"New York City, Gotham and St. Regis hotels, Looking south along Fifth Avenue at East 56th Street. On the right, the Gotham rising behind Fifth Avenue Presbyterian Church"
Ilargi: It makes no difference whether the stock markets go up or down or sideways anymore, except for those actively playing them. The demise of the American economy continues unabated regardless. Here's the real economy for you:
Unemployment: Outlook Grim For Jobs Bill Ahead Of VoteDemocratic leaders in the Senate have apparently failed to win enough support to overcome a Republican filibuster of a bill to help the poor, the old and the jobless, despite making a series of cuts to the measure over the past several weeks to appease deficit hawks [..]
The legislation, known as the "tax extenders" bill, would reauthorize extended unemployment benefits for people out of work for six months or longer, would protect doctors from a 21% pay cut for seeing Medicare patients, and would provide billions in aid to state Medicaid programs. Come Friday, 1.2 million people will lose access to the extended unemployment benefits, a number that will grow by several hundred thousand every week after that. Fifty million Medicare claims from June are currently in process at the reduced rate, which the AARP says has already caused some of its members to have trouble finding a doctor.[..]
That is the most accurate portrait of the real America you will find. The country is deliberately creating un underclass below its underclass. And that will have severe consequences.
Initial jobless claims fall 19,000 to 457,000, total beneficiaries rise 155,000 to 9.7 millionFirst-time applications for state unemployment benefits fell by 19,000 last week to a seasonally adjusted 457,000, the lowest in six weeks, the Labor Department reported Thursday, confirming that U.S. labor markets remain weak. [..]... the total number of people collecting unemployment benefits of any kind rose by 155,000 to 9.66 million in the week ending June 5 from 9.51 million.
In other words, all the White House job-creating plans continue to fail, initial claims go up or down a few thousand margin-of-error jobs each time we look, but if this were a recovery, they'd be nowhere near 450,000. Moreover, total benefits paid out keep rising, while the total number of people falling off the back of the train, who no longer get a penny, rises more than we care to look at. Hundreds of thousands of additional Americans will be added to that category every single week from now on in. This is a recipe for disaster, not just for them, but for society as a whole. You can't have a successful society where people are starving by the side of the road.
The link between unemployment and real estate is undoubtedly clear for all of you who are regulars at this joint. You should therefore not be surprised to see numbers like these:
New-home sales plunge 33% to record low in MaySales of new single-family homes plunged 33% in May to a record-low level after a federal subsidy for home buyers expired, according to data released Wednesday by the Commerce Department. Sales dropped to a seasonally adjusted annual rate of 300,000, the lowest since records began in 1963. April's sales pace was revised down to 446,000 compared with the 504,000 originally reported. March's sales were also revised lower.
Still, new homes are a tiny part of the market. Existing homes are what counts. Well, they are down too:
Existing-home sales dip 2.2% in MayResales of U.S. homes and condominiums fell 2.2% to a seasonally adjusted annual rate of 5.66 million in May despite the boost from a federal tax credit for home buyers, according to National Association of Realtors data released Tuesday.
Please note that these sales are falling while there's still a tax credit in place. Which is about to run out.
And sure, it may be extended another time. Or it may not. The same goes for the extended emergency unemployment benefits mentioned earlier. But so what? It’ll have to stop sometime, and as long as the real economy keeps sinking the way it does, there’ll neither be anywhere near enough jobs to either satisfy the demand for them, nor to keep desperate owners in their homes. Which will in turn further depress home prices, which in turn will cost more jobs. There is no way out anymore.
And while this is going on, the logical outcome is that state governments are pathetic participants in the squeeze and be squeezed game. TIME Magazine of all sources has this:
Inside the Dire Financial State of the StatesTwenty-two states have instituted unpaid furloughs. At least 28 states have ordered across-the-board budget cuts, with many of them adding deeper cuts in targeted agencies. And massive shortfalls in public pension plans loom as well. Almost no one — and no place — is exempt. Nearly everywhere, tax revenue plummeted as property values tanked, incomes dwindled and consumers stopped shopping. Falling prices for stocks and real estate have made mincemeat of often underfunded public pension plans. Unemployed workers have swelled the demand for welfare and Medicaid services. Governments that were frugal in the past are just squeaking by. Governments that were lavish in the good times, building their budgets on optimism and best-case scenarios, now risk being wrecked like a shantytown in an earthquake.[..]
Many taxpayers might say that it's about time spending dropped. But then they start hearing the specifics. Government budgets contain a lot of fixed costs and herds of sacred cows. K-12 education absorbs nearly a third of all spending from state general funds. Add medical expenses, primarily Medicaid, and it's over half. Prisons must be maintained, colleges and universities kept open, interest on bonds and other loans paid. Real cuts provoke loud howls, and you can hear them rising in every corner of the country. College students have marched in California, firefighters have protested in Florida, and on June 10, Minnesota saw the largest one-day strike of nurses — some 12,000 — in U.S. history.
And don't count on the shaky economic recovery for relief. After plunging in 2009, tax receipts are stabilizing in many places — but the next big shoe is fixing to drop. Having poured billions of dollars into state coffers through the stimulus act of 2009, the federal government is poised to close the tap. President Obama made an unusual Saturday night request to Congress last week for $50 billion in emergency aid to the states to stave off layoffs of teachers, firefighters and police. [..]
On the grand scale, this fiscal fiasco is playing out in California and New York. Both states boast economies far larger than that of Greece, which so disturbed the world economy this spring. And both are paralyzed by structural deficits far larger than their politicians seem able to grasp. The impasse in California between Republican governor Arnold Schwarzenegger and the Democrats controlling the legislature appears set in concrete. Last year, the Golden State was reduced to issuing IOUs; this year's budget, some $19 billion in the hole, is once again a shambles. In New York, Democrats control all the levers, but they can't find a cost-cutting deal acceptable to the public-employee unions that helped elect them. The deficit in Albany is $9.2 billion.
[..] .... a majority of states will have reserves well below safe levels recommended by the National Association of State Budget Officers. Leery of broad tax hikes in a bad economy, governments have instead chosen to shake the sofa cushions and punish the naughty, closing loopholes, cracking down on tax evaders and raising levies on tobacco, alcohol, gambling, soda pop and candy — even bottled water in Washington State. Nearly half the states have hiked fees for higher education, court services, park access, business licenses — or all of the above.
These are the tried-and-true responses to dips in the business cycle, but as the woes drag on from year to year, the job of closing budget gaps grows more difficult. Now larger issues and harder choices are being laid bare, beginning with the sprawling mess that is Medicaid. Created by Congress, administered by the states and paid for by a patchwork of federal, state and local governments, the health care system for America's poor is a jumble in the best of times. With enrollments growing rapidly, that jumble is becoming a train wreck.
What's going to give? Prepare for a free-for-all. The states are pressing Washington to maintain the emergency Medicaid supplement that was part of the stimulus package. So far, congressional moderates are blanching at the price tag. If the Beltway budget hawks win that battle, states plan to squeeze the patients, who are currently protected by strings attached to the stimulus money. No federal supplement means no more strings. Already various states are contemplating tighter eligibility rules, lower benefits, higher co-pays and other restrictions. And then there's the ongoing fight between the states and the medical system. Governments are wringing money from doctors and hospitals coming and going: first they are cutting payments for Medicaid services, and then they are raising fees on Medicaid providers.
Really, do you need it any clearer than that? Do you now still think you and yours will be spared? There is no magical way out. Your federal, state and municipal governments will start taxing you ever more, trying to save their own jobs and asses, at the very moment that your incomes will begin to decline.
Paul Krugman and his Keynesian "Spend, spend, spend" ideas and followers, like Obama and his buddies Larry Summers and Tim Geithner and the rest of Washington base their notions and measures on one grand idea: that the economy will start growing again, and strong, and soon.
But the economy isn't growing, and if they wouldn't have thrown your grandchildren's tax revenues at the magic yellow brick wall, this would be evident to everyone today. All they have achieved, apart from a prolongation of their own careers in power, is that it will be even more, and far more brutally, evident in the future.
It’s about to blow up in your face, guys, literally, the whole thing, your entire lives. And it really doesn’t matter whether it does so in two weeks or two months or two years, does it? If it would take two years, you'd just get sucked even deeper into the hologram.
What matters is that everyone begins to understand that this thing is inevitable, and that the consequences will be beyond anything you've ever known.
The city walls of Dodge are crumbling as we speak, and we urge you to get out before they flatten you.
Unemployment: Outlook Grim For Jobs Bill Ahead Of Vote
by Arthur Delaney - Huffington Post
Democratic leaders in the Senate have apparently failed to win enough support to overcome a Republican filibuster of a bill to help the poor, the old and the jobless, despite making a series of cuts to the measure over the past several weeks to appease deficit hawks. "It looks like we're going to come up short," said a senior Democratic aide on Wednesday evening. "It looks like Republicans are prepared to kill aid to states, an extension of unemployment benefits, and ironically, the Republicans are prepared to kill efforts to close loopholes that allow companies to export jobs overseas."
The legislation, known as the "tax extenders" bill, would reauthorize extended unemployment benefits for people out of work for six months or longer, would protect doctors from a 21 percent pay cut for seeing Medicare patients, and would provide billions in aid to state Medicaid programs. Come Friday, 1.2 million people will lose access to the extended unemployment benefits, a number that will grow by several hundred thousand every week after that. Fifty million Medicare claims from June are currently in process at the reduced rate, which the AARP says has already caused some of its members to have trouble finding a doctor. And the Center on Budget and Policy Priorities estimates that dropping the $24 billion in aid to states will cause 900,000 public- and private-sector layoffs in 2011.
Both chambers of Congress had already passed the measure, deficit spending and all, but when it came time to combine the bills in May, conservative Democrats and moderate Republicans lost their previous will to help the economy and forced party leaders to begin the nickel-and-dime process of trimming the bill. "I've never been involved in anything that's been revised so often and in so many different ways," said Sen. Max Baucus (D-Mont.), who worked with Senate Majority Leader Harry Reid (D-Nev.) to try to win support for the bill.
The House shortened the Medicare physicians' fix, dropped the Medicaid money, and also $7 billion in subsidies for laid off workers to buy health insurance. The Senate cut $25 per week from every unemployment check and shortened the so-called "Doc Fix" even further, to six months, and on Wednesday Dem leaders trimmed another $8 billion by reducing the Medicaid assistance. The bill has shrunk over the past few weeks from $190 billion, to $80 billion, to $55 billion, to just over $30 billion in the current Senate version.
"Sen. Baucus and Sen. Reid did everything they can to try to pick up the handful of votes needed to overcome the Republican filibuster" said the Dem aide. Nebraska Democrat Ben Nelson has said repeatedly he would not vote for the measure unless its cost was completely offset, so Reid and Baucus focused on moderate Maine Republicans Susan Collins and Olympia Snowe, who demanded more cuts to the bill, apparently, than the Dem leaders were willing to make.
"Remember, Republicans voted for legislation that both extended unemployment insurance and reduced the deficit," said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.). "Democrats, on the other hand, introduced and voted for legislation that increased the deficit. There was bipartisan support for ours, bipartisan opposition for theirs." The Republican alternative to the tax extenders bill, which Ben Nelson supported, would have extended unemployment benefits and offset the cost with budget cuts so steep it "would essentially shut down much of the federal government for the last two and a half months of this fiscal year," according to the CBPP.
Democrats also softened a provision that would raise taxes on investment fund managers by closing a loophole that allows some of the richest people in the world to pay a lower tax rate than their secretaries. The debate has largely focused on the deficit, however. The process has been infuriating to employment and labor activists. "Let Senator McConnell, let Senator Senator Collins, let Senator Brown and every other Republican explain why one of their own constituents doesn't deserve to keep their job, shouldn't be able to send their kid to college, can't put food on their table without maxing out their credit cards," said Lori Lodes of the SEIU. "Rooting against America, Republicans are taking pride in keeping families out of work as their only strategy for winning elections." The Senate will vote on Thursday or Friday.
Initial jobless claims fall 19,000 to 457,000, total beneficiaries rise 155,000 to 9.7 million
by Rex Nutting - Marketwatch
First-time applications for state unemployment benefits fell by 19,000 last week to a seasonally adjusted 457,000, the lowest in six weeks, the Labor Department reported Thursday, confirming that U.S. labor markets remain weak. The previous week's initial claims were revised higher by 4,000 to 476,000 as more complete data were collected. The report was close to market expectations, as economists surveyed by MarketWatch were looking for a drop to 460,000.
The jobless claims report shows that the level of layoffs -- while down from the peak a year ago -- is too high to be consistent with robust job growth. The economy is creating jobs, but too few to bring the unemployment rate down meaningfully. "This report broadly confirms our expectation for positive private-sector job growth in June; we are forecasting private non-farm payrolls will increase by 150,000 positions this month, consistent with a gradual recovery in the labor market," wrote Michael Hanson, an economist for Bank of America's Merrill Lynch.
The four-week average of new claims was roughly unchanged at 462,750. The four-week average is considered a better gauge of labor-market conditions than the volatile weekly number, which can be influenced by non-economic factors such holidays, weather or strikes. "Initial claims have been stuck in a fairly tight range of 440,000 to 480,000 for most of this year, suggesting that the pace of improvement in the labor market is perhaps more gradual than the payroll numbers from first-quarter suggested," wrote Anna Piretti, an economist for BNP Paribas. Private-sector payrolls have risen an average of 100,000 per month this year.
Meanwhile, the total number of people collecting unemployment benefits of any kind rose by 155,000 to 9.66 million in the week ending June 5 from 9.51 million. The number of people collecting federal benefits rose by 47,000 to 5.36 million. These figures are not seasonally adjusted. The number of people who were collecting state benefits - which are typically available for 26 weeks - fell by 45,000 to a seasonally adjusted 4.55 million in the week ending June 12 after rising 105,000 the week before. In a separate report, the Commerce Department reported durable-goods orders fell 1.1% in May, the first decline in six months. Excluding volatile transportation orders, orders rose 0.9%.
More on claims
Initial claims are down about 24% compared with the same week a year ago but are down only about 1% since the first of the year. Continuing claims are down about 30% compared with a year ago and down about 9% since the first of the year. Jobless claims measure only a portion of the labor market - those who lose jobs through no fault of their own. But they don't measure the number of people being hired, or the number who quit their jobs voluntarily.
Since the December, hiring and quits have picked up modestly, while layoffs and discharges have fallen to the lowest level in nearly three years, according to Labor Department data released separately.
The number of people who've been out of work for more than six months has surged during this recession to a record 6.8 million in May, accounting for 46% of the 15 million people officially classified as unemployed, according to monthly data previously released.
In response to this long-term unemployment, the federal government has created several new programs of extended benefits. In some states, benefits are available for as long as 99 weeks.
Hundreds of thousands of people are falling off the beneficiary roles because the law authorizing extended benefits has expired. Those already collecting extended benefits may continue to do so, but no new applicants are accepted. The Senate has been wrangling with a law that would renew the extended benefits. Benefits are generally available for those who lose their full-time job through no fault of their own. Those who exhaust their unemployment benefits are still counted as unemployed if they are actively looking for work.
New-home sales plunge 33% to record low in May
by Rex Nutting - MarketWatch
Sales of new single-family homes plunged 33% in May to a record-low level after a federal subsidy for home buyers expired, according to data released Wednesday by the Commerce Department. Sales dropped to a seasonally adjusted annual rate of 300,000, the lowest since records began in 1963. April's sales pace was revised down to 446,000 compared with the 504,000 originally reported. March's sales were also revised lower.
The results were much worse than expected, and economists had expected a 20% decline to a seasonally adjusted annual rate of 405,000. See complete economic calendar and consensus forecast.
U.S. stock markets dropped quickly on the news. Gold prices also fell. That sales fell was "not at all surprising," wrote Dan Greenhaus, chief economic strategist for Miller Tabak & Co. "However, we would be lying if we said the size of the drop was not shocking." "By the fall, we expect the very favorable affordability picture to start pulling people back into the market, but the next few months are likely to be very grim," wrote Ian Shepherdson, chief U.S. domestic economist for High Frequency Economics, who predicted the number precisely.
Sales fell sharply in all four regions, with sales down more than 50% in the West. The median sales price in May was $200,900, down 9.6% from a year earlier and the lowest since December 2003. Home builders continued to shed inventories in May, cutting the number of unsold homes by 0.5% to 213,000, the lowest level in 39 years. In the past year, inventories are down 27%, while sales are down 18%. The inventory of unsold homes represented an 8.5-month supply at the depressed May sales pace, up from 5.8 months in April and the highest in nearly a year.
Home builders are facing stiff competition from a glut of inventory of existing homes, fueled by pent-up demand to move and by high levels of foreclosures and short sales. In order to qualify for the federal tax credit of up to $8,000, a buyer needed to sign a sales contract on a home by the end of April. New-home sales are recorded at the time of the contract signing. The tax credit likely pulled many sales forward into the first four months of the year. Sales increased a cumulative 29% between February and April. But once the credit expired, sales collapsed in May.
The big question for housing, and perhaps for the economy, is whether housing will strengthen significantly from here. If sales remain weak, home prices could fall further, which would in turn depress consumer spending, increase foreclosures and lead to more losses at banks. Government statisticians have low confidence in the monthly report, which is subject to large revisions, and large sampling and other statistical errors. In most months, the government isn't sure whether sales rose or fell. The standard error in May, for instance, was plus or minus 9.9%.
The government says it can take up to four months to establish a statistically significant trend in sales. Over the past four months, sales have been on a 371,000 seasonally adjusted annual pace, little changed from the 367,000 pace in the four months leading up to January. On Tuesday, the National Association of Realtors reported that sales of existing homes fell 2% in May to a seasonally adjusted annual rate of 5.66 million. Sales of existing homes are recorded at the time of the closing. Buyers have until June 30 to close on the sale to qualify for the tax credit.
Housing data in May have been dismal. Housing starts fell 10%, building permits fell 5.9%, mortgage applications dropped, and the home builders' index fell by five points. The only bright spot was mortgage rates, which stayed very low. "A housing market with the ability to stand on its own requires the improvement in the job market to continue and for mortgage rates to stay low," wrote Jennifer Lee, senior economist for BMO Capital Markets.
Existing-home sales dip 2.2% in May
by Rex Nutting - MarketWatch
Resales of U.S. homes and condominiums fell 2.2% to a seasonally adjusted annual rate of 5.66 million in May despite the boost from a federal tax credit for home buyers, according to National Association of Realtors data released Tuesday. Economists surveyed by MarketWatch had been expecting sales to rise about 6% to an annual rate of 6.11 million units, theorizing that the expiration of the tax credit at the end of June would force some buyers to rush ahead. See our complete economic calendar and consensus forecast.
"While the headline figure is below expectations, it is still a decent figure and above the six-month average of 5.39 million," wrote Omair Sharif, economist with RBS Securities. Sales could remain at elevated levels for another month before the stimulus from the home-buyer tax credit stops, said Lawrence Yun, chief economist for the real estate agents' lobbying organization.
Most economists expect sales to drop in the next few months. "It appears that existing home sales are already on their way toward the 5.100 million area," wrote Mike Englund, chief economist for Action Economics. "Troubles are lurking ... owing mainly to a persistently high unemployment rate and increasing amounts of 'underwater' homeowners," said Josh Shapiro, chief economist for MFR Inc.
Inventories of unsold homes fell 3.4% in May to 3.89 million -- an 8.3-month supply at the May sales pace.
Inventories are still very high, Yun conceded. "The supply situation remains a serious concern," said Sharif of RBS. The median sales price last month was $179,600, up 2.7% from May 2009. The government has been supporting sales and home prices for about two years, via providing up to $8,000 to qualified buyers, but the tax credit expires soon. To qualify, a buyer must have signed a sales contract by April, and must close the sale by June 30. "There could be further price declines" because of the high level of unsold homes, Yun said. The NAR data on existing-home sales are based on closings, which usually occur a month or two after the sales contract is signed.
Pushing out the deadline?
The realtors are supporting legislation that would extend the deadline for the tax credit to Sept. 30 for closing on a sale. The Senate approved the measure as an amendment to the larger tax extenders and jobs bill, but final passage has been held up. Yun said as many as 180,000 buyers would not get the credit because of difficulties in closing the sale. Most economists believe the tax credit pulled forward sales that would have taken place later. Sales of existing homes surged last fall with the first tax credit and are up 19% compared with a year ago.
At first, sales of new homes didn't respond to the tax credit nearly so noticeably, although sales did jump 40% combined in March and April -- after having set a record low in February. "We continue to believe that housing remains a crucially important part of the economy from a sentiment standpoint," wrote Dan Greenhaus, chief economist for Miller Tabak & Co. "As housing weakens, will consumers continually feel exuberant about their respective financial situations? We think not." New-home sales will be reported on Wednesday, with economists expecting a huge decline -- 20% or more. Sales of new homes are recorded when a sales contract is signed.
May data's details
Sales of single-family homes fell 1.6% to a seasonally adjusted annual rate of 4.98 million. Sales of condos also dropped, down 6.8% to a 680,000 rate. Sales rose in two of four regions in May. Sales rose 4.9% in the West and 0.5% in the South, but they fell 18% in the Northeast and were unchanged in the Midwest. Distressed sales -- including foreclosures and short sales -- accounted for about 31% of sales in May. All-cash buyers accounted for about 25% of sales, significantly more than the typical 10%. First-time buyers accounted for 46% of sales.
The interruption of the federal flood insurance program is delaying many sales, Yun said. In Louisiana and Florida, about a third of homes require flood insurance coverage. However, the two-month-old oil spill in the Gulf of Mexico has had little impact on sales yet, Yun said.
First-Time Homebuyers Disappeared After Tax Credit Ended
by Steve Cook
Homebuyer traffic nationwide tumbled in May, according to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions. Most of the decline was attributable to first-time homebuyers who sharply reduced their home shopping last month. The survey’s first-time homebuyer traffic index, which measures home shopping activity on a scale of 1 to 100, registered an anemic 35.1 in May. This was down from an index of 63.5 in April. Since September 2009, the index had never been below 50, which represents a flat, or neutral, condition in home purchase activity.
"The decline of first-time homebuyer traffic is undoubtedly related to the expiration of the federal homebuyer tax credit," stated Thomas Popik, research director for Campbell Surveys. "Homebuyers had until April 30 to sign a purchase and sale agreement and receive the credit. Once we entered the month of May, the government stimulus disappeared." Thanks to its own tax break, California fared better than the country overall in terms of first-time homebuyer activity, the survey found. The California index for first-time homebuyer traffic jumped to 63.1 in April, but still managed to stay relatively flat in May at 49.4. California enacted its own $10,000 credit for first-time homebuyers on May 1, the day after expiration of the federal tax credit.
Real estate agents responding to the survey commented on the decrease in homebuyer traffic in May, which ultimately will produce fewer closed transactions later in the summer. "The expiration of the tax credit caused a significant decline in buyer activity in May, with buyers who didn’t get a suitable house in time for the tax credit opting to wait and see what happens to prices without the availability of the tax credit. I expect to see a significant decrease in July’s closed transactions," commented an agent in Arizona." "We have noticed a substantial decrease in activity since April 30th.
There are a lot less Purchase and Sales Agreements being typed and other agents are complaining it’s slow again," stated an agent in Massachusetts." "I got no signed purchase agreements in May. I think the number of closed transactions in July will be very low," added an agent in Indiana. Traffic among current homeowners seeking to upsize or downsize also softened in the month of May, but to a lesser degree, the latest survey found. The nationwide index for current homebuyer traffic registered 45.5 in May, down from 55.2 in April. Expiration of the homebuyer tax credit for current homeowners was less of a factor because the tax credit dollar incentive was lower, both on an absolute basis and on a percent of transaction basis.
Interestingly, the proportion of closed transactions for first-time homebuyers also declined in May, furthering a trend first observed in April. In March, first-time homebuyers accounted for 48.2% of home purchases; by April their proportion had declined to 43.4%. The trend continued in May, with first-time homebuyers accounting for 42.0% of home purchases. This decline is surprising since first-time homebuyers have until the end of June to close transactions and receive the federal tax credit.
"The first-time homebuyer tax credit, originally due to expire last November and then extended through the first half of 2010, may have depleted the pool of willing buyers earlier than expected," commented Popik. "Whether this depletion is temporary or whether it will be long-lasting won’t be known until we measure traffic in June and July." The Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions surveys more than 3,000 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.
Borrowers exit troubled Obama mortgage program
by Alan Zibel - AP
The Obama administration's flagship effort to help people in danger of losing their homes is falling flat. More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes. Last month alone,155,000 borrowers left the program -- bringing the total to 436,000 who have dropped out since it began in March 2009. About 340,000 homeowners have received permanent loan modifications and are making payments on time.
Administration officials say the housing market is significantly better than when President Barack Obama entered office. They say those who were rejected from the program will get help in other ways. But analysts expect the majority will still wind up in foreclosure and that could slow the broader economic recovery. A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income.
When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out. Many borrowers complained that the banks lost their documents. The industry said borrowers weren't sending back the necessary paperwork. Carlos Woods, a 48-year-old power plant worker in Queens, N.Y., made nine payments during a trial phase but was kicked out of the program after Bank of America said he missed a $1,600 payment afterward. His lawyer said they can prove he made the payment. Such mistakes happen "more frequently than not, unfortunately," said his lawyer, Sumani Lanka. "I think a lot of it is incompetence."
Treasury officials now require banks to collect two recent pay stubs at the start of the process. Borrowers have to give the Internal Revenue Service permission to provide their most recent tax returns to lenders. Requiring homeowners to provide documentation of income has turned people away from enrolling in the program. Around 30,000 homeowners started the program in May. That's a sharp turnaround from last summer when more than 100,000 borrowers signed up each month. As more people leave the program, a new wave of foreclosures could occur. If that happens, it could weaken the housing market and hold back the broader economic recovery.
Even after their loans are modified, many borrowers are simply stuck with too much debt -- from car loans to home equity loans to credit cards. "The majority of these modifications aren't going to be successful," said Wayne Yamano, vice president of John Burns Real Estate Consulting, a research firm in Irvine, Calif. "Even after the permanent modification, you're still looking at a very high debt burden." So far nearly 6,400 borrowers have dropped out after the loan modification was made permanent. Most of those borrowers likely defaulted on their modified loans, but a handful either refinanced or sold their homes.
Credit ratings agency Fitch Ratings projects that about two-thirds of borrowers with permanent modifications under the Obama plan will default again within a year after getting their loans modified. Obama administration officials contend that borrowers are still getting help -- even if they fail to qualify. The administration published statistics showing that nearly half of borrowers who fell out of the program as of April received an alternative loan modification from their lender. About 7 percent fell into foreclosure. Another option is a short sale -- one in which banks agree to let borrowers sell their homes for less than they owe on their mortgage.
A short sale results in a less severe hit to a borrower's credit score, and is better for communities because homes are less likely to be vandalized or fall into disrepair. To encourage more of those sales, the Obama administration is giving $3,000 for moving expenses to homeowners who complete such a sale or agree to turn over the deed of the property to the lender. Administration officials said their work on several fronts has helped stabilize the housing market. Besides the foreclosure-prevention plan, they cited government efforts to provide money for home loans, push down mortgage rates and provide a federal tax credit for buyers.
"There's no question that today's housing market is in significantly better shape than anyone predicted 18 months ago," said Shaun Donovan, President Barack Obama's housing secretary. The mortgage modification plan was announced with great fanfare a month after Obama took office. It is designed to lower borrowers' monthly payments -- reducing their mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. Borrowers who complete the program are saving a median of $514 a month. Mortgage companies get taxpayer incentives to reduce borrowers' monthly payments.
Consumer advocates had high hopes for Obama's program when it began. But they have since grown disenchanted. "The foreclosure-prevention program has had minimal impact," said John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group. "It's sad that they didn't put the same amount of resources into helping families avoid foreclosure as they did helping banks."
Battles in California Over Mortgages
by David Streitfeld - New York Times
As the housing market continues to sputter, the real estate industry is increasingly split on the responsibilities of overextended and foreclosed homeowners. On one side are the bankers, who say borrowers should be liable for what they owe. On the other side are real estate agents, who say those who lost their houses should not be so burdened by debt that they cannot move on. The differences have real financial consequences: bankers want to collect on billions of dollars in outstanding loans; real estate agents want as many people as possible to return to the housing market.
For the first time, the debate is spilling into the realm of law making, with state legislators in California considering a bill that would redefine the obligations of many defaulting homeowners. The efforts to shape the bill demonstrate how much is at stake — in California and the many other states with distressed real estate markets. The legislation introduced in the winter by the real estate lobby would have largely shielded foreclosed homeowners from debt collectors. But by the time it passed the state Senate on June 3, the banking lobby had succeeded in scaling it back. Now the bill goes to the state Assembly, where a committee will take it up next week, and bankers intend to continue lobbying.
"We’re concerned this could adversely accelerate strategic defaults," said Rodney K. Brown, chief executive of the California Bankers Association, referring to instances in which borrowers leave their properties without settling with the lender. For years, a house in California was a machine for building wealth, and few were the families that could resist temptation. They refinanced their loans to pay for vacations, operations, tuition or, frequently, investments in more houses. Many of these households ended up struggling after the crash. The lenders were often aggressive in making loans and frequently were predatory. The extent to which this absolves the borrowers of responsibility is at the center of the current debate.
The original legislation said borrowers who took cash out of their houses would be shielded as long as they used the money for home improvements. In its current form, the proposed law is not quite so forgiving. The bill that passed the Senate by a lopsided vote of 30 to 4 would protect former homeowners up to the amount of their original loan. For instance, a family that took out a $500,000 mortgage to buy a house and then refinanced and took cash out, swelling their loan to $600,000, would be released from claims on the original sum but remain vulnerable on the $100,000.
Ellen M. Corbett, the Democratic state senator from San Leandro, Calif., east of San Francisco, who introduced the measure, said it is a matter of fairness. During the Depression, she said, California legislators decided that losing your house was punishment enough. They did not want lenders endlessly hounding borrowers for the difference between what they owed and what their former house was worth, an amount called the deficiency. Seventy-five years later, because of that law, anyone who has an original loan and wants to get rid of the house because it has fallen in value can simply walk away without further legal jeopardy.
But a homeowner who refinanced, even for the straightforward reason of getting a lower interest rate, could in theory lose the house and be pursued for the deficiency. "I don’t believe the original intent was to have a two-tier system, where some were protected and some were not," Ms. Corbett said. The agents, too, say this is a fairness issue. But there is also self-interest involved. "Realtors are very worried about this because they think it will destroy the housing market if people end up with these huge deficiency judgments and are never able to buy a house again," Ms. Corbett said. To some extent, this is a fight over something that is not happening, at least not yet.
Lenders in California rarely chase foreclosed borrowers for deficiency judgments. Pursuing such cases in court can be an arduous process, and few of those in foreclosure have the assets or incomes to make it worthwhile. But the threat of such action can come in handy for lenders, servicers and collection agencies. By raising the possibility of a court fight, they can negotiate favorable terms when agreeing to loan modifications and workouts, surrenders of deeds and sales for less than the full amount owed, also known as short sales.
"Using the threat of a deficiency, full-recourse lenders often prevail upon distressed borrowers to sign new, unsecured obligations in exchange for their assent to a proposed short sale or surrender of a deed," said William A. Markham, a lawyer with Maldonado & Markham in San Diego. "This practice will nearly vanish overnight if the new measure becomes law." About a third of the seven million California households with a mortgage have negative equity, a condition known as being underwater, according to the research firm CoreLogic. Many of these families might be content to wait years for a rebound in real estate but others, if at least partly freed from deficiency worries, might walk away.
"This will lead to a surge in the supply of housing, a corresponding decrease in the price, and a welcome hastening of the end of the foreclosure crisis in California," Mr. Markham said. State Senator Mimi Walters, a first-term Republican representing Laguna Niguel, north of San Diego, voted against the measure precisely because it could encourage more defaults. "I’m very sympathetic to what’s going on in the economy and to people that are losing their homes," said Ms. Walters, a former executive with two Wall Street firms. "But we have to be careful not to overleverage ourselves and to take responsibility when making investments." The banking lobby says it could accept the bill as is, on one condition: that it apply only to new loans. In its current form, it applies to any existing loan.
"We really don’t want the legislature redoing contracts," said Mr. Brown of the California Bankers Association. "That sends a bad signal to investors, to markets and to those whom we extended the credit." Whatever the fate of this particular bill, the issue of responsibility for debt is unlikely to be resolved anytime soon. New government-mandated modification programs that for the first time will reduce borrowers’ debts will go into effect this fall, sparking another round of debate about who gets help and who does not. "We’re a little in the Wild West here," said Paul Leonard, California office director of the Center for Responsible Lending. "People are struggling with what it means to uphold the terms of your mortgage contract and what it means to walk away. There are no tried and true rules."
Taxpayer-Owned Fannie Mae Attacks Struggling Homeowners
by Shahien Nasiripour - Huffington Post
Taxpayer-owned mortgage giant Fannie Mae is targeting families by going after struggling homeowners who strategically default on their mortgage, the firm announced Wednesday. A default is considered strategic when homeowners have the capacity to pay, yet choose to walk away from their mortgage. The trigger, researchers say, is negative equity: When the value of a home is less than what the lender is owed on it, borrowers are more likely to strategically default.
About 11.3 million homeowners with a mortgage, or 24 percent, owe more on their mortgage than the home is worth, according to real estate research firm CoreLogic. Another 2.3 million have less than 5 percent equity in their homes. All told, about 29 percent of all homeowners with a mortgage are either underwater or very close to it. The firm estimates that the typical underwater homeowner won't return to positive equity until late 2015 or early 2016. And Fannie Mae, an arm of the federal government and a big part of the Obama administration's housing policy, wants to make sure that if struggling families walk away, they suffer for it.
Homeowners who strategically default or did not work "in good faith" to avert foreclosure through other means will be ineligible for new Fannie Mae-backed mortgages for seven years. The firm said it will also pursue homeowners in court, seeking so-called "deficiency judgments" to recoup outstanding debt by seizing borrowers' other assets. Thirty-nine states do not limit the ability of lenders to recover what they're owed.
Fannie Mae said that next month the firm "will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments." "Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting," Terence Edwards, Fannie's executive vice president for credit portfolio management, said in a statement.
Strategic defaults among homeowners have been on the rise. More than a million homeowners went that route last year, nearly double the amount in 2008 and more than four times the level in 2007, according to a recent analysis by the credit reporting company Experian and Oliver Wyman, a management consulting firm. A study by a team of academics from the University of Chicago and Northwestern University estimated that nearly a third of home mortgage defaults in March were strategic. The deeper underwater homeowners are, the more likely they are to walk away from their mortgage, the researchers noted.
Earlier this month, the House of Representatives passed a bill barring strategic defaulters from obtaining home mortgages backed by the Federal Housing Administration. The agency guarantees nearly one in four new mortgages. "I can't help but notice that every group now frantically calling for tough penalties for homeowners who walk away was virulently opposed to judicial modification of mortgages in bankruptcy," Rep. Brad Miller, a North Carolina Democrat, told the Huffington Post.
Bank of America and Citigroup, the nation's largest and third-largest banks by assets, respectively, support changing existing law to give federal judges the power to modify mortgages in bankruptcy, otherwise known as "cramdown." Proponents argue that if homeowners were able to modify their mortgages in bankruptcy, the number of strategic defaults would substantially decrease, if not nosedive. About 3 million homes will receive foreclosure notices this year, real estate research firm RealtyTrac estimates. More than 1 million will be repossessed by lenders, adding to the nearly 2.2 million homes that lenders took over from 2007 to 2009.
Fannie Mae and its sister firm Freddie Mac guarantee nearly three out of every four new mortgages, according to leading industry publication Inside Mortgage Finance. The two firms control about $5.5 trillion in home mortgages, according to their federal regulator. That's nearly half of all outstanding mortgage debt in the U.S. Their share of the mortgage market is nearly double what it was 20 years ago. Because Fannie controls such a large portion of new mortgage issuance, the freezing out of homeowners for seven years could prove devastating.
Brent T. White, a law professor at the University of Arizona, recently wrote in an academic paper that most homeowners can recover from a foreclosure within two years. In fact, defaulting on a mortgage is not as bad as most people think, White notes. "Lenders are unlikely to pursue a deficiency judgment even in recourse states because it is economically inefficient to do so; there is no tax liability on 'forgiven portions' of home mortgages under current federal tax law in effect until 2012; defaulting on one's mortgage does not mean that one's other credit lines will be revoked; and most people can expect to recover from the negative impact of foreclosure on their credit score within two years (and, meanwhile, two years of poor credit need not seriously impact one's life)," he writes. There is a "huge financial upside" for seriously underwater homeowners to strategically default on their mortgages, White said.
While it's still taboo among most homeowners, it's common behavior among corporations. In December, Morgan Stanley, the nation's sixth-biggest bank by assets, walked away from five San Francisco office buildings the $820-billion firm purchased as part of a landmark $2.43-billion deal near the height of the real estate boom. A group led by Tishman Speyer Properties gave up a 56-building apartment complex in Manhattan in January after defaulting on some $4.4 billion in debt. A spokesman for the California Public Employees' Retirement System, the nation's biggest municipal pension fund and one of several investors in the venture, told the Huffington Post that they "basically walked away from it."
Fannie was effectively nationalized in September 2008. Taxpayers own 79.9 percent of Fannie and Freddie. The Obama administration announced on Christmas Eve that it would provide unlimited financial assistance to the firms, disregarding what was a $400 billion cap on taxpayer bailouts. Their debt is backed by the U.S. government. The two firms, facing growing losses on sour mortgages in perhaps a worsening housing market, have already taken $145 billion from taxpayers. Fannie Mae is responsible for $83.6 billion of that bailout.
Freddie Mac did not say it would take a similar position on strategic defaulters. "Such so-called strategic defaults, once rare, are now common enough to jeopardize the already-weak housing and mortgage markets," wrote economists Celia Chen and Cristian deRitis of Moody's Economy.com in an April 13 note. "If the trend continues, strategic defaults could both accelerate the pace of home foreclosures and also make it harder for new borrowers to obtain mortgages. Both factors would in turn worsen the decline in house prices."
JPMorgan Chase, the nation's second-largest bank by assets with more than $2.1 trillion, warmed investors last month that underwater homeowners may not continue to make their payments even when they're able to, according to a May 10 filing with the Securities and Exchange Commission. A top executive at Freddie Mac posted a note on the firm's website pleading with homeowners to not intentionally walk away from their homes. "Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn't make it good social policy," Freddie Executive Vice President Don Bisenius argued in a May 3 note.
The firm warned investors and analysts about the risk of increased strategic defaults in March 2008. Referring to it as "ruthlessness," Dick Syron, Freddie's former chairman and CEO, said the firm was "seeing an increase in ruthlessness" that had "the potential for changing consumer behavior." Fannie Mae said Wednesday that borrowers who have "extenuating circumstances may be eligible for new loan in a shorter timeframe" than the seven-year period it's warning about.
Republicans in the House recently tried to rein in the twin mortgage giants. Rep. Darrell Issa, the top Republican on the House Committee on Oversight and Government Reform, attempted Wednesday to amend the financial reform bill under consideration by the House and Senate to mandate that the federal government appoint an inspector general to oversee Fannie and Freddie. The mortgage behemoths' federal regulator has been operating without an independent watchdog looking over it and Fannie and Freddie since 2008.
Republicans have also tried to amend the bill to subject Fannie and Freddie to the Freedom of Information Act so members of the public can keep tabs on the firms by compelling the disclosure of documents and records. Both efforts were thwarted by House Financial Services Committee Chairman Barney Frank (D-Mass.), who ruled that they were not "germane" to the legislation under consideration. Emails sent after normal business hours to spokesmen for the White House and Treasury Department requesting comment were not returned.
Why the U.S. Can't Turn Its Back on BP
by Stanley Reed - Bloomberg
With public anger off the charts over BP's role in the Gulf of Mexico oil disaster, there's not much sympathy about the financial burden the British oil company faces from future legal claims and cleanup costs. BP says it's considering asset sales to help cover the cost of a $20 billion escrow fund that the White House demanded the oil major set up to handle U.S. claims. The company's survival may also be in doubt if the financial hit from the Deepwater Horizon rig explosion approaches $100 billion, as some analysts suggest is possible.
Such a scenario would destabilize U.S. energy policy at home and abroad. President Barack Obama recognized as much when he said on June 16 that "BP is a strong and viable company, and it is in all of our interests that it remain so." The company's demise would be disruptive to the American oil industry, given that BP is the largest oil and gas producer in the U.S., with about 1 million barrels per day of production. Some 7,000 of BP's 23,000 U.S. employees work in the Houston area, many in a suburban office park just off the Katy Freeway. From there the company runs its Gulf of Mexico offshore operations with a phalanx of engineers, geologists, and computer scientists. "These are highly compensated people," says J. Robinson West, chairman of Washington-based consultants PFC Energy.
Until the Deepwater accident, BP's Gulf activities were viewed by Washington as a big plus for U.S. energy security interests. Since the mid-1990s, the British company has been the leader in Gulf exploration, pushing into deeper water and drilling farther into the earth. Its projects were key to the 7 percent growth in production that the U.S. achieved last year, reversing an 18-year decline.
BP's skill at negotiating access to new energy resources, especially in strategically important regions, has also served U.S. interests. T
he company opened up Azerbaijan, a major producer in the Caspian Sea region, for oil. It has developed two oil and gas fields there, as well as the Baku-Tbilisi-Ceyhan crude oil pipeline through Turkey that came on line in 2004, and it offers a counterweight to Russian dominance in the region. In 2007, BP signed an agreement with the investment arm of the Libyan government to explore for gas along an offshore tract the size of Belgium.
Preparing To Sell Some Assets
BP's most daring move was last year's $20 billion deal in Iraq to add almost 2 million barrels per day in production to the country's prized oil field in Rumaila. That attracted deals with other companies, greatly improving Iraq's economic prospects. "BP was bold in going in first and opening up the way for the rest of them," says Toby Dodge, an Iraq scholar at the International Institute for Strategic Studies in London.
BP is starting to identify the $10 billion or more in assets it might sell to fund the costs of the Gulf spill, says Managing Director Robert Dudley, who has taken over day-to-day oversight of the cleanup from Chief Executive Officer Tony Hayward. "We have to sharpen the portfolio to pace ourselves for what has happened in the U.S.," Dudley says. A person familiar with BP's investment plans says it may need to raise as much as $50 billion to cover costs related to the disaster. Oppenheimer oil analyst Fadel Gheit thinks BP could end up in bankruptcy if costs exceed $100 billion, a possibility if partners in the stricken well, such as Anadarko Petroleum, pin full responsibility on the company.
If so, BP may have to part with some prized assets. Chinese and Russian oil companies less in sync with Washington could step in as buyers, changing the geopolitics of the oil industry. "Companies will be interested in buying assets in Azerbaijan, Angola, Brazil, and potentially also Norway," says Gudmund Halle Isfeldt, an analyst at DnB Nor, Norway's largest bank.
The bottom line BP controls strategically sensitive energy assets. Selling them may jeopardize U.S. energy security interests in the Middle East and Asia.
A Bankrupt BP - Worse For The Financial World Than Lehman Brothers?
by JSMineset
The BP crisis in the Gulf of Mexico has rightfully been analysed (mostly) from the ecological perspective. People’s lives and livelihoods are in grave danger. But that focus has equally masked something very serious from a financial perspective, in my opinion, that could lead to an acceleration of the crisis brought about by the Lehman implosion. People are seriously underestimating how much liquidity in the global financial world is dependent on a solvent BP.
BP extends credit – through trading and finance. They extend the amounts, quality and duration of credit a bank could only dream of. The Gold community should think about the financial muscle behind a company with 100+ years of proven oil and gas reserves. Think about that in comparison with what a bank, with few tangible assets, (truly, not allegedly) possesses (no wonder they all started trading for a living!). Then think about what happens if BP goes under. This is no bank. With proven reserves and wells in the ground, equity in fields all over the planet, in terms of credit quality and credit provision – nothing can match an oil major. God only knows how many assets around the planet are dependent on credit and finance extended from BP. It is likely to dwarf any banking entity in multiples.
And at the heart of it all are those dreadful OTC derivatives again! Banks try and lean on major oil companies because they have exactly the kind of credit-worthiness that they themselves lack. In fact, major oil companies, conversely, spend large amounts of time both denying Banks credit and trying to get Bank risk off of their books in their trading operations. Oil companies have always mistrusted bank creditworthiness and have largely considered the banking industry a bad financial joke. Banks plead with oil companies to let them trade beyond one year in duration. Banks even used to do losing trades with oil companies simply to get them on their trading register… a foot in the door so that they could subsequently beg for an extension in credit size and duration.
For the banks, all trading was based on what the early derivatives giant, Bankers Trust, named their trading system: RAROC – or, Risk Adjusted Return on Credit. Trading is a function of credit bequeathed, mixed with the risk of the (trading) position. As trading and credit are intertwined, we might do well to remember what might happen to global liquidity and markets if BP suffers what many believe to be its deserved fate of bankruptcy. The Intercontinental Exchange (ICE) has already been and will be further undermined by BP’s distress. They are one of the only "hard asset" entities backing up this so-called exchange.
If BP does go bust (regardless of whether it is deserved), and even if it is just badly wounded and the US entity is allowed to fail, the long-term OTC derivatives in the oil, refined products and natural gas markets that get nullified could be catastrophic. These will kick-back into the banking system. BP is the primary player on the long-end of the energy curve. How exposed are Goldman sub J. Aron, Morgan Stanley and JPM? Probably hugely. Now credit has been cut to BP. Counter-parties will not accept their name beyond one year in duration. This is unheard of. A giant is on the ropes. If he falls, the very earth may shake as he hits the ground.
As we are beginning to see, the Western pension structure, financial trading and global credit are all inter-twined. BP is central to this, as a massive supplier of what many believe(d) to be AAA credit. So while we see banks roll over and die, and sovereign entities begin to falter… we now have a major oil company on the verge of going under. Another leg of the global economic "chair" is being viciously kicked out from under us. Ecological damage is not just an eco-event on its isolated own. It has been added to the list of man-made disasters jeopardizing the world economy. The price tag and resultant knock-on effects of a BP failure could easily be equal to that of a Lehman, if not more. It is surely, at the very least, Enron x10.
All the counter-party risk associated with the current BP situation means the term curve of the global oil trade has likely shut down. Here we have yet another credit-based event causing a lock-up in markets that will now impede trade and commerce. It looks like an exact replication of the 2008 credit market seizure could ensue all over again – and it could probably be a lot worse. The world is in a far more delicate state now.
Although never really discussed, the world is highly reliant on BPs provision of long-term credit to many core industries. Who makes good on all the outstanding paper that so many smaller oil, gas and electricity companies, airlines, shipping companies, local bus, railway and transportation networks that rely on BPs creditworthiness and performance for? It doesn’t take a genius to figure out how this could all unwind. If BP has to be bailed-out, like a bank, the system will have to print even more unimaginable amounts of money.
The market, intellectually lazy and slow to realization, as it often is, probably has not woken up to it yet – but the BP crisis could unleash damage similar to the banking crisis. A BP failure through bankruptcy could make Lehman look small in comparison, and shake the financial house of cards we live in even more severely. If the implicit danger of the possibilities imbedded in such an event doesn’t make an individual now turn towards gold at full speed, it is likely that nothing will.
BP oil spill costs state pension funds about $1.4 billion
by Dunstan McNichol - Bloomberg
The California Public Employees' Retirement System lost $284.6 million in value as the largest oil spill in U.S. history erased more than $1.4 billion from BP PLC shares held by 42 state retirement accounts, data compiled by Bloomberg show. BP, the biggest producer of oil and gas in the U.S., has lost 47 percent of its value since a Gulf of Mexico well blew out April 20, destroying the Deepwater Horizon drilling rig, killing 11 of its crew and polluting beaches from Louisiana to Florida.
The declines come as public pension funds are struggling to recover from investment losses that averaged 21 percent last year, according to Wilshire Associates of Los Angeles. U.S. public pension systems held more than 300 million shares of London-based BP, according to Bloomberg data through May 1. Calpers, the largest U.S. public pension at $210 billion, held 58.2 million shares of BP on April 20, more than any other state pension, and saw the value fall to $301 million from $585.7 million, according to Bloomberg data.
"Calpers has a well-diversified portfolio and long-term investment strategy to weather these ups and downs, even those caused by unusual circumstances such as this one," said Brad Pacheco, a spokesman. "We will be engaging BP on corporate governance to discuss the impact of the crisis on the value of the company."
Stock Price
The Gulf of Mexico oil spill sent BP's stock price to 349.5 pence in London trading yesterday from 642.5 on April 19. The $1.4 billion in value lost by the pensions is a fraction for funds that manage more than $2.4 trillion, the estimate for the 100 largest public pensions at the end of 2009, according to the Census Bureau. The top 100 funds account for more than 89 percent of total public pension value, the bureau reported.
"This will be less than one-half of a percent of our international holdings," said Laura Ecklar, spokeswoman for the $58 billion Ohio State Teachers' Retirement System, referring to the $59 million in BP shares in that fund's $14 billion international portfolio. "If we put it against all holdings, we're into a lot of decimal points." Among public retirement funds with large holdings of BP, the California State Teachers' Retirement System, known as Calstrs, ranked second in value lost, at $104.8 million, followed by Florida at $87.8 million and the Texas Teachers Retirement System at $84.5 million, according to Bloomberg data.
Texas Holdings
The Texas fund, which reported a market value of $96.7 billion and record investment returns of 35 percent for the year ending March 31, said in a statement that sales of 8.1 million BP shares before and after the Deepwater accident lowered the total loss of value to $39.7 million since September, 2009.
"The $39.7 million reduction in the market value of its BP holdings is the equivalent of 0.04 percent of the total TRS fund," spokesman Howard Goldman said in an e-mail response to questions from Bloomberg. "Developments related to BP have had no material impact on the fund." New Jersey's Division of Investment gained $5.2 million on its BP holdings because it began selling off its 52 million- share stake in January, according to Treasury Department spokesman Andrew Pratt.
New Jersey Profit
The state realized profits of about $12 million before the Deepwater Horizon explosion. New Jersey sold its last 20 million shares at a loss of $9.1 million between April 29 and May 11, Pratt said. Calpers last week asked for a $600 million increase in the state's contribution toward benefit costs during the fiscal year that starts July 1.
Other affected funds, such as New York state's $129 billion Common Retirement Fund, which holds 17.5 million BP shares according to spokesman Robert Whalen, and the Pennsylvania School Employees Retirement System, whose BP holdings declined in value by about $30 million, according to spokeswoman Evelyn Tatkovski, are planning to cut retirement benefits and seek higher payments from taxpayers to offset investment losses. The 100 largest public funds lost a total of $165 billion in the nine months that ended March 31, 2009, according to the Census Bureau. Concerns about BP's share value and prospects prompted funds such as New Jersey and the $26 billion Retirement Systems of Alabama to sell all their BP holdings.
'Moving Parts'
"We're headed in that direction," said Marc Green, Alabama's director of investments, who said the system has been selling off its 6.25 million BP shares as opportunities arise, because of uncertainty about BP's liability in the spill. "There's a lot of different moving parts that we can't get our arms around." In New Jersey, the Deepwater accident accelerated a sales pattern that was already under way, Pratt said. The Division of Investment "took their profits at a reasonable level and when they started to have problems, they got rid of the shares," Pratt said in a telephone interview June 14. "This is conservative, responsible portfolio management, combined with some luck."
The collapse of BP's shares highlights the importance of a broad portfolio, said Keith Brainard, a researcher for the Louisiana-based National Association of State Retirement Administrators. "There's a great lesson that public pension funds are learning, and that's the importance of diversification," he said. "I would expect the effect on public pension funds to be minimal."
Final Derivatives Showdown Thursday
by Ryan Grim - Huffington Post
The long-awaited showdown between banks and Sen. Blanche Lincoln over her derivatives reform section of the Wall Street bill begins Thursday morning. The conference committee will consider an offer made by the House to amend Senate legislation that forces banks to spin off their swaps desk and separately capitalize that operation, while also bringing the business out into the open, requiring derivatives to be cleared and traded on exchanges. The complexity of the legislation leaves much room for mischief, but the House offer does not alter Lincoln's most significant provision -- the swaps spinoff, known as 716.
However, one analyst identified an end-run the House may be attempting. Section 754 of the offer says that "the Bank Holding Company Act of 1956 is amended by striking 'commodities activities' each place it appears and inserting 'commodities and swap activities,' which would make the swaps desks a 'functionally regulated subsidiary.'" That would mean that a bank getting taxpayer assistance through the Federal Reserve window would still be required to spin off its swaps desk, but it could maintain it within a separate section of the bank holding company that isn't getting government assistance.
"This is not as strong as a complete spinoff, but it still will have positive implications for the derivatives markets in the medium to long term," Adam White, director of research at White Knight Research & Trading, told HuffPost. White is a backer of Lincoln's original language. The improvement would come because the big banks currently have a major competitive advantage in the swaps business: Everyone knows that they're "too big to fail," so that if they don't have the capital to pay off a losing bet, the government will step in and their counterparties will be paid. The smart move, then, is to trade with such banks. If the swaps desk were no longer part of the bank itself, but rather part of the bank holding company, the chance of a bailout is diminished, White said.
The House also weakens the Senate legislation in a variety of ways that would lead to fewer trades being cleared and lower capital requirements. Notably, however, the changes are made in slight ways, rather than as a broad attempt to remove the reforms entirely, meaning that Lincoln has won the public relations battle. Whether that means she can also win in the trenches and emerge with her reform in tact is a question that will be answered on C-SPAN Thursday. Lincoln, a Democrat from Arkansas, introduced her legislation under pressure from a progressive primary challenger. She fended off the insurgency, but progressives were left with major swaps reform which is, against all odds, still alive.
Bank execs panic over proposed change to orderly liquidation authority
by Ben White- Politico
Bank executives were panicking last night over a proposed fix to Title II of financial reform literally penciled in at the last minute. The fear is that that the proposed change to the orderly liquidation authority could leave banks on the hook for a possible wind-down of Fannie Mae and Freddie Mac that could cost as much as $400 billion. In the House counter-offer below, Fannie and Freddie are penciled in as falling under the definition of 'financial company,' meaning they could be resolved by the orderly liquidation process. This process is paid for by the sale of the failing company's assets and/or through assessments on other financial companies, possibly putting the Street in line to pay for the liquidation of the troubled housing giants.
That would be an enormous added liability to the banks and could expose them to ratings agency downgrades and a big stock market sell-off. 'It's not clear to us how the markets and ratings agencies will react to this,' one senior executive at a large Wall Street bank said last night. 'But because this is a known quantity of potential liability there is a very real possibility that ratings agency's will determine it is an immediate hit.'
Fannie Mae and Freddie Mac are much more likely to fail than any of the systemically important banks already a part of the liquidation authority, dramatically changing the equation for ratings agencies assessing the possible impact of financial reform. The exasperated executive added last night: 'This is what happens when you have really important decisions made by the scribble of a pen.' House counteroffer document
California, Florida, other states to get more housing aid
by Alan Zibel - AP
The Obama administration has approved five state-designed plans to help homeowners as part of a $1.5 billion effort to assist areas slammed by the housing bust. The Treasury Department said Wednesday that plans for Arizona, California, Florida, Michigan and Nevada had received approval. The states estimate that the plans are projected to help up to 93,000 homeowners. That's a small part of the administration's main existing $75 billion mortgage assistance program, which is widely viewed as a disappointment.
President Barack Obama unveiled the state assistance effort in February. Since then, state agencies have designed their own approaches, largely focused on borrowers who owe more on their properties than their homes are worth or those who have lost their jobs. Officials say the state efforts could be used to make changes to the administration's broader mortgage assistance plan. The state agencies are planning to work with local housing groups to put the plans in place. "These states have identified a number of innovative programs that will make a real difference in the lives of many homeowners facing foreclosure," Herbert Allison, an assistant Treasury Secretary, said in a prepared statement.
The states were picked because they experienced at least a 20 percent decline in home prices. The programs, which vary by state, will help borrowers who have lost jobs make mortgage payments, cancel second mortgages that have blocked loan modifications and assist with the payment of piled-up mortgage bills. According to the proposals from state housing finance agencies, the largest recipient of the funding is California, which will get nearly $700 million to assist about 46,000 borrowers.
California officials are asking for matching contributions from lenders for its programs, which provide subsidies to unemployed borrowers and those who have missed mortgage payments, and for reductions in borrowers' principal balances. Florida is getting the second-largest pot of money, $418 million. That will help about 12,500 borrowers. Treasury officials approved the state's plan to help the unemployed, but rejected two of the state's proposals.
Those included a plan to provide homeowners facing foreclosure with legal representation. A proposal to give homebuyers assistance with downpayments was also rejected, according to the Florida Housing Finance Corp.
Michigan will receive about $155 million to assist 17,000 borrowers, including 11,000 who are currently drawing unemployment benefits. It plans to start distributing the money in mid-July and estimates it could take up to 18 months to distribute all the cash. A major piece of Michigan's plan offers assistance to homeowners receiving unemployment benefits. Those who qualify could get half of their monthly mortgage paid for through the program -- as much as $750 a month for up to a year.
The state also would help homeowners who have fallen behind on payments because of a temporary layoff or a medical condition. Arizona will receive $125 million for 12,000 borrowers. Nevada will receive $103 million for about 5,000 homeowners. Besides these states, the Obama administration is providing an additional $600 million in financial support to help homeowners in states with high rates of unemployment. Those states -- Ohio, North Carolina, South Carolina, Oregon and Rhode Island -- have submitted plans to the Treasury Department. They are being reviewed now, with approvals expected in August.
The Obama administration has rolled out numerous attempts to tackle the foreclosure crisis, which have met with limited success. More than a third of the 1.2 million borrowers who have enrolled in the Obama administration's main mortgage modification program have dropped out, officials said this week. About 340,000 homeowners, or 27 percent of those who started the program, have received permanent loan modifications and are making payments on time.
Cigarette Tax Increased to Keep New York State Running
by Nicholas Confessore - New York Times
New Yorkers who like to smoke will have to dig a little deeper to light up next month, after the Legislature passed a bill on Monday that will give the state the highest cigarette taxes in the country. The new law, part of an emergency budget measure to keep the government running, adds another $1.60 in state taxes to every cigarette pack sold starting on July 1, pushing the average price of a pack to about $9.20. The average price in New York City, which imposes its own cigarette taxes, will be even higher, nearly $11 a pack.
Those who prefer other tobacco products will also be forced to pay significantly more. The tax on smokeless tobacco will more than double, to $2 an ounce from 96 cents an ounce, starting on Aug. 1. And the wholesale tax on cigars, dips and other kinds of tobacco will rise to 75 percent from 46 percent . And in what may be the legislation’s most controversial provisions, starting on Sept. 1, the state will begin collecting — or try to collect — taxes on cigarettes sold on Indian reservations to off-reservation visitors, an issue that led to violent protests during the early 1990s. One Indian chief has said that trying to collect taxes would be considered an act of war.
Gov. David A. Paterson had proposed a smaller increase of $1 a pack in his executive budget proposal, saying it would forestall deeper cuts to state health care spending. But with the state budget now nearly three months overdue, Mr. Paterson and leaders of the Legislature agreed to insert the revised proposal into a pair of emergency bills to finance a week’s worth of government operations, putting pressure on lawmakers to support or risk a government shutdown.
The taxes will provide $440 million in revenue for health care programs, including subsidies for AIDS drugs, money for tobacco cessation programs and $71.6 million for the state cancer research center in Buffalo. In the Senate, where Republicans and many rank-and-file Democrats had opposed the tax increase, the bill including the higher taxes passed narrowly along party lines, with all 32 Democrats voting yes and all 29 Republicans present voting no. As for the other emergency bill, which included only appropriations, one Republican, Roy J. McDonald, joined the Democrats in voting yes. The two bills also passed with only a few votes to spare in the Assembly, where Republicans assailed their Democratic colleagues.
"You’ve never met a tax you didn’t like," Assemblyman Jim Hayes, a Republican from the Buffalo area, said to Democrats. "The governor proposed a buck. You hiked it to a buck-sixty!" But Democrats said that the bill would provide needed revenue and begin closing a legal loophole that let New Yorkers buy cigarettes tax-free on reservations, undercutting other retailers. "Because of the step we took in the Senate today, New York State will now have the added muscle it needs to collect this vital source of tax revenue in full and on time," said Jeffrey D. Klein, a Democrat from Westchester County and the Bronx who had pushed separate legislation enabling the collection of cigarette taxes from reservations.
Higher cigarette taxes have been hailed by health advocates who say they will persuade many smokers to give up their habit. But critics, including tobacco retailers, said they would drive more customers to the black market. It was the 12th emergency bill approved since the state’s fiscal year began on April 1. Mr. Paterson has pledged that if the Legislature fails to reach a budget agreement by next Monday, when the next emergency bill is due, he will insert the remainder of his budget proposal into that legislation. The Assembly speaker, Sheldon Silver, told reporters that he remained confident that budget negotiations were progressing. "I think they’re going well — maybe a little slower than I anticipated last week, but I think they’re going well," he said.
Reflecting the secrecy of the negotiations between Mr. Paterson and the Democratic majorities in the Senate and Assembly, Republican senators repeatedly pressed Democrats during a floor debate to explain how they would make up the rest of the gap — roughly $3.65 billion, according to Senate Democrats. They also accused Democrats of negotiating the budget piecemeal to hide the true cost of their budget priorities and lay the groundwork to claim that only new borrowing or higher income taxes could bring the budget into balance. "I just don’t see how this process is going to result in anything other than taxes and fees and borrowing," said John A. DeFrancisco, the Senate Finance Committee’s ranking Republican member. "This is not a way to run state government."
The Senate also appeared poised on Monday night to approve a series of other budget bills introduced by Mr. Paterson last week and approved by the Assembly on Friday. Those bills involve spending for the criminal justice system, general government operations, the Transportation Department and state economic development efforts. Officials said those bills closed about $1 billion worth of the state’s budget gap of more than $9 billion for this year, achieved through a mix of cuts, new revenue and consolidations.
One of the largest cuts would result in New York City’s losing its entire allotment of direct state aid, about $302 million. The bills would also close two upstate prisons, while the State Police would delay, for the second year in a row, training a new class of recruits. The bills also include what are known as "sweeps," where lawmakers in effect take money out of accounts that aren’t technically part of the state’s budget. For example, the legislation will transfer $65 million from the New York Power Authority into the state’s general fund.
A three-way stalemate over California's budget
by Dan Walters - The Fresno Bee
Budget, budget, who's got a budget? The governor has a state budget that his fellow Republicans more or less support. Assembly Democrats have a budget whose centerpiece is a complex scheme to borrow billions of dollars. And Democratic senators have a budget that's based on raising taxes and shifting some programs from the state to counties. Democrats control the 10-member, two-house conference committee that's supposed to be reconciling all three budgets into one version that would be placed before the entire Legislature.
They have the votes to do it. However, the committee has been going through the budget page by page for more than two weeks without settling any big issues and only some little ones. It's now in hiatus after repeatedly hitting a political wall, unable to proceed because it doesn't know how much money it has to spend. That's because the two Democratic versions of the budget are very much at odds, even if they both agree on rejecting Gov. Arnold Schwarzenegger's slash-and-burn approach to closing a $19.1 billion deficit.
It's a three-way stalemate, with the new fiscal year due to begin next week and with state Controller John Chiang warning that the state will run out of cash this summer if a new budget is not in place. Nothing will happen until Democrats in both houses are in sync on whether to borrow or tax their way out of this year's version of the chronic deficit. But even if they do – and they appear to be very far apart – it would be merely a step, and not a particularly big one, on the budget road. They could put a budget up for floor votes, but they would still need to get some votes from Republicans, who have said anything that depends on higher taxes, or even extending some temporary taxes due to expire next year, is dead on arrival.
The Assembly's Democratic plan would, at least in theory, allow imposition of an oil severance tax by a simple majority vote through some parliamentary sleight of hand, but Schwarzenegger would still have to agree, and he has repeatedly chanted a no-new-taxes mantra. Moreover, Attorney General Jerry Brown, the Democratic candidate for governor, has declared that the massive borrowing envisioned in the Assembly plan probably would violate a 2004 balanced-budget ballot measure.
Ordinarily by this stage of the annual budget melodrama, the governor would be ensconced with the Democratic and Republican leaders of the legislative houses. The "Big Five," as they've been dubbed, would be beginning the horse trading – often unseemly horse trading – that produces some kind of budget that finally wins enough votes to take effect. In theory, Capitol politicians are eschewing the Big Five process this year because of backlash from voters and even some legislators about unseemly deals. But the Big Five may be the only way to do it – if, indeed, it can be done.
Inside the Dire Financial State of the States
by David von Drehle - Time
In New Jersey, taxes are high, the budget's a mess, government is inefficiently organized, and the public pension fund is blown to kingdom come. Which makes New Jersey a lot like most other states in 2010. What makes the state unusual is its rookie governor, a human bulldozer named Chris Christie, who vowed to lead like a one-termer and is keeping his promise with brio. He has proposed chopping $11 billion from the state's budget — more than a quarter of the total — for fiscal year 2011 (which starts July 1). He's backing a constitutional cap on property taxes in hopes of pushing the state's myriad villages and townships to merge into more efficient units.
He's locked in an ultimate cage match with the New Jersey teachers' union. It may be the bitterest political fight in the country — and that's saying something this year. A union official recently circulated a humorous prayer with a punch line asking God to kill Christie. You know, New Jersey humor. And in an interview with the Wall Street Journal, Christie didn't talk about the possibility that his fiscal initiatives might be compromised or defeated; he pictured himself "lying dead on State Street in Trenton," the state capital. Presumably that was a figure of speech.
The tone of the New Jersey budget battle may be distinctive, but many of the same notes can be heard in state capitals across the country. From Hartford to Honolulu, once sturdy state governments are approaching the brink of fiscal calamity, as the crash of 2008 and its persistent aftermath have led to the reckoning of 2010. Squeezed by the end of federal stimulus money on one hand and desperate local governments on the other, states are facing the third straight year of staggering budget deficits, and the necessary cuts will cost jobs, limit services and touch the lives of millions of Americans. Government workers have been laid off in half the states plus Puerto Rico.
Twenty-two states have instituted unpaid furloughs. At least 28 states have ordered across-the-board budget cuts, with many of them adding deeper cuts in targeted agencies. And massive shortfalls in public pension plans loom as well. Almost no one — and no place — is exempt. Nearly everywhere, tax revenue plummeted as property values tanked, incomes dwindled and consumers stopped shopping. Falling prices for stocks and real estate have made mincemeat of often underfunded public pension plans. Unemployed workers have swelled the demand for welfare and Medicaid services. Governments that were frugal in the past are just squeaking by. Governments that were lavish in the good times, building their budgets on optimism and best-case scenarios, now risk being wrecked like a shantytown in an earthquake.
How the Money Ran Out
For the first time in four decades of collecting data, the National Governors Association (NGA) reports that total state spending has dropped for two years in a row. In hard-hit Arizona, for example, the state budget has sagged to 2004 levels, despite blistering growth in population and demand for government services. Starting with the 2008 fiscal year, state governments have closed more than $300 billion in cumulative budget gaps, with another $125 billion already projected for the coming years, says Corina Eckl, fiscal-program director at the National Conference of State Legislatures (NCSL). Similar figures aren't collected for the nation's counties, villages and towns, but when the National League of Cities surveyed mayors recently, three-fourths of them described worsening economic conditions.
Accustomed to the ups and downs of the ordinary economic cycle, elected officials and budget planners are facing something none of them have experienced before: year after year of shortfalls, steadily compounding. Ordinarily, deficits are resolved mostly through budgetary hocus-pocus. But the length and depth of the recession are forcing governments to go beyond sleight of hand to genuine cuts. And that makes lawmakers gloomy in all but a handful of states. (It's a swell time to be North Dakota.) According to an NCSL survey, worry or outright pessimism is the reigning mood in the vast majority of capitals.
Many taxpayers might say that it's about time spending dropped. But then they start hearing the specifics. Government budgets contain a lot of fixed costs and herds of sacred cows. K-12 education absorbs nearly a third of all spending from state general funds. Add medical expenses, primarily Medicaid, and it's over half. Prisons must be maintained, colleges and universities kept open, interest on bonds and other loans paid. Real cuts provoke loud howls, and you can hear them rising in every corner of the country. College students have marched in California, firefighters have protested in Florida, and on June 10, Minnesota saw the largest one-day strike of nurses — some 12,000 — in U.S. history.
And don't count on the shaky economic recovery for relief. After plunging in 2009, tax receipts are stabilizing in many places — but the next big shoe is fixing to drop. Having poured billions of dollars into state coffers through the stimulus act of 2009, the federal government is poised to close the tap. President Obama made an unusual Saturday night request to Congress last week for $50 billion in emergency aid to the states to stave off layoffs of teachers, firefighters and police.
But it's an election year, and there is scant appetite among vulnerable Democrats in Washington for more zeros at the end of the federal deficit. (Only the federal government is allowed to run deficits; states and cities must balance their budgets or face default.) Already, 11 states are projecting major budget gaps — greater than 10% of general-fund spending — well into 2013. Such persistent budget woes are unprecedented in the era of modern American government. You'd have to go back to the 1930s to find a parallel.
Crisis in the Statehouses
On the grand scale, this fiscal fiasco is playing out in California and New York. Both states boast economies far larger than that of Greece, which so disturbed the world economy this spring. And both are paralyzed by structural deficits far larger than their politicians seem able to grasp. The impasse in California between Republican governor Arnold Schwarzenegger and the Democrats controlling the legislature appears set in concrete. Last year, the Golden State was reduced to issuing IOUs; this year's budget, some $19 billion in the hole, is once again a shambles. In New York, Democrats control all the levers, but they can't find a cost-cutting deal acceptable to the public-employee unions that helped elect them. The deficit in Albany is $9.2 billion.
Or you can picture the crisis through the other end of the telescope, through the eyes of one young lover of books. Not long ago, 9-year-old Campbell Jenkins of Charlotte, N.C., heard from his mom that two-thirds of the library branches in Mecklenburg County might be closed for lack of funds. "We were completely freaked out," says Campbell's mother Jessica. So the next day, young Campbell organized a letter-writing protest among his third-grade classmates. Not content with words, the kids also sold lemonade and donated the proceeds — $595 in an empty pretzel jar — to their branch-library manager. "It was really heartwarming," says Heather Gwaltney, whose son Gavin, also 9, joined the effort.
This all comes as a shock to the folks of Charlotte, who long ago grew accustomed to seemingly endless prosperity. The seeds of Bank of America, among other empires, were sown there. "People are asking, 'We're Charlotte, North Carolina. We're big banks. How did we get like this?' " says county budget director Hyong Yi. The answer is rooted in that once booming economy. As Charlotte burgeoned, the county approved $1.5 billion in bonds to build a new courthouse and new schools, expand its jails, improve its parks and — irony alert — open state-of-the-art libraries.
Then the recession hit. Local unemployment rose to 11.7% in January — twice what it was two years earlier. Homes and commercial real estate lost value, which dried up the county's chief revenue source, property taxes. The result: a 5% reduction in the upcoming budget, $71 million in cuts on top of $76 million in cuts the year before. Losing nearly $150 million in two years — an eternity of lemonade stands won't fill that hole.
At the last minute, county commissioners allocated an additional $3.5 million for libraries, sparing at least some of those facing closure. Campbell Jenkins' branch is safe — for now — but budget woes in the Tar Heel State look like an ongoing problem. A spokesperson for North Carolina governor Bev Perdue said the outlook remains grim: "Next year will not be pretty."
When Main Street Acted Like Wall Street
The collapse of a Wall Street institution like Lehman Brothers looks nothing like the threatened closing of a branch library in the Charlotte suburbs. But whether the characters are mighty or meek, this unfolding economic disaster story is in fact a series of variations on a single theme. When times were good and the future seemed bulletproof, all sorts of grand ventures were floated on waves of debt. No one cared, because everyone planned to be richer when the bills came due. The arbitrageurs of leveraged derivatives, the cash-strapped subprime home buyers, the government grandees issuing bonds and boosting pensions — all were versions of the same doom-shadowed figure.
Only if the bubble burst would the bills become unpayable. How did so many people forget all at once that the bubble always bursts? Strapped for cash, state and local governments so far have taken mostly predictable steps. They've depleted their rainy-day funds; of all the cash expected to be on hand in state treasuries by the end of the 2010 fiscal year, two-thirds of it will be held by just two states, Alaska and Texas, which enjoy income from vast energy deposits. By comparison, 14 states are expected to have reserves of less than 1% of their annual spending — basically they're living hand to mouth, hoping their checks don't bounce.
And a majority of states will have reserves well below safe levels recommended by the National Association of State Budget Officers. Leery of broad tax hikes in a bad economy, governments have instead chosen to shake the sofa cushions and punish the naughty, closing loopholes, cracking down on tax evaders and raising levies on tobacco, alcohol, gambling, soda pop and candy — even bottled water in Washington State. Nearly half the states have hiked fees for higher education, court services, park access, business licenses — or all of the above.
These are the tried-and-true responses to dips in the business cycle, but as the woes drag on from year to year, the job of closing budget gaps grows more difficult. Now larger issues and harder choices are being laid bare, beginning with the sprawling mess that is Medicaid. Created by Congress, administered by the states and paid for by a patchwork of federal, state and local governments, the health care system for America's poor is a jumble in the best of times. With enrollments growing rapidly, that jumble is becoming a train wreck.
According to the NGA, the number of people covered by Medicaid will grow again next year by an estimated 5.4% on average. Meanwhile, anticipated funding is expected to grow hardly at all. That might not spell disaster for a state like Nebraska, which anticipates just 2% enrollment growth. But in foreclosure-racked Arizona, officials are planning for a jump of more than 17%, and the budgetary pressure is enormous. As Governor Jan Brewer put it in her state-of-the-state address this year, government revenues have sagged to 2004 levels, and "some people ... say we should just adopt the 2004 budget." But Arizona's Medicaid rolls have grown by 475,000 patients since then.
What's going to give? Prepare for a free-for-all. The states are pressing Washington to maintain the emergency Medicaid supplement that was part of the stimulus package. So far, congressional moderates are blanching at the price tag. If the Beltway budget hawks win that battle, states plan to squeeze the patients, who are currently protected by strings attached to the stimulus money. No federal supplement means no more strings. Already various states are contemplating tighter eligibility rules, lower benefits, higher co-pays and other restrictions. And then there's the ongoing fight between the states and the medical system. Governments are wringing money from doctors and hospitals coming and going: first they are cutting payments for Medicaid services, and then they are raising fees on Medicaid providers.
Just as ugly is the issue of public-employee pay and benefits. The mess in New Jersey is just an extreme example of a widespread problem: many state and local governments have made the mistake of courting the votes of public employees by fattening salaries and benefits, all the time imagining that pension-fund investments could only go up. Tales of lavish retirements for relatively youthful public servants have been making a lot of headlines lately. The New York Times reported that some 3,700 retired New York State public employees earn more than $100,000 a year in pension payments, including a former policeman in Yonkers at the ripe old age of 47.
California's pension poster boy is a Bay Area fire chief who, at 51, was collecting more than $241,000 a year in retirement pay. The Pew Center on the States, a nonpartisan research group, estimates that states are at least $1 trillion short of what it will take to keep their retirement promises to public workers. Two Chicago-area professors recently calculated the shortfall at $3 trillion. According to Pew, half the states ran fully funded pension plans in 2000, but by 2008 that number had dwindled to four.
It's tough to cut the benefits of police officers, firefighters and schoolteachers. But the long recession has cast a glaring light on the fact that public and private workers increasingly live in separate economies. Private-sector employees face frequent job turnover, relentless downsizing, stagnant wages and rising health-insurance premiums. They fund their own retirement through 401(k)s and similar plans, which rise and fall with the tides of the economy. Many public-sector workers, by contrast, enjoy relative job security, and the number of government jobs rose even as the overall unemployment rate shot just past 10%.
B Is for Bankruptcy
The crash of 2008 has also left some civic leaders with eggy faces — and possibly worse. In Georgia, at least a dozen Atlanta-area municipalities and agencies embraced the "exotic, high-risk derivative securities" called swaps in hopes of lowering the cost of bond issues, according to an investigation by the Atlanta Journal-Constitution. They paid nearly $300 million in fees for the privilege to such investment banks as Goldman Sachs, JPMorgan and UBS. Then, when the deals went sour, the same governments paid another $100 million to cancel them.
Busted swaps led to even more dire consequences in Birmingham, Ala. Former mayor Larry Langford was sentenced in March to 15 years in federal prison for bribery in a pay-for-play scheme involving sewer-bond swaps in 2002 and 2003. That debt was only a part of a municipal spending spree for a domed stadium, transit improvements and a scholarship program — worthy causes, perhaps, but now unaffordable in a city where a sky-high sales tax of 10%, even on food, has failed to produce the anticipated revenue. New mayor William Bell is trying to mop up, proposing a 10% wage cut for city workers, closing libraries and recreation centers and canceling a city program to provide laptops for grade-school students. As for sewer rates: they have quadrupled, and there's speculation that Birmingham is headed for bankruptcy.
In sun-drenched San Diego, meanwhile, a grand jury probing that city's troubled finances found a recurring practice of skipping required payments to the city's pension fund while simultaneously awarding ever more generous pensions to public employees. Legal? Apparently. Prudent? Nope. A once solvent system is now billions of dollars in the red. The grand jury raised a scarier question: Is San Diego still a "viable" financial entity?
Indeed, the B word has crept into so many conversations in communities around the country that a number of investors are worried that municipal bonds have become the latest debt-fueled bubble ready to burst. California's public-employee unions are lobbying for a bill to ban government bankruptcies entirely, so worried are they about the possibility of widespread defaults to escape pension obligations. Perhaps more worrisome, though, is the risk that all this calamity will ultimately produce little in the way of lessons learned. States are already barred from formal bankruptcy, so although many of them are broke, somehow — given enough time — they will make ends meet.
But will they do it only by tweaking taxes and killing innovative programs like Kentucky's juvenile drug courts, which spend money up front on aggressive intervention and rehabilitation programs in hopes of saving the long-run expense of ruined lives in costly prisons? "It always will cost us more to remove [addicted criminals] from their communities and incarcerate them for years," says District Judge Brandy Oliver Brown of Clark and Madison Counties, whose program of intensive drug testing and counseling will be shuttered by budget cuts.
In Harrisburg, Pa., the city council needs to make $68 million in debt payments, mostly related to a mismanaged deal to modernize a trash-burning power plant, when the total city budget is about $60 million. A consulting firm has some ideas: freeze pay, furlough workers, double the property tax, sell city landmarks, artifacts and museums. In one Ohio county, a local judge urged citizens to carry a gun because the sheriff's department was laying off half its deputies.
A few leaders have their sights set higher, trying to shape this crisis into a moment for significant government reform. Governor Jennifer Granholm of Michigan, a state devastated by the shrinking of the American auto industry, has called for an efficiency revolution. She has cut unneeded departments, sold excess state property and killed hundreds of obsolete boards and commissions. Having risen to power in 2002 on the shoulders of the state teachers' union, Democrat Granholm this year successfully pushed a plan to coax thousands of senior teachers into retirement, to be replaced by a smaller number of younger teachers earning less generous but more sustainable benefits. "The 21st century economy is all about speed, access, intelligence and efficiency," Granholm said in announcing her latest round of restructuring. "A 21st century government needs to be about the same things."
Indiana Governor Mitch Daniels, a budget czar in the free-spending Bush Administration, has proved an efficiency fiend at the state level, privatizing bureaucracies, selling a poorly managed toll road, even harvesting the paper clips from state tax returns for reuse in government offices. Daniels took the controversial step of decertifying Indiana's public-employee unions, a move that may endear him to Republican voters should he decide to run for President in 2012.
Modernizing government is no less painful than globalizing industry has been. Consider the proposal by Nebraska state senator Rich Pahls to merge many of the state's 93 counties. The idea could mean boarding up stately old courthouses while forcing consolidation of such services as road maintenance, vehicle registration, even sheriffs' offices — and many of the jobs that go with them. The bill died, in part because it seemed too frank an acknowledgment of the passing of small-town America. Yet surely its time will come: only 16 of the counties have more than 20,000 residents, and two are home to fewer than 500 people each. "I tell these people, You don't ranch or farm the way they did 100 years ago," says Pahls. "A ranch might have had 20 hands, and now they have four. They didn't stay behind the technology."
The great reckoning of 2010 took us years to create and will be years in the fixing. It's not as if the economic crisis isn't plenty painful already. In government, as in life, there are cuts that injure and cuts that heal. As they continue to slog through the wreckage of the Great Recession, state and local leaders have a challenge to be surgeons rather than hacks and make this era of crisis into a season of fresh starts.
Deficit Terrorists Strike In The UK - USA Next?
by Ellen Brown - ICH
Last week, England’s new government said it would abandon the previous government’s stimulus program and introduce the austerity measures required to pay down its estimated $1 trillion in debts. That means cutting public spending, laying off workers, reducing consumption, and increasing unemployment and bankruptcies. It also means shrinking the money supply, since virtually all "money" today originates as loans or debt. Reducing the outstanding debt will reduce the amount of money available to pay workers and buy goods, precipitating depression and further economic pain.
The financial sector has sometimes been accused of shrinking the money supply intentionally, in order to increase the demand for its own products. Bankers are in the debt business, and if governments are allowed to create enough money to keep themselves and their constituents out of debt, lenders will be out of business. The central banks charged with maintaining the banking business therefore insist on a "stable currency" at all costs, even if it means slashing services, laying off workers, and soaring debt and interest burdens. For the financial business to continue to boom, governments must not be allowed to create money themselves, either by printing it outright or by borrowing it into existence from their own government-owned banks.
Today this financial goal has largely been achieved. In most countries, 95% or more of the money supply is created by banks as loans (or "credit"). The small portion issued by the government is usually created just to replace lost or worn out bills or coins, not to fund new government programs. Early in the twentieth century, about 30% of the British currency was issued by the government as pounds sterling or coins, versus only about 3% today. In the U.S., only coins are now issued by the government. Dollar bills (Federal Reserve Notes) are issued by the Federal Reserve, which is privately owned by a consortium of banks.
Banks advance the principal but not the interest necessary to pay off their loans; and since bank loans are now virtually the only source of new money in the economy, the interest can only come from additional debt. For the banks, that means business continues to boom; while for the rest of the economy, it means cutbacks, belt-tightening and austerity. Since more must always be paid back than was advanced as credit, however, the system is inherently unstable. When the debt bubble becomes too large to be sustained, a recession or depression is precipitated, wiping out a major portion of the debt and allowing the whole process to begin again. This is called the "business cycle," and it causes markets to vacillate wildly, allowing the monied interests that triggered the cycle to pick up real estate and other assets very cheaply on the down-swing.
The financial sector, which controls the money supply and can easily capture the media, cajoles the populace into compliance by selling its agenda as a "balanced budget," "fiscal responsibility," and saving future generations from a massive debt burden by suffering austerity measures now. Bill Mitchell, Professor of Economics at the University of New Castle in Australia, calls this "deficit terrorism." Bank-created debt becomes more important than schools, medical care or infrastructure. Rather than "providing for the general welfare," the purpose of government becomes to maintain the value of the investments of the government’s creditors.
England Dons the Hair Shirt
England’s new coalition government has just bought into this agenda, imposing on itself the sort of fiscal austerity that the International Monetary Fund (IMF) has long imposed on Third World countries, and has more recently imposed on European countries, including Latvia, Iceland, Ireland and Greece. Where those countries were forced into compliance by their creditors, however, England has tightened the screws voluntarily, having succumbed to the argument that it must pay down its debts to maintain the market for its bonds.
Deficit hawks point ominously to Greece, which has been virtually squeezed out of the private bond market because nobody wants its bonds. Greece has been forced to borrow from the IMF and the European Monetary Union (EMU), which have imposed draconian austerity measures as conditions for the loans. Like a Third World country owing money in a foreign currency, Greece cannot print Euros or borrow them from its own central bank, since those alternatives are forbidden under EMU rules. In a desperate attempt to save the Euro, the European Central Bank recently bent the rules by buying Greek bonds on the secondary market rather than lending to the Greek government directly, but the ECB has said it would "sterilize" these purchases by withdrawing an equivalent amount of liquidity from the market, making the deal a wash. (More on that below.)
Greece is stuck in the debt trap, but the UK is not a member of the EMU. Although it belongs to the European Union, it still trades in its own national currency, which it has the power to issue directly or to borrow from its own central bank. Like all central banks, the Bank of England is a "lender of last resort," which means it can create money on its books without borrowing first. The government owns the Bank of England, so loans from the bank to the government would effectively be interest-free; and as long as the Bank of England is available to buy the bonds that don’t get sold on the private market, there need be no fear of a collapse of the value of the UK’s bonds.
The "deficit terrorists," however, will have none of this obvious solution, ostensibly because of the fear of "hyperinflation." A June 9 guest post by "Cameroni" on Rick Ackerman’s financial website takes this position. Titled "Britain Becomes the First to Choose Deflation," it begins: "David Cameron’s new Government in England announced Tuesday that it will introduce austerity measures to begin paying down the estimated one trillion (U.S. value) in debts held by the British Government. . . . [T]hat being said, we have just received the signal to an end to global stimulus measures -- one that puts a nail in the coffin of the debate on whether or not Britain would ‘print’ her way out of the debt crisis. . . . This is actually a celebratory moment although it will not feel like it for most. . . . Debts will have to be paid. . . . [S]tandards of living will decline . . . [but] it is a better future than what a hyperinflation would bring us all."
Hyperinflation or Deflation?
The dreaded threat of hyperinflation is invariably trotted out to defeat proposals to solve the budget crises of governments by simply issuing the necessary funds, whether as debt (bonds) or as currency. What the deficit terrorists generally fail to mention is that before an economy can be threatened with hyperinflation, it has to pass through simple inflation; and governments everywhere have failed to get to that stage today, although trying mightily. Cameroni observes: "[G]overnments all over the globe have already tried stimulating their way out of the recent credit crisis and recession to little avail. They have attempted fruitlessly to generate even mild inflation despite huge stimulus efforts and pointless spending."
In fact, the money supply has been shrinking at an alarming rate. In a May 26 article in The Financial Times titled "US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus," Ambrose Evans-Pritchard writes: "The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever. "’It’s frightening,’ said Professor Tim Congdon from International Monetary Research. ‘The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,’ he said."
Too much money can hardly have been pumped into an economy in which the money supply is shrinking. But Cameroni concludes that since the stimulus efforts have failed to put needed money back into the money supply, the stimulus program should be abandoned in favor of its diametrical opposite -- belt-tightening austerity. He admits that the result will be devastating:"[I]t will mean a long, slow and deliberate winding down until solvency is within reach. It will mean cities, states and counties will go bankrupt and not be rescued. And it will be painful. Public spending will be cut. Consumption could decline precipitously. Unemployment numbers may skyrocket and bankruptcies will stun readers of daily blogs like this one. It will put the brakes on growth around the world. . . . The Dow will crash and there will be ripple effects across the European union and eventually the globe. . . . Aid programs to the Third world will be gutted, and I cannot yet imagine the consequences that will bring to the poorest people on earth."
But it will be "worth it," says Cameroni, because it beats the inevitable hyperinflationary alternative, which "is just too distressing to consider."
Hyperinflation, however, is a bogus threat, and before we reject the stimulus idea, we might ask why these programs have failed. Perhaps because they have been stimulating the wrong sector of the economy, the non-producing financial middlemen who precipitated the crisis in the first place. Governments have tried to "reflate" their flagging economies by throwing budget-crippling sums at the banks, but the banks have not deigned to pass those funds on to businesses and consumers as loans. Instead, they have used the cheap funds to speculate, buy up smaller banks, or buy safe government bonds, collecting a tidy interest from the very taxpayers who provided them with this cheap bailout money. Indeed, banks are required by their business models to pursue those profits over risky loans. Like all private corporations, they are there not to serve the public interest but to make money for their shareholders.
Seeking Solutions
The alternative to throwing massive amounts of money at the banks is not to further starve and punish businesses and individuals but to feed some stimulus to them directly, with public projects that provide needed services while creating jobs. There are many successful precedents for this approach, including the public works programs of England, Canada, Australia and New Zealand in the 1930s, 1940s and 1950s, which were funded with government-issued money either borrowed from their central banks or printed directly. The Bank of England was nationalized in 1946 by a strong Labor government that funded the National Health Service, a national railway service, and many other cost-effective public programs that served the economy well for decades afterwards.
In Australia during the current crisis, a stimulus package in which a cash handout was given directly to the people has worked temporarily, with no negative growth (recession) for two quarters, and unemployment held at around 5%. The government, however, borrowed the extra money privately rather than issuing it publicly, out of a misguided fear of hyperinflation. Better would have been to give interest-free credit through its own government-owned central bank to individuals and businesses agreeing to invest the money productively. The Chinese have done better, expanding their economy at over 9% throughout the crisis by creating extra money that was mainly invested in public infrastructure.
The EMU countries are trapped in a deadly pyramid scheme, because they have abandoned their sovereign currencies for a Euro controlled by the ECB. Their deficits can only be funded with more debt, which is interest-bearing, so more must always be paid back than was borrowed. The ECB could provide some relief by engaging in "quantitative easing" (creating new Euros), but it has insisted it would do so only with "sterilization" – taking as much money out of the system as it puts back in. The EMU model is mathematically unsustainable and doomed to fail unless it is modified in some way, either by returning economic sovereignty to its member countries, or by consolidating them into one country with one government.
A third possibility, suggested by Professor Randall Wray and Jan Kregel, would be to assign the ECB the role of "employer of last resort," using "quantitative easing" to hire the unemployed at a basic wage. A fourth possibility would be for member countries to set up publicly-owned "development banks" on the Chinese model. These banks could issue credit in Euros for public projects, creating jobs and expanding the money supply in the same way that private banks do every day when they make loans. Private banks today are limited in their loan-generating potential by the capital requirement, toxic assets cluttering their books, a lack of creditworthy borrowers, and a business model that puts shareholder profit over the public interest. Publicly-owned banks would have the assets of the state to draw on for capital, a clean set of books, a mandate to serve the public, and a creditworthy borrower in the form of the nation itself, backed by the power to tax.
Unlike the EMU countries, the governments of England, the United States, and other sovereign nations can still borrow from their own central banks, funding much-needed programs essentially interest-free. They can but they probably won’t, because they have been deceived into relinquishing that sovereign power to an overreaching financial sector bent on controlling the money systems of the world privately and autocratically. Professor Carroll Quigley, an insider groomed by the international bankers, revealed this plan in 1966, writing in Tragedy and Hope:"[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences."
Just as the EMU appeared to be on the verge of achieving that goal, however, it has started to come apart at the seams. Sovereignty may yet prevail.
Harrisburg, Pa., other cities overwhelmed by economic downturn and debt
by Michael A. Fletcher - Washington Post
This city has a $68 million bill coming due before year's end, an impossible sum that is larger than its annual budget. It's a predicament caused by extravagant borrowing and spending, and now there are only unpleasant fixes: steep tax increases, severe layoffs and crippling service cuts, even bankruptcy. It's a story that could be repeated across the country as cities and towns deal with the lingering consequences of the economic downturn and mounting debt.
The obligations of state and local governments have doubled in the past decade, to $2.4 trillion, according to a recent Federal Reserve report, a figure that excludes more than $1 trillion in unfunded pension and retiree health-care liabilities. Generally, economists are not alarmed by increasing government debt during recessions because it stokes much-needed economic activity. But this time, concerns are deepening that the debt burden is too large for some municipalities to handle, forcing them into draconian service cuts or large tax increases, both of which would be a drag on the sputtering recovery. Beyond Harrisburg, other cities might have to default on their loans because most states are too strapped to bail them out.
Harrisburg's crisis has been precipitated by a malfunctioning municipal incinerator, whose ill-fated expansion was promoted as a potential moneymaker. But after seven years of cost overruns, construction delays, design problems, financings, refinancings and more refinancings, the city is on the hook. The $68 million bill is part of $288 million in outstanding debt related to the project. The debacle is pushing the 150-year-old state capital toward default. The fiscal crisis has shaken the city, which over the past decade has spruced up its riverfront downtown and created tourist attractions in large part through low-cost financing afforded by municipal bond sales.
In one notorious example, former mayor Stephen R. Reed spent nearly $8 million from the public authority that owns the incinerator to buy wagon wheels, rifles and other memorabilia for a Wild West museum that never opened. And like a homeowner who binged on cheap financing, this city is underwater financially. "The truth is, we are already insolvent," City Controller Dan Miller said.
Harrisburg is among an increasing number of municipalities showing signs of extreme fiscal stress. Squeezed by rising unemployment, plummeting tax revenue and growing employee costs, Vallejo, Calif., filed for bankruptcy two years ago. Jefferson County, Alabama's largest county, teeters on the edge of bankruptcy after a complex interest rate swap on a $3 billion sewer project went awry. Last month, Central Falls, R.I., an impoverished city not far from Providence, put its finances in the hands of a receiver, who might have to rewrite contracts, cut pensions and restructure debt. Meanwhile, the nation's leading debt-rating agencies have relegated seven cities -- including Detroit, Harvey, Ill., and Woonsocket, R.I. -- to junk bond status, vastly increasing their borrowing costs.
A 'terrible problem'
Citing the growing amount of money owed by local governments, noted investor Warren E. Buffett (a director of The Washington Post Co.) this month told a federal commission examining the roots of the financial crisis that coming years will bring a "terrible problem" for municipal debt. "Clearly, there are budget issues, and they are probably worse now than they were six months ago. And they will get worse," said Matt Fabian, managing director of Municipal Market Advisors, a Massachusetts firm tracking the municipal bond market. "To this point, cities and states have gone after other stakeholders for relief -- employees, taxpayers, contractors -- and they have not moved to take assets away from investors."
Just a small number of defaults could shake confidence in the municipal bond market, which is considered a safe harbor for investors because it is assumed that the cities and towns that sell bonds can always raise taxes to pay them off. But with total debt growing rapidly, and taxpayers and politicians showing greater resistance to new levies, those old assumptions are being tested. Local governments rely on municipal bonds to raise money for major construction projects. Roads, bridges, dams, senior citizen homes, mass transit lines, schools and playgrounds are paid for through the municipal bond market, which offers governments access to low-cost financing just as mortgages allow people to buy homes.
In the past, the bond market's importance motivated officials to do all they could -- including raising taxes and cutting services and personnel -- to make payments. If cities miss payments or show severe fiscal stress, their bond ratings are cut, significantly increasing borrowing costs and making it more difficult to emerge from debt. Even when municipalities file for bankruptcy, "the tradition is that bondholders get paid in full," said James E. Spiotto, a Chicago lawyer specializing in public financing. "The reason is that without access to the bond market, cities can't function." When municipalities couldn't help themselves, their states usually stepped in. Cleveland defaulted on more than $15 million in bonds in 1978 but was able to refinance them not long after.
Also in the 1970s, New York was lifted from a financial hole with state help. More than a decade later, Pennsylvania bailed out Philadelphia. Since 1980, just 245 municipal entities have filed for bankruptcy, the majority special districts and other entities, such as housing developments and subdivision infrastructure projects, that were unable to raise taxes on their own. "We'll undoubtedly see a few more cities than usual consider defaulting, but it is by no means the norm," said Chris Hoene, director of research at the National League of Cities, which represents the interests of the nation's 19,000 municipalities. "For the most part, these are going to be rare instances."
Bleak forecast
But local and state governments face bleak revenue prospects as the lagging effects of the recession cut into tax receipts and increase pension-fund losses, making it harder for them to keep pace with their debt. With Pennsylvania facing a deep deficit, few people expect it to offer a bailout to Harrisburg. The city's crushing incinerator debt comes atop a $9 million deficit in the current budget, creating an unprecedented fiscal crunch that has left the new mayor and other leaders of this 50,000-resident city weighing unsavory options. Harrisburg's 1972-vintage incinerator required repeated repairs -- and refinancings -- that put the project $94 million in debt before the federal government ordered the incinerator shut in 2003 because it was spewing toxic dioxin.
Faced with eating that debt or refurbishing the plant, former mayor Reed led a push to invest $125 million in incinerator expansion and upgrades. The idea was to create a facility that would draw trash -- and revenue -- from nearby counties and produce steam and electricity that could be sold to local utilities. But construction delays and design problems surfaced, causing the city to borrow even more millions. The city eventually brought in a new operator, who required more money to get the incinerator going. When the plant was finally operational, it never attracted the envisioned business. Now its steam line is broken, as is one of the turbine blades, eliminating steam sales and reducing its electricity production. The result is that the city has missed several debt payments, which have been made by other bond guarantors.
"Basically, the construction project was a failure," said William J. Cluck, a lawyer who served on the incinerator board. Not only is the city contemplating layoffs in its 537-employee workforce, it is asking for contract rebates, considering the sale or long-term lease of revenue-producing assets, including parking garages and water and wastewater systems, and asking creditors to restructure and forgive debt. "We all need to take some hits. I'm not going to let the city sink. I'm not going to let the city auction off all its assets and have nothing while everyone walks away with a sweeter deal just by renegotiating and restructuring and taking us further and further out, and you still get every dime you had in the beginning of the deal," said Mayor Linda D. Thompson, who added that she wants to avoid bankruptcy.
"I'm not willing to do that." Miller, the controller, said the city's least painful path would be bankruptcy -- a once unthinkable option. "When you say the word 'bankruptcy' people conjure up all kinds of images," Miller said. "Bankruptcy is merely a tool to turn things around and get us on stable financial ground."
Global markets fear US Treasuries sell-off as China ends currency freeze
by Ambrose Evans-Pritchard - Telegraph
Global markets are braced for a possible sell-off in US Treasury bonds after China said over the weekend that it will allow the yuan exchange rate to adjust against the dollar, ending a two-year currency freeze that has led to trade clashes with Washington and Brussels. China's Central Bank said the economic recovery had opened the way for a return to "flexibility" but ruled out an immediate one-off rise in the yuan. The currency will be allowed to fluctuate within a widened band of 0.5pc each day against a basket of currencies. The yuan is now expected to rise slowly against the dollar, although it may fall if the euro weakens further. "There is at present no basis for major fluctuation or change in the exchange rate," said the bank.
The policy shift is a goodwill gesture towards the US and Europe before next week's G20 meeting in Canada as a rising yuan helps Western industries compete against Chinese imports. US Treasury Secretary Tim Geithner welcomed the step but said "the test will be how far and how fast they let the currency appreciate." Senator Charles Schumer, a leading critic of China on Capitol Hill and author of legislation calling for sanctions, dismissed the announcement as meaningless. "This is China's typical response to pressure. Until there is more specific information about how quickly it will let its currency appreciate and by how much, we can have no good feeling that the Chinese will start playing by the rules," he said.
When China allowed the yuan to rise in July 2005 the move triggered a slide in US Treasury bonds, with knock-on effects on US mortgage and corporate debt. Investors will be watching closely to gauge response to sales of $108bn of US notes this week. China has become the biggest force in global bond markets with holdings of $900bn (£600bn) of US government debt. Yuan revaluation is likely to dampen China's export growth and slow the pace of reserve accumulation, reducing the need to recycle money into foreign bonds. Hans Redeker of BNP Paribas said a rising yuan may have the effect of draining liquidity from global asset markets.
However, Jim O'Neill of Goldman Sachs said the shift by China was a vote of confidence in recovery and should help rebalance the global system. "It is bullish for risky assets. China has become more optimistic about growth and doesn't see the eurozone debt crisis having a material effect," he said. The country had a trade surplus of $19.5bn in May. Its annual surplus has reached 0.6pc of global GDP, a world record. This is greater than that of Japan in the late 1980s and the US in the late 1920s. A number of Chinese economists say it is in the country's interest to let the yuan rise before overheating gets out of hand. Reserves have reached $2.4 trillion, causing inflationary "blow back" into China.
Beijing is determined to avoid Japan's fate when it let the yen rise too fast, tipping the country into slump. But the policy of holding down the currency is leading to acute price pressures. Factory gate inflation reached 7.1pc last month. Food costs are rising fast, raising the risk of civic unrest among migrant workers. Rising wages are inflicting similar pain on exporters to a currency rise but with more pernicious effects for the country. As a result, analysts say it no longer makes sense for Beijing to maintain the peg. Nomura says property has reached frothy levels in Shanghai and Beijing, where prices are 13 to 14 times income. It expects the bubble to pop "very soon".
Spending Fight at G-20
by Bob Davis and Marcus Walker - Wall Street Journal
U.S. to Push Policies to Stimulate Economy as Europe Embraces Austerity
The U.S. plans to press its economic partners at a summit to move cautiously with plans to tighten their fiscal policies while the global economic recovery remains uncertain, for fear of producing a "Hoover moment." President Barack Obama, worried the fragile world economy could slip back into recession—as it did in the 1930s during the Hoover administration— plans to urge his counterparts at this weekend's Group of 20 meeting to continue some level of stimulative spending, among other policies, as a way of sustaining economic growth. But at precisely the same time, politicians around the world are starting to embrace a newfound desire for fiscal austerity.
European leaders are more cautious about spending, chastened by the example of Greece, where investor confidence was shattered by mounting debt and the possibility of a default, prompting a nearly $1 trillion rescue fund. In China, officials worry that continued stimulus could create unsustainable asset bubbles. Indeed, one reason China may have pledged Saturday to allow the value of its currency some flexibility is to resist inflation by making imports less costly, economists speculate. China's announced plan to loosen the tether between its currency and the dollar removed what would have been a sore point from the G-20 agenda, paving the way for tensions over fiscal policy, along with weak domestic demand and large trade surpluses in Germany and Japan, to become a bigger theme at the meeting in Toronto.
Canada, whose weight in the G-20 is magnified this year because it hosts the summit, is pressing for deficit reduction, urging its peers to halve their deficits by 2013. Finance Minister Jim Flaherty says he will be push for concrete debt and deficit reduction targets during the Toronto meeting. A tilt toward austerity is under way in Japan too, which has run up giant debts over the past two decades to shake the country out of its economic doldrums. Prime minister Naoto Kan, who took office June 8, wants to double the country's broad sales tax from the current 5% within several years and cap next year's national budget at this year's level. "Fiscal policy which relies excessively on deficit bond issuance is no longer sustainable," he said in his inaugural speech, citing the example of Greece.
A senior Obama administration official said there was only the appearance of division among the leaders. The official said G-20 industrialized and developing countries were acting in roughly the same fashion—easing gently off government spending while trying to convince markets and their electorates they will bring down deficits over the coming three to five years. The pace of government spending is vital for the global economy, which is recovering modestly from the deep downturn. The debate expected this weekend: What is the biggest threat to growth, diminished demand or escalating debt?
"The No. 1 topic of conversation [at the G-20] will be how quickly should fiscal stimulus be withdrawn," said Harvard economist Kenneth Rogoff. a former chief economist of the International Monetary Fund. "The U.S. is at one extreme [pushing growth] while the rest of the world is much more anxious." Obama economists argue that if the rate of government spending declines too quickly, demand could shrivel, undermine growth and threaten a second recession. They informally call the issue a "Hoover moment," a loose reference to premature fiscal tightening in the 1930s by Presidents Herbert Hoover and Franklin D. Roosevelt that is blamed for prolonging the Depression.
In Europe, the fear of sovereign-debt defaults runs deep. In the U.K., whether to maintain high spending to support recovery was a key issue in the May election. The cut-now camp won, and the new Conservative-led government is expected to unveil a multi-year program of spending reductions and tax increases on Tuesday. The U.S. isn't arguing for an increase in spending but rather that countries not act too precipitously. "Should confidence in the strength of our recoveries diminish," Mr. Obama wrote the other leaders last week, "we should be prepared to respond as quickly and forcefully as needed to avert a slowdown in economic activity."
The U.S. has been pushing the G-20 to focus on stimulus at least since a London summit in April 2009, while Germany, France and other European countries wanted to focus more on financial regulation. The U.S. won that fight. The G-20 as a whole increased fiscal spending in 2009 and 2010 by at least 2% of gross domestic product to fight the recession—a jolt that's likely to be cut back sharply in 2011, the IMF figures. Financial regulation was put on a slower track. The G-20 nations agreed to tighten rules for bank capital and liquidity by the end of 2010, when the leaders meet again in South Korea.
The growth issue now is more nuanced—and politically difficult. In the U.S., Senate Democrats failed last week to muster enough votes to pass an extension of jobless benefits and business tax breaks as well as aid to state governments and public-school teachers. Democrats have been trying for weeks to pass the legislation, repeatedly paring it back to suit deficit hawks. The latest version would add about $55 billion to the deficit over 10 years. Europe's governments are pushing for fiscal moves at varying speeds. Stronger economies like Germany and France are cutting slowly to begin with, while Ireland, Portugal and Spain are inflicting painful cuts.
For its part, China has been able to stand somewhat aloof from the fiscal debate because its huge 2009 stimulus plan was funded almost entirely through the state-controlled banking sector rather than government debt. But it has started to use the banking lever to limit growth. New lending his year is running about 30% below last year's sky-high level. Brazil also is looking for a way to tame what may be an overheating economy. But the government continues to make below-market-rate government loans, among other pro-growth measures. National elections are scheduled for October, and government spending often rises during pre-election periods.
Nobel Economist Krugman Slams German Austerity
by Der Spiegel
Nobel prize-winning economist Paul Krugman says that Germany has begun imposing austerity measures far too soon and that it could endanger fragile economic growth. His comments are just the latest in a trans-Atlantic dispute about fiscal policy. Bank levies and a global transaction tax: those two items will be at the top of German Chancellor Angela Merkel's wish list when she travels to Toronto this weekend for the G-20 summit. With the economy on the slow road to health, so goes her logic, it is time to introduce far-reaching reforms of the global financial system.
With just days to go before the summit starts, however, it is becoming increasingly clear that Merkel may not have much fun during her weekend excursion. Opposition to her reform proposals is widespread and, more ominously, frustration is building with Germany's new focus on budget consolidation and debt reduction. In an interview with the German business daily Handelsblatt on Monday, Nobel prize-winning economist Paul Krugman joined Berlin's legions of detractors, and took aim at the government's recently agreed to €80 billion austerity package.
"I don't have a problem with trying to balance the budget in five or 10 years," Krugman told the paper. "The question is whether one should start when the economy is at 7 or 8 percent below its normal capacity and interest rates are at zero.... Now is not the time to be worried about deficits." Later in the interview, Krugman said, "the German austerity package is really a bad idea."
Negative Impact
His concern is that German austerity could ultimately have a negative impact on an already fragile US economy and that Berlin is hoping to resuscitate its economy solely through exports. He said that other countries in Europe would suffer as a result of Germany's savings package. "Germany's consolidation policies don't just negatively effect the domestic economy, it also slows growth in other countries," he said.
Krugman is far from alone with his concerns about German and European austerity packages. Last week, US President Barack Obama sent a letter to other G-20 countries in which he fired a not-so-subtle shot across Berlin's bow. "I am concerned about weak private sector demand and continued heavy reliance on exports by some countries with already large external surpluses," he wrote in a clear reference to Germany. He also warned against reversing economic stimulus policies too soon. "We worked exceptionally hard to restore growth," he wrote. "We cannot let it falter or lose strength now."
Germany and France were hoping that the G-20 summit would focus on measures aimed at reforming global financial markets. In particular, Merkel would like to see an international tax on financial transactions as well as a mandatory bank levy, which would go towards a fund to be used to bail out banks in future crises. But opposition to both proposals has been stiff. And the US, in particular, is hoping to use the G-20 to push for more economic stimulus rather than less, given ongoing high unemployment at home. German Economy Minister Rainer Brüderle countered Obama's comments over the weekend, saying that "Germany can only regain international leadership with a healthy budget." Joachim Pfeiffer, economic policy spokesman of Chancellor Merkel's Christian Democrats, called Obama's comments "economic nonsense."
'Some Fantasy World'
In his comments to Handelsblatt, Krugman was also critical of the European Central Bank (ECB) and of ongoing speculation that Axel Weber, president of the German central bank, will take over from ECB President Jean-Claude Trichet when his eight-year term expires in October 2011. Weber, Krugman said, represents a risk to the European common currency. "The danger that we could see a domino effect from Greece via Spain and Portugal to Italy is much greater should the ECB end up with such a conservative president (as Weber)," Krugman said. He criticized Weber for being overly focused on inflationary dangers and not worried enough about an extended economic stagnation.
The American economist blasted the European Union for its ongoing attempts to ratchet up the severity of the Stability and Growth Pact in response to ballooning national debt in several countries belonging to the European common currency area. "The proposals are coming from some fantasy world," Krugman said. "They are going in the wrong direction. A stricter Stability Pact maybe would have saved Greece from almost going bankrupt. But Spain fulfilled all of the pact's criteria and was a fiscal policy star. The changes are aimed at solving a pseudo problem without going after the real roots of the crisis."
Germany and France examine 'two-tier' euro
by Alex Spillius and Bruno Waterfield - Telegraph
Germany and France are examining ways of creating a "two-tier" euro system to separate stronger northern European countries from weaker southern states. A European official has told The Daily Telegraph the dramatic option was being examined at cabinet level. Senior politicians believe their economies need to be better protected as they could not cope with another crisis on a par the one in Greece.
The creation of a "super-euro" zone would initially include France, Germany, Holland, Austria, Denmark and Finland. The likes of Greece, Spain, Italy, Portugal and even Ireland would be left in a larger rump mostly Mediterranean grouping. The official said French and German officials had first spent months examining how to exclude poor-performing states from the euro but decided it was not feasible.
A two-tier monetary system in the 16-member euro zone is being examined as a "plan B". "The philosophy is the stronger countries might need to move away from countries they can't afford to bail-out," said the official. "As a way of containing the damage, they may have to do something dramatic, though obviously in the short term implementation is difficult. "It's an act of desperation. They are not talking about ideal solutions but the lesser of evils. Helping Greece could be done relatively cheaply but Spain they can't afford to let fail or bail-out. "And putting more pressure on the people of France and Germany to save other countries is politically unfeasible."
One option, to protect the wealthier northern European countries and to help indebted southern Europeans, would be for Germany to lead a group of countries out of the existing euro into a new single currency alongside the old. The old euro would decline sharply against the new German and French dominated currency but both north and southern Europeans would be protected. Northern economies would be protected from debt contagion and southern countries would be spared the horrors of being thrown out and forced to go it alone.
Angela Merkel, the German Chancellor, has already paid a political price for forcing the rescue plan on a reluctant public, losing her majority in the upper house of parliament in a recent election. The official pointed out that France held lent £500 billion to Spain and the Germans had lent £335 billion. Nicolas Sarkozy, the French president, is understood to have been initially cool on the idea but has grown so frustrated with Greece and now Spain that he has allowed officials to explore proposals. "He would prefer to keep the euro in place but if Spain, Italy and Greece are dragging him down he accepts he may have to cut them loose," said the official. "They are trying to contain the contagious effect but they don't have a solution yet."
The crunch time will come in September, when Spain has to refinance £67 billion of its foreign debt. "If the markets don't buy that will trigger a response by Germany and France," said the official. Expelling a country from the euro could push the whole region into a slump because European banks are so exposed to debt in southern Europe. The consequences for the exiting country would be even more catastrophic. "The euro zone debt crisis has a long way to run," said one senior EU negotiator. "No one knows where it is going to end up. Only one thing is sure, the euro zone will change."
Paris prepares for big spending cuts
by Peggy Hollinger and Ben Hall - Financial Times
France is preparing new spending cuts to help deliver the €100bn in savings needed to meet its pledge of bringing its public deficit in line with European targets by 2013. Claude Guéant, chief of staff and most trusted adviser to Nicolas Sarkozy, France’s president, told the Financial Times that new measures would be decided during the annual review of public spending. "There will be other announcements. We have to do more of course – a lot more." Mr Guéant said the government was preparing a 2011 budget and three-year spending plan that would "appear serious and determined" and be published in the autumn. It would also set out concrete goals in the interim, he said. "France has pledged to reduce its deficit to 3 per cent [of gross domestic product] by 2013. We are convinced of that and determined to succeed."
Following an aggressive austerity plan from Germany and other European nations, France is under pressure to give concrete details on how it will bring its deficit back down to 3 per cent of GDP to meet its European obligations. "Most euro countries have given detailed medium-term measures, [such as] Germany which does not need it as much as France," said Laurence Boone, economist with Barclays Capital. "France could detail measures for the state budget as it has done for pension reform." Both the European Commission and the International Monetary Fund have criticised the optimistic growth rate of 2.5 per cent that underpins France’s deficit reduction plan.
The government is counting on the return of robust growth – not seen in France for a decade – to provide half the annual €100bn ($124bn, £84bn) it needs to find in revenues and savings to cut its deficit to 3 per cent by 2013. It has said the other half would come from spending cuts and tax rises but has given only sketchy details. These include a freeze in central government spending, excluding interest and pensions, from 2011-13; a freeze in transfers to local authorities; and slower growth in healthcare spending. It will also end tax breaks worth €5bn a year and has proposed €3.7bn a year of tax rises on business and the wealthy to help plug a deficit in the pension system. But it must go much further to reach its target.
Mr Guéant refused to give details but economists suggested that the government could be considering a pay freeze for public-sector workers – a third of public-sector expenditure goes on wages. This would reassure bond markets, anxious over eurozone public debt and keen to see signs that governments are taking steps to reduce structural budget deficits. France has a strong triple A rating, but is still concerned about contagion from the rumours over European credit worthiness.
Give us the figures on Europe's toxic banks
by Wolfgang Münchau - Financial Times
Thank God for José Luis Rodríguez Zapatero, the Spanish prime minister. For the first time in the three years since the outbreak of the financial crisis, a European leader has done something intelligent and surprising. Spain's unilateral decision to publish the stress tests of its banks has bounced the European Union - at a summit in Brussels last Thursday - into following a Spanish lead, and to accept an uncharacteristic degree of transparency. Does this mean that we are about to get on top of this wretched crisis? Well, so far, the EU has agreed to publish the stress tests of only 25 banks. They are not the main problem banks in the eurozone. There is a good chance that governments will extend those tests to other banks. But it is no reason to get too excited.
The fundamental problem is that governments are still fighting the wrong crisis. Global investors have recognised a fundamental truth, that this is not a sovereign debt crisis at heart, as Germany and the European Central Bank keep on telling us, but a banking crisis and a crisis of policy co-ordination failures. Since the banks are guaranteed by their respective governments, most private debt is ultimately public debt. The European Central Bank and the newly created European Financial Stability Facility - the €440bn ($545bn, £368bn) special purpose vehicle to stabilise the European bond markets - will absorb billions of euros of junk debt which, on default, would trigger a massive redistribution of income from northern Europe to southern Europe.
So far, this crisis has cost European taxpayers nothing. But that would change if, or when, some of the Greek debt gets restructured. That will not happen for three years. But, by then, most of that Greek debt would wind up in the hands of the EFSF and the ECB. A default at that point would confront the EU with a binary decision: either to go for fiscal union, or to break up. The investors do not know which way the EU will jump. Nobody does.
One conceivable strategy for getting out of this mess is to remove the lingering doubts about the banking sector. Except for Greece, the sovereign debt situation is under control everywhere. The problem is not the actual government debt, but the contingent debt, most of which is located in the banking sector. If there is more transparency about the banking sector, the situation would be eased. If the publication of the stress tests would lead to a process of bank recapitalisation, we would be well on the way. But I do not see it. Germany's bad bank scheme is so incredibly unattractive that hardly any banks have taken it up. Yet, the German government is in no position to force the banking sector to accept new capital. The Landesbanken - probably the biggest financial toxic waste dumps on earth - are controlled by the state governments.
The situation is not much better in Spain, where the Bank of Spain is already pushing hard for a consolidation of the Cajas, the local savings banks. We will no doubt get a lot more bad news from the Spanish banking sector, as Spain goes through the adjustment. Having been sceptical about Mr Zapatero's willingness to do what needs to be done, I am a touch more optimistic now. His recently decreed labour market reforms are a step in the right direction, but probably insufficient. Elsewhere in the eurozone, there are several other trouble spots.
France also has its share of poorly capitalised banks, and so do Austria and Belgium. Uncertainty will persist, until we have a reliable estimate of the remaining toxic waste in bank balance sheets, and some resolution trajectory. The only information that was ever leaked in Germany was a worst-case estimate by the banking regulator a year ago of a total write-down volume of €800bn, about a third of Germany's annual gross domestic product. I have no idea what the number would be today.
To resolve this crisis, we need to know those numbers and a lot more. Most importantly, the EU must set up a workable system of economic policy co-ordination, including a strategy to deal with resurgent internal imbalances. On that point, we are actually regressing. The decision to publish the stress tests masked an otherwise disappointing European summit. After months of debate, all the European Council had to show was another stability pact and another Lisbon agenda - a now defunct growth initiative.
One of the lessons of the early stability pact - from 1999 until 2003 - was that sanctions do not work, because they cannot be applied in the real world. The revised stability pact, agreed in 2005, moved away from an emphasis on sanctions to incentives. The idea was sound, but ultimately failed because of insufficient policy co-ordination. The decision to revert to the original sanctions-based approach is silly. If sanctions do not work, then surely, lots of sanctions are not going to work either. As for the Lisbon agenda, it is now called Agenda 2020, and it is just as hopeless.
What has become clear in the last few months is that Herman Van Rompuy, the president of the European Council, is not providing sufficient leadership to move the process forward. Without a plausible end game in sight, I would expect investors to continue to place bets on the eurozone's demise.
Berlin Budget Deficit Much Lower than Expected
by Der Spiegel
With tax revenues pouring into German coffers faster than expected, 2010 budget deficit forecasts have been revised downward. Berlin may need 37 billion euros less credit than forecast over the next two years -- a fact that may increase US pressure on Berlin to abandon austerity. Austerity is the name of the game in Germany these days. Earlier this month, Chancellor Angela Merkel's government put together an €80 billion austerity program designed to trim the country's budget deficit substantially in coming years. Additionally, Berlin has been keeping a close eye on spending patterns in countries like Spain and Greece, which investors have decided are on shaky ground.
Now, though, it appears that German finances aren't quite as red as first thought. Whereas initial government projections foresaw the need to take on a whopping €80.2 billion in additional debt this year, new data indicates the real number could be up to €20 billion lower. According to the Süddeutsche Zeitung on Tuesday, higher-than-expected tax revenues and lower-than-expected unemployment have resulted in a new forecast which foresees the 2010 budget deficit coming in at between €60 billion and €65 billion. Government sales of mobile phone frequencies also improved the bottom line. Citing unnamed government sources, the paper also reported that the trend is likely to continue into 2011, resulting in new debt of €55 billion instead of a planned €72 billion.
On the Road to Health
Much of the increase in tax revenue came from value-added tax, which rose by 6.5 percent against the same month one year ago. In addition, import levies on goods from non-European Union countries rose by 23 percent. Both developments are seen as clear indications that the German economy is on the road to health. German companies, it would seem, are optimistic as well. On Tuesday, the Ifo business climate index -- Germany's leading economic indicator, which is based on a monthly survey of some 7,000 companies -- continued its upward trend despite analyst expectations that it would fall slightly. The rise comes on the heels of news that German auto manufacturers are struggling to keep up with demand, mostly from the US and China, this summer. Together, BMW and Mercedes have hired thousands of new workers to keep the production lines humming.
The news that Berlin will have to take on less debt than expected is likely to make Merkel's position at the G-20 summit in Toronto this weekend that much more difficult to defend against a US eager to see Germany focus on economic stimulus rather than debt reduction. Late last week, US President Barack Obama wrote a letter to the leaders of G-20 countries in which he penned, "I am concerned about weak private sector demand and continued heavy reliance on exports by some countries with already large external surpluses."
The line is likely aimed squarely at Berlin. Still, German politicians were quoted on Tuesday as saying they plan to adhere to Merkel's new austerity package. Otto Fricke, a budget expert with the pro-business Free Democrats, Merkel's junior coalition partners, told the tabloid Bild that "the €60 billion may be a possibility, but that would still represent record new debt. There is no way to get around a strict savings regimen." A new constitutional amendment in Germany requires that the government reduce its budget deficit to €8.5 billion by 2016. The government hopes to reduce borrowing by some €10 billion per year until then.
Next Worry for Wall Street: Basel Bank Rules
by Cyrus Sanati - New York Times
As the debate over the financial regulatory bill nears an end in Congress, many on Wall Street are shifting their attention to Switzerland to see what new regulations will come out of the Basel Committee on Banking Supervision, the international banking watchdog.
For some bankers like Vikram S. Pandit, chief executive of Citigroup, the financial regulations coming out of Washington may seem mild compared to the tougher measures brewing in Basel. That is because banking industry studies contend that the proposed "Basel III" banking rules, if instituted, could weigh sharply on economic growth — along with bank profits. It is understandable to see why Mr. Pandit seems more concerned about the United States signing on to Basel III than he is about the financial regulatory bill in Washington.
Citigroup has been in the process of shedding much of its riskier nonbank activities for the past two years, concentrating on being more of a conventional commercial lender. So while Citigroup will have to sell or spin off some lucrative business units under the new financial regulations, they are unlikely to sting the bank nearly as bad as some of its competitors. But Mr. Pandit told a gathering in Russia on Friday that while he supported the financial regulatory legislation the United States, he was "concerned" about "what is coming out of Basel," saying that the proposed rules "could have a very significant impact on how global financial institutions do business."
The proposed Basel regulations would require banks to hold on to more of their capital instead of lending it out. The move is intended to strengthen the soundness of the banking system, giving banks more of a buffer to absorb potential losses from bad loans. But requiring banks to raise and hold on to more capital would mean less money floating about in the worldwide economy. The Institute of International Finance, a global trade group of commercial and investment banks and other financial firms, argues that the higher capital ratios could slow global economic growth.
The estimates from the institute’s models show that banks in the three leading financial systems — the United States, the European Union and Japan — would need to raise $700 billion of common equity and issue $5.4 trillion of long-term debt from 2010 to 2015 in order to meet the Basel capital and liquidity requirements that are likely to be part of the international regulatory overhaul. The Institute of International Finance argues that these requirements would put an upward pressure on the cost of capital, which banks would then add to their lending rates to the private sector.
These higher interest rates could reduce the overall amount of borrowing in the world economy. This lack of credit would, in turn, translate into slower economic growth and higher unemployment. The institute estimates that for the United States, the capital requirements would reduce growth in its gross domestic product by 2.6 percent by 2015. The impact would not be as bad in Japan, with a 1.9 percent restraint on G.D.P., but it would be worse in Europe, with a 4.3 percent hit. Banks are likely to post lower profits as a result of the proposed Basel regulations, which in turn would require them to raise even more capital.
The new Basel rules would go into effect over an extended period in order to give banks time to adjust their businesses. Nevertheless, many big banks still have billions of dollars in troubled loans that were made when asset prices were booming and these could cause more problems in the future if the economy weakens again. "We just need to get people together around the table, more people focused on it," Mr. Pandit told CNBC concerning the proposed Basel regulations. "We’ve all been focused on Washington, but it’s now time to focus on Basel." The proposed Basel banking regulations are expected to be on the agenda this weekend at the economic summit meeting of the Group of 20 nations in Toronto. The new rules are currently slated to start phasing into the system in December 2012.
Plans for global bank levy move forward
by Brooke Masters - Financial Times
Plans for a global bank levy took a major step forward on Tuesday as the UK announced it would raise £2.5bn with a tax on bank balance sheets and the leaders of France and Germany called for the Group of 20 to reach international agreement on a similar tax. George Osborne, UK chancellor, said the UK would begin taxing bank balance sheets at 0.04 per cent in January 2011, rising to 0.07 per cent a year later.
The levy will have the secondary effect of encouraging banks to cut their reliance on short term funding - a major goal of global banking regulators - because wholesale funding of more than a year’s duration will be subject to a reduced rate of 0.02 percent, rising to 0.035 per cent, and tier 1 capital and retail deposits would be exempt. On Tuesday, German Chancellor Angela Merkel and French President Nicolas Sarkozy released a joint letter ahead of this weekend’s G20 meeting calling for "international agreement to introduce a levy or tax on financial institutions to ensure fair burden-sharing and create incentives designed to contain systemic risks."
The three governments also raised the possibility of additional taxes on banks, although their approaches varied. The French and German letter asked the G20 to "work on an international agreement on a global financial market tax," by which they mean a tax on financial transactions. Mr Osborne, meanwhile, said that the UK would consider whether to tax bank profits or compensation payouts, perhaps along the lines of the "financial activities tax" proposed by the International Monetary Fund earlier this year. Despite the European enthusiasm for bank taxes, agreement on a global levy at this weekend’s G20 meeting remains unlikely.
Canada, the host of the summit, and Japan are strongly opposed. Canadian prime minister Stephen Harper has said he sees no point in punishing his country’s banks because they survived the crisis largely unscathed. US President Barack Obama has proposed a 0.15 per cent balance sheet tax to repay the money his government spent rescuing the banks during the crisis. But legislation to enact it remains mired in Congress. Mr Osborne’s announcement, while widely expected, was greeted with unhappiness in the City of London, where bankers and professionals worry it will make London less competitive.
There are also growing concerns that banks might be hit by overlapping levies - Mr Osborne has said the UK will tax subsidiaries of overseas banks and the US has proposed doing something similar for foreign banks with a large presence in the US. The British Bankers Association said, "Bank levies need to be co-ordinated internationally: they must not prevent the industry in the UK from being able to compete. It is essential that the international banks do not find themselves taxed multiple times for the same thing."
Tony Anderson, partner at international law firm Pinsent Masons, said, "Considering the current exposure of French and German banks to defaulting borrowers in the eurozone, there must be concern for the impact of multiple, accumulating levies on these banks at a time when they are being encouraged to lend more to businesses."
Spain Banks Down As S&P Warns On Real-Estate Losses
by Christopher Bjork - Wall Street Journal
Shares in Spanish banks were lower Tuesday after credit rating agency Standard & Poor's warned that more of the country's real-estate developers are likely to fail, leading to higher credit losses on lending to the sector. S&P in a report Monday raised its credit loss assumptions for the banking sector to EUR99.3 billion between 2009 and 2011, up EUR17.7 billion from an earlier estimate in September last year. The increase is mainly due to a rise in the agency's loss assumptions for the banks' real-estate loan portfolios, as well as more pessimistic forecasts for economic growth in the next few years.
"The drop in housing demand has drained liquidity in the highly leveraged Spanish real-estate sector and affected profitability," said credit analyst Elena Iparraguirre. Spain has a housing glut of about 1 million unsold homes according to some estimates. Home sales have fallen dramatically since the start of the economic downturn a couple of years ago, after one of the world's biggest housing bubbles burst. "The market has accumulated a large stock of unsold property that will take several years to unwind, in our view, while activity in the sector is still subdued," Iparraguirre added.
The ratings agency cut its long-term credit rating for Caja de Ahorros y Monte de Piedad de Gipuzkoa y San Sebastian to A from A+, and kept the outlook as negative. It also affirmed its ratings on six Spanish lenders, but downgraded the hybrid capital instruments of three of them: Caja Madrid, Banco Popular Espanol SA and Banco Sabadell SA. S&P said it expects Spanish economic growth to be sluggish in coming years, with real gross domestic product averaging 0.7% per year in 2010-2016. S&P downgraded Spain's sovereign debt rating to double-A in April. "The correction of the imbalances built over the credit-fuelled expansion period, namely credit deleveraging and fiscal consolidation, has created a prolonged unsupportive economic environment for the banking business, putting credit and performance pressure on banks," Iparraguirre said.
S&P said it expects net interest income--the difference between what a bank charges for loans and what it pays for deposits and other types of funding--to drop about 20% on average this year for Spanish financial institutions with typical retail banking profiles. It expects net interest income, which is the main source of revenue for Spain's banks, to be flat on the year in 2011. At 0942 GMT, Banco Santander SA (STD) was down 2%, or EUR0.19, at EUR9.23, while Banco Bilbao Vizcaya Argentaria SA (BBVA) was down 2.3%, or EUR0.22, at EUR9.19. The Spanish market was down 1.3%. Smaller Spanish banks were also lower. S&P raised its loan-loss assumption for real-estate exposures to 14.5% for between 2009 and 2011, up from a previous estimate of 9.6%. And it said it expects real-estate losses to comprise 44% of the system's total credit losses.
The ratings agency said that non-performing loans and real-estate assets foreclosed, acquired, or received in lieu of payments, comprised 27% of loans to real-estate developers at the end of 2009. Concern over the health of Spain's financial system, and particularly of the unlisted savings banks, are among the three biggest concerns investors have regarding the country, along with Spain's double-digit budget deficit and 20% unemployment rate. Unlisted and often controlled by regional governments, the so-called "cajas" have borne the brunt of the collapse of Spain's decade-long construction boom.
Some 38 of the country's 45 cajas are currently in merger talks, Bank of Spain governor Miguel Angel Fernandez Ordonez told Spanish parliament Tuesday. They have asked for aid from the state bailout fund FROB of more than EUR10 billion, he added. The Bank of Spain said last week that it would make public results of stress tests on individual banks in coming weeks, in an effort to dispel market worries about the sector.
China Turns Tables on AAA Debt Time-Bomb Nations
by William Pesek - Bloomberg
Your move, folks. That’s the message from China’s surprise move to allow a more flexible yuan. China, in signaling it’s okay with a rising currency, voiced a strong vote of confidence in its economic outlook. It also shifted the onus to the developed world in a crafty and unambiguous way. Timothy Geithner and his team at the U.S. Treasury should keep on ice the champagne they’re tempted to open. Now it’s time to start getting their own imbalances in order. The debt explosion of the past two years isn’t just unsustainable, it’s a growing threat to global stability.
Chess games are won by those who can think and plan the farthest ahead. China, at least at the moment, appears to have a better sense of how the board is laid out. The question now is what Geithner and his partners in history’s greatest debt orgy do. It’s wrong to conclude China was browbeaten into acting. Yes, the step means Chinese officials can breathe easier arriving in Toronto for next weekend’s Group of 20 meeting. Yet a rising yuan will make it easier to tame asset bubbles and reduce inflation risks. It also increases the purchasing power for the nation’s 1.3 billion people. Efforts to kick China’s addiction to exports are now underway.
Reflationary China
That will require some adjustments for the outside world. A stronger yuan is reflationary. Chinese will, over time, be able to buy more goods from other countries. Increased import activity coincides with a sudden militancy among Chinese workers demanding higher wages. While good developments in the long run, both phenomena will affect global inflation rates and require considerable nimbleness on the part of multinational companies. The infinite sea of cheap, docile Chinese labor is evaporating. None of what China is doing will placate the Lindsey Graham’s and Charles Schumer’s of the world. Both U.S. senators have had a linear focus on China’s undervalued currency, as if it were the root cause of the U.S.’s problems.
While China’s role in global imbalances is indisputable, officials in Beijing didn’t put the U.S. where it is. It was the administration of Bill Clinton that decided to remove Depression-era banking-system safeguards and fight efforts to regulate derivatives. It was President George W. Bush who removed every financial regulation in view, squandered a budget surplus through tax cuts for the ultra-rich and put a pointless war in Iraq on a credit card. China didn’t tell Americans to buy homes they couldn’t afford. It didn’t encourage bankers to take on enough leverage to topple Wall Street’s mightiest names. It didn’t ask the U.S to flood global markets with Treasuries because it wanted to own a mountain of them. China didn’t lobby against reforms that might protect the U.S. from another financial crisis. That will be on President Barack Obama.
Now, U.S. lawmakers who thought China provided the perfect scapegoat for all that ails their supporters need a new boogeyman. Or, they could just look into the mirror and opt to move the U.S. onto a more sustainable economic course. This weekend’s G-20 meeting is such an opportunity. There, China’s currency will take a backseat to the gaping budget deficits among industrialized nations. It will be quite a spectacle to see developing-world policy makers wagging fingers at Group of Seven nation members.
Core in Crisis
That’s indeed where we find ourselves. The crisis of the past two years didn’t come from the periphery of the global economy, but its core. It’s the irresponsible policies of the U.S., the euro zone, Japan and the U.K. that are imperiling markets, not those of China, India or Brazil. Japan is a fascinating case in point. Barely two weeks into his premiership,Naoto Kan is raising many an eyebrow by warning that Japan risks going the way of Greece. Such hyperbole is needed to wake Japanese politicians out of their two-decade slumber.
While they snoozed and saved their jobs, Japan amassed the biggest debt in the developed world and failed to find an exit strategy from zero interest rates. There’s been considerable soul-searching about the U.S., U.K. or euro zone becoming the next Japan. In many ways, other industrialized powers wish they would be that lucky. Japan hasn’t unraveled because its households have $15 trillion of savings and more than 90 percent of public debt is held domestically. A run on the yen was never a huge risk.
The same can’t be said about the dollar, euro or pound. Consider why gold is up more than 30 percent over the past year: many investors have zero trust in the most liquid currencies. Those much-coveted AAA credit ratings mean less with every passing day as the biggest economies issue more and more IOUs. It would be a crime if the G-20 left Toronto without exploring how to restore trust. China has much further to go in rebalancing its economy. Letting the yuan rise indicates a new confidence to step up the process. It also makes a mockery of rich nations demanding that developing ones do all the heavy lifting.
Freight fright *alert*
by Izabella Kaminska - Financial Times
Many analysts view the Baltic Dry Index, a measure of shipping costs for dry commodities, as a forward macro-economic indicator.So should we be worried by the fact that the index last week experienced its biggest weekly decline since 2008?
As Bloomberg observed on Friday:
The index tracking transport costs on international trade routes slid 18 percent this week, according to the Baltic Exchange. That’s the most since the last week of October 2008. Today the gauge fell 90 points, or 3.2 percent, to 2,694 points, led by a 7 percent drop in rates to hire capesize vessels that typically haul iron ore, a steelmaking raw material.
And here’s the turnaround in chart form:Barclays Capital analysts appear to have seen reason for concern — on the technical side at least.
In fact, they warned last Tuesday that any break below 2994 could set alarm bells ringing (our emphasis):
Over the past three months, the Baltic Dry freight index has been out of kilter with risk markets: rising as equity markets fell and now falling as equities markets recover. We regard the index as a lead indicator for the global economy, and while it is not yet heralding a major downturn, the 9-day RSI is at levels consistent with previous lows. However, over the past year, the index has repeatedly struggled to sustain a break of retracement levels, and a large head and shoulders top appears to be forming. We are neutral at current levels, but a break below the neckline at 2998 would set the alarm bells ringing.
As the first chart clearly reflects, the index was trading at 2694 as of close on June 18 — which of course is well below that 2998 level.As to what’s behind the move, Icap’s latest shipping report blames it entirely on spare capacity in the Chinese steel sector, where output has been steadily achieving above pre-crisis levels since mid-2009:
Or as Icap preferred to describe it, “chronic overcapacity” — especially since it has taken until the second quarter of 2010 for other major Asian producers to return to pre-crisis levels.
Of course, a more flexible yuan exchange rate policy in China is hardly going to improve the situation either.
Oil spill coats Florida Panhandle beaches with miles of sticky goo
by Mary Ellen Klas and Carol Rosenberg - Miami Herald and St. Petersburg Times
The worst blow yet to the Florida coastline from the growing oil spill struck Wednesday morning in an eight-mile line of thick sticky goo that stained the pristine sands of this Panhandle community. Workers spent the day raking up the chocolate-brown oil mats and tar patches that washed ashore overnight, and the state ordered road graders to lift the gunk from the once-white beaches.
Some local officials complained it was too little, too late.
"It's pitiful," said Buck Lee, the executive director of the Santa Rosa County Island Authority. "It took us four hours to clean up 50 to 60 feet of beach and I don't see this stopping for a while." He urged Gov. Charlie Crist, who toured the area by helicopter Wednesday, to demand that the Coast Guard's unified command center in Mobile, Ala., dispatch front-end loaders and heavy-duty equipment to scoop up the tar mats before the brown goo sinks into the sand. Florida Department of Environmental Protection Secretary Mike Sole then ordered the machines to the scene. "It's worse than I expected," he said.
Cleanup workers in the area were kept busy overnight Wednesday, clearing eight tons of oil spill waste off a Perdido Key barrier island. By morning, a three-mile-long trail of the oily slick had washed up between the Pensacola Beach pier and Fort Pickens National Park. In addition, the county spotted several solid masses of 8-by-10-foot weathered oil waste in the Pensacola Pass on the Florida-Alabama line. It was contained and a skimmer was on site, said Kelly Cooke, Escambia County's public information officer.
Crist visited the Pensacola Beach pier after taking an aerial tour Wednesday morning with Coast Guard officials and environmental consultants. A week ago, Crist walked along the same beach with President Barack Obama as they discussed the federal response to the cleanup effort. This time, Crist was greeted by dozens of cleanup workers, dressed in white hazmat suits and yellow boots, carrying rakes and shovels and plastic bags as they scooped up the mousse-like tar mats. "It's pretty ugly. There's no question about it," said Crist, who arrived at the beach expecting to see tar balls, not pools of sticky goo. "We don't want to take 'the sky is falling' attitude about this. We want to clean it up and stay after it and stay after it and we will."
Despite a faint odor from the oil, a couple of dozen sunbathers watched as workers snaked along the sand with their shovels and rakes, occasionally resting under tents to sip water. The Escambia County Health Department sent out a health advisory Wednesday warning beachgoers not to swim or wade in the oiled water, avoid contact with the oiled sand or sediment and stay away from dead fish and sealife. The region remains closed to fishing.
Earlier in the morning, Crist took an aerial tour of Perdido Bay and the shoreline with Sole, U.S. Coast Guard Cmdr. Joe Boudrow; Florida National Guard Gen. Douglas Burnett; Dennis Takahashi-Kelso, executive vice president of the Ocean Conservancy and former Alaska Commissioner of Environmental Conservation during the Exxon Valdez oil crisis, and environmental activist Phillipe Cousteau. From the Blackhawk helicopter carrying the governor, orange ribbons of oil could be seen four miles from Pensacola Beach and mats of it dotted the water, like a field of misfired fluorescent Frisbees on a vast field of green.
Crist and company said they were heartened by the appearance of several skimming boats, some carrying booms to collect the water, and by the dozens of workers in green and orange T-shirts working to clean up tar balls from Perdido Bay beaches. But their mood changed when the helicopter landed on Pensacola Beach and local residents rushed to them to say they it had taken three to four hours to clean the thicker mats from a 60-foot stretch of beach . "I didn't think it was going to be quite like this on the beach," Cousteau said. "We saw tar balls on the beach a few weeks ago. I expected that here. But it looks like it's thicker, more viscuous. I saw this in Grand Isle (Louisiana) three weeks ago."
He said he was encouraged that, as the oil arrived, so did the cleanup crews. "But this is something that people need to realize is a very serious situation and that Florida is not exempt from the crisis." Takahashi-Kelso, the former Alaska official, said experience taught him crews must move fast if cleanup of the toxic mousse is going to be effective. "The time to be able to get it off the surface is right away before it really gets set in," he said. "And this is the incredible, Florida powdery beach and the two don't go together very well."
Takahashi-Kelso urged Crist and Sole to start assessing the damage to the state's natural resources, and get BP to pay for it up front. He said that Alaska had its best success by layering so-called skirt boom around its sensitive areas, lining it with absorbent boom and then having the remaining oil collected by skimmers. "That combination literally kept the oil out but we didn't have enough skimmers," he said. Sole said the state has independently found five large skimmers, is using 30 near-shore skimmers and has six more on the way. Crist called Wednesday's mess "the worst I've seen," but was sanguine about the future. "It's one of the realities we're going to have to deal with," he said. "We're going to have to deal with and continue to ask for additional assets and additional help."
Each day, another way to define worst-case for oil spill
by Joel Achenbach - Washington Post
An enduring feature of the gulf oil spill is that, even when you think you've heard the worst-case scenario, there's always another that's even more dire. The base-line measures of the crisis have steadily worsened. The estimated flow rate keeps rising. The well is like something deranged, stronger than anyone anticipated. BP executives last month said they had a 60 to 70 percent chance of killing it with mud, but the well spit the mud out and kept blowing. The net effect is that nothing about this well seems crazy anymore.
Week by week, the truth of this disaster has drifted toward the stamping ground of the alarmists. The most disturbing of the worst-case scenarios, one that is unsubstantiated but is driving much of the blog discussion, is that the Deepwater Horizon well has been so badly damaged that it has spawned multiple leaks from the seafloor, making containment impossible and a long-term solution much more complicated. Video from a robotic submersible, which is making the rounds online, shows something puffing from the seafloor. Some think it's oil. Or maybe -- look again -- it's just the silt blowing in response to the forward motion of the submersible.
More trouble: A tropical wave has formed in the Caribbean and could conceivably blow through the gulf. "We're going to have to evacuate the gulf states," said Matt Simmons, founder of Simmons and Co., an oil investment firm and, since the April 20 blowout, the unflagging source of end-of-the-world predictions. "Can you imagine evacuating 20 million people? . . . This story is 80 times worse than I thought." The bull market for bad news means that Coast Guard Adm. Thad Allen, the government's point man for the crisis, is asked regularly about damage to the well bore, additional leaks and further failures.
"Can you talk a little about the worst-case scenarios going forward?" a reporter asked Tuesday. "What happens if the relief wells don't work out?" "We're mitigating risk on the relief well by drilling a second relief well alongside it," responded Allen, possibly the least excitable figure in this entire oil crisis. He said he's seen no sign of the additional leaks that have gotten so many bloggers in a lather. But Allen's briefings offer plenty of fodder for the apocalyptic set. Allen repeatedly has acknowledged that there could be significant damage to the well down below the mud line. That's why, he said, the top kill effort last month was stopped: Officials feared that if they continued pumping heavy mud into the well, they would damage the casing and open new channels for hydrocarbons to leak into the rock formation.
"I think that one thing that nobody knows is the condition of the well bore from below the blowout preventer down to the actual oil field itself," Allen said last week. "We don't know if the well bore has been compromised or not." And by the way, the blowout preventer is leaning, Allen said. "The entire arrangement has kind of listed a little bit," he said. A government spokesman later said this development wasn't new. Even the most sober analysts are quick to say that this is such an unpredictable well that almost anything is possible.
Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University, said additional leaks are a possible source of deep-sea plumes of oil detected by research vessels. But this part of the gulf is pocked with natural seeps, he noted. Conceivably the drilling of the well, and/or the subsequent blowout, could have affected the seeps, he said. "Once you started disturbing the underground geology, you may have made one of those seeps even worse," he said. But Tadeusz Patzek, a professor who is the chairman of the department of petroleum and geosystems engineering at the University of Texas, argues that the discussion has been hijacked by people who don't know what they're talking about.
"There is a lot of fast talk, which has little relation sometimes to reality," Patzek said. "And there is jumping to conclusions by the people who have no right to jump to any conclusions because they don't know." Much of the worst-case-scenario talk has centered on the flow rate of the well. Rep. Edward J. Markey (D-Mass.), among the harshest critics of BP in recent weeks, generated headlines with a dramatic announcement Sunday. "I actually have a document that shows that BP actually believes it could go upwards of 100,000 barrels per day," Markey said on NBC's "Meet the Press."
"So, again, right from the beginning, BP was either lying or grossly incompetent. First they said it was only 1,000. Then they said it was 5,000 barrels. Now we're up to 100,000 barrels." The 1,000- and 5,000-barrel figures (42,000 gallons and 210,000 gallons), however, were estimates of the actual flow; the 100,000-barrel figure (4.2 million gallons) in the internal BP document was based on a hypothetical situation. The document stated, "If BOP and wellhead are removed and if we have incorrectly modeled the restrictions -- the rate could be as high as {tilde}100,000 barrels per day." The blowout preventer and wellhead have not been removed.
Another undated BP document, released by Sen. Charles E. Grassley (R-Iowa) last week, has an even more dramatic worst-case scenario for the well's flow rate, but again one based not on the well as it is but on a theoretical formulation arrived at before the drilling. Under the heading "Maximum Discharge Calculation," the document states that, given the most "optimistic assumptions" about the size of the reservoir and the intensity of the pressure at depth and assuming a total loss of well control and no inhibitions on the flow, "a maximum case discharge of 162,000 barrels per day was estimated."
After the Deepwater Horizon rig sank, BP recalculated that estimate based on what was known about the well. BP executives in early May briefed members of Congress on their conclusion: that the absolute worst-case flow rate was 60,000 barrels, with a "more reasonable worst-case scenario" of 40,000 barrels a day, the document states. Today the official government estimate of the flow, based on multiple techniques that include subsea video and satellite surveys of the oil sick on the surface, is 35,000 to 60,000 barrels a day. In effect, what BP considered the worst-case scenario in early May is in late June the bitter reality -- call it the new normal -- of the gulf blowout.
Human race 'will be extinct within 100 years', claims leading scientist
by Niall Firth - Daily Mail
As the scientist who helped eradicate smallpox he certainly know a thing or two about extinction.And now Professor Frank Fenner, emeritus professor of microbiology at the Australian National University, has predicted that the human race will be extinct within the next 100 years. He has claimed that the human race will be unable to survive a population explosion and 'unbridled consumption.’
Fenner told The Australian newspaper that 'homo sapiens will become extinct, perhaps within 100 years.'
'A lot of other animals will, too,' he added.
'It's an irreversible situation. I think it's too late. I try not to express that because people are trying to do something, but they keep putting it off.'Since humans entered an unofficial scientific period known as the Anthropocene - the time since industrialisation - we have had an effect on the planet that rivals any ice age or comet impact, he said. Fenner, 95, has won awards for his work in helping eradicate the variola virus that causes smallpox and has written or co-written 22 books.
He announced the eradication of the disease to the World Health Assembly in 1980 and it is still regarded as one of the World Health Organisation's greatest achievements.
He was also heavily involved in helping to control Australia's myxomatosis problem in rabbits.
Last year official UN figures estimated that the world’s population is currently 6.8 billion. It is predicted to exceed seven billion by the end of 2011.Fenner blames the onset of climate change for the human race’s imminent demise. He said: 'We'll undergo the same fate as the people on Easter Island.
'Climate change is just at the very beginning. But we're seeing remarkable changes in the weather already.'
'The Aborigines showed that without science and the production of carbon dioxide and global warming, they could survive for 40,000 or 50,000 years.
‘But the world can't. The human species is likely to go the same way as many of the species that we've seen disappear.'
A map of the world from an atlas which concentrates on population rather than land mass released last year. The Earth's population is due to hit 7bn by next year
Retired professor Stephen Boyden, a colleague of Professor Fenner, said that while there was deep pessimism among some ecologists, others had a more optimistic view. 'Frank may well be right, but some of us still harbour the hope that there will come about an awareness of the situation and, as a result the revolutionary changes necessary to achieve ecological sustainability.'
Simon Ross, the vice-chairman of the Optimum Population Trust, said: 'Mankind is facing real challenges including climate change, loss of bio-diversity and unprecedented growth in population.'Professor Fenner's chilling prediction echoes recent comments by Prince Charles who last week warned of ‘monumental problems’ if the world’s population continues to grow at such a rapid pace.And it comes after Professor Nicholas Boyle of Cambridge University said that a 'Doomsday' moment will take place in 2014 - and will determine whether the 21st century is full of violence and poverty or will be peaceful and prosperous.
In the last 500 years there has been a cataclysmic 'Great Event' of international significance at the start of each century, he claimed.In 2006 another esteemed academic, Professor James Lovelock, warned that the world's population may sink as low as 500 million over the next century due to global warming.
He claimed that any attempts to tackle climate change will not be able to solve the problem, merely buy us time.
76 comments:
Ilargi, the housing tax credit is gone for new sales. People who signed the agreement to buy before May 1 have until June 30 to close the deal. But no contracts to buy signed after April 30 get the credit.
Tyler Durden at Zero Hedge delivers a nice little summation today of our current state of affairs, and it is dead on:
"Little by little every arrow in the bullish quiver is taken away. The only thing remaining, is the last recourse of the Keynesian radioactive fall out: more money borrowed from the future. Alas, as John Taylor pointed out earlier, there is no growth. The global death spiral is complete. We disagree with Edwards - the next recession is not coming by the end of 2010 - we never left it in the first place. We would agree with Rosenberg, however, that the second coming of the Second Great Depression is now upon us, after the brief Fed-moderated extension, which merely allowed Wall Street to extract yet another record round of bonuses on the backs of the middle class."
http://tinyurl.com/23ew98g
You recommend getting out. I have to ask - where to ? The whole world is crumbling. I live in Bucharest, Romania. You have no idea how reality defiant the government is around here... Everyone expects a handful of Greek banks to fail sooner rather than later, promptly followed by their Austrian cousins and.. the rest will probably follow. There's just no money left to bail'em out. Unemployment is going through the roof (our real U6 is close to 50% !), people everywhere stpo loan payments, etc. I'm speaking to my Spanish friends - it's no better there. So get out of Dodge? and go where?
"The city walls of Dodge are crumbling as we speak, and we urge you to get out before they flatten you."
There is no "out" to bail to.
When Greece was " bailed out" I realized that my retirement was sweet but short, that I needed to get a job!
Yesterday I accepted an offer as superintendent of a residential building that will provide an apt.,utilities and tel in lieu of a wage. At least I'll have a roof over my head for awhile...and I'll have more space than I currently do for storing essentials.As I share Stoneleigh's vision about community I hope I can develop one in this new location.
Not a glamorous job but may be just right for what is coming our way....
"Your federal, state and municipal governments will start taxing you ever more, trying to save their own jobs and asses, at the very moment that your incomes will begin to decline."
Ouch. It's especially painful to watch this playing out on a local level, when it affects folks and kids you know.
Part of the problem has been the state or locality stimulation of problems that the state or locality then needs to hire someone to tend to.
There's a flapdoodle in my town about cutting the "translator" position. Why do we need a translator? Because we've got lots of immigrants. Legal? Illegal? Who knows? Don't ask, don't tell. And there are classroom teachers, aides, administrators, community programs, etc., created to help the non-English speaking kids succeed. The school district gets funded by head count, so having more kids equals more school district income and more jobs. But the tax money is drying up. Some positions are getting cut. The accusations of racism are starting to flare.
My real estate appraiser called me yesterday. He was shaken. He said he couldn't appraise my vacation property because the prices were more unstable and over a wide range than he had ever seen in his career.
You aint seen nothing yet!
I cant imagine what it will look like after a storm.
http://www.youtube.com/watch?v=5fqu3beMcIw
Aerial footage of tar on Pensacola Beach from Escambia County Sheriff's Offic...
The bells of doom are ringing in the Gulf.
(Reuters) - As much as 1 million times the normal level of methane gas has been found in some regions near the Gulf of Mexico oil spill, enough to potentially deplete oxygen and create a dead zone, U.S. scientists said on Tuesday.
http://www.reuters.com/article/idUSTRE65L6IA20100622
Re: VK's Bells of Doom, and Re: cmusat, Where to go?
They seem to be ringing everywhere in the whole earth and there's no where to go. Unless you gotta a nice planet you want to sell?
*sigh*
peace, what little I can find today, to all,
shamba
Congrats Scandia! I hope this works well for your greater security as well as a chance organize your neighbors for the coming storms. Keep us posted as to your efforts!
Thanks, Wyote
Ilargi said "What matters is that everyone begins to understand that this thing is inevitable"
I think we who read at TAE understand it is inevitable. But it is impossible to convince anyone in my circle of family and friends. I've been told I'm obsessed, it's not going to implode, there's nothing to worry about, and no need to do anything. But I think this is most likely the mentality of most people, very complacent. It's scary. :(
Congrats indeed Scandia. It sounds like an ideal opportunity :)
@scandia,
I think building super is one of the smartest jobs you could get right now. I keep trying to talk myself into doing the same.
That is good news, scandia. Glamour isn't worth much in the end, but as super you can probably get to know a lot of people in your little community, which might go a long way in the future. Maybe you can even educate some of them and help them metnally prepare. :)
@ Weeone
"There is no "out" to bail to."
Very true, if you are talking about bailing out to some other place (bailing out of the system is another matter entirely). It is much too early in any event to make such a decision (on physical location) as the wheel is still very much in spin at this point. My goals have compressed to the point that all I want is to end up (when all the smoke has cleared from the massive and chaotic deleveraging period still ahead of us) on a fertile piece of land in a relatively sane and rational corner of the world with my family, intact and healthy. Of course if we make it that far then we get to plan, scheme and figure how to get through what comes next, if we can.
Unfortunately, even that simple and straightforward goal may prove to be almost impossible to achieve given the upheaval that is certainly in our futures.
@ Scandia
Very good move IMO. An excellent little bolt-on to your own personal lifeboat. Hope it works out for you.
Congrats.
Thanks to all for your support re my new job. As Bluebird points out my family/friends are not so supportive. They don't think I need to work but they don't have the world view that I have.
I think lots of my fellow seniors will be looking for employment. Yes, I know it is supposed to be different here in Canada:)
For sure not as dire as cmusat has described in Romania... I shall be thinking of you,cmusat, as you sort out your own action plan.Best of luck to you!
If TPTB had any sense, they would be reducing cigarette taxes, not raising them. In times of hunger and boredom from being unemployed, cigarettes help keep the folks docile.
scandia - Great plan, with a built-in community. Nice!
thethirdcoast previously asked:
Great, but what do those of us who absolutely cannot stand Donovan do?
Well, maybe those of the anti-Donovan peresuasion would remember the words of Eduardo Galeano:
"Years have gone by and I've finally learned to accept myself for who I am: a beggar for good soccer. I go about the world, hand outstretched, and in the stadiums I plead: 'A pretty move, for the love of God.' And when good soccer happens, I give thanks for the miracle and I don't give a damn which team or country performs it." (h/t Dave Zirin @ The Notion)
Good athletes can be truly artistic, especially in football. Don't forget, it could have been Clint Dempsey much earlier in the match.
Bluebird,
We are birds of a feather. All but one person I know doubts me. Most think I'm absolutely crazy. Amazingly, in spite of my paralyzing outlook, I still manage to walk th walk at work and appear a zombie among zombies.
...hope that makes sense.
When I read this kind of news from the GOM I am just stopped in my tracks, stunned and feeling so sad. I would like to take the Joe Barton's, Bobby Jindal's, Haley Barbour's, etc. ad nauseam, out in the Gulf a few hundred yards and make them swim to shore. I'd bet they would be doing more than crying like the poor, god forsaken dolphin.
I am embarassed as a Canadian to share this story of how one billion dollars spent on security for the G20 is being employed.
This homeless man is exactly who the leaders should be talking to. They might learn something. Instead the poor man is in detention.He is a danger to society but they aren't? Just look at what is happening and tell me who needs to be protected from whom!
" Man With Crossbow In Car Not Related To G20"
http://www.cbc.ca/canada/story/2010/06/24/g20-security-threat-car.html
BINGO! I just had a fantastic idea! The best way to protect " the innocent" is to ensure that the innocent not be exposed to the G20 leaders. All civilian and military personal now on the taxpayers payroll should surround and coral the leaders, deny them unsupervised access to the free city of Toronto. They can be escorted to the airport when they have finished talking and noshing with each other. Canadians don't need to see them, meet them in any way. I wouldn't even allow them to take a swim in the fake lake. Never know if one of them might try to fill it with oil.
There you go. Problem solved.
How's that?
Oh yes, I forgot. Learned to-day that the town of Huntsville has been prettied up with new roads,
sidewalks etc so the G20 leaders can drive through in their cavalcades. The cost is a lot more than one billion for security!
And who is paying the hotel tab for the special ones and their entourage- a cast of thousands I expect. I keep imaging all those flushing toilets. At least I hope the entourage aren't pissing in the streets!Especially on those brand new expensive streets!
http://www.youtube.com/watch?v=h3bzypjTIWg
Kindra Arnesan - Quoted on PBS Newshour 6/23/2010 Re Gulf Oil Spill
I have to talk about the homeless man in Toronto. He is me in so many ways.
I can imagine him on the move, basic survival tools and the roof of a car over his head. Jeez, I admire the guy for being able to survive. I'll wager he doesn't watch TV. He drives through ground zero and the billion dollar protection racket seize the opportunity and pick him up, the news spreads across the world that our finest have aprehended a dangerous man. And I shiver to think how many people might not be watching TV, how many haven't received the required dose of propaganda?Just like me. No TV.
He doesn't sound like much of a threat to anybody. I'm troubled too that the tools of one's trade are now named weapons by the state.
So-o a question arises I'd rather not ponder. What is the definition of dangerous and who defines it by what criteria? Is it not another odd thing that these leaders who maintain enormous military budgets, slaughtering millions,distorting cultures,destroying whole systems need to be protected from a homeless man travelling light, with only what he needs.
So, of all the players on the stage, who are dangerous?
Wolf at the Door said...
"My goals have compressed to the point that all I want is to end up (when all the smoke has cleared from the massive and chaotic deleveraging period still ahead of us) on a fertile piece of land in a relatively sane and rational corner of the world with my family, intact and healthy."
My goal is almost identical, although I am taking a punt on the region/land as early as possible.
Campbeln,
Events of this type are no longer within our living memory (1929-33, and being old enough to know what was happening), and there are few of us who have the ability to learn from other peoples mistakes... and so we find ourselves here.
Indeed. Every couple of generations people rediscover the magic of leverage and fail to learn the lessons of history. Leverage takes you a long way up, but it kills you on the way down.
I knew they were looking to buy I started to send them articles. The only response I got was venom and anger.....Both of these people are beloved friends who trust me enough to give me keys to their homes. Yet I still cannot get through to them!
I had the same experience with an old friend of mine. We had known each other since we were 10 years old and had alway spent a lot of time together. I tried so hard to talk her out of making a disastrous mistake. She had been in a great position - perennially frugal with savings - but threw it all away on an over-priced home with expensive structural problems. Just the attempt to talk her out of it changed the relationship. She resented it enough that we are nowhere near so close anymore. It's such a shame.
I have had a number of requests to come to California over the last while (San Francisco, Santa Rosa, San Diego, San Jose, and LA to be specific). I am going to try to plan a trip out there as there should be enough engagements to cover the cost of getting there. I am not sure abut dates yet, but I expect it would be fall by the time an itinerary could be arranged. Please let me know if you have any suggestions for events at StoneleighTravels(at)gmail(dot)com.
In one Ohio county, a local judge urged citizens to carry a gun because the sheriff's department was laying off half its deputies.
Well, that pretty much says it all right there. First they raise your taxes and cut your services, then the truth finally comes out: You suckers are on your own.
Anyone who cannot afford a militia or private bodyguards will soon find out the hard way exactly what it means to be one of the "small people".
Cheers,
Jerry
Cmusat,
One of the sayings that float thru here every once and a while is"The future is here...its just not spread evenly...".I forget which of our muses came up with it...but it fits with your situation..
Romania may not be a "Bad"place [if you are not in a ethnic enclave on someones list.]As the country has a bad taste in its mouth from .gov since Ceausescu,I think that local stability would be what your looking for.In many ways ,the food production ,and other systems may be more "robust"and able to tolerate...it will take little in the way of anarchy to break the western food supply system past repair,while the farmers markets , ect., will remain one of the staples .. like in all of europe.Small scale ag is one big headache for those of us in the west.
There is resources in every land.The trick will be to access them ,and not get your head blown of as part of the bargain..Having friends that are peasant farmers may be a good thing...
Bee Good or
Bee Careful
snuffy
Geithner is unbelievable:
"Europe must focus on growth as well as cutting spending to reduce national deficits, US Treasury Secretary Timothy Geithner has said."
http://news.bbc.co.uk/2/hi/business/10411167.stm
@ cmusat. "reality defiant"....
that is the best descript. I've heard of the blind denial going on all around us and I'm going to plagiarze it from now on.
I was talking to a cousin for the first time in many months this week and mused on the eventual fate of Lloyds and RBS banking institutions and the road down which I reckon they'll go, then later on in the conversation I mentioned that the GOM situ, was the biggest issue in the world at the mo. but doesn't even get item ten on the daily news (bbc) here in the UK. he went off on one, his response, exactly, was "you're conspiracied out of your head man" Imagine, the GOM disaster a conspiricy theory !!! WTF are we dealing with here, it was like I had wounded him, two downbeat observations was more than he could handle, I could see that, his defiance of reality was his only defence I suppose, little does he realise blinding himself to the obvious is going to cause him huge of amounts of pain when reality knocks on his door and barges it's way in, Nevertheless I'm through pontificating with anyone I suspect might be in defiance of reality. it's just not worth the hassle anymore.
@Frank, that is heartbreaking, what a way to start my morning.
Congrats scandia. smart move.
I am looking forward to a Joe Bageant take on the GOM disaster soon, think he's stayingin Mexico at the mo. actually, seems like he's been keeping his powder dry for a while, maybe thats the reason.
And my contribution to the gloom for the day?
Check out the youtube trailer for the movie GASLAND. we are slowly dismantling (or in this case dissing the earths mantle!!) the earth piece by piece, what a tragedy.
I thought gas taps were only found in science labs.
Z.
@ Scandia
"What is the definition of dangerous and who defines it by what criteria?"
Anything and anybody that is percieved to be an interference, annoyance or even a distraction to the PTB's ability to live in the lap of luxury and to indiscriminately pillage, loot, rape, destroy and subdue the "lessers" are considered grave threats. "Freedom" to the PTB means the freedom for them to rule as they see fit to maintain control and in thier privelaged positions. Any other type of "freedom", especially as it relates to the rest of us is seen as a threat.
That is why the "war on terror" is so brilliant from a herding point of view. My parents (who support the war on terror vociferously) and me were having a discussion over dinner one night about Nazi Germany and they were expressing shock that average German citizens would turn in or buy into the notion that thier Jewish neighbors were the enemy. I tried to explain that the German propoganda machine of that time turned the very word "jew" into a magnet for fear and hatred. I also asked them to imagine how they would feel if the gov't told them that one of thier neighbors was a "terrorist" and you could see the shifts in thier physiology and expressions at that idea. If you succesfully label someone a terrorist today I would venture to guess that 80% of the country would happily string them up and feel like good patriotic citezens for doing so.
@ wolf
your post sums up my recurring dread we might easily slip into an angry mob - fascist leaning society where people outwith the framework (i.e. us )might become witches to burn
Z.
Re.: Defiance of reality
Will U.K. actually do the budget cut and the required austerity that they need to do?
Will Greece, who has been given one last chance, lead the way and do the budget cuts that they have promised?
Will Timmy apply his own medicine?
"Europe must focus on growth as well as cutting spending to reduce national deficits, US Treasury Secretary Timothy Geithner has said."
@ scandia
"... I have to talk about the homeless man in Toronto. ..."
You have just seen reality and recognized things to come.
HOMELESS ... trying to survive with what you can carry with you.
I think you will see many in loaded cars, vans, trailers, busses, motor homes, trying to find a place to park and find work.
The people of Toronto are so lucky to have had the experience of seeing the future ... "THE GREEN ZONE".
The GREEN ZONE is not for the unwashed homeless.
jal
Scandia,
Thanks for commenting on that poor fellow in Toronto. Arrested for Standing Out From The Crowd, and nothing more. Keep your head down and mouth shut if you want to stay free (unmolested), seems to be the message.
Ontario cabinet enacted a regulation allowing the police to demand ID from and search anyone within 5m of the G20 fence, and arrest at their discretion. The officer's testimony will be considered "conclusive evidence" of the event in court, per the regulation. Nice quote in the CBC by the police that anyone near the fence who refuses to identify himself should be considered hostile.
Sort of reminds of Chretién personally choking a G8 protester. Twas ever thus, between the elites and the proles.
I'm retreating into the world that consists of my wife, our two children, our local neighborhood, our volunteering at a museum, our vegetable garden, fledgling orchard, our family discussions each evening, and our thoughtful books.
@cmusat
I moved from Europe to the Antipodes 2 years ago with 'get out of Dodge' thoughts. I currently feel like Bilbo Baggins in Hobbiton. Unemployment in this state just dropped from 4.6% to 4.1% after peaking somewhat over 5% last year. No doubt things will change here too and weeone's comment is spot on. Just feels like being suspended in time at the moment. When the worm turns (e.g. China), a cold economic chill will surely prevail over these 2.6 million square kilometres of land where 2 million odd people reside.
I think the worry for many is that moving somewhere at this point could be out of the proverbial frying pan and into the fire. Any local knowledge and community you have may not be worth giving up for uncertain prospects somewhere else.
trichter said...
"I think the worry for many is that moving somewhere at this point could be out of the proverbial frying pan and into the fire. Any local knowledge and community you have may not be worth giving up for uncertain prospects somewhere else."
Hummm!
We need a proper evaluation.
The "MODERN GYPSY" will be the homeless traveling in his "wheels".
Like the traditional gypsy, he will do whatever to feed his family and will have trouble entering the green zones.
Check out the Toronto pictures. It appears that he had the tools of a landscaper, not the tools of a terrorist.
jal
@ NZSanctuary
" I am taking a punt on the region/land as early as possible."
Since our goals are similiar, would you care if I asked you what thought process you went through to make this decision? Did you opt to make a start in a completely new place or did you stick with existing family/friends/locations that you knew?
For anyone who hasn't found it; this series of 5 posts to the Opinion section of the NYT is excellent: it's an examination of the nature, origins, and intractability of cluelessness.
http://opinionator.blogs.nytimes.com/2010/06/20/the-anosognosics-dilemma-1/
For those interested in seeing a little further in the function of the human mind, the behavior of human herds, and the management of them; it's great.
It's also long, and dense.
Punxsutawney said... (2 days ago)
Ahimsa –
Interesting, I’m not sure if this is really possible, assuming it happens, the methane wouldn’t explode under water (no oxygen for combustion!), but rapid expansion of the pressurized gas as it rises might cause a so called explosion. The secondary sea floor collapse is more likely to generate the tsunami which begs the question: Are there tsunami sensors in the Gulf? Certainly there are in the Pacific and Atlantic but that will do you little good.
All that methane either dissolved in the ocean or in the air is really bad for the environment in any event.
As far as I know, there are no tsunami sensors in west Florida. Even if there were, it would be very difficult to evacuate 18.5 million Floridians. Imagine the traffic on I-75 or I-95. The elevation of the land where our house sits is 18 feet, 20 miles inland in SWFL.
I wonder how far inland a 100 or 200 ft. tsunami travels. Could the whole state be flooded with such a high wave? This is so scary to contemplate.
I'd appreciate it if TAErs would share their knowledge re this topic.
@ ~J~
Thanks for posting that you tube link of Kindra Arneson. Balloons and ponies indeed, aka "The Hologram".
Kindra Arneson is an inspiration to all who speak out in the name of truth and justice; qualities that are given short shrift by TPTB.
This video needs to go viral.
Scandia,
Congrats! Best wishes on community building.
Re: Who are the dangerous ones?
The rich and powerful! This is relative, though. The poor of the world rightly see most North Americans as the rich and powerful of the world. The largest footprint comes from North America.
Forgive me for changing the subject but in a BBC article on the Belgian police raid looking for evidence to convict a pedophile priest...
" The Vatican has summoned the Belgian ambassador to the Holy See to voice anger over Thursday's raids".
Surely this morally bankrupt church no longer has enough credibility left to " summon" anyone? I certainly hope our Cdn ambassadors no longer feel any compulsion to respond to a Catholic summons!
And the Pope's angry? He has no idea how angry many of us are that he still feels above the law, feels his anger against a police investigation is justified.
Boy oh boy the man needs to wake up!
GOM situation reaches next phase. Gulf Begins Storm Watch as Weather System Lingers off Honduras.
Track Still Unknown
Rouiller predicted the storm may hit anywhere from Brownsville, Texas, to the mouth of the Mississippi. A weather front that is forecast to bring cooler air to the northern U.S. may pull the storm on a more northerly track into Louisiana, he said.
The storm may also take a more southerly track and become a threat to Mexico, said Joe Bastardi, chief hurricane forecaster at AccuWeather Inc. in State College, Pennsylvania.
If the storm does miss the spill area, no one should breathe a sigh of relief, Bastardi said.
The article below on tsunami potential in the GOM which I linked two days ago has been updated with scientific references (at end of article).
"Gulf Oil Gusher: Danger of Tsunamis From Methane?"
http://www.huffingtonpost.com/dk-matai/gulf-of-mexico-danger-of_b_619095.html?ref=email_share
and now...BP Burning (endangered) Sea Turtles Alive
http://www.foxnews.com/scitech/2010/06/23/bp-burning-sea-turtles-alive-says-gulf-captain/
@Greenpa
I'll see your "The Anosognosic’s Dilemma: Something’s Wrong but You’ll Never Know What It Is" and raise you one The Lost Civilization: Finding a Reality-based Frame of Reference in the Age of Delusion by Dan Allen
.
@ Tero
Arch Crawford—publisher of Crawford Perspectives and Wall Street’s best-known astrologer, according to Barron’s—has mentioned the date of July 26. He said it’s the worst day astrologically and technologically that he can see on charts in 10,000 years. I asked him at a conference how bad that was and he said, "It’s so bad I can’t imagine what could happen"—you know, World War III, Iran invasion, complete systemic economic crash, or whatever. I am not of the view that something like that will happen, although it could. We don’t know. I just think we’ll have a long, slow sink in the mud, and this is going to be a very hard recession-depression that will continue for another three to five years.
for what it's worth there's a high probability i could get a couple or a few people to attend Stoneleigh talks in both LA the Bay Area. what is certain is i will be asking it of people as a solemn favor to me. perhaps they will be more receptive to such a worldview by autumn.
Trichter,
1. One could certainly find on a map places where one person/km**2 could not live decently on local resources, but it would take some effort. Moving to such a place to get out of Dodge?
2. Please reread your Tolkein. Bilbo Baggins passed the ring and retired to Rivendell safely before things got scary.
wow illagi! Blockbuster of a post. You did mostly ignore our housing debacle which we are all sick of hearing about. But conventional wisdom says a further drop in values is inevitable. Then please SPLAIN IT TO ME why our insolvent Freddies fannie and the FHA are still writing loans! And no rules yet on stopping securitization! Why then are the homebuilder stocks still flying high? Why are we moving ahead spending almost $400 Billion or more on a new Airborne tanker fleet when our existing aging one is still viable and oil even for the military will be hard to come by in the very near future? Doggone it. I'm back to the garden. I may need those potatoes and carrots this fall.
Just to get things started..
From Thom Hartman's blog:
This So-Called "Banking Reform" Bill
"Nearly two years after the American financial system teetered on the edge of a great Republican depression, Congressional lawmakers have come to an agreement early Friday morning to reconcile competing versions of the the bill in the biggest overhaul of financial regulations since the last Republican Great Depression. Big banks won big in this, as they can continue investing a significant amount of equity in hedge funds. The banks lost when it comes to speculative trades with their capital, although there are some loopholes that may turn into truck routes. The bottom line seems that, much like the so-called health insurance reform, there are a few really good bones in here thrown to consumers but the power, wealth, and monopoly of the big banks that, as Senator Byron Dorgan said of the US Senate, "They own this place," continue to own the Senate as well as you and me. There are no efforts whatsoever in the bill to do the single most important thing necessary to return competition to banking and prevent another economic collapse - that being breaking up the too-big-to-fail banking institutions and require banks to just be banks instead of bank/casino hybrids. Just like the so-called "health insurance reform" will actually give more power and money to the dozen or so monopoly US for-profit health insurance blood sucking leeches...er...corporations and their CEOs, this so-called "banking reform" bill will give more power and money to the half-dozen largest and monopolistic US banks and keep the billion-dollar bonus paydays coming to their CEOs and senior executives and traders."
Frank said:
2. Please reread your Tolkein. Bilbo Baggins passed the ring and retired to Rivendell safely before things got scary.
And he passed the ring on to Frodo.
I fear we don't have a Frodo in our midst to receive the handoff and save us.
It is looking like Mordor will win.
I guess all we can do is hunker down as best we can with our loved ones (and if you are lucky, a community) and avoid the all-seeing eye and the Nazgul as best we can.
@Tero
My interpretation of what Crawford was saying is that it is something which will occur beyond the GOM catastrophe as it currently exists. This is based upon the idea that these predictions are very time specific and we are still 4 to 5 weeks short of the critical point. This is not to indicate that I am a avid supporter of astrological predictions though I did study the area in detail some 40 odd years ago and still remember a surprising amount of the content (considering that I have difficulty remembering what I ate for breakfast). If Prechter didn't speak so highly of Crawford's track record, I wouldn't have given this prediction much weight. Another thing that I found impressive about Crawford is that he has a very strong understanding of physical science and technology which is a bit unusual for astrologers. So we will see what we shall see. I would say that the event, whatever it may be, should occur within plus or minus a week of August 1.
@Scandia
I think your new job is an excellent idea. I, and perhaps others, might be interested in brief details of your duties.
Also,
I am quite literally chilled out in Argentina as we have just gone into winter and we are experiencing a cold snap in my location. I managed to pick a rather temperate area at some altitude and I think the temperature may approach freezing tonight. I am out of firewood and LP gas is backordered.
The culture in this country in the inland areas, and I cannot comment on Buenos Aires, is very different than in the USA and Canada. People are much more connected with each others feelings and typical Usaco interpersonal relations are viewed as boorish. There also appears to be a lot of anti-Usakistan and Usaco feeling here based on a rather accurate assessment of the nature of the Empire and the brashness, violence, and money oriented nature of the culture up north. I must be quite careful to maintain a sensitivity which is not part of my natural repertoire. I guess an old bird can learn new tricks. One might hope.
I still follow TAE and the comments closely but as you may have noticed am commenting far less. One reason is that I am much busier than I was previously. But another reason is that we have had such an influx of talented and insightful new commenters, that I feel content to sit back and read what others have to say.
@ Greenpa - The anosognosics dilemma article was quite good and enjoyable. I hadn't know about President Wilson. However, I'm a bit startled that the concept of "unknown unknowns" is surprising to many (most?) people. And Nobel laureate physicist Steven Weinberg's "claim that someday we will be able to know everything" is actually somewhat shocking to me. For myself, I can pin the "unknown unknowns" revelation to when I was about 20 years old.
All humans have filters which give us limited perspectives. Some people have more, some have less. They can apply to select areas of life and knowledge. They can be removed (enlightenment), or they remain. Beyond those filters - whether individual or collective - lie the "unknown unknowns."
Top Cat- well, it's not a terrible effort- but. He says all you need to do to find reality is slow down and look around... then he comes out with:
"100,000 ybp: Obtain modern body appearance. Still primitive mind with no true language and only simple social structures."
Um. Yes indeedy, that's what you'll find if you go look up a "human timeline." However, the EVIDENCE for a "primitive mind" and "only simple social structures" is- exactly - zero. Those are well accepted understandings of primitive man based solely on the clear evidence that WE, now, are obviously the pinnacle of creation, ergo, obviously, earlier forms must have been less perfect than we.
So- he's still a student; not a thinker. He accepts what is fed to him, without really thorough examination. Still. Some interesting stuff.
I really liked the anosognosic stuff because they mostly stick pretty tightly to one topic; "how can we be so stupid?" - which, as we know, is a frequent lament around here.
And; for the Polka Dot Gallows:
http://www.nytimes.com/2010/06/26/world/europe/26iceland.html
Reykjavik has elected a comedian; running a spoof campaign- as it real life mayor.
He has a taste for the surreal, and seems willing to actually put that into practice.
Seems like a solid good idea to me. No joke.
@JPBS
@Greenpa
Times
@J
turtles
The riots should be starting real soon.
The unemployed have no reason not to start shooting.
And many conservatives (like Denninger's crew) have no reason not to start shooting them.
cmusat: More and more will get out through violence. They'll either be jailed (which will be basically where many millions would end up anyway, once the Constitution is done away with and the slave labor/concentration/FEMA camps start up) or they'll kill themselves and/or others.
Ka: It's becoming more and more clear that they do not want the people "docile". They want them either enslaved or dead.
scandia: I am now convinced that I am considered a terrorist for being poor. I may be a few months from giving the fuckers a real reason to consider me a terrorist.
@Starcade...I agree with you that those with something fear those with nothing.
From time to time there is a move to " clean - up " the rough downtown areas. I always ask my middle class friends where they think the street people, those living in rooming houses are supposed to go. The question always generates a perplexed look.They cannot yet imagine themselves needing shelter,food, certainly cannot imagine needing somewhere to bathe.
My superintendent job is with geared to income housing. I will be on the front lines so to speak.
I expect my community building will be with those who have fallen through the cracks of our capitalist society.
Interesting times ahead for me as of August 1st!
ElG
Completely off topic.
Are the people of your new found community football mad or is that just not part of Argentinian rural culture.
Z.
@ Zander
Eng is toast, 'Psychic' octopus predicts German victory over England
http://bit.ly/9yJ8xF
Octopus has a great track record, Bummer...
@VK
I certainly hope so, I'm scottish and a member of the ABE club :)
I'd support England if only it weren't for the sponging parasites at westminster.
I got 25 quid each on Argies and Dutch for outright win, couldn't decide who to put my £50 on, so split it.
Last time I had the winner was France '98.
Who you fancy?
Z.
@ el gal
The astrological "event" (big grand cross involving all the outer planets except Neptune) by my assessment really stretches over the period April through September inclusive, with a couple of brief periods of "heightened" probability.
Those peaks were/will be Late-Mid April, Late June (eclipse of moon tonight down under - beautiful) and finally Early August.
How did the late-mid April peak fare;
a) Icelandic volcano suts down european airspace.
b) Oil well blows out in GOM.
c) Violent riots in Tailand.
d) Riots in Greece.
e) Kevin Rudd crashed the Australian dollar and began his slide to oblivion (clumsy, greedy grab for money through mining tax.
f ) The global stock markets turned
Now late June - TS Alex formed today, on the eclipse.
I've got a physics/math and an electronic engeneering degree but no PhD so I'm not totally "science" dumb.
Gathering data, i noticed the last time we had an outer planet pattern essentially identical to the core of the present pattern
(Saturn Uranus Pluto T Square - up to 5 years duration) was 1929-1934. )
There was a vaguely similar pattern (Uranus conjunct Pluto both opposite Saturn) starting with the assasination of JFK and ending with Watergate and the demise of Nixon, the Vietnam War.
Fascinating reasearch topic.
Enjoy you posts el gal.
Zander
Argentines are as football mad as they come. There is a shortage of light blue hair dye all over the country. I know very little about the details of football, but it appeared to me that the Argentine team really put it together in their third game victory over Greece after a very slow start squeaking past Nigeria. They totally dominated in terms of possession during the last part of the game. (Truth is that I only saw the last third). Hopes are quite high here to take it all.
Glennjeff
When I was interested in astrology it was natal and not transit, so I have little to reply to your comment. Crawford, like you saw a spread out catastrophe. But he was also quite adamant that there would be a special "event" in the close time frame around August 1. We shall see. According to him, it will be something quite spectacular in a negative way and not open to mumbling interpretations.
@ Zander
I'd bet on the Argies and the Dutch. I'm with you on this! I do have a soft spot for England though since I watch a lot of the Premier League :)
@ GlennJeff
Thanks for the interesting astrology post. Fun stuff! Though I'm hoping for England's sake the psychic squid is wrong. Wonder if the Golden squid has a golden astrological ball in FED headquarters ;-)
That would explain their perfect record.
After watching ... read the comments
Competition is increasing for TAE.
(people are learning)
http://www.businessinsider.com/meredith-whitney-us-consumer-rebound-2010-6?source=patrick.net
Meredith Whitney: The Rebound In Consumer Spending Is Just The Result Of People Not Paying Their Mortgages
New post up.
The Great Tropical Debt Depression
.
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