Saturday, June 27, 2009

June 27 2009: Is that the sound of a baton dropping?

Samuel H. Gottscho New York Good Times December 15, 1931
River House, 52nd Street and East River, New York City

Ilargi: When the New York Times starts publishing articles on how bad the financial crisis really is, despite all the green recovery shooting stories sprouting from government circles and media such as, among others, the New York Times, I’m going to have to guess that it's official now.

It sort of makes one wonder how much longer media such as the New York Times will now be able to keep writing and printing articles that contradict what's being published in the New York Times. Or will it be spun as freedom of expression, but not the official point of view of the paper?

Can the editorial staff wash their hands clean of revered writers like Floyd Norris and Bob Herbert? Or should we perhaps look at this from another angle? Is the Times changing its stance on the entire Obama government politics? Is it going to give up the noble art of cheerleading? Is that the sound of a baton dropping?

Herbert’s piece is entitled: "No Recovery in Sight". Some quotes:
  • There are now more than five unemployed workers for every job opening in the United States.

  • Economists are currently spreading the word that the recession may end sometime this year, but the unemployment rate will continue to climb. That’s not a recovery. That’s mumbo jumbo.

  • There were roughly seven million people officially counted as unemployed in November 2007, a month before the recession began. Now there are about 14 million.

  • "By May 2009, [..] the total number of underutilized workers had increased dramatically from 15.63 million to 29.37 million — a rise of 13.7 million, or 88 percent. Nearly 30 million working-age individuals were underutilized in May 2009, the largest number in our nation’s history".

  • Three-quarters of the workers let go over the past year were permanently displaced, as opposed to temporarily laid off. They won’t be going back to their jobs when economic conditions improve.

  • Men accounted for nearly 80 percent of the loss in employment in this recession. [..] Workers under 30 have sustained nearly half the net job losses since November 2007.

  • The first step in dealing with a crisis is to recognize that it exists. This is not a problem that will evaporate when the gross domestic product finally begins to creep into positive territory.

Those are serious points, and there's nothing green about them. They're also bordering on a direct attack on everything rosy that Obama and his administration have been claiming lately. They fall about 0.0001% short of painting the president as a liar.

Floyd Norris's "A Recession Measured by New-Home Sales", also in today's edition of the Times, has this:
  • There have been bad housing markets before, but never in post-World War II history has the market for new homes suffered as badly as it has in this decline.

  • At the peak of the housing boom in 2005, sales of both existing and new homes were running at twice the 1976 rate. This year, the sales rate for existing homes seems to have stabilized at about one-third higher than the 1976 rate. New-home sales also seem to have stabilized, but at about half the 1976 rate.

  • ... new-home sales are now running at only about a quarter of peak levels, a fall far deeper than anything seen since the statistics began being collected in the 1960s.

  • Of the 135,000 completed but unsold new homes at the end of May, nearly half had been sitting for a year or more. The median age of such homes was 11.5 months, an unprecedented figure.

For those among you who read websites like The Automatic Earth, there is nothing here that wasn't already known and obvious. The same is not true for the average reader of the New York Times. And that, when you come to think of it, is completely insane. After all, why do people read a paper? To find out what's going on, or to see confirmed that la-la land still exists?

These numbers don't suddenly come falling out of the sky in broad daylight. They merely depict an ongoing trend that is worsening fast. That last part is temporarily hidden behind a $13.8 trillion veil, but all that has achieved is for the worsening trendlines not to hit exponential territory. It hasn't stopped the numbers themselves from deteriorating.

And it should be clear that the next $13.8 trillion will be much harder to find. And that it won't be able to stop the deterioration either. It will at best halt the plunge in mid-air for another painfully expensive fleeting moment in time.

People have a right to know what's truly going on in their societies, rather than fall prey to the interests of politicians and financiers that are better served by hiding what's real. The situation is about to get a whole lot worse, and people deserve the right to make preparations for that as best they see fit.

The ongoing refusal to inform them of what's real and what is not, perpetrated by governments, media and industry, is a disgrace. It's not how a civilized society treats its citizens. Perhaps the New York Times today put a first step on the path to doing what needs to be done. Not that I'm not sceptical about it.

No Recovery in Sight
How do you put together a consumer economy that works when the consumers are out of work? One of the great stories you’ll be hearing over the next couple of years will be about the large number of Americans who were forced out of work in this recession and remained unable to find gainful employment after the recession ended. We’re basically in denial about this. There are now more than five unemployed workers for every job opening in the United States. The ranks of the poor are growing, welfare rolls are rising and young American men on a broad front are falling into an abyss of joblessness.

Some months ago, the Obama administration and various mainstream economists forecast a peak unemployment rate of roughly 8 percent this year. It has already reached 9.4 percent, and most analysts now expect it to hit 10 percent or higher. Economists are currently spreading the word that the recession may end sometime this year, but the unemployment rate will continue to climb. That’s not a recovery. That’s mumbo jumbo.

Why this rampant joblessness is not viewed as a crisis and approached with the sense of urgency and commitment that a crisis warrants, is beyond me. The Obama administration has committed a great deal of money to keep the economy from collapsing entirely, but that is not enough to cope with the scope of the jobless crisis. There were roughly seven million people officially counted as unemployed in November 2007, a month before the recession began. Now there are about 14 million. If you add to these unemployed individuals those who are working part time but would like to work full time, and those who want jobs but have become discouraged and stopped looking, you get an underutilization rate that is truly alarming.

"By May 2009," according to the Center for Labor Market Studies at Northeastern University in Boston, "the total number of underutilized workers had increased dramatically from 15.63 million to 29.37 million — a rise of 13.7 million, or 88 percent. Nearly 30 million working-age individuals were underutilized in May 2009, the largest number in our nation’s history. The overall labor underutilization rate in May 2009 had risen to 18.2 percent, its highest value in 26 years."

If it were true that the recession is approaching its end and that these startlingly high numbers were about to begin a steady and substantial decline, there would be much less reason for alarm. But while there is evidence the recession is easing, hardly anyone believes a big-time employment turnaround is in the offing. Three-quarters of the workers let go over the past year were permanently displaced, as opposed to temporarily laid off. They won’t be going back to their jobs when economic conditions improve. And many of those who were permanently displaced were in fields like construction and manufacturing in which the odds of finding work, even after a recovery takes hold, are not good.

Another startling aspect of this economic downturn is the toll it has taken on men, especially young men. Men accounted for nearly 80 percent of the loss in employment in this recession. As the labor market center reported, "The unemployment rate for males in April 2009 was 10 percent, versus only 7.2 percent for women, the largest absolute and relative gender gap in unemployment rates in the post-World War II period." Workers under 30 have sustained nearly half the net job losses since November 2007.

This is not a recipe for a strong economic recovery once the recession officially ends, or for a healthy society. Young males, especially, are being clobbered at an age when, typically, they would be thinking about getting married, setting up new households and starting families. Moreover, work habits and experience developed in one’s 20s often establish the foundation for decades of employment and earnings.

We’ve seen what happens when you rely on debt and inflated assets to keep the economy afloat. The economy can’t be re-established on a sound basis without aggressive efforts to put people back to work in jobs with decent wages. We also need to consider the suffering that is being endured by these high levels of joblessness, including the profound negative effect on the families of the unemployed. Lawrence Mishel, president of the Economic Policy Institute, warned about the consequences for children.

"What does it mean," he asked, "when kids are under stress because there is no money in the household, or people have to move more, or are combining households, or lose their health insurance? I believe this is going to leave a permanent scar on a generation of kids." The first step in dealing with a crisis is to recognize that it exists. This is not a problem that will evaporate when the gross domestic product finally begins to creep into positive territory.

A Recession Measured by New-Home Sales
There have been bad housing markets before, but never in post-World War II history has the market for new homes suffered as badly as it has in this decline. That plunge raises questions about whether some homes built during the boom will ever be sold. It could also suggest that home builders have been slow to cut their prices enough to keep up with falling market prices.

For more than three decades, the sales volume of existing single-family homes and newly built houses tended to rise and fall by about the same percentage, as can be seen in the accompanying charts. To be sure, sales of new homes did tend to do a little worse during recessions, but the difference was small and short-lived.

The top chart shows sales volumes of both types of homes, compared with the sales pace for each in 1976. To avoid monthly gyrations caused by weather or other temporary factors, the figures use three-month moving averages of seasonally adjusted annual rates. At the peak of the housing boom in 2005, sales of both existing and new homes were running at twice the 1976 rate. This year, the sales rate for existing homes seems to have stabilized at about one-third higher than the 1976 rate. New-home sales also seem to have stabilized, but at about half the 1976 rate.

The second chart reflects the same data, but shows how far sales fell from peak levels during each downturn in the past. The plunge in sales of existing homes is severe but not unprecedented. But new-home sales are now running at only about a quarter of peak levels, a fall far deeper than anything seen since the statistics began being collected in the 1960s. New-home prices, while they have fallen sharply, do not appear to have declined as far as prices of existing homes. At the worst point this year, the median price of existing homes was off 29 percent from the peak, while the largest drop for new-home prices was 23 percent.

Median home price figures need to be used with caution, since there is no way to know how the median home sold in one month compares, in terms of size and location, to the median home sold in a different month. But in past recessions, new-home prices have tended to be weaker than existing-home prices, the opposite of what has happened in this cycle.

"Foreclosed homes are the supply that has to be worked off," said Robert Barbera, the chief economist of ITG, an investment advisory firm. He said the problem had worsened in recent months after the end of the foreclosure moratorium adopted by many lenders while they waited to see what the Obama administration would propose. Of the 135,000 completed but unsold new homes at the end of May, nearly half had been sitting for a year or more. The median age of such homes was 11.5 months, an unprecedented figure. It may be that builders will have to cut prices even more to sell some houses — houses that, in retrospect, probably should never have been built at all.

Is stimulus creating jobs? Yes but ...
House committee reports 21,000 actual highway and transit jobs created or saved. White House says number is in line with its 150,000 jobs estimate.

So just how many stimulus jobs have been created or saved so far? The figure remains elusive, but Congress provided one of the first peeks this week by reporting that stimulus has funded 21,000 highway and transit jobs as of May 31. The number, one of the first counts of actual stimulus-based employment, is based on state reports to the House Transportation and Infrastructure Committee. Thousands of indirect jobs -- such as the deli employee who prepares lunch for the construction crew or the workers who produce the steel needed for projects -- were also created or sustained.

The White House says the figure is in line with its projection that the $787 billion recovery act has created or saved 150,000 jobs in the administration's first 100 days. The 150,000 number, which includes direct and indirect positions, is an estimate based on the amount of stimulus funds spent. Each $92,000 of stimulus funds spent translates into one job, according to the White House formula. Congressional Republicans, who have blasted the recovery act as wasteful spending that won't create nearly the number of jobs promised, took issue with the figure.

Rep. John Mica, R-Fla., criticized the Obama administration for not reporting a specific number of jobs created or saved by stimulus-based infrastructure spending. Mica, the ranking Republican on the transportation committee, pointed out that only 21,000 positions have been produced, though the committee's Democrats have said that the $64.1 billion in infrastructure spending would create or sustain more than 1.8 million jobs. "This is pitiful that we can't get people working, we can't get the stimulus money out," Mica said. "People want jobs and they want them now."

In his weekly address, House Republican Leader John Boehner, R-Ohio, also slammed the administration for failing to stem the rising unemployment tide. The unemployment rate rose to 9.4%, its highest level in 26 years. It's expected to climb to 9.6% when the June numbers are released next Thursday. "All year long, Democrats here in Washington have made plenty of promises about putting Americans back to work, but I think the question is: Where are the jobs?" he said. "We all remember the trillion-dollar stimulus bill Democrats promised would be about jobs, jobs and jobs. And clearly all it's turned into is about spending, spending, and more spending."

The administration said that the 21,000 construction jobs figure meshes with the 150,000 figure. The White House is also taking into account the jobs created or saved by stimulus money spent on tax cuts and entitlements, such as Medicaid. Much of the initial stimulus funds spent went to states to help them cope with rising Medicaid rolls. "It's not just that we're paving I-57 in Illinois, how many jobs did that create?" Gavin said. "It's accounting for a much broader universe."

Testifying before the House committee Thursday, federal transportation officials updated their employment estimates. The Federal Transit Administration said that 19,000 jobs have been created or saved so far, and another 45,000 would be from the grants that are in progress. These figures are based on formulas.

Some 6,000 actual jobs have been created or saved by stimulus highway money, as of the end of May, according to the Federal Highway Administration. The agency estimates the 1,500 projects currently underway will ultimately create 50,000 positions. The agency's total $27.5 billion stimulus allocation is estimated to create or sustain 300,000 jobs by 2012.

"Federal agencies, states and their local partners have demonstrated that they can deliver transportation and infrastructure projects and create urgently needed employment in the tight timeframes set forth in the recovery act," said Rep. James Oberstar, D-Minn., who heads the transportation committee.

Five Banks Are Seized, Raising U.S. Failures This Year to 45
Five U.S. banks with total assets of about $1.04 billion were seized by regulators, pushing this year’s tally of failures to 45 as a recession drives up unemployment and home foreclosures. Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles were closed yesterday by state regulators, according to statements from the Federal Deposit Insurance Corp. The FDIC was named receiver of the four banks.

Wilshire Bancorp’s Wilshire State Bank will take over all of Mirae’s $362 million in deposits, and will purchase $449 million of assets, the FDIC said in a statement. Sunwest Bank of Tustin, California, acquired most of MetroPacific’s $73 million in deposits and $80 million in assets, the FDIC said. Stearns Bank of St. Cloud, Minnesota, bought Horizon Bank’s $69.4 million of deposits. Stearns will purchase $84.4 million of Horizon’s assets, the FDIC said. The FDIC didn’t find a buyer for Community Bank of West Georgia, and said it will mail checks to reimburse insured depositors. The bank has deposits of $182.5 million. Charter Financial Corp.’s CharterBank will assume Neighborhood Community Bank’s $191.3 million of deposits and purchased some assets in a loss-share agreement with the FDIC, according to the agency.

"The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector," the FDIC said. "The agreement also is expected to minimize disruptions for loan customers."
Regulators have seized the most U.S. banks this year since 1993. The U.S. economy has shed about 6 million jobs since the recession began in December 2007. Foreclosure filings surpassed 300,000 for the third straight month in May, according to RealtyTrac Inc.

Members of U.S. House Financial Services Committee snapped up or dumped bank stocks as bottom fell out of market
As financial markets tumbled and the government worked to stave off panic by pumping billions of dollars into banks last fall, several members of Congress who oversee the banking industry were grabbing up or dumping bank stocks. Anticipating bargains or profits or just trying to unload before the bottom fell out, these members of the House Financial Services Committee or brokers on their behalf were buying and selling stocks including Bank of America and Citigroup -- some of the very corporations their committee would later rap for greed, a Plain Dealer examination of congressional stock market transactions shows.

Financial disclosure records show that some of these Financial Services Committee members, including Ohio Rep. Charlie Wilson, made bank stock trades on the same day the banks were getting a government bailout from a program Congress approved. The transactions may not have been illegal or against congressional rules, but securities attorneys and congressional watchdog groups say they raise flags about the appearance of conflicts of interest.

"I don't think that any of these people should be owning these types of financial instruments," said Brian Biggins, a Cleveland securities lawyer and former stock brokerage manager. "I'm not saying they shouldn't be in the stock market. But if they're on the banking committee and trading in these kinds of stocks, I don't think that's right." For example, Rep. Ginny Brown-Waite, a Florida Republican, bought Citigroup stock valued between $1,001 and $15,000 on Oct. 2, the day before the House passed the financial rescue bill and President George W. Bush signed it into law, records show. She opposed the bill.

Eleven days later, she bought $1,001 to $15,000 worth of Bank of America stock. It was on the same day that then-Treasury Secretary Henry Paulson told leading banks that he expected them to accept billions in bailout money to prevent a financial meltdown. Brown-Waite, who has since left the committee to join the tax-writing Ways and Means Committee, and her spokeswoman would not comment for this article. The precise value of her investments is not publicly known because financial disclosure reports provide only broad ranges, although some members include detailed brokerage reports.

Wilson, a Democrat from the eastern Ohio town of Bridgeport, sold between $15,001 and $50,000 worth of Huntington Bancshares stock on Nov. 14, the same day Huntington got $1.4 billion in bailout money from the federal Troubled Asset Relief Program, or TARP, records show. Wilson's transactions over the course of last autumn also included Bank of America and BB&T, both beneficiaries of the bank rescue program that Treasury implemented after congressional passage.

Wilson's spokeswoman said the congressman did not personally pick these trades because he leaves day-to-day investment decisions to a money manager who uses a proprietary model in selecting securities to buy or sell. "To be clear, Mr. Wilson doesn't know about the trades ahead of time or even as they're being made," said spokeswoman Hillary Wicai Viers. A spokesman for Rep. Carolyn McCarthy, a New York Democrat also on the Financial Services Committee, said she similarly leaves transactions solely to the discretion of account managers. McCarthy's trades included a $2,275 purchase of bailout recipient J.P. Morgan Chase while Congress was still hammering out its rescue bill.

Another member of the Financial Services Committee, Democratic Rep. Jackie Speier of California, said on a recent financial disclosure report that she bought up to $15,000 in Citigroup stock on Nov. 7. That was 10 days after the bank got a $25 billion bailout. Her office now says the report was filed in error, the transaction should have been listed as her husband's -- and she wishes he had not made it. "When I brought it up with her, she said it was Barry's purchase and she didn't know about it but she would have disagreed with it at the time had she known about it," Speier spokesman Mike Larsen said.
Her husband wasn't the only committee spouse trading on bank stocks.

The stockbroker husband of West Virginia's Shelley Moore Capito, a Republican, sold more than $100,000 in Citigroup stock in several transactions late last year. His brokerage firm was owned by Citigroup and his compensation included Citigroup stock. A Capito spokesman said the House Ethics Committee gave her verbal approval to join the committee despite her husband's job. Another committee member, Illinois Republican Judith Biggert, whose husband sold Wells Fargo stock while Congress was helping to shape the rescue bill, said she does not discuss stock transactions with her spouse.

"I wouldn't have the vaguest idea" why he sold at that time "because we don't discuss our stocks," said Biggert. "We have a financial group in Chicago, and they take care of all of that." Some of these stock sales enabled committee members or their families to cut losses before the market continued its slide. Other trades proved to be particularly ill-timed. Citigroup stock, for example, closed at $22.50 per share the day Brown-Waite bought it. Now it's hovering around $3.

Many details about the massive financial bailout last fall were widely known outside Capitol Hill. Yet members of the Financial Services Committee were privy to closed-door discussions, staff briefings and political horse-trading decisions between political parties, Congress and the White House. Banks lobbied Congress and the administration heavily. Banks that received bailout money spent $77 million on lobbying and $37 million on federal campaign contributions last year, according to the Center for Responsive Politics. The center found that the banks spending the heaviest got the biggest rescue packages.

There has been no direct evidence that this allowed members to engage in insider trading. But when lawmakers overseeing banks also buy and sell bank stocks, it can create "the appearance of a problem," said Anthony J. Hartman, a Cleveland securities attorney. "I do a lot of different types of litigation, and I just don't think anybody ought to be putting themselves in a situation where as an elected official, I can be suspect of what they are doing," Hartman said.

The issue of appearances is complicated, said Melanie Sloan, executive director of Citizens for Responsibility in Ethics in Washington, because "we can't say that because you're a member of Congress you can't buy or sell any stocks at all." But she added, "I do think it's more troubling on an oversight committee, particularly Financial Services."

Congressional finance reports available online
Want to see how members of Congress invest their money? It's easier than ever. Personal financial disclosure filings, which list assets, transactions, outside income and noncongressional travel reimbursements, are posted for House members on the House of Representatives clerk's Web site. A free private Web site called LegiStorm provides the same information, as well as the financial disclosure filings of U.S. senators. Government watchdog groups say the wide dissemination of these reports serves a vital public purpose in shedding light on Congress.

"I think that's the critical element, that there is knowledge that this information will go public, because that adds an important deterrent effect for members of Congress who are tempted to skirt the rules or act on what's insider information," said Sheila Krumholz, executive director of the Center for Responsive Politics. "And now in the midst of economic decline, citizens are understandably asking what members knew when and how they acted for their own personal portfolios -- whether they publicly professed faith in our financial institutions while privately seeking to offload their holdings in those same institutions."

State shutdowns loom as deadlines near
At least 19 states still have to approve their fiscal 2010 budgets before next Tuesday. If they don't, staffers might not be paid and services might shut down.

One week and counting. An unprecedented number of states have only days left to pass their fiscal 2010 budgets. At least 19 states are still hammering out their spending plans as the recession wreaks havoc with their finances and sparks fights between governors and lawmakers. If spending plans aren't approved, state workers may not receive their paychecks and some government offices may shut down. "A lot of states are coming down to the wire," said Todd Haggerty, research analyst for the National Conference of State Legislatures. "More than what's typical. The unprecedented economic situation is creating a lot of difficulty this year."

Some 46 states end their fiscal years on June 30 and all but one require balanced budgets be adopted. States are struggling to close shortfalls totaling $121 billion for fiscal 2010 as the recession decimates tax revenues. The budget battles have even landed some in court. In Arizona, Republican Gov. Jan Brewer has filed a lawsuit against the Republican-controlled legislature seeking to compel lawmakers to send her the budget it passed on June 4. The lawmakers are holding back until an agreement is reached because she has said she would veto it.

Leaders are at odds over how to contend with a deficit that exceeds $3 billion. The governor has proposed raising taxes, including hiking the sales tax by a percentage point, while the legislators are cutting spending. Brewer is hoping lawmakers will send her a budget before Arizona has to start shutting down non-essential state services. That would require some major changes since she does not support the current spending plans. "She doesn't think much of what's in them," said Paul Senseman, the governor's spokesman.

Arizona Senate President Bob Burns is also confident that the two sides will reach an agreement and avoid a government shut down. The two branches are meeting daily, a spokeswoman for Burns said. In some states, the leaders aren't even talking. Pennsylvania's governor and Senate Republicans, who have to close a $3.2 billion gap for the current year, are not negotiating on their budgets. "There's been no significant movement on the budget," said Chuck Ardo, press secretary for Gov. Ed Rendell, who is prepared to cancel his African safari in August if the budget isn't set.

The governor's $28.4 billion budget seeks to raise the personal income tax rate by half-a-percentage point and draining the commonwealth's $750 million rainy day fund. Senate Republicans' $27.3 billion plan looks to cut spending on areas such as education and community revitalization. Though the states has never passed a budget on time during Rendell's seven years in office, both sides agree this year is the worst standoff ever.

"It's hard to see how a meeting would be productive given the two very different points of view," said Erik Arneson, communications director for Senate Majority Leader Dominic Pileggi. "At this point, there's no support in our caucus for a tax increase." If states don't pass their budgets on time, one of three things usually happens, according to the National Conference of State Legislatures. Lawmakers can pass temporary appropriations measures to keep the doors open and bills paid. Some states have provisions that maintain funding for agencies and services even without a budget.

Sometimes, however, the government faces a shutdown. When Tennessee officials failed to pass a budget on time in 2002, classes stopped at public universities, drivers licenses were not issued and road construction ceased. Pennsylvania's Rendell has already said state workers would have to stay on the job without being paid if the budget isn't approved. Services will start to be affected if the budget standoff continues beyond its typical week's delay.

Even states that have passed budgets are struggling to close expanding deficits. California approved its budget in February, but lawmakers and the governor are now locking horns over how to solve a $24 billion shortfall before June 30. The legislature presented a budget proposal last week that includes $11.4 billion in cuts and $2 billion in revenue hikes, but Gov. Arnold Schwarzenegger dismissed it as a piecemeal approach full of gimmicks. If a budget isn't passed in coming days, California will run out of cash and be forced to start issuing IOUs, Controller John Chiang said on Wednesday. The state faced a similar situation in February, but at that time it had the option of withholding $3 billion in state tax refunds.

Now, it doesn't have that cushion. Also, the shortfall is now nearly five times as large, forcing the controller to withhold payments to local governments for social services, private contractors, state vendors, as well as income and corporate tax refunds. "Next Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Chiang said. "The state's $2.8 billion cash shortage in July grows to $6.5 billion in September, and after that we see a double-digit freefall."

Global Economy Displays 'Convincing Signs' of Recovery, Financial Stability Board's Draghi Says
The world economy is showing "convincing signs of recovery," Mario Draghi, chairman of the newly created Financial Stability Board, said today after its first meeting. "We observe signs of improvement here and there," Draghi, who is also a member of the European Central Bank council and governor of the Bank of Italy, said in Basel, Switzerland. "Still, the fragilities of the economy and the financial system are there." The Basel-based board, which succeeds the Financial Stability Forum, will look at risks to financial markets and ensure that regulators in each country act upon them. Its members represent economies from Argentina to the United States and institutions such as the European Central Bank and the International Monetary Fund.

The global recession is showing signs of easing as financial markets thaw. Government reports this week showed that Europe’s manufacturing and service industries contracted at the slowest pace in nine months in June, while U.S. consumer spending rose in May. The Organization for Economic Cooperation and Development raised its forecast for the economy of its 30 member nations for the first time in two years this week.
The Financial Stability Board "noted signs of improvement in the global macroeconomic outlook and in some financial markets," Draghi said. "Banks have raised capital from the private sector, but the process of restructuring and strengthening bank balance sheets is not yet completed. Corporate bond markets continue to see strong primary issuance."

Financial institutions around the world have amassed losses of more than $1.4 trillion during the financial crisis, data compiled by Bloomberg show. In Europe, governments and central banks are on the hook for more than 3.7 trillion euros ($5.2 trillion) of guarantees and funding. UBS AG, the European bank with the biggest losses from the credit crisis, said on June 25 it expects a second-quarter loss. In response, governments and central banks are tightening banking rules to strengthen the global financial system. U.S. President Barack Obama this month proposed new rules to tighten oversight, while European leaders agreed on a sweeping overhaul of their regulations.

The Basel Committee on Banking Supervision, a member of the Financial Stability Board, will "make an integrated proposal to strengthen the capital and liquidity regime by end-2009," Draghi said, including requirements to address systemic risk. The Swiss National Bank on June 18 said UBS and Credit Suisse Group AG must increase the amount of capital they hold in relation to assets to withstand any further losses. The banks should aim for a so-called leverage ratio of at least 5 percent once the crisis is over, the SNB said, meaning the capital base should account for at least 5 percent of the balance sheet total. UBS’s ratio was 2.56 percent at the end of March.

Draghi said as a complement to the risk-weighted leverage ratios of the Basel 2 banking framework, regulators should consider a simpler figure. "Basel 2 is a very sophisticated way of determining a leverage ratio," he said. "In the end you come up with a leverage ratio but it’s the product of many different assessments of risk for different categories of assets under different markets conditions. What we are seeing is that markets have a simpler view. They want to look at some number."

Fed Documents Fuel Concerns About Expanding Central Bank's Role
Documents unearthed by congressional investigators reveal disagreements among senior Federal Reserve officials about how to handle Bank of America Corp.'s acquisition of Merrill Lynch, fueling concern on Capitol Hill over giving the central bank even more power to regulate the financial system. The glimpse inside the regulatory machinery provided by emails, memorandums and handwritten notes show a Fed that wrestled with how tough it should be on Bank of America, one of the biggest U.S. banks. It also shows Fed officials questioning more broadly their response to the financial crisis months earlier.

In December, Bank of America approached top U.S. officials about abandoning a deal, forged in the heat of the crisis, to buy investment bank Merrill Lynch. In the end, the government arranged a $20 billion rescue package for the bank to cover growing losses at Merrill. In between, the documents show areas of disagreement within some of the Fed's 12 regional reserve banks. The Federal Reserve Bank of Richmond, where supervision of Bank of America's parent company is based, pushed for a tougher approach than other regulators, emails suggest. Bank of America officials appealed more than once to the Fed's Washington headquarters to intervene.

Bank of America CEO "Ken [Lewis] may also raise his favorite perennial issue -- that is, is the Richmond supervisory team on the same page as the [Fed] Board," Fed governor Kevin Warsh wrote in an email Dec. 30 to Fed Chairman Ben Bernanke and other senior officials. "Richmond staff was on our call today, but prior to the call, it sounds like they may have threatened a little more than ideal..." On Jan. 10, Fed General Counsel Scott Alvarez wrote to Mr. Bernanke and others that Richmond Fed President Jeffrey Lacker was raising some issues over the final deal. Mr. Lacker wanted the entire Federal Open Market Committee to vote on any loan to Bank of America.

Mr. Bernanke responded at 2:01 a.m.: "Thanks. If we are nimble we can manage this." Whether or not Mr. Bernanke threatened Mr. Lewis's ouster over the rescue remains a source of contention. Mr. Lewis suggested in testimony to New York Attorney General Andrew Cuomo that the Fed chief did just that. Mr. Bernanke has denied making such a threat to Mr. Lewis. On Jan. 16, just days before government aid for the deal was supposed to be announced, Federal Reserve Bank of Boston president Eric Rosengren sent Mr. Bernanke an email saying that the Fed shouldn't dismiss too hastily the idea of tossing management at Bank of America.

Mr. Rosengren suggested such a shake up might be necessary, "particularly if we believe that existing management is a significant source of the problem." Mr. Bernanke, at a contentious hearing Thursday, defended the Fed against suggestions it had been too lenient with management. "The supervisory process is not a onetime thing. It's an ongoing process, and in an ongoing supervisory process, we have made demands of the Bank of America on terms of their board and management," he told Rep. Dennis Kucinich (D., Ohio).

The documents reveal Fed officials questioning the central bank's response to the financial crisis even before negotiations began on the effort to aid Bank of America's acquisition of Merrill Lynch. "At this point I have [the] sense that the hearts and minds war in Iraq was handled better than it has been in this crisis, particularly within the Fed system," wrote Meg McConnell, a top Federal Reserve Bank of New York official, on the day the House of Representatives voted down the Bush administration's first financial-rescue package, sending the Dow industrials down almost 800 points.

The Obama administration earlier this month proposed giving the Fed powers to oversee and examine the largest companies in the financial system. The disclosures could bolster the central bank's argument that it needs more power to manage future crises. One reason for the government's lurching response last year, officials say, was that it didn't have the needed tools. The Fed has been dealing with a steady stream of criticism from Republicans. Democrats have recently joined in, and the disclosures being aired through the congressional inquiry have put the central bank on the defensive.

Fading political will has let banks off the hook
In London, the adventure playground of the global financial system until the financial crisis struck, banks such as Barclays and Nomura are once again energetically hiring and poaching staff. As in New York, trading profits are up and bonuses are back. At government-controlled Royal Bank of Scotland, they are back with a vengeance. Many in Westminster feel the new £9.6m ($16m, €11m) pay package for Stephen Hester, chief executive since November, smacks of the pre-crisis era.

Certainly, the mood among financiers is suddenly more cheery. There is also a growing suspicion on both sides of the Atlantic that bankers, a lethal breed whose activities have pretty much throttled the global economy while causing government deficits to balloon, are going back to business as usual – a frightening prospect for taxpayers everywhere. What is so extraordinary about this new bankerly optimism is that it comes despite the financial crisis remaining unresolved after nearly two years of grief. The lack of trust in markets is such that central banks are still having to step into private bankers’ shoes to keep funds flowing.

For all the numerous initiatives by the authorities in the US and Europe, the value of much toxic paper in the system is still uncertain. Moves to soften mark-to-market accounting rules, which required assets to be written down to realistic values, have raised the risk of creating "zombie" banks that live on despite being insolvent. That was the syndrome that gave Japan its lost economic decade. Perhaps most worrying of all, it looks as though the political will to secure a strong regulatory response to the crisis is waning.

The Obama administration’s reform proposals last week shuffled institutional deckchairs and gave more power to the Federal Reserve despite its signal failure to do its regulatory stuff during the credit bubble. There were worthy plans for this and that. Yet the result of all the bail-outs and mergers is still a higher degree of concentration in banking, which does nothing to mitigate the systemic threat from outfits that are too big or too interconnected to fail. The likes of JPMorgan Chase and Goldman Sachs will continue to reap fat profits from opaque over-the-counter trade in credit default swaps and other derivatives.

The stronger banks, while preparing to release themselves, from government guarantees, are bent on pursuing business models that are not dramatically different from those they adopted before they foundered. In the UK, Mervyn King, governor of the Bank of England, has strongly urged that the casino element of the banking system be separated from the conventional borrowing and lending business that enjoys the benefit of deposit insurance and the Bank’s support as a lender of last resort.

Lord Turner, his counterpart at the Financial Services Authority, has a more nuanced position. In his recent review of the regulatory system, he said: "Serving the financial needs of today’s complex globally interconnected economy ... requires the existence of large complex banking institutions providing financial risk management products which can only be delivered off the platform of extensive market-making activities, which inevitably involve at least some position-taking."

He also questions whether it is realistic to think that high-risk trading activity could exist outside the utility-type banking sector and be subject to pure market discipline in a world of interconnected markets. Bear Stearns had no utility-type business but the US authorities still recognised that it posed a systemic threat when it ran into difficulty.

Alistair Darling, the UK chancellor of the exchequer, appears to be on Lord Turner’s side in this argument. He is also proposing to pass some of the Bank of England’s responsibility for financial stability to the FSA. The outcome is that re-regulation in the UK will fall short of radical. In the European Union, meanwhile, the regulatory response has been lopsided, directed as much at hedge funds and private equity firms, which posed little or no systemic threat in this crisis, as at banks. This no doubt reflects the perennial Franco-German desire to knock British finance.

Why is it that the bankers suddenly appear to be off the hook? One answer is that the monetary remedies for the financial crisis create the potential for trading profits by reducing the banks’ cost of funds. While this appears offensive to ordinary people, it is nonetheless desirable, because it recapitalises banks via the back door. But the less-than-draconian regulatory response represents a triumph of lobbying power, especially in the US where investment banks have been highly persuasive in Washington and have made full use of a deeply flawed campaign funding system.

In the UK, the government is still taken with the notion that Britain has a valuable comparative advantage in finance that should not be thrown away lightly, though the advantage seems questionable in the light of the damage finance has wrought on the economy. More generally, the complexity of the financial debacle is such that it has been hard for policymakers to find a firm response other than through changed regulatory architecture and the broad brush of capital adequacy requirements for banks.

There remains the possibility that, when the global economy and the banking system pick up, more swingeing capital requirements than expected will make banking more like a utility. But for the moment we are all saddled with huge public sector debts, courtesy of the bankers, while confronting what promises to be a very anaemic recovery. Against the background of unresolved global imbalances, there must be a possibility that with bankers once again at play, the financial system will return to chaos in the not too distant future.

Financial Regulation: Industry Objections Increasing
It wasn't so long ago—against the backdrop of the financial crisis and its aftershocks, amid a tide of popular anger—that financial-industry representatives took pains to acknowledge the need for financial reform, even in their own corners of the sector. That's beginning to change. While few are arguing against revamping regulation generally, lobbyists and industry trade groups are increasingly arguing that policymakers should tread lightly when it comes to their particular constituents. The ever more vocal objections began right around the time that the Obama Administration unveiled its omnibus proposal for financial regulation, on June 17.

Now banks are pushing hard to fend off a new accounting rule that would force them to put many off-balance-sheet assets back onto their books, and thrifts are fighting to keep the widely criticized Office of Thrift Supervision from being merged with other bank regulators. Hedge funds are calling for caution on rules that go beyond basic registration of the investment pools. The derivatives industry's supporters in Washington are warning that proposals to require increased transparency and more systematic markets for the complex financial instruments could drive up costs for a variety of financial and industrial companies.

And the U.S. Chamber of Commerce, which called consumer-protection improvements a key part of reform earlier this year, is fighting against the Administration's proposed Consumer Financial Protection Agency. It amounts to a kind of regulatory NIMBYism ("not in my backyard")—predictable, perhaps, once proposals for reform began to coalesce, starting with the Administration's 80-plus-page white paper. "I think the NIMBYism started once we had something to shoot at—before that, it wasn't really real," says Scott Talbott, a lobbyist for the Financial Services Roundtable, which represents large financial companies. "Then once we have the legislative language, the real fights will begin."

That could be soon. Treasury Secretary Timothy Geithner has said the agency could propose legislative language to create the new Consumer Financial Protection Agency within a few days.
But Brian Gardner, a policy analyst for Keefe Bruyette & Woods in New York, said the new tack is to be expected—and is also driven by lessons from the push for health-care and energy legislation. "It's pretty natural that they start to try and figure out what's in their interest and how to mold it in ways that can either prevent harm or do something they can take advantage of," Gardner says. At the same time, he notes, "Washington is working quicker than people are used to, so I think people are getting attuned to working quicker."

For its part, the Chamber of Commerce says it's not opposing the idea of improving consumer protection. But the group says that creating another government agency is the wrong way to go about it. "That's precisely the type of patchwork quilt that got us into trouble in the first place," says Tom Quaadman, the group's executive director for financial reporting policy. A hedge fund industry official said fund managers are embracing registration—roughly three-quarters of funds have registered voluntarily—but remain wary of more extensive restrictions. Fund managers have had hundreds of meetings on Capitol Hill in recent months. "We're very supportive of what [the Administration is] trying to do, but the devil's in the details," says the official.

Of course, industry isn't alone in getting more vocal. Consumer and investor advocates, and political groups supporting Democratic proposals, are ratcheting up the volume as well. In an e-mail to news organizations and others, Americans United for Change—a group formed to fight Bush Administration policies that now throws its weight behind Obama's initiatives—blasted the Securities Industry & Financial Markets Assn. (SIMFA) after Bloomberg News reported the financial group was mounting a campaign against "populist" criticism of the industry. "What are they going to call their new PR campaign: The 'Thanks for the Bailout, Suckers—Now Quit Whining' Tour?" Tom McMahon, acting executive director of Americans United for Change, was quoted as saying in the e-mail.

SIFMA President Timothy Ryan told Bloomberg the group has advocated more government power to unwind financial firms that don't own banks: "This effort, which is not uncommon for a trade association, is designed to ensure our ideas for improved accountability, oversight, and transparency are heard by the widest possible audience." "It's a strategy to try to split people on Capitol Hill and try to confuse people," says Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group, a consumer advocacy organization in Washington that recently joined with dozens of others to form Americans for Financial Reform. "It's an attempt to blame it on the other guy—they're hoping to water down reform, deflect criticism of their industry."

Why is Citigroup still in business?
It’s been quite a week for Citi.

To be fair to Citi, they are taking (well-deserved) crap for the entire industry on the salary issue. BofA, Morgan Stanley, UBS and others are also trying to dodge the bad PR when huge bonuses are awarded following huge losses. So now instead of bonuses for bad performance execs will just get a huge salary for bad performance. It’s all about retention – or so Citi would like us to believe. Quote from the NYT: "Citigroup executives are so eager to keep employees from fleeing, that in some cases, they are offering them guaranteed pay contracts."

Well, given that those contracts are being paid for with $45 billion of US taxpayer debt who can blame them. Citi is once again free to play with someone else’s money and are being just as responsible as they were the last time. BTW, the idea that these raises are going to the rank-and-file is absolute hogwash. As Alphaville notes, "the biggest increases will go to investment bankers and traders."

The discovery came in Citi’s correspondent division, which buys loans from banks and independent mortgage firms, and was responsible for about half of the bank’s $115 billion in mortgages last year. Two great quotes about this:

"There remain key areas that fall short of our quality- control process. We ask you to review your processes and join us in this effort to collectively address these areas of concern."  — Brad Brunts, a managing director at the bank’s CitiMortgage division.

And this from an analyst:

"It is better to pull people off the line, and have a thorough re-education of what goes into a loan, so they can come back and do this the right way."

Not a good sign when you have to re-train people processing mortgages on the most basic elements of how to do their jobs. Are these some of the folks being offered those guaranteed contracts?

This really takes the idea of not verifying income to a new level.

RealityFrame’s comment about the raises could really be applied to pretty much everything the bank touches: Anybody want to dispute that those banksters aren’t indeed the "best and the brightest"?

JPMorgan to charge 5% on card balance transfers, cash advances
JPMorgan Chase & Co. is raising some balance-transfer fees on credit cards to 5 percent, the highest among the nation's largest banks, citing increasing regulations and costs after the U.S. put new curbs on the industry. JPMorgan, the biggest credit-card issuer, disclosed the increase in a notice mailed to customers this month that referred to "new federal regulations." The New York-based lender starts charging more in August, just as the law designed to curb interest-rate increases, fees and marketing practices begins to take effect.

"In the current economic environment, our costs of doing business have been impacted by increased losses," JPMorgan spokesman Paul Hartwick said in an e-mailed statement. "We are increasing balance-transfer fees to reflect the increasing costs for these transactions." The notice didn't specify the current average fee for balance transfers. The credit-card law President Barack Obama signed May 22 prompted warnings from industry executives that they'd be forced to raise fees, curtail credit and restrict consumer rewards. Discover Financial Services Chief Executive Officer David Nelms said last week his credit-card company will pull back "dramatically" on balance transfers.

The rate increase at JPMorgan also affects cash advances, and fixed rates will become variable, the notice said. Hartwick declined to say how many customers are affected. The agreement says JPMorgan may choose to offer a lower transfer fee; Hartwick declined to elaborate on how customers might qualify. JPMorgan's 5 percent fee tops the 4 percent that Bank of America Corp. implemented June 1, citing increasing costs. Bank of America ranks third by cards outstanding, according to industry newsletter the Nilson Report.

"This is the highest balance-transfer fee in the industry," said Bill Hardekopf, chief executive officer of, a Birmingham, Alabama research firm. "It is setting a new precedent that I'm afraid other issuers may follow." The Credit Card Accountability Responsibility and Disclosure Act Obama signed requires issuers to apply payments to balances with the highest interest rates first and prohibits "universal default," a practice that increased rates on existing balances if cardholders missed payments to other lenders, even if their card accounts were up to date.

"We fully expect issuers to increase the cost of their fees to compensate for the loss of revenue that they expect once the regulations take effect," Hardekopf said in an interview. Barney Frank, chairman of the House Financial Services Committee, said Obama's proposed Consumer Financial Protection Agency would have jurisdiction over increases like the one JPMorgan is planning.

"What Chase is doing is strengthening the argument for the new entity," Frank said in an interview. Banks should be able to impose fees to cover their costs, not to create a "new profit center," he said. JPMorgan Chief Executive Officer Jamie Dimon said May 27 the card business was the "most challenged" and that the new rules could cost the bank about $500 million. The unit lost $547 million in the first quarter and isn't expected to turn a profit this year.

The bank wrote off 7.72 percent of card loans in the first quarter and said losses could approach 9 percent later in the year if unemployment continued to rise. Charge-offs typically track the jobless rate, which reached 9.4 percent in May. JPMorgan has about 159 million cards in circulation and more than $176 billion in managed loans, a regulatory filing shows. David Robertson, publisher of the Nilson Report in Carpinteria, California, said the lender is trying to see whether 5 percent is a "potential barrier" to entry for customers.

"If people will pay it, then once new rules encumbering issuers take effect, Chase will have an awareness of the role this fee can play in making up for lost revenue," Robertson said in an e-mail. Nelms, the head of Riverwoods, Illinois-based Discover, told analysts during a conference call the federal law would have "unintended consequences" for customers that might include fewer offers for balance transfers at discounted rates, and that the initial low "teaser" rate might last as little as six months. Some card issuers have been offering zero percent on balance transfers that last a year or more.

JPMorgan's investment banking gaining on Goldman
JPMorgan Chase & Co has snapped up market share for its investment banking unit and, amid the financial crisis, its large balance sheet may put it in a position to threaten Wall Street's dominant investment bank, Goldman Sachs Group Inc. Analysts largely expect the investment banking unit at the second-largest U.S. bank to again report strong second-quarter results, following record first-quarter revenue.

A retail giant with a reputation for conservative risk-taking, JPMorgan has survived the financial crisis and benefited from its acquisition of near-collapsed investment bank Bear Stearns Cos.
"JPMorgan can compete with, and beat, Goldman Sachs," said Dick Bove, a veteran banking analyst with Rochdale Securities.

With $2.1 trillion in assets, JPMorgan dwarfs Goldman, which has $925 billion, and also Morgan Stanley, the former investment bank traditionally seen as Goldman's closest rival, which has $1.1 trillion. The strength of its balance sheet could be an advantage, in particular since these banks this month returned billions to the U.S. government's bank bailout fund, known as the Troubled Asset Relief Program.

After TARP, "The cost of capital becomes key, and there JPMorgan has a clear competitive advantage," said George Ball, chairman of wealth and asset manager Sanders Morris Harris Group in Houston. JPMorgan's size means it can lend more to more clients, giving it a better chance to sell other services, Bove said. "JPMorgan comes to the game with massive capital backing and a huge customer list -- it's going to do the greater number of deals," he said.

JPMorgan has regularly ranked highly in global league tables for debt and equity underwriting but it has not always had as strong an advisory or proprietary trading effort. Yet in the first quarter, JPMorgan said trading revenue was $2.5 billion versus a negative $1.0 billion in the same period a year earlier. The bank has warned that trading revenues may be volatile, but analysts believe it may be on track to report second-quarter trading revenue similar to the first quarter's. "Trading results, while probably not as strong as the first quarter, will still be pretty strong," said Stuart Plesser, equity analyst at Standard & Poor's.

Over the same period, Goldman -- which has sometimes been accused of acting more like a hedge fund than a bank -- has seen its proprietary investing hamstrung by new capital requirements.
Goldman and Morgan Stanley converted to bank holding companies in the fall, after investment bank Lehman Brothers filed for bankruptcy, to reassure investors and gain access to Federal Reserve lending facilities. As bank holding companies, the former investment banks cannot leverage their balance sheets as they did in the past. "The banks and the two surviving brokerage firms are really now on a level playing field in terms of trading," said Brad Hintz, analyst at Sanford C. Bernstein in New York.

To be sure, Goldman's investment bank is expected to perform well in the second quarter. Analysts at FBR Capital Markets on Tuesday raised their second-quarter estimate for the company, citing likely gains from a favorable trading and capital markets environment. It is also possible -- although the bank has denied this -- that Goldman may seek to shed its bank holding company status.

JPMorgan's investment bank dominated the second quarter with global estimated second-quarter investment banking fees of $2 billion compared with $1.32 billion for Goldman Sachs, according to an exclusive tabulation by Thomson Reuters including income from merger and acquisition advisory activities, equity, debt and loan issuance. JPMorgan saw a drop of 14 percent in such fees from the year-earlier period, while Goldman suffered a 28 percent drop.

Certainly, while other competitors may face rising credit losses, or labor to repay government funds, there will be more than enough business for both banks to share. "It's not one of those situations where there's only one winner," said Hintz. But in the near term, JPMorgan's strength and size give it an edge when it comes to winning business in uncertain financial conditions. "From the standpoint of force majeure, Goldman can't match JPMorgan at all," said Bove.

Delinquencies on US Auto-backed Securities Jump 22%
Prime auto U.S. ABS delinquencies jumped 22% on a monthly basis in May, while net losses improved 17% in May over April clouding expectations for the coming summer months, according to Fitch Ratings. The improvement in net losses was mostly a result of seasonal patterns and losses remain near record high levels. Prime 60+ days delinquencies rose to 0.72% in May, up from 0.59% in April.

The increase in delinquencies last month was noticeably higher than previous years during this period. Delinquencies were 26% higher in May versus 2008 levels; they hit a record high of 0.87% in early 2009 but are back off of those levels. Despite historically high loss rates, the ratings of senior classes of notes continue to perform within expectations, with minimal negative rating actions issued in 2009 to date.

Fitch also says  the European auto ABS sector experienced an increased number of negative factors during Q109, including a rise in delinquencies and net losses. The Fitch 60-180 Delinquency Index (Fitch DI) breached an historic peak in the first quarter, increasing to 1.5% (up 20 basis points compared with Q408). Since December 2007, the Fitch DI has increased by 50 basis points to 1.5% and is not expected to stabilise during the next quarter (Q209).

The Fitch Net Loss Index increased to 0.5% during Q109 (up 40 basis points compared with Q408), but remained within historic levels.The Fitch Excess Spread Index (Fitch ESI) was slightly lower during the first quarter of the year, and stood at 2.3% (down 20 basis points compared with Q408).

Angelo Mozilo: A Public Sector Creation
It was obvious back in 2005, when Countrywide CEO Angelo Mozilo was still riding high, that the man had some deep psychological issues, and that they informed his approach to banking. We previously spotlighted a NYT profile from then, which was all about the big fat chip on Mozilo's shoulder, and his disdain for establishment bankers that did things the old way. He didn't like, for example, how they did elitist, ivy-league stuff like denying loans to the proletariat.

Ah, if only he'd been a little more establishment... But it turns out Mozilo was probably even more messed up than we thought. In a fresh New Yorker profile on Mozilo, Connie Bruck (not surprisingly) connects his anti-establishment attitude to his permanently looking like a tangerine:
"The new company [Countrywide] sent Mozilo first to Virginia Beach and then to Orlando. He had never lived outside the Bronx, and years later he told friends that it had been difficult to be a darkskinned Italian-American in these communities. In Virginia Beach, the local club where businesspeople congregated refused to admit him, and in Orlando he had trouble selling mortgages until he met a group of Jewish homebuilders who couldn’t get financing.

As his sister, Lori, told me, "Angelo said, ‘Nobody wants to work with you. Nobody wants to work with me. Let’s do it together.’ He was always this Italian guy people didn’t want to accept." She went on, "When he tans he gets really dark. My mother told me that when he worked in Florida he was asked to sit in the back of the bus."

After Countrywide was dinged in 1992 for having a mediocre track record of lending to minorities, Mozilo started a manic drive to completely eliminate the homeownership gap.
Countrywide opened new offices in inner-city areas, created counselling centers, and loosened some lending standards, to include borrowers with less than pristine credit histories. Between 1993 and 1994, the company’s loans to African-American borrowers rose three hundred and twenty-five per cent, and to Hispanics they increased a hundred and sixty-three per cent. In 1994, Countrywide became the first mortgage lender to sign a fair-lending agreement with the Department of Housing and Urban Development.

"Countrywide went from close to the bottom in lending to minorities to near the top," Gnaizda said. "I remember Mozilo telling me, ‘I don’t want to narrow the gap in lending to minorities, I want to end it.’ " Eventually, subprime loans became too attractive a business for Countrywide to resist. In September, 1996, it created a new subsidiary for these loans, called Full Spectrum Lending; if the loans performed poorly, the Countrywide brand would not be tarnished.

"It was a careful entry, considered closely by those at the top of the company," a former high-level Countrywide executive recalled. "We sat together and asked each other, ‘Would you make this loan with your money?’ " To offset the credit risk posed by subprime lending, the company required borrowers to make a substantial equity investment, ranging from fifteen to thirty-five per cent. . ."

Now, Barry Ritholtz, who originally plucked out both of the above chunks from the article concludes that this all shows: "It was the Private sector that saw a profit opportunity and went for it. They made the loans. The government’s role was to provide rhetoric">
What doesn't make sense, here, is this desire to make it so black-and-white, to say it's just the private sector, and that the public sector had no role. Hello, Countrywide was funded by Fannie Mae and Freddie Mac. In that 2005 NYT profile, he lashed out at efforts to reform the GSEs, since without their funding, there would be no way for him to compete with more conservative rivals like Wells Fargo. We asked Barry about this, and his response was that Fannie and Freddie were odd, private enterprises, not entitled to the full faith and credit of the United States, but that by being connected, they did end up with a full bailout.

But we disagree. For one thing, they were established by the government. Second, there was an ongoing discussion about what kind of backstop they had from the government, and obviously many people assumed that the implicit guarantee would be explicit in a crisis, which explains their ability to gain cheap financing. It just doesn't fly to say that Fannie Mae and Freddie Mac were private sector manifestations, and since you can't have Mozilo without them, there's no good reason to make such a black-and-white distinction of what's the government's fault and what's the private sector's fault.

There's plenty of blame to go all around. That being said, there's no doubt private sector greed played a huge role in this mess. But greed is a constant. People didn't just decide to one day get more greedy. And greed (even excessive greed) is dandy, if the ultimate blowup only hurts the greedy person. What really makes financial sector greed so odious (as opposed to the greed of, say, your local auto mechanic) is the ability to loot the taxpayer. And Fannie and Freddie were the ultimate taxpayer looting vehicles.Just think about all the avenues:
  • Investors in their debt were able to get juiced yields, even though the government would bail them out.
  • Countless politicians, cronies and hacks made millions working for them, in stupid patronage jobs.
  • Common shareholders profited for years, even though the GSEs were supposed to be serving a public mission
  • Dastardly lenders like Countrywide and Lehman were able to flourish, flushing their crap assets onto the public ledger via these institutions.

These were gigantic, taxpayer-looting machines, and they've been bailed out to the tune of $400 billion (potentially). If you insist that they were purely private institutions, then that does get the government off the hook to some extent. But otherwise, it's impossible to divorce the greed of the private sector from the enablers on the public side.

China, Cleverly Dumping US Dollars
China is dumping dollars, but far more cleverly than you might think.

Immobilienblasen has noticed a rather curious tendency for China to overpay in "China Inc." Deal Premiums. What exactly is that all about?

Well, imagine you had a bunch of money... err... US dollars for example. You've also got a bunch more of these US dollars coming in daily. You don't believe they will hold their value. So you don't really want them. That is quite a problem.

The first trick is to get rid of them... without actually seeming to get rid of them. The second trick is to get rid of them in such as way as to not destroy their value.... yet.

The single best way to do this of course is to use your US dollars to buy hard assets. This looks "normal". It isn't nearly as obvious as "diversifying" your currency reserves. China is doing exactly that. The "China recovery" story is nothing of the sort. The Chinese demand for commodities is not a function of economic growth but rather a function of hoarding. There are Consequences to this Phantom Commodity Bull Market which will become apparent soon enough.

China has been buying into oil with size and at a premium. This has analysts puzzled:

"Sinopec’s offer is equivalent to $34 a barrel of proved reserves and $14 a barrel of proved and probable reserves. The African transaction average in 2007, when the average crude price is similar to current prices, was $14.40 a barrel for proved reserves and $9.90 for proved and probable reserves, respectively. On a proved basis, the 2007 average suggests $3.1 billion total value for the deal. Therefore, $7.2 billion implies a 135% premium."

But when it becomes obvious to investors the world over that a US dollar devaluation is the only possible way to manage the kind of debt burden the US has accumulated, those premiums will vanish instantly. Oil quoted in US dollars could easily make new highs beyond $147 in such a scenario. China will not only have safe guarded the wealth of its citizens by owning oil fields, but will also have increased the global political power of the country thru the acquisition these strategic assets.

While the US empire has stumbled and is desperately trying to avoid a faceplant, the Chinese have taken the opportunity to break out into a sprint. Even in a best case scenario where the US pulls off a miraculous recovery, valuable ground will have been lost and the global balance of power will never again be the same.

China Reiterates Call for New World Reserve Currency (Update4): "China’s central bank renewed its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar.

“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the People’s Bank of China said in its 2008 review released today. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.

The restatement of Governor Zhou Xiaochuan’s proposal in March added to speculation that China will diversify its currency reserves, the world’s largest at more than $1.95 trillion. Chinese investors, the biggest foreign owners of U.S. Treasuries, reduced holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets. That reduction came a month after China boosted its holdings by $23.7 billion to a record.
“Zhou Xiaochuan sees the current international financial system is flawed, putting too much emphasis on the dollar as a reserve currency,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong.

President Barack Obama needs the support of China as the U.S. tries to spend its way out of recession. The Dollar Index that measures the currency’s performance against six trading partners fell as much as 0.8 percent to 79.779 at 1:11 p.m. in London. U.S. Treasuries were little changed with the 10-year yield at 3.53 percent."


Taizui said...


You attribute "A Recession Measured by New-Home Sales" to Frank Rich in two places - I think it should be Floyd Norris.

Fuser said...

Best blog on the net. Today I had to hold my face in my hands after reading very paragraph you wrote.

Cripe. I work for a TARP receiving bank in risk management ... in part dealing with FAS 157 ... but I learn far more here. ... oh, the depair ...

Great posters here too, BTW.

Keep up the good work.

Ilargi said...

Thanks, Taizui.
And now corrected.

Ilargi said...

Thanks for the kind words.
I can only imagine dealing with FAS 157 must be a pool of confusion.

Erin Winthrope said...

Thank you Ilargi!

As a longtime New York Times news junkie, you've said what has been on my mind for a long time.

For many years, I've been reading the news, and especially the NYTimes, rather obsessively. I knew that businessmen and politicians were liars. But, it took a while for the realization to sink in that most of the "elite media" (NYTimes as opposed to say low brow CNN) was part of the racket as well. I should have known it all along. The media is an essential component of the machine. But the media (NYTimes in particular) truly blew their cover with their egregious Judith Miller pre-War Iraq coverage. Nothing would ever be the same with me after that.

I strongly believe that columnists should be held to account for their past statements/writing. Newspaper archives and internet bookmarking tools, like delicious (, make this task possible.

I would strongly advise everyone to spend some time perusing the news archives. Few activities will reveal more clearly the smoke and mirrors that passes for mainstream media coverage today.

Read what the pundits and "experts" wrote before the tsunami hit the shoreline. Read how their positions have changed (or haven't) since then. Ask yourself if any of the players who made spectacularly bad predictions/suggestions a few years ago were ever called upon to account for their words. The activity will generally leave you with one and only one depressing conclusion. It's the same conclusion reached by the late great prophet of our modern age,

George Carlin:

"They don't care about you. They don't give a fuck about you, at all, at all, AT ALL!"

For 3 minutes of the most concentrated truth-telling you'll ever hear, check out:

Carlin - The American Dream

Erin Winthrope said...


I can understand mixing up Floyd Norris and Frank Rich. Rich has been one of the few truth-tellers at the Times. His column from Feb 21st 2009 was a true gem. Nobody else in the MSM has told the truth the way Frank Rich did with that column.

Money quotes:

Title: What We Don’t Know Will Hurt Us

“I don’t want to pretend that today marks the end of our economic problems,” the president said on Tuesday at the signing ceremony in Denver. He added, hopefully: “But today does mark the beginning of the end.”

Does it?

"Pity our new president. As he rolls out one recovery package after another, he can’t know for sure what will work. If he tells the whole story of what might be around the corner, he risks instilling fear itself among Americans who are already panicked. (Half the country, according to a new Associated Press poll, now fears unemployment.) But if the president airbrushes the picture too much, the country could be as angry about ensuing calamities as it was when the Bush administration’s repeated assertion of “success” in Iraq proved a sham. Managing America’s future shock is a task that will call for every last ounce of Obama’s brains, temperament and oratorical gifts."

Anonymous said...

Nice photo today. I was born across the street from Riverhouse (on 51st) in 1958, just north of what is now the UN. The somewhat famous developer Zeckendorf, sold the site to Nelson Rockefeller for 8.5 million (actually paid for by Nelson's dad), to facilitate the continuation of the New World Order.

My Dad's office was in what was named the Time-Life building in, you guessed it, Rockefeller Center. I used to love to go up in his office so I could watch buildings being constructed below.

The point is, these people have been at managing economic perceptions for a very long time, and none of this is accidental. My Dad was a daily NYT reader as well, and probably never had a clue. Welcome to the gulag.

dark_matter said...

Ichabod (from yesterday):

I don't speak for Mr. North so take my answers with caution. I am not an apologist for him (or TAE either).

He defines mass inflation as inflation above 10% per year. Hyperinflation is more like 10% a month.

On getting out of debt he says consumer debt is a curse. It is a mark of a present- oriented person who has discounted the cost of his actions. For him the concept of debt avoidance is grounded in his Christian views.

He says to get out of the stock market because it is going down, i.e. P/E is way to high to support current prices.

He says to rent a house because house prices have a lot further to fall (unless you find a really good deal, etc.). House prices are an exception to the inflationary trend.

I cannot answer as to how he reconciles his advice with mass inflation since all three positions seem deflationist.

Anonymous said...

"I cannot answer as to how he reconciles his advice with mass inflation since all three positions seem deflationist."

The Dollar will continue to weaken as Foreigners dump the dollar and as the gov't goes on a spending spree to prop up the economy.

If the gov't doesn't print, it will be forced to default fairly quickly since revenues have fallen by a third, while its outlays for entitlements is being to soar (ie Boomers filing for early retirement). The fact is that the Fed has started buying US gov't debt (in march) and FSE debt (in January) should clue you in to our future.

1mdt said...

The NY Times piece to me feels like the beginning of the MSM's effort to catch up to reality, albeit only because that is what the average Joe wants. We all remember the extent to which the same group were such a cheerleaders to George W's shenanigans post 9/11. It took quite a while for any semblance of skepticism to return to print media.

Love him or hate him (I voted for him), it is hard to argue that Obama has had a free pass from the press thus far into his term. It is interesting to me that the same week that opinion polls show that a majority disagree with his policies that an article such as this shows up.

There are two ways to look at this, and I'm not sure which is more likely. First, based on the polls it is safe to assume that at this point criticism of the Obama administration sells more papers. This discounts the assumed control that TPTB have over the MSM.

Second, TPTB have decided that the confidence game is up, and that it is time to start lowering "green shoots" expectations.

I want to believe that the first scenario is more likely, which would, as Ilargi states, represent the "dropping of the baton". I would be interested to hear the group's take on this.

I've been a long time lurker here, and this is my first non-anonymous post. I want to thank I&S, along with all the regular posters for what is to me the most informative and useful site on the net. I hope that I can contribute something useful to the discussion.

Erin Winthrope said...

Using Archived Writing to Reveal Dishonesty by MSM Pundits/"experts".

Case Study: Alan Blinder

Alan Blinder is a former Vice-Chair of the Federal Reserve. Currently, he is chairman of the economics department at Princeton.

He's also shockingly dishonest about his former writing.

Over the past few months, I've read several annoying opinion pieces by Alan Blinder in the NYTimes. He also frequently appears as a guest on Charlie Rose, where he acts like a sanctimonious know-it-all and shills for more and more bank bailouts.

So I decided to do some research.

Since mister know-it-all Blinder seems to have all the answers for our current financial crisis, I wanted to know what he was writing while the housing bubble grew?

Answer: What housing bubble?

Alan Blinder from 2005:

"The financial question of the month seems to be: Are we now in a dangerous house price bubble? I have a straightforward answer: no. But I better explain what I mean. Or rather, what I don’t mean. First, I am denying only the existence of a national housing bubble. Local house price bubbles blow up and burst all the time. But unlike stocks, homes are not traded frequently or easily across geographical space. So condo prices in midtown Manhattan are not tightly linked to house prices in Midland, Texas."
Alan Blinder 2005

Alan Blinder 2009:

"The next error came in stages, from 2004 to 2007, as subprime lending grew from a small corner of the mortgage market into a large, dangerous one. Lending standards fell disgracefully, and dubious transactions became common. Why wasn’t this insanity stopped?"
Alan Blinder 2009

My comment: Perhaps the subprime lending wasn't stopped because regulators and the media were listening to advice from Alan Blinder.

Don't you think Mr. Blinder should own up to his role in this disaster, or at least shut-up since he's already done enough damage?

Greyzone said...


If you think Obama has not gotten the kid-glove treatment from a fawning press, I suggest you go back and examine multiple other administrations in their first 100 days in office and compare how the media are stroking Obama's ego versus how the media treated other presidents. Even Clinton did not get this sort of special treatment from the "fourth estate".

Nassim said...

I saw some article on TAE in recent weeks about how some people in the USA are being forced to be selective as to which part of their prescribed medications they can afford to purchase.

Today, I heard from a Russian doctor of the current situation over there.

Ordinary people have largely stopped buying even useful consumer goods - clothes, shoes and so on so as to conserve their cash. This has forced retailers to drop prices dramatically so as to get rid of their stock and repay their lenders. Obviously, restocking will not be necessary for a long while. Bad news for all the people exporting such goods to Russia - especially the Chinese.

On the other hand, the prices of medication have increased dramatically. I venture to guess that importing these things has become more difficult due to the lack of credit and so supply has been constricted. However, people are prepared to sacrifice and pay higher prices so as to get hold of the limited supply. In fact, this cancer specialist said that a lot of elderly people are dying as they cannot afford these medications at their new prices.

Just a tidbit on how differential price inflation/deflation seems to operate under stressful conditions.

Starcade said...

The refusal to recognize the reality you put forth can be summarized in three words:

Truth Equals Riot.

Starcade said...

Scandia from yesterday:

I wouldn't post what I believe if that belief were just "talking out of my ass".

I've seen numerous people on the streets over the last 10 years -- and, even with federal-state SSI and the like, the reduction of welfare benefits in San Francisco to "Care Not Cash" has sparked some low-level violence.

Before my roommate had me move down here, it was literally every night that I would see continuous smashed car window glass on the ground -- punks breaking in so they could sell stuff on the black market on the sidewalks down Market Street in SF to get their next 40.

I know you abhor violence, but consider:

There are 1,000,000 people on some form of public assistance in LA county.

100,000 in Sacramento.

God knows how many in the Bay Area.

I say what I believe is going to happen because I have seen its precursors. Imagine what happens if it's no longer one tweaked-out isolated incident trying to bash down the door at One Market.

As for getting out of California: I would, except it would probably mean the death of my roommate. I won't let that happen. If that death comes, let my roommate embrace it and join her departed solemate forever. But I will not be party to it by walking away. Too many have already for my roommate.

Anonymous said...

Anonymous said: I want to believe that the first scenario is more likely, which would, as Ilargi states, represent the "dropping of the baton". I would be interested to hear the group's take on this....

Being allergic to conspiracy theories -- most particularly the cliche fantasies that flood my inbox daily -- I am satisfied with Ilargi's reality-based interpretation of events. The New York Times long ago surrendered it's legitimacy and authority. Like General Motors, it enjoyed its decades of supremacy (culminating in the Watergate years). Now, its just another oversized, floundering corporate enterprise. For the moment its former role has been dispersed to the internet.
I, for one, am not convinced that this is a permanent arrangement -- since the internet itself is a manifestation of cheap energy, and may yield to a much less complex and more localized disposition of things not many years hence.
The salient part of the current situation is our society's inability to form a coherent consensus about what is happening and what to do about it. I doubt this will be recognized by the New York Times up until the moment it enters bankruptcy.
--Jim Kunstler, Author of "The Long Emergency."

Erin Winthrope said...

kunstler said:

"The salient part of the current situation is our society's inability to form a coherent consensus about what is happening and what to do about it."

I agree 100%

Instead of articulating reality to the public, our media giants, like Tom Friedman, simply leave everyone confused.

One week he delivers some truth:

"Let’s today step out of the normal boundaries of analysis of our economic crisis and ask a radical question: What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother Nature and the market both said: “No more.” We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese ... We can’t do this anymore."

A few weeks later, Tom climbs into his space ship and offers us the following:

"What if a laser-powered fusion energy power plant that would have all the reliability of coal, without the carbon dioxide, all the cleanliness of wind and solar, without having to worry about the sun not shining or the wind not blowing, and all the scale of nuclear, without all the waste, was indeed just 10 years away or less? That would be a holy cow game-changer."

No wonder the public is confused.

Anonymous said...

A wonderful post Ilargi on a glaring omission in MSM's coverage of The Meltdown.

The MSM have been covering up the truth for so long, it's hard to believe they have 'seen the Light' without suspecting an ulterior motive.

Like the old expression, 'I didn't know he drank until I saw him sober."

The MSM having been pimping their usual cast of trollops and strumpets masquerading as reporters for eons, it's now pretty hard to 'come clean' without flashing Zero Credibility in neon lights from their darkened doors.

Newspapers are going broke for several reasons but a major contributor is lack of real reporting. They have completely failed to inform their readers of the Giant Sh*t Storm that has been building for years and is now ready to break on the shores of America the Brave.

I'm not sure if their readership will even believe them if they attempt a major correction, they've done such a great job of propaganda of the most vile sort for decades, spilling they're guts now looks like a desparate attempt at boosting their readership to stave off bankruptcy of their sad, pitiful little print business model.

The under 40 crowd could give a rat's ass about reading newspapers and the over 40 crowd feel ill served by shoddy 'reporting' and are regarded as have one foot in the grave as far as advertisers are concerned.

All the News That's Fit to Print is a grotesque mockery of their product.

Nex ut Liars

Greenpa said...

Ed Gorey- re: George Carlin.

It's worth noticing and remembering that George was not an isolated phenomenon, but rather a completely traditional humorist.

This is a puzzle to me; one that makes me feel that eventually being able to understand it may bring considerable insight into the workings of human cultures and minds.

Humorists and artists have ALWAYS been licensed by society to tell the Truth. It's what makes their work hit us. This has been true as far back in history as we can trace; in all the cultures I'm familiar with. Jongleurs and story tellers often made songs and stories that ridiculed the powers that be; and were often hanged for it eventually. Which never stopped others from picking up where they were cut off.

And the People - LOVE it. We love to hear the truth.

Then we laugh; go home; and continue living and working in the world where everyone pretends to believe in a different reality.

Humans have been doing this- forever. It's not new; not unique to our present catastrophes.

Why do we do this?? Over and over and over.

I really don't know. It's part of the conflict we have with being part of a herd, which often acts very irrationally - and simultaneously being in possession of a brain that is actually capable of rationality.

We love the Truth; we KNOW the Truth- and the mass of men always pretend we don't.

Any insights would be appreciated.

el gallinazo said...

errata re my post yesterday on JFK

I referred in it to Operation North Woods, a false flag operation on the part of the Joint Chiefs to start a war with Cuba which JFK vetoed. I plugged it into Wikipedia this morning. Nothing. So I condensed it to Operation Northwoods and out popped the whole ugly enchilada.

@ Ed Gorey

I can't stand that pompous oaf, Mr. Flatworld, but technically he is correct. If there were a free lunch energy source, it would change everything. I suspect it exists, but Ilargi would ban me to the seventh level of blog hell if I posted on it. I pursue this interest on other sites.

I always laugh when I see an article by Alan Blinder. My mind automatically asks, "Is there anyone blinder than Mr. Blinder?" Reminds me of the urologist, Dr. Passwater.

Anonymous said...

Tom Friedman thinks he's Escargot when in fact he is the common inedible and indigestible slimy garden slug.

I wonder if you could trap him with beer?

jal said...

"... our society's inability to form a coherent consensus ..."

Jared Diamond expressed the same opinion.

Who else has been seeing the same thing?


Anonymous said...

"... our society's inability to form a coherent consensus ..."

How about when the country 'elects', (for two terms) a monkey in a man-suit like Bush Baby who didn't have the skill set to form consecutive coherent sentences?

The last president to lay it all out on the line as to the coming Peak everything was Carter. In what will go down in historical terms as a fatal decision, DuhMerica gave him, and his message of living within your means, The Finger, and went with the juvenile and ultimately suicidal message of Morning in DuhMerica, we don't need no stinking energy conservation, of a senile has-been ex-movie star from LaLaLand.

Nice choice. Born to the Breed. Nothing but Net.

(More like born to the inbred)

el gallinazo said...


My take on your question (for what it's worth)

The human mind has always been able to contain two contradictory realities about the same item or event. Usually referred to as cognitive dissonance. How this works on a physical level is unknown, but most of how the brain actually functions is unknown, especially memory.

Usually one reality is dominant and the other one is sub-dominant. The sub-dominant one is often a better model of reality than the dominant. They will remain this way until a severe crises forces a person to re-evaluate.

I see a certain survival value in this, in that it allows a person to construct an alternative paradigm and keep it in the background, but allows it to spring almost fully formed to the foreground when survival dictates.

It is peer pressure or authoritarian / punishment pressure which keeps the better paradigm suppressed. Jokers and comedians act as a social safety valve for general hostility to parasitic authority. Freud was correct that most humor is a veiled form of hostility, a form that when moderate, is socially acceptable.

jal said...

"... our society's inability to form a coherent consensus ..." - kunstler

Jared Diamond expressed the same opinion.

Who else has been seeing the same thing?


J6p, you.
However, it’s not phrased the same way.
That is why politicians/political parties are viewed in low esteem.
Yet, there is a fear of having a majority party that could “form a coherent consensus” and take society on a sustainable path.”

Anonymous said...

It seems humans embrace the truth in the same way they acknowledge the inevitability of death--nobody would show up for their final appointment if they knew where they were going to die.

And so we skip along, whistle past some graveyards, max out a few credit cards, and flaunt our nose at “reality” because deep down we know the real truth: the final appointment is mandatory.

As Don Henley sings, there're just so many summers and just so many springs.

Freddy el Defibradddor said...

Re the social role of Jester:

I've seen it suggested that it is a kind of safety valve. To laugh at George Carlin feels good, and doesn't threaten The Powers That Be. To actually challenge the established order, on the other hand, to try to change how things are done, can result in various forms of social pressure (ostracism, unemployment, imprisonment, death, death of one's relatives) - so laughing at jokes about Airport Security Theater is one thing, actually pointing out the absurdities - and even refusing to cooperate with them - while in the presence of armed Fatherland Security staff is something else.

el gallinazo said...

Anon 10:12

"As Don Henley sings, there're just so many summers and just so many springs."

or in another context:

You must not be drinkin' enough

Jim R said...

Ed Gorey,

I had seen that Carlin clip before but had to watch it again. It's almost painful to watch.

A is for Alice who fell down the stairs...

Stoneleigh said...


Thanks for posting that. It's a very useful illustration of what I expect to happen in here in the not too distant future. Purchasing power falls, which reduces prices for most things, but not necessarily scarce essentials. They may fall, while simultaneously becoming less affordable, or they may rise, which against a backdrop of collapsing purchasing power means that they are going through the roof in real terms (see the primer Inflation Deflated). I expect this to be the case for oil products within 5 years. Ordinary people are unlikely to be able to afford any oil products at all.

Anonymous said...


Humorists and artists have ALWAYS been licensed by society to tell the Truth.

No generally they are called Trolls and told to fuck off! Take Lenny Bruce, (Me I'll take your wife:)

-Wee Willy Wank-

Jim R said...

Now for an update on my Austin real estate report --

After the "under contract" notice disappeared from my neighbor's house, and a couple weeks' delay, a roofing crew showed up at the house. Shortly after they left the "under contract" reappeared on the sign, so apparently the prospective buyer (or their bank) actually inspected the place. We had baseball-size hail back in March.

Which leaves me with the fact that real estate has fallen probably 30 percent in this neighborhood. And I've been all "deer in the headlights" since recognizing the reality of it all about five years ago. Looks like I'm stuck with ownership of this house. I'll have to abandon it when the dust storms come.

And welcome to TAE, Mr. Kunstler! I read with interest what you wrote about Austin a while back -- every southwestern city should have an air-conditioned convention center big enough to park a jumbo jet, don't you think ;->

Anonymous said...

I've been a lurker on TAE for over a year now, and appreciate the superb efforts that Ilargi and Stoneleigh make here on a daily basis.

One thing that bothers me, though, is this sense that many have that all would be well with the world if only the right people were in charge. Honest people. Publicly spirted people. Ethical people, etc.

Such a world will never come to pass. We are all imperfect and bring our own peculiar set of foibles, prejudices, and talents to the table, which is why it is believed that many heads produce better results than only one. This is what drives the democratic impulse.

Unfortunately, this same impulse leads many to utopian thinking. This is why democracy often manifest's itself as man's futile attempt to impose fairness upon what is an inhernently unfair world.

The founding father's, however, understood that mob democracy was not a vehicle for human happiness, which is why they gave us a Republic instead.

Unfortunately, the American people have labored mightily for over 200 years to "democratize" our republic of limited and divided powers and with each successive generation they have incrementally chipped away at the constitutionally constrained, limited government that was truly our only hope for pepetuating a society that made the pursuit of happiness even possible for millions of people.

To hear some talk, the problems we face today are simply ones caused by political incompetance or inefficiency. In their minds, our government suppossedly is "afflicted" by the "malady" of "gridlock," or so we are told by the frustrated ideologues who can't have everything their way.

What people fail to discern is that this is precisely what the founders wanted to achieve - a systemic separation of powers that would lead to inefficient government that would in turn deliberately frustrate and disrupt the destructive, utopian fantasies of those who think they know better how to structure our lives than we do ourselves. We are foolish in the extreme to want to dismantle these impediments to the unrestrained exercise of political power.

As George Washington bluntly observed over two centuris ago, government is not eloquence, it is FORCE. This is why we need divided government that must strain mightily to pass legislation that affects all of our lives.

Sadly, most of us have forgotten this lesson, which is why we've now found ourselves plunged in the despairing Hell known as the Age of Obama. The search for political "messiahs" will always produce nothing but disappointment and disillusionment.

The salvation of our prosperity and happiness will not be found in the platforms of the Republicrats (i.e. Tweedledum (Dems) & Tweedledummer (GOP), nor in the silky smooth rhetoric generated by the Almighty O-Man and his magical tele-promp-ter. Salvation will only be found when millions of Americans make personal responsibility, initiative, and industriousness their daily watchwords instead of waiting for "solutions" to spew forth from Rome on the Potomac. The nanny-State will not be our savior - it will be our jailor and perhaps ultimately our undertaker.

ccpo said...

The issue of the role the media play is actually an interesting one. During the Bush years, those that might have had any center/left of center leanings were flat scared and the rest were shills. But does Obama carry that menace? As president he certainly wields power, even if limited to what deep pockets are willing to put up with up until the point they are willing to bankroll a different direction being taken.

Will the MSM of either stripe be more willing to flip the bird at Obama, or is the point completely moot?

el gallinazo said...


Would it be a fair compression of your fine rhetoric down to my street level understanding, that the fall of our great country is the greater democratization of its republican form? This would entail enlarging the voting franchise to various riffraff; first the landless, then freed slaves, and in the end the horrors of women voting with all their monthly hormonal problems. But we would now be sitting pretty if the republic had keep its original voting franchise to the seriously monied classes. Hope I got it right. If not, please correct me.

If so, I am surprised you didn’t tag yourself Plato. Socrates was almost from the riffraff class in Athens. Plato was an aristocrat.

VK said...

@ Greenpa

I'll take a shot at your question :)

Why do people not act on the truth? I believe it has a lot to do with the hyperbolic discount function i.e. short termism of the human brain and mate selection.

The first part of the answer is that people's brain are wired to give importance to today, this week, this month etc. Out in the future somewhere e.g. next year, a decade from now is hardly in anyone's mind because the human brain values the present much more then the future.

Second part of the answer is related to mate selection. Suppose a man is aware of the truth, it is very hard for him to reduce his consumption and expenditure without an external shock. As a decrease in consumption leads to a loss of status.

A higher carbon footprint makes women feel 'hot'. High status men have a far wider selection of women and are more likely to give the best care for their offspring in terms of resources. These men are also likely to live longer - notice how much longer US presidents are likely to live as opposed to the national average.

So women respond to men with status, status is derived from consumption in the West/ being unique/ different etc. Thus a man choosing to lower his consumption effectively loses status as the current paradigm is still strong. While he might have gained long term inclusive fitness by preparing for future shocks, he loses short to medium term inclusive fitness which is bad for his genes and sexual prospects.

Combine the two and you have a lethal combination. The human brain is hardwired to give the short term importance add that to the fact that men lose out significantly in the mate potential race by cutting back on their status battles for wealth and power and you have a recipe for inaction?

Until and unless women actively choose men who think more long term and consume less things are unlikely to change.

Imagine if tomorrow all the banksters, girlfriends, wives, mistresses etc decided to shut of their legs to these men and select after eco sensitive nerds. How fast do you think the economic and energy crisis would be solved? ;-)

shargash said...

El Gallinzano,

That's not the way I took Socrates' comment at all. Who gets to vote is a separate question to the form of governemnt. In other words, we could be a republic with 100% suffrage, or we could be a democracy with 20% suffrage.

While I agree with Socrates that we are dismantling the republic, I disagree that we have become more democratized. Where we are headed is eerily like classic Italian Fascism. The checks & balances of governemnt are undone to give the leader more unity of action. At the same time the sheeple are led to vote for a tightly constrained set of choices by a combination of misinformation, propaganda, fear, and the distraction of bread & circuses.

pentro said...

el gallinazo at 2:14
Your idea of democratization seems tied to including formerly excluded groups from participation. I don't think Socrates is arguing against this at all. Who would argue against this? What he is talking about is Democracy in its purest state being a form of mob rule. For example, a place where every important issue is decided by referendum vote, and politicians pander to the electorate's every whim so they can keep their jobs. A place where thieves and fascists can easily take control.

Ilargi said...


Brilliant! Men may act stupid, but they do so only because women have their preferences all screwed up. So the guilty party behind the whole mess is.......

Thanks a lot buddy. Nice going. I was thinking of a quiet Sunday afternoon, but that's off the menu and has been replaced with Coquilles à la Gender War.

Being male, I have to agree with your conclusion of course, but some things are better left unsaid. Come to think of it, it's about as close you can get to the "never deny beating your wife" principle.

Which, for those who didn’t immediately get the reference, comes from the no. 1 archetypical entrapment question: 'When did you stop beating your wife?'

We may still get away with some of it if I point out that it was a woman, Bloomberg's Caroline Baum, who brought it up:

"The Fed chief was asked repeatedly whether he threatened to fire Ken Lewis and his board; whether he instructed former Treasury Secretary Henry Paulson to convey that threat; whether he promised a specific amount of government money if the deal were consummated; and whether he had knowingly withheld information on the merger from other regulatory agencies.

And he repeatedly answered in the negative. In so doing, he violated what my colleague calls the First Rule of PR: Never deny beating your wife. Never say, “I’m not a crook.” When you do, you lose. Bernanke lost on defense."

VK said...

Greetings Ilargi,

Many thanks for your comments :)

On the question, of "Do you still beat your wife?"

If you answer, YES - that's BAD.

If you answer, NO - that implies you used to beat your wife.

A loaded question. It can only be answered by ignoring the question or refuting the entire premise by saying, "I never started"

That brings us to a tough, tough spot as saying, "So the guilty party behind the whole mess is......."

This is a loaded statement indeed!!
As then either women are to blame and if this is denied then it's men who are to blame.

Since this is unfeasible to both sides then the entire premise must be refuted which is based on evolutionary biology and decades of scientific research - Which now must be abandoned as the premise has been refuted(phew!)

And you can't have a scenario where both share blame equally as the premise suggests that it's either men OR women.

(See I'm already spinning in circles and going bonkers?!)

As a bloke, the initial conclusion points to members of the fairer sex but I shall take the diplomatic route and state that this is oversimplifying a great deal.

At a deeper level the correct answer is probably related to our genes. A genes basic function is to replicate itself endlessly.

It's purpose is to 'BE'. To simply exist within armour of various constructs and to seek the best possible means to ensure replication.

This then poses an even deeper question. One that we have struggled with for a long time as a species.

Does free will exist? Are we simply tools to be used for replication or is there something deeper about human existence?

ric said...

Greenpa--We love the Truth; we KNOW the Truth- and the mass of men always pretend we don't.

I’ll bite. There are levels of truth, such as the truth of the thing-as-it-is (It), the truth of It as “perceived” without a neuro-system such by plants, with neurosystems such as by animals, and with self-reflective neurosystems such as by humans. The thing-as-it-is (It) is the real, but is not seen-as-it-is through human neural perceptions. What we see and perceive as true are multiple levels of neuro-illusions responding to the real which allow us to function. So which Truth do we respond to? Generally, as VK suggests, we respond to what gives us a social edge. The philosophical enter dangerous waters the practical are smart enough to ignore. All our neural perceptions and self-reflective experience protect us from what might be called the horror of the thing-in-itself—It, the real. Here’s an account of such an encounter from one of my favorite writers, Roberts in The Experience of No-Self:

But if the constant sight of emptiness was tedious and difficult to live with, it was as nothing compared to what I came upon one morning as I walked along the beach. Suddenly I was aware that all life around me had come to a complete standstill. Everywhere I looked, instead of life, I saw a hideous nothingness invading and strangling the life out of every object and vista in sight. It was a world being choked to death by an insidious void whereby every remaining movement was but the final throe of death. The sudden withdrawal of life, left in its wake a scene of death, dying and decay so monstrous and terrible to look upon, I thought to myself: no man can see this and live! My body froze to the spot. (p. 46-47)

What we experience with our self-reflective neurons of the biosphere is an illusion compared to the real that is It, the biosphere-in-itself. Too much truth and we die.

Anonymous said...

VK if you want serial one night stands talk in a deep gruff voice if you want a long term relationship try falsetto. (scientifically shown)

About this

The first part of the answer is that people's brain are wired to give importance to today, this week, this month etc. Out in the future somewhere e.g. next year, a decade from now is hardly in anyone's mind because the human brain values the present much more then the future.

If only we did that close to the present moment, but we don't, most of our thinking involves long term plans or wishes, rarely do we come within a day of living 'now'.

Do something intensely, like art, science, sex (without reading a book at the time of course), LSD or, and naturally, reading ilargi:) and you might see that most of our thinking is longer term.

Damn those frontal lobes anyway! Will somebody pass me a beer? I wish the weary worries of the world to melt away that I might stare as long as sheep or cows.

-wee willie wank-

Anonymous said...

Ric said:

Too much truth and we die.

June 28, 2009 2:41 PM

Right on dude!

But for right now can anyone tell me the best way I can game Cap and Trade? I am just a little crook trying to make my way in this weary world.

-wee willie wank-

VK said...

@ Wee

If only we did that close to the present moment, but we don't, most of our thinking involves long term plans or wishes, rarely do we come within a day of living 'now'.

- That's what they write in a lot of spiritual books and most of it is without any sort of 'scientific evidence'

If we truly did long term thinking then;

Why did we let a credit bubble develop for 27 years?

Why were the lessons of the Great Depression as well as the Japanese credit crunch lost?

Why has virtually nothing been done to actually physically reduce the amount of CO2 in the atmosphere? We have a lot of talk - little action.

Why has virtually nothing been done to reduce the impacts of peak oil, a problem we have known about since the 1950's atleast?

What about population overshoot and overconsumption, known since atleast the 70's?

It all comes down to hyperbolic discount functions which have been proven to exist in the human brain - valuing now and mate selection theory on which extensive research has been done.

Anonymous said...

Why did we let a credit bubble develop for 27 years?

We didn't let it, we encouraged it. It was our future security,(or future gains paid now), those increasing house prices. Maybe my experiences seem to you like something out of spiritual books but I am afraid yours sound a bit like something out of N. H's playbook.

-wee willie wank-

gotta go someone is here to buy my dying van, damn this here and now business world we have made

VK said...

@ wee

"We didn't let it, we encouraged it. It was our future security,(or future gains paid now), those increasing house prices."

Precisely. This is an effect of the hyperbolic discount function - short termism is embedded in our brains. Bubbles and manias have existed throughout human history and the idea that home prices could rise forever was an oxymoron to begin with. Yet this sort of behaviour was encouraged. Infact it has become an indicator of social status to have the biggest possible house, the biggest possible car, the biggest degree - all indicating fitness. The novelty experience has fuelled the credit bubble.

Yet humans have known that credit bubbles always burst since atleast the 1500's and what goes up must come down.

I asked you more questions and if you care to elaborate on how NOT preparing for peak oil and climate change has increased future security? As it is also something we have actively encouraged, as after all you have linked our inability to prevent a credit bubble with our desire for long term future security...

ps - I have no idea what N.H.'s playbooks are, could you elaborate?

Anonymous said...


By hyperbolic discount function do you mean: a bird in the hand is worth two in the bush?

I guess before jumping up and down on your frame ( in good humour of course) it would be polite to find out more exactly what you mean. To get NH out of the way he is a certain person who tends, I feel to use mystification in order to confuse his audience. On can also do the same with innumerable questions that really have essentially the same answer.

About global warming ( I prefer the word chaos) I realized this was a fact back in the eighties sitting on an embankment watching the traffic go by and thinking that at that moment this was happening all over the world. That wee 'now' moment has enabled me to be very well prepared for our current situation, I often think that I might have become a Master of the Universe if I could have had a few more such moments (just kidding ... maybe:)

-wee willie wank-

BTW the person who took my junker van, which to fix up would have cost me a fortune, was a young man with his own tow truck and a mechanic. We both had a very delightful now moment:)

bluebird said...

Stoneleigh says: "within 5 years. Ordinary people are unlikely to be able to afford any oil products at all."

From Wikipedia: "In the United States in 2007 about 70% of petroleum was used for transportation (e.g. gasoline, diesel, jet fuel), 24% by industry (e.g. production of plastics), 5% for residential and commercial uses, and 2% for electricity production. Outside of the US, a higher proportion of petroleum tends to be used for electricity."

No more cheap plastic stuff from China? This could be a good thing, but most people won't think so.

el gallinazo said...

SHargash and Pentro

( I am pursuing this because I have seen the ultra-Libertarian argument of "democratization has ruined our Republic" before and I believe that I am aware of its hidden messages. Our Republic is lying in ruins, but it is no more due to democratization than financially illiterate poor people caused the financial meltdown. The people who caused it are quite literate. They are just scumbags, as Matt Taibbi points out in more detail.)

Our explicit form of national government (The Republic) has only changed by the addition of the amendments to the Constitution after the first ten (original Bill of Rights). We have never had a national referendum on anything, so that argument is completely specious.

Let's see, amendments that would affect "democratization" of our republic:

13: Abolition of Slavery
14: Right of all citizens except felons to vote (Women weren't citizens)
15: Right of former slaves to vote
17: Senator's elected by popular vote in state, not by state legislature
19: Women's suffrage
22: Presidential term restricted to two
23: DC getting presidential elector(s)
24: Poll tax barred
26: Right to vote at age of 18

So these are the amendments which have changed the form of our original republic toward "democratization" over the last 220 odd years. Which ones do you feel are the most destructive? I think 19 and 24.

Them womens can take all our money for reproductive access and vote too. A near monopoly of power.

I also think that the 14th and 15th should be repealed and debt slavery included in the definition of slavery. This would disenfranchise at least 90% of current voters, put the Constitution more in line with current economic realities, and be a great step in reversing this invidious democratization of our republic.

VK said...

@ wee

"To get NH out of the way he is a certain person who tends, I feel to use mystification in order to confuse his audience."


If there is obfuscation on my part, please do tell me where exactly. I strive to be as clear as I can. I use my comments on TAE to try and explain the world to my friends and family so input is welcome.

By hyperbolic discount function I mean this essentially - The human species values the present and immediate more then the future.

"selection reinforced our responses to immediate and clearly understood rewards or dangers. In fact, the further away in time the reward or danger was, the lower our response to it became, because its influence on our survival was correspondingly less" Paul Chefurka (who has his own site on peak oil etc)

I agree when you write this on an INDIVIDUAL level, "If only we did that close to the present moment, but we don't, most of our thinking involves long term plans or wishes, rarely do we come within a day of living 'now'."

It essentially does describe how I personally view the world in my 'thoughts' of long term plans and wishes. Yet in terms of personal preparation for the future I have hardly done anything?!

So collectively, the human species has somehow wound up with a brain that is essentially unable to live in the present AND unable to prepare for the future given the data and facts. So while I do think of the long term implications of peak oil, climate change, economic disaster etc I find myself lacking any urgency.

And this is what I am trying to put across about the human species - a lack of urgency about the future when presented with ideas, facts and reasoning that is divergent from the current paradigm of bling bling and this can be associated with mate selection. As humans who move outside of the mainstream paradigm are marginalized and ostracized, labelled as doomers and pessimists. This is an effort by society to label those different as having lesser status, hence reduced access to mates.

This creates a fear of exclusion (my granddad, friends, family label me as a pessimist/ downer to put down my arguments on the economy without presenting any evidence on economic recovery!) which only adds to the lack of urgency that is hardwired in our brain, as our brain is designed to respond to threats and dangers in the present moment. (The fight or flight mechanism)

The problem with this is obvious, lack of urgency as the problem is in the future + fear of exclusion leading to lower social standing = an inablity to solve such complex problems in time as our ability to solve them declines sharply with each passing day.

I hope I was clear and I'm glad you managed to find a new home for your old truck with a 'now' moment :)

Anonymous said...


Thanks for the extensive! I will see you further on the site but right now I have to get some rutabagas seeded as they take a bit of timing and the moment,I hope, is now and my wife says "you betcha":)

-wee willie wank-

Anonymous said...


In response to El G on the recent wave of criticism, my reaction is to invoke Occam's razor.

It strikes me as inevitable that the material and analysis presented here will elicit the reactions we have been seeing, both isolated and in waves. It comes and goes. I would not go so far as to imagine that the site has been "infiltrated". Why would anyone bother?

It is aggravating that people come here with little grasp of the issues and start propounding their confused view of the world. Just look at the debate on inflation. Even that Gary North fellow is simply not making the necessary effort to clearly and precisely state his case when he affirms (in his question number two) that Von Mises spoke of price inflation. I personally would feel no compunction to reply to such a poorly phrased question.

The whole point of the primers was to avoid having to explain time and again the basic issues. But the site attracts new people (a good thing) who are unaware of past debates and simply jump in. That is the way blogs operate.

The one thing that would help is to request that people making comments adopt an alias and stick to it. As far as I am aware, that does not endanger their privacy and greatly facilitates the reading of the comments. Dealing with over 20 different Anons on a given day is simply not conducive to sensible discussion.

In short, I think we are experiencing growing pains and the current Blogger system is perhaps a bit limited for our needs.


Anonymous said...



Non, désolé, ce n'est pas moi. Le blog a l'air très sympa.

Les lettres FB sont tout simplement mes initiales. Avec mon profile et un bottin, je pense être très facile à trouver. Sans parler d'El G qui centralise les adresses.

Il me semble que vous êtes en Bretagne ? Je risque d'y être fin août.


APC said...


La Bretagne, oui. Specifically, Morbihan, near Vannes. Most precisely, Malestroit. If you're in our neck of the woods, please let me know ahead of time, we could meet up for a beer.

Anonymous said...

Ilargi and Stoneleigh,

I hope either or both of you will articulate your views on the Cap N Trade legislation. My sense is that it much sound and fury signifying nothing, although I hope I'm wrong on that score.

Will industrialists really get behind the notion of meaningfully powering down? I doubt it. TIA.

D. Benton Smith said...

@ El Gallinazo
" If there were a free lunch energy source, it would change everything. I suspect it exists, but Ilargi would ban me to the seventh level of blog hell if I posted on it."

Hey there, patient and watchful bird person.

There is, for all intents and purposes, just such a source, in fact several such sources, hidden in plain sight. They are gasoline, diesel oil, coal oil, ethanol, and the like.

The problem has never been the 'source' of energy because the above sources would be virtually unlimited if we did not waste 85 to 90 % of their intrinsic caloric content when converting them into mechanical or/or electrical energy for our convenient use.

Most of the world's liquid fuel is pissed away by 10-15% efficient automobiles, when 75% fuel efficient internal combustion driven vehicles are well within the capability of present day technology if engineering were not stymied by the inescapable fact that the world is driven by greed, money & power, rather than science, logic and survival.

Give me access to a billion dollars of development money and I will give you a 200 mpg automobile that will blow the doors off of the hottest 'muscle car' detroit ever sent down the assembly line.

In partial proof, notice how disagreement with my wildly provocative claim will be based on pop psychology rather than the Laws of Thermodynamics.

Discussion of the tech aspects does indeed belong in another venue. Feel free to drop me a line.

Anonymous said...

Just as a mom with acute interest in these things -- not so that I can debate but so I can prepare for my family --- here is my question.

If you all believe these things, why do you still live here? Why haven't you moved? (Follow up, and WHERE would you move to?) I'm being serious.

As for myself I've bought land in the country far away from any major city, guns, and seeds, but I don't know what else to do.

Anonymous said...


Another Bernadette Roberts 'fan'. She blew my mind over 25 years ago. However, her bleak vision that you quoted is just one possibility that can be experienced. In her case I think it was the death experience of the self-reflective mind.

wee willy

The issue of humans just having too short a time frame is confused by many. Few recognize that they spend a great deal of their time in the future as opposed to just responding to moment as it is.

But they are not modeling all the factors that would lead to acting differently than they do. That kind of systems modeling is inherently impossible, excepting when we let the unconscious mind do it. The only time the mind can pursue that is when it isn't engaged in thinking about the past or future. Engagement with the particulars of the immediate present allows for the more accurate information to arise as a kind of revelation.

I'm a bit tired of blaming people for being people. Not enough short-sightedness is the new battle-cry. heh heh


Bigelow said...

Regarding same questions over and over:
Perhaps the sign at top right, home page, that says "TAE Primers, Must Reads & More"
can be enlarged, painted neon colours and made to strobe to attract more attention?

Gravity said...

Transubstantiflation occurs if peak credit does not equal peak alcohol.

Ilargi said...

Anon Mom 6:44

Are you talking to anyone in particular?

el gallinazo said...

@Anon mom 6:44

"If you all believe these things, why do you still live here? Why haven't you moved? "

You mean on Earth? Because I can't find a reliable ticket to another destination that doesn't involve a coffin.

On a more serious note (maybe), everybody's situation is different.

Some are young and some are old
Some have many liquid assets, some are broke
Some are in debt, some not
Some have houses, some not
Some are employed, some not
Some have family responsibilities and extended families, some not
Some are strong in self-sufficiency skills, some not
Some only feel comfortable in a North American culture, some not
Some are healthy, some are disabled

And I could go on. Each line makes a big difference in each person's decisions. This blog is good in getting input from others about each person's best course. There are no safe choices, but some are safer than others, and some are a lot dumber than others.

It would help for you to assign yourself a consistent pseudonym so we didn't have to reinvent the wheel every time you post.

Ilargi said...

The worst thing that could happen to our species is an unlimited energy source. 2nd Law.

Ilargi said...

Cap and Trade systems are schemes to make money off your wallets. They are designed as feel-good policies so you won't notice the fat fingers in your pockets. CEO's of corporations are by law obliged to maximize profits for their shareholders. Hence, the only way they possible can participate in these schemes is if they make more money participating than not.

Gravity said...

That is presumably because waste-heat
cannot be dispersed without creating more waste-heat. Also, just waste.

An unlimited energy source would then result in unlimited waste.

Anonymous said...

El Gallinazo @ 5:24

It's true that over the past 200 years the explicit definition of our government, the Constitution, has changed to include formerly excluded groups. That is as it should be. The democratization that the original poster referred to is much broader in scope though, because s/he is talking about government, and not just the constitution. Government is not the constitution, and the constitution is not the government. The government has taken on many roles and responsibilities that arguably were not part of the original constitutional mandate. Things like being the muscle for an overseas corporate empire, owning over half of wall street and a couple car companies, protector of children, as well as acting as pension and health fund, to name just a few. I'm not saying these things are good or bad, just that they were not part of the original vision. Along with this 'mission creep' there is the strong message that government can, should and will solve the problems we face.

I think that when you have a government that promises all things to all people, and creates bureaucracy and the fiat currency to do it, it can only end in disaster.

pentro said...

Oops, anon @ 7:30 is from me, Pentro

Anonymous said...


I think the great danger in an unlimited energy source is the ability to ransack even more resources and despoil the rest of the biosphere.


el gallinazo said...


I guess our primary disagreement would be semantic - assigning the term democratization to this process. I see little democratic about the American Empire. Admittedly it was Socrates who first introduced this term.


Just went through the registrar - I don't have your email. Send me a brief message.


I am sure you are right at our current state of spiritual evolution. If we had a perfect source of unlimited, non-polluting energy, we would probably use it to push Mount Everest into Bhutan simply because we could.

I don't think increased entropy would be a serious danger unless we changed the molecular make-up of the atmosphere as we are doing now with fossil fuels, but the whole things is moot.

John Hemingway said...


I agree with you, we have to cut down on the production of plastic, that is, if we have any hopes of ever saving this planet.

Great post Ilargi:-)

Anon Mom said...

Yes, I was being serious about moving (and yes, it was on planet earth).

I was just thinking that --I don't know---Greenland probably won't burn like LA will when welfare ends.

I was asking out loud because I thought this might be the place that knows about a real seccession movement.

I wasn't asking WHY we're not talking about it (snark reply above: some are young, some are old, etc.), I was asking what the authors and insightful comment contributors of this blog are really doing about it.

Look, I'm already convinced. I don't need more data.

If someone could link me up or have the "what now" discussion....that was what I was trying to articulate.

I apologize for my ambiguity.

Leona said...

In regards to the NYT article point about how those who've lost jobs will not return to the same level of employment...

I was a kid in the 80's and lived in a US mining industry town that went bankrupt. My dad lost his job, never recovered, and died young.

I've seen/lived through economic collapse that most in my generation (X) have never seen. Going from a vain upper middle class teenager to hungry dumpster diver in a couple years. Each day I walked to school and saw more houses boarded up, home values dropped 90%, people left town forever with their possessions on their cars. Including my family.

Until recently I never had a straight time job, but started and later sold two corporations. I saw first hand what depending on a job could do to you-- bankrupt and kill you. I was driven to independently support myself.

And VK- in terms of marrying. I chose a gruff voiced, poor guy who could farm. Something about his ability to milk a cow and grow food appealed to my inner apocolypt.

I wonder how many of us who can see a future outside of the trajectory to consumer nirvana have had some kind of childhood experience that shook up our belief in "things will only get better"? My life taught me that things can get bad-- really fast.

el gallinazo said...

Max Keiser on potential new bubbles to replace the popped derivative bubble (I am mad with envy):

My runner up idea to get America 2.0 going is legalization of online gambling. Nothing takes the sting out of falling wages, lost jobs, broke Medicare and Medicaid, busted social security and watching states go bust like 72 hours of bleary eyed blackjack and Johnny Black in front of a computer screen sitting in your underwear. The government could hire a new economic team headed up by Nobel prize winning behavioural economists brought in from the casino industry who will adjust the nation’s win-ratio for online slot machines based on algorithms tied to Prozac sales.

Anonymous said...


So collectively, the human species has somehow wound up with a brain that is essentially unable to live in the present AND unable to prepare for the future given the data and facts.

That is the great thing about Darwin inventing evolution, he couldn't patent it back then so now it is part of the commons and we are still free to improvise. Trudeau would say, "the universe is unfolding as it should". So keep your powder dry and an eye out for those big black obelisks,I said that ... and Bob Dylan said "I said that" way back, when the world was young:)


The one thing that would help is to request that people making comments adopt an alias and stick to it. As far as I am aware, that does not endanger their privacy and greatly facilitates the reading of the comments.

I will meet you half way. I think for a day or for a 'conversation' an alias should be assumed and maintained but other than that I find it too restrictive, sort of like snake that sheds it's skin ( I think some will like the snake analogy) If my ideas change I don't want to feel too tied by what went before, maybe start taking myself seriously found a religion ... and I know how that one ends:)

Blogger D. Benton Smith

@ El Gallinazo
" If there were a free lunch energy source, it would change everything. I suspect it exists, but Ilargi would ban me to the seventh level of blog hell if I posted on it."

My two cent ... If there were a free lunch, like cold fusion maybe,that would be the road to that seventh level of hell. If you said instead that we should live by the sweat of our brow, wouldn't that pull us up short as far as planet wrecking? But we are a clever species, I am sure we could find another way to do that. So why not bring on that free lunch. Let us eat drink and be merry, for on the morrow, they die:)

-wee willy wank-

PS when an HTML canont be accepted put the not alowed bit into word search and it goes right to the mistake' (Good Blog Keeping June issue)

Tripwire said...

Anon Mom,

It sounds as though you have already made your move (land in the country, guns, seeds)?

The TAE readership is widely dispersed and there are many geographic locations represented here, so I'm sure you can get advice on specific locales from actual inhabitants. However, there are many factors that go into choosing a location that will provide a satisfying life experience for the long term.

As for more extreme examples, such as moving to Greenland, most countries are very restrictive regarding immigration, and one either needs a specialized skill that is in demand in that country or a boatload of cash to get you in.

If you are curious about what some of these other places are like to live, it is still possible to get a rather cheap plane ticket and go there for a couple of weeks to poke around. Expat communities are good places to get the local inside info.

I have lived in Asia and in Europe, have been to many places but currently make my home not far from where I grew up in the NE United States. It took me a long time to settle down, so it's not an easy process for some people.

There is no perfect place for all people, but there will be a perfect place for you. But sometimes it's not easy to find, or immediately apparent if you do. But you might want to keep looking if you're not happy where you are -- being "safe" but unhappy is not the optimum way to live, and no place is 100% safe anyway.

Hope that helps.

Anon Mom said...


Thanks for the reply. I worry about being so far out because of transportation and amenities... My ideal community would be a small walkable city without a ghetto. Homesites would be urban but yet an acre in size to allow for chickens and a milk cow. Something akin to a "village" but there is nothing in the US that comes to mind.

Anon Mom said...

p.s. My throwing this around is not just for kicks. I have the means to live wherever I want (due to working like crazy early in life).

Anonymous said...

El G:

I already thought online gambling was already legalized..... Ameritrade or whatever it was called.


ric said...

Hi Vicki ((((!!!))))
Bernadette's been a friend for many years. She has no "experience" at all--and I don't mean that in any sort of clever way. Though she has senses, she has no feeling or internal experience that we associate with being alive. In the passage I quoted, she's in the process of acclimating to the permanent end of all self-reflected experience. Much, much more could be said, of course.

Glad to meet you!

jal said...

@ anon MOM
There are a lot of communities as per your wants.

However, would they want you. Small communities are like that.
Take a holiday, stay a while, make friends, get the pulse.
Maybe you will find a fit.

Anonymous said...

As for the new reality of the New York Times try watching "3 days of the Condor". I believe the closing scene tries to enlighten us.

Anonymous said...


Since this discussion of BR is off-topic here and I would like to continue please send me an e-thing at vickykomie at windstream you know what net.

I'm really not anon now.


Anonymous said...

And I thought the ultimate entrapment question was, "Does this dress make me look fat?"

D. Benton Smith said...

@ El Gallinazo

Hi El G,

You can write directly to me as dbentonsmith over at gmail.

I have two white papers, one for engineers and one for us ordinary mortals. The coolest things you'll notice in them is that the inventor (Jantzen) isn't being coy. He just straight out tells all.

It took me a few months (and a lot of remedial physics cramming) to really wrap my wits around it, but when the lights come on it was a real OMG moment. Why didn't someone figure out something this basic a long time ago?

That's a rhetorical question, by the way. I know why, and it's just too damned depressing... because it is the SAME set of reasons that the world's financial systems are collapsing into chaos.

People decide first, for irrational reasons, and reason second, to rationalize the decision.

All that talk about miracle technological solutions to the energy crisis is just that. Talk.

Too bad that the guys interested in solutions aren't the ones doing the talking. It's like the old saying goes, "Money Talks."

The moral of that story is that when money talks, hide your money.

If there is enough industrialized civilization left to do it they'll build Jantzen's isothermal engine 20 or 30 years from now and call him a genius. How it got ignored when it was needed most will make yet another great side bar in the text books... assuming that there are any.