Monday, July 27, 2009

July 27 2009: Irrelevance and context

William Henry Jackson Sharks and wagers 1889
Bathing pool in the Casino of the Hotel Alcazar, St. Augustine, Florida

Ilargi: Well, something must be going on when both the Wall Street Journal and Business Week start seriously questioning the very numbers on new home sales that earlier in the day had the entire American press (including, incidentally, the same Wall Street Journal) and investor community in a exuberant party mood. At the very least it makes one wonder what will happen to the next set of data the happy-talking heads try to cheerlead into a recovery, a recession's end and the salvation of their favorite country and/or planet.

While there is no doubt that the present questions in part originate with similar queries voiced by many parties in the digital community, the sad fact remains that to date a few lines in the Journal, no matter how little or late, carry more weight than a hundred or more stories pointing out the exact same distortion of what are a mere few pretty simple periodically released numbers.

What has been happening in the case of the public manipulation of home sales data is no different from the way jobless numbers are dealt with, or unemployment claims, or just about any statistical data you can think of. They are all bent in such a fashion that a picture emerges that is anywhere from less bad to much sunnier than objective analysis would warrant. Realtors do it with housing numbers, the government with unemployment figures, and the press, until now, has been only too glad to play along.

I'm sure no-one's volunteering yet to hold their breath on this one, but it would be a great service to everyone, except for those interested in distorted stats for reasons of money or power, if the Wall Street Journal has set a precedence today that many of its peers will follow, if only because they fear being exposed for reporting "false" information. Meanwhile, whatever the Journal decides, and I think for example there's another jobless claims report due on Thursday, the pressure on the media to quit feeding their readers and viewers irrelevant "news" in order to make them think things are better than they truly are, is kept increasingly alive by an increasing flow of analysis available online that will one day, unless they change their tune, make the mainstream media themselves irrelevant.

Perhaps that's what's behind the Journal's decision today. Not, mind you, that it matters all that much anymore. Plenty people by now understand that while new home sales may have gone up by an X percentage in one particular month, with an X+1 error margin to boot, what really counts in the change over the same period last year. And if that turns out to indicate a 23.1% loss, the same plenty people can figure out what the real picture is. Home sales and jobs, like so many things in life, are seasonal.

And I know that I tip one toe over the line by accusing the media of providing "false" information in these cases. Don't worry, my toe didn't slip, it's right where I want it..

Information can be classified as "false" when it is intentionally provided outside of, or without, its proper context, if and when that context can or must be presumed to be known by whoever provides said information. Which in turn allows me to perfectly gracefully close with a quote from Mark Hanson which Barry Ritholtz posted earlier at The Big Picture. Right there's all the context you’ll ever need. Here's hoping the Wall Street Journal, and all the rest of the media, get the message it sends before it makes them look ridiculous and be irrelevant.

And I didn't even yet get around to talking about the estimated $240 trillion in derivatives exposure for the Big 5 US banks that Fitch suggests.

Here's that context:

National new home sales, on a monthly basis, don’t even add up to half of the total foreclosure activity in California alone in a single month.

US Home Sales Numbers Fail Inspection
Many investors celebrated Monday after June's "surge" in U.S. new-home sales. Alas, it was largely wishful thinking. True, the Census Bureau reported sales up 11% from May. That's a big number, at first glance justifying Monday's 4.5% leap in the Dow Jones U.S. Home Construction Index. But it fails a close inspection.

First, home sales quite often jump in June, the height of the spring selling season. When trying to gauge the strength of home sales, then, it makes more sense to compare them to the same month a year ago. That comparison is less kind -- sales were down 21.3% from June of 2008. Seasonally unadjusted data show a total of 36,000 new homes were sold last month, the lowest June total since 1982, notes Richard Moody, chief economist at Forward Capital.

And the Census Bureau warns against assuming too much precision in these numbers, which are based on a sample survey. Accounting for a 13.2% margin of error -- at a 90% confidence level, suggesting the actual error could be higher -- new-home sales enjoyed somewhere between a 24.2% gain or a 2.2% decline from May. New-home inventories are falling, an encouraging development. But inventories are still higher than their historical norm, and there remains an avalanche of distressed sales.

Little wonder, then, that June's "surging" sales were driven by heavy discounting. The median new-home price -- not seasonally adjusted -- fell 12% in June from a year ago to $206,200, the lowest June sales price since 2003. And it was down 5.8% month on month. To paraphrase Pyrrhus, if sales keep soaring like this, then homebuilders will be utterly undone.

New Home Sales Fall 21.3%
Get ready for another round of bad reporting:

The $8,000 Fed tax credit (1st time buyers) and a $10,000 California tax credit (new homes only) likely helped out in NHS this month. Falling prices are also contributing to sales activity of the sector, which represents about 15% of the overall housing market.

Here is the official New Home Sales:

Sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent (±13.2%)* above the revised May rate of 346,000, but is 21.3 percent (±11.4%) below the June 2008 estimate of 488,000.

Thus, we in fact know that Sales fell from last year. They were down 21.3%, a number greater than the margin of error.

The monthly data, on the other hand, is not statistically significant. Therefore we DO NOT KNOW what the change was from last month, as the margin of error is greater than the reported data point.

The usual suspects got it wrong, as they do every month.

If New Home Sales are so strong, then can anyone explain why prices are still plummeting? Median home prices dropped 12% year-over-year, and 5.8% from the prior month.



Chart via Calculated Risk

Five Firms Hold 80% of Derivatives Risk, Fitch Report Finds
First-quarter financials mark the first time comprehensive derivatives disclosure was mandated for all U.S. companies.

Members of Congress probing threats to the global financial system — especially the threat of concentration of risk — will have a lot to ponder in newly mandated disclosures highlighted by a Fitch Ratings report issued last week. While derivatives use among U.S. companies is widespread, an "overwhelming majority of the exposure is concentrated among financial institutions," according to the rating agency's review of first-quarter financials.

Concentrated, in fact, among a mere handful of financial-services giants. About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies' exposure to credit derivatives. About 52% of the companies reviewed disclosed there were credit-risk-related contingent features in their derivative positions. Such features require a company to post collateral or settle outstanding derivative liabilities if there's a downgrade of the company's credit rating.

The Fitch analysts also found that just 22 companies disclosed the use of equity derivatives. Just six nonfinancial firms — IBM, General Motors, Verizon, Comcast, Textron, and PG&E — reported exposure to share-based derivatives. For the report, the rating agency reviewed first-quarter 2009 filings of the companies, which come from a range of industries and represent almost $6.4 trillion in aggregate outstanding debt. The companies also recorded a total notional amount of derivative positions of more than $296 trillion.

Unlike the financial firms, which both use derivatives and issue them for profit, nonfinancial companies seem mostly to use derivatives just to hedge specific risks, according to Fitch. While "derivatives trading by utilities and energy companies appear to be very limited," for instance, "most of the companies reviewed in both industries report the use of derivatives for hedging commodity risks," the report found. The first-quarter 2009 financial reports marked the first time comprehensive derivatives disclosure was mandated for all U.S. companies.

"The need for better disclosure on derivatives has been obvious since the implementation of Statement of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities," according to the Fitch report. But comprehensive disclosure of derivatives wasn't part of U.S. generally accepted accounting principles for most companies until March, when the Financial Accounting Standards Board implemented SFAS 161, Disclosures about Derivative Instruments and Hedging Activities.

The latter standard is an attempt to simplify hedge accounting, perhaps the most notorious example of the complexity of U.S. financial reporting. More than 800 pages of rulemaking and guidance were needed to make sense of SFAS 133. For its part, SFAS requires companies to improve their disclosures about how they account for and use derivatives, and how derivatives affect their balance sheets, income statements, and cash-flow statement. "The new derivative disclosures are a welcome addition for analysts and investors, and they bring much-needed transparency to financial reporting," says Olu Sonola, a Fitch Ratings director. "The disclosures reveal plenty, but careful analysis and additional scrutiny must be applied."

In particular, users of financial statements need added information about the sensitivity of companies' derivative valuations to major assumptions, according to the ratings agency. Since risk analysts often base their derivative valuations on quantitative models, changes in significant valuation assumptions are particularly important, says Fitch. The firm's analysts reported that perhaps "the most surprising information coming from our review of energy companies" was that Exxon Mobil — the biggest U.S. energy company — had no derivative exposure at the end of the first quarter. Instead, the company appears to rely on what's called natural hedges — countervailing trends within the corporation itself — to manage potential risks.

The report cited Exxon's 2008 10-K: "The corporation's size, strong capital structure, geographic diversity and the complementary nature of the upstream, downstream and chemical businesses reduce the corporation's enterprise-wide risk from changes in interest rates, currency rates and commodity prices. As a result, the corporation makes limited use of derivative instruments to mitigate the impact of such changes. The corporation does not engage in speculative derivative activities or derivative trading activities nor does it use derivatives with leveraged features."

Lost Value of Equities in U.S. State and Local Government Pension Plans: Now $1 Trillion
In the U.S., the pension plans of state and local governments have a large portion of their assets in equities. Due to this high exposure to equities, the plans suffered severe losses as the markets fell hard until March this year.

The average asset allocation of the typical U.S. Define Benefit (DB) plan has 60% in equities, 30% in fixed income and 10% in other assets.

“Public pension plans of U.S. State and local authorities also suffered severe losses due to high equity exposure and substantial leverage. The financial crisis has reduced the value of equities in State and local authorities’ DB plans by about US$1 trillion. These changes will become evident over time because State and local authority plans smooth both gains and losses by averaging the market value of assets over a five year period. However, they will be large as public plans in the United States have on average 60 percent of assets in equities. In addition, they leveraged themselves to fund liabilities. In general, state and local plans had an average funding ratio of 87 percent in 2007 which, by October 2008 would have declined to 65 percent if assets were valued at market values (Munnell et al. (2008) (the impact of smoothing is shown in Figure 13). In the optimistic scenario that assets level return to the 2007 values, funding ratios are projected to increase to 75 percent in 2013. Under the pessimistic scenario that asset values remain at the level of end 2008, funding ratios are expected to further decrease to 59 percent. In both scenarios, liabilities are assumed to grow at 5.7 percent per year.”

click to enlarge


Source: 'How the Financial Crisis Affects Pensions and Insurance and Why the Impacts Matter' by Gregorio Impavido and Ian Tower, IMF Working Paper.

To download the full paper in pdf format, click Pension-Plan-Impact-Crisis.

Option ARM Defaults Shrink Recast Wave, Barclays Says
The wave of "option" adjustable- rate mortgages recasting to higher payments, projected by some economists to represent a looming source of foreclosures that will hurt housing markets over the next few years, will be smaller than "feared" because many borrowers will default before their bills change, Barclays Capital analysts said. Option ARMs offer initial minimum payments that fall below the interest borrowers owe, creating growing balances and potential spikes in monthly bills. Payment resets occur after five years or when the debt grows to a preset amount, typically 110 percent to 120 percent of the original principal.

About 40 percent of borrowers with option ARMs are already delinquent, and "many" of the others will start missing payments before their obligations change, the Barclays mortgage- bond analysts wrote in a July 24 report. Recasts of securitized option ARMs will peak at about $6 billion a month in mid-2011 and include "volumes lower than feared" overall, they said. "The additional risk really will only be for borrowers who manage to stay current over the next couple of years and might default due to a payment shock," the New York-based analysts including Sandeep Bordia and Jasraj Vaidya wrote.

Whitney Tilson’s hedge fund, T2 Partners LLC, in a presentation dated July 3 said option ARM recasts may peak in the second half of 2011 at more than $16 billion a month, citing Credit Suisse Group data. While the lower number from Barclays analysts suggests an earlier end to the foreclosures contributing to record home-price declines, investors and some analysts including at Barclays and JPMorgan Chase & Co. have said the U.S. government’s effort to have more bad mortgages reworked will delay some defaults.

The Barclays analysts, who wrote that about 88 percent of option ARMs packaged into securities in 2007 will eventually default, said that after a rally in prices they no longer suggest owning related bonds, "a trade we have been recommending for months." Typical prices for the most-senior option ARM bonds from 2007 have jumped about 40 percent from March lows to 46 cents on the dollar, according to their report. JPMorgan analysts in New York including John Sim and Chris Flanagan wrote in a July 24 report that prices for so-called super-senior securities may reach the "mid-to-high 50" cents on the dollar.

The bonds "still represent one of the last double-digit yielding assets (for even bad scenarios) in the resi mortgage space," Jesse Litvak, a mortgage-bond trader for Jefferies & Co. in New York, wrote in an e-mail. "One of the biggest risks" will be the size of losses per foreclosure, he said. Lower short-term interest rates are benefiting option ARM borrowers in two ways, the Barclays analysts added.

They have lessened balance growth, allowing more recasts to happen only after five years. They also have reduced payment increases to a projected 30 percent to 35 percent for loans recasting over the next year and an estimated 50 percent to 80 percent for later recasts, compared with a more than doubling of payments under calculations last year, their report said. More than $750 billion of option ARMs were originated between 2004 and 2008 as borrowers used their low initial payments to afford higher-priced homes, according to newsletter Inside Mortgage Finance. Outstanding U.S. home loans totaled $10.5 trillion on March 31, according to Federal Reserve data.

Derivatives bill to clamp down on speculation
Congress will consider steps to curb speculation in the $39 trillion credit default swaps market and could prohibit investors from speculating on a borrower's credit quality, according to a U.S. House of Representatives Committee document obtained by Reuters. Congress and the Obama administration have been pushing for oversight of the market since insurer American International Group Inc's near-collapse because of its exposure to credit default swaps. The swaps are used to insure against debt defaults and speculate on a borrower's credit quality.

The House Agriculture and Financial Services committees will consider two options to curb speculation including a ban on so-called naked credit default swaps -- swaps for which a trader or investor does not hold the underlying asset being insured, such as a bond. The other option would require derivative dealers and investment advisers that manage in excess of $100 million to report their short interests in credit default swap contracts to the appropriate regulator, according to the document.

The derivatives bill is part of a broad overhaul of U.S. financial regulation sought by the White House and Democratic lawmakers in the House and Senate. The House is expected to begin debating this week a separate measure that would give shareholders the right to cast nonbinding votes on executive compensation at publicly traded companies. Policymakers have been broadly pushing for oversight of the $450 trillion over-the-counter derivatives market, which includes the credit swaps. The bill would give regulators authority to set position limits on dealers in credit default swaps, or CDS. It would also shift oversight of ICE Trust Clearinghouse from the Federal Reserve to the Securities and Exchange Commission, the document said.

The bill also addresses the role of clearinghouses, which act as intermediaries that assess risk from transactions, assign capital or margin requirements, and assure payment if one party defaults. The Obama administration wants more over-the-counter derivatives -- which are not traded on exchanges -- to be cleared by clearinghouses. The draft bill takes a stronger line, saying derivatives must be traded on an exchange and cleared by approved clearinghouses unless regulators decide to exempt them.

Waivers could include illiquid derivatives, those that are customized, and those in which a so-called end user of derivatives does not qualify as a "major market participant," the document said. The draft bill from Barney Frank's House Financial Services Committee is similar to a description by Agriculture Committee chairman Collin Peterson of an upcoming omnibus reform bill. "They had come to agreement on the bulk of what Frank would propose," a House Agriculture Committee spokesman said about the discussions between Peterson and Frank.

The Agriculture Committee passed a bill last winter that would, if enacted into law, require clearing of OTC derivatives in most cases and would allow regulators to temporarily suspend trading in naked CDS. The bill also would require futures regulators to set position limits on agricultural and energy contracts and require foreign exchanges to adopt reporting and disclosure rules that mirror U.S. standards. Under the draft bill, a new federal council would help resolve long-standing differences between futures and securities regulators, the Commodity Futures Trading Commission and the SEC.

The CFTC polices futures markets and the SEC oversees stock markets. The two bodies have long clashed over which has the right to approve new financial products, delaying approvals. The new council would determine which agency had authority over the new products within 180 days and resolve jurisdictional disputes between the SEC and the CFTC within the same time frame. The White House is expected to release its proposed legislative language for derivatives as early as Thursday, according to a source familiar with the administration's planning.

Ilargi: Very good from a Daily Kos reader. Please read.

The End of the Beginning of the Collapse
This morning, I started my day with a coffee cup and DailyKos, intrigued by the internicene conflict between the estimable bonddad (who has informed me countless times), and bobswern (who has also informed me countless times), each of whom posted diaries disagreeing with each other (Bonddad, bobswern) about whether we are seeing "the bottom" of the recession, and whether a gloomy or merely less-gloomy future awaits us). Their analysis was fascinating; less fascinating was the implicit and explicit sniping between adherents (and authors) to the different philosophies and assumptions of the others. But in both analyses, there was something seriously lacking.

Both presume that "the economy" is something human-created, and independent of world-scale limits. Both presume that the realities of the current mess (and implicitly, the likelihoods of the next five years) have a relationship to the past's realities, either by their use of graphs, or their use of employment rates. What I've been learning over the last couple of years, as one of the two ApocaDocs gathering and bequipping stories about five likely collapse scenarios (climate chaos, species collapse, biology breach, infectious disease, peak resources -- oh, and recovery too) is that nothing is happening as expected.

Scientists and specialists within all these topical arenas are saying "more than we thought," "faster than expected," "alarming," "unanticipated," "recently realized," "worse than we thought." The great migrations themselves are becoming extinct, from salmon to elk to butterflies to tuna. Bats in the Northeast are suffering catastrophically from white-nose syndrome, at die-off rates of 90%. Pollinators are suffering dramatically. Top-of-the-food-chain predators everywhere are collapsing. All marine mammals have high levels of PCBs, and flame retardants, and a broad array of other human-made toxins coursing through their bodies.

The waste-processed effluent from our cities contains the prozac and viagra and hormone replacement runoff, that we flush down the toilet, which makes fish hermaphroditic. That water mixes with the pesticide, herbicide, and fertilizer runoff from our factory farms --  creating a dead zone the size of New Jersey at the base of the Mississippi, joining other dead zones around the world. In between California and Hawaii there is a gumbo of plastic gyring in the Pacific that's at least the size of Texas. Plastic does not biodegrade, but breaks down into particles that fish consume.

And most estimates indicate we have already overfished between 85 and 90% of the raw biomass out of the ocean in the last century, and every day, we continue to hoover up four times more ocean biomass than is reborn. "Peak ocean" happened a long time ago, but our ever-more-efficient factory fishing has let us ignore it for a time. Coal power belches heavy metals and incredibly massive amounts of extra carbon dioxide into the atmosphere. Global warming is not a theory, it is a given.

CO2 does something much worse. While we bicker with global-warming deniers, the ocean is getting more acidic. Excess CO2 plus ocean produces carbonic acid. Ocean acidification is a clear and present danger. A slight rise in acidity dramatically affects calcium-carbonate-based lifeforms, like most plankton, shellfish, and coral, the cornerstones of the ocean biosphere. They are unable to form calcium carbonate shells, exoskeletons, or other structures. We're also reaching, in the very near-term, limits on oil, fresh water (as reported magnificently yesterday in the diary "Water Bankruptcy"), topsoil, lithium, phosphorus, and plenty more. Worst of all, nearly everything (and more) on the above list is happening "faster than expected."

Now: almost any of the above could radically disrupt the economy (and should). Sometime soon, fish prices will skyrocket as overfishing's legacy creates radical scarcity. Sometime soon, the impact and risk of ocean acidification will be recognized by society, and radical steps will need to be taken to prevent our rich, biodiverse ocean from becoming an acidic, jellyfish- and algae-filled cesspool, in our lifetimes. Sometime soon (and the next five years are likely to be exceedingly warm) we will see a serious drought in a major food-producing belt. Sometime soon we will see explosions of unintended consequences: unexpected blooms of dead zones, collapses of shellfish and coral, and the complex ecosystems they support.

Each of these would have dramatic economic consequences. If even 1/4 of what I describe above is the emergency I think it is, then there's what might be called "a disruptive economic force." The present is not what the past was; the near future is by no means what the recent present was. We have reached a tremendously complex, tremendously traumatic point in human history. Economists try to predict the future. Few economists have grappled with the limits we are confronting.

What bonddad and bobswarn both did is useful, in that they are mirroring the mindset of many traders, analysts, pundits, and economists. I think there's plenty of evidence that that entire community is based on a failed model: a failed economic model, a failed environmental model, a failed energy model, a failed sustainable-lifestyle model. It seems to me we are likely to be entering the era of "converging emergencies."

It's the problem of, say, the 90% deathrate in bats in the Northeast, causing a rise in crop pests, causing a drastic rise in pesticide use, causing a general decline in pollinators and other beneficial species, while also causing reproductive problems in freshwater fish downstream. It's the problem of, say, topsoil depletion and aquifer pollution in the Midwest, compounded by climate-chaos drought and a monoculture of soy and corn, causing increasing use of fertilizer, causing the depletion and rapid rise in prices of phosphorus, while also causing the farm runoff to create algal blooms in rivers and lakes and outlets.

It's the problem of, say, rising oceans drastically devaluing private and commercial property that is 20 feet "above (the former) sea level," including city infrastucture, homes, and businesses, while the costs of energy are rising, ports are having to reconfigure, and shipping costs treble, as we confront the costs of CO2 realistically. I could go on. Converging emergencies will be the realities of the next three to ten years, and oddly, most economists, traders, policy-makers, and the rest, have only the haziest of notions that things might be "off."

"Gloomy" or "Not-so-gloomy" seems to me rather silly. A radical economic and societal restructuring will happen in the next five to ten years. I have no idea how it will affect our 401ks, or our TIAA-CREFs, or our cost-to-goods ratio. The selling price of houses may depend on their south-facing land, and proximity to small farms. The valuation of a stock may depend on its relationship to emergency response. The employment numbers may depend on what FEMA requires. The next three to ten years (presuming that it becomes ever more clear to the financial markets just how bad things are) will be wacky, and not at all like the previous three to ten years.

In the end, my fascination with the bonddad/bobswern discussion is similar to that of my fascination with, say, photovoltaic cell technology development. It may make a difference to me, personally, and for an industry, and might impact the converging emergencies.... but until it becomes a key part of society's proactive response to the converging emergencies, then it's just an interesting datapoint to my personal investment strategy.

"The Economy" is, as we are seeing, far more like an ecosystem than like a predictable, plottable system. The "financial system" is based on a prediction of a stable future -- and I'm pretty sure that stability is not in our future. So what happens to the financial system when the past is utterly no predictor of future performance, and all bets are off?

The End of the End of the Recession
Zero Hedge, in collaboration with David Rosenberg, Chief Economist & Strategist, Gluskin Sheff + Associates, Inc., is pleased to release the attached analysis "The End Of The End Of The Recession." It is our hope that this piece will provide some badly-needed perspective on "the recession is over" debate, a topic that has become as one-sided as it is wrong-headed. Our purposes is to promote rational, informed discourse on the subject and to this end we enthusiastically solicit reader feedback. Our presentation is licensed "creative commons: attribution" and we hope that our readers will feel free to forward it on or excerpt from it freely, provided attribution is preserved.

The End of the End of the Recession

It's PRIME TIME: Stage 2 of the U.S. Collapse
To listen to our political leaders, the mainstream media and financial bubblevision t.v. programs, you would think that the financial crisis has stabilized and the housing market is bottoming. But if you un-spin the data fed to us by the Government and the media, the facts show that the financial system is on the precipice of another very large crisis. As the housing market collapse spreads into the prime-rated mortgage sector, a veritable avalanche of foreclosed middle to high-end homes will flood the market, triggering a much larger credit and economic crisis than what was experienced during the past 18 months.

The onset of the financial crisis in this country last year was largely precipitated by the inevitable bursting of the housing and mortgage bubble. In what was an unregulated multi-trillion dollar Ponzi scheme, the price of houses rose to unsustainably insane valuation levels, fueled by the reckless and tragic use of no-holds-barred mortgage financing. This "Stage 1" of the financial collapse was triggered by an escalation in defaults and foreclosures primarily in the subprime and Alt-A mortgage sectors.

The associated collateral damage from this reverberated into the implosion $100's of billions of off-balance-sheet assets and derivatives, many of which were fraudulently rated by the rating agencies and recklessly pumped into investors by Wall Street. This took the Dow from 14,000 to 6,440 and was addressed by the Government/Fed with as much as $24 trillion in direct monetary injections and financial guarantees. During this Stage 1 we saw the Government takeover of Fannie Mae, Freddie Mac, the de facto Government takeover of AIG, the collapse of Bear Stearns, Lehman, Merrill Lynch, Countrywide, Washington Mutual, Wachovia; the U.S. auto industry, among many any other corporate failures and smaller regional bank collapses (64 smaller bank failures this year as of 7/24/09).

Stage 2 of the financial collapse of the U.S. is being triggered by the accelerating rates of default/foreclosure in the prime-rated mortgage market, as well as the collapse of commercial real estate. I am going to focus on the residential mortgage component, as it is three times as large as the commercial real estate mortgage market. Whereas the subprime and Alt-A mortgage markets are roughly $1.5 trillion combined, the prime-rate mortgage market is in excess of $10 trillion, depending on your source of data. For purposes of my analysis, I am using data presented by Mark Hanson of Field Check Group in his "7-19 Mortgage Default Crisis - Brutal Past Two-Months" article posted here (any housing/foreclosure data I use comes from this article):

I have been asserting that the housing collapse would not end until prices fall enough to balance out the supply/demand equation. This includes the inventory of new and existing homes for sale, the inventory of foreclosed homes either on the market or being held by banks but not listed for sale AND the inventory of rental units. Data released this past week show that the rental unit vacancy rate surged to an all-time high. This will put downward pressure on rental rates, of which I am already seeing evidence in Denver. As rental rates decline, it becomes relatively more attractive to rent rather than to own, putting more downward pressure on the price buyers will be willing to pay to buy a home vs. rent.

The biggest problem, however, facing the housing market, is the impending surge in bank foreclosure inventory, fueled by the rapid increase in defaults and foreclosures in the $10 trillion prime mortgage sector of the market. Delinquencies surged in May and foreclosure inventories hit new highs. The May foreclosure rate hit 2.79% of all mortgages. This foreclosure rate increased from April to May by 6.2% and surged from May 2008 by 88.3%. Further troubling is the 5% spike in the rate of delinquencies from April to May. This compares to the April to May average increase in delinquencies over the past four years of 1.1%. The increase in delinquencies from May 2008 to May 2009 spiked up by 50%.

What's most troubling about this data is that the main source of these horrific foreclosure/default numbers is the rapid increase in defaults in Prime-rated mortgages over the last six months. Once a mortgage defaults, it typically takes 12 to 18 months for the property to be foreclosed and either listed for sale for held in suspense by banks hoping for a miracle in the condition of the housing market.

The default/foreclosure statistics for Prime mortgages are starting to follow the same statistical path experienced in the subprime and Alt-A markets. Currently, over 12% of all subprime mortgages and 8% of all Alt-A mortgages have been foreclosed. Let's assume that the total foreclosure rate for the prime mortgage market eventually hits 5%. I believe this is a conservative estimate given what has already occurred in subprime and Alt-A, the surging rate of delinquencies in the prime sector and the rapidly escalating rate of unemployment, which directly correlates to mortgage defaults.

Assuming 5% means that $500 billion in prime mortgages will be foreclosed. This equates to the entire size of the subprime mortgage market. Imagine the damage this is going to cause to the entire financial system in this country. And my guesstimate may well be way too low (it is not too high, I can assure you of that). To put this in perspective, Stage 1 of the financial collapse primarily affected the middle to lower income demographics who purchased a home using subprime and Alt-A financing. A lot of these properties are being purchased and turned into rentals, fueling the rental inventories.

In what will be a much larger and more severe Stage 2, accelerating defaults in the prime mortgage sector will cause foreclosures to balloon in the upper-middle (think of overbuilt suburban McMansion developments or overvalued renovation homes in trendy urban areas) and high income neighborhoods. Anecdotally, as I drive through all the trendy renovated urban enclaves around Denver, I see "for sale" and "for rent" signs popping up like uncontrolled weeds as homeowners attempt to avoid foreclosure by selling or renting. It's one thing for an investor to scoop up several low-priced homes and rent them out, hoping for future price recovery. But how will the housing market ever absorb a massive increase in larger, overvalued homes which would never have been built in the first place if a housing bubble never occurred?

As this prime mortgage-financed foreclosure inventory balloons, it is going to drive prices down to levels thought unimaginable. As the value of the collateral for the mortgages declines, banks and investors who own the associated mortgage and mortgage-related paper will suffer massive hits to the value of their assets. Even worse, we will see another round of derivative-related bank and insurance company implosions, some of which will vaporize into thin air the way Bear Stearns and Lehman did, and Countrywide, Wash Mutual, Wachovia and Merrill should have, were it not for the taxpayer financed bailouts of these firms. This Stage of the financial collapse will likely bring down several large State and corporate pension plans as well.

And finally, how will the Federal Reserve and Treasury deal with this impending financial explosion? If it took $24 trillion of direct and indirect financial support and monetary printing in order to "stabilize" the shock of Stage 1, how much money-printing will it take in order to hold the system together as Stage 2 materializes and engulfs our system with multiple financial disasters? It can be argued that the collapse of CIT is the first sign of Stage 2 hitting. It will be interesting to see which other financial firms hit the wall. We know that Bank of America - which sits on Countrywide and Merrill Lynch's subprime mess, Wells Fargo - which sits perched on Wachovia's $122 billion of explosive Pay-Option ARM paper, and GE Capital - a giant-sized CIT - are prime candidates to be vaporized by their nuclear balance sheets.

To conclude, based on the spin-free data presented above, a bottom to the housing market is nowhere in sight. In fact, I would argue that housing prices have at least another 30-40% to fall from where they are now. This is a guesstimate based on all of the above evidence. I don't know what general level of valuation will mark the end of the housing market freefall. I do know that all the so-called experts (like Ben Bernanke et. al.) who said less than 18 months ago that the financial crisis would be contained to the subprime mortgage market and would top out at $200 billion were tragically wrong in their assessment. I also know that I am on record saying prices will revert to 1981 levels and that this crisis would end up costing $5-10 trillion. Looks like the jury is out on home prices and I was way too low on the dollar cost. I also know that, not only are we nowhere near a bottom, but that the worst is yet to occur.

10 Lawmakers Say Goldman Is Gambling With Taxpayer Money
Dear Chairman Bernanke:

In the fall, Goldman Sachs secured access to government funding by converting from an investment bank into an ordinary bank. Despite this shift, the CFO of the company, David Viniar, said last week that the company is continuing to operate as if it were still a high-risk investment bank: "Our model really never changed," he noted in a quote to Bloomberg. "We've said very consistently that our business model remained the same."

This statement seems accurate. Earlier this year, the Federal Reserve granted a temporary exemption to Goldman Sachs from standard bank holding company Market Risk Rules, allowing the company to continue operating as if it were an investment bank. The company and its employees have taken full advantage of its new government subsidies, and the retained ability to bet big. In its most recent quarter, Goldman Sachs earned high profits of $2.7 billion on revenues of $13.76 billion, with 78 percent of this revenue derived from high-risk trading and principal investments. It paid out much of this revenue in compensation, setting aside a record $772,858 for each employee at an annualized rate. The company's own measurement of risk, its Value-at-Risk model, recently showed potential trading losses at $245 million a day, up from $184 million last May.

Despite its exemption from bank holding company regulations, Goldman Sachs has access to taxpayer subsidies, including FDIC-backed bonds, TARP money (since repaid), counterparty payments funneled through AIG, and an implicit backstop from the taxpayer that allowed a public equity offering in a queasy market. The only difference between Goldman Sachs today and Goldman Sachs last year is that today, the company is officially gambling with government money. This is the very definition of "heads we win, tails the taxpayers lose."

It is worth noting that there sometimes might be good reasons to grant temporary regulatory exemptions, considering that companies cannot instantly change their business model. Still, given Goldman Sachs's last quarter results and public statements that it is not changing its business model, we are worried that the company is using its regulatory freedom to evade capital requirements and take outsized risks with taxpayers on the hook for losses. With this in mind, our questions are as follows:
  1. In the letter granting a regulatory exemption to Goldman Sachs, you stated that the SEC-approved VaR models it is now using are sufficiently conservative for the transition period to bank holding company. Please justify this statement.
  2. If Goldman Sachs were required to adhere to standard Market Risk Rules imposed by the Federal Reserve on ordinary bank holding companies, how would its capital requirements differ from the current regulatory regime?
  3. What is the difference in exposure to the taxpayer between these two regulatory regimes?
  4. What is the difference in total risk to the portfolio between these two regulatory regimes?
  5. Goldman Sachs stated that "As of June 26, 2009, total capital was $254.05 billion, consisting of $62.81 billion in total shareholders' equity (common shareholders' equity of $55.86 billion and preferred stock of $6.96 billion) and $191.24 billion in unsecured long-term borrowings." As a percentage of capital, that's a lot of long-term unsecured debt. Is any of this coming from the Government? In this last quarter, how much capital has Goldman Sachs received from the Federal Reserve and other government facilities such as FDIC-guaranteed debt, either directly or indirectly?
  6. Many risk-management experts, most notably best-selling author Nassim Taleb, note that VaR models can dramatically understate risk. What is your overall view of Taleb's argument, and of the utility of Value-at-Risk models as regulatory tools?

As we work through legislative conversations regarding systemic risk, these questions are taking on increased significance. We appreciate your time and the efforts you are making to explain the actions of the Federal Reserve to Congress, and to taxpayers.

Alan Grayson (D-Fla.)
Brad Miller (D-N.C.)
Dan Lipinski (D-Ill.)
Elijah Cummings (D-Md.)
Ron Paul (R-Texas)
Tom Perriello (D-Va.)
Maxine Waters (D-Calif.)
Jackie Speier (D-Calif.)
Maurice Hinchey (D-N.Y.)
Walter Jones (R-N.C.)

Real Yields Highest Since 1994 Aid Record Debt Sales
The highest inflation-adjusted yields in 15 years are helping provide the Treasury with record demand at auctions as the U.S. prepares to sell $115 billion of notes this week. Treasuries are the cheapest relative to inflation since 1994 after consumer prices fell 1.4 percent in June from a year earlier. The real yield, or the difference between rates on government securities and inflation, for 10-year notes was 5.10 percent today, compared with an average of 2.74 percent over the past 20 years.

The gap helps explain why investors are buying bonds after losing 4.8 percent this year, the steepest decline on record, according to Merrill Lynch & Co. indexes that date back to 1978. While Treasury will probably sell an unprecedented $2 trillion of debt this year, Federal Reserve Chairman Ben S. Bernanke said last week that limited inflation pressures will allow policy makers to keep interest rates near zero. "Concerns surrounding rising Treasury supply to fund the various U.S. stimulus programs are overblown," strategists led by Brad Henis in New York at Citigroup Inc., one of the Fed’s 17 primary dealers required to bid at the auctions, wrote in a July 23 research report.

The government is selling $6 billion of 20-year Treasury Inflation Protected Securities, $42 billion of 2-year notes, $39 billion due in 5 years, and $28 billion of 7-year notes through July 30. It’s only the second time that three so-called coupon issues and TIPS will be sold in a single week since the regular sales began in 1976. The previous record was $104 billion in 2-, 5-, and 7-year debt the week of June 22. Bernanke’s testimony on the economy and monetary policy before Congress last week helped ease concern that efforts by the central bank and the administration of President Barack Obama to end the worst recession in half a century will spark faster inflation.

Treasuries rallied as Bernanke spoke, with the yield on the benchmark 3.125 percent note due May 2019 declining 12 basis points, or 0.12 percentage point, to 3.48 percent on July 21. Bonds fell today, with the yield on the 10-year note rising four basis points to 3.70 percent by 8:30 a.m. in New York, according to BGCantor Market Data. Citigroup recommends buying 10-year notes when yields approach 4 percent and selling them when they move closer to 3.25 percent. Rates on benchmark 10-year notes fell 33 basis points from this year’s high of 4 percent on June 11. Bernanke "helped to restore confidence in the market about exit strategies," said Brian Weinstein, who runs the $9 billion TIPS fund in New York at BlackRock Inc., the largest publicly traded U.S. money manager. "The risk of inflation is longer term."

While the economy is showing "tentative signs of stabilization," the central bank intends to maintain a "highly accommodative" monetary policy for "an extended period," Bernanke said in semi-annual testimony before the House Financial Services Committee. Consumer prices have stabilized, after surging in the year earlier period on rising food and energy costs, as demand cooled following the collapse of global credit markets. Crude oil declined 54 percent to $68.48 a barrel on the New York Mercantile Exchange, from the record high of $147.27 set on July 11, 2008. The 1.4 percent drop in consumer prices last month was the biggest since January 1950.

The U.S. more than doubled bond and note offerings to $963 billion in the first half of 2009 in an effort to end the recession and finance a budget deficit that the Congressional Budget Office projects will reach $1.85 trillion this year. It may sell another $1.1 trillion in the second half, according to London-based Barclays Plc, another primary dealer. Including bills, the Treasury has raised $1.046 trillion in new cash this year, according to government data.

"There’ve been very valid concerns about whether the market would be able to take down that kind of supply consistently," said Christopher Sullivan, who oversees $1.5 billion as chief investment officer at United Nations Federal Credit Union in New York. "Given the demand seen at many of the auctions, that fear has been a little bit misplaced." At the six sales of two-year notes this year, investors offered an average $2.81 of every $1 of debt sold, compared with $2.34 during the same period last year. For five-year notes, the so-called bid-to-cover ratio has risen to $2.22 in six sales, up from $2.07 last year.

This week’s auctions will raise a record $96 billion in new cash, up from the previous record of $85 billion during the week of June 22, according to Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that specializes in government finance. Treasuries rallied that week by the most since the period ended March 20, as the yield on the 10-year note tumbled 24.5 basis points to 3.54 percent. Citigroup expects that demand to continue as sales in other parts of the bond market decline. While the firm forecasts Treasury supply in fiscal 2010 to be $389 billion higher each quarter than the average from 2003 through 2008, it also sees sales from issuers such as government agencies and companies to be $326 billion lower per quarter.

Demand from international investors has increased along with the sales. The government relies on foreign buyers to finance the budget deficit and almost 50 percent of the $6.6 trillion in marketable Treasuries are held outside the country, up from 35 percent in 2000, U.S. figures show. Indirect bidders, a class of investors that includes central banks, purchased 67.2 percent of the record $27 billion in seven-year notes sold on June 25, or double the amount of bids at the previous sale in May, according to the Treasury.

The ratio was the highest since 2004 on the sale of $37 billion in five-year notes the day before, while the $40 billion in two-year notes auctioned on June 23 attracted the highest percentage of indirect bids for that maturity in at least six years. "U.S. short-term to middle-term securities are attractive because the market is pricing in a rate hike," said Masataka Horii, one of four managers for the $47 billion Kokusai Global Sovereign Open fund in Tokyo. "But I think the U.S. will keep its zero-rate policy."

International buyers increased their Treasury holdings by 7 percent through May to $3.29 trillion, while China, the biggest lender to the U.S., raised its holdings to $801.5 billion. Two-year notes are the only U.S. coupon securities to earn money for investors this year because of speculation the Fed won’t raise its target rate for overnight loans between banks from a range of zero to 0.25 percent.

The notes have returned 0.33 percent, including reinvested interest, according to Merrill Lynch indexes. Five-year notes lost 2.86 percent and 10-year securities are down 9.92 percent. "What Bernanke said is positive for the bond market," said Michael Cheah, who manages $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. "Demand should be good because bond investors should take away from Bernanke being very specific that the Federal Reserve is committed to keeping short-term interest rates low."

I'll be Britain's hate figure, says top Tory Philip Hammond

Prepare for rapid post-election budget and deep spending cuts

David Cameron may be forced to stage a rapid post-election budget to calm the markets and prevent a drop in Britain's credit rating in the first days of a Tory government, Philip Hammond, the shadow Treasury chief secretary, warns in a Guardian interview today. Anticipating an era of deep short-term cuts in public spending, Hammond urges voters to give the Conservatives a big majority so a new government can act boldly to cut the public debt, warning that the public finances are in such a state "the worst outcome for Britain would be an unclear political result at the election".

Hammond, destined to be the man to rein in public spending if the Tories gain power, also concedes he is "likely to become a great figure to pin up on the dartboard, and throw darts at. I am sure there will be short-term pain and brickbats." But he argues: "It is absolutely not the case that people in the public services are dreading this, or saying 'oh my God, what is going to happen?' " He claims civil servants are preparing to make cuts without waiting for instructions from on high. "There is a sense of liberation that we are going to empower public sector professionals to undertake the reform."

Setting out Tory ideas, Hammond discloses there will have to be a budget either soon after a spring election, or in the autumn, so the Conservatives can start to rein in public spending next year. He warns that Britain's credit-worthiness could be downgraded, pushing the economy into crisis. Such a move, which has been threatened by the international credit rating agency Standard and Poor's, would make it much more expensive to pay back the national debt, which this week reached a record £799bn.

He said: "We have got this Damocles' sword of Standard and Poor's hanging over us, with the commitment they have made to review Britain's credit rating in the summer of 2010 after the general election. Everybody in Britain has a vital interest in ensuring that the triple A credit rating agency is maintained." "It is absolutely essential that we send a signal to the markets that we have a credible plan to resolve the fiscal crisis and the debt crisis over a sensible period time," he says.

He warns that it would be dangerous to assume the government could do whatever it likes without getting a market reaction. Implying that the Tories will regard it as necessary to hold an emergency budget, he says: "I think the markets will expect to see early action because we have made it clear that we will start the process in 2010 whereas Labour has said it won't start the process until 2011-12. Early action adds credibility." Hammond was speaking as the latest economic figures publishedtoday showed worse than expected second quarter growth figures, with a fall of 0.8%, worse than the consensus forecast of a 0.3% fall.

His remarks come after analysis for the Guardian, carried out by the Institute for Fiscal Studies, showed that Britain would face spending cuts of more than 16% to key public services if Labour and the Tories live up to their pledge of protecting schools, hospitals and defence. He said one of the first tasks of an incoming Treasury team, in examining when to hold the special budget will be the reaction of the markets, and whether the economy is "going to get anywhere near" the government's forecast of 3.5 % growth in 2011.

Hammond also discloses that the Conservatives may try to speed up the Labour timetable to reduce the deficit, and intends to place most of the burden for that deficit reduction on spending cuts, because the current level of projected debt in relation to GDP – about 56% – is unsustainable. He also says he is worried that there are not enough civil servants in Whitehall with experience of cutting services. "There are a lot of civil servants in key posts who have never had to deal with the spending restraint … likely to be required now," he says.

He also rejects growing right wing calls to drop David Cameron's pledge that the NHS budget will be protected from cuts and rise at least in line with inflation. He admits that he had come to the issue of ring-fencing the NHS budget as a sceptic on the basis that a lot of money had gone in and productivity had fallen. But he said:"The pressure of demography is so inexorable that the NHS is going to struggle to deliver the kind of service people expect even with modest real terms increases in budgets."

Iceland's krona proves the magic wand as Europe ails
Iceland's krona is working its magic cure. Well-heeled Japanese tourists – once a rarity – can be seen these days sampling halibut at Reykjavik's Siggi Hall, or buying Gymur jackets at the 66°North store on Bankastraeti. The krona has fallen by half against the euro since the `New Viking' trio of Landsbanki, Glitnir, and Kaupthing strayed out of their depth and brought down Iceland's financial system. Nothing is cheap, but prices have come within reach. Reykjavik's cafés are packed with euro-youth, at last able to afford a taste of all-night dancing at this Arctic Ibiza.
Out in Iceland's Eastern fjords, Alcoa has raised aluminium production to record levels – and metal matters as much as fish for exports. "The smelters are running full speed," said the new-broom finance minister, Steingrimur Sigfusson. So is Mr Sigfusson himself. Last week he launched three new banks on the ruins of the old. Normality is returning. "We are going to get through this better than feared. We're feeling real activity in the economy, and much of this comes from a favourable exchange rate," said Mr Sigfusson.

Iceland's great lurch towards casino capitalism over the last decade has a cultural logic. "We are a fishing culture: when the herring is there, we take it," said Andri Snaer Magnason, author of `Dreamland: A Self-Help Manual for a Frightened Nation'. There was no easier catch on offer than the Greenspan bubble and the global "carry trade". How could fishermen resist? In one sense it was a terrifying shock for the 310,000 inhabitants of this Norse-Celtic outpost of lava rock to see their currency, banks, and global image crash in a single week last autumn. Yet nothing has really changed.

"Everything still feels normal. The services of the state are intact. The swimming pool is open. You can still have a decent heart attack in Iceland," said Mr Magnason. "Friends who lost jobs in banking have already found new work, and you could say the krona has worked as a buffer for us. We all went down together, and that has led to healthier recession without mass unemployment." The jobless rate has risen to 9.1pc. This is below the eurozone average of 9.5pc, and is stabilising much earlier.

Those who point to Iceland as a scarecrow exhibit of what happens to a small country caught in a financial storm without the shield of euro membership have the matter backwards, as will become ever clearer over the next two years. The OECD expects Iceland's economy to shrink 7pc this year. This is much better than Ireland at minus 9.8pc, and recovery will come sooner. So next time you hear the Sacra Congregatio of the euro faith incant yet again that EMU saved Ireland from a terrible fate, know that they deceive only themselves.

You take your punishment early with devaluation, as Britain did on leaving Gold in 1931, or ending the D-mark torture in 1992, or now. You look a sorry sight at first, but sweet vindication comes later. It is those caught in a deflation trap with fixed exchange rates that face slow asphyxiation, and deeper social damage. Youth unemployment is already 34pc in Spain, 28pc in Latvia, 25pc in Italy, 24pc in Greece, and rising.

At Iceland's central bank – mercifully, no longer listed beside al Qaeda as a terrorist body by UK authorities – Governor Svein Harald Oygard says currency therapy is working as it should. "If you lean back and look you can see that fall of the krona accentuated the shock at first, but it is also now working as a turbocharger for recovery. "We've seen a strong hit on wealth and asset values, but the story for real economy is very different."
Devaluation is always double-edged. Some 13pc of households in Iceland hold mortgages in euros, Swiss francs, or God forbid, yen. Their debt levels doubled overnight.

Some 70pc of corporate loans are in foreign currencies. Exporters are hedged. Those that earn in krona are not, and a "large number" are now in dire straits. The Governor is a Norwegian who cut his teeth in the Oslo banking crisis of the early 1990s. He was brought in as a troubleshooter after the last crew was literally banged out of the Sedlabanki by the Saucepan Revolution in February. With justifiable pride, he showed me the latest trade figures. Iceland has defied the global shipping crash to eke out an 11pc rise in exports over the last year. Even China has seen a fall of 21pc.

Iceland will be back in surplus by next year, from a peak deficit of 25pc of GDP. You could say the same about Latvia, which has stuck to its euro peg under orders from Brussels. But there is a big difference. Latvia is balancing its books by crushing demand. Exports are down 28pc, but imports are down even more. The result of this Stone Age policy is economic contraction of 18pc this year, and 4pc in 2010 (state data). Icelanders have taken a hit, of course. Unions have accepted 'real' wage cuts of 10pc. Health care and welfare is being cut 5pc, education 7pc, and the rest 10pc. This is comparable to what is happening in Ireland, but again there is a difference. Dublin faces a Sysphean task as collapsing tax revenues force ever deeper austerity: Reykjavik is over the worst.

It baffles me why rating agencies still talk of downgrading Iceland's debt to junk. The country should emerge with public debt of 80pc to 100pc of GDP – much like Britain. Yet Iceland also has the world's best-funded pension system at 120pc of GDP. It is the two together that counts. In their angst, Icelanders look wistfully at the apparent safe port of EU membership. The Althingi has voted to start entry talks. But the storm will have blown over well before an EU referendum is held in two or three years. By then the delayed cluster bomb of Europe's unemployment will have detonated. Try selling EU protection then.

Why you should still avoid banks
Chancellor Alistair Darling is trying to put the frighteners on banking bosses today. "You lot just aren’t lending enough," he’ll say at today’s meeting at the Treasury. "You know how we gave you all that taxpayers’ money to bail you out? Well, now we want you to lend it back to the taxpayers." A bank boss with a modicum of back bone might put up his hand at this point, and say: "But wasn’t it unquestioning, reckless lending, done without consideration of the risks involved, which got us into this mess in the first place?"

But instead they’ll probably make various reassuring noises, then run back to their boardrooms, and continue to hoard money. Why? Because bankers might be self-interested, but they’re not stupid. They know that there’s a whole lot more pain coming down the line. And the taxpayer may not feel flush enough to bail them out next time.

The sub-prime crisis and the housing crisis have all been raked over and kicked around in the media for years now. But these aren’t the only problems threatening banks’ balance sheets – not by a long chalk. As this morning’s Financial Times flags up, credit card debt is the next big issue to face banks around the world – notably the British banking sector. This is already a big problem in the States. The International Monetary Fund reckons that of the $1,914bn in outstanding US consumer debt, 14% will go bad. For Europe, meanwhile, the IMF reckons that 7% of the outstanding $2,647bn in consumer debt will go bad.

And in Europe, Britain’s the country that’ll bear the brunt of that pain. The British owe far more as a proportion of income (currently at a record high of more than 170%, compared to just over 100% in the early 1990s recession) than any other European nation. And in fact, despite their reputation as consumption machines, the Americans can’t hold a candle to us either. Their personal debt ‘only’ clocks in at around 140% of income.

In the US, credit card default is already at record highs and rising. Losses on credit cards, at 10.8%, are already higher than the current unemployment rate of 9.5%. That’s highly unusual – as the FT points out, "credit card loss rates have in the past closely tracked unemployment, topping the jobless rate on just a handful of occasions". So this puts the US in uncharted territory, as far as how high defaults could end up going. And the worry is that we’ll face something similar over here.

Enjoying this article? Sign up for our free daily email, Money Morning, to receive intelligent investment advice every weekday. On top of that, there’s the little question of securitisation. That’s right – it wasn’t just packages of mortgages that were sliced and diced and sold onto investors and banks across the world. Our credit cards got chopped and spliced into little morsels of prime and not-so-prime debt as well.

In other words, as the FT puts it, "if this highly leveraged recession does lead to record levels of credit defaults, it will not just be the banks that suffer." In Britain, analysts reckon about a third of credit card debt was securitised, while in the US, it was two thirds. So pension funds and insurers who bought said debt, will feel the pain as well. The threat from growing credit card debt – not to mention the ongoing danger from souring mortgages and commercial property loans – is just another reason why we’re still avoiding the banking sector, and most financials on a more general basis.

There are just too many unknowns out there that could easily derail any recovery. Having the government so heavily involved in the sector is also a problem. If banks are forced to lend, or to cut interest rates against their better judgement, then it’ll be even harder for them to claw their way back to health.

Loans by U.S. Banks Shrink Amid Lingering Economic Fears
Lending continues to slow as bankers and borrowers refrain from taking risks, in a bearish sign for the economy. The total amount of loans held by 15 large U.S. banks shrank by 2.8% in the second quarter, and more than half of the loan volume in April and May came from refinancing mortgages and renewing credit to businesses, not new loans, an analysis by The Wall Street Journal shows. The numbers underscore two related trends weighing on the economy. Financial institutions are clamping down on lending to conserve capital as a cushion against mounting loan losses. And loan demand is falling as companies shelve expansion plans and consumers trim spending to ride out the recession.

That combination is making it harder for the U.S. economy to rebound, and some analysts predict that loan portfolios won't start growing until the second half of 2010. "I think it is good for banks if we continue to be prudent as an industry and not reach to get loan growth by reducing our underwriting," Richard Davis, chief executive of U.S. Bancorp, said last week. The Minneapolis regional bank's overall loan portfolio declined 1.2% to $182 billion from March to June, despite issuing $16 billion of mortgages. Most of the mortgages came from refinancing existing loans.

The loan figures reviewed by the Journal include giants such as J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc., as well as regional banks such as Fifth Third Bancorp, based in Cincinnati, and Regions Financial Corp., of Birmingham, Ala. The 15 banks hold 47% of federally insured deposits and got $182.5 billion in taxpayer-funded capital infusions through the Troubled Asset Relief Program. As of June 30, the banks had $4.2 trillion of loans on their balance sheets, down from $4.3 trillion as of March 31.

Loan portfolios shrank at 13 of the big banks, with the steepest decline at Comerica Inc., Dallas, where the loan total was down 4.3% to $46.6 billion in the latest quarter. Just $1.6 billion of the $10.2 billion in credit extended by Comerica in the second quarter came from new commitments. A bank spokesman said many borrowers "are being cautious." Bank of America, Charlotte, N.C., reported its loan portfolio slipped 3.6% to $942.2 billion in the second quarter. A spokesman for the largest U.S. bank by assets said the decrease reflects higher loan losses and lower loan demand as borrowers pay off outstanding debts. "There were fewer opportunities to make high-quality loans because of the recession," he added.

Some borrowers complain banks aren't trying hard enough to expand credit. Ernie Cambo, a principal with Miami real-estate developer CPF Investment Group, had to halt work earlier this year on a 2.5-million-square-foot project called Ave Aviation and Commerce Center because he couldn't line up financing beyond the initial phases. Now he isn't certain he will be able to find bank financing for a planned $4 million building for a South Florida auto auctioneer, despite having a signed lease. "You will find no more frustrated borrower than me right now," said Mr. Cambo, 39 years old. "I am growing in this downturn, and I can't get any incremental debt."

The slow pace of lending has created political heat for the Obama administration. On Friday, Rep. Spencer Bachus (R., Ala.) pressed Treasury Secretary Timothy Geithner to "tell me why we didn't really see that multiplier effect" from banks funneling their TARP money into lots of loans. "I think you did," Mr. Geithner responded. Each dollar of taxpayer-funded capital gave banks $8 to $12 of lending capacity, and the initial $200 billion infusion by the Bush administration prevented a decline of more than $1 trillion in the overall loan supply, the Treasury secretary said.

Supporters of the bank bailout concede that lending has dipped, but note that the program wasn't meant to expand loan volume, but rather to prevent a collapse -- and has succeeded on that score. Richard Neiman, a member of the committee formed by Congress to assess the effectiveness of TARP, said in an interview that "you need to be cautious in reading too much into these numbers." Congress intended to "stabilize the financial markets," he added, and there "is no specific reference to increasing lending" in the rescue-program legislation that was signed into law last year.

The 15 banks reported about $803 billion in loan volume in the second quarter, up 12.7% from the first quarter. But nearly 60% of the increase in April and May came from refinancing mortgages and renewing business loans, according to data Treasury collected from the banks. In contrast, new home purchases accounted for just 23% of all mortgage loans. May is the latest month for which the government's figures are available. At BB&T Corp., of Winston-Salem, N.C., a surge in mortgage refinancing fueled the regional bank's increase of 0.1% in the size of its overall loan portfolio, which hit $100.3 billion as of June 30. Mortgage lending "is really booming," CEO Kelly King said, but loan growth slowed in May and June, "especially in the commercial area."

Banking analysts said the fact that less than half of loan volume is coming from new loans shows how far the economy still has to go to dig out of the recession. "You are looking for net new loans in the marketplace to be a signal of true change, and we have not seen that yet," said Christopher Marinac, research director at FIG Partners in Atlanta. "You've got to have fewer people paying down loans...and you've got to get banks to loosen underwriting standards," said RBC Capital Markets analyst Gerard Cassidy. "That is when you will see loan balances in the U.S. banking system expand from where they are today. When that happens, you will see the economy really start to blossom."

On a year-over-year basis, total loans held by the 15 big banks rose 17% from $3.6 trillion in 2008's second quarter. The increase was skewed by the impact of acquisitions that included J.P. Morgan's takeover of the banking operations of Washington Mutual Inc. and Wachovia Corp.'s purchase by Wells Fargo & Co. Excluding purchases, loan portfolios shrank by about 10% as of June 30 from a year earlier. The figures are a strong but imperfect indicator of loan activity. For example, loans sold to other institutions aren't counted on a bank's balance sheet at the end of the quarter. Since the financial crisis erupted, though, sales of loans have withered.

Credit card crisis to grip Britain, IMF warns
Britain’s credit card debt crisis will get significantly worse in the coming months with a wave of consumer payment defaults, the International Monetary Fund has warned. The organisation expects £1.5bn of consumer debt across Europe will not be repaid, much of it in Britain which has the highest number of credit card borrowers on the continent. Analysts say failure to pay credit card bills is likely to increase as unemployment rises and the number of personal insolvencies, which reached 29,774 in the first quarter of the year, continues to rise.
The IMF said the crisis would echo the problems already felt in the United States, where it expects 14 per cent of the country’s £1.16bn credit card debt to go unpaid this year, the Financial Times reported. The newspaper said National Debtline, the UK charity, had received 41,000 calls in May about loans, credit cards and mortgage arrears – double the number it received in the same month last year. In the United States, credit card defaults have been rising for months as a sharp rise in unemployment takes its toll on overstretched consumers. Barclays, Britain’s biggest credit card lender, said in May that overdue payments or defaults had risen in the first three months of this year.

Europe braced for rising credit card defaults
Lenders in Europe bracing themselves for a rising wave of consumer debt defaults as the credit card crisis that has caused billions of dollars in losses among US banks spreads across the Atlantic. The International Monetary Fund estimates that of US consumer debt totalling $1,914bn, about 14 per cent will turn sour. It expects that 7 per cent of the $2,467bn of consumer debt in Europe will be lost, with much of that falling in the UK, the continent’s biggest nation of credit card borrowers.

National Debtline of the UK said that the number of calls it had received from UK consumers worried about loans, credit cards and mortgage arrears had reached 41,000 in May – double the 20,000 calls it had received in May 2008. It added that the number of calls showed no sign of abating. In the US, credit card defaults have been rising for months as a spike in unemployment and the most severe economic downturn since the Great Depression took their toll on overstretched consumers.

Banks such as Citigroup, Bank of America, JPMorgan Chase and Wells Fargo and credit card issuers such as American Express have suffered billions of dollars in losses in their credit card portfolios and have warned of more to come. The rate of US credit card losses has overtaken the rate of unemployment in recent months – a highly unusual occurrence that makes it more difficult for card issuers to forecast future losses. In the UK, the latest credit card indices from Moody’s, the ratings agency, show that annualised charge-off rates have risen from 6.4 per cent of loans in May 2008 to 9.37 per cent in May 2009. In the US, that rate is above 10 per cent.

Analysts expect further defaults as UK unemployment rises and personal insolvencies, which reached 29,774 in the first quarter of the year, continue to increase. The falling UK housing market and more stringent lending requirements by banks has also meant that indebted consumers can now no longer rely on withdrawing equity from their homes to pay off other debts such as credit cards or unsecured loans. Jonathan Pierce, analyst at Credit Suisse, said in a recent note that UK credit card securitisation had suffered "a very sharp rise in arrears to a level well beyond the previous peak seen in 2006".

UK banks, which begin reporting their first-half results next week, have already warned that they faced a sharp increase in credit card debts, although this is relatively small in the context of writedowns in other areas such as commercial lending. Barclays, the UK’s biggest credit card lender with 11.7m UK customers through Barclaycard, said in May that UK credit card delinquencies had increased in the first quarter of the year, reflecting adverse economic conditions and rising unemployment.

As a result it had been reducing credit limits and tightening approval rates for new credit cards which were running at less than 50 per cent in March. Lloyds Banking Group also said in May it had seen impairments rise in both secured and unsecured lending. Lloyds will have to absorb any future losses on credit cards itself as it has not been able to include credit card loans among the £260bn of toxic assets it has insured with the UK government.

With UK trends tending to trail the US by six months, analysts will be in particular watching the reporting season closely for any signs that default rates on UK securitised credit card debt is rising. The severity of the financial crisis coupled with rising unemployment on both sides of the Atlantic have stoked fears of a substantially higher default rate in the coming months.

How the cards are cut
Mick Longfellow is teetering on the edge of financial chaos. A dedicated teacher married to an equally hard-working nurse, living in a modest house in Newcastle in the north-east of England, the pair spent the past decade treating themselves to gadgets, gizmos and home upgrades. They put in new windows. They bought the biggest television and sound system their living room could accommodate. They changed their cars every year or two. With two children to spoil as well, they were living on credit – lots of it. There were store cards, car loans, personal loans and credit cards.

Now, amid the recession, those lenders want their money back. "The bank just closed down our overdraft. That was the killer blow," says Mr Longfellow. But with the family’s debts running to £30,000 ($49,200, €34,600), far more than their annual disposable income, repayment is going to take a very long time. It is a sad blow for the Longfellows. But multiply one family’s debts by the millions of people across the world who are in an even worse state, losing jobs and homes, and the scale of the problem is clear. Estimates from the International Monetary Fund say that of US consumer debt totalling $1,914bn (£1,166bn, €1,346bn), 14 per cent will turn bad. For Europe, it expects 7 per cent of the $2,467bn of consumer debt will be lost, with much of that falling in the UK, the continent’s biggest nation of borrowers.

In the US, the carnage is well under way. For nearly two years, banks ranging from giants such as Citigroup to small community lenders have been bleeding as the economic downturn caused "maxed out" consumers to fall behind on their repayments of credit cards, automotive loans, student loans and other once-plentiful forms of credit.

In recent months, what started as a debacle has turned into a nightmare. As unemployment continued to rise and house prices kept falling, the rate of defaults has surpassed historic norms, rendering many of the computer models used by US banks to predict losses useless. In this phase of the crisis, lenders are flying blind. "We are asking boards of financial institutions to sit down, think about plausible nightmare scenarios and then take measures to deal with them," says Peter Niculescu, a former executive at Fannie Mae, the US mortgage institution, who is now a partner at Capital Market Risk Advisors, a financial consultancy.

America’s story makes a frightening read for banks on the other side of the Atlantic. The question now is what happens next in Europe, particularly in the UK, the continent’s biggest consumer lending market, where concrete signs of mass stress have so far been less obvious. "In the UK, particularly, we haven’t seen a lot of discussion about [consumer debt default]," says Nathan Powell, head of financial sector research at RiskMetrics, a credit data group. "There has been a focus on banks’ capital, liquidity and their mortgage exposure."

With much of the world in recession, the banking industry has been girding itself for some time against the threat – in recessions banks expect to make losses on loans. But some experts worry whether banks active in Europe, many of which have been rejuvenated by a quick bounce-back in their investment banking operations in the first half of the year, are yet taking sufficient account of the damage that their consumer loan books could yet wreak on profits.

"Proponents of a V-shaped [economic] recovery are underestimating how much rising unemployment and an unstable structure of indebtedness can lengthen and deepen this recession," says Sandy Chen, banks analyst at Panmure Gordon in London. Historic norms suggest that unsecured consumer loans default at a rate of less than 5 per cent in periods of recession. Although for credit cards the rate is higher, at 7 to 9 per cent, companies charge heftier interest rates to offset the increased risk of default.

But this is no ordinary recession – and no one can agree how bad it is going to get. Some economists argue that the worst may already be over but many believe in a "double-dip" downturn, with another fall-off in demand likely to come later this year. Whether or not that happens, the effects of the first dip are still filtering through to the real world. Unemployment is still rising – and fast – on both sides of the Atlantic. More than 9 per cent of working-age Americans are now without work, nearly double the year-ago figure, and the UK unemployment tally is at 7.6 per cent. There are widespread expectations that both numbers could soon exceed 10 per cent – and joblessness, unsurprisingly, is the biggest driver of consumer loan default.

The real unknown, however, is to what extent a recession already on a par with the 1930s will be turned into something even worse by record levels of consumer debt. British consumers’ leverage – how much they owe as a proportion of income – has been rising fast for a decade and for the past nine months has been running at a record high of more than 170 per cent – far bigger than anywhere else in Europe. In the US, the percentages have been rising too, and are hovering around the 140 per cent mark. In the last recession, of the early 1990s, UK leverage was barely more than 100 per cent and in the US it was less than 90 per cent. "The severity of this crisis has taken everyone by surprise," says Mr Powell at RiskMetrics. "Delinquencies and charge-offs [the percentage of outstanding loans that is unlikely to be recouped] are deteriorating at a faster rate than anyone expected a year ago."

. . .

Industry executives in Europe are beginning to sound like their US counterparts in raising the alarm about spiralling losses on unsecured consumer debt as one of their biggest areas of concern. "We think the market in general is far too optimistic about the outlook for unsecured consumer debt defaults," says Antonio Horta-Osorio, chief executive of Abbey, the UK business of Spain’s Santander. "We have been actively reducing our exposure to consumer lending, so that it is now half the size it was three years ago."

The US experience is showing the way. "It started in subprime mortgages, then it moved to prime mortgages, then to car financing," says Mark Greene, chief executive of Fico, the US credit checking group. "Now it’s moving to credit cards." Over the past 18 months, US banks and card issuers have been coping with the fallout of millions of overleveraged consumers defaulting on an increasing portion of their unsecured debt. Loss rates on credit cards have almost tripled since January 2007 as soaring unemployment, housing woes and the stock market’s troubles prompted an ever-increasing number of borrowers to stop paying their balances.

Perhaps more worryingly, the long-held relationship between credit card loss rates and unemployment is breaking down. Credit card loss rates have in the past closely tracked unemployment, topping the jobless rate on just a handful of occasions, and only once by any significant margin. That was in 2005 as a flood of borrowers entered bankruptcy and wrote off their credit card debt before the passage of a law that made it harder to file for bankruptcy. But in this recession, job redundancies have been compounded by other sources of distress to push credit card losses higher. Losses on US credit cards as measured by Moody’s credit card index were at a record of close to 10.8 per cent in June, ahead of the nation’s 9.5 per cent unemployment rate.

As the recession has deepened, meanwhile, bankruptcy filings are once more approaching 2005 levels, fuelling the credit card meltdown. For some banks, losses on credit cards have been severe for months. Credit card loans originated by Washington Mutual, the troubled bank bought by JPMorgan Chase last September, are defaulting at a staggering rate of 24 per cent. Bank of America’s June charge-offs were close to 14 per cent and delinquencies – loans that have not been paid – were 1.9 per cent, exceeding the totals for Citigroup, JPMorgan, American Express, Capital One and Discover. If average charge-off rates reach 18 to 20 per cent, credit card losses for US issuers could exceed $82bn, the Federal Reserve said in May after stress tests on 19 large lenders.

Such losses are proving to be a problem even in cases where the banks thought they had offlaid the risk. Banks such as Citigroup, JPMorgan Chase and Bank of America have had to come to the rescue of the off-balance-sheet vehicles that help them to fund credit card loans, as these vehicles have been weakened by consumer defaults. In Britain, banks argue that they have been more prudent than peers elsewhere, owing to the scare of mass defaults four years ago after the law was changed to make personal bankruptcy via Individual Voluntary Arrangements far easier. That prompted the biggest lenders – Barclays, Lloyds, Royal Bank of Scotland, HBOS (now part of Lloyds) and HSBC – to toughen their criteria for lending: they lent less, and only to people with decent credit records.

But what the banks do not point out is how many of them then let their standards slip at a crucial time. Just ahead of the financial crisis, in 2007, the big five banks (now the big four) started an aggressive expansion of their lending. Barclays is typical – after tempering its consumer lending in 2006, for example, it expanded it from less than £38bn to more than £53bn over the next two years. That kind of expansion at Lloyds and RBS has compounded those groups’ balance sheet woes. When the UK banks start reporting their six-monthly results early next month, they will give some idea of how bad those bad debts are turning out to be. They are already planning for default rates at the top end of historic levels.

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One of the best insights into the likely patterns in consumer debt defaults comes from the niche world of credit card securitisations – where the performance data of a second-hand package of a bank’s credit card "receivables", or credit repayments, are published monthly. The so-called Master Trusts of US credit card debt show default rates running at 9 to 18 per cent, up by 50 to 100 per cent over the past year, with most of the rise coming since the start of 2009. With UK trends tending to trail the US by six months, analysts are now watching closely for signs that British securitisations, with default rates running at a relatively stable 7 to 14 per cent, start rising.

The focus on the securitisation data is a stark reminder, too, that it if this highly leveraged recession does lead to record levels of credit defaults, it will not just be the banks that suffer. Analysts estimate that in the UK close to one-third – and in the US about two-thirds – of consumer debt has historically been securitised. If those packages of debt turn bad – or even worse than they had already been reckoned to be – that would hit the investors that are holding them hard.

Some of those investors will be investment banks – compounding the impact of the core lending losses to which their commercial banking rivals (or sister operations) are already exposed. In other cases, the pain will be even more broadly felt, says Huw van Steenis, analyst at Morgan Stanley. "I think the bigger holders now of securitisations are insurance companies and pension funds." For families such as the Longfellows, with retirement looming in the next decade, that threatens to be the real sting in the tail.


Credit card lenders have been backed into a legal as well as financial corner as a result of the economic crisis, writes Saskia Scholtes. Banks’ profligacy during the consumer lending boom, combined with the scale of the subsequent collapse, ignited popular anger and this year spurred the passage of strict new regulations for the US industry.

Lenders hoping to raise their defences against record high default rates and growing unemployment would normally raise interest rates for the riskiest credit card borrowers. But by next February, credit card lending laws mean this will be much harder to do. Banks such as Citigroup, Bank of America and JPMorgan Chase and monoline credit card lenders including American Express have therefore tried to pre-empt the new rules by raising rates now.

Citigroup, for example, has sharply increased interest rates on up to 15m US credit card accounts in recent months, largely on cards it co-brands with retailers such as Sears. Such private label credit cards have historically had some of the highest default rates. Banks say such moves are necessary to cushion losses but they acknowledge that it could push some borrowers over the edge. In the long term, banks say the restrictions will reduce credit availability and raise the cost of credit for all borrowers. "If we can’t raise rates for the guy that overspends and always pays late, then we have to charge everyone more to make up for the risk – that means higher rates for the guy that always pays his bill on time too," says one disgruntled credit card banker.

Jamie Dimon, JPMorgan Chase’s chief executive, this month hit out at the new rules, saying they will cost the bank’s card unit up to $700m (£426m, €492m) next year. While JPMorgan supported most of the reforms introduced by the US government in the wake of the crisis, he said, some of the "fast and furious" regulatory activity had gone "a little bit too far". Nevertheless, for some consumer activists, the rules restricting arbitrary and excessive credit card fees have done little to quell complaints among consumers that they are being gouged by credit card issuers.

Protesters descended on Wall Street last week as part of a multi-city campaign to bring back anti-usury laws. They are calling for a national interest rate cap of 10 per cent for credit cards and other types of consumer loans. Similar actions took place in Washington, Boston, Chicago and London. The groups that organised the event, dubbed "10 per cent is enough", have also sent letters demanding meetings with the chief executives of Wells Fargo, Citigroup, Bank of America, Capital One, Discover and JPMorgan Chase.

SEC rule on 'naked' short-selling now permanent
Federal regulators on Monday made permanent an emergency rule aimed at reducing abusive short-selling, put in at the height of last fall's market turmoil. The Securities and Exchange Commission announced that it took the action on the rule targeting so-called "naked" short-selling, which was due to expire Friday. Short-sellers bet against a stock. They generally borrow a company's shares, sell them, and then buy them when the stock falls and return them to the lender -- pocketing the difference in price.

"Naked" short-selling occurs when sellers don't even borrow the shares before selling them, and then look to cover positions sometime after the sale. The SEC rule includes a requirement that brokers must promptly buy or borrow securities to deliver on a short sale. At the same time, the SEC has been considering several new approaches to reining in rushes of regular short-selling that also can cause dramatic plunges in stock prices.
Investors and lawmakers have been clamoring for the SEC to put new brakes on trading moves they say worsened the market's downturn starting last fall. SEC Chairman Mary Schapiro has said she is making the issue a priority.

The five SEC commissioners voted in April to put forward for public comment five alternative short-selling plans. One option is restoring a Depression-era rule that prohibits short sellers from making their trades until a stock ticks at least one penny above its previous trading price. The goal of the so-called uptick rule is to prevent selling sprees that feed upon themselves -- actions that battered the stocks of banks and other companies over the last year. Another approach would ban short-selling for the rest of the trading session in a stock that declines by 10 percent or more.

In addition to making the "naked" short-selling rule permanent, the SEC and its staff are working with major stock exchanges to make data on short-sale transactions and volumes publicly available through the exchanges' Web sites, the SEC announcement said. It will result in "a substantial increase" over the amount of information currently required, the agency said. "Today's actions demonstrate the (SEC's) determination to address short-selling abuses while at the same time increasing public disclosure of short-selling activities that affect our markets," Schapiro said in a statement.

U.S. Pay Czar to Rework Contracts Deemed High
The U.S. pay czar, now preparing to vet the compensation at businesses receiving major federal aid, will push to renegotiate contracts that he views as excessive or seek other ways to reduce overall outlays, said people familiar with the matter. The role of the government in setting pay is reaching a pivotal moment. Seven banks and industrial companies that received significant bailouts must submit proposals for their compensation packages by Aug. 13.: Treasury Department official Kenneth Feinberg, who has authority to oversee pay for the 100 highest-paid employees at those companies, has been meeting regularly with the seven firms to help them fix a level and structure of compensation that the government deems proper, say industry and U.S. officials.

With public anger high over the rich pay packages awarded to some financial executives, Mr. Feinberg must walk a fine line between curbing pay at companies benefiting from taxpayer funds while not squeezing compensation so hard that it hurts the ability of companies to lure talent. None of the firms have yet submitted their proposed pay packages. GMAC has proposed to Mr. Feinberg that it be able to pay its top people a mix of 20% cash and 80% stock, according to a person familiar with the situation.

Dealing with contracts is arguably among the trickiest issues facing Mr. Feinberg and the firms he oversees. Companies are legally allowed to enter into guaranteed pay arrangements. But there is little appetite among lawmakers for giving large payouts to employees at firms receiving taxpayer-funded bailouts. A furor erupted earlier this year after the Obama administration allowed AIG, which has received several government lifelines, to pay bonuses that the firm said it was contractually obligated to make.

Mr. Feinberg can't rip up legal contracts. But he is expected to push firms and employees to renegotiate payments he deems too high, said people familiar with the Treasury's plans. If that can't be done, they said, Mr. Feinberg is expected to factor the amount of a contract into an employee's overall pay and use that calculation to bring down total compensation. For instance, if an employee were legally guaranteed a $1 million bonus for 2009, Mr. Feinberg might subtract that amount from the employee's 2009 base salary, or cut the employee's future pay to compensate for that amount.

One of the first tests facing him Mr. Feinberg is what to do if Citigroup seeks to honor its profit-sharing contract with a top energy trader, Andrew J. Hall, that could pay out as much as $100 million for 2009. Mr. Hall, head of Citigroup's energy-trading unit, Phibro LLC, and Citi are in talks about a possible divestment of Phibro, as previously reported. If that deal happens, the question of Mr. Hall's pay might be moot. It is unclear how Mr. Feinberg would rule on Mr. Hall's case. Citigroup hasn't yet submitted his or any other employee's compensation package for review. If Mr. Feinberg deems Mr. Hall's pay excessive, he would likely try to get Citigroup to lower the amount. If that isn't possible, Mr. Feinberg might apply that $100 million towards Mr. Hall's future earnings.

"Companies will need to convince Mr. Feinberg that they have struck the right balance to discourage excessive risk-taking and reward performance for their top executives," said Andrew Williams, a Treasury Department spokesman. A Citigroup spokeswoman said: "Citi continues to examine ways to ensure its employee-compensation practices are competitive in this very challenging market environment." A spokesman for GM said the company "has every intention of complying" with the government's executive-pay guidelines. A GMAC spokeswoman said, "Attracting and retaining key talent is critical toward continuing our efforts to transform the company and restore profitability."

A spokeswoman for Chrysler Financial said, "We continue to work with Special Master, Kenneth R. Feinberg, on corporate executive compensation, to seek advice and input with regard to our compensation plans." A GMAC spokeswoman said, "Attracting and retaining key talent is critical toward continuing our efforts to transform the company and restore profitability." A representatives of Bank of America had no comment. A Chrysler spokesman wasn't able to provide immediate comment.

Mr. Feinberg holds enormous power over the subset of firms he oversees under the bailout, formally known as the Troubled Asset Relief Program. He must approve or reject compensation for the most highly paid employees and oversee the structure of each firm's compensation. Among the things he will examine is whether a firm's compensation rewards risk, is comparable to that of peers and is tied to long-term performance. His decisions aren't subject to appeal, and he is operating largely independent of the Treasury Department. Mr. Feinberg, an attorney, isn't receiving government compensation for his work.

Legal experts said Mr. Feinberg's power, combined with the opprobrium a firm may suffer if it is perceived as making excessive payouts, could give the government leverage. "Mr. Feinberg can certainly put all types of informal pressure on firms to get them to renegotiate," said John Olson, a partner with Gibson, Dunn & Crutcher LLP, in Washington, D.C. Even before Mr. Feinberg was appointed, the government pushed AIG to reduce some of its planned bonus payments. A spokeswoman for AIG declined to comment.

Several firms receiving TARP funds have been using compensation contracts to attract employees. With so much uncertainty surrounding TARP, financial firms say they need to promise certain levels of pay to attract top talent and prevent skilled workers from going to work at non-TARP firms. Many firms, such as Goldman Sachs and J.P. Morgan Chase & Co., have returned TARP funds, freeing them from government restrictions. TARP puts restrictions on how recipients can compensate employees. Bonuses must be capped at no more than one-third of total compensation and payable only in restricted stock. Employment contracts signed before Feb. 11, 2009, are exempt.

Citi 'milestone' as Washington takes 34% stake
The US government is poised to take a 34 per cent stake in Citigroup, increasing both its exposure to and influence over the troubled financial group following yesterday's completion of a long-awaited $58bn share offering. The move is a milestone in a financial crisis that has forced the US authorities to come to the rescue of some of the largest institutions in the country. Citi has been a repeated recipient of government aid and is the only large surviving bank to have had to cede a shareholding to the government.

Citi announced last night that virtually all of the non-government holders of preferred shares had agreed to convert them into common stock, a move that will pave the way for the government to complete the exchange of its $25bn of preferred shares in the next few days. The outcome was expected as Citi had made it financially unpalatable for preferred shareholders to refuse to convert their stakes into common shares. The offer - part of Citi's latest bail-out - is aimed at giving the bank enough capital to rebuild its fortunes and absorb further losses caused by the financial crisis.

The government has indicated that, in spite of becoming Citi's single largest shareholder, it would take a hands-off approach and not take up any board seats. Nevertheless, Citi has been under close regulatory scrutiny and is operating under tighter controls than most other banks. The US government, which has injected $45bn into Citi since the beginning of the crisis, still has warrants that give it the right to buy a further $20bn of shares in the bank.

Vikram Pandit, Citi's chief executive, said in a statement that the completion of the exchange was a "milestone" that would give the bank new "financial strength". After the offering, Citi will have $100bn in tangible common equity - a measure of the strength of its balance sheet. But the conversion of $58bn of preferred shares held by sovereign wealth funds, institutional investors and the government, would force Citi to issue billions of new common shares. That, in turn, will dilute the value of the shares held by existing shareholders and depress the value of its earnings per share - the metric used by analysts to measure a company's profitability.

Citi has revamped its board partly in response to pressure from the Federal Deposit Insurance Corporation, one of its regulators. The bank has appointed eight new members to its board, including three last week.

Citi swings axe to restructure Italian business
Citigroup is looking to sell – or failing that, to close – its private banking business in Italy and is to reduce its presence in the country by about half. The move, part of the US banking group’s global restructuring programme, is expected to see the number of people employed in Italy fall from 1,000 to about 500 by the end of this year, with most of the job losses coming in its Italian consumer finance business. That unit, which has 65 branches round the country, is being closed.

Citigroup’s scaling down in Italy represents a dramatic shift in policy for the bank, which expanded rapidly round the world in the past decade. But it is consistent with its strategy of shrinking its balance sheet and divesting itself of non-core assets as it tries to revive its fortunes after suffering billions of dollars of losses during the global financial crisis. Citigroup has held talks with Banco Santander of Spain, among others, about selling its Italian private business, which has assets of about €2bn ($2.8bn) under management and is considered too small to be competitive. If the bank cannot find a buyer, it is expected to close the unit.

Once the restructuring has been completed, Citigroup’s business in Italy will be concentrated on corporate and investment banking and global transaction services. Two years ago it sold its retail banking unit to Credem, an Italian bank. Citigroup has also sold its Milan headquarters, in a sale and leaseback deal. Sergio Ascolani, Citigroup’s head of banking in Italy, told the Financial Times: "It’s absolutely rational, with current markets, to exit from businesses that are marginal and invest in areas where Citi is globally strong."

He added: "We’re not exiting Italy, just rationalising here." Citigroup is one of the chief casualties of the global financial crisis and is under intense pressure to restructure and shrink after using hundreds of billions of US taxpayer dollars to prop itself up. It is expected to finalise the sale of a 34 per cent stake to the US government as part of its latest bail-out.

In January, Citigroup placed $650bn-worth of non-core assets and businesses into a separate division with a view to selling them or winding them down. The new unit, called Citi Holdings, includes the bank’s US consumer finance operations, about half of its credit card business and most of the toxic mortgage-backed securities that caused most of Citi’s losses. On Friday, Citi created a special board committee to oversee Citi Holdings and monitor the disposal of its assets.

Bernanke's protests on too-big-to-fail ring hollow
Like any politician, it seems Federal Reserve Chairman Ben Bernanke is prone to saying one thing when he's on the hustings and doing another thing when he's back inside the Washington Beltway. A case in point is the issue of too-big-to-fail banks roaming the American economy. Bernanke was asked about this issue more than any other during his town hall meeting on Sunday night with citizens of Kansas City.

The Fed chairman went to Kansas City to assure the average Americans that the economy was on the mend and the central bank was on top of the situation. But going through decades of endless debate and little action over the too-big-to-fail question didn't fit with that strategy. "The problem we have is that in a financial crisis if you let the big firms collapse in a disorderly way, they'll bring down the whole system," Bernanke told the meeting. "When the elephant falls down, all the grass gets crushed as well," Bernanke added. He said he had to "hold his nose" to rescue such institutions during this crisis. As a result, Bernanke said it was his "top priority" to fix the issue of too-big-to-fail.

But Burt Ely, an expert on banking regulation, does not see that sense of urgency from the central bank or the White House. The Obama administration's reform of Wall Street regulation, which is backed by Bernanke on almost all points, basically sidesteps the issue of too-big-to-fail, argues Ely. The plan would put extra requirements on the capital and activities of firms found to be too-big-to-fail. It would also put in place a new resolution program between bailout and bankruptcy where the government can come in and seize the firm and unwind it in an orderly way.

The Fed's top expert on the subject, Gary Stern, the president of the Minneapolis Federal Reserve Bank, said he was disappointed in the approach taken by Treasury, calling it "status quo plus." "The Treasury proposal fails to come to grips with too-big-to-fail and therefore leaves the financial system considerably more vulnerable than it needs to be to future bouts of instability," Stern said in a speech earlier this month. "There is little reason to think that these steps will, individually or collectively, succeed in reining in too-big-to-fail effectively over time because they do not change the incentives which create the problem. In fact, there is nothing in the Treasury proposal designed to put creditors of large, systemically important financial institutions at risk of loss," Stern said.

Stern wants the government to insist that it will not bail out uninsured creditors of the biggest firms. This will make risk more expensive. In turn, banks won't be able to take on excessive amounts. Ely said the Fed and other banking regulators have flubbed the issue for decades and major questions remain in the wake of Bernanke's handling of the recent crisis. "It was all ad hoc, and precedents have now been set," Ely said. Experts still debate why the government let Lehman Brothers fail after a buyer was found for Bear Stearns.

Even in the aftermath of the crisis, regulators are still reluctant to identify which firms are too-big-to-fail, Ely said. "How far does it extend -- to firms like GE Capital and insurance companies? Does it include domestic operations of foreign banks?" Ely asked. Ely advocates a solution where big financial firms are required to find a series of voluntary guarantors who would agree to provide - for a fee -- unlimited equity should a firm exhaust its supply. Ely said he was never able to make any headway with his argument until the recent crisis hit. "People are coming toward me," Ely said. "We're not going to get rid of these big financial institutions. We're stuck with these big monsters," Ely said.

'Cash-For-Clunkers' Plan Attracts 16,000 Auto Dealers
Almost 16,000 U.S. auto dealers have applied to participate in the "cash-for-clunkers" vehicle trade-in program, or about 80 percent of the nation’s new- vehicle retailers, Transportation Secretary Ray LaHood said. The government is trying to help jump-start slumping auto sales through the program, giving consumers new-vehicle credits of as much as $4,500 for turning in older cars. "We’re very excited about the tremendous interest in this program," LaHood said today at a news conference to outline the program. "We think it’s going to turn into a good news story for many communities that have been hit hard by the recession."

Sales of cars and light trucks in 2008 fell to 13.2 million, after averaging more than 16 million a year during this decade, and General Motors Co. and Chrysler Group LLC are working to restore demand after emerging from bankruptcy. There were about 19,000 U.S. dealers at the end of June, according to the National Automobile Dealers Association. The Transportation Department has processed 15,893 dealer applications, LaHood said. The law took effect on July 1, and the U.S. published rules for the program July 24. LaHood said his agency has received 45,000 phone calls from people asking about the program.

President Barack Obama signed the clunkers program into law June 24 after Congress approved it the previous week as part of legislation to finance the Iraq and Afghanistan wars. The $1 billion in federal subsidies may spark 250,000 new car sales, U.S. lawmakers have said. They’re betting the clunkers effort will help spur purchases by consumers who weren’t otherwise in the market for a new car. John Bailey, 26, said he traded in a car two days ago for a new Chevrolet Cobalt. Bailey, of Manassas, Virginia, said he wouldn’t have traded in his 1994 Oldsmobile had it not been for the cash-for-clunkers plan.

"It’s a great incentive for consumers," said Bailey, who works in the shipping and receiving department of a semiconductor manufacturer. Cash for clunkers will end Nov. 1 or when the $1 billion in subsidies expire, whichever occurs first. Congress must decide later this year whether to approve legislation extending it into 2010.

"With the tremendous public interest leading up to today, we anticipate that the $1 billion in funding for the cash for clunkers program will go quickly," John McEleney, chairman of the McLean, Virginia-based National Automobile Dealers Association, said in a statement today. Representatives Sander Levin of Michigan and Betty Sutton of Ohio, both Democrats, said at the press conference that they may try to extend the program if the initial allotment is exhausted swiftly.

China's Power at Issue in High-Level U.S. Talks
Climate change, protectionism fears, and questions about how China navigates its rise as a global economic power will dominate the agenda on Monday, July 27, when the Obama Administration resumes a senior-level U.S.-China economic dialogue initiated in the Bush Administration. But few experts expect any serious progress on the main issues separating the two economic giants.

Led by Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner, the U.S. will continue to press China during the two-day meetings to turn its economy away from a reliance on exports and more toward domestic consumption. Washington will push Beijing for a joint approach to climate change and to allow its currency to appreciate. On the Chinese side, Vice Premier Wang Qishan will push again for assurances that the U.S. is making a priority of curbing inflation in order to safeguard the value of Beijing's $1.5 trillion in U.S.-denominated reserves. Co-heading the Chinese delegation will be State Councilor Dai Bingguo.

In a briefing with reporters, senior Obama Administration officials suggested that they are not expecting a breakthrough at the Strategic & Economic Dialogue, or SED. Yet experts say the process of the two countries simply meeting, talking, and agreeing—even if vaguely on a senior level—is a value in itself in terms of smoothing frictions. "The SED is all about warm and fuzzy feelings and verbal assurances that China won't switch out of dollars, which they can't do anyway [on a significant scale], and assurances that the U.S. and China will do everything they can to fight protectionism," said Michael Pettis, a professor of finance at Peking University.

The summit comes two months after Geithner traveled to Beijing and adopted a low-key tone with the Chinese compared with the blunter style of George W. Bush Treasury Secretary Hank Paulson. Paulson initiated the dialogue in 2005, but the Obama Administration is seeking to give China more of a stake in the outcome of broad global issues by adding Clinton, along with political issues such as North Korea, Iran, terrorism, and nuclear proliferation. The shift to a joint economic-political agenda accompanies a diplomatically far more assertive China during the financial crisis, which has fixed attention on Beijing's enormous new role in the global economy.

One subtext of the talks is a U.S. attempt to synchronize economic recovery policies and a conclusion in Washington that the U.S. economy has permanently shifted—and that China's economy must change with it. The Administration specifically wants Beijing to temper its reliance on U.S. consumption for China's economic growth. There has been a fundamental change in the U.S. economy, said a senior Obama Administration official in the briefing with reporters: "Household savings is up, and we are not going back to the way it was in 2006 and 2007. They need to prepare for a new U.S. and global economy."

As they have in previous discussions, the Chinese have signaled that they are worried about the inflationary impact of enormous U.S. budget deficits. "I believe the Chinese delegation, especially Vice Premier Wang Qishan, will explicitly raise the hope that the U.S. should make responsible economic policies, including financial and monetary policies, to maintain stability of the dollar and safeguard the safety of China's assets," said Zhu Guangyao, China's assistant finance minister, in a Beijing news conference last week. Zhu said: "China hopes the dialogue could further the negotiation of a bilateral agreement on investment protection, which is still under way."

Accusations of trade protectionism will be a key subject of the talks as well. The Chinese are seeking assurances that its companies won't be blocked as they pursue investments abroad. Last week the Chinese made explicit what has been apparent for some time: Beijing intends to use its enormous reserves of cash to buy up foreign commercial assets. The Chinese call this policy "going out" and say they plan to accelerate it. "We should hasten the implementation of our going out strategy and combine the utilization of foreign exchange reserves with the going out of our enterprises," said Chinese Premier Wen Jiabao.

A senior Obama Administration official said the U.S. side will make clear that Washington is open to Chinese investment. But, illustrating that jobs and foreign investment are sensitive U.S. domestic political issues, the official repeated at least twice that while Washington welcomes Chinese investment, national security is nonnegotiable. Recently, the U.S. and the much of the rest of the world have sought trade redress by China more aggressively than they did in previous years.

According to a study released on July 23 by Brandeis University economics professor Chad Bown, China was the most frequent target of new World Trade Organization investigations in the second quarter of this year. It was named in 19 of 23 new investigations of products, the report said. In the same period, Chinese exporters were a target in every one of 17 WTO anti-dumping punishments regarding products. "I believe China especially is quite worried about rising protectionism against its exporters—not only from the U.S. but from the entire WTO membership," Bown said.

Threat of Unemployment
Are markets taking too rosy a view of unemployment? Unemployment is usually seen as a lagging rather than leading economic indicator: In the last two U.S. downturns, firms continued shedding jobs for months after the recession was officially over. Typically, companies only start hiring in earnest once a recovery is clearly under way. But this time, unemployment may play a bigger role in determining the timing and shape of recovery.

True, the markets are currently betting the old orthodoxy still holds sway. Unemployment has climbed quickly. The U.S. rate hit 9.5% in June, higher than any point since 1983, and up from 5.6% a year earlier, one of the steepest annual rises on record. In the euro zone, May's 9.5% unemployment rate was the highest in 10 years. The Organization for Economic Cooperation and Development forecasts rates of 10% in the U.S. and more than 12% in the euro zone in 2010. But that has not stopped equity markets from rallying strongly, amid growing hopes of a recovery this year.

That's partly because job losses and other cost cuts have provided a cushion for corporate profits: 82% of the S&P 500 companies to report so far have beaten second-quarter earnings expectations. The snag is that only 50% have beaten sales targets, as Deutsche Bank points out. For the moment, earnings are only being held up by costs shrinking faster than revenue. For a true recovery, sales need to start growing too. Rising unemployment may make that harder to achieve.

First, the flipside of improved corporate profits is real financial and consumer pain. U.S. credit card bad debt, for example, is rising faster than unemployment. Annualized write-offs of securitized credit card debt hit a record 10.8% in June, according to Moody's. The agency expects that to rise to 12% to 13% in mid-2010. In Europe, Fitch's U.K. credit card charge-off index hit a record high of 9% in April. Historically, investors have assumed that a one percentage point increase in unemployment will lead to a one percentage point increase in bad credit card debt. But the pace of job losses and levels of debt means nobody is confident previous correlations will hold. Similarly, rising unemployment could also hit house prices again, causing further turmoil for mortgage-backed securities.

Meanwhile, high unemployment is also likely to weigh on consumer sentiment. Nearly 60% of U.S. consumers expect high unemployment to persist over the next several years, the University of Michigan reported Friday. That could shape behavior: Federal Reserve Chairman Ben Bernanke warned last week that unemployment could weigh on consumer spending. Continued pressure on sales could be a further impetus for companies to cut costs and jobs, leading to more losses on consumer debt.

The danger of a lost generation
For the first time in three generations, Americans across the nation are facing the threat of long-term unemployment. Already more than one in four jobless Americans have now been out of work for more than six months, the highest level since records began in 1948. For both individuals and national economies, long-term joblessness has proved to be extremely corrosive. Skills atrophy after extended periods of enforced indolence. Then, when an economy recovers, these workers are no longer in a position to fill new jobs.

As a result the potential maximum speed at which the economy can grow declines, and the workers themselves come to be seen as "damaged goods." Those unlucky enough to be graduating in 2009 may find that their salaries never match those of similarly qualified peers who finished in 2006. To his great credit, President Obama has been quick to spot the danger. Under the administration’s stimulus package, the unemployed can now claim benefits well beyond the standard six months. In some badly afflicted states, insurance will last up to a year and a half.

The government is also offering $4 billion in funds to retrain workers. Tax breaks in the package aim to make it more affordable for young people to sit out the recession in school. Another $12 billion for community colleges has the same goal. Yet even this heroic effort may be too little, too late for many Americans. The closest analogy to America’s current unemployment crisis is probably Japan. Here too was a nation accustomed to minimal long-term joblessness. In Japan the lost decade produced a lost generation.

Faced with a "hiring ice age," graduates settled for lower status or temporary jobs. By the time companies were in the mood to hire again in bulk around 2007, they chose fresh graduates. Many of Japan’s thirtysomethings never caught up. A multitude of academic papers suggest that an early bout of long-term unemployment can have an even more pernicious result. According to a recent study by Tom Mroz at Clemson University, a six-month spell of unemployment at the age of 22 tended to reduce wages the following year by eight percent.

More worryingly, almost 10 years later these workers were still paid about three percent less than their peers, even controlling for education, region and personal characteristics. Other studies have shown an even more powerful hit, with wages still about 10 percent lower five years after the initial period of joblessness. "Youth unemployment creates permanent scars rather than temporary blemishes," says Dartmouth Professor David Blanchflower. An unfortunately timed demographic bulge means that there will be an unusually large number finishing school over coming years. For more experienced workers, there is a risk of permanent displacement from the labor force. This risk is especially great for workers in financial services — an industry that is unlikely to grow back to its peak size any time soon.

This is a problem that few nations have ever had much success in combating. Even before the latest economic crisis struck, half of the jobless in Germany and Italy had been out of work for more than 12 months. Japan, too, has had trouble bringing its long-term jobless rate down. "Getting a job during the crisis in most countries is becoming an even more daunting challenge," said Stefano Scarpetta, head of employment at the Organization for Economic Cooperation and Development.

The United States may have better luck thanks to the flexibility of its labor market. Still, Obama has been right to focus heavily on training. Even if the skills learned in community colleges prove to be useless, avoiding a damaging period of inactivity may offer value for money for taxpayers in the long run. For many, the best way to avoid being damaged by a weak job market will be to stay out of it.

Eastern Europe Faces Threat of More Defaults
Eastern European economies face a rise in nonperforming loans and corporate defaults severe enough to destabilize their already shaky banking systems, the European Bank for Reconstruction and Development warned Friday. EBRD President Thomas Mirow warned former communist bloc countries of a possible second wave of financial crisis, according to the text of his speech in Vienna marking the 20th anniversary of the fall of the Iron Curtain.

The warning came as Latvia, a prominent casualty of the region's financial turmoil, stepped up efforts to deliver reforms requested by the International Monetary Fund. Latvian Prime Minister Vladis Dombrovskis said Friday he has told his cabinet to look for $1 billion in cuts to next year's budget. That is a reduction of 10.7% from 2009 spending, according to Ieva Aile, communications head at the prime minister's office. Nonperforming loans are rising across the EBRD countries and have doubled in the past year in Turkey, Romania, Ukraine and Albania, according to the EBRD. Recent data from national central banks show commercial banks in Romania are no longer collecting interest on more than 8% of the loans they've extended, and the figure is nearing 5% in Turkey, where credit cards are already defaulting at a double-digit pace.

"The immediate challenges we face are a severe rise in nonperforming loans and possible corporate defaults, resulting in rising unemployment, knock-on effects on other companies and on bank balance sheets," said Mr. Mirow. Many of the once fast-growing ex-communist economies lately have been hit by collapsing demand and vanishing foreign investment flows, leaving large foreign-currency debts and current-account deficits. Already, many have turned to the IMF in the crisis, which so far has toppled governments in Latvia, Hungary and Bulgaria.

To prevent a recurrence, Mr. Mirow said Eastern European countries need to restructure private debt, reduce foreign-exchange exposure and adequately capitalize banks. He cautioned that, although the region's economies have stabilized in recent months, the impact of the "unprecedented market crisis" still poses major risks. "This is a severe challenge which we must not underestimate, neither economically nor politically, and we must not allow a sense of complacency to take hold," he said. In Latvia, Mr. Dombrovskis' directive comes just a month after the Riga government agreed to cut spending for this year by the same amount to keep international aid flowing in.

When more grain equals fewer nutrients
Since the Green Revolution of the 1960s, the world has produced a lot more grain—but there may be a lot less in it, a unique experiment in the United Kingdom has revealed. Recent analysis of 160 years of crop samples from Rothamsted Research Station near London discovered that levels of essential micronutrients remained consistent in wheat grain from 1844 to the late 1960s, but then began a decline that continues to this day.

The nutrient decline began when traditional long-straw wheat varieties where phased out in favour of higher-yielding semi-dwarf varieties. As wheat plants have grown smaller since the 1960s, grain nutrient density has continued to decrease. Compared to the old long-straw varieties, Rothamsted’s modern dwarf wheat grain carries on average 20-30 per cent less zinc, iron, copper and magnesium. For zinc, a critical human nutrient, the decline is even more pronounced if the most recent five years of data are compared, with average nutrient levels in wheat harvested from 1844-1967.

The Rothamsted work supports a United States Department of Agriculture study, published in 2006, that compared nutrient levels in hard red winter wheat varieties grown from 1873 to 2000. The US Department of Agriculture (USDA) researchers found that compared to 130 years ago, modern varieties deliver 36 per cent less selenium, 34 per cent less zinc and 28 per cent less iron in their grain. Nutrient decline in food is a driving force behind the organic farming sector, on the assumption that high-tech agricultural methods have depleted the mineral levels in soils and thus made less available for plants to take up.

But at Rothamsted, it seems that soil is not the issue. The research project used the soil and grain archives of the research station’s 166-year-old Broadbalk experiment, the longest-running agricultural experiment in the world. The Broadbalk wheat plots were established in 1843, and were laid out to compare the relative performance of wheat fertilised with inorganic fertilisers, farmyard manure, and wheat given no treatment at all. Nutrient declines in grain have occurred across all these treatments to a similar degree—but mineral levels in the soil have either remained stable or increased.

Concentrations of zinc in the treated Broadbalk soils have increased 40-60 per cent since 1860, and yet zinc densities in grain have declined more than any other measured nutrient. "We can’t put it down to soil impoverishment, so my guess is that the nutrient decline is related to plant physiology," said Rothamsted researcher Professor Steve McGrath. That presents three possible areas for further research. One is that in selecting for dwarf plant genes, breeders have inadvertently dwarfed root mass and made the plant less capable of foraging for nutrients.

Another possibility arises if micronutrients are relocated from vegetative material into growing grain. "If the vegetative mass is smaller, it may mean there is less ability to translocate micronutrients into the grain," Prof. McGrath said. "The third possibility is dilution. The grain is bigger, the grain yield is larger than old varieties; is it just that less mobile micronutrients are just not catching up with grain production so you get a dilution effect?"

That answer isn’t likely to emerge anytime soon. Prof. McGrath said there has been little apparent interest in the finding, and making a case for further research in a restricted funding environment is a long and complicated process with no guarantee of success. However, he understands that micronutrient deficiency, zinc and iron in particular, are implicated in health problems across the developed and developing worlds alike.

"People are suffering growth, health and effects on mental development from lack of zinc and iron," he said. Dr Carole Hungerford, author of the Australian medical nutrition textbook "Good Health in the 21st Century", wrote that zinc is an essential nutrient for fertility, bone and joint health and immunity. It is also essential for the structural integrity of the DNA molecule, which has led some researchers to speculate that zinc deficiency may contribute to cancer.


Stoneleigh said...

Anon @9:53 and others (from yesterday),

You think that we are heading into a deflationary death spiral that leads to a near feudal existence, and you decide to send your children to an arts high school to study painting and....opera?!

The arts make life worth living in good times and in bad, whether or not one actually builds a vocation in that field. My eldest studies painting, as well as drama, dance and athletics on top of her academic subjects, and her high school experience has been very much richer for it. She has been dedicated enough to take four years of summer school and an extra semester in order to also accumulate enough science credits to qualify her for her chosen field in primary healthcare.

In my son's case, music is his passion. At 16 he already sings in the chorus of a professional opera company. While his dream is to move back to Europe as an opera performer, a classically trained voice can be quite versatile. Good performers are valued members of society, whether they are opera singers or traveling bards providing some much needed escapism.

My youngest, who has an engineering bent, would like to be able to repair mechanical things. She fancies doing an apprenticeship in something technical in a very hands-on kind of way. She comes from a long line of engineers, so this doesn't surprise me.

I have told my children that they need practical skills. There is no point taking on debt to study something at the post-secondary level that will not put food on the table. High school, where broadening oneself is free, is a different story.

Anonymous said...

That's a fair response. I concede.

Anonymous said...

Concede as well Stoneleigh. You, unlike some others, have a practical slant on your view of the world and are consistent through and through.

Anonymous said...

To anon libertarian

You have conflated a return to an economy dominated by the informal sector with your bugaboo 'communalism'. Being steeped in a culture that monetises anything it can get it hands on and then calls it added value, distorts your ability to critique the 'new' economy.

Professionalizing something like music is a relatively modern invention. So it is no biggie that the arts will return to being dominated by part-timers. You make a joke that someone would sing while others hoe the fields. There is in fact a long tradition in the informal economy [women's work] to have someone read or play music while others did some other kind of work like spinning or needlework.

The informal economy is no more likely to abide 'free riders' than your pristine free market economy. In a small community everybody knows who pulls their weight. It just isn't monetized.

Communal efforts like barn raising or harvesting the grain crops are not free love offerings, but reciprocity type exchanges. The informal economies form of banking. Just no more transaction fees. Don't you just hate that?

Get a grip, Ayn Rand was a romantic that loved big strong men that rode roughshod over others. And made a religion [pardon, political stance] to rationalize her sexual predilections.


Anonymous said...


Pardon me, but I still haven't seen where you answer the question: why is it appropriate for the government to *take* my time and give it to someone else? Because that's what a progressive tax system does.

And, Ilargi, when you say that the tax regime benefits the middle class at the expense of the poor--you need to discard your Canadian frame of reference. Because the truly poor in America do not pay federal income taxes. I'd argue that the middle class were disadvantaged at the expense of both rich and poor.

Overwhelmed Summary said...

too many comments to do the full list I tried but only got 2/3 through.

*Peak Oilers say recessions correlate with available fossil energy; whence goeth the GDP if oil supply falls 80% in five years?

*Lord of the TAEs adds pequin sauce to snake venom mouth wash.

*Dostoyevsky was right, but only because Keats said so.

*US was a repubic and is now a hyped up democracy, much to the chagrin of a few.

*GOVERNbank and governBANK are perverse, psychotic, and schizophrenic; Hear voices discussing reserves; President Zapetero however ignores advice of 100 economists much to his credit.

*Houses to be worth less than materials used to construct; HD to go bankrupt; KD to rant analytically.

*Cali spends more on prisons than education; Celente says this is a photo of the future.

*Americans don't care what execs do; French kidnap and then feed theirs; Chinese beat execs to death; Americans might get upset if squid gives big bonuses and pigs might fly. Chinese hate landlords; watch out richies your heads might end up on sticks.

*St. John USVI down to 1 out of 4 barges operational; things are slow, bettter villas vacant and less expensive had a good year; Wise buzzards caution that past results are not indicative of future profits; WTSHTF STT and STJ will be early to TEOTWAWKI; Food shipped from FL, tourist economy is SOP, and SNAFU gov provided jobs is a recipe for mess FUBAR seasoned with racial spice; From google STJ looks nice.

*This mania was much like the tulip bubble; houses and tulips are special to their owners.

*Education is a shambles because math and science are prioritzed; Education is a matryoshka doll set ablaze; pragmatists put out the fire; but this is of no consequence, spark must come from within; TAE only cares about seeds and shovels; Aesthetic rant - conch taken back by Lord of the TAEs and states "not on my island".

*Pebbleleigh and Graveleigh go to art school; Life is rich with art.

*Music improves math aptitude; Really?; Math skills improve with time spent at books.

*Physics is mystical and metaphysially we're all consistent at filtering reality with limited brains and bodies;

*Art and Science find common ground hating on politics.

*USACOs are morons who vote on their awareness and cannot propose hypotheses, do differential equations, or think; sociopath mo-fos rule becuz wee r dum; Mel Brooks and Monty Python concur; USACOS of old were tougher, smarter, stronger and more moral than USACOs today.

* New species proposed - Homo insapiens or better yet Homo insapiens spp doing and Homo insapiens spp being.

* Rodrigo y Gabriela are a hit in You're up; Ilargi says, "eh".

* There are too many scientists; Too few; they screwed everything up with gifts of blazing dolls; cooks, mechanics, and scientists unable to fix Saabs; only Canadians are blessed with such useless skills; scientists SAVED MY LIFE; citation of Hitler lacking to complete flameout of thread.

* Troll football is a game of inches much like life; Divine invoked for return of 'normal' trolls; prayers answered; buzzard lands on troll dropping with vitriol.

* TAE is like a coffee shop with ADHD; Ritalin and less anon prescribed; Stoneleigh passes on Ritalin and meets readers in Montreal; poster sees error of ways.

That's all I could handle. Not quite up to par for the couse tonight, sorry.


Anonymous said...

Vicky are you from an industrialized country? I can tell that coming from an improverished nation, where resources are scarce and people are literally getting by on a day to day basis, there is very little room for luxuries. You have failed to address the notion that only the wealthy can afford to patronize the arts because it is true. One can only indulge in simple luxuries such as plays and operas, when one has excess that one can devote to such enterprises. Do the poor attend operas? Do the poor go to a Broadway show? Do the poor buy a piece of art? The answer to all of these are largely no.

Bukko Boomeranger said...

Re: the bogosity of information in the mainstream media -- given that it's out there to fool and calm the sheeple, where do the Big Boyz get their info? How far up does the deception go?

Casual observers who are lulled by the TV news and short USA Today style business stories will be satisfied. I can see how the news readers on TV accept blindly what's in the scripts before them. They're actors playing the part of mini-Crokites. But do the reporters who write the words truly believe what they're putting out? Are they that un-scepticus?

And what about people with the power to control money? Do investment advisors accept what they're fed in the MSM? Do Congresspeople and their aides (the latter are generally the smarter ones) base policy on what they read in newsprint? How high in the hierarchy of Goldman Squid do you have to be before you realise that it's so much spin? Is everyone above Gollum's phone clerk aware that the real story is not what's put in front of them, or do they buy the myths too?

And what's the ultimate point of the spin? To fool the fools? Is it all a kabuki theatre, going through exaggerated motions that signify something else?

What does it do to the media organ's standing with the people who know what's going on? If you're the New York Times or the WSJ, do you worry about your credibility with the same sources you're seeking information from the next day? You as reporter or editor or publisher don't fear that Blankfein or Summers is going to think "This rag that's asking me questions is pitched at second-graders. Why should I bother talking to it?"

And what do the smart ones read/watch? (The Economist, Financial Times and Bloomberg TV, I suppose.)

These are rhetorical questions with no answers, of course. When I think of the web of lies, I just scratch my head and wonder "Why?" They did the same thing in the Soviet Union (and also 1984's Oceania.) Didn't work out so well for the former. The latter is still in our future. Maybe not so far away...

snuffy said...

Some words for the Anoni-mouse

@12; have a very narrow definition of art...

@12;31...Taxes,of all sort ,are you ticket into civil society sir/mam...If you don't like it...move to a 3rd world pure libertarian hellhole..and in your gated compound sit and wait for one with more mojo than you to come and take it away...
"Those to whom much is given,much is expected"..

...pony up..

As far as I am concerned,a return to the 1950 tax structure would be a good start...90% seems fair to me of anything over.. say... 250k...

It would cut speculation to the bone,as well as put money to work doing things....The Idea that Pete Defasio...[the only congress critter I have a liking of]was to tax .5%of all speculative transactions to pay for the cost of cleaning up the mess is a good one I,and many others believe..

Those boyos should pay their own freight...not the us gov



Anonymous said...


1) That is the definition of "art" that is being thrown around. The central premise remains. You have not addressed it.

2) Taxing the rich at some insane rate will in fact cause them to leave, and leave with their capital. They will just move their businesses to Dubai or some such. If you think that taxing what you perceive the wealthy is any kind of solution I would suggest you brush up on reality a bit. Unless you want to see even more outsourcing, your solution is, to be honest, foolhardy.

3) Effectively eliminating speculation is also a ridiculous idea because:

a) That means closing the stock market, which is actually an important venue for raising capital for businesses.

b) Many businesses rely on speculation, in the form of contracts, in order to hedge wild volatility in prices of inputs used for their productive processes or regular business operations. Do you want to see all of the airlines go bankrupt? What about power companies, and other businesses that rely on energy or mineral raw materials, or organic raw materials? Do you really think things through to their logical conclusion before posting?

Answer to anonymous said...

Pardon me, but I still haven't seen where you answer the question: why is it appropriate for the government to *take* my time and give it to someone else? Because that's what a progressive tax system does.

Here's an answer put in terms you'll understand, anonymous.


There are more of us poor people than there are of you selfish rich fcukers. You can keep grabbing more and more, and leaving more people in the dirt. Oooh, yes, that's the "fair, principled" libertarian system.

And when enough people get ground down far enough, we'll start burning shit down and killing anybody who dares drive outside their gated compounds in a Mercedes. And you can hire all the security guards you want, but you'll still be living in a wasteland, worrying that one of your gunslinger goons is going to bust a cap in your head just to steal your Rolex.

That doesn't apply to you, anonymous, because you're a little person too. If you had a ton of money, you wouldn't be reading econoblogs. But your rich betters that you champion, the ones who don't want to share via a progressive tax system, can do things the easy way, or the hard way. Make an equitable society, or live fearully in a feudal shithole.

My bet is on the hard way. I hope I live long enough to pull some squealing mofo from his S-Class and put a boot into his expensive dental work.

Anonymous said...

1:19am - You have issues. You sound like a sociopath. Nothing more to add there.

Anonymous said...

Snuffy: Your argument fails. You've only said that taxes exist, so deal with it. I guess my response could be: you're starving to death, so deal with it. You have yet to explain why I should pay proportionately more taxes than you, or why the government should have the right to take the product of my labor and give it to others without my consent. And, Snuffy, it is my *labor*--I do not earn income off of investments, only what I can sell to others. So: I'm still waiting for an argument.

Anonymous said...

snuffy there is also a difference between countries in terms of what the tax revenue is used for. If it is used for productive purposes (education, defense, infrastructure and stuff of this nature) then it is money well spent. If it is for entitlement programs that lead to an entitlement mentality, then I say screw that. Already some 18% of the national income is going to entitlements. You do realize that is unsustainable right?

Many of these people are straight leeches and it is time to excise them.

Anonymous said...

1:24am - He is going to give you some argument about fairness and egalitarianism. I would simply point out the example of the USSR and how effective his theory would be.

Anonymous said...

Anon at 1:19. You write well. You also explain well. You see, at least you are honest about your rationale. It isn't about fairness, or efficiency. It's about hatred. You hate anyone who has more than you do. But have you ever asked yourself whether they earned it? I grew up poor--I have the teeth to prove it. And I've earned my money the hard way. You could have, too, if you'd been willing to subvert the joys of life as I have. Perhaps circumstances dealt you a bad situation, but more likely than not you weren't willing to grind out as much work as me. And if that's the case, why take my labor and give it to any able-bodied working-age adult who hasn't worked as hard?

Stoneleigh said...

Another advantage of the arts high school is the culture there. About two thirds of the school population is in the arts programme, for which they have to audition or present a portfolio of work (for drama, dance, visual art, instrumental music, vocal music or literary arts). It takes a lot of effort to qualify, based on demonstrable creativity and enthusiasm, and then students have to keep their grades up to be able to stay.

The school population is one that cared enough to get there and cares enough to stay. It is a truly amazing school, but not a high-pressure performance academy. Teachers lucky enough to teach there never want to leave. The walls are covered with wonderful art work, there are impromptu concerts in the halls and spontaneous dance recitals in the cafeteria. Everyone is accepted for who they are.

The creative spirit is wonderful to behold, and applicable in many walks of life. Lateral thinking could easily be a survival skill in the uncertain future we are facing.

Anonymous said...

1:36 - The problem is that everyone in this country feels entitled to some benefit as though it were a god given right. There is not modicum of respect for hard work and perseverance. Instead everyone is looking for short-term gratification and making a quick buck. Let's say we start taxing the rich at rates that those here advocate. What is the logical result with capital being very liquid and being able to move around with great ease? That's right, it flees. People leave the country, renounce their citizenship and give the government the bird. Guess what happens when enough people start doing this? Lot's of people like 1:19, only more of them will be unemployed. It's scary to think that people like this exist and highlights the great weakness of democracy, namely, that people will vote themselves benefits once they become aware of their ability to do so.

Anonymous said...

Stoneleigh - I must say that I find the environment you describe very appealing for my children. It would be a wonderful exposure for them at the primary and secondary levels. That said, at the tertiary education level I would encourage them to focus their efforts on practical skills that will permit them a high certainty of being able to support themselves.

Anonymous said...

Dear anon

You think that what you earn reflects some intrinsic worth [added value to society] and therefore you are entitled to it. The system only pretends that it is so. It isn't like the rich have to pay for the failings of the poor or middle class.

The system is rigged to pull the profits to the center. Even the wealthy know this. The middle class tend to be a bit naive regarding income and worth because they do invest in higher learning and treat that as a proxy for their added value.

Do you ever wonder just who paid for your education, streets and other local amenities? A lot of regressive taxes.

Do you ever once wonder how it is possible for 1% of the population to have such a hold on the capital of the country? What possible added value have they contributed?

Do you really know anybody who is worth thousands of times more than your average person?

Everybody values their own time. It's the one thing we have in common and nobody knows just how much time is in the bank until we cash out, as it were.

There is no answer to why the progressive tax is 'fair' if you insist that your time is more valuable than others. On the other hand if you were to state it as your money, then the tax redistribution is a method to keep the system functioning. Impoverishing everybody but the wealthy is a sure way to collapse capitalism. No market, no money.


Submit your advice said...

do the poor attend opera? Hmm, I lived in Africa for many years and I fondly recall in West Africa performances that were truly incredible but hard to describe. For an entrance fee of about 15 cents one was entertained by a pair of men, one played electric guitar, the other drums, with wonky power supplies, old or broken strings, the cheapest of equipment, taxing their abilities to make it sound good, which they always did. Just two instruments but they sounded like an orchestra.

Much of their show was extremely witty repartie, riffing on the minute local events that were the strongest concerns of their audience, made up of poor children, old people, and a few drunks in whatever poor urban neighbourhood or village they were in. They would each take on roles, like a panto, switching personalities and genders, tragedy and comedy, at the drop of a hat, and constantly enlivened by musical interludes. Was it La Boheme? No. But was it art? Absoluteley. These guys were geniuses.

As for opera, when I was a grunt in the US Army infantry, I remember an E3 in my unit who sang great bel canto. He was our entertainment in the field, and taught guys from all over the place who'd never heard opera before all about it, to a great response. They loved it. Even guys from Compton. It depends on the exposure. Do poor people like opera? Yeah, some do. People will always respond to art that resonates within them when they encounter it.

FWIW, the worse the economy gets, the more I focus on the arts, and natural beauty. I prepare for the coming dark ages by buying books of poetry, along with packets of seeds. We're going to need them.

Anonymous said...

In all of the examples provided the artisans in question had other more stable means of income. Art for them was mainly a hobby, a pastime. Further, providing simple anecdotes does not serve to discredit an argument.


Anonymous said...

Vicky what you describe cannot, I repeat, CANNOT be remedies by levying higher taxes on those deemed to be too affluent in society. Capital is formed by saving and investing in a perfect world, not by taxing (which creates inefficiencies) and wealth redistribution. I would like you to deal with the issue of capital flight and the effects it will have on the economy compared to how it is now before you conclude that an even more progressive taxation scheme will work. Because in today's world of highly liquid capital, that simply WILL NOT pass muster. The 1950s paradigm cannot function today precisely because of this phenomena. The economy is a great deal more open than it has ever been. Try to squeeze capital and it will flee.

Anonymous said...

BTW how does tax redistribution (which I assume you mean welfare,etc.) benefit the economy as a whole? Entitlements (pure wealth re-distribution) are slowly strangling the economy and threaten to literally destroy the economic fabric of the nation. So I repeat, how does even more wealth re-distribution help?

Anonymous said...

I wonder how much money Stoneleigh pays to send her children to the art school? Maybe this is a typical example of free Canadian education, but I doubt it.

I read '40 Ways to Lose Your Future' and I read what Stoneleigh writes about her kids schooling and I can't help but wonder if she knows how contradictory she sounds.

Next thing we'll learn is that Stoneleigh drives a Cadillac fucking Escalade.

You are really coming off like a spoiled, privileged elite who has made a pet project out of writing about collapse and energy in between trips to the soccer field.

There is no point taking on debt to study something at the post-secondary level that will not put food on the table.

Ummmm. What the? I thought we are to take on NO debt. There should be no point in taking on ANY debt, because according to you, there will be no credit.

Stoneleigh warns all of us the the end is near, but seeks long term college planning for her kids.

Do you not see the hilarity in this?

jal said...

@ anon (sounds like there is only one and he is a true theoretical capitalist)

"Taxing the rich at some insane rate will in fact cause them to leave, and leave with their capital. They will just move their businesses to Dubai or some such."
They are already there in their capitalist heaven. They already moved their productions to a more friendly capitalist environment, Did you not notice ... there is nothing being made in the US. that cannot be made cheaper by the capitalists who have moved their operations out of the US.
Its time to wake up ... and face a new day!
"Do you really think things through to their logical conclusion before posting?"
I charge you with the same accusation.
If it is used for productive purposes (education, defense, infrastructure and stuff of this nature) then it is money well spent.
Who defines "productive purpose? You?
In that case, You must be a "lawmaker" or a banker?

Yep! defense
Since when has it been considered "money well spent"?

Oh! you must be buying into the republican propaganda. Cut everything except military.
If you are not part of the 1%, in Dubai, then I'll see you in the soup line and in the shelters.
"Try to squeeze capital and it will flee."
What capital? Its gone. Did you forget ... its a credit economy.

Anonymous said...

2:28 - How Stoneleigh chooses to spend her money is really none of anybody's business, nor is how she chooses to school her kids. That said, she has pointed out the necessity of learning practical skills. What is wrong with allowing her children to explore their artistic talents (if any) before they go on to tertiary schooling? That said, I agree, her comment about taking out debt to go to college is HIGHLY contradictory and flies in the face of her 40 Ways primer. As in shred it to pieces.

Anonymous said...

dear anon

I'm just an opinionated old lady that once was suckered into the libertarian free marketer philosophy [in my 20's] only to discover rather quickly that the rhetoric and theory never actually met the smell test of reality. It is a philosophical belief system [and and ideology].

I defer to Stoneleigh to answer your questions.


Anonymous said...


Trying you are making no sense. The government has to make military expenditures since the private sector will not. Although it is basically a sunk cost, a country like the United States does in fact need a military.

There still exists a very large capital base in the United States. Do not be under any illusion to the contrary. The outsourcing of our productive capacity has certainly depleted it, but it is still nonetheless very large. The proof of this is in the decision of other countries to lend to the United States. Granted, our debts now exceed our ability to be paid back, but we are being lent in the first place because of our large capital base. It is this capital base that allows for alot of these high paying jobs you want to tax.

I don't get to define a productive purpose, but nor should you or your brand of ideologue.

Finally, to say that nothing is made in the United States is simply asinine.

Stoneleigh said...

Anon @2:28,

I wonder how much money Stoneleigh pays to send her children to the art school? Maybe this is a typical example of free Canadian education, but I doubt it.

The arts school is a normal, publicly funded institution. They ask families with students in the arts programme to contribute $250 per year to cover the cost of materials, but families with limited means are covered by fundraising efforts.

Next thing we'll learn is that Stoneleigh drives a Cadillac fucking Escalade.

I drive a Toyota Yaris. I can get five people and a week's worth of groceries in it, provided the people don't mind groceries on their laps on the way home.

I admit to also owning a 17 year old Ford F-250 which exists solely for farm chores like pulling the shared haybine and hauling firewood.

I thought we are to take on NO debt. There should be no point in taking on ANY debt, because according to you, there will be no credit.

Agreed. But taking on debt for something largely pointless would be even worse. My kids know that if they want to do post-secondary education (assuming that post-secondary institutions exist for that long), they will have to get scholarships (assuming those also last that long) and they will have continue to live at home. If circumstances deteriorate very quickly, as they could easily do, then all bets are obviously off.

Stoneleigh warns all of us the the end is near, but seeks long term college planning for her kids.

I make plans and contingency plans. My kids know that plan A could be derailed at any time. Plan B is to continue learning by doing under the tutelage of someone who can already do it, and accept that one can do something without having a piece of paper that says so. At that point the niceties of official qualifications would have gone by the wayside anyway.

We live with a foot in each of two worlds in order to maintain as much flexibility as possible while we can.

Anonymous said...


I can answer your arts question. The pleasure that people get from artistic expression as either audience or participant is hardly limited to professional expensive productions.

Even hunter/gatherers sing and dance. Ever been to jam session in someones living room or a school play?

The monetization of joyful activities has warped your sense of values.


Anonymous said...

Stoneleigh - You are very patient for tolerating personal attacks. That said, you did discuss the issue of taking on debt for school. This is directly contradictory to that which you have stated, almost ad nauseum, in the past.

jal said...

@ anon ...
We are having a heat wave and its too hot to sleep. So, I'm here.

You answered in the true spirit of of an ideologist.
Evasive and degrading character insinuations and inuendos.

In case you have not noticed the capitalist businesses are being squeezed by the banker and are going bankrupt. Its not the gov. doing it. Its not the "socialist" doing it. Its happening in all the countries.
You are confusing capitalist and bankers.

Anonymous said...

Vicky you still are not providing any argument as to how the arts, in and of itself, is a self-sustaining mode of employment when SHTF. You keep providing examples of part-timers, anecdotal evidence based on the current paradigm (of relative wealth). Please provide a clear argument as to how being an artisan will be a practical means of obtaining food in a world where people are scrounging for resources and widespread starvation and poverty rules the day? Please note that I am not saying that people will totally disregard the arts. I am saying that organized art and art as it is practiced commercially requires wealthy patronage. All of your examples are one of part-time or hobby art practice.

Anonymous said...

No jal. I have provided arguments every step of the way. I have thrown out derogatory labels for which I apologize, but I trully don't think that anyone is really addressing any of my points and that is frustrating. Capitalist businesses are indeed being squeezed. Is the answer then the squeeze them further with higher taxes? Read Charles Hugh Smith. He has some really good insights on this phenomena.

jal said...

I did not say ".. nothing is made in the United States"
I said, "nothing being made in the US. that cannot be made cheaper by the capitalists who have moved their operations out of the US.
I read "of two minds" regularly.

Stoneleigh said...

Anon @2:55,

I am sorry if I gave you the impression that taking on debt would be a good idea. I worded my earlier comment somewhat carelessly. I said:

There is no point taking on debt to study something at the post-secondary level that will not put food on the table.

I did not mean to imply that one should take on debt to study other things either. We will not be taking on any debt for education, or anything else for that matter, at all. Here it is still possible not to incur debt for post-secondary education if one lives at home and attends on scholarship.

The cost is nothing like it would be in the US. The healthcare programme that my eldest is interested in, for instance, would cost about $12,000 in tuition over the whole three years. This is doable on scholarship if access to scholarships lasts that long. In the US, sadly, post-secondary education almost certainly involves large amounts of debt for all but the very wealthy, and as such is already inadvisable.

Anonymous said...

In that light Stoneleigh, TEOTWAWKI or not, I agree.

Anonymous said...

Stoneleigh if I may ask, what do you think will be the prospects for the Chinese over the intermediate to long term? Also, my new job will permit me to live anywhere in the world practically (since I can work from home). Where are some good locations that you think will weather the storm fairly well?

Erin Winthrope said...

Read Floyd Norris at the NYtimes

Norris has been doing a good and consistent job reporting the ways accounting standards have been gutted in favor of the banks.

My favorite quote:
"The [Financial Crisis Advisory Group] cautioned that there could be conflicts between the aim of accounting rule makers to accurately reflect a company’s financial position and the goals of banking regulators. “For example,” the group wrote, “transparency may not always be the best way to prevent a run on the bank.”

When anyone from the NYtimes mentions the potential for a bank run, you know things are getting bad.

To understand why accounting standards were abandoned , it's useful to remember the dilemma that politicians faced this past spring.

The financial system in general, and Citi and Bank of America in particular, were sinking under the waves. Talk of nationalization was rampant. But, public anger over AIG bonuses had reached a boiling point, executives were being stalked by angry mobs, and no further rescue legislation was politically possible.

To realize how desperate the situation had become, remember the famous quote from Obama's State of the Union Speech, in which he all but admitted that the financial system is irretrievably broken:

"You should also know that the money you’ve deposited in banks across the country is safe; your insurance is secure; and you can rely on the continued operation of our financial system."

Regulators and politicians faced a dilemma: In the absence of more bailouts, the only way to prevent the implosion of the financial system and a systemic bank-run was to allow the banks to report fantasy asset valuation numbers rather than reality. Did this action solve anything? No, the problems within the bank vaults are obviously growing worse with each passing day. Changing accounting standards did, however, buy time - almost 6 months worth. Unfortunately, in the process of kicking the can further down the road, we've stubbed our toe, and a gangrenous infection has now spread from the toe, to the foot, to the leg. It's getting hard to walk, and I think we're about to fall in a ditch.

Floyd Norris

Anonymous said...

@ Vicky 1:48

Thank you. You said what I would have said much less politely.

And to contribute in opposition to the continued sniveling about the flight of wealth...pop your head and look around. This is what they built--who cares if they leave?

Furthermore, they will leave with their little digital dollars, which will be worthless. They cannot leave with water or soil or metals or skilled labour. Let them go, and build something worthwhile after you regain strength after shaking off the leeches.


Anonymous said...

Dear anon

If the assumption is that art isn't really art unless it is a way to make a living then there is hardly any real art at all. Even now there are 1000 wanna be professionals for every successful one in every branch of the arts. Are they all 3rd rate mediocre artists? No.

When people can't make a living as an artist they have to do other things. But most will continue to do their art part-time because it is gratifying enough without getting paid for it. An appreciative audience or others to play with may be quite sufficient pay-off for them.

Which indicates to me that art is in a different class than other pursuits. It is more inner driven than outer driven or 'practical' as your mother might say.

We don't need a capitalist or other wealthy class to support the arts in the way you suggest.

Will the world be worse off if there are no monumental brass castings of great heroes or vanity portraits of the ruling class?


Anonymous said...

Vicky my comments in no way cast prejudice on the value of art. Your argument is a red herring. The basic premise was that was made was that it was questionable whether Stoneleigh was encouraging her children to pursue the arts to its fullest (I.e. become artists). You have provided absolutely no arguments to refute this point and have chosen to argue something else entirely. Let me repeat for your benefit:


Absolutely nothing you have said refutes the notion that art can be pursued as a practical endeavor to provide food on the table. Heck, even in a good economy artists struggle. Please keep the discussion on track and do not distract my points. Thanks in advance.

Anonymous said...

Vicky- at what point did I say that if it cannot make money it is not art? Please point out where I said that explicitly. Thanks in advance.

Stoneleigh said...

Anon @3:18,

Stoneleigh if I may ask, what do you think will be the prospects for the Chinese over the intermediate to long term?

I'm not sure how you would define your timeframes. I think the next few years will see the collapse of the export economy, along with much of global trade. There has been a huge over-build of productive capacity in China in light of what is about to happen to aggregate demand. Many of those factories will simply be abandoned and fall into ruin. They represent the conversion of capital to waste, as Greer would put it.

IMO China is moving into its equivalent of the 1930s, complete with their version of the dust bowl in places like Manchuria. However, China is the empire in the ascendancy. As painful as the coming upheaval will inevitably be there, I think it will be less painful than in much of the rest of the world, although this will be small comfort.

The 1930s were a setback at the dawn of the American Century, and I expect this depression to be the setback at the dawn of the Chinese hegemony, albeit a much larger setback than the US experienced given the scale of the multi-faceted we are facing globally.

I don't expect Chinese hegemony to be anything like as global a phenomenon as American (or more accurately Western) hegemony has been. There simply won't be the energy supplies available to enable global reach, or the ecological carrying capacity to support a large population.

Also, my new job will permit me to live anywhere in the world practically (since I can work from home). Where are some good locations that you think will weather the storm fairly well?

That is a hard one. It depends on a lot of personal factors like what languages you speak and where your face and accent would fit in a world that will be much more conscious of superficial differences. I left Europe because I expect its future to be one of balkanization. Now I live in Canada, but my accent is rather mid-Atlantic unfortunately. (Its rather ironic that I sound far more Canadian when I speak French, as my French accent is quebecois.)

Anonymous said...

Stoneleigh - Thanks. Do you see China being a more influential and powerful nation than the United States going forward? What role/position will the United States have in the world going forward. Thanks much.

Stoneleigh said...

Capital flight is possible at the moment under present rules, but I do not expect that to be the case in the future. I fully expect capital controls to be reinstated as part of the general wealth grab. Already it is getting more difficult to the leave the US and take one's money, at least for those with more than $600,000 of it.

I also expect most financial speculation to be outlawed, as it usually is in the aftermath of a major bubble. Something comparable to a derivatives market existed in Holland during the tulip mania, but it disappeared very quickly once the bubble burst.

Once bubbles burst, and it is too late to prevent pain from the excesses that created them, rules are usually instituted to prevent those excesses. This amounts to locking the barn door after the horse has bolted. The rules thus enacted usually last for long enough for people to forget the dangers, and are then repealed, leading to a new generation learning the same lessons the hard way.

Stoneleigh said...

Anon @4:11,

Do you see China being a more influential and powerful nation than the United States going forward? What role/position will the United States have in the world going forward.

For a long time (quite possibly decades) I think we will simply be stuck in a state of violent global upheaval. For most of us, who comes out on top will be academic, as we will be unlikely to live long enough to see it. Transfers of hegemonic power do not happen peacefully or quickly.

Anonymous said...


Without beating this to death, I think you did mention that art needs the support of patrons.

Sorry if your whole point was to rag Stoneleigh about her kids wanting to be professional artists. And in the TSHTF scenario how impossible that would be. Trying to hoist her by her own petard.


ric said...

Art is an expression of the wonder of being--a little like sex but more important as a celibate life can be amazingly fulfilling but a life without wonder is worthless.

Anonymous said...

Anon @2.28

Why don't you think before you speak?

Jumping to conclusions before so just makes you appear really really really dumb.


Persephone said...

Stoneleigh: You're opening response is both commonsensical and beautiful. You're children are fortunate to have you guiding them.

I'm sure this has been posted already (still playing catch up), but the arts made a huge resurgence during the 30's because it enabled the otherwise hopeless to transcend their day-to-day strife. Some of the greatest art in history was created in the most turbulent times.
Illargi - you are dead on re:manipulated government numbers. All stats including UE, Home Sales, PCI, Bank assets are questionable, to say the least.
I am very sorry for your loss, Ilargi. True friends are rare.
Interesting collusion of news this week: Bernanke - The American Tour, record Treasuries up for auction and this:
this from Reuters
WASHINGTON (Reuters) - China is bringing 150 senior officials, including nearly its whole Cabinet, to the United States this week for talks whose symbolic value is likely to trump concrete achievements.

Something tells me the Chimerica ATM is about to close.

Anonymous said...

Anon @ 1:36

"I grew up poor--I have the teeth to prove it. And I've earned my money the hard way. You could have, too, if you'd been willing to subvert the joys of life as I have. Perhaps circumstances dealt you a bad situation, but more likely than not you weren't willing to grind out as much work as me. And if that's the case, why take my labor and give it to any able-bodied working-age adult who hasn't worked as hard?"

You are seriously deluded, my friend.

Anonymous said...

Forget art. Schools should be teaching practical skills such as gardening,farming,plumbing,carpentry etc to today's kids. Music, painting, plays are skills that are inate to us, we can do that in our spare time with enough interest and dedication. Singing doesn't require a degree,nether does painting or what we call literature i.e. ppl being able to read books. The priority should really be practical skills.

Persephone said...

LOL @ those proposing U.S. capital flight

With every government scrambling to make ends meet and avoiding complete revolution of those with nothing to lose - capital is going to fly to where?
U.S. taxation is roughly 15% on top earners. In Europe, closer to 45%. You're going to emerging economies with shaky governments? Let me know how that works out for you.

Societies have to have a safety net. Some functions should not be for profit- making profit off sick people is one. Ask anyone from Argentina how well privatization worked. The good of the whole outweighs the good of the individual - hence the reason we have laws.

tae fan said...


your tone is worshipful. that's why i keep reading

el gallinazo said...

I would rather eat old road kill than debate with our new Ayn Rand libertarian. OTOH..............

He, by his own accounts, was damaged by a traumatic childhood of poverty, and the nightmare of poverty dominates his every thought. He is very much like Tolkien's Gollum. He would throw anyone under the bus to keep his nightmares at bay. Analogously, some alcoholics are so physiologically addicted, that cold turkey actually kills them. Leave him to run around inside his lonely little, rationalized roach motel. Rational debate is a total waste of energy.

el gallinazo said...

Greenpa and others:

Discover why crows hate cavemen even more than Dick Cheney. You really have to listen to this and watch the video.

redcatbiker said...

Thinking the Unthinkable

At what point does economic growth become uneconomic growth?

Every society clings to a myth by which it lives. Ours is the myth of economic growth. For the last five decades the pursuit of growth has been the single most important policy goal across the world. ...

This extraordinary ramping up of global economic activity has no historical precedent. It’s totally at odds with our scientific knowledge of the finite resource base and the fragile ecology we depend on for survival. ...

For the most part, we avoid the stark reality of these numbers. The default assumption is that -– financial crises aside –- growth will continue indefinitely. Not just for the poorest countries where a better quality of life is undeniably needed, ...

The reasons for this collective blindness are easy enough to find. The modern economy is structurally reliant on economic growth for its stability. When growth falters -– as it has done recently –- politicians panic. Businesses struggle to survive. People lose their jobs and sometimes their homes. A spiral of recession looms. Questioning growth is deemed to be the act of lunatics, idealists and revolutionaries.

But question it we must. The myth of growth has failed us. It has failed the two billion people who still live on less than $2 a day. It has failed the fragile ecological systems ...

Today we find ourselves faced with the imminent end of the era of cheap oil; the prospect (beyond the recent bubble) of steadily rising commodity prices; the degradation of forests, lakes and soils; conflicts over land use, water quality and fishing rights; and the momentous challenge of stabilizing concentrations of carbon in the global atmosphere. And we face these tasks with an economy that is fundamentally broken, in desperate need of renewal.

In these circumstances, a return to business as usual is not an option. Prosperity for the few founded on ecological destruction and persistent social injustice is no foundation for a civilized society. Economic recovery is vital. Protecting people’s jobs -– and creating new ones -– is absolutely essential. But we also stand in urgent need of a renewed sense of shared prosperity. A commitment to fairness and flourishing in a finite world.

Delivering these goals may seem an unfamiliar or even incongruous task for policy in the modern age. The role of government has been framed so narrowly by material aims and hollowed out by a misguided vision of unbounded consumer freedoms. The concept of governance itself stands in urgent need of renewal.

But the current economic crisis presents us with a unique opportunity to invest in change. To sweep away the short-term thinking that has plagued society for decades. To replace it with policy capable of addressing the enormous challenge of delivering a lasting prosperity.

For at the end of the day, prosperity goes beyond material pleasures. It transcends material concerns. It resides in the quality of our lives and in the health and happiness of our families. It is present in the strength of our relationships and our trust in the community. It is evidenced by our satisfaction at work and our sense of shared meaning and purpose. It hangs on our potential to participate fully in the life of society.

Prosperity consists in our ability to flourish as human beings –- within the ecological limits of a finite planet. The challenge for our society is to create the conditions under which this is possible. It is the most urgent task of our times.

by Tim Jackson, from "Prosperity without Growth"

redcatbiker said...

In my previous comment I copied an article from Adbusters' website. Because of its long length, I had to cut it down; so what I've posted is not the entire article. If you want to read the whole thing, just click on the title, which is a link.

Anonymous said...

And yet, El G, you have not explained why it is appropriate to take my money--essentially, my time--and forcibly give it to someone else.

Other responses to other comments:

-My comments apply to corporate welfare, too. You won't see my defending bailouts, or arguing for reduced capital gains taxes.

-The collective is more important than the individual? How did that work out in Russia, China, or Cuba?

snuffy said...

You seem to forget Septic,that it worked well at the time to correct the excesses of the time...or do you support these ongoing catastrophic financial nightmares brought about by allowing "unfettered capital?'

If all nations join in removing the temptation of fleeing taxes....or if tax cheats were treated as the scum they are and damned by all perhaps we would live in a better sound as if I would be gouging your ass...if so make that a 95% rate....whiner


snuffy said...

Something like 90 % of those 1% that own it all inherited it...sorry ,being born in the right bed does not cut it for me for "fairness"
As I said...Taxes are your ticket into polite society,you don't want to pay your share...go live in Nigeria
95% inheritance tax=good thing


Anonymous said...

Enlighten yourselves and study:

Self Discipline

Time does not exist in the way you think it does
Andrew Carlssin

el gallinazo said...

@ Ayn Rand

"And yet, El G, you have not explained why it is appropriate to take my money--essentially, my time--and forcibly give it to someone else. "

Well, I am too busy eating road kill in order to get the taste of your postings today out of my mouth. Please use a pseudonym, so I can skip them.

el gallinazo said...

Ayn Rand P.S.

You claim that your time is worth money. So is mine. Since you have absolutely nothing to offer me of value, **you** are attempting to steal my time, and thus my money, by entangling me in this "debate." Argue it with your mental health provider and be sure to pay him or her appropriately for the time.

Greenpa said...

"Stoneleigh warns all of us the the end is near, but seeks long term college planning for her kids.

Do you not see the hilarity in this?"

Actually, what I see in comments of this nature, is a writer who does NOT HAVE KIDS.

Well; or, who runs their family on the nazi plan.

Your semi adult children will make their own choices. If you actually believe in personal freedom- you back them up.

Stoneleigh sounds like a great parent to me.

And all the stuff about "artists can't make a living in tough times" is just the most astonishing nonsense.

Every hunter-gatherer tribe supports artists, whether they sing, make pots, make arrows, paint images, carve wood, make clothing, make fish traps, navigate, teach- always. Every one.

Geez, read an anthropology book.

RC said...

I plead again for the banning of the anonymi. They are a rabble and are increasing. Anon persons: Choose a tag and get on with it or shout at the mirror.
I don't read the Mish comments and never read anything {never visit} Kos. Rabbles disturb me. I'm getting close to passing on the comments section here now. Arguments, right wrong or indifferent don't bother me, but shouting from the back of the hall doesn't serve any purpose.
Pointedly, so much of the Anon crowd seem to feel that pulling down the blog authors is a useful pursuit, and that alone is enough reason to delete them. Don't like the music? Change the channel.

jal said...

@ redcatbiker
Quotes from "Prosperity without Growth" by Tim Jackson
"Prosperity consists in our ability to flourish as human beings –- within the ecological limits of a finite planet. The challenge for our society is to create the conditions under which this is possible. It is the most urgent task of our times"
During and After ever "culling", (plagues, etc.), there is a growth of individual prosperity. Its a transfer of wealth to the survivors. Its called inheritance.

Is possible that The Power That Be would consider helping "Mother Nature" in creating the conditions that would enrich the 1%.
(Fewer people to share the remaining earthly resources.)

Falcor said...

@ Illargi:

I'm sure no-one's volunteering yet to hold their breath on this one, but it would be a great service to everyone, except for those interested in distorted stats for reasons of money or power, if the Wall Street Journal has set a precedence today that many of its peers will follow, if only because they fear being exposed for reporting "false" information.

This fits elegantly with one of Wave 3's characteristics, namely, that news and fundamentals become in sync.

Greenpa said...

El Gal, re crows; yeah, I knew about this work; following crow research is kind of a hobby; and kind of not, they're one of my biggest pests for my tree crops. They are very damn smart, just like the farmers have always said.

Not surprising humans can't tell them apart; our eyes are simply not tuned to their individualities.

E.T. Seton; one of my heroes, found a crow he could follow; it had a white spot between its right eye and beak. He named him Silverspot; and watched his behavior for years, near Toronto. Seton was a brilliant observer; the story is in his book "Wild Animals I Have Known." available free on the internet in multiple places.

Anonymous said...

The news in Canada today is that our dollar is "soaring" (93 cents U.S. and rising).


With my strong Canadian bucks I am going to get in early on the soon-to-be red hot U.S. housing market


Falcor said...

Re above post of mine,

I think we are still in Wave 2 and this is a hint of a pullback (b of 2).

If these wave patterns continue to unfold and we are in an avalanching 3, I expect cheerleading pumpers to either be describing our sorry state or off the air.

Anonymous said...

I have been a practicing artist--”By Hand”-- for the last twenty some years. Art is difficult, both to make a living at, and to become very good at doing. It demands a lot of tenacity, both on the business side and on the skill-set side. For example, a good sculptor knows how to make molds, arrange pleasing compositions, knows anatomy and so on. We had many medical students in our artistic anatomy courses. There is no more visceral way to learn about bones and soft tissue that to construct the human figure in clay. I have been in the residences of the wealthiest people as well as some of the more modest ones. Ironically, the people with the really big dough are not nearly as pretentious as the wannabes a bit lower down the ladder. But even ‘Art’ becomes a job when one is working under intense deadlines. And artists are notorious for taking on too much during the good times; they know all too well the times when work is very sparse. The “gallery system” is a rather recent phenomenon in the art world, and most art prior to the nineteenth -century was done on a commission basis, that is too say, with a deadline and demanding client peering over your shoulder.

If you have never had real art in your house--and I am not talking prints or reproductions--you do not know what you’re missing. The museum experience does not mimic living with hand-made art in your own house day in and day out. Remove a sculpture or two, take down few real live oil paintings and the walls of a house feel naked and barren. I have literally given away hundreds of simple still-life paintings over the years to family and friends and they never fail to mention how much “ambiance” a simple painting contributes to their household.

Many artists marry into financial security ( I am not one of them) in order to free their minds of financial considerations which are the worry of nearly every artist. Even Vincent had the monthly contributions of his saintly brother in order to survive.

As far as art being unpractical in societies and countries filled with strife and corruption, perhaps a little art would go a long way towards alleviating some of the root causes of human misery. One thing art teaches is that commonality is the real reality and ‘separatism’ is the real anomaly, however much history might contradict that assertion. And yet people still embrace and rationalize away the tendency for human conflict with a wave of the hand. Very intelligent people will explain how the millionaire needs just a little bit more in order to provide security for ‘the family.’ How natural it is to want a billion after that in order to take care of the extended family, the descendants of the descendants , if you will. The family legacy and lineage. The artist will look at that assertion and logically extend the reality of the common thread and reason we are all one family eventually when you strip away the distraction of each separate strand. The ability to ‘see thru’ the minutiae of endless separate particles allows one with vision to call financial explotation of greater society 'for the sake of the immediate family’ what it really is: Greed and a lust for power.

The good painter understands the hard graphic edge of delineation as a elementary level in the evolving picture plane. Compassionated edges and shape extension(one shape merging into another) is what creates the beautiful air of atmospheric smufato as a result of elemental intergration. And yet a few hard edges are needed amplify a center of interest and to lead the eye around the composition.

“I am interested in art as a means of living a life; not as a means of making a living.” --Robert Henri


el gallinazo said...

Thanks for the heads up, Greenpa. Downloaded the ebook. I am quite interested in my corvine cousins.

Robert Wilson said...

Ayn Rand seems to have understood the fundamental importance of energy and the finite nature of fossil fuels. Otherwise why - in 1955 - would she have John Galt develop a new energy supply. I suspect that she knew that if there was ever a Department of Energy - it would produce little if any energy. I have had fun with libertarians on occasion by referring to the Galt engine as a perpetual motion machine.

Anonymous said...

RC says:

Don't like the music? Change the channel.

Why don't you practice what you preach?

el gallinazo said...

Occasional Summary

Thank you for your recent postings. You haven't lost a beat.

John Hemingway said...

I agree with you that an education in the arts is priceless. My two kids go to ecole FACE (an arts school) in Montreal and really it's one of the best (and it's public) they've ever been to.

Anonymous said...

To all of you debating about art:

I suggest reading Huxley's The Doors of Perception.

Jim R said...

Re: The End of the Beginning of the Collapse

I think we are all atto-foxes on this bus.

el gallinazo said...


Thank you for your excellent posting. I too wonder how high up the food chain of the FIRE sector actually believes the crap that goes out as propaganda. The top guys can't possibly believe it. Bernanke and Geitner deliberately lie every time their lips move, and they are just meat puppets. That is why I believe that the oil contango means that a war with Iran is already in the can as they say in the film business.

A 11:44

"I suggest reading Huxley's The Doors of Perception."

Yup, Huxley's first mescaline trip was a very dynamic one day art education. Great piece of writing.


I thought we were all Bozos under the bus.

Stoneleigh said...


The problem with banning anonymous comments is that, as far Blogger is concerned, anonymous includes anyone whose name doesn't come up underlined in blue. Your own comment below would not have been allowed as it's not linked to an official identity. Ilargi tried to ban anonymous commenting until we realized this would happen. It would have left our comment threads very empty indeed.

I think the tone of the comments is to some extent a temporary phenomenon related to both the number of new readers and the disconnect between our position and the prevailing optimism of a rally. We said when the rally began that it would make us look crazy again for a while and people would be less and less receptive to what we have to say as the rally progressed. Once the rally is over I think we'll see a difference.

This kind of shoot-the-messenger thing goes with the territory for contrarians. Timely advice generally has little impact because it conflicts by definition with the received wisdom generated by the collective mood, and therefore appears to be wrong when it matters most.

Anonymous said...

I think the tone of the comments is to some extent a temporary phenomenon related to both the number of new readers and the disconnect between our position and the prevailing optimism of a rally.

Wrong again, Stoneleigh. I have been here for a long time. I have just recently decided to take my thoughts public. It seems others are doing the same.

Anonymous said...

Huxley on art:

He is discussing the Suchness, the Dharma Body of Buddha, the Is-ness of reality, and wondering what types of art the great knowers would have enjoyed:

"...but I strongly suspect that most of the great knowers of Suchness paid very little attention to art- some refusing to have anything to do with it at all, others being content with what a critical eye would regard as second-rate, or even, tenth-rate works. Art, I suppose, is only for beginners, or else for those resolute dead-enders, who have made up their minds to be content with the ersatz of Suchness, with symbols rather than with what they signify, with the elegantly composed recipe in lieu of the actual dinner."

John Hemingway said...

Well, everyone has a right to their own opinions. Maybe you're right. But if you aren't, at least you can say that you were forewarned here. No one has a crystal ball, but Ilargi and Stoneleigh are coherent and have always written intelligently about their views. What more can you ask for in this day and age?

Stoneleigh said...

Anon @12:13,

I have been here for a long time. I have just recently decided to take my thoughts public. It seems others are doing the same.

May I suggest you keep reading and let me know how you feel in a few months time. As I said, this rally makes our position seem incredible. When it is over, our credibility should improve again very quickly, as it has done following previous smaller rallies.

Sam Dug said...

Overwhelmed Summary


As always, brilliant and hilarious...please don't go away :)

Ilargi said...

"Wrong again, Stoneleigh. I have been here for a long time. I have just recently decided to take my thoughts public. It seems others are doing the same."

I hope you understand that voicing any opinion as "anonymous" is utterly useless, since no-one has any idea who they respond to. There are plenty anons who differ from you, whatever it is you are supposed to have said (we can't know, since we don't know which anonymous you are/were/will be), by 180 degrees. It is therefore empty shouting into the wind, unless you post just one comment and leave it at that. Any follow-ups are useless.

Anonymous said...

May I suggest you keep reading and let me know how you feel in a few months time. As I said, this rally makes our position seem incredible. When it is over, our credibility should improve again very quickly, as it has done following previous smaller rallies.

This is not an issue of your credibility. It has to do with your cocksureness. The only thing consistent about your analysis is its instance that it will play out as you describe. Yet, the blog is often focused on the surreality of events, the herd perception, and the manipulation. You consistently fail to address the level of severe manipulations that will most likely occur to transition us from here to there.

Anonymous said...

It is therefore empty shouting into the wind.

Is this the same as preaching to the choir?

Unknown said...

Variously Named Summary,

It's always a pleasure when you drop by and do your thing.

In other news, it seems the cranky Anons are crawling out of the woodwork. Patience is a virtue, fellows. Ignore potshots and pointless vituperation. Nothing's to be gained there.

Anonymous said...

Ignore potshots and pointless vituperation.

Oh yes. Let us ignore the inconsistencies. Let us all just lavish mindless praise for our hosts without asking questions or pointing out inconsistencies.

Stoneleigh said...

Anon @12:41,

You consistently fail to address the level of severe manipulations that will most likely occur to transition us from here to there.

The model I use is based on human nature. Manipulative behaviour is part of that (ie manipulation also follows a herding pattern). If this were not the case, then it would not be possible to predict where the markets would go, even probabilistically, and yet we do with some degree of success. Watch this space and feel free to judge us by our record.

When the rally ends, I predict there will be some event that will be rationalized as the cause. I have no way of knowing what this event might be (attack on Iran perhaps?, virulent pandemic?, terrorist attack? etc). If I can nevertheless tell you (probabilistically) when the rally is likely to end, then the event I could not have known about cannot be the cause. It must be an after-the-fact rationalization.

Market dynamics are endogenous, not driven by external events. In fact it is more true to say that swings in collective mood, of which market movements are a quite sensitive indicator, make the news rather than the other way around. I realize that this is probably a little hard to swallow. Feel free to judge the model by its outcomes over time.

Stoneleigh said...

Anon @12:53,

Let us all just lavish mindless praise for our hosts without asking questions or pointing out inconsistencies.

Feel free to ask questions or point out inconsistencies. It's easier to establish a conversation if you sign your posts though. Just pick any pseudonym you like and add it at the end. There's no need to sign into blogger or anything official. We aren't trying to compromise whatever anonymity you feel you have, but it does help if you can provide a marker to distinguish your posts from all the other anonymouses if you want a real dialogue.

Anonymous said...

12:53 - Exactly right. Left to themselves the comments section would become an echo-chamber and general circle jerk-fest. It is the dissenting comments that keep the arguments honest and expose the bullshit arguments for what they are, because there are a great many foolish arguments thrown out here, arguments that end in nothing substantive and only insults. El Gal I am looking at you.

Anonymous said...

Stoneleigh the only thing I would point out is that your educational decisions for your kids point out your implicit acknowledgement that your and Ilargi's cocksure attitude towards the world economy is not completely sound. If you were completely sure that the world was going to pot then why keep one foot in both worlds?

Stoneleigh said...

Here's an interesting article on how easy it is to pick up emotions from humans and animals in our surroundings.

"Infants just 6 months old can match the sounds of an angry snarl and a friendly yap to photos of dogs displaying threatening and welcoming body language.

The new findings come on the heels of a study from the same Brigham Young University lab showing that infants can detect mood swings in Beethoven's music.

Though the mix of dogs and babies sounds silly, experiments of this kind help us understand how babies learn so rapidly. Long before they master speech, babies recognize and respond to the tone of what's going on around them.

"Emotion is one of the first things babies pick up on in their social world," said BYU psychology professor Ross Flom, lead author of the study.

Flom and two BYU students report their latest "amazing baby" findings in the journal Developmental Psychology.

"We chose dogs because they are highly communicative creatures both in their posture and the nature of their bark," Flom said."

Ilargi said...

"It is the dissenting comments that keep the arguments honest and expose the bullshit arguments for what they are, because there are a great many foolish arguments thrown out here, arguments that end in nothing substantive and only insults."

It is the dissent that lacks substance around here. Which is highly unfortunate. Things like: "You consistently fail to address the level of severe manipulations that will most likely occur to transition us from here to there." are really without substance unless the commenter explains what specific manipulation is meant. Time and again, this is how so-called dissenting comments are phrased, and such opaque generalizations must necessarily lead to general answers (or outright guessing games), which then in turn provoke the next step in dissent (i.e. you always say the same things), by which point it has become unclear which anonymous has said what and we have only a lot of space filled with emptiness to show for it.

Stoneleigh said...

Anon @1:17,

Stoneleigh the only thing I would point out is that your educational decisions for your kids point out your implicit acknowledgement that your and Ilargi's cocksure attitude towards the world economy is not completely sound. If you were completely sure that the world was going to pot then why keep one foot in both worlds?

There will always be specifics that are completely unpredictable in any given area. The model I use gives only generalities - it is not the equivalent of crystal-ball gazing. The level of uncertainty as to specifics will always be very high, and the best way to deal with uncertainty is with flexibility.

Keeping a foot in both worlds allows us to earn a living and thereby prepare for much more difficult times ahead. As for the kids, I think they should get as much education as possible while they still can, so long as it doesn't involve debt. What is available now will not be there later. Even formal studies that cannot be completed due to economic collapse are worth undertaking, especially if the learning curve in question can be added to with an informal apprenticeship later. Practical skills are particularly suited to this kind of learning anyway.

Anonymous said...

It is the dissent that lacks substance around here. Which is highly unfortunate.

Ummm. You tend to ban people who provide substance.

You cannot handle dissent.

Mike said...

On a lighter note:

"*Pebbleleigh and Graveleigh go to art school; Life is rich with art"

This was classic, thanks for the laugh Mr/Ms. Summary...

Ilargi said...

"Stoneleigh the only thing I would point out is that your educational decisions for your kids point out your implicit acknowledgement that your and Ilargi's cocksure attitude towards the world economy is not completely sound. If you were completely sure that the world was going to pot then why keep one foot in both worlds?"

Why not just ask why she doesn't hang herself, and her kids? Stoneleigh wants her kids to make up their own minds, which means they need the option to reject what she suggests to them. Hence, a good school that is free is a great thing to be able to offer them. If they want to do business management, however, I'm sure she'll give them a strong talk. A field with some future prospect is better, after all.

The only thing we are sure about is that the world economy will and has to plunge to levels none of us likes to think about.

Other than that, there are a zillion factors that can influence how that will play out. Really, you can try to do the best you can and still get it wrong, and that of course can be frustrating.

But it still wouldn't be as wrong as going forward believing the economy as we have known it over the past decades will not collapse.

Anonymous said...

Ilargi - I am just trying to understand the seeming inconsistency. Stoneleigh has explained it. There was no need for snark. The fact of that matter is that the credibility of your message becomes eroded if people begin to suspect that you are not practicing what you preach. Once you put yourself out as a public, or semi-public figure, that comes with the territory. If it is something that makes you uncomfortable then perhaps posting is not your thing.

Unknown said...

"You're wrong."

"Provide substance showing that."

"You'll ban me if I do!"

A convenient position for a substance-less anonymous heckler(s).

I suppose much will be made of scepticus, but the explanation for that is said and done. He provided substance, the substance was addressed, and yet he continued to repeat the same arguments over and over until it became disruptive to the comments section as a whole. The latter is why he was banned, and only the latter.

Anonymous heckling produces nothing constructive. Give yourselves names, add substance, or kindly stop polluting the comments. Attacks without substance won't convince us of the apparent error of our ways, as it shouldn't convince anyone of anything. All that remains is shouting from the sidelines, and frankly we would kindly prefer that you don't bother.

Ilargi said...

"Anonymous said...
It is the dissent that lacks substance around here. Which is highly unfortunate.

Ummm. You tend to ban people who provide substance. You cannot handle dissent.

July 28, 2009 1:33 PM"

Which is the sort of comment I can predict from miles away will come from anonymous commenter no. 82 for the day. I don't "tend" to ban anyone. As you well know. One more cheap shot without substance. Do you have any idea how boring that is?

And don't come to me with talk about scepticus, I've already explained why I banned him. Try something with substance this time.

Unknown said...

"The fact of that matter is that the credibility of your message becomes eroded if people begin to suspect that you are not practicing what you preach."

This is because you are misunderstanding and oversimplifying the message. I&S have been entirely consistent in pointing out the probabilities and generalities of their analysis and predictions. They do not predict the end of the world, but rather a lengthy, severe downgrade in social and economic complexity, which entails a mixture of possibilities for some opportunities disappearing while others remain for a substantial amount of time. Judging by the majority of anon comments lately, the details of this message have been ignored.

John Hemingway said...

@Anon 1:40
What sort of "lifestyle" would you have Ilargi and Stoneleigh lead?

Sam Dug said...

Anon 1:40

Both I & S addressed the issue quite well and calmly. The answer was, of course, no one knows for certain what may unfold. It's best to maintain a productive and balanced life (esp with children), but also prepare for possible unpleasant events.

Hence, be flexible by keeping as many options open as possible.

RC said...

Thank you very much for your extreme patience and taking the time to explain the anonymi conundrum, Ilargi and Stoneleigh. I would gladly change from a black RC to a blue RC. RC is my real set of initials, but my clients that read here may not spot that right away. And my clients DO read here, as I request them to. So if registering as a blue set of initials would cut down on the aggressive commentariat I would jump right in.
Meanwhile, I will be skipping over the angry filler that has infected the comments.
Stoneleigh's civility is phenomenal, and as a person with a very short fuse, I salute her.
Sorry to be filling more filler in here, but there will be no commentaries from me about commentaries. I now understand the dynamic and will apply selective blindness.

Dr J said...

The discussion today makes me think that TAE is like a guest house with Stoneleigh and Illargi as the hosts and a range of guests, some less itinerant than others. Fawlty Towers comes to mind. Ilargi as the irascible, emotional Basil and Stoneleigh as the calm, reasoned Sybil. El G might be the colonel, Ahima could be Polly, etc etc. I can see Basil ejecting the quarrelsome guests just the way Ilargi deals with annoying posters while Sybil would exhibit more tolerance just the way Stoneleigh patiently and respectfully deals with each argument.

In any case, I don't understand why some posters here feel it is okay to attack the hosts. A discourse of challenges to them based on reasoned arguments and their responses provides amateurs like me with a much needed education in economics. This should be encouraged. We can choose to accept or reject anyone's position based on the merits of their arguments. No need for nastiness and ad hominem attacks. These should always be grounds for immediate eviction.


Ian said...

I think many of the people posting here, and yes that includes a number of our most frequent posters, need to become more tolerant of dissenting opinions and also stop mouthing off about everything under the sun.

We all need to remind ourselves before posting and ask ourselves the question before hitting the orange button "does my comment that I am about to post add anything to this blog, is it relevant to the nature of the blog or should I bite my lip?"

We are in the midst of a huge world crisis that is perhaps beyond all of us to solve, even if we might think we know roughly how we got into it.

I say, as I said privately to Stoneleigh, please let anonymous posters continue but encourage them to add a name (doing that does not affect any anonymity as they can choose any name that they want). Nothing is worse here than several successive anonymous posts and not knowing if it's one person or several posting - or personal attacks from "Anonymous".

Some people posting are enormously disrespectful of that fact that this is a personal blog and don't hesitate to attack or disparage the hosts. Just recently Stoneleigh was forced herself to reveal the car she drives after an anonymous poster speculated that she might be driving an Escalade. Many frequent contributors maybe post, or over-post, to boost their egos. Could less be more?

I'd prefer to see quality than quantity and in recent weeks many of the posts and the tone and subject matter of the some discussions frankly are undermining the good work of our hosts and the value of the blog.

Another possibility would be for Ilargi and/or Stoneleigh to post some guidelines because perhaps some need them.

If it were my blog, some days reading the comments I'd become disillusioned and wonder if it was all worth it. We need to raise the bar. Everyone please think about this.

I just read what Dr. J said above. I absolutely agree.

el gallinazo said...

Ani Mouses

You simply don't get what this blog is about. I will try one more time.

Suppose you go to a very large university and you want to take a course in evolution. You take out the syllabus, open it to the biology curriculum. You see two courses:

evolution 305 10:00 MWF
special creation 306 11:00 MWF

You have no interest in spending your time and tuition money on a course in special creation. You looked into it earlier and decided it had no value. So you sign up for bio 305. But a couple of weeks into the course, you discover that the bio 306 guys have decided that you are going to have a course in special creation whether you like it or not, and they start coming to your classes as well and interrupt the prof so often that you are not getting much course work done. The people who signed up for the course complain but the prof said that he looked into university regulations, and though he would like to have them escorted out, there is no regulation that empowers him to do it. So you also look into the regulations and find that, being a very liberal university, there is also no rule that stops you from making it uncomfortable for them to invade your class. They then complain that you are not open to contrary ideas.

RC said...

Gallinazo, things might get very Irish in that lecture hall, very soon! Sounds Hibernian already.

Hombre said...

Good grief anon Ayn (or Remington) Rand

Unless you are a chicken and lay eggs (intrinsic value), any "money" or bartering power you accrue is through participation in a system, and therefore inherently tied to the flaws in that system.

A single human can only produce work = to 1 human, therefore anyone "earning" hundreds and thousands of any form of paper (dollars, euros, etc.) has taken much more than his/her share by hook or crook.

No one wants your earned share, relax. Even a chicken can only lay one egg a day. Ask Snuffy! ;-)

ric said...

"...but I strongly suspect that most of the great knowers of Suchness paid very little attention to art..."

Anon 12:21 quotes Huxley, but Huxley doesn't know. He's imagining what life is like for the "great knowers of Suchness." The "great knowers of Suchness" live in two worlds--the relative and absolute--even the currently popularized "non-dualists." Different traditions experience and understand the absolute with the relative mind in different ways. Like any group of people, this group has varying interests and sensitivities to art. Beginners to a particular Suchness path are often so overwhelmed by ecstatic Oneness with Suchness that they become blind to the relative world and its art, but this is only an early phase. If an ecstatic state or realization becomes permanent, even the most ecstatic "experience" becomes "normal" and relative world discernments pick up again, but perceived in a different way. Huxley is romanticizing the "great knowers of Suchness."

This is off-topic, though, and further discussion belongs elsewhere.

Anonymous said...

El Gal - That is a stupid analogy. In the first place, the comments in dissent are by and large related to comments made by Ilargi and Stoneleigh as well as some other posters. Thus they are on the same subject. Sorry if I don't conform to the echo chamber and instead choose to approach the point of view with a critical eye instead of as a mindless mouth breathing zombie.


Anonymous said...

anybody tryed POWER4HOME. Pls comment

RC said...

With all due respect to Ian, some of us are already very post collapse, and how the whole thing shakes out isn't all that serious for the smug.
We {I'll royally narrow that to I} enjoy just making silly comments, and really, after years of having the serious people suggest we need psychiatric attention, well, who's laughing now? I, my royal self, would like to see abject house to house and street to street violence and retribution shunned and avoided, but if ALL the mighty are laid low by some less upsetting means, OK by me. It's very character building I'm told.
I'm fundamentally incapable of much seriousness unless my client is buying that quality specifically and then I'm very very good at faking authenticity and can mould my face into the proper facsimile of dourness. For a modest fee I would be happy to demonstrate.
Summing up: I do my best to laugh at strife. Crying about it is so wimpy and no one cares.

VK said...

Sorry if I don't conform to the echo chamber and instead choose to approach the point of view with a critical eye instead of as a mindless mouth breathing zombie.

What exactly is the dissent about? Are you telling me that the US Government has not committed 24 Trillion dollars to stave of financial collapse and for it's efforts it gets a broad measure of unemployment between 16.8% and 20.6%. And if the market ever actually called it's bluff then the US would never be able to raise that amount of money in open market operations through the issuance of treasuries.

Are you dissenting on the fact that youth unemployment (the future of the world) of upwards of 25% across Europe and America isn't a bad thing?

Are you dissenting on the fact that a debt to GDP ratio of 375% and which is climbing all the time is a good thing? That the declining marginal productivity of debt is a good thing for the economy?

Are you saying that we are going to see hyperinflation due to monetization of the debt and NO, it is mathematically impossible to monetize debt and then increase reserve ratios to control the inflation as I posted a few days back. The actual figures show that such a move would be highly hyper deflationary. The maths doesn't lie as KD would say.

Are you dissenting on the fact that commercial real estate prices are collapsing incredibly fast and that this will lead to more write downs and further losses on bank balance sheets?

Anonymous said...

Anon 8:39 says:

"And yet, El G, you have not explained why it is appropriate to take my money--essentially, my time--and forcibly give it to someone else."

I find El G very informative and interesting but I must say bravo and right on to you... You are absolutely correct, and you will never get a legitimate argument with out a lot of name calling and side-stepping of the topic for the simple reason that if the opposite of what you say is true, then there would be no motivation for anyone to exceed at any individual level. The welfare whiners, can't seem to understand that once the biggest vampire squid (government) sucks this motivation and incentive from individuals, then the people with real needs and in need of actual legitimate support will be left with no help whatsoever because the growing wealth distribution is being increasingly shoveled to more and more people just milking the system and sitting on their lazy asses. Once this happens, then the pendulum of society swings in favor of rewarding the practice of sitting on a growing subsidized lot of expanding asses with more power to point fingers and vote themselves in the said critters that offer the best conditions for the sucklin' to continue. Most people do not have problems with fair taxes.

Government becomes the greatest monster bubble ass of all.

I'm a avid reader of this site and moved with the hosts when they moved from the oildrum, and I consider it one of the best. The hosts are top notch, and much admired. Stoneleigh is a remarkable person in her vast insight and impeccable writing and communication abilities.

Take care,


Taizui said...

This collapse would be interesting to watch from a distance, but unfortunately we all have front-row seats.

Day by day I find myself becoming more aligned with Ilargi's gruff comments. As I have slowly perceived the gravity of our situation, much of the ongoing spectacle, including some of the discussion here, seems like rearranging the Titanic's deck chairs.

I&S offer clear evidence that there can be no return to "normal," yet few can digest such a message, especially during this rally. I don't recall seeing a photo of Ilargi, but a bald head with every hair pulled in frustration would seem fitting ;-)

Hombre said...

anon 3:45 "more people just milking the system and sitting on their lazy asses."
On that point I, and many here would agree, and this constantly needs to be monitored with efforts at remedies.

But, beyond that, taxation in any social environment is a necessity. And no person is worth 1000x... 100x... even 10x (times) another if they both honestly work the same number of hours. It's just that basic! IMHO

Unknown said...

Scientific data indicates no correlation between increases in welfare/social assistance and unemployment. Now, causation remains a mystery, of course, and the attendant factors for unemployment are very complex, but at the least we can say that there's no evidence that an increase in social assistance causes people to be lazy or stop seeking employment.

But such discussions are really outside TAE focus, anyway.

Jim said...

As one of the more recent "anonymous" posters on TAE (I always use the same identifier - self imposed, but I guess anonymous all the same, I would hate to just outright ban them. They (we?) often bring something new to the table, but recently it seems that the bad is outweighing the good.

I'm not sure of the capabilities of the software, but maybe the true Anonymous could be eliminated, and then possibly limit those like myself to only 1 or 2 posts a day/session. If it couldn't be done by IP address/domain or something more technical, then obviously they could keep changing handles for each post (e.g. Loser1, Loser2, Loser3, etc.) - if they're persistent enough they'll get around any rules and not play fair, so we'll all have to suffer as a community because of them. Sound familiar - they are the problem they are fighting against.....

Taizui said...

Based on several recent references to Tainter, I checked out his 1988 book, the single copy of which was readily available (no interest in collapse here, I suppose).

He cites diminishing returns on complexity investment as a primary cause of collapse. Since the Internet, massive databases, e-commerce, etc. have radically changed our world since 1988, I'm interested in opinions about how his book might be different if written today.

Ilargi said...

And now I still don't know if anyone here took the time to listen to Jimmy Rosenberg.

Ben said...

My thoughts of late, but will break it up into 3 posts.

In regards to Stoneleigh's kids' education and the expectation of the lifestyle led by anyone who sincerely believes in the imminent collapse of society as we know it:

People still have to carry on with their lives. What are we to do, crawl into a hole and wait? Plan for the longer term but be prepared for the worst is probably a good philosophy.

Nothing wrong with exercising the mind. Encouraging kids or supporting their decision to go to school is certainly fine. It is good for people to do things constructive than to strictly mark time, as long as in the back of our mind we do not forget what the end game is. The end game being, imo, the abolishment of the middle class with a one world government where people have no rights, no services, no money and no hope, if they view things in strictly a physical sense.

Ben said...

Where I think this blog lacks is that it doesn't address the spiritual preparation we'll need to do to lessen the turmoil within us.

We won't really be able to do much physically to decrease the suffering. We can only prepare for a relatively short period of time in a physical sense. It is the understanding of what this world is about, who or what has been running it, and why it is collapsing that will help us cope with what is to come. Running out of beans won't be nearly as important as the realizations we'll be making about ourselves and this world.

People will want to know why the world is fragmenting...why it was allowed to happen. We'll be forced to think less about the nuts and bolts about the situation and more about the spiritual implications of what is happening.

Ilargi said...


I'd think off the bat that, for him, the internet confirms Tainter's ideas on diminishing returns on complexity. It's sort of like the declining (GDP) return on dollars spent that for instance, among others, our much appreciated poster VK has mentioned a few times here recently.

But then again, Tainter's very much alive, as far as I know, at age 59.

Hombre said...

Jimmy Rosenburg is superb!

Another clip...

I watched with appreciation and envy (for the long slim fingers)

el gallinazo said...

Anyone have a link to an intelligent cogitation about why ProShares killed off their ultrashort children.

Ben said...

I brought up the issue of a Republic vs Democracvy yesterday and no one touched the subject. I'm wondering why.

The lack of comment either way is like someone touting the benefits of giving and when the hat is passed to them, they don't put anything in, rather pass it along. I would view them differently as in not being completely sincere in their motives in speaking about the virtues of charity.

I guess what I am trying to say is there seems to be very little talk about the underlying problem of what has been happening. Almost no talk about the Federal Reserve and how a democracy means bankers are at the top and people are at the bottom.

It's all nuts and bolts talk and that is perhaps what is behind the frustration of sincere dissenters who cannot quite put their finger on what exactly is lacking in the commentary.

ric said... posted this:

Man Withdraws $190,000 in $20 Bills After Being Denied A Mortgage

Apologies if already posted.

Ben said...


I do enjoy your writing. Stonleigh's as well. I can see differences in style. Yours is powerful with a hard edge, and hers is very polished and articulate. The styles are a good combination.

Ilargi, because of your writing prowess, the way you interviewed did not seem at all to match the pen I read almost daily. I felt such a disconnect between the voice and the pen. Maybe you were distrusting of the interviewer or not wanting to be there, but your answers to the questions were sometimes only one word or a short phrase, which I found odd.

Please don't take this comment as disrespectful. These few posts are things that have been gnawing at me and I thought I may as well come forth with them, as it seems many are getting things off their chest today.

scandia said...

Hi all! I haven't read all the comments yet as my attention was grabbed by the discussion on a progressive tax, taxing the rich etc...
I may be wrong but I have read that the Finns make a conscious political choice to keep the gap between rich and poor as small as possible in an effort to manintain both harmony in society and incentives.
I also read that if one gets a speeding ticket in Finland the fine is calculated according to one's means.
It is possible to be rich in Finland just not so rich as to create civil distress and unrest.
In the discussions on economics I think we perhaps focus too much on collapse. A few people are getting it right in Finland IMO. Let's learn a bit, open our consciousness to imagine a world of wealth creation where greed is discouraged, not rewarded.

Anonymous said...

Ric, thanks for sharing. Everyone should do likewise! :)

BloodyParadise said...

'Ilargi amandre santue, Jainko ok bedeinkautzala; nere begi ederrak gaitzik ez deiola; ikusten duen guziik ala esan deiola.'
Just realised that I've been putting an 'h' in there where it don't belong.

But now I'm thinking of installing an Anonymeter, to help me monitor the exceptionally high rate of people who write without having a person-ality to link to.

At university we were taught about 'Ad Hominem' criticisms - in Philosophy and in English Literature. I quickly appreciated that slant: no matter that you were as crazy as a skunk, it was the sentence/poem/book that was under scrutiny, not the writer.

But that's Art. This ain't art: it's chat and ideas mulled over on a day-to-day basis. Thus it's helpful sometimes to know who you're talking to, what they're bringing to the table.

For some reason - maybe going back to the beginnings of The Oil Drum, and then TAE, everyone cowered behind 'Noms de Plumes', or 'Noms de Guerre', false names one assumed when attacking a superior power, or when enlisting for war.

That battle-stance seems to have lingered on here longer than elsewhere. The Oil Drum Editors must have had a little pow-wow a short while back - because now they have (mostly) all 'come out'.
And it's is refreshing. Now we can be properly impressed with 'Gail The Actuary' and all her years of service. We can gasp at the transition of Nate Hagen from financial whizz-kid to down-home gardener.

But what can we grasp from the life-stories of anyone writing here? Pretty much nothing.

Here we get a diet of Big Ideas and Big Numbers. It's like a McDonald's for the doom-hungry.

Maybe I don't get out enough. Don't lurk in the forums where doomgasm is 'le plat du jour', haven't worked up the requisite paranoia that warns me off publishing anything that has the faintest link to a real life.

Because what is missing here is any scent of real life.

The work that Ilargi puts in is remarkable(and I think, filched by others in the media, but unremarked and uncredited) but the fact remains - that there are no facts.

Stoneleigh gives us wonderful little glimpses into her excercise regime, and her children and the options they encounter.

But as long as Ilarghi remains a talking head, with no bodily functions, then the blog and its commenters can accord themselves equivalent rights of anonymity. We end up with an Anonymouse holding court over a chorus of Anonymice.

Dr J said...

scandia - you are right about traffic fines in Finland.

"A director of the Finnish telecommunications giant, Nokia, has received what is believed to be the most expensive speeding ticket ever.

Anssi Vanjoki, 44, has been ordered to pay a fine of 116,000 euros ($103,600) after being caught breaking the speed limit on his Harley Davidson motorbike in the capital, Helsinki, in October last year.

Mr Vanjoki is a Harley Davidson enthusiast
Police say he was driving at 75 km/h (47 mph) in a 50km/h (31 mph) zone."

There is plenty of evidence that countries that minimize the range of income have better outcomes in terms of things like crime, personal safety, social cohesion, etc etc. Those who think that progressive taxation is detrimental need only look to northern Europe to see that it can work quite well in delivering very liveable societies.

jewishfarmer said...

I can't count the number of people who have written eloquently about the degree to which knowledge of art helped them maintain in situations of deep exigency. The poets and musicians in the concentration camps who spoke and wrote of how it ameliorated their suffering to remember language or tunes, the folks in the Soviet camps who felt the solace of music or just goes on and on.

And as Greenpa so eloquently says, read a freakin' anthropology book. Most societies have artists and support them.

We homeschool, and I make sure that along with carpentry and agriculture, my children memorize poems and learn to sing and play music, to draw and write. Will they be professionals? Who knows. But in the end, if things get rough, the things you have in your head that no one can take from you are what you have.


Gravity said...

I am partial to gravity-based performance art.

The results are often tragically inspiring, recursively spiralling towards conformist levity, invariably ending in semi-singular epiphany, or another wobbling orbit.

Greenpa said...

Ilargi: "And now I still don't know if anyone here took the time to listen to Jimmy Rosenberg."

Of course I did. :-)

He's quite astonishing, but the combination of his very short hard life and the seeming tendency towards extreme virtuosity for its own sake (not sure that's true with the small sample of course) makes it difficult for me to listen.

My own taste runs more towards John Fahey; also a short hard life and a virtuoso, but not quite so short, and into broad experimentation.

Many thanks for the introduction; well worth knowing.

el gallinazo said...

Re Finland

That old curmudgeon, Kevin Phillips, has written a definitive work on the subject of income disparity in the USA, from the colonies to the present. It is titled Wealth and Democracy.. Philips in his youth and middle age was a Republican. He was a senior strategist in Nixon's 1968 winning campaign. He ties together income disparity with economic instability in the most meticulous way. He is one of my favorite political/economic commentators.


I did watch your linked video where the difference between a democracy and a republic was "explained." First, the definitions presented were quite arbitrary and certainly not consensual in any sort of academic way. The speaker could have been Ron Paul. There are many things I like about Ron Paul and many I don't. I certainly prefer him to the neocon fascists ( I am getting ready to throw Obama in that bag) who are running our show now.

Some things I like about Ron Paul.

He is against the American Empire and the constant military adventures necessary to maintain it.
He is for fiscal responsibility.
He is a strong advocate of the Bill of Rights
He hates the Fed

Some things I really dislike about Ron Paul

He has as much sense of social justice as an aardvark. No sense of collective social responsibility. Covert basis of economics is "Greed is Good." Very Gordon Gekko.

He is against a woman's right to choose.
He has been associated in his past with racist groups. He rarely discusses the place of slavery in the Constitution.
His great theories would lead to a Gilded Age in short order, though that might not be its motivation.

OK. There was some feedback.

Hombre said...

Gravity - "The results are often tragically inspiring, recursively spiralling towards conformist levity, invariably ending in semi-singular epiphany, or another wobbling orbit."

I never heard Elvis described quite that way before. Maybe it was just the doppler effect that one sensed as a "wobbling orbit."

BloodyParadise said...

I am partial to gravity-based performance art.

The results are often tragically inspiring, recursively spiralling towards conformist levity, invariably ending in semi-singular epiphany, or another wobbling orbit.

You're spoofing us . . . aren't you?
Aren't you?
I so hope you are - or I've got a whole evening taken up with google.

el gallinazo said...

Re Jimmy Rosenberg

Never heard of him previously. His virtuosity is quite amazing. Rare to see musicians flat picking a classical guitar today. A very different sound quality. Thanks for the heads up. Will check out more. But he doesn't ring my ecstasy bell. It's so individual.

scandia said...

@EBrown and others interested in Tainter's book, The Collapse of Complex Societies...
I finally went to the bookstore to purchase a copy. I'd have to order but couldn't afford the current price, $50. Yikes!
So I went to the library and they are going to bring it in for me. As it will be on loan from some university library I may have to pay shipping costs. Happy to do so.
Just want to let others who can't afford $50 for a book that there may be availability through your library system.

rapier said...

Catastrophism is all the rage. It has existed in all times and I have no way of knowing if it is more prevalent now. I'll posit that it is more prevalent today. Popular entertainment has been providing visions of dystopian futures for a long time and the 80's varieties like Blade Runner have beget the recent Legend.

Today the 2012 date has gripped the popular imagination. From Christians seeing the date as the time Jesus returns to crop circle aficionados seeing messages of planetary dislocation by planet X to alien invasion or at least revelation.

My point being that prediction of economic collapse can be seen broadly as just a subset of this phenomenon. A phenomenon that might be seen as cultural.

My personal feeling is that economic and probably environmental dislocation, itself an outgrowth of the economic cycle, is the real catastrophe and the other more far out ones are just the way other people, other minds are interpreting the signals.

Still I am mindful that my economic catastrophism is just my mind picking up this zeitgeist and interpreting it in terms of economics. Everyone should ask themselves if this is the case for themselves including I&S.

I am naturally a pessimist so it's easy for me to see the worst case and I have trained myself to distrust it. There are few sunny perky optimists among the the economic Bears or the End Time philosophizers.

Anonymous said...

El Gal,

Your non answer "feedback" is a perfect example of the point I am trying to make about the lack of a spirtual component to discussing issues. There is none!

Addressing such issues exposes the addressees' true allegiance either to the shadows by which this system is run, or to the true Light.

Unfortunately you cannot teach into someone what is/was divinely inspired or not. Some people can recognize it but it seems most cannot or will not.

That is why this site is generally about nuts and bolts...who did this or that...greed, etc. It gets into depth but only within the limits of our prosaic pseudo-reality. Lots of fancy words and egos exerting themselves so they'll be noticed but not much true substance.

As for Ron Paul; he is playing his role...

Ben said...

The anon 6:48 post was mine.

Farmerod said...

Anyone have a link to an intelligent cogitation about why ProShares killed off their ultrashort children

El G: First things first: Do you have a link to Proshares killing off their ultrashorts at all? I can't find anything. I found a story about UBS' ultrashorts and Cramer's indignation about the whole idea of ultrashorts but nothing about Proshares including their site. The etfs are still trading and I just successfully submitted an order for SKF (which I then cancelled. When the time comes I'll be buying puts on the ultralong; double leverage is for widows and orphans).

But here's my 2 cents as to why UBS killed them; the same reason naked shorts were killed and the same reason other supposed negative levers might be quashed; just more smoky mirrors a central bank or government department are trying to use to convince the average guy to go long. I would assume that UBS, having accepted bailout money, is being coerced into this position.

I suspect these shenanigans may work for a while but when they stop working, they will stop working spectacularly. For example, short covering tends to moderate declines, or so the theory goes.

Punxsutawney said...

Add one more El G.

Ron Paul was the only one in the Republican debates that answered questions with anything approaching honesty, to the chagrin of his peers. Hence the media attempts to portray him as a kook.

I must disagree with you on his economic theories. They would lead to something much worse than a new “Gilded Age” in my opinion.

As to the value of artists in ancient cultures: The worth of those articles that they made would have been valued based on the amount of time spent on them, and the amount of craftsmanship inherent in them. They would then be traded for food and other items needed for survival.

el gallinazo said...


From Zero Hedge, yesterday

The ETF Gloves Are Off
Posted by Tyler Durden at 9:21 AM
Bearish bets made impossible, compliments of UBS. Either that, or UBS' recently upgraded (with i7 chips of course) computers just cant handle the basis calculations. Either way, is something very fried with ETFs going on behind the scenes?

IMPORTANT NOTICE: Inverse, Leveraged and Inverse-Leveraged Exchange Traded Funds are no longer available for new or additional purchases at UBS

Effective July 27, 2009, UBS is suspending the offering of Inverse, Leveraged and Inverse-Leveraged Exchange Traded Funds (ETFs). You will no longer be able to make new or additional purchases and will only be able to liquidate current positions through UBS at this time. Any attempt to execute a trade of such ETFs will be rejected.

Please contact your Financial Advisor with questions.

Hopefully iShares and Direxion have some good class action defense lawyers.

Yeah, it occurred to me also that the Dept. of Justice is leaning on them with all their accessory to tax evasion stuff.

But the ultras are so squirrelly that I was thinking of switching to straight shorts anyway when the time comes. They seem to be unaffected for the moment.

Hombre said...

anon 6:48 - alias Ben

Perhaps this blog is seeped in blasphemies! ;-)

1 - Your definition of "spiritual component" may not be the same as mine, or Ahimsa, or say... Jim Jones.

2 - This blog is not, I have found, about matters of the spirit or essences of the divinity.

3 - "All great truths begin as blasphemies" - George Bernard shaw

rapier said...

Monday Morning Zero Hedge had a post saying the UBS was discontinuing their, leveraged, short, and leverage short ETF's. The only trading would be to exit positions. I haven't seen more about it but haven't looked.

The leveraged ETF's are a rip off of individual investors, unless they short them, which has been a great strategy. Being puritanical about it I think all ETF's should be eliminated. However eliminating non leveraged shorts but allowing longs is really dirty pool. If the other purveyors of ETF's will follow suit we will see. If not then there might have been a problem at UBS which we will probably here something about soon but figure it will be only part of the story.

The SEC is going to make shorting more difficult to. As a general principal shorting should be part of a market. There has been a huge problem with shorting but it pertains to little companies and involves so called 'naked shorting' which means non delivery of the stocks which is against all regulation and was routinely ignored by the exchanges and the authorities.

Some companies have claimed to have been destroyed by these short attacks. Could be but they are small companies.

Toddman said...


Tainter's book can be had from amazon for much lower than $50, although certainly not cheap.

Ilargi said...

Pardon me, I was trying to do things and not paying all that much attention to the content (should i use brackets by now) of this comments thing. Anyway, so I almost missed the (whaddaya know) anonymous declaration attempt at spiritual superiority, something about nuts and bolts. I see the connections now. That is truly priceless, or at least unrivaled. Well done!

el gallinazo said...


I'll lay out my spirituality on the table, so to speak, against yours for measurement any day. Just tell me when and where.

Greenpa said...

Apropos, I think:

"Never wrestle with a pig. You both get dirty- and the pig likes it."

Variously attributed, including GBS, of course.

Dr J said...

Two reasons you shouldn't try to teach a pig to sing:

1) pigs can't sing

2) it annoys the pig

Anonymous said...

As lurker and rare commenter, I think that anonymous commenting is a good thing.

Remember, as our hosts constantly remind us here, that people will write anything that helps them believe that Dow 36,000 will come true, even if it is late in arriving.

Also keep in mind that TPTB plant people everywhere to write such gobbldygook! I know it gets tiresome with 200 posts to wade through the mess, but with it is worth it to read what many post here, even the anonymous ones, like me.

el gallinazo said...


Sometimes it's fun to get really stupid.

el gallinazo said...

Dr. J

Only blogspot registered posters ( blue name ) can delete their own posts. This prevents people from deleting other people's posts.

Taizui said...

El G, rapier, Farmerod, Bigelow,

I think you guys are convincing me not to risk a short-sell gamble. No one ventured an answer to my question about the trading volume risks of herds shorting the expected fall crash, nor suggested any non-leveraged ETFs. Now this UBS story, and even "Short the Universe" El G seems to be getting cold feet!

However, we still may have a month of rally to go, so I appreciate your continuing ETF discussions.

Anonymous said...

Coy Ote wrote:

....beyond that, taxation in any social environment is a necessity. And no person is worth 1000x... 100x... even 10x (times) another if they both honestly work the same number of hours. It's just that basic! IMHO

Two counterpoints:

1. You are, of course, wrong. I'm willing to bet that an hour of Stoneleigh's time is more valuable than mine. Care to disagree?

2. Your and Vicki's premise that everyone's time is equally valuable undercuts your own argument on progressive taxes. For example, my brother-in-law is poor--he pays FICA and FUCA but gets an Earned Income credit back in a roughly equivalent amount. So the federal government doesn't take any of his money--or his time. I paid 22% of my income--and therefore my time--to the federal government. If in your communal world his hours and mine are equally valuable, how can you justify the government taking not a minute of his labor and 22% of mine?

The failure of the progressive tax structure is that it does not draw from all citizens equally. I wouldn't have any objection to the "safety net" if everyone contributed to it equally, even if not everyone drew from it equally. Even the poor should feel the pain of taxes so that they are not too quick to raise them without considering the externalities.

And, Snuffy, regarding inheritance taxes? While it may be hypocritical on my part, I agree with you. High inheritance taxes (with some allowances for small family businesses) are an essential part of any meritocracy.

el gallinazo said...


The first rule is not to gamble with money which you can't afford to lose. I am not trying to influence anyone. I believe you were requesting my opinion on this a month or two ago.

I try to remain open to new information. It had been brought to my attention over time that leveraged shorts were not meeting their stated goals over time. In the case of ProShares, this would be to maintain a 2X inverse with the underlying index. It appears that they are designed mathematically to meet goals only over very short periods. This does not necessarily imply dishonesty on the part of the designers. I did very well with them last year, essentially doubling my money.

So I am leaning more toward no leverage short ETF's. No point in being too greedy. The crash most people see coming here this fall will be my last chance to add to my retirement nest egg. I see it as no more unethical than trying to sell your house knowing that it's dollar value will continue to plummet.

VK said...

I like Paul Farrell's commentary, always hard hitting and on the spot!

ARROYO GRANDE, Calif. (MarketWatch) -- In his 2008 bestseller, "Wealth, War and Wisdom," hedge fund manager Barton Biggs warns that investors must "assume the possibility of a breakdown of the civilized infrastructure."

And to prepare for a breakdown of civilization, "your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc." Bloomberg Markets suggested that by "etc." he meant guns, as Biggs added "a few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage."

That warning's not from a hippie radical. Biggs was a respected Wall Street guru at Morgan Stanley for 30 years. As the chief global strategist Institutional Investor magazine put him on its "All-America Research Team" 10 times. Smart Money said: "Biggs is without question the premier prognosticator on the international scene and a mover of markets from Argentina to Hong Kong."

Anonymous said...

New Home Sales UP!!!
I wonder how many new tents are being counted in the numbers.

timekeepr said...

I found this interesting:

Study Finds Underwater Borrowers Drowned Themselves with Refinancings

Why are so many homeowners underwater on their mortgages?

In crafting programs to prevent foreclosures, policymakers have assumed that the primary reason homeowners owe more on their home than it is worth is that they bought at the top of the market. In other words, they’ve lost equity primarily through forces beyond their control.

A new study challenges this premise and finds that excessive borrowing may have played as great a role.

Michael LaCour-Little, a finance professor at California State University at Fullerton, looked at 4,000 foreclosures in Southern California from 2006-08. He found that, at least in Southern California, borrowers who defaulted on their mortgages didn’t purchase their homes at the top of the market. Instead, the average acquisition was made in 2002 and many homes lost to foreclosure were bought in the 1990s. More than half of all borrowers who lost their homes had already refinanced at least once, and four out of five had a second mortgage.

The original loan-to-value ratio for these borrowers stood at a reasonable 84%, but second and third liens left homeowners with a combined loan-to-value ratio of about 150% by the time of the foreclosure sale date.

A diet of debt!

ric said...

Coy Ote,
Have you seen this?

The L-Curve

Anonymous said...

Max K has a piece at HufPo:
The Shadow Banking Pyramid

Highlights, "The current spate of fraud on Wall St., and specifically the front-running and market manipulation scams being committed by Wall St. banks on the floor of the finally getting some coverage

This would be good news if it weren't meaningless."

Why per chance?

Because "it's too late. Like the New York Times sitting on the Bush wire tap story until after the election of 2004, the story of banking buccaneers and vipers in the New York Times reads more like a requiem than a news story.

The Egyptians had the great pyramids in the Valley of the Kings we have the great pyramids of debt created in the canyons of Wall St. These are now permanent features on the American and British financial landscape that have effectively turned Americans and Brits into debt slaves."

Taizui said...


Wonder if Tainter is a TAE reader? Unfortunately, I suspect you are correct that he would venture no diminishing returns exceptions for the Internet.

I have no idea how much has been invested vs how much we have actually "gained" as a result. However, I suspect that the amount of commerce now transacted via Internet will motivate some level of support for its complexity, even if quite expensive. At the same time TPTB will likely find many ways to use it to extract more from us.

scandia said...

@toddman, thanks for checking other sources for me on Tainter's book.
What I didn't know re the library system is that they can borrow from university libraries. Maybe this is so only for Ontario?
Anyway what a wonderful service.
When I think about systems teetering on the edge of collapse I have a bias to save the library system. I would be devastated to have that access to knowledge withdrawn.
And a thumbs up to university librarians willing to lend an expensive book to a pleb like me. I promise not to make notes in the margin!

Anonymous said...

"1. You are, of course, wrong. I'm willing to bet that an hour of Stoneleigh's time is more valuable than mine. Care to disagree?"

No one's time, even Stoneleigh's, is worth a thousand times more than the next person.

You obviously have never heard of context.

I had a similar talk years ago during the Nixon wage/price freeze with a 'marketplace' Jihadist.

Who's worth more to you, a doctor or a fireman?

If your house is on fire, fuck the doctor.

If you just got an xray back showing a big malignant tumor, fuck the fireman.

Anyone's 'worth' at any given time is contextual, sometimes down to the fraction of a second.

Educate yourself with some Aesop's fables. They're far more deeply steeped in wisdom than fanatic market place drivel.

I suggest you start with the Lion and the Mouse in a lesson of contextual 'worth'.

rapier said...


If you can't or won't short stocks then besides other derivatives, futures and options, it obvious there is no other way to play downtrends.

I am not sure what you mean about herds of shorts. This rally like all was fueled at first by short covering but those days are long gone.

I couldn't and wouldn't offer timing advice about establishing any position long or short. I will say you must not assume some great fall is due.

Anonymous said...

I'm amazed we have someone pimping 'meritocracy' via 'free markets' on the rim of the Financial Precipice.

'Free markets' never have or will exist.

The market is a Casino, and the House always wins.

Look at the inflation adjusted returns on the DJA since the last Depression, they're pitiful. The stock market is rigged from day one.
So is the Federal Reserve.

The 'Marketplace' runs on the Fractional Reserve Banking System.

In fact, it's dying as the banks die.

What a sleazy Ponzi the Fractional Reserve Banking System is at it's rotten core.

Fractional reserve banking like a brain tumor that grows decade by decade in a nation only to start eventually effecting and perverting the very decision making process that could stop it from destroying it's host and itself.

Insider trading is build into every market from day one. The chosen few inflating the 'wealth' bubble to suck in the rubes and then popping it while the getaway car takes off over the hill after chaining the doors shut on the burning casino.

The public is the Maid.

Sing a song of sixpence,
A pocket full of rye.
Four and twenty blackbirds,
Baked in a pie.

When the pie was opened,
The birds began to sing;
Wasn't that a dainty dish,
To set before the king?

The king was in his counting house,
Counting out his money;
The queen was in the parlour,
Eating bread and honey.

The maid was in the garden,
Hanging out the clothes;
When down came a blackbird
And snapped off her nose.

Anonymous said...


To anon @ 12:13

"I think the tone of the comments is to some extent a temporary phenomenon related to both the number of new readers and the disconnect between our position and the prevailing optimism of a rally." -- Stoneleigh

"Wrong again, Stoneleigh. I have been here for a long time. I have just recently decided to take my thoughts public. It seems others are doing the same." -- anon @ 12:13

Are you one of the morons who uses a sample of one to argue a case/draw a conclusion?

My grandmother smoked for 70 years and was fit as a fiddle until she died at the ripe old age of 92. Conclusion: smoking has little or no effect on health.


Taizui said...


Thanks for your inputs.

I don't object to ETF trading or shorting stocks except "naked" shorts. My questions last week were:

Someone commented to the effect that there are probably "herds" waiting to short sucker-rallied equity markets in the near future. How might that affect the risk involved?

Might ProShares algorithms fail to produce decent results under the stress of heavy buying? Might the heavy volume precipitate a swift bankruptcy of ProShares?

Might a non-leveraged ETF be a more conservative option? (1x-inverse instead of 2x) Are there such ETFs?

I'll appreciate any answers you can provide.

Anonymous said...

Anon @ 10:18. Smoking has little or no affect on health ONLY if you have a REAL good set of genetics in your corner. John

Anonymous said...

Here's another revealing example of the US military spying and infiltrating peaceful dissenting groups:

"Declassified Docs Reveal Military Operative Spied on WA Peace Groups, Activist Friends Stunned"

thethirdcoast said...

Don't look now kids but the gubmint has just seen fit to set aside $1 Billion specifically for police departments nationwide to hire more US Northcom auxiliaries:

U.S. to provide $1 billion to hire cops

I wonder when they start the torchlight parades past the Capitol?

Anonymous said...

Looks like we'll be getting those collector Geithner banknotes pretty soon. Can't wait.

Unknown said...

Re: Market disconnect, global wages etc...

"Profits driving stocks a sign of danger"

An economist who has his head out?

pineapplefrog said...

rapier said...

Catastrophism is all the rage. It has existed in all times and I have no way of knowing if it is more prevalent now. I'll posit that it is more prevalent today. Popular entertainment has been providing visions of dystopian futures for a long time and the 80's varieties like Blade Runner have beget the recent Legend.


Are you old enough to remember the 1960s or 1970s? Nihilism was all the rage in the 60s and 70s. (OK, some were idealistic, others didn't want to be drafted, but not all western nations were involved in Vietnam, so there was obviously more to it than that) For some pop culture illustrations: Timothy Leary "tune in, turn on and drop out" in the 60s, or the Sex Pistols sneering "no future for you" (and more unmentionable phenomena in the US; for example, a certain disco movie illustrating the pointlessness of American life/culture at the time.)

William Catton offers some interesting theories about this in his "Overshoot" book; he suggests it is an unrecognized response to the end of the "age of exuberance". A fascinating read!
So many ideas to examine and apply to the world 30 years after it was written and see what patterns fit.

We won the lottery with the discovery of North Sea and Alaskan Oil, but like many instant millionaires squandered it in a couple of decades, and now we are picking up where we left off 20 years ago.

John Gray delves into the history of "end times" and apocalyptic/utopian notions thoroughly in his Black Mass, but I think Catton's interpretation is more relevant to our situation now: The set of ideas we use to interpret the world around us were mostly formed during 400 years of limitless expansion into the "new world", and we are unable to accept that limits are real. I've worked with Trekkie geeks all my adult life, and often have to bite my tongue & stifle guffaws at casual references to "space travel" and such. Humans destinity is to "inherit the stars" and all that.

By the way, I wouldn't consider this site as an example of "catastrophism", but rather realism. (Anyone with house insurance is a doomer.) There are elements of survivalism, but that is the opposite of the general creeping nihilism unrecognised in mainstream culture.

Ben said...

El Gallipsolo,

You're confused between having a big one and acting like a big one. More accurately, it appears that you ARE a big one. Your comments prove it.

Ilargi, your post referring to me didn't make much sense but I think it was an insult. I thought you were capable of taking this blog to the next level, but as El Gal said, "sometimes it's fun to get really stupid". I wasn't having much fun, just being really stupid I guess.

At any rate, it's about time for a new post is it not? It'll be much like yesterday's except it's today.

jal said...

An interesting presentation.

I wonder what is his thinking on the credit vs the depression and "peak everything."

OverwhelmedPseudo Summary said...

For the sake of full disclosure - I am not Nightly Summary or Occsasional Summary though I ply my hand at his craft (dare I say it? "art"). I have the utmost respect for OS and strive to do his work justice.

Wholey guano Batman, I'm not even going to try for yesterday's thread.

Anonymous said...

Just thought I'd add my 2 cents. I hope that anonymous comments will still be permitted. I try to abide by the request made when I started asking questions of I&S of adding my name to the end of my post. I don't find it an unreasonable request and hope others would oblige.

Secondly, I can understand why some posters find the comments section to be an echo chamber, because there are days where the comments mostly feature general praise for I&S. But, I assure you that on many occasions, this blog has very lively discussions and debates a with a wide range of views represented. The one that comes first to mind was a while back and it was about socialism/communism and capitalism. I loved that whole discussion because there were thoughts and ideas presented that would not have occurred to me. I learned a great deal from it.

But, the reason that discussion was so productive is because it started with people asking open ended questions truly seeking other people's honest opinions rather than beginning with snarky rants that reveal the posters true agenda in trying to force others to conform to their views. The sad truth is that America (I can only speak for my nation) is that we have allowed the political spin doctors and the media to erode our skills for productive public discussions.

Believe what you want anonymous poster, but I&S are not forcing a dogma on anyone and they actually want to you think for yourself. In our current environment, it is very hard to do this because we are repeatedly told in explicit and implicit terms on all sides of the "debate" that we cannot give in to the other side. Thus, we have ended up with national discourse that amounts to variations on the them of, "You Suck" "No, You Suck." Regardless of whether or not I&S are right or wrong in their predictions, I hope we could at least all agree that finding better ways to communicate with each other would be a huge accomplishment and a worthy goal in and of itself.

Another thing, anonymous poster, that I don't think you understand, is that I&S don't care whether or not you agree with them. (I am sure that you will write back with some nasty reply about this being wholly untrue). But, regardless, what really matters to them is that if you disagree with them it is because you completely and honestly understand their position and reject their analysis for reasons that you fully understand and can articulate in a coherent way. I think many people achieve a certain level of understanding and analytical skill here that allows them to stop coming to the site completely, regardless of whether or not they ascribe to I&S's view. I know you would find this hard to believe, but I am confident that I&S would feel that that is success. The point of this exercise for them is that people gain insight into how our lives will be changing in the coming years so as to allow them to prepare as best the can for the future.

Ilargi has stated many times that he includes articles in his roundup that contain analysis and conclusions that he disagrees with. I think you would hold this up as an inconsistency (and oftentimes people do level this charge at him for certain selections.) However, that is because you think that this site is about propaganda (for what I imagine is an I&S conspiracy to permit unworthy, lazy people take over the world). I would urge you to change your frame of reference and instead allow this blog to help you start to challenge some of your ways of thinking, or at least be open to considering their point of view. If you can, you will get more out of your time and effort here.

As always, I thank I&S for all the time and effort they put into TAE. When I have asked them questions, I have gotten very helpful, thoughtful replies that I believe contained very good advice.

Linda S.

Ilargi said...


Want to repost that in the new thread? Seems to good to go to waste here.

Whaletail said...

I think that the people who post regularly on here, who also share the general view of the hosts are misssing something about "Ben" and others.

First me for context. Stay at home Mom at present. Working world in previous times. Husband makes plenty of money but has been unemployed 4 months out of this year(wrote on here about choosing where to live NJ vs Northwest) and we will likely lose the house. We had to move 3 times after leaving our house the first time to get the perm(ha) style job and the house won't sell-etc. We are amongst the well qualified buyers who will likely lose their home. Husband has several kids from a previous marriage and that is very expensive(all college aged). The courts are so behind trying to process child support modifications they did not get to ours for months. So we owe for all the unemployed time until they finally got to us. There are a lot of divorced people out there and I think this is an untold story that will lead to a lot of upset in families. My husbands wife basically lives off his support. Life changes for her immediately when he's not making lots of money.

So that's me. Back to "Ben".

Most of the people that know a lot about markets and money and economics and energy are not poor or not living on a farm stock piling food. They for instance are unlikely to need govt healthcare at the moment. They are likely to already have it and have it pretty well. If they are engaged in discussions or even reading something like that they must have had some kind of ahah moment. I myself came because I was reading DailyKos one morning to get my blood pressure up(truly...needed a jolt that morning) and came across this site. My husband and I have made all kinds of changes in our lives and our minds since that day last fall. We are not poor and/but we are not immune from what's happening or what's coming. We can understand that much. Ben and other dissenters are most of the people you will have to confront out in the world. Why would you want to make enemies of the rich or even parts of the middle class? Why not reach them with a message? Do you want them to suffer because they've done well? My husband isn't doing anything bad for a living and he is value added to a far greater dollar amount than he is compensated. He saves them millions and gets paid lots less, right? He doesn't decide what that value is and he sure doesn't turn it down. You wouldn't either. His belief system would say you are right about the worth of one person's work. The points being made about people leeching off the system are right though and those people will be gotten rid of no doubt. I'm not talking about making things fair. I mean people who don't want to contribute.

I think you anti dissenters are missing a chance to hear how the world looks and feels to someone who is not where you are(maybe?) and may never be. It seems Stoneleigh has pointed out that there will be people who still have more and do better than others. If you find the gulf so objectionable it would seem the burden is you to try and sell them on your ideas. Gentler would go a long way. I can only imagine how many never say a word on here. I've sent this link to dozens who will never say a thing.

The word spiritual seems to bother people. I will say this. Since we are leading a more comfirtable life than many, one of the biggest things I am doing to get ready is to ready my mind for the shock. What I use to do that is private but that shock will be real I think, no matter how academically prepared you were for what may happen. Who can not be astounded by a tsunami crashing over their world?

Allow for dissent. Allow yourself to be sharpened by others. You are charming when you do that.///ps. people might want to post their ages sometime for sport. it might lend something to why people hve different outlooks. i am fairly young and don't have the history in the world to draw on some of you do. if we were together in person that would explain a lot when people don't see eye to eye.

Going back to silent--


bluebird said...

Thank you Linda and Whaletail for your thoughts.

BloodyParadise said...

Thanks for your effort - a refreshing chunk of real life and real feeling.
Wish there was more of it here.