Saturday, October 10, 2009

October 10 2009: There's no there there

J.R. Eyerman The world's luckiest phone book February 1947
Movie starlet Marilyn Monroe, Hollywood

Ilargi: Yeah, Obama's peace prize. More than anything else, really, I think it's too ridiculous to waste words on. I also thought of Martin Luther King and his courage and grace; what perspective does Obama's award lend to Dr. King's? Absolute non-violence versus a decision to send 40,000 more troops into a desert, or not. I come away thinking that the biggest beneficiaries may be America's right wing wing nuts. Why award someone a prestigious prize when there's so obviously nothing much, if anything, he did to deserve it, when there's no there there?

That same feeling quite adequately describes my view of what Obama and his administration have done for the USA during the past 9 months, and "no there there" is the most positive notion I can muster. And I probably shouldn't try to muster anything, I should be frank and say that Obama is an unmitigated disaster for the people of the country in any way other than keeping their dreams and illusions from being recognized, just a little bit longer, for the walking dead they already are.

It's also what I came away with after watching Michael Moore's Capitalism: A Love Story. Moore is great when he depicts what those Americans go through who get stuck in, and fall through, the cracks of the final stages of a once promising society. Few people would be able to make a film about them as well as Moore can. But there is a point in the movie, about two-thirds in, where he lets his own dreams and illusions take over. Where he starts letting his hopes for the change that President Obama promised to bring take over from his observations of the real world, the real people that he has a unique connection with. And once the movie got to that point, that's precisely what I was thinking: there's no there there.

Stoneleigh wrote a review of Moore's film. Note: she wrote it before Obama’s peace prize was announced. Here goes:


Capitalism: A Movie Critique

For those who haven't seen Capitalism: A Love Story, I suggest that you do. There are many eye-opening moments, and much material that humanizes the crisis we are facing even as it reveals how dehumanizing our system has become.

The most egregious trespass on human dignity would have to be the practice of corporations taking out large life insurance policies on their staff, with the company named as beneficiary. Employees, particularly those who die young, can easily be worth more to their employers dead than alive, and employers are shown to complain (in writing) when employees are dying at an insufficient rate to provide the anticipated rate of return on 'investment'. Families, who may be left with no breadwinner and large medical bills receive nothing at all from these policies. To add insult to injury, the employees who are unknowingly providing a windfall benefit to their erstwhile employers are referred to derisively as 'dead peasants'. Michael Moore is absolutely right to shed light on such abhorrent occurrences.

Moore rightly compares this practice to being able to take out a fire insurance policy on one's neighbour's house, which then confers an incentive to burn it down for profit, or at least an incentive to do nothing to prevent it burning down. He could have taken this argument further in the segment in which he is trying, apparently in vain, to find someone who can explain to him what derivatives are. Credit default swaps have been widely used in the same way - as faux insurance contracts amounting to simple bets that something one does not own will fail. The same perverse incentives apply, but on a much grander scale - a scale that generates systemic risk.

When some parties have a direct incentive to cause others to fail, a firesale of assets can be precipitated that will revalue entire asset classes at a stroke. To make matters worse, counter-party risk is huge as these contracts were sold on with no regard for ability to pay out. As this is a market worth in excess of $60 trillion, Moore could have pointed to the very real risk (I would say inevitability) of a meltdown resulting from the very dynamic he identified. This would have strengthened his message considerably.

Moore paints a stark picture, casting some of his arguments in terms which could prove to be ill-advised. While I understand why he wanted to contrast religious support for and opposition to capitalism, I think he is playing with fire in doing so. There is already a strong Dominionist movement in the US and it would arguably take relatively little to ignite a fire-and-brimstone kind of opposition to many aspects of our modern society. While there are many abuses that clearly need to be strongly reined in, my concern is that a punitive and vengeful mood flavoured with fundamentalism could all too easily become a wide-ranging witch-hunt.

People are going to be extremely angry when they really wake up to what has been done to them, and some very dangerous people will be waiting to provide (often spurious) targets for a blame-game. This is in no one's interests, least of all the newly impoverished whose limited energies and resources would be much better spent looking after their families and loved ones.

I would like to point out to Mr Moore, who strongly advocates greater equality and wide-ranging economic rights for the US, that the US itself (along with the rest of the developed world) is seen by much of the world in exactly the same way that Americans are coming to see bankers - as predators who have unjustly enriched themselves through picking the pockets of others. The same wealth concentration dynamic that has allowed bankers access to pension funds as gambling money in rich countries has also systematically impoverished much of the world in order for the developed world to live a lifestyle that the kings of old would have envied (see the primer Entropy and Empire).

We the ordinary people of developed countries are both predators and prey, albeit unwittingly. If we are going to cast wealth accumulation as evil, as Moore does, then we need to understand how we ourselves are complicit in allowing other people to be victimized for our comfort, or for the status-enhancement of being in a position to be able to waste resources on pointless, gluttonous consumption.

One could argue that the principle of equality should be applied globally rather than merely domestically, but I doubt the viewers of Moore's film would be very happy with that prospect if they understood its implications. However, attempts to force an equal distribution of resources are in any case doomed to fail on any but the smallest scale (where the needs and abilities of each individual are know to all other individuals in the group). Noble ideals do not always work in practice.

Finally, Moore has a significant blindspot with regard to the current American administration. He paints Barack Obama as a socialist and a hero, apparently without recognizing that this administration says one thing, but does the exact opposite. Mr Obama, who appears to believe his own propaganda, has effectively been bought and paid for by Wall Street, and the revolving door between investment banking and the treasury department continues to turn. We are at or near the end of a long sucker rally that has clouded the judgement of the population with feel-good sentiment. That has allowed them to be comprehensively fleeced in their sleep, even as they dreamed of green shoots of recovery. They will be waking up soon, and they will realize that this administration has accelerated the practices of the old one. That will be a dangerous time indeed.

Ilargi: On a bit of a side note, you may have seen our new Fall Fund Drive as it appears these days in the left hand column. We are not very comfortable at all asking you for money, but at the same time we realize, and we think you should too, that without your donations there can and will be no Automatic Earth. Clicking the ads our pages display, on a regular basis, helps as well. I have always been, and remain, confident that you, our readers, have a pretty good understanding of the value The Automatic Earth represents to you. Still, evidently, you may have to be reminded from time to time of the role you yourself play in the continued existence of this site.

We're not talking about, nor asking for, large amounts of money. There are many thousands of people who read us every single day. It's easy to see that if every single one of them would donate a dime for every time they read us, and what's a dime these days, we'd be doing just fine, thank you. It’s, however, not just about the continuation of the present situation here that I think about. I would love to be able to expand on what we do, to involve more people, more opinions, a more diverse view from more places in the world. And that is unfortunately not possible right now. Along the same lines, we would like for Stoneleigh to be much more involved at TAE. Which also is not in the cards right now.

As you probably know, Stoneleigh and I are convinced that all of us are moving into a crucial phase in the development of our financial systems, our economy and indeed our societies. Which of course means we are about to enter a time when The Automatic Earth, in order to do what we set out to do, will be busier than ever. What we've done so far was just a dress rehearsal compared to what lies ahead. Inevitably that will take more from us, and we hope you will do more as well.

As for those among you who have donated to us, and those who will do so in the days and weeks and months to come, please know we are deeply grateful for and humbled by the confidence you have shown in what we do on a daily basis. And rest assured, you can have confidence in us too: we ain't done by a long shot. What you've seen to date was merely the prologue.

U.S. states suffer "unbelievable" revenue shortages
The U.S. economy may be creeping toward recovery after the worst slowdown since the Great Depression, but many states see no end in sight to their diving tax revenues. Tax revenues used to pay teachers and fuel police cars continue to trail even the most pessimistic expectations, despite the cash from the economic stimulus plan pouring into state coffers. "It's crazy. It's really just unbelievable," said Scott Pattison, executive director of the National Association of State Budget Officers, and called the states' revenue situations "close to unprecedented."

Most states had been pessimistic in forecasting their tax revenues for the 2010 fiscal year, Pattison said. So far, collections have fallen below even those low targets. Lower tax revenues could lead to higher taxes or another sharp reduction in services if receipts do not show signs of improvement before year-end, as every state but Vermont is required by law to balance their budgets. That could mean fewer teachers, early prisoner releases and fewer highway repairs as residents battle soaring unemployment. States are coming off a terrible first quarter, which for most states began on July 1.

Among the worst cases is Indiana where revenue collections were 8 percent below forecast, or $254 million lower than expected, leading state budget officials to speculate revenue could fall $1 billion by the end of the fiscal year. Iowa cut its fiscal 2010 revenue estimate by 8.4 percent this week. That prompted Governor Chet Cutler on Thursday to order spending reductions of 10 percent across the board. "The fact is clear. Iowa has not spent too much; rather our revenue has fallen off by significant amounts as the result of the national economic recession," Culver said in a statement.

Last week, Mississippi Governor Haley Barbour said his state's September tax collections were 10 percent less than forecast. "It is likely that more spending cuts will be necessary in this fiscal year to ensure a balanced state budget," Barbour said.

In California, general fund revenues for the first three months of the fiscal year were $1.1 billion below estimates in its budget, State Controller John Chiang said on Friday. "While there are encouraging signs that California's economy is preparing for a comeback, the recession continues to drag state revenues down," he said in a statement.

But Oregon, which collected about $10 million below estimates for personal and corporate revenues for those two months, is seeing some hopeful signs. "It does appear that things are stabilizing somewhat," said Josh Harwood, a senior economist at the Oregon Office of Economic Analysis. Oregon is no longer seeing an erosion in personal income taxes, which provide the state with 80 percent to 90 percent of its general fund revenues in any year, he said.

For other states revenues are not only coming in below forecast, but have fallen steeply from the year ago period, when revenues were already depressed by the recession -- a sign of further fiscal distress for many states. Georgia on Friday reported its September revenue fell 16 percent, of $260 million, worse than the 14.2 percent shortfall for July, August and September from the year-earlier fiscal quarter. The state's net sales tax and use-tax revenue was off by more than 20 percent last month, according to the state revenue department. In the second quarter of calendar year 2009, total state revenue was down 18 percent compared with the period in 2008, according to the National Governors Association, which projects revenue will not return to pre-recession levels until 2014 or 2015.

The American Recovery and Reinvestment Act passed in February mitigated some states' financial pain by giving them more money for Medicaid, the health-care program for the poor run by states and partially funded by the federal government. The program can eat up large portions of states' budgets. The act also created a state fiscal stabilization fund and dedicated money to education. "If we didn't have that money, we would have been cutting more, which is hard to believe," Pattison said. States would like the Medicaid boost continued after the stimulus expires next year. "The states are very, very concerned about that cliff -- they're concerned about when this recovery money stops," Pattison said.

Many U.S. states finish fiscal first quarter in red
The first quarter of fiscal 2010, which for most states began on July 1, ended with bad fiscal news across the country. Since the housing downturn began in 2007, states have seen their sales taxes slip each quarter. Now, layoffs caused by the economic recession have forced down income tax revenue, as well. One bright spot has been Florida, which was hit earlier than most states and seems to be on the mend.

Here are some recent revenue reports from a sampling of states:
  • Arizona: combined revenue for July and August totaled $1.097 billion, or $80.5 million below budget forecast, which called for a 0.9 percent increase overall, and off $356.6 million from a year earlier.

  • California: revenue from July through August totaled $10.847 billion, or 1.3 percent below an expected target of $10.991 billion.

  • Florida: tax receipts in August topped expectations by $32.6 million, the fifth straight month of better-than-forecast cash flow. Total sales tax collections were $1.5 billion, off $200 million from the year earlier, but more than $40 million more than previously estimated. In August, a state panel of economists reduced forecasts by a moderate $147 million. The year before, the panel had cut estimates by $1.1 billion.

  • Georgia: 16 percent drop of $260 million in September revenue, a faster pace of decline than the 14.2 percent shortfall for July, August and September from the year-earlier fiscal quarter. Sales tax collections and individual income taxes, the two biggest revenue generators for the state, were off 14.2 percent or more in both September and the first quarter. Net sales tax and use tax revenue for September was off 22.4 percent.

  • Illinois: a record $2.9 billion of unpaid bills for this time of the year as key tax collections sank by $588 million in the first quarter compared to the same period in fiscal 2009.

  • Indiana: revenue collections were 8 percent, or $254 million, below forecast. State budget officials speculate revenue could fall a whopping $1 billion by the end of the fiscal year.

  • Iowa: Fiscal 2010 revenue estimate cut by 8.4 percent, or nearly $415 million, this week, dropping anticipated general fund revenue to only $5.43 billion.

  • Massachusetts: first-quarter revenue totaled $4.313 billion -$212 million below the year-to-date benchmark and $477 million, or 10 percent, below those of a year ago.

  • Mississippi: September tax collections were $45 million, or 10 percent less than forecast. Fiscal first-quarter collections were $128 million, or 12 percent, below last year's quarterly revenues.

  • New York: general fund tax revenue totaled $13.8 billion from the start of fiscal 2010 on April 1 through August -$238 million below projections and down $3.7 billion from the same period in fiscal 2009.

  • Oregon: $763 million in personal and corporate income tax revenues in July and August combined, which is about $10 million below estimate for the two months. Oregon is no longer seeing an erosion in personal income taxes, which provide the state with 80 percent to 90 percent of general fund revenues in any year.

  • Pennsylvania: so far this fiscal year the state has collected $5.3 billion, which is $140 million or 2.6 percent below estimates.

California state revenues already $1 billion below budget estimates
Just three months into the fiscal year, the state's total general fund revenues are already $1.1 billion below estimates made in the recently amended budget, Controller John Chiang said today. Chiang delivered the grim news in his monthly report covering California's cash balance, receipts and disbursements in September. He urged lawmakers to prepare for more tough decisions.

"Revenues more than $1 billion under estimates and recent adverse court rulings are dealing a major blow to a budget that is barely 10 weeks old," Chiang said in a statement. "While there are encouraging signs that California's economy is preparing for a comeback, the recession continues to drag state revenues down," Chiang added."I urge lawmakers and the governor to prepare for more difficult decisions ahead."

The state's three largest sources of revenue all came in below estimates in September. When adjusted to account for payments made in September that were previously delayed or issued as registered warrants in July and August, personal income tax revenues for the month were down $934 million, 17.3 percent below estimates, and corporate taxes were down $183 million, 10.5 percent below estimates. The state's sales tax revenues were down $99.8 million, 4.5 percent below the amended forecast.

The state began the fiscal year with an $11.9 billion cash deficit in the general fund, which grew to $16.2 billion by Sept. 30. The deficit is being covered with a combination of $7.3 billion of internal borrowing from special funds and $8.8 billion in short-term revenue anticipation notes, Chiang said.

California raises yield, cuts amount to draw bond buyers
California on Thursday raised the yields and slashed the size of a multi-billion dollar debt sale after investors responded more coolly to the debt offering than expected. State Treasurer Bill Lockyer's office said it sold $4.138 billion in general obligation bonds, down from $4.5 billion it originally planned to sell. The state raised the yields offered on the debt, which included taxable and tax-exempt bonds and $1.75 billion in Build America Bonds, after proportionally fewer retail investors placed orders than in its past sale.

It lifted yields on 20-year bonds, for instance, to 5% on Thursday, the final day of orders and the day institutional investors bid on the debt. On Tuesday, when it started taking orders from retail investors, the state had said it planned to offer those bonds for 4.63%. California was competing with a heavy volume of bonds for sale this week. And investors know that the Golden State's budget problems probably mean more debt issuance in the near future, potentially on better terms, one fund manager said.

"This was not good enough to make us jump up and down," said Matt Buscone, a portfolio manager at Breckinridge Capital Advisors, which manages more than $10 billion. The yield levels are "fair," he said, adding: "We'll be able to do it again so we'll take a pass at this sale." He said the firm bought California general-obligation bonds at its last sale in the spring, when long-term yields stood around 6%.

Households, which flocked to a recent sale of short-term California debt in September, had less appetite for this recent round of debt. Lockyer's office said retail investors bought $505.2 million in bonds, about one-third of the $1.55 billion offered them. At California's sale last month of revenue-anticipation notes, which mature in less than a year, the state said that it received orders for more debt than was sold. It offered the entire $8.8 billion to retail investors - and they sopped up about 75% of the issue.

"The market has become very inclement for issuers, including the state. Given the market forces arrayed against us, to get a $4 billion-plus deal done is a good thing," said Tom Dresslar, a spokesman for Lockyer's office. The state sold $1.31 billion in tax-exempt debt, in line with its original plan, but reduced the amount of taxable debt to $2.82 billion from $3.2 billion. California has the lowest credit ratings in the U.S. on its long-term debt, with its $75 billion in tax-supported debt rated Baa1 by Moody's Investors Service, BBB by Fitch Ratings and A by Standard & Poor's.

With lingering concerns about the state's budget and with other opportunities available in municipal bonds, "I don't know if institutional buyers will be willing to pay up at these levels," said Domenic Vonella, a municipal-bond analyst at Thomson Reuters. As part of the sale, the state also sold taxable bonds in the form of federally-subsidized Build America Bonds that have been extremely popular for both issuers and investors since the program was created in February.

Yields on the taxable debt ranged from 3.75% to 7.23%. The $1.75 billion in 30-year Build America Bonds were offered with yields about 3.2 percentage points over comparable Treasurys, the higher end of what was anticipated, according to Informa Global Markets. Last week, the state's Build America Bonds were trading at a spread of 2.65 points. A bigger gap indicates investors are demanding a higher yield in return for taking on the risk of holding the debt.

That compares to the average spread for comparable corporate debt of 2.31 percentage points, according to an index compiled by Bank of America's Merrill Lynch unit. Still, the spread the state had to pay is an improvement from when the state sold the Build America Bonds, for about 3.65 points above comparable Treasurys. For the $1.31 billion in tax-free bonds, yields ranged from 2.95% to 5%.

Kentucky state revenues plunge in first quarter
Receipts to the state General Fund dropped 9.8 percent in September, compared to September 2008, the Office of State Budget Director reported Friday. And after the first quarter of the 2009-10 fiscal year, which ends next June 30, General Fund revenue is down 5.6 percent from the same period in 2008-09. Expectations for revenue growth had already been low. The budget for the current fiscal year envisions that revenue will decline by 1.5 percent.

But through the first quarter, this year's revenue is on a downward path that Friday's report acknowledged will make it difficult to hit even that mark. The report stated said General Fund revenue can fall only 0.2 percent over the next nine months to meet the current budget's requirements. If revenue doesn’t meet expectations, spending must be cut or other adjustments have to be made. The report says revenue has been on a declining path for nine months because of the national economic recession's impact on Kentucky's economy.

"Tax collections have been weak in the major sources of revenue that support the operations of government," State Budget Director Mary Lassiter said in the report. "Sales and use taxes and income taxes comprise nearly 75 percent of our General Fund tax revenues and have been declining for an extended period of time." The team of economic experts, which makes official predictions about future state revenue, is scheduled to meet Monday to revise its outlook for the current year as well as make a forecast for the 2010-12 biennial state budget.

Georgia state revenues plummet 16 percent in September
Georgia’s revenue collections fell another 16 percent in September, compared to the same month a  year ago, as the state’s three main sources of tax income continued to bottom out. It is the 10th consecutive month of declining revenues. For the fiscal year, which began July 1, state revenue is off 14.2 percent, compared to the first three months of the previous fiscal year. The biggest drop in September came in individual income tax collections, which were off 14.2 percent compared to September 2008. Corporate income taxes were down 13.2 percent and sales and use taxes were off 11.4 percent.

Hawaii sees tax revenues fall 9.7% during first 3 months of the fiscal year
State revenue collections fell 9.7 percent during the first three months of the fiscal year, the state Department of Taxation reported today, a more significant decline than estimated by the state Council on Revenues. The council had predicted a 1.5 percent decline for the fiscal year that ends next June. While there is time for a recovery, the state is in a deeper hole than expected. General excise and use taxes are down 11.8 percent through September. Hotel-room taxes are off 11.9 percent. Individual income taxes are down 6.7 percent. And corporate income taxes are down 27.3 percent.

Economists have predicted that the state's economy will improve and revenue collections will rebound next fiscal year. Gov. Linda Lingle and state lawmakers use the council's estimates when drafting the state's budget. The decline in actual revenue collections could prompt the governor and lawmakers to consider new revenue-generating ideas next session, such as the use of special funds like the state's hurricane relief fund or an increase in the general-excise tax. The lower revenue collections could also influence collective bargaining with public-sector labor unions

Missouri's budget woes continue
Governor Jay Nixon is planning more budget cuts, including eliminating more state jobs. State Budget Director Linda Luebbering confirmed the news this afternoon. She says they don't know yet how much money will be cut or how many state layoffs there will be. "We really need to work through the process of trying to find the best place to make these cuts...they're going to be difficult choices...none of it's easy, but we want to make sure (we're) making the best choices possible," Luebbering said.

An announcement on the budget and job cuts is expected in about two weeks. Luebbering also says the state this week borrowed $150 million from its budget reserve fund, also known as the rainy day fund, to pay for teacher salaries and other expenses. "We have payments to, for example, our Medicaid providers, the nursing homes, the hospitals, the doctors, and of course, just the normal operating of our correctional institutions," Luebbering said.

The latest dip into the fund brings the total amount borrowed this fiscal year to $350 million dollars, and the current remaining balance to around $170 million. State law requires that the money borrowed from the budget reserve fund must be paid back by May 15th, 2010.

Unprecedented Iowa budget cut: $565 million; layoffs ahead
Hundreds of layoffs are on the horizon for state employees, and the pink slips are likely to appear quickly. State government leaders were left reeling Thursday by Iowa Gov. Chet Culver's order to immediately whack an unprecedented $565 million from the state budget. "We will start cutting today," Culver said. The 10 percent across-the-board cut will mean a wide swath of Iowans - including the poor, unemployed, mentally ill and elderly - will feel the pinch of reduced state services.

The Iowa Constitution requires that the state budget be balanced. Culver had to make only a 7.1 percent cut to do that, or $415 million, but he instead chose to go deeper. Raising taxes isn't an option, he said. The decision came about 24 hours after a three-member panel of budget experts predicted that collections of taxes and fees will plunge between now and the end of the fiscal year in June. The Revenue Estimating Conference lowered its March prediction of $5.853 billion in tax and fee collections to $5.438 billion.

"The fact is clear," Culver said Thursday. "Iowa has not spent too much; rather our revenue has fallen off by significant amounts as the result of this national economic recession." Culver said no government office that gets money from the state's general fund will be spared. The exact number of layoffs is unclear, but it will "certainly be hundreds of state employees," he said. State workers - and that means everyone from corrections workers to school food service staff, state librarians, workers at the school for the blind, addictive disorder counselors, social workers, state attorney general's office staffers, auditors, state crime investigators and treasurer's staff - now face the uncertainty of possibly losing their jobs.

"I would assume there's a great deal of them sitting around on pins and needles," said Danny Homan, president of Council 61 of the American Federation of State, County and Municipal Employees, which represents about 20,000 state employees. "I think this will have the magnitude of a plant closing," Homan said. "This is the most devastating thing that could happen to the state of Iowa at this particular time.

FHA may be setting up repeat of housing bubble, lawmakers worry
The percentage of loans backed by the agency that are delinquent or in foreclosure hit nearly 8% at the end of June. Critics say borrowers don't have enough of a stake in keeping up with payments.

In the wake of the mortgage meltdown, the Federal Housing Administration has emerged as a pillar of the still wobbly housing market -- providing vital insurance that enables borrowers to qualify for loans with as little as 3.5% down. This year alone the agency has backed nearly 2 million mortgages worth at least $328 billion. It insured 21.5% of all new mortgages last year, up from fewer than 6% in 2007. Some lawmakers, however, worry that the FHA may be doing its job too well -- enabling too many people with shaky finances to get loans, and in effect setting up a potential repeat of the housing bubble fueled in part by no-questions-asked subprime loans.

Recent numbers appear to underscore those concerns. The percentage of FHA loans that are delinquent or in foreclosure climbed to nearly 8% at the end of June, from about 5.5% in early 2006, according to the Mortgage Bankers Assn. And in the weeks ahead, its reserves for loan losses are projected to slip below federally mandated limits. "It's not the least bit implausible to be concerned about the ever-deteriorating performance of the FHA portfolio," said UCLA finance professor Stuart Gabriel, director of the university's Ziman Center for Real Estate. "The jury is out as to whether the FHA is going to need a government infusion."

The real estate industry believes the FHA is vital to the housing market because its insurance enables people with modest incomes to buy homes -- people who otherwise would probably be turned away by banks. But because their initial investment is modest, critics believe, these borrowers have little incentive to stay in their homes if they are hit by a job loss or by another drop in home values. "You have to ask the question: Have we figured out what got us here in the first place and are we going to make sure we don't replicate that failed system?" Rep. Scott Garrett (R-N.J.) said. Those questions and others will be addressed today, when a congressional committee starts examining how the FHA's reserves for loan losses have dwindled so fast.

One proposed solution to the agency's troubles, backed by Garrett and others, is to raise the minimum down payment on FHA loans to 5%. Backers believe that will encourage borrowers to stay in their homes and not let them fall into foreclosure. But new FHA Commissioner David H. Stevens said such a move could threaten the nascent housing recovery. A person looking to buy a $300,000 house, for instance, would have to raise an additional $4,500 for the down payment. "All that's going to do is retard recovery," he said.

Stevens said the agency was making changes to reduce risk, such as lending to people with higher credit scores. And he insisted that the FHA, which has always been funded by mortgage insurance premiums, will not need a taxpayer bailout. But the FHA is straddling a difficult, and potentially perilous, line -- trying to prime a housing recovery without overextending itself so far that it requires an infusion of taxpayer money. "On the one hand, it's providing support to the housing market," Federal Reserve Chairman Ben S. Bernanke told lawmakers last week. "On the other hand, clearly, I think it's fair to say that given the low down payments, there's certainly greater risk of loss there, which would be ultimately borne by the taxpayer. . . . So I think that's a trade-off that Congress has to look at."

The FHA was created during the Great Depression to help revive the devastated real estate market at that time. In the decades since, it played a vital, though secondary, role in the real estate market by insuring mortgages from approved lenders for people who had steady work but could not afford a large down payment. The FHA program is funded by premiums paid by homeowners, and those premiums drop off after five years or when the remaining loan balance is 78% of the home's value.

When housing prices were soaring, almost anyone could get a subprime mortgage, and the FHA's importance was diminished. But with subprime lenders gone and banks hesitant to make loans with less than a 20% down payment, the FHA has become the only option for many home buyers. "With the collapse of subprime, suddenly they're more important than ever," said Dean Baker, co-director of the Center for Economic and Policy Research, a Washington think tank. "I don't know that they're prepared to take on that burden."

Congress boosted the agency's business last year by more than doubling the limit on the maximum FHA-backed loan, to $729,750, in Los Angeles and other high-cost markets. Through Aug. 31 of this year, the FHA had insured nearly 1.8 million mortgages worth at least $328 billion, or nearly half the total of $675 billion worth of mortgages on its books -- putting it on pace for its busiest fiscal year, which ended last week. But the agency is also much more exposed to the volatile housing market. Experts worry that if home values start tumbling again, new FHA-insured mortgages would be underwater because of the low down payment.

Fraud by lenders is also a concern, according to an inspector general's report in June. The number of FHA-approved lenders shot up from 692 in 2006 to more than 3,300 last year, and the agency's business picked up in some markets, such as L.A., that were largely unfamiliar to it. Those factors, the report said, increased the risk of such lender abuse as fraudulent appraisals. Alarm bells went off last month when the FHA projected that its secondary reserve fund would fall below the congressionally mandated level of 2% of all mortgages on its books. The fund was at 6.4% at the end of September 2007.

In the FHA's defense, Stevens points out that it requires borrowers to document their incomes and insures only standard, 30-year fixed-rate mortgages. Raising the minimum down payment would be an overreaction based more on emotion than facts, he said. "No one's more risk-averse in FHA's history than me, but I do worry about people jumping to legislative solutions that are not based on factual information," he said.

Stevens touted changes he had made to reduce risk and rebuild the agency's reserves without a government infusion. He will appoint the agency's first chief risk officer and wants to require lenders to have at least $1 million in cash and other assets, up from $250,000, so they can cover more losses before they're passed on to the FHA. "We're not going to need a taxpayer bailout," he said. "It's a fact." David Kittle, chairman of the mortgage bankers group, said an increase in the minimum down payment would be "catastrophic" for the market.

"Why would you want to deter people further from buying homes when clearly you need to get homes off the market?" he said. Some members of Congress, however, believe the risk may be too high. "I'm concerned that the private market for loans with little or no money down has shifted directly onto the books of the federal government," said Rep. Ed Royce (R-Fullerton). "We need to make certain that taxpayers are not again on the hook for the failures of Washington."

Many retailers report September sales declines
A late Labor Day and delayed school openings offered some relief to merchants in September, helping to boost sales above Wall Street expectations. But spending still remains tepid as consumers focused on necessities amid job worries and tight credit. Still, most stores posted sales declines -- though smaller than in recent months -- even as their figures are compared with last September when business plummeted as the financial meltdown ballooned. As stores announced their results Thursday, J.C. Penney Co., Macy's Inc., and teen retailer Wet Seal Inc. reported smaller-than-expected declines in sales at stores open at least a year. The measure is considered a key indicator of a retailer's health.

Limited Brands Inc., which runs Victoria's Secret and Bath & Body Works, and accessories chain The Buckle Inc. both posted increases for the month. According to a preliminary tally by Thomson Reuters, nine stores beat Wall Street estimates, while four retailers' results missed expecations. Industry worries remain high heading into the holiday shopping season because shoppers, who were afraid to buy a year ago, are now grappling with rising job losses, reduced hours or unavailable credit. The unemployment rate is now 9.8 percent, up from around 7 percent last holiday season.

Credit also remains tight. A report released Wednesday by the Federal Reserve, shows that consumers reduced their borrowing for the seventh straight month in August as households cut spending and banks reduced credit card limits. "Consumers remain under pressure on multiple fronts," said Ken Perkins, president of retail research firm Retail Metrics. "I don't think consumer spending is going to see a substantial uptick. Shoppers are concerned about rebuilding their balance sheets." In this climate, purveyors of fashion and nondiscretionary items continue to struggle with sluggish sales, while low-price stores benefit from shoppers switching to cheaper stores and brands.

Still, the tone was better in Thursday's reports, as several merchants including J.C. Penney, American Eagle Outfitters Inc. and TJX Cos. raising their profit outlook based on their better-than-expected performance. Macy's had a 2.3 percent decline, less than the 4.6 percent drop that analysts surveyed by Thomson Reuters had projected. Penney had a 1.4 percent decline for September, lower than the 3.5 percent decline Wall Street estimated. TJX enjoyed a 7 percent gain, surpassing the 4.1 percent estimate. Gap Inc., dragged down by sluggish sales at its namesake stores and Banana Republic, posted a 1 percent sales decline, a bit worse than the 0.4 percent dip that analysts had expected. Its lower-price Old Navy division continued to shine, posting a 13 percent gain in sales at stores opened at least a year.

Limited Brands reported that sales in stores open at least a year rose 1 percent in September; that was better than the 2.4 percent slide that analysts had predicted. Among teen retailers, American Eagle reported flat sales, beating estimates for a 4.1 percent decrease. Buckle Inc. said its sales at stores open at least a year rose 5.1 percent, a bit lower than the 5.8 percent gain that Wall Street anticipated. Wet Seal had a 4.5 percent decline, but analysts had expected a 7.8 percent drop for September.

Consumer Credit Collapse

Hoping for a consumer-led recovery? Don't hold your breath. The latest data from the Federal Reserve shows that the year-over-year decline in total consumer credit is collapsing at an accelerating rate. God forbid consumers go back to living within their means.

Roubini says housing market hasn't bottomed
U.S. housing prices may still fall more than 10 percent, killing an incipient recovery, as demand from first-time home buyers fades, leading economist Nouriel Roubini said on Thursday. Roubini, one of the few economists who accurately predicted the magnitude of the financial crisis, said massive losses in commercial real estate loans will add to the problem, forcing banks to raise more capital. "

The stress is moving from residential mortgages that are still in deep trouble, to commercial real estate, where they are just starting to recognize that they're going to have massive, massive losses," Roubini of RGE Global Monitor told reporters after a presentation for a World Economic Forum report on the global financial system. U.S. home prices rose for the third straight month in July, raising hopes the market is stabilizing after a three-year plunge.

A first-time buyer credit of $8,000, which is set to end on November 30, has jump-started housing activity this year and has helped reduce a massive inventory of unsold homes. While the number of unsold houses may have bottomed out, prices are poised to fall further, increasing pressure on the economy again, Roubini said. One of the main risks next year may be from losses on some $2 trillion in outstanding commercial real estate loans, the economist predicted. "Half of this is in medium-sized and smaller banks, and even in the larger ones.

Most of these losses are not recognized because they're keeping the loans at face value on their books," he said, forecasting that U.S. and U.K. banks will need to raise more capital when those writedowns are made. Still, Roubini sees a greater chance of a U-shaped economic recovery in developed economies, with a 20 percent to 25 percent chance of a double-dip. "If it's a U-shaped recovery, China, Asia, and emerging markets will do fine. If there is a double dip, the consequences will be severe for everybody."

Deficit Complicates Push on Jobs
Democratic leaders pressed President Barack Obama on Wednesday to extend more elements of the existing economic-stimulus package, and to possibly add tax cuts that were rejected the first time around, despite a record budget deficit that is giving some lawmakers pause. On Wednesday, the Congressional Budget Office estimated that the federal deficit for fiscal 2009 will be $1.4 trillion. That is somewhat better than the nearly $1.6 trillion the CBO projected in August, but much of the change stems from different accounting treatments for losses at Fannie Mae and Freddie Mac, the mortgage companies the government took over last year.

The figure remains the largest budget deficit, measured as a percentage of gross domestic product, since World War II. That so far isn't stopping Democratic leaders discussing further stimulus measures. Worried that the economy isn't creating jobs, House Speaker Nancy Pelosi (D., Calif.) and Senate Majority Leader Harry Reid (D., Nev.) went to the White House for a hastily planned meeting. White House economists had already embraced extending enhanced unemployment-insurance benefits and subsidies for the purchase of health insurance under Cobra. Both of those measures are currently set to expire Dec. 31.

After the meeting, Mr. Reid made it clear he also wants an extension of a generous tax credit for first-time homebuyers, something the White House was leaning against as too expensive for the number of jobs it might create. "Nevada leads the nation in home foreclosures," said Reid spokesman Jim Manley. The congressional leaders also advocated tax credits for employers who hire new workers. Mr. Obama campaigned on that proposal, but it was dropped in February amid concerns that employers could fire workers, then rehire them to claim the credit. The national unemployment rate is currently 9.8%.

Democrats could also move more quickly on a highway and transportation bill that wasn't supposed to get passed until next year. A sudden movement toward a new jobs bill could open Democrats to Republican charges that the $787 billion stimulus approved in February isn't working. White House officials have said new efforts under consideration shouldn't be considered a second stimulus. "If it looks like a duck, quacks like a duck, isn't it a duck?" asked Antonia Ferrier, spokeswoman for House Minority Leader John Boehner (R., Ohio).

House Democratic Caucus Chairman John Larson is pressing to move on a highway and infrastructure bill before December, add in extensions of stimulus measures and include spending on energy-independence projects. The highway bill alone would create six million jobs, he said. Democratic leaders, however, will likely face unease among many of their more fiscally conservative members about any new big spending programs, given the nation's record deficit. The 2009 deficit equals about 9.9% of GDP, up from 3.2% in 2008, the CBO said. Big factors include a huge falloff in tax receipts and the financial-sector bailouts. The stimulus measure has cost the government nearly $200 billion so far, the CBO said.

"I think we're doing quite a bit" already through existing stimulus legislation, Rep. John Spratt (D., S.C.), the chairman of the House Budget Committee, said in a recent interview. "I think we should not lose sight of the deficit, and the extra effort it's going to take to keep the deficit going down to a supportable level in the future." Rep. Chris Van Hollen of Maryland, the head of the Democratic House campaign committee, said last week that a second stimulus package was unlikely absent a rapid deterioration in the employment picture. The next two to three months will be important to that decision, he added.

Republicans, meanwhile, have their own wish list. In a letter to Mr. Obama Wednesday, House Republicans sought more business tax breaks as a way to boost job creation. Republicans say they hope to work with the White House toward a bipartisan jobs plan, but the language of their letter is blunt. For example, it terms the February stimulus "unsuccessful," and urges Democrats to drop their "job killing" health-care measures. GOP proposals include a tax deduction for small businesses equal to 20% of their income, letting small businesses band together in associations to buy health insurance more cheaply, curbing civil lawsuits and lowering individual income-tax rates. Mr. Manley, the Reid spokesman, dismissed those as old conservative ideas that aren't likely to attract much Democratic support.

Carl Icahn Warns Of A Bloodbath!

Britain overtakes US as top financial centre
The United Kingdom has overtaken the United States to take the top spot in a ranking of the world’s leading financial centres. The ranking, compiled by the World Economic Forum (WEF), places the UK at the top of a leader board of 55 of the world’s largest financially-focussed countries. The US, which had previously held the top spot, slipped to third, behind second-placed Australia. The poll will fuel the ongoing debate as to whether London or New York is the best place to do business for financial communities, amid recent reports that a growing number of hedge funds are moving to New York due to lighter regulation.

The ranking came in spite of the distinct problems in the UK’s financial services industry has suffered in the last 12 months at the hands of the global financial crisis, problems that have seen significant parts of the banking sector nationalised as the centre-piece of a barrage of government interventions into the financial industry. As a result, the UK’s overall score in the poll – which is based on a score of 1 to 7 – fell by 0.55 points to 5.28, still above the US's, which fell 0.73 to 5.12. The rankings are based on more than 120 different variables looking at the size and breadth of capital markets, institutional environments and financial stability.

Among the most significant fallers in the overall rankings were France and Germany, who fell out of the top 10 altogether, while second-place Australia, up from 11th last year, and Singapore, rising from 10th to 4th, were among the biggest winners. However, the report, penned by the organisers of the annual WEF leadership conference in Davos each year, does show that from a stability perspective, the UK lags behind the rest of the world, ranked 37 out of 55, just one spot ahead of the US at 38. "The UK and the US may still show leadership in the rankings, but their significant drops in score show increasing weakness and imply their leadership may be in jeopardy," said Kevin Steinberg, chief executive of WEF USA.

Overall, the report showed signs of weakness among many established global financial centres as a result of the recent crisis, while at the same time developing countries demonstrated relative financial stability. From a pure stability standpoint – which was topped by Norway and Switzerland - Chile came in third, while Malaysia, Brazil and Mexico were all in the top 15 rankings. Professor Nouriel Roubini, the well-known economist who was the leading academic involved in compiling the study, commented: "The change in scores does demonstrate the implications of the downturn on our assessment of the long-term development of financial systems."

US trade gap narrows on drop in crude imports
The U.S. trade gap unexpectedly narrowed in August to $30.7 billion on a big drop in imports of crude oil, the Commerce Department reported Friday. The trade gap is the difference between exports and imports of goods and services. After a big increase in trade in July, volumes dropped back in August, a sign of fits and starts in the U.S. and global economic recoveries.

Imports fell by $913 million, or 0.6%, to $158.9 billion in August, as imports of crude oil fell by $1.28 billion. Read the full report. Exports rose by $228 million, or 0.2%, to $128.2 billion, the highest since December. Exports were led by autos, metals and soybeans. Exports of capital goods fell to the lowest level in four years, as shipments of civilian aircraft dropped by $1.3 billion. Imports and exports were boosted by increased trade in autos and auto parts to the highest level this year.

The July trade deficit was revised lower to $31.9 billion from $32 billion, based on more complete data. Economists surveyed by MarketWatch expected to the trade gap to widen to $33.6 billion in August, based on higher prices for crude oil. See Economic Calendar. The price of imported crude oil rose $2.27 to an average of $64.75 a barrel, the highest since November. But the volume of imported crude dropped to 8.7 million barrels a day from 9.6 million in July. After adjusting for inflation, real seasonally adjusted imports of petroleum fell 10.2% to a 10-year low.

After adjusting for price changes, the trade gap in August narrowed by 2.7%, a positive for U.S. gross domestic product. Economists currently expect U.S. GDP to rise at an annual rate of 3.5% in the third quarter, which would be the first increase in a year. Despite August's improvement, most economists think trade will be a small drag on growth in the third quarter. "Looking forward into next year, we expect that real net exports will provide a modest boost to the economy," wrote Jay Bryson, global economist for Wells Fargo Securities. "Recoveries in the rest of the world will boost exports while sluggish growth in U.S. domestic demand should hold back growth in imports."

Inflation-adjusted imports fell 1.9% in August, while real exports fell 1.5%. Global trade collapsed a year ago when the global financial crisis hit, and is now slowly recovering. In the first eight months of 2009, real (inflation-adjusted) exports are down 18.2% compared with the same period a year ago. Real imports are down 19.6%. Compared with last August, real exports are down 19.5%, and real imports are down 18%.

Imports from China, Canada and Mexico rose on a not-seasonally adjusted basis. Exports to the European Union fell to a three-year low. Exports of goods were unchanged at $86.8 billion. Exports of services rose 0.5% to $41.4 billion. Imports of goods fell 0.6% to $128.7 billion. Imports of services fell 0.3% to $30.2 billion. Real exports of capital goods fell 4.2%, while real imports of capital goods dropped 0.3%.

Real exports of industrial supplies were flat, while real imports fell 6%. Real exports of consumer goods fell 1.4%, while real imports fell 1.9%. Real exports of autos and auto parts rose 7.3%, while real imports rose 8.5%. Real exports of foods and feeds rose 1.2%, while real imports fell 3.9%.

Fed Is Split Over Timing of Rate Rise
Fissures are developing among policy makers at the Federal Reserve as they debate how and when to start raising the benchmark interest rate from its current level just above zero. With Fed officials forecasting that unemployment will average 9.8 percent in 2010, nobody appears to be arguing that monetary policy should be tightened anytime soon. The central bank’s official mantra continues to be that the overnight federal funds rate will remain "exceptionally low" for "an extended period."

But Fed officials have hinted at new disagreement in recent weeks. The arguments go beyond the traditional split between hawks, who worry that easy money will stoke inflation, and doves, who contend that unemployment is the top problem. The more devilish debates are about how fast to act once the decision has been made, and how to carry it out. Beyond raising the overnight federal funds rate, the Fed also has to unwind $2 trillion in special programs that prop up paralyzed banks and credit markets.

Where Ben S. Bernanke, the Fed chairman, stands in the emerging argument is a question mark. At a conference held by the Fed on Thursday evening, he assured economists that the central bank had a detailed list of tools to reverse course but offered no new hint of when he planned to begin his exit strategy. "When the economic outlook has improved sufficiently, we will be prepared to tighten the stance of monetary policy and eventually return our balance sheet to a more normal configuration," Mr. Bernanke promised.

Any move to tighten monetary policy over the next year or so could set the stage for a clash between the Fed and the White House. The Obama administration has been outspoken in saying it does not want a quick end to stimulus policies, whether fiscal or monetary. Policy makers are haunted by the results of previous miscalculations. Mr. Bernanke and others have warned that the central bank should not repeat its error in 1937, when it raised interest rates too early and helped extend the Depression for several years.

At the same time, officials at the Fed are acutely aware that it has been widely blamed for contributing to the housing bubble and the financial collapse by keeping the cost of borrowing too low for too long after the recession of 2001. One hint of the discord came Tuesday, in a speech by Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City. Though he stopped short of calling for immediate rate increases, Mr. Hoenig made it clear that he was getting impatient.

"My experience tells me that we will need to remove our very accommodative policy sooner rather than later," he told an audience of business executives. "Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy." Mr. Hoenig is not currently a voting member of the Fed’s policy committee, on which the regional Fed presidents hold rotating seats, but he presents his views at all meetings. And he is not alone.

Richard Fisher, president of the Federal Reserve Bank of Dallas, sent a similar message in a speech on Sept. 29. "That wind-down process needs to begin as soon as there are convincing signs that economic growth is gaining traction," he told a business group. Other Fed officials with similar views include Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond; Charles I. Plosser, president of the Philadelphia Fed; and Kevin M. Warsh, an influential Fed governor.

By contrast, some top Fed officials in Washington and New York have repeatedly emphasized that the economy is still extremely weak and that unemployment, already at its highest level since the early 1980s, will probably climb above 10 percent and remain high for several years. "The turnaround is certainly welcome, but it shouldn’t be overstated," Daniel K. Tarullo, a Fed governor, said on Thursday in an address to a civic group in Phoenix. "The employment situation continues to be dismal."

William C. Dudley, president of the New York Fed, presented a detailed case that seemed aimed at responding to those calling for a quick end to low rates. "Some observers are concerned that this expansion will ultimately prove to be inflationary," he told an audience at the Corporate Law Center at Fordham University. "This concern is not well founded." Mr. Dudley noted that unemployment among working-age men was 10.3 percent — higher than in any other downturn since World War II.

On top of that, he said consumers were reeling from the "wealth shock" caused by the collapse in home prices and by losses to their stock portfolios. That could cause people to increase their saving rate, meaning less consumer spending in the short run. Finally, Mr. Dudley cautioned that banks faced another wave of losses from loans tied to commercial real estate. Beyond the disagreements about the relative dangers of rising prices versus rising joblessness, Fed officials are grappling with how to decide on the need for higher interest rates.

Mr. Bernanke and other officials want to see evidence that the economic recovery is self-sustaining, strong enough to generate jobs without the crutch of extremely low interest rates. But Mr. Warsh, as a Fed governor, has begun arguing that the central bank cannot afford to wait for irrefutable evidence of a solid expansion. Mr. Warsh recently argued that the Fed should take at least some of its cue from stock prices and other financial indicators, which turn around earlier and more quickly than the underlying economy. "If policy makers insist on waiting until the level of real activity has plainly and substantially returned to normal," he warned in a speech on Sept. 25, "they will have almost certainly waited too long."

Mr. Warsh and some other Fed officials also argue that when the time does come to change gears, the central bank may have to raise rates almost as fast as it slashed them when the crisis began. It remains unclear whether Mr. Bernanke agrees with that idea, though he and other Fed officials have emphasized that they have planned carefully for the Fed’s exit strategy and have all the tools in place to reduce the special support programs quickly.

34 banks don't pay their quarterly TARP dividends
The U.S. taxpayers' investments in smaller banks are increasingly at risk. In a sign that more banks are under great pressure from the recession, 34 financial institutions did not pay their quarterly dividends in August to the Treasury on funds obtained under the Troubled Asset Relief Fund (TARP). The number almost doubled from 19 in May when payments were last made, and also raised questions about Treasury's judgment in approving these banks as "healthy," a necessary step for them to get TARP funding.

"The banks are not paying their dividends because they are worried about preserving capital," says Eric Fitzwater, associate director of research at SNL Financial. The Treasury Department says it cannot force an institution to pay dividends. "For some banks, it may be prudent to exercise their right not to pay dividends in a particular month, and we respect their right to do so," says Meg Reilly, a Treasury spokeswoman. "To draw any broader conclusions about the state of the banking sector from one month is highly premature and speculative."

However, a lot of smaller banks are already under stress. Weighed down by foreclosures and delinquencies, 98 banks have failed so far this year, vs. 25 for all of last year. Besides insurer American International Group and lender CIT Group, most of the other non-payers are smaller institutions that received $400 million or less in TARP funds. Top Republican on the House Financial Services Committee, Rep. Spencer Bachus, R-Ala., says: "We must ensure taxpayers are repaid."

Some say Treasury might have been too hasty in approving some banks for TARP funds. "Perhaps the Treasury made assumptions that were a little bit too rosy," says Walter Todd, who invests in banks at Greenwood Capital. "My question is also whether the Treasury is staffed adequately to handle this tremendous undertaking." Treasury has given $365 billion to 700 institutions from TARP. AIG, to which the government has pledged $180 billion, has accumulated $1.6 billion in unpaid dividends. And CIT, which received $2.3 billion from TARP, said in a regulatory filing that it is restructuring its debt and seeking approval from bondholders for a pre-packaged bankruptcy. If that happened, it would wipe out the entire government investment.

Elizabeth Warren: Serious Questions Remain About Obama's Loan Relief Plan
The Obama administration's effort to help homeowners avoid foreclosure may not achieve its goal of helping 3 million to 4 million borrowers and may simply delay mortgage defaults for many, a government watchdog group says. The Congressional Oversight Panel, charged with making regular assessments of the $700 billion financial rescue fund enacted last year, said the Treasury Department should consider whether to improve the current $50 billion program or adopt new programs to meet an expected rise in foreclosures fed by increased unemployment. The panel's report is scheduled to be made public Friday.

It comes a day after the Treasury said its mortgage relief effort has helped 500,000 homeowners and that it was still on track to help up to 4 million homeowners within three years. "We've put significant pressure on servicers to ramp up their efforts," said Housing Secretary Shaun Donovan. "We're holding them to higher performance standards." But the oversight panel, chaired by Harvard law professor Elizabeth Warren, concluded that the foreclosure crisis has now moved beyond the subprime mortgage market that ensnared many homeowners, particularly low-income families. The program, the report states, was not designed to deal with foreclosures caused by unemployment.

"Serious concerns remain about the program's scope, scale and permanence," Warren told reporters in a conference call. "In particular it isn't clear that 500,000 modifications will be enough to put a serious dent in the foreclosure crisis or to dampen the impact of foreclosure on the broader economy." Foreclosures, the report said, are now stalking families who took out conventional, fixed-rate mortgages and put down payments of 10 to 20 percent on homes that would have been within their means in a normal market.

Treasury's program, known as the Home Affordable Modification Program, "is targeted at the housing crisis as it existed six months ago, rather than as it exists right now," the report says. Treasury spokeswoman Meg Reilly said Thursday that while the mortgage relief program is available to the jobless, "we continue to study further ways to help unemployed homeowners." The oversight panel accepted the report by a vote of 3-2, with the committee's two Republican members voting against it.

Rep. Jeb Hensarling, R-Texas, one of the two dissenters, described the foreclosure mitigation program as a failure and rejected suggestions in the report that the program should be expanded. "Regardless of whether one believes foreclosure mitigation can truly work, taxpayers who are struggling to pay their own mortgage should not be forced to bail out their neighbors through such an inefficient and transparency-deficient program," he said.

The majority's report, however, said that rather than abandon the program, Treasury should improve it. Rising foreclosures, the report asserted, could have devastating effects not only on families, but also on local communities and the economy in general. The benefits of avoiding foreclosure would likely outweigh the cost to taxpayers, the report said. The report's underlying theme was that foreclosures were bound to take a turn for the worse and that Treasury did not appear prepared to confront a rise in defaults.

Many housing advocates have been disappointed with the plan's progress and say that getting a loan modification is still a battle. Most lenders, they say, are still unwilling to reduce a borrower's principal balance, a key concern in areas like California, Florida and Nevada where prices have been cut in half in some areas. "It's not working fast enough and it's not working broadly enough," said Kevin Stein, associate director of the California Reinvestment Coalition, based in San Francisco. "There are no obvious consequences to the servicers for not doing what they're supposed to be doing."

Lenders have their own criticisms. Since the report card released by the government excludes modifications made outside the government guidelines, some say they're not getting enough credit. "The American public has a right to know that there are other modifications that are being done that are equally as compelling," said Teri Schrettenbrunner, a Wells Fargo spokeswoman. To speed up the application process, the Treasury Department on Thursday launched a round of changes, including standardized forms.

At the end of last month, about 16 percent of those eligible were enrolled in the program. Offers had been extended to nearly 770,000 homeowners, or about one in four eligible borrowers. Nearly all the borrowers who have signed up so far are in an initial three-month trial phase. They are supposed to be extended for five years if the homeowners make their payments on time and return the necessary documents. "While reaching half a million trial modifications nearly a month ahead of schedule is an important milestone, we recognize that the next challenge is converting borrowers from trial to permanent modifications," Reilly said.

Dangers of silo thinking
by Gillian Tett

When Larry McDonald, a former bond trader at Lehman Brothers, recently wrote an exposé of that broker’s collapse, it seems that his main intention was to reveal the extraordinary folly and ineptitude of the former Lehman bosses. In practice, though, his colourful tale also highlights – almost inadvertantly – another crucial problem that haunts the modern financial world: the curse of silos. For, as McDonald narrates, several years before the Lehman collapse in the autumn of 2008, its own fixed income department was already so alarmed by the American real estate market that they were hunting for ways to go "short".

However, while one department of Lehmans was exceedingly bearish, other departments, such as the mortgage securitisation team, were so aggressively bullish that they were increasing their exposure - and the different departments were in such rivalry that they barely knew what the other was doing, with disastrous consequences. It is a saga that raises a wider moral, not just for bankers, but investors too. In recent months, vats of ink have been spilt to explain all the macro-economic and regulatory reasons for the financial crash.

But one issue that has received less attention is the trend towards fragmentation in the financial industry, not just in a structural sense (ie departments that do not talk), but a mental sense too (ie financiers operating in a tunnel vision). This fragmentation fuelled many of the recent failures of public policy. Just look at how the activitivies of groups such as AIG "fell through the cracks" because there were numerous competing regulatory bodies in the US. Look too at how British policymakers tried to separate out the conduct of monetary policy (managed by the Bank of England) from financial regulation (handled by the FSA) with equally disastrous effect.

However, the problem of fragmentation has also been central to the disaster in private-sector institutions. Lehman Brothers was certainly not the only bank marked by internal tribalism. Institutions such as UBS, Merrill Lynch or Citi demonstrated similar problems. And this sense of fragmentation has not just hampered information flows around banks, but has also prevented information flowing across the market too. That, in turn, has fuelled a sense of tunnel vision among some investors with equally dismal results.

Back in the years of the credit boom, for example, many equity investors were only dimly aware of what was happening in the credit default swap world. Similarly, those corporate treasurers who were pouring cash into money market funds often had only a hazy idea about events in the structured credit world. Complex credit was considered a silo, that was best left to the "geeks" – or, at least, those who were experts in that field.
But the financial crisis has highlighted with painful clarity just how dangerous such tunnel vision can be. And the good news is that some financiers, investors and policy makers are belatedly trying to combat it.

The hot new fad among regulators, for example, is macro-prudential surveillance (a posh word for proactive regulation that tries to join up all the dots.) Investment banks are scurrying to beef up their risk management functions, and stressing the importance of holistic oversight. Meanwhile, a host of asset managers are champions of lateral thought, and are trying to understand what is happening in seemingly disconnected silos – be that in the Chinese auto industry, carbon trading markets or CDS.

The bad news is that the curse of silos will not be easy to beat. For one bizarre paradox of the modern age is that while techology is integrating the world in some senses (say, via the internet), it is simultaneously creating fragmentation too (with people in one mental silo tending to only talk to each other, even on the internet.) And as innovation speeds up, this is creating a plethora of activities that are only understood by "experts" in a silo – be that in finance, or numerous other fields.

That pattern implies that there is now a big need for "cultural translators", who can explain what is happening in those silos to everyone else. But the cadre of cultural translators in today’s world is pitifully small (and may even be shrinking, as institutions like the media or rating agencies find their business model under threat). Therein lies one of the essential challenges for investors today: namely how to understand the micro-details of the silos, and see how all the macro-pieces add up. And that is a challenge that is likely to intensify, not diminish, in the coming years, precisely because we now live in an era where both interconnections and tribalism hold sway.

Bulk-Shipping Lines Must Cancel 50% of New Vessel Orders
Bulk-shipping lines need to cancel half of the new vessels they have on order to ease a capacity glut and revive freight rates, according to shipbroker R.S. Platou ASA. "If half the orderbook is never built, then we can keep the market fairly balanced," Bjorn Bodding, a senior analyst at Platou, said today at a conference in Singapore. Even axing a third wouldn’t be enough to help rates recover before 2012, he added.

Bulk-shipping rates have tumbled 78 percent from a record last year as growth in the global fleet outpaces China’s demand for iron ore and coal shipments. The glut could worsen as commodity companies, such as Noble Group Ltd., build up their fleets. "What worries me even more than the existing orderbook is seeing people ordering or about to order more tonnage," said Andreas Sohmen-Pao, chief executive officer of ship operator BW Maritime. "That’s stretching out the problem further."

Noble Group, a Hong Kong-based supplier of raw materials, ordered five bulk carriers worth about $320 million in August. Vale SA, the world’s biggest iron-ore producer, plans to order 11 large bulk carriers, South Korean News agency Yonhap said on Oct. 7. China Cosco Holdings Co., the world’s largest dry-bulk ship operator, canceled eight vessels in July after slumping to two straight losses on plunging rates. Commodity carriers with a capacity of 291 million deadweight tons are on order worldwide, according to Drewry Shipping Consultants Ltd. That’s equivalent to 66 percent of the existing fleet.

A rebound in freight rates since April has encouraged shipping lines to grow their fleets, even as rates remain near breakeven levels. The Baltic Dry Index, a measure of commodity- shipping costs, has risen to 2,647 yesterday from 1,463 on April 8. With the index above 2,000 points, a portion of the more expensive vessels on order can be run profitably, according to DBS Vickers Securities analysts Chong Wee Lee and Ho Pei Hwa.

"This has led to resurgence in vessel deliveries and reduced demolition activities, thereby aggravating the industry’s oversupply," the analysts wrote in an Oct. 5 report. Dry-bulk ship deliveries increased 35 percent in the four months ended August from the preceding four months, they said. Scrapping fell 61 percent.

Shipping rates have also been boosted this year by government economic stimulus plans, including a 4 trillion yuan ($586 billion) package in China. Demand for iron ore and freight rates may begin to fall once these plans are completed, said Keith Denholm, director of PCL (Shipping) Pte. "The levels that we are seeing today are just not sustainable," he said. "The question now is whether the private sector is going to be able to stand on its two feet without the assistance of the government stimulus packages."


snuffy said...

I keep thinking that while we see a whole lot of trouble...both at the state and fed level on tax receipts...what shows up from unexpected"black swan" type occurrences is what will wreak the most long term damage. It will come from unexpected,and effect therefore more "vulnerable" areas.
Our various societies are gradually shifting into a higher and higher state of crisis as this economic tsunami is moving to different areas....slamming different segments with monetary stress,and all of the lower levels of each country peoples with life-shattering events.

I believe will have a radicalizing effect on large sections of the affected population.

Here in the USA,plans were made long ago ,as a aftermath of the events of 60's to "deal"with radicalization of any of minority segments,as well as any social movements that threaten "the order of things".An example is the documented cases of agent provocateurs used by various alphabet soup agency's within the United States government.

I do not believe ,however ,that the plans ,and schemes of these various arms of our elites,truly understand the effects their actions,and in their guts realize that when they begin violence on the is war,in all its ugly truth . Those people who are now seeing "The brick wall behind the curtain"as Frank Zappa so masterly put,will not be innocent much longer.
It takes 2% of the population of a modern industrial society to make governance impossible.2%.We are truly governed by the consent of the people.
That Obama is a tool is a given.Who knows,maybe a tool with a heart,but a tool...this has been shown time and time again from the renewal of the patriot act,to the placement of financial buccaneers in charge of the treasury,to the choices made in these insane military adventure overseas.Its said that Afghanistan is where empires go to die.[witness the Soviet,and before the British]If the president choices to expand the madness,on top of all the trouble we face here,I give us less than a year before a massive drop in the standard of living for the entire country that will sow the seeds of rebellion the likes of which has not been seen in generations.Between the displaced,the homeless,and those soon to be,the un-employed,the teabaggers,and other organised right-wing, anti-government types, the stage is set for hell on earth in the usa.

And I cannot see any way out of where we are headed.The perfect wave of social inequity,matched with pent up,long denied class war,that as Warren Buffet noted,his side was winning,will shatter the myth of America as a classless society,as the rotten bones of our poverty are shown to the whole world...

And on that happy note..



TAE Summary said...

* Shorpy's delight - Cheese cake, beef cake and back to cheese cake

* Handouts to the poor are charity; Handouts to the rich are investments

* Science is useful but not true; Number theory is true but not useful; Economics is neither true nor useful

* Russians pillage and are proud of it

* Obama wins Nobel peace prize with Shock and Awe; Alfred Nobel funded the prizes with dynamite profits; Nobel committee adopts prize now, peace later approach; Obama considers prize as a call to actually do something; The prize might tie his hands; This approach sometime works on pubescent boys

* Deflation is on the way; Nothing can stop the decomposition of a corpse; Attempts to do this just kills the vultures

* US Empire most powerful and corrupt of any empire since a long time ago in a galaxy far, far away; US guilty of inflicting greatest pain on greatest number though Mariah Carey concerts are a close second

* DOW at 9864; VK in depressionary spiral which will lead to a devaluation of his currency; Rally will continue as long as people hate it

* Making swords is crazy but making plows is insane; Earth was a garden of Eden before agriculture spoiled paradise; Firebombing is less destructive than plowing; Even so most people prefer WheatThins to being firebombed

* Animals don't make money; Animals aren't entrepeneurs though a few play one on TV

* Blessed are the rich: for theirs are the kingdoms of earth.
Blessed are the profligate: for they shall be comforted.
Blessed are the proud: for they shall inherit everything.
Blessed are they which do glut themselves on the labors of others: for they shall be filled.
Blessed are the merciless: for they shall need no mercy.
Blessed are the pure in malice: for they shall think they are god.
Blessed are the warmongers: for theirs is the Nobel prize.
Blessed are they which persecute for profit's sake: for theirs are the riches of the earth.
Blessed are ye, when men shall commend you, and award you, and shall say all manner of good about you falsely
Rejoice, and be exceeding glad: for great is your reward on earth: for so awarded they the Kissingers which were before you.

Tristram said...

I am back in Asia, with no access to Faux News or the other corporate media talking heads, but I can guess what they are saying about BO's bogus Nobel prize: now whenever decisions must be made about America's endless Middle East wars, if BO does not adopt the war-mongerest option, he will be accused of pandering to bleeping Norwegians. (And we know the only foreigners who are allowed to control our foreign / war policies are Israeli.) If BO does choose the war-mongerest option, which he well might, the Nobel committee will look foolish.

It's astonishing that the Nobelites exposed themselves to that risk.

I can think of only one far-fetched circumstance in which it makes sense -- BO has a no-turning-back plan to call the Israel lobby's bluff and twist the screws hard on Israel to force major concessions from them, and the Nobel crew wanted to get behind him in advance.

But that's far-fetched. More likely it was just a major blunder for all concerned. For BO, it was another test of character, which of course he failed completely. He should have immediately refused the prize, explaining that a sitting US president cannot accept this sort of thing from foreigners because it undermines the credibility of his governance.

: Joseph j7uy5 said...

One of the things that Carl Icahn says, is that the stock market is not a good indicator of the economy. He says that "individuals" are a better indicator. Although it is not entirely clear what he means by "individuals," I think he means middle-class folks.

An article posted on (Project for Excellence in Journalism, or PEJ), Covering the Great Recession, talks about how the mainstream media have largely failed to cover the plight of the shrinking middle class/expanding lower class. This failure is not new. Thom Hartmann wrote Screwed: The Undeclared War Against the Middle Class in 2006, and hardly anyone payed attention (Amazon rank #304,826). Of course, by 2006, it was too late.

The PEJ report notes: "Citizens may be the primary victims of the downturn, but they have not been not the primary actors in the media depiction of it."

Michael Moore is serving a role in correcting this failure of the media.

Note also, that the PEJ study found that the media are tapering off their coverage of the crisis: "As the story moved away from Washington—and the news about the economy seemed to improve—the amount of coverage of the economy also dropped off substantially."

They can't get anything right. Funny thing, they don't get paid to get it right.

Even though Moore does get it right, and presumably will get paid for his efforts, all he can do is to preach to the choir.

APC said...

A dime a day? I'm in for that. It'll have to be 10 centimes however. As long as Latvia is still "afloat" euros should be ok...

Love the site...

John Hemingway said...

"What a farce", that's all I could think when I heard that Obama had won the Nobel Peace Prize. A colossal farce.

I think that Snuffy is right when he says that we have "less than a year before a massive drop in the standard of living that will sow the seeds of rebellion the likes of which have not been seen in generations." And if in the distant future we still have a civilization capable of writing history, then Obama will surely be remembered as the man who played a large part in triggering this crisis.

scandia said...

@TAE of your best! A lift off away from my self indulgent discouragement!
@Stoneleigh....excellent review of Moore's film. Now I don't have to go see it. will sent the ticket cost to TAE instead! the no there there meme...This is exactly how I have been feeling for some time. When I look at Obama I feel perplexed as if I am looking at a man yet there doesn't seem to be anybody home on the inside. Perhaps he is given a qualude before he delivers speeches written by his handlers?
He is always the same- hands in pockets, shuffling along, looking upwards( best angle for camera shot),not being visibly bothered at all by what is you say, no there there.

knutty knitter said...

I'll contribute when I can - at present I have $65 of credit in the whole wide world and a house with a moderate mortgage and no stable job prospects. Riches in some places :) We won't starve and health care is mostly free.

I keep hoping for a system that isn't based just on money and fractional reserve banking...

viv in nz

Fuser said...

Good news today. Drudge jumped the shark. He's linking to Larry Kudlow articles.

el gallinazo said...

TAE summary

One of your best efforts yet. Thank you.

Happy days are Here Again Dept.

Note that other than stating that we will be able to live like kings for the next millennium with almost no effect on climate change, the author does not give a single detail concerning the actual nature of the "break through." Typical NYTimes blather. The interesting news doesn't fit.

EconomicDisconnect said...

Great post, the concept of "There's no one there" really sums up my frustrations with many things going on right now.

Hit the donate button as well, this is a resource that I appreciate.

Mike said...

Finally a Marilyn Pic!

Well worth the donation on that alone, great intro, thanks as always for doing what you guys do.

jal said...

What would the market look like if this slide continued for 12 weeks, until 25 Dec 09?

S&P 500
- 2% per week
02 Oct 09 1024 - 20.48 = ACTUAL +4.51% = 1071 =
09 Oct 1003.52 - 20.07 =
16 Oct 983.45 - 19.67 =
23 Oct 963.78 - 19.27 =
30 Oct 944.50 - 18.89 =
06 Nov 925.61 - 18.51 =
13 Nov 907.09 - 18.14 =
20 Nov 888.95 - 17.78 =
27 Nov 871.17 - 17.42 =
04 Dec 853.75 - 17.07 =
11 Dec 836.67 - 16.73 =
18 Dec 819.94 - 16.40 =
25 Dec 803.54
Things must be really bad at FDIC, No new banks listed as gone for this friday.

One last comment, from me, about Obama’s Peace prize.

Re.: This quote, “I believe you. Now, make me do it.”

First, do you think that the majority of the “lawmakers” are “free” from a “handler”?
Look at the number of “lawmakers”, from both side of the aisle, that have suddenly found that their secret have been leaked to the news media... An affair here, ... a secret bank account there ... etc.

Second, ask, who has the structure in place to dig out secrets.? Who has the capability, (tools, money), to pry out those secrets from those organizations AND then to be able to find a willing "reporter" take the credit for finding out the truth and reporting on this dirt?

Third, be realistic ... admit it ... “the lawmakers” are preventing Obama from “doing the walk”.

In the majority of his speeches he says that the people need to get behind him to get changes done. Surely, this should tell you that he knows that the “lawmakers” are compromised and cannot help him make the radical changes that are required.

Maybe, the vetting process got him the least compromised and the “hardest skinned” administrators to try to “make changes”... but but but ... yes, as the majority seems to be saying ... “It’s not enough” ... the financial/banking industry, the insurance industry and the health industries are still winning.

Will the war industrial machine give Obama a break because he got the Nobel Peace Prize? At what cost????

Glennjeff said...

Well - Bo's peace prize: looks like the elite are getting pretty desperate to convince global humanity there is a saviour on hand. Feels like mass hypnosis to me. We're fracked, it's Global Government and The New World Order and I don't even believe in conspiracy theories.

MOST scary development so far:-(

Greenpa said...

Nobody needs to reply to this comment- no one is going to convince anyone to change their mind here-

In the avalanche of "O-ick is scum" sentiment, I simply want to point out; in a completely unemotional fashion:

Everything going on is still compatible with the "Obama is Gorbachev" hypothesis.

Of course, everything going on is also compatible with the "He's A Wholly Owned Subsidiary of Gollem Sucks" hypothesis, too.

By way of support of the OiG path, I will point out a parallel phenomenon to TAE's economic stance:

You state that you expect far more scepticism for "The End Is Nigh" as the "recovery" euphoria grows; and that the euphoria, and scepticism, will be highest, and most certain, just before the crash.

The same would be true if OiG is the case- the belief, and appearance, that he's in cahoots would be highest just before he comes out.

The need OiG has is to reassure the targets that he is on their side, working for them; while he is giving them rope enough to hang themselves for all time.

Are WE aware of the utter evil of the MOU? Yes, and the evidence piles up and becomes clearer by the day.

Hm. Think about that. The evidence is piling up, and now reaching the MSM, and my dentist is willing for big financiers to be sentenced to death. It's not necessary to convince the folks here. It IS necessary to convince Joe Lunchbox and Jane Sixpack; and at the moment they are still true believers in capitalism and the sanctity of the Market. But they're out of work, out of benefits, and getting pissed.

Ok- I do not BELIEVE either hypothesis. Because, really, the guy has only been in for less than a freaking year. Could YOU change the whole bloody system in 9 months?

I'm just watching- and I think both hypotheses ARE still viable. And there are others, too.

el gallinazo said...

After the "there ain't no such thing as class warfare" brain pith, the most useful arrow in the arsenal of the oligarchs is the labeling and ridiculing of "conspiracy theories." Of course they have it both ways as roughly half of federal felony indictments include a conspiracy to commit such and such charge.

And not to get Ilargi's gonads in an uproar, but if one supposes that 19 Arabs got together in a co-ordinated plan to blow up a collection of huge buildings on a single day (even if this were true), shouldn't this be logically construed as a conspiracy theory? An idiot might argue that it is not a theory but a fact. Well, relativity is a theory and so is evolution. But if the gov'mnt or the New York Times says it, it gets automatic immunity from that derisive characterization. Why are people so freaking dumb?

Shamba said...

thank you for that lean, muscular
man yesterday! I see another lovely young woman graces the beginning of todays post> Might I expect another fetching male the next post??? :)

thanks for all you do here, Ilargi.

Peace, shamba

Greenpa said...

El Gal- "Why are people so freaking dumb?"


I was ranting about exactly that to my new PhD son, yesterday- ranting about the incredible incompetence of scientists these days-

He managed to get me re-stabilized, by pointing out that what I was so pissed about was in fact an old OLD established pattern, one he and I had talked out years ago, and every week since.

Yup. Sure is. Sure are. Relax!

Don't do what I do- do what I say. :-)

Anonymous said...

I have not seen Mr Moore’s latest film so I can’t really comment on it’s content. I will say though, that the practice of corporations taking out insurance policies on key employees, owners and partners is very common and almost always done with good intentions. The loss of a key player, particularly for a small business can be devastating. Suppose you are part of a small privately held a corporation and the majority owners dies? You could end up with the company run by his drug addled teenage son unless you have a buy-sell agreement backed by a big insurance policy. Or suppose your director of engineering dies in the final phases of the development of a new product. It could be the end of your business. The responsible thing to do is to anticipate these risks and deal with them.

That Mr. Moore could find some executives somewhere discussing this type of insurance as an ‘investment’ and complaining about the ‘poor return on their investment’ and ‘not enough employees dying’ does not surprise me, nor even bother me.

If Mr. Moore found a company that insured all of its employees with the hope of making money, then he found a company run by idiots. Generally, killing of your employees for the insurance money is not a good business strategy, though anyone in the entertainment industry would recognize it as a viable plot plan for a movie. Which brings me to why I have a problem with Mr. Moore. He is, above all, an entertainer, who’s schtick is to sensationalize issues using spin, outright distortion, or whatever means necessary. I’m sure there is some truth in what he says, but I am not going to take the time to sort it all out.

Phlogiston Água de Beber said...

Greenpa said...

Nobody needs to reply to this comment

Well, since you insist ;-)

I will just say that I'm with Dmitry on this issue, and generally for that matter.

Somebody has to hold down the "worlds worst job" while the empire spins out of control. Whatever is done by him, for him or too him will make no appreciable difference.

On another note,to those who fret over fears of Global Government and New World Order, I can only ask, did you read today's post? We can barely maintain the functions of local governments when the collapse has only just gotten started. I am quite confident that what we will get, and plenty too soon, is Global Anarchy and New World Disorder.

Is that reply enough Greenpa? yes, I know I'm just trading on my handle here. Heh heh heh.

Jim R said...

How can you tell that Drudge jumped the shark? Hasn't he been skiing along with a shark on each foot, since the intertubes began?

scandia said...

@ make a good oint in the value of an enmploe to an enterprise.
In this current state of outrage the issue is they continue to pay the premiums long after the employee left their employ.
A clear indication of intent to profit from death. Who knows they may have a policy out on you or on me?

Farmerod said...

Why are people so freaking dumb?

Dunno but I wonder why we'd think we'd not be dumb. Do we think we're ultimately different from yeast? Just watched Religulous and half-way through The Age of Stupid. Nothing new but, still, fun? to watch.

TAE Summary: brilliant.

Jal: Exactly what is the point of posting 2% weekly drops? I'm guessing that those who are interested can do that math themselves. In any case, if/when the drops happen, it will probably resemble all large declines; big and quick, not gradual.

Dr J said...

Ilargi - thanks for the MM pic but I thought the babe who interviewed Icahn was actually hotter.

Anna said...

Ilargi - The Marilyn Monroe photo blows me away - thank you.

Stanleigh - Thank you for the excellent review.

I have not seen the new Moore film, but intend to. Moore's films make good points, but it is important to pay attention to how the message is delivered as well the message itself. In my opinion Moore is an emotional manipulator for the left in the same way that Limbaugh is an emotional manipulator for the right.

Stoneleigh says:

"Moore paints a stark picture, casting some of his arguments in terms which could prove to be ill-advised. While I understand why he wanted to contrast religious support for and opposition to capitalism, I think he is playing with fire in doing so. There is already a strong Dominionist movement in the US and it would arguably take relatively little to ignite a fire-and-brimstone kind of opposition to many aspects of our modern society. While there are many abuses that clearly need to be strongly reined in, my concern is that a punitive and vengeful mood flavoured with fundamentalism could all too easily become a wide-ranging witch-hunt."

I would argue that is is one of the points of a Moore film. Moore has done this with everyone one of his films that I have seen. He panders to the base emotions of fear and outrage, and then attaches a political agenda to them. For example one of the outcomes of the film "Sicko" was to associate healthcare reform to the left. There was an unnecessary 2 minute scene where Hillary Clinton was praised effusively for her efforts in Health Care reform. This sent the message that health care reform was a left wing issue. Of course we also need to credit Moore's counterpart on the right, Limbaugh, for pumping fear into those on the right.

Health care reform is neither a left nor a right issue, and should be politicized. So what has happened to health care? Nothing so far, but it seems like we are going to get "reform" that benefits only the insurance companies while making things worse for the masses. If that comes to pass I will hold Moore and Limbaugh responsible, but the masses will only look for more from likes of Limbaugh and Moore.

Our current political/media system comforts you with one hand while molesting you with the other.

tob said...

Talking from Norway:

The only reason Obama got the peace prize was because the leader of the comity wants to pose with him.

Torbjørn Jagland is perhaps the biggest poser in Norwegian politics. He has been prime minister and president of the parliment. Now he has just left the Norwegian parliment and will be the next Secretary General to the European Council. He will have to step down from the Nobel comity now and this was his last chance to meet Obama.

I don't think a peace prize has ever been met with such disbelief in Norway before.

Johanna Knox said...

'Biggest corporate loss in New Zealand history' has been posted by our Accident Compensation Corporation (sole & compulsory provider of injury insurance in this country). Govt will be bailing it out ...

There is also more detail about the issue here, from a couple of days ago when the loss was first announced:

In the Q & A at the bottom of that page, I find it interesting that the global financial crisis is not directly cited as a contributing factor.

bluebird said...

pentronicus - It was Wal-mart who took out a 'Dead Peasant' insurance policy on employees. One policy was on a cake decorator, in her twenties, who died. I believe Wal-mart collected $80,000.

Greenpa said...

I.M.No - " Whatever is done by him, for him or too him will make no appreciable difference."

I totally agree; said so long ago.

The one mitigating "if" is- if he's a genius; and sees a way to Cut The Gordian Knot. (Or in the present case, Cutting the Gordian Crap.)

Alexander did something no one else had ever thought of. "Not allowed" under the existing rules. But he had the power to ignore the rules- so his own armies were greatly heartened by his action, and his enemies were greatly frightened.

Do geniuses happen in world history. Why, yes, they do; the most recent one I can think of being Mao. Changed his country- changed the world- just because he was himself, and in the right place at the right time.

I tell ya; if I was looking for an auspicious time to destroy the Illegitimate Elite -this would be it.

Farmerod said...

Overly Optimistic Consensus Plays Greater Fools' Game Once Again

Mish, who quotes Rosenberg at length, has a decent post today but still manages to waffle on the future.

el gallinazo said...


"Dunno but I wonder why we'd think we'd not be dumb. Do we think we're ultimately different from yeast?"

I have met plenty of humans with yeast infections, but I have yet to mistake a human for a yeast cell. Of course stupidity, like most attributes, lies on a continuum, but Americans have been conditioned to be stupid in order to act against their own best interests for generations. I call it the "junk yard dog syndrome." Which in its most simple format consists of the statement that, "as long as I can sink my teeth into the nearest (fill in the blank such as black man, homo, hispanic, commie, etc.), you can beat me with that 2 by 4 to your heart's content."

Most Americans actually believe the used dog food that they are fed. Orlov maintains that one of the reasons that the Soviet Empire fell, was that most Russians had become so disgusted with the 10 PM TV government news, that they all walked their dogs then, and started to talk to each other. BTW, Orlov maintains that ethnic disharmony in the former USSR was far, far less than in the present USA. Whether this is accurate or not, I do not know.

Anonymous said...

Scandia and Bluebird,

If a company knowingly, due to inside health or lifestyle information, takes out policies on employees whom it expects will have short lives, then the company would be engaging in fraud I think. It would be an issue for the legal system to deal with. If, on the other hand the business had an insurance policy in effect, and then decided to keep it in force because they knew the employee would die shortly after leaving the employment, then yes, that is sleazy. But not enough to make me condemn capitalism. As evil systems go, capitalism is still one of the best.

To me, it seems like Michel Moore is just out to make a buck, and what works for him is championing liberal causes and blaming conservatives for the woes of the world. Conversely, there are plenty of obnoxious characters playing the blame game for the conservative camp. The sad part of all this is that the real problem has nothing to do with which economic system you subscribe too, because any of them can be made to work in theory, some more efficiently than others. The real problem is our nature. I can think of about a hundred human flaws right off the top of my head, any one of which dooms us. Given our nature, I really think we are not equipped to survive long term in the type of world we have created.

Sorry to be such a Donny Downer.

Ilargi said...


You may not like Michael Moore, but to say he just wants to make a buck is nonsensical prejudice. And repeatedly commenting on a subject you yourself have admitted you haven't even seen is not all that smart. Google Dead Peasants. At least you'll have some clue what you're talking about.

el gallinazo said...


"If a company knowingly, due to inside health or lifestyle information, takes out policies on employees whom it expects will have short lives, then the company would be engaging in fraud I think. It would be an issue for the legal system to deal with."

According to Bill Black, indictments and convictions for fraud by senior corporate officers:

Savings and Loan fiasco: 1000+

2007 to date: 3 (including Bernie Baby)

Yes, this is a problem for the legal system to deal with. Like when?

You are also committing a logical fallacy by putting forth a legitimate reason for a corporation to take out a life insurance policy on an invaluable employee or top manager, and then making the leap of faith that this constitutes the vast majority of the malfeasance that Moore is referring to. I think not.

That said:

I also have my problems with Moore's presentations, but it pales compared to the Limburgers and the Inhannities which have inundated the Usaco media. Similar to a couple of chicken feed frauds by Acorn while ignoring the Haliburton and KBR mega tens of billions frauds.

el gallinazo said...

Farmerod compared the similarities between humans and yeast. But perhaps, we could learn more from watching termites

This weeks quirks and quarks:

Termite Termination

When Dr. Barbara Thorne, a professor of Entomology in the College of Chemical and Life Sciences at the University of Maryland, pit two colonies of the termites she was studying against each other, she thought she might see a war. Instead, she saw something more like a targeted assassination, as the kings and queens of the rival colonies attacked each other, and most of the other termites simply stood aside to watch. When the dust settled, often as not, the two colonies then peacefully merged, often under new royalty recruited from the worker population. This, thinks Dr. Thorne, might help explain why younger termites stay in the colony. Fast turnover of the royals means their turn for the throne, and the reproductive benefits it brings - make it worth waiting for your chance.

scandia said...

@tob in Norway...thanks for writing into the board. I was wondering how Norwegians are responding to this announcement.
Is it already yestereday's news or will there be a backlash toward the the Committee?

Gravity said...

Obviously, the pie should be cut in half, let Mr Ahmadinejad recieve one half, let Mr Kim, or son of Kim, take the second half, and let the third half stay with Mr Obama. This should motivate the war-like parties to pieces.

From an article on

"Three Middle Eastern leaders were named as the winners of the Nobel Peace prize on October 14, 1994.

The controversial award was given to Palestinian leader Yasser Arafat and two Israelis, prime minister Yitzhak Rabin and foreign minister Shimon Peres.

The announcement was overshadowed by the resignation of committee member Kare Kristiansen, who objected to the honour being given to the PLO leader, whom he described as "too tainted by violence, terror and torture"."

There appears to be precedent for controversy over these awards, they have been used not only as a reward for peacefulness, but also as incentive to peace, with limited success.

Gravity said...

Ilargi, I was reading comments on
"a change coming to the world monetary system?" at the oildrum, with some discussion over the actual uses of gold as a base for currency.

Someone mentioned the possibility that the chinese are absorbing gold in order to prevent hyperinflation, which could be triggered if they try to consume their own produce.
Any logic to this?

NZSanctuary said...

Johanna Knox said...
'Biggest corporate loss in New Zealand history'

Thanks for the heads up... haven't read/watched much from the MSM in the last week or so, and completely missed this one.

Farmerod said...

The age of stupidity knows no boundaries.

Quebec moves closer to getting NHL team expected to announce plans for new arena

I suppose Winnipeg will be angling to get a team back too.

Farmerod said...

El G. Q&Q is an excellent program, one of many on CBC radio. One of my favorites is The Age of Persuasion

Terry O'Reilly is back exploring the countless ways marketers permeate your life, from media, art, and language, to politics, religion, and fashion.

Ilargi said...


One thing is certain: the world has no shortage of convoluted and inflated theories. To be honest, I am getting a bit tired of it. We have explained our views more times than I can count, and it's fine like that.

I think the simplest explanation is that China buys gold, and I don't think the amounts are all that extraordinary, to balance out investment portfolio's, hedge bets, everyday stuff.

Hyperinflation in general these days is a too popular, too common and, most of all, too little understood phenomenon. How will China consume its own produce? When will every peasant be able to afford his own plasma TV? It would take CHina years to switch from export to domestic industries, and it won't have that time. Moreover, the country's banks are riddled with bad loans.

I saw Jesse talk about stagflation. No chance.

Of course there will be inflation at some point in time. But not after we've first gone through a deflation era brought on by the insane amounts of debt that have to be dealt with. And no, Martenson is not paying attention, governments and central banks cannot simply elect to keep their debt obligations hidden in perpetuity.

Anonymous said...

Illargi and El G,

With your kind permission, I have one more thing to say about Michael Moore: I'm not the only person in the world that thinks Michel Moore is completely and utterly full of beans. Perhaps I was a little harsh in my assessment of him, but I've found that when the truth is stretched there is usually money involved.

Here is a review of the movie I hope you will take the time to read.

Now I'll go away.

Gravity said...

Ilargi, true, just speculating. Also, the "two blobs of money" argument seems to ignore that the first "blob" was spent long ago.

Here's an example of a horrid energy-ratio boundary working on physical currency.

I hold a penny in my hand, and drop it on the ground, there it stays until someone picks it up.

I'd like to pick that penny up, but doing so will consume a tiny amount of calories, which must be replenished by food, the cost of which must be less than a penny.

But what if no replenishment can be purchased for less than a penny? The penny is destroyed, even before it is spent, because it requires more energy to move than it can contain.

This is a mechanism relating to some form of 'flation, the hyped one, I reckon.

There is deflation now, but it shouldn't last for more than a few years, and it's possible that certain countries will experience different kinds of monetary accidents after a bond-dislocation.
I'm just interested in the mechanism by which extreme inflation may be triggered afterwards.

Ilargi said...


Debbie Schlussel is a retarded freak in the mold of Sarah Palin, whose biggest claim to fame is hating all Muslims no matter what it takes. America possesses far too many of these walking talking truth-be-damned aberrations.

To wit, her "movie review" doesn't review anything, it's just another platform for her to smear anyone she's scared of, whether it be Moore, Obama, Louis Farrakhan, Bill Clinton or even George H. Bush (hey, why not?).

The use of a line like "a President whose initials stand for Body Odor" tells the whole and entire story of who and what Debbie Schlussel is.

To suggest we read her hateful blubber as some sort of proof that Michael Moore is dishonest is beyond any and all pale. Schlussel is by far the biggest the liar, and if her "review" doesn't tell you that, sir, you don't belong in my joint. You simply don't have the active neurons.

I must say, there's one thing that amuses me in that so-called review. Schlussel spends all those many words praising capitalism and scolding Michael Moore. And how does she end? By calling him "the biggest capitalist of them all".

Which is supposed to make Moore look like bad. But how could that possibly work? Shouldn't this perked-up blonde-dyed spokescougar for capitalism absolutely LOVE the man she herself proclaims to be the biggest capitalist?

Yeah, that's what a foot in a mouth looks like.

Dr J said...

Ilargi said: "Debbie Schlussel is a retarded freak in the mold of Sarah Palin ..."

I wonder if that means that Greenpa has fantasies about her ... ;-)

M said...

I thought Michael Moore’s film was fast out of the gate but ultimately faltered down the home stretch. Moore, in attempting to present so many genuine socio-economic injustices, dilutes the potency of his very deserving message. Or at least that is my sense of his film. An example of that is the lack of mention in the reviews of what I personally found to be the most reprehensible presentation of the entire film: the for profit juvenile detention center debacle. Instead, it is just one more pin ball in a non-stop presentation of injustice and bourgeois savagery

A highlight of the film is the historical retropsective asserting that “the country would now be run as a corporation” as a result of Ronald Reagan and his Treasury Secretary Donald Regan, the former CEO of Merrill Lynch.

A low-point was Moore’s presentation of post WW2 women in the role of giddy June Cleavers at the local neighborhood supermarketl; never mind the social and economic inequity in the workplace for women who were not so lucky to stay at home with the kids and greet the hard-working husband after a hard day of providing for the family.

All in all, a noble effort and well worth the price of admission.

el gallinazo said...

OK. I have two questions for the board:

First, I don't understand this dead peasant thing. Aren't the actuaries at the insurance companies supposed to figure out the rates so they make money and the policy holders loose money, but with the assurance that if lightning should hit, their family is grounded. . So why do scum bag corporations make a profit on these policies?

Second, I think Carl Icahn is starting to loose it. I'm sympathetic (because I am too). But he kept referring to these "funds" loaded with scared money pumping up the equities market. The scared is because the people who in theory own this money are afraid to put it in equities now themselves. So who exactly are these funds he is referring to. Are they money market funds?

Thanks in advance for your wisdom.

Jim R said...

The wingnutters seem to have a love-hate relationship with their inner capitalists. And with most everything that doesn't fit their worldview-of-the-current-millisecond.

Tavis Smiley had Moore on last week, and took the position that the O-man should be doing more to honor campaign promises; Moore defended Mr. O, saying he needs more time. ... After following TAE for a year or so, I'm inclined to agree w/ Tavis.

el gallinazo said...

Mad Max Keiser, in his radio show, figures that Obama has become such a pimp for Wall Street, that before he leaves office, he will paint the presidentmobile pink and get it white pillow tires, start sporting a superfly hat, and gold chains. (Actually I added the last two myself). Maybe Timmy Twolips office is really a front for Obama's pimp organization, and from their number of calls, Lloyd and Jamie must have quite an appetite.

Steve From Virginia said...

Gravity ... Ilargi ...

I wouldn't be too quick to write off hyperinflation in China. There is already inflation in China, hyper is just a few percantage points ... away.

Unlike America, which has no savings to 'burn up' (or turn out), the Chinese hava a large pool of savings that could emerge at one time as fuel for an inflationary binge. As for the bad Chinese banks w/ all the bad loans; the establishment will use the 'rolling over' technique, following older, mustly loans with much larger um ... 'Good' loans into the far distant future.

I think the hyperinflation dynamic is starting to take hold in the US and world stock and derivatives markets. Add quantity theory of money to fractional lending and the ability to self- create liquidity becomes something to start looking into.

The divide is between the physical economy and the finacial economy. The physical economy is tethered to oil and is consquently deflating. The issue is allocation of capital toward productivity. China has cheap coal, fewer cars and less petroleum demand; the spread between (low) Chinese wages and oil prices works in China's favor. The effects of high oil price on China's productive economy are not as deflationary as these are in the US and other OECD economies. The Chinese don't have to choose between buying transport fuel and paying workers union wages and benefits.

Petroleum prices deflate more in the US; liquidity moves overseas on the back of cheap dollars; Bernanke is inflating there rather than here. Keep in mind the dollar carry trade.

I'm going to look at this some more, but if the hyperinflation dynamic is taking hold in US stocks, then current prices are a bargain w/ the bull having a lot longer to run.

BTW, I'm still long term bearish. I do concede that Stoneleigh is moreso than I ... on certain days of the week.


APC said...

LOL. Debbie Schlussel indeed.

Bigelow said...

“The largest mall in the world turns out not to be the famous Mall of America in Bloomington, Minn. It’s the South China Mall outside of Guangzhou, China.


And four years after its construction, the mall sits virtually empty of both shops and shoppers. But the Chinese have imported yet another concept familiar to Americans — South China Mall is considered too big to fail.”
Utopia, Part 3: The World’s Largest Shopping Mall

Dr J said...

The Gillian Tett article on silos looks like something that could have been written by Goldman Sachs to lay groundwork to defend having promoted securities to their customers while shorting them at the same time.

EBrown said...

I've seen photos of that mall, what a waste. It hammers home again just how screwed we are. Think about the sunk cost (and I do mean sunk) in that monstrosity. Some of it may be rehabbed into other uses down the road, but on the whole, waste is the name of the game there.

Suburbia in many parts of the US will be forced up against a similar dynamic in the coming years. A fragile grid and a tenuous fuel supply will make for wild reordering of the experience of lower, middle, and upper middle class America. And that is without the compounding effect of a full-blown financial/political crisis.

EBrown said...

I went to look at a farm that just hit the market yesterday as a back-up plan.

The deal my wife and I negotiated should go through next week after many problems on the sellers end involving the ex-wife's name on a deed and divorce crap.

Just in case though we thought we'd put our toes into the real estate market again to see what's out there right now.

Talking with the agents was fascinating. They both (seller and buyer) lamented with some note of anger in their voices the banks bailout and subsequent unwillingness to lend. The seller's agent rambled off on a wild tangent that was very interesting to me at least. She and her husband manage a huge dairy farm (nearly 1000 milking cows plus replacements) for wealthy investor. She said that the farm had been sold not too long ago for about 4 million after the investor had put about 10 million into it. The German guy who sold it gave her all kinds of investment advice in 2008 like "sell your 401k, buy treasuries, buy a little gold, all your banks are going to collapse".

The new owner made his millions buying and selling tractors. Being the middle man comes with some benefits I guess.

jal said...

Re.: Michael Moore - CAPITALISM

Timmy and them boys are living the American Dream. In America anything is possible.

The American Dream is why there will not be any uprising of the people.

Without that American Dream there is nothing.

Just like every other kind of fanatics ... they cannot accept any fault in their logic. If they did their whole belief system would crumble.
What would they do then?

Change, then means, just that.

Since when does a wolf become a sheep?

Timmy and them boys have never been socialist and never will be.
They are at the top of the capitalist hill.
They are the best of the best that capitalism has produced.

The bank bailout auto bailout are pure capitalist predation of the purest/highest kind.

While they are emptying the bank vaults ... you are being diverted into arguing about capitalism, fascism vs socialism.

U gota lov dem boys.

They are using someone else's money for their own advantage. Don't be fooled!

YOU are getting nothing but a few crumbs that fall off the table.

VK said...

Wow that Mall of China video was amazing to watch! The poor foreign manager wanted to say what a sh*thole it was but couldn't say it on camera. What on earth were they thinking?

12 stores in the biggest Mall on Earth?

The maxim,"If you build, they will come" is past it's sell by date. If you build, they will default is always a new slogan possibility!

Anonymous said...

The Automatic Earth: Fall Fund Drive

Thank you for the reminder that you need donations in order to be able to provide this blog as a public service.

I have, in the past, made a modest contribution to this blog because I felt as if I gained something of value by reading here. I certainly have acquired insight into alternative views on economics and current events that relate to finances. I've also gained a new appreciation for how information, ideas and opinions can be argued, promoted and at times distorted within society.

Thank you for this experience.

However, I can no longer contribute financially to your endeavors. Nor am I willing to click on corporate advertisements. I personally find them even more distasteful than telemarketing calls.

It is my belief that the internet itself, as a forum for civic engagement and public education, is swiftly losing most of it's potential benefit to impoverished people. Already access to information such as scholarly works is limited to those who can afford usage, membership and subscription fees. At the same time, public computers often block sites deemed to have inappropriate content including social networking sites, video sharing sites and even some free online email account service providers.

Add to this the fact that all across the virtual landscape, so-called smart advertisements generated by mega-google corporations latch onto public browsers like suckerfish to the chrome-domes of an aquarium.

No, thank you.

I believe I'll just take this all as a sign that it's time to move on in new directions and leave the financial discussions to those who still care to chase the currency dream.

Best wishes to you all!

Gravity said...

When the Euro was introduced,
we had one and two cent coins in circulation, but these were abolished just a few years afterwards because they were too leaky in regards to the inflation we were experiencing, being drained in transit.

This phenomenon can act as an inflative energy-boundary on currency flows, assuming all currency does consume energy in transit, and all such energy costs money. But I don't know how this would work out in deflation.

It seems impossible for any industrialised nation to suffer more than six or seven years of hard deflation,(>-5%) before utterly collapsing.
I think this is due to compound interest, and also because of the minimum amount of gainful sub-movements required to produce a valid transaction in a complex profit-based logistical chain, as all purchaseable consumables would assume their lowest possible profitable price before disappearing altogether.

This would be especially disasterous in those countries where the population has no other means of aquiring primary needs other than through monetary flows, which would be permanently lacking.

I believe that none could tolerate sustained deflation for a decade in this system, it simply can't be done. Maybe four to seven years, but then we'd be dangerously close to cannibalism. Hyperinflation would seem a palatable alternative by that time.

Syn said...

Washington has become completely corrupt.

The Democrats and Obama made a halfhearted (fake) public appearance claiming they would not accept health care reform unless it included a public option. Well, what happened?

From Robert Reich;

“The Senate Finance Committee is set to vote Tuesday on a healthcare bill that just got a seal of approval from the Congressional Budget Office….

…the Senate Finance bill won't have a public insurance option to compete with private insurers. Nor does it allow Medicare to use its bargaining power to negotiate lower drug prices, or adequately subsidize millions of middle-class families who will be required to buy health insurance that will be hard for them to afford. In short, it's a great deal for private insurers and Big Pharma but not such a great deal for middle-class Americans.”

This is outrageous. They have just managed to screw us yet again! This isn’t reform, this is more corporate welfare. We are idiots for continuing to believe these tools.

Gravity said...

It does not matter if stocks are still going up right now, they aren't even subject to gravity
as we know it, hence they're not actually representative of capital.
No inflation could ensue from their ridiculous valuation, which cannot be translated into actual monetary flows in the physical economy.

Rather, these are vectorless spin-symbols that only point to a bottomless pit, having lost all connection to anything in the real world. There is nothing of value where they're going, falling into the nothingness that await them and their master.

Greenpa said...

"Dr J said...
Ilargi said: "Debbie Schlussel is a retarded freak in the mold of Sarah Palin ..."

I wonder if that means that Greenpa has fantasies about her ... ;-)"


ccpo said...

I've not read the comments before posting, so if this is redundant, my apologies.

I rarely disagree with you, but if you know more of Moore than just his movies, one would be hard pressed to assume he's unaware of the role of the US on the wider world, so your comments in that regard seem a bit strange.

With regard to his views on Obama, surely you know making a film and getting it into theaters takes time. The bulk of the film was undoubtedly finished not far into the current presidency.

I saw a recent interview with Moore - might have been Larry King or Charlie Rose - where he stated clear disappointment with Obama thus far.

The other point about stirring the pot? You two are doing the same here and have people stop by from time to time to tell you so. I cannot understand your statements in this regard: You can stir, but he should not?

On the whole, an unusually ineffective post by you, imo. Confusing, really.


ccpo said...

@Ilargi re: TOD from days previous.

I found TAE *via* TOD, so there's that. I also learned absolutely nothing about PO here, and that and so much more at TOD. It would be impossible for me to understand the financial crisis without understanding the 2nd Law dynamics that underlie it. That is, TAE minus TOD = half blind.

The real tragedy, imo, is that a split occurred at all. The combination of TAE/TOD is what is needed and, had you all been able to continue to work amicably and effectively together, is likely what it would have become.

I disagree completely that they became superfluous two years ago. We hit peak, most likely, just last year, and, a huge percentage of the population is still utterly clueless about PO. Hell, it was only a year ago that significant media attention started being given to PO and only a year before that that major players admitted PO existed. It was only a year ago that the IEA finally did an analysis that reflected anything approaching reality.

There have been discussions about what TOD should become, or even whether it should continue at all. Personally, I think it needs to move to evaluating responses, whether they be energy-related or otherwise, to the crises on individual, local and federal levels. That is where we are now: surviving this thing.

Whether Stoneleigh returns to TOD or TOD becomes part of TAE is nothing but chest thumping, imo. Both are needed, both are useful.

The lot of you need to put down your egos and simply engage in cross pollination.

One man's opinion.


el gallinazo said...


I am continually amazed at how such a brilliant fellow as yourself can try to cut the Rock of Obama with Occam's Razor, even as it gets duller and duller. I guess that hope just springs eternal.

This is an excerpt from a letter from Moore to his flock, dated Oct. 10.

"All I ask of those who voted for Obama is to not pile on him too quickly. Yes, make your voice heard (his phone number is 202-456-1414). But don't abandon the best hope we've had in our lifetime for change. And for God's sake, don't head to bummerville if he says or does something we don't like. Do you ever see Republicans behave that way? I mean, the Right had 20 years of Republican presidents and they still couldn't get prayer in the public schools, or outlaw abortion, or initiate a flat tax or put our Social Security into the stock market. They did a lot of damage, no doubt about that, but on the key issues that the Christian Right fought for, they came up nearly empty handed. No wonder they've been driven crazy lately. They'll never have it as good again as they've had it since Reagan took office.

But -- do you ever see them looking all gloomy and defeated? No! They keep on fighting! Every day. Our side? At the first sign of wavering, we just pack up our toys and go home."


Actually, my take on this is the following:

The oligarchs have as little interest in spending "political capital" on "Christian" social issues as they have in enacting a progressive agenda under Obama. In both cases, it's just rhetoric to distract the krill, whether they consider themselves to be on the left or right. The real agenda of the oligarchs is to complete turning the entire planet into a neofeudal state. They, in truth, care much less about outlawing abortion than they did to outlaw Glass Steagall or pass NAFTA. And they just play the pendulum. When the krill got feed up with the ultra right, they put their money, quite literally, behind a candidate "of the left," after he signed a secret contract in blood to be their loyal pimp. Same crap as Carlos Menem, another young, hip pimp, who ran as a progressive. I have become disinterested in left / right politics. I have found many of the so-called progressives to be among the greatest of economic idiots. Krugman, QED. I'll just take the words of Deep Throat to heart, "Follow the money."

el gallinazo said...

The just posted a very interesting "out take" of last week's interview with Janet Tavakoli on

Ilargi said...


You're welcome to your opinion. But peak oil is today an almost entirely irrelevant issue, and those parts that still may be relevant were already discussed at TOD years ago, when its level of knowledge and writing was much higher than today (something I doubt anyone would dispute). What is left is the faded plumage of the Norwegian Blue, nailed to its perch.

Which is an awful shame, as I said before, considering the high level and standards that once existed there. But that doesn't make it less true.

Jim R said...

I love the way you contemplate monetary neutrinos. This one phrase caught my attention today:
... as all purchaseable consumables would assume their lowest possible profitable price before disappearing altogether.

That will be central to the upcoming next step in catabolic collapse. Like many oildrummers and inflationistas, I once believed that prices would simply rise without limit. Now I'm pretty sure the view of I&S is the correct one. And JMG has given us a word to describe the overall process.

It will be like a gravitational collapse... at its limit the results will be chaotic and unpredictable, but obvious in hindsight. A naked singularity cannot be observed except indirectly.

Bukko Boomeranger said...

Gravity said: When the Euro was introduced,
we had one and two cent coins in circulation, but these were abolished just a few years afterwards because they were too leaky in regards to the inflation we were experiencing, being drained in transit.

Are you sure about that, Grav? I've been living in Oz, where items are priced in cents, but there are no pennies any more, so everything's rounded to the nearest 5 cents at the cash register. When I was in France in 2007, I was buying some groceries and assumed they did the same.

That meant I gave the cashier an amount that was two euro cents less than the total. She looked at me as anyone would look at a scammer, and I gave her another coin. In return, I got back the EXACT change, including some of those pathetically small 1-cent slugs they use.

Maybe it's not that way in all countries. I don't remember receiving euro cents in Italy or Holland. And to-the-penny pricing in France mainly concerns food items. The French are exacting about their food...

APC said...

1, 2, 5, 10, 20, 50, 1 euro. These are the coins in euroland. Canada has a 25 cent coin, or a quarter, that we don't have here...

Oh, and I live in France.

Arthur P. Dent said...

re: Euro cents

I can say that, here in North Italy,
those little Euro coins are welcomed in every shop.
I remember some years ago, after 2002, some italian politician proposed to ban those little coins (1 and 2 cents), but they are still here. Both the coins and the politicians...

Ilargi said...

I happen to know the 1 and 2 cent coins were discontinued in Holland pretty soon after the Euro was introduced. There's a link here to the former currencies in the countries that adopted the Euro. These had a widely varying set of comparative values. Which is also the reason why there is a €200 bill, worth almost $295 US, and a €500, worth $735. Drugdealers like those babies, much less paper to carry. Unthinkable just about anywhere else, certainly stateside. But in Europe before the Euro, there were countries where a penny could either by something real, or people just couldn't give them up. Canada still make 1 cent coins, at a cost of about a nickel. And any panhandler will curse you for handing them over ("I may be a bum, but I got honor too, you know, give a guy some respect").

And then you had Italy, where 500 lira was chump stuff, as was anything below 10,000. So they compromised on €500 as the highest denomination, infuriating police forces to no end, so Italians could have the feeling they at least had something in their hands. Just a feeling issue, mind you, the conversion was hard on many, and older people generally still think back to the former currency and try to convert on the fly in their heads.

Which for an old Sicilian spinster means dividing by 1,936.27. Not that easy.

NZSanctuary said...

ccpo said...
"Both are needed, both are useful.
The lot of you need to put down your egos and simply engage in cross pollination.
One man's opinion."

Agreed. Although, I do believe TAE covers the more pressing matters now.

Economic/political issues should be at the forefront at the moment, because that's where we will be squeezed hard for the next few years, but the bigger picture also needs to be understood, and both messages need to be put out there to better understand our predicament, what strategies should realistically be pursued, and which are folly.

Our hosts both understand issues that go beyond just the economic/political, including energy problems, but I suspect there are many readers who require a broader exposure of topics. An integrated/complementary cross section would be ideal... this is probably not what Ilargi meant in his intro, but it's a nice thought :P

Top Hat Cat said...

Geez, I go out of radio contact for a couple of days (I was literally picking the low hanging fruit in the back 40) and Wall St's mobsters up an buy our faux president a faux peace prize. Dressing up their boy with some lipstick for his World Kabuki dance number.

It first I thought it was The Onion messing with my head, but no, it was indeed a genuine practical joke on the world at large. Once it started to settle in, the sheer grotesque comic scope of it, I realized the level of corruption has set a new low.

Someone with some real gravitas needs to say to Obama, in a public forum, "I knew Martin Luther King, and you're no Martin Luther King."

And when I read the blog post title "Obama Wins Gorbachev's Peace Prize", I understood perfectly why one of Dmitry Orlov's commenters nominated him for a Noble Prize for Irony.

A Fauxbel for Irony is indeed a great leap forward over the Let's Make a Deal Noble or the Hey, I've Only Got a Benjamin, Is That Enough for a Noble.

VK said...

@ Top

Surely it is untenable that Obama got the nobel prize, after all it was Gordon Brown that famously, "saved the world".

One wonders why Gordon Blair, I mean Brown, was overlooked in these matters? I'll tell you why, the Nobel committee is obviously discriminatory, they see it fit to award puppets for their jobs but when it comes to one eyed puppets?
Why they simply look the other way! This must be put to an end.

Gordon Brown's efforts at out competing American policy missteps must be commended, no man has ever done enough to destroy the future of a nation then he has! Atleast in America you can blame a few senators, the executive, economists, Wall Street and Congress. In UK it was pretty much a one man show!

6,000 pounds in debt a second is something that Obama alone can not even muster. So indeed, the winner deserved to Gordie. :)

Ilargi said...

For something completely different........

India tries to censor film portrayal of Nehru-Mountbatten liaison

”Indian authorities have attempted to censor a British film portraying the relationship of Jawaharlal Nehru, India's first prime minister, with the wife of the country's last colonial viceroy amid agonising that the movie could bring New Delhi's ruling dynasty into disrepute.

"Indian Summer" is an adaptation of a book by Alex Von Tunzelmann published two years ago. The film is scheduled for release in two years' time, with Australian actress Cate Blanchett expected to play the role of Countess Mountbatten of Burma and Indian actor Irrfan Khan, Nehru.

Nayantara Sahgal, Nehru's niece, said her uncle and Countess Mountbatten of Burma had been in love with each other and made a devoted pair. Since India's independence 62 years ago, the relationship has been murmured about across dinner tables but rarely publicly acknowledged in the UK or India.”

"What they had was a long-lasting relationship of love and friendship," Ms Saghal said in an interview with the Indian television network CNBC-TV18. "And I think it was a very rare relationship based on a meeting of minds and a genuine respect and admiration for each other."

She appealed to Working Title, the film production company, to depict what the Nehru family has insisted was a platonic love affair with taste and not to depict it as a sexual relationship. The authorities had requested that the producers cut out any romantic scenes - removing bedroom intimacy and kissing - before granting permission to film on location in Delhi, Punjab and Kashmir.

Top Hat Cat said...

"Indian Summer"

I guess it's lonely at the Top.

gylangirl said...

My O.R.T. theory for all things Obama:

Obama as Rorschach Test explains the 2009 Nobel Peace Prize award

"The red details of card II are often seen as blood, and are the most distinctive features. Responses to them can provide indications about how a subject is likely to manage feelings of anger or physical harm.... [However] in Scandinavia, "Christmas elves" (nisser) is a popular response for card II.”

Hence, warmonger gets peace prize.

gylangirl said...

re Indian Summer

Sounds like a great chick flick. I can't wait to see it.

NZSanctuary said...

For something a little more light-hearted...

APC said...

"I happen to know the 1 and 2 cent coins were discontinued in Holland pretty soon after the Euro was introduced."

I didn't know they could do that. I would have thought that that's the kind of decision taken in Brussels.

I haven't been to Holland since the euro was introduced, and the wife and I have been thinking about taking a trip over. Guess we'll have to leave the 1 and 2 centime pieces at home...

ccpo said...

Economic/political issues should be at the forefront at the moment, because that's where we will be squeezed hard for the next few years, but the bigger picture also needs to be understood

When I hear this I want to either laugh or tear my hair out. It would take more space than I should take here to address this, so let me say it simply: If you think you can separate climate, economy and energy at all, you are in for one huge surprise. Suffice to say all are happening now.

(Elucidation offered if requested.)


You're welcome to your opinion. But peak oil is today an almost entirely irrelevant issue

This is a bit like saying a fuel pump is irrelevant to an ICE.

I now see why there was a split. It was always a mystery to me. Now? Not so much. This is like the PO is worse, no AGW is worse debate. Hint: both are wrong.

You're coming off a bit elitist. Thankfully, I don't really give a damn why you all broke up. That's your business. I was just trying to offer some balance.

Your opinion of TOD doesn't matter to me because I am not 15 and can think for myself. And vice-versa. Still, it's never nice to see a family squabble.

As to TOD's former glory, as I said, it got me where I needed to be. And, to be honest, though not mean-spirited, of the two sites, this is the one I could have gotten by without. Any idiot can figure out less energy equals less growth. All else flows from that, chicken and egg or not. However, knowing about the economic crisis without understanding PO leaves a lot of wiggle room for believing BAU is possible.

I find both sites useful. You all want to pick at each other, it's no skin off my nose.


bluebird said...

The Nobel Memorial Prize in Economic Science was awarded on Monday to two Americans for their work in economic governance. The prize committee cited Elinor Ostrom of Indiana University “for her analysis of economic governance, especially the commons” and Oliver E. Williamson of the University of California, Berkeley “for his analysis of economic governance, especially the boundaries of the firm.” Ms. Ostrom becomes the first woman to win the prize for economics.

I don't remember either of their names.

Ilargi said...

What do you say, El G., Big Hairy Ears?


el gallinazo said...

From the standpoint of pure physiognomy, I would have preferred either Greenspan or Bonzo - the two are practically indistinguishable. And since "economic science" is an oxymoron, I think that physiognomy should be the determining selection factor.

I have my own theory about the peace prize. My theory is that overindulgence in lutefisk gels the brain and clogs the synapses with globs of rancid fish, and that the peace prize committee were all lutefisk junkies.

Ilargi said...


To put in in extreme terms: if we would all live at Bangla Deshi standards, peak oil would not be an issue, at least not for a long time to come, I think we can all agree on that.

This to show that if an economy gets bad enough, the rate of oil consumption must be definition go down precipitously.

And we say that is what's going to happen. That is why I call peak oil irrelevant.

scandia said...

America getting lots of accolades from the Nobel Committee.
I am interested in Ostrum's work on economic governance and the commons. Surely as we localized and personalize we will need to find some other form of goverance than the one we are now used to,governed by the Lobby.
And if Willianson is working on boundaries for corporations I am most interested. Does he address sudden rule changes, that a corporation can now morf at will?
Just takes a few phone calls I hear to the right connection. Is Geitner that contact?
How does one create a boundary theory in current secretive,opaque conditions?
No doubt I've misunderstood what they are working on. The announcement did get me thinking about the commons and about boundaries. the debate about TOD versus TAE,I think due to the complexity of the situation( bubbles,regulatory failure) the split off into economics by S&I was necessary. I have had the impression that Stoneleigh, in particular, was so concerned she couldn't sleep at nights.The TOD mission was energy,not economics.
I have heard both Stoneleigh and Ilargi speak of the friends they have at TOD. Let us let good friends remain so.
The establishment of TAE has enabled me to make the connection between depleting energy supply and everyday life. I had absolutely no knowledge of how hollowed out our economy is,of the enduring symbiotic relationship between the political and corporate classes.I thought our troubles were a long way off, that the law and the constitution would see us through. When Ilargi first mentioned a political crisis I thought he was perhaps caught in an analytic overshoot. Now I understand that a system breakdown affects all estates.
I also now know that many blogs address these issues. I just had a bit of luck and stumbled upon S&I and this quality board.
TOD gets my thanks for that lucky encounter.

VK said...

Britain has worst quality of life in Europe, study says

British people have the worst quality of life in Europe, according to a report which highlights the long hours, bad weather, low life expectancy and high price of many consumer goods.

el gallinazo said...

Additionally to Ilargi's comment:

Peak Credit and its aftermath can be causally totally independent from Peak Oil. The Great Depression in the USA was completely caused by credit reaching levels where it could not be repaid and was defaulting. This occurred prior to most of the USA's crude oil deposits having been exploited. USA peak oil didn't occur until the early 1970's.

ccpo implies that the break between I&S and TOD is essentially an ego issue. Long time readers here will admit that Ilargi has his fair share of ego and can be lacking in diplomatic skills. However, Stoneleigh has an almost distressing lack of typical human ego resulting in her sometime mocking herself as Ms. Spock. She also has strong diplomatic skills, never allowing herself to be caught up in the most provocative comments, always responding to them with reason and equanimity.

The fact that I&S left TOD together as partners to TAE indicates to me that the primary stated reason was true, which is that PC will vastly supersede PO temporally in importance, and they can be of the greatest service by focusing on the aftermath of PC and what individuals and small communities can do to prepare for its aftermath. Obviously neither of them are oblivious to energy issues and Stoneleigh is earning her living currently as a technical expert in electrical energy.

I personally don't have the time and energy to read both blogs, and am choosing TAE.

Ilargi said...

Obama fails to win Nobel prize in economics

In a decision as shocking as Friday's surprise peace prize win, President Obama failed to win the Nobel Memorial Prize in Economic Sciences Monday. While few observers think Obama has done anything for world peace in the nearly nine months he's been in office, the same clearly can't be said for economics.

The president has worked tirelessly since even before his inauguration to wrest control of the U.S. economy from failed free markets, and the evil CEOs who profit from them, and to turn it over to wise, fair and benevolent bureaucrats. From his $787 billion stimulus package, to the cap-and-trade bill, to the seizures of General Motors and Chrysler, to the undead health-care "reform" act, Obama has dominated the U.S., and therefore the global, economy as few figures have in recent years.

Yet the Nobel panel chose instead to award the prize to two obscure academics -- Elinor Ostrom and Oliver Williamson -- one noted for her work on managing collective resources, and the other for his work on transaction costs. Other surprise losers include celebrity noneconomist and filmmaker Michael Moore; U.S. Treasury Secretary Timothy Geithner; and Larry Summers, head of the U.S. national economic council.

It is unclear whether the president will now refuse his peace prize in protest against the obvious slight to his real achievements this year.

VK said...

Chicago Board Options Exchange systems back up after a system outage. One wonders...

jal said...

Is the discussions about noble prizes a conspiracy to divert and entertain from the important issues that need attention?
(too many blogs have had their attention diverted)

el gallinazo said...

Chris Martenson put forth the thesis in a recent Zero Hedge article that the equities market could walk on air indefinitely as long as it never looked down. This struck me as an interesting thesis, but I was, at first, at a loss how to verify it. Then it occurred to me that if Wile E. Coyote could do it for an entire episode, then surely the DOW could do it also. Unfortunately, in my current location I was unable to obtain and review all the episodes. However, it turned out that Wikipedia did, in fact, have an encylopedic review of the Roadrunner/Coyote subject, and I can now state that Mr. Coyote was never successful in this endeavor, and that consequently, Mr. Martenson's thesis is incorrect.

Gravity said...

This is a question to everyone here, please consider the following: what would be the influence of the IMF on the price of gold if they were to manipulate expectations in the following ways;

A. They announce that SDR's will contain as much as 50%-70% gold, exploding the price, after which they cash in on their holdings, before announcing they made a mistake, and the actual proportion would be only 0%-10% or so, thus collapsing the price, after which they use their new-found funds to buy every last ounce cheaply.

B. They announce that SDR's will only contain as little as 0% to 10% gold, collapsing the price, after which they buy up every last ounce cheaply, vastly increasing their holdings, before announcing they made a mistake, and the actual proportion would be as much as 50% - 70%, true or not, exploding the price, after which they use their new-found funds to buy every last ounce anyway, leaving anyone actually trying to peg to gold in a difficult place.

The same thing would happen for any other constituent ingredient.

Such a scheme would be exeedingly easy to pull off from their current position, because they are the only authority on SDR's, and they presumably already have vast holdings of gold. Is this kind of event likely?

Gravity said...

"It is not titles that honour men, but men that honour titles." -Niccolo Machiavelli

Just give half of the thing to Karzai, at least, or anyone the US is currently not completely at peace with. Divide in as many pieces as peace would desire, even to make war.

el gallinazo said...

It turns out, quite by coincidence, that Mish also has an analysis of the Martenson thesis. Though it is not quite as rigorous as my own, he comes to similar conclusions.

YD said...

My path here started with the daily kos. A site that was once relevant to my experience but post the 2006 election increasingly less so. However, they introduced me to TOD. As an ex-petroleum engineer I needed no convincing of their thesis but found the technical detail initially fascinating, then increasingly boring. There was a bright spot, the occasional economic summaries from the Canadian oil drum. They were fascinating. When I read they were distracting from the mission of TOD I was dismayed, because at the very least they were the natural sequelae of peak oil or were a major factor in any peak oil realization that would manifest. I followed them to TAE and maybe it is just that economics is a confidence game, and that to truly doubt the governing paradigm requires intensive deprogramming, but the repetitive evidence offered and the underlying rationale offered and the predictions born out over time have saved me much psychological trauma even if I was not in a place to be saved financially. TOD is awesome if arcane and not as immediately relevant. TAE is more awesome and still entirely relevant and I am grateful for its existence. I suspect eventually it will be Sharon Astyk's site that will be dominant in relevance to my life, if not my meetings at the local grange. But for now... here is to the lifestyle of a Bangladeshi, scary indeed.

Anonymous said...

El G, good posts -- yesterday @ 2:41 PM and today @ 10:51 AM. Agree.

Regarding Michael Moore, I realized in 2004 that he does not see the whole picture of what's transpiring before us because he supported Wesley Clark for president.

Busy these days gardening. Beginning of growing season in So. Florida.

Did anyone see Michael Ruppert's recent posts? He's raising a red flag about the value of the dollar and urging people to buy gold. I suspect he's anticipating the arrival of hyperinflation soon, unlike I & S who say that deflation must take its course first. Any comments on this appreciated.

Nelson said...

It's simply not rational to assert that the economy, environment, and energy issues are separable.

Ilargi, couldn't you have also stated, "If we all returned to the credit levels of Bangladeshis, our crisis could be averted for years?"

Of course you could. And it would be irrelevant. Because clearly we can't. The US worker depends on the shuffling of electronic paper to earn his bread, and returning to the credit/energy/environmental footprint levels of Bangladeshis would obviate virtually all of those jobs.

We can't and won't become subsistence farmers, so it's a strawman that's unworthy of you. Now, can we talk about what's real, please?

We can't continue to grow our technological base without abundant cheap energy. We can't continue to eat without abundant cheap water, soil, phosphorus, etc. And as you repeatedly point out, we can't continue to pull forward demand without ever-increasing levels of faith, in the form of credit. These are neither mutually exclusive survival needs, nor does one trump the others. Even in times of crisis, they're all there, waiting in line to become the next Liebig Minimum.

Our inextricably linked worlds of food, transport, and governance dictate that oil production will never, ever become irrelevant, no matter how deep into the Greater Depression we slide. Do you think this economic crash lessens the risk of a war in Southwest Asia, or maybe makes Basel or London more likely targets? I'm being ironic here guys: The US isn't going to bomb and occupy Dubai in order to seize their credit resources!

So please, let's put this deflationary collapse into historical perspective: We won't go gently into that dark night, not while there's still valuables to be grabbed, and the Empire still has the means to grab them.

ric2 said...

Here are a couple of more postings echoing Ilargi's statement that Martenson is wrong in his Zerohedge piece since "governments and central banks cannot simply elect to keep their debt obligations hidden in perpetuity."

Mish: One Hand Clapping Theory Analyzed

Nathan's Economic Edge

Ilargi said...

El G,

For the record, I think your analysis is impressive. To my knowledge, Fauxbel nominations need to be in be February. I should look into the requirements.

el gallinazo said...


"We can't and won't become subsistence farmers, so it's a strawman that's unworthy of you. Now, can we talk about what's real, please?


We can't continue to grow our technological base without abundant cheap energy. We can't continue to eat without abundant cheap water, soil, phosphorus, etc."


I'm with you Nelson. I also find I&S's predicted consequences of the deflationary spiral to be totally unacceptable and therefore they cannot possible occur.

I think that the alien observers of our planet will give us the secrets to inexhaustible zero point energy, with which they power their vehicles, and our asses will be pulled from the fire in the nick of time. Make a great film.

And then we can go back to shuffling paper which is our inalienable birth right (pardon the pun).

Nelson said...

Thanks for returning the irony, El Gal.

I believe you vultures will do very well, thank you, because if we don't return to subsistence farming and if the aliens somehow fail to arrive on time, then we'll - DIE.

And by "we" I mean those first in line on the pointy end of the stick, not you and I.