Thursday, January 6, 2011

January 6 2011: Does the Federal Reserve have a debt ceiling?


Harris & Ewing And the rest is history 1915
An inventor and invention that scarcely need introducing to anyone born in the 20th century


Ilargi: Let’s just follow the news today, and cut out main parts too, there's so much going on from where I’m standing. I mean, interesting things are coming from Europe, "Europe unveils sweeping plans to govern reckless banks", and "European nations begin seizing private pensions", but I'm going to have to leave Europe for another day, or before I finish this it will actually already be another day.

And there's plenty of things afloat in the US of A today to fill a book. Or 10. Thom Weidlich has this gem for Bloomberg, which plays into the Randall Wray piece I talked about earlier this week, which claims that most if not all US mortgages and foreclosures and mortgage backed securities are just simply and plainly illegal. Here’s the Supreme Court of Massachusetts:
Foreclosures May Be Undone by Massachusetts Ruling on Mortgage Transfers
Massachusetts’s highest court is poised to rule on whether foreclosures in the state should be undone because securitization-industry practices violate real- estate law governing how mortgages may be transferred.

The fight between homeowners and banks before the Supreme Judicial Court in Boston turns on whether a mortgage can be transferred without naming the recipient, a common securitization practice. Also at issue is whether the right to a mortgage follows the promissory note it secures when the note is sold, as the industry argues. A victory for the homeowners may invalidate some foreclosures and force loan originators to buy back mortgages wrongly transferred into loan pools. Such a ruling may also be cited in other state courts handling litigation related to the foreclosure crisis. [..]

The banks had initially filed the state-court lawsuits to obtain judicial approval of the use of the Boston Globe to announce auctions in Springfield, Massachusetts. Massachusetts Land Court Judge Keith C. Long in Boston ordered the banks to prove they had the right to foreclose in the first place.

In March 2009, he ruled they didn’t. Published notices listed U.S. Bancorp unit U.S. Bank and Wells Fargo as the foreclosing parties when they weren’t the actual mortgage holders at the time of the 2007 auction, a violation of state law, the judge said. The Ibanez mortgage had been transferred to U.S. Bancorp 14 months after the auction, and the LaRace mortgage was transferred to Wells Fargo 10 months after, the judge said. Long voided the two foreclosures, saying U.S. Bancorp and Wells Fargo didn’t own the mortgages. [..]

Long said the banks couldn’t foreclose without a mortgage assignment that could be recorded in a local land office. The assignments they had didn’t pass muster, he said, because they didn’t name the assignee. "These blank mortgage assignments were never recorded and they were not legally recordable," he said. [..]

The judge also rejected the banks’ contention that having the note, the blank mortgage assignment and a contractual right to obtain the mortgage gave them the "indicia of ownership" of the mortgage. "Even a valid transfer of the note does not automatically transfer the mortgage," Long wrote. In this case, U.S. Bank and Wells Fargo owned the notes while Option One owned the mortgages, he said. The banks’ title-defect problem "is entirely of their own making as a result of their own failure to comply with the statute and the directions in their own securitization documents," Long wrote.

Ilargi: That's quite the puzzle. As Max Keiser said earlier today: "Quick Obama, change the law . . . It’s a NATIONAL EMERGENCY if Wall Street loses a penny and has to comply with the rule of law . . . " I think there's perhaps still hope if and when US courts decide to read, and follow, what's actually in the law. Not that I'm holding my breath. After all, where do these cases go to die? Exactly, the US Supreme Court, the most biased supreme court in the world, along perhaps with those in places like China, Iran and Zimbabwe. Hard to call. Hard to figure who's got the best cards in this game.

• Update Jan. 7: The Massachusetts Supreme Court today ruled against the lenders in the case I addressed above. There may indeed still be hope.

Banks Lose Pivotal Massachusetts Foreclosure Case
US Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real estate law. The ruling drove down bank stocks.

The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were improperly transferred into two mortgage-backed trusts.

“We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote.

Ilargi: Interesting development, but the court leaves open a door or two left and right:
Today’s court decision held out the possibility of securitization documents properly transferring mortgages.

Such documents, along with “a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to be proof that the assignment was made by a party that itself held the mortgage,” Gants wrote. “However, there must be proof that the assignment was made by a party that itself held the mortgage.

Ilargi: Still, this is something else, courtesy Hugh Son for Bloomberg:
BofA Says Fannie Deal a 'Necessary Step’ in Housing Recovery
[..]"Our agreements with Fannie Mae and Freddie Mac are a necessary step toward the ultimate recovery of the housing market," Jerry Dubrowski, a spokesman for the Charlotte, North Carolina-based bank, said today in an e-mail. "We have taken a leadership role in responding to the housing crisis." [..]

The agreements resolved claims from McLean, Virginia-based Freddie Mac on 787,000 loans with unpaid principal of $127 billion sold through 2008 by Countrywide Financial Corp. The deal with Washington-based Fannie Mae resolved claims on about $4 billion in loans, Bank of America said.

Fannie Mae Chief Executive Officer Michael Williams said in a Jan. 3 statement that the agreement with Bank of America was "a fair and responsible resolution."

Ilargi: BofA, one of the main culprits in the housing mayhem, if only through their Merrill Lynch acquisition, says about the exact same thing Goldman CEO Lloyd Blankfein stated last year: they're doing the work of God. The fact that BofA gets away with a deal that has them pay $0.01 on the dollar for debts they themselves have originated, is now declared beneficial for the American people. And who's out there saying this is the bullest of shits we've ever seen? No-one in the main media. Well, except Dylan Ratigan, but he's more like the court jester by now, they keep him around for fun.

Gregory White reports for Business Insider that Florida Attorney General Pam Bondi raises her voice in defense of the law, with a great set of slides depicting how mortgage and foreclosure frauds work:
Anatomy Of A Fraudclosure - Florida AG Reveals How It's Done
A day after a report of settlements between banks and Attorney Generals across the U.S. on the issue of foreclosure-gate, the office of Florida Attorney General Pam Bondi released this blistering presentation on the "Unfair, deceptive, and unconscionable acts in foreclosure cases." It doesn't exactly read like someone is about to give in to a weak settlement.

This presentation explains some of the fraudulent and deceptive activities banks have been engaging in Florida. The now famous robo-signers are discussed, but the use of fake witnesses, documents, and affidavits are also eluded to. Examples of forgeries are included. If you had trouble understanding why many state governments put a halt on foreclosures, affecting firms like Bank of America, PNC, Citi, and JPMorgan, this presentation should make it obvious.

Click here to see the presentation >

Ilargi: So now we find ourselves in one of those eerily familiar Wile E. Coyote moments again: will Obama or Congress change the law, in order to make legal what the law today states is not, or are Scalia and Clarence Thomas to shine their dark lights on it, and simply declare legal what was a crime until they got to interpret the law in whatever way they see fit? Here's hoping that Massachussets Supreme Court Judge Keith C. Long, in Boston, has a spine. But I'm not holding my breath.

Then, US states. Hey, and they should have a strong interest in the fraudclosure files, since the MERS mechanism, whose legality is now under real scrutiny, has deprived them of millions upon millions in state taxes. Maybe there's a glimmer of hope there?! Are they desperate enough yet? If not , they soon might be, if we believe Kevin Freking at AP:

State Budgets Unlikely To Get Aid From Congress In 2011
Cut spending, raise taxes and fees, and accept billions of dollars from Congress. That's been the formula for states trying to survive the worst economy since the 1930s. As Republicans prepare to take control of the House and exert more influence in the Senate, it's clear that option No. 3 will soon wither. States will continue to face substantial deficits over the next few years, but they will have to get by with the end of stimulus spending and less financial help from the federal government. In recent interviews, top GOP lawmakers made clear it will be much less.

"We've got to put our fiscal house in order in Washington, D.C.," said Rep. Mike Pence of Indiana. "It's going to be essential that leaders at the state level roll their sleeves up, make the hard choices and put their fiscal health in order, as well." Rep. Kevin McCarthy of California, the new House majority whip, said GOP lawmakers will try to provide states with relief by cutting their expenses, not by giving them more money. For example, he advocates repeal of the national health care reforms enacted last year. "More importantly, what the states can really hope for is that we turn the economy around so revenues will pick up," he said. "But Washington is in very bad financial shape itself."

Ilargi: Isn't that just lovely? And that's not all. Tyler Durden at Zero Hedge has this to add to the picture:

More Bad News For States: State Revenue Plunges By 31% In 2009 To $1.1 Trillion As Spending Increases
The Meredith Whitney "ubiquitous state default" case may have just gotten another leg up. According to just released Census Bureau data, in 2009 total state revenue plunged by 31%, from $1.6 trillion to $1.1 trillion. "The large decrease in total revenue was mainly caused by the substantial decrease in social insurance trust revenue. Social insurance trust revenue is made up of four categories — public employee retirement, unemployment compensation, workers compensation and other insurance trusts (i.e., Social Security, Medicare, veteran's life insurance)."

But the drop in the top line did not stop states from spending more: in the same year, state government spending rose by 3%, while that pervasive source of backstop funding, the US government, saw its grants to states increase by 13% to $477.7 billion. At this point it is safe to say nobody believes there is a deficit that the US government can not fill.

Ilargi: Know what I mean? No more money for the states, and greatly decreased tax revenues. Great combination: now we can see what we're really made of. At the state level, but also at the federal level. It's dog eat dog from here on in. Meena Thiruvengadam and Jeffrey Sparshott write for Dow Jones Newswires:

Geithner Warns Lawmakers On US Debt Limit
The U.S. could reach its debt limit of nearly $14.3 trillion as early as March 31, Treasury Secretary Timothy Geithner said Thursday. Geithner in a letter to lawmakers said failure to raise the debt limit could "precipitate a default by the United States" and have catastrophic economic consequences--potentially more harmful than the financial crisis in 2008 and 2009. The letter received a cool reception on Capitol Hill.

[..] ... by Monday, the federal debt subject to that ceiling stood at around $13.95 trillion, giving the government just $355 billion before it would be legally prohibited from borrowing to pay its financial obligations. A Treasury official said the administration is hoping to separate the debt ceiling increase from the debate on spending. And in his letter, Geithner said deep spending cuts would delay reaching the ceiling by no more than two weeks. Boehner, though, emphasized the importance of spending cuts. "While America cannot default on its debt, we also cannot continue to borrow recklessly, dig ourselves deeper into this hole, and mortgage the future of our children and grandchildren," he said.

Failure to raise the U.S. debt ceiling could cast doubt on the U.S. government's ability to meet its obligations and send shockwaves through the bond market. "Default would have prolonged and far-reaching negative consequences on the safe-haven status of Treasurys and the dollar's dominant role in the international financial system," Geithner said. A Treasury official described the request for the increase as routine. Still, the political balance on Capitol Hill has changed, potentially making the process more fraught.

Many conservative candidates ran election campaigns criticizing their opponents for voting to lift the debt ceiling last year, and promised to vote against another increase when federal borrowing hits the current cap. Their promises likely will be tested in the coming weeks.

Ilargi: Oh, yeah, I'm so looking forward to this Mexican stand-off. So what's this going to mean, what if the US debt ceiling is not raised in about three months time? Andrew Leonard interviews Bruce Bartlett, who held big posts under both Bushes, for Salon.com:

"It is the most monumental insanity"
[..] Every single day the Treasury has bills to pay, Social Security benefits, interest on the national debt ... But if the debt ceiling is not raised, the only cash it would have to pay those bills would come from the tax revenues that come in on a day-to-day basis -- from the payroll tax or from income tax withholding. But that would not be enough to pay the bills that are due that day, so somebody at the Treasury is going to have to decide -- as individuals do when their pay doesn't cover their credit cards and other debts -- who gets paid this month and who doesn't.

And, of course, there is a problem with this, because not everybody can be put be off. By law, Social Security benefits have to go out on the first of the month. But the Treasury literally would not have the cash in its account to cover those benefits, or to pay interest on the debt -- at which point you have a default. Any time the precise terms of a bond are not adhered to -- if you don't receive exactly the amount of money you were promised, on exactly the day it was promised -- you have a default, and that is what would happen under this circumstance.[..]

Do we really want to introduce an element of doubt into the financial markets, that a security that is primarily bought because there is assumed to be risk zero risk of default is no longer safe? There is no other security on earth that has that reputation, not even German government bonds.

The U.S. Treasury is the gold standard and we have benefited enormously from this fact. Every time there is some disruption in the world financial markets, people flee to quality by buying Treasuries. As a result, we have benefited by not having to pay for the consequences of our own profligacy. Foreign central banks hold trillions of dollars of Treasuries as the backing for their own securities.

The minute we introduce an element of doubt into their own minds about whether these debts will be paid, suddenly other alternative investments may start to look better to them, and we will lose market share, which will greatly increase the costs of borrowing over the long term. It's the most monumental insanity that I can even imagine.

Ilargi: You know, this actually sounds to me like a great tool in the race to the bottom that all currencies are still involved in. I read multiple things every single day about how the US dollar is toast, but I think not. The Euro feel below $1.30 for the first time in half a year today, and I’m thinking, they're all toast, but I still don't see why the USD would get there first.

Which brings us to today's grand theme. Namely, if the Republican Party shuts off the option to raise the US government debt ceiling, then what?

And I’m thinking, The Bernank is not part of the government. The Bernank can do what he pleases. Well, after conferring with the wizards behind the curtain that got him his job, of course. Anyway, so what’ll he do? He's a Republican, after all. And he could stand back and let the entire Capitol Hill system break down, while still funneling money to Wall Street. I mean, cutting all the crazy spending sounds good to me, you got to stop somewhere. But the first big bad STOP sign should be held up to Wall Street. No more money for you guys!

But what are the chances that will ever happen? Nice posturing, Boehner, but will you shut off JPMorgan and Goldman? Yeah, didn't think so. And you can get it both ways, can't you? You can choke America, choke off a million provisions that run through government, from unemployment benefits through municipal sewage systems, and still keep the big banks alive through the Fed. And then let Fannie and Freddie do what they do best: chalk up another dozen notches of debt for the American people. Buy a home, get a loan, we're past the bottom!

Anyway, the Bernank has his plans ready for execution, say Caroline Salas and Joshua Zumbrun at Bloomberg:
Fed May Keep Easing at 'Full Throttle' Until Decline in Unemployment Rate
Federal Reserve officials signaled they’ll probably push ahead with unprecedented stimulus until the recovery strengthens and many of the 15 million unemployed Americans find work.

Ilargi: Even as he's racking up losses like there's no tomorrow (maybe that's his cue), says Tyler Durden:

Ben Bernanke Loses More Money In One Day Than All Of LTCM Ever Did... Doubled
The ongoing collapse in bond prices is making John Meriwether blush with envy at the wholesale wanton destruction of capital undertaken by Ben Bernanke. Keep in mind LTCM - the organization which proved definitively that Nobel prizes in economics are given only to the most consummate destroyers of value, logic, reason and humility - lost "just" $4.6 billion from its peak before it became the biggest systemic risk in the world back in 1998 and had to be rescued by a consortium of banks. The bottom line: with about $10 billion in SOMA losses today alone, Ben Bernanke has generated more than double the losses that nearly destroyed western finance 13 short years ago. And nobody cares.

John Lohman explains:

Chairman Top Tick continues to crash and burn, losing $7.2 billion in Treasury and Agency paper in today’s bloodbath alone.  Adding a rough estimate for the MBS holdings would put the session’s losses well over $10 billion

Ilargi: Basically, all we need to figure out from here is whether The Bernank has a debt ceiling. And if he doesn't, who'll stop the rain?

I see two equally absurd themes here:
1 You raise the debt ceiling yet another time, which lets extend and pretend continue unabated until the next ceiling is reached (and/or someone somewhere calls the US bluff, which is closer than you might think).

2 You don't raise the debt ceiling, which will lead to highly unpredictable events, not seen since the Roman empire went broke.

But it doesn't really matter either, does it? It's all about political choices, not financial ones. Because this is a political crisis we're in, not a financial crisis.

There are two things wrong here:
1 Financial institutions can mark their worthless paper assets to whatever price they see fit.

2 Those same financial institutions have access to as much of your taxpayer money (present and future) as they want. They can pay their bonuses with it, their Hamptons homes, their Lamborghini's, their drugs and their prostitutes.

These are the same institutions that are broke, broker, and broken. Really, they will not survive no matter what. But for now, they still have unlimited access to your money. And that is not a financial problem, it's a political one. The people you vote(d) for choose to let this happen.

And to that extent, it makes no difference if Boehner and his lackeys decide that the debt ceiling will remain where it is. The negative consequences of this will fall squarely on your laps and shoulders, not on Lloyd Blankfein's.

They’ll just let the banks and the bankers live, and thrive, while the American people will get squeezed under an austerity steamroller the likes of which they’ve never even imagined.

Who's going to stop them? You?










Foreclosures May Be Undone by Massachusetts Ruling on Mortgage Transfers
by Thom Weidlich - Bloomberg

Massachusetts’s highest court is poised to rule on whether foreclosures in the state should be undone because securitization-industry practices violate real- estate law governing how mortgages may be transferred.

The fight between homeowners and banks before the Supreme Judicial Court in Boston turns on whether a mortgage can be transferred without naming the recipient, a common securitization practice. Also at issue is whether the right to a mortgage follows the promissory note it secures when the note is sold, as the industry argues. A victory for the homeowners may invalidate some foreclosures and force loan originators to buy back mortgages wrongly transferred into loan pools. Such a ruling may also be cited in other state courts handling litigation related to the foreclosure crisis.

"This is the first time the securitization paradigm is squarely before a high court," said Marie McDonnell, a mortgage-fraud analyst in Orleans, Massachusetts, who wrote a friend-of-the-court brief in favor of borrowers. The state court, under its practices, is likely to rule by next month.

Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed. The probe came after JPMorgan Chase & Co. and Ally Financial Inc. said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze U.S. foreclosures. Massachusetts is one of 27 states where court supervision of foreclosures generally isn’t required.

Took Their Homes
The Massachusetts homeowners argued that the banks that took their homes didn’t follow their own rules for transferring mortgages into mortgage-backed trusts that issued bonds. The banks and the mortgage-bundling industry counter that the securitization documents themselves assign the mortgages. If loans weren’t transferred properly, the banks that sponsored such trusts may have to repurchase them, Adam J. Levitin, an associate professor at Georgetown University Law Center in Washington, said in prepared testimony in the U.S. House of Representatives in November.

If the problem is widespread enough, it may cost the banks trillions of dollars and make them insolvent, Levitin said. There is "a surprising lack of consensus" as to "what method of transferring notes and mortgages is actually supposed to be used in securitization and whether that method is legally sufficient," he said.

Persuasive Ruling
While real-estate law varies by state, litigants may point to decisions from other jurisdictions as being persuasive. "It ties into a theme nationally," said Professor Kurt Eggert of the Chapman University School of Law in Orange, California. "The broader theme is the argument that efficiency of transfer is more important than real-property law."

The Massachusetts cases started in 2005 when Rose Mortgage Inc. lent Antonio Ibanez $103,500 and Option One Mortgage Corp. lent Mark and Tammy LaRace $129,000, according to court papers. Ibanez and the LaRaces stopped paying on their adjustable-rate subprime mortgage loans and were foreclosed on in 2007. By that time, US Bancorp and Wells Fargo & Co. said they controlled the loans, which had been subsumed in mortgage-backed trusts. The banks bought the homes in foreclosure auctions in July 2007.

‘Substantial Discount’
They were the only bidders, buying "at a substantial discount" from the appraised values and "wiping out all of the defendants’ equity," according to a lower-court ruling. The banks had initially filed the state-court lawsuits to obtain judicial approval of the use of the Boston Globe to announce auctions in Springfield, Massachusetts. Massachusetts Land Court Judge Keith C. Long in Boston ordered the banks to prove they had the right to foreclose in the first place.

In March 2009, he ruled they didn’t. Published notices listed U.S. Bancorp unit U.S. Bank and Wells Fargo as the foreclosing parties when they weren’t the actual mortgage holders at the time of the 2007 auction, a violation of state law, the judge said. The Ibanez mortgage had been transferred to U.S. Bancorp 14 months after the auction, and the LaRace mortgage was transferred to Wells Fargo 10 months after, the judge said. Long voided the two foreclosures, saying U.S. Bancorp and Wells Fargo didn’t own the mortgages.

‘Standard Practice’
"It was not only common, it was the standard practice" to foreclose before doing the mortgage transfer, said Richard D. Vetstein, a real estate lawyer in Framingham, Massachusetts, who isn’t involved in the case. "Judge Long kind of changed the rules in the middle of the game." In October 2009, Long denied the banks’ request to change his decision because of new evidence purportedly showing that the mortgages were effectively transferred to their control by the documents establishing the mortgage-backed trusts.

The judge found that even if the documents could assign the mortgages, fatal missteps occurred in transferring them to the loan pool. Long said it was important to address the new facts and arguments "since they are alleged to be common to many securitized loans." Rose Mortgage, the original lender to Ibanez, endorsed the promissory note and assigned the mortgage to Option One Mortgage, which was also the LaRace couple’s original lender. Option One endorsed both notes and assigned both mortgages "in blank," meaning no assignee was identified. The loan passed eventually into the trusts overseen by U.S. Bank and Wells Fargo.

Mortgage Assignment
Long said the banks couldn’t foreclose without a mortgage assignment that could be recorded in a local land office. The assignments they had didn’t pass muster, he said, because they didn’t name the assignee. "These blank mortgage assignments were never recorded and they were not legally recordable," he said.

At the time of the foreclosures, Option One, not U.S. Bank and Wells Fargo, held the mortgages because the blank assignments "transferred nothing," according to Long. Option One was then owned by H&R Block Inc. and is now owned by American Home Mortgage. Stephen F.J. Ornstein, a Washington partner of the Chicago- based law firm SNR Denton LLP, said there’s nothing wrong with making blank mortgage assignments.

‘Quite Common’
"It’s quite common," said Ornstein, who has co-written an article on mortgage loan transfers to securitization trusts. "The fact that the mortgages were assigned in blank doesn’t invalidate the foreclosures. The trial-court judge was terribly misguided there."

The judge also rejected the banks’ contention that having the note, the blank mortgage assignment and a contractual right to obtain the mortgage gave them the "indicia of ownership" of the mortgage. "Even a valid transfer of the note does not automatically transfer the mortgage," Long wrote. In this case, U.S. Bank and Wells Fargo owned the notes while Option One owned the mortgages, he said. The banks’ title-defect problem "is entirely of their own making as a result of their own failure to comply with the statute and the directions in their own securitization documents," Long wrote.

The American Securitization Forum, an industry lobbying group, said in a Nov. 16 white paper that Long "cast doubt on the ‘mortgage-follows-the-note’ rule." The Supreme Judicial Court heard the banks’ appeals of Long’s rulings on Oct. 7. They argued that the documents they received that bundled the loans into pools legally transferred them the mortgages.

‘New Business Model’
"The record in this case reflects how mortgage lending changed in recent years and how the industry failed to ensure that its new business model conformed to state law," Massachusetts Attorney General Martha Coakley wrote in a brief supporting the borrowers.

Teri Charest, a spokeswoman for Minneapolis-based US Bancorp, the fifth-largest U.S. bank by deposits, referred questions to American Home Mortgage Servicing Inc., the servicer of the mortgages. Philippa Brown, a spokeswoman for Coppell, Texas-based American Home Mortgage, said in an e-mail that agreements to pool mortgages that formed the basis for issuing bonds were sufficient to make transfers effective. The agreements "assigned and transferred the borrowers’ mortgages and notes to the two securitization trustees at issue," giving them the authority to foreclose, Brown said.

Appeal Brief
Jason Menke, a spokesman for San Francisco-based Wells Fargo, the fourth-largest U.S. lender by assets, said American Home Mortgage filed the appeal brief on the trusts’ behalf. The banks, acting as trustees on behalf of the owners of debt issued based on bundled home loans, argued in their brief that borrowers can’t challenge their compliance with securitization agreements because they aren’t parties to them.

The Securities Industry and Financial Markets Association, Wall Street’s largest lobbying group, said in a statement Oct. 20 that customary securitization methods, which it described in terms similar to the Ibanez and LaRace assignments, "are sound and in accordance with generally applicable legal principles." The banks said that if the Supreme Judicial Court upholds Long, the ruling should apply only to future foreclosures. Some people who bought from other homeowners -- possibly as long as 15 years ago -- would lose their property because of the bad chain of title, the Real Estate Bar Association for Massachusetts said in a brief to the high court.

Wreaked Havoc
Vetstein, the Framingham lawyer, said Long’s rulings have wreaked havoc, putting hundreds or thousands of Massachusetts foreclosures in limbo. The home-loan-bundling industry bears the responsibility and should bear the cost of such title disputes, Coakley, the state attorney general, told the state high court. "Having profited greatly from practices regarding the assignment and securitization of mortgages not grounded in the law, it is reasonable for them to bear the cost of failing to ensure that such practices conformed to Massachusetts law," she wrote.

Glenn F. Russell Jr., a lawyer in Fall River, Massachusetts, who represented the LaRaces before the state high court, said the mortgages were illegally transferred because the banks and servicers were interested in maximizing their business volume. "The most insidious part of this is, it’s the roof over someone’s head you were playing around with," said Russell, who added: "And then they said, ‘Who’s going to challenge us?’"




BofA Says Fannie Deal a 'Necessary Step’ in Housing Recovery
by Hugh Son - Bloomberg

Bank of America Corp. said its $2.8 billion in accords with Fannie Mae and Freddie Mac, the government-owned firms pushing lenders to repurchase soured mortgages, was a "necessary step" in the housing recovery.

The biggest U.S. bank by assets announced Jan. 3 that it had "largely addressed" liabilities from the two mortgage- financing firms by paying Fannie Mae $1.5 billion and giving Freddie Mac $1.3 billion. The agreements may have shortchanged the U.S. government, which took over the two firms in a 2008 rescue, Representative Maxine Waters said late yesterday.

"Our agreements with Fannie Mae and Freddie Mac are a necessary step toward the ultimate recovery of the housing market," Jerry Dubrowski, a spokesman for the Charlotte, North Carolina-based bank, said today in an e-mail. "We have taken a leadership role in responding to the housing crisis."

Fannie Mae and Freddie Mac had been seeking to recoup losses on mortgages they bought that they say were created with faulty data, including information about borrowers’ income and house values. Bank of America received more than $21 billion in demands to buy back loans from the two firms. The bank surged 6.4 percent, its biggest gain in almost eight months, in New York trading on Jan. 3 after announcing the settlements.

The deal "may have been both premature and a giveaway," said Waters, a California Democrat, in a statement. The accord may "amount to a backdoor bailout that props up the bank at the expense of taxpayers." The agreements resolved claims from McLean, Virginia-based Freddie Mac on 787,000 loans with unpaid principal of $127 billion sold through 2008 by Countrywide Financial Corp. The deal with Washington-based Fannie Mae resolved claims on about $4 billion in loans, Bank of America said.

Fannie Mae Chief Executive Officer Michael Williams said in a Jan. 3 statement that the agreement with Bank of America was "a fair and responsible resolution."




Will state attorneys' settlements with big banks improve the lending process?
by Dylan Ratigan






Anatomy Of A Fraudclosure -- Florida AG Reveals How It's Done
by Gregory White - Business Insider

A day after a report of settlements between banks and Attorney Generals across the U.S. on the issue of foreclosure-gate, the office of Florida Attorney General Pam Bondi released this blistering presentation on the "Unfair, deceptive, and unconscionable acts in foreclosure cases." It doesn't exactly read like someone is about to give in to a weak settlement.

This presentation explains some of the fraudulent and deceptive activities banks have been engaging in Florida. The now famous robo-signers are discussed, but the use of fake witnesses, documents, and affidavits are also eluded to. Examples of forgeries are included. If you had trouble understanding why many state governments put a halt on foreclosures, affecting firms like Bank of America, PNC, Citi, and JPMorgan, this presentation should make it obvious.


Click here to see the presentation >





Goldman Flooded With Facebook Orders
by Gregory Zuckerman, Liz Rappaport and Aaron Lucchetti - Wall Street Journal

Inundated with demand, Goldman Sachs Group Inc. plans to stop taking orders for shares of Facebook Inc. on Thursday, and has told some would-be investors to expect just a small fraction of the shares they requested, according to people familiar with the situation. The interest, amounting to several billion dollars in an equity offering likely to be no more than $1.5 billion, is a sign of investor fascination with the closely held social-networking company despite a dearth of available information about its operations and financial condition. Goldman has provided some potential investors with little more than a snapshot of Facebook's online traffic, advertisements and other basic measurements, with no disclosure of the Palo Alto, Calif., company's bottom line, people familiar with the matter said.

Some additional details about Facebook's performance emerged late Wednesday as part of an offering document. According to people familiar with the document, Facebook had net income of $200 million in 2009 on revenue of $777 million. Figures for 2010 weren't disclosed, but analysts have said the company's revenue last year could be as much as $2 billion, fueled by advertising growth.

Wealthy Goldman clients have been jockeying for a piece of Facebook since the deal was struck last weekend, a situation reminiscent of the technology bubble of the late 1990s when online-grocery seller Webvan Group Inc. and other upstarts with far shorter track records than Facebook sold stakes to investors. Goldman initially was expected to solicit investors at least until the end of this week. The Wall Street bank mostly is approaching individual Goldman clients, though an unknown number of hedge funds, private-equity firms and other institutions that make trades or do other business with Goldman also have been asked if they would be interested in buying a piece of Facebook, according to people who have been contacted by Goldman. Goldman declined to comment. Firms where officials were called about a potential Facebook investment include Blackstone Group LP and Fortress Investment Group LLC, according to people familiar with the matter.

Such investors must promise to invest at least $2 million and not sell shares until 2013, including on secondary markets that allow investors to buy or sell stakes held in private companies. Hundreds of Goldman partners also can get in on the deal, and aren't subject to the $2 million minimum investment. Only about 470 of Goldman's roughly 35,000 employees have the title of partner, according to a person familiar with the number, which isn't publicly disclosed by the company.

The deal includes a $500 million investment by Goldman and Digital Sky Technologies of Russia. Goldman is likely to wind up owning roughly a 0.8% stake in Facebook, while DST would have slightly less than 10%. Last year, DST invested $200 million in Facebook. Even though some would-be investors declined a chance to buy Facebook shares, the deal is a coup for Goldman's investment-banking unit. The operation was the heart of the firm for decades, but has been overshadowed the past several years by Goldman's fixed-income trading business, a profit juggernaut even during much of the financial crisis. But trading results have suffered recently.

In some ways, the Facebook deal represents all sides of the classic Goldman business model: Take a stake in a fast-expanding company, advise it on capital raising, help the company rake in cash from investors, and eventually sell a stake to outside investors through an initial public offering. Goldman will collect from new Facebook investors upfront fees of 4%, plus 5% of any gains, according to people familiar with the matter. Analysts said the securities firm also is likely to get a private-placement fee for arranging the deal. Such fees typically range from roughly 2% to more than 4%. Goldman would get another windfall if Facebook eventually goes public and Goldman manages the IPO.

IPOs are one of the most lucrative types of deals on Wall Street, generating fees of about 4% to 7% of the total offering. Facebook's potential IPO fees could be smaller because the deal is expected to be unusually large. Investment banks that took Google Inc. public in 2004 earned 3%. More revenue could come from managing assets of Facebook executives such as President and Chief Executive Mark Zuckerberg, who owns about 25% of the company. It isn't clear if Mr. Zuckerberg is a wealth-management client of Goldman.

Some current and former Wall Street rivals said being on so many sides of the Facebook deal could expose Goldman to conflict-of-interest accusations. The company has been trying to revamp its image after settling a civil-fraud lawsuit with the Securities and Exchange Commission last July for $550 million. Goldman is expected to release later this month the results of an internal review that included potential conflicts of interest at the firm, its financial disclosures and dealings with clients. "This is one more example to those in the rest of the country that are one step removed from Broad and Wall [streets] that the advantage for those in the financial markets goes to those on the inside," said Michael Driscoll, a former Bear Stearns Cos. banker who now is a visiting professor at Adelphi University.

Despite the potential criticism, one executive at another Wall Street investment bank said Wednesday that he would "love to have their problems." The Facebook deal is a chance for Goldman to tout its access to marquee deals and distribute shares in a way that will "tighten their relationships" with key clients, the rival executive said. Some investors approached by Goldman initially got a 400-word email, offering them a chance to "discuss a highly confidential and time sensitive investment opportunity in a private company that is considering a transaction to raise additional capital." Facebook isn't named in the email, and potential investors must promise to keep any information about the deal secret.

Some of those who want more information have been sent by Goldman a four-page document. The first page was titled "Investment Profile," according to one person who saw the document. The following three pages were filled with information about the deal's structure, including restrictions, fees and disclaimers, said the person. Another person described the material as a PowerPoint presentation. A Goldman official talked him through by phone some assumptions about Facebook's revenue and hits received by the company's website.

One former Goldman partner turned down the chance to buy Facebook shares because he believes the $50 billion valuation implied by the deal is too high. "Google's trading at seven times sales. I'm not going to buy Facebook at 25 or 50 times sales," the former Goldman partner said. After saying no, the former partner got another offer from his broker at Goldman. He could get a smaller stake by buying into a private-equity fund Goldman is raising money for called Goldman Sachs Partners Private Opportunities Fund. The Goldman broker said the fund might invest in Facebook. For that fund, Goldman is charging a fee of 1.5% of invested capital and 20% of profits exceeding 8%, he said.

It isn't clear how many Facebook shares will be sold as part of the deal. Goldman has gone back to Facebook several times to test the company's interest in expanding the size of the sale, according to a person close to the matter, though the tone of the requests was informal. Employees at Facebook aren't currently allowed to sell shares. Last year, though, Facebook arranged a deal in which employees could sell a total of at least $100 million in shares to DST.




Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?
by Simon Johnson - New York Times

Goldman Sachs is investing $450 million of its own money in Facebook, at a valuation that implies the social-networking company is now worth $50 billion. Goldman is also creating a fund that will offer its high-net-worth clients an opportunity to invest in Facebook.

On the face of it, this might seem just like what the financial sector is supposed to be doing – channeling money into productive enterprise. The Securities and Exchange Commission is reportedly looking at the way private investors will be involved, but there are more deeply unsettling factors at work here.

Remember that Goldman Sachs is now a bank-holding company – a status it received in September 2008, at the height of the financial crisis, in order to avoid collapse (see Andrew Ross Sorkin’s blow-by-blow account in “Too Big to Fail” for the details.)

This means that it has essentially unfettered access to the Federal Reserve’s discount window – that is, it can borrow against all kinds of assets in its portfolio, effectively ensuring it has government-provided liquidity at any time.

Any financial institution with such access to such government support is likely to take on excessive risk – this is the heart of what is commonly referred to as the problem of "moral hazard." If you are fully insured against adverse events, you will be less careful.

Goldman Sachs is undoubtedly too big to fail – in the sense that if it were on the brink of failure now or in the near future, it would receive extraordinary government support and its creditors (at the very least) would be fully protected.

In all likelihood, under the current administration and its foreseeable successors, shareholders, executives, and traders would also receive generous help at the moment of duress. No one wants to experience another "Lehman moment."

This means that Goldman Sachs’s cost of financing is cheaper than it would be otherwise – because creditors feel that they have substantial "downside protection" from the government.

How much cheaper is a matter of some debate, but estimates by my colleague James Kwak (in a paper presented at a Fordham Law School conference last February) put this at around 50 basis points (0.5 percentage points), for banks with more than $100 billion in total assets.

In private, I have suggested to leading members of the Obama administration and Congress that the "too big to fail" subsidy be studied and measured more officially and in a transparent manner that is open to public scrutiny – for example, as a key parameter to be monitored by the newly established Financial Stability Oversight Council.

Unfortunately, so far no one has taken up this approach.

However, there is consensus that the implicit government backing afforded to Fannie Mae and Freddie Mac in recent decades allowed them to borrow at least 25 basis points (0.25 percent) below what they would otherwise have had to pay – a significant difference in modern financial markets.

In “13 Bankers,” Mr. Kwak and I refuted the view that these government sponsored enterprises were the primary drivers of subprime lending and the 2007-8 financial crisis – that debacle was much more about extreme deregulation and private-sector financial institutions seeking to take on crazy risks.

Nonetheless, Fannie and Freddie were badly mismanaged – and followed the market in 2005-7 with bad bets based on excessive leverage – in large part because they had an implicit government subsidy. Those institutions should be euthanized as soon as possible.

Goldman Sachs now enjoys exactly the same kind of unfair, nontransparent and dangerous subsidy: it has effectively become a new form of government-sponsored enterprise. Goldman is not a venture capital fund or primarily an equity-financed investment fund. It is a highly leveraged bank, meaning that it borrows through the capital markets most of the money that it puts to work.

As Anat Admati of Stanford University and her colleagues tirelessly point out, the central vulnerability in our modern financial system is excessive reliance on borrowed money, particularly by the biggest players.

Goldman Sachs is a perfect example. Most of its operations could be funded with equity – after all, it is not in the retail deposit business. But issuing debt is attractive to shareholders because of the subsidies associated with debt financing for banks and to bank executives because their compensation is based on return on equity — as measured, that increases with leverage.

If banks have more debt relative to equity, this increases the potential upside for investors. It also increases the probability that the firm could fail — unless you believe, as the market does, that Goldman is too big to fail.

Social-networking companies should be able to attract risk capital and compete intensely. They do not need subsidies in the form of cheaper financing, or in any other form.

Social networking is a bubble in the sense that e-mail was a bubble. The technology will without doubt change forever how we communicate with each other, and this may have profound effects on the nature of our society. But investors will get carried away, valuations will become too high and some people will lose a lot of money.

If those losses are entirely equity-financed, there may be negative effects, but they are likely be small – in the revised data after the 2001 dot-com crash, there isn’t even a recession (there were not two consecutive negative quarters for gross domestic product).

But if the losses follow the broader Goldman Sachs structure and are largely debt-financed, then the American taxpayer will have helped create another major financial crisis.

And if you think that sophisticated investors at the heart of our financial system can’t get carried away and lose money on Internet-related investments, remember Webvan: "During the dot-com bubble, Goldman invested about $100 million in Webvan, the online grocer that never got off the ground and eventually collapsed in bankruptcy."





JPMorgan Legal Bills Soar in Financial Crisis Aftermath, Menacing Profits
by Linda Sandler - Bloomberg

JPMorgan Chase & Co. and the biggest U.S. banks face billions of dollars in legal costs related to their role in the financial crisis, threatening their profits and the stock price gains they made in 2010, analysts said. JPMorgan, the second biggest bank by assets, reported $5.2 billion of legal costs in the first nine months of 2009, compared with a gain of $10 million in the same period a year earlier. The costs would rise if the bank reserves for multibillion-dollar lawsuits by Lehman Brothers Holdings Inc. and the trustee liquidating Bernard L. Madoff’s firm.

Bank of America Corp., the largest U.S. bank, and Citigroup Inc., ranked third, are also besieged by lawsuits stemming from the credit crisis, brought by plaintiffs ranging from foreclosed-upon homeowners to institutional investors whose mortgage-backed bonds turned out to be money-losers. "They’re under legal attack," said Richard Bove, an analyst at Rochdale Securities in Lutz, Florida, who rates JPMorgan’s stock a "buy." "They’re similar to the asbestos or the tobacco industry, and they’re going to be repeatedly sued in the next few years."

JPMorgan rose about 1.8 percent in 2010, while the Standard & Poor’s 500 Bank Index climbed 18.7 percent and Citigroup gained 43 percent. Both banks are based in New York. Bank of America, based in Charlotte, North Carolina, fell 11.4 percent, while San Francisco-based Wells Fargo & Co. rose 14.8 percent, according to Bloomberg data.

Cost of Business
JPMorgan’s third-quarter net profit of $4.4 billion, up 23 percent from the year earlier, would have been larger if it hadn’t set aside $1.3 billion of pretax income for lawsuits and $1 billion for mortgage repurchases. Banks haven’t yet reported their results for the fourth quarter. Litigation "ain’t going away," Chief Executive Officer Jamie Dimon told analysts on an Oct. 13 conference call. "It’s becoming a cost of doing business."

At least JPMorgan’s shareholders are more likely to be informed about legal expenses than some other bank investors. The bank, which used the word "litigation" about 50 times in its latest 10-Q filing with the Securities and Exchange Commission, discloses more about lawsuits’ effect on results than Citigroup or Wells Fargo, and has been taking larger reserves than some rivals, according to company filings.

Array of Suits
Stephen Cutler, JPMorgan’s in-house lawyer and a former SEC enforcement chief, declined to comment through bank spokesman Joseph Evangelisti. Bankrupt Lehman is claiming $8.6 billion in collateral from JPMorgan plus tens of billions of dollars in damages, while Madoff trustee Irving Picard is demanding $6.4 billion on the grounds that JPMorgan aided and abetted the biggest Ponzi scheme in history.

Almost nine pages of JPMorgan’s third-quarter 10-Q deal with legal issues. They range from home foreclosure investigations by state officials, to shareholder lawsuits against Bear Stearns Cos., which JPMorgan bought in 2008, to suits from nine different Federal Home Loan Banks demanding compensation for mortgage-backed securities bought from JPMorgan, Bear Stearns or Washington Mutual Bank, also purchased in 2008.

Investors concerned that they aren’t getting enough information to assess litigation risks spurred the Financial Accounting Standards Board to issue proposals last year that would make banks estimate legal losses and say how much they’re putting aside. The FASB, based in Norwalk, Connecticut, sets accounting rules for public companies under authority delegated by the SEC.

Expensive Season
The coming year may be the most expensive litigation season since 2005, when JPMorgan and Citigroup each spent about $2 billion to resolve a lawsuit accusing them of helping energy trader Enron Corp. hide billions of dollars in debt from investors. JPMorgan said in its 2009 annual report it got some money back from insurers for the two settlements.

This year, though, the usual fraud and mismanagement suits are dwarfed by the potential liabilities stemming from the collapse of the housing market. Litigation may force banks to pay back about $134 billion for so-called private-label mortgage loans, said Chris Gamaitoni, a bank analyst at Compass Point Research & Trading LLC in Washington. Such loans are considered riskier than mortgage loans issued by Fannie Mae or Freddie Mac.

Book Value
For JPMorgan, its $24 billion share of the potential losses would equal 13 percent of its book value, Gamaitoni said. Bank of America’s $35 billion of possible losses would be 17 percent of book value, he estimated. While bank stocks rose about 3 percent this week after Bank of America paid $2.8 billion to settle loan disputes with Fannie Mae and Freddie Mac, the banking industry’s liability could be almost five times greater on private-label mortgage loans, Gamaitoni estimated.

"Private-label losses on loans are much higher and therefore the liability from lawsuits is a much larger percent than in the agency market," he said. "On a book value basis it would be more negatively impactful. If there is a large private- label settlement or court case, the stocks will react negatively. There will be an earnings headwind." Bank of America reported $1.2 billion in litigation costs for the nine months through Sept. 30, excluding fees to outside law firms. It is suing or being sued in 5,696 legal proceedings in federal court, compared with JPMorgan’s 3,757 lawsuits, according to data compiled by Bloomberg.

Litigation Expenses
Cases for which Bank of America has already reserved some money may wind up costing the bank $400 million to $1.9 billion more than it has set aside, according to its 10-Q. The bank’s nine-month litigation cost of $1.2 billion compared with $477 million a year earlier. "Our litigation-related expenses are cyclical and are not attributable to a single factor," said Bank of America spokesman Lawrence Grayson.

Citigroup, now dealing with 1,713 federal court proceedings according to Bloomberg data, tries to settle lawsuits, the bank said in a filing. Shannon Bell, a spokeswoman for Citigroup, declined to comment. Wells Fargo, the fourth biggest bank, is involved in 2,758 lawsuits, according to Bloomberg data. Mary Eshet, a Wells Fargo spokeswoman, declined to comment. JPMorgan’s litigation reserves are an "estimate" that, "if wrong, could cause unexpected losses in the future" from lawsuits, fines or penalties not covered by insurance, according to its latest 10-K.

Fight for Right
Dimon articulated the bank’s approach to lawsuits in the October analyst call. "When we’re wrong, we’re going to settle, and when we’re right, we’re going to fight," he said. JPMorgan was the last major underwriter of WorldCom Inc. securities to settle suits started in 2002 after an $11 billion fraud sank the long-distance telephone company and sent Chairman Bernard Ebbers to prison.

Banks have leeway under current accounting rules to report litigation costs, or not. Citibank and Wells Fargo don’t give a dollar amount for legal costs; JPMorgan and Bank of America do.
Among other things, the FASB proposal would force banks to report the basis for the legal claim, the amount being claimed and how the company will defend itself. Banks will have to regularly update their estimated loss, and when it might occur; and in cases where they are "reasonably" likely to lose, they have to estimate their possible range of loss and say how much they’ve put aside to pay for it.

"The mission of the FASB is to establish financial accounting and reporting standards that provide useful information to investors," said Bill Hildebrand, a FASB staff member, in a telephone interview. Hildebrand couldn’t say when the proposal might become a rule. JPMorgan currently is fighting Lehman’s lawsuit, which alleges the bank and Dimon helped cause its failure by siphoning off badly needed funds.

JPMorgan twice asked a judge to dismiss the suit, saying it took the $8.6 billion in collateral from Lehman under a contract to clear trades for Lehman’s brokerage. So-called safe harbor laws protect a clearing bank from being sued if a brokerage client fails, the bank said in court papers. U.S. Bankruptcy Judge James Peck in Manhattan, who hasn’t yet ruled on JPMorgan’s request for dismissal, has at least three times rejected the safe harbor defense in other cases. Bank of America was ordered to return $500 million of deposits to Lehman, and pay $90 million in interest.

Madoff Trustee
Madoff trustee Irving Picard sued JPMorgan on Dec. 2, saying the bank aided the now-imprisoned con man’s fraud from its position "at the very center of that fraud" when it acted as the Madoff firm’s banker. The trustee unraveling the remains of a $3.5 billion Ponzi scheme run by Thomas J. Petters has also accused JPMorgan of gaining about $280 million from that scam. Bank of America’s legal proceedings cover five pages of its latest 10-Q -- and 11 pages of small print in a footnote to its latest annual 10-K filing, under Note 14. Like the other banks, it says it may be exposed to losses "in excess of any amounts accrued" for legal liabilities.

Like JPMorgan, Bank of America inherited lawsuits from companies it bought: Countrywide Financial Corp. and Merrill Lynch & Co. Together, they’re facing lawsuits alleging they misled investors in offering documents for more than $375 billion in mortgage-backed securities, the bank said. Allstate Corp. sued Bank of America and Countrywide on Dec. 28 over $700 million in mortgage-backed securities the insurer bought.

Current Accounting Rules
Like other banks, Citigroup said it follows current accounting rules in setting up litigation reserves "when those matters present loss contingencies that both are probable and can be reasonably estimated," adjusting the reserves as new information comes in. Citigroup still faces 14 billion euros ($18.4 billion) of claims for damages resulting from the 2003 bankruptcy of Italy’s biggest dairy company, now called Parmalat SpA, according to the bank’s 10-K annual regulatory filing. Citigroup in another Parmalat case won $431 million by countersuing, it said in the filing.




Why the World Is Financially Doomed in Four Charts
by Charles Hugh Smith, Of Two Minds

The global economy is doomed to implosion, and here are four charts which explain why.

Though the complexities may appear endless, the global economy's coming implosion is really fairly easy to understand: here are four charts which do the heavy lifting. It boils down to these basics:

1. When money is dear and difficult to borrow, then productivity and capital accumulation are encouraged, speculation, malinvestment and debt-based consumption are discouraged.

2. When money is "free" (zero-interest rate policy) and liquidity is unlimited, then the opposite conditions hold: speculation in risk assets, malinvestment and debt-based consumption are all encouraged, and productivity and capital accumulation are heavily discouraged.

3. When debts exceed the value of the underlying assets, the only way out of the Tyranny of Debt is to write off the debt on both the borrower and lender's balance sheets, wiping out their capital via liquidation and bankruptcy.

4. The "extend and pretend" policy pursued by all major nations is simply transferring the impaired debt from private hands to the taxpayers (public debt), crippling the economy with higher taxes and higher debt service.

5. The Central State's "extend and pretend" policy requires heavy borrowing every year to prop up the status quo, pushing the Central State (or equivalent, i.e. the Eurozone) in an inescapable double-bind: either continue increasing public debt and cripple the economy with high taxes and high public-debt servicing costs, or let the financial status quo of "profits are private, losses are public" implode.

The first path leads to default, as the Tyranny of Debt cannot be masked for long, while the second path wipes out the Financial Power Elite which feeds the politicians.

Here are the charts. Note how the speculative economy created the illusion of rising wealth for the bottom 90%, an illusion stripped away by the Default Economy.

In essence, the Financial Power Elites profited immensely from creating this illusory wealth which gave the bottom 90% the false sensation that their declining earnings and purchasing power were being offset by the "magic" of asset bubbles.

Then, when the bubble popped, the Financial Power Elites transferred the impaired assets to the taxpayers, a process which is still underway. The politicos of both parties are complicit; behind the simulacra of toothless "reforms," this process proceeds in myriad ways (Bank of America transferring toxic debt to Fannie/Freddie, etc.) Behind the smokescreen of conjuring a "wealth effect" to foster more consumption, the Fed's purchase of Treasuries (QE2) serves this transfer-of-debt-to-the-public process.

chart

chart

This same process is playing out throughout the global economy: Greece, Ireland, the U.S., and eventually, in China when its monumental property bubble pops.





America’s 10 worst years start right now
by Paul B. Farrell - MarketWatch

Dateline December 2020. Let’s look back on the 2011-2020 decade, at what historians call the "Worst Decade in American History." Totally predictable, totally denied.

Back in January 2011 we made 10 predictions of a chain of events that would reach a critical mass and consume America in a torrent of creative destruction, crippling capitalism and other outmoded institutions, forcing new power players to step out of shadows and assume leadership in a time of extreme crisis. Now we see how they came true.

The downside of happiness

"The U.S. economy appears to be coming apart at the seams," Columbia Professor Robert Lieberman warned back then in the Foreign Affairs Journal. "Unemployment remains at nearly 10%, the highest level in almost 30 years. A long trend of "ballooning incomes at the very top and stagnant incomes in the middle and at the bottom. The share of total income going to the top 1% has increased from roughly 8% in the 1960s to more than 20% today. … a level of economic inequality not seen in the United States since the eve of the Great Depression."

As the decade opened in 2011 we were being conned again, like before the 2008 meltdown — by the same crooks we bailed out. We should have forgotten all Wall Street’s hoopla about a 2011 bull market with the Dow rocketing to 15,000. We should have thought long-term. We knew Wall Street lost an inflation-adjusted 20% of our money the previous decade. We should have known they would lose another 20% by 2020.

The "Gilded Age" bubble from a decade ago ended in a crash worse than 1929, and left us on the brink of a Great Depression 2. We ended up with a decade of increasing battles between the haves and have-nots, where there is no longer room for "compromise" between the two ideologies destroying America from within.

We could have seen that coming, too, as Lieberman warned of class warfare a decade ago: "Income inequality in the United States is higher than in any other advanced industrial democracy … It breeds political polarization, mistrust, and resentment between the haves and the have-nots and tends to distort the workings of a democratic political system in which money increasingly confers political voice and power."

"The Gap," the divide, the greed, the entitlements, the hostilities are now so entrenched that "negotiations" are impossible and only a catastrophic 1929-style collapse of our self-destructive capitalism and a descent into economic hell will force America to restructure.

Here’s how we got here over the last 10 years:

2011. Wall Street’s super-rich spend billions to control Washington

Thanks to the conservative takeover of America’s so-called democracy the past three decades, from Reagan to Obama, our activist Supreme Court delivered the coup de grace into America’s psyche in 2010, overturning long-established precedent and giving rich owners of zombie corporations absolute rights of live humans, a decision that would have gotten a failing grade in my constitutional law class at the University of Virginia. It set up Wall Street’s super-rich in 2011 as they advanced their takeover.


2012. Super-Rich gain absolute power over Washington

The bizarre decision, which essentially legalized political bribery, led to billions passing through lobbyists to politicians in all parties, with one goal: A guarantee that all politicians (President, Congress, Fed, regulators and state governments), all adhere to Reaganomics and the ideology that money talks and wealth rules.

As a result, America was no longer a democracy by 2012, not even a plutocracy. Our middle class rapidly spiraled down into third-world status, while the rich get richer and the gap between the richest and the rest widened. Worse, the 2012 presidential race became irrelevant, because money corrupts all in Washington and Obama was already a puppet of America’s super-rich conspiracy.


2013. Pentagon’s WWIII global commodity wars accelerate for 2020 peak

Back during the Bush II presidency, Fortune analyzed a classified Pentagon report that predicted "climate could change radically and fast. That would be the mother of all national security issues." Billions more people will increase unrest across the world, creating "massive droughts, turning farmland into dust bowls and forests to ashes."

As a result, "by 2020 there is little doubt that something drastic is happening ... an old pattern could emerge; warfare defining human life," confronting political leaders everywhere with the reality of our civilization collapsing, even the end of life on the planet. This was the year the hard evidence materialized.


2014. Global population bubble accelerating, wasting commodities

By now it had become clear that America’s Conspiracy of the Super-Rich was draining trillions from middle-class taxpayers. They see global population growth (exploding more than 100 million annually) not as a drain on scarce resources but only as a way to get richer through their obsession with free-market "globalization."

They ignore the coming 2050 tragedies when global population is 9 billion, dwarfing America’s 400 million, and all are demanding more of the Earth’s limited, non-renewable commodity resources, and demanding payback from America’s long failure to heed warnings of environmentalists like Bill McKibben: "Act now, we’re told, if we want to save the planet from a climate catastrophe. Trouble is, it might be too late. The science is settled, and the damage has already begun."


2015. Gilded Age globalization implodes America’s Global Empire

Around the time of the Pentagon’s WWIII prediction, historian Kevin Phillips warned in "Wealth & Democracy:’ "Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out."

Similarly, financial historian Niall Ferguson, author of "Colossus: The Rise and Fall of The American Empire," warned that we deceive ourselves, thinking "about the political process in seasonal, cyclical terms." By 2015 most agreed America has was past its peak.


2016. Wall Street capitalism self-destructs, crashes, mass bankruptcies

"But what if history is not cyclical and slow-moving but arrhythmic, asks Ferguson. "What if collapse does not arrive over a number of centuries but comes suddenly," too rapid to respond in time. Unfortunately, in our blind greed we refuse to hear "Irrational Exuberance" author Robert Shiller’s warning that "we recently lived through two epidemics of excessive financial optimism … are close to a third episode … another meltdown ... another depression."

Once again, our leaders ignored history. Ignored Jared Diamond’s earlier warning in "Collapse:" "One of the disturbing facts of history is that so many civilizations share a sharp curve of decline. Indeed, a society’s demise may begin only a decade or two after it reaches its peak population, wealth and power." The 2016 elections changed nothing.


2017. Middle-class revolution: Buffett’s rich class loses, overthrown

The seeds were planted years ago. Warren Buffett saw the revolution coming: "There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning."

By 2017 it had exploded into a new Civil War as all hell broke loose after the 2016 presidential election. The growing income gap popped Wall Street’s bubble for the third time in the 21st century, the economy collapsed, riots spread against another bailout of too-greedy-to-fail Wall Street banks. A class rebellion ignited.


2018. Reaganomics capitalism collapses, Glass-Steagall reinstated

Diamond says he’s a "cautious optimist," our leaders need "the courage to practice long-term thinking, and make bold, courageous, anticipatory decisions at a time when problems have become perceptible but before they reach crisis proportions." Deaf, they still fail to act.

The "Crisis of 2018" triggered a cultural revolution, a jarring wake-up call. History warns that most leaders are driven by short-term self-interest not long-term public interests, especially politicians bankrolled by billionaires who can’t see past quarterly earnings, year-end bonuses, the next election. This catastrophe may have finally woken us up.


2019. WWIII commodity wars spread, cost trillions, kill hundreds of millions

Over $30 trillion in federal, state and local debt, plus spending half our budget on the Pentagon’s war machine, finally overwhelmed America’s fiscal policy and the world’s bond markets in 2019.

Unfortunately, the growing number of commodity wars ignited by an accelerating global population and decline in the world’s scarce resources also forced a total rethinking of the balance between spending to contain external threats and a rapid deterioration of social-program needs: employment, retirement, education, health care.


2020. Patriarchy ends: male dominance declines, women leaders rise

Back in 2011 it seemed clear that patriarchy, male dominance world culture, politics and economics throughout history, would collapse all by itself, without women engaging in any direct war, any "battle of the sexes" to defeat men at their own game. But in 2020, women may be our only salvation.

Dr. Jean Bolen, author of "The Millionth Circle" and a leader in organizing the United Nation’s 2015 Conference on Women, challenged women to confront males and put an "end to patriarchy," because only women can "save the world." Others like Gloria Feldt, author of "No Excuses: 9 Ways Women Can Change How We Think About Power," are preparing a new generation of leaders.

Four decades ago my law school class had five women, today across America, women are a majority in most professional schools. Soon they will be called upon.

Why are male leaders failing America in government, business and finance? Jeremy Grantham’s firm GMO manages $96 billion. He predicted the meltdown, said it best in early 2008: American’s leaders are all "impatient ... management types who focus on what they are doing this quarter or this annual budget."

Real leadership "requires more people with a historical perspective who are more thoughtful and more right-brained ... but we end up with an army of left-brained immediate doers. So it’s more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history, they are always to miss it," as in 2000, 2008 and again this decade.

Could we change the future?

In post-capitalism, post-patriarchy America, women will emerge from the ashes of "The Worst Decade in American History: 2011-2020." Women leaders will emerge not just because the males’ short-term brains are sabotaging America’s long-term needs, but because the female brain has naturally evolved for long-term thinking.

Brain research tells us that 75% of men are left-brain short-term thinkers. Conversely, 75% of women tend to have strong right-brain traits: forward-thinkers, more awareness of the future, the big picture, with a strong sense of long-term benefits and consequences, peacemakers.

In future columns we’ll dig more into the role of women as the new leaders in a post-capitalism, post-patriarchy America. But for now, take these 10 predictions seriously, invest wisely, defensively, and don’t be misled by Wall Street’s happy talk.




Stand-off looms over US national debt






EU plans for bondholder haircuts unsettles debt markets
by Ambrose Evans-Pritchard - Telegraph

The European Commission will on Thursday press ahead with plans to spread the burden of EU bank failures to senior bondholders, marking the start of harsher times for Europe’s creditors. Michel Barnier, the single market commissioner, will publish a "consultation paper" outlining ways to shield taxpayers from banking crises. It is the first stage of what will almost certainly become a binding law.

"We are pursuing the idea of a debt write-down or conversion to help stabilise a failing bank and reduce the need for public funds," said an EU source. Fears that this could evolve into a crusade against bondholders set off fresh jitters on EMU debt markets yesterday, pushing yields on 10-year Greek bonds to a record 12.59pc. Portugal managed to sell €500m (£425m) of debt at a crucial auction but had to pay 3.67pc on six-month bills, double the rate in September. "It is an unsustainable dynamic," said Lena Komileva from Tullett Prebon. Credit Default Swaps on Irish bonds jumped 16 points to 620 after Switzerland’s central bank said it would no longer accept Irish debt as collateral.

The Commission paper refers only to bank debt, unlike Germany’s proposals for sovereign "haircuts". Mr Barnier hopes to restrict burden-sharing to future debt only, fearing that a catch-all approach risks setting off a fresh EMU crisis. However, Brussels may lose control once the process is unleashed. A populist backlash is gathering strength in most EU states, and regional elections in Germany may sharpen demands for retribution against cossetted monied elites.

"It is no coincidence that Chancellor Angela Merkel lost her majority in the Bundesrat two days after the Greek bail-out," said Andrew Roberts, credit chief at RBS. "Peripheral debt woes have not gone away. This will go on until Germany chooses whether to dilute its own credit rating by funding the system, or decides 'enough is enough’." RBS said major EMU governments must raise €826bn in 2011, in competition with bank redemptions. Santander, Deutsche Bank, Barclays, and BNP Paribas and other lenders have sought to get there first, launching a wave of bond issues while cheap funding lasts.

The Commission’s €60bn bail-out fund (EFSM) raised its first €5bn to cover the Irish loan package, paying 2.59pc on five-year bonds. The cost is notably higher than equivalent French debt at 2.12pc, suggesting that investors are sceptical about the fund’s AAA rating.
Ireland will be charged 5.1pc for loans.




State Budgets Unlikely To Get Aid From Congress In 2011
by Kevin Freking - AP

Cut spending, raise taxes and fees, and accept billions of dollars from Congress. That's been the formula for states trying to survive the worst economy since the 1930s. As Republicans prepare to take control of the House and exert more influence in the Senate, it's clear that option No. 3 will soon wither. States will continue to face substantial deficits over the next few years, but they will have to get by with the end of stimulus spending and less financial help from the federal government. In recent interviews, top GOP lawmakers made clear it will be much less.

"We've got to put our fiscal house in order in Washington, D.C.," said Rep. Mike Pence of Indiana. "It's going to be essential that leaders at the state level roll their sleeves up, make the hard choices and put their fiscal health in order, as well." Rep. Kevin McCarthy of California, the new House majority whip, said GOP lawmakers will try to provide states with relief by cutting their expenses, not by giving them more money. For example, he advocates repeal of the national health care reforms enacted last year. "More importantly, what the states can really hope for is that we turn the economy around so revenues will pick up," he said. "But Washington is in very bad financial shape itself."

McCarthy said the GOP would be focused on cutting mandates and giving states more flexibility on how they spend federal money. The $814 billion stimulus program, passed by a Democratic Congress and championed by President Barack Obama, was designed to help states provide essential services and give a boost to the economy. Most of the money will run out this year. States spent the bulk of their money on public schools, higher education and health care, so those programs likely will take a hit this year. But transportation, prisons and services such as early education programs also will not be spared the budget ax, said Todd Haggerty, a policy analyst with the National Conference of State Legislatures. "Anything and everything is going to be affected," he said.

As of June 30, 2011, the federal government will have spent about $165 billion on temporary aid to the states to help them weather the recession. The states have used most of that money on education and health care – keeping teachers in the classroom and reimbursing doctors and hospitals for treating the growing number of people eligible for Medicaid. States will continue to get some stimulus money for road, energy and high-speed rail projects, but that money helps fund specific projects and wasn't intended to plug holes in a state's operating budget.

California has benefited substantially from federal assistance that will soon run out. It is expected to receive a total of $85 billion from the Recovery Act, with about $51 billion awarded to date, according to the state website monitoring the spending. About half of the amount spent so far is for Medi-Cal payments, unemployment insurance, food stamps and other safety-net programs. California state Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento, said it's disappointing but not surprising that states are not likely to receive more federal help. "The economy is not going to improve as fast by increasing the unemployment rate. And whether in the public sector or private sector, a job is a job is a job," Steinberg said. "We know that's what the Republicans ran on in part during the national campaign, so we recognize we're going to have do deal with reality, and we will."

A slowly improving economy means many states should see an uptick in tax revenue in the coming year, but it will not be enough to replace the stimulus money. Without federal aid, the majority of legislatures around the country will not have enough money to maintain current services and face another round of budget cutting. States closed a cumulative budget gap of nearly $84 billion in the last fiscal year. In the coming year, 31 states and Puerto Rico face budget shortfalls totaling $82.1 billion, according to the National Conference of State Legislatures. "You have the federal money running out, but very deep state budget problems are lingering," said Phil Oliff, a policy analyst at the Center on Budget and Policy Priorities, a liberal think tank based in Washington. "That's why we say the coming fiscal year could actually be the worst budget year states have faced since the start of the recession."

There also is a sense among many governors that seeking more temporary aid would delay tough decisions about what the states can afford in the long-term. Governors are facing an era of slow economic growth combined with growing pension liabilities, said Ray Sheppach, executive director of the National Governors Association. Most know they must get spending down to a sustainable level, he said.

Illinois' spending is so out of whack that Democratic Gov. Pat Quinn wants to borrow at least $3.7 billion to cover this year's payment for the state's public pension systems, and state contractors are being forced to wait six months or more to get paid. Its $15 billion deficit for the coming fiscal year is 58 percent of the state's entire general fund. Federal stimulus money provided a big boost to the state – some $13 billion total, with more than 40 percent of that going to unemployment insurance and more than $3 billion to education. Quinn's budget spokeswoman, Kelly Kraft, said the state has received 92 percent of what it's owed in stimulus money and that it's too early to say whether it will receive more in the coming fiscal year.

"There's an unspoken hope among a lot of people that the federal government will come in and help out the states again," said Rep. John Bradley, a Democratic Illinois state lawmaker who chairs a finance committee. "I'm not part of that group." Bradley said he is not convinced that Congress would ease any requirements to lessen the states' burden for mandated programs, and said economic recovery programs already had relieved states of many traditional mandates. "We don't have the tax base we once had. The loss of American manufacturing has caught up to us," he said. "We have to cut back on services or tax the reduced base at a higher rate."




More Bad News For States: State Revenue Plunges By 31% In 2009 To $1.1 Trillion As Spending Increases
by Tyler Durden - Zero Hedge

The Meredith Whitney "ubiquitous state default" case may have just gotten another leg up. According to just released Census Bureau data, in 2009 total state revenue plunged by 31%, from $1.6 trillion to $1.1 trillion. "The large decrease in total revenue was mainly caused by the substantial decrease in social insurance trust revenue. Social insurance trust revenue is made up of four categories — public employee retirement, unemployment compensation, workers compensation and other insurance trusts (i.e., Social Security, Medicare, veteran's life insurance)."

But the drop in the top line did not stop states from spending more: in the same year, state government spending rose by 3%, while that pervasive source of backstop funding, the US government, saw its grants to states increase by 13% to $477.7 billion. At this point it is safe to say nobody believes there is a deficit that the US government can not fill.

Full press release:
U.S. Census Bureau Reports State Government Revenues Decline Nearly 31 Percent

Total state government revenue dropped to $1.1 trillion in 2009, a decline of 30.8 percent from $1.6 trillion in 2008, according to the latest findings from the U.S. Census Bureau. The large decrease in total revenue was mainly caused by the substantial decrease in social insurance trust revenue.

Social insurance trust revenue is made up of four categories — public employee retirement, unemployment compensation, workers compensation and other insurance trusts (i.e., Social Security, Medicare, veteran's life insurance). More details on the social insurance trust revenue will be available from the 2009 Annual Survey of State Government Employee Retirement Systems data later this winter.

State governments received nearly $1.5 trillion in general revenues in 2009, a decrease of 1.4 percent from 2008. General revenue does not include utility, liquor store or insurance trust revenue.

Total taxes collected in 2009 ($715.1 billion), which accounted for 47.9 percent of general revenue, fell by 8.5 percent from $781.6 billion in 2008. This is the first year-to-year decline in tax revenue since 2002. Federal grants ($477.7 billion) increased 12.9 percent from 2008 to 2009 and accounted for nearly one-third of general revenue.

"The annual survey began in 1951, and every year since has provided state governments with a complete look at their fiscal condition and how their financial activities stack up against other states," said Lisa Blumerman, chief of the Census Bureau's Governments Division.

These findings come from the 2009 Annual Survey of State Government Finances, which reports revenues, expenditures, debt, and cash and security holdings for each state as well as a national summary.

While tax revenue declined substantially, total federal grants to states increased 12.9 percent to $477.7 billion. Federal grants for welfare programs made up 59.3 percent of all federal grants received in 2009 and increased 16.3 percent to $283.3 billion over 2008, compared with only 4.3 and 4.0 percent year-to-year increases in 2008 and 2007, respectively. The accompanying table shows total federal revenue, federal revenue for welfare, and associated ratios for all 50 states for 2009 and 2008. (See table.)

General expenditures by state governments rose 3.0 percent in 2009 over 2008. These expenditures totaled more than $1.5 trillion, with expenditures for education ($562.1 billion), public welfare ($437.5 billion) and health and hospitals ($119.1 billion) representing the top three activities.

State government spending on education totaled more than 40 percent of general expenditures in 15 states led by Georgia (46.1 percent), Utah (45.6 percent) and Alabama (45.3 percent).

State government spending on public welfare was greater than 30 percent of general expenditures in 11 states, led by Minnesota (37.5 percent), Rhode Island (36.5 percent) and Maine (36.1 percent).

The leading states in spending for highways, as a percentage of general expenditures, were Alaska (13.5 percent), North Dakota (13.4 percent) and South Dakota (12.9 percent).

Hawaii (12.3 percent) led the states in spending on public health and hospitals as a percentage of general expenditures, followed by Connecticut (11.4 percent) and Virginia (10.9 percent).

For the 42 states with lotteries, ticket sales totaled $52.3 billion in 2009, compared with $52.7 billion in 2008. Lottery prizes awarded totaled $32.2 billion, and lottery proceeds were $17.7 billion. The top three states in lottery ticket sales were New York ($6.8 billion), Massachusetts ($4.2 billion) and Florida ($3.7 billion). The same states also ranked highest in prizes awarded; New York awarded ($4.0 billion), Massachusetts ($3.2 billion) and Florida ($2.3 billion).




Blue Shield of California seeks rate hikes of as much as 59% for individuals
by Duke Helfand - Los Angeles Times

Another big California health insurer has stunned individual policyholders with huge rate increases — this time it's Blue Shield of California seeking cumulative hikes of as much as 59% for tens of thousands of customers March 1. Blue Shield's action comes less than a year after Anthem Blue Cross tried and failed to raise rates as much as 39% for about 700,000 California customers.

San Francisco-based Blue Shield said the increases were the result of fast-rising healthcare costs and other expenses resulting from new healthcare laws. "We raise rates only when absolutely necessary to pay the accelerating cost of medical care for our members," the nonprofit insurer told customers last month. In all, Blue Shield said, 193,000 policyholders would see increases averaging 30% to 35%, the result of three separate rate hikes since October. Nearly 1 in 4 of the affected customers will see cumulative increases of more than 50% over five months.

While most policyholders received separate notices for the successive rate hikes, others were given the news all at once because they had contracts guaranteeing their rate for a year, Blue Shield spokesman Tom Epstein said. Michael Fraser, a Blue Shield policyholder from San Diego, learned recently that his monthly bill would climb 59%, to $431 from $271. "When I tell people, their jaws drop and their eyes bug out," said Fraser, 53, a freelance advertising writer. "The amount is stunning." Like many people who hold individual policies, Fraser is self-employed. Others who carry such insurance include people who aren't covered by employer plans or who have been laid off.

The Blue Shield increases triggered complaints to new Insurance Commissioner Dave Jones, and they could prove to be an early test of how the former Democratic state assemblyman deals with rate hikes and the insurance industry. Anthem's attempt to raise rates by up to 39% led to national outrage and helped President Obama marshal support for his healthcare overhaul. The insurer was ultimately forced to back down, accepting maximum rate hikes of 20%. Jones said the Blue Shield move underscored the need for the Legislature to give the insurance commissioner legal authority to regulate insurance rates the same way he does automobile coverage.

At present, the commissioner can block increases only if insurers spend less than 70% of premium income on claims. Jones' office said Blue Shield's March 1 increase was under review. "Blue Shield's increases pose the same problem posed by Anthem Blue Cross last year and other health insurers as well," Jones said in an interview. "My hope would be that Blue Shield would reexamine these rate hikes, particularly in the face of the impact they are having on individual policyholders."

Blue Shield said the cost of health coverage was being driven up by large hospital expenses, doctors' bills and prescription drug prices. Blue Shield's Epstein said other factors also contributed to the three increases in five months. On Oct. 1, he said, Blue Shield imposed increases averaging 18% and as high as 29%. Those hikes had been delayed for three months while state regulators examined Blue Shield's filing, costing the company tens of millions of dollars. Epstein said Blue Shield raised rates again Jan. 1 to pay for changes under the national healthcare overhaul and a new state law that bars insurers from charging women more than men. (Some policyholders will pay less under the state gender law, while others will pay more.)

A third round of hikes scheduled for March 1 comes in response to rising healthcare costs, Epstein said. Those increases will average 6.5% and be as high as 18%. Some policyholders have seen their bills rise gradually over the last five months, while others will see the charges lumped together March 1. "It's unfortunate that they all came in a five-month period," Epstein said. "Rates are going to continue to rise unless the cost of medical care is brought under control. We need to reduce what we pay to hospitals, medical groups and pharmaceutical companies." Despite the large increases, Epstein said Blue Shield would again lose "tens of millions of dollars" on its individual business in 2011.

Not included in the rate increases are 78,000 Blue Shield individual policyholders whose insurance is regulated by a second state agency, the Department of Managed Health Care. Those customers have seen two rate increases since October that together average 37%, Epstein said. While Blue Shield's cumulative rate increases are high, Anthem Blue Cross' increases last year affected more people. Anthem said Wednesday that it too expected to raise rates — an average of 9.8% for individual policyholders, effective April 1. That would come on top of increases in October averaging 14% that had been delayed for six months amid heightened scrutiny by state regulators.

Anthem is taking a cautious approach to its rate hikes given the controversy generated by last year's plan for 39% hikes. Spokeswoman Kristin Binns said the company priced its 2011 rates competitively, saying: "We understand that these are difficult economic times, and we are committed to working to moderate the impact of rate increases on our members."




Volcker Sidelined as Obama Reshapes Economic Advisory Panel
by Yalman Onaran and Hans Nichols - Bloomberg

Paul Volcker is leaving as chairman of a presidential advisory board that’s being reshaped to have more of a business-outreach mission. Volcker, 83, was kept out of discussions on how the President’s Economic Recovery Advisory Board, which brought together business executives to come up with solutions to the economic crisis, might function next or who its new members might be, according to a person with knowledge of his views.

President Barack Obama is planning to reconstitute the board when its term expires next month and Volcker, a former Federal Reserve Board chairman, leaves, according to another person familiar with administration deliberations. The president wants the board to put a greater focus on U.S. economic competitiveness now that the recovery is on firmer footing, said the person, speaking on condition of anonymity because the decisions haven’t been made final.

Volcker, known for taming inflation in the 1980s, was disappointed with the way his advisory group became a public relations tool for the White House as its meetings with the president were televised live, making honest discussion difficult to conduct, the person familiar with his views said. The group moved most of its work to subcommittees to get around that, presenting Obama with advisory reports on matters from financial reform to economic revival, and cut its full group meetings to about every six months.

Volcker Rule
Volcker has been chairman of the advisory board since it was established by executive order two years ago. That charter expires Feb. 6, and the president plans to renew it. Volcker agreed to serve for two years and plans to remain available to advise the administration, according to another person familiar with the matter. On the panel, Volcker provided advice on economic issues as well as the rewriting of regulations for financial institutions. The law enacting those regulations included the so-called Volcker rule, which banned proprietary trading at banks and restricted their investments in private-equity and hedge funds.

Volcker had rocky relations with Obama’s top economic staff from the start. Although the former Fed chief was in Obama’s circle of advisers early in the 2008 election campaign, he lost much of his influence when the newly elected president chose Lawrence Summers to head his National Economic Council. Summers was instrumental in pushing deregulatory measures through Congress as Treasury secretary in President Bill Clinton’s administration. Summers also has left, with the White House expected to name Gene Sperling, an adviser to Treasury Secretary Timothy Geithner, as chairman of the NEC tomorrow.

Achieving One Goal
Volcker complained about getting face-to-face meetings with Obama more than a dozen times to make his case in areas ranging from financial regulation to tax reform. He slowly got his voice heard and achieved one of his biggest goals when Obama in January 2010 backed the main tenet of Volcker’s financial reform ideas, preventing banks from using their own money to take risky trading positions or invest in hedge funds.

Volcker was disappointed with the final version of the rule that bears his name as it was watered down with lobbying by banks and members of Congress sympathetic to Wall Street’s views, as well as some administration members in the banks’ defense, people with knowledge of the talks said at the time. In the final version, U.S. banks, including Goldman Sachs Group Inc. and Citigroup Inc., have as long as a dozen years to reduce stakes in hedge funds and private-equity units.

JPMorgan Chase & Co., the second-largest U.S. bank by assets, operates the world’s biggest hedge fund, according to the 2009 rankings of AR magazine, an industry trade publication. The New York-based firm’s hedge funds had $50 billion of assets under management as of Jan. 1, the magazine reported in March. Goldman Sachs’s hedge funds, which ranked ninth on the list, had $21 billion.

Yale University President Richard Levin is a leading candidate to be chairman of the reconfigured board that Volcker chairs, according to one of the people familiar with the matter. Levin was also interviewed by Obama to replace Summers, who returned to Harvard University at the end of the year, according to an administration official. Sperling served as NEC chairman during Clinton’s administration.

The 17-member advisory board known as PERAB was created to provide an outside perspective on the administration’s plans to revive the economy and draft recommendations. Members of the panel include General Electric Co. Chairman and Chief Executive Officer Jeffrey Immelt; former Securities and Exchange Commission Chairman William Donaldson; former Fed Vice Chairman Roger Ferguson; UBS Americas Chairman and CEO Robert Wolf, and Service Employees International Union Secretary-Treasurer Anna Burger.




Geithner Warns Lawmakers On US Debt Limit
by Meena Thiruvengadam And Jeffrey Sparshott - Dow Jones Newswires

The U.S. could reach its debt limit of nearly $14.3 trillion as early as March 31, Treasury Secretary Timothy Geithner said Thursday. Geithner in a letter to lawmakers said failure to raise the debt limit could "precipitate a default by the United States" and have catastrophic economic consequences--potentially more harmful than the financial crisis in 2008 and 2009. The letter received a cool reception on Capitol Hill. "The American people will not stand for such an increase unless it is accompanied by meaningful action by the President and Congress to cut spending and end the job-killing spending binge in Washington," Republican Speaker of the House John Boehner said. Boehner, leading a new Republican majority in the House, said spending cuts remained a top priority lawmakers.

The Treasury Department estimates that the U.S. could reach its debt limit as soon as March 31 and probably no later than May 16. The exact date depends on the rate of economic growth, tax receipts and other factors. "This means it is necessary for Congress to act by the end of the first quarter of 2011," Geithner said in the letter. Geithner is pushing lawmakers to lift that ceiling for the sixth time in less than four years. Lawmakers last increased the debt ceiling almost a year ago.

But by Monday, the federal debt subject to that ceiling stood at around $13.95 trillion, giving the government just $355 billion before it would be legally prohibited from borrowing to pay its financial obligations. A Treasury official said the administration is hoping to separate the debt ceiling increase from the debate on spending. And in his letter, Geithner said deep spending cuts would delay reaching the ceiling by no more than two weeks. Boehner, though, emphasized the importance of spending cuts. "While America cannot default on its debt, we also cannot continue to borrow recklessly, dig ourselves deeper into this hole, and mortgage the future of our children and grandchildren," he said.

Failure to raise the U.S. debt ceiling could cast doubt on the U.S. government's ability to meet its obligations and send shockwaves through the bond market. "Default would have prolonged and far-reaching negative consequences on the safe-haven status of Treasurys and the dollar's dominant role in the international financial system," Geithner said. A Treasury official described the request for the increase as routine. Still, the political balance on Capitol Hill has changed, potentially making the process more fraught.

Many conservative candidates ran election campaigns criticizing their opponents for voting to lift the debt ceiling last year, and promised to vote against another increase when federal borrowing hits the current cap. Their promises likely will be tested in the coming weeks. The U.S. House of Representatives agreed Wednesday to change voting procedures on increasing the nation's borrowing limit. The new policy means that lawmakers will be forced to go on record in support of raising government borrowing or vote "no" and risk putting the U.S. into default. Previously, Congress had approved debt limits automatically as part of the budget resolution.




"It is the most monumental insanity"
by Andrew Leonard - Salon

Bruce Bartlett is a historian whose résumé includes stints as a domestic policy advisor during the Reagan administration and a Treasury official under George H.W. Bush. He is also the  author of the 2006 blockbuster "Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy." For years, Bartlett has been passionately calling attention to Republican fiscal irresponsibility, and now that the fight over whether to raise the debt ceiling -- and prevent the U.S. government from defaulting on its debts -- is promising to be one of 2011's major political dramas, Salon decided he was the perfect person to bring some clarity to a confusing issue. He spoke with Salon by phone on Wednesday morning.

Let's start with something simple. What is the debt ceiling?
Throughout most of American history, whenever the Treasury wanted to borrow money, it had to get congressional permission for each specific bond issue, both the total amount of borrowing and the terms: the maturity, interest rate, everything. But during World War I, the government had to borrow enormous sums, so Congress just gave it blanket authority to borrow on whatever terms it felt best, subject to an overall cap on the amount of Treasury securities that could be issued. That cap is the debt ceiling. Ever since, from time to time, Congress has had to increase the debt ceiling to accommodate the increase in the national debt. We're in a situation right now in which the debt limit was last increased in early 2009, to $14.3 trillion -- and we're getting very very close to that. Sometime in the next two months or so, it is expected that we'll hit the cap and the Treasury will lose the legal authority to issue any new bonds.

No other major countries have a debt ceiling that operates independently of congressional decisions on taxes and spending. What's the rationale for keeping it in place?
Well, we do it primarily, I suppose, from historical practice. But it is also convenient for demagoguing. And, believe me, this is absolutely bipartisan. For example, in 2006, when the debt limit was increased, both Joe Biden and Barack Obama, both members of the Senate at that time, opposed the increase with the usual demagoguery -- "How dare we pass these debts on to our children -- but of course now the shoe is on the other foot. The basic thing is that the debt ceiling simply allows members of Congress to avoid responsibility for their own actions. They can increase spending and cut taxes and in the process increase the deficit and then express outrage when the logical consequences of their actions require the Treasury to borrow more. It gives them a free vote; they can go back to their constituents and say I voted to control the debt by not increasing the debt limit. And some people are foolish enough to buy this stuff.

So what happens if we get to early March, U.S. borrowing hits the limit, and House Republicans refuse to raise it? What would be the immediate consequence?
Well, first of all, the Treasury has certain ways that they can get around the limit for a little while. They have some legal authority to move things around. For example, a large part of federal employee retirement funds are covered by special securities issued by the Treasury and the Treasury is permitted to not make regular contributions to the fund on a temporary basis, as long as it makes up the difference later on. And there are other tricks of this sort. There are even some economists who believe that the Treasury has an unlimited bag of tricks to do this. Personally, I don't think so.

I think there really is a hard limit, but when we would hit that limit I don't know. But assuming we do, what would then happen is that the Treasury would lack the cash flow to be able to pay its bills. Every single day the Treasury has bills to pay, Social Security benefits, interest on the national debt ... But if the debt ceiling is not raised, the only cash it would have to pay those bills would come from the tax revenues that come in on a day-to-day basis -- from the payroll tax or from income tax withholding. But that would not be enough to pay the bills that are due that day, so somebody at the Treasury is going to have to decide -- as individuals do when their pay doesn't cover their credit cards and other debts -- who gets paid this month and who doesn't.

And, of course, there is a problem with this, because not everybody can be put be off. By law, Social Security benefits have to go out on the first of the month. But the Treasury literally would not have the cash in its account to cover those benefits, or to pay interest on the debt -- at which point you have a default. Any time the precise terms of a bond are not adhered to -- if you don't receive exactly the amount of money you were promised, on exactly the day it was promised -- you have a default, and that is what would happen under this circumstance.

But we've never let that happen before.
It's never happened before. And I think many people in financial markets, and perhaps even in Washington, just assume away the possibility. They cannot conceive of the insanity of allowing the debt to default. But what I keep trying to explain to people is that these Tea Party people really are that crazy. And I'm just tying to get people to believe me.

But isn't there a limit to how irresponsibly politicians can act? When the House Republicans rejected the first TARP authorization vote, the reaction in financial markets swiftly changed their minds. Wouldn't the same thing be likely to happen this time around?
Perhaps. But do we really want to pay that price? Do we really want to introduce an element of doubt into the financial markets, that a security that is primarily bought because there is assumed to be risk zero risk of default is no longer safe? There is no other security on earth that has that reputation, not even German government bonds. The U.S. Treasury is the gold standard and we have benefited enormously from this fact. Every time there is some disruption in the world financial markets, people flee to quality by buying Treasuries. As a result, we have benefited by not having to pay for the consequences of our own profligacy. Foreign central banks hold trillions of dollars of Treasuries as the backing for their own securities.

The minute we introduce an element of doubt into their own minds about whether these debts will be paid, suddenly other alternative investments may start to look better to them, and we will lose market share, which will greatly increase the costs of borrowing over the long term. It's the most monumental insanity that I can even imagine. I really don't think it makes a lot of sense to shoot ourselves in the foot, just to make an idiotic point about the debt being too large. If people really believe that, they should vote to increase taxes and cut spending, and thereby reduce the Treasury's need to borrow.

But don't the most likely scenarios stop short of actual default? Surely our government wouldn't actually push things past the breaking point?
Not necessarily. I'm hypothesizing a literal actual default. I think that we may in fact reach a point -- I don't know when, maybe not until the summer -- where a day comes and the Treasury has to pay out X billion in dollars to Treasury bond and bill and note holders, and it has less than X dollars literally in its account to pay that interest. I'm hypothesizing that as a possibility because I really think that this is a game of chicken and I think that the Tea Party people are willing to go over the cliff to prove their point, to prove that they are not chicken.

But the Obama administration certainly isn't willing to do that. Won't the White House cut some sort of a deal?
Of course they're not. I don't think John Boehner is either. The problem is that the Tea Partyers are nuts. That is my point. They are irrational, they are ignorant, they don't know anything about financial markets and they think that they are standing up for God and the balanced budget.

I have no doubt that there are enough rational people in the Republican Party together with enough Democrats to have the votes to increase the debt limit. The problem is that as we've seen in this last election, the Tea Party people have shown us that they don't give a crap. Look, for example, at the defeat of Sen. Robert Bennett in Utah. He was one of the most conservative members of the Senate, and he was defeated primarily because he merely co-sponsored a bill with the Democrat Ron Wyden that put out an alternative approach to healthcare reform. This was deemed to be beyond the pale. He was defeated in the Republican primary, and I think this is the concern that every Republican has -- of having someone run against them in the primary who says, This senator or congressman s.o.b. voted to increase the debt limit. They voted to give Obama more money to destroy our country with. I don't think there are very many Republicans that are going to take the risk of allowing that to happen.

What about the theory that the Republicans intend merely the threat of default to get big spending cuts?
That's a possibility. This is all being sorted out and negotiated right this minute. The problem is, I'm just not sure, and I hope I'm wrong, I'm just not sure that there is anything that these people can be given, that will be a sufficient sop, to allow a debt limit increase to occur. I'm just not sure that there is anything.

You have written that we don't know what happens when a country with good credit defaults.
It is widely believed, even among good economists, that a default such as the one that we have been discussing is analogous to the sort of sovereign defaults that we have previously seen in history. But every single one of those cases is extremely different. In every one of those cases default occurred because government couldn't sell its bonds because the market didn't want them. There was no demand, because the market was saturated or the rates would have to be prohibitively high or they they wouldn't sell the foreign exchange necessary, to pay the debt when it is denominated in a foreign currency. Things of that sort. Those are cases in which the default is market driven.

This is completely different. There is plenty of demand for Treasury securities. The fact that interest rates are so extraordinarily low is evidence that the market wants more, not fewer, securities. This is not a traditional market-driven default situation such as we've seen recently in Greece. This is an entirely self-imposed matter, where the Treasury is unable to sell its bonds not because the market won't buy them but because it lacks the legal authority to sell them. This is an absolutely unprecedented situation. We have no guidance from history as to what may happen under these circumstances.

Let me just add one other thing. There are a lot of people who think the situation that we are talking about is the same thing as a government shutdown. It's not. It has nothing to do with shutting down the government. That has to do with appropriations. And that's a separate problem. The continuing resolution that authorizes appropriations for fiscal year 2011 runs out on March 4, or something like that. So that's another crisis to watch out for, because if appropriations run out, the government also loses the legal authority to spend, and government agencies have to shut down.

So you're saying that we could lose the legal authority to spend and to borrow in the same time frame?
I don't know what's going to happen. It may be that these things will get wrapped up together. Maybe it will end up with a whimper instead of a bang, and Congress will pass some kind of face-saving gesture like cutting the budget by a $100 billion and this will be enough of a fig leaf to allow enough people to vote for both another continuing resolution and increase the debt limit. I fear the worst, because this is extraordinarily dangerous, but if things turn out better, I will be the first one to clap and say hurrah.




At Banks, New Fees Replacing Old Levies
by Robin Sidel - Wall Street Journal

Banks, in an attempt to wring more revenue out of customer accounts, are conjuring up new ways to raise fees on basic products like debit cards, cash machines and checking accounts. As regulation curtailing financial institutions from levying certain charges on consumers has mounted over the past year, banks have had to dream up new fees to replace those now trimmed by laws. Credit-card users have experienced new inactivity fees and foreign-exchange charges, while checking accounts have gotten hit with new monthly maintenance fees.

Banks are considering additional fees on credit cards and checking accounts. But they also are looking at new ways to make money on cash machines and especially debit cards as regulators pinch the cards' conventional revenue streams. To counter that lost revenue, banks are thinking about imposing annual fees of $25 or $30 on debit cards, according to people familiar with bank strategies. Some also considering limiting the number of debit-card transactions that a customer can make each month, these people said. Another idea circulating in the industry: Limiting the size of a purchase that a customer could make with a debit card. At the same time, reward programs for debit cards are likely to get the ax, these people say.

New debit-card fees are "definitely a 2011 issue," says Robert Hammer, who runs a banking-industry consulting firm in Thousand Oaks, Calif. "The question is which quarter it will be and which bank will go first." New proposals from the Federal Reserve call for limiting how much banks can charge merchants for debit-card transactions. The proposals, released last month, are part of the Dodd-Frank financial-overhaul bill that was enacted last year. The Fed has proposed capping debit-card merchant fees, known as interchange, at seven to 12 cents a transaction. That represents a drop of as much as 84% from the current average rate of 44 cents.

Banks, which for years doled out debit cards to promote electronic payments that cost less than checks to process, strongly oppose the proposals. They say the Fed is essentially making debit cards unprofitable. CardHub.com estimates that the Fed's proposal will reduce the banking industry's debit-card interchange revenue by 57% to $9.8 billion. "Any proposal that caps debit interchange fees will increase the cost of debit cards for consumers and potentially curtail debit card use," warned Steve Bartlett, president and chief executive of the Financial Services Roundtable, in a Dec. 17 letter to Fed Chairman Ben Bernanke.

Debit cards are just one of several banking products that will carry additional fees this year. People familiar with their thinking say several banks are considering raising fees on automated-teller machines for noncustomers, which currently average $1.63 a transaction. Banks have long griped about such transactions, saying that providing cash to noncustomers isn't a priority for them. Banks also are continuing to add fees to checking accounts, a trend that began last year. Next month, for example, customers of the former Washington Mutual will see their free checking accounts replaced by fee-based accounts from J.P. Morgan Chase & Co., which bought WaMu in 2008. Customers can avoid the fees if they meet certain criteria such as maintaining balances.

"We don't want to raise fees on our customers, but unfortunately, regulation is forcing us to do it, and as a result, some customers may end up unbanked," said a Chase spokeswoman. Bank industry executives have said the new regulations will squeeze low-income customers out of traditional banking, sending them to high-fee alternatives like check cashers and payday lenders.

Bank of America Corp., which already has started adding fees to its basic services such as checking accounts, is expected to announce more of them soon. The fees are expected to be structured based on the level of account activity and the number of financial products that a customer uses. "If you bring us more business, you will get rewarded with better pricing," said spokesman Robert Stickler. The Charlotte, N.C. lender took a first step in this direction last year when it unveiled a new account that charges $8.95 a month if customers don't use the ATMs or the Web while banking.

The banks defend the higher fees by saying that customers can avoid many of them by maintaining monthly balances and keeping the account active. At Commerce Bancshares Inc. in Kansas City, Mo., customers who have a particular type of checking account can avoid fees as long as they keep their account active and avoid any paper-based transactions. Otherwise, they could wind up paying $2 for each check that they write. The bank said the account is geared toward customers who bank electronically.

Even some of those requirements, however, are getting tougher. Chase, the retail arm of J.P. Morgan, now requires customers to make at least one direct deposit of at least $500 to waive a monthly fee. Previously, customers could make multiple direct deposits that added up to $500 in order to get the fee waived. The bank also offers other ways to avoid a monthly fee, including keeping a minimum daily balance of $1,500. "Direct deposit just isn't going to be good enough" to get fees waived on many checking accounts, says Chad Watkins, manager of market intelligence at Informa Research Services, a Calabasas, Calif., company that tracks the financial-services industry.

Business customers won't be immune either. Bank of the West, a San Francisco-based bank with more than $60 billion in assets and 700 branches in 19 states, recently replaced its business savings account with a new one that has new features including automatic sweeping of funds from checking to savingsaccounts. But the account also has higher fees. The monthly fee rose to $5 from $3. The bank, a unit of France's BNP Paribas, also raised the average monthly balance requirement to $500 from $300.




Government Sees High Returns On Defaulted Student Loans
by Melissa Korn - Wall Street Journal

Defaulting on federal student loans may not be such a bad thing--at least, not for the federal government. After paying the companies that actually collect the loans and other costs, the U.S. Department of Education expects to recover 85% of defaulted federal loan dollars based on current value. The recovery figures are quite generous when compared with other corners of consumer debt. Banks, for example, often retrieve less than 10 cents on the dollar from overdue credit cards.

According to White House budget figures for fiscal 2011 ending in September, the federal government expects gross recovery of between $1.10 and $1.22 for every dollar of defaulted student loans. An estimated $49.9 billion of Federal Family Education Loan and Federal Direct Lending Program loans are in default, out of a total $713.4 billion outstanding, as of Sept. 30. Those amounts include only principal balances, not interest.

While students may default on their loans, it is nearly impossible to discharge student loan debt, even in bankruptcy. The government can garnish a borrower's wages, withhold tax returns and siphon off Social Security and disability payments in order to recover the funds. Collection costs stretch out the defaulted loan's term, with those payments taking precedence over principal reduction. That, in turn, allows the government to tack on extra interest.

The strong loan return rates may prove awkward for the federal government, which is instituting regulations on for-profit colleges. The government is arguing the schools' graduates cost taxpayers too much money because they learn little in class and ultimately default on loans at high rates. According to the Education Department, 46% of dollars lent to for-profit college students will ultimately default, compared with an average of 16% across all schools. Students are "left with the debt and questionable job prospects, and it's financed with taxpayer dollars," Education Department spokesman Justin Hamilton said.

The Senate Committee on Health, Education, Labor and Pensions is conducting hearings to evaluate the educational value of the for-profit colleges, but, given the high recovery rates on defaulted loans, it isn't clear how much protection taxpayers need. "Even at 85%, the government's not losing all that much money," said Mark Kantrowitz, publisher of financial aid website FinAid.org. Still, Sen. Tom Harkin (D., Iowa), chairman of the Senate HELP Committee, said it's not enough that the government recoups most of its money. "Default should not be considered success, for either taxpayers or students who end up in debt."

According to Kantrowitz, the government stands to earn $2,010.44 more in interest from a $10,000 loan that defaulted than if it had been paid in full over a 20-year term, and $6,522.00 more than if it had been paid back in 10 years. Alan Collinge, founder of borrowers' rights advocacy Student Loan Justice, said the high recovery rates provide a "perverted incentive" for the government to allow loans to go into default. Kantrowitz estimates the recovery rate would need to fall to below 50% in order for default prevention efforts to become more lucrative than defaults themselves.

Hamilton said default prevention is "baked into" the Federal Direct Loan Program, under which all new federal student loans are originated. "Servicers who do a good job keeping defaults down will get more business. Those who can't, won't."




Fed May Keep Easing at 'Full Throttle' Until Decline in Unemployment Rate
by Caroline Salas and Joshua Zumbrun - Bloomberg

Federal Reserve officials signaled they’ll probably push ahead with unprecedented stimulus until the recovery strengthens and many of the 15 million unemployed Americans find work. The jobless rate hasn’t fallen below 9.4 percent since May 2009 and will probably average that figure this year, according to a Bloomberg News survey of economists. Unemployment probably declined to 9.7 percent last month from 9.8 percent in November, according to the average estimate of a Bloomberg poll prior to a Labor Department employment report on Jan. 7.

While growth has picked up since the Fed announced plans on Nov. 3 to buy $600 billion of bonds, policy makers remain focused on their failure to achieve their goals of full employment and an inflation rate of about 2 percent, according to the minutes of their Dec. 14 meeting released yesterday. The recovery’s pace is likely to "remain modest, with unemployment and inflation deviating from the committee’s objectives for some time," the minutes said.

"Right now it looks like the unemployment rate is the whole ball of wax," said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. "The majority just wants to keep going full throttle, and keep policy as accommodative as possible." The Fed’s decision to embark on a second round of bond purchases in November, known as quantitative easing and dubbed QE2, sparked some of the bitterest political criticism in three decades. Republican lawmakers and officials in China, Germany and Brazil have said it may weaken the dollar and ignite inflation.

Record Easing
As stocks rise and the economy shows signs of improving, Chairman Ben S. Bernanke and his colleagues are trying to explain their record easing to investors expecting a pullback. The Fed chief defended the central bank’s actions in an interview last month on CBS Corp.’s "60 Minutes" and Janet Yellen, the central bank’s vice-chair, is leading a subcommittee to review communication strategy.

U.S. central bankers, while affirming their commitment to the asset-purchase program, acknowledged "the communications challenges faced in conducting effective policy, including the need to clearly convey the committee’s views while appropriately airing individual perspectives," the minutes said. Policy makers saw growth quicken since their last meeting, and "generally agreed that, even with the positive news received over the intermeeting period, the most likely outcome was a gradual pickup in growth with slow progress toward maximum employment." In addition, the "high level of unemployment was limiting gains in wages and thereby contributing to the low level of inflation," the minutes said.

Terms Eased
Since the Fed announced its plans to buy $600 billion of bonds through June, financing terms for companies have eased, U.S. stocks have climbed, inflation expectations have increased and the dollar has strengthened, gaining 6.2 percent versus the euro. The Standard & Poor’s 500 Index of stocks rose 6 percent during the period to close yesterday at 1,270.2 and the extra yield, or spread, investors demand to own high-yield, high-risk securities rather than government debt fell to 5.27 percentage points from 5.92 percentage points on Nov. 3, Bank of America Merrill Lynch index data show.

The improvements in the economy reinforce the Fed’s strategy and make it unlikely they’ll stop their asset-program before completing their planned $600 billion of purchases, according to Chris Low, chief economist at FTN Financial in New York. "With the economy growing faster, the chances are they think it’s from QE and the last thing they’ll want to do is take that fuel away now," Low said.

Purchase Program
The Fed’s Open Market Committee "emphasized that the pace and overall size of the purchase program would be contingent on economic and financial developments," according to the minutes. "However, some indicated that they had a fairly high threshold for making changes to the program," the minutes added. "They’re specifically saying they have a very high threshold for shrinking it," Low said. "I don’t think we’ll know until the second quarter" whether they’ll want to increase the asset purchases. Policy makers saw downside risks to growth including further weakness in the housing industry, the "ongoing deterioration" in the finances of U.S. states and localities, and the potential worsening of the sovereign debt crisis in Europe, the minutes showed.

Rising Expectations
The Fed’s quantitative easing program has led inflation expectations to increase. Investors expect prices to rise by 2.3 annually over the next 10 years, as measured by the spread between nominal and inflation-indexed Treasury bonds, compared to expectations of 1.6 percent when Bernanke signaled his willingness for a second round of asset purchases in an Aug. 27 speech in Jackson Hole, Wyoming.

Most Fed officials said they expected "underlying measures of inflation would bottom out around current levels and then move gradually higher as the recovery progresses." The minutes also noted that "several participants saw the risk of deflation as having receded somewhat over recent months." The rate of inflation slowed throughout 2010. The personal consumption expenditures index, excluding food and energy, increased 0.8 percent in November from a year earlier, down from 1.8 percent in December 2009. Including all items, inflation was 1 percent, down from 2.4 percent at the end of 2009.

"What the Fed was doing with QE2 was worrying about the potential for downside risk, in particular the potential for deflation," former Fed Governor Randall Kroszner, a professor at the University of Chicago, said in a Bloomberg TV interview. "They bought some insurance against that by buying more assets. One of the things that is going to do is to start to boost up inflation expectations a little bit. That’s what they hope."

No Decline
The announcement of the central bank’s quantitative easing program hasn’t led to a decline in interest rates on longer-term Treasuries. The yield on the 10-year Treasury note closed at 3.33 percent yesterday, an increase from 2.57 percent on Nov. 3. Policy makers found that Treasury yields climbed because of "an apparent downward reassessment by investors of the likely ultimate size of the Federal Reserve’s asset-purchase program, economic data that were seen as suggesting an improved economic outlook, and the announcement of a package of fiscal measures that was expected to bolster economic growth and increase the deficit," the minutes said.

The Fed staff, which prepares a forecast for each FOMC meeting, revised up its outlook for growth "in the near term" as it incorporated a projection for another round of fiscal stimulus. President Barack Obama last month signed into law an $858 billion bill extending for two years Bush-era tax cuts. Fiscal support was likely to "boost the level of real GDP in 2011 and 2012," according to the staff forecast. Offsetting the fiscal support were projections for lower house prices, higher interest rates and oil prices, and a higher foreign exchange value of the dollar.




Ben Bernanke Loses More Money In One Day Than All Of LTCM Ever Did... Doubled
by Tyler Durden - Zero Hedge

The ongoing collapse in bond prices is making John Meriwether blush with envy at the wholesale wanton destruction of capital undertaken by Ben Bernanke. Keep in mind LTCM - the organization which proved definitively that Nobel prizes in economics are given only to the most consummate destroyers of value, logic, reason and humility - lost "just" $4.6 billion from its peak before it became the biggest systemic risk in the world back in 1998 and had to be rescued by a consortium of banks. The bottom line: with about $10 billion in SOMA losses today alone, Ben Bernanke has generated more than double the losses that nearly destroyed western finance 13 short years ago. And nobody cares.

John Lohman explains:

Chairman Top Tick continues to crash and burn, losing $7.2 billion in Treasury and Agency paper in today’s bloodbath alone.  Adding a rough estimate for the MBS holdings would put the session’s losses well over $10 billion.  Indeed, a baker’s dozen of John Meriwethers couldn’t destroy this much capital in such a short period of time.

And with all of the usual caveats that accompany a simple modified duration analysis (ignoring convexity, assuming instantaneous parallel shifts, etc.), the table below estimates the Fed’s losses for various upward interest rate shocks.  Again, keep in mind this does not include the massive MBS portfolio, which is extending in duration with every uptick in rates
.





Europe unveils sweeping plans to govern reckless banks
by Ambrose Evans-Pritchard - Telegraph

Brussels has called for sweeping powers for regulators to seize failing EU banks, sack board members, and impose haircuts on senior bank debt, aiming to ensure that taxpayers are never again held hostage by high finance. The European Commission’s "Framework for Bank Recovery and Resolution" draws on Scandinavia’s hard-line approach during their banking crises in the early 1990s. The goal is to end the pattern of moral hazard and mispricing of risk that generated Europe’s debt woes.

"Banks will fail in the future and must be able to do so without bringing down the whole financial system," said Michel Barnier, the internal market commissioner Mr Barnier’s consultation paper will lead to a "legislative proposal for a harmonized EU regime" as soon as this summer, with an insolvency structure in place by 2012. The final phase will be the creation of a European Resolution Authority by 2014, adding a fourth pillar to the EU’s new architecture of financial regulation. EU "authorities" typically have their own permanent staff and powers to override national bodies.

The document said regulators should be given "statutory power" to write down senior bank debt, by any amount necessary, or to convert debt into equity. "Such a power would only apply to new debt (or existing debt contracts renewed or rolled over) after entry into force of the power." Worries over the exact shape of the bondholder haircuts caused credit default swaps on senior European bank debt to rise sharply earlier in the day, with the Markit iTraxx Senior Financials index rising 16 basis points to 196.

Spanish and Italian banks were hit hard, among them Banco Santander, with some lenders in the eurozone periphery at even higher levels than during Europe's so-called "Lehman moment" last May. The jitters spread to sovereign debt as well. The CDS on Portugal rose 25 points to 525, Ireland rose 18 to 630, Belgium rose 17 to 240, and Spain rose 13 to 350. The EU plan would apply to all classes of senior debt, with authorities given leeway to act on a case-by-case basis, depending on systemic risk. Some trade creditors and counterparties in swaps and derivatives contracts may be shielded under specific circumstances.

There would be a strict ranking of creditors. "Equity should be wiped out before any debt is written down, and subbordinated debt should be written down completely before senior debt holders bear any losses," said the document. Bonds would be bound by contracts giving the authorities power to impose losses once a "trigger" is activated. The plans allow oversight bodies to place a "permanent presence" of inspectors in the offices of suspect banks, adopting a scheme already pioneered by Spain’s central bank. There will be annual stress tests, geared to shocks of "low probability but high impact".

Regulators will be able to order bank boards to fire directors, desist from any activity, reduce leverage, sell off assets, or restructure debt. In extreme cases, they will have pre-emptive powers to take over the entire bank and decapitate top management, perhaps when Tier I capital ratios fall below an fixed level. Stronger banks will be required to help cover the costs of failure by weaker peers, creating a further buffer between the financial industry and the taxpayer.

Mr Barnier, a former French foreign minister and Savoyard ski enthusiast, has worked closely with the authorities in the UK, where similar plans are already under way. Britain is the first of the big EU states to introduce a resolution mechanism. There were widespread concerns a year ago that Mr Barnier would pursue a "French agenda" to cut the City of London down to size, but he has since won plaudits as a man who genuinely wishes to bolster Europe’s leading financial hub – though on a sounder footing. Jonathan Faull, his right-hand man as director-general, is a British EU official of free-market views.

The concern for bondholders is that the screws may be tightened further as Germany and other states alter the text to alleviate populist pressures at home, or that the decision to seize banks and impose haircuts will become politicized. It is unlikely that either EU ministers or the European Parliament would go so far as to penalise existing debt, which might be construed as retroactive. The legal complications would be enormous.

Mr Barnier has to walk a fine line, doing enough to deter moral hazard without going so far as to cause investor flight from EMU bond markets. His paper says that creditors should be treated fairly, with scrupulous consistency, and in conformity with European rights law. But at the same time, the document recognises that it is hardly healthy if funding costs in Europe are held down "artificially". Much grief might have been avoided if the EU had created this machinery long ago, before launching monetary union.




2011: Year of the Big Default?






2011: Year of the bank run?
by Colin Barr - Fortune

Is a bank run about to bring Europe to its knees?

Some market watchers say yes, pointing ominously to the torrents of money pouring out of Ireland. Irish bank deposits declined in November for the fourth straight month, the central bank said last week. Overseas deposits fled the country at their fastest pace in more than a year. The deposit flight compounds the stress on a financial system whose massive property-lending losses already have driven the government to accept an unpopular bailout from the European Union and the International Monetary Fund.

Worse yet, it shows that the solutions policymakers slapped together in the fall of 2008 helped in some cases to create even bigger problems -- ones that are now coming due. Unconditionally guaranteeing bank deposits is just such a policy, in a country where loan losses made the banks insolvent, job loss left many taxpayers peniless and deposits now at least double annual economic output. And this time, given the unpopularity of bailouts and dysfunctional European politics, there is ample reason to fear the banking mess won't so easily be swept aside.

"Facing facts like these, each morning when I wake up I have to wonder, 'Why is today not a good day for a wholesale run on the Irish banking system?'" asks Scott Minerd, chief investment officer at Guggenheim Partners. "And if there is a wholesale run on the Irish banking system, then what stops the same scenario from cascading into Portugal, Greece, Italy, and most importantly, Spain?" That is very much the question being asked in bond markets, where the cost of borrowing surged in all the so-called peripheral European countries in the second half of 2010. The yield on Irish 10-year government bonds, for instance, surged to 9% at year-end from around 5% in August.

The high cost of market borrowing ties the hands of government officials who have promised to ride to the rescue of the bubble-ridden banks. Ireland has already ponied up outlandish sums to keep the banks afloat. Officials have said at every turn they believed they had the ability to stabilize the system, but stability has remained beyond their reach.

Now, with the state locked out of the bond market and the banks losing depositors, who is going to lend in an economy that already has shrunk drastically from its bubbly size of just a few years ago?
Bank runs "will seriously undermine the prosperity of this country for a generation," Pimco's Mohammed El-Erian said in November. He said the first steps to stemming the run would include "a big external aid package and steps by the Irish government."

The IMF, the EU and the Irish government committed to those steps this fall. But there is still no sign people in Ireland or elsewhere believe the $113 billion bailout package will keep their money safe. Among many other things, there has been a rush out of the euro for the Swiss franc, not to mention the ever-present embrace of gold.

The flight from Irish banks has been most pronounced among foreigners, who presumably are less attached to their bailed-out bankers and can easily find other banks that, at least for the moment, appear less apt to go out of business. Some 20 billion euros ($27 billion) of overseas deposits fled the country in November alone, according to the Central Bank of Ireland. The level of foreign deposits has plunged 28% in the past year and is down 42% from its bubbly peak.

But don't blame just the foreigners. Domestic deposits tumbled by 6.3 billion euros in November, in their steepest decline since August 2009. All told, the Irish banking system's deposit base has contracted by 15% over the past year -- which isn't making it any easier for taxpayers to keep the deeply troubled banking sector afloat. Meanwhile, the aid the Irish banks took from the eurosystem more than doubled over the past year, to 97 billion euros from 45 billion in November 2009.

The flight of deposits from troubled Irish banks is an unhappy irony because Ireland was lauded in some quarters in 2008 when it became the first state to guarantee bank deposits. That decision led to a short-lived surge of funds into the Irish banks -- not that the money stuck around for long. Since the late 2008 peak, more than 100 billion euros of overseas deposits have left the Irish banking system.

When you consider that similar trends could easily play out in the other euro countries, you have the recipe for a hangover-inducing New Year that is likely, in the view of Minerd, to see the euro plunge anew against the dollar. He expects the euro to test its decadelong low against the dollar of 85 cents before all is said and done, compared with a recent $1.33. "As sovereign credit downgrades continue to flow in and deposits in Europe's weakened banking system flow out, a broader crisis in Europe appears to be imminent in 2011," says Minerd.




Pressure builds on Spain's banks
by Colin Barr - Fortune

Are credit markets predicting a bank run in Spain?

The cost of insuring Spanish government debt climbed above 3% this month for the first time. Credit default swaps referencing 5-year Spanish government bonds traded at 340 basis points Wednesday, according to CMA data, meaning it costs $340,000 annually to protect $10 million of Spanish debt against default. That spread has tripled over the past two years, as governments have started taking on the risks that were initially shouldered by overstretched banks.

But more important, according to apost Wednesday by the Center of Geoeconomic Studies at the Council on Foreign Relations, is a possible relationship between the level of the sovereign CDS spread and the effect on foreign bank depositors. The CFR blog post points out that deposits started flowing out of Irish banks in early 2009 when the nation's CDS spread widened out beyond 3%. The spread quickly contracted and foreigners resumed putting their money in the country's banks, as dodgy as they may have appeared, evidently banking on the strength of the government deposit guarantee.

But as the cost of the Irish bank bailout soared late last year, the Irish sovereign CDS spread surged past 3% again, and foreign deposits resumed flowing out. It is that flow that makes some investors think 2011 will be the year of the European bank run, starting in Ireland whose CDS spreads now exceed 6% -- and moving on to Portugal (5%) and then, perhaps, much bigger Spain. Of course, it is early yet to say therewill bea run on Spain's banks. While Spain and Ireland both had huge property bubbles, Spain's biggest banks, Santander and Banco Bilbao, have substantial international businesses and thus appear to be in much better shape than their Irish counterparts, such as the fraud-ridden Anglo Irish or the simply deflated Allied Irish.

The bad news is that there have been signs of a deposit pricing war that could add to the stress on the smaller regional banks, which are seen as the weak link in the system. There are few indications the government is moving aggressively to clean up the bad loans everyone knows are out there. Even if all goes well, the Spanish banking system is going to need time to earn its way out of years of property-lending misery. But if deposits start fleeing the country in earnest,the governmentwill need to step in with costly actions, such as mergers and recapitalizations and takeovers. And as the Irish experience shows, a rising tab for taxpayer support of the banks isn't a recipe for making anyone happy -- let alone for keeping money from heading for the exits.




Ireland May Set Up Second Asset Management Agency to Bolster Its Bank Fund
by Joe Brennan - Bloomberg

Ireland may set up a second asset- management agency to slim down the country’s banking system and help lenders reduce their reliance on European Central Bank funding. The National Asset Management Agency, established in 2009, has purged banks of about 71 billion euros ($93 billion) of risky commercial real-estate loans. Now, a second organization is being considered, Jill Forde, a spokeswoman for the Dublin- based central bank, said by telephone today.

"A number of options are under consideration and will be decided by the end of the first quarter," Forde said. Other possibilities include asset sales, restructuring, extension of the country’s so-called bad bank to take over additional assets and setting up of internal "good bank-bad bank" structures within banks, she said.

Ireland was forced to resort on Nov. 28 to an 85 billion- euro aid package, led by the European Union and the International Monetary Fund, on investor concern the cost of rescuing lenders including Anglo Irish Bank Corp. would swamp the state. About 35 billion euros is earmarked for the country’s banks. As part of the accord, Ireland’s central bank agreed to the "steadily deleveraging" of the banking system and measures to cut the lenders’ dependence on short-term funding from the European Central Bank.

ECB Funding
"Downsizing is easier said than done," Emer Lang, an analyst with Dublin-based securities firm Davy, said in a note to clients today. He cited Allied Irish Banks Plc’s "inability to sell its U.K. operation and the slow pace of runoff" of Bank of Ireland Plc’s and Irish Life & Permanent Plc’s mortgage books, both closed to new business. Bank of Ireland fell 1.7 percent to 34.2 euro cents at 12:36 p.m. in Dublin, while Allied Irish lost 4.5 percent to 29.6 cents and Irish Life declined 3 percent to 96 cents.

Irish banks grew increasingly dependent on the ECB for emergency funding last year amid deposit outflows and as the wholesale funding markets remained volatile. Irish domestic lenders, including foreign-owned banks, increased their reliance on ECB funding by 13.7 percent in November to 97.3 billion euros, the country’s central bank said Dec. 30. Matthew Elderfield, head of financial regulation at the central bank, said in an interview with the Irish Independent today that a second asset-management agency could take over non- core assets such as the whole of a bank’s U.K. division. It could warehouse these assets as they are being prepared for sale, he said.

The central bank hired Barclays Capital, the investment- banking unit of Barclays Plc, to advise on shrinking the balance sheets of the country’s banks, two people with knowledge of the talks said today. Barclays will work on the central bank’s liquidity assessment, or Prudential Liquidity Assessment Review, of the country’s lenders, to be completed early this year, said the people, who declined to be identified because the decision isn’t yet public.

BlackRock Inc., the world’s biggest money manager, will also advise the central bank with a separate review of lenders’ capital requirements, one of the people said. An announcement may be made as soon as today, the person said. Forde, the central bank spokeswoman, said it’s due to make an announcement on potential advisers shortly. Jon Laycock, a spokesman for Barclays in London, declined to comment.

Separately, European investors accounted for 71.5 percent of the 5 billion euros in bonds sold yesterday by the European Union to help finance the aid package for Ireland, according to the EU. Asia represented 21.5 percent and the Americas 6 percent, the European Commission, the EU executive arm, reported in an e-mail. The issue was the first by the commission through its European Financial Stabilization Mechanism as part of the EFSM’s 22.5 billion-euro share of the 85 billion-euro Irish rescue. Ireland expects to receive the first tranche of funds from the EFSM on Jan. 12, a spokesman for the finance ministry in Dublin said yesterday.




Two million Brits use credit card to pay mortgage or rent
by Myra Butterworth - Telegraph

Two million people have used their credit card to pay their mortgage or rent, up 50 per cent in a year, charities have warned. The survey by Shelter shows the drastic measures households are taking to keep a roof over their head amid a sharp rise in the cost of living. The charity predicted many of these people could be starting the New Year with the threat of homelessness hanging over them. It warned that not only can defaulting on credit card payments lead to repossession in very severe cases but just one single thing – such a bout of illness, rent increase or drop in income - is all that is needed to push people into spiral of debt and arrears that can lead to the loss of their home.

Campbell Robb, chief executive of Shelter, said: "This research brings into sharp focus how keeping a roof over their head has become a daily struggle for millions across the country. "This is a totally unsustainable situation and one which we fear could see thousands more families pushed into the spiral of debt, eviction or repossession and ultimately homelessness. "Using credit cards to pay the rent or mortgage is simply robbing Peter to pay Paul. With the average credit card interest rate now standing at over 16 percent it is the worst possible course of action."

He added: "Already someone faces the nightmare of losing their home every two minutes, and we would urge every single one of these people now relying on credit to keep their home to seek advice urgently. However, separate research by the Council of Mortgage Lenders suggests just 2 per cent of borrowers have ever paid their mortgage with a credit card. A spokesman for the CML said: "We believe that the vast majority of these reported cases relate to tenants paying rent, rather than borrowers paying mortgages."




HMV issues profit warning after grim Christmas
by Simon Bowers, Zoe Wood and Graeme Wearden - Guardian

HMV Group has begun a radical downsizing programme that will see it shut almost one in 10 of its high street music stores as it struggles to recover from a dire, snow-blighted Christmas trading spell. The closure of about 40 HMV stores over the next 12 months, and a further 20 Waterstone's bookshops, is part of an urgent push to cut costs ahead of a critical loan covenant test in April. The company, which typically takes 60% of its annual sales in the last four months of the year, today admitted that meeting conditions for the test "will be tight".

HMV finds itself forced into emergency measures to bolster its solvency two years after its nearest rival, Zavvi, formerly Virgin Megastore, went bust. HMV is the last nationwide music retailing chain left on the high street. HMV is one the first big retailers to report on what analysts say was one of the most difficult Christmas trading periods experienced by the sector in recent years. Next's chief executive, Lord Wolfson, also bemoaned the impact of the snow, which cost the fashion retailer £22m in lost sales. But the newly created Tory peer Baron Wolfson of Aspley Guise also blamed the retailer's own errors, including shortages of bestselling clothing lines, for a bigger than expected fall in sales at its high street stores.

One retailer to buck the trend was John Lewis, which appeared to have outperformed the sector for the second year in a row by setting new sales records at the employee-owned business. Its managing director, Andy Street, said it had taken market share in all its departments as it rang up two record weeks of sales of more than £120m with like-for-like sales up 7.6% for the five weeks to 1 January. John Lewis also reported a last-minute surge in demand for big-ticket items such as sofas and TVs as shoppers pre-empted this week's VAT rise.

As well as the impact of heavy snowfall, HMV faced stiff competition from supermarkets and VAT-free online retailers such as Play.com and Amazon. Comparable sales for the five weeks to 1 January were down 13.6% in HMV in the UK and Ireland. At Waterstone's, like-for-like sales showed a slight decline of 0.4%. Management estimated the cost of business lost to the snow was about £20m. HMV's chief executive, Simon Fox, warned investors that underlying pre-tax profit for the year to April was expected to be "around the lower end of market expectations", currently between £46m and £60m. These City forecasts were revised downward last month after HMV warned of disappointing sales and halved its dividend.

Without the dividend cut, saving an estimated £13m, and the recent sale of the group's Oxford Street store for £14m, HMV would have struggled even harder to meet its April loan covenant test. Last year it spent £162m on rent, so shutting stores is expected to play a vital role in reducing fixed costs. The average length of lease is seven years, suggesting the downsizing process should be relatively painless.

Fox said he hoped closures would be done with "minimal" redundancies, as sites to be shut would largely be in areas where HMV and Waterstone's already have a presence, allowing staff to transfer to other outlets within the group. He cited the closure of one of four stores in Nottingham, by way of example, noting that about 70% of sales from the site migrated to the city's three remaining HMVs. Some analysts have pressed Fox to open more dual branded HMV/Waterstone's stores, having already piloted three such sites. The HMV boss said these were working well and there could be more combined sites in stores that have the space.

Asked if selling Waterstone's to ease HMV's debt concerns was under consideration, Fox said: "No part of the business is for sale. The turnaround is on track [at Waterstone's]. We are very pleased with the performance." Hinting at the rapid shift in consumer habits, with more and more sales of books, DVDs and music occurring online, Fox said: "The pace of change in the markets in which we operate underlines the urgency with which we must continue to transform this business."




European nations begin seizing private pensions
by Jan Iwanik - Christian Science Monitor

Hungary, Poland, and three other nations take over citizens' pension money to make up government budget shortfalls.

People’s retirement savings are a convenient source of revenue for governments that don’t want to reduce spending or make privatizations. As most pension schemes in Europe are organised by the state, European ministers of finance have a facilitated access to the savings accumulated there, and it is only logical that they try to get a hold of this money for their own ends. In recent weeks I have noted five such attempts: Three situations concern private personal savings; two others refer to national funds.

The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse. They could either remit their individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it). In this extortionate way, the government wants to gain control over $14bn of individual retirement savings. The Bulgarian government has come up with a similar idea. $300m of private early retirement savings was supposed to be transferred to the state pension scheme. The government gave way after trade unions protested and finally only about 20% of the original plans were implemented.

A slightly less drastic situation is developing in Poland. The government wants to transfer of 1/3 of future contributions from individual retirement accounts to the state-run social security system. Since this system does not back its liabilities with stocks or even bonds, the money taken away from the savers will go directly to the state treasury and savers will lose about $2.3bn a year. The Polish government is more generous than the Hungarian one, but only because it wants to seize just 1/3 of the future savings and also allows the citizens to keep the money accumulated so far.

The fourth example is Ireland. In 2001, the National Pension Reserve Fund was brought into existence for the purpose of supporting pensions of the Irish people in the years 2025-2050. The scheme was also supposed to provide for the pensions of some public sector employees (mainly university staff). However, in March 2009, the Irish government earmarked €4bn from this fund for rescuing banks. In November 2010, the remaining savings of €2.5bn was seized to support the bailout of the rest of the country.

The final example is France. In November, the French parliament decided to earmark €33bn from the national reserve pension fund FRR to reduce the short-term pension scheme deficit. In this way, the retirement savings intended for the years 2020-2040 will be used earlier, that is in the years 2011-2024, and the government will spend the saved up resources on other purposes. It looks like although the governments are able to enforce general participation in pension schemes, they do not seem to be the best guardians of the money accumulated there.




China Rare Earths Leave Toxic Trail to Toyota, Vestas
by Stuart Biggs - Bloomberg

Rare earth metals are key to global efforts to switch to cleaner energy -- from batteries in hybrid cars to magnets in wind turbines. Mining and processing the metals causes environmental damage that China, the biggest producer, is no longer willing to bear.

China’s rare earth industry each year produces more than five times the amount of waste gas, including deadly fluorine and sulfur dioxide, than the total flared annually by all miners and oil refiners in the U.S. Alongside that 13 billion cubic meters of gas is 25 million tons of wastewater laced with cancer-causing heavy metals such as cadmium, Xu Xu, chairman of the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters, said at a Beijing conference on Dec. 28.

"China supplied the world with very cheap and good-quality rare earths for more than a decade at the cost of depleting its resources and damaging its environment," Wang Caifeng, who heads the government-affiliated China Association for Rare Earths, said at the conference. "The world should thank China."

With China now shutting down unregulated rare earth mines and slashing exports, users from Toyota Motor Corp. to Vestas Wind Systems A/S, the world’s biggest maker of wind turbines, are concerned that supplies may be constrained. China provides more than 95 percent of global shipments of the 17 rare earth metals, also used in mobile phones, catalysts to reduce automobile exhaust emissions and energy-saving electronics. The government cut export quotas for the first half of 2011 by 35 percent last month. That follows a 72 percent reduction in the second half of 2010, causing the price of some of the metals to more than double.

Mining companies including Lynas Corp. from Australia and Molycorp Inc. in the U.S. plan to make up the supply shortfall. Molycorp said Nov. 1 it restarted processing at a mine in Mountain Pass, California, that closed in 2002. That mine had its own environmental problems, resulting in Molycorp, then a unit of Unocal Corp., paying $1.6 million to settle with state agencies after toxic wastewater leaks in the 1990s.

With rare earths in short supply, Molycorp shares more than tripled last year on the New York Stock Exchange. Lynas also more than tripled on the Australia Securities Exchange in 2010. Vestas uses the rare earth neodymium in magnets for its V112 wind turbine, which enters production next year, Michael Holm, a spokesman, said in a telephone interview.

Toxic Leakage
Rare earth metals aren’t rare. Cerium used in batteries and to cut auto emissions, is more common than copper in the earth’s crust, according to the U.S. Geological Survey Minerals Yearbook. The metals got the name because they are difficult to extract, unlike concentrated deposits of copper or gold ore. The Baotou region in Inner Mongolia produces about half of China’s annual output of 120,000 tons of rare earths, with Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. being the country’s biggest producer.

A four-story tailing dam containing radioactive waste 12 kilometers (7 miles) from Baotou has been "a serious problem" and polluted rivers, Chen Zhanheng, director of the academic department of the Chinese Society of Rare Earths, said in an interview. Baotou Steel Group, which operates the Baiyun Ebo mine, has spent 500 million yuan ($75 million) with the local government to relocate five villages after seepage from the dam polluted agricultural land and drinking water, China’s official Xinhua News Agency reported on Nov. 7.

Uranium Disposal
"All rare earth ores contain uranium and thorium, which could pose a danger if not disposed of responsibly," said Dudley J Kingsnorth, who managed Australia’s Mount Weld rare earths project for Ashton Mining of Canada Inc. for 10 years. He’s now an independent consultant on the metals. Rare earths require more chemicals to separate than base metals such as copper, zinc and lead, said Bernd Lottermoser, a professor of environmental earth sciences at James Cook University in Queensland, Australia.

China toughened regulations in 2009 and set production quotas to bolster prices. Subsequent export restrictions combined with rising demand have caused the price of neodymium, used in Toyota’s Prius hybrid car, to surge four-fold to $80 a kilogram from $19.12 in 2009, according to Lynas. The world excluding China will require 55,000 to 60,000 tons of rare-earth metals this year, of which as much as 24,000 tons will come from China, Molycorp’s Chief Executive Officer Mark Smith said in a Jan. 3 interview on Bloomberg Radio. The company may double its planned production to 40,000 tons in 2012 to help meet global demand, he said. Sydney-based Lynas is building a A$550 million ($550 million) rare earths project at Mount Weld, Western Australia.

Devil You Know
Molycorp’s mine won a San Bernardino County permit in 2004 to operate for 30 years and passed another inspection in 2007. Processing improvements at that California mine will almost cut in half the amount of raw ore needed to produce the same amount of rare earth oxides, Molycorp’s Smith said during testimony to the U.S. House Science and Technology Committee in March. Water recycling and treatment processes will reduce the mine’s fresh water usage by 96 percent, he said.

"This is one that could be reopened with strong regulatory and environmental oversight," Glenn Miller, professor of natural resources and environmental science at the University of Nevada-Reno, said in a phone interview. "A lot of these metals are used for environmental purposes that are really important," Miller said. "It’s far better to reopen this mine, where you have a known geological deposit, than go into a new country."




Suicides in India Revealing How Men Made a Mess of Microcredit
by Yoolim Lee and Ruth David - Bloomberg

Tanda Srinivas was lounging in the yard of his two-room house in the southern Indian village of Mondrai shortly after noon on Oct. 28 when his wife, Shobha, burst out of the door covered in flames and screaming for help.

The 30-year-old mother of two boys had poured 2 liters of kerosene on herself and lit a match. The couple had argued bitterly the day before over how they would repay multiple loans, including those from microlenders who had lent small sums to dozens of villagers, says Venkateshwarlu Masram, a doctor who called for the ambulance. Shobha, head of several groups of women borrowers, was being pressured to pay interest on her 12,000 rupee ($265) loan. Lenders also were demanding that she cover for the other women, even though the state had restricted microfinance activities two weeks earlier, Bloomberg Markets magazine reports in its February issue.

When Srinivas, 35, tried to snuff out the flames with a blanket, his polyester clothes caught fire. Within three days, both parents were dead, leaving their sons orphans. Now, on this November morning, the boys’ ailing 70-year-old grandfather and blind grandmother say they are caring for Aravind, 10, and Upender, 13, in the farming village where many men earn a living gathering palm extract to make alcoholic beverages. None of the boys’ relatives can support them full time, says their 60-year-old grandmother, Saiamma, breaking into tears.

The horrific scene in Mondrai, 80 kilometers (50 miles) from the city of Warangal, has played out in dozens of ways across Andhra Pradesh, India’s fifth-largest state by area and the site of about a third of the country’s $5.3 billion in microfinance loans as of Sept. 30. More than 70 people committed suicide in the state from March 1 to Nov. 19 to escape payments or end the agonies their debt had triggered, according to the Society for Elimination of Rural Poverty, a government agency that compiled the data on the microfinance-related deaths from police and press reports.

Andhra Pradesh, where three-quarters of the 76 million people live in rural areas, suffered a total of 14,364 suicide cases in the first nine months of 2010, according to state police. A growing number of microfinance-related deaths spurred the state to clamp down on collection practices in mid-October, says Reddy Subrahmanyam, principal secretary for rural development. "Every life is important," he says.

Perverse Turn
On Nov. 8, police arrested two managers of lender Share Microfin Ltd. on allegations of abetting another suicide, this one of a 22-year-old mother. Share Microfin didn’t respond to requests for comment on this story. As India struggles to provide decent education, health care and jobs to millions still locked in poverty, microlending -- the loaning of small sums to the world’s neediest people to help them earn a living -- has taken a perverse turn.

Microcredit has become "Walmartized" by unrestrained selling of cheap products to the poor, says Malcolm Harper, chairman of ratings company Micro-Credit Ratings International Ltd. in Gurgaon, India. "Selling debt is like selling drugs," says Harper, 75, the author of more than 20 books on microfinance and other topics. "Selling debt to illiterate women in Andhra Pradesh, you’ve got to be a lot more responsible."

K. Venkat Narayana, an economics professor at Kakatiya University in Warangal, has studied how microfinance lenders persuaded groups of women to borrow. "Microfinance was supposed to empower women," he says. "Microfinance guys reversed the social and economic progress, and these women ended up becoming slaves." India’s booming microlending industry is part of a global phenomenon that began as a charitable movement but now attracts private capital seeking growth and high returns.

Banco Compartamos SA, a former nonprofit that’s now the largest lender to Mexico’s working poor, raised about $467 million in its 2007 initial public offering. The August IPO of SKS Microfinance Ltd., India’s biggest microlender, drew further attention to the industry. SKS began operating in 1998 as a nongovernmental organization led by Vikram Akula, 42, an Indian-American with a Ph.D. in political science from the University of Chicago. The company raised 16.3 billion rupees by selling 16.8 million shares at 985 rupees each. SKS shares peaked at 1,404.85 rupees on Sept. 15. As of Dec. 28, they’d fallen to 652.85 rupees.

Andhra Pradesh Crisis
On Oct. 15, the government of Andhra Pradesh imposed restrictions that bar microlenders’ collection agents from visiting borrowers and required companies to get local authorities’ approval for new loans. The rules have crippled lending and repayments. Loan collection levels in the state have dropped to less than 20 percent from 98 percent previously, according to an industry group.
The upheaval in Andhra Pradesh is a long way from the vision of Muhammad Yunus.

The former economics professor won the Nobel Peace Prize in 2006 for his pioneering work in Bangladesh providing small sums to entrepreneurs too poor to get bank loans. Yunus, 70, discovered more than three decades ago that when you lend money to women in poverty, they can begin to earn a living, and most of them will pay you back. Yunus started the Grameen Bank Project in 1976 to extend banking services to the poor. Since then, it has lent $9.87 billion and recovered $8.76 billion; 97 percent of its 8.33 million borrowers are female.

Yunus says he’s not against making a profit. But he denounces firms that seek windfalls and pervert the original intent of microfinance: helping the poor. The rule of thumb for a loan should be the cost of funds plus 10 percent, he says. "Commercialization is the wrong direction," Yunus says, speaking in a telephone interview from Bangladesh’s capital of Dhaka. "An initial public offering is the triggering point for making a lot of money personally as well as for the company and shareholders."

David Gibbons, chairman of Cashpor Micro Credit, a nonprofit microlender to the poorest women in India’s Uttar Pradesh and Bihar states, says public, for-profit lenders face a conflict. "They have to decide between the interests of their customers and interests of their investors," he says. Gibbons, 70, says he learned that lesson when he tried to raise 4 million pounds ($6.2 million) from two wealthy London- based nonresident Indian investors in November 2006. Talks failed because of differences over expectations for returns on equity and other contract terms, he says. "That’s what made me think this just can’t be done," he says.

Indian microlenders differ from Yunus’s Grameen Bank in key ways. To protect depositors’ money after bankruptcies among nonbanking financial companies in the early 1990s, India’s Reserve Bank in 1997 made it more difficult for them to meet the requirements needed to take deposits from the public. Only 36 microlenders are registered as nonbank financial companies, according to information supplied by the Reserve Bank.

Indian microlenders themselves borrow from banks at 13 percent or more on average and extend credit to the poor. They charge interest rates that can rise to 36 percent, says Alok Prasad, chief executive officer of the Microfinance Institutions Network, which represents 44 microlenders. He says all 44 firms are registered with the Reserve Bank. SKS Microfinance gets funds at about 12 percent interest and lends at 24.52 percent in Andhra Pradesh, spokesman Atul Takle says.

In Bangladesh, Grameen Bank got a banking license in 1983, which allowed it to take deposits. It charges 5 percent for education loans and 8 percent for housing loans. Beggars can borrow for free, and interest on major loans is capped at 20 percent, Yunus says. "Microfinance has been abused and distorted," he says. "I feel so sad because that’s not the microcredit I have created." Indian microfinance has roots in decades-old informal community financing. Nongovernmental organizations pioneered cooperative lending, known today as self-help groups, with seed money from the National Bank for Agriculture and Rural Development. Encouraged by these projects, the state-backed bank worked to tie borrowing groups to local bank branches in 1992.

For-Profit Companies
Nonprofit organizations subsequently got involved as middlemen between the banks and the borrowers. By 2005, nonprofits such as SKS and Share Microfin had turned themselves into profit-making enterprises. Akula’s SKS attracted investors such as Khosla Ventures, Sun Microsystems Inc. co-founder Vinod Khosla’s venture capital firm. Capital flowed into the new industry from commercial banks, venture firms and private equity. Sequoia Capital, in Menlo Park, California, and Bangalore- based Infosys Technologies Ltd. Chairman N.R. Narayana Murthy were among the backers. George Soros’s Quantum Fund has a 0.37 percent stake in SKS. Private-equity investors alone have put $515 million into Indian microfinance companies since 2006, research service Venture Intelligence says.

More than half of the 66 Indian microlenders tracked by Micro-Credit Ratings are for-profit firms. Some 260 microlenders had 26.7 million borrowers and 183.44 billion rupees of loans outstanding as of March, according to the Microfinance India State of the Sector Report 2010. "Over the last two years, we’ve been seeing explosive growth," says N. Srinivasan, who wrote the report. "Microfinance institutions found that it’s easy to make money. Not that making money is bad, but when you go overboard and say you require money for growth, you get into problems."

Polelpaka Pula, a mother of two, says she saw microlenders rushing into her village of Pegadapalli to compete for business -- with tragic results. Her husband, Prakash, a painter who made 250 rupees on a good day, first borrowed from a group of villagers to build a house. Each participant of the so-called chit fund contributed 1,000 rupees a month and took a turn collecting the entire sum. Microfinance officers from L&T Finance Ltd., Spandana Sphoorty Financial Ltd., Share Microfin and SKS began offering loans in the village starting in 2004, she says. The couple, already contributing to their village fund, took five more loans totaling 64,000 rupees. That saddled them with payments of 7,300 rupees a month, more than Prakash’s 5,000 rupee maximum monthly income.

When Prakash ran out of microlenders to borrow from, he went to a village loan shark, who charged 100 percent interest. With no way out and debt from multiple lenders ballooning, Prakash hanged himself in November 2009, his wife says. The small house he’d dreamed of was never completed. Only the foundation stands next to the home of his parents, a tiny structure with a roof of palm leaves. Spandana says that neither of the couple’s names is in its database. The company says the media wrongly attribute harassment cases to microfinance, especially when Spandana is mentioned. "The trigger factors for suicide are manifold, such as stressful situations at home," the company said in an e-mail response to questions about the death.

SKS spokesman Takle says its staff has practiced responsible lending for the past 12 years. Its employees are not paid based on the loan size or repayment percentage. "This ensures against giving out larger loans than what a borrower can repay," Takle says. A spokesman for L&T Finance declined to comment. Overlending in Andhra Pradesh calls to mind the U.S. subprime crisis, says Lakshmi Shyam-Sunder, director of corporate risk at International Finance Corp. in Washington, which invests in microlenders. "Subprime lending was initially seen as extending homeownership to poorer people, doing good," Shyam-Sunder says.

As the industry expanded, making a profit became more important to some lenders, she says. "Tension arises when you work on activities with both social goals as well as commercial interests," she says, adding that it’s important to strike the right balance. Companies chasing profits amid poor corporate governance are undermining the intent of microfinance, Cashpor’s Gibbons says.

During the past five years, the number of microloans in India has soared an average of 88 percent a year and borrower accounts have climbed 62 percent annually, giving India the world’s largest microfinance industry, Micro-Credit Ratings says. "This is unrestrained consumer lending gone wild," Gibbons says. "It’s not about poverty reduction anymore." Sumir Chadha, managing director at Sequoia Capital India Advisors Pvt., says that without a profit motive it’s hard to find anyone who will lend to the poor.

"Capitalism doesn’t have to be a bad thing," says Chadha, whose firm has a 14 percent stake in SKS. "If you can’t profit off the poor, it means that no companies will service the poor -- and then they will be worse off than earlier."

For Chand Bee, a 50-year-old who led three borrowing groups in Andhra Pradesh, too many loans almost became her undoing. She says she ran away from home after collectors began harassing her. She took out multiple loans beginning in 2005, and she names Spandana as one of the lenders. Some of the money paid for the funeral of her eldest son. When she fell behind on payments, she says loan officers threatened to humiliate her in front of neighbors and pressed her to sell her small grandchildren into prostitution. She left her slum in Warangal, where she lived with her deaf husband, some of her eight grown children and more than a dozen grandchildren.

After living as a beggar for a year, Chand Bee returned home in early November when family members told her that the state ordinance that went into effect on Oct. 15 had suspended some collections. A Spandana spokeswoman says none of the company’s four customers in the district with the name Chand Bee has had trouble repaying. Almost every household in the slum of 250 people -- where barefoot children play in lanes between rows of dilapidated shacks -- has taken several loans. So many microlenders ply their trade that residents refer to them by the days they collect: Monday company, Tuesday company and so on.

Rabbani, a widow with four children, is one of the few women who are debt-free. She started a spice shop with two loans, which she repaid with her small profit. After seeing her neighbors’ pains, she vowed never to seek another microloan. SKS says 17 of its clients have committed suicide, none because of loans being in arrears or harassment. "Suicide is a complex issue," Akula says.

Sitting in the second-floor conference room of SKS’s seven- story headquarters in Hyderabad, where posters of smiling women running handicraft and tailor shops decorate the doors of elevators, Akula says there’s nothing wrong with seeking profits. "What does it matter to a poor woman how much an investor makes?" says Akula, dressed in his trademark knee-length kurta shirt from Fabindia, a seller of ethnic clothes made by rural craftsmen. "What matters to her is that she gets a loan on time at a reasonable rate that allows her to earn higher income."

Turning SKS into a commercial venture allowed the firm to tap an unlimited pool of funds from private investors. That, in turn, let the company grow and reduce rates, Akula says. "Interest rates have come down over time," he says. "Because it works, she comes back year after year," he says of his customers. His autobiography, "A Fistful of Rice" (Harvard Business Review Press, 2010), provides a glimpse of the expansion drive.

Akula, a former McKinsey & Co. consultant, studied McDonald’s Corp. and Burger King Holdings Inc. in 2005 to learn about their speedy training of unskilled workers. He devised a two-month course to train as many as 1,000 new loan officers a month. "I now had one goal for SKS; to grow, grow, grow as fast as we could," he writes. "We could practice microfinance in a way that would serve more poor people than anyone had ever thought possible." Akula says the commercial model of microfinance isn’t the only way. "It’s an important complement to other forms of finance," he says. New microfinance companies don’t spend time to build trust, Akula says. "As an industry, we need to go back to our roots," he says.

The Reserve Bank is scheduled to report on the industry in January. The finance ministry is planning new rules. Sequoia Capital’s Chadha says he’s concerned about "regulatory uncertainty" created by the state ordinance and prefers federal regulation. Nationwide rules would prevent individual states from damaging credit discipline by waiving loans, Microfinance Institutions’ Prasad says. "It is no different than needing good regulation for stock investing or starting a manufacturing facility," SKS investor Khosla says.

From Yunus’s perspective, it’s essential that the industry move away from seeking maximum profits and get back to focusing on the poor. "If not, you are not helping poor people’s lives," he says. "You are not patient. You are not restrained. You don’t have empathy for the people. You are just using them to make money. That’s what blinds you when you are in the profit-making world. We need to see the people, not profit."

Any such changes would be too late for Atthili Padma and Shivalingam, a young couple in Andhra Pradesh’s cotton-farming village of Chennampalli. Padma, a 22-year-old mother of two, walked out of her house on Oct. 7 with her 18-month-old son and 4-year-old daughter, according to Maruthi Prasad, a superintendent at the police station in Shankarampet. Instead of heading to her parents’ house as she often did, she walked 2 kilometers in the opposite direction. She came to an old Hindu temple where villagers worship Lord Shiva, the god of destruction. Padma continued until she stood in front of a well once used to irrigate crops, her father-in-law, Pochaiah, says. There, with no one to dissuade her, she jumped into the well with her children.

The day before she died, Padma had visited her parents after arguing with her husband over loans they couldn’t repay, according to Mangamma, the couple’s neighbor. Their marriage five years ago was arranged by their parents and the couple had become close and hadn’t fought before that day, Mangamma says. The loans totaled 20,000 rupees, Pochaiah says. Padma’s death is recorded as a microfinance-related suicide in the list by the Society for Elimination of Rural Poverty.

Police arrested Padma’s husband, Shivalingam, on Oct. 13 for allegedly abetting Padma’s suicide. They also alleged that he’d harassed her to provide money to marry him, which is illegal in India, according to Narayana, a constable at the Shankarampet police station. Police made two further arrests on Nov. 8: Share Microfin managers Sriram Raghavender, 27, and Polapalli Kumaraswami, 22, also for allegedly abetting the suicide, according to superintendent Prasad. The two managers and Shivalingam have been released on bail and are awaiting a court hearing, Prasad says.

Advocates and investors such as Khosla say microfinance -- when it works correctly -- is the best way to give the rural poor a shot at better lives. The tragedies in India present the worst possible outcome, says Cashpor’s Gibbons, whose Nov. 15 speech opened a morning session of the annual Microfinance India Summit in New Delhi. "This is a sad day for microfinance," said Gibbons, who has promoted the movement for the past two decades. "Often people asked me, ‘What are you doing here?’" he told the audience. "I’ve been always proud to say, ‘I’m doing microfinance.’ Now, when people ask, I feel embarrassed. I feel like hiding somewhere."




To Beat Back Poverty, Pay the Poor
by Tina Rosenberg - New York Times

The city of Rio de Janeiro is infamous for the fact that one can look out from a precarious shack on a hill in a miserable favela and see practically into the window of a luxury high-rise condominium.  Parts of Brazil look like southern California.  Parts of it look like Haiti.  Many countries display great wealth side by side with great poverty.  But until recently, Brazil was the most unequal country in the world. Today, however, Brazil’s level of economic inequality is dropping at a faster rate than that of almost any other country.  Between 2003 and 2009, the income of poor Brazilians has grown seven times as much as the income of rich Brazilians.  Poverty has fallen during that time from 22 percent of the population to 7 percent.

Contrast this with the United States, where from 1980 to 2005, more than four-fifths of the increase in Americans’ income went to the top 1 percent of earners. Productivity among low and middle-income American workers increased, but their incomes did not.  If current trends continue, the United States may soon be more unequal than Brazil. Several factors contribute to Brazil’s astounding feat.  But a major part of Brazil’s achievement is due to a single social program that is now transforming how countries all over the world help their poor.

The program, called Bolsa Familia (Family Grant) in Brazil, goes by different names in different places. In Mexico, where it first began on a national scale and has been equally successful at reducing poverty, it is Oportunidades. The generic term for the program is conditional cash transfers.  The idea is to give regular payments to poor families, in the form of cash or electronic transfers into their bank accounts, if they meet certain requirements.  The requirements vary, but many countries employ those used by Mexico: families must keep their children in school and go for regular medical checkups, and mom must attend workshops on subjects like nutrition or disease prevention.  The payments almost always go to women, as they are the most likely to spend the money on their families.  The elegant idea behind conditional cash transfers is to combat poverty today while breaking the cycle of poverty for tomorrow.

Most of our Fixes columns so far have been about successful-but-small ideas.  They face a common challenge:  how to make them work on a bigger scale.  This one is different.  Brazil is employing a version of an idea now in use in some 40 countries around the globe, one already successful on a staggeringly enormous scale. This is likely the most important government antipoverty program the world has ever seen.  It is worth looking at how it works, and why it has been able to help so many people.

In Mexico, Oportunidades today covers 5.8 million families, about 30 percent of the population.  An Oportunidades family with a child in primary school and a child in middle school that meets all its responsibilities can get a total of about $123 a month in grants.  Students can also get money for school supplies, and children who finish high school in a timely fashion get a one-time payment of $330.

Bolsa Familia, which has similar requirements, is even bigger.  Brazil’s conditional cash transfer programs were begun before the government of President Luiz Inacio Lula da Silva, but he consolidated various programs and expanded it. It now covers about 50 million Brazilians, about a quarter of the country.   It pays a monthly stipend of about $13 to poor families for each child 15 or younger who is attending school, up to three children.  Families can get additional payments of $19 a month for each child of 16 or 17 still in school, up to two children.  Families that live in extreme poverty get a basic benefit of about $40, with no conditions.

Do these sums seem heartbreakingly small?  They are.  But a family living in extreme poverty in Brazil doubles its income when it gets the basic benefit.   It has long been clear that Bolsa Familia has reduced poverty in Brazil.  But research has only recently revealed its role in enabling Brazil to reduce economic inequality.

The World Bank and the Inter-American Development Bank are working with individual governments to spread these programs around the globe, providing technical help and loans.   Conditional cash transfer programs are now found in 14 countries in Latin America and some 26 other countries, according to the World Bank. (One of the programs was in New York City — a small, privately-financed pilot program called Opportunity NYC.  A preliminary evaluation showed mixed success, but it is too soon to draw conclusions.)  Each program is tailored to local conditions.  Some in Latin America, for example, emphasize nutrition.  One in Tanzania is experimenting with conditioning payments on an entire community’s behavior.

The program fights poverty in two ways.  One is straightforward:  it gives money to the poor.  This works.  And no, the money tends not to be stolen or diverted to the better-off.   Brazil and Mexico have been very successful at including only the poor.  In both countries it has reduced poverty, especially extreme poverty, and has begun to close the inequality gap. The idea’s other purpose — to give children more education and better health — is longer term and harder to measure.  But measured it is — Oportunidades is probably the most-studied social program on the planet.  The program has an evaluation unit and publishes all data. There have also been hundreds of studies by independent academics. The research indicates that conditional cash transfer programs in Mexico and Brazil do keep people healthier, and keep kids in school.

In Mexico today, malnutrition, anemia and stunting have dropped, as have incidences of childhood and adult illnesses.  Maternal and infant deaths have been reduced.  Contraceptive use in rural areas has risen and teen pregnancy has declined.  But the most dramatic effects are visible in education.  Children in Oportunidades repeat fewer grades and stay in school longer.  Child labor has dropped.  In rural areas, the percentage of children entering middle school has risen 42 percent.  High school inscription in rural areas has risen by a whopping 85 percent. The strongest effects on education are found in families where the mothers have the lowest schooling levels.  Indigenous Mexicans have particularly benefited, staying in school longer.

Bolsa Familia is having a similar impact in Brazil.  One recent study found that it increases school attendance and advancement — particularly in the northeast, the region of Brazil where school attendance is lowest, and particularly for older girls, who are at greatest risk of dropping out. The study also found that Bolsa has improved child weight, vaccination rates and use of pre-natal care.

When I traveled in Mexico in 2008 to report on Oportunidades, I met family after family with a distinct before and after story.   Parents whose work consisted of using a machete to cut grass had children who, thanks to Oportunidades, had finished high school and were now studying accounting or nursing.  Some families had older children who were malnourished as youngsters, but younger children who had always been healthy because Oportunidades had arrived in time to help them eat better.  In the city of Venustiano Carranza, in Mexico’s Puebla state, I met Hortensia Alvarez Montes, a 54-year-old widow whose only income came from taking in laundry.  Her education stopped in sixth grade, as did that of her first three children.  But then came Oportunidades, which kept her two youngest children in school.   They were both finishing high school when I visited her.  One of them told me she planned to attend college.

Outside of Brazil and Mexico, conditional cash transfer programs are newer and smaller. Nevertheless, there is ample research showing that they, too, increase consumption, lower poverty, and increase school enrollment and use of health services. If conditional cash transfer programs are to work properly, many more schools and health clinics are needed.   But governments can’t always keep up with the demand — and sometimes they can only keep up by drastically reducing quality.   If this is a problem for medium-income countries like Brazil and Mexico, imagine the challenge in Honduras or Tanzania.

For skeptics who believe that social programs never work in poor countries and that most of what’s spent on them gets stolen, conditional cash transfer programs offer a convincing rebuttal.  Here are programs that help the people who most need help, and do so with very little waste, corruption or political interference. Even tiny, one-village programs that succeed this well are cause for celebration.  To do this on the scale that Mexico and Brazil have achieved is astounding.




Youths riot in Algeria over high food prices
by Aomar Ouali - AP

Riots over rising food prices and chronic unemployment spiraled out from Algeria's capital on Thursday, with youths torching government buildings and shouting "Bring us Sugar!" Police helicopters circled over Algiers, and stores closed early. Security officers blocked off streets in the tense working-class neighborhood of Bab el-Oued, near the capital's ancient Casbah, and areas outside the city were swept up in the rampages. The U.S. Embassy issued a warning to Americans in Algeria to "remain vigilant" and avoid crowds.

Riots on Wednesday night in the neighborhood saw a police station, a Renault car dealership and other buildings set ablaze. Police with tear gas fired back at stone-throwing youths through the night. Wednesday's violence started after evening Muslim prayers. It came after price hikes for milk, sugar and flour in recent days, and amid simmering frustration that Algeria's abundant gas-and-oil resources have not translated into broader prosperity.

Youths resumed their outbursts Thursday afternoon. Violence erupted across town in the El Harrach neighborhood, where youths set tires on fire and threw stones at police. Some officers were seen rounding up suspected troublemakers. In the suburb of Rouiba, youths set fire to tires and danced around them, chanting "Bring us sugar!" Others tore down street signs and smashed streetlights with iron bars. In the suburb of Bordj El Bahri east of Algiers, rioters set fire to a post office. In nearby Dergana, youths set a town hall alight.

The violence led to blocked roads and kept schoolchildren and workers from getting home. Parents were heard talking to their children on cell phones, urging them to seek safety. Algeria is still recovering from an insurgency that ravaged the country throughout the 1990s after the army canceled 1992 elections that fundamentalists were expected to win. Bab el-Oued is a former stronghold of that group, the now-banned Islamic Salvation Front, or FIS. "They are right, these young people. They have no job, no housing, no visa (for other countries) and now not even bread or milk," said Amara Ourab, a resident of the neighborhood in her 50s.

Neighboring Tunisia has also seen violent protests in recent weeks over unemployment, leading to three deaths. The unrest in Tunisia began when a young man set himself on fire Dec. 17 in the Sidi Bouzid region after police confiscated the fruits and vegetables he sold without a permit. The man had a university degree but no steady work, and his hardship resonated with many in Tunisia, where unemployment stands at 14 percent but is much higher outside the capital.




EUtopia: Free town 'by people, for people' battles Big Brother
by







Peak Oil and a Changing Climate
by The Nation

Peak Oil is the point at which petroleum production reaches its greatest rate just before going into perpetual decline. In "Peak Oil and a Changing Climate," a new video series from The Nation and On The Earth productions, radio host Thom Hartmann explains that the world will reach peak oil within the next year if it hasn’t already. As a nation, the United States reached peak oil in 1974, after which it became a net oil importer.

Bill McKibben, Noam Chomsky, Nicole Foss, Richard Heinberg and the other scientists, researchers and writers interviewed throughout "Peak Oil and a Changing Climate" describe the diminishing returns our world can expect as it deals with the consequences of peak oil even as it continues to pretend it doesn’t exist. These experts predict substantially increased transportation costs, decreased industrial production, unemployment, hunger and social chaos as the supplies of the  fuels on which we rely dwindle and eventually disappear.

Chomsky urges us to anticipate the official response to peak oil based on how corporations, news organizations and other institutions have responded to global warming: obfuscation, spin and denial. James Howard Kunstler says that we cannot survive peak oil unless we "come up with a consensus about reality that is consistent with the way things really are." This documentary series hopes to help build that consensus.



ONLINE NOW:
Peak Oil and a Changing Climate: An Introduction
Featuring Bill McKibben, Noam Chomsky, Nicole Foss, Richard Heinberg and more

January 12:
Richard Heinberg
January 19:
Nicole Foss
January 26:
James Howard Kunstler
February 2:
Dmitry Orlov
February 9:
Noam Chomsky
February 16:
Bill McKibben
February 23:
Greg Palast
March 2:
Thom Hartmann
March 9:
Jean Laherrère
March 16:
Mike Ruppert


105 comments:

Ilargi said...

Just fcuking great:

President Barack Obama will appoint Gene Sperling, currently a counselor to Treasury Secretary Timothy Geithner, to replace Larry Summers as director of the National Economic Council on Friday, the Washington Post reports. Sperling will return to the same post he held under the administration of former President Bill Clinton from 1997 to 2001.

The president will make the announcement tomorrow during his visit to Thompson Creek Manufacturing in Landover, MD, a window manufacturer. While there, the president will also tour the facility and comment on the monthly employment report.

"By appointing Sperling, the president would fuel perceptions that his administration is overly close to Wall Street, installing a policymaker who has not only overseen monumental deregulation of the financial sector, but has also collected hefty paychecks from its leading firms.

The next NEC director will help determine the administration's economic policy over the next two years. Summers, who last week left his White House post for a Harvard professorship, met with the president almost daily to discuss economic decisions. Long sympathetic to Wall Street interests, Summers pushed for deregulation of financial instruments under President Clinton, a policy that experts -- and Clinton himself -- now say was misguided, contributing to the worst financial crisis since the Great Depression.

Sperling, if appointed, would be expected to take a stance similar to that of Summers and former Treasury Secretary Robert Rubin, said those familiar with his history. (Rubin became chairman of Citigroup after leaving the Clinton administration and later resigned from that post in disgrace.) Sperling worked under Rubin in the early Clinton years, when Rubin was NEC director. In Clinton's second term, during Sperling's own tenure as NEC director, Congress repealed the Glass-Steagall Act, prompting a rule-easing that allowed Citigroup to become the world's largest financial services company."

jal said...

I say ... Keep the ceiling!

Start selling off assets.

Gold ... oil reserves ...hehehe MBS (put back)

jal

Phlogiston Água de Beber said...

When I read this essay earlier today I didn't think it was particularly worthy of linking. These latest reports and Ilargi's intro made me think it might mean more than I thought.

Waterloo To Wall Street
And Everything In-between


In an essay published March 19, 2008, Paul Craig Roberts cited these statistics regarding or chances of reducing our trade imbalance.

Would you want to hold the debt of a country whose imports exceed its industrial production? According to the latest US statistics as reported in the February 28 issue of Manufacturing and Technology News, in 2007 imports were 14 percent of US GDP and US manufacturing comprised 12% of US GDP. A country whose imports exceed its industrial production cannot close its trade deficit by exporting more.

It seems clear that a destitute Usanistan will have to reindustrialise (Darn you John Cleese :) to reduce imports. Prison labor and elimination of environmental regulations would appear to be the only means of making that economically feasible.

Welcome to the Gulag!

soundOfSilence said...

@Linda from last post


I believe (based on Deer Hunting with Jesus) that he's from the Shenandoah Valley.

I significant part of my wife's practice deals with cancer (which is about as far as I'll go in that direction).

I am somewhat disinclined to play dime-store psychologist but I can well imagine the world seeming a lot smaller, a desire to be "home" ...around that which (so to speak) is most familiar.

Mister Roboto said...

Who's going to stop them? You?

The People's Poet will stop them!

zander said...

Damn you Ilargi, you fill me so full of anger.
'spose I better ring the bell.

The debt ceiling will go through the roof (intended) and like you've always said, this will simply go on...until it doesn't.

Z

PS. I'm all up for putting Basil Fawlty in charge.

Erin Winthrope said...

Facebook IPO and the next market crash.

There ain't no way in hell Facebook is going to issue stock AFTER a stock market crash. Big shots like Goldman Sachs have now made that clear.

Since Facebook IPO is now scheduled for 2012, then this market is going to rise in 2011.

Check back next year for doom.

Hombre said...

Ilargi - Great posts here!

John - You posted the wrong blog, try BI.

Linda said...

Hi John. We are all worried about the future, which is why we are here. Not the type to invest in insane oil calls, though. Are you kidding?

@Sound of Silence--Thx for the reply. It's hard to be a rebel when you're very very sick.

Mister Roboto said...

I am worried about my financial future. Is anyone else nervous out there?

I was recently diagnosed with Type 2 Diabetes, so I have rather bigger concerns on my plate WRT collapse than my "financial future". Once things get to the point where resource-intensive healthcare is no longer available for people such as myself, my days in this incarnation are going to be rather numbered. My only option is pretty much to make what peace I can with the Grim Reaper. I wish I wouldn't have been such a bloody fool when I was a twenty-something, because then perhaps I wouldn't have gotten myself into this mess!

Though I suppose the corner into which I painted myself is rather analogous to the one in which our society has painted and is still painting itself. The Archdruid's recent metaphor of industrial society speeding towards its probable future "eyes closed and pedal to the metal" is very apt. I also got a kick out of his comment that the electorate (not to mention even the Democratic Party's deeply co-dependent, perpetually self-deceiving base) is "slowly waking up to the fact that the only change they can believe in that’s coming from the Obama administration is the kind Rudy Vallee sang about in 'Brother, Can You Spare A Dime?'"

Stoneleigh said...

Loveandlight,

Type 2 diabetes can be controlled through diet. You do not have to be dependent on drugs that may be difficult to get at some point. You just need to take control of your blood sugar.

See Our Daily Bread, Or Not, As the Case May Be.

Phlogiston Água de Beber said...

Loveandlight,

I too may not make it very far into collapse if medication is not available. Recently, I was directed to the blog of a neurobiology researcher named Stephan Guyenet.

Whole Health Source

This past Monday he reported on a paleolithic diet study Paleolithic Diet Clinical Trials, Part V that showed substantial benefit for diabetics.

Here is a link to the NLM abstract of the study. A Palaeolithic diet improves glucose tolerance more than a Mediterranean-like diet in individuals with ischaemic heart disease.

I would say it is worth keeping in mind. We can let John do the worrying about finance, as it seems to be what he cares about.

Mister Roboto said...

While I'm sure a proper diet goes a long way towards managing diabetes, I would point out that Neal Barnard and the Vegan Police are also claiming that their vegan diet can effectively cure diabetes, so hopefully you'll forgive me if I'm a tad skeptical of such claims. Besides, another thing that collapse means is not having a whole lot of choice in what kind of food you get to eat, if any.

Phlogiston Água de Beber said...

Loveandlight,

You are of course right that food choices will be quite limited after things go all to hell. Especially at the soup kitchen. Your chances of survival are indeed small. But hey, "nobody gets out alive." It's your diabetes, do what you will with it.

BTW, the non-vegans have Police too.

Denise Minger

And for all concerned, Kalpa put up this graph today that just might indicate why we have so much diabetes these days.

Greenpa said...

2 things: Loveandlight: "hopefully you'll forgive me if I'm a tad skeptical"

which would be a good indication of sanity, on your part. I am deeply familiar with diabetes, and diet; since I had 2 aunts who died of Type 2 before the advent of insulin; a best friend who "mostly" controls his 2 through diet, and a son whose Type 1 appeared when he was 8.

The error diet enthusiasts often make (not Stoneleigh, of course! :-) ) is insisting that their observations work for everyone.

The reality is; YOUR physiology is not identical to mine. Ergo: it makes great sense for you to TRY, in good faith, EVERY one of the proclaimed diet fixes. There is, in fact, a good chance that one, or a combination of several, will help you out a good deal.

And be grateful for your Type 2; my Spice is currently battling MRSA - acquired we know not how, but it's the more highly transmissible "community" variant, not the strictly nosocomial. And just for fun; I'm already known to be allergic to both the antibiotics of choice. Amazing how Fate seems to have major Pointless Crap ahead, for all of us.

Item 2: ok, Ilargi, you're driving me nuts. What the hell IS that invention? I'd have to guess it's a windgenerator driving a rail car; probably powered by the wind of the speed it's making (perpetual motion achieved at last)... but it sure as heck ain't obvious to me! :-)

Phlogiston Água de Beber said...

Greenpa,

I can hardly imagine a more depressing comment from you. One of my nephews had to give up a leg to save him from MRSA. The antibiotic could suppress it, but could not kill it. My fondest hope that Spice will beat it and that you will not catch it. Be very careful, which I appreciate will be difficult in your little cabin.

May all the gods be with you.

Greenpa said...

IM - "I can hardly imagine a more depressing comment from you."

Cheer up, Brian, things could be worse!

:-)

One of my all time favorite Peanuts stories. Charlie Brown is about to fail spectacularly and publicly; his science project is due tomorrow, but he has been too terrified to speak to his assigned partner, The Little Red-haired Girl, so she has now done a project with someone else. His failure will mean he will lose his incredibly cherished position as a Crossing Guard.

As they eat lunch, Linus comments dejectedly, "Charlie Brown, I just don't see how things could possibly get worse."

Charlie Brown, looking into his lunch bag; "I do. The ants got into my peanut butter sandwich."

Be of good cheer! Things can get worse. :-)

Phlogiston Água de Beber said...

Greenpa,

You can call me Ray, or you can call me Jay :)

But, where did Brian come from?

Will said...

OK... I went to Shorpy's site and found the picture used for this posting.

I still do not know what this gizmo is and neither did any of the folks who commented on it at Shorpy's.

zander said...

@IMN

Denise Minger?? good god, I hope she's not from Manchester. :)

Anyways, I'm a (mild) UC sufferer, you got anything for me to research/read/investigate??, you font of all knowledge you.
It's under control but come the abyss a different stratagem may have to be employed.

@Lovelight

I made a very deliberate attempt to befriend a trainee pharmacist only last year, she may or may not be able to keep me going with my current UC medication, I suppose it will depend on ingredient availability.
Worth a try no?

Z.

Phlogiston Água de Beber said...

zander,

If you visit her website, you'll see she is as American as Apple Pie and lives in Portland, Oregon.

Sorry, I don't know what UC stands for. Name it and I'll see if I can find anything.

Ilargi said...

Well, the Massachusetts Supreme Court today ruled against the lenders in the case I addressed above. There may still be hope.

Banks Lose Pivotal Massachusetts Foreclosure Case

"US Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real estate law. The ruling drove down bank stocks.

The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were improperly transferred into two mortgage-backed trusts.

“We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote.

Wells Fargo, the fourth-largest U.S. lender by assets, dropped $1.10, or 3.4 percent, to $31.05 at 11:41 a.m. in New York Stock Exchange composite trading. US Bancorp declined 28 cents, or 1.1 percent, to $26.01. The 24-company KBW Bank Index fell as much as 2.2 percent after the decision was handed down."


Interesting. But the court was quite vague on another aspect:

"Today’s court decision held out the possibility of securitization documents properly transferring mortgages.

Such documents, along with “a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to be proof that the assignment was made by a party that itself held the mortgage,” Gants wrote. “However, there must be proof that the assignment was made by a party that itself held the mortgage.”


That leaves open a few doors.

It'll go to the federal Supreme Court for sure, far as I can see.

.

Greenpa said...

IM - good gracious, I thought surely that would be a culturally universal reference here:

http://www.youtube.com/watch?v=1loyjm4SOa0

Incidentally, it only just occurred to me- the ants HAVE in fact gotten into my peanut butter already!

I was reminded as I was loading firewood into the stove. Over Christmas I had a disagreement with a plastic sled; it had frozen rain on the bottom, which I decided to remove by jumping a bit forcefully on the sled. The frozen rain declined to be removed, and the sled declined to move, at all; resulting in the substantial separation of cartilage from my sternum.

Just for fun. :-)

There does come a point where the pointless perversity of the Universe drives one to humor. Gallows humor, to be sure; but humor nonetheless.

jal said...

The winners are not the borrowers.
The winners are the pension funds, 401k, and grandma.

Of course if you were smart like PIMCO, you would have bought all of the MBS that you could for pennies. Since PMCO is too big to fail, since they have lots of lawyers, and lots of accountants, and good connections, then the gov. can find a way to give 100 cent on the dollar to make PIMCO whole and then turn around and make the banks eat their shit.

ONE SPOONFULL AT A TIME.

jal

zander said...

IMN

Ulcerative colitis.

Z.

Ilargi said...

I'm going through the full legalese of the Massachusetts ruling, at Zero Hedge. Good stuff.


.

Ventriloquist said...

Ilargi said:

It'll go to the federal Supreme Court for sure, far as I can see.

Don't think so. Under US constitutional law, real estate property law is all governed at the state level. The feds have nothing to do with this whatsoever.

Sure, there may be some attempt in congress to legislate retroactively some sort of mitigation to nullify a state's decision. However, this would be going against about 400 years of common law in America which would be a virtually impossible nut to crack, as any such legislation would be tossed out on its ear by every court with a shred of respect for legal procedures.

.

Greenpa said...

While I would never recommend Krugman on theory; this bit is mostly straight reporting; and nicely ominous.

http://www.nytimes.com/2011/01/07/opinion/07krugman.html

The Anonymous said...

"Ventriloquist said...

Don't think so. Under US constitutional law, real estate property law is all governed at the state level. The feds have nothing to do with this whatsoever."

Need to go back and read your Marbury vs. Madison my friend. The words of John Marshall drilled into my mind 100 times during con law: "It is emphatically the province and duty of the judicial department to say what the law is..."

The SCT has full authority to review this case, as they have with hundreds of other property law cases -- its just that they apply state law, not federal (perhaps this is your source of confusion).

My own read is that the banks will appeal it, but the SCT will deny cert, and the case stands. We'll see...

Shamba said...

EW: Is anyone else worried about our financial future?

Answer: YES, all of us here are! and the future in general.

No joke but a smile at the obvious :).

To all of you ailing with something: I hope and pray that you will all find whatever it takes to improve your situation.

peace to all, Shamba

p01 said...

Get your weekly dose of optimism with Mish: "Haircuts And Cliff Edges":
http://www.howestreet.com/audiovideo/index.php?pl=/goldradio/index.php/mediaplayer/1877

Seriously though, he never sounded more tired.

Regards,
Paul

Stoneleigh said...

Loveandlight,

By all means be sceptical, but I strongly suggest you give it a try. What do you have to lose? What you can do through diet is control your blood sugar by not eating carbohydrates. If you are not eating things which cause your blood sugar to spike then you will not need to take extra insulin as you will not have blood sugar spikes to control.

While I am not diabetic myself, I do have a similar physiological intolerance to carbohydrates. I have lived the means to control this through diet for the past three years. I know of at least three other readers of this site (two of whom I know personally) who have similar issues (one type 2 diabetic and two with my version of carbohydrate intolerance). All four of us have managed to control our conditions by removing carbohydrates from our diets. I suggest you check out the documentary My Big Fat Diet, which deals with carbohydrate intolerance research among a particular susceptible population (First Nations people). I would also recommend Gary Taubes excellent review of a hundred years of nutritional science - Good Calories, Bad Calories.

Nassim said...

Gates drops bombshell as he announces Pentagon budget will be slashed by $78bn and Democrat labels war in Afghanistan as 'national embarrassment'

It is interesting to read the comments at the end of this article in a British newspaper - many of them by Americans.

Hayduke said...

@Loveandlight,

Dr. Richard Bernstein is a M.D. that has written several books about controlling diabetes through limiting carbohydrates. He is a Type 1 diabetic who was an engineer and then returned to school to become a doctor because of his own battles with diabetes. His book, The Diabetes Diet, is one I like to recommend to my patients that want to learn how to control their blood sugar through diet. His website is here <a href='http://www.diabetes-book.com/'

Hayduke

Gravity said...

The depicted contraption definitely operates under common gravitational heuristic, perhaps its used to overcome that thing with gravity for some purpose.

Here's a reasonable scotus ruling.

"The principal placement under maritime jurisdiction of [the proprietary affairs of] any citizen's administrative body, whether voluntary or coerced, cannot be considered legal or anywhere constitutional when it may cause, or result in, the criminal act of attempted drowning.
Whereas, the administrative action of such placement renders aforementioned capital subject to gravity precisely within the commercial parameters numerically delineating the specific gravity of capital bodies so placed in a body of administrative water under gravitoheuristic interaction induced by said state of maritime law applicable therein;
and whereas, the inalienable right to equivalent buoyancy or timely access to a seaworthy vessel hitherto remaining absent or unacknowledged; any such placement not immediately accompanied by issuance of a suitable floatation device and issuance of a warning clearly specifying the irreducible dangers of bodily harm by drowning, shall be rendered equivalent to attempted drowning of said citizen's body."

To bring about the rule of righteousness on the waters, so that the strong may not sink the weak.

Hombre said...

Nassim - Thanks. Interesting comments. Gates did not even begin to cut enough IMO.
Of course Rep. Woolsey is spot on! It has become an embarrasment. Her party has nothing to do with this as the dems have pandered right along with the destructive war policies for decades.

A great many Americans (all but the Christian Right and Limbaugh's ditto heads) have opposed these wars since their inception and are sick of it all, sick of warmaking, sick of the huge war machine budget, sick of the rationalizations, pretensions, and international aggressions.

Ilargi - I don't know what that device is but if you set it in moving water, the water would move the "cups" and the rotor of the wound gen/motor and produce some current, electricity. Generator?

Hombre said...

BTW folks with type II diabetes, my sister made great strides with diet change, is no longer on meds! Diet is a critical element.

Greenpa said...

Food riots. ho, hum.

http://www.washingtonpost.com/wp-dyn/content/gallery/2011/01/07/GA2011010704621.html

"They're rioting in Africa. la,lala,lala,la,la;
There's strife in Iran. la,lala,lala,la,la
What nature doesn't do to us, la,lala,lala,la,la
Will be done by our fellow man!"

It IS worth remembering, ail all our hurries, that much of the horror we see out in front of us, can also be seen, behind.

Hombre said...

Sis sent this advice on type II...
"It's real important to get the proper balance of protein, fats and carbohydrates...food journal, and exercise."
Good Luck!

marketsurfer said...

http://marketsurfer.blogspot.com/2010/12/wells-fargo-busted-for-overdraft-fee.html

this isn't the first time wells fargo has been accused of funny business, remember the overdraft fee timing scandal??

Gravity said...

How about lowering the debt-ceiling for once? Never been done? With no load-bearing pillars to be seen, and considering the gravity of law, soon the cause of taxes will become love of the deficit. Paying all revenue into debt-servicing won't be enough, income tax will then have to be raised to 100%, and revenue still won't be enough to outrun the interest. Gravity is the system then.
One could hyperinflate, this would surely kill hundreds of millions, if not billions. Thusly, unlimited credit begotten by disingenuous central banking is the most dangerous construct of statism ever conceived.

p01 said...

@Greenpa

In Algeria it should not last long since Friday there's the soccer match and everybody kisses and makes up...oh, wait!

Regards,
Paul

Phlogiston Água de Beber said...

zander,

Sorry to keep you waiting. I took a little excursion into Amish territory this afternoon. I have read elsewhere that gluten is somehow damaging to the GI tract. So, this page may interest you. I have recently started to cut my intake of gluten as much as possible. It is difficult in this world. I think it is helping me with my immune system disorder. If you read Denise Minger's blog, you might come to think, as I have, that wheat may be the most dangerous plant on earth. Damn those Mesopotamians! Oh wait, we already have, haven't we? :(

The Gluten Free Diet as Treatment & Cure.

Anonymous said...

It's worth noting that 'the' diet prescribed for diabetics prior to the manufacture of insulin from pigs was a high protein low carbohydrate diet.

It's also worth noting that ketosis (Dr. Atkin's word, I believe) and ketoAcidosis are not the same, although they are on a continuum. Ketosis is necessary if you want to lose weight and is a byproduct of burning fat, it's just not always measurable. Ketoacidosis is the process gone horribly to extremes.

Type 2 diabetes used to also be known as diet controlled diabetes. Often a 50 lb weight loss is all that is needed to eliminate the need for medications, for those that develop this as a result of predisposition and weight gain.

p01 said...

Obviously not in the same class of breaking news as the "Nazi-salute" dog on the first page at any news site, here's a piece of news largely (admittedly) ignored:
http://www.cbc.ca/money/story/2011/01/07/oilsands-fire-press-recap.html

Regards,
Paul

Phlogiston Água de Beber said...

Greenpa,

Sorry, I love the Pythons, but I don't wake up every morning thinking about The Life of Brian. Must be some kind of character flaw.

Anyway, my best wishes for Spice to whip that very dangerous disease and for you and Smidgen to remain uninfected.

snuffy said...

I have faith that somehow,the snakes will win this one.The stakes are too high,and too many "importent" companies will lose their asses.

It is nice to see a bit of justice once in a while from Mass.,though.Trust a state judge to gum up the works Tee-Hee

The game is rigged,and the little folk have no say nor have they control of when the wheel will stop turning.Prep,with whatever you can spare from your day-to -day expence,cause this party is about over....
..................................

About the debt limit..

It seems enough bomb-tossing ideologues were elected this time to maybe pull a "Samson" option...remember what happened last time? Repugs ended w/a lot of egg on their face.This time they could put enough instability in the system to bring on some very,very bad things.

Now think folks,these "teaparty"republicans are NOT part of the system.They are for the most part ,well meaning rightwing nutcakes.[I know,I have a family member who drove his truck to Washington for their convention.We don't speak much anymore.]

They love their country,and WILL pull whatever trigger they get their mitts on.

Watch very carefully,as I think this astro-turf organization will do a wonderful job of utterly destroying the republican party from whence is sprung,except it may take the whole ball game down too...

Maybe its time now.That future history is real optimistic.Its assuming no one start tossing thermal nukes,and china doesn't take control of the world by controlling resources...Ohh ,I forgot.They just did...

Bee good,or
Bee careful

snuffy

Phlogiston Água de Beber said...

Snuffy,

Yup. The Tea Party stands as a monument to the utter incompetence of most Usanistani little dogs to distinguish between sh*t and Shinola. Political parties do not get organized for the benefit of little dogs. That would make no sense at all. Political parties are about wealth and power. Little dogs are insufficiently interested in those things. It's always about the Big Dogs.

The Big Dogs were grudgingly willing to let the little dogs have a few bones, as long as bones were plentiful. But, they've been told that bones don't grow on trees and are getting scarce. The Tea Party is their creature and I think you have sized them up pretty darned well. Sending us little dogs to the wall won't bother the Big Dogs in the TeaPublican Party at all. Oh, maybe Boehner will shed a few tears. Apparently all he's good for.

g-minor said...

@IMN
When I read this essay earlier today I didn't think it was particularly worthy of linking. These latest reports and Ilargi's intro made me think it might mean more than I thought.

Waterloo To Wall Street
And Everything In-between


The essay you linked to starts with a legend about Nathan Rothschild, based on a French anti-Semitic pamphlet of the 1840s (http://en.wikipedia.org/wiki/Nathan_Mayer_Rothschild). Perhaps you'll reconsider the comments of an author who makes use of fraudulent "history."

g

Frank said...

@IMN
>>February 28 issue of Manufacturing and Technology News, in 2007 imports were 14 percent of US GDP and US manufacturing comprised 12% of US GDP. A country whose imports exceed its industrial production cannot close its trade deficit by exporting more.

Agriculture, mining, timber. Australia, New Zealand, Argentina, Brazil. For that matter, Hollywood movies are a valid nonindustrial export. Importing less is also a valid way of decreasing trade deficits.

Phlogiston Água de Beber said...

@ g-minor

I did say that I had initially rejected linking the article. I have visited Kirwan's website and read several of his writings. It seems that he may have some anti-semitism in his heart.

The part about Rothschild was not the reason why I linked it. Whether the story is true or not, maybe it was partially true. As in maybe he did make the play as reported, but didn't make as much money as claimed. It doesn't matter, they're all long dead. I linked it because we have, in the here and now, a group of people that seem hellbent on grabbing everything they can. The rest of Kirwan's article, written almost three years ago, seemed prescient.

We now have very well funded TeaPublicans in a position to cause massive devaluation of our assets and disruption of income streams. In spite of its defects, I think the article is germane to the current topic. If the Treasury is forced to close down, I think we might all find ourselves wishing that a Rothschild had taken control of the Fed.

Now as to your suggestion about fraudulent history. The history may or may not be fraudulent. Most history is not 100% accurate. Rest assured though that if demonizing Rothschild had been the main point of the article, I would delete the comment on the possibility that it was entirely untrue. And thanks for your link.

Frank said...

@Ilargi,

You're always one to paint in black and white with never a bit of gray. The Mass. decision is made for that. For the US Supreme Court and each justice on it, it's a little maze of black and white dots.

The US is not a European country, nor is it the EU. I'll happily expound, but that's not tonight's issue.

What is is your claim that the US Supreme court will (must) take the banks appeal from Mass. This case is dynamite. The instinct of any appellate judge is not to to take a case. If it is clearly their problem, they still like to let multiple lower courts think it through first, and if possible accept the consensus answer.

I sincerely don't believe SCOTUS will take the appeal. It would cost them more popular support than Roe v. Wade and Bush v. Gore put together. They'll let Congress try to cover the bank's asses first and then step in to cover Congress's ass.

jal said...

Frank said...
"They'll let Congress try to cover the bank's asses first and then step in to cover Congress's ass."

I've long been on the record as saying that it's not the banks that they are trying to protect.

They are trying to protect themselves from the anger of the grey swans.

Now that there is a way to give back the money to the grey swans by making the banks eat their shit ONE SPOON FULL at a time, without bring the system to a crash, it will be done.

Eventually ... some geek might get some jail time.
jal

Phlogiston Água de Beber said...

@ Frank

You make a good point. Clearly we can export things that are not industrial products. The thing is, we already do that. There isn't a whole lot of margin for increasing shipments of grain, timber, minerals or movies. I also assume and I'll bet Mr. Roberts did as well, that at least a sizable percentage of our industrial production must be consumed domestically.

So, I think he probably had it right. To bring the trade balance to equilibrium, we would have to increase industrial production. That theoretically would automatically replace some imports and hopefully gain some additional export share. To the best of my knowledge we continue to decrease industrial production.

I suppose there are other alternatives. Perhaps we could strip the topsoil off our farms and sell it to Saudi Arabia. Maybe we could round up some of the weak and unwanted and sell them as slaves. Hmm, there are rumors that we have been doing that for some time, on a fairly small scale. We still have several hundred million units available and more being produced every day.

You know Frank, I think that may be the most practical solution to our trade dilemma. A shrinking population should reduce imports and we finally have something we could put in the containers so they could be shipped back. A boon for the shippers and port workers, until it's their turn to get in the containers.

I hope the readership grasps that I am being a little bit sarcastic here.

Unknown said...

I know you people here are all for deflation, so my observation and question is this :

If the deflation of the 1930's was caused by excess liquidity ultimately being sucked up by the bond market, a liquidity sink if you will, where is such an asset class nowadays ???

There are numerous speculations on the quality of sovereign debt, that of the US included.

So where is an asset class that has the capacity to suck up any all capital, and then has the capacity to reduce that money's velocity to zero ???

Because that is the characteristics a modern liquidity sink will have to exhibit.

The only asset class that approximates this is gold. So if this hypothesis is correct, a rising gold price is DEFLATIONARY and not inflationary.

And sooner or later governments will be seduced into devaluing their currencies against gold, and in this process repair their balance sheets, and even back their bonds ...

Kate said...

Speaking of diet-controlled diabetes, I remember hearing a while back about an Australian physician who tried an experiment with a group of her older aboriginal patients. Like many native Americans, they have little to no genetic adaptation to the average western diet, so their diabetes rates are very high. All the patients were heavily insulin dependent. The experiment was to take the patients, all of whom were old enough to have experience surviving in the Australian bush, back into that bush. While under her medical supervision, they reverted to their traditional diet, which apparently entirely lacked refined carbohydrates. Over time, the doctor documented their blood sugar levels returning to normal, and after 6-8 weeks, if I recall correctly, they no longer needed insulin and she claimed she could not have diagnosed them as diabetic based on what she was observing.

I may have some minor details wrong here, since I read this at least a year ago. And I don't recall the doctor's name. But it was considered to have been a properly carried out and well documented medical experiment, and I believe published in a Australian medical journal. Might be worth looking into for any dealing with diabetes.

zander said...

@ IMN.

Thanks pal, appreciated.
The UC is well under control for now, it comes but mostly goes.
I'm lucky, some other sufferers have a torrid time, nevertheless maybes now is the time to see if I can reduce it to almost non-existence as some sufferers claim to have done, i.e. total remission and lying dormant.

@Nassim.

Problem with these little slivers of hope ('coz that's how I see any defnce spending cut ) is, you do a little digging and feel more exasperated than ever, the cuts are over 5 years, and when juxtaposed with the US annual spend - 600 billion is it ?- it starts to look like feed for chickens, also the cuts, god forbid, are not to include any reduction in spending on the big two, Iraq and Afghanistan, so troops will be returned from Outer Ugongo et al. where they were harmlessly camped up and busy killing on X-box as opposed to real life, or is it just that my cynicism Has reached Everestic heights?

Z

Ventriloquist said...

Roual said:

The only asset class that approximates this is gold. So if this hypothesis is correct, a rising gold price is DEFLATIONARY and not inflationary.

Gold has risen against the dollar for the past century -- from $20./oz. 100 years ago to ~ $1400./oz today?

But really, gold has not risen at all. It is the USD that has fallen. Twenty dollars purchased the same quantity of physical goods in 1911 that $1400. will purchase today.

You can do the exact same calculation with any other currency that has existed for the last 100 years.

So, who's to say that this continual erosion of currency valuation against gold will not go on for the next 100 years?

.

Ilargi said...

2011 is set to become a strange year, one in which we'll see things we never thought possible, things we'd never even have imagined.

A secret US grand jury that attempts to use the Patriot Act to force social media to reveal data of a Member of Parliament of a foreign and independent nation that is considered a friend.


WikiLeaks demands Google and Facebook unseal US subpoenas.


.

rcg1950 said...

Roual said... I know you people here are all for deflation, so my observation and question is this :

If the deflation of the 1930's was caused by excess liquidity ultimately being sucked up by the bond market, a liquidity sink if you will, where is such an asset class nowadays ??? ... So where is an asset class that has the capacity to suck up any all capital, and then has the capacity to reduce that money's velocity to zero ???

----------

If I understand what Stoneleigh and others have said, liquidity is the financial manifestation of confidence. That deflation is the result of liquidity disappearing is a trivial truism. Of more import is that iliquidity is the consequence of the erosion of the general level of confidence in the future. If people are fearful that the value of their assets will decline and their incomes will be lower, they will hoard whatever wealth they have in whatever form they feel is relatively safe, be that gold, bonds or paper currency in the mattress. The positive feedback of this hoarding into an ever deflating economy is obvious. The essential question then becomes, how do individuals and their aggregates (society) regain confidence in the future (a process that took 1000 years following the collapse of the ancient world). This is not so much an economic question as a philosophical, religious and moral one. Economics while important is, in my opinion, ultimately secondary and derivative. [A true science dealing with these kinds of questions would be a new kind of history/psychology. I highly recommend any and all of the works of Jose Ortega y Gasset for any interested in pursuing this line of thought. His essays entitled “History as a System” and “Concord and Liberty” are excellent introductions to his thought and work.]

Phlogiston Água de Beber said...

@ zander

No matter how cynical you become, it's never enough to keep up.

- Lily Tomlin

War has become Usanistan's principle export. One we are so anxious to corner the market on that we'll even pay the freight to ship it anywhere. The announced budget cut is pure hogwash from the Ministry of Truth. Usanistan has been reducing its soldiery for many years. They are insufficiently effective at killing and destruction. And as Bradley Manning and others have shown, not entirely reliable.

You don't hear of leaks like that coming out of Xe now do you? I'm quite confident that if anyone did, they would be promptly executed. Which may be a better outcome than Manning is getting, if someone's conscience did get the better of them. Many of the freed soldiers will probably end up at Xe. We have no jobs for them. No doubt Xe is probably paid out of some other agency's budget that will be magically increasing.

We much prefer to do our killing and destroying from the sky. Ooodles of money will continue to be spent on that. Hap Arnold and Curt LeMay must have eternal smiles on their faces, which probably annoys the hell out of Satan.

Ilargi said...

"Roual said...
I know you people here are all for deflation, so my observation and question is this :

If the deflation of the 1930's was caused by excess liquidity ultimately being sucked up by the bond market, a liquidity sink if you will, where is such an asset class nowadays ??? "


You don't need an asset class, gold or otherwise, soaking up liquidity to create deflation. In our present case, deflation is caused by vanishing debt. It simply goes POOF!, and returns to the nothingness it came from; it's not going anywhere. When a house triples in "value", and that "value" subsequently reverts to a larger (and lower) trendline, the difference between the two values doesn't "go" anywhere. It simply ceases to exist. It's called debt deflation.


.

Greenpa said...

IM - "Perhaps we could strip the topsoil off our farms and sell it to Saudi Arabia."

You're behind the times. We've been doing this already, for at least a century. Not Saudi Arabia, exactly.

This is the inside poop; from a top soil scientist, from Virginia Tech. He does his soil studies in Iowa. Because Virginia doesn't have much; it was exported to England as tobacco. (ok, only the tobacco was shipped; but the soil was disappeared as part of the process.)

Currently - it costs 2 bushels of Iowa soil to grow 1 bushel of Iowa corn.

Every year.

Export demand dramatically increases the losses. So, yes, when we export farm crops, we are actually exporting our soil, and our children's future.

And no, I'm not making this up; I didn't believe it myself, when told it was a 1:1 ratio; so I checked it with an expert. It's 2:1; soil to corn.

Just in case you didn't have enough to fret about already.

:-)

Everyone ignores it. I think the reason we ignore it goes like this:

"My GOD! That's horrifying! Why isn't the Government doing anything!?"

"Well, the export business is the only thing we have going that everybody likes. Our only source of income, really; and we sell the idea that exports are jobs. Tell me who, out there, would be happy about decreasing exports?"

"um..............."

"Exactly. So, what would YOU do about it?"

"um............................."

"Exactly. Let me know when you come up with something."

"Ok.........(I'll think about it.... later..... maybe, just maybe, it's not all that bad anyway.......



Oh, look- a squirrel!......"


And that's the end of the conversation.

Phlogiston Água de Beber said...

Greenpa,

Yes, I know all about our little erosion problem. The soil disappears down the rivers whether we export the crops or not. As the legend has it, when the sodbusters first turned the soil in the Dakotas, an old Indian looked at one of the fields and said, "wrong side up."

I don't think anybody ever said that Gaia approves of farming. If they did, I will say they were wrong. It seems to be a self-limiting activity.

Now to add fuel to the commodity exports could save us argument. We have some new information.

U.S. Commodities: Corn Falls Most in Six Weeks as Exports Stall

Commodities prices vs. Baltic Dry Index

The soil is still leaving the country, but apparently not so much of the grain.

zander said...

You would be hard pushed to out-doom this :
http://mat-rodina.blogspot.com/2010/12/2011-dark-year-ahead.html,

Have hankies, valium and razorblades close at hand before indulging.
Now I know why I usually go out for a beer on sat. night. :)
apologies if this has been posted before, I don't follow every link here.

Z.

Greenpa said...

IM: "The soil disappears down the rivers whether we export the crops or not"

yes, but no. The consensus among soil workers is that the export profits are responsible for more than 50% of actual erosion. The hope for profit drives farmers to farm more than they should, leading to tillage of steep land, etc.

Without the extra profit fantasies; million of such acres would likely be in hay/pasture.

My suggestion; let's outlaw exports for 10 years and find out.

:-)

Anonymous said...

A couple points about diet, health in general and diabetes and "itis" (inflammation related) diseases.

I'll keep this short as posting with an OpenID didn't work the last time i tried it.

Everyone is biochemically different. People are not calorimeters. Complex hormonal responses rule the day – but it is true that genetics play a huge role in determining those hormonal responses. Genetics can vary widely from person to person.

However, the goal of each individual is the same – to properly balance our cellular pro inflammatory and anti inflammatory response.

We can't change our genes, but we can change our diet. The good news is that the evidence indicates diet plays a huge role in chronic conditions like diabetes. For example, one study showed an 83% reduction in the incidence of diabetes based on the eating mostly chicken, fish, fruits, veggies, nuts and olive oil. Looking deeper into the study, you will learn that the group the had the astounding results was also the most genetically predisposed group to diabetes!

I've researched diet because I had to – I have a chronic nerve inflammation that debilitates me if my diet isn't right. I've effortlessly dropped 26 lbs of fat and water while, at the same time gained a tremendous amount of energy (I have more energy in my mid 40s than I did at 18!) and probably about 5 or 6 lbs of muscle.

My secret? The only diet designed, from the ground up, to balance the body's hormonal response so that eicosanoid (a type of hormone that controls inflammation – both pro and anti) production is balanced and health, wellness and performance is optimized.

The answer is the Zone Diet – the creation of a former PhD lipid researcher for MIT and Boston University, Dr. Barry Sears.

The Harvard doctors at the world reknown Joslin Diabetes Center finally threw in the towel on their outdated dietary guidelines in 2005 and now promote what is effectively the Zone Diet...

Link is PDF...

http://www.joslin.org/docs/Nutrition_Guideline_Graded.pdf

Not only has it worked for me, it has worked for Valentina Vezzali (only human to win 3 straight golds in fencing, her latest as a 38 year old – completely unheard of in human history, BTW), Jenny Thompson, Dara Torres, Troy Polamalu, Dean Karnazes, the Garmin cycling team, the Minnesota volleyball team, the 2004 Spanish Olympic basketball team and the oldest swimmer on the US Olympic swim team since it was introduced in 1992 – that's 5 straight years!

Not only does it help the world's best athletes maximize their performance, it also helps the world's sickest people make miraculous recoveries. Spend some time and read up on Manuel Uribe (of special note is how incredibly healthy Manuel is after losing 600 lbs!) and Randall McCloy (Sago mine disaster survivor with "miraculous" recover). Also google “Robin Scientific American Losing It”.

Anonymous said...

I know Stonleigh is enamored with the Atkins diet. The latest version of the Atkins maintenance portion of the diet is not too bad, although not as detailed as the Zone Diet – so your hormonal responses won't be as good. In short, don't expect many, if any, Olympians to use Atkins principles to achieve peak performance that requires peak hormonal responses. That said, the maintenance portion of the Atkins plan is much better than the SAD (standard American Diet).

Most people trip up in that they confuse the introductory phase (which does way more harm than good) with the maintenance phase, which is why Atkins adherents tend to trash talk carbs.

Carbs are great! Protein is great! Heart healthy fat is great! But too little or too much of either is bad and meals that aren't macronutrient balanced will lead to sub optimal hormonal responses (typically elevated insulin, elevated delta-5-desaturase enzyme, elevated omega 6 fatty acids and elevated cellular inflammation times every cell in your body.

I can't say enough about the Zone Diet. If you want to be as well as possible, check it out. Retraining diet is hard, but once accomplished, it is straightforward to Zone your way through life. The world's best athletes aren't hungry and you won't be either.

Simply put, I love my diet and wouldn't give it up even if it meant my nerve damage went away – and this is coming from someone who lost his entire 20s and 30s from nerve damage debilitation. I turned 40, cleaned up my diet and I've been off to the races ever since – my success has blown away the square root of my most optimistic estimate going into my program.

If one is emotionally attached to Atkins, you'd do well to moerate your animal fat intake and replace some of it with heart healthy monunsaturated fat, avoid vegetable oils (omega 6 fatty acids are the substrate for pro inflammatory eicosanoids) and enjoy moderate fruit and veggies with every meal.

Carbs aren't the problem, excessive carbs with high glycemic indexes (effectively elevated glycemic loads that over stimulate insulin and inflammatory responses).

Check out this link that explains how the Zone works (excuse the few typos, the information is golden):

Link is PDF...

http://drsears.com/portals/6/Documents/Inflammation%20Medical%20Brochure.pdf

And the Zone Qucik Start Guide...

http://www.zonediet.com/Tools/Quick-Start-Guide

My recommedation is to simply try the Zone Diet for 2 weeks with the caveat that any change of diet should be run by your phsycian first (especially true if you are on medication).

I love Dr. Sears Omega RX liquid, but it is expensive. I also buy Omapure fish oil (also IFOS 5 star rated) pills at about half the price.

One place that Dr. Sears misses the mark is that he doesn't promote non GMO foods. I do. So I would recommend against simply Zoning GMO foods. Do some research on GMO foods – what you find is very scary, even if the results take time to manifest.

Hombre said...

"A secret US grand jury that attempts to use the Patriot Act to force social media to reveal data of a Member of Parliament of a foreign and independent nation that is considered a friend."

Ah, isn't complexity a hoot! We are all so confused, myself included, and likely doomed as a race! It's as though civilization itself is trembling. (That would make derrick jensen happy)

Politics trumps economics, which trumps peak oil, which trumps environmental destruction! Unless of course our destructive inventions trump the whole shebang!

(BTW, why is it shebang and not hebang, that would seem more appropriate.)

Phlogiston Água de Beber said...

Greenpa,

You really do sing Brian's theme don't you. I've heard you are regarded as one of the top woody ag experts in the country. I'm not an expert on much of anything, but we do commit agriculture down here in the tall corn state. So, I have to laugh at your obviously humorous suggestion that we stop grain exports for 10 years and fallow marginal land.

Who could possibly object to that? Oh, let's see now. There's Monsanto, DuPont, Bayer, Syngenta, USDA, every grain farmer, every non-operating ag land owner and grain storage operator. Barge and bulk freighter operators. Railroads and trucking companies. John Deere, Case New Holland, Agco, Caterpillar, Kubota. Cargill and Archer Daniels Midland.

So guess what, the same acreage would be planted and processed into biofuels by congressional mandate. Gee ain't this fun. :)

I'm done on this topic, at least for now. Please keep us informed about Spice and MRSA.

Best wishes,
That Nobody Guy

Hombre said...

http://tinyurl.com/tragedy-in-Tuscon

Steve From Virginia said...

@ zander:

Seems Rodina is predicting a world with no more television.

Televisionlandia is a very sedate place ...

Steve From Virginia said...

Hmmm ...

A lot of comments over @ Shorpy about what exactly the pictured machine id and who is standing next to it ... or what the machine does.

Nothing concrete, however ...

http://www.shorpy.com/node/5364

Nassim said...


Speaking of diet-controlled diabetes, I remember hearing a while back about an Australian physician who tried an experiment with a group of her older aboriginal patients.


Kate,

My wife is a GP here in Australia - where obesity is just as bad as in the USA - and I read sometimes her "Australian Family Physician". I did a quick search online but was unable to find the piece of research that you mentioned, however, there is a huge amount of similar material. The medical magazines here are far better than their UK equivalents, according to her.

Here are two samples:

Sugar
Preventing type 2 diabetes

As I understand it, the professionals who want to (not all of them do) can easily work out what the underlying problem is. In Australia, only half the people who have diabetes know that they have it although nothing can be simpler than this test. A dipstick test which takes one minute and if positive should be followed up by a blood test after 12 hours of fasting.

anyone who wants some really useful information in this area can do the following search in Google: site:racgp.org.au diabetes diet

The real problem, as usual, is that we are maladapted to the so-called modern world and the big battalions have the ear of the public and politicians - via the "golden rule". Some of us, like the aboriginals, are even less well-equipped to handle the aberrations of modern food and drink. Fortunately, I seem to have descended from a long line of bread-eaters.

Nassim said...

zander,

I agree with you entirely that these "spending-cuts" are just window dressing. However, the fact that they are prepared to discuss it at all is the real novelty.

I read somewhere that in Afghanistan, in the summer, they are using gasoline to run air-conditioning in some of these camps. This precious fuels costs perhaps $100/gallon (including payoffs to the Taliban) to deliver. Anyway, it is dry heat which is much easier to get used to than the humid version. A more ill-adapted bunch of soldiers it would be hard to find.

What will they do once the money runs out?

Phlogiston Água de Beber said...

Nassim and zander,

I have often seen the cost of fuel delivered to troops in Afghanistan quoted as $400/gallon. This October 2009 article suggests there can be a wide variance in cost depending on where it goes and how delivered. Losses are apparently quite severe as well, which would factor into the fully burdened cost of fuel actually delivered.

$400 per gallon gas to drive debate over cost of war in Afghanistan

Anonymous said...

Seeing how our current dilemma is framed as a political problem, let's take a peek(peak) at the political scene and the latest political drama and see how that's playing out:

Palin endorsed Gabrielle Gifford's opponent Jesse Kelly on her website before last fall's elections.

Then, this article came out in the Arizona Daily Wildcat

Palin reloads, aims for Giffords

September 29, 2010

With an endorsement record that now rivals those of many established Washington politicians, Sarah Palin has re-launched her "Take Back the 20" campaign. Its aim — pun intended — is to unseat Democratic incumbents who supported last year's health care reform package.."

Earlier this year, Palin drew sharp criticism for featuring a map on her web page riddled with crosshairs targeting Democrats in vulnerable congressional districts.

Tucson's Gabrielle Giffords is among the 20 Democratic incumbents whom Palin intends to use for target practice....Kelly's photo is now prominently displayed on Palin's "Take Back the 20" website, just below the crosshair-covered map titled:

" We've diagnosed the problem. Help us prescribe the solution "


Which goes hand in hand with this:

“...Remove Gabrielle Giffords”


Gabrielle Giffords’ 2010 Congressional opponent Jesse Kelly held a June 12 gun event that was billed as follows on the Pima County Republican website:

"Get on Target for Victory in November Help remove Gabrielle Giffords from office, shoot a fully automatic M15 with Jesse Kelly"

Kelly’s website has apparently scrubbed the event , but here is the account from the Arizona Daily Star:

Jesse Kelly, meanwhile, doesn’t seem to be bothered in the least by the Sarah Palin controversy earlier this year, when she released a list of targeted races in crosshairs, urging followers to “reload” and “aim” for Democrats. Critics said she was inciting violence.

He seems to be embracing his fellow tea partier’s idea. Kelly’s campaign event website has a stern-looking photo of the former Marine in military garb holding his weapon. It includes the headline: “Get on Target for Victory in November. Help remove Gabrielle Giffords from office. Shoot a fully automatic M16 with Jesse Kelly.”

The event costs $50.


Wow, only 50 bucks and I could have participated in a politic 'event'.

Democracy is Grand

Phlogiston Água de Beber said...

An elder Cherokee Native American was teaching his grandchildren about life. He said to them, "A fight is going on inside me...It is a terrible fight, and it is between two wolves. One wolf represents fear, anger, envy, sorrow, regret, greed, arrogance, self-pity, guilt, resentment, inferiority, lies, pride and superiority. The other wolf stands for joy, peace, love, hope, sharing, serenity, humility, kindness, benevolence, friendship, empathy, generosity, truth, compassion, and faith. This same fight is going on inside of you and every other person too."

They thought about it for a minute and then one child asked his grandfather, "Which wolf will win?" The old Cherokee simply replied..."The one I feed."

The old Cherokee tells a simple truth. Sarah Palin fed her bad wolf and shot the good one. Then started free distribution of tasty treats known to be favored by the bad wolves. More blood on her hands now than could ever conceivably be attached to Julian Assange.

Methinks 2012 is likely to be a really exciting year. A health tip for those who suspect they might have a poor tolerance to injections of lead. Stay away from any and all political events.

Shamba said...

Info from the latest Tucson, Pima County officials’ press conference at 6:00 pm Mountain Standard Time about the mass shooting in Tucson this morning.

The shooting took place at 10:00 a.m. MST. It was on our local Phoenix news about 12:00 noon and has run in various segments on all stations since then.

Representative Giffords—Arizona Democrat--was holding a public casual meeting with constituents in front of a Safeway at a Tucson shopping center at the corner of Ina and Oracle roads. this is a very busy and very good part of town. She regularly holds such events in Tucson when she is in town from Wasshinton on the weekends. She is well known for this.

There was no security there for her as she doesn’t ask for it usually and it could inhibit public contact of course.

19 people were shot by a young man who came from the crowd to talk to Representative Geffords. He shot her in the head. He then shot the other 18 people aiming at mostly heads. 5 died on the scene, 1 (a 9year old girl waiting to meet the representative) died at a hospital a couple of hours later.

10 people of the 19, including Gaby Geffords, were taken to the University Of Arizona Medical Center at the Med school there. The Med Center is a trauma 1 hospital with an excellent reputation for this kind of injury.

She was rushed to surgery and has survived a bullet that went through her brain. The exact location of the wound and nature of that wound is not public yet. Her neurosurgeon said he has very optimistic hopes for her. He wouldn't say more and probably can't really say more. She was out of surgery by midafternoon.


Other people at the hospital were in critical condition and in surgery about 2-3 hours after the shooting. No more info on that was put out at the part of the press conference I saw.

Names of dead and other victims were not spoken at this event, maybe names are available after the event for the press.

more below

Shamba said...

There were lots of questions of course that were not answered by the Pima County Sheriff’s office, they were the ones’ giving the press conference. No one from Tucson Police Department was there. The Sheriff’s office and the FBI seem to be the investigative bodies mentioned the most in the investigative process. The Pima sheriff did mention that so far besides the FBI, Ice, Tucson Police and ATF (can’t remember what the exact name is, it’s a US fed agency!) have been involved at different times today.

Also, a bomb scare at Gifford’s offices in Tucson, they and the surrounding buildings were evacuated. That happened late afternoon today. I don’t have an outcome on that issue. She’s had some threats in the past few weeks, I don’t know if they were death threats.

Also, A Federal Arizona District judge was killed at the scene today. He was not scheduled at the event, he’s just a friend of Gaby Gifford and went there to say hello. He however had some security with him (feds or private?) as he had had many death threats in the last few weeks. Related to what case, I don’t know yet.

It was a busy Saturday morning at the supermarket and the shopping center and there were lots of witnesses and it must have taken hours to get through talking to them all.

Hope parts of that aren't too disorganized; I typed it in a hurry.

Lots of comments from public figures in Arizona and in Washington about how the vitriolic division in our public discourse in the US is getting dangerous.

Of course, there are lots of strong feelings about the SB 1070 law passed in our legislature last year and all the illegal immigrant issues that surround it. Notice I said "illegal" immigrants, not immigrants. Some people on both sides of the issue are beginning to use immigrants instead of illegal immigrants.

There's just a lot of chaotic information reporting as one media outlet has some info but another one has other information.

also see www.azcentral.com
peace, Shamba

Shamba said...

**)(*JIOJ

I tried 3 times to get my last two posts done and when they got posted, and allowed, one whole section was missing .... GRRR! or perhaps it was edited out??? but it was only this information anyway,

there's one suspect in custody and there's ANOTHER suspect that they have a picture of! Of course they couldn't say more than that but maybe the pic is from security tape, but they're sure another man is involved.

that's all for now,
shamba

Archie said...

@ IMN

Thanks for that Native American fable. So true. The 2012 elections may be the first held without personal appearances. Then again, they only need to meet with the corporations behind closed doors anyway.

@ Board

I have been studying that gizmo all day. Then I realized that it closely resembled a doohickey that I saw on my father-in-laws farm years ago. So I asked my wife and she confidently told me that it was indeed a thingamajig that her father owned but she couldn't remember the name of the whatchamacallit.

Insofar as anyone can remember, it had no practical use but did provide spectacular investment prospects according to its IPO.

Phlogiston Água de Beber said...

Shamba, that was great reporting and based on the details you provided some very sobering thoughts come to mind. The Palin polluted assassin didn't just go after an office holder, he tried to kill as many of her supporters as he could. In my mind, that makes it an act of civil war. If there are more robo-assassins fondling their guns tonight, things could get real serious real soon.

Be extra careful out there my friends. There be monsters on the loose.

Dr J said...

A couple of thoughts on the diet and diabetes topic:

The Ozzie researcher was Kerin O'Dea. The Aborigine men reversed their diabetes after about 5 weeks on the land. When they returned to their urban life, the diabetes also returned. The last time I saw her, we butted heads because she thought the traditional Aborigine diet was low in carbs while my Aborigine friends were telling me otherwise.

I agree with Stoneleigh that for people with type 2 diabetes or any other manifestation of insulin resistance, the best diet is the one that is lowest in carbohydrates. This would be like the induction phase of Atkins which I have been on for over 8 years now.

I am happy someone has found the Zone diet to be helpful. I don't think this is a repudiation of my comments above, however.

For anyone who wants to correct their cardiometabolic problems and get off their metabolic syndrome meds, I highly recommend the new Atkins book authored by my friends Westman, Phinney and Volek. If you have type 2, I suggest you stay on the induction phase indefinitely.

Gary Taubes also has a new book out which I haven't had time to read yet. It is called, "Why We Get Fat".

snuffy said...

I.M.N.

Its starting.I bet there will be copycats.

Good advice that,about avoiding political whatever type gigs.I do as I always want to have SERIOUS arguments with whatever political creatures I have the misfortune to encounter.

Its a terrible price paid by those who were there to "show the flag".That child killed was a heartbreak,that will haunt many lives forever.

Ah,which will I feed?...good question.That killers head was full of worms....no wolves just worms..

Greenpa,they sold the forests of coastal Oregon during bush-the-lessors time.I was shocked to see the` devastation of the forests when I last drove the backwoods.Broke my heart

Tired,and much work tomorrow

Bee good,or
Bee careful

snuffy

Phlogiston Água de Beber said...

Sorry snuffy, but I disagree about the worms. Worms eat your brain, wolves possess your brain. This was the act of a wolf on a mission from his satanic goddess to exterminate an opposing goddess and a host of her devotees.

Wolves run in packs, so I do not think it will end here. What is ending I think is our mistaken self-identity. As Dr. Sandy Krolick wrote in a guest post on ClubOrlov awhile back.

What is haunting the globe today is the specter of primitive anarchy, a feral tendency buried deep within the marrow and musculature of every animal. The human species is no exception, ...
It is anarchic in the truest sense of the word: it seeks to be leaderless not merely in a political sense, but to be free from the tyrannical hegemony imposed by the civilizing logic of syllogistic reasoning itself. ...
This specter is not imaginary: it is real, and it is upon us. It is now everywhere and has a will of its own. It can no longer be brought under control, through force or through reason, and there will be no escaping it. It is not interested in you; it is coming after who you think you are.

Shamba said...

@IMNobody,
Well, thanks for the kind remarks on my reporting. there's probably better ordered info on the net tonight as more details have been put together.

Gaby Gifford recognized her husband at the hospital tonight. I didn't know he was an astronaut.

Suspect has been put into Federal Custody, he lawyered up right away when he was first taken in by the Pima County Sheriff's folk.

til tomorrow, peace, Shamba

NZSanctuary said...

The sheriff blamed the vitriolic political rhetoric that has consumed the country, much of it occurring in Arizona.
"When you look at unbalanced people, how they respond to the vitriol that comes out of certain mouths about tearing down the government. The anger, the hatred, the bigotry that goes on in this country is getting to be outrageous," he said.


Will political dissidence soon be completely outlawed? For your own protection of course . . .

p01 said...

HOLY MOLY! Looks like it's starting up!:

Unemployed Saudi teachers stage rare Riyadh protest:
http://af.reuters.com/article/worldNews/idAFTRE7081FW20110109

Regards,
Paul

zander said...

@ Steve FV.

Thanks for correcting my link typo, I'm f...ing hopeless.
There won't be much time for watching TV with war raging in just about every region of the planet if Rodina is to be believed.

@ Nassim...."What will they do once the money runs out?"

Best not answer that one mate, it would offend.
Mind you, Guy McPherson has some good suggestions for 'em.

@IMN

Re. Cherokee parable, nice one , very prophetic.
I don't know about the other good wolf / bad wolf emotions, but I'm forever feeding my bad wolf anger and vengeance sinks, and I use the the word "sinks" because I know in my heart it is draining me of constructive mind and soul time, I treasure my getaway's to the hills during the better weather, cut off from endless stories of injustice that enrage the hell out me, I am making a concerted effort to sing Que sera sera to any anger inducement coming my way, but that bastard Ilargi and his fellow enrager Scandia are intent on keeping me simmering away at boiling point. ;-) ;-). stay safe pal.


Z.

scandia said...

@Zander...Honestly I have been singing " que sera sera..." this week! Also have the poem " Desiderata" by Max Ehrman(1920) running through my thoughts. Phrases such as " Exercise caution in your business affairs for the world is full of trickery."
And " no doubt the universe is unfolding as it should..."
And of course the shooting in Tucson is one such unfolding.
How many walking wounded/mentally insane are walking round at the mall, especially those taught to shoot by the military? What will the ex-GI's do when the money runs out to fund veteran health care/meds etc? This for sure is a global problem!
I don't recall many people going crazy after WW11 ended? Perhaps this is because we entered a cycle economic expansion?
Last night I watched a film. " Earth " about the separation of India and Pakistan.Hindus and Moslems killing each other,brutal revenge, bags full of women's breasts...One has to wonder about the aftermath of independence from Britain. It is as if Moslems and Hindus lived for over 200 years under British rule in friendship, unified by a common enemy, the British empire. Reminds me of Iraq and the ensuing bedlam after the toppling of Saddam who kept everybody under control...or how Afganistan will be when the coalition of the willing withdraw.
I retired wondering what will be ( que sera sera ) in our western world when Empire collapses? Will acts of revenge fill us with horror? Will I manage a cognitive override when it matters most? There is yet time to cool the rage within....Or so I hope...

Hombre said...

I don't know if he was just a sick kid (age22) or motivated by radical political rhetoric but I am just sorry for the relatives of all the victims. And my concern is that I live in a country, a world, full of these "civilized" crazed zombies.

It is reminder to me though to be mindful of my expressions that they be concise, well motivated and do not contribute or infer in any way to destructive violence.

One thing comes to my mind is that it would be good for us to consider carefully the difference between truly honest self defense and hateful aggression. Even the wolf of good nature would defend themselves against the wolf of arrogance and violence.

Anonymous said...

The break down of the financial sphere was a done deal after the break down of the political sphere.

Where is the discussion about the role of the judiciary in all this.

Aside from the very current case in Massachusetts, the U.S. judiciary has sat there with it's collective finger up it's collective ass through every stage of the dystopian drama now unfolding.

I was always taught as a school kid that the Magna Carta was the watershed document in defining limits to arbitrary monarchial power, with the emphasis on arbitrary. Only non-serfs (noblemen) were covered but it was a start.

This was where the whole Law thing got started in the West.

I believe we now have a similar situation in that the very top bank maggots (top .1%) are not only acting like mobsters and racketeers, but they are acting arbitrarily in their own interests without any regards to any law.

The precedent set by the phone company illegal wire tap fiasco was the new benchmark for corruption.

The Congress retroactively passed a law making an illegal act legal and the phone companies got a Pass.

This is setting a truly dangerous example. Usually when an illegal act is committed, a pardon can be issued for the offense. A pardon presumes guilt and subsequent forgiveness. There is nothing retroactive about it.

Congress is little more than the bank maggot's lap poodle and will be commanded to pass a law stating that all bank actions in regards to mortgages are retroactively legal.

Why not? They did it with breaching the Constitution on illegal wire tapping.

The Judiciary sat there and either cowered in fear of the Vampire Squid or enjoyed their bribes to remain silent.

The bank maggots don't need no stinking property laws, they are the Law in their own twisted minds.
The only thing different is that the next couple of percentage points of top wealth (the U.S. Noble Class) might be getting suspicious and nervous that the Mobster Monarchy could arbitrarily confiscate their wealth and rights too, there doesn't seem to be any limits to the bank maggots power, even in the judiciary.

I have zero faith that the The Supreme Clowns are going to do diddly squat on this unless the American 'Noblemen' (top 3% of wealth) pull a force play Neo Magna Carta in the courts (and ON the courts) against their Banking Maggot Masters (top .1%)

One judge in one district in one state in several years of blatant illegality does not inspire confidence in judicial integrity and the rule of Law.
_

EBrown said...

Skilo,
Last time I checked lard turns out to be about 2/3s mono and polyunsaturated fats. I intend to continue eating this heart healthy fat forever! (I'm serious, it tastes good and it's healthy)

Frank said...

@Woods Walk, My understanding of the importance of the Magna Charta is that it did, for the first time since the Roman Republic, include non-noblemen. "No free man shall..." That did exclude serfs, but did include townsmen and freehold yeomen.

This was payback for the bankers refusing to lend the king money and the town militias closing their gates when the king was looking for a place to hole up.

scrofulous said...

About the last article posted on todays blog:

Peak Oil and a Changing Climate

Good to see Stoneleigh hanging out with such as Chomsky in those videos, that won't hurt the site.

Did a quick search in the comments on the word 'Peak' and see no one has made any comment that relates to the article. Curious that, in a strange though obvious way, don't you agree? (also did 'video' just to be sure)

Phlogiston Água de Beber said...

I just visited Damon Vrabel's blog and see that he has hung up the gloves. I guess either the hopium mines are playing out or someone is blocking exports of it. In light of what has recently transpired, I suppose it is just as well. Nothing much to be gained by taking more of that drug.

In Conclusion…

zander said...

@ Scandia

A prescient post, as Al-Sadr has used his first speech as a sort of unification clarion call for both main religions to merge in the fight against the infidels.
I wonder who he could possibly mean?

Z.

Hombre said...

Logout - Regarding the word "peak."
In my biking days I used to watch motocross, flat track and climbing races.
It was amazing to watch the climbing bikes go up the hill grudgingly, slipping, sliding, struggling at the last few yards and them often falling haphazardly down the slope.
It is my fear that we are at a similar peak of a lot of things (much about which I have learned at this site) and are about to take the precarious tumble downward. And like the biker who nears the apex, we have to use every bit of our remaining resources just to remain moving forward at all (at least for appearances sake).
Peak economics based on debt, where the debt limit has long been surpassed, peak oil and other fossils, and the peak of free market capitalism (or, some would say, civilization itself) which has run it's course nearly unrestrained and like an insatiable monster has about ran out of new resources to gobble up.
I just hope we haven't reached our peak of reasonableness and humanity (in the best sense of that term.)

zander said...

@ IMN

The truth hurts so bad in Point 2.a. of Vrabels post that it was painful to read. We're marooned !!

Z.

Unknown said...

@ rcg

My thanks to you for that observation. I'd rather be seduced by history, than raped by empirical speculation …

@ Ventriloquist

If gold is as constant as a compass, operating in a system with no direction, would you buy the compass, or the printed text of those authorities that purport to use it ???

@ Ilargi

In your deflation you imply that both debtors and creditors will be wiped out. In a deflation there is also a flight of remaining creditors. And those creditors will put their money where it is safe. In the last depression that turned out to be US debt.

And in gold you have an asset that is no-one else's liability, whose supply can't be increased via fractional reserving, and a stock-to-flow-ratio that screams of similarities with a prime currency.

So the fleeing creditors will part with their cash for tonnes of gold, and will in turn only part with it at prices that can drain liquidity from an economy, faster than it can be created ...

As I write this, I am no longer a gold-bug. There will be untold suffering worldwide as the price of gold rises.

The Yellow Peril is not China … it is Gold …

@ The Rest on TAE

Thanks for all your info ... I do believe I had better start dieting ... :-)

Phlogiston Água de Beber said...

@zander and SFV

Not that it's terribly important, but in case you haven't chased it down, Mat Rodina is the Roman alphabet rendering of this Russian phrase Родина-мать, which translates as The Motherland or sometimes Mother Russia.

Do ya think maybe I need a life? :)

zander said...

IMN.

Oh no you don't.
Can't start chasing a new career path now matey.
You got a position of responsibility right here as blogster extraordinaire and informant-in-chief.
who needs a life?

Z

Ventriloquist said...

@ Raoul

Well, let's look at this gold question a little further:

As mentioned above, over the last 100 years gold has moved (in nominal terms) from $20./oz to ~ $1400./oz. (or, a 70-fold increase), and that $20. a century ago would purchase the same amount of goods as $1400. today.

Now, that would be of little consequence if INCOME had increased at the same rate. However, this has not been the case. In 1910, the median US household annual income was approximately $1350./year. If household income had also increased (in nominal dollars) 70-fold, then today's median US household income would be about $94,500.

Unfortunately, today the median US household annual income is a little more than half that amount (~$49,000./year). And that is with many households containing two employed adults, instead of the single employed adult universally common 100 years ago.

And therein lies the rub. Employment income (in whatever local currency) simply has not maintained constant purchasing power, as gold has. And going forward, it seems most unlikely that employment income will ever catch up.

Funny thing is, this isn't a phenomenon of just the past century, but has been a constant for millenia. One of the very first mention of gold pricing has been found in clay tablets excavated from the reign of Hammurabi. It was a bill of sale which noted that an ounce of gold would purchase 350 loaves of wheat bread.

And an ounce of gold today will purchase 350 loaves of wheat bread.

So, you can trust your future wealth protection to pieces of paper (in the form of dollars or bonds or stocks), or you can opt for acquiring some heavy yellow metal.

I've made my choice.

.

Ilargi said...

New post up.



Highly Efficient Systems and Agonizing Death



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