Thursday, April 23, 2009

April 23 2009 2: Uncle Charlie and the Yakker

Russell Lee Oh won't you stay-ay .... just a little bit longer 1941
Cold drinks on the Fourth of July at the Red Robin Coffee Shop in Vale, Oregon

Ilargi: Well, I guess it was just one of those days that are made for fun. I’m still laughing, whenever I remember it, about the concise summary this morning from the UK of Alistair Darling's Wednesday budget presentation, which said " the Chancellor conceded the current slump is comparable with the Great Depression but insisted it would be over by Christmas". This is so spot on and at the same time so ridiculous, but he did really say it.

Apparently the US can't stand staying behind on the humor front, even if that's not exactly what the nation is known for. But hey, I'm easy, and Bernanke and Paulson rolling over the floor trying to blame each other for their own stupidity, I’ll take it. Andrew Cuomo, New York’s attorney-general, who by the way wants to be governor, which really seriously devalues him in my view, because that will not be a nice job over the next four years, and even if the chances of staying on till the end are slimmer than Kate Moss, what time he would manage to keep the job would just be filled with heartache.

Strictly from the amusement value viewpoint, though, I'd be in favor, since it would mean we could see Eliot Spitzer back as attorney-general, a surefire recipe for at least one full year roller-coaster ride filled with entertainment. But as I was saying, Cuomo has sent a letter this morning to "Chairpersons Dodd, Frank, Schapiro and Warren" in which he says Hank Paulson threatened to kick Bank of America CEO Ken Lewis out unless he would swallow the Merrill Lynch take-over that had been agreed on, despite the fact that Lewis argued the Merrill situation had since dramatically deteriorated, and it would screw his shareholders.

Cuomo's letter also states that Paulson told his office he only made the threat because Bernanke told him to do so. Not to be outdone, our secret comedy weapon Bernanke has his office issue a message saying he did no such thing, and Paulson was speaking for himself. I have to admit, it's sort of curious that -almost?- all the information surrounding the deliberations was coming, as far as I can see, from the Federal Reserve, not the Treasury, but then again, that wouldn't make me trust Paulson one inch more no matter what. There's limits.

Why do I have visions of Jerry Springer here? Is it because I would absolutely LOVE for those two to get into a public hair-pulling (I know, I’m hilarious) catfight on live TV? Or maybe I'd like for people to use this whole thing to try and understand what level these negotiations are really taking place on, and how prepared Dumb and Dumber are going into the smoky backrooms in which they get to gamble away hundreds of billons of dollars of other people's money in one single night.

And no, of course nothing has changed with the new administration. For one thing, Bernanke is still there, and we're finding out he's just a two-bit lying son of a snitch. For another, the visible heads may have switched, but they're all hobbied together from the same Goldman mold and the same Harvard clay regardless, so as to ensure continuity. After all, that's one thing you want to be careful with: continuity. Can't just put some guys in there who don't know what they're doing, or, for that matter, what their predecessors have been doing.

So as you're enjoying the show in the next little while, and it could be a good one, I give you that, do remember not to finish all the beer and pretzels in one inning: there's at least eight more to come. Which in turn makes me realize how much the image of the Washington and Wall Street Three Stooges schtick resembles the Abbott and Costello baseball lingo, replete with terms like the switch hitter, the clean-up hitter, relievers, double plays, double steals, the infield fly-ball rule, the ground-rule double, the Uncle Charlie and the yakker, the backdoor slider, the Bronx cheer, chin music, the suicide squeeze play, and I could go on for a bit, the most powerful men in the nation fighting like so many dirt mean five year old girls, or on stage with Jerry Springer being exposed for their corked bats.

Most important of all: let this be a lesson for you that this is but a game, and tomorrow morning you'll have to wake up again. These guys couldn't save your economy if their kids' lives depended on it, not even if they tried, which they don't. Whatever you do, don't watch till the end, because if you do, you’ll find all your furniture, except for your couch and TV, have mysteriously vanished.

Cuomo: Paulson threatened Bank of America over Merrill deal
Bank of America’s chief executive, Ken Lewis, only agreed to complete the acquisition of Merrill Lynch this year after federal regulators threatened to replace him and his board if BofA balked on the deal, New York’s attorney-general said on Thursday in a letter to federal officials. Andrew Cuomo, New York’s top regulator, quoted Mr Lewis as saying that in December, when mounting losses at Merrill caused him to reconsider the acquisition, Hank Paulson, then US Treasury secretary, warned a busted deal could destabilise the financial system. In a deposition in February, Mr Lewis said Mr Paulson told him that “we feel so strongly that we would remove the board and management” of BofA if it pulled out of the deal. Mr Cuomo’s letter described Mr Paulson’s remarks as a “threat”. In an interview with Mr Cuomo’s office, the letter said that Mr Paulson indicated that he told Mr Lewis “the government either could or would remove the board and management” if BofA scuttled the deal.

Mr Paulson said he did so at “the request” of Ben Bernanke, the Fed chairman. Mr Bernanke did not give a deposition, citing bank examiner privilege. The Federal Reserve refused to comment. Mr Paulson quoted Mr Lewis as responding to his comments on management change by saying: “That makes it simple. Let’s de-escalate.” According to minutes from a BofA board meeting on December 22, the board agreed to proceed with the deal given that Mr Paulson and Mr Bernanke had agreed to provide financial assistance, which eventually totalled $20bn. The timing of these disclosures comes as Mr Lewis is fighting for support among investors prior to next Wednesday’s shareholder meeting in North Carolina. Mr Lewis conceded that “over the short term” his shareholders would suffer but ultimately the Merrill deal would pay off for BofA. Mr Lewis defined “short term” as “two to three years”.

Ilargi: Click here for Cuomo's full letter (PDF)

Paulson Throws Bernanke Under the Bus, Backs Ken Lewis
New York Attorney General Andrew Cuomo has released a letter with accompanying addenda that he sent to key Washington officials. In it he says that Henry Paulson essentially corroborated Ken Lewis’s testimony concerning the acquisition of Merrill Lynch. Paulson also testified that the threats made to Lewis concerning his replacement should the Merrill deal not be completed were done at the request of Fed Chairman Ben Bernanke.
In an interview with this Office, Secretary Paulson largely corroborated Lewis’s account. On the issue of terminating management and the Board, Secretary Paulson indicated that he told Lewis that if Bank of America were to back out of the Merrill Lynch deal, the government either could or would remove the Board and management. Secretary Paulson told Lewis a series of concerns, including that Bank of America’s invocation of the MAC would create systemic risk and that Bank of America did not have a legal basis to invoke the MAC (though Secretary Paulson’s basis for the opinion was entirely based on what he was told by Federal Reserve officials).

Secretary Paulson’s threat swayed Lewis. According to Secretary Paulson, after he stated that the management and the Board could be removed, Lewis replied, “that makes it simple. Let’s deescalate.” Lewis admits that Secretary Paulson’s threat changed his mind about invoking that MAC clause and terminating the deal. Secretary Paulson has informed us that he made the threat at the request of Chairman Bernanke. After the threat, the conversation between Secretary Paulson and Lewis turned to receiving additional government assistance in light of the staggering Merrill Lynch losses.
I’m not going to editorialize right now. I need to think this through. One thought, though. Is there any way at this juncture that Ken Lewis is still the CEO of BofA by the end of this week?

Paulson's words to Bank of America were his own-Fed spokesman
Then-U.S. Secretary Henry Paulson was delivering his own message, and not the Federal Reserve's, when he told Bank of America CEO Kenneth Lewis that the bank was in a binding merger contract with Merrill Lynch and Co., a spokesman for Paulson said on Thursday. "Secretary Paulson's words were his own," the spokesman said. "(Fed) Chairman (Ben) Bernanke did not instruct him to indicate any specific action the Fed might take," a spokesman for Paulson said in a statement. New York Attorney General Andrew Cuomo said on Thursday that Lewis was pressured by Paulson and Bernanke to go through with Bank of America's planned merger with Merrill Lynch.

Bernanke and Paulson look foolish if Ken Lewis is right
If Ken Lewis is telling the truth -- and he'd be foolish to lie to New York State Attorney General Andrew Cuomo -- then Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson were more than concerned about the financial crisis. They were panicking. Why else would the two most important administration officials presiding over the financial crisis play hardball backroom politics with Lewis, the chief executive of Bank of America Corp., who had taken significant risk by acquiring Merrill Lynch & Co. last September? Lewis testified that Paulson used threatening language to push through the deal, according to a letter released by Cuomo's office Thursday.

"'I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help'," Lewis claims Paulson told him, according to testimony released Thursday. Lewis said he considered invoking a material adverse change, or MAC, clause to pull out of the Merrill deal in December, reasoning that Merrill's financial picture deteriorated severely in just three months' time. But he adds he was warned by Paulson to stick with Merrill. "I can't recall if he [Paulson] said, 'We would remove the board and management if you called [a MAC],' or if he said, 'We would do it if you intended to'," Lewis testified. Lewis backed down in the December showdown and was left to take the blame when Merrill reported a stunning $15 billion loss for the fourth quarter, after the deal closed at year's end. If his testimony is correct, the story seems to vindicate Lewis, in part, for his decision to go through with the deal.

One could argue Lewis should have called Paulson's bluff, but when you're facing two regulators threatening your job and your bank, well, one can't blame Lewis for taking the escape route offered to him. As for Paulson, his legacy is further tarnished by the heavy-handed tactics charged by Lewis. Paulson's alleged wishes that the backroom agreement would not be a "disclosable event," or that he would remove the board of a public company, suggest power run amok. Bernanke's reputation is tarnished worse. He stepped aside and let Paulson play bad cop even though he clearly had doubts about how the Bank of America situation was being handled. Bernanke still leads the Fed. But his influence and judgment have suffered self-inflicted wounds.

Clever wheezes do not mend banks
So, what do all the $12.7bn (€9.8bn, £8.7bn), and counting, in first-quarter profits from what used to be known as Wall Street add up to? Have the past two years been one giant head fake, despite what we have been led to believe? Is the global meltdown we have been subsidising with trillions of taxpayer dollars over? Is the investment bank back? Not so fast. While global banking activity has picked up considerably since the financial ice age that followed the collapse of Lehman Brothers – the nadir was September 29, the day the US Congress failed to pass the first version of the troubled asset relief programme and the market plunged 778 points – the thaw has been aided and abetted by some very clever schemes.

First was the decision by the Federal Accounting Standards Board on April 2 to modify what many bankers considered the FASB’s onerous mark-to-market rules forcing securities firms to write down the value of their assets as they lost value in the in?creasingly illiquid market. (Seems like a reasonable idea to value assets at what they are really worth, no?) The FASB had been reviewing this change and received much commentary from the financial community “that asserted that fair value is not as relevant when financial markets are inactive or "distressed”. In other words, the rules were killing the banks’ balance sheets. A stroke of the pen could fix that. FASB’s decision – which allowed financial institutions to re-mark upwards the value of their portfolios of troubled assets – was retroactive to March 15, two weeks before the end of the first quarter of 2009.

Then a steady stream of first-quarter bank profits came in. On April 9, with very few specifics, Wells Fargo announced it had made $3bn in the first quarter. Goldman Sachs later pre-announced it had made $1.8bn. Then JPMorgan Chase said it had made $2.1bn. Citigroup, the biggest of the zombie banks, reported profits of $1.6bn. Bank of America logged profits of $4.25bn, while also conceding that nearly half the profit came from a mark-to-market gain at Merrill Lynch. FASB does not get all the credit for helping to manufacture these profits, but it surely gets some of it. “We are an independent standard-setter and it’s important that we maintain our independence,” FASB board member Lawrence Smith told the Wall Street Journal, “[but the board can’t] ignore what’s going on around us” – a clear nod at the plaintive pleas from banks. (What all this marking up of toxic assets on the banks’ books will mean for the US Treasury secretary Tim Geithner’s plan to encourage trading in these assets is another matter.)

The Federal Reserve has also been listening carefully to the banks’ pleas. It has lowered the cost of money it charges banks – and since all the big Wall Street securities firms are either gone or have become banks, this means virtually everyone – to close to zero. As one of the two largest costs a bank incurs is what it pays for money – the other being compensation, which has also been greatly reduced – it is not surprising the big banks found a way to make profits when their raw material costs shrank. Airlines could make money too, if jet fuel were free. Then there is the sleight of hand, at least in the case of Goldman Sachs, which, when it converted from a securities firm to a bank holding company last autumn, changed its fiscal year-end to December 31 from November 30. Its first-quarter numbers, for the three months ended March 31 2009, did not include its horrific December results – into which Goldman threw everything but the kitchen sink – of a loss of more than $1bn. During the past seven months – including December (there was Christmas, right?) – Goldman in fact lost $1.5bn.

The problem with artificial stimuli and technicalities is not only that they do nothing to help capital markets recover in an honest way, but also that they mask what has been a trickle of genuine activity in the past few weeks. There were signs of life in mergers and acquisitions, with some $27bn of deals announced on Monday. Last week the long-dormant junk bond market saw $4bn of new issuance – from the likes of such leveraged credits as HCA, Crown Castle International and Seagate Technology. There were two initial public offerings as well; Rosetta Stone, a language software company, rose nearly 40 per cent on its first day of trading. Also, JPMorgan Chase, took the unusual step – for the first time in eight months – of issuing $3bn of 10-year bonds without the guarantee of the FDIC. Goldman made a similar move on January 29, when it sold $2bn of debt without government backing.

A true return of profitability on Wall Street will come with the return of public confidence in the way it does business. Concepts such as honesty and transparency are key, not a bunch of accounting gimmicks designed to manufacture profits and send markets soaring. The public will remain sceptical of the recovery – and the return of the investment banks – until then.

U.S. Is Said to Prepare Filing for Chrysler Bankruptcy
The Treasury Department is preparing a Chapter 11 bankruptcy filing for Chrysler that could come as soon as next week, people with direct knowledge of the action said Thursday. The Treasury has an agreement in principle with the United Automobile Workers union, whose members’ pensions and retiree health care benefits would be protected as a condition of the bankruptcy filing, said these people, who asked for anonymity because they were not authorized to discuss the case. Moreover, Fiat of Italy would complete its alliance with Chrysler while the company is under bankruptcy protection. The only major question that remains unresolved is what happens to Chrysler’s lenders, who hold $6.9 billion in company debt.

The government’s most recent offer, presented Wednesday, would give the company’s lenders about 22 cents on the dollar, or $1.5 billion, and a 5 percent equity stake in a reorganized Chrysler. Earlier this week, a steering committee of the lenders proposed that they receive 65 cents on the dollar, or $4.5 billion, and a 40 percent equity stake. Officials at Chrysler and the Treasury were not immediately available for comment. A bankruptcy filing by Chrysler would be the first among Detroit’s troubled automakers, who have been mired in a devastating sales slump since last fall. Treasury is also working with General Motors to prepare a possible bankruptcy case, and the terms of a Chrysler filing might offer a glimpse into the shape of G.M.’s own filing. Some analysts questioned whether the Treasury’s steps to prepare a bankruptcy case were an effort to put more pressure on lenders, with which it has exchanged proposals meant to reduce Chrysler’s debt.

Chrysler faces an April 30 deadline from the Treasury, while G.M. faces a June 1 deadline in its own efforts to draft a new restructuring plan. Under the most likely assumptions, Treasury will provide the financing that Chrysler needs to operate while under bankruptcy protection. The Canadian government is also expected to participate in backing the company. The Globe and Mail of Toronto reported the Canadian government’s role on Thursday. Last month, the Obama administration told Chrysler it would provide up to $6 billion in financing if Chrysler and Fiat could complete a deal by the end of this month. Fiat originally agreed to take 35 percent of Chrysler, but the stake was subsequently reduced to 20 percent. The administration said it would provide up to $6 billion in financing if the two companies agreed, on top of $4 billion in federal assistance that Chrysler has already received.

Although the two companies have been holding discussions on an out-of-court agreement, a bankruptcy case would allow Fiat to more easily select the assets of Chrysler that it wants to preserve, such as dealerships, factories and the company’s product development operations, these people said. The approach, which relies upon Section 363 of the federal bankruptcy code, is somewhat similar to what the government is planning in the case of G.M. Then, Chrysler could sell or jettison any assets it does not want to keep, and cancel franchise agreements with superfluous car dealers. The U.A.W., Chrysler and Treasury have reached agreements in principle that would protect workers’ benefits, these people said, and a similar agreement is expected to be reached as soon as this weekend with the Canadian Auto Workers union.

Once Chrysler emerges from bankruptcy protection, it would largely be owned by Fiat, the U.A.W., the Treasury and its lenders, these people said. Ron Gettelfinger, the U.A.W.’s president, issued a statement on Wednesday saying that the union was "continuing to work toward an agreement that will be in the best interest of Chrysler workers, retirees and the communities where the company does business." People close to the talks said Wednesday that the U.A.W. had tentatively agreed to accept Chrysler stock to finance half of the company’s $10.6 billion obligation to the health care trust. The balance would be paid in cash over the next decade. That money presumably could come from either the Treasury, or from Chrysler’s profits, once it emerges from bankruptcy protection.

Chrysler has a $9.3 billion pension shortfall, or 34 percent of its total liability, according to the Pension Benefit Guaranty Corporation. The agency said earlier this month that it would assume $2 billion of the shortfall in the event Chrysler terminates its pension plans. If that happened, retirees would receive sharply lower benefits than they normally would expect. But Chrysler is not obligated to terminate its pension plans while in bankruptcy, particularly if it received federal assistance to fund them. It was not clear Thursday where Chrysler would file its bankruptcy case. On Wednesday, Mike Cox, the attorney general of Michigan, urged General Motors and Chrysler to consider filing in the state, rather than Delaware or New York. He said a locally administered case would be more convenient for creditors in Michigan.

The Global Economy In The Next Year
by Nouriel Roubini

iThe global economy is in the middle of a synchronized contraction that will push global growth into negative territory in 2009 for the first time in decades. This will be the worst financial crisis since the Great Depression and the worst global economic downturn in decades. Global trade volumes face their sharpest contractions of the postwar era--trade is expected to contract 12% in 2009 due to the severe and prolonged slump in global demand, excess capacity across supply chains and the continued crunch in trade finance. Many analysts and commentators are pointing out that the second derivative of economic activity is turning positive (i.e., economies are still contracting, but at a slower rather than accelerated rate) and that the green shoots of an economic recovery are peeping out.

My analysis of the data suggests that the global economic contraction is still in full swing with a very severe, deep and protracted U-shaped recession. Last year's economic consensus forecast of a V-shaped short and shallow recession has vanished. While the rate of economic contraction is slowing compared to the free fall rates of the fourth quarter of 2008 and the first quarter of 2009, we are still a long way away from the economic bottom and from a sustained recovery of growth. In particular, in Europe and Japan there is little evidence of a positive second derivative of economic activity.

However, by the end of the first quarter of 2009, there were some signs that the pace of contraction had slowed in many economies, especially in the U.S. and China, where policy responses have been more significant and leading indicators in the manufacturing sector may have bottomed before they did in Europe and Japan. However, major economies, including all of the G7, will continue to contract throughout 2009, albeit at a slower pace than at the beginning of the year. Moreover, the global recovery might be sluggish at best in 2010 given the overhang of the credit losses of financial institutions, the lingering credit crunch, the need for retrenchment by overstretched and over-indebted households in current-account-deficit countries, and a slow resumption of demand prompted by extensive government stimulus.

Some key elements of my outlook include:
  • Global economic activity is expected to contract by 1.9% in 2009. Advanced economies are expected to contract 4% in 2009. Japan and the eurozone will suffer the sharpest downturns. U.S. gross domestic product will continue to contract, albeit at a slower pace throughout 2009, with negative growth in every quarter.
  • Emerging markets will slow down sharply from the stellar growth rates of the past few years, with the BRIC economies growing at half their 2008 pace.
  • Deteriorated terms of trade, slower capital flows and tighter credit will push Latin America into recession from the 4.1% growth of 2008. Argentina, Brazil, Chile, Colombia, Mexico and Venezuela will all shift to negative territory on a year-over-year basis, while smaller economies, like Peru, will experience a significant slowdown.
  • Countries in Eastern Europe and the sphere of Russia will experience some of the sharpest contractions given the withdrawal of foreign credit and the risk of a severe financial crisis. The reduction in oil revenues and financial stress will contribute to a 5% year-over-year contraction in Russia, and some countries--especially in the Baltics--are at risk of double-digit contractions
  • Export-dependent Asia's growth will slow significantly to less than 3% in 2009. China will have a hard landing with GDP growth falling to 5.5% while India will slow sharply to 4.3%. All four Asian Tigers (Singapore, Taiwan, South Korea and Hong Kong) as well as Malaysia and Thailand will experience recessions.
  • The Middle East and Africa will mark much slower growth, at half of their 2008 pace, given the reduction in capital inflows, reduced demand from the U.S. and E.U., and decline in commodity prices and output. Israel and South Africa will suffer slight contractions.
  • The unprecedented fiscal and monetary stimulus may help alleviate the substantial contraction in private demand and reduce the risk of a global L-shaped near-depression. Debt financing may be a challenge for many countries though, especially emerging markets or the most vulnerable Western European economies.
  • Job losses during the current global recession might exceed those in recent recession, contributing to increases in defaults and posing additional risks to banks. The unemployment rate in developed countries will reach double-digits by 2010 (as early as mid-2009 in the U.S.) and push more people in developing countries into poverty. Moreover, despite new funding from multilateral institutions, severe contractions will raise the risk of social and political unrest.
  • Commodities, as a class, are likely to come under renewed pressure in 2009, despite some support from production cuts. I expect the West Texas Intermediate (WTI) oil price to average about $40 a barrel in 2009, as demand destruction continues to outweigh crude supply destruction.

Crisis Plunges US Middle Class into Poverty
The financial crisis in the US has triggered a social crisis of historic dimensions. Soup kitchens are suddenly in great demand and tent cities are popping up in the shadow of glistening office towers. Even drug dealers are feeling the pinch. Business is poor in the New York banking district around Wall Street these days, even for drug dealers. In the good old days, they used to supply America's moneyed elite with cocaine and crack. But now, with the good times gone, they spend their days in the Bowery Mission, a homeless shelter with a dining hall and a chapel. Alvin, 47, is one of them. His customers are gone, as is the money he earned during better times. And when another dealer higher up the food chain decided he was entitled to a bigger cut of the profits, things became too dicey for Alvin. "I'm afraid," he says. Alvin, who is originally from Louisiana, cleared out his apartment and moved into the oldest homeless shelter in New York City. In the drug business, a dealer who doesn't pay his bills stands to get the maximum penalty: death. But Alvin feels safe in the Bowery Mission, even though beds have become scarce at the facility. "Last night I slept on the floor in front of the pulpit," he says.

Like human detritus, society's disappointed and castoffs sit around in the mission every evening, waiting to be assigned their sleeping quarters -- a bed, a floor mat or an unpadded church pew -- by the shelter director. Ironically, the mission's sponsors cut its budget by 16 percent during the crisis, says the mission's director of outreach, James Macklin, who is responsible for the mission's budget. Macklin was once homeless himself and lived at the mission before he rose through the ranks to his current management position. "We will emerge stronger from this crisis," he says defiantly. In the United States, the economic downturn has developed into a social crisis of a dimension the country has not experienced since the Great Depression early in the 20th century. In addition to bringing down stock prices and corporate earnings, the current crisis has deprived millions of people of their livelihood. Poverty as a mass phenomenon is back. About 50 million Americans have no health insurance, and more people are added to their ranks every day. More than 32 million people receive food stamps, and 13 million are unemployed. The homeless population is growing in tandem with a rapid rise in the rate of foreclosures, which were 45 percent higher in March 2009 than they were in the same month of the previous year.

The effects of the crisis are even palpable in better neighborhoods. The streets are wide in Venice Beach, an upscale Los Angeles suburb near the ocean. But now they seem narrower than usual, because they are lined with parked campers and station wagons, the temporary homes of people whose lives have been put on hold. Many have covered the windows with cardboard to preserve a modicum of privacy. Some have put up signs that read "Come in if you dare," hoping to deter car thieves and other criminals. The crisis is also making itself felt in posh Georgetown, a historic residential neighborhood in Washington D.C. which is home to many politicians, lobbyists and attorneys. Anyone who forgets to lock his car at night can expect to see unwanted guests sleeping in it by the next morning. When one local woman, who works at a Middle Eastern embassy in Washington, opened her car door one morning, she was astonished to find a woman holding a purse and wearing a pearl necklace sitting on the seat. The humiliated woman covered her face, apologized politely and quickly left her sleeping quarters. The loss of a job often marks the beginning of the end of a middle-class way of life. In a delirium of cost-cutting, American companies have even started to lay off parts of their core workforce. The unemployment rolls grew by about 690,000 people in March, 850,000 in February and 510,000 in January. Since the beginning of the crisis in the summer of 2007, the total number of the unemployed in the United States has swelled by 6 million.

The government's social safety net is insufficient to allow people who have lost their jobs to continue living their lives as if little or nothing had happened. After the consumption binge of recent years, the bank accounts of ordinary people are empty, and the investment accounts of the middle class have declined in value by an average of 40 percent. Because of these factors, unemployment is often followed a rapid plunge into abject poverty. Nowadays, politicians spend as much time visiting homeless shelters as they once spent at Silicon Valley startups. People waiting in line at Miriam's Kitchen in Washington were recently pleased to see first lady Michelle Obama when she paid a surprise visit to the soup kitchen. Before he was sworn into office, President Barack Obama helped to paint a homeless shelter not far from the White House. In a recent speech, Obama said that he envisions "a future where sustained economic growth creates good jobs and rising incomes." But these words seem empty in the current crisis. The president must now look on as the country comes apart at the seams. With jobs disappearing and incomes shrinking, America's future seems vulnerable today. The crisis in the lower third of society has turned into an existential threat for some Americans. Many soup kitchens are turning away the hungry, and even hastily constructed new facilities to house the homeless are often inadequate to satisfy the rising demand.

Many private corporations across America are withdrawing their funding for social welfare projects. Ironically, their generosity is ending just as mass poverty is returning to America. The government is also contributing to a worsening of the crisis. Although the national government in Washington has made additional funds available to care for the homeless, many state governments have cut back their social budgets. One of the reasons for the cutbacks has to do with state constitutions, which prohibit states from going into debt, imposing a forced regime of frugality. In New York City, soup kitchens must make do with sharply reduced budgets, even though demand for their services has quadrupled. According to the city government, free meals were provided to 1.3 million people in 2007. From October to November 2008, the number of New Yorkers living below the poverty line suddenly jumped to 3 million. More recently, city soup kitchens have been literally overrun by their clientele. The Church of the Holy Apostles in Manhattan currently distributes 1,250 meals a day, but even that is not enough, says Joel Berg, director of the New York City Coalition Against Hunger. "Many people leave without having received a meal." Hunger is rarely a solitary affliction. Many of those waiting in line at soup kitchens no longer have permanent homes. Thousands of the homeless, including many families that could no longer pay their rent, have moved into inexpensive motels. These are people who were once part of America's middle class.

The Costa Mesa Motor Inn is in Orange County, an upscale area not far from Los Angeles, familiar to many TV viewers as the setting of "The O.C.," a series about the glamorous love lives of spoiled teenagers. The motel is next to an exceedingly green golf course, and a new shopping center across the street offers lattes for adults and play zones for children. But there is nothing glamorous about the Costa Mesa Motor Inn, where strict rules are posted at the entrance: no alcohol, no panhandling. A police car is parked in front of the motel. Toy cars lined up on a windowsill in room 1108 serve as a reminder of better days. "We were able to take the toy cars with us, but I had to throw most of the toys into the dumpster," says Sergio Gallardo. He rents a room at the motel, which is barely 100 square feet (10 square meters) in size and has a small kitchenette, for $870 (€670) a month. His children -- Raymon, 13, Sergio, 12, Alina, 8, Jacob, 5 and Lovely, 3 --  peer out of the dimly lit room. The Gallardos, who used to live in a large, three-bedroom apartment, have been staying at the motel since November. Sergio, 33, a powerful-looking man wearing an XXL T-shirt, once earned a good living as a construction worker, while his wife raised the children. But now he has lost his job, his wife and his car. The family's German shepherd dog had to be taken to an animal shelter, because dogs are not permitted in the motel.

The only benefit of the family's new quarters is that there are many playmates for the children. A local charity estimates that more than 1,000 families are living in motels in Orange County. The face of the crisis is cheerful here at the Costa Mesa Motor Inn's playground, where children giggle and shriek as if they were at Disneyland. As dire as their current situation is, the Gallardos are luckier than some of those in the Californian capital of Sacramento. There, not far from a railroad embankment, a tent city was, until recently, home to the poorest of the poor. The tent city had been around for several years but was in the past populated mainly by dropouts and drug addicts. But in recent months they were joined by the casualties of the economic crisis. Similar tent cities are growing all across the United States, from Seattle to Florida. Compassion is good for TV ratings, as talk show host Oprah Winfrey demonstrated recently when she drew her viewers' attention to the Sacramento tent city. Oprah's publicity was embarrassing for Sacramento and its mayor, Kevin Johnson, and the tent city was cleared by the city last week. Johnson said that Sacramento would spend some $1 million on finding alternative shelter for those in the camp and providing more permanent housing. The television images from Oprah's report were reminiscent of pictures in a history book. Like some bitter reminder of the past, pictures of adults with empty eyes and neglected children looked like a caricature of the American dream. Criminologist James Alan Fox, who has long warned of a rise in crisis-related crime, says that more and more Americans are struggling today. "The American dream to them is a nightmare, and the land of opportunity is but a cruel joke," Fox recently told the Washington Post.

Recent statistics confirm his predictions, as America begins to turn into a brutal place once again. April has already gone down as one of the bloodier months in American criminal history. A week before Easter, a 22-year-old man killed three police officers in Pittsburgh. On the same day, a 34-year-old man in Washington State shot his five children before turning his gun on himself. A day earlier, a man killed 13 people at an immigrant resource center and then took his own life. During the same month, a man from Priceville, Alabama shot his wife, his sister, her 11-year-old son, his own 16-year-old daughter and, finally, himself. "This is the American way," New York Times columnist Bob Herbert writes cynically. He points out that Americans have killed about 120,000 of their fellow Americans since the terrorist attacks of Sept. 11, 2001 -- nearly 25 times the number of Americans killed to date in the conflicts in Iraq and Afghanistan. More and more experts attribute the rise in crime in recent months to the dire state of the economy. "I've never seen such a large number (of killings) over such a short period of time involving so many victims," Jack Levin, a professor of criminology at Northeastern University in Boston, told the Washington Post. Once again, a generation of children are growing up in America whose daily lives are marked by violence and hopelessness. Education often suffers among the new underclass. Children who are homeless or live in motels are less likely to do their homework or even go to school.

Rhonda Haramis is in charge of the student outreach program at the Mary Bethune Transitional Center in Long Beach, California. On one day, she received calls from 18 parents, many of them saying that they were about to be evicted and could no longer guarantee that their children could attend school or that they could help them with their homework. Haramis and her fellow teachers don't know what to tell the parents. In an interview with a local newspaper, they likened the impact of the crisis on them to the effects of Hurricane Katrina on New Orleans. The social crisis is especially hard on those who were already struggling before, such as illegal immigrants working as day laborers. A group of them congregates every morning in the large parking lot of a Home Depot home improvement store in Los Angeles, directly on the city's world-famous Sunset Boulevard. These day laborers no longer have any illusions. By 11 a.m., hundreds of men are still sitting on the small stone walls surrounding the parking lot, and whenever a car pulls up, a throng of men surround the vehicle, hoping for work. They rattle off the few bits of English they have picked up: "painting," "cleaning," "do everything," "cheap." Hardly any of the men is successful. The crisis can disrupt everything, including Americans' faith in the beneficial actions of their own government. The Obama administration has already pumped billions into the banking system, and additional billions have been earmarked for road and bridge construction. Nevertheless, the social situation has steadily deteriorated.

The euphoria over the country's first black president, a man who won the election with catchwords like "change" and "hope," has ebbed away considerably. Obama's appealing words still sound appealing, but his listeners have recently starting paying more attention to what he does than to what he says. When the president discusses the economic situation nowadays, the euphoria has given way to disenchantment in many places. When Obama stepped up to the microphone at Washington's Georgetown University last week, he warned his audience that his speech would be "prose and not poetry." But those words seemed superfluous, since these days no one would think of calling out: "Yes, we can!" Most of all, a pensive Obama asked his audience for patience. He noted that although there are initial rays of hope that the situation could be improving, "we cannot rebuild this economy on the same pile of sand. We must build our house upon a rock." But this, he said, could not be done in a short period of time. He continues to point his finger at his predecessor, the unpopular George W. Bush, to remind people how it all began. We have inherited a budget disaster, a real mess, he has said time and time again. But his words are no longer capable of igniting passions, because Bush is now history. The former president now spends his days doing things like throwing out the first pitch at baseball games, as he did recently in Texas. On those occasions, he likes to smile for the cameras. But whenever he is asked to comment on Obama's policies and his handling of the crisis, he tactfully declines to answer the question. "He deserves my silence," says Bush. The crisis has become Obama's crisis.

AP Poll: Americans high on Obama, direction of US
For the first time in years, more Americans than not say the country is headed in the right direction, a sign that Barack Obama has used the first 100 days of his presidency to lift the public's mood and inspire hopes for a brighter future. Intensely worried about their personal finances and medical expenses, Americans nonetheless appear realistic about the time Obama might need to turn things around, according to an Associated Press-GfK poll. It shows most Americans consider their new president to be a strong, ethical and empathetic leader who is working to change Washington. Nobody knows how long the honeymoon will last, but Obama has clearly transformed the yes-we-can spirit of his candidacy into a tool of governance. His ability to inspire confidence -- Obama's second book is titled "The Audacity of Hope" -- has thus far buffered the president against the harsh political realities of two wars, a global economic meltdown and countless domestic challenges. "He presents a very positive outlook," said Cheryl Wetherington, 35, an independent voter who runs a chocolate shop in Gardner, Kan. "He's very well-spoken and very vocal about what direction should be taken."

But other AP-GfK findings could signal trouble for Obama as he approaches his 100th day in office, April 29:
--While there is evidence that people feel more optimistic about the economy, 65 percent said it's difficult for them and their families to get ahead. More than one-third know of a family member who recently lost a job.
--More than 90 percent of Americans consider the economy an important issue, the highest ever in AP polling.
--Nearly 80 percent believe that the rising federal debt will hurt future generations, and Obama is getting mixed reviews at best for his handling of the issue.

And yet, the percentage of Americans saying the country is headed in the right direction rose to 48 percent, up from 40 percent in February. Forty-four percent say the nation is on the wrong track. Not since January 2004, shortly after the capture of former Iraqi dictator Saddam Hussein, has an AP survey found more "right direction" than "wrong direction" respondents. So far, Obama has defied the odds by producing a sustained trend toward optimism. It began with his election. But he is aware that his political prospects are directly linked to such numbers. If at the end of his term the public is no more assured that Washington is competent and accountable and that the nation is at least on the right track, his re-election prospects will be doubtful. "I will be held accountable," Obama said a few weeks into his presidency. "You know, I've got four years. ... If I don't have this done in three years, then there's going to be a one-term proposition." The AP-GfK poll suggests that 64 percent of the public approves of Obama's job performance, down just slightly from 67 percent in February. President George W. Bush's approval ratings hovered in the high 50s after his first 100 days in office.

But Obama also has become a somewhat polarizing figure, with just 24 percent of Republicans approving of his performance -- down from 33 percent in February. Obama campaigned on a promise -- just as Bush had -- to end the party-first mind-set that breeds gridlock in Washington. Obama is not the first president who sought to tap the deep well of American optimism -- the never-say-die spirit that Americans like to see in themselves. Even as he briefly closed the nation's banks, Franklin Delano Roosevelt spoke in the first days of his presidency of the "confidence and courage" needed to fix the U.S. economy. "Together we cannot fail," he declared. "When Obama came in," said D.T. Brown, 39, a Mount Vernon, Ill., radio show host who voted against Obama, "it was just a breath of fresh air." Others said their newfound optimism had nothing to do with Obama, but rather with an era of personal responsibility they believe has come with the economic meltdown. "I think people are beginning to turn in that direction and realize that there's not always going to be somebody to catch them when things fall down," said Dwight Hageman, 66, a retired welder from Newberg, Ore., who voted against Obama. The AP-GfK Poll was conducted April 16-20 by GfK Roper Public Affairs and Media. It involved telephone interviews on landline and cell phones with 1,000 adults nationwide. The margin of sampling error is plus or minus 3.1 percentage points.

A glimmer of hope?
The rays are diffuse, but the specks of light are unmistakable. Share prices are up sharply. Even after slipping early this week, two-thirds of the 42 stockmarkets that The Economist tracks have risen in the past six weeks by more than 20%. Different economic indicators from different parts of the world have brightened. China’s economy is picking up. The slump in global manufacturing seems to be easing. Property markets in America and Britain are showing signs of life, as mortgage rates fall and homes become more affordable. Confidence is growing. A widely tracked index of investor sentiment in Germany has turned positive for the first time in almost two years.

All this is welcome—not least because the slump has been made so much worse by panic and despair. When the financial system was on the brink of collapse in September, investors shunned all but the safest assets, consumers stopped spending and firms shut down. That plunge into the depths could be succeeded by a virtuous cycle, where the wheels of finance turn again, cheerier consumers open their wallets and ambitious firms turn from hoarding cash to pursuing profits. But, welcome as it is, optimism contains two traps, one obvious, the other more subtle. The obvious trap is that confidence proves misplaced—that the glimmers of hope are misinterpreted as the beginnings of a strong recovery when all they really show is that the rate of decline is slowing. The subtler trap, particularly for politicians, is that confidence and better news create ruinous complacency. Optimism is one thing, but hubris that the world economy is returning to normal could hinder recovery and block policies to protect against a further plunge into the depths.

Begin with those glimmers. It is easy to read too much into the gain in share prices. Stockmarkets usually rally before economies improve, because investors spy the promise of fatter profits before the statisticians document a turnaround. But plenty of rallies fizzle into nothing. Between 1929 and 1932, the Dow Jones Industrial Average soared by more than 20% four times, only to fall back below its previous lows. Today’s crisis has seen five separate rallies in which share prices rose more than 10% only to subside again. The economic statistics are hard to interpret, too. The past six months have seen several slumps, each with a different trajectory. The plunge in manufacturing is in part the result of a huge global inventory adjustment. With unsold goods piling up and finance hard to come by, firms around the world have slashed production even faster than demand has fallen. Once firms have run down their stocks they will start making things again and the manufacturing recession will be past its worst.

Even if that moment is at hand, two other slumps are likely to poison the economy for much longer. The most important is the banking crisis and the purge of debt in the bubble economies, especially America and Britain. Demand has plummeted as tighter credit and sinking asset prices have exposed consumers’ excessive borrowing and scared them into saving more. History suggests that such balance-sheet recessions are long and that the recoveries which eventually follow them are feeble. The second slump is in the emerging world, where many economies have been hit by the sudden fall in private cross-border capital flows. Emerging economies, which imported capital worth 5% of their GDP in 2007, now face a world where cautious investors keep their money at home. According to the IMF, banks, firms and governments in the emerging world have some $1.8 trillion-worth of borrowing to roll over this year, much of that in central and eastern Europe. Even if emerging markets escape a full-blown debt crisis, investors’ confidence is unlikely to recover for years.

These crises sent the world economy into a decline that, on several measures, has been steeper than the onset of the Depression. The IMF’s latest World Economic Outlook expects global output to shrink by 1.3% this year, its first fall in 60 years. But the collapse has been countered by the most ambitious policy response in history. Central banks have pumped out trillions of dollars of liquidity and, in rising numbers, have resorted to an increasingly exotic arsenal of “unconventional” firepower to ease credit markets and loosen monetary conditions even as policy rates approach zero. Governments have battled to prop up their banks, committing trillions of dollars in the process. The IMF has new money. Every big rich country has bolstered demand with fiscal stimulus (and so have many emerging ones). The rich world’s budget deficits will, on average, reach almost 9% of GDP, six times higher than before the crisis hit.

The Depression showed how damaging it can be if governments don’t step in when the rest of the economy seizes up. Yet action on the current scale has never been tried before and nobody knows when it will have an effect—let alone how much difference it will make. Whatever the impact, it would be a mistake to confuse the twitches of an economy on life-support with a lasting recovery. A real recovery depends on government demand being supplanted by sustainable sources of private spending. And here the news is almost uniformly grim. Take the country many are pinning their hopes on: America. The adjustment in the housing market began earlier there than anywhere else. Prices peaked almost three years ago, and are now down by 30%. Manufacturing production has been falling at an annualised rate of more than 20% for the past three months. And the government’s offsetting policy offensive has been the rich world’s boldest.

As the inventory adjustment ends and the stimuli kick in, America’s slump is sure to ease. Cushioned by the government, the economy may even begin to grow again before too long. But it is hard to see the ingredients for a recovery that is robust enough to stop unemployment rising. Weakness abroad will crimp exports. America’s banks are propped up with public capital, but their balance-sheets are clogged with toxic assets. Consumer spending and firms’ investment will be dragged lower by the need to pay back debt and restore savings. This will be a long slog. Private-sector leverage, which rose by 70% of GDP between 2000 and 2008, has barely begun to unwind. At 4%, the household savings rate has jumped sharply from its low of near zero, but it is still far below its post-war average of 7%. Higher unemployment and rising bankruptcies could easily cause a vicious new downward lurch.

In Britain, given the size of its finance industry, housing boom and consumer debt, the balance-sheet adjustment will, if anything, be greater. The weaker pound will buoy exports, but fragile public finances suggest that Britain has much less scope to use government spending to cushion the private sector than America does—as this week’s flawed budget made painfully clear (see article). The outlook should in theory be brighter for Germany and Japan. Both have seen output slump faster than in other rich countries because of the collapse in trade and manufacturing, but neither has the huge private borrowing of the sort that haunts the Anglo-Saxon world. Once inventories have adjusted, recovery should come quickly. In practice, though, that seems unlikely, especially in Germany. As the output slump sends Germany’s jobless rate towards double-digits, it is hard to see consumers going on a spending spree. Nor has the government shown much appetite for boosting demand.

Germany’s fiscal stimulus, although large by European standards, falls well short of what it could afford. Worse, the country’s banks are still in trouble. Germans did not behave recklessly, but their banks did—along with many others in continental Europe. New figures from the IMF suggest that European banks face some $1.1 trillion in losses, hardly any of which have yet been recognised. This week’s German plan to set up several bad banks was no more than a down payment on the restructuring ahead. Japan has acted more boldly. Its latest package of tax cuts and government spending, unveiled in early April, will provide the biggest fiscal boost, relative to GDP, of any rich country this year. Its economy is likely to perk up, temporarily at least. But its public-debt stock is approaching 200% of GDP, so Japan has scant room for more fiscal stimulus. With export markets weak, demand will soon need to be privately generated at home. But the past two decades offer little evidence that Japan can make that shift.

For the time being, the brightest light glows in China, where a huge inventory adjustment has exaggerated the impact of falling foreign demand, and where the government has the cash and determination to prop up domestic spending. China’s stimulus is already bearing fruit. Loans are soaring and infrastructure investment is growing smartly. The IMF’s latest forecast, that China’s economy will grow by 6.5% this year, may prove conservative. Yet even China has its difficulties. Perhaps three-quarters of the growth will come from government demand, particularly infrastructure spending. Not much to glow about Add all this up and the case for optimism fades quickly. The worst is over only in the narrowest sense that the pace of global decline has peaked. Thanks to massive—and unsustainable—fiscal and monetary transfusions, output will eventually stabilise. But in many ways, darker days lie ahead. Despite the scale of the slump, no conventional recovery is in sight. Growth, when it comes, will be too feeble to stop unemployment rising and idle capacity swelling. And for years most of the world’s economies will depend on their governments.

Consider what that means. Much of the rich world will see jobless rates that reach double-digits, and then stay there. Deflation—a devastating disease in debt-laden economies—could set in as record economic slack pushes down prices and wages, particularly since headline inflation has already plunged thanks to sinking fuel costs. Public debt will soar because of weak growth, prolonged stimulus spending and the growing costs of cleaning up the financial mess. The OECD’s member countries began the crisis with debt stocks, on average, at 75% of GDP; by 2010 they will reach 100%. One analysis suggests persistent weakness could push the biggest economies’ debt ratios to 140% by 2014. Continuing joblessness, years of weak investment and higher public-debt burdens, in turn, will dent economies’ underlying potential. Although there is no sign that the world economy will return to its trend rate of growth any time soon, it is already clear that this speed limit will be lower than before the crisis hit. Welcome to an era of diminished expectations and continuing dangers; a world where policymakers must steer between the imminent threat of deflation while countering investors’ (reasonable) fears that swelling public debts and massive monetary easing could eventually lead to high inflation; an uncharted world where government borrowing reaches a scale not seen since the second world war, when capital controls ensured that savings stayed at home.

How to cope with these dangers? Certainly not by clutching at scraps of better news. That risks leading to less action right now. Warding off deflation, for instance, will demand more unconventional steps from more central banks for longer than many now seem to foresee. Laggards, such as the European Central Bank, do themselves and the world no favours by holding back. Nor should governments immediately seek to take back the fiscal stimulus. Prolonged economic weakness does far greater damage to public finances than temporary fiscal activism. Remember how Japan snuffed out its recovery in the 1990s by rushing to raise taxes. Japan also put off bank reform. Countries facing big balance-sheet adjustments should heed that lesson and nudge reform along, in particular by doing more to clean up and restructure the banks. Countries with surpluses must encourage private spending at home more vigorously. China’s leaders are still doing too little to boost private citizens’ income and their spending by fostering reforms, from widening health-care coverage to forcing state-owned firms to pay higher dividends.

At the same time policymakers must give themselves room to change course in the future. Central banks need to lay out the rules that will govern their exit from exotic forms of policy easing (see article). That may require new tools: the Federal Reserve would gain from being able to issue bonds that could mop up liquidity. All governments, especially those with the ropiest public finances, should think boldly about how to lower their debt ratios in the medium term—in ways that do not choke off nascent private demand. Rather than pushing up tax rates, they should think about raising retirement ages, reining in health costs and broadening the tax base. This weekend many of the world’s finance ministers and central bankers will meet in Washington, DC, for the spring meetings of the IMF and World Bank. Amid rising confidence, they will be tempted to pat themselves on the back. There is no time for that. The worst global slump since the Depression is far from finished. There is work to do.

Obama Demands 'Clarity and Transparency' on Credit
President Barack Obama says credit- card issuers should be prohibited from imposing "unfair" rate increases on consumers and should offer the public easier to understand terms for credit. "No more fine print, no more confusing terms and conditions," he told reporters today after meeting with executives from the industry, including representatives from Bank of America Corp. and American Express Co. "We want clarity and transparency from here on out." Obama demanded that credit-card issuers "eliminate some of the abuse" in the industry, citing sudden rate increases on cards and changes in fees. He also called on credit-card companies to make available "a plain vanilla" account with simple and easy to understand terms. The president is pressing for consumer protections that go beyond proposals being considered in Congress and rules issued last year by the Federal Reserve. Obama said his economic team will work with lawmakers on legislation.

Gordon A. Smith, chief executive of card services for JPMorgan Chase & Co., said as he left the White House that the industry representatives "had a very productive conversation with the president." American Bankers Association President Ed Yingling, who also attended the meeting, said Obama was "very clear" in raising the issues he was concerned about, particularly making terms and disclosures easy to understand. They discussed the need for a balance between "the right consumer protections without undermining the availability of credit, particularly at this time when there’s already credit problems in the industry," Yingling said. "I don’t think there was any difference in the room on the need to get the balance right," he said. "We’re going to have a lot of discussions about the details and that will be difficult, but I think everybody’s committed to" finding a resolution. Obama said he is "confident that we can arrive at something that is commonsensical" that permits the industry to thrive while providing credit to consumers and businesses.

As unemployment and unpaid credit-card bills rise, card issuers are under fire for policies that impose large late fees and boost interest rates on delinquent customers. Banks, reeling from the recession and credit crunch, say proposed restrictions will raise consumer costs, limit credit availability, and ultimately hurt more borrowers than they help. At Charlotte, North Carolina-based Bank of America, the largest U.S. lender by assets, 7.8 percent of credit-card accounts were delinquent in February by more than 30 days, according to Bloomberg data. That’s up from 5.9 percent last August. Delinquencies are jumping throughout the industry in tandem with unemployment, which reached a 25-year high of 8.5 percent in March. Charge-offs, which are loans that banks don’t expect to be repaid, increased to an average of 8.02 percent in February from 4.53 percent a year earlier. As profits shrink, card lenders are raising fees and interest rates. Bank of America and Discover Financial Services plan to raise fees on transfers of card balances from 3 percent to 4 percent.

According to figures released by the administration, about a fifth of consumers carrying credit card debt are paying an interest rate of more than 20 percent. Many card issuers have received financial aid under the Treasury’s Troubled Asset Relief Program, which could give the government leverage to press for changes. Senate Banking Committee Chairman Christopher Dodd and Senator Charles Schumer sent a letter today requesting that the Federal Reserve implement its provision to limit interest-rate increases on existing balances immediately. The Fed’s rules are supposed to take effect in July 2010. "Credit-card providers have been aggressively raising rates on consumers now to avoid the ramifications of this rule when it goes into effect next year," Dodd, a Connecticut Democrat, and Schumer, a New York Democrat, wrote. The administration would require card companies to apply excess payments to balances with the highest interest rates, and to periodically tell customers how long it would take them to pay off their balances if they make minimum payments.

The president said he delivered a warning to card issuers. "People who are issuing credit cards, or violate the law, they will feel the weight of the law," he said. White House press secretary Robert Gibbs said the industry representatives made the case that "what the Fed is doing is probably enough," while the president believes there are "things that must be done above and beyond what the Fed has proposed." Also at the meeting were Treasury Secretary Timothy Geithner, Obama economic advisers Lawrence Summers and Christina Romer and senior adviser Valerie Jarrett. The industry was represented by executives from 13 companies, including Barclays Plc, Capital One Financial Corp., Citigroup Inc., Discover Financial Services, HSBC Holdings Plc, U.S. Bancorp, USAA Federal Savings Bank, Wells Fargo & Co., Visa Inc. and MasterCard Inc.

Fiat in talks to buy GM Europe
Fiat has expressed an interest in buying the European units of ailing US carmaker General Motors, according to German government officials. Hendirk Hering, minister for the economy in the German state of Rhineland-Palatinate, confirmed on Thursday that Fiat and Canadian car parts supplier Magna International were among the interested investors for GM Europe, which includes the Opel and Vauxhall marques. A spokesman for the government of Hesse, where Opel’s headquarter is based, also confirmed this but cautioned that a decision was not imminent "There are a lot more interested investors than just Fiat and Magna," he told the Financial Times. A sale to Fiat would be strongly opposed by Opel’s powerful works council, which fears massive job losses as overlaps between both carmakers are immense, as well as the regional governments including Rhineland-Palatinate and Hesse.

Beside Fiat and Magna, several financial investors have taken a look at the offer document for GE Europe. Any investor would be asked to pay at least €500m ($652m) but GM would not realise any financial gain from this investment as the money would be injected directly into Opel and Vauxhall. GM Europe has asked for up to €3.3bn in government guarentees to support such a sale. However, German government insiders said that any deal was still weeks away as there were still many questions open about how Opel and Vauxhall could be split from GM. On Wednesday, a German taskforce made up of government officials and investment bankers from Lazard flew to Washington for further talks with the US government, people close to the situation said. Meanwhile, Fiat denied any plans to invest directly into Chrysler, the heavily indebted US carmaker, or fund it in the future as it reported a wider-than-expected first-quarter loss.

Fiat denied any plans to invest directly into Chrysler, the heavily indebted US carmaker, or fund it in the future as it reported a wider-than-expected first-quarter loss. The Italian carmaker, which faces a US government-set deadline next week to conclude a partnership agreement with Chrysler, said final terms of the deal were still being negotiated with the Treasury and the carmaker’s other stakeholders. Fiat, which agreed in principle in January to share technology, vehicles, and dealerships with Chrysler, said it still had no plans to invest any of its own cash in the partnership, which would see the Italian carmaker take an initial 20 per cent stake, to be increased in 5 per cent increments. "The alliance [between Fiat and Chrysler] does not contemplate Fiat making an investment in Chrysler or committing to funding Chrysler in the future," Fiat said. On Wednesday Fiat denied a report that the agreement had been "90 per cent defined."

The fresh denials came as the Italian industrial group provided new details of its deteriorating finances. The group reported a net loss of €411m for the quarter, compared to a net profit of €427m a year ago. Fiat’s cars division reported better-than-expected sales, but the group’s overall result was dragged down by sharply slower business at its Iveco trucks division and CNH, the construction- and farm-equipment subsidiary. Analysts had expected Fiat to lose about €70m in the first quarter, based on an average of their estimates. Fiat said it still expected an improvement in most of its businesses over the course of the year, and that it would still report a net profit of more than €100m. Analysts have warned of the potential cash-draining impact on Fiat of a partnership with Chrysler, while some of Chrysler’s creditors are pushing it to make a direct investment in the carmaker as the cost of taking a 20 per cent stake in the US group.

Fiat on Thursday said that its cash balance was €5.1bn at the end of the first quarter, up from €3.9bn at the end of 2008. Its net debt rose to €6.6bn at the end of the quarter, from €5.9bn at the end of last year. On sharply slower world markets, Fiat’s core autos division reported an 18 per cent drop in first-quarter revenues. The unit benefited from government scrapping incentives in countries including Brazil, Fiat’s biggest overseas market, and Germany, where it reported a 193 per cent spike in year-on-year revenue. CNH, formerly a cash cow for Italy’s largest industrial group, was hurt by the sharp decline in demand for construction equipment, and for agricultural equipment in its home market, the US. Fiat said it was studying measures to streamline CNH and cut costs.

Iveco’s quarterly revenues were 49 per cent lower than a year ago. Sergio Marchionne was due to discuss the results in a conference call at 4pm CET before flying to Washington this evening for meetings with President Barack Obama’s autos task force. The US government has given Chrysler until the end of this month to agree a partnership agreement with Fiat, and negotiate cuts to its labour costs and $6.9bn commercial debt. If the deals are not reached, Chrysler will not qualify for an additional $6bn of federal aid, and will likely face bankruptcy and liquidation. Mr Marchionne said last week that he would be prepared to take an executive role at Chrysler if the partnership was cemented. The global economic slump and sharp slowdown in cars sales has endangered Mr Marchionne’s five-year-old turnaround of Fiat, which saw its debt downgraded to "junk" status by Standard & Poor’s last month.

New York Times stock could be worth zero
A case could be made that New York Times Co. shares are worth nothing as the newspaper company’s debt load threatens to overwhelm its earnings power, a Barclays Capital analyst said Wednesday. "Net debt to (operating profit) is way too high," Barclays analyst Craig Huber said in a research note. "We could argue the stock to zero given the high debt load." The New York Times Co. posted heavy losses in the first quarter, with executives largely blaming New England newspaper operations that mostly consist of the Boston Globe. The newspaper’s unions recently received an ultimatum to slash costs or face shutting down.

Even if the New York Times Co. unloaded its 17.75 percent stake in New England Sports Ventures (NESV), which includes the Boston Red Sox, for an estimated $150 million after-tax, Huber estimated, the company’s year-end net debt would be 4.5 times EBITDA (earnings before interest, taxes, depreciation and amortization). That’s still too high, Huber said. "In our opinion, newspapers cannot cost cut themselves to prosperity and an online-only newspaper model is not profitable, not even close," Huber said in his research note. He cut the company’s stock price target to $1 a share. New York Times Co. shares closed Wednesday at $4.94.

Huber pegs the private market value of the Globe at $100 million, a far cry from the nearly $1.1 billion the New York Times Co. paid for the paper in 1993. He estimates the Globe will generate about $359 million in revenue this year, resulting in an EBITDA loss of nearly $27 million. New York Times Co. bought its stake in NESV in February 2002 for $75 million. "We view the 17.75 percent stake in the Boston Red Sox as having among the very best long-term asset appreciation potential at the company, and thus we are disappointed that the company needs to sell it," Huber said. "... In our opinion, the long-term viability of the company may be at stake, though." Daily newspapers nationwide are struggling amid declining circulation and the recession-driven decline of advertising revenues.

California Sues Wells Over ARS
California's attorney general filed suit seeking to recover $1.5 billion in damages from Wells Fargo & Co., alleging the company misled investors on the safety of auction-rate securities.
The auction-rate securities market has been largely frozen since early 2008, when auctions to reset the bonds' interest rates failed to draw buyers. Since then, several states have sued sellers of the bonds for allegedly misleading investors about the risks of holding the securities. Wells Fargo Investments Chief Executive Charles W. Daggs said on Thursday that while the company "deeply regret the effects this prolonged liquidity crisis has had on our clients," it "could not have predicted these extraordinary circumstances, and even with the benefit of hindsight is not responsible for them."

Attorney General Jerry Brown said three Wells Fargo units needed to be held accountable for giving investors "false and deceptive advice." He said about 2,400 Californians were left without access to more that $1.5 billion after the auctions froze up. Mr. Brown said almost 40% of Wells Fargo's auction-rate securities were held by Californians, far more than any other state nationwide. Wells Fargo, the No. 4 U.S. lender by assets, is based in San Francisco. Mr. Brown is seeking to return the cash value of the securities and force companies to disgorge any profits tied to the securities and obtain civil penalties of $25,000 per violation.

That could amount to hundreds of millions of dollars. For its part, Wells Fargo on Thursday maintained it has led the industry in helping auction-rate securities holders affected by the crisis by providing liquidity to them, including loans with "favorable" rates. The news of the suit came a day after Wells Fargo reported its first-quarter net income jumped 52%, mainly due to its acquisition of Wachovia, as it boosted credit reserves by $1.3 billion mostly for higher projected losses in consumer-credit and real-estate portfolios.

Ilargi: NOTE: Very kind words for me here at Seeking Alpha, I'm humbled.

On Housing's Distant Recovery and Gold's Continued Usefulness
Between a long day at work and having to run out and do errands before the vacation week, I am out of time for a well reasoned post this evening. I cam across several truly outstanding articles today that I thought I would pass along if you are so inclined.

Housing Related Articles
What you have to understand about every government action since last summer is that they are operating under this assumption:

Home prices, and thus every instrument tied to them, are depressed only temporarily. If "liquidity" can be supplied in enough size and over a long enough period those prices and instruments will recapture their full value and there will be no crisis.

That's it and that's all. Now of course this assumption is wrong, but what can you do?

If anyone in the government had a spare 20 minutes, I would ask them to take a history lesson with Doctor Housing Bubble who captures in a recent post just how riddled with fraud and pure insanity some housing markets became.
History lesson here.
I would also add my own history lesson. After the 1989 real estate bust, it took about a DECADE for the home prices in my city to recover their dollar value. Adjusted for inflation, it took well over 14 years. Think about that and then think about how long the "liquidity" may have to flow.

If you are still not convinced, one of my favorite writers on all things political, financial, and life in general is Charles Hugh Smith. Mr. Smith explains in easy terms so even the Treasury could understand why housing is simply not coming back any time soon.
Full explanation here.

Spend a Day with the Automatic Earth
I have to say that the site The Automatic Earth is my favorite read for the day. The intros by writer Ilargi are often the most well thought out works of writing I have ever seen, until the next one comes out! The collected news stories are often the most pertinent anywhere.

The Automatic Earth has recently gone to two a day posts and I could not be more appreciative. Spend this day looking over the posts and see if you agree with me.
This morning's missive.
This evening's take.

Gold Related Item
Minyanville's Kevin Depew's daily piece "Five Things to Know" is always a great read. Kevin was even so kind as to include some content I had found a while back.

In today's post Kevin goes after the metal gold in the number 5 item with the same old complaint that it is useless unless the world ends, and then it is not as good as a gun (or other various items).

His summation line is thus:
Just about every scenario I can think of where gold is useful -- for purposes other than admiring it -- also requires a life raft. Just about every scenario I can think of where gold has great worth means that anything else I own has little, if any, value - but hey, at least I have a pillowcase full of gold.

I understand this line of thought. As good Americans, most of us scoff at gold. After it was all taken from the public in any real tangible sense in 1933, most never thought about it. After Nixon junked the gold standard, Americans fell in love with paper money as their purchasing power was destroyed. We were indoctrinated that "stuff" and paper money was "real value" and that gold was a shiny metal good for rings and printer cable connectors.

Now you may ask yourself who would want you to believe those things.

Mr. Depew is right; in a real life "end of the world' situation I would rather have an army of 3000 armed men, well supplied, in a great defensible location with clean water etc..(you get the idea) than all the gold in Fort Knox. Gold would indeed be "useless", until some order was restored that is.

There are many levels of "end of the world" events however. The complete collapse of the US is not necessary for gold to have real value. I do not have the time to go over all the very real scenarios where life would not change to an obscene degree where having gold would be very lucrative.

Either you "get" gold or you don't. The best example I have ever seen (I cannot find where I read it, so no reference) is this:
In 1900 an ounce of gold bought you a very nice suit. In 2009 an ounce of gold buys you a VERY nice suit. The $20 dollars in 1900 for the suit cannot even buy 4 value meals at McDonald's in 2009. Still think gold is stupid and worthless?
Reread that last example as many times as needed for the truth of it to sink in.

Have a good night.

Budget 2009: The day Labour hoisted the red flag
The markets were appalled at Alistair Darling's borrowing plans - they will charge Britain a lot more for our debt, says Edmund Conway. There is a long-observed tradition in the Treasury on Budget Day: civil servants, economists and advisers leave their desks, file downstairs and watch the Chancellor deliver his speech on the big screens in the canteen. The atmosphere is usually pretty festive – whoops, cheers and applause are common – and who can blame the wonks? All those months slaving over the nation's accounts, trying to satisfy their ministerial masters' unreasonable demands, are over. On Wednesday, though, the mood in Horse Guards Road was different. It wasn't merely the fact that there was so little good news in the report; nor that it comes against the backdrop of the worst financial crisis in history and the nastiest economic downturn since the 1930s. It was that most of the big cheeses simply weren't there. Instead, they were upstairs at their desks, glued to the screens of the Bloomberg terminals that were tracking the markets' reaction. The picture wasn't an encouraging one. As soon as Alistair Darling sat down and the Treasury released the full details of its borrowing plans, the screens started to bleed red.

The price of government debt dropped ever lower as the truth suddenly dawned on everyone from traders in London and New York to central bankers in Beijing and Tokyo: this Government is about to earn the dubious distinction of borrowing enough to fight a world war purely to clean up its own economic mess. The amount to be borrowed, this year and next, dwarfs anything that has been foisted on the British public since war bonds were issued in the 1940s – and the Government cannot rely on patriotic citizens to lap up its debt this time. Neither, one presumes, can it use force majeure to keep the interest rates on its bonds down to an affordable level. And as yesterday afternoon wore on, one thing became clear: having seen the Government's true colours, investors are no longer willing to receive such paltry returns on their money. The associated prospect – that the Government may struggle to find enough buyers for its debt in the coming years – is very real. Last month saw the first failure of a conventional gilt auction – the process by which the Government offers its debt up for sale – since 1995. Given that the Bank of England is currently in the market for up to £75 billion of gilts through its quantitative easing programme, the Treasury should have no problem offloading the stuff for another few months.

But when the easing ends in a year's time, how much appetite will remain among investors for the hundreds of further billions the Government plans to issue? The figures are eye-watering. Cast your mind back a year. In the 2008 Budget, the Chancellor pledged to borrow a total of £120 billion between now and 2013. Yesterday, he said he would manage to rack up that much debt in the first eight months of this year alone. Over the 2009-2013 period he expects to borrow a staggering £606 billion. The figures would be worse still – far worse – were his economic forecasts at all realistic. His projection of an economic contraction of 3.5 per cent this year is probably fair – indicating that this will be the worst single peacetime year for our economy since the 1930s. But few economists in their right mind expect anything like a recovery before the end of the year. However, Mr Darling somehow expects consumers to have started spending again by next year, as if the credit crunch had never happened; he expects the financial services sector to start turning in profits before anyone in the City believes it will. If he were being realistic, he would forecast a fall in economic output again next year – and the public finances would look far bleaker than they do even in the Budget documentation.

The only reason the UK has been able to rescue its banks, and to pump extra cash into the economy in the form of unemployment benefits and the small and temporary Budget giveaway this year, is because we have been able to sell gilts at a low interest rate. Those days are surely over. Either the interest rate on those bonds will have to rise, meaning higher borrowing costs for everyone in the UK in the coming decades, or Britain must either default or be bailed out by the International Monetary Fund. Simple as that. When this is combined with the Budget's extraordinary assault on the savings and earnings of Britain's most prosperous, it means Labour has laid itself open both to a full-on Conservative assault for harpooning Britain's most successful workers, and to economic derision as it spells out the full horror of its fiscal legacy. This was the elephant that was sitting in the corner of the Treasury yesterday, casting its enormous shadow over proceedings. The ministers who delivered the Budget may be turfed out next year, but Treasury workers who were biting their nails in front of those terminals will be cleaning up their bosses' mess for decades to come.

Darling is doing his best to clean up Brown’s mess
by WIllem Buiter

Alistair Darling is a good chancellor of the exchequer. He has presented a Budget that does ?essentially nothing - a good budget, given the dreadful economic circumstances. The global economic environment is the least hospitable since 1945 and a dozen years of specific British policy mistakes have left the British economy more vulnerable than almost any other to the financial crisis. Mr Darling is doing his best to clean up the mess left by his predecessor, Gordon Brown. The fiscal profligacy of Mr Brown, now prime minister, after New Labour’s first term and his leadership since 1997 in the global financial regulatory race to the bottom have left the UK suffering from multiple imbalances. It is in its worst fiscal shape ever in peacetime - in the G8, only the US and Italy come close. It has a bloated financial sector, including a banking sector that is too large to save unless state support is restricted to the UK high street banking bits of UK-based global banking groups.

It has a distorted and moribund housing sector and excessively indebted households. During the next couple of years the UK will run public sector deficits of 12 per cent of gross domestic product or over - figures historically associated in peacetime only with developing countries or emerging markets en route to an International Monetary Fund programme. Large deficits will persist into the second half of the next decade. The structural deficit for the next few years is at least 7 per cent of GDP. Not counting the fiscal cost of the banking sector rescue, public debt will reach 80 percent of GDP two years from now. Taking the IMF’s £130bn estimate of the fiscal bail-out burden and putting Private Finance Initiative debts on to the public balance sheet would bring the figure to 90 per cent. Real GDP is likely to fall by more this year than Mr Darling’s estimate of 3.5 per cent. The chancellor’s forecasts of growth of 1.25 per cent in 2010 and 3.5 per cent in 2011 are likely to be prayers to a (deaf) foreign god. Public debt in excess of 100 per cent of GDP is therefore likely, even if we do not add the capitalised value of Britain’s unfunded public sector pension commitments, which are effectively contractual obligations.

Allowing the automatic fiscal stabilisers to operate in a downturn makes good economic sense if it does not spook the markets. Undertaking a discretionary fiscal stimulus also makes sense if it does not spook the markets. You will avoid spooking the markets despite £200bn worth of gilts issuance this year if, and only if, you have fiscal credibility: markets and the public must believe that you are willing and able to raise future taxes and/or to cut future public spending to stop the debt burden from rising explosively and becoming unsustainable. To be an effective Keynesian in a slump, you have to possess a reputation as a fiscal conservative. The UK government’s reckless pro-cyclical behaviour during the past boom years means it does not have this reputation. Mr Darling has recognised this. So there is effectively no discretionary stimulus in the Budget - a mere 0.5 per cent of GDP this year.  

There is a small “cash-for-bangers” scheme and a few other tweaks. The weak pound and continued quantitative easing and credit easing by the Bank of England really are the only instruments left to fight rising unemployment. There were some pointless populist soak-the-rich measures, such as the increase in the top marginal income tax rate to 50 per cent from next April. This will raise tiny amounts of additional revenue. Tax accountants, lawyers, financial engineers and tax havens all over the world will thank the chancellor for taking such good care of them. To budget an additional £1bn in revenue because of reduced tax avoidance following this major boost to incentives for avoiding and evading taxes is just plain silly. Under the best possible scenario, taxes will have to be raised and/or public spending cut on a permanent basis by between 5 and 6 per cent of GDP to regain fiscal sustainability. The necessary permanent fiscal tightening could easily be larger. The pain will be widely felt. The ambition to bring British infrastructure back up to the level it achieved at the end of the 19th century has been postponed by another quarter-century. Education and health will suffer.

The long-term pain of higher taxes and lower public spending is not the result of public debt and deficits incurred because of a war fought by a united nation against a hated external enemy. It is the result of an economic civil war, a massive systemic peacetime economic failure, with a large domestic component. It is therefore not clear that the necessary social and political cohesion - readiness to accept joint fiscal burden-sharing - will be present. If the necessary fiscal tightening is not forthcoming because different groups and vested interests are engaged in a war of attrition aimed at shifting the fiscal burden to the other guy, markets could easily panic and Britain could face an emerging market-style “sudden stop”, with the rest of the world withholding financing from its public and private sectors.

To forestall the occurrence of a triple crisis (banking, sterling and sovereign debt), it would behove the UK to apply for an IMF Flexible Credit Line (FCL). Unfortunately, the criteria for qualifying for an FCL arrangement include “(iv) a reserve position that is relatively comfortable; (v) sound public finances, including a sustainable public debt position;(vii) the absence of bank solvency problems that pose an immediate threat of a systemic banking crisis; (viii) effective financial sector supervision.” It is questionable whether criteria (iv) and (v) are met. Criteria (vii) and (viii) are obviously not met. In addition, with a £175bn annual borrowing requirement for the next couple of years, the measly $240bn or so the IMF currently has at its disposal is unlikely to make much of a difference. Mr Darling will therefore need luck as well as skill and determination to get Britain through this Great Contraction without having to go another round in the financial crisis. I would consider the case for a government of national unity. It would help if Mr Brown - responsible more than any one for this debacle - were to resign.

88% of Canada's CEOs say pension funding crisis looms
Almost nine out of 10 Canadian CEOs say pension funding is in trouble, according to a new survey released Monday. Compensation experts Watson Wyatt said 88 per cent of Canadian chief executives surveyed now believe that defined benefit pension plans are underfunded, 42 per cent higher than the number who held the same feelings in 2008. The global financial and equity market slump in 2008 and 2009 has hurt the returns for existing funds, forcing firms to pony up more cash to maintain their pension plans, whether of the defined contribution or defined benefit variety, Watson Wyatt said. "The severity of financial threats, particularly the cost and volatility of maintaining DB plans, has increased substantially in the current financial climate," said the consultancy in its annual survey of CEOs' attitudes toward pensions.

In 2008, 62 per cent of executives — a relatively low level — thought Canadian pension plans were inadequately funded. Of those responses, 34 per cent of CEOs said the problem was long-lasting while another 28 per cent believed the funding woes were related to cyclical downturns in financial markets. But in 2009, more than half of CEOs, 53 per cent, believed the pension crisis is long-term in nature and needs government to fix the rules surrounding these plans, while 35 per cent of respondents said the 2009 pension crisis was cyclical and likely would ease once equity markets rose to higher levels. "These companies are being hit with huge cash requirements [because of the economic recession]," said Laura Samaroo, Watson Wyatt's retirement practice leader, Western Canada.

Currently Ottawa, Ontario, Alberta and British Columbia are examining whether to change their existing pension rules, Samaroo said. (The federal government regulates pensions as does every province except Prince Edward Island). Right now, some pension authorities are easing the existing requirements concerning how quickly companies have to eliminate any shortfalls in their plans. But nearly 90 per cent of the executives said one possible solution is for governments to push back the point at which firms with underfunded plans need to get member approval to maintain a shortfall status. Changing that deadline would give companies more time to make up for the shortfall through stock market returns rather than higher corporate contributions, experts said. Of course, the longer the funding period, the more likely that the pension plan will face a larger financial shortfall due to a stock market crash within that time frame.

Samaroo said, however, establishing overly onerous requirements for funding pensions could threaten a firm's solvency and lead corporations to get out of the retirement business entirely. "There isn't any mass exodus [in terms of companies winding up their pension plans]. But, the real concern is that companies not provide pension plans," Samaroo said. One-third of the 156 CEOs who replied to the questionnaire said they would make substantial cuts to their capital spending programs in order to cover their pension plan shortfalls. Less spending on new equipment often places firms at a competitive disadvantage with companies that are updating their production, economists said.

Canadian Association of Retired Persons members overwhelmingly support a new Universal Pension Plan
The over-50 lobby group known as CARP (Canadian Association of Retired Persons) today told the government it should consider establishing a Universal Pension Plan modelled on the CPP, with mandatory enrolment, a payroll deduction mechanism and a performance-oriented mandate that is independent from government or any single employer.  Speaking in Ottawa this morning before the House of Commons Standing Committee on Finance, CARP vice president of advocacy Susan Eng said the economic crisis has hit retirees especially hard and that "the current pension system fails to adequately provide for our retirement security." While those fortunate enough to have RRSPs or employer-sponsored Defined Contribution plans have seen their retirement savings evaporate, almost 30% of Canadian families don't have any retirement savings at all, Eng said.

CARP released a poll of 3,700 of its members and found "overwhelming support for a universal pension plan" for the roughly one in three Canadians without retirement savings. CARP is also calling for a Pension Summit that would include First Ministers and Finance Ministers. Pension reform can no longer be the "quiet preserve of pension experts," Eng said, "Canadians are looking to all levels of government for bold leadership to ensure hat protection of their retirement security remain the top public policy priority." CARP cites a C.D. Howe Institute estimate that 3.5 million Canadian workers -- or 25% of the workforce, mostly middle-income, working for smaller employers -- are most likely to be on "an inadequate retirement savings track" and would thus benefit from access to a supplementary pension plan. C.D. Howe has suggested the creation of a new savings vehicle called the Canada Supplementary Pension Plan, or CSPP.

CARP says pension experts agree retirement income from all sources must replace between 60 and 70% of working income. Currently, the CPP provides at most 25% of Year's Maximum Pensionable Earnings (YMPE): $46,300 in 2009. Thus, for those without employer-sponsored private pensions, the maximum CPP benefit this year is $10,905. CARP suggests gradually phasing in a UPP so that coverage would eventually cover 70% of pre-retirement income to a maximum pensionable earning limit of $116,667 (which is the 2009 limit for Registered Pension Plans).  Like the CPP, the UPP would be a mandatory enrolment plan. CARP is wary of any version that would let individuals "opt out." CARP has 330,000 members. In March, it made a joint submission on Private Pension Reform jointly with the Common Front for Retirement Security, which includes 21 organizations representing 2 million Canadians. CARP says there are 14.5 million Canadians 45 years of age or older, representing 42% of the total population. There are 4.6 millon Canadians over age 65, making up 13.3% of the population.  

Coincidentally, the Post's lead editorial Tuesday was entitled Canada's savings shell game. It points out that workers who counted on the "pension promise" from  long years at a single employer are in danger of being short-changed in the case of corporate bankruptcy. The more money you can put into an employer-sponsored pension, the less you can save in an RRSP. This is the Pension Adjustment, a number that appears on your T-4 slip and which you enter when you're preparing your annual tax return. The one point not made by the editorial writer is that there may be recourse to a PAR, or Pension Adjustment Reversal but the problem there is you still need the money to make a giant catch-up RRSP contribution. Meanwhile, by overtaxing "safe" interest income, we are tempted to put money into riskier equities which are taxed less harshly -- but can generate huge losses, as many have suffered in their non-registered portfolios the last year. 


Persephone said...

Another great intro, Ilargi!

3 Stooges, indeed! Congrats on the Seeking Alpha plug! Another great site!

EBrown said...

Ya Seeking Alpha! It certainly has nice things to say about Ilargi's introductions (well earned praise IMHO).

EconomicDisconnect said...

it is me sir that was humbled when you visited my small corner of the blogosphere. Thanks so much for stopping by and leaving a comment.

Another great post this evening ( I think I have the timing right now!). Your piece on the whole FED/Treasury/BAC soap opera puts mine to shame, but it's not a competition but an effort to make some, if any, aware of what's going on. Line of the night which I will want to use (you should trademark it):

"For another, the visible heads may have switched, but they're all hobbied together from the same Goldman mold and the same Harvard clay regardless, so as to ensure continuity."

Seems there should be an anti-trust law against all Treasury heads being Goldman Sachs CEO's and all FED heads being Harvard Business school trained. I work in downtown Cambridge Massachusetts and if you could see the immense size of 3 new dorms just built to house thousands of MIT and Harvard students you may start to think those schools may not be so "cream of the crop" as advertised.

In closing, thanks for your visit and keep up the good work. If you like music I do a Friday Night Rock (or other types really) blog and I take requests. After tomorrow I am off to the Bahamas for a week for some much needed time off.


Wyote said...

Perhaps it's time to post pictures from our own time, ie:

"The effects of the crisis are even palpable in better neighborhoods. The streets are wide in Venice Beach, an upscale Los Angeles suburb near the ocean. But now they seem narrower than usual, because they are lined with parked campers and station wagons, the temporary homes of people whose lives have been put on hold. Many have covered the windows with cardboard to preserve a modicum of privacy. Some have put up signs that read "Come in if you dare," hoping to deter car thieves and other criminals."

Just thinking - if you want to kick up the awareness level.

Anonymous said...


A fine piece of writing tonight.


Anonymous said...

on "Gold's Continued Usefulness....."Henry Merritt Paulson reminds me of the monomaniacal Roman Marcus Licinius Crassus (ca. 115 BC – 53 BC)

Although Paulson was not a military commander or politician per se, like Crassus, Henry's perverted drive for power makes him this Roman's Soul Brother.Crassus is regarded as one of the richest men of his era (and he still is ranked in the top 10 list of the wealthiest historical figures of all time, his estimated net worth in today's dollars $169.8 billion)

Crassus is credited with entering into a secret pact, known as the First Triumvirate, which essentially destroyed the Roman Republic, with Gnaeus Pompeius Magnus and Gaius Julius Caesar.

Paulson is credited with entering into a secret pact, known as the First Goldman Triumvirate, which essentially destroyed the American Banking System, with Pompus Bernankus and Twolipus Timia Geithnerus.

Crassus, despite having attained a massive fortune, lusted for even more recognition in the shape of a great military victory.

Paulson, despite having attained a massive fortune, lusted for even more recognition in the shape of being the 'Führer und Oberster Befehlshaber der Banking'

This obsession for power led Crassus into Syria, where he was humiliatingly defeated and killed in the Roman defeat at Carrhae by the Parthians (Iranians)

His captured and subsequent execution by the Parthians was poetic justice in it's highest form and something I can only wish on the current cowardly crop of Financial Titans like Paulson et al.

Crassus' causa mortis was actually being forced to drink a cup of molten gold by the ever ironic Parthians, as a fitting symbol of his boundless thirst for ever more riches.

~Nex ut parum levis tyrannus~

Greenpa said...

The bit from The Economist is really hilarious. Really.

Let me repeat a suggestion I made to Rob Hopkins here; we need to saving up this crazy funny stuff and turn it into an Annual Awards thing; like the IgNobel awards. Or in this case, the Economic Darwin Awards.

Rob posted a hilarious example of idiot greenwashing today- The Economist is just as funny. Can you imagine reading some of those lines at an awards dinner in December?

"But the collapse has been countered by the most ambitious policy response in history. Central banks have pumped out trillions of dollars of liquidity and, in rising numbers, have resorted to an increasingly exotic arsenal of “unconventional” firepower to ease credit markets and loosen monetary conditions even as policy rates approach zero. Governments have battled to prop up their banks, committing trillions of dollars in the process. The IMF has new money."


Here was my suggestion to Rob:

"Hey, it looks like a chance to opportunise the phenomenon! :-)

It IS funny. So what we need is the green version of the “Chicken Soup For the Soul” series; and/or, an annual green version of the IgNobel Prizes; and the Raspberry Awards.

Put together a short book each year; “Suitable For Bathroom Reading, And Other Bathroom Uses”; documenting all the various insanities from the pseudo green advertisers.

Humor is a great weapon; and educational tool.

Seriously - I can’t do it; already overloaded; but if somebody is looking for a project… take it and run.

“The Green Manure Book”
“Inane Insane Obscene Green”
“Green Adverts From Hell”
“Green-Green, It’s Green, They Say”

Oh, yeah, that would sell.

Two versions; one printed on “guaranteed 100% post consumer recycled stuff” - for your green friends; and one printed on “100% Extra Virgin Fiber” - for your anti friends."

Anonymous said...

The Chicago School should rewrite books about the invisible hand of the market... its been exposed for what it really is!!

Anonymous said...

Flaherty as a young math wizzard

Does this not bespeak the man's qualities as Finance Minister for Canada?

and you aint heard nothing yet until you hear this man of talents give his rendition of i'se the bye's that builds the boat (and mainly for to sink er)

Has this man no end of talent, the flooglehorn for Gawd's sake!

Anonymous said...

oopps correct link for math wizard here

ccpo said...

Re: Obama and Housing
For the first time in years, more Americans than not say the country is headed in the right directionI agree. Reforming the tax code, changing credit card rules, green energy... great. But, as the post on housing from SeekingAlpha states, it's the housing, stupid.

With variable ARMs coming up for resets to a massive degree the next two years, this bubble and recession is so far from over it's ridiculous. How can anyone look at those numbers and think recovery? How many more business ruined by their commercial RE loans are we looking at? We are talking how many more millions out of work? How many more bankruptcies?

As for Obama, it's all well and good to say we need to go green, but it is another to put a small fraction of the needed money into it. It would take half a trillion dollars just to green each household in the US let alone remakethe grid, build out the wind generators and various kinds of solar plants, renew transportation to electrified mass transit, etc.

Worst of all, it's all within a growth paradigm.

If you're headed in the right direction, but to the wrong destination, you're just wasting gas.


el gallinazo said...

IMF Managing Director Dominique Strauss-Kahn releases images of new special drawing rights:

Anonymous said...

Now I understand the significance of those reguritating gold deja vu's.

Persephone said...

More good news

Subprime Loans, Corporate-Style, Will Fuel Defaults
"When the subprime mortgage crisis burst into public view in 2007, government officials were slow to understand that the problem was much broader than the mortgage market. As it happens, the mortgage problem helped to bring on a recession, which is making the coming crisis in corporate loans — not to mention in commercial real estate loans — that much worse.

The financial engineers seemed very clever at the time. They created a lending boom that appeared to increase economic growth and general prosperity. Few paid much attention to how the clever products could blow up if things went wrong. Now that they are exploding, there are no easy solutions."

brendan said...

Credit card reform time=nap time for Larry Summers. He only wakes up for the bigwigs!

jal said...

Karl Denninger has come to the conclusion that the banks have been stabilized enough and that the economic depression cannot be avoided and that its time to seek justices for the wrong doings of the participants.

Anonymous said...

It's a wonderful world where the 'Herd' only seems hear the truth on finance from pop culture comedians and rock stars.

Jim Corr (guitarist for the Corrs) is quoted (by the Irish Examiner) as saying, “I believe that what we are witnessing is an engineered global financial collapse, an implosion of the world economy by design.”

How refreshing that even the guitarist get it.

The so called MSM journalists really are the proverbial 'running dog lackeys.'

Amazing that expression still has some life in it.

pdh1953 said...

I'm looking for a comment and subsequent comments that recently discussed the value of despair, positive thinking, etc. Can anyone help me locate it?

el gallinazo said...

Speaking of guitarists getting it:

Karl Denniger has also posted a link to an up and coming folk hit - a little more vengeful than anything Woody Guthrie every wrote.

Gene Burnett - Jump You F*#kers

with an assist from Max Keiser

Anonymous said...

"its time to seek justices for the wrong doings of the participants."

Sorry here at TAE that's considered a waste of time and precious energy.

It way to evolved here for common 'revenge'.

Anonymous said...

Gene Burnett - Jump You F*#kers is actually quite good.

It could use a dash of hard driving electric guitar to boost it up a notch.

Definitely was 'anthem' potential.

el gallinazo said...

Anon 11:03

“I believe that what we are witnessing is an engineered global financial collapse, an implosion of the world economy by design.”

Whether this meltdown was planned all along or was just the inevitable outcome of the greed and immorality of the world's billionaires is the $64 question. I am an agnostic on the issue, and I think it is important, but I doubt that the truth (unlike 9/11) could ever come out to form a conclusion beyond a reasonable doubt. In any event, they are certainly gaming it to the world's detriment. Naomi Klein said that they started out with the Rahm Emmanuel quip, Let no calamity go unexploited. Then they got tired of waiting and decided to start manufacturing calamities. Certain quotations from the Chairman of the Board of the Universe, the semi-late John D Rockefeller indicates that there has been a major conspiracy of the elites toward one world government and banking, and the destruction of the sovereignty of individual countries, I tend to think however, that things are not working out exactly as they planned. The collapse of globalization is one reason I believe this.


Yes I remember that thread. You can pull up older posts by finding the link on the bottom of today's post. This gives you a web page of posts going back a couple of weeks, and if needed, you can do it again, going back further.

As to finding a particular post - the way I would do it is try to remember and unusual word of phrase in the post, and then use the find function for it in your browser for that page.

anon 11:08

It could use a dash of hard driving electric guitar to boost it up a notch."

I agree, but it would then loose its continuity of feel with dust bowl protest and pre-electric Dylan.

Toddman said...


I'm looking for a comment and subsequent comments that recently discussed the value of despair, positive thinking, etc. Can anyone help me locate it?My guess is that you are looking for the comments section of this post:

April 18 2009: Ignominy and opprobrium

mistah charley, ph.d. said...

Speaking of guitarists getting it, the songs of Todd Rundgren are more familiar than his name ("Bang on the drum all day", popular at sports stadiums; "Hello it's me", now used as the soundtrack for an antacid commercial on tv), but his recent album release "Arena" has some 'impending disaster' themes; e.g., in "Manup":

We didn't want no trouble
But trouble's what we have
You call it paranoia
And have yourself a laugh
And avoid the confrontation
Until some other year
Listen to me my friend
What you will not defend
Somebody else will end up takin'
And when the famine comes
You think they'll just give you some
But if you believe that
You're mistaken

pdh1953 said...

Thanks, Todd.

Brian M said...

Todd beat me to answering you about where that discussion was here on TAE, but let me also say that I posted my essay on the Value of Despair to day on my blog at

koula said...

It is too difficult to find cheap and good insurance at the same time those days.