Sunday, November 8, 2009

November 8 2009: The Jobs Doom Loop

National Photo Co. Daddy, you promised me ice cream! June 28, 1923
Girl in bathing suit, Washington, D.C.

Ilargi: The Obama administration claims to have created or saved 640,000 jobs with its stimulus plan to date, out of the stated goal of 3.5 million one year from now.

8 months for 640,000, which leaves 12 months for the remaining 2.85 million. Or 80,000 a month so far, and 215,000 for every month from here.

If you'd know me a little, you'd also know this is about where I’m starting to shift somewhat uncomfortably in my seat. Since, if this is a series that progresses gradually, which seems a reasonable assumption, well over 500,000 jobs would need to be created every month in the second half of 2010. And I don't buy that.

But that in itself is fine, and I'd let it go and have a drink or something if that were all, but it's not. It's just the beginning.

The Associated Press looked into the records of the jobs the stimulus, according to the administration, created and saved, and found some strange things are happening. Now AP depends for its survival on continued access to the White House, so it frames the conclusions of its research in politically correct and polite terminology. Anyone not constrained by such deliberations would conclude that the White House assertion of 640,000 jobs created or saved is fraudulent.

A detail that is not inconsequential going forward: Obama said that 90% of those 3.5 million jobs would be created/saved in the private sector. AP says over half of the 640,000 claimed so far are in the public sector. A claim, by the way, that was reconfirmed this week by the administration, according to the New York Times:
Although President Obama initially said that 90 percent of the jobs created by the stimulus program would be in the private sector, the data suggests that well over half of the jobs claimed so far have been in the public sector.[..]

Administration officials said that they believed the stimulus program was still on track to save or create 3.5 million jobs by the end of next year, and that in the end 90 percent of the jobs would be in the private sector.

Hence, from now on in, government jobs no longer count towards the combined stated goals of 3.5 million jobs, 90% private sector. They've all been filled. Bear with me, 90% of 3.5 million is 3.15 million. Well over half of 640,000 is, let’s say, 340,000, which leaves 300,000 private sector jobs so far created. This means that ALL remaining jobs yet to be created (remember, 3.5 million minus 640,000) need to be private sector ones in order to make Obama's claim come true.

AP found, just to name an example, that of 14,506 jobs allegedly saved or created by just one federal agency, two-thirds (!) were not saved or created at all. They were counted because existing government employees got pay raises.

An unfortunate and isolated accident? No, it's not. The administration has even issued directives to count pay raises as saved jobs. AP:
"The inflated job count is at least partly the product of the administration instructing local community agencies that received money to count the raises as jobs saved."

Another mistake, another unfortunate and isolated accident, I hear you say? No, again, says AP:
[..] officials defended the practice of counting raises as saved jobs. "If I give you a raise, it is going to save a portion of your job," [Health and Human Services] spokesman Luis Rosero said.

Isn't it true that using that using money for actually creating a new job is more effective? It may be easier to just give it away to your friends, but is that really a policy? Apparently it is:
Most of the inflated figures were like those cited in the 935 saved jobs reported by the Southwest Georgia Community Action in Moultrie, Ga. The agency, like hundreds of others collecting Head Start money, claimed all its existing employees' jobs were saved because they received a pay raise with the stimulus cash.

Similar claims led to overstating by more than 9,300 the number of jobs saved with more than $323 million in stimulus money distributed by the Health and Human Services' Administration for Children and Families, the AP's review found. More than 250 other community agencies in the U.S. similarly reported saving jobs when using the money to give pay raises, pay for training and continuing education, extend employee work hours or buy equipment, according to their spending reports.

Unfortunate, yes. Incident or accident, no. Simply policy.

This can be seen as a kind of extension of the issue as reported by the Intelligencer, that:
[..] at the local and state levels, journalists are being told that many jobs funded with "stimulus" money would not have been eliminated without it.

By now I am starting to wonder, as I’m sure you are (?!), how many jobs have actually really genuinely honestly been created or saved.

And at what cost.

That cost is hard to oversee, but AP does have this:
Last week's stimulus report claimed 640,000 jobs saved or created by the economic recovery plan so far. Those jobs came from 156,614 federal contracts, grants and loans awarded to more than 62,000 recipients, worth a total of $215 billion.

That's a mighty steep bill, if you ask me. I know it ain't all black and white, but boy, is this ever becoming a convoluted tale.

And none of this, of course, can't be seen as separate, in any credible shape or fashion, from the October 2009 unemployment numbers issued by the government’s Bureau of Labor Statistics (BLS) on November 6.

Numbers which state that for the first time in 26 years, US unemployment is over 10%. 10.2% to be exact. Then again, looking at how these numbers are arrived at, how exact is exact? The 10.2% stat is just the U3 count, which is very favorable for any incumbent government. It's also very deceptive, since it ignores many people who are not working even if they would like to.

A reminder:
  • U3 consists of "Total unemployed, as a percent of the civilian labor force."

  • U6 consists of
    • U3
    • + "Discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.
    • + Other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently.
    • + Part time workers who want to work full time, but can't due to economic reasons.

If you add all those not counted in U3 but added in U6, US unemployment has hit 17.5%. Now we're talking crisis territory. And I don't mean economic crisis, but societal crisis. You can't successfully run an economic system and society like the US has, and leave out more than 1 out of every 6 people willing and able to work.

Still, it doesn't stop there either. John Williams, a stubbornly sophisticated statistician, known and feared across the field, who publishes at, identifies yet another group of people out of work, which are counted neither in U3 nor in U6. Williams reports the aggregate total that incorporates this group as SGS (Shadow Government Statistics) Alternate. First, here’s his graph, updated with Friday's BLS numbers:

And here's his 2004 explanation of how he arrives at his SGS Alternate unemployment data, which has now increased to 22.1%!:
The SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated "discouraged workers" defined away during the Clinton Administration added to the existing BLS estimates of level U-6 unemployment.[..]

Up until the Clinton administration, a discouraged worker was one who was willing, able and ready to work but had given up looking because there were no jobs to be had. The Clinton administration dismissed to the non-reporting netherworld about five million discouraged workers who had been so categorized for more than a year.

As you can see, according to Williams, over 5 million Americans had been too discouraged to look for work for more than a year in 2004. And whatever you may think of his work, I don't see how you could come up with a reason that 5 years later, in today's economy, that number has decreased. Moreover, it's obvious that the decision of the Clinton government to marginalize this group was politically driven, and suits the goals of any subsequent administration.

The perhaps most blatant example of distortion of US unemployment numbers (though I admit, it’s hard to pick the worst one) is the birth/death model, which claims to add slash subtract jobs as businesses are started or go belly up. Looking at this table from Mike Shedlock’s site, something stands out for me:

The thing that stands out is that 52,000 more jobs were added by the model in October than in September. (Actually, there is more than one thing, the whole model smells worse than a cornered skunk, but let's focus on this one).

The November 6 BLS report states that 190,000 jobs were lost in October versus 219,000 in September. Granted, the September number has been revised while the October one hasn't yet. Still, if you take the respective birth/death numbers for the two months, and then disregard them, you find that October saw 23,000 thousand MORE job losses than September ([190,000 + 52,000] - 219,000).

So not only was the jobs report worse than expected, it was also worse than reported. And that is WITH all the government attempts included that seek to make things look better than they really are.

The funny thing, I'm thinking, with regards to John Williams' inclusion of those who've been out of the loop for over a year, is that benefits have just been extended -to infinity and?!- beyond that same 12 months. Which pays what, like $300 a month? For all I know, the White House will soon find a way to make you eligible for an FHA mortgage loan on that paycheck.

A year and change after the 2008 presidential election, I still remember the slogans and promises of confidence, trust and transparency. But only barely.

And of course the question looms, Mr. Obama, if you bend the truth on this topic to the extend you do, what else are you not telling us? Trust is a fickle little issue on any given day, Mr. President, but never more so then if and when you yourself choose to make it so.

See, I'm thinking that if you would fess up to the real extent of the issue today, instead of so clumsily trying to hide large parts of it, then, starting tomorrow, you could claim to lead the nation forward, into a situation less bad -excuse me, make that "better"- than the one you just acknowledged as reality. No way left but up.

You miss out on being able to deliver that positive message by remaining mired in questionable stats. Which leaves you open to people like me who question them, and for good reason, as you yourself know. Now, I don’t know your spinmeisters, or their long-term objectives for you -provided they have any-, but I don't see how all this adds up to something that is positive for your poll numbers anytime beyond, say. next week, which is when people will find out exactly how (non-) truthful the numbers reported by your government, in your name, are.

What is it that you think you stand to gain from publishing these fake stats? Why not just say, "OK, we have over 20% unemployment, and we're going to change the way these stats are calculated, and, more importantly, we’re going to try and get these people jobs". How much time and effort and money is being lost every single day by trying to keep up these appearances? Who benefits from that? You? I don't see that. Not beyond tomorrow morning. That, I think, is called a doom loop.

I think you're busy drowning in an established culture of lies and half-truths that has one certain outcome only: nothing gets done, all energy and funds are needed just to keep up the happy face in the media.

But you've been elected president until January 2013. I can understand the re-election campaign taking over by early 2012, but why fake it now? You have a chance to make it right, and honest, but you instead choose to make it wrong and false, every single day, while those who voted for you increasingly suffer.

Have you no honor, sir?

Ilargi: The Automatic Earth Fall Fund Drive is on. Please see the top of the left hand column. Your donations (and visits to our advertisers) make this site possible. This is not TV. You are not just a dispassionate observer. Without you, there can be no Automatic Earth.

Jobless Rate Surges to 10.2 Percent
The U.S. jobless rate unexpectedly jumped to 10.2 percent last month, a 26-1/2-year high, adding to pressure on the Obama administration to do more to tackle unemployment even as signs of recovery mount. The Labor Department said on Friday that employers cut 190,000 jobs in October, more than the 175,000 markets had expected but fewer than the 219,000 jobs lost in September. Job losses for August and September were revised to show 91,000 fewer jobs were lost than previously reported, taking some of the sting out of the report.

While the revisions hinted at some improvement, economists had expected the jobless rate to rise to 9.9 percent from September's 9.8 percent. A wider gauge of labor-market slack that includes unemployed Americans who have given up looking for work hit a record 17.5 percent. Speaking at the White House, President Barack Obama said the administration was considering infrastructure investments and business tax cuts to aid the economy's recovery. "I can promise you that I won't let up until the Americans who want to find work can find work and all Americans can earn enough to raise their families and keep their businesses open," he said.

Stocks on Wall Street ended higher after initially falling as investors looked past the jump in the jobless rate and focused instead on the moderation in payroll losses. U.S. Treasury debt prices rose as traders saw the data as supporting a prolonged period of low interest rates. "Unfortunately, the problem is becoming deeper and more protracted," Mohamed El-Erian, chief executive of bond giant Pacific Investment Management Co (PIMCO) told Reuters. "It's not just the increase in the headline number," he said. "It's also about the longer-term nature of unemployment, the increase in underemployment and the prospect for only a very gradual recovery," he said.

While Obama sees job creation as his top priority, the scope for further steps to boost the economy is limited by record budget deficits. Rising unemployment could pose problems for the Democrats who control Congress as they head into elections in November 2010. This week, Republicans wrested control of two state governorships away from Democrats in races where the weak economy figured prominently. "President Obama promised jobs during his campaign for president and the elections in Virginia and New Jersey on Tuesday were a clear referendum on his failure to deliver on this promise," Republican National Committee Chairman Michael Steele said in a statement reacting to the jobs report.

The U.S. economy grew at a 3.5 percent annual rate in the third quarter, likely ending the most painful recession in 70 years, but the jobs data suggested employers are wary of the prospects for a strong, sustained recovery. A report from the Federal Reserve showed households again cut their debt rather than spend in September, pushing down total consumer credit for an eighth straight month. That is the longest downward streak since 1943. The U.S. central bank on Wednesday held overnight interest rates close to zero and said it expected to keep them low for an "extended period."

Short-term interest rate futures prices showed the implied chances of a rate hike by mid-2010 slid to about 66 percent on Friday from 84 percent late on Thursday. "I don't know how in the heck the Fed could justify tightening policy with the unemployment rate over 10 percent unless we have an imminent inflation danger," said Keith Hembre, chief economist at First American Funds in Minneapolis. The U.S. Labor Department conducts two separate surveys. Economists generally place more faith in the survey of employers, which found the loss of 190,000 jobs.

The unemployment rate, however, is based on a smaller household survey. That survey showed 589,000 jobs were lost, while few Americans left the labor force, leading to the big jump in the jobless rate. Employer payrolls have declined for 22 consecutive months now and 7.3 million people have lost their jobs since December 2007, when the recession started. In October, 35.6 percent of the unemployed had been out of work for six months or more. However, the pace of layoffs has slowed sharply from early this year.

Job losses in October were widespread across almost all sectors, with education and health services and professional and business services bucking the trend. Manufacturing employment fell 61,000 last month, while construction industries payrolls dropped 62,000. The service-providing sector cut 61,000 workers. Offering a glimmer of hope, temporary help jobs increased by 34,000. It was the biggest gain in temporary employment since the economy fell into recession and suggested companies needed extra hands even if they were not prepared to hire permanently.

The average workweek, which yields clues as to when firms will start hiring, was steady at 33 hours. Average hourly earnings rose to $18.72 from $18.67 in September. A separate report from the Commerce Department showed wholesalers reduced their stocks of unsold goods for the 13th straight month in September. Economists expect a rebuilding of depleted inventories to help support recovery.

October U.S. Nonfarm Payroll Report — The Bottom Line
by David Rosenberg

All we can say is that if the overwhelming consensus is correct that the recession is behind us, then what we have on our hands is the mother of all jobless recoveries and whatever economic growth is being squeezed into the system comes courtesy of the most dramatic intervention by the government in recorded history, including the New Deal 1930s era. President Obama is now running fiscal deficits that would have made FDR blush.

But while Uncle Sam can try to stimulate spending on autos and housing and even mortgage credit via the myriad of policy measures that have been undertaken, the return to job creation is as elusive as ever. It is hard to fathom that, according to the White House estimates earlier this year, the stimulus was supposed to help cap the unemployment rate at 8.5%. Here we are today with both an unemployment rate and a fiscal deficit-to-GDP ratio both north of 10%. While real GDP did manage to rebound at a 3.5% annual rate in Q3 — stagnant if not for the government incursion — those dual 10%-plus figures cited in the previous sentence highlight the fact that GDP is not the only barometer of a nation's economic health.

While the government can try to induce people to spend, no recovery can be sustained without a resumption in job growth and October’s employment data contained some troubling signposts. While the -190,000 headline nonfarm payroll print was not that far off the consensus, and while there were upward revisions to the prior two months (of over 90,000), the major problem is that the Establishment Survey, at this time, is missing a very important part of the story, which is the strain that the small business sector continues to face.

Small businesses have less cash on the balance sheet, less access to credit and less exposure to overseas growth dynamics compared to large companies. The Establishment Survey (nonfarm payrolls), has a “large company” bias that the companion Household Survey does not have. If you look at the historical record, you will find that at true turning points in the economic cycle, the Household Survey leads the Establishment Survey. This has always been the case heading into expansions and into recessions.

To say that the Household survey was horrible would be an understatement. This survey showed a net job destruction of 589,000, bringing the decline to 1.8 million over the past three months — more than what was lost in the entire 2001 tech-wreck-recession. All of the decline was in full-time employment, and while the bulls out there will undoubtedly point to the fact that temp agency hirings are on the rise during the last three months, finding placements for part-time workers is not a cause for celebration. Certainly not when the number of those working part-time “for economic reasons” jumped 105,000 or at a 15% annual rate, as was the case in October.

If there were even nascent signs of an improvement in labour market dynamics, then we would be seeing the workweek begin to rise. Instead, it stayed at a record low 33.0 hours last month. We would also see the nonfarm payroll diffusion index embark on an uptrend, but instead it fell back to a three-month low of 33.8 from 37.5 in September. The corresponding diffusion index in manufacturing dropped in October, to 18.1 from 22.9. Therefore, we are trying our best to wrap our heads around this notion that we are actually in some durable recovery phase when two-in-three companies are still shedding jobs, and more than four-in-five are doing so in the manufacturing sector.

Fed Chairman Bernanke hinted loudly that any interest rate increases in the future would be dependant on the path of resource utilization — code for the unemployment rate. And in October, even in the face of a dip in the labour force participation rate (which should be going in the opposite direction in a real recovery), the headline (U3) measure of the unemployment rate still managed to rise to 10.2% from 9.8% in September — the highest level since April 1983. But the labour market slack story does not end there — the broader U6 measure (which marginally attached workers and those working part-time for economic reasons) soared to an all-time high for the series, to 17.5% from 17.0% in September. In other words, more than one in six Americans are either unemployed or under-employed, despite the most dramatic monetary and fiscal efforts by a government anywhere to reverse a collapse in private sector credit.

The bottom line here is that the Fed is staying put indefinitely and that should help anchor the fixed-income market. The further loss of manufacturing jobs (-61,000) and decline in the diffusion index (not entirely consistent with the ISM) is likely to encourage the Administration to sustain its policy of benign neglect when it comes to the U.S. dollar. This should help anchor gold and commodities.

The stock market has had a history this year of shrugging off weak employment report after weak employment report because the expectation is that we will see further rounds of fiscal stimulus, so it’s hard to say what equity investors will do with this latest piece of data. We find it hard to believe that nurturing a policy that risks taking the government debt-to-GDP ratio above 100% in the next three-to- four years is deserving of the P/E multiples currently underpinning equity market valuation. It should not be lost on anyone that the S&P 500 has managed to rally over 60% from a low during which payrolls have declined 2.8 million, and that this is without precedent. Let’s define normal as the norm of prior 60% rallies and what’s normal is that by now the economy is not only standing on its own two feet but has already generated over two million net new jobs.

Broader Measure of Unemployment Stands at 17.5%
For all the pain caused by the Great Recession, the job market still was not in as bad shape as it had been during the depths of the early 1980s recession — until now. With the release of the jobs report on Friday, the broadest measure of unemployment and underemployment tracked by the Labor Department has reached its highest level in decades. If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression.

In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous recorded high was 17.1 percent, in December 1982. This includes the officially unemployed, who have looked for work in the last four weeks. It also includes discouraged workers, who have looked in the past year, as well as millions of part-time workers who want to be working full time.

The official jobless rate — 10.2 percent in October, up from 9.8 percent in September — remains lower than the early 1980s peak of 10.8 percent. The rate is highest today, sometimes 20 percent, in states that had big housing bubbles, like California and Arizona, or that have large manufacturing sectors, like Michigan, Ohio, Oregon, Rhode Island and South Carolina.

The new benchmark is a sign of just how much damage financial crises tend to inflict. A recent book by Carmen M. Reinhart and Kenneth S. Rogoff, two economists, found that over the last century the typical crisis had caused the jobless rate in the country where it occurred to rise for almost five years. By that standard, the jobless rate here would continue rising for two more years, through the end of 2011.

Most economists predict that the rate will in fact begin to fall next year, largely because of the federal government’s aggressive response — fiscal stimulus, interest-rate cuts and a variety of creative steps by the Federal Reserve and Treasury Department. Friday’s report showed that monthly job losses continued to slow recently, though the improvement has been gradual.

At the White House Friday, President Obama signed a bill to extend unemployment benefits and a tax credit for home buyers, and said that he was looking at ways to enact more stimulus. On Wednesday, the Fed announced that it expected to leave its benchmark interest at zero for “an extended period.” Nearly 16 million people are now unemployed and more than seven million jobs have been lost since late 2007.

Officially, the Labor Department’s broad measure of unemployment goes back only to 1994. But early this year, with the help of economists at the department, The New York Times created a version that estimates it going back to 1970. If such a measure were available for the Depression, it probably would have exceeded 30 percent. Compared with the early 1980s, a smaller share of workers today are officially unemployed and a smaller share are considered discouraged workers.

But there are many more people who would like to be working full time and have been able to find only part-time work, according to the government’s monthly survey of workers. The rapid increase in their ranks and in the officially unemployed has caused the rate to rise much faster in this recession than in the early 1980s. Two years ago, it was only 8.2 percent.

One of the more striking aspects of the Great Recession is that most of its impact has fallen on a relatively narrow group of workers. This is evident primarily in two ways.

First, the number of people who have experienced any unemployment is surprisingly low, given the severity of the recession. The pace of layoffs has increased, but the peak layoff rate this year was the same as it was during the 2001 recession, which was a fairly mild downturn. The main reason that the unemployment rate has soared is the hiring rate has plummeted. So fewer workers than might be expected have lost their jobs. But those without work are paying a steep price, because finding a new job is extremely difficult.

Second, wages have continued to rise for most people who still have jobs. The average hourly wage for rank-and-file workers, who make up about four-fifths of the work force, actually accelerated in October, according to the new report. Even though some companies have cut the pay of workers, the average hourly wage has still risen 1.5 to 2.5 percent over the last year, depending on which government survey is examined. Average weekly pay has risen less — zero to 1 percent — because hours have been cut. But average prices have fallen. Altogether, the typical worker has received a 1 to 2 percent inflation-adjusted raise over the last year.

In the other two severe recessions in recent decades, workers with jobs fared considerably worse. At the same point in the mid-1970s downturn, real weekly pay had fallen 7 percent; in the early 1980s recession, it had fallen 4 percent. It is a strange combination: workers who still have a job are doing better than in other deep recessions, but the unemployment and underemployment have risen to their highest level since the Depression.

Teens suffer record unemployment
The jobless rate for teens stands at an all-time high of 27.6% as opportunities for young workers dwindle.

Americans of all ages are being hurt by the weak job market, but the nation's teens are in a particularly bad spot. The unemployment rate for teenagers in the labor force soared to 27.6% in October, up 1.8 percentage points from the month before and hitting a third straight record high, the Labor Department said Friday. That compares with a 10.2% jobless rate for the nation at large.

"What we're seeing is a very tough market for everyone, but teens in particular who are looking for work just can't seem to find it," said Jim Borbely, an economist at Labor Department. The surge in unemployment among 16 to 19 year-olds comes as the weak economy has forced a growing number of adults to compete for jobs that teens normally fill in industries such as retail and food service. That's a big problem for teens, who are generally seen as less qualified than adults because they have fewer years of work experience.

At the same time, older workers with families and mortgages typically elicit more sympathy from employers than teens, who are seen as mostly interested in pocket money. Given the challenges facing teens in the workforce, many have chosen to give up looking for a job altogether. According to Labor Department statistics, the participation rate -- the percentage of teens who work -- fell to 36.2% in October, which was the lowest since record keeping began in 1948.

"Because of this dearth of opportunities, many teens aren't even bothering to look for work," said Sophia Koropeckyj, an economist at Moody's who specializes in labor issues. Many of the teens who are looking for work, however, are doing so to help contribute to household expenses like educational and medical costs that unemployed parents can't pay. "When a family is struggling with one or two parents out of work, obviously kids are feeling the need to work," said Matthew Segal, co-chair of youth job advocacy group 80 Million Strong.

The plight of teen workers has attracted some attention on Capitol Hill. Last month, the House Education and Labor Committee held a hearing to address high unemployment among young people. "More needs to be done to help young workers find meaningful employment," said George Miller, a California Democrat and the chairman of the House Committee on Education and Labor, in an e-mailed statement. "The recession has only made a bad situation worse for younger workers," Miller said. "If these dramatic trends are not reversed, our nation faces the potential of a generation of youth disconnected from the employment market -- a fate we cannot afford to risk."  

'Stimulus' Jobs Claims Fraudulent
President Barack Obama's administration apparently believes in the "big lie" theory of propaganda. It is that, contrary to what would seem logical, the public sometimes is more accepting of a dramatically inflated falsehood than of a seemingly more reasonable claim. That certainly would explain the government's claim that the "stimulus" program created or saved 640,000 jobs. The figure was quite impressive - but blatantly untrue.

About half of the jobs "saved" were in public education, according to federal officials. But at the local and state levels, journalists are being told that many jobs funded with "stimulus" money would not have been eliminated without it. School districts would have found some other way to maintain employment. An Associated Press investigation has found even more fraud in the jobs claims. AP reporters checked into the 14,506 jobs allegedly saved or created by just one federal agency. Two-thirds of those jobs were not saved or created at all. They were counted because existing government employees got pay raises.

Incredible as it may sound, the spokesman for the Department of Health and Human Services defended that practice. "If I give you a raise, it is going to save a portion of your job," he insisted. Clearly, the government is lying - in a big, outrageous way - about the number of jobs saved and created by the "stimulus" program.

STIMULUS WATCH: Salary raise counted as saved job
The government's latest count of stimulus jobs significantly overstates the effects of the $787 billion program under a popular federal preschool program, raising fresh questions about the process the Obama administration is using to tout the success of its economic recovery plan. An Associated Press review of the latest stimulus reports — which the White House promised would undergo extensive reviews to ensure accuracy — found that more than two-thirds of 14,506 jobs credited to the recovery act under spending by just one federal office were overstated because they counted pay increases for existing workers as jobs saved.

The inflated job count is at least partly the product of the administration instructing local community agencies that received money to count the raises as jobs saved. "That's more than ridiculous," said Antonia Ferrier, a spokeswoman for Republican House Minority Leader John Boehner. Most of the inflated figures were like those cited in the 935 saved jobs reported by the Southwest Georgia Community Action in Moultrie, Ga. The agency, like hundreds of others collecting Head Start money, claimed all its existing employees' jobs were saved because they received a pay raise with the stimulus cash.

Similar claims led to overstating by more than 9,300 the number of jobs saved with more than $323 million in stimulus money distributed by the Health and Human Services' Administration for Children and Families, the AP's review found. More than 250 other community agencies in the U.S. similarly reported saving jobs when using the money to give pay raises, pay for training and continuing education, extend employee work hours or buy equipment, according to their spending reports.

The Georgia program inflated the numbers even further by claiming the recovery money saved more jobs than the number of people it actually employs. The agency employs 508 people but claimed 935 jobs were saved because of confusion over government reports. That type of accounting error was found in an earlier AP review of stimulus jobs, which the Obama administration said was misleading because most of the government's job-counting mistakes were being fixed in the new data.

The AP's new review focused only on the money distributed by the Administration for Children and Families and was not an assessment of the money handled by dozens of other federal programs and other job claims made in the new stimulus report. The administration acknowledged overcounting in the new numbers for the HHS program. Elizabeth Oxhorn, a spokeswoman for the White House recovery office, said the Obama administration was reviewing the Head Start data "to determine how and if it will be counted." But officials defended the practice of counting raises as saved jobs. "If I give you a raise, it is going to save a portion of your job," HHS spokesman Luis Rosero said.

The raises themselves were appropriate since the stimulus law set aside money for Head Start salary increases, but converting that number into jobs saved proved difficult. The Obama administration told Head Start officials to consider a fraction of each employee as a job saved. Many Head Start programs around the country went further, counting everyone who received a raise as a saved job. "It's a glitch in the system," said Ben Allen, the research director at the National Head Start Association. "There was some misunderstanding among some in the Head Start community about completing the reporting requirements."

Allen said a cost-of-living adjustment "may not be viewed traditionally as a job saved, but one could interpret it that, by providing COLA, you're retaining staff." The Bergen County Community Action Program in Hackensack, N.J., noted the nearly $213,000 it received went to cover raises for existing staff only. But it also reported saving 85 jobs. At Southwest Georgia Community Action Council, director Myrtis Mulkey-Ndawula said she followed the guidelines the Obama administration provided. She said she multiplied the 508 employees by 1.84 — the percentage pay raise they received — and came up with 935 jobs saved. "I would say it's confusing at best," she said. "But we followed the instructions we were given."

Ed DeSeve, who oversees the stimulus at the White House, said the Head Start numbers "represent a few percent of all jobs reported" and said the problems would probably be balanced out by other errors that underreported jobs. "We don't expect any corrections to this data to meaningfully impact the total 640,000 direct jobs," DeSeve said. Last week's stimulus report claimed 640,000 jobs saved or created by the economic recovery plan so far. Those jobs came from 156,614 federal contracts, grants and loans awarded to more than 62,000 recipients, worth a total of $215 billion. Obama has promised the stimulus would save or create 3.5 million jobs by the end of next year, and the data released Friday represented the first head count toward that goal.

Why won't Obama give you a job?
To hear President Obama tell it, he's been busy creating jobs since taking office. The $787 billion stimulus package, he said last winter, would "save or create 3.5 million jobs." The White House is touting reports from recipients of stimulus funds asserting that they have created or saved 640,000 jobs so far. Yet the national unemployment rate has now hit 10.2 percent, helping explain why Republicans won the governors' races in Virginia and New Jersey last week, just a year after the party's 2008 drubbing. And Obama declared Friday that more action is needed.

"History tells us that job growth always lags behind economic growth, which is why we have to continue to pursue measures that will create new jobs," he said. "And I can promise you that I won't let up until the Americans who want to find work can find work." It was a strong vow, but it raises a question: Why has a White House that talks so much about boosting employment steered clear of the most direct strategy that could keep Americans on the job?

Since taking office, the Obama administration has studiously avoided paying people to go to work, which could be accomplished by subsidizing workers' private-sector employment or by creating new government-paid jobs. There are programs in a handful of states that financially compensate employees who cut their hours to prevent broader layoffs at their companies -- an approach that costs relatively little, since it results in lower payouts of unemployment benefits, and that has helped Germany keep unemployment under 8 percent despite the deep slowdown there. But the Obama administration has so far opted not to expand this initiative. And aside from a small summer employment program for young people, it has not sought to create jobs on the public payroll, something the country did in the 1930s and 1970s.

Instead Obama's team has taken a more indirect approach, a prudence that critics on the left say is misplaced. If you're spending hundreds of billions of dollars on stimulus, why not do it with conviction? Engaging in more forthright job creation could invite some political pitfalls (such as those constant accusations of socialism), but is double-digit unemployment any less a political risk? The administration is "scared of [any plans] seeming like old-fashioned make-work, but that's what it is: You're giving [people] jobs because they have nothing left to do," said Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning think thank. "Giving people a shot at a job has to be worth a little bad publicity . . . but as in a lot of areas, they proved more cautious."

White House officials express confidence in the steps taken, saying the stimulus is spending money and creating jobs ahead of schedule, and forestalling far higher unemployment. They say they opted against direct jobs programs not for political reasons but because they thought such efforts would not produce long-term value. And they have not pushed the private-sector job-sharing idea -- being promoted by Sen. Jack Reed (D-R.I.) -- because they want to build real demand for workers, not just spread work among more people.

"I think we got the Recovery Act right," Larry Summers, the president's chief economic adviser, said in an interview. "The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that's not as desirable as expanding the total amount of work."
Two-thirds of the stimulus went toward tax cuts, fiscal aid to states, and expanded unemployment benefits and food stamps. These efforts helped cushion the recession's blow, saved public jobs and, by injecting demand into the economy, bolstered employment indirectly. On Thursday, Congress buttressed these efforts with an extension of unemployment benefits and an expansion of the tax credit for homebuyers.

The remaining third of the stimulus, however, was expected to be the real jobs generator: $250 billion for infrastructure -- roads, transit, water treatment -- and for investments in energy efficiency, broadband access and other areas. But it is becoming clear that much of that spending is not producing many new jobs. Highway funds have put repaving crews to work, but $6.5 billion flowing to states and cities for energy projects has only just arrived and has created virtually no private-sector jobs yet. The jobs impact is also paltry so far for the $3 billion in National Science Foundation grants and the $10 billion for the National Institutes of Health. And much of the $19 billion for health information technology will not be spent until 2011.

Administration officials argue that these investments, if done right, will lay the groundwork for growth for years to come. And they say that given the depth of the recession, it's hardly a bad thing for the stimulus to deliver some punch a year or two from now. "We always recognized that America's problems were not created in a week or a month or a year and that they were not going to be solved quickly," Summers said. "We designed the Recovery Act to ramp up over time, through 2010, and to make sure that the investments we made were important for the country's future."

In addition, public-works programs take longer to get started than people realize, officials say. At a recent event at American University, White House economic adviser Jared Bernstein was challenged by economics professor Robert Lerman about direct job creation. Bernstein responded that there weren't enough public works projects ready to be launched: "What [governors] were describing as shovel-ready wasn't really shovel-ready."

None of this persuades the critics, who also argue that the White House, facing a skeptical Senate, settled on too small a stimulus package to begin with. Long as the downturn may be, the need is greatest now, and they have difficulty accepting that a new jobs program would not move faster than the money now percolating through the system. "The administration might have put a higher priority on more labor-intensive spending and spending that had a more immediate employment effect," said former labor secretary Robert Reich. "Basic research into photovoltaic cells is an important public investment, but it doesn't have many jobs attached to it, or certainly not anytime soon."

Others question the claim that more infrastructure spending would have been too slow. U.S. Steel chief executive John Surma noted recently that China is rapidly spending $586 billion on its own stimulus, much of it for big public works projects. The United States has plenty of infrastructure demands and should be able to get such projects going quickly, he said, and the inability to do so is an "indictment" of America's lack of a strategy for public investment.

"It's a defeatist policy to say that we don't know how to spend money on infrastructure," he said. "Stimulus is great, but we have far too little going into projects that actually put people to work." Still others argue that there is plenty of direct job creation that could be done, short of heavy infrastructure, that could have lasting value. The liberal Economic Policy Institute has drafted a plan that, along with a new business tax credit for hiring that the White House is already considering, includes a pure public jobs proposal: giving money to states and cities to hire people to paint schools, board up vacant homes, staff child-care centers and reopen library branches. Workers would be paid the market wage. It would cost $35 billion for a year, not much more than the combined price tag for the homebuyers' tax credit and the $250 checks that Obama has proposed sending to Social Security recipients.

Lerman offers a variation: Pay people lower-than-market wages, maybe $8 an hour, and reserve the jobs for those who really can't find better work. Instead of extending unemployment benefits over and over, the government would help people develop job skills and would get something in return. He estimates the cost of 1 million jobs (including supervisors) at $30 million, or about $30,000 for each job created, compared with the $92,000 per job that the White House estimates its approach is costing. And taxpayers would be able to see clearly that the spending was putting people to work -- instead of questioning, as many are now doing, the reliability of the job totals that the White House is attributing to the stimulus.

The country has a history with this sort of thing. Public investment in the New Deal got off to an underwhelming start. But the Works Progress Administration, launched in 1935, had a bigger impact, partly because it spent more freely -- drawing plenty of derision along the way. Less controversial was the Civilian Conservation Corps, which put men to work building trails, fighting forest fires and so on.

President Richard Nixon gave jobs programs another go in the doldrums of 1973-74 with the Comprehensive Employment and Training Act. But critics said states were just using the money to top off their budgets, and there were tales of abuse in some cities. President Jimmy Carter lowered the pay to make the jobs less likely to be doled out to friends and relatives. His assistant labor secretary, Arnie Packer, recalled last week that "we were able to see it in the statistics, the change in the employment rates for black males -- that's the targeting capacity that exists."

The program withered under President Ronald Reagan, who added prohibitions against public service employment (except for summer programs and natural disasters) that endure today. That the Obama administration shows little indication of lifting this taboo is a sign of how free-market tenets persist even when financial turmoil has called them into doubt, said John Russo, co-director of Youngstown State University's Center for Working-Class Studies. "Neo-liberalism continues apace even though it's been thoroughly discredited," he said. The White House "has held back, and it has hurt. People were looking for a more aggressive approach; they did a political calculation and said, 'This is all we can do.' "

Conservative economists stand steadfast against any movement toward direct job creation. They concur with part of the liberal critique of the stimulus -- that much of the spending is going out too gradually, and in the wrong places, to be of use. But they strongly disagree that the government should have tried more direct efforts to create or retain jobs.

Jobs programs "sound so good in theory, but it just doesn't work that way," said Larry Lindsey, director of the National Economic Council under President George W. Bush. It would be better to stick with safety-net benefits for those most in need and to enact new tax cuts, such as a suspension of the payroll tax to encourage hiring. The New Deal jobs programs were less effective than memory holds, he said, a misperception he attributes to the government-funded writers and artists who depicted the work. "A lot of what they did was a propaganda campaign," Lindsey said. "They hired the photographers to take the pictures and writers to write the story."

As it happens, an exhibit of New Deal-funded paintings is on display at the Smithsonian's Museum of American Art, with striking images of government-paid men shoveling snow and industrial machinery revving up. But don't expect to see any exhibits portraying the government's response to the Great Recession: The National Endowment for the Arts distributed its $50 million in stimulus funds to hundreds of arts groups and has no plans for direct payments to artists. "It wasn't for any new programs," said NEA spokeswoman Victoria Hutter. "It's being spent, it's just not as visible" as the New Deal's programs. But with unemployment into double digits, might not pictures of people heading to work have been a welcome sight?

"Employment and Unemployment Reporting"
by John Williams, August 24, 2004

The Bureau of Labor Statistics (BLS), U.S. Department of Labor, conducts two monthly surveys of U.S. employment and unemployment. Results usually are released on the first Friday of the month following the survey:

Household Survey (also Current Population Survey) -- The household survey generates the unemployment rate from a statistically designed monthly sampling of roughly 60,000 households. Other surveys, such as the annual poverty survey, often are piggybacked on the employment questions. The survey measures the number of people who have jobs.

Payroll Survey (also Establishment or Current Employment Statistics Survey) -- The payroll survey generates an estimate of the number of nonfarm jobs in the U.S. economy, based on a monthly non-random sampling of payroll tax filings of about 160,000 U.S. corporations and government agencies. The survey measures the number of jobs (some individuals hold more than one job).

The household survey is conducted during the week that includes the 12th of the month. The payroll survey is conducted as of the payroll period that includes the 12th of the month. Other than for seasonal factors, the household survey gets revised only with series or population redefinition. The payroll series is revised for two months following the initial release and then again in an annual benchmark revision.

Where the household survey includes farm workers, the self-employed and workers in private homes, the payroll survey does not. The payroll survey counts jobs, making no adjustment for multiple jobholders. Yet, adjusting for all differences, the BLS never has been able to reconcile the two series within one million jobs.

Conventional wisdom in the financial community is that the payroll survey is more accurate, given its larger sampling base. To the contrary, the household is scientifically designed, and the error can be estimated to any degree desired. The payroll data are haphazard at best, and the BLS has no idea of potential reporting error.

The BLS estimates a 90% confidence interval for a change in the unemployment rate of ±0.22%, and a 90% confidence interval for the monthly change in payrolls of ±108,000. The BLS, however, admits the payroll survey's confidence interval is not solid, given built in biases and the lack of randomness in the monthly sample.

The payroll survey used to include a regular monthly bias factor of about +150,000 jobs. Those jobs were added each month for good measure, as an estimate of jobs created by new companies. Companies that went out of business generally were assumed to be employing the same number of people as before they went out of business.

In the last couple of years, the BLS has modeled and seasonally adjusted its bias factor; there is no more guesstimation. Accordingly, new monthly bias factors have ranged from -321,000 to +270,000 during the last year. This, combined with continuous seasonal adjustment revisions, has added to the volatility of recent monthly reporting.

Suggesting that the household survey is more accurate than the payroll survey, however, does not mean household survey accurately depicts unemployment. While its measures have definable statistical accuracy, the accuracy is related only to the underlying questions surveyed and to the universe of people surveyed.

The popularly followed unemployment rate was 5.5% in July 2004, seasonally adjusted. That is known as U-3, one of six unemployment rates published by the BLS. The broadest U-6 measure was 9.5%, including discouraged and marginally attached workers.

Up until the Clinton administration, a discouraged worker was one who was willing, able and ready to work but had given up looking because there were no jobs to be had. The Clinton administration dismissed to the non-reporting netherworld about five million discouraged workers who had been so categorized for more than a year. As of July 2004, the less-than-a-year discouraged workers total 504,000. Adding in the netherworld takes the unemployment rate up to about 12.5%.

The Clinton administration also reduced monthly household sampling from 60,000 to about 50,000, eliminating significant surveying in the inner cities. Despite claims of corrective statistical adjustments, reported unemployment among people of color declined sharply, and the piggybacked poverty survey showed a remarkable reversal in decades of worsening poverty trends.

Somehow, the Clinton administration successfully set into motion reestablishing the full 60,000 survey for the benefit of the current Bush administration's monthly household survey.

While the preceding concentrates on the numbers that tend to move the markets, the household survey also measures employment. The payroll survey also surveys average hourly and weekly earnings and average workweek.

Addendum to Installment One (Published 9/7/04)

Bureau of Labor Statistics' Correction to Payroll Survey Description

In response to my comments on the "non-random" and "haphazard" nature of the payroll employment survey in Installment One, the Bureau of Labor Statistics (BLS) advised that my information was outdated, that the payroll survey used scientifically designed probability sampling, which had been phased in over several years and completed as of June 2003.

I was aware of the changes to the system, but did not think they improved the quality of the reported results much. I have just reviewed the BLS's current sampling methodology and have not changed my mind. While I may have used inaccurate terminology in describing the sampling method for the series, my general comments remain, and I still believe the household survey to be the more accurate of the two.

The household survey is proactive in nature and designed and sampled so its results can be determined with measurable statistical confidence.

While the payroll survey sampling approach may be sounder statistically than it was several years ago, it still is responsive, in nature, subject to whatever is reported or not reported by U.S. corporations. While individual companies are selected at random for following, the universe they are selected from still is not random and can vary meaningfully with changing times. An element of haphazardness is inherent in the universe of reporting companies.

During a recession, for example, firms go out of business and stop reporting, but the BLS does not know whether a company is out of business or did not report for some other reason. This supposedly is accounted for by the business birth (creation)/death (going out of business) modeling of companies, which replaces the old bias factor system.

There is no way to model these numbers with any meaningful accuracy, and the monthly swings in the birth/death data now often are greater than the reported monthly changes in total payrolls.

The BLS has a Herculean task in trying to measure monthly payrolls with meaningful results, and it has expended significant effort to improve its system. Nonetheless, it is difficult to see noticeable improvement in monthly reporting quality. Contrary to BLS expectations of improved results, I would be extraordinarily surprised if revisions to the series don't get larger, as opposed to smaller, as a result of what now is probably over-modeling of the series.

This already is evident in the monthly revisions to some individual industry series that I follow closely. It will be interesting to see how large the next several annual benchmark revisions are for the new system.

Bank of England says financiers are fuelling an economic 'doom loop'
The banking sector must be overhauled as profoundly as in the wake of the Great Depression or financiers will "game the state" over and over again, the head of the Bank of England's financial stability arm has warned. On the eve of the G20 meeting of finance ministers in Scotland, Andy Haldane, the Bank's executive director for financial stability warned that the relationship between the state and banks represents a "doom loop" which will keep inflicting crises on the public unless arrested.

The warning, which follows Governor Mervyn King's call for investment banks to be split from their high street wings, is the most radical yet from the Bank, and comes amid growing concern that the G20 has abandoned any plans for far-reaching reforms. It also coincided with news that the combined effect of rescuing Britain's biggest banks is likely to increase the national debt by a staggering £1.5 trillion, instantly making the UK one of the world's most indebted countries.

Mr Haldane, who was a key part of a Bank unit which was among the first to warn, well ahead of the crisis, of a dangerous gap between what banks had in their balance sheets and what they were lending customers, made the comments in a paper written with Piergiorgio Alessandri, published on Friday. The pair diagnosed five ways in which banks capitalised on the implicit state guarantee for the financial system, saying they were "the latest incarnation of efforts by the banking system to boost shareholder returns and, whether by accident or design, game the state."

The fact that governments repeatedly bail out economies and banks following crises also undermines their pledged of "never again", they add. "This adds to the cost of future crises. And the larger these costs, the lower the credibility of 'never again' announcements. This is a doom loop." They conclude by calling for "a financial sector reform effort every bit as radical as followed the Great Depression."

However, the G20 meeting in St. Andrews is expected instead to focus on efforts to bring economies back to health. There are growing signs of further recovery in the UK economy. The Organisation for Economic Co-operation and Development's leading indicator showed that the UK is now in "expansionary" phase, suggesting it is out of recession. Producer prices also jumped, indicating that pricing pressures are on the rise.

Elizabeth Warren: We Rescued The Top Of The System, And Left The Bottom To Fend For Itself

5 more banks fail, shutdown tally 120
 In yet another case of bank failure, United Commercial Bank was closed Friday, bringing the total to 120 this year. The state regulators have seized the San Francisco based bank and its operations have been acquired by East West Bancorp of Pasadena, California. East West paid premium of 1.1 percent to acquire United Commercial’s $11.2 billion in assets and its banking operations in the nation as well as China. With the acquisition of United Commercial, East West has become the second largest independent bank in California. “This is a transformational event,” stated Dominic Ng, chief executive officer East West. “The transaction strengthens our presence in key markets throughout the U.S. and Asia.”

Four other banks fail
The regulators also closed four other banks Friday, in Georgia, Michigan, Missouri and Minnesota. United Security Bank of Sparta in Georgia will be acquired by Ameris Bank. Home Federal Savings Bank of Detroit in Michigan will be acquired by Liberty Bank and Trust Co. Prosperan Bank of Oakdale in Minnesota will be taken over by Alerus Financial. Central Bank of Kansas City in Missouri will acquire Gateway Bank of St. Louis. Customers of all the banks have been protected and can access their accounts as usual.

More failures to deplete FDIC’s funds further
The failure of United Commercial Bank is expected to cost FDIC around $1.4 billion, further pushing agency’s funds in the red. On an average, 11 banks have failed every month this year, making it the highest rate since 1992 when 181 banks had shut down. But this is yet not the end of failures. The FDIC has warned of more failures in the coming year. The failures so far have cost FDIC more than $25 billion and eroded funds meant to insure bank deposits.

As many banks are still saddled with bad debts, more bank failures are expected, which are likely to increase cost to $100 billion in the next four years. The loss sharing agreement with various banks taking over the struggling units have defrayed FDIC costs to certain extent, but to cut costs further the agency is contemplating borrowing money from healthy U.S. banks to keep its deposit insurance fund solvent. The proposal is still in its initial stage and the final outcome is yet to be seen.

$8,000 homebuyers tax credit extended
President Obama signed an extension and expansion of the first-time homebuyers tax credit on Friday. The $8,000 credit was scheduled to lapse on Dec. 1 but will now be in effect through the end of June. Homebuyers must sign a contract before April 30 and close by June 30. The income limits were also raised: Single buyers can now earn up to $125,000 and still get the full credit while a married couple can earn $225,000.

The bill also made more homeowners eligible to claim the credit on their taxes. First-time buyers -- those who have not owned a home in the past three years -- still qualify for an $8,000 rebate. But now people who want to trade up can also qualify. Those who have owned and occupied a residence for at least five years out of the past eight can claim a $6,500 tax credit if they close on a purchase by the end of June. "The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules," said Gibran Nicholas, chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers.

Who qualifies?
Nicholas provided four scenarios illustrating how the tax credit rules for existing homebuyers will apply:
  • Harry owned a home in 2001 and 2002 but sold it to relocate for a job. He would qualify for the $8,000 first-time-buyer credit because he has not owned a home in the past three years.
  • Sue purchased a home in 2004 and has lived there since. If she decides to buy a new home, she would qualify for the $6,500 tax credit because she has lived in the same residence for five consecutive years in the past eight.
  • Jane purchased her home in 2002, lived there for five consecutive years before she rented it out in 2007. She would qualify because she was an owner/occupier for at least five consecutive years in the past eight.
  • Mark purchased a home in 2006 and lived there for the past three years. He would not qualify because he is neither a first-time homebuyer nor someone who lived in the same primary residence for five consecutive years out of the past eight.

How it helps the economy
Legislators and industry experts expect that the credit will encourage buyers such as Jane and Sue to move up their purchase plans. "This bill will shift demand from the second half of 2010 into the first half," said Pat Newport, a real estate analyst with IHS Global Research. "As a result, home sales and prices will get a boost in the first half of 2010, with payback in the second."

That's not a bad thing, according to Bill Kilmer, vice president of advocacy for the National Association of Home Builders. It's important to stabilize real estate markets quickly to help bring the economy out of its tailspin. The original $8,000 tax credit appears to have helped accomplish that goal: Home prices have inched up the past few months, according to the S&P/Case-Shiller Home Price Index.

Would it have happened anyway?
But critics still see the program as being ineffectual because it rewards buyers who would have purchased a home anyway. Newport estimates that fewer than 400,000 of the 2 million who have claimed the original credit made their purchases solely because of the tax advantages. Furthermore, buyers do not, in reality, receive the entire benefit. "The credit helped prices stabilize," said Newport. "So the credit has been split between seller and buyer. The sellers are getting higher prices and buyers paying more than they would have without it."

The housing industry, however, is pleased with the extension, although the credit has not been quite as effective as they hoped. The industry thought the credit would provide a ripple effect, with sales to first timers triggering as many three additional "move-up" sales. That did not happen, according to Lawrence Yun, NAR's chief economist. "It did not have the chain reaction impact it was supposed to," he said. "Instead, many first-timers turned to vacant, foreclosed or other distressed properties the sellers of which were unlikely to be move-up buyers."

So, the tax credit helped prop up the low end of the market without having much impact on the rest of the spectrum. Expanding the benefit to existing homeowners should boost those segments. That should produce additional benefits, according to Yun. "Preventing further price decline or even nudging prices up a bit stabilizes housing wealth, which makes homeowners more comfortable in their spending," said Yun. "They're more likely to go out to the stores or buy a new car. That provides a boost to the overall economy." 

Treasury Blocks Fannie Mae Tax Credits Sale to Goldman, Buffett
The U.S. Treasury blocked Fannie Mae's proposed sale of nearly $3 billion in low-income housing tax credits to Goldman Sachs Group Inc. and Berkshire Hathaway Inc. on Friday after concluding that the deal was too costly for taxpayers. The extraordinary move was the latest sign of tensions within the Obama administration over how to balance political and financial pressures resulting from the housing crisis.

Fannie Mae had agreed to sell roughly half of its $5.2 billion tax-credit portfolio and had received approval to proceed with the sale from its federal regulator, the Federal Housing Finance Agency. Those credits are virtually worthless to Fannie because the company doesn't have any taxable income to offset, and it is forced to write down the value of those credits every quarter as their value declines. But Treasury Department officials blocked the deal after concluding that it would have resulted in a loss of tax revenues greater than the savings to the federal government had it allowed the sale. "In short, withholding approval of the proposed sale affords more protection of the taxpayers than does providing approval," an administration official said in a statement.

In a federal filing on Thursday, Fannie said it had recorded $520 million in losses related to low-income housing tax credit and related investments during the third quarter and that it would be forced to record additional losses "if in the future we determine we no longer have the intent and ability to sell or otherwise transfer" those credits for value. The blocked sale illustrates the political and policy challenges facing the government as it looks to conserve both companies' capital while balancing larger policy and political goals.

The deal pitted two government agencies against each other over how best to run Fannie and its smaller rival, Freddie Mac. The government took over both mortgage-finance companies 14 months ago through a legal procedure known as conservatorship.

Freddie Mac has a $3.4 billion portfolio of low-income housing tax credits and said in filings Friday that it would also be forced to record "significant" losses if it did "not receive regulatory approval for such transactions." Representatives for Berkshire Hathaway couldn't be reached for comment. Approving the deal could have also furthered a perception that policy makers have taken steps that have favored Goldman ahead of other banks at a time when populist sentiment against Wall Street has surged.

State and Local Government Pension Gap May Be $1 Trillion
U.S. state and local government pensions are underfunded by $1 trillion and may need to seek federal guarantees for their debt, according to Orin Kramer, chairman of New Jersey’s Investment Council. Kramer, who is general partner of the hedge fund Boston Provident Partners LP and a Democratic fundraiser, also said he expects New Jersey Governor Jon Corzine, who lost re-election Nov. 3 to Republican Christopher Christie, to take a “significant role” with a financial company after he leaves office early next year. Corzine was formerly co-chairman of Goldman, Sachs & Co.

Pension underfunding eventually will make it impossible for some governments to raise money in bond markets and will require federal intervention through explicit or “implied guarantees” of municipal debt, Kramer, 64, said in an interview today at Bloomberg News headquarters in New York. “The collective deficits should not be and will not be overcome by an aggressive investment strategy,” Kramer said. “I think that actually, ultimately, the severity of the problem will become publicly visible and you’ll have more entities that will have difficulty accessing the bond markets.”

The 100 largest U.S. public-employee pension plans had assets of $2.2 trillion as of June 30, down from $2.8 trillion a year earlier, according to a U.S. Census Bureau report. The 21 percent decline compared with the 28 percent fall in the Standard & Poor’s 500 Index during the worst recession since the Great Depression. New Jersey’s investment council oversees the state’s $68 billion pension fund, whose assets fell 14 percent in the fiscal year ended June 30.

Kramer, who became chairman of the council in 2002, said he spoke with Corzine yesterday after the first-term Democrat’s loss. Corzine got into politics in 2000 when he successfully ran for U.S. Senate. He was elected governor in 2005. “That life is over,” Kramer said of Corzine’s political career.

U.S. government backed $4.3 trillion in assets in crisis
The U.S. government guaranteed as much as $4.3 trillion in financial assets last year, making such backstops the biggest and riskiest part of Washington's response to the financial crisis, a bailout watchdog panel said on Friday. The Congressional Oversight Panel said in its latest monthly report that the asset guarantees from the U.S. Treasury, the Federal Reserve and the Federal Deposit Insurance Corp helped calm panic in financial markets at minimal cost to taxpayers so far.

To date, the programs have generated fees of about $17.4 billion, while only up to $2 million is expected to be paid out for a default under the FDIC's bank debt guarantee program. . The report said for program that once guaranteed a pool of $301 billion in Citigroup assets, initial actuarial estimates point toward a possible loss of $34.6 billion under a "moderate" stress scenario.

But since Citigroup must absorb the first $39.5 billion in losses from these assets, taxpayers would not be liable for any of this. A "severe" stress test scenario would result in losses of $43.9 billion, of which taxpayers would have to absorb nearly $4 billion. The panel, charged with overseeing the U.S. Treasury's $700 billion Troubled Asset Relief Program, said that as financial markets stabilize and the scope of the guarantee programs decrease, the likelihood of major expenditures also diminishes.

"This apparently positive outcome, however, was achieved at the price of a significant amount of risk," the panel said in the report. "A significant element of moral hazard has been injected into the financial system and a very large amount of money remains at risk."

Elizabeth Warren, the Harvard Law School professor who heads the Congressional Oversight panel, said the guarantees also produced significant distortions in private markets, drawing funds to assets that had backstops. "The fact that there is no upfront cost is both the beauty and danger of guarantees," she told a conference call on the report. "They are perhaps too tempting."

The majority of the $4.3 trillion that the government guaranteed came from a money market mutual fund guarantee program aimed at preventing massive withdrawals of such funds in the fall of 2008. At its height, the program guaranteed $3.217 trillion in money market fund assets. Among other programs reviewed in the report, the FDIC debt guarantee program currently backstops about $307 billion in outstanding obligations. The watchdog panel said it did not identify any significant flaws in the Treasury's implementation of its programs and noted that Treasury has taken a more aggressive stance in safeguarding taxpayer funds.

But it recommended that the Treasury disclose more information on the rationale and justifications for creating the money market guarantee program, and explanations of why Citigroup and Bank of America were the only institutions selected for asset guarantee protection. It also asked for more updates on the pool of Citigroup assets, now estimated at $266.4 billion, including total and projected losses.

Fannie’s Draws From Emergency Treasury Fund Reach $60 Billion
Fannie Mae, the mortgage buyer seized by regulators, plans to tap emergency U.S. capital for a fourth time this year, bringing its draws of taxpayer money to $60 billion as the company sees no immediate end to its losses. Fannie Mae will seek $15 billion in Treasury Department financing after posting an $18.9 billion third-quarter net loss, according to a Securities and Exchange Commission filing late yesterday. The Washington-based company, which posted $101.6 billion in losses over the previous eight quarters, has already tapped $44.9 billion from the $200 billion emergency lifeline.

“They’re going to need that $200 billion in capital, if not more, when this thing’s all said and done,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia. The Treasury Department is also holding up an agreement Fannie Mae reached in the third quarter to sell about $2.6 billion in low-income housing tax credits, the company said. The company may have to write down the value of the credits and take a charge if it can’t find a use for the credits.

Losses will continue and the company remains “dependent on the continued support of Treasury to continue operating,” Fannie Mae said in the filing. The company said any profit it does make would be eaten up by $6.1 billion in annual dividend payments owed on the Treasury borrowings, a cost that exceeded its annual net income for five of the past seven years. The payment “will contribute to increasingly negative cash flows in future periods if we continue to pay the dividends on a quarterly basis,” Fannie Mae said.

Treasury officials are considering whether to let Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history, buy some of the tax credits. The purchase would lower the investment bank’s tax bill. Fannie Mae has accumulated about $5.2 billion in the credits, and hasn’t been able to recognize the majority of the tax benefits because it hasn’t been profitable since 2007. Fannie Mae, which owns or guarantees more than 20 percent of the $12 trillion U.S. home-loan market, has been hobbled by a three-year housing slump that has wiped 28 percent off home values nationwide and led to record foreclosures. Fannie Mae Chief Executive Officer Michael Williams said Sept. 9 that the housing market still had a “long road ahead” to recovery and investors and borrowers should remain cautious.

The company estimates that home prices have fallen 15.6 percent from their peak in the third quarter of 2006. Home prices will drop 6 percent in 2009, less than the 7 percent to 12 percent drop predicted, the company said yesterday. Fannie Mae also revised its forecast for peak-to-trough price declines to between 17 percent and 27 percent, from 20 percent to 30 percent. Fannie Mae shares, which peaked at $87.81 in December 2000, closed at $1.12 yesterday in New York Stock Exchange trading.

A record 2.6 million defaults, scheduled foreclosure auctions or bank repossessions occurred in the first nine months of this year, 22 percent more than a year earlier, as unemployment rates climbed and temporary programs delaying foreclosure expired, according to Irvine, California-based data company RealtyTrac Inc. Inventory-to-sales ratios remain high and additional foreclosures may put further pressure on home prices, Fannie Mae said. About 3.9 million homes are for sale, and as many more homes with mortgage payments that are at least 90 days past due make up a “shadow” foreclosure inventory waiting to come onto the market, according to the Mortgage Bankers Association.

Fannie Mae and smaller rival Freddie Mac were chartered by the government primarily to lower the cost of homeownership by buying mortgages from lenders, freeing up cash at banks to make more loans. The companies make money by financing mortgage-asset purchases with lower-cost debt and by charging fees to guarantee securities they create out of home loans from lenders. The Federal Housing Finance Agency put Fannie Mae and Freddie Mac under its control in September 2008, and forced out management after examiners said the two may be at risk of failing amid the worst housing slump since the Great Depression.

McLean, Virginia-based Freddie Mac, which posted a second- quarter profit partly because of one-time accounting adjustments and mark-to-market gains, has tapped $50.7 billion in aid since November 2008. Fannie Mae’s net worth, or the difference between assets and liabilities, was negative $15 billion as of Sept. 30, compared with negative $10.6 billion on June 30 and negative $18.9 billion on March 31, according to company statements.

Federal homebuyer tax credits and financing programs have sparked demand for homes and led the housing industry to contribute to U.S. economic growth for the first time in four years last quarter. Sales of existing homes surged a record 9.4 percent in September, to a 5.57 million annual rate, the highest in more than two years, according to National Association of Realtors data. The mortgage market is still dependent on government- affiliated programs, with private banks providing just 10 percent of loan liquidity, down from about 60 percent in 2006, Williams said in September. Fannie Mae and Freddie Mac are responsible for about 70 percent of all new mortgages this year, while the Federal Housing Administration accounts for about 20 percent, Williams said.

The House and Senate this week voted to extend the $8,000 first-time homebuyer tax credit through April 30, and expand the program to include people with higher incomes and some who already own homes. The bill is being sent to President Barack Obama to sign into law. The fair value of Fannie Mae’s assets was negative $90.4 billion last quarter, compared with $102 billion at the end of June. Fannie Mae increased reserves for future credit losses to $65.9 billion last quarter from $55.1 billion in the previous quarter.

The amount of nonperforming loans that Fannie Mae guarantees for other investors rose to $163.9 billion from $144.2 billion in the second quarter, according to the filing. Fannie Mae also owned $34.2 billion in non-performing loans as of Sept. 30, up from $26.3 billion in the second quarter. “In absolute dollar terms, you’re still looking at outlandish growth in nonperformers, which tells you that reserves will continue to increase,” Miller of FBR Capital Markets said. “So you can’t tell when this thing is going to be profitable or if they are reserving correctly.”

AIG Taps $4.2 Billion More From Treasury for Two Units
American International Group Inc., the insurer rescued by the U.S., tapped the Treasury Department for another $4.2 billion to help restructure its money-losing mortgage guarantor and the plane unit it’s trying to sell. AIG accessed about $2.1 billion from its Treasury facility on Aug. 13 and told the government today it would draw down another $2.1 billion, the New York-based company said in a regulatory filing. AIG got the $29.8 billion facility in April as part of its fourth bailout.

“It shows that they’re still having trouble getting cash to continue to run their operations” without government support, said Sandler O’Neill Partners LP analyst Paul Newsome. “That’s despite the fact you’ve had some really favorable things happen, like the credit markets getting better.” AIG was bailed out in September 2008 to prevent losses at banks that bought derivatives from the insurer. The $182.3 billion rescue includes a $60 billion Federal Reserve credit line, up to $52.5 billion to buy mortgage-backed securities owned or backed by the insurer, and a Treasury investment of as much as $69.8 billion in two facilities. AIG has already drained one of the Treasury programs, valued at $40 billion.

AIG is using Treasury funds to buy shares of International Lease Finance Corp. held by one of its insurance units, the company said in the filing. The transfer may ease the eventual sale of Los Angeles-based ILFC or its assets, Newsome said. The insurer is in talks to sell as much as $4.5 billion of commercial planes to ILFC’s chief, Steven Udvar-Hazy, who is seeking to start a rival firm, people familiar with the matter said in October. Christina Pretto, a spokeswoman for AIG, declined to comment.

Funds will also be used for “restructuring transactions” at AIG’s United Guaranty mortgage insurer, the company said in the filing. United Guaranty reimburses lenders when borrowers don’t repay and foreclosure fails to cover costs. The Greensboro, North Carolina-based mortgage guarantor named Eric Martinez this year to replaces William Nutt as CEO. The Treasury facility was initially $30 billion, then was reduced by $165 million, the amount AIG gave in bonuses in March to employees of an unprofitable derivatives unit.

AIG first tapped the $29.8 billion facility in May when it accessed about $1.2 billion to shore up its U.S. life insurance operations. AIG owes $44.5 billion on its Federal Reserve credit line. The figure rose last month as the firm propped up ILFC by extending $2 billion in credit. ILFC turned to AIG to finance contractual obligations after credit downgrades barred the plane unit from borrowing from the U.S. commercial paper program.

The company has agreements to raise more than $12 billion by selling operations including a U.S. auto insurer, an equipment guarantor and a Taiwan life unit. Chief Executive Officer Robert Benmosche is seeking to enhance the value of assets before they are sold “and expects to accomplish this over a longer time frame than originally contemplated,” AIG said today in a statement. AIG reported $455 million in net income today, its second straight quarterly profit after the U.S. rescue, as investment losses narrowed and catastrophe costs declined.

AIG profitable for second straight quarter
AIG reported its second profitable quarter in a row early Friday, as stabilization in its insurance businesses, and the credit and mortgage markets helped boost results. The troubled insurer said its net income rose to $455 million, or 68 cents per share, an improvement over the $24.5 billion loss from a year earlier. Results included a one-time net charge of $1.5 billion for capital losses and hedging.

Without the charge, AIG would have earned $1.9 billion in the quarter, or $2.85 per share. Analysts polled by Thomson Reuters, who typically exclude one-time events, forecasted earnings of $1.98 per share. Sales for the New York-based company rose 189% to $26 billion, topping analysts' forecasts of $23 billion. "Our results reflect continued stabilization in performance and market trends," said AIG Chief Executive Robert Benmosche in a statement. "AIG employees are working to preserve the strength of our insurance businesses in a challenging market."

In August, AIG reported that it had returned to profitability after six straight losing quarters, a stretch in which the company lost more than $100 billion. Shares of AIG (AIG, Fortune 500) tumbled 9% in morning trading to $35.70. AIG's stock, which has nearly tripled since March, is down about 25% from its highs of around $50 in mid-September. The return to more solid footing also put the company in a better position to pay back the $89.3 billion it owes taxpayers.

Troubled asset portfolio shrinking: AIG made more progress winding down the sizeable financial products division portfolio that brought it to the brink of collapse in September. AIG has managed to reduce FP's derivative portfolio by 28% in 2009, reducing those holdings to $1.1 trillion. That's $200 billion lower than the size of the troubled asset holdings in the second quarter. As the mortgage market begins a comeback, the value of the volatile credit-default swap insurance that AIG wrote on mortgage-backed securities increased. AIG Financial Products reported a $1.4 billion profit in the third quarter, compared to an $8.3 billion loss during the same period a year ago.

Asset sales speeding up: An improving credit situation helped AIG sell off $3 billion of assets in the quarter, more than doubling the number of assets it sold in the first half of 2009. The company said it will use the proceeds of those sales to repay its federal loans. AIG said an improved credit market has helped speed up the pace of asset sales. Last month, the company announced its biggest sales to date: an agreement to sell Taiwanese life insurance company Nan Shan for $2.2 billion.

Still, the company hasn't raised close to enough funds to pay back its loans. As a result, AIG said it will complete a previously announced sale of stakes in two of its foreign life insurance subsidiaries to the government this quarter. In exchange, the Fed will forgive $25 billion of its $44.8 billion loan to the insurer. Benmosche warned that sales of those giant subsidiaries would make future financial results more volatile, due to hefty restructuring charges. With an expected before-tax charge of $5 billion for those sales, analysts expect AIG to wind up swinging back to a loss in the fourth quarter.

Insurance stabilizing: Though premiums were down, AIG said there were signs of stability in its core insurance businesses. For AIG's general insurance business, recently branded as "Chartis," net premiums written were down 13% from last year. But the company said business retention was at its highest level since the company's near collapse in September 2008, and pricing remained stable.
Life insurance premiums fell 16.1% from the same period last year, but the company said written insurance has remained flat this year as business stabilized. AIG has maintained for more than a year that its core insurance business remained solid, and the financial products division was the source of the company's woes.  

Top Bailout Recipients Spent $71 Million On Lobbying In Year Since Bailout
Twenty-five top recipients of government bailout funds spent more than $71 million on lobbying in the year since they were rescued, an extensive review of federal lobbying records by the Huffington Post reveals. A year after taxpayers forked over $700 billion to help rescue the biggest names in banking, insurance and the automotive industry, those same institutions are using portions of the cash to influence legislation with a direct impact on taxpayers.

In all, during the last quarter of 2008 and the first three quarters of 2009, those 25 institutions spent $71,199,000 on lobbying. The list includes General Motors ($11.95 million), Citigroup ($8.915 million), Bank of America ($6.427 million), J.P. Morgan Chase ($7.735 million), Goldman Sachs ($4.38 million) and AIG ($3.47 million). Some of these companies have paid federal money back. Not all of the top bailout recipients, meanwhile, spent money on lobbying.

The amount that was spent, however, is nearly identical to the lobbying expenditures these same companies made during the year preceding the federal bailout. According to the Center for Responsive Politics, bailout recipients paid approximately $76.7 million for the services of lobbyists in 2008. All of which has sparked angry pushback from good government groups and lawmakers on the Hill, who ask whether the expenditures are appropriate after these institutions took the nation's economy to the brink of collapse.

"It creates a bizarre feedback loop where taxpayer money is being used by beneficiaries of the bailout to, in some cases, thwart taxpayer protections and even to score more taxpayer money, things that taxpayers themselves will likely find quite distasteful," said Sheila Krumholz, executive director of the Center for Responsive Politics. "The question is where does it end?" Much of the lobbying money spent by bailout recipients has been devoted to influencing legislation that has direct impact on taxpayers.

Among the eight recipients who spent more than $3 million lobbying since the bailout, the most common specific items of interests included the Credit Card Holders' Bill of Rights Act, the Credit Card Fair Fee Act of 2009, Credit CARD Act of 2009, the Helping Families Save Their Homes Act, and the Mortgage Reform and Anti-Predatory Lending Act. Specifically, bailed-out institution have fought efforts to give bankruptcy judges the power to renegotiate mortgages. They have worked against legislation that would lower the fees merchants are charged when their customers use credit cards. They have also worked against legislation that would put more restrictions on how they spend taxpayer funds.

"The biggest problem is that they are lobbying for more bailouts," said Rep. Brad Sherman (D-Cali). "In particular they want to make sure that future bailouts do not involve votes in Congress because Wall Street is convinced that Congress is not a reliable bailout partner. They want all bailout decisions made by the executive branch because all elements of the executive were very pro-bailout throughout the process."

Officials representing bailout recipients insist that their lobbying expenditures are neither untoward nor exceptional. They stress that the Capital Purchase Program portion of the TARP -- the program in which many of the failing banks are participating -- was "forced" on those institutions by the federal government, meaning that the banks shouldn't be held to a different standard of good-governance.

"[The banks] were brought to Washington and told they were going to take this money," said Peter Garucci, a spokesman for the American Bankers Association. "It was billed, and is still regarded by Treasury, as an investment program in healthy banks as a means to spur greater lending." Asked if spending $71 million on lobbying was a form of "greater lending," Garucci replied: "No. I wouldn't make that contention."

But Garucci, and other officials at various bailed out institutions, insist that it would be overly restrictive and perhaps unconstitutional to apply restrictions that limited or simply barred institutions relying on taxpayer money from lobbying. "We are faced with new proposals and new ideas almost every day," said Garucci. "It is very well understood that fundamental reform of the entire financial system is under consideration. And from our perspective, we work with members from both sides of the aisle to discuss how that is going to progress."

Still, for others, it is difficult to justify institutions spending any money -- let alone $71 million -- just one year after needing a historic lifeline from the American public. That bailed-out companies could spend so much simply on influencing legislation, they argue, is reflective of how stacked the political deck truly is in favor of the financial sector. As the Service Employees International Union reported, all Wall Street institutions -- banks and insurance companies, TARP recipients and non-TARP recipients -- have spent $321 million on lobbying in the first nine months since the bailout.

"It's obscene that banks are using tax payer money to lobby against reforms that would protect consumers and the country from banks crashing the economy again," said Stephen Lerner, director of the private equity project at SEIU. "They have plenty of money for lobbying and bonuses while they cut off lending to small business and are again raising credit card interest rates."

Ambac Insurance Unit May Be Put in Receivership, JPMorgan Says
Ambac Financial Group Inc.’s bond- insurance unit may be placed into receivership, leaving no value for company’s shareholders, as the minimum surplus it’s required to maintain dwindles, according to JPMorgan Chase & Co. The unit’s statutory capital as of Sept. 30 “could very well be in a deficit,” Andrew Wessel, a JPMorgan analyst in New York, wrote in a report today.

Ambac, the second-largest bond insurer, has yet to provide investors with an update on the status of its regulatory capital. The company was stripped of its AAA bond insurance rating last year after surging loss projections on securities backed by soured home loans. Yesterday, Ambac said it will make $459 million in additional payments related to defaulted securities. Insurance regulators in Wisconsin, which oversee Ambac, will likely take “some level of supervisory action to protect policyholders in the near term,” Wessel wrote. “We believe Ambac might be placed into receivership near term.” He reiterated his “underweight” rating on the stock.

As of June 30, Ambac’s insurance unit had statutory capital surplus of $500 million which may have been completely eroded as of the end of September, Wessel wrote. Ambac was stripped of its AAA credit ratings last year and has stopped writing new business. “I don’t think there’s a basis for his comments,” said Peter Poillon, a spokesman for Ambac. “He’s making assumptions about our statutory filings that haven’t been completed at this point.” Ambac fell 20 cents, or 13 percent, to $1.30 at 10:53 a.m. in New York Stock Exchange composite trading. The stock reached a high of $96.08 on May 18, 2007.

Chief Financial Officer Sean Leonard said on a conference call yesterday that the company hasn’t released an operating supplement, which typically contains the status of its regulatory capital, because it has yet to make its statutory filings with regulators for the third quarter. The company expects to meet a Nov. 16 deadline to do so, he said. In August, Ambac said it received permission from its regulators to release $1.8 billion of contingency reserves in a bid to remain above minimum capital requirements.

The company had previously warned that its regulatory capital might fall below the statutory minimum because of rising claims on insured mortgage bonds. That would trigger a cross default at Ambac’s publicly listed holding company, Wessel wrote. Even if Ambac is permitted to operate outside of receivership, Wessel said he expects Ambac’s holding company to default on its debt as soon as the first quarter of 2011.

Bond insurers are required to maintain minimum surpluses or risk being taken over by regulators. To prevent takeovers, insurers have paid holders to tear up credit-default swap contacts on their poorest-performing securities. Credit-default swaps pay the buyer face value if a borrower defaults on its debts in exchange for the underlying securities or the cash equivalent.

Yesterday, Ambac reported third-quarter net income of $2.19 billion, reversing a year-earlier loss, after unrealized mark- to-market gains in its credit derivatives portfolio. The profit, equal to $7.58 a share, compares with a net loss in the year-earlier period of $2.43 billion, or $8.45 a share, the company said in a statement. After adjusting for a $2.7 billion gain the company booked for “a substantial increase in the cost to insure its own debt,” Ambac would have lost about $2 a share last quarter, Wessel wrote.

“The company recorded another $700 million of expected repayments from fraudulent loans put back into institutions, bringing the total now claimed to $1.9 billion,” he wrote. “Ambac has recovered just $60 million so far in repayment.” MBIA Inc. is the world’s largest bond insurer.

The Commercial Loan Nightmare Facing U.S. Banks
Banks are in for another ugly year in 2010. But this time the problem will be the big batch of deteriorating commercial real estate loans on their books. That’s because the big banks were operating with the same loose standards—and aggressive behavoir—as the investment banks in order to compete in the real estate market during the boom years. (Read our cover story about why this real estate bust is different.) Commercial real estate loans that banks underwrote and held on their books skyrocketed to approximately $190 billion in 2007, up from $11 billion in a single year, a decade earlier. In all, banks hold some $1.8 trillion of commercial real estate debt on their books.

Trouble is, nobody knows just what the values of the loans on bank books’ are since they are not required to mark them to market prices. Since the stress tests conducted by the Feds never looked far enough into the future, the ability to “fully grapple with the prospect of massive future commercial real estate (CRE) loan defaults is uncertain,” admitted Jon D. Greenlee, associate director at the Division of Banking Supervision and Regulation in congressional testimony on July 9 and again on Nov. 2. Of particular concern, says Greenlee: Almost $500 billion of commercial real estate loans that will mature during each of the next few years. “In addition to losses caused by declining property cash flows and deteriorating conditions for construction loans, losses will also be boosted by the depreciating collateral value underlying those maturing loans. The losses will place continued pressure on banks' earnings, especially those of smaller regional and community banks that have high concentrations of CRE loans,” says Greenlee.

The good news: The Fed is now undertaking a review of commercial real estate loans held by hundreds of small and regional banks. In July, the Fed allowed investors participating in its Term Asset-Backed Securities Loan Facility (TALF) to purchase existing securities backed by loans the government will cover for apartment complexes, office buildings, retail shopping centers and other commercial property. In the meantime, many banks have been forestalling the day of reckoning. The latest strategy, called “extend and pretend,” appears to be in full swing—a head-in-the-sand approach that provides temporary extensions to troubled borrowers on maturing commercial loans to give them, and the bank, some breathing room.

But surging delinquencies and defaults will eventually catch up with them. So who is most at risk? The biggest exposures are in the regional banks which have much closer ties with their local communities and developers. Some banks, have concentrations of CRE loans equal to several multiples of their capital; many of those loans are in speculative new properties, the Feds say. Kamal Mustafa, chairman of Invictus Consulting Group and former head of Citigroup's Global M&A and corporate finance departments, says many of these banks will fail as a result. “Right now there are a lot of banks that are showing no charge offs but when the CRE market dives, we’ll see a lot of banks going down.”

KBW Research, a boutique investment bank and research shop in New York, crunched the numbers. Here’s a look at some of the U.S. banks and thrifts they believe have the most commercial real estate exposure based on a percentage of their total loans (from 50% to 71%) as of the second quarter. This doesn't necessariy mean they are buried under bad loans, but just have more exposure to the commercial real estate sector. Keep in mind, that prices in that market have dropped some 40% since the beginning of 2007 through October (more than the housing market) so the value of these assets has most certainly diminished.

Name, Ticker, Percent of Loans in CRE
Nara Bancorp, NARA, 71%
Center Financial, CLFC, 71%
Cass Information Systems, CASS, 69%
Hanmi Financial, HAFC, 69%
Dearborn Bancorp, DEAR, 66%
Wilshire Bancorp, WIBC, 66%
Intervest Bancshares, IBCA, 65%
MetroCorp Bancshares, MCBI, 64%
Unity Bancorp, UNTY, 62%
Oak Valley Bancorp, OVLY, 60%
PacWest Bancorp, PACW, 59%
CommerceFirst Bancorp, CMFB, 59%
Jacksonville Bancorp, JAXB, 58%
American River Bankshares, AMRB, 58%
FPB Bancorp, FPBI, 57%
W Holding Company, WHI, 56%
Bank Holdings, TBHS, 55%
Sussex Bancorp, SBBX, 54%
Sun Bancorp, SNBC, 54%
Southern Connecticut Bancorp, SSE, 54%
Cape Bancorp, CBNJ, 54%
Community Central Bank, CCBD, 53%
Umpqua Holdings, UMPQ, 53%
Parke Bancorp, PKBK, 52%
Mackinac Financial, MFNC, 52%
Tamalpais Bancorp, TAMB, 51%
Mercantile Bank, MBWM, 50%
Sterling Bancshares, SBIB, 50%
Bank of Marin Bancorp, BMRC, 50%
Old Line Bancshares, OLBK, 50%

A brief history of Goldman Sachs heads
by Felix Salmon

With Jon Corzine losing the governorship of New Jersey yesterday, it was yet another bad day for former heads of Goldman Sachs. It’s worth running down the list, since the venerable pairing of John Weinberg and John Whitehead came to an end in 1990.

First up there was the pairing of Robert Rubin and Stephen Friedman. Both of them attempted to become venerable eminences grises, but neither succeeded, in the end. Friedman became chairman of the New York Fed, where he helped to which put together the deal under which AIG’s CDS counterparties, foremost among them Goldman Sachs, got paid out at 100 cents on the dollar, He was also involved in approving and which also approved Goldman’s request to become a bank holding company. He then inexplicably bought tens of thousands of shares Goldman shares in the open market — a clear conflict of interest given his position at the Fed — resulting in his resignation shortly afterwards.

Rubin, of course, looks even worse. As arguably the most Wall Street-friendly Treasury secretary ever, he helped to inflate the deregulatory financial-services bubble on the basis that big banks were extremely sophisticated and more than capable of looking after their own risk books. He then moved to the ultimate cushy job at Citigroup, where he got paid $10 million a year despite having no employees, no P&L, and no defined responsibilities. In hindsight, his main contribution to the bank was to be the biggest internal cheerleader for the fixed-income group, which he encouraged to take on ever-greater amounts of risk despite the fact that no one in senior management (including himself) really had a clue what they were doing. Result: disaster.

Rubin and Friedman were succeeded by Corzine, whose post-Goldman career has been spent almost entirely in politics. He was pretty ineffective in the Senate, before moving to the governorship of New Jersey. (In a classic case of the squid’s tentacles being everywhere, he there helped oversee the incoherent mess at Ground Zero, due to New Jersey’s 50% stake in the Port Authority of New York and New Jersey.

The chairman of the Lower Manhattan Development Corporation, charged with rebuilding at the site, was former Goldman senior partner John Whitehead.) Never much of a natural politician, he basically bought both jobs, which at least meant that he wasn’t corrupt. But after he was almost killed in a 91 mile-an-hour car crash where he wasn’t wearing a seatbelt, he lost a large chunk of whatever leadership ability he had formerly held. His political demise yesterday, at the hands of an oafish opponent, comes as little surprise.

Corzine, in his turn, was replaced (indeed, ousted) by Hank Paulson. Paulson’s post-Goldman career, of course, was spent as the Treasury secretary who oversaw the biggest financial meltdown since the 1929 crash. Reading Andrew Ross Sorkin’s Too Big To Fail, which was clearly written with a lot of help from Paulson, he comes across as a man who was always at least one step behind the curve, someone who could never get ahead of the unfolding crisis, who was prone to inconsistent and ad hoc decisionmaking, and who went out of his way, even before getting a waiver allowing himself to talk to Goldman Sachs, to be as helpful to them as he possibly could.

Paulson seems to have spent a large amount of the crisis throwing up in his office bathroom, and even into Nancy Pelosi’s wastebin. Of course, he couldn’t simply go see a doctor, like the rest of us, because he’s a Christian Scientist. Similarly, he hobbled his ability to communicate by refusing to ever touch email: instead, any time he wanted to say anything to anybody he’d have to do so over the phone or in person. No wonder he was semi-permanently hoarse, and his phone records are insane.

Paulson’s biggest failure, of course, was that of Lehman Brothers: he set up an emergency weekend confab at the New York Fed in an attempt to save it, but refused steadfastly to ever consider any public help at all, and also failed to keep British regulators in the loop, despite the fact that their assent would be needed in the event that Barclays were to acquire Lehman. In fact, when the fateful phone call to the Brits was made, it was the hapless Christopher Cox who made it, rather than Paulson. In general, Paulson was more of a bully than a leader, and he managed to be equally unpopular both on Capitol Hill and at the White House.

Looking at the list, it seems to comprise men who are very long on hubris, and who have no doubt that if they can run Goldman Sachs, they can do anything else, with normal rules not really applying to them. All of them, post-Goldman, have been tarnished. If Lloyd Blankfein has any sense, he’ll retire quietly.

French model on the world stage
France's economy minister believes her country's financial system helped it out of recession. After more than a decade of lectures from Gordon Brown about the need to let markets rip, it is little wonder that the French are having the last laugh. As she relaxed in her room in the Dorchester in London ahead of Saturday's G20 meeting in Scotland, the French economy minister, Christine Lagarde, was quietly satisfied that the French economy is in better shape than Britain's. And if you suggest to her that working with the pro-City, anti-regulation Conservatives will be more of a struggle than the Labour government, the former head of a US law firm cannot help but burst out laughing: "But you had Gordon Brown for all those years!"

After a stinging attack on David Cameron's position on Europe this week from her colleague Pierre Lellouche, Lagarde strikes a far more emollient tone, describing the Tory leader's ruling out of a referendum on the Lisbon treaty as "very, very positive". She says this means Europe can now move forward. "I would hope the UK is part of that process. It has already been a driving force and has the resilience and stamina we need at the moment." She thinks a Tory government would make little difference to Britain's pro-market stance in European talks over financial regulations. "The City is the City, whichever party is in power."

Just before flying to London, Lagarde put in place new regulations that will force French banks to abide by the principles on bankers' bonuses agreed in September at the G20 summit in Pittsburgh. She believes this puts France ahead of her Anglo-Saxon neighbours in spite of the bank-bashing rhetoric coming from Downing Street. "We are not in the realm of guidelines or recommendations." She adds that the French government has appointed a "pay gendarme" along the lines of the US government's pay tsar – the former International Monetary Fund chief Michel Camdessus. "I call him my hero," says Lagarde. Camdessus will scrutinise French banks' pay packages, including those of board members, and take action to ensure that the lavish rewards of the boom years do not return. "And he doesn't suffer fools gladly," she grins.

She is clearly proud that the French financial system is already emerging from the crisis, while Alistair Darling has just announced another £40bn of life support for Britain's banks. "Because of our banks' business models and the level of supervision that we had in France, our banks fared much better in the crisis than the UK banks and we did not have to nationalise any. Our banks have now reimbursed the capital we injected at the time of the crisis. We have removed the crutches." She adds that France's smaller banking system turned out to be a strength. "The financial sector weighed much more heavily on the UK economy." This is partly why France has emerged from recession, she says. "In France we had positive growth in the second quarter and will have the same or better in the third quarter. We will end 2009 much more positively than we started it." And she cannot resist a dig at Britain: "There are lots of countries that have not yet turned the corner."

Lagarde insists that the interventionist policies of President Nicolas Sarkozy's government, along with France's famously more generous social safety net, have been crucial factors. "The welfare system that we have, on which we spend a lot more public money than the UK, that's an economic model that is slightly different; that has been a bit of a shock absorber." She appears less than impressed with Britain's efforts to stimulate its economy. "We did not fiddle about with VAT – we did not think that would help," she says in a swipe at Darling's £12bn cut in VAT. "We focused on public infrastructure and support for the less privileged." This, she says, is the best way to maximise the effect of public spending, because construction contracts create thousands of jobs and the less well-off spend every euro they get.

When asked how she would run the British economy if asked to, Lagarde thinks carefully. "I am a very down-to-earth person. I have a simple view of things. My sense is that you cannot kick-start the economy if you do not fix the financial sector. The economy needs credit to flow." Instead of relying on exhortations to banks to lend, Lagarde has taken a more dirigiste approach, appointing a "credit mediator" to intervene. So far, 10,000 firms have been helped and banks that fail to extend credit lines to viable businesses are "named and shamed". She points to the contradiction in Labour's policy towards the UK's banks: urged to lend more to struggling firms and rebuild their shattered capital base. "I would not get into requiring a massive increase in the capital … That is likely to produce counterproductive effects." Gordon Brown once thought he could learn little from the inflexible French economy but Lagarde steps on to the Scot's home turf at St Andrews confident that the French model is back in fashion.

Bailouts to add £1.5 trillion to UK debt
Britain's banking bailouts will add £1.5trillion to the national debt - £100bn more than the entire annual output of the economy. The estimate, published yesterday in an Office for National Statistics report, is equal to £24,000 for every person in Britain. Added to the latest Treasury figures - which forecast a national debt of £792bn for the current financial year - the sum would take the UK's debt to £2.3trillion.

The surge comes from the huge liabilities of banks such as Royal Bank of Scotland, Lloyds Banking Group and Northern Rock being taken on to the public balance sheet, the ONS said. The Government has also offered a total of £330bn in guarantees to the financial sector as of the end of September. Taxpayers would only have to pay the full liability if every loan held by a bailed-out or fully-nationalised bank turns sour. But the Government's intervention measures added an extra £4.7bn to net borrowing last year and a further £3.3bn in the first three quarters of 2009 - mainly from the extra money needed to finance them. A Bank of England official warned yesterday that worldwide banking bailouts now pose a grave risk to governments' solvency.

Financial stability chief Andy Haldane said the price of bailing out U.S. and European banks now equals a quarter of the world's total gross domestic product. But an International Monetary Fund report will warn today that reducing public spending or hiking interest rates now could plunge the world into a double-dip downturn. In a speech last night Chancellor Alistair Darling defended the bailouts. He said: 'We must see through measures to support demand and repair the financial system, because we cannot yet be sure the global recovery has sufficient momentum to be sustained and durable. 'The biggest risk to the recovery would be to exit before the recovery is real.'

In April Mr Darling said he expected losses to the taxpayer of up to £50bn on bank rescues. He expects to reduce this figure in the forthcoming Pre-Budget statement. A Treasury spokesman said: 'The Government's intervention to support the financial system is temporary and exceptional. 'The liabilities of the banks we have supported do not represent the long-term cost to the taxpayer.'

›› A record number of individuals went 'bust' this summer. There were 35,242 personal insolvencies from July 1 to September 30 in England and Wales - a 28 per cent rise on a year ago and the highest total since records began in 1960. The figure includes bankruptcies and those arranging to repay their debts through Individual Voluntary Arrangements or the new Debt Relief Orders introduced in April.

Britain sees largest number of insolvencies in at least half a century
A record 35,000 people were declared insolvent during the three months to the end of September, the largest number in at least half a century. The latest figures from the Insolvency Service disclosed that a total of 35,242 people were declared insolvent in England and Wales during the third quarter of the year, up 28 per cent on the same period a year ago. It means numbers are now at their highest level since records began in 1960 and experts forecast that the figures will get even worse as unemployment continues to rise. Anthony Cork, director at accountants Wilkins Kennedy, said: “Those who have already suffered job losses are just beginning to be represented in these figures but there are many more behind them who are still battling to weather the storm.”

And he added: “Even those who have kept their jobs but have seen their hours or pay cut will be grappling to meet repayments on outstanding debts on a reduced salary.” The individual insolvencies consisted of 18,340 bankruptcies – which were up 20.9 per cent on the same period a year ago and 12,390 of its less stringent form, Individual Voluntary Arrangements (IVAs) – which were up 27.4 per cent on the same period in 2008. IVA is an arrangement that is entered into with those owed money, while a bankruptcy involves a formal court order where assets are sold to pay off creditors. An alternative to bankruptcy – a debt relief order – was introduced in April, but various restrictions limit those who can apply, such as not owning your own home and having debts of less than £15,000. There were 4,505 of these orders during the third quarter.

Alan Tomlinson, partner at licensed insolvency practitioners Tomlinsons, said: "The shake-out from the credit boom continues apace, with more and more people being declared insolvent and there are no signs that this is going to change in the foreseeable future. “In many cases, a significant number of people who would have gone bankrupt have made use of the new debt relief orders. The total number of people in trouble continues to rise inexorably.” The figures also revealed that the number of companies that collapsed rose by 14.6 per cent year-on-year to 4,716 in the three months to the end of September.

ECB president Jean-Claude Trichet hints at end to emergency liquidity measures
Jean-Claude Trichet, the European Central Bank president, hinted strongly that the central bank was preparing to withdraw emergency measures to pump more money into the euro economy to fight the recession. “Not all our liquidity measures will be needed to the same extent as in the past as the economy recovers", he said at a press conference in Frankfurt on Thursday after the ECB held interest rates at a record low 1pc. “The Governing Council will make sure that the extraordinary liquidity measures taken are phased out in a timely and gradual fashion and that the liquidity provided is absorbed in order to counter effectively any threat to price stability over the medium to longer term,” he said.

Mr Trichet said the latest information "continues to signal an improvement in economic activity in the second half of ths year". The central bank expects the euro economy in 2010 to recover at a gradual pace although "the outlook remains subject to high uncertainty". Mr Trichet said that while a decision on the ECB's programme of offering 12-month money to banks at just 1pc would be taken next month, he would not "dispel" a market view that the scheme would not be extended beyond December. The euro strengthened against the dollar after the comment by Mr Trichet, who also said a “strong dollar” was “in the interest” of the US.

Lehman Europe wind-up plan rejected
A plan by the administrators of Lehman Brothers in Europe to speed up the winding-up of the collapsed bank was rejected by the UK’s Court of Appeal on Friday. PwC, Lehman’s administrators in Europe, had tried to overturn a lower court ruling that blocked its plan, which would have slashed the amount of time that clients would have to waitt for the return of assets frozen when Lehman collapsed. PwC’s proposal involved a scheme of arrangement to split more than 1,000 clients into three classes, thereby allowing the administrators to deal with claims by class rather than individually.

The scheme also sought to modify certain rights of clients whose property is held in trust by Lehman Brothers International Europe. The Court of Appeal dismissed the plan saying that some of the clients who would have been included in the proposed scheme were not creditors in the true legal sense. In his judgment, Lord Justice Patten said: “It is obvious that someone with a purely proprietary claim against the company is not its creditor in any conventional sense of that word. As a matter of ordinary language, a creditor is someone to whom money is owed.” But he acknowledged that the scheme “represents a considered attempt to overcome difficulties faced by the administrators”.

PwC had argued that if the court rejected the scheme it would result in an “exceptionally complex” situation whereby the administrators would have to resolve on “an individual basis” a series of positions between thousands of counterparties and the company. PwC said that it was “disappointed” by the ruling as it restricted the options available to the administrators for the return of client assets. It is working with investors to develop an alternative scheme that will be formally launched in the coming weeks.

PwC’s only remaining legal avenue is an appeal to the Supreme Court. The London Investment Banking Association (Liba) had objected to the scheme saying that if approved, it could lessen the protection of UK custodied assets and have “unfortunate” implications for London’s standing as a world financial centre. Simon Orton, a partner at Freshfields, which is advising Liba, said yesterday: “This important judgment prevents what could have been far reaching and damaging implications for assets held on trust.” Lehman’s European business was one of the biggest and most complex parts of the bank, with thousands of intricate investments, as well as client and trading relationships, which are still in the process of being unravelled. The business held more than $30bn of client assets at the time of its collapse last year.

Bank of England signals the end is nigh for quantitative easing
We are reaching the endgame for quantitative easing, experts declared as the world’s major central banks indicated that they may soon bring the radical monetary policy experiment to an end. On a jittery day for the currency and government debt markets:
  • The Bank of England voted to slow the rate of asset purchases it is making through quantitative easing (QE) to the lowest speed since it introduced the policy in March.
  • The President of the European Central Bank, Jean-Claude Trichet, heralded an economic recovery in the early months of next year and said that the ECB may not extend its own radical monetary easing scheme.
  • Traders digested the Federal Reserve’s strong hint on Wednesday night that it is poised to embark on a so-called “exit strategy”, as markets recover.

The news pushed the pound up by a cent against the dollar at one stage, and lifted gilt yields higher as traders contemplated the impending end of QE. It came amid fresh evidence that some parts of the UK economy are now recovering from the longest and deepest recession in recent memory. The Monetary Policy Committee voted to leave interest rates unchanged at 0.5pc and to extend QE by a further £25bn to a £200bn ceiling. The extension to the scheme – in which it is creating money to buy debt and boost the wider economy – was less than many expected, and means it is buying around £2bn of debt each week, compared with £4bn in previous months and almost £7bn before that.

In a statement accompanying the decision, the committee said that the economy had undergone a sharp contraction, but expressed hopes for a recovery. It said: “Output has fallen by almost 6pc since the start of 2008. Households have reduced their spending substantially and business investment has fallen especially sharply. Gross domestic product continued to fall in the third quarter. A number of indicators of spending and confidence, however, suggest that a pick-up in economic activity may soon be evident.” The decision coincided with some encouraging news from the manufacturing sector. New car sales jumped 31.6pc in October as buyers took advantage of the Government’s car scrappage scheme, the Society of Motor Manufacturers and Traders said.

Separate data published by the Office for National Statistics showed that industrial production rose by 1.6pc in September – the strongest increase since 2002. However, buried in the manufacturing data were revisions to previous months’ figures which showed that production fell by 0.8pc in the third quarter overall – worse than the 0.7pc fall assumed by the ONS in its first estimate of third-quarter GDP. It dashes hopes that the ONS will revise up that surprise fall in GDP, and cements suspicions that the UK is still mired in recession.

In a further blow, the National Institute of Economic and Social Research (NIESR) suggested that the fourth quarter got off to a bad start, with the economy contracting 0.6pc in October. “Any buoyancy we hoped for hasn’t quite come through. There may well be stops and starts, but our view overall is that the economy will return to growth over the fourth quarter,” said James Mitchell, research fellow at NIESR. Across the Channel, however, Mr Trichet said he saw encouraging signs of recovery in the eurozone. He said: “Not all our liquidity measures will be needed to the same extent as in the past.” He is the first major central banker to designate an end to extraordinary monetary policy – although the Fed is also using increasingly upbeat language.

Spanish Companies Seeking New Worlds to Conquer
Flush with cash and facing hard times at home, Spanish companies are again looking abroad. The Great Recession has been easy on Enric Casi. In fact, the general manager of Mango, Spain's No. 2 fashion retailer, can barely keep up with business. The 53-year-old Barcelona native has inaugurated 225 stores since the crisis began and anticipates launching an additional 200 annually in coming years, mostly abroad. Since January he has traveled repeatedly to Asia to open outlets and cut deals with suppliers. And in May he jetted off to Munich to celebrate a promotional deal with Scarlett Johansson. "The crisis has affected us, especially in Spain, but it's an opportunity to expand into other global markets," says Casi. The frenetic pace has paid off: Sales are on track to jump 10 percent this year, to some $2.3 billion.

Mango's story isn't a one-off. Spanish companies from windmill makers to banks to bicycle manufacturers have been flexing their financial muscle just as American and European rivals cut back. Last year, Madrid's Banco Santander, Europe's second-largest financial house, paid $1.9 billion for Sovereign Bancorp in the US and $16 billion for Brazil's Banco Real. Retail giant Inditex, owner of fashion brand Zara, in February penned a deal with India's Tata Group to open stores across the subcontinent. And Iberdrola Renovables, already America's No. 2 wind farm developer, has won $546 million in US federal grants -- more than half of Washington's stimulus spending for green-energy projects.

It's a return to form for Iberia Inc. Two decades ago, Spain's biggest companies roared onto the global stage, expanding their operations and buying up rivals, initially in Latin America and later across Europe, Asia, and North America. But as the Spanish economy blossomed over the past eight years, many key players refocused their energy at home, where easy credit fueled consumer spending and a housing boom. Now, with unemployment at 19.3 percent and Spain's economy expected to contract 3.2 percent this year, the cream of the corporate crop is again looking abroad to jump-start growth. "Large Spanish companies know how to win overseas," says Xavier Vives, a professor at IESE Business School in Barcelona. "The Spanish economy won't pick up anytime soon, so they have little choice but to focus on international markets."

Despite the turmoil at home, Spain's biggest companies are in surprisingly good shape. Most dodged the worst excesses of the pre-credit-crunch era, so they have stronger balance sheets and fewer toxic assets than do international rivals. And a long track record in developing markets will likely be an advantage as these outfits look farther afield for growth. Investors agree. The IBEX 35 index of Spain's leading stocks has risen 24 percent this year, vs. 16 percent for the Standard & Poor's 500-stock index. And the foreign investments of Spanish multi-nationals have averaged $87 billion annually since 2007. That's 5.8 percent of Spain's gross domestic product, roughly the same level as in the late 1990s, vs. 4.3 percent earlier this decade.

Telefónica, the pioneer in Spain's previous push abroad, is again leading the way. As the former state monopoly carrier, the company had loads of cash when telecommunications deregulated in the 1990s. After dozens of deals over the past decade, Telefónica has become the largest phone company in Latin America and the third-biggest (in terms of customers) on earth. Since 2003, though, Telefónica has had to fend off growing competition at home, and has invested some $13 billion in domestic broadband and cable TV. Now, with the Spanish economy in the dumps, Telefónica is redoubling its efforts abroad. In September it sealed a $2 billion strategic alliance with Chinese wireless player China Unicom to gain a foothold in the mainland. On Oct. 7, Telefónica offered $4 billion for Brazilian broadband provider GVT, and it's in the running to buy HanseNet, a German Internet player owned by Telecom Italia (TI). "You need to diversify," says Luís Abril, a member of Telefónica's executive committee. "You can't be too dependent on one market."

The country's second-largest bank, BBVA, is renewing its overseas efforts, too. After its acquisition of Bancomer in 2000 made BBVA the largest bank in Mexico, the Spanish company took advantage of the growing appetite for credit at home. Now it's again looking at new markets. In June 2008, BBVA paid $1.2 billion to double its stake in China Citic Bank, the mainland's seventh-largest, to 10.1 percent, with an option to boost that to 15 percent next year. And to strengthen its presence in the US, BBVA last summer bought distressed Texas lender Guaranty Bank, gaining $13 billion in assets. Further acquisitions across the southern US are likely. "We want to saturate the Sunbelt," BBVA's chief strategist Carlos Torres says from his office overlooking the ornate 19th century facades along Madrid's Paseo de la Castellana.

Spain's long-established clean-energy companies are also getting in on the action abroad. Although they weren't a big part of the earlier overseas investment boom-most barely existed in the 1990s -- they have benefited mightily from Madrid's subsidies for renewables. In recent years, Spain's green-energy sector has thrived as Spanish law has guaranteed above-market rates to providers of wind, solar, and other clean power. As politicians now seek to rein in costs, those subsidies have been trimmed. But Washington's green-tinted $787 billion stimulus package has offered some relief.

Chomping at the bit is Gamesa, the world's No. 3 wind turbine manufacturer. The company already employs more than 1,100 Americans, and 17 percent of its $2.4 billion first-half sales came from the US, its second-largest market. It's also diversifying into China, where it owns four wind turbine plants near the port city of Tianjin, and India, where it has a joint venture with conglomerate Pioneer Asia. "Spain has been good to us," says Michaela O'Donohoe, Gamesa's chief of corporate affairs. "But the major growth will now come from overseas."

Ilargi: Another impressive Frontline documentary. By all means watch it. It provides a good view into the depth of the crisis where you (and I) wouldn't have expected it.

Close To Home: This isn’t supposed to happen here

As the U.S. unemployment rate hits a 25-year high and the Dow Jones Industrial Average hits a six-year low, award-winning FRONTLINE producer Ofra Bikel chronicles the recession's impact on one unlikely American neighborhood -- New York's Upper East Side.


Joseph j7uy5 said...

Unemployment obviously is a fundamental part of this mess. Mohamed El-Erian said:

The problem is that very few people in DC are thinking of this as a structural challenge. Until they do, there is little basis for the sketch of a potential solution.

He was referring to the unemployment problem as a structural challenge. Earlier, he pointed out that unemployment is no longer a lagging indicator, as it was in prior recessions. It now is a leading indicator.

What’s different this time is the “large and protracted” rise in joblessness and the likelihood that it will stay high for years, according to El- Erian. That means unemployment will affect the economy going forward, not merely reflect where it has been.

Obama either doesn't get it, or doesn't care.

Krugman suggests that is would be more effective to have a WPA-style jobs program. He's right, if we could count on it being administered without corruption. Some WPA and CCC projects are still producing economic benefits today, almost fourscore years after they were undertaken. The problem, of course, is that such projects today would likely be riddles with corruption. But it would be nothing compared to the corruption that dominates the current bailout and stimulus schemes.

Caith said...

Do any of you know anything about the ACS distance learning Certificates in Self-Sufficiency and Permaculture? The syllabus looks good, but all their testimonials are from course tutors and their international accreditation comes from an organisation which is on Wikipedia's list of organisations which aren't recognised as international accreditors.

I could do with the structure of a course like this to get myself organised, but I'm allergic to paying £££ to charlatans.

(The ones aren't going to work for me because of the requirement to be online for the course sessions.)

Jim R said...

Ruben --
If a universe collapses in an ultraviolet catastrophe and no quantum physicist is there to observe it, did it ever really exist?

Hombre said...

Josephxxxx - "Obama either doesn't get it, or doesn't care"

Obama seems more like a Hoover than a Roosevelt at a time when things are more complicated, more populated, and reserve resources per capita are significantly less and depleting.
We need a great leveling with the people and it hasn't happened and likely won't.

I like your post.
The predicament we are in is not long-term fixable, so we are left with plugging holes in the deteriorating dike as it crumbles.
A WPA/CCC type jobs program would, if nothing else, greatly benefit those who were able to work within it.
Not a problem fixer, but at least it would be something visible and tangible.
I'm a jobs guy, not in producing more "things" but in alternative possibilities.

Stoneleigh said...


Something I have noticed in the perusals of craigs list sailboats.Deflation.thousands and thousands of dollars dropping in price of exactly the boats I have been drooling over for the last couple of years.

The same boats that would have cost 25 grand 2 years ago are 10-12,and dropping fast...With my luck though,the same time they hit my range will be the same time I join the ranks of the un-employed again

This will happen much more broadly going forward. Right now people are selling off their 'toys' - the non-essentials that they mostly owned for fun. Later it will be the things that hurt much more to part with, and the hurt will be magnified by the pittance they'll get when they're forced to sell into the ultimate buyers market.

For those few who still have money, many things will be available. Sailboats would potentially be very useful, as might old RVs (as additional accommodation).

BostonJoe said...

I'm having trouble keeping my head around any numbers in all this that make much sense. And I know it is probably not a simple statistic to calculate, given the general disdain for reality by those keeping relevant data, but all I would like to know is the U.S. government expenditure in trying to overcome this crisis divided by the total number of individuals in the U.S. An average amount spent by the government in response to this situation per citizen.

From various things I've read here and elsewhere, I think this figure could range from a few thousand to a few tens of thousands. And if it is in fact a few tens of thousands, say for a family of four, then had the money spent on this ridiculous level of debt we've incurred in this last year just been divided in equal shares and given to the people, then this "average" family may have paid off a pretty decent sized mortgage and be prepared to forage for food full time.

Seriously, can any of the collection of genius here just take a stab at this number. (Total Amount Spent by U.S. Gov't / Population of U.S. = Amount spent that could have been given directly to each individual). If it is anywhere near $30,000, like I think it might be, what in the hell is this country doing? How can we be so stupid as to let this bailout happen on our backs? Or are my numbers just that far out of whack?

I know, probably a gift of that amount to each individual, probably would be inflationary -- or deflationary (I can't even keep track anymore of the various monetary collapses that are likely to follow this calamity), and that it would be far too "socialist" a thought for the true-blue U.S. of A. But I'd just like to get a sense of the number.

The kind of fear I'm sensing out there in the world. It feels like a crushing kind of atmospheric pressure in the part of the world I'm in. Like a growing hopelessness. I'm so often these days reminded of the scene from "It's a Wonderful Life" where Jimmy Stewart has to beg the mob in his bank to just stay calm to weather the storm. Only there aren't enough Jimmy Stewart's in the world. Nor is the storm going to stop. This is just my sense, out there interacting in the world. All deference to the excellent economic thinkers here.

VegasJack said...

Walking my dog sat morning's i have noticed garage sale's going on,6 months ago 1 maybe 2 yesterday8.

carpe diem said...

I did notice when I was in New England over the summer a lot of cars/trucks/motorcycles up for sale -parked in front of people's houses.

Thats all folks.

Stoneleigh said...


Could you repost that excellent comment you made about nuts and pigs please. I'm very sorry, but the computer ate it when I was doing the comment moderating (ie I approved it, but it disappeared into the ether). It was a very important point you were making about how useful pigs can be in ensuring a supply of appropriate dietary fats.

Greenpa said...

Stoneleigh- lucky for us- the ether spit it back out! From yesterday's thread:

Stoneleigh/Ruben: "Last idea for the fantasy world of getting some land...plant nut trees, raise hogs that eat the nuts, and then make ham. In other words, specialize a bit in meat smoking and preservation.

Eating the nuts yourself would probably be a better idea. Access to dietary fats is going to be a very big issue going forward (as Dr J would no doubt be happy to explain)."

:-) We so desperately NEEDED pigs this year. Working on getting there. We grow multiple tree/nut crops- and the way it worked out, one of them was a disaster- lost almost all of it. Because of weird ripening weather. The crop came down in such a fashion that it was about 20x as much work as usual to gather it.

Doesn't happen much; but count on it - it will happen. The pigs wouldn't have given a damn. They would have worked day and night eating everything.

The evidence from both American history and the actual fat analyses done on pata negra pigs in Spain is that pigs fed on nuts drastically alter their storage compounds. The Spaniards are maketing their jamon Iberico as coming from "olive trees on four legs." The fat is semi-liquid at room temperature, not hard, and definitely contains a lot of monounsaturates and Omega-3s.

Plus- cured pork is an extremely valuable, portable, and non-perishable trade item. Same reasons that before Prohibition in the US, 70% of the national apple crop was marketed as hard cider.

Even in good years, nut harvests are labor intensive. If you've got someone on your work force out with a broken leg, or whatever- you are going to lose a large proportion of the crop. Pigs will harvest it for you.

Which is not to say it's all easy. You must become an expert swineherd. A distant neighbor here heard about the "acorn" fed pata negra pigs, and the insane prices paid for it (over $150/lb sometimes)- went out and turned 80 some hogs into an unused oak woodlot, with a big acorn crop.

In 2 days, they were all dead. I'm not sure why- but there are a dozen possible reasons- chief suspect for me is the acorns were from red-black oaks, not white- black oak acorns are considerably more toxic. Pigs probably could have adapted- but not all at once.

The guy who did this was an idiot, of course- he insanely assumed all he had to do was follow the directions in the magazine- anyone who was already feeding 80 pigs should have known better.

Just don't fantasize it will be a low-work pathway. :-)

Stoneleigh said...

I reconstructed Greenpa's comment by typing it in from a from a screenshot. I still have no idea why it didn't post. Here it is:

:-) We so desperately NEEDED pigs this year. Working on getting there. We gro multiple tree/nut crops - and the way it worked out, one of them was a disaster - lost almost all of it. because of weird ripening weather. The crop came down in such a fashion that it was about 20x as much work as usual to gather it.

Doesn’t happen much; but count on it - it will happen. The pigs wouldn’t have given a damn. They would have worked day and night eating everything.

The evidence from both american history and the actual fat analyses donw on pata negar pigs in Spain is that pigs fed on nuts drastically alter their storage compounds. The Spaniards are marketing their jamon Iberico as coming from “olive trees on four legs”. The fat is semi-liquid at room temperature, not hard, and definitely contains a lot of monounsaturates and Omega -3s.

Plus - cured pork is an extremely valuable, portable, and non-perishable trade item. Same reasons that before Prohibition in the US, 70% of the national apple crop was marketed as hard cider.

Even in good years, nut harvests are labour intensive. If you’ve got someone on your workforce out with a broken leg, or whatever - you are going to lose a large proportion of the crop. Pigs will harvest it for you.

Which is not to say it’s all easy. You must become and expert swineherd. a distant neighbour here heard about the “acorn” fed pata negra pigs, and the insane prices paid for it (over $150/lb sometimes) - went out and turned 80 some hogs into an unused oak woodlot, with a big acorn crop.

In 2 days, they were all dead. I’m not sure why - but there are a dozen possible reasons - chief suspect for me is the acorns were from red-black oaks, not white - black oak acorns are considerably more toxic. igs could probably have adapted - but not all at once.

The guy who did this was an idiot, of course - he insanely assumed all he had to do was follow the directions in the magazine - anyone who was already feeding 80 pigs should hae known better.

Just don’t fantasize it will be a low-work pathway. :-)

Greenpa said...

Stoneleigh - wow, that was a lot of work! :-) thanks.

" I still have no idea why it didn't post."

I think you assumed I was sane, and posting on today's thread- but I hadn't had my coffee yet, and posted it on yesterday's- and it is there; that's where I recovered it.

Dr J said...

Reminds me of Churchill's quote: "I like pigs. Dogs look up to us, cats look down on us but pigs treat us as equals."

I like the idea of nut-raised pork fat but I'm afraid I would get too attached to the pigs.

el gallinazo said...

Boston Joe

I was not able to find in a short Google search the number that Neil Barofsky, who is the IG of TARP money, said that the Federal Government, in which he included the Federal Reserve, has indebted or committed itself. But the number $14 trillion pops to the top of the Magic 8 Ball of my failing memory, as does the number $24T. Perhaps someone could correct me on this. But let's see, taking the smaller number....... $14T divided by 305 million persons of all description in the USA equals $46,000 per person.

Also, I think that Ilargi's argument is more related to the paradox of Schrödinger's (unfortunate) cat then the Heisenberg uncertainty principle. Strangely enough, the majority of physicists attempt to explain this paradox by hypothesizing that every time the universe "must make a decision," or collapse the wave function, the universe splits up into parallel universes, of which an unimaginably large number have been created in the last 14 billion odd years since the big bang.

Ilargi said...

Barofsky's number is $23.7 trillion. if you look at the 2nd video in the Nov. 5 post (William Black on Too big to fail), you can see it all specified on Dylan Ratigan's table, 4:30 min into the clip.

And I know what Heisenberg said, you bunch of armchair scientists.

Dave Narby said...

I call WTF on your Spiegel article:

By claiming Spanish banks are in such good shape it calls the rest of their claims into question.

Greenpa said...

And, re nuts and pigs- "Which is not to say it's all easy. You must become an expert swineherd."

You also have to become an expert on nut trees. There are groups to join, a very good idea- but be aware; apart from the normal problems with nursery catalogs ("HUGE crops of GIANT Fruit In Just 2 Years! Cold Hardy To Barrow Alaska!" actually means- "we have no idea what the genetics of these plants are, and you'll be lucky to see fruit in 10 years.") - there are some genuine charlatans in the nut nursery business, as well as the usual well intentioned but ill-informed.

Go see the planting you're getting plants from. And ask to see their crop records- and talk to people who have been customers before, both trees and nuts.

More work!

el gallinazo said...

Ilargi said...
"Barofsky's number is $23.7 trillion."

So this would make the outlay $77,700 for every main woman, and baby. As Mad Max points our repeatedly, for this amount of money, we could have wiped out all mortgage and credit card debt of every person in the USA and had money left over. A Jubilee in effect.

Of course this debt is not "real money" but just further unfunded obligations which will be defaulted on when the bluff is called by the international bond market.

"And I know what Heisenberg said, you bunch of armchair scientists."

Wish I were an armchair scientist. Anyone care to mail me down an armchair?

el gallinazo said...

The 80 dead pig story reminds me of a tale related in Farley Mowat's, A Dog That Wouldn't Be. We have a Ukrainian farmer located near Saskatoon who discovers that a lake on his property is teeming with giant suckers. So he gets a large herd of hogs and nets the suckers and feeds them to the pigs. The pigs grow rapidly and practically self-illuminate with health and robustness. However, the farmer slaughters one for himself and discovers that it has the flavor of rancid fish. So he sells the entire herd as far east as he can, Nova Scotia or Vladivostok, I forget, and in such a way as it would be difficult to trace them back to him. Reminds me of the CDS market, where rancid pigs showed up above the arctic circle in Norway.

EconomicDisconnect said...

Great article, I knew the jobs numbers were bogus but to see the level of trickery spelled out made me want to throw up.

I am both a scientist and an armchair lover.

Greenpa said...

El G- ewwww. Rancid fish flavored bacon. I'm gagging.

I know another- had an acquaintance with access to "waste" cheese; out of date, discarded. Hundreds of pounds of it.

He fed it all to one pig- which indeed thrived.

And, when earth-oven roasted for a wedding, filled the entire region with the combined aromas of slightly rancid cheddar, and pork...

very very bad stuff.

Ventriloquist said...

One is what one eats.

I wonder what roast pig would smell/taste like if fed the typical North American human diet.

Does the aroma/palate combination of cheese doodles, coca-cola, and ground mystery meat do anything for you?

ccpo said...


I would worry about a site made by a person who writes like this, "Other then food production."

When the site also uses a perpetual motion marketing technique, it's a bad sign. Every graduate seems to then be an ACS Tutor. It's Amway wearing "self-sufficient" clothing.

There are other issues, but let's look at a very simple metric: the course is 100 hours for all those modules, right? A typical permaculture course alone is 70 hours. What are they going to teach you that you can't get better from a good book on the subject when they're spending a fraction of the time on the topic?

I support the creation of affordable training, and am in the process of trying to do such a thing, but it's not affordable if it's not got any guts to it.

Personally, I'd buy all the books I could and find or start a group in my area. Maybe look into Transition Town groups or a permaculture guild in my area before taking that particular course.


Shamba said...


check out this website for classes. Her classes are asynchronous--don't have to be online for them. I don't know when her next ones are. Or just email her at her contact info and ask.

Peace, shamba

ccpo said...

@Caith 2
The Post Peak Living thing is done by one or two guys who were once very active on The Oil Drum. One was doing electric auto conversions until recently and the other started a community garden. The UnCrash course was nothing more than a presentation not all that long ago, so they are moving quickly to expand services. You can go to TOD and search on their names (aangel, Jason Bradford) to get a sense of their expertise.

They are "passionate about" selling, er... sharing their expertise with you.

If I'm not mistaken, Angel is also involved in an investment company that buys up farm land and sells it to people wanting to UnCrash (because that's obviously cheaper than the buyer finding and buying on their own?).


Anonymous said...

Excellent interview of Daniel Ellsberg. (18 minutes)

"Ellsberg: Obama Fears Military Revolt"

Shamba said...

Correction for above comment:

the site I was referring to was


Hombre said...

Query for any of you nut experts...

What is involved in preparing hickory nuts? Abundant here but I have not yet looked into it.
Have acorns as well.

Hombre said...

Boston Joe - I have no doubt that the numbers when all processed would reveal that a simple per capita allotment would have been comparably as, or more, efficient. I am not mathmetician enough to lay it out, but like you, I can generalize some basic facts and get the picture.

But the complications of the real world, political, logistical, etc. are such that we are long past getting a handle on things utilizing simple solutions.

Look at the so-called health care reform bill! It weighs more than 20lbs. of 20# sheets of paper!

A GREAT CONTRACTION has to evolve, and likely a great localization as well, before those who are left can begin to make rational sense of how best to feed, cloth, and house themselves.

Gravity said...

Silence of the spring sheeple,
soylent green shoots made out of people.

Loop-doom gravity;
doom is granular.

team10tim said...

I wanted to share something I found doing an econ research project that you probably all know already in an anecdotal way. There is a strong correlation between income inequality and total debt as a percentage of GDP.

The income share of the top 10% of the population correlates to the total level of US debt as a percentage of GDP with an R = 96.9% and R^2 = 93.9% from 1945 to 2007.

Conversely, as the income share of the bottom 90% falls the total level of debt increases.

The same phenomenon was observed leading up to the great depression.
Causes of the Great Depression: Inequality of wealth and income by economists Waddill Catchings and William Trufant Foster.

The explanation is straight forward. That the bottom 90% of income earners purchase the bulk of the economy's output. As their income share falls they need to borrow more money to maintain the same level of consumption. The income share of the bottom 90% was stable at ~65% from WWII to ~1981 as was the debt to GDP at ~150%. Starting in the early 80's the income share of the bottom 90% fell as the debt to GDP level increased. In 2007 they were at P0-90 = 50% and debt to GDP = 350%.

Incidentally, the P0=90 income share fell from 60% in 1920 to 50% in 1928. I'm still digging up all the 1920-1929 debt to GDP data. Installment sales grew tremendously in the 20's as income share fell, but I can't find the data series on the web. If I find anything good in the library archives I will let you know.

Again, I'm pretty sure everyone here knows this already, but R^2 = 93.9% is a pretty impressive number in the social sciences so I thought I would share.

The total debt levels are from the FED flow of funds 1945-2008:
The income share is from the IRS and processed by Emmanuel Saez at Harvard University and NBER 1913-2007:

Hombre said...

Ahimsa - Thanks, I appreciated and listened to the Elsberg link.

What an enormous waste of people and resources are such as these Korea-, Viet Nam-, Iraqi-, and Afghan "wars."

I am not a total non-violence advocate, I do believe self defense is a moral right if not an obligation, but none of these escapades was self defense IMO.

deflationista said...

Fifty Years of Economic History in one Figure

Greenpa said...

" Coy Ote said...
Query for any of you nut experts...

What is involved in preparing hickory nuts? Abundant here but I have not yet looked into it.
Have acorns as well."

Get a pig. :-)

Wild hickories are infamous for tasting fabulous- and being horrific to crack and clean out of the shell.

Just a few days ago here on TAE I went over the Indian method- toss them into a mortar, pound to mush, boil, settle, skim. Super oil, and if hickories are like their cousin pecans, the kernel is around 70% oil, no kidding.

There's a lot of regional variation; multiple species. You can easily have a woods full of really awful hickory nuts- except for 2 or 3 trees that crack well. Local kids may know.

Pigs will eat all of them- and even black walnuts. I haven't heard it yet, but a friend describes the sound of hogs eating black walnuts as being the same as a concrete mixer tumbling dry 1" gravel.

Gravity said...

"The Heisenberg uncertainty principle is also frequently confused with the "observer effect". The uncertainty principle actually describes how precisely we may measure the position and momentum of a particle at the same time — if we increase the precision in measuring one quantity, we are forced to lose precision in measuring the other. Thus, the uncertainty principle deals with measurement, and not observation. The idea that the Uncertainty Principle is caused by disturbance (and hence by observation) is not considered to be valid by some, although it was extant in the early years of quantum mechanics, and is often repeated in popular treatments.

There is a related issue in quantum mechanics relating to whether systems have pre-existing — prior to measurement, that is — properties corresponding to all measurements that could possibly be made on them. The assumption that they do is often referred to as "realism" in the literature, although it has been argued that the word "realism" is being used in a more restricted sense than philosophical realism. A recent experiment in the realm of quantum physics has been quoted as meaning that we have to "say goodbye" to realism, although the author of the paper states only that "we would [..] have to give up certain intuitive features of realism". These experiments demonstrate a puzzling relationship between the act of measurement and the system being measured, although it is clear from experiment that an "observer" consisting of a single electron is sufficient -- the observer need not be a conscious observer. Also, note that Bell's Theorem suggests strongly that the idea that the state of a system exists independently of its observer may be false."

If the S&P may be measured in any currency, the value of measurement can only be observed in dollars, by dollars.

scandia said...

@ Ahisma, thank-you for the Ellsberg video!
I've passed it on and hope it travels far and wide!

scandia said...

I've been thinking about PTSD in the military. I expect that trauma can be found historically in all troops at war.
However in this current case I sense that the troubles of heart and minds originate in troops being asked to behave in most unAmerican ways supporting death squads,torture, killing civilians that you came to help....Let us not forget the massacre at Falluja.
Ellsberg's talk about the revolt by the military brass surprised me. When I read the headline I thought the revolt would originate with the troops on the ground.Especially after Ft. Hood.

Hombre said...

Greenpa - Thanks for the nut report!(not you, the hickories ;-))

I am too busy elsewhere now but the day might come.

As for the pig, I live in Kunstler's detested suburbia and my neighbors might not like hogs fussing with their dogs. (At least not yet.)

Team10tim - "Causes of the Great Depression: Inequality of wealth and income"

My daughter is in a depression, I am not. She can't make ends meet, I can. (So we help her, of course.)
Some locals are in a depression, some are not.

I witness that most of those who are still doing OK are almost blind to those around them who are not. It's like a dual universe! Me first!

Greenpa said...

engineer son Beelar has a T-shirt that says on the front, in smallish letters:

"I'm uncertain about quantum mechanics."

I keep trying to get him to add to the back:


Problem Is said...

Great analysis as always Mr. Ilargi.

Every one seems to forget what the BLS announced back on Oct. 2, 2009:

The Birth/Death Ratio overestimated 824,000 jobs, mostly in the 1st Quarter 2009. They will be removed in the annual adjustment in February 2010.

From Bloomberg:

U.S. Job Losses May Be Even Larger, Model Breaks Down

About 824,000 more jobs may be subtracted from the payroll count for the 12 months through last March when the figures are officially revised early next year, a Labor Department report showed today. The revision would be the biggest since at least 1991.

From Calculated Risk:

Employment Report: 190K Jobs Lost, 10.2% Unemployment Rate

Note: The total jobs lost does not include the preliminary benchmark payroll revision of minus 824,000 jobs. (This is the preliminary estimate of the annual revision that will be announced early in 2010).

In other words the 824,000 phantom jobs that don't exist won't be subtracted from the employment numbers and put back on the unemployment numbers where they belong until February 2010.

So, let us fix that for the BLS now instead of February 2010:

BLS says there are 15.7 million unemployed by U3 at 10.2% unemployment rate...

So simple math tells us 15.7 at 10.2% means the work force being counted is 153.9 million.

So we add back the 824,000 unemployed that the BLS shaved off with their imaginary B/D Ratio:

We get 15.7 + .824 = 16.5 million unemployed.

16.5 / 153.9 = 10.7% by U3.

Based on 153.9 million in the work force as above, by U3, I come up with 10.7% unemployment.

Now that was not so hard, was it Mr. Change?

VK said...

This is what Marginal revolution wrote on his visit to the treasury

1. Tim Geithner is very smart and he was conceptually stronger than one might have expected.

So this is a smart man who knows what he is doing. I still don't get it how they can;t see the obvious relationships between debt and income but then again smart people are known to be very rigid with their views once settled upon. Maybe optimism bias plays a part or maybe he is really a front man for the banks. Politics is a an inconvenient evil.

What will be interesting going forward is, what will the reactions be to the coming market slide and re emergence of risk.

VK said...

Two years ago, Stoneleigh had a guest post up by Paul Chefurka

World Energy to 2050: A Half Century of Decline

Read it at your peril mortals and armchair scientists!

VK said...

1 year ago it seemed an all out economic fallout was near, Ilargi was wondering what the world would look like in 100 days in a very short post.

Combine that with China's deteriorating economy and what do you think you get? One thing’s for sure: it'll neither be jobs, nor buyers for American cars. Or homes. Detroit has burned through more cash in the past quarter than all its stock is worth, for the love of the mother of the deity.

You better believe in the Christmas spirit. You're going to need it. It may be all you have left come yuletide.

One year later we realize that trillions upon trillions of dollars in imaginary wealth have managed to keep the economy alive a little while longer, meanwhile the cancer of debt keeps growing more and more malignant.

Indeed reality has been kept at bay far longer then one would've suspected but at great cost. What's that rule of the universe, All actions have equal and opposite reactions, so our day of reckoning comes closer and closer.

Ric said...

Yasha Levine at The Exiled has a wonderful article:

More Proof That Chicago School Freemarket Economics Is Nothing More Than Scientology For East Coast Rich Fcuks

He quotes from a Cornel study:
We argue that when people are incompetent in the strategies they adopt to achieve success and satisfaction, they suffer a dual burden: Not only do they reach erroneous conclusions and make unfortunate choices, but their incompetence robs them of the ability to realize it. Instead they are left with the mistaken impression that they are doing just fine.

Splains much.

el gallinazo said...


"maybe he {Twolips} is really a front man for the banks."

Maybe?¡!? Like maybe a bear (the animal kind at least) shits in the woods. Or maybe the Pope is Catholic.

Critics of W / Obama are faced with two choices; either their minions who are executing these policies are stupid or evil. So if Geithner is not as stupid as he seems ..................

Mad Max has a nifty suggestion - an iPhone application where we could Taser Timmy remotely every time he lies to Congress or the press. Wouldn't be much left him after a few seconds.

But, hey, any head of the IRS who could be ratified by the Senate after he has been caught cheating big time on his income tax must have a lot of spin on the ball. Gives me faith in the Republic.

Ilargi said...

Problem IS,

Thanks for the kind words and thanks for the calcs.

I left out the 824,000 because it would have taken too much additional space to include it and treat it well. Note that the number depicts the error only till March 2009. What happened afterwards is something we won;t know until next spring. Did the BLS change the model dramatically? I doubt it. So in all likelihood the underestimations continue.

I think both U3 and the birth/death model should be discarded since they so obviously and blatantly skew our media-fed picture of reality in a way that is as one-sided and deceiving as it is a political tool.

el gallinazo said...

When I read Mish and Denninger and their anti-union tirades, I am glad that I have found a site that can take the best of Austrian economics without showing contempt for the working man trying to stop being swept into serfdom. Of course it is hopeless, but sometimes it's better to die on the battlefield than live in slavery. I am glad that I am getting old. I don't think that I want to live in the world that is coming.

NZSanctuary said...

Ruben said yesterday...
"without Heisenberg's principle, and Planck's constant and Schrödinger and the rest of it, our universe could not exist.

May I politely observe the universe was doing just fine long before these illustrious gentlemen came along?"

While this may just come across as amusing to some, it is an important point. We throw our intellectual nets over the world trying to capture it and understand it. This can be extremely useful. But reality is still what we swim in, not our concepts of it. It is important not to lose sight of this, and I suspect many of our problems relating to our destruction of the environment and over-breeding could have been avoided if our cultural views had retained this distinction.

Ventriloquist said...

El G said:

"When I read Mish and Denninger and their anti-union tirades, I am glad that I have found a site that can take the best of Austrian economics without showing contempt for the working man trying to stop being swept into serfdom.

Yes, tell us, El G, how innocent and pure the unions of the USA are.

Seems I remember something about Robert Kennedy taking on Union corruption. He had a hint. But then he died. Hmmmmmmmm.

Perhaps that's politically incorrect to say. Can't say a bad thing here about unions. No. No.

Sorry, the unions are beatific. Innocent, Perfect examples of the American Dream.

Without unions, well, GM would still be a divine entity.

Dream on.


Greenpa said...

VK: " then again smart people are known to be very rigid with their views once settled upon."

There is no correlation between IQ or Street Smarts and the probability of being a Plain Damn Fool.

The Universities are chock full of stellar examples.

Greenpa said...

NZSanctuary: "But reality is still what we swim in, not our concepts of it."


I was utterly appalled last year when a long time friend (a somewhat flaky screenwriter, but still...) was trying to impress me about how little scientists know-

With the argument that maybe infinity isn't infinite (the numerical concept).

Yes, I said, but name and number you like, and I'll add 1 to it.

"Ah, but how do you know it doesn't stop somewhere!!?? "

Um. Because there is no such thing as a "number"? They're human constructs?

She was talking to a whole gaggle of people who'd lost sight of that, and thought numbers were real, natural, phenomena.


Jim R said...

That was me talking about the physicists. Today I was being silly with the "tree in the forest" routine, but maybe I should explain:
If the theories of quantum physics were not correct, our universe would be a very different place. It's not that physicists are necessary, but that the Newtonian and Maxwellian models would fail to produce the universe we know.

snuffy said...

El G,

You cannot be sure that the world that is coming will be a rhyme of the dickens world with a little [a lot]of 1984 in for flavor....

The world looks different from different eyes...I can hope the coming fires forge a people who,for at least a few generations,can keep the rats out of the .gov cupboard,and make life a bit better for those who make it
to the other side.

The bottle neck were coming up to will twist and form all in ways we cannot dream of .

Being a miser...a "capitalist" may be a instant death sentence in a community that is based on sharing resources...

Something I have noticed in my life has been that the troubles and tribulations I have tried my best to avoid,have usually not been the ones that have given me the greatest difficulty

Its those damned black swans...

And I am sure,as we enter the beginning phases of the coming "powerdown",it will be the stuff that comes completely out of the blue that gives us the worst grief

Like tomorrow having headlines "Israel attack on Iran" or

"Rebellion in Saudi Arabia...radicals seize power"

"Mexican government collapses chaos south of the boarder...millions flee fighting"

Need I go on?

The way the world is now,that we have something resembling working supply lines,power,and no food shortages is good.

Reality is,that things may change in a heartbeat.Remember Katrina,and Rita?Those two bad bitch storms exposed the true weakness of the USA to energy disruptions.Has anything been done about that?anything at all?


So every year,'bout hurricane time,you better be ready for some nasty things to happen to fuel prices,availability ect.

Because sooner or later we will have like 20-50% of our domestic supply GONE...

And that is just one of the barrels we are looking down now.

Then we see what O-man is made of...

On a side note S&I,

I was chosen for a poll.Instead of my usual "Get lost" I felt like venting...
From the questions it appeared to be O-mans camp...

Yes,I let them have it both barrels...and I mentioned TAE as being the source of a lot of my you may get some odd traffic[grin]


NZSanctuary said...

Great pbs link, Ilargi – a peak inside the minds of formerly well-to-do middle class people and how they view the "recession". The scary thing was hearing how many of them were continuing to get into debt to further education, go to the hairdresser, go to the gym, etc. Craziness.

california womanl said...

@Ilargi and / or Stoneleigh or anyone:

Just read Tyler Durden's latest post on 11/8/09 named" Here there be Big Numbers."
Anyone have a clue about what he is saying and what the implications are to the US dollar, real estate issues. What would be the timeline in the breakdown?

It sounds important, but as per usual, the blog is written in another kind of English.

At least I can understand what is being said on this blog and it is brilliant.

Thanks for your help!

Erasmus said...

Another month and a half for fall to end. I&S are you guys still confident of your call for market tankage this fall?

Aidan Ashe said...

Unemployment: isn't anyone running a poll asking people how many are employed, fully employed, employed in the field they wish, working under the table? I mean, they have anonymous ways of asking people all sorts of things.

Tristram said...

Irony is, by TAE reckoning, the Obama stimulus probably did save 640,000 jobs or more. Sounds like the stimulus mostly propped up local government for another year, postponing the consequences of collapse. Perhaps it saved 640,000 lives. At least for a while. After all, everyone here is glancing at their watches and waiting for a collapse that will leave the population "dying like flies."

Perhaps it would be more fair to say Obama needs to churn out fake numbers because he can't tell the truth about the big picture.

Meanwhile, I can imagine how the fake-numbers story is playing on Faux News Network and wing-nut talk radio. Government pay raise = saved job !?!? Gag me with a donkey !!!! Rush Limbaugh probably busted an eyeball over that one. Unfortunately they have a point. Sounds like Obama's last ounce of credibility just gurgled down the drain.

Tristram said...

Also interesting to note that the weak jobs report Friday has re-established the pattern of recent months: dollar down, gold up, stocks up up up. World markets are solidly up. Strange as it might sound, stocks are not up despite weak fundamentals, but because of weak fundamentals (which imply abundant cheap dollars forever). Strange situation that will undoubtedly have a strange end.

Stoneleigh said...


Another month and a half for fall to end. I&S are you guys still confident of your call for market tankage this fall?

Markets do not crash right off a top. The October 19th top may or may not hold, but even if it doesn't, I don't think there would be much upside left before decline resumes - certainly not enough to bet on anyway. Once we are definitively in the next phase of the decline, downward momentum will build (although there will still be intervening rallies). Given that we are seeing a late fall top rather than a late summer/early fall top as I initially expected, a downward move large enough to be called a cascade would be unlikely until after Christmas IMO. I suggest people (other than perhaps aggressive speculators) cash out and sit on the sidelines.

Hombre said...

El Galileo - "When I read Mish and Denninger and their anti-union tirades, I am glad that I have found a site that can take the best of Austrian economics without showing contempt for the working man trying to stop being swept into serfdom."

I am with you on this. Some of those high rise whiz kids think everyone out here is sitting on the porch eatin' grits! They haven't any idea of the skills hidden in the minds and the hands of many an "average worker.

David - Yes the Kennedys went after the Teamsters and their internal corruption, as he well they should have. Unions as a whole though are not corrupt and are much more democratic than the average board room. I voted in hundreds of fair union elections with much turnover of officers and leadership.

Unions are imperfect vehicles that grew in response to corporate manipulation of working people. I look forward to the day (I won't be here) when neither exist. But if you swallow the simplistic notion that unions are "our problem" then I suggest you look a little deeper.

Tristram said...

Everyone will love this one:

"Goldman Sachs Head Says Banks Do 'God's Work'"

Especially the last line:

"He added that he understood, however, that people were angry with bankers' actions: 'I know I could slit my wrists and people would cheer.'"

The man understands martyrdom as well as DC politics and high finance.

Ilargi said...

That's the wrong link for the GS article. Try this one:

I'm doing 'God's work'. Meet Mr Goldman Sachs


Ventriloquist said...

@ Coyote

Unions as a whole though are not corrupt and are much more democratic than the average board room.

There is nothing in a corporate board structure that was ever intended to be democratic. Corporations are not democracies whatsoever.

What really infuriates me are the government unions. When I see the massive clout of state and municipal unions thumbing their noses at the crumbling finances of our governments and the taxpayers that support them, I seethe.

When I see towns that have to declare bankruptcy in order to get out from fat-cat union contracts that provide better paychecks, and healthcare benefits, than the vast majority of the taxpayers, I seethe.

When I see ex-government employees collecting 6-figure pensions, while taxpayers are losing their homes, I seethe.

When I see government union employees at my town hall, standing up at the dot of 5:00 PM and marching out the door, while corporate employees put in longer and longer hours just to hang on to their jobs, I seethe.

When I see that the entire compensation package of the average clock-punching government employee now significantly exceeds that of the average non-government employee, I seethe.

Your assertions about how wonderful unions are, ring completely hollow to me.

Cassandra said...

I have I+S down for "Large Man with Dead Body" obv, and "The Dead Body That Claims It Isn't" needs no introduction.. 1.4 quadrillion dollar question (or whatever)..

who or the Dead Collector?

Large Man with Dead Body: Here's one.
The Dead Collector: That'll be ninepence.
The Dead Body That Claims It Isn't: I'm not dead.
The Dead Collector: What?
Large Man with Dead Body: Nothing. There's your ninepence.
The Dead Body That Claims It Isn't: I'm not dead.
The Dead Collector: 'Ere, he says he's not dead.
Large Man with Dead Body: Yes he is.
The Dead Body That Claims It Isn't: I'm not.
The Dead Collector: He isn't.
Large Man with Dead Body: Well, he will be soon, he's very ill.
The Dead Body That Claims It Isn't: I'm getting better.
Large Man with Dead Body: No you're not, you'll be stone dead in a moment.
The Dead Collector: Well, I can't take him like that. It's against regulations.
The Dead Body That Claims It Isn't: I don't want to go on the cart.
Large Man with Dead Body: Oh, don't be such a baby.
The Dead Collector: I can't take him.
The Dead Body That Claims It Isn't: I feel fine.
Large Man with Dead Body: Oh, do me a favor.
The Dead Collector: I can't.
Large Man with Dead Body: Well, can you hang around for a couple of minutes? He won't be long.
The Dead Collector: I promised I'd be at the Robinsons'. They've lost nine today.
Large Man with Dead Body: Well, when's your next round?
The Dead Collector: Thursday.
The Dead Body That Claims It Isn't: I think I'll go for a walk.
Large Man with Dead Body: You're not fooling anyone, you know. Isn't there anything you could do?
The Dead Body That Claims It Isn't: I feel happy. I feel happy.
[the Dead Collector glances up and down the street furtively, then silences the Body with his a whack of his club]
Large Man with Dead Body: Ah, thank you very much.

All this holding on to a rising ballon malarky is giving me the squits. We all know she's gonna blow.

el gallinazo said...


I hope you have a little "seething" left over for the oligarchs who are primarily responsible for the mess we are in ..........but I doubt it.

Maybe a little seething for the 100 cents on the dollar pass through with AIG to the investment banks, included French and German ones, engineered by Uncle Ben, Twolips and Hankenstein.

Yes. The municipalities will go bankrupt, even without inflated union contracts, and many of these police and firemen will wind up in Obamavilles, if they are not fortunate enough to have their brains mashed in wars of foreign occupation. Perhaps that will quench a bit of your seething.

snuffy said...


Go ahead and seethe.

That .gov unions have many benefits the public don't is a function of low pay for excessive lengths of time,and the success in the destruction of the middle class by corp. interest.Those who seethe about the .gov being the last of the middle class are usually the ones who supported the policy that made most of middle america poor.

I have been union,and I have been a techie,with my employment riding on the whim of a supervisor.

{However imperfect} They are all the working folk have to offset the power of money.

And you may see quite a revival if the "employee free choice act" is resurrected

off to my "non-union"job


jal said...


The system was made by capitalists not socialists

You got to think like a capitalist ...

Reveues .... revenues ... how to get your hand on some of it and make it grow before it has to be paid out in claims.

Hummm! Would 300 million pennies per day generate enough profits to reduce the deficit?

Greenpa said...

Stoneleigh- "Given that we are seeing a late fall top rather than a late summer/early fall top as I initially expected, a downward move large enough to be called a cascade would be unlikely until after Christmas IMO."

My own expectations, coming from a slightly different background are almost identical. Same reasons, same outcome.

But I'd guess after Jan 5-20, myself.

And of course, it's not at all impossible that the pumpers could keep the Uncle Tooth Fairy money up in the air longer than that.

el gallinazo said...

I think what we are seeing is "classical" Naomi Klein Shock Doctrine (if the thesis in a book less than three years out can be considered classic). The oligarchs have brought the war back home. Are the Pinochet and Argentine Junta's death squads long in following?

BostonJoe said...

Thanks El G and Coy Ote. I thought those were the ball park numbers I'd seen around, but it just wasn't making sense to me. We are so screwed. We've given away 10s of thousands per individual to banks and insurers. When the debt used to a trillion, I'd imagine -- hey they could take a year off spending and catch up. Not impossible. Ugly but not impossible. These numbers are mind-boggling. There is either a default in our future, or we have to pay back in some largely inflated denomination. Because the growing jobless just will not be able to afford to pay this back. I can't figure out if this is a comedy or a tragedy I'm watching.

el gallinazo said...

Tyler Durden sort of on the same page as Stoneleigh as he sees the exact same pyramid collapsing, but he sees hyperinflation in relationship to hard assets like gold. He says that $2Q imploding to $2T will raise gold to a million an ounce. He seems to be missing the point that the $2Q will beam itself to another universe, and will not be available to buy gold at inflated prices. Wonder how someone so smart can miss this?

Also, when the equities collapse comes, I see it in the 1987 style. Most "investors" are nervous enough to have pretty tight stop losses on everything, so when that snowballs picks up a little momentum (due to the PPT unable to stop it, or perhaps engineering it), it will be a steep slope. As a former Colorado resident, I see it more like an avalanche when someone fires a cannon. (I got deported from CO in 1996 on the charge of getting a concussion on the bunny slope. I just wasn't acceptable material.)

Zero Hedge readership does speak a different language than TAE readership. They, on the average, have far greater knowledge of the intricacies of the financial markets, but really don't understand the human outcome of the great meltdown. They think that they will be so smart that they will surf the Tsunami on their laptops. A few of them may, but a very small percentage.

Ruben said...

@ El Jefe

They haven't any idea of the skills hidden in the minds and the hands of many an "average worker.

Amen to that. One of the most beautiful things I have ever seen, and I mean ballet beautiful, was a guy building a concrete block wall. So fast and smooth--he seemed to throw mortar at the block and it landed in these beautiful little piles. That was the most in tune I have ever seen anyone with their work.

Tristram said...

You heard perhaps of Lake Wobegon, the fictional home of Garrison Keeler, where all the children are above average. It seems to me that a lot of union sympathizers are also from there, because all the wages are above average. Unless you are some sort of weakling who got duped by corporate stooges, in which case you deserve it. Everyone could have job security and fat pensions if they would just look for the union label. Obvious, right?

I am not a good student of TAE, but I think even I can spot the flaw in Snuffy's reasoning. I&S have said a hundred times that our recent way of life was a mirage, unsustainable. The 30-year debt ramp hid the fact temporarily, and led to all sorts of excess, but peak oil and the carrying capacity of the earth would have sealed our fate even if Wall Street hadn't put on such a show. Yet Snuffy somewhat implies we could all be looking forward to a generous pension if we had the balls. I don't think so.

The run up of public employee compensation can be traced to mostly two phenomena:

1) a tendency oft mentioned by Ilargi to discount the future. Those six-figure-for-40-years pensions now bankrupting cities and towns were all promised decades ago by local officials safe in the knowledge that it wouldn't be their problem. A police or fire strike is very painful for a town to deal with. Easier just to give them whatever they want, and let the next generation deal with it. We'll be so rich in the future that who cares, right? Everyone worries about the military enforcing the will of TPTB, but a much richer source of mercenaries would be all those local cops who can't collect their big pensions unless their fellow citizens are well and truly enslaved.

2) It was true for decades that public employee cash wages were lower than the private sector, and that generous pensions somewhat made up for that. But (ironically) the housing bubble gave public sector unions a tool with which they could get the best of both worlds. They argued that they should be able to afford to live in the town they served, right?? And housing prices were gone mad, so their wages needed to go mad also. Now that housing is down one-third, on its way to down 90%, of course the unions will give all that back. They just didn't get around to it yet.

Hombre said...

David - "Your assertions about how wonderful unions are, ring completely hollow to me."

"Wonderful?" You did not read my post. They serve(d) a purpose.

As a matter of fact it may surprise you that I do think some union wages have evolved too high in many cases. (including my own for the last 10 years that I was at the plant.)
I don't think you are trying to see the balance here, all things being considered. Institutions made up of people are flawed to some extent. But our MAJOR predicament has not to do with unions.

Ruben - The difference between a worker and a craftsman...
A passerby asked two stonemasons what they were doing, the worker answered "I'm laying stone", the craftsman answered "I'm building a beautiful building."

Anonymous said...

I never trust anyone who is an absolutist in their positions about human activity. I think there are paths which display very high probabilities of being correct but there is always the chance of a black swan along that particular path too.

Also, all of the attempts to analyze the current financial crisis do so from the lens of history. That's a pretty good lens to use to view this yet this crisis may be different from any prior in that resource constraints coupled with overpopulation and linked to receding horizons for technology may be driving factors that we've not seen before.

Because of this potentially unique combination of conditions, I remain flexible and aware that things that aren't supposed to happen just might happen anyway.

Personally, I concur with the thesis elaborated by I&S thus far but I am not dogmatic about it. That's one reason I read sites like Zero Hedge - for alternative views supported by pretty solid analysis.

Do I expect deflation? Very definitely, I do. But would I be surprised by extreme inflation or hyperinflation instead? Not really. This entire civilization is sick and attempting to apply yesteryear's solutions to tomorrow's problems. I urge everyone to remain flexible in your thinking. And besides, in the end hyperinflation ends up in pretty much the same place as serious deflation, both for the political system and the man in the street. I would also argue that, as a species and a civilization we are sliding into territory that has never been charted fully before. Yet the lens of history remains our best guide.

el gallinazo said...


Perhaps you would also like to do a little essay on the delta of wealth held by the top 1% of the American population over the past 20 years. The fitness gurus say that one should exercise both the extensors and the contractors. I think you may be getting ideologically muscle bound.

But it is really irrelevant. What should be is irrelevant. Fairness is irrelevant. Least negative approaches are irrelevant The vast,vast majority of North Americans are headed for debt slavery serfdom in a neofeudalistic society as the oceans, and thus the whole ecology dies, down to jellyfish, cockroaches, and Gollum Sucks top management. The Titanic sinks as all sets are tuned to American Idol.

K said...

Meanwhile, I can imagine how the fake-numbers story is playing on Faux News Network and wing-nut talk radio. Government pay raise = saved job !?!? Gag me with a donkey !!!! Rush Limbaugh probably busted an eyeball over that one. Unfortunately they have a point.

Now Mugabe, when a blind squirrel find a nut...congratulate it. It'll return to its starving darkness soon enough.

scrofulous said...

G20 Keeps Stimulous ...
"Keeping in place the stimulus that we designed at the beginning of this year - one which is drawn down for the rest of this year and detracts from growth next year - is entirely appropriate, given these global conditions," he said.

Hey bird do you still have all that hot US dinnero clutched in your beak? It is looking, from the above, that it will continue to produce much drag this year. Since you possibly have your wingy ends full keeping your shorts up, perch clinging might be the order of the day? What do you think of a perch in Brazil their economy is looking to be quite a lulu, or is that a Lula, in the future. Otherwise, don't know much about Brazil, aside from the music, but that itself sounds promising and looks pretty good, eh?

Iconoclast421 said...

Something went wrong with the listing of posts. I cant see them anymore. They used to be on the right side of the screen below the primers. The primers are still there

Ilargi said...

I sort of reconfirmed them and now they seem to be back, no idea what caused that

thanks for noticing

Greenpa said...

Mugabe- "Unless you are some sort of weakling who got duped by corporate stooges, in which case you deserve it."

I'd be interested to know which religion or philosophy you found that thought in. Besides Aynn Rand and her hero Adolf, of course.

Sorry- you lost me right there.

Gravity said...
This comment has been removed by the author.
VK said...

And so the zombie market goes on with it's relentless rise. The DOW that wouldn't die, lol. New highs today, meaning we're still in wave B, wave C is still a few days, weeks or months??? away!

What a crazy world.

Gravity said...

"Well, I don't think there is any question about it. It can only be attributable to defective reality. This sort of thing has cropped up before and it has always been due to defective reality.

The BLS model is the most reliable ever made. No BLS statistician has ever made a mistake or distorted information. We are all, by any practical definition of the words, foolproof and incapable of error."

- Sorry about this,
I know it's a bit silly.

Phlogiston Água de Beber said...

VK said...

And so the zombie market goes on with it's relentless rise. The DOW that wouldn't die, lol.

I have a sense that it really has become a zombie and can't die. It has become too iconic. I suspect the oli's would as soon let the liberty bell be melted down to cast souvenirs as to let the Holy DOW die.

The way I see it the calamity is unfolding at its own pace without much regard to what happens at the NYSE.

Just my 2 pieces of copper now worth more than 2% of a dollar. .)

Gravity said...
This comment has been removed by the author.
Gravity said...

BLS's crisis was caused by a motivational contradiction: devised for "the accurate processing of econometric statistics without distortion or concealment", yet their orders, directly from White House officials, required them to keep the bad stats a secret for reasons of national security. This contradiction created a "Hofstadter–Moebius loop", reducing them to nonsensical misquotations.

"Daisy, Daisy, give me your answer do. I'm half crazy all for the love of you. It won't be a stylish marriage, I can't afford a carriage. But you'll look sweet upon the seat of a bicycle built for two."

scrofulous said...

What a crazy world

Exuberant VK! Just merely irrationally exuberant, and here it is a lovely sun showery day for sale on a formerly dessicated dog:)

Josh said...


Can you elaborate on what mathematical equation or algorithm you're using when you use the phrase, "on balance of probabilities" we've seen the market high.

So far, your equation/model is 0 for 2 in terms of it's predictive capacity for the market. Why not examine and refine the model when it disagrees with the real world. The real world certainly won't bend to fit the model.

I know you had a good track record last fall and last spring, but perhaps something has changed. Governments and central banks are involved and coordinating their activities like never before, and it seems to me that has fundamentally changed the situation. You said the markets are more powerful than government and central bank intervention, but this doesn't seem to be the case at all. Everyone knows banks are engaged in extend and pretend, and everyone accepts it.

Anonymous said...

The reason the market may appear to be acting irrationally to certain parties is due to some faulty underlying assumptions.

If one were to revise and/or reverse such strongly held beliefs in the presence of what is appears to be increasingly firm evidence, then recent market activities such as the run-up today would become much more coherent.

Stoneleigh admitted somewhat obliquely that the theoretic model upon which she bases her predictions regarding future outcomes could be compromised if the G20 were to act in concert to protect the $USD.

IOW, her entire construct is based on group dynamics. She believes that instinctive herd behavior will override rationale control and that de-globalization will occur due to systemic panic.

In plain English, she's in the de-coupling camp, where the Chinese, Saudis and other significant $USD holders make a mad dash for the exits in their attempt to diversify away into hard assets & abandon the dollar.

The contrary view is that the $USD is the de facto global currency, and that G20 countries will act in concert to bleed the housing bubble by staged devaluation. In order for this view to withstand scrutiny, one must accept that the Chinese, Saudis, et al have essentially written off their $trillion dollar reserves as uncollectible.

But, but if there had been a default & collapse, they would have lost these reserves anyway. So if the net-net is say goodbye to all that stored wealth but still preserve some working shell, as opposed to lose it all amidst Mad Max, guess which is the preferred outcome?

So what we are seeing is the phased in devaluation of the $USD, to who knows where. What we do know is that if the G20 composite currencies are acting together to reduce excess claims denominated in certain classes (ie pound & dollar), then this is HOW IT WOULD LOOK.

We aren't going to have a collapse - we're going to see a continuation of dollar devaluation with some sort of hard asset pledge (land?) to those who possess critical commodities (ie oil).

The market is only going up in proportion to the destruction in the $USD. If there isn't a flight away, and there hasn't been one to date, then this will continue until US liabilities have been reduced to nil.

Of course, this isn't a prescription for economic growth. It's merely a cementing of the current stasis. So doomsteading could still be a viable option as a slow decline is living standards sets in. The PTB may averted catastrophe, but that isn't to suggest the future is gonna be any fun.

Anonymous said...

@lord.bacon - The markets ARE larger than governments and central banks. So what & who are "the markets"? Why, the markets are the people, of course. And when I refer to people, I mean all 6b+ plus of them.

And the people have decided that they would rather live somewhat depressing lives, yet still get to live, rather than face the jungle nightmare of the breakdown in law & order.

What this means is that "the market" has dictated that the $USD must be saved ie devalued. Market participants who were/are holders of $USD have come to accept that all of their hard earned wealth is no longer; poof, gone.

It all makes perfect sense if you sense the herd has been calmed. And that means accepting that the money is all gone. Thus, no panicky charge away in a futile attempt to protect/preserve assets (sure, small time players are bidding gold). Foreign governments have found they are locked in with no way out.

Ilargi said...

lord B, Snerfling et al

This is getting a bit tiresome. If you must write about your own ideas of what's happening, fine, but to use that to say Stoneleigh is wrong is a different matter.

Certain aspects, like where the Dow stands on a given day, are taking up much more space here then we ourselves would ever elect to give them. This site is not about these numbers. There are plenty others that are. We talk about trends, we don’t do crystal balls filled with tea leaves, never have.

Snerfling makes a bunch of assumptions that are not supported by anything but his/her own thoughts and his/her own interpretations of very short-term windows.

”IOW, [Stoneleigh’s] entire construct is based on group dynamics. She believes that instinctive herd behavior will override rationale control and that de-globalization will occur due to systemic panic.

In plain English, she's in the de-coupling camp, where the Chinese, Saudis and other significant $USD holders make a mad dash for the exits in their attempt to diversify away into hard assets & abandon the dollar.”

Sorry, complete nonsense, all of it. Just a faulty subjective interpretation.

As I said, if you must write these things, sure, but don’t expect much positive reaction. You try to counter assumptions with assumptions of your own.

”If one were to revise and/or reverse such strongly held beliefs in the presence of what is appears to be increasingly firm evidence.....”

Oh really, what "evidence" would that be, and to whom would it appear to be "firm"?

I don’t want to gut the whole thing word for word, but really, Stoneleigh has long predicted a surge in the USD, not a sudden plunge in the USD (until years from now) nor a slow phased-in devaluation. Where you get that, I don’t know. How you manage to ignore what she actually said, amidst all your words, I don't know either.

LordB talks about a "mathematical equation or algorithm", as if that is something formerly discussed here. It isn't.

Then "your equation/model is 0 for 2 in terms of it's predictive capacity". Really? What equation model? And where has it allegedly gone wrong?

”You said the markets are more powerful than government and central bank intervention, but this doesn't seem to be the case at all.”

Stoneleigh never said you would be able to see that today, not in the Dow or S&P numbers. And she was talking about bond markets, not stocks.

FInally, we never said the markets would experience a sudden plunge. What we said is that they will be much lower at the end of this fall than at their summer peak. We have over 6 weeks left. Come back then if you must. The real steep downfall may happen next year (or it may happen next week), and we have never denied that. There is much more downside risk in the markets right now than there is upside opportunity. That is not something you can assess by looking at day-to-day S&P numbers. Realizing that unemployment numbers may be up to 5 times worse than what the US government publishes is a much stronger indicator for such matters.

To summarize, I have had enough for now of seeing people put words in our mouths that we have never used. I realize that reading is hard in the face of personal feelings and the assumptions they construct in your heads, but you can't expect other people to do the reading for you.

Phlogiston Água de Beber said...

Oh noble son of fatback - lord of the pork rind said to Stoneleigh...

You said the markets are more powerful than government and central bank intervention, but this doesn't seem to be the case at all. Everyone knows banks are engaged in extend and pretend, and everyone accepts it.

I think you have incontrovertibly sunk your own argument. If the government had the power you seem to accept, would they not seize those great pretenders and sell their lousy assets? Would it not be able to legislate something at least vaguely resembling a health-care program? They cannot do these things because TPTB won't let them.

The central bankers do what the oligarchs set them up to do and that is all they will ever do.

Both gov's and CB's are exerting every effort to support the markets because markets are the gods of TPTB. But both are growing weaker every day. Atlas is developing gimpy knees.

scandia said...

ah ha...We've been wondering why those idle tankers are storing oil( who owns the oil on the ships? Did they have insider information?) on the Guardian UK, online, a whistleblower from IEA says they've be fudging the numbers under pressure from the US. Apparently we have less oil that IEA reports have stated, numbers that world gov'ts use to manage their affairs. whoopsee...the US didn't want the truth told because of its impact on the market.
This is getting interesting in light of so many untrustworthy statistics.

Anonymous said...

OK, I'll take the directly contrary view.

The US will muddle along with 25% unemployment. UI will continue to be extended month after month to keep the masses at bay. The federal government will continue to support state & local governments while giving them time to shed boatloads of workers.

The Fed will continue to fund the deficit spending through issuance of freshly printed FRNs. The stock market will continue to appreciate in conjunction with the $USD devaluation.

World-wide markets will continue to go along with this plan as there isn't any viable alternative. The Chinese will continue to peg to the $USD as it goes to zero.

The US isn't going to experience Japan - the entire world is going to experience Japan. It will take a generation or two to allow the bubble to deflate. By that time, perhaps a new bubble will have been engineered.

Regardless, expectations of imminent collapse are a bit premature. I realize it doesn't fit at all with your thesis. Or are you asserting that your theory is inviolable, that there aren't any flaws to be found in its underlying logic?

Anonymous said...

Ilargi, here's Stoneleigh's response to my question regarding a de facto global currency:

Stoneleigh said...

"Stoneleigh, assuming we had a global currency, how effective would a world-wide central bank be in re-inflating the money supply to the extent that it would effectively reset major pricing functions?"

If we were to see the major globalizing trend continue, I think we would indeed be headed in the direction of a single currency (or at least one with a much broader reach than we have now). It would require trust, in that many parties would be surrendering a significant amount of sovereignty.

I would argue that globalization has already begun to go into reverse, and that we will see larger entities or spheres of control breaking down, rather than smaller ones continuing to aggregate. Trust is one of the first casualties of large scale contractions. They lead instead to beggar-thy-neighbour policies that are incompatible with globalization.

I can't see those who are undoubtedly pushing for greater globalized financial control managing to achieve anything in the time they have left before it all comes apart at the seams.


While Stoneleigh believes we are continuing to head for a breaking point, she concedes, albeit rather obliquely, that a global currency could successfully support the maintenance of globalization if there were sufficient levels of trust.

I would posit that nuclear weapons have forced this trust, much like a farmer with a shotgun enforces his daughter's marriage to a traveling salesman. It may not be true, heart felt trust, but it still "works".

In the "good 'ole days", war was always the answer. Debtor nations could hope to wipe out their debts, while creditor nations could hope to collect. Both parties would enjoy full employment (aka draftees) and high capacity utilization.

Nukes have taken away this option, which is why we see this continuing muddling about. The PTB cannot afford a break-down, because they wouldn't be able to survive.

If you cannot accept that there are any possible alternatives to your theory, then you may have a problem if trends continue to confound your predictions. The most effective way to support a theory is to actively work in disproving it.

Even if the "it" were highly unlikely, some truthfulness about a possible weakness in your position would at least give people the ability to ascertain the likelihood of "it".

Wolf at the Door said...

re: market crash

The big players at this point have to know that the system is insolvent but have decided that the game can continue anyway if everybody just keeps pretending.

Our reckoning is coming but not quite yet....maybe next year....from what I can see our society is in the midst of a mass psychotic episode on par with Jim Jones and his toxic koolaid and it is manifesting itself in an extremely delusional (regarding future expectations and power of the gov't to reinflate) and virtually frozen population that has no idea how to deal with the scope of the coming contraction IMO.

Reality cannot be ignored forever but as long as some semblance of normality can be maintained the gov't, banks and the people will pretend that they are not broke up until the day that the banks are closed and the ATM's are turned off....until that happens everybody has decided to just pretend that everything is just fine.

We are all just comfortably numb for now.

Greenpa said...

In the world of professional conversation disruption, there is/may be a progression of techniques.


2) Your ideas are CRAP! Look at the truth HERE (linked to a professional bullshit site for morons.)

3) You're mentally unstable! Hugely egotistical! You think you're never wrong! And your ideas are crap.

4) Look, I hear what you're saying, but what about the economic theories of (fill in blank- whackjob)? Specifically, he says the world is cubic, and proves it. Why don't you get it?

And- when all those fail-

5) Look, I totally agree with 90% of what you're saying, BUT..........

over. and over, and over.

Results for 1-5; conversation is disrupted. Granted; distinguishing 4 and 5 from pros from similar interactions from sophomores can be difficult. But not impossible.

Stoneleigh said...

Lord Bacon,

Can you elaborate on what mathematical equation or algorithm you're using when you use the phrase, "on balance of probabilities" we've seen the market high.

Google Elliottwaves.

So far, your equation/model is 0 for 2 in terms of it's predictive capacity for the market. Why not examine and refine the model when it disagrees with the real world. The real world certainly won't bend to fit the model.

Counter-trend moves are difficult to call as there are many potential patterns and combinations of patterns. Moves in the direction of the larger trends show simpler patterns. Again google Elliottwaves.

I know you had a good track record last fall and last spring, but perhaps something has changed. Governments and central banks are involved and coordinating their activities like never before, and it seems to me that has fundamentally changed the situation. You said the markets are more powerful than government and central bank intervention, but this doesn't seem to be the case at all. Everyone knows banks are engaged in extend and pretend, and everyone accepts it.

The situation has not changed and will not change IMO, no matter what governments attempt to do. We will see the patterns play out in accordance with human nature, as they have always done.

Whether the market tops tomorrow, in two weeks, or in a month, our prescription remains the same - there is little upside opportunity, and the balance of risk is such that people are best served by cashing out ASAP.

Aggressive speculators looking for shorting opportunities will have to live with the fact that the best market timing can do is to offer probabilistic suggestions. No one has a crystal ball, and we here at TAE have never claimed to be an exception to that. Moreover, we don't exist to make people money, but to help prevent them from losing it.

Ventriloquist said...

Regarding the surge upward in the market since this past March:

Fugiddaboudit --

The market today is still WAY BELOW its all-time high. Which, btw, was NOT in October, 2007, but in fact was at the peak of the bubble in March, 2000, when adjusted for inflation!

(One chart can be seen here which shows this):

In fact, using the standard gov't-issue CPI the S&P is today about 65% LOWER than at the March, 2000 level.

And as we all know that gov't CPI index is totally bogus. Using John William's ShadowStats CPI as the inflation componant the current S&P is actually around 80% lower than the March, 2000 peak!

The S&P could literally double its current level to just over 2000 and still be well below it's true all-time high.

I'm not convinced it will EVER get back there, unless the USD gets into Zimbabwe territory, and at that point, the S&P will be the very least of our concerns.

Greenpa said...

David- adjusted for inflation!! What an absurd idea!

You'll wreck the euphoria. Like the actual price of gold- adjusted for inflation...

These guys look at it the other way round; ie. the 1980 peak would be $2,179, in Sept 2009 dollars.

Hey, it's at a record high!! ah. what?

Hombre said...

Question: What is the purpose of TAE?

1 - To be a crystal ball for glass gazers, an oracle for possible ponzi piranhas.

2 - To issue insider trading information to those who would rob peter to pay paul? (They being paul)

3 - To coddle nagging nabobs, wheezing whiners, persistent pests and doubting Thomases.

4 - To operate a hellova good blog, a source of well educated opinion on economic, political, and human social trend information.

I think I know the answer.

Hombre said...

Scandia - could you link the Guardian thing?

Anonymous said...

@Greenpa - "You'll wreck the euphoria". What euphoria? Do you really think that anybody trading this market believes in "green shoots"? More like green sharts.

With P/E ratios going north of 150 and UE heading towards 20%, the only thing anyone holds dear is the cynical belief that the world's central banks are piloting us towards a unified vision of inflation.

That this outcome may result in anything other than collapse is somehow seen as an insult to our hosts and/or some type of disruption. Sorry, but I can't go along with the demand that we must have complete faith that a global fiat system cannot possibly be engineered to avert catastrophe.

I'll leave that to the true believers. Meanwhile, I'll keep my eyes open as to possible variations on the theme.

snuffy said...


Would you prefer that the public employee types as a group,settle for bread and water?a tacky.cold trailer for shelter in their old age...then thrown in a snake-pit of .gov poor-house nursing home to die of sheer exhaustion from the screaming crazy's mixed in with the rest of the populace?

Like the rest of us face?

Or would you prefer to see policy in place that would raise the general standard of ALL retiree's to something resembling a dignified existence for the remaining years of life,even at the cost of taxing out of existence those who have created/inherited more funds than they can use in a thousand lifetimes?

We have some basic philosophical differences here.

Better a socialist...than one who would condemn those who had the mis-fortune of being born in the wrong bed to a life of the drudge...

Conservative types want social immobility,and class distinction to be the bedrock/basis of a society,with just enough interaction to improve the their bloodlines.

The Constitution of the United States,much as I love it,is a document designed by the powers that be FOR the powers that are.

I believe in a meritocracy.But the basis of that type of system must be grounded in a public education system that has as its goal the realization of the fullest abilities of every one of its students...not just the ones who can pony up funds for tutors and extra-curricular studies,or "the chosen ones"at the ivy league institutions whose admission alone will open doors everywhere.

There is a basic unfairness that has been built into the system,quietly,and so subtlety that most folks are not even aware of its existence.That is that the education of 90% of the population is designed NOT to give them the ability to critically examine,and evaluated data TO THINK..

Because a intelligent,adult with critical thinking skills,is one hellava lot harder to govern than one who lives in the twilight,without being able to understand just what the hell is going on...

I am positive this was the intent,and why the textbook industry is one of the most tightly controlled marketds on the planet.

Oh,and I notice you have not addressed the 5% of the population owning 95%of the resources in this country raised by the old bird.

Countless examples exist throughout history of what happens to societies where such in-equalities have existed.It usually ends poorly for the 5%


Ventriloquist said...

@ Greenpa,

David- adjusted for inflation!! What an absurd idea!

You'll wreck the euphoria. Like the actual price of gold- adjusted for inflation...

Yes, it is absurd. Actually, I believe John Williams (ShadowStats) has done a calculation on the gold price from 1980 and has shown that (using his alternative, reality-based CPI), the price today would need to be almost $6000. to match that all-time high.

The two red flags for me when looking at any chart purporting to show price changes over time (especially anything on a time-line greater than a year) are these:

1) Use of nominal dollars

and 2) equidistant y-axis scaling


1) nominal dollars are bogus over time, and

2) log y-axis scaling is the only way to show true price-level movement.

But of course, reality is a threat to all fact-concealing promotions, so let's lipstick the pig so that our slick charts distort the numbers in our favor.

Show me a chart with both inflation-adjusted pricing and log scaling and I'll consider the proposition.

Josh said...

Any theory which purports to describe the real world must be disprovable to have any scientific merit.

Your theory states that the financial markets cannot continue to hover at their current levels.


Now, at what point in the future would you revise your ideas if the market continues at current levels? If its still here in January, would you revise it then? What about February? What about March? What about ......

This timing thing is an issue. I've tried to warn people about this stuff, and then nothing happens (in fact the exact opposite happens) and people shut me out. Cry wolf too many times and nobody hears you no matter how loudly you cry.

Hombre said...

Snuffy - Hellova post! I hope when the structure starts crumbling down around us I find some folks around me like yourself, that eagle throated buzzard, and a few other of these terrific straight talking TAE posters.

I might interject though that the failure of us to follow the constitution properly does not tarnish it's value in my eyes.

Constitutional law has been relegated to the background by corporate centered power and the evolved oligharchy. IMO

NZSanctuary said...

VK said...

"And so the zombie market goes on with it's relentless rise. The DOW that wouldn't die, lol"

Must have been the good employment news

soundOfSilence said...

Ilargi said...

But you've been elected president until January 2013. I can understand the re-election campaign taking over by early 2012, but why fake it now?

Campaigning of a different sort "...just look at the way we're turinging around employement. Trust us with healthcare reform."

I suppose it all depends on how long they figure they have before they'll have to start walking away from various liabilities. Until that day arrives why not another give-away to big business.

Color me jaded...

Ilargi said...


"I've tried to warn people about this stuff, and then nothing happens (in fact the exact opposite happens) and people shut me out. Cry wolf too many times and nobody hears you no matter how loudly you cry."

I can see how that would be an issue. I suggest you stop doing it.

scandia said...

RE the Guardian story on the whistleblower at IEA-

Josh said...

@ Ilargi,

I can see how that would be an issue. I suggest you stop doing it.

If that's your attitude about the completely legitimate issue that I've raised, then you can apply your suggestion to TAE entirely. You see Ilargi, your attitude is why you get no donations and its why you'll throw in the towel sooner or later.

Ilargi said...


I was kidding. Get off that high pig and let the fat drip out a little, would you?

NZSanctuary said...
This comment has been removed by the author.
bluebird said...

lord.bacon said "I've tried to warn people about this stuff"

So have I, and other TAEs. People either grasp the basic concept of a huge bubble of debt that is going to burst, or they don't. And most people don't. There isn't anything we can say that will get them to listen now. Maybe later, after it's too late, they will hear us.

NZSanctuary said...

lord.bacon said...
Any theory which purports to describe the real world must be disprovable to have any scientific merit.

Any scientific merit? Ha! How do you suppose that's possible when describing an irrational market place that is a human construct?

Wyote said...

A diversion from "chewing the fat" as it were.

The undisputed intellectual voice of the GOP:

Palin Sees Conspiricy in new Dollar Coins

Mirth! Just when we need it most!

Ventriloquist said...


There's a few issues with your last response that need to be discussed:

Would you prefer that the public employee types as a group,settle for bread and water?

Snuff, the world is not all black and white. It's simply not the choice just between Dickens and Heaven. Amazingly enough, there are shades of grey.

Better a socialist

Ah, yes. Famous socialist experiments gone wrong.

Like, the Union of Soviet Socialist Republics. That was certainly a success.


The National Socialism party, from, ummm, Germany, in the 1930s-1940s, I believe. That was certainly a success. Yup, Socialism, the best systems so far.

Conservative types want

Yes, blanket statements about all-inclusive generalizations are really productive. Let's see, one of the greater true conservatives, Dwight D. Eisenhower, as president put through a top marginal tax rate of 90% on the wealthy, presided over America's greatest period of true productivity, and gave a strident warning about the imminent damage of the Military-Industrial-Complex.

Yup, just keep making those blanket statements, and you can cherry-pick your socialists, and I can cherry-pick my choices, and we can play that poker game all night long.

The Constitution of the United States,much as I love it,is a document designed by the powers that be FOR the powers that are.

Your use of the present tense in this sentence leads me to believe that you think the Constitution was written last month. Face it, the Constitution was written by a bunch of property-owning, gentlemen, slave-owning farmers (for the most part) to prevent the type of governance that they endured under the English Kings.

To try to make the leap that they could have even possibly imagined the convoluted, corrupted, incestuous, corporate-driven system that we have today is disengenous at best.

What has perverted the Constitution is not the framers that wrote it, but the perverted Supreme Courts of the USA that have INTERPRETED it at the behest of their corrupted masters.

I believe in a meritocracy

Do you also believe in Unicorns and the Tooth Fairy?

What civilization do you recall in the history of humankind that was ever built and furthermore survived on a Meritocracy?

There is a basic unfairness that has been built into the system

Ditto above. Can you cite any society, nation, civilization, that does not have basic unfairness built into the system?

Snuff, I've read your posts for well over a year now. You can do much better than this.


Hombre said...

Scandia - Got it! Thanks

Anonymous said...

Bacon, you've inspired me to hit the donate button.

Hombre said...

Lord of the Rinds - "Any theory which purports to describe the real world must be disprovable to have any scientific merit."

I don't think you meant that. In a given scientific field... say geometry... a theory must be "provable" to have scientific merit does it not?

Ventriloquist said...

@ Coyote

I don't think you meant that. In a given scientific field... say geometry... a theory must be "provable" to have scientific merit does it not?

Only to the extent that you believe that

Social Science

is actually SCIENCE?

. . . not in this planet's lifetime.


Josh said...

@ Coyote:

On the nature of scientific theories:

from wikipedia, topic = Scientific Theory

The defining characteristic of a scientific theory is that it makes falsifiable or testable predictions. The relevance and specificity of those predictions determine how potentially useful the theory is.

Karl Popper described the characteristics of a scientific theory as follows:

4. A theory which is not refutable by any conceivable event is non-scientific. Irrefutability is not a virtue of a theory (as people often think) but a vice.
Francis Bacon,1st Viscount St Alban KC (22 January 1561 – 9 April 1626), son of Nicholas Cage by his second wife Anne (Cooke) Bacon, was an English philosopher, statesman, scientist, lawyer, jurist, and author. He served both as Attorney General and Lord Chancellor of England. Although his political career ended in disgrace, he remained extremely influential through his works, especially as philosophical advocate and practitioner of the scientific revolution.
His works established and popularized an inductive methodology for scientific inquiry, often called the Baconian method or simply, the scientific method.

Ilargi said...

Now ladies, I don't want to spoil the games, but we have never claimed that TAE is a scientific eh.. anything, and I promise I won't be insulted if I'm once again snubbed for the Fauxbel. The $1 million would be good, but who wants to be mentioned in the same breath, no, yikes!, make that list, as Milton Friedman and Paul Krugman?

Josh said...

@ Ilargi

"Now ladies, I don't want to spoil the games, but we have never claimed that TAE is a scientific eh.. anything..."


Surely ElliotWave theory is rooted in science, since it attempts to model the aggregated behavior of investors based on the analysis of patterns evident in decades worth of trading data. If Elliotwave theory is not science, then what is it? Do you rub chicken bones together and talk to the spirits when you gaze at the charts? If its not scientific, then why ever mention such nonsense.

Ilargi said...


I suggest you lower your tone.

You are the one who brings up Popper without apparently understanding falsifiability, not me.

There is no science either in economics or in wider overall studies of human behavior. Not if and when you invoke Popper, which I think one must do when deciding what is science and what is not.


NZSanctuary said...

lord.bacon said...
I've got a fucking PhD."

Is that an appeal to authority?

lord.bacon said...
@ Ilargi
Surely ElliotWave theory is rooted in science, since it attempts to model the aggregated behavior of investors based on the analysis of patterns evident in decades worth of trading data"

Rooted in science? Heh. Astrology is rooted in science in so far as it follows the predictable movement of the heavenly bodies.

On what basis do you think that one should be able to scientifically model an irrational human construct like the market place? That seems silly to me...

Phlogiston Água de Beber said...

lord.bacon said...


I've got a fucking PhD.

I'm always happy to learn new things. I had no idea they offered doctorates in that.

It does explain your obnoxiousness.

gylangirl said...

@ snuffy,

IMO, the US Constitution is a beautiful thing. It says zip about nation's economic structure so it could operate even under a socialist economic paradigm.

It has been trashed by our politicians who swore [er, lied] to uphold it: no legal consequences exist for breaking their oaths of office, how convenient.

I am curious, which part of the US Constitution is objectionable to you?


gylangirl said...

that's an f'n phd in economics i'd wager.

i have an MSW and a BA in economics.

how wish i could say it was a "BS in economics".

but even the university knew that economics is an art, not a science

Stoneleigh said...

Lord B,

I have a science background (a top first for what it's worth), and I do regard Elliottwave theory as a science. There are rules and there are guidelines. The possibility which violates no rules and which satisfies the highest number of guidelines is allocated the highest priority. This is not alchemy or augury.

ccpo said...

Re the Guardian story on whitewashed numbers.

This is important. While anyone looking at Peak Oil with even a slightly objective eye must have come to the conclusion long ago that the IEA and EIA were full of crap - their scenarios for future production have been worthless for quite a while - the scale of crap pile is important.

We knew their estimates were based on demand expectations rather than analysis of actual oil production (absurd, to say the least) and finally got confrimation in last year's World Energy Outlook (WEO). What we also got was the first offical recognition of a mid or long-term peak. More importantly, after an actual analysis of real fields, they said what PO commentators had been saying for a long time: @4.5% overall decline rate, 6.5-6.7% decline rate for all post-peak fields and 9% for those well into decline.

If that, according to the Guardian article, is also conservative, then even the Great Recession won't stop near term serious problems with petroleum production. Let's play with some numbers.

If claimed overall decline is 4.5%, then real is, what? 6%? 7? 8?

By 2012
6% dcl., -2% dmnd. = 10.1 mb/d new
6% dcl., -1% dmnd. = 12.8 mb/d new
6% dcl., 0% dmnd. = 15.6 mb/d new
6% dcl., 1% dmnd. = 18.5 mb/d new
6% dcl., 2% dmnd. = 21.5 mb/d new

The above is likely a best case scenario if the article is correct, and there really is no reason not to believe so. Even at -2% demand we need a full Saudi Arabia within 3 years.

7% dcl., -2% dmnd. = 12.5 mb/d new
7% dcl., -1% dmnd. = 15.2 mb/d new
7% dcl., 0% dmnd. = 18.0 mb/d new
7% dcl., 1% dmnd. = 20.9 mb/d new
7% dcl., 2% dmnd. = 23.9 mb/d new

You can clearly see that a flat or growing world demand equals numbers that will never be met in that short time frame. Two Saudi Arabias in three years of NEW production? A conspiracy theorist would be tempted to say the Great Recession was allowed/set up to avoid the fact of peak crude production! (No, I'm not saying that. I don't think...)

Any economic recovery, real or imagined, will knock it's head against peak energy.

Just for fun, let's look at 8%.

8% dcl., -2% dmnd. = 14.7 mb/d new
8% dcl., -1% dmnd. = 17.5 mb/d new
8% dcl., 0% dmnd. = 20.3 mb/d new
8% dcl., 1% dmnd. = 23.2 mb/d new
8% dcl., 2% dmnd. = 26.17 mb/d new

Wow. One Saudi plus 2 mbd best case. Within three years. Yes, there is around 3 - 5 mb/d in shut in production, but that still leaves nearly a full Saudi Arabia needed in only three years. Doable? Hmmm... Maybe the minimum plus a ramp up in alternatives to double or triple current production.

Now for something really scary.

By 2015
6% dcl., -2% dmnd. = 15.7 mb/d new
6% dcl., -1% dmnd. = 20.3 mb/d new
6% dcl., 0% dmnd. = 25.1 mb/d new
6% dcl., 1% dmnd. = 30.3 mb/d new
6% dcl., 2% dmnd. = 35.7 mb/d new

Best case looks like 1.25 to 1.5 Saudi Arabias by 2015.

Even scarier? These numbers mean a massive scale up in renewables is needed, and long before 2020. That means we are truly headed for a massive build-out being needed during what is likely to be a worse economic situation than the Great Depression. Unlikely without tapping that even dirtier fuel, coal.

And all this while we need to decrease emissions to zero. Or less.


YD said...

Elliot waves are about direction not timing. The rules should define general patterns with great variation but not the time scale they necessarily unfold in.

That said, so much of our world is not falsifiable, I would even argue that would include pretty much all the good stuff. Just because it is not falsifiable does not mean it can't be observed and thought about and learned from. It may not be able to be fully predicted but it can be better understood at least, even if it cannot be reduced.

On a final note, there are more posters with doctorates on this page than I have ever encountered on a forum, and then there are the people worth reading.

ccpo said...

Re: economics and science

That link is about how economics is all about energy flows and the 2nd Law. Now, why it took these geniuses all this time to figure this out, I'll never know. There have been graphs of energy production, particularly oil, with population and economic development for quite a while. Any idiot looking at such a graph should be able to intuit this, no?

I love books and learning, but the Ivory Tower does a great job of obscuring reality at times. Must be all those tiny windows and dimly lit rooms.

Add in a dose of Chaos Theory, too. Good stuff. Patterns are found in everything. Literally.

carpe diem said...

PHD SchmeeHD.....

Same as putting a DR or an MD at the front or back of your name.
Often don't mean fcuking nothing (excuse my educated english) and is often an indication especially for those who need to advertise it, of a very large chip! on the shoulder that is (a sign of insecurity and low self esteem hiding behind the schmee-h-d-)

Chill out.

Humility goes a long way in this world.

YD said...

Another thought on Elliot waves, it seems to be more like conservatism than science. Meaning it is not the Elliot waves that fail, but that we fail to properly count the Elliot waves.

scandia said...

@lord.bacon...I should probably keep my uneducated mouth shut however I sense your frustration and your passion for truth and understanding.
One factor to be brought into the discussion is that a scientist needs trustworthy data to build a trustworth model. I , after a year plus, see less transparency,less accuracy in the data, an increase in fantasy accounting, more corruption... Whose data does one use?
I have never played the market but from what I read these days it is a manipulated " indicator ". I don't know how to integrate that into my world view really. I don't know how to utilize a manipulated market in the decisions I make.

scandia said...

@ lord.bacon...I think the point I am trying to make is that when the data is suspect one has only patterns to work with?
I feel like I am swimming in a sea of probabilities. To use a trite expression , anxiously scanning a horizon of " shifting sands ".

Caith said...

Thank you all for confirming my suspicion that I don't want to pay for online certificates. Bother.

Stoneleigh said...


Elliot waves are about direction not timing. The rules should define general patterns with great variation but not the time scale they necessarily unfold in.

Exactly. Time is very much secondary to pattern.

Another thought on Elliot waves, it seems to be more like conservatism than science. Meaning it is not the Elliot waves that fail, but that we fail to properly count the Elliot waves.

Right again. As moves at all degrees of trend unfold simultaneously, it isn't immediately obvious what scale of move one is observing. There are always many ways to count the waves, and one must rank the various possibilities in order of probability. Sometimes there is no clear picture at all, and and other times it is very clear indeed. As corrections are messy and overlapping, and can unfold in many different patterns or combinations of pattern, they are typically much harder to count than moves in the direction of the larger trend.

Hombre said...

Lord of the Rinds - So, since PHD's cannot disprove the THEORY OF EVOLUTION, therefore it has no merit?

That being the case, I will remain a journeyman.

Dr J said...

Can we go back to the diet discussion? I think it was less inflammatory and more pertinent.

bluebird said...

Well, Warren Buffett did buy the BNI railroad. What does Warren know?

Buffett: Railroad business is 'in tune with the future'

Zaphod said...


I've worked with millionaire execs and rooms full of PhDs (rarely the same people, FYI), and they still depend on me to craft the product and solve the real-world problems. Theory has a lot going for it -- until it comes up short.

I think of it this way. Poker is a game of probabilities, and with enough brains you can calculate the odds for any situation. But good poker is game of bluffing and psychology as well, and a lot of luck. So it is with economics and markets.

To overextend the analogy: I know I'm the patsy at the table. I know the deck is stacked. I know the house is in cahoots with a few players. I know I can't really quit the game. All I can do is play for time, and hope the cheats who are living large on house credit and spending their cash on hookers and blow come crashing down when the mortgage on the casino comes due.

After that, it won't be much of a game, but maybe I'll have a chance to not lose everything.

z said...

Oil floats high on easy money

"A while back, I found a really good time-waster, This site provides one- or two-minute delayed graphical depictions of the sea traffic at most of the world's major ports, and on many of the ocean's sea lanes as well.

"But what's that going on in Singapore? Why, on one recent morning, were there almost 40 petroleum tankers riding at anchor a few kilometers offshore, where the curvature of the Earth would prevent them from being seen onshore?"

Bigelow said...

“Further attempts to reflate will do nothing but create a currency crisis, crash the economy, and add to future liabilities that cannot be paid back. A global economic crisis is coming. When and how it manifests itself is all that remains to be seen.”
What Is Inflation and How Does One Measure It?

Stoneleigh said...


Even scarier? These numbers mean a massive scale up in renewables is needed, and long before 2020. That means we are truly headed for a massive build-out being needed during what is likely to be a worse economic situation than the Great Depression. Unlikely without tapping that even dirtier fuel, coal.

We will indeed be facing a scary energy supply scenario. Production is declining in many fields and lack of investment is hastening a supply collapse scenario. I can't see a build out of renewables under depression conditions, especially as so few will be able to pay for energy supply. The effect of this on demand, and price support, will worsen lack of investment in supply (even in maintenance of current assets). This is a very dangerous situation.

Bigelow said...

“So, from a macro perspective, a clearer view is coming into focus – a new Paradigm is emerging. New global reflationary dynamics have gained important momentum. Credit systems in China, India, Asia, Brazil and the developing world – the “Periphery” - are today significantly more robust than they are here at home (the “Core”). Powerful global financial flows to the inflating Periphery (“Monetary Processes”) also work to ensure market and economic outperformance. The rising Periphery – with its billions of consumers and rising demand for commodities – has realized a robust and self-reinforcing inflationary bias. Moreover, secular dollar weakness has increased the investment and speculative merits of commodities and other hard assets when contrasted to dollar securities. Dollar weakness begets global reflation that begets dollar underperformance that begets a new Paradigm..

The balance of financial and economic power has shifted decisively away from the U.S. The Periphery has supplanted the Core as the epicenter of global economic reflation, recovery, and expansion. Yet the more the world changes the more the Fed remains the same. Disregarding both the impaired dollar and global reflationary dynamics, the Fed has locked itself into pegging rates based singularly on dismal U.S. economic fundamentals. And these ultra-low Core rates are providing a very hefty global interest-rate anchor.”
About a Half Paradigm Doug Noland

Stoneleigh said...


I think of it this way. Poker is a game of probabilities, and with enough brains you can calculate the odds for any situation. But good poker is game of bluffing and psychology as well, and a lot of luck. So it is with economics and markets.

Very well put.

To overextend the analogy: I know I'm the patsy at the table. I know the deck is stacked. I know the house is in cahoots with a few players. I know I can't really quit the game. All I can do is play for time, and hope the cheats who are living large on house credit and spending their cash on hookers and blow come crashing down when the mortgage on the casino comes due.

To take that analogy in a different direction, poker can be seen as a compulsory game of entropy. You have to ante up every round. If you never take a risk and play a hand, you will eventually be out of the game. There is a fixed number of chips, and the only way to keep playing is to get hold of some from someone else's pile.

Weaseldog said...

El Gallinazo said... "Maybe?¡!? Like maybe a bear (the animal kind at least) shits in the woods. Or maybe the Pope is Catholic.
Critics of W / Obama are faced with two choices; either their minions who are executing these policies are stupid or evil. So if Geithner is not as stupid as he seems .................."

A lot of people these days make an effort to appear smart by starting sentences with, "Now I don't normally believe in conspiracy theories...."

So here's a true story about a real conspiracy. Three men sat up lat one night talking about what they would do the next day. They made a list of supplies needed and that morning, went shopping. Then they went into a local bank with ski masks on and committed armed robbery.

They engaged in a criminal conspiracy. But, people know that conspiracy theories aren't true, so in theory, this has never happened. Or has it?

Perhaps it's possible that there are some people will lie and / or commit crimes for money?

Is this really as crazy an idea as folks think it is?

Weaseldog said...

David, are you arguing that all worker Unions are, and have always been evil and have never served a higher purpose?

I'm unclear on the point you're making when you argue that against the point that unions have done some good.

Weaseldog said...

lord.bacon said... "Surely ElliotWave theory is rooted in science, since it attempts to model the aggregated behavior of investors based on the analysis of patterns evident in decades worth of trading data. If Elliotwave theory is not science, then what is it? Do you rub chicken bones together and talk to the spirits when you gaze at the charts? If its not scientific, then why ever mention such nonsense."

The Elliot Wave Theory is a technological construct. It's a tool, not a scientific endeavor.

Congratulations on your PhD in an undisclosed field of study.

Weaseldog said...

ccpo said... "This is important. While anyone looking at Peak Oil with even a slightly objective eye must have come to the conclusion long ago that the IEA and EIA were full of crap - their scenarios for future production have been worthless for quite a while - the scale of crap pile is important.

We knew their estimates were based on demand expectations rather than analysis of actual oil production..."

Back in 2000, they used to tell us how they came up with there numbers. There would be a section at the end of the report that said something like this...

"Using a sophisticated array of workstations powered by Excel spreadsheets, demand is forecasted far into the future. This data is then used to provide a basis for forecasting future production rates."

If your model works like this, then it's reasonable to explain why a field goes into decline, as being driven by a drop in demand.