Friday, October 1, 2010

October 1 2010: Stoneleigh Goes on Sale AND Beyond the Trust Horizon


Carl Mydans Homesteader February 1936
"Young homesteader, Westmoreland Homesteads. Mount Pleasant, Pennsylvania"


Ilargi: Dear readers,

As you probably know, there has been a enormous amount of interest in the North American and European speaking tour for Stoneleigh's live presentation: "A Century of Challenges". The high levels of interest and participation have truly been as gratifying as they are encouraging.

We know that, obviously, not everyone can make it to these events, so, by strong popular demand, we have recorded the speech for viewing online. To ensure the best possible audio and video quality, we hired a professional media company to record and edit it. This has resulted in an interactive presentation that we feel proud of.

At this point in time, "A Century of Challenges" will be available only as a streaming file. That means you will not be able to download it to your computer or other device, and you will not need a box to put it in. We do plan to produce a DVD of the presentation at some time in the future (Christmas comes to mind), provided there's enough interest.

The streaming file format we have opted for will cost you only $12,50. Purchasing it will give you unlimited access for as many repeated viewings as you desire. Yes, there are some drawbacks: for instance, you need to be where you have access to a reasonably high-speed internet connection. And we do realize that some people don’t have that, even as most of you do.

So we decided that if enough people purchase the streaming file, part of the revenue generated will go into producing the DVD, and those who purchase both won't need to pay the full price twice, so there's no need to wait. Also, an added feature of the presentation are subtitles; these, as well as the graphs presented, will be translated in several other languages, such as French, German, Italian and Spanish.

This way we will manage to make the whole process something that pays for itself as we go along. That is, if a sufficient number of you show the same interest that our live audiences have. Judging for instance by the amount of time Stoneleigh has spent answering questions in each of the dozens of locations where she has presented "A Century of Challenges", we feel certain the level of interest will be considerable.

The process for ordering will be explained to you on the page you reach when you click RIGHT HERE or on the new button located in the right hand column of the TAE site, directly below the banner. We sincerely hope you enjoy the presentation, learn from it as well, and get back to us with your questions and remarks.


Kindness and regards,

Stoneleigh and Ilargi at The Automatic Earth.







Stoneleigh:

Beyond the Trust Horizon




Relationships of trust are the glue that holds societies together. Trust takes a long time to establish, and much less time to destroy, hence societies where trust is wide-spread, particularly for long periods of time, are relatively rare. In contrast, societies where trust does not extend beyond the family, or clan, level are very common in history.

The spread of trust is a characteristic of expansionary times, along with increasing inclusion, and a weakening of the 'Us vs Them' divide. Essentially, the trust horizon expands, both within and between societies. Over time it can encompass higher levels of organization - from family to community to municipality to region to nation and beyond - so long as the expansionary dynamic continues to support it.

Within societies this leads to relatively stable and (at least temporarily) effective institutions, and bolsters the development of the rule of law. The rule of law means that law constrains the powerful (more than usual), and there is a reasonable degree of legal transparency and predictability, so that people are prepared to trust in the fairness and accessibility of justice. Naturally, the ideal is never reached, human nature being what it is, but it can be approached under the most favourable of circumstances.

Within societies, trust also confers political legitimacy (ie a widespread buy-in as to the right of rulers to rule). Where there is legitimacy, there is relatively little need for surveillance and coercion. A high level of trust (all the way up to the level of national institutions) is thus a prerequisite for an open society.

Between societies, an expansion of the trust horizon tends to lead to political accretion. Larger and more disparate groups feel comfortable with closer ties and greater inter-dependence, and are prepared to leave past conflicts behind. The European Union, where 25 countries with a very long history of conflicts have come together, is a prime example.

However, all expansions have a limited lifespan, as do the benefits they confer. They sow the seeds of their own destruction, especially when they morph into a final manic phase and begin to hollow out the substance of social structures. Institutions, whether public or private, retain the same outward form, but cease to operate as they once did. For a while it is possible to maintain the illusion of business as usual (or effectiveness and accountability as usual), but not indefinitely. Everything is subject to receding horizons eventually, and trust is no exception.

Over time institutions become sclerotic, unresponsive, self-serving and hostage to vested interests, at which point they cannot be reformed, as the reform would have to come from those entrenched individuals who have benefited most from the status quo. Institutions become demonstrably less effective, while consuming more and more of society's resources. Corruption, abuses of power, lack of accountability and the loss of the rule of law become increasingly evident, exactly as we have seen with unauthorized wire-tapping, extra-ordinary rendition and many other actions undermining the open society. Once this happens, trust is living on borrowed time. That is very clearly the case in many developed societies today.

Trust in existing organizational structures does not disappear overnight, but ebbs away as institutions decay or the extent of their corruption is revealed. The loss of trust from higher levels of organization undermines the fabric of a society now operating beyond the trust horizon. When trust contracts, socioeconomic contraction is just around the corner. Bank runs are a particularly good example of this. People are currently waking up to the extent of the recklessness, irresponsibility and self-serving short-termism of the banking system, and realizing that reliance on top-down human promises is far riskier than they had supposed. When they cease to trust in those promises, they will are very likely to vote with their feet.

Societies in this position lose a critical pillar of support - the collective acceptance of their people. Governing institutions lose legitimacy, at which point the cost of governance increases significantly, because where there is no trust, resource-intensive surveillance and coercion develop instead. Our societies in the developed world, where institutional decay is well underway, stand on the brink of such a transition.

Where resources are scarce, as they will be soon enough, the diversion of a larger percentage of what remains towards this purpose will aggravate that scarcity considerably. This will further anger people, which is likely to lead to a downward spiral of mutual provocation and recrimination. Most of us have not seen this vicious circle of human sentiment to any great extent, but this is the natural consequence of the collapse of trust.

On the way down, as on the way up, there are effects both within and between societies, as the 'Us vs Them' dynamic sharpens once again. 'Us' becomes ever more tightly defined, and 'Them' becomes an ever more pejorative term. The result is division between disparate groups of people within a society, for instance the unionized and non-unionized, the haves and the have-nots, or different religious or ethnic groups. When there is a paucity of trust, and not enough resources to go meet highly inflated expectations, the risk of conflict is very high. Previously formed political accretions are at a high risk of coming unglued as they will no be longer supported by trust. The European Union should take note.

Between societies, where the existing range of divisive parameters is likely to be much larger, and where there may be a past history of conflict, the risk of conflict flaring up again rises significantly. This is especially likely if societies attempt to deflect blame for the situation they find themselves in towards other nationalities.

We are already seeing evidence of the growing anger, and the change it will usher in as the trust horizon shrinks. In the US, the Tea Party movement is the most obvious example. All major change comes from the ground-up, where the power of the collective is expressed in ways that either support or undermine the actions and intentions of central authorities. It is the interaction between the power of the collective and central authority that determines where a society will head.

The Tea Party movement is a ground-swell of public anger, very much in the tradition of major transformative grass-roots initiatives. It is exactly what one would expect to see at the brink of a collapse in the trust horizon - a movement grounded in negative emotion that both stems from a loss of trust and in turn acts to aggravate it in a self-reinforcing positive feedback loop. The danger with such a movement manifesting such powerful negative emotions is that it will precipitate a major over-reaction to the downside, commensurate with the irrational exuberance we saw to the upside. The anger is largely unfocused, and where it is specific, it is not fully-informed. 

The primary target of the Tea Party is big government, but this ignores a major part of the big picture. The abuses of power we have seen are not purely a manifestation of metastatic public authority, but an expression of corporate fascism - the blending and merging of public and private interests in social control. One look at the revolving door between the banking system (where banking law is written) and the US treasury should be enough to demonstrate this.

The Tea Party movement represents largely (but not solely) the unfocused anger of people who know they have suffered, or are about to suffer, substantial losses, but do not (typically) understand the system well enough to understand why. The movement is casting about for someone to blame, as such movements always do on the verge of a trust collapse. The danger is that someone with facile populist answers will come along, offering a target for the urgent desire to blame someone for what has happened and is happening.

This is already happening, as powerful funding sources and nascent populists circle around and seek to tap into the trend for their own purposes. It is absolutely to be expected that existing top-down power structures, or political opportunists with their own agenda, will seek to hijack bottom-up movements as they develop. My primary concern is that in doing so they will lay the foundation for a society attempting to live far beyond the trust horizon, and where there is no trust, and consequently no political legitimacy, there will be surveillance, coercion and repression instead.

It will be easy for movements grounded in negative emotion to gain a foot-hold in the coming environment, as this is very much where the collective mood will lie in the aftermath of a Ponzi collapse. Blame-games will be very tempting (and populists have their own prejudicial ideas as to who should be blamed). However, this would not be compatible with maintaining the constructive and cooperative mindset we need if we are to have a hope of avoiding an over-reaction to the downside that has the potential to magnify the impact of what is coming enormously.

Personally, I would like to encourage the development of a different kind of grass-roots momentum for change, along the lines of what is being developed (albeit not nearly quickly enough so far) by the Transition Towns movement and other comparable initiatives. The key advantages that this kind of approach has are two-fold - the scope of its component activities, based on relocalization, match where the trust horizon is headed, and its driving force is the desire to build rather than to tear down.

Working within the trust horizon is important, as it means individual small-scale initiatives can benefit from the same kind of social support at a local level that larger-scale ones once did at a societal level, when trust was more broadly inclusive. Local currencies work for exactly this reason. While the task will still be difficult, it has a chance of being achievable, especially where the necessary relationships of trust have been established before hard times set in. It is very much more difficult to build such relationships after the fact, but relationships built beforehand may actually strengthen when put to the test.

Trying to maintain a positive and constructive focus at the local level, where trust has a chance to survive, and perhaps even thrive in hard times, and to avoid being drawn into a blame-game, will be an uphill battle. It is nevertheless something we need to do as a society, if we are to have a chance to preserve as much as possible of who we are through what is coming.












Big Bank Foreclosure Delays Signal Big Trouble
by Diana Olick - CNBC

JP Morgan Chase told CNBC on Wednesday that it will delay more than 56,000 foreclosure proceedings due to paperwork that was signed, "without the signer personally having reviewed those files." That came on the heels of GMAC halting foreclosures and evictions in 23 states for roughly the same reason. All this leads anybody with a heartbeat to figure that other large servicers will likely follow suit, as potential lawsuits abound.

So what will that mean to the larger foreclosure crisis and the already weakening housing recovery? "It's clear the pace of foreclosures will slow down," says Laurie Maggiano, Policy Director in the Treasury Department's Homeownership Preservation Office. "I would suspect that most responsible lenders are going to be looking at their processes and making sure that they've done everything properly, so they're not subject to the same accusations and lawsuits."

So far the largest lender/servicer, Bank of America has not returned my request for information, but you can imagine the level of scrambling going on right now at all the major servicers, now that a big name like JP Morgan Chase has made its move. Whether or not the foreclosures are bad, and I suspect the majority of them are valid in their claims if not in their procedures, the potential for a much bigger mess is high.

"As of right now this is a policy and procedure issue until proven otherwise, but never underestimate mid-term electioneering," says mortgage consultant Mark Hanson. "If this does go to the next level (i.e. national foreclosure moratorium, fear that hundreds of thousands of foreclosures have been performed illegally, etc.), the unintended negative consequences on the mortgage market, MBS investors, banks' balance sheets and ultimately the housing market will be significant. "

We're already seeing threats of ratings agency downgrades on all the major servicers, not to mention the threat to housing's overall recovery. If the bulk of these cases are valid, then delaying them is only going to prolong the pain. "Worst case is that the current foreclosure problems turn out to be industry-wide and trigger a landslide of legal challenges that lock up foreclosures resolutions for a year or more," says Guy Cecala, publisher of Inside Mortgage Finance.

That means all kinds of borrowers would sit in their homes free of charge, banks would be unable to get any return at all, and the housing market would still be facing the inevitable: "We may then see a [foreclosure] surge at some point in the future," notes Treasury's Maggiano. We've talked an awful lot about artificial government stimulus skewing the housing recovery as it tries to help; that's nothing compared to the potential for this latest scandal to wreak havoc on housing yet again.




Meredith Whitney's new target: The states
by Shawn Tully - Fortune




The housing crash not yet realized its full impact on budgets in the most vulnerable states. It's the banking crisis all over again – and it's time to stop ignoring it.

Meredith Whitney, the superstar analyst who famously forecast disaster for America's big banks before the credit crisis struck, is now warning about another looming threat: The wreckage from over-stretched state budgets. [This week], Whitney is releasing a 600-page report, colorfully entitled "The Tragedy of the Commons," that rates the financial condition of America's 15 largest states, measured by their GDP. Whitney claims that the study is the most comprehensive, in-depth analysis of the states' murky patterns of spending, revenues and benefits programs ever assembled by the government, foundations, or another research firm.

What Whitney found reminds her of the poor disclosure and arcane accounting rules that hid the fragile condition of the banks and monoline insurers that she unmasked. "The states represent the new systemic risk to financial markets," says Whitney. "I see a lack of transparency and an abundance of complacency on the part of investors and politicians, just as we saw before the banks imploded."

The study represents a departure for Whitney, whose boutique research firm specializes in providing its clients, including hedge funds, big institutions and banks, with proprietary research on the financial condition of consumers, ranging from projections on credit card defaults to regional employment trends. So why the mega-work on the states?

"It's not that my clients requested it," says Whitney. "I was just so shocked by what I was seeing that I couldn't stop. Any long-term strategic plan needs to take account of the dangerous, mostly overlooked problems in the state finances." Whitney describes the reports as "her favorite child."

The title, "The Tragedy of the Commons", comes from a parable about greedy farmers who let their sheep gobble up all the grass in a pasture, leaving the land barren and unfarmable––reflecting the spending frenzy that promises to decimate the prospects for many of America's largest, and formerly most prosperous, states.

Bigger economies, lower ratings
In the report, Whitney rates the fifteen states on four criteria, their economy, fiscal health, housing, and taxes. For each category, she assigns a rating of one, two or three for best, neutral or negative. Only two states get positive overall ratings: Texas and Virginia. Eight are either negative, or rated neutral, with a negative bias. The rub is that those are typically the states with the biggest economies: California, Ohio, New Jersey, Michigan, and Illinois (all negative) and Florida, Georgia, and New York (neutral, negative bias).
The full rankings:
Worst states

1. California
2. New Jersey, Illinois, Ohio (tie)
3. Michigan
4. Georgia
5. New York
6. Florida

Best states
1. Texas
2. Virginia
3. Washington
4. North Carolina

Neutral states: Pennsylvania, Maryland, Massachusetts


Put simply, the study warns that the giant gap between states' spending and their tax revenues, estimated at $192 billion or 27% of their total budgets for the 2010 fiscal year, presents two dangers that investors are seriously underestimating. First, municipalities could start defaulting on their bonds guaranteed by the cities and towns themselves, an exceedingly rare event over the past three, mostly prosperous, decades. "People keep saying it can't happen, just as they said national housing prices could never go down," says Whitney. "Now, it's a real danger."

The reason: the municipalities receive one-third of their revenue from the states. If the states hold back that money for their own stricken budgets, towns and cities won't have the funds to make their interest payments. "It has to happen," says Whitney. "The states will secure their own shortfalls, and leave the cities to fend for themselves." It's all about inter-dependency, she says, with the federal government aiding the states, and the states funding the last and most vulnerable link, the municipalities.

Housing fallout continues
Second, Whitney sees the budget shortfalls as a far stronger leash on both employment growth and overall expansion than investors realize. The common thread between the banking and looming state financial crises, she says, is housing. "The entire financial system was over-leveraged to real estate," says Whitney. "So were the states."

During the boom years from 2000 to 2008, the states that grew the fastest were the ones where housing prices grew fastest, and where construction flourished, including California, Florida, New York, and New Jersey. In Florida, almost 30% of income growth came from real estate, an astoundingly high figure. Tax revenues soared during the real estate frenzy, and spending soared along with them. Now, revenues have collapsed with housing prices, and spending is proving far stickier. The legacy: Today's gigantic deficits.

Then, as housing prices fell, the states that grew the fastest and outperformed in the strong years, are now posting the worst economic performance––for the obvious reasons that they face the biggest mortgage delinquency and foreclosure rates, as well as high unemployment due to the collapse in construction and mortgage lending. The "haves," says Whitney, have suddenly evolved into the "have-nots."

The problem is that the states that benefited disproportionately from housing are generally the biggest economies, so their woes have become a deadweight on overall economic growth. "Other states such as Nebraska, even with larger ones like Texas, aren't large enough in total to offset the weak growth in the states that depended on real estate," says Whitney.

What investors are missing, says Whitney, is that growth in those states is destined to remain feeble because of the drastic measures needed to redeem their finances. By law, almost all states are required to balance their budgets. Right now, the Obama stimulus package is making up over $60 billion of the $192 billion shortfall for fiscal 2010. But that money is slated to disappear next year. States are already raising taxes, or planning to -- voters in Washington will soon vote on a referendum to levy an income tax.

The biggest source of funds to fill the still-giant gaps is especially worrisome: Raiding pension and healthcare funds. States from California to New York are shifting contributions needed to pay workers' benefits in the future toward funding current expenses. The housing collapse will leave a different legacy by forcing big tax increases, and cutbacks in benefits including a rise in retirement ages. Millionaires who provide a huge share of the revenues will leave the high tax states, leaving the poor who need most of the services.

"The scary thing," says Whitney, "is that no one wants to talk about it. When you get the data and mechanics together the situation is as basic as it was for banks or consumers." "The Tragedy of the Commons" should get people talking, and the daunting scale of the numbers should get them outraged.





The ugly reality of lowering debt by default
by Nin-Hai Tseng - Fortune

There have been at least a few seemingly positive signs of progress during this anemic economic recovery: U.S. households are spending less. They're saving more. Debt is steadily falling.

But don't be fooled by the cheery headlines. The trend toward fiscal discipline might sound uplifting, especially at a time when many have learned all too painfully that they spent too much in the years leading up to the financial crisis. But dig a little deeper and you'll find that even the best economic news is masking something ugly. It turns out that many households aren't exactly tightening their wallets and using all their saved cash to pay down debts. They're simply defaulting on them.

Total household debt fell by $77 billion during the three months ending in June, but nearly half of that decline stemmed from bank charge-offs of residential mortgages, credit cards and other consumer loans, according to Capital Economics Group. In a recent report, the London-based economic research consultancy found that this isn't necessarily a new development. Household debt has fallen every quarter since the beginning of 2008, leaving it $473 billion below the peak, which is the equivalent of reducing debt at every household by $4,200.

Shedding away debt - however it's done - is critical to the overall health of the economy. But the wave of households de-leveraging by default is worrisome. And many Americans are using their new savings to buy up U.S. Treasuries instead of devoting it all toward paying down debt. During the past year, households bought 42% of the new Treasury debt issued, equal to about $616 billion and far more than the $432 billion absorbed by foreign investors.

This will probably prolong the de-leveraging process further, say analysts at Capital Economics. Until households can meaningfully shed off debt, it will likely be one of the key factors stalling economic growth and the job market as many companies wait for GDP to pick up significantly before hiring more workers.

Cutting plastic or cutting credit card bills?
The wave of defaults on mortgage loans is no surprise, given the rise in foreclosures and the fall in housing prices. But perhaps even more troublesome is the increase in consumer defaults on credit card debt. It's been widely reported that debt levels on credit cards have fallen - at one point surprisingly dropping below the level of outstanding student loans, according to an August story in The Wall Street Journal.

But consumers haven't exactly discovered a newfound sense of frugality. In 2009, outstanding credit card debt dropped by about $93.2 billion compared with the previous year, according to a report from CardHub.com, a credit card comparison website. This might sound like good news, but the reality is that the majority of the drop -- $81.6 billion -- is due to Americans defaulting on their debt.

So the real decrease is much smaller - about $11.6 billion - and much of that came during the first quarter when many people used tax returns to pay down card debt. At this rate, CardHub.com predicts consumers in 2010 will actually accumulate at least $26.2 billion more in credit card debt over last year. "It's alarming," CardHub.com CEO and founder Odysseas Papadimitriou says. "We cannot revert to pre-recession debt levels."

Household debt might generally be falling, but at what cost? Those who default, depending on the size of the loan, take sizeable hits to their credit background, which could impact the terms of future loans. So while consumers' debt burdens might technically be less today than they were just a few years ago, at least on paper, the burden is still quite heavy on the minds of consumers. 




Blame Nobel for crisis, says author of "Black Swan"
by Adam Cox - Reuters

Did the Nobel prize help trigger the worst financial crisis since the Great Depression? Nassim Taleb, who shot to fame with his ideas about risk in the book "The Black Swan," believes the economics award and the theories it celebrates deserve their share of blame. "I want to remove the harm from these economic models. And the Nobel is not helping. They should be held partly responsible, if not largely responsible, for the crisis," Taleb told Reuters by telephone.

The first of the Nobel awards will be announced next Monday, with the economics prize due a week later on Oct 11. According to Taleb, there are a number of mistaken ideas about forecasting and measuring risk, which all contribute to events like the 2008 global crisis. The Nobel prize, he says, has given them a stamp of approval, allowing them to propagate. Taleb is a former trader who took advantage of the mispricing of derivatives to make his fortune in the years before the crisis. He published "The Black Swan" in 2007 and went on to make millions more during the upheaval.

He rattles off a list of Nobel prize winners who make his blood boil. They include: Harry Markowitz, William Sharpe, Robert Merton, Myron Scholes, Robert Engle, Franco Modigliani and Merton Miller -- a virtual "Who's Who" of the economic world. Merton and Scholes, for instance, were recognized for their work in valuing derivatives. Modigliani and Miller are known for a theory which some have argued promotes financing by debt. Taleb attacks their works for how they are constructed and what they lead to. "There is no world in which these ideas can work mathematically," he said.

Forecasting methods, which he discusses in detail in his book, create a false sense of security or, worse, send people in the wrong direction. Universities then compound the problem by teaching these Nobel-approved ideas as orthodoxy. His conversation is peppered with metaphors. "If I give you a map of Sparta when you're in Johannesburg, you will definitely have a problem," he says of the tools used in modern finance. Taleb said he has met with the King of Sweden and suggested he do something about the economics prize, which was an addition in the 1960s to the roster of prizes awarded since 1901 for science, literature and peace.

"He Crashed The Plane"
But if he is unable to make headway in Stockholm, does Taleb believe his new influence can help him change the practices of important policy makers? He will be the first to say that his blunt, uncompromising manner make that highly unlikely. He says he walked out of a meeting that included Treasury Secretary Timothy Geithner and other luminaries and wouldn't feel comfortable shaking their hands.




Obama's Economic Team May Be Disbanding But They've Already Done The Damage
by L. Randall Wray - Benzinga

Isn't it remarkable that President Obama's economic team is suddenly itching to return to academia? The latest economic advisor to give in to the clarion call of the classroom is Larry Summers, following closely on the heels of Christina Romer, who surprised her department chair by announcing that she'd be teaching this year. To be sure, in Summers's case, it is not so clear that his Harvard colleagues are looking forward to his return—as President of the university he offended most of the faculty by arguing that women are inherently inferior when it comes to science.

That was by no means the first time he behaved like a bull in a china shop. As chief economist at the World Bank he had argued that developing nations ought to serve as toxic waste dumping grounds for rich countries. He also wrongly claimed that California's energy crisis in 2000 was caused by excessive government regulation—rather than by fraudulent dealings of Enron.

Still in terms of the real damage he has done, nothing comes close to his actions when he was serving Wall Street's beck and call in the administration of President Clinton. He lobbied for repeal of the Glass-Steagall Act, letting banks get more involved in the securities business that blew them up in 2007. He also opposed regulation of the derivatives market, attacking the head of the Commodities Futures Trading Commission - Brooksley Born - perhaps the only member of the Clinton administration who had any sense about financial markets. Summers helped to ban the federal government from regulating credit default swaps, and helped to deregulate the commodities markets. Most importantly, he helped to make it possible for pension funds to speculate in commodities like food and oil. Thus, he contributed directly to the speculative frenzy that drove up gas prices at the pump, and inflated food prices that brought on starvation around the globe.

Wall Street immediately rewarded Summers with $8 million in consulting and speaking fees. Most amazing of all, President Obama thanked him for helping to create the global crisis by appointing him as top economic advisor in his administration. Summers was the gift that just kept on giving—to Wall Street. He helped to devise the bail-out that spent, lent, or guaranteed more than $20 trillion to rescue the financial sector. Whilst providing barely a few peanuts for main street.

There are probably only two individuals who bear more responsibility for the crisis than Summers—Robert Rubin and Timothy Geithner. As Treasury Secretary under Clinton, Rubin helped to hand economic policy-making over to Wall Street—most notably to his former employer, Goldman Sachs. We haven't heard much from Rubin in recent weeks (since some rather embarrassing revelations of a somewhat sordid relationship he had with a younger woman). Of the triumvirate that oversaw the creation of the crisis, only Geithner remains on the front lines.

As NY Fed president he stood idly by, watching those Wall Street institutions under his supervision as they manufactured the debacle. Apparently, Geithner never saw a risky practice he did not like. He famously told Congress that as head of the NY Fed he had never been a financial regulator—an accurate statement even if it utterly conflicted with his job description. For this failing, he was rewarded by Obama, who made him Treasury Secretary. Unfortunately, with the resignations of Summers, Romer and Peter Orszag, the weight of Geithner's opinion rises—not a good thing.

And Orszag was recently replaced as budget director by Jack Lew, who now holds the position he held in the Clinton administration. Almost two years into the Obama administration and three years into this crisis, policy is still dominated by the Clintonites. Look, if the voters had wanted a Clinton, they could have had a Hillary. No doubt she would have brought in the Clinton team, with a somewhat more legitimate claim to the Clinton mantle than Obama enjoys.

The Clintons and their team firmly believe that they did a good job with the economy in the 1990s. That is belied by the evidence--their policies set the stage for the current economic collapse. They are the ones who unleashed Wall Street, allowing it to create toxic financial instruments that were designed to explode. They ran the budget surpluses that killed the economy—and left poor President Bush with a deep recession. In truth, there wasn't much that Bush could do given the state of the economy except to allow Chairman Greenspan and Treasury Secretary Paulson to run serial bubbles to try to temporarily jump start the economy. The crash was inevitable—what goes up must come down, and by 2007 Wall Street had run out of borrowers willing to take on debt they could not possibly repay, and suckers willing to hold ever more debt that would never be serviced.

Two years on, there is still no hint that Obama wants change. Voters are tired of audacity. They were promised the audacity of hope, not the audacity to continue to shift income to the wealthy. And yes, the data are out. President Obama is presiding over the biggest wealth redistribution in favor of the rich the US has ever seen. Forty million Americans are on food stamps; forty four million are living below the poverty line. And the rich are richer than ever before. This is not a coincidence—it was the Clinton strategy of shifting an ever larger share of GDP and corporate profits to the financial sector. The economy has collapsed under the weight of all that finance. And yet we still see no evidence that the President plans to change course.
 
L. Randall Wray is a Professor of Economics, University of Missouri—Kansas City.




Currency Wars: A Fight to Be Weaker
by Tom Lauricella and John Lyons - Wall Street Journal

Tensions Grow in Foreign-Exchange Market as Countries Scramble to Tamp Down Their Money

Tensions are growing in the global currency markets as political rhetoric heats up and countries battle to protect their exporters, raising concerns about potentially damaging trade wars. At least half a dozen countries are actively trying to push down the value of their currencies, the most high-profile of which is Japan, which is attempting to halt the rise of the yen after a 14% rise since May. In the U.S., Congress is considering a law that targets China for keeping its currency artificially low, and in Brazil, the head of the central bank said the country may impose a tax on some short-term fixed income investments, which have contributed to a rise in the real.

Businesses always want to be more competitive and politicians often talk a big game. But in the current environment, as many economies are still struggling to recover from the global financial crisis, worries are growing that policy makers could be more aggressive in protecting their nation's business interests. Rising protectionism is "a very big risk," says Erin Browne, a macro stock market strategist at Citigroup. "And it's something that could move more into the spotlight after the [U.S.] election."

Currency-market strains could also be a topic of discussion at next week's IMF/World Bank meeting in Washington where central bank and government finance officials will be gathering. The Japanese government earlier this month stepped into the currency markets for the first time in years. To counter the yen's rise, Japan sold some $20 billion worth of its currency, which traders said was its biggest-ever effort in a single day.

Japan joined many other Asian emerging-market countries that have fighting rising currencies on a near daily basis, such as Taiwan, South Korea and Thailand. In Latin America, Brazil, Colombia and Peru have also intervened to tamp down their currencies. In the U.S., protectionist efforts have been on the rise, especially when it comes to China, which is widely seen as keeping its currency, the yuan, at artificially low levels in order to boost its exports and make it more expensive for the Chinese to purchase goods produced abroad.

The House of Representatives is expected to pass legislation on Thursday that would let U.S. companies argue that Chinese currency policy represents an unfair subsidy. Democratic Senator Charles Schumer plans to push similar legislation to punish China for currency manipulation in the lame-duck session following the election. But it is considered unlikely the bill will pass.

Even so, the administration could use the threat of congressional action to press Beijing to make further adjustments in its currency, particularly as a summit of the Group-of-20 leaders in mid November draws closer. IMF Managing Director Dominique Strauss-Kahn said he wouldn't rule out a currency war and that officials at both the fund and the Group of 20 nations were actively working to prevent such a battle of competitive depreciations. However, in a press briefing in Washington, Mr. Strauss-Kahn said he didn't believe there was a big risk of such a war. "There is no good to expect from intervention," he said. "History has shown that the effect of this kind of intervention doesn't last for very long."

Part of the challenge is that the moves in the currency markets that are raising the ire of central banks and politicians are being driven by longer-term investors. Stronger economies in the emerging markets are attracting capital from the developed world, pumping up demand for local currencies. Talk of additional quantitative easing in the U.S. signals to investors that interest rates there will remain close to zero for a long time.

Meanwhile, inflation is building in Asia, forcing interest rates higher. Investors see that mismatch and are shuttling money from west to east, attracted to the higher yields. "The flows that we're seeing are soundly based," says Richard Yetsenga, global head of emerging-market currency strategy at HSBC. Some countries intervene more forcefully than others. Technology exporter Taiwan sees little fluctuation in its currency, thanks partly to heavy government intervention. Its currency is up less than 2% against the dollar this year. Malaysia, on the other hand, has allowed a stronger ringgit for the independence a free-floating currency gives its monetary policy makers, and the spur it gives to its exporters to become more efficient.

Government officials outside China for the most part step gingerly when it comes to the region's largest economy and its approach to currency reform, if they say anything at all. Singapore Prime Minister Lee Hsien Loong said last week in an interview with The Wall Street Journal regarding China's appreciation: "I can understand their caution, but on balance they need not go so slow." The rhetoric was much hotter this week out of Brazil, where its currency has risen more than 30% against the dollar since last year partly because investors flock to its relatively high interest rates.

On Monday, Brazil's Finance Minister Guido Mantega lashed out at the U.S., Japan and other rich nations he says are letting their currencies weaken to spur growth—growth that comes at the expense of other exporters like Brazil. "We're in the midst of an international currency war," Mr. Mantega said during an event in São Paulo. "This threatens us because it takes away our competitiveness."

The head of Brazil's central bank, which has been intervening in the currency markets to slow the real's rise, was more circumspect on Tuesday. "There is a very serious currency problem which should be addressed," Henrique de Campos Meirelles said. Mr. Meirelles said that raising taxes on flows into Brazil was a possibility. Officials say Brazil's 10.75% benchmark interest rate is necessary to squelch inflation and keep the Latin America's biggest economy from overheating. But it attracts a flood of investment from speculators who borrow in the U.S. or Japan where money is cheap, and deposit it in Brazil. The inflows of cash propel the real even higher.

With Brazil's presidential elections scheduled for Sunday, dealing with a strong currency is shaping up as the first major economic issue to face Brazil's next president. Dilma Rousseff, the former Energy Minister and handpicked successor to President Luiz Inácio Lula da Silva leading the polls, is an advocate of Brazil's 11-year-old floating exchange rate. But she is likely to face pressure from economists within her left-wing party, including Mr. Mantega, to intervene more heavily.




Capital controls eyed as global currency wars escalate
by Ambrose Evans-Pritchard- Telegraph

Stimulus leaking out of the West's stagnant economies is flooding into emerging markets, playing havoc with their currencies and economies. Brazil, Mexico, Peru, Colombia, Korea, Taiwan, South Africa, Russia and even Poland are either intervening directly in the exchange markets to prevent their currencies rising too far, or examining what options they have to stem disruptive inflows.

Peter Attard Montalto from Nomura said quantitative easing by the US Federal Reserve and other central banks is incubating serious conflict. "It is forcing money into emerging market bond funds, and to a lesser extent equity funds. There has truly been a wall of money entering many countries," he said. "I worry that we are on the cusp of a competitive race to the bottom as country after country feels they need to keep up."

Brazil's finance minister Guido Mantega has complained repeatedly over the past month that his country is facing a "currency war" as funds flood the local bond market to take advantage of yields of 11pc, vastly higher than anything on offer in the West. "We're in the midst of an international currency war. This threatens us because it takes away our competitiveness. Advanced countries are seeking to devalue their currencies," he said, pointing the finger at America, Europe and Japan. He is mulling moves to tax short-term debt investments.

Goldman Sachs said net inflows have been running at annual rate of $520bn (£329bn) in Asia over the last 15 months, and $74bn in Latin America. Intervention to stop it creates all kinds of problems so the next step may be "direct capital controls", the bank warned. Brazil's real has been one of the world's strongest currencies over the past two years, aggravating a current account deficit nearing 2.5pc of GDP. The overvalued exchange rate endangers Brazil's industry, especially companies that compete with Chinese imports. The real has appreciated to 1.7 to the dollar from 2.6 in late 2008, and by almost the same amount against China's yuan.

"Everybody is worried that global growth is fading and they are trying to use exchange rates to protect exports. Brazil has watched as the Asians intervened and feels it can't stand by," said Ian Stannard, a currency expert at BNP Paribas. Brazil has used taxes to slow the capital inflows but the allure of super-yields and the country's status as a grain, iron ore, and commodity powerhouse have proved irresistible. It is a textbook case of the "resources curse" that can afflict commodity producers.

A $67bn share issue by Petrobras has been a fresh magnet for funds, forcing the central bank to buy an estimated $1bn of foreign bonds each day over the past two weeks. Such action is hard to "sterilise" and can it fuel inflation. Japan has begun intervening to stop the yen appreciating to heartburn levels for Toyota, Sharp, Sony and other exporters. A strong yen risks tipping the country deeper into deflation.

Switzerland spent 80bn francs in one month to stem capital flight from the euro, only to be defeated by the force of the exchange markets, leaving its central bank nursing huge losses. Stephen Lewis from Monument Securities said the Fed is playing a risky game toying with more QE. There are already signs of investor flight into commodities. The danger is a repeat of the spike in 2008, which was a contributory cause of the Great Recession. "Further QE at this point may prove self-defeating," he said.

Meanwhile, Dominique Strauss-Kahn, managing director of the International Monetary Fund, tried to play down the fears of a currency war, saying he did not think there was “a big risk” despite “what has been written”.




Asian central banks act to stem rises
by Peter Garnham - Financial TImes

Central banks across Asia stepped in to stem the rise of their currencies as the continued slide in the dollar raised concerns over the competitiveness of exporters across the region. Dealers said central banks in South Korea, India, Malaysia, Taiwan, the Philippines and Singapore were all suspected of being active in the currency markets. However, there was no suggestion that Wednesday’s action by the region’s central banks was co-ordinated, merely a unilateral response by policy-makers to the weakening dollar.

But analysts said the trend was set to intensify. “Just look at how many central banks intervened,” said Maurice Pomery of Strategic Alpha. “If central banks adopt a policy to buy their neighbours’ bonds to keep them less competitive, all hell could break loose. “This will only get worse when the Federal Reserve launches the second round of quantitative easing, which it surely will, as the dollar will fall and disinvestment from the developed world into emerging economies intensifies.”

Weaker-than-expected US economic data have raised expectations that the Federal Reserve will extend its quantitative easing programme before the end of the year. The anticipation of intervention has driven the dollar lower and a wall of money has flooded into emerging markets in Asia, as well as South America, in search of yields that are not on offer in developed economies. Indeed, Guido Mantega, Brazil’s finance minister, said on Monday that an “international currency war” had broken out as governments around the world competed to lower their exchange rates.

The action from Asian central banks only succeeded in slowing the appreciation in the region’s currencies, however. By late afternoon in New York, the South Korean won rose 0.4 per cent to a four-month high of Won1,142.10 against the dollar, the Malaysian ringgit climbed 0.3 per cent to M$3.0846 and the Taiwanese dollar gained 0.6 per cent to T$31.237. The dollar also lost ground elsewhere as the prospect of further quantitative easing from the Fed kept the currency under pressure.

The dollar dropped to a fresh five-month low against the euro, easing 0.3 per cent to $1.3627 and eased 0.1 per cent to a two-and-a-half year low of SFr0.9765 against the Swiss franc. It added 0.1 per cent to $1.5788 against the pound The dollar also fell to a 26-month low against the Australian dollar, dropping 0.1 per cent to $0.9682. A robust survey of Chinese manufacturing activity boosted demand for the Australian dollar. Elsewhere, the dollar lost 0.3 per cent to Y83.65 against the yen.




Ambac Sues Bank of America Over Countrywide Bonds
by Karen Freifeld and David Mildenberg - Bloomberg

Ambac Assurance Corp. sued Bank of America Corp. over $16.7 billion of mortgage-backed securities, saying the bank’s Countrywide Financial Corp. unit fraudulently induced Ambac to insure bonds backed by improperly made loans. Ambac found that 97 percent of 6,533 loans it reviewed across 12 securitizations sponsored by Countrywide didn’t conform to the lender’s underwriting guidelines, according to the complaint filed yesterday in New York state Supreme Court. Many of the loans were made to borrowers with limited or no ability to meet their payment obligations, Ambac said.

The lawsuit follows negotiations between Bank of America, which acquired Countrywide in 2008, and Ambac over mounting losses caused by loans made during the early 2000s as U.S. housing prices soared. Ambac has paid $466 million in claims from more than 35,000 Countrywide home-equity loans that have defaulted or been charged off, according to the lawsuit. “Bank of America probably didn’t settle because they didn’t want to swallow the amount of money that it’s going to take to satisfy Ambac,” said Alan White, a law professor at Valparaiso University who specializes in housing industry issues. “Nobody wants to be left holding the bag.”

Repurchase of Billions
Repurchases of home loans from buyers and insurers of mortgage securities have already cost the four biggest U.S. lenders $9.8 billion, according to Credit Suisse Group AG. Bank of America has said it faces $11.1 billion of unresolved claims. MBIA Insurance said it paid more than $459 million in claims stemming from losses on Countrywide-sponsored mortgage- backed bonds, according to a 2008 lawsuit in New York State Supreme Court.

The Ambac case involves 12 Countrywide-sponsored pools of home loans that were created from 2004 to 2006, including nine involving home equity lines of credit and three that involve fixed-amount second-lien loans. Bank of America should repurchase as much as $20 billion in home loans that were based on wrong or missing information, the Association of Financial Guaranty Insurers said in a Sept. 2 letter to Bank of America Chief Executive Officer Brian Moynihan. More than half of the soured home-equity credit lines and residential mortgages created from 2005 through 2007 that insurers examined were candidates for repurchase, the group said.

Countrywide Losses
Bank of America has reported $7.6 billion in losses from home-equity loans over the past four quarters, stemming from slumping U.S. home prices. Losses related to Countrywide loans, including repurchase requests, will continue through mid-2012, Moynihan said at a Sept. 14 investor conference. Bank of America in 2008 acquired Countrywide, the largest U.S. home lender at the time. “They’re manageable numbers, not pleasant numbers, but manageable numbers,” Moynihan said.

Moynihan and other Bank of America officials have said the bank must review each loan to verify whether it met company guidelines. That process has delayed Ambac’s demands that Bank of America repurchase the loans, causing a breach of contract, according to the lawsuit. Ambac said in its complaints that it’s “entitled to redress for Countrywide’s massive fraud and pervasive and material breaches, including damages sufficient to place Ambac in the same position it would have been in had it never insured the transactions.”




FASB to Fold on Mark to Market
by Dena Aubin - Reuters

Strong opposition to a controversial proposal to expand fair value accounting could sway rulemakers to modify the plan, a member of the U.S. accounting rule-making board said on Tuesday. The proposal by the Financial Accounting Standards Board calls for loans and other financial assets to be valued based on what they would fetch in the market, known as mark-to-market, or fair value. That change is intended to give investors a clearer picture of assets held on banks' books.

The banking industry has opposed the measure, saying it does not make sense to assign market prices to loans that will never be sold. "Thus far, I think the count is up to about 1,500 or so comment letters," said Lawrence Smith, a board member of FASB, which sets U.S. accounting rules. "I think I've read one that supports what we propose." Smith added that board members will probably be influenced by the opposition. "If I were a betting person, I would bet on some type of hybrid model being adopted," he said.

The proposal differs from an approach taken by the International Accounting Standards Board, which has said loans should be valued based on amortized costs. FASB has been working with IASB to reach agreement on one set of global standards. Mark-to-market is a key area where the rule-makers remain far apart. Based in London, IASB sets rules that are used in more than 110 countries.

FASB is taking written comments on its proposal until September 30 and will hold public round tables until mid-October. It will meet with IASB in November, Smith said. "We're hopeful we can still come to a converged solution, although the time frame is very tight," he said.

FASB and IASB are trying to achieve a convergence of their accounting rules by June 2011, a timeline being pushed by leaders of the G-20 group of nations.
The U.S. Securities and Exchange Commission is also pushing for FASB and IASB to finish, so it can decide by 2011 whether to move U.S. companies to the international standards.




Ilargi: A useful addition to the CMI numbers I talked about in (most recently) A Graphic Peek Into Our Economic Future. Adding in the government's contributions to the GDP doesn't exactly make things look rosier.

Why the Statistical "Recovery" Feels Bad
by Mike Shedlock

Inquiring minds might be interested in charts of GDP minus the effect of increased government spending. The charts are from reader Tim Wallace who writes ...
Dear Mish -Take a look at the following spreadsheets of GDP from 2001 to 2010, in chained 2005 dollars to account for [price] inflation.
U.S. GDP and Net GDP (subtracting government spending)





The above chart clearly demonstrates that there really is no recovery, just increased federal spending and debt.

Here are the GDP numbers chained to 2005 dollars (Millions):

YearGDPGov't SpendingNet GDP
200111,371.32,056.49,314.9
200211,538.82,188.69,350.2
200311,738.72,303.39,435.4
200412,213.82,377.79,836.1
200512,587.52,486.010,101.5
200612,962.52,578.510,384.0
200713,194.12,570.110,624.0
200813,359.02,753.310,605.7
200912,810.03,210.89,599.2
201013,191.53,470.09,721.5


Note that the chained GDP number less the federal spending nets out to a number less than the GDP of 2004. So basically, our economy is back where it was seven years ago.

Private Sector GDP




Private sector GDP continues to shrink as the above chart and following table shows.

YearPrivate GDP%
200181.9%
200281.0%
200380.4%
200480.5%
200580.3%
200680.1%
200780.5%
200879.4%
200974.9%
201073.7%

Moreover, over 40% of government spending is deficit spending. That increase in deficit spending accounts for the alleged rebound in GDP. Clearly that deficit spending is unsustainable.

How much of that increased government spending made it into your pocket or benefited you in any way? While your are pondering that, remember that all government spending adds to GDP whether or not anything is actually produced.[..]

Just as happened in Japan, all we have to show for our stimulus is bigger and bigger deficits with a corresponding increase in the percentage of revenues needed to finance that debt.

All this talk of a "recovery" is nonsensical. Careful analysis shows the alleged recovery is nothing more than an illusion caused by unsustainable deficit spending. Meanwhile, the real economy is mired at the 2004 level. Simply put, the recovery "feels bad" because there is no recovery in the first place, only a statistical illusion of one.




Nic Lenoir Turns Bearish With Conviction
by Nic Lenoir - ICAP

All forward looking indicators point to severe economic weakness, I am talking recession here, not just a sub-par 1.5% growth. Most economists like my friends Julian Brigden and Jonas Thulin who do cycle analysis using leading indicators have highlighted this much more eloquently than I could quantify my bearishness which in economical terms is the summation of a lot of observations but lacks the timing and numerical dimension they can provide. The following link I found very interesting in that perspective:

http://theautomaticearth.blogspot.com/2010/09/september-28-2010-graphic-peek-into-our.html

Where my timing leaves less to be desired is in terms of technicals. 3 weeks ago now I recommended buying VIX calls, specifically I like the 37.5 November expiry calls. We had a signal in VIX to sell stocks with a reversal outside the bollinger band, which historically precedes the highs in stocks. The lag has recently been 7 to 10 business days, but I was definitely open to a longer lag this time around since there are many people trying to get involved from the short side and the specter of the Fed and the plunge protection team looming. That is mainly why I suggested buying November expiry and wait before getting outright short.

After observing the price action a bit more and reflecting on the patterns, I have come to the conclusion that the market will top between 1,155 and 1,164. In that zone we have in order the top of the channel (120-minute chart) guiding the consolidation since July, the 61.8% retracement of the sell-off since April's highs, the resistance joining the 2007 tops and the 2010 tops, and the C=A of the correction start in July (daily chart). I add to that relatively convincing divergence and the incapacity of daily 21-RSI to bypass 60 which is an excellent confirmation of a correction in bear market and not a new bullish impulse. Gathering all that and adding to it the VIX signal we had early in September, the economic mix which is turning very sour, the start of trade wars, the ever present sovereign default crisis in Europe, the common knowledge that bank balance sheets are marked to solvency and the housing double dip, and I think it's fair to say the pricing for the major equity indices is rather generous. I did say yesterday that it all starts and ends with the USD. Well, the attached chart says that based on M2 EURUSD is headed back to 1.10 or even parity, and USD bullish sentiment according to CFTC is pretty much 0%. We also had Fed speakers on the air today saying that more Treasury purchases may not be the answer.

I will have much more on M2 considerations and currency valuation in the next few days but I have not yet sufficient proof to support my theory. When I do I will share!

Good luck trading,

Nic





ECB hawks spook debt markets
by Ambrose Evans-Pritchard- Telegraph

Eurozone experts are increasingly worried that the European Central Bank (ECB) is moving too fast in pulling the prop from under the financial systems of Greece, Ireland, Portugal and Spain, risking a repeat of the premature tightening in mid-2008 that ended in grief.

A string of ECB governors have said this week that emergency support must be withdrawn soon, signalling a phasing out of the unlimited lending facilities that have acted as life-support for banks of high-debt states. This puts the ECB on a very different tack from the central banks of the US, Britain, and Japan, which have abandoned "exit strategies" and begun to prepare for fresh quantitative easing as a precaution against a possible growth relapse. "The ECB seems set on a pre-ordained course, oblivious to other subtleties," said Julian Callow from Barclays Capital.

An ECB report on Wednesday said several EU banks are having trouble raising money on the wholesale funding markets and that some "remain overly reliant on credit support from central banks and governments, which continues to be a cause for concern." The ECB's response to this worry has baffled investors. Jürgen Stark, Germany's hardline member of the ECB, said the bank is "in the process of phasing out some of the non-standard measures".

The comments have since been echoed by more dovish members, suggesting that the ECB has now decided on its exit strategy regardless of the crisis in Ireland and Portugal, where bond spreads have hit fresh records. "The market has been a bit spooked by this," said Nick Matthews from RBS. Hans Redeker from BNP Paribas said the ECB was taking a gamble by shutting its various lending facilities, and letting its three-month operations run out at the start of next year.

"Is it wise even to have this kind of conversation at the moment? The ECB is taking a very strong view on recovery and if they are wrong it is not clear that the weaker countries can cope. We think there is going to a double-dip recession in eurozone periphery," he said. Mr Redeker said the main buyers of bonds in Southern Europe and Ireland are banks playing an internal "carry trade" where they borrow from the ECB and purchase the debt of their own governments at a higher yield, so the ECB is propping up sovereign states as well.

Lenders from Greece, Ireland, Portugal, and Spain have borrowed €361bn from the ECB, or 60pc of the total. EU officials describe them privately as "addict banks". Ireland is expected to announce today that it will inject a further €5bn into Anglo Irish, bringing the total cost of rescuing the bank to nearly €30bn. Finance minister Brian Lenihan said default on Anglo's senior debt would be "unthinkable". Junior debt is another matter.

The ECB has bought €60bn of EMU bonds directly, including an estimated €18bn of Irish debt. This backstop was not available for Greece when it blew up in April. As long as the ECB plays this role it can protect Ireland indefinitely. The question is whether the German-led bank is willing to so. "The ECB was left carrying the can in the financial crisis and they are tiring of this role," said Mr Callow. The ECB is implicitly shifting the burden of any rescue on to the EU's €440bn bail-out fund. This adds a new twist to the EU's saga.




More than 7,000 complaints lodged against UK banks every day
by Telegraph

More than 7,000 complaints are lodged against banks in Britain every day, according to a damning report by the Financial Services Authority, Britain's financial regulator. The figures, released by the City watchdog, show that 1.3 million grievances were raised against the high street banks in the first six months this year. Substandard service and poor advice on insurance and mortgages are among the chief complaints of angry customers. Bailed-out banks such as Royal Bank of Scotland (RBS) and its subsidiary NatWest were found to have upheld the most complaints received from customers.

It is the first time the FSA has forced banks to disclose the number of complaints made against them and is aimed at improving customer service by naming and shaming offenders. The report shows that from January to June, Barclays received the most complaints with 245,348, followed by Santander with 244,978, Bank of Scotland (including HBOS) with 115,638, and Lloyds TSB with 146,846.

NatWest generated almost 84,300 customer complaints, of which 66 per cent concerning home loans were upheld, 46 per cent on insurance policies and 23 per cent on general banking. RBS received 38,100 complaints during the same period, of which 71pc about mortgages were upheld by the bank, 35 per cent on insurance policies and 27 per cent on general banking. Fifty-four per cent of insurance-related, and 12 per cent of general banking complaints were upheld against Lloyds. Of Barclays’s giant share of the complaints, two thirds related to insurance were upheld, 60 per cent on mortgages and 32 per cent on general banking.

The report also indicates that the banks drag their feet in resolving customers’ complaints, with less than half dealt with within the recommended time limit of eight weeks. Marc Gander, of the Consumer Action Group, told the Daily Mail: “We’re used to banks treating their customers shabbily, however these figures are quite extraordinary. “You have to wonder where these billions of pounds of taxpayers’ money are being spent – it’s certainly not on complaints handling.”




Ireland faces €34 billion bill for Anglo Irish Bank, forced to redraft budget
by Telegraph

Ireland has put the cost of bailing out Anglo Irish Bank at €34bn (£29bn), lifting the country's budget deficit to a massive 32 per cent of GDP as it attempts to draw a line under a crippling banking crisis. Ireland's central bank said the extra cost of bailing out the banks - Allied Irish Banks and building society Irish Nationwide also need more capital - would force the government to make further budget cuts. Irish borrowing costs have hit record highs and triggered jitters across Europe as investors worried about the final bill for bailing out the banks and the ability of the country to push through the austerity measures needed to cut its massive debts.

Brian Lenihan, the Finance Minister who has warned that the failure of Anglo Irish Bank would “bring down” the whole country, said Dublin would aim to slice more than an existing target of €3bn off its 2011 budget. He said he would also outline a four-year plan in November to get its shortfall to below 3pc of GDP by 2014. "I want to stress today to all, including our European partners, that Ireland remains fully committed to reducing our deficit below 3pc of GDP by 2014 as agreed," he said.

European Union officials had pressed Dublin to come up with a detailed plan for getting its fiscal gap - the worst in the bloc - under control. The country has so far ploughed €29.3bn into Anglo Irish Bank, and the country's Central Bank said on Thursday the lender could need an additional $5bn under a worst-case scenario. “The market had come to expect the Anglo Irish figures,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin, told Bloomberg. “The surprise here is Allied Irish.” Allied Irish Banks will need to raise an additional €3bn by the end of the year. Support for Irish Nationwide will rise to €5.4bn from €2.7 bn.

The bailout of the banks has cost Irish taxpayers the equivalent of 20pc of GDP. Mr Lenihan said the bank costs would be spread over more than 10 years but said Ireland was likely to take a majority stake in Allied Irish Banks, because it would not be able to conduct a privately underwritten capital raising transaction. The government is hoping the concerns of debt investors will have been eased now that it has quantified the full cost of bailing out the lender and laid out further measures to bring its public finances under control.

“Today’s announcements take the Irish banking system closer to a final resolution of its restructuring, which is a prerequisite for sustained economic recovery,” Partick Honohan, the Governor of the central bank, said. "At €30bn, the cost of the bail-out is very similar to the annual Irish tax take," said Jane Foley, senior foreign-exchange strategist at Rabobank. "It follows that there is no quick fix to the appalling state of Irish government finances," she said.

The extra yield investors have demanded for the risk of holding 10-year Irish bonds over equivalent German bunds eased in early trading on Thursday to 4.37 percentage points. However, it still remains closed its all-time high of 4.49 percentage points hit this week. Standard & Poor’s, which cut Ireland’s credit rating in August, had estimated that Anglo Irish’s bailout may cost €35bn. It is keeping a close eye on the country's debt and has warned it could downgrade further.




Why Ireland can't afford to punish reckless lenders to its banks
by Robert Peston - BBC

The only time I was taken aback when interviewing the Irish finance minister Brian Lenihan on Friday was when he said - with striking passion - that he did not wish to see losses for international banks and other financial institutions that have lent to Ireland's bloated, ailing banks.

More or less the same point, that Irish banks' wholesale creditors must be protected from the error of their lending ways, was delivered to me with equal vehemence by Peter Sutherland, the grandest of Ireland's globetrotting financial grandees (at various times chairman of BP, chairman of Goldman Sachs International, a European commissioner, director-general of the precursor of the World Trade Organisation, and so on and so on).

We can assume this is the view of the Irish political establishment, since Sutherland is not a supporter of Lenihan's weakening Fianna Fail government.
Which may strike you as a bit odd, given that Ireland's economy has been taken to the brink of bankruptcy, by the reckless lending of its banks to property developers, home builders and house buyers - and that this reckless lending wouldn't have been possible if the banks themselves had not been able to obtain cheap money from overseas banks and institutions.

So there is a strong argument that since Irish taxpayers are incurring huge and rising losses to clear up this mess, the pain should be shared with all the guilty parties, who surely include the sophisticated financial professionals at foreign banks that foolishly provided Irish banks with the means to mortgage an entire economy.
 
But here's why for Lenihan, Sutherland and Ireland's mainstream political class it is heresy to adopt a policy of caveat emptor (or buyer beware) to the distribution of banking losses: Ireland's dependence on credit from abroad is so great that the economic consequences of that credit being withdrawn would be catastrophic.

Take a look at the latest figures from the central bankers' bank, the Bank for International Settlements, on just the exposure of overseas banks to Ireland (in other words, credit provided by pension funds, hedge funds and wealthy individuals would be on top of this). Total foreign bank exposure to Ireland's economy is $844bn, or five times the value of Ireland's GDP or economic output. Of that, German and UK banks are Ireland's biggest creditors, with €206bn and €224bn of exposure respectively.

To put it another way, German and British banks on their own have each extended credit to Ireland greater than Irish GDP. Which doesn't sound altogether prudent, does it? As for direct bank-to-bank lending, overseas banks have provided Ireland's banks with €169bn of loans, which is also greater than Irish GDP.

Here's the point: an economy as open and as dependent on foreign finance as Ireland's cannot afford to alienate its creditors. If those overseas lenders asked for their money back now, Ireland's recent fall back into a modest economic contraction could spiral into dark deep prolonged recession or even depression.

There are two big conclusions to be drawn. First Ireland's inability to let market forces take their course will be seen by many as another example of why the banking industry has lost any semblance of right to operate according to normal commercial freedoms. Second, the Irish economy is hideously and perilously balanced between recovery and Armageddon.

The Irish government has extended till the end of the year its formal guarantees to protect from losses more than €400bn of retail and wholesale loans to Irish banks (banks' subordinated debt is excluded). But, to state the obvious, those guarantees are only reassuring to creditors if the Irish government is perceived as able to honour its own debts.

The credit-worthiness of the Irish government is largely dependent on two related factors: the delivery of its promise to reduce the public-sector deficit from an unsustainable 14.3% of GDP in 2009 to less than 3% of GDP by the end of 2014; the stabilisation of losses at Irish banks that are being underwritten by the government.

Here's one of many paradoxes about the Irish crisis: the losses at Irish banks are being crystallised by the activities of a fund set up by the Irish government, called the National Asset Management Agency (NAMA), to buy an estimated €80bn of bad loans from the banks. NAMA tries to buy these loans at the price which captures how much will eventually be repaid by overstretched borrowers. And the average price it paid for the first €27bn of transfers was 47.5 cents per euro of debt. Which means that the banks on average lost €14.2bn on these transfers to NAMA.

In one way, it looks like good news for the Irish taxpayer that NAMA is purchasing these dodgy loans at the market price. Except for one thing. The huge losses incurred by the banks on the NAMA transfers deplete banks' capital - which then has to be topped up by (you guessed it) Irish taxpayers and the National Pension Reserve Fund, a state pension fund created for the long term benefit of Irish citizens.

The government has already nationalised the most breathtakingly imprudent lender, Anglo Irish Bank, into which it has injected €23bn. And later this week, Mr Lenihan is expected to announce how much more capital needs to go into Anglo Irish (Mr Lenihan wouldn't disclose the size of the future financial injection, but it'll certainly be a good few billion euros).

There is also a reasonable probability that the state, through the National Pension Reserve Fund, will end up as the majority owner of Allied Irish Banks: AIB is being obliged to raise the ratio of its equity capital to assets to 7%, and may only be able to achieve this if the National Pension Reserve Fund converts all or part of its €3.5bn of preference shares into ordinary shares.

All of which is to say that the banks and the Irish state are more-or-less one and the same thing right now. And the greater are the banks' losses, the greater the strain on taxpayers. What will determine those losses - in part - is whether house and property prices stabilise after their 40 to 60% falls since the end of 2006. It hasn't happened yet, though the rate at which prices are falling has slowed down.

Of course, the great fear for the Irish government is that its putative virtue in making deep public spending cuts - and Mr Lenihan conceded that there are some big and painful decisions ahead - will further undermine confidence in the value of Irish assets, triggering further losses at banks, and thus eliminating the fiscal benefits of the deficit reduction programme. Or to put it another way, it will be many months yet before Ireland can be certain it's over the worst.

That's presumably why Mr Lenihan didn't rule out in his interview with me that the Irish government might eventually be obliged to ask for financial support from the European Financial Stability Facility, the special €440bn fund set up by eurozone members to lend to financially challenged eurozone states.

Naturally Mr Lenihan doesn't want the national humiliation for Ireland of being the first eurozone member to tap the special bail-out fund set up after Greece went to the brink of insolvency in the spring. Nor does he expect it. But he daren't say no, nay, never - for fear that those all-important overseas creditors lose confidence in the existence of backstop insurance to cover their cripplingly huge claims on the Irish banks and the Irish state.




Europe's austerity anger grows
by Ambrose Evans-Pritchard- Telegraph

More than 100,000 marchers converged on Brussels from across the EU to protest austerity measures on Wednesday, while Spanish unions took the extraordinary step of breaking ranks with Spain's socialist government by launching a general strike.
 
"Workers are on the streets today with a clear message to Europe's leaders," said John Monks, head of the European Trade Union Confederation. "There is a great danger that workers are going to pay the price for the reckless speculation that took place in financial markets. You have to reschedule these debts so that they are not a huge burden and cause Europe to plunge down into recession," he said, reflecting growing bitterness among ordinary people that they are bearing the brunt of austerity while bondholders have been shielded from losses.

Spain's car industry was entirely paralysed with the exception of the Mercedes plant in Vitoria, and transport stoppages caused severe disruption. Ignacio Fernandez Toxo, head of the country's CCOO trade union, said premier Jose Luis Zapatero was committing "political suicide" by carrying out harsh cuts while unemployment hovers at 20pc, or 41pc for youths.
 
Austerity fatigue is surfacing across a large arc of Eastern and Southern Europe, raising concerns that electorates may start to rebel. The Fidesz government in Hungary has already sent the EU and the International Monetary Fund packing, opting for "economic nationalism". Even the police joined demonstrations last week in Romania, hurling their kit at the presidential palace to protest public sector wage cuts of 25pc.

The pro-Russian Harvest Party is leading the polls in Latvia's election this week, threatening to tear up its EU-IMF rescue deal. Critics say the country should have devalued in order to cushion the blow rather than undergoing to harsh deflation under its euro peg. Latvia's economy has contracted 18pc since the peak. Unemployment is 20pc, and teachers, nurses and police have seen wage cuts of up to 30pc. Diplomats suspect Harvest may try to play off Moscow against Brussels to extract better terms.

France bowed to pressure for further fiscal tightening yesterday, pledging to cut its deficit from 7.7pc of GDP this year, to 6pc next year, still a modest effort by EU standards. "Considering the current monetary disorder, investors who finance our debt are attentive to our debt-reduction effort," said finance minister Christine Lagarde, alluding to a rise in spreads on France's 10-year bonds to 55 basis points over German Bunds.

In Italy, premier Silvio Berlusconi warned foes that they were playing with fire as his government faced a confidence vote last night after weeks of paralysis, in part triggered by cuts in grants to the regions. "It is absolutely not in the interests of our country to risk a period of instability at a moment when the crisis is not yet over," he said. Italy's public debt is 118pc of GDP and the world's third biggest in absolute terms.

The protests in Spain and Brussels came as the Commission proposed plans for automatic sanctions of up to 0.2pc of GDP on states that persistently breach the EU's debt and deficit ceilings of 60pc and 3pc of GDP. The mechanism is tougher than the old Stability Pact since states need a qualified majority to stop punishment. There will also be a 0.1pc fine for states that run trade imbalances, including surpluses – a twist likely to anger Germany.

"The EU politicians think they can somehow wipe away economic reality and the structural differences between these countries by bureaucratic means. It's ludicrous," said Ruth Leae, economic adviser to Arbuthnot Banking Group. Mr Monks said the proposals totally misguided. "How is that going to make the situation better? It is going to make it worse," he said.




Geir Haarde, Iceland Ex-PM, Indicted For Role In Financial Crisis
by Gudjon Helgason and Paisley Dodds - AP

Iceland's former Prime Minister Geir Haarde has been referred to a special court in a move that could make him the first world leader to be charged in connection with the global financial crisis. After a heated debate Tuesday, lawmakers voted 33-30 to refer charges to the court against Haarde for allegedly failing to prevent Iceland's 2008 financial crash – a crisis that sparked protests, toppled the government and brought the economy to a standstill by collapsing its currency.

Haarde faces up to two years in jail if found guilty. The court, which could dismiss the charges, has never before convened in Iceland's history. A hearing date has not yet been set. Haarde, ex-leader of the Independence Party, is no longer in parliament and stepped down from office last year following widespread protests and treatment for esophageal cancer. "I will answer all charges before the court and I will be vindicated." Haarde, 59, told the Icelandic Broadcaster RUV. "I have a clean slate. This charge borders on political persecution."

Iceland, a volcanic island with a population of just 320,000, went from economic wunderkind to fiscal basket case almost overnight when the credit crunch took hold. After dizzying economic growth that saw banks and companies in this tiny Nordic nation snap up assets around the world for a decade, the global financial crisis wreaked political and economic havoc in Iceland. Its banks collapsed in October 2008. Unemployment has soared since then and the country has lurched from crisis to crisis. In April, an eruption at Iceland's Eyjafjallajokull volcano triggered a giant ash cloud that disrupted global air travel for weeks and later restricted travel to and from the island nation.

In the same month, a report into the banking collapse accused Haarde and the central bank chief of acting with "gross negligence" in allowing the financial sector to overheat without adequate oversight. The 2,300-page government-commissioned report detailed a litany of mistakes made in the lead-up to the bank meltdown. Pall Hreinsson, the supreme court judge appointed to head the Special Investigation Commission that issued the report, singled out seven former officials including Haarde and central bank chief David Oddsson for particular criticism.

No other officials besides Haarde were referred for prosecution to the court on Tuesday. Lawmakers decided Tuesday not to charge three other former ministers, which angered some who felt the blame extended beyond Haarde. "You could say that all of the four former ministers should have been charged or none at all," says Thorkell Sigvaldason, 35, a university student. "But on the other hand, Geir Haarde was the leader and sometimes they have to pay for the mistakes of their men."

Teacher Bragi Johannnsson, 41, agreed that all four should face charges. He said the laws are too lenient and must be toughened. "I think there is a need for reform on the laws on politicians," he said. Haarde has blamed the banks in the past, and said he felt government officials and regulatory authorities tried their best to prevent the crisis. The report found that the country's three leading banks – Glitnir, Kaupthing and Landsbanki – got too big and overwhelmed the financial system when they ran into trouble with excessive risk-taking.

By the time the banks dropped in a domino-like sequence within a week of one another in October 2008, the banking sector had grown to dwarf the rest of the economy by around nine times. In one major blunder detailed in the report, staff at the Icelandic central bank forgot to extend a $500 million loan agreement, reached in March 2008, with the Bank of International Settlements in Basel, Switzerland. A belated attempt to receive an extension was not granted by the international bank. The report said that it was a key error at a time when few things were more important than building up Iceland's foreign currency reserves.

The central bank then turned to the Bank of England in April 2008, seeking a currency swap agreement. Mervyn King, the British central bank's governor, refused, but offered to help Iceland to reduce the size and burden of its banking sector. Iceland rejected the offer at the time. Before Haarde was prime minister, he also held the posts of finance minister and foreign minister. The special court will consist of 15 members – five supreme court justices, a district court president, a constitutional law professor and eight people chosen by parliament every six years.




America on the brink of a Second Revolution
by Paul B. Farrell - MarketWatch

“What’s distinctive about the Tea Party is its anarchist streak -- its antagonism toward any authority, its belligerent self-expression, and its lack of any coherent program or alternative to the policies it condemns,” warns Jacob Weisberg in Newsweek. But why not three cheers for the Tea Party Express?

Admit it, something historic is brewing. And yes, it’s good for America, even the anarchy. Revolution is renewal. Tea-baggers want to take on both parties, “restore honor” and “take back the country.” Bring it on, the feeling’s mutual.

OK, maybe most Americans just silently mimic the words, “we’re mad as hell, won’t take it any more.” But watch out: After November the campaign’s shrill rhetoric explodes into action.

Tea-baggers are kicking the revolution into high gear. Debt is sinking America. Both parties are to blame. So vote out incumbents. Spare no one. We need new leadership, another Reagan or Truman. Congress better get the message: Cut that budget, or they’ll dump the rest of you in the coming Great Purge of 2012.

Unfortunately they’re tone deaf. Congress cannot see past the election. All that changes in November.

So thanks Tea Party, Vegas odds must favor a Second American Revolution. Actually, the revolution is already roaring, hot, it’s about time. The GOP and the Dems had more than a decade. But America’s worse off. We need a real revolution to restore sanity … or we can kiss democracy and capitalism good-bye, permanently.

Warning: Another revolution will cost investors 20% more losses

Yes, big warning, the Second American Revolution will extract painful austerity, not the “happy days are here again” future touted by tea-baggers. For years it’ll be impossible for most of America’s 95 million investors to develop a successful investment or logical retirement strategy.

Why? Political chaos will translate into extreme volatility and a highly unpredictable stock market. Result: Wall Street will lose another 20% of the value of your retirement portfolio in the next decade, just as Wall Street did the last decade. So if you think you’re “mad as hell” now, “you ain’t seen nuthin’ yet!”

Here’s the timeline:

Stage 1: The Dems just put the nail in their coffin by confirming they are wimps, refusing to force the GOP to filibuster the Bush tax cuts for America’s richest.

Stage 2: The GOP takes over the House, expanding its war to destroy Obama with its new policy of “complete gridlock,” even “shutting down government.”

Stage 3: Obama goes lame-duck.

Stage 4: The GOP wins back the White House and Senate in 2012. Health care returns to insurers. Free market financial deregulation returns.

Stage 5: Under the new president, Wall Street’s insatiable greed triggers the catastrophic third meltdown of the 21st century Shiller predicted, with defaults on dollar-denominated debt.

Stage 6: The Second American Revolution explodes into a brutal full-scale class war rebelling against the out-of-touch, out-of-control greedy conspiracy-of-the-rich now running America.

Stage 7: Domestic class warfare is compounded by Pentagon’s prediction that by 2020 “an ancient pattern of desperate, all-out wars over food, water, and energy supplies would emerge” worldwide and “warfare is defining human life.”

What’s behind our 2010-2020 countdown? It became obvious after reading the brilliant but bleak “Decadence of Election 2010” report by Prof. Peter Morici, former chief economist at the International Trade Commission. He sees no hope from America’s political parties, just a dark scenario ahead.

Here are the 10 points we see in his message:

1. Expect nothing positive from Dems, the GOP or Tea Party

Yes, we’re all “justifiably ticked off.” But “Democrats, Republicans, and yes the Tea Party offer little that is encouraging.” Earlier Morici warned: “Democratic capitalism is in eclipse. … Politicians have deceived voters,” and are “suffering from delusions of grandeur, self deception and good old-fashioned abuse.”

2. Democracy has become too-big-to-govern … by anyone

“The current economic quagmire is a bipartisan creation.” Bush failures led to a “Great Recession … reckless Wall Street pay and fraud, a breakdown in sound lending standards by Fannie Mae, Freddie Mac … Countrywide, and a huge trade deficit with China and on oil” leaving “Beijing and Middle East royals with trillions of U.S. dollars that they invested foolishly” in bonds “financing the housing and commercial real estate bubbles.”

3. Clinton, Bush, Obama policies all feeding revolutionary flames

Even before Bush, “all was set in motion by bank deregulation engineered by Clinton … Secretaries Robert Rubin and Lawrence Summers … Clinton’s deal to admit China into the World Trade Organization” handed “China free access to U.S. markets” while blocking exports. Earlier Dems blocked “domestic oil and gas development” and froze “auto mileage standards.” Obama “finally imposed higher mileage requirements,” but after pushing offshore drilling, he “punished the entire petroleum industry” for the BP disaster.

4. Bush’s biggest mistake: Goldman CEO Hank Paulson

Morici admits: If Bush is “culpable for anything, it was to not see the gathering storm on Wall Street.” Worse, his Treasury picks were disasters: [John] Snow was clueless, Paulson devious. He conned a clueless Congress into bailout trillions, “believing banks could borrow at 3% and lend at 5 and pay MBAs three years out of school five-million-dollar bonuses to create mortgage backed securities.” Greed drove the Bush Treasury.

5. All partisan political leaders are destined to sabotage America

One thing is clear to Morici: Not only were America’s leaders a “bunch of second-rate incompetents” on both the Clinton and Bush teams, “Obama’s ratcheting up government spending and taxes won’t fix what’s broke, and neither will the GOP prescription of tax cuts and deregulation.” Get it? Democracy is in a classic double-bind, no-win scenario.

6. America’s democratic capitalism trapped in systemic failure

Morici simply dismisses “Obama’s two signature initiatives -- health-care reform and financial services reregulation.” They “simply don’t work.” Why? Politicians “failed to address the root problem, Americans pay 50% more for doctors, hospitals and drugs, than subscribers to national health plans in Germany, France and other decadent socialist European countries.” Yet, insurers hate reform, will self-destruct America first.

7. Wall Street’s insatiable greed is a virus that never sleeps

Wall Street banks are “back to their old tricks,” warns Morici, “hustling municipal governments into the kind of quick-fix budget schemes, like selling parking meters and airport fees.” Why? Wall Street’s “hustling shoddy corporate bonds that lack adequate collateral and may never be repaid” to justify their absurd mega-bonuses. And they’ll keep doing it till the revolution creates a new non-capitalist banking system.

8. New political leaders offer no hope -- Wall Street rules America

GOP’s next leaders will fail: “Cutting taxes and mindless deregulation are not the answer.” We need the revenue. They have no real plan to trim “$1 trillion from federal spending … few believe deregulation will fix health care or Wall Street.” The GOP has no “effective government solutions to health care, Wall Street, fixing trade with China, and dependence on foreign oil.” And the Tea Party “only offers a purer form of failed Republicanism. Tax and spend less, and turn the country over to the robber barons.”

9. Praying for a messiah, we’re sleepwalking till the revolution

Morici’s solution: America “needs a prophet, another Harry Truman or Ronald Reagan.” But we’ll never get one, until a catastrophe hits. Wall Street’s so greedy, so corrupt, so untouchable, so much in control, they will bankroll and control all future “prophets.”

10. The Second American Revolution coming

Yes, extreme austerity: “Americans must accept fewer government-paid benefits -- for the rich, the poor and those in between -- and must acknowledge the market works best most of the time, but it is not working in health care, banking, China, and oil.” Huh? Sounds like classic economist’s double-speak: “The market works most of the time” … except the market doesn’t work at all in the four biggest economic sectors? Fuzzy thinking?

Morici warns, we need “new approaches to regulating, yes regulating, what the medical industry charges, bankers pay themselves, what Americans tolerate and buy” and “guiding big oil and car companies to sustainable solutions.”

Holy cow, he suddenly sounds more like a liberal politician than conservative economist. Yes, he’s reflecting the total chaos coming on the short road to the Second American Revolution.

In the end, however, you have to admit the good professor does make a lot of sense: “Sounds radical but running the world has never been a choice between statism and anarchy,” says Morici.

Choice? Unfortunately, he offers a false choice: Running America effectively means accepting “that the private sector is not the enemy and government is not evil, but neither can serve the other, and us, if value is not seen in each.”

Laudable, but impossible because once the GOP Tea Party of No-No is back in power, compromising is not on their agenda, “gridlock” is. So anarchy is the only choice -- they will never, never work with Democrats … until forced by the Second America Revolution when the middle class finally rises up and overthrows the greedy wealth conspiracy of Wall Street, Washington, CEOs and the Forbes 400.

Till then, anarchy rules as the conspiracy keeps looting Treasury, stealing from taxpayers, conning us all.




The Mystery of Disappearing Proprietary Traders
by Michael Lewis - Bloomberg

In the run-up to the vote on the financial overhaul bill, the big Wall Street banks squashed an attempt by Senator Carl Levin to pass a simple ban on any form of proprietary trading. A Senate staffer close to the process told me the amendment was one of Wall Street’s highest priorities, spreading money around to exert as much pressure as possible.

It worked: Levin’s amendment never reached the Senate floor for a vote. The final version of the bill restricts proprietary trading but allows big Wall Street firms to invest as much as 3 percent of their capital in their own internal hedge funds. How exactly the new rules are enforced is left to regulators inside the Federal Reserve, but it’s not hard to see how a wholly owned hedge fund might become a proprietary trading group, with a different name.

The 3 percent loophole amounted to an invitation for the big banks to keep on doing at least some of what they had been doing -- which is why Levin felt compelled to remove it, and the banks fought so hard to keep it. Yet in just the past few weeks news has leaked that Morgan Stanley, JPMorgan and Goldman Sachs all intend either to close their proprietary trading units or to sell their interests in the hedge funds they control.

Obviously, something is wrong with this picture. Why fight for a right, and win, only to proceed as if you have lost? Why take prisoners only to surrender to them? Having preserved their loophole the big American banks now appear to be freely abandoning any attempt to exploit it. (Credit Suisse, on the other hand, just bought a stake in a hedge fund.)

Shark Watch
To see Wall Street turn its back on money is as unsettling as watching a shark’s fin veer away, and then sink from view. It leaves you wanting to know where the shark has gone, and why. None of the firms have offered a good explanation for their new and seemingly improved behavior, but it’s not hard to think up several. From least plausible to most:

No. 1 -- Having not merely preserved but bolstered their place at the heart of capitalism -- with little banks failing everywhere, the big keep getting bigger and stronger -- the major Wall Street firms have experienced an epiphany about their relationship to wider society. They don’t need to screw people! Newly able to raise their prices, they want to return to serving their customers, rather than exploiting them. Whatever they lose from prop trading they will be more than compensated for through new and more trusting relationships with their clients -- who will now have no reason to suspect they are merely a tool for the firm’s trading desk.

In a smaller and less competitive financial industry, it will pay to be the nice guy, and so Goldman Sachs now wants to play nice. The only problem with this explanation is that I don’t believe it. More likely:

No. 2 -- The big Wall Street firms have looked anew at proprietary trading and seen a dying business. For a start, their proprietary traders, put off by subpoenas and government inquiries and the new internal aversion to short-term pain on big trading positions, are fleeing for the privacy of hedge funds. But the exodus of trading talent is only part of the problem. A general malaise has come over the world of big time financial risk taking. Everywhere you look hedge funds are either closing or shedding employees or, most shockingly, cutting their fees. At the bottom of this depressing new trend lies a deeper problem: a scarcity of suckers.


The proprietary trading business turns in part on one’s ability to find the fool -- to find people willing to take the stupid side of the smart bets you are placing. One of the side effects of our seemingly endless financial crisis is to wash a lot of fools, many of them German, out of the game. It’s as if a casino owner awakened one morning to find the tourists had all gone, and the only remaining patrons are pros counting cards at his blackjack tables. As he looked around his casino, for the first time in his life, he couldn’t find the fool. And the first rule of the casino business is: if you don’t know who the fool is, it’s probably you.

Prop trading isn’t as promising as it used to be. At the same time it’s a far greater nuisance than it ever was: The regulators might actually be paying attention to what your traders get up to; if they screw up the financial press is poised to write a story about them; and so on. It’s just not worth the trouble to prop trade, unless you can prop trade in some wholly novel way. Which brings us to a third possible explanation:

No. 3 -- Goldman Sachs, Morgan Stanley and JPMorgan are not in fact abandoning proprietary trading. They are just giving it a different name. They are dismantling the units called “proprietary trading” and shifting the activity onto trading desks that deal directly with customers. (Which would explain why so few prop traders are being let go.)

After all, you don’t need a proprietary trading desk to engage in the two activities that any proprietary trading ban would seek to prevent: 1) running huge trading risks, and 2) taking the other side of the customers’ stupid trades. Goldman Sachs’ infamous Abacus program -- the one that talked American International Group into selling vast amounts of cheap insurance to offset subprime mortgage risk, and then shorted the instruments they themselves had created -- wasn’t dreamed up by the prop trading desk. It was the brainchild of what customers knew as the “Client Facing Group.”

In short, there are any number of explanations why Wall Street firms are all at once letting it be known they intend simply to walk away from what has been, until very recently, their single most lucrative line of work.

None of the Above
The answer may be none of the above or some mixture of the three. But what’s really striking is how little ability the outside world retains to find out what is going on inside these places -- even after we have learned that what we don’t know about them can kill us. It would be nice to know, for instance, if the big banks are making these moves with the tacit understanding that the regulators, going forward, won’t be looking too closely at the activities of the “Client Facing Group.”

And yet news of the death of the Wall Street prop trader has been greeted with hardly a peep. And I wonder: is this the nature of our new financial order? Big decisions, in which the public has a clear interest, being made outside public view, with little public discussion or understanding. If so, it isn’t a future at all. It’s just the past, repeating itself.


151 comments:

ghpacific said...

Meredith Whitney is super prescient. I listened to her interview several times and then read our local free press article http://www.newtimesslo.com/cover/5053/heading-for-the-cliff/ and am kind of freaking now.

ghpacific said...

Forgot to add this little gem, too.
http://dailyreckoning.com/how-to-make-real-money-in-real-estate-and-other-investments/ Short synopsis: be really rich and wait for it.

TAE Summary said...

* US and European economies are recovering; Car sales, vacation sales, cigarette sales and booze sales are all up

* Eat dirt

You like it = eat dirt
You don't like it = it must be good for you = eat dirt

Eat dirt.
Eat
dirt

* Crash will happen right after the mid-term bye-bye elections

* The dodo didn't mind extinction but cockroaches hate extermination

* Coming soon to a theater near you: The Virgin Home Buyers Suicides - A group of doomers become obsessed with a group of mysterious first time home buyers who are sheltered by their strict, growth-oriented government after some of them commit suicide

* Rich-poor disparity increases; Fewer haves, more have yachts

* Wall Street stands still and the universe revolves around it; US consumers will be dragged kicking and screaming to austerity

* Societal reset will be forced upon us by economic blue screen of death:

A problem has been detected and the economy has shut down to prevent damage to society.

The problem seems to be caused by the following situation:

CREDIT_LOCK_UP_BY_LENDING_INSTITUTIONS

If this is the first time you've seen a societal collapse, restart your society. If societal collapse happens again follow these steps:

Check to make sure all elected officials are not owned by corporations.

If collapse continues, disable or remove all elected officials. Disable your current form of government and restart your society in Safe Mode with no corporations.

Technical Information

*** STOP: 0x00000000 0xD15EA5E 0x0xDEADBEEF

John said...

Looking forward to the DVD. I have really slow wireless internet. john

Ilargi said...

Summarian:

That comment looks warped, you ended up in the TAE spam box. Want to try again?

.

Greenpa said...

I'd be very interested in the readership's response to my blog post today:

http://tinyurl.com/29etwvc

do I have an epiphany here, or is this a banality?

Greenpa said...

Sumerian: "Fewer haves, more have yachts"

ok, seriously, how long have you been saving that one up?

(yeah, it's a goody.) :-)

VK said...

Regarding the faux car sales figures!

The initial sales results pointed to an annualized, industrywide sales rate for September of somewhere between 11.7 million and 11.9 million vehicles, up slightly from near 11.5 million in August because of a statistical adjustment.

On a simple basis, the number of vehicles sold in the United States appeared to have fallen to about 980,000 vehicles in September compared with more than 997,000 in August.


If only you'd follow TAE Twitter/ Facebook, you'd know all about it ;)

Nice intro this, trust is really, really vital to any society and once cynicism and negativity spiral in, it becomes really very difficult to get out of it. Corruption and cronyism becomes really entrenched at all levels of society.

Eric Lilius said...

Nice job on the presentation.
Works well for me. I like the format.
Thanks. I can drag my laptop around and show it to a few of the locals.

alex_uk said...

Bought the presentation - seems to work pretty smoothly. Hope the sales go well. Anyone in London on Tuesday 12 October may be interested in the Food security after Peak oil discussion.

http://appgopo.org.uk/index.php?option=com_events&task=view_detail&agid=38&year=2010&month=10&day=12&Itemid=1&catids=14

Greenpa said...

Stoneleigh: "Relationships of trust are the glue that holds societies together"

HOLY carp; I hadn't even read that before I made my own blog post today. Talk about direct relevance! :-)

TAE Summary said...

Ilargi,

The comment displays as expected. Technical Info at end may have scared spam filters but is part of the the blue screen parody, not an actual error.

Thanks,

TAE Summary

Draft said...

Stoneleigh -

Your analysis is great except for the bit about the Tea Party in the US. The Tea Party isn't some new movement - it's simply a rebranding of conservative Republicanism. It's also not grassroots - it's heavily funded by Dick Armey and company and heavily promoted by Fox. And while it claims to be about "big government" you'll find that it's intellectually incoherent, and that's being kind.

I recommend reading this great series of posts by Dennis G. at Balloon Juice:

Potemkin Protests

The confederate party has always been about honor

Gimmie that old time tactic

Greenpa said...

"Isn't it remarkable that President Obama's economic team is suddenly itching to return to academia?"

Seriously, I'm now spelling that "mAcademia" on a regular basis. And it's not just for the dept of econchemy.

Bigelow said...

‎"The FDIC Board of Directors (Board) has issued a proposed rule to implement the section of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that provides temporary unlimited coverage for noninterest-bearing transaction accounts. The separate coverage for noninterest-bearing transaction accounts becomes effective on December 31, 2010, and terminates on December 31, 2012.”
Notice of Proposed Rule: Temporary Unlimited Coverage for Noninterest- Bearing Transaction Accounts



"A hall full of elderly white people in Medicare-paid scooters, railing
against government spending and imagining themselves revolutionaries as they cheer on the vice-presidential puppet hand-picked by the GOP establishment. If there exists a better snapshot of everything the Tea Party represents, I can't imagine it." --Matt Taibbi
Tea & Crackers: How corporate interests and Republican insiders built the Tea Party monster Rolling Stone

Greenpa said...

Wow. on the foreclosures front:

http://voices.washingtonpost.com/political-economy/2010/10/connecticut_halts_all_foreclos.html

A state has just halted ALL foreclosures; for 60 days.

Could be a ramification, or two.

DIYer said...

TAE Summery,
What're ya tryin' to do, trigger the STUXNET armageddon feature? At one time I went looking for interesting hex code, and came up with a complete sentence: 0xFEDBADF00DF1D0D1ED.

And I'll be watching the H&G channel for that Virgin Home Something show :-)

Greenpa said...

"At the bottom of this depressing new trend lies a deeper problem: a scarcity of suckers."

Ha! I called that one years ago!

http://littlebloginthebigwoods.blogspot.com/2008/02/peak-patsies-is-here.html

That's the problem; we're just so smart we see these comings long before anyone else- so then we look silly. :-)

mercutio said...

Stoneleigh,

I appreciate your genuine concern and hope for reasonable outcomes that will promote trust.

I understand that the Tea Party exhibits an "anger [that] is largely unfocused, and where it is specific, . . . not fully-informed.''

But you also acknowledge that people have good reason to be angry at particular actors who are deserving of blame. Some actors who are responsible for the public good are instead involved in harming the public, especially financially:

"The primary target of the Tea Party is big government, but this ignores a major part of the big picture. The abuses of power we have seen are not purely a manifestation of metastatic public authority, but an expression of corporate fascism - the blending and merging of public and private interests in social control. One look at the revolving door between the banking system (where banking law is written) and the US treasury should be enough to demonstrate this."

I think the Tea Party, whatever it is, recognizes crony capitalism and crony financial dealing. "Big Government" is, essentially, precisely the crony capitalism and financial skullduggery that people recognize is bankrupting them presently and will continue to wreak effects on their children.

I agree that uninformed anger will reduce trust. But I have to hope that informed anger, rightly and democratically expressed, might yet have some good outcome and result in a restoration of trust.

Chaos said...

Perhaps a more specific example of today's post is over at The Agonist (my fave: Numerian), concerning the mortgage foreclosure "mess" (more euphemisms needed here): http://agonist.org/numerian/20101001/the_devils_in_the_details

jal said...

This week there has been a lot of fertilizer hitting the fan ... freeze on foreclosures, lawyers celebrating, municipalities going bankrupt, piles of money due at title registration offices, mortgage payments fraud, big banks running out of underwear, insiders cashing out,

Gee! If it wasn't for the computers lifting the blankets, (markets), higher, You would think that there is an upcoming crisis.
jal

jal said...

AlphaBeta Soup said...

Meanwhile, I'm saving seeds in Seattle. Trying to figure out where to get a cow to trade for 3 of JAL's magic beans.... ;)

===
My recollection is that the mother tossed the seeds out the window and only one sprouted.

I’m trying to find that seed. :-)
I planted 10 times that number, 30, #6 beans on 26 Sept., for winter crop at north end of garden. Covered with white cloth.

Until I get results, you will have to be more patient.

If things work out, (which would mean ... not working out for the economy), I’ll be trading seeds for golden eggs. :-)

I’m also looking at finding crops that grow without care.
I want to become a “Johnny Apple Seed”.
Does anyone have any links to improve my learning curve.
For example, Has any one tried to grow Fennel in the wild?

jal

Wyote said...

"They ran the budget surpluses that killed the economy—and left poor President Bush with a deep recession. In truth, there wasn't much that Bush could do given the state of the economy except to allow Chairman Greenspan and Treasury Secretary Paulson to run serial bubbles to try to temporarily jump start the economy" !!!

- L. Randall Wray is a Professor of Economics, University of Missouri—Kansas City.

That's were I'm goin to study economics.

Happy World Vegetarianism Day TAE Summary :> -Wyote

I. M. Nobody said...

Greenpa,

Your blog post seems to have been an epiphany to you. It is quite a coincidence, or maybe a convergence, that you and Stoneleigh should post, on the same day, about the fundamental importance of trust as requisite to a maintainable society. I had the trust-is-everything epiphany myself about five months ago, while composing an email with some advice for my newly adopted sister.

Trust is, as you have noted, a product of trustworthy people. And as you also noted, armies of soulless zombies have for some time been mass produced by a system run amok. Ipso facto, strangers cannot reasonably be accorded full trust. You can really only trust people you know well enough to know they can be trusted. You can only know that if you have known them well for a considerable period of time and had some kind of relationship with them.

People planning to establish doomsteads in places where they have no such relationships may well find themselves being looked upon as easy pickings by the better established locals when chaos reigns. My advice is, if you don't feel good about where you are, if there is a place where you have trusting relationships, put it at the top of your list. Actually, I think it should be the only place on your list, unless you are lucky enough and trustworthy enough to have more than one such place.

D. Benton Smith said...

Hi Greenpa,

You wrote, "I'd be very interested in the readership's response to my blog post today ... do I have an epiphany here, or is this a banality?"

It's an epiphany. Nothing banal about it (except in the sense that evil is banal.)

And, given that Harvard is in direct competition with prisons in teaching aspiring young criminals-to-be, what does that say about the food chain from there on up?

D. Benton Smith said...

Hi, Stoneleigh,

Thank you for your video presentation. It made itself at home in my brain as easily as if I had thunk the thoughts myself.

Really Powerful, and all the more so because you present it in a manner that demonstrates the very solution being proposed: (in paraphrase of Ghandi) "to be the change you wish to see in the world."

Ruben said...

@Greenpa,

No, your blog is not a Banality. It is, however, The Corporation.

MonkeyMuffins said...

"The Tea Party movement represents largely (but not solely) the unfocused anger of people who know they have suffered, or are about to suffer, substantial losses, but do not (typically) understand the system well enough to understand why. The movement is casting about for someone to blame, as such movements always do on the verge of a trust collapse. The danger is that someone with facile populist answers will come along, offering a target for the urgent desire to blame someone for what has happened and is happening."

--

I should know better than to proffer reality as an alternative to this colorful fiction but, frustratingly for me, I cannot resist attempting to correct and enlighten (against all rational hope, since TAE, as per Peak-Community-usual, has a penchant for easily-debunked and -discredited myths-fantasy-and-nonsense) as follows:

"Tea Party supporters are wealthier and more well-educated than the general public, and are no more or less afraid of falling into a lower socioeconomic class, according to the latest New York Times/CBS News poll."

[...]

"Their responses are like the general public’s in many ways. Most describe the amount they paid in taxes this year as “fair.” Most send their children to public schools. A plurality do not think Sarah Palin is qualified to be president, and, despite their push for smaller government, they think that Social Security and Medicare are worth the cost to taxpayers."
- Poll Finds Tea Party Backers Wealthier and More Educated (NY Times, 4/14/2010)

There are many other easily accessed, readily available sources for this kind of useful, verifiable information.

While Stoneleigh's thesis about the breakdown of trust and its concomitant fear-and-anger induced consequences may well ultimately prove essentially correct -- using the simply-untrue idea that The Tea Party is comprised of people, "who know they have suffered, or are about to suffer, substantial losses", to make her case is just plain wrong: period.

As much as I loathe Al Franken, he is right about one very important point:

We are entitled to our own opinions but we are not entitled to our own facts.

TAE, and The Peak Community in general, consistently asserts its all about helping people recognize, understand and mitigate this century of contraction within the confines of our culture of make believe.

But when you engage in make believe yourself, you're not going to do a good job of helping others accurately perceive reality.

Not to mention the obvious fact that embracing, rewarding and apologizing-for absurd counterproductive notions such as nine-eleven-was-an-inside-job, anthropogenic climate change isn't real, or The Gulf of Mexico will explode, isn't likely to attract people armed with Baloney Detection Kits.

Step Back said...

Stoney,

Excellent insight on the "trust" half of the
Money= a_Promise equation

I hadn't thought about it from that angle

Stoneleigh said...

Monkey Muffins,

The Tea Party is a grass-roots movement grounded in anger, but one that is being co-opted by some extremely wealthy and powerful people. Public anger is useful to the powers-that-be, because it can be manipulated, and ultimately makes people easier to control. Remember the Two-Minute Hate in Orwell's 1984? We're obviously not there yet, but I think that's where we're going a few years down the road. I find it important to point out sea-changes as they begin to happen, and I think the rise of anger-based popular movements is an important one.

I'm not surprised that the Tea Partiers are wealthier than average. It's not the people at the bottom of the heap who start these things. There are many people who have been kicked by life when they're down so many times that they've become quite fatalistic. They may join a movement, because strong emotions are incredibly catching, but they're not likely to start one.

Wealthier people have higher expectations, have more to lose, and are more used to getting something approximating their own way. They're used to having at least some control over the direction their lives take. It's the prospect of losing that control that is so frightening, and the prospect of having it taken away that makes them so angry, quite understandably so.

There's nothing that fuels public anger quite like dashed collective expectations, and we have hardly begun to see the effects of that yet. It is coming, and when anger gets into high gear it will be quite something to see. I firmly believe that the Tea Party will be part of that, although I don't think it's members see it that way at the moment.

Personally I would rather see people resist being part of movements of anger, even though I can see that argument that righteous anger can bring about change. It can, but under the circumstances that are developing, I don't see it being a force for positive change, however much people may currently want that to happen.

Staggering losses are already baked into the cake, although people don't typically realize that. All the rally did was to facilitate extend and pretend for a little while. The money is already gone, and as soon as we get price discovery, everyone will realize that, and assets will be repriced across the board at pennies on the dollar. Without money there will be less freedom of action, and there is nothing as addictive, or as hard to lose, as freedom.

We don't have the ability to reform our system, prevent losses and keep up anything like business as usual. Business as usual is not an option going forward. Adjusting to that coming reality is going to be very difficult, and an enormous number of people will be very angry - far angrier than anything we've seen so far on the mere threat of losses (of both money and freedom).

I want to see as many people as possible keep away from movements of anger, because ultimately they will only soak up energy and resources that would have been far better spent working to build what local control we can over the essentials of existence at a local level. People who can maintain a constructive mindset will be better equipped to face a difficult and uncertain future.

A real drive to achieve something for one's own community locally can be very empowering, and can be a great psychological inoculation against becoming caught up in destructive anger. Those who are forewarned about coming changes in collective mood are better prepared to see them for what they are and chose a different path.

D. Benton Smith said...

Listen up, Monkey Muffins,

By your own standards (i.e. the checklist outlined in 'Baloney Detection') the counterarguments you pose to TAE in general and Stoneleigh in particular, fail the test resoundingly.

For starters, a tiny survey by the notoriously biased New York Times does not constitute a valid profile of the Tea Party.

But the real corker is your disingenuous attempt to 'beg the question' by obliquely suggesting that TAE supports any of the three conspiracy theories you reference (911 as an inside job; climate change denial; Matt Simmon's fears about the oil spill)'

Such an attempt on your part is not just letting your emotions rule your intellect. It is deliberate slander, and as such is despicable. You are a Troll, plain and simple.

If TAE were mine I would vote you off the island.

Stoneleigh said...

I will be resuming my US tour after the ASPO conference and Canadian Thanksgiving (October 11th). There were many places that had asked me to come, and I am now trying to reschedule those visits. Please let me know if you would like me to come and speak in your area, as I need to formulate a sensible itinerary covering approximately October 15th to November 5th. After that I will be appearing at the Local Futures conference in Michigan (with Steve Keen and perhaps Joe Tainter), and then spending a month in Europe.

DIYer said...

MonkeyMuffins,
That wasn't even an entertaining rant. And I think you need to send your baloney detector in for recalibration, as its gauges don't agree with the ones on my baloney detector.

Ilargi said...

"DIYer said...
MonkeyMuffins,
That wasn't even an entertaining rant. "


Now, now, it was sort of entertaining.

But presenting factoids about tea partiers' wealth and education bears, if you read well, no relevance whatsoever on what Stoneleigh is saying. It's just the "don't call me stupid" knee-jerk that Kevin Kline exhibits in A Fish Called Wanda.

And the attempts to paint TAE into a "peak community" and silly theories corner, isn't that exactly what Monkey accused Stoneleigh of doing with tea parties?

It all doesn't seem to make a lot of sense, does it?

My suggestion would be that everyone who wishes to say anything on the topic read Lewis Carroll first. I for one find tea parties beyond Alice not a terribly interesting topic.


.

Greenpa said...

Ilargi: "But presenting factoids about tea partiers' wealth and education..."

and, always keeping in mind, there are "factoids", and then there are "facturds"...

jlpicard2 said...

Stoneleigh: "...where there is no trust, and consequently no political legitimacy, there will be surveillance, coercion and repression instead."

Could this be what is behind the Obama administration's push for a law next year to make it possible to wiretap all digital communications? To get ready for even more surveillance?

Some point to point technologies (such as Skype) currently can not be decrypted by the government.

3 relevant links:
http://www.nytimes.com/2010/09/27/us/27wiretap.html?_r=1

http://www.schneier.com/blog/archives/2010/09/wiretapping_the.html

http://arstechnica.com/tech-policy/news/2010/09/fbi-drive-for-encryption-backdoors-is-deja-vu-for-security-experts.ars

zander said...

"Over time institutions become sclerotic, unresponsive, self-serving and hostage to vested interests....",

The culture of cronyism and the entitlement mindset of dyed in the wool fiefdoms - and I'm nottalking about just the elites here, but
everyone - is so enmeshed in all aspects of life I see around me these days, that it is akin to society being given 1 minute to see how many goodies you can stuff into a shopping trolly.
I wonder if people,lately, suspect things may turn out badly and want to hold on for grim death before the final parting of the ways, ensuring when things do go wrong, they do so in spectacular fashion, no stairs, just cliff and ravine.

Z.

Coy Ote said...

Listening to the StoneLady on-line video and impressed as usual with the clarity and concise presentation of our predicament.
She knows whereof she speaks on energy and financials and does not engage either in cliches nor theories.

I don't mind the challenges such as MonkeyMuffin posted, etc. because they initiate an interesting response from the hosts, and the board, and further clarification of what is factual, realistic, and what is not.

Re: STUXNET
Are we witnessing the explosion of a worldwide wave of cyber attacks? Add this to the current storms of financial debt/chaos and energy depletion.

http://tinyurl.com/26sud6c

thetinfoilhatsociety.com said...

Regarding the Tea Party 'movement' here's Joe Bageant in an interview:

http://www.youtube.com/user/TheAlyonaShow#p/u/5/9LD1qpZ6znU

Stoneleigh, according to Janis Joplin, "Freedom is just another word for nothin' left to lose" and really, according to Buddhist (and Hindu to a certain extent) that is so. When has nothing of attachment, one has achieved 'freedom'.

I. M. Nobody said...

@ Coy Ote

I believe we are witnessing the final triumph of human intellect over good sense. I predict that will not end well, for humankind and lots of other living things. These times are proving to be way too interesting.

Ric said...

do I have an epiphany here, or is this a banality?

I imagine everyone here struggles to some degree with the realization that each of us looks at the world with either pragmatic reasoning or ethical reasoning--we either do what we think works or what we think is right. Most like to think these types or reasoning are not mutually exclusive, but actually they are because their assumptions about the real are so different. In general, there are four broad cases:

1) If we see the world as a closed, ordered system, pragmatic reasoning is the most rational and Cohan (society) is brilliant.

2) If we see the world as a closed, chaotic system, reasoning of any kind is useless and Cohan (society) is insane for trying.

3) If we see the world as a chaotic and irrational open system, then we creates ethics from the ground-up and see Cohan (society) as a sociopath.

4) If we see the world as a transcendently rational open system, we answer to ethics outside ourselves and see Cohan (society) as lost.

Logic derived in each case is nonsensical to other cases. Because we don't like to see ourselves as sociopaths, the realization that pragmatic reasoning is sociopathic is painful. This is why most ignore the problem and go-along-to-get-along. Those who don't ignore the problem jump from the frying pan into the fire because they then confront apparent paradoxes about themselves and the world, such as:

- How can ethics exist in the apparently closed system of my cellular body? or
- How can my personal ethical stance possibly have value in a chaotic open system? or
- How can the closed system of my cellular body be possible given a transcendently rational open system?

Hopefully, I've phrased this in a boring-enough way not to create a flame-war. The epiphany is not banal, but it is also not pragmatic. If pursued with integrity it leads to places like a home in the woods off-grid where one appears to have less than pragmatists. It's up to each of us to decide whether this is a problem or not. This is also why I always enjoy reading your posts as you're one of the few who puts his money where his mouth is. :-)

Starcade, back on Leviathan said...

Anyone else think all this foreclosure fraud was basically "THE ANSWER!" for the TBTFs to keep them going?

Anyone who doesn't, I submit to you the unemployment chart from Shadowstats:

Pretty much from 2002-2008, the blue line (the old methodology: REAL unemployment) meandered between 12-14, settling what appeared to be somewhere near 12%

The moment Fannie and Freddie got nationalized, the new normal hit, and 10% of the adult population pretty much became unemployed on a near-vertical slope.

That 10% (at minimum!) was the populace employed simply by the house-as-ATM crowd, and now the foreclosure fraud on top of it could finish everything off, including the banks, Fed, currency, and government.

Ian said...

Wow! Monkey Muffins makes what I consider an intelligent & reasonable remark - but one that has the temerity to question an aspect of TAE - and gets slammed hard (except by Stonleigh who had the grace to spend time and effort actually debating his comments).

Ever wondered why there are relatively few new posters here? I think this club might be closed to any but the nodders. How sad!

Ilargi said...

That's right Ian, you got it figured out. Down around here people follow the guy in the white face mask with the goat horns on. No questions asked.


,

Gravity said...

@Ric, your concept of pragmatism seems to infer a primal dichotomy in truth, insofar as the moral principle of truth is seen to be irreconcilable with its power principle, so creating progressively unbalanced pragmatist primacies within societal institutions, and that these antagonisms may only be reconciled and harmonized through a proper balance between societal institutions and the moral actor, whose sovereign will is the centre of the moral universe, while provisionally defining the forces of dominant sociopathy as consisting of fundamentalist pragmatism divorced from a moral memory.

Coincidentally, the moral principle of gravity is structurally identical to its power principle.

Ventriloquist said...

From a couple of comments posted on ZH yesterday:


by Punderoso

Must we expect a "nominal" crash/correction due to all the shenanigans?... or maybe we need a reality check?

A nominal crash can occur if the dow/s&p falls, but cannot a "crash" also occur if the index remains relatively stable but our purchasing power falls? Near 2000, the dow was not far from what it is now, yet I paid $1.60 per gallon gas, under $2 for a gallon of milk, and gold was near $300/oz.

Why can't it be that 5 years from now the dow/s&p are not far from where they are now but I will be paying $8 gal of gas, $8 gal of milk, and gold over $2000 /oz. Can someone explain to me the difference? Why is not this scenario considered a long drawn out crash in the market? Just because nominally the index numbers didn't fall?

Isn't the measure of wealth really about your purchasing power which is difficult to quantify, and its this difficulty which allows government/bankers/politicians to move all the other variables to screw us over?


* reply


by Caviar Emptor

Yup. That is exactly why gold keeps climbing. It's called crumbling purchasing power. The dollar simply can't be traded for the amount of "stuff" that it could in 2000.

The trend started way back but the key is that it has undergone an acceleration. So the new trend is for more rapid deterioration in purchasing power. There is always the risk of a big meltdown where gold would go to the moon, but that's not what most investors are expecting or betting on. Just a down hill course. Protect your wealth.


.

Ventriloquist said...

Blogger I. M. Nobody said...

@ Coy Ote

I believe we are witnessing the final triumph of human intellect over good sense. I predict that will not end well, for humankind and lots of other living things. These times are proving to be way too interesting.



a Response from a Famous Movie



Let me tell you why you're here. You're here because you know something. What you know you can't explain, but you feel it. You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad. It is this feeling that has brought you to me. Do you know what I'm talking about?

Yes.

It is all around us. Even now, in this very room. You can see it when you look out your window or when you turn on your television. You can feel it when you go to work... when you go to church... when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth.

What truth?

That you are a slave. Like everyone else you were born into bondage. Into a prison that you cannot taste or see or touch. A prison for your mind.


.

Coy Ote said...

@Gravity My sentiments exactly! ;-)

Stoneleigh - "Without money there will be less freedom of action, and there is nothing as addictive, or as hard to lose, as freedom."

Yes indeed, and mobility, once one has had it for generations, and then it is gone.

DIYer said...

Well OK, I sit corrected, Here on my Saturday Interweb Sofa.

MonkeyMuffin's rant was sort of entertaining. As for the baloney detector, my gauges still don't give the same readings, but of course we can argue all night about whose theory is the more Ptolemaic, and whose is more Heliocentric.

One thing I think we can all see is that the teabaggers have a powerful publicity machine and a lot of financial support behind them and their narrative, regardless of baloney level, is likely to be mainstream politics in the not too distant future.

As for MM's fact, there was a recent article describing a semantic analysis of tea party talking points, and found them identical to the "conservative" talking points of the Republicans. Interesting article, but I don't have the link just now...

And as we know, "conservatives" have a long history of cultivating a sense of entitlement, and loss, and of supporting an expansive military but a "small government". Without a sense of irony, ironically.

Ian said...

You simply prove my point Illargi: ridicule/scorn/derision seem to be the order of your day.

BTW I'm thick skinned & can gutter-fight good as most, better than many. But out of respect for Stonleigh - who is absolutely in a class of her own and who also runs this blog - I'll cease & desist.

Ric said...

Gravity,
...your concept of pragmatism seems to infer a primal dichotomy in truth, insofar as the moral principle of truth is seen to be irreconcilable with its power principle,

:-) Truth is irreconcilable with power because power is a product of human perceptions of time and space. There's a Copernican shift where the actor, by definition, is not ethical, yet ethical actions and truth exist despite the actor. As far as humans are concerned, there's perception, transcendence to perception, and transcendence to transcendence. We're along for the ride, like a painter's paint.

TAE Summary said...

Tempest in a Tea Pot

* From the NY Times Article, Tea Party Members:
(A) Are more wealthy, well-educated and older than average Americans
(B) Don't feel more likely than others to fall into a lower economic class
(C) Think their taxes are fair, send their kids to public schools, and think Social Security/Medicare are OK
(D) Classify themselves as angry and pessimistic about the economy
(E) 55 percent feel someone in household will be jobless next year
(F) 66 percent say the recession has caused hardship or life change
(G) Feel government does more for the poor than for them
(H) Lots of other stuff

* Stoneleigh's Analysis (Not necessarily based on the NY Times article)
- Tea Party wants to undermine power of central authority
- Movement is a ground-swell of public anger and as such is expected at brink of collapse
- Tea Party targets government abuse but ignores the role of corporations e.g. the connection between the banking system and the Treasury
- Represents unfocused anger of those who have suffered or will suffer but don't understand the system
- Danger is the Tea Party will become hijacked for political purposes leading to a further deterioration of trust

* MonkeyMuffins' Objection
- TAE community has penchant for easily debunked myths
- Quotes (A), (B) and (C) from NY Times but not (D), (E), (F) or (G)
- Stoneleigh's thesis about breakdown of trust may prove correct
- However, Tea Party members haven't suffered and don't fear to suffer substantial losses
- TAE is engaging in make-believe, e.g. 911 was inside job, climate change is not man-made and Gulf of Mexico will explode
- Those with Baloney Detection Kit will not be attracted to TAE

* Stoneleigh's Response
- Tea Party is grounded in popular anger and co-opted by rich and powerful people for their own ends
- Not surprising that Tea Party members wealthier than average
- Staggering losses will happen and dashed expectation will put anger into high gear
- Better for people to join positive local movements
- System can't be reformed

* D. Benton Smith's Response
- MonkeyMuffins fails Baloney Detection test
- NY Time is unreliable
- TAE doesn't support 911 theory, GoM theory, or climage change denial
- MonkeyMuffins is a Troll

* DIYer's Response
- MonkeyMuffins' rant wasn't even entertaining
- His Baloney Detector needs recalibration

* Ilargi's Response
- MonkeyMuffin's rant was entertaining
- Mentions (A) from NY Times and says it has nothing to do with Stoneleigh's thesis
- TAE doesn't support 911 theory, etc.
- Tea Parties are boring

* Coyote's Response
- MonkeyMuffin's challenge was useful because it initiated interesting responses

* Ian's Response
- MonkeyMuffin's remarks were intelligent and reasonable
- Anyone questioning any aspect of TAE gets slammed hard (except by Stoneleigh)
- This is why no one new posts on TAE

* Ilargi's Response to Ian
- Ian has it all figured out

* Summary Judgement
- We are all Trolls (except Stoneleigh)

alex_uk said...

Ever wondered why there are relatively few new posters here?

I think it might be helpful if the comments link was put more prominently perhaps under the main article rather than at the bottom of all the linked articles. It did take me several months to realise there was a comments section.

Stoneleigh said...

Alex_uk,

I agree that would help, but I don't think we have a choice as to where the comments link goes. That's determined by the Blogger content management system. That's one thing we may be able to change when we finally move away from Blogger at some point. It's just an enormous amount of work and is therefore taking much longer than we anticipated.

Linda said...

A TEABAGGER=TAE GARBAGE

It's an anagram! I have no idea what it means, but it works!

Also, glad TAE Summary is back.

Twilight said...

Stoneleigh - your essay on trust is excellent. However, don't read too much into the tea party thing. While it is tapping into real anger, and it is a sign of this breakdown in trust, this particular group is an orchestrated creation of the existing power structure. It's a pretty typical Republican reaction to being out of power, but with the added twist that a particular group is trying to gain control of the GOP. Once that process plays out the tea party vehicle will be retired. Things can get out of hand of course, but it's not quite time yet.

Linda said...

@ Ventriloquist

Is the movie The Matrix?

Stoneleigh said...

Draft,

The Tea Party isn't some new movement - it's simply a rebranding of conservative Republicanism. It's also not grassroots - it's heavily funded by Dick Armey and company and heavily promoted by Fox. And while it claims to be about "big government" you'll find that it's intellectually incoherent, and that's being kind.

I understand. I have certainly seen a lot of intellectual incoherence (to be kind) in the televised rallies/meetings I've seen. I don't doubt that there are intelligent and principled people involved as well, although they are also likely to be people I would disagree with on many important issues. No movement is ever completely monolithic.

I think the people who are genuinely part of it because they feel big government is stepping on their toes are going to be horrified at where this route could take them. If they think their freedom is being curtailed now, they're not going to like the future at all. IMO their anger is being co-opted and subverted by wealth and central power (an amalgam of public and private) in order to undermine their freedom far more than anything we've seen so far.

During expansionary times people seek to control nature, but during contractionary times people seek to control other people, and many also (sadly) seek to be controlled in the name of security. As Benjamin Franklin noted however, he who trades liberty for security shall lose both (and, he said, deserve neither).

Stoneleigh said...

Twilight,

I agree with your point about the Tea Party trying to gain control of the GOP. I'm not sure whether it will work, or whether the power(s)-behind-the-curtain of the movement will decide at some point that being independent is better. My current guess is that they'll eventually choose to be independent because I think radical independence (a kind of Ross Perot on steroids) will get more political traction as the underlying public anger they tap into strengthens. The contraction we're heading into is large enough to eat both existing political parties (two sides of the same coin anyway) for breakfast.

DIYer said...

Summary Judgement: Hear, hear!

... true, dat.

Greenpa said...

Ric- I like your analysis quite a bit; good brain you have there.

Can you feel the "but" coming? :-)

I think we would quickly diverge as to what is "pragmatic". In my own world construct, the word connotes real, long term, or perpetual, benefits. I have a sneaking suspicion that you use the common meaning, which is "quick profits, no long term thoughts anywhere."

And, here in my cabin, I am far from uninvolved in the world. Why just a few days ago, I found a way to publicly puncture and irritate a whole new audience, via the BBC and the internet. And just a week or two ago, I began the seduction of a whole new crop of innocent young students, in another state...

Your elegant analysis I would have to place in the category with the "how many pinstripes can dance on the head of an oil-well" boys. Fascinating, but of very little real world utility. My zen-master response, if you were within reach, would be a quick smack-upside-the-head, and a forceful invitation for you to go split some firewood.

:-)

I do love diversity!

Greenpa said...

Stoneleigh: "I agree with your point about the Tea Party trying to gain control of the GOP. I'm not sure whether it will work, or..."

One of my stock of true and forceful stories: A few decades ago, the Lutheran community in North America decided they wanted to be friends with each other. So the 5 existing divisions convened a long-term effort to reunite; the goal being a single Lutheran entity.

Some 8 years later, they abandoned the effort. Since they now consisted of 7 divisions; not 5.

True believers are the most difficult types of all to unite. But it makes good comedy, anyway.

Greenpa said...

I am puzzled a bit and intrigued by the total failure of the story about Connecticut halting all foreclosures to find any legs in the MSM. WAPO had it right on top; first big feature- for about 20 minutes, I think; then buried it. If you don't have the link; you'll never find it. HuffPo took it; but hasn't embroidered.

Now, why? No CNN, no NYT, no UK. Smells a lot like heavy pressure to me. Then, again- why?

Ellen said...

Ian - I think you are spot on.

DIYer said...

Greenpa,
Here are some links to the story you mentioned:
www.marketwatch.com/story/connecticut-ag-asks-courts-to-halt-foreclosures-2010-10-01-1238120
voices.washingtonpost.com/political-economy/2010/10/connecticut_halts_all_foreclos.html
www.huffingtonpost.com/2010/10/01/connecticut-bank-foreclosures-halted-blumenthal_n_747583.html
There were some other copies of the story in lesser news markets, but it's as thin as coverage of the liberal rally this weekend.

Interesting observation -- let's watch these links for the memory hole effect.

I suspect the answer to your question is that the PTBs don't want to rile the pitchfork crowd. Just go back to your cubicle, everything's under control. At the same time they want to stop foreclosures because allowing them to proceed would hasten price discovery in the real estate markets.

I. M. Nobody said...

@ Ventriloquist

What can I say, except thank you for drawing that thoughtful response out of the film archives. It does rather well describe how things have long looked to me. In my view, wrongness tends to breed wrongness and wrongness has been expanding exponentially.

@ The new members of the commentariat who wonder why we don't get new commentators.

What I wonder about is why almost all the gaggle of new commentators seem to have nothing much to say except for derision of our facts, our demeanor and our fashions in tin foil hats. According to our new comrades, we can't seem to do anything right and some of us are accused of having a bad attitude. Sheesh, they shoot horses for less lameness than that.

One can hardly fathom how Saint Stoneleigh, The Oracle of Ontario and Proposed Empress of North America, could stand to hang out with such a motley crew. There is definitely a paradox here, the unraveling of which could possibly tear a hole in the universe. Let us not therefore undertake such a risky venture. To steal another cinematic thought. Let us instead, Live and Let Die.

When the Tea Party's over, throw the china into the fireplace.

All hail the Tea Bagger in Chief, Dick Armey, and his esteemed Deputy, Rupert Murdoch!

Kurt said...

I wonder, if the tea-party were a collection of pissed-off left-of-centers who feel utterly betrayed by the Democratic Party, would posters here be just as condescending and dismissive?

For all those who get hysterical every Monday morning with Jim Kunstler over those Nascar lovin', corn pone Nazi in-the-making tea-bagger bigots, I challenge you to broaden your perspective just a tad:

Thomas Woods Part 1
Thomas Woods Part 2
Thomas Woods Part 3
Thomas Woods Part 4

D. Benton Smith said...

Hi, Greenpa,

You wrote: "I am puzzled a bit and intrigued by the total failure of the story about Connecticut halting all foreclosures to find any legs in the MSM, ... Now, why?"

Here's my take, and I must say that this issue grabbed my attention with vice grips the instant I first saw it because it touches upon the most fundamental of all monetary fundamentals
(now, how's that for hyperbole?)

Only it's not hyperbole. It's understatement.

Money is the command and control medium for pretty much everything we depend on for day to day survival, but money itself rests upon the rule of law, the ability to enforce binding agreements (contracts.)

Although that ability ultimately rests upon force (law enFORCEment) institutionalizing and controlling such orderly force takes money, and lots of it.

In other words, if contracts cannot be dependably enforced then there is neither money nor law ... just the chaos of brutality.

It is possible that trillions of dollars in claims against underlying real estate cannot be enforced due to irreparable fault in the way contracts were administered and traded.

If so, then the 'Derivatives' house of cards (estimated to be hundreds of $Trllions) that was so recklessly built on those contracts, also cannot stand.

If the legal system's 'blowout preventer' can't cap this thing really fast, then it will be the financial equivalent of every oil well in the world going "Deepwater Horizon" in rapid succession.

Because, after all, if the law can't force people to pay, then how many will choose simply to hang on to the house AND the payments they now don't have to make? And under those circumstances, how much debt out there would suddenly have not even the fantasy of collateral.

Has the Black Swan finally hatched?

EBrown said...

I have recently come upon another example of inclusion that demonstrates the general global idea of the "in-group" that Stoneleigh writes about.

I've been rather busy this year reading and practicing agricultural pursuits as preparation for the coming crash. In my perusal of some books and articles the idea of "needing to feed the world" emerges consistently. Can organics feed the world? Can GMO crops feed the world? etc. etc. I haven't stumbled upon a permutation of this question in any of the older agricultural literature (say 1950 or older). In fact I'm currently reading a fascinating text on Russian Comfrey written by a British guy who wanted comfrey to be used more widely and recognized for its tremendous fodder potential. I'm not even close to finished the book and already the author has mentioned stated that Britain needs to maximize its output and efficiency to feed its citizenry. The concern was entirely domestic, not global.

He wrote in the immediate post-war period with memories of struggling to maintain beef, pork, dairy, and poultry production due to restricted imports. The idea of a secure and productive food system within the borders of England and not dependent upon inputs, even from colonies, appealed to the "writing class".

Ric said...

Perfectly fine, Greenpa. I find your posts intelligently refreshing and read them closely. My analysis definitely has, as far as I can tell, very little real world utility--story of my life. The people I enjoy most are easily unseen and generally thrown away.

My usage of "pragmatic" has to do with scale. William Blake nails the world I know and live in:

To see a World in a Grain of Sand
And a Heaven in a Wild Flower,
Hold Infinity in the palm of your hand
And Eternity in an hour.


Which is to say, chop wood, carry water!

Starcade, back on Leviathan said...

D Benton Smith: Money _rested_ on the rule of law. The rule of law no longer applies in the United States of America, especially as it relates to money.

That's what I'd like to tell Denninger if he didn't think I was a piece of shit: Everything he says is probably fine, from a perspective of an economic world where the rule of law meant anything and the basis of not only the current monetary supply, but really the current population, would stay in check with any kind of real restraints.

We don't have that. If you accept the premise that 70% of all GDP is consumer spending, then we probably should be looking at at least a 7% haircut on GDP as it is.

And then there's the report from a number of months ago that 1/6 of all income is one form or another of the government dole. That's over 10% of GDP right there.

What I see is this, once everything comes out, the dollar is toast, so are all the banks and the current form of government.

10-30% of the population will die. (I tend to think more the 30%, because of the current real unemployment rate, etc.)

10-30% of the population will be enslaved.

In short, I do think the Black Swan has hatched, because, whether this foreclosure fraud was true all along -- or was made true when the entire derivative house of cards fell through in 2008 -- the whole housing situation in this country is basically a fore-GONE conclusion.

Starcade, back on Leviathan said...

Greenpa: You need to ask why the foreclosure fraud hasn't gotten more MSM legs?

The moment it does, it's all over.

Riots, torches, the fuckers jumping...

zander said...

@DBS 1.38pm,

I often ponder the what if's of the populace, en masse, simply saying "f... it, I'm not paying" in relation to all their credit related debt, the scale would be way too large for anything to be done about it in any way, and would force some sort of re-alignment whether TPTB liked it or not. aahh if only.....


Z.

Nassim said...

He wrote in the immediate post-war period with memories of struggling to maintain beef, pork, dairy, and poultry production due to restricted imports. The idea of a secure and productive food system within the borders of England and not dependent upon inputs, even from colonies, appealed to the "writing class".

EBrown,

The biggest plan of those days was the Groundnut Scheme (peanut scheme)

They built railways in East Africa and the whole thing was a disaster. They even recruited 100,000 ex-soldiers. They "knew" the solution and never asked the locals.

I expect we will see that type of approach being repeated a few more times. I mean, the whole corn-to-oil thing is bit similar.


anon10 said...

It's Time For The Fed To Stop Screwing Savers And Bailing Out Banks And Borrowers With 0% Rates

jal said...

MY, my, what a barrel of pickle!

The land title office, or whatever name it goes by in your district, has the records of who is entitled to get your monthly payment for your house.

They are the ones who have the authority to evict you from your house and seize your property in lieu of payment.

Anybody else is stealing your house.

Find out! Get ready! When someone comes knocking at your door you might be able to get them arrested for fraud.

If you bought a house in foreclosure from someone, and that person was not registered at the land office as having a "lien" and had a right of possession, then be prepared to be pursued by the rightful owners who will be able to claim that you bought "stolen property" and you would be obliged to return it and you would be obliged to pursue that other someone to get your money back.

No wonders the lawyers and notaries are partying.

Their boat is about to dock!

If you cannot continue your mortgage payments, it is your responsibility to find out what is the paper trail and the money trail.

Keep records ... Keep records ... Keep records

Do not do a loan modification unless the paper trail and the money trail are the same.

During the depression, evictions were made illegal.
Wait for it, history is about to repeat itself.

If you want a good Xmas ... Keep records.

jal

Gravity said...

Pragmatism is cofusing me, the meaning of philosophical pragmatism is different from the political term, which I though to be the opposite of ideological moralism.

Wiki: 'Pragmatism is a philosophical movement that includes those who claim that an ideology or proposition is true if it works satisfactorily, that the meaning of a proposition is to be found in the practical consequences of accepting it, and that impractical ideas are to be rejected. Pragmatism, in William James' eyes, was that the truth of an idea needed to be tested to prove its validity.'
There's also a field of pragmatics, which is 'a subfield of linguistics which studies the ways in which context contributes to meaning.'

Still, I mostly associate the effects of political pragmatism with endemic compromise, ideological malleability and corruption, perhaps mistakenly so.

I came across this trust-related thing on ZH, The Behavioral Psychology Behind (And Following) Market Crashes, which contained the following assessment: 'A detrimental consequence of financial crises is the loss of trust in financial institutions. Seven determinants of trust (and regaining trust) in financial institutions are discernible: competence, stability, integrity, benevolence, transparency, value congruence, and reputation.'

Those ingredients don't sound quite right to me, but I was wondering if Stoneleigh or others had similar insights into what constitutes trust.

Mike Hogan said...

I read your stuff regularly and have never commented. However, your comments about the Tea Party indicate a lack of understanding about the movement. Then reading your reference article, it becomes clear why you misunderstand it.

A simple guide: if the article refers to "Tea baggers" which is a derogatory reference to a sexual act, then it is an ad hominem hit piece.

You have talked about the aggregation of power to the core, you've referenced ancient Rome and the extortion of the farmers as the needs of the ruling class grew. This is the very thing the Tea Party is fighting against. For you to write of them (us) like simpletons is simply wrong. We are MORE informed about the budget, debt, plummeting M3, and more than the majority of the mindless populace, who are content as long as their sports team won their last game.

Regarding your later comments about the Tea Party being a "movement of anger" can you tell me some national movements that do not have some degree of anger or frustration at their core? Obama's "change" was a venting of anger against Bush. The GOP is now mounting their mid-terms based upon anger with Obama. The same could be said about the folks behind the movements regarding global warming, Japanese dolphin slaughter, and frankly every movement. But the Tea Party is also about enlightenment, looking at how we have veered away from the founding principles of the country that have served us so well for so long, e.g. limited government, adherence to the constitution, sound fiscal policy, etc.

Given everything I've read at TAE, I would think that YOU of all people would be in favor of the Tea Party because they recognize the terrible fiscal situation and they want to change it. Your fatalistic (OK probably also true) approach of, "it's too late, focus on preparation locally" is merely another response to the same realization that we are on the wrong path.

For the record I am not some mindless GOPer. I'm an independent who disliked Bush for his profligate ways and can't stand Obama for taking spending to a whole new level.

westcoastliberal said...

Sorry to hear of your sis' passing, Stoneleigh.

I wanted to chime in on the soothsayers connecting the Foreclosure disaster with Black Swan.

Seems to me this is it and it's been looming now for quite some time. Those of us unfortunate to buy a home by mortgage have known the truth of all the fraud, and it has taken this massive, pernicious fraud (18,000 docs signed by 4 people who didn't even read them) to get the attention of the press.
My documents were totally screwed up, in fact the signing agent tried to get me to sign seller documents (which I politely handed back), the escrow was screwed up, and when they foreclosed papers were incorrect and some missing. I applied for HAMP and they went ahead with the foreclosure & sale before I received a decision.

I didn't sue because the attorneys I confered with all said the courts don't even consider your side of the case as a homeowner, they just assume you're trying to get the house for free.

If enough awareness of this widespread fraud develops among judges that they feel pressure to do the right thing by homeowners, then IMHO this is the Black Swan and it will evolve and deepen as the dominoes fall.

On the other hand it's always possible TPTB will somehow retroactively "modify" the law to mitigate the effects. In that event there may be sufficient outrage among the public to trigger civil unrest, which is a Black Swan in and of itself.

California just approved a budget compromise that wipes out aid for the downtrodden; I expect to see tents pop up on golf courses any day (George Carlin would have been proud).

scandia said...

@Gravity, re trust I've been thinking that one might be able to use risk assessment analysis to measure trust quotient in a dynamic.

john patrick said...

Just finished watching, "The International" and "Body of Lies" (both on Netflix)

Both are certainly entertaining, but moreso they show to what extent certain interests will take to keep the true nature of a money/power deal hidden.

Some revelations will cost someone their life. And some structures do not intend to go quietly into the night. After watching both movies, it became apparent to me that we have no national borders. Borders are for little people. This money monster we've created has a powerful following/life of its own.

For many of us we do the poor and rich thing in cycles. For some, it is not a cycle. And it will cost you dearly to interfere in it. I forget who said it (help me out) "Do not study the ways of your enemy too much." Some of these rabbit holes are very dark. And perhaps no backing out.

ric2 said...

@ Mike Hudson

Most of the Tea Party members/supporters that I've encountered personally, seen or read about on MSM and non-mainstream outlets all seem to support continuing large-scale overseas deployments and combat operations of US military units and intelligence assets as part of national security.

The expense is huge.

The return on this expense is already negative (every additional dollar spent on the DOD/black programs decreases national security, every additonal soldier deployed overseas decreases national security, every Hellfire missile fired from a Predator drone in Waziristan decreases national security, etc.)

I have yet to meet or hear about any Tea Party member/supporter who is for a huge reduction in the budget of the DOD/NSA/CIA/other intelligence programs, which would probably require an end to most overseas deployments and an enormous downsizing of the US military and intelligence services.

This seems pretty similar to the GOP view of "smaller government." Smaller government except for the armed part of the government.

Gravity said...

@Scandia, seems a risk assessment of any trust-carrying entity could include equivalent trust components, such as competence and some form of reputation relating to value congruence, whatever that means, but must exclude transparency and stability, as these could be elements of trust but may self-referentially limit or counter-indicate risk analysis, especially when there's things to hide. Also, some of those components in the ZH article like integrity and reputation or competence and transparency seem to be mutually reinforcing or mutually exclusive, and are probably not usable as separate factors of a trust-quotient.
The dimensionless factor of benevolence seems inapplicable to risk analysis, perhaps something vital to trust elsewhere, somewhere.

mercutio said...

Thank you Mike Hogan for taking the time to outline Tea Party positions. I found your post useful.

memphis said...

DIYer wrote:

At the same time they want to stop foreclosures because allowing them to proceed would hasten price discovery in the real estate markets.

That's close to my take on the situation as well. If the banks proceed with all the foreclosures that would, in theory, occur, they'd have huge writedowns to disclose. FDIC Friday would take on an entirely new meaning, and there would be runs on the banks much sooner rather than later. Additionally, all the expenses would become the banks; the upkeep, utilities, insurance, property taxes--how could the banks eat all of those expenses as their costs increase, valuations plummet, and depositors leave in droves?

Stoneleigh said...

Mike Hogan,

I just wanted to point out that I didn't reference the article you mentioned.

I take no specific political position, but I am not a fan of the Tea Party movement. I think the danger of it being co-opted further by populist demagogues is significant.

Here's an excerpt from a previous article I wrote on this topic, where I pointed out that it matter little whether the right or left is in power, and matters far more what collective frame of mind (optimistic or pessimistic) people bring to power.

Economics and the Nature of Political Crisis

Whether a party of the left or right is in control, one will tend to see its more benign face during the early phase of a great expansion. On the right this might include elements of a 'can-do’ independent spirit, pride in self-reliance, thriftiness and frugality, tight-knit communities and effective self-regulation. On the left it could include an emphasis on the public interest, caring and sharing, public service to the collective, a concern to see no one left behind, a desire to protect through regulation, and preparedness to contribute time and resources to the common good. Either of these constellations of characteristics is likely to deliver benefits and preside over a society whose institutions function relatively effectively....

....Whether the left or the right presides over contraction, we are most likely to see a much more pathological face emerge, and this will aggravate political crisis considerably. On the right this could be xenophobia, strict enforcement of tight and arbitrary norms dictated by the few, loss of civil rights, extreme poverty for most while a few live like kings, and fascism, perhaps grounded in theocracy.

On the left it could be forced collectivization, the elimination of property rights, confiscations, and a desire to punish anyone who appears to be doing relatively well, whether or not they achieved this legitimately through foresight, hard work and fiscal responsibility. In either case, liberty is likely to be an early casualty, and intolerance of differences is virtually guaranteed to increase.

twessels said...

The TEA party is right-wing conservative Republicanism spiced up with anger against government but not the corporations who control government. The "party" is financed by some of the wealthiest right-wing conservatives in the country who are determined to thoroughly discredit the current President while they prepare their own "Manchurian Candidate" for the next election cycle.

I'm not a big fan of the current President because he has acted as someone who shares the consensus trance of the ruling elite, which believes that America can "recover" to business as usual. We know that it really can't for all of the reasons Stoneleigh and Ilargi have put forward.

Financial capitalism collapsed in 2008. There is a crisis in the capitalist mode of power. Capitalists are losing faith that their ritual of capitalization can continue to command obedience as we face an irreversible decline in global net energy. Globally declining net energy spells the the end of unlimited economic growth. Capitalization is about the future flow of wealth discounted to the present. And since all of this is now in serious doubt, so is the future of the capitalist mode of social control.

I don't think the typical TEA party supporter has a clue about any of this. However, I do hope that other grassroots, social movements based on this knowledge, like the Transition Town movement, will be instrumental in creating a post capitalist mode of social power that will dismantle the system of prices and resource-wasting markets, while scientifically focusing on what we can do collectively, starting in our own towns, to manage our lives and livelihoods in a way that does not exploit the misery of other people or continue the destruction of our environment for profit.

I'm not confident that any of this can be accomplished in the next 20 years. It seems more likely that the ruling elite will press for resource wars as their means to continue the ritual of capitalization and economic growth until it too late to do anything else.

When the people living on Easter Island cut down the last tree they knew they were cutting down the last tree. We are headed to the Olduvai Gorge at break-neck speed. I don't really see any difference except our "crash" will make a lot more noise.

Ahimsa said...

Ric2

Well said!

Peace!

*

Mike Hogan said...

The article I mentioned was part of the reference material following your commentary. Instead of addressing my points, you chose to argue that you are politically agnostic.

Your fear of what might become of the tea party is no reason to condemn it's potential.

Mike Hogan said...

@Ric2: I advocate a strong defense. I see no reason to maintain the current "offense". Nor do I see a reason to maintain the foreign aid, when we cannot afford local aid. Smaller government all around. Now you do know a tea partier who is against foreign excursions.

I, on the other hand, have yet to see a liberal embrace the tea party, even when they argue for the same principles. The rationale? Their a bunch or racists or they just hate, or they are a GOP front group...all BS espoused by the MSM.

Stoneleigh said...

Mike Hogan,

I did not choose the articles following my essay, so they are not my reference material.

For you to write of them (us) like simpletons is simply wrong. We are MORE informed about the budget, debt, plummeting M3, and more than the majority of the mindless populace, who are content as long as their sports team won their last game.

No movement is monolithic. I don't doubt for a moment that there are many sincere, committed and principled individuals involved. There are also some very uninformed people, and some (IMO) very distasteful individuals (Sarah Palin comes to mind, as does Glen Beck) hovering around.

I think the odds of the original intent getting lost in a mass movement of anger, which could easily be highjacked, are very high. If this were to happen, I think the US would move much further away from its founding principles than it is currently. I think those who genuinely value constitutional government and sound fiscal policy would be horrified at where the country could end up heading.

I think national government has a high chance of becoming pathological in the next few years, whomever is in power. I choose to focus my efforts away from a national level, because IMO national politicians of all stripes are quite likely to make a bad situation worse as expensively as possible. Traumatized people tend to elect extremists.

Your fatalistic (OK probably also true) approach of, "it's too late, focus on preparation locally" is merely another response to the same realization that we are on the wrong path.

Indeed.

For the record I am not some mindless GOPer. I'm an independent who disliked Bush for his profligate ways and can't stand Obama for taking spending to a whole new level.

Thank you for commenting here. I appreciate your contributions to the debate and am always happy to discuss issues. Independent thought is a very valuable thing :)

I. M. Nobody said...

Mike Hogan gave us a explanation of the Tea Party that I suspect we might have gotten from most any CEO. It was polished and presented the "party" goals in a remarkably warm and reassuring light. Just as CEO's are wont to do. Except for his exaggeration of Stoneleigh's statements, I give him a well done.

However, I find twessel's opinion on the "party" to better reflect what is almost certainly a close approximation of the true nature of the beast. Twessels also did the heavy lifting of clearly explaining why the Tea Party platform will collapse even if they are the noble souls that Mike claims.

In the past couple of weeks, I have had to confront friends regarding their obsessive and primary political fear that our beloved Usanistan might go socialist. I doubt I made much of a dent in their pathology, but I did my best to explain what an impossibility it is. They don't seem to realize that they are part of the reason why it can't happen. There is simply no unifiable class or power center here that supports it. The folks who own the country will never stand for it, and of course there is the little matter that we can never again afford to do it at any level of services that would satisfy anybody. If we tried socialism now, we'd end up making the USSR look like it had been paradise.

What we can do and many signs say we're well on the way, is fascism. Fascism can be done on the cheap and our fair land is loaded with mobilizable people who already despise at least one group of fellow citizens. If any other element is requisite, it seems to have escaped me. Maybe the Tea Party will be the Trojan horse that carries the Fasces into the Capitol Mall, perhaps not. I have no remaining doubt that some group jacked up on hubris and lacking good sense will get the job done.

WgS said...

TAE/TEA party, meh.

Thus...the Neolithic did not begin at a small scale in the form of individual instances of garden cultivation, but started immediately as a large-scale social organisation ("a full-scale revolution."

"First came the temple, then the city."

$$$Dollar$$$ said...

Stoneleigh said:

I think national government has a high chance of becoming pathological in the next few years, whomever is in power.

Do you care to elaborate on this some more?

Stoneleigh said...

$$$Dollar$$$,

I should really have said more pathological than it already is. The predatory and self-serving elements are already becoming quite clear.

My worry for the future is demagoguery, quite possibly of the fascist theocratic kind. Demogogues typically hijack developing movements and offer simplistic populist solutions to a population that is angry/afraid/traumatized/vulnerable. Essentially it means twisting a movement into a shape that suits their purposes. Such twisting is much easier when people are in a very emotional frame of mind because something unexpected and awful has happened to them. Naomi Klein's book The Shock Doctrine demonstrates how this has been done in other contexts.

Movements can become unrecognizable to their own founders, or the founders themselves may be co-opted into a radically different version of what they built without apparently seeing the contradictions. Human beings have an extraordinary capacity to believe six contradictory things before breakfast, and I think we're going to see a lot more of this in difficult times. Contractionary times are not rational times. They are times of a huge resurgence of magical thinking.

We are not there yet, which means such an analysis naturally sounds unnecessarily alarmist. However, what we have always done here at TAE is to forewarn of major trend changes, whereas most analysis simply extrapolates current trends forward. The contraction we foresee will come with (and because of) a huge rise in negative emotion. The question we need to ask is therefore 'what do people do when they are in that frame of mind?'. One of the things they do is to elect opportunistic political extremists with simplistic answers, desperately wanting to believe in those answers.

bluebird said...

Debtors jailed in Ohio despite laws against it

Stoneleigh said...

Bluebird,

Thanks for that. Just because something is illegal doesn't mean it won't happen. All kinds of legal niceties will be either swept away or circumvented in the years to come. It's part of the on-going demise of the rule of law.

oneeyesquare said...

For what little it matters, I would stand over with Mike Hogan (and very much appreciate his defense). The TAE community does itself great disservice to continue generalizing those who stand on the "right" side of the road, but see the same fiscal/economic calamity fast approaching. To what purpose does continuing the "teabagger" insult gain you? This isn't junior high and vilifying those who aren't in lockstep with ALL your viewpoints will do little to ingratiate you post-whatever-the-hell is coming.
As a conservative-Tea-libertarian mash up,I have learned much from those here at TAE. Matter of fact, from this site came my impetus to focus on lifeboat rather than saving the "investment" of 19 years in my "home". Had I dismissed out of hand because you all were a bunch of "liberals/commies/socialist's", I would have neutered myself from valuable and inciteful analysis regarding the current financial situation and be like so many in my social circle, heads in the sand thinking it'll get better.
In summary, stop isolating yourself via vitriol from those on the right... After all, if a stupid, bigoted under-utilized contractor teabagger can come here to be 'edumacated' and made 'some much smarter', why can't the TAE community at the very least stop the insults and adolescent behavior? Bigger things are afoot..(besides you want to be my friend, I have ALL the tools....)

Greenpa said...

You all know my nose for "paid disruptors"; just wanted to say Mr Hogan does not hit my olfactories that way at all; rather he appears to be that rare creature; one able to hold a civil, sincere, and intelligent discussion while deeply disagreeing.

Wonderful!

ric2 said...

Thanks for clarifying, Mike Hogan.

Just so I understand you correctly, you are in favor of a return of all or most overseas US military forces and intelligence assets to the US homeland, complete decampment from and rapid closure of the 700+ overseas US bases and facilities, and a massive reduction in the size of US military/intelligence force structure and budget?

If so, you would indeed be the first self-identifying Tea Party supporter I have encountered whose idea of "strong national defense" means a radically reduced DOD that has no overseas presence.

I disagree with your claim that "liberals" argue for the same principles espoused by the Tea Party. If I understand you correctly, you are talking about the smaller, much-less-powerful government aims of the Tea Party. The vast majority of self-identifying liberals I have encountered strongly support top-down government solutions to perceived societal problems and they fail to grasp the concept that Stoneleigh explains so clearly: all hierarchical human organizations are predatory in nature serving primarily to convey wealth/power from the periphery to the center. Liberals think that if only we had the right people in elected and appointed positions of power, if only we had the right laws and regulations, if only we enforced those laws and regulations, etc., human society would be egalitarian and just, with equitable access to opportunity and distribution of resources and wealth. They fail to grasp that by its very nature, human organization tends toward concentration of power and wealth to the few apex predators at the top.

In the end, this debate doesn't really mean much. As Hoot from Blackhawk Down said: "You know what I think? It don't really matter what I think."

TPTB will take steps that keep a large overseas US military presence, with forces engaged in resource wars with the unstated goal of securing fossil fuels. This will be sold to both sides of the false liberal/conservative dichotomy that corporate-controlled media presents as reality to the public (and in which you as a member of the public must be part of - you're either liberal or conservative). On the liberal side, the need for a large overseas US military presence is presented as a way to create just and egalitarian societies and get much-needed resources into stricken areas of the globe (an "armed Peace Corps"). On the conservative side, the need for a large overseas US military presence is presented as a way to prevent all of those "evildoers" from getting us and our kids.

Ilargi said...

oneye

The word teabagger came up once in this thread, plus once in an anagram. if you think that gives you the right to say "The TAE community does itself great disservice to continue generalizing those who stand on the "right" side of the road", you're doing the exact same thing you accuse that same community of.

What we've seen here over the weekend is a few tea party supporters so eager to prove they're not dumb or poor that they never realized no such thing was suggested. And yes, that does tell me something.

There may be lots of good-willing people on your side, but certainly not all of them are. And as long as you accept to have the likes of Palin, O'Donnell, Beck and Rand Paul speak for you, really, how do you expect people to react?

Oh, and painting liberals in the same corner as communists? Sorry, but that merely confirms a lot of makes what people suspicious of what had really better be left to Alice and the Mad Hatter.


.

scandia said...

This Tea Party discussion puts a spur to my thoughts on trust. How do I decide who is trustworthy? Must there be an ideological match? Personally I don't think so.

Stoneleigh said...

The left-right dichotomy isn't very helpful, and we are trying to transcend it. As I have tried to explain, all large-scale human organizational systems are predatory. The outward form that they take, and the extent of their rapaciousness, depends largely on the times in which they exist. Movements from either side can (and IMO will) be co-opted in accordance with the zeitgeist, and will likely end up far removed from the intentions of their founders.

We are moving into an era of anger, fear and recrimination, and I would therefore expect the kind of popular movements that gain traction to reflect this. I am nevertheless going to oppose that trend, knowing perfectly well that the odds of success are not high. I want to be an influence for constructive thinking and societal cohesion, because those things will matter enormously, and I am afraid they will be lost in a period of huge upheaval.

oneeyesquare said...

Note the "commie" descriptor was italicized and in the context of my own "prejudices"... And the summation of the argument centered on dismissing my own prejudices; so that, I may learn from every source applicable.

The 'teabagger" insult has been used frequently by various commenters over the last however many months it has been en-vogue. Regardless of frequency, you did not address my argument ~ "Is it productive for the TAE community AT LARGE to insult those who lean to the right side of the dial? I have no compunction reading those whom I may not totally agree with. Persuasion is better with soft words than a big stick (or an intended homosexual slur- NTTIAWWTIYKWIM)

As for identifying WHO speaks for me? Mayhaps, myself? In my self descriptor, I identified as a "mashup". Do I like the parties identified, most certainly. Do I agree 100% or walk in lock step. Absolutely not. Do I think they perfectly describe the landscape before us? No. Where am I taking the time to interact? Here. TAE. Do I agree 100% with TAE? No. Do I have a complete understanding of what lays before us? Absolutely not (neither does any other reader OR Stoneleigh OR Ilargi). Prognostication has always been rather inexact 'science'. Can we generally tell which way the wind is blowing and act accordingly? Absolutely. That's why I sit here fairly well positioned (need more ammo!!!;)) for some form of survival whatever level of economic windstorm arrives.

I'm not vested in the approval of this community.. I find Stoneleigh very gracious and well spoken and thus enjoy reading her. Although technically, I find your writings enjoyable, your persona in the comments tends towards insult. Attack, ban, whatever...

Sincerely,
Your reader who likes Glenn Beck, is building a lifeboat, loves the idea of returning to local, small scale farms(and will do so himself if possible) and reads across the political spectrum of financial "doom" related blogs to grab EVERY snippet of information/editorial/comment that helps him prepare for the pending $hitstorm.

scandia said...

@Stoneleigh re " we are trying to transcend it." Me too if you mean transcend belief systems. Switch off the auto-pilot so to speak...

jal said...

Gee! It's a nice discussion.

How about looking at the MBS scam? That is more important in the projection of what might happen to bring the house of cards tumbling down.

Karl has been gathering info and doing his usual comments on the facts.

Somewhere in the world, some judge and lawyers will see the parallel with MBS and Bernard Lawrence "Bernie" Madoff.
( An incarcerated former American stock broker, investment adviser, non-executive chairman of the NASDAQ stock market, and the admitted operator of what has been described as the largest Ponzi scheme in history.

In March 2009, Madoff pleaded guilty to 11 federal crimes and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars.)

All it takes is one conviction for the dominoes to fall.
jal

bluebird said...

The video presentation is very good, nice format. I like the closed captioning words also. Thanks for producing this, well worth the few bucks to see it again and again.

Tom said...

oneeyesquare

Ditto on the absurdity of your liberal/communist connection, and you generalizations about AET. Try backing up your accusation with something more concrete then the musings of one or two bloggers. Moreover, to call Stoneleigh's position or any general AET consensus liberal means you are not paying attention and are throbbing along down there on the whole liberal/conservative, right/left dichotomy that has been created to manipulate you. Ric2's post is enough to get you started.

Linda said...

I'd like to apologize for my anagram. Did not know until I saw the discussion & then googled it what "teabagging" can be. Regretfully yours, Linda.

memphis said...

Bluebird cited:

Debtors jailed in Ohio despite laws against it.

I think it's important to read that article closely. The report has been completed by the American Civil Liberties Union, not an unbiased organization. I'd give it no more credibility than I would the Tea Party.

While this is purportedly about jailing an individual for unpaid debts, I think the reader should also take away the LENGTH of time this person has failed to comply with court orders to resolve his debt issues. Behavior that occurs over a 10-year period with no change in the behavior or no attempt to make payment hardly endears me to that cause. If your hole is deep, stop digging. No one is exempt from contempt of court.

I've known such an individual who thinks the law doesn't apply to him or her. It seems more costly to jail someone and pay their keep, and judicial officials should be knowledgeable enough about the law to follow it.

I'd have to know more of the circumstances before I'd take the article at face value.

Stoneleigh said...

Here's an older article on being jailed for indebtedness:

In jail for being in debt

Whether a debtor is locked up depends largely on where the person lives, because enforcement is inconsistent from state to state, and even county to county.

In Illinois and southwest Indiana, some judges jail debtors for missing court-ordered debt payments. In extreme cases, people stay in jail until they raise a minimum payment. In January, a judge sentenced a Kenney, Ill., man "to indefinite incarceration" until he came up with $300 toward a lumber yard debt.


I think we are going to see more of this kind of thing.

Tad said...

Why is the market going down?

I. M. Nobody said...

As the one who used the nine-letter word, which all the party members seem to assume was directed at them as a group, I will clarify. I specifically applied the term to Messrs Armey and Murdoch. Two individuals for whom I cannot seem to conjure a pejorative sufficient to accurately express my loathing. The vast majority of people that gravitate to any party are Nobodies, like me, only they are not yet convinced that the rock cannot be pushed over the top of that hill. It is TPTB like those two men that will guide the party's actions, just as in every other party on the planet.

FWIW, I and all my ancestors back to its founding were Republicans. Richard Nixon's motley crew showed me where the GOP was headed and I jumped the train. Parties are a form of collateral damage resulting from the detonation of mass political participation bombs. I guess somebody has to tell us who to crown. We can't rid ourselves of them, but the men behind the curtains have been exposed too many times now for reasonable people to keep believing their bombastic BS. It is always all about them and their cronies all the time.

So, to the Tea faction of TAE I say forgive the insult, it wasn't directed at any of you. How about if you all put some water on to heat and load your infusion balls with your favorite blend and contribute your ideas on how to dodge that big rock that is gaining speed as it rolls down toward us. That and information about where it is right now, we welcome. Insulting comments about OUR attitudes, intentions and beliefs, not so much.

oneeyesquare said...

@Tom
Seriously...READ what I wrote. Then read the second "tome".

@Linda Thank you for a)informing yourself, b)the gracious apology. I personally took no offense, but appreciate anyway.

@Stoneleigh Gracious and well worded as always.

@general TAE community
I come here daily. To read (love Greenpa! Don't agree with him on everything. Still love to read his comments). Back to my point, the vilification of Tea Party, Beck, etc. with coarse terms does little to attract those who may be coming from "that side" of the aisle. Disagree, provide argument, but stoop to insult and you lose credibility. That's why, as a longtime lurker I chose to post. This thing we are in does TRANSCEND politics. I referenced my conversion from "homeowner" to lifeboat: as a contractor, I am well into my own personal depression. Without TAE, I might have taken the route to "save" the home vs. "abandoning" it and building our personal lifeboat. That is the importance of TAE (and other 'doom' blogs). Add insult and you drive away those who may benefit from the tutorials, discussion, etc. Furthermore, because I do not feel comfortable posting partially due to the insults, you lose the unique perspective I have as a "homeless" contractor, the first wave of the larger wave yet to come.

Tad said...

Could I make some money buying SDS here?

jal said...

Tad said...
Why is the market going down?
Because somebody is selling as a result of reading the blogs?
----
Re.: MBS (Mortgaged Back Securities)

MBS are papers that sets out your entitlement to the money stream from mortgages. If the paper trail cannot be recognized and followed then you have been scammed. Just like B. Madoff did it to his clients.

It is well laid out in the following article.

http://www.ild.org.pe/hernando-de-soto-blog/toxic-paper

... one of the greatest achievements of property law: the power to identify and isolate with precision every asset and every particular interest on that asset.
... U.S. and European authorities find it difficult to believe that the fundamental cause of a recession could be a poorly paperized legal system.

... Among those rules: The derivatives scattered helter-skelter all over thousands of idiosyncratic types of opaque documents must be clarified, categorized, standardized and recorded in publicly accessible registries, like all other property documents. The law must take into account externalities-how all financial transactions affect outside, interested parties (the age-old legal principle of erga omnes, "toward all," historically developed under property law to protect third parties from the negative consequences of secret deals carried out by aristocracies unaccountable to no one but themselves).

Moreover, every financial deal must be tethered to the real performance of the originating asset, ensuring that the amount of debt secured on the basis of assets does not become dangerously "out of scale" with those assets underlying the debt-the most prominent cause of a recession, according to the economist John Kenneth Galbraith. And assets can continue to be leveraged and repackaged-but only to improve the value of the original asset.

Finally, it must be recognized that clarity and precision are indispensable for creating credit and capital through paper.

These are the criteria for sorting out toxic assets and preventing any future contagion from causing another recession.

jal said...
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jal said...
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Ahimsa said...

Stoneleigh,

Excellent video presentation. Very comprehensive!

Muchas gracias!

Ruben said...

@ oneeyesquare

You sound like you may have an affinity for a noble strain found here in Canada, the Pinko Redneck. The PR is noted for strong beleifs favouring Universal Healthcare, and the willingness to drag opponents to same behind their pickup truck down a gravel road to prove the need for Universal Healthcare.

Anyhow, teabagging is not a homosexual slur. It is a sex act which can be performed between a man and anything--a man, a woman, a dog or a flowerpot.

I like to think the AE comment board would not be tolerant of slurs against the LGBT (that means gay) community.

Greenpa said...

Tad said...
"Why is the market going down?"

In terms of the past 6 months, a movement of 100 on the Dow is not even noticeably, really.

Wake me up when the movement hits 300 or so.

Mike Hogan said...

@Ric2: My comment about liberals being unable to accept the Tea Party was "when they have the same views" in other words those liberals who see the problems in much the same way as I do, find themselves unable to overcome the MSM spin on the evil racist tea party.

@Illargi: No need for the attacks on conservatives. First there was mention of tea bagging in the article following your commentary "America on the Brink of a Second Revolution" I assume that this is source or reference material you recommend. Then if you search for "bag" in the comments you'll find it mentioned 4 times, not 2 (including the anagram). Not to be a stickler, but as another poster mentioned, you entitled to your own beliefs but not your own facts.

Also my effort in a prior post was not to establish my intelligence, but to establish my awareness of the situation. I have learned not to care what people think of my intelligence. My wife often calls me an idiot savant...although the leaves off the savant part (just kidding).

My constructive criticism is that if you rise above the venom and focus on the facts and your insights and future predictions, you will be better received and respected. And thanks for your writings.

@Linda: No need to apologize, I liked your anagram. My point is not to attack people who use the teabagger slur, but merely to point out that when professional journalists use it (and should know better) it is an obvious tell on their perspective or bias.

@Stoneleigh: Thank you again for your writings and your measured approach. Personally, I think we have deflation until the printing kicks into high gear and we get the more destructive high and potentially hyperinflation, with the politicians and Fed going off the cliff with their foot still on the pedal. The wildcard is can the bond vigilantes take away the printing press? I don't think so, unfortunately. In a normal environment, I would agree completely with your perspective. But I think we have hit a tipping point on the fiat ponzi scheme. In the end whether it is destruction via fire or ice, it is still destruction and your suggestions hold true. But in the meantime, it does make a difference in protecting your wealth. Nonetheless, love your writing and insight.

g-minor said...

Left and right, as many of the readers of this blog probably know, are political labels that have their origins in the seating arrangements at the French National Assembly in 1789: supporters of the monarchy to the right of the speaker’s chair, supporters of the revolution to the left. Continuing to use this vocabulary to describe our own politics, creates a visual image that conceals the predatory reality to which Stoneleigh has called attention. “Left and right” suggests a stadium with one set of players down at one end of the playing field, another set at the other end, with many players milling about at the center of the field, occasionally blocking a pass or tackling an opponent, but mostly doing nothing much except at election time when the noise in the stadium gets much louder and the players cluster near the two sets of goal posts shrieking imprecations toward the other end of the field. This image obscures the simple reality that real politics is vertical: it’s who’s on top that counts. To extend the stadium metaphor, the PTB are comfortably seated in their air conditioned boxes, high above the noisy and occasionally violent and smelly confusion on the field below, perhaps enjoying the spectacle but always confident that the outcome will benefit them while busily distracting the spectators and other suckers dueling down on the field.

logout said...

"Thank you for commenting here. I appreciate your contributions to the debate and am always happy to discuss issues. Independent thought is a very valuable thing :)"

I find that most people generally find independent thought a valuable item only if it either mirrors theirs, or else they figure they can out argue those independent thoughts. Otherwise they do goat dances on it, or, at best, totally ignore admitting their position could be false.

logout said...

"In January, a judge sentenced a Kenney, Ill., man "to indefinite incarceration" until he came up with $300 toward a lumber yard debt."

Stoneleigh, I would be interest to know if this debtor was considered capable of paying that court ordered debt payment. That I think could make a great difference to where justice lay in that case, do you not agree?

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

Whoops, was a bit overzealous and forgot my markup, tisk tisk:

Inspired by TAE Summary

Sunshine said...

oneeyesquare.

Agree with ya, I'm in the same boat..

Ahimsa said...

Tea & Crackers: How Corporate Interests and Republican Insiders Built the Tea Party Monster

by Matt Taibbi


http://www.commondreams.org/view/2010/10/03-0

logout said...

http://market-ticker.org/


"Ps: The Fed can't "exit" - that's the problem when you become the market, and there's no realistic way for what's left of the free part of the market to absorb what you bought without guaranteeing you a big fat loss."

Iconoclast421 said...

So what specifically is wrong with Rand Paul?

Sailor man said...

In jail for being in debt

Seems normal to me. Debtors should pay and creditors should pay too, if they were so foolish to lend money to somebody unable to repay the debt. A bit more morality, please.

JayD said...

@Scandia
How do I decide who is trustworthy?

Personally I find that if you give a relative stranger an opportunity to trust you and they decline then more often than not they are sufficiently 'corrupted' to give cause for a pause!

Jason said...

Stoneleigh: I am not a fan of the Tea Party movement. I think the danger of it being co-opted further by populist demagogues is significant.

I'm with you there. Interestingly, John Michael Greer thinks the same could happen to Transition Towns at some point! But he's a funny one sometimes.

Fascist theocracy in the US is far from out of the question. When I see US media I often think it's half insane. Certainly in general the time has come for the new military dictatorships, to usher in the gotterdammerung of this phase of civilization, and I expect the US to lead the way. Exactly this combination of populism and anger is what it'll take... give it three years and we'll see where we are.

Woody said...

jal,

This latest foreclosure fiasco seems to stem from loss of legitimate ownership records in the layers and jumble of securitization.

Might that also impact sales of non-foreclosed properties on which there are mortgages?

Foreclosure Suspensions
.

bluebird said...

@TAE Summary - loved your
* Societal reset will be forced upon us by economic blue screen of death!

@johnjohnson - That was a great BSOD screen. But, I have misplaced my IBM 'yellow card', and unable to figure out if there is any significance to your series of hex digits following the STOP.

@DIYer said "0xFEDBADF00DF1D0D1ED"
That's a good one!

Gravity said...

My confusion concerning pragmatism is resolved, it simply has contextual definitions I was unaware of.

But trust is social capital, then.
An econometricised trust-quotient may have clearly identifiable subcomponents, yet the various terms and qualifications used to specify and measure the vital economotive determinants of trust do seem vague, semantically deformable or interchangeable in that thing I quoted. Although I have no better insights into describing determinants, I feel that a complete complex of societal trust must necessarily work through a dynamic reciprocity of moral memories, which certain societal institutions don't seem to possess.

Coincidentally, Gandhi's conception of truth-force, satyagraha, consists precisely of a moral principle of truth which is also structurally equivalent to its power principle, its a good thing.

Coy Ote said...

"So what specifically is wrong with Rand Paul?"

Check out Ahimsa's link above!

@ Tad - Well... just a tad

Coy Ote said...

My, how timely!
BAGHDAD (AFP) – Iraq reported on Monday a sharp rise in proven oil reserves that saw it leapfrog Iran into third place worldwide, as the war-battered country seeks to rebuild its crude-dependent economy.

http://tinyurl.com/25fmcn2

jal said...

Woody said...
jal,

This latest foreclosure fiasco seems to stem from loss of legitimate ownership records in the layers and jumble of securitization.

Might that also impact sales of non-foreclosed properties on which there are mortgages?


YES!

Keep records. Your monthly payments might not be going to its final destination or someone may put a lien on your house.

KEEP RECORDS!

jal

Starcade, back on Leviathan said...

Debtors' prisons:

You are seeing the beginnings of it. Courts will eventually have to enslave debtors and imprison them to pay off their debts. There is no functional other way (save a Jubilee) to run the debt off the books.

Coy Ote said...

And some people think unions are corrupt vehicles! LOL! The corporates and financials are entangled in a various webs of their own greedy excesses!

Wiki - REMIC - "REMICs are investment vehicles that hold commercial and residential mortgages in trust and issue securities representing an undivided interest in these mortgages.."

http://tinyurl.com/264bwus

I'm thinking we should start a TAE "coffee party" to rid ourselves of any "right" or "left" or corporate enfluences and go back to bartering!

Greenpa said...

Gravity said...
My confusion concerning pragmatism is resolved, it simply has contextual definitions I was unaware of.

Ah, well, don't we all. :-)

Woody said...

jal,

Thanks - But what about buying a property using cash?

Any specific advice on how to ensure that you get clear title to the property?
.

Bigelow said...

I met a proud Tea Party participant who was against war spending, banksters and corruption of all kinds. Sadly he was a Creationist too. I can’t say for sure, but a return to Theocracy might scare me more.

Ellen said...

I thought everyone knew the term "teabagger" was derogatory! Anytime I see it, right away I am alerted to the bias of the "journalist". Wouldn't it be interesting if they pointed out the definition on the MSM when the word was used.

Go take a look:

Definition of Teabagging

Ilargi said...

New post up.




An 800-Pound Gorilla On A Serious Diet





.

Iconoclast421 said...

Coy ote,

I asked "So what specifically is wrong with Rand Paul?"

And you said:

Check out Ahimsa's link above!

I did. I read the establishment shill Taibbi's article. Here's a quote:

"At root, the Tea Party is nothing more than a them-versus-us thing. They know who they are, and they know who we are ("radical leftists" is the term they prefer), and they're coming for us on Election Day, no matter what we do — and, it would seem, no matter what their own leaders like Rand Paul do."

How can anyone not see through that nonsense? No one knows what the tea party is. Everyone knows that big money is going to infiltrate, co-opt, and provocateur. And people damn well should know by now that while Taibbi will attack certain parts of the System, he is very much a bought and paid for part of it. He is a gatekeeper. The paragraph I quoted is complete gobbledegook. People have to choose to believe that crap. It doesnt come naturally, and it is not a foregone conclusion that it will happen that way.

The "original" tea party of 2006 dumped copies of the 9/11 Commission Report into the boston harbor. Then it morphed into a Ron Paul movement. There are a lot of people who have been "tea partiers" for years now, who know (from their 911 truth experiences) how sick and vile this system is. And they have developed interesting and innovative new methods to combat such a system. Check out people like Mark Dice. There are many like him, who are even younger than me, who know how this system works. It is far too early to tell how much success the System will have using the likes of Beck and Palin.

Ellen said...

@oneeyesquare

Thanks for stepping out to comment. I feel very much like you do.

ben said...

hey ruben, and world, let's do the updated LGBTQI (that means queer), or another of the more inclusive variations out there, so as to include Questioning and Intersex.

:-)

even if it only matters this much for a few short years.

Ruben said...

Easy there Ben. I was trying to ease them in.