

just too tasty to pass up-


I'm gonna buy one each for Ahimsa and Carpe Diem :-)

Ric said...

The real problem (and I have no good answers) is how to judge the various inputs- and actually base policies on the good ones, not the ones that result in corporate profits.

It's question of scale. We base inputs and policies on the scale we think in. At what scale is a policy appropriate for? If the "world" consists of one person, it's perfectly logical to knock someone over their head for their apple. If the "world" consists of two people, it's logical to knock a family out of their house for their bed. If the "world" consists of a nation, it's logical to destroy another nation.... If the "world" consists of a corporation.... Logic is an opiate if it's used in a myopic scale.

My guess is you think in terms of the "world" being the planet, or perhaps the cosmos, or perhaps something else. I'm always amazed by the scale of the animals I encouter during the day, such as my dearly departed cat--she owned our house and expected nothing but impecable service; when she didn't get it, she didn't take it personally or make war on us--she took a nap and tried again the next day. There are many scales out there and to this day I wonder what her's was. ;-)

I. M. Nobody said...

el gallinazo said...

I'm gonna buy one each for Ahimsa and Carpe Diem :-)

And I'm sure they will both deeply appreciate your thoughtful gift. I'm sure my grandson would appreciate one as well.

But, you know that's really insensitive. Thanks to my unfortunate condition, I had to go vegetarian for awhile. Burning a meat scented candle while trying to maintain a veg only diet would just be cruel. And for the ladies in question, I have no doubt, quite disgusting.

At long last sir, have you no shame? ;)

jal said...

@ scandia
"I'd invite you over for wine and play with points,units and spheres "

Ya! My favorite way of learning.

That is the easiest way to understand the basics of physics.

Look up Kissing number, densest packing and symmetry. If you understand those concept you'll get what the science papers are talking about.

AlphaBeta Soup said...

Amaranth aka pigweed is a great addition to salads. Maybe Monsanto should get into the salad industry?

velobabe said...

EU itself imploding (let's drill a relief well, or dump a 74-ton bunker on top of it, that should work).
your funny!
i had something to say but now forgot cause i read all the comments and lost my tracking.
OH, i think fresno's major is HOT.
ashley swearengin!
yea, my brother was married to a latvian woman and she was just awful.
greenpa, i am so happy you have wildbees.
the best, probably.
el gallinazo are you trav7777 over at ZH?
it is good to be wild.
Giro d'Italia, Italy, GT
starts saturday.........

EBrown said...

You are lucky to have such a bounty of bees. I was out planting some oak trees today amongst some wild apples that grow on my hill. The apples are in full bloom and after several minutes in the stand I was struck by the disconcerting realization that there were no pollinators buzzing around. I saw a single bumble bee traveling from blossom to blossom during my whole time up there today (several hours both in the morning and in the late afternoon).

I'm certain there hasn't been any spraying up there in a while though I just moved here last fall. I don't have an answer to my question of "where have all the pollinators gone?"

MJ said...

"I note that time is a commodity, something we can waste,negotiate,invest,save,give away,steal,speed up or slow down,even kill...Rare it is that human contracts/vows/promises lack a time frame".

Perhaps this is the reason we drive ourselves crazy wondering when the collapse will come? We just can't get our heads around such an event without knowing when, when, when?


Fuser said...

So much news regarding GOM, Europe, State budget problems, attacks on immigrants. How is everyone staying sane? I'm about to lose it.

-Everyday reader.

I. M. Nobody said...


There seems to be a presumption there that we are sane. If you have proof, please reassure us.

el gallinazo said...

I. M. Nobody said...

At long last sir, have you no shame? ;)

I thinks so but I seem to have misplaced it.

BTW, I went veggie about a month ago due to my new novia who's been veggie for about 10 years now. That was easy. Giving up beer was tougher but I no longer look like the SS Fat Guy. I am becoming disgustingly healthy and find it downright scary. A vegetarian buzzard - now that's a thought.

el gallinazo said...


Yeah, I follow ZH very closely though rarely post there. Today was an exception.

windbow said...

Do I have a worm hole in my head?

Tiny tiny time travel to all.

Fuser said...

IM N, apologies for jumping to conclusions. I guess insane has trouble recognizing insane.

El G, I'm impressed you're trav7777. I've often read your comments while thinking 'That guy knows his shit'.

Welcome to vegetarianism. I'm been for 10 years and brought the kids up that way too. I don't anticipate on being one for long though, as I think food selection isn't going to be so easy in a year or two.

I. M. Nobody said...

el gallinazo said...

A vegetarian buzzard - now that's a thought.

A downright scary one. Don't you go proselytizing your brethren. We need their carcass cleanup services. :)

VK said...

It's election day in the UK!!!!
Woo hoo! I'm all for a hung parliament and Nick Clegg being the king-maker in Westminster. Long live Britannia.

VK said...

@ Fuser

El Gallinazo IS NOT Trav777. El Gallinazo posts as El Gallinazo on ZH. LOL.

In the mean time Matt Simmons is saying this,

""I don't think they're going to be able to put the leak out until the reservoir depletes.It's just too technically challenging."

And a 6.4 Earthquake has hit Peru and Chile cutting power off.

Fuser said...

El G ...VK,

Apologies again. The question was asked "el gallinazo are you trav7777 over at ZH?"

El G's response started with "Yeah ..."

Michael T. B. S. said...

Thanks to everyone for the answers. I'm not an economist nor do I know much about economy hence I'm not very suitable to evaluate fields I'm not familiar with. That's the reason why I asked.

scandia said...

@Fuser and " I'm about losing it." Me too!
I calm panic by watching films. I think Zander goes off fishing for a couple of days...We won't get through this without some way to step down from high alert, to relax.

el gallinazo said...


Sorry, I misunderstood. When I post on ZH, which isn't very often, it's with the same name and image as TAE.

VK said...

Michael T.B.S.

Deficits can be useful if in the 3-4% range, deficit spending has been used many a time to temporarily boost the economy but when resorting to 10% plus deficits consistently is a sign of desperation. Also in their book 8 Centuries of financial folly, Professors Reinhart and Rogoff found that when public sector debt exceeds 90% of GDP the economy is invariably constricted.

US public debt to GDP would be 125% if Freddie and Fannie's debt (at $6.4 Trillion) is added to the existing Govt. debt as they are explicitly backed by the US treasury. Hence deficit spending in such cases is reckless and ill conceived.

Also going back to the 1940's, the marginal productivity of debt was much higher at 3:1 i.e. for every dollar borrowed, you would get 3 dollars of GDP output. Hence deficit spending would've been an obvious yes! Today it's a far different story, recent calculations have shown the marginal productivity of debt at NEGATIVE 45cents. Meaning each dollar of additional borrowing is causing a 45c contraction in GDP, which is only being masked by...you guessed it... additional borrowing!

The snake is chasing it's own tail. Also the deficit issue is dealt with in isolation by economists, yet it exists within an economic ecosystem. Debt and deficit spending must be seen with the forest of public debt, private debt, corporate debt and every other type of debt! Only then can we get an accurate representation of the value created by deficit spending.


Andrew said...

oh, jesus, come on!! "time travel"? now, don't give the example about how the "ancient" people wanted to fly, and now "modern" people have achieved it. the "ancient" people had "sort" of achieved flying already. It's just that the "flying" was very "inefficient" and "imperfect". Now, please, someone provides an example of just even, maybe, a little bit of an "inefficient and imperfect time traveling" in the modern day!!! haha, jesus! hey, but then it's OK, because all of you, all of us, will become "something else" eventually. Oh, yeah, that's what most people believe!

Ilargi said...

To all Canadians:

We realize that Stephen Harper is here in Holland today for a WWII commemoration. And we know what you're thinking, but the answer is NO! We're NOT going to keep him.

scandia said...

@ Ilargi, Pray do tell! Is he wearing a uniform?
Just wondering if the couturier who whipped up a flattering, military , bond with the troops look for Michaelle Jean was called upon to dress the Cdn commander in chief?

JP said...


Tell ya what, if you keep Harper we'll send you a case of beer every year from now on. Y'know, the good stuff, not Labatt's.

I'm looking forward to enjoying the tulips in Ottawa this weekend. I would enjoy them a lot more without Harper around. Just saying. :)

ogardener said...

Blogger Fuser said...

So much news regarding GOM, Europe, State budget problems, attacks on immigrants. How is everyone staying sane? I'm about to lose it.

-Everyday reader.

May 5, 2010 9:14 PM

Hi Fuser,

I try to stay busy working in my garden and thinking about things I may need when TSHTF.

Top Cat said...

In Joseph Tainter's book on collapse, his summary chapter starts with an anonymous sound bite he must have seen on a pop culture sign:

"Every time history repeats itself, it gets more expensive"

The constant repetition and escalation of public and private debt spending against a backdrop of a GDP that's devolved to reflect F.I.R.E. economy paper pushing instead of actual industrial production, has finally morphed into the monster of TNR (Total Negative Return) on each new penny of debt.

This is like the old admonition I remember from survival training, don't expend more energy chasing down food than the food will return to you. Catching a fish with a hook is low effort in, high energy return.

In the present gulag/casino formerly known as "the U.S.", we are now essentially trying to catch fish in waist deep water with our hands.

Not a very good plan "B" for survival.

And on a different note, I had a short dream the other night. I saw Sarah Palin (& her Ilk) had all been lashed to the masts of small rudderless sailboats and cast adrift in the middle of the massive horizon to horizon oil rupture slick. It looked like a vast armada of funny little aquatic bumper cars randomly smacking into one another while the fumes from the slick helped the Condemned hallucinate and sing along to the funky rap loop of "Drill Baby Drill" played from boomboxes on each dinky little sailboat.

Kind of a Spartacus like closing scene.

Karl Denninger was there too, tied to his little main mast with his bow repeatedly bouncing off Palin's stern board, but instead of being crucified in a loin cloth, he was competitively oiled and shaved and wearing a U.S. Olympic Swimming Team red, white and blue speedo and seemed to being singing the Drilling Rap song louder than all the rest, but in iambic pentameter.

No surprise there.

zander said...

The James Moore piece underlines my worst fears when I initially heard about the spill i.e. maybe we simply CAN'T quell the flow no matter what.
I so truly hope I'm wrong on this, and with that I'm signing off on this issue for a while as it's all been said and I'm prepping for an overnight stint in front of telly and computer screen to watch the tweedle-dee and tweedle-dum fiasco, the outcome doesn't matter but the aftermath does, I'm expecting a hung parliament and anything could happen in the UK over the following week.... time to be wary methinks.

UK airspace is free again.


el gallinazo said...

Top Cat

I really appreciate your postings.

Anthony said...

Thanks for the Hawkings article. Very interesting.
I think another way to think about time traveling as described by Hawkings is 'Time Killing'. However, there is a caveat. We don't know if the biological clock will necessarily slow down for the time traveler. If aging does not slow, then spending 50 'time traveler' years in space to return to earth to see the world 100 years earth time later would not work since the person would still have aged 100 years (probably dead).
A 'simpler' way to achieve the same effect would be to slow the biological clock by freezing or hibernation or whatever biotech to wake up 100 years later.
I'm going to sleep now. Wake me up when the global financial mess is over, please.
Thanks again for the link.

Greenpa said...

EB Brown- re the bees-

a little more sunshine on my end- two years ago, much earlier in the colony death plague, I went out in my own apples to see what was going on. On a bright sunny still day, when the trees would normally (I thought) have been full of bees- I spent 15 minutes looking, and couldn't find ANY. Not one bee, of any species.

So I increased my surveillance. For 3 days in a row, all with good-fair weather, I saw not a bee. On day 4, in 15 minutes, I saw 3 bumblebees.

At that point, deeply depressed about it, I got pulled away by something else urgent, and quit looking. I started telling people we wouldn't have any apples this year.

And the punch-line; we had a huge crop of apples. Huge. We had deer haunting the orchard into March, excavating the still abundant drops from under 2' of snow.

My guess- the wild bees, and the other pollinators (and there are plenty, like bee-flies) may operate in different kinds of weather, or different times of the day, than honeybees. The little I know about wild bee behavior suggests that could easily be true.

So don't give up hope.

Tero said...
This comment has been removed by the author.
Gravity said...

Did I ever mention that the cause of time is relativistic mass?
Its a semantic paradox concerning precausal temporal mechanics, whereby its funny cause its true, or will be invariably true at least once or negative once.
It seems that misunderstandings concerning the nature of time are often complementary to those concerning moving massive objects in a relative frame of reference with causal integrity, so that the various understandings of space-time, structure, movement, energy quanta and gravitational fields can be reconstituted or unified into an unbroken fundamental symmetry of the universe, ideally.

The ideas of relative time and time dilation are scientific and existential revelations of sorts, as space and time seem intrinsically linked and conceptually inseparable for all matter and energy in a corresponding gravitational field. Its not so much a question of extending spatial dimensionality to include, or artificially transpose upon, time, but reducing manifold spatiotemporal configurations in metafractal recursion to fit comfortably in linear spacetime by eliminating all superfluous causal paradoxes, except the ones we need and weigh least. This would be confirmed as soon as appropriate measurements with massless instruments are taken outside the continuum.
Hawkings is sometimes one of my heroes. His famous radiative qualities have yielded novel approaches to the thermodynamics of singularities.
However, presuming the speed of gravity is identical to lightspeed, is the future necessarily of different mass, say heavier, than the past? And would this already be so, in that the existent mass of the future preemptively warps spacetime before we come to pass it? Cause if it does..(shakes fist threateningly)

el gallinazo said...


The biological clock is a function of the physical clock. There is no question among all scientists that time dilation relative to earth would cause the effect that Hawkings proposes.

None of his ideas in the article are original and all would be greeted as ho hum by a second year physics major. How to accelerate a human to 99.99% c (the speed of light) is the rub. The amount of energy required to do this is "astronomical," well beyond the energy output of the entire planet. The problem being something that Hawkings well knows but forgot to mention. As time slows down, then mass increases by an inverse proportion. So the faster something goes, the "heavier" it gets.

el gallinazo said...

I think what is scaring the hell out of the bond market is that Greece is driving home the point that a real country can default on its sovereign debt. Iceland is just a small city with its own currency. Dubai is a privately held corporation. Argentina happened 8 years ago and is infested with ostriches. But Greece is a real country and the cradle of European civilization (whatever that may be).

This may mark the end of the final, sovereign debt bubble. If the governments of the world have to take the foot of the gas peddle deficits, it's an instant deflationary death spiral and the banks will die first.

Greenpa said...

Polka Dot Gallows, May 6:


Bristol Palin struggles to buy diapers for Tripp...

In- the- Entertainment- section.

Phil said...
This comment has been removed by the author.
Phil said...

"Call in the IMF to tell us how bad it really is", urges Camilla Cavendish in today's Times:


zander said...

WOW, markets are tumbling big scale


zander said...

my god 700 points

Greenpa said...

Perhaps the other shoe has dropped? Along with the market.

I'm amusing myself right now, Gallows fashion, by just watching the ticker, minute by minute. Down she goes. Where she stops, nobody knows.

zander said...

Holy shit, maybe this is the trap opening now. 500 points down


Greenpa said...

This bit is going to become a classic:


"the markets are not that volatile, you sillies."

zander said...

WTF happened there then??
Down 900 at one point back to 300 now.
Anyone clarify?


Phil said...

@zander seems to have been caused by a sudden sharp drop in Proctor & Gamble shares (source @faisalislam on Twitter and also BBC News)

Gravity said...

@El Gallinazo
Thats why he mentioned wormholes, the usual mass clause doesn't apply because it involves travelling without movement, though any looped radiation would either destroy the wormhole before its used or even created, or increase the temperature of the universe to infinite.

That's the mind-warping thing about velocitized time dilation in special relativity; when moving at relativistic speed the very space becomes a semi-separate dilated continuum, internal time for that frame of reference is absolutely slowed for all processes by which the flow of time can be logically measured. This effect is present at any speed, but only becomes noticeable at near-lightspeed.
Relative to time in a rest frame, someone at such high velocity would not only 'experience' less of it and age proportionately less, the decay rate of all particles is slowed, and per relativistic doppler effects all wavelenghts are attenuated to a triangulated frame of restference. If a computer processes exactly x calculations per hour, and its sent off at near lightspeed, when it returns in exactly an hour it would have completed less than x, even though there was absolutely enough time and no conscious perception of events. Desynchronized internal chronometers in such cases have always revealed that less than an hour passed for its frame in/at those speeds.

Also, if time equals money, and time is relative, then all prices are wrong.

Punxsutawney said...

PPT in full "RED ALERT" mode at the moment I suspect.

They have managed to keep it at ~-400 points for the moment. Makes me think of the Star Trek episode where Scotty says "I donna know how long the engines are gonna hold Captin", or was it something like that every episode ;)

Didn't Stoneleigh say mood could turn on a dime in just the last couple of days. Too early to tell for sure, but maybe.....

VK said...

I swear this is insane, Bloomberg and ZeroHedge are down. CNBC talking heads losing it.

CNBC reporting error at major firm, ZH on twitter saying, No way that can happen. No error caused this but high frequency trading.

All I know is that, it was the largest intraday drop in history. Nearly a 1000 point drop and back. Ridiculous.

zander said...

Gerald Celente's latest interview on King world news (last week) is just about the best piece of political radio I've ever heard.


WgS said...

phil commented ....

a sudden sharp drop in Proctor & Gamble shares

Ah yes, the classic "flight to diapers" response.

NYSE says nope to hope!

Paleocon said...

They're saying it's all computer trades, but I bet little guys with stop-loss sets are the ones that ate the goose egg sell for Accenture (ACN). The question is, who bought heavy at the bottom? Fortunes were made and lost, from one mistake? Shows how fragile the system really is.

This is why I think no sane investor should be in the markets -- the game is rigged, the rules can change at any point, and there is no rationality.

Gold is up nicely, though. A shame you can't eat it.

Weaseldog said...

Back in late February, I started saying that May was the month to watch, for economic dislocations.

The PPT appears to have gotten the DOW back above the 10k mark. I wonder if our tax dollars can keep it above 10k all day tomorrow?

Enjoy the roller coaster ride.

Gravity said...

I'm beginning to suspect that price cannot be a fundamental symmetry of our universe, whereas value ought to be.

VK said...

The fat finger theory is bull. The timestamps on the trading charts clearly show the market was falling apart well before the P&G 'error'.

NYSE CEO was on CNBC saying they 'slowed' down the markets at the low for 90 seconds. Before the slowdown there were no bids hence the massive decline, after the 90 seconds, bids suddenly appeared.

Three ways I see it. 1) Market sending a message to Germany - you'd better cough up more money, us banks are in danger here. 2) US banks arm twisting Congress to stop any talk of financial reform. Otherwise the market is going straight back to hell. 3) The market turned on a dime like Stoneleigh said.

Anyway, we are back in danger zone.

Ruben said...


Native pollinators are indeed more robust than honeybees. Honeybees can't handle rain, cold or much wind.
Mason orchard bees can handle cold and wind, and come out earlier in the year than honeybees. And bumblebees seem to be able to fly in a tornado. I am not certain of what proportion of pollination is accomplished by which bugs, but since I have started keeping bees I have been slack-jawed at how globalized and industrialized beekeeping is. I wouldn't be surprised if the only benefit to honeybees is the ancillary products. Certainly, to pollinate our vast monocrops, we need an equally vast monocrop pollinator, and the highly social honeybee works well.

The author of the 100 Mile Diet has an excellent blog called What Does Nature Look Like, found at jbmackinnon.com He posted about mason bees, and noted they can be extirpated by high populations of non-native honeybees. Sigh.

Greenpa said...

From the "I'm paranoid; but am I paranoid enough?" department.

The riots in Greece. So far, the slogans being chanted, and actions being taken are aimed at "the banks", "the government", and the police. As far as I can tell.

Reported actions are mostly good solid riots, fights with police, molotov cocktails galore, attacks on banks, etc.

What is missing, to me, is any report like: "Wealthy banker dragged from pool, beaten." or "Billionaire's club burned to ground"

Now why would that be?

Gotta tell ya, if I were a billionaire in Greece at the moment, I would give my hench-bunnies a million bucks apiece, and instructions to pass out blowjobs and money to street toughs with instructions for them to have noisy riots in front of, oh, bank buildings, government buildings, and punch the cops in the face when you can. Burn some cars. You know, regular stuff.

Just keep the herd pointed where you want it.

el gallinazo said...

Welcome back WeaselDog ( and I agree 100% with your comment).

el gallinazo said...

You gotta give the PPT credit for remaining cool and calibrated under pressure. With the credit card of the Usaco taxpayer in their hand, they could have panicked and the S&P500 could have ended **up** 10% for the day. They kept their call purchases in the ballpark. Curious to see what Durden comes up with. The one thing you can be sure of is that it was not a million / billion error. The software writers have already weighed in on that. Must have been those pesky wabbits.

jal said...

No fat finger in Canada. It was down 450 in the same time frame.

Face the truth ... the traders on the floor were standing around with their mouth wide open.
None of them was doing any buying or selling. They were watching the computers trading among themselves.

Circuit breakers automatically put a stop to individual stocks.

For 90 seconds, the stock market was shut down.

I can just imagine someone getting on the podium and telling all the traders that none of the trades would be validated until HE said so.

Nothing here. Move along. WE control the computers.

ben said...

if one were so inclined, the nytimes article on The Big Glitch could be read as a textbook case of naivety, with a sandwiching-in of some earnest analysis.

below the article, comment no. 8 said,

"Somewhere there is a hacker who made millions I'm sure..."

naivety again, one would presume, but i myself sorely wanted to believe it.

nyt - glitch costs billions