Monday, April 20, 2009

April 20 2009 1: Dirty Dark Incest

Walker Evans I’m just waiting on a friend December 1935
Sidewalk scene in Selma, Alabama

Ilargi: Hal Turner, right wing American, last night and this morning claims he has a list of stress test results, a claim denied by the Treasury department and reported by the media as having a negative effect on bank stocks. Well, I don’t think Bank of America is down 15% this morning because of that; they are losing because they were next in line to publish great profit numbers that nobody believes. Yes, I said yesterday I expect a credibility crisis, and it will affect both Wall Street and Washington. You know the saying: you can't lie to all the people all the time. With in mind Goldman's $160-odd billion warchest, which it intends to use to purchase, on the very cheap, assets from the likes of pension funds and distressed banks, I still think the stress tests can be a vehicle for the most powerful financiers to consolidate their control of US wealth.

In that regard, it'll be interesting to see how Goldman deals with its alleged over-1000% credit exposure, 10 times its capital, 7 times more than Bank of America, and much of it related to derivatives. My guess is that Goldman will somehow come out fine, and even bigger than it is today, and it may use other banks' troubles, as they are to be revealed in the stress tests, not just to buy whatever they like for pennies on the dollar, but also to transfer as much of their exposure, debt and losses to the books of the failing banks as they possible can. Or does anyone believe Goldman's executives don't know the stress test results yet? I'm willing to be cautious and all, but that one I don't buy, not with the revolving doors in place.

Change we can believe in was once a nice slogan, but the reality today is that soon nobody will know what to believe in anymore, at least not in the financial world. The best suggestion I can provide is that it seems pretty safe to believe in Goldman Sachs, but the problem with that is that the same as saying you don't believe in the way the system works. And I don't see any of it stopping anytime soon, not the fake bank profit announcements, not Goldman's dirty dark incestuous relationship with the government, and not the singularly unfounded economic cheerleader spinning from Summers, Bernanke, Geithner and Obama. It increasingly starts to feel as if everyone is merely waiting for the whole building to fall to tiny little pieces, all hope of recovery has been given up and in that light the decision has been taken to tell cute stories all the way until Enola Gay can be seen dropping its load from up high.

Maybe then we'll hear something that doesn't sound like a cheap rip-off of CInderella. And now that we're on the issue, are there any laws that say governments have to tell their citizens the truth? Are company CEO's allowed (or even obliged?!) to lie to shareholders if lying boosts profits? What does it tell us that the $500+ billion so far handed out in TARP money, with the express intent to boost and jumpstart lending, have led to a drop in new loans of 23%? Is that why they want to give it back? Or is that because it'll make them untouchable for stress testers, while bringing down furtehr the price of assets of those banks that don't repay -fast enough-? Anyway, where is the money? It can't possibly be at AIG, can it? If it were, there'd be no need for the newly announced $30 billion, which by the way pushes the AIG rescue [sic] well over $200 billion. Or would there?

LEAKED! Bank Stress Test Results !
The Turner Radio Network has obtained "stress test" results for the top 19 Banks in the USA. The stress tests were conducted to determine how well, if at all, the top 19 banks in the USA could withstand further or future economic hardship. When the tests were completed, regulators within the Treasury and inside the Federal Reserve began bickering with each other as to whether or not the test results should be made public. That bickering continues to this very day as evidenced by this "main stream media" report. The Turner Radio Network has obtained the stress test results. They are very bad. The most salient points from the stress tests appear below.
  1. Of the top nineteen (19) banks in the nation, sixteen (16) are already technically insolvent. ((Based upon the “alternative more adverse” scenario which had a 3.3 percent contraction of the U.S. Economy in 2009, accompanied by 8.9 percent unemployment, followed by 0.5 percent growth of the U.S. Economy but a 10.3 percent jobless in 2010.))
  2. Of the 16 banks that are already technically insolvent, not even one can withstand any disruption of cash flow at all or any further deterioration in non-paying loans. ((Without further government injections of cash))
  3. If any two of the 16 insolvent banks go under, they will totally wipe out all remaining FDIC insurance funding.
  4. Of the top 19 banks in the nation, the top five (5) largest banks are under capitalized so dangerously, there is serious doubt about their ability to continue as ongoing businesses.
  5. Five large U.S. banks have credit exposure related to their derivatives trading that exceeds their capital, with four in particular - JPMorgan Chase, Goldman Sachs, HSBC Bank America and Citibank - taking especially large risks.
  6. Bank of America`s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank`s was 278 percent; JPMorgan Chase`s, 382 percent; and HSBC America`s, 550 percent. It gets even worse: Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital! ((HSBC is NOT in the top 19 banks undergoing a stress test, but is mentioned in the report as an aside because of its risk capital exposure to derivatives))
  7. Not only are there serious questions about whether or not JPMorgan Chase, Goldman Sachs,Citibank, Wells Fargo, Sun Trust Bank, HSBC Bank USA, can continue in business, more than 1,800 regional and smaller institutions are at risk of failure despite government bailouts!

The debt crisis is much greater than the government has reported. The FDIC`s "Problem List" of troubled banks includes 252 institutions with assets of $159 billion. 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in prior quarter. Put bluntly, the entire US Banking System is in complete and total collapse.

UPDATE 0147 HRS EDT Monday, April 20, 2009 --

For those who may be skeptical about the veracity of the stress test report above, be reminded that only last Sunday, April 12, this radio network obtained and published a Department of Homeland Security (DHS) Memo outlining their concerns that returning US military vets posed a domestic security threat as "right wing extremists." That memo, available here, is marked "FOR OFFICIAL USE ONLY" and contained strict warnings that it was not to be released to the public or to the media. We obtained it and published it days before other media outlets. That DHS report appeared on this blog at least two full days before the story was picked up by The Washington Times, and virtually every other US media outlet.

Details of certain aspects of the stress test reported above have now been CONFIRMED through REUTERS News service when they disclosed the risk-capital percentages publicly on April 6, 2009 at this link. Further, today's Wall Street Journal (April 20, 2009) is confirming that lending by the largest banks has DECREASED 23% since the government began the T.A.R.P. program, causing many in Congress to ask where the money has actually been going. Apparently, it has been going into propping-up the failing banks instead of out in loans to the public. Additional details and proofs are forthcoming. . . . . continue to check back on this developing story.

UPDATE 1154 HRS EDT April 20, 2009 --

The United States Treasury has openly and brazenly lied regarding our stress test report and we can prove they have lied about it.

This morning, the United States Treasury issued a statement (HERE) claiming they do not yet have the results of the Stress Tests, rebuking our report

How do we know it's a lie?

Because of this from April 10th:
April 10 (Bloomberg) -- The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.

The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.

How can you be ordered not to release something you don't have?

Since that was published on the 10th of April, we therefore know that the results exist and Treasury, the banks involved and The Fed have them, as The Fed was concerned that some banks might try to use them (perhaps in a misleading fashion) during their first quarter conference calls and earnings releases.

Sorry guys, but whether the Turner Radio Network has the real results or not is no longer material. What's material is the claim that Treasury doesn't have them, since they told the banks on the 10th not to release them, and you can't release what you don't have.

The problem with lying is that eventually you forget your previous lies and thus get caught when you contradict yourself.

Derivatives: A $700+ Trillion Bubble Waiting to Burst
In the past three years, while banks all over the world and Wall Street were imploding, while some $40-$50 trillion of capital was being destroyed in global stock markets, one financial market kept growing. That market is the financial derivatives market. According to the Bank for International Settlements [BIS], the global Over the Counter [OTC] derivatives market has grown almost 65% from $414.8 trillion in December, 2006 to $683.7 trillion in June of 2008. On the BIS’s own website, there are no updated figures for the notional derivatives market since June 2008, so we can likely assume, with some margin of safety, that this market has now grown to more than $700 trillion.

Comparatively speaking, the total market cap of all major global stock markets is approximately $30 trillion. Before I discuss how financial products could grow more than 65% during a time period when financial companies were imploding all over the world, let’s review the definition of a derivative, because this will explain how this market of financial products keeps becoming more valuable at a time when the value of many capital assets are sinking like a rock in an ocean.
According to Wikipedia:
Derivatives are financial contracts, or financial instruments, whose values are derived from the value of something else (known as the underlying). The underlying value on which a derivative is based can be an asset (e.g., commodities, equities (stocks), residential mortgages, commercial real estate, loans, bonds), an index (e.g., interest rates, exchange rates, stock market indices, consumer price index [CPI] — see inflation derivatives), weather conditions, or other items. Credit derivatives are based on loans, bonds or other forms of credit. The main types of derivatives are forwards, futures, options, and swaps.
Because the value of a derivative is contingent on the value of the underlying, the notional value of derivatives is recorded off the balance sheet of an institution, although the market value of derivatives is recorded on the balance sheet. Over-the-counter [OTC] derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds…Because OTC derivatives are not traded on an exchange, there is no central counterparty. Therefore, they are subject to counterparty risk, like an ordinary contract, since each counterparty relies on the other to perform.

There are two key phrases to note in the above explanation of the financial derivatives markets-
  1. The notional value of derivatives is recorded OFF the balance sheet of an institution, although the market value of derivatives is recorded ON the balance sheet; and
  2. OTC derivatives are not traded on an exchange, there is no central counterparty. Therefore, they are subject to counterparty risk, like an ordinary contract, since each counterparty relies on the other to perform.

As I’ve noted before, the $700 trillion global derivatives market is the notional value of this market, not the market value of these derivatives. The Bank for International Settlements compiles the notional value of this market worldwide from reported figures by Central Banks of the G10 countries and Switzerland. Thus, if the off-balance sheet assets of major international banks are growing so rapidly in the form of their notional values of their held financial derivative products, how can so many of these banks be in trouble? The answer, quite simply, is that the market value of these derivatives is nowhere near the notional values of these derivatives maintained and reported by these banks, and that the global derivatives market is in serious trouble.

Because derivative products are subject to counterparty risks as well, this means that the failure of one major financial institution could cause the evaporation of assets for many other financial institutions that have derivative products with exposure to that one financial institution. In other words, when the notional values of a good percent of these financial derivative products start evaporating into thin air, and they will, it will have a negative domino effect on the balance sheet of not just one major financial institution, but many. Of course, when FASB suspended mark-to-market accounting rules recently, major international banks were allowed to re-value some of their derivative products closer to their notional value on their books to pad their balance sheets.

Due to this change in accounting law, I can almost guarantee you that before market open Friday, Citigroup will announce better than expected financial results as they carried huge amounts of illiquid mortgages and financial derivatives on their balance sheets. [Editor's note: Article was written prior to earnings announcement on 4/17/09] Though many people argue that only the market value of these derivatives, and not their notional values, is ultimately important, this would have only been valid if FASB hadn’t suspended mark-to-market accounting rules. The types of derivative products most likely to continue to blow up are Credit Default Swaps [CDS], and indeed, it was AIG’s exposure to Credit Default Swaps that caused it to collapse.

In reality, the market value of financial derivatives is only a fraction of its $700 trillion notional value; however the reality is that the potential losses from bad Credit Default Swaps can also be much more than their notional value. For example, consider a scenario where Company ABC underwrites a CDS in which they will receive $100,000 of payments from Company X in return for guaranteeing a $1,000,000 bond issued by Company Z. If all goes well, and the bond performs, then company ABC makes $100,000 in profit. However, if company Z fails, then Company ABC may now have to pay Company X $1,000,000.

This is a scenario in which the losses from financial derivative products can be very real and very large. Though many analysts harp on the fact that the $700+ trillion notional figure of the derivative market is not real, it is not realistic either to only consider the much smaller market value of these derivatives as the above example illustrates. Since it is now likely that the balance sheets of many financial institutions have been quickly "nursed back to health" by returning the book value of OTC financial derivative products to some fantasyland notional value versus their true market value, the collapse of the notional value of the $700+ trillion derivative market will indeed have future devastating consequences for global economies.

Congress: Financial Amateurs at Work
Last month, Representative John Shimkus spoke out against regulating carbon dioxide emissions on the grounds that carbon dioxide is plant food. "So if we decrease the use of carbon dioxide, are we not taking away plant food from the atmosphere?" Shimkus is on the House Subcommittee on Energy and Environment, which means he has a vote on these issues. In the wake of a financial and economic crisis of at least generational magnitude, our government will be rewriting the rules of the financial industry. And "our government" includes not just the pedigreed scholars in the executive branch (Larry Summers, Christina Romer, Austan Goolsbee, etc.), but Congressional representatives like John Shimkus - "like" in the sense that they were selected for their jobs, and for their committee seats, in exactly the same way that Shimkus ended up discussing the crucial role of fossil fuels in sustaining plant life on this planet. And when it comes to legislation, Summers, Romer, and Goolsbee have exactly zero votes between them; Shimkus has one.

Planet Money had an interesting interview a while back with John Campbell, one of those people on the House Financial Services Committee. Campbell reminded me of a college student who’s about to take a really hard math class, and knows he isn’t a math whiz, but is fairly confident that if he studies hard he can probably figure out enough to do a decent job.
I’m not sure even in my own mind - if I were king - I’m not sure what I would do at this point and I don’t think I’m alone in that viewpoint. This stuff is not easy; there are a number of different alternatives, a number of different thoughts on how to do it. . . .

One of the debates . . . is if it’s too big to fail, can it be regulated enough that it won’t fail. Maybe. I’m not sure. . . . To me, it’s an intellectual exercise, too, which I find very fascinating, and it’s a problem-solving exercise, which I’ve always liked to do . . . I was in business. I was essentially a startup and turnaround guy. I went into businesses that were in trouble and tried to figure out how to turn them around. And so right now we now have an economy in trouble, and this is a little bit the same sort of thing on a much bigger scale. [Laughter.]

The first time I heard that interview, I was terrified. Now I don’t mean to be hard on Campbell. Few people sound as smart on a microphone as they do with the benefit of reflection and the backspace key (the writer’s best friend), and to some extent he’s just saying he has an open mind, which is a good thing. I didn’t find Campbell particularly insightful, or particularly dumb. He just seemed like a normal, well-meaning, earnest guy. But on reflection, maybe that’s the way it should be. When it comes to our representatives, the point of our particular kind of democratic system isn’t to select for expertise, or intelligence, or ability to understand policy issues. If it were, we should all be profoundly depressed, because it has obviously failed. The point is to ensure accountability, which means that the people making decisions have to answer to someone.

What alternative is there for redesigning our financial system? Imagine you instead entrusted the job to some committee of professional economists from Harvard, MIT, and all those other fancy places. How would you decide who would be on the committee? And do you really want a bunch of economists? Some people would want to include people from Wall Street; others would want to include people from other disciplines, like psychology and political science and history; others would want to include people from Main Street. Any group you managed to convene would be assaulted with charges of bias. And anyone who didn’t like the outcome would claim he wasn’t bound by its ultimate decisions. Expert commissions have to have their work approved by Congress before it becomes law, because Congress, for all its imperfections, is the tool we’ve got for ensuring accountability and thereby creating political legitimacy. Which brings us back to John Campbell.

First, Congressmen do have staffers, many of whom are very knowledgeable about their areas of expertise, particularly when you get to the committee chairmen. They are getting all sorts of intellectually reputable input - from the executive department, from hearings, from think tanks, from the newspapers, and maybe even from the Internet. They are also getting input from their constituents, who presumably are representing their own legitimate interests. (Let’s pretend we don’t have problems of false consciousness for a moment so I can avoid a huge tangent.) At the same time, however, they are also getting input from lobbyists and major campaign contributors. Ideally, we want them to make decisions that are in the best interests of their constituents and the country as a whole (probably in that order).

Ultimately, I think this means two things. First, the policy discourse - even when it deals with something complex like systemic financial regulation - has to be conducted in terms that a non-specialist Congressman can understand. Second, the process by which Congressmen gather information and make decisions has to be as transparent as possible. A policy debate conducted in the open, where the public understands the issues at stake and understands who is voting for which position and why, should be one where it is harder to reward major donors and special interests. For the opposite, we need look no further than the Commodity Futures Modernization Act of 2000 - passed, unread by anyone except the lobbyists who drafted it, in the dying moments of the Clinton administration.

And that bill was even sponsored by Phil Gramm, a onetime economics professor. This is how I learned to live with John Campbell. This isn’t particularly insightful to anyone who’s thought about representative democracy, and I’m sure some of our readers will find it painfully naive. But I like to think that maybe there are people on the House Financial Services Committee who are secretly not so sure about the difference between preferred and common stock, and maybe they will read Financial Services for Beginners, and maybe that will help them understand what’s at stake so they can make an informed decision rather than just voting the way the lobbyists want them to vote.

Treasury to provide nearly $30 billion in funds to AIG
American International Group on Monday said it's reached a pact with the U.S. Treasury to swap classes of preferred shares in a deal that could give it access to nearly $30 billion in funds in return for limitations on lobbying and compensation. AIG, in a filing to the Securities and Exchange Commission, said that it's reached a deal with the U.S. Treasury to swap different classes of preferred stock, which will restrict AIG's ability to repurchase capital stock and requires AIG to continue to maintain policies limiting corporate expenses, lobbying activities and executive compensation.

The Treasury Department has committed for five years to provide up to $29.84 billion in immediately-available funds so long as AIG doesn't file for Chapter 11 bankruptcy protection and that the U.S. Treasury holds more than 50% of the voting power. In another filing, AIG announced that its credit pact with the New York Fed was amended. The changes remove the minimum 3.5% LIBOR rate among other changes. Last week AIG announced the sale of its U.S. car insurance group to Zurich Financial for $1.5 billion in cash and $400 million of notes as it continues to sell off businesses.

U.S. May Convert Banks’ Bailouts to Equity Share
President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials. In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock. Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.

While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks. The Treasury has already negotiated this kind of conversion with Citigroup and has said it would consider doing the same with other banks, as needed. But now the administration seems convinced that this maneuver can be used to make up for any shortfall in capital that the big banks confront in the near term. Each conversion of this type would force the administration to decide how to handle its considerable voting rights on a bank’s board.

Taxpayers would also be taking on more risk, because there is no way to know what the common shares might be worth when it comes time for the government to sell them. Treasury officials estimate that they will have about $135 billion left after they follow through on all the loans that have already been announced. But the nation’s banks are believed to need far more than that to maintain enough capital to absorb all their losses from soured mortgages and other loan defaults. In his budget proposal for next year, Mr. Obama included $250 billion in additional spending to prop up the financial system. Because of the way the government accounts for such spending, the budget actually indicated that Mr. Obama might ask Congress for as much as $750 billion.

The most immediate expense will come in the next several weeks, when federal bank regulators complete "stress tests" on the nation’s 19 biggest banks. The tests are expected to show that at least several major institutions, probably including Bank of America, need to increase their capital cushions by billions of dollars each. The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than $100 billion. The White House chief of staff, Rahm Emanuel, alluded to the strategy on Sunday in an interview on the ABC program "This Week." Mr. Emanuel asserted that the government had enough money to shore up the 19 banks without asking for more.

"We believe we have those resources available in the government as the final backstop to make sure that the 19 are financially viable and effective," Mr. Emanuel said. "If they need capital, we have that capacity." If that calculation is correct, Mr. Obama would gain important political maneuvering room because Democratic leaders in Congress have warned that they cannot possibly muster enough votes any time soon in support of spending more money to bail out some of the same financial institutions whose aggressive lending precipitated the financial crisis. The administration said in January that it would alter its arrangement with Citigroup by converting up to $25 billion of preferred stock, which is like a loan, to common stock, which represents equity.

After the conversion, the Treasury would end up with about 36 percent of Citigroup’s common shares, which come with full voting rights. That would make the government Citigroup’s biggest shareholder, effectively nudging the government one step closer to nationalizing a major bank. Nationalization, or even just the hint of nationalization, is a politically explosive step that White House and Treasury officials have fought hard to avoid. Administration officials acknowledged that they might still have to ask Congress for extra money. Beyond the 19 big banks, which are defined as those with more than $100 billion in assets, the Treasury has also injected capital into hundreds of regional and community banks and may need to provide more money before the financial crisis is over.

Treasury officials say they have more money left in the rescue fund than might be apparent. Officials estimate that the fund will have about $134.5 billion left after the Treasury completes its $100 billion plan to buy toxic assets from banks and after it uses $50 billion to help homeowners avoid foreclosure. In practice, the toxic-asset programs are not expected to start for another few months, and it could be more than a year before the Treasury uses up the entire $100 billion. Likewise, it will be at least a year before the Treasury uses up all the money budgeted for homeowners. But the biggest way to stretch funds could be to convert preferred shares to common stock, a strategy that the government seems prepared to use on a case-by-case basis.

Ever since the Treasury agreed to restructure Citigroup’s loans, officials have made it clear that other banks could follow suit and convert their government loans to voting shares of common stock as well. In the stress tests now under way, regulators are examining whether the big banks would have enough capital to withstand an economic downturn in which unemployment climbs to 10 percent and housing prices fall much further than they already have. As their yardstick, regulators are expected to examine a measure of bank capital called "tangible common equity." By that measure of capital, every dollar a bank converts from preferred to common shares becomes an additional dollar of capital. The 19 big banks have received more than $140 billion from the Treasury’s financial rescue fund, and all of that has been in exchange for nonvoting preferred shares that pay an annual interest rate of about 5 percent.

If all the banks that are found to have a capital shortfall fill that gap by converting their shares, rather than by obtaining more cash, the Treasury could stretch its dwindling rescue fund by more than $100 billion. The Treasury would also become a major shareholder, and perhaps even the controlling shareholder, in some financial institutions. That could lead to increasingly difficult conflicts of interest for the government, as policy makers juggle broad economic objectives with the narrower responsibility to maximize the value of their bank shares on behalf of taxpayers. Those are exactly the kinds of conflicts that Treasury and Fed officials were trying to avoid when they first began injecting capital into banks last fall.

US to put conditions on Tarp repayment
Strong banks will be allowed to repay bail-out funds they received from the US government but only if such a move passes a test to determine whether it is in the national economic interest, a senior administration official has told the Financial Times. "Our general objective is going to be what is good for the system," the senior official said. "We want the system to have enough capital." His comments come as Goldman Sachs, JPMorgan Chase and other relatively strong banks are pressing to be allowed to repay their bail-out funds. On Sunday, Lawrence Summers, President Barack Obama’s top economic adviser, told NBC’s Meet the Press that repayments could eventually help the government provide further resources to help the sector. Such a move could also allow healthier institutions to differentiate themselves from weaker banks and free them from constraints on executive pay, and other activities, that come with bail-out money.

"Not surprisingly different banks are in different situations; they are going need different levels of assistance of taxpayers," Mr Obama told a press conference at a summit in Trinidad on Sunday, while promising: "I’m not going to simply put taxpayer money into a black hole." The official, meanwhile, said banks that had plenty of capital and had demonstrated an ability to raise fresh capital from the market should in principle be able to repay government funds. But the judgment would be made in the context of the wider economic interest. He said the government had three basic tests. It needed first to "make sure the system is stable". Second, to not create "incentives for more deleveraging which would deepen the recession". Third, to make sure the system had enough capital to "provide credit to support the recovery".

The official said former Treasury Secretary Hank Paulson was right to treat all the banks the same way in late 2008 at the peak of the crisis but it was now necessary to differentiate more between institutions. Stronger ones should be encouraged to raise more capital, while the government would target its interventions to support weaker ones. "What we want is for the differentiation to be more based on knowledge rather than some big uncertainty." He said the bank stress tests reaching completion would provide that basic information. The debate over the respective funding needs of stronger and weaker banks comes as the Obama administration confronts deep political resistance to any further authorisation of federal funds to bail out the sector. On Sunday, Rahm Emanuel, Mr Obama’s chief of staff, told ABC that while some of the country’s biggest banks "are going to need resources", the administration would not need to obtain more funding from Congress.

For Fed, Big Test Will Be When to Turn Off the Money Pump
During the past eight months, the Federal Reserve has pumped more than $800 billion of cash into the nation's financial system, an action that in normal times could lead to an ugly inflation surge. Fed Chairman Ben Bernanke is confident that isn't going to happen this time around. To quiet skeptics and reassure markets, he and his lieutenants have been going out of their way the past few days to explain why inflation isn't in the outlook and to lay out the tools they have in hand to fight it. The focus on inflation isn't just coming from the Fed. In a report this month, Goldman Sachs economists sought to knock down what they described as a wave of "inflation hype" they had been hearing from clients and bond-market traders.

The focus on the issue comes with the Fed's next policy meeting, set for next week. With so many programs already in train, the central bank looks unlikely to take dramatic new actions at the meeting. Assessing signs of improvement in the economy, contingency planning and deliberations on long-term exit strategies are likely to be important parts of the discussions. Inflation might seem like a distant worry today. Last week, the Labor Department reported that consumer prices in March fell year over year for the first time in 54 years. Rising unemployment and idle factory floors mean businesses have little incentive or capacity to raise wages or the prices they charge customers. There's a risk, in fact, that if the economy weakens much more, the opposite of inflation -- deflation -- could become a serious threat.

That's why the Fed's goal for now is to get inflation higher, not lower. It has effectively been printing money as part of its rescue efforts. When it buys mortgage-backed securities or makes commercial-paper loans, as it has been doing, it electronically credits its counterparty banks with cash in return, which pumps new cash into the financial system. At some point when the economy recovers from recession, the Fed is going to have to withdraw this money and raise interest rates. Because the Fed is still ramping up many of its programs, the amount of money it will have to withdraw some day is sure to be even higher than today's astronomic levels. If the Fed is too slow to mop up, the economy could theoretically overheat and lead to an inflation comeback. If investors don't believe the Fed is up to the task, long-term interest rates could rise in advance of such an event, undermining a recovery before it even happens.

"We are thinking carefully about these issues," Mr. Bernanke said in a speech in Atlanta last week. "Indeed, they have occupied a significant portion of recent [Federal Open Market Committee] meetings." One worry is that the Fed has pumped so much money into the economy, and done it in so many unconventional ways, that it is going to be operationally hard to reverse course when the time comes. "We have a number of tools we can use to absorb [cash in the financial system] and raise interest rates when the time comes," Fed Vice Chairman Donald Kohn said in a speech over the weekend. One part of the Fed's strategy is that many of its programs were designed to run off naturally as the markets they are meant to assist improve. For example, its holdings of short-term commercial paper have declined to $250 billion from $350 billion in January as the private market has come back to life.

Programs like the Fed's commercial-paper-lending effort were designed to have unattractive terms as markets heal, giving investors an incentive to wean themselves off the central bank. The central bank also could someday sell some of its longer-term holdings, such as Treasury bonds or mortgage-backed securities. The act would pull cash out of the financial system and push up interest rates in those markets, which could help the Fed temper growth if the economy begins to overheat. It also could lend its holdings of long-term securities to private investors and take cash in return -- something known as a "reverse repo" -- which would pull cash out of the financial system. It has other approaches for both draining cash from the financial system and pushing up interest rates as needed. It pays banks interest on the cash they keep on reserve at the central bank. The Fed could push up those rates -- now near zero -- when the time is right. That would give banks a disincentive to lend the money in other ways. Getting the plumbing right is part of the challenge. A bigger challenge is deciding when to turn the water off.

Right now the moment looks far off. Despite recent signs of improvement in consumer spending, housing and stock markets, the economy is still burdened by slack. The unemployment rate, at 8.5% in April, was three percentage points above its 20-year average. It could take months or even years of above-trend economic growth to get the jobless rate back to its longer-run trend. That gives the Fed "oodles of time to unwind its balance sheet," says Goldman Sachs. But Paul Kasriel, chief economist of Northern Trust of Chicago, isn't so sure the central bank will get it right. He's not worried about what the Fed has done to date. He's worried the Fed will take too long to make the decision to unwind it. "The Fed is going to want to make sure that the economy has started on a sustained growth path, and of course there will be a lot of uncertainty about that," Mr. Kasriel says. The real risk, he says, is that the Fed overstays its accommodative policies, "for fear of choking off a recovery." By 2011, despite all the Fed's efforts to prepare itself, Mr. Kasriel sees inflation on the rise

Bank of America profit rises, credit quality sours
Bank of America Corp on Monday disappointed investors by reporting a big increase in troubled loans, even as its purchase of Merrill Lynch & Co helped first-quarter profit more than double. While results topped analysts' forecasts, they were bolstered by one-time events, including a $1.9 billion gain from selling shares of China Construction Bank Corp and $2.2 billion of gains tied to widening credit spreads. Nonperforming assets, meanwhile, totaled $25.74 billion, up 41 percent from year-end. Shares of Bank of America fell 5.7 percent to $10.00 in premarket trading. The results are unlikely to stem calls for Chief Executive Kenneth Lewis to be ousted or to give up the post of chairman of the largest U.S. bank, which has taken $45 billion of federal bailout money.

"I don't see anything that makes me think all of a sudden people are going to take the pressure off Lewis," said Walter Todd, a portfolio manager at Greenwood Capital Associates LLC, which invests $650 million and owns Bank of America shares. "The biggest question I have is, what is going on with these nonperforming assets?" Net income applicable to common shareholders of Charlotte, North Carolina-based Bank of America rose to $2.81 billion, or 44 cents per share, from $1.02 billion, or 23 cents, a year earlier. Net revenue more than doubled to $35.76 billion. Excluding items, profit was 17 cents per share, according to Reuters Estimates, compared with analysts' average forecast of 4 cents. Before the impact of preferred stock dividends, net income more than tripled to $4.25 billion from $1.21 billion.

Lewis faces intense pressure over the Merrill purchase, which shareholders approved before learning of big losses at Merrill that would prompt a government bailout. Bank of America has also infuriated regulators over its handling of $3.62 billion of bonuses awarded to Merrill workers, and the bank's share price has fallen by more than two-thirds since the merger was announced in September. The bank also faces a slew of investor lawsuits over its purchases of Merrill and the mortgage lender Countrywide Financial Corp.

Credit quality deteriorated broadly as the economy weakened, housing prices fell and unemployment rose. Bank of America set aside $13.38 billion for credit losses in the quarter, up from the fourth quarter's $8.54 billion. Net charge-offs totaled $6.94 billion. The bank's credit card business lost $1.77 billion in the quarter as the rate of managed credit card net losses rose to 8.62 percent from 7.16 percent at year-end. "We continue to face extremely difficult challenges, primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment," Lewis said.

Mortgage and home equity loan production rose 79 percent from the fourth quarter to $89.26 billion. But this suggests a loss of market share to Wells Fargo & Co despite the acquisition of Countrywide. Wells Fargo reported more than $100 billion of mortgage loans in the first quarter. Profit in the investment bank totaled $2.37 billion, compared with a year-earlier $991 million loss, fueled primarily by $4.92 billion of trading profits. Wealth management profit more than doubled to $510 million. Lewis previously said Bank of America was profitable in January and February, causing analysts to boost their forecasts. In the October-to-December period Bank of America had its first quarterly loss in 17 years.

Investors Air Discontent With Bank of America
For more than 70 years, through good times and bad, the Eliasberg family stood by their bank. Their tiny lender grew up to become part of what is now Bank of America — tying the family’s fortunes to that of the nation’s largest bank. But now Richard Eliasberg, whose father helped found Baltimore National Bank, in 1933, says he is losing faith in Bank of America, and in its embattled leader, Kenneth D. Lewis. Like a growing number of shareholders, Mr. Eliasberg is alarmed by the daunting challenges confronting Bank of America. Mr. Lewis, the chairman and chief executive, is under growing pressure, both from within and without, to turn things around fast.

"For the first time, I’m disappointed," said Mr. Eliasberg, who owns a substantial number of Bank of America shares for an individual, though he has sold a third of his shares in the last year. Anxious shareholders are likely to get a bit of good news on Monday, when Bank of America is expected to report solid first-quarter results. Across much of the banking industry, tentative signs of recovery are appearing, notably in mortgage lending and trading. But Mr. Lewis, who built Bank of America into an industry behemoth by making a string of acquisitions, still has much to prove. Many of his investors are growing restive, and they are unlikely to be quieted by one quarter’s results.

Indeed, Mr. Lewis seems to be losing the support of an important constituency: Scores of longtime shareholders like Mr. Eliasberg, who have ties to Bank of America through businesses the bank and its predecessor acquired over the decades. Of particular concern is Mr. Lewis’s latest conquest, Merrill Lynch. Bank of America’s shareholders signed off on the acquisition in early December, only to discover that gaping losses at Merrill would force Bank of America to seek assistance from the government for a second time. Some investors are suing, claiming that Mr. Lewis failed to fully disclose the risks of the deal. Many worry that Bank of America’s board is too cozy with Mr. Lewis. Some are campaigning to push him out.

On Friday, two investor advisory firms issued reports recommending that shareholders vote to remove Mr. Lewis from the board. The bank’s proxy is in circulation in anticipation of what is likely to be a contentious annual meeting next week on April 29 in Charlotte, N.C., where Bank of America is based. The reports, issued by the RiskMetrics Group and Glass, Lewis and Company, carry a lot of weight because some institutional shareholders follow the groups’ recommendations without exception. A Bank of America spokesman said Friday that the company was disappointed with the conclusions of the reports, including an initiative to strip Mr. Lewis of his chairmanship and another that would unseat him altogether. The spokesman also said that the bank believed that it had acted appropriately in its disclosures about the merger with Merrill.

Angry shareholders are not the only problem confronting Mr. Lewis. Bank of America is also awaiting the results of "stress tests" that federal regulators are administering to large banks. While Mr. Lewis has said his bank has sufficient capital, many analysts believe it will need to raise money. The bank also faces an inquiry into the Merrill merger by the New York attorney general. Inside Bank of America, there is resentment over the Merrill acquisition. Bank employees are also among the largest voices among individual stockholders. Still, outside shareholders have been the most vocal. The Finger family, based in Texas, set up a Web site campaign and broadcast television commercials urging shareholders to vote against Mr. Lewis. The family sold its Houston-based bank, Charter Bancshares, to Bank of America’s predecessor in 1996, and say they now control about 1.1 million shares.

The bank has tried to engage the Fingers, sending executives and a board member by corporate jet to visit the family three times in Texas. The Fingers’ story line is familiar to others who became part of the Bank of America family tree. In the last few decades, the bank was cobbled together out of more than 50 financial companies, mostly local banks. The oldest was Massachusetts Bank, founded in 1784, which was absorbed through the company’s acquisition of FleetBoston Financial. Another family, the Spanglers, controlled about 32 million shares as of spring of 2008, many of which were acquired when they sold their Bank of North Carolina to Bank of America’s predecessor, NationsBank, in the early 1980s. Assuming the family did not sell their stock, they would have lost more than $1 billion in the last year.

The Spanglers have not actively expressed a public opinion on the state of the company, though one member of the family stepped down from the bank’s board because she had reached retirement age. The acquisitions were not only on the Bank of America side. Many of the companies that the bank acquired had built themselves up over the years in a similar fashion. Tom Sharkey Jr., for instance, owns shares of the bank because his family sold its 100-year-old insurance business to FleetBoston in 2001, and then Fleet was acquired by Bank of America in 2004. Now, Mr. Sharkey says, he and several family members in New Jersey have lost significant wealth because of the bank’s "catastrophically bad mistakes."

Some people, of course, support Mr. Lewis. The CtW Investment Group, which represents pension funds, is leading a campaign against Mr. Lewis, but the organization has received e-mail messages from people who believe the current management is good, according to a spokesman for the group. "Please give Ken Lewis a chance," wrote Luis F. Valenzuela, a shareholder who supported the bank in one of the e-mail messages provided by CtW to The New York Times. "He will prove you guys wrong. Don’t make the mistake of looking dumb." Mr. Valenzuela said in an e-mail message that he was a student in Arizona and that the bank’s past dividend helped him afford his education. Another person, Ivan Rudnitsky, wrote to CtW to say that the bank’s combination with Merrill has strong long-term value, which is the argument that the bank’s management gives for its actions. Mr. Rudnitsky did not reply to an e-mail inquiry.

Charles Elson, a professor at the University of Delaware, was given most of his tens of thousands of Bank of America shares by his father more than 30 years ago. Back then, the stock he owned was in Citizens & Southern Bank of Georgia, based in Atlanta, where he grew up. "It was always a strong bank and a strong investment — something we’d never sell," said Mr. Elson, whose father was on the board of the Atlanta bank before it was taken over in 1991 by a predecessor of Bank of America. Mr. Elson, who teaches courses on corporate governance, has been concerned about the structure of Bank of America’s board since the late 1990s. He said he had once contacted the company about his concerns — to no avail. "I knew it was there, the problems with corporate governance," Mr. Elson said. "The biggest mistake I made was I did not sell. Put it this way: had I known this 40 years ago, I would have invested in something else."

Frustrations Rise Over Stimulus
Uncertainty about the pace of spending from the government's $787 billion stimulus package, and about new regulations, could contribute to a broader slowdown in business spending and hinder a recovery, some executives and lobbyists say. Confusion over how to go after money allocated to various stimulus programs appears to be clouding corporate efforts to plan ahead, which were already complicated by the economic slump. The Obama administration's rules restricting contacts with officials running various elements of the stimulus effort are adding to the frustration for some businesses, and some business advocates are considering challenging the antilobbying rules. Along the East Coast, some contractors have begun to worry that not enough highway money will make it out the gate by the time paving season ends in November. "They should have pushed this thing ahead quicker," says Robert Alger, chief executive at Lane Construction Corp., a Cheshire, Conn., contractor that works on transportation projects in 15 states.

An administration spokeswoman said that as of last week, nearly all the $48 billion in transportation money has been announced as available to states, a development that tends to speed the bidding and contracting process. The stimulus package included about $19 billion to encourage the use of electronic medical records -- a potential boon for information-technology companies like Perot Systems, Plano, Texas. But it remains unclear exactly how Perot's clients, such as medical practices, will qualify to receive government reimbursements starting in 2011, says Harry Greenspun, chief medical officer for Perot. "It's foggy," he says. "People can make out shapes in the distance and know what they are, but the details are not out." The administration spokeswoman says the health-care-technology portion of the stimulus is moving more slowly because of its newness and complexity.

Liz Oxhorn, a press secretary for Vice President Joseph Biden who handles economic-stimulus questions, says that just over 60 days after the stimulus bill's passage, "the funds are already at work in communities across the country as highway projects break ground and families start to collect the Making Work Pay tax credit." When the stimulus bill was passed, she says, "we set a goal of putting 70% of the funds to work by the summer of 2010, and we are on track to beat that goal." While both the housing and banking sectors show signs of stabilizing, the credit crunch persists, stifling business investment and fueling job cuts. More leaders of the nation's biggest corporations expect lower sales, capital spending, and employment over the next six months than at any time in the past seven years, according a first-quarter survey released last week by the Business Roundtable, which represents chief executives of the nation's biggest publicly traded companies.

Sixty-seven percent of the 100 CEOs contacted in late March expect sales to decline over the next six months, according to the survey. Executives who expect employment to decline further reached 71%. Ivan Seidenberg, chairman and chief executive of telecommunications provider Verizon Communications Inc., said in a recent interview that the Obama administration is moving slowly to dispense stimulus funds because there are too many policy makers in Congress, the White House and various agencies with influence over the process. "They have too many Indian chiefs trying to micromanage how the money is spent," he said. The emerging renewable-fuels industry is waiting to see whether the government will institute a cap-and-trade system for carbon emissions, which would create a market for selling carbon-emissions credits. Verenium Corp. wants to build a string of facilities across the Southeast to turn fast-growing, inedible grasses into ethanol. The process would generate carbon credits, which would have value under such a system, says Verenium Chief Executive Carlos Riva.

"Once it is a definable, quantifiable revenue stream, then we'll get credit from the lenders and others, and it will certainly help in financing these projects," he says. "Right now, we don't get any credit for it." In the past, corporations needing information or facing bureaucratic snags could rely on their Washington offices or lobbyists to get answers. Some business leaders complain that the Obama administration has placed limits on corporations' access to the officials best able to answer such questions. Guidelines issued on March 20 prohibit government officials from talking with federally registered lobbyists about details of the stimulus spending, except on issues of broad policy or logistics. Some businesses subject to the lobbying ban are considering legal challenges, says Kenneth Gross, Washington-based partner at Skadden, Arps, Slate, Meagher & Flom, who advises corporations seeking stimulus money. "They are apoplectic -- this slows business decision making and gums up the works," he says. The White House disputes that. "Lobbyists can communicate about specific projects in writing, and about policy issues orally," says White House spokesman Ben LaBolt. The White House says it will review the policy and possibly adjust it within 60 days.

Bank Lending Keeps Dropping
Lending at the biggest U.S. banks has fallen more sharply than realized, despite government efforts to pump billions of dollars into the financial sector. According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program. The total dollar amount of new loans declined in three of the four months the government has reported this data. All but three of the 19 largest TARP recipients with comparable data originated fewer loans in February than they did at the time they received federal infusions. The Journal's analysis paints a starker picture of the lending environment than the monthly snapshots released by the government and is a reminder of the severity of the credit contraction. One reason for the disparity: The Treasury crunches the data in a way that some experts say understates the lending decline.

The Obama administration is scrambling to defuse a backlash surrounding the bank bailout. Political disquiet over banks' perceived lack of lending, as well as their spending on bonuses and perks, has provoked skepticism about the administration's ability to revitalize the banking system. Any evidence that banks are lending less could reinforce criticism of the program, and put pressure on plans crafted by Treasury to unfreeze credit markets and support bank balance sheets. With bailout funds dwindling, one option the Treasury might pursue is to turn loans into common equity. Speaking in Trinidad on Sunday, President Barack Obama said that he'll require "accountability" for the U.S. banks receiving bailout money, and that he would not put taxpayer money into a "black hole."

In a news release Wednesday unveiling the February lending numbers, the Treasury touted "the relatively steady overall lending levels." Without the capital injections, lending would have suffered a far-steeper drop, it said. "Within this challenging environment, the February survey shows that banks extended only a slightly smaller total volume of loan originations in February than January." The Treasury analyzed the monthly percentage change in the amount of new loans at each of the top 21 recipients of taxpayer funds. It then calculated the median change in lending at the 21 banks. (The median is the figure that falls directly in the middle of a string of numbers.) By that measure, the Treasury said, lending dropped 2.2% in February compared with the prior month.

Using the same raw data, the Journal's analysis focused on the total amount of new loans by the 21 banks, a more comprehensive measure. In February, that total fell 4.7% from January, more than double the government's estimate of the decline in the median. The Treasury hasn't released its own tally of the October to February decline. A Treasury spokesman said that "no one metric can accurately capture lending activity across the nation. That's why we provide the data set in full." He said that "the declining levels of lending obviously reflect current economic conditions. But Treasury firmly believes that lending levels would be much lower" without the government's capital injections. The level of lending is an important factor in determining how fast the economy will turn around. It's also key for the government in deciding whether to allow individual banks to repay federal funds. If the Treasury believes doing so will diminish the economy's lending capacity, it could take a hard line on repayments.

Banks defend their lending, saying they're eager to issue new loans, refinance existing ones and modify those in danger of default. Complicating their efforts, bank executives say, is a decline in demand among consumers and businesses. The lending data indicate that consumer loans, especially mortgage refinancings, are accounting for an increasing portion of bank lending. In February, nearly half of lending by the 21 banks was to consumers, up from about one-quarter in October. But excluding mortgage refinancings, consumer lending dropped by about one-third between October and February. Commercial lending slumped by about 40% over that period, the data indicates. One factor that may have depressed commercial borrowing is a partial thawing of bond markets, where some big companies raise money instead of borrowing it from banks. About $70 billion of corporate bonds were issued in February, up from $21.4 billion in October, but still only about half the level of last May, according to Thomson Reuters.

The Treasury's monthly snapshot of lending at the top 21 TARP recipients, the only standardized source of data on loan origination, is part of the administration's effort to be more transparent about the myriad bailout programs. According to The Journal's analysis of the Treasury's data, 19 financial institutions made or refinanced a total of $226.3 billion of loans in October. In February that figure had fallen to $174.2 billion. To reach that figure, the Journal made several adjustments to Treasury's data. It excluded American Express Co., which received TARP funds midway between October and February. It also excluded Wells Fargo & Co., which acquired Wachovia Corp. at the end of 2008 and doesn't break out how much of its 2009 lending volumes stem from that purchase. American Express and Wells Fargo were both included in the Journal's separate measurement of lending changes between January and February. PNC Financial Services Group Inc.'s numbers were boosted by its acquisition of National City, but the likely effect on the total is minimal.

Some changes in loan volume may reflect seasonal factors. In February, home-equity loans were a bright spot because consumers like to borrow to remodel ahead of warm weather. The number of student loans fell, which is typical during February. Of the 19 banks, the only ones to originate more loans in February than October were BB&T Corp., a regional bank based in Winston-Salem, N.C.; Wall Street giant Morgan Stanley; and State Street Corp., a Boston-based company that provides financial services mainly to institutions and wealthy individuals. One of the banks showing the biggest lending decline was J.P. Morgan Chase & Co. In October, the New York bank made or refinanced $61.2 billion in loans. That figure declined 35% to $39.7 billion in February. J.P. Morgan executives defend their lending levels. In the first quarter, the bank extended about $150 billion in new credit to consumers and businesses, "despite the fact that loan demand has dropped dramatically," a spokesman said. In March, the spokesman said, J.P. Morgan made $65.5 billion in new loans -- slightly more than it made in October.

The Treasury's conclusion that lending has dropped only modestly is partly the result of its focus on the median monthly change at the top banks, rather than the change in average or total lending. Thus, for the month of February, the Treasury based its report on the 2.2% drop in loan origination at PNC, which fell at the midpoint of the 21 banks that the Treasury surveyed. Statisticians sometimes use median figures to avoid having data distorted by outliers on either end of the spectrum. Treasury officials have been concerned about the month-to-month volatility in the bank data and are still developing how best to present it. Tom Fullerton, an economics professor at the University of Texas at El Paso, defended the use of the median, citing the monthly volatility in bank-lending data. But other experts say the average would provide a more accurate measure lending. Economist David Boyum says using the median does not answer the fundamental question: "What has happened to overall lending?"

Redefining Capitalism After the Fall
The recession will end. No one is marking the calendar, least of all President Obama, but the president is hinting at an audacious ambition as he waits for that inevitable if distant day: a redefining of American capitalism. In a series of comments in recent weeks, Mr. Obama has begun to sketch a vision of where he would like to drive the economy once this crisis is past. His goals include diminishing the consumerism that has long been the main source of growth in the United States, and encouraging more savings and investment. He would redistribute wealth toward the middle class and make the rest of the world less dependent on the American market for its prosperity. And he would seek a consensus recognizing that an activist government is an acceptable and necessary partner for a stable, market-based economy.

"We cannot rebuild this economy on the same pile of sand," he said last week. In beginning to articulate a long-term approach, the president is putting an early stamp on a debate of historic importance — and ideological underpinnings — just getting under way in the United States and around the world. For the better part of half a century after World War II, democratic capitalism built its modern framework against the backdrop of its death match with totalitarian Communism. In the two decades since the fall of the Berlin Wall, the American model of capitalism, largely unchallenged by ideological alternatives and increasingly dominant around the world, drifted toward what conservatives viewed as a more pure form of economic liberty and what liberals came to view as misguided free-market fundamentalism.

But now, as the United States and other nations look for lessons in the wreckage from the excesses of that period, political leaders are confronting uncertainty about what economic structures and values should define capitalism’s next chapter. Even before the current crisis, there were calls to rethink basic assumptions about the economy. Growth during the Bush presidency was slower than in any decade since before World War II, and incomes for most families have been growing slowly for much of the last three decades. Mr. Obama is stepping into the debate characteristically intent on avoiding polarizing labels, and his advisers describe his philosophy in terms of pragmatism rather than ideology.

They said that the president’s approach is based on a belief that recent economic cycles were driven too much by financial engineering; reserved most of the fruits of good times for the wealthy; relied excessively on foreign capital to finance domestic debt; and ultimately gave way to painful busts. Mr. Obama, they said, simply wants a more stable economic model. "It’s a strategy directed at having a somewhat different and healthier expansion than we’ve had in the past, driven by a sense that the expansion is likely to be more secure and its benefits more widely shared," said Lawrence H. Summers, the director of the White House’s National Economic Council. But economic policy is never just technocratic, especially not when times are tough.

Conservative activists whipped up emotional anti-tax, anti-Obama "tea parties" around the country to mark tax-filing day last week, saying the White House was headed down a path of fiscal profligacy that would ultimately require broad tax increases. And the prospect of a Democratic administration pushing the United States to the left is seen by many conservatives as a political rallying cry. Arthur C. Brooks, president of the American Enterprise Institute, the conservative research organization, said of the administration, "They want much more of a European-style social democracy in which people are far less exposed to the vicissitudes of a market economy, and they want to have much easier access to manipulating the private-market economy."

Mr. Brooks said it was "overheated and silly" to suggest that Mr. Obama was leading the United States into socialism, but that even an effort by the administration to "file off the rough edges of capitalism" would no doubt prompt a continued strong backlash from people who object to the direction the president is heading. "Of course conservatives are overstating the case against him because they want to win again, just like the left massively overstated the case against Bush," he said. Those on the left who have criticized Mr. Obama for being too timid in addressing the immediate crisis are similarly concerned that he will miss an opportunity to reshape American capitalism more fundamentally once the economy recovers. And even liberals allied with him suggest that the risk is that his ambition will prove too limited rather than too expansive.

"Again and again, Obamanomics, as well as his instincts in other areas of domestic policy, has been animated by a bold vision of what we need to do but has been quite cautious in practice," said Robert Reich, who was labor secretary under President Bill Clinton and advised Mr. Obama in the campaign. "The benefit is that he can feel his way," Mr. Reich said. "The downside is that none of the initiatives may be quite bold enough to solve the problems at the scale they present themselves." The economic philosophy that Mr. Obama developed during the presidential campaign drew from across the ideological spectrum even as it remained rooted on the center-left.

As that philosophy has been tested in practice through his early months in office, the president has if anything become more comfortable with an occasionally intrusive government as a counterweight to market forces that are now so powerful and fast-moving that they cannot be counted on to be self-correcting when things go wrong. He regularly rebuts conservative criticism on that score by pointing out that it was George W. Bush, just before he left the White House, who put the government in the business of deciding which financial institutions would fail and which would be allowed to survive. Yet if Mr. Obama’s position brings the United States full circle from Ronald Reagan’s nostrum that government is the problem, it also stresses continuity and a commitment to the most basic conservative tenets: the power of markets as an engine of innovation and prosperity, and the necessity of economic growth for improving incomes and living standards.

"There is a vibrancy to our economic model, a durability to our political model and a set of ideals that has sustained us through even the most difficult times," Mr. Obama said on his recent trip to Europe when asked about the decline of the American version of capitalism. He would be willing to use the usual liberal policy tools to redistribute wealth after a recent period in which the gains have gone primarily to a relative few at the top of the income scale. But he would stress personal responsibility rather than entitlement. He would promote trade, but codify the Democratic push of the last 15 years for more labor and environmental protections in trade agreements.

If more activist government is the most controversial aspect of his long-term approach, the most ambitious might be his aspiration to reduce the degree to which the United States is a consumer-driven economy — or at least to develop policies that recognize the likelihood that consumer demand cannot grow at the rates it has been without being accompanied by a growing and destabilizing mountain of debt. "We must lay a new foundation for growth and prosperity — a foundation that will move us from an era of borrow and spend to one where we save and invest, where we consume less at home and send more exports abroad," Mr. Obama said in his economic speech last week.

Embedded in that approach is a far-reaching implication: that the rest of the world should no longer count on the United States to snap up imported goods or run up large trade deficits. It is by no means clear that Mr. Obama has the policy tools needed to bring about that kind of change; we are, after all, fundamentally a consumer society. His advisers point to his support for innovative ways of increasing personal savings. To drive economic growth in the place of debt-fueled consumption, Mr. Obama is banking on the emergence of alternative fuels, pollution-limiting technology, health care technology and other new industries linked to broader policy goals.

But the viability and scale of those opportunities is open to debate. And some of the administration’s own policies suggest that there are limits to Mr. Obama’s willingness to bolster investment in new production capacity at home. His unwillingness so far to confront China aggressively over its currency and trade practices, for examples, leaves many American manufacturers at a disadvantage. Even with the economy and the financial markets showing a few tentative signs of improvement, which may be deceptive, it will be some time before Mr. Obama has the luxury of focusing on the long run. Still, in his first three months in office he has not been reluctant to think big — and there may be no better time to start redirecting an economy as huge and complex as this one than when it is in flux.

Pension-Deals Scrutiny Spreads
A firm affiliated with Hank Morris, the political adviser indicted last month on allegations of extracting improper fees in exchange for investments from New York state's pension fund, helped investment firms secure business in at least one other state, according to people familiar with the matter. Private-equity firms Quadrangle Group and Carlyle Group, whose names have already surfaced in connection with the alleged pay-to-play case involving New York's public pension fund, used the placement firm Searle & Co., with which Mr. Morris was affiliated, to get investments from a government-run fund in New Mexico, according to a spokesman for the New Mexico fund. Neither Quadrangle nor Carlyle has been accused of wrongdoing and both have said they are cooperating with the New York investigation and aren't targets of it. Searle hasn't been accused of wrongdoing.

Separately, Mr. Morris or one of Mr. Morris's associates placed or tried to place other investment firms with government-run funds in California, New Jersey, Connecticut and New York City, according to a person familiar with the matter who declined to name the particular funds. Mr. Morris or his associates collected additional fees from investment firms in cases when they successfully secured those investments, the person said. Mr. Morris's lawyer, William J. Schwartz, has said Mr. Morris is innocent and is fighting the charges, and that there was no fraud and no corruption on Mr. Morris's part. Mr. Schwartz on Sunday declined comment. Placement agents typically perform a variety of client services, such as crafting marketing materials and investor presentations, to help firms win business with pension funds. A Securities and Exchange Commission complaint alleges that between Janaury 2003 and December 2006 Mr. Morris made more than $15 million in "purported placement and finder fees" but was "rarely, if ever, paid for providing legitimate finding or placement services."

The latest developments suggest that the reach of Mr. Morris or his associates extended beyond New York, where he had been chief fund-raiser for the state's former comptroller Alan Hevesi, who oversaw the pension. Mr. Hevesi hasn't been charged with wrongdoing in the matter. Mr. Morris and the former deputy comptroller, David J. Loglisci, were arrested last month and charged in a 123-count state indictment that included money-laundering, enterprise-corruption and bribery charges. Mr. Loglisci's lawyer has called the accusations false. The New York Attorney General's office and the SEC allege that about 20 investment firms made payments in exchange for investments from the $122 billion New York State Common Retirement Fund. The investigation is ongoing. After the Attorney General's office and SEC's charges were filed last month, the New Mexico State Investment Council asked investment firms to disclose if they used a placement firm or other outside broker to get business with the New Mexico fund, according to a council spokesman.

"We want to make sure that there is nothing about these agreements between these funds and their marketing that might be of concern to us," said spokesman Charles Wollman. "We're in an assessment phase right now." Of the firms that have responded, Quadrangle and Carlyle are the only ones that said they used the firm Mr. Morris was affiliated with, Searle, Mr. Wollman said. When the New York investigation began roughly two years ago, Carlyle implemented a policy to not use placement agents to solicit public pension fund business, according to a firm spokesman. Carlyle paid $150,000 to Searle to secure a $20 million investment in a fund from the New Mexico State Investment Council, Mr. Wollman said. Carlyle says it disclosed to New Mexico its relationship with Searle at the time of the investment. Quadrangle also retained Searle as a placement agent to get business with New Mexico, though it did not pay a fee, according to a person familiar with the matter. Quadrangle received a $20 million investment from the New Mexico State Investment Council. Developments regarding the New Mexico fund were earlier reported by Bloomberg.

The New Mexico State Investment Council also suspended Aldus Equity Partners, which advised it on private-equity investments. Aldus, which hasn't been charged in the New York case, was named in court filings as having paid a finder's fee after prompting by Mr. Morris. "The New York case raised concerns and we thought it was appropriate to suspend them until we can determine there's nothing improper," said Mr. Wollman. Earlier this month, Aldus said, "Aldus had no knowledge of any back-dealing or double-representation....If the allegations are true then we were lied to, and the behavior described is totally unacceptable." Aldus in a letter regarding the suspension addressed to an officer of the New Mexico council said the firm has done a "great job" for the council and had "always acted ethically and with the utmost care." It said it would continue to cooperate with the council's investigation.

In California, Another Deficit Looms
California's fiscal woes aren't over yet.Only months after state lawmakers in February had to raise taxes and slash spending to close a $42 billion budget deficit, legislators in May will begin work on filling a new multibillion-dollar shortfall. A state agency projects an additional $8 billion budget gap for the fiscal year that ends in July 2010, a result of declining tax revenue amid the recession. The figure could grow if revenue plummets further. And it could get worse yet if voters defeat a series of ballot measures on May 19 aimed at closing the earlier deficit. That is a possibility, as a March 25 poll by the nonpartisan Public Policy Institute of California shows 50% of Californians against Proposition 1C, which would allow the state to borrow $5 billion against future lottery revenue, versus 37% who support it.

The proposition's backers, who include Republican Gov. Arnold Schwarzenegger and legislative leaders, said they expect increased support for the measures as they begin campaigning. "As they step back and we get information to them, they'll say, 'You know what, this makes sense,'" said Republican Mike Villines, the Assembly's minority leader. About $2 billion of the new deficit can be wiped out by using cash reserves that were built into the plan approved in February. Legislators are waiting until May 28, when the governor is scheduled to release his revised budget, to get into specifics on how they will close the rest of the gap. Mr. Villines said one option won't be on the table -- more tax increases. The recent 15-week budget impasse, which prompted officials to delay tax-refund checks and public-works projects to keep the state solvent, was caused because Republicans wanted no new taxes, while Democrats wanted to temper cuts.

The stalemate ended when Mr. Villines and five other GOP lawmakers voted with majority Democrats to approve a budget that raised income taxes, sales taxes and vehicle-license fees. "The deficit is going to be dealt with on cuts alone," Mr. Villines said. Legislators, who dictate how $92 billion of the state's $131 billion budget is spent, say it will be difficult to make more cuts after slashing $16 billion in February. "We have cut way past into the bone at this point," said Democrat Noreen Evans, the state Assembly's budget chairwoman. "California residents are going to feel a reduction in services -- there's just no way around that."

GM 'Likely' to Build in China as U.S. Factories Close
General Motors Corp., shuttering U.S. plants in a bid to avoid bankruptcy, is "likely" to build a new factory in China on surging demand. "Operations in China are profitable and in the future China can finance its own growth," Nick Reilly, the company’s Asia-Pacific president, said at the Shanghai auto show today. He didn’t give a timeframe for the new plant. GM, the biggest overseas automaker in China, boosted sales in the country 38 percent last month as government stimulus measures spurred demand for its minivans. By contrast, the company’s U.S. sales slumped 45 percent on the recession, as it battles to convince the U.S. government that it’s still viable.

The automaker has also delayed expansion of an Indian plant for as long as two years as sales growth there has slowed, Reilly said. The company will seek to turn around sales in Australia and South Korea, he added. GM is basing its business planning in Asia on the assumption that it will have to finance projects locally, insulating it from possible problems in the U.S., Reilly said. "We won’t get money out of the U.S. into China," Reilly said. Still, "we don’t need to because we have a very good balance sheet." The Detroit-based carmaker said April 9 it expects to double annual sales in China to more than 2 million vehicles over the next five years, with more than 30 new and upgraded models being introduced in that span.

GM makes vehicles in China through two ventures, both of which are backed by SAIC Motor Corp. Reilly said he wouldn’t comment on the possibility of Chinese automakers buying GM brands.
GM is trying to prove it’s viable in order to keep $13.4 billion in U.S. federal loans. The company is seeking to shed some brands, cut 47,000 jobs worldwide this year and close five assembly plants as it faces a June 1 deadline to avoid a U.S. government-backed bankruptcy. GM will keep its "most profitable" Buick brand, Reilly said. The carmaker is trying to sell or close Saturn, Hummer and Saab out of its eight brands.

It’s also studying plans to drop Pontiac and GMC as part of its broader cost-cutting moves, people familiar with the discussions have said. The Chevrolet, Cadillac and Buick brands are likely safe, said the people last week, asking not to be named because decisions aren’t final. GM is ready to cede controlling stakes in Adam Opel GmbH and Vauxhall Motors Holdings Ltd. in exchange for a promise to invest in a new venture formed from those European units, the Financial Times reported, citing two people familiar with the plans. An investor will be asked to pay at least 500 million euros ($650 million) in equity for the units, while GM will inject the money directly into Opel, the newspaper said.

GM 'Ready to Give Away' Opel
General Motors is ready to give away its European units Opel, Vauxhall and Saab, according to a report in the Financial Times. The deal would be on condition that the investor pledges to put hundreds of millions of euros into a new firm to be formed from those subsidiaries. Struggling US automaker General Motors is prepared to hand over a controlling stake in its European units Opel and Vauxhall for nothing, provided the investor pledges to put at least €500 million ($650 million) in equity into a new company to be formed from its European operations, the Financial Times reported on Monday, citing two people familiar with the plans. GM is also prepared to hand over its Swedish brand Saab for free, the newspaper reported. Saab filed for creditor protection in February.

GM has agreed to hand back patents to Opel and to pay outstanding debts to boost the German unit's chances of surviving as a standalone business. According to the FT, GM wants to merge Opel and Saab in a separate company to be based in Germany. The car giant wants several European governments led by Germany to provide loan guarantees totalling €3.3 billion for the European operations. The aim is to prevent a possible GM insolvency from engulfing Opel, which says it has sufficient liquid funds to carry on its operations as normal. On Friday, GM CEO Fritz Henderson said there were more than six potential investors interested in Opel, but he didn't identify them. He said they included financial investors and companies in the sector.

Used-car sales accelerate
Vehicles are still moving off the lot, but not in a way Paul Kastner has seen in more than 35 years with Weber Chevrolet. For every two new cars sold at the Creve Coeur dealership, three used ones are moved, too. It's a stark difference from just a year ago, when about four new vehicles sold for every used one. "It stunned me, frankly," said Kastner, the general manager. U.S. used vehicle sales among franchised auto dealers are on pace to reach about 14 million vehicles this year, according to CNW Research in Bandon, Ore. That's slightly lower than before the recession, but more than 2008's level. And this year, unlike recent years, current projections suggest that franchise dealerships should expect higher sales of used vehicles than of new ones.

Consumer confidence is the linchpin to motivating new-vehicle buyers, analysts say. People won't buy if they worry about losing their jobs. But that doesn't mean they won't buy a used vehicle. In many cases, they simply have to, said Tom Kontos, chief economist for ADESA Auctions, an auto auction company in Carmel, Ind. "Cars are assets that wear out, and at some point, we recognize that to repair the vehicle will be more costly" than buying one, Kontos said. Used vehicles are sold not only by franchised dealers, but also by independent used-car lots or by individuals. Franchised dealers — which have both new and used cars and trucks — will sell about 36 percent of used vehicles this year, according to CNW Research.

But these dealers, automakers' lifelines to area communities, are noticing a trend that won't help the auto companies move new vehicles. Area dealers say they notice a shift toward used vehicles with specific price points. In north St. Louis County, where the home foreclosure rate is among the region's highest, Dave Mungenast North County Hyundai is trying to maintain an inventory of lower-priced used vehicles. The dealership has focused on selling 2005 and 2006 models, instead of 2007 and 2008 ones, said Tom Barr, general sales manager. Now the average price of a used vehicle there is $11,500, he added.

Other dealerships' officials mentioned similar strategies — $12,000 and lower. That's squarely where Torre Viviano's price point falls. Last week, she said she was looking to spend between $10,000 and $12,000 on a compact or mid-sized car, and trade in her 2000 Oldsmobile Alero. Viviano travels frequently for her job as a grocery store merchandiser. As she puts it, her old car is "just falling apart, and I don't want to be stranded." She has looked at new models but is more likely to settle on a used car. "It all depends, whatever I can find," said Viviano, 21, of Arnold. "Something decent in my price range."

But several factors might lure buyers such as Viviano back into the new-vehicle market. Take new-car incentives, such as financing or rebates. Automakers are offering many incentives for new vehicles, which produces competition with similar models just a few years old, analysts say. Basic economics figure in, too. A tighter supply of used vehicles is raising the prices on these cars and trucks. "Each month, on average, has been a price increase in used vehicles," said Paul Taylor, chief economist of the National Automobile Dealers Association in McLean, Va.

Many dealers stock their used inventory with vehicles from new-car buyers. But as people hold off on shopping — or at least hold onto their used cars and trucks a little longer — dealers see fewer trade-ins, analysts say. Twenty-eight percent of new-car purchases have a trade-in, compared with 50 to 60 percent of deals in the recent past, said Art Spinella, president of CNW Research. "You're looking at millions of vehicles not in the used-car side that would have been," he said. Fewer trade-ins mean used-vehicle prices are rising — a positive for potential buyers because their current cars are probably worth more now than a few months ago. Analysts say automakers may see some good news, too. Higher trade-in values should push some buyers back into the new-vehicle market, changing the ratio of new to used yet again.

South Korea's "prophet of doom" blogger acquitted
A South Korean court acquitted a blogger on Monday of spreading false information, in a case that triggered debate about freedom of speech in cyberspace and critics said was only launched because his economic doom postings angered authorities. Defendant Park Dae-sung, who went by the pseudonym "Minerva" after the Greek goddess of wisdom became a household name last year for his predictions of sharp falls in the won and the local stock market and the collapse of U.S. investment bank Lehman Brothers. "He's been found not guilty," a court official said by telephone. The court threw out charges that he purposely harmed market sentiment by posting false information on his blog.

Prosecutors said a posting Park made in December led to volatility in the local currency and caused financial authorities to inject billions of dollars to stabilize the Korean won. "Even if there was recognition that it was false information, he cannot be seen as having acted on purpose to harm public interest considering the situation at the time including the special nature of the foreign exchange market," the court said. As the markets tumbled last year, the main financial regulator warned it would crack down on what it considered malicious rumors. Some economic analysts said they had come under pressure from authorities not to voice negative views on the economy.

South Korean markets appeared to have passed their worst turmoil in a decade at the time of Park's arrest in January but suffered another setback in March on lingering concerns about the country's ability to secure dollars to repay debt. Since the arrest, legal experts have questioned whether authorities had legal grounds to prosecute individuals on views aired in online media. The conservative party of President Lee Myung-bak has been pushing for a tough law on cyber slander. The Lee government has also been backing media reforms that would lift restrictions on big business from owning broadcast networks, which have led to protests at TV networks whose union members feel the move would lead to cuts in press freedom.

Park's lawyer said the case arose from a misguided attempt by the government to control public opinion in cyber space. "The law itself is unconstitutional, and it is a dead law where the computer cannot be the subject of regulation," lawyer Park Chang-jong, who is not related to the defendant, told reporters after the verdict. Blogger Park has been identified by prosecutors as an unemployed 30-year-old man who kept to his modest apartment in Seoul and learned of the financial markets with books he ordered online. Since his detention, reports have flooded local media saying he was a quiet man with a humble education background, which experts said may be an attempt to discredit him in a society that places high value on elite education and prestigious jobs.

Ecuador offers to buy back defaulted bonds at 30% of face value
Ecuador's government offered on Monday to buy back up to $3.2 billion in defaulted debt for a maximum 30 percent of face value in a process that will include an auction. Finance Minister Elsa Viteri said auction bids will be taken until May 15 with decisions likely to be made on the bids by May 26. Viteri said the buyback would include a "modified Dutch auction" and she expected the offer price to drop below 30 cents on the dollar in the bidding process.

The debt restructuring plan came only days before Ecuadoreans decide whether to reelect leftist President Rafael Correa, who refused to repay the country's 2012 and 2030 global bonds last year on grounds the debt was illegally issued by past administrations. Wide acceptance by investors of the debt plan is seen as key for Ecuador to return to the international credit markets and secure multilateral loans as the global financial crisis hits the OPEC-nation's economy. Viteri said she expected the government's offer to be well received by the market.

Recession slowing water investment to a drip
Water scarcity means big growth for companies that purify, transport, and distribute the world's most essential resource, but a global recession that has halted new projects and put off price hikes means water investors will have to wait for the boom years. Water, cheap and indispensable, has long been prized as a stable investment in both good and bad times. But as the population grows, urbanization tightens access to clean water and climate change promises more droughts, calls to upgrade the nation's crumbling infrastructure have mounted, and companies that make pipes, filters and other products that help manage water supplies have taken on a new shine as growth vehicles.

"There are tremendous needs in this country to replace aging infrastructure, especially water infrastructure, and now there is tremendous money able to be put toward those types of projects," said BB&T Capital Markets analyst Kevin Maczka, though he cautioned that investors shouldn't expect a "windfall" for water stocks any time soon. "Over a couple of years that will be a real investable theme," Maczka said. Since water is so critical, demand does not trail off markedly during recessions, especially for utilities and suppliers of equipment needed for operations. Water stocks, therefore, have held up better in the current downturn than many others. The water-focused exchange-traded fund, PowerShares Water Resources Portfolio, has dropped about 19 percent in the last six months, compared with a decline of 24 percent in the Standard & Poor's Industrials index.

"Water is one of, if not the absolute last thing you take away, so the income is quite stable," said Kimberly Tara, chief executive of Boston-based FourWinds Capital Management, which invests in water through its Aqua Resources Fund Ltd. The recession, however, is taking a toll on growth as the credit crisis cuts off sources of funding, hitting companies expected to prosper most from an explosion in water demand. "A lot of these companies were in expansion mode," Tara said. "So basically they are slowing their projects because they don't have access to capital." With big projects few and far between, dour announcements from water companies have followed suit.

Earlier this month, irrigation equipment maker Lindsay Corp reported a 40 percent drop in quarterly revenue, saying farmers were less willing to invest in new watering systems. Water conveyance projects have also been hard hit. Late last month, Ameron International Corp said the market for water transmission pipelines in the water-stretched U.S. West was well below historical levels. That came a month after Northwest Pipe Co said it would shut down a water pipe facility temporarily due to weak demand. Meter and pump manufacturers whose customers include big water consumers such as the semiconductor, paper and petrochemical industries have also seen their sales hit, and one analyst said demand could stay weak for some time.

"It's going to be a while until these companies hit a positive inflection point in terms of their earnings -- at least probably a year," Boenning & Scattergood analyst Ryan Connors said. One bright spot in the water industry is that operating budgets for municipal utilities, which make up 85 percent of the water utility market, have remained intact. That means water treatment companies such as Nalco Holding Co and filtration companies like Calgon Carbon Corp should have a steady stream of orders for chemicals and components needed to keep water clean and plants functioning. "The water utility is probably faring a lot better than other aspects of the government," said Piper Jaffray analyst Mike Cox. "What is absent is that ability to issue municipal bonds to do large projects."

One potential source of funding is the $6 billion allocated to water projects in the U.S. economic stimulus plan, though analysts said its ultimate impact on stocks could be small. "The water industry runs at $250 billion to $300 billion a year, so it's just not enough to move the needle and offset some of the negative things taking place," Connors said. An area of the water market that has moved forward despite the recession is desalination, a process long viewed as the Holy Grail in the quest to replace dwindling freshwater drinking supplies. Desalination plants are underway in the Middle East, Africa, Spain and China, helping Energy Recovery Inc, which makes devices that reduce energy consumption in the desalination process, log a 59 percent increase in fourth-quarter revenue.

Consolidated Water Co Ltd, which develops and operates desalination plants, also recorded higher sales in the fourth quarter -- a jump of 18 percent -- and said it does not need to raise capital for any of the projects it has underway. Still, both stocks have been punished in the market downturn. Energy Recovery shares remain 20 percent below their July 2008 initial public offering price of $8.50. In that same period, Consolidated Water shares have dropped 35 percent. About 20 desalination projects are in development in California, and analysts said that means the U.S. will one day be a big market for that technology. But, for water investment to thrive in the United States as it has in countries like Australia and Israel, experts said scarcity will have to make life more difficult for American consumers and drive water prices up further.

Last year, global water tariffs rose 6.7 percent, but the U.S. lagged that at 5.8 percent. Nations like Australia, Poland and Turkey, meanwhile, logged double digit increases, according to industry research firm Global Water Intelligence. Significant price increases are unlikely to be pushed through this year given the economic climate, Cox said, though he added that on average over the next five years, annual U.S. water price hikes should be higher than they were last year. Higher prices, freer credit, and droughts such as the current dry spell in California, now in its third year, will ultimately spur water companies to deliver the strong growth many investors have been banking on. "There might be a delay ... but is this whole industry being put into question as to where it's going? No," said Philippe Rohner, manager of a $3 billion water fund for Geneva-based Pictet Asset Management. "It's not like we found out water cannot be used anymore

Why we forgot how to grow food
Not long before Christmas, a man walked into the care home next door to his house and asked the manager if it would be possible for a group of neighbours to grow food in the vast gardens. The manager said he would be delighted. In the days that followed, the man casually asked various neighbours whether they would like to get involved. They all said yes. So he popped over to the care home with them, and each remarked how large the garden was, and what a lot of food could be grown there. As well as beds for vegetables, there could be fruit trees trained to grow up the south-facing walls, a bed of herbs for the kitchens, and flowers to take inside. The group could perhaps even keep chickens, once the fruit and veg were up and running.

The man went home after each trip feeling tremendously pleased with himself. I know this, because the man was me. Now, it’s not as if I did anything special: I didn’t lift a spade. Many people have done considerably more, as part of a grass-roots movement spreading rapidly across the nation, to grow our own food. And fast. Because for the first time in decades, Britain faces the real prospect of severe food shortages. About 40% of the food we eat is imported. That includes an astounding 95% of our fruit and most of the wheat in our bread. This reliance on goods from abroad is perilous. During the 2000 fuel strike, Sainsbury’s chief executive wrote to the prime minister to warn that food supplies would run out "in days rather than weeks". Supermarkets rationed bread, sugar and milk. The situation is now arguably worse: world food reserves are at historically low levels, and last year several countries stopped exporting staples because their own populations were going hungry.

If the problems were only temporary, it would be bad enough. But they’re not. We have become dependent on fossil fuels that are starting to run out. Taking account of all the oil- and gas-derived fertilisers, pesticides, distribution and retail practices, our modern farming uses an incredibly wasteful 10 calories of energy to put a single calorie of food on your plate. Reverting to old-fashioned farming will be hard because our soil is in poor shape. Fertility has come to rely on annual, chemical top-ups instead of the traditional long-term build-up using animal manure and crop rotation. Suddenly taking away all the artificial fertilisers will result in drastically lower yields. And if we’re to feed ourselves, we can’t afford lower yields — because the UK is more densely populated than China, Pakistan or any African country except Rwanda.

Meanwhile, levels of minerals such as phosphate, which plants need for healthy growth, are falling fast. Global supplies have peaked, and last year phosphate prices rose by 700%. Britain imports 80% of its phosphates. The only alter-native is to return all food waste and animal and human manure to the land, instead of flushing it to sea. And let’s not forget the extremes of weather that will result from global warming. Rising sea levels spell doom for the 57% of grade-1 arable land in east England already below sea level. In 2000, during the unprecedented heat wave, crop yields in Italy and France fell by a third. Perhaps most importantly, we lack know-how. Most of us today have little experience of food- growing. The farmers we do have are mostly approaching retirement, and there are few of them: agricultural employment has fallen from 40% in 1900 to 2% today, and much of the work is done by casual workers brought in from abroad.

Modern governments have not regarded self-sufficiency in food as a desirable aim, according to Professor Tim Lang of City University in London; but last year that changed. A report from the Cabinet Office concluded that "existing patterns of food production are not fit for a low-carbon, more resource-constrained future". In response, Colin Tudge, the author of the book Feeding People is Easy, called for "a global renaissance in agriculture". This more or less agreed with the insights of a less well-known environmentalist, Jeremy Clarkson: "We are heading towards The End of Days, and you’d better get yourself an allotment." That’s what I did last year, just in time, because now dozens of others are on the waiting list.

All over the country, people are starting to think about producing food. Some because they fancy a bit of the River Cottage lifestyle, but many — including Hugh Fearnley-Whittingstall — have been inspired by the growing Transition Town movement. Transition Towns were started by an Englishman, Rob Hopkins, after a stint working as a teacher in Kinsale, Ireland. At the time, he never imagined that oil might one day run out. "But then I showed students a film, The End of Suburbia. I have to say it was as traumatic and shocking for me as it was for the students." The film made it clear that no aspect of life will be the same after cheap oil runs out — which it suggested will happen very soon. "When we got over the shock, we set about looking at Kinsale," says Hopkins. "We examined how the town might look in 20 years if it adapted instead of pretending it wasn’t happening. We came up with a vision, then backcast it to see how to get there, year by year."

Unlike other environmental initiatives, this deliberately involved finding the "upside" rather than dwelling on doom. "I like to use the analogy of inviting a reluctant friend to join you on holiday," Hopkins explains. "If you paint a picture of the beach, the pool and the candlelit taverna by the sea, they’re more likely to come." Returning to England, Hopkins helped to create a similar "energy descent" plan in Totnes, Devon — the first Transition Town. Others soon followed. Lewes, Glastonbury and Stroud are full of middle-class hippie types, but in Bristol it’s the poorer districts that have been most dynamic, and across Wales the impetus has largely come from the agricultural community. Today, there are more than 150 "official" groups (who have formally asked to join the network) and hundreds of others still preparing or mulling it over. There are TTs in New Zealand, the US, and on The Archers.

After first talking to Hopkins, two years ago, I registered my own corner of northwest London on the Transition Town website and hoped that someone would join me. Nothing happened. So I cycled to south London to meet Duncan Law, an actor and director who parked the day job many, many months ago to devote himself full time to launching Transition Town Brixton. The cafe where we met, Honest Foods, had a policy of sourcing food locally. Law asked for a word with the chef, said he knew someone with a vast crop of pears in their garden, and asked if the chef would be interested in buying them? Without hesitation, the chef said yes. I was impressed. Law took me on a tour of Brixton: him on his recumbent bike and me on my foldaway with tiny wheels. If we looked odd together, the effect was increased by Law stopping every so often to collect apples that had fallen from trees. He told me about an entrepreneur who made £4,000 in the early 1950s — more than Law’s headmaster father earned in a year — by commissioning children to gather blackberries for him. TT Brixton, he said, was about to start mapping fruit trees across south London. (They’ve since done that.)

Near Balham, we visited Sue Sheehan, a Transition Town supporter who recently started growing fruit and veg in boxes in the tiny space in front of her terraced house. I still hadn’t got the hang of how to be upbeat about peak oil and climate change and ungraciously told her that the crop, though plentiful, would not be enough to keep her alive when the trouble starts. But every lettuce you grow yourself, Law said, saves growing another one miles away and shipping it to you, and all the emissions associated with that. A few days later, I watched The Power of Community: How Cuba survived Peak Oil, a documentary film about what happened to Cuba after Soviet oil supplies dried up. It shows how Cubans gradually turned away from a heavy reliance on carbon-intensive agriculture: in rural areas, they learnt to plough with oxen; in cities, all kinds of spaces were turned to horticulture, from window boxes to wasteland. The transition took more than two years, and Cubans had to forgo the equivalent of a meal a day — but by the end, even people in cities were producing half their annual fruit and vegetable needs.

I finally found like-minded people nearer my home, willing to launch a Transition Town. In Belsize library, we hosted a week of film screenings culminating with The Power of Community. It was clear from the question-and-answer session afterwards that the audience was gagging to start growing food. Strangely, they just seemed to want some kind of permission to get started. I improvised: "Just go for it! What can you lose?" Transition Belsize was born and I found myself co-ordinating the 40-strong food group. The first thing the group did was visit my allotment. My new friends weeded, built a new raised bed, and took home some of my surplus apples. Since then, we have gathered names of people on the waiting list for allotments and put them in touch with householders who possess gardens but insufficient time, expertise, or ability to grow food themselves. We’ve set up a section in the local library with books and magazines devoted to food-growing, co-ordinated bulk purchasing of otherwise costly organic food so a wider portion of the population can access it, and got agreement from the local franchise of Budgens to sell produce grown by local people in gardens and allotments.

Another member, Councillor Alexis Rowell, rather brilliantly persuaded the council to allow residents on its estates to grow food there. Having done that, he went knocking on doors of one neighbouring estate to ask if people would like to grow food there. Over the course of a single weekend, members of the Transition group transformed the previously overgrown and unused gardens. Residents supplied hot soup and drinks, and joined in the work too. I travelled one cold January morning to Stroud, Gloucestershire, where members of another Transition group have done amazing things. Stroud has one of the country’s most successful farmers’ markets, and two Community Supported Agriculture (CSA) schemes, through which householders fund a farmer to supply food to them directly. The first was started in 2001, by four individuals renting an acre of land and employing a vegetable grower. After two years they had formally established a co-operative and rented 23 acres. Today two full-time growers provide veg and meat to 189 households, with enough profit to pay a bonus.

Meat production runs at a loss, and has to be subsidised by the veg, but the farmers see stock as essential to good stewardship of the land, providing plentiful manure. There’s another benefit: marketing. Animals can be very attractive parts of any membership project. For that reason, the CSA houses its pigs in a prominent position, beside notices explaining how the scheme works. One of the hardest things for the CSA is getting people involved. Most members are happy to pay to receive veg — after all, it’s cheaper than buying from most supermarkets — and will turn up to occasional events on the farm, such as wassailing parties and apple pruning in January, blossom celebrations in May, haymaking in August, a bonfire-night party, and singing to cows in the barn at Christmas. But schemes like this need a critical mass of members willing to help out more routinely, and might lose energy or collapse altogether if a small minority of volunteers find themselves always responsible for making it work. Wandering over weed-infested fields with two such volunteers, Helen Pitel and Caroline Denny, I see for myself how hard the work is. "But we can’t let this fail," says Pitel cheerfully.

Among other setbacks, the CSAs have had meat stolen from their packing shed, and had to deal with unsupportive neighbours, such as one who complained about the appearance of polytunnels on the hillside and forced the CSA to secure retrospective planning approval. Even members can be difficult. As part of recent efforts to get them to share trips to the farm to collect food for each other, a list of names and addresses were sent out. Some complained that this breached data security and risked ID theft, reveals one member of the core group: "It sometimes feels like there is a long way to go in building the ‘community’ bit of Community Supported Agriculture!" I’m not surprised to find that setting up and running large-scale projects of this sort can be difficult, and no less impressed for that reason.

One of the most significant achievements of Stroud’s food group did not involve growing anything. It’s a comprehensive analysis, conducted by members who happen both to be local councillors, into whether or not the district could feed itself. The report by Fi Macmillan and Dave Cockcroft was inspired by an article in The Land magazine, Can Britain Feed Itself?, written by Simon Fairlie, a journalist and campaigner who has a sideline selling scythes (to, among others, me). Fairlie lives in Somerset and has some connection to a local Transition group, but he’s been doing this kind of work for years. His article was itself inspired by a book published in 1975. Using the same model, Macmillan and Cockcroft investigated whether 110,000 people living in Stroud district could be fed if they relied on the 37,000 hectares of available farmland. The initial finding was encouraging: the district does have enough land to feed itself, though only if people reduce their meat intake to a quarter of the current UK average of 80 kilograms per person per year, and significantly reduce their sugar intake. There would be some surplus with which to trade for staples such as citrus, tea and coffee.

Alas, the analysis doesn’t stop there. Macmillan and Cockcroft go on to examine whether Stroud can feed itself without inputs from fossil fuels, and with land set aside to produce the biofuels needed to replace them. (An additional pressure on land, which they only mention in passing, is the need for land-based textiles, whether from sheep or fibres from hemp and other crops.) The conclusion, this time, is distressing: "We have nowhere near enough land to produce a significant proportion of our current level of transport and heating fuels." Crikey. If that’s the dismal outlook for the district of Stroud, set among all those rolling fields, what hope is there for London? Is it time to get out? Rob Hopkins thinks not. He used to believe the most responsible thing to do was to move to rural areas, build a house and grow your own food. "But when I found out about peak oil I came to question that. We had built our own house, and were growing our own food, but this was only going to be sustainable if I am prepared to sit at the gate with a shotgun. What do I do with my carrots if the village up the road is cold and hungry?

"We have to move towards collective solutions," he says. "Peak oil is a call to those of us who have been out in the highlands to come back and help, because the skills are very much in demand now." According to Simon Fairlie, supplying our needs in the future will also need considerable movement in the other direction: dispersal of both livestock and humans around the country, not least so that all that human manure can be put back on the land. For now, the best thing I can do is to make a go of food-growing in London, as they did in Havana. So on my return from Stroud I throw myself with renewed energy into the Belsize group. Over dinner, the core group wrestles with strategies for growing the group ever larger. We agree to work hard in our own streets, as individuals, then the next street, and so on. One attractive idea is to deliberately grow "too many" seedlings, giving ourselves a perfectly amiable pretext for knocking on doors and inoffensively getting neighbours started on food-growing.

Back home, inspired by the Guerrilla Gardening movement to grow beans on a patch of scrubby land beyond the end of my garden, I stare across at the vast gardens of the neighbouring care home, and notice — not for the first time — just how big and bare they are. Then I look down the road and notice that one of my neighbours, five doors down, has likewise been cultivating the wasteland. I knock on his door, we get chatting, and in no time he’s touring the gardens of the care home with me. A few days later, I ask a family with girls about the same age as my own daughter. They visit the site too. I set up a neighbourhood project on an online food-growing network and soon my neighbours sign up. I decide to ask them over for drinks. We’ll watch the first episode of The Good Life, then The Power of Community. In a few weeks time we will have achieved nearly as much here as Belsize, down the road, achieved all last year. After that, who knows, we might set up our own veg-box scheme…

But I shouldn’t get carried away. In The Transition Handbook, published last year and already reprinted several times, Rob Hopkins offers what he calls a "cheerful disclaimer": "Just in case you were under the impression that Transition is a process defined by people who have all the answers, you need to be aware of a key fact. We truly don’t know if this will work. "Transition is a social experiment on a massive scale. What we are convinced of is this: (a) if we wait for the government, it’ll be too little, too late; (b) if we act as individuals, it’ll be too little; but (c) if we act as communities, it might just be enough, just in time.'


APC said...

Wow, that leak, if accurate, is absolute dynamite. Looks as though Faber may well have been right about the timing. End of April and bounce is over. Good luck to us all...

APC said...

CAC 40 at closing, 3.9 down, including some big losses in the auto industry, Peugeot and Renault down almost 10%, big steel down 11 and the banks and insurers are hit hard too. When did this leak get out?

Tomorrow should be very interesting. Wonder what Sarko'll be spouting tonight on France 2.

APC said...

Sorry for the multi posts, but did you check out the comments at the Turner blog Ilargi? Wow! Some really rabid jew bashing going on over there. Diamonds in Israel and thieving bagel snappers?

The United States are going to be a real treat, aren't they?

Open Your Eyes said...

White Nationalists like David Lane, Dr William Pierce, Tom Metzger, David Duke and Hal Turner have been telling the plain and simple truth for years but the mainstream media successfully vilifies them and the general public looks the other way.

Time to wake up rubes.

Anonymous said...

There are many, many people who have been telling the truth for a long time without resorting to 'White Nationalism'.

Frankly if these people have such views, they deserve to be marginalized.

The credit exposures have been known for a long time. Jesse's caffe Americain had it a few weeks ago. The stress tests are just a sham and we knew this from the start.

Starcade said...

The fact is that the bear just woke up.

The time to get out may have passed people by -- again.

Anonymous said...

The fact that right-wing racists accurately identified the Kleptocrats as lying, cheating and stealing from the general public doesn't mean they are my friends in any way, quite the contrary in fact.

The Kleptocrats are merely the biggest, baddest, criminals around, they are not political and have no policy agendas other than stealing.

The born-again pseudo 'religulous' right wing were played like cheap violins by the Bushit DC crowd.

The 'gay marriage-abortion-don't burn the flag, yadayadayadayada etc.. horse plucky 'issues' the likes of Turner et al championed didn't mean a fig to the Criminal Class.

To the Kleptocrats,the right wing are just punks to be used and abused, no more so than the left wing.

Jim Kunstler's post today has a great reference to this issue.

"Alas, this also appears to be a common theme in history, with a commonly tragic outcome, which is that elites get ruthlessly dumped and replaced by new elites, often composed of zealots, maniacs, nincompoops, and others generally ill-disposed to the able management of complex affairs. It's called the "circulation of elites," and in times of crisis it tends to take on a kind of downward spiraling flavor, with each gang of discredited leaders tossed out for a progressively worse one until a kind of exhaustion is reached -- whereupon the archetypal man-on-a-white-horse arrives on the scene."

Anonymous said...

William Black, weeks ago, said the first set of 'stress tests' exposed the banking system to a 3mph wind.

The second, more recent set of 'stress tests' Doubled that to 6mph.

Whoa, hold on to your hats!

A 6mph wind is nothing to sneeze at.

Kaspar Hauser said...

"Why We Forgot How to Grow Food"

Peter Goodchild has written a series of realistic (somewhat gloomy, to be truthful) articles about his attempts to prepare for a future of declining energy. He and his wife "gave up" last year and moved to the Persian Gulf to find temporary work. Basically, the collapse was taking too long!

This guy is pretty serious, and his series of articles over the past few years contain valuable information for those attempting to learn how to keep from starving as things disintegrate.

As he questions in other articles, is the long-term sxxxxxxability of "organic agriculture", as often written about, which requires continual addition of granite-dust, greensand, limestone, etc, really going to be feasible when diesel fuel for trucking becomes too expensive/unavailable? Unless one lives by the ocean or a good canal system, this may become critical. It is not a closed system and minerals/micronutrients must be brought from "a source to the sink" (The source could be sludge from canal bottoms, seaweed, debris from forestland, etc)

When I read Eliot Coleman's New Organic Grower many years ago, I was very disillusioned with all the rockdust and greensand he was talking about and looked to other sources (I am fortunate to have "unlimited" (I know, nothing is unlimited!) seaweed < 50 feet from my garden, although the salt-spray and cool summer air presents other limitations)

"As long as we were trapped with car expenses, with property taxes, with hardware-store expenses, with electricity bills, there was always a corresponding need for at least an equivalent amount of money coming in. I dreamed of an apocalyptic world in which money would be meaningless, but the daily reality was the enslavement to that flow of dollars. "

Anonymous said...

The French Revolution beget the metric system, it's only practical contribution to civilization.

It temporarily got rid of 'aristocrats' (Kleptocracts with highly developed tastes for decadence)

It then delivered 'the Terror', a runaway exercise in execution excess, which ironically consumed it's creators (Robespierre).

This was followed by a megalomaniac in the form of a military dictator (Napoleon) and years of horrendously brutal war which bankrupted France.

And finally back to the aristocrats taking control once again when the Boubons reascended the throne.

Mission Accomplished Dude!

Anonymous said...

I also read Kunstler today-great, great post

Greenpa said...

Rob Hopkins had a good weekend! The article you have here was the one he liked best, but there was also a 5,000 word bit in the NYT weekend Magazine.

Rob's Blog

Hombre said...

"Perhaps most importantly, we lack know-how. Most of us today have little experience of food- growing. The farmers we do have are mostly approaching retirement, and there are few of them..."

Thanks TAE for posting the Times article about farming. Perhaps it's my Indiana roots which make this seem to me one of our most severe needs for the future.

1 - The "age of cities" is about over, as is the age of cheap fuel for fertilizers and tilling/harvesting.

2 - Even if we had oodles of farmers today, they don't have the necessary skills either! They know how to buy 12-6-12 and run a sprayer and a combine!

3 - Just 100 yards from where I type this in there is a farmers depleted field (good Indiana soil, right!) that won't raise half todays yield without abundant spraying and additives.

Food is soon going to be a major factor in our future! People who are starving to death aren't going to be concerned much with stocks and bonds.

Hombre said...

"...Even the kindest physicians don't put corpses on life support. This particular corpse has been placed in the world's cushiest intensive care unit, with transfusions running about a trillion dollars a month -- not to mention hefty bonuses for the attending nurses...."

:-) Kunstler!

Anonymous said...

On the sustainable agriculture idea -- I've been preparing for over a year now, in part thanks to sites and writing like that found here and at The Oil Drum, etc. I didn't have a bit of knowledge to start with. Just reading and the stuff on the Internet was my guide. There is no school like the school of hard knocks. So I've got ten fruit trees in the ground. Another five fruiting bushes. A vegetable patch. And a few beds for herbaceous perennials and such. I'm going to provide some significant portion of my diet this year with my own hand.

It is amazing the stuff out there for free about permaculture and forest gardens, etc. I don't pretend to be an expert, but there seem to be many more sustainable models that the kind of corporate agriculture we've ended up with that feeds us all. I live in the U.S. With fewer and fewer "jobs," I hope that there will be a growth back to a more sustainable/subsistence kind of lifestyle. Worldwide. 6.5 billion little small scale farms. Just a different way. I don't know in practice yet, how sustainable these methods will be--but it is empowering to be out there trying to get ready to deal with a new reality. For those who haven't started yet. I wholly encourage it. It isn't too late to get a lot done this spring to see some results in the summer/fall. If you have any patch of land with your living quarters.

Anonymous said...

While waiting for the 'collapse since the mid 80's I have made a walking game akin to the older game to keep kids quiet on long car rides - you know, counting telephone poles. In this game I count all the vehicles I can see in the yards as I walk. I do not play this game too often, only on occasion, otherwise after a short time vehicles are all one sees. I know that must be a hallucinatory effect of playing this game. There just can't be that many cars trucks mobile homes yachts and motorcycles in the country let alone in my neighbourhood.

Truly amazing when one considers all the energy that it took to make them, let alone run them. And most of them just sit there most of the time.

Just after The War we were the only family on the block (and a long block too) that had a car, an old Huptmobile . I remember my father lighting a small fire underneath it one winter to warm the oil, I don't remember it running though.

-blasted heath-

Anonymous said...

Max Keiser has an interest twist on an already perverse financial climate.

He says that the same players who gave us the nightmare of collateralized debt obligations and spawned the Derivative Monster that Will Eat the World, are busy cooking up a new witches brew of Collateralized Commodity Obligations. Same idea but using a Ponzi scheme of over-leveraged commodity (Food) 'instruments'.

The same con job that destroyed the housing market is being created right now to destroy the agricultural sectors markets.

Commodity backed leveraged 'assets' is the next round in bankster manipulations that will ultimately destroy our global food production and distribution markets and is a whole level sicker than just a real estate bubble.

The latest menace to mankind and it's plotters needs to be "terminated with extreme prejudice".

This is the crowning touch in post-post-modern sociopathy.

The hour is getting very late indeed.

VK said...

Here's an interview with Colin Campbell at TOD, he reckons that by 2050 World Population will be around 2.5 billion given resource constraints. The interview is well worth the read, interesting to observe that the IEA has known about peak oil for atleast 10 years but chose to keep "discrete" about it for so long and infact still do but keep giving dire predictions. For goodness sakes, spell it out already!!

Colin Campbell InterviewAnother link that I found interesting and will interest water enthusiasts and vegans on board is the average amount of water everyday items consume. It seems that if we reduced beef output by a LOT, we could make great headways into protecting water supply, reducing climate impact - Cows tend to release large quantities of methane and stop ingesting large amounts of hormones and antibiotics found in the meat supply (Mutant cow no more?)

Water Consumption in every day items@ Ahimsa

The book that Chavez presented to Obama is now number two on Amazon :-)

Larry said...

Morton Zuckerman said on McLaughin Group about six weeks ago that the end result of this debacle will be that the US banking industry will be bigger wrt to the rest of the world than it was going in. I thought it strange at the time, but it does reflect some foreknowledge of the efforts on behalf of GS that you mention in the intro.

Keep up the good work...

Bigelow said...

“In short, leveraged ETFs, as assets increase, represent a new source of systemic risk in the market as their managers rebalance them at market close every day.”
Leveraged ETFs and Portfolio Insurance

rapier said...

Zuckerman is crackpot. Hell, so am I. I am as guilty as anyone of spreading this meme of how the financial giants are going to win big, but I only half believe it. It's within the realm of possibility if things went according to trend but after all the trend is now dead.

It's good to stir the pot against the Pigmen as a political exercise but then when it attracts the Illuminati seers and Hal Turner fans the limits of politics come sharply into focus.

On the next big leg down in the markets the big Bankster men are going to be begging Tim to fire them so they can go hide behind their gates or set sail on the yachts. I haven't kept up but post 9/11 the mega yacht business went through the roof. I do wonder however if these guys have thought through what the piracy thing really means?

Dr J said...

VK - the water consumption item is instructive but not in the way I think it was intended. According to the chart, to minimize water use, we should all be eating baked potato washed down with beer. Since we know what the health consequences of that would be, we can then perhaps agree that we are going to have to eat things that exact a cost from the environment. The bottom line is that since we are meat-eaters by design it is unlikely that the earth will support a population of 6.5 billion in optimum health.

Anonymous said...

The current crop of Pigmen will be tracked down by GPS wielding uber high tech bounty hunters, sent out after them by the next set of warlords that are coughed up by the Soft Parade known as 'the cirulation of elites'.

There is no honor among thieves, the new winners will have the shrunken heads of the losers hanging from the window valances as the new chic office decoration.

Kaspar Hauser said...

Hello Mr VK

From the Colin Campbell Interview:

"but by 2050 the supply will be enough to support no more than about 2.5 billion IN THEIR PRESENT WAY OF LIFE"

That statement could be taken to mean that if people adjusted (willingly or otherwise) their way of life, more could be supported.
(I am pretending to be optimistic, but he may be more genuine in his optimism, as he even mentions the potential of tidal power!)

Anonymous said...

To Kaspar: all you need for the inputs to your soil are chickens. Well, to be more specific, their poop. And there's your sustainability in a nutshell. Chickens give eggs, become food when they are too old to give eggs, eat comparatively very little and are perfectly capable of foraging for them selves - and there are many articles on growing winter feed as they did in old times on the internet, that don't involve large inputs of grain - and the manure they give off has every trace mineral that greensand, seaweed, etc give to the soil. Our ancestors didn't starve cuz they couldn't import greensand, and neither will we as long as we have small livestock.

BTW, thanks for the great posts Ilargi.

Chris Lambert said...

To Kaspar and tinfoilhat:

Chickens, yes, and more importantly, the return of our o-NPK to the soil (thanks totoneila). Some difficulties to overcome with this, but the technique (composting, etc.) is well-developed. At any rate a shorter loop than dredging the minerals from the sea, once they've been flushed down the toilet.

Ahimsa said...

VK said:

"@ Ahimsa

The book that Chavez presented to Obama is now number two on Amazon :-)"


Thank you for links to the great Colin Campbell interview and water consumption chart. Yes, we don't need to eat beef! Go vegetarian! It's good for one's health, the animals and the environment. :)

Anonymous said...

The Erin Go Broke article was not one of Krugman's better efforts-- he comes off as the condenscending American lecturing the Irish on the dangers of bankers run amok.


Starcade said...

APC: Bounce is over the moment reality sets in. I just figured it might be another month...

Let's remember, Chrysler has about 10 days to live, if that. If I were Fiat, and I'm completely serious here, I'd let Chrysler go liquidation-BK and buy what might be worth anything at the liquidation sale.

Ford's got another month.

The banks are involved in what (to anyone with an IQ at least a theoretical 3X the average American) can only be said as obvious fraud, deceit, and God knows what else.

The unrest is beginning. Another family of 5 dead this weekend... One really only has to wonder when the whole shit-fest goes wide-scale. I'm really beginning to think sometime this summer...

Open Your Eyes: If people actually do as your name suggests, there will be bullets and blood, and the streets will run hot with both. Truth = Riot.

There are so many people who cannot live without their SUV's, their plasma TV's, their million-dollar McMansions, etc.

Remember how much even having a job depends on what kind of appearance of a life you give off.

Anon 1537: You are right that the White Nationalists should be marginalized, but we have gotten to the point, in this culture, where the only way to marginalize someone is to remove them.

Coy Ote: The only real solution would be considered barbaric. The only real question now is "What kind of population elimination percentage would TPTB openly desire as collateral damage to all of this?"

el gallinazo said...

I read both of Toby Hemenway's articles linked earlier. They made many good and insightful points about rural life today and as peak oil takes hold. But half way through my first article, something just seemed totally out of kilter with his economic view point. So I scrolled back to the top to see when it was written - 2005. Peak "boom," He totally missed the economic meltdown created by credit bubble fraud, not peak oil. His gradualism of peak oil depletion proved anti-prophetic. His choice between urban semi-prosperity and rural isolationism will become largely moot in two years. His comment about the problem in the 30's being scant money rather than scant resources seems ironic in 2009. His complaint that he has better things to do than to work dawn to dusk on a homestead now seems out of place. Tell it to Snuffy. The university is toast when the bond dislocation hits. Orlov has it right. Universities will make great survival communities. Desks out; bunks in. Chickens in the quads and oats on the greens.

I have my problems with Kunstler, but at least he saw, before 2005, the economic meltdown coming prior to peak oil kicking in hard. I also think he has it right that the small city, 30-100,000 on a river, and surrounded by good agricultural land will be the most viable model for the future.

Anonymous said...

"..the small city, 30-100,000 on a river, and surrounded by good agricultural land will be the most viable model for the future..."

Part of history's rhyming, especially when in retrogade mode when headed for the Past, is just pull out some really old maps.

People were by and large very practical and used the geography to lessen the expenditure of energy.

Where the river meets the sea was always a very significant intersection of interests.

Just be sure to calculate in a 5-15 meter rise in sea level. Buy high ground.

From a sign at a construction company's headquarters:

"Never lift anything you can drag, never drag anything you can wheel and never wheel anything you can get someone else to wheel!"

Anonymous said...

Ahimsa said...

"The book that Chavez presented to Obama is now number two on Amazon :-)"

The kind of shoe thrown at Bush became a best seller too.

Anonymous said...

I was just getting coffee at the local spot, the TV talking-empty-heads were breathlessly yammering about holding one of the Somalian 'pirates' in NYC.

More diversionary tactics by the Ministry of Propaganda's Bread & Circuses SWAT team no doubt.

It got interesting however when one of the air-heads mentioned that the Somalian pirate was being held in the same building that Bernard Madoff was held in.

Hmmm, wonder if a light bulb will go on and the MSM connects the dots and starts framing the financial meltdown as a "Financial Pirates vs US Taxpayers" fight-to-the-death and calls for the Kleptocrats heads on a stick.

Time will tell.