Thursday, October 15, 2009

October 15 2009: The Skids, the Doldrums and the Doghouse

Jack Delano Jack and Jim March 1943
Conductor James M. Johnson and brakeman Jack Torbet having lunch in the caboose on the Atchison, Topeka and Santa Fe Railroad between Waynoka, Oklahoma, and Canadian, Texas

Ilargi: The Dow at 10,000, record profits and bonuses at Goldman Sachs and JPMorgan Chase, oh, wasn't yesterday a beautiful day. I can still remember.

Today, huge losses at Citigroup (to do that when you’re on Geithner's favorites list, you must have real problems), initial jobless claims again coming in above 500,000 and foreclosure filings setting yet another new record and approaching 1 million for the quarter. The Dow is back below 10,000, Goldman and JPMorgan shares are down despite the profits, and Citi is getting hammered. These numbers may change a little either way, but the gist is clear: there are a lot of jittery nerves out there. And exuberance is nowhere to be found. If on the days after such great figures, the only positive numbers among financials come from Fannie Mae, Freddie Mac and the late Lehman's skeleton, wait, there's AIG, you know something ain't quite right.

The Mortgage Bankers Association and the banking lobby are back warning that any attempt at actual accounting will threaten their industries, and what's bad for them is awful for America. "Nice recovery you got there, guv, you wouldn't want anything to happen to it, would you?" It's of course real funny that they indirectly and inadvertently tell us that the entire so-called recovery is based on nothing but Don't Look Don’t Tell policies.

Talking about Tim Geithner, it turns out that many of his closest aides get large pay-checks from his closest banker friends. Principles once generally accepted as politically hazardous and "not done", like conflict of interest and moral hazard, have taken on whole new meanings in the present configuration. Or lost their meaning altogether, if you prefer. That is some major moral erosion, and no-one addresses it.

And no matter how you turn and twist the issue, at the end of the day, neither the profits nor the super-sized paychecks and bonuses on Wall Street would be possible without the government- directed suppressing of accounting standards and the trillions of dollars in new public debt in the form of bail-out cash, for which those who lose their homes and their jobs are disproportionately responsible.

Underneath the Wall Street surface, credit conditions and overall financial health are deteriorating rapidly for individuals, small business, states, counties, towns and many hundreds of small banks. It's simply not enough to artificially keep alive and raise the profits of a handful of large financial institutions and carmakers. They're not the economy, and it's the entire economy that is on the skids, in the doldrums and the doghouse.

So far, programs to prevent further foreclosures and job losses have been disastrous failures. And that happens at the same time that federal government debt levels rise at blinding speed and states are debating their budgets for months only to find within days that their losses have tripled while they were busy arguing. People dependent on a monthly $1000 Social Security check can't get a one-time $250 extra (when it comes to squeezing the needy, deflation is no four-letter word), while scores of traders in bailed-out banks make $100,000 a month or more.

As poverty rates continue their ascent, people are going to come out demanding that the government spend money on them, not on banks. The support for the banks, through among others TARP and the reckless injection of capital into the way-beyond-broke mortgage and housing industries, can't go on forever. A nation of soup kitchens and tent cities is inherently unstable. But when the government is forced to shift its focus away from Wall Street, lower Manhattan will turn into an overnight ghost town regardless of the previously inserted trillions.

Those who suggest that present practices of hide the baloney and have another trillion can go on for much longer seem to understand neither the costs incurred in doing so, nor the increasing instability of the underlying system.

It’ll take just a minor trigger, which could come from just about anywhere, including totally unexpected corners, to make investors lose their risk appetite faster than they can spell sell-off. That will force the hands of Washington all of them. Let them eat growth is not a slogan that wins elections when growth is nowhere to be found.

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.

The perils of cheap money
Here’s a little nugget from Germany. The regulator BaFin has woken up to the danger that near-zero interest rates are a major danger for the Germany’s €700bn life insurance industry. They may not be able to meet their premiums. If deflation takes hold, they risk going the way of all those life insurers that went bust in Japan during the 1990s. BaFin thought it had covered every possible shock – a share price crash, a debt crisis, etc – but nobody ever paid much attention to the long-term actuarial shock of low rates.

FT Deutschland said BaFin has carried out a stress test of the industry based on interest rates remaining "very low" until 2018 – which in my opinion more likely than the markets seem to think. It found that insurers need an average of 3.4pc in interest yield to cover guarantees over the next twelve years. That is not going to be easy. The yield on 10-year Bunds today is 3.23pc. Whoops.

Unless rates start rising soon, BaFin may have to cancel or cut the guarantees issued to customers. This would be a minor earthquake in Germany. The country’s life-insurers have 80pc of their funds in bonds and other fixed income securities. The German Insurance Association said the BaFin test was an "extreme scenario" and very unlikely to happen. Oh yes? You could equally argue – Lombard Street Research does in fact do so – that Germany and Italy look all too like Japan a decade ago. Their aging profile is remarkably similar, if a few years delayed.

This creates a nasty dilemma for the European Central Bank. If it raises rates even though private credit is shrinking, banks will suffer. If it holds pat to nurse banks back to health, insurers will suffer.
Savers have been well aware of the nasty side of cheap money ever since rates were cut to zero. Now we are learning that even corporate grown-ups can be hurt too. It just goes to show that the consequences of extreme rescue policies worldwide are not as benign as people think.

The Message of Dollar Disdain
Unprecedented spending, unending fiscal deficits, unconscionable accumulations of government debt: These are the trends that are shaping America's financial future. And since loose monetary policy and a weak U.S. dollar are part of the mix, apparently, it's no wonder people around the world are searching for an alternative form of money in which to calculate and preserve their own wealth. It may be too soon to dismiss the dollar as an utterly debauched currency. It still is the most used for international transactions and constitutes over 60% of other countries' official foreign-exchange reserves. But the reputation of our nation's money is being severely compromised.

Funny how words normally used to address issues of morality come to the fore when judging the qualities of the dollar. Perhaps it's because the U.S. has long represented the virtues of democratic capitalism. To be "sound as a dollar" is to be deemed trustworthy, dependable, and in good working condition. It used to mean all that, anyway. But as the dollar is increasingly perceived as the default mechanism for out-of-control government spending, its role as a reliable standard of value is destined to fade. Who wants to accumulate assets denominated in a shrinking unit of account? Excess government spending leads to inflation, and inflation plays dollar savers for patsies—both at home and abroad.

A return to sound financial principles in Washington, D.C., would signal that America still believes it can restore the integrity of the dollar and provide leadership for the global economy. But for all the talk from the Obama administration about the need to exert fiscal discipline—the president's 10-year federal budget is subtitled "A New Era of Responsibility: Renewing America's Promise"—the projected budget numbers anticipate a permanent pattern of deficit spending and vastly higher levels of outstanding federal debt.

Even with the optimistic economic assumptions implicit in the Obama administration's budget, it's a mathematical impossibility to reduce debt if you continue to spend more than you take in. Mr. Obama promises to lower the deficit from its current 9.9% of gross domestic product to an average 4.8% of GDP for the years 2010-2014, and an average 4% of GDP for the years 2015-2019. All of this presupposes no unforeseen expenditures such as a second "stimulus" package or additional costs related to health-care reform. But even if the deficit shrinks as a percentage of GDP, it's still a deficit. It adds to the amount of our nation's outstanding indebtedness, which reflects the cumulative total of annual budget deficits.

By the end of 2019, according to the administration's budget numbers, our federal debt will reach $23.3 trillion—as compared to $11.9 trillion today. To put it in perspective: U.S. federal debt was equal to 61.4% of GDP in 1999; it grew to 70.2% of GDP in 2008 (under the Bush administration); it will climb to an estimated 90.4% this year and touch the 100% mark in 2011, after which the projected federal debt will continue to equal or exceed our nation's entire annual economic output through 2019.

The U.S. is thus slated to enter the ranks of those countries—Zimbabwe, Japan, Lebanon, Singapore, Jamaica, Italy—with the highest government debt-to-GDP ratio (which measures the debt burden against a nation's capacity to generate sufficient wealth to repay its creditors). In 2008, the U.S. ranked 23rd on the list—crossing the 100% threshold vaults our nation into seventh place.

If you were a foreign government, would you want to increase your holdings of Treasury securities knowing the U.S. government has no plans to balance its budget during the next decade, let alone achieve a surplus? In the European Union, countries wishing to adopt the euro must first limit government debt to 60% of GDP. It's the reference criterion for demonstrating "soundness and sustainability of public finances." Politicians find it all too tempting to print money—something the Europeans have understood since the days of the Weimar Republic—and excessive government borrowing poses a threat to monetary stability.

Valuable lessons can also be drawn from Japan's unsuccessful experiment with quantitative easing in the aftermath of its ruptured 1980s bubble economy. The Bank of Japan's desperate efforts to fight deflation through a zero-interest rate policy aimed at bailing out zombie companies, along with massive budget deficit spending, only contributed to a lost decade of stagnant growth. Japan's government debt-to-GDP ratio escalated to more than 170% now from 65% in 1990. Over the same period, the yen's use as an international reserve currency—it clings to fourth place behind the dollar, euro and pound sterling—declined from comprising 10.2% of official foreign-exchange reserves to 3.3% today.

The U.S. has long served as the world's "indispensable nation" and the dollar's primary role in the global economy has likewise seemed to testify to American exceptionalism. But the passivity in Washington toward our dismal fiscal future, and its inevitable toll on U.S. economic influence, suggests that American global leadership is no longer a priority and that America's money cannot be trusted.

If money is a moral contract between government and its citizens, we are being violated. The rest of the world, meanwhile, simply wants to avoid being duped. That is why China and Russia—large holders of dollars—are angling to invent some new kind of global currency for denominating reserve assets. It's why oil-producing Gulf States are fretting over whether to continue pricing energy exports in depreciated dollars. It's why central banks around the world are dumping dollars in favor of alternative currencies, even as reduced global demand exacerbates the dollar's decline. Until the U.S. sends convincing signals that it believes in a strong dollar—mere rhetorical assertions ring hollow—the world has little reason to hold dollar-denominated securities.

Sadly, due to our fiscal quagmire, the Federal Reserve may be forced to raise interest rates as a sop to attract foreign capital even if it hurts our domestic economy. Unfortunately, that's the price of having already succumbed to symbiotic fiscal and monetary policy. If we could forge a genuine commitment to private-sector economic growth by reducing taxes, and at the same time significantly cut future spending, it might be possible to turn things around. Under President Reagan in the 1980s, Fed Chairman Paul Volcker slashed inflation and strengthened the dollar by dramatically tightening credit. Though it was a painful process, the economy ultimately boomed.

Whether the U.S. can once more summon the resolve to address its problems is an open question. But the world's growing dollar disdain conveys a message: Issuing more promissory notes is not the way to renew America's promise.

U.S. Foreclosure Filings Jump 23% to Record in Third Quarter
U.S. foreclosure filings climbed to a record in the third quarter as lenders seized more properties from delinquent borrowers, according to RealtyTrac Inc. A total of 937,840 homes received a default or auction notice or were repossessed by banks, a 23 percent increase from a year earlier, the Irvine, California-based seller of default data said today in a report. One out of every 136 U.S. households received a filing, the highest quarterly rate in records dating to January 2005.

"The problem is prime loans going into foreclosure and people being underwater and losing their jobs," Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles, said in an interview. "It’s a really bad number." Mounting foreclosures mean U.S. home prices probably will resume falling, analysts from Amherst Securities Group LP in New York said Sept. 23. A "shadow inventory" of 7 million properties are in the foreclosure process or likely to be seized, up from 1.27 million in 2005, they said.

The pace of prime and so-called alt-A loan defaults is accelerating as subprime defaults slow, Standard & Poor’s analysts led by Diane Westerback said yesterday in a report. Prime loans are those made to borrowers with the best credit records while alt-A loans are considered riskier because they were often granted without documenting the borrower’s income. More than $400 billion in U.S. home mortgages that were packaged into securities and sold by companies other than government-supported Fannie Mae and Freddie Mac are in default and may be foreclosed on, S&P said. Those defaults may depress home prices for years, the analysts said.

The delinquency rate for prime loans rose to 6.41 percent in the second quarter from 6.06 percent, the Washington-based Mortgage Bankers Association said Aug. 20. The share of prime loans in foreclosure increased to 3 percent from 2.49 percent, the MBA said. "The number of people who can’t pay their mortgages, we haven’t seen the peak of that," David Lowman, head of JPMorgan Chase & Co.’s mortgage unit, said this week. "That’s going to weigh on us for some time to come."

Home foreclosures will climb through late 2010, peaking after the unemployment rate reaches 10.2 percent in the second quarter, the mortgage bankers said in an Oct. 13 forecast. RealtyTrac reported that 343,638 properties received foreclosure filings in September alone, the third-highest monthly total behind July and August of this year. The September number fell 4 percent from the previous month, though it climbed 29 percent from a year earlier.

Bank seizures rose 21 percent from the previous quarter and increased in every state except two and the District of Columbia, RealtyTrac said. Nevada had the highest foreclosure rate: one in every 23 households, or almost six times the national average. A total of 47,925 Nevada homes got filings, up 10 percent from the previous quarter and 59 percent from a year earlier, RealtyTrac said. In both Arizona and California, one in 53 households received filings. They were followed by Florida, at one in 56, and Idaho, at one in 97. Utah, Georgia, Michigan, Colorado and Illinois rounded out the top 10 highest rates. New Jersey had the 15th highest rate. Connecticut was 25th and New York was 39th.

Six states accounted for more than 60 percent of total filings in the U.S., led by California’s 250,054. Filings in the most populous state rose 19 percent from the third quarter of 2008. Bank seizures jumped 12 percent from the previous quarter. Florida had the next highest total, with 156,924 filings, up 23 percent from a year earlier. Bank seizures rose 16 percent from the previous quarter. Arizona had 50,342 filings, up 25 percent from the same period a year earlier. Nevada had 47,925, up 59 percent. Illinois had 37,270, a gain of 30 percent; and Michigan had 37,026, an increase of 22 percent. Georgia, Texas, Ohio and New Jersey rounded out the top 10 states with the most filings, RealtyTrac said. The company collects data from more than 2,200 counties representing 90 percent of the U.S. population.

U.S. initial jobless claims sink 10,000 to 514,000
The number of people filing for state unemployment benefits fell by 10,000 to a seasonally adjusted 514,000 in the week ending Oct. 10, the Labor Department reported Thursday. It was the fifth decline in the past six weeks. Economists surveyed by MarketWatch expected initial claims to fall to about 510,000. The number of people collecting state benefits fell by 75,000 to a seasonally adjusted 5.99 million in the week ending Oct. 3, the lowest since March. Including federal programs, the number of people claiming benefits of any kind in the week ending Sept. 26 was 9.24 million, not seasonally adjusted, down 127,000 from 9.36 million in the previous week.

The Warning
"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission (CFTC) -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"

In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born. "I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."

Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one. "It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."

History Shows Dow Gets Tired at 10,000, Other Round Numbers
Back in 2004, when the Dow Jones Industrial Average had returned above 10,000 once again, Smith Barney's Alan Shaw warned at a Market Technicians Association conference that we may be here for a while.

The legendary chart analyst was right, as the market stalled for two years until the housing house of cards kicked into higher gear in 2006 and sent the Dow catapulting to record highs. We all know how that ended up.

Shaw, now retired, recalled at that conference that he had a similar eerie feeling when he stood on the New York Stock Exchange podium to help ring the closing bell on March 29, 1999, when the Dow crossed above 10,000 for the first time ever and 'Dow 10,000' hats were being handed out with excitement on the floor. Even Mayor Giuliani was on hand sporting one. The tech bubble burst 12 months later making Dow 10,000 a distant memory once again.

Shaw's reasoning for his tentativeness around big round numbers is that you are only supposed to see one major secular bull market in a lifetime and for many of us, ours began in the early 1980s and ended in March 1999 on that first cross above 10,000. He cites frustrating bear-market rallies that tend to follow these large bull markets and peak at big round numbers for the Dow.

Andrew Burkly, chief technician at Brown Brothers Harriman currently, cites the same historical patterns seen in the the Dow at 100 in the 1930s and 1,000 in the 1970s. "These long secular bear markets have tended to gravitate around the 3 big number milestones," said Burkly. He believes that you can ride this most recent push through 10,000 with the Diamonds Trust Series, which mimics the movements of the Dow members. But that's just for a quick trade before an eventual return back to 10,000.

As for the fundamental reason behind this gravitation to round numbers, you have to think for a moment what happens around these levels. The big round number catches the eye of the retail investor who wakes up to it on his or her doorstep (or e-mail box) in the morning. He or she then reasons that stock investing must be back and starts to move money back into equities.

There has been $14.5 billion put into stock mutual funds so far this year, compared to a whopping $254.5 billion put into the safety of bonds, according to Morningstar. With the 'Dow 10,000" headlines and low bond yields, there's a lot of money that could rotate into stocks soon. The kicker is that the pros on the street will then sell into the retail flow. So we will see an initial push through Dow 10,000 and then a fade as the retail rotation dries up and hedge funds take their gains.

Maybe this is the start of the new major bull market for the next generation, but for many of the traders and investors today it sure doesn't feel like it. It feels like it's setting up for another quick round-number trade like the one suggested by Burkly above and then an eventual return to these levels.

But after all, 10,000 is just another number, so this all could be voodoo. But what isn't on Wall Street?

Don't trust Dow 10,000
As the Dow closed above 10,000 for the first time in more than a year Wednesday, economists cautioned that the blue-chip average shouldn't be seen as giving a green light to the economy. The stock market is what is known as a leading economic indicator, as investors place bets on how strong they believe company results and the broader economy will be in the near future. Lately, there has been a growing consensus among both investors and economists that the battered U.S. economy hit bottom and turned around earlier this year, and is now in a recovery.

The Federal Reserve said economic activity has "picked up" in its statement after its Sept. 23 meeting, and about 80% of leading economists surveyed by the National Association for Business Economics agreed in a survey earlier this month that the recovery has begun. But even economists who agree the economy is in recovery say that growth will be slow and difficult, with continued job losses, tight credit and further declines in home prices. And even some who believe that the current Dow 10,000 level is justified say there's still a significant risk that the economy will take a step backward.

"One of the great challenges is whether consumers and small businesses come along with this recovery," said John Silvia, chief economist with Wells Fargo. "If they don't, you either sit at 10,000 or slip back to 9,500. To sustain another double-digit (percentage) gain to Dow 11,000 is asking too much from this economy and the risks we still see out there."

There are also economists who question whether the economy is truly in recovery, given that it continues to lose about a quarter-million jobs a month. They say the more than 50% rally in the Dow since it closed at a low of 6,594.44 on March 5 is only a reflection that the fear of the economy toppling into a full-fledged depression has abated. "We're not at Armageddon anymore, so of course you should have some kind of rally," said Rich Yamarone, director of economic research at Argus Research. "But I think there's a bubble-like atmosphere going on here in the rush back to 10,000. Caution should rule the day. We're not out of the woods yet."

Several experts point out than many of the relatively strong earnings reports helping to lift the markets in recent days are being driven by cost cuts, rather than strong revenue growth that would be a better indicator of consumers and businesses being willing to spend again. If businesses keep cutting costs to make the numbers that Wall Street wants to see, that can only put more downward pressure on jobs and wages, and result in weaker economic growth or another downturn. "The companies are cutting fat, and in many cases cutting bone and muscle. There's no organic economic growth there," said Yamarone.

Barry Ritholtz, CEO and director of equity research at Fusion IQ, said that despite their reputation as a leading indicator, the stock markets do a terrible job forecasting the economy. "Beware of economists pointing to the stock market," he said. "The rallies tend to be false starts because it's a reaction to what came before. The sell-offs tend to be overdone because, as they gain momentum, they lead to panics."

Ritholtz said comparisons of current earnings to those of a year ago or stock levels to the lows of earlier this year greatly exaggerate the strength even the market sees in the economic outlook.
"It's like saying the Detroit Lions have better year-over-year comparisons because they're no longer winless," he said about the football team that went 0-16 in 2008, but has won one of five games so far this year. "But they're still in last place and they're not winning the Super Bowl."

Another reason that comparisons to Dow levels of a year ago are risky is that two of the more troubled components -- General Motors and Citigroup -- were dropped and replaced by stronger companies such as Cisco Systems and Travelers Cos. in June. Without those changes the Dow would be almost 100 points lower now than it is with the stronger companies, although precise comparisons are difficult since GM shares are no longer traded on the New York Stock Exchange. "You take out the worst, put in the best, and by definition you'll get better numbers," said Yamarone. 

Financial firms warn accounting change could threaten recovery
Financial and real estate interests are making a strong push for federal regulators to delay the implementation of a new accounting rule set to take effect at the beginning of next year. The rule bans the use of controversial financial entities that allowed firms to shift risks away from their bottom lines. Before the financial crisis, banks and other financial firms relied heavily on special financial vehicles to support the booming market for securities based on residential, commercial and other loans.

By using "qualifying special purpose entities," banks benefited from not having to maintain more capital to offset the risk in the assets. The special vehicles and their assets were "off balance sheet" and did not appear to affect the banks’ core business. Industry groups are now lobbying federal financial regulators to delay the implementation of any change in capital requirements resulting from the new accounting rule. They argue the economy continues to struggle and the change could threaten signs of improvement in the financial sector.

The rule was approved earlier this year by the Financial Accounting Standards Board (FASB), the nonprofit organization that sets accounting rules, and is slated to take effect Jan. 1. The nation’s biggest banks and real estate interests are leading the charge in the effort because the securitization process for residential and commercial loans relied heavily on the special vehicles. When federal regulators stress-tested the country’s 19 largest financial institutions this spring, they concluded that the accounting rule could shift $900 billion in assets onto bank balance sheets.

That shift would require firms to increase capital to meet regulatory obligations, although the stress-test results took those requirements into account. The new requirements would affect all banks, not just the 19 largest. Industry groups say the rule could force banks to raise tens of billions of dollars in new capital.

John Courson, president and chief executive officer of the Mortgage Bankers Association (MBA), said the accounting rule "may hinder the current economic recovery under way." MBA and the Commercial Mortgage Securities Association (CMSA) filed a comment letter to federal regulators last week. Lobbying associations also have made a strong push that the regulations should be delayed because the association that sets international accounting standards has yet to come out with a similar rule. "This should serve as further reason to delay the regulatory capital impact," said Dottie Cunningham, chief executive officer of the CMSA.

The Financial Services Roundtable, which includes the 100 largest financial firms, supports delaying the rule, said Melissa Netram, the association’s director of regulatory affairs. The American Securitization Forum, another lobbying association, is seeking a six-month delay in any change to capital requirements, or at least a phase-in period. "With any increase in required capital, a banking institution is likely to reduce the amount of lending using such securitization vehicles, as well as other lending," the American Bankers Association wrote in a letter to regulators. The association, the nation’s biggest banking lobby, suggested that any transition period should be three years at least, with no change in regulatory capital impact in the first year.

In a letter to regulators, Capital One bank said it is still difficult to raise capital in private markets and that the change might lead firms to reduce lending. "This runs counter to the government’s attempts to increase available liquidity and capital to the industry," the firm said. The lobbying push comes several months after an industry coalition, the Financial Instruments Reporting and Convergence Alliance (FIRCA), was formed to tackle an array of accounting debates, including the issue of off-balance-sheet rules. The coalition is led by the U.S. Chamber of Commerce and has supported a delay in the accounting rule.

Geithner Aides Reaped Millions Working for Banks, Hedge Funds
Some of Treasury Secretary Timothy Geithner’s closest aides, none of whom faced Senate confirmation, earned millions of dollars a year working for Goldman Sachs Group Inc., Citigroup Inc. and other Wall Street firms, according to financial disclosure forms. The advisers include Gene Sperling, who last year took in $887,727 from Goldman Sachs and $158,000 for speeches mostly to financial companies, including the firm run by accused Ponzi scheme mastermind R. Allen Stanford. Another top aide, Lee Sachs, reported more than $3 million in salary and partnership income from Mariner Investment Group, a New York hedge fund.

As part of Geithner’s kitchen cabinet, Sperling and Sachs wield influence behind the scenes at the Treasury Department, where they help oversee the $700 billion banking rescue and craft executive pay rules and the revamp of financial regulations. Yet they haven’t faced the public scrutiny given to Senate-confirmed appointees, nor are they compelled to testify in Congress to defend or explain the Treasury’s policies. "These people are incredibly smart, they’re incredibly talented and they bring knowledge," said Bill Brown, a visiting professor at Duke University School of Law and former managing director at Morgan Stanley. "The risk is they will further exacerbate the problem of our regulators identifying with Wall Street."

While it isn’t unusual for Treasury officials to come from the financial industry, President Barack Obama has been critical of Wall Street, blaming its high-risk, high-pay culture for helping cause the financial-market meltdown. Speaking to financial executives last month, Obama said: "We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses." At the same time, the president has promised to change Washington by keeping lobbyists for special interests at a distance and by making decisions in the open.

Sperling and Sachs are each paid $162,900 at the Treasury. Along with four others, they hold the title of counselor to Geithner. Sachs, 46, withdrew earlier this year from consideration to be the Treasury’s top domestic finance official, a job that would have required Senate confirmation. Geithner’s predecessor, Henry Paulson, brought on a coterie of non-confirmed advisers from Goldman Sachs at the end of his term. Paulson, who had been the firm’s chief executive officer, defended the arrangement as necessary to quickly bring in top talent when the financial system was on the verge of collapse.

The title of counselor had been generally reserved for those awaiting confirmation. Some of Geithner’s aides now work in that capacity, including Lael Brainard, who has been nominated to be undersecretary for international affairs, and Jeffrey Goldstein, the nominee to be undersecretary for domestic finance. "The use of counselors provides an opportunity to bring valuable expertise into the department to serve in a close capacity with the secretary," said Rob Nichols, a former Treasury official under Secretaries Paul O’Neill and John Snow, neither of whom relied extensively on unconfirmed aides. "It’s important that they complement, but don’t supplant, the Senate confirmed appointments."

The use of unconfirmed counselors can cut both ways. It allows Geithner to bring in staff quickly by avoiding the arduous confirmation process. On the other hand, the aides don’t get as tough a vetting by the White House or Congress and remain less accountable than Senate-confirmed officials. Treasury spokesman Andrew Williams said the department needs people with a deep understanding of markets and the financial system, especially as it works to fend off the worst recession in half a century.

"The secretary thought that the best way to utilize their talents was to allow these individuals to provide advice to the secretary on policy issues through appointments as counselor," Williams said. All of Geithner’s counselors are subject to federal ethics rules, including a pledge to avoid contact with their former firms for at least a year, Williams added. Most officials at the Treasury who have been approved by Congress come from academic, legal or non-Wall Street backgrounds. For example, Geithner’s deputy, Neal Wolin, was president and chief operating officer for property and casualty operations at insurer Hartford Financial Services Group Inc. in Hartford, Connecticut. Michael Barr, the assistant secretary for financial institutions, was a professor at the University of Michigan Law School.

An exception is Herb Allison, who runs the office that administers the financial rescue. He had been chief executive officer of mortgage finance company Fannie Mae and retirement- services firm TIAA-CREF, and before that was a longtime executive at Merrill Lynch & Co. in New York. Along with Sperling and Sachs, Geithner’s inner circle also includes counselor Lewis Alexander, the former chief economist at Citigroup; Chief of Staff Mark Patterson, who was a lobbyist at Goldman Sachs, and Matthew Kabaker, a deputy assistant secretary who worked at private equity firm Blackstone Group LP. Patterson’s and Kabaker’s jobs did not require confirmation.

One counselor who doesn’t have a finance background is Jake Siewert, a press secretary for President Bill Clinton who came to the Treasury after working as a vice president at New York- based Alcoa Inc., the largest U.S. aluminum producer. Alexander, who left Citigroup in March to join the Treasury, was paid $2.4 million in 2008 and the first few months of 2009, according to his financial-disclosure form. He advises Geithner on economic trends and does research on financial markets.

Kabaker, who works on domestic finance policy and helped craft the Treasury plan to spur banks to sell their toxic assets, earned $5.8 million working on private equity deals at Blackstone in 2008 and 2009 before joining the Treasury at the end of January, his disclosure form shows. Much of the compensation was in stock that Kabaker, who worked at Blackstone for 10 years, was awarded when it went public in 2007.

On his disclosure, Sachs estimated that he would receive $3.4 million in income from Mariner. The precise figure was not given because the books hadn’t closed on a number of partnerships when he joined the department in January. As of Feb. 23, when he signed the document, Sachs said he was also owed a 2008 bonus where the value was "not ascertainable." Sachs’s former firm also had agreed to repurchase his shares in Mariner Partners Inc., an investment fund. Sachs estimated his income from the fund at $1 million to $5 million. Sachs, who declined to comment, also specializes in domestic finance.

In Sperling’s primary job, he was paid $116,653 by the Council on Foreign Relations for work related to education in developing countries. Sperling’s disclosure shows he supplemented his salary through a variety of consulting jobs, board seats, speaking fees and fellowships, to bring his total income to more than $2.2 million in the 13 months ending in January. He was paid $480,051 as a director of the Philadelphia Stock Exchange and $250,000 for providing quarterly economic briefings to two hedge fund firms, Brevan Howard Asset Management LLP and Sterling Stamos Capital Management.

Sperling spoke at a Washington event hosted by the Houston- based Stanford Group Co. in November 2008, three months before its chairman was sued by the Securities and Exchange Commission for allegedly bilking investors of $7 billion. He also spoke at a Washington event in October 2007 that was sponsored by Citigroup, which has received $45 billion in government assistance. Sperling, 50, was paid for his speeches through the Harry Walker Agency, which books speakers. His disclosure form does not list how much he was paid for each speech. Sperling also drew a $137,500 salary from Bloomberg News for writing a monthly column and appearing on television, according to his disclosure.

Goldman Sachs paid Sperling the $887,727 for advice on its charitable giving. That made the bank his highest-paying employer. Even Geithner’s chief of staff Patterson, who was a full-time lobbyist at the firm, did not make as much as Sperling did on a part-time basis. Patterson reported earning $637,492 from Goldman Sachs last year. "My sole work for Goldman Sachs was as lead consultant on the creation, design, and initial implementation of ‘10,000 Women,’ their $100 million philanthropic effort to give business and leadership education to poor women around the world," Sperling said.

His total income of $2.2 million was unusually high, Sperling added. The Wall Street ties are troubling to some advocates for investors. "Where is the transparency this administration promised?" asked Lynn Turner, a former chief accountant at the SEC. "You just wonder, who is representing middle Americans?"

Citigroup hit With Huge Credit Loss
Although some news outlets are downplaying Citigroup’s crummy quarterly results this morning, make no mistake — they indicate a banking company in severe distress. Although Citi reported a net profit of $101 million, down from $4.2 billion in the previous quarter, for common shareholders the company lost $3.2 billion, up from $2.9 billion in the year-ago period. Return on equity was -12.2 percent, down from 14.8 percent in the second quarter and right back were the company was at this time in 2008. Net interest revenue, a measure of how much Citi has to lend when factoring in funding costs, fell 10 percent.

Besides, Citi’s profit largely stems from a deal this summer under which it exchanged preferred stock for common shares. The transaction, which left the federal government (and you know who that means) as the company’s largest shareholder, produced an $851 million one-time gain for the third quarter.

No, the real story here is Citi’s $8 billion in credit losses for the period. That’s down slightly from the previous quarter, but we’re still talking about a crater-sized hole. These losses are mostly walled up in its Citi Holdings unit, which is a little like the attic where crazy uncles get locked away. Including the smell.

Yet there are signs of decay even more widely across the company’s lending lines. Overdue corporate and consumer loans are rising, reaching 5.25 percent of total loans, versus 4.4 percent in the year-ago quarter. Within Citi’s cards division, net credit losses relative to average loans jumped to 9.7 percent, up significantly from 6.5 percent a year ago. Companywide, net credit losses remain high at 5.7 percent, although that’s down a tick from the second quarter.

Fact is, many analysts expect Citigroup’s losses eventually to top 25 percent of its $1 trillion in assets. Gross credit losses in 2009 are running far ahead of last year’s totals, and the company is charging off loans at a much higher rate than its peers. Revenues are up over a year ago, but the question is whether Citi is socking away enough capital to offset rising losses. If not, that will require it to raise more capital.

Citi CEO Vikram Pandit said in a statement accompanying the quarterly results that "sustainable profitability remains our primary goal in the near term." If by that he means profits unsubsidized by government aid, that’s a long way off.

AIG Bonuses Were a Treasury 'Failure,' Barofsky Says
Neil Barofsky, the special inspector general for the government's financial bailout, said Wednesday that the $168 million in retention payments to American International Group Inc. represented a "failure" that occurred when the Treasury Department "outsourced its oversight" to other agencies. "This was a failure of communications, a failure of management," Mr. Barofsky told the House Committee on Oversight and Government Reform. He highlighted the fact that the Treasury didn't find out from better-informed officials at the Federal Reserve Bank of New York about the retention payments for employees in the insurance company's troubled financial services division until two weeks before they were issued last March.

And even when Treasury officials found out about the imminent payments, they didn't alert Treasury Secretary Timothy Geithner for an additional 10 days, he said. Committee Chairman Edolphus Towns (D., N.Y.), asked Mr. Barofsky if he would characterize the lack of cooperation as a break-down in communications between the Treasury and the New York Federal Reserve. "I think that would be kind, to have it as a breakdown," Mr. Barofsky said. "Communications were virtually nonexistent."

As guardians of the taxpayer-funded bailout, the Treasury had specific responsibilities to oversee executive compensation that the New York Fed didn't, Mr. Barofsky said. To the New York Fed, the $168 million in retention payments wasn't significant compared to the size of the government's $180 billion bailout of the insurance company and didn't identify it as a politically explosive issue. "They didn't think it was that big a deal -- $168 million was a drop in the bucket," Mr. Barofsky said. "Their concern was paying back the debt. The Federal Reserve was looking at this as a creditor."

Mr. Barofsky agreed with lawmakers' comments that "retention payments" paid to AIG administrative employees, including to a file administrator and kitchen assistant, were not necessary to keep irreplaceable employees from resigning. "Somebody who made the decision to give these bonuses made the decision to make everyone happy and not to act in the interest of American taxpayers," said ranking member Republican Rep. Darrell Issa of California.

Mr. Barosky said in any future government bailouts of this magnitude, the Treasury should either take on the primary oversight role or establish specific procedures to maintain communications. There need to policies in place to ensure a "comprehensive and not ad-hoc review of executive compensation and other politically sensitive issues," Mr. Barofsky said. He also said he planned to work with "pay czar" Kenneth Feinberg to review compensation packages for the highest-paid executives at seven companies that have received special government assistance. "That's clearly within our jurisdiction," Mr. Barofsky said.

Wall Street On Track To Award Record Pay
Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year -- a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture. Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.

Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year's $117 billion -- and to top 2007's $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels. The growth in compensation reflects Wall Street firms' rapid return to precrisis revenue levels. Even as the economy is sluggish and unemployment approaches 10%, these firms have been boosted by a stronger stock market, thawing credit market, a resurgence in deal making and the continuing effects of various government aid programs.

The rebound also reflects growing confidence by some Wall Street firms that they can again pay top dollar for top talent, especially once they have repaid the taxpayer-funded capital infusions they received at the height of the crisis. So far, regulators and lawmakers have focused on making sure pay practices discourage excessive risk-taking, leaving to companies the question of how much is too much.

The Journal's analysis includes banking giants J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.; securities firms such as Goldman Sachs Group Inc. and Morgan Stanley; asset managers BlackRock Inc. and Franklin Resources Inc.; online brokerage firms Charles Schwab Corp. and Ameritrade Holding Corp.; and exchange operators CME Group Inc. and NYSE Euronext Inc. These firms' total revenues are projected to hit $437 billion, surpassing 2007's $345 billion, according to the analysis. The rise in total revenue and compensation is in part a function of Bank of America's acquisition of Merrill Lynch & Co. and J.P. Morgan's acquisitions of Bear Stearns Cos. and the banking operations of Washington Mutual Inc.

To reach its 2009 projections, the Journal examined publicly disclosed quarterly compensation figures for each firm so far this year. These include salary, health benefits, retirement plans and stock awards, and also typically include money these firms put away throughout the year to fund later bonus payouts. The Journal calculated each company's compensation as a percentage of revenue. It then projected how much the company would pay at that rate over the full year, using analysts' quarterly and full-year revenue estimates provided by Thomson Reuters. The methodology was reviewed by compensation experts.

Investment banks such as Goldman and Morgan Stanley typically pay employees about 50% of revenue. The rate is lower at commercial banks, whose tellers and other retail-banking employees earn less than traders. Some companies contacted about the analysis didn't dispute the methodology, though others said it was too early to speculate. Some say they set aside more money for compensation at the beginning of the year, in order to avoid shortfalls, and then ratchet back later.

Goldman disputed the Journal's projection that the bank was on track to pay a record-high $21.85 billion. Spokesman Lucas van Praag said Goldman paid an average of 46.7% of net revenue from 2000 to 2008, lower than the 49% rate used by the Journal. Based on Goldman's historical average, it would be on pace to report full-year compensation and benefits of about $20 billion. In 2007, Goldman paid out $20.19 billion, its securities filings show.

Another wild card is whether financial firms will bend to public and political pressure to rein in pay. "Compensation played a role in the financial crisis, and yet nothing has changed," says J. Robert Brown, a professor at University of Denver's law school and an expert on corporate governance. The Obama administration's pay czar, Kenneth Feinberg, is expected to issue as soon as this week his findings on compensation packages at seven firms receiving federal aid, including Bank of America and Citigroup.

Among firms facing scrutiny from Mr. Feinberg, Citigroup is on pace to pay about $22 billion, down 32% from last year. Bank of America is on track to pay about $30 billion, up 64%, the Journal analysis shows. But much of that increase reflects Bank of America's purchases of Merrill Lynch and Countrywide Financial Corp. Both banks are on pace to pay less as a percentage of net revenue than they did in 2008. Michael Karp, cofounder of recruiting firm Options Group, says he doesn't think "2007 is back," adding Wall Street executives have leeway to pay less and don't want placards in front of their offices decrying big pay packages.

Indeed, some companies in the analysis are scaling back on compensation, reflecting recent moves to cut jobs, shed businesses or hunker down until they are more confident in the market rebound's staying power. Mutual-fund giant T. Rowe Price Group Inc. has shrunk its work force by about 10% since the end of 2008 and reduced its annual bonus pool in the quarter ended June 30. Its overall compensation bill is on pace to decline by about 16%.

Many financial firms, however, say they need competitive pay packages, pointing to threats from non-U.S. companies, private-equity firms and hedge funds. Mr. van Praag, the Goldman spokesman, said the firm understands public sentiment over bankers' pay, but added: "The easiest way to destroy the firm would be if we didn't pay our people....Destroying a profitable enterprise would not be in anybody's interest."

Goldman also says employees have long had a stake in its long-term results because many are compensated in part with shares they can't touch for several years. Average compensation per employee is on pace to reach about $743,000 this year, double last year's $364,000 and up 12% from about $622,000 in 2007, according to the Journal analysis. At some firms where revenue is rebounding at a relatively slow rate, more incoming cash is going toward pay. In the first half of 2009, Morgan Stanley paid out or set aside about 70 cents of every $1 in net revenue for compensation and benefits, up from its historic rate of about 50%.

At the recent rate, Morgan Stanley is on pace to pay about $16 billion for 2009, up 33% from last year, despite a projected 6% decline in revenue. Many analysts expect Morgan's ratio to come down in the year's second half. The New York firm says its revenue has been hurt by a rise in the prices of its bonds, which makes it more expensive for the firm to buy them back. The company added that compensation levels will likely be pushed higher by a brokerage joint venture it introduced this year with Citigroup.

Goldman Sachs poised to inflame row on bankers' pay with strong third quarter results
Goldman Sachs is on Thursday set to further ignite the debate over bankers' pay when it reveals it is on track to deliver record-breaking bonuses in excess of $22bn (£13.7bn) this year thanks to strong profits. The investment bank, which releases its third-quarter results on Thursday, is expected to have set aside approximately $6bn for staff compensation in the three months to September. This means Goldman, which is consistently one of the highest payers in the Square Mile and on Wall Street, will have accrued $17.3bn so far this year in a bonus pool to reward its employees.
Analysts believe that Goldman is likely to dole out in excess of $22bn when it delivers bonuses towards the end of December, making 2009 its best year on record in pay terms, outstripping 2007. The news, coming a day after JPMorgan disclosed it is on track to hand out bonuses totalling $29bn this year, will further ignite the debate about pay and incentives at investment banks, which many politicians argue helped caused the crisis that tipped the world into recession.

The prospect of a windfall for staff at the banks comes despite the London-based heads of both Goldman and JP Morgan signing their banks up to the bonus restrictions adopted at the G20 summit in Pittsburgh after a meeting with Treasury minister Lord Myners yesterday. Earlier this week, Goldman chairman and chief executive Lloyd Blankfein went on the offensive, saying in an interview that the company would pay bonuses this year, even if it faces a political backlash.

He went on to say that the company did not receive any preferential treatment from the US government, and did not ask for the $10bn bail-out funds which were forced on it by former Treasury Secretary Hank Paulson – Blankfein’s predecessor at Goldman – and which the bank has since repaid. However Goldman is known to be discussing ways of limiting the potentially damaging backlash when it does make the payments at the end of the year, including discussing making some form of one-off charity donation to quell some of the criticism.

Goldman is expected to announce pre-tax profits of $3.5bn on revenues of $12bn for the three months up until the end of September, with strength likely in equity and debt raising, as well as uplift from its investment in China’s ICBC and its principal investments division. Shares in Goldman closed up $5.05 at $192.28 on Wednesday night ahead of the results, up 123pc since the start of the year.

Goldman Sachs Nine-Month Compensation Totals $527,192 a Person
Goldman Sachs Group Inc. set aside $16.7 billion for compensation and benefits in the first nine months of 2009, up 46 percent from a year earlier and enough to pay each worker $527,192 for the period.
Revenue jumped 49 percent to $35.6 billion this year through September and the New York-based firm set aside 47 percent to cover its largest expense, compensation and benefits, Goldman Sachs said today as it released third-quarter earnings results. The amount set aside this year is just shy of the all- time high $16.9 billion allocated in the first three quarters of 2007.

Chief Executive Officer Lloyd Blankfein, who set a Wall Street pay record in 2007, slashed compensation last year and went without a bonus after the firm reported its first quarterly loss and accepted financial support from the government. As earnings rebounded and the firm repaid $10 billion plus dividends to the government this year, the company resumed allocating billions of dollars for year-end bonuses. "Goldman is sort of the maverick of financial services right now and they’re taking the lead as far as, ‘We believe in our people, we’ve done well, we’re going to stay the way we’ve always been and not change,’" said Jeanne Branthover, managing director at Boyden Global Executive Search Ltd., a recruiting firm in New York.

David Viniar, Goldman Sachs’s chief financial officer, said the firm is "very focused" on making sure compensation levels are appropriate. "It will not surprise you that we’re giving it a lot of thought," he told reporters on a conference call this morning. "Our competitors are paying people quite well" and are "very willing to pay employees guaranteed bonuses of very high amounts." JPMorgan Chase & Co., the second-biggest U.S. bank by assets, reported yesterday that its investment bank allocated $8.79 billion for compensation in the first nine months of the year, equal to 38 percent of the unit’s revenue. That ratio was down from 52 percent in the same period a year earlier.

While Goldman Sachs typically sets aside about half of revenue for compensation in the first three quarters, the company often slashes the ratio in the last quarter. In the fourth quarter of 2007 the firm allocated 30.5 percent of revenue to pay employees and in the fourth quarter of 2006 the ratio was 26.6 percent. Last year, when the company posted a fourth-quarter loss it reported a negative $490 million compensation expense for the period.

Goldman Sachs, which last quarter began reporting staff numbers that include consultants and temporary staff instead of just full-time employees, had 31,700 workers at the end of September. The company today revised the number of employees it had at the end of June to 31,200 from the 29,400 it reported in July. In the first nine months of fiscal 2008, Goldman Sachs set aside $11.42 billion, or an average of $350,763 per employee.

Blankfein, who was awarded a record-setting $68.5 million in salary and bonus for 2007, said in an April speech that the industry’s compensation decisions before the crisis "look greedy and self-serving in hindsight." The company published a three-page set of compensation principles in May that include paying a higher percentage of an employee’s bonus in stock as the pay level increases and deferring the payout of the stock over a period of years. The company also said it doesn’t believe in granting employees guaranteed bonuses for more than a single year.

JPMorgan Sets Aside $353,834 for Each Investment Bank Worker
PMorgan Chase & Co., the second- largest U.S. bank, set aside $8.79 billion for compensation and benefits for its investment-bank employees in the first nine months of 2009, enough to pay $353,834 to each. The compensation reserve totaled 38 percent of revenue in the first three quarters, compared with 52 percent in the same period of 2008, New York-based JPMorgan said today on its Web site. The amount per employee is less than the $386,429 that Goldman Sachs Group Inc. set aside for just the first half.

Paying less "is a risky strategy because we have seen some of the top bankers jump ship to some of the smaller firms out there," William Fitzpatrick, an analyst at Optique Capital Management, said in an interview on Bloomberg Television. "But at this point are bankers really going to run away from an organization like JPMorgan?" The Group of 20 leaders agreed last month to adopt pay guidelines for banks and other firms that rein in risks by aligning bonuses and other pay to long-term performance. U.S. lawmakers are also studying Wall Street pay after spending almost $400 billion bailing out finance companies. JPMorgan repaid $25 billion of government money in June.

"We always look at long-term, sustained performance," Chief Executive Officer Jamie Dimon said on a conference call with analysts today. "We will continue what we are doing. Industries have to pay for performance over time and we are committed to treating each individual properly." Dimon, who received $1 million in salary and didn’t take a cash or stock bonus last year, said JPMorgan requires senior managers to hold a majority of their stock while employed at the bank. The lender doesn’t offer so-called change-of-control pay, where executives receive special payouts after management changes, Dimon said.

Investment-banking revenue climbed 84 percent to $23.2 billion for the first three quarters, the company said in announcing a sevenfold increase in third-quarter profit today. JPMorgan employed 24,828 people in the investment bank as of Sept. 30. The bank has 220,861 workers across its divisions. At the same point last year, the investment bank set aside $6.54 billion, or enough to pay $210,854 to each of the 30,993 workers at the time. "I really believe they are going to be conservative, in line with viewpoints from shareholders, regulators and the world," said Jeanne Branthover, managing director at Boyden Global Executive Search Ltd. in New York.

New York-based Goldman Sachs, which is scheduled to report third-quarter earnings tomorrow, allocated 49 percent of first- half revenue, or $11.4 billion, to pay employees. Morgan Stanley set aside 71 percent of first-half revenue, or $5.91 billion. Goldman Sachs CEO Lloyd Blankfein last month said multiyear contracts for bankers should be banned, and the "claw back" of pay should be permitted to discourage excessive risk-taking, should the firm’s performance deteriorate in later years.

Banks including Citigroup Inc., Morgan Stanley and UBS AG increased salaries for some employees this year as they adjusted bonus policies. JPMorgan said in July that investment bankers who received half or more of their total compensation in year- end bonuses would see more of their pay in salary beginning next year. More than a third of Wall Street finance professionals expect their bonuses to increase for 2009, according to a survey by About 36 percent of the 1,074 people who responded to the e-mailed poll said they are anticipating a bigger annual payout from their companies and 11 percent said it will jump by at least half.

JPMorgan Waves Caution Flag
JPMorgan Chase's Jamie Dimon isn't ready to declare victory yet. Despite wowing investors with better than expected third-quarter profits of $3.6 billion, the chief executive praised for steering JPMorgan Chase through the credit crisis relatively unscathed stopped short of saying the worst is over, even though that's precisely what investors want to hear.

Credit costs are rising, including areas previously thought of as "safe": mortgage loans made to consumers with good credit. JPMorgan set aside another $2 billion for consumer loan losses, and across the company, $32 billion is now on reserve for losses, equaling about 5.3% of outstanding loans. Losses from prime mortgages, subprime mortgages and home equity will inch up in the coming months. Credit cards, which make up nearly 20% of JPMorgan's revenues, will see loss rates around 10% of loans, about in line with expected unemployment trends. Additional reserves may have to be put aside depending on where unemployment heads next year.

"While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue," Dimon said Wednesday. Michael Cavanaugh, JPMorgan's chief financial officer, said they can't say when exactly they will have to stop building reserves. Investment banking helped propel profits during the quarter, particularly from a strong showing in bond trading and other fixed-income activities. Revenues from investment banking reached $7.5 billion, up 85% from the third quarter last year. Of that, $5 billion was from fixed-income areas. Profits in the group were $1.9 billion, making up 52% of total profits.

But executives said over the coming months, investment banking results would "normalize," which is to say they will probably not stay at unsustainably high levels. Future quarters will have to depend more on growth in traditional retail and commercial banking and asset management as well as the release of excess reserves several quarters from now as the economy recovers.
JPMorgan sets the tone for other banks due to report this week and next, including Goldman Sachs, Citigroup and Bank of America this week. Goldman is also expected to report strong results (the current consensus estimate has them at $2 billion for the quarter, though analysts thought the same of JPMorgan). Bank of America and Citi are projected to post losses for the period.

The plight of regional banks is also in question. Many are expected to report profits that are lower than last year's third quarter, with some in the red. These companies tend to be more exposed to local lending and have less diverse businesses to counter the effects of cyclical trends. Consumer credit losses have yet to peak, and with joblessness on the rise, losses from credit cards and auto loans are seen worsening into next year. Losses from commercial real estate loans, a staple of many regional banks' businesses, are expected to begin hitting hard.

Analysts at CreditSights said earlier this week the banking sector may merely have entered the eye of the credit crisis hurricane, with more lashings to come. "Now while in the eye [of the hurricane] the bank environment seems tranquil, with the associated bank rallies, but there continues to be a host of naysayers worrying about the next round of credit destruction."

JPMorgan Credit-Card Results Suggest More Pain Ahead
JPMorgan Chase & Co.'s credit-card unit swung to a loss of $700 million in the third quarter from a profit of $292 million a year earlier, suggesting hopes for a smooth turnaround in the U.S. economy may be premature. The latest earnings Wednesday from a top U.S. credit-card issuer indicate that consumers continue to struggle to find their financial footing amid high joblessness. Credit-card companies face the prospect of more borrowers falling behind on payments as strapped consumers, heading into the holiday season, increase spending on their plastic.

"Card is having a tough time," Chief Executive Jamie Dimon said of JPMorgan's credit-card business during a conference call Wednesday with investors. The U.S. unemployment rate rose to a 26-year high of 9.8% in September. Not all consumer-lending lines are hurting at JPMorgan. New auto loans totaled $6.9 billion in the third quarter, up 82% from a year ago and 30% from the second quarter, fueled by the government's "cash for clunkers" rebate program. The clunkers program offered as much as $4,500 to customers who traded in old vehicles for new, more fuel-efficient models.

But credit-card issuers are battling more than the recession. These companies, including Capital One Financial Corp., Bank of America Corp., Citigroup Inc., Discover Financial Services Inc. and American Express Co., are coping with sweeping legislation to protect consumers that will bite into income. To fight the losses, card issuers are scaling back on credit and getting tougher on whom they lend to. At JPMorgan, credit cards issued through its retail bank branches were down 16% from a year ago and 18% from the prior quarter.

"Broadly speaking, you can't expect significant improvement in credit metrics given these pressures," said Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods. Sakhrani doesn't cover JPMorgan. The $700 million net loss at JPMorgan's card-services unit was fueled by an increasing volume of souring credit-card loans and higher reserves as the financial services giant squirreled away more funds to cushion against potential future losses. Net revenue of $5.2 billion, a 33% jump from a year ago due to the acquisition of Washington Mutual and wider loan spreads, offset some red ink.

Borrowers at least a month behind on their card payments increased to 5.38% in the third quarter from 5.27% in the second quarter and 3.69% a year ago. Rising delinquencies, a key gauge of future losses, are a red flag for issuers because higher delinquencies force them to put more capital aside to offset potential losses; ultimately, companies must write off loans if customers can't pay up. JPMorgan Chase and its peers have been hurt by cutbacks in card spending, which dent the fees earned through credit-card transactions.

JPMorgan Chase wrote off 9.41% of its card loans, including those packaged into bonds, compared with 8.97% in the second quarter and 5% a year ago. Its portfolio of average-managed credit-card loans, including those packaged into securities, shrunk 3% from the second quarter to $169.2 billion. JPMorgan's results come a day ahead of when major U.S. credit-card issuers will release monthly data on the performance of credit-card loans.

As Earnings Portray a Thriving J.P. Morgan, Small Banks' Story Differs
A banking industry goliath, J.P. Morgan Chase, reported third-quarter earnings of $3.59 billion Wednesday, its strongest results in two years. Hours later, regulators testified on Capitol Hill that many small banks are struggling to survive mounting losses. The day's events highlighted a divergence in the banking industry. Large banks have found renewed profit in areas outside traditional banking, such as helping companies raise money on Wall Street. But small banks wholly focused on making and collecting loans find their basic business in a state of steep decline.

The nation's roughly 7,000 community banks, which lost $2.7 billion in the second quarter, are likely to report that the third quarter was at least as bleak. The share of borrowers who have fallen behind on payments is at the highest level in more than two decades. At the same time, increased caution and diminished demand have limited new lending, leaving banks hard-pressed to find new sources of profit.

Ninety-eight banks, mostly small, have failed so far this year, and regulators predict the harvest from the current recession is less than halfway complete. "The banking system remains fragile," Federal Reserve Governor Daniel K. Tarullo testified Wednesday before the Senate Banking Committee. Small banks in particular, he said, "have yet to report any notable improvement in earnings or condition since the crisis took hold."

J.P. Morgan, a Wall Street powerhouse that also operates one of the nation's largest retail banks, faces the same problems as its smaller peers. Rising loan delinquencies forced it to set aside another $2 billion to cover projected losses. The company also reduced lending for the fourth consecutive quarter. But the strength of its investment bank, which reported that its profit more than doubled, overcame the press of the recession.

The company's earnings amounted to 82 cents a share, up from 9 cents a share, or $527 million, during the third quarter last year. The rest of the nation's giant banks are expected to post results roughly in proportion to the depth of their involvement with Wall Street. Goldman Sachs, wholly focused on investment banking, is expected by financial analysts to report a healthy profit Thursday. Main Street titans Bank of America, which reports Friday, and Wells Fargo, which reports next week, both are expected by analysts to report mixed results.

During the financial crisis, banks struggled with an extraordinary problem -- they could not find money to fund their operations. Massive government intervention into the financial markets lifted that stranglehold, but in its wake, banks have been left in throes of a more traditional crisis: Borrowers are not repaying loans. The share of loans not being repaid on time climbed to 4.35 percent at the end of June, the highest level on record, and it is expected that data for the end of September will show that the level of delinquencies continued to climb during the third quarter.

Real estate development loans have become a particular trouble spot, with delinquencies at 16 percent at the end of June. Loans on existing commercial real estate also are showing increased signs of problems as struggling businesses begin to fall behind on payments. Banks have been forced to divert earnings into reserves to cover expected losses, but those reserves still are not increasing fast enough to keep pace, regulators said.

Banks can most easily exit this quagmire by making new loans that are repaid. But regulators said Wednesday that renewed demand for loans was likely to lag behind economic recovery. Borrowing lags because businesses in particular first put existing equipment back to work before they again need to start borrowing money to expand. "It would be unusual to see a return to a robust and sustainable expansion of credit until after the overall economy begins to recover," Tarullo said. The government's massive assistance to the financial industry has mostly helped large banks to recover.

J.P. Morgan relied on federal aid in buying the distressed investment bank Bear Stearns and the mortgage lender Washington Mutual. It then accepted $25 billion in emergency aid from the Treasury Department, which it subsequently repaid, and borrowed billions of dollars more with help from the Federal Deposit Insurance Corp. The company borrowed from some of the Fed's aid programs, but the Fed has refused to disclose the amounts that individual companies borrowed.

The company's relative strength also has allowed it to claim an outsize share of the benefits from the government's massive intervention into financial markets. Joseph A. Smith Jr., the North Carolina commissioner of banks, testifying on behalf of state banking regulators, said Wednesday that the government's failure to extend equal help to community banks had contributed to their struggles. He said the Treasury Department should inject more capital into smaller banks.

"Federal policy has not treated the rest of the industry with the same expediency, creativity or fundamental fairness," Smith said. "This has been a lost opportunity for the federal government to support community and regional banks and provide economic stimulus." The government's role in reviving financial markets also has raised questions about the plans of the largest banks to reward employees with billions of dollars in bonuses for profits that were achieved in large part through the investment of taxpayer dollars.

J.P. Morgan set aside $2.78 billion in compensation for its investment bankers in the third quarter, a 28 percent increase over the same period last year. Chief executive Jamie Dimon strongly defended the company's pay practices during a morning conference call with financial analysts. "We've looked at the contribution people make to building a great franchise at J.P. Morgan," Dimon said. "We think we've done it right and fair, and we're going to continue doing what we're doing."

At the same time, J.P. Morgan said that it reduced its workforce by about 7,600 jobs, or about 3 percent, compared with the same period last year. That is part of a broader trend in which companies have continued to slash jobs even as profits begin to recover.

Baltimore police, fire pension costs could double next year
An unusual pension benefit for police and firefighters could cost Baltimore $164.9 million next year, nearly double what the city is now paying and a figure that the city's finance director says taxpayers cannot afford. After years of calls for pension reform, board members who oversee the nearly $2 billion system said their Tuesday vote that passes the whopping bill on to City Hall is a message that the fund is close to a breaking point and needs attention. Edward J. Gallagher, the city's finance director, said the city "certainly cannot afford" to pay the full commitment due in July. "It seems that our concern has really come home to roost."

Pension costs for the roughly 5,800 retired police and firefighters are soaring at a time of deep budget problems. The city recently forced employees to take five unpaid furlough days, laid off workers and halted capital projects to chop $60 million from its current budget. Declines in projected tax revenues and cuts from the state prompted cuts. Another round of budget reductions is expected early next year. The new retiree funding request is twice as large as the $81.9 million the city paid to the fire and police pension fund last year.

If the pension system is not altered before the bill comes due, needed cash could come from raising the city property tax rate 11 percent, or "significant reductions across all agencies, including public safety," Gallagher said. Mayor Sheila Dixon, who has long sought reductions in the city's tax rate of $2.27 per $100 in assessed value, has said both options are unacceptable. Failing to pay a large portion of the bill could trigger a downgrade in Baltimore's AA bond rating, which would in turn increase the cost of borrowing money for capital projects.

The pension board's 5-2 vote narrows the window of time available for reform of a troubled system. Board members, however, have been saying for years that the fund needs tens of millions of dollars in order to continue paying current benefits. "Of course I know we can't afford that" amount, said City Comptroller Joan M. Pratt, one of the five board members who supported sending the city the high bill. "There needs to be some changes in the benefits. The action that needs to be taken has been put off for a long time." Peter Keith, the mayor's appointee to the board and a partner at a downtown law firm, also supported the measure, but said: "We have been paying out too much money. People have to collectively come together to solve the problem."

The extra cash is needed largely to shore up a part of the pension program called a variable annuity. The benefit is similar to a cost-of-living increase, but is tied to positive stock market returns. When the market goes up, some of the extra money is given to retirees in the form of a permanent pay increase, an uncommon benefit that has made Baltimore's costs grow. In most pension plans, extra money is plowed back into the asset funds to make up for the bad investment years.

The Dixon administration in March recommended replacing that part of the retirement benefit with a straight cost-of-living increase - a change that would have likely headed off Tuesday's vote. However, the unions objected, saying the proposed COLA was too low. The administration withdrew that plan and offered a new proposal to suspend the variable benefit, with the idea that some type of COLA would be reinstated later as part of a larger pension reform effort. Unions object to that plan too, and there has been no action on it. Councilman William Cole, who is the chair of the committee overseeing the legislation, said he is awaiting a report from a group representing the city's business interests before acting.

"I don't think the council is prepared to do anything" before hearing from the Greater Baltimore Committee, Cole said. "Clearly, I would like to see a long-term solution and not just a one- or two-year fix." Donald C. Fry, the head of GBC, said his committee will likely make recommendations by December. Bob Slegeski, the president of the firefighters union, said that the city has been unwilling to work with his group to solve the problem. The union has offered its own reform plan, which includes higher contributions from members. The proposal, discussed briefly on Tuesday, cannot be enacted without legislation. No bill reflecting the unions' view has been introduced.

Tuesday's vote made a technical change to one figure in the complex formula to determine what the city's contribution should be. The board voted to lower the assumed investment return on one pot of money from 6.8 percent to 5 percent. Though the change triggers a larger city contribution from taxpayer dollars, it also downgrades the future outlook of the fund. The market value of the fund's assets has fallen to 50.2 percent of what is needed to pay out all benefits. Last year, it was 89.4 percent funded.

Dissenters on the pension board included Fire Chief Jim Clack, who only recently started attending the meetings because city budget cuts to his agency forced him to lay off the representative he had designated to the board. Clack called the decision to send on the huge bill "a mistake," and argued that the board should find ways to trim benefits before seeking such an increase. "We are in a depression. For us to dump this on the city is crazy." Separately, the plan's actuary reported that the fund lost $777 million in market value in the past two years. Those losses do not hit the fund all at once, however, and are responsible for $22 million of the $164.9 million request.

Dutch banking flat out of credit
Unlike what the finance minister wants us to believe, the fall of DSB has everything to do with the banking crisis. The Netherlands has lost another bank. After the bankruptcy of Van der Hoop in 2005 and the perils surrounding ABN Amro, which will probably be merged with Fortis Bank Netherlands, DSB Bank went down on Monday. If the liquidation of Van der Hoop preceded the credit crisis and can be seen as detached from it, this is not the case for DSB.

Finance minister Wouter Bos, however, has all the reason to say there is no connection. A calamity like this is the last thing he needs at a time when the rumpus in and around the banking industry seemed to have calmed down. But Bos is wrong to suggest DSB is an isolated case that would have gone wrong under any other circumstances. First of all the call for a run on the bank found such fertile ground because the public confidence in the banking sector has been severely damaged in the past two years.

On top of that DSB was unable to compensate the withdrawn savings by lending on the international money market. This market has somewhat defrosted since last year's ice age, but it is still not easily accessible for banks with a record, let alone a bank facing an immediate exodus. It is because of this that DSB's liquid assets dried up as quickly as they did. DSB's liquidity was already weak because of the credit crisis, as it still is at most banks. DSB had signed up for the special facilities the European Central Bank and its affiliated national central banks made available since the start of the credit crisis. The Dutch central bank's attempt to rescue DSB by selling parts of it to bigger Dutch banks failed mostly because they feared possible damage to their reputation – not just with the public but also on the financial markets – because of DSB's controversial lending practices and pending claims by customers who feel they were duped by the bank.

So unlike what the finance minister wants us to believe, the fall of DSB has everything to do with the banking crisis. As do the practices that got DSB into trouble in the first place. Operating on and sometimes over the boundaries of ethical behaviour became DSB's core business. Selling customers exorbitant products they could not comprehend contributed to the current crisis in banking. Loans dressed up as investments and usurious single-premium insurance policies fall in the same category as complex financial derivatives that banks and investors fooled themselves with for years. Innovation driven over the edge, irresponsible profit seeking and supervisors falling behind; DSB is the microcosm of all that is wrong in the financial industry. It must be tempting to file the collapse of this bank as an incident, or maybe a final convulsion of the credit crisis. But if last week's events prove anything it is that the crisis in banking is far from over.

Bearish Whitney casts doubt on banks' bounce
Meredith Whitney still has the power to move markets. Two years after making her name by predicting correctly that banks were in trouble and that Citigroup Inc. would have to cut its dividend, the financial services analyst is again causing investors to sell bank shares.

Ms. Whitney sent financial stocks across North America lower on Tuesday by cutting Goldman Sachs Group Inc. to "neutral" and saying she was "far less bullish" on other banking stocks in general. Goldman, the giant securities firm, had been the only bank stock Ms. Whitney rated "buy," but she said it had become expensive as the sector rallied. She told clients of her firm that while she is "fundamentally constructive on Goldman Sachs over the long term, we prefer to invoke a ‘why be greedy' rationale and lock in profits at these levels."

In the wake of her move, Goldman dropped $2.92 (U.S.), or 1.5 per cent, and banks were the worst performers among the 10 sectors in the Standard & Poor's 500-stock index, helping to pull down U.S. stocks more broadly. Her power doesn't stop at the border, with Canadian banks also selling off. That led to a decline in this country's benchmark stock index.

"Whitney's comments have an impact on people's psychology," said Terry Shaunessy, president of Shaunessy Investment Counsel in Calgary, which manages about $200-million (Canadian). "She was right once, and we'll see – her credibility is on the line." With that kind of influence, thanks largely to the Citi prediction, Ms. Whitman has been branching out. About six months ago, she left her job at Oppenheimer & Co. to start her own eponymous firm in New York, and she has been broadening the scope of her predictions from just banks to the economy at large.

The phenomenon of a reputation built on one great call has a rich tradition. Former CIBC World Markets chief economist Jeff Rubin did it by nailing a coming housing market slump in Ontario in the 1990s; after that, he became one of the rock-star strategists on Bay Street, always in demand for conferences and by clients. He has since left CIBC after writing a book based on another bold prediction – that a shortage of oil will lead to the death of globalization.

Ed Yardeni, once head of economics and strategy at Deutsche Bank, made his bones with one of the most accurate calls on the run in stocks in the 1990s. He now runs his own research firm and is a sought-after speaker and commentator. On his website, the "media highlights" section that spotlights articles on his greatest forecasting hits contains almost exclusively stories from the 1990s. Ms. Whitney has worked hard to keep a high profile. She is a fixture on television, where her blunt tone makes her a good interview subject, and she's expanded her ambit from calling movements in bank stocks to broader investment strategy.

She is even writing opinion pieces in The Wall Street Journal, arguing on Oct. 1 that the credit crunch isn't over because small business owners can't get loans. Ms. Whitney's personal life isn't exactly under the radar, either. She's married to professional wrestling star John Layfield, who had a bad-boy persona in the ring of a wealthy businessman. Outside the ring, he has been an on-air analyst for Fox News and CNBC. (He lasted only three weeks at CNBC before he was fired in 2004 after witnesses said he had made Nazi-style gestures at a wrestling match in Munich, which he later said were simply an attempt to rile up the crowd as part of his job as a "heel" – one of the bad guys in the wrestling world whose job it is to be reviled.)

However, for Ms. Whitney, like many who have been feted for the one great call, her record aside from the prediction that made her famous is mixed. When she made the cover of Fortune magazine last year for her Citi prognostication, the story pointed out that in a ranking of stock pickers by Starmine in 2007 – the year of the call – she ranked "1,205th out of 1,919 equity analysts." More recently, in a September Starmine ranking of the best analysts when it comes to generating profit with ratings on big U.S. banking stocks so far in 2009, Ms. Whitney ranked No. 2 on Citigroup. She didn't show up in the top five on any of the others, including Goldman Sachs.

US CMBS Delinquencies Rise at Record Pace in September
The Moody’s Delinquency Tracker (DQT) measured a 41 basis point increase in the month of September. The DQT now stands at 3.64%. This represents a 310 basis points increase over the same time last year. The DQT is now nearly 350 basis points higher than the low of 0.22% reached in July 2007.

September had the largest monthly basis point change in the history of the tracker. The 41 basis point increase is slightly larger than the increases in May and June earlier this year. The tracker resumed its large monthly growth after a lower than average change in August.

The average rise in delinquency in the past six months is 34 basis points. This compares to a three basis point average increase for the same six month period in 2008 (April through September). In 2009 the delinquency rate has risen 269 basis points, nearly tripling since the beginning of the year.

Moody's CMBS

The delinquency rate for loans backed by multifamily properties rose 58 basis points, the second largest monthly increase.

The multifamily delinquency rate currently stands at 6.09%, thereby retaining its crown as the highest of the five main property types.

This is also the first time that any property type has breached the six percent threshold. The September increase for multifamily can be partially attributed to the Bethany Portfolio I ($165 million, 60-89 days delinquent), the largest newly delinquent loan in September.

Retail and industrial delinquency rates increased 34 and 21 basis points respectively. This takes their respective rates to 3.76% and 2.67%. Office, which is the second largest property type by balance, had a 29 basis point increase in delinquency, with the rate rising to 2.30%. Four of the top ten largest newly delinquent loans are backed by office properties, including the second largest newly delinquent loan, a property located at 119 West 40th Street in New York City ($160 million, 60-89 days delinquent).

The hotel sector, after a decline last month, resumed its upward momentum and had the largest increase of the five main property types in the month of September. The lodging sector delinquency rate grew 79 basis points from August and the rate now stands at 4.97%.

Fitch Sees 60% of Current RMBS Borrowers Underwater
The majority — 60% — of remaining performing borrowers within ‘06- and ‘07-vintage residential mortgage-backed securities (RMBS) bear negative home equity, meaning they are underwater on their mortgages and owe more than their houses are worth. This overwhelming presence of negative equity is hampering sustained improvement in RMBS performance, according to Fitch Ratings. "[N]egative equity reduces a borrower’s inventive to pay their mortgage and limits their options when faced with financial difficulties," said senior director Grant Bailey in a statement.

The rate of previously performing borrowers rolling into delinquency status showed "notable improvement" in the first half of 2009 and stabilized during the summer at an elevated level. The percentage of previously performing borrowers rolling into delinquency "increased modestly" in September, Fitch said. The rating agency expects US unemployment to peak at 10.3% in the middle of next year, further pressuring current borrowers. House prices will ultimately decline another 10% over the next year.

"Home price figures in recent months were temporarily helped by the reduced share of distressed property liquidations due to foreclosure moratoriums and servicers’ increased efforts to qualify borrowers for modifications," Fitch said. "However, the number of distressed borrowers has continued to grow." The rating agency noted the number of non-agency borrowers 90 plus days delinquent reached 1.66m in September — the highest level on record. "While increased modification efforts and an extension of the first time home buyer tax credit may help home prices, the ultimate increase in liquidations from the growing distressed inventory will likely cause a further price decline," Bailey said.

Subprime and the Banks: Guilty as Charged
by Joe Nocera

"There has not been a case made that there is an enforcement problem with banks," Edward Yingling, the head of the American Bankers Association, said last week. "There is a problem with enforcement on nonbanks."

As I wrote in my column last week, this has become something of a mantra for the banking industry. We aren’t the ones who brought the world to the brink of financial disaster, they proclaim. It was those awful nonbanks, the mortgage brokers and originators, who peddled those terrible subprime loans to unsuspecting or unsophisticated consumers. They’re the ones who need to be regulated!

Apparently, when you say something long enough and loud enough, people start to believe it, even when it defies reality. Here, for instance, is the normally skeptical Barney Frank on the subject: "What happened was an explosion of loans being made outside of the regular banking system. It was largely the unregulated sector of the lending industry and the underregulated and the lightly regulated that did that." To which I can now triumphantly reply: Oh, really???

Last weekend, after the column was published, an angry mortgage broker — someone who felt she and her ilk were being unfairly scapegoated by the banking industry — sent me a series of rather eye-opening documents. They were a series of fliers and advertisements that had been sent to her office (and mortgage brokers all over the country) from JPMorgan Chase, advertising their latest wares. They were dated 2005, which was before the subprime mortgage boom got completely out of control. They’re still pretty sobering.

"The Top 10 Reasons to Choose Chase for All Your Subprime Needs," screams the headline on the first one. Another was titled, "Chase No Doc," and described the criteria for a borrower to receive a so-called no-document loan. "Got Bank Statements?" asked a third flier. "Get Approved!" In a number of the fliers, Chase makes it clear to the mortgage brokers that the bank doesn’t need income or job verification — it just needs to look at a handful of old bank statements.

"There were mortgage brokers who acted unethically, absolutely," my source told me when I called her on Monday. (She asked to remain anonymous because she still has to work with JPMorgan Chase and the other big banks.) "But where do you think mortgage brokers were getting the subprime mortgages they were selling to customers? From the big banks, that’s where. Chase, Wells Fargo, Bank of America — they were all doing it."

So enough already about how the banks weren’t the problem. Of course they were. Here’s the evidence, right here. Read ’em and weep.

Capitalism: An Apathy Story
by Cindy Sheehan

This Thursday, in a move that would make Baron von Louis Rothschild blush with shame (or burst with pride), Goldman Sachs will announce that it is more than doubling its bonus pool: from 11 billion in 2007 to 23 billion in 2008. I always thought the concept of the "Welfare Queen" was eliminated during the Clinton Regime (where his SecTreas was a former chair of G S) however, Goldman Sachs has received billions of dollars in taxpayer welfare and supposedly paid that back, except for the 13 billion that was funneled through AIG to Goldman through loan guarantees.

Well, wouldn't it be hunky dory if every loan we consumers took out from these banksters came with a guarantee that if we failed, our government would pay our loans off? To diffuse any citizenry guillotine brigades, the Chairman of G S says that one billion dollars of that money will be given to charity, without specifying which charity it will be going to, probably Billionaire Overseas Villa Fund, or something like that. Well, empty rhetoric or the shiny keys of Madison Avenue hocus-pocus glitz are not fooling me any more.

However, I don't think much PR spin will be needed around this newest bonus outrage. There may be some international hell to pay, though, since 19 of the other G20 countries were rightly concerned about the image that out of control bonuses lends the already tarnished state of Robber Class deviltry, I am concerned that the threatening dumping of the dollar will begin to commence in earnest after this round.

Most Americans don't even give a poop, which is incredible to me since almost 1 out of 4 of us who want work can't find any and every 7 seconds someone in this country will lose their homes in the continuing carnage of the bursting of the Federal Reserve-Goldman Sachs-AIG housing bubble. Congress will make some squeaks in Goldman Sachs' direction and The Laureate will say something like: "This is not acceptable," then he will go forward in total acceptance and obsequiousness to his masters that put him in power.

What will the American Public do? I am afraid that Goldman Sachs doesn't even have to make the empty gesture of one billion dollars in charity because no guillotine brigades will march down Wall Street. When Goldman Sachs wins the Nobel Prize in Economics next year, we will become mildly annoyed and then yawn in the best American tradition and go on allowing the Robber Class to steal us blind, hoping that there is another juicy divorce or celebrity death that can distract us from reality. The Robber Class doesn't frustrate me nearly as much as the Robbed Class. Robbers will be Robbers only as long as we in the Robbed Class let them.

Your dollars are just Monopoly money
by Bill Fleckenstein

This week's column is going to be a little different, as I'd like to discuss human nature and the paper we call money from a slightly different perspective. I was recently thinking about what has transpired in this country in the past decade: first the equity bubble, then the real estate/credit bubble and the steady debasement of the dollar (where a trickle of trouble threatens to turn into a flood).

I have been struck by how few people seem to understand how all these events are related -- in that, at the root, they each have the irresponsible printing of money as the cause. (The sociological and psychological phenomena that go with that -- e.g., the regulators not doing their job -- are just part of the process.) Each problem led to the next, and one year ago the financial system was bailed out at the risk of the country ultimately enduring a funding crisis.

One fact that strikes me is how few people seem to have been able to protect themselves from the first two (even though they were so obvious) and how so few will be able to save themselves from this third, huge problem. In my own little world, I wrote until I was blue in the face about the risks inherent to each of those bubbles -- and others did, too -- but still only a small subset of folks avoided calamity.

Similarly, I have droned on forever about the weakness in the dollar and the necessity for folks to protect themselves via precious metals or some other idea. (I don't know what that idea is, or I would say, but there will turn out to have been other options.)

Let's face it. Dollars -- the things we call money -- are simply pieces of green paper. They are just a state of mind. They have no intrinsic value and are just wampum. Thus, they're not worth anything. Furthermore, all paper currencies historically have lost all of their value. On the other hand, gold -- which has been in an eight-year bull market but still receives far more derision than praise -- has been money for literally thousands of years.

In fact, the green paper has lost 97% of its value compared with gold since President Richard Nixon closed "the gold window" in 1971. (He ended the promise that dollars could be exchanged for gold.) Yet people seem to be more terrified of owning gold than dollars. For the past month or so, as gold has traded around $1,000 an ounce, I have seen no euphoria -- only a tremendous amount of angst on the part of gold holders who fear an imminent collapse in the price.

But the point of this column is to encourage people to think about what's liable to happen to the green piece of paper I've nicknamed the "xera" (a combination of Xerox, zero and dollar).
Federal Reserve money printing in the past year -- to create its own bailout from the problems it created, and to finance other government bailouts -- is the functional equivalent of the government saying that you can take the Monopoly game out of the closet, grab all the colored pieces of paper, put three or four zeros on the end of each bill, and then go out and spend it.

However, the way this game has been played, some folks got multiple sets of Monopoly money, some financial institutions got thousands of them and yet a lot of individuals got no Monopoly money. But the outcome is still the same: The value of the money in circulation has to be worth less once this turbocharged Monopoly money is introduced into the system. That means inflation.

Folks will ask me, "How can we have any inflation, given what's going on today?" Well, we may not have inflation immediately. But it is not debatable what would happen to the purchasing power of your green pieces of paper when you think about the Monopoly example.

The likely outcome as we proceed down the road is liable to be more and more fear about what a dollar is actually worth (i.e., nothing). When Main Street psychology turns against the faith-based currency we call the dollar, it will be nearly impossible to get that genie back in the bottle. Of course, this is part and parcel of the funding crisis, though the dollar's meltdown could start before all of this dawns on Main Street, as it appears already to be dawning on America's creditors.

So, if you're not in the habit of thinking about the dollar and the effect its depreciation is having (and will have) on you, consider this: Basically, you are the frog that's slowly being boiled in water, and at some point you're liable to face a similar demise, financially.

Hedge fund manager John Paulson (speaking at the recent Grant's Interest Rate Observer conference in New York) succinctly summed up his views about how to protect himself:
"What I'm looking at is not where gold is going to be tomorrow, one week from now, one month from now, three months from now. What I'm looking at is where is gold going to be vis-à-vis the dollar one year from now, three years from now, five years from now. And I think, with a high probability at each of those points, gold will be higher than it is relative to the dollar today. That probability increases the further out you go. So when I look at what the risk is, the risk to me is far more staying in dollars than it is in gold at this point."

Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says
The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy. "The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger," said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. "The dollar’s fall won’t stop until there’s a change to the global currency system."

The dollar last week dropped to the lowest in almost a year against the yen as record U.S. government borrowings and interest rates near zero sapped demand for the U.S. currency. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, has fallen 15 percent from its peak this year to as low as 75.211 today, the lowest since August 2008. The gauge is about five points away from its record low in March 2008, and the dollar is 2.5 percent away from a 14-year low against the yen.

"We can no longer stop the big wave of dollar weakness," said Uno, who correctly predicted the dollar would fall under 100 yen and the Dow Jones Industrial Average would sink below 7,000 after the bankruptcy of Lehman Brothers Holdings Inc. last year. If the U.S. currency breaks through record levels, "there will be no downside limit, and even coordinated intervention won’t work," he said. China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency. Hossein Ghazavi, Iran’s deputy central bank chief, said on Sept. 13 the euro has overtaken the dollar as the main currency of Iran’s foreign reserves.

The greenback is heading for the trough of a super-cycle that started in August 1971, Uno said, referring to the Elliot Wave theory, which holds that market swings follow a predictable five-stage pattern of three steps forward, two steps back. The dollar is now at wave five of the 40-year cycle, Uno said. It dropped to 92 yen during wave one that ended in March 1973. The dollar will target 50 yen during the current wave, based on multiplying 92 with 0.764, a number in the Fibonacci sequence, and subtracting from the 123.17 yen level seen in the second quarter of 2007, according to Uno.

The Elliot Wave was developed by accountant Ralph Nelson Elliott during the Great Depression. Wave sizes are often related by a series of numbers known as the Fibonacci sequence, pioneered by 13th century mathematician Leonardo Pisano, who discerned them from proportions found in nature. Uno said after the dollar loses its reserve currency status, the U.S., Europe and Asia will form separate economic blocs. The International Monetary Fund’s special drawing rights may be used as a temporary measure, and global currency trading will shrink in the long run, he said.

Bank of America E-Mail Shows Concerns Over Merrill Deal
It was Jan. 15, and the government was about to hand Bank of America its second taxpayer lifeline as the bank was drowning in losses from its recent marriage to Merrill Lynch. Kenneth D. Lewis, the chairman of Bank of America, and other top executives convened a late-afternoon conference call to explain the bank’s latest problems to the board: Not only was the government making the new multibillion-dollar bailout on punishing financial terms, but Merrill’s losses — already thought to be steep — were also far worse than the bleak estimates tallied just weeks earlier.

As Mr. Lewis and the other executives continued their briefing, one board member minced no words in his assessment of the situation. "Unfortunately it’s screw the shareholders!!" Charles K. Gifford wrote to a fellow director in an e-mail exchange that took place during the call. "No trail," Thomas May, that director, reminded him, an apparent reference to the inadvisability of leaving an e-mail thread of their conversation.

The e-mail messages, reviewed by The New York Times, were handed over to the House Committee on Oversight and Government Reform this week as Bank of America opened a collection of documents that it has kept secret about the ill-fated merger. While the e-mail does not show that the bank deliberately kept vital information on the deal from shareholders, it opens a window onto the concerns harbored by several board members over the Merrill deal.

Shortly after Mr. May’s remark about an e-mail trail, Mr. Gifford said his comments were made in "the context of a horrible economy!!! Will effect everyone." "Good comeback," Mr. May replied. A bank spokesman, Lawrence Di Rita, declined to comment on the e-mail. But he said "we believe the full record in context demonstrates that we acted in good faith and with appropriate disclosure in the Merrill Lynch acquisition."

The bank, which resisted investigators’ efforts to identify the executives who failed to disclose Merrill’s losses to shareholders, is now planning to send more documents in the next week to Congress, as well as to the attorney general of New York and the Securities and Exchange Commission, which are all investigating the Merrill merger. The documents could also provide fodder for shareholder lawsuits.

"E-mails are often the best trails to what a person is really thinking," said Mark C. Zauderer, a corporate litigator in New York. "That kind of spur-of-the-moment reaction provides grist for the mill of plaintiffs’ lawyers where issues of honesty and integrity are at issue." The deal, forged in the throes of the financial crisis last September, has come under political and regulatory scrutiny, and has prompted an uproar from shareholders who say they might never have approved it had executives disclosed the true extent of Merrill’s ill health, or revealed the hefty bonuses Merrill paid its traders and bankers right before the deal closed.

Many are also angry that Mr. Lewis did not reveal how deeply his own concerns about the deal ran: several weeks after shareholders approved the merger, new assessments of Merrill’s losses so startled Mr. Lewis that he told the government he was thinking of backing out. The government, wanting to avoid a fresh panic in financial markets, urged him to stick with it. And he kept those negotiations a secret.

The bank’s board, however, was kept apprised of many developments in the merger, and the House oversight panel investigating the matter plans to question several of them, said Edolphus Towns, Democrat of New York and chairman of the committee. The documents his committee has seen include e-mail messages between bank directors regretting the deal within days of its announcement, according to a person familiar with the committee’s documents. Also, some directors have already received subpoenas from the New York attorney general, Andrew M. Cuomo.

The January dialogue between Mr. Gifford and Mr. May capped months of conflict that simmered between some board members and the bank’s management since the weekend of Sept. 13, when Mr. Lewis agreed to the deal. Mr. Gifford, who ran FleetBoston Financial before Mr. Lewis bought it in 2004 to enlarge Bank of America’s reach, was the lone board member to argue against the merger, said a person who attended the bank’s board meetings but was not authorized to discuss them.

On that frenzied weekend, as Lehman Brothers came crashing to the ground, Mr. Gifford urged Mr. Lewis to wait a day or two to see if he could pick up Merrill for a lower price to obtain better value for Bank of America shareholders, this person said. Mr. Lewis argued that he could lose a golden opportunity to make the investment bank the crown jewel of his empire if he held off, and he agreed to pay about $50 billion in stock for Merrill.

Merrill’s hefty price tag quickly became sore point for shareholders. When Mr. Lewis and other executives considered backing out of the deal, they turned to federal regulators about a second bailout for the merged company.

Mr. Gifford and Mr. May both live in the Boston area, and have been close for a long time. They were part of the handful of Boston-based directors that clashed with Mr. Lewis in early December over a star executive whom they backed. After learning that Mr. Lewis planned to fire the executive, Brian Moynihan, these directors pressured Mr. Lewis to find him a new job. Mr. Moynihan is now a leading internal candidate to succeed Mr. Lewis, who announced early retirement this month. Mr. Gifford and Mr. May are on the selection committee.

In the January board call that prompted the Boston directors’ e-mail messages, directors learned that the government was charging the bank a lot more for the second bailout than the directors expected. The directors also learned they would have to cut the bank’s common stock dividend to a penny, from 32 cents — something that particularly upset Mr. Gifford because he held half of his own financial assets in company stock and, with other shareholders, had watched the value of that investment decline.

Michael Useem, a corporate governance professor at the Wharton School at the University of Pennsylvania, said the e-mail messages raised as many questions as answers. Without a transcript of the call, he said, it is difficult to determine if Mr. Gifford’s remarks reference the actions of Mr. Lewis, the government, or other parties.

September Data: Global Trade Declines
The word from Panjiva’s research team: global trade activity declined in September.  Specifically, from August to September, there was a 5% decline in the number of global manufacturers shipping to the U.S. market. Similarly, there was a 4% decline in the number of U.S. companies receiving waterborne shipments from global manufacturers.

September Data - Global Trade Declines

These declines are the steepest we’ve seen since February, when global trade hit bottom, and would seem to confirm that American businesses have modest expectations for the coming holiday shopping season.

Pessimists will take note that it was last year’s August-September decline that marked the beginning of global trade’s six-month decline.  However, we probably won’t see a repeat of last year’s global trade free-fall unless we get another macro shock to the financial system.  (For an interesting perspective on where we may be headed, check out the SpendMatters blog.)  A couple of positive items from our team’s latest analysis:

  • The percentage of significant manufacturers on the Panjiva Watch List declined slightly from 28% to 27%.
  • Similarly, the percentage of significant buyers having done business with a Panjiva Watch List supplier in the preceding three months declined slightly from 38% to 37%.

Methodological notes for the data junkies:
  • Manufacturers that have suffered a 50% or greater decline in volume shipped to American customers in the most recent three month period, versus the same period a year ago, are on the Panjiva Watch List.
  • "Significant manufacturers" are companies that have sent 10 or more shipments to American customers within the last year.  As of the end of August, there were 86,663 significant manufacturers.
  • "Significant buyers" are U.S. companies that have received 10 or more shipments from overseas manufacturers within the last year.  As of the end of August, there were 73,904 significant buyers.

The 10 Countries Most At Risk Of A Meltdown
  • Spain: Don't be surprised if Europe ends up bailing out Spain. While their finance minister recently declared that the worst of the crisis was over, Moody's and many analysts believe the country's banking system may be concealing massive loan losses. 20% unemployment, 3.5% 2009 GDP contraction, and a collapsed ten-year housing bubble appears to contradict the banks' apparent stability. London-based Variant believes real estate losses alone could total $370 billion, or about one quarter of Spain's economy. If true, and Spain doesn't face the music, the country could endure a Japanese-style lost decade.

  • Dubai: Building a giant theme park and calling it a city cost Dubai extraordinary amounts of money, much of it borrowed. With property prices down 50%, huge amounts of money has been lost and the city state was required to receive financial support from rival Abu Dhabi. Still, Standard & Poor's believes the government has insufficient money to support its flailing government companies and will require further support. Many property projects remain vacant and useless while $80 billion of debt, huge for Dubai, sits on the government balance sheet. Dubai's survival during any further economic downturn will most likely depend on it retaining friends in high places abroad.

  • Iran: Iran is at risk of both a political and an international relations meltdown, should the government's anti-democratic or nuclear ambitions take a wrong turn. Either scenario could prove too much for the weak domestic economy to bear. Previously rampant inflation is under control, most recently near 10%, yet could easily resurface. Rising unemployment hit 11% recently and is fueling poltical tension. Falling oil prices caused by to a global double-dip would be disastrous for the country since 85% of government revenue comes from the oil sector, Meager expected GDP growth of 1.5% in 2010 doesn't provide much room for error should major instability take hold.

  • Latvia: Latvia's currency, the Lat, could implode and take down both foreign lenders and local borrowers with it. Fear of such a collapse is sucking credit out of the economy since few want to be caught dead holding Lat. The economy has collapsed with an expected 18% drop for 2009. Latvia's long-standing currency peg is thus now under extreme pressure. If freely-traded, some believe the Lat could fall in value by as much as 30%. This would inflict massive losses on foreign banks heavily exposed to the country and local borrowers stacked with foreign currency debt. Damned if they do, and damned if they don't, Latvia is caught in a currency bind.

  • Ireland: The spectacular collapse of a property bubble almost turned the Ireland into another Iceland. They're not out of the woods yet. The economy is expected to contract over 7% this year and could fall further in 2010. Many Irish households face negative equity situations similar to that of many Americans. Deflation has firmly taken hold and the banks remain fragile. The country is struggling to decide how best to save the system. Bad policy or renewed economic hardship could easily bring Ireland back to the brink.

  • China: China is charging into the future with such mass and velocity that any sudden slow-down could result in a train wreck. Government stimulus used to avoid an economic downturn may now be creating mountains of bad debt and vast expanses of excess manufacturing capacity. The loan losses and factory under utilization this could cause might very well end up destroying major banks and annhilating industrial profitability should the economy slow too fast. Moreover, mass unemployment any crisis would create is surely a nightmare scenario for a government whose only legitimacy rests on rapidly increasing prosperity. Thus there is only one option for the party - full speed ahead.

  • Venezuela: If inflation were a barometer of economic success, Venezuela would be an economic titan. The country's inflation will be the highest in the world both this year, at 28%, and for many years to come according to The International Monetary Fund (IMF). Not only will the economy contract in 2009, but it could also contract in 2010 despite expected growth for most other economies. These weak forecasts assume a growing global economy. Should the world actually stagnant, Venezuela could be done for. The country remains highly dependent on oil prices, which would likely be slammed by any global economic double-dip.

  • Lithuania: Lithuania's economy fell a shocking 20% in the second quarter of this year, which was the worst decline for any European nation. Similar to Latvia, the country's currency peg is under extreme pressure and deflationary forces have taken hold. If forced to abandon the peg, resultant devaluation would mean huge losses for domestic borrowers with foreign currency debts. While the country has recently been able to issue local currency government bonds, something Latvia failed to do, bond buyers could end up very wrong. Moody's recently downgraded the country and budget deficits show no sign of abating. The IMF expects economic contraction to continue in 2010.

  • Korea: While North Korea is a repeat offender when it comes to meltdowns, even the far better run South Korea could be headed for a unique bust of its own. Despite a global real estate downturn, South Korean housing prices have been on fire. Seoul property prices jumped 20% year to date, while consumer confidence in housing is at record levels. Low interest rates and floating rate mortgages could be fueling a speculative boom that could end badly once easy money and easy mortgages come to an end. It all sounds so eerily familiar, doesn't it. If a bubble pops, it could come at a horrible time since South Korea is just starting to rebound from the economic downturn.

  • USA: Surely you know all the risks still facing the American economy. We're massively in debt to the rest of the world; highly exposed to an oil shock, and we have enemies that want to kill us all around the world. 'Nuff said.

European nations opt for dollar issues
European governments are having to raise money in dollars because of difficulties in attracting investors in their domestic markets due to the intense competition for funds. Central and eastern European governments have been particularly hard hit by the crowding-out effect as sovereign debt issuance has soared to record levels, enabling investors to be much choosier over the bonds they buy.

Croatia joined the growing trend of issuing in dollars on Wednesday when it announced plans to issue its first bond in the US currency, with Barclays Capital, Citigroup and JPMorgan arranging the deal. It is expected to raise $500m. Lithuania issued its first dollar bond last week, raising $1.5bn in five-year paper. HSBC and RBS arranged the deal. Poland, which has been one of the most active sovereigns in the bond markets, is this month planning to raise money in yen. The Poles have raised money in dollars, Swiss-francs and euros this year.

Jonathan Brown, head of emerging market syndicate at Barclays Capital, said: "Issuers are having to think harder about which markets to access, and when, as the competition for investor attention increases." By raising money in dollars, emerging market sovereigns can take advantage of the strong switch by US investors out of money market funds into emerging market assets. However, it is not only central and eastern European countries that have turned to the US market to raise funds. Germany, Italy, Austria, Belgium, Portugal and Spain have also issued debt in dollars in recent months, according to Dealogic.

Many eurozone issuers have also benefited from the attractive terms of raising money in dollars and then switching back into euros. The so-called basis swap between the currencies means that they can shave as much as 20 basis points off the cost of a deal. This is because the big demand for dollars has forced down the cost of switching back into euros by as much as 20bp below London interbank-offered rates that would be used for funding a euro-denominated deal.

Rise in UK jobless slows significantly
The rise in unemployment in the UK slowed significantly in the three months to August, giving hope that the worst job losses may be over as the economy shows signs of recovery. The number of people out of work rose by 88,000 to 2.47m, compared with the previous three months, the lowest quarterly rise for 13 months. The total was actually 1,000 lower than the May to July period, although statisticians cautioned against reading too much into that figure. The unemployment rate remained unchanged at 7.9 per cent of the workforce compared with a month ago.

The rate contrasts with recent figures of 9.8 per cent in the US and a 9.1 per cent average across the European Union. The number of 16- to 25-year-olds out of work, far from rising above 1m as some forecasters had expected, fell by 1,000 to 946,000. The lower-than-expected rise in unemployment may prompt some economists to revise their forecasts that the total will peak above 3m, almost 10 per cent of the workforce, next year. It underlines evidence that the UK labour market is performing better than in the past two recessions.

Howard Archer of IHS Global Insight said that while it "now looks less likely that unemployment will rise as high as 3m in 2010 or early 2011 as had been feared, such a level cannot be ruled out". John Philpott, chief economist of the Chartered Institute of Personnel and Development, said the slower rise was due to an increase in part-time employment for women which, "although good news, further highlights the degree to which men are being much harder hit than women by the recession". The number of people claiming job seekers allowance rose by 20,800 to 1.63m in September, the smallest rise since May last year.

A gap that had opened in recent months between overall unemployment, using the International Labour Organisation’s definition and the claimant count has largely disappeared when the figures are compared over the same timescale. In a further sign of stabilisation, vacancies, at 434,000 in the three months to September, were unchanged compared with the previous quarter. The total number of people in employment fell by just 45,000 to 28.95m in the three months to August compared with the previous quarter. Redundancies fell 68,000 to 233,000. Average earnings, excluding bonuses, increased by just 1.9 per cent in the three months to August compared with the previous year, the lowest since comparable records began in 2001. The figure including bonuses rose 1.6 per cent.

The West Midlands saw the highest rise in unemployment, up by 4 percentage points in the three months to August compared with last year to a level of 10.4 per cent of the workforce, the highest in the UK. Wales had the second-highest rise, up 3.2 points to a level of 9.1 per cent, followed by Northern Ireland with a rise of 2.8 points to a level of 7.1 per cent. Yvette Cooper, work and pensions secretary, said: "Although unemployment isn’t as high today as many feared it would be at the time of the Budget, it remains a serious problem, which is why we must keep increasing support and advice to get people back into jobs."

Still on the Job, but at Half the Pay
The dark blue captain’s hat, with its golden oak-leaf clusters, sits atop a bookcase in Bryan Lawlor’s home, out of reach of the children. The uniform their father wears still displays the four stripes of a commercial airline captain, but the hat stays home. The rules forbid that extra display of authority, now that Mr. Lawlor has been downgraded to first officer. He is now in the co-pilot’s seat in the 50-seat commuter jets he flies, not for any failure in skill. He wears his captain’s stripes, he explains, to make that point. But with air travel down, his employer cut costs by downgrading 130 captains, those with the lowest seniority, to first officers, automatically cutting the wage of each by roughly 50 percent — to $34,000 in Mr. Lawlor’s case.

The demotion, the loss of command, the cut in pay to less than his wife, Tracy, makes as a fourth-grade teacher, have diminished Mr. Lawlor, 34, in his own eyes. He still thinks he will return to being the family’s principal breadwinner, although as the months pass he worries more. "I don’t want to be a 50-year-old pilot earning $40,000 a year," he said, adding that his wife does not want to be married to a pilot with so little earning power.

In recent decades, layoffs were the standard procedure for shrinking labor costs. Reducing the wages of those who remained on the job was considered demoralizing and risky: the best workers would jump to another employer. But now pay cuts, sometimes the result of downgrades in rank or shortened workweeks, are occurring more frequently than at any time since the Great Depression. State workers in Georgia are taking home smaller paychecks. So are the tens of thousands of employees in California’s public university system. The steel company Nucor and the technology giant Hewlett-Packard have embraced the practice. So have several airlines and many small businesses.

The Bureau of Labor Statistics does not track pay cuts, but it suggests they are reflected in the steep decline of another statistic: total weekly pay for production workers, pilots among them, representing 80 percent of the work force. That index has fallen for nine consecutive months, an unprecedented string over the 44 years the bureau has calculated weekly pay, capturing the large number of people out of work, those working fewer hours and those whose wages have been cut. The old record was a two-month decline, during the 1981-1982 recession.

"What this means," said Thomas J. Nardone, an assistant commissioner at the bureau, "is that the amount of money people are paid has taken a big hit; not just those who have lost their jobs, but those who are still employed." Bryan and Tracy Lawlor, who is also 34, have hidden their straitened circumstances from their four young children, mainly at his insistence. But as their savings dwindle, Christmas, a key indicator in the Lawlor family, will mean fewer presents this year. The Lawlors have made a practice of piling on toys and new clothes for their children at Christmas, buying relatively less the rest of the year. That will make a cutback noticeable this holiday season, and the parents are concerned that their children will begin to realize why.

"You don’t want to see disappointment on their faces; that makes me feel horrible," Mr. Lawlor said. "You can be the best pilot in the airline and make the best landings, and in their eyes, I am not going to be as important as I was."

Bryan Lawlor was five years out of Virginia Tech before he turned to aviation, his first love as a boy. His mother still cherishes a photo of her son, age 5, seated in a cockpit. But Mr. Lawlor studied chemistry in college and he used that skill, taking jobs as a chemical technician, to support his growing family. Layoffs marred those early years and in 2003 Mr. Lawlor made the "crossroads" decision to become a commercial pilot, borrowing $24,000 to learn to fly and to acquire the necessary licenses.

His current employer, ExpressJet Airlines, is a spinoff from a feeder operation for Continental Airlines. It brought passengers to Delta hubs as well, mainly in the West, and to help handle that traffic, Mr. Lawlor was promoted to captain from first officer in July 2007. His pay rose to $68,000, with the prospect of reaching $100,000 — roughly triple a first officer’s pay. That is not so much money by the standards of an earlier era. Even senior captains on legacy airlines rarely earn above $200,000 today, as they often did in the past. Mr. Lawlor says pilots’ pay these days fails to recognize the training and skill involved in transporting passengers even more safely than in the past.

But Mr. Lawlor felt he was headed in the right financial direction until the economy, and the airline business, took a tumble. It is a setback that worries his wife, who wants her husband back on the income path that was interrupted one year ago this month. "I certainly don’t earn enough to make up for what he lost," she said, adding that to make matters worse, "teachers didn’t get a raise in our school this year." Still, as her husband’s ordeal drags on, Mr. Lawlor in some ways has risen in his wife’s eyes. "I have more respect for him," she said. "I can see he is angry and upset, but he does not show it very often, and never to the kids."

That is less and less true, Mr. Lawlor said, amending his wife’s appraisal. One year into his downgrade, "never" has turned to "rarely" and, in recent weeks, "not so rarely." He blew up last week at his 3-year-old son, Shayne, for refusing to take a nap, and sent the child whimpering to his room. Then, after arranging with another pilot to delay a flight so he could "dead-head" home in the early afternoon instead of having to wait for the next flight, he blew up at his wife for failing to appreciate the effort he had made and the stress involved.

"My mind is always on 20 different things," Mr. Lawlor said. "What do I need to get done? How much will it cost? Is it necessary? Can I do it cheaper if I do it myself? Can I make the earlier commute home? Rush, rush, rush, and then suddenly someone makes the wrong comment and I become uncorked."

As a captain for ExpressJet in calmer times, Mr. Lawlor commuted across the country to Los Angeles, his home base, for each three- or four-day trip. Now, as a first officer, his base is Newark, a far shorter commute from the Lawlor home in this Richmond suburb. So he is home more. He spends that time caring for the two youngest children, Shayne and Jackson, 16 months, while his wife takes the two oldest, Zachary, 7, and Kelley, 10, with her to the elementary school where she teaches and they are enrolled as students.

"A lot of my friends say their husbands would not stay home with the kids on their days off, even to save money," Mrs. Lawlor said, "but Bryan feels that if he is going to be home more that is what he should do, and he is doing it." Mrs. Lawlor praises her husband’s adeptness in the routines of child care. But money also drives him. Each day that Jackson and Shayne are not delivered to the home of the baby sitter is $50 that can be spent elsewhere. That wasn’t a priority while Mr. Lawlor was captain. In the 14 months that he held that rank, his $68,000 in pay and Tracy’s $40,000 as a fourth-grade teacher were enough, as Mr. Lawlor put it, for the family — for the first time — to spend freely and still save money.

He purchased a white gold 10th anniversary band for his wife and a bright yellow Harley-Davidson motorcycle for himself, imagining that he would take it for spins on his days off, the wind blowing in his hair as he raced along the sparsely populated roads in Richmond’s semi-rural suburbs. "It was a present to myself when I upgraded to captain," he said. The $10,000 Harley sat for months in the garage before it finally sold, with only 175 miles on the odometer. Mr. Lawlor had never ridden it much. His wife objected that he would exclude the family unless, as she pointedly put it, he could "find some way to strap the kids on the motorcycle." Now the desire to ride the eye-catching hog is gone. If he ever makes another vanity purchase, Mr. Lawlor says, it will be something the family can use.

His mother, Patricia Lawlor, anguishes over this scaling back of his exuberance and the psychological effect of the pay cut. "Let me put it this way," she said of her only son, the oldest of her three children. "When we went out to dinner and he was a captain, with a captain’s pay, he for the first time picked up the check. He would say, ‘I’ll get it, Dad,’ instead of letting his father pick it up. It gave him a great deal of pride to do that. ‘Let me buy, Dad, for once.’ And now he does not say that anymore."

While Mr. Lawlor was still a captain, his parents decided to move into smaller quarters, and the son and daughter-in-law bought their five-bedroom house, getting a break on the price but increasing their mortgage payment to $2,000 a month from the $1,200 they had paid for their smaller home nearby. They closed on the house in August 2008, on the eve of the downgrade, and soon there were regrets. "We would not have bought the house on a first officer’s salary," Tracy Lawlor said. She had considered giving up teaching to be a stay-at-home mom. "We felt we had some breathing room for the first time in our 11 years of marriage," she said, "and that went out the window with the downgrade."

She was sitting at her kitchen table, and her husband, across from her, winced, but did not disagree. Even if his captain’s rank and pay are restored she will continue to teach, she said. His pay could be cut again. They are convinced of that and, in preparation, they made certain there would be no more children. Their fourth, Jackson, was just 4 months old when the downgrade came, and soon after, Mr. Lawlor underwent a vasectomy. "We could not take the risk of having another child," he said.

The West Coast assignment, while representing a promotion, meant long, often overnight commutes, with Mr. Lawlor sleeping fitfully in the jump seat of a FedEx cargo jet or in a sleeping bag rolled out in the cargo area. His first day home, he often spent dozing on the living room couch. His wife hated the time taken from the family, and her husband’s exhaustion. "He was totally worn out the first day back, and tired the whole time he was home," she said.

One year later, even after such a big pay cut, Mrs. Lawlor sees her husband’s shorter commute to his new base at Newark as a blessing she is reluctant to give up. Her husband says that moving back up to captain, with a captain’s pay, might mean commuting again to California. "If that is what it takes, I’ll do it," he said, and this time his wife winced. "I would probably not be happy," she said. But she "wouldn’t trade him for another husband," as she put it, and while she had never wanted her husband to be a pilot, at this point she would be alarmed if he left aviation in an attempt to please her.

"He likes what he does," she said, "whereas before he did not like what he did. That has made him easier to be around, whereas before he became a pilot, he wasn’t happy at all." Mr. Lawlor is vice chairman for contract enforcement for the ExpressJet unit of the Air Line Pilots Association. He had volunteered some months ago for the unpaid role, and now his fellow pilots seek his help in resolving scheduling disputes, pay issues, meal reimbursements. The calls and e-mail messages come in on his cellphone. When he is home, minding his sons, he lets the children migrate to the living room to watch a cartoon on the family’s big-screen TV while he sits nearby, at the kitchen table, absorbed in mediating appeals.

That is not the same as commanding an airliner — walking through the airport wearing the captain’s hat — but it brings him part way back. "My point would be that being in the captain’s seat made me feel in command, and capable and powerful," Mr. Lawlor said, "and that has been taken away, and through the union, I can still experience some of that, in the admiration of my peers for being able to step up and help them. Maybe psychologically that fills a void; maybe that is why I don’t feel as bad as I would otherwise."

So the Lawlors soldier on, with plenty of family help. Their sisters have pitched in with baby-sitting, gratis. His parents bought their kitchen table, the dining room table, a playpen, a living room sofa and the deck furniture. His father’s two unmarried sisters, both retired teachers, insist on helping their only nephew — the one family member perpetuating the Lawlor name not only in this generation but, through his three sons, the next generation.

The aunts offer a subsidy. They insist, for example, that Bryan Lawlor eat healthy meals when he is on the road, even if that means spending more than his airline-allotted per diem. They’ll pay, and Mr. Lawlor says he does now eat properly. The aunts also paid $200 to rent "moon bounce" equipment for a Lawlor child’s birthday party last month. The birthday boy had asked for the party entertainment, and the Lawlors obliged, with the aunts’ help, not wanting the father’s loss of income to translate into constraints on the children’s lives.

Still, their savings, built up in the good years, have dwindled to $10,000, from $28,000 last fall, and Mr. Lawlor said the next rung down, to four figures, is in his mind a crisis level. "I am beginning to feel like, what if something happens to me, where does that leave Tracy?" he said. He called in sick recently, suffering basically from fatigue. "I think the reason I felt fatigued is the stress," he said. "It is always there."

Rage at Government for Doing Too Much and Not Enough
Americans have historically swung between anger at big business and anger at Washington. This year their rage has targeted business and government with equal fury. Public frustration over Wall Street failures that led to the financial crisis was typified by the uproar over bonus payments to American International Group Inc. executives. Those feelings haven't dissipated, political strategists say. At the same time, Americans are equally upset at what they call overreaching by Congress and federal bureaucrats, with protesters taking to the streets to decry "socialism" and a "government takeover" of the economy.

Policy makers face a quandary. With voters simultaneously recoiling at laissez-faire policies and a big-government approach neither party in Washington seems capable of corralling an angry public. "I think this is a very populist moment," said Vin Weber, a former Minnesota congressman and now a top Republican strategist. "People held onto their distrust of big business and Wall Street, but what has happened is their distrust of big government has come back as well."

Last year when Barack Obama won the presidency and Democrats swept to big congressional majorities, commentators heralded the dawn of a "new New Deal." Time magazine put Mr. Obama on its cover sporting a cigarette-holder in a pose reminiscent of Franklin Roosevelt. Democrats sought support for an ambitious agenda that included a stimulus package, an overhaul of the health-care system and a bill to address climate change.

Along the way, they have encountered an angry distrust of government, and politicians of all stripes, that is palpable in tea-party groups forming around the country. "I have had I don't know how many politicians ask, 'Can I speak at your tea party?'" said Catherina Wojtowicz, coordinator of the Chicago Tea Party group. Her response: "Honestly, it's your turn now to shut up, sit down and listen." Some don't see government and business as opposing forces. They see a unified elite pursuing one big swindle, as government takes taxpayers' money and bails out powerful companies such as banks and auto makers. The $700 billion Troubled Asset Relief Program, or TARP, has been especially unpopular.

People on both sides of the political divide seem to share a frustration with larger forces. "They're mad at institutions -- all institutions," said Karin Johanson, a Democratic strategist. "Nobody can underestimate the angst, or even fear, of the American voter right now...The institutions they were relying on which were assuring them of their security were not there."

Episodes of populism in U.S. history are marked by "people being fearful of and opposing concentrated power of any kind," said Michael Kazin, a Georgetown University historian and author of "The Populist Persuasion." "Big corporations and big government can be seen as parts of the same problem," Mr. Kazin said. That was particularly true during the Gilded Age at the end of the 19th century. Theodore Roosevelt tapped into that resentment by promising to end what he portrayed as a corrupt and cozy system where powerful companies and politicians rewarded each other.

Today, the double-edged anger is creating difficulty for both parties. Voters are demanding solutions to problems in health care, but remain wary of both government agencies and private firms that could play a role in a solution. People are upset about deregulation and furious at re-regulation. They want government action, but not if it swells the deficit. In a recent Wall Street Journal-NBC News poll, a plurality said the stimulus package was helping the economy. In the same poll, a plurality also said it was a bad idea.

This is the needle both parties are trying to thread, even as they run the risk of an anti-incumbent movement that threatens Republicans and Democrats alike. GOP strategists talk of tackling middle-class anxieties without government spending, for example lowering health costs by cracking down on medical-malpractice suits. Democrats say that once they enact their agenda, proving they can solve problems, the public's distrust of government will fade.

For now, neither party's message is catching on in a big way. In the recent Wall Street Journal-NBC News poll, 41% of respondents viewed the Democratic Party positively and 39% viewed it negatively. That is hardly a vote of confidence, but Republicans fared worse, with 43% viewing them unfavorably and only 28% positively. "The greatest movement within the tea party is 'None of the above,'" said Jim Bancroft, a founder of the tea-party group in Hartford, Conn. Officials in both political parties "need to be totally removed -- every single one of them," he said.

Sweden Turning Stray Rabbits Into Biofuel
Stray rabbits are getting a raw deal in Sweden. Thousands of them living in the center of Stockholm are being culled, deep frozen and converted into biofuel for heating homes. Wildlife campaigners have criticized the practice. Thousands of rabbits, some of them pets abandoned by their owners, are being shot, deep-frozen and burned in a heating plant in Sweden, a professional hunter who works for the city of Stockholm said on Tuesday.

The center of the Swedish capital is being plagued by thousands of rabbits, some of them wild and some of them stray pets, and 3,000 have been culled this year, down from 6,000 in 2008, Tommy Tuvunger, who hunts rodents for the Stockholm city administration, told SPIEGEL ONLINE. "We are shooting rabbits in Stockholm center, they are a very big problem," said Tuvunger. The rabbits are eating their way through the city's central parks. "Once culled, the rabbits are frozen and when we have enough; a contractor comes and takes them away. " Tuvunger said it was normal for animal carcasses to be processed for fuel. "The contractor doesn't just pick up rabbits, he also picks up cats, deer, horses and cows," said Tuvunger.

The frozen bunnies are shipped to a heating plant in Karlskoga in central Sweden which uses them as biofuel and incinerates them to heat homes, media reports said. A spokeswoman for the plant declined to comment. The plant's supplier, Konvex, a company that produces biofuels from animals, could not immediately be reached for comment. Konvex is a subsidiary of Danish group Daka Biodiesel, which says on its Web site that it produces and markets biodiesel and bio fuel oil using animal fat extracted from "by-products from slaughterhouses and primary agriculture."

The practice of killing rabbits and incinerating has been criticized by Sweden's Society for the "Those who support the culling of rabbits surely think it's good to use the bodies for a good cause. But it feels like they're trying to turn the animals into an industry rather than look at the main problem," Anna Johannesson of the society told Vårt Kungsholmen newspaper, news Web site The Local reported. Johannesson said there other methods of getting rid of rabbits besides killing them, such as spraying park plants with a chemical that makes them unappetizing to rabbits.

But Tuvunger says that doesn't work. "If you do that you only move the problem 100 meters away." Karl Szmolinsky, one of Germany's best-known breeders who has won prizes for his giant rabbits, said he couldn't imagine using the animals for biofuel. "I would never have given mine away for that," he told SPIEGEL ONLINE. Szmolinsky, who gained fame for exporting several rabbits to North Korea, has given up breeding due to illness in the family.


deflationista said...

ilargi or stoneleigh-

would you please take a minute and review the eric jenzen piece over at itulip?

he really tears into the deflationary camp...

you may have already done commented on it... but if not, i would like to hear what you have to say about it--

also- can you start addressing in more detail the consequences and realites of the dollar losing reserve currency status...

thanks ahead of time!

Unknown said...


I always enjoy your choice for the last article in the Rattle and how you attempt to show the broader connection, usually in some way not immediately obvious apropos of nothing, between the debt overhang and the world we have to or will have to live in.

Ruben said...

Stoneeligh, welcome back.

Would you mind expanding a bit on what you aee for the future of the US dollar? I know you see a flight to safety for the USD as the stock market tanks, but the article about the Japanese economist today, who sees the Dollar hitting 50 Yen this year seems to run opposite. He is citing Elliot Wave to support that position...

And, for anybody in the Lower Mainland, Vancity has just added a no-fee US Dollar account. You can move money back and forth at your whim, with no fees, though not the best exchange rate. Have fun timing the tanking.

Chaos said...

Rabbits? Really? Thanks for the comic's nice, after outrage after outrage, runaway accounting standards, ridiculous bonuses, conflicts of interest, and the rest of the articles, to find a little levity in the weird doings of sentient beings.

Gravity said...

About the fates, one can say that a planck-time of present(10^-44 s) is definitely too short to contain our conscious perception of reality or any such freedoms of the will, being insufficient in duration to actively participate by means of acceleration.

That is why consciousness should exist slightly in the futures, anywhere or anytime up to 10^-5 seconds ahead of the present, being able to attain momentum precisely because there are no icky higgs bosons here, which is how the 'present' might be defined in relation to the pasts and the futures. Consciousness would be embedded in such non-linear constructs, being capable of freely moving massive objects in the future as well as in the past, because it is defined through relativistic momentum, the futures being heavier and quicker than present or pasts.

The attempt to generate such scalar particles in this timeframe would be similar to moving the entire mass of the universe ahead of itself and against its will, perhaps resulting in magnetic singularities of hilarity.

As long as electromagnetic waves continue to propagate through a gravitational continuum, it would be difficult to detect any mechanism of electroweak symetry-breaking when both lightspeed and pi remain fixed and consciousness itself attains massive momentum.

Gravity is capable, and a fit receptacle of everlasting bodies, the earth of corruptible bodies.

Unknown said...

Something that didnt really click in my head until I saw the DJIA hit 10,000 yesterday is about the cramdown of mortgages. Why would banks not want to allow the principal to be written down if it keeps people paying on their mortgages? The person would keep paying, and the loss would be a known number instead of a guess. Well now with unemployment and foreclosures at high rates it finally dawned on me. The banks themselves are making bets that their own loans are going to fail. Since as a casino is the only way our markets operate now, how else would banks do well in the middle of sooo much failure? Its because they are betting that the failure is going to happen, and they are doing everything in their power to make sure the failure happens. If thinks dont fail, they dont make as much money.

Brunswickian said...

From LATOC thread:,54726.0.html
Long Term Unemployment Skyrocketing Exponentially, Blows Past Record
Scary graph

And this comment:

I wasn't getting any responses either robert, so I posted a fake job opportunity on craigslist to see how much competition I was against.
I got 350+ resumes in the first 24 hours and 863 in the 7 days I posted it. I about pooped my pants.

If anybody really wants to know likewise, post one yourself in the field your looking for and read the desperation on the e-mails you'll receive back, scary indeed.

Gravity said...

From The massage of Dollar disdain:
"it's a mathematical impossibility to reduce debt if you continue to spend more than you take in."

It would moreover be mathematically impossible to reduce debt at all in our finest system of totalitarian monetarism, where the function of money creation by any central bank is an interest-bearing loan, due in part to compounding dividends recieved by member-banks for no good reason.

Such debt may only be moved from one year to the next, or from one country or currency to another by means of surplus/deficits in trade, but can in fact never be reduced by money creation, being inextinguishable by nature.

There does seem to be a method of keeping complex societies running in sustained deflation, this would necessitate a continuous reduction of population, and possibly even discontinuing all moneyed interests everywhere.

Unknown said...

This speculation of a market collapse is starting to become nonsense, I&S are using old history, the new game is played different, hence why nothing is collapsing..the U.S will find a way to control its debt one way or another. DOW=15K in a year, that is my prediction.

TechGuy said...

Ryan Wrote:

"The person would keep paying, and the loss would be a known number instead of a guess. Well now with unemployment and foreclosures at high rates it finally dawned on me. The banks themselves are making bets that their own loans are going to fail."

The main reasons are:

1. An asset write down means they have to raise reserve cash to cover the lower prices.

2. Banks like BoA, Wells Fargo and JPM that bought the assets of failed banks (ie Wacoviha, CountryWide, and Washington Mass Mutual) have guarentees on loan defaults. In many cases these banks make money by foreclosuing because the FDIC will hand them back 80 to 90% of the original loan amount on foreclose properties. So if the FDIC hands over 90% of the loan in cash, and the banks sells the home for more than 10%, they make money. If the re-fi the loan, and write down the loan to the value of the home, they don't get anything, especially if the home owner later defaults.

Ilargi said...

Benoit et al,

From yesterday:
"We saw very few of these periods of deflation in the last century. The only relevant case is 1990s Japan, isn't it? Because in the 1930s the Fed could not print, as the dollar was tied to the Gold Standard."

Now clearly there are differences between Japan and the current crisis. But what other historical precedents are relevant?

Check out this graph from Doug Short.

And then we may wonder whether we will never have deflation again, or if perhaps going off gold will lead to the mother of all deflations.

thethirdcoast said...

@ Brunswickian:

That is an interesting find regarding the job market.

It intrigued me because I am currently in the midst of the interview process. In two weeks I fly across the US for my day-long onsite where I will be required to give a technical presentation to multiple managers and engineers. All this for a mid-level engineering position.

Stoneleigh's back, so this is probably the part where cautions me against detonating my entire life and moving from one coast to the other. :D

I don't know if it helps, but the firm I am interviewing with is a supplier to the power infrastructure industry, which I believe will be a going concern in the near term.

However, the elite could be so short-sighted that they let the lights go out for 300+ million Americans.

I'm pretty sure we all know how that story ends.

Gravity said...

Consider the mythical 'steady-state' economy, which might 'grow' by means of continuously decreasing input of physiscal resources while keeping output of valued substance stable.
This is currently beyond limited imaginations, and conflicts with the needs of an ever-increasing population and expanding monetary base.

It would only work if the monetary system were based on threshold deflation, healthily operating at -0,2% annual contraction, which would then be beneficial for all, no compound interest could be achieved or would be desirable. Such a system might also necessitate a continuous slow reduction of population until some optimal singular spread was reached.
The economy would then be able to assume a new level of sophistication where all currency would become superfluous, thus finally disposing of both debt and the price-mechanism, these being the least measurable and most unreal constructs in existence.

Further efficiency gains would be attained by sequentially annihilating all superfluous iterations of the mathematical construct [0] as required in invalid expressions of constants which aren't, which should not exist anywhere but in that place where everything else is not, and which certainly should not attain duplication or mass through movement, being immoveable, as half of our digitized economy would still permanently involve the non-movement of a symbol which essentially indicates the absense of value, theoretically being limited to only half-efficiency, in perpetuity.

EconomicDisconnect said...

Great post. I wanted to thank you for taking time to answer my question from yesterday as well.

Would rabbits constitute a renewable energy source? I mean they do multiply, well, like rabbits!

Erin Winthrope said...

I'm beginning to have my doubts about a market crash as well.

I'm well aware of I&S arguments, but two of you have never really articulated a good counter-argument to Chris Martenson's recent "What is the sound of one hand clapping?"-article.

I don't see the mechanism by which the banks are forced to recognize their losses. The banks have the government and the accounting standards board in their back pocket. The entire world seems more than happy to let the status quo persist for an extended period of time. Thus, a market crash becomes impossible for quite some time.

Gravity said...

I'm seeing some logic in Steve Keen's points on endogenous money creation, where inflation is always and everywhere a partially voluntary phenomenon, but providing that all primary needs are priced, this doesn't really hold for deflative situations.

The infamous symbols with negative valuation which remain hidden used to correspond to the accounting of things in the world, and have moved those things accordingly.

You can't now pretend they don't exist, since they have already moved all those things by means of vectored valuation, this would render the actual placement of corresponding capital as illogical, thus amplifying an interconnected downwards movement of overvalued substance which cannot be expressed or nullified by switching them into the momentum of any other incidentally positive symbols, as the prices to which they should correspond are supposed to be vectored symbols, until they're not, revealing only spin and drained momentum in the age of accounting.

el gallinazo said...


This time it's different.

bluebird said...

Marking my calendar to watch PBS Tuesday evening for 'The Warning'. Thanks Ilargi for the heads-up.

Unknown said...

due to the anticipation and almost given belief that the market will collapse, its going to prolong this rally for a while longer, even years. There has been a lot of whistle blowers and pessimist regarding this rally and that is what's different this time. In other bubbles and economic downturns there were very little naysayers and a lot of optimist, This time around the naysayers have caught up with the optimist in numbers.

foss said...

i tired to make this comment last night; account problem...
one issue in the inflation/deflation back & forth i have not heard addressed is michael panzer's[i'm sure others too] idea that the gov[US] will take over[pressure, including the FED] the financial sector when riots, etc. are breaking out; & then we'll[everyday citizens] receive direct stimulus money- debit cards, electronic deposits, etc.- that will drive an inflation/hyperinflation.

i believe the first part- to me unquestionably, & have thought we'd have inflation then[it will not last long imo, maybe 6 mos....] for the above reason. i think panzer covers the in 'when giants fall' workshop/4 part video on his website.i also know panzer is referred to some here, & stoneleigh recommends one of his books. look forward to learning/sharing. thanks.

btw utmost respect, & admiration for stoneleigh; here, & previously at tod- have seen her consistent actions to merit this.

NZSanctuary said...

Has anyone noted this yet?

Hombre said...

Infomania - "DOW=15K in a year, that is my prediction."

Not that it would matter to any of my disenfranchised peers to whom the DOW is meaningless, but what is your prediction based on?

Ilargi said...


Janszen's tone is such that I see little incentive to read his piece in great detail.

He's not just been right for the 10 years he gives himself credit for, according to Doug Short, he's been right for 60 years. But what does that prove? Many people alive back then won't last much longer either.

What I do see is "same old" material, and an unshakable belief in the Fed's unlimited power to depreciate the US dollar.

Which makes me wonder how that would work if everybody else is looking to do the same thing, while the US dollar is everybody's choice for a safety escape?

It seems to me that I see that a lot. Whenever someone these days tries to make the case that the markets won't sink, they invoke never-ending Federal Reserve powers. Janszen uses the same argument to plead against deflation.

Still, I'm pretty sure that the proof for the idea that Bernanke is from Krypton is based on a history grounded in times when those powers were never needed. In other words, they've never been tested, and the Fed has those powers only in some people's theories. In economics, it’s not unusual to present untested theories as proof, but that don’t make it so.

I’ve never seen anyone distinguish the bubbles Janszen does, the way he does it, so I won’t go into them, I’ll just say that the unwinding of the Greenspan housing credit bubble is what we're in the middle of. It doesn't end simply because the Fed tries its same old low interest tricks again. On the contrary, the fact that it has no other tricks in its arsenal doesn't bode well at all.

The amount of debt issued this decade is unprecedented, and nothing of it of course has been solved just because the goverment started issuing even more debt while playing hide and seek with most of what's still there.

To summarize, the evidence looks pretty one-dimensional to me, and the outcome hinges on unproven larger than life powers.

Cue enter Kryptonite center stage left.

PS Stoneleigh says she heard Janszen speak at the ASPO thing and he seemed to make a great case for deflation, until at the end he turned around and said: "They’ll print".

Hombre said...

3rd Coast - "...the firm I am interviewing with is a supplier to the power infrastructure industry, which I believe will be a going concern in the near term."

Good luck with your interview!

The grid and related structures hopefully will get a lot of long awaited maintenance and upgrading soon if we don't go caput first.

Chaos said...

John Michael Greer's latest is worth reading. As usual, he puts things in a longer view. Useless for near term predictions, but if your focus is 2050 or later, you could probably make plans based on his views.

EconomicDisconnect said...

I liked the Jenszen write up, but found it a bit to inflation based and not currency fear centered than I would like.

I think the main issue with deflation being a long term issue is the enormous (ginormous?) pressure on elected officials that headlines like:

No Social Security Increase
No Minimum Wage Increase

will have on policy.

I think you are right that we are nearing a major inflection point and the stakes are very high.

Ilargi said...


Deflation as a long term issue has never been an issue here. What's more important, I think, is the damage it will do before there's anything like a longer term.

Ilargi said...


noted what about it?

EconomicDisconnect said...

Good point Ilargi!

More and more I can grasp the concept of both a financial crisis and a political crisis which go hand and hand.

Light shines on Marblehead perhaps!

NZSanctuary said...

Re: Faux Nobel

Just wondering if it had been commented on at all.

Here they are being lauded by the press as working in an economic field that could prevent another financial crisis. What about a political one?

"Williamson, an economist at the University of California, Berkeley, focused on how companies and markets differ in resolving conflicts. He found that companies are typically better able than markets to resolve conflicts when competition is limited, the citation said."

It goes on to say this is in line with what has been observed at the big banks. That seems completely backwards...

Bigelow said...

“So there was a little fraud, no big deal, right?

Wouldn't looking backwards at fraudulent conduct be distracting for the people, the government, and the economy? Shouldn't we look forward so we can recover?


Specifically, the Wharton School of Business has written an essay stating that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable.

The Wharton paper states:
The public will need to "hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again." In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again...”
The Ongoing Cover Up of the Truth Behind the Financial Crisis May Lead to Another Crash

Who would prosecute anyway? It brings to mind a line from a National Lampoon Radio Hour: “This is L. Patrick Gray of the FBI! If I don’t come out with my hands up, I’m coming in after me!”

Except for the misery that remains, soon the details of the biggest frauds in history will be replaced with further coverage of some new depravity, yet another celebrity divorce or a darn cute animal story.

Any stock market crash should be over by late February; if not, then the financial terrorist class really has discovered perpetual motion.

Greenpa said...

I'm going to be interested to watch Joe Public's reaction when the Gollem bonuses are actually paid out. It's pretty hard even for the most dense to take them as anything but "UP YOURS!!!" - to all of us.

There WERE crowds and noise and near violence during the AIG event- mostly I heard about it from whines in interviews with wives of the bonused- they thought it was just not right that busloads of people should come out to their homes and yell at them as they entered their estates.

Never saw a picture of one of those events though. Huh. Fancy.

It'll be interesting to watch. The folks I know here are not all that apathetic- they're really angry, and getting moreso. I think if they had a local focus, and somebody threw the first rock- it could explode.

jal said...

Check out the documentation at the Market Ticker.

This could blow up into a Black Swan

thethirdcoast said...

@ Coy Ote-

Thank you for the kind wishes. Personally, I am hoping that more attention is paid to the ASCE Infrastructure Report Card. I also enjoyed the AP article about the proposed Tres Amigas distribution station intended to move solar & wind-generated energy out of the Southwest and provide a stronger connection between regions of the national grid.

My main challenges at present are finding a decent suit in short order and knocking the rust off mathematical skills that have decayed precipitously.

I made the mistake of poking around Macy's for a suit last evening. After that experience I would argue their financial issues are largely due to the extremely poor value their products provide. Their leather jackets are also obscenely priced.

As for the math, I was embarrassed by my performance on the technical portion of the phone interview, but apparently I spoke well enough to score the onsite. I have been spending my recent evenings brushing up, hopefully in the appropriate areas of mathematics.

I would not need the extra study time if my current employer actually used my skills. They allegedly employ me as an engineer, but lately the most numeric work I've done is punching cryptic numeric codes into our financial system to find the lead times and inventory numbers our planning people should be running down.

As someone who has graduated from two excellent engineering schools you will have to excuse me if I find doing the planning unit's work a bit beneath my background.

Top Hat Cat said...

Heating Sweden with burning bunnies?

How about heating Manhattan with burning bankers.

Culling is a good euphemism for this process. It sounds so, uh, civilized. Appearances are everything in modern culture.

The total absence of the rule of financial law and regulation of any sort combined with the complete non-reaction by the Sheepletons is game, set and match for the Empire.

I like the phrase (el gallinazo?) used to describe the dissolution of the US:

America will die in it's sleep.

Maybe it already has.

Where are the people who won’t back down?
Who rise up singing over city and town and
Who take the streets just to raise some hell
Where are the people with the rebel yell?
Who opens up the door between heaven and hell?
Pray tell, pray tell, who opens up the door?

Pray tell

knutty knitter said...

That airline guy seems to be living in never-never land. The attitude of lots of presents for the kids and don't tell them we're poor seems very insincere too. Round here everyone is expected to pull their weight regardless of age and learn to do without stuff although we call it making the most of what you have and doing family things instead.

We may be poor in money and stuff but I think we are wealthy in so much else that it really isn't too problematic.

love the rabbit thing :) Should suggest that to the local councils as rabbits are one of our worst pest animals in these parts.

viv in nz

redboat said...

The WSJ might as well have reprinted that article from 1982. My lord how the bond market howls even while they are bailed out of loss after loss. They are never satisfied until rates are Volker-like. Let's call them Volkeries.
Insane drivel to expect the government to save their asses, their investments and the dollar along with reasonable returns above 12%.
I am debauched just reading the screeching about America's proud distinction in the world and how the dollar has to be strong like bull.
Hypocrites and greedmongers who'd love to sink our domestic economy to squeeze every last ounce of return.
Hey, let's float interest rates and see if that works? Milton must be right? Oh, Volker tried that and nearly sunk the 1980's before Reagan jettisoned him for the incompetent he proved to be even before the Gipper's estimation. It was Donald Regan who proved to be the presidents sane advisor on that decision. Where have you gone Donald Regan? Our nation turns its lonely eyes towards you, wooo hooo woo.

M said...

How long before “Bridge Builder” unlocks the doghouse?

gylangirl said...

stoneleigh's predictions of a big rally before the big crash, and old bears turning into new bulls seems on target so far...

also fyi

cool event in dc this weekend, happens every other year [sorry for late notice]

"For three weeks in October 2009, the U.S. Department of Energy will host the Solar Decathlon, a competition in which 20 teams of college and university students compete to design, build, and operate the most attractive, effective, and energy-efficient solar-powered house. The Solar Decathlon is also an event to which the public is invited to observe the powerful combination of solar energy, energy efficiency, and the best in home design.

The event will take place on the National Mall in Washington, DC. The solar homes will be open to the public on October 9-13 and 15-18 between the hours of 11AM-3PM (Monday–Friday) and 10AM-5PM (Saturdays and Sundays). (All homes will be closed on Wednesday, October 14.) The solar village will be constructed between 10th Street and 14th Street and between Madison Drive and Jefferson Drive. The Solar Decathlon and its solar houses are easily accessible via the Smithsonian Metro Station.

In addition to touring the solar homes, the U.S. Department of Energy and event sponsors will be conducting numerous solar energy and energy-efficiency workshops for consumers."

gylangirl said...

@ coy ote
By definition, sociopaths are not suicidal; they do not suffer psychic pain. Still, those are very tragic stories. More likely results of PTSD, major depression, psychotic break, and or addiction.

@ Harper
Yes, The Oil Drum community is certainly diverse. [I myself post as urbangardener there and I think TOD should continue to exist because they provide a great educational service.]

But apparently TOD leadership has not been as open-minded. TOD Europe [Europe?!]is dominated by anti-AGW; and TOD leadership did practice 'contempt prior to investigation' of the financial crisis impact, leading to stoneleigh's and ilargi's infamous departure for TAE. To be fair, they have recently admitted the error of their ways on that particular point and they even asked stoneleigh to come back when she commented on the 'whither TOD' discussion thread.

Mostly my comments about the division over class warfare/environment/anti-intellectualism issues describe the P.O. blogosphere in general, TOD being just one part of it.

el gallinazo said...

Maybe the Stockholm City Council should hire a marketing consultant to do a taste test between Hasenpfeffer and Lutefisk. I was there back in 1967 in August and participated in the one week crayfish/aquavit orgy. But it's October. Time to cut back on that aquavit.

I had a Vespa scooter back then and coming out of one of those parties my aquavit laden, English speaking brain could not comprehend that the Swedish government had switched that midnight from driving on the left side of the road to the right. Almost died.

Dan said...

Embrace the Ponzi, for he makes us strong!

All hail!!!

Growth is our religion, our god. Growth is our creed, our greatest good. We must sacrifice truth and law on growth's alter, lest we die.

And the only way to "grow" the U.S. economy---an economy that sports a $14 Trillion GDP but that is many more trillions in the hole--- is to allow, nay encourage, the Ponzi to continue. There can be no growth if we dare crack down on the lawlessness and on the fraud and on the national debt machine that is the United States of America.

We must embrace the Ponzi, lest we die.

All hail!!!

Any substantive regulation or oversight that in any way curtails or reins in the OTC trading of such exotic financial products as CDS and CDO's will kill the nation. We must promote, not criticize, the fraud that defines the trading of Credit Default Swaps and Mortgage Backed Securities. Fraud is our life's blood. Without the fraud, the nation crumbles. We must nurture and protect the fraudsters, because they are indeed our great benefactors.

All hail!!!

The creation of real, enforceable regulation is bad! Very bad!! Any such move would immediately mean massive economic contraction. Why? Because any current economic "growth" is predicated entirely upon the lack of such regulation. Create real capital requirements for investment firms, or enforce real leverage limits for hedge funds and derivatives traders, or require minimum 20% down for new mortgage origination operations, and the economy immediately tanks. Stop the FED from monetizing trillions in DEBT, and the economy sinks like a stone. We must support the fraud, for the fraud gives us food and water and gasoline and cigarettes.

All hail!!!

We must save the nation from the forces of evil who would have us end the Ponzi! The Ponzi is our friend. We must love him as we do the family dog. We must bow down to the fraudsters on Wall Street and on Capitol Hill. We must. It is the fraudsters who run the Ponzi, and the fraudsters who turn a blind eye to the Ponzi, who feed us and clothe us. We must love and honor and obey them, lest we die.

All hail the great Ponzi!!!

All hail!!!!!!

Hombre said...

Dan W - Great satire. glad to see your post.

The Ponzi guys are like the Fonzi guy.... they just can't admit they are so wwwwwwwrong!

Syn said...

and now, a moment of silence for the dearly departed Code of Ethics:

Code of Ethics for Government Service
House Document 103, 86th Congress, 1st Session - Passed by the Congress of the United States on July 11, 1958.


I. Put loyalty to the highest moral principles above loyalty to persons, party, or Government department.

II. Uphold the Constitution, laws, and legal regulations of the United States and of all governments therein and never be a party to their evasion.

III. Give a full day's labor for a full day's pay; giving to the performance of his duties his earnest effort and best thought.

IV. Seek to find and employ more efficient and economical ways of getting tasks accomplished.

V. Never discriminate unfairly by the dispensing of special favors or privileges to anyone, whether for remuneration or not; and never accept, for himself or his family, favors or benefits under circumstances which might be construed by reasonable persons as influencing the performance of his governmental duties.

VI. Make no private promises of any kind binding upon the duties of office, since the Government employee has no private word which can be binding on public duty.

VII. Engage in no business with the Government, either directly or indirectly, which is inconsistent with the conscientious performance of his governmental duties.

VIII. Never use any information coming to him confidentially in the performance of governmental duties as a means for making private profit.

IX. Expose corruption wherever discovered.

X. Uphold these principles, ever conscious that public office is a public trust.

Jim R said...

Bank of America Posts Third-Quarter Loss on Defaults (Update1)

Little piece of bad news in the headlines this morning ... between that and Denninger's MERS hole, could this mark the end of the rally ... ?

Peter said...

As the months of reading I&S unfold, and in the context of other aspects of the reality we find ourselves in, this mind sometimes latches on to simple observations with a sense of in this comment by Stan Moore at the "Nature Bats Last" blog:
This is one of the subtleties of the Peak Oil era that I did not anticipate. The elite few in charge of the world's economies and finance did not run the fiscal train till it ran out of fuel, as predicted by original Peak Oil Theory. Instead, the stopped and looted the train first, and then will restart it (apparently) and run it on reduced fuel until the tank runs dry. The elite have no bounds to their greed, no conscience, and are content to enrich themselves while arranging for their own survival will damning the masses to guaranteed suffering and uncertain survival.

This sentiment has probably been expressed by our illustrious hosts, but today seemed especially insightful, especially in light of the theme of Guy McPherson's in this essay-"Resources".

Bukko Boomeranger said...

What's the EROEI on a burning bunny?

In all seriousness, when you add up the kilojoules expended by humans to pull them out of the traps, the fuel to truck them to the pet crematorium and whatever energy it takes to incinerate their wet little bodies, seems like it would be a net negative. Unless they're REALLY fat rabbits.

Like En Zed, Oz also has a problem with feral rabbits (and foxes and goats and pigs and camels...) But the best thing would be if burning cane toads was a good energy source!

Anonymous said...

From the Spiegel article of "Sweden Turning Stray Rabbits Into Biofuel"

"The practice of killing rabbits and incinerating has been criticized by Sweden's Society for the Protection of Wild Rabbits."

Yes, I criticize it as well. How ethical is this? What next, burning dogs, cats, horses, etc. for biofuel? How about burning infirm and unwanted humans (handicapped, elderly, poor, etc.) too? What sentient being is next?

What is the EROEI of burning rabbits? Does it matter to ask?

Reducing our footprint on Earth will accomplish a lot more than burning rabbits for fuel ever will!

el gallinazo said...

Ted Turner - Bloomberg interview

On the velocity of money:

“If you were around at the time, I gave everybody a hundred thousand dollars if they came up with anything,” Turner said. “I just couldn’t hold onto it. I wanted to keep it moving. I get a dollar, I give it to you, you spend it, somebody else gets it. You know, pass it around. You know, it’s kind of like a joint -- you just pass it around, light it up, you know, share with your friends.”

On making do:

"You know, if you economize and don’t buy new airplanes or long-range jets, or that sort of thing, you can get by on a billion or two.”

Anonymous said...


About the bunnies, my question is why on earth they burn them. Why not eat them?

I would give them to local butchers free of cost, on the condition that they dress (i.e. eviscerate and skin) the rabbits and sell them to poor people for a set maximum cost, say five euros/kilo.

Everyone wins (except the rabbits of course). And I bet the energy return is better.


el gallinazo said...

I am in Fort Lauderdale FL for two days, driving around getting some stuff done, before I move on to Costa Rica on Sunday. Having lived on a tiny island that has a three story max zoning code for 13 years, the thing that strikes me hardest is the abundance of these big box, high rise, glass and steel office buildings, always with the name of a bank on the top. Reminds me of terminal cancer in Atlantis.

When I was a kid back in the 1950's, banks were about as prominent and common (outside of lower Manhattan) as the three or four new car dealers. Ranch style offices. That was in the days when the FIRE economy was like 12% of the total, and the country actually made things.

BTW, I'm trying out for the role of Grandpa Simpson. The last one passed on recently.

TAE Summary said...

* Can we just have our collapse and move on? Market collapse is nonsense and will never happen; DOW will be at 36K five years ago; This time it really is different; There are too many pessimists now for a market collapse

* Plank's time of present too short for a decent coffee break

* Posting fake employment adds on craigslist is an amusing past time; Interviewing for a mid level job now requires a stunning presentation in front of top managers; Math skills and a nice suit are pre-requisites

* Amount of debt issued this decade is unprecedented; Mathematically impossible to reduce debt by borrowing; What will force the banks to face reality? Bank's may be betting against their own loans

* Crisis is both political and financial; How will Joe Public react to Goldman bonuses? America will die in its sleep like my grandfather, not hysterical and screaming like his passengers

* Sociopaths are not suicidal; Emos are not sociopathic

* Ethics were popular in 1958; Ponzi is the prophet for the new millenium

* Burning rabbits for energy:
- It's comic relief
- It's a renewable energy source
- Culling is a euphemism
- Same modest proposal should be made in NZ
- Cats, horses and talk show hosts likely next
- Why not eat them instead, or better yet, burn them, then eat them?
- Swedes got the idea from Bunny Winthrop

Syn said...

in the news:

"The U.S. Securities and Exchange Commission named Adam Storch, a 29-year-old from Goldman Sachs Group Inc.’s business intelligence unit, as the enforcement division’s first chief operating officer."

Starcade said...

Dan W/Coy Ote: Too bad it's not satire.

Ilargi said...

And even yet more excitement, for those who can cope with it (consult your physician).

We are now on Twitter!!!

Grandma would have been so proud.

Hombre said...

Tiny Timothy on CNBC at 4PM eastern

Hombre said...

Starcade F L - I hear ya! It's likely Dan W is telling is more like it is than any of us understand!

Gravity said...

But wouldn't that be inconvenient, that one cannot detect higgs-bosons at all because they belong to a portion of time which is permanently beyond the veil of electroweak symmetry-breaking, somewhere beyond 10^-12 seconds ahead of the present, or past the past, inhabiting the same spaces as moveable consciousness.

Any attempt to reveal such mechanisms would generate a nasty causality-paradox, whereby the universe suddenly doesn't exist, and has never existed.

This unfortunate state of affairs would then be solvable by a quicky pre-destination paradox resulting in the machine not working, which is easier on everyone.

It would however be perfectly possible to observe those special particles belonging to the structured destinies of other continua, like parallaxed multiverses, if one cares to absolve our gravity of the visible universe, renderering one's constituent particles quite dissociated.

They'll run the next accelerator on fermented bunnies, yielding impressive amounts of collidable TeV energies to screw around with.

Carrot is a Divine thing.
Carrot is the Corruption of bunny.

Bigelow said...

“The House Financial Services Committee, for instance, approved a provision on Wednesday that Mr. Frank said would exempt “the great majority” of businesses that use derivative instruments to hedge their business risks from trading such instruments through exchanges or clearinghouses. Senior officials at the Commodity Futures Trading Commission and the Securities and Exchange Commission have been critical of the exemptions, saying they would create too large a loophole for financial instruments that were unregulated and played a central role in the economic crisis.

On Wednesday, the administration announced its support for the exemptions.”
Lobbyists Mass to Try to Shape Financial Reform

How do you spell C-A-P-T-U-R-E?

carpe diem said...


Thank you for your wise and compassionate comment as always.

There seems to be no end to human stupidity or lack of sensitivity towards other forms of life.
The planet is dying because of the utter lack of respect/regard for other living sentient beings...which includes GAIA - mother earth - AND bunnies.
Truly pathetic.

As far as FB is concerned:

EVOLVE or be eaten...... metaphorically speaking.

Gravity said...

"Tell me, senators, did you nurse the housing market yourselves?"
"Did you breast-fraud it?"
"Yes, we did."
"Amputate a man's mortgage
and he can still feel it tickling.
Tell me, when the US consumer is on the slab, where will it tickle you?"

VK said...

Hey! From Rolfe Winkler's blog over at Reuters, it seems there was a major conference at buttonwood. Panzner was there and he met with George Soros and all. Seems like a pretty snazzy event. Also goes to show how small the world is, what was that rule? You're only 6 people away from knowing everyone in the whole world! :)

el gallinazo said...

Mad Max does his Humongous imitation against the Incredible Shrinking Dork Nerd Economist. The ref almost had to call a TKO to stop the bleeding.

Favorite quote:

"It's not froth, it's fraud. This is an incredible case of accounting fraud and the American peasants have got to be the stupidest people in the world today: they don't mind becoming peasants, they don't mind living like peasants, and if that's the case, we should do nothing to stop them from sliding into a peasant class."

Ilargi said...

Yeah, Max is in fine shape. Judging from the accent, the French economist is Harvard/Yale/Chicago educated, and boy, would he have liked being smart enough to put Max in his place. No, no, housing has bottomed....

I had it lined up already.

VK said...

So let me sum up my recent readings on the brain and how it functions.

1) Our brains manipulate reality. What we experience is a mere facade.

2) We are very, very vain. The brain tricks us into thinking we are outstanding and one of a kind.

3) We are self glorifying at the expense of others.

4) Emotions confuse and colour our opinions.

5) Irrationality clouds our judgement, we are quite vulnerable to errors and illusions.

6) We are pig headed on top of being big headed.

7)Our willpower can be easily overpowered though we can learn to train it.

8) The brain has schemas and places people in convenient stereotypes and is very bigoted especially under stress, tiredness etc but this can be improved through constant vigilance, which is tough.

9) We can never really know if we were truly happy or sad a few hours ago, a month ago or a year ago. It's all just an interpretation, memory is very malleable and changes every time we access it.

10) All men think that they are better athletes then they are and are God's gift to womankind :)

Syn said...

"It's a web of fraud"

William Black's most recent video interview:

He presents new information after the break on the video.

Toward the end he is clearly shaken by the fact that the looting is being done in plain site. The fraudsters are not even making an attempt to cover it up. They are without fear.

He calls it "singularly obscene".

Are people waking up?

thethirdcoast said...

@ TAE Summary:

Brilliant, I'd forgotten that sketch entirely!

...and now for something completely different...well, not really...

I've just finished reviewing my onsite itinerary, and it just doesn't mesh with the original job posting at all.

The original posting calls for someone with at least 5-7 years experience and a BS in engineering, MS preferred. That's pretty typical for a level 2 to 3 engineering position.

The complete itinerary calls for two technical interviews, a VP + director interview, and a technical presentation.

The hiring manager will be present for all of the technical interviews. To me, that is appropriate for an engineer with 15-20 years of experience and an MS at minimum.

At this point I'm even more shocked to get the onsite after flailing with the math so badly over the phone.

I'm honestly wondering if I should enjoy the free trip, expect a long day, and try to use this as a learning experience or if I should advise them that I don't believe my experience is commensurate with their expectations and stay home.

Posters here have a lot more life experience than I do, so I'm all ears as to what people would do in my situation.

pdh1953 said...

ilargi -- I seem to really like the music you posted yesterday.... is there more available?

toysarefun said...

Disdain for the dollar, I think that's real, it's already happened, and I was wondering why gas prices just went up over the last two days.

Bankers do get paid when other banks fail, what a great scam they have going.

I think it's going to take a couple of years, but different petro dollars is probably a good thing.

Ilargi said...

I think I'm close to having had enough of Obama. There is still such a thing as decency. Praising Bush père for his selflessness is a step across a line that can not just be retraced later. Words too have consequences.

Obama makes call public service

In a glowing tribute to a Republican predecessor, President Obama today praised the presidency and life work of former President George H.W. Bush, citing him as an example of someone who eschewed "a life of comfort and privilege" and instead devoted himself to public service inside government and out.

el gallinazo said...


At least with W you knew what you had, a sociopathic moron, but none of Obama's gold plated turds. It's almost come to the point that the best thing you can say about Obama is that he is not Bush.


What's your down side risk? You have already got your ego well padded. Someone there likes the cut of your jib and you don't know how far that will carry you. Go for it!

thethirdcoast said...

@ Ilargi:

I could not agree more about Obama.

Have you seen the TV spot where Obama and assorted NFL millionaires plead for the public to run out and give their time away?

United We Serve TV Spot

It must take a pretty huge set of cojones to give TRILLIONS of tax dollars to the vampires of Wall St. and then go beg Joe Average to give his time away for NOTHING.

I'd have some respect for Obama if he'd made a decent effort to pay unemployed Americans a living wage to go rebuild New Orleans instead of giving the Wall St. welfare queens another handout.

Like I keep telling people, America elected an African-American President, but it doesn't mean anything.

woodsy_gardener said...

"It must take a pretty huge set of cojones to give TRILLIONS of tax dollars to the vampires of Wall St. and then go beg Joe Average to give his time away for NOTHING."

Bears repeating.

ccpo said...


No, people are not waking up. I posted about Black's point of view last year on my blog during the big crash. Sent it out to 25 family and friends.

Not one response.

Nothing has changed since. My posts to friends and family on Facebook? Constantly ignored.

But discussions of trips to Palm Springs, new boats, lattes, et al.? They chat away. I was once told, "That's not what Facebook is for."

Well, Fuzzy Wuzzy isn't very fuzzy, Wuzzy.


scandia said...

Just watched Max Keiser's blast. Ha! Way to go Max!
The poor child economist didn't stand a chance. Not a fair fight at all. It was clear the kid was sincere so what blinds him? I suspect he has a theoretical/academic bias complicated by wanting to bring the only system he has ever known back to life.He cannot envision any other. In fact his faith in his professors is unshaken. His gods will not let him down.
I really cheered Max for reminding us that real people are being hurt,dying, at the very least, picking up the tab. All those people everyday having their faith shaken,robbed and abandonned by their agents. I have a sick feeling in my stomach that this nightmare will never end. If I am going to fall into an abyss please let me know bottom. At least a bottom allows me to get back up on my feet.
I've been thinking about the search for " an exit strategy". I haven't yet been able to identify an exit, other than transparency and law enforcement. Except for war, of course. That is an exit strategy in more ways than one.

Anonymous said...


@ Carpe Diem

Most of us here are adults and have put some thought into decisions of any import. You come to some conclusions, I happen to come to others. Telling someone you have never seen or spoken to, someone who, in my case, most likely does not share the same culture, history, geography or mother tongue, to EVOLVE or be eaten (even metaphorically) is stretching your credibility very thin.


John Hemingway said...


I suppose Obama is what the American public truly deserves, no? "Hope of change" instead of the real thing. Trillions for the banksters and trinkets for the rest of us.


Hombre said...

I basically agree with Max Keiser, of course he is basically on target about the corrupt financials and the top people there. It's huge, international, and economic fascism at heart.
The problem is his manner, or persona.
To convince someone in the dark that they are in the dark you have to patiently shed some light. (ex: Ilargi/Stonelady, Martenson, Zerohedge,etc.)
Max's rants are fun to watch, entertaining, but they do not do much in the way of persuasion. There is too little light and too much name-calling and ranting for him to be effective.
We (in the non-denial choir) will watch and enjoy, but those outside will often be turned away, or even pay more attention to the good little Harvard/Yale educated 2 shoes.

Bukko Boomeranger said...

I'm with Scandia on the Keiser video, but when I watched it, I kept thinking "What an excitable fellow Max is! He comes off as slightly unhinged with all this emotion and graphic phrases like 'economic terrorists.'" And I agree with Max.

It's a common theme here, how nobody listens to people with bleak forecasts. I try to avoid drawing the same reaction I had to Keiser by tempering my dire prognostication with gallows humour. A sardonic joke about coming catastrophe takes the ominous edge off and makes the prospect less confronting.

People here are more accepting of "doomcasts" than our friends back in the U.S., even though things are going better Down Under than they are in the bigger, richer states. The difference is, Aussies don't have the "nothing bad can happen here" hubris that still afflicts Americans. When you're a minor country, you are forced to deal more with reality.

GunHillTrain said...

Obama got called out this week at a town hall meeting at the University of New Orleans. When asked about the slow pace of rebuilding in the city, he said, "I wish I could just write a check." Someone in the audience yelled back, "Why not?"

He replied, "There's this whole thing about the Constitution," and "everyone will attack you for spending money, unless you are spending it on them."

Obama seems to be creating his own satire now. (Full disclosure: I voted for him.)

Top Hat Cat said...

Mad Max vs the Financial Crash Test Dummy is a perfect example of the Cognitive Dissonance infesting any attempt to intelligently discuss 'economics' nowadays. The Ministry of Propaganda wouldn't even let that little fisticuffs on the air in the US.

Max is right, the bank mafia are terrorists. The Peasants don't want to contemplate this, it's just too terrible to their world-view that the very core of their cushy western lifestyle is run by sociopaths and mobster monsters.

The Peasant's complicity in their own evisceration goes way beyond the Stockholm Syndrome by the by. It's an utterly self destructive middle-class twist on S&M culture, an adaption to decades of redundant, self recursive propaganda feedback loops starting after WWII. TV was the volatile accelerant to this process.

No one will rescue them this time from their dark fantasy because they don't want to be rescued. That's the clear message I'm getting from the public reaction to the whole enchilada. All the evidence is on the table kids.

Oh, don't stop, don't stop.....

The Peasants love their Blue Velvet financial reality.

Everything is AOK on the surface. You look marvelous!

The Ben and Tim Hustle, Paulson is in the back room mixing drinks.

Ben, One Suave...

Dr J said...

FB - I think cd meant that you should evolve the endogenous capability to produce vitamin B12 ;-)

thethirdcoast said...

@ GunHillTrain

Obama got called out this week at a town hall meeting at the University of New Orleans. When asked about the slow pace of rebuilding in the city, he said, "I wish I could just write a check." Someone in the audience yelled back, "Why not?"

Great catch!

I wonder how Obama would have explained the Constitutional implications of the multi-trillion dollar wire transfer given to the Wall St. ghouls.

I also have to admit that I too enjoy the Mad Max clips, but his manner is definitely going to limit his message from penetrating beyond the choir.

My favorite portion of this week's clip was when the financial droid was reduced from talking points to incoherently mouthing market fundamentalist catchphrases.

@ el gall:

My downside risk is failing to land the position and being out some cash for a new, but not bespoke suit. Overall I'm not in a bad place. I also have a line on some other possibilities via recruiters and postings I've found on my own.

Jim R said...

It's a good thing Sr. Bush eschewed the luxury lifestyle. I hate to think what it would cost us taxpayers if he didn't want to rough it in that River Oaks mansion.

It'd probably be a permanently-airborne cloud island or something...

Anonymous said...


@ Dr. J

Have fun on the royal hill with the interesting people. Wish I could join you.


el gallinazo said...


Well, look a the bright side. Even if you don't get the job, when you meet your Maker, you'll make quite an impression with that sharp suit in your casket.

Re Mad Max,

It's a different strokes thing. Different styles get through to different people. First thing one had better learn as a teacher. Some learn from a friendly, reasoned approach like the recent William Black interviews, and some need a Mad Max shouting in their faces. Max is more geared to the pro wrestling crowd (who, I know, couldn't care less until their unemployment benefits expire).

We TAEer's are a little schizoid in that we are outraged at the crimes being committed, yet we know that there isn't a damn thing we can do about it beyond an individual and small group level. It's sort of like watching a tragic, heart wrenching film for the second time. You want to change the ending but you know it's written in celluloid.

Bigelow said...

@Coy Ote

"Max's rants are fun to watch, entertaining, but they do not do much in the way of persuasion. There is too little light and too much name-calling and ranting for him to be effective."

I must differ with you. Arguments (logical or otherwise) do not persuade, emotion does and I think Max is using what is an effective emotional method -but he gets angry while doing it. Anger turns listeners away, unless they too are angry at the moment. Rush Limbaugh can tar anyone with any label he likes because he maintains a seemingly commonplace delivery while saying the evil that comes out of his brain.

I am grateful that Max is saying what he is saying -but just fix his vein popping, head exploding vocal delivery style and his descriptions would stick and be very effective. Max is more like the comedian Lewis Black I think.

Greenpa said...

Ok, pay attention now. I'm about to drop some life changing wisdom on youse guys. :-)

You are human. (yeah, me too.)

Which means- you may have rational reasonable moments, but you are also irrational creatures. (me too.)

An area in which you are specifically irrational today- Obama.

Maybe you need to write these facts down, and construct logical syllogisms or something.

1. Humans behave as a herd.

2. The herd is not much affected by logic- or truth.

3. Elites who manipulate the herd, for good or bad- do so with emotional arguments. (America, right or wrong! Mexicans are stealing our jobs!)

4. Obama is known to be able to direct the herd- this is how he got elected as a black man, in a country still badly infested with rabid racists. Was his campaign brilliant? yes.

5. Obama is known to be able to direct the herd- which means, what comes out of his mouth cannot be expected to be clear, rational, logical truth. Um- see #2, and #3.

6. One thing most of the herd doesn't really like is disrespectful mean people. "Oh, look, he's being nice to that old man. Isn't that nice of him? What a nice guy. (particularly since I voted for B1)"

7. With any capable herder- you know you have to watch what they do; not what they say; and in the long run. Individual actions and words are truly meaningless- unless viewed in the context of herding. Which is a very slow process.


9. And yet- you persist in emotional reactions to particular words and actions. How human!


I confess, my anthropologist friends from Antares help me remember this stuff; mostly by laughing at me.

Syn said...


At the last family gathering, everyone looked at me in disbelief as I attempted to calmly discuss the financial fraud with my BIL (who is a CFO). That was a mistake. He actually got angry and walked away mumbling, “I didn’t know what I was talking about.”

Just getting others to discuss it is proving difficult, let alone acknowledging the dire reality. Our Ministry of Propaganda has done a bang up job.


“President Obama today praised the presidency and life work of former President George H.W. Bush, citing him as an example of someone who eschewed "a life of comfort and privilege" and instead devoted himself to public service inside government and out.”

You must be kidding.

American Dynasty: Aristocracy, Fortune, and the Politics of Deceit in the House of Bush (and this is considered subdued)

And yes, I can find an equal number of books that show similar corruption on the other side. That’s the fallacy of the two “representative” parties. Few go into politics for public service.

Wolf at the Door said...

There will be no crash.....the real economy is stabilizing and there is simply no reason for another panic at this point in time.

Do we have massive problems? yes....

Have they been papered over?
yes for now.....

So what is next? As the fall morphs into winter and then into 2010 you guys are going to have to capitulate regarding a market crash what is the next market crash call timeframe looking like in your opinion?

What is the next highly probable point in time for a crash cause a fall market crash seems to be off the table.

What do you see as a possible trigger for the crisis to re-emerge from beneath the placid papered-over surface?

Stoneleigh said...


When I get a chance I'll review Eric Janszen's piece as a TAE intro (hopefully soon). It's full of pride-that-goeth-before-a-fall. Janszen spoke at ASPO. While his talk was interesting, I think he drew completely the wrong conclusions.

VK said...

@ Snuffy, Greenpa, Stoneleigh

I know that you all have some form of solar set up for power and all that but what if the light bulb blows?

Do you make your own lightbulbs or have you bought in bulk for the coming few decades?

Ilargi said...

"What do you see as a possible trigger for the crisis to re-emerge from beneath the placid papered-over surface?"

People who argue the way you do, for starters.

Greenpa said...

VK - "I know that you all have some form of solar set up for power and all that but what if the light bulb blows?"

LED backups, plus oil lamps, and have made candles from deer tallow (they stink).

There is no "if", Luke.

Of considerably greater concern- what to do when the batteries die, and the inverter...

strange attractor said...

I'm somewhat involved with the local food movement here in N.E. Ontario. I've seen enough shady ethics and backstabbing just from the grassroots that my hopes for a strong community to help folk through tougher times ahead are quickly fading. It's all quite sickening. Someone very close to me, who has put in a huge chunk of unpaid physical, mental, and emotional labour, and who is much more idealistic than me, just had her heart torn out by these people. I try to fight against the despair, but it's welling up and I don't know if I care enough anymore to resist it.

el gallinazo said...

Wolf at the Door

You are a first time poster and your "arguments" are totally ex cathedra. But as a senile old coot, I guess I'll just have to take your statements as the word of God passed down to the heathen. I renounce my sins and believe!

John Hemingway said...

@ Greenpa,
Thanks so much for your life changing wisdom;-) but how do your observations on B.O.'s herding abilities change anything about the man? He's a classic Chicago pol (serving well the highest bidder). Sure, he's a herder, I know this AND SO DO YOU, sure, and I think big deal, he's also a consummate liar and war criminal, just like his predecessor and the man he ran against in '08. Actually, I wouldn't be surprised if he goes down in history as being a worse president than W.

Dr J said...

FB - I'm very much looking forward to it. I'm planning to be in Geneva and northern Italy next July and maybe we can do the same.

Greenpa said...

Strange Attractor- " I've seen enough shady ethics and backstabbing just from the grassroots ..."

Since I'm playing wise old man today- I'll tell you a truth: no enterprise on earth is free of those problems. Not one. Ever.

I learned that the hard way, myself- took me 30 years. I discovered you can't even teach Physical Education at a small college; part time; without running into ethics-free backstabbing professors.

Or you could study Church history.

This is not welcome news, I know, to one already discouraged.

The truth here, though, is not that the world is worse than it was before- but that all the good things you know about the world- were always true in spite of it.

Somehow we refuse to learn this, and are then surprised when we do. Even fairy tales are full of rotten backstabbers- and most of us don't notice. I continue to be puzzled by why we should be resistant to truth on this point.

The sun will come up tomorrow.

bluebird said...

The Wolf at the Door could be anyone in my family and friends. Not waking up, at all. But discussions of expensive hobbies, exotic vacations, new cars and buying houses, are everywhere.

I mention the bubble bursting, and I get...What is a bubble? I explain it is filling a balloon with air until it pops, or slowly leaking until there is nothing left. And I'm told, not going to happen, nothing to worry about.

Greenpa said...

John Hemingway-"he's also a consummate liar and war criminal"

A sheep's eye view, I fear. :-)

Thought experiment- close your eyes, and imagine yourself in his shoes.

You want two things- to survive- and to effectively change practices set in granite.

Which persona would you choose to do this:

Billy Budd?

Or Machiavelli? In camouflage.

And remember the world is vastly deeper in evil power than Billy's ship.

Anonymous said...


@ Dr. J

With pleasure. El Galli has the contact info. Or simply ask tomorrow, they have it too.


EBrown said...

lupus at the portus,
Thank you for your deeply insight critique of the current market rally. I'm going to go get back into some market index funds since the current trend is bound to continue.

Jim R said...

As long as we have the internets and swiss army knives, Stoneleigh can just watch this video:
hand making vacuum tubes Part 1
hand making vacuum tubes Part 2

... probably my all time favorite DIY project ...

Hombre said...

Bigelow - I hope you are right and Max's rants are effective for certain types because I certainly agree with his point of view on the corrupt financials. It's just that for many folks I know, that manner of presentation doesn't work well.

Wolf ATD - "...the real economy is stabilizing."
At the moment the DOW is stabilized but I don't think it is "the real economy." I don't know where you live but the real economy around here is in the pits!

Strange Attractor - Hang in there, there are times we all see the glass half empty, and yes, we do run into some real jerks from time to time. Tomorrow will likely be better, it usually works that way I think.

Wolf at the Door said...

@ el gallinazo

I wasn't aware that I had made any "arguments"....looking at my comment it looks like nothing more than the expression of an opinion to me...

I have been calling for a Depression since the equity collapse in 2000 and it never happens. I am not saying that it will not happen just that it always seems like the PTB can extend things out so much longer than anyone thinks....

There has to be some trigger, something, that will cause the herd to change course and nobody can explain how that comes about, only that they are sure that it will.....well I am sure that it will too but I am probably safe in saying that it won't come this year....

If it does I will of course owe a thousand apologies which I will not hesitate to deliver fwiw...

Bigelow said...

The Who said it well long ago:
"Meet the new boss, same as the old boss."

Stoneleigh said...


I just wanted to say how much I like your artwork.

carpe diem said...


I live in the swiss alps so maybe we have more in common then you think.

Instead of burning or eating bunnies why not leave them alone? to live out their lives the same way you wish to live out your life.
I suppose that is too much of a stretch!

Rather....Why don't we just kill off all other forms of life once and for all! other then the arrogant self important humans that is!
Maybe then you and the alleged doctor will be happy!! Two peas in a pod ne c'est pas?



deflationista said...

thanks to both ilargi and stoneleigh for addressing the question i posed in the first post...

i share similar feelings about his article and am looking forward to hearing stoneleigh's analysis in the coming future...

i admit that i sometimes read arguments like janzen's and feel slightly swayed by them... until i step away for a few moments and realize that his conclusions are way off... i do the same thing when i watch those lawyer shows- i get fully convinced by the argument from the prosecutor-- but the defense then makes their case and completely destroys the prosecutors logic...

keep up the good work...

check out this video... about buying or renting... back burner news has some good stuff on youtube... but this one in particular is highly entertaining and conveys a similar message as the auto earth...

this one is awesome as well- i've sent this to everyone i know...

Greenpa said...

Bigelow said...
The Who said it well long ago:
"Meet the new boss, same as the old boss."

Actually, that message has been promulgated for a very long time. My favorite is Kafka; The Penal Colony.

John Hemingway said...


Do you honestly see B.O. as a kind of modern day Machiavelli?? How bizarre! And humorous (apart from the fact that some people, many of them Italians, would see such a comparison as an insult to Machiavelli's intelligence).

So, tell us, when do you think that B.O. will finally throw off his sheep's clothing and "effectively change practices set in granite"? Next year? 2011? When he runs for re-election? Were ramping up the War in Afghanistan (on the day he won his "peace prize" no less) and caving in to the US health insurance agencies examples of how he intends to change "practices set in granite"?

Wise old men shouldn't be peddling these kind of fairy tales, don't you think?


Erin Winthrope said...

FASB is clearly going to do the bidding of the banks and Congress and the Administration.

Off balance sheet toxic waste will be allowed to stay off balance sheet (out of sight) for years to come.

What effect do you think this decision will have on the stock market?

It seems to me this decision will be broadly supportive of a rally that continues well into 2010.

Gravity said...

I figured out last year, as the old saying goes:
"You can't wake a person who
is pretending to be asleep."

They're not asleep as such, but are induced into a very particular state of mind which I call a 'collective dissociative psychosis', the DSMIV had no other applicable disorders that describe this phenomenon, so I made something up myself.

The fundamental mechanism by which this trance-like state is enforced works by means of exposure to the 'dominant carrier-wave of cultural induction', in many varied forms, causing people to assume a self-induced dissociation from
any facts or truths which are too awkward to confront.
This enables a necessary percieved distance between actions and consequences, such as between the integrity of the biosphere and energy consumption or resource depletion, or between money and people's lives, facilitating the traditional future discountings.

Any complex society cannot function without such a system permanently in place, though the negative effects are now amplified through exessive use of repetitive emotive visual stimuli, which cannot be properly processed by our primitive cortexes.

Additional problems emerge when language becomes too dissociated from the actual ideas or objects which it repesents, this happens automatically to facilitate the social tool of untruth, until the function of language becomes too corrupted to disseminate valid information, requiring a periodic cleansing of deformed language in our sickest systems, which doesn't happen often enough.

People cannot usually function within acceptable parameters when too strongly decoupled from the inductive control-grid in this way,
and so they unconsciously prefer the safety of structured bullshit and the comforting authority of lies, even when tragically evident, this keeps them from considering the despicable implications of the naked world.

Nice paintings, btw.

el gallinazo said...

On the eve of my departure from the United Snakes of America to Costa Rica, I am in a pleasant enough hotel room (with wifi of course) reading, for the first time, John Kenneth Galbraith's A Short History of Financial Euphoria. I visited my storage area and found it in my traveling book bin while I was trading in my exploring Mexico books for my exploring Costa Rica books. It was so small and light, I figured I could sneak it into my luggage without breaking the scale.

Anyway, he presents bubbles in such a deliciously sardonic way that I am taking great delight in it, as Galbraith himself did watching throughout history the stupidity of the herd and their bubbles rising and popping, "preferably from afar."

As to Wolf at the Door's comments:

I think that a cataclysmic collapse cannot be far off because ones sees the graph line of the real economy plummeting and the equities market skyrocketing. Money is being pumped out of the real economy to leverage the bubble, mainly by the Fed. I see the real economy as the host and the FIRE economy as this giant hookworm lodged in its gut. If the hook worm draws off say 250 ml of blood a day (normal times), the host will be anemic but can carry on for a long time. But our hookworm has suddenly gone insane and arrogant, like the farmer who decided to split open his golden goose, and has developed an insatiable and unquenchable bloodlust. And, of course, the death of the host will always result in the death of the parasite.

Of course their eggs will sprout once again in a newly formed host, but what is currently regarded as the stock market miracle will shortly go the wall of the Norwegian Blue.

Greenpa said...

John H "Do you honestly see B.O. as a kind of modern day Machiavelli??"

ah, no. What I am saying, is that as a student of history and behavior, it is a possibility I cannot yet rule out- his actions are consistent so far with a sheep in wolf's clothing.

Remember Gorbachev! The disguise must be extremely convincing, to the extent G was head of the KGB. So they never saw him coming.

:-) it happens.

Ok, enough for me- we know this is a discussion which changes very few minds. And time will tell, in any case. If it happens- it will be right at the absolute bottom; where herd sentiment is overwhelmingly on the guillotine side-

Gravity said...

Let us assume that 12.21.2012 is no special date, and nothing important is going to happen around that time. That's not going to change the minds of those millions of people who treat this conjunction as if it were Y2K times a thousand.

Mass hysteria is pretty much inevitable by then, considering the trajectory of the conomy, it won't matter if nothing special actually happens in that period, the destabilising factors won't take notice, presuming the end of the age is upon us.

No one actually seems to take the possiblity of a dark rift infused geo-magnetic polarity shift seriously, as the effects are simply too overwhelming to think about, collapsing the planetary electric grid and all, with the lower layers of atmosphere briefly becoming electrostatically charged, perhaps dousing the planet's surface with the full blast of solar winds in conjunction with the dark rifts intense proton streams, toasty bak'tun.

That won't happen, but what if millions remain convinced it will?
I didn't pay any attention to Y2K, but this event will undoubtedly cause additional psychological problems, with no semblance of normalcy to be expected until after the fated date, too many people already consider this significant or terrifying enough to cause cripling logistical disruptions, intensifying the downwards trajectory of things.

And then there's the actual gravity of said conjunction, well, if you believe the lunar cycle can have certain effects on crowd behaviours, this particular allignment might be interesting.

el gallinazo said...


I have 1984 on my iTouch. Think it will be my next read. What you are promulgating here is pure Orwell.


I agree with you and think Greenpa is going the way of the Ptolemaic epicycles rather than deal with the fact that Obama is ethically a scumbag.

Ed Gorey,

I think the FASB caving is already factored in. The great fascist triumvirate of the official government, the central bank, and the megabanks cannot be resisted. We will be assimilated.

Where's Snuffy? Hope he didn't get stuck in his bramble patch :-)

el gallinazo said...


"Remember Gorbachev! The disguise must be extremely convincing, to the extent G was head of the KGB. So they never saw him coming."

I just read the Gorbachev bio in Wikipedia and could find no reference to him being involved with the KGB, not to mention the head of it. Please give me a link to validate this claim.

Ilargi said...

EL G, Geenpa

To solve the riddle, I humbly suggest checking if Obama ever practiced judo.

el gallinazo said...

I see no riddle.

Putin and Obama are both accomplished practitioners of Judo, though I would put heavy money on Putin in a match.

Putin rose to "upper middle management" in the KGB" and then moved on to more standard political life in the early 1990's, Beria not withstanding. Ilargi will be pleased to note that he received a Ph.D. in the Science of Economics and wrote a rather memorable thesis.

Gorbachev was never directly associated with a position in the KGB.

The discussion is about Gorbachev's employment with the KGB and how that reflects as a historical precedent on Obama's hidden motivations, the so-called sheep in wolf's clothes theory. As far as I can determine from on line sources, Gorbachev was never employed by the KGB.

Где загадка?

Ilargi said...

Gorbachev is rank and file communist party, no KGB function, at least official. He rose to the heights he did, among others, because of his near photographic memory. Sort of like Bill Clinton.

Ilargi said...

Obama did have a judo class on the White House lawn last month though. I'm thinking he was probably floored by a couple yuko's and an ippon from one of Michelle''s organic zuchini's.


Greenpa said...

El G- hm. Either my memory is faulty- never impossible- or some history has been rewritten- also never impossible.

I really remember distinctly seeing it written at the time that Gorby was ex head- and ergo could never be trusted- buy you're correct- that info is not out there at the moment.

I did find this:

which in any case tells of how he used the KGB in his rise to power- which he had very little of at first.

All interesting.

Wyote said...

TAE Summary,

Thanks for the H/T to Winthrop. I'll send it along. Nice that someone remembered the story. As for the Swedes, did they acknowledge the source? No, they did nod, bastids!

M said...

Stoneleigh, Gravity

Thanks for the kind words, I do appreciate it.

Stoneleigh: Is it really true that all the king’s horses and all the King’s men have put Humpty Dumpty together again ?

Ilargi said...

New post up.

ccpo said...

@Coy Ote It's just that for many folks I know, that manner of presentation doesn't work well.

I was a psych major. I have counseled. I have worked with troubled kids. Lots of years in the classroom after that. I do understand human nature, cultural inluences, discount rates... what have you. Still, I can't stop myself from thinking that a person who favors form over substance is a bit of an idiot.

I know it's not quite that simple, but just cannot get past the stupidity of it.

ccpo said...


Not speaking for Stoneleigh, but yes. Don't be disconcerted by his evolution into scrambled eggs. I'm sure he'll be a well-formed omelet in no time.


snuffy said...

El G...

I have had the opportunity to and weasel my way into a project that I can try and work myself to death on for the next few weeks.I have done 12 hr shifts for the last week in a serious attempt to pay every bill I have in the world...and squirrel away a few shekels in the bank of the green sock...besides move a 66' mobile home out of my front yard[I wanted to burn it but my ever practical wife said "fix it for storage...and shelter.",as well as finish the pantry rebuild...and the list goes on and on....

I have been too pooped to post.

Sleep is a wonderful thing.I know,because I fall asleep any time I can now.Which is not often when the grand kids visit.They are asleep now,and I think joining them is a good thing...


Do your Arcturian friends pick up hitchhikers?I could go for a lift to the next quadrant...or any earthlike planet with a intelligent lifeform Pre-nuclear.Give me a ticket to the world of the imagination of the latest scifi dreammaster "Avatar",which looks to be another dose of morphine to those among us who ask why we are not going

"Ad Astra"

Instead of dark dreams of a collapsing ecosystem....dieoff,and a genetic bottleneck that is liable to set us back ten thousand years.Those that make it through that type of trial are not the smartest ,or the kindest ,or the best of us...not at all.

Another night of dark dreams I think...