Friday, September 18, 2009

September 18 2009: Rumble in the Number Jungle

Detroit Publishing Co. Sustainable transport 1905
Alfred Vanderbilt's Belmont Park four-in-hand passing the Holland House Hotel on Fifth Avenue, in the days when "coaching" was a favored pastime of millionaire sportsmen

Ilargi: These days I can't seem to look at numbers anymore without asking myself what's behind them. Hey, who can? 90% of them are embellished crappahola, and we're still stuck trying to figure out what they mean if we want to know what lies ahead. Wouldn't a be nice to have a government that's transparent, and doesn't try to pull a fast one on you every chance it gets? Yeah, dream on; here goes another round of rnumber rumbling:

The headline may claim that "initial unemployment claims dip", but in reality they have hardly moved at all through summer. As for continuing claims numbers, they are not only up, they're increasingly devoid of meaning, as increasing numbers of people fall off the far end, beyond the duration of unemployment benefits. The worst hit states, where unemployment is highest, and hence tax revenues drop most, will have to pony up the most in additional benefits, as an estimated 1.5 million people will have exhausted all resources by Christmas. For some states, this must cause nightmares already. Especially since it won't stop in 2009; not even the most rose colored forecasters see a significant improvement in jobless numbers any time soon.

If you look at the speed at which benefits are running out right now, going from almost zero to 1.5 million "clients" in just a few months, we could see millions of long-time, structurally unemployed soon. A true underclass.

Also, the discrepancy between initial claims and official job loss numbers begins to look ridiculous. A slight difference is fine, but 300% is crazy. Then again, that label applies to most US government data.

US initial unemployment claims dip
Initial filings for insurance fall by 12,000 to 545,000, but continuing claims grow.
The number of Americans filing for first-time unemployment insurance fell last week, while ongoing claims jumped, the government said Thursday. There were 545,000 initial jobless claims filed in the week ended Sept. 12, down 12,000 from a revised 557,000 the previous week, the Labor Department said in a weekly report. A consensus estimate of economists surveyed by expected 557,000 new claims. The 4-week moving average of initial claims was 563,000, down 8,750 from the previous week's revised average of 571,750.

[..] The government said 6,230,000 people filed continuing claims in the week ended Sept. 5, the most recent data available. That's up 129,000 from the preceding week's revised 6,101,000 claims.

Single family home starts are down, and apartments are up. The latter is a sector that sank so deep, it can easily go up 25% and still be a meaningless stat. What I find more interesting is that while mortgage rates are exceedingly low, mortgage applications are sinking. The amount of money the federal government pumps into housing through all the channels it has opened, from tax credits for buyers to loan purchases by Fannie, Freddie and now Ginnie Mae, still can't truly lift the market, no matter that the stock markets are up 50% or more.

If Washington indeed lets the $8000 credit program expire, where will these numbers go? Wouldn't it be better to leave Bulgaria behind for a while and let the marketplace determine prices for a change? Yes, prices would collapse, but isn't that the very obvious best thing that could happen for those who want to buy a home? Spending all those trillions just to keep up appearances a little longer, it's really the worst possible way to spend public money.

If you look at the existing housing inventory and you add the millions of homes that are being kept off the market, as well as the estimated 2 million additional foreclosures this year, home prices can only possibly have one way to go: down down deeper and down. By tempting people to buy, with tax credits, and banks to lend, with loan guarantees, the Obama government holds up prices at artificially elevated levels for what, another few months, and thereby fails the interests of its voters in a spectacular fashion.

US Housing Starts Post Moderate Rise
Housing starts rose modestly as apartment construction rebounded and offset the first decline in single-family home starts after five straight increases, underscoring the fragility of the economic recovery. Separately, the number of U.S. workers filing new claims for jobless benefits unexpectedly declined, according to a Labor Department report Thursday. Meanwhile, total claims lasting more than one week increased.

Housing starts climbed a less-than-expected 1.5% to a seasonally adjusted 598,000 annual rate compared to the prior month, the Commerce Department said Thursday. Building permits also increased last month. Single-family starts in August compared to the prior month retreated 3.0% to 479,000, a modest pullback after five straight increases that accumulated with the steady rise in new-home sales. As for the beleaguered apartment market, construction of housing with two or more units jumped 25.3% to 119,000. Within that multi-family category, groundbreakings of homes with five or more units were 35.3% higher on the month -- and down 48.2% on the year.

Mortgage Rates in U.S. Decline to Lowest Since May
Mortgage rates for 30-year fixed U.S. home loans fell to the lowest since May amid signs the housing market may be stabilizing and the recession is over. The average 30-year rate dropped to 5.04 percent from 5.07 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. That’s the lowest since the week ended May 28, when the rate was 4.91 percent. The 15-year rate fell to 4.47 percent from 4.5 percent. Falling home prices and a government tax credit for first- time buyers are bolstering demand for housing. [..] Foreclosure filings in the U.S. exceeded 300,000 for the sixth straight month in August [..]

Mortgage applications fell 8.6% last week: MBA
The volume of mortgage applications filed last week fell a seasonally adjusted 8.6% compared with the week before, the result of a drop in both applications to refinance an existing loan as well as those to purchase a home [..] Refinance applications made up a 61% share of all activity [..]

Meanwhile, credit, just about wherever you look, keeps on dropping, no matter how governments try to battle the trend with, again and of course, taxpayer money. It's not called a credit crunch for nothing, and that crunch is nowhere near over. Ironically, it can only run its natural course once the government gets out of the way.

It's the old "you can lead a horse to water" paradigm. For the economy to recover, banks will need to lend and consumers will need to borrow, but neither of them wants to play these respective parts. The risks are too high, the debts are too high, and the prospects, provided you are willing to look beyond government involvement, are too bleak.

Can the rally end the crisis?
[..] global corporate debt issuance excluding government entities and financials, jumped to $903 billion in the first half, compared with $361 billion in the last six months of 2008, and the number of issues surged by 62 per cent. Corporate year-to-date issuance is already 22 per cent above 2008 volumes and exceeds the 2007 record by over $150 billion. Yet bank lending remains severely depressed [..]

Global syndicated bank lending fell 17 per cent in the first half of 2009 compared with the previous six months and currently stands at 44 per cent of 2008 volumes, down 65 per cent from the 2006 peak.

TIC Outflow Data Is Terrible For The US Dollar
U.S. Treasury data showed a sharp net capital outflow from the United States in July. The net capital outflow from the U.S. increased to $97.5 billion in July from a revised outflow of $56.8 billion in June (TICS Report) report.[..] June data had originally reported an outflow of $31.2 billion.

Finally, our friend VK leafed through the Fed Flow of Funds report yesterday and came up with the following bits.

Q209 data bear witness to the BIGGEST collapse in credit so far.

Page 9 of the report shows a true disaster.
  • Total Net Borrowing down $241.1 billion vs $224 billion in Q1.
  • Household sector -$233.2 billion in Q2 vs -$155.9 billion in Q1
  • Non Farm Noncorporate business -$274.5 billion in Q2 vs -$176.7 billion in Q1.
  • Financial Sector -$2079.4 billion vs -$1774.9 billion.
  • Households also deleveraged at a faster rate: -1.7% in Q2 vs -1.1% in Q1.
  • Domestic Financial Sector borrowing down -12.2% in Q2 vs -10.4% in Q1.

Credit Market Borrowing
  • Open Market Paper came in at -$735.2 billion in Q2 vs -$662.5 billion in Q1.
  • Bank Loans at -$931.3 billion in Q2 vs -$857.2 billion in Q1
  • Other Loans and Advances at -$398.7 billion in Q2 vs -$468.1 billion in Q1
  • Mortgages declined a whopping -$239.5 billion in Q2 vs -$39.3 billion in Q1
  • Consumer Credit down by -166.8 billion in Q2 vs -95.3 billion in Q1.

What's interesting to note is that Broker Dealers are definitely taking more risk.
  • Net Acquisition of financial assets soared from -$1088 billion in Q1 to +$513.5 billion in Q2.

The Government must've had a quiet word with them:
  • Purchases of treasury securities have soared to +$403.6 billion in Q2 vs -$354.7 billion in Q1.
  • While purchases of GSE backed paper have plummeted to -$179 billion in Q2 vs -$82.7 billion in Q1.

  • Money Market funds are still seeing a decline but it's much reduced at -$64.4 billion in Q2 vs -$253.6 billion in Q1. The appetite for risk as we have seen is real!
  • Household sector is dumping Fannie and Freddie, -$1216 billion in Q2 vs -$1100.7 billion in Q1.
  • Rest of world is dumping at a slower rate as they probably have disposed of most of their holdings while FED pumped in +1088.1 billion in Q2 vs +1069.3 billion in Q1. That's your dollars at work propping up failed financial institutions.
  • The shocking thing is that, even with all the FED support Net Issues of GSE paper declined for the First Time coming in at $118.5 billion in Q2 vs +$37 billion in Q1.
  • Commercial RE imploded at -$64 billion in Q2 vs -$2.8 billion in Q1. A ticking time bomb!!

  • Also: Household wealth soared in Q2 courtesy of the rally in stocks, rising by nearly $2 trillion.
  • After a cumulative -$13.9 trillion contraction since the crisis started, that is. Only $12 trillion left to go!!

  • Total Debt in the US actually declined.

    $52.915 trillion in Q1 vs $52.793 trillion in Q2.

In the face of all the debt the government piles on, total debt declines.

The biggest credit contraction ever.

Look under deflation in your dictionary.

How could this not be a memorable fall we're heading into?

Tilson: Enjoy The Housing Head-Fake While It Lasts
Whitney Tilson of T2 Partners is sticking to his guns on housing: The uptick in recent months is a seasonal mix issue.  When the market finally sees this, Whitney says, banks and homebuilders will tank. (We'd go farther.  If Whitney's right about housing, which we still think he is, the MARKET will tank). Here's Whitney on Fast Money last night:

US initial unemployment claims dip
Initial filings for insurance fall by 12,000 to 545,000, but continuing claims grow.
The number of Americans filing for first-time unemployment insurance fell last week, while ongoing claims jumped, the government said Thursday. There were 545,000 initial jobless claims filed in the week ended Sept. 12, down 12,000 from a revised 557,000 the previous week, the Labor Department said in a weekly report. A consensus estimate of economists surveyed by expected 557,000 new claims. The 4-week moving average of initial claims was 563,000, down 8,750 from the previous week's revised average of 571,750.

"This looks good with claims down by 31,000 over the past four weeks, but the late Labor Day could well have distorted the latest data," wrote economist Ian Shepherdson of High Frequency Economics in a research note. "We need to see what happens over the next couple of weeks before we can be sure whether a downward trend is really in place," Shepherdson said.

Continuing claims: The government said 6,230,000 people filed continuing claims in the week ended Sept. 5, the most recent data available. That's up 129,000 from the preceding week's revised 6,101,000 claims. The 4-week moving average for ongoing claims fell by 5,500 to 6,180,250, down from the prior week's revised average of 6,185,750.

The initial claims number identifies those filing for their first week of unemployment benefits. Continuing claims reflect people filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks. The figures do not include those who have moved to state or federal extensions, nor people whose benefits have expired.

State-by-state data: A total of three states reported a decline in initial claims of more than 1,000 for the week ended Sept. 5, the most recent data available. Claims in California fell the most, by 2,751, which a state-supplied comment said was due to fewer layoffs in the trade and services industries. Six states said that claims increased by more than 1,000. Washington reported the most new claims at 2,620, which a state-supplied comment said was due to layoffs in the construction, service, public administration and manufacturing industries.

Outlook. Shepherdson said claims should continue to fall in the coming weeks as the economy expands and the pace of layoffs slows to reconcile with current GDP growth. "Companies are profoundly skeptical about the sustainability of the upturn, but unless they believe the economy is about to suffer a serious broad relapse, we think they will have to reduce the rate of job losses," Shepherdson said.  

US Housing Starts Post Moderate Rise
Housing starts rose modestly as apartment construction rebounded and offset the first decline in single-family home starts after five straight increases, underscoring the fragility of the economic recovery. Separately, the number of U.S. workers filing new claims for jobless benefits unexpectedly declined, according to a Labor Department report Thursday. Meanwhile, total claims lasting more than one week increased.

Housing starts climbed a less-than-expected 1.5% to a seasonally adjusted 598,000 annual rate compared to the prior month, the Commerce Department said Thursday. Building permits also increased last month. Single-family starts in August compared to the prior month retreated 3.0% to 479,000, a modest pullback after five straight increases that accumulated with the steady rise in new-home sales. As for the beleaguered apartment market, construction of housing with two or more units jumped 25.3% to 119,000. Within that multi-family category, groundbreakings of homes with five or more units were 35.3% higher on the month -- and down 48.2% on the year.

U.S. builders are feeling more confident, a new report this week indicated. The National Association of Home Builders on Wednesday said its housing market index rose 1 point to 19 in September. The gauge measures builder confidence of sales prospects for new, single-family homes. At 19, the index is at its highest level since May 2008. But it takes a reading above 50 to indicate more builders view sales conditions positively than see them negatively. Within the NAHB report, a gauge of sales expectations for the coming six months slipped downward, by 1 point to 29, as builder fret about the November expiration of an $8,000 tax credit for first-time home buyers.

The latest data showed new-home sales climbed more than anticipated in July, staging their fourth straight month of strong gains. Inventories plunged. While unemployment is rising, to 9.7% at last count in August, the prices of new homes have fallen sharply, with the median sliding by 11.5% since July 2008. "The real reason home sales are picking up is that home prices have collapsed," said Mike Larson, a Weiss Research analyst reacting favorably to the NAHB index. "That collapse has made housing affordable once again in many markets."

The 1.5% increase in August housing starts came short of expectations. Economists surveyed by Dow Jones Newswires forecast a 3.3% increase to an annual rate of 600,000. July housing starts fell by 0.2% to 589,000, revised from an originally reported 1.0% decrease to 581,000. Starts rose 7.1% during June and 15.0% in May. Year over year, housing starts were 29.6% lower than the pace of construction in August 2008.

Building permits in August climbed 2.7% to a 579,000 annual rate. Economists had expected permits to rise by 4.6% to a rate of 590,000. July permits fell 1.1% to 564,000. Regionally, housing starts rose 23.8% in the Northeast and 0.9% in the Midwest. Sales fell 2.4% in the South and were flat out West. Nationwide, an estimated 55,100 houses were actually started in August, based on figures not seasonally adjusted. An estimated 52,300 building permits were issued last month, also based on unadjusted figures.

Mortgage Rates in U.S. Decline to Lowest Since May
Mortgage rates for 30-year fixed U.S. home loans fell to the lowest since May amid signs the housing market may be stabilizing and the recession is over. The average 30-year rate dropped to 5.04 percent from 5.07 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. That’s the lowest since the week ended May 28, when the rate was 4.91 percent. The 15-year rate fell to 4.47 percent from 4.5 percent.

Falling home prices and a government tax credit for first- time buyers are bolstering demand for housing. A return to economic growth may also help the property market. Federal Reserve Chairman Ben Bernanke said this week that the worst U.S. recession since the 1930s has probably ended, yet growth may not be strong enough to quickly cut the unemployment rate. “The Fed’s telling us that rates are going to be low for an extended period so that’s benefiting potential homeowners who are entering the mortgage market,” said Donald Rissmiller, chief economist at Strategas Research Partners in New York. “I don’t think that policy makers want to make the mistakes of past episodes where stimulus was withdrawn too early.”

The Federal Reserve set out last year to encourage lower mortgage rates by pledging to buy bonds backed by home loans. It increased the size of the program to $1.25 trillion in March. The bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae brought down yields on mortgage-backed securities and allowed lenders to reduce rates on new loans while still selling the securities backed by them at a profit. The plan helped drive mortgage rates to a record low of 4.78 percent twice in April.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance declined 8.6 percent in the week ended Sept. 11. The group’s refinancing gauge fell 7.4 percent, while the index of purchases declined 10 percent. Single-family home starts dropped 3 percent in August, the first decrease since January, while work began on 25 percent more multifamily units such as apartments, figures from the Commerce Department showed today. The decline in single-family starts may signal reluctance on the part of builders to start new homes as the government’s tax credit for first time buyers is set to expire later this year.

Rising foreclosures and falling home prices remain impediments to a full housing recovery. Foreclosure filings in the U.S. exceeded 300,000 for the sixth straight month in August as job losses left many homeowners unable to keep up with their mortgage payments, property data service RealtyTrac Inc. of Irvine, California, said last week. U.S. home prices may fall another 10.5 percent and reach bottom at the end of next year’s second quarter, according to a report from Deutsche Bank AG. The total decline will be 38 percent measured from the estimated market peak in the fourth quarter of 2005, New York-based analysts led by Karen Weaver said in the report Sept. 14. The forecast covers 100 metropolitan areas.

Mortgage applications fell 8.6% last week: MBA
The volume of mortgage applications filed last week fell a seasonally adjusted 8.6% compared with the week before, the result of a drop in both applications to refinance an existing loan as well as those to purchase a home, the Mortgage Bankers Association reported Wednesday. The average rate on 30-year fixed-rate mortgages rose for the week ended Sept. 11, while rates on 15-year fixed-rate mortgages and one-year adjustable-rate mortgages fell, according to the MBA's weekly survey, which covers about half of all U.S. retail residential mortgage applications. Results were adjusted for the Labor Day holiday.

The drop in applications follows a 17% week-over-week jump recorded the week of Sept. 4. Refinance applications fell 7.4% last week, compared with the week before; applications for mortgages to purchase a home were down a seasonally adjusted 10.3% last week, compared with the previous week, the MBA said. The four-week moving average for all mortgages was up 2.9%. Applications were down 18.7%, compared with the same week in 2008.

Refinance applications made up a 61% share of all activity, up from 59.8% the previous week. ARMs made up 6% of all application activity, up from 5.8% the previous week.
According to the survey, the 30-year fixed-rate mortgage averaged 5.08% last week, up from 5.02% the previous week. Fifteen-year fixed-rate mortgages averaged 4.41% last week, down from 4.45% the previous week. And one-year ARMs averaged 6.61%, down from 6.69% the previous week.

To obtain the rates, the 30-year fixed-rate mortgage required payment of an average 0.98 point, the 15-year fixed-rate mortgage required payment of an average 1.12 points, and the one-year ARM required payment of an average 0.20 point. A point is 1% of the mortgage amount, charged as prepaid interest.

U.S. "option" mortgages to explode, officials warn
The federal government and states are girding themselves for the next foreclosure crisis in the country's housing downturn: payment option adjustable rate mortgages that are beginning to reset. "Payment option ARMs are about to explode," Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama's administration to discuss ways to combat mortgage scams. "That's the next round of potential foreclosures in our country," he said.

Option-ARMs are now considered among the riskiest offered during the recent housing boom and have left many borrowers owing more than their homes are worth. These "underwater" mortgages have been a driving force behind rising defaults and mounting foreclosures. In Arizona, 128,000 of those mortgages will reset over the the next year and many have started to adjust this month, the state's attorney general, Terry Goddard, told Reuters after the meeting. "It's the other shoe," he said. "I can't say it's waiting to drop. It's dropping now."

The mortgages differ from other ARMs by offering an option to pay only the interest each month or a low minimum payment that leads to a rising balance in the loan's principal. When the balance of the loan reaches a certain level or the mortgage hits a specific date, the borrower must begin making full payments to cover the new amount. The loan's interest rate also may have been fixed at a low level for the first few years with a so-called teaser rate, but then reset to a higher level.

Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they "threaten a much greater hit to the consumer than the subprimes," Goddard said, referring to the mortgages often extended to less credit-worthy borrowers that fed the first wave of the financial crisis.

Miller said option-ARMs were discussed at Tuesday's meeting on mortgage scams, which brought state attorneys general from across the country together with U.S. Treasury Secretary Timothy Geithner, Attorney General Eric Holder, Housing and Urban Development Secretary Shaun Donovan, and Federal Trade Commission Chairman Jon Leibowitz.

The mortgages tend to be "jumbo," or for significantly large amounts, Goddard said, making it even harder for borrowers to sidestep foreclosure. He said he expected to see an increase in scams as distressed homeowners become more desperate to refinance big debts. Goddard said his office is investigating hundreds of cases where companies have made fraudulent promises, and charged large fees, to mortgage defaulters.

The U.S. housing market has suffered the worst downturn since the Great Depression, and its impact has rippled through the recession-hit economy. Some signs of stabilization emerged recently, with sales rising and home price declines moderating in many regions of the country. Home prices in some regions have risen. However, many economists say there is still a huge supply of unsold homes lingering on the market and that, coupled with a frenzy of more foreclosures ahead, should depress home prices for the rest of 2009.

Real estate data firm RealtyTrac, in its August 2009 U.S. Foreclosure Market Report, said foreclosure filings -- default notices, scheduled auctions and bank repossessions -- were reported on 358,471 U.S. properties during the month, a decrease of less than 1 percent from the previous month, but an increase of nearly 18 percent from the same month a year ago. The report said one in every 357 U.S. housing units received a foreclosure filing last month.

Can the rally end the crisis?
A flurry of M&A news and corporate issuance on the first anniversary of Lehman Brothers’ bankruptcy has strengthened optimism about credit quality in the capital markets, infusing energy into the equity and corporate bond rallies. With the MSCI World equities index gaining more than 60 per cent since March and corporate bond and structured credit risk spreads narrowing by a similarly impressive margin, this begs the question: can the capital markets recovery of 2009 end the liquidity crisis in the real economy?

Capital markets perform a unique function in the global financial liquidity network by aligning borrowers’ needs with those of risk-taking savers, in effect sidelining institutional lender constraints such as capital restrictions and risk-averse bank shareholders and depositors. During this banking crisis, capital markets have become the main channel of monetary transmission in the economy. Hence it is not surprising that the improvement in international producer sentiment this year has followed the post-Lehman thaw in capital markets activity, even as the monetary statistics show a continued slowdown in bank lending across industrialised economies.

According to Thomson Reuters, global corporate debt issuance excluding government entities and financials, jumped to $903bn in the first half, compared with $361bn in the last six months of 2008, and the number of issues surged by 62 per cent. Corporate year-to-date issuance is already 22 per cent above 2008 volumes and exceeds the 2007 record by over $150bn. Yet bank lending remains severely depressed as the effects of loan losses and changing regulatory and accounting practices focus traditional lenders’ efforts on shedding balance sheet risk.

Global syndicated bank lending fell 17 per cent in the first half of 2009 compared with the previous six months and currently stands at 44 per cent of 2008 volumes, down 65 per cent from the 2006 peak. In effect, this year’s economic stabilisation has been based on financial disintermediation. Broken bank credit channels and unprecedented monetary liquidity in the global financial system have allowed corporate borrowers to bypass traditional lenders and raise funds directly from capital markets.

The problem is that the economic benefits of stabilising financial conditions and recovering wholesale market liquidity are being distributed unevenly. Governments, financial institutions and large investment grade companies have attracted the bulk of finance from risk-conscious investors. The handful of new sub-investment grade issues launched this year trade at a high penalty risk premium compared with high-grade borrowers. The margin of European high-yield corporate asset swap spreads over A-rated investment grade issuers is about 500 basis points.

This is down from almost 800 bps in January but is far from a sign of normal financing conditions in the real economy. It is a tax on corporate profits, investment and employment. Meanwhile, illiquid securitisation markets make borrowing harder for smaller borrowers who now rely predominantly on disrupted bank credit.

To the extent that securitisation brought savers and borrowers together beyond the borders of national banking systems, illiquid global Asset Backed and Mortgage Backed Security markets epitomise the ongoing crisis of global finance. Securitisation issuance remains depressed, down 50 per cent over 2008 volume, despite support from the Fed’s Term Asset-Backed Securities Loan Facility (Talf) and the ECB’s covered bond purchase programme.

In a normal economic cycle, a flood of capital market liquidity would fuel a recovery. However, there is nothing normal about this cycle as major channels of finance in the real economy remain blocked. Increased corporate issuance and rallying equities may raise the amplitude of the inventory cycle, stabilise consumer wealth and slow job losses. But without policy measures to restore normal credit creation the pressure of leverage on company and consumer balance sheets will keep spending below depressed income evels. As international markets price in the beginning of Fed, ECB and Bank of England exit strategies next year and China moves to restrict loan growth, this hardly bodes well for global growth.

The capital markets recovery of 2009 has reduced the need for emergency levels of public support in the financial system but it has not reduced the need to improve the economic effectiveness of liquidity. Rebuilding the liquidity arteries in the real economy remains a pre-condition for ending this crisis and ensuring a healthy and sustainable recovery into 2010. Without credit, global markets awash with liquidity will start looking bubbly. And an anaemic recovery coming through the floods of international central bank cash will morph into a liquidity trap. Japan is the country that comes to mind.

The Senseless Recovery
by Mr Practical 

Talking to an old friend about the US economic “recovery,” we see no profit growth from extremely discounted levels, no revenue growth, and no employment growth. We see more than 100% of GDP growth as completely dependent on government(s) spending. The Federal Housing Administration has issued more than a trillion dollars in mortgages this year, picking up where Fannie Mae and Freddie Mac left off (they really haven’t stopped either). Delinquency rates are approaching 17%.

Real GDP may be positive for the quarter, but when the government is involved there are lots of shenanigans. For example, we've heard it plans to deduct the cash rebate for cars from the sales price, thus lowering the GDP deflator and artificially raising the reported real GDP number.


It’s all a game of perception. An economy is a physical system, and in the long run it will react as such.

Recent history has seen economic growth stimulated by government(s) artificially lowering interest rates to get the consumer to borrow, which leads to companies building inventory, which leads to hiring, which leads to economic expansion. This time around, the consumer is so levered that will not happen. The Fed itself has worried about this in papers as the “zero bound interest rate problem.”

This is a balance sheet contraction, a credit bust. You even hear the government saying it'll take years to recover. It'll take years for the consumer to delever (unwillingly). I think most stock buyers know this, but aren't buying stocks because they think the economy will recover and profits will too. I think a lot of people are buying stocks to 1. catch up with other buyers, and 2. because they're worried about “inflation".

I've written in detail why inflation (credit expansion) is unlikely: The fractional banking system is still broken, and so is the consumer. Without either or both, every dollar the Federal Reserve attempts to print just replaces a dollar destroyed by bad debt. I estimate another $10 trillion to $20 trillion in debt/derivatives is still bad. The government is resurrecting PPIP to try to make that debt look better.

But again, an economy is a physical system. When the market realizes that the Fed can't create inflation (a full monetization of the majority of debt; something that would make even Ben blink), it'll see that the S&P 500 is really trading at 20 times earnings that are not growing. It'll realize that all we've done is actually increase the overall debt in the system with massive stimulus and spending. It'll see the risk in stocks as extremely high.

TIC Outflow Data Is Terrible For The US Dollar
Following on the topic of currencies, the Treasury Dept. has just announced the TIC outflow for July, and they are terrible (as in terrible for the USD).

U.S. Treasury data showed a sharp net capital outflow from the United States in July. The net capital outflow from the U.S. increased to $97.5 billion in July from a revised outflow of $56.8 billion in June (TICS Report) report.

Also, June data had originally reported an outflow of $31.2 billion.

This means money is not coming into the U.S, likely seen as too risky by foreign investors. BNN reported that these moves are not by major central banks, but by smaller institutions or individuals.


Fortune Editor Andy Serwer Says Administration Gaming System For Wall Street Titans
[On Tuesday] morning, Morning Joe's Joe Scarborough and Mika Brzezinski were joined by Fortune Magazine Managing Editor Andrew Serwer and our own co-founder/editor-in-chief Arianna Huffington in Carlsbad, California at the Fortune Magazine Most Powerful Women Summit to talk about how Wall Street has fared in the age of bailouts. Asked about Goldman Sachs and their post-TARP fortunes, Serwer used a pretty telling metaphor:
SERWER: I mean, it's amazing to me that as we recover, you know, come out of this financial crisis, you know, you'd expect a company like Goldman Sachs maybe things are improving, make a little money. But they have a record quarter. In other words, they made more money in this three month period than they ever had in any other--

  • SCARBOROUGH: [archly] But they just made some good guesses, right?
  • SERWER: Well, I don't know if it's okay or not, but I think what happened is that the government has telegraphed to Wall Street, not only Goldman Sachs but the other firms what it was doing, what was going on, what the program was, and so, essentially, it's like telling a Goldman Sachs, "Hey, put your money on 32 Black" at the casino, at the roulette wheel. And the thing spins and lo and behold, where does it end up, Joe?
  • SCARBOROUGH: 32 Black?
  • SERWER: 32 Black.

That's a pretty significant statement from the Managing Editor of a magazine that's going to have Goldman CEO Lloyd Blankfein present the "Goldman Sachs & Fortune Global Women Leaders Award" at this very Summit. And it's hard to ignore the fact what Serwer describes is a risk-free system of wealth accumulation that bears no real working resemblance to the thing we know as "capitalism." Remember back to the 2008 campaign, when so many people worried about "wealth redistribution?" Turns out the worry was very real, but the worriers themselves are all making out pretty well!

Credit Swaps Lose Crisis Stigma as Confidence Returns
A year after the bankruptcy of Lehman Brothers Holdings Inc., credit-default swaps have lost their stigma for disaster and are contributing to the growing confidence in the credit markets. The cost to protect against a failure by New York-based Goldman Sachs Group Inc., Charlotte, North Carolina-based Bank of America Corp., and 12 of the other biggest derivatives dealers dropped 66 percent in the past six months, according to an index of swaps compiled by Credit Derivatives Research LLC. While the U.S. struggles with the slowest recovery since 1945, the market where investors protect themselves from default and speculate on corporate debt shows confidence is the highest since June 2008.

Credit-default swaps worsened the biggest financial crisis since the 1930s as the meltdown of Lehman and American International Group Inc., two of the largest traders, caused a seizure in lending. Now, Wall Street is accelerating reforms Treasury Secretary Timothy Geithner started in 2005 when he was president of the New York Federal Reserve to increase transparency in a market lawmakers plan to regulate.

“A functioning credit-default swaps market contributes to more efficient extension of credit” by giving investors and lenders confidence that the industry won’t implode, said Alexander Yavorsky, a senior analyst at Moody’s Investors Service in New York. The consequences of Lehman’s failure “were astronomical, broadly speaking, but the CDS market worked well,” he said. Credit-default swaps pay the buyer face value in exchange for the underlying bonds or the cash equivalent should a company fail to meet its debt obligations. Prices rise when perceptions of creditworthiness deteriorate and fall when they improve.

Banks have had unparalleled access to money after Federal Reserve Chairman Ben S. Bernanke reduced the target rate for overnight loans between banks to a range of zero to 0.25 percent, from 5.25 percent in 2007. The Fed and the government spent, lent or committed $12.8 trillion to revive the economy. One result is that expectations another big financial institution will fail have receded. Credit Derivatives Research’s Counterparty Risk Index, which measures default swaps on 14 firms, has dropped to 104 basis points, after peaking on March 9 at a record 305.6 basis points, or 3.056 percentage points. That means it costs an average of $104,000 a year for a credit-default swap protecting $10 million of debt.

The Libor-OIS spread, a gauge of banks’ reluctance to lend, contracted to 0.11 percentage point yesterday from a peak of 3.64 percentage points in October. Former Fed Chairman Alan Greenspan said in June 2008 he would consider credit markets back to “normal” if the spread was 0.25 percentage point. In addition to supporting banks by lowering rates and providing financing for troubled loans, Bernanke has succeeded in this year’s goal of reducing the cost of credit for consumers. Companies have issued a record $2.6 trillion of debt this year in dollars, euros, pounds and yen, the fastest pace on record and up 21 percent from 2008, according to data compiled by Bloomberg.

The gap between borrowing costs for investment-grade rated U.S. corporations and the government narrowed to 242 basis points on Sept. 11, the slimmest margin since February 2008 and down from a record 656 basis points on Dec. 5, Merrill Lynch & Co. indexes show. The decline means a company would save $41 million in annual interest on $1 billion of bonds sold. Rates on 30-year mortgages average 1.82 percentage points more than 10-year Treasuries, down from 3.27 percentage points in December, according to North Palm Beach, Florida-based

Credit markets seized up after New York-based Lehman, then the fourth-largest U.S. securities firm, filed for bankruptcy protection on Sept. 15, 2008, and the government bailed out New York-based insurer AIG with an $85 billion investment a day later. That amount ballooned to $182.5 billion. AIG needed to be rescued after handing over more than $18 billion in collateral tied to credit swaps sold to banks including Goldman Sachs and Societe Generale SA. The insurer had sold about $400 billion of swaps protecting against losses on securities backed by U.S. subprime mortgages and corporate loans.

The downfall of Lehman, which was founded in 1850, and AIG, at one point the world’s biggest insurer, raised concerns that no financial institution was safe. Markets for short-term credit locked up. The benchmark rate banks charged each other for three-month dollar loans, the London interbank offered rate, almost doubled in a month to 4.82 percent, British Bankers’ Association data show. The Dow Jones Industrial Average fell 43 percent over the next six months to the lowest level in six years.

New York Attorney General Andrew Cuomo began investigating whether credit-default swaps were manipulated to spread rumors about financial companies and drive down stock prices, a person in his office who asked not to be identified by name said at the time. President Barack Obama said in a June 17 speech on his plans for finance industry regulatory reform that credit swaps and other derivatives “have threatened the entire financial system.”

U.S. Congresswoman Maxine Waters, a California Democrat, introduced a bill in July that tried to ban credit-default swaps because she said they permitted speculation responsible for bringing the financial system to its knees. Wall Street responded to rising criticism in late 2008 by bringing more order to the market, which was developed more than a decade ago by traders at New York-based JPMorgan Chase & Co. as a way for banks to hedge against losses on corporate loans.

Contracts outstanding exploded from less than $632 billion in the first half of 2001 to as much as $62 trillion at the end of 2007, almost 10 times the amount of U.S. government debt outstanding, according to surveys by the International Swaps and Derivatives Association, a trade group based in New York. The market grew so fast that dealers couldn’t keep up with the administrative details. Former Fed Chairman Alan Greenspan said in 2006 that trades often were recorded on scraps of paper.

Banks want to show regulators the market doesn’t need fixing from outsiders. Canceling redundant trades cut the overall notional amount of credit-swap contracts almost in half to $32 trillion as of last week, according to data compiled by New York-based Depository Trust & Clearing Corp. This year more than 2,100 institutions agreed to standard terms to make the privately negotiated contracts easier to trade. For the first time they’re being processed through a clearinghouse, reducing the chance that one party will fail to make payments. About $2.5 trillion of swaps have been cleared since March. None of the almost 50 auctions that have been held to settle swaps tied to borrowers who defaulted over the past year have failed.

“The only market that I know of that seems to have worked virtually every day has been the CDS market,” Eraj Shirvani, chairman of ISDA and Credit Suisse Group AG’s head of fixed income for Europe, the Middle East and Africa, told reporters yesterday at the industry group’s regional meeting in New York. George Soros says the market is still unsafe. The 79-year- old billionaire investor said in an interview that credit- default swaps are “toxic” and “a very dangerous derivative” because it’s easier and potentially more profitable for investors to bet against companies using them than through so- called short sales.

The market “held up because it was effectively put on artificial life support” by government bailouts, said Soros, chairman of New York-based hedge fund Soros Fund Management, which has $24 billion under management. “It is a toxic instrument, and if people want to forget it, I think they’ll regret it.” Lawmakers from Washington to Brussels are considering regulations to oversee the market. In the U.S., the Justice Department said it’s examining potentially anticompetitive practices related to clearing, trading and information services.

“We believe there are massive risks that have gone undetected by both market participants and regulators,” said U.S. Treasury spokesman Andrew Williams. “That’s why we’re working with Congress to bring greater transparency and regulation to these markets.” The Obama administration sent Congress proposed legislation last month that would require the most active contracts in the $592 trillion over-the-counter derivatives market to be backed by clearinghouses and traded either on an exchange or on regulated systems.

Derivatives are contracts whose values are tied to assets including stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather. Unlike exchanges, the business is unregulated and prices aren’t public. Dealers and investors in the U.S. agreed in April to buy and sell swaps for fixed annual premiums and an upfront exchange of cash that fluctuates with market values, similar to how bonds trade in an effort to make the market more uniform. Europe followed in July.

U.S. premiums are set at either 100 basis points or 500 basis points, meaning buyers pay an upfront fee and $100,000 or $500,000 annually to protect $10 million of bonds from default for five years. Previously, no upfront payments were required on contracts trading below 800 basis points, and the annual payment was set based on current market values.

The industry also created a committee of banks and investors that determines when contracts must be settled, rather than leaving the decisions open to dispute among traders. The swaps now are automatically resolved at auction when the committee rules a default or bankruptcy has occurred. At Geithner’s urging, dealers no longer reassign counterparties on a trade without the written consent of all parties in the contract. Banks also cut the amount of time it takes to confirm trades to less than a day, from about 17 days in 2005, according to data compiled by London-based Markit Group Ltd. and the Fed.

“The healing and transformation of derivatives started back with Geithner and the Fed trying to change the way derivatives were traded before the crisis hit,” René Canezin, head of global high-yield trading at Barclays Capital in New York, said. Although trading is now dominated by a smaller number of dealers, according to a Fitch Ratings survey last month, the reduction of contracts outstanding and the move toward clearing has lowered the risk of default by any one bank.

“It’s kind of like blood pressure medicine,” said Athanassios Diplas, global head of counterparty portfolio management in New York at Frankfurt-based Deutsche Bank AG. “You lowered the pressure so the body could function. Even though they represented net-zero economic risk, it did represent a lot of counterparty risk.” Two weeks after introducing her bill, Waters said she would be open to other ideas to keep the market going while cracking down on abuses. Waters didn’t return calls for comment.

Fed officials now say that for all the concern about the fallout from Lehman’s bankruptcy, the effect on the business of the derivatives market was negligible. Unwinding derivatives trades including credit-default swaps that Lehman held “was operationally complex, but it wasn’t a systemic problem,” said Theo Lubke, the senior vice president of the New York Fed who is responsible for the central bank’s efforts to curb risks in the OTC market.

“The industry is starting to feel the future is not looking as bleak as it was in terms of what regulations would be imposed,” said Jeremy Jennings-Mares, a partner in the capital markets group at Morrison & Foerster LLP in London. “There was a concern that regulation would not be well suited to the market and its proper functioning. Recent news has helped assuage those concerns somewhat.”

Regulators of Big Bond Buyers Challenge the Raters
Regulators of some of the biggest bond buyers in the world are considering cutting credit-ratings firms' role in the market in response to botched ratings of complicated mortgage securities. Ratings firms including Standard & Poor's and Moody's Investors Service are facing fresh dissent from state insurance regulators, who are considering moving away from the firms ratings' as a way of measuring the health of insurer portfolios of mortgage-backed bonds.

The firms originally assigned high ratings to the securities in the middle of the decade, but they were found to be far less stable when housing prices began declining in 2007. The move is a notable challenge to a ratings system that has long embedded itself in the markets. Insurers are among the most important users of bond ratings, collectively holding some $3 trillion in rated bonds in their portfolios.

The regulators' moves are at a preliminary stage, but could change how state regulators gauge the quality of the investments backing insurers' policies. Currently they use the major ratings firms recognized by the Securities and Exchange Commission. Insurance regulators are considering whether to substitute analysis from other financial firms with expertise in valuing the securities, officials say. The effects of such a change could trickle throughout the world of bond investing, given insurers' outsize role in the bond markets.

"We just need to take stock of this reliance on a system that allows that kind of shock," in the form of swift and severe downgrades, "and frankly evaluate if there are other alternatives," said New York Insurance Department Deputy Superintendent Hampton Finer in an interview. Amid criticism of ratings agencies, he added, "we're under quite a bit of pressure to respond." Representatives from S&P, a unit of McGraw-Hill Cos., and Fimalac SA's Fitch Ratings declined to comment on the insurance regulators' plans. Moody's, a unit of Moody's Corp., declined to comment on the plans as well.

The National Association of Insurance Commissioners is scheduled to hold hearings on the matter next week in National Harbor, Md. The challenge from insurance regulators reflects the relentless criticism directed at ratings firms since the credit crisis began in 2007. The firms have been criticized as being too conflicted or too slow to recognize the risks in billions of bonds they rated as relatively safe. Just this month, the ratings agencies suffered a setback in one part of a civil lawsuit, in which a U.S. District Court rejected some raters' argument that ratings were protected from lawsuits by the First Amendment.

Moody's, which is the largest public company devoted mainly to ratings, also has had one of its largest shareholders, Warren Buffett's Berkshire Hathaway Inc., sell down his ownership stake. And various congressional bills have been proposed that could further dent the companies' long-held monopoly on ratings.

Insurers have a lot riding on the outcome of the debate. Life insurers are big owners of mortgage-backed securities, which represent about 8.5% of insurers' portfolios, according to A.M. Best Co. U.S. life insurers had to ante up a total of $2 billion in capital in 2008 to back up residential mortgage-backed securities to satisfy regulators seeking assurance companies have enough money to pay claims, the American Council of Life Insurers said. As of June 30, the insurers were facing a year-end bill of $11 billion to back up such securities, the trade group said.

Under the current capital guidelines insurers use nationally, the lower the ratings on bonds owned by insurers, the more capital they generally have to set aside to satisfy regulators.
Separate from this hearing on the ratings firms, another group of commissioners is addressing the possibility of regulatory changes that would ease the burden of coming up with capital to meet existing capital guidelines, insurance executives said.

Regulators say they have no plans now to move away from the leading agencies for corporate and other bonds considered less-difficult to rate. The regulators' action could subject them to criticism from consumer-advocacy groups that they are bending over backward to help insurers look good on paper, at the possible expense of policy holders. Mr. Finer said regulators aim to move cautiously.

Regulators want to "formulate a thoughtful approach that first and foremost assures consumer protection," said Michael McRaith, director of the Illinois Department of Insurance.
Regulators say they don't have a specific vision of an alternative, but one possibility would be to use the services of firms such as BlackRock Inc., the asset manager, or RiskMetrics Group, the research firm, regulators say.

BlackRock has developed an expertise in valuing bonds through its BlackRock Solutions unit, which has done work managing portfolios for the Federal Reserve Bank of New York during the credit crisis. BlackRock declined to comment and a spokeswoman for RiskMetrics had no comment. Still, it isn't clear whether other firms would have the interest or capability to deliver the kind of analytical services regulators would require for the variety of mortgage-backed securities held across hundreds of insurance companies.

Also unclear is how any service would be paid for. Currently, bond issuers -- in the case of mortgage securities, typically banks -- pay the ratings firms for ratings, which are then publicly available. In a new scenario, one option might be the National Association of Insurance Commissioners paying for the additional analysis, a cost the NAIC could pass on to insurers in the form of fees. Or the issuers could pay for the extra analysis.

California Attorney General Brown To Launch Investigation Into Rating Agencies' Role In Fueling The Financial Crisis
California AG Jerry Brown joins the ranks of Attorneys General to scrutinize the disastrous role the credit rating agencies played in the financial crisis. On Thursday, Brown will announce the investigation's launch. From the press release:
San Francisco - At a news conference Thursday, September 17, 2009 at 10:30 a.m., Attorney General Edmund G. Brown Jr. will announce that he is launching an investigation into the role credit rating agencies played in fueling the financial crisis.

At the peak of the housing boom, these agencies gave their highest credit ratings to complicated financial instruments, including securities backed by subprime mortgages, making them appear as safe as government-issued Treasury bonds. In rating these securities, these agencies worked behind the scenes with the same Wall Street firms that created them. For their work, the agencies earned billions of dollars in revenue, at a rate double what they earned for rating other financial products.

A good starting place could be this instant message exchange between two employees at S&P, one of the biggest rating agencies, captured in our Most Damning Internal Emails Of The Financial Crisis slideshow:
  • "Official #1: Btw (by the way) that deal is ridiculous.
  • Official #2: I know right...model def (definitely) does not capture half the risk.
  • Official #1: We should not be rating it.
  • Official #2: We rate every deal. It could be structured by cows and we would rate it."

Don’t be surprised to see more bank failures
By most measures, the past year has been the worst financial crisis in a lifetime. But not by one significant measure: Bank failures. The Federal Deposit Insurance Corp. has closed 92 banks so far in 2009, after seizing 25 ailing banks last year. By contrast, during the last banking crisis, 381 banks were seized in 1990, 268 in 1991, and 179 in 1992. Still, the pace of bank failures is accelerating. In recent days, three banks failed, including Illinois-based Corus Bank, doomed by $3.2 billion in construction loans, mostly to condominium developers.

The relatively slow pace of bank failures during the crisis is partly the result of government decisions to keep ailing banks open for as long as possible, says Louisiana State University banking professor Joseph Mason. Now, it appears, the FDIC is shutting down the bad banks at a faster rate. Since July 1, the FDIC has shuttered 47 banks, amounting to more than half of the FDIC's financial losses on the bad banks this year. The consensus among banking experts is that two to three times more banks could fail during this crisis, for a total of 200 to 300, says independent market strategist Doug Peta.

Put simply, the problem for banks is bad loans. Institutions have been hit by one type of problem loan after another, says Keefe, Bruyette & Woods analyst Frederick Cannon. First, it was bad residential real-estate loans, including the notorious subprime mortgages. The biggest bank failure of the crisis occurred on Sept. 25, 2008, when the FDIC closed down Washington Mutual and arranged for it to be bought by JPMorgan Chase. Another big failure was on July 11, 2008, when the FDIC, at a cost of $10.7 billion, took over IndyMac, a specialist in risky, so-called Alt-A residential loans.

Mortgage problems persist, but banks specializing in loans to developers have been hit hard in 2009. KBW data show that, of banks that have failed since 2007, an average of 28.8 percent of loans outstanding were construction loans, compared to 9.8 percent for the industry as a whole. At Corus, which failed on Sept. 11, 88 percent of its lending was construction loans. "This year is dominated by construction lenders," Cannon says.

The next problem for banks is likely to be commercial real estate and other commercial and industrial loans, Cannon says. A healthy banking industry is a key ingredient to an economic recovery. Small businesses especially rely on bank financing, which has been hard to get recently. However, an accelerating cascade of bank failures isn't all bad news for the banking industry as a whole. For one thing, bank "seizures are good for the survivors," Peta says. "[Failures] reduce the number of institutions indulging in 'Hail Mary' banking."

In other words, a desperate, troubled bank is likely to offer high rates to attract depositors. That lures customers from strong banks to weak banks. Also, when banks fail, their stronger competitors can gobble up their branches and depositors "on the cheap," Peta says. For example, BB&T Corp. became one of the nation's top-10 banks this month by asset size, according to rankings by SNL Financial. The reason: BB&T acquired Colonial Bank, which has $22 billion in assets, after its closure by the FDIC on Aug. 14.

At the same time, the problems at big banks might be giving smaller institutions a chance to win back market share, says Christine Barry, research director at the Aite Group. In her recent survey of almost 800 community banks, she found that more than half reported adding customers and deposits during the financial crisis. "While a lot of these banks are faced with big challenges, many of them are actually seeing a lot of opportunities," she says.

Since the beginning of the financial crisis, investors have complained about a lack of transparency from banks. Without knowing what bad loans or toxic assets sit on bank balance sheets, it's difficult to assess how risky those banks really are. "The one thing the industry needs is information for investors to sort out who is strong and who is weak," Mason says. Regulators are still reluctant to release this data, for fear of scaring investors, he says. But he believes this approach is counterproductive and could prolong the recession.

Still, banking stocks have rebounded strongly this year, with the KBW Bank Index up 141 percent since its low on Mar. 6. (But the index is still down 56 percent from two years ago.) What has boosted investor confidence isn't information, but the implication that many large banks are too big to fail, Mason says. "They're still living off the life support of various government programs," he says.

A cure for ailing banks is time. With interest rates low, this should be a profitable time for many banks, Peta notes. The housing market is showing signs of recovery, with the most recent Case-Shiller Home Price index rising 1.4 percent from May to June. That's a good sign for a banking industry with many loans related to real estate. "We are making some progress," Peta says. If they make the right moves, some troubled banks can survive long enough, and earn enough now, to make up for losses of the past few years. But for hundreds of less fortunate institutions, time is quickly running out.

FDIC names first winner in toxic asset program
he Federal Deposit Insurance Corp. on Wednesday named the first winning bidder under a test of the government's program to back private purchases of toxic mortgage assets and get them off banks' balance sheets. Fort Worth, Texas-based Residential Credit Solutions Inc. is paying $64.2 million for a 50 percent stake in a new company that will have about $1.3 billion in home mortgages from the failed Franklin Bank. The FDIC took over Houston-based Franklin Bank in November. Under the test sale to RCS, the new company will issue a note for $727.8 million to the FDIC. Twelve groups of companies had bid on the assets, the agency said.

The program is part of the government's public-private partnership to guarantee private investors' purchases of toxic assets to help banks raise new capital, get credit flowing and aid the economic recovery.
The sale is part of the government's so-called Public-Private Investment Program, announced in March by the FDIC, Treasury Department and Federal Reserve as one of the financial recovery measures. The backing for the private investors' purchases is coming from the $700 billion federal bailout fund, with the government matching private investors dollar for dollar and sharing any profits equally.

The FDIC said it will analyze the results of the RCS-Franklin Bank sale to determine whether the same process could be used to get toxic assets off the balance sheets of banks that are still open and functioning, as opposed to failed banks. Officials have said that the PPIP will aim to relieve banks of up to $40 billion worth of soured investments tied to mortgages. The FDIC pilot sale involved actual mortgage loans rather than the related securities. The closing of the RCS sale is expected later this month, the FDIC said, after which the company will manage the portfolio and service the loans under guidelines for modifying distressed mortgages. RCS is a large mortgage servicing company that deals in modifications for troubled home borrowers. The company had no immediate comment Wednesday afternoon.

FedEx Earnings Fall 53%
FedEx Corp. said Thursday its first-quarter earnings fell 53 percent -- matching its prediction released last week -- and warned its profit will remain weak through at least the end of the year. But the world's second largest package delivery company, considered a bellwether of economic health, said it does see signs of improvement in the global economy as international shipments picked up.

The Memphis, Tenn.-based company reported earnings of $181 million, or 58 cents per share, compared with $384 million, or $1.23 per share, a year ago. Revenue fell 20 percent to about $8 billion. Analysts predicted profit of 58 cents per share on revenue of $8.24 billion. The company said its sales are continuing to be hurt by the slow economy, as people ship slower and less often. The quarter was also hurt by lower fuel surcharges -- the fees it passes on to customers based on the price of fuel.

In its Express segment, U.S. package revenue fell 22 percent on lighter and less expensive packages and lower fuel fees. But the number of packages FedEx shipped domestically grew slightly. FedEx's Ground segment revenue fell 2 percent and average daily volume slipped 1 percent. But FedEx said it was able to offset some of the shortfall by ''vigilantly'' cutting costs. Volume in International Priority -- its most profitable segment -- was also better than expected.

''For more than a year, we have vigilantly managed costs without sacrificing service, invested wisely and minimized job losses so that FedEx will emerge a stronger, more profitable company as the global economic recovery takes hold,'' FedEx Chairman, President and CEO Frederick W. Smith said. FedEx Corp. reiterated its profit prediction of 65 to 90 cents per share for the second quarter ending in November. That's down from $1.23 a year ago. It also said it will raise express shipping rates by 5.9 percent in January. Shares fell $1.20 to $77 in premarket trading.

Ireland's Bad Debt Loan Plan Meets Opposition
Ireland's government proposed buying property loans with a book value of €77 billion ($113 billion) from five struggling Irish banks Wednesday, but the country's finance minister said some may still need additional capital. The plan, aimed at restarting stalled lending, faced fierce opposition when it was unveiled by Finance Minister Brian Lenihan in a rowdy session of parliament Wednesday. It is likely to face weeks of debate. The unpopular ruling party doesn't have a majority in parliament, and the plan is reviled by opposition parties, which say Ireland is overpaying and heaping costs on the taxpayer to benefit bankers.

The banks have been paralyzed by bad bets on Ireland's enormous property bubble, which has deflated amid the global downturn. Mr. Lenihan said Ireland would pay the banks €54 billion for the loans, many of them delinquent, but conceded that, according to the government's assessment, they have a current market value of about €47 billion. The extra €7 billion is to take account of the loans "long-term economic value," he said.

Like other nations, Ireland has faced a quandary when dealing with toxic loans: Buying them for a low price forces painful losses on already wounded institutions, but overpaying inflates the cost of the rescue. "We will not pay too much for these assets, but paying too little has consequences for this economy," Mr. Lenihan said. He described the plan as an effective way to encourage banks to lend again.

Under the plan, Ireland would take over the property loans, which include commercial loans to developers, and transfer them to the new National Asset Management Agency, which would have years to try to dispose of the loans and any foreclosed properties. To pay for the loans, Ireland will issue government bonds. The bulk of the loans will come from Anglo Irish Bank Corp., Allied Irish Banks PLC and Bank of Ireland Group. Anglo Irish has already been nationalized, and Ireland has put €7 billion of capital into the other two.

A Bank of Ireland spokeswoman declined to comment. Allied Irish said it expected to raise €2 billion in capital and would seek private sources including equity markets or asset sales. Opposition politicians were fierce in condemnation. "An act of economic madness," said Fine Gael party leader Edna Kenny. Fine Gael and other critics have called for measures such as splitting banks into "good banks" and "bad banks," or even broad nationalization. At the least, opponents say, the government should pay less for the loans.

Irish bank shares surge on government bail-outsIrish bank shares surge on government bailouts
There is no realistic alternative to the Government’s National Asset Management Agency (Nama), Taoiseach Brian Cowen said during a resumed debate today on the proposed legislation in the Dáil. Shares in AIB and Bank of Ireland have made strong gains today rising over 31 per cent and 16 per cent, respectively, by 4.15pm as investors digested the detail of the Government’s proposal. Both stocks hit one-year highs today.

Green Party leader John Gormley said his party will pull out of Government if its party members reject Nama and the new programme for government at the Green Party’s convention scheduled to take place on October 10th. Speaking on RTÉ’s News at One Mr Gormley said his party would be pressing for further amendments to Nama to promote a social dividend and ensure a windfall tax is part of the legislation. “If Nama and the programme for government is rejected on October 10th we could not continue our participation in Government,” he said.

Bank of Ireland said today the discount applied to loans it transfers to Nama could be "significantly less" than the estimated 30 per cent discount average outlined by the Minister for Finance Brian Cowen yesterday. International reaction to the plan has been broadly sceptical. The Financial Times said: “Either way Ireland is on the hook. The more banks rally, the more likely Dublin will be stung for the recapitalisations that will surely loom. If they don’t, Dublin will have to foot the bill anyway.”

Speaking during the resumed Dáil debate on the issue this morning, Mr Cowen rejected suggestions that Nama is a bail-out for bankers and developers. “Nama is not designed to be and will not be permitted to operate in practice as a bail-out mechanism for anybody who has operated irresponsibly,” he said. Mr Cowen told TDs alternatives to Nama proposed by Fine Gael “unrealistic” and “not founded in any practical plan.” “The suggestion by Deputy Bruton that we can divide most or all of our banks into a good and bad bank system without disrupting the flow of finance to the economy is totally unrealistic and not founded in any practical plan.”

Fine Gael leader Enda Kenny said Nama was a “fatally flawed piece of legislation. He told the Dáil this morning it was the “economics of the madhouse, supported by the fiction of long term economic value”. Minister for Finance Brian Lenihan this morning defended the risk-sharing mechanism provided in the Nama Bill in which 5 per cent, or €2.7 billion, of the €54 billion to be paid for the loans will be in the form of subordinated bonds. This €2.7 billion only be paid if Nama makes a profit. Mr Lenihan said the State was paying €7 billion more than the estimated current market value because the property market was distressed and "we have to provide some allowance for long-term value," he told RTÉ's Morning Ireland .

Under the Government's plan, Nama will purchase €28 billion in loans from Anglo Irish, €24 billion from AIB, €16 billion from Bank of Ireland, €8 billion from Irish Nationwide and €1 billion from the EBS. The full extent of bank forbearance with large property borrowers was revealed for the first time when the Minister disclosed that the loans Nama will acquire include €9 billion in overdue interest payments. In addition, the Government has proposed extending the State bank guarantee by up to five years to allow them to access longer-term debt.

Two-thirds of the properties are in the Republic, 21 per cent are in Britain, 6 per cent are in Northern Ireland, 3 per cent are in the United States and 4 per cent are in Europe. The Minister suggested alternative approaches would end up costing the taxpayer more, with the Labour nationalisation plan requiring an extra €10 billion to €14 billion to recapitalise the banks. Mr Cowen attended a meeting of the European Council in Brussels this afternoon.

UK economy 'lurching back to the 1970s', says thinktank
Britain is facing the tightest squeeze in public spending since the 1970s, after leaked Treasury documents showed a major deterioration in the nation's public finances, the Institute for Fiscal Studies will warn tomorrow. In a blow to Gordon Brown days after he relaunched his premiership by finally admitting that spending would have to be cut, the IFS will confirm Tory warnings that the last budget in April failed to reveal the depth of the public finance crisis.

The IFS will release its latest commentary on Britain's public finances in the wake of the leaking to the Tories of Treasury documents which showed that departmental spending would be cut by a total of 9.3% between 2010 and 2014. David Cameron seized on the leak to question Brown's honesty. The prime minister told the Commons in June that the Tories were "ideologically committed to 10% cuts in public services" which was "not the policy of this government".

Cameron believes the leaked Treasury documents are particularly significant because key tables, marked "confidential", are dated 21 April 2009 – the day before the budget. The tables, the internal "live documents" used to compile the Red Book which illustrates budget projects, show departmental spending will have to be cut by 9.3% between 2010-2014. Within two months of the budget, Brown launched a month-long attack on Cameron as a cutter in which the prime minister depicted the Tory leader as "Mr 10%" – almost the same amount as the cuts outlined in the Treasury documents.

Downing Street said today that Brown had not misled parliament because no plans had been set out for public spending beyond 2010-11. The leaked documents show such deep cuts in departmental spending because the Treasury predicts a sharper than expected increase in two key costs of the recession – social security payments and debt interest payments – described by Brown in 2000 as the "costs of social and economic failure". The IFS embarked on a hasty revision of its forecasts today because the leaked documents provide a breakdown of projections for government spending up to 2014; at the time of the budget these detailed projections were only provided until 2012.

Robert Chote, head of the IFS, said: "There has been something of a gap between the government's rhetoric and its arithmetic over the period since the budget. The prime minister came up with a variety of increasingly imaginative formulations over the summer to suggest spending wouldn't actually be falling."

The IFS will underline the gravity of the public finances tomorrow when it warns that the unprecedented increase in spending over the last decade will have to be "completely reversed" by the next government – whoever wins the election – unless taxes are raised and welfare payments are cut. Chote said: "The Treasury is expecting to pay a lot more in debt interest, social security payments and other things it doesn't have much day-to-day control over. We are looking to have to cut public spending by 3% a year in real terms. We haven't seen anything like that since the 1970s."

But the IFS report will also place pressure on Cameron. It shows that the Tories will have to cut departmental spending by 14% from 2011-14 if they maintain their two spending commitments – to increase NHS spending in line with inflation and to meet the UN target of spending 0.7% of GNI on overseas aid by 2013. Cameron, who last week pledged to increase public spending at a lower rate than Labour, today refused to rule out imposing cuts beyond the 9.3% in the Treasury documents. "If you start [cutting] earlier it is a less painful and better process because you want to start from a lower base," he said.

The leak

What do the leaked Treasury documents reveal?
The forecast on the eve of the last budget that departmental spending would be cut by 9.3% in 2010-2014.

Why such deep cuts?
The breakdown of government spending until 2014, not released at the time of the budget, shows a sharper than expected increase in social security and debt interest payments.

Will this lead to a revision of spending plans?
Not for Labour which has not made any commitments after 2011. The Tories have two commitments: to increase NHS spending in line with inflation and to meet the UN target of spending of 0.7% of GNI on overseas aid by 2013. The IFS, which had said this would mean cuts of 10% in other areas, will say this will mean 14% cuts.

UK retail sales stall in August as consumers cut back
UK retail sales surprisngly stalled last month, with clothing and shoe sales declining, in a sign Britons are still feeling the financial squeeze of the downturn. Figures from the Office for National Statistics showed that sales across the high street were flat compared with July, when they recorded a 0.2pc fall. Economists had forecast that sales would see a 0.1pc gain. John Lewis, the department store chain, and fashion retailer Next have both said this week that although an Armageddon on the high street has been avoided, the British consumer is going to remain under pressure next year.

It's a view echoed by Mervyn King, the Bank of England Governor, who said earlier this week that although there are signs the economy is now growing again, it's unlikely to feel any different for ordinary people. “Consumer spending has been fairly resilient, but with growth below its potential unemployment will continue to rise and that will hold back consumer spending,” said Alan Clarke, an economist at BNP Paribas.“ Today's figures showed that sales at non-food stories fell 0.6pc; sales of food increased 0.7pc.

Some fires are best left to burn out
Forest fires are judged to be nasty, especially when one’s own house or life is threatened, or when grave harm is being done to tourist attractions. The popular conviction that fires are an unqualified evil reached its zenith after a third of Yellowstone Park in the US was destroyed by fire in 1988. Nevertheless, conventional wisdom among forest managers remains that it is best to let natural forest fires burn themselves out, unless particularly dangerous conditions apply. Burning appears to be part of a natural process of forest rejuvenation. Moreover, intermittent fires burn away the undergrowth that might accumulate and make any eventual fire uncontrollable.

Perhaps modern macroeconomists could learn from the forest managers. For decades, successive economic downturns and even threats of downturns (“pre-emptive easing”) have been met with massive monetary and often fiscal stimuli. This was the case when the global stock market crashed in 1987, and it was repeated when the property boom in many countries collapsed in the early 1990s. Interest rate rises were put on hold during the Asian crisis of 1997, even though traditional indicators said some industrial countries were overheating. Rates were then sharply reduced in 1998, after the collapse of the hedge fund Long-Term Capital Management, and were lowered again when the stock market collapsed in 2001. Today, policy rates in most industrial countries are close to zero, in response to the financial crisis.

What needs reflection, against this backdrop, is whether the policy reaction to each successive set of difficulties laid the foundations for the next one. Worse, the encouragement by lower interest rates of debt accumulation and spending imbalances was the equivalent of undergrowth accumulating in the forest. This undergrowth not only made subsequent downturns more dangerous; it also made the available policy instruments less reliable in response. Looking back over successive cycles, interest rates have had to be reduced with ever more vigour to get the same (and sometimes reduced) response from spending. Most recently, new and untried policies such as quantitative and credit easing have had to be introduced. Logically, the end point of such a dynamic process would seem to be the mother of all fires and few if any means of resistance.

The current Keynesian mindset rightly observes that we have a shortage of aggregate demand. It then concludes that demand stimulus, from whatever quarter, is to be welcomed. However, in addition to the undergrowth problem on the demand side, we can also have an undergrowth problem on the supply side. This was the core of Friedrich Hayek’s position when he debated Keynes in the early 1930s. In response to demand stimulus over recent decades, with investors implicitly assuming that the future would be like the recent past, there has been a massive increase in supply potential in many industries. The upshot is that many of them are now too big and must be wound down. This applies to automobile production, banking services, construction, many parts of the transport and wholesale distribution industries, and often retail distribution as well. Similarly, many countries that relied heavily on exports as a growth strategy are now geared up to provide goods and services to heavily indebted countries that no longer have the will or the means to buy them.

In this supply side context, policies such as “cash for clunkers” and value added tax cuts in countries with very low household saving rates and massive trade deficits are clearly suboptimal. So too, in countries with large trade surpluses, is resistance to exchange rate appreciation along with a continuing reliance on export demand. Such policies are equivalent to trying to resuscitate a patient long since dead. Not only will time prove that such attempts are futile, but they also impede the desirable adjustment from declining industries to those that should be expanding. In effect, relying solely on macroeconomic stimulus may well head off a more violent downturn, but only at the expense of a more protracted recession. Maybe this is the principal lesson to be drawn from Japan’s almost two decades of sub-par performance. Indeed, resisting structural adjustment could also imply a decline in the level of “potential growth” in the years ahead. This would bring with it the threat of a stagflationary outcome, if the demand stimulus from Keynesian policies were not to be adjusted downwards in consequence.

Where to go from here? In terms of future crisis management, governments should give more weight to the longer-term implications of their policies. Those that threaten to make future crises more costly, or that impede required structural adjustments, should be moderated. Such inter-temporal trade-offs imply, from time to time, accepting a temporary economic downturn to avoid even bigger future costs. In this sense, good crisis management also contributes to crisis prevention.

But still more might be done with crisis prevention. Just as good forest management implies cutting away underbrush and selective tree-felling, we need to resist the ?credit-driven expansions that fuel asset bubbles and unsustainable spending patterns. Recent reports from a number of jurisdictions with well-developed financial markets seem to agree that regulatory instruments play an important role in leaning against such phenomena. What is less clear is that central bankers recognise that they might have an even more important role to play. In light of the recent surge in asset prices worldwide, this issue needs urgent attention. Yet another boom-bust cycle could have negative implications, social and political, stretching beyond the sphere of economics.

William White is former economic adviser, head of the monetary and economic department at the Bank for International Settlements.

Oil prices mean perpetual recession
The turmoil since August 2007 has not been blamed directly on oil prices but there’s a link. “The US has experienced six recessions since 1972. At least five of these were associated with oil prices. In every case, when oil consumption in the US reached 4% percent of GDP, the U.S. went into recession. Right now, 4% of GDP is US$80 a barrel oil. So my current view is that if the oil price exceeds US$80, then expect the U.S. to fall back into recession,” wrote Steven Kopits, managing director for U.K.-based energy-consulting and -research firm Douglas-Westwood LLC in New York.

Kopits is a poster boy on all the “peak oil” websites and doomsayer blogs, and his metric on the link between recessions and oil price is interesting. If Kopits is correct, so much for “green shoots”. They will be trampled under foot over and over again unless there is a sudden spike upwards in GDP growth disproportionally more so than oil price increases.Here is the roller-coaster cycle he points out: Higher oil prices mean recessions, recessions mean less consumption then lower oil prices which leads to less exploration and supply which leads to higher oil prices and recession again.

Solutions? Stop driving
The reality suggests that there are only two antidotes to this vicious cycle. Gradual price increases mitigate the negative effect of oil price increases. Recessions follow jumps of 50% within one year. The Saudis and OPEC plus other producers would have to play a role in modulating prices. Or else consuming nations must reduce consumption dramatically through legislation, taxation and rationing. Or crude oil expenditures should not exceed 4% of GDP and this must be mandated by governments.

Here are some other Kopits’ views affecting oil and economic conditions:
  • Kopits on supply: “If I dispassionately just look at the numbers, the oil supply has not improved that much since the 4th quarter of 2004. And I don’t see anything on the horizon that makes it appear that we’re going to break out into a really new level of production that’s far different than what we have today.”
  • Kopits on demand: “Consumption will tend to grow faster in developing economies for two reasons. First, by their nature, developing economies should grow faster than mature ones, and this has been generally true of east Asia and strikingly so in the case of China. So faster economic growth means faster growth in demand for oil. Further, oil consumption growth follows an “S”-curve.

    At low levels of GDP, oil demand growth is quite slow. Once a country has reached middle class income levels, per capita oil consumption stabilizes. However, in the middle, as a country becomes middle class, oil demand growth can be explosive. Take South Korea, for example. South Korean per capita oil consumption peaked in 1996; however, in the previous 12 years, the country’s consumption increased nearly fourfold. China is now firmly on the S-curve. Based on South Korean experience, we would expect Chinese oil demand to stabilize at around 50 mbpd around 2032-2035.”(China currently 8 million per day, US 20 million, Japan 5 million).
  • Kopits on price: "If you have a flat—or heaven help us, declining—supply of oil, then the emerging and fast-growing economies will have no choice but to start bidding away the oil from the advanced or slow-growing economies. That is consistent with what we’ve seen in the data starting in about 2006. For China to grow, it will have to take away the oil of Japan, the US and Europe, just as it has in the last three years.”

Air Industry Faces Grim Year Ahead
The global airline industry faces $11 billion of losses this year, $2 billion greater than previously forecast, as business travel remains in a slump and fuel prices are rising, the International Air Transport Association said Tuesday. The trade body expects airlines to lose $3.8 billion world-wide in 2010, as carriers struggle to generate revenue from their best customers, who either aren't flying or are buying less-expensive tickets. That would mark a third straight annual loss. IATA estimates the industry lost $16.8 billion last year.

IATA sees premium passenger traffic falling 20% in 2009. Traffic in the back of the cabin is expected to drop 5%. The low demand for high-priced seats is expected to push yields, or revenue per passenger, down 12%. Historically, it has been difficult to rebuild yields once they fall, Giovanni Bisignani, IATA's chief executive, told reporters. Following the last airline downturn, after the Sept. 11, 2001, attacks, it took the industry more than three years to reach 2000 revenue levels.

Now, the airline industry needs to make structural changes to regain its footing, Mr. Bisignani said. That includes more consolidation in the U.S. and Europe. He also said airlines should keep pressing governments for expanded "open skies" agreements to get past regulations that hamper global carriers' growth. Near-term, Mr. Bisignani sees more airline bankruptcies, on top of nearly 50 resulting from the current recession. "In the last year-and-a-half, medium-sized airlines from all parts of the world" have fallen victim to the downturn, he said. The IATA is now monitoring some 20 airlines with financial problems.

Mr. Bisignani said air travel in the U.S. and Europe will remain weak for the rest of 2009. For the full year, IATA expects North American carriers to lose $2.6 billion and European carriers to lose $3.8 billion. Some regions, including Asia and the Middle East, are beginning to recover from the global recession, the group said. IATA also reported that air-cargo traffic -- an early sign of any potential economic recovery -- is picking up, following a sharp downturn. Airlines have curbed the impact of the downturn by adding new passenger fees, Mr. Bisignani said. IATA reported that sales not related to tickets or cargo account for more than 10% of global airline revenue.

Canada gets low marks for poverty: Conference Board
Canada's poverty rates — particularly for working-age Canadians and children — are among the worst in the developed world, the Conference Board of Canada reported Thursday. Canada received an overall ranking of ninth among 17 countries for a collection of social measures of social cohesion, equity and self-sufficiency according to the report, conducted annually.

While the report commended Canada for its relative diversity, low homicide rate, and higher than average income for disabled citizens, it said the poverty rates were alarming. "Considering how wealthy this country is, these rates of poverty are unacceptable," said Conference Board president and CEO Anne Golden in a statement.

More than 12 per cent of the working-age population was living in poverty in 2005, an increase from 9.4 per cent a decade earlier, the report found. That ranked 15th among the 17 countries surveys — ahead of only the United States and Japan. The child poverty rate also increased from 12.8 per cent in 1995 to 15.1 per cent in 2005, ranking Canada 13th among the 17 countries.

While Canada's poverty rate among the elderly has been historically low compared to other countries, the report also found that elderly poverty rates are also on the rise, from 2.9 per cent in 1995 to 5.9 per cent in 2005. Golden called this "disconcerting" and said when newer data becomes available, "we can expect this trend to persist." The group said some of the reasons for the rise are more people living alone, an aging population and a drop in the real earnings of male middle-income wage earners.

Denmark had the highest societal ranking among the nations polled. Also receiving an 'A' grade were Norway, Sweden and the Netherlands. The United States ranked last among the nations studied.


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Greenpa said...

so, Spicey poo- -- what are you wearing?


Bigelow said...

@Coy Ote

Barack Obama (D)Top Contributors

University of California $1,591,395
Goldman Sachs $994,795
Harvard University $854,747
Microsoft Corp $833,617
Google Inc $803,436
Citigroup Inc $701,290
JPMorgan Chase & Co $695,132
Time Warner $590,084
Sidley Austin LLP $588,598
Stanford University $586,557
National Amusements Inc $551,683
UBS AG $543,219
Wilmerhale Llp $542,618
Skadden, Arps et al $530,839
IBM Corp $528,822
Columbia University $528,302
Morgan Stanley $514,881
General Electric $499,130
US Government $494,820
Latham & Watkins $493,835

Starcade said...

Aesthete 1209: I did, if but to basically say there's one prominent economist out there who believes we, as a culture, only have _days_ left.

(As I said before, I think the main flaw in his reasoning is the assumption that the USA has to tell the truth at any point going forward.)

PKP said...

Economist clock is ticking as global public debt rises by the second. Online guide keeps a running total.

Hombre said...

El G, Bigelow - Interesting stuff on the Big O's contributors. Thanks, it's an eye opener for some of us.

How does U of C spare 1.5 M ? Whoa!

Greenpa - good comments on the Auntie Marthas of this world. I know some of them!

Hombre said...

Spicey Poo - hope you're feeling better!


Anonymous said...

RE: Aunt Martha's backyard

Taking issue with a serious problem and becoming socially responsible is more than blaming or inflaming.

We have been losing so much more than our currency. We are losing ground, fast.

Finding constructive ways to take ownership back involves establishing a rule of law (Mr. Denninger), but it also involves looking at and highlighting both the problems and solutions in ways that transform anger and fear into awareness and (direct) action.

AS we lose our homes and are cajoled into purchasing auto-mobiles in order to further protect corporate interests, activists in Los Angeles, California have been moving into parking lots to reclaim public space.

THIS is the perfect time too since so many more American are sleeping in their parked cars than before.

In hundreds of cities, parking spaces become parks

you know who

Anonymous said...

@El Gallinazo:

A big thanks for mentioning the Steve Keen interview on Max Keiser's show.

That was the most succinct and accurate summary of how we got here from the Great Depression that I've seen.

Fuser said...


Thanks for the response. The circumstance that is driving my idea is a power outage with heavy rain. I live in a split-level house and was thinking that generator would perhaps run the sump pump in an emergency. I don't think a solar panel would do much good.

During that huge power outage, 4 or 5 years ago, that affected most of the Northeast I had to run out and get a gas generator to save my home.

Anonymous said...

Steve Keen is a treasure. Too bad the Aussies can't see the common sense genius in their own back yard.

I especially liked his comment on the two credit systems out there, the private one and the government one.

Traditionally, the government one lead in the creation of credit and the private followed with more of the same.

Keen and Max both point out that the whole process has been reversed with the private creation of credit (by willing into existence via usury loans), now far, far out weighs the government creation of credit/debt through pulling money out of their asses.

This is causing the global debt implosion.

Bernanke increased the base money from 8oo billion to roughly 1.6 trillion.

In the same time frame the private credit/debt creation system sits at about 45 trillion in debt.

The measly government 1.6 trillion in debt is completely swamped by the private black hole of debt of 45 trillion.

The government could never survive 'printing' 45 trillion, hence the gut wrenching deflation seppuku about to befall the US.

Inflation?, we don't see no stinkin' inflation anywhere.

Keen states that if we do not extinguish the banking parasites, their continued presence will kill the economy and leave us in a 'never ending depression'.

A 'never ending depression' sounds a lot like debt slavery of the Dark Ages, just what the doctor ordered for a society and mindset of entitlement and exceptionalism.

Taizui said...

Greenpa, Fuser, Mike - Human Generators:

To pass time at the gym, this engineer once mentally compared calories registered in 30 minutes of strenuous treadmill "climbing" to calories "burned" by my Prius. (It was barely enough to drive the car out of the parking lot)

That was a big step toward understanding how much trouble we were in. However, four years later, TAE has shown me that I was still a babe in the woods.

No longer an environmental activist and no longer harboring any political ideologies, I try to keep a open mind and waste no time with politics. Unfortunately, I still feel like a babe in the woods!


Best wishes - hope you'll summarize your flu experience as you feel better.

Taizui said...

Fuser @ 10:24

If a sump pump is your objective, a pedal powered pump might be better. Parts of "the third world" have made nice progress using treadle pumps for irrigation. I've not seen any commercially available treadle pumps, but the concept is simple - google "treadle pump plans" - lots of results

One disadvantage is that you might have to pedal it near the sump rather than up in the living room since it can't suck water from much more than a few feet. However they can lift water on the output side much greater distances.

Looking at some of the plans, they probably blend more harmoniously with basement decor anyway!

Taizui said...


PS - I'll bet VK knows a thing or two about treadle pumps.

Spice said...

Coy Ote, Taizui, El G... and of course Greenpa:

Thanks for your good wishes (and humor!). I'll try to summarize this experience as much as our kind hosts will allow.

I'm still in bed (p.j.s and mask to protect others), quarantined from greenpa and Smidgeon. I'm probably sleeping 14-16 hours out of 24, but it's feverish and broken.
After three days of fever, my temperature is down to 99F. This is a vast improvement. And, i hope the first sign that I'm getting better.
The body aches are horrid. When i get up for water or a potty break, I feel like I'm ninety. Everything hurts. Also there's a headache that makes loud noises, bright light, smells and heat awful.
I'm coughing, great rasping ones that hurt my lungs, my torso into my spine and aggrivate the headache. I don't know if it's worse from the inflammation in my chest or from the signs that I'm developing pneumonia.
My nose is so stuffed that I've developed a sinus infection. Let's just say that I'm phglemmy!
This is the sickest I have ever been without being in a hospital.
When I'm awake, I feel too weak to do anything, so I've been lying in bed, coughing, while I edit my manuscript.
I'm really tired now, just from writing this little bit.
Thanks for the well wishes. They help!

Phlogiston Água de Beber said...


Hope this might perk you up a little.

Make it Spicy

Anonymous said...

Subject: When the dawn comes up like thunder over China cross the bay

Maverecon: Willem Buiter

"The reality that you cannot run a West-European welfare state (with decent quality health care, decent pre-school, primary and secondary school education for all), rebuild America’s crumbling infrastructure, invest in the environment and fulfill your post-imperial global strategic ambitions while raising 33 percent of GDP in taxes, has not yet dawned on the Obama administration or on the American people at large."

Seemed a pretty good summing up of the situation.

-los leader-

Taizui said...


Thanks for describing first-hand the impact of this virus, but get some rest if you can!

Then, next time you feel like posting: Have you received any medication or respirator time?

Wishing you a quick and full recovery - for you may be in high demand this winter, having developed immunity to this beast!

Anonymous said...

So in e4ssence, Buiter is asserting that America is not up to West European standards.


Dr J said...

Spice - so sorry to hear of your flu. I know what it's like and it well and truly sucks. It does sound like you know the drill. Maybe you are already doing this but in case not, I would recommend you use an alcohol-based hand cleaner frequently as the virus will get on your hands and then transfer to doorknobs and other things that Greenpa and Smidgeon may touch. The darn virus can live for quite a few hours on inanimate objects. Hope you are feeling better soon.

Dr J said...

I. M. Nobody:

"Aunt Martha could do a lot worse than to watch the Daily Show with Jon Stewart on Comedy Central."

Agree totally. My nine-year old son loves Jon Stewart. From watching the Daily Show, he learned the evils of Bush II and followed the primaries and election avidly. He is now asking me questions about the economy. I think this is where he learned his delightfully wry sense of humour, too. And his language is liberally salted with "bleeps". He cracks us up.

snuffy said...

One of our anoni-mouse posters stated that in the name of "homeland security"..[god I hate that term]the markets will rise forever."Enjoy your prosperity"says he/she[it].I don't know whether to laugh or cry.

There is so much spit,chewing gum and trillions of dollars of funny money in the many un-resolved stresses in the corners and shearwalls...

We can see fault lines,in even the information avalible to us lowly "krill".How many more potentially system wreaking time-bombs exist in areas where the information is restricted or controlled?There is the question.What dont we know?.

This is why Questions like "Beck" arise.It keeps intelligent people on a "International" forum from comparing notes and truly listening to what other minds have to say...

Why waste net time discussing a "entertainer"?

Its about as useful as discussing that other great intellect M.Jackson....

G girl..I live in the eagle creek area....far S.E

Greenpa,I heard some quiet whispers about that "reneging on derivative contracts".My,My,My how fast that would blow up this system.The "neutron bomb" of finance.

Anyone who isn't "Positioning" themselves for a hurricane will be in for a very bad surprise ,soon.I hope our "doomster" ,and the mouthy anaoni-mouse will drop by after the ball is dropped but before the net goes down to give a apology...but then most of them will be hustling for that last can of beans in the stores...

Maybe I am wrong..

If so,I can tend my garden and wait..Anything that is un-sustainable will end..when you least expect it.I remain a perma-bear on this economy as it is all made up...and is nothing but blue smoke mirrors,and a happy dance by the administration.You cannot cut 20% [conservatively]out of a counties gross domestic product and expect the system to burp,have mild indigestion,and then start purring along again.We have just lost the equivalent of ten years growth in a matter of months,and still have not even really cleared the books. Until the debt is cleared,and our "economy"finds a new footing,a new base of prosperity,we will constantly be on the edge of collapse

Time for sleep...


dark_matter said...

For anyone interested in treadle pumps there are plans available here. Also their blog is interesting. I am working (slowly) on building one now.

Glennjeff said...

@ Spice, temperature down sugests you'll be fighting fit in a few days.

We've got a mild dose in our house, the better half just came back from getting antibiotics off the doc.

Read u soon.

Glenn Beck said...

The rapture is nigh, and all the fleas will leave with Jesus!

Bigelow said...

“If we keep the parasitic banking sector alive the economy will die. We have to kill the parasites and give a chance for the real economy to thrive once more and stop these financial [bleep] from doing what they did this time around ever again.”
-Economist Steve Keen, On the Edge with Max Keiser

I think he is wrong on just one assumption: given a couple of generations, we can prevent Banksters who have dropped much of the world to its knees twice in less than 100 years, from doing it again.

Frank A. said...

What are the odds of being hit by an asteroid? Time to rethink the possible.

Identical Lottery Draw Was Coincidence

Earnest Lux said...

@ Frank A

That is really cool.

el gallinazo said...

For those of us in countries w/o single payer and where we can buy our own drugs w/o a prescription, what antibiotics should one take to avoid opportunistic secondary problems for H1N1? ALso, I have heard that geezers tend to have some partial resistance and milder symptoms. One theory is that we have some resistance due to a similar virus a half century ago making the rounds. Any comments on this?

jal said...

U.S. Authorities Probing $100 Billion of Bonds Seized in Italy

Italian authorities seized U.S. treasuries on June 4 with a face value of more than $134 billion from two Japanese travelers attempting to cross into Switzerland. The two men later disappeared and the case is still under investigation. The U.S. government bonds found in the false bottom of a suitcase carried by the men were fake, a U.S. Treasury spokesman said June 18.

The U.S. Secret Service is examining more than $100 billion of U.S. government bonds confiscated in northern Italy in August, just two months after $134 billion of allegedly fake securities were seized in a nearby town.

Since the beginning of the year the police at border stations in Italy have seized 1.7 million euros of genuine money and bonds, and have confiscated more than 100 million euros of bonds that have been determined to be false, according to an Italian finance police statement in July.

Dr J said...

el g - it is debatable whether you will benefit by taking antibiotics to prevent a secondary pneumonia. Unless you have an underlying medical problem like pre-existing lung disease, diabetes or other chronic illness (I might add heavy smoking here, too), it is not likely this will occur. The current recommendations for H1N1 do not include antibiotic prophylaxis. If you were to acquire a bacterial pneumonia, common antibiotics like penicillin (ampicillin, amoxicillin), erythromycin (azithromycin, clarithromycin) and tetracycline (doxycycline) or a combination of the three could be used. Broad-spectrum antibiotics are not recommended for community-acquired pneumonia and tend to be more expensive, too. Since the commonly used antibiotics should be available wherever you end up, I doubt you would need to stockpile.

The good news is that unless you have an underlying medical condition, are a pregnant woman, an aboriginal or under five years of age, you will likely survive H1N1 without too much difficulty. For many people it is actually very mild. For people who fall into one of those categories, it is recommended that they take Tamiflu as soon as the flu becomes apparent.

Hope this helps and that your travels are safe and healthy.

Dr J said...

jal - there is something odd about these reports of travelers having their fake or otherwise bonds seized at the Italian border. I have crossed that border many times by air, train and car and nobody so much as glimpsed at anything I was carrying.

Anonymous said...

September 19, 2009 3:30 PM
Blogger Starcade, now from Leviathan said...

" jal: I guess I got to the point (and I really forget _when_ was the first time I realized it fully) that the way that people are kept in line is that they are kept comfortable.

That's not going to be possible much longer. In fact, some people believe it's not going to be possible ANY longer.

Now now, Starcade, a day out in the fresh air picking bottles and two jacks at bedtime is quite possible. Don't worry so much, capitalism provides!

el gallinazo said...

I mentioned yesterday that the number of economists who are literally worth their salt can be counted on the fingers of a hand. I would have to give Steve Keen pole position as the middle finger, as he is the only one who must be bleeped on an interview :-) Perhaps Michael Hudson should be given the index finger position, and Michel Chossudovsky of Canada the ring finger. (I am still working on the thumb and pinky).

Chossudovsky gives a solid lite 8 minute presentation on the following youtube.

for those of you needing the full Monty, check out his hour interview on this week's Guns & Butter (KPFA).

Anonymous said...

I was struck by the Illargi’s posted link concerning Irish banks. How pathetic, that a country as small as Ireland and whose banks engaged in such debilitating practices are now going to be bailed out by the very same people who are the victims of the chicanery.(I do note that some of the 'commoners' were infected with the very greed that motivated the banks.)

But Ireland is nothing but an echo of The United States in that regard. It’s a world wide moment as the commoners are forced to finance and make whole the gambling mistakes of the elite and privileged few.

Stepping back for the extra large view and one realizes that losses are losses. The tax paying citizens will pay one way or another any way you slice it. But instead of letting ‘too big to fail’ experience the consequences of their incompetence and greed, and letting something new fill in the void, ‘ too big to fail’ dumps their losses on the tax paying citizenry and continues on their destructive way ever more emboldened by the lack of accountability.

A sick, twisted and pathological dynamic has been foisted upon main street by the elite power structure and their allies in the media: You need the ‘too big to fail’ institutions’ whether you like it or not. The cancer is of the non-operable variety; perform surgery and you’ll destroy other vital organs.

It really is an utterly contemptible scenario not unlike the abusive husband who informs his battered wife that he pays the bills and provides the groceries so show a little appreciation and never mind the battering and beatings.

“Fin de siecle” has been turned on it’s head as the corrupt and decadent are deemed too valuable for society to exist without.


Anonymous said...

"The rapture is nigh, and all the fleas will leave with Jesus!"

Johnny Cash: God's Gonna Cut You Down

Dr J said...

Aesthete - "too big to fail" means having usurped the authority of government, something governments are duty-bound to prevent. Only governments can command the resources of the taxpayer. When an entity becomes too big to fail and, thus, commands the resources of the taxpayer, it has usurped government. Wasn't the American Revolution fought over this - the principle of no taxation without representation?

el gallinazo said...


As both Keen and Hudson point out (not to mention I&S), the idea that propping up the giant banks will prevent or ameliorate hard times is a total line of crapola. The average citizen of the world would have an easier time if these banks were all allowed to fail - including their bondholders, and their top management hauled off to the guillotine. ( You could throw in Blankfein's wife in that queue). Hudson makes it quite clear that the whole FIRE establishment is simply a huge parasite feeding off of a dying capitalist base. Unlike our more enlightened parasites, this one has decided on some level to kill its host. I am not particularly pro capitalist, but what is going on is far worse than traditional capitalism.

Stoneleigh said...

Anon @6:52,

I recently found the above-named hour long socieconomic/elliot wave presentation [History's Hidden Engine].

It's good. Everyone should watch it.

Towards the end of this, Prechter states that despite necessary setbacks, "the long term trend of human progress is upwards".

Do these patterns only apply to the last 300 to 400 years as European/Western society expanded without "limits". The graphs they showed appear to be covering only the past 300 years.

No, they are applicable throughout human history, although the conecpt of measuring them through stock markets (as a sort of thermometer of social mood) only goes back as far as markets do.

The long term trend has been up for a long time, but the setback coming now should be huge. From a personal point of view, it arguably doesn't matter if the much larger trend resumes an upward trajectory afterwards, because none of us here will live that long. Even our kids may not (assuming a normal lifespan).

He does not appear to be aware of the concept of carrying capacity or overshoot, so how valid are these patterns now?

I agree that carring capacity, overshoot and the nature of energy as a master resource do not factor into his analysis (ie his big picture isn't big enough). That doesn't mean his work isn't useful though, just somewhat limited. I think these patterns are valid, and that they incorporate physical limits even if their proponets do not realize it.

Prechter is calling for a collapse, and it is clear to me that physical factors will be a major part of it

When they give examples of social mood declining in the 60's and 70's one could also fit these patterns into an energy availability pattern, with the rebound in the 80s and 90s corresponding to North Sea and Alaskan oil temporarily reducing the power of OPEC.

The role of energy is something that very much needs to be explored in this context. You might be interested in the work of CS Holling, who has independently developed a very similar theoretical framework in the field of ecological cycles, which is much more explicitly grounded in physical limits. The correspondence is very striking, yet I very much doubt that Holling and Prechter have ever heard of each other. Connecting these two sets of ideas is something I would very much like to explore myself, if I could find the time.

These patterns (Like the Charles Hugh Smith overlapping cycles mentioned last week) also appear to be somewhat "amerocentric". America was not the centre of the universe in the 1800s so I question using the civil war as a key reference point for historical cycles.

Patterns occur in all societies simultaneously and at all scales (local, regional, national, international etc). Different societies end up in the ascendancy at different times, carrying the mantle of hegemonic power for a time through their cycle of empire. This cycle has been centred in anglo culture - most recently the American version. That period of dominance is now ending, and something else will take its place after a long and messy interregnem.

I would be curious to know if these fractal patterns were also observed in some form in more ancient civilizations, before what we recognize as "capitalism" of the past several hundred years.

Yes. I believe Prechter is working on a book on patterns going back to antiquity.

Phlogiston Água de Beber said...


I believe the situation is well defined by something I heard years ago on a Bill Moyers interview of Joseph Heller about a new book Heller had published. I don't recall the title, but I know I never read it.

Moyers brought up a passage in the book where Heller has Plato saying, as best I can recall it, "we know of no country where the ruling class does not run things for their own benefit".

Of course they do, why else would anyone go to a lot of trouble to join that class. Corruption and decadence are not always hallmarks of the ruling class. There are times when they run things pretty well and the common folk are rather satisfied. But, hubris will always work its magic and corruption will follow as night follows day.

Last night while following the postings here and mellowing out to my mp3 playlist, for reasons I have not a clue to, I started thinking about Walter Miller's A Canticle for Leibowitz. Back in my misspent youth I owned a copy, but I don't believe I read very much of it and didn't recall anything about it. So, I did what any sophisticated modern would do and consulted the oracle at wikipedia about it.

Based on the summary handed down by the oracle, I wonder if the book might be a fairly realistic roadmap of the future. Miller's apocalypse was nuclear. I think I&S have been arguing that there are many ways to get to apocalypse.

I wonder if it's just a coincidence that Jon Stewart's real name is Leibowitz.

Anonymous said...

President Barack Obama said requiring individuals to have health insurance doesn’t amount to a tax increase and that a Senate Finance Committee proposal will move the effort to revamp health-care forward.

He's right I guess, it's more like holding a gun on you and forcing you to hand your money over to the folks in Washington's campaign contributors whether you want to or mot. A giant wealth transfer and all that is going to happen is health care cost are going to skyrocket as you stand there and a vacuum sucks money out of your wallet.

Nassim said...


While trying to understand your message, I did a google search and found this blog
Leibowitz's Canticle

Stoneleigh said...

Linda S,

We need to interact with each other as if we do not assume that someone who disagrees with us is inhuman, immoral, or incompetent.

I heartily agree.

jal said...

Re.: moving of money

The Italians are getting insider info on who is moving money and how.

If my organization give your organization a promissory note that will be honored by my financial institution and by your financial institution then does it matter if it is written on a fancy piece of bark?

It would not be "a legal tender note" if anyone else got a hold of it.

The "money" would still be transferable, ("under the radar"), between the parties. The negotiating parties made the agreement to do so. If the first transfer fail then try again. If it works then smaller players can use the same mechanism.

It does not have to be "legal tender" except between the two parties and their financial institutions.

Stoneleigh said...


Someone here once recommended a human powered generator?

Human Powered Generator

Stoneleigh said...

Anon @9:11,

THIS is the perfect time too since so many more American are sleeping in their parked cars than before.

I did this the other night when I got too tired to keep driving to the event I was heading for. It was probably the least comfortable night I've ever spent (partly because I drive a Yaris) and I feel a great deal of sympathy for anyone who has to make a habit of it.

Stoneleigh said...

Anon @10:28,

Steve Keen is a treasure. Too bad the Aussies can't see the common sense genius in their own back yard.

I especially liked his comment on the two credit systems out there, the private one and the government one.


Anonymous said...

Los Leader and Aesthete:

The reasons the western and northern European socialist nations can afford to be socialist is because we effectively pay for their military. Even so: look at their debt per capita.

TAE Right Winger

Anonymous said...

Jim Grant: Ringing the Bell at the Top?

Michael Panzner notes that one of the "great bears" of recent times has publicly capitulated. Given history, is this actually close to marking the top of the current market cycle?

Phlogiston Água de Beber said...

@Nassim 12:46 PM

My apologies if what I wrote insufficiently clear. That seems to happen quite a bit.

The blog you linked to appears to bear no obvious relationship to Walter Miller's book other than a fellow named Leibowitz trading on the book's enduring popularity. Wikipedia says it has never been out of print. It's a decent enough blog, I suppose, but his purpose seems to be bloviating about what has already happened. I'm much more interested now in what must happen.

Spice said...

Awake now, and feeling much better today. Thanks everyone for the well wishes. I really think positive energy helps.
Yeah when this bug hits and or mutates, I'll be the girl in demand.

I.M: Thanks for the Spicyness. It made me laugh.

Dr. J: Your advice is great. I am constantly washing my hands, almost OCD here, so no one else gets the bug. I'm also making sure that my tissues and other sick room items are kept in a sealed bucket or bag.

I wasn't put on a respirator this time because I already have nebulizers and inhalers for allergies, and have been able to keep the lungs pretty clear that way.

I've also had pneumonia five times before, so I'm a bit of an old hand at dealing with it and healing myself. I know this sounds scary, but it's something I've learned to live with.

Today's temp is hanging around the high 98F and low 99F. I think the fever's broken.

The headache's gone (thank the SBJ) and the body aches are manageable enough that I feel comfortable sitting up and working on sewing Smidgeon's halloween costume. (Greenpa would probably want me to fess up here and admit that I routinely will work out in the field on a broken ankle or covered with wasp stings. I also have told people that labor wasn't that bad. It hurt, really a lot, but it was manageable. So I'm not really a wuss. When I say manageable, it might be better to say no longer walking through the valley of the shadow of death.)

I still have the cough, and it still feels like spikes are being driven in my chest, but with the other symptoms abating I can deal with this one much better.

My nose is still very stuffy and bleeding from the infection once a day, but that was expected. I will say that it freakin' hurts!

I'm very weak and sore, but I hope in a day or two I might be back out in the field and back to my usual cheerful self.

I actually am half Native American, so getting this bug wasn't unexpected. It would have been more unusual if I hadn't been the one in the family to get sick.

Now that Smidgeon's in school, I expect to be getting sick in the fall again. I had to deal with it through my school years and college, so I'll just deal again. Children... You got to love them... Those little vectorss of contagious disease!

Thanks you all. I'll let you know how it's going again later.
However, now I'm off to sew. It's not that I don't enjoy your virtual company, but I want to do something productive. Anything!

Starcade said...

Two consecutive lottery draws the same:

The odds are the same as holding a winning ticket.

In effect, the lottery just won itself.

Stoneleigh said...


Michael Panzner notes that one of the "great bears" of recent times has publicly capitulated. Given history, is this actually close to marking the top of the current market cycle?

Yes. IMO the rally the almost over.

Phlogiston Água de Beber said...


The reasons the western and northern European socialist nations can afford to be socialist is because we effectively pay for their military. Even so: look at their debt per capita.

Of course we do, the Imperium always pays for the foreign auxiliaries. It should be noted about their debt that some part of it is due to USAns (personally I prefer the colloquial form WEuns, all credit to a duo of truly Great Americans Bob Elliot and the late Ray Goulding) coercing them into buying many of our overpriced weapons rather than use their own.

So, you are absolutely right ( as well as correct :-) WEuns cannot afford no steenking health care period full stop

Ilargi said...

Saw Chossudofsky. Yeah, made some sense. But he's lost 99% of his credibility through his past wild swings. And that ain't coming back.

ca said...


Have you seen the changes the govt is thinking of making to money market funds?

I assume this is what you have been warning about.

MarkB said...

Steve Keen is a treasure. Too bad the Aussies can't see the common sense genius in their own back yard.

For those in the "know" in Australia, Steve is highly respected.

The neo-classical view of the economy and spin doctoring is just as strong in Australia as it appears in the rest of the world. I'd reckon its hard to always be swimming against the tide - particularly where the general Australian population to date have only had a side swipe in terms of bad effects on them.


el gallinazo said...

Ilargi said...
Saw Chossudofsky. Yeah, made some sense. But he's lost 99% of his credibility through his past wild swings. And that ain't coming back.

Well, just "discovered" him about 5 months ago, and he has been "right on the money" IMO since then. No idea about his history, though I think he is connected with Engdahl somehow. He does a nice job explaining exactly how the banks are scamming us.

Anonymous said...

SACRAMENTO, Calif. (AP) - A special commission this week is scheduled to recommend a sweeping overhaul of California's antiquated tax system, a move designed to bring fiscal sanity to a budgeting process plagued by wide revenue swings and perpetual deficits.
State fiscal experts agree generally that California's revenue structure relies too heavily on the wealthy and the whims of the stock market while failing to capture taxes from the now-dominant service sector. The commission, established by Gov. Arnold Schwarzenegger and the Legislature's Democratic leaders, was charged with finding ways to end years of topsy-turvy budgeting that have left the state a financial wreck.

Over the past two years, the state has been forced to make deep cuts in education, health care, parks and other core services while furloughing state employees.

The proposal, laid out by the panel in a series of public meetings, would change dramatically how California's government raises money. The primary changes would reduce taxes on the wealthy and broaden the business tax to capture growing sectors of the economy.

Anonymous said...

The Public option in the healthcare circus might just revive because to implement it includes a national biometric i.d. card with an RFID tracking chip. Perfect way to keep tabs on all those that don't fit into the new picture.

not yer mama

Bigelow said...

“The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed's $164 billion in Q2 Treasury purchases dwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases.”
Federal Reserve Accounts For 50% Of Q2 Treasury Purchases ZeroHedge
Nothing to see here, move along.

Anonymous said...

Throughout the fall of 08 and well into 09, the CDS market was one of the lingering ‘time bombs’ threatening to blow up the financial system--a view expressed by Ilargi on many occasions. And yet in the Friday edition of TAE (currently running at 260 comments) Ilargi post an article on CDS’s that includes this little assertion:

“ Canceling redundant trades cut the overall notional amount of credit-swap contracts almost in half to $32 trillion as of last week, according to data compiled by New York-based Depository Trust & Clearing Corp.”

Was the threat of CDS’s rupture overblown or sensationalized? The article seems to indicate this is the case. I really don’t know---which is why I am asking.


Anonymous said...

"least comfortable night I've ever spent (partly because I drive a Yaris) "

I was forced to buy (I always pay cash for my cars)a new-old (4 year old) Matrix earlier this year ($%^@ MVI wanted too much work done on my 14 year old rust-bucket). Chose that one because the front passenger seat folds completely flat. Can fit an 8 foot long 2x4 in a fuel efficient hatchback. I also considered the possibility of having to turn it into a house in the future ;-) (I passed on buying a Yaris because of just this limitation!)

"Here in my car
I feel safest of all
I can lock all my doors
It's the only way to live
In cars"

Leona said...

Aunt Martha can watch full episodes of The Daily Show on line if she has high speed internet.

Drove across a large track of the Red River Valley of the North this weekend. As I sat in the modern brick Lutheran church in Fargo, I viewed it through my TAE eyes. It will take some unwinding before this falls apart... Structurally and socially.

One sad part was a very poor older woman I passed on the road -- she was driving a beat up old van with the bumper sticker BORN TO SHOP. Meant to be humerous- the truth is her value to the PTB is as a consumer- the meaning of her existance is consumption of cheap crap. And with the poverty out here- she probably thwarted in what she was born for.

Anonymous said...

Obama open to newspaper bailout bill

The president said he is "happy to look at" bills before Congress that would give struggling news organizations tax breaks if they were to restructure as nonprofit businesses.

Obama said that good journalism is "critical to the health of our democracy," but expressed concern toward growing tends in reporting -- especially on political blogs, from which a groundswell of support for his campaign emerged during the presidential election.

"I am concerned that if the direction of the news is all blogosphere, all opinions, with no serious fact-checking, no serious attempts to put stories in context, that what you will end up getting is people shouting at each other across the void but not a lot of mutual understanding," he said.

Alrighty then.

Hombre said...

I continue to live in two worlds.
The one, I have come to understand in the last couple of years reading about our depleting energy and our financial, economic predicament.

The other, the world I am trying to outgrow; for example today, with many visiting relatives on the spouse's side, none of whom have any idea what I am talking about when I hint at energy depletion and economic issues. And all of whom think we are in just another recession period, soon to end.
Even hints at explanation from me gets the blank stare, as if to say--"what on earth are you talking about?"

Life is so... so... interesting, and soon to be, by so many evidences, quite tragic.

Ilargi said...

New post up.

Boy, is it ever broke

265 comments? Say what?

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