Saturday, May 7, 2011

May 7 2011: Trojan Lies


National Photo Co. By Golly, It's Good 1920
"Altemus-Hibble truck, Washington, D.C." Reif's, a "pure liquid food" touted as "the peer of soft drinks," was "the hearty cereal beverage with flavor and tang"


Ilargi: There are two main stories going into the weekend: first, the US BLS employment report, and second, the Greek situation - German magazine Der Spiegel suggested Athens might want out of the Eurozone, and issue its own currency again.

First things first: when, as happened on Friday, stock markets rise while the official U3 unemployment rate goes up (to 9% in this case, U6 reached 15.9%), it's obvious that there's a huge disconnect between those same markets on the one hand, and Joe and Jane Main Street on the other. As usual, to know what really goes on, you have to look below the surface of the numbers. I thought I’d leave it at this, quoted from Mike Shedlock’s take:

In the last year, the civilian population rose by 1,817,000. Yet the labor force dropped by 1,099,000. Those not in the labor force rose by 2,916,000. In January alone, a whopping 319,000 people dropped out of the workforce. In February another 87,000 people dropped out of the labor force. In March 11,000 people dropped out of the labor force. In April, 131,000 dropped out of the labor force. The 4-month total for 2011 is 548,000 people dropped out of the labor force.

Many of those millions who dropped out of the workforce would start looking if they thought jobs were available. Indeed, in a 2-year old recovery, the labor force should be rising sharply as those who stopped looking for jobs, once again started looking. Instead, an additional 548,000 people dropped out of the labor force in the first four months of the year. Were it not for people dropping out of the labor force, the [U3] unemployment rate would be well over 11%.

Ilargi: Indeed, I’d venture that if you add in all those who’ve left the work force since 2008, you’d end up way above 11%. All in all, the total number of people in the working age population who are not in the labor force hit a new all time high of 86.248 million in April. And Wall Street likes that.

Then on to Greece, starting with that Der Spiegel article by Christian Reiermann:
Greece Considers Exit from Euro Zone
Spiegel Online has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou's government is considering abandoning the euro and reintroducing its own currency. [..]

Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. [..] In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union -- regardless which variant is ultimately decided upon for dealing with Greece's massive troubles. [..]

Sources told Spiegel Online that [German Finance Minister] Schäuble intends to seek to prevent Greece from leaving the euro zone if at all possible. He will take with him to the meeting in Luxembourg an internal paper prepared by the experts at his ministry warning of the possible dire consequences if Athens were to drop the euro.

"It would lead to a considerable devaluation of the new (Greek) domestic currency against the euro," the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. [..]

[..] .. should Athens turn its back on the common currency zone, it would have serious implications for the already wobbly banking sector, particularly in Greece itself. The change in currency "would consume the entire capital base of the banking system and the country's banks would be abruptly insolvent." Banks outside of Greece would suffer as well. "Credit institutions in Germany and elsewhere would be confronted with considerable losses on their outstanding debts," [..]

[..] The European Central Bank (ECB) would also feel the effects. The Frankfurt-based institution would be forced to "write down a significant portion of its claims as irrecoverable." In addition to its exposure to the banks, the ECB also owns large amounts of Greek state bonds, which it has purchased in recent months. Officials at the Finance Ministry estimate the total to be worth at least €40 billion ($58 billion) "Given its 27 percent share of ECB capital, Germany would bear the majority of the losses," the paper reads.

Ilargi: Needless to say, the Spiegel article has been denied by all major players, as Dina Kyriakidou and Renee Maltezou today report for Reuters:
Greek PM denies euro exit; says leave Greece alone
Greek Prime Minister George Papandreou on Saturday denied there was even unofficial discussion over Greece quitting the euro zone and asked that his troubled country be "left alone to finish its task". [..]

"These scenarios are borderline criminal," Papandreou told a conference on the Ionian island of Meganisi. "No such scenario has been discussed even in our unofficial contacts...I call upon everyone in Greece and abroad, and especially in the EU, to leave Greece alone to do its job in peace." [..]

Jean-Claude Juncker, head of the group of euro zone finance ministers who called the late Friday meeting, said there was a broad discussion of Greece and other international economic issues but said the idea of exiting the euro was stupid. "We have not been discussing the exit of Greece from the euro area. This is a stupid idea. It is in no way -- it is an avenue we would never take," he told reporters after the meeting attended by ministers from Germany, France, Italy and Spain.

"We don't want to have the euro area exploding without reason. We were excluding the restructuring option, which is discussed heavily in certain quarters of the financial markets," he added.

Ilargi: Denials all over, and vehement ones at that. Still, Floyd Norris in the New York Times doesn’t buy them either:
Inevitability of a Default in Greece
A Greek debt restructuring — a polite term for default — is unthinkable, according to the Greek finance minister. "It would have a tremendous cost, with no benefit," the minister, George Papaconstantinou, said in an interview on Greek television. "Greece would be out of markets for 10, 15 years."

To financial markets, and to many other observers, it is more than thinkable. It is very close to a sure thing. [..]

"The real problem is capital shortfalls in European banks," said Whitney Debevoise, [..] a former executive director of the World Bank, [..]. Until the banks have more capital, forcing them to admit to losses would be problematic, to put it mildly. [..]

Greece’s negotiating position is improved by the fact that about 90% of its outstanding bonds specify that Greek law will determine any disputes — and of course Greece can change its laws if needed. There might be an appeal possible to the European Court of Human Rights, but one way to satisfy a judgment of that court is to issue new bonds. So if Greece were ordered to pay damages for not paying off old bonds, it might be able to comply by issuing new ones. [..]

Sooner or later there will be a Greek default, even if it is officially described as a "voluntary restructuring" approved by most bondholders. Europe wants to delay that at least until 2013, when new rules are supposed to kick in that would let official creditors — such as Europe’s bailout fund — do better in a deal than private creditors. But it seems less and less likely that the inevitable can be delayed that long.

Ilargi: Mario Blejer, former governor of the Argentinian central bank -hence, someone with first hand experience in defaults- calls a spade a blunt spade in the Financial Times:
Europe is running a giant Ponzi scheme
One of the pillars upon which the euro was established was the principle of "no bail-out". When the sovereign debt crisis hit the eurozone this principle was ditched. As Greece, Ireland and Portugal were unable to service their unsustainable levels of debt, a mechanism was instituted to supply them with the financing necessary to service their obligations.

This financing was provided, supposedly, in exchange for their implementing measures that would make their, now higher, debt burdens sustainable in the future. Yet the mode adopted to resolve the debt problems of countries in peripheral Europe is, apparently, to increase their level of debt. [..]

Here is where this situation resembles a pyramid or a Ponzi scheme. Some of the original bondholders are being paid with the official loans that also finance the remaining primary deficits.

[..] ... this "public sector Ponzi scheme" is more flexible than a private one. In a private scheme, the pyramid collapses when you cannot find enough new investors willing to hand over their money so old investors can be paid. But in a public scheme such as this, the Ponzi scheme could, in theory, go on for ever. [..]

But could it, really? The constraint is not financial, but political. We are starting to observe public opposition to financing this Ponzi scheme in its current form, but it could still have quite a way to go. It is apparent that, if not forced sooner by politics, the inevitable default will only be allowed to take place when the vast part of the European distressed debt is transferred from the private to the official sector. As in a pyramid scheme, it will be the last holder of the "asset" that takes the full loss. In this case, it will be the taxpayer that foots the bill, rather than the original bondholders that made the wrong investment decisions.

Is this good or bad? It all depends on how one assesses the value of the time gained. Would a bank crisis now be more damaging to the European economy than a future debt write-off? Or, alternatively, is recognising reality and accepting a debt restructuring now preferable to increasing the burden on future taxpayers? At the end, it is a political decision, but it would be refreshing if things are called by their name. Euphemisms may be useful in the short run, but one finally recognises a Ponzi scheme when it persists.

Ilargi: Yes, calling things by their name. Wouldn't that be nice and refreshing? Well, don't hold your breath. In what actually IS a refreshing notion, albeit likely not meant that way, Jean-Claude Juncker gave us a glimpse of reality this week. Here's some background on the man:

Jean-Claude Juncker has been Prime Minister of Luxembourg since January 20, 1995, and was Luxembourg's Finance Minister from 1989 to 2009. He has been President of the Euro Group (a gathering of Eurozone finance ministers) since 2005. As Prime Minister, he also served two six-month terms as President of the European Council, in 1997 and 2005.

Juncker features prominently in this revealing piece from Gabriele Steinhauser for AP:
Market jitters bring difficult choice between truth and lies for politicians, spokespeople
On March 29, when speculation swirled that Portugal needed a bailout, Prime Minister Jose Socrates denied — again — that that would happen despite clearly unsustainable market pressures. "I'm sick of saying we won't" be requesting help, he told journalists. Just eight days later, in a chastened appearance on national television, Socrates did just that.

Such stunning U-turns in the lead-up to big announcements have by now become a familiar pattern in Europe's debt crisis — in Greece a year ago, then Ireland in November — and show how policymakers have had to adapt the way they speak publicly under the scrutiny of jittery markets. With traders and journalists keeping track of every utterance, officials have had to develop the bluffing ability of poker players as much as anything else.

For Jean-Claude Juncker, the prime minister of Luxembourg, the threat of immediate market turbulence means the usual norms of transparency don't apply. "When it becomes serious, you have to lie", Juncker, who as the chairman of the regular meetings of eurozone finance ministers is one of the currency union's key spokesmen, said in recent remarks.

Even confirming the existence of discussions on explosive financial issues can quickly turn them into self-fulfilling prophecies and have serious consequences for a country's economy by driving up borrowing costs. "If you are pre-indicating possible decisions, you are fueling speculation on the financial markets, throwing into misery mainly ordinary people whom we are trying to safeguard from this," Juncker said.

One scenario that EU officials are now firmly denying is that of a sovereign debt restructuring — namely allowing a country to partially default on its debt by extending repayment deadlines or reducing the total amount owed.

In recent weeks, rumours and press reports have grown louder about secret discussions among eurozone finance ministers about restructuring the massive debt of Greece — despite official denials. Debt restructuring "is not part of our strategy and will not be," the EU's Monetary and Economic Affairs Commissioner Olli Rehn said Monday, echoing many of his colleagues in recent weeks.

Few people have had to answer more questions about the seeming contradiction of official comments and market swings than Amadeu Altafaj Tardio, Rehn's spokesman [..] "I know that every single word that I pronounce can have an impact on markets," said Altafaj Tardio, a former journalist himself.

But those pressures cannot serve as an excuse to lie. "There have been so many leaks and there are so many sources of a different sort involved that there is never room for any lies," he said of the current crisis. "You don't survive 24 hours if you lie in this environment."

Instead, the art of being a spokesman is to know when and how to release your information. "When I'm standing there on the podium, I'm doing political communication, I'm not an information desk," said Altafaj Tardio. "We don't tell all the truth all the time, but we never lie."

"A European crisis, viewed from Brussels, is much more complex (than a national one) because of all the member states," said Tim Fallon, head of corporate and financial affairs at the London office of communications firm Hill & Knowlton [..]

Politicians and spokespeople "have to control the agenda as much as they can", said Fallon. That involves "putting out as many positive character statements as you can" about a country under pressure [..]

Ilargi: Please note, apparently they don't lie all the time. After all, only "When it becomes serious, you have to lie". Up to you to guess how often they feel any given situation is serious, or not serious.

I labeled these untruths Trojan Lies because once they become established and accepted in an -alleged- democratic society, that society is lost and bound to die. Prosperity can hide that fact temporarily, but prosperity never lasts forever. I've said it before, and I'll say it again: this is not a financial crisis, it's a political one.

Look, I know you're thinking: we know politicians lie, what else is new? But how many of them have you seen come out like Juncker did and try to admit, explain and rationalize their lying? Ever seen Obama say: of course I lie, I do it all the time, but only in the best interest of my voters?! He still does it, though, and on a daily basis. Every politician of any standing does. And not just about finance: they lie about everyting that could possibly hurt their careers.

Perhaps politicians in a country at war can claim a right to lie, in those cases where their population would be at risk of their lives if they didn't. What's happening here, though, is not the same at all. It's the exact opposite. Politicians like Juncker, and Geithner, and Obama, and Merkel, and the whole lot of them, keep the people they supposedly represent from properly preparing for the inevitable fallout of failing financial systems. It's the systems they try to protect, not the people, because they owe their high positions to the systems, not the people. Even if they lie about that too.

What's more, they use the same people's money, trillion after trillion euros and dollars of it, to play a seemingly endless game of double or nothing in order to temporarily prop up those systems and hide the truth from the people ever longer. Not only are people consistently being lied to, they pay through their nose, and through their grandchildren's noses, to enjoy that privilege.

The lying politicians, meanwhile, tell themselves, and each other, that they have not just the right, but indeed the duty, to lie to their constituents. Who, as far as they're concerned, can't handle the truth. And might just vote them out of office if they became aware of the mess their countries are in. Can’t have that. Moreover, people like Juncker feel so highly elevated above real people's issues, they have no qualms about admitting that they routinely lie.

Every single EU bailout and default to date has been denied, until it couldn't be any longer. And every subsequent one will too, no matter how inevitable. It's their modus operandi, it's the only way they know how to do things. But that takes nothing away from the fact that Greece and Ireland and Portugal and Spain, and then Belgium and Hungary and name your favorites, will all have to default on their debt. And that these defaults will bankrupt European -and subsequently US- banks left, right and center.

Spain will be the pivotal one. It has a 20%+ unemployment rate and - every single year for an entire decade(!), from 1997 to 2006 - built more homes than France, Germany and Britain combined. Way beyond salvation.

Talking about Germany, it looks to be doing just fine so far. That is, if you would believe that Greece is their main issue. If you do, I’ll leave you to ponder this graph, from Germany's own Der Spiegel. I think you can spot the truth, even if not a single one of your leaders is willing to tell you:















Greece Considers Exit from Euro Zone
by Christian Reiermann - Spiegel

Athens Mulls Plans for New Currency

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government's actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area's finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.


Greece's economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou's government is considering abandoning the euro and reintroducing its own currency.

Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union -- regardless which variant is ultimately decided upon for dealing with Greece's massive troubles.

Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany's behalf.

'Considerable Devaluation'
Sources told SPIEGEL ONLINE that Schäuble intends to seek to prevent Greece from leaving the euro zone if at all possible. He will take with him to the meeting in Luxembourg an internal paper prepared by the experts at his ministry warning of the possible dire consequences if Athens were to drop the euro.

"It would lead to a considerable devaluation of the new (Greek) domestic currency against the euro," the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble's staff have calculated that Greece's national deficit would rise to 200 percent of gross domestic product after such a devaluation. "A debt restructuring would be inevitable," his experts warn in the paper. In other words: Greece would go bankrupt.

It remains unclear whether it would even be legally possible for Greece to depart from the euro zone. Legal experts believe it would also be necessary for the country to split from the European Union entirely in order to abandon the common currency. At the same time, it is questionable whether other members of the currency union would actually refuse to accept a unilateral exit from the euro zone by the government in Athens.

What is certain, according to the assessment of the German Finance Ministry, is that the measure would have a disastrous impact on the European economy. "The currency conversion would lead to capital flight," they write. And Greece might see itself as forced to implement controls on the transfer of capital to stop the flight of funds out of the country. "This could not be reconciled with the fundamental freedoms instilled in the European internal market," the paper states. In addition, the country would also be cut off from capital markets for years to come.


In addition, the withdrawal of a country from the common currency union would "seriously damage faith in the functioning of the euro zone," the document continues. International investors would be forced to consider the possibility that further euro-zone members could withdraw in the future. "That would lead to contagion in the euro zone," the paper continues.

Banks at Risk
Moreover, should Athens turn its back on the common currency zone, it would have serious implications for the already wobbly banking sector, particularly in Greece itself. The change in currency "would consume the entire capital base of the banking system and the country's banks would be abruptly insolvent." Banks outside of Greece would suffer as well. "Credit institutions in Germany and elsewhere would be confronted with considerable losses on their outstanding debts," the paper reads.

The European Central Bank (ECB) would also feel the effects. The Frankfurt-based institution would be forced to "write down a significant portion of its claims as irrecoverable." In addition to its exposure to the banks, the ECB also owns large amounts of Greek state bonds, which it has purchased in recent months. Officials at the Finance Ministry estimate the total to be worth at least €40 billion ($58 billion) "Given its 27 percent share of ECB capital, Germany would bear the majority of the losses," the paper reads.

In short, a Greek withdrawal from the euro zone and an ensuing national default would be expensive for euro-zone countries and their taxpayers. Together with the International Monetary Fund, the EU member states have already pledged €110 billion ($159.5 billion) in aid to Athens -- half of which has already been paid out. "Should the country become insolvent," the paper reads, "euro-zone countries would have to renounce a portion of their claims."




Market jitters bring difficult choice between truth and lies for politicians, spokespeople
by Gabriele Steinhauser - The Associated Press

On March 29, when speculation swirled that Portugal needed a bailout, Prime Minister Jose Socrates denied — again — that that would happen despite clearly unsustainable market pressures. "I'm sick of saying we won't" be requesting help, he told journalists. Just eight days later, in a chastened appearance on national television, Socrates did just that.

Such stunning U-turns in the lead-up to big announcements have by now become a familiar pattern in Europe's debt crisis — in Greece a year ago, then Ireland in November — and show how policymakers have had to adapt the way they speak publicly under the scrutiny of jittery markets. With traders and journalists keeping track of every utterance, officials have had to develop the bluffing ability of poker players as much as anything else.

For Jean-Claude Juncker, the prime minister of Luxembourg, the threat of immediate market turbulence means the usual norms of transparency don't apply. "When it becomes serious, you have to lie", Juncker, who as the chairman of the regular meetings of eurozone finance ministers is one of the currency union's key spokesmen, said in recent remarks.

Even confirming the existence of discussions on explosive financial issues can quickly turn them into self-fulfilling prophecies and have serious consequences for a country's economy by driving up borrowing costs. "If you are pre-indicating possible decisions, you are fueling speculation on the financial markets, throwing into misery mainly ordinary people whom we are trying to safeguard from this," Juncker said.

One scenario that EU officials are now firmly denying is that of a sovereign debt restructuring — namely allowing a country to partially default on its debt by extending repayment deadlines or reducing the total amount owed.

In recent weeks, rumours and press reports have grown louder about secret discussions among eurozone finance ministers about restructuring the massive debt of Greece — despite official denials. Debt restructuring "is not part of our strategy and will not be," the EU's Monetary and Economic Affairs Commissioner Olli Rehn said Monday, echoing many of his colleagues in recent weeks.

But the markets appear to be listening to a different story. The yield on Greek two-year bonds is close to 25 per cent — almost 23 percentage points higher than on equivalent German bonds — suggesting investors don't believe official assurances that private creditors won't be hit with losses before June 2013.

Few people have had to answer more questions about the seeming contradiction of official comments and market swings than Amadeu Altafaj Tardio, Rehn's spokesman, who faces off with journalists at the EU's press briefings almost on a daily basis. "I know that every single word that I pronounce can have an impact on markets," said Altafaj Tardio, a former journalist himself.

But those pressures cannot serve as an excuse to lie. "There have been so many leaks and there are so many sources of a different sort involved that there is never room for any lies," he said of the current crisis. "You don't survive 24 hours if you lie in this environment."

Instead, the art of being a spokesman is to know when and how to release your information. "When I'm standing there on the podium, I'm doing political communication, I'm not an information desk," said Altafaj Tardio. "We don't tell all the truth all the time, but we never lie."

One of the difficulties of sending a clear message during the sovereign debt crisis has been the mass of different actors and divergent interests involved, with stories leaking from EU institutions, national diplomats in Brussels, as well as the finance ministries in the member states. "A European crisis, viewed from Brussels, is much more complex (than a national one) because of all the member states," said Tim Fallon, head of corporate and financial affairs at the London office of communications firm Hill & Knowlton who also worked on the election campaign of former U.K. Prime Minister Tony Blair.

In the eurozone, 17 governments are not only trying to contain a crisis of their common currency, but are also scrambling to calm voters back home. For politicians in more prosperous states like Germany or Finland that means playing down the possibility of further taxpayer-funded bailouts, while less fortunate governments in Portugal, Ireland or Greece have to face off with citizens angry at painful austerity measures.

Politicians and spokespeople "have to control the agenda as much as they can," said Fallon. That involves "putting out as many positive character statements as you can" about a country under pressure or simply having the courage to say "I'm not willing to comment on this," he added. "What you shouldn't do is for there to be a black hole that allows the media to speculate," said Fallon, while acknowledging that "there are some issues and some battles that you just can't win or even control."

One reason for the lack of an impact some official denials have had on financial markets might be where they are coming from. Investors listen to key players — which in this crisis are German Chancellor Angela Merkel, French President Nicolas Sarkozy, those countries' finance ministers, and Jean-Claude Trichet, the president of the European Central Bank, said Carsten Brzeski, a senior economist for ING in Brussels. "The rest, whether it's the truth or whether it's lies doesn't really matter," said Brzeski, whose task is to make sense of official statements for his bank's traders.

Traders will often react to comments within seconds of a news flash hitting the screen of their information terminal, Brzeski said, while for economists the challenge is to weigh official statements with economic fundamentals. In the case of Greece, those fundamentals show a debt load approaching 150 per cent of gross domestic product in a shrinking economy — a combination that seems difficult to sustain in the long run, said Brzeski.

Strong denials might then be more of an indication of the "when" and not the "if" of a restructuring, he said. "It clearly shows that they are probably willing to postpone it or to delay it as long as possible."




Greek PM denies euro exit; says leave Greece alone
by Dina Kyriakidou and Renee Maltezou - Reuters

Greek Prime Minister George Papandreou on Saturday denied there was even unofficial discussion over Greece quitting the euro zone and asked that his troubled country be "left alone to finish its task".

Ministers from the euro zone's biggest economies met in Luxembourg to discuss Greece's debt crisis on Friday but Athens and senior EU officials denied a report by Germany's Spiegel Online that the Greek government had raised the prospect of leaving the 17-member euro zone. "These scenarios are borderline criminal," Papandreou told a conference on the Ionian island of Meganisi. "No such scenario has been discussed even in our unofficial contacts...I call upon everyone in Greece and abroad, and especially in the EU, to leave Greece alone to do its job in peace."

European Central bank Governing Council member Erkki Liikanen on Saturday shot down reports of Greece exiting the euro and said restructuring its 327 billion euro ($470 billion) debt would offer no permanent solution to its problems. "No euro zone country wants to leave the euro," Liikanen, who also heads the Bank of Finland, said in an interview at Finnish national broadcaster Yle.

Jean-Claude Juncker, head of the group of euro zone finance ministers who called the late Friday meeting, said there was a broad discussion of Greece and other international economic issues but said the idea of exiting the euro was stupid. "We have not been discussing the exit of Greece from the euro area. This is a stupid idea. It is in no way -- it is an avenue we would never take," he told reporters after the meeting attended by ministers from Germany, France, Italy and Spain.

"We don't want to have the euro area exploding without reason. We were excluding the restructuring option, which is discussed heavily in certain quarters of the financial markets," he added. But he said a meeting of all euro zone finance ministers on May 16 would discuss whether Greece needed a further economic plan. The EU is currently negotiating a bailout with Portugal, the third state it is rescuing after Greece and Ireland.

Despite a 110 billion euro international bailout, Greece, a euro zone member since 2001, has not cut its budget deficit as fast as it promised its lenders amid a deep recession. Gains from spending cuts and tax hikes have been partly erased by low revenues due to tax evasion and a deep recession. Financial markets have been sceptical for months that Athens could manage its huge debt without eventually restructuring. As austerity bites, even some ruling socialist party politicians have been suggesting a "soft" restructuring which might involve lengthening maturities on the country's bonds.

On Friday, the euro fell nearly 1 percent against the dollar and the cost of insuring Greek debt against default was quoted at a record high in response to the Spiegel report. Greek Finance Minister George Papaconstantinou attended the Luxembourg talks, his finance ministry said. It added that Greece remained committed to repairing its finances and returning to economic growth.

Asked by Italy's La Stampa newspaper if it would be easier to leave the euro, the minister said on Saturday: "No, it's impossible. Above all, because the mechanism does not exist to leave the euro." The Luxembourg talks were also attended by European Central Bank President Jean-Claude Trichet and Olli Rehn, the European commissioner for economic and monetary affairs.




Costs of any Greek euro exit may be prohibitive
by Noah Barkin and Paul Taylor - Reuters

The costs to a country of leaving the euro zone would be so high that many analysts think the bloc will do everything in its power to prevent an exit, even if that requires the richest members to keep bailing out weak states. German magazine Spiegel reported on Friday that the Greek government had raised the possibility of breaking away from the 12-year-old euro area and reintroducing its own currency in talks with the European Commission and other member states in recent days.

The report was vigorously denied by the Greek finance ministry and officials from other member states. Sources did confirm that a small group of euro zone finance ministers were meeting in Luxembourg on Friday to discuss Greece and other pressing matters.

Leaving the currency union would carry huge economic, social, reputational and strategic costs for Greece or any other country. Greece would have to hive off its bank deposits from the rest of the euro zone banking system as it introduced a new currency, risking a run on its banks and huge disruption for its companies. Banks across Europe would face losses on their Greek debt.

For the bloc as a whole, it would represent a humiliating setback because the common currency is broadly viewed as the culmination of half a century of European integration. "To me the euro zone is a one-way street," said Gilles Moec, senior European economist at Deutsche Bank. "A breakup would have catastrophic consequences for the country that left. It would precipitate a run on the banks. I can't see how you do it in an orderly way."

Speculation about a possible euro zone breakup reached fever pitch in November of last year, but predictions that the bloc will fracture have come mainly from Anglo-Saxon skeptics. Last summer, British economist Christopher Smallwood of consultants Capital Economics produced a 20-page paper entitled "Why the euro zone needs to break up" and U.S. economist Nouriel Roubini, nicknamed Dr. Doom, has said euro members will be forced to abandon the shared currency.

Debt Restructuring Risk
Greece has struggled to meet the fiscal targets set out for it as part of its 110 billion euro ($160 billion) bailout from the European Union and International Monetary Fund. Over the past month, markets have priced in the sort of default risk that was once unthinkable for a euro zone state and expectations have risen that Greece will have to restructure its 327 billion euro debt load while other countries will have to provide more aid.

Political opposition in northern Europe to giving Greece more money and rising anger within the country at the tough austerity measures the government has put in place have created a dangerous new dynamic that has convinced more experts an exit may conceivably happen, although probably not for years. By reintroducing the drachma, the argument goes, Greece could sharply devalue its currency against the euro and keep official interest rates ultra-low, regain competitiveness, and tackle its debt problem without the political and social upheaval associated with years of austerity-fueled recession.

"I'm not suggesting that these stories are right," said Jonathan Loynes, chief European economist at Capital Economics. "But we have said that we think it's quite likely that there will be some change to the membership of the euro area over the next four to five years and that one possible form will be the exit of a small economy like Greece. "I don't think the idea is implausible at all."

But U.S. economist Barry Eichengreen, who authored a 2007 paper arguing that the single currency could not be undone, reaffirmed that belief last year as the Greek crisis deepened. "Adopting the euro is effectively irreversible," he wrote in an article on the economics website Vox. "Leaving would require lengthy preparations, which, given the anticipated devaluation, would trigger the mother of all financial crises," said Eichengreen, a professor at the University of California, Berkeley.

Legal Nightmare
There is no legal procedure for leaving the euro zone and some economists argue that treaty changes would have to take place before an exit could happen. "You would have to make it legal in order to leave," said Moec of Deutsche Bank. "You would probably have years of litigation on all the debt held outside the country."

Trade flows would probably be severely disrupted. Business costs would become unpredictable, inhibiting investment. Labour unrest and social strife would likely result as citizens faced mass unemployment, inflation and brutal public spending cuts. That would far outweigh any potential boost to exports or tourism revenues from a devaluation.

"But what if the bank runs and financial crisis happen anyway?" Nobel prize-winning economist Paul Krugman asked on his blog last November. An exit that is neither planned nor chosen but imposed by irresistible market forces would dramatically reduce the marginal cost of leaving the euro, Krugman contended. But that economic logic may underestimate the political will that has driven European monetary union since its inception.




Greece leaving euro zone not discussed- Eurogroup's Juncker
by Reuters

Finance ministers from Germany, France, Italy and Spain did not discuss Greece leaving the euro zone or the possibility of a Greek debt restructuring during a meeting in Luxembourg on Friday, Eurogroup Chairman Jean-Claude Juncker said.

The meeting of the euro zone's four G20 members discussed G20 themes and related issues, including a broad discussion about Greece, Juncker told reporters after the gathering, but dismissed talk of a Greek restructuring or of Greece abandoning the euro zone as a "stupid idea" and mere "rumours". The meeting was attended by ECB President Jean-Claude Trichet and Olli Rehn, the European commissioner for economic and monetary affairs, Juncker said. He said Greece had been invited, but did not specify that it was represented.

German magazine Der Spiegel reported earlier that the meeting was to discuss the possibility, raised by Greece, of leaving the 17 member euro zone and readopting its own currency. "We have not been discussing the exit of Greece from the euro area, this is a stupid idea, it is in no way, it is an avenue we would never take," Juncker said. "We don't want to have the euro area exploding without reason. We were excluding the restructing option which is discussed heavily in certain quarters of the financial markets...." He said talk of Greece needing a further adjustment programme would be discussed in detail at the next Eurogroup meeting in Brussels on May 16.




EU Finance Chiefs See More Help for Greece, Reject Euro Exit
by Stephanie Bodoni - Bloomberg

European nations may provide more aid to Greece, recipient of the first euro-area bailout, as it struggles to reduce a debt load that some investors say will lead to a restructuring. "We think that Greece does need a further adjustment program," Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, said after an unscheduled meeting of officials last night in Luxembourg. "This has to be discussed in detail" at this month’s gathering of finance chiefs.

Greek bonds have tumbled since mid-April when Portugal said it would seek a rescue and German officials indicated they wouldn’t oppose a restructuring. Greece denied a report in Germany’s Spiegel yesterday that said it threatened to withdraw from the euro. "We’re not discussing the exit of Greece from the euro area. This is a stupid idea -- no way," Juncker told reporters. "We don’t want to have the euro area exploding without any reasons."

Greece has already received an extension on bailout loans this year and policy makers in Athens say another lengthening would help avoid a broader restructuring. The additional aid may involve increasing the 110 billion euros ($158 billion) agreed to in last year’s rescue or enabling the European Union’s aid fund to buy back Greek debt, in addition to easing payment terms, a European official said after the meeting. Those measures may run into opposition in Germany and Finland, where bailouts have sparked a political backlash. Germany, the biggest contributor to the bailout pool, has floated the prospect of restructuring as lawmakers rejected tapping their taxpayers for more aid money.

Euro Weakens
The euro slid after the Spiegel report, declining to as low as $1.4316, down 1.3 percent in New York. U.S. stocks pared gains and Treasuries rose as reports of the meeting stoked speculation that a restructuring may be in the works. Finance chiefs from France, Germany, Italy, and Spain and European Union Economic and Monetary Affairs Commissioner Olli Rehn also attended last night’s meeting.

Beyond Greece, the agenda included this week’s Portugal bailout plan, a successor to European Central Bank President Jean-Claude-Trichet, whose term ends in October, and details of the crisis-fighting program to take effect in 2013, a separate European official said. Greek Finance Minister George Papaconstantinou attended and briefed on developments in the Greek economy, the Athens-based Finance Ministry said in a statement. There was "obviously" no discussion of Greece remaining a member of the euro area.

Anniversary
The meeting came a year after European officials put together an unprecedented 750 billion-euro financial backstop on a Sunday night in Brussels to end the debt contagion that began in Greece. It hasn’t worked so far. Ireland and Portugal have since been bailed out and Greece has been forced to fend off suggestions that it was headed to default.

Greece has about 330 billion euros in outstanding bonds, according to a May 5 report by UBS AG. The Swiss bank estimates that 22 percent is held by Greeks and Cypriots, the ECB has 19 percent and the EU and International Monetary Fund together have about 11 percent. About 22 billion euros will mature this year and 33 billion euros next year, according to an April 29 ING Groep NV report.

Greek debt has declined since the 2010 bailout, with yields on two-year debt reaching a euro-era record of 26.27 percent on April 28. The extra-yield investors demand to hold Greek 10-year debt over comparable German bonds widened 4 basis points to 1,233. Greece was supposed to return to markets next year even as its debt peaks at 159 percent of gross domestic product.

No ‘Disaster’
German Deputy Foreign Minister Werner Hoyer said last month a Greek restructuring "would not be a disaster." Finance Minister Wolfgang Schaeuble was quoted by Die Welt newspaper as saying "further measures may have to be taken" if Greece flunks a June audit. The two-year yield was about 17 percent at the time. "A haircut or a restructuring of the debt would not be a disaster," said Hoyer, a member of the Free Democratic Party, a junior partner in Merkel’s coalition. If Greece’s creditors agreed that talks "would be helpful toward a restructuring of the debt, then of course this would be supported by us."




Europe is running a giant Ponzi scheme
by Mario Blejer - Financial Times

One of the pillars upon which the euro was established was the principle of "no bail-out". When the sovereign debt crisis hit the eurozone this principle was ditched. As Greece, Ireland and Portugal were unable to service their unsustainable levels of debt, a mechanism was instituted to supply them with the financing necessary to service their obligations.

This financing was provided, supposedly, in exchange for their implementing measures that would make their, now higher, debt burdens sustainable in the future. Yet the mode adopted to resolve the debt problems of countries in peripheral Europe is, apparently, to increase their level of debt. A case in point is the €78bn ($116bn) loan to Portugal. It is equivalent to more than 47 per cent of its gross domestic product in 2010, possibly increasing Portugal’s public debt to about 120 per cent of GDP.

It could be claimed that this mechanism is helping the countries involved since the official loans, although onerous, carry better conditions than the ones that need to be serviced. But the countries’ debts will increase (as a percentage of GDP the debts of Greece, Ireland, Portugal and Spain are expected to be higher by the end of 2012 than at the start of the crisis). The share of debt owed to the official sector will also increase (in addition to the bond purchases by the European Central Bank, which reportedly owns 17 per cent of these countries’ bonds with a much higher percentage held as collateral).

Is this ongoing piling of debt an indication of imminent defaults? Probably, but not necessarily. An immediate default could result in major market commotion, given the high exposure of European banks to peripheral debt. Therefore, European governments are finding it more convenient to postpone the day of reckoning and continue throwing money into the peripheral countries, rather than face domestic financial disruption. Consequently, as long as European and international money (through the International Monetary Fund’s generous financing) is available, the game could go on.

It is based on the fiction that this is just a temporary liquidity problem and that the official financing helps the countries involved to make the reforms that will allow them to return to the voluntary market in normal conditions. In other words, the narrative is that the recipient countries could and would outgrow their debt. To "prove" this scenario is feasible several debt sustainability exercises are being dreamt up. But the fact is that this situation is only sustainable as long as additional amounts of money are available to continue the pretence.

Here is where this situation resembles a pyramid or a Ponzi scheme. Some of the original bondholders are being paid with the official loans that also finance the remaining primary deficits. When it turns out that countries cannot meet the austerity and structural conditions imposed on them, and therefore cannot return to the voluntary market, these loans will eventually be rolled over and enhanced by eurozone members and international organisations.

This is Greece, not Chad: does anyone imagine the IMF will stop disbursing loans if performance criteria are not met? Moreover, this "public sector Ponzi scheme" is more flexible than a private one. In a private scheme, the pyramid collapses when you cannot find enough new investors willing to hand over their money so old investors can be paid. But in a public scheme such as this, the Ponzi scheme could, in theory, go on for ever. As long as it is financed with public money, the peripheral countries’ debt could continue to grow without a hypothetical limit.

But could it, really? The constraint is not financial, but political. We are starting to observe public opposition to financing this Ponzi scheme in its current form, but it could still have quite a way to go. It is apparent that, if not forced sooner by politics, the inevitable default will only be allowed to take place when the vast part of the European distressed debt is transferred from the private to the official sector. As in a pyramid scheme, it will be the last holder of the "asset" that takes the full loss. In this case, it will be the taxpayer that foots the bill, rather than the original bondholders that made the wrong investment decisions.

Is this good or bad? It all depends on how one assesses the value of the time gained. Would a bank crisis now be more damaging to the European economy than a future debt write-off? Or, alternatively, is recognising reality and accepting a debt restructuring now preferable to increasing the burden on future taxpayers? At the end, it is a political decision, but it would be refreshing if things are called by their name. Euphemisms may be useful in the short run, but one finally recognises a Ponzi scheme when it persists.

The writer was governor of Argentina’s central bank and director of the Centre for Central Banking Studies at the Bank of England.




Inevitability of a Default in Greece
by Floyd Norris - New York Times

A Greek debt restructuring — a polite term for default — is unthinkable, according to the Greek finance minister. "It would have a tremendous cost, with no benefit," the minister, George Papaconstantinou, said in an interview on Greek television. "Greece would be out of markets for 10, 15 years."

To financial markets, and to many other observers, it is more than thinkable. It is very close to a sure thing. When, how, and how messy it will be are open to question.

It was just a year ago this weekend that Europe bailed out Greece, amid much self-congratulatory talk. Olli Rehn, the European commissioner for monetary policy, said the move was "particularly crucial for countries under speculative attacks in recent weeks," a reference to Spain and Portugal. Markets — described by Anders Borg, Sweden’s finance minister, as "wolf packs" — returned to their lairs on the Monday after the bailout. The yield on three-year Greek government bonds plunged to 7.7 percent from 17.5 percent, as the price of such bonds soared 28 percent in a single day.

And how have things gone since then? Just fine in Germany, where growth is accelerating and unemployment is lower than at any time since German unification. The European Central Bank is even raising interest rates to curb inflation there. It’s going more or less acceptably in France and Italy, each of which recorded G.D.P. growth of 1.5 percent in 2010, well below Germany’s 4.0 percent. But it’s not going well at all in the country that supposedly was rescued. Greece’s economy shrank 6.6 percent, far more than the 1.9 percent decline in 2009.

The market wolves are howling again. The yield on Greek three-year bonds is more than 23 percent, not that anyone thinks that yield will really be received. The yields on similar Portuguese and Irish bonds have also soared into double digits. Investors are a little more skittish about Spanish and Italian bonds than they had been, but there is no sense of impending disaster.

Longer-term rates on Portuguese debt did slide a little this week after a tentative agreement on a bailout, but they remain at levels that show widespread doubts about the country’s ability to pay. The trading patterns of Greek bonds indicate that traders expect a restructuring, and they think it will be messy.

That yields are as low as they are — if you can call 23 percent low — is a reflection of the fact that the bailout has been going on below the surface. The European Central Bank has been lending money to Greek banks, accepting Greek bonds as collateral on loans to other banks, and even buying bonds. Keeping up the fiction that all will somehow be well if we just wait has its own disadvantages.

"Delays in restructurings are costly," Alessandro Leipold, the chief economist of the Lisbon Council, a Brussels-based research group, and a former official of the International Monetary Fund, wrote in a paper this week. He warned that the longer the inevitable was delayed, the more potential economic production would be lost and the greater the amount of good money that would be thrown after bad in the form of ever larger bailouts. Ultimately, he said, the result would be larger losses for bondholders.

"The real problem is capital shortfalls in European banks," said Whitney Debevoise, a partner in Arnold & Porter and a former executive director of the World Bank, who has been involved as a lawyer for countries and creditors in several restructurings. Until the banks have more capital, forcing them to admit to losses would be problematic, to put it mildly.

Stalling has worked before. In the early 1980s, major American banks could not afford to admit that they had lost huge sums in the Latin American debt crisis. "There was," Mr. Debevoise said in an interview, "a five-year period of temporizing while Citibank and other banks rebuilt capital." Finally, there was a debt restructuring and the banks admitted to their losses.

Currently, some European banks would probably be hard pressed to take losses, a group that may include some of the German landesbanks, which are generally owned by state governments and are badly in need of new capital.

The European Central Bank itself would hate to report losses, which is one reason that the first Greek restructuring, when it comes, may avoid forcing bondholders to accept "haircuts," or reductions in principal. Instead, cutting interest rates and postponing maturities could allow the central bank to pretend it had not lost money. Eventually, however, haircuts seem inevitable.

Although there have been plenty of defaults and restructurings by national governments in recent decades — a partial list includes Argentina, Brazil, Uruguay, Russia, Ukraine, Pakistan and Ecuador — there is no agreement on the way to arrange a restructuring. Nearly a decade ago, the I.M.F. tried to put together what it called a "sovereign debt restructuring mechanism," a sort of international bankruptcy law. The effort collapsed.

As a result, restructurings can be messy. Some bondholders can try to hold out on approving a plan, hoping they will be paid more than those who agree. Lawsuits will be filed.
Europe, in a classic case of trying to solve a problem only after it is probably too late, has decided that after 2013 all European government bonds will have a "collective action clause" stating that a restructuring approved by 75 percent of bondholders will be binding on the dissenters.

In the meantime, Greece’s negotiating position is improved by the fact that about 90 percent of its outstanding bonds specify that Greek law will determine any disputes — and of course Greece can change its laws if needed. There might be an appeal possible to the European Court of Human Rights, but one way to satisfy a judgment of that court is to issue new bonds. So if Greece were ordered to pay damages for not paying off old bonds, it might be able to comply by issuing new ones.

Even in cases that are heard in courts presumably more friendly to lenders, there is an issue of how a country can be forced to pay. Sovereign immunity is not absolute, but it can be powerful.

Still, bond investors evidently think that a Greek restructuring is likely to wind up in court, and that having the bond subject to British or American law could make a difference. The yields on such bonds are a couple of percentage points lower — meaning the prices are a little higher — than on comparable bonds that would be resolved under Greek law.

It also appears that many traders think there will eventually be changes that force all lenders to take either the same interest rate or similar haircuts on the bonds. Among the Greek issues is one maturing in August 2015, with a yield to maturity at current prices of about 20 percent. A similar bond, maturing a month later, has a yield of just 18 percent. The prices make sense only if you assume that traders think there will not be many interest payments before a restructuring.

German officials hinted a few weeks ago that a Greek restructuring might be coming, but have since been quiet, and the German government has joined the European Central Bank and others in saying no such action is under consideration. Instead, they say, Greece should stick to its agreed plan of austerity and reduced budget deficits. The fact it is failing to meet those targets — the 2010 deficit was well above plan — is treated as inconvenient but not crucial.

Sooner or later there will be a Greek default, even if it is officially described as a "voluntary restructuring" approved by most bondholders. Europe wants to delay that at least until 2013, when new rules are supposed to kick in that would let official creditors — such as Europe’s bailout fund — do better in a deal than private creditors. But it seems less and less likely that the inevitable can be delayed that long.

Europe needs to do what needs to be done to keep a default from destroying its financial system, and then accept the reality. Insisting that Greece can get by without a restructuring makes it less likely markets will believe similar assurances about countries that actually might be able to recover and pay their bills. "Peripheral bond markets risk continuing in their tailspin, remaining virtually shut down and rendering restructurings a self-fulfilling prophecy," wrote Mr. Leipold of the Lisbon Council, "even where those forced restructurings might arguably constitute a market overreaction."




Ireland's future depends on breaking free from bailout
by Morgan Kelly - Irish Times

With the Irish Government on track to owe a quarter of a trillion euro by 2014, a prolonged and chaotic national bankruptcy is becoming inevitable. By the time the dust settles, Ireland’s last remaining asset, its reputation as a safe place from which to conduct business, will have been destroyed.

Ireland is facing economic ruin.

While most people would trace our ruin to to the bank guarantee of September 2008, the real error was in sticking with the guarantee long after it had become clear that the bank losses were insupportable. Brian Lenihan’s original decision to guarantee most of the bonds of Irish banks was a mistake, but a mistake so obvious and so ridiculous that it could easily have been reversed. The ideal time to have reversed the bank guarantee was a few months later when Patrick Honohan was appointed governor of the Central Bank and assumed de facto control of Irish economic policy.

As a respected academic expert on banking crises, Honohan commanded the international authority to have announced that the guarantee had been made in haste and with poor information, and would be replaced by a restructuring where bonds in the banks would be swapped for shares.

Instead, Honohan seemed unperturbed by the possible scale of bank losses, repeatedly insisting that they were “manageable”. Like most Irish economists of his generation, he appeared to believe that Ireland was still the export-driven powerhouse of the 1990s, rather than the credit-fuelled Ponzi scheme it had become since 2000; and the banking crisis no worse than the, largely manufactured, government budget crisis of the late 1980s.

Rising dismay at Honohan’s judgment crystallised into outright scepticism after an extraordinary interview with Bloomberg business news on May 28th last year. Having overseen the Central Bank’s “quite aggressive” stress tests of the Irish banks, he assured them that he would have “the two big banks, fixed by the end of the year. I think it’s quite good news The banks are floating away from dependence on the State and will be free standing”.

Honohan’s miscalculation of the bank losses has turned out to be the costliest mistake ever made by an Irish person. Armed with Honohan’s assurances that the bank losses were manageable, the Irish government confidently rode into the Little Bighorn and repaid the bank bondholders, even those who had not been guaranteed under the original scheme. This suicidal policy culminated in the repayment of most of the outstanding bonds last September.

Disaster followed within weeks. Nobody would lend to Irish banks, so that the maturing bonds were repaid largely by emergency borrowing from the European Central Bank: by November the Irish banks already owed more than €60 billion. Despite aggressive cuts in government spending, the certainty that bank losses would far exceed Honohan’s estimates led financial markets to stop lending to Ireland.

On November 16th, European finance ministers urged Lenihan to accept a bailout to stop the panic spreading to Spain and Portugal, but he refused, arguing that the Irish government was funded until the following summer. Although attacked by the Irish media for this seemingly delusional behaviour, Lenihan, for once, was doing precisely the right thing. Behind Lenihan’s refusal lay the thinly veiled threat that, unless given suitably generous terms, Ireland could hold happily its breath for long enough that Spain and Portugal, who needed to borrow every month, would drown.

At this stage, with Lenihan looking set to exploit his strong negotiating position to seek a bailout of the banks only, Honohan intervened. As well as being Ireland’s chief economic adviser, he also plays for the opposing team as a member of the council of the European Central Bank, whose decisions he is bound to carry out. In Frankfurt for the monthly meeting of the ECB on November 18th, Honohan announced on RTÉ Radio 1’s Morning Ireland that Ireland would need a bailout of “tens of billions”.

Rarely has a finance minister been so deftly sliced off at the ankles by his central bank governor. And so the Honohan Doctrine that bank losses could and should be repaid by Irish taxpayers ran its predictable course with the financial collapse and international bailout of the Irish State.

Ireland’s Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: “You are Ireland’s salvation.”

The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are.

The negotiations went downhill from there. On one side was the European Central Bank, unabashedly representing Ireland’s creditors and insisting on full repayment of bank bonds. On the other was the IMF, arguing that Irish taxpayers would be doing well to balance their government’s books, let alone repay the losses of private banks. And the Irish? On the side of the ECB, naturally. In the circumstances, the ECB walked away with everything it wanted. The IMF were scathing of the Irish performance, with one staffer describing the eagerness of some Irish negotiators to side with the ECB as displaying strong elements of Stockholm Syndrome.

The bailout represents almost as much of a scandal for the IMF as it does for Ireland. The IMF found itself outmanoeuvred by ECB negotiators, their low opinion of whom they are not at pains to conceal. More importantly, the IMF was forced by the obduracy of Geithner and the spinelessness, or worse, of the Irish to lend their imprimatur, and €30 billion of their capital, to a deal that its negotiators privately admit will end in Irish bankruptcy. Lending to an insolvent state, which has no hope of reducing its debt enough to borrow in markets again, breaches the most fundamental rule of the IMF, and a heated debate continues there over the legality of the Irish deal.

Six months on, and with Irish government debt rated one notch above junk and the run on Irish banks starting to spread to household deposits, it might appear that the Irish bailout of last November has already ended in abject failure. On the contrary, as far as its ECB architects are concerned, the bailout has turned out to be an unqualified success. The one thing you need to understand about the Irish bailout is that it had nothing to do with repairing Ireland’s finances enough to allow the Irish Government to start borrowing again in the bond markets at reasonable rates: what people ordinarily think of a bailout as doing.

The finances of the Irish Government are like a bucket with a large hole in the form of the banking system. While any half-serious rescue would have focused on plugging this hole, the agreed bailout ostentatiously ignored the banks, except for reiterating the ECB-Honohan view that their losses would be borne by Irish taxpayers. Try to imagine the Bank of England’s insisting that Northern Rock be rescued by Newcastle City Council and you have some idea of how seriously the ECB expects the Irish bailout to work.

Instead, the sole purpose of the Irish bailout was to frighten the Spanish into line with a vivid demonstration that EU rescues are not for the faint-hearted. And the ECB plan, so far anyway, has worked. Given a choice between being strung up like Ireland – an object of international ridicule, paying exorbitant rates on bailout funds, its government ministers answerable to a Hungarian university lecturer – or mending their ways, the Spanish have understandably chosen the latter.

But why was it necessary, or at least expedient, for the EU to force an economic collapse on Ireland to frighten Spain? The answer goes back to a fundamental, and potentially fatal, flaw in the design of the euro zone: the lack of any means of dealing with large, insolvent banks.

Back when the euro was being planned in the mid-1990s, it never occurred to anyone that cautious, stodgy banks like AIB and Bank of Ireland, run by faintly dim former rugby players, could ever borrow tens of billions overseas, and lose it all on dodgy property loans. Had the collapse been limited to Irish banks, some sort of rescue deal might have been cobbled together; but a suspicion lingers that many Spanish banks – which inflated a property bubble almost as exuberant as Ireland’s, but in the world’s ninth largest economy – are hiding losses as large as those that sank their Irish counterparts.

Uniquely in the world, the European Central Bank has no central government standing behind it that can levy taxes. To rescue a banking system as large as Spain’s would require a massive commitment of resources by European countries to a European Monetary Fund: something so politically complex and financially costly that it will only be considered in extremis, to avert the collapse of the euro zone. It is easiest for now for the ECB to keep its fingers crossed that Spain pulls through by itself, encouraged by the example made of the Irish.

Irish insolvency is now less a matter of economics than of arithmetic. If everything goes according to plan, as it always does, Ireland’s government debt will top €190 billion by 2014, with another €45 billion in Nama and €35 billion in bank recapitalisation, for a total of €270 billion, plus whatever losses the Irish Central Bank has made on its emergency lending. Subtracting off the likely value of the banks and Nama assets, Namawinelake (by far the best source on the Irish economy) reckons our final debt will be about €220 billion, and I think it will be closer to €250 billion, but these differences are immaterial: either way we are talking of a Government debt that is more than €120,000 per worker, or 60 per cent larger than GNP.

Economists have a rule of thumb that once its national debt exceeds its national income, a small economy is in danger of default (large economies, like Japan, can go considerably higher). Ireland is so far into the red zone that marginal changes in the bailout terms can make no difference: we are going to be in the Hudson.

The ECB applauded and lent Ireland the money to ensure that the banks that lent to Anglo and Nationwide be repaid, and now finds itself in the situation where, as a consequence, the banks that lent to the Irish Government are at risk of losing most of what they lent. In other words, the Irish banking crisis has become part of the larger European sovereign debt crisis. Given the political paralysis in the EU, and a European Central Bank that sees its main task as placating the editors of German tabloids, the most likely outcome of the European debt crisis is that, after two years or so to allow French and German banks to build up loss reserves, the insolvent economies will be forced into some sort of bankruptcy.

Make no mistake: while government defaults are almost the normal state of affairs in places like Greece and Argentina, for a country like Ireland that trades on its reputation as a safe place to do business, a bankruptcy would be catastrophic. Sovereign bankruptcies drag on for years as creditors hold out for better terms, or sell to so-called vulture funds that engage in endless litigation overseas to have national assets such as aircraft impounded in the hope that they can make a sufficient nuisance of themselves to be bought off.

Worse still, a bankruptcy can do nothing to repair Ireland’s finances. Given the other commitments of the Irish State (to the banks, Nama, EU, ECB and IMF), for a bankruptcy to return government debt to a sustainable level, the holders of regular government bonds will have to be more or less wiped out. Unfortunately, most Irish government bonds are held by Irish banks and insurance companies. In other words, we have embarked on a futile game of passing the parcel of insolvency: first from the banks to the Irish State, and next from the State back to the banks and insurance companies. The eventual outcome will likely see Ireland as some sort of EU protectorate, Europe’s answer to Puerto Rico.

Suppose that we did not want to follow our current path towards an ECB-directed bankruptcy and spiralling national ruin, is there anything we could do? While Prof Honohan sportingly threw away our best cards last September, there still is a way out that, while not painless, is considerably less painful than what Europe has in mind for us.

National survival requires that Ireland walk away from the bailout. This in turn requires the Government to do two things: disengage from the banks, and bring its budget into balance immediately.

First the banks. While the ECB does not want to rescue the Irish banks, it cannot let them collapse either and start a wave of panic that sweeps across Europe. So, every time one of you expresses your approval of the Irish banks by moving your savings to a foreign-owned bank, the Irish bank goes and replaces your money with emergency borrowing from the ECB or the Irish Central Bank. Their current borrowings are €160 billion.

The original bailout plan was that the loan portfolios of Irish banks would be sold off to repay these borrowings. However, foreign banks know that many of these loans, mortgages especially, will eventually default, and were not interested. As a result, the ECB finds itself with the Irish banks wedged uncomfortably far up its fundament, and no way of dislodging them.

This allows Ireland to walk away from the banking system by returning the Nama assets to the banks, and withdrawing its promissory notes in the banks. The ECB can then learn the basic economic truth that if you lend €160 billion to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner. At some stage the ECB can take out an eraser and, where “Emergency Loan” is written in the accounts of Irish banks, write “Capital” instead. When it chooses to do so is its problem, not ours.

At a stroke, the Irish Government can halve its debt to a survivable €110 billion. The ECB can do nothing to the Irish banks in retaliation without triggering a catastrophic panic in Spain and across the rest of Europe. The only way Europe can respond is by cutting off funding to the Irish Government.

So the second strand of national survival is to bring the Government budget immediately into balance. The reason for governments to run deficits in recessions is to smooth out temporary dips in economic activity. However, our current slump is not temporary: Ireland bet everything that house prices would rise forever, and lost. To borrow so that senior civil servants like me can continue to enjoy salaries twice as much as our European counterparts makes no sense, macroeconomic or otherwise.

Cutting Government borrowing to zero immediately is not painless but it is the only way of disentangling ourselves from the loan sharks who are intent on making an example of us. In contrast, the new Government’s current policy of lying on the ground with a begging bowl and hoping that someone takes pity on us does not make for a particularly strong negotiating position. By bringing our budget immediately into balance, we focus attention on the fact that Ireland’s problems stem almost entirely from the activities of six privately owned banks, while freeing ourselves to walk away from these poisonous institutions.

Just as importantly, it sends a signal to the rest of the world that Ireland – which 20 years ago showed how a small country could drag itself out of poverty through the energy and hard work of its inhabitants, but has since fallen among thieves and their political fixers – is back and means business.

Of course, we all know that this will never happen. Irish politicians are too used to being rewarded by Brussels to start fighting against it, even if it is a matter of national survival. It is easier to be led along blindfold until the noose is slipped around our necks and we are kicked through the trapdoor into bankruptcy.

The destruction wrought by the bankruptcy will not just be economic but political. Just as the Lenihan bailout destroyed Fianna Fáil, so the Noonan bankruptcy will destroy Fine Gael and Labour, leaving them as reviled and mistrusted as their predecessors. And that will leave Ireland in the interesting situation where the economic crisis has chewed up and spat out all of the State’s constitutional parties. The last election was reassuringly dull and predictable but the next, after the trauma and chaos of the bankruptcy, will be anything but.




UK house prices 'will keep falling for five years'
by Jill Treanor - Guardian

House prices will fall in real terms for the next five years, a leading economic thinktank warned on Thursday, as new signs emerged that the already moribund market weakened in March. The Land Registry reported the biggest monthly drop in house prices in more than two years in March, and now the National Institute of Economic and Social Research (NIESR) has said inflationary pressures in the coming years would erode any rise in nominal house prices.

The prediction by the NIESR came as ratings agency Standard & Poor forecast a 5% fall in house prices during 2011, due to George Osborne's austerity budget deterring prospective buyers from taking the plunge. Data published yesterday by the Bank of England showed that the housing market weakened in March with mortgage lending falling 60%, while a Markit/CIPs survey reported that housebuilders experienced their first decline in activity of the year. Nationwide building society reported yesterday that house prices fell in April as well, by 0.2%, down 1.3% from a year earlier.

The society predicted prices would now move sideways or "drift modestly lower" during the year. But this is more optimistic than some economists, who believe that house prices are now likely to fall further. Forecasters at NIESR said: "We expect the housing market to remain weak over the coming three years.

"House prices have been overvalued for much of the past decade, but with current low borrowing costs they look about right. However, borrowing costs are likely to rise over the next five years as policy rates set by the Bank of England move from crisis levels near zero to normal levels of around 5%. These increases are likely to induce real house prices to fall by around 2% a year for the next five years."

S&P believes that homebuyers will be deterred by the government's spending cuts. The agency's chief economist for Europe, Jean-Michel Six, said: "We think prospective homebuyers may well hold off on acquisitions for a while, given governments' implementation of fiscal austerity plans – particularly in the UK, Spain and France. "We anticipate that the UK housing market will drift sideways in the coming 18 months, with prices shedding about 5% this year and roughly flat in 2012."

Other economists are also analysing the impact of spending cuts. Paul Diggle, property economist at Capital Economics, said he expected falls in house prices "in the face of large public sector cuts". The Land Registry showed a clear north-south divide that may widen. "Following a hefty 5.3% month-on-month fall in March, Yorkshire & Humberside joined the north-east in seeing prices fall below the previous trough around Easter 2009," Diggle said.

"Prices in Wales and the West Midlands are just 0.2% and 1.3% respectively above their previous lows. These regions are likely to be at the sharp-end of public sector spending cuts, meaning that, for now, they should continue to lead the rest of the country into the second leg of the house price correction," he added.

The latest dip in net lending, which takes account of loans that have been repaid, saw the total drop to £374m in March after reaching £950m in February and £1.7bn in January. Before the credit crunch, the highest figure reported by the Bank of England was £10.4bn in October 2006, although it has slipped into negative territory at times since then with repayments outweighing new loans.

Diggle said lending figures might have forced economists to predict a double digit fall in house prices – but the low interest rates were helping deter deeper falls. With Bank of England data also showing that lending to business was down again, Lord Oakeshott, the Liberal Democrat peer who resigned over the Project Merlin deal between the government and the banks, said: "These lending figures are gruesome evidence that our banks are choking off Britain's economic recovery. "Project Merlin's a farce: the government must act now on the banks to stop small businesses and the house market seizing up."

The Bank's mortgage approvals data also showed the market remains far below the levels experts regard as "normal" – of about 100,000 a month. Approvals in March were at their highest levels since November, but still reached only 47,557. "The big picture is of a pretty lifeless housing market, with low turnover and very little new money coming into it," said Ross Walker, an economist at Royal Bank of Scotland.

National Savings savaged
The mortgage market is a "long, long way" from returning to normality, the chairman of the Building Societies Association (BSA) said as he attacked the government for allowing the state-backed National Savings & Investments (NS&I) to re-enter the savings market. David Webster, who is also chief executive of Hanley Economic Building Society, also called for the government to remutualise Northern Rock, which was nationalised in 2008 and is now looking for ways to leave state control.

The BSA admitted that net mortgage lending by mutuals contracted for the 27th consecutive month in March, as customers repaid £476m more than was lent in new mortgages. There was also an outflow of savings as £604m was withdrawn. NS&I may have an impact on the savings side. Webster said: "We were disappointed to see that in the budget the Treasury announced that National Savings – backed by the taxpayer and able to design its own tax-free products – would be seeking to take £2bn net from the savings market during the current financial year. This is money that banks and building societies could otherwise have been lending to first-time buyers and other borrowers."

Even so, he was upbeat as he addressed the BSA's annual conference. "The disgrace in which our competitors are now held, many of whom owe their very existence to taxpayer subsidy because they were unable to stand on their own two feet, gives mutuals the opportunity of a lifetime to gain people's trust and to prove that they are relevant, indeed essential, to the age in which we live," he said.

"In the light of the position of our competitors, the resilience we are clearly demonstrating to the outside world and our fundamental business ethic, mutuals have a tremendous opportunity to emerge as even more successful businesses in the future," Webster added.




Scotland would be as bust as Iceland if it had been independent
by Jeremy Warner - Telegraph

Never mind Sean Connery and the ordinary Scottish voter, the Scottish National Party – now basking in the glory of a landslide electoral victory – has always counted some pretty high powered business leaders among its supporters. One of them, Sir George Mathewson, used to be chairman of Royal Bank of Scotland, which until the banking crisis was generally regarded as the finest example of Scottish financial achievement. I’ve not spoken to him for a while, but in the past he was always very much in favour of Scottish independence.

Mathewson’s main argument in favour of separation was actually quite a good one – that it was the only way in which Scots would ever be able to rid themselves of the dependency culture and stand on their own two feet. The process of adjustment would be brutal, he admitted, but ultimately worth the price.

Well maybe, but the fact of the matter is that had Scotland been independent when Royal Bank of Scotland and HBOS, both Scottish registered banks, went under, it would now be more bust that even Ireland and Iceland. As a likely member of the euro, there would also be no obvious path back to salvation. Assuming he had not already been defenestrated in the manner of Brian Cowen, Mr Salmond would by now be begging Westminster to restore the union.

Do the maths. It has cost the UK taxpayer £70bn to recapitalise the Scottish banks – this was no UK banking crisis, but a Scottish one – and the sums needed would undoubtedly have been a great deal larger had not taxpayers from the UK as a whole been standing behind the liabilities. Shared among a population of little more than half the size of London, that’s £14,000 per head.

The idea that had the Scot Nats been in charge, these two banks would have been better regulated, is an interesting theory but also completely fanciful. The Edinburgh financial and political elite is if anything even more defined by cronyism than Dublin’s. Puffed up with its own sense of self importance, the hubris would very probably have been worse still.

But let’s for the moment take leave of the real world and assume the banking crisis never happened. Could Scotland feasibly go it alone? The bottom line is not without taking a huge hit to living standards and/or public services. During the election campaign, the Scottish Labour Party attempted to cost the SNP goal of quitting the UK and came to the conclusion that without major spending cuts and or tax increases, there would be an ongoing structural budget deficit of £14bn a year, equal to around £2,600 per head of population. Bang goes free university tuition and bang goes free prescriptions. And bang goes an awful lot more to boot.

Ah but the Scots have north sea oil, you say. Well yes, but the Labour Party calculation is after taking account of £4bn a year in North Sea tax revenues. Depending on where the line in the sea is drawn, it might be a bit higher than that, but unless you include fields which are unmistakedly in English waters, it’s not going to close the deficit.

Most European countries have a version of the Scottish problem – regions with often quite distinct national identities which never the less require big fiscal transfers to make them economically viable. In nearly all cases, these transfers have failed to close the economic gap. The classic example is Italy, where the gap between North and South has actually widened over the past twenty years, despite all the money the North has thrown at the South. In Italy at least, dependency appears to have become permanently entrenched.

Germany, by contrast, has managed the integration of the formerly communist east much better. Here the gap has been closing in recent years, and the relative size of the transfers have therefore been decreasing. There is as yet very little sign of that happening with Scotland. Perhaps Mathewson is right. Not until Scotland is forced to stand on its own two feet will it actually be capable of doing so. But in the meantime, there’s little doubt about who benefits most from the union.




America’s Middle Class Crisis: The Sobering Facts
by Peter Gorenstein - Daily Ticker 




Two recessions, a couple of market crashes, and stubbornly high unemployment are all wreaking havoc on America's middle class.

In the accompanying interview, The Daily Ticker's Aaron Task discusses the state of the middle class with Sherle Schwenninger, director of economic growth and American strategy programs at the New America Foundation. Schwenninger's recent report "The American Middle Class Under Stress" has some stunning facts that highlight the struggles the average American is having getting a decent-paying job and keeping up with rising cost of living.

Here are just some of the sobering facts:
  • There are 8.5 million people receiving unemployment insurance and over 40 million receiving food stamps.
  • At the current pace of job creation, the economy won't return to full employment until 2018.
  • Middle-income jobs are disappearing from the economy. The share of middle-income jobs in the United States has fallen from 52% in 1980 to 42% in 2010.
  • Middle-income jobs have been replaced by low-income jobs, which now make up 41% of total employment.
  • 17 million Americans with college degrees are doing jobs that require less than the skill levels associated with a bachelor's degree.
  • Over the past year, nominal wages grew only 1.7% while all consumer prices, including food and energy, increased by 2.7%.
  • Wages and salaries have fallen from 60% of personal income in 1980 to 51% in 2010. Government transfers have risen from 11.7% of personal income in 1980 to 18.4% in 2010, a post-war high.

The bottom line is simple says Schwenninger: The middle class is shrinking, which threatens the social composition and stability of the world's biggest economy. "I worry that we're becoming a barbell society - a lot of money wealth and power at the top, increasing hollowness at the center, which I think provides the stability and the heart and soul of the society... and then too many people in fear of falling down."




Fannie Mae Posts Deep Loss
by Michael Baron - TheStreet

Fannie Mae swung back to a multi-billion dollar loss in the first quarter late Friday and gave a guarded outlook for the housing market. The government-sponsored mortgage lender said it lost $8.7 billion, or $1.52 a share, in the three months ended in March, narrower than its massive year-ago loss of $13.1 billion, or $2.29 a share, in the same period a year earlier.

The latest quarter reflects the payment of $2.2 billion worth of preferred stock dividends to the U.S. Treasury. In the fourth quarter ended in December, the company reported net income of $73 million, before the payment of the Treasury's $2.2 billion in preferred dividends. In its commentary, Fannie Mae said it continues to see elevated delinquency rates for single-family home loans because of the weak economic environment, as evidenced by "sustained weakness in the housing market and high unemployment."

Credit-related expenses swelled to $11 billion in the latest quarter from $4.8 billion in the fourth quarter, although that was still down from $11.9 billion in the year-ago first quarter. "We expect our credit-related expenses to remain elevated in 2011 as we continue to be negatively impacted by the prolonged decline in home prices," said Michael Williams, the company's president and CEO, in a statement. "As we move forward, we are building a strong new book of business that now accounts for 45 percent of the company's overall single-family guaranty book of business.

Williams continued: "We continue to be the leading provider of liquidity for single-family mortgages and affordable multifamily rental housing while we remain focused on our responsibility to find solutions for distressed homeowners and their families." Fannie Mae shares closed Friday's regular session at 43 cents, down 9%.




Fannie Mae seeks $8.5 billion more in federal aid
by Daniel Wagner - AP

Fannie Mae asked the government Friday for an additional $8.5 billion in aid after declining home prices caused more defaults on loans guaranteed by the mortgage giant. The company said it lost $8.7 billion in the first three months of the year. Those losses led Fannie to request more than three times the federal aid it sought in the previous quarter. The total cost of rescuing the government-controlled mortgage buyer is nearing $100 billion — the most expensive bailout of a single company.

Combined with the bailout of sibling company Freddie Mac, the government expects their rescue to cost taxpayers about $259 billion. That money will cover the mortgage giants' losses on soured loans made in the midst of the housing bubble. Home prices declined on average 1.8 percent across the country during the January-March quarter, Fannie Mae said. That led to more foreclosures and to homeowners abandoning houses that were worth less than they owed on their mortgages. "We expect our credit-related losses to remain elevated in 2011 as we continue to be negatively impacted by the prolonged decline in home prices," President and CEO Michael Williams said in a statement.

The losses incurred in the first three months of the year are related to loans that were extended before 2009, Fannie Mae said. The company expects to make money on home loans that it acquired since January 2010. The companies nearly toppled because of losses on risky mortgages that they purchased between 2005 and 2008. They tightened their lending standards after those loans started to go bad.

Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default and sell them to investors around the world. When property values drop, homeowners default — either because they are unable to afford the payments or because they owe more than the property is worth. Because of the guarantees, Fannie and Freddie must pay for the losses.

Fannie Mae, based in Washington, and Freddie Mac, based in McLean, Va., own or guarantee about half of all mortgages in the U.S., or nearly 31 million home loans worth more than $5 trillion. Along with other federal agencies, they backed nearly 90 percent of new mortgages over the past year. The Obama administration unveiled in February a plan to slowly dissolve the mortgage companies. The aim is to reduce the government's role in the mortgage market. Exactly how that would happen was left for Congress to decide.

Whatever the outcome, it would reverse decades of federal policy aimed at encouraging Americans to purchase homes. Mortgages almost certainly would become more expensive. Fannie Mae's January-March loss attributable to common shareholders works out to $1.52 per share. It takes into account $2.2 billion in dividend payments to the government. That compares with a loss of $13.1 billion, or $2.29 per share, in the same period last year.




Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names A.I.G., Goldman Sachs and Deutsche Bank
by Mary Williams Walsh - New York Times

The first known whistle-blower lawsuit to assert that the taxpayers were defrauded when the federal government bailed out the American International Group was unsealed on Friday, joining a number of suits seeking to settle the score on losses related to the financial crisis of 2008.

The lawsuit, filed by a pair of veteran political activists from the La Jolla area of San Diego, asserts that A.I.G. and two large banks engaged in a variety of fraudulent and speculative transactions, running up losses well into the billions of dollars. Then the three institutions persuaded the Federal Reserve Bank of New York to bail them out by giving A.I.G. two rescue loans, which were used to unwind hundreds of failed trades.

The loans were improper, the lawsuit says, because the Fed made them without getting a pledge of high-quality collateral from A.I.G., as required by law. "To cover losses of those engaged in fraudulent financial transactions is an authority not yet given to the Fed board," said the plaintiffs, Derek and Nancy Casady, in their complaint, filed in Federal District Court for the Southern District of California.

The lawsuit names A.I.G., Goldman Sachs and Deutsche Bank as defendants, but not the Fed. Senior Fed officials have stated repeatedly that they had to take unusual steps in 2008 because the global financial system was close to breaking down. The Casadys’ lawyer, Michael J. Aguirre, argued that even so, the Fed was required to comply with its own governing statutes. He said that when the Fed bailed out a nonbank, it was required to secure the loan with the same liquid, high-quality collateral it required when lending to a troubled bank.

A spokesman for A.I.G., Mark Herr, said the Casadys’ lawsuit was "devoid of merit" and said Mr. Aguirre appeared to be recycling old and discredited legal theories.

Separately, A.I.G. is now among the companies turning to the courts in hopes of recovering losses from 2008, and seeking restitution from some banks. A spokesman for Goldman Sachs said he was not familiar with the Casadys’ lawsuit and could not comment on it. A spokeswoman for Deutsche Bank declined to comment.

The litigation shines a critical light on the Federal Reserve’s on-again-off-again power to bail out nonbanking institutions like Wall Street firms and insurance companies. The Fed first got that authority during the Great Depression, but Congress revoked it in 1958. And then, as the legal walls between banking and other financial services began to fall in the 1990s, Congress once again gave the Fed the power to make emergency loans to nonbanks.

The relevant language is contained in a single, murky sentence inserted in a bill passed the day before Thanksgiving in 1991, as members of Congress were rushing to catch their flights home. Former Senator Christopher Dodd added it at the request of Goldman Sachs and other Wall Street firms, which were still stinging from a major market crash in 1987 and eager to empower the Fed to step in if a similar problem happened again.

The Casadys’ lawsuit says the resulting law needs judicial review because it went flying through Congress with little debate and now appears to be feeding high-risk behavior. Investors in nonbanks now expect that the Fed will open a safety net to catch them, should they falter, the suit contends. "Congress did not show a legislative intent to convert the Federal Reserve into a bank for bailing out failed speculators," the complaint asserts.

The suit was filed under the False Claims Act, a federal law that permits private citizens to sue on behalf of government agencies if they believe they have knowledge of a fraud. The law gives people a chance to try to recover money for the government and, by extension, the taxpayers. Plaintiffs who succeed typically get a percentage.

Although the bailout of A.I.G. took place over many months and involved a total commitment of $182 billion, the lawsuit focuses on just part of it — two emergency loans, totaling about $44 billion, made at the end of October 2008. The money was used to settle trades involving two big blocks of complex, mortgage-linked securities, some of which were underwritten by Goldman Sachs and Deutsche Bank, and guaranteed by A.I.G.

When A.I.G. went into a free fall in 2008, the Fed extended the two loans to buy up the troubled securities and put them into two special-purpose vehicles, Maiden Lane II and Maiden Lane III, for holding until the turmoil subsided. Earlier this year, the Fed allowed some of the impaired assets to be sold to undisclosed purchasers. The Casadys say the Fed erred in making the loans, because it needed a pledge of high-quality collateral from A.I.G. and instead got a big portfolio of impaired assets.




Paul Volcker says identifying speculative trading is easy
by Lauren Tara LaCapra - Reuters

Paul Volcker, former economic adviser to President Barack Obama, has no patience for banks that claim it will be hard for regulators to rein in their speculative trading.

The rule that bears Volcker's name is meant to prevent banks from making big bets on markets with more money, known as "proprietary trades." The law aims to force banks to instead focus on trading with clients. Many banks fear that their client trading activity will look to regulators like bet-taking, an argument that Volcker says is disingenuous. "Bankers know when they're doing a proprietary trade, I assure you," Volcker told Reuters in an interview at his office in Manhattan on Wednesday. "If they don't know, they shouldn't be in the business."

How can regulators tell if a trade is speculative? "If there are big unhedged positions constantly, then it's proprietary trading," Volcker said. An unhedged position involves a bank taking risk and not offloading it through other securities or derivatives.

Volcker was discussing the topic of proprietary trading at a time of intense debate and lobbying on Capitol Hill related to financial reform. U.S. regulators are now working to formulate the final versions of several large rules that were part of 2010's Dodd-Frank financial reform law, including the Volcker rule. For his part, Volcker does not think it will be all that hard to identify proprietary trading. He suggested that big, unhedged market bets are easy to spot, as are patterns in a bank's trading book.

For instance, Volcker said, regulators should start asking questions if a bank has taken on big positions in certain markets or is holding assets for lengthy periods of time. The key questions, he said, are: "Why did they buy it and why are they holding onto it that long?" "My position is that the rule ought to be enforced," said Volcker, adding that the language in the Dodd-Frank bill "is pretty strong."

A group of five U.S. regulators, including the Federal Reserve and the Securities and Exchange Commission, are in the process of writing separate versions of the provision, which are due to be released in July. As regulators enter the final stage of the rule-writing process, the Volcker provision has become the subject of intense debate among regulators and vigorous lobbying from Wall Street banks including Goldman Sachs Group Inc and Morgan Stanley.

Volcker said he was concerned that the lobbying efforts might water down his eponymous law. He also said banks that find it hard to comply with proprietary trading restrictions probably should not be granted the protections and funding advantages of being part of the Federal Reserve system. "Obviously, there's a lot of lobbying going on," said Volcker. "But if you want to be a bank, follow the bank rules. If Goldman Sachs and the others want to do proprietary trading, then they shouldn't be banks."

Volcker, who was chairman of the Federal Reserve from 1979 to 1987, served as a senior economic adviser to President Obama until earlier this year. He stepped down in February and does not work closely with the president any more, he said. "If he wants my advice, he knows my number," said Volcker.

Volcker reiterated his view that the rule did not go as far as he would have liked because it still allows banks to invest 3 percent of Tier 1 capital in private equity and hedge funds. Asked whether he was happy to have his name associated with the law that has sent shivers through Wall Street, Volcker chuckled. "It's a funny thing to be asked," he said. "My grandchildren will be happy about it. It does give me an active interest in seeing that it is effectively implemented."




Bernanke warns that regulators must avoid burdensome rules when enacting financial reform
by Jim Puzzanghera - LA Times

Federal Reserve Board Chairman Ben S. Bernanke said that regulators need to avoid "ineffective or burdensome rules" as they implement the sweeping financial reform law passed last year.

In a speech at a Fed conference in Chicago on Thursday, Bernanke said broad new oversight of the financial system required under the law is already underway. As Fed chief, Bernanke is part of the new Financial Stability Oversight Council, which regularly convenes top government regulators to monitor the economy for signs of risk. But he warned against regulators going overboard in reaction to the severe financial crisis that struck in 2008 and "stifling reasonable risk-taking and innovation in financial markets."

"Understandably, given the damage wrought by the crisis, the council and its members remain focused on addressing possible sources of financial instability, including both structural problems and risks arising from ongoing economic or financial developments," he said at the Federal Reserve Bank of Chicago's annual Bank Structure and Competition conference. "However, no one's interests are served by the imposition of ineffective or burdensome rules that lead to excessive increases in costs or unnecessary restrictions in the supply of credit."

The increased coordination of financial regulators required under the law "should serve not only to improve our management of systemic risk, but also reduce the extent of duplicative, inconsistent or ineffective rule makings."

Bernanke gave no indication that he thought regulators had overreached so far in starting to implement hundreds of new financial rules required under the so-called Dodd-Frank act. But his comments came as business groups have complained about overly burdensome government regulations and House Republicans have pushed to slow the rule-writing process.

The Fed serves as a key government regulator of large banks. The law expanded its authority to include supervision of large nonbank financial firms that could pose a risk to the economy. But in passing the law, Congress also stressed the need for financial regulators to look beyond the health of individual banks and other firms to try to head off broad threats to the economy, such as the widespread increase in risk-taking that led to the financial crisis.

Bernanke said that new broader view of financial regulation was "a major innovation" in the United States and abroad designed "to minimize the risk of financial disruptions that are sufficiently severe to inflict significant damage on the broader economy."




Soros and Paulson move in opposite directions as gold declines
by Tom Bawden - Guardian

Two of the world's most successful investors have gone head to head over the price of gold, with the man who broke the Bank of England baling out of the precious metal and the man who made a fortune by betting against the American housing market talking it up.

At the end of a week when plunging commodity prices fuelled speculation that the boom might be over, it emerged that George Soros – who made $1.1bn from betting against the pound in 1992 – has sold much of the gold and silver holdings he has built up in the past three years, realising an estimated return of 65% on his investment. By contrast, meanwhile, John Paulson, who made his hedge fund more than $20bn from betting against the US housing market by "shorting" sub-prime mortgages, this week told investors that he still has most of his personal money invested in gold.

The billionaires' differing stances emerged as the gold price fell by a further 1.6% and silver rounded off its worst week in at least 35 years, dropping another 9.6% to take its losses over the week to a startling 29%. The week's declines in precious metals probably came as little surprise to Soros, who implied he thought gold was in danger of dropping as far back down as January last year's price, telling the Davos Economic Forum: "When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold."

Paulson takes quite a different view on price, telling investors that gold could increase from its present, near-record, level of about $1,487 an ounce to as much as $4,000 over the next three to five years. He believes the gold price will keep rising – after increasing by nearly half in the past three years – in large part, he says, by providing an effective store of value against rising inflation.

That two such successful investors should take such wildly differing views on the price of gold underlines how much uncertainty surrounds the prices of precious metals and other commodities, at least in the short term. Like many other commodities, the price of gold has surged in recent months as high inflation and low interest rates prompt speculators to move away from US treasuries and other low-yielding assets in search of higher returns.

In addition to the negative real interest rate, investors have been piling into commodities such as gold and silver because the struggling US dollar – in which many of them are priced – has made them cheaper and increased their attractiveness as an alternative currency and investment of value. Furthermore, demand from manufacturers for the raw materials they need to make their products has been increasing, as the Chinese economy powers ahead and the European and American economies pick up.

As a result, prices of commodities such as gold, silver, cocoa and coffee have hit record, or near-record, highs in recent weeks, prompting speculation that the rally may have been overdone. Traders and economists are divided about whether last week's rout marks the top of the commodities market, or represents a temporary blip before prices continue to surge.

However, most distinguish between the long term and the short term. At some point in the short term, commodity prices will flatten, or quite possibly fall, but in the longer term, the upward trend must continue. Derek Holt, vice-president Economics at Scotia Capital, in Toronto, said: "In the longer run, we are only in the early days of the commodities boom. Only 15% of households in India have a fridge and while China may now be the biggest car market in the world, it has only a fraction of the penetration of the US or UK. Emerging market growth has a long way to go and will put huge pressure on commodity prices."

Holt believes that commodities have hit the top of the market since they have "run too far ahead of other fundamentals". However, he also thinks that prices will start to rise again at some point in the second half of the year and, subject to the odd fluctuation, predicts that commodity prices from oil to coffee, and copper to cocoa and gold could at least double in the next 20 years or less as increasingly wealthy populations of China, India and other emerging economies demand more consumer goods.

The price rises would put huge pressure on the lifestyles of people in the west, whose slower-growth economies would be less able to weather their impact than those of the fast-growing emerging nations, where breakneck growth would far outstrip rising commodity costs, he said. After diving by as much as 12% on Thursday – and by nearly another 5% this morning – oil rebounded following the release of strong employment data in the US that strengthened its economic outlook. Oil was up $0.41, at $111.21 a barrel, late this afternoon, after hitting $126 last week.




Europe Wheat Harvest to Fall on Drought, May Be Catastrophic
by Rudy Ruitenberg - Bloomberg

The European Union wheat harvest, which accounts for a fifth of world production, will fall this year as drought cuts yields in France and Poland, said Michel Portier, general director of Paris-based farm adviser Agritel. "We’re losing yield," Portier, whose company advises more than 2,000 farmers on crop sales, said in an interview in Paris today at a conference on commodity-industry regulation. "We already know that the 2011 harvest will be below 2010, both in France and in Europe."

The wheat situation in Europe "will be catastrophic" if the drought continues for another 10 days, and no significant rain is forecast for northern Europe for the period, Portier said. For now the outlook for Black Sea region production is "alright," which is keeping wheat prices in check, he said.

France, the EU’s largest wheat grower, just had its second- hottest April since 1900 and one of the driest since 1953, the country’s Agriculture Ministry reported this week. European wheat and rapeseed are at an "important tipping point" because stored soil moisture from the winter has been used up, Martell Crop Projections said in a May 2 report.

The EU wheat harvest fell 2.4 percent last year to 135.4 million metric tons, the London-based International Grains Council estimates, on a world wheat crop of 649.6 million tons. The council last month cut its outlook for world production in 2011/12 by 1 million tons to 672 million tons as dry weather in the U.S. and the EU affects crops.

Yield Losses
"I’m very concerned," Portier said. "The situation is irreversible. It’s not in all the forecasts yet. The biggest yield losses will be in France and Poland, Germany is more mixed, the south is good and the north is bad."

Milling wheat for November delivery, after the next harvest, has dropped 5.5 percent on NYSE Liffe in Paris this year and is up 37 percent in the past 12 months. Temperatures across France averaged 14.5 degrees Celsius (58 Fahrenheit) in April, 3.8 degrees above normal, while average rainfall was 21 millimeters, 65 percent less than normal, according to the ministry’s weather report.

Accumulated rainfall since the start of March is below normal, "particularly" north of the line from Bordeaux to Nancy, the ministry said. That part of the country accounts for more than 80 percent of France’s wheat crop. "I’m not sure it’s priced in," Portier said. "If we have no more water for two more weeks, prices will go higher."




Australian property experts warn rise in mortgage defaults points to first home buyer stress
by Patrick Stafford - Smartcompany

The property industry is becoming worried over a rise in the number of delinquent mortgages as reported by ANZ and Westpac in their half-year results this week, warning home buyers are desperate for long-predicted income growth that will help them manage repayments. The figures released by the two banks come just two months after a Fitch report found the number of delinquent mortgages in Australia rose during the third quarter of 2010, with 90+ day arrears reaching 0.54%.

A separate report released at the same time by the Real Estate Institute of Australia found the average proportion of income now required to meet repayments has risen to 35%.
Yesterday Westpac released its half-yearly financial results, and showed that the number of 90-day delinquencies has risen to 59 basis points, up from 47 basis points in September 2010. ANZ also said it has recorded a rise in the number of delinquent mortgages.

Property experts say the rise in defaults is worth taking note of. "This is something that we should keep an eye on," Housing Industry Association economist Matthew King says. "This emphasises the serious affordability constraints we have in the Australian marketplace." Australian Property Monitors economist Andrew Wilson agrees, and warns that the huge surge in prices in both Melbourne and Sydney has meant first home buyers are struggling with repayments. "There was a surge in demand of those markets, and perhaps we had prices moving ahead of incomes in those markets."

This is the explanation provided by Westpac chief executive Gail Kelly and chief financial officer Phil Coffey, who said that mortgages tend to slip into default about three years into the loan cycle. Both explained Westpac had sold a large number of mortgages between 2007-09. These experts agree, and say the number of first home buyers who purchased properties when prices were already inflated are now finding it hard to make repayments, as tighter employment conditions have not yet translated into higher wages.

"We haven't yet seen that upward movement in wages, and we've only started to see growth in that area," King says. "Now, there is a broad expectation that this is going to happen, but we still haven't seen it." Wilson says the property market is now in a period of transition, as prices begin to fall and home owners start to adjust as their incomes rise. "The other end of the equation here is the cost of finance, because we've seen about seven interest rate rises throughout several months up to November, and then an additional one for Westpac buyers. So that affects their position as well."

Both experts warn that because it is taking so long for wages to catch up, there will be more delinquencies in the months ahead – especially as figures from the REIA show the average mortgage payer is devoting over 35% of their income to repayments. Gail Kelly herself predicted this yesterday, saying that while delinquencies were artificially increased by the natural disasters in Queensland, the bank still expects arrears to rise.

"We expect to see an increase in stress and more in the way of customers requiring assistance, customers requiring bridging to actually navigate their way through that," she told the Australian Financial Review. However, she also noted that overall the market is performing well and the delinquencies won't result in a loss. Both these experts also say overall, delinquencies are quite low.

However, King says the prospect of other interest rate rise in the next few months will also make matters worse for home buyers, especially first home owners who bought when prices were already high. "We certainly do hope that wages catch up, and that seems to be the case as the labour market is set to strengthen even further." "But if they didn't, we can see that the first home buyers would be the hardest hit. Many would suffer a significant loss and move back into the rental market, which is tight already."

Wilson says the same, and argues the labour market will ensure those suffering mortgage stress will be given reprieve when incomes increase. However, he does say this situation provides evidence of what the property market will look like over the foreseeable future. "We don't have a linear housing series anymore. These things come in ebbs and flows, and I don't think we'll ever have a boom and bust cycle in this country again. We're seeing more of a time when prices and incomes will need to adjust over time."

However, despite these comments, financial institutions are alarmed over the rise in delinquencies. According to the AFR, UBS has told its clients that "the sharp rise is an ominous lead indicator for the domestic economy". Morgan Stanley also noted that "the combination of arrears trends... suggests that Australia's operating conditions are no longer improving because the "two-speed" economy is weighing on households and businesses".




The most surprising demographic crisis
by Economist




Does China have enough people? The question might seem absurd. The country has long been famous both for having the world’s largest population and for having taken draconian measures to restrain its growth. Though many people, Chinese and outsiders alike, have looked aghast at the brutal and coercive excesses of the one-child policy, there has also often been a grudging acknowledgment that China needed to do something to keep its vast numbers in check.

But new census figures bolster claims made in the past few years that China is suffering from a demographic problem of a different sort: too low a birth rate. The latest numbers, released on April 28th and based on the nationwide census conducted last year, show a total population for mainland China of 1.34 billion. They also reveal a steep decline in the average annual population growth rate, down to 0.57% in 2000-10, half the rate of 1.07% in the previous decade.

The data imply that the total fertility rate, which is the number of children a woman of child-bearing age can expect to have, on average, during her lifetime, may now be just 1.4, far below the "replacement rate" of 2.1, which eventually leads to the population stabilising.

Slower growth is matched by a dramatic ageing of the population. People above the age of 60 now represent 13.3% of the total, up from 10.3% in 2000 (see chart). In the same period, those under the age of 14 declined from 23% to 17%. A continuation of these trends will place ever greater burdens on the working young who must support their elderly kin, as well as on government-run pension and health-care systems. China’s great "demographic dividend" (a rising share of working-age adults) is almost over.

In addition to skewing the country’s age distribution, the one-child policy has probably exacerbated its dire gender imbalance. Many more baby boys are born in China than baby girls. China is not unique in this; other countries, notably India, have encountered similar problems without coercive population controls. But Chinese officials do not dispute that the one-child policy has played a role. China’s strong cultural imperative for male offspring has led many families to do whatever they must to ensure that their one permissible child is a son. In the earliest days of the one-child policy, this sometimes meant female infanticide. As ultrasound technology spread, sex-selective abortions became widespread.

The new census data show that little progress is being made to counter this troubling trend. Among newborns, there were more than 118 boys for every 100 girls in 2010. This marks a slight increase over the 2000 level, and implies that, in about 20 or 25 years’ time, there will not be enough brides for almost a fifth of today’s baby boys—with the potentially vast destabilising consequences that could have.

The census results are likely to intensify debate in China between the powerful population-control bureaucracy and an increasingly vocal group of academic demographers calling for a relaxation of the one-child policy. Their disagreement involves not only the policy’s future, but also (as so often in China) its past.

One of the academics, Wang Feng, director of the Brookings-Tsinghua Centre for Public Policy, argues that China’s demographic pattern had already changed dramatically by the time the one-child policy began in 1980. The total fertility rate had been 5.8 in 1950, he notes, and had declined sharply to 2.3 by 1980, just above replacement level.
Other countries achieved similar declines in fertility during the same period.

The crucial influences, Mr Wang reckons, are the benefits of development, including better health care and sharp drops in high infant-mortality rates which led people to have many children in order to ensure that at least some would survive. By implication, coercive controls had little to do with lowering fertility, which would have happened anyway. Countries that simply improved access to contraceptives—Thailand and Indonesia, for instance—did as much to reduce fertility as China, with its draconian policies. Taiwan, which the government in Beijing regards as an integral part of China, cut its fertility rate as much as China without population controls.

The government denies the one-child policy was irrelevant. It insists that, thanks to the policy, 400m births were averted which would otherwise have taken place, and which the country could not have afforded. Ma Jiantang, head of China’s National Bureau of Statistics, insisted "the momentum of fast growth in our population has been controlled effectively thanks to the family-planning policy."

There are many reasons for the government’s hard-line defence of its one-child policy. One is a perhaps understandable view that China is unique, and that other countries’ experience is irrelevant. A second is that, though the policy may not have done much to push fertility down at first, it might be keeping it low now. A third is that, if controls were lifted, population growth might rise. In fact, there is little justification for such fears: in practice, the one-child policy varies from place to place; it hardly applies to China’s minorities and is more lightly applied in rural areas—and there is no population boom in those parts.

Anyway, argues Joan Kaufman of the Heller School for Social Policy and Management at Brandeis University, official support for the policy is only partly to do with its perceived merits: it is also the product of resistance by China’s family-planning bureaucracy. This has massive institutional clout (and local governments have a vested interest in the fines collected from violators). "The one-child policy is their raison d’être," says Ms Kaufman.

Mr Wang and his colleagues argue the one-child policy should go. The target reductions in fertility rates were reached long ago. Current rates, he says, are below replacement levels and are unsustainable. The time has come for the first big step: a switch to a two-child policy. Research by his group suggests few families in China would choose to have more than two.

There are signs that the academics are succeeding in their campaign to make the population debate less politicised and more evidence-based. Mr Ma of the National Statistics Bureau spoke not only of adhering to the family-planning policy, but also of "cautiously and gradually improving the policy to promote more balanced population growth in the country".

In his comments on the census, President Hu Jintao included a vague hint that change could be in the offing. China would maintain a low birth rate, he said. But it would also "stick to and improve" its current family-planning policy. That hardly seems a nod to a free-for-all. But perhaps a "two-for-all" may not be out of the question.




Japan wants 3 reactors closed while seawall built
by Shino Yuasa - Businessweek

Japan urged a power company Friday to suspend all three reactors at a coastal nuclear plant while a seawall and other structures are built to ensure a major earthquake or tsunami does not cause a second radiation crisis. The move came as the government is conducting a safety review of all Japan's 54 nuclear reactors after the Fukushima Dai-ichi nuclear plant was crippled by the March 11 earthquake and tsunami that left more than 25,000 people dead and missing on the northeast coast.

The Hamaoka nuclear plant just 110 yards (100 meters) off the Pacific coast in central Japan is the only one so far where the government has asked that operations be halted until the utility can implement safety measures. Chubu Electric Power Co. said in a statement it will "swiftly consider" the government's request. The statement gave no further details. Government officials estimate the work could last two years.

Prime Minister Naoto Kan said at a news conference Friday evening he requested the shutdown for safety reasons, citing experts' forecast of a 90 percent probability of a quake with magnitude of 8.0 or higher striking central Japan within 30 years. "It was a decision made after thoroughly considering people's safety," Kan told a news conference. The government asked Chubu Electric to suspend two running reactors and a third already shut for a regular inspection at the plant in Shizuoka, around 124 miles (200 kilometers) west of Tokyo. "If an accident occurs at Hamaoka, it could create serious consequences," Kan said.

Since the March 11 disasters, Chubu Electric has drawn up safety measures that include building a seawall nearly a mile (1.5 kilometers) long over the next two to three years. "The height of the seawall is at least 12 meters. We have come up with this safety measure after the March quake and tsunami," said Takanobu Yamada, an official at Chubu Electric. The company also planned to erect concrete walls along 18 water pumps at the plant. Yamada said the walls aimed to protect the pumps from damage from an earthquake and tsunami, and it will take a year or one and a half years to complete the construction.

The plant does not have a concrete sea barrier now, but sandhills between the ocean and the plant are about 32 to 50 feet (10 to 15 meters) high, according to the company. The seawall of at least 40 feet (12 meters) would be built between the sandhills and nuclear plant over the next two to three years. Yamada said Chubu Electric has estimated a tsunami reaching around 26 feet (8 meters).

Trade Minister Banri Kaieda argued Chubu's safety measures were "not enough" without elaborating further. "Until the company completes safety steps, it is inevitable that it should stop operating nuclear reactors," Kaieda said.

Tokyo Electric Power Co., operator of the stricken Fukushima plant, has said the waves that wrecked critical power and cooling systems there were at least (46 feet) 14 meters high.
Shizuoka governor Heita Kawakatsu called the government's move "a wise decision." "I pay my respect for the decision. We must do our utmost to secure alternative sources of energy," the governor said in a statement.

Residents in Shizuoka have long demanded suspension of the Hamaoka reactors. Around 79,800 people live within a 6.2-mile (10-kilometer) radius of the plant, according to Shizuoka government figures. The plant provides power to around 16 million people in central Japan. Faced with a possible power crunch due to the shutdown, the prime minister sought public understanding. "We will experience some power crunch for sure. But we can overcome this with public support and understanding," Kan said.

The region powered by the plant includes Aichi, where Toyota Motor Corp.'s headquarters and an auto plant are located. Automakers and other industries have had troubles with interrupted supply lines, parts shortages and damage to manufacturing plants since the March 11 disaster.

The Fukushima Dai-ichi nuclear plant lost its power and cooling systems in the earthquake and tsunami, triggering fires, explosions and radiation leaks in the world's second-worst nuclear accident. Radiation leaks have forced 80,000 people living within a 12-mile (20-kilometer) radius of the plant to leave their homes. Many are staying in gymnasiums and community centers. Since the Fukushima crisis unfolded, Associated Press investigations have found that TEPCO underestimated the tsunami risk there and that a revolving door of top officials between government regulators and industry allowed a culture of complacency to prevail.

TEPCO submitted an analysis to Japan's Nuclear and Industrial Safety Agency in 2001 that waves would not exceed 5.7 meters (18 feet) at the Dai-ichi plant. The model was based on a quake of 8.6-magnitude, while a 9.0 was what occurred, and it assumed the backup power generators would stay dry. TEPCO didn't disclose the underlying data behind its assumptions, and NISA, the government regulator, did not scrutinize the calculations, AP's investigations found.


74 comments:

Stoneleigh said...

AWITW,

Floating a trial balloon story that terra-ists were somehow responsible for the Great Financial Meltdown is a great segue for the Criminal Class to channel Duhsheeple into appropriate levels of apoplexy after they realize their pensions (and their children and grandchildren's pensions) have left the planet.

Indeed. Plus they can say no one could have predicted this, so those who did must have had some nefarious hand in causing it, or at least cheerleading for it, and must therefore be enemies of state. It's so Orwellian, but you can see it coming a mile off. The powers that be want everything to be superficially black and white, and always someone else's fault, whatever twisted and spurious 'logic' they have to apply to make it seem so. The free flow of information, and independent unbiased analysis, interfere with that. At some point (probably shortly after it becomes obvious that the next phase of the credit crunch has begun) this will become a problem for independent analysts.

The OBL (Emmanuel Goldstein) story stinks to high heaven. They don't even try hard to make things seem plausible anymore, because they don't have to. Spin is enough to convince most people. It's so sad.

What are they setting up in the world of real politik (ie the way the world really works beneath the surface)? A pretext for leaving Afghanistan (thereby freeing up troops for the home front in an era of huge unrest)? Provoking a revenge attack (or at least the appearance of one) as a pretext for further military adventures? The mind boggles.

Expect disinformation and distractions from events as they unfold, as well as attempts to unify people against a common external 'enemy'. Expect more excuses as to why promises cannot be kept, why assets have been 'misplaced' or 'stolen by our enemies', why poverty keeps increasing and destitution beckons for many. Resist the temptation to be part of the inevitable fear/anger response. We are witnessing the tragedy of our times.

Brunswickian said...

At last, US releases photographic evidence that Osama Bin Laden is dead

http://tinyurl.com/3mcshgo

scandia said...

@Ilargi, On reading about the bail-out crisis in the EU I can't imagine the pressure the Finnish Parliament must be experiencing!

scandia said...

@Brunswickian...that " photographic evidence " is hilarious!

p01 said...

@Brunswikian

Here I come with a glass of wine in hand, unsuspecting, eager to read the new post and comments...
And now I have to clean up the keyboard, screen and half the desk and floor!!!
Thank you!

Mr. Kowalski said...

Can anybody tell me what the leverage ratio of European banks are ? I remember reading that some Swiss banks were leveraged at something like 70-1 {debt-cash}.. and thats before we consider the derivatives they've underwritten. This is complete madness and when the Day of Reckoning arrives, it will be very fast and total. Then again JP Morgue has underwritten something like 400 times their cash cash positions in derivatives. Yeah-- this'll end well. Yup.. I believe-- after all, pretty Miss Bartiromo tells me so.

Just-Takes-Half-A-Brain said...

I love how Greek and EU officials insist that Greece cannot leave the Euro because "there is no mechanism to leave the Euro." As if writing down the words "you can't go" in some legal document has some binding force that evokes Zeus himself. But there is clearly a mechansim in place to allow Greece to exit the Euro. It is spelled, "Goodbye."

scandia said...

@Just Takes Half a Brain, re leaving the Euro I'm thinking the Catholic Church might be able to help. They seem to have a mechanism to deal with people who break the rules or leave the fold. The rites of excommunication may provide a way out.I am kind of serious here...

I. M. Nobody said...

A growing sense of unease spread among the humanoid inhabitants of planet Orwellia. Something had gone wrong with their greatest technical acheivement and frequently most prized possession, the tele-screen. Whether flat or curved, rectangular or round, the tele-screen had reliably informed them of what was going on around their wobbly planet and what to believe. Reinforcing as it did to the old saw that held one should, "believe none of what you hear and only half of what you see." But, something must have gone wrong. The tele-screen had started presenting contradictory truths about events more frequently than their memory organs could erase the previous truth. The Flying Spaghetti Monster had not forseen this situation when it designed these humanoids.

Thus it came about that Orwellians fell victim to the heresy of Heisenberg, uncertainty. Even Pastafarians doubted that they could be sure whether trained seals had killed or not killed the hated OBL who did or did not have bad kidneys, was or was not armed, did or did not watch himself on a tele-screen in his home that was or was not worth a million dollars and did or did not have electricity.

On top of that conundrum, they had to worry about whether a people noted for bearing parasite infested gifts will or will not leave bags of stinky money on the steps of German banks. Everything was becoming uncertain. Did the banksters destroy the economy or was it mysterious terrorists? Did Anonymous hack the Playstation network? Why doesn't anyone suspect Nintendo or Microsoft? Is Fukushima Daichi worse than Chernobyl or not?

Unprepared as they were for the Heisenbergian onslaught the people of Orwellia began to doubt even their bretheren and sisteren. Why even their Big Brother came to be seen as a little shifty. And so it came to pass that the only Orwellians willing to believe anything were the ones willing to believe ANYTHING, no matter how preposterous.

Martians watching this tragedy unfold on their tele-screens fervently prayed to FSM. Beseeching it to help the Orwellians complete the destruction of their economy before they can fulfill their planned invasion of Mars.

Linda said...

@ Brunswickian--Been appreciating your links. Loved the photo tonight. Re-posted it on FB. Also liked your recent link to the terrible birth defects from depleted uranium.

Lynford1933 said...

Thanks Brunswickian; In a couple hours I will be getting feed back from my people list. Good show.

M.G. in Progress said...

Remember that in the case of Greece it's just a matter of Lies, damned lies and statistics: or governments' Ponzi scheme!
http://mgiannini.blogspot.com/2009/12/lies-damned-lies-and-statistics-or.html
Perhaps it's worth recalling that Greece actually should have never got into the Euro as it cheated on statistics and did not comply with Maastricht criteria. It should not be a surprise if now it gets out of the Euro.

DancesWithStapler said...

You know Conan is going to have a field day with that video of OBL watching himself. Imagine all the possibilities of what they might superimpose on the TV screen. It's almost too easy.

DancesWithStapler said...

I was hoping someone could clarify something for me on the whole deflation/hyperinflation debate.

As I understand it, the reason deflationistas believe that the government will not be able to print their way out of debt is that at some point the bond vigilantes will stop buying our(US) bonds and we will default. But since the Fed is buying most US bonds now, have they found a way around the bond vigilantes? Can the Fed just buy endless amounts of bonds and keep the enxtending and pretending going indefinitely? Thanks.

lautturi said...

@scandia
Just this Friday we got one tabloid bu11sh1t paper showing nice graphs how regular people (they "polled" about 1000 people) are in favour of bail-out. Only True Finn, Christian and leftist party supporters were shown as against the bail-out. Mind boggles... or the brainwashing is really working. Scaremongering at its best you know.

scandia said...

What's with the posting of bin Laden's will? Wonder who scripted that?

NZSanctuary said...

Just-Takes-Half-A-Brain said...
I love how Greek and EU officials insist that Greece cannot leave the Euro because "there is no mechanism to leave the Euro." As if writing down the words "you can't go" in some legal document has some binding force that evokes Zeus himself.

An example of the authority fallacy. The force(TM) is strong with this one.

Ash said...

@DWS

"But since the Fed is buying most US bonds now, have they found a way around the bond vigilantes? Can the Fed just buy endless amounts of bonds and keep the enxtending and pretending going indefinitely?"

No, because at some point tax revenues will plummet, deficits will grow much larger and, if external creditors are unwilling to finance it, people will lose faith in the bond market and most likely the currency as well. The Fed cannot be the sole source of public credit, especially in a huge economy so dependent on energy/goods imports.

If the UST and Fed play their deflationary cards right, however, I believe they can keep the Treasury/dollar ponzi going for a few years longer than most people looking at the "hard data" would expect. That's what many in the HI crowd fail to understand... it's all about timing and the "least worst" markets in our global financial system. The periphery almost always starts to give out before the center, but the center is an increasingly small island in a vast sea of tears and blood these days...

p01 said...

Mind's been working overtime last few days...
I'm becoming convinced those two noises we heard last week are the muffled sounds of the chain dissengaging on the roller coaster.
Tighten your chinstraps...something is about to change.
The first sign to look for is cracks in the convictions of one's nuttiness in one's circle of "don't worry, be happy, look ipad2!" friends.

thethirdcoast said...

The OBL (Emmanuel Goldstein) story stinks to high heaven. They don't even try hard to make things seem plausible anymore, because they don't have to. Spin is enough to convince most people. It's so sad.

I couldn't agree with Stoneleigh more. I find it abjectly frightening that the allegedly intelligent, educated people around me have swallowed the official story hook, line, and sinker.

They have even gone so far to deride those who question the lack of any physical evidence as conspiracy theorists. I find these attitudes utterly appalling because the use of credible evidence is (was?) a cornerstone of the entire Western legal system.

Sadly, the wreckage of the secret helicopter and alleged fitment titanium teeth to SEAL attack dogs are the major points of interest for the 20-to-30 year old male set.

I would invite all concerned souls to pray for the future, but as the band Primal Scream once sang,

Ain't no use in prayin'....that's the way it's stayin'....baby...."

Franny said...

@Ash
That seems to be the most likely course. With global competitive currency devaluation, the US dollar should be the last fiat standing. The tricky part is figuring out how many years it will take. Will there be a better opportunity to switch savings to PM's along the way?

PeakVT said...

At this point for the PIGS (minus the S) it's inflation or default. I really don't understand why the ECB is choosing default.

agtefc said...

@ Stoneleigh...

Regarding your response to AWITW:

Well said. The mind boggles.

Cheers

agtefc said...

@ I am Nobody.

That is a keeper. :)

Cheers

Ash said...

Franny,

Personally, I hold some gold and silver right now even though I expect there will be a better price entry point farther down the line, and I advise my family/friends to do the same. It's not much compared to others, simply because I don't have much money to begin with, but I think they are solid stores of value long-term and, if HI somehow ends up happening soon, you don't want really want to be left without any.

It obviously depends on your specific situation though, in terms of how much money you have, how much debt, what your expected expenses will be, etc. For people with a lot of excess wealth and little debt, it makes much more sense to devote higher %s to PM investments. That being said, physical preps are the most important, because they are even more fundamental to your survival and will be critical regardless of which extreme monetary trend plays out in the near future.

So anyway, to generally answer your question, I would say if you physically prepared to a significant degree, paid off debt and still have a good deal of excess wealth that you expect will not be needed for daily/monthly expenses, then I wouldn't wait long to invest in PMs. Especially silver right now, since it just got hammered down, but also some gold too.

You could "dollar-cost average" it over a period of months, by determining the total amount you are going to invest and then purchasing a fixed number of ounces each week or so until you run out.

DIYer said...

Even Pastafarians doubted that they could be sure whether trained seals had killed or not killed the hated OBL who did or did not have bad kidneys, was or was not armed, did or did not watch himself on a tele-screen in his home that was or was not worth a million dollars and did or did not have electricity.

Apparently OBL has been hiding in a box marked "Schrödenger". Was there anything about a cat in the news reports?

I. M. Nobody said...

@ DIYer

Now that you mention it, the most glaring omission in all discussion of OBL has been any reference to his reputation among jihadis as a Fat Cat. It is said to have been the basis of his street cred. In Holmesian terms, is that the dog that didn't bark? Was he snuffed because he had reached his credit limit and by his reputation was blocking the advancement of a better connected conduit?

Inquiring minds should probably leave that thought alone. There are after all, trained seals swimming in the pool.

el gallinazo said...

thethirdcoast said...

Sadly, the wreckage of the secret helicopter and alleged fitment titanium teeth to SEAL attack dogs are the major points of interest for the 20-to-30 year old male set.

============

One would think that the titanium teeth story would catch the interest of the over 60 crowd. Does the Navy make them for humans also? Do they work well on Porterhouse? I vaguely recall a James Bond flick from my youth were a villain was outfitted with such.

I found the posting from IMN about a positive DNA match in the most advance lab in the world taking at least a week including transit time of interest. One of my friends did ask me about the DNA identification. Most decent people just can't take it in what dishonest, lying bags of shit we are dealing with. It reminds me of that excellent Omar Sharif movie, Monsieur Ibrahim, where the teenage kid, put in charge of prepping the evening meal, starts to buy and fry up cans of dog food for his cheapskate dad, who thinks it totally delicious, so he can spend the difference on a friendly prostitute. Besides allowing him his lusty pursuits, the kid totally enjoyed watching the dad smacking his lips over the dog food. I would imagine that our "security and intelligence" community gets the same sort of charge feeding us this dog (food?).

I. M. Nobody said...

Serendipity once again brings together complimentary threads across time and space. Today has been chosen to bring into our lexicon an initialism found in Fred's column of January 30, 2008. He wrote about a class of pseudo-humans that should be of at least as much concern as TPTB. They are the PTM (Paranoid Truculent Males) which does include a growing number of females.

Fred focuses on their influence on foreign policy. I seems apparent to this observer that they are also developing a growing list of domestic enemies who must be destroyed. It should also be noted that they are everywhere and represented in every level of society.

Understanding US Foreign Policy

I. M. Nobody said...

RE: Fukushima

Arnie's latest video says it is pretty bad and it could have been a lot worse.

Fukushima Groundwater Contamination Worst in Nuclear History

Franny said...

@Ash
I have the fortunate problem of having retirement savings as well as a 529 college savings plan, neither of which will be needed for quite a while. One part of the retirement savings is in a 401k with not great options, so that is in cash, may move to a PM mining mutual fund in the future. Now I just need to find a state with a PM option in itsa 529!

el gallinazo said...

For those of you who have not discovered the graphic political satirist williambanzai7 on Zero Hedge, I cannot recommend his brilliant work highly enough. Of course the OBL thing has been a virtual feeding frenzy for him. If you have the time, you might want to work back in the archives to the great (un?)event. His link in ZH can be found at the top of the page, three across row reserved for "house" columnists.

Nassim said...

DIYer,

I think you meant Schrödinger's cat :)

Lynford1933 said...

This may be of interest whether you care for Karl or not:

http://market-ticker.org/akcs-www?post=185666

DIYer said...

Nassim,

Yes, and that's why they can't publish any photos of it. It would collapse the probability function and tear the fabric of spacetime.

I. M. Nobody said...

@DIYer

Hehehe, that's the best reason I've heard yet.

Shamba said...

I. M. Nobody said...
A growing sense of unease spread among the humanoid inhabitants of planet Orwellia.

LOL! Well, that's about as good a summary of what's going on as anything else I'm reading these days.

A thought: Maybe it's the Flying spaghetti Monster I need to be sending my prayers along to. It doesn't seem like it could hurt ..

peace, shamba

I. M. Nobody said...

Shamba,

I'm glad it gave you a laugh. It's that old when the muse shows up go with it thing.

Praying to FSM clearly can't hurt. Pastafarians and Martians everywhere will appreciate your acceptance of their deity. None of the other deities seem to be showing any interest, except Mammon of course.

Peace to you Shamba

NZSanctuary said...

@DIYer . . .

Must agree with our non-entity - very funny indeed! :-)

NZSanctuary said...

Does anyone know much about the Real ID cards (drivers licenses?) that were set to be introduced on May 11 this year in the US?

el gallinazo said...

I listen to Webster Tarpley's Sunday one hour podcast and find it invaluable. First I will tell you what I don't like about it.

1) His ideology is somewhere on the left (which I am comfortable with) but he is **so** ideological. Every world actor is given a good guy / bad guy rating, and this is always determined by how much they play ball with the Washington-London "hyenas." This can become tiresome.

2) His economics is Keynes on steroids. He has no inkling of peak resources. He has been to heaven and discovered that God sits at the right hand of FDR.

3) He has a short segment every week on the birther issue. He maintains that this is important, not so much for the constitutional issue, but that it allows Obama to be blackmailed. After the release of Obama's obviously photoshopped long form this week, I am starting to lean toward the reality of the birthers, that he was not technically eligible to be president. Tarpley is interesting as a "rabid" leftist birther. He calls him a Manchurian Candidate.

So what do I like about him enough to put up with this every week.

His knowledge of history and geopolitics is immense. He is really a super brain. He understands the strategies of the shadow governments more deeply than anyone else going other than the "hyenas" themselves. And he calls the shots long before anyone else. For example, months ago he called the "Arab Spring" as a CIA orchestrated putsch that had nothing to do with democracy, in Egypt, Tunisia, Syria, and Libya. This has proven to be true. Now even Tyler Durden is refer to it as "spooks on the ground,"

He was the first to say that the Libyan rebels who NATO has armed, supported, and constructed a central bank for, are primarily composed of al Qaeda fighters many of whom are returned from Afghanistan and Iraq. Strange bedfellows for NATO indeed. Now proving also to be correct.

And he is the first to point out the growing rift between Putin and Medvedev, Putin being the pro nationalist, and Medvedev having sold out to the Washington-London axis. Lots more. This is just a taste.

el gallinazo said...

He says that if you analyze false flag operations against their own people, you will always find that supposed drills were set up in advance to simulated the attack, and then the drills either became the attack or the cover for the attack. On 9/11, for example, there were 25 military drills, mainly air force, going on, most of which related to the attacks or defense against it. Same deal with the London bombings. So he says, watch the drills. That is the tip off. Of course we have the very strange and huge FEMA New Madrid Fault drill coming up this month. And as Prof. Peter Dale Scott documents in almost stultifying detail in his "Road to 9/11," FEMA was born as a shadow government and its function to help the peasants in an emergency was just a cover. So any huge drill by FEMA is worrisome, and certainly not what it is supposed to appear. Particularly since this is the 200th anniversary of the last major earthquake from the New Madrid Fault. That's right, it shook Abe Lincoln's cradle.

As to the OBL hit, he figures that he was long dead. But the important issue is not whether he was dead or alive, but rather why they chose to do it now. Celente, came out a few days ago and said it was to boost Obama and the mood of the country vis-a-vis the economy. Tarpley states these things are not done for partisan politics (with the exception of Reagan's October Surprise). But both Tarpley and Celente agree that they are going to start a really big new war, and probably throw a supposed revenge giant false flag to kick it off. Celente feels that the Arabs and Pakistanis are pissed enough at being murdered by drones that they might not even need a false flag. I disagree with this in that false flags allow the scumbags to control the timing and get their ducks in a synchronized row. That much I figured out by myself. But Tarpley's analysis surprised me. He said the most likely target is our supposed ally, Pakistan. With Libya a somewhat distant second. The goal will be to break Pakistan up into its four ethnic groups. Clinton has dropped all pre-negotiation conditions with the Taliban to now ally itself with the Pashtun Taliban against the central government of Pakistan. Only George Orwell could have made this up.

http://tarpley.net/world-crisis-radio/

el gallinazo said...

Also well worth listening to and a lot shorter, my favorite Reagan supply sider, Paul Craig Robert's take on the week's events. Difficult to believe this guy was a major player in the Reagan administration. He must have been visited afterwards by the angel of the lord.

http://www.youtube.com/watch?v=ATOkB7Rl1F4&feature=player_embedded

NZSanctuary said...

More testing for radioactive sludge around Fukushima

More sludge

Linda said...

@ el g--Like the Webster Tarpley comments. Interesting, I was just wondering this AM if Pakistan were in the crosshairs. They seem to be going on & on about how much they knew. Our new target, but why? What do they have that we want?

@ Board--Really like the discussion of OBL here & appreciate that Ilargi has the patience to let it continue. Everywhere else, they swallow it. I can't watch Jon Stewart anymore or listen to progressive radio.

I missed IMN's comment about the timeframe for DNA testing, but wondered about that, too. Not mentioned in MSM. And they are trying very hard to make you feel crazy if you question it.

Linda said...

BTW, did not intend to neglect Stoneleigh, as I loved her first comment on this thread. She is so well informed (i.e. clearly not crazy), and she states that the story stinks to high heaven. Thank you!

scandia said...

Re the " Greek crisis " we have Wolgang Munchau on FT chanelling Ilargi with,
" Europe's political elites are afraid to tell a truth that economic historians have known forever, that a monetary union without a political union is simply not viable. This is not a debt crisis. This is a political crisis."

@Lautturi, In the same article Munchau refers to " tight-fisted northern parliamentarians..." Wonder who he could mean:)

lautturi said...

Timo Soini (True Finn party leader) wrote in WSJ today what you don't see from many other talking heads. Bold, bold words - I wonder if business is willing to listen to this.

Archie said...

@lautturi

Thanks so much for that WSJ link. I am sorely in need of some high profile people to speak bluntly about what is going on.

" Brussels-Frankfurt extortion racket "

" this financial and political cartel"

"Europe is suffering from the economic gangrene of insolvency—both public and private."

"it is essential to first apply big haircuts to bondholders"

This is bold stuff, as you say, but especially because it is in the WSJ. I am going to spread this link around today in the hopes that some American newspapers will reprint it.

Mike said...

Mish has a response to this post, with added info Re: Real Unemployment #:

http://globaleconomicanalysis.blogspot.com/2011/05/digging-still-deeper-in-fridays-jobs.html

Ash said...

I find it hard to believe that a false flag would be carried out in Pakistan, or any nation in the region for that matter. At least not anything on a major scale that would require significant planning and orchestration by Western PTB.

What would be the significant benefit of that? Would they really want to splinter the populations there even further? The Libyan rebellion was certainly influenced and/or co-opted by Western intelligence and military forces, and for good reason since it has a good amount of oil and a leader who cannot be "trusted" with it. Syria and Lebanon are also good candidates for "restructuring", but they have limited resources and attacks there wouldn't really help in that goal.

Egypt, Pakistan and Saudia Arabia wouldn't seem to be good candidates, since they have basically done our bidding from day one. Now that Mubarak is gone, nothing has really changed, and the military juntas will still do our bidding. Saudi Arabia of course has a ton of oil, but TPTB need it in one piece and on their side to launch an offensive against Iran, which also has oil and a "hostile" regime.

There has certainly been a stir about Pakistan and its government since the OBL development, but so far I see this as just a way to get more geopolitical leverage over it, further ensuring it will continue to protect our interests and overarching "war on terror" narrative. The false flag, IMO, needs to occur in the West for any significant strategic benefit to accrue.

el gallinazo said...

lautturi said...
Timo Soini (True Finn party leader) wrote in WSJ today what you don't see from many other talking heads. Bold, bold words - I wonder if business is willing to listen to this.

================

Thank you for posting that link. Finland is indeed fortunate to have Soini as the leader of a major party. He may be plain spoken, but he certainly is no dummy. Surprised that the WSJ printed it though.

SecularAnimist said...

It interesting how the media tries to promote the narrative as advanced by the United States Government. It very much the same tactics used when people questioned the presence of WMDs in Iraq.

They appear to be shocked when s person they interview suggests this all a psy-ops.

As in "what? Are you serious? You really believe this was fabricated?" They then totally ignore the lack of evidence and just persist in this vein.

"You really can not be serious!? Can you repeat what you said for the listening audience?" It does not matter whether the person being interviewed lays out his or her case such as.

Using the example of Pat Tillman and Jessica Lynch. Mentioning the lies told about the WMDs. Pointing out that the CIA admitted openly it was fabricating Bin Laden tapes. Mentioning all of the press reports of Bin Laden having died years ago. Pointing out how the story continually changed.

All of this is talked over and ignored and the person is more or less mocked as some sort of loony for even suggesting this all faked.

The viewing audience do not see themselves as a loony so they chuckle along with the interviewer.

To add to this farce the US Government now claims they had the home in question under surveillance by the CIA for months yet in all of that time did not take a single picture of Osama Bin Laden entering or leaving.

They claim there was none which begs the question, how did they conclude he was in there?

jal said...

re.
Timo Soini (True Finn party leader)

He will eventually cave in and allow the bail outs.

He will be shown that the real losers are ordinary people's pension funds that will be taking a haircut.

The Institutional managers will keep getting their commissions.

Even if Greece gives a 50% haircut and gets the lowest interest rate possible, its too late.

Geee! Is everyone as blind as Gadafi!!

jal

jal said...

Stop crying
Go to the line
Start the game
Take aim
Move the marker
Use the lever
Change the future
Modify it, learn it. Teach it.
Find a place to stand
Don’t look back
Count them
Iraq, Afganistan,
Iceland, Ireland,
Tunisia, Egypt, Libya
Greece, Portugal
Spain

el gallinazo said...

Ash

I find it hard to believe that a false flag would be carried out in Pakistan, or any nation in the region for that matter.

============

The way you phrased this it is not clear whether you understand my reference to Pakistan (and Tarpley's) was not where the attack would take place, but whose flag would be planted on it.

As to Saudi Arabia. according to Tarpley, they are trying to weasel out from under USA hegemony. Prince Bandar (nee Bandar Bush) has been visiting Russia, China, and Pakistan. According to Tarpley, he is trying to lease a few nuke warheads from Pakistan as well a guarantee for a Pakistani division to come to the aid of the royal family in case of a "color revolution." He is trying to get some longer range missiles from China. Saudi wants its own mini nuclear umbrella. Sounds outlandish, but then Tarpley's outlandishness often becomes acknowledged facts a few months or years down the road.

Greenpa said...

A little interesting insight for those interested the precious metals investment world:

http://www.startribune.com/business/121475124.html

"Robert Earl Gundy already had a conviction for theft when International Rarities Group in Minneapolis trained him in 1998 to pitch gold and silver coins to its clients.

"Over the years, the 52-year-old Bloomington man added convictions for attempts to pass bad checks and several more thefts. But this record didn't stop him from getting hired at one Twin Cities coin firm after another -- Midas Resources, PFG Coin and Bullion, American International Gold & Silver Exchange, S & F Commodities."

and;

"The owner is Flynn's cousin Jamie Smith, who also sold coins at International Rarities and then briefly for Crescent Equities. He has convictions for assault, disorderly conduct, drunken driving, driving after his license was canceled and drug possession.

"Not fraud, no stealing," he said. "Fighting! And I got caught with drugs once. But is that something that's pertinent to somebody having something stolen?"

"Smith said he's never cheated anyone and is cooperating with the attorney general's office. A former cement finisher, he said he works hard and runs an honest shop. He recently posted an employment ad seeking sales staff who want to make $100,000 to $200,000 in their first year.

"The ad says, "Serious people only, will screen! Our top Gold Closer made $450,000 last year."

So, if the salesman is making $450K, how much is the owner making; and how?

el gallinazo said...

SecularAnimist

Well put. This is the old Emperor's New Clothes paradigm. If they lose this type of mind control, they are in big, big trouble. That's why Obama hired his buddy Cass Sunstein as Minister of Disinformation.. The 9/11 thing could be nearing a tipping point when people like Paul Craig Roberts (see link above) and Gerald Celente get so outspoken.

OTOH, never over estimate the American sheeple, fed on Big Gulps, fried pig skin, so many drugs from Big Pharma, Wells Fargo and the CIA that they are poisoning the aquifers, Monsanto Frankenfoods, and American Idol.

Robert said...

El G. said:

"The way you phrased this it is not clear whether you understand my reference to Pakistan (and Tarpley's) was not where the attack would take place, but whose flag would be planted on it."

Right.

As I said earlier, the US needs another event as shocking as 9/11 to keep the American sheeple frightened and under control. It does seem likely that this event will be done in such a manner that, as El G. says, a fictitious connection with a possibly innocent foreign entity will be made. This will create a new enemy which the American people always seem to need.

9/11 Was a classical event. Even though nearly all of the attackers were Saudi's the blame was placed on oil-rich Iraq and Saddam Hussein, in particular, along with a sprinkling of ties with Afghanistan.

So the US will probably be pulling out of Afghanistan, once again the will of the tribal mentality being too much to over come a la Russia.
This will free up monies and troops for a new excursion.

The US claims to be pulling out of Iraq too. However, I have not seen anything indicating that they are giving up the some 11 military bases of control they established. I would be interested to get input from others on what they know about this.

What could this new event be? I have no idea. However, the sinking of a cruise ship full of some 3 000 + retired parents and grandparents has always stuck me as being spectacular enough to fill the bill. We all know, after the "assassination" of OBL, that the sea is a good place to hide evidence.

Robert said...

Re FEMA and an exercise in the New Madrid area.

Check out the Wikipedia information on the big quake that hit the New Madrid area:

http://en.wikipedia.org/wiki/New_Madrid_Earthquake

Pay particular attention to the lower right hand map in the Gallery section at bottom of page. Compare in the same map the damage areas for a slightly weaker quake in LA in 1994.

The New Madrid quake caused moderate damage and bells to ring as far away from the epicenter as the east coast. Several nuclear reactors are located in areas where severe damage occurred.

I might be just be possible that FEMA is acting in a proactive manner for a change and that is no conspiracy.

p01 said...

el gallinazo said...
OTOH, never over estimate the American sheeple, fed on Big Gulps, fried pig skin, so many drugs from Big Pharma, Wells Fargo and the CIA that they are poisoning the aquifers, Monsanto Frankenfoods, and American Idol.

ding!ding!ding!buzzzz!!!
Fried pig skin is actually RealFood(TM).
/ding!ding!ding!buzzzz!!!

I see JHK also starting to include jerky in his already boring "mountain dew/pepsi/cheesewiz" tirades.
Jerky is RealFood(TM) too (just ask the first nations), so let's not get too carried away ;)

Ash said...

"The way you phrased this it is not clear whether you understand my reference to Pakistan (and Tarpley's) was not where the attack would take place, but whose flag would be planted on it."

Ah ok, that makes a lot more sense... yeah I misconstrued the word "targeted". Still seems like Iran would be a much better target, though (especially now that they are officially questioning the OBL story). I should probably listen to the interview, but just don't have time now... instead I must learn the enormous and counter-productive complexities of US environmental law...

Ash said...

Interesting but unsurprising thing I just read:

Environmental Impact Statements, required to be prepared by federal agencies when they undertake any major federal action that significantly affects the human environment (under NEPA), do not need to be prepared when the action "relates" to "national security".

ric2 said...

Re Osama:

The Onion, as usual, called it over a year ago.

Archie said...

Here is more truthiness from Andy Kroll about the US employment lie.

Think of it as a parable for these grim economic times. On April 19th, McDonald's launched its first-ever national hiring day, signing up 62,000 new workers at stores throughout the country. For some context, that's more jobs created by one company in a single day than the net job creation of the entire U.S. economy in 2009. And if that boggles the mind, consider how many workers applied to local McDonald's franchises that day and left empty-handed: 938,000 of them. With a 6.2% acceptance rate in its spring hiring blitz, McDonald’s was more selective than the Princeton, Stanford, or Yale University admission offices.

I. M. Nobody said...

Trojan Lies. Are they anything like Trojan Horses? Are the lies conveyances for the seeds of our immiseration? Told not to protect us or even TPTB from some consequence. Intended perhaps to convince us of the futility of ever knowing what is true. Is the OBL story the Alpha Trojan Lie? Is it the faith-breaking wedge that will convince the dispirited populace that the current political structure is unworthy of continuation?

TPTB has won the right to buy all elections. They can therefore get pretty much whatever changes they want. Certainly they would like for us to either be indifferent to those changes or cannon fodder participants in pushing them through.

I found food for thought in this blog post by Sandy Krolick and this opinion piece on AlJazeera.

This quote from the AlJazeera piece grabbed my attention.

5. A fanatical millennial ideology involving race/culture supremacy embracing an idealised and mythical past, and a racist mobilisation against scapegoats
The ideology of 21st century fascism often rests on irrationality - a promise to deliver security and restore stability is emotive, not rational. 21st century fascism is a project that does not - and need not - distinguish between the truth and the lie.

el gallinazo said...

p01 said...

I see JHK also starting to include jerky in his already boring "mountain dew/pepsi/cheesewiz" tirades.
Jerky is RealFood(TM) too (just ask the first nations), so let's not get too carried away

==========

Deep fried pig skin is not jerky. Real jerky is not fried at all. Real jerky is not skin but lean muscle meat. I know because I read the Wikipedia article and now I am an expert :-) I agree, if you are a meataraian, then jerky is excellent food. However, one must be careful of the type of "jerky" products found in say, a 7-11 next to the Big Gulp dispenser.

p01 said...

@el galinazzo
Croutons, as we used to call them :)

NZSanctuary said...

Re: TAEs link on Facebook: Citi's boneheaded math should be used to change public perception of oil prices

Actually this trick has been used in many areas to control public perception. One little known example was in the late 50s/early 60s when the medical establishment changed the DEFINITION of Polio.

A small decrease in Polio mortality before the introduction of the first Polio vaccine in the late 50s was reversed when the first vaccine went on the market. In order to correct this blow to the most holy of holies in the medical world (vaccination), there were two changes (it has been a long time since I did this research so the exact years elude me) to how Polio was diagnosed, which, when combined, meant that approximately 95% of what would have been diagnosed as Polio in 1950 was no longer Polio by the mid 60s. Lo and behold the new (second) vaccine was a resounding success! / sarc.

Robert Wilson said...

NZS, I don't recall the polio incident that you mentioned. I was in Houston from 1951 t0 1956 and spent much of that time at Jefferson Davis Hospital. Jeff Davis was the teaching hospital for Baylor. It had the worlds first dedicated polio ward. Houston was the epicenter for the epidemic. One of my classmates had been crippled by polio and had lost a year of school. He later became a famous neurologist. I found the rows of iron lungs in the polio ward to be unpleasant and preferred to avoid that part of the hospital. I do recall that at initial presentation one had to differentiate polio from other conditions such as Guillain Barre Syndrome.
--I received my my sugar pill polio vaccine in late 1962 or 1963, standing in line with the general public.
--There were books published about JD including The Hospital and one specific to the polio ward. Jeff Davis was replaced by Ben Taub in the medical center.

Robert 2

Nassim said...

NZSanctuary,

Actually, this reverse-split business does make some sense. When times are good and the price of a stock goes "too high" per share, it is considered OK to split the stock. The idea being that people don't like buying stock which costs per share "too much"

Some companies try to be exclusive by having a share price of over $120,000 - like Berkshire Hathaway

NZSanctuary said...

Robert Wilson said...
NZS, I don't recall the polio incident that you mentioned.

You don't recall two diagnostic changes for a disease between 1955 and 1959? Hardly surprising.

But when that improved diagnosis shifts almost all cases of a disease to new labels (CFS, aseptic meningitis, flaccid paralysis, etc.), you cannot then claim the recently introduced vaccination was the cause of that decline in the original disease.

NZSanctuary said...

Nassim said...
NZSanctuary,
Actually, this reverse-split business does make some sense.


Yes, it makes sense if you want to manipulate people's perception.

Ilargi said...

New post up.





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