Saturday, October 23, 2010

October 23 2010: Jim Puplava interviews Stoneleigh, Part 2

Detroit Publishing Co. Round Trip June 1906
"REO Mountaineer -- New York to San Francisco and back: Percy Megargel and David Fassett on the present-day site of Yankee Stadium, at the conclusion of their 10-month, 11,000-mile trip in a 16-horsepower touring car"

Ilargi: To order Stoneleigh's video presentation of "A Century of Challenges", the lecture that's receiving rave reviews across Europe and North America,


or click the button on the right hand side just below the banner.

NOTE: Transcript of the interview added below

Ilargi: Stoneleigh did another interview with Jim Puplava at Financial Sense this week, and since Puplava has asked her, after the first talk, to come on once a month, it looks like there will be more installments.

This episode primarily addresses peak oil issues, and there are very few people in the world better versed in these issues than Stoneleigh is. This has to do with both her academic background and her experience in running an energy producers association. Which makes this interview a must-hear: Stoneleigh can pinpoint with great accuracy where the problems in our energy supply will be going forward, even if we realize very well that many voices out there will not agree with her views.

One of those voices is Jeff Rubin, who's in the second half of the show. You may have heard that Rubin was very dismissive of Stoneleigh's talk at the recent ASPO-USA conference. Now, I wasn't there, but in the first few minutes of Rubin speaking here, it becomes grindingly clear where he misses the boat.

As Puplava is talking about oil prices, Rubin says, paraphrased: "Prices are still at $80 a barrel with the economy in a downturn, where do people think prices will go once the economy starts growing again?"

And that is simply the wrong question to ask. The right question would be: where does Mr. Rubin think oil prices will go when it becomes clear that the economy will NOT start growing again for years to come, when we find that instead it's got years of contraction to go through? At the very least, every economist, and every government official involved in economic and energy-related decision-making, should ask both questions. But, except for a precious few, they do not.

Jeff Rubin may dismiss Stoneleigh for being a "non-economist", but this particular line of thinking, i.e. "the economy will start growing, no questions asked", dismisses Mr. Rubin precisely BECAUSE he is an economist. Growth is an article of faith for economists, something that shall not be questioned. And since economists and their views carry so much weight in our world today, even if for all the wrong reasons, there is great danger for us all in this unbalanced, one-sided attitude.

I've said it a thousand times if I said it once: the fact that all these people in positions of influence and power consistently refuse to even consider a Plan B is about to bring us down much faster and much deeper than if a more balanced view were to prevail. Jeff Rubin, even though at least he recognizes peak oil, is one of those people, who simply refuse to acknowledge A) the possibility that growth may not resume, and B) the need to devise the Plan B that would be needed if indeed it does not.

You're much better off with Stoneleigh, who knows far more about energy issues to begin with, and who does not shy away from thinking about all plans and all possibilities, A, B C, whatever's needed.

Enjoy the interview.

PS: I added a transcipt Sunday, October 24 at 4.15 AM EDT

PS2: There’s a second Stoneleigh interview below this one.

Jim Puplava at Financial Sense interviews Stoneleigh, Part 2

Peak Oil: An Inflationary & Deflationary Perspective

NOTE: Transcript added below

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Nicole M. Foss is senior editor of The Automatic Earth, where she writes under the name Stoneleigh. She and her writing partner have been chronicling and interpreting the on-going credit crunch as the most pressing aspect of our current multi-faceted predicament. The site integrates finance, energy, environment, psychology, population and real politik in order to explain why we find ourselves in a state of crisis and what we can do about it. Prior to the establishment of TAE, she was previously editor of The Oil Drum Canada, where she wrote on peak oil and finance.

Her academic qualifications include a BSc in biology from Carleton University in Canada (where she focused primarily on neuroscience and psychology), a post-graduate diploma in air and water pollution control, the common professional examination in law and an LLM in international law in development from the University of Warwick in the UK. She was granted the University Medal for the top science graduate in 1988 and the law school prize for the top law school graduate in 1997.

On this week's Financial Sense Newshour, Nicole Foss and host Jim Puplava discuss the deflationary aspects of peak oil that Nicole sees coming in the years ahead. Nicole writes under the name Stoneleigh for her blog, The Automatic Earth.

Jeff Rubin, after twenty years as Chief Economist for a North American investment bank, it was time to seek a larger audience for the story he needed to tell. Jeff's predictions of steadily rising oil prices over the last decade, including his call for $100-per-barrel oil by 2007, had flown in the face of conventional wisdom.[..]

This week on the Financial Sense Newshour, Jeff Rubin joins host Jim Puplava to discuss peak oil. Jeff, an energy economist who writes the blog SmallerWorld, discusses the recent ASPO conference, and other significant peak oil issues.

Ilargi: And what do you know? We have a transcript! Thank you so much to Natimukjen in Australia.


Jim Puplava: Joining us next on the program is Nicole Foss, and Nicole you are currently in Wisconsin doing a tour. Tell us a little bit about that tour and its purpose if you would.

Stoneleigh: Well, I've done a number of tours this year in the US and Europe primarily, and this one is Michigan, Wisconsin, Minnesota, Montana, Wyoming, Colorado and Iowa and then home; all in my little tiny fuel sipping car. But essentially I'm travelling around delivering a presentation that I've prepared, that integrates Finance and Peak Oil, and then looks at what you can do to protect yourself and your family against the kind of scenario that I see playing out. And I'm also developing a second presentation emphasizing more the kind of things that people can do.

So, when I travel around, there are a number of purposes, partly to inform people, partly to try to turn virtual communities into real ones, because we have a tremendously large virtual community at The Automatic Earth but that doesn't count for much when times are hard, so I want to bring people together in a room and then inspire them to work together to do what can be done at a community level. And I also want to warn them, provide a kind of psychological inoculation if you like, that there are going to be a lot of movements that arise that are very thoroughly grounded in fear and anger, and I would rather see people put their efforts into building something constructive than playing a blame game. I think a lot of people would do that, but I'm trying to get people to not buy into the fear and anger model and buy into the whole constructive 'what can we build, what can we do with the resources we have as we preserve them' type of mind set.

Jim Puplava: I notice in this tour that you'll be speaking with Professor Keen and also Dr Joseph Tainter.

Stoneleigh: Yes, that's slightly after this tour, I'll be back in Michigan, that's Grand Rapids Michigan. It's a Local Futures conference, 4 days I believe, and with as you say, Joe Tainter and Steve Keen. It's primarily focused on economic structures this time; other times it has focused on Peak Oil. So, that will be an opportunity for people to come together and discuss, certainly the economic side of where we're going and how that fits into local communities in the future. And then I'll be flying to Europe, shortly thereafter, and I'll be in Europe, at the behest of the Belgian government, to begin with, and then touring around various other places.

Jim Puplava: Well, its amazing, because just about every month, we've seen major studies come out, from the UK Task Force, to Oxford University, to Lloyds of London. In the month of October the New Zealand parliament, just came out with a research paper called The Next Oil Shock, and I want to get to Peak Oil, but I want to talk about a recent article you wrote about “Renewable Power? Not in Your Lifetime”, because this is a political election year, you hear the President and members of the opposite party talking about energy independence and they talk about things like clean technologies: wind, solar, etc. You don't believe we're going to see that in our life time in terms of replacing fossil fuels, do you?

Stoneleigh: Oh, absolutely not. It really is physically impossible. We aren't going to have the money for one thing, because it's not going to be very long until we realise that we are actually in a depression. People don't build things in depressions, on the whole, so they live with the infrastructure that they have, and they make do. And it's hard enough even to maintain what you have, let alone do any kind of enormous build out. A lot of renewable energy is intermittent, it's mediated through electricity, it depends on the grid. The grid is not in a good state of repair, it's been under invested in for a very long time. There would have to be an enormous amount of money ploughed into grids, merely for them to continue doing what they do now. And if you look at trying to plug a whole lot of renewable energy into the existing grid, you're going to run into a lot of problems very quickly.

Renewable energy is very dispersed, it's not concentrated, typically. There are places where you can have larger concentrations of it, but still it's not going to be a large source of energy in comparison with say an enormous nuclear plant or coal plant or something like that. So you're having to bring in this power from a lot of places; you're going to have to have a lot of infrastructure for that. The problem with trying to run power backwards, down low voltage distribution lines, which is typically what you would have to do, if you are putting small amounts of power in very distributed places, the losses are proportional to the square of the current. The current is going to be high of the voltage is low; you're going to find that the losses are very high when you do that. If you're trying to carry power over long distances, you may actually find that not very much of it actually gets to where you need it, because there is enormous mismatch between renewable resource intensity, demand and grid capacity.

The feed in tariff program they introduced recently in Ontario, where I live, the grid capacity that was available was over-subscribed during the launch period. Anyone else who's trying to bring on projects and there are an enormous number of them, could find themselves having to wait for grid build out. This could be years - the projects won't survive that long. And by the time we get to the point where there could conceivably be the grid capacity, people are not going to be able to finance the projects, because we are moving into a credit crunch. So we are not looking at a scenario where we are suddenly going to invest enormous amounts of money in renewable energy. We don't even have the productive capacity for wind turbines and solar panels and various other alternatives at this point. We would have to build the factories first, then we would have to build the renewable energy infrastructure, then we would have to plug it into the grid; we'd have to build the grid out.

The amount of money and the amount of time are absolutely staggering. And a lot of these technologies have a very low energy returned on energy invested anyway, so you are not talking about something where you can create an enormous surplus of energy beyond what you are having to put in to create the capacity in the first place. So net energy is a very important concept; if your energy returned on energy invested is maybe 3:1, you're not producing much of a surplus beyond the energy you had to put in to build the infrastructure. So this is no panacea. I'm a tremendous fan of renewable energy, I have solar panels in my back field , but that helps me, it doesn't run society and that really is the problem that we have. A lot of these things work tolerably well in niche applications, and they can help at a small scale, but you are not going to run an industrial society on them. That really is the problem.

Jim Puplava: The other problem besides that, is if you take a look at where the wind blows, or where the sun shines, the problem with sun and wind is sometimes the wind doesn't blow and we also have a thing called night time.

Stoneleigh: Exactly. And what you have to do if you are going to rely on intermittent sources you need to build in energy storage. Well, energy storage, we don't have it, or not to any large extent, and it's extremely expensive to build it. It's another aspect of infrastructure that we do not have. If we already had, you know, a wonderfully robust grid, and tons of energy storage, we would then be able to upgrade the amount of renewable energy we can put on the system much more quickly. But because we do not have that situation, we have to build that first. And that is another thing that just is an enormous amount of investment money that we are not going to have.

Jim Puplava: In your article when you talk about renewable power, you go 'far from the future of a greater high tech connectedness under a smart grid model, where electric vehicles would charge at night and cover both transportation needs and power storage, we are looking at a much more fragmented picture' and you paint a real bleak picture. If we head in this direction, about rural areas, where we may not have the grid structure, or the power structure to get, let's say the needed electricity into these small rural areas or communities.

Stoneleigh: You know I think, if a rural area decides to invest in renewable energy now there is quite a lot that they could do, provided they're prepared to be realistic. They would need to drop their demand, and only attempt to supply the most important things. So supplying a Business as Usual scenario, the way the grid currently does, is simply not an option. But in these rural areas, you could actually build micro-grids. You could put in your own generating capacity and your own small amount of infrastructure to carry that power around. You may well find that certain things are doable in that scenario. I think the odds are quite high that rural areas are going to have a hard time because they are going to be at the very low end of the priority list if there are grid problems.

So, they may well find that their centralised service providing electricity doesn't survive but that doesn't mean they can't have anything, but they are going to have to be realistic. They're going to have to only supply something at a much lower level and live with the lower level of demand. We dropped our demand by 90% before we attempted to supply what was left. And I think that's a very important approach. There's a lot of energy that's wasted; we are not going to have Business as Usual scenario that we can ever hope to supply with renewable energy but within the niche applications, and I would argue that remote communities are one of these niche applications, where this could work, you can put in renewable energy infrastructure and you can build micro-grids. It takes a lot less time and money to put in something on a modest scale.

People, I would say though, would have to pool resources to do it, or get grants or something, because I don't think it makes sense to finance it; to take on the debt, because in my view, as we discussed the last time, was that we're moving into a deflationary era, and one of the implications of that, is that debt becomes very much more difficult to service. I would not suggest anyone to go out and take on debt, to put in this infrastructure, but of you can pool resources at a community level in one of these remote communities, you can provide a certain basic level of electricity. And then it is under your own control, and that's arguably a very good thing.

Jim Puplava: Where does that leave the big cities then, because like here in California, I think the United States has about 20, a little over 20% of the world's operating nuclear power plants. In India, China I believe has 20 power plants under construction, their goal is to have 90 by the end of the decade. What about nuclear power?

Stoneleigh: Nuclear power doesn't have the most wonderful energy returned on energy invested, so it is a very expensive technology, not just in financial terms, but in energy terms, with everything in the life cycle from uranium mining to building the plants, and the regulations for nuclear safety require for instance, as the last time I looked, three separate mechanisms, each capable of shutting the system down and they must have no common parts, so that there are no common mode failures, because they do not want to have another Three Mile Island, or something worse. So all of that adds to the cost, both in financial terms and in energy terms. I think there are also going to be a lot of issues with waste, potentially.

We do not have a centralised waste repository. Nobody wants one anywhere near them. So storage is on site. And you tend to have nuclear material stored in what is effectively a swimming pool. You have to look after that for a long period of time. It's going to produce heat and radio-activity for a long period of time. I think this could be a significant problem. It's a ???? driven, among other things, there are also environmental issues as well. It simply requires vigilance over hundreds of years and human beings are not good at that. We don't have a time horizon that long, so while we might be able to look after it for a certain period of time, what happens to it after that is really the question. And there are going to be safety issues. Nuclear power is not particularly compatible with social upheaval, to put it mildly.

Now when I was a research fellow, at the Oxford Institute for Energy Studies, and I was working on nuclear safety in eastern Europe, in the context of the Soviet collapse, looking at what happened to their nuclear power industry and how it actually operated. And so if you start adding in factors like not paying people, or paying them months late, and then people having to drive taxis, to moonlight as taxi drivers or vodka salesmen, and then people living lives that are not what they had hoped to live and that they're not enjoying, so that they turn up to work drunk; this is what happens in the Soviet nuclear power industry.

And to add to that, the technology they used of course, they cut a lot of corners and they didn't have the safety systems that we have, but the risks you take when you run a nuclear power plant in an environment where there's nowhere near enough money, it's hard to get spare parts, it's hard to find the money to maintain the infrastructure, and you've got people working there, assuming you can afford to pay them; you've got people working there who may have to worry about where their next meal is coming from. Their minds might not be on the job, might not be on the task at hand. So you can create tremendous risks operating nuclear power plants under circumstances of social upheaval. You know, if it's a question of do that or freeze in the dark, people will do it, but the risks will increase. And I think we need to be aware of that.

Jim Puplava: Nicole, there's been studies, they're coming out on almost a monthly basis now about Peak Oil. First of all, do you think most major governments; we started out our conversation by talking about New Zealand's parliament, just issued a report out this month called 'The Next Oil Shock'. Are governments aware of it, and if they are, what steps are they taking to prepare for this.

Stoneleigh: Governments are aware of it. Oil is effectively liquid hegemonic power. Governments are thinking that way now. But to express an opinion that is generally very unpopular with the Peak Oil people, I think the reason you're seeing so many reports come out now, is because we are seeing a parabolic rise in the oil price, that I think does not reflect the situation at this point. Yes, oil will be scarce in the future, but I think right now we're seeing prices get ahead of themselves because prices are set by perception not by reality. And we saw an enormous parabolic rise and then a crash in prices in 2008 into 2009. When oil was at $140 a barrel, I was trying to explain to the Peak Oil people that this was a speculative bubble; prices had got ahead of themselves and the next move was going to be very sharply down. My message is the same today. That I think we have seen a parabolic rise, I think we are seeing oil top, not just oil, but gold and agricultural commodities and stocks. I think we're seeing a top. I think the next move will be down, but I think people are writing about, writing oil reports at the moment because commodities top on fear.

So there is a fear that shortages are in the short term. I would argue they're actually not, because I think the affect of financial crisis is going to have a very significant affect on the way Peak Oil plays out. I think what's actually very likely to happen, first you would see oil prices move into reverse on a reversal of speculation. The hot money has moved in, overwhelmed the indexes, made the profit, chased momentum and then it abandons the sector, when it's wrung all the profit out of it in the short term. So I think speculation moving into reverse will be the beginning of oil prices falling. Then I think because we are moving into depression, we're going to see a fall in demand. And what a fall in demand does, it undercuts price support even further. So you then see a tremendous fall in prices. If you have a scenario where the price is low but the costs are high because you are doing business in these very difficult areas, like the deep off-shore or maybe in the arctic in the future, if you are looking at a high cost structure and low prices, there's no business case for that particular endeavour. So your demand collapse sets up a supply collapse, and then you have no investment in drilling and exploration and production.

You don't even have the money to maintain your production infrastructure. And a lot of oil infrastructure is already not in a good state. It needs a lot of investment just to keep doing what it currently does. We're not going to have that money and I think nobody's going to be making investments in energy at a point where prices are low and there's really no profitability in it. You could see oil prices fall to approximately the cost of the lowest cost producer. And given that some production costs will be falling, like labour costs for instance, in a depression, that lowest cost producer could be at a lower cost than the current lowest cost producer. So I think we have a scenario where initially oil prices fall, and not just oil but many other things: electricity and gas, simply because in a deflationary scenario, nobody has any money, so they can't afford to buy the stuff, production is at the previous level of demand, the demand falls you have a temporary glut.

But then you have this supply crunch that comes down the line; I think that's when reality bites, so although the reports are being written now, because we are seeing a peak I would argue in oil prices, I think those reports are still incredibly important because oil is a long term prospect. And just because the price is going to fall in the short term doesn't mean that we don't need this information for the longer term, we absolutely do, and in the longer term, under conditions of supply collapse, you are very likely to see an enormous price spike, and a resource grab. Whether countries do that by sending in the tanks, or whether they send in the contract negotiators, and buy up all the production of a field, that tie it all up in bilateral contracts, either of those will take oil off the open market.

The open market is where you really have the price of oil, you can actually see oil lose fungibility. And under those circumstances it's going to be very difficult for ordinary people to get access to any oil products at all. Even with oil at a low price, at the nadir of where I think prices are going, just because the price is low does not mean something will be cheap, because deflation drops purchasing power faster than prices. So even if oil were to fall to $20 a barrel, $20 a barrel is not cheap oil when you are in a depression; when nobody has any money. And if $20 a barrel is expensive, they move five years down the line to a supply collapse, and you're looking at $500 a barrel, and that's absolutely out of reach. So I think finance is going to rewrite the energy debate over the next five years, probably. And we're going to see tremendous amounts of upheaval, that people who are coming at it purely from a Peak Oil perspective, from geology and engineering, are not seeing because they don't understand finance, and the finance people typically don't have enough background in the science of the energy production, you absolutely have to have both. And that's very much what we try to do at The Automatic Earth. We are a Big Picture site; we're integrating all the factors that people need to understand.

Jim Puplava: You know, Nicole, you hit upon something that really changed as a result of the oil embargo in the 70's. The United States and Great Britain moved to create what I call the Virtual Oil Pool, where all of this oil was moved to the spot markets, so that for example in 2005, when Katrina and Rita hit the United States, and our refinery capacities were shut down, we could go into this Virtual Oil Pool, and have products show up on our shores within 30 days. But you talk about China. One thing that I have been watching that is alarming, that we're seeing China, India and other countries start to lock up oil production in these long term contracts oil, if they give money to Brazil, or they give money to Venezuela, that is oil that is being taken off the global market. It's not coming back. And I don't know if many governments have woken up to this fact. But it seems to me, at least, the Chinese understand it, at least they seem to be reacting in a rational way, trying to lock up resources that could be scarce.

Stoneleigh: They are doing that, and they do it par excellence. And they have been doing it for a long time. I think we underestimate the Chinese at our peril. They have an enormous pile of dollars, and they are the party - as I was saying earlier, you can either send in the tanks or you can send in the contract negotiators - the Chinese send in the contract negotiators, tie it all up in bilateral contracts. They have this enormous pile of dollars, they know at some point that they will not be worth something, because all fiat currencies die in the end. They don't die in the short term, and I've said elsewhere that I actually think the dollar could do well for a couple of years, but if you're China and you're sitting on a staggeringly large number of them, you can't play games like timing. You just have to turn those dollars into hard assets as fast as you possibly can.

And it's not just energy; they're buying up farm land in Canada, and all sorts of things. And they're not just taking ownership: they're also sending people there, and taking it beyond ownership to de facto control, which is the sort of structure that's likely to survive even when times are hard, when otherwise if you only had ownership, you might expect that to revert to the country that the asset is in, where possession can be nine tenths of the law. But you know if you have de facto control, because you have your people there and you're managing it; the Chinese are absolutely going to be economically colonising large parts of the rest of the world. They are going to be tying up their energy supplies. Now I would argue that China is also in a massive bubble; they are going to take a major hit over the next few years, very much like America did at the dawn of the American century. That's what the Depression was of the 1930's: the set back at the dawn of the American century.

I think what we're looking at now is, from a Chinese perspective, is the set back at the dawn of the Chinese century. But I think they will continue to be the empire in the ascendancy. That is their trajectory at this point. Don't expect the Chinese century to look like the American century because there's not going to be anything like the energy to do it. But by saying they're the empire in the ascendancy, I think there will come a point where they're the most significant hegemonic power in a much more multi-polar, low energy world. But never-the-less, they are still the empire in the ascendancy. So I think we are going to see the same kind of fall in demand for oil that we are. I do think they will see a fall in demand as their economy takes an enormous hit. I don't think it will be as big a fall as ours and I think it will recover faster. So, speaking to Jeffrey Brown, for instance at ASPO, he was pointing out that oil in the Depression, bottomed in 1931. I have said multiple times in various places, I think oil will bottom early in this Depression.

And one of the reasons for that is that I think demand will start to pick up again in places like China and India much more quickly than it will pick up for us. So I think what we're looking at is the western developed countries actually losing out in comparison with the developing countries that are taking on this 'empire in the ascendancy' role. I think they will come out of this with a much larger share of oil production tied up and oil is liquid hegemonic power. So I think we are looking at, over the very long term of a decade, at a shift in hegemonic power. But I don't think that the US is going to take that lightly, by any stretch of the imagination. So I think there is going to be a great deal of upheaval. I think we're also going to see a lot of very nasty proxy-wars in resource rich areas. This is the way the Great Powers typically play the Great Game. You know, they will pick a client-state, in a resource rich region, pump it full of guns, and then perhaps inflame some local hostilities, of which there are usually plenty to go around.

And then some of these areas go up in flames, and I'm certainly thinking this could happen in the Middle East, perhaps the Caspian, or the South China Sea, where there are going to be a number of parties, that are looking to secure supplies in the same area, and their areas of influence overlaps, the areas they claim, especially areas of the sea floor: sea floor claims are going to be a major problem going forward. These overlapping claims are going to be a source of conflict. And if you have conflicts between client-states, proxy-wars between client-states in resource rich regions, you could actually see quite a large amount of the resource that still exists being destroyed. Or at least if not the resource, then the infrastructure necessary to extract it; I mean very much like Sadam Hussein setting fire to the reservoirs in Kuwait, before he left. I think we could see a lot more of that. I think we could see a lot of instability in Saudi Arabia, where half the population is under 15; very radicalised young people, there's not enough employment and they despise their own government. So I think you're going to see a lot of upheaval in some of these places, very much aggravated by the Great Powers playing the Great Game of resource extraction. And I think we're going to see a great deal of conflict over energy, among all manner of other resources going forward.

Jim Puplava: It's almost Michael Klare's contention: resource wars. Nicole, another thing that strikes me about is, you know, from the start of discovery of a new oil field, to the time you bring it into production is a long process. So as we move from Peak Oil to alternative forms of energy, whether it's you know, trying to get the tar sands, whether… whatever it is, that we're going to be doing this whole process, even if we start changing and electrifying our transportation fleet, all of this stuff takes decades. You know, if I look at your scenario, Nicole, I think of what I just watched on the History Channel: the Dark Ages.

Stoneleigh: It's possible. I think we are looking at decades of upheaval. I think something less than the Dark Ages, because the Dark Ages were centuries of upheaval. I think we're looking at decades. That's what happened after the bursting of the South Sea Bubble, in 1722, that was the next largest bubble we've seen in human history and that was decades of upheaval culminating in a series of revolutions including yours. So I think we are looking at a long term structure. You know the point about the tar sands and various other things, the tar sands is not going to save anybody. There is no way you are getting 5 million barrels a day out of the tar sands, because you cannot scale it up. The energy returned on energy invested is extremely low, and essentially it's an arbitrage between natural gas and syncrude. So the energy you're putting in, in the form of natural gas, is not that much less than the energy you're taking out in the form of liquid fuels. So yes, you are creating liquid fuel from gaseous fuel, but it's really not an energy source.

Plus it exists in an extremely water constrained environment, where you're simply not going to be able to continue doing what you do now in the tar sands for reasons of water scarcity, and of course the environmental impacts are staggeringly large as well. A number of other things don't scale up; bio fuels have an incredibly low net energy: energy returned on energy invested. Some of them are less than one: in other words, if you create ethanol, you're actually losing energy in the process of creating ethanol. This makes no sense whatsoever. And bio-diesel is slightly better. But a lot of these technologies absolutely do not scale up. And there is no way they can act as a substitute. There is no way that a United States, at its current level of demand could ever conceivably be energy self-sufficient; it is not physically possible.

What you can do, is drop your demand an awfully long way, all developed countries waste staggeringly large amounts of energy, and if demand was a lot more realistic, you would bring it back, much more in line with what you could hope to supply. This is how people who work in renewable energy constantly think; you drop demand, you supply what's left at a much more realistic level and you're very careful with what you use. But Business as Usual is not an option. Mr Cheney said, not so many years ago, that the American lifestyle is not negotiable, to which I would say that's perfectly true because reality is not going to negotiate with you. It will dictate. And you cannot have what you currently have. Nobody will be able to. We're going to be moving into a different scenario; it doesn't have to be a dark age.

There's a lot we can do, and there's a lot we can do specially at a local level. Working together with people to build structures on a human scale that actually make sense. Getting our 'needs' and 'wants' sorted out; if we stop worrying so much about our 'wants' and deal with our needs, there's a lot we can do. It doesn't have to be a dark age. But we have to work at a scale that makes sense. And right now, all our thinking is it that top down level. I do not work at that level, on the whole. I think at that level, but I don't promote 'solutions', so to speak, at that level. The solutions I promote are the ones that are bottom up because they're the ones that really have the best, most realistic chance of working. Where people can pool resources, and I don't just mean money, I mean time and skills, and build something that is actually robust enough to carry you through the difficult times. Then you can start to rebuild things at larger scale again, when you had a chance to ride out the worst of the hard times. But yes we are going to be moving into hard times and they are going to last a long time.

Jim Puplava: Nicole, what has been the response, because one of the other aspects that bothers me about governments, not only are they aware of Peak Oil, but you know, some of their solutions are not the best way to think about how to solve a problem. You just mentioned ethanol, I mean it's a net energy loser [Stoneleigh: yes] not to mention the fact it's driving up the price of other commodities because farmers [Stoneleigh: absolutely] have to feed chickens and cows, corn, so what has been the response at the local level to your tour?

Stoneleigh: It's been overwhelming. And people have been very, very appreciative. When I do tours, and I'm speaking to ordinary people, they really value the information. Not just the information about the scope of the problem, but the information about how to deal with that problem and work within the scope of what is realistic. I've really only had one negative reaction to my world view, and that came from Jeff Rubin, former Chief Economist at CIBC, at the ASPO Conference, a week or so ago. And to paraphrase, (I don't remember his exact words) but he called my view of the world, something like a bastardised version of monetarism, that could only be devised by a non-economist. And to which I would say, if you look at the job economists have done running our economy, could non-economists possibly do any worse.

I think there's a lot more to it, and I didn't really get a chance to respond at the time, but I think that that criticism, which is the only seriously negative criticism I have had in a year of doing these talks, I think a lots of that criticism was unfounded and there is a lot to do with discussions of monetary theory that I would be more than happy to debate with Mr Rubin. But ordinary people do not respond in that kind of way. They do not mock; they are not derisive of views like this. So I think we really need to have a debate and we certainly need to have a debate between finance people and energy people, because they tend not to understand where each other is coming from and so we need to bring that into the public eye. But my view at the moment is that I work at the local level, because that is the level where things can really get some traction, and it is working. It really is.

I'm trying to divert resources into the hands of ordinary people. So in a Ponzi collapse, only a certain amount of resources are going to come out of that system, because we have excess claims to underlying real wealth, that's what a credit expansion creates. And therefore there only is a certain amount of underlying real wealth to go round. There's nothing I can do that will make that any larger but what I can do, and what I do, is I try to divert that into the hands of ordinary people. For one thing they've worked hard for it all their lives, but apart from that, they are the ones who will actually do something constructive with it.

The kind of thing that we actually need to do to ride out the very period of upheaval that I would argue is coming. You need to fund these local initiatives. And if ordinary people simply see everything they own disappear into a giant hole of credit destruction, then they cannot do the very things that our whole society may depend on. Bankers are not going to do these things. Government is not going to do it - ordinary people can, but only if the resources end up in their hands. And I'm trying to make sure that as much of those resources as possible do end up in the hands of the people best placed to use them for all our benefit.

Jim Puplava: Well Nicole, it's amazing, because I will be speaking with Jeff Rubin tomorrow - I'll be doing an interview [Stoneleigh laughs, then Jim laughs]

Stoneleigh: I would be happy to debate him. Do tell him, that I'm not a disciple of Milton Friedman. We can talk about Hyman Minsky, if he would like. [she laughs]

Jim Puplava: OK. Are there any questions you would like me to ask Jeff?

Stoneleigh: [She laughs] I think I'd probably rather ask the questions myself, at some point. At some point I will try and debate him on the intricacies of monetary policy and the role of credit. And the fact that what credit expansions do is they bring demand forward. I think that's the factor that's meet; I don't think he recognises. He does recognise resource limits, which most economists do not, but I don't think he's looking at the fact that an enormous credit expansion, such that we have lived through, brings demand forward at the expense of cratering it afterwards. And it's the fact that demand craters that leads to things like oil prices falling. So his view is that you're going to see triple digit price of oil, very soon, and I would say, no you're not because we're about to see speculation go into reverse and then demand crater and under those circumstances, there's no way you're going to get high oil prices out of it. And so I think there's some fundamental misconceptions of his view of the world and at some point I would be more than happy to debate him, even though I am a non-economist! [she laughs].

Jim Puplava: OK. Well let's see if I can put that together, between the two of you, but it's interesting you mention Jeff, because I'll be talking with Jeff tomorrow. Listen Nicole, you have, I believe, a video presentation called “A Century of Challenges.” If our listeners would like to get a copy of that presentation, how could they do so please?

Stoneleigh: Well, if they visit The Automatic Earth, there is a link right at the top. There's a picture, click on it, it's at the top right hand side, they can click on that and that will take them to a landing page. It does cost $12.50. We were trying to keep the cost as low as we could; we're trying to cover production costs, because it is a professional production. The point was not to make staggeringly large amounts of money. It was to be able to fund the site; to keep us going. But what this is, it's, this is a professional production of the presentation that - the first presentation, anyway - that I've been giving all over the US and Europe. So, it's 80 minutes long.

It's a discussion of energy, finance, interactions between the two, and the beginnings of the what you can do about this. I've another presentation I'm working on now, with a great deal more about what you can do about this, but we haven't had that one produced yet. So for the time being, this is the production that we have available, and we very much encourage people to watch it, and once they have paid their $12.50, it's a streaming video, they can watch it as many times as they want. So hopefully they will consider that to be good value. I think well certainly in Canada anyway, it's about the same as an evening at the movies. An evening at the movies would be more expensive, because you'd have to pay for the popcorn, so [Jim: Oh, OK] provide your own popcorn and this is cheap.

Jim Puplava: All right. We've been speaking with Nicole Foss, and if you'd like to follow Nicole's work, you can just Google 'Automatic Earth'. The website is Nicole: thanks for coming on the program. Always a pleasure speaking with you.

Stoneleigh: You're very welcome! Thank you very much for having me.

Ilargi: And then, I was sent another Stoneleigh interview this week, which took place during the recent ASPO-USA Conference. This one’s from TAE reader Alexander Ac, who posts on, and flew all the way to Washington DC from the Czech Republic to attend. He's promised a part 2.

Q1) Here at the ASPO-USA conference in Washington everybody seems to understand implications of energy scarcity. What would be your message to a lay person? What are the main implications of peak oil for the daily life?

We are going to have to get used to a much lower energy lifestyle. Energy has been cheap for a very long time, so we have developed a structural dependency on it. Energy is not going to be cheap for much longer though, and that means many of the things we take for granted will no longer be affordable. A much larger proportion of our income will have to go to energy costs, and that will leave very much less for everything else. Our material standard of living will fall, and we will have to go back to performing many functions with human energy rather than fossil fuel energy.

The wealthy may still have access to fossil fuels, but if most people do not, then they will not be able to live a modern life. A life fuelled by human energy alone is one where people have to spend an enormous amount of time performing everyday tasks, and will not have time to undertake much of a role in the wider economy. Some family members will have to stay at home and devote all their time to household tasks that will take far longer than we are used to.

Q2) When did you first see the term "peak oil" and when did you realize it might be a problem?

I used to work at the Oxford Institute for Energy Studies, which is primarily an oil and gas institute, back in the 1990s. I worked on electricity, but most of my colleagues were involved in fossil fuels. There were many discussions about the upstream, meaning where oil is coming from, and that fact that it is finite. It was clear that supply would be a problem at some point, although when I was there, oil prices were very low ($10/barrel), so no one thought it would be an imminent problem. I began to look into energy returned on energy invested (net energy) and realized the problem would be much closer at hand in net energy terms, and that we would see major declines in my lifetime.

Q3) Why is that most economists do not recognize the role of energy in economy?

Energy is invisible, and therefore taken for granted. Most economists do not recognize resource limits at all, partly because they do not understand the laws of thermodynamics. They live in a world of substitutions when something becomes scarce, and do not understand that energy is the master resource for which there are no substitutes.

Economists typically say that there are no limits, only price. If something is scarce, it will cost more, but we will never run out. I think this misses the tremendous impact on a society dependent not only on energy, but on cheap energy. All our modern infrastructure requires a steady supply of affordable energy to maintain it.

Q4) Are "conservation" and "energy efficiency" solutions to peak oil? Is it enough?

Conservation and energy efficiency can help to extend the timeframe, but they cannot solve the problem. They could have done much more if we had made the necessary investments early, while we still had both cheap energy and enough money to make fundamental changes.

In wealthy countries, and even in moderately wealthy ones, we can greatly reduce the amount of energy we use because so much of what we use is wasted. Anything that has been far too cheap for a long time will be wasted. We do not need to use electricity to remove the lids for cans or to brush our teeth, for instance, and yet many of us do. Ceasing to do this would allow us to conserve some energy painlessly.

We also use many machines which have not been designed for energy efficiency at all. For instance a top-loading washing machine, like people typically use in North America, uses far more energy than a European front-loading one. If we were able to replace wasteful infrastructure with efficient infrastructure, we could probably save 30-40% of our energy consumption and hardly notice a difference in our standard of living. The difficulty is that in an era of financial crisis, we will not have the money to replace infrastructure. This will make it very hard to make efficiency improvements.

Rather than increase efficiency greatly, we will find ourselves forced to conserve energy in a low-energy and low-money future. We will have no choice but to do without, and it will not be painless once scarcity starts eating into our ability to perform essential functions rather than merely frivolous ones.

Q5) What about alternatives or nuclear energy? People often say that if oil gets more expensive, alternatives are to be deployed. Is this flawed logic?

Alternatives to oil typically have a much lower energy returned on energy invested (EROEI), and are expensive, at a time when money will be very scarce. They also depend on the availability of cheap oil to produce them. These problems mean that it will be very difficult to provide anything like the energy we get from fossil fuels. Alternatives can help in small-scale niche applications, but they cannot solve the problem of running a society, especially an energy-intensive industrial society.

Alternatives generally do not scale up, for reasons of net energy, money and time. We do not even have the capacity to produce things like solar panels on a massive scale, and we have neither the time nor the money to build that capacity before our oil supplies decline, let alone build all the panels we would need as well. We have also allowed our grid infrastructure to age, to the point where much of it will need to be replaced.

As most alternatives produce electricity, we are very dependent on the grid. Unfortunately there is a large mismatch between renewable energy resource intensity, energy demand and grid capacity. That means far more grid investment would be required. We would also have t covert energy demand away from liquid fuels to electricity, and that will take a huge amount of time and money at a time when both will be in very short supply.

Q6) The financial system seems to complicate the whole issue? In which way?

Financial crisis will make everything very much harder. We will have very little money in a deflationary world, and people will be highly risk averse. No one (individuals, companies and governments) will be wanting to spend at a time when future earnings are so uncertain, which will make it almost impossible to invest in the infrastructure changes we need to make in order to address energy crisis. With not enough to go around, people are unfortunately likely to waste efforts and resources fighting over what there is, rather than pooling scarce resources for the good of all. Financial crisis leads to social instability at a time when we most need to keep our heads and work together.

Q7) Do you expect a crash in stock markets? How serious will it be and what will be the main consequences?

Yes, I do expect a crash, and a very large one at that. I expect the larger trend to be down for several years. A lot of investments will fall a very long way in value, and where these investments have been used as collateral for borrowing, there will be knock-on consequences. We will see margin calls as values decline, and outstanding debt is now too high compared to the value of the asset, so that additional debt repayments have to be made. We are going to see a very large number of bankruptcies and many debt defaults. This will be a factor in crashing the money supply, leaving too little lubricant to run the engine of the economy.

Q8) Debt seems to be a large part of the problem. How large?

A massive debt bubble is the at the heart of the problem. It has been building for decades and is now far larger than any previous debt bubble in human history. Humanity periodically rediscovers leverage on a grand scale, after the lessons of the previous episode have mostly passed out of living memory. Expansions of credit and debt create the appearance of great wealth, but it is illusory (virtual). The obligations created are real though. People have expectations of being repaid, and they will not be, which will set up a grab for the underlying real wealth (collateral) which is nowhere near enough to go around. This is deflation, and its effects are very significant. Money will be scarce for a very long time.

Q9) Still, some people say we should leave the solution of peak oil to the free market...

The free market has a very short time horizon, while energy investments are long-term. In fact the time horizon of the free market is likely to shrink in the times of high risk that we are facing. No one will be making investments where there is no economic visibility, so returns are completely uncertain. Financing projects will be almost impossible. We are going to have to depend on public financing, but governments will have very little money and many more calls on their resources, so they will not be in a position to make many investments either.

Q10) What does Paul Krugman (and others) get wrong? Should we listen to him (and spend more)?

No, we should not listen. Spending more will only dig us into an even deeper hole, and will not prevent the deflation that is coming. We need to become economically responsible and save. Of course this will accelerate the decline in economic activity, but this needs to happen. If we keep making the problem worse by spending, we will only have to face an even larger set of consequences later. It is better to let the house of cards fall and begin rebuilding once the toxic debt has been defaulted upon. The sooner that happens, the sooner we can begin to rebuild the trust and social cohesion that facilitate investments in the public good.

Mr Krugman is a monetarist, and does not understand the critical role of debt in setting up a deflationary collapse. Monetarists treat economies as machines governed by the laws of physics, rather than as formed of people. Machines can be controlled in order to produce predictable outcomes in ways that people cannot. Any human social construct will depend on the mechanisms of human social behaviour, and this is outside the monetarist model.

Bill Black: 'Major Frauds' Continue at Mortgage Companies
by Bloomberg

FDIC Called On To Put Bank Of America Into Receivership
by Dan Froomkin - Huffington Post

Charging that the ongoing foreclosure fraud epidemic is the work of precisely the same unrepentant bank officers whose fraudulent mortgage schemes crashed the financial system in the first place, two leading critics of the financial industry are calling on the FDIC to put some of the nation's biggest banks into receivership -- starting with the Bank of America -- and make them clean house.

William K. Black, a former regulator who cracked down on massive fraud during the savings and loan scandal of the 1980s, and his fellow economics professor at the University of Missouri-Kansas City, L. Randall Wray, write in the Huffington Post that "the lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, through fraudulent foreclosures."

They argue that, far from being a coincidence, massive foreclosure fraud "is the necessary outcome of the epidemic of mortgage fraud that began early this decade." The reason for that:
The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents... Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents.... Foreclosure fraud is the only thing standing between the banks and Armageddon."

So the only solution, then, is new management. "We should remove the senior leadership of the banks and replace them with experienced bankers with a reputation for integrity and competence, i.e., the honest officers that quit or were fired because they refused to engage in fraud," Black and Wray write. They suggest starting with Bank of America, which they call "a 'vector' spreading the mortgage fraud epidemic throughout much of the Western world."

Looming large among Bank of America's sins is its purchase of mortgage giant Countrywide Financial long after it became clear that the company had engaged in massive fraud. Even the extremely slow-to-anger New York Fed, which bought billions of securitized mortgages that Bank of America improperly represented as fully documented and conforming to underwriting standards, is now demanding that it buy some of them back.

But far from expressing remorse, Bank of America is going on the offensive, announcing it will end its three-week-old freeze on foreclosures in 23 states on Monday, much earlier than expected. Bank of America officials are claiming they didn't find evidence of unwarranted foreclosures and are vowing to "defend the interests of Bank of America shareholders," and hire more lawyers, the New York Times reported. "It's loan by loan, and we have the resources to deploy in that kind of review," said the bank's chief executive.

Black and Wray write that Bank of America "is sufficiently large and powerful that its receivership will send the credible signal that America is restoring the rule of law and that even the most elite frauds will be held accountable."
They note that about a thousand receivers were appointed during the S&L and banking crises of the 1980s and early 1990s under Presidents Reagan and Bush. "Contrary to the scare mongering about 'nationalizing' banks, receivers are used to returning failed banks to private ownership," they write.

The new managers would "direct the business operations, find the true facts about the bank's operations, senior managers, and financial condition, recognize the real losses, and make the appropriate referrals to the FBI and the SEC so that the frauds can be investigated and prosecuted," they write. "The receiver is also a well-proven device for splitting up banks that are too large and incoherent by selling units of the business to different bidders who most value the operations."

On Wednesday, administration spokesmen declined to endorse any dramatic federal action. They declared that they had found no "systemic" threat to the financial system from the foreclosure problems, spoke of "mistakes" and "errors" rather than pervasive fraud and said the banks and servicers now need to "fix" their "processes." They "cannot even bring themselves to use the 'f' word -- fraud," Black and Wray write. "They substitute euphemisms designed to trivialize elite criminality."

The central problem appears to be that Obama Administration continues to see the mortgage and foreclosure crises primarily through the eyes of the banks -- not through the eyes of the regular people who became their victims, or even the taxpayers who bailed out the very fat-cat bankers who are now back to their tricks.

Black and Wray write:
This nation's most elite bankers originated and packaged fraudulent nonprime loans that destroyed wealth -- and working class families' savings -- at a prodigious rate never seen before in the history of white-collar crime. They created the worst bubble in financial history, echo epidemics of fraud among elite professionals, loan brokers, and loan servicers, and would (if left to their own devices) have caused the Second Great Depression.

The two professors call for "[n]othing short of removing all senior officers who directed, committed, or acquiesced in fraud."

Foreclose on the Foreclosure Fraudsters, Part 1: Put Bank of America in Receivership
by William K. Black and L. Randall Wray - Huffington Post

After a quick review of its procedures, Bank of America this week announced that it will resume its foreclosures in 23 lucky states next Monday. While the evidence is overwhelming that the entire foreclosure process is riddled with fraud, President Obama refuses to support a national moratorium. Indeed, his spokesmen on the issue told reporters three key things. As the Los Angeles Times reported:
A government review of botched foreclosure paperwork so far has found that the problems do not pose a "systemic" threat to the financial system, a top Obama administration official said Wednesday.

Yes, that's right. HUD reviewed the "paperwork" problem to see whether it threatened the banks -- not the homeowners who were the victims of foreclosure fraud. But it got worse, for the second point was how the government would respond to the epidemic of foreclosure fraud.
The Justice Department is leading an investigation of possible crimes involving mortgage fraud.

That language was carefully chosen to sound reassuring. But the fact is that despite our pleas the FBI has continued its "partnership" with the Mortgage Bankers Association (MBA). The MBA is the trade association of the "perps." It created a ridiculous on its face definition of "mortgage fraud." Under that definition the lenders -- who led the mortgage frauds -- are the victims. The FBI still parrots this long discredited "definition." That is one of the primary reasons why -- in complete contrast to prior financial crises -- the Justice Department has not convicted a single senior officer of the large nonprime lenders who directed, committed, and profited enormously from the frauds.

Note that the Justice Department is not investigating foreclosure fraud. HUD Secretary Donovan's statement shows why:
"We will not tolerate business as usual in the mortgage market," he said. "Where there have been mistakes made or errors, we will hold those entities, those institutions, accountable to stop those processes, review them and fix them as quickly as possible."

Note the language: "mistakes", "errors", "processes" (following the initial use of "paperwork"). No mention of "fraud", "felony", "criminal investigations", or "prosecutions" for the tens of thousands of felonies that representatives of the entities foreclosing on homes have admitted that they committed. Note that Donovan does not even demand that the felons remedy the harm caused by their past fraudulent foreclosures. Donovan wants them to "fix" "processes" -- not repair the harm their frauds caused to their victims.

The fraudulent CEOs looted with impunity, were left in power, and were granted their fondest wish when Congress, at the behest of the Chamber of Commerce, Chairman Bernanke, and the bankers' trade associations, successfully extorted the professional Financial Accounting Standards Board (FASB) to turn the accounting rules into a farce. The FASB's new rules allowed the banks (and the Fed, which has taken over a trillion dollars in toxic mortgages as wholly inadequate collateral) to refuse to recognize hundreds of billions of dollars of losses. This accounting scam produces enormous fictional "income" and "capital" at the banks. The fictional income produces real bonuses to the CEOs that make them even wealthier. The fictional bank capital allows the regulators to evade their statutory duties under the Prompt Corrective Action (PCA) law to close the insolvent and failing banks.

The inflated asset values allow the Fed and the administration to ignore the Fed's massive loss exposure and allow Treasury to spread propaganda claiming that TARP resolved all the problems -- at virtually no cost. Donovan claims that we have held the elite frauds accountable -- but we have done the opposite. We have made the CEOs of the largest financial firms -- typically already among the 500 wealthiest Americans -- even wealthier. We have rewarded fraud, incompetence, and venality by our most powerful elites.

If the government does not hold the fraudulent CEOs responsible, who is supposed to stop the epidemic of elite financial fraud? The Obama administration's answer is the fraudulent CEOs themselves, at a time of their choosing. You can't make this stuff up.
But ultimately resolving the problems is not the government's responsibility, said Michael Barr, assistant Treasury secretary for financial institutions.

"Fundamentally, this is up to the banks and the servicers to fix," he said. "They can fix it as fast as they feel like."

So who is Michael Barr and why is saying things on behalf of the Obama administration that make it appear to be a wholly-owned subsidiary of the fraudulent lenders and servicers? He's a Robert Rubin protégé and he's the senior Treasury official for banking policy.

We have a different policy view. We believe that only the government can stop fraud from growing to catastrophic levels and that among the government's highest responsibilities is to provide the regulatory "cops on the beat" with the competence, resources, courage, and integrity to take on our most elite frauds. We believe that anything less is a travesty that causes tens of millions of Americans to be defrauded and poses a grave threat to our economy and democracy.

Prompt Corrective Action

First, it is time to stop the foreclosures until the banks and servicers adopt corrective steps, certified as adequate by FDIC, that will prevent all future foreclosure fraud. They must also adopt plans to remedy the injuries their foreclosure frauds have already caused, and assist the FBI, Department of Justice, and legal ethics officials investigations of their officers' and attorneys' frauds and ethical violations.

Second, it is time to place the financial institutions that committed widespread fraud in receivership. We should remove the senior leadership of the banks and replace them with experienced bankers with a reputation for integrity and competence, i.e., the honest officers that quit or were fired because they refused to engage in fraud. We should prioritize the receiverships to deal with the worst known "control frauds" among the "systemically dangerous institutions" (SDIs). The SDIs' frauds and fraudulent leaders endanger the global economy.

We propose Bank of America for the first receivership. In the last few weeks, the SEC has obtained a large (albeit grossly inadequate) settlement of its civil fraud charges against the former senior leaders of Countrywide. (Bank of America acquired Countrywide and is responsible for its frauds.) Fannie and Freddie's investigations -- with their findings reviewed by their regulator, the Federal Housing Finance Agency (FHFA) -- have identified many billions of dollars of fraudulent loans originated by Countrywide that were sold fraudulently to Fannie and Freddie through false representations and warranties. The Fed, BlackRock, and Pimco's investigations have identified many billions of dollars of fraudulent loans provided by Countrywide under false reps and warranties. Ambac's investigation found that 97% of the Countrywide loans reviewed by Ambac were had false reps and warranties. Countrywide also engaged in widespread foreclosure fraud. This is not surprising, for every aspect of Countrywide's nonprime mortgage operations that has been examined by a truly independent body has found widespread fraud -- in loan origination, loan sales, appraisals, and foreclosures. Fraud begets fraud. Lenders that are control frauds create criminogenic environments that produce "echo" epidemics of control fraud in other professions and industries.

We have been amazed that, as one financially sophisticated entity after another found widespread fraud by Countrywide in the entire gamut of its operations, the administration, the industry, and the financial media act as if this is acceptable. Countrywide made hundreds of thousands of fraudulent loans. It fraudulently sold hundreds of thousands of loans through false reps and warranties. It fraudulently foreclosed on large numbers of loans. It victimized hundreds of thousands of people and hundreds of financial institutions, causing hundreds of billions of dollars of losses. It has defrauded more people, at a greater cost, than any entity in history.

Bank of America chose to purchase Countrywide at a point when it -- and its senior leaders -- were infamous. Bank of America made some of these Countrywide leaders its senior leaders. Yet, Bank of America is not treated as a criminal entity. President Obama, Attorney General Eric Holder, Donovan, and Barr cannot even bring themselves to use the "f" word -- fraud. They substitute euphemisms designed to trivialize elite criminality. The administration officials do not call for Bank of America to be the subject of a criminal investigation. They do not demand that Fannie, Freddie, Ambac, the FHFA, and Pimco file criminal referrals about Countrywide's frauds. They do not demand that Fannie, Freddie, and the Fed refuse to purchase or take as collateral any mortgage instrument from Bank of America. No one at the Harvard Club in New York moves to kick Bank of America's officers out of their club! The financial media treats Bank of America as if it were a legitimate bank rather than a "vector" spreading the mortgage fraud epidemic throughout much of the Western world.

For the sake of our (and the global) economy, our democracy, and our souls this willingness to allow elite control frauds to loot with impunity must end immediately. The control frauds must be taken down and their officers removed promptly. Receivership is the way to begin to reclaim our souls, our economy, and our democracy and Bank of America has the track record that makes it a good place to start. It is sufficiently large and powerful that its receivership will send the credible signal that America is restoring the rule of law and that even the most elite frauds will be held accountable.

Next we need to remove the rest of the "too big to fail" institutions -- we call them systemically dangerous institutions, or SDIs -- to reduce the global systemic risks that they pose. We are rolling the dice with disaster every day. The SDIs are inefficient, so shrinking them will reduce risk and increase efficiency. We need to follow three types of policies with respect to SDIs.
  1. They cannot grow larger and compound the systemic risk they pose.
  2. They must create an enforceable plan to shrink to a level and functions such that they no longer pose a systemic risk within five years.
  3. Until they shrink to the point that they no longer pose systemic risks they must be regulated with far greater intensity than other banks. In particular, control fraud poses so severe a risk of triggering another global financial crisis that there must be no regulatory tolerance for control frauds at the SDIs. One of the best ways to reduce their risks is to mandate that high levels of executive compensation be paid only after sustained and superior performance (at least five years), and with "claw back" provisions if compensation was obtained by fraudulent reported income or seriously inadequate loss reserves.

Appointing a receiver for an SDI will be a major undertaking for the FDIC, but it is also well within its capabilities. Contrary to the scare mongering about "nationalizing" banks, receivers are used to returning failed banks to private ownership. Receiverships are managed by experienced bankers with records of competence and integrity rather than the dread "bureaucrats." We appointed roughly a thousand receivers during the S&L and banking crises of the 1980s and early 1990s under Presidents Reagan and Bush.

Here is how it works. A receiver is appointed on Friday. The bank opens for business as normal (from the bank's customers' perspective) on Monday. The checks clear, the ATMs work, and the branches all open. The receiver's managers direct the business operations, find the true facts about the bank's operations, senior managers, and financial condition, recognize the real losses, and make the appropriate referrals to the FBI and the SEC so that the frauds can be investigated and prosecuted.

The receiver is also a well-proven device for splitting up banks that are too large and incoherent by selling units of the business to different bidders who most value the operations.

Dealing with the "Dirty Dozen" Control Frauds

Simultaneously, we should put in place a system to replace the existing cover up of the condition of other banks with vigorous investigations and honest accounting. The priority for these investigations should be the "Dirty Dozen" -- the twelve largest banks. The Fed cannot conduct a credible investigation. It has taken so many fraudulent nonprime loans and securities as collateral that it is the leading proponent of covering up these losses.

The FDIC should lead the investigations (it has "backup" regulatory authority over all banks), but it should hire investigative experts to add expertise to its Dirty Dozen examination teams. The priorities of the teams will be identifying existing losses and requiring their immediate recognition (the regulatory authorities have the authority to "classify" assets that can trump the accounting scams that Congress extorted from FASB). The FDIC should prioritize the order of its examinations of the largest SDIs on the basis of known indicia of fraud. For example, Citi's senior credit manager for mortgages testified under oath that 80% of the loans it sold to Fannie and Freddie were made under false reps and warranties. The Senate investigation has documented endemic fraud at WaMu (acquired by Wells Fargo). The FDIC should sample nonprime loans and securities held by Fannie, Freddie, the Federal Home Loan Banks, and the Fed to determine which nonprime mortgage players originated and sold the most fraudulent loans. This will allow the FDIC to prioritize which SDIs it examines first.

We should also create a strong incentive for financial entities to voluntarily disclose to the regulators, the SEC, and the FBI their frauds, their unrecognized losses, and the officers that led the frauds -- and to fire any officer (VP level and above) who committed (or knew about and did not report) financial fraud. Any SDI that originated or sold more than $2 billion in fraudulent nonprime loans or securities should be placed in receivership unless it has conducted a thorough investigation and made the voluntary disclosures discussed above prior to the commencement of the FDIC examination, and developed a plan that will promptly recompense fully all victims that suffered losses from mortgages that were fraudulently originated, sold, or serviced.

We make three propositions concerning what we believe to be institutions that are run as "control frauds". To date, this situation has been ignored in the policy debates about how to respond to the crisis. The propositions rest on a firm (but ignored) empirical and theoretical foundation developed and confirmed by white-collar criminologists, economists, and effective financial regulators. The key facts are that there was massive fraud by nonprime lenders and packagers of fraudulent nonprime loans at the direction of their controlling officers. By "massive" we mean that lenders made millions of fraudulent loans annually and that packagers turned most of these fraudulent loans into fraudulent securities. These fraudulent loans and securities made the senior officers (and corrupted professionals that blessed their frauds) rich, hyper-inflated the bubble, devastated millions of working class borrowers and middle class home owners, and contributed significantly to the Great Recession -- by far the worst economic collapse since the 1930s.

Our first proposition is this: The entities that made and securitized large numbers of fraudulent loans must be sanctioned before they produce the next, larger crisis. Second: The officers and professionals that directed, participated in, and profited from the frauds should be sanctioned before they cause the next crisis. Third: The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, e.g., through fraudulent foreclosures. Foreclosure fraud is an inevitable consequence of the underlying "epidemic" of mortgage fraud by nonprime lenders, not a new, unrelated epidemic of fraud by mortgage servicers with flawed processes. We propose a policy response designed to achieve these propositions.

S&L regulators, criminologists, and economists recognize that the same recipe that produced guaranteed, record (fictional) accounting income (and executive compensation) until 2007 produced another guarantee: massive (real) losses, particularly if the frauds hyper-inflated a bubble. CEOs who loot "their" banks do so by perverting the bank into a wealth destroying monster -- a control fraud. What could be worse than deliberately growing massively by making loans likely to default, converting large amounts of bank assets to the personal benefit of the senior officers looting the bank and to those the CEO suborns to assist his looting (appraisers, auditors, attorneys, economists, rating agencies, and politicians), while simultaneously providing minimal capital (extreme leverage) and only grossly inadequate loss reserves, and causing bubbles to hyper-inflate?

This nation's most elite bankers originated and packaged fraudulent nonprime loans that destroyed wealth -- and working class families' savings -- at a prodigious rate never seen before in the history of white-collar crime. They created the worst bubble in financial history, echo epidemics of fraud among elite professionals, loan brokers, and loan servicers, and would (if left to their own devices) have caused the Second Great Depression.

Nothing short of removing all senior officers who directed, committed, or acquiesced in fraud can be effective against control fraud. We repeat: Foreclosure fraud is the necessary outcome of the epidemic of mortgage fraud that began early this decade. The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents and have committed "fraud in the inducement." Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents. If the original documents do not exist the securities might be ruled no good. If the original docs do exist they will demonstrate that proper underwriting was not done -- so the securities might be no good. Foreclosure fraud is the only thing standing between the banks and Armageddon.

Chris Whalen: MBS Investors Are Calling Their Lawyers, But Most Have No Recourse
'Barack Obama Is Walking In Herbert Hoover's Shoes'

Plosser Says Fed in 'Difficult Spot' on Mortgage-Debt Buybacks
by Alex Kowalski - Bloomberg

The Federal Reserve's effort to recover taxpayer money used in bailouts while also ensuring the stability of the financial system puts it in a "difficult spot," said Charles Plosser, president of the Philadelphia Fed. The New York Fed, which acquired mortgage debt in the 2008 rescues of Bear Stearns Cos. and American International Group Inc., has joined a bondholder group that aims to force Bank of America Corp. to buy back some bad home loans packaged into $47 billion of securities.

On the one hand, the Fed has "a duty to the taxpayer to try to collect on behalf of the taxpayer on these mortgages," Plosser said today at an event in Philadelphia. "At the same time, as a regulator, and as someone who's trying to preserve financial stability and manage the oversight of banks and financial institutions, we've got another hat that we wear that says, 'Should we be in the business of suing the financial institutions that we are in fact responsible for supervising?'"

The Federal Reserve System, made up of 12 regional banks plus the Washington-based Board of Governors, works with other regulators to ensure the safety and soundness of the financial system. "It's a very difficult spot for the Fed to be in," Plosser said. "It's a little bit of a Catch-22, but it reinforces my notion of what the challenges and difficulties are for the Fed entering into the markets in this way." Concern that Bank of America may be forced to buy back soured mortgages helped send its stock down 7.3 percent since Oct. 18, the day before the New York Fed's role was reported.

Wall Street Banks
The New York Fed oversees many of the biggest Wall Street bank holding companies, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. Bank of America, the largest U.S. bank by assets, is based in Charlotte, North Carolina, and overseen by the Richmond Fed. The Fed owns assets from the Bear Stearns and AIG bailouts in three holding companies. The New York Fed, which has policies to manage conflicts of interest between its multiple units, created its Special Investments Management Group in January to oversee the assets.

Maiden Lane LLC, named for the street bordering the New York Fed's Manhattan headquarters, bought about $30 billion of Bear Stearns assets that JPMorgan didn't want when it acquired the company. Maiden Lane II and III were created to hold the assets from AIG's rescue. BlackRock Inc., the world's biggest money manager, was hired to manage the assets and is also part of the bondholder group.

"In terms of monetary policy, we should stick to buying government securities and Treasuries and not venture outside that for exactly these sorts of reasons," said Plosser, a former professor and business-school dean at the University of Rochester in New York who joined the Philadelphia Fed as its chief in 2006.

US taxpayers warned Fannie Mae and Freddie Mac may need $363 billion bailouts
by Edward Helmore - Guardian

US regulators have warned that taxpayers may end up absorbing losses of $363bn (£231bn) from bad mortgage loans – the latest sign that problematic lending practices that triggered the 2008 banking crisis continue to buffet the US. The issue, which has flared anew this month with a ban on the resale of foreclosed homes after flaws in the legal processes were exposed, has led investors to voice fears of second housing-related crisis.

This week, Bank of America (BofA) shares plunged on concern about the impact of legal challenges to foreclosures after the bank announced it was resuming sales of repossessed homes. Investors warn that the bank's exposure to bad mortgages could depress its stock for years to come, perhaps falling from the current $11 to $2.50 by 2013.

BofA, through its troubled Countrywide Financial unit, is under further pressure from mortgage-bond investors who claim poor mortgage lending practices entitles them to refunds that could reach $200bn. The Federal Housing Finance Agency has now warned that the government-guaranteed funds Fannie Mae and Freddie Mac, which have already absorbed $148bn in bail-outs, may now need up to $363bn under worst-case predictions.

With home prices experiencing their worst fall since 1930 by some estimates, claims are likely to soar. Pension fund and private equity firms including Pimco and BlackRock, as well as the Federal Reserve Bank of New York, are moving to force BoA into repurchasing $47bn in bonds, though BoA's chief executive officer Brian Moynihan insists that most claims can not demonstrate "the defects that people allege".

The issue of re-purchasing securitised mortgages has placed the banking system under renewed stress for investors. BoA's stock has declined 22% this year, compared to 8% for JPMorgan Chase and a 23% gain for Citigroup, at one point the weakest of the US banking companies.

Mortgage Mess: Shredding the Dream
by Peter Coy, Paul M. Barrett and Chad Terhune - Business Week

The foreclosure crisis isn't just about lost documents. It's about trust—and a clash over who gets stuck with $1.1 trillion in losses

In 2002, a Boca Raton (Fla.) accountant named Joseph Lents was accused of securities law violations by the Securities and Exchange Commission. Lents, who was chief executive officer of a now-defunct voice-recognition software company, had sold shares in the publicly traded company without filing the proper forms. Facing a little over $100,000 in fines and fees, and with his assets frozen by the SEC, Lents stopped making payments on his $1.5 million mortgage.

The loan servicer, Washington Mutual, tried to foreclose on his home in 2003 but was never able to produce Lents' promissory note, so the state circuit court for Palm Beach County dismissed the case. Next, the buyer of the loan, DLJ Mortgage Capital, stepped in with another foreclosure proceeding. DLJ claimed to have lost the promissory note in interoffice mail. Lents was dubious: "When you say you lose a $1.5 million negotiable instrument—that doesn't happen." DLJ claimed that its word was as good as paper. But at least in Palm Beach County, paper still rules. If his mortgage holder couldn't prove it held his mortgage, it couldn't foreclose.

Eight years after defaulting, Lents still hasn't made a payment or been forced out of his house. DLJ, whose parent, Credit Suisse, declined to comment for this story, still hasn't proved its ownership to the satisfaction of the court. Lents' debt has grown to about $2.5 million, including unpaid taxes, interest, and penalties. As the stalemate grinds on, Lents has the comfort of knowing he's no longer alone. When he began demanding to see the I.O.U., he says, "I was looked upon like I had leprosy. Now, I have probably 20 to 30 people a month come to me" asking for advice. Lents is irked when people accuse him of exploiting a loophole. "It's not a loophole," he says. "It's the law."

The Lents Defense, as it might be called, doesn't work everywhere. Thousands of Floridians have lost their homes in lightning-fast "rocket dockets." In 27 other states, judges don't even review foreclosures, making it harder for homeowners to fight back. Now, though, allegations of carelessness and outright fraud in foreclosures has become so widespread that attorneys general in all 50 states are investigating. So are the feds.

Even if the documentation problems turn out to be manageable—as Bank of America and others insist they will be—the economy will still suffer long-term consequences from the loose underwriting that caused the subprime housing bubble. According to an Oct. 15 report by J.P. Morgan Securities, some $2 trillion of the $6 trillion in U.S. mortgages and home-equity loans that were securitized during the height of the bubble, from 2005 through 2007, are likely to go into default. The report says the housing bust will ultimately cause losses of $1.1 trillion on those bonds.

While banks and investors take their hits, millions of homeowners continue to be punished by unaffordable mortgage payments and underwater home values. Laurie Goodman, a mortgage analyst at Amherst Securities Group, said in an Oct. 1 report that if government doesn't step up its intervention, over 11 million borrowers are in danger of losing their homes. That's one in five people with a mortgage. "Politically," she wrote, "this cannot happen. The government will attempt successive modification plans until something works."

Wall Street's unspoken strategy has been to kick mortgage losses down the road until an economic recovery reinflates the housing market. The faulty-foreclosure crisis has forced the issue back into the present tense, triggering a fight over who will bear the brunt of those losses. The combatants—all of whom are trying to minimize their share of the damage—include homeowners, lenders and mortgage brokers, loan servicers and the underwriters of mortgage-backed securities, the buyers of those securities, title insurers, rating firms, and the federally controlled mortgage buyers Fannie Mae and Freddie Mac.

J.P. Morgan predicts that bondholders will absorb most of the estimated $1.1 trillion loss—but may succeed in foisting about $55 billion on banks. If the bank losses turn out to be steeper than J.P. Morgan and most other analysts expect, taxpayers may be asked to inject more capital into the financial institutions. Fannie Mae and Freddie Mac, already wards of the state, might require more capital as well.

The last five years of rising foreclosures, to the highest rate since the Great Depression, have exposed the carelessness with which banks lent money. The banks figured they could always seize ownership and resell at a profit, assuming they hadn't already dumped the loan on an unwary investor. And they wouldn't let technicalities impede the process; the website, which is operated by the Carol C. Asbury Save My Home Law Group, has links to documents from Nassau County, N.Y., in which someone entered "BOGUS" as the grantee for the mortgage—i.e., the party entitled to foreclose.

During the housing boom, transactions were flowing so fast that banks couldn't keep up with the paperwork. The mortgage industry depended on a digital overlay of its own invention, Mortgage Electronic Registration Systems, a database owned by Fannie Mae, Freddie Mac, Bank of America, CitiMortgage, Chase Home Mortgage, Wells Fargo, and others, including title insurers.

No matter who bought the loan, MERS was purported to be the mortgagee—i.e., the party that would foreclose if a borrower stopped paying. Ridiculous? Of all newly issued U.S. mortgages, 60 percent list MERS—a unit of Reston (Va.)-based MERSCorp that has no employees of its own—as the mortgagee. "It's a total attack on the public system," says Christopher L. Peterson, a law professor at the University of Utah who has consulted in cases against MERS.

As MERS sped up loan processing, it created a giant legal hairball. According to Peterson, state judges in Kansas, Arkansas, and Maine have said that MERS has no standing in foreclosure proceedings under their states' laws if they can't produce the promissory note. In early October a federal judge in Oregon blocked Bank of America as trustee from foreclosing on a home in the MERS system. (MERS spokeswoman Karmela Lejarde says its standing has always been upheld, "either in the initial court proceeding or upon appeal.")

Judges also resent that would-be foreclosers show up in court representing themselves as vice-presidents of MERS even though they work for various loan servicers. Fixing the paperwork won't be easy because many of the notes have been lost or even deliberately shredded. The Florida Bankers Assn. told the state Supreme Court last year that in many cases "the physical document was deliberately eliminated to avoid confusion immediately upon its conversion to an electronic file."

As staggering as the projected stakes are in the housing crisis, at least you can put a number on them. What's incalculable is the psychic cost of a legal system that may well have let banks skirt the law. "The whole financial system is becoming a lot less transparent," says Hernando de Soto, a Peruvian economist who has written on the importance of well-defined property rights. "You can't size up risk anymore."

"We are killing our competition!" says Greg Whitworth. It's a perfect October day on the Jacksonville, Fla., campus of Lender Processing Services (LPS), and Whitworth, a division president, is rallying a crowd of 200 employees inside a big white tent on the sun-drenched banks of the St. Johns River. The company is celebrating what it calls "the Year of the Megas"—key customers Bank of America, Wells Fargo, and JPMorgan Chase—with a picnic of Mediterranean chicken salad, lemon cooler cookies, and sweet tea.

LPS is America's biggest mortgage-and-foreclosure outsourcing firm. Last year its revenue from default services climbed to $1.1 billion; its nearest rival, Santa Ana (Calif.)-based CoreLogic, takes in less than half of that. One gray patch hovers over the celebration: The back-office technology provider's runaway success means it is tangled up in the foreclosure crisis. "I was thinking about the dark clouds over the company," Joe Nackashi, the chief information officer, tells the crowd. "Sure, we have made mistakes. But I don't want to let that cloud this day."

LPS supplies much of the digital plumbing for the convoluted home-finance system. At the start of 2010 it said its computer programs were handling 28 million loans with a total principal balance of more than $4.7 trillion—or more than half the nation's outstanding mortgage balances. With 8,900 employees and total revenue of $2.4 billion, it sells software and manpower to most of the largest U.S. lenders and loan servicers. "The banks were not prepared for this volume of foreclosures, and that has played to the company's advantage as the outsourcer," says Brett Horn, associate director of equity research at Morningstar.

Consider for a moment the mountains of paper that a buyer signs at closing. The industry uses LPS computer programs and sometimes LPS employees to code, store, and transfer many of these records. When things work smoothly, mortgage servicers rely on LPS software to help monitor payments. When homeowners fall behind, LPS helps assemble the information needed to foreclose.

The business has a fast metabolism; as described in an in-house newsletter published in September 2006 by Fidelity National Foreclosure Solutions, a predecessor of LPS, a single 18-person "document execution" team brings Henry Ford's mass-production techniques to the foreclosure business. "The document execution team is set up like a production line, ensuring that each document request is resolved within 24 hours," the newsletter said. "On average, the team will execute 1,000 documents per day." That was four years ago, when the foreclosure rate was a quarter what it is now.

It was when some of those documents proved difficult to track down that trouble set in. If a foreclosure lawyer working on behalf of a bank or servicer asked LPS for an errant mortgage, for example, some company workers may have gone to extremes to keep the foreclosure assembly line moving, according to prosecutors and plaintiffs' lawyers. The Florida attorney general's office has alleged that in some cases, corners may have been cut, signatures forged, documents backdated. Industry employees have said in sworn depositions that "robo-signers" executed paperwork without reviewing it.

The U.S. Attorney's Office in Tampa and the state of Florida are investigating whether LPS and affiliated companies have fabricated documents and faked signatures. LPS employees "seem to be creating and manufacturing 'bogus assignments' of mortgage in order that foreclosures may go through more quickly and efficiently," the Florida Attorney General's Office says in an online description of its civil investigation. "We're concerned that people might be put out of their houses unfairly and unjustly," Bill McCollum, the attorney general, told Bloomberg Businessweek. In a third investigation, the U.S. Trustee Program, the branch of the Justice Dept. that polices bankruptcies, is looking into whether LPS is "improperly directing legal action" to hasten foreclosures, according to a 2009 opinion issued by the bankruptcy court in Philadelphia. A Trustee spokeswoman declined to comment.

On Sept. 29, U.S. Representative Alan Grayson (D-Fla.) denounced LPS on the House floor. "The system is so organized that there is a company, Lender Processing Services, who allegedly has created the means to systemize fraud," he said. Foreclosure-defense lawyers have filed suit against LPS in Mississippi and Kentucky, seeking class-action status and accusing the company of improperly splitting fees with pro-foreclosure lawyers. LPS shares have fallen sharply on the New York Stock Exchange and as of Oct. 20 were down 33 percent for the year.

LPS executives acknowledge slip-ups, but nothing amounting to fraud. In a federal securities filing in February, the company said it had "identified a business process that caused an error in the notarization of certain documents, some of which were used in foreclosure proceedings." LPS says it fixed the problem and closed the subsidiary in Georgia where it occurred. As for the processing team described in the in-house newsletter, LPS spokeswoman Michelle Kersch says the company decided such affidavit-execution services were "not an appropriate use of resources," and ended them in September 2008. Still, she adds, LPS "signs a limited number of documents for clients," including assignments of mortgage.

"We are dealing with sensationalism vs. facts," Jeffrey S. Carbiener, the company's chief executive officer, told analysts in an Oct. 6 conference call. "Isolated instances of errors" are bound to occur, but they "are now being brought out and pointed back to that robo-signing, making it sound like a large percentage of these transactions are invalid. That is just simply not the case." He called the class-action suits "fishing expeditions."

To keep the paperwork moving, LPS uses a variety of incentives. Top-performing workers receive monthLY "Drive for Pride" awards that sometimes include $500 in company stock and a spot in an underground parking garage. LPS also devised a coding system to grade outside foreclosure attorneys based on their speed in completing tasks. Fast-acting attorneys receive green ratings; slower lawyers are labeled yellow or red and may receive fewer assignments. "Bill will move quickly and expect you to be there to pull your weight," says Jerry Mallot, executive vice-president of the Jacksonville Regional Chamber of Commerce. "I wouldn't call the environment at his company kind and genteel."

Bill is William P. Foley II, a 65-year-old West Point graduate, real estate lawyer, and wealthy vintner. He made a fortune assembling the country's largest title-insurance company, beginning with his purchase in 1984 of Fidelity National Title. By 2003, Fidelity National, then based in Santa Barbara, Calif., had $10 billion in annual revenue and 32 percent of the U.S. title-insurance market. Frustrated by the high cost of operating in California, Foley was convinced by Mallot and then-Florida Governor Jeb Bush, an occasional golfing companion, to relocate to Jacksonville. A spokeswoman said Foley, who left the LPS board last year, wasn't available to comment.

Spun off in 2008, LPS is one of the city's largest employers, with 2,400 local workers. Its headquarters is in a 12-story office building on palm-lined Riverside Avenue, part of a complex that also houses Fidelity National Financial, the original title insurer, and Fidelity National Information Services, a 2006 spin-off now called FIS. Foley and his wife, Carol, split time between a home in Jacksonville's Ponte Vedra Beach, a ranch in Whitefish, Mont., and California, where Foley owns seven wineries. His compensation last year from LPS and the Fidelity National companies was $45.9 million, according to company filings.

The growth of LPS and other foreclosure outsourcing has dismayed even some professionals deeply involved in the process. Judge Diane Weiss Sigmund of the U.S. Bankruptcy Court in Philadelphia last year published an unusual 58-page opinion scrutinizing LPS because, she said, she wished "to share my education" with others in the system "who may be similarly unfamiliar with the extent that a third-party intermediary drives the Chapter 13 process." Her opinion described an attempt by the multinational bank HSBC to foreclose on the home of Niles and Angela Taylor, who had filed for bankruptcy protection from their creditors. Judge Sigmund ruled the bank's outside attorneys mistakenly tried to take the Taylors' home because of three disputed flood-insurance payments totaling $540. She blamed lawyer incompetence, exacerbated by a "slavish adherence" to an LPS computer system called NewTrak.

What bothered the judge, she wrote, was the way HSBC and its lawyers entrusted "the NewTrak system [with] the management of its defaulted loans in bankruptcy....With the HSBC data uploaded to an LPS system, LPS responds to the perceived needs of retained counsel....The retained counsel does not address the client directly." Overreliance on LPS contributed to six months of unnecessary hearings, the judge wrote. After she ordered the parties to settle the issue in person, they did so in just an hour. HSBC acknowledged that the property did not require flood insurance after all, and the truce cleared the way for resolution of the Taylors' bankruptcy plan.

Judge Sigmund, who has since retired, scolded one of HSBC's outside lawyers for being too "enmeshed in the assembly line" of managing foreclosures and ordered her to take extra ethics training. The judge instructed HSBC to remind all of its lawyers in writing not to defer excessively to computerized data systems. LPS, the judge added, did not deserve punishment because the outsourcer had merely provided tools that others misused.

McCollum, the Florida AG, suspects that in other cases LPS is more than an innocent facilitator. In April, he says, "a homeowner contacted us," alleging that LPS paperwork had been "forged in some way." His office opened a civil investigation. While McCollum, a Republican, would not provide specifics, subpoenas his office issued on Oct. 13 demand information on six employees of an LPS subsidiary called Docx. The attorney general's office is investigating whether the employees had the authority to execute mortgage documents for lenders and servicers.

One employee, Linda Green, at various times identified herself as a vice-president or representative of more than a dozen different banks and mortgage companies, according to the subpoena. "Docx has produced numerous documents, called assignments of mortgage, that even to the untrained eye appear to be forged and/or fabricated as the signatures of the same individual vary wildly from document to document," the AG's office says on its website.

LPS disclosed in February that the Tampa U.S. Attorney's Office is "reviewing the business processes" of the Docx unit. April Charney, a senior attorney with Jacksonville Area Legal Aid and an outspoken critic of LPS, says she was contacted by a federal prosecutor about the company earlier this year. The prosecutor informed her in April, she adds, that the Justice Dept. was seeking depositions from LPS and Docx employees. LPS says it shut the Docx unit in April and is cooperating with investigators.

"We feel like we have taken all appropriate corrective actions," Carbiener, the CEO, told analysts on Oct. 6. "We don't feel like this is going to have or will have a material impact on our financial results." Quite the contrary, he added, the foreclosure chaos could be good for business. Dogged by foreclosure-defense attorneys and government investigations, lenders and servicers will have to retrace their steps. "Those services that we provided initially we'll provide again," Carbiener said. "For those loans that are held in review, we have the opportunity to earn additional revenues."

The big banks continue to insist that documentation problems are the legal equivalent of rounding errors. On Oct. 18, Bank of America, which suspended foreclosures in all 50 states, played down that suspension and said it would resubmit foreclosure affidavits in 23 states after completing a speedy review of 102,000 files. Citigroup said its foreclosure process was "sound." JPMorgan Chase Chief Executive Officer Jamie Dimon told investors on Oct. 13, "If you're talking about three or four weeks, it will be a blip in the housing market." He added, "If it went on for a long period of time, it will have a lot of consequences, most of which will be adverse on everybody."

The "blip" scenario may be too rosy. Ohio Attorney General Richard Cordray on Oct. 19 expressed deep skepticism that Bank of America had managed to complete its internal review in just 21/2 weeks, saying, "I would caution that they still have significant financial exposure in many, many cases." Even if the homeowners deserve to be foreclosed on, paperwork problems could stand in the way. Mark J. Grant, a managing director for structured finance at Dallas-based Southwest Securities, wrote on Oct. 18 that what may lie ahead is a "Whangdepootenawah," a word from Ambrose Bierce's Devil's Dictionary ("disaster; an unexpected affliction that strikes hard"). Wrote Grant: "I doubt that you have followed the contagion down the path to the end because if you had, if anyone had...there would be a lot more retching in the streets and on Wall Street's trading desks."

Even if the I.O.U.s can be straightened out quickly, the fighting won't stop. Quoting unnamed sources, The Washington Post reported on Oct. 19 that the Obama Administration's Financial Fraud Enforcement Task Force is investigating whether financial firms committed federal crimes in filing fraudulent court documents to seize people's homes.

Meanwhile, a high-stakes fight is breaking out between the banks that made loans and the investors who bought them. A shot was fired on Oct. 18 when a group of major investors claimed that Bank of America's Countrywide Home Loan Servicing had failed to live up to its contracts on some of more than $47 billion worth of Countrywide-issued mortgage bonds. The group said Countrywide Servicing has 60 days to correct the alleged violations, such as failure to sell back ineligible loans to the lenders. According to people familiar with the matter, the group includes Pimco, BlackRock, and the Federal Reserve Bank of New York.

For banks that have just started making money again after near-death experiences in 2008, mortgage losses could delay the return to good health. Chris Gamaitoni, an analyst for Compass Point Research & Trading, a Washington financial advisory firm, estimates losses for the big banks of $134 billion from having to buy back bad loans from private investors and another $27 billion in losses from buying back loans from Fannie Mae and Freddie Mac. Other estimates are lower—from $20 billion to $84 billion—in part because those analysts are less certain than Gamaitoni that investors will succeed in court.

Bank of America, the nation's largest lender, has resorted to tough tactics in resisting repurchases of bad loans. Facing pressure from Freddie Mac, one of the two government-controlled mortgage financing companies, to buy back money-losing home loans with problems like inflated appraisals, overstated borrower income, or inadequate documentation, Bank of America issued a blunt threat, according to two people with direct knowledge of the incident. If Freddie Mac did not back off its demands for the buybacks, Bank of America officials said, the bank would take more of the new, more profitable mortgages it is originating these days to rival Fannie Mae, these people said. Freddie and Fannie, known as GSEs (government-sponsored entities), need a steady supply of healthy new loans to climb out of their financial hole.

The claimed threat from Bank of America, which was not put into writing, according to one of these people, was taken seriously enough that it has been discussed at several Freddie Mac board meetings, including one in mid-October. Some officials have urged the Federal Housing Finance Agency—the government conservator that has controlled Fannie and Freddie since they were bailed out in 2008—to confront Bank of America and prevent it from trying to play one against the other, which may be infuriating but is not illegal. "If the tactic worked, I'd be shocked and appalled," said Thomas Lawler, a former portfolio manager at Fannie Mae and now an economic consultant. "The GSEs are supposed to be run now to minimize losses to the taxpayers. Freddie ought to ignore the threat." FHFA Acting Director Edward J. DeMarco declined to comment, as did officials of Freddie Mac. Bank of America also declined to comment.

For policymakers, the dilemma is this: Enormous losses will cause problems wherever they end up. They could further harm Fannie and Freddie, which insure the vast majority of the nation's mortgages and have already received nearly $150 billion in taxpayer support. Or, if Fannie and Freddie succeed in pushing the burden back to the banks, the losses could cripple some of the major institutions that have just emerged from a government bailout. Bank of America faces $12.9 billion in buyback requests, and mortgage insurers have asked for the documents on an additional $9.8 billion on which they may consider seeking repurchases, according to regulatory filings. (Bank of America has put aside $4.4 billion for buybacks, and CEO Brian T. Moynihan says the costs will be manageable.) "The Treasury is very aware that they can't push too hard on this because if you do push too hard it might put the companies in negative capital again," says Paul J. Miller, an analyst at FRB Capital Markets. "There's a lot of regulatory forbearance going on."

Aside from ignoring banks' bad debts, Washington hasn't done much to fix the crisis. Both houses of Congress easily passed a bill this year that would have undermined centuries of law by requiring every state to recognize MERS-type electronic records from other states. Only a pocket veto by President Barack Obama kept it from becoming law.

One option, opposed by the Obama Administration and most Republicans in Congress but favored by Senate Majority Leader Harry Reid and others, is a national moratorium on foreclosures. It would last until regulators assure themselves that lenders have straightened out their foreclosure procedures. Opponents say it would delay the recovery of the housing market by preventing qualified buyers from getting their hands on foreclosed homes. Supporters of the idea, such as Dean Baker, co-director of the Center for Economic and Policy Research, say there are plenty of already foreclosed homes available for sale and thus no urgent need to add to the supply.

Goodman, the Amherst Securities analyst, says banks need to reduce the principal that people owe on their homes so they have an incentive not to walk away. "Ignoring the fact that the borrower can and will default when it is his/her most economical solution is an expensive case of denial," Goodman writes. If the home whose mortgage was reduced happens to regain value, 50 percent of the appreciation would be taxed, she says. Meanwhile, to discourage people from sitting tight in homes while foreclosure proceedings drag on, she would have the government tax the benefit of living in the home rent-free.

CitiMortgage is testing an innovative alternative based on the legal procedure known as "deed in lieu of foreclosure." The owner turns the deed over to the bank without a fight if the bank promises not to foreclose, lets the family stay in the house after the agreement for six months, and gives relocation assistance.

Other ideas: In a New York Times blog post on Oct. 19, Harvard University economist Edward Glaeser suggested federal assistance to overwhelmed state and local courts, as well as $2,000 vouchers for legal assistance to low-income families that can't afford to fight foreclosures. Bloomberg News columnist Kevin Hassett, who is director of economic policy studies at the American Enterprise Institute, says in his Oct. 18 column that the newly created Financial Stability Oversight Council should make the foreclosure mess its first big project, "take authority for solving it, and do so as swiftly as possible."

Speed is essential. The longer it drags on, the more the foreclosure crisis corrodes Americans' faith in their financial and legal systems. A pervasive sense of injustice is bad for the economy and democracy as well. Take Joe Lents. The Boca Raton homeowner hasn't made a mortgage payment since 2002, but he perceives himself as a victim. "I want to expose these guys for what they're doing," Lents says. "It's personal now."

Wells Fargo: Loan Repurchase Reserve Liability Of $1.3 Billion On $144 Billion In Loan Originations
by Tyler Durden - Zero Hedge

The only pages in Wells Fargo's typically labyrinthine earnings release were 26 through 30, in which Warren Buffett's bank, which continues to be in denial over Fraudclosure and still refuses to admit it also was a RoboSigner, discloses its putback/repurchase liability. The total disclosed repurchase reserve liability as of September 30 was $1.3 billion. This compares to Bank of America's total Rep and Warranty liability of $4.4 billion, which as we disclosed yesterday took a tiny provision of $872 million in Q3.

This means that when, not if, Wells is also subject to a comparable action by litigants such as the one from yesterday which included Gross, Fink and Dudley on the offensive, the hit to the bank will be that much more dire. And since Wells management now has zero credibility, and negative fiduciary duty to its shareholders, we are currently combing through the MaidenLane portfolio to determine which New York Fed securitizations include loans originated by Wells Fargo.

We are confident quite a few will make the cut. After all, as the bank itself notes, of its $1.8 Trillion Resi Mortgage Servicing Portfolio, "8% [or $144 Billion] are private securitizations where Wells Fargo originated the loan and therefore has some repurchase risk."

Drilling further down into this $144 number:

  • 55% are from vintages 2005 and prior
  • 83% are prime
  • Only $69 million of repurchases in 3Q10

Additionally, another $144 billion of the portfolio is non-current. Shortly we hope to have enough data to cojoin these two Venn circles and determine how much of the non-current loans were Wells originated. The 30,000 foot answer: a lot.

Below is a summary of the company's servicing portfolio:

And here is just how unprepared the bank is to an action comparable to that taken against BofA yesterday:


In other words, how many lambs does one slaughter to thank the gods for not being John Stumpf right about now?

The Bank Wins ...
New York Times Editorial

The Dodd-Frank financial reform law is supposed to correct the problems and abuses that led to the crisis. It could take years to implement. Meanwhile, Wall Street is still engaged in many of the same practices. That was abundantly clear in Louise Story's article in The Times this week on securities lending, a multitrillion-dollar activity, both before the crash and today.

In a typical securities lending deal, a pension fund, or other institutional investor, lets a bank lend some stocks to another investor, say, a hedge fund. (Investors use borrowed shares to "short" or bet against stocks.) In return, the hedge fund puts up a cash deposit. The pension fund then allows the bank to invest the cash, in presumably safe investments to eke out a little extra return.

Here's where things can get tricky. If the invested cash turns a profit, the deposit is easily repaid when the shares are returned, and the pension fund and the bank share in the gains. If the invested cash incurs losses, however, the deposit cannot be repaid in full, and the pension fund has to cover the shortfall.

Securities lending gone bad contributed to the implosion of the American International Group in 2008. Separately, Ms. Story reported that clients at JPMorgan Chase — including pension funds of New York State and the City of New Orleans — have ended up owing the bank more than $500 million to cover losses. JPMorgan shielded itself from some of the investments that hurt its clients — pulling out of one investment vehicle before it collapsed while clients with money in the deal lost millions of dollars. It also kept the profits from before the trades went south.

Several pension funds and foundations have brought cases against various banks in state courts, saying they were not warned of the risks and that the banks failed to act in the customers' best interest. The banks say they acted appropriately and intend to fight the suits. The Dodd-Frank law has directed the Securities and Exchange Commission to write new rules for securities lending, but has given the agency two years to act. The S.E.C. needs to move faster. If it needs more resources, Congress should provide them.

The S.E.C. needs to improve transparency and disclosure in securities lending. It needs to curb all potential conflicts of interest — among banks, brokers and other intermediaries. Done right, such rules could help reform securities lending. They could also begin to alter the norms of bank conduct, aptly described by Ms. Story as "heads, we win together. Tails, you lose — alone."

Private Tax Collectors: Invented In Ancient Rome, Now Run By Wall Street
by William Alden - Huffington Post

Sheila Rice, who sold her Maryland home to avoid foreclosure, was surprised to learn JPMorgan Chase was her property tax collector. But the bank can't claim to be the first private company to play the role of tax man: It's taken part in a more than 2,000-year-old tradition that, from its very start, has been tainted by abuse.

As the Huffington Post Investigative Fund reported this week, big banks and hedge funds in the U.S. have been quietly collecting taxes on hundreds of thousands of homes. The process, called "tax farming," is simple: A company goes to a local government and reimburses it for taxes that citizens aren't paying. In return, the company gets to act like an old-fashioned tax thug -- the kind rabbis condemn in the Bible -- charging up to 18 percent interest and thousands of dollars in legal fees, simply because it can. As the District of Columbia attorney general told the HuffPost Investigative Fund, there's "no oversight at all."

Like many great American traditions, the tax farming game was perfected by the ancient Romans. Provincial governors, and later Rome itself, sold tax-collection rights to private companies called publicani. As in modern America, this was a speculative bet -- a company paid a local government's tax debt, and then tried its own hand at recouping the loss. The Roman version was plainly brutal. In ours, the brutality is subtle. But in the estimation of one expert in ancient finance, it's just as bad: In our own way, we're sliding toward the conditions of ancient Rome, where private tax collectors employed soldiers to wring excessive amounts of cash from debtors.

"I fear that we're soon going to be where the Romans once were," New York University classics professor Michael Peachin said in an interview with HuffPost. "We're liable to rue the day -- not we, probably, but somebody will someday." Peachin was being facetious, but his exaggeration seems actually like understatement. In certain important ways, it's not a question of "someday" -- some of our hedge funds and banks, which strong-arm debtors like Rice with threats of foreclosure, are already there.

Modern American tax farms, like their Roman counterparts, lack government oversight. But the Romans, at least, had an excuse. The republic, and later the empire, was huge, and ancient technologies made transportation and communication difficult. As Edgar Kiser, of the University of Washington, and Danielle Kane, then of the University of Pennsylvania, say in a 2007 paper, that hugeness motivated Roman governments to turn to privatized tax collection in the first place.

With tax farms, the government knew it would get paid. It didn't care -- it couldn't afford to care -- how the publicani came up with the money. "They want their taxes, and they want people not to make trouble. And that's it," Peachin said, referring to Roman local governments. "Otherwise, they just don't do much of anything."

The major losers here, of course, were the taxpayers. Not only were they overtaxed, but publicani were free to be creative with enforcement. Violence was common. Peachin believes the publicani could even borrow troops from local governments. In the end, a focus on short-term profit undercut long-term strength. "Overtaxation only decreased tax revenue to the state in the long term through its negative effects on the tax base," Kiser and Kane write.

Modern U.S. tax farms don't use violence, but they do have the power to take their debtors' homes -- even for what starts as just a few hundred dollars in unpaid bills. And whereas ancient publicani physically couldn't communicate with regulatory powers, today's tax farms intentionally hide information. Banks and hedge funds, according to the HuffPost Investigative Fund, create dozens of companies that they use as fronts, obscuring their true identities. Today's regulators aren't located an empire away. They just haven't been regulating.

In both ancient and modern times, the guilt gets spread around. Publicani took investments, and investors shared in the profits, much like at JPMorgan or Bank of America today. The key difference was that Roman publicani accepted investments from senators who were ostensibly their regulators. Since this was in fact illegal, senators made sure their shares were unregistered. As Ernst Badian, Harvard history professor emeritus, puts it in a 1972 book, "The traditional division of functions between government and public contracting was dead." There have been no allegations of this type of conflict of interest in modern-day tax farms.

But the U.S. government today, as the Roman government did back then, enjoys what is often called a "revolving door" relationship with the financial sector. This passage from Kiser and Kane about senators and publicani sounds familiar: "Revolving doors exist when actors move back and forth between roles as principals and roles as agents. This causes an increasing likelihood of collusion between principals and agents, leading to poor monitoring."

Jim Rogers: China must increase interest rates, open up currency

Jim Puplava interviews Gerald Celente

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Founder of The Trends Research Institute in 1980, Gerald Celente is a pioneer trend strategist. He is author of the national bestseller Trends 2000: How to Prepare for and Profit from the Changes of the 21st Century and Trend Tracking: The System to Profit from Today's Trends (Warner Books). Gerald Celente's on-time trend forecasts, vibrant style, articulate delivery and vivid public presence makes him a favorite of major media.

The end of Britain's post-imperial ambition
by Philip Stephens - Financial Times

Britain is turning in on itself. Cool Britannia, self-confident globalism and liberal internationalism – all belong to a bygone era. Finance has gone out of fashion. The time has come to pull up the drawbridge and pay the bills. Introspection and austerity are the leitmotifs of the new age. Things are going to get grim.

This week David Cameron's coalition government unveiled its plans to repair the large hole in the nation's public finances. The prescription is for public spending cuts bigger that anything seen since the end of the second world war. The task? To eliminate a budget deficit of about 10 per cent of national income.

Taxes are going up and living standards are set to fall. Half a million public sector jobs are to be lost. Pay is to be frozen and pensions reduced. Investment in the physical fabric of the nation – roads and railways, schools, hospitals and housing – has been slashed. The BBC will be shutting down channels. George Osborne, the chancellor of the exchequer, was not exaggerating when he told the House of Commons that closing the deficit would be painful.

Britain is far from alone in embracing fiscal conservatism. Governments across Europe – and not just Greece and Ireland – have been running scared of the bond markets. The banking bust has left a sovereign debt crisis in its wake. The central bankers who blithely ignored the warning signs during the boom years are now the cheerleaders for austerity. Everyone wants to reduce their deficits in what is beginning to look like a race to deflation.

Washington stands out among the western crowd, still more concerned with sustaining economic growth and job creation than with tidying the fiscal arithmetic. The Europeans tut-tut. Germany sides with China in wagging a finger at US profligacy. Some of us thought the banks were to blame for the economic mess. Now we are told that spendthrift government has been the road to ruin. To suggest that John Maynard Keynes had something useful to say about managing demand during times of economic stress is to be branded a deficit-denier.

Landing in Tokyo this week, as Mr Cameron's government set about its ferocious spending squeeze, I could not help but think that Europe's future is perhaps Japan's recent past. Japan had its own crisis in the 1990s. Once through the worst, it decided it had better move quickly to balance the government's books. Too quickly: the result was a decade of no or low growth.

Mr Cameron's government prefaced Mr Osborne's spending announcements with a review of Britain's defence posture. The prime minister called it a strategic assessment. The officials and service chiefs charged with implementation complain the exercise has been little more than crude cost-cutting. Either way, Britain emerges a diminished power.

The government is holding on to some of the emblems of global reach. The navy is to get two new aircraft carriers. The Trident nuclear deterrent will be modernised. But there are insufficient funds to properly equip the carriers with fast jets, so one will be mothballed almost as soon as it is completed. Behind the "pocket superpower" facade, the armed forces are to be hollowed out.

Trident meanwhile has become a pawn in Mr Cameron's coalition agreement with Nick Clegg's Liberal Democrats. In one of the grimier trade-offs in the spending package, the prime minister has agreed to delay the Trident update in return for Mr Clegg's backing for higher tuition fees for university students. There were brighter spots in Mr Osborne's statement. Britain alone among the big industrial nations is sticking to its pledge to increase spending significantly on overseas aid. Some argue that gives Britain a lot more authority in the councils of global affairs than another squadron of fighter jets.

On the other hand, Mr Cameron intends to shrink the nation's diplomatic footprint. The Foreign Office faces a cut of about a quarter in its budget. Ambassadors have been told to put traditional diplomacy to one side; their first priority henceforth is to act as an on-the-spot sales force for exports and investment opportunities. Britain, the prime minister declares, is "open for business".

That is as it may be, but it is also largely closed to foreigners – a confusing message for the rising economic powers with which the government wants to build closer relationships.
The general election saw something of a backlash against the sharp influx of immigrant workers during 13 years of Labour government. Nothing can be done to stem the flow from other European Union states, so Mr Cameron has called a halt to immigration from elsewhere. The best and the brightest from the emerging nations will have to find more hospitable destinations.

It is hard to quarrel with Mr Cameron's decision to set a deadline for the withdrawal of British troops from Afghanistan. US president Barack Obama, after all, has done much the same. Building a shiny new democracy in Afghanistan was not an ignoble ambition. It has proved a hopeless one. Quite a lot of people will tell you that a more general retreat from influence was also inevitable. Tony Blair's premiership was but a small detour on the long road of relative decline. Britain was living on borrowed time and borrowed money. Cool Britannia was a last post-imperial hurrah.

The world now belongs to China, India, Brazil, Turkey and the rest. Mervyn King, the governor of the Bank of England, talks of a coming decade of sobriety. Others remark – and rightly so – that rebuilding economic strength at home is anyway an essential precursor to securing influence abroad.

The deficit must be dealt with later if not sooner. Britain cannot indefinitely pretend it is possible to match continental European standards of welfare provision with US levels of taxation. A political choice has to be made. The lesson from the wars in Iraq and Afghanistan was that even before the cuts military commitments were running far ahead of resources. All of these things are true at least in part. On the other hand there must surely be a story of Britain's ambition that reaches beyond balancing the books. Mustn't there?

UK spending review: how did the banks get off so lightly?
by Jill Treanor - Guardian

Two years ago this month, a pale and visibly shocked Gordon Brown promised that "irresponsible behaviour" by Britain's bankers would be "punished". The prime minister was angry at the level of public money needed to support banks, which eventually ran into hundreds of billions, after the credit-fuelled system expanded out of control in the run-up to the banking crisis of October 2008.

Two years on, as the taxpayer endures more pain while the government that replaced Brown's axes £81bn from public spending, the banks have returned to practices they enjoyed in the good years, seemingly bearing few scars of the punishment promised. After the coalition unveiled its £2.5bn-a-year bank levy yesterday, unions were quick to seize upon the apparent unfairness in the treatment of banks while the poorest and most vulnerable in society were being hardest hit by George Osborne's austerity Britain.

"Those who caused the recession will be cracking open the champagne today, while the full extent of the attacks on the living standards of poor and middle income Britain are starting to sink in," said Brendan Barber, general secretary of the TUC. Referring to MPs who endorsed the cutting of benefits in the chancellor's spending review, Barber said: "With government MPs cheering cuts in support for some of the most vulnerable in society, it looks like we have gone back to the 1980s 'greed is good' culture."

As Osborne wielded his axe and warned of the loss of almost 500,000 public sector jobs, banks had given a taste of the bonuses staff may enjoy this year. Goldman Sachs, the Wall Street bank with a large British operation, was attempting to show restraint but managed to set aside $370,000 (£236,000) per employee in "compensation" for the first nine months of the year. It is less than the $527,000 seen at this stage a year ago, but still demonstrates the potential payouts being lined up in the City for February, when they are traditionally handed out.

Britain's major banks give their updates on trading next month, and are expected to once again show healthy profits – and big payouts being stored up in bonus pots. The Centre for Economics and Business Research has predicted £7bn is likely to be paid out this year, while acknowledging that some jobs have been lost in the City too.

Gavin Hayes, general secretary of centre left pressure group Compass, blames politicians: "Our political leaders haven't stood up to the banks. They haven't taken the action necessary." While Labour missed opportunities, the new government was too slow to initiate change. "David Cameron said there would a day of reckoning for the banks. He simply hasn't delivered it," said Hayes.

Why? One reason is that the City and the banking industry has an army of highly paid lobbyists. The British Bankers' Association was quick to point out that the banks paid £26bn in taxes to the Treasury last year while the Corporation of London points out that the City in its broadest sense provided £66bn of tax revenues in 2009, employed a million people, and accounted for 10% of GDP.

"UK is still over-reliant on financial services for tax and growth. Whilst that's the case the politicians are not going to stand up to them," said Hayes. Tony Greenham, at the New Economics Foundation thinktank, points out that the current government is also less inclined to blame banks for ideological reasons. "Blaming the banks is a bit inconvenient for a government that wants to blame the overspend in the public sector," said Greenham.

The banks argue they can hardly be blamed for causing the crisis. Angela Knight, chief executive of the BBA, said today that lax monetary policy and regulation could also take the blame, as could government borrowing. "It's extraordinary to think that £2.5bn is 'nothing'. It's just wrong," Knight said. Greenham also argues that it may be too soon to judge the government. "They do promise that they are looking at a financial activities tax, and looking at actions on bonuses. You might have to reserve judgment for now," he said.

The government has certainly made other pledges to target banks. Osborne insisted this week that the government was still looking at a financial activities tax, or FAT, on profits and pay in the broader international context. The coalition has also set up an independent commission to look at whether big banks should be broken up to encourage competition and reduce the risk of another taxpayer bailout – a move that has infuriated big banks such as Barclays and HSBC, which have issued veiled threats about moving overseas.

The City minister, Mark Hoban, defended the government's recordtonight, and hit out against the previous government, which had imposed a bonus tax last December that brought in £2.3bn for the exchequer. "Whilst the previous Labour government opposed our plans to introduce a permanent levy, we have gone ahead and done so. This will yield more every year than the bank payroll tax delivered in one year. "The levy also actively encourages banks to move away from riskier funding that threatens financial stability, and the money raised will go towards reducing the record budget deficit we inherited. We think this balances fairness with the competitiveness of the UK banking sector," Hoban said.

The coalition also promises to stop "unacceptable bonuses". The business secretary, Vince Cable, warned in September of the "train crash" facing banking if big bonuses were paid out this year without outlining specific policies. The Financial Services Authority has changed the structure of bonuses – if not the level – ensuring that bonuses paid totally in cash are no longer feasible. Instead they must be deferred over three to five years and, under European proposals from the Committee of European Banking Supervisors, must be no more than 20% in cash with the rest in shares.

Knight said: "Most of the bonuses are being decided outside the UK [by foreign banks] and other countries don't see bonuses in the same way [as the UK]. The overwhelming majority of bonuses are for £3,000 or £4,000; for larger bonuses, the targets have to be approved by the FSA and be paid in shares and held back for several years." Bonuses are the potential melting pot for public anger, says Hayes: "I do think there will be huge public anger when the banks report their bonuses."

Cable's business department got a taste this week when it was stormed by protesters angry at public sector cuts. Such a scene may yet be commonplace, and make the government honour pledges to punish the "irresponsible behaviour" some blame for the economic crisis.

Food Stamp Usage Soars Among US Working Families
by Mark Niesse - Huffington Post

Lillie Gonzales does whatever it takes to provide for three ravenous sons who live under her roof. She grows her own vegetables at home on Kauai, runs her own small business and like a record 42 million other Americans, she relies on food stamps. Gonzales and her husband consistently qualify for food stamps now that Hawaii and other states are quietly expanding eligibility and offering the benefit to more working, moderate income families.

Data from the U.S. Department of Agriculture reviewed by The Associated Press shows that 32 states have adopted rules making it easier to qualify for food stamps since 2007. In all, 38 states have loosened eligibility standards. Hawaii has gone farther than most, allowing a family like Gonzales' to earn up to $59,328 and still get food stamps. Prior to an Oct. 1 increase, the income eligibility limit for a Hawaii family of five was $38,568 a year.

"If I didn't have food stamps, I would be buying white rice and Spam every day," said Gonzales, whose Island Angels business makes Hawaiian-style fabric angel ornaments, quilts, aprons and purses. Eligibility for food stamps varies from state to state, with the 11 most generous states allowing families to apply if their gross income is less than double the federal poverty line of $22,050 for a family of four on the U.S. mainland. The threshold is higher in Alaska and Hawaii.

With more than 1 in 8 Americans now on food stamps, participation in the program has jumped about 70 percent from 26 million in May 2007, while the nation's unemployment rate rose from 4.3 percent to 9.2 percent through September of this year. "We've seen a huge increase in participation due to the economic downturn," said Jean Daniel, a spokeswoman for the USDA's Food and Nutrition Service. "That's the way this program was designed."

In addition to helping alleviate economic pressures, many states embrace the popularity of food stamps because their cost – $50 billion last year – is paid entirely by the federal government. States are only responsible for paying half of their programs' administrative costs. Food stamps have been blasted by some Republicans in this midterm election season as just another federal entitlement program, with former House Speaker Newt Gingrich framing the vote as a choice between "the party of food stamps" and Republican policies that create jobs.

Participants in the food stamp program, technically called the Supplemental Nutrition Assistance Program, receive a per person average of $133 per month to buy staples including milk, bread and vegetables. Shortly after Hawaii announced it was raising its eligibility limits starting this month, three carloads of 10 seniors drove to the Kauai Independent Food Bank to ask if they qualified. Nine of them did, said Judy Lenthall, executive director for the food bank, which helps people apply for food stamps. "We saw an immediate and overwhelmingly wonderful response," Lenthall said. "It surprised us how fast it's spreading."

States that have relaxed food stamp eligibility did so by moving to a system where applicants could qualify based on their income, and their other assets such as real estate, vehicles and savings accounts could be ignored. Basing food stamps on income alone allows the newly unemployed and the elderly to seek government food aid without having to first sell their property or exhaust every dollar they've earned, said Sue McGinn, director of the food stamp program in Colorado, which will expand eligibility beginning in March. "They won't have to wipe out their savings to apply for benefits," McGinn said.

Many of these states also raised income limits, although applicants still have to show they're essentially living at the poverty line after accounting for allowable deductions, including elder medical expenses and child support. "It helps moderate and low-income people who are struggling," said Stacy Dean of the Washington-based Center on Budget and Policy Priorities. "They're doing everything we want: they're working, paying all their bills, taking care of their kids, and they still don't have enough money at the end of the month to put food on the table."

Since 2000, the only states that haven't enacted the lower food stamp eligibility requirements are Alaska, Arkansas, Indiana, Iowa, Kansas, Missouri, Nebraska, South Dakota, Tennessee, Utah, Virginia and Wyoming. In Hawaii, where everything from milk to gasoline is typically the highest in the nation, the changes are welcomed by Gonzales and others. "As long as my kids have good food, that's all I care about," Gonzales said. "It makes a tremendous difference."

Ruining Christmas: 1.2 Million Will Lose Benefits By Year's End Unless Congress Acts
by Arthur Delaney - Huffington Post

If Congress fails to reauthorize extended unemployment benefits by the end of November, it will spoil the holidays for 1.2 million people, according to the National Employment Law Project. "The program deadline falls in the midst of the holiday season, when unemployed families do their best to put food on the table and hold on to their family traditions," said NELP in a release. "It's also a time when the economy, especially the retail sector, is counting on consumer spending -- supported in part by unemployment benefits -- to maintain the recovery."

Around this same time last year, NELP raised the alarm about Congress playing Scrooge as expiration loomed for federally-funded extended benefits. Congress dutifully reauthorized the benefits, but that was before several months of jobs gains, GDP growth, and the coming campaign season brought about a surge in deficit worries among conservative Democrats in the House and Senate. Whether Congress will act on time this fall is an open question.

Over the summer, the Senate spent nearly two months fighting over the reauthorization as 2.5 million people who've been unemployed for six months or longer missed checks. States fund jobless aid for the first 26 weeks after a layoff, and during recessions Congress routinely makes additional benefits available. Right now in the hardest-hit states, the unemployed are eligible for an additional 73 weeks of benefits. According to the latest data from the Labor Department, 4.3 million people receive state benefits and 5.1 million people receive federal benefits.

There will be very little time to reauthorize the federal benefits, as Congress returns from its recess mid-November and the deadline will be two weeks away. NELP estimates there will only be three or four likely voting days. "Today's unemployed families and the nation's economic recovery urgently need for Congress to prioritize reauthorization of the federal UI programs during this brief window. Neither jobless workers nor the economy can afford another round of prolonged debate and destructive delay, yielding another lapse in benefits."

An additional complication is the fact that some Senate seats currently held by Democratic appointees may be immediately re-filled with Republicans, who have been steadfast in opposition to reauthorizing the benefits without massive spending cuts elsewhere in the budget. Given Congress' demonstrated willingness to go on vacation even though jobless aid will lapse in their absence -- it actually happened three times last year -- NELP has launched an aggressive lobbying effort.

Seven Banks and One Credit Union Closed by Regulators
by Ken - DepositAccounts

This was a busy Friday for the FDIC. Seven banks failed bringing the yearly total to 139. Two banks failed in Florida, two in Georgia, one in Illinois, one in Kansas and one in Arizona. The 2 failures in Florida brings the 2010 total of bank failures in Florida to 27 which is the highest number for any state.

Six of the seven banks that failed were acquired by other banks. However, the FDIC wasn't able to find a buyer for First Arizona Savings, A FSB. Thus, the FDIC will be sending checks to the depositors. According to the FDIC's press release, the uninsured funds were estimated at $5.8 million. So several depositors may lose some of their money. For the vast majority of the 2010 banks closures, the FDIC has been able to find buyers who have assumed all deposits including those above the FDIC limit.

The largest bank that failed this Friday was Hillcrest Bank in Kansas which had 41 branches and $1.65 billion in assets. The buyer of this bank was a newly-chartered bank subsidiary of NBH Holdings Corp.

One of the banks that failed in Florida, Progress Bank in Tampa, had been offering a 4% high-yield reward checking account. However, the rate fell to 0.85% last March which was likely due to them being labeled as a less-than-well capitalized bank. Once a bank reaches that status, it has to keep its deposit rates under the FDIC rate caps. The FDIC considers reward checking accounts as interest checking accounts so that's why the rate went down that much. This is one reason to avoid weak banks when you're looking for a reward checking account.

In addition to seven bank failures, there was also a credit union liquidation. The NCUA announced this liquidation on Thursday. Unlike the FDIC, the NCUA rarely waits for Fridays. That brings the total number of credit union liquidations this year to 16.


Hombre said...

Ilargi - "Jeff Rubin may dismiss Stoneleigh for being a "non-economist", but this particular line of thinking, i.e. "the economy will start growing, no questions asked", dismisses Mr. Rubin precisely BECAUSE he is an economist.

Amen, truer words were never spoken, IMO!

We all have heard Pres Truman's quote about the economists telling him... "on the one hand"... or "on the other hand", etc. and he stated he was looking for a "one handed economist!"
I think the StoneLady has a proper handle on our predicament! Hers is a comprehensive understanding of finances and resources that is not fixed but integrates the human element as well.
(BTW I love the old car/truck pictures)

Candace said...

From listening to the interviews it sounds like the area of divergence was what happens in China in the near term. Stoneleigh is saying that they are in a bubble and are likely to have a contraction and Rubin seems to think that China will continue to have an expansion which will compete for current resource production and run up the price. But I am very new to trying to work this information out.

I really appreciated the presentation and am looking forward to the next installment!

lautturi said...

Market Harmonics has an interesting Nasdaq sentiment chart to behold. People on the stockmarket are way, waaaay more bullish now than 2007 and 2008 - or should we say, ever before? Time for trend change?

Another issue is about income for this site (and mine, too). Have you tried Flattr (worlds first social micro-payment system)? It allows readers to donate to different sites very easily. And you would get TAE listed on Flattr-site which appears to be growing quickly. Could be a chance to catch younger people with the message, perhaps?

Love the interviews.

Jim R said...

Draft & IMN,
Just wanted to repeat: my expectation for nuclear power is very much in line with I&S and JMG.

I am just now listening to Stoneleigh saying "Nuclear power is not particularly compatible with social upheaval.." -- on JMG's blog a couple months ago, there was a nuke advocate asserting that the waste problem is manageable and that the radiation could be down to background levels in only 500 years. I responded by asking the commenter what language his ancestors were speaking 500 years ago? It's good to hear Stoneleigh repeat the fact that the human attention span is considerably less than that.

scrofulous said...

Enjoyable talk by Stoneleigh, but it brought up a couple of thoughts:

While for many reasons I think nothing is possible re renewable energy as a fix, I disagree that nothing could be done merely for the reason we are in a depression. Using the Great depression as an example much of the infrastructure that formed a base for recovery was done then, for instance the Grand Coulee Dam. This was top down management at work rather than the hand of Adam
Smith in action. It is also the reason that I feel that any bubble China may experience will have a different impact than a similar bubble would have for us in the west.

Another thing, when it is mentioned that debt is bringing demand forward could you not be more explicit and say the debt is spending tomorrows money today? It would be easier for most to understand. The trouble for many about economics is that is mystified, I guess because it needs to sound complicated to allow experts to prosper.

zander said...

I've come to realise Bill Black is truly a man of integrity and decency, and, like the hosts here, has the knack of putting forward a cogent argument that is difficult to disagree with.
(Bageant, Celente, - ditto)


Shamba said...

Our Stonelady is quite the coming thing in peak oil circles!

thanks for the various link to her invterview with Puplava. I have dialup and find the mp3 and the Windows Media options work pretty well for me. I do have to wait for them to load(?) before I can listen but it's usually worth the wait anyway.

I'd love to get the Century of challenges presentation but I'll have to wait for the DVD.

thanks for Ilargi for keeping the home fires burning here!

peace to all, shamba

Phlogiston Água de Beber said...


I did not mean to imply that you might be on the nuke bandwagon. Sorry, if it read that way.


Regarding the building of infrastructure during a depression, it is worth keeping in mind that everything is different this time. Except for the destruction of wealth.

In the 1930s the government had very little debt. We were a creditor nation and oil exporter. The most industrialized nation on earth and almost self sufficient in resources. A large percentage of the population lived by performing hard labors. They were willing and just as importantly able to go where work was offered and accept low wages to do work more properly done by machines.

In this depression, none of that is true. The FED can keyboard the credit to pay for it. But, will the banksters really be willing to take that credit and risk it on expanding infrastructure that is currently underutilized? Given all the rear-guard actions they are having to defend against at this time, I think not. The government is already way too deep in debt to borrow that kind of money for anything except Pentagonian absurdity.

So to summarize my position, I agree that massive projects are possible in a depression, if the circumstances are right. I don't believe that would pertain to a nation that's been crazy all these years.

Phil said...


Today's nuclear proponents seem to see nuclear as some magical technofix, without any caveats, and without any discussion of the moral and ethical dimensions.

At least the late Alvin Weinberg had the intellectual honesty to remark that nuclear power was a Faustian bargain and would require a "nuclear priesthood" to deal with its legacy.

The other "long term" technofix which raises all sorts of ethical questions (not to mention technical ones) is the new panacea much loved by the fossil-fuel peddlars, Carbon Capture and Storage. Despite the obvious fact that nature's capturing and storing of prehistoric carbon created an environment hospitable to mankind and many other species, we're hell-bent on uncapturing it, using the imaginary technofix of CCS as a justification.

That we'll have to capture and store it in a form which won't leak back into the atmosphere for thousands of years, and that a pilot CCS programme should run for at least a century before deciding if it is viable, the idiots still market it as a "have your cake and eat it" cure-all.

That said, I was delighted to hear Stoneleigh's comments on nuclear. I've been saying much the same thing for the last 40 years.

scrofulous said...

Hi IM,

Right on, particularly about oil which could be bathed in and wallowed in like water at that time. Now we can merely spray it under our arms to give the impression of being well to do:)

scrofulous said...

Hi again,

I was just petting my dog's golden long fur and all the while she fondly looked up to me with her beautiful brown eyes, and the thought came to me that, that while one is fondling one's pet the thought never comes, in these desperate times, of where one's next meal will come from.

Actually, I really was petting my dog, but my thought was one more of how even in bad times to be in touch with something that did not really worry about much,least of all about the economy seemed somehow quite relaxing... So dinna worry it Fido, Papa will not eat his baby doggywog, now just fetch me that spoiled little fat kid from next door, okay?

Phlogiston Água de Beber said...


If you and the dog can't quite finish the fat kid, send the leftovers my way. No sense let'n him get any more spoiled. :)

I know what you mean about how relaxing contact with our dogs and cats can be. I say save Fido for the last meal and if we have any decency about us, we'll let the Fidos eat us.

anon10 said...

Depression Within a Depression

jal said...

The G20 finance ministers have gotten together and are placing their bets.
Hummm! That means that someone else is taking Timmy’s bet.
I wonder why? What do they know that we don’t know?
Somebody is going to lose big time.

Gravity said...

Decent interview, good focus on oilprice tensors and energy flux density of alternate sources, encouraging positive overtones relating to community-based relocalisation, although a post-credit collapse dark age lasting only a few decades might be overly optimistic. In light of the dysfunctional miscomprehension of differentiable moneyfolding still adhered to by many professional economists and monetarist ideologues, it may take a while longer to fabricate a coherent gravity-based money system.
How many economists would it take to realise capital is subject to gravity? And not just by behavioural analogy; engines of leverage require this boundary condition on capital, and moreover for this salient fact to be conveniently ignored or forgotten by the majority population to perpetuate said engines, behaviourally and mechanically, whereas its also the reason such constructs invariably fail.

Phlogiston Água de Beber said...

Mr Orlov's latest post How (not to) organize a community may just be one of his most well worth reading essays. It is chilling in its implications for so many of us. It is probably also dead on.

Draft said...

I.M. Nobody -

Orlov's post is nerve-fraying. And there are parts of it that I would sincerely like us to brainstorm about. Like this bit:

Perhaps the best one can do is to gather all the unreasonable people together: the outcasts, misfits, eccentrics and sketchy characters with checkered pasts and nothing better to do. Give them the resources to provide for their own welfare and keep them entertained. Keep the operation low-key and under the radar, and put up some plausible and benign public façade, or your nascent community will be discovered, shut down and dispersed by the pre-collapse officialdom.

In the abstract, this sounds like a decent plan, but concretely I have no idea what this would look like. It almost sounds like plenty of artists' collectives or nutty militias out there, but I can't imagine those sorts of groups to be functional in the sort of collapse Orlov envisions. Anyone have thoughts - a vision - of how this very-different-sort-of-Transition group would look?

Erin Winthrope said...

Hey Orlov,

How to succeed in these troubled times:

The best things are often the most mundane.

Everyone wants to be a hero and start something NEW and DIFFERENT.

Build a community.

Nobody builds communities. If you think you can build a community, then you failed before you began.

It won't work. The more different and new you try to get, the more spectacularly you're going to fail.

You don't know the right people. You don't have the right friends. You don't have the right resources.
You don't have the right skills.
You won't learn what you need to know.
It isn't a matter of learning and wanting.

You are middle class.

You will be told what to do.

Listen....follow....say thank you.

Nassim said...

These past two weeks, there were no fewer than 2 articles in the FT - by different writers - implying that the UK's military is to become little more than a "Potemkin Village"

Outside Edge: Blow-up tanks for inflated times
How the carriers sank a defence strategy

Many of these capabilities, however, have been hollowed out. They share the Potemkin village characteristics of the carriers. Thus, if the army has been shielded from the worst of the cuts because of its present engagement in Afghanistan, the numbers of troops it will be able to deploy for any sustained period is to be reduced over time to a pretty paltry 7,000.

In view of the carnage that the Pentagon has been denying any knowledge of - denials which have been proved to be lies by Wikileaks - perhaps these military cutbacks are a good thing.

It seems to me that the UK has decided to return to a two-class system post-haste and to forget once more about the delusions of Empire. If the troops are not there, they won't be asked for them by the US.

Erin Winthrope said...


Does a grain of sand build a beach?

Does a seedling build a grassland?

People don't build commmunites.
People are components of communities.

Circumstances build communities.

Grandma lost her social security payments. Grandma lost her house. Gandma can't afford to buy food. Grandma moves-in with you. Ditto for uncle Tommy, cousin Vinny, and your best friend Louise.


You've got yourself a community.

zander said...

Hey logout, your dog might be interested in this. :)


Ilargi said...

Transcript Puplava-Stoneleigh interview added


Erin Winthrope said...

Not one single community of any substance will emerge from any of these lectures or video downloads.

Given that Stoneleigh seems to understand power structures, I'm more than a little surprised that she misses this obvious point.

People don't listen to a lecture and then build a community. They don't shake hands and meet people with common interests and then "decide" to build a community prior to a crisis.

There is a fundamental misconception about nature of the power relationships that underlie community.

Look at a map and put your finger on any city or even a small town. Research how that community emerged.

Communities emerge because of new opportunities for resource extraction and power concentration. Nothing else survives.

Erin Winthrope said...

Tomorrow's Growth:

India Rising...
from the Sunday NYtimes:

“The story of Aurangabad is the story of India,” said Debashish Mitra, head of sales and marketing for Mercedes-Benz in India. “There are many cities like Aurangabad, where Indians have money but were not indulging in luxury; they were always in a saving mode. But now that is changing. People want to spend, and feel they deserve luxury.”

India: I don't see a demand collapse

Erin Winthrope said...

Tomorrow's Growth:

Latin America Rising...
From Friday's WSJ:

"Brazil's need for better roads, railways, ports and low-cost housing should continue to fuel sales for makers of construction, mining, agricultural and other machinery for several years."

Brazil: Demand for years to come

Erin Winthrope said...

Tomorrow's Growth

China Rising....
from Sunday NYtimes:

"China’s oldest and boldest agglomeration of rock, funk, punk and electronica.....a four-day free-for-all of Budweiser, crowd-surfing and explosion of festivals across China. In 2008, there were five multiday concerts, nearly all in Beijing. This year there have already been more than 60, from the northern grasslands of Inner Mongolia to the southern highlands of Yunnan Province."

China: I don't see no collapse in demand

Ilargi said...


Portrait of Jon Stewart


Hombre said...

James - Short term, your notions have merit and historically communities often did evolve as economic growth units (or religious units) etc., but don't continue to think inside the "free energy" box.
We are crossing a threshold unparalleled in history. Where will these expanding (energy demanding)communities in the Far East and South America be in a decade or two?
From whence will the resources, (financing and energy) come?
No, there may be no collapse in demand (or population), but... what about supply?

bluebird said...

@Natimukjen - Thank you for the transcript of the Puplava-Stoneleigh interview

@Ilargi - Thank for for adding a link to the protrait of Jon Stewart Bloomberg video.

@I. M. Nobody - Thank you for posting a link to Orlov's latest.

And thanks especially to Ilargi and Stoneleigh who maintain this blog.

scandia said...

@James,appreciate your comments on community. I struggle with the concept in that I think community arises organically , out of need. My own personal life experience is one of moving from community to community as my needs change, as my understanding develops.
All that said Stoneleigh is planting seeds around the world. The seeds she planted when she spoke in Guelph have taken root in individuals, have given some substance to a community of connection.We share information, give each other a head's up, etc...some have made deeper commitments to the Transition movement, others are securing their finances and home base.I am dipping a toe into municipal politics.
I don't have any brilliant insights on community. In fact as a " loner" ( INTJ) being in community in a physical/proximity sense is exhausting. I do my best in short time frames to stay connected, to be a connection for others.I give a helping hand in small ways.

@Nassim, Re the UK release from the burdens of Empire the Canadian power elite are most eagar to take their place. Seems the UN's choice of Portugal over Canada for the Security Council seat was unexpected by Ottawa and Washington. As a Cdn I am relieved the burden of Empire passed us by for the moment. The gov't is busy building an army, buying fighter jets etc...all in service of another Empire in decline- America.
I see the investment in military force as the means of a fascist state to capture resources and markets. Alas the proles don't get that motivating agenda.

@Stoneleigh, Just listened to the Puplava interview. I do hope he sets up a debate with Jeff Rubin! Your insights on a drunk work force running a nuclear plant scared the bejesus out of me.

@ Gravity, good comment on the Stoneleigh interview. Your phrase,",,,engines of leverage require this boundary( GRAVITY)condition on capital. Is that by way of saying what goes up must come down:)
That is going to be a hard sell to an age of endless growth and magical thinking.

bluebird said...

Hmm, James. One name for today. Usually, there are several different names for your ID.

Ilargi said...

Communities have through time formed for many reasons. Protection through strength in numbers is certainly one of them, and it might well be the no.1. I don't like the term "intentional communities" very much, but it is silly to say no community's ever been established for reasons other than resource extraction and power concentration, unless you also say that communities such as Stoneleigh talks about fall into that same category.


Stoneleigh said...


We can only do what we can do, and that is very much better than doing nothing. I certainly don't pretend to have any magical solutions to community creation, but I am still determined to do whatever is in my power, however small. I am trying to blunt the impact of human over-reaction to the downside, which always makes things much worse than they need have been. I realize that trying to keep people in a constructive headspace will be very difficult in a sea of fear and anger, both of which are very catching, but a 'psychological innoculation' has a chance of achieving that, at least for some. Just because something is difficult does not mean it isn't worth the effort.

scrofulous said...

New post on Americacanada, a good Canadian economic information blog that deserves more exposure, so lets pass the site along, okay, eh!

Hombre said...

Ilargi - I really appreciated the Jon Stewart video. I have been a fan of Stewart (and Colbert) for some time. This was an enlightening exposure of how his career evolved. Kudos!

Bluebird - About "James" for today, maybe we should guess what it will be tomorrow! ;-)
Er... Rutherford? ...ElvisII? ...Eli? That's it! Then if he writes enough he can meld it into "The Book of Eli."

StoneLady 11:45 - Very well said!!

jal said...

@ Stoneleigh
I find that there is a main point that keeps getting lost, (or ignored), in all the discussions about energy.

“A lot of these things, (alternate energy supplies), work tolerably well in niche applications, and they can help at a small scale, but you are not going to run an industrial society on them. There is no way that a United States, at its current level of demand could ever conceivably be energy self-sufficient; it is not physically possible. That really is the problem.

More to the point ... you are not going to run a 2010 industrial society on them with the present population and with the population growth expectations. That really is the problem.

There must be an adjustment, a reset, of everything. No more “Business as Usual scenario”.

It is obvious that the rich and powerful will aggravate the supply and the price to obtain/get/continue their dreams. Of course, the result will be to send more people into poverty. (ie. $2.00/day wage equivalent of India and China.)

A future growth business is Undertakers.


scrofulous said...

Just begun reading a new book "Britain in the Middle Ages" by Francis Pryor amd the thing I gather from it is that the further from the centre of the Roman empire one went, the less abrupt was the change as that empire failed. For example in Britain one might not even have noticed the event other than that the door to door salesman had changed from speaking Latin to speaking Syrian, or Iranian. Though much may be different this time, it might still be something to keep in mind for any who plan a movement for safety.

If I could speak Spanish well enough to understand humour in that language I think I think this Canadian Goose would fly south and join El Buzzard. Might do so anyway and just buy myself a Spanish version copy of Crack-a Joke

Greg said...

Very good interview.

I do have comments about two points she made however.

One was when she said that "fiat currencies always fail"

Thats true about all currencies because currencies are the invention of governments and thus far all governments have failed at one time or another. I dont know if she's advocating a gold standard (Yiiikes I hope not!!) but fiat currencies are inextricably linked to the govts that issue them. If the govt fails, they fail.

Her other comment was about depression economics and she said that govts would "have no money". Sorry, but its absurd to say that govts would have no money since govts are what ISSUES MONEY!

Other than those two points I agree with most of what she says.

Phlogiston Água de Beber said...


I thought Dmitry did a good job of describing what such a community would look like. It sounded more or less like a street gang to me. Trying to draw such a group together pre-collapse is undoubtedly a risky venture and one which most of us have no background for. Perhaps post-collapse a law-abiding citizen may be afforded a chance to join such a gang. I'm sure it will be a wrenching adjustment.

The nattering nabob of naysaying, James, says that nobody can build a community. That they just coalesce for reasons of economic and power enhancement. Kind of a wholesale denial of the concept of leadership and founders. As if all those Mormans just woke up one morning and said to themselves, by golly that place called Utah is a much better place to live than here in the sylvan eastern states. Joseph Smith and Brigham Young must have had nothing to do with it, according to him. Jim Jones and David Koresh couldn't keep their outlaw communities alive, but they absolutely did build them.

But, let us grant for a moment that he might be mostly right about why communities form. What Dmitry has said in that piece is that these sketchy characters will form the foundation of communities that could have the ability to retain a modicum of economic and enforcement power. That fact, once established, will attract new adherents, but nothing much will happen without forceful leadership to pull it together.

Ilargi said...

Greg said:
"Sorry, but its absurd to say that govts would have no money since govts are what ISSUES MONEY!"

Sorry, Greg, but the US government does not issue money. In fact, that's quite an absurd thing to say.


anon10 said...

The most overworked word of the week was obviously “cuts” (although the ineffable “fair” was never far behind). George Osborne may have been hailed by one newspaper front page as the “man who rolled back the state” as he “reverses 60 years of recklessly rising public spending” – but of course last week’s supposed curb on state expenditure was nothing of the kind.

As page 17 of the Treasury statement made clear, far from cutting Government spending, Mr Osborne’s own projections show that over the next four years it will continue remorselessly upwards, by larger jumps each year, from £696 billion to £739 billion. For all the dramatic talk of 25 or even 35 per cent cuts in the spending of some departments, such as the Foreign Office and the Home Office, these are more than offset by massive percentage increases in those areas of spending which top the list.

There is more of this article at the following link:

Spending review: The 'cuts' that mean public spending soars

Phlogiston Água de Beber said...

Ilargi is absolutely correct, Greg. The federal government of Usanistan not only does not issue money, it doesn't even do a particularly good job of collecting taxes. Which is one more reason why it has to borrow such monumental sums from the banksters. They are the deciders. Just as it is for us peasants wishing to buy a house, how much they decide to charge determines how much we can get. If they completely refuse to fund the Treasury's bonds and bills, we'll get not much of anything except martial law.

And one more thing Greg. May I respectfully suggest that you stop spreading ridicules lies about what my government does. There are plenty of other perfectly awful things you could say about it that would be absolutely true. But, the crime of issuing unbacked money is not one of them. The unprincipled spending of said money, GUILTY!

scrofulous said...

" ... but it is silly to say no community's ever been established for reasons other than resource extraction and power "

Right ilargi, but a thing I wonder on is why so rarely is it that the manner in which communities formed (and were destroyed) in the 60's is drawn on? A veritable petri dish there for examination of culture formation and collapse.

I think back to Vancouver and how small communities of like interests (no not just interest in psychotropic drugs, though they were definitely a central motivator;) formed. Gastown for example formed as a 'head' community, but once it became an attraction for the general public was taken over or sojourned by commercial interests - resulting in a community that, while seemingly the same, had been hollowed and had little to do with the aims and interests of the originating community.

If right now there is something akin to the the impetus for community formation of that period, (ie. gooving;), it is the Internet. Communities are forming as we speak and as long as the net remains up I have some hope that they will prosper. I fear though that commercial and political interests will eventually, as in the sixties, destroy this catalyst that these communities are coalescing about.

scrofulous said...

Oh dear ilargi you say:

"Ilargi said...

Greg said:
"Sorry, but its absurd to say that govts would have no money since govts are what ISSUES MONEY!"

Sorry, Greg, but the US government does not issue money. In fact, that's quite an absurd thing to say.

Come on be a educator and explain how money is derived, you know, just for us unwashed peons.

scandia said... is belief systems that form most communities I am aware of. Especially religious and political beliefs. I'm hoping to remain a free agent as long as possible.It costs me to remain independent but so far I can manage.

Gravity said...

@ Greg
"Thats true about all currencies because currencies are the invention of governments and thus far all governments have failed at one time or another."

Not exactly true, currencies arise naturally out of trade relations within sedentary communities, and perhaps also out of trade within migratory or nomadic communities, depending on boundaries of currency, possibly including entirely nonphysical and nonnumeric media, stories and whatnot, and should therefore require only a shared value system generating rules pertaining to elementary symbolic capital.

Every sedentary community with population above a few hundred or so would inevitably develop physical currency to facilitate trade, maybe a necessary way of de-limiting complexity concerning coincidence of wants.
It is more likely that a system of government with the authority to tax will develop out of such established conventions. The latter fiat part is more directly a product of government finance colluding with banking systems in order to master a hyperreal and meta-stable capital symbolism.

scrofulous said...

Wow IM, I don't know Greg from a fried egg, but he sure seems to be catching the heat today!

You say about US moolah:

"But, the crime of issuing unbacked money is not one of them. The unprincipled spending of said money, GUILTY!"

From what I heard and I could be wrong, is that the US dollar is backed by the full faith of the US government?

If so, then all I can say IS what has been said so many times on-line" BWAHHHAHHHAAA!

Holding the American dollar reminds me of playing musical chairs - the last player gets it on the ass.

Nassim said...

Just begun reading a new book "Britain in the Middle Ages" by Francis Pryor amd the thing I gather from it is that the further from the centre of the Roman empire one went, the less abrupt was the change as that empire failed. For example in Britain one might not even have noticed the event other than that the door to door salesman had changed from speaking Latin to speaking Syrian, or Iranian. Though much may be different this time, it might still be something to keep in mind for any who plan a movement for safety.


Thank you for bringing up my favourite point - that there were oasis out there even in the Middle Ages.

If you allow me to make a very slight correction. The Syrians in the Middle Ages spoke Arabic and the Iranians spoke Farsi. It is the same today and I would have had no problem communicating with either of them just like I do today with my Lebanese fruit and vegetable man and my Iranian dentist in Melbourne :)

The big traders from the East in those days were the Armenians (who were based in Isfahan, Iran) - they are Christians. Of course, the Venetians and Genoans dominated much of the trade across the Mediterranean.

Unlike today, the Middle East was at its economic, military and cultural peak. In these empires, minorities were accepted and tolerated and allowed to have their own religious and civil courts. The Turks later took over the same system with each nation (millet) having to administer its own people and collect its taxes.

In Spain, the Jews far preferred to have Moslem rulers to Christian rulers as this Sephardic website makes clear The Jews in Islamic Spain: Al Andalus

john patrick said...

Debasement of the dollar...
am by far an expert on this, but it seems that by degrading the dollar all we are doing is spreading "our" debt to all other countries that use the dollar.

And, if a country uses the dollar as normal/reserve currency, than how can you have a delta between them and us? I.e., for inflation/hyper to occur, doesn't a neighboring country/block have to be in better shape so that a delta in goods/value/currency occur?

Thanks in advance. And, thank you I&S for the blog.

john patrick said...

Another question...
by U.S. giving aid to other countries, doesn't that ensure that the receiving nation continues to use the $$ in order to spend the aid?

I can't help but think that us keeping/maintaining bases in 140? countries acts more like an ATM machine to ensure our currency stays in place, and that we can distribute our debt abroad via the debasement of the dollar.

Frank said...

@Logout, I agree with the slower transition (starting earlier) but the actual example is highly questionable.

Farsi was never an acceptable language in the Roman Empire. They fought Iran (under several names) until Mohammed kicked both their tushes. And as for Syriac, the native language of the peddler may have changed, but if he wanted to actually sell something to a Briton whose native language was proto-Welsh, he had better speak Latin.

Also, despite 200 years of gradual descent, there is plenty of evidence that the excrement pretty abruptly hit the impeller when the legions were withdrawn in 409 AD. Relegalizing the tribal militias that had been outlawed 300 years before was not an adequate replacement for the Count of the Saxon Shore.

scrofulous said...

Hi Dyer,

"Nuclear power is not particularly compatible with social upheaval.."

Fair enough, but then not having lights at night isn't either. Ask any joker here.

Gravity said...

Actually, several economists have adequately acknowledged that capital is subject to gravity, von Mises and Minsky, among others, did a fairly decent job of describing the tendency towards gravitonomic equilibrium. Engines of leverage, as requiring such a boundary condition, can only be perpetuated as long as the majority of participants can afford to ignore the gravity-bound conditionality. Energetic endowment helps, but most leverage schemes only ever enrich a small minority, often by tapping the potentials of a larger group, and seldom grow large enough to envelop the majority population as the latest multicentennial macrobubble has done, fueled by the relentlessly expanding debt-based money supply as much as by freely flowing energy flux densification.

And that's an issue with the doctrine of monetarism and its effects; that this monetary situation leading into debt-deflation was always known to be mathematically inevitable, but nonetheless stimulated and arranged purposefully via central planning, albeit facilitating symbiotic interaction at first. As an analytical framework of economotive theory monetarism has some interesting components and valid applications, perhaps not enough as an exact science or too exact to be useful, but then there's the political ideology attached to it.

Monetarist policy as currently executed is not so much informed by an exact economic science as by a distinct platform of political ideology, because it implicitly contains a foundational theory concerning capital, one which unreasonably precludes gravitational conditionalities.
Not all political ideologies must contain such theories of capital, yet any analytical framework containing an operative theory of capital becomes structurally equivalent to a non-neutral political ideology when informing policy.

I'm not sure whether the austrian school pretends their economic policy is not informed by a political ideology as such, containing perchance a foundational theory of capital, but the monetarists certainly pretend just that, its folly to continue with it.

Erin Winthrope said...

Paranoid Doomers

In the past 2 days, two self-proclaimed leaders of the doomer movement have succumbed to a hilarious bout of paranoid delusions.

Doomer #1: Matt Savinar over at LATOC. Anyone catch that gem of an editorial note he posted on Friday? Freaky freaky. Astrology will do that to a person. The man seriously needs a saucer for his tea cup.

Doomer #2: Damon Vrabel. His first two youtube vids on the nature of money and power were featured on TAE this past week. Anyone want to post video #3? It's hilarious....full of speculation about sniper assassins, black helicopters and personal messages to Larry Summers. A true laugh-fest.

Folks, there is a pattern here. Need I bring-up poor old Matt Simmons?

Calm down for heavens sake. Watch the football game, and have an ice cream sunday. Contemplate a few shares of AAPL while you're at it.

I know it's hard to accept that Grandpa Buffet already have a plan for you, but that is the truth of the matter. The sooner you accept, the sooner you'll enjoy the rest of your time as a transition-state intermediate.

Your true equilibrium status as a widely scattered bunch of C02, PO4, N2, and SO2 molecules won't be nearly as interesting. But then again, who knows?

Greg said...

Its alright logout I can take the heat.

Let me rephrase, All govts get to say what is used as currency but not ALL currencies have been issued by govts. What is necessary to settle tax obligations is what a govt determines. Currencies which are necessary to settle taxes are "inherently" valuable and will be sought.

How many currencies are there in the US?

The US govt DOES issue US$. We had US $ before we had a central bank. Private banks can only issue credit money.

A bank can never increase the supply of financial assets because every asset is offset by an equal liability. To increase money in the economy, that must come from outside the banking system. Thers is only one entity in the US outside the banking system that can issue dollars...........US Govt.

Nassim said...

Coalition claims of 'pulling Britain back from the brink' are nonsense

The 2010 budget deficit will be around 10pc of GDP – much more than when the UK went "cap-in-hand" to the International Monetary Fund (IMF) in 1976. That doesn't include the multi-billion pound bank bailouts – which the Tories have buried off balance-sheet, like Labour before them.

Erin Winthrope said...

I see that Vrabel has removed debunking money video #3 .....wise move.

Savinar has likewise edited his Friday fun-fest rant.....also a wise move.

scrofulous said...

Thank you Nassim and Frank for the correction, I tend to be rather lazy at times and picked those two countries out of the hat rather than dig through the book I am reading and give you the real goods.

To make amends I will transcribe a bit from that book which refers to Britain of that period here:

"McCormick's reconstruction of trade in the fourth to the ninth centuries is baaed on a number of sources, but especially on an exhaustive study of Mediterranean travellers records, findspots of Arab and Byzantine coins , and ship movements in the Mediterranean sea, which are in turn based on contemporary records such as customs registers."

Phlogiston Água de Beber said...

@ scandia

Yes, every religious congregation is a community. In a real sense, businesses employing more than a few people are communities. There are all kinds that form for many reasons.

Your comments have always impressed me. I too value independence and have steadfastly avoided communal involvements. You may well be right to hold back from jumping into a community.

As Dmitry says, many existing communities will splinter and die. The roughneck communities that Dmitry thinks will coalesce just might have a place for someone like you. Not everyone in it will be bad to the bone. Just keep in mind that all the rules will have changed.

@ logout

Greg is catching heat for having said something very wrong. It is only in the interest of people we have no reason to support that such misinformation go unchallenged. If he honestly believed that the federal government of the USA issued money, then I sincerely hope he now knows better. If he is a paid agitator for the Koch boys or whoever, then at least other readers may be less deceived.

Regarding the full faith backing of our beloved government, I believe you would find that it actually stands as backing for its debts. The dollar would more accurately be described as backed by the full faith and unlimited credit creation ability of the Federal Reserve Bank. There now, doesn't that make you feel more secure. The government made it a fiat currency by virtue of declaring it legal tender.

scrofulous said...

@ Frank
"Also, despite 200 years of gradual descent, there is plenty of evidence that the excrement pretty abruptly hit the impeller when the legions were withdrawn in 409 AD. Relegalizing the tribal militias that had been outlawed 300 years before was not an adequate replacement for the Count of the Saxon Shore."

Now you work me, but all the same here is another transcription from Francis Pryors book:

"All the evidence points to continuity in the landscape: there was no wholesale disruption , such as one might expect if the entire population of what was shortly to become south and east England had in fact changed. Most towns and cities were indeed abandoned, but this was a process that had begun long before, in a remarkably sudden and coordinated fashion shortly after Ad 300 - a full century prior to the Roman departure."

That sounds like a fairly peaceful transition to me.

On the Count of the Saxon Shore, how and why would it be replaced?

Interesting stuff and goes some way to say that the dark ages were only dark to us guys without a light, rather than for the inhabitants of those times.

NZSanctuary said...

Grandpa Buffet said...
Paranoid Doomers
I know it's hard to accept that Grandpa Buffet already have a plan for you, but that is the truth of the matter. The sooner you accept, the sooner you'll enjoy the rest of your time as a transition-state intermediate.

Heh :-)

I didn't see the article you refer to, but everyone has the odd crazy idea about the world. You could just as easily pick almost any main-stream politician, economist, scientist or what-have-you and dig out some bizarre notion they have of the world...

scrofulous said...

IM you sooth me to my bottom dollar .... which is invested in gold:)

BTW can you tell me why the need for that middleman, the fed? Some sort of money laundering scam, or what?

Erin Winthrope said...

Savinar closes the LATOC forum!!


A few weeks ago, Savinar speculated that his forum's server problems stemmed from government subversion.

He then rebooted an entirely new forum with great fanfare. Then, within days of the grand opening, he closes the whole operation due to dissatisfaction with its content.

Now, hilarity aside, it's clear poor Matt is losing his marbles. The same downward spiral of increasingly irrational behavior and statements was apparent with poor Matt Simmons.

I hope Savinar's friends reach-out to him. He's a canary in the coal mine if ever their was one. Doom isn't healthy. Astrology won't help.

Erin Winthrope said...

Bernanke wins

Karl Denninger caves......predicts massive inflation.

if you're not wealthy, you're screwed

Welcome to the club Karl. Are you hungry for some AAPL?

Brunswickian said...

re LATOC forum. Doesn't surprise me. There were a group of them seriously considering the possibility that they might be God (one of the oldest delusions, of course). I kid you not.

Greg said...

"Greg is catching heat for having said something very wrong. It is only in the interest of people we have no reason to support that such misinformation go unchallenged. If he honestly believed that the federal government of the USA issued money, then I sincerely hope he now knows better. If he is a paid agitator for the Koch boys or whoever, then at least other readers may be less deceived."

This is hilarious. I'm a paid Koch brothers agitprop!!??

Are you suggesting that the Central Bank will bounce Treasury checks? There is plenty to be critical of our CB for but to claim they are not part of our govt apparatus is plain wrong. They ARE a lender and buyer of last resort and in theory can serve a useful function that way (I will not argue that they have in fact acted in the best interests of main street lately). It is also true that the largest beneficiaries of CB actions are the "already rich" but the fact remains that the US govt can directly create money and use fiscal policy to do many things the monetarists in the CB have up til now refused to do.

Randall Wray was linked to in an earlier article with Bill Black. Read his "Understanding Modern Money" or these articles at UMKCs website

Fred the First said...

Stoneleigh said in her Century of Challenges to buy short term US treasuries which can be redeemed at any bank. I went to Treasury Direct and they want to do everything electronically - you have an account with them with your electronic shares in it. I want paper. How do I get paper bills or bonds?

Unknown said...

Ilargi said "where does Mr. Rubin think oil prices will go when it becomes clear that the economy will NOT start growing again for years to come?"

Perhaps you give the public at large too much credit in assuming that things will ever become clear. I anticipate a dearth of understanding...a situation where there is a lot of conflicting information and mis-information, as well as fundamental belief systems that dramatically color the perception of events as they unfold. What if we go on for years and years with a substantial segment of the population believing that recovery will happen after we elect the next leader, win the next war, pressure OPEC to stop hoarding, re-balance international trade, etc., etc.? I think it is entirely possible that a majority of the public will believe we are mired in a particularly nasty recession resulting primarily from past bad behavior and poor leadership. They may never understand the harder reality of geological/ecological limits, eroei, exponential growth, etc., despite overwhelming evidence. Our leaders and the media will work hard to ensure this is the case. If this is true, does it alter your position on deflation over the next few years? As a person who has watched (and admittedly, profited from) bubbles for the past twelve years or so, I'm continually amazed at how long business-as-usual can be maintained.

Frank said...

@Logout I just read the Amazon reviews of Pyror's books (Britain AD as well as Middle Ages).

It's been clear forever really, that the Anglo-Saxons didn't do the 'ethnic cleansing' thing. There are British and Roman place names all over England for instance. I also stumbled over a factoid that the shops in downtown Bath have been built and rebuilt on the same lots since Roman times.

OTOH, the archeological evidence for fighting and viking-style raiding (As Pryor says, starting long before) is there.

The Count of the Saxon Shore was the Roman official in charge of defending Britain from German raids.

I don't want to say too much without reading the book, but the reference in your quote to "South-East England" then as now the richest and most populous part sounds a tad disingenuous. What was going on in Eboracum? London is still London, Eboracum is York. Might there be an indication there?

Hombre said...

Grandpa - "...I know it's hard to accept that Grandpa Buffet already have a plan for you..."

That's a part of what has me concerned! ;-)

re: Savinar... There are always elements who get off the track during a time of major change and I surely agree with you that astrology won't help.
Still, there is much to be learned from the posts, comments, and charts (science) here at TAE, and other sites such as Zero Hedge, emay nergy bulletin, etc.
I appreciate your dose of levity but still recommend you keep your ducks in a row, and don't get too comfortable. And, for a real healthy dose of laughter, I recommend a Monday portion of kunstler. (with, not at)

Ilargi said...

"There is plenty to be critical of our CB for but to claim they are not part of our govt apparatus is plain wrong."

No, it's not. There's nothing plain about that.

"....the fact remains that the US govt can directly create money and use fiscal policy to do many things the monetarists in the CB have up til now refused to do."

And how would the government do that?


bluebird said...

@Denys aka Mommy - For paper Treasuries, look at the Legacy Treasury Direct. Some people obviously do not have a computer nor access to one, so there has to be a way to get the Treasuries via mail.

Greg said...

The govt would "do it" the way they always spend....
by crediting someones bank account.

You seem to think that debt issuance by the govt is an operation which precedes spending. Like me going and asking someone for money I dont have. In fact, debt issuance is an interest rate control operation that occurs AFTER the spending has already taken place. The govt spends first and THEN issues bonds as a way to keep the fed funds rate at their target levels. Its been studied extensively and well described by people like Randall Wray, Bill Mitchell and Warren Mosler.

Money isnt a zero sum game. The govt does not need to go out and find funding BEFORE it spends. It spends and then issues bonds at a rate IT determines.

Ilargi said...


As long as you presume that the Fed is the government, this will only lead to confusion.


Gravity said...

The CB is not a branch of government. Its also incorrect to say the CB is a completely private operation, the chartered collusion between private member banks and the government yields a hybrid construct which does qualify as a corporatist cartel to be precise, credit creation by this entity also seems to be a wholly unconstitutional mechanism in the US's case.

Frank said...

@All, In defense of Greg, it should be remembered that the actual printing presses and metal stamping machines do belong to the treasury. Coins do still come from the Treasury. The treasury does still have statutory authority to print its own notes.

Doesn't and can't are two different concepts.

Hombre said...

the Gov and the fed
pray tell, are they wed?
or like Sir Paul and Heather
no longer together

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

This issue warranted alteration and more elaboration.

That issue with the doctrine of monetarism and its effects; phases of debt expansion and saturation vary in depth and duration according to ambient energetic potential and implemented policy, yet being intractably limited by the gravitonomic arithmetic of debt, this monetary situation leading into debt-deflation was reasonably expected to become mathematically inevitable but nonetheless stimulated and arranged purposefully via central bubble planning, albeit facilitating symbiotic interaction at first.
As an analytical framework of economotive theory monetarism has interesting components and valid applications, perhaps not enough as an exact science or too exact to be useful, then there's the political ideology attached to it.

Monetarist policy as currently executed via the central banking structure is not so much informed by an objective economic science as by a distinct platform of political ideology, particularly when misinterpreting Keynes' stimulus prescriptions, because such policies implicitly contain a foundational theory concerning capital, one that unreasonably precludes gravitational conditionalities.
Not all political ideologies must contain such theories of capital, yet any analytical framework containing an operative theory of capital becomes equivalent to a non-neutral political ideology when informing policy.

I'm not sure whether the austrian school pretends their economic policy is not informed by a political ideology, containing perchance a foundational theory of capital, but the monetarists certainly pretend just that, its folly to continue with it.

And why are these monetarist policies often called Keynesianism? The man had no applicable prescriptions for systemic failure attributable to inextinguishable debt, the stimulus framework was never intended for a flawed system of government finance and spending suffering under crushing debt at all levels.

Gravity said...

What kind of defunct reasoning is this anyway, they seriously argue that debt is as useful as equity? Shenanigans.

Gravity said...

Anti-monetarist diatribe may not be constructive, but it must be clear that monetarist policy effectively constitutes a faith-based political ideology masquerading as an objective 'science', which is dishonest and dysfunctional.

But I'd like to hear them deny Gravity's 2nd Law:
Capital is subject to Gravity.
covariant corollary; The cause of taxes is (become) love of the deficit.

jal said...

On the other hand, we can infer a lender's fraudulent intent because it is financially sophisticated and has expertise in lending. An honest mortgage lender would not make "liar's loans" because absence of proper underwriting inherently produces loans that are expected to default
These entities committed tens of thousands and even millions of frauds each. For obvious efficiency reasons, that is where our judicial resources ought to be directed.
If we used all of our resources to investigate and prosecute fraudulent mortgage borrowers exclusively we would be able to prosecute less than one-tenth of one percent of those frauds.
In short, it was Wall Street that turned our homes over to a financial casino -- and so far virtually all the losses have been suffered on Main Street.

Downsizing the financial sector is critical to restoring it to a size that is commensurate with the needs of the economy.

As we write this piece, the markets are taking it upon themselves to begin to close down the control frauds -- with homeowners fighting the foreclosures and investors demanding that the banks take back the toxic waste. Unfortunately, following the market solution will be a long-drawn-out and costly process -- both in terms of tying up the judicial system but also in terms of the uncertainty and despair that will persist. At the end of that process, the banks will have to be resolved. No matter how much the politicians dislike it, they will end up with the banks in their hands -- either now or later. Taking them now is the right thing to do.

scrofulous said...

He did it again ... my new neighbour has just been busy as hell getting his pocket picked again by the local construction/destruction lads. What does one do or say when it is too late. They are on him like starving flies on a dying turkey.

Last year a couple of rafters needed replacement so he was sold a whole new roof made of one by three crapola. The wood that came off was good clean fir and has likely been used by now on another house.

Right now in his yard he has a full sized dumpster, a bobcat with loader, a medium sized back hoe, a multicat for funnelling gravel, a large trailer for the machines, and three pickup trucks for workers. All this to dig a slit trench around his perimeter for drainage of a house that has no basement!!!

The Job started a week ago and in that time I am sure, even at my venerable age, I could have hand dug and completed a drainage trench that would have suited his needs.

Reminds me of that bit from Macbeth:
A tale told by an idiot, full of sound and fury, signifying nothing

The only question I have is am I the idiot for telling this tale or am I the idiot for not owning a construction company?

Phil said...


Both Cameron and Miliband think we can grow ourselves out of the recession. Just how isn't explained, with various resource crunches in the pipeline (or, to put it another way, various resources not in their pipelines).

10% of GDP might not seem like a lot of debt to these idiots, but it will be shown to be one giant millstone in the fullness of time.

Phlogiston Água de Beber said...


Professor Wray wrote this little footnote to his essay on Money as Public Monopoly.

* Much confusion is generated by using the term “money” to indicate a money “thing” used to satisfy one of the functions of money. I will be careful to use the term “money” to refer to the unit of account or money as an institution, and “money thing” to refer to something denominated in the money of account—whether that is currency, a bank deposit, or other money-denominated liability

I reckon he is right about different definitions causing confusion. IMHO, confusion is not a good thing. If we wish, we can say that any "thing" or "promise to pay" is money. If someone will accept it in return for something, it's money.

But, let us be careful here. To paraphrase the animals, all money is equal, but some moneys are more equal than others. To the holders, a T-Bond is money, but to the gov it is a liability. The money the gov spends is the money they got for the bond. That they are allowed to kite checks in anticipation of bond sales and other receipts is irrelavent. Should we be surprised that the banks treat them better than you and me? The gov sets the coupon rate, but the market discounts the bond and that sets the effective rate.

Your new good friend Frank has rightly pointed out that the gov could punt the FED and be its own banker. I don't believe much of anything prevents it. Well, there is the little matter that Congress (a wholly owned subsidiary of the banking establishment and every other grifter that can get within handshaking distance) would have to legislate it and the Executive Branch (a wholly owned subsidiary of Goldman Sachs) would presumably have to request it. But it has been done before, so I won't be the one to say it can never happen again.

I do presume though that it would not be without very significant risks to stability. Therefore, I think it likely that it would only be tried after things have already gone rather badly and there is little stability left to lose.

Phlogiston Água de Beber said...

logout said...

BTW can you tell me why the need for that middleman, the fed? Some sort of money laundering scam, or what?

I can speculate on that, but will certainly not claim to know exactly why Congress and the Prez went along with such a thing.

The first thought that comes to mind is that a government bureau is by definition subject to political whims. Where money creation is concerned, political whims are dangerous things.

It seems that bankers were, in those times long ago, thought of as sober and responsible people who could better be trusted to create the right amount of money. In hindsight, I think we can see that they were misunderstood.

It may be vulgar to suggest this, but outsourcing the monetary management function to a private entity grants Congress and the White House two wishes.

1) Additional opportunities for palm greasing.

2) Some degree of absolution from blame, when money is too cheap or too expensive.

What politician can resist those lures?

Unknown said...

Banks should be broken up, Bank of England Governor Mervyn King warns

el gallinazo said...


Several months ago during the height of the “Greek (and Euro) Crisis,” you discussed how Angela Merkel was deliberately playing on the problem to weaken the forex of the Euro. You and Stoneleigh have also discussed from the beginning of TAE how (theoretically) sovereign countries would eventually enter into a “beggar thy neighbor” approach to weakening their own currencies. We are now seeing a race to the bottom lead by Geithner and Bernanke.

But I never really got my head around the primary advantage to doing this. Peter Schiff, IMO a very shallow thinker and one trick pony, gave an interview this week on Mad Max stating that the policy was completely counter-productive to countries in every respect. But obviously it will help to maintain exports, which will decrease relative levels of unemployment, and thus political unrest. Also it will help to monetize the sovereign debt. Also builds up reserves of other countries’ fiat trash. And when QE is the main tactic (the Euro crisis tactic was the threat of outright PIIG sovereign default or at least buzz cut to the bondholders), then it would keep interest rates way down. Which then allows the governments to funnel free money to the Primary Dealer Cartel inflating their supposed profits. Another often overlooked advantage to multinationals is that when stating their profits on the quarterly reports, overseas subsidiaries get to look better since their numbers are converted to the home base currency, thus boosting the numbers for the parent.

However, you also mentioned another important reason for this which you seemed to hold as preeminent in Merkel’s motivations, and I can’t remember it. Since it is quite clear that Bernanke is now trying to trash the dollar through word and deed, perhaps it might be a good time to review this topic in depth in an opening article. There was an article this past week in ZH stating that the most important recent international move, dwarfing even “Fraudgate,” was China raising interest rates and reigning in credit. I see this as similar to a jockey kicking the ribs of his horse when a bit back in the pack, which might suggest by inverse reasoning that we are approaching some sort of finish line.

In a related topic, I see the USA and Obummer going into austerity rhetoric, both in world and deed after the election Tuesday a week. The banksters no longer need a TARP II as QE II will prove quite functional for a while to bail out the banksters by buying up their most toxic waste MBS. And it takes the pressure off of the whores in Congress to go on the public record as being paid to give the banksters their personal hand jobs. (This could form the kernel of an avant-garde video if Barney, Ben, and Jamie would cooperate, and would allow the employees of the SEC to watch educational porn during company time instead of their regular, frivolous fare.).

In theory, the Fed can go bankrupt but in practice since it can print money from thin air, it would never face a margin call, and could keep this garbage on its books indefinitely, never being forced through cash flow reasons to mark to market. The consequences of the Fed itself becoming the “bad bank” are also difficult to wrap one’s head around. This could also be an area of original elucidation for you. However, this violates Robert Prechter’s first law which is that the Fed always does what is good for the Fed. However, the Fed is owned and run by the PD’s, so maybe they have decided that it is best to sacrifice the head to keep all the tentacles flailing. And they are surely quite convince that the peasants and pissants, formerly referred to as the taxpayers and middle class will in the end have to suck up and empty the Fed’s septic tank

And how about Vrabel #3?? A bit of a kicker.

scandia said...

England selling its forests! Easter island all over again!
This is SO-O Depressing!!!!!!
When will the first born be sold to the highest bidder?
If you live on that green Isle get off!

Hombre said...

Washington Post feature
Jon Stewart and Stephen Colbert: From funnymen to cultural forces

Interesting, but much more simplistic "civics 101" lesson 3 from Damon Vrabel. The perennial Darth Vaders of the conspiracy world, the Council on Foreign Relations is somewhat surprisingly (to me) at the top of Damon's bad guys list as well.

Some of the contracting credit the StoneLady has often discussed is indeed real, from a Zerohedge article...
"As these quarterly reports to congress have well chronicled and as Treasury itself recently conceded in its acknowledgement that "banks continue to report falling loan balances," TARP has failed to "increase lending" with small businesses in particular unable to secured badly needed credit. Indeed, even now, overall lending continues to contract, despite the hundreds of billions of TARP dollars provided to banks with the express purpose to increase lending."

scandia said...

Would readers from the UK fill me in on Caroline Spelman, the one whose going to sell off the public forests? " Whore" just doesn't feel adequate. Stealing from your children, your grandchildren just doesn't feel adequate either. What she is willing to do I call " evil " . Who the fcuk came up with this idea?
I feel so deeply sorry for the British people if this tragedy comes to pass.
Okay Stoneleigh, I will try to access a cognitive over ride...perhaps its just the forest loving,worshipping Finn in me that wants to vomit.

scrofulous said...

el gallinazo

Good to hear that you have at last have a pleasant safe roost. As well it sounds like, despite your wanderings, you are keeping well apprised of events occurring at the centre of the Empire.

Me not so much as I tend to think of it all more as a householder does, in a very simplistic manner.

Like I think that joining in the game of devaluing one's currency, in response to a US devaluation, merely plays into the hands of the Geithners and Bernankes and while the immediate effect of a devalued currency may be profitable if done first, eventually, like water seeking a level, the true valuation of the US dollar against a stable or strong currency would be recognized.
To engage in a follow the leader to the bottom destroys ones currency without the benefit of a short period of cheaper exports as experienced by the initiator. As well, unless the foreign debt of the imitator is greater than that of the US, there will not be a comparative benefit there as well. Holding good money and a strong currency allows one's businesses to purchase industrial machinery cheaply which in time would be a benefit rather than would playing a game of follow the leader devaluation.

That is my thinking, but as I say pretty simple stuff, so any correction would be appreciated.

BTW my neighbour needs help too,as well as having his head examined, he will have to redo a swath of destruction 10 and 12 feet wide around his house. Oh and the count is now two backhoes, not one, that is besides the bobcat and other equipment. I fear for his sanity and can only hope he had a very watertight agreement as to the cost of this madness, but I think that if he does it can only mean that the contractor has quite lost his reason instead - and with the current downfall in real estate finally happening here that might just be the case.

Hombre said...

Scandia - I am in full synch with your spirit about the UK forests being "sold."

Reminds me of a bit of dark history about my own homeland...

"In 1809 the Miami Native American Indians sold some of their prized land, which included a part of Parke County, (Indiana) to the U.S. Government. This treaty with the Indians created the boundary line which came to be known as the Ten O'Clock Line, so called because it was explained to the Indians as following a shadow cast at 10:00 o'clock.
Nine years later, this line would form the southwestern boundary of the New Purchase. The eastern and southeastern boundaries had already been established by previous treaties. The New Purchase opened for settlement to whites the central section of Indiana which included what is now Madison County. The boundary in modern terminology starts near Montezuma, Indiana, on the Wabash River and runs southeast to the mouth of Raccoon Creek near Seymour, Indiana."

Nassim said...

Interesting stuff and goes some way to say that the dark ages were only dark to us guys without a light, rather than for the inhabitants of those times.


According to The Fall of Rome: And the End of Civilization, it was a traumatic experience. The quality of the table-ware of Roman peasants in the UK was superior to those of latter-day kings. One can only extrapolate from that. One chapter in the book is entitled "The Disappearance of Comfort" just to give you an idea.

Let's not forget what things were like less than 100 years ago. When penicillin was first tested on a human, it was an English policeman with an infected hand - he had been pricked by a thorn. The penicillin made him better but they ran out of it and he got worse and died.

When the Moors occupied Spain, they left one part unoccupied. In exchange for being unoccupied, the people in that province agreed to give 1000 virgins each year to the Moors. This went on for 80 years. The Moors were quite civilized according to history. The UK was another matter.

Phlogiston Água de Beber said...


Governments everywhere are being forced to sell assets. If one were given to tin-foil fashions, one might entertain thoughts that there might be some evil conspiracy behind such a perverse activity.

Thankfully, we Doomerburghers are much more fashion conscious than that. And besides, we freely publish our thoughts, so we don't need no metal caps.

Whether evil forces are somehow behind it, or just crazy ones, the disposal of government assets is not without consequences. Most significantly, IMHO, such governments would find it extremely hard to get anyone to take sovereign money that it might try to issue, very seriously. Now, I wonder if anyone would benefit from that?

The Confederate States of America experienced something like this. They had to pledge cotton as backing for the Confederate Dollar denominated bonds that they were selling in Europe. Blockades of all their ports by the more powerful Union Navy meant the cotton could not be exported and the bonds became worthless even before their defeat.

Nassim said...

The abnormal state of credit markets came into focus on Monday as the US Treasury sold bonds with negative interest rates for the first time ...

Investors who were worried that the Fed would succeed in its efforts – which would probably lead to higher inflation – accepted a yield of minus 0.55 per cent on $10bn of Treasury Inflation Protected Securities (Tips), which compensate holders if the consumer price index heads higher.

Debt markets take unusual turn

Congratulations Ilargi and Stoneleigh.

I think this is a sign of DEFLATION - unlike what the article says.

Draft said...

Nassim -

I saw that earlier today - the negative interest rate bond sale - and didn't understand it. Are you sure it is a sign of deflation? Anyone know for sure?

bluebird said...

Coy Ote said "The boundary in modern terminology starts near Montezuma, Indiana, on the Wabash River and runs southeast to the mouth of Raccoon Creek near Seymour, Indiana."

Interesting that I lived in Seymour during my school years, and can't recall the location of Raccoon Creek. I will need to ask my Hoosier siblings if they know where it is located.

jal said...

"This wasn't just an extensive series of Frauds; it was a massive Counterfeiting and Money Laundering Operation."

“They've pillaged pension funds in governments and unions, money market funds, foreign banks and governments.”

Is William K. Black the fulcrum to get the changes done?
William K. Black and L. Randall Wray
Posted: October 24, 2010 11:53 PM

William K. Black and L. Randall Wray
Posted: October 24, 2010 11:53 PM

Foreclose on the Foreclosure Fraudsters, Part 2: Spurious Arguments Against Holding the Fraudsters Accountable

NZSanctuary said...

jal said...
(ie. $2.00/day wage equivalent of India and China.)

You may be able to get some very manual labour done that cheaply, but where I have been in India the wages are now very much higher than that for skilled labour (off-shored jobs). It cost my company US$14,000 per year per worker (this included management and covered their external costs (commercial rent/equipment, etc.).

Perhaps we'll see first world wages drop to this level to compete soon ;-)

Phlogiston Água de Beber said...

What a coincidence. Joe Bageant addresses the topic of global capitalism and national subservience in Algorithms and Red Wine

Is the 'digital hive' a soft totalitarian state?

scandia said...

@ I. M. Nobody....IMO forests are not assets, they are like water- necessary for life. Forests are the landscape of the commons.Forests are the gift that keeps on giving. To strip the land of trees affects air quality, increases flooding etc. Believe me the unintented consequences of razing the forests will be devastating economically.Ugly too. And what happens to the wild life inhabiting those forests? Does Caroline Spelman grasp how many systems are involved here? I hope the ghost of X-mas past or some such apparition appears in her sleep to-night to clue her in.It is loss all round except for the few who will profit from this policy. Soon the elite won't have a charming countryside to view from their limo window.This is by far the worst deal they'll ever cut.
I can't help thinking again how the decision makers are graduates from the elite schools like Oxford and Cambridge. Same environmental ignorance displayed by the politicos who graduated from Harvard and Yale. Really,really something wrong with this picture!
Surely Prince Charles will put a stop to it?

@Coyote, The Indian loss of land and being herded onto reservations is a brutal history. The Great Spirit was asleep on the job. Should have sunk that first boatload of pilgrims!

Nassim said...


On reflection, I think I was wrong. Perhaps I have also fallen into the trap of speeding things up. :)

If investors are expecting deflation, they should put their money into long-term fixed interest government securities - the very opposite of indexed bonds. These securities' market price should go up to over 100% of their face value when people are expecting deflation.

Phlogiston Água de Beber said...


What you so eloquently wrote about forests represents the truth to people like us. To the arch capitalists of this world, they are just assets to be stripped. Just like the coal bearing mountains of West Virginia.

What can probably be safely assumed about Caroline Spelman is that her grasping would be mostly for acceptance by the elites and a chance at a little bit of power for herself. Ecology? Probably not high on her reading list.

Don't know what to say about the Bonnie Prince's likelihood of changing the outcome. After all it is widely alleged that his mum is one of the kingpins of the capital-holding class that apparently has decreed that Britain be strip mined of its little remaining wealth.

It looks like Stoneleigh made a brilliant move in leaving. Though Canuckistan will get its turn on the block later. There doesn't seem to be much reason to believe that the dumber than stumps bastards in the super expensive suits will be satisfied until they have largely recreated the effects of something like the Chixlub asteroid impact that many think did the saurians.

Erin Winthrope said...

@ Scandia

About those trees and letting go.

The Big Electron

Erin Winthrope said...

@ Nassim

You've got it totally backwards.

Accepting a negative yield for TIPS is a bet on inflation. Investors are paying a premium for inflation protection.

Accepting a negative yield on 3 month Treasuries would be a bet on defaltion.

soundOfSilence said...

Nassim said...

Let's not forget what things were like less than 100 years ago. When penicillin was first tested on a human, it was an English policeman with an infected hand - he had been pricked by a thorn. The penicillin made him better but they ran out of it and he got worse and died.

See there ... you learn something new every day on TAE.

I just Googled around a bit. He must have had a rather unpleasant last few months from the sound of it all.

Starcade said...

It's almost comedic listening to the Karl Brigade.

Let me put this real simple:

You "Stop the Looting and Start Prosecuting", and you have NO CURRENCY, NO BANKS, and NO GOVERNMENT.


It's no secret that Denninger actually believes that he can, with a bunch of smaller and regional banks, survive this.

What he does not realize is that EVERY BASIS on which the economy was built for the last 30 years was on this fraudulent mortgage stuff.

The moment that Fannie and Freddie got nationalized, the real unemployment rate went from about 11-12% to 20-22% -- pretty much in one steady shot.

The fact we have 310,000,000 people in this country was dependent on the Free Credit Era -- for the delivery system, for the food, for the "entertainment", for the jobs of at least millions of people, for the medical care, etc.

And it's all about to blow. And, when it does, we will lose quite a number of millions of people directly, and then the unrest takes out more.

"Mastubatory fantasies about the end of America"?

Karl: I know you won't read this, but I want it on the record.

The day that "fantasy" comes true, I am very close to death -- days, maybe a couple weeks, maybe a month or two.

Nassim said...


I found it They chose Albert Alexander

I have no idea where I read it - it must have been more than 30 years ago - and I am thankful for Google Books for allowing me to look forward to a dreamless sleep. :)


I am happy to apologise profusely and unreservedly once more for misleading everyone about the significance of negative interest on inflation-indexed bonds. I hope no one lost any money :)

scandia said...

@I. M. Nobody...yes Canada has it's turn on the block as in the tar about ugly!
And note not a drop of that oil will ever see a Cdn tank. Cdns think the tar sands ensures their own oil supply. As far as I know all pipelines head south.

@Elliot Wave...whew, I needed that laugh!

scandia said...

About mortgages(TD Bank) see " Pricks" by Garth Turner at

zander said...

@ Scandia

The vast majority of forestry comm. land up for sale is block plantation sitka and Norway spruce, under the canopy of which little of anything grows and is devoid of wildlife, also these forests are harvested every 40-60 years anyhow, they undoubtedly contribute aesthetically to the landscape and it looks like a war zone when felled, but like I said, the F.Comm. would be doing this anyway, I am however, VERY concerned about the large areas of semi natural deciduous woodland owned by the FComm. and now being sold off for god knows what purpose, and am going to keep up to speed on developments via a wonderful UK organsation called the Woodland trust, I'll keep you posted going forward.

@ Elliot wave

There is a brutal truth to Carlin's piece but that is no reason for us to accelerate the destruction, I have long stated it would be better if we just weren't here, or here in insignificant numbers, thats a comin'....
check Guy Mcphersons take.


Draft said...

scandia, I.M. Nobody, zander - What you are all talking about regarding forests is important, and it fits into the broader context of how culturally we get used to seeing things in the natural world as secondary and things in 'the hallucinated economy' (as Kunstler calls it) as primary.

If you haven't seen Derrick Jensen's Endgame talk, you really should:

Hombre said...

Bluebird - Thank you, my information (from a previous web source) was incorrect on the geography but correct on the history. The 10 oclock line started on Racoon Creek and went southeast to the Ohio state line. But the point of course was the "sale" of land and resources to the more powerful forces.

How about we draw a 300 mile radius circle around, say, Union City, call it TecumtheLand, and secede from Banksteristan!? That would include most of Indiana, Ohio, KY and MI and would leave out all the Wall Street banksters and Washington politicos! ;-)

bluebird said...

Coy Ote - Throughout history, boundary lines get drawn and redrawn all the time. I just couldn't recall the location of Raccoon Creek. Need to discuss with my siblings who still live near there.

I echo scandia about our brutal history concerning the Indian loss of land and being herded onto reservations. Tragic, and so much has been covered up during school history lessons.

Frank said...

@Scandia Remember that most of the population of Canada lives south of Alberta too. There's a big (Like 4 parallel 2 ft pipes) pipeline from Manitoba down through Minnesota, across the UP of Michigan and back into Ontario at Sault Ste. Marie.

There's also a pipeline between Sarnia, ON and Pt. Huron MI. When I was a kid, you could smell Sarnia for 50 miles when the wind was right.

Rumor said...

I don't link Garth Turner much anymore; his views are well known here and often somewhat questionable, but he brings interesting news this morning:

Those who believe my best-before date was in the Eighties, and that a US-style real estate correction in this country is impossible, often makes these points: (a) our banks are more conservative. (b) Canadians are cautious about debt. (c) We never had funny mortgages.

Those are myths, of course. And to help us prove this, we’re joined by the TD Bank.

Here’s the story: Starting last Monday the bank is registering all its new home loans as collateral mortgages, rather than conventional ones. If you have no idea what that means, you’re normal.

...Says a mortgage industry insider: “TD Bank’s move is brutal for customers unless they are share holders of the Banks. None mention the true legal / security implications and how it increases the bank’s security and sticks customers with more liability.

Full explanation at Garth's place.

Hombre said...

Want a taste of provincial expose? Here is a snapshot of how clueless some community folks are...
Recession? Depression? Inflation? Deflation? What me worry?
Is there such a thing as blindflation?
Check this out (and the comments). A local community spends millions on athletics arenas and now are considering more tens or hundreds of thousands on the "slope" of the baseball field, etc.!

"...Yorktown Clerk-Treasurer Beth Neff has also voiced other concerns about the cost of the sports park, which has already exceeded $3.4 million, and there's still more work to be done.
At a park board meeting last week, the board agreed the town should spend $435,000 for work to allow the JAA to play when their season begins in April..."

Rumor said...

Thanks, I think, for linking Bageant's latest article, I.M. Joe knows how to haunt me with the bittersweet.

scrofulous said...

@ Nassim


According to The Fall of Rome: And the End of Civilization, it was a traumatic experience. The quality of the table-ware of Roman peasants in the UK was superior to those of latter-day kings. One can only extrapolate from that. One chapter in the book is entitled "The Disappearance of Comfort" just to give you an idea.

I think this could devolve to a battle of, my archaeologist can beat up your archaeologist

... but I think there was lots of trading going on internally and externally with the Church ganging in for their share of that as well. Cheap commercial potter was apparently being produced en mass for trade and cattle and agi products as well for that purpose - it was not a subsistence existence as we are apt to think.

"Let's not forget what things were like less than 100 years ago. When penicillin was first tested on a human, it was an English policeman with an infected hand - he had been pricked by a thorn. The penicillin made him better but they ran out of it and he got worse and died."

Okay but I fail to see the relevance of this, I think we all know the benefits that science and teck have had. My originating thought was that the further from the centre the less abrupt were the change resulting from the collapse of the Roman
empire. I think as well that if one can find spots that are more independent of the influences of this period of the American
empire. For fun Google Earth Kitimat, now that place has it's own electric power system from dams to the electric wall socket and if the road to Terrace were dynamited the only way in other than a slog over the mountains is by sea and then up a long inlet.

When the Moors occupied Spain, they left one part unoccupied. In exchange for being unoccupied, the people in that province agreed to give 1000 virgins each year to the Moors. This went on for 80 years. The Moors were quite civilized according to history. The UK was another matter.

Hey that is still happening in
Spain but it is the local Gypsys that are now dealing in young virgins, and from what I saw on the program, Passionate Eye, last night on CBC TV, there is still a vital Civilization hopping an bopping there in Spain.
at least if you equate automobile traffic with civilization, that is.

scrofulous said...

@ Nassim I will abbreviate your comments as the comment becomes to large to process otherwise.


According to The Fall of Rome just to give you an idea.

I think this could devolve to a battle of, my archaeologist can beat up your archaeologist

... but I think there was lots of trading going on internally and externally with the Church ganging in for their share of that as well. Cheap commercial potter was apparently being produced en mass for trade and cattle and agi products as well for that purpose - it was not a subsistence existence as we are apt to think.

"Let's not forget what things were like less than 100 years ago. When penicillin ...and he got worse and died."

Okay but I fail to see the relevance of this, I think we all know the benefits that science and teck have had. My originating thought was that the further from the centre the less abrupt were the change resulting from the collapse of the Roman
empire. I think as well that if one can find spots that are more independent of the influences of this period of the American
empire. For fun Google Earth Kitimat, now that place has it's own electric power system from dams to the electric wall socket and if the road to Terrace were dynamited the only way in other than a slog over the mountains is by sea and then up a long inlet.

"When the Moors occupied Spain, they left ... The UK was another matter."

Hey that is still happening in
Spain but it is the local Gypsys that are now dealing in young virgins, and from what I saw on the program, Passionate Eye, last night on CBC TV, there is still a vital Civilization hopping an bopping there in Spain.
at least if you equate automobile traffic with civilization, that is.

jal said...

Rumor said...
“... loans as collateral mortgages, rather than conventional ones.”

I think that everyone has misunderstood the purpose of having collateral mortgages.

In my opinion, The purpose is for a bank, (TD), to make all of their clients loans FIRST loan. There would not be any second mortgage.

None of the loans would be a mortgage. All the loans would be on the same footing. Any assets could be seized to pay off any and all loans. ( Just like now). (Credit card, student loans, line of credit, mortgage loans)

This makes the bank first in line for payment of any loans. This locks up the client with this bank for life.

The beauty of this approach is that ALL other loan with other banks etc. become SECOND.
They would get wiped out if the sale of assets were not sufficient to cover the bank, (TD).

It will make it difficult for a client to get accepted as a client by another bank.

I expect that there will be unexpected consequences in case of bankruptcies.

Gravity said...

Gravity's gambit

Whereas it remains uncertain whether capital is subject to gravity, it is most prudent to price assets in accordance with the assumption that it is.

Gravity said...

Syndicated for non-economists

Whereas economists remain uncertain whether capital is subject to gravity, it is most prudent to value assets in accordance with the assumption that it is.

Rumor said...

Interesting point, Jal. Turner seems to offhandedly suggest the same in his article, although that's obviously not his focus. You're probably correct.

scrofulous said...

La Nina

Looks like we get an increase in snow and natural gas prices this winter. Natural gas can keep you warm two ways. Once by using it in the furnace and another by burning, nat gas co's ill gained share value, increase in jet engines to visit El Gallinazo land.

I wonder which way uses less fuel?

Nassim said...


Hey that is still happening in Spain but it is the local Gypsys that are now dealing in young virgins

The gypsies certainly know how to survive in a bad economy. We can all learn from them.

Last year, I was near Perpignan (France) on holiday and I just could not understand why the other economy was invisible. Now I know why Open for business: the brothel with 1,800 prostitutes
This is just a 30 minute drive away across the border in Spain. However, I doubt if many of them are virgins. I visited Barcelona and the economy over there seemed to be doing much better - perhaps some economist can explain.

scandia said...

This afternoon I wrote an e-mail about a building in Toronto, an architectural jewel built in the 70's. While doing so I thought of Rubin's criticism that Stoneleigh is not a trained economist. While I have never studied architecture I feel confident my observations and appreciation of the building are valid.I am sure Rubin would say I have no right to critique a building's design. I may not have the jargon but I get the aesthetic just like Stoneleigh gets the economic trends and patterns. There are some buildings designed by degreed architects that are pure crap.

scandia said...

@ Draft...I just tuned into the Derrick Jensen Endgame video. I was so bored by the Star Wars script reading. Perhaps its a generational problem. Does he move on to say anything for himself sans Star Wars?
If so I'll go back to it.

jal said...

A must read,( even the comments).

Guest Post: How Did the Banks Get Away With Pledging Mortgages to Multiple Buyers?

Archie said...

The admirable blogger Scandia wrote:

This afternoon I wrote an e-mail about a building in Toronto, an architectural jewel built in the 70's. While doing so I thought of Rubin's criticism that Stoneleigh is not a trained economist. While I have never studied architecture I feel confident my observations and appreciation of the building are valid.I am sure Rubin would say I have no right to critique a building's design.

Back in my Vietnam GI days, we had this saying about pompous authorities:

Fuck 'em if they can't take a joke!

It applies to Jeff Rubin in spades.

Ilargi said...

New post up.

Can QE2 Save The Banks?


scrofulous said...




A treat to read with a very conversational style and especially nice to read while drinking a bottle of micro brewery whatever.

As for example: OX - stands for

(what else) the ox, an animal whose value serves as a useful measure of inflation, since a slave cost four oxen in Homeric times but commanded eight in pre-Roman Britain.

(of course this example may not act in a positive manner for a certain party who operates this blog;))