"The Flatiron building, model for all subsequent skyscrapers, New York City"
Ilargi: Sure, yeah, I know Wall Street went up 2.5% today. Thing is, what are you willing to bet it’ll do the same tomorrow? There’s got to be at least an entire continent worth of people seeking to get rid of BP stock today, for one thing. That’s good clean fun: Britain just got a new government, and they’re tasked with salvaging the no.1 corporation in the country, even though it’s already way beyond salvation.
Still, look for them to try to get BP outside of the tentacles of law and justice, It’ll be quite the spectacle. Without BP's tax revenues, is there still a Britain at all? Oh, and is it good policy to nationalize a company that has a trillion dollars worth of lawsuits pending against it? I for one am going to enjoy the spectacle like you wouldn’t believe.
I find it hard to picture the coming summer without governments falling like flies all over the place. Japan today offered the first glimpse, and that wasn’t even over money (well, not purely so). But what are the odds Spain, Greece, Latvia, you name them, will still have the same folks in charge that they have today when October rolls around?
And yes, what are the odds Obama will still be the head of state of a country that’s lost most of its beaches to a catastrophe the start of which its government completely ignored? Who’s responsible for that sort of thing? And I don’t mean the initial stuff, I mean the reaction to it. You know, the one that took 40 days to get serious.
How long can a president who’s presided over the single worst calamity, money-wise, human-misery-wise, animal-death and suffering-wise, that a nation has ever known, and ignored such calamity for an entire month or more, expect to remain in office? It may sound weirdly overdone today, but what will the nation say when all its southern and eastern beaches, from Louisiana, Alabama, to Florida, the Carolinas, and all the way up to Maine, are closed because of tar balls?
And what will countries ranging from Cuba to Mexico to Western Africa to Portugal, Spain, France and England say when the tar arrives at their shores? Which president will they hold accountable? The one that waited for 40 days to take charge and was still then waiting for the results of the perpetrator’s own latest submarine robot we don’t really know what we’re doing cause it ‘s really dark down there diamond haed saw effort? Instead of declaring a full-blown national emergency back in April when people like me already said this could be a potential life- and career changer?
And sure again, why would a finance site put so much emphasis on an oil spill? Well, because this site sort of like has, and has had from the start, an idea of what’s involved when it comes to full-blown one entire mile below sea-level “mishaps". You have any idea what the pressure is on an oil well down there? Neither does BP, or so they’d like you to believe. But take it from me: it's enough to keep that hole blowing for a very long time, and December is by no means the limit there. Yes, sure, relief wells may be dug by September, but how much experience do you think BP has with these things well below 5000 feet (think 6-7000)?
It’s all nothing but a gamble, all that goes on in the Gulf. Robots, top kills, junk shots, they're all part of the same casino. And, yes, they're all just like the White House treatment of the financial crisis. The main difference may be that the Gulf of Mexico oil spill crisis catastrophe leaves its tar balls for everyone to see with a 10 week time delay, whereas the true effects of the financial crisis will remain hidden for 10 months or 10 years. Still, in BP the two shall meet, and take down tons of institutions and elected officials with it, including many that you today can’t even imagine will fall. Like a certain president.
Will BP survive? That depends on the UK government. Will Obama? That depends on the people in Louisiana, Florida, Mexico, Spain and Maine. One thing’s for sure: Deepwater Horizon is well on its way to becoming the worst disaster in US history, environmentally, economically and for all we know even politically.
Into the Abyss: The Coming Cycle of Debt Deflation
by John Hera, Hera Research
One of the most famous quotations of Austrian economist Ludwig von Mises is that “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”In fact, the US economy is in a downward spiral of debt deflation despite the bold actions of the federal government and of the US Federal Reserve taken in response to the financial crisis that began in 2008 and the associated recession. Although the vicious circle of debt deflation is not widely recognized, precisely what von Mises described is happening before our eyes.
At first, it looks like there is good news.
But there are ominous signs already brewing...
Despite the widely reported green shoots, in May, the unemployment rate rose to 9.9% while paychecks in the private sector shrank to historic lows as a percentage of personal income, and personal bankruptcies rose. Roughly 14% of US mortgages are delinquent or in foreclosure, credit card defaults are rising and consumer spending hit 7 month lows. To make matters worse, the reported increase in consumer credit, in fact, points to a further deterioration because consumers appear to be borrowing to service existing debt. Outside of the federal government, which is borrowing at record levels and expanding as a percentage of GDP, and outside of the bailed out financial sector, debt deflation has continued unabated since 2008.Unemployment and labor force data suggest that the US labor market is in a structural decline, i.e., millions of jobs have been and are being permanently eliminated, perhaps as a long term consequence of offshoring, outsourcing to other countries and the ongoing deindustrialization of the United States. However, the immediate meaning of the term “structural” has to with the fact that jobs created or sustained during the unprecedented expansion of debt leading to the financial crisis that began in 2008, e.g., a substantial portion of service sector jobs created in the past two decades now appear not to be viable outside of a credit expansion.Although it has been reported that American consumers are saving at a rate of 3.4%, the contraction of the broad money supply suggests savings liquidation. Given a contracting money supply, ongoing debt defaults and declining consumer spending, the increase in non-mortgage consumer loans indicates that consumers are borrowing where possible to consolidate debts, cover debt service, or borrowing to continue operating financially as their total debt grows, thus as they approach insolvency.
A contraction of the broad money supply is taking place because the influx of money into the US economy, i.e., lending to consumers and non financial businesses, has fallen below the rate at which money is flowing out of general circulation as a function of debt service (interest and principle payments on existing debt), thus a net drain of money from the broad US economy is taking place. As a result, additional borrowing, as consumer spending falls, appears to be servicing existing debt in a pattern that is clearly unsustainable and that signals a further rise in debt defaults in coming months.
The estimate of the broad money supply (the Federal Reserve’s M3 monetary aggregate) is crashing and the Federal Reserve’s M1 Money Multiplier, a measure of how much new money is created through lending activity, fell off of a cliff in 2008, and remains practically flat-lined.
The contraction of the broad money supply points to a potential slowing of economic activity and indicates that consumers and non financial businesses will be less able to service existing debt. Despite easing somewhat in March 2010, credit card losses are expected to remain near 10% over the next year and mortgage delinquencies, are currently at a record highs, and these dismal predictions implicitly assume a stable or growing money supply.A tsunami of eventual mortgage defaults seems to be building and loan modifications have been a failure thus far. There have been only a small number of permanent loan modifications (295,348) under the Home Affordable Modification Program (HAMP) in 2009, out of 3.3 million eligible (60 days delinquent) loans and more than half of modified loans default.
The increase in non-mortgage consumer loans has not prevented an overall decline in total household debt attributed to ongoing deleveraging by consumers. While deleveraging (paying down debt) has been interpreted as caution on the part of consumers, or as low consumer confidence, the decline in outstanding credit reflects a reduced ability to borrow, i.e., to service additional debt. This suggests that the recovery of the US economy may be illusory and that the economy is likely to contract further in coming months.
Commercial borrowing has declined more sharply than household debt suggesting that the nominal return to growth estimated at 3% has not been matched by debt financed expansion in the private sector.The broad US money supply is no longer being maintained or expanded by normal lending activity. If federal government deficit spending ($1.5 trillion annually), debt monetization and emergency actions by the Federal Reserve (totaling an estimated $1.5 trillion since 2008) to recapitalize banks are considered separately, there remains a net drain effect on the broad money supply. The scarcity of money hampers economic activity, i.e., money is less available for investment, and directly exacerbates debt defaults as consumers and businesses experience cash shortfalls, while at the same time being less able to borrow. Since unemployment is a key indicator of recession, then if the US economy were contracting, it would be evident in unemployment statistics.
Officially, the US unemployment rate rose to 9.9% in April 2010, which represents the percentage of workers claiming unemployment benefits. However, the total number of unemployed or underemployed persons, including so-called “discouraged workers” (Bureau of Labor Statistics U-6), rose to 17.1%. Using the same methods that the BLS had used prior to the Clinton administration, U-6 would be approximately 22%, rather than the official 17.1% statistic.
With official U-6 unemployment of 17.1% and a workforce of 154.1 million there are roughly 26,197,000 people officially out of work. Using the pre-Clinton U-6 unemployment calculation of approximately 22%, there would be 33.9 million unemployed. If the average US household consists of 2.6 persons and if 33% of the unemployed are sole wage earners, then 55.5 million US citizens currently have no means of financial support (17.9% of the population).
While it has been reported that the labor force is shrinking, the characterization of workers permanently exiting the workforce by choice may be inaccurate. While a shrinking workforce could reflect demographic changes, the rate of change suggests that tens of millions of Americans are simply unemployed.Setting aside the question of whether or not those “not in the workforce” are, in fact, permanently unemployed, the workforce, as a percentage of the total US population, is currently at 1970s levels. Since many more households today depend on two incomes to meet their obligations, compared to the 1970s, a marked drop in the percentage of the population in the workforce points to a decline in the labor market more significant than official unemployment statistics suggest. What is more important, however, is that structural unemployment suggests structural government deficits, e.g., unemployment benefits, welfare, food stamps, etc. Since more than 2/3 of US GDP (roughly 70%) consists of consumer spending, a sustainable recovery from recession seems improbable if unemployment is worsening or if the labor force is in a structural decline, since that would imply unsustainable government deficits, whether or not they are masked by nominal GDP gains thanks to economic stimulus measures.
The US federal government is a growing portion of GDP, thus reported GDP growth is largely a byproduct of government deficit spending and stimulus measures, i.e., reported GDP growth is unsustainable. Total government spending at the local, state and federal levels accounts for as much as 45% of GDP, thus nominal gains would be expected when government deficit spending increases. According to some measures, reported gains in GDP are a byproduct of relatively new statistical methods and, using earlier methods of calculation, GDP remains negative.
Government borrowing and spending may have offset declines in the private sector but only to a degree and only temporarily. The resulting growth in US public debt has an eventual mathematical limit: insolvency. Of course, the actual limit to US borrowing remains unknown. The continuing solvency of the US depends on the ability and willingness of governments, banks and investors around the world to lend to the US, which in turn depends on the tolerance of lenders for the US government’s profligacy and money printing by the Federal Reserve, e.g., quantitative easing and exchanging new cash for worthless bank assets. US Treasury bond auctions will fail if lenders conclude that a sufficiently large portion of their investment will be diluted into oblivion by proverbial money printing. In that event, the US dollar will surely plummet, despite deflationary pressures within the domestic US economy, and the cost of foreign goods, e.g., oil, will rise causing high inflation or triggering hyperinflation.
According to the Bank for International Settlements (BIS), the federal budget deficit increased from 3.1% of GDP in 2007 to 9.2% in 2010. Rather than being the result of one-time expenses, such as temporary stimulus measures, much of the deficit represents permanent increases in government spending, e.g., due to the growing number of federal employees. If increased government spending is removed, GDP appears to be declining significantly.Of course, sustainability has more to do with total debt than with deficit spending because a deficit assumes that there is an underlying capacity to service additional debt.
While asset prices have declined, e.g., real estate and equities, debt levels have remained high due to the federal government’s policy of preserving bank balance sheets, which had ballooned prior to the financial crisis to the point that overall debt in the US economy reached unsustainable levels.
The absolute debt to GDP ratio of the US economy peaked in 2007 when debt levels exceeded the ability of the economy to service debt from income based on production, even at low interest rates. Although US GDP began to decline prior to the advent of the global financial crisis, debt coverage had been in decline approximately since the 1970s, coincidentally, around the time that the US dollar was decoupled from gold.
Government deficit spending cannot correct the situation because, for every dollar of new borrowing, the gain in GDP is negligible and some have argued that the US economy has passed the point of “debt saturation.”In a growing economy, additional debt can result in a net gain in GDP because the money supply grows and economic activity is stimulated by transactions that flow through the economy as a result. The debt saturation hypothesis is that, as debt levels rise, additional debt has less impact on GDP until a point is reached where new debt causes GDP to decline, i.e., the capacity of the economy to service debt has been exceeded and, not only is it impossible for the economy to grow at a rate sufficient to service existing debt (since interest compounds), but economic activity actually declines further as a function of additional debt.
A Downward Spiral
The process of debt deflation is straightforward. New lending at levels that would maintain or expand the broad money supply is impossible for two reasons: (1) asset values and incomes have fallen and millions remain unemployed; and (2) debt levels remain excessive compared to GDP, i.e., real economic activity (outside of the government and financial services industry) cannot service additional debt. The inability to lend, actually the result of prior excess lending, results in a net drain of money from the economy. The drain effect, in turn, leads to further defaults as cash strapped consumers and businesses fail to service existing debt, and as debt defaults impact bank balance sheets, putting a damper on new lending and completing the cycle of debt deflation.Keynesian economic policies, i.e., government deficit spending, are irrelevant vis-à-vis excessive debt levels in the economy and bailing out banks is not a solution since it cannot stop the deterioration of their balance sheets. The process is self-perpetuating and cannot be stopped by any government or monetary policy because it is not a matter of policy, but rather one of mathematics.
Since the presence of excess debt (beyond what can be supported by a stable GDP, or by sustainable GDP growth) impacts the broad money supply, efforts to preserve bank balance sheets, i.e., to keep otherwise bad loans on the books of banks at full value, will ultimately cause bank balance sheets to deteriorate more than they would have otherwise. The fact that US banks issued trillions in bad loans cannot be corrected by changing accounting rules, nor can the consequences be avoided by government deficit spending or by unlimited bailouts, and the problem cannot be papered over by dropping freshly printed money from helicopters flying over Wall Street.
The major problems facing the US economy today—a tsunami or debt defaults, structural unemployment, massive government budget deficits, a contraction of the broad money supply outside of the federal government and the financial system, and a lack of sustainable growth—cannot be addressed as long as excess debt levels are maintained. As von Mises clearly understood, sound economic conditions cannot be restored unless and until the excess debt, which resulted from a boom brought about by credit expansion, is purged from the system. The alternative, and the current policy of the United States, is a downward spiral into a bottomless economic abyss.
American investors: Predictably stupid losers
by Paul B. Farrell - MarketWatch
Obama backs status quo, helping Wall Street skim hundreds of billions
Yes, I am mad as hell again. Wall Street's soulless, immoral, greedy bankers really believe that the vast majority of America's 95 million investors are not only "predictably irrational" but "stupid," as J.P. Morgan Chase's chief investment officer put it in Forbes a while back. Worse, Main Street investors are losers for continuing to trust Wall Street after they lost 20% of our retirement money the last decade. Now, worst of all, Wall Street's traders have profiled Main Street investors in their algorithms: Yes, investors are "predictably stupid losers," what Vegas croupiers call a mark, a dumb gambler that can be easily conned out of his money.
Why so blunt? Listen: Recently I explained why the Wall Street banks must kill financial reform, to preserve their multibillion dollar bonus pool. One reader commented: "I worked at the Bear Sterns ... every word written here is true. Fact is, bankers regard themselves as wolves and the public as prey, and speak about it openly, among themselves." Then he added a sucker punch: "What is extraordinary to me is how willingly the sheep submit to this." Yes, folks, Wall Street is certain that America's 95 million investors are clueless sheep headed for the slaughterhouse.
But wait, that's not news. Twenty years ago former bond trader Michael Lewis' "Liar's Poker" described the insanity of our addiction to gambling in a few memorable lines: "Men on the trading floor may not have been to school but they have Ph.D.s in man's ignorance." They know that "in any market, as in any poker game, there is a fool. The astute investor Warren Buffett is fond of saying that any player unaware of the fool in the market probably is the fool in the market." And as we now know, in the stock market the vast majority of America's 95 million investors are fools -- predictably stupid losers.
Lewis says traders instinctively know that "the larger the number of people" chasing a trend, "the easier it was for them to delude themselves that what they were doing must be smart. The first thing you learn on the trading floor is that when large numbers of people are after the same commodity, be it a stock, a bond, or a job, the commodity quickly becomes overvalued," making it easy for traders to generate hundred-million-dollar-profit days.
Too blunt? Sorry but that's exactly how Wall Street sees you
Are we too harsh, folks? Sorry for lumping you readers in with the rest of Main Street's 95 million predictably stupid losers. But what else could a rational person conclude? So you ask: What triggered this rant? Simple: A new book, "The Upside of Irrationality: The Unexpected Benefits of Defining Logic at Work and at Home," by Dan Ariely, the brilliant Duke University behavioral economist who earlier wrote the one book whose title alone tells you all you'll ever need to know about behavioral economics. Answer: You are "Predictably Irrational." Period.
I feel sorry for all books on behavioral economics. Why? Because most are written by brilliant academicians and top journalists, not callous, greedy Wall Street traders who'd never divulge their secrets. But that's no excuse: These books are all filled with misleading pop-psychology nonsense based on a simple premise: That if you just buy these books and apply their advice, you can change the way you think, become less irrational and be a better investor, even beat Wall Street. Wrong.
Never read another behavioral economics book ... ever
Here's a partial list of popular behavioral economics books you should never waste time reading. They're also based on that same misleading assumption that you can make your brain less irrational and win at Wall Street's casino. Never happen in a million years. Never. Wall Street's already programmed your psychological profile into their trading algorithms. They're light-years ahead of you, misleading you into their slaughterhouses and casinos. Here's the list of the popular books no investor should ever read:
- "Animal Spirits: How Human Psychology Drives the Markets and Why It Matters for Global Capitalism"
- "Beyond Greed and Fear: Understanding Behavioral Finance & the Psychology of Investing"
- "Blind Spots: Why Smart People Do Dumb Things"
- "Blunder: Why Smart People Make Bad Decisions"
- "Drunkard's Walk: How Randomness Rules Our Lives"
- "Logic of Life: Rational Economics in an Irrational World"
- "Mind Over Money: Matching Your Personality to a Winning Financial Strategy"
- "Myth of the Rational Market: A History of Risk Reward & Delusion on Wall Street"
- "Nudge: Improving Decisions About Health, Wealth & Happiness"
- "Sway: The Irresistible Pull of Irrational Behavior"
- "Train Your Mind, Change Your Brain: How a New Science Reveals Our Extraordinary Potential to Transform Ourselves"
- "Your Money & Your Brain: How the New Science of Neuroeconomics can Help Make You Rich"
- "Why Smart People Make Big Money Mistakes, And How to Correct Them: Lessons From the New Science of Behavioral Economics"
Why such a strong warning? Remember, all these books were built on the original research of Daniel Kahneman who won the 2002 Nobel Economics Prize for his work in behavioral economics. Moreover, all of them were published before Wall Street's meltdown a couple years ago. And still Main Street investors lost trillions of retirement money. Get it? Reading books on behavioral economics not only didn't help, it probably gave you a false sense of security that made you even more vulnerable to Wall Street's deceptive con game ... and given their current $400 million lobbying efforts to kill reforms, you can bet another meltdown is destined to happen again, soon.
Admit it, investors are sheep, fools, predictably stupid losers
So what's the only thing you need to know about behavioral economics? Begin with the fact that you are predictably irrational. Your brain is not only irrational, your behavior is easily predicted. You can be manipulated without ever knowing it. Wall Street knows your brain is your worst enemy, that 88% of your behavior is driven by the subconscious, biases you cannot change. The fact is, Wall Street does not want intelligent investors who think. So read all you want, see all the shrinks you want, trade all you want, nothing will save you. Wall Street already has your profile in their trading algorithms. They'll always be light-years ahead of you.
And finally, in spite of all their claims of professionalism, neuroeconomists, perhaps more than other economists, are political animals. As Bloomberg BusinessWeek put it, "the rap on economists, only somewhat exaggerated, is that they are overconfident, unrealistic and political. They claim a precision that neither their raw material nor their skill warrants. Too many assume that people behave like the mythical homo economicus, who is hyperrational and omniscient." The fact is, neuroeconomists are political mercenaries-for-hire who can "prove" any scenario, neoKeynesian or Reaganomics.
Worse, our political leaders are becoming predictably stupid losers
Political animals? You bet. Reminds me of Alan Greenspan's congressional testimony admitting that the Reaganomics free market trickle-down economics failed America: Greenspan admitted he made a "mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and equity."
There was "a flaw in the model ... that defines how the world works," said Greenspan. "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," he told Congress. Unregulated markets "held sway for decades" ... then "the whole intellectual edifice, however, collapsed."
And it'll get worse, thanks to Bernanke, Obama and Goldman's lobbyists. Greenspan's deeply flawed Reaganomics remains anchored deep in America's brain and DNA. So every promise made in every behavioral-economics book ever written about the principles originally defined by Kahneman will continue to mislead America's 95 million Main Street investors ... and fail.
Why? Because the insatiable greed driving the Goldman Conspiracy of Wall Street banks is so addictive, so powerful, so overwhelming, so much in control of the political process that nothing, absolutely nothing, can change the next inevitable mega-crash dead ahead.
Short-Term Markets Brace For New Environment Of Higher Rates
by Deborah Lynn Blumberg - Dow Jones Newswires
-Despite the Federal Reserve's pledge to hold rates low for a while, the short-term funding markets are signaling that borrowing costs have just one way to go this year: higher. That's bad news not just for the banks, which are the major users of these markets for unsecured loans of up to 270 days, but also for the broader economy as bank lending rates are the benchmark for many types of short-term loans for companies and consumers.
The three-month London interbank offered rate, or Libor--what banks charge each other for three-month dollar loans--could rise to 0.65%-0.70% by 2011, up from its current 0.54%, according to Joseph Abate, a money market strategist at Barclays Capital in New York. The rate has more than doubled since March at a time of worries over European banks' exposure to weaker euro-zone nations such as Greece, Spain and Portugal. Monday, the European Central Bank said that banks in the euro zone will suffer "considerable" losses this year and next, keeping fears about counterparty risk alive.
Money market funds, the main providers of cash in the short-term market, have become increasingly cautious about lending for longer terms. As a result, the gap between Libor and the expected fed funds rate--known as the overnight index swap, or OIS--has widened sharply in recent weeks. Tuesday, it was about 31 basis points, compared with its low of around 10 basis points earlier this year and 20 basis points before the financial crisis. At the height of the crisis, Libor/OIS jumped to 480 basis points.
Barclays' Abate expects the gap to widen to around 40-45 basis points in 2011 as the market adjusts to higher Libor rates. Eurodollar interest rate futures markets also see the gap widening to around 45 basis points. At the moment, the rise in Libor is driven by worries over the credit health of European banks. "There's still significant counterparty risk for these banks in Europe that will push Libor higher," said Tom Simons, a money market economist at Jefferies & Company in New York.
But even if the worries over euro zone banks' creditworthiness abate--which may require further action from the officials--other developments, such as tighter financial regulation and an eventual recovery in the U.S., suggest rates must move up. Tighter financial regulation will limit banks' participation in these short-term unsecured funding markets as banks will be encouraged to find more stable sources of funding. Problems raising short-term funds played a key role in the collapse of several banks, including Bear Stearns in the U.S. Fewer participants will mean less liquidity, which could lead to higher rates.
Short-term rates will also rise as investors begin to anticipate interest rates hikes from the Fed as the economy continues to slowly improve. The Fed has left its key rate in a 0% to 0.25% band since December 2008; many Wall Street economists expect the economy will be strong enough for a rate hike by early 2011. Higher short-term funding rates will be unpleasant for companies and consumers and will require some adjustments. Elevated rates though could also pose a problem for the Fed. If they push up too far too fast, they could damp economic activity in the U.S. at a time when the recovery remains fragile.
Solutions for a crisis in its sovereign stage
by Nouriel Roubini and Arnab Das - Financial Times
The largest financial crisis in history is spreading from private to sovereign entities. At best, Europe"s recovery will suffer as the collapsing euro subtracts from growth in its key trading partners. At worst, a disintegration of the single currency or a wave of disorderly defaults could unhinge the financial system and precipitate a double-dip recession.
How did it come to this? Starting in the 1970s, financial liberalisation and innovation eased credit constraints on the public and private sectors. Households in advanced economies – where real income growth was anaemic – could use debt to spend beyond their means. The process was fed by ever laxer regulation, increasingly frequent and expensive government and International Monetary Fund bail-outs in response to increasingly frequent and expensive crises, and easy monetary policy from the 1990s. Political support for this democratisation of credit and home-ownership compounded the trend after 2000.
Paradigm shifts were invoked to justify debt-fuelled global growth: the transition from cold war to Washington Consensus; the re-integration of emerging markets into the global economy; the "Goldilocks" combination of high growth and low inflation; a much-ballyhooed convergence ahead of monetary union across Europe; and rapid financial innovation.
The result was a consumption binge in deficit countries and an export surge in surplus countries, with vendor financing courtesy of the latter. Global output and growth, corporate profits, household income and wealth, and public revenue and spending temporarily shot well above equilibrium. Wishful thinking allowed asset prices to reach absurd heights and pushed risk premiums to incredible lows. When the asset and credit bubbles burst, it became clear that the world faced a lower speed limit on growth than we had banked on.
Now, governments everywhere are releveraging to socialise private losses. But public debt is ultimately a private burden: governments subsist by taxing private income and wealth, or through the ultimate capital levy of inflation or outright default. Eventually governments must deleverage too, or else public debt will explode, precipitating further, deeper public and private-sector crises. This is already happening in the front-line of the crisis, eurozone sovereign debt. Greece is first over the edge; Ireland, Portugal and Spain trail close behind. Italy, while not yet illiquid, faces solvency risks. Even France and Germany have rising deficits. UK budget cuts are starting. Eventually the US will have to cut too.
In the early part of the crisis, governments acted in unison to restore confidence and economic activity. The Group of 20 coalesced after the crash of 2008-09; we all were in the same boat together, sinking fast. But in 2010, national imperatives reasserted themselves. Co-ordination is now lacking: Germany is banning naked short selling unilaterally and the US is pursuing its own financial sector reform. Surplus countries are unwilling to stimulate consumption, while deficit countries are building unsustainable public debt.
The eurozone offers an object lesson in how not to respond to a systemic crisis. Member states started going it alone when they carved up pan-European banks along national lines in 2008. After much dithering and denial over Greece, leaders orchestrated an overwhelming show of force; a €750bn bail-out bolstered confidence for one day. But the rules went out of the window. Sovereign rescues are legitimised by an escape clause from the "no bail-out" rule intended for acts of God, not man-made debt. The European Central Bank began buying government bonds days after insisting it would not. Tensions in the Franco-German axis are palpable. Instead of Balkanised local responses, we need a comprehensive solution to this global problem.
First , the eurozone must get its act together. It must deregulate, liberalise, reform the south and stoke demand in the north to restore dynamism and growth; ease monetary policy to prevent deflation and boost competitiveness; implement sovereign debt restructuring mechanisms to limit moral hazard from bail-outs; and put expansion of the eurozone on ice.
Second , creditors need to take a hit, and debtors adjust. This is a solvency problem, demanding a grand work-out. Greece is the tip of the iceberg; banks in Spain and elsewhere in Europe stand knee-deep in bad debt, while problems persist in US residential and global commercial property.
Third , it is time for radical reform of finance. The majority of proposals on the table are inadequate or irrelevant. Large financial institutions must be unbundled; they are too big, interconnected and complex to manage. Investors and customers can find all the traditional banking, investment banking, hedge fund, mutual fund and insurance services they need in specialised firms. We need to go back to Glass-Steagal on steroids.
Last , the global economy must be rebalanced. Deficit countries need to boost savings and investment; surplus countries to stimulate consumption. The quid pro quo for fiscal and financial reform in deficit countries must be deregulation of product, service and labour markets to boost incomes in surplus countries.
Job Outlook for American Teenagers Worsens
by Mickey Meece - New York Times
This year is shaping up to be even worse than last for the millions of high school and college students looking for summer jobs. State and local governments, traditionally among the biggest seasonal employers, are knee-deep in budget woes, and the stimulus money that helped cushion some government job programs last summer is running out. Private employers are also reluctant to hire until the economy shows more solid signs of recovery.
So expect fewer lifeguards on duty at public beaches this summer in California, fewer workers at some Massachusetts state parks and camping grounds and taller grass outside state buildings in Kentucky. Students seeking summer jobs, generally 16 to 24 years old, are at the end of the job line, behind the jobless baby boomers who are competing with new college graduates who, in turn, are trying to elbow out undergraduates and high school students.
With so many people competing for so few jobs, unemployed youth "are the silent victims of the economy," said Adele McKeon, a career specialist with the Boston Private Industry Council who counsels students on matters like workplace etiquette, professionalism and résumé writing. Getting that first job "is an accomplishment, and it"s independence," Ms. McKeon said. "If you don"t have it, where are you going to learn that stuff?" The unemployment rate for the 16-to-24 age group reached a record 19.6 percent in April, double the national average. For those job seekers, said Heidi Shierholz, an economist at the Economic Policy Institute, "This is the worst year, definitely since the early "80s recession and very likely since the Great Depression."
Or as researchers at Northeastern University, who issued a report in April on youth unemployment, put it, "The summer job outlook does not appear to be very bright in the absence of a massive new summer jobs intervention." Still, the poor numbers this year are not solely a symptom of the continued weak economy. For generations, government data shows, at least half of all teenagers were in the labor force in June, July and August. Starting this decade, though, the number of employed teenagers began to drop, and by 2009, less than a third of teenagers had jobs. This year, the number could fall below 30 percent.That is a stark contrast to the job market for recent college graduates seeking full-time employment — a market where this is actually a slight increase from this time last year. There is no simple explanation for the large drop-off in summer jobs this decade, though experts say that more high school students are choosing to volunteer and do internships to burnish their college applications. But the Northeastern researchers said a large number of youths had been left out of the work force and wanted to get back in.
The forecast for this summer is so dire that high school students took to the streets this year in Washington, Boston and New York to push lawmakers to come up with money for summer youth jobs programs as Congress did last year, allocating $1.2 billion for a program for low-income youths. On Friday, the House passed a measure that included the summer jobs provision, though its future in the Senate this week is uncertain.
The Northeastern researchers estimated that an additional $1 billion federal infusion would create some 300,000 job slots this summer, barely putting a dent in the demand for jobs. Still, those types of positions are desperately needed, said Neil Sullivan, executive director of the Boston Private Industry Council, which works with private and public employers to place students. For students like Anthony Roberts, 18, and Deandre Briber, 18, at the Prologue Early College High School in Chicago, the federal money offers some hope. Both are applying to the alternative school"s summer jobs program.
Last summer, with the aid of stimulus money, the school hired dozens of students, according to its principal, Pa Joof. This summer, without the money, the school can afford just 10. "It was great last summer," he said. "We had 80 to 90 kids kept off of the street seven or eight weeks. They were able to come right back to school without any problem" in the fall, he added. "What"s happening right now in Chicago, you let these kids out there for four or five weeks, we are going to lose some of them. That"s just the nature of the streets."
Mr. Briber, who graduates next January, said he had applied at T.J. Maxx, Target, Kmart, and at a local docking company, with no luck. Having an income will help ease the burden on his mother, he said. Also, he said, "I feel like I do need to get a job because I"m kind of a handful. I want things, clothes, and to take care of myself. I just want to be on my own, to help out with bills." Mr. Roberts, who graduates in June and plans to attend college, said he had been searching for a job for a year and a half. Everywhere he goes, Mr. Roberts says, there are other teenagers ahead of him. "It bothers me, but at the same time," he said, "I try not to let it bother me."
In Boston, at the Charlestown High School, Jamila Hussein, 19, said she had been running into the same problem in looking for a part-time job in retail or restaurants. "It"s harder than it sounds," said Ms. Hussein, who has a summer internship lined up in July to clerk for a judge. "Right now, some of the things, even if they are available, you have adults looking." Last week, Ms. Hussein was at the office of Ms. McKeon, the career specialist with the Boston Private Industry Council. The partnership with the private industry council and public schools is well entrenched, about 30 years old, Ms. McKeon said. Even so, she said, "we"ve never seen it like it is now."
Jada Bonner, 15, another student at Charlestown High, was at Ms. McKeon"s office applying for a summer job through a community program. "I just want a job, independence. I don"t want to ask my mom 24/7 for pocket money, and she might not even have it," she said. While cities like Boston and New York have had to cut summer youth jobs programs, Cincinnati has maintained a $1 million budget for its youth initiative the last few years because of the mayor"s commitment to the program, according to Jason Barron of the mayor"s office.
About 700 high school and college-age youths will be hired to create murals, landscape, work in the parks department, serve as junior counselors and intern at neighborhood recreation centers, he said. Elsewhere, the Interior Department has committed to hiring at least 12,000 youth in 2010 — a 50 percent increase over the 8,000 in 2009 as part of its Youth in the Great Outdoors initiative. But for the second consecutive year, CareerBuilder.com found in its summer hiring forecast that a vast majority of employers did not intend to hire seasonal help. "Summer hiring plans clearly show that they are still waiting to see what the future brings before they move forward with recruitment," said Rosemary Haefner, vice president for human resources.
Still, Ms. Haefner said, there have been some positive signs, like an increase in job postings. Retailers like American Eagle Outfitters are hiring at various locations, including its flagship stores in New York City, where it plans job fairs in June. In tourist spots like Atlantic City, businesses are expecting a rebound in seasonal hires, according to the Convention and Visitors Authority. Indeed, career specialists say job seekers who persevere can find work. "It"s still going to be a tough summer for teens," said Renée Ward, who runs the job help site, teens4hire.org.
To which Mr. Sullivan of the Boston Private Industry Council, said, "Everyone has fond memories of their summer jobs as they grew up." "For almost half of this generation," he said, "that has been lost."
Weak Euro Propels German Economy
by Brian Blackstone and Laura Stevens
Germany's economy appears to be gaining steam despite mounting worries the fiscal troubles in countries along the euro-zone's fringe could undermine Europe's recovery. Germany's economy, the driver of the European economy, is likely to expand at a 3% to 4% rate this quarter, economists say, a forecast supported by a string of strong reports on employment, consumer spending and manufacturing Tuesday. Lower interest rates and a weaker euro have propelled Germany's investment and export-driven economy.
The recovery could still falter, analysts warn. Just as the U.S. subprime-mortgage crisis thwarted Germany's expansion two years ago, Europe's brewing financial contagion could hamper growth if German banks face extensive losses and are unable to extend credit to industry and households. Other countries in Europe face years of weak growth or recession, making Germany vulnerable to any slowdown in markets including China or the U.S. Still, while the German public was strongly opposed to rescuing Greece, and its central bank is openly at odds with the European Central Bank's decision to purchase Greek and other struggling countries' debt, from an economic standpoint it has little to complain about.
"As a firm, we're always one of the very first to experience the first affects of a crisis," says Dietmar Ahl, chief executive of Günther Bechtold GmbH, a Bavaria-based sheet metal processor and manufacturer. "That also has the benefit of making us one of the first to see a recovery. And that's what's happening right now." Business should be up 25% this year, Mr. Ahl says, after falling almost 50% between 2007 and 2009. The company has been able to add some temporary workers to its 66-person staff.German unemployment fell 45,000 in May, more than twice the drop expected by economists, bringing the unemployment rate down to 7.7%, the lowest since December 2008. The EU-harmonized figure is even lower at just over 7%. The German numbers highlight the divide between its economy and that of the greater euro zone. The European Union's Eurostat agency said Tuesday that unemployment across the 16 countries that share the euro rose to 10.1% in April, its highest level in 12 years, driven by increases in Spain, Portugal, Ireland and Italy. But Eurostat said there are signs the jobless rate may be close to peaking after only 25,000 people joined jobless queues in April, the second-smallest increase since March 2008.
German manufacturing slowed in May, according to purchasing manager reports released Tuesday by Markit, but continues to expand at a healthy pace. Factory output slowed more markedly in the euro zone as a whole, highlighting the region's fragility. "The short-term outlook is very favorable" for Germany, said Alexander Koch, economist at UniCredit Group. He thinks Germany's GDP could swell 4%, at an annualized rate, this quarter. "The momentum is strong, which bodes well for the labor market in coming months," Mr. Koch says.
JPMorgan Chase expects Germany's GDP to expand 3% this quarter, though that could be revised higher in light of recent data, economist Greg Fuzesi says. That should propel euro zone growth to around 3% this quarter as well, Mr. Fuzesi says. GDP in the currency bloc advanced just 0.8%, at an annualized rate, last quarter, well below growth rates seen in the US and developing countries such as China and India.
The total number of German unemployed fell last month to 3.24 million. It was once feared that unemployment would top four million or even five million. The labor market is one area where Germany has outperformed the U.S., where the jobless rate is 9.9% despite strong economic growth at the end of 2009 and early 2010. A number of forces are at work here, economists say. The Germany statistics office changed the way it classifies unemployed people who are using employment agencies, which reduced the reported numbers of unemployed. Government subsidy programs aimed at keeping people in their jobs by paying part of their wages and employment taxes kept as many as 500,000 from going on the jobless rolls, some economists estimate.
The number of people on Germany's subsidized work program, known as Kurzarbeit, has fallen roughly in half since it peaked at 1.5 million one year ago. That suggests a gamble Germany made at the start of the crisis is paying off. Kurzarbeit has been in place for decades, but the government expanded the program during the recent recession. Critics warned that by keeping people in their jobs, the government was simply delaying an inevitable adjustment that would have to come in order for Germany to stay competitive with other economic powerhouses including the U.S. and China. But now that global trade is recovering, German exporters have the staff, and expertise, on hand to meet demand.
"Right now, the Germany industry is starting to heal itself very slowly," says Matthias Freund, who owns Freund Human Resources Consulting, which focuses on management recruitment. "Firms are starting to hire employees again, and you can sense that the business climate is getting better." Europe's debt crisis could still derail expansion, because German banks are heavily exposed to the debt of at-risk peripheral countries like Greece, Portugal and Ireland. But for now a weaker euro is shielding the economy from financial turbulence. The euro now fetches around $1.23 against the U.S. dollar, down more than 15% since December.
ECB President Trichet denies Anglo-Saxon attack on euro
by Steve Goldstein - MarketWatch
European Central Bank President Jean-Claude Trichet on Monday denied that an Anglo-Saxon conspiracy was to blame for the rapidly falling euro as he sidestepped questions over a clash with his potential successor and over Spanish bank health. In an interview with Le Monde and translated into English on the ECB web site, Trichet said investors have a difficult time understanding European institutions, as the euro trades at the $1.23 level from above $1.50 at the end of 2009.
"One should be wary of any conspiracy theories," Trichet said. "I simply believe that some international investors struggle to understand Europe and its decision-making mechanisms. They have difficulty in gauging the historical size of the European construction and in anticipating the capacity of Europeans to take decisions that are just as important as those taken a few days ago." He said the markets will need time to adjust to the nearly $1 trillion European Union-International Monetary Fund support package reached earlier this month.
"The measures are so significant in terms of both their nature and their scale that there is no doubt that they will have a positive effect on the markets," the central bank chief asserted. Trichet called the euro a "very credible currency" which keeps its value, noting that average consumer prices have been below its target during its 11-and-a-half year existence. "The issue is that of financial stability within the euro area on account of bad fiscal policy in certain countries, in particular Greece. It is imperative that this be corrected."
He also said there was no "plan B" for Greece and said he doesn't anticipate a restructuring of the troubled country's debts. "Greece must and will honor its commitments. The European Commission, together with the ECB on the one hand and the IMF on the other, is following developments in the recovery program very closely," he said. Trichet said austerity packages -- announced throughout the euro zone, from Germany to Greece -- were needed in spite of the possibility they may derail growth. "When a household systematically spends more than it earns, so that its debt rises exponentially, its situation is clearly untenable. Correcting this situation demonstrates both wise and sound judgment," he said.
Trichet also dodged a question on the clash with current Bundesbank president, and possible successor, Axel Weber over the purchase of government bonds, noting he doesn't comment on what ECB colleagues say. He reiterated that unlike similar programs of the U.S. Federal Reserve and the Bank of England, the ECB bond buys are not quantitative easing programs because they are sterilized.
The central bank chief added that he took a "very cautious view" on bank taxes that are being proposed across the globe, noting the lessons of the prudential regulation still need to be learned. On Spanish banks -- one regional lender was rescued last week, and several others are now being pushed into merger talks -- Trichet said he had "no particular comments."
ECB Warns Euro-Zone Banks Write-Downs Could Reach $239 Billion
by David Enrich and Stephen Fidler - Wall Street Journal
In the latest indication that European banks are in ill health, the European Central Bank warned late Monday that euro-zone banks face €195 billion ($239.26 billion) in write-downs this year and the next due to an economic outlook that remained "clouded by uncertainty." The ECB news, part of its semiannual financial-stability report, comes on the heels of a campaign by governments and central banks to ease sovereign-debt problems in southern Europe. The efforts have failed to calm worries that a banking crisis may be forming on the Continent. That has led to escalating pressure on regulators and governments to do more.
European governments already have cobbled together a €110 billion bailout for Greece and a €750 billion rescue for other weak economies of the euro zone. The ECB in May launched a series of initiatives to help banks, including the purchases of government debt from banks and the renewal of a program to give cheap six-month loans to banks, while the U.S. Federal Reserve reactivated a swap line to provide European banks with dollars.
The moves helped provide some stability to the banks, but Europe's intertwined banking system remains stressed. Investors have hammered the sector, banks are stashing near-record amounts of deposits at the ECB—€305 billion as of Friday—instead of lending the funds to other institutions, risk-wary U.S. financial institutions are reducing their exposure to euro-zone banks, and U.S. government officials are pushing their case for Europe to disclose publicly the results of stress tests for euro-zone banks.ECB Vice President Lucas Papademos defended the central bank's response to the banking crisis and said results of European Union-wide stress tests of banks should be completed in July, providing further details on the capacity of the region's banks to withstand shocks. The results of stress tests last year of individual banks weren't released publicly. Some European countries are opposed to the public release of results.
European banks collectively hold hundreds of billions of euros of public and private debt in countries such as Greece, Spain and Portugal. Much of the private debt is tied to depressed real-estate markets, especially in Spain, and with growth prospects anemic, the pressure on outstanding bank loans isn't expected to diminish anytime soon. The actions taken so far, while large in scale, "may not be enough," said Philippe Morel, a senior partner at Boston Consulting Group in Paris. "What's at risk is the banking system and the ability of banks to provide financing to the economy."
Like the financial crisis two years ago that was sparked by the unraveling of the U.S. subprime-mortgage industry, Europe's banking problems originated in a tiny patch of the global economy: Greece.
But the problems run deeper than the highly publicized fiscal woes facing Greece, prompting similar concerns about Portugal, Ireland and Spain. Credit-ratings firms have reduced these countries' rankings and have warned about possible future downgrades, with Fitch reducing Spain's triple-A rating by one notch on Friday.
All told, more than €2 trillion of public and private debt from Greece, Spain and Portugal is sitting on the balance sheets of financial institutions outside the three countries, according to a Royal Bank of Scotland report last week. Investors, bankers and government officials are worried that as that debt loses value, banks across Europe could be saddled with losses. "Make no mistake: This is big," said Jacques Cailloux, RBS's chief European economist and the report's author. "We're talking about systemic risk [and] the potential for contagion."
Concerns also are mounting about how European banks will finance themselves in coming years. The banks have hundreds of billions of euros in debt maturing by 2012, analysts and bankers say. Replacing those funds could be difficult and costly, given fierce competition for deposits and skittishness among bond investors. The situation has alarmed bankers and government officials, and it helped fuel last week's selloff in bank stocks.
With funding scarce, some banks are becoming more dependent on the ECB. The central bank has doled out more than €800 billion in loans to banks, nearing its all-time high, according to UBS analysts. The ECB warned Monday that the "continued reliance" of some midsize banks on credit from the central bank remains "a cause for concern." The U.S. and U.K. moved aggressively in 2008 and 2009 to replenish their banks' capital buffers, sometimes with taxpayer funds.
Most of Europe didn't follow suit, because their banking systems were largely spared the carnage of their Anglo-American counterparts. But as a result, most European banks today have thinner capital cushions and heavier debt loads than their U.S. and U.K. rivals, leaving them vulnerable to an economic slowdown. "Some European banks have less capital and more leverage than their U.S. counterparts and…the crisis in Europe seems to have lagged behind that in the U.S. in both the writing off of losses and in the speed of raising more capital," said Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, in a speech in May.
OECD figures show that a selection of major U.S. banks are operating with leverage ratios—the ratio of assets to common equity—of between 12 and 17. By comparison, the same ratio for a group of major European banks ranged from 21 to 49, according to the OECD. European policy makers have been trying to address that disparity by working on a global overhaul of banking regulations, to be enacted in 2012, that would require banks to hold more capital and liquidity. "But the regulatory fixes aren't going to solve the problem right now," said Michael Ben-Gad, an economics professor at City University London.
European governments and central bankers had hoped bailing out Greece and launching a liquidity program would relieve immediate pressure on other governments and the banking sector. But that hasn't happened, and new pressures could arise soon. The ECB last summer doled out €442 billion in one-year loans to euro-zone banks. Those loans come due June 30, potentially causing banks to scramble for a fresh source of cash this month.
European officials face calls from the banking industry, the investment community and foreign government leaders, including U.S. Treasury Secretary Timothy Geithner, to redouble efforts to stabilize the banking system through new initiatives. RBS's Mr. Cailloux argues that the ECB should expand its recently launched program to buy government bonds and should broaden the effort to include private-sector debt as well. That could ease concerns that banks will suffer heavy losses, potentially blowing holes in their balance sheets, on their portfolios of sovereign and corporate bonds tied to some European economies. But such a move also could expose the central bank to potential losses.
Citigroup Inc. last week circulated a paper calling on the ECB to launch a sort of insurance program to allow holders of government bonds—a group largely consisting of European banks—to sell the securities to the ECB in case of default. "Time is now of the essence and the authorities should continue to be bold and innovative in working to accelerate the impact of the available lines of support," Nazareth Festekjian, a Citigroup managing director, wrote in the paper. The ECB had no comment on calls to increase the size of the bond-buying program or on the Citigroup recommendations.
Others want local European bank regulators to play a more proactive role monitoring their banks' exposures to troubled countries. In the U.K., the Financial Services Authority has been conducting repeated stress tests of major British banks' exposures to southern Europe. Similarly intense efforts don't appear to be under way elsewhere in Europe, said Pat Newberry, chairman of the U.K. financial-services regulatory practice at PricewaterhouseCoopers LLP.
Mr. Newberry said conducting such tests would help European governments and banks get a better handle on their individual and collective vulnerabilities and to understand "how a series of unfortunate events can aggregate to turn a problem into a catastrophe." U.S. authorities believe that stress tests can help restore market confidence. The tests the U.S. conducted last year helped inject greater transparency and confidence in the banking system, U.S. officials have said.
U.S. to Push Europe on Stress Tests
by Michael M. Phillips and Marcus Walker - Wall Street Journal
The U.S. intends to urge Europe to disclose publicly the results of bank stress tests as a way to calm jitters over the health of the Continent's financial system, U.S. officials said. Worries about Greece's ability to repay its debt, and concerns about the stability of Spain and Portugal, provide a sobering backdrop at the gathering this week in Busan, South Korea, of finance ministers and central bankers from the Group of 20 industrial and developing nations. U.S. officials said they are convinced that by publicly demonstrating the strength of its banks and promising to solidify those that prove weak, Europe might help stem the crisis of confidence.
"This crisis is multifaceted, but I believe bank stress tests can be helpful as a critical component of any comprehensive plan to restore confidence in the European financial system," said Lee Sachs, who was, until a month ago, a top adviser to Treasury Secretary Timothy Geithner. European banking supervisors performed stress tests on the region's banks last year and plan to repeat the exercise this year. But they have declined to publicize the results for individual banks. European Union officials said national regulators already are well aware of the health of their banks. "You don't need a stress test to tell you what would happen if Spain became bankrupt; it would be horrible," one German official said.
When U.S. regulators tested the resilience of 19 major bank-holding companies in 2009, they found that 10 of the companies required a total of $75 billion to reinforce their balance sheets. The stress tests and subsequent capital raisings by some banks were seen as helping the U.S. pull out of the financial crisis. In a speech in May, Federal Reserve Chairman Ben Bernanke said the stress tests "helped restore confidence in the banking system and broader financial system, thereby contributing to the economy's recovery." Fed governor Kevin Warsh is expected to stand in for Mr. Bernanke and join Mr. Geithner at the Busan meetings.
Stress tests are designed to determine what would happen to a bank's balance sheet in the face of a traumatic event, such as a sharp drop in economic growth or a default by a major borrower. During the height of the global financial crisis, the Europeans said their banks weren't as heavily exposed as U.S. institutions to problem assets such as mortgage-backed securities. Nevertheless, a number of countries, including the U.K., Spain and Germany, bailed out banks. Now, market participants are concerned that European banks' books are laden with potentially shaky assets, such as Greek or Spanish government bonds and loans to businesses in countries facing economic woes.
"The Europeans are in pretty heavy denial and have been all along about the state of European banks," said Ted Truman, a former senior Treasury Department official who is now at the Peterson Institute for International Economics in Washington. Mr. Geithner is loath to appear to hector his European counterparts, especially given the opposition to the idea. The U.S. has been urging bank stress tests on European officials for some time, but the European crisis has given the Americans a sense of urgency.
The French central bank appears amenable to the idea, but Germany has been Europe's leading opponent of publicly disclosing the results of stress tests. German officials argue the U.S. tests were little more than public-relations stunts, designed so that banks would pass. Euro-zone leaders said a default by a country has no chance of happening, thanks to the nearly $1 trillion bailout fund agreed to by the 27-nation EU and the International Monetary Fund. Publishing the results of stress tests that postulate a Spanish default, for instance, would damage the bailout's credibility, officials said.
U.S. officials want the Europeans to clarify whether they would use the big bailout fund to prop up banks or just national governments. Stress tests are linked to another major item on the G-20 agenda: negotiating stricter international standards for how much capital banks must keep in reserve. President Barack Obama and other G-20 leaders have promised to come up with such rules by the end of the year. But agreement has proved elusive, with the U.S., France, Germany and other nations unable to agree on what constitutes sufficient capital. The meeting in Busan is intended to prepare the economic part of the agenda for the G-20 leaders' summit in Toronto in June.
Euro-Zone Unemployment Hits 12-Year High
by Nicholas Winning - Wall Street Journal
The jobless rate in the euro zone rose to its highest level for almost 12 years in April as firms laid off more staff even though the currency bloc is recovering from recession, figures from the European Union's Eurostat agency showed Tuesday. The unemployment rate increased to 10.1% in April from 10% in March, matching a level last seen in June 1998. Economists were expecting the rate to hover at 10%, according to a Dow Jones Newswires survey last week.
Eurostat said 25,000 people joined unemployment lines across the euro zone in April, bringing the total number of jobless to 15.9 million, more than the entire populations of Austria and Ireland combined.
Although the increase in the number of jobless people is smaller than the rise seen in March, it doesn't bode well for the outlook for consumer spending and suggests the recovery will be gradual at best. The euro-zone economy grew just 0.2% on a quarterly basis in the first three months of the year after stalling in the final quarter of 2009.
Eurostat said the unemployment rate in the wider European Union was steady at the series high of 9.7% in April. That compares with an unemployment rate of 9.9% in the U.S. in April, and 5.0% in Japan in March, Eurostat said. Among the member states, the highest rates of unemployment were in Latvia with 22.5% and Spain at 19.7%. The lowest rates were recorded in the Netherlands with 4.1% and Austria with 4.9%.
Bundesbank Attacks ECB Bond-Buying Plan
by David Crawford and Brian Blackstone - Wall Street Journal
The European Central Bank's intervention in European debt markets is exacerbating tensions with Germany's Bundesbank, where officials worry that the bond buying program is being used for a stealth bailout of euro-zone banks holding Greek debt, according to people familiar with the matter. Senior Bundesbank officials have questioned the ECB's rationale for intervening in the Greek bond market instead of focusing its support on other vulnerable countries, such as Portugal and Spain, that unlike Greece still depend on debt markets to fund their budgets, according to the people.
Greece received a financial rescue from other European countries and the International Monetary Fund of up to €110 billion ($135 billion) last month, ending its reliance on capital markets for funding until at least 2012. Since the European Central Bank began purchasing government bonds three weeks ago, it has spent about €25 billion on Greek debt, according to a senior Bundesbank official who declined to be named. An ECB spokeswoman declined to comment. The ECB said Monday that a total of about €35 billion in euro-zone bond purchases settled through Friday. It doesn't provide a country breakdown, but market participants say the ECB has also purchased bonds issued by Portugal, Spain, Italy and Ireland.
ECB President Jean-Claude Trichet insists the central bank isn't financing deficits in Athens or anywhere else, but rather making dysfunctional segments of the markets function more smoothly. In a speech Monday, Mr. Trichet said lower bond prices "imply valuation losses" on bank balance sheets which in turn "may mean that they can supply fewer loans to the economy." Lending figures from the ECB Monday showed that despite access to cheap ECB credit, commercial bank lending to the private sector grew just 0.1% in April from one year ago, and loans to nonfinancial businesses continue to slide.
The ECB's bond purchases come amid growing concern over the integrity of European bank balance sheets. Risk indicators on European banks have risen in recent weeks as investors fret about the exposure the banks have to the euro-zone's debt-heavy fringe. ECB critics within the Bundesbank say the price of Greek bonds is now largely irrelevant to Athens, making the main beneficiaries of the bond purchases the banks that hold much of Greece's roughly €300 billion in outstanding debt. The Bundesbank's concerns were first reported by Germany's Der Spiegel magazine over the weekend.
Selling the Greek debt would likely be an attractive option to banks eager to avoid a debt restructuring which would force them to book losses. French banks are the largest holders of Greek debt, according to Bank for International Settlement estimates, followed by German banks. Many investors and economists believe that—despite the efforts of the EU, IMF and ECB—Greece will eventually have to restructure its debt, as a stagnant economy made worse by harsh austerity measures is unable to generate the revenues needed to finance Athens' outstanding obligations.
The Bundesbank criticism signals a widening rift between the ECB and the conservative German central bank on which the ECB was modeled. Bundesbank President Axel Weber attacked the bond purchase plan within hours of its announcement on May 10, telling a German newspaper that he viewed the move "critically" and that it carried "substantial stability risks." He isn't backing down. But Mr. Trichet hit back at the ECB's critics, saying that its new program to buy government bonds in the market doesn't represent any weakening of its policy or independence. "In simple words: We are not printing money," Mr. Trichet told a conference hosted by the Austrian National Bank.
The ECB bought more than €26 billion ($31.9 billion) of bonds, mainly from highly indebted countries such as Greece and Portugal, in the first two weeks of the so-called Securities Markets Program, which was announced May 10. That amount has since grown, and the ECB said Monday it will seek to absorb the €35 billion it has added to the system through those purchases of sovereign debt. It said it will conduct a tender on Tuesday to collect one-week, fixed-term deposits and another one next week.
"We haven't gone beyond our goal of re-establishing a more correct transmission mechanism of our monetary policy," said Mr. Trichet. He reminded the audience the bank is using other operations to take out all the money it puts into the market by buying bonds from banks. While Mr. Trichet launched his detailed defense of the program Monday, Mr. Weber repeated in a speech at one of the Bundesbank's branches that he still sees the program "in a critical way." Jürgen Stark, another prominent German central banker who sits on the ECB's executive committee, has echoed those concerns.
Others on the ECB have struck back at Germany's response to the crisis. In remarks Friday that private-sector economists said were clearly aimed at Germany, ECB member Lorenzo Bini Smaghi said that "one large euro-area country" thought public support for action could only be gained by "dramatizing the situation," and using rhetoric about the future of the euro being at risk or about possible expulsion from the euro zone, rhetoric that he said "could only increase" the cost of the rescue.
Greek Finance Minister Defends Austerity Steps
by Alkman Granitsas - Wall Street Journal
Greece's finance minister said the country has no plans to restructure its giant public debt and has no need to adopt new austerity measures to meet its budget targets. In an interview in the Sunday Eleftherotypia newspaper, Finance Minister George Papaconstantinou also said Greece had no other choice but to follow through with its budget and reform plans to the letter. In May, the Greek government agreed to a three-year, €30 billion ($36.8 billion) austerity and reform program in exchange for a €110 billion bailout package from the European Union and the International Monetary Fund.
But those austerity measures, part of a series of belt-tightening programs announced by the government to cut Greece's budget deficit, include deep spending cuts and tax increases that have angered the country's labor unions and stoked public discontent. Greece's economy, already stumbling through a yearlong recession—its first in more than 15 years—is expected to contract 4% in 2010 as a result of the austerity program. "Greece does not need to take further measures, especially painful ones," Mr. Papaconstantinou said. "I see only one choice ahead of us, to consistently achieve our targets."
With €110 billion in EU and IMF financing secured, Greece has one to two years to meet its budget targets before needing to return to the financial markets for fresh financing. However, many investors think it increasingly likely that Greece will have to restructure its giant public-sector debt burden, which is forecast to hit 125% of gross domestic product this year—the highest in the euro zone. And even under the EU-IMF program, that debt burden is due to peak at close to 150% of GDP in the years ahead.
However, Mr. Papaconstantinou said any debt restructuring would be "catastrophic" for Greece. "A renegotiation (of our debt) would be catastrophic for the credibility of the country," he said. "It would lead to the effective marginalization of the country from the capital markets. It would require even bigger spending cuts and a very deep recession."
Beijing warned property bubble worse than US
by Geoff Dyer - Financial Times
The problems in China's housing market are more severe than those in the US before the financial crisis because they combine a potential bubble with the risk of social discontent, according to an adviser to the Chinese central bank.
Li Daokui, a professor at Tsinghua University and a member of the Chinese central bank's monetary policy committee, said recent state measures to cool the property market needed to be part of a long-term push to bring high prices under control . He added there were still signs the economy was overheating and urged modest increases in interest rates and the level of the currency. "The housing market problem in China is much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis," he said in an interview. "It is more than [just] a bubble problem."
He was speaking ahead of yesterday's announcement by the State Council that it had approved reform of property taxes, the clearest indication yet that the government will impose an annual tax on some residential housing in order to rein in rising prices. The news pushed shares in China down 2.4 per cent. The unusually forthright comments from Mr Li contrast with the increasingly popular view among economists that the crisis in Europe will lead China to avoid further measures to tighten policy , including currency appreciation.
Wen Jiabao, Chinese premier, reinforced that impression yesterday when he said it was too early for large economies to end stimulus measures. "The debt crisis in some European countries may impede Europe's economic recovery," he said. "China will make sure it maintains a sense of crisis." Mr Li said the high cost of housing could hamper future growth by slowing urbanisation. Rising prices were also a potential political flashpoint, especially among younger people who felt locked out of the property market. "When prices go up, many people, especially young people, become very anxious," he said. "It is a social problem."
Despite the sharp slowdown in property sales and the troubles in Europe, he said economic activity was still too strong. "China is running the risk or is on the verge of overheating," he said, although he added: "I would say the situation is not out of control." As well as calling for modest increases in deposit rates he said gradual appreciation in the currency would help companies prepare for when the renminbi was considerably stronger.
US Homewners Stop Paying Mortgages, and Stop Fretting
by David Streitfeld - New York Times
For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of. Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino. "Instead of the house dragging us down, it"s become a life raft," said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. "It"s really been a blessing."
A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by. This type of modification does not beg for a lender"s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.
"I tried to explain my situation to the lender, but they wouldn"t help," said Mr. Pemberton"s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son"s. She stopped paying her mortgage two years ago after a bout with lung cancer. "They"re all crooks."
Foreclosure procedures have been initiated against 1.7 million of the nation"s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages. The average borrower in foreclosure has been delinquent for 438 days before actually being evicted , up from 251 days in January 2008, according to LPS Applied Analytics. While there are no firm figures on how many households are following the Pemberton-Reboyras path of passive resistance, real estate agents and other experts say the number of overextended borrowers taking the "free rent" approach is on the rise.
There is no question, though, that for some borrowers in default, foreclosure is only a theoretical threat for a long time. More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier. In some states, including California and Texas, lenders can pursue foreclosures outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states, judicial foreclosure is the rule, which slows the process substantially.
In Pinellas and Pasco counties, which include St. Petersburg and the suburbs to the north, there are 34,000 open foreclosure cases, said J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. Ten years ago, the average was about 4,000. "The volume is killing us," Judge McGrady said.
Mr. Pemberton and Ms. Reboyras decided to stop paying because their business, which restores attics that have been invaded by pests, was on the verge of failing. Scrambling to get by, their credit already shot, they had little to lose. "We could pay the mortgage company way more than the house is worth and starve to death," said Mr. Pemberton, 43. "Or we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound very horrible, but it comes down to a self-preservation thing."
They used the $1,837 a month that they were not paying their lender to publicize A Plus Restorations, first with print ads, then local television. Word apparently got around, because the business is recovering. The couple owe $280,000 on the house, where they live with Ms. Reboyras"s two daughters, their two dogs and a very round pet raccoon named Roxanne. The house is worth less than half that amount — which they say would be their starting point in future negotiations with their lender. "If they took the house from us, that"s all they would end up getting for it anyway," said Ms. Reboyras, 46.
One reason the house is worth so much less than the debt is because of the real estate crash. But the couple also refinanced at the height of the market, taking out cash to buy a truck they used as a contest prize for their hired animal trappers. It was a stupid move by their lender, according to Mr. Pemberton. "They went outside their own guidelines on debt to income," he said. "And when they did, they put themselves in jeopardy."
His mother, Wendy Pemberton, who has been cutting hair at the same barber shop for 30 years, has been in default since spring 2008. Mrs. Pemberton, 68, refinanced several times during the boom but says she benefited only once, when she got enough money for a new roof. The other times, she said, unscrupulous salesmen promised her lower rates but simply charged her high fees. Even without the burden of paying $938 a month for her decaying house, Mrs. Pemberton is having a tough time. Most of her customers are senior citizens who pay only $8 for a cut, and they are spacing out their visits. "The longer I"m in foreclosure, the better," she said.
In Florida, the average property spends 518 days in foreclosure, second only to New York"s 561 days. Defense attorneys stress they can keep this number high. Both generations of Pembertons have hired a local lawyer, Mark P. Stopa. He sends out letters — 1,700 in a recent week — to Floridians who have had a foreclosure suit filed against them by a lender. Even if you have "no defenses," the form letter says, "you may be able to keep living in your home for weeks, months or even years without paying your mortgage."
About 10 new clients a week sign up, according to Mr. Stopa, who says he now has 350 clients in foreclosure, each of whom pays $1,500 a year for a maximum of six hours of attorney time. "I just do as much as needs to be done to force the bank to prove its case," Mr. Stopa said. Many mortgages were sold by the original lender, a circumstance that homeowners" lawyers try to exploit by asking them to prove they own the loan. In Mrs. Pemberton"s case, Mr. Stopa filed a motion to dismiss on March 17, 2009, and the case has not moved since then. He filed a similar motion in her son"s case last December.
From the lenders" standpoint, people who stay in their homes without paying the mortgage or actively trying to work out some other solution, like selling it, are "milking the process," said Kyle Lundstedt, managing director of Lender Processing Service"s analytics group. LPS provides technology, services and data to the mortgage industry. These "free riders" are "the unintended and unfortunate consequence" of lenders struggling to work out a solution, Mr. Lundstedt said. "These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure." But for borrowers like Jim Tsiogas, the benefits of not paying now outweigh any worries about the future.
"I stopped paying in August 2008," said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. "I told the lady at the bank, ‘I can"t afford $2,500. I can only afford $1,300." " Mr. Tsiogas, who lives on the coast south of St. Petersburg, blames his lenders for being unwilling to help when the crash began and his properties needed shoring up. Their attitude seems to have changed since he went into foreclosure. Now their letters say things like "we"re willing to work with you." But Mr. Tsiogas feels little urge to respond. "I need another year," he said, "and I"m going to be pretty comfortable."
New Bond Issue Market Remains Shut as Bank Default Swaps Rise
by Sapna Maheshwari and Kate Haywood - Bloomberg
The market for corporate bond sales closed as concern European banks will take more writedowns and losses led investors to shun all but the safest government debt. No companies issued bonds in the U.S. yesterday, compared with $2.2 billion on the corresponding day following the Memorial Day weekend in 2009, according to data compiled by Bloomberg. In Europe, 1.35 billion euros ($1.66 billion) was raised from two sales of covered bonds, versus 6.5 billion euros a year earlier, Bloomberg data show.
The global new issue market failed to revive after declining to $70 billion last month, less than half of April’s tally and the least since August 2003, Bloomberg data show. The European Central Bank forecast that financial institutions will have to write off 195 billion euros of bad debts by 2011, according to a biannual report published May 31. "Issuers and investment bankers are hesitant to bring a deal that may not go well," said Lon Erickson, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, who helps oversee $9 billion in fixed-income assets and has been purchasing Treasuries and so-called agency mortgage debt.
"I don’t think anyone knows from day to day what the trading environment’s going to be, so they’ve been proceeding very cautiously." Costs to protect European lenders’ bonds from default rose the most since May 14. The Markit iTraxx Financial Index of credit-default swaps on 25 European banks and insurers climbed 13.5 basis points to 173.5 basis points, the highest in more than three weeks, JPMorgan Chase & Co. prices show.
Spread to Treasuries
The extra yield investors demand to own corporate bonds instead of government debt rose 2 basis points to 195 basis points, or 1.95 percentage point, the Bank of America Merrill Lynch Global Broad Market Corporate Indexshows. Average yields rose 1.1 basis points to 4.097 percent. The cost to protect BP Plc’s bonds jumped to a record as efforts to plug a leaking oil well in the Gulf of Mexico failed. Credit-default swaps on London-based BP soared 67.1 basis points to 167.7, according to CMA Datavision, after the so-called top kill attempt using heavy fluids didn’t stop the oil spill off the Louisiana coast.
Contracts on other companies tied to the leaking well also climbed. Swaps on Transocean Ltd., the Vernier, Switzerland- based company which leased the Deepwater Horizon drilling rig that sunk, climbed 150.9 basis points to 403.8. Anadarko Petroleum Corp. of The Woodlands, Texas, which holds a 25 percent stake of BP’s Macondo well, rose 137.4 to 301.5. Houston-based Halliburton Co., the second-largest oilfield contractor and a service provider on the rig, increased 47.1 to 126.3, CMA prices show.
ATP Oil & Gas Corp.’s offering of $1.5 billion of notes, sold the day before BP’s rig explosion, have lost more than $300 million for investors, making them the worst performing U.S. corporate bond issue of the year. The Houston-based petroleum and natural gas producer’s 11.875 percent senior secured notes due in 2015 have declined 20.5 cents to 79 cents on the dollar since they were sold on April 19, Bloomberg data show. The debentures traded as high as 102 cents on April 28. Standard & Poor’s said it will review all companies with operations in the Gulf of Mexico following the U.S. Department of the Interior’s extension of the moratorium on drilling permits. Some 35 companies may be reviewed, S&P said.
Japan Bond Risk
The cost of insuring Japanese corporate bonds from default increased, erasing an earlier drop. The Markit iTraxx Japan index rose 1 basis point to 152 basis points as of 1:17 p.m. in Tokyo, after falling as much as 6 basis points earlier today, according to Morgan Stanley. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan declined 1 basis point to 151 as of 8:18 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The indexes typically rise as investor confidence deteriorates and fall as it improves. Credit-default swaps on the Markit CDX North America Investment Grade Index rose 15.7 basis points to a mid-price of 122.5 basis points as of 5:16 p.m. in New York, according to Markit Group Ltd. In London, the Markit iTraxx Europe Index of contracts linked to the debt of 125 companies climbed 5 basis points to a mid-price of 122.5, Markit data show.
Catastrophe Bonds
Yields on catastrophe bonds are rising as investors bet climate change will result in more hurricanes striking the U.S., said John Brynjolfsson, chief investment officer at Armored Wolf LLC, an investment management firm based in Aliso Viejo, California. Catastrophe bonds, issued by insurers to protect against losses on natural disasters, returned 3.85 percent this year through May, according to the Swiss Re Cat Bond Total Return index. That compares with a 3.62 percent return for corporate bonds worldwide, the Bank of America Merrill Lynch Global Broad Market Corporate index shows.
Buyers of cat bonds demand higher yields because they risk losing their entire investment. "What the markets are saying is that global warming is causing more uncertainty and has caused modelers to adjust their models to reflect those warmer waters and higher hurricane frequency," Brynjolfsson said yesterday in an interview on Bloomberg Television. The U.S. National Oceanic and Atmospheric Administration is predicting that 14 to 23 named storms will develop in the Atlantic Ocean this year, with 8 to 14 becoming hurricanes and 3 to 7 growing into major systems with winds of 111 miles per hour (179 kilometers per hour), the agency said May 27.
Emerging Markets
The extra yield investors demand to own emerging-market bonds relative to government debt rose the most in more than a week. Spreads widened 10 basis points to 327, the biggest increase since a rise of 31 basis points on May 20, according to JPMorgan’s Emerging Market Bond index. Argentine bonds fell after the government extended its restructuring of $18.3 billion in defaulted debt by two weeks in an effort to draw more creditors. The yield on Argentina’s 8.28 percent dollar bonds due in 2033 rose 7 basis points to 13.04 percent.
The price dropped 0.37 cent to 65.75 cents on the dollar. The peso slid 0.6 percent to 3.929 per dollar. Texas Rangers’ creditors said a competing bidder wants to buy the baseball team, which has agreed to a $575 million sale to a group that includes Hall of Fame pitcher Nolan Ryan. Andrew Leblanc, a lawyer for a group of secured lenders, said at a court hearing the group has been in contact with a rival bidder that’s ready to participate in an auction for the team. Leblanc didn’t name the bidder. U.S. Bankruptcy Judge D. Michael Lynn in Fort Worth, Texas, said he wasn’t prepared to rule on whether the team should auction itself.
Corporate Bond Sales
Corporate borrowers issued $32 billion of dollar- denominated bonds in May, a 77 percent decline from the same month last year, and less than the $75 billion investors anticipated, said Rajeev Sharma, a money manager who oversees $1.4 billion of investment-grade debt at First Investors Management Co. in New York. Investors are concerned sovereign-debt woes will lower revenue at corporate borrowers and pose currency hedging risks, he said. "It’s hard to come up with a new deal when you have no idea what the volatility’s going to look like," Sharma said.
Spreads on high-yield, high risk bonds widened 129 basis points last month to 690 basis points as of May 28, according to Bank of America Merrill Lynch’s U.S. High Yield Master II index. High-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P. Borrowers are "waiting to see spreads come in and stabilize, unless there’s an urgency where they need to come to market," said Mirko Mikelic, who helps oversee $18 billion in fixed-income assets as senior money manager at Fifth Third Asset Management in Grand Rapids, Michigan.
Covered Bonds
Credit Mutuel Arkea, a lender based in Lerelecq Kerhuon, France, sold 1 billion euros of five-year covered bonds, while Toronto-based Canadian Imperial Bank of Commerce priced 500 million Swiss francs ($434 million) of the notes, Bloomberg data show. Covered bonds are securities guaranteed by the issuer and backed by mortgages and other loans. "No matter where you look, financials are in a precarious position," said Peter Chatwell, a strategist at Credit Agricole Corporate & Investment Bank in London. "They can’t rely on the sovereign and now it looks like their fundamentals are weakening and their assets are worth less than people thought."
Global arms spending hits record despite downturn
by Niklas Pollard - Reuters
Worldwide military spending surged to a record $1.5 trillion last year, defying an economic downturn caused by the global financial crisis, a leading think tank said on Wednesday. Military spending last year rose 5.9 percent in real terms compared to 2008 with the United States accounting for more than half of that increase, the Stockholm International Peace Research Institute said in its annual report on arms spending. "The far-reaching effects of the global financial crisis and economic recession appear to have had little impact on world military expenditure," the think tank said.
"Although the USA led the rise, it was not alone. Of those countries for which data was available, 65 percent increased their military spending in real terms in 2009." Global gross domestic product (GDP) suffered a rare contraction last year, shrinking 0.9 percent according to the Organization for Economic Co-operation and Development, as the financial crisis sent economies across the world into recession.
SIPRI, which conducts independent research on international security, armaments and disarmament, said the rise in spending reflected the mild economic slowdown for some major purchasers, such as China, but also longer-term strategic aims. "Many countries were increasing public spending generally in 2009, as a way of boosting demand to combat the recession. Although military spending wasn't usually a major part of the economic stimulus packages, it wasn't cut either," said Sam Perlo-Freeman, head of SIPRI's Military Expenditure Project. "The figures also demonstrate that for major or intermediate powers such as the USA, China,Russia, India and Brazil, military spending represents a long-term strategic choice which they are willing to make even in hard economic times."
U.S. military spending, burdened by huge costs for operations in Iraq and Afghanistan, rose 7.7 percent in real terms to hit $661 billion, more than six times as much as China, the second biggest spender ahead of France, Britain and Russia. But China's rise as a global military power becomes clearer when viewed over the past decade. During that period its military spending has surged 217 percent compared to a 76 percent rise for the United States and an increase of 49 percent globally. The economic crisis severely strained public finances in many countries, not least in southern Europe, and the daunting task of cutting gaping budget deficits might hold back arms spending in the coming years, the think tank said.
"For many countries, the need to cut deficits will mean a reckoning in 2010 or 2011, in which military spending will likely be one area that comes under scrutiny for potential cuts," SIPRI said in the report. "For others, however, this reckoning may be delayed, or may not come at all. In the USA, the Obama administration's budgets for financial years 2010 and 2011 show U.S. military spending -- boosted by the escalating conflict in Afghanistan -- continuing its seemingly inexorable rise -- crisis or no."
Bank of Canada hikes interest rates
by Jeremy Torobin - Globe and Mail
The Bank of Canada raised its benchmark interest rate for the first time since 2007, saying inflation is unfolding as expected and that spillover from the European debt crisis has been limited, while stressing there remains "considerable uncertainty" about an "increasingly uneven" global recovery. With his much anticipated decision to lift the central bank"s overnight rate by one-quarter of a percentage point to 0.5 per cent after more than a year at a record low level, Governor Mark Carney has become the first central banker in the Group of Seven to tighten since the financial crisis and recession began in 2008.
In a statement on the move, however, Mr. Carney and his rate-setting panel sought to emphasize that investors should not necessarily interpret the increase as the first in an uninterrupted series. "This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending and the uneven global recovery,"" the central bank said Tuesday. "Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.""
The central bank"s statement touched on themes that will no doubt be front-and-centre at the Group of 20 leaders" meeting in Toronto at the end of June, where Canadian officials have said they will be pushing for continued efforts to smooth out the global imbalances that exacerbated the slump that much of the world is still clawing out of. "The required rebalancing of global growth has not yet materialized,"" the bank said, contrasting "strong momentum"" in emerging markets with recoveries in economies such as the United States and Japan that remains "heavily dependent"" on low interest rates and government spending.
"In general, broad forces of household, bank, and sovereign deleveraging will add to the variability, and temper the pace, of global growth,"" policy makers said. While flagging the possibility of "renewed weakness"" in Europe, where drastic spending cuts and higher borrowing costs will be the likely result of continent-wide debt problems, so far the effects of the crisis on Canada have been "limited to a modest fall in commodity prices"" and somewhat tighter financial conditions, the bank said.
The Canadian economy, which on Monday posted a whopping 6.1-per-cent annualized growth rate for the first quarter – the fastest in more than a decade – is "unfolding largely as expected,"" the bank said, led mostly by a hot housing market, higher incomes and a labour-market recovery that have helped fuel consumer spending. Still, the central bank suggested that household spending and the economy will slow in the coming months as consumers deal with higher borrowing costs and try to limit or reduce their debt loads and as government stimulus spending fades. As a result, an "anticipated pickup in business investment will be important for a more balanced recovery,"" the bank said.
Inflation, which the central bank has been watching closely for months, has been in line with policy makers" projections to exceed 2 per cent this year and reflects a combination of strong domestic demand, slowing wage increases and "excess supply"" leftover from the recession. The central bank also said it is making a technical, yet significant, change to re-establish "normal functioning"" of the overnight market, whereby its benchmark will return to halfway between the rate it pays to chartered banks to hold deposits and the amount that it charges private-sector lenders for loans.
Soaring costs force Canada to reassess health model
by Claire Sibonney - Reuters
Pressured by an aging population and the need to rein in budget deficits, Canada's provinces are taking tough measures to curb healthcare costs, a trend that could erode the principles of the popular state-funded system. Ontario, Canada's most populous province, kicked off a fierce battle with drug companies and pharmacies when it said earlier this year it would halve generic drug prices and eliminate "incentive fees" to generic drug manufacturers.
British Columbia is replacing block grants to hospitals with fee-for-procedure payments and Quebec has a new flat health tax and a proposal for payments on each medical visit -- an idea that critics say is an illegal user fee. And a few provinces are also experimenting with private funding for procedures such as hip, knee and cataract surgery. It's likely just a start as the provinces, responsible for delivering healthcare, cope with the demands of a retiring baby-boom generation. Official figures show that senior citizens will make up 25 percent of the population by 2036.
"There's got to be some change to the status quo whether it happens in three years or 10 years," said Derek Burleton, senior economist at Toronto-Dominion Bank. "We can't continually see health spending growing above and beyond the growth rate in the economy because, at some point, it means crowding out of all the other government services. "At some stage we're going to hit a breaking point."
Mirror Image Debate
In some ways the Canadian debate is the mirror image of discussions going on in the United States. Canada, fretting over budget strains, wants to prune its system, while the United States, worrying about an army of uninsured, aims to create a state-backed safety net. Healthcare in Canada is delivered through a publicly funded system, which covers all "medically necessary" hospital and physician care and curbs the role of private medicine. It ate up about 40 percent of provincial budgets, or some C$183 billion ($174 billion) last year.
Spending has been rising 6 percent a year under a deal that added C$41.3 billion of federal funding over 10 years. But that deal ends in 2013, and the federal government is unlikely to be as generous in future, especially for one-off projects. "As Ottawa looks to repair its budget balance ... one could see these one-time allocations to specific health projects might be curtailed," said Mary Webb, senior economist at Scotia Capital.
Brian Golden, a professor at University of Toronto's Rotman School of Business, said provinces are weighing new sources of funding, including "means-testing" and moving toward evidence-based and pay-for-performance models. "Why are we paying more or the same for cataract surgery when it costs substantially less today than it did 10 years ago? There's going to be a finer look at what we're paying for and, more importantly, what we're getting for it," he said. Other problems include trying to control independently set salaries for top hospital executives and doctors and rein in spiraling costs for new medical technologies and drugs.
Ontario says healthcare could eat up 70 percent of its budget in 12 years, if all these costs are left unchecked. "Our objective is to preserve the quality healthcare system we have and indeed to enhance it. But there are difficult decisions ahead and we will continue to make them," Ontario Finance Minister Dwight Duncan told Reuters. The province has introduced legislation that ties hospital chief executive pay with the quality of patient care and says it wants to put more physicians on salary to save money. In a report released last week, TD Bank said Ontario should consider other proposals to help cut costs, including scaling back drug coverage for affluent seniors and paying doctors according to quality and efficiency of care.
Winners and Losers
The losers could be drug companies and pharmacies, both of which are getting increasingly nervous. "Many of the advances in healthcare and life expectancy are due to the pharmaceutical industry so we should never demonize them," said U of T's Golden. "We need to ensure that they maintain a profitable business but our ability to make it very very profitable is constrained right now." Scotia Capital's Webb said one cost-saving idea may be to make patients aware of how much it costs each time they visit a healthcare professional. "(The public) will use the services more wisely if they know how much it's costing," she said.
"If it's absolutely free with no information on the cost and the information of an alternative that would be have been more practical, then how can we expect the public to wisely use the service?" But change may come slowly. Universal healthcare is central to Canada's national identity, and decisions are made as much on politics as economics. "It's an area that Canadians don't want to see touched," said TD's Burleton. "Essentially it boils down the wishes of the population. But I think, from an economist's standpoint, we point to the fact that sometimes Canadians in the short term may not realize the cost."
The US Union Pension Bailout
Feeling tapped out after stimulus, ObamaCare and everything else? Senator Bob Casey has one more deal for you. If the Pennsylvania Democrat gets his way, U.S. taxpayers will also pick up the astonishing tab for poorly managed union pension plans. Mr. Casey is gathering support for his curiously named "Create Jobs and Save Benefits Act," a bailout for union-run retirement plans. Similar to House legislation from North Dakota Democrat Earl Pomeroy and Ohio Republican Patrick Tiberi, the bill would transfer tens of billions of dollars worth of retiree liabilities to the Pension Benefit Guaranty Corporation, i.e., to taxpayers.
At issue are multi-employer pension plans, in which companies across an industry pay into a single pension pool. The plans are predominately run by unions and for years have distinguished themselves by poor management. The Labor Department in 2008 listed 230 multi-employer plans that were either endangered (less than 80% funded), or critical (less than 65% funded), or that had applied to government for funding relief. By 2009 that number had soared to 640. The financial crash is partly to blame, but even before 2006 only about 6% of multi-employer plans were fully funded, compared to about 31% of single-employer plans. The real problem is that multi-employer plans have become a sort of pension Ponzi scheme.
Unions love multi-employer plans because they let workers keep their retirement benefits even if they switch jobs to another participating company. This encourages lifelong union membership. Unions are less enthusiastic about paying the bills. The negotiating priority of union leaders is to get hefty wage increases and benefits for current workers, leaving the scraps to the pensions of retirees who no longer vote in union elections.
When a company in an industry goes out of business, meanwhile, the remaining firms are still on the hook for all costs of the multi-employer plan. This explains why the trucking industry is backing Mr. Casey's bill, and why Mr. Casey announced his legislation at a Pennsylvania facility of YRC Worldwide, a Kansas trucking outfit. Someone has to pay for years of the industry agreeing to Teamster demands.
Mr. Casey's bill would cordon off "orphaned" pensions—those for which an employer has stopped contributing or withdrawn from a multi-employer fund—and put them into a separate account. Surviving companies would pay benefits to these orphans for five years, after which they'd get kicked to the PBGC, which would shoulder the benefits until the last retiree or beneficiary dies. The remaining multi-employer plan would be back in the black, free to start the negative-feedback loop of underpayments and overpromises again.
All of this is a raw deal for union pensioners who worked a lifetime in expectation of certain benefits. The PBGC's current maximum payment to any plan participant is $12,800 a year. Mr. Casey's bill raises that to $21,000 year, still only a fraction of existing pension promises.
Not that the PBGC has the cash to pay more. The agency's deficit was $21 billion as of last September, and it is expected to rise to an estimated $34 billion by 2019. Mr. Casey is claiming his multi-employer-bailout scheme will cost a mere $8 billion, but Moody's estimated last year that multi-employer plans were $165 billion underfunded. The tab is likely to be much higher given the moral hazard Mr. Casey would create. As Hudson Institute economist Diana Furchtgott-Roth notes, the bill creates "a vicious circle. Once PGBC took over some plans, other employers would want to declare bankruptcy, unload plans on the PGBC, and reorganize under another name. The incentives to do this would be enormous."
In 2006 Congress passed the Pension Protection Act to prod companies and unions to shape up their pension plans, whether by lowering benefits, increasing contributions from employers and workers, or even raising retirement ages. The fact that many unions and companies have refused to use these tools does not make their mistake the obligation of U.S. taxpayers. If unions really cared about protecting retirees, they'd ditch defined-benefit plans and adopt 401(k) plans that give workers control over their retirement assets.
Union chiefs prefer the power that comes with managing huge pension investments—even if they're failing. They are now counting on Mr. Casey to preserve their power by making taxpayers pick up the tab for years of pension mismanagement. With the union priority of "card check" stalled, word is that the Casey bailout is Big Labor's consolation prize. Taxpayers should let Congress know they don't want to pay.
BP Oil Disaster Sinks British Pensions
by Mark Reynolds - Daily Express
Billions of pounds were wiped off the value of pension funds yesterday as shares in BP slumped dramatically because of the Gulf of Mexico oil spill. One of Britain’s biggest companies and a key indicator of its economy, the oil giant suffered its worst one-day share fall for 18 years. At its lowest point, the company’s share price was nearly 17 per cent down, although it recovered slightly by the close of trading. Even so, £12billion had been wiped off its market value.
Last night experts were warning that the company had "the smell of death about it" as fears grew that the disastrous leak off the Louisiana coast could continue for another two months after the latest attempt to stem it failed. Market experts warned that the extraordinary decline of the City heavyweight – a key stock for many UK pension fund investments – would inevitably leave British pensioners poorer. Pensions expert Alan Smith, chief executive of financial planning firm Capital Asset Management, said: "This is a disaster for BP and most pension funds will undoubtedly have exposure to BP and will be affected. If BP were to halve in value this could lead to pension values going down one or two per cent.
"Pretty much every pension fund in the country owns a bit of BP and it has now fallen some £45billion in value." Mr Smith added that with the markets expected to struggle, pension funds were likely to sink even further. "In times like these, with the continuing European debt crisis, there is a lot of nervousness on the markets," he added. The share collapse means a £15,000-a-year pension will be cut by about £300 to £400 a year, with possibly worse to come.
The BBC’s business editor Robert Peston said: "Given that BP is a core holding of most British pension funds, that’s tens of billions of pounds off the wealth of millions of British people saving for a pension. "With BP dividends representing about 8 per cent of all income going into those pension funds, and a considerably higher proportion of all corporate dividends received by those funds, if BP’s oil spill causes collateral damage to its dividend-paying capacity, many of us will be feeling a bit poorer." Other experts warned that BP could collapse altogether, a fear that sent shock waves through world markets.
Dougie Youngson, oil analyst at banking group Arbuthnot, said: "This situation has gone far beyond concerns of BP’s chief executive Tony Hayward being fired, or shareholder dividend payouts being cut. It’s got the smell of death. This could break BP." He added: "Given the collapse in the share price and the potential for it to fall further, we expect that it could become a takeover target, particularly if its operating position in the US becomes untenable."
BP’s dramatic shares slump sparked a wider plunge on the FTSE 100 Index of leading shares, which dropped more than 2 per cent before recovering slightly. BP accounts for about 7 per cent of the FTSE 100, meaning each 10p change in its price moves the index by nearly 9 points. BP’s share price lost around 80p at one stage, taking it to its lowest level since last March. Attempts to cap the leaking well with mud and debris were unsuccessful at the weekend and the company is using remote-controlled submarines to carry equipment and cut small pipes 5,000ft below the surface before placing a containment cap over the leak.
The attempt, which began on Sunday, should take four days to complete. But BP’s chief operating officer, Doug Suttles, warned: "We’re confident the job will work but obviously we can’t guarantee success." The spill has dumped between 18 and 40 million gallons of oil into the sea since the Deepwater Horizon rig exploded and sank on April 20, killing 11 of its crew.
BP Gulf Spill Prompts Criminal, Civil Investigations by U.S.
by Justin Blum and Aaron Kuriloff - Bloomberg
The U.S. Justice Department opened criminal and civil investigations into the BP Plc oil spill in the Gulf of Mexico, the worst in U.S. history. "We will prosecute to the fullest extent of the law anyone who has violated the law," Attorney General Eric Holder said yesterday. "This disaster is nothing less than a tragedy." Holder announced the probe at a news conference in New Orleans after President Barack Obama earlier in the day called the spill "the greatest environmental disaster of its kind in our history." The president said, "My solemn pledge is that we will bring those responsible to justice."
The spill began after an April 20 explosion aboard the Deepwater Horizon rig, which London-based BP leased from Transocean Ltd. in Switzerland. Houston-based Halliburton Co. provided oilfield services on the well. Holder, who said the probe "began some weeks ago," declined to specify which companies are under investigation. He said he surveyed a portion of the damage yesterday, was briefed by Coast Guard officers and met with prosecutors for the areas affected by the spill. BP hasn’t been able to stop the flow of oil gushing from the well.
The Justice Department will ensure that taxpayer money will be repaid and that damage to the environment and wildlife will be reimbursed, Holder said. The government already has told "all relevant parties" to preserve documents that may "shed light on the facts surrounding this disaster," Holder said. BP will cooperate with the Justice Department, said Jon Pack, a company spokesman, in an interview. Transocean said in a statement that it will cooperate with authorities, adding, "We will not speculate on actions the Justice Department may or may not take." Teresa Wong, a Halliburton spokeswoman, declined to comment.
The government is reviewing whether there were violations of the Clean Water Act, which carries civil and criminal penalties, and the Oil Pollution Act of 1990, which can be used to hold companies liable for cleanup costs, Holder said. Also under review is whether there were violations of the Migratory Bird Treaty Act and Endangered Species Act, which provide penalties for injuries to wildlife, and other criminal laws. A criminal probe likely also will examine whether there was a violation of the Refuse Act, which deals with discharges into waterways, said David M. Uhlmann, a professor at the University of Michigan Law School in Ann Arbor. He is former chief of the Justice Department’s environmental crimes section.
Exxon Mobil Plea
In the 1989 Exxon Valdez oil spill in Alaska, Exxon Mobil Corp., based in Irving, Texas, and a shipping unit of the company pleaded guilty to criminal violations of the Clean Water Act, Migratory Bird Treaty Act and Refuse Act. "They’re very likely to bring criminal charges against BP and other companies involved," Uhlmann said in an interview. To prove a misdemeanor Clean Water Act violation, he said the government would need to show that BP or other companies were negligent by acting without the care that would be expected of a reasonable person under the circumstances.
Internal BP memos and interviews with employees may be used by the Justice Department to help make a criminal case, said Roger J. Marzulla of Marzulla Law LLC in Washington, in an interview. "The environmental crimes section would look at memos from BP employees raising safety concerns," said Marzulla, a former assistant attorney general overseeing the Justice Department’s Environment and Natural Resources Division who isn’t involved in the BP matter.
‘Safety Concerns’
The New York Times reported on May 30 that internal BP documents showed "serious problems and safety concerns" with the rig prior to the explosion that triggered the spill. Marzulla said the government also may investigate whether BP or other companies lied to the government by submitting false reports to regulatory agencies. Lawmakers have been urging a criminal investigation. A group of eight Democratic senators, led by Barbara Boxer of California, asked Holder to investigate possible criminal and civil wrongdoing.
They wrote in a letter last month to Holder that they had questions about whether BP made "false and misleading statements to the federal government regarding its ability to respond to oil spills in the Gulf of Mexico." States also are considering pursuing cases. Mississippi Attorney General Jim Hood said in an interview that he is preparing to file a complaint. He wouldn’t say whether the complaint is civil or criminal, or who may be named as defendants.
Relief Wells
Efforts by BP to stop the leak haven’t been successful. Relief wells, the first of which is scheduled for completion in August, may be the best hope to stanch the leak, Carol Browner, energy adviser to Obama, said in a Bloomberg Television interview. BP has spent $990 million -- or 15 percent of its first quarter net income -- on the spill response, according to a statement yesterday. BP Chief Executive Officer Tony Hayward’s effort to stop the leak and clean up the spill is becoming more urgent as the Atlantic Basin hurricane season started yesterday. The April 20 blast killed 11 workers and triggered leaks that, according to an estimate by a government panel, spewed 12,000 barrels to 19,000 barrels of oil a day into the ocean.
BP’s Future at Risk as Share Plunge Fuels Takeover Speculation
by Brian Swint and Stanley Reed - Bloomberg
BP Plc’s failure to stop an oil leak from spewing millions of gallons of crude into the Gulf of Mexico may leave the biggest oil and gas producer in the U.S. in a fight to stay independent. BP shares have plunged 34 percent since the Deepwater Horizon drilling rig leased by the company exploded on April 20, wiping more than 40 billion pounds ($58 billion) from the company’s value. That may make BP cheap enough to attract acquisition interest, investors said.
"The market value of BP has eroded substantially, so it could be a takeover target," said Dirk Hoozemans, who helps manage about $4.5 billion at Robeco Group in Rotterdam, which sold its BP holding last year. What matters now is how forceful BP’s Chief Executive Officer Tony Hayward is in tackling the disaster and the aftermath, Hoozemans said. With a permanent end to the leak depending on so-called relief wells that are some two months from completion, Hayward faces costs that may reach $22 billion, or more than last year’s profit, according to ING Wholesale Banking. The company also faces a criminal and civil investigation in the U.S. into the disaster.
In addition to being the largest oil and gas producer in the U.S., BP is the biggest operator in the Gulf of Mexico, where it holds more than 500 leases and pumps 450,000 barrels of oil a day. The company plans 10 projects in the Gulf during the next five years, more than other region of the world, according to a BP presentation.
‘Fire Sale’
"Forty percent of BP’s reserves are in the Gulf of Mexico and if there’s a chance that they would be banned from operating in the U.S., then those reserves would be valued at a much lower multiple than their rest-of-the-world reserves, said Gordon Kwan, the Hong Kong-based head of regional energy research at Mirae Asset Securities Ltd. "They might have to sell at a fire sale to others." Some analysts estimate the potential for criminal investigation and civil lawsuits facing BP could be as high as $40 billion, which would justify the roughly $50 billion loss in market value, Kwan said.
The U.S. Justice Department is investigating whether any criminal or civil laws were violated in the spill, Attorney General Eric Holder said yesterday. Holder announced the investigation at a news conference in New Orleans, the same day President Barack Obama called the spill "the greatest environmental disaster of its kind in our history." Obama last week extended a moratorium on deep water drilling permits by six months. He has dropped plans to open waters off the coast of Virginia to drilling, canceled a lease sale in the Gulf and suspended the permit process for Royal Dutch Shell Plc’s planned wells off Arctic Alaska. He said new safety rules will be imposed on drilling.
‘The Tab Is Rising’
BP has spent $990 million on trying to stop the gusher on the seabed about a mile below the surface and on cleaning up oil from the Gulf. Payments to landowners, hoteliers and fisherman claiming losses from the spill will cause the bill to rise further. "The tab is rising every day," said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. "BP could be facing a huge liability in compensation, damages and other charges."
The cost for the Exxon Valdez tanker disaster in 1989, previously the worst U.S. oil spill, resulting from clean-up costs, fines and settlements has reached at least $4.3 billion so far.
BP spokesman Scott Dean said in an e-mail May 19 that the London-based energy company is self-insured against losses and damage claims resulting from the spill. In a worst-case scenario, where hurricanes, technological difficulties, or unforeseen problems thwart BP’s attempts to contain the oil and seal the well, the leak could spout almost 4 million barrels of crude into the Gulf of Mexico by Christmas, petroleum geologists and industry analysts said.
Decades of Damage?
The oil could suffocate fish and other marine life, damage shorelines along the Gulf Coast, sweeping around to Florida’s Atlantic Coast, and harm the economies that are dependent upon fishing and marine life, according to marine scientists. Toxic crude from the spill could remain trapped in layers of ocean water for decades, scientists say. BP pumped 3.95 million barrels of oil and gas a day last year, making it the world’s largest producer outside government- owned oil companies. Exxon Mobil, its closest rival, pumped 3.93 million barrels a day.
BP’s market value, which surpassed Shell at the start of the year, has fallen behind Petroleos Brasileiro SA, Chevron Corp., and Russia’s OAO Gazprom. Paris-based Total SA pumped 2.28 million barrels last year and is priced about $9 billion less than BP on the stock market. "We’re getting into share price territory where analysts speculate about takeover possibilities, because the loss of market value is much greater than the estimated ‘worst case’ costs," said Ivor Pether, who helps manage $9.2 billion at Royal London Asset Management, including BP shares. "But there aren’t any buyers at this point because the near-term uncertainty is so high."
Hayward reduced BP’s net debt ratio to 19 percent in the first quarter from 23 percent a year earlier, giving him greater ability to meet cleanup costs and related liabilities. The company has an AA credit rating from Standard & Poor’s and made a record $6 billion profit in the first quarter on $73 billion of revenue. "The liability could be tens of billions of dollars, but I do think BP has the balance sheet capacity to be able to handle a hit like that," said Jason Gammel, an analyst at Macquarie Securities USA Inc. in New York. "It’s too early to say it’s a takeover candidate because no one wants to own an unquantifiable liability."
BP is now trying to contain the spill by fitting a pipe over the leak to bring the oil to a drillship on the surface. The operation may temporarily increase the flow of oil into the Gulf before a cap can seal the pipe, BP said yesterday. Hayward has promised to clean up "every drop" of oil in the Gulf and on the shoreline from the well that has gushed up to 19,000 barrels of oil a day, according to a government estimate. BP is drilling two relief wells to intercept the damaged pipes and permanently plug the damaged pipes, a process that won’t be completed until August
BP Revised Permits Before Blast
by Russell Gold, Ben Casselman and Maurice Tamman - Wall Street Journal
Just a week before the Deepwater Horizon exploded, BP PLC asked regulators to approve three successive changes to its oil well over 24 hours, according to federal records reviewed by the Wall Street Journal. The unusual rapid-fire requests to modify permits reveal that BP was tweaking a crucial aspect of the well's design up until its final days. One of the design decisions outlined in the revised permits, drilling experts say, may have left the well more vulnerable to the blowout that occurred April 20, killing 11 workers and leaving crude oil gushing into the Gulf of Mexico. The Minerals Management Service approved all the changes quickly, in one instance within five minutes of submission.
New information about the well has become public as BP faces increasing pressure from government officials and Gulf Coast residents angry and frustrated over the protracted spill, now the worst in U.S. history. With the failure of its "top kill" effort to stop the leak, BP is returning to its strategy of trying to corral the oil, sucking it up from the well a mile below the surface. BP now plans to take the risky step of cutting off a bent pipe into the well. Undersea robots will then try to attach a siphon device to the wellhead. Both BP and the MMS have faced growing scrutiny from congressional investigators looking into the Deepwater Horizon disaster and the resulting oil spill. Last week, a Wall Street Journal investigation found that BP had made a series of choices that made the well more vulnerable to a blowout.
BP's flurry of revisions and re-revisions stands out as uncommon. Of the more than 2,200 wells that have been drilled in the Gulf since 2004, only 5% have had multiple permit revisions submitted to MMS within one calendar day, according to a Wall Street Journal analysis of MMS records. In only one other case, a 2005 well drilled in just 48 feet of water, has a company submitted three revisions within 24 hours, as happened on BP's well. BP's well was in nearly 5,000 feet of water, which has made dealing with the well far more complicated. BP declined to comment on the permit changes. Transocean didn't respond to a request for comment. MMS declined to comment, citing the ongoing investigation into the causes of the Deepwater Horizon disaster.
By April 14, when BP filed the first of three permits that would later be amended, the London-based oil company had already faced many problems with the well, including losing costly drilling fluid and fighting back natural gas that tried to force its way into the well. The problems had caused BP to use eight pieces of steel pipe to seal the well, rather than the planned six pieces. The permit filed on April 14 dealt with the eighth and final section, which hadn't yet been installed in the well. BP had hoped to get a 9 7/8-inch pipe—big enough to handle a lot of oil and gas—into the reservoir. But for the final section, the largest pipe they could fit was a 7-inch pipe. The company had to decide whether to use a single piece of pipe that reached all the way from the sea floor down to the oil reservoir, or use two pipes, one inside the other.
The two-pipe method was the safer option, according to many industry experts, because it would have provided an extra layer of protection against gas traveling up the outside of the well to the surface. Gene Beck, a longtime industry engineer and a professor at Texas A&M University, said the two-pipe method is "more or less the gold standard," especially for high-pressure wells such as the one BP was drilling. But the one-pipe option was easier and faster, likely taking a week less time than the two-pipe method. BP was spending about $1 million per day to operate the Deepwater Horizon.
In an April report, a BP engineer concluded that the one-pipe option was the "best economic case" despite having "some risk" of leaving an open path for gas to travel up the outside of the well. The two-pipe option, the report said, would provide an extra barrier against gas but would only be used if "stability problems" or other issues arose with the well. On April 14, at 8:34 p.m., BP informed the MMS that it planned to use the one-pipe method, using a single 7-inch-wide pipe for the whole length of the well. The MMS approved the permit at 8:13 the next morning, according to federal records.
At 9:54 a.m. on April 15 BP filed another permit informing the MMS of a correction. Rather than using a 7-inch-wide pipe the whole way, it planned to run a tapered pipe that was wider at the top than at the bottom. This was approved by the MMS seven minutes later. Then, at 2:35 p.m., BP filed another revision. This one informed the MMS that it had "inadvertently" omitted mention of a section of pipe already in the well. Four and one-half minutes later, MMS approved this permit also.
Last year, the MMS floated a proposal to require all companies to "document and analyze" all major changes. BP responded during a comment period that the proposed safety rules were unnecessary.
In addition to well-design tweaks, the company's day-to-day operational plan was also in flux, according to testimony from an investigative hearing held by the Coast Guard and MMS in Kenner, La., last week.
On Thursday, Jimmy Wayne Harrell, a Transocean employee who was the rig's offshore installation manager, said "the drilling program was constantly changing." He testified that BP representatives overseeing the job had repeatedly altered plans in the days leading up to the accident, and he had had to argue to ensure certain tests were done. BP senior drilling engineer Mark Hafle, in testimony on Friday at the same hearings, blamed the multiple well-design corrections on an inexperienced data entry employee who "made some typos" filling out the forms.
'This is Literally a War We're In'
by Matt Gutman And Sarah Netter - ABC news
Democratic Strategist James Carville Calls on President Obama to Address Nation
As BP prepares to launch its seventh and riskiest plan to halt the flow of oil into the Gulf of Mexico, calls on the White House to intervene are growing. "This is literally a war we're in," Democratic strategist James Carville told "Good Morning America" today. "There are foreign substances invading our coastline."
BP's latest plan after the failure of its much-touted "Top Kill" solution would send undersea robots to lop off the crippled pipeline. The company would then lower a small dome -- the third they've tried -- to siphon the oil. But White House officials say this potential solution could release up to 20 percent more oil than is already gushing into the gulf if it fails. The only real fix -- two relief wells -- won't be completed until August.
Last week, Carville called President Obama's response to what is poised to become the country's biggest environmental disaster on record "lackadaisical." Today he said Obama was doing "better," but said it's clear BP has lost control of the situation. "I do know, for too long, they were taking BP's word for everything which turned out to be wrong at every junction," Carville said. "It's all turned out on the wrong side." He said Obama needs to tell Americans exactly what is happening with relief efforts and why the gulf region is so important to the country's economy and environment. "I think the president has to address the nation," Carville said. "His legacy depends on what happens with the oil in the Gulf of Mexico."
But Admiral Mike Mullen, Chairman of the Joint Chiefs of Staff, told "Good Morning America" that the government doesn't have any more tactics in its arsenal than the oil industry. "The real challenge from my perspective have been the technology aspect of this," he said. "The best technology in the world with respect to that exists in the oil industry." The military has activated 1,400 guardsmen to the gulf region, Mullen said, and provided "tens of thousands of feet" of boom to help corral the floating gunk. "We actually have been involved, but we have not been the lead," he said. "Any change with respect to the lead would be a decision the president would have to make."
ABC News learned that federally backed scientists who are hunting oil plumes made a grim discovery -- that the biggest plumes yet, located some 3,500 feet under the surface, are comprised of a concentration of oil that was literally off the charts. Some are as long as 22 miles. On Sunday, BP's CEO Tony Hayward denied that such plumes exist. "The oil is on the surface. It's very difficult for oil to stay in a column," he said. "It wants to go to the surface because of the difference in specific gravity."
While oil has made it to shore in some places along the gulf coastline, fears about contamination have devastated the tourism industry all along the gulf and Florida coastlines on what would typically be a hopping holiday weekend. Some resorts in the gulf have reported reservations dropping by about half. And four in 10 travelers say the oil spill would influence their decision to visit the area.
"People are convinced there is a black blanket coming across the Florida Keys that has smothered every fish here," said charter boat captain Mike Weinhofer. Though the oil hasn't come close to places like Key West, tourists are still nervous about the water. Some hotels have even made guarantees to patrons that if tar balls wash up on the beach, their money will be refunded.
Massive Underwater Oil Plumes Will Devastate Marine Life, Wipe Out Whole Species, Scientists Say
by Matthew Brown - Huffington Post
Independent scientists and government officials say there's a disaster we can't see in the Gulf of Mexico's mysterious depths, the ruin of a world inhabited by enormous sperm whales and tiny, invisible plankton. Researchers have said they have found at least two massive underwater plumes of what appears to be oil, each hundreds of feet deep and stretching for miles. Yet the chief executive of BP PLC – which has for weeks downplayed everything from the amount of oil spewing into the Gulf to the environmental impact – said there is "no evidence" that huge amounts of oil are suspended undersea.
BP CEO Tony Hayward said the oil naturally gravitates to the surface – and any oil below was just making its way up. However, researchers say the disaster in waters where light doesn't shine through could ripple across the food chain. "Every fish and invertebrate contacting the oil is probably dying. I have no doubt about that," said Prosanta Chakrabarty, a Louisiana State University fish biologist.
On the surface, a 24-hour camera fixed on the spewing, blown-out well and the images of dead, oil-soaked birds have been evidence of the calamity. At least 20 million gallons of oil and possibly 43 million gallons have spilled since the Deepwater Horizon drilling rig exploded and sank in April. That has far eclipsed the 11 million gallons released during the Exxon Valdez spill off Alaska's coast in 1989. But there is no camera to capture what happens in the rest of the vast Gulf, which sprawls across 600,000 square miles and reaches more than 14,000 feet at its deepest point.
Every night, the denizens of the deep make forays to shallower depths to eat – and be eaten by – other fish, according to marine scientists who describe it as the largest migration on earth. In turn, several species closest to the surface – including red snapper, shrimp and menhaden – help drive the Gulf Coast fishing industry. Others such as marlin, cobia and yellowfin tuna sit atop the food chain and are chased by the Gulf's charter fishing fleet. Many of those species are now in their annual spawning seasons. Eggs exposed to oil would quickly perish. Those that survived to hatch could starve if the plankton at the base of the food chain suffer. Larger fish are more resilient, but not immune to the toxic effects of oil.
The Gulf's largest spill was in 1979, when the Ixtoc I platform off Mexico's Yucatan peninsula blew up and released 140 million gallons of oil. But that was in relatively shallow waters – about 160 feet deep – and much of the oil stayed on the surface where it broke down and became less toxic by the time it reached the Texas coast. But last week, a team from the University of South Florida reported a plume was headed toward the continental shelf off the Alabama coastline, waters thick with fish and other marine life. The researchers said oil in the plumes had dissolved into the water, possibly a result of chemical dispersants used to break up the spill. That makes it more dangerous to fish larvae and creatures that are filter feeders.
Responding to Hayward's assertion, one researcher noted that scientists from several different universities have come to similar conclusions about the plumes after doing separate testing. No major fish kills have been reported, but federal officials said the impacts could take years to unfold. "This is just a giant experiment going on and we're trying to understand scientifically what this means," said Roger Helm, a senior official with the U.S. Fish and Wildlife Service.
In 2009, LSU's Chakrabarty discovered two new species of bottom-dwelling pancake batfish about 30 miles off the Louisiana coastline – right in line with the pathway of the spill caused when the Deepwater Horizon burned and sank April 24. By the time an article in the Journal of Fish Biology detailing the discovery appears in the August edition, Chakrabarty said, the two species – which pull themselves along the seafloor with feet-like fins – could be gone or in serious decline. "There are species out there that haven't been described, and they're going to disappear," he said.
Recent discoveries of endangered sea turtles soaked in oil and 22 dolphins found dead in the spill zone only hint at the scope of a potential calamity that could last years and unravel the Gulf's food web. Concerns about damage to the fishery already is turning away potential customers for charter boat captains such as Troy Wetzel of Venice. To get to waters unaffected by the spill, Wetzel said he would have to take his boat 100 miles or more into the Gulf – jacking up his fuel costs to where only the wealthiest clients could afford to go fishing.
Significant amounts of crude oil seep naturally from thousands of small rifts in the Gulf's floor – as much as two Exxon Valdez spills every year, according to a 2000 report from government and academic researchers. Microbes that live in the water break down the oil. The number of microbes that grow in response to the more concentrated BP spill could tip that system out of balance, LSU oceanographer Mark Benfield said. Too many microbes in the sea could suck oxygen from the water, creating an uninhabitable hypoxic area, or "dead zone."
Preliminary evidence of increased hypoxia in the Gulf was seen during an early May cruise aboard the R/V Pelican, carrying researchers from the University of Georgia, the University of Mississippi and the University of Southern Mississippi. An estimated 910,000 gallons of dispersants – enough to fill more than 100 tanker trucks – are contributing a new toxin to the mix. Containing petroleum distillates and propylene glycol, the dispersants' effects on marine life are still unknown.
What is known is that by breaking down oil into smaller droplets, dispersants reduce the oil's buoyancy, slowing or stalling the crude's rise to the surface and making it harder to track the spill. Dispersing the oil lower into the water column protects beaches, but also keeps it in cooler waters where oil does not break down as fast. That could prolong the oil's potential to poison fish, said Larry McKinney, director of the Harte Research Institute at Texas A&M University-Corpus Christi. "There's a school of thought that says we've made it worse because of the dispersants," he said.
Rep. Ed Markey Demands BP Produce Oil Plume Research, Data
by AP
A congressman is questioning BP CEO Tony Hayward's claim that the oil company has not found evidence of underwater oil plumes. Scientists have reported plumes as long as 22 miles.
Rep. Edward Markey, D-Mass., said BP in this instance means"Blind to Plumes." He sent a letter to Hayward Monday asking for documents to back up his claims. Markey, chairman of a House Energy and Commerce Committee environmental panel, said it is vital that the government and researchers have unfettered access to all relevant data or analysis concerning underwater plumes. He also called on BP to offer "complete transparency" on its video feeds from the company's underwater operations, calling any delay or other obstacle unacceptable.
Oil disaster shows a divide from physical world
by Calvin Woodward - AP
It's all so last millennium, that filthy business in the depths of the Gulf of Mexico. It reeks of yesterday's fuel, yesterday's sweaty labor — a hands-on way of life from another time. Today's Americans don't care to know how the gas comes to the pump, the food to the table, the iPad to the store. Just make sure they do.
But now they're staring, transfixed, at where things come from. And what people still do to get it to you, and the death and devastation that can result when something goes wrong and it can't be fixed with a call to technical support. "Top kill" wasn't a video game. It was a desperate injection of mud and junk into the primeval muck near the wreck of the Deepwater Horizon drilling rig. It was the most ambitious effort yet for a temporary fix, and it failed. So the oil spews, the search goes on and long-term hopes rest on relief wells still two months or more away.
In this age of microchip miracles, people are seeing brute mass, old tools and ancient physics at work in the weirdly lunar undersea landscape. The atmospherics could be from a moon mission. A mile down, supersized vise grips clench a pipe forcing a flotsam into the ruptured well like oil workers have done on land. All so yesterday in look and feel — even if it is the first ever top kill at such great ocean depths.
The enormity of the Gulf, its depths and the engineering challenges are beyond ordinary comprehension. (The Gulf alone is punctured with more than 2,300 deep wells. Who knew?) No fancy touch-sensitive chart on TV conveys the vastness. Even experts wildly disagree on fundamental questions such as how much oil is coming out. The United States is a seafaring nation whose encounters with the sea now tend to be Red Lobster in the suburbs or Memorial Day at the beach. It's historically a farming, industrial and exploring nation, most of whose people now are distant from the elemental struggles of living and working in the physical environment, much less understanding it.
Only 14 percent of the modern U.S. work force is engaged in production: manufacturing, mining, logging, construction and the like. The rest are in services. While it is often considered an alien place, too, Washington is a product of that nation. The president and many lawmakers are lawyers by training, not engineers, roustabouts or farmers. No wonder members of Congress met to discuss legal liability among their first orders of business in the oil spill response. For many in Washington, the talk is of blame, accountability and political consequences.
No wonder, perhaps, that President Barack Obama assumed that something so terrible would not happen because it had not happened before. Like most Americans, he lacks the sixth sense of a mariner in foul weather or a miner listening to the earth speak. He does, though, hail from Hawaii, where, as he noted last week, the ocean is sacred. Not to mention, all around. Obama touched on the disconnect between those of the grounded physical world and everyone else during his news conference. He showed that he knows what he can't really feel.
"When I hear folks down in Louisiana expressing frustrations, I may not always think that their comments are fair," he said. "On the other hand, I probably think to myself, these are folks who grew up fishing in these wetlands and seeing this as an integral part of who they are." The land, sea and factory are less and less an integral part of Americans.
If Aristotle were blogging about all of this, he would probably have little patience with the armchair experts and the pontificators who think the solution should be as easy as Malia Obama suggested when she asked her father, "Did you plug the hole yet, Daddy?" The Greek philosopher said "those who dwell in intimate association with nature" are apt to understand the big picture. "Lack of experience diminishes our power of taking a comprehensive view." His way of saying, you have to be there to get it. Americans, these days, are not.
German Cabinet Agrees to Widen Short-Selling Ban
by Reuters
Germany's government agreed to widen a ban on speculative trades on Wednesday, expanding restrictions on naked short-selling to include all shares. The planned legislation, which must pass both houses of parliament, adds to regulations set up last month in a campaign by Chancellor Angela Merkel's government to curtail financial speculation, which it blames for intensifying the euro zone debt crisis.
Naked short selling -- which Germany had originally banned only for shares in its biggest banks, euro government bonds and related credit default swaps (CDS) -- involves selling securities without owning or borrowing the underlying assets in the hope of buying them back at a lower price.
Other proposed rules included in the bill were watered down at the last minute. Earlier plans that had included an outright ban on euro currency derivatives were dropped, according to a copy of the bill obtained by Reuters. The Finance Ministry will instead be authorized to ban euro currency derivatives by decree if it would serve to "avoid or dispel serious drawbacks to the stability of the financial markets, or faith in (their) operational capability."
Earlier versions of the bill which called for an outright ban came up against stiff resistance. Critics had warned that it could have had damaging effects and be hard to implement. Berlin's unilateral move last month to impose an immediate but partial ban on naked short-selling sent shockwaves through financial markets and ruffled the feathers of some partners.
At the moment there is no consensus among European Union securities regulators for introducing German-style regulations, which also take aim at the trading of CDS -- essentially insurance against default of a particular asset. The German bill now heading to parliament will distinguish between hedging and speculation with CDS linked to sovereign bonds, banning their purchase out of pure speculative interest but allowing it when the purchaser owns the underlying asset.
While several national regulators including France have signaled they will not follow suit, the head of its financial watchdog has called on the European Commission to come up with its own proposals in order to avoid member nations following diverging routes. Jean-Pierre Jouyet, head of French financial markets regulator AMF, has also called for urgent Franco-German initiatives to combat short-selling.
Oil Closes in on Florida as BP Tries Risky Cap Move
by AP
As submersible robots made another risky attempt to control the underwater Gulf oil gusher, the crude on the surface spread, closing in on Florida. BP's stock plummeted and took much of the market down with it, and the federal government announced criminal and civil investigations into the spill. The stakes couldn't be higher.
After six weeks of failures to block the well or divert the oil, the latest mission involved using a set of tools akin to an oversized deli slicer and garden shears to break away the broken riser pipe so engineers can then position a cap over the well's opening. But it's a big gamble: Even if it succeeds, it will temporarily increase the flow of an already massive leak by 20 percent — at least 100,000 gallons more a day. That's on top of the estimated 500,000 to 1 million gallons gushing out already.
In Florida, officials confirmed an oil sheen about nine miles from the famous white sands of Pensacola beach. Crews shored up miles of boom and prepared for the mess to make landfall as early as Wednesday. "It's inevitable that we will see it on the beaches," said Keith Wilkins, deputy chief of neighborhood and community services for Escambia County.
Florida would be the fourth state hit. Crude has already been reported along barrier islands in Alabama and Mississippi, and it has impacted some 125 miles of Louisiana coastline. More federal fishing waters were closed, too, another setback for one of the region's most important industries. More than one-third of federal waters were off-limits for fishing, along with hundreds of square miles of state waters.
Fisherman Hong Le, who came to the U.S. from Vietnam, had rebuilt his home and business after Hurricane Katrina wiped him out. Now he's facing a similar situation. "I'm going to be bankrupt very soon," Le, 53, said as he attended a meeting for fishermen hoping for help. "Everything is financed, how can I pay? No fishing, no welding. I weld on commercial fishing boats and they aren't going out now, so nothing breaks." Le, like other of the fishermen, received $5,000 from BP, but it was quickly gone.
"I call that 'Shut your mouth money,"' said Murray Volk, 46, of Empire, who's been fishing for nearly 30 years. "That won't pay the insurance on my boat and house. They say there'll be more later, but do you think the electric company will wait for that?"
BP may have bigger problems, though. Attorney General Eric Holder, who visited the Gulf on Tuesday to survey the fragile coastline and meet with state and federal prosecutors, would not say who might be targeted in the probes into the largest oil spill in U.S. history. "We will closely examine the actions of those involved in the spill. If we find evidence of illegal behavior, we will be extremely forceful in our response," Holder said in New Orleans.
The federal government also ramped up its response to the spill with President Barack Obama ordering the co-chairmen of an independent commission investigating the spill to thoroughly examine the disaster, "to follow the facts wherever they lead, without fear or favor." The president said that if laws are insufficient, they'll be changed. He said that if government oversight wasn't tough enough, that will change, too.
BP's stock nose-dived on Tuesday, losing nearly 15 percent of its value on the first trading day since the previous best option — the so-called top kill — failed and was aborted at the government's direction. It dipped steeply with Holder's late-afternoon announcement, which also sent other energy stocks tumbling, ultimately causing the Dow Jones industrial average to tumble 112. If BP's new effort to contain the leak fails, the procedure will have made the biggest oil spill in U.S. history even worse.
"It is an engineer's nightmare," said Ed Overton, a Louisiana State University professor of environmental sciences. "They're trying to fit a 21-inch cap over a 20-inch pipe a mile away. That's just horrendously hard to do. It's not like you and I standing on the ground pushing — they're using little robots to do this." Since the Deepwater Horizon rig exploded on April 20, eventually collapsing into the Gulf of Mexico, an estimated 20 million to 40 million gallons of oil has spewed, eclipsing the 11 million that leaked from the Exxon Valdez disaster.
BP's Doug Suttles said that although there's no guarantee the company's latest cut-and-cap effort to close off the leak will work, he remained hopeful, but wouldn't guarantee success. Engineers have put underwater robots and equipment in place this week after a bold attempt to plug the well by force-feeding it heavy mud and cement — called a "top kill" — was aborted over the weekend. Crews pumped thousands of gallons of the mud into the well but were unable to overcome the pressure of the oil.
The company said if the small dome is successful it could capture and siphon a majority of the gushing oil to the surface. But the cut and cap will not halt the oil flow, just capture some of it and funnel it to vessels waiting at the surface. The British oil giant has tried and failed repeatedly to halt the flow of the oil, and this attempt like others has never been tried before a mile beneath the ocean. Experts warned it could be even riskier than the others because slicing open the 20-inch riser could unleash more oil if there was a kink in the pipe that restricted some of the flow.
Eric Smith, an associate director of the Tulane Energy Institute, likened the procedure to trying to place a tiny cap on a fire hydrant that's blowing straight up. "Will they have enough weight to overcome the force of the flow?" he said. "It could create a lot of turbulence, but I do think they'll have enough weight." But BP's best chance to actually plug the leak rests with a pair of relief wells but those won't likely be completed until August.
The company has carefully prepared the next phase, knowing that another failure could mean millions more gallons spew into the ocean and lead to even more public pressure. And they say they have learned valuable lessons from the failure of a bigger version of the containment cap last month that was clogged with icelike slush.
In Memory of All That Is Lost
by Amy Goodman
The anger is palpable across the Mississippi Delta. As the Deepwater Horizon oil geyser, almost a mile underwater, continues unabated, the brunt of this, the largest environmental catastrophe in United States history, is rolling onto the coast, impacting the ecology, the economy and entire ways of life. I traveled across the bayous and towns of coastal Louisiana for four days, meeting the people on the front lines of the onrush of BP’s oil slick. They are angry, out of work and read the papers about people getting sick.
One person, whose job remains intact—at least so far—is BP’s CEO, Tony Hayward. Hayward, who was paid more than $4.5 million in 2009, lamented Sunday: “There’s no one who wants this thing over more than I do. You know, I’d like my life back.” Hayward becomes more vilified with almost each of his utterances, which are clearly aimed at minimizing the perceived impact of the BP disaster. He will probably be increasingly guarded in his remarks, as U.S. Attorney General Eric Holder just toured the area and, in a public statement, said: “We must also ensure that anyone found responsible for this spill is held accountable. That means enforcing the appropriate civil—and if warranted, criminal—authorities to the full extent of the law.”
On Grand Isle, we met Dean Blanchard, who owns the largest shrimp business in the area. He took us out on his boat, where he expressed his strong feelings about President Barack Obama: “I thought he was a man of the people, that he would’ve come out and met the businesses that are suffering, and look at us, and tell us, give us a little assurance that he would help us, but he just hid by the Coast Guard station like all the other presidents.” Blanchard’s parents and grandparents were shrimpers.
With his strong Cajun accent, he explained the effect of the tides on the oil: “I made my living off of watching tides. We hunt shrimp. You can’t see a shrimp. You know how we know where the shrimp’s at? Because of the tides. When the tide goes out, the more water goes out, the more water comes back, and when it comes back, it brings everything with it. It usually brings the shrimp, but this time it’s going to be bringing the oil.”
Blanchard says fishermen are like farmers: “We lose money in January, February, March and April, preparing to harvest our crop in May, June and July. So we spend a lot of money preparing to get to May.” When the Deepwater Horizon exploded April 20, thousands of fisherfolk, their families, and the businesses and communities that depend on them saw their annual income disappear, with bleak prospects.
Many shrimp-boat owners have now been hired by BP to work on the cleanup. One local fisherman, John Wunstell Jr., was rushed to the hospital with respiratory problems that he attributed to the noxious environment. He and others claim BP has prohibited the use of masks, and he has filed a request for an injunction to force BP to provide masks and other protective gear to cleanup workers. The response of BP’s Hayward? “I’m sure they were genuinely ill, but whether it was anything to do with dispersants and oil, whether it was food poisoning or some other reason for them being ill. ... It’s one of the big issues of keeping the army operating. You know, armies march on their stomachs.”
Blanchard was enraged. Why, he asked, did BP confiscate the clothing of their workers once they donned hospital gowns? He said: “I don’t think you need people’s clothes to test for food poisoning. You’d only need people’s clothes to test for chemical poisoning.” Blanchard took us out into the Gulf to see the skimming operations. None of the boat owners would talk to us. Blanchard explained, “They’re scared to talk, and they’re scared to be seen, because BP has threatened them that if they talk to the media, they’re going to be fired.”
One fisherman, Glenn Swift, whom we met in Buras, La., confirmed that he signed a contract with a clause stating that speaking to the media was grounds for termination. When I asked him why, then, he was talking to me, he said: “I don’t feel it’s the right thing to shut somebody up. We’re supposed to live in the United States, and we’re supposed to have freedom of speech.” Down the road from Blanchard, a family has erected 101 crosses in their front yard, each one commemorating something they love, like “brown pelicans,” “beach sunsets” and “sand between the toes.” The sign next to the cemetery of dreams reads, “In memory of all that is lost, courtesy of BP and our federal government.”
BP Oil Leak May Last Until Christmas
by Jessica Resnick-Ault and David Wethe - Bloomberg Business Week
BP Plc’s failure since April to plug a Gulf of Mexico oil leak have prompted forecasts the crude may continue gushing into December in what President Barack Obama has called the greatest environmental disaster in U.S. history. BP’s attempts so far to cap the well and plug the leak on the seabed a mile below the surface haven’t worked, while the start of the Atlantic hurricane season this week indicates storms in the Gulf may disrupt other efforts. “The worst-case scenario is Christmas time,” Dan Pickering, the head of research at energy investor Tudor Pickering Holt & Co. in Houston, said. “This process is teaching us to be skeptical of deadlines.”
Ending the year with a still-gushing well would mean about 4 million barrels of oil spilled into the Gulf, based on the government’s current estimate of 12,000 to 19,000 barrels leaking a day. That would wipe out marine life deep at sea near the leak and elsewhere in the Gulf, and along hundreds of miles of coastline, said Harry Roberts, a professor of Coastal Studies at Louisiana State University. So much crude pouring into the ocean may alter the chemistry of the sea, with unforeseeable results, said Mak Saito, an Associate Scientist at Woods Hole Oceanographic Institution in Massachusetts.
No Guarantee
BP, based in London, says it can’t guarantee the success of its attempt now underway to capture the flow of oil and divert it to a ship at the surface. Thad Allen, the U.S. government’s national commander for the incident, said operations may need to be suspended to allow for an evacuation ahead of a tropical storm or hurricane, during which oil would continue to gush into the Gulf. The so-called relief well being drilled to intercept and plug the damaged well by mid-August might miss -- as other emergency wells have done before -- requiring more time to make a second, third or fourth try, Dave Rensink, President Elect of the American Association of Petroleum Geologists, said.
Robert Wine, a spokesman for BP, declined to detail the company’s own worst-case scenario. In its original exploration plan for the Macondo well about 40-miles from the Louisiana coast, BP estimated the worst-case scenario for an oil spill was 162,000 barrels of crude a day, according to a filing with the U.S. Interior Department’s Minerals Management Service.
Hurricane Season
BP Chief Executive Officer Tony Hayward has more recently put the maximum potential leak rate at 60,000 barrels a day. Wine reaffirmed BP’s estimate that it will take 90 days to stop the leak with a relief well, which would be the first half of August. He said an early, vigorous hurricane season could have an impact on the schedule. The ultimate worst-case scenario is that the well is never successfully plugged, said Fred Aminzadeh, a research professor at the University of Southern California’s Center for Integrated Smart Oil Fields who previously worked for Unocal Corp. That would leave the well to flow for probably more than a decade, he said in a telephone interview. More likely, the relief wells will eventually succeed, though it might take longer than the three months predicted by BP, he said.
Pemex Spill
It took Mexico’s state-owned oil company, Petróleos Mexicanos, or Pemex, nine months to plug its Ixtoc I well after an explosion and fire in 1979. The company’s first attempt with a relief well failed, so it had to drill a second. Eventually, more than 140 million gallons of crude spilled into the Gulf of Mexico -- the biggest offshore oil spill on record. Last year, an explosion at a well off the Australian coast owned by Thailand’s national oil company, PTT Exploration & Production Pcl, required five attempts before it could be plugged by a relief well 10 weeks after the spill began.
BP has improved its odds by drilling two emergency wells at once. If a first attempt fails, it will have the second well ready to try again. The company is using techniques such as a larger well bore, raising its chances of hitting its mark, said Robert MacKenzie an analyst with FBR Capital Markets in Arlington, Virginia. Plugging the well is another challenge even after BP successfully intersects it, Robert Bea, a University of California Berkeley engineering professor, said. BP has said it believes the well bore to be damaged, which could hamper efforts to fill it with mud and set a concrete plug, Bea said.
Evacuating Ships
While these efforts are underway, BP could face delays if a hurricane enters the Gulf, forcing an evacuation. BP says it is developing a mechanism to quickly disconnect the ship collecting oil from the well so that it can evacuate ahead of a storm. That would leave the well gushing oil, Bea said. Ocean biologists are concerned the oil could linger in deep layers in the sea, generating oxygen-depleted “dead zones” that kill marine life. Plumes of oil spinning off of the spill have been detected in two directions, and researchers suspect there are more. “Clearly, oxygen levels are going to be decreased in the vicinity of the plume area, and it looks like it could be a very large plume area,” said Saito, of Woods Hole Oceanographic Institution.
Birds, Oysters
The crude oil could enter a current that would draw it out of the Gulf and up along the East Coast of the U.S. all the way to Nantucket, Roberts, of Lousiana State University, said. The American Bird Conservancy has identified 10 key regions on the Gulf Coast where birds could be harmed. If the oil is spread widely by a hurricane, there could be long-term damage to bird populations, the non-profit organization has said. “What is difficult to measure is the loss of future generations of birds when birds fail to lay eggs or when eggs fail to hatch,” George Fenwick, the organization’s president, said in a statement on at-risk areas in the Gulf Coast.
Marine life may take decades to recover, wiping out businesses along the coastline that depend on the fishing and seafood industry. Al Sunseri, who runs P&J Oyster Co., the oldest continually operated oyster dealer in the U.S., said he could end up out of business: “This could be the end of our 134-year-old business,” he said. “I’ve been doing this 30 years. I have a son and I don’t know if he’ll be able to carry on this next generation.”
Dying, dead marine wildlife paint dark, morbid picture of Gulf Coast following oil spill
by Matthew Lysiak and Helen Kennedy - NY Daily News
Here's what President Obama didn't see when he visited the Gulf Coast: a dead dolphin rotting in the shore weeds. "When we found this dolphin it was filled with oil. Oil was just pouring out of it. It was the saddest darn thing to look at," said a BP contract worker who took the Daily News on a surreptitious tour of the wildlife disaster unfolding in Louisiana. His motive: simple outrage. "There is a lot of coverup for BP. They specifically informed us that they don't want these pictures of the dead animals. They know the ocean will wipe away most of the evidence. It's important to me that people know the truth about what's going on here," the contractor said.
"The things I've seen: They just aren't right. All the life out here is just full of oil. I'm going to show you what BP never showed the President." The day was 85 degrees, the blue sky almost white with sunshine, the air fresh with salt tang. After checking that he was unobserved, he motored out to Queen Bess barrier island, known to the locals as Bird Island. The grasses by the shore were littered with tarred marine life, some dead and others struggling under a thick coating of crude. "When you see some of the things I've seen, it would make you sick," the contractor said. "No living creature should endure that kind of suffering."
Queen Bess Island was the first place where fledglings were born when the beloved, endangered Louisiana brown pelicans were reintroduced in the 1970s. Their population rebounded and was finally declared stabilized in 2002. Now their future is once again in doubt. In what had been such an important hatchery, hundreds of pelicans - their white heads stained black - stood sentinel. They seemed slow and lethargic. "Those pelicans are supposed to have white heads. The black is from the oil. Most of them won't survive," the contractor said. "They keep trying to clean themselves. They try and they try, but they can't do it."
The contractor has been attempting to save birds and turtles. "I saw a pelican under water with only its wing sticking out," he said. "I grabbed it and lifted it out of the water. It was just covered in oil. It was struggling so hard to survive. We did what we could for it. "Nature is cruel, but what's happening here is crueler." The uninhabited barrier islands are surrounded by yellow floating booms, also stained black, that are supposed to keep the oil out. It's not working. "That grass was green a few weeks ago," the contractor said. "Now look. ... This whole island is destroyed. How do you write a check for something like this?"
He said he recently found five turtles drowning in oil. "Three turtles were dead. Two were dying and not dead yet. They will be," he said. As the boat headed back amid the choppy waves, a pod of dolphins showed up to swim with the vessel and guide it to land. "They know they are in trouble. We are all in trouble," the contractor said. BP's central role in the disaster cleanup has apparently given the company a lot of latitude in keeping the press away from beaches where the oil is thickest.
On Monday, a Daily News team was escorted away from a public beach on Elmer's Island bycops who said they were taking orders from BP. BP spokesman Toby Odone denied the company is trying to hide the environmental damage; he noted BP has organized press visits to the spill zone and said BP cannot tell cops what to do. The contractor for BP said the public needs to see the truth. "BP is going to say the deaths of these animals wasn't oil-related," he said. "We know the truth. I hope these pictures get to the right people - to someone who can do something."
Ilargi: Jon Stewart, too, has had it with Obama.
The Spilling Fields
The Daily Show With Jon Stewart Mon - Thurs 11p / 10c The Spilling Fields
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58 comments:
"oil, will rise causing high inflation or triggering hyperinflation"
I strongly disagree with this statement. A sharp rise in a key input like oil in a deflationary environment would actually result in a decline in GDP which would be deflationary, not inflationary.
whereas the true effects of the financial crisis will remain hidden for 10 months or 10 years.
What a departure from we would not get out of last fall, to the position now.
Americans have slid into mind numbed zombies without a care for anything not right in their grill. I'm in the NYC area and no one's really talking about the oil disaster because frankly we got our own closer problems to worry about. No my friends I'm afraid us Americans will go gentle into the embrace of our demise like we've been doing for so long and that will be no one's fault but our own. I wish what you said were so but reality thus far has dictated otherwise.
Ilargi,
"How long can a president who’s presided over the single worst calamity, money-wise, human-misery-wise, animal-death and suffering-wise, that a nation has ever known, and ignored such calamity for an entire month or more, expect to remain in office? It may sound weirdly overdone today, but what will the nation say when all its southern and eastern beaches, from Louisiana, Alabama, to Florida, the Carolinas, and all the way up to Maine, are closed because of tar balls?"
A few tarballs vs: say Darfur? Your are becoming an hysterical old woman and it demeans Stoneleigh who keeps a cool head on her shoulders for the most part.
This is ridiculous hyperbole.
Just to clarify things a bit. If we poured all the oil we extract in a year into the Gulf it would form a layer thinner than a sheet of paper. Do the math if you're capable. It's not tough but somehow I doubt math is a strong point with you.
We use one cubic mile of oil per year. The Gulf is 625,000 square miles. Some ninth grade level calculations will do.
Get a grip, man.
Ilargi, great intro and articles once again. Thank you.
As a resident of Florida for more than 49 years, I will never again swim in the Gulf waters. The Gulf was polluted before the "spill" and now it's totally contaminated. The dispersant chemical used by BP is extremely toxic to all life, especially when combined with petroleum.
Tourists should face reality and cancel their FL vacations. FL and the southeast region of the USA, in particular, have been trashed by the corporations and governmental negligence. Of course, all of us bear responsibility to one degree or another as well. Don't people realize that the decadent and affluent lifestyle embraced by most amongst us -- flying and driving habits (those disgusting SUVs), for example -- caused the "spill"?
It seems as if the "Bullet to the back of the head"..to this economy, and the frantic efforts to keep BAU will come from south left field...an oil spill that will drive a large portion of the population mad...those who see their entire world gradually turn to a stinking pile of toxic goo.Think of the vast wealth of those multimillion dollar beachfront homes..now to become tombstones of a dead age. Large populations of formerly wealthy, aged,retirees,suddenly uprooted..torn from their warm, beach nests,refugees.
This could well go to the level of a biblical plague.
One of the causalities being the presidency of B.Obama..who made the wrong moves,too late to be seen as a hero.
This is destabilizing the whole show now...and it took way,way too long for the feds to figure it out.They just figured out the whole show rides on how fast they be seen to "control" this disaster.
Hearing that B.P. pres whine about wanting his life back enraged me.It was the go for broke,cut all the corners,and damn the safeties attitude that caused this,and it was his leadership which encouraged it. I hope he is sued to oblivion,and can spend the rest of his life attempting to clean wildlife fouled,and poisoned by his company.I want his children to change their names to escape the stain of their parentage.
I could tell him there is a whole country that soon will want their lives back when this thing gets rolling.Lets see what its like come hurricane season.Lets see what happens when the oil reaches New York state...
Bee good or
Bee careful
snuffy
An entire continent of people looking to sell BP stock? Sadly, my mother is not one of them.
Ma has somewhere between 200 and 300 shares -- she's not sure how many because she reinvests the dividends. Must be nice to have an asset of $10,000 -- $15,000 and can't be fussed to know roughly how much it's worth.
It's worth a lot less than it used to be, but will my mom ditch it? Nope, can't sell at a loss. The concept of "even bigger loss in the future" doesn't resonate with her. Sheeple-headed, but she's not the only one. When I want to understand what the compliant herd thinks, I think of Mom.
Greed's a factor in why many people won't rush to sell their BP shares, too. "It pays a dividend" is Ma's rationale for staying rusted onto BP. Because she's a relative, I don't say "Those dividends are paid in dollars soaked with the blood and oil of a million dying animals." But I bet a lot of BP stockholders could hear that and not care.
And when I want to gauge how doom-warnings DON'T work, I think of how my own mater has under-reacted lo these past years. She'll typically acknowledge "You were right" several years after the fact, but doesn't act in the fierce paralysis of now.
I reckon there are hundreds of thousands of Mommyquivalents out there. And not just with BP stock. With the whole consumerist way of life. They've been warned. They're not changing. A population of Col. Kong's, riding BP down to Ground Zero.
"pineappleCoward said...
"oil, will rise causing high inflation or triggering hyperinflation"
I strongly disagree with this statement. A sharp rise in a key input like oil in a deflationary environment would actually result in a decline in GDP which would be deflationary, not inflationary."
Note that Hera places this AFTER a bond market collapse: "US Treasury bond auctions will fail if lenders conclude that a sufficiently large portion of their investment will be diluted into oblivion by proverbial money printing. In that event, the US dollar will surely plummet, despite deflationary pressures within the domestic US economy[..]"
And by then the statement may well come true.
.
" $$$Dollar$$$ said...
whereas the true effects of the financial crisis will remain hidden for 10 months or 10 years.
What a departure from we would not get out of last fall, to the position now."
No, it depends what you mean by the true effects. You can get pretty miserable and still even more miserable later on.
.
"This is ridiculous hyperbole.
Just to clarify things a bit. If we poured all the oil we extract in a year into the Gulf it would form a layer thinner than a sheet of paper. Do the math if you're capable. It's not tough but somehow I doubt math is a strong point with you."
Some arguments look impressive on the surface, don't they? Go buy some beach property, I'd recommend, so you get to see first hand what a layer of oil thin as a sheet of paper can do.
.
"Note that Hera places this AFTER a bond market collapse: "US Treasury bond auctions will fail if lenders conclude that a sufficiently large portion of their investment will be diluted into oblivion by proverbial money printing. In that event, the US dollar will surely plummet, despite deflationary pressures within the domestic US economy[..]"
And by then the statement may well come true."
And the difference between oil inflation and cookie inflation would be ... what? While inflation would cause the cost of oil to rise, rising oil prices do not cause inflation. Oil is the lubricant and fuel that our industrial system of production runs on (even more so than cookies). The more oil costs the more GDP declines. With every tick down of GDP every mouth requires more wealth to feed. Wealth that wouldn't be available to buy an xbox or SUV or see a movie, etc. In summary, any increase in the price of oil would contribute a net decrease in inflation and not an increase.
"Weak Euro Propels German Economy"
Hmmm, who saw this coming?
PineA,
Yes, he has it somewhat backwards and confused, that's true:
"In that event, the US dollar will surely plummet, despite deflationary pressures within the domestic US economy, and the cost of foreign goods, e.g., oil, will rise causing high inflation or triggering hyperinflation."
If we can agree, and Hera seems to do that earlier in the piece but go astray here, that inflation is a rise in money supply and/or velocity, then it's obvious that a rise in oil prices, should it occur, cannot cause a rise in the money supply. It would always and by definition have to be the other way around.
.
@Zander...just reading about the taxi driver who went on a murderous rampage in Cumbria.
Recently I got into a taxi with an unco-operative, silent driver. I feel very nervous and was noticably relieved to arrive home and get out of that car.My body had gone into " you are in danger " response. It was so bizarre I called the taxi company to enquire if he was perhaps a new, unknown driver, was his behaviour normal for him. They just laughed and said he was probably just having a bad day. He had been driving for them for years.
Well, my point is what was he capable of in that stressed " having a bad day " state of mind?
The U.S. portion of the Gulf of Mexico is approx 1680 miles of coast line.
The oil will not be an evenly distributed 'thin film', it will wash up along a line 1680 miles long.
A cubic mile of oil distributed along a line 1680 miles long would be 3.14 feet thick and extend a mile from shore.
That looks like some great shorefront real estate bargains comin up! Buy now!
So to the Village Idiot, do
some ninth grade level calculations.
Get a grip, man.
.
Alex tring et al
Stoneleigh will be in Guildford, but not until June 7.
Tonight, June 3, she will be speaking in the Paris, France area. In French, no less.
Address: Attac France, 66-72, Rue Marceau, Montreuil-sous-Bois, Métro line 1 or 9.
Click here for Google Map and Picture of the location.
.
Hey Top Cat,
Yep, the War on the Environment is going great guns. It's led to the whole hyperbolic green movement among big business and lots of Utopian fantasies that extract large subsidies, namely ethanol. I have no qualms with Wind subsidies though, solar yes as it's EROEI is too low.
What's happened is that a lot of people are paid to talk about the environment and nothing really changes. It's hugely profitable, an industry in it's own right. All in all the road to collapse is filled with the fish fillet of reckless profits. Tasty no?
Meanwhile check Amy Goodman, giving us Gulf Coast coverage: http://www.democracynow.org/2010/6/2/democracy_now_travels_across_bayous_and
Mildly interesting concept:
ALLENTOWN, Pa. – No money? No problem! Pay with time, instead.
That's what Maria Villacreses did when the economy put a hitch in her wedding plans: She used "time dollars" on everything from a wedding-day makeover to an elaborate seven-layer cake.
In a modern twist on the ancient practice of barter, people like Villacreses are joining time banks to help them get the things they need or want without having to spend cash.
Full article here.
BP was one of Thatcher's privatisations. I don't think the government owns any of it any more.
Folks, I'm still waiting for the kudos and genuflections here.
:-)
Some of you may recall a point I made in a couple of brief comments here, some months ago. (I would find them, but can't figure out a fast search.)
Point being; in all the analyses of "what happens next" in the financial destruction of the world, everyone was ignoring the natural arena. I said something like:
"And what would be the effect on the economy of "The Big One" finally hitting LA? Or a category 5 hurricane actually hitting Miami dead on? Or a Richter 9 quake in the Pacific Northwest? Or the strike of a "City Killer" asteroid near any major city of the world? New outbreak of pneumonic plague in Mexico City?
The world simply does not have the resources to respond; the needed economic resilience is not there. Thread by thread, the entire remaining world economy could be sucked into the resulting black hole."
And. Here we are. Ok, it's a man-made natural disaster- but the effects are identical. A disaster beyond anyone's ability to cope, hitting an entire region, top to bottom.
It turns out not to be some specific Euro policy, or Chinese banking practice that pulls the rug out. Could have been, sure; but we humans have/had gotten into the habit of simply believing that we are in full control of nature; and of course, we are so so not.
So? Genuflections, please. :-)
whee-ha. You catch Al Capone by checking his income tax. You catch JP by checking their accounting...
http://wallstreet.blogs.fortune.cnn.com/2010/06/03/jpmorgan-hit-with-record-fine/
This is a little accounting boo-boo that any CPA would be mortified to have on their record.
And they say they're going after more- one instance at a time. Could get really really expensive for JP-not to mention the damage to their rep.
@ scandia.
Unconfirmed reports say he was irked by another driver nicking his passengers after a long feud with the geezer.!! Reminds me of El g's glorious remark about one not hanging oneself over a financial decision gone awry.
Z
forgot to note: "This is a little accounting boo-boo that any CPA would be mortified to have on their record."
Of course it wasn't a boo-boo; except from the rock hard legal standpoint. JP did it on purpose, so they could play with more money; and they knew it was totally illegal when they did it. Maybe 10 years from now they'll start criminal proceedings along with the "record fine!" civil stuff. Like JP gives a rass ats about $40 mil.
Andrew Revkin has some modeling video and perspective on the oil leak disaster over at the NYT's Dot Earth. So far Europe isn't too worried but look out!
Reminds me of the old Pittsburgh Paint slogan "Cover the World"
Wyote,
I just sent that video around to a few people, and said: So far, I'm not too far off.
Ok, guys. Here's how you fix the oil leak. Really.
How to fix the gulf oil leak
Blogger Ilargi said...
June 3, 2010 4:30 AM
"No, it depends what you mean by the true effects. You can get pretty miserable and still even more miserable later on."
Excellent retort :)
That John Stewart video is great. His show is one of the very few things that I miss since I pulled the plug on my cable propoganda service a year or so ago. I just couldn't justify paying a monthly fee to be lied and marketed to constantly.
It's sad but the only place to get any truth these days (aside from TAE and other like minded sources) are from the comedians.
@ Top Cat
"That looks like some great shorefront real estate bargains comin up! Buy now!"
Funny stuff....my in-laws live in a luxury beachfront condo on the gulf in SW Florida. They are quaking in thier boots right now. What a change in psychology for them as in 2005 they were literally boasting everytime that I saw them that they could sell thier condo for literally whatever price they wanted. They were getting weekly solicitations from would be buyers and R.E. agents offering millions for a 3,000 square foot box with a view. I would venture to guess that they could not unload it for 1/10 of that today and of course it will be even less in the not so distant tomorrow. Funny I haven't heard them utter "Drill baby Drill" once since this happened.
Greenpa,
You know darned well that Cassandra never gets kudos or genuflections. Be thankful you haven't been tarred and feathered yet. :)
Sorry about the unfortunate reference to the fate of our aquatic friends in the Gulf. :-(
Greenpa: You can submit your fix idea here:to BP via an emailed PDF.
It sounds like a good one to me.
Wolf,
Maybe you know this already, but if you miss the Daily Show, you can watch every bit of it online. Much nicer than dealing with commercials on tv anyway. As long as you have high-speed intertubes, of course.
Wyote- thanks, but... My own opinion is that the chances of any good idea getting actually looked at this way is vanishingly small.
Mostly those "send us your ideas!" things are a way to keep wackos out of the email piles.
The back door is where they listen. :-)
Now Obama is going to be thrown out of office before the end of the summer. Really. Wow, this site is going downhill so fast it ought to win an Olympic medal.
Please, come back to your senses. I used to enjoy this place.
@Villager at June 2, 2010 10:10 PM
Thank you, thank you, thank you for providing some clarity around here. That initial post by Ilargi was so off the rails with regards to Obama being driven from office by villagers wielding pitchforks, that it had me doubting my sanity for ever coming to this site in the first place.
I have been coming here for two years now at least, but posts like that make me doubt my reasoning and poisons the validity of the many good things this place has to offer.
And one more thing, guys. Your censoring of comments is starting to feel like your tolerance for free speech, opposing viewpoints, and even mild criticism is growing weaker.
That is not a good thing. Reasoned debate should be welcomed by one who has confidence in his/her opinions and facts.
That is all.
Wow. BP (Brainless Powerless) is still trying to spin everything up; here's their current headline on BBC-
"BP reaches key 'milestone' in halting Gulf oil leak"
LOL!!!!
Yeah, the "pinched off straw" - is now wide open, and leaking JUST as fast as it POSSIBLY can.
A huge improvement!
Greenpa: I can send it in for you then?
@Greenpa,
your oilbladder idea seems decent, simple and practical, with little danger, a similar device crossed my mind, though the window of opportunity to install and tap it could disappear within a month, as surface conditions may become too volatile to work in for any vessels.
After another month of spillage, or if the plumes reach the surface, any attempt to drill additional relief wells might become impossible, since there would be no place at the surface not dangerously drenched in oil, but several moronic ideas have been prederanged for such contingencies.
The higher oil prices should be inherently deflationary for all currencies except the dollar, perhaps.
But is it possible that a volatile surface slick could become so large as to prevent further action?
If so, that would limit myriad windows of opportunity for implementing schemes and solutions depending on safely operating surface vessels.
A flowrate/fatality ratio may be a valid metric to apply here, and would become strongly divergent after another month, so that additional time for relief attempts will become increasingly costly.
The letter I received back from the Whitehouse after ranting and raving about the oil spill:
Subject: Thank you for your message
Date: Jun 3, 2010 11:16 PM
Dear Friend:
Thank you for writing to me about the oil spill in the Gulf of Mexico. I appreciate your perspective as we continue to do everything we can to address this crisis.
The Gulf is one of the richest and most beautiful
ecosystems on the planet. For centuries, its residents have enjoyed and made a living off the fish that swim in its waters and the wildlife that inhabit its shores. The Gulf is also the heartbeat of the region's economic life. We are going to do everything in our power to protect our natural
resources, compensate those who have been harmed, rebuild what has been damaged, and help this region persevere like it has done so many times before.
For information about response efforts, how to help, or available assistance, please visit
www.doi.gov/deepwaterhorizon or www.epa.gov/bpspill/.
Thank you again for contacting me. I encourage
you to visit WhiteHouse.gov to learn more about my
Administration or to contact me in the future.
Sincerely,
Barack Obama
To be a part of our agenda for change, join us at www.WhiteHouse.gov
I'm probably one in a million who received the same letter. Much ado about nothing.
For those interested in the toxicity of oil: here
Looks like the dispersants may be causing a huge amount of additional damage by making the oil more lethal to marine life... good one BP.
The village idiot obviously has no idea about food chains, the effect of oil being washed ashore, having a light film of oil being distributed via storms/rains, nor any number of real world complex interactions.
PS – 1 cubic mile is approx 1.6 million mm thick. Divide that by 615,000 (area of the Gulf) and you get a little over 2.5 mm. What sort of paper do village idiots use? As Top Cat noted – wash that ashore and how thick is it now?
soundOfSilence said...
"Mildly interesting concept:
ALLENTOWN, Pa. – No money? No problem! Pay with time, instead."
Good as long as people don't get hooked on time credit like they have on money credit – otherwise they are just setting themselves up for another form of servitude.
Oh, these little tidbits that float by- from the NYT-
"BP has also hired a new head of media relations in the United States, Anne Womack Kolton, who worked at Brunswick and is a former aide to Vice President Dick Cheney and Energy Department spokeswoman."
joy, joy, joy.
The horror pictures of birds have arrived; our media friends are tossing them everywhere.
They are heartbreaking.
The more that I see,the more I think the oil spill is the grave of O-mans second term,as well as the trigger to the next big "steep" decent.How many hundreds of thousands of folks will lose every single thing they have over this catastrophe.
How soon will we in the west begin to see the refugees with soft southern drawls looking for work,housing...a new life away from the toxic cesspit that the gulf is becoming.
My brother is of the opinion that the actions of this administration would so closely match that of GWB in their reaction that there is basicly no difference they were/are both OWNED by the petro-industry...think about it...
What would have happened if this occurred during the 70s',before the corporations took complete control....there would have been ten thousand fed regulators from the EPA,and every Health and emergency response professional that wasn't assigned mission critical tasks would be in it up to their necks...
Now...crickets...Not a word,not a peep..
This makes me ill...It shows the world how effectively the fed gov regulatory agency's have been gutted and nutted.I hope some of those responsible for that are some of the same ones who lose their 10mil.dollar home with the private dock on the waterway...
Bee good or
Bee careful
snuffy
squire
I don't really care what our comment moderation feels like to others. And you know very well why I dumped one of your comments the other day.
As for the rest of you comments today, you make up things I've never said. Read more carefully, I suggest.
When BP lifts the silence imposed on fisherman/workers I'll believe they are taking responsibility.
When PB guarantees healthcare to those made ill by this spill I'll believe they are interested in more that profit.
"Food poisoning" my ass, Mr. Hayward!
If BP goes bankrupt or gets taken over who will be responsible for the clean-up?
@ Greenpa, the hiring of Anne Womack Kolton by BP is most distressing. We can only hope she gets called to the docket in the Hague for her complicity in crimes against humanity before she does even more damage to her nation.
Wonder what salary she negotiated to spin oil into gold? Or does she do it for the thrill of hanging out with the Darth Vaders ?
Shame on me! It is possible she is volunteering her " talent " gratis out of a committment to the well being of the commons?
I've also been thinking about BP shareholders. Shouldn't they be expected to do more than clip dividend coupons? Shouldn't they also pay up when things go sour as in causing a dead zone in the ocean?
Perhaps each BP shareholder could adopt a family or perhaps the shareholders, sans masque, could be rounded up to clean up! Just wondering how many BP shareholders there are? Now that would be taking responsibility!
Does anyone know if any BP shareholders have volunteered to help?
From my spot in the cheap seats the effort is primarily on saving BP , not the ecosystem nor the coastal communities.
I join BP, Obama & Co and all sentient beings everywhere in the hopes that this is all a shared bad dream, that we'll awake on the morrow with catastrophe averted and lessons finally learned.
@ Scandia
"From my spot in the cheap seats the effort is primarily on saving BP , not the ecosystem nor the coastal communities."
Yep. Spot on. This is the type of thing that happens when you have traitors posing as leaders.
Different and less depressing topic than the oil spill -
Greenpa, did you choose the upper mid-west in part due to soil fertility? I'm working my way through the Albrecht papers right now and think setting up a doomstead somewhere near the 97th meridian is a good idea. Though I'm now committed to the 75th. Ah well, I'll do what I can to improve things here.
scandia said ...
"I've also been thinking about BP shareholders."
Those ideas are game changers!
Our society will will have to make BIG changes for those things to happen.
GEE! What a thought ... taking part responsibility when something goes wrong.
jal
Wondering if Stoneleigh can weigh in on the Oil Spill chance of shutting down some Fla Power Plants:
energy-oil-spill-risks-gulf-power-plants
Hungary warning heightens sovereign-debt fear
LONDON (MarketWatch) -- Hungary's new government added to sovereign-debt fears Friday, shaking global financial markets after a spokesman for Prime Minister Viktor Orban was quoted as warning that the economy had been left in a "grave situation" and that talk of a default wasn't "an exaggeration."
After a May changing of the guard at the Hungarian Parliament in Budapest, the new ruling party, Fidesz, has laid blame for the nation's economic woes at the feet of the preceding government.
After a May change of guard at the Hungarian Parliament in Budapest, the new ruling party, Fidesz, has laid blame for the nation's economic woes at the feet of the preceding government.
The remarks put added pressure on European banks with exposure to Hungary, while serving to undercut overall risk sentiment, analysts said, weighing on European stocks and exacerbating a weak tone on Wall Street. See Market Pulse item on single-country and currency ETFs' reactions.
The Hungarian forint fell sharply for a second day, dropping 2% versus the single currency to trade at 286.75 per euro. The remarks, meanwhile, contributed to a sharp fall by the euro versus major rivals, driving the single currency to a four-year low versus the dollar and an all-time low against the Swiss franc.
The spokesman said the economy's plight was the result of the previous government's having "manipulated" figures and "lied" about the economy, Bloomberg reported. A committee is set to report on the state of the country's finances over the weekend, which will be followed within 72 hours by a government action plan, the spokesman said.
"I don't think it's an exaggeration at all to talk about a default," said the spokesman, Peter Szijjarto, according to Bloomberg.
More here.
Hungary. There's no "H" in PIIGS.
It's just like what we learned in grammer school. The H in PIIGS was silent. John
@ Tero..I agree with you.
It just gets up my nose that shareholders will be rewarded with 10 Billion in dividends while an ecosystem dies.
The shareholders are just a more easily defined group. I don't doubt the shareholders believed the BP spin that they could handle a spill 10 times larger that Deepwater Horizon just like I did. But now they know. Now I know. Now you know. We all know it was a lie.
I, too, am culpable.
* Price of oil and deflation/inflation have a non-linear relationship; Price of oil may cause inflation or deflation depending on circumstances
* Americans are zombies; The undead don't care about the gulf spill; They have their own undead fish to fry
* Oil spills aren't that bad; If all the oil in the world were spread evenly over the surface of Jupiter it would be invisible to the naked eye; Do the math if your are capable
* The spill is like a biblical plague; It will destabilize everything; The dispersant cure is worse than the spill disease; Lots of experts complain about the spill but none of them does anything about it; South Florida condos have lost 90% of their value; Expect refugees from the gulf
* Some people won't sell BP stock at a loss as long as it pays dividends; BP shareholders should be forced to go help clean up the spill; Hummer owners, frequent fliers, babies in disposable diapers and Lost fans should be forced to join them; Make them pay with time
* There is no H in PNEUMONOULTRAMICROSCOPICSILICOVOLCANOCONIOSIS
* John Stewart and TAE are the only sources of truth; TAE is heading down hill like an olympic luger; Please pad the walls before someone is killed
* Cheney's ex-aide to spin for BP; Shrill, baby shrill
* Obama wants your ideas; He will email you back
* Spill could be captured in a big hot-air-balloon-like cloth bag; Obama may ask Oprah to volunteer wardrobe
* First you get down on your knees
Compliment his orchard trees
Treat his theories with respect
Then, genuflect, genuflect, genuflect
* LA gulf spill. Lame gulp! Et tu, Obama? I am about te plug 'em! All lips flugal.
New post up.
Who on earth are we?
.
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