Saturday, December 6, 2008

Debt Rattle, December 6 2008: Markets and the Lemming Factor

Detroit Publishing Co. Under the boardwalk 1908
Chalfonte Hotel and the Boardwalk.Atlantic City, New Jersey

Stoneleigh: In recent years, the prevailing financial orthodoxy has been that markets are efficient mechanisms for resource allocation based on the collective expression of rational human decision-making, the implication being that they are grounded in stabilizing negative feedback. Markets have been seen as essentially dispassionate and objective arbiters of value, and their constant fluctuations as a random walk with no underlying pattern. It would follow therefore, that market timing would not be possible, and the best one could do would be to buy and hold a diversified group of equities chosen on the basis of perceived undervaluation. In my opinion, this model is simply delusional.

As collective human endeavours, markets follow rules of collective, or herding, behaviour that are hardwired in us as they are in other mammals. As humans, we respond subconsciously to the emotional signals of others, validating our own opinions by their conformity to received wisdom. We are genetically programmed to feel reassured by conformity to consensus, whether accurate or not, and to feel acute discomfort if everyone else around us thinks we are crazy. As trend-following is a recipe for social inclusion, consensus is a powerful force. Most market participants have no real information upon which to act. All they have to go on is what they see others doing, and the perceived comfort level of others in taking those actions. Unfortunately, the received wisdom they rely on is a lagging indicator of relatively persistent trends. By the time the advantages of a particular course of action have become common knowledge, it is almost always too late to act on them advantageously, as the gains will have gone to the early movers.

Some trends are persistent enough that they eventually attract a very wide pool of participants, as apparent gains amongst one's peers eventually overcome the caution even of many inherently skeptical people. When they last long enough to overcome the caution of bankers, the result is easy credit to fuel the fire, and a blatant disregard for systemic risk. This is how the largest speculative bandwagons are formed - the ones that become manias and eventually lead to ruin for a large percentage of the population. Prices are continually pushed up, irrespective of any reasonable objective measure of value, by those who think that it doesn't matter how much they pay for something if there will always be a Greater Fool who will pay even more. The evidence of pyramid dynamics - where insiders and early movers benefit at the expense of later generations destined to become empty-bag holders - should be abundantly clear. The pool of Greater Fools is not limitless.

Markets are at heart a predatory wealth concentration mechanism for separating the herd from its money. They allow insiders to feed off the greed and fear of a momentum-chasing majority that is always fully invested at tops and fully liquid at bottoms. While the majority always hangs on for too long, giving back their erstwhile gains and more, insiders take a contrarian stance and reap the rewards. While some call this immoral, it is better described a amoral, and is no more unnatural than any of the many predator/prey relationships that exist within and between other species. While we generally prefer not to think of human societies in such terms, we delude ourselves to think that survival of the fittest does not apply to us. As individuals, we must be proactive rather than reactive, and we must not be complacent as the complacent become prey.

Markets have all manner of fluctuations at all degrees of trend simultaneously, which allow those who understand the dynamic to time their movements, at least probabilistically. Timing will be everything for a few years. Everyone forgets about market timing during long expansions when buy and hold seems so simple, but once volatility is the name of the game, market timing always makes a comeback. The pattern is one of positive feedback, which is inherently destabilizing. For those who may be interested in the application of fractal geometry and Fibonacci mathematics to market timing, I would recommend The Misbehaviour of Markets by Benoit Mandelbrot, or the work of Robert Prechter, including Conquer the Crash .

However, society's collective mood swings from optimism to pessimism are about far more than making, or more often losing, money in the market. Social mood tells you a lot about what people will collectively do, and as such acts as a leading indicator for a large constellation of effects. Prechter refers to this as socionomics and has written many books on the topic (some of which we recommend below). When the majority is in an optimistic mood, trust and confidence increase. People are prepared to take risks because they see a good chance of success, and their confidence becomes a self-fulfilling prophecy. They start companies, and invest for the long term because their 'discount rates' fall as their tolerance for risk increases. In other words, they value the future more than usual (although humans are collectively so biased towards short-termism that this increased valuation of the future is sadly never enough to actually preserve a future for the next generation). Mainstream environmental movements are always formed near highs in social mood for instance (but they disappear very rapidly when hard time short people's horizons drastically). Optimistic populations also increase the social inclusiveness of their political culture over time, weakening the 'us versus them' dichotomy to everyone's benefit.

Whereas long upswings generate trust, confidence, complacency as to risk, social inclusiveness and environmental concern, among other things (colourful clothing, cheerful if sometimes mindless music, an appreciation of beauty in art and literature etc), downturns generate the opposite. As the mood turns to pessimism, and a new negative consensus builds over time, the mood turns from greed to fear to anger, from social inclusion to exclusion (leading to increasing xenophobia and a blame-game), from care for the long term to worrying only about today and maybe tomorrow, and from risk tolerance to risk aversion. (On a more trivial note, people also begin wearing dark or drab colours, listening to angry and discordant music, developing a taste for horror stories and appreciating artwork that is deliberately ugly.) A sense of common humanity is (tragically) weakened by a revival of a tribal 'us versus them' mentality, where 'us' is ever more narrowly defined and 'them' is an increasingly pejorative term. Once again the consensus becomes a self-fulfilling prophecy, as people over-react to the downside to as great an extent as they previously over-indulged to the upside. From the point of view of markets, risk aversion is the killer because lack of trust and confidence translates very quickly into a lack of liquidity. In a very real sense, confidence is liquidity in a world where money is essentially pulled from a hat through fractional reserve banking. Markets freeze up very quickly when the mood turns, and mood can turn on a dime.

If you read the mood of the crowd and watch consensus develop, it is possible to predict where events are headed, since mood is a leading indicator. Mood drives liquidity and financial decisions, which are followed in turn by economic effects and then by political fallout from those economic effects. We are currently witnessing the development of a large scale shift towards a pessimistic mood in the wake of the greatest optimistic bubble in history. As trust and confidence are progressively lost, I am expecting (in roughly this order due to differing time lags) ever-increasing increasing risk aversion, progressively less liquidity, enormous financial losses, angry recrimination leading to witch hunts of those who have been particularly successful at the expense of others, xenophobic persecution and demonization of other cultures, the election of populists prepared to play the blame-game at great cost to everyone, and finally war.

By understanding the nature and direction of social mood, it is possible to resist becoming part of a highly unconstructive consensus, although there may be a social price to pay for doing so. Retaining trust in one's fellow man will become harder and harder, especially at a societal level. This is why we recommend establishing and cementing relationships of trust at the local level as soon as possible, as such relationships are the most valuable thing you can have in times of great upheaval.

Obama Provides Details of His Plan to Create 2.5 Million Jobs
President-elect Barack Obama promised to make the “single largest new investment,” in America’s roads, require public buildings to be more energy-efficient, and to modernize health care with electronic medical records. Using his weekly radio address to unveil five components of his plan to save or create 2.5 million jobs, Obama pledged that he would not “do it the old Washington way.”

We won’t just throw money at the problem,” he said. “We’ll measure progress by the reforms we make and the results we achieve -- by the jobs we create, by the energy we save, by whether America is more competitive in the world.” The incoming 44th president opened his address by saying that yesterday’s Labor Department report of 533,000 lost jobs in November was “another painful reminder of the serious economic challenge our country is facing.”

The economic slowdown has been exacerbated by the worst credit crisis in seven decades and is compounded by potential collapse of the U.S. auto industry. Congress will return next week to decide whether to rescue the Big Three car companies. In addition to investing in infrastructure, requiring energy standards on public buildings and updating health-care practices, Obama said that he will launch a “sweeping effort to modernize and upgrade school buildings,” and will boost broadband deployment across America.

“These are a few parts of the economic recovery plan that I will be rolling out in the coming weeks,” he said. “When Congress reconvenes in January, I look forward to working with them to pass a plan immediately.” On infrastructure, he said his investment would be the largest since the creation of the federal interstate highway system in the 1950s. To the states that will be the conduits for the funding, he had a simple message: “use it or lose it.” “If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money,” he said.

Obama’s plan to make public buildings more energy efficient should reduce the government’s energy bill, which he called the highest in the world. He plans to replace heating systems and install energy-efficient light bulbs. He vowed to make schools more energy efficient, while also putting new computers in classrooms. Obama also plans to upgrade Internet infrastructure, calling it “unacceptable that the United States ranks 15th in the world in broadband adoption.

Modernizing health care was the final component of the plan. By introducing new technology and electronic medical records, he said health-care workers could “prevent medical mistakes, and help save billions of dollars each year.”

Obama, in Chicago for the weekend, has no public events scheduled for today. Tomorrow, he will mark the anniversary of the 1941 attack on Pearl Harbor with a news conference in Chicago, according to a statement from his transition team. The press conference is scheduled begin at 1:00 p.m. Chicago time tomorrow. No further details were provided.

U.S. Job Losses Signal Recession Will Be Long, Deep
The U.S. economy may be headed for its deepest and longest recession since World War II as mounting job losses take their toll on consumer confidence and spending. Employers cut payrolls last month at the fastest pace in 34 years as the unemployment rate rose to 6.7 percent, the highest level since 1993. The 533,000 drop brought cumulative job losses this year to 1.91 million, the Labor Department said yesterday in Washington.

“Almost all businesses are in survival mode, and they’re slashing payrolls and investments just to conserve cash,” Mark Zandi, chief economist at Moody’s in West Chester, Pennsylvania, said in a Bloomberg Television interview yesterday. “We’re in store for some big job losses.” The plunge may spur incoming President Barack Obama to come up with a fiscal stimulus package larger than the $700 billion plan some economists advocate. Obama today promised to make the “single largest new investment” in roads and public buildings as part of his plan to save or create 2.5 million jobs.

Yesterday’s figures added urgency to negotiations over aid to U.S. automakers. Democrats in Congress reached an agreement in principle with the Bush administration on providing funds to prevent a collapse of General Motors Corp. and Chrysler LLC, a congressional aide said. U.S. stocks fell for the fourth time in five weeks as the worsening job market added to concern the recession is deepening. The Standard & Poor’s 500 Index lost 2.3 percent to 876.07, trimming its rebound from the 11-year low reached on Nov. 20 to 16 percent.

John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, said the jobs report suggests that the economy shrank at annual rate of 5 percent in the final three months of the year. That would be the biggest contraction since the first quarter of 1982. “Consumer confidence is going to be bad,” Silvia said. “It is going to be a difficult winter for a lot of people.”

Yelena Grinberg of San Francisco is already feeling the effects of a sluggish labor market. The 26 year old has sent out more than 100 resumes since she lost her job as an administrative assistant, and has only landed one position: doing clerical work for $12 an hour over two days. “It’s really tough,” she said, standing outside an Employment Development Department office in San Francisco. “I was so sure it wasn’t going to be hard. But no one wants to look at me,” she said, starting to cry. “I’m running out of money and I’m freaking out.”

Job losses are likely to mount next year as the collapse in credit and slump in spending hurt companies from Citigroup Inc. to AT&T Inc. Legg Mason Inc., a Baltimore-based fund manager, said yesterday it will eliminate 8 percent of its workforce. Payrolls in November were forecast to drop by 335,000, according to the median estimate in a Bloomberg News survey. The jobless rate was projected to rise to 6.8 percent.

Revisions for September and October increased losses by 199,000. November was the 11th consecutive drop in payrolls. The employment slump was a key factor in determining the start of the recession. The National Bureau of Economic Research, the arbiter of U.S. business cycles, announced this week that a contraction began in December 2007, the month payrolls peaked. At 12 months, the recession is already the longest since the 16-month slump that ended in November 1982. The recession is the 11th since a downturn that occurred in 1945, the year that World War II ended.

To fight the downturn, Federal Reserve Chairman Ben S. Bernanke this week outlined unorthodox policy action that officials can take beyond lowering interest rates. One option would be to purchase longer-term Treasuries on the open market to inject more cash into the financial system. The central bank may also cut its benchmark rate from 1 percent at its meeting Dec. 15-16 in Washington. HSBC Holdings Inc. economists yesterday forecast the Fed will reduce it to zero, emulating the Bank of Japan’s efforts to defeat deflation earlier this decade.

Factory payrolls fell 85,000, the Labor Department said. The slide would have been even worse without the return of 27,000 striking machinists at Boeing Co. Also preventing the unemployment rate from climbing even more last month was a surge in part-time workers. The number of Americans saying they worked part-time last month due to economic reasons -- either because their hours were cut or they couldn’t find full-time jobs -- surged to 7.32 million, the most since records began in 1955.

U.S. automakers have been particularly hard hit as sales last month dropped to the lowest level in 26 years. The top executives of GM, Ford Motor Co. and Chrysler this week appealed to Congress for as much as $34 billion in government assistance. Lawmakers who support bailing out U.S. automakers sought to rally support for a scaled-down loan program, citing the grim jobs report as evidence that bankruptcies of any of the Big Three would be disastrous for the economy.

At least some of the acceleration in job losses is the result of the tightening grip of the credit crunch, with loss- ridden banks making it harder to borrow, economists said. Policy makers’ decision in September to let investment bank Lehman Brothers Holdings Inc. fail, while saving other financial institutions, may have contributed to the crisis.
“It’s the collapse heard around the world,” said Ellen Zentner, a senior economist in New York at Bank of Tokyo- Mitsubishi UFJ Ltd., which had the closest payrolls forecast in the Bloomberg survey. “It’s probably one of the worst decisions the Fed ever made -- to save everybody else but Lehman.”

Financial firms decreased payrolls by 32,000 last month, after a loss of 31,000 in October. The report also reflected the housing slump, with builders eliminating 82,000 posts after a 64,000 drop the month before. “We don’t get the job losses stopping until 2010,” Kurt Karl, chief U.S. economist at Swiss Re in New York, said in a Bloomberg Television interview.

German economy 'to shrink 4pc in 2009'
Germany is poised to plunge into a much deeper recession than previously thought, with its economy perhaps shrinking 4pc next year, Deutsche Bank's chief economist has warned. As Europe's largest economy was battered by a raft of bad news, Professor Norbert Walter joined experts urging Chancellor Angela Merkel to slash VAT – something she has so far refused to do.

The forecast from Germany's central bank was also gloomier than earlier predictions, predicting the economy would shrink 0.8pc next year. The export-dependent economy is being hit hard by the global slump and pressure is mounting on Mrs Merkel to take more decisive steps. Prof Walter said that without swift action, it would be "no longer possible to avert the crash'' in Germany.

At best, Europe's largest economy would shrink 1pc next year, he said. But there was a one in three chance the contraction would be a startling 4pc, making 2009 Germany's worst post-war economic year. Especially worrying was news that October's industrial orders had fallen 6.1pc on the same month last year and 9.5pc on the previous month. "That's extremely weak,'' said Kai Carstensen, an economist at Munich's Ifo Institute for Economic Research. "But I think this minus 4pc is really the dark side of the moon. Of course that can happen if everything really breaks down, but the probability is rather low.''

Also yesterday, Mrs Merkel's spokesman was forced to deny that France and Britain were distancing themselves from Germany because they were annoyed at Mrs Merkel's sluggishness on the economy. He said Mrs Merkel would defend her performance at next week's EU summit in Brussels. "Without Germany nothing can be done,'' he added. "The Chancellor is not isolated, Germany is not isolated.'' Germany and France are pressuring EU Competition Commissioner Neelie Kroes to approve their bank rescue plans but yesterday Commissioner Kroes insisted that state aid rules would not be dismantled. The Commission's guidelines, due out on Monday, are expected to demand banks pay a higher price for aid than that proposed by the governments.

IMF Woos Economist David Romer
The International Monetary Fund is recruiting economist David Romer, husband of President-elect Barack Obama's choice for a top White House economics job, to handle economic issues. "I've been talking with David and I'd be delighted if he came," said IMF chief economist Olivier Blanchard. "But nothing is settled." Mr. Romer is an expert in monetary and fiscal policy at the University of California at Berkeley and would be a top aide to Mr. Blanchard. He is the husband of Christina Romer, who Mr. Obama has selected to head the White House Council of Economic Advisers. Mr. Romer would''t comment on whether he would take the IMF slot.

The wooing of Mr. Romer reflects the growing ties between the IMF and the new administration. Mr. Blanchard is a long-time friend and academic collaborator with former Clinton Treasury Secretary Lawrence Summers, who is slated to head another White House economic group, the National Economic Council. Essentially, Mr. Summers would become the Obama White House's top economic adviser. During the Clinton presidency, Mr. Summers worked also with the IMF's managing director, Dominique Strauss-Kahn, who was then French finance minister. During one meeting of international finance officials, Mr. Summer and Mr. Strauss-Kahn debated the merits of France's 30-hour work-week, says a former Clinton aide, with both of them using napkins to scribble calculations.

During the Clinton presidency, the IMF and Treasury worked closely, especially during the Asia financial crisis of 1997 and 1998, when the IMF put together multi-billion dollar packages to rescue troubled nations. Mr. Obama's choice for Treasury Secretary, Timothy Geithner, was then a Clinton Treasury aide and played a significant role in those negotiations.

After leaving the Treasury, Mr. Geithner became a senior IMF official. He is now president of the Federal Reserve Bank of New York. Under the Bush administration, the relationship with the IMF hasn't been as close, in part because the IMF wasn't needed much when the global economy boomed. With much of the world now in recession, the IMF has again come to the fore, putting together packages to help Iceland, Hungary, Pakistan and other nations. The IMF also is prodding nations to boost government spending to help revive sagging economies. That puts them on the same page as the incoming Obama administration which is putting together a massive stimulus package.

GM, Chrysler Bankruptcy Financing Would Be Double Bailout Loans
Financing a bankruptcy by General Motors Corp. or Chrysler LLC would cost at least twice as much as the automakers say they need in U.S. government bailout loans, Chrysler and a restructuring expert said.

Chrysler, which said yesterday it hired the Jones Day law firm to review bankruptcy as an option it later rejected, would need $20 billion for bankruptcy financing -- triple its $7 billion loan request -- according to a company report to Congress. A GM bankruptcy would cost $40 billion to $50 billion to finance, Edward Altman, a professor at New York University’s Stern School, told Congress yesterday. GM seeks $18 billion in bailout loans.

“Unfortunately, this traditional loan, even for $18 billion, is inadequate and is destined to fail in the current environment and will likely be followed by additional requests for more rescue funds or a bankruptcy petition,” said Altman. He urged the government to push banks that received other bailout aid to provide needed bankruptcy loans for carmakers.

GM Chief Executive Officer Rick Wagoner had the opposite view of bankruptcy, telling Congress that his company wasn’t pursuing that option to solve its cash crisis because it would scare away buyers and further siphon off revenue, forcing liquidation. Even a government-backed bankruptcy would be too difficult and risky, GM lead director George Fisher has said.

Tony Cervone, a GM spokesman, had no additional comment. GM did hire Weil, Gotshal & Manges, a New York law firm, to advise it on bankruptcy matters, a person familiar with the matter said, asking not to be named. Law firm spokesman Mike Ford didn’t respond to a message seeking comment on the hiring.

Chrysler expressed doubts that banks would fund any so- called debtor-in-possession loans for restructuring, arguing such costs would have to be borne by the government.
“Given the current adverse credit markets, we would not expect DIP financing of such size would be provided by Chrysler’s existing lenders or by any other private source, accordingly the DIP financing would have to be provided by the U.S. government,” Chrysler said in documentation for its loan request.

Without the DIP funding, Chrysler would need to liquidate, closing 29 factories, firing 53,000 workers and cutting off $7 billion in payments to suppliers, the company said this week. Chrysler hired Washington-based Jones Day and other outside advisers after Congress suggested last month that the industry further study if bankruptcy might be a better alternative than out-of-court restructuring, Chrysler said in a statement. “The results of this evaluation determined the impact to the overall domestic automotive industry would be devastating,” the automaker said.

Getting $12 billion in government loans and a $6 billion line of credit is part of a GM plan to return to profit by 2011, Fisher said. The company is assuming annual U.S. auto sales will recover to at least 12.5 million vehicles and that GM’s market share remains near 20 percent, he said. Cars and trucks sold at an annual rate of 10.2 million units in November, and GM’s market share was 20.5 percent, said research firm Autodata Corp. A bankruptcy filing is still “way down the list of options,” should the Detroit-based automaker exhaust all other avenues for help, and the focus is on getting government loans, said Fisher, a GM director since 1996 and former CEO of Eastman Kodak Co.,

“We are fearful, very fearful, of a prolonged proceeding that would just destroy our brand in the marketplace and therefore that is not considered a viable option,” he said.
A so-called prepackaged bankruptcy in which the government supports warranties and helps GM fund operations during restructuring is unrealistic, he said. GM has posted almost $73 billion in losses since the end of 2004.

“These Wall Street geniuses and law firms are coming up with all these solutions that make them a lot of money,” Fisher said. “The truth of the matter is that this is so complex, the what-ifs game has so many legs on it, I could spend the next 24 hours talking on the what-ifs.”

Detroit's Return on Capitol
In a classic Monty Python sketch, a shifty pet-shop owner attempts to distract John Cleese from the fact that his parrot is dead by pointing out the deceased bird's "beautiful plumage." Similarly, the debate on bailing out Detroit's three auto makers often seems to play out in a theater of the absurd. Senior industry executives make a great show of driving down to Washington in hybrid vehicles -- "beautiful plumage" indeed, but that is all. The threat of bankruptcy, meanwhile, is dismissed by many as untenable, despite the fact that it provides the ultimate leverage over existing shareholders.

Assume Detroit gets its bailout. An important question then is: Who sacrifices most? One answer: Who has the most to sacrifice? General Motors, the biggest and hardest-pressed of the three, aims to roughly halve its effective debt burden to $30 billion. Currently, it owes $20 billion to a voluntary employee-benefit association in return for offloading retiree health-care obligations. Secured creditors are owed $6 billion, while another $36 billion is due to unsecured lenders.

There are infinite scenarios regarding which side takes the biggest hit, but Chris Ceraso, analyst at Credit Suisse, posits three. All assume secured creditors are made whole. Union members originally took a 28% haircut on outstanding liabilities when the VEBA was agreed. Under Mr Ceraso's central case, they would lose another $10 billion, or take it as equity, making the effective haircut 50%. That would leave unsecured lenders having to forgive almost $22 billion, giving them 41 cents on the dollar.

The challenge of getting agreement on that is why Thursday's Senate hearings were laced with talk of appointing a federal overseer. As Brian Johnson, analyst at Barclays Capital, points out, this would borrow from the 1979 Chrysler playbook. Government would be the bad cop, withholding the lifeline until stakeholders make big sacrifices. That is why it is counter-productive for some senators to simply dismiss the bankruptcy threat. After all, fear of bankruptcy focuses minds. Union members know VEBA agreements are likely to be changed in Chapter 11. Bondholders, meanwhile, never relish working through a bankruptcy, even those that scooped up GM's debt for less than 20 cents on the dollar.

The executives, having sacrificed their salaries, have only their jobs left to give. And shareholders? Chrysler's private-equity shareholders look exposed politically and because there is skepticism that the smallest of the Detroit three really is too big to fail. GM's and Ford Motor's combined market value is less than $10 billion. Their shareholders have comparatively little to give. Yet they will probably have to give virtually all of it anyway in a debt-for-equity swap or dilutive equity increase. On that basis, the fact that these stocks still command several dollars each is the final absurdity.

Corporate Failures Hit Health Plans for Workers
When Archway & Mother's Cookie Co. told employees in an October letter it would "go out of business immediately," some workers frantically sought medical care while they believed their insurance would still cover the costs. In Ashland, Ohio, a pregnant employee had labor induced before her due date. Another worker bought a $6,000 insulin pump for her diabetic daughter. "I called my doctor at home and said, 'I need to have my gallbladder removed this weekend,' " recalls Janet Esbenshade, a 37-year-old mother of two who lost her job packing cookies. Those employees and many others ended up saddled with huge medical bills anyway.

Archway was self-insured -- and when it filed for bankruptcy on Oct. 6, there wasn't enough money in its coffers to cover hundreds of thousands of dollars worth of outstanding health-care claims along with all its other debts. Workers weren't eligible for Cobra, a federal act that gives certain laid-off employees the right to temporarily continue health-care coverage at group rates. That's because Cobra doesn't apply when a company terminates its insurance plan. The Archway saga reflects the human toll of the credit crunch, as companies increasingly shut down because they can't get financing. Some are abruptly eliminating insurance and leaving laid-off workers with bills for medical expenses incurred before the shutdowns, a trend that is exacerbating health and money problems for tens of thousands of people nationwide.

Catterton Partners, a Greenwich, Conn.-based private-equity firm that owned 72-year-old Archway, scrambled to find financing as it struggled with surging costs of fuel and cookie ingredients. But credit had dried up, a person close to Catterton says, forcing Archway to close down. It filed for Chapter 11 protection, liquidated and laid off all 673 full-time employees. Now that Archway is bankrupt, all its assets will be divided among creditors, including those with health claims. Archway bankruptcy documents list liabilities of $143 million and assets of $92 million.

This week, the bankruptcy court approved a $30 million sale of Archway's assets to snack-maker Lance Inc. of Charlotte, N.C. Kellogg Co. bought Archway's Mother's Cake & Cookie Co. unit for $12.1 million. A person close to Catterton said that once the bankruptcy was filed, decisions were in the hands of the court. The person said they hoped the sale would help relieve some of the problems the bankruptcy caused workers. "While there is clearly a human toll that has been taken on the people, there is a light at the end of the tunnel," this person said.

Lance says it plans to reopen the bakery in Ashland, a small city between Columbus and Cleveland where Archway was one of the biggest employers, with about 300 workers. Some could be rehired. But that does nothing to help reverse the havoc caused by the sudden loss of insurance. A growing number of people are facing this issue as their employers shut down. The number of liquidations under Chapter 7 of the bankruptcy code surged 62% to 13,002 in this year's first half compared with a year earlier. Under Chapter 11, another 3,470 companies filed in that period, but many are liquidating rather than going through the more-traditional reorganization. At companies that have filed for bankruptcy protection, the number of "mass extended layoffs" -- more than 50 people unemployed for at least a month -- doubled in this year's third quarter, the U.S. Department of Labor says. The government doesn't track how many people wind up uninsured.

In May, Jevic Transportation, a New Jersey trucking company owned by buyout firm Sun Capital Partners Inc., told employees in a letter that it was shutting down and terminating insurance. "Continuation of these plans via Cobra is not an option since Jevic no longer provides any group health plan to any employee," a human resources official wrote.

"My whole world ended when I opened that letter," says Elizabeth Vaughn of Bordentown, N.J. Her husband, D.S. "Sam" Vaughn, a 63-year-old Jevic driver, put off chemotherapy treatments when the company closed, she said. He later went to a government-subsidized clinic, Ms. Vaughn says, to get medicine for heart disease. She said he was ashamed.

"After he was laid off," she says, "he'd just sit at the kitchen table saying, 'I'm sorry.' "

Mr. Vaughn died over the summer of pneumonia. His obituary in the local paper, written by his wife, said: "He worked for 15 years for Jevic Transportation until they closed their doors and broke his heart." A Sun Capital spokesman declined to comment.

In Columbus, Ga., Edward Griffin, 45, was called into the service bay of Bill Heard Chevrolet in September, along with hundreds of colleagues. An executive boomed over a loudspeaker that the car dealer, which had survived the Great Depression, was closing. About 2,700 people were laid off around the nation, and their insurance was terminated. Mr. Griffin, a finance manager, was in a panic. He had bought a $60,000 BMW the day before. He had four children, including a son with autism, and a mortgage on a 5,000-square-foot house. His wife, Michelle, needed a hysterectomy. She had put it off as she tried to fill big orders for a clothing-manufacturing company she owned. She went to the hospital the next day for surgery. "I wasn't out of the recovery room for 20 minutes when we heard that we had no insurance," says Ms. Griffin.

Now, the Griffins say they have $40,000 in medical bills, are two months behind on the mortgage and are selling the BMW. Mr. Griffin took a job selling cars, earning about $3,000 per month -- a quarter of his former pay. Ms. Griffin's company went under. Their children are "scared to death," she says. A lawyer for Bill Heard didn't return calls for comment.

In October, when Starla Darling heard Archway was closing, the 27-year-old blending-table operator was due to deliver her second child in a few days. Fearful of losing her insurance coverage, she persuaded her midwife to help induce labor that day. "I was scared," Ms. Darling says. "I didn't have any other options." Doctors performed a cesarean section. Ms. Darling recovered, and discovered she was responsible for about $20,000 in medical costs.

Since she was technically on maternity leave, she couldn't collect unemployment benefits. Her disability check, however, wasn't arriving because Archway was out of business. She fell behind on bills and soon received a disconnect notice from the electric company and an eviction notice from her landlord. The local high school helped pay the family's rent out of a fund it raised for Archway workers.

Jeffrey Austen, who lost his $17.53-an-hour job as an oven operator, is running a committee to share information among ex-employees, called "The Burnt Cookies." He says he accumulated about $2,000 in medical bills in preparation for shoulder surgery. Now, he is collecting unemployment checks of $298 a week. Insurance, he says, would cost $637 a month. Mr. Austen, 50, filed a suit in a Delaware federal bankruptcy court accusing Archway of violating the federal Worker Adjustment Retraining Notification law, which requires 60 days notice of a layoff. His lawyer, Jack Raisner, of Outten & Golden LLP in New York, is seeking back pay for all workers. Catterton officials declined to comment on the lawsuit.

Catterton bought Archway from Parmalat Dairy and Bakery Inc. in 2005. A person close to the private-equity firm said it tried to make the firm more profitable but had unforeseen challenges and a credit crunch that finally forced it to pull the plug. Until the company shut down, Archway had deducted health contributions from employees' paychecks. The contributions, along with the employers' share, go into a pool that funded Archway's insurance plan. Blue Cross Blue Shield was the administrator of the plan, so employees and doctors would file claims with the insurance firm, which would determine if they were valid and then pay them. Archway would then repay the insurer. Typically, this process could take a couple months to complete.

The bankruptcy created chaos among laid-off workers whose claims are only now working their way through the system for visits as far back as September -- and some earlier.

Wendy Carter, a 41-year-old former packer, had a hysterectomy in mid-September, and says she accrued $15,000 in medical bills that weren't paid. She also was on disability, so she couldn't collect unemployment insurance. She says she recently wound up applying to the Salvation Army to get $102 to help pay the rent. Similarly, Nadine Deck says she was out on disability with a chronic breathing disorder. When Archway shut down, she stopped receiving disability checks. So she turned to unemployment and received checks over four weeks. But the government stopped paying, saying she couldn't collect while on disability. The government now wants its $900 back, she says.

"The government is bailing out banks, but who's going to bail out little companies like Archway and help us?" asks Ms. Deck, 55, who worked for 23 years at the cookie company as a packer and machine operator. Ms. Deck has missed three mortgage payments on a two-story bungalow where she lives with two children. A social agency is helping with the utility bills and the state is paying for her epilepsy medicine. Some employees say they have had to cut back on costly prescription drugs. Ms. Esbenshade, the cookie packer who had her gallbladder removed, says she didn't buy her six-year-old daughter's asthma medicine after Archway closed, because she lacked $100 to pay for it. They have since received a state-issued medical card to help cover the cost of the medicine. Darlene Miller, a 57-year-old packer, no longer has insurance to cover $300 a month for medications for high blood pressure, thyroid problems and a heart condition. So she is cutting each pill in half. "My doctor is going to chew me out when I tell him, but I didn't have a choice," Ms. Miller says. "I suddenly have no insurance."

Property-tax collections climb as home prices fall
Property taxes are rising across the USA despite the steepest drop in home values since the Great Depression. Home values dropped 17% in the third quarter compared with the same period in 2007, reports the S&P/Case-Shiller Home Price Index. At the same time, property tax collections across the USA rose 3.1%, according to the U.S. Bureau of Economic Analysis. State and local governments are on track to collect more than $400 billion in property taxes this year, the most ever. One reason: Laws in most states that prevent big tax hikes when property values soar also block big tax drops when values sink.

The housing market collapse has caused a recession that's hurt sales and income tax collections. But property taxes — collected mostly for public schools — have escaped serious damage. As a result, public education is one of the few sectors of the economy still adding jobs. "Property taxes aren't always popular, but they are a very stable tax, even in tough times," says Thomas Gentzel, executive director of the Pennsylvania School Board Association. Property taxes haven't fallen since 1934, the BEA says.

What's keeping property taxes up while home prices fall:

• Property tax limits. Most states cap how fast taxes rise in boom times. In bad times, the same laws keep taxes from falling and even permit modest increases on most homes.

Arizona, California, Florida and Nevada — the four states hit hardest when overheated real estate markets crashed and triggered waves of foreclosures — all have tax laws that work this way. Tonight Show host Jay Leno's property taxes on his Beverly Hills home will increase $1,500 this year to $54,000, even though home values in the area fell by one-third since last year, California public records show. Reason: His mansion is taxed based on the $2.5 million purchase price in 1987, plus 2% annual increases.

Nevada schools will collect $730 million in property taxes this year, up 5%, says Nevada deputy school superintendent James Wells. "Property taxes are a bright spot. Sales taxes are the problem," he says.

•Delayed appraisals. Most states are slow to change the assessed value of homes. Some Pennsylvania counties haven't done major reappraisals for decades. Elsewhere, homeowners must pay taxes on peak values for years before new assessments reflect plunging prices. Colorado residents will pay taxes in 2010 and 2011 based on what their homes were worth in the first half of 2008. "The time lag can help you or hurt you, " says Mark Lowderman, tax assessor in El Paso County, Colo., which includes Colorado Springs. "Nobody complains when prices are rising."

Global Crisis Hits Shipping Industry Hard
Shipping benefits from globalization more than almost any other sector. But this has also made it more vulnerable to the global economic crisis. Freight and charter rates have plunged, jobs at shipping companies are being cut and many ships are being parked for months at a time.

The anxiety began in the summer, when the long lines disappeared: the kilometer-long lines of trucks waiting to get into the container terminals outside Los Angeles, one of the most critical bottlenecks of globalization in recent years, or the long queues container ships jostling for spots at the entrance to Hong Kong harbor, often waiting for days for a berth. Instead, what is backed up today is the once hotly sought-after merchandise, as electronic goods and textiles pile up in Chinese factories, now that consumption has declined, first among Americans and now in Europe. Iron ore and other minerals are piling up in South American mines, because the Chinese no longer need as much of the natural resources to produce goods.

Many ships are now sailing half-empty, if they are sailing at all. In fact, shipping companies are pulling more and more ships out of circulation, due to a lack of demand, and placing them at anchor indefinitely. Experts estimate that one-fourth of all ships used to transport raw materials in the Pacific are now idle. Until recently, shipping was plainly globalization's booming industry, its hammering pulse, pumping more and more goods around the world at an ever-increasing pace. But the financial crisis has brought this activity to an unexpected halt. Although the pulse is still beating, it is no longer the fast and powerful pulse of a sprinter, instead it resembles that of a coma patient.

For months, prices have been falling throughout the industry. In the spring, large commercial shipping companies like Maersk and Hapag-Lloyd were still charging about $2,000 (€1,600) to ship a container from Asia to Europe. Today, some companies collect only $500 (€400) for the same service. In the spring, it cost $30,000 (€24,000) a day to charter a ship containing 2,500 standard containers (TEU). Today, that price has dropped to less than $12,000 (€9,600). Bulk commodity freighters in the Panamax class commanded a daily charter fee of $64,000 (€52,000) in June. Today they can be had for less than $11,000 (€8,800).

Shipping managers and ship owners, hoping to allay fears, argue that phases of substantial booms followed by sharp declines are typical for the industry. Nevertheless, the talk behind the scenes revolves around the concept of a "perfect storm," in which everything that can go wrong does go wrong, culminating in the worst possible disaster. "The negative conditions we are seeing in the market place are unprecedented in our industry's history," says Ron Widdows, the CEO of NOL, a shipping company. Bertram Rickmers, a German ship owner, concludes matter-of-factly: "The party is over."

This time it is not just the freight and charter rates that have plunged, as in past crises. Now the consequences of the financial crisis are also being felt in the shipping industry. Banks, extremely nervous and in some cases ailing as well, are hardly issuing loans at all these days. Mistrust and nervousness are so rampant that the shipping of raw materials in some regions of the world has stagnated in recent months, because banks have been refusing to issue the letters of credit -- payment guarantees issued to exporters for cargoes often worth several hundred million dollars -- so critical to foreign trade. The leading players in the raw materials shipping business recently met in London for an urgently convened crisis meeting. "This is a very capital-intensive industry, and capital is currently scarce," says Gus Biesbroeck, the deputy director of global shipping for Fortis Bank.

The boom in recent years was attributable in large part to cheap and abundantly available money. Banks and investors pumped hundreds of billions into the industry, which grew at rates of up 20 percent a year. The Germans were especially adept at taking advantage of these conditions. Within 10 years, German shipping companies ballooned to proportions reminiscent of the legendary Greek tanker dynasties, and Hamburg became the world's leading center for ship financing. Almost 40 percent of the world's container fleets are German-owned. According to a list obtained by SPIEGEL, as of the end of August German ship owners and shipping lenders had ordered or taken out options to order an additional 1,550 ships, which are to be delivered in the coming years -- far more than suits many in the industry today.

"Almost all shipping companies have sent teams to the shipyards in Korea and Japan to negotiate cancellations or postponements," says Claus-Peter Offen who, with his 91 ships, is the owner of one of the world's largest private fleets of container ships. He still has 40 new ships on order, including the world's largest container ships, with a capacity of 14,000 TEU. "Our new ships are all fully financed, and 15 of them have already been sold to other companies," says Offen, noting that he has no reason to cancel any of his orders. But many are not in nearly as favorable a position as Hamburg ship owner Offen. According to industry estimates, at least one-fourth of all ships under construction worldwide, worth a total of about $500 billion (€400 billion), either lack sound financing or have no financing at all. Offen believes that there is no financing -- nor is financing likely to materialize -- for a majority of the roughly 2,000 bulk commodity freighters on order.

Some shipping companies or shipping lenders are even forfeiting advances paid to shipyards of up to 40 percent of a ship's price, either because they are unable to raise the remaining millions or to minimize current losses. Some shipping companies are in luck, however, because they ordered ships from nonexistent shipyards. When the large Asian shipyards were overrun with orders in recent years, and delivery times grew to up to four years, many small shipyards, especially in China, were simply created out of thin air. In many cases, contracts to build new ships were signed with these so-called greenfield shipyards, which existed only on the drawing board. "These shipyards will no longer exist today, nor will the ships," says Offen. Even most of the existing greenfield shipyards will likely disappear quickly today. German shipping industry executives are already reporting on abandoned shipyards in China, where the ships are half-finished and there are no workers in sight.

Nevertheless, so many new ships will enter the market next year that worldwide container capacity will grow by about 13 percent. However, container shipping will grow by only 5 percent -- that is, unless a global recession forces demand down even further. An increase in load capacity coinciding with a drop in consumption will have disastrous consequences for shipping rates. The Baltic Dry Index (BDI), a standard index for ore and grain shipments, declined from 8,756 points at the beginning of the year to 733 points at the end of November.

Eivind Kolding, the CEO of Maersk, the world's largest shipping line, complains that he now collects all of $600 (€480) per container between the Far East and Europe. The company is suffering enormous losses with each individual container. Neptune Orient Lines, the favored candidate to take over the Hamburg-based shipping line Hapag-Lloyd until this summer, has already announced plans to lay off almost 10 percent of its work force.

The first of the smaller shipping companies are already going bankrupt. This explains why shipping companies everywhere are beginning to "lay up" ships, which means parking them for months in a bay somewhere, with skeleton crews on board, instead of continuing to operate the vessels in scheduled service at a loss. Last week the Grand Alliance, one of the largest container shipping company alliances, which includes Hamburg-based Hapag-Lloyd, decided to suspend one of its scheduled services between Asia and the United States, initially for 18 weeks.

The shipping lines will certainly not be chartering new ships for the foreseeable future. As a result, there are not enough customers for the ships, financed and ordered by shipping companies, shipping banks and underwriters. As a result, charter rates are emulating the downward plunge of freight rates. This is especially problematic for anyone who ordered a ship at the peak of the boom, sometimes at exorbitant prices, but was unable to charter it for several years and is now desperately seeking buyers at drastically lower rates. A container ship with capacity for 1,740 TEU, especially popular among ship funds, now fetches a charter rate of only about $9,000 (€7,200) a day, even though it only becomes profitable at rates of $13,000 (€10,400) or higher.

Whether all of the roughly 70 German underwriters of ship funds will survive this crisis seems questionable. They recently attracted close to €4 billion ($5 billion) in investor capital, a number that will likely drop to only about €1 billion ($1.25 billion) next year. The industry, previously flooded with cheap money by shipping banks, will have to come up with far more equity capital in the future, says Albrecht Gundermann, managing director of Hamburg fund initiator Maritim Equity.

It is already becoming apparent just how bad things are. Market leader MPC Capital has closed a fund and expects an annual loss of €70 million ($88 million). Lloyd Fonds, an underwriter, has announced plans to slash 15 percent of its jobs. "One company or another will certainly drop out of the market," says Offen. Sönke Fanslow, the managing director of Hansa Treuhand, a shipping lender, is convinced that there will be a "market cleansing in all areas related to shipping."

However, there are some, especially the long-established companies in the industry, who view the problems of some of their competitors "with poorly concealed gratification," says one shipping executive. "The funds had money coming out of their ears in recent years, and they ruined prices as a result." Another industry executive says: "Some lost all sense of proportion recently."

Offen estimates that it could take two or perhaps even three years until the shipping markets have normalized once again. In the medium term, says Offen, the outlook remains excellent for an industry that handles more than 90 percent of intercontinental goods traffic. Globalization, he adds, will certainly not reverse itself. "Electronic devices and athletic shoes will still not be produced in Germany again, not even in the future."

First Georgia Community Bank Closed, Boosting 2008 Toll to 23
First Georgia Community Bank of Jackson, with four offices southeast of Atlanta, was closed by regulators, becoming the 23rd U.S. bank failure this year amid losses tied to record mortgage delinquencies and foreclosures.

First Georgia, with $237.5 million in assets and $197.4 million in deposits, was shut by the Georgia Department of Banking and Finance yesterday and the Federal Deposit Insurance Corp. was named receiver. United Bank of Zebulon, Georgia, will assume First Georgia’s deposits and open the failed bank’s offices today as United branches, the FDIC said.

“Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage,” the FDIC said in an e-mailed statement. Regulators have closed the most banks in 15 years, with the collapses of Washington Mutual Inc. and IndyMac Bancorp Inc. among the biggest in history. November was the busiest month in more than a decade, with five institutions shut, matching the pace in July 1994, according to the FDIC.

United Bank will pay a premium of 0.8 percent to assume the failed bank’s deposits, the FDIC said, and is buying about $60.6 million of its assets with the FDIC retaining the rest for later disposition. The closure will cost the FDIC’s deposit insurance fund, supported by fees on insured banks, $72 million. First Georgia, the state’s fourth bank to fail this year, opened in 1997 and has offices about 25 miles southeast of Atlanta in Jackson, Covington, Griffin and Locust Grove. Community Bank in Loganville, Georgia, was closed two weeks ago.

The U.S. is seeking to boost bank capital and avert failures, using $250 billion from a bank-rescue fund enacted after the housing slump and tighter credit froze markets. The FDIC and Office of the Comptroller of the Currency in November allowed private-equity firms and other investors to buy assets and deposits of failing lenders, expanding the pool of bidders.

The FDIC on Nov. 25 classified 171 banks as “problem” in the third quarter, a 46 percent jump from the second quarter. The agency, which doesn’t name “problem” lenders, updated the assessment while reporting third-quarter industry earnings fell 94 percent to $1.73 billion from $28.7 billion a year earlier. “We’ve had profound problems in our financial markets that are taking a rising toll on the real economy,” FDIC Chairman Sheila Bair said at a Washington news conference after releasing the report.

One in 10 Americans fell behind on their mortgages or were in foreclosure during the third quarter, with loans 30 days or more overdue accounting for 6.99 percent of all lending and loans in foreclosure reaching 2.97 percent, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today.

The FDIC oversees 8,384 institutions with $13.6 trillion in assets, and insures deposits of as much as $250,000 per depositor per bank and the same amount for retirement accounts. The agency has proposed doubling premiums charged to banks for coverage to replenish its reserves amid agency forecasts that bank failures through 2013 will cost almost $40 billion.

Washington Mutual, the biggest savings and loan, sold its assets to JPMorgan Chase & Co. Sept. 25 after customers drained $16.7 billion in deposits in less than two weeks. Wachovia Corp., the sixth-biggest bank, was pushed by regulators to sell itself or face collapse. The Treasury as part of its bank-rescue effort has bought more than $200 billion in preferred stocks and warrants from at least 50 U.S. banks, including $25 billion each from Wells Fargo & Co., JPMorgan and Citigroup Inc., according to Bloomberg data.

Can the 2010 Games avoid a financial crash?
As stock markets dive, companies go belly up and economic fears stalk the land, overseers of the 2010 Winter Olympics have revised their budget, and the new document is full of sober reminders that what seemed fiscally fit just six months ago is no longer so buff.

The result – to be unveiled before the Vancouver Olympic Organizing Committee's blue-ribbon board of directors on Tuesday – is designed to ensure that the biggest peacetime event in Canadian history keeps its financial head above water. The proposed budget contains a significant increase in VANOC's original, $100-million contingency fund to prepare for economic dangers ahead, and serious cost-cutting to pay for it.

Restraint measures already implemented or projected include travel cuts; reducing tens of millions of dollars in printing costs by putting more material online; boosting the number of available seats in B.C. Place to raise extra cash; and hiring fewer employees for the Games than previously planned. In a joint interview with The Globe and Mail ahead of next week's board meeting, VANOC president John Furlong and the No. 2 man, executive vice-president Dave Cobb, talked candidly about the economic challenges they face and what the organization is doing to cope.

“We know that the environment is changing. You can feel it. You can see it,” Mr. Furlong said. “No rock has rolled in front of us yet, and maybe it won't. But we need to demonstrate that we're ready for it. Notwithstanding what's going on out there, the public expects us to get to the finish line, no matter what. And we have to demonstrate that we can do it.”

Mr. Cobb said VANOC has no choice but to increase its contingency fund, set aside to cover unexpected expenses. “The contingency that we will put before our board is significantly greater than what we intended to have at this time. … It's the responsible thing to do, to build a bigger cushion within our budget to be able to deal with the volatility that's out there.”

While neither official would spell out just how much of a boost is needed, they said there is no extra money to cover the increase, so it must be financed by slashing expenses. What was once hoped, during the good times, to be a healthy surplus over budget expectations in domestic corporate sponsorships has been scaled back to the original target of $760-million.

“We have to exploit every revenue opportunity that we have and squeeze the best value out of every single dollar we spend,” Mr. Furlong said. “It would be naive to think we could wander through this and not be affected by it.” As an example of spending cuts, Mr. Furlong mentioned VANOC's contingent to the recent Beijing Olympic debriefing in London. The organization sent only 10 delegates, instead of the 30 originally scheduled to go. “That cut our expenses by 65 per cent,” he said.

VANOC, like everyone else, has been watching GM Canada go begging for a government bailout in Ottawa. The auto company has committed about $70-million to VANOC, including the supply of 4,500 vehicles at Games time. VANOC says GM has already provided more than half of its original commitment, putting the potential shortfall at less than $30-million. The company refused to speculate about what could happen if it doesn't get the government money. “As far as we're concerned, we're pushing forward as a viable organization. Our commitment to the Olympics is sound and 100 per cent,” said spokesman Stew Low.

Corporate sponsors are vital to VANOC's financial health, with nearly $1-billion earmarked to cover the bulk of its $1.63-billion operating budget. About $200-million is due from the International Olympic Committee's own sponsorship plans. But the IOC still has two empty slots in a roster of corporate names that is supposed to total 11, yielding a potential shortfall also in the neighbourhood of $30-million. “If they don't [fill them], we'll sit down with the IOC and figure out what we're going to do,” Mr. Cobb said. “They want us to deliver fantastic Games as much as we do.”

Emmanuelle Moreau, a spokesman at IOC headquarters in Switzerland, said the Olympic movement is not immune to the current global economic difficulties. She added, however, that the IOC already has more money from sponsors in its 2010-2012 program than it did for 2006-2008, and she assured VANOC officials that they will “receive their share of IOC revenue as planned.”

Other struggling domestic sponsors include Nortel Networks Corp., whose stock is down 95 per cent this year; Teck Cominco Ltd., down 89 per cent; and Air Canada, down 84 per cent. Fortunately for VANOC, the commitments appear secure. Vancouver-based Teck, a heavily indebted mining company, is paying $15-million in cash over five years and it is “absolutely not” at risk, said spokeswoman Sarah Goodman.

“As one of the few large companies in Vancouver, we see this as an opportunity to support the home team,” she said. Teck is also supplying the gold, silver and bronze to the Canadian Mint to make the official Olympic medals. Air Canada would have to stop flying airplanes not to be able to deliver for VANOC. For its sponsorship, undisclosed but likely worth $15-million, the airline flew Canadian Olympic team members to Beijing and will do the same for Vancouver and London in 2012. It is also donating $600,000 to the Canadian Paralympic Committee.

Nortel's exact sponsorship isn't disclosed, but the company is in the $3-million to $15-million category as an “official supplier,” providing the network equipment that underpins all communications at the Winter Olympics. About three-quarters of it has already been delivered, according to the company. So far, VANOC has $748-million of its $760-million domestic sponsorship target in hand or committed. Organizers are in “serious discussions” with several potential new sponsors and one could be signed on by the end of the year, Mr. Cobb said – although the weakened economy has ended all talk of soaring past its budgeted goal.

The Games' biggest sponsor, Bell Canada and affiliates including The Globe and Mail and CTV, is in for at least $200-million. That represents the largest corporate sponsorship in Canadian history. Bell and its affiliates are paring back, slashing thousands of jobs this year as they struggle to increase longer-term profits. But there is no risk to VANOC, said Loring Phinney, Bell vice-president of Olympic and corporate marketing: “We are a very stable organization.”

Meanwhile, VANOC's long-stated ambition to finish most of its venues by this fall, before economic calamity struck, is paying off, and will help the organization come through the turbulent times relatively unscathed, according to Kevin Wamsley, an Olympic historian and professor at the University of Western Ontario.

“Vancouver will have some issues but not nearly to the extent London will,” he said, noting that past Olympics have not seen large sponsors bail out despite bottom-line difficulties. The last Winter Olympics in Canada, hosted by Calgary in 1988, had similar challenges, occurring in the midst of a severe slump in the oil business and just four months after the huge stock-market crash the previous October. But the Games were a success. No sponsors, including hurting oil companies, withdrew.

In fact, many businesses are now looking to the 2010 Games as a boon to surviving the current downturn. Jock Finlayson, executive vice-president of the Business Council of British Columbia, said the Olympics will keep hotels and restaurants busy in a province where economic growth is forecast to be a nominal 0.6 per cent in 2009, rising to 2.7 per cent in 2010. The Olympics alone could account for 1 per cent of economic growth, or more than one-third of the projected total in 2010, Mr. Finlayson said. “The additional spending will be very welcome.”

Arthur Griffiths, the prominent Vancouver businessman who helped bring the Olympics to Vancouver, was even more enthusiastic about the Olympics acting as a balm for economic ailments. As he put it: “There isn't a city in North America that wouldn't kill to be in the position Vancouver is, having the Olympics here in 2010, during the current economic crisis.”

London's bid is falling down
While the Vancouver Winter Games grapple with the grim global economy, any damage is certain to pale in comparison with what is happening in London, where organizers had once hoped to stage a grandiose, glorious Summer Olympics in 2012. The fiscal crunch has already forced the cancellation of some proposed venues, a slashing of funding for the country's athletes and dwindling private investment.

With more than 31/2 years still to go, the situation is so worrisome that Tessa Jowell, the minister in charge of the London Games, mused last month that there would have been no British bid for the Olympics if the government had known a recession was on its way. Her comment sparked much Gallic chortling in Paris, which was bitter over its loss to London for the right to host the 2012 Games.

There are now growing calls for London to dramatically scale back its huge £9-billion (nearly $17-billion Canadian) Olympic budget – four times original projections – and stage an austerity, bangers-and-mash event. Many refer fondly to the so-called “shoestring Olympics” that war-ravaged London held in 1948, when athletes were housed in military barracks and facilities as basic as a dog track were converted for use in the Games.

Luckily for Vancouver, the more modest Winter Olympics are fairly near at hand, all venues but one are finished and most of its financial commitments long since secured. London has several more years of what is likely to be exceedingly tough slogging (not an Olympic event).

Return to $1 gas? Energy prices evaporate
Oil prices hit four-year lows Friday as employers cut the highest number of jobs in 34 years. The continuing decline in prices is so dramatic and so sudden that it is raising the prospect that gas prices could soon fall below $1 a gallon. The worst jobs data in 34 years on Friday just added more fuel to the deepening global recession as U.S. employers slashed a far worse-than-expected 533,000 jobs in November and the unemployment rate rose to a 15-year high of 6.7 percent.

A gallon of gasoline can be had for 50 cents less than it cost just last month, and people are starting to talk about $1 gas. Granted, gas prices are a long way off from that magic number last seen in March 1999 when prices were at 97 cents a gallon, according to motor club AAA. Prices at the pump fell 1.6 cents overnight to $1.773 nationally, according to AAA, the Oil Price Information Service and Wright Express.

But consider what has happened since July 11 when a barrel of oil hit a record $147.27 and a gallon of gas was $4.117 on July 17. In less than five months, oil has fallen 72 percent. Just this week, in which the National Bureau of Economic Research determined that the U.S. is in recession, oil has fallen 25 percent. On Friday, light, sweet crude for January delivery settled at $40.81 a barrel on the New York Mercantile Exchange, down by nearly $3 per barrel. Prices fell as low at $40.50, levels last seen in December 2004. Gasoline futures for January delivery tumbled to 90 cents. For gas prices to get close to a $1, oil prices probably would need to fall another $10 a barrel -- something that would have impossible to fathom during first part of this year as oil prices soared near $150 per barrel.

"Just seeing that '1' up there is just hard to imagine," said Kevin Keating, 65, an attorney as he filled up his Volvo S60 at a station in Phoenix that advertised prices at $1.67. "Wasn't that long ago that we worried about the '4' being up there." Prices in New York City are well above the national averages, but still well off their highs of nearly $5 this summer. "When gas prices are OK, we make a little profit," said Mamady Kourouma, 36, a cab driver from Guinea who paid $2.41 a gallon at a station in Chelsea. With wages stagnant, home prices plummeting and foreclosure rated soaring, dollar-a-gallon gas may help mom fill up in the family minivan and cab drivers in New York City, but prices that low also would truly speak to how rotten the economy has become. "The economy at that point worldwide would be in a serious, serious deterioration," said Geoff Sundstrom, spokesman for AAA.

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said Thursday on his blog that retail prices could fetch $1.25 a gallon soon in parts of the Midwest, including Ohio, Indiana, Illinois and Missouri. Already, some parts of the country are seeing prices around that level. The Web site, where motorists can post local gas prices, motorists can fill up for $1.29 in Neelyville, Mo., a village of about 500 people near the Arkansas state line. The jobs number suggests that demand for gasoline, which has been running well below year-ago levels even with the cheaper prices in the last several weeks, will fall even more in early 2009 as work-related driving plummets, said Kloza. "I believe that January 2009 will represent the most 'challenging' and ugly economic month of my lifetime, and my first memory is of Sputnik," Kloza said. There is plenty of reason to suspect Kloza is right.

Since the start of the recession, the economy has lost 1.9 million jobs, the number of unemployed people has increased by 2.7 million and the jobless rate is up 1.7 percentage points. The meltdown in financial markets has crushed lending, the Detroit 3 are on the brink of bankruptcy without a big government bailout. Friday's report was much deeper than the 320,000 job cuts economists were forecasting. If there is a plus side it is that the unemployment rate did not climb to the 6.8 percent level economists were expecting. Kloza does not believe prices will make it to a $1. Gas prices neared a dollar last time on Dec. 18, 2001, three months after the terrorist attacks and the country in its last recession, when prices hit $1.08 a gallon. Though the weak gasoline prices point how bad the economy is, they also could help it turnaround. "That could be one important spur to some kind of economic recovery," Sundstrom said. In other Nymex trading, gasoline futures tumbled 6.83 cents to settle at 90 cents. Heating oil slid 8.26 cents to $1.4265 a gallon while natural gas for January delivery shed 24.7 cents to sell at $5.77 per 1,000 cubic feet. In London, January Brent crude slipped by $2.42 cents to $39.86 on the ICE Futures exchange.

Angry laid-off workers occupy factory in Chicago
Workers laid off from their jobs at a Chicago factory have occupied the building and are demanding assurances they'll get severance and vacation pay that they say they are owed. About 200 employees of Republic Windows and Doors began staging the sit-in in shifts this week after learning the plant was closing Friday.

Leah Fried, an organizer with the United Electrical Workers, says Republic failed to give 60 days' notice required by law. Chicago police spokeswoman Laura Kubiak says police are aware of the situation and are patrolling the area. Representatives of Republic Windows did not immediately respond Saturday to calls and e-mails seeking comment.

Santa, please rescue me
LOCATION: North Pole, Santa Inc Headquarters. Ho! Ho! Ho! Merry Christmas!

It's always a madhouse around here while the elves and I process the millions of letters I receive before the big night. You know the drill – naughty, nice. Yet no matter how long I do this gig, it never ceases to amaze me what some kids ask for.
Take this letter from little George W. Bush (which he sent to the South Pole, I might add):

"Dear Santa, It's been a tough year for the US. So far I've spent $US3.2 trillion propping up the American economy with various loans (which we may, er, make some money from), bailouts and grants but the Dow Jones Share Market Index is still down over 5000 points! I'm confused. So this year for Christmas, Santa, what I really want is another $US5.3 trillion to smooth things over, let's call it $US8.5 trillion, tops. Thanks, George."

Now I'm used to little boys who don't understand how much things cost in the real world but even I'm struggling with these numbers. Elf, draw George's request in the snow please: $8,500,000,000,000.00.

Randy reindeers, that's a lot of egg nog! I wonder where Georgie is planning to get all the money? It can't be coming from savings, some are suggesting that the US will finish the financial year a trillion bucks in the red! Things are getting so bad they had to add another couple of zeroes to the National Debt Clock in Times Square. Maybe George will get it from the US Federal Reserve who, like me, have an unlimited supply of presents I use my sack, they use the printing press to create money out of thin air. But if you think this will have no long-term consequences, you probably also believe that I have a Nintendo Wii in my sack for you this Christmas. Someone needs to finance this spending, and up until now it's been Asian countries that sock away more than they spend. Their savings allow the US to do the opposite!

The next letter is from a group of boys and girls who call themselves the American Automotive Industry. Evidently they were so keen for me to get their letter the executives delivered it personally in their private Lear jet. "Dear Santa, It's been a tough year for the US. As soon as they turned off the credit taps people stopped buying cars. The upshot is we're losing $6 billion a month – actually that's just General Motors, but you know the old saying, 'As GM goes, so goes the nation'. "But we've come up with a brand new plan that will turn our entire industry around and save 270,000 jobs. All we need in America is $40 billion, much less per capita than the $6.3 billion in taxpayer funds Kevin Rudd gave his car industry in Australia!"

It's funny how they come up with a turnaround plan now the public purse is open. I've never understood why taxpayers should be forced to be the airbag for the car industry.
Subsidising businesses – especially those that are managed by multi-million-dollar-earning executives who destroy hundreds of billions of dollars of shareholder value only makes sense if you're an autoworker. Everyone else loses.

The US car industry simply can't compete, due to its gas-guzzling SUVs and its (relatively) high-paid workers (whose employee benefits add $US1500 on top of each car). Surely a much better solution would be to re-skill these workers rather than throw good money after bad. After all, in the 70s Chrysler wrote me a letter begging to be bailed out, which I did, and here we are again.

The final letter for Christmas 2008 comes from the former CEO of Citibank, Chuck Prince and the cheeky bugger sent it without a stamp, so Mrs Clause had to pay the postage! "Dear Santa, It's been a tough year for the US. While my colleagues and I have copped a lot of flack for this financial crisis, I urge you to look at the bigger picture. Poor investors (and I use that term literally) have seen $30 trillion wiped off their holdings in the last 12 months. That's real money we created through clever accounting and complex instruments that few people understood – all gone. So I'll cut to the chase. We need an ongoing, open-ended bailout because if banks can't lend, consumers can't spend and the economy will likely head towards a depression. Cheers, Chuck."

Chuck and his mates don't need Santa, they've got their own sack of goodies. It's called a golden parachute. They trousered trillions of dollars in fees, bonuses and commissions and drove the financial markets off the cliff. The financial crisis is threatening the fundamentals of Christmas – credit. With banks unwilling to lend, both companies and consumers are scrambling to pay off debts – which has triggered falling asset prices.

Today it affects the share market. Tomorrow it will affect the real economy – and then we're heading for a bad Boxing Day and beyond. (Though it's not as bad as the scare-mongering bankers would have us believe. Back in the Depression, when unemployment hit 25 per cent, we seriously thought about throwing Prancer on the BBQ.)

The funny thing about being Santa is that no one ever asks me what I want for Christmas. But if they did, I'd tell them that all I want is to have my load lightened for at least the next few years. OK, sure governments are desperately pouring trillions of dollars directly and indirectly into our pockets to get us to spend our way out of trouble. But come on, you're sitting on the Fat Man's knee. I know when you're being nice and when you're telling porkies to yourself. Deep down we all know that spending more money we don't have won't do us any good. That's what got us into this mess in the first place.

The US Government sounds like it has a plan, but in reality it needs to take the same medicine as the rest of us: pay down your debts and save a little for a rainy day.
And if that means a few tight Christmases, well, so be it. Being Santa, my main priority is looking after kids everywhere. And they, after all, are the ones who will be left to pay the bill.

The credit crunch hits relationships and marriages
When Helen McGrath's husband Peter lost his job as a contracts manager in the construction industry, his initial feeling of shock meant that he didn't tell her for the first week. “He thought he'd get something else and be able to tell me then as a fait accompli,” says McGrath, a part-time special needs worker from Finsbury Park, North London. “But he soon realised that it wasn't going to be easy. The impact now for him is of ‘failing', as he supports the family financially.” Grae Hillary's partner, Jon Harris, found that work for his video production company dried up as companies tightened their belts and he is now keenly looking for any job at all. “He has days when he gets really down about it,” says Hillary, a PA. “It gets on top of him and is definitely affecting his self-esteem, not to mention our relationship.”

Across the UK, similar scenes are being played out as unemployment rises. More than 140,000 people lost their jobs in the three months to September, leading many experts to predict the total number of jobless to top out at the early-1990s figure of nearly three million by 2010. With thousands of jobs going in often male-dominated industries such as banking, accounting, property and IT, it's middle-class men who are feeling the effect of this “white-collar recession”.

Subsequently, many normal, hardworking couples and families are left facing a modern relationship hurdle. “Apart from the financial pressures this brings, it also brings a total shift in dynamics within relationships, with men feeling emasculated and unable to provide for their partners or family and lots of added pressure on women to bring the money in,” says Corinne Sweet, a psychologist. And however modern today's women are - living in a post-feminist world where women have always worked and been on an equal footing in partnerships - they may find it harder than expected to adapt to a new order in their relationships. Janice Hiller, a consultant clinical psychologist who specialises in couples therapy, says that our relationship structure is often far more gender-based than we realise. “Evolutionarily, we are evolved to have different roles. That's not just going to disappear.” she says. “We still have that ancient wiring.”

Sweet sees it as something that crops up when the chips are down. “In a crisis, we revert to stereotypes, and the credit crunch is a prime example of that. I've heard from many women who consider themselves feminists and free of the constraints of traditional gender set-ups, but who have been totally surprised by their reaction to finding a redundant male in the house.”

Naomi Hayward, a political researcher whose partner Matthew lost his alternative-healthcare practice, was eight weeks pregnant when he told her that the business had gone under. “I had never cast myself in a stay-at-home role, but suddenly I realised that I wanted my partner to be the provider and look after me. I never thought it mattered to me that my partner brought in the money. But when he was out of work, I realised that it did matter. I've started off being incredibly supportive, but I have my moments when I feel like shaking him. If it were me, I'd be applying for everything, but Matthew is living off his savings and seems to have lost all his drive. He's refusing to let me help him.”

“Men don't generally deal as well with unemployment as women,” says Steve Miller, a business coach who works with a range of blue-chip companies on their redundancy programmes. “A lot of anger comes with redundancy and men tend not to talk through their emotions as women do. Traditionally, the man 'provides' and for a man to lose his job, it's not just about money, it's loss of status, which can be a huge knock to his confidence.”

Sadly, the strain that comes as a result of dealing with unemployment and the negative emotions it brings pushes some couples to breaking point. Sandra Davis is the head of the family department at the legal firm Mishcon de Reya, which handled the divorce of the Princess of Wales and initially represented Heather Mills in the split from Paul McCartney. She says that they have “never been busier” and though she deals mainly with high net-worth individuals, the issues that affect these wealth-driven relationships are universal. “The trauma of losing status can cause huge problems. The power balance shifts and it is an emasculating situation,” she says.

Not only will a man be trying to deal with feeling that he's not living up to his “role”, but there's a real danger that the woman will become angry and resentful. “It can be incredibly frustrating for women if they're earning and still having to run the household while their partner is out of work,” says Hiller. Sweet adds: “Unfortunately this unspoken resentment can build to the point that it causes a complete relationship breakdown. The worst thing women can do is criticise and ridicule; it should be about being honest without being emasculating.”

So what can you do to ensure that the rot doesn't set in when redundancy bites? Overall the message is clear - communicate. “What's important is to talk. Pick your moment care-fully. Don't confront him when you're tired or have had too much to drink,” advises Sweet. “That way arguments lie. And make it a joint problem - 'How are we going to get through this?' - rather than 'What am I going to do if you don't get a job?'.”

Appreciating each other for the little things during this tough period will help to keep your relationship going. “Stay united,” Miller says. “Agree some ground rules about how you're going to approach the situation; for example, not bickering, or what to tell the kids.” Rather than pushing you apart, redundancy can be an opportunity to bring you closer together, Hillary says. “It's made us stronger. We've realised we can cope with anything. I'm sure I'm with the right person because of it.”

Unretired: Retirees are Back, Looking for Work
They saved. They planned. Then housing tanked and the markets melted. Now they need jobs, and there aren't any. Six years ago, Paul Nelson gave up his long career in the defense industry for what he thought would be a peaceful retirement in Tucson. The weather was mild, the neighbors friendly. He had plenty of time to volunteer and garden.

But retirement hasn't worked out the way he planned. In 2006 his wife of 46 years died unexpectedly. He tried to swap their house for a smaller one and lost a chunk of his retirement savings in the process. Then this year the stock market cratered, wiping out almost everything he had left. Now the 71-year-old is looking for work at local hardware stores and Home Depot and contemplating filing for personal bankruptcy. "I have nothing left," says Nelson, a former Raytheon engineer. "I am not alone, I think."

Far from it. An increasing number of people who retired in recent years, confident they had set aside enough to live on comfortably, are finding themselves strapped. The stock market plunge and the housing downturn have affected many Americans, of course. But retirees have been particularly pinched because their homes and investments are the primary assets they depend on for income. As a result, many of the country's elderly are finding themselves in Nelson's situation, low on money and looking for work. "Suddenly the rug has been pulled out from under them," says Alicia H. Munnell, director of the Center for Retirement Research at Boston College.

These are The Unretired. Seniors who thought they were set for life just a year ago now face the prospect of going back to work for two, five, even 10 years. They're sprucing up their résumés, calling old work contacts, and flocking to employment sites. There are no reliable stats yet on how many retirees are looking for work, but there are clear signs the number is growing., the largest career site for people over 50, saw traffic more than double, from 250,000 visitors in July to 600,000 in November. In April, before the worst of the market downturn, a survey conducted by the seniors group AARP found that 17% of responding retirees over 50 were considering or already going back to work.

These aren't just the spendthrifts or sloppy planners you would expect to run into trouble in retirement. Interviews with 35 of The Unretired show that many are people who did everything they were supposed to do—working for decades and regularly socking money away. Floyd McCoy, 67, retired three years ago after working for IBM for 22 years and running his own consulting firm. But his $400,000 in savings has dropped 40% this year, and the value of his Weston (Conn.) house is down by a third. McCoy says he can't afford to keep the house he and his wife built 25 years ago for retirement. "I never knew life could be as challenging as this," he says.

The problems are compounded by a weak economy, with companies shedding jobs rather than hiring. Many retirees have been looking for months without luck. Their search is complicated by what some feel is a general reluctance to hire seniors, who may need extra training or extra health care. Gordon Scott, who lives in Solomons, Md., retired last year after 39 years as a police officer and teacher. With his savings down 30%, Scott started looking for a job and attended orientation for nursing school. "I was disappointed with my reception," says the 61-year-old. "You're viewed differently. I can pick up the signs."

Peter Fay, like many of The Unretired, feels angry and betrayed. The 63-year-old built up a $1 million retirement account as an executive at companies including Chiquita Brands International and then at his own high-end flooring company in Scottsdale, Ariz. But with all his money in stocks, he's lost 50% of that this year, at the same time that his house has tumbled in value. He's drawing down his savings and applying for jobs at Lowe's, Home Depot, and Costco. "All the systems we grew up trusting during all those years of work—you save your money, you trust in the government—are no longer valid," he says.

Dominic's end game
Sitting in his Toronto office on Bloor Street, overlooking the treetops of the Rosedale ravine, Dominic D'Alessandro picked up the phone and, one by one, placed direct calls to the chief executives of each of the nation's biggest banks.

It was a Friday in late October, and the chief executive of Manulife Financial Corp. needed help. North America's biggest life insurer was recalculating its capital ratios every day, and plunging stock markets were dragging them down. Mr. D'Alessandro realized his company – the one he had personally turned into a global giant – would soon be forced to sock away billions of dollars to shore itself up. He couldn't get by without the big banks that he had so often criticized.

In the previous few days, Mr. D'Alessandro had been working another angle, trying to persuade Julie Dickson, who heads the country's banking and insurance regulator, to change the rules that were requiring Manulife to set aside massive amounts of money for every downtick in the stock market.

Mr. D'Alessandro laid out his case for her. The capital rules are too onerous, he said. They oblige Manulife to build a huge financial cushion, enough to carry it through a catastrophic event and a scenario where markets don't recover for a decade. But that cushion was straining the company's finances, he argued. It didn't make sense. If stock markets recovered, the cushion would become unnecessary.

For someone like Mr. D'Alessandro, who is known for calling the shots rather than dodging them, it was an unusual position. This is the same man who graduated from high school at age 14, ran a bank by age 41, and was the architect of a dramatic ascension that had made him a living legend in Canadian financial circles. The company's funds under management have more than tripled since 1999, when Mr. D'Alessandro took the firm public, to $385.3-billion, and it now has more than 24,000 employees serving customers in 19 countries and territories.

“Of course I would have preferred a little less adventure and a little less challenge in my final months with the company. Of course,” he says, referring to his planned retirement next spring. “I don't think I'm alone in saying I didn't foresee an event of this severity. I love it when people say ‘why didn't your forecast it? Aren't you paid to know these things?' Well, I know a lot of things, but I didn't know that.”

The fall of 2008 is now littered with stories of how American and European financial giants were brought to their knees. Canadian politicians crowed about how safe Bay Street seemed by comparison. But for a few tense weeks in October, the dramatic turns inside Manulife showed how vulnerable Canada's most trusted institutions are to the turns of a global market.

As Mr. D'Alessandro made those calls to bank CEOs – and his company's stock plunged from near $35 at Thanksgiving to $24 around Halloween – he was pushing to make sure Manulife was not one of the victims. But he was also on a personal mission – to preserve his own legacy and reputation, with the clock ticking as his 14 years at the helm wind down to an early retirement in May. The plan wasn't just to guide his company through the credit storm, but to put it in a position of strength, to be one of the players expanding while others reeled. Otherwise he risked going out under a cloud.

Blame variable annuities

The rapid collapse of Manulife's good fortunes is easily predictable with hindsight. The company's beginnings date back to 1887, when an Act of Parliament incorporated The Manufacturers Life Insurance Company and the country's first prime minister, Sir John A. Macdonald, was elected president. Mr. D'Alessandro took the helm 107 years later. The son of Italian immigrants, he arrived in the country at the age of three and would go on to build a career as a master of the takeover, beginning at Laurentian Bank and later at Manulife. In 2000, six years after Mr. D'Alessandro took over, the firm became the first Canadian life insurer to earn more than $1-billion in one year.

But it wasn't until the $15-billion merger with U.S. life insurer John Hancock Financial Services Inc. in 2004 that Mr. D'Alessandro really succeeded in muscling Manulife onto the global map. That deal made it the fifth-largest life insurer in the world, and raised expectations that Mr. D'Alessandro would deliver a financial performance to take on the biggest and the best. “At the start of this year, they were one of the, if not the, strongest life insurers globally,” says Peter Routledge, vice-president and senior credit officer at Moody's Investors Service.

Mr. D'Alessandro's aggressiveness is at odds with the stereotype of the staid insurance man, but it successfully took the company from the era of traditional conservative insurance into the modern arena. In May he will hand over the corner office to his successor, chief investment officer Don Guloien, a man 10 years his junior who has spent the past 28 years at Manulife and at one point was head of mergers and acquisitions.

A lot of Manulife's specific problems today were compounded by a decision that Mr. D'Alessandro and his colleagues made in 2004 to remove the hedging on the equity positions it held in its variable annuity business. For several years, that decision boosted Manulife's profits. Then it backfired.

Variable annuities (also known as segregated funds in Canada) have been around since the 1980s, but caught on fire in recent years. They can be thought of as something akin to a personal private pension plan for an individual. A customer gives money to Manulife, and the insurer invests it, often in mutual funds or indexes with a small proportion in bonds. Manulife promises the customer payments down the road, generally after retirement, and guarantees benefits in return for a fee.

One key aspect of the variable annuities and segregated funds business is they give the company significant exposure to stock markets. When the insurer's stock portfolio sinks, so do its capital ratios, which are determined by a complex set of rules that dictate the amount of money the firm must have on hand to reasonably ensure it will be able to make the payouts that customers might claim down the line.

Here's how they work, courtesy of a company sales brochure designed for its brokers. Bob, age 65, has $500,000 in retirement savings and needs to take income immediately. He invests $500,000 with Manulife, and establishes an annual guaranteed income of $25,000. Lets say the value of his $500,000 market portfolio drops to zero in 16 years. Bob still receives $25,000 from Manulife for the rest of his life. If markets perform well, his annual payments could one day be nearly double that amount.

Variable annuity investors can make money when markets rise, but also have some protection when they drop, depending on the guarantee they've bought. Financial advisers often pitch the products to people between the ages of 50 and 70.

Michael Morrow, a certified financial planner in Thunder Bay, Ont., started recommending Manulife's IncomePlus products at the beginning of this year. “What made it attractive for customers was I could tell them that if they started to take an income out the year they turned 65, they were guaranteed that income for the rest of their life, and that was the worst-case scenario,” he says. “What you're doing is you're buying a life jacket or you're buying a seatbelt.”

Bill and Marianne McDougall, retired teachers in New Liskeard, Ont., are among customers who saw the appeal. The biggest selling point “was the fact that in a downturn we still had that guaranteed income,” Mr. McDougall says.

Variable annuities have been all the more appealing to companies such as Manulife because life insurance sales have by and large been stagnant for decades. Life insurance reached its peak after the Second World War, when soldiers returned home with a strong sense of their own mortality and worried about providing for their families. But in the 1970s, more women went to work, divorce rates rose and that sense of mortality diminished, causing a slowdown in sales.

Between 2002 and 2007, life insurance sales grew 3 per cent a year in Canada and 6 per cent in the U.S., according to RBC Dominion Securities analyst André-Philippe Hardy. During that same period, the Canadian and American variable annuity markets grew 13 to 14 per cent annually.

For its part, Manulife boasts that it “turned retirement thinking on its head” in Canada in October of 2006 with the launch of the country's first guaranteed minimum withdrawal benefit product, GIF Select featuring IncomePlus. The insurer launched a massive advertising campaign and in Mr. D'Alessandro's 2007 letter to shareholders, he lauded the company's “flourishing” and expanding business.

Manulife's U.S. variable annuity sales topped $10.8-billion (U.S.) that year, up 18 per cent. The company was one of the top 10 players in the U.S., and the No. 1 player in Canada. But back in 2004, Manulife's executives stopped paying for reinsurance against the stocks backing its annuities and opted to take the risk of a market drop itself instead. Manulife was an insurer, it should be insuring itself, they thought.

It is a move that UBS Securities analysts now label “imprudent,” but for years Manulife's executives stuck to the decision. In early 2007, they started to get a bit nervous when the business was growing by leaps and bounds. Manulife was stealing market share in the U.S., and had introduced products in Japan and Canada. Its exposure to stock markets was ballooning as a result.

Manulife decided, belatedly, to develop its own program internally, and slowly started rolling it out in November of 2007, three months after the credit crunch first erupted. It continued to move slowly, and as the financial crisis rippled through the markets it became more expensive to put the hedges in place.

Nearly one year on, the program covers about $3-billion of Manulife's U.S. variable annuity account value. The company believes the program protects it from more than 80 per cent of the losses that substantial market declines could cause in the hedged part of its portfolio, and it plans to hedge its new business from now on. But the damage has been done.

The crisis heats up

The key measure of an insurer's financial cushion that OSFI keeps an eye on is called the minimum continuing capital and surplus requirements (or MCCSR) ratio. It's a complicated test of whether the insurer's assets are sufficient to cover its liabilities. It measures the minimum capital and surplus the company needs, adjusted for how risky its business and investments are. Insurers must keep the ratio above 150 per cent, and Manulife tries to keep its ratio between 180 and 200 per cent.

In the first three months of the year, it dipped 23 percentage points, prompting Manulife's executives to decrease share buybacks and take other action to boost capital, bringing the ratio back up to 200 per cent. But the implosion of Lehman Brothers in September and subsequent near-collapse of AIG, once the world's biggest insurer, sent markets into an extended spiral that would whack Manulife once again.

On Sept. 16, the U.S. government announced a bailout of AIG, which planned to sell off pieces of itself to pay the government back. Manulife's executives wasted no time jumping on potential opportunities to grow their company. For Mr. D'Alessandro, this was the chance to pull off one final blockbuster deal before he retired. For Mr. Guloien, it was a chance to push the company he will soon run firmly to the front of the pack. On Sept. 22, Mr. Guloien was meeting with investment bankers in Toronto to talk about putting together a bid for some prized pieces of AIG. But stock markets continued to move at speeds that took investors breath away, and the crisis was turning financial institutions around the globe into punching bags.

By the end of September, the value of the funds that Manulife had invested in equities and bonds for segregated fund and variable annuity customers stood at $72.74-billion. That was $12.85-billion short of the amount the company had guaranteed to pay out down the road. (Most of the payments Manulife has promised customers come due between seven and 30 years from now.) In no time, potential acquisitions were on the backburner. Manulife's top team had more pressing issues to deal with.

There were rumours that Manulife might issue a large amount of stock in order to raise capital, diluting its current shareholders. Mr. D'Alessandro decided to hold a conference call with analysts on Oct. 14 to put those fears to rest. “When you see your stock drop by 25 per cent in two days, it sort of focuses your mind that maybe you ought to pay attention to reassuring, and making your investors understand your position,” he told them. “We think that Manulife was sideswiped by the meltdown in the markets in a way that grossly exaggerates any impact that they're going to have on us.”

The company had no intention of issuing equity to raise capital, he said. If it came to it, Manulife would think about issuing preferred shares or debentures to boost capital levels. Within days, Mr. D'Alessandro was lobbying Ms. Dickson to revise regulatory guidelines on capital and she was persuaded by his argument. On Oct. 28, OSFI announced that it was changing the rules to give insurers a break on the amount of capital they had to set aside for payments that were more than five years away. The changes brought Manulife's capital ratio closer to 200 per cent, but executives decided they needed more of a buffer in case markets continued to tumble. That weekend, the company negotiated the final details of a $3-billion loan from the country's six largest banks.

The fallout

Those two measures collectively brought the insurer's capital ratio up to about 225 per cent, but only temporarily. They did not take the heat off of Mr. D'Alessandro and his colleagues. In the first week of November, Prime Minister Stephen Harper requested a meeting with a handful of top executives from the country's financial institutions in order to gather their thoughts ahead of a meeting of G20 leaders in Washington the following week. But on the Thursday afternoon, when some of his peers were giving the Prime Minister their thoughts, Mr. D'Alessandro was instead taking a grilling from analysts. Manulife had just revealed that its third-quarter profit had fallen in half from a year ago, to $510-million, because the steep drop in stock markets shaved $574-million from its bottom line.

Citibank analyst Colin Devine laid into executives on a conference call that afternoon, questioning Manulife's risk management systems. Over the years, Manulife chief financial officer Peter Rubenovitch had told analysts many times that he would be comfortable dealing with a 10- to 15-per-cent drop in markets, and that's why the company didn't have a hedging program. But this drop was steeper than that.

“Why was some sort of pro-active action not being taken in October while all of this was going on, because what would you have done if OSFI effectively hadn't moved the goalpost for you?” Mr. Devine demanded. “Because it seems [to me] you might have had to raise $5-billion of equity.” Mr. D'Alessandro stepped up. “You're entitled to your view, Colin, that it was a breakdown,” he said. “In one week we had a massive reorganization of the financial sector. Maybe you guys saw it at Citibank, but we didn't see it.”

In the weeks to follow, Manulife's capital ratio softened yet again, landing somewhere around 200 per cent. “The world has completely changed,” Genuity Capital Markets analyst Mario Mendonca said. Over the course of October and November, stock indexes dropped a further 21 per cent in Canada, 23 per cent in the U.S. and 24 per cent in Japan.

Analysts pressed the firm to raise equity and suggested that issuing $3-billion worth of shares would give the insurer enough capital to meet challenges as well as jump on opportunities in 2009, if the company hadn't lost its reputation as an attractive suitor. With the pressure rising, Mr. D'Alessandro finally softened to the idea of issuing equity. On Nov. 26, the company began canvassing the market. This past Monday night, executives decided to proceed with a plan to issue at least $2.125-billion of common equity. At the same time, Manulife paid back $1-billion of its bank loan that it no longer needed.

Manulife is now looking at a $1.5-billion loss for the final three months of the year, the first time it has dipped into the red since going public in 1999. Mr. D'Alessandro acknowledges that his decision to issue equity is an about-face. But circumstances have changed dramatically since October, when he said the insurer would do no such thing. “It was what I believed when I said it, and had the market been more receptive to our solution, it might have prevailed,” he said in an interview this week.

Shareholders were increasingly encouraging him to put the problem behind the company, he said, something he had hoped to accomplish with the bank loan. “So we bit the bullet.” While Manulife's capital ratio was still within its target prior to the equity issuance, the company's old targets aren't good enough for the market any more. “We were still comfortable, but it didn't give us any latitude,” said Mr. D'Alessandro, who believes that OSFI's capital rules are still too strict, even after the changes.

“I don't think that Dominic would have wanted to go out like this,” said Shane Jones, managing director of Canadian equities at Scotia Cassels. “It's tarnished his reputation.” But he quickly adds that, in fairness, “the decline in the market took us all by surprise.”

“I felt pretty good that this stuff had been dealt with, but then the markets kept going down and down and down,” Mr. D'Alessandro says. “I don't see it as a failing on my part. What could I have done?” Moody's Mr. Routledge says the equity raise doesn't make any material improvement to Manulife's financial flexibility in the near term, or compensate for lower earnings going forward. “It helps, it just wasn't enough,” he said. Nearly all of the new equity will be eaten up by the fourth-quarter loss and dividend payments. Over the course of the year, “they went from being excellent to just great,” he said.

Joseph Iannicelli, chief executive of the Standard Life Assurance Company of Canada, believes this is a short-term blow for Manulife. Of his rival Mr. D'Alessandro, he says “the timing is unfortunate because it is at the tail end of his career with Manulife.” Manulife expects to have $5-billion in reserves for its variable annuity guarantees at the end of this year, up from $526-million at the beginning. If markets recover, which they presumably will, it will be able to release its reserves back into earnings, and put some of its headaches behind it.

Mr. D'Alessandro still deserves a tremendous amount of respect for what he has accomplished in his career, Mr. Iannicelli said. “He took a Canadian company global, and kind of put the Canadian insurance industry on the map,” he said. “The acquisition strategy has been brilliant. Each deal was either more complicated or more bold or bigger.”

Pieces of AIG are still up for grabs, and a number of U.S. life insurers are now ripe for takeover because their stocks have taken a pounding. The opportunities are tremendous. Mr. D'Alessandro has not lost his appetite to swallow one last target. The question is will he be able to now?


Stoneleigh said...

I put the intro for today's Debt Rattle up as a diary at Daily Kos - Markets and the Lemming Factor. If it gets anywhere near the recommended list, there could be an interesting discussion to follow.

Anonymous said...

Very well done Stoneleigh - as a non-doomer of course I don't necessarily agree with everything but still - excellent.

sudeep bhaumick said...

Just came across this...

"I have often been told that the U.S. Mint is already open to gold, witness the Eagle and Buffalo gold coins. But these issues were neither unlimited, nor were they coined free of seigniorage. They were sold at a premium over bullion content. They were a red herring, dropped to make people believe that gold coins can always be obtained from the U.S. Mint, and from other government mints of the world. However, as the experience of the past two or three months shows, one mint after another stopped taking orders for gold coins and suspended their gold operations. The reason is that the flow of gold to the mints has become erratic. It may dry up altogether. This shows that the foreboding has been evoked by the looming gold backwardation, way ahead of the event. Now the truth is out: you can no longer coax gold out of hiding with paper profits.

If the governments of the great trading nations had really wanted to save the world from a catastrophic collapse of world trade, then they should have opened their mints to gold. Now gold backwardation has caught up with us and shut down the free flow of gold in the system. This will have catastrophic consequences. Few people realize that the shutting down of the gold trade, which is what is happening, means the shutting down of world trade. This is a financial earthquake measuring ten on the Greenspan scale, with epicenter at the Comex in New York, where the Twin Towers of the World Trade Center once stood. It is no exaggeration to say that this event will trigger a tsunami wiping out the prosperity of the world."

can anyone kindly shed some light please...

Anonymous said...

As promised – the 'solution' to the mortgage crisis

What happens now:

Mr X bought a house at the height of the boom for $400k with a 'teaser' rate mortgage.
The mortgage resets and now he can't afford the payments – he goes to sell it's only worth $200k now.
Result - he loses the house one way or another – he (and his family) are out on the street.
This is bad for Amerika.

The bank (or whoever) gets the house but they don't want the house, they want the $400k.
But they can't get the $400k they can only get $200k. And that's the best case scenario. What about costs in all of this – what if the house doesn't sell – what if it suffers damage, vandalism whatever.
Chances are they get less than $200k – maybe a lot less.
This is bad for business.

The solution is obvious – markdown Mr X's mortgage principle to $200k and let him pay that off.
While you're at it mark down the interest rate too. Mr X (and his family) stay off the streets. (this is good for America)
The bank gets the $200k (plus interest) (this is good for business or at least better than the alternative).

I call this my “Financial Krisis Mortgage Markdown Daze” plan.

Now I know a lot of you didn't like my “I want my money and I want it now plan” but you should be able to see that this is shall we say, more easily implemented.

Now if you can't see this you should know that there is at least one other person who agrees with me.
Yes indeed there is – it's the 'Doctor of Doom' himself Nouriel Roubini.

Check out the end of this interview with 'the Doctor'.^dji,^gspc,TLT,UDN,UUP,GLD,SPY

Just goes to show 'great minds think alike' ;-}

Greenpa said...

Stoneleigh- your logic flows beautifully.

Mr. Moto's plan- alas, we have good reason to know that Roubini, in fact, is a cock-eyed optimist. "deflationary risk?" nope- way past risk, it's happening, and the forces at work are clearly pushing that further. "recession will be severe?" - again- it's past severe, and truly into depression, with many years to run.

The plan looks nice- if you're not a bank. The problem is the banks have debts themselves, for which they not only "need" that $400k; they'll die without it. $200k over twice the years equals a dead bank. They ain't gonna do it.

An even more drastic "plan" - universal jubilee. Everybody's debts- personal, corporate, and public are hereby canceled. Null, void, over. A few of the biggest debt holders would get very cranky- but most of us would be happy. Then we could do it all over again!

John Hemingway said...

greenpa, I like the idea of a universal Jubilee, it makes absolute sense and for this reason I doubt that we'll ever have anything like it (certainly not from the incoming US adminstration).
Stoneleigh, thinking about your timeline of events, how long do you think we have before major wars break out?
Excellent post:-)

Anonymous said...

“This is why we recommend establishing and cementing relationships of trust at the local level as soon as possible, as such relationships are the most valuable thing you can have in times of great upheaval.”

Actually, it’s number two:

Matthew 22:39 And the second is like unto it, Thou shalt love thy neighbour as thyself.

And number one:

Matthew 22:37-38 Jesus said unto him, Thou shalt love the Lord thy God with all thy heart, and with all thy soul, and with all thy mind.
This is the first and great commandment.

Terry B

Stoneleigh said...

Terry B,

Our worldviews are quite different, but we can agree on the importance of family and friends in times of crisis.

Anonymous said...

Absolutely Stoneleigh!

God Bless You
Terry B

Anonymous said...

For those interested in growing food, I want to add a little to what I said earlier about the Glaser Wheel Hoe. You can add a second wheel to it HERE and a second knife. I took it to the farm where I work and showed it to the owners and they were blown away. You can set the width between the knives--enabling us to hoe between two rows simultaneously.

As we worked, we found that two hoes--one with one wheel and a 12" knife and one with two wheels and two 5" knives--seems to work fastest. One for the walkways and the other for inside the rows. We were able to do about 40 beds in a half-acre in under an hour. We still had to hand hoe between plants in a row, but they were VERY excited about the increased speed... :-)

David said...

Amazing intro, Stoneleigh! Thanks for ending it on something of an up note. I wonder whether/how those of us out front of this shitwave can keep the energy positive in our families, neighbourhoods, peer groups, and communities. I am committed to using my energy and skills (such as they are) to organize and build resilience at these lower levels... while the bosses of the higher levels fuck up on ever grander scales.

This all reminds me of the scene in 2001: A Space Odyssey where Dave Bowman has to shut down HAL 9000. One by one, those memory cartridges come sliding out, and as they do the intelligence of the computer is reduced to drivel. The only silver lining is that there are a fair number of people clued in to what is needed to stand firm against the complete unwind -- whether there are enough, and whether they have their shit together enough, I can't predict.

And, speaking of lemmings, this seems apposite:

"What choice is there left but to live in the hope of saving our children's children's little ones?"

Anonymous said...

'Universal Jubilee'

Ya - that's the ticket!

I like it - maybe 'universal jubilee' followed by "I want my money and I want it now"!

That would be even better - the old economy would be really humming then!

Bigelow said...

The article below discusses reverse repurchase agreements and foreign currency swaps and asserts the FED caused commodities to crash, props up the stock market and continues to suppress gold. Also that it has “has bought nearly all toxic bank assets that were supposed to be purchased pursuant by the $700 billion Congressional bank bailout.” It was much less impressive however upon recalling there is $.75 quadrillion worth of derivative contract “money” waiting to overwhelm the Fed should just a small percentage of contracts go bad.

“But, in short, the Fed currently has gained complete control over the value of the dollar. It can now adjust and micromange the dollar on a day-to-day basis. All it needs to do is open and close the “dollar spigot.” When they want the dollar to rise, the Fed can reduce the number of sequestered dollars. When they want it to fall, they simply ease up, releasing dollars into the financial markets. There is only one problem. Real investors are fleeing the stock market, and stock indexes are becoming more and more dependent upon government cash in order to avoid collapse.

People are liquidating holdings in mutual funds, and redeeming against hedge funds at a fantastic rate. This has created heavy downward pressure on stock prices. If the DOW falls below 8,000 for any significant amount of time, most big American insurance companies will be forced to recognize huge losses on their portfolios, and will become insolvent. Insolvent insurers, like insolvent banks, must be closed by their regulators as a matter of law. Obviously, mass insurer bankruptcies would be yet another major destabilizing slap in the face to an increasingly unstable economy.”
The Manipulation of Gold Prices Seeking Alpha

Anonymous said...

On the Dion tape thing earlier this week.

I was just watching a replay of a 'Squeeze Play' on BNN from this week and as they ended they mentioned 'something on Dion's tape that he didn't want you to see' or something like that and zoomed in on the HOT AIR book! :-)

Ilargi said...

Terry, Stone

Please refrain from biblical quotes

So I don't have to do it for you.

To each his own. Just not here.

Ilargi said...


Fekete is a one trick pony and his trick is gold.

Perhaps some day something he's said will come true, but in the meantime he's been ringing alarm bells a zillion times without cause, which makes it hard to consider him a serious voice. Him and many other gold followers. It ain't all that simple, but they never really do a mea culpa. That smacks of religion, and that is one thing we do not do here.

I would not be surprised if gold rises to $2000 next year, but as I've always maintained, there's too much manipulation on-going and potentially in the works to make all these bold predictions that Fekete and his ilk see fail miserably time after time.

Anonymous said...

Got it Ilargi! Know that I'm praying for you!


Anonymous said...

So, your article on gas prices made me wonder---since oil prices are collapsing due to the anticipated decrease in demand resulting from the recession, could the $147 a barrel oil and $4.15 a gallon gas have been avoided this summer if the government hadn't lied to us for so long claiming we were not in a recession?

Anonymous said...

As a person in health care delivery , the electronic medical record has the pontential to be a real nightmare. Small offices will be stretched to afford the high dollar servers and full time paid IT staff that are required to keep up with demands of privacy and to keep a server running, especially if there are grid or internet problems in the future. Despite templates that are available for providers, unless a system is very provider friendly and one that will keep the lawyers at bay, the time required to have everything "neat and tidy" does take extra time. So if Obama get his way with "jobs" creation as it relates to electronic medical records your wait in the office will become longer. Be sure you plan on taking good reading material and a snack to pass the time. John

Farmerod said...


Your analysis of herding behaviour makes me wonder about the Plunge Potection Team. Assuming that such an entity is active in the markets at all, how do suppose its interaction could be used to mitigate or exacerbate the animalistic behaviour of the stock market? And for what purpose?

Anonymous said...

Universal Jubilee?

Ok, so why should I support that? I opted not to sign up to the credit -> obtain title to objects orgy.

A Universal Jubilee would benefit others for their excess with real property and advantaging them over myself. So what's my reason to support a Universal Jubilee?

Stoneleigh said...


Personally I think the Plunge Protection Team is mostly a smoke-and-mirrors fantasy intended to inspire confidence, in other words yet another bluff. I don't doubt that such an entity exists, but I do doubt that they can have any real influence. The Fed and the treasury would like you to believe that the PPT is an all-powerful entity though, as that might give you enough confidence to postpone pulling all of your money out of markets and banks. Unfortunately fro the Fed and the treasury, the market is good at calling bluffs.

el gallinazo said...

Thank you Stoneleigh. Wonderful analysis.

Farley Mowat in his book, Never Cry Wolf, proved that a large predator such as a wolf, human, or turkey buzzard could live on a steady diet of voles or lemmings.

Anon 9:35

"So what's my reason to support a Universal Jubilee"

Well, you could kick off your shoes and boogie down.

A Universal Jubilee would wipe out all debt which in turn would wipe out 98% of all money. So well the uberdepression. But the Jubilee sounds like more fun.

Stoneleigh said...

John Hemingway,

As for the timeline for war, it's difficult to say. I don't think we would see all-out war between major powers any time soon, but I do expect imminent trade wars and nasty proxy wars between client states of various blocks, especially in resource-rich areas. I also expect a significant increase in low intensity conflict around the world (see The Transformation of War and other books by military historian Martin Van Creveld).

Further down the line, I expect resource wars (more on this in tomorrow's intro), and eventually a direct conflict between major powers, but that could be many years away. In the interim, we are setting up a three-way cold war between the US, China and Russia.

Anonymous said...

Stoneleigh, I am 58 and I have an eight year old son (my only child). He is the most beautiful little boy you could ever imagine. The thought of him going off to war in his twenties is the thing about all this that worries me the most.


Anonymous said...

About oil, looking at DOE stats net imports for 2008 are only down 2.3% (domestic production fell 2.3% as well) from 2007 and inventories are up by only 6.7%. Seeing that OPEC controls about 50% of production and Russia's announcement that it's going to cooperate with OPEC it's pretty clear that crude is going to be going backup up, probably to $70-80 level, maybe higher.
About a new depression, given the choice between a deflationary spiral and hyperinflation I believe the US will chose hyperinflation. Unlike the Weimar Republic modern US consumers have computers and electronic payment so hyperinflation is a lot more workable.

Greenpa said...

Anon 9:35 "So what's my reason to support a Universal Jubilee?"

If, as seems the case, your opinion is that those people whose lives are being destroyed by the millions deserve it, because they made bad choices, then you will be hard to convince.

If, however, you have an Aunt Martha somewhere, who is about to lose her house, and has already lost her retirement benefits - for no fault of her own whatsoever, except that she was conned by 10 different types of predators- a jubilee would be a chance to start over.

Otherwise- your Aunt Martha is going to die. Soon- in one of these ways:

Undiagnosed cancer
Untreated diabetes

Personally- that's ample motivation. How many Aunt Marthas are there out there? Literally- billions.

Anonymous said...

Let's perfect universal jubilee and confiscate all goods everywhere and redistribute them equally. Oh, and I get to be the one who decides who gets what. I promise to be fair.

Greenpa said...

dunce cap- as Ed Wynn put it so succinctly - "Well, now, let's don't be SILLY!"

Anonymous said...

It seems to me that for Universal Jubilee to be somewhat equitable you couldn't just arbitrarily start it up, but it would have to be set for a date in a distant enough future so people could prepare for it.

Wait... would it mean I don't have to pay my mom back the money I owe her? (If we postponed she'd have time to send her thugs out after me.)

Anonymous said...


It's nice to consider Aunt Martha, but I think she is in serious trouble with or without a jubilee. If you had a universal jubilee, most of the dollars disappear, because most of the dollars are debt. So now, everyone starts from near zero, at least from a money standpoint. She would have a roof over here head, but not much else. She'd have no way to get medical help or food, and maybe she would be without basic utilities in the middle of winter. It's a step up from a tent, but not by much. Certainly all sources of credit would be gone, wiped out in the jubilee.

The fact is, life expectancies in the US are headed for a serious drop. The die is already cast on this one. Friends, relations, and we ourselves will have our lifespans shortened.

Anonymous said...

I have been reading a lot of current events news in the last couple of weeks. Blogs, Magazines, TV, Internet outlets and talking to people. What I see very plainly is a sense of panic and despair setting in. Most of the time it is just under the surface, just under control. People are looking around and seeing their planned on futures disappearing in the blink of an eye.
If there was one thing that I took away from my tour of duty with the Rangers it was a defiant attitude in the face of crisis and disaster. We had a saying we used to tell each other when things got really tough. "Ranger, you've got to be tougher than woodpecker lips". It was kind of stupid but it had the effect of reminding us of the proper attitude to have when things really got ugly. We used to practice the proper attitude every morning also. There was an old Vietnam era Ranger who used to stand out in front of the barracks every morning before PT. About five min before first call he would yell at the top of his lungs for everyone to hear "Rangers" Its a great day to die!" I like that attitude. We may have huge and growing problems in this country and they may very well be getting worse. Who knows how much worse. We can either cower in front of the future and let our fears rule us or we can be defiant in the face of our fears

sudeep bhaumick said...

Thanks Ilargi.

Stoneleigh, i found the intro to be extremely relevant, because in the end it is not the machine but the man behind it that makes the decisions and your chain of thoughts is a very beautiful insight into that. Thanks.

Anonymous said...

Well with global resource wars between Russia, China and the US inevitable. We might as well party all we can today. 3 nuclear powers, peak oil imminent or passed. Jay Hanson's version of dieoff is on its way :( we're so screwed.

el gallinazo said...
This comment has been removed by the author.
el gallinazo said...

Ex Ranger

"Rangers, its a great day to die!"

Sounds like he was a fan of my favorite movie of all time, Little Big Man. That was the chief's, Old Lodge Skins, favorite line. My other favorite line from this film, when Old Lodge Skins, now blinded by a cavalry bullet, lies down on his death platform but can't die was, "Well, sometimes the magic works and sometimes it doesn't."

Unknown said...

I was discussing this situation with my wife (she is gradually understanding that it is definitely unfolding) and one thing came up that I haven't yet seen discussed here.

Stoneleigh mentioned the possibility of a declared extended bank holidays at some point in the future. When that happens it is really game over.

In our current environment, just about everyone has their salary paid weekly, (fortnightly or monthly) into a bank account. The fortunate 85% (or 75% or 60%) that still have jobs will find that they have no access to the fruits of their recent labours. Their natural response will be to demand cash payment for their salary, however businesses will have no access to cash to make these payments.

At that point main street business will be like the shipping index. On that day, having a job will provide you no advantage at all.

Have I got it wrong (I know some here don't believe I can think) or is this the natural outcome of a system wide bank holiday.

The other point is that a major extended bank holiday in any of the major economies would likely cause bank runs globally within hours. So for us non-US people, the US situation would not provide much of an early trigger of what to expect.

Stoneleigh said...


You are quite right about the potential effects of a bank holiday. Electronic payments systems of all kinds would cease to reach people, who would then demand payment in cash. As you point out, employers will have no more access to cash than anyone else. There is very little actual cash in the system. Almost everything is credit and dealing with credit requires a functioning banking system.

Unlike Russia where one didn't have to pay rent or utility bills in order to have a home and heat, a lack of money would be a show stopper in our societies where money-dependence is absolute. This is why it is critical to have at least a certain amount of cash on hand, and preferably basic supplies as well since empty shelves would be likely, at least for a period of time.

Hand-out programs take time to develop and implement, and I doubt very much that such plans already exist. In other words, things could get very nasty more quickly than anything can be organized to do anything about it. Where strong community organizations exist, the chances would be better, as local initiatives take less time to prepare than regional or national ones.

Stoneleigh said...

Jay @10:16,

Believe me, I hear you. My son is nearly 16 and even closer to being in harm's way. Ever since he was born I have been worried about someone eventually drafting him. I try not to dwell on it or I would drive myself crazy, but it's always there at the back of my mind. I also worry about my daughters having to live through being separated from future husbands, not knowing whether they are alive or dead, or what horrors they may be witnessing.

Most parents have had to live with these dilemmas since time immemorial. Only in recent years has risk abated for the lucky few, such as our own parents and ourselves, who have lived in rich and peaceful countries during a gilded age. Unfortunately risk - physical as well as financial - is going to make a comeback for all of us, and it will be a horribly uncomfortable transition.

Greenpa said...

Pentro - yes, sure. As Ilargi has stated here several times, and something we agree on- the game plan for leadership at this point can only be about minimizing misery- there is no chance of avoiding it.

It has been a long long time since anyone has played the jubilee game- I think understanding of details is lacking. Credit would not entirely disappear- it would start from scratch. There would still be some people who would wind up with a stash of precious metal, for example. The neighbors could and would come and say, "Could you loan me $100 so I can buy a cow? I'll provide you milk for the next year; and I'll give you the second calf, which will be worth $100." That's repayment with interest- just no usury.

And the doctor- had better start working by barter; cause NObody can pay cash.

Little by little. Perfect? Hardly- but as you point out, the roof is better than the tent. That's all.

Folks, you need to understand I'm not campaigning for a Universal Jubilee. Do I think it would be better than other options being offered? Yes. Do I think it's something the world is ready to contemplate? No. Maybe in 6 months- when hell is much more obvious and widespread.

scandia said...

Pentro, I am a perfect fit for your profile of Aunt Martha. In fact the building I live in is entirely populated by Aunt Marthas. What is noteworthy of late is that recent new tenants in this affordable housing are men. We were all women but one when I moved in. So-o there are lots of Uncle Marks as well.
I have done an analysis of my situation.The evidence indicates that I need to face facts. In that light I have somewhat prepared to die. That out of the way frees me up considerably to focus without dread on the future. I am energized by my planning and preparations. In fact we Aunt Marthas may surprise ourselves and others with what we come up with!
Ranger, I love that phrase, "you've got to be tougher than woodpecker lips."
The biggest handicap I am overcoming is a sense of entitlement.

Anonymous said...

on the subject of "...its a great day to die!" here is a beautiful rendition on Bist du bei mir:

Unknown said...

From NYT columnist Frank Rich's column today, in case anyone missed this.

In our current financial quagmire, there have also been those who had the wisdom to sound alarms before Rubin, Summers or Geithner did. Among them were not just economists like Joseph Stiglitz and Nouriel Roubini but also Doris Dungey, a 47-year-old financial blogger known as Tanta, who died of cancer in Upper Marlboro, Md., last Sunday. As the Times obituary observed, “her first post, in December 2006, took issue with an optimistic Citigroup report that maintained that the mortgage industry would ‘rationalize’ in 2007, to the benefit of larger players like, well, Citigroup.” It was months before the others publicly echoed her judgment.

scandia said...

Anon@ 9:59 thank you for posting Bist Der Bei Mir...I had not heard this song before. Beautiful voice, moving sentiment,"...if you are with me..."

Anonymous said...

ExRanger said:
'Its a great day to die!
I thought the Klingons said that!

He also said:
'We can either cower in front of the future and let our fears rule us or we can be defiant in the face of our fears'

And I say - Amen to that! Very well put.
So suck it up and quit whining people!

Anonymous said...

Stoneleigh said:
'As humans, we respond subconsciously to the emotional signals of others, validating our own opinions by their conformity to received wisdom. We are genetically programmed to feel reassured by conformity to consensus, whether accurate or not'

Perhaps some should reflect on that staement?

Unknown said...

Here is an interesting interview with a global fund manager and the chief economist from one of our major banks. An interesting comment in it 'the major economies are basically gone'. Interview with Hamish Douglass

I'm not saying they have everything right but there are some interesting points.

Stoneleigh said...

Anon @9:59,

Thank you so much for posting that link. That is one of my favourite pieces of music, featured in one of my favourite films - Joyeux Noel (an English, French and German film about enemy troops spending Christmas together during WWI).

Anonymous said...


glad that's the piece you like. the piece is also featured in the movie Berlin 1945:
the soprano is Ingrid Kertesi and the full recording is available here:


Anonymous said...

since we are on it, here is another moving piece:


Anonymous said...

Jay and Stone,

the above linked piece was not intended to cause more pain but concerns...


Stoneleigh said...


Music and images such as these do much to remind us of our common humanity, and the tragic consequences of losing sight of it. The emotional impact gets the message across much more directly than would a reasoned argument. Art is a powerful force indeed.

Thank you again for those links. My son is training to be an opera singer and hopes to perform Bist du bei mir at his arts school this year. It's one of his favourite pieces too.

Anonymous said...


does this reflect the general societal mood or just that of the "doomers?"

it is also my 7-year-old girl's favorite piece for her performance in nursing homes. though it surely will bring different meanings to her as
the time unfolds...


Anonymous said...

I think this is a great blog, and I would like to Post a Comment

There has been some recent news you might like to hear.Obama is making it better for us already! There has been an increase of money availability to everyone. Due to recession there is increased funding for all types of grants. Even lenders are bending over backwards to bail you out too. Regardless of statistics, there is people getting tons of cheap money for personal use, investments,start businesses, buy homes, pay off debt, and more. Bailout is for YOU