Wednesday, June 15, 2011

June 15 2011: Credit Downgrade Swaps


John Vachon No Place Like Home July 1940
"Migrant woman from Arkansas in roadside camp of cherry pickers, Berrien County, Michigan"






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Ilargi: There's a 24 hour strike going on in Greece (with mass demonstrations, tear gas and all), with more strikes coming in the days ahead. Basically, this strike is aimed at protesting the yet to be defined additional austerity measures, a sort of "I fart in your general direction" protest, since the new measures have, well, yet to be defined.

What's important now is to realize that the agreement on a new Greece bailout, if and when it comes (there's talk of an extension beyond June 24 now), doesn't actually matter much anymore. The way the negotiations have been run, the bickering and fighting, the 180 degree differences between the points of view, the toying with the meaning and semantics of the term "default", it all adds up to a picture where the markets will no longer trust whatever last minute deal is put on the table. Nor will the people, for that matter.

And that's a part in the whole process that's new. Until now, the European high lords of politics and finance could count on a certain level of confidence to follow the deals they weaved and hammered together. Those days are now over. They blew it. And that will be a crucial aspect of what will happen in Europe, and in the global financial markets, in the months to come. Volatility is about to start chasing the moon.

Personally, I don’t count out the possibility that they do -part of- this on purpose: the Euro needs to be brought down, or Germany, France, Holland lose too much in the export markets. Still, they are not going to like not being taken serious any longer. But it’s crystal clear that anything they can come up with will be just a fancy way of trying to hide the fact that Greece is insolvent, and that that is an issue they can‘t solve. They can hide it for a short time, but there it stops. How much time? Perhaps the protests will make sure they're back at the table in mere weeks.

After Greece was downgraded by S&P last week to CCC, or "absolute junk", main French banks BNP Paribas, Société Générale and Crédit Agricole were all put under downgrade review by Moody's today, while S&P downgraded four main Greek banks, Digby Larner and Natasha Brereton-Fukui in the Wall Street Journal:
French Banks Slide on Moody's Warning
Shares in France's three largest listed banks fell Wednesday after Moody's Investors Service threatened them with downgrades because of their exposure to Greek sovereign debt and warned that action on other banks could soon follow.[..]

The latest figures from the Bank for International Settlements show that France's banking sector has the largest overall exposure to Greece, totaling $56.7 billion, compared with German banks' considerably lower exposure of $33.97 billion.

Ilargi: That's a lot of money, sure, but it could likely be coughed up somehow if nothing else were happening. But other things are happening. From Jon C. Ogg at 24/7 Wall Street on Monday:
Changing Implied Default Criteria To Create Formal Defaults, PIGS & PIIGS
The ratings agencies and outside groups are now saying that Greece is in default, like it or not.  Now let’s go ahead and throw in Irish banks as well, with a real possibility of Ireland after that.  A default by most investors is when a debtor refuses to pay or cannot pay their debt and/or service their debts.  The new trick to force a default is by changing the parameters of a default.

[Monday]’s downgrade on Greece by S&P was down by 3 whole notches to “CCC” based upon the notion that any debt restructuring constitutes a default.  The country is off of CreditWatch Negative, but the outlook remains negative.  In short, any restructuring at all is a de facto default. It was just last Friday that Fitch Ratings warned a Greek default could “tip the fragile funding market for major European banks.”  In short, there is a greater sector risk than there is a risk from the direct losses that would follow if there is a default from the country.[..]

Moody’s has now sounded off as well that it has announced potential changes into how it incorporates government and regulatory support into US bank ratings, and that some supported bank ratings could be lowered as a result. Maybe a default tomorrow will simply be nothing more than a warning that a default is imminent. Many debt covenants stipulate that if certain conditions arise that it constitutes the same action as if a formal default were to occur.

If these same metrics start getting applied to mortgages and credit cards, the financial system will shut down again and even worse than what we saw from late 2008 into the very early part of 2009.

We have warned over and over that the credit ratings agencies have been very far behind the reality of the PIIGS.  Today should be no shock, even if the definition of a default is changing.  The big question remains, “What happens when Greece does actually default?”….. Please note, that is WHEN rather than IF.  Nations do not have 20% interest rates and higher in today’s zero-rate environment without a default of some sort being factored in.

Ilargi: As the Greek default meetings continue, as do the US debt ceiling talks (though Americans seem far more interested in wieners these days), there are other meetings afoot as well, and these may have a substantial influence on what is discussed in Athens and Washington. Here's Kevin Drawbaugh earlier this week for Reuters:
Bank capital, swaps dominate financial regulation outlook
Global inconsistencies and industry resistance are clouding the outlook for world financial regulation reform in two key areas - swaps oversight and bank capital, both set for debate this week. More than two years since the devastating 2008 banking crisis, regulators from Washington and London to Brussels and Singapore are tightening the screws on high finance, with large Wall Street firms already moving to comply with new laws.

Yet regulators' efforts are moving on different schedules and along sometimes diverging tracks, with much at stake for global giants such as JPMorgan Chase, Bank of America, HSBC Holdings and Goldman Sachs.

The lack of an international regulatory framework is a big issue. It allows banks to play nations off against each other by threatening to move their business elsewhere, while underscoring basic logistical challenges. How, for example, can national agencies police banks that are transnational? Such questions are not new, but on few fronts are they more problematic at the moment than in policing the $600 trillion off-exchange swaps markets, and in forcing banks to hold more capital on their books to better handle future crises.

Both initiatives threaten existing business models and profits in the financial industry, which is working hard to protect itself behind a time-tested veil of talking points about unintended consequences and saving jobs.

Ilargi: While Christopher Doering writes today, also for Reuters:
CFTC moves to delay some swaps rules past July 16
The U.S. futures regulator on Tuesday put the brakes on reforms to the massive swaps market scheduled to automatically kick in July 16 and threaten the validity of billions of dollars in derivatives trades.

The U.S. Commodity Futures Trading Commission's proposed delay was a relief to traders, who were facing a daunting gap between the old regulatory regime and the new one called for in last year's Dodd-Frank financial reform law.

The CFTC, which must write regulations to cover dozens of complex reforms for the $600 trillion global swaps markets, has missed a series of deadlines for finalizing them. The lack of finalized rules risked creating a legal void for off-exchange derivatives trades used by companies and traders to offset risk on interest rate shifts or commodity price swings. It created fears that trades could be challenged or invalidated.

The CFTC unanimously voted 5-0 on Tuesday to delay so-called "self-executing" reforms until as late as December 31, or until the agency has finalized corresponding rules. The agency plan would grant temporary relief from the new guidelines for certain transactions in exempt or excluded markets -- primarily in financial, energy and metals. It also would delay measures that do not require rule-making but refer to terms such as swap, swap dealer or major swap participants that still must be further defined by regulators.

Ilargi: In other words, some three years after credit default swaps played a crucial role in bringing financial markets -almost- to their knees, nothing has really changed at all. There's still no serious regulation for them. There are attempts and proposals, but the banks that would be most affected by any regulation that could at least try to protect the public from future financial crises, still have the power to delay any such plans, seemingly forever.

Now, you can downgrade French and Greek banks on account of their Greek debt exposure, and soon do the same with German, Dutch, Belgian and American ones, but that's not the issue at hand. To really assess the risks, you would have to look into that part of the $600 trillion (it could easily still be $1 quadrillion too) derivatives market that deals with bets on Greek debt. What does SocGen hold in swaps on Greek debt? is a much better question than what it holds in Greek bonds. But that question is not answered today, and if banks and politicians have any say in it, won't be for a long time to come.

And that in turn makes a potential Greek restructuring, reprofiling, default-driven credit event an interesting, albeit somewhat scary, notion. Simply because it may force part of the derivatives market into the open. The main problem with this is that CDS were never meant to pay out. They were just a way to get debts and liabilities off the banks' books, and to free up capital that would otherwise have to be used as required reserves, just sitting there and unavailable for gambles and wagers.

The CDS market may be no larger than 10% of the total derivatives outstanding, say, $60 trillion, but that's still more than enough for some real "fun". And maybe we'll get to see some of the sellers and counterparties in this shady universe we're not allowed to know anything about, but whose losses end up on our plates regardless. It's high time. Unless we get serious about this stuff, it’s set to bankrupt all of us. And I'll say it again: the protesters in the streets of southern Europe may be our best chance of finding out; politicians and bankers won't volunteer the information.













Greek Bailout Talks Deadlock as Pressure Mounts
by Alan Crawford and Natalie Weeks - Bloomberg

Greek economic prospects darkened as European bickering risked delaying the next rescue payment and defections weakened Prime Minister George Papandreou’s majority. An emergency session of euro finance chiefs in Brussels yesterday failed to break a deadlock on how to enroll investors in a second bailout without triggering a default, casting doubt on funds due from the International Monetary Fund next month.

In Athens, protesters gathered outside Parliament as lawmakers began to debate budget cuts and asset sales that are conditions of the aid. Ports, banks, hospitals and state-run companies were paralyzed by strikes today while a Papandreou ally said he won’t support the austerity measures and another bolted his Socialist Party.

Debt restructuring “seems to be increasingly probable,” Raghuram Rajan, a professor at the University of Chicago and a former chief economist at the IMF, said today in Singapore. “The political will required to do what would be necessary to service the level of debt that is building up is reaching the limits of what Greece can do. In other words, I won’t say it’s inevitable, but it looks increasingly likely.”

The euro weakened 0.6 percent to $1.4352 at 9:40 a.m. in London. The cost to insure Greek debt climbed to a record, indicating an about 75 percent chance of default within five years. Yields on 10-year Greek bonds jumped 22 basis points to 17.6 percent, the highest in the 17-nation euro area’s history. The slump pushed the extra yield that investors demand to hold Greek 10-year bonds instead of similar maturity German bunds to a record 1,458 basis points.

Merkel-Sarkozy Meeting
Papandreou briefs President Karolos Papoulias in Athens today at 1 p.m. and German Chancellor Angela Merkel and French President Nicolas Sarkozy meet in two days in Berlin to resolve their differences. Pressure to craft a rescue plan and avoid the first euro- area default intensified after Standard & Poor’s slapped Greece with the world’s lowest credit rating on June 13 and the European Central Bank and Germany clashed over easing Greece’s debt load. At 143 percent of gross domestic product, it’s the highest in Europe.

Shares of BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s three biggest banks, dropped more than 1 percent after Moody’s Investors Service placed their credit ratings on review to scrutinize their holdings of Greek debt.

More Talks
With consensus elusive before the target date of a European Union leaders’ summit late next week, finance ministers agreed to convene again on June 19, adding a round to a gathering scheduled to start on June 20. Talks may drag on into July, Luxembourg’s Finance Minister Luc Frieden said yesterday. “There’s no plan B, we have to come up with a solution,” said Gilles Moec, co-chief European economist at Deutsche Bank AG. “They’ll find a way to make it safe, which is what the ECB and the French want, and make it irrevocable and grant more time, which is what Germany wants.”

Europe’s financial leaders must hammer out a revised Greek package to persuade the IMF to pay its share of the 12 billion- euro ($17.3 billion) tranche originally due in June. The IMF had indicated that it would withhold its 3.3 billion-euro piece unless the EU comes up with a plan to close Greece’s funding gap for 2012. A June 3 statement said the full payment would be made in early July, presuming a deal is reached.

“We have to proceed very cautiously,” Frieden told reporters after yesterday’s emergency session. “Very clearly we have to go in the direction” of a delay until next month. “Several options -- from the IMF, as well as from the European Central Bank and from the European Commission -- still have to be studied.”

Bailout Divisions
Thirteen months after Greece was granted a 110 billion-euro bailout that failed to halt the spread of the debt crisis to Ireland and Portugal, politicians are at odds over fulfilling a pledge to make creditors pick up some of the cost of a second rescue.

ECB policy makers have warned against German proposals that maturities on Greek debt be extended for seven years, an outcome rating companies have said would be considered a default. ECB President Jean-Claude Trichet, who attended yesterday’s meeting in Brussels, said on June 9 that governments were flirting with what could be a “enormous mistake.” “It’s easy to understand everybody’s position but that doesn’t mean the positions are compatible,” said Laurence Mutkin, head of European fixed-income strategy at Morgan Stanley in London, told Bloomberg Television today. Still, “there’s enough room for a meeting of the minds,” he said.

Opposing Views
Germany and France, Europe’s two biggest economies, are on opposite sides of the dispute, with France indicating backing for the ECB’s view. While French Finance Minister Christine Lagarde has ruled out any action that constitutes a “credit event,” her German counterpart, Finance Minister Wolfgang Schaeuble, said June 10 that Europe’s biggest economy “has to insist on the participation of the private sector” in Greece. Schaeuble said yesterday’s meeting produced “no result.”

“The obvious implication is they will reach agreement as the alternative is a disaster,” said David Mackie, London-based chief European economist at JP Morgan Chase & Co. A compromise will be made to “get us through a few weeks or months, but if Greece keeps under-delivering then at some stage we’ll be back in the same position.”

Greek Strike
In Greece, the third general strike this year underscored the pressure on Papandreou, who aims to get 78 billion euros of cuts and asset sales passed by the end of the month. His Socialist Pasok party held a six-seat edge in the 300-member legislature before the latest defections.

“This government has the responsibility to save the country from default,” spokesman George Petalotis told reporters in Athens yesterday in response to questions on the strikes. Demonstrators have gathered in the central square of Athens in front of parliament for 21 days, setting up tents and calling on others to join them. Police said the largest rally was on June 5, when 50,000 people gathered in front of the chamber.




Moody’s Threatens Downgrade of French Banks Over Greek Exposure
by Russell Ward - Bloomberg

BNP Paribas SA, France’s biggest bank, and local rivals Societe Generale SA and Credit Agricole SA may have their credit ratings cut by Moody’s Investors Service because of their investments in Greece.

Moody’s placed the three banks’ ratings on reviews that will focus on their holdings of Greek public and private debt “and the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels,” the ratings company said in a statement today.

The move reflects Europe’s deepening debt crisis, centered on Greece, where bond yields touched a record for the euro area yesterday. Pressure on European governments to craft a second rescue plan for the country intensified this week after Standard & Poor’s slapped Greece with the world’s lowest credit rating.

The reviews of Credit Agricole and BNP Paribas are unlikely to lead to downgrades of more than one notch, Moody’s said. Societe Generale’s debt and deposit ratings may be cut as much as two grades because of the “uplift it receives from systemic support, which is currently higher than average for the French banking system,” it said. Moody’s currently rates BNP Paribas’ long-term debt at Aa2, the third-highest investment grade. Credit Agricole is rated Aa1, the second highest, while Societe Generale is Aa2.

Political Deadlock
Euro-area finance chiefs meeting in Brussels late yesterday said they may need more time to reach a deal on how to enroll investors in a Greek rescue without triggering a default. Yields on 10-year Greek bonds touched 17.46 percent yesterday, a record in the 17-nation euro area’s history.

“Today’s actions reflect Moody’s concerns about these banks’ exposures to the Greek economy, either through direct holdings of government bonds or credit extended to the Greek private sector,” Moody’s said. “Potential mitigants to these concerns are the strong financial profiles, substantial scale and earnings diversification of the French banking groups.”

Credit Agricole’s main risk arises from its Greek subsidiary Emporiki Bank of Greece SA, which was downgraded earlier this month, Moody’s said. Societe Generale, France’s second-largest bank by market value, faces risks from its stake in General Bank of Greece. Credit Agricole is France’s third- largest bank. BNP Paribas doesn’t have a local unit in Greece and is instead at risk from direct holdings of Greek government debt, Moody’s said.




S&P Just Now Downgrades NBG & Greek Banks, From The Land of Duh
by Jon C. Ogg - 24/7 Wall Street

If you want to know what happens to the credit ratings of large banks in lands of the PIIGS when the underlying country ratings have been cut over and over, you should know that it isn’t pretty.  Standard & Poor’s has downgraded the ratings of four large Greek banks today and the outlook is negative as well.  As if this was not easy to see.  Among the downgrade casualties is National Bank of Greece SA.

Other banks downgraded along with NBG are EFG Eurobank Egasias, Alpha Bank, and Piraeus Bank.  The group was cut to “CCC” from “B” and the negative outlook reflects more likely downgrade(s) if S&P believes that the banks are likely to default on their obligations as defined by the new default criteria.

Here is where the fault lies in today’s downgrades.  While these have been removed from CreditWatch, these were placed on that watch back on December 3, 2010.  It is as if the bad news is only now coming to light by the ratings agencies that because Greece is in trouble that it is just now the determination that the banks could be collateral damage. It has been obvious for months and months that the credit ratings would be at risk. 

We noted that the recent earnings announcement from NBG was nothing more than a smoke-screen as the country’s woes were greater than a look-back report.  Moody’s even recently gave default odds of 50/50 for the nation of Greece and now our argument is that the Greek default is now imminent because the criteria for default has been widened out to basically be any scenario on the table currently.

In December, NBG had already been pounded from highs earlier before the recession and before terms like “The PIIGS” were widely used.  Since then, NBG has lost close to another one-third of its value.  The Greek bank’s ADR, the only US-exchange-listed Greek bank, closed at $1.31 on Tuesday and the 52-week range is $1.27 to $3.23.

What is almost funny is that there is a “buy the news” reaction here in America as this was an obvious downgrade in the works for months and months.  Shares are indicated up marginally so far in New York with more than two hours until the stock market opens.  It looks as though the ordinary shares in Athens are down about 5% after a recovery yesterday.




Greek debt crisis deepens
by Helena Smith - Guardian

As Greece teeters on the brink of bankruptcy, protesters blockade parliament while EU ministers seek to stem panic

The debt drama engulfing Greece deepened as Euro group finance ministers met in emergency session to discuss ways of resuscitating the country's ailing economy and protesters in Athens tried to thwart passage of further austerity measures by blockading parliament on the eve of a mass general strike.

Tensions escalated as George Papandreou's socialist government confronted negative polls and a relentless stream of demonstrations initially inspired by Spain's peaceful indignados three weeks ago, but now showing signs of becoming increasingly explosive. "All it will take is one mistake and the joviality that has marked the protests so far will end in a second," said veteran photographer Spyros Tsakiris, sitting in the heart of the tent city that has formed in central Syntagma Square, site of the Greek parliament. "The mood has changed noticeably. I watch these people and honestly, I am afraid. At any moment things could go wrong and Greece could go up."

With Europe's debt crisis intensifying by the day, fear appears to be the single biggest factor motivating those in charge of policy on the common currency. But as finance ministers from the 17 euro countries debated how to bail out Greece for a second time in a year, before an EU summit on 25 June, the signs are not promising.

In Athens, a day after Standard and Poor's gave Greece the lowest rating of any country it covers – lower even than Pakistan and Ecuador – the omens appeared to be particularly poor.
Differences over involvement of private investors in the rescue package – which is seen as the key to getting Europe's paymaster, Germany, to agree to it at all – this week pushed the cost of insuring Greek government debt against default up to 1,600 basis points, a record high even by the standards set so far.

More than ever, Papandreou appears stuck between a rock and a hard place. Faced with a €340bn (£300bn) debt projected to hit 160% of GDP by 2012, Greece is teetering on the brink of bankruptcy. Although his government last year slashed the deficit by €12bn – through wage and pension cuts, tax increases and benefit losses – the steps have only exacerbated Greece's economic plight.

In a country plagued by a shadow economy that accounts for almost 30% of GDP, the medicine prescribed by the EU, IMF and ECB in exchange for €110bn of emergency loans last May, has resulted in a deeper than expected recession with further cost-cutting measures now seen as crucial if Greece is not only to rein in its debt but make it sustainable.

For many – including Papandreou's MPs – the prospect of more austerity is the tipping point. Tax increases announced last week – on everything from property to restaurant bills – in addition to the sale of state assets and closure of public utilities, have sparked outrage at a time when seven out of 10 pensioners are forced to live on €700 a month and civil servants, the bulk of the Greek labour force, have had a 20% pay cut.

With the unemployed at 16%, 42% of whom are aged between 20 and 35, the measures have sent thousands of Greeks who would normally never protest converging on city squares. "The biggest challenge facing the ruling party is to convince Greeks that these measures are necessary, because there is no guarantee. A year ago people were told the same thing and look what happened," said political commentator Manolis Kapsis, of the nightly news show Mega TV. "The bailout failed."

But while Greeks say they are not prepared to bankrupt themselves to save their country from insolvency, Athens has been told that without further austerity there can be no more aid – not even a fifth instalment drawn down from the country's original bailout, which is vital to paying state pensions and wages this month.

Tomorrow's general strike by workers and civil servants will, say unionists, be the first step in a relentless wave of industrial action against the measures parliament is poised to debate. Next week, the country's biggest electric power company will begin rolling strikes. Protesters say they will form a human chain around the parliament to prevent deputies from debating the measures and threatening legal action against those who vote in favour.

But Greece is also attracting help from unlikely places. On Tuesday, scores of Chinese business leaders, financiers, entrepreneurs and academics piled into a hotel in Athens for a "premier conference" aimed at increasing Chinese investment in Greece, where foreign direct investment remains among the lowest in Europe. After taking over day-to-day running of Piraeus, the biggest harbour in the Med, China has signalled it wants to buy the loss-making railway company OSE, as well as other infrastructure projects. Chinese officials admit they see Greece as the perfect gateway to markets in the Balkans and Europe beyond.

"One of the good things about this economic crisis," said Lefteris Anastassakis, a manager with the Greek cement giant Titan, who is learning Chinese, "is that it has made China's entry easier and also easier for us to accept. Ten years ago it would have seemed a science fiction that the Chinese would be the people who would help save Greece from economic collapse."

Some of the world's wealthiest financiers, bankers and real estate tycoons of Greek descent also arrived for a "power summit" aimed at exploring business opportunities. "There are a lot of people of Greek descent out there who would love to help this country," said Nikos Gitsis, a Greek American who co-founded South East Asia Airlines in the Philippines. "Greece is virgin territory for investment," said Nikos Gitsis, a Greek American who co-founded South East Asia Airlines in the Philippines. "If it could guarantee fair play, rules and the eradication of corruption and bribery, we would be here helping it get out of this drama."




French Banks Slide on Moody's Warning
by Digby Larner and Natasha Brereton-Fukui - Wall Street Journal

Shares in France's three largest listed banks fell Wednesday after Moody's Investors Service threatened them with downgrades because of their exposure to Greek sovereign debt and warned that action on other banks could soon follow.

Moody's put BNP Paribas, Crédit Agricole and Société Générale on review for possible downgrades over the potential impact on earnings of any Greek debt restructuring, saying it could take similar action on other banks "in the coming weeks." BNP Paribas shares were down 1.4% recently at €51.86, Agricole fell 1.5% to €10 and SocGen dropped 1.4% to €39.25, underperforming the Stoxx Europe 600 banking index, which was down 0.5%.

The latest figures from the Bank for International Settlements show that France's banking sector has the largest overall exposure to Greece, totaling $56.7 billion, compared with German banks' considerably lower exposure of $33.97 billion. All three French banks have insisted previously that any losses on Greek bonds would be manageable. BNP Paribas has around €5 billion ($7.22 billion) in Greek sovereign debt.

SocGen Chairman and CEO Frédéric Oudea has admitted that restructuring would be "disagreeable" for the bank, but that it could be absorbed. He said recently the bank holds €2.5 billion in Greek sovereign bonds. Crédit Agricole, which is chiefly exposed to Greece through its Emporiki Bank of Greece S.A. unit, has also said that it could cope with losses on Greek bonds. CEO Jean-Paul Chifflet told shareholders at Agricole's annual general meeting that the bank held €631 million in sovereign debt at the end of March this year. He said that if the value of those bonds were slashed by 25%, it would cost the bank around €150 million. "That figure would go up or down depending on the actual percentage cut," he said.

Moody's review of French banks follows its downgrade of Greek government bonds to Caa1 on June 1. It said that BNP Paribas and Crédit Agricole were unlikely to be downgraded by more than one notch, but that SocGen's debt and deposit ratings could fall by up to two notches because the review would include a reassessment of the uplift it receives from systemic support.

"The primary focus of all three reviews will be the banks' credit exposures to Greek government debt and the Greek private sector and the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels," Moody's said. "The review of SocGen will also assess the likelihood of future government support since our systemic support assumption is currently higher than the average for the French banking system."

Euro-zone officials meeting in Brussels on Tuesday failed to narrow sharp divisions, mainly between Germany and the European Central Bank, over how to encourage Greece's private creditors to help finance the nation's mounting public debt, a move that threatens to delay a decision on a new multiyear aid package for the country.

The currency bloc's finance ministers said they would ensure Greece wouldn't face a cash crunch next month. The country is scheduled to get the next €12 billion of a €110 billion loan package from euro-zone governments and the International Monetary Fund by the end of June, but doubts from the IMF about whether Greece has enough financing over the next year have endangered that payment.

The rating agency said that exposure to Greece would also be included in its ongoing review for possible downgrade of Dexia Group's core operating banks. "Moody's may take similar actions on other banks with direct exposures to Greece in the coming weeks, if it considers that their ratings may be inconsistent with the potential impact of a Greek default or restructuring," the rating agency said.




Changing Implied Default Criteria To Create Formal Defaults, PIGS & PIIGS
by Jon C. Ogg - 24/7 Wall Street

The ratings agencies and outside groups are now saying that Greece is in default, like it or not.  Now let’s go ahead and throw in Irish banks as well, with a real possibility of Ireland after that.  A default by most investors is when a debtor refuses to pay or cannot pay their debt and/or service their debts.  The new trick to force a default is by changing the parameters of a default.

Today’s downgrade on Greece by S&P was down by 3 whole notches to “CCC” based upon the notion that any debt restructuring constitutes a default.  The country is off of CreditWatch Negative, but the outlook remains negative.  In short, any restructuring at all is a de facto default It was just last Friday that Fitch Ratings warned a Greek default could “tip the fragile funding market for major European banks.”  In short, there is a greater sector risk than there is a risk from the direct losses that would follow if there is a default from the country.

Another article this morning is not pertaining to Ireland as a nation, but it should be considered a true Irish problem.  A ruling from the ISDA puts Allied Irish Banks plc under official default.  Allied Irish Banks is down only 1.2% in the ADR at $2.35 and rival The Bank of Ireland is down over 4% at $1.13. We have already argued that these are effectively nothing more than wards of the state being kept alive so that Ireland itself does not have to merge these onto the actual sovereign nation’s balance sheet.

Speaking of Greece, the ADR for National Bank of Greece SA is down 3% at $1.31 right before the closing bell.

Changing the criteria of a default is perhaps the biggest trick that the credit ratings agencies and independent watch group can do.  Today ,there is a video from S&P with one of its analysts talking about what a double-dip in housing could mean for the major U.S. banks. Meredith Whitney has warned over and over in 2011 that credit defaults are coming in many states and municipalities as well.

Moody’s has now sounded off as well that it has announced potential changes into how it incorporates government and regulatory support into US bank ratings, and that some supported bank ratings could be lowered as a result. Maybe a default tomorrow will simply be nothing more than a warning that a default is imminent. Many debt covenants stipulate that if certain conditions arise that it constitutes the same action as if a formal default were to occur.

If these same metrics start getting applied to mortgages and credit cards, the financial system will shut down again and even worse than what we saw from late 2008 into the very early part of 2009.

We have warned over and over that the credit ratings agencies have been very far behind the reality of the PIIGS.  Today should be no shock, even if the definition of a default is changing.  The big question remains, “What happens when Greece does actually default?”….. Please note, that is WHEN rather than IF.  Nations do not have 20% interest rates and higher in today’s zero-rate environment without a default of some sort being factored in.

The credit ratings agencies, the world of bailouts, and now just the analysis of what can constitute a technical default rather than a formal default have all acted to create a no-way-out scenario. Also, guess what happens when the first true default hits… You have other letters besides “G” in the term “PIIGS” or even in “PIGS.”

It is no wonder that the ratings agencies have now sounded off about the Triple-A rating of the United States.  The big focus is on the current political climate today.  If the ratings agencies ever decide to tally up the total liabilities of Social Security and Medicare versus the future tax receipts, we won’t even have to worry about whether they included all the guarantees that Uncle Sam has with Pension Benefit Guaranty Corp., housing agencies, offshore protectorates, and the rest of our obligations.

Until the impact of the final outcome of the future of these nations can finally be factored into the markets, everyone might as well understand that they are being held hostage.




Greek borrowing costs spike as EU finance ministers meet
by Telegraph

Eurozone finance ministers are meeting to try to resolve a dispute over how to involve private investors in a second bailout package for Greece as the country's borrowing costs jumped following a shock S&P downgrade.

The yield on 10-year Greek government bonds spike to a record high of more than 17pc as investors demanded a higher return to cover the risks of holding the debt. S&P warned that a move to restructure its debt would be considered a default and it reduced the long-term rating on Greek sovereign debt from B to CCC – only four notches above default and the lowest credit rating of any country it covers. The downgrade has helped entrench the market view that Athens will have to restructure its debt.

Eurozone finance ministers are meeting ahead a gathering of EU leaders to finalise a new rescue package for Greece at a Brussels summit on June 23-24, but differences remain over how to involve private creditors. Traders are alarmed by the division between Wolfgang Schaeuble, Germany's finance minister, who wants Greek bondholders to extend the maturities on the seven year debt, and Jean-Claude Trichet, president of the ECB, who has argued that any restructuring is the same as a default.

The downgrade triggered an angry response from the Greek finance ministry which claimed S&P's decision was made on the back of "rumours and statements by representatives of the European Commission and European Central Bank". The ministry said: "The decision ignores the intense consultations taking place between the same institutions and the International Monetary Fund aimed at designing a viable solution that will cover the financing needs of Greece in the coming years."

The statement added that the Greek government had shown "determined efforts" to "avoid at any costs" a default or restructuring of its debt repayments, as well as a "strong desire" to stay within the eurozone. It pointed to the tough fiscal strategy submitted to the Greek Parliament last week as evidence of its commitment to economic reforms.




Greek Rescue Enters Home Stretch, Finance Chiefs Split on Bondholder Role in Bailout
by Alan Crawford and Stephanie Bodoni - Bloomberg

European finance chiefs are divided on how to involve private investors in a second bailout for Greece and stave off the euro area’s first sovereign default without running afoul of the European Central Bank. “You can’t leave the profits with the banks and make the taxpayers shoulder the losses,” Austrian Finance Minister Maria Fekter told reporters in Brussels today before an emergency meeting on Greece. “Ministers have different positions,” she said. “We’ll put them on the table and look at where the compromise lies.”

Pressure on the finance ministers to craft a rescue plan intensified after Standard & Poor’s slapped Greece with the world’s lowest credit rating. The euro group seeks to reach a consensus for easing Europe’s biggest debt burden before a summit of European Union leaders on June 23-24. “The obvious implication is they will reach agreement as the alternative is a disaster,” said David Mackie, London-based chief European economist at JP Morgan Chase & Co. A compromise will be made to “get us through a few weeks or months, but if Greece keeps under-delivering then at some stage we’ll be back in the same position.”

Chinese Reaction
Yields on 10-year Greek bonds touched 17.46 percent today, a record in the 17-nation euro-area’s history. The slump pushed the extra yield, or spread, that investors demand to hold the country’s 10-year bonds instead of similar maturity German bunds to a record. The euro rose 0.6 percent on the day. Europe’s sovereign debt crisis could worsen and spread, posing a major risk to the global economic recovery if euro-area countries don’t set up a reliable long-term crisis management mechanism, the People’s Bank of China said in its annual financial stability report posted on its website today.

ECB policy makers have warned against German proposals that maturities on Greek debt be extended for seven years, an outcome rating companies have said would be considered a default. ECB President Jean-Claude Trichet attended today’s meeting. Mario Draghi, the incoming ECB president, signaled he may favor a voluntary rollover of Greek debt by investors in the style of the 2009 Vienna initiative. “The Vienna initiative looks to me to be entirely voluntary,” Draghi told lawmakers in Brussels today at his confirmation hearing for the top ECB post. “The ECB is not in favor of restructuring and haircuts” and it “excludes all concepts that are not purely voluntary,” Draghi said.

Thirteen months after Greece was granted a 110 billion-euro ($159 billion) bailout that failed to halt the spread of the debt crisis to Ireland and Portugal, politicians are at odds over fulfilling a pledge to make creditors pick up some of the cost of a second rescue. Trichet said June 9 that governments were flirting with what could be a “enormous mistake.”

Germany and France, Europe’s two biggest economies, are on opposite sides of the dispute, with France indicating backing for the ECB’s view. While French Finance Minister Christine Lagarde has ruled out any action that constitutes a “credit event,” her German counterpart, Finance Minister Wolfgang Schaeuble, said June 10 that Europe’s biggest economy “has to insist on the participation of the private sector” in Greece.

'Opening Gambit'
“It may be fair to assume that the maturity extension plan will at least be the Germans’ opening gambit,” Kornelius Purps, a fixed-income strategist at Unicredit SpA in Munich, said by telephone. That “would never work with bondholders as a voluntary move nor with the ECB.”

Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said before the meeting that “all options” will be considered regarding Greece. Finance ministers including Elena Salgado of Spain and Didier Reynders of Belgium stressed that any decision must satisfy the ECB’s concerns.

“They’ll find a way to make it safe, which is what the ECB and French want, and make it irrevocable and grant more time, which is what Germany wants,” said Gilles Moec, co-chief European economist at Deutsche Bank AG. “There’s no plan B. We have to come up with a solution.”

Private-sector investors should contribute at least 30 percent of possible additional refinancing aid for Greece, Dutch Finance Minister Jan Kees de Jager said. “There are ways to make it attractive for private parties to participate voluntarily in extending debt,” De Jager said in Brussels. “For instance new bonds, which replace old ones, can be given new special rights the old bonds lack.”

S&P said yesterday that Greece is “increasingly likely” to face a debt restructuring, reflecting political pressure on investors not to dump Greek holdings. The cost to insure Greek debt, the most expensive in the world, indicates a chance of about three in four that Greece will default in the next five years. The Greek government sold 1.6 billion euros of 26-week treasury bills today at a yield of 4.96 percent as preliminary data from the Finance Ministry in Athens showed the central- government budget deficit widened in the first five months of the year to 10.3 billion euros.

It’s “100 percent certain” that Greece will default and “the only question is what euphemism will be dreamt up to cloak the fact,” said Niall Ferguson, a history professor at Harvard University and a Bloomberg Television contributing editor. “The race is on to find a way of saying Greece hasn’t really defaulted even though it’s not making good on its interest payments,” he said on Bloomberg Television’s “InsideTrack” today. “Good luck with that.”




Implosion in Greece could bring the euro down with it
by Dan O'Brien - Irish Times

Greece ia a borderline failed state. Its society lacks cohesiveness and is deeply divided. Its economy is in shock. If the country’s history is any guide to its future, there is serious trouble ahead.
More than a year ago, when the troika of institutions that now oversees Ireland’s bailout first landed in Athens, there was hope that developed Europe’s most poorly governed country could be put on the right track.

A new government was then in place and its most senior figures seemed serious about radical reform. Many Greeks, particularly the young and the educated who recognise how dysfunctional their country is, backed rupture. There was much talk of opportunity in crisis. That talk is no longer to be heard. The crisis now presents nothing but threats and risks.

This, in many ways, is unsurprising. The chronic dysfunctionality of the Greek state is long established. Since independence almost two centuries ago, Greece has experienced civil war, uprisings, mass displacement of people, dictatorships and terrorism.

There is no better reflection of its state’s failings than the issue that has drawn the world’s attention to the country over the past 18 months: budgetary chaos. According to a study by economic historians Carmen Reinhart and Kenneth Rogoff, the Greek state has been in default for almost one out of every two years since it was founded in the 1820s. Struggling under the second highest public debt burden in the world, it looks to be heading that way again.

The inability of the Greek state to stay solvent is explained in part by history. Having spent centuries as a subjugated province of the Ottoman empire, Greece was cut off from the step changes in western European politics and society. One consequence is a very weak civil society and limited tradition of independent institutions. Those who wield political power in Greece do so with a degree of absolutism unusual for democratic Europe.

The Greek trigger point for Europe’s sovereign debt crisis provides the most pertinent example of this. In countries where limits on the exercise of power are respected, statisticians crunch numbers independently. In Greece over the past decade, the government forced the national statistics agency to publish hugely doctored figures and installed placemen to ensure that happened.

After a change of government, the full extent of the deceit was revealed in late 2009. Over the first months of 2010 it slowly dawned on the bond market that the Greek state was bust. The world has been living with the consequences of the euro zone’s sovereign debt crisis ever since.

The size of Greece’s black economy reflects not only the weakness of its state in even-handedly enforcing the law but also a lack of social solidarity. A study by Friedrich Schneider, a German economist, found Greece’s black economy in 2010 was one-quarter the size of the official economy. Of 21 developed countries in the survey, Greece topped the table.

Outright venality in public life is another reason the Greek state is failing. According to Trans- parency International, it was the most corrupt country in develop- ed Europe in 2009 and ranks 57th from top in the world in the organisation’s Corruption Per- ceptions Index (Ireland is 16th).

Corruption is a very difficult habit to kick once it becomes entrenched. Among other things, it polarises society. And it is not as though there is an absence of strains and scars in Greek society. As recently as 1974 the country was a military dictatorship and suffered all the injustices typically associated with such regimes, including arbitrary arrests, torture and summary executions.

All that came on top of a civil war in the second half of 1940s in which 50,000 people perished. Today Greece remains the most militarised society in Europe, with spending on defence consistently the Continent’s highest. Street violence is commonplace and a murky world of terrorist cells, though less active in recent years, has not gone away. If the economy deteriorates further, there is a risk that some of the radicalised and desperate will see answers in violent extremism.

The chances of things getting worse are high. Societal strains and rampant corruption do not in themselves cause economic weakness – just look at China and India – but they don’t help. Alas for Greece, even if both problems were to disappear tomorrow there is little reason to believe its economic rot would stop.

Greece exports so little that it is the most closed economy of any among the 27 countries that form the EU. A small economy of just over 10 million people can never get rich without exporting. No economy can get rich without innovating. About the best indicator of a country’s capacity to innovate is the amount spent on research and development. In Greece, businesses and the state spend 0.5 per cent of GDP on research annually, less than one-third of the EU average. Of the 15 long-standing members of the EU, it has consistently had the lowest research spend.

There is very little reason to be optimistic about Greece. Its economy, politics and society don’t work. This is not only very bad for Greeks, it is also bad for the people of the 16 other countries in the euro zone. If it implodes, it may well bring the single currency down with it.




Euro drops as Greece wrangling sours mood
by Antoni Slodkowski - Reuters

The euro came under renewed pressure on Wednesday as markets refocused on the euro zone's debt problems after Moody's threatened large French banks with possible downgrades, while hedge funds bet on further drops in the currency.

The step, which prompted a move away from riskier assets, helping gold extend gains on Wednesday, came after euro zone ministers on Tuesday failed to agree on how private holders of Greek debt should share the cost of a new bailout. Moody's will review the ratings of BNP Paribas SA, France's biggest bank, and its peers Societe Generale SA and Credit Agricole SA, focusing on their holdings of Greek public and private debt. .

The single currency was also hurt by the Financial Times saying the German-inspired Greek debt rescheduling plan could force euro zone governments to provide up to an extra 20 billion euro. The currency earlier came under pressure having failed to break through $1.4500 . "The problem is not the fact that Greece is likely to face some form of a default. The problem is that the debate over the involvement of private investors in the rescue scheme drags on, making market participants jittery," said Teppei Ino, a currency analyst at Bank of Tokyo-Mitsubishi UFJ.

The lack of agreement on Tuesday means that discussion among EU leaders will continue on Sunday, before the June 23-24 EU summit, where the block must forge a compromise to avert financial disaster for Greece. "As the debate drags on, moves like the one by Moody's today are only going to make market players more jittery," Ino said.

"Today's actions reflect Moody's concerns about these banks' exposures to the Greek economy, either through direct holdings of government bonds or credit extended to the Greek private sector," Moody's said in a note.

The euro was down 0.2 percent at $1.4414 after reaching an Asian session high of 1.4451 on EBS early on Wednesday after better-than-expected U.S. retail sales and Chinese inflation data boosted risk appetite the day before. The euro briefly dipped below support at $1.4410 and decent support now is seen at 1.4375, with traders talking about good size stops at 1.4350. It also inched back towards a record low against the Swiss franc hit on Friday below 1.2 euro.

Bolstering Bearish Bets
The continuing debate over Greece's rescue prompted hedge funds to bolster bearish bets on the single currency via put options, as they expected more negative headlines on the country in coming days. Euro/dollar one month risk reversals -- which reflect how much the market is leaning towards being bullish or bearish in the options market -- are favouring euro puts at 2.25 percent , holding near 6-mth highs.

"They have been buying substantial amounts of long-term euro put options," a trader at a Japanese bank said, adding that strikes are at around $1.40 with tenors of 1 to 2 months. "Funds seem to be positioning to buy back the greenback," he said.

The dollar index , which tracks its performance against a basket of major currencies, retreated from a two-week high near 75.000. It last traded at 74.51. The U.S. government is also struggling with debt problems of its own, and the head of the U.S. Federal Reserve warned it must lift its borrowing limit or risk a potentially disastrous loss of confidence.

Ben Bernanke said the United States could lose its coveted AAA credit rating and the dollar's special status as a reserve currency could be damaged if there was no quick resolution to the political battle over raising the $14.3 trillion debt limit. The greenback bought 80.50 yen , still well within the prevailing 79.50-81.00 yen range, where the pair seems to have stabilised after falling from an April peak around 85.50.




New Greek bank plan 'set to cost €20 billion'
by Peter Spiegel and Quentin Peel - Financial Times

A German-inspired plan to reschedule Greek debt could force eurozone governments to provide up to an extra €20bn to avoid a meltdown of its financial sector, European finance ministers have been warned.

A briefing paper circulated by the European Commission, and seen by the Financial Times, warned the extra money may be needed to recapitalise Greek banks following a proposed maturity extension of Greek government bonds, which would be classified by rating agencies as a “selective default”. A further cash reserve may be required for emergency Greek bank liquidity if the European Central Bank refuses to accept downgraded bonds as collateral. Ministers have been told all the Greek collateral – some €70bn – might have to be replaced.

Opponents of Greek default, led by Europe’s central bankers, warned of the German debt exchange plan’s drawbacks. “If despite everything you try to reduce the debt and you provoke a risk of default, you’ll have to finance the entire Greek economy,” said Christian Noyer, Bank of France governor. “All in all, the costs seem to outweigh the benefits,” said Mario Draghi, incoming ECB president. The ministers, meeting in Brussels on Tuesday, are looking to involve private creditors in a new Greece rescue programme, to gain parliamentary support in countries such as Germany, the Netherlands and Finland without precipitating a disorderly default by Athens.

Ministers are considering three options for private sector involvement, which have been set out in a document circulated by the European Commission. The most drastic is for a voluntary debt exchange, involving an extension of maturities on Greek government bonds to buy time for Athens to cope with its debt crisis. Wolfgang Schäuble, German finance minister, suggested a seven-year extension.

European officials calculate a successful debt exchange with 100 per cent participation would “virtually eliminate the need for official financing” for the next five-and-a-half years, on top of the €57bn still to be paid from Greece’s €110bn rescue programme agreed last year. But the plan could also leave the eurozone responsible for propping up Greece’s financial system.

The second and third options are for a voluntary “rollover” of bonds, less likely to trigger a bond downgrade, and therefore favoured by the ECB and France, in particular. One would be a co-ordinated rolling-over of bonds at maturity, probably organised by Athens itself, and designed to enable the broadest possible participation. The third option, likely to contribute the lowest level of private creditor participation in any rescue plan, is for an informal rollover of bonds.




Bank capital, swaps dominate financial regulation outlook
by Kevin Drawbaugh - Reuters

Global inconsistencies and industry resistance are clouding the outlook for world financial regulation reform in two key areas - swaps oversight and bank capital, both set for debate this week. More than two years since the devastating 2008 banking crisis, regulators from Washington and London to Brussels and Singapore are tightening the screws on high finance, with large Wall Street firms already moving to comply with new laws.

Yet regulators' efforts are moving on different schedules and along sometimes diverging tracks, with much at stake for global giants such as JPMorgan Chase, Bank of America, HSBC Holdings and Goldman Sachs.

The lack of an international regulatory framework is a big issue. It allows banks to play nations off against each other by threatening to move their business elsewhere, while underscoring basic logistical challenges. How, for example, can national agencies police banks that are transnational? Such questions are not new, but on few fronts are they more problematic at the moment than in policing the $600 trillion off-exchange swaps markets, and in forcing banks to hold more capital on their books to better handle future crises.

Both initiatives threaten existing business models and profits in the financial industry, which is working hard to protect itself behind a time-tested veil of talking points about unintended consequences and saving jobs.

In the United States, that means pushing back -- largely at the implementation level now that 2010's Dodd-Frank reforms are the law of the land -- against scores of new swaps rules. In Europe, the swaps crackdown is also being contested, as is an effort that is being coordinated in Switzerland to raise the capital standards of the world's largest banks. Against this backdrop, the U.S. Commodity Futures Trading Commission meets on Tuesday to focus on swaps rules.

"Legal Uncertainty"
"There is some legal uncertainty surrounding July 16 and derivatives contracts," including swaps, said Brian Gardner, policy analyst at financial group Keefe Bruyette & Woods. New swaps rules mandated by Dodd-Frank are supposed to take effect on July 16, but many still have not been finalized and probably will not be completed in time. Will pre-Dodd-Frank rules end on July 16? What should swaps markets do?

Answers to these questions have already been provided by the U.S. Securities and Exchange Commission. "The CFTC is acutely aware of the issue and may signal on Tuesday how it intends to address the problem," Gardner said. CFTC Chairman Gary Gensler will testify on swaps before a U.S. Senate panel on Wednesday, with European Union ambassadors meeting the same day to explore a political deal on swaps.

Concerns were spreading last week among policymakers of transatlantic divergence and delay on swaps oversight. Failing to rein in swaps could expose the world economy to a replay of 2008, when credit default swaps played a central role in crises at Bear Stearns, Lehman Brothers and AIG. "At the end of the day, I don't know how much this stuff matters because there are so many ways to go out and take a lot of risk with derivatives," said Simon Johnson, business professor at the Massachusetts Institute of Technology and author of "13 Bankers," a recent book about the crisis.

The broad issue of international regulatory reform will be discussed on Thursday by a U.S. House of Representatives panel, with the heads of major regulatory agencies testifying, among them Federal Deposit Insurance Corp Chairman Sheila Bair. Bair's agency is scheduled to meet on Tuesday to finalize new Dodd-Frank rules limiting bank holding companies from holding less capital than their federally insured bank units.

Plenty of discussion, but few decisions, are expected next week on another topic -- restricting commodity market speculation. A European Commission conference on this is set to begin on Tuesday in Brussels.




The Problem with the Misuse of Derivatives
by Mark Mobius - Franklin Templeton

I recently spoke at the Foreign Correspondents’ Club of Japan in Tokyo, where we covered a number of interesting topics. Following that event, you may have recently read headlines where the media has quoted me as predicting a second financial crisis. In this post, I’d like to give a little more context to that comment and also cover something I am particularly worried about: the problem of derivatives.

Market volatility is a reality of today and goes in two directions, up and down. One of the reasons we have (and are likely to continue to see) this level of volatility is because of the occasional misuse of derivatives. Of course, not all derivatives are bad. If understood and used appropriately they can be used by funds as tools to hedge or mitigate risk. For example, currency forwards or interest rate swaps are typically used to hedge out a fund’s risk related to a specific currency or interest rate exposure.

What I am most concerned about is the use of derivatives as speculative tools or derivatives that involve high levels of leverage where the investor did not adequately control the implied leverage and resulting market exposures and liabilities, such as companies that may use derivatives to “game” commodity exposures—a practice that generally makes it more difficult to accurately assess the value of a company’s stock.

For example, an airline may start out using oil futures contracts to hedge the risk of a rise in the price of jet fuel, but may drift from this understandable hedging use into speculating on the price of oil—a potentially risky activity that is somewhat removed from its core business of air transport. Misusing these financial instruments contributed significantly to the global financial crisis in 2008, and they continue to be used today. The total value of derivatives in the world at the end of 2010 was more than $600 trillion. That’s 10 times the world’s total GDP.[1]  

When we have many derivative instruments betting in different directions with a lack of understanding and regulation, we are likely to have more volatility. Add to that the unforeseen and unpredictable events that occur across the world, together with an even more interconnected global marketplace, and we are likely to have more sharp and sudden moves in the market as knee-jerk reactions become more common among many investors. Such heightened volatility can scare people away from equity investments, which is a pity, since study after study has shown that in the long term, equities have outperformed.

We cannot exactly predict when the next market correction will hit us, nor know how great or small it will be, but we do realize that market volatility is here to stay. Few of the problems that caused the 2008 financial crisis have been resolved—banks are bigger than ever, and the derivatives market continues to grow and remains largely unregulated. It is heartening to see that international policymakers are trying to work toward a global regulatory standard, but until we find a true, long-term solution to these problems, we cannot ignore the possibility of another financial crisis.

But, as a long-standing English proverb tells us, we can “hope for the best and prepare for the worst.” With every crisis comes great opportunity. Therefore, we continue to invest with a long-term horizon in companies that we believe are undervalued, fundamentally strong and growing, and those that we think can weather through difficult times. Our long-term, ground-up, disciplined investing approach has kept us in good stead through the volatility so far and, I believe, could see us through potential crises or corrections that may loom around the corner.

[1]. Source: Bank of International Settlements, 18 May 2011.




The battle over margin segregation
by Christopher Whittall - International Financing Review - Thomson Reuters

A CFTC proposal on protection of client margin in cleared over-the-counter derivatives transactions has sparked fierce debate among market participants. While there are numerous advocates of the proposed mechanism, some central counterparties fear it could have a drastic impact on their business models.

It is looking increasingly likely that some OTC clearing houses will have to raise client margins by as much as 270 percent to cover a forthcoming Commodity Futures Trading Commission rule on client margin segregation. The CFTC's proposed rule designed to bolster protection of client margin held against OTC derivatives positions, which moves away from the mechanism used to protect margin in futures trades in the US, has caused an uproar among CCPs -- some of which would have to overhaul their margining models to comply with the proposed rule.

"We would advise against making wholesale changes to a customer protection mechanism, which has been very effective over long periods of time and has been one of the major underpinnings of the cleared derivatives market," said Kim Taylor, president of CME Clearing. "This kind of change in the customer protection mechanism is not mandated by the Dodd-Frank Act, and we'd encourage the industry to focus on other bits that are."

One Size Fits All?
Other participants, though, have highlighted the differences between the OTC and listed derivatives markets -- in terms of notionals, tenors and risk -- and suggest a "one size fits all" approach for margin segregation just isn't appropriate. And while many buyside participants favour full-blown physical segregation -- which the CFTC's proposal does not provide -- most concede that the model on offer represents a fair compromise.

"What has been proposed is a very elegant solution that balances the requests of the buyside to have assets segregated at the same time as addressing the operational burden of that separation," said Richard Prager, head of global trading at BlackRock in New York. "Some buyside participants would like full segregation, but that's a very onerous bar to meet and there is a lot of operational complexity attached to it."

The issue centres on how client margin is held at clearing brokers or futures clearing merchants. In the listed world, all client margin is pooled in an omnibus account at the FCM. As a result, if a client defaults and brings down the FCM with it, and their initial margin is not sufficient to close out their positions, the CCP would make up any shortfall from the omnibus account.

To address this issue, the CFTC proposed four models in late 2010. Of these, "legally segregated, operationally commingled" has become the frontrunner. LSOC employs the current omnibus model until an event of default, at which point the CCP can see underlying client positions, identify where any margin shortfall lies, and ensure non-defaulting clients are shielded.

CCPs & Default Waterfalls
However, LSOC would mean the omnibus account could no longer form part of default waterfalls for CCPs, which would have to substantially raise either initial margin or default fund contributions to compensate. ICE Trust and CME estimated margin hikes of up to 270 percent and 63 percent respectively to comply with LSOC. Conversely, LCH.Clearnet stated that LSOC would not warrant any adjustment.

"Some CCPs advise they factor client initial margin mutualisation into their risk waterfall. However, thus far it has not been made clear how they calculate the client mutualisation layer and the assumptions they use in modelling this," said Daniel Maguire, global head of OTC derivatives, risk and operations at LCH.Clearnet in New York. "From a fundamental risk perspective, we just don't believe you can rely on that client mutualisation layer in a default, and therefore we attribute a zero value to that layer, hence we can assert that removing this layer will result in no change to our margins or default funds."

Some argue that the futility of relying on risk mutualisation in the default waterfall was illustrated by the fact that Lehman's omnibus customer account dropped by roughly 75 percent during the week prior to its default. However, others say this proves the current system works. "It shows market participants have the incentive to monitor the financial health of their FCM. Moving to an LSOC regime may well undermine this incentive," said Taylor at the CME.

CFTC Overstepping
In private, some CCPs lambasted the CFTC's whole approach to the project, claiming it has hugely over-stepped its mandate from the Dodd-Frank Act and has failed to fully investigate other avenues, such as allowing the option of full segregation for those that want it, and the omnibus model for those that don't.

"The only time a customer has mutualisation risk is when a large customer brings down an FCM – and there are no examples of that. This seems like a massive tax that all participants will have to shoulder – whether they want to or not – to solve a problem that has never been encountered," said one senior clearing source.

Moving to an optional segregation model is easier said than done, though. Moreover, there are concerns that full segregation would not comply with the bankruptcy code, and the costs of providing it could be hefty. "Full segregation would cost more operationally and could even require an FCM to split into multiple FCMs, one that is fully segregated and one that isn't. That could create capital and resources inefficiency," said Ray Kahn, head of OTC clearing at Barclays Capital.

"We believe moving to an LSOC approach in the OTC clearing space would not necessarily involve a material operational cost increase, given the large OTC infrastructure build that is required anyway. That said, any form of increased protection means the cost of clearing may go up further for clients."

It seems likely participants will look to ways of achieving full physical segregation in the future. In the meantime, there is a question mark over how margin protection may spill over from the OTC world to the futures market. "The CFTC's study showed that the buffer some CCPs would depend upon through the mutualisation process isn't there when you most need it, so there definitely is a question mark there," said Prager at BlackRock. "I think the market should ease in this LSOC model in the OTC space and then potentially review other account classes in the future."




CFTC moves to delay some swaps rules past July 16
by Christopher Doering - Reuters

The U.S. futures regulator on Tuesday put the brakes on reforms to the massive swaps market scheduled to automatically kick in July 16 and threaten the validity of billions of dollars in derivatives trades.

The U.S. Commodity Futures Trading Commission's proposed delay was a relief to traders, who were facing a daunting gap between the old regulatory regime and the new one called for in last year's Dodd-Frank financial reform law.

The CFTC, which must write regulations to cover dozens of complex reforms for the $600 trillion global swaps markets, has missed a series of deadlines for finalizing them. The lack of finalized rules risked creating a legal void for off-exchange derivatives trades used by companies and traders to offset risk on interest rate shifts or commodity price swings. It created fears that trades could be challenged or invalidated.

The CFTC unanimously voted 5-0 on Tuesday to delay so-called "self-executing" reforms until as late as December 31, or until the agency has finalized corresponding rules. The agency plan would grant temporary relief from the new guidelines for certain transactions in exempt or excluded markets -- primarily in financial, energy and metals. It also would delay measures that do not require rule-making but refer to terms such as swap, swap dealer or major swap participants that still must be further defined by regulators.

Those rules that require rule-making and therefore do not go into effect on July 16 include defining a swap trade, clearing exemptions for companies that use swaps to hedge everyday business risks, real-time reporting of derivatives trades, and capital and margin requirements for trades. "This provides the market and market participants the relief on what happens at the one-year anniversary of Dodd-Frank," CFTC Chairman Gary Gensler told reporters.

The CFTC is racing to create a brand new regulatory framework for the over-the-counter derivatives market, including credit default swaps such as those that helped amplify the 2007-2009 banking crisis. The agency has received criticism for both moving too fast on hastily crafted reforms and for missing Dodd-Frank-imposed deadlines.

The CFTC could impose further relief delays on certain swaps rules beyond December 31, but Gensler said at this time he doesn't expect that to occur. The proposal, which will be open to a 14-day public comment, must be finalized by the commissioners, which they plan to do by the July 16 deadline. The Securities and Exchange Commission, which will oversee security-based swaps, said last week it also plans to provide temporary relief from some provisions.

Legal Certainty Remains An Issue
The CFTC said the proposals "provide the needed clarity for market participants" and should address any legal concerns for swaps beginning on July 16. Still, there are some doubts if the CFTC can legally shift deadlines laid out in Dodd-Frank. "I just don't really know what's in their authority to do that would not be subject to some type of legal challenge," said Craig Pirrong, a professor and a director for the Global Energy Management Institute at the University of Houston.

Scott O'Malia, a Republican commissioner, said the CFTC should have gone further in its relief. He proposed the agency remove the six-month time period and instead grant relief until the rules are finalized by the CFTC. The amendment failed to muster enough support among the commissioners. "I have concerns that this proposal will not provide the appropriate level of legal certainty, and if it is to last only a few months, will likely only serve to further confuse and frustrate the markets and market participants," O'Malia said.

During the meeting, Gensler laid out a rough roadmap of the agency's rule-making schedule. The CFTC may hold votes on anti-manipulation regulations, large trader reporting, agricultural commodity definition and clearing measures in July and early August. Its next meeting is July 7. Gensler said he hopes to finalize regulations on clearing, swap execution facilities in September. The agency also has targeted taking up entity and product definition rules shortly after Labor Day. He did not offer a time for position limits.




Bernanke hits out at debt ceiling impasse
by Robin Harding - Financial Times

Ben Bernanke has lashed out at Washington’s pitched battle over an increase in the federal debt limit, calling it the “wrong tool” to force changes in fiscal policy. “Failing to raise the debt ceiling in a timely way would be self-defeating if the objective is to chart a course toward a better fiscal situation for our nation,” the US Federal Reserve chairman said on Tuesday in some of his strongest words yet on fiscal policy, a subject on which he is normally cautious.

His comments raise the stakes for both sides if they fail to reach a deal to increase the debt limit but are likely to prompt a backlash from Republicans who want spending cuts in return for an increase in the amount the government can borrow. Paul Ryan, the Republican chair of the House budget committee, said Senate Democrats were refusing to move forward with a budget. Speaking directly after Mr Bernanke, he said: “That is why the debt limit is the only other train in the station to get any other fiscal controls out of Congress.”

The US reached the $14,300bn ceiling on borrowing set by Congress in May. Tim Geithner, the Treasury secretary, has said that the US will run out of ways to work around the limit by August 2. That could mean a default, but after further bipartisan talks on the debt ceiling on Tuesday, vice-president Joe Biden said that he is “convinced” a deal can be reached.

Mr Bernanke set out a list of dire consequences if there were even a brief default on US debt. He said that it “could cause severe disruptions in financial markets and the payments system, induce ratings downgrades of US government debt, create fundamental doubts about the creditworthiness of the United States, and damage the special role of the dollar and Treasury securities in global markets in the longer term”.

Mr Bernanke dismissed the suggestion by Senator Pat Toomey, Republican from Pennsylvania, that the Treasury could protect bondholders by prioritising payments to them even after August 2. “Given the current size of the deficit and the uneven time pattern of government receipts and payments, the Treasury would soon find it necessary to prioritise among and withhold critical disbursements, such as Social Security and Medicare payments and funds for the military,” he said.

His comments reflect growing unease within the US central bank about the potential economic disruption from any failure to reach a deal on the debt ceiling as well as the lack of progress towards an agreement on longer term fiscal consolidation. Mr Bernanke said he was not calling for a delay in reaching a deal but rather a long-term plan, including “clear metrics” for success, triggers to make it credible, and a timetable for decisions on fiscal changes.

“Fiscal policymakers could look now to find substantial savings in the 10-year budget window, enforced by well-designed budget rules, while simultaneously undertaking additional reforms to address the long-term sustainability of entitlement programs,” he said.




George Osborne backs ring-fencing of retail banks
by Jill Treanor and Larry Elliott - Guardian

Chancellor to argue that invisible walls between investment and high street operations would protect British economy

George Osborne is to give government backing to plans that will force banks to ring-fence their high street operations in an attempt to minimise the risks of a second financial crisis. The chancellor will use his annual Mansion House speech to lambast the system of City regulation inherited from Labour and will argue that putting invisible walls between the investment and high street arms of Britain's big banks will make it unlikely they will ever need another taxpayer bailout.

Amid mounting speculation in the City that the Treasury is about to announce plans to sell off Northern Rock, Osborne will say he intends to endorse proposals by the Independent Commission on Banking (ICB), chaired by Sir John Vickers. In a report in April that was criticised for not being radical enough, Vickers recommended that banks be forced to ring-fence their high street banking businesses and also hold more capital – "at least" 10% compared with the 7% currently required.

Commissioned by the coalition to deal with the issue of banks being "too big to fail", Vickers's final report is due on 12 September and bankers may be surprised that the chancellor is prepared to back his interim recommendations so far in advance. A Treasury source said: "This is a far-reaching shakeup to make high street banks safer and protect taxpayers. The government set up the banking commission to ask the difficult questions that weren't asked before the crisis and this is right at the heart of their answer. Britain is now leading the world in learning the lessons from the disastrous failures of the last decade."

Osborne is keen to exploit the current difficulties of the Labour party by contrasting his plan for City regulation with the cumbersome tripartite system created by Gordon Brown. He will make the announcement a year after he told City grandees that he intended to scrap the Financial Services Authority and to give the Bank of England a bigger role in policing the financial sector. Ed Balls, the shadow chancellor, who has been hounding Osborne over the weakness of the economy, was City minister for part of Labour's third term.

Treasury sources said the chancellor intended to provide "certainty" by providing details of the "repair job" for the City the government intended to undertake over the coming months. Osborne will await the final Vickers report before finalising his plans. "We need to see what Vickers concludes before deciding how high and how thick the walls need to be," one Treasury source said.

Bankers are deeply divided over ring-fencing and how it will work in practice, and the chancellor is expected to acknowledge that much work needs to be done to establish how retail businesses can be protected. One key issue to tackle is whether corporate loans and deposits should be included in the ring fence.

At a hearing before the Treasury select committee of MPs last week, Stephen Hester, chairman of the bailed out Royal Bank of Scotland, warned that the value of the taxpayer's 84% stake could be reduced by the Vickers proposals for ring-fencing. He said that ring-fencing operations away from a financial institution's riskier investment banking operations could "create a protected beast that the government will support".

However, others were supportive of a ring-fencing idea – although disagreed about which assets should be included in the ring fence. The ICB was also set up to look at competition in the sector. It infuriated the bailed-out Lloyds Banking Group by suggesting it should sell off branches to bolster competition on the high street. Competition was reduced as result of Labour's decision to overrule competition concerns to allow Lloyds to rescue HBOS at the height of the banking crisis.

Lloyds is currently trying to sell 632 branches to obey EU rules over state aid and is pressing ahead with their sale before the final Vickers report in September.




Zombie consumers lead US into lost decade
by Stephen Roach - Financial Times

The global economy is being hobbled by a new generation of zombies — the economic walking dead. American consumers are in the early stages of an unprecedented retrenchment. In the 13 quarters since the beginning of 2008, inflation-adjusted annualised growth in consumption has averaged just 0.5 per cent. Never before in the postwar era have US consumers been this weak for this long.

The zombie syndrome has an important antecedent. It was, in fact, a key symptom of the Japan disease, which led to the first of two lost decades for that country. Encouraged by the government, Japanese banks kept extending credit lines for a broad cross-section of insolvent companies — postponing restructuring and inevitable failure.

Japanese productivity growth weakened dramatically as a result of the ensuing “zombie congestion”. The lifeline of policy-driven bank lending allowed bankrupt companies to hang on to excess workers and redundant capacity. But that sapped post-bubble Japan of sorely needed vitality. It is comparable in post-bubble America. After a record buying binge that lasted a dozen years, US consumers were stretched as never before. Consumption excesses were built on the precarious foundation of two bubbles — property and credit — which have now burst.

It will take a long time for American consumers to recover from the ravages of this bubble-induced spending binge. Deleveraging, the paying down of excess debt, has barely begun. Yes, household sector debt came down to 115 per cent of disposable personal income in early 2011. While that is 15 percentage points below the peak ratio of 130 per cent hit in 2007, it remains well above the 75 per cent average of the 1970 to 2000 period.

A similar pattern is evident on the saving side. The personal saving rate stood at just 4.9 per cent of disposable income in March and April 2011. While that’s up from the rock-bottom 1.2 per cent in mid-2005, it is far short of the nearly 8 per cent norm that prevailed in the last 30 years of the 20th century.

Like Japan’s banks, Washington policymakers are doing everything they can to forestall rational economic adjustments. The Federal Reserve has conducted two rounds of quantitative easing in an effort to get consumers to start spending the wealth effects of a policy-induced rebound in equities. Congress and the White House have embraced home-foreclosure containment programmes and other forms of debt forgiveness.

The aim is to get zombie consumers to ignore their festering problems and start spending again — irrespective of the wrenching balance sheet damage they suffered in the “great recession”. The subtext is Washington condones a revival of reckless behaviour.

Unsurprisingly, US consumers are smarter than US policymakers. With fiscal and monetary policies on unsustainable paths, households know that these life support efforts are temporary, at best. That means they need to take matters in their own hands. Sub-par labour income generation and historically high unemployment and underemployment for 24m Americans only underscore the need for belt-tightening.

Spending retrenchment, deleveraging, and saving are the only sustainable options for America’s zombie consumers. That’s especially the case for 77m ageing baby boomers — the first of whom are now hitting retirement age.

Like Japan’s zombies, there is no quick end in sight to the chronic weakness of American consumers. I suspect it will take a minimum of another three to five years before debt loads and saving rates have been restored to more sustainable levels. With consumption still about 70 per cent of gross domestic product, that points to sharply reduced growth in the US economy — unless America is quick to uncover a new and vibrant source of growth. Policy paralysis in Washington is hardly encouraging in that regard.

There are important implications for the global economy. A protracted shortfall of the world’s biggest consumer, as well as weakness in Japan and debt-ravaged Europe, spells lasting pressure on external demand for export-led economies. Barring a quick rebalancing towards internal demand, so-called growth miracles in the developing world could be in for a rude awakening.

Sadly, America’s zombie consumers could be more problematic for the US than the zombie corporates were for the Japanese economy. At 70 per cent of GDP, US personal consumption is 3.5 times the peak share of Japan’s bubble-distorted business capital spending sector in the early 1990s. A failure to learn the lessons of Japan - especially that of post-bubble zombie congestion - leaves the US and the global economy in a very tough place for years to come. Growth-hungry financial markets could be very disappointed.




How China could yet fail like Japan
by Martin Wolf - Financial Times

Until 1990, Japan was the most successful large economy in the world. Almost nobody predicted what would happen to it in the succeeding decades. Today, people are yet more in awe of the achievements of China. Is it conceivable that this colossus could learn that spectacular success is a precursor of surprising failure? The answer is: yes.

Japan’s gross domestic product per head (at purchasing power parity) jumped from a fifth of US levels in 1950 to 90 per cent in 1990. But this spectacular convergence went into reverse: by 2010, Japan’s GDP per head had fallen to 76 per cent of US levels. China’s GDP per head jumped from 3 per cent of US levels in 1978, when Deng Xiaoping’s “reform and opening up” began, to a fifth of US levels today. Is this going to continue as spectacularly over the next few decades or could China, too, surprise on the downside?

It is easy to make the optimistic case. First, China has a proved record of success, with an average rate of economic growth of 10 per cent between 1979 and 2010. Second, China is a long way from the living standards of the high-income countries. Relative to the US, its GDP per head is where Japan’s was in 1950, before a quarter century of further rapid growth. If China matched Japan’s performance, its GDP per head would be 70 per cent of US levels by 2035 and its economy would be bigger than those of the US and European Union, combined.

Yet counter-arguments do exist. One is that China’s size is a disadvantage: in particular, it makes its rise far more dramatic for the demand for resources than anything that has gone before. Another is that the political effects of such a transformation might be disruptive for a country run by a Communist party. It is also possible, however, to advance purely economic arguments for the idea that growth might slow more abruptly than most assume.

Such arguments rest on two features of China’s situation. The first is that it is a middle-income country. Economists increasingly recognise a “middle-income trap”. Thus, sustaining rapid increases in productivity and managing huge structural shifts as the economy becomes more sophisticated is hard. Japan, South Korea, Taiwan, Hong Kong and Singapore are almost the only economies to have managed this feat over the past 60 years.

Happily, China has close cultural and economic similarities with these east Asian successes. Unhappily, China shares with these economies a model of investment-led growth that is both a strength and a weakness. Moreover, China’s version of this model is extreme. For this reason, it is arguable that the model will cause difficulties even before it did in the arguably less distorted case of Japan.

Premier Wen Jiabao has himself described the economy as “unstable, unbalanced, unco-ordinated and ultimately unsustainable”. The nature of the challenge was made evident to me during discussions of the 12th five year plan at the China Development Forum 2011 in Beijing in March. This new plan calls for a sharp change in the pace and structure of economic growth. In particular, growth is forecast to decline to just 7 per cent a year. More important, the economy is expected to rebalance from investment, towards consumption and, partly as a result, from manufacturing towards services.

The question is whether these shifts can be managed smoothly. Michael Pettis of Peking University’s Guanghua School of Management has argued that they cannot be. His argument rests on the view that in the investment-led growth model, repression of household incomes plays a central role by subsidising that investment. Removing that repression – a necessary condition for faster growth of consumption – risks causing a sharp slowdown in output and a still bigger slowdown in investment. Growth is driven as much by subsidised expansion of capacity as by the profitable matching of supply to final demand. This will end with a bump.

Investment has indeed grown far faster than GDP. From 2000 to 2010, growth of gross fixed investment averaged 13.3 per cent, while growth of private consumption averaged 7.8 per cent. Over the same period the share of private consumption in GDP collapsed from 46 per cent to a mere 34 per cent, while the share of fixed investment rose from 34 per cent to 46 per cent. (See charts.)

Professor Pettis argues that suppression of wages, huge expansions of cheap credit and a repressed exchange rate were all ways of transferring incomes from households to business and so from consumption to investment. Dwight Perkins of Harvard argued at the China Development Forum that the “incremental capital output ratio” – the amount of capital needed for an extra unit of GDP – rose from 3.7 to one in the 1990s to 4.25 to one in the 2000s. This also suggests that returns have been falling at the margin.

If this pattern of growth is to reverse, as the government wishes, the growth of investment must fall well below that of GDP. This is what happened in Japan in the 1990s, with dire results. The thesis advanced by Prof Pettis is that a forced investment strategy will normally end with such a bump. The question is when. In China, it might be earlier in the growth process than in Japan because investment is so high. Much of the investment now undertaken would be unprofitable without the artificial support provided, he argues.

One indicator, he suggests, is rapid growth of credit. George Magnus of UBS also noted in the FT of May 3 2011 that the credit-intensity of Chinese growth has increased sharply. This, too, is reminiscent of Japan as late as the 1980s, when the attempt to sustain growth in investment-led domestic demand led to a ruinous credit expansion.

As growth slows, the demand for investment is sure to shrink. At growth of 7 per cent, the needed rate of investment could fall by up to 15 per cent of GDP. But the attempt to shift income to households could force a yet bigger decline. From being an growth engine, investment could become a source of stagnation.

The optimistic view is that China’s growth potential is so great that it can manage the planned transition with ease. The pessimistic view is that it is hard for a country investing half of GDP to decelerate smoothly. I expect the transition to slower economic growth and greater reliance on consumption to be quite bumpy. The Chinese government is skilled. But it cannot walk on water. The water it is going to have to walk on over the next decade is going to be choppy. Watch out for the waves.


134 comments:

el gallinazo said...

George Washington's latest on ZH. An interesting read. I am shocked! Shocked I tell you!

http://www.zerohedge.com/article/pentagon-papers-whistleblower-daniel-ellsberg-says-government-has-ordered-media-not-cover-91

muchtooloose said...

"But it’s crystal clear that anything they can come up with will be just a fancy way of trying to hide the fact that Greece is insolvent, and that that is an issue they can‘t solve."

Well that was more than 21 words but it is the point at issue.

I disagree though that it can't be solved and that is what those Greeks are out in the streets to say . That it is a criminal act to lend in a manner that drives a person or country into insolvency and in that case all bets are off.

el gallinazo said...

muchtooloose said...

I disagree though that it can't be solved

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

To quote Bubba, "it depends on what the meaning of "is" is."

muchtooloose said...

El Gal

I think Iceland understands 'it' even if Bubba don't:)

Greenpa said...

el gallinazo said...
muchtooloose said...

I disagree though that it can't be solved

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

To quote Bubba, "it depends on what the meaning of "is" is."

-----------------

I would also point out that there is huge general confusion regarding the meaning of "can't" - many consider the word to NOT be a synonym for "won't"; but others automatically consider them to have identical meaning, and cannot understand why disagreements arise.

Greenpa said...

I have a dream....

That someday, in schools of history, they will give a course in "financial markets reporting".

In my dream, yesterday's headlines and analysis will always be paired with today's market statistics. And students will be asked to compare and analyse.

Yesterday afternoon, in financial news "across the board", the headlines announced "stocks soared" - based on sensible reasoning, of course; and "greatest single day of stock gains since April!" were cheered on.

Today, of course, all those gains have been wiped out, and it's still heading down.

Based on very rational stuff. Of course.

For anyone who actually remember yesterday's headlines today, this is the overwhelming pattern, when the market is "moving" more than !/4% a day.

And yet, astonishingly, no financial journalist ever seems to notice. Hm.

VK said...

Greenpa,

Its about the noise, never the signal. Daily finance is really dull if you think about it, the broad trends are the same as they were in 2007 when Ilargi and Stoneleigh were dissecting the broad issues at TOD.

Greenpa said...

VK; "Its about the noise, never the signal"

Oh, I know; sorry my sarcasm was not obvious! :-)

I guess I was really commenting on the fact that this transparent noise continues to be taken at face value by the vast vast majority of people involved in financial markets. They pant for the latest news- and buy and sell; based on utter nonsense.

And yet- there seems a total lack of counter-noise, or academic discussion about it. Crickets chirp, when one raises questions about the validity or value of the incessant "stocks are up sharply today across the board, as investors respond to news of Bernanke's expected report tomorrow on the state of his toenail fungus. Commodities are expected to react sharply to the expected increase in demand for mercuric antifungal compounds."

Mortimer Snerd was more incisive.

el gallinazo said...

Greenpa

And yet, astonishingly, no financial journalist ever seems to notice. Hm.

==========

Winston Smith was a financial journalist, No? And he noticed and did something positive about it. He rewrote yesterdays news. That's the ticket.

That is why I am such a big fan of cloud computing. Go Apple! Go Google! (I heard that the NSA did an IPO and then merged with Google. VK, you got a link on that? ) It will make Winston's job so much easier. None of the pesky little individual hard drives and firewalls to break down.

lautturi said...

In a way I'm stirring the pot, too. On Monday I finished and published my Finnish ESM-utube which apparently caught people's attention pretty well. 3000+ views in 3 days with Finnish utubes are quite good. I'm explaining many short-comings about ESM regarding small people in plain Finnish (sorry, no translations) and getting lots of emails in return.

I wonder when the crack-down comes...

el gallinazo said...

Jim Paplava recently interviewed a long time commodity pit trader who explained exactly why they are so volatile and how so much of the commodity bogus excess price gets funneled into The Squid, The Morgue, and Morgan Stanley. Really worth the listen if you want to learn how a reasonably valid capitalist (as opposed to rentier) tool got high jacked and perverted within the last 20 years.

http://www.financialsense.com/financial-sense-newshour/in-depth/2011/06/13/dan-dicker/oils-endless-bid

46 minutes

Brunswickian said...

More on Nebraska. Not looking good.


http://tinyurl.com/6c4znbk

Nebraska nuke plant totally surrounded by floodwaters: How can Omaha levees hold? Dykes designed for a few weeks of water — 3-4 months expected, with 5+ foot rise
June 14th, 2011 at 08:07 PM

muchtooloose said...

El G

Thanks for the Financial Sense link,I will add it to my collection of now eleven various Audio and video channels. I hope this link will return the favour. It works for me, salud.

p01 said...

Game Over.

lautturi said...

@ p01

Yes, Greek loans: 2 yrs at 28% and 10 yrs at 18%. This is getting hilarious (I have very twisted sense of humour...)

ogardener said...

Blogger el gallinazo said...

pentagon-papers-whistleblower-daniel-ellsberg-says-government-has-ordered-media-not-cover-91

Well what do you know? We're not whack-jobs after all.

thethirdcoast said...

@ el gall:

I could not agree more with you and Mr. Ellsberg.

However, the REAL problem was stated succinctly by Laurence Fishburne playing the role of Morpheus in the Matrix:

"The Matrix is a system, Neo. That system is our enemy. But when you're inside, you look around, what do you see? Businessmen, teachers, lawyers, carpenters. The very minds of the people we are trying to save. But until we do, these people are still a part of that system and that makes them our enemy. You have to understand, most of these people are not ready to be unplugged. And many of them are so inured, so hopelessly dependent on the system, that they will fight to protect it."

People have extremely little interest in being unplugged from the current status quo. That's why it is so easy for TPTB to manipulate the masses and convince them that they should fight to defend that status quo, even when the rewards of doing so are being covertly funneled to the top 1%.

Chaos said...

Nicely done. Nothing more to say on this, except "I fart in your general direction" is one of the best phrases I've heard in quite some time.

lautturi said...

Meanwhile in China...

AN eruption of protests throughout China has sent armoured vehicles into town centres, prompted an internet blackout by the government and left thousands across the country blogging about "crazy" violence on the streets.

The summer surge of protests, which flared in the southern industrial hub of Zengcheng over the weekend, has been linked to a range of frustrations with modern China - furies that have drawn the government into crackdowns on activism and massive increases in the domestic security budget.

Some Chinese academics believe that the true number of protests in the country last year was more than 180,000. After several big clashes in recent weeks the names of half a dozen big towns have been eradicated from the search engines of the country's most popular microblogging sites.

One of the "disappeared" cities, Dongguan, is the fourth-largest producer of exports in the country and has a population only slightly smaller than London's.

The recent violence, however, has exposed the limits of the government's ability to control the urban population using internet censorship what party leaders refer to as "social management".


This summer WILL BE something to remember of (¤_¤)

I'm Not POTUS said...

China is not run by communist.

China is the worlds first instance of the perfect mafia.

Political bosses let crooks make as much money as they want as long as they respect the CCP mafia absolute authority. Get caught making them look bad and poof your gone. Everyone else keep quiet and be great full for what we give you.

They only maintain control of the have-nots' up until the masses have had enough. And that time is coming quickly. They have control of the crooks only as long as they make money. Those rats have already started to escape.

el gallinazo said...

Charles Hugh Smith writes a thoughtful essay on China's upcoming economic implosion.

http://www.oftwominds.com/blogjune11/wheels-fall-off-China6-11.html

Ash said...

Yeah, Chinese elites really got screwed. Just when they were starting to enjoy those 5-10% economic growth rates, get a bit of a middle class going and partially mitigate Western imperialistic shenanigans, they find themselves with a powder keg of an urban peasant population and not nearly enough financial or environmental flexibility to accommodate it.

NZSanctuary said...

Chaos said...
"I fart in your general direction" is one of the best phrases I've heard in quite some time.

Monty Python is eternally quotable.

Asia down on Greek news, too.

el gallinazo said...

No offense meant to FB, but I recently watched Python's Holy Grail again, and the French castle holders almost sent me to the hospital.

muchtooloose said...

Just realized that I haven't seen any comments by Swede for a few years.

If you are still out there watching, then, 'skal', to you my friend, I took your advice and bought into gold back then and have not looked back. I still am buying in on a timely basis and suggest for those who wish to protect their spare pennies to do the same.

Sharon Forward said...

Had to chuckle about the 'Zombie Consumer' article. Don't the geniuses realize that not spending is the only way for the average American to give the finger to the man -- and the banks and the system that is so corrupt?

At least that is my strategy. I spend very little--all my friends know I have nothing to prove in this phony dog and pony show. Not any more. So big gifts are out. But I wonder if this is spreading--

Sharon Forward said...

I am a Zombie Consumer. Proud of it. Only way to peacefully revolt. If we refuse to play the game--step aside--willingly, it will fall down.

Sharon Forward said...

Zombie Consumer describes me to a tea. With a wry smile--
Do no harm. Vote with my pocketbook.

skilo said...

@muchtoolose,

debt based money is a loss.

nobody wins with systematic, societal asset stripping debt based Ponzi money schemes.

i'm not sure if iceland's money is debt. if it is, they only delayed their Ponzi implosion.

exponential math CAN'T work forever. infinite debt loads aren't possible.

when a dollar is a promise to repay a dollar plus interest, the system MUST inflate or else it implodes.

think war, not battle.

NZSanctuary said...

Children already suffering in Fukushima.

http://ex-skf.blogspot.com/2011/06/radiation-in-japan-nosebleed-diarrhea.html

Nassim said...

Chernobyl: Consequences of the Catastrophe
for People and the Environment


This book is now freely downloadable - with the authors' permission. It is no longer obtainable as a softback - it costs around $150 if you can find a copy. It was published in January 2010.

I think that anyone serious about understanding the effects of radioactivity on a population should read at the very least the foreward.

From year to year there has been an increase in nonmalignant diseases,which has raised
the incidence of overall morbidity in children in areas affected by the catastrophe, and
the percent of practically healthy children has continued to decrease. For example, in Kiev,
Ukraine, where before the meltdown, up to 90% of children were considered healthy, the
figure is now 20%. In some Ukrainian Poles’e territories, there are no healthy children,
and morbidity has essentially increased for all age groups.


Grim stuff indeed.

Metanis said...

We have 8 grandchildren. Grandpa helps entertain by watching their PBS Kids show and DVDs they rent. The really sad and dangerous thing about Climate Change is the message these children are receiving. Like a jackhammer these programs keep reinforcing the message that "change is bad".

They are attempting to raise good little environmentalists with these programs. The propaganda is readily discernible.

Each show will focus on the decline of some aspect of the biosphere or an animal family and then trace the decline back to evil human-caused climate change.

Keep in mind this is the "fantasy" world of entertainment shows. They also listen to mommy and daddy deal with job loss and financial problems. They overhear the news programs with it's background litany of death and destruction.

At the end of the day, these young minds are being taught that "change" itself is a terrible thing.

Don't believe me? Watch any major media treatment of climate change. You'll see the undercurrent like a drumbeat. Change is bad. Change is bad. Change is bad.

My counterpoint is simply that humankind's success from an evolutionary standpoint largely is due to our adaptability to change. Teaching kids an unrealistic fear of change ill equips them for surviving in today's world.

Gregg Schaaf said...
This comment has been removed by the author.
Gregg Schaaf said...

Off topic - I am having trouble understanding how my purchases from Amazon can generate a commission for TAE. On the website http://www.oftwominds.com/blog.html, Charles Hugh Smith has something set up which makes it much easier and hence much more likely for funds to deservedly flow in to support TAE.

scandia said...

@Metanis, Your comments relate to what Dr. Gabor Mate had to say about children at the workshop I just attended.
Others are waiting for a summary from me. I can't give it just now as my early childhood " implicit " memories were brought to consciousness. I am feeling quite vulnerable and need to stay in the feeling realm for a bit before taking it all to the mind.
It is tempting to tune out or rationalize to thereby escape from acknowledging what has been suppressed for so long.
Indeed we communicate fear of change often with the best intentions.

ogardener said...

Fukushima: It's much worse than you think

Excerpt: "Gundersen's assessment of solving this crisis is grim.

"Units one through three have nuclear waste on the floor, the melted core, that has plutonium in it, and that has to be removed from the environment for hundreds of thousands of years," he said. "Somehow, robotically, they will have to go in there and manage to put it in a container and store it for infinity, and that technology doesn't exist. Nobody knows how to pick up the molten core from the floor, there is no solution available now for picking that up from the floor.""

Ash said...

Metanis,

You may be right, but I think an analogy is apt here. Perhaps an analogy to those who constantly preach the demise of the Western financial architecture, but then use that as a vehicle to advocate investments in gold, silver or China. They have a baseline refusal to accept that we are all in a rapidly sinking (changing) ship, with some closer to the ice cold water than others. Change is natural, and may be net beneficial in many situations, but, first and foremost, it must be understood and accepted at face value, with both its positive and negative consequences for both human life and for the Earth in general.

D. Benton Smith said...

Regarding government bonds and the domino effect of accounting junk IOU's as assets: time for a zero bullshit reality check.

FACT : the storage of wealth is symbolic, and therefore the security of everyone's (symbolically) stored wealth is dependent on belief and faith in those symbols AND HOPE THAT EVERYONE ELSE WILL FAITHFULLY BELIEVE SUCH NONSENSE LONG ENOUGH FOR ONE TO BAIL WITH A BAG FULL OF BOOTY.

This is hysterically funny because only faithless nonbelievers can achieve great wealth.

It gets even funnier when the victims ( who previously envisioned themselves as wise guy perpetrators ) wake up and start scrambling for safety … only to discover that their own “bag full of booty “ consists of symbols ( dollars, gold, Greek bonds, … you name it ) which everyone else is losing faith and belief in at panic speeds.

Then the game becomes trying to wrap one's wits around the overwhelmingly complex, and literally impossible task of comprehending the voodoo that constituted the illusory wealth in the first place. (Hint: it's voodoo ) The logic behind this strategy is to predict the next stage of collapse and shift wealth to a new symbolic form in the nick of time. The vain hope, I suppose, is to ride out a landslide by hopping from one falling rock to another until safely arriving at the bottom, unscathed.

Good luck with that.

Or you can by-pass the cognitive dissonance and go right to the solution that you SHALL eventually employ anyway:

Pick a team.

There are three classes of people: lords, henchmen and slaves. Polite society prefers terms like leaders, middle class, and citizens, but what's in a name. Just pick one. Although the lines between them can be made to look fuzzy the classes are nevertheless quite distinct.

Decide which one of these classes you are in ( or aspire to be in , ) and go for it.

LORDS should get on with whatever scam they think will retain wealth power and influence. The tendency is for life to be very very pleasant for lords … until it ain't. Caveat: this job requires the destruction of slaves and the betrayal of henchmen, who can be expected to violently revolt and seek vengeance at some point. Prepare to get meaner, and then even meaner than that. Forget about nice. Enjoy the high times while they last. Don't think too far ahead.

HENCHMEN should back the play of whichever lord is willing to pay them. Caveat: this job requires helping lords destroy slaves, who when the time comes will find henchmen a lot easier targets than lords. The lord you work for will throw you onto the pitchforks in a heartbeat. Prepare to swiftly shift allegiances. Sleep with one eye open. Always have multiple routes of escape. Don't try to save wealth. Borrow to the hilt. Borrow until SOMEONE will loan you more just to avoid acknowledging how bad they screwed up loaning you anything in the first place. Remember the comparison between lab rats and lawyers: there are some things a lab rat just won't do. Be a lawyer.

SLAVES should practice the fine art of anonymity, never pass up the opportunity for a solid meal or the chance to catch a little sleep. All three are crucial to survival, and survival is the name of the game. “The poor shall always be with us,” is actually good news. Caveat: this job easily leads to being used up altogether ( worked to death, canon fodder, professional prison inmate, starvation, etc. ) so the trick is to see that coming and dodge. Never volunteer. When dodging is impossible, fake it. The most successful slaves are consummate actors. When all else fails, adopt an alias and run. When that fails, shoot somebody. When the revolution comes, don't stand near the front. Endure. Remember that bad times don't last forever ( yeah, right, they get WORSE ) and that anything is better than being a lord or a henchmen.

Ash said...

@DBS

Love it. I'd like to think I'm in the process of choosing the "slave" team, but come to think of it, it's choosing me. I just hope it doesn't lead me to fake being a henchman at the exact wrong time.

SecularAnimist said...

"The really sad and dangerous thing about Climate Change is the message these children are receiving. Like a jackhammer these programs keep reinforcing the message that "change is bad"."

Ahh, the old, we are destroying the planet but don't dare go changing anything. Instead, go buy some "green" products with that "eco-guilt". Brought to you by baby boomer's cognitive dissonance and stock in "green" companies.

Home is a fairly good documentary that does a decent job with a big picture look at Human's impact on the planet, during the course of it's existence.

http://www.youtube.com/watch?v=jqxENMKaeCU

At the end, it let's everybody know to have "faith" in corporations fixing the problem. Indeed, we will purchase our way to an ecotopia

SecularAnimist said...

""Perhaps an analogy to those who constantly preach the demise of the Western financial architecture, but then use that as a vehicle to advocate investments in gold, silver or China. ""

Yes, these are my favorite. Insisting that going back to bitterly resisted 19th century capitalism is the way forward. They won't be happy until 9 year olds are working in coal mines again.

el gallinazo said...

DBS

Great post. I would tweak one little aspect of it, where I might divide the lowest class into slaves and proles, where the slaves are truly chattel property such as in the antebellum South, and every minute of their life controlled, while the proles might tend to be roving scavengers or subsistence farmers.

scandia said...

@DBS. Loved your analysis. I think we need to add a sub class for the geezers and geezettes.One of the adjustments in aging is that one becomes anonymous, almost invisible. This may serve well:)

D. Benton Smith said...

@scandia

Oh, yes , that very thought is one of my great consolations . . . that I might live virtually unnoticed to all but a few close friends , and then to pass away at an advanced age from causes that are both gentle and dignified.

Kind of like a trusty old Volkswagen beetle, not worth coveting... but dependable (even lovable) transportation that runs almost forever ... until one morning it simply doesn't fire up.

D. Benton Smith said...

@ash

Well, the future is long and twisty, and unforeseen circumstances may force you to temporarily simulate henchmandom, but don't worry. You're plenty smart enough to ease in and out of the role without getting torched (or jailed).

I reckon the tough one for you will be to convincingly play the slave act when in every way except monetarily you just naturally feel rich and free.

Luckily for you, this is The Automatic Earth!

We are replete with crafty old Geezers and Geezerettes from whom to learn the art.

el gallinazo said...

Unfortunately, many of us are already on the Ministry of Truth shit list for speaking truth to power over the Internet in our very trifling way. Hopefully, as time goes by, they will be more distracted by other, more immediate threats. I am not banking on going gently into the night like a failing Beetle, though if fate and fortune should allow it, I would not complain.

D. Benton Smith said...

@ El G
" I might divide the lowest class into slaves and proles, where the slaves are truly chattel property such as in the antebellum South, and every minute of their life controlled, while the proles might tend to be roving scavengers or subsistence farmers."


Yeah, good point, especially since some folks will just never submit to being owned outright, regardless of the penalties.

Theirs might be the toughest row to hoe of all. Outsiders. Gypsies. Interlopers by virtue of being neither the owner of the place they must bide, nor owned by its lords.

Such folks are the subjects of many stories, and conflict was at the core of every one.

SecularAnimist said...

Just because you are a well paid house-negro, as opposed to the ones out in the field, does not mean you are not "owned".

The southern plantation owners wrote decent arguments about how their slaves had better lives than the wage-slaves in the factories in the north. They were not too far off in many cases.

Ash said...

"I reckon the tough one for you will be to convincingly play the slave act when in every way except monetarily you just naturally feel rich and free."

Yeah, the real problem is I have too many henchman friends. I try to let it be known that I'm actually a slave/prole every chance I get, but these fools just don't believe me. As for the other slaves, well, guilt by association and all that.

On the other hand, as El G was saying, I may very well be on a DHS terror watch list at this point. I'm gonna ask them to mail me a certified copy, laminate it and carry it around with me at all times. You don't think I'm a slave?? I'm a certified terrorist! I don't see your name on this list... (that was a JOKE, you DHS nitwits).

el gallinazo said...

Ash,

You have little to worry about as the M of T and DoD operatives don't know what the phuck you are writing about :-) The most unforgivable infraction is to question the myth of 9/11 which is the lynch pin of the Empire's military resource grab and police state expansion. And doing it effectively is even more unforgivable. Infiltrating and disrupting 9/11 truth groups was the specific mandate that Big Bama gave his Minister of Truth, Cass Sunstein. I fear for and and admire in particular George Washington, who is doing a great job in dismantling the government myth brick by brick on Zero Hedge.

Greenpa said...

Ash: "(that was a JOKE, you DHS nitwits)."

oh, dear; I woulda thought people here knew- never, never, joke with a cop. Don't do it.

Cops (on duty) have NO sense of humor; it's trained out; and it is ALWAYS a mistake to forget that.

:-)

I've been on the watch list since 1970, when right after Kent State I personally and very publicly pissed off Erwin Griswold, Nixon's Solicitor General. I've had very recent proof that they're still watching. Which means, of course; anyone I associate with...

:-) You just have to start looking at paranoia as entertainment.

Nassim said...

Areva chief Anne Lauvergeon to quit

"Atomic Anne" has been given the boot. She was the blond lady sent by Sarkozy to Japan to help sort out Fukushima - fat chance for anyone, least of all a blond French lady, doing any such thing in the culture of Japan.

Ash said...

El G, "The most unforgivable infraction is to question the myth of 9/11 which is the lynch pin of the Empire's military resource grab and police state expansion. And doing it effectively is even more unforgivable."

I did write a piece about a potential nuclear "false flag" on the blog I created, with heavily implications about 9/11, but thankfully it doesn't even get a fraction of the traffic that TAE gets. I'm not sure it gets traffic at all, actually.

I've always wondered how ZH got to the point where they would let GW post all of that stuff. Esp now when he's going at them hard and they're a more popular site than ever... do they really believe anonymous handles will protect them?

Don't get me wrong, I'm really glad they do it, but...

Ash said...

"Which means, of course; anyone I associate with..."

Greenpa? Who the fuck is Greenpa??

Archie said...

Public service warning to all supermarket shoppers of bread:

True fact: A common ingredient in commercial breads is derived from human hair harvested in China!

Now we return you to your regularly scheduled programming.

Archie said...

And just when you thought there was no hope for the future starving masses:

Japanese scientist creates edible meat alternative made from recycled human waste.

Hey, don't knock if you haven't tried it.

Greenpa said...

Ash- lol! ah, deny all you want, ve haf vays uf knowink.

el gallinazo said...

Ash

Re Greenpa - Just don't deny him thrice before the cock crows :-)

Re George Washington and Zero Hedge

You ever read Fight Club? It forms a certain theme of Zero Hedge. Whoever (singular or plural, or split dissociative personality disorder) Durden may be, there seems to be a kamikaze like courage there. I am sure they are not naive enough to think they can hide under anonymity now that the NSA has officially and corporately merged with Google.

SecularAnimist said...

fwiw - Over at huffpo, which is the most heavily trafficked site on the net(like 30 million a month). They had rules regarding talking about 9/11, which was don't question the official narrative or get banned. Anyway, it didn't stick and every article pertaining "terrorism" got overwhelmed with skeptics. Once AOL bought them, it pretty much slowed to a trickle, as the moderators started blocking posts.

Nassim said...

Fukushima: It's much worse than you think (Gundersen)

In the US, physician Janette Sherman MD and epidemiologist Joseph Mangano published an essay shedding light on a 35 per cent spike in infant mortality in northwest cities that occurred after the Fukushima meltdown, and may well be the result of fallout from the stricken nuclear plant.

The eight cities included in the report are San Jose, Berkeley, San Francisco, Sacramento, Santa Cruz, Portland, Seattle, and Boise, and the time frame of the report included the ten weeks immediately following the disaster.


I. M. Nobody said...

@ Ash, el g & Greenpa

If the MiB appear at your door, you might as well go ahead and taunt them thusly. They're gonna beat on your head anyway.

We're certainly not anonymous to the gov, if they want to know. Our pseudonyms protect us from people who know us and the reputations of people with the same name.

ogardener said...

Blogger Nassim said...

Re: Fukushima: It's much worse than you think (Gundersen)

Nassim. I know someone living in Seattle and that person is extremely upset about it. The last report I read indicates that people in Seattle are getting dosed as we presently converse here on TAE. Not good at all. I'm wondering how much of that stuff is on my vegetables as a result of fallout?

Ash said...

HA, a great observation by Nathan over at Economic Edge that I just read:

Confused

I became confused when I heard the word "Service" used with these agencies:

Internal Revenue 'Service'
U.S. Postal 'Service'
Telephone 'Service'
Cable TV 'Service'
Civil 'Service'
State, City, County & Public 'Service'
Customer 'Service'

This is not what I thought 'Service' meant.

But today I overheard two farmers talking, and one of them said he had hired a bull to 'Service' a few cows. BAM!!! It all came into focus. Now I understand what all those agencies are doing to us.

Now you are as enlightened as I am.

el gallinazo said...

And the retail clerks in the US Virgin Islands are adepts at the art of customer disservice. Their talent and creativity is awesome.

ben said...

SA,

"just because you are a well paid house-negro, as opposed to the ones out in the field, does not mean you are not "owned"."

it means you are owned more.

"The southern plantation owners wrote decent arguments about how their slaves had better lives than the wage-slaves in the factories in the north They were not too far off in many cases."

that's rich. tell it to the ATM - hey, maybe some cash will come out.

--

greenpa, don't forget to check on a regular basis for your spectacles, testicles, vallet and vatch :)

http://www.youtube.com/watch?v=2ZTp1coqajQ

Robert said...

Keeping up with the latest climate data:

"Temperature Anomalies for May 2011"

http://www.wunderground.com/blog/JeffMasters/comment.html?entrynum=1825

DIYer said...

El G,
Google? You're soaking in it!

This blog, and many other popular blogs, are on Google servers. Gmail is Google. A mobile phone with Android is Google. (Note that ZH is not a *.blogspot.com site.)

There are ways to use the internet without Google, but you have to put some effort into them. For example, I think usenet still exists, though I haven't looked for it in years. There's IRC. Or the old information sharing protocol Gopher. Not that the spooks can't still track you down, but at least you aren't publishing your location with every mouseclick.

As Jeff Vail points out, the "winner" is the one with the best network. And I'm afraid a loose association of geezers on a blog comment section is almost too sketchy to count as a "network".

I. M. Nobody said...

Come now my fellow geezers. It does not matter who hosts a blog. All it takes is a call from they-who-are-not-to-be-denied to the hosting company and they will have your IP address as soon as it can be found. You can rest assured that I know this from personal experience. After they know that, your ISP will gladly tell them where that traffic came from and who owns the account.

Actually, my experience was about a dozen years ago. At this time, they probably do not have to contact anybody and can look it up in their own database. The internet works as well for them as it does for us.

jal said...

D. Benton Smith said...

"There are three classes of people: lords, henchmen and slaves....

The most successful slaves are consummate actors. When all else fails, adopt an alias and run. When that fails, shoot somebody. When the revolution comes, don't stand near the front. Endure. Remember that bad times don't last forever ( yeah, right, they get WORSE ) and that anything is better than being a lord or a henchmen."
---
You have captured the imagination of the board.

:-)

The old geesers need not fear.

Remember the post #7 game celebrations in Vancouver ... It only took a few to get everything going ugly.

Those fews are the ones that must be afraid.
When it gets ugly, progression will quickly go from tear gas, pepper spray ... to rubber bullets, ... to live rounds.

" ... don't stand near the front".

If you happen to get caught in a crowd ... Use your walker, cane, wheel chairs to get to the back and home as fast as you can.

Jal

NZSanctuary said...

Nassim – thanks for the book link – I see you have posted it on ex-skf, too. It needs to be distributed widely.

Bryan McNett said...

@ElG: interesting to read your 9/11 info, and interesting that it isn't ever deleted. what do you think about Dave McGowan's 9/11 explanation on his "Center for an Informed America?" I can't find better but I wonder why the place is called C.I.A. and the moon story boggles my mind still.

snuffy said...

Hi folks,

I cant work up too much paranoia...with who and what I have been over the last 50 years,I am sure there is a room some where,with files and piles of files of the trials of my life....fuck them.They know where I live and where I work.
I honestly think they are way, way, past having their bloody hands full with the real seriously deranged,heavily-armed ass wipes with evil intent on their minds that are starting to take pot shots at congress critters...on general principals.
Not that we wont have our share of trolls and lower life forms.I just am thinking the empire has a few more pressing problems....

Bee good,or
Bee careful

snuffy

snuffy said...

Blogger is acting weird tonight...

To continue,911

Mike Ruppert summed it up well,las time I saw him...remember he wrote the first book pinning Cheney,"Crossing the Rubicon'."Its over,they won,get over it.'
Hes busy doing that survival net, whatever, that cost bucks.Being busy doing prep I got little to spare....That story at zero hedge is a interesting flash...no one will pick it up..
sleepy time..

Bee good,or
Bee careful

snuffy

Supergravity said...

The administrations of violently personalised surveillance feedbacks do clearly reveal the malintent to use surveillance for indiscriminate political persecution. It seems to be done so that the surveilled are intimidated by the unchecked abuse of surveillance authority, showing that applicable restrictions on political surveillance and associated use of private information, as may yet legally exist, are unaccountable under the rule of law, since legal authority and sanctioned executive machinery have been largely appropriated and consolidated under cryptofascist corporate security structures.

Tools of autocoercive suppressant surveilance, as executed by means of obscene invasions of privacy made deliberately perceptible and viciously intimidative, have no inherent function of detecting political extremism in the surveilled, yet reveal extremist degeneracy in the surveilling authority, when so purposefully intended to micromanage political repression by mentally traumatising selected dissenters, inducing debilitating states of paranoid anxiety in those subjects perceptive to surveillance abuses, and coercing self-censorship of civil discourse by broad-spectrum surveillance terror, indispensible for totalitarian regimes.

I've found my own dealings under scrutiny most sinister, for no more extremist activity than Gravity being a recursive algorithm. The surveilling authority revealed itself, by malice of method and motivation, to be comprised of dangerous ideological extremists and assorted synchronous sociopaths, perchance apart from civil or military 'government', operating a compartmentalised corporate surveillance grid interfacing with state security apparatus, but without any perversion of securitywise intent, and possibly without any 'legal' permissibility or government supervision.
Senior autogenic political extremists within the corporate hierarchy may be abusing the state-sanctioned surveillance facilities for private perversions also.
Common statist and corporate fascist methods of weaponised surveillance effect statewise political repression and corporate propagandism by means of traumatically invasive social control, so destroying the perception of political safety from the state, and the private space necessary for civil discourse. Self-censorship is then enforced by expectation of persecutions and surveillance trauma.

el gallinazo said...

@Bryan McNett

I am not familiar with Dave McGowan. I did pull up the Center of an Informed America web site which seems to consist of a large link archive. Is there a particular link that would be useful for me for each topic? My expertise in this area is with 9/11. I have heard a few things about the "Apollo fraud" and have noted a few troubling anomalies, but am somewhat skeptical though openminded.

My general attitude toward the entire situation is not to discount anything with a knee jerk reaction because there is no telling what these dickheads and sociopaths might do. OTOH, I need hard, logical, and verifiable data before I will reach a tentative conclusion. For example, HAARP is now being blamed "in the community" for everything from earthquakes to hemorrhoid flare ups. If anyone listened to the Prof. Steven Jones link, I take the same position, that I don't see a lot of the connections but am always open to new, hard, well presented data.

Regarding the mention of the Huffpo, I consider it along with the Daily Kos to be in the sheep feed and spook business and only pay attention to them in respect as a disinformation source.

NZSanctuary said...

Not sure how reliable this is re: Fukushima, but potentially very interesting

SecularAnimist said...

Huffpo is not a site to go for news, it's site to go see what the "people" are saying. When you have comment sections with 10,000+ posts you can get a general "feel" on popular thoughts on given subjects. You even have neo-malthusian luddites prosthelytizing on any given article about oil.

scandia said...

@JB, is that you over on London Banker giving definition to " anomie"?
If so first time I encountered " dysbalance". Is there a nuance difference from imbalance? Or how about unbalance so often used to describe state of mind.

p01 said...

From the "We are not in overshoot" Dept.:
Let's eat doo-doo too
More grains would also help, especially with bran. The browner your food, the better! And healthier, too!

p01 said...

Hardline IMF forced Germany to guarantee Greek bailout.
IMF forced Germany. What more is there to say?

jal said...

@p01
Here is another one for you.

http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/jun/15/ireland

Now Ireland seeks to burn Anglo Irish bondholders
---
Reminder:
The IMF template is already in place.
+++

This strategy includes a significant downsizing of public sector employment, restructuring or closure of public entities, and rationalization in entitlements, while protecting vulnerable groups. On the revenue side, the government will reduce tax exemptions, raise property taxation, and step up efforts to fight tax evasion.
The government is committed to significantly accelerate its privatization program. To this effect it will create a professionally and independently managed privatization agency, and has drawn up a comprehensive list of assets for privatization with the aim of realizing revenues of EUR 50 billion by the end of 2015. The government will assess progress against intermediate quarterly and annual targets.

Greenpa said...

p01 - so that would be Soylent Brown, then...

Greenpa said...

On the topic of "I'm paranoid; but am I paranoid enough?" -

http://tinyurl.com/3ftdtod

"A law enforcement source told CBS News that the man detained in the discovery of a suspicious car found outside the Pentagon Friday morning was carrying a notebook that contained the phrases, "al Qaeda," "Taliban rules" and "Mujahid defeated croatian forces."

"Despite the references to the terror organization that organized the 9/11 attacks, the group fighting U.S. forces in Afghanistan and the Arabic word for "holy warrior," the source said the man is not thought to have been involved in a terrorist act or plot, CBS News investigative producer Pat Milton reports."
--------------------------

Land sakes, how blind can they be!? Obviously, ANYONE using those words is clearly a terrorist! Or tourist. Same thing, yes?

el gallinazo said...

Interesting comment from another blog. I am still chewing on it.

China has had success imitating successful pro business strategies which we have forgot ! They work their butts off to accumulate $3 Trillion in foreign currency ! The Fed retaliates by creating $3 Trillion snapping it's fingers in the thin air ? They've been sucking hind pig tit on the Ponzi sow ! I'd be pissed !

p01 said...

Greek tragedy.
Mish's weekly podcast.

p01 said...

@Greenpa
Brown for now. The soylent is getting greener by the minute.

Bryan McNett said...

@el gallizano

"Is there a particular link that would be useful for me for each topic? My expertise in this area is with 9/11. I have heard a few things about the "Apollo fraud" and have noted a few troubling anomalies, but am somewhat skeptical though openminded."

McGowan is meticulous about footnotes and sources, which might help you wade through it.

The "September 11, 2001 Revisited" article series is the most reasonable, complete, factual account I can find in the world of what happened and how, but almost zero analysis of why or by who.

"Inside The LC" links up thousands of "coincidences" like the fact that The Doors' Jim Morrison was the son of Admiral Morrison, who did the false flag for Vietnam. McGowan tries to paint the '60s "alternative" music culture as a government psyop, though rarely says so explicitly. If not for the great footnotes, I'd give the theory zero credit.

"Wagging the Moondoggie" is the best criticism of the authenticity of the Apollo moon landings I've ever read. I still can't quite believe that "the whole thing was staged" as that's clearly physically impossible, but after reading this article series, I'm convinced that propaganda played a VERY LARGE part in those missions and others.

Ilargi said...

One more time: I don't want no 9/11 here. I'll delete anything that mentions it from here on in.


.

Brunswickian said...

http://www.countercurrents.org/ananda170611.htm

The Ft. Calhoun plant — which stores its fuel rods at ground level according to Tom Burnett — is already partly submerged.

“Ft. Calhoun is the designated spent fuel storage facility for the entire state of Nebraska…and maybe for more than one state. Calhoun stores its spent fuel in ground-level pools which are underwater anyway – but they are open at the top. When the Missouri river pours in there, it’s going to make Fukushima look like an x-ray.”

In 2010, Nebraska stored 840 metric tons of the highly radioactive spent fuel rods, reports the Nuclear Energy Institute. That’s one-tenth of what Illinois stores (8,440 MT), and less than Louisiana (1,210) and Minnesota (1,160). But it’s more than other flood-threatened states like Missouri (650) and Iowa (420).

“But that’s not all,” adds Burnett. “There are a LOT of nuclear plants on both the Missouri and Mississippi and they can all go to hell fast.”

ogardener said...

Blogger Brunswickian said...

http://www.countercurrents.org/ananda170611.htm

“But that’s not all,” adds Burnett. “There are a LOT of nuclear plants on both the Missouri and Mississippi and they can all go to hell fast.”

What were the de$igners thinking? The Missouri and Mighty Mississip never flood? Oh right. Warm air holding more water vapor was never figured into the equation. To infinity and beyond!!!

Bryan McNett said...

Guess it was me who came back and ruined El Gallizano's recent freedom to discuss *REDACTED* here. If I go away, will the censorship lift?

Interestingly, Dave McGowan is convinced that Peak Oil is a psyop designed to detract folks from discussion of *REDACTED*. That sounds loony to me.

DPW said...

Don't believe me? Watch any major media treatment of climate change. You'll see the undercurrent like a drumbeat. Change is bad. Change is bad. Change is bad.

The only thing certain is change. Evidence abounds. We ignore that at our physical and psychological peril.

And so castles made of sand (or granit) melt into the sea...eventually.

I. M. Nobody said...

Ilargi,

I would implore you to feel free to delete all conspiracy mongering about the Apollo project. I spent two years on the project including several orbital launches to verify the equipment, determine survivability during reentry, etc. I didn't go with them and was not there when Armstrong's crew was launched. What I can say is that we had the ability to go to the moon and spent one hell of a lot of money and used up a huge pile of valuable equipment. Not to mention the three men who were incinerated in one of the capsules sitting atop a Saturn V waiting to be launched. Why would we do that if we were going to fake it? You might also mull over why they would fake it multiple times? Seems like one would have been enough.

I'm getting the definite impression that this Dave McGowan has gone round the bend.

Bryan McNett said...

"I'm getting the definite impression that this Dave McGowan has gone round the bend."

Me too: he's wrong about peak oil. And it's very hard to even approach his moon stuff because nobody can doubt the entire official story. But there are bits and pieces worth doubting IMHO.

The stuff he writes about *REDACTED* however is really thorough and impressive in scope, and there aren't any smelly punchlines in the end, like aliens or lizard monsters.

el gallinazo said...

Bryan McNett

Not really a problem. George Washington of Zero Hedge is now doing the heavy lifting, and an incredibly good job of it, with a very interesting comment section attached as well

Ilargi said...

OK, so we managed to lift the Dow above 12,000 and the Euro above $1.43. Makes for a sort of upbeat feeling going into the weekend after all, right? A weekend which will be filled with yet another EU meeting, and a ton of potential "mayhemmy" developments in Greece. A looming vote of confidence for Papandreou, who at the 11th hour appointed his long time main rival Venizelos as the new finance minister, and will gladly push the same guy forward as the new PM in case that vote is lost, and even if it's not. "You wanted this job so badly, buddy? It's all yours." Spain's debt rates are rising and Moody's just threatened to downgrade Italy. Any EU/IMF/ECB Greek bailout agreement will last as long as the next Greek government. Pretty safe to just hold your breath on this one, ain't going to kill you.

Lovely week ahead of us, not a worry in the world.




.

Greenpa said...

Yeah, it's not looking very humorous out there. A glimpse into our future:

http://tinyurl.com/3lxykrm

""We made (the new ones) kill them, and slit their throats and quarter them and all that. So that the new people would lose their fear of cutting an arm ... or a leg," he said.

"Others end up as drug dealers, fixers or watchmen but those safer jobs do not always pay as well, according to Beatriz Hernandez, 21, one of the other women arrested with Mendoza, who said she earned 4,000 pesos every two weeks as a look-out.

"With Mexico struggling to clean up its justice system or create more decent jobs, some young people see gangland murders as a real career option.

"This is about the impunity here," Islas said. "Because of it, the perception of risk attached to committing this kind of crime is very low. Murders are not solved in Mexico."

Nassim said...

re: change

Is the end near (Martin Armstrong PDF)

The law books are filled with enactments against technological advances in every century. You will also find legal persecutions of those who threaten the status quo on a variety of levels. Our economic understanding of the evolution process of the economy is just about zero. Unfortunately, there is this presumption that government has a RIGHT and the POWER to intervene and manipulate the economy. It is this presumption of authority that PREVENTS us from considering what to do and how the economy really functions. The socialists will NEVER agree to let go for they demand the POWER to intervene even though they refuse to learn how the economy functions. The right wing simply wants a police state to read everything every person writes and laments they cannot yet read minds. Both the left and the right agree on one thing. They both seek to increase the POWER of the government to the detriment of human rights to the freedom of individuality to control society forcing it to be as they desire.

el gallinazo said...

Seems that there are two votes coming up in the Greek parliament. There has to be a vote of confidence on the newly rearranged cabinet which will probably take place on Tuesday evening. At this moment, G-Pap's party has a 1-3 vote majority, but he is facing defections daily. However, with billions involved, there should be enough money under the table to insure a victory. The second vote which would probably be at the end of the month would be passing the new austerity measures and selling off the people's assets to the banksters legislation, and that is going to be a tougher row to hoe.

One interesting aspect to this situation politically is how the "socialist" governments of Greece, Portugal, and Spain (not to mention J.P Morgan's despicable Tony Blair) have shown themselves to be totally corrupt sock puppets of the banksters. In Germany, I have read that the Social Democrats are falling to the Greens and the New Left parties in local elections, and so called conservatives aren't doing so well either. Merkel of course, is taking a drubbing. She seems to be caught between wanting to have a political future and being totally under the control of Josef Ackermann, who doesn't want to lose a cent on the Greek fiasco. Sarco's polling numbers are so low that DSK could probably still beat him if he could get out of jail in time and stick to professional prostitutes and sheep until after the election.

There was an interesting podcast interview of a Marxist professor at UMass Amherst today. Not to much new here for the initiated, but he spells out the rudimentary situation in a clear fashion if you have friends looking for The Greek Crisis 101 in 45 minutes.

http://tinyurl.com/3q584pn

Nassim said...

Japan Strains to Fix Reactor Damaged Before Quake

The Monju prototype fast-breeder reactor — a long-troubled national project — has been in a precarious state of shutdown since a 3.3-ton device crashed into the reactor’s inner vessel, cutting off access to the plutonium and uranium fuel rods at its core.

Engineers have tried in vain since the accident last August to recover the device, which appears to have gotten stuck. They will make another attempt as early as next week.


Murphy's Law seems to be in overdrive.

Punxsutawney said...

Another somewhat long, but good article by Michael Hudson nicely summarizing where we have been and the how bad economics find political favor.

p01 said...

Oops.. I see Archie posted already the green-brownish soilent links. Sorry, I did not read the whole thread.

Ash said...

Well,

Here's a somewhat uplifting article I published recently:

The Post-Peak Rapture

Uplifting in the sense that I'm tired of apathetic consumers who really don't give a shit anymore. Use your mind and stand for something important, or... be another fucker whistling Dixie land delight... you're choice.

Greenpa said...

Nassim: "Murphy's Law seems to be in overdrive."

Seems to me we're approach Warp Nine, Murphy-wise.

Nassim said...

Exposed: The secret guns sting that backfired on the US

In total, agents watched at least 1,730 guns flood on to the black market, knowing they would be used to commit murders and other violent crimes. Their concerns about the policy were ignored. In one email to field staff printed in the report, ATF supervisor David Voth suggested that staff who objected to his orders would be fired.

"I will be damned if this case is going to suffer due to petty arguing, rumours, or other adolescent behavior," he wrote. "We are all adults, we are all professionals, and we have an exciting opportunity to use the biggest tool in our law-enforcement tool box. If you don't think this is fun, you are in the wrong line of work, period!"

I find it hard to believe that these "orders from above" were not intentional and that they did not want one gang ("our guys") to wipe out the competition. It is similar to what is happening in the banking world - "our guys" get the handouts and are allowed to walk all over the competition and corner markets with this money.

Goldman, JP Morgan Have Now Become A Commodity Cartel As They Slowly Recreate De Beers' Diamond Monopoly

Greenpa said...

well, shoot; and just as I was about to turn all my gold (2 dental crowns) into Bitcoins-

http://tinyurl.com/4yd3ltn

"A trojan horse virus that steals Bitcoins, a digital currency that people can use for transactions online, has been spotted in the wild,..."

el gallinazo said...

Typically pathetic article from the toilet paper of record. Not that I am a big enthusiast of bitcoins, but I bet Timmy and Benny don't like them one bit. First of all, any article that starts out, "A Trojan horse virus" rouses my suspicion. Is it a trojan or a virus? And if it is a trojan, how does it present itself to get invited in with your administrator password? Garbage article.

Alexander Ac said...

A must see interview with Thomas Friedman and Paul Gilding,

cheers,

Alex

Nassim said...

Jerusalem rabbis 'condemn dog to death by stoning'

It reminds me of the French, in the 18th century and earlier, putting animals on trial for stealing, buggery and even murder :)

Animal trial

Robert said...

"Driven by a remarkable coalition of liberals and fiscal conservatives, a
bipartisan majority of the Senate yesterday voted 73 to­ 27 to end more than
three decades of federal subsidies for ethanol." - http://www.bobpark.org

This surprising vote must have maize farmers up in arms. What with weather destruction, maize production must be precarious in many areas and prices are likely to remain high.

Noteworthy is that the infamous, diabolic Kock brothers came out strongly in favor of stopping these subsidies even though they claim to profit from them.

This the only time I have found myself agreeing with the Koch brothers but for different reasons than theirs.

The EROI for ethanol produced from maize is so low that it is a false approach to "green energy" as substitute for fossil fuel energy.

Taking massive amounts of food production and converting it into feed for Hummers and other piggish American cars is unconscionable - period, full stop.

Legendary Armor Rōnin said...

D. Benton Smith said...

"[G]o right to the solution that you SHALL eventually employ anyway:

"Pick a team.

"There are three classes of people: lords, henchmen and slaves. ... HENCHMEN should [remember] the comparison between lab rats and lawyers: there are some things a lab rat just won't do. Be a lawyer.

"SLAVES should [remember] that anything is better than being a lord or a henchmen."

Bravo, well done.

However, as a person whose survive-n-thrive strategy for the next few decades revolves around joining Team Henchmen, I think that you may be overstating the appeal of Team Slave.

Future LORDS will be assassinated, usurped, and overthrown occasionally, but whomever the replacement LORD may be, she'll need us HENCHMEN, just as the current 537 U.S. national-level elected LORDS may come and go, but the bureaucracy remains.

SLAVES always live on their knees, by the leave of their betters. Every so often they may have a day in the sun, rising up momentarily to dispose of a few HENCHMEN and the odd LORD or two, but all other days belong to the HENCHMEN. I like the odds & I'll take my chances.

I do not lightly choose to wear the hobnailed boot, but if being a yeoman is right out, and the only choices are to set one's foot on the neck of others or to lower one's head to the boot, then I'll skip the forelock-tugging, thanks anyway.

Besides, it's today's willfully-ignorant SLAVES who are foreclosing the yeoman option and condemning us to the LORD - HENCHMAN - SLAVE paradigm, so fuck-you-very-much. Or what Ash said.

el gallinazo said...

"Interesting comment from another blog. I am still chewing on it.

"'China has had success imitating successful pro business strategies which we have forgot ! They work their butts off to accumulate $3 Trillion in foreign currency ! The Fed retaliates by creating $3 Trillion snapping it's fingers in the thin air ? They've been sucking hind pig tit on the Ponzi sow ! I'd be pissed !'"

China isn't a victim of the Ponzi, they're the co-perpetrators of the Ponzi. Given the numerous ways in which both the Chinese people and the Chinese Powers That Be have profited, they have no legitimate cause for anger.

Ash said...

FOFOA had a decent article about Bitcoins recently, and a good forum discussion about its advantages and flaws as a competing decentralized currency -

http://fofoa.blogspot.com/2011/06/bitcoin-open-forum.html

Then he created two more "open forums" for discussion after that.

IMO, Bitcoins may work on small scales, but it is way too idealistic to think they will become a global or regional competing currency to official currencies, as most of its advocates do. At the end of the day, I imagine it will collapse in a heap as its ambitions exceed its realistic ability to be used.

bluebird said...

@Ash - Nice posting on your blog, especially about the bright red cardinal. A bit of morning inspiration. thanks

scandia said...

Speaking of Lords,slaves etc... on the Telegraph it is reported that Lord Glenconner left his St. Lucia estate to his manservant. It states as well that none of his family were mentioned in the will. St. Lucia's laws prevent the will being contested. Must be some pissed off spawn:)

Metanis said...

Resistance to change?

An illustration is the fact that while USA is nearing a financial catastrophe the Democrats can find less than 1% to cut from the DoD budget.

Within the story is yet another illustration. The Army wants to mothball a tank repair facility in Ohio. That would lay off hundreds of workers in a state that is "must-carry" for Obama in 2012. So the Senators vote to keep the facility open. (It's also near Speaker Boehner's district!)

Finally however the article is actually an example that change is on the horizon. The very fact that this made news (Democrats cutting spending) is a sign that reality is sticking it's nose under the tent.

Perhaps it won't be stupidity that kills us all but simply inertia.

D. Benton Smith said...

Henchman Or Slave, That Is The Question

alternate title: For Whom The Shoe Fits


Henchman used to be a pretty appealing job. Short hours, high pay, expectation of advancement, good retirement benefits, and dirty deeds committed against innocent widows and orphans so obscured by mountains of bullshit that the vast majority of henchpersons actually convinced themselves that God was not just on their side, but cheering them on to even greater efforts of doing His will..

Alas, no more.

The lesson of history is rising up to bite their collective ass.

The middle class is shrinking.

How could that possibly be so, when everything we've ever heard, from cradle to wheel chair, was that EXPANSION is not just the primary marker of success, but proof of its logical and moral validity as well ?

Turns out they was lyin' to ya, bub.

While it is demonstrably true that lords need henchmen... it is not for the reasons we've been told.

Lords need henchmen because of NUMBERS. There are just too damned many innocent widows and orphans out there for lords to rape and pillage them all without a little help. Without a LOT of help, actually.

Here's the rub, which also happens to be the primary lesson of history :

As the playing field tilts in favor of the lords the NUMBERS shift in favor of the slaves … until there are so MANY slaves and so FEW lords that the inevitability and outcome of rebellion is just an absolute no-brainer.

No, you CAN'T always pay half of the poor to kill the other half. You gotta have enough money first.

So, if you wanna be a lord or a henchman, go right ahead … that might be good for the gene pool.

On the other hand, I suggest that right now might not be the best timing for that particular career move.

el gallinazo said...

@Robert

I was shocked to see your post about the Senate repealing the ethanol subsidy. My first thought was, "What is this world coming to?" My understanding is that the corn derived ethanol EROEI is not low - but actually quite negative.

But no need to despair that the country is spinning into a semblance of rationality, things are not what they seem, and the chances of this program, which main outcome besides robbing the taxpayer is to promote world hunger, is still quite optimistic.

http://naturalresourcereport.com/2011/06/senate-ethanol-vote-leaves-everyone-confused-questions-unanswered/

DIYer said...

In a discussion on The Oil Drum a while back I posted a calculation based on anecdotal inputs from R-squared (who has some experience in the hydrocarbon bidness), that ethanol could be obtained from the chemical hydration of ethylene (a cheap commodity derived from natgas) for a production cost of about $1.50 a gallon (in 2006 or 2007). But of course the majors would never build an ethanol refinery based on the expectation of <5 years' useful life. Oildrummers knew bio-ethanol was a stupid idea way before it came up in politics -- a few hucksters made a lot of money for a while and now it's done.

I looked at the NYT bitcoin article and agree with El G. That computer virus can just as easily steal your credit card numbers, so are they recommending that people tear up their credit cards? Should you switch off the evil internet? (actually that could come to pass)

I'm thinking of putting a few $$'s into bitcoins just for the heck of it, but you'd certainly be foolish to put your whole life savings in something so thinly traded. My main objection is that only a small minority of nerdy people are even able to understand how bitcoin works. OTOH, with a silver round, you at least have a shiny thing to flash around.

I had something else on my mind, but can't remember what it was. Oh well..

Ash said...

re: bitcoins

I really liked FOFOA's latest comment about them:

"The total market cap for all Bitcoins in existence right now is about $103 million. (Link) If it is true that Satoshi Nakamoto has a quarter of the 6.5 million bitcoins in existence, then he alone holds $26 million. What about those other six project developers along with Satoshi? What is their combined share? 40%? 50%? Do you think that the potential you cite for an inflow of hundreds of millions to a present market cap of $103 million makes it more or less likely to be adopted as a currency? Answer = Less.

Do you think these seven hands are strong enough to hold? $26 million can buy a lot of socks, that's for sure, but if you cash out into that competing currency called dollars it can also buy yachts and other fun things like coke and hookers. How about when Nakamoto's share is at $50 million? Will he still hold firm to his Anarchist convictions? How about $100 million? At what point do you think he will sell out for that other competing currency that buys jets and cars and cool stuff? Please read these two lines until they finally sink in:

"Thus a correct, second-order strategy to pick a winner has to consider the monetary pressures across the whole path to complete monetization. If the leak will reverse direction halfway through the process, the process cannot complete and should never start."


The real fatal flaw is its inability to be easily created, managed and diluted over time. Same reason by metal-backing of currencies doesn't really work at large scales for this system.

Robert said...

el gallinazo said...

@Robert

I was shocked to see your post about the Senate repealing the ethanol subsidy.

-----------------

Yeah This particular EROEI (energy returned on energy invested)hovers around zero. The complexity of calculations plus the fact that parameters may vary from region to region, farmer to farmer makes it difficult to pin it down exactly.

The EROEI (energy return on energy investment)is not necessarily the same as EROI since use of a lower money cost energy input cost to obtain a higher value (in terms of money) energy product can distort equivalency of the two. A good example is the recovery of "tar sand" oil using low cost natural gas as the main energy input cost vs the higher money value of the oil output.

Your link is shocking too. Perfect example that these lawbreakers, excuse me law makers, do not know their a** from a hole in the ground. It also demonstrates once again that politics is for politics sake; ie. for the benefits of TPTB aka the "elite".

DIYer said...

After reading the comments on the FOFOA thread, I think I'll hold off a while on getting even a few bitcoins. At least I'll wait till the current speculative frenzy wears off.

Ash said...

DIYer,

Honestly, if you were planning on buying them at all, you probably want to get them during the speculative frenzy and before the dollar begins significantly appreciating. After that, you'll probably be left owning increasingly worthless digital coins... even if there is eventually a HI event.

Personally, I wouldn't invest in any. Physical gold would be a much better long-term insurance against dollar HI, IMO.

Greenpa said...

El Gal: "Is it a trojan or a virus? And if it is a trojan, how does it present itself to get invited in with your administrator password? Garbage article."

Yeah, I caught the blooper on 'trojan virus'. Afraid my expectations of journalists have just gotten so low I simply shrugged it off.

Mostly I was interested in the speed with which thieves have developed a way to steal- um, what? Kind of the Final Fantasy Fiat Funny Fun Money.

Whole thing is just such a bizarre construct; with how many hours of human (well, quasi human) labor invested in it?

Our culture has become totally fascinated with, and addicted to, masturbation. Derivatives seem to me to be really hot Big Finance masturbation; but now they're creating small scale Financial masturbation processes, too (bitcoins)- then figuring ways to screw them up.

We're just such an amazing species. :-)

Don't know why, but I just feel the urge to go watch a lot of Tom Lehrer videos on YouTube...

el gallinazo said...

re bitcoins

The question boils down to - why should you trust the guys who set this up any more than Benny and the Inkjets?

And my understanding is that they can be lost by someone stealing your computer. OTOH, if you have the folder in which they reside strongly encrypted and backed up elsewhere, so the thieves cannot cash them in, and you can access them on a new computer, then I guess you would be more protected than a thief stealing your gold rounds.

Most thieves who steal computers wipe the hard drive ASAP anyway. They wouldn't know a bitcoin from a bit of shinola.

DIYer, you know the answer to this one?

Alexander Ac said...

Sorry if the link lurked somwhere but there is literally WAR starting in Greece!

This is the fate of Europe???

All the "money" goes to derivatives, greatest shit-hole of our times...

p01 said...

Ilargi said:
Lovely week ahead of us, not a worry in the world.

It's funny that for the last months, on every bad news (and there were plenty) I had that gut feeling that everything was falling apart.
Now that it's imminent, I don't have it anymore, like I`m insesitized to bad news, so I figure this must really be it.

Going to clarify more butter and dry more meat this week-end.

el gallinazo said...

Greenpa

Yeah if Brooksley Born hadn't been ambushed by Greenspan, Ruben, Summers, and Levit, then we would be practicing masturbation the way God intended us to.

el gallinazo said...

The Empire strikes back??

http://www.zerohedge.com/article/trading-over-counter-gold-and-silver-be-illegal-beginning-july-15

Legendary Armor Rōnin said...

D. Benton Smith said...

"As the playing field tilts in favor of the lords the NUMBERS shift in favor of the slaves … until there are so MANY slaves and so FEW lords that the inevitability and outcome of rebellion is just an absolute no-brainer."

Always possible for the outcome to be your implied scenario, of course, but a study of actual rebellions throughout history, to include those that have just recently occurred, doesn't support a general conclusion that Team Henchmen gets slaughtered wholesale, either during or after such events.

Also, looking at societies with few LORDS and many SLAVES, such as China and India, it seems that great inequality doesn't automatically mean widespread uprisings.

Further, I am an American who's going to stay in the States through the crises, and Americans don't have much of a history of being particularly rebellious, the Civil War excepted, and what issue today rives Americans as did slavery? So I think that another all-out American Civil War is very low-probibility.

I'm much more likely to die in some future resource war than I am to be killed by an uprising of the slaves.

But then again, that's pretty much a risk faced by most American males under 30, and in the end I'd rather die on my feet than live on my knees, etc. and so forth.

As for "...the vast majority of henchpersons actually convinced themselves that God was not just on their side, but cheering them on to even greater efforts...", well, that's a pretty modern idea. There's going to be, (IMO), a whole lot of Zero Sum activity going on before we get back to a Win/Win paradigm, and the human dynamic of unvarnished robbery/conquest has a VERY long history. I don't have to like it, and don't, but I do have to accept it and factor it into my plans.

Besides, let us consider Stoneleigh's hope for local communities to come together for the common good. In most cases where such occurs, it'll be under the direction or protection of a benevolent or far-sighted LORD, and it'll be policed by HENCHMEN, because a defining characteristic of SLAVES is that they're generally passive. If they weren't, then they wouldn't be SLAVES, wage or otherwise.


Greenpa said...

"Our culture has become totally fascinated with, and addicted to, masturbation. Derivatives seem to me to be really hot Big Finance masturbation; but now they're creating small scale Financial masturbation processes, too (bitcoins)- then figuring ways to screw them up.

"We're just such an amazing species. :-)"

High-five for all three thoughts!

Ilargi said...

New post up.





Monetary Psy-Ops: QE3 and Twist2





.

Gravity said...

The cause of something is something awkward.

The cause of time is relativistic mass.
The cause of taxes is love of the deficit.
The cause of price is misvaluation.
The cause of breakaway barbarism is dominant sociopathy.
The cause of inertia is that Gravity is a recursive algorithm.
http://en.wikipedia.org/wiki/Mach_principle
It really is.

Brunswickian said...

Sayonara

http://enenews.com/pasture-grass-contaminated-cesium-above-safety-standard-160-km-fukushima-plant-radiation-levels-exceeding-acceptable-safety-limits-many-locations


Pasture grass contaminated with cesium above safety standard 200 km from Fukushima plant — Radiation levels are exceeding acceptable safety limits in many locations

Nassim said...

St. Lucia's laws prevent the will being contested. Must be some pissed off spawn:)

scandia,

It is probably a lot simpler than that. All of us, if we live long enough, go dotty. This character seems to have changed his will 7 months before he died.

IMHO, the English laws on inheritance are almost designed to create friction in families. My Dad died in the UK some years back and he signed a will only 3 weeks before his death leaving me nothing. On his death certificate, it says that he died from "dementia". Obviously, you do not "catch" dementia and die within a few weeks.

Since I detest legal proceedings, I did not contest it. I wanted to have as little as possible to do with my psychopathic brothers. I consider that I got off lightly.

BTW, my elder brother was an investment banker and the youngest ever director of the World Bank. It just goes to show. :)

A Fall Guy said...

@ DBS et al

While appealing in its simplicity, something about the lord-henchman-slave-outsider classification seemed missing. Then it struck me: human hierarchy is fractal (i.e. self similar at multiple scales). As suggested by El G, I agree that proles divide into two categories: slaves (beholden and controlled by henchmen for lords) and outsides (largely ignored as irrelevant). Globally, the current lords include the imperial cultures (e.g. US, China), henchmen include supporting countries and institutions (e.g. OECD countries, IMF), slaves include most of the rest (globalization has rooted out most outsider countries or regions). The same pattern repeats at finer scales, regardless of whether the higher scale is lord or slave. A senator is a henchman regardless of which country, although a US senator has much more power than a Haitian senator. This goes right down to the local community (or even family).

This perspective suggests that one might find the most peace in the future as an outsider at the right scales. Some outsiders have had it very tough and make easy scapegoats (e.g. gypsies), but others have been able to live simple, if hard, lives at least sometimes (e.g. Laplanders in northern Finland). For some this means choosing a slave country and trying to live as an outsider (e.g. Mexico?). For my part, I choose to live in an area with marginal resources relative to the surrounding area. It’s in Canada (a henchman country wishing it was a lord), in British Columbia (a henchman province wishing it had more influence over Canada). But the area where I live is largely ignored so definitely an outside community. The small pockets of arable land and low-productivity forest are insignificant in a regional context.

Just like flaunting wealth would make you a target of henchmen, living in an area that is overly rich in resources would make your region a target of higher-order henchmen.

I don’t think there is a best choice, since we cannot predict exactly what conditions or atrocities await around the corner. Plus, the fractal nature of human order means that you can’t escape it. But one can certainly make choices that decrease the probability of suffering.