Tuesday, May 12, 2009

May 12 2009: The Bloody Sack of Rome

National Photo Co. Pontiac 1921
A showroom display at District Oakland Co., 1709 L Street N.W. in Washington, for the General Motors brand that in 1926 would beget Pontiac.

Ilargi: American home prices don't just keep falling, they keep falling faster. How it must hurt for super duper cheerleader queen Lawrence Yun to publicize the numbers. Cape Coral-Fort Myers, down 59% IN ONE YEAR!, San Francisco and San Jose down 43% and 42%. Overall, nationwide, prices in first quarter 2009, compared to last quarter 2008, plummeted at an annualized rate of 24.8%. Do you know what your home is worth? Take that number, and prepare for the fact that it might be worth 25% less come Christmas. Don't daydream along with the government and the media, but instead prepare for things turning out as today's numbers forecast. Or worse. This is not a game or a dress rehearsal. What you decide may follow you around for the rest of your life. Mr. Yun tries to make you believe that the prices declines are all the fault of foreclosures and short sales, "...higher levels of distressed sales which are distorting the data...". But they don't, these sales are the market, and they set the price. They will do so for the next few years, time to get used to it.

If not for Fannie and Freddie, not even the Cape Coral shovels at 60% off would sell. Millions of additional Americans will find themselves caught in house traps before the nation wisens up, and Washington is instructed by Wall Street that it doesn't need to buy every single mortgage anymore. Every now and then it’s a good idea to tell people to think about the real meaning of the term "credit crunch". And no, it's not something that can be solved by the government lending your -and your children's- own money back to you at 6% interest. That is, as you will soon find, an extremely temporary policy, and one that doesn't solve anything. One more Lawrence Yun pom-pom line: "While the quarterly drop in prices set a record, the declines slowed in each of the three months." What he should have added is that homes always sell better as spring approaches, so the "slowing decline" is only natural. Thing is, it sounds less attractive when pesky details are provided. Wait for 2nd quarter numbers.

There are countries that see their trade deficit grow, and others that see their trade surplus grow. And still there's no paradox there: it all happens for the same reason. The US is stuck having to buy its oil abuse supplies, though it can't afford the trinkets anymore. With consumption down by a mile and a half, imagine how much exports must have plunged to still have a rising deficit. Canada must contractually sell its fuel to the US, but can't pay for trinkets either, so there's your surplus. It all comes together in China, where exports are down 22.6%, and imports 23%, which leads to some sort of stalemate.

World trade? It once was a nice idea, like homeownership for every man, woman and child. Pity it didn't work. If you have governments that are allowed to spend all of our money at their own discretion, and you depend for your food -and often even water- on faceless corporations, your homes are built and financed by more anonymous drones, and all the clothes you wear come from China, then you have a problem. And if that doesn't make sense to you, just wait a few years.

PS sorry I’m a bit late, I had an interview to do, which will be available soon

Home Prices in U.S. Plunge Record 14% in 1st Quarter
Home prices in the U.S. dropped the most on record in the first quarter from a year earlier as banks sold seized homes and foreclosures in California and Florida dominated sales. The median price fell 14 percent to $169,000, the National Association of Realtors said today, [and 6.2% compared with the last quarter 2008]. Prices dropped in 134 of 152 metropolitan areas, with the deepest declines in Cape Coral-Ft. Myers, Florida, and the San Francisco and San Jose areas. Distressed sales increased transactions in 17 states from the fourth quarter as speculators and first-time buyers purchased bank-owned properties. Such homes typically sold for 20 percent less than others, the NAR said today. The inventory of previously owned homes on the market dropped to 3.7 million in March from 3.8 million a month earlier, according to NAR data. The number of new homes for sale fell to 311,000, the lowest since January 2002, according to the Commerce Department.

"We are very much in a bifurcated market with sharp differences between foreclosures and short sales on one hand, and traditional homes on the other," Lawrence Yun, the NAR’s chief economist, said in a statement. Total existing home sales fell 6.8 percent from a year earlier to a seasonally adjusted annual rate of 4.59 million units, the group said. Sales were down 3.2 percent from the fourth quarter. The figures include single family homes and condominiums and co-ops. Some areas showed "dramatic" drops in home prices, Yun said. "In areas with the biggest price declines, we also see much higher levels of distressed sales which are distorting the data," he said. The steepest price decline was in Cape Coral-Fort Myers, down 59 percent from a year ago, followed by Saginaw, Michigan, with a 54 percent drop. The next biggest decreases were Akron, Ohio, with a 48 percent decline, San Francisco, down 43 percent, and San Jose, California, with a 42 percent drop.

The largest sales gain from a year ago was in Nevada, up 117 percent, followed by California which rose 81 percent, Arizona, up 50 percent, and Florida with a 25 percent increase. Those four states accounted for the 26 highest foreclosure rates in the first quarter among U.S. cities with a population of 200,000 or more, according to RealtyTrac Inc., an Irvine, California-based seller of real estate data. While the quarterly drop in prices set a record, the declines slowed in each of the three months. The U.S. median home price dropped 12 percent in March compared with a year earlier, according to NAR. That was slower than the 14 percent decline in February and the 18 percent slide in January.

U.S. banks held $26.6 billion of repossessed real estate at the end of 2008, more than doubling from a year earlier, according to the Federal Deposit Insurance Corp. in Washington. The banking industry lost $26.2 billion in the fourth quarter, the largest loss in FDIC records. The average U.S. rate for a 30-year fixed mortgage was 4.84 percent last week, down from 6.05 percent a year earlier, according to mortgage buyer Freddie Mac. The rate fell to a record low of 4.78 percent last month. On an annual basis, the fixed rate will probably average 5 percent this year and 5.3 percent in 2010, according to a forecast posted on NAR’s Web site. Last year, the rate was 6.1 percent. Sales of existing homes likely will reach 4.97 million in 2009, up from last 4.91 million year, according to the Realtors’ forecast.

In Trade Numbers, a Reminder of the Downturn
The gap between United States imports and exports widened for the first time in eight months in March, the government reported on Tuesday, primarily as a result of a drop in exports. But economists said the sharp declines in the value of trade between the United States and the rest of the world appeared to be hitting a plateau. For economists, the new figures added another small piece of evidence to theories that the worst declines were over, and that the economy was beginning to stabilize, although at lower levels. Still, plunging exports in China and the Philippines and sluggish industrial output in India underscored the fact that the world’s intertwined economies remain in the throes of a broad downturn.

The Commerce Department reported that the trade deficit grew to $27.6 billion in March, from $26.1 billion in February. That was a smaller increase than economists had been expecting. "This is genuine improvement here," said Aaron Smith, a senior economist at Moody’s Economy.com. "It does suggest that the worst of the global trade downturn is over we are nearing stabilization in the economy, and it does look like we’ll resume growing in the third quarter." The total value of goods and services exported by the United States fell by $3 billion in March to $123.6 billion as overseas demand dropped for American-made automobiles, chemicals, airplanes and telecommunications equipment. Import values fell $1.6 billion for the month, to $151.2 billion, as the country bought less foreign-made natural gas, fewer industrial goods and fewer consumer goods like clothing, cosmetics and televisions. But imports of crude oil rose a seasonally adjusted $400 million for the month as prices rose from recent lows.

Imports have plunged 27 percent since last March, and the continuing declines suggest that businesses are still trying to reduce their inventories to match lower levels of consumer spending. Consumers spending has fluctuated this year, and economists are uncertain about how American consumers will behave as the unemployment rises and the country struggles to start growing again. Although consumer spending is no longer falling as quickly as it did last year, Americans are saving more and may act more conservatively as they worry about losing their jobs or a return to $4-a-gallon gasoline. Although the flow of goods and services between the United States and the rest of the world has slowed during the global downturn, American exports have held up relatively well, compared with plunging imports.

In February, exports rebounded slightly after six months of declines, growing by $2 billion as the country exported more automobiles, semiconductors, pharmaceuticals and chemicals. The increase helped bring the trade deficit to its lowest levels in nine years, and also spurred discussion about whether the recession was beginning to bottom out. In recent surveys of the manufacturing and service sectors, the Institute for Supply Management said declines in American exports were beginning to taper off slightly in April. Demand for foreign-made electronic equipment, clothes and oil has dipped sharply as consumers cut their spending.

China reported on Tuesday that its exports fell 22.6 percent in April, a deeper drop than economists had expected, and a worse decline than March, when overseas shipments dropped 17.1 percent. In India, data also released Tuesday showed industrial output down 2.3 percent in March versus a year earlier, more than economists had anticipated, while the Philippines reported exports in March were 30.9 percent below a year earlier. The data served as a sobering reminder that much of the global economy remains in the throes of a recession, and that a string of recent figures showing the pace of decline easing in parts of the world by no means heralded an actual turnaround. China’s economy continues to grow, in part because of a huge package of spending and other stimulus efforts announced since November.

These measures have included a big burst of lending by the country’s state-owned banks, which helped send Chinese urban fixed-asset investment in the first four months of the year up 30.5 percent, according to figures released Tuesday — more than economists had forecast. Other recent data have shown production activity slowly recovering, prompting economists at several Western banks to raise their forecasts for China’s economic growth. Still, many analysts have continued to caution that a significant and sustained global recovery remains months off. "China’s ongoing recovery is driven by fixed-asset investment, with a focus on infrastructure," economists at Bank of America Merrill Lynch said in a research note Tuesday. But with weak exports continuing to drag down China’s growth, they added, "the foundation for a recovery is still not firm."

China is right to fear US dollar debauchery
The US dollar has weakened sharply against the euro over the last week. Optimism is one reason: investors feel cheerful enough to leave the supposedly safe haven of the greenback. But fear is another reason. In the middle of the week, China's central bank warned of a "policy mistake" by some of its western peers. The Chinese are worried that the decisions by the US and the UK to try to print their way out of economic trouble will end badly. The money creation could end up debauching the dollar and pound and inviting a global inflationary crisis.
Beijing's latest criticism follows an earlier suggestion that the world could do with an alternative reserve currency to the US dollar. The criticisms matter because they come from the US's biggest foreign creditor. China holds $744bn of US Treasuries - an increase of $257bn in the past year. It seems the People's Republic wants to send a message to the US: respect your currency's integrity. Failing to do so could trigger a dollar collapse, surging US inflation, soaring interest rates and a still deeper global recession. China doesn't want to provoke that itself by fleeing the dollar. But sufficiently excessive money creation by the US could cause collapse. Debt and money creation in the US must be controlled.

For the UK and the pound, meanwhile, the Chinese message is just as disquieting. The Fed is purchasing $300bn of Treasuries as part of its quantitative easing. But almost all the Bank of England's £125bn of money creation is likely to be spent on UK government bonds. And the pound, which is not the reserve currency, could prove very vulnerable. The markets' recent optimism and Beijing's fears may have the same origin. The abundant money the Anglo-Saxon central banks have been printing has not held down government bond yields but does seem to have given life to equity markets and the prices of other risky assets. But if these markets fall, the positive impact of the printed money will also evaporate. Another bubble blown by money creation will have burst. Only recession and debt would remain. The Chinese are right to be concerned.

China's exports fall 22.6%, imports down 23%, as domestic investment rises
Chinese exports plunged for a sixth consecutive month, falling 22.6pc compared with a year ago, as the global financial crisis continued to take its toll on the world’s third-largest economy. The figures, which were worse than expectations and exceeded the 17.1pc year-on-year fall in March, were blamed on continuing weak demand for Chinese goods from Europe and America. Analysts said that the data released by the state-run Xinhua news agency showed that China’s exporters – the engine of growth over the past decade – would continue to experience tough conditions for the remainder of 2009. "The financial crisis and its impact on China’s trade sector will not fizzle out any time soon," said Mei Xinyu, an analyst with China's ministry of commerce, "and it’s too optimistic to expect a big rebound. I believe China’s exports will remain weak or stabilize at a low level in coming months."

Hao Daoming, an analyst at Galaxy securities in Beijing, agreed: "The trade figures are worse than expected. We will see exports dropping by at least 20pc for the rest of 2009 as uncertain world demand will remain a drag." Meanwhile, China's fixed-asset investments in factories and property developments jumped 30.5pc from a year earlier as China’s £400bn stimulus package send a wave of fresh lending through the Chinese economy. A 500bn yuan (£48bn) loan-spree for government stimulus projects, which had exceeded the annual loan target for the whole of 2009 by early April, is credited with reviving China’ s property markets and boosting domestic consumption, including record car sales.

However, economists have warned that investment in the private sector remains relatively weak, raising the risk of renewed asset bubbles, bad debt and waste from excess investment in factory capacity and other projects. Imports to China fell 23pc the Customs Administration reported, indicating that domestic Chinese companies have been slow to follow the lead offered by the government stimulus package as the global outlook remains uncertain. "The fall in imports shows that domestic companies are not willing to invest," said Qi Jingmei, an economist with the State Information Centre in Beijing, "We need to observe more before we can conclude that there's a rebound in the real economy."

Analysts seeking positives from the latest trade data noted that while exports of heavy machinery and other industrial equipment continue to fall, exports of clothing, shoes, plastics and other labor-intensive goods showed increases from March. Jing Ulrich, chairwoman for China equities at J.P.Morgan said in a note to clients that American retailers had begun ordering to restock low inventories, amid signs that consumer spending may be stabilizing. "Nevertheless, operating conditions for Chinese exporters will remain challenging for some time," she added, noting that orders at the recent spring trade show in southern China's Guangdong, a manufacturing centre, fell 17 percent compared with the autumn show.

U.S. Trade Deficit Widens For First Time in Eight Months as Exports Slide
The U.S. trade deficit widened in March for the first time in eight months as the global economic slump pushed exports to the lowest level in more than two years. The gap expanded 5.5 percent to $27.6 billion, smaller than forecast, from a nine-year low of $26.1 billion in February, Commerce Department figures showed today in Washington. Imports also decreased as a drop in demand for industrial supplies such as natural gas and steel offset an increase in oil. The report signals that most of the improvement in the U.S. trade deficit may already be over as fuel costs climb and stimulus programs resuscitate American consumers’ demand. Rising imports and a bigger trade gap would hurt economic growth, blunting some of the benefit from a rebound in exports that companies such as Caterpillar Inc. are beginning to detect.

"The recovery seems to be under way in the U.S. and other than in China there seems to be quite a bit of weakness overseas, which suggests that imports will recover before exports," said Chris Low, chief economist at FTN Financial in New York. Still, he said, there remains "pretty remarkable weakness in imports" as companies slash inventories. The dollar, which had fallen earlier in the day, remained lower after the report. The U.S. currency was down 0.6 percent at $1.3665 per euro at 9:03 a.m. in New York. The trade gap was projected to widen to $29 billion, according to the median forecast in a Bloomberg News survey of 65 economists. Deficit projections ranged from $23 billion to $32.5 billion. Exports declined 2.4 percent to $123.6 billion, the fewest since August 2006. The drop was led by decreasing foreign purchases of automobiles and capital goods, such as commercial aircraft and telecommunications equipment.

Boeing Co. last week sustained 25 cancellations of its delayed 787 Dreamliner worth $4.4 billion. Cancellations in the first four months of the year now total 59, versus 58 purchases, according to data published May 7 on the Chicago-based company’s Web site. Intel Corp., the world’s biggest chipmaker, on April 14 said first-quarter profit fell 55 percent because of slowing computer demand and signaled sales won’t recover in the current period. "Europe, Japan and the emerging markets showed continuing weakness," Chief Executive Officer Paul Otellini said in a statement Still, there are signs the worst may be over. Caterpillar, the world’s largest maker of bulldozers and excavators, is among companies already noticing an improvement in sales to China due to that country’s $586 billion stimulus package, said Chief Executive Officer James Owens.

"March and April were pretty strong months for sales in China," Owens said on an April 21 conference call with analysts. China’s stimulus spending for public works projects is working more quickly than that in the U.S. "When they say ‘shovel ready,’ they mean nine weeks, not nine months," he said. The trade gap with China increased to $15.6 billion from $14.2 billion in the prior month. A gain in imports from China overshadowed an increase in Chinese demand for American-made goods that pushed U.S. exports to the highest level since October. China today reported that business investment surged 31 percent in the first four months of the year compared to 2008. The gain helped offset a 23 percent drop in April exports from the same month last year.

A report from the Institute for Supply Management this month showed factory exports fell in April at a slower pace. The group’s index of sales overseas climbed to the highest level since September, a month before the slump began. After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit grew to $35.9 billion from $35.7 billion. The Commerce Department estimated a much larger increase when calculating first-quarter gross domestic product, indication the slump in growth may be revised down. A preliminary report issued last month showed the economy shrank at a 6.1 percent annual pace. Imports decreased 1 percent to $151.2 billion, the fewest since September 2004. The slump in U.S. business investment weakened demand for capital goods such as engines and machinery, in addition to the drop in industrial supplies.

The overall drop in demand for foreign goods overshadowed the first increase in automobile imports since June and the first gain in demand for foreign-made consumer goods since October that reflect a stabilizing in retail sales. The imported-petroleum bill also grew as prices climbed. The average cost of a barrel of crude oil rose to $41.36 in March from $39.22 a month earlier. The price probably kept climbing last month, according to trading on the New York Mercantile Exchange, indicating imports will continue to rise. An improvement in trade may come too late to prop up global growth. The world economy may shrink 1.3 percent this year, the first contraction in the postwar era, and trade worldwide may plunge 11 percent, according to a forecast by the International Monetary Fund.

Canada's trade surplus grows as imports fall
Canada was able to post a small trade surplus of $1.1-billion in March, as imports fell twice as fast as exports, Statistics Canada says. The March surplus was wider than the slim $262-million surplus posted for February, but economists noted that the improvement was possible only because the demand in the global economy didn't deteriorate as much as demand for imports from within Canada. "That signals a weak domestic economy," said analysts at Scotia Capital Inc. Statscan noted that while Canada's trade volumes are still being hammered by the global recession, the pace of deterioration has moderated. The March surplus contrasts with trade deficits posted in December and January – the first such deficits for Canada in more than 30 years, brought on by the collapse of global trade.

Economists had been expecting a $500-million trade surplus in March, buoyed by rising commodity prices and auto production being brought back on stream after widespread shutdowns earlier this year. But neither of those dynamics came to pass. Energy exports contracted 1.4 per cent because of a decline in volumes, even though prices were rising for the first time since last July. And exports of automotive products dropped another 3.3 per cent because of decreases in foreign sales of trucks and motor vehicle parts, Statscan said. "The takeaway from this report is that despite the better-than-expected headline number, all is not on the mend in Canadian trade," said Charmaine Buskas, senior economics strategist at TD Securities Inc.

"There are still significant headwinds that will likely limit the pace of exports, and Canadian consumers are increasingly wary of making any big purchases as domestic fundamentals head south." Over the past year, Canada's merchandise exports have plunged 19.2 per cent, while imports have fallen 9.3 per cent, leading to a quick evaporation of Canada's previously large trade surplus. Energy and automotive exports have declined the most, with energy products dropping 38.7 per cent over the past year and automotive exports falling 35.0 per cent. Compared to a month earlier, imports dropped 4.4 per cent to $31.4-billion, because of decreases in a broad range of sectors, especially energy and machinery and equipment. Canadian imports of energy products fell 18.4 per cent to $2.3-billion, the lowest level since October, 2004.

Exports dropped 1.8 per cent, month over month, to $32.5-billion because of a 4.1-per-cent drop in sales to the United States. A sudden 15.4-per-cent increase in exports to the European Union only partly offset the decline, Statscan said. Exports to the U.S., Canada's largest trading partner, are now down 24.4 per cent over the past year. The trade surplus with the U.S. remained unchanged in March compared to February, standing at $3.6-billion. By industry, the decline in exports from a month earlier was led by a 3.4-per-cent decrease in machinery and equipment sales – hurt by lower exports of aircraft and telecommunications equipment, Statscan said.

US Trade Deficit Indeed Rises, Drags on Recovery
Today, the Commerce Department reported the March trade deficit was $27.6 billion, up from $26.1 billion in February. The deficit with China increased to $15.6 billion in March from $14.2 billion in February, aided by increased export subsidies and an undervalued currency. The oil import bill rose to $14.1 billion in March from $13.7 the previous month. In the months ahead, purchases from China and the cost of imported oil will head up. President Obama’s stimulus package and other budgetary initiatives will lift spending but do little to correct the structural forces causing the huge trade imbalance with China and on oil, the huge foreign borrowing necessary to finance it, and the drag all this creates on aggregate demand, GDP and employment.

At 2.4 percent of GDP, the trade deficit subtracts more from the demand for U.S. goods and services than President Obama’s stimulus package adds. Moreover, the lift from the Obama stimulus is temporary, whereas the drag from the trade deficit is permanent. The huge trade deficit indicates Americans spend much more abroad than foreigners spend in the United States, consume too much more than they produce, and borrow too much from the rest of the world, especially China and the Middle East oil exporters. Simply, money spent on Middle East oil, Chinese televisions and coffee markers, and Japanese and Korean cars can’t be spent on U.S. made goods and services, unless offset by a comparable amount of exports. This creates an enormous shortage in demand for U.S.-made goods and services and is the primary reason the economy needs huge stimulus spending and huge budget deficits to keep it going. Along with the banking crisis, the trade deficit could push unemployment above 10 percent for a long time.

As stimulus packages in the United States, China and elsewhere lift the global economy, the U.S. oil import bill will increase as oil prices and demand rise, and the undervalued Chinese yuan and beefed up subsidies on exports will push Chinese consumer goods and unemployment into the U.S. market. As the stimulus spending winds down, more Americans will be pushed out of good paying jobs with benefits into poorly paying positions without benefits, and be left to charity to obtain health care. Another stimulus package and even larger budget deficits will be required. That will require even more borrowing from China and Middle East royals and further indenture our children. If Congress enacts further stimulus spending to keep unemployment below 8 or 10 percent, the trade deficit will exceed 5 or 6 percent of GDP and foreign borrowing could spin out of control. Deficit driven prosperity can only continue as long as foreign investors are willing to add, each year, hundreds of billions to their huge holdings of dollar denominated securities, and there is no guarantee that financing will be forthcoming.

If President Obama continues to ignore the trade deficit and paint those who see this threat to prosperity as protectionist, his policies to pull America out of recession and avert economic decline will result in a temporary economic boom in 2010 but ultimately fail when the stimulus spending is through. This will renew the cycle of bubble and collapse—this time with the government doing the borrowing. The economy’s most fundamental structural problems are the destructive consequences of Chinese protectionism, dependence on foreign oil and dysfunctional management at U.S. money center banks. The President either fails to see these threats or lacks the courage to address them.
Together, the trade deficit with China and on oil and automotive products account for virtually the entire deficit on trade on goods and services and are simply bankrupting the country. The trade deficit with China is largely caused by an artificially undervalued yuan and Chinese protectionism.

Excessive oil imports are caused by dysfunctional energy policies. The automotive deficit is exacerbated by past management’s missteps, a labor agreement with the UAW more suited to Chaplin’s Modern Times than the global competitive landscape, and Japan’s undervalued yen. The centerpiece of President Obama’s energy policy, a tax on CO2 emissions, would make the situation much worse by encouraging more manufacturing to move to China and increasing U.S. dependence on the Middle Kingdom for both consumer goods and to finance U.S. trade and budget deficits. President Obama’s energy policies will finish what Chinese and Japanese mercantilism began—the wholesale destruction of U.S. manufacturing and the middle-class wages it supported. Correcting the trade deficit would lift the economy much more effectively and permanently than budget busting stimulus spending. Sadly, President Obama, after promising to address trade during his campaign, has ignored the issue since his inauguration. Instead, he offers policies that will make the situation worse.

To finance the trade deficit, Americans are borrowing and selling assets at a pace of about $300 billion a year. U.S. foreign debt exceeds $6.5 trillion, and the debt service comes to nearly $2,000 a year for every working American. The trade deficit imposes a significant tax on GDP growth by moving workers from export and import-competing industries to other sectors of the economy. This reduces labor productivity, research and development (R&D) spending, and important investments in human capital. In 2009 the trade deficit is slicing $400 billion to $600 billion off GDP, and longer term, it reduces potential annual GDP growth to 3 percent from 4 percent. U.S. import-competing and export industries spend three-times the national average on industrial R&D. Productivity is at least 50 percent higher in industries that export and compete with imports, and reducing the trade deficit and moving workers into these industries would increase GDP.

Manufacturers are particularly hard hit by this subsidized competition. Through recession and recovery, the manufacturing sector has lost 5.2 million jobs since 2000. Following the pattern of past economic expansions, the manufacturing sector should have regained about 2.6 million of those jobs, especially given the very strong productivity growth accomplished in durable goods and throughout manufacturing during the expansion. Lost growth is cumulative. Thanks to the record trade deficits accumulated over the last 10 years, the U.S. economy is about $1.5 trillion smaller. This comes to about $10000 per worker. Had the Administration and the Congress acted responsibly to reduce the deficit, American workers would be much better off, tax revenues would be much larger, less stimulus spending would be required, and the federal deficit could be significantly reduced.

Although, President Obama promised to take such steps to curb the trade deficit during the campaign, those steps have been opposed by Wall Street, which is heavily represented among White House and Treasury political appointees. Politics and patronage seem to be getting in the way of sound economic and prudent budget policies. The damage grows larger each month the President ignores the corrosive consequences of the trade deficit. President Obama’s broken campaign promises are punishing the economy and American workers.

Australia Forecasts Record Budget Deficit
The Australian government has forecast its largest budget deficit on record of 57.6 billion Australian dollars (US$44 billion) as it struggles to offset a rapid fall in revenue while boosting spending to moderate the depth of the recession. The forecast deficit for the next fiscal year ending June 30, 2010 is equal to 4.9% of gross domestic product, which would be larger than deficits in Australia's two previous recessions in the early 1980s and early 1990s. It would also be almost double the current fiscal year's deficit forecast of $32.1 billion. The deficits represent a turnaround for the nation that recorded a budget surplus of A$19.7 billion in the last fiscal year ending June 30, 2008, and that had recorded surpluses in all but one of the past 10 years.

The budget is based on forecasts of a 0.5% contraction in the economy in the fiscal year ending June 30, 2010 as the global economic crisis severely curtails demand for the resource-rich nation's commodities exports. This compares with a February forecast of 0.75% growth. But the government also forecast a fairly quick recovery with GDP growth of 2.25% expected in the fiscal year ending June 30, 2011. "Not since the Great Depression has Australia confronted a more difficult set of global economic conditions," Treasurer Wayne Swan said in his budget speech to Parliament. The size of the deficit didn't come as a major surprise to markets, with analysts' forecasts ahead of the budget centering on a deficit of A$55 billion for the fiscal year ended June 2010. To fund the budget shortfall over the next four years, Mr. Swan said Australia will need to increase the total stock of government debt securities on issue to A$300.8 billion from an estimated A$111.87 billion by next month to make up for a collapse in tax revenues.

Treasury forecasters project that growth will rapidly accelerate to a well-above trend rate of 4.5% in the fiscal year ending June 30, 2012. This allowed the government to project a return to budget surpluses by the fiscal year ending June 30, 2016. The government expects China, Australia's biggest trading partner, to emerge from a slowdown to once again boost the Australian economy. The government said that a return to double-digit growth in China is unlikely any time soon, but China can be expected to grow by 8% in 2010 and 8.5% in 2011. "This should see China contribute around 1 percentage point to annual growth in both years, and help support the expected recovery in the Australian economy," the government said.

Tuesday's budget attempts to maintain a fragile balance between providing some additional stimulus to prime a stalled economy, while limiting debt growth. On the spending front, the government committed A$8.5 billion over the next four years to a string of major road, rail and port infrastructure projects. It will also spend A$3.2 billion on health and hospital infrastructure and A$2.6 billion on education infrastructure. At the same time, the center-left Labor government plans to cut spending by A$22.6 billion over the forecast period, mainly by trimming some welfare payments. The government expects unemployment will rise to its highest levels in 12 years as a result of the economic downturn, reaching a peak of 8.5% in the fiscal year ending June 30, 2011.

Goldman Pays to End State Inquiry Into Loans
In the first major settlement involving Wall Street’s role in the subprime mortgage business, the Goldman Sachs Group agreed on Monday to pay up to $60 million to end an investigation by the Massachusetts attorney general’s office into whether the firm helped promote unfair home loans in the state. The money will be used for a loan modification program that would allow Massachusetts homeowners with mortgages from Goldman entities to write down their principal balances by as much as 50 percent. The settlement resulted from a continuing investigation by Attorney General Martha Coakley into subprime lending practices and the role of investment banks that acted as middlemen in loans that have resulted in foreclosure or contained terms so onerous that they were destined to fail.

At a news conference, she said that the problem was industrywide and that the Goldman settlement would provide "much needed relief for many in Massachusetts." Even so, she also criticized what she called predatory lending that was encouraged by Wall Street firms that bought individual subprime mortgages and repackaged them into securitized loans for investors. "Our office has sought accountability at all levels of the subprime lending crisis," Ms. Coakley said in a statement. "We will continue to investigate the deceptive marketing of unfair loans and the companies that facilitated the sale of those loans to consumers in the Commonwealth." Michael DuVally, a spokesman for Goldman said it was "pleased to have resolved this matter," and declined to comment further.

In the heyday of subprime mortgage lending, Goldman Sachs both issued mortgage-backed securities and underwrote them, too. From 2005 through 2007, Goldman issued more than $33 billion in mortgage-backed securities, creating tradable securities from packages of individual subprime mortgages. In 2005 and 2006, it also underwrote $53 billion of securitized loans made by others. While not the largest financier of subprime mortgages, Goldman consistently ranked in the top 20, sometimes in the top 10. It also added to the housing bubble by providing financing to other leading subprime lenders, including New Century Financial Corporation and Option One mortgage.

Goldman agreed to work with Ms. Coakley’s office to find the 714 Massachusetts residents holding mortgages directly with Goldman and the thousands of others whose loans are serviced by Goldman’s affiliated mortgage servicing company, Litton Loan Servicing LP. Most of the homeowners are in the Boston area. Others are in Worcester, Lawrence and the North Shore. The program requires Goldman to reduce the principal on first mortgages by up to 30 percent and on second mortgages by up to 50 percent. It would be one of several such programs throughout the country. But the complications involved in changing the terms of securitized mortgage packages, resistance by some lenders and controversy in Washington have slowed the start of many of these programs. Of the $60 million settlement, $50 million will go to reworking loans in Massachusetts, with the rest going to the state.

Options for Fannie, Freddie May Include 'Wind-Down'
Options for overhauling Fannie Mae and Freddie Mac, the government-run mortgage-finance companies, may eventually include liquidating their assets, according to an analysis released today by the Obama administration. The Office of Management and Budget also projected today in its budget analysis for fiscal 2010 that the companies, which have received or requested $78.8 billion in aid since their federal takeover in September, will need at least $92.2 billion more. The Treasury Department doubled an emergency capital commitment for each company in February to $200 billion. The 2010 fiscal year ends Sept. 30, 2010.

Alternatives range from "a gradual wind-down of their operations and liquidation of their assets," to returning the two companies to their previous status as government-sponsored enterprises that seek to maximize shareholder returns while pursuing public-policy goals, according to OMB’s analysis of President Barack Obama’s proposed federal budget. "The last entities that are going to be set free will be Fannie and Freddie because they’re so key to the housing market," said Bradley Hintz, an analyst at Sanford C. Bernstein & Co. in New York, in a phone interview today. The companies are coming under increasing strain as the Obama administration leans on them to help refinance and modify loans at risk of foreclosure amid the worst housing market since the Great Depression, Fannie Mae and Freddie Mac have said in securities filings.

The government-sponsored enterprises pose a risk to the economy, though the federal takeover and Treasury backing have "substantially reduced" that threat, OMB said. "The GSEs borrow huge amounts from various types of investors, and the health of the housing market critically affects the overall economic activity," the budget office said. "Thus, financial trouble at one or more of the GSEs could unsettle not only the mortgage finance markets but also other vital parts of the financial system and economy." Fannie Mae and Freddie Mac may be nationalized, dissolved and broken up into several smaller companies, revamped as public utilities with the full faith and credit of the U.S. government or converted into insurers for covered bonds backed by U.S. mortgages, OMB said.

Washington-based Fannie Mae has booked seven consecutive quarters of losses totaling $86.8 billion as of March 31. McLean, Virginia-based Freddie Mac, which is expected to report its first-quarter results this week, has reported six straight quarters of losses totaling $53.8 billion as of Dec. 31. Like many other U.S. financial institutions, Fannie Mae and Freddie Mac face "market risk, credit risk and operational risk," according to the budget office. The companies play a leading role in Obama’s Making Home Affordable program to curb mortgage defaults. The government initiatives, announced in February, have yet to curtail the surge in foreclosures and delinquencies. A record 803,489 U.S. properties received a default or auction notice or were seized in the first quarter, 24 percent more than a year earlier, as employers cut jobs and temporary programs to assist homeowners came to an end, RealtyTrac Inc. said April 16.

Fannie Mae and smaller competitor Freddie Mac, which own or guarantee almost half of the U.S. residential mortgage debt, were seized by regulators in September because the two were at risk of failing and regulators feared that may threaten the health of the broader U.S. economy. Treasury’s capital commitment for the companies expires on Dec. 31. While the companies won’t have to repay their federal aid by then, they won’t be able to borrow more unless Congress extends the date.

Ilargi: Joe Weisenthal at Clusterstock tried to imply that Whitney was wrong, but she gives the best and most concise outlay available out there among "serious experts" (Anyone who's not me, or something). Yes, inserting $X trillion will change parts of the game. If it wouldn't, Obama would already be cleaning streets today (any street but Wall Street). Don't read me wrong, I think Whitney has the typical industry blind spot that ultimately keeps these people from realizing what goes on and makes them useless down the line (it's not finance, it's politics!), but still, within her cocoon, she sees it better than just about anyone.

Meredith Whitney goes beyond the stress tests

Geithner's Revelation
The Earth stood still, the seas parted and a member of the U.S. political class admitted last week that the Federal Reserve helped to cause the financial meltdown. OK, only the last of those happened, but it's a welcome miracle nonetheless. The revelation came from Timothy Geithner last Wednesday with PBS's Charlie Rose, who asked the Treasury Secretary: "Looking back, what are the mistakes and what should you have done more of? Where were your instincts right, but you didn't go far enough?"

Mr. Geithner: "We need a little more time to get full perspective."
Mr. Rose: "Right."
Mr. Geithner: "But I would say there were three types of broad errors of policy and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful."
Mr. Rose: "It was too easy."
Mr. Geithner: "It was too easy, yes. In some ways less so here in the United States, but it was true globally. Real interest rates were very low for a long period of time."
Mr. Rose: "Now, that's an observation. The mistake was that monetary policy was not by the Fed, was not . . ."
Mr. Geithner: "Globally is what matters."
Mr. Rose: "By central bankers around the world."
Mr. Geithner: "Remember as the Fed started -- the Fed started tightening earlier, but our long rates in the United States started to come down -- even were coming down even as the Fed was tightening over that period of time, and partly because monetary policy around the world was too loose, and that kind of overwhelmed the efforts of the Fed to initially tighten. Now, but you know, we all bear a responsibility for that. I'm not trying to put it on the world."

Mr. Geithner went on to cite a lack of supervision over bank risk-taking and the slow pace of government response to the problem -- both of which are now conventional wisdom. But the real news here is Mr. Geithner's concession that monetary policy was "too loose too long." The Washington crowd has tried to place all of the blame for the panic on bankers, the better to absolve themselves. But as Mr. Geithner notes, Fed policy flooded the world with dollars that created a boom in asset prices and inspired the credit mania. Bankers made mistakes, but in part they were responding rationally to the subsidy for credit created by central bankers.

We disagree with Mr. Geithner on one point. He's right that monetary policy needs to be considered in global terms, but he's still too quick to pass the buck from the Fed to other central banks. The European Central Bank was much tighter than the Fed throughout this period. The Fed was by far the major monetary player because much of the world was on a dollar standard, with its monetary policy linked to the Fed's. That was true of China, most of Asia and the Middle East. The Fed's loose policy from 2003 to 2005 created the commodity and credit bubbles that made these countries flush with dollars. Given their low domestic propensity to consume, these countries then recycled those dollars back into dollar-denominated assets, such as Treasurys and real-estate-related assets such as Fannie Mae securities. The Fed itself had created the surplus dollars that kept long rates low and undermined for a substantial period its belated attempts to tighten.

Mr. Geithner's concession is important nonetheless because before he moved to Treasury he was vice chairman of the Fed's Open Market Committee that sets monetary policy. His comments mark a break with the steadfast refusal of Fed Chairmen Alan Greenspan and Ben Bernanke to admit any responsibility. They prefer to blame bankers and what they call the "global savings glut," as if the Fed had nothing to do with creating that glut. Mr. Geithner's remarks are a sign of intellectual progress, and they suggest that at least some in government are thinking about their own part in creating the mess. The role of Fed policy should also be at the heart of the hearings that Speaker Nancy Pelosi is planning on the causes of the financial meltdown. We won't begin to understand the credit mania and panic until we acknowledge their monetary roots.


Full hour interview:

Schwarzenegger Tells Lawmakers California Deficit May Swell to $21 Billion
California’s budget deficit has grown so severe that Governor Arnold Schwarzenegger said he may be forced to release 40,000 prisoners or lay off 51,000 teachers if voters next week reject three budget balancing measures. The state’s projected deficit will swell to $15 billion between now and June 2010, Schwarzenegger told lawmakers late yesterday. Half the gap falls in the current fiscal year that ends in seven weeks. If voters reject plans to sell bonds backed by lottery profits and siphon tax receipts from tobacco and high earners already dedicated to special programs then the deficit would expand by another $6 billion. The ballooning deficit comes three months after lawmakers passed a package of spending cuts and tax increases to fill a record $42 billion shortfall and end a cash shortage that prompted officials to prepare to issue IOUs for the first time since the Great Depression. In the intervening months, tax revenue declined further along with the state’s economy.

"The severe economic downturn that California, like the rest of the nation, has been facing has worsened substantially," Schwarzenegger said in a letter to lawmakers. "These changes in the state’s economic and revenue pictures have caused a significant new budget problem to emerge."California’s full faith and credit pledge is rated A by Standard & Poor’s and an equivalent A2 by Moody’s Investors Service, five grades below the top investment ranking. The state’s Legislative Analysts Office said in a report May 7 that California will probably need to borrow an unprecedented $23 billion of so-called cash flow notes or warrants by October to pay day-to-day bills, an amount that may be impossible to raise amid poor credit market conditions. If voters approve the budget balancing measures, the amount would drop to between $10 billion and $17 billion.

Schwarzenegger, in his letter to lawmakers, said he will publish two detailed spending plans on May 18. One will assume the ballot measures pass and the deficit is $15 billion. The other will detail cuts that will be needed if the measures fail and the deficit exceeds $21 billion. The measures were put on the ballot as part of the budget agreement that Schwarzenegger and Democratic lawmakers struck in February. Proposition 1C would allow the state to sell $5 billion of bonds backed by future state lottery proceeds and use the money to balance the budget, repealing a provision in the state’s 25- year-old lottery laws that require profits to be spent on education. This is needed, state officials say, to convince investors there will be sufficient money available to make debt service payments. If approved, the measure would require lawmakers to appropriate to schools each year at least the same amount of money the lottery sent them in 2008.

Proposition 1D would allow the state to strip $600 million over five years from a program that spends tobacco tax revenue on children’s health. Proposition 1E would siphon $250 million a year from a mental health services program financed by an income tax increase approved by voters in 2004. Also on the ballot is Proposition 1A, which would limit state spending to inflation plus 3 percent above a 10-year average. Any excess revenue above that cap would be deposited in a rainy day fund. When the amount in the fund exceeds 12.5 percent of the general fund, lawmakers can choose to spend the excess on one-time needs. If Proposition 1A passes it would extend three temporary tax raises lawmakers approved as part of the budget in February. In all, the measures would increase taxes by $16 billion, according to state finance officials. Proposition 1B would require the state to pay $1.5 billion from the rainy day fund to schools for six years starting in 2011. If Proposition 1A fails, it nullifies Proposition 1B.

Proposition 1F would prohibit state lawmakers and elected officers from salary raises in years when the state is running a deficit. A Field Poll published April 30 found all the measures except Proposition 1F lack enough voter support to pass. At a town hall meeting in Culver City yesterday Schwarzenegger said budget cuts he’s considering if the measures fail include cutting the state firefighting budget by 10 percent; releasing 40,0000 non-violent, non-sex offender inmates; laying off either 51,000 teachers or 90,000 janitors, cooks and bus drives; shutting down public schools for 18 days a year or boosting class sizes by 17 percent; and siphoning $2 billion meant for local governments to pay for services such as firefighters and police officers. Opponents of the ballot measures accused Schwarzenegger of resorting to fear-mongering. "It’s just the latest scare tactic the governor has used to put fear into the voters to pass his failing measures," said Mike Roth, spokesman for the labor unions opposed to the spending cap.

Cities Cry Foul on Stimulus Cash
As he unveiled his proposed budget earlier this month, New York City Mayor Michael Bloomberg threw in a comment about the dollars that got away. While the city stands to collect more than $2 billion of federal stimulus money over three years to help pay Medicaid costs, "we're getting a half billion less than Congress was intending to give us," said Mr. Bloomberg, an independent. Whom does he blame? New York Gov. David Paterson, who chose not to pass along discounts that the state received from Washington, meaning the city must swallow $543 million in health-care costs, city lawyers say. A spokeswoman for Mr. Paterson, a Democrat, defended the decision. "We believe that this is a fair and equitable distribution," she said.

Across the country, fights between local and state authorities have erupted as federal stimulus money is doled out. About $280 billion of the $787 billion federal stimulus package passed in February is set to flow through state and local governments. Many mayors are grateful for getting some money they wouldn't have had otherwise. Still, mayors of several cities have blasted their governors for denying them money for big projects, for favoring suburban requests over urban needs, and for taking back state aid after doling out federal dollars. The governors have said they are trying to balance the needs of many municipalities, and that they must follow the dictates of Congress or their own state laws. The disputes touch on a longstanding area of tension between city halls and state capitols. As more federal money for local needs is funneled through states, cities have complained that they aren't getting as much as they feel they deserve for the size of their population.

Hal Wolman, director of the George Washington Institute of Public Policy in Washington, estimates that direct federal dollars to city budgets dropped from as much as 20% in the 1970s to as little as 5% today. The stimulus money was meant to be distributed quickly to create jobs, so Congress had to rely on the states' existing methods of passing along aid, Mr. Wolman said. "If you use state legislatures to distribute federal money, the suburbs are going to do better than cities," he said. Suburbs "have grown enormously, and in political strength, and cities have not." Officials in Charlotte, N.C., needed about $220 million this year to finish Interstate 485, a highway that would circle the city. Charlotte received far less than that -- about $4 million from the stimulus funding for road refurbishing -- only to learn that the state would take back nearly $4 million it had planned to provide to the city in highway funds.

Pat McCrory, Charlotte's mayor, charges that states often hand out federal dollars "by politics and not by need." Mr. McCrory, a Republican, has complained to the office of Democratic Gov. Bev Perdue in letters and phone calls. North Carolina, like several other states, has a law that establishes how aid must be distributed. In this case, a quarter of the aid must be doled out equitably to seven regions, with the rest divided based on population and need, such as the miles of roadway to be completed. The region that includes Charlotte received more than $100 million of the $735 million the state received in stimulus money for roads and bridges, a state transportation spokeswoman said. "People can complain it shorts the urban areas, and there may be some legitimacy to that," said Gene Conti, secretary of the North Carolina Department of Transportation. Mr. Conti pointed out that the city will be getting $20 million of federal stimulus money to build a bus maintenance center.

In New York, the city's legal department complained in a letter to federal Medicaid officials that the state had wrongly read the federal law and did not pass along to cities the Medicaid discounts that the state itself had received. The federal Center for Medicare and Medicaid Services is reviewing the letter, said spokeswoman Mary Kahn. But "we don't have the authority to instruct the state on how it deals with its governmental entities...as long as it's following the guidelines" of the stimulus legislation, she said. Mr. Bloomberg urged political donors at a lunch last month to back political candidates who favor direct aid to cities, bypassing state oversight. So far, though, few of the mayors' complaints have produced results, leaving city officials searching for money elsewhere, or scuttling coveted projects.

In Rhode Island, Providence Mayor David N. Cicilline, a Democrat, said city schools were happy to get about $10.2 million in federal money. Then the state Legislature cut state school aid by the same amount. "It clearly undermines the intention" of the stimulus legislation, Mr. Cicilline said. The Rhode Island governor's office says all mayors in the job-strapped state need money. "The [Providence] mayor has every right to advocate for more funds for his city. But the state is obligated to distribute the funds for all cities and towns appropriately," said Amy Kempe, a spokesman for Rhode Island Gov. Donald Carcieri, a Republican.

Residents in Greenwood, Ind., planned to widen a road leading to I-69 in hopes of attracting businesses, Mayor Charles Henderson said. Instead, a regional authority gave the city $1.2 million in federal stimulus funds to build a pedestrian trail bridge over a road. "It does not stimulate long-term economic development, but we're going to take that money," he said. Of the $657 million that flowed into Indiana for transport projects, the regional agency that includes Greenwood got $39.5 million and dispensed it based largely on project readiness. "Not a lot of places had projects that were shovel ready," including the Greenwood project, noted Lori Miser, executive director of the Indianapolis Metropolitan Planning Organization. "We did the best we could in dividing up money amongst our 40 communities."

Mortgages Over 5% Mean Fed Purchases as Bonds Slump
The world’s biggest investors are increasing bets that Federal Reserve Chairman Ben S. Bernanke will boost purchases of Treasuries as the steepest losses on government debt since 1994 send mortgage rates above 5 percent. The slump in Treasuries the past seven weeks pushed yields on longer-maturity bonds up by more than half a percentage point and sent average rates on 30-year mortgages to the highest since the start of April, according to North Palm Beach, Florida-based Bankrate.com. Policy makers said March 18 they were committing "greater support to mortgage lending and housing markets" when they pledged to buy as much as $300 billion of Treasuries and stepped up purchases of bonds backed by home loans.

BlackRock Inc., American Century Investments, Federated Investors and Pioneer Investment Management say it’s time to buy Treasuries because the Fed will need to expand its purchases to keep consumer borrowing costs from rising further. While higher bond yields, the 37 percent increase in the Standard & Poor’s 500 Index since March 9 and U.S. reports on housing and inventories show the economy may be stabilizing, Bernanke said May 5 that "mortgage credit is still relatively tight." "The Fed needs to consider increasing its purchases of Treasuries," said Stuart Spodek, co-head of U.S. bonds in New York at BlackRock, which manages $483 billion in debt. Spodek said he resumed buying Treasuries. "We are still in a recession. It’s quite bad. They need to stabilize long-term rates."

Reviving the housing market is critical to ending the longest recession since the 1930s. The National Association of Home Builders says the industry accounted for 13.6 percent of U.S. gross domestic product in the first quarter of 2009, down from 16.7 percent in 2005. GDP contracted at a 6.1 percent rate last quarter after shrinking at a 6.3 percent pace in the final three months of 2008. There is precedent for the central bank to expand purchases. The Fed increased its commitment to buy mortgage bonds to $1.25 trillion in March from $500 billion when it said it would begin buying government debt in a policy known as quantitative easing. "We think there’s a point very close to here where the Fed would act," said James Platz, a fund manager at Mountain View, California-based American Century, which invests about $24 billion in bonds and resumed buying Treasuries. "We would expect at some point an announcement of additional buybacks." The Fed purchased $92.2 billion of Treasuries since the March 18 announcement, according to data compiled by Bloomberg.

At the same time, 10-year note yields, a benchmark for consumer and mortgage rates, reached 3.38 percent last week, the highest since November and up from 2.46 percent on March 19, according to BGCantor Market data. Thirty-year mortgage rates are up from 4.85 percent on April 28. Yields rose for seven weeks, the longest streak in five years. The benchmark 3.125 percent note due in May 2019, which was auctioned by the Treasury on May 6, ended last week at 98 20/32 to yield 3.29 percent. The yield declined to 3.21 percent today at 9:32 a.m. in New York. Treasuries lost 3.93 percent this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index, after gaining 14 percent in 2008 as investors sought a refuge from tumbling prices of securities tied to subprime mortgages. Losses and writedowns at the world’s largest financial institutions total $1.41 trillion since the start of 2007, Bloomberg data show.

The declines are the most since Treasuries tumbled 4.94 percent at the same point in 1994, according to Merrill Lynch indexes. That year, the Fed raised its target rate for overnight loans between banks to 5.5 percent from 3 percent in an effort to contain inflation. Treasuries ended up losing 3.35 percent for all of 1994, before returning 18.5 percent in 1995 and 2.61 percent in 1996, including reinvested interest. Thirty-year mortgage rates as measured by Freddie Mac rose to 9.25 percent on November 1994, from 6.74 percent in 1993, before falling to 6.94 percent in February 1996. Home prices have declined for 31 straight months and are down 31 percent from their peak, according to S&P/Case Shiller indexes. Mortgage applications to purchase a home remain below the high reached in September when rates averaged 5.94 percent, Mortgage Bankers Association and Bankrate.com data show. "The supply of mortgage credit is still relatively tight, and mortgage activity remains heavily dependent on the support of government programs or the government-sponsored enterprises," Bernanke told the Joint Economic Committee of Congress on May 5.

Bernanke succeeded in narrowing the difference in yields between mortgage securities, which also influence home loan rates, and Treasuries. The gap between the 30-year current coupon Fannie Mae bond and the benchmark 10-year Treasury shrank to a 15-year low of 0.77 percentage point on May 6. It averaged 1.23 percentage points in the five years prior to the collapse of Lehman Brothers Holdings Inc. in September. Thirty-year mortgage rates are down from 6.46 percent in October. Other lending rates also show Fed efforts to thaw frozen credit markets are working, which may reduce pressure on policy makers to step up purchases of Treasuries. The London interbank offered rate, or Libor, for three- month dollar loans fell to a record 0.92 percent. The difference between Libor and what the Treasury pays to borrow for three months, the so-called TED spread, was 0.72 percentage point, the narrowest in almost a year and down from 4.64 percentage points on Oct. 10.

Investors anticipating an expansion of the Fed’s Treasury purchases were disappointed after the Federal Open Market Committee’s April 29 meeting, when policy makers left the size of planned buybacks unchanged and said the economy is showing signs of stability. Yields on 10-year notes rose 16 basis points, or 0.16 percentage point, to 3.16 percent that week, the biggest increase since the period ended Feb. 27. Treasuries are falling in part because investors are switching to higher-yielding assets on signs the worst of the recession is over. Unemployment in the U.S. grew by the smallest amount since October last month. Payrolls fell by 539,000, after a 699,000 loss in March, while the unemployment rate rose to 8.9 percent, the highest level since 1983, the Labor Department said May 8. The Commerce Department said the same day wholesalers reduced supplies of unsold goods for a seventh month in March.

"People are feeling a little bit more comfortable that the economy is not getting as bad as it was," said Richard Schlanger, who helps invest $13 billion in fixed-income securities as vice president at Pioneer Investment in Boston. "There has been a slight migration out of the safe-haven mentality." Besides the gain in stocks and the drop in the rate banks charge to lend to each other, U.S. companies including New York- based Morgan Stanley and Bank of America Corp. in Charlotte, North Carolina, have sold more than $500 billion of bonds, according to Bloomberg data.

There is still plenty of incentive for Bernanke to contain borrowing costs as job losses threaten to restrain consumer spending after a first-quarter rebound, according to economists surveyed by Bloomberg News last month.
The government is likely to sell a record $3.25 trillion of debt this fiscal year ending Sept. 30, according to Goldman Sachs Group Inc., to finance bank bailouts, economic stimulus plans and fund a growing budget deficit.
Consumer credit in the U.S. contracted by a record $11.1 billion, the most since records began in 1943, to $2.55 trillion in March, according to a Fed report released May 7. "If all of a sudden this rise in the 10-year yield feeds into higher all-in mortgage rates, that’s when we think the Fed will come in with a vengeance" to increase its Treasury purchases, said Joseph Balestrino, a money manager at Federated Investors in Pittsburgh, which oversees $21 billion in bonds. "We are a buyer."

J.P. Morgan's weapons of mass destruction
"We know everything about Saddam Hussein's arsenal," George W. Bush is supposed to have said -- probably apocryphally -- about Iraq's weaponry, shortly before the American and British invasion in March 2003. "After all, we supplied them." There may be certain similarities with the gradual uncovering of the real reasons behind the financial and economic crisis. The banks that have best coped with the toxic asset challenges are those who actually invented these instruments. By passing on these seemingly innocuous, apparently risk-hedging investment vehicles to other financial institutions, the banks in the vanguard of securitized instruments drove on the spread of the disease. As a by-product, they turn out to have improved their own competitiveness by putting a spanner in the works of larger and smaller rivals. At the same time, the banks at the forefront of structured product innovation, through their intimate knowledge of the nature of the viruses they were handling, built up a degree of immunity to the disease that protected them when the pandemic spread.

A new book -- "Fool's Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe," written by British financial journalist Gillian Tett -- discloses the leading role in development of these instruments during the 1990s by a small troupe of financial theorists at J.P. Morgan Chase. Tett brings scientific acerbity to her research through her academic training as an anthropologist. She also is well known for her no-holds-barred reporting style. Bank of England officials, reeling from her broadsides in the Financial Times, spoke with feeling about periodic salvos from the "Tett offensive." According to Tett, the J.P. Morgan boffins were amazed as it slowly dawned on them that their esoteric derivative inventions spawned in computerized test tubes could actually be employed for useful money-making purposes -- in the trading departments of investment banks as larger-than-life profit-generators. J.P. Morgan chose, wisely, not to take on too many of these potentially explosive devices, either on or off its balance sheets.

It would be unfair to blame the calamities of the last two years solely on this small tribe of rocket scientists. J.P. Morgan can hardly think so, either, since management top brass does not seem to have gone out of its way to hinder Tett's access to the key characters in her story. Collective guilt is the riddle of the credit crisis. Soothing, too, in a bizarre sort of way: everyone was responsible. There were central bankers who kept interest rates too low, the politicians who turned a blind eye toward bloated international liquidity, the regulators who were too lax and the chief executives who were too aggressive. Also, the Americans and British persisted in running unsustainable current account deficits, while the Germans and Chinese piled up unsustainable surpluses. But we now know that without the catalytic effect of the Morgan wizards beavering away in their credit laboratories, none of this would have been half as bad -- nor half as exciting.

Was It a Sucker's Rally?
You can have a jobless recovery but you can't have a profitless one.

The Dow Jones Industrial Average has bounced an astounding 30% from its March 9 low of 6547. Is this the dawn of a new era? Are we off to the races again? I'm not so sure. Only a fool predicts the stock market, so here I go. This sure smells to me like a sucker's rally. That's because there aren't sustainable, fundamental reasons for the market's continued rise. Here are three explanations for the short-term upswing:

- Armageddon is off the table. It has been clear for some time that the funds available from the federal government's Troubled Asset Relief Program (TARP) were not going to be enough to shore up bank balance sheets laced with toxic assets. On Feb. 10, Treasury Secretary Timothy Geithner rolled out another, much hyped bank rescue plan. It was judged incomplete -- and the market sold off 382 points in disgust. Citigroup stock flirted with $1 on March 9. Nationalizations seemed inevitable as bears had their day. Still, the Treasury bought time by announcing on the same day as Mr. Geithner's underwhelming rescue plan that it would conduct "stress tests" of 19 large U.S. banks.

It also implied, over time, that no bank would fail the test (which was more a negotiation than an audit). And when White House Chief of Staff Rahm Emanuel clearly stated on April 19 that nationalization was "not the goal" of the administration, it became safe to own financial stocks again. It doesn't matter if financial institution losses are $2 trillion or the pessimists' $3.6 trillion. "No more failures" is policy. While the U.S. government may end up owning maybe a third of the equity of Citi and Bank of America and a few others, none will be nationalized. And even though future bank profits will be held back by constant write downs of "legacy" assets (we don't call them toxic anymore), the bears have backed off and the market rallied -- Citi is now $4.

- Zero yields. The Federal Reserve, by driving short-term rates to almost zero, has messed up asset allocation formulas. Money always seeks its highest risk-adjusted return. Thus in normal markets if bond yields rise they become more attractive than risky stocks, so money shifts. And vice versa. Well, have you looked at your bank statement lately? Savings accounts pay a whopping 0.2% interest rate -- 20 basis points. Even seven-day commercial paper money-market funds are paying under 50 basis points. So money has shifted to stocks, some of it automatically, as bond returns are puny compared to potential stock returns. Meanwhile, both mutual funds and hedge funds that missed the market pop are playing catch-up -- rushing to buy stocks.

- Bernanke's printing press. On March 18, the Federal Reserve announced it would purchase up to $300 billion of long-term bonds as well as $750 billion of mortgage-backed securities. Of all the Fed's moves, this "quantitative easing" gets money into the economy the fastest -- basically by cranking the handle of the printing press and flooding the market with dollars (in reality, with additional bank credit). Since these dollars are not going into home building, coal-fired electric plants or auto factories, they end up in the stock market. A rising market means that banks are able to raise much-needed equity from private money funds instead of from the feds. And last Thursday, accompanying this flood of new money, came the reassuring results of the bank stress tests. The next day Morgan Stanley raised $4 billion by selling stock at $24 in an oversubscribed deal. Wells Fargo also raised $8.6 billion that day by selling stock at $22 a share, up from $8 two months ago. And Bank of America registered 1.25 billion shares to sell this week. Citi is next. It's almost as if someone engineered a stock-market rally to entice private investors to fund the banks rather than taxpayers.

Can you see why I believe this is a sucker's rally? The stock market still has big hurdles to clear. You can have a jobless recovery, but you can't have a profitless recovery. Consider: Earnings are subpar, Treasury's last auction was a bust because of weak demand, the dollar is suspect, the stimulus is pork, the latest budget projects a $1.84 trillion deficit, the administration is berating investment firms and hedge funds saying "I don't stand with them," California is dead broke, health care may be nationalized, cap and trade will bump electric bills by 30% . . . Shall I go on? Until these issues are resolved, I don't see the stock market going much higher. I'm not disagreeing with the Fed's policies -- but I won't buy into a rising stock market based on them. I'm bullish when I see productivity driving wealth. For now, the market appears dependent on a hand cranking out dollars to help fund banks. I'd rather see rising expectations for corporate profits.

Stressing Fannie and Freddie - What Does It Mean?
The stress test process disrupted the markets for several weeks. In the end, the government’s effort has delivered some benefits. As a result of the mandated capital increases our banks will be stronger. The idea that all 19 are now ‘sound’ is not correct. However, they certainly will be ‘more sound’. Provided that the broad economy does not resume a significant downward slide in the next eighteen months our major banks and financial institutions will make it through this period.

The Fed and Treasury put the Financials through the wringer on this one. There is no precedent for this. The group of 19 were given one choice in this matter; either they consent to the process and agree to the conclusions or they go out of business. The circumstances justified the heavy hand of the government. There was a very troubling question in depositors minds, “Is my bank safe?” Even more significant was the question in investors minds, “Should I risk my capital in theses entities?” As of Friday both of these questions appear to have been answered in a positive manner.

Unfortunately, the two largest financial institutions in the United States were able to avoid the rigors of the stress test. Fannie Mae and Freddie Mac should be put under the same microscope as the commercial banks. This is very much a case of, ‘What is good for the goose is also good for the gander’.

Putting Fannie and Freddie to the stress test is relatively easy. Unlike the commercial banks they do not have a diversity of assets. The Agencies only risks are in residential mortgages. The two Agencies have the same business model. They both have a large book of funded mortgages and a significant off balance sheet guarantee business.

The following chart sets out the Feds parameters for evaluating mortgage assets.

On a combined basis the Agencies have approximately $1.4 Trillion of Sub Prime and Alt-A exposure. Based on the Fed’s criteria this would require at least $200 billion of new equity just from this category of the Agencies balance sheet. An average rate to evaluate the Agencies total book of business would have been in the 6-8% range if the Fed had used the same standards to evaluate the Agencies as they did when evaluating Wells Fargo Bank. For the basis of this discussion a modest 7% will be used to stress test Fannie and Freddie.

This chart shows the current amounts outstanding in the Agencies funded and guarantee books.

Multiplying the total risk book by the 7% haircut produces an addition capital requirement of $700,000,000,000. This amount is approximately 10 times the total amount of capital required for the 19 public financial institutions that were subject to the Fed’s stress test. The average Baseline haircut of 4% suggested by the Fed produces a capital shortfall of $400 billion. Applying the Federal Reserve Board's rules to the Agencies demonstrates just how large our problem is.

The cost to the taxpayer for cleaning up the Agencies will take many years to calculate. It may take a decade to stabilize these important institutions. The guidelines established in the Fed stress test do provide some insight as to the magnitude of the losses we may face. Those losses will certainly exceed the Baseline Case of $400 billion. It is quite likely the losses will approach three quarters of a trillion dollars.

It is difficult to put these very big numbers into perspective. By way of comparison, the losses at the Agencies will probably be larger then all of the costs that will be incurred in the Iraq war.

Daumier: The Burden

Adding Up the Auto Bailout: $80 Billion and Growing
Now that you've finished filing your taxes, here's another task sure to clog your calculator—tallying the cost of the auto bailout. With General Motors Corp. running through $10 billion in cash from the federal treasury during the first three months of 2009 and Congress poised to offer consumers substantial tax credits for new, more fuel efficient vehicles, the costs of helping the struggling automobile industry are mounting fast. Throw in special financing for auto loans supported by the Federal Reserve Board, and the aid for automakers now totals $83 billion—and it keeps growing.

Last week the Treasury Department provided Chrysler $4.1 billion in debtor-in-possession financing to help it get through bankruptcy, bringing the total amount of federal 'loans' to Chrysler to more than $8.2 billion. GM, meanwhile, has received $15.4 billion from the Troubled Asset Relief Program and its total loan request could top $27 billion before the company completes its restructuring, a GM spokesman says. Even that figure assumes that GM's cash burn, which was running more than $3 billion per month in the first quarter, begins to slow later in the year. If the recession deepens, GM could be back at the bar for more.

The U.S. Treasury has also loaned $5 billion to GMAC, GM's auto financing partner, and another $1.5 billion to Chrysler Financial, which once financed Chrysler vehicles. Chrysler Financial is now being de-commissioned since GMAC will take over the financing of Chrysler vehicles under President Obama's plan to reorganize the automaker into a joint venture with Fiat. In a less celebrated aid package, the U.S. Treasury has advanced $5 billion to automotive suppliers in an effort to keep them out of bankruptcy.

Next up: Congress is moving ahead with a special 'cash for clunkers' program that is supported by a broad coalition of auto dealers, trade unions, finance companies and auto manufacturers. The nearly completed bill, which President Obama has indicated he will sign, offers consumers credits of $3,500 to $4,500 to trade in old vehicles for new, more fuel-efficient cars. The incentive is expected to cost the government $4 billion and to boost sales of new vehicles by one million units. "We believe this will play an important role in driving demand and stimulating sales," says Ray Young, GM's chief financial officer. In addition, several automakers, among them Ford Motor Co., Volkswagen, Nissan, Honda and Mitsubishi, have applied for assistance under the Federal Reserve Board's Term Asset-Backed Securities Loan Facility or TALF. The TALF, which was set up last fall, was designed to subsidize the sale of asset-backed securities, a critical source of funding for car loans, student loans and credit card receivables.

Don't put down your pencil yet. The Obama Administration also has agreed to support GM and Chrysler's warranties as part of its bailout plans. The two companies have trimmed warranty expenses in recent years, but based on financial information from both automakers the potential federal liability required to back up Obama's pledge could ultimately run into the billions of dollars. Almost lost amidst all the headlines about crisis aid to the automakers, the U.S. Department of Energy is now preparing to release $25 billion in loans appropriated last autumn to speed up the transition to more fuel efficient vehicles. The cash is supposed to be used for specific projects that increase fuel economy.

Ford, for example, has applied to use some of the federal cash to convert an assembly plant in suburban Detroit from building trucks to building small cars and electric vehicles. The project costs $550 million and Ford hopes to use some of the DOE cash. GM, Chrysler, Nissan and Tesla, the California manufacturer of an exotic electric sports car, are also applying for some of the funds. Meanwhile, automotive suppliers have petitioned the Treasury Department for an additional $8 billion and GMAC, which is now a bank, will need $11.5 billion in new capital according to the U.S. Treasury Department's stress tests. As if all that weren't enough, GM predicted in February that bankruptcy, which now looks inevitable after the company's disastrous first quarter, could cost as much as $100 billion.

Trouble Stirring in the Pension Pot
Unless you are drawing one, pensions can be a major headache -- and not just for the employees paying wages into them. Companies' pension liabilities are notoriously pro-cyclical. As the value of plan assets fall in a bear market, they often demand top-up payments at the worst possible time. In good times, they are left by most to the accounting footnotes. Soon, the requirements of the 2006 Pension Provisions Act kick in. Investors used to panicking about pensions in a downturn and forgetting about them in an upturn will need to adjust. Under changes being phased in through 2011, companies will have to close any funding gap on certain pension plans by 2018. The upshot for many will be increased contributions. And by setting a time limit, the measure moves deficits more firmly onto the balance sheet as long-term debt with a finite maturity.

Surely, however, by 2018 a renewed bull market could do the heavy lifting on repairing pension plans? The problem is the extensive damage done recently. Take a mature industry like chemicals. Jefferies & Co. analyst Laurence Alexander reckons, on average, the sector's U.S. pension deficit as a proportion of liabilities widened from 2.5% in 2007 to 24.3% in 2008. Plan assets require compound annual growth of 12.7% over the next seven years in order to get back in line with their underlying assumptions. The S&P 500's annual total return since inception is 9.6%.

The thought of precious cash being diverted into pension deficits with a definite time limit should have investors reappraising balance sheets. Adjusted for pensions, the sector's average 2008 net debt to earnings before interest, tax, depreciation, amortization multiple rises from 2.38 to 2.76 times. That masks a big range. Leverage multiples for some smaller companies actually decline. For others, it increases sharply: DuPont's, for example, rises from just over two times to almost 3.5 times on this basis. There is another angle to consider: The arbitrage opportunity between diverting cash to pension top-ups or share buybacks. The latter are used to cosmetically enhance earnings per share.

Mr. Alexander points out pension contributions also do this -- not by reducing the share count, but by boosting accounting profits, even as it hits cash flow. Under pension accounting, top-up contributions earn a return in line with the plan's assumptions the following year, reducing operating costs. In addition, they incur a deferred tax benefit. Right now, low share prices mean stock buybacks are more EPS accretive -- provided a company really can or wants to do one. But recent history shows that, perversely, buyback activity seems to increase along with the price. When stocks eventually look healthier, shareholders with an eye to the relative gains, might find themselves in an odd position: Telling management to put excess dollars into the pension fund instead.

U.S. Forced Chrysler's Creditors to Blink
President Barack Obama's auto task force heard a blunt message early this spring from J.P. Morgan Chase & Co., the largest lender to Chrysler LLC. In any deal to remake the troubled auto maker, Chrysler would have to repay its lenders all $6.9 billion it owed. "And not a penny less," said James B. Lee Jr., vice chairman at the bank, in a call to auto task-force boss Steven Rattner on March 29. The next day, Mr. Obama called the banker's bluff. The president stepped before a podium to announce that Chrysler could face a disorderly bankruptcy or even liquidation. His meaning was clear: If that happened, the lenders would get nowhere near $6.9 billion. A few hours later, Mr. Lee called Mr. Rattner back. "We need to talk," he said.

The banker's about-face was a vivid example of the government's tightening grip on a humbled financial industry. Pulling a trick from the hedge-fund playbook, the government used its leverage as the sole willing lender to Chrysler, either in bankruptcy court or out, to extract deep concessions from some of the country's biggest banks. The results of these hardball tactics were on display Friday, as the last resisters of a deal to slash the value of Chrysler debt abandoned their effort to fight it in bankruptcy court. That raised the chances for a relatively swift transit through Chapter 11, producing a new Chrysler 55%-owned by a trust for union retirees, 35% by Fiat SpA -- which hasn't even been a Chrysler creditor -- and not at all by the senior secured lenders. That conclusion would upend a longstanding tradition concerning rights in a bankruptcy: Senior secured lenders usually get paid in full before lower-priority creditors get anything. Not this time.

The White House's role in restructuring Chrysler has sent a shudder through the community of lawyers and lenders in the field of bankruptcy and corporate workouts. Critics complain that the administration has violated a bedrock principle of American capitalism and unfairly demonized financial firms that are vital to the functioning of the economy and its eventual recovery. Administration officials reply that the Chrysler crisis required bold action. While Chrysler's suppliers, dealers and unionized workers are critical to its survival -- and so is Fiat, which will contribute high-efficiency engines and foreign distribution -- the creditors were expendable. "You don't need banks and bondholders to make cars," said one administration official. The administration could exert such leverage because it was convinced big banks were too tarnished in the public eye to put up a fight. They risked being blamed for Chrysler's demise. And if Chrysler had to liquidate, they and other lenders would have to try to recover their money by selling closed auto plants and other assets that are little in demand.

Mr. Rattner forced the issue during the spring negotiations. More than once, he told Mr. Lee: "You can have the company and run it or liquidate it." This account of the fight among Chrysler, its lenders and the government is based on interviews with dozens of people involved in the negotiations, including bankers, financial advisers, lawyers, union and Chrysler officials and Obama aides. The struggle began last year when Chrysler and General Motors Corp. faced a potential meltdown. Chrysler went to the lenders that held 70% of its debt -- J.P. Morgan, Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley. It wanted to know if they would lend more and if they would provide financing in case Chrysler filed for bankruptcy. When they said no, the auto maker turned to Washington. Just before Christmas, the Bush administration agreed to lend Chrysler $4 billion, as well as $13.4 billion to GM. The Treasury gave Chrysler three months to reduce its debt and forge a cost-cutting agreement with the United Auto Workers union.

Chrysler turned to the lenders it had just been asking for new loans, but now asked them to agree not to get paid in full for their old loans. It wanted them to chop the $6.9 billion debt to $5 billion. At a meeting in early February, Mr. Lee and other bank executives rebuffed the request. With the government getting so involved in supporting Chrysler, the banks held out for talks with federal officials. The Obama administration's auto task force held scant hope that all of Chrysler's lenders would agree to a compromise. There were 46 debtholders in all, including many small hedge funds and distressed-debt funds. Most of these had acquired their holdings at a discount on the secondary market. With no consumer operations, they had less reputation on the line than the banks did. In addition, unlike banks, they didn't have to worry about saving Chrysler in order to salvage other loans, to parts suppliers and to Chrysler Financial.

The task force's Ron Bloom, a former investment banker and steelworkers-union negotiator, agreed to handle talks with the UAW and Fiat. Mr. Rattner, co-founder of private-equity firm Quadrangle Group, would take on the lenders. He soon butted heads with Mr. Lee. Known on Wall Street for his suspenders, white collars and deep Rolodex, Mr. Lee, as the senior deal maker at J.P. Morgan, has lent more money to more companies than almost anyone else on Wall Street. J.P. Morgan faced by far the most Chrysler exposure: $2.7 billion of debt. Monitoring the situation, J.P. Morgan Chief Executive Jamie Dimon called Chrysler Chief Executive Robert Nardelli several times. Mr. Lee's March 29 demand for full repayment reflected a common view among the creditors. "You lend someone $6.9 billion, you would like $6.9 billion back," said one.

Many of the lenders believed the administration wouldn't let Chrysler file for bankruptcy. "The plan was to call the government's bluff. The game was to game the government," said a manager of a distressed-debt fund.
Then came President Obama's tough talk about the possibility of Chrysler going into bankruptcy or even liquidation, which came just hours after the administration pushed out GM's chief executive, Rick Wagoner. Acting like a bank that is a troubled firm's last hope, President Obama sketched out what Chrysler would have to do to get more federal money. When Mr. Lee spoke to Mr. Rattner again on March 30, the J.P. Morgan man acknowledged the landscape had changed. He sought a meeting that would bring the lenders to Washington. Chrysler's four main lenders were already indebted to the Treasury as recipients of loans from the Troubled Asset Relief Program, the government's pool of emergency aid to financial-system titans. Citigroup had received $45 billion; J.P. Morgan, $25 billion; and Goldman and Morgan Stanley, $10 billion each.

Obama aides say they were under White House orders not to use TARP as leverage over the banks. Lawmakers weren't so shy. Rep. Gary Peters, a Democrat whose Michigan district includes Chrysler offices, wrote to the bank CEOs listing their TARP loans and asking them to extinguish most of Chrysler's debt. Mr. Rattner hosted a meeting of senior bank officers on April 2, in an ornate conference room at the Treasury. They heard presentations from Chrysler's Mr. Nardelli and Fiat Chief Executive Sergio Marchionne. The more than 25 listeners were told that deals with Fiat and the UAW were nearly complete. When the issue of the $6.9 billion in debt came up, Mr. Rattner looked at the lending group and said, "We have in mind for you a much lower number." He silenced the room by proposing they get just $1 billion. While that wasn't the administration's bottom line, the task force had determined what was: the amount lenders would get in a liquidation of Chrysler assets. A Chrysler analysis in January estimated that at $2 billion. The UAW and Fiat knew about this figure, and also knew that the task force was first going to offer lenders just $1 billion. But the lenders, having waited so long to engage with the Treasury, were in the dark.

The bankers asked the government team for projections of what a combined Chrysler-Fiat alliance would look like. "If you want a response other than 'No,' something like a counteroffer, then we need those new numbers," Mr. Lee said, according to people present in the room. In the following days, the lenders began to realize their leverage was small and dwindling. Only the government had the ability or willingness to finance a bankruptcy reorganization of Chrysler, while also supporting its warranties and suppliers and recapitalizing Chrysler Financial. None of the lenders, some of which had consumer operations in the Midwest near Chrysler plants, had any desire to take over and liquidate the company. Mr. Lee had another problem. Unrest was spreading among creditors as some worried that TARP-recipient banks were open to cutting a deal with the Treasury. Some lenders that hadn't gotten TARP money decided to hire their own lawyer. To calm the smaller debtholders, the banks on April 10 allowed three of them on the group's steering committee: OppenheimerFunds, Stairway Capital Management and Perella Weinberg Partners' Xerion Fund.

The Chrysler-Fiat projections sought from the Treasury didn't arrive until Easter, April 12. By then, deals with Fiat and the UAW had largely been hammered out. The lenders spent a week haggling over how to respond to Mr. Rattner. The big banks at first proposed the group offer to cut the debt in half and get no equity stake. That outraged some hedge funds and distressed-debt firms that didn't face the banks' broader concerns and that were accustomed to fighting in the trenches for their interests. The reply, sent April 20, reflected the hardening position of the hedge funds: The lenders would cut just $2.4 billion in debt, in exchange for 40% of Chrysler's equity. The offer landed with a thud. Rep. Peters said the lenders were seeking much more than market value for their debt, "which amounts to a taxpayer subsidy." It was just 10 days until the government's deadline to reach agreements with the UAW, Fiat and lenders if Chrysler was to get more government money.

After receiving one more bank counteroffer, the Treasury on April 28 offered what it had planned all along, to buy out the lenders for $2 billion. The only sweetener was that it would be in cash, meaning the lenders didn't have to wait for a reorganized Chrysler-Fiat to pay it. Mr. Rattner called Mr. Lee: "It's $2 billion, take it or leave it." The big banks quickly agreed to the deal -- equal to 29 cents on the dollar. Though that offered a profit to a few firms that bought debt as low as 15 cents on the dollar, most of the lenders had paid 50 cents to 70 cents, and the banks 100 cents. News that the big banks were accepting the offer leaked before they had told the smaller lenders. "To say the least, we were floored," says one.

Mr. Lee was nonetheless intent on winning 100% approval from debtholders, to give the government the option of avoiding a Chrysler bankruptcy filing. He asked the Treasury to raise its offer by $250 million, which it grudgingly agreed to do if the lenders answered within 90 minutes. After a flurry of last-minute calls, about 20 firms, mostly small hedge funds, voted no. At noon the next day, April 30, Mr. Obama said Chrysler would file for bankruptcy. He blamed "speculators" who had turned down the $2 billion offer for their $6.9 billion of debt. A lawyer for holdout firms, Tom Lauria, accused the White House of threatening to destroy the reputation of Perella Weinberg. The White House denied exerting pressure on it. Mr. Lauria's clients took their fight into bankruptcy court last week, imperiling the administration's plan to guide Chrysler into and out of court swiftly. But on Friday, the holdouts abandoned the fight as too costly, financially and politically. "The overarching sense of political pressure," Mr. Lauria said, "remained out there till the end."

Ilargi: The plan works! The crisis is used as an excuse to kill off the smaller banks, and take over their deposits. Wall Street badly needs deposits, and they'll get them. Brilliant execution, and if the small banks don't rise up soon and raise their voices, a large number will be in some kind of trouble or another.

We’re Dull, Small Banks Say, but Have Profits
It’s unlikely that any group of professionals is happier to highlight the dullness of their work than small-town bankers. At a recent conference held here by the Indiana Bankers Association, attendees said it over and over: our business is plodding and boring and we would not have it any other way. "Banking should not be exciting," said Clay W. Ewing, president of retail financial services at German American Bancorp, a community bank in Jasper. "If banking gets exciting, there is something wrong with it." It is an ethos squarely at odds with the risk-addicted style of megabanks, like Citigroup and Bank of America, that trafficked in the subprime mortgages and complex financial products that helped drive the country into the grimmest recession in decades.

But to the deep chagrin of Mr. Ewing and others at the conference, the public, politicians and the media have made little distinction between the stress-tested behemoths and the 7,630 community banks across the country — the vast majority of which have watched the crisis like bystanders at a 10-car pileup. As a result, community bankers have felt compelled in recent months to mount public relations campaigns to emphasize their fiscal health and in some cases to announce they rejected Troubled Asset Relief Program, or TARP, funds. Some have held cookouts, others have held "reassurance" meetings in their lobbies, hoping to educate customers and prevent panics. All are dealing with banker jokes and the occasional wisecrack. "I was on vacation in California and this guy I had just met said, ‘So, traveling on that bailout money, huh?’ " said Blake Heid, of First Option Bank in Paola, Kan., which didn’t take any bailout money. "I didn’t find that very amusing."

Though they greatly outnumber the national and regional banks, community banks have barely registered in any of the fallout from the credit crisis, in part because they hold less than 10 percent of the $13.8 trillion in bank assets nationwide. The 50 or so bank failures have been largely clustered in a few states, like Florida, Arizona and California, where the bursting housing bubble had the greatest impact. In states like Indiana, where property values never soared, community banks have been rock solid. The last failure in the state was in 1992. To spend time with these Indiana community bankers is to step into an alternate universe, where everything sounds a little strange because it makes perfect sense. You hear things like, "If you don’t understand the risk you’re taking, don’t take it." And, "We want to be around for decades, so we’re not focused on the next quarter."

Forget "too big to fail." These banks consider themselves too small to risk embarrassment. They are run by people who grew up in the towns where they work, and their main fear is getting into a financial jam that will shame them in the eyes of their neighbors. The steep profits earned by national banks didn’t turn their heads in the last decade because they were inherently skeptical of double-digit growth rates. "We like a nice, gentle, upward slope," said Donald E. Goetz, the president of DeMotte State Bank, an 11-branch operation in the northwest part of Indiana. "This kind of growth, like you see in the stock market" — Mr. Goetz ran his hand through the air, tracing the shape of a mountain range — "that doesn’t interest us." One recent morning Mr. Goetz gave a tour of his bank, which included a bulletin board with fliers for a fire department fish fry and the Kankakee Valley Women’s Club flower sale.

There is a lot of bric-a-brac in his wood-paneled office and a Thomas Kinkade painting of a green-gabled stone house after a snow fall, titled the "Olde Porterfield Gift Shoppe." "There is one set of footprints, going in," he said, pointing to the painting. "That’s how we feel as a business sometime. We’re walking alone." Mr. Goetz, who was wearing a tie and a short-sleeve shirt, started as a teller at DeMotte right after he graduated from college in 1976, and he’s been president since 1988. He is a stolid guy who, when asked what he does for fun, offered two words: "Yard work." He sounds somewhat aggrieved. His bank, which opened in 1917, didn’t make any subprime loans, nor did it take any bailout money. Even when bank stocks were soaring, not one of his 246 shareholders needled him to earn more than the 3 to 4 percent dividend that DeMotte has generated for years.

Still, he’s had to train employees in the art of assuaging the fears of jittery customers. He programmed the blinking signs outside his branches to read "Safe, Strong, Secure." Despite these efforts, he’s fielded some customer calls at night, to his home. In rare cases, people withdrew their savings. "We had three or four people panic," he said. "A couple of them said, ‘It’s not the bank. We just don’t trust the government.’ And I told them, ‘If the government fails, the money you’re taking out of this bank won’t be worth anything.’  " Mr. Goetz, like a lot of his competitors, is livid about the mortgage shenanigans born of the securitization craze. But he thinks his public relations problem had many authors. "The media, Congress, the president, everyone just keeps saying ‘the banks, the banks, the banks,’ like we’re all the same thing," he said. "Well, we’re not all the same thing."

Explaining that distinction has been especially challenging for community banks that signed up for TARP funds, which initially were pitched by the government as a way to shore up healthy banks. Only later, after the American International Group bonus fiasco, community bankers say, did the TARP acquire a stigma. "We heard a lot of smart-alecky comments," said James C. Latta, president of the Idaho Banking Company in Boise, Idaho, which took $6.9 million in TARP funds. "A lot of ‘Wish I had a bailout.’ " At DeMotte, Mr. Goetz is bracing for a steep increase in a crucial overhead cost: the bill from the Federal Deposit Insurance Corporation, which is basically an insurance fund underwritten by banks. Last year, DeMotte paid $42,000 into the fund. This year, because of failures in other parts of the country and particularly among national banks, that sum will rise to $500,000 or more. "Isn’t that the American way?" he says, folding his arms. "Whoever is left standing, whoever was prudent, is always the one who has to pick up the pieces."

Ilargi: Barry Ritholtz ran this cute tidbit:
I emailed William Dunkleberg, who is chairman of Liberty Bell Bank, in Cherry Hill  NJ. It has 4 branches, runs the bank conservatively, (i.e., only makes loans to people who will pay them back).  The FDIC bill more than doubled to $400k range, basically wiping out profits for this year. Bill writes:
“They ask us to build capital, lend more, but steal all the “material” we would use to do exactly that! And who wants to buy our shares when we keep reporting virtually no earnings even tho we grow 30%!! and have no unusual loan problems! Last year, FDIC also made us (and thousands of others I am sure) add a few hundred thousand to loan loss reserves. We wont lose the money, so eventually get it back, but this clobbers earnings. Then, adding insult to injury, Ben Bernake takes 500bps off of prime, with a third of our loans tied to prime. I have to write letters to our savers saying “because mega banks need cheap money, I have to cut the rate we pay you on your savings”.
More screwing of the little ones in the economy, little banks, little savers! Why do we have to pay for the big bad banks who finance their assets with 25 cents of domestic deposits on the $1 while we have to use $1 of domestic deposits and pay insurance on that? I guess if we could issue debt like the biggies, we’d get a guarantee but of course small banks can’t economically do that. We can’t permanently keep a block of free federal funds on the balance sheet. So, we don’t have that “cheap money” to boost our profits. Gave a talk to Haverford Trust people yesterday and several in attendance were investors in and/or attended little bank board meetings and report the same hits on profits. bummer!

Credit insurance hampers GM restructuring
Hedge funds and other investors stand to make billions of dollars on credit insurance contracts if GM declares bankruptcy, a prospect that is complicating efforts to persuade creditors to agree to a restructuring plan for the automaker, analysts say. Holders of $27bn in GM bonds have until June 1 to decide whether to swap their debt for a 10 per cent equity stake in the company as part of an offer that would give the US government 50 per cent of the shares, a United Auto Workers union healthcare fund 39 per cent and existing shareholders 1 per cent. However, analysts say the chances the proposal will be accepted have been diminished by the large number of credit default swap (CDS) contracts written on GM’s debt.

Holders of such swaps would be paid in the event of a default – but would lose money if they agreed to restructure GM’s debt. For investors who own bonds and CDS, this could create an incentive to favour a bankruptcy filing.
According to the Depository Trust & Clearing Corporation, investors hold $34bn in CDS on GM. Once off-setting positions are considered, the DTCC estimates CDS holders would make a net profit of $2.4bn if GM were to default.
The opposition of 10 per cent of bondholders is enough to derail the proposal, which has already triggered protests from investors who argue it unfairly rewards the UAW at the expense of bondholders. "You have every incentive not to agree," said one bondholder, a large credit hedge fund. "You would be locking in a loss if you did. It isn’t only the ‘shark’ capital; it will be the mom and pop mutual funds who will oppose this deal. "

Prices for GM’s debt and CDS indicate investors believe a bankruptcy filing is highly likely. GM’s bonds are trading at between 6 and 12 cents on the dollar. To insure $100m in GM debt for five years, an investor would have to pay $89m plus another $5m a year over the life of the CDS contract. The CDS positions mark a crucial difference between GM and Chrysler, which filed for bankruptcy protection as part of what it hopes will be a swift restructuring. Chrysler had $6.9bn in bank loans, on which there were few credit insurance contracts. "Chrysler looks like a simple two-car funeral compared to the traffic jam of assets and liabilities and contracts at GM," said the credit research boutique CreditSights. "Chrysler provides limited parallel.

Make Iceland Pay for Incompetent British Bank Deregulation!
Gordon Brown Spills the Beans on the IMF

Last month the G-20 authorized the International Monetary Fund to increase its loan resources to $1 trillion. It’s not hard to see why. Weakening currencies in the post-Soviet states threaten to raise default rates on foreign-currency mortgages as collapse of the Baltic real estate bubble drags down Swedish banks, while the Hungarian property plunge threatens Austrian banks. It seems reasonable to infer that creditor-nation banks hope to be bailed out. The IMF is expected to lend the Baltic, central European and other debtor-country governments money to pay them. These hapless debtor economies are then to follow IMF "conditionalities" to squeeze enough money out of their populations to pay foreign creditors – and repay the Fund by imposing yet more onerous taxes on their labor and industry, making them even more high-cost and therefore pushing them even further into trade and credit dependency. This is why there have been so many riots recently in Latvia, Lithuania, Estonia and Ukraine, as was the case for so many decades throughout the Latin American countries that introduced the term "IMF riot" to the global vocabulary.

For fifty years the IMF has organized such payouts to creditor nations. Loans are made to debtor-country governments to "promote exchange-rate and price stability." In practice this means pouring tens of billions of dollars into currency markets to make bad gambles against raiders. This is supposed to avert the beggar-my-neighbor nationalism and financial protectionism that aggravated depression in the 1930s. But the practical effect of IMF lending is to demand that debtor countries impose onerous IMF "conditionalities" that stifle their domestic markets. This is why the IMF was left with almost no customers until last year’s debt crisis deranged the world’s foreign exchange markets.

It is supposed to be merely incidental that the largest IMF shareholders, the United States and Britain, happen to be the major creditor nations and their banks the main beneficiaries of IMF loans. But in a Parliamentary question-and-answer session on May 6, Britain’s Prime Minister Gordon Brown spilled the beans. Under pressure for his notorious "light-touch regulation" as Chancellor of the Exchequer (1997-2007), he undid half a century of rhetorical pretense by announcing that he was pressuring the IMF to bail out Britain in its nasty dispute with the Icelandic owners of a British bank that went under. He was in a position to know the nitty-gritty of who owed what and which nation’s monetary authorities were responsible for which banks. So when he said that he was strong-arming the IMF and other organizations to force Iceland’s government to pay for his own government’s mistakes, he must have known this was breaking the unwritten law of pretending that the IMF is not the servant of creditor nations in bilateral disputes with smaller economies.

Here’s the background. Mr. Brown and his New Labour predecessor Tony Blair have saddled British taxpayers with a generation of payments to pay for their decade of deregulating London’s financial sector. Bad mortgage lending led to the failure first of Northern Rock and then the Royal Bank of Scotland, whose ambitious junk-mortgage program had made it the world’s largest bank. At $3.8 trillion before it collapsed, it was nearly twice the size of Britain’s $2.1 trillion gross domestic product (GDP). (For a review of New Labour’s deregulatory policies see Philip Augar, Chasing Alpha: How Reckless Growth and Unchecked Ambition Ruined the City's Golden Decade [2009].) So one can understand why Mr. Brown was flailing around to blame someone for New Labour’s "Don’t see, don’t ask" policy.

Last autumn one of Iceland’s most reckless banks, Landsbanki, announced that it had made so many bad gambles that its loans and investments could not cover what it owed its depositors. It had drawn many deposits from abroad by setting up foreign branches, including Icesave in Britain. And in a striking variation from normal practice, these branches were not incorporated as separate affiliates, which would have led them to be regulated by local British authorities. As branches of the Icelandic head office, Icesave was regulated only by Icelandic authorities – which were as thoroughly neoliberalized as those of Britain, and didn’t really have a clue as to what was going on.

When Icesave went broke in October, British monetary authorities panicked. Mr. Brown sought above all to prevent its owner, Landsbanki, from doing what Lehman Brothers had just done on Sept. 14 when its New York office emptied out the funds in the account of its London affiliate just before the U.S. firm declared bankruptcy. Trying to grab whatever Icelandic assets he could, Mr. Brown overreacted (hardly a new experience for him). Responding far beyond Icesave itself, he resorted to anti-terrorist legislation passed in 2001 in the wake of the 9/11 attack on New York’s World Trade Center to freeze Icesave’s accounts – and also those of other banks in Britain owned by Iceland. Evidently he thought that classifying his peaceful NATO partner as a terrorist economy would panic its government into paying. But the effect was to cause a run on Iceland’s currency, making payment impossible. The króna entered a period of freefall on foreign exchange markets.

Mr. Brown’s bellicose behavior escalated as Britain’s own currency sank. This set the stage for his explosion last Wednesday when he explained how he intended to make Iceland pay, not only for Icesave but also for Kaupthing S&F, for which the British authorities were responsible in the case of depositors who had lost money. Unlike the unfortunate IceSave (administered as a branch of Iceland’s Landsbanki and hence subject to Icelandic regulatory authority), Kaupthing S&F is incorporated as a distinct British affiliate, and regulated and insured as such. The UK authorities accordingly have not claimed that Iceland’s government has any obligations to reimburse British depositors who have lost money. Yet when asked about the "£6 million that the Christie hospital [in Manchester] stands to lose in the Icelandic bank Kaupthing," central banker Brown pretended that Kaupthing was not a British bank overseen by domestic deposit insurance authorities. "The fact is that we are not the regulatory authority and that many, many more people had finances in institutions regulated by the Icelandic authorities," he insisted before Parliament. "The first responsibility is for the Icelandic authorities to pay up, which is why we are in negotiations with the International Monetary Fund and other organisations about the rate at which Iceland can repay the losses that they are responsible for."

This naturally has prompted Icelanders to ask British authorities just which "other institutions" they may be talking to, and what they may be hoping to gain. The IMF’s representative in Iceland, Franek Rozwadowski, was quick to explain to the Icelandic newspaper Fréttabla?i? that it was not the IMF’s role to intervene in "a bilateral matter that needs to be resolved bilaterally." But fears remain that Iceland’s government will be pressured to squeeze out money from the economy to reimburse foreign speculators on the winning end of the many bad gambles that Iceland’s banks made before being de-privatized. Such fears are aggravated by the worry that Mr. Brown may have found help from a fifth column within Iceland itself. After the bank crisis last autumn, the Independence Party fell, and its coalition partner for the last six years, the Social Democrats, took charge of the administration. The government divided the failed Icelandic banks into "good" and "bad" parts so as to save what could be salvaged for Icelandic depositors to back their deposits (the "good" bank).

The government then commissioned two British accounting firms to survey the loan portfolios of Landsbanki and Kaupthing to evaluate their assets at "fair value." But much as the U.S. stress test surrendered to the banking system’s insistence on blue-sky optimism regarding what will be left over on high-risk loans and gambles, so the Icelandic contract defined "fair value" as it would exist if the global financial collapse was completely reversed and everything went back to normal as if nothing had happened. Under this assumption the good and bad bank assets would be worth much more than is the case under today’s real-world conditions. This dangerously over-states the net worth of Iceland’s failed banks. It was dangerous to retain firms closely associated with major clients – and hence, their source of future business – that include the parties with whom Iceland’s government stands in a potential adversarial relationship. Another problem is political pressure for a cover-up on the part of the vested Icelandic interests that had engaged in reckless behavior, and perhaps crooked self-dealing via foreign transactions.

In any event, the report was not made public on its scheduled date in mid-April, which was supposed to be just prior to the national elections on April 25. When a report on major bankruptcy by political insiders is not released on the promised date before a major election, one naturally suspects political pressure at work. Yet despite the financial crisis that plunged most Icelanders into a debt-strapped condition, the election turned mainly on political factors. The Social Democrats advocated joining the European Union and adopting the euro, hoping that this in itself may lead to domestic economic reform. The Left-Green coalition opposed giving up Icelandic political and economic sovereignty and pressed for domestic reform, as did the centrist Progressive Party. As for the Independence Party, it was swamped by one scandal after another concerning election financing, insider crony dealing and the usual array of dirty neoliberal political practices.

All this occurred in an economy structured to be a creditor paradise – that is, a debtor’s hell. On top of normal mortgage interest, Icelandic personal and real estate debts are subject to indexation of the principal to reflect the consumer price index – which in turn mirrors the fall in the króna’s exchange rate, about 20% over the past year. This means that if someone bought a house for the equivalent of $100,000 a year ago with a 100% mortgage, the debt would now have risen to $120,000. But the collapse of Iceland’s economy has sent unemployment soaring and business crashing, so real estate prices have fallen by about 25%. The former $100,000 house would now have a market value of only $75,000 – just 62% of its re-indexed $120,000 mortgage, some $45,000 in negative equity.

The situation actually is about to get much worse in the near future. The US$ is currently at 125 krónur (IKR), down from 62 at yearend-2007 – a 100% increase. (For the euro, the increase over the same period is 85%.) Iceland’s banks have linked many business loans, as well as auto loans and other debts to a market basket of foreign currencies, on the logic that they themselves have had to obtain money by borrowing yen, euros, sterling or dollars. Although these loans are denominated in krónur, their payment is indexed, so the effect is similar to denominating loans in foreign currency. Many loans are still benefiting from the moratorium placed on re-indexing the principal when the crisis hit last autumn, but many loans are about to be reset. Icelandic debtors who borrowed in the belief that the IKR was as stable as the dollar are now paying the price for their optimism – an optimism fed by the banks’ marketing departments, which depicted these indexing arrangements simply as an accounting formality! Business debts are especially at risk.

This shows how urgently Iceland needs to straighten out its banking mess and restructure the economy to free the population from the unique debt squeeze its laws and a decade of neoliberal mismanagement have created. Now that the banks have been de-privatized and taken back into the public domain, credit needs to be turned back into what it was before – a public utility. But this cannot be organized without knowing how much can be recovered from the failed banks to back domestic depositors. And the reports from the British accounting consultancy firms still have not been made public. Only the major creditors have received copies! Remarkably, the government said last week that they might not be released at all. The inference is that the crooked dealing has been so damning to vested Icelandic interests that it would cause a new political crisis to resolve the deepening economic crisis. The fear is that a sweetheart deal has been made with the kleptocrats whose reckless behavior (and it seems probable, illegitimate bank maneuverings with offshore accounts) plunged the economy into negative equity in the first place.

The better the financial health of the failed banks appears on paper, the more presumably will be left over to pay foreigners – including the offshore accounts of the banks’ former owners in their own dealings with the banks. So from the vantage point of Icelandic depositors and debtors to these banks, a realistic pessimistic estimate of the banks’ position would protect them, while an unrealistic optimism would enable foreigners to siphon off much more money, leaving less for Iceland. In fact, the IMF has failed to oblige Iceland’s government to conform to the Letter of Intent it signed on November 15, 2008. This letter obliged Iceland to "bring loan values in line with expected market values" (#4), and to "include an assessment of whether or not managers and major shareholders have mismanaged or abused the banks" (#6). No such assessment has been made, and as described above, loan values are exceeding market values by a rising degree as property, businesses and households fall into negative equity status.

The Icelandic government’s agreement with the IMF promised to make the bank assessments public upon their completion "by end-march 2009" (#10). This has not been done – perhaps (one worries) because the next sentence says that the government "will discuss in advance with IMF staff any changes to the adopted strategy." In view of the secrecy that now shrouds the events that pushed the banks under, one can only wonder at what developments have prompted the government and IMF to change strategy. What the IMF did demand – as it always does – is that once the government bails out the bankers for their bad loans, the whole privatization process is to start all over again, paving the groundwork for yet new rip-offs. In view of the fact that "the banking crisis will significantly constrain the public sector and burden the public for years to come" as the government pays off bad loans (#12), the agreement pledges (#14) that "A significant reduction in government debt through the sale of the government’s stake in the new banks could help reduce the needed fiscal adjustment over the medium term."

Belatedly, the population is now up in arms – two weeks after the election! To stabilize the currency, Iceland has agreed to IMF conditionalities that prevent the government from pursuing the counter-cyclical Keynesian fiscal policy that Mr. Obama is leading in the United States. Unless the debt pressure is alleviated, Icelandic homeowners and businesses will be obliged to run down their savings each month until they are depleted – at which time they will lose their homes and forfeit their businesses to foreclosing creditors. So on Saturday afternoon, May 9, a "pots and pans" protest was conducted outside of Iceland’s Parliament in Reykjavik. The scenario is much like that of the color revolutions staged by U.S. neoliberals throughout the post-Soviet states. But Iceland’s kitchen-utensil revolution is organized as a protest against neoliberal policies. The protesters have picked up the thread where it left off last October a similar set of protests dislodged the Independence Party from power. The National Labor Association has broken from the new Social Democratic coalition government, reflecting the growing anger among Icelanders at their debt squeeze.

Mr. Brown’s statement that he intends to use IMF leverage to deepen Iceland’s debt position by forcing its government to bail out British depositors has rubbed salt in this wound – precisely by demanding for his country what Icelanders are not receiving from their government! Its citizens want to know what pressure the country is responding to if it intends to put the interest of foreigners before their own. This double standard has motivated the population to act in a more confrontational way than would have occurred had the problem been merely domestic. Icelanders want to be told the magnitude of the financial problem – and apparent dishonesty and crony dealings – that the government is keeping secret. The answer may at long last move Iceland out of its post-feudal oligarchy. Its neoliberal privatizations and pro-financial policies may turn out not to be as entrenched and irreversible as the kleptocrats had hoped would be the case.

Ilargi: Barry's little tale explains very well why the $1 quadrillion derivatives’s trade unwind will be such a mess.

What are you worried about?
In a small town on the South Coast of France, the holiday season is in full swing, but it is raining so there is not too much business taking place. Everyone is heavily in debt. Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts a €100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.
• The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes €100.
• The butcher takes the money and races to his supplier to pay his debt.
• The wholesaler rushes to the farmer to pay €100 for pigs he purchased some time ago.
• The farmer triumphantly gives the €100 note to a local prostitute who gave him her services on credit.
• The prostitute quickly goes to the hotel, as she was owing the hotel for her hourly room used to entertain clients.
At that moment, the rich Russian comes down to reception and informs the hotel owner that the room is unsatisfactory and takes his €100 back and departs. There was no profit or income. But everyone no longer has any debt and the small town’s people look optimistically towards their future. Could this be the solution to the global financial crisis?

Money printing starting to work, says Bank of England
Mervyn King will this week insist that there is now evidence that the Bank of England's drastic quantitative easing measures are starting to work, but that more may need to be done to prevent a relapse into crisis. At the inflation report on Wednesday, the Bank's Governor will point towards the Bank's own internal calculations which show that the amount of cash flowing around the economy is starting to pick up. The money supply figures - M4 adjusted for the effects of complex financial market fluctuations - show a slight increase in money growth from 3.5pc to 3.9pc in Q1. Although the esoteric statistics are ignored by most City economists, within the Bank they are regarded as the most authoritative sign of whether their radical efforts to control the money supply are working.

But Mr King will warn of the need for more stimulus from the Bank, underlining its decision last week to commit a further £50bn to buying Government and corporate bonds. The Bank would like adjusted M4 growth to rise to around 5pc or higher in the coming months in order to ensure the recession does not worsen. It will cut its forecast for economic growth this year - most likely taking its projection down to a contraction of 4pc or more, embarrassing Alistair Darling, who in the Budget declared that the contraction this year would be 3.5pc. However, Mr King's continued commitment to quantitative easing is likely to reassure the Chancellor, who needs to sell £220bn of gilts this financial year alone. If the Bank stops buying large chunks of the gilts market it will leave the UK more vulnerable to the whims of international investors.

The Chancellor will today be forced to reassure senior figures from the Chinese government about Britain's creditworthiness. The ministers, who are on an economic delegation to the UK, have expressed their concern that quantitative easing, alongside large levels of western public debt, will destabilise the world economy. Given that China is one of the biggest consumers of government debt from both the US and the UK, there are fears that the country may turn a cold shoulder on British debt in the future. The delegation is being led vice-Premier Wang Qishan - the country's top economic policymaker. The meeting will also focus on environmental issues, questions of how to remodel the financial system and will redouble efforts to increase bilateral trade between the UK and China to £60bn.

UK unemployment rises to 2.2 million as average earnings drop for first time
Average earnings including bonuses also fell for the first time as City workers missed out on the windfalls they enjoyed during the boom years, raising fears of deflation. Data due to be published tomorrow was released a day early, and showed the biggest quarterly rise in the number of people looking for a job since 1981 – 244,000. The UK's unemployment total is now 2,215,000, the worst figure since 1996. The number of people claiming Jobseeker's Allowance increased by 57,100 to 1,513,000, said the Office for National Statistics (ONS). The ONS took the highly unusual step of bringing forward the eagerly-awaited news after revealing that some data had been accidentally released early. Economists said that while the increase in the number of people applying for benefits was smaller than expected, the jump in unemployment was "startling". "The smaller than expected rise in the UK claimant count in April is good news, but the rest of the labour market figures are pretty awful," said Vicky Redwood of Capital Economics.

The 0.4 per cent fall in average earnings was unprecedented, with negative growth not seen since the data began being collected in the 1960s. "The potential deflationary threat posed by the labour market should not be underestimated," she added. The number of people in work fell by 157,000 between January and March, while job vacancies were cut by 51,000 to 455,000, the figures showed. The unemployment rate is now 7.1 per cent, up by 0.8 per cent on the previous quarter. Paul Kenny, leader of the GMB union, said: "This massive increase in unemployment shows the extent to which employment is withering away in this bankers' recession. "GMB is aware of creditworthy companies, seeking standard leasehold arrangements to buy and install new plant which would help to create new jobs, being turned down by financial institutions."

Darth Greenspan
The former chairman of the US Federal Reserve shares a lot in common with one of the most famous villain characters in the history of Hollywood, Darth Vader, who was first a member of the Jedi coalition when his name was Anakin Skywalker. Anakin Skywalker was a tremendously talented young boy discovered by Obi Wan Kenobi, who initially believed that Anakin was the "Chosen One" foretold by a Jedi prophecy to bring balance to the Force and restore harmony to the universe. As a youth, Anakin Skywalker received close training from Obi Wan Kenobi and fought many great battles as a member of the Jedi league, but he developed a few dangerous qualities as he grew older — specifically a desire for power, a belief that a central authority was capable of controlling society, and a misplaced confidence in the "Dark Side" of the Force.

After Anakin became taken over by the desire for power and the belief that he as an individual had the ability to control the universe, he renounced his allegiance to the Jedi, turned to the Dark Side and began to control the operations of an entire galaxy as the republic had been transformed into an empire. The decisions of Darth Vader now affected everything and everyone in the galaxy, rather than all creatures being able to live their lives free from the influence of one central authority. As a youth, Alan Greenspan was a diligent student of economics and a close friend and colleague of Ayn Rand, as they were both stern supporters of the tenets necessary for a free society, which requires a commodity-based currency. In fact, in 1966, Greenspan wrote a famous article advocating the need for a gold standard in America in which he stated,
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

In the 1970s, he became involved with members of the US federal government. He initially began as an advisor to those who aim to bring about the most effective economic and monetary policy for an entire nation. Perhaps, it was during this stage in Mr. Greenspan's life when he began to develop a strong desire for power, a skewed view that governments can effectively dictate economic policy, and a misplaced confidence in the role of the Federal Reserve. In 1987, Alan Greenspan was officially appointed to his position as chairman of the Fed, where he became one of (if not) the most powerful men in the world.

Although he was appointed by the president of the United States and ostensibly obeyed the orders of the president, in many ways Alan Greenspan went on to govern the Fed with almost no oversight. With his newly granted authority, the chairman was now able to determine the interest rates of an entire nation (which influence the interest rates of the entire world) and expand and contract the nation's money supply however he and his constituents deemed necessary — an ominous power, indeed.

The policies of the Federal Reserve Bank had an enormous impact on our current crisis; and the American people have come to realize how destructive the force of the Fed can be. By expanding the supply of credit, inflating the currency, and keeping interest rates artificially low and fixed for an extensive period of time (a form of price fixing), the country — and globe — became plagued by malinvestment: people and banking institutions were encouraged by this dark and opaque monolith in Washington DC to buy and spend. Although many politicians conveniently blame the banks and the borrowers for the turmoil that Americans are faced with, most of the nation's top economists are pointing their fingers at the Fed.

The only way to prevent this sort of disaster from reccurring is to take this powerful and insidious authority out of the hands of the Fed and restore the Republic, whose founders understood the evils of a central authority controlling a nation's money supply. This is the reason that the word "coin" was specifically written in the Constitution over 200 years ago. When the United States was on a bimetallic -currency system during most of the 19th century, it was much harder for politicians to shell out cash to friends and those with whom they shared a vested interest.

In Return of The Jedi, Luke Skywalker confronted Darth Vader in an attempt to save the galaxy, destroy the Dark Side, and restore the republic that once was. In the midst of a fierce light-saber battle with his son, Vader becomes wounded and can no longer fight back. Ultimately, the good side of Darth Vader re-enters his soul. He lifts up the evil emperor and throws him into a deep, dark hole. The Dark Side is destroyed and balance in the republic is restored.

Over the past few years, Alan Greenspan has undergone widespread criticism for the disaster that he created. Although he has not yet accepted blame for the harm caused, nor publicly acknowledged the damaging effects of centralized control over money and credit, his reputation has been severely wounded by his critics around the world. It is not too late for redemption. Alan Greenspan still has the power to expose the Fed for all of its evils. He knows its operations inside and out. He knows how powerful and damaging this force is on the economy and the world at large. Perhaps he is the "Last Hope" — the "Chosen One" who can expose the Fed's inner workings to the American people and bring back a monetary system free of government manipulation and control. Mr. Greenspan, expose the Federal Reserve Bank for all of its evils. Help to restore the republic that once was!

Hitler's Bank Goes Global May 2009 - The Purpose of the Financial Crisis
A towering citadel housing what is essentially a sovereign state known as the Bank for International Settlements is located in Basel, Switzerland. The bank now controls the financial affairs of planet Earth. If you think this is an exaggeration or the conspiratorial ramblings of the author . . . or not, I invite you to read on. I wrote the first installment of this article—"The Financial Crisis: A Look Behind the Wizard’s Curtain"—in mid-March of this year. The article included the following statement:"The purpose of this financial crisis is to take down the United States and the U.S. dollar as the stable datum of planetary finance and, in the midst of the resulting confusion, put in its place a Global Monetary Authority—a planetary financial control organization 'to ensure this never happens again.'"

This purpose has now been accomplished. The dollar, the former king of currencies, now goes begging in the pant-suited persona of Hillary Clinton to our creditors at the Chinese Communist Party. Almost unthinkable a few short years ago, the U.S. dollar is fast losing its status as the world reserve currency, and any thought of saving it is being nuked by the Larry, Moe and Curly of U.S. economic policy - Bernanke, Geithner and Summers  - and their Alice in Wonderland trillion-dollar budget deficits. I would not be surprised to see central banks start using the renminbi (the currency of the newly awakened People’s Republic of China—also called the yuan) for international trade and reserves in the not too distant future. This prediction will likely be scoffed at by global economists, but then they have about as much credibility as pharmaceutical salesmen these days.

A more generally discussed alternative is the International Monetary Fund’s SDR (which stands for Special Drawing Rights). There is no production or property behind the SDR. It is one of those clown currencies that are made up out of thin air—a magic trick central bankers like to do. Intoxicated by the power of the purse, they think of themselves as fiscal alchemists. But the dollar has seen its glory. It can return one day, if Washington ever finds its financial backbone. But let’s be real, with the exception of a very few, like Ron Paul in the House and Tom Coburn in the Senate, these folks are addicted to spending like junkies on horse. More importantly, the other shoe has dropped. Like some ghoulish predator from another Alien sequel, a Global Monetary Authority has been born. It lives.

On April 2, 2009, the members of the G-20 (a loose-knit organization of the central bankers and finance ministers of the 20 major industrialized nations) issued a communiqué that gave birth to what is no less than Big Brother in a three-piece suit. Which means? . . . The communiqué announced the creation of the all too Soviet sounding Financial Stability Board (FSB)—and no, I’m not going to make a crack about the fact that this acronym is the same as that of the Russian intelligence service that replaced the KGB. The Financial Stability Board. Remember that name well, because they now have control of the planet’s finances . . . and, when one peels the onion of the communiqué, control of much, much more. The FSB morphed into existence from an earlier incarnation called the Financial Stability Forum. The Financial Stability Forum (FSF) was established in 1999 to promote international financial stability through co-operation in financial supervision and surveillance. Since it had done such a wonderful job, the central bankers decided to expand its powers and give it a new name.

A board sounds like it has more authority than a forum. But the name change isn’t the problem. The FSB’s broadened mandate includes under point 5, "As obligations of membership, member countries and territories commit to pursue the maintenance of financial stability, maintain the openness and transparency of the financial sector, implement international financial standards (including the 12 key International Standards and Codes), and agree to undergo periodic peer reviews, using among other evidence IMF/World Bank public Financial Sector Assessment Program reports." Rather a mouthful of elitist banker-speak. But, as a friend of mine is fond of saying, "The Devil is in the details."

While several press releases from the G-20’s London conclave reference these codes as though they were handed down from a fiscal Mount Sinai, finding the specifics takes some digging. But then the Bank for International Settlements (BIS), out of which the FSB operates, has never seen transparency as one of its core values. In fact, given its fascist pedigree, transparency hasn’t been a value at all. Known as Hitler’s bank, the Bank for International Settlements worked arm in arm with the Nazis, facilitating the transfer of gold from Nazi-occupied countries to the Reichsbank, and kept their lines open to the international financial community during the Second World War.

As noted in the first article, the BIS is completely above the law. It is like a sovereign state. Its personnel have diplomatic immunity for their persons and papers. No taxes are levied on the bank or the personnel’s salaries. The grounds are sovereign, as are the buildings and offices. The Swiss government has no legal jurisdiction over the bank and no government agency or authority has oversight over its operations. In a 2003 article titled "Controlling the World’s Monetary System the Bank for International Settlements," Joan Veon wrote:
"The BIS is where all of the world’s central banks meet to analyze the global economy and determine what course of action they will take next to put more money in their pockets, since they control the amount of money in circulation and how much interest they are going to charge governments and banks for borrowing from them. . . . "When you understand that the BIS pulls the strings of the world’s monetary system, you then understand that they have the ability to create a financial boom or bust in a country. If that country is not doing what the money lenders want, then all they have to do is sell its currency."
And if you don’t find that troubling, a close reading of the new powers of the FSB are chilling.

The 12 key International Standards and Codes, which are minimum requirements, contain such things as
• clear specification of the structure and functions of government;
• statistical and data gathering from ministries of education, health, finance and other agencies;
• corporate governance principles;
• shareholder rights;
• personal savings;
• secure retirement incomes;
• international accounting standards to be observed in the preparation of financial statements;
• international standards of auditing;
• securities settlement;
• foreign exchange settlement;
• minimal capital adequacy for banks;
• risk management;
• ratification and implementation of UN instruments; and
• criminalizing the financing of terrorism.

"Sounds oppressive," you say; "but I don’t really care what a bunch of bankers do in Basel, Switzerland. It’s got nothing to do with me." But I am writing this to tell you that it has everything to do with you, your family, your business, your country, and—if you’re up to it—your planet. Because as currently structured, the dictates of the Financial Stability Board will impact your life without any say-so on your part whatsoever. Here’s one example from an article written by former Clinton advisor and political strategist Dick Morris in an article for The Bulletin on April 6, 2009.
"The FSB is also charged with ‘implementing . . . tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms.’ "That means that the FSB will regulate how much executives are to be paid and will enforce its idea of corporate social responsibility at ‘all firms.’"

You begin to see what’s involved here. You see, these standards and codes are commitments, obligations and requirements, not merely advice. The strategy, policies and regulations of the FSB are worked out at the senior levels of the bank. They are approved by the plenary and implemented through the national representatives. The plenary, in this sense, is the complete membership body of the FSB. And the membership, my friends—the national representatives who implement these policies—just happen to be the heads of the planet’s more powerful central banks. And in case it slipped your mind, most central banks are private institutions and answerable to no one.

Take our central bank, the Federal Reserve Bank. Yes, the chairman is appointed by the President and often testifies before Congress, but there is virtually no public control over the institution. It can’t be audited nor can Congress tell it what to do. It is not really accountable to anyone. The idea that the Fed is a government agency subject to the control of Congress is a PR line. It is simply not true.n Among other things, central banks govern a country’s monetary policy and create (print) the country’s money. They make income by charging interest on the money they loan to the government. Watch this, because if you blink, you’ll miss it. Governments are perpetually in debt. They are always borrowing money. They have a mental disorder that prevents them from spending less than they collect in taxes—BDD, Budget Deficit Disorder. And if it looks like they might balance the books some year, why, someone can always start a war.

Here’s an example. Let’s say the annual budget calls for the U.S. government to spend $2.5 trillion. But the income will only be $2 trillion. They’re going to be a little short. But no worries, they have the ultimate credit card—a debt limit that they themselves control. If they borrow up to the established limit, they can just vote it higher—which they have done to the tune of a cool $11.2 trillion dollars. The Fed loves this. Listen as the Secretary of the Treasury calls the Chairman of the Fed.
"Ben. It’s Tim."
"Dude. What’s happening?"
"I need a little bread. Friggin’ Taliban again."
"No problem, Timbo. How much you looking for?"
"Five hundred big ones."
Ben licks his lips. "Anything for you, big guy. Send me the notes and I’m down with the five hundred. Five percent work for you?"

So the Treasury prints up $500 billion dollars’ worth of IOUs—they are called Treasury bills (short term), notes (medium term) or bonds (long term)—and sends them over to the Fed with a fifth of Chivas. In the old days, the Fed would print the cash. These days, they click a mouse. Now here’s the part where you aren’t allowed to blink. When the Fed prints the money or clicks the mouse, they have no money themselves. They are just creating it out of thin air. They just print it, or send it digitally. And then they charge interest on the money they lent to the Treasury. A hundred-dollar bill costs $0.04 to print. But the interest is charged on the $100. Go ahead: read it again; the words won’t change. The interest on the national debt last year was $451,154,049,950.63. That’s $1.23 billion a day. These are the same people that are now running our banks, insurance companies and automobile manufacturers.

Reason weeps. Sure, I oversimplified it. The Fed doesn’t own all the debt and they do some other things. But these are the basics. That is how a central bank works. It is the heads of the planet’s central banks and some finance ministers that make up the membership of the FSB. In brief, here’s how it works: the Board’s leadership provides strategies, policies and regulations to the membership. The members vote on the matters and then see to their implementation in their respective countries. FSB leadership is in the hands of the chairman, Mario Draghi. Mr. Draghi is also the governor of Italy’s central bank. He is a former executive director of the World Bank and like his comrade in international finance Henry Paulson—the former U.S. Secretary of the Treasury who bludgeoned Congress out of the first $700 billion bailout package—Draghi was a managing director of Goldman Sachs until 2006. Like Paulson, he left Goldman in 2006, a year before the financial crisis exploded: Paulson went to Washington to run the U.S. Treasury; Draghi went to Rome to run Italy’s financial system as well as the Financial Stability Forum (forerunner to the Financial Stability Board). Let’s call it government by Goldman, shall we?

More to the point, you may have noticed that you weren’t consulted on this setup. Neither was Congress. In other words, the command channel for implementing global financial strategies goes from the FSB leadership to its central banker members and from them to the world’s financial institutions. You don’t get a peek, neither does Congress, nor, for that matter, does the White House. And while there may be some accountability in some of the member countries, by and large these central bankers have the authority to implement these regulations and strategies. And they are held responsible by the FSB to do so. In short, on April 2, 2009, the President signed a communiqué that essentially turns over financial control of the country, and the planet, to a handful of central bankers, who, besides dictating policy covering everything from your retirement income to shareholder rights, will additionally have access to your health and education records.

There is also this troubling little line about "clear specification of the structure and functions of government." What the hell is that suppose to mean? There is no oversight here. Not by you, not by Congress, not by anybody. No oversight over a handful of central bankers who operate out of a clandestine organization that is above the law and is responsible for having implemented and enforced the "standards" that froze world credit markets and precipitated the worst financial crisis in the planet’s history (see "The Financial Crisis: A Look Behind the Wizard’s Curtain"). I haven’t heard word one out of Congress about this, but I’m afraid they are a few clowns short of a circus up there. Which begs the question, what do we do about this?

There are two critical things that need to be done. The first lies in the fact that the communiqué signed by the President is an agreement that is binding on the United States and, as such, requires approval by Congress. If classed as a Treaty, it requires approval by two-thirds of the Senate. At the very least, approval should be by Congressional Executive Agreement, which requires a majority of both houses of Congress. The agreement signed in London on April 2 has been called a New Bretton Woods (Bretton Woods being the location of a meeting of world leaders toward the end of the Second World War, which gave birth to the international financial organizations the World Bank and the International Monetary Fund). The original Bretton Woods agreement was put in place as a Congressional Executive Agreement. So this "new Bretton Woods" should at least do the same. But this step is just to get Congress to recognize their responsibility here. The Federal Reserve Act, the bill that established the Federal Reserve System, was passed in 1913 two nights before Christmas by a sparsely attended Congress. People have been complaining about this ever since.

What do you say we don’t let this happen again? Not on our watch. Congress needs to understand that it has a responsibility to approve any agreement signed by the President that is binding on this nation. But the point is not to get Congress to approve what has been done. It is to first get them to recognize that agreements have been made that affect our entire financial system and that it is their responsibility to shape these agreements in a way that is beneficial to our Republic AND to provide a mechanism for real oversight of this international body. Central bankers should not be making decisions about international finance without oversight and a system of checks and balances that are reflective of those provided by a republican form of government. I am, of course, not talking about a political party here. No, no. I’m talking about the American form of government where citizens elect others to represent them. A republican form of government is one that is operated by representatives chosen by the people.

Congress must step up to the plate. They must insist that the Financial Stability Board be ratified either by Treaty or Congressional Executive Agreement. And that ratification must include the creation of a body with oversight and corrective powers that is comprised of representatives of all the nations involved who are chosen from each country’s elected officials. There is nothing inherently evil about an international financial organization. As much as we might protest it, it is a global world today, and a body that oversees the smooth flow and interchange of currencies and other financial instruments is needed in today’s world. But the organization cannot be controlled by international bankers who are not answerable to the citizens of the countries in which they operate. It should be overseen by a senior level group which itself is organized as a liberal republic, following the original model of the United States. Why? Because the system of government originally created by the United States has been the most successful form of government in man’s history. Any problems with the system have come about as a result of deviations from the original structure—a representative form of government with adequate checks and balances.

Such a body could help create an international economic system in which those that want to be successful can be so. It would also allow them to take an active role in controlling their futures by effectively participating in the legislative process. ACT! Let your Representatives and Senators know: the Financial Stability Board must be approved by Congress and must be subject to oversight by elected officials of the countries involved. Personal visits, followed by calls and faxes to both Washington and local offices, are the most effective. Don’t be surprised if they don’t know what you’re talking about. Politely insist they find out and take action. And understand this when dealing with legislators or their staffs: they are focused almost exclusively on legislation that has already been introduced—a bill with a number on it. That is not the case here. You want them to take action on this matter by introducing legislation that brings the approval and structure of the Financial Stability Board under congressional control. This can be accomplished.
"All tyranny needs to gain a foothold is for people of good conscience to remain silent." —Thomas Jefferson

Ilargi: I’ve been following Stephen Wolfram's "browser" stories for the past while, and his endeavours for years, and all I can say is that if he can pull it off, it’ll be brilliant, for Wolfram is a brilliant man if ever there was one, a genius among geniuses. I would like, though, to sit down with him and ask: 'Why this project, and not any of a zillion others?' Maybe it's me, but I think most of this takes work, and years, but once it's set up, not necessarily genius.

New Search Tool Aims at Answering Tough Queries, but Not at Taking on Google
Every new online search service must face the inevitable question: "Is it better than Google?" WolframAlpha, a powerful new service that can answer a broad range of queries, has become one of the most anticipated Web products of the year. But its creator, Stephen Wolfram, wants to make something clear: Despite the online chatter comparing it to Google, his service is not intended to dethrone the king of search engines. "I am not keen on the hype," said Mr. Wolfram, a well-known scientist and entrepreneur and the founder of Wolfram Research, a company in Champaign, Ill., that has been quietly developing WolframAlpha. Mr. Wolfram’s service does not search through Web pages, and it will not help with movie times or camera shopping. Instead it computes the answers to queries using enormous collections of data the company has amassed. It can quickly spit out facts like the average body mass index of a 40-year-old male, whether the Eiffel Tower is taller than Seattle’s Space Needle, and whether it is high tide in Miami right now.

WolframAlpha, which is expected to be available to the public at wolframalpha.com in the next week, is not a finished product. It is an early working version of a project that has been years in the making and will continue to evolve over years, if not decades. As such, there is much it cannot answer now. But even as he dismisses the Google comparisons, Mr. Wolfram, a former child prodigy who published his first research paper on particle physics at age 15 and is best known for creating the math-formula software Mathematica, is happy to add fuel to the simmering expectations surrounding his service. "I think WolframAlpha has the potential to be quite important," he said. The goal of creating a computer system that can answer questions has been a tantalizing but elusive pursuit for many computer scientists for more than four decades. Some veterans of the field say Mr. Wolfram may have come as close as anyone yet.

"In many ways, creating a system like this has been a holy grail of lots of folks for some time," said Nathan Myhrvold, a former chief technology officer of Microsoft and co-founder of Intellectual Ventures, an investment company that owns a portfolio of patents. "It has wound up being considered something that is virtually impossible," Mr. Myhrvold said. WolframAlpha has shown "that it wasn’t impossible but really difficult," he added. "It involved applying lots of different tricks." Doug Lenat, an artificial intelligence expert whose company Cycorp has spent the last 15 years developing a system that brings human-like reasoning to some computer systems, said WolframAlpha can handle "an astronomical number of questions," and could eventually turn into a favorite destination on the Web. "It may become a massive player alongside Google," Mr. Lenat said.

Traditional search engines like Google and Yahoo, by and large, excel at finding information that already exists online. If there are Web pages that include the words used in a query, the engines will find them and rank them in order of relevance. WolframAlpha is different. For starters, it does not gather data from the Web. Instead, its "knowledge base" is made up of reams and reams of data — ranging from the kinds of facts you would find in a World Almanac, to highly specialized data from physics and other sciences — that some 100 employees at Wolfram Research have gathered, verified and organized over several years. When a user types in a query, WolframAlpha tries to determine the relevant area of knowledge and find the answers, often by performing calculations on its data. If you type "LDL 120," it will return a graph showing the distribution of cholesterol levels among the United States population, and display the percentage of people above and below that figure. If you type "LDL 120 male 33," it will adjust the results to focus on that gender and age group.

In response to "how far is the Moon from Earth," WolframAlpha will calculate the exact distance based on an algorithm that computes the ever-changing distance between the two bodies. The engine that computes answers is largely built on Mathematica. In its current state, there are many queries that WolframAlpha cannot answer, either because it does not understand the question or because it does not have the requisite data. For instance, it is stumped by queries like "obesity rate," "housing prices New York" or "unemployment San Francisco" (but it will answer "unemployment San Francisco County"). "It is going to be very good in some areas and incomplete in others," said Nova Spivack, the chief executive of Radar Networks, which is using artificial intelligence and other techniques to help people find Web content that is interesting and relevant to them.

WolframAlpha does not actually try to work out the real meaning of a query, as some artificial intelligence systems do, so there are some questions it will never be able to answer. But experts say its approach appears to be effective in many areas. "He’s done a great job of marrying the acquisition of data with the mathematical algorithms," said David A. Ferrucci, an artificial intelligence researcher at I.B.M., who is leading a team developing a computer program that will compete with humans on "Jeopardy." If successful, WolframAlpha has the potential to become a large business opportunity. For now, Mr. Wolfram said he plans to offer advertising and other forms of sponsorship on the site, and perhaps offer premium versions of the service for researchers. And somewhat coyly, he said he has discussed potential partnerships with the "obvious people," including search engine companies.

"We are actively pursuing interesting relationships," he said. Representatives for Google and Yahoo declined to discuss WolframAlpha. Mr. Spivack and others said WolframAlpha may become a complement to traditional search engines, which themselves have begun to offer simple versions of the kinds of calculations and data manipulation at which WolframAlpha excels. "There is a huge space of possible questions that Google doesn’t answer," Mr. Spivack said. "I think WolframAlpha will go well beyond the academic world to cover business and industry, economics, health."

The Bloody Sack of Rome
Pope Benedict XVI swore in the latest recruits to the Swiss Guard on Wednesday, the anniversary of the Sack of Rome. Almost 500 years ago, a German mercenary army went on a rampage in the Eternal City. It was the Swiss Guard's bravery that allowed the pope to escape to safety. It was something that people across Europe could not quite believe had happened. Brutish intruders with wheel-lock pistols and long spears had been allowed to capture the Eternal City. Rome's Aurelian Walls had failed. The air in the city was filled with the prayers of desperate citizens, beseeching God to prevent a German victory. But heaven did not intervene when, on the morning of May 6, 1527, an army of mercenaries fighting on behalf of German Emperor Charles V began to storm the capital of Christendom. Thousands of mercenaries, using crudely fashioned ladders made of laths and vine stakes, attempted to climb Rome's ancient defensive walls.

The city's defenders put up a brave fight. Powder smoke billowed from heavy cannons at Castel Sant' Angelo, the papal stronghold. Two waves of attacks were repelled. But it was no use. At 7:30 a.m., the intruders broke through Rome's defenses and entered the Vatican district. From there, they crossed the bridges across the Tiber River and, with a horrible roar, advanced into the center of Rome. What happened next triggered an uproar for months in Renaissance Europe. A leaderless army of 24,000 men took control of one of the world's most magnificent cities. According to one chronicler of the attack, the men dragged off sacks of gold and stabbed so many citizens "that one could no longer see the pavement while walking down the street, there were so many corpses."

The "Sacco di Roma," or Sack of Rome, became deeply ingrained in the Italian national consciousness. To this day, Roman villas are still marked by the graffiti the invaders left behind. The Vatican, which lost more than 70 percent of its protection force, the Swiss Guard, during the attack, is particularly keen to commemorate those events. Traditionally, new recruits to the Swiss Guard are sworn in on the anniversary of the bloody incident as a testament to their bravery all those years ago. This Wednesday, according to protocol, the event began with an early mass and a wreath-laying ceremony. After that, the new soldiers took their oath of office in the Apostolic Palace, and were then granted a private audience with the pope. But what exactly happened close to 500 years ago? Dozens of scholars have tried to make sense of the horrific event, in which up to 10,000 died. Historian Volker Reinhardt of the University of Fribourg has now presented the most unsparing analysis. He interprets the Sacco as an invasion of evil and a "storm surge" that led to the bursting of all dams of humanity.

A Regime of Terror
For almost 10 months after the invasion, the mercenaries imposed a regime of terror along the Tiber. In full view of paintings by Titian, they committed the large-scale rape of nuns, tortured bishops and urinated in front of baptismal fonts. Reinhardt likens the period to "tales from a madhouse." What is particularly absurd about the wave of violence was that it only came about as a result of a series of unlikely events. The attack, blind and aimless, soon escalated to monstrous dimensions. By the time it ended, entire rows of buildings were in flames. The upheavals of the Renaissance served as a stage for what Reinhardt calls a singular "epochal drama." Challenged by the fiery speeches of Martin Luther, the dominance of the Catholic Church -- and, with it, the moral framework of society -- had begun to falter.

The people demanded freedom. But when they sought to attain it during the Peasant Wars, they were brutally suppressed. Roughly 100,000 people died. In political terms, the continent was divided into two camps: The Holy Roman Empire of the German Nation and the so-called "League of Cognac," led by the French and the papacy. The two sides were competing over control of the wealthy cities of northern Italy, from which the German emperor received tribute. But his adversaries were eager to gain access to this rich source of income -- by force of arms. To prevent this from happening, Charles dispatched his best soldier, Georg von Frundsberg, the "Father of Mercenaries," who lived in the Allgäu region of southwestern Bavaria. A warhorse with a Herculean build, he was already more than 50 years old when he was called to service. Though weary of war, he agreed to assemble an army.

A recruitment drive was held in the northern Italian city of Bolzano on Nov. 2, 1526, attracting 12,000 German mercenaries, foot soldiers without standard uniforms, armed with long halberds, crossbows, swords and crude pistols. From the very beginning, Frundsberg had a sense that he had recruited many shady characters, leading him to speculate whether this horde could even be controlled. But the impending disaster was already underway. Backed by Spanish and Italian mercenaries, the general advanced into the wintry Plain of the Po River. Behind the scenes, emissaries exchanged dispatches and offers to negotiate, a process that continued for months. Meanwhile, the mercenaries were starving. Frundsberg's war chests were empty, and the men were reduced to eating the bark from trees.

On March 16, the troops, camped in a swamp near Bologna, were on the verge of rebellion. Mustering all of his authority, the general confronted his furious soldiers, but suffered a stroke in the middle of his speech, which paralyzed him and deprived him of his ability to speak. Frundsberg's second-in-command, Charles de Bourbon, managed to channel the mercenaries' fury and proposed an attack on Rome. Marching at high speed, the hungry mercenaries advanced southward past Florence, while special envoys attempted to extort a ransom from the pope. Clement VII, the miserly Medici pope, hesitated far too long before finally dispatching a carriage with 60,000 ducats (210 kilograms of gold). But the ransom money almost fell into the hands of thieves, and the transfer was aborted. Time was running out.

On the evening of May 5, 1527, the mercenary army was already within firing range of the fortress on the Tiber. The next morning, the Roman nobility decided, in a hastily called meeting, to comply with all demands. But by then the first violent-tempered mercenaries were already scaling the walls. In addition to poor diplomatic timing, coincidence played a role in Rome's downfall. First, a heavy fog descended on the city on the day of the attack, preventing the defenders from aiming their canons effectively. Second, Bourbon was killed by a shot in the abdomen in the first few minutes of the attack, rendering the emperor's army completely leaderless.

The mob that climbed the battlements of the holy city at 7:30 a.m. bore a stronger resemblance to a headless monster than an army. "The dehumanized hordes went on a grim rampage," writes historian Hans Schulz.

First, the gangs defiled Rome's splendidly filled churches, dragging away tabernacles, liturgical vessels and crosses. Then they turned their attention to the rich. Roughly 25 cardinals were living in Rome at the time. The mercenaries broke into their palazzi, dragged out the clergyman by their hair and forced them to pay tribute. The nobility and merchants received the same treatment. After three days, a newly installed "soldiers' council" ordered the mercenaries to end the pillaging, but no one listened. The men continued to play dice on the church altars and drink with prostitutes from shiny chalices.

A Massacre on the Steps of St. Peter's
It was anarchy. Once they had emptied out the villas and churches, the greedy invaders searched the city's gardens and canals for hiding places. In the end, they even broke open the graves of saints, including the tomb of St. Peter the Apostle. The looters made off with precious stones, tapestries by Raphael and even the pope's tiara. The total loss is estimated at about 10 million ducats -- the equivalent of 35 tons of gold. According to letters and eyewitness accounts, the invaders also expressed their hatred of the Holy See by staging mock processions. Mercenaries rode the city dressed as cardinals, while prostitutes were given golden chasubles to wear. A priest was told to give Holy Communion to a donkey. When he refused, the mercenaries beat him to death. The Cardinal of Aracoeli was forced to lie on a bier and then give his own eulogy in a church. Martin Luther was elected pope in a solemn parody.

Luther himself, who had launched the Reformation only 10 years previously, remained silent on the insanity in Rome. Author Reinhardt calls his reaction the "most astonishing gap in the press landscape of the day." Almost the entire Swiss Guard, 147 men, were massacred on the steps of St. Peter's Basilica as they fought to protect the pontiff. However, their bravery had allowed the pope and his loyal supporters to escape via a secret corridor to the Castel Sant' Angelo, where they then barricaded themselves in, surviving on donkey's meat. After a month, the Holy Father gave up, paid the ransom and, later, quietly slipped away dressed as a steward. But the bloody carnival continued for another nine months before the invaders finally left the city. Meanwhile, epidemics had broken out and bread prices had risen to astronomic levels. The streets and alleys were filled with the stench of corpses.

The Sacco di Roma left the entire Western world distraught. Many scholars tried to reinterpret the desecration as a cleansing storm. The mercenaries, they insisted, were tools of God meant to set the flagging papacy straight. But a few scholars, even those of the day, advanced a new, relentless view of history. Instead of interpreting the mercenaries' actions as a healing force guided by God, they argued that whatever deity controls the fate of the world was rewarding evil. Historian Reinhardt takes a similar view. The Sack of Rome was a "political catastrophe" that would be followed by many more. "Anyone who looks into history is peering into an abyss."


Anonymous said...

I don't really give a rats rump what my home is worth I only paid 14K for it anyway if it falls by 50% after the last 3 years I have lived in in so what it's no worse then a used car.

Ventriloquist said...

So now, our supreme Oracle Greedspan, the Great Whore of Babylon to the banking system, has "seen the seeds of a bottoming" of the US housing market, and that it's "very easy to see" financial markets continuing to improve.

The blind leading the blind.

Anonymous said...

The Bloody Sack of Rome piece sounds like a Starcade post.

Coincidence or prologue?

You decide.

Headless Mobs are the ultimate in herding behavior, you know, without a Shepard dude directing their wrath.

Anonymous said...

Something doesn't add up. I've seen before that the Banks supposedly have about 80,000 foreclosed houses on their books. That's in line with the $26 Billion dollar number.

But that's just a little over 1% of the 5 million sold last year.

I can't imagine that 1% of the market would have a drastic effect on the overall prices.

The only thing that I can figure is that we're not being told the real numbers here. I know that's a real shocker.

Am I missing something?

Anonymous said...

Maybe the TAE should have a blog pool for the date and peak S&P500 when the great crash starts. The prize would be a date with Alan Greenspan.

Toddman said...

>The Bloody Sack of Rome piece sounds like a Starcade post.

Actually, Ilargi said: And if that doesn't make sense to you, just wait a few years.
Starcade would never claim you need to wait a few years for anything. In Starcade's world, TEOTWAWKI is perpetually less than two weeks away. ;-)

Gravity said...

It's a Chicago legend.
Darth Summers was a dark lord
of the shift, so powerful and
so sleepy he could use the Farce
to influence the gravities to create liquidity...
He had such a knowledge of the
dark slide that he could even
keep the ones he cared about
from dissolving.

He could actually save banks
from insolvency?

The dark slide is a pathway
to many abilities some consider
to be illegal.

Jim R said...

Anon @4:07 PM:

Leverage. That's what makes that 1% important to the banks. They have bet so much on the long side of real estate that a 1% decline is like the stun-bolt at the slaughterhouse.

Anon @4:12 PM:

Mid-October 2007.

Jim R said...

Anon @4:12 PM again:

I'd give you the exact date and top, but the prize would have to be a date with Meredith Whitney.

The Good Presbytaritan said...

regarding Stephen Wolfram's "browser"
Ilargi wrote:
"Maybe it's me, but I think most of this takes work, and years, but once it's set up, not necessarily genius."

In 1990 I put together a system to "solve" differential equations as a graduate course project that was probably as complex as this, and I am no genius! (It used PROLOG pattern matching to recognize common engineering equation forms with some flexibility for recognizing algebraic variations)

Anonymous said...

The French hotel story brings to mind one that resonates in this era: the builder of our erstwhile home in the Big Horn mountains which we assumed after his passing on, bestowed lots of stories to local posterity of his dealings as a cowboy.

He knew Butch Cassidy et al, who rode through our area of the northwestern Big Horns en route to their Hole in the Wall on the other side, and would stop at a certain ranch for fresh horses between doings. One time they encountered the lady of the house in tears, for the banker was coming to foreclose. Butch asked, how much do you owe? At first she resisted his generosity, but then told him the amount for he insisted on giving her the money. He emphasized only this: get a receipt.

Butch & co left, the banker came, the woman paid, and of course Butch & co took their money back as the banker rode back to town...

ca said...

Stoneleigh --

There seems to be increasing chatter about a dollar crisis occurring this year. I was wondering if you think this is likely?

el gallinazo said...

(Don't miss Snuffy's posting at the very end of yesterday's comments).

Great comment Snuffy. I passed it on to some of my friends who don't follow this blog. I hope you realize how much you add here.

It's hard to know what the Masters of the Universe are planning. They are like a nightmarish alien parasite. Perhaps they wish to lay their eggs in the flesh of our children like parasitic wasps. I'm pretty sure that their worst case scenario is to dominate by military force from 'green zones." But they doubt it will come to that as they will manipulate the dumb masses with Edward Bernays machinations to do their bidding.

Anonymous said...

Just having a back of the barn moment and after reading that investor Jim Rodgers expects a currency crises as well as a end to the rally got me to pondering, which first? ... and those ponderous thoughts came out that the first to go would be equities followed by that Yankee Dollar. The motivation being, where are these guys in the know gonna wanna go, when that dollar crashes, other than stuff and things and those at bargain prices?

-Farmer Chip (AKA -deepthot-)

Anonymous said...

"Falling exports dragging on the recovery."

Like leaden shoes slowing down the turtle?

Anonymous said...


If leverage was the single issue, and if the Banks were leveraged at 100:1, then it would be far cheaper just to buy those houses at $2.6 Trillion, than do what we've done so far.

That kind of puts things in perspective.

Anonymous said...

I hate Big Brother.

Toddman said...

<nit> Wolfram Alpha appears to be web service, not a browser </nit>
Maybe if it launches in time we can ask it what the exact data of the S&P top will be?!?

jal said...

Ilargi: Barry's little tale explains very well why the $1 quadrillion derivatives’s trade unwind will be such a mess.

"What are you worried about?
In a small town on the South Coast of France,... "
Cute tale.
In the real world, everyone charges interest and managers take a bonus. The result would be that the tourist would not get his money back.
Nice quote...
"It's almost as if someone engineered a stock-market rally to entice private investors to fund the banks rather than taxpayers."

Manufactured earnings … engineered markets … manipulation …

Retail investors have no business playing with the big boys … hold on to your cash.

Ahimsa said...


You're right on target with your analysis anticipating 80 or 90 percent housing price decline from the prices at the height of the bubble. Parts of South FL have declined that much already.

Thank you for your diligent and compassionate work!


Awesome post!

Agree that martial law in the USA will be inevitable. The ruling elites aspire to be the "last ones standing" (Richard Heinberg's "Powerdown"). The Pentagon will call the last shots.

With its 700 plus military bases worldwide and annual military budget totaling more than the combined annual military spending of all nations, the US Empire will do whatever is necessary to maintain its global hegemony.

Persephone said...

I work in a nice office building. The entire building is windows all the way around - several stories high.

As I was walking out the door this afternoon, I heard a "smack". Then a beautiful sparrow fell at my feet.
The sparrow had flown into the side of the building. He flailed his wings and feet for a few minutes, then lay still.

I picked him up and took him underneath a nearby tree ... and with an overwhelming rush - I realized humans' role in the destruction of our world.

Wyote said...

Hey, I don't know about you, but I had to celebrate out loud with the post of GS buying out the Mass investigation of their sub-prime slime:

"investigation by Attorney General Martha Coakley into subprime lending practices and the role of investment banks that acted as middlemen in loans that have resulted in foreclosure or contained terms so onerous that they were destined to fail."

Score one for us proles
and one against the scumbags!

Anonymous said...

Todd: "Maybe if it launches in time we can ask it what the exact data of the S&P top will be?!?"


Good one, Todd.

And if it doesn't know, we can always ask iGod.

Reluctant Poseidon Hamster

ca said...

Stoneleigh --

Is this consistent with your deflation views:


Anonymous said...

I kida like DIYs idea...Meridith Whitney as a doorprize for the date of "the sigularity"Yes,smart ladies are hot..but not for thee or me citizen....

I have given up trying to make sense of the news lately...with the insult to the health care pros that are being arrested with un-nerving regularity at the capital,and the economic news that makes me sick when I think about it,I am near to leaving my regular computer broken,and turning the radio off until I get rid of the black cloud of doom over my head.Its bad when I go read the LATOC forum to brighten my day up...LATOC for those who are completely out of the loop ,are the prime doom movers in the peak oil camp..Life after the oil crash.They are like TOD on steroids& meth.
Bad day with the bees.Verified a drone layer in one of my formerly best hives...will break it up if the queen cells I left inside do not take.Arrggh this time last year I was counting blessings...this year headaches...
Thank you El Gallinazo,for your kind comment.This is one of the few places I feel comfortible discussing what I see and hear every day.That singularity is soon to change everything we all know,and not nicely.That the reguars here understand the nature of whats coming allows all of us to discuss it,and the probabilities...

I never wanted to live in a bad sci fi movie..but guess what...you too get to be the hero in whatever version of "the postman" evolves in your neck of the woods.

May be it wont happen.Maybe.But the makings of a world class,300MPH terminal spin crash of our economy is in the works,and there is now a number of fine folks who study such things hitting the alarm button...but the administration sings "LaLaLa I cant hear you"as they franticly try to "Run a diesal on seawater" as Dimitri Orluv quietly observes.

...back to the garden.That I have a small amount of control over...


Greenpa said...

One thing to keep in mind about the Masters.

They screw up, regularly. And lose control of what they thought was all wrapped up.

The list of dead empires would clog the blog. All had masters of their universe- and they all lost it.

They can be as smart, evil, and powerful as you like. Doesn't matter, eventually. Ask the Chinese about "hunger marchers". You can't stop them; all you can do is run, if you're lucky.

Snuffy- you're right about the anger- they just don't have a clue what's breeding down here at the bottom.

rapier said...

Ah the Big Horns. My favorite probably because they were the first proper mountains this Midwest boy ever saw. As a retrograde addict of acceleration and speed I take my motorcycle across the prairie and high plains to the high country most every year. When in the Big Horns I usually camp at Dead Swede, a romantic and comic gesture that suits my fancy. It strikes me the road tour may not be such a safe or even doable thing someday.. Better this year then, broke or not. Perhaps I'll charge it all to Citi.

I'll not defend the energy waste of flying across the continent on two lane roads in the open air. I wouldn't trade it for anything.

I think an analogy between Butch Cassidy, the banker, and some players in our current drama could be crafted. Perhaps you might work on that.

Bukko Boomeranger said...

Nice bit about the Sack of Rome, which was one of many. As noted there, it's a reminder of how historic patterns repeat themselves.

I'm currently reading "The Decline and Fall of the Roman Empire." My bank gnome in Zurich is a fan, and I know it's classic literature, so I decided to see what he was on about. It's amazing how the issues we're dealing with now were also controversial in Roman Empire times. They were arguing about the proper role of inheritance taxes during the reign of Augustus Caeser, for crissakes, and climate change thawing the northern reaches of Europe was one of the things that allowed barbarian tribes to multiply enough to take on the Roman legions.

Anybody that's got a year to devote to the book, I'd recommend it. There are SO many precedents for what's likely to happen to the U.S. But it's not a book you just dash through. Gibbon writes great, complex sentences, and has many philosophical observations about the nature of humanity, government and society. I can see why it was taught to British schoolboys when they had an empire.

Addendum to the story you had about the Aussie budget. They're going Keynesian, but they're also making the populace sweat. Prime example -- the retirement age is being raised from 62 to 67. That's gonna hurt in this land where people believe in working just enough to live, not living for their work.

Starcade said...

Anon 1549: I don't think I&S are as confident that this will end non-violently than people like you.

Maybe they don't go so far as I do, given what I've seen from living on the streets while the country was high on the hog...

Todd: Given what we've seen in the world the last few months (esp. since Sept. with Fannie and Freddie and the like), we are at and beyond the precipice. What do *YOU* think is holding us up, if not the inflation-through-bailout?

Anon 1811: And I'm not crazy about Survivor, American Idol, or all the other rigged shows meant to dull our sense of reason.

Snuffy and others: It will first be the homeless, ill, and unemployable. Then the gays. Then the political opponents. Then anyone who does bend over to slavery. We are undesireables to them -- plain and out and out undesireables.

The elite have a plan of having it all and being the only ones left with actual "lives". To prevent from being killed themselves, martial law is absolutely inevitable.

rapier said...

Do not be surprised if the dollar holds and rallies again. This is not a prediction, just pointing out there is some probability it could happen.

Rodgers chatter should be taken with a lot of skepticism, if that's the right word. It's a game to him. Why he speculates now at his age, with his stupendous wealth in place, I cannot guess. Except, well it is a game. He doesn't mislead so much, but there are layers of subtlety and maybe irony in his pronouncements. One thing is he never talks in the short term. Smart man.

thethirdcoast said...

While we're talking about collapsing empires, I cannot recommend this tome on the rise and fall of the British Empire enough:


The parallels in national mood and action are positively eerie...history does not repeat, but it assuredly rhymes!

Starcade said...

Now I understand why you say that "The Bloody Sack of Rome" sounds like one of my posts.

... because that fairly accurately describes what's going to happen when all Hell finally breaks loose.

thethirdcoast said...

Neat...Social Security is going to run out 7 years before I'm eligible to retire:


GD thieves!!!

Anonymous said...

On the other hand maybe it will be the Wall Street Bandidos who take an " Oh Shit" leap from a cornered ledge...jaws agape in disbelief, the Doomers stared from the canyon top as they merrily floated down that audacious escape route.

Toddman said...


>What do *YOU* think is holding us up
I'm not qualified to understand what is going on well enough to make micro-predictions. I can't even predict with any success which checkout line at the co-op will empty the quickest - reliably if I get behind the one lady that is almost done, she gets out her checkbook, then the register jams, the manager gets called over, while all the other long lines completely empty, and I'm still standing there waiting to pay for a banana.

I'm here to learn from elders, be semi-funny (hopefully) once in a while, (hopefully) without pissing anyone off ;-)

Ilargi said...

New post up

Chaos said...

@ Todd,

I thought you were an elder...

Starcade said...

thethirdcoast: They'll be rid of paying out most welfare/Social Security/SSI long before then.

Most generous number I've heard is about 3 years.

APC said...

"Now, but you know, we all bear a responsibility for that. I'm not trying to put it on the world."

Right up until he said that, that's exactly what I thought he was trying to do.

Anonymous said...

from seeking alpha wall street breakfast must-know news 4/13/09:

April foreclosures rise.The number of U.S. homes facing foreclosure jumped 32% in April, led by Nevada, Florida and California. One in every 374 U.S. housing units received a foreclosure filing last month, the highest monthly rate since reporting began in 2005. Repossessions by banks were down on a monthly and annual basis, but will likely increase again in coming months.

jlpicard2 said...

"Retail sales fell for a second straight month in April, a disappointing performance that raised doubts about whether consumers were regaining their desire to shop."

See? It's only the desire to shop that's the problem... cue more advertising. It amuses me...

Retail sales drop unexpectedly in April

Hey Mr Bill said...

Inspired writing!I do on sweet occasion have those kinds of flying dreams where I must keep myself up in the air by flapping my arms in a kind of "frog like stroke" that moves me along higher and higher. (except I sometimes look down and then begin to float down gently but there is never any fear.)