Saturday, December 18, 2010

December 18 2010: Kicking the Snowball Down the Road

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Ilargi: The saying of course says "kicking the can down the road", and we see it used a lot when referring to the financial crisis and the reactions to that crisis from governments and central banks. It's a pretty good metaphor as metaphors go, but I don't think it's perfect; it doesn't paint the whole picture. A can that gets kicked doesn't change much. The financial crisis does change, however; it gets bigger as we go along. A snowball fits that picture much better. Fits the present weather better too. And at a certain point that snowball will get so big, nobody's strong enough to kick it any further.

A good illustration is provided by a series of numbers regarding Ireland, and the eurozone in general. As Finnish commenter Lautturi said at The Automatic Earth yesterday:
It seems to me PIGS-countries have morphed into BIGPIGS-countries.
  • Belgium
  • Ireland
  • Greece
  • Portugal
  • Italy
  • Great Britain
  • Spain
That sounds about right. Except that we have seen Austria mentioned as a potential problem case as well. Time for an anagram app?!

Update: the consensus in the comments section seems to be for BIGAPIGS.

Ireland debt was cut 5 levels in one fell swoop by Moody's this week. Belgium and Austria are rumored to be the next in line for downgrades and then bail-outs. But for now we can focus on the big four problem cases: Greece, Ireland, Portugal and Spain. The last two deny any problems exist in their economies, while Greece saw a once popular politician stoned by protesters. We can but await in fear for what is to follow across the entire region.

By combining some data the picture gets pretty clear. First, Harry Wilson at the Daily Telegraph writes this:

Lloyds writes off half of Irish loans
Lloyds Banking Group and Royal Bank of Scotland shares tumbled on Friday after Lloyds said it had effectively written-off more than half of its outstanding loans to Irish borrowers. Lloyds shares closed down 3.6pc at 66.5p, while RBS's fell 5.7pc to 37.82p as the market took in the impact of the new write-downs.

In a statement, Lloyds said it had seen a "further significant deterioration in market conditions" in Ireland and that a further 10% of its £26.7bn portfolio of Irish loans would be impaired by the end of the year. "We are concerned that any economic recovery in the Republic of Ireland may take longer to achieve, and that asset prices will remain depressed for longer than previously anticipated," said Lloyds.

Provisions to take account of the worsening in the portfolio will amount to an additional £4.3bn this year and total provisions now cover about 54pc of the entire loan book, effectively meaning Lloyds does not expect to get back at least half of its Irish loans. The huge write-offs have largely been driven by the collapse of the Irish property market and 90% of the bank's loans against commercial property in Ireland are impaired, meaning that the borrower is either behind on payments or unable to service the debt.

Ilargi: Then both Mike 'Mish' Shedlock and John Mauldin address a new report by the Bank for International Settlements (BIS), which has some revealing stats concerning international banking exposure to the European problem children. Here's Mauldin first:

HOORAY! Europe Just Kicked The Can Down The Road
The PIIGS collectively owe over $2 trillion to European and US banks. German, French, British, Dutch, and Spanish banks are owed some $1.5 trillion of that by Portugal, Ireland, Spain, and Greece by the end of June, 2010. That figure is down some $400 billion so far this year, which means that the ECB is taking on that debt, helping banks push it off their balance sheets.[..]

Robert Lenzner notes something very interesting about the latest BIS report, out this week:

"What's curious, though, is that for the first time the BIS has broken out a new debt category termed 'other exposures', which it defines as 'other exposures consist of the positive market value of derivative contracts, guarantees extended and credit commitments.' These 'other exposures' - quite clearly meant to be abstruse - amount to $668 billion of the $2 trillion in loans to the PIIGS. "So, bank analysts everywhere; you now have to cope with evaluating derivative contracts that could expose lenders to losses on sovereign debt. Be on notice!"

What did I write just last week? That it is derivative exposure to European banks that is a very major concern for the world and the US in particular. It is not just a European problem.[..]

A collapse of a major European bank could trigger all sorts of counterparty mayhem in the US banking system, at least among our major investment banks. And then people would want to know which bank was next. This is yet another reason why the recent financial-system reform was not real reform.

We still have investment banks committing bank capital to derivatives trading overseen by regulators who don't really understand the risk. Who knew that AIG was a counterparty risk until it was? Lehman was solid only a month before until it evaporated. On paper, I am sure that every one of our banks is solid - good as gold - because they have their risks balanced with counterparties all over the globe and they have their models to show why you should go back to sleep.[..]

At first, the political types came up with the stabilization pact in conjunction with the IMF. But this was never a real solution, other than for the immediate case of Greece ... and then Ireland. It has some real problems associated with it. It could deal with Portugal but is clearly not large enough for Spain. It is worth nothing that the political leaders of both the latter countries have loudly denied they need any help. Hmm. I seem to remember the same vows just the week before Ireland decided to take the money.

One of my favorite writers, Michael Pettis penned this note:
"Its official - Spain and Portugal will need to be bailed out soon. How do I know? In one of my favorite TV shows, Yes Minister, the all-knowing civil servant Sir Humphrey explains to cabinet minister Jim Hacker that you can never be certain that something will happen until the government denies it."

Ilargi: And then a Bank for International Settlements graph that Mish posted:

Ilargi: So let's play with the numbers a little, shall we?

Lloyds Banking Group has so far written down 54% of its Irish loans. Let's assume their portfolio is not much different from other financial institutions, and that these will therefore have to do the same at some point in the future. At the 54% rate that Lloyds has written down so far - and note that they already announce a further 10% loss, and 90% of their commercial real estate loans are impaired -, we can quite easily estimate what's in store for other international banks with exposure to Ireland.

That is to say, US banks' losses in Ireland, at the 54% write-off rate, would be $58.5 billion, while German banks would lose $100.7 billion and British counterparts $101.25 billion.

And these are all numbers that, as far as we've seen, have not been entered into account to date. Lloyds may have opened a Pandora's box, though, or a snake pit if you will, and really, why on earth Citigroup shares rose 2.47% on Friday, in that climate, with this information, is beyond me. Or is that because former Obama Budget Director Peter Orszag now works at Citi, providing a direct bail-out line?

A $58.5 billion loss for the main Wall Street banks may seem doable; the German and British losses certainly do not. And Ireland is just the tip of the iceberg (or the snowball). At that same 54% write-off rate, banks' exposure to Spanish debt works out as follows: Germany - $116.9 billion, France - $108.5 billion, Great Britain - $73.7 billion, US - $93.3 billion.

If we add Portuguese and Greek debt to the mix, and we look at total exposure to the four biggest EU problem cases, and potential losses from it, we see that German banks' exposure totals $512.7 billion, and losses at 54% write-offs $276.8 billion, French banks' exposure totals $410.2 billion, with losses at 54% write-offs $221.5 billion, British' banks exposure totals $370 billion, losses at 54% write-offs $199.8 billion, US banks' exposure total $352.9 billion, with losses at 54% write-offs $190.6 billion.

Is there anyone out there who wishes to claim that German banks can absorb $276.8 billion in losses, French banks $221.5 billion, and British $199.8 billion, and still the whole shebang can live happily ever after? If there is, please let us know who you think lives at the North Pole.

Total global exposure to Ireland, Portugal, Spain and Greece is $2.281 trillion. A 54% write-off would mean a $1.23 trillion loss for the international banking system. And that's for the exposure to the debt of just four countries, which have a total population of no more than 75 millon people! Let that sink in! And let's not forget the timeframe, either: as quoted above from the Telegraph: "German, French, British, Dutch, and Spanish banks are owed some $1.5 trillion [of that] by Portugal, Ireland, Spain, and Greece by the end of June, 2010". Also, once again, keep in mind that Lloyds already sees a further 10% downgrade before the end of 2010 (!!), and dark prospects going forward.

Now, we could argue that the losses on Ireland debt will turn out to be the worst of all countries involved. But we might have a hard time making that case, even if the ECB, Spain, Germany and the US Federal Reserve are hell bent on kicking that snowball as far as they can.

Thing is, that snowball will become too vast to be kicked even another inch.

And frankly, I don't see why write-downs on Ireland would have to be so much worse than those on Spain or Portugal. Look for instance at this "funny" map of Irish ghost estates:

Ilargi: And then compare that with this story by Suzanne Daley and Raphael Minder in the New York Times:

Newly Built Ghost Towns Haunt Banks in Spain
The boom and bust of Spain’s property sector is astonishing. Over a decade, land prices rose about 500 percent and developers built hundreds of thousands of units — about 800,000 in 2007 alone. Developments sprang up on the outskirts of cities ready to welcome many of the four million immigrants who had settled in Spain, many employed in construction.

At the same time, coastal villages were transformed into major residential areas for vacationing Spaniards and retired, sun-seeking northern Europeans. At its peak, the construction sector accounted for 12 percent of Spain’s gross domestic product, double the level in Britain or France. But almost overnight, the market disappeared. Many immigrants went home. The national unemployment rate shot up to 20 percent. And the northern Europeans stopped buying, too. But government officials now say the worst is over, with housing prices down a modest 12.8 percent from the peak, according to the Bank of Spain.

"Most of the adjustment in housing prices has already taken place," José Manuel Campa, Spain’s deputy finance minister, said recently, though he allowed that there was a lack of good information on real estate sales. Still, skeptics abound.

One is Jesús Encinar, the founder of Spain’s most popular property Web site, He says that the Spanish authorities are striving to engineer a soft landing of the housing market that would give more time to offload surplus housing at reasonable prices. But he believes prices still have a long way to fall, by 30 or 40 percent, maybe more. "Some people who said there was no housing bubble are now saying we are at the bottom," Mr. Encinar said. "But I say we have several years to go."

He is not alone in scoffing at some of Spain’s numbers. In a report last April, the French bank Société Générale dismissed many of the assertions made by Spain’s banks, pointing out that Spain had one of the fastest rates of expansion in construction, had the largest number of mortgages per capita and was the most overbuilt among its peers. Yet prices had fallen the least. "We find it impossible to reconcile the banks’ claims of asset quality stability and the macro facts," the report said.

There is also little agreement even on the number of housing units for sale. José Manuel Galindo, president of Madrid’s association of real estate developers, noted that one of Spain’s leading property appraisers, Tinsa, recently estimated that there were 10,000 unsold housing units around Spain’s capital city. Government figures, however, put the figure as high as 50,000 units, he said. "What is amazing to me is that nobody is investing in doing a very thorough and reliable study of what is the exact supply and demand," Mr. Galindo said.

Ilargi: Ehhh, no, as I said, I don’t see a good case for claiming that Spain is in any better shape than Ireland is. Or Portugal, for that matter. When Stoneleigh and I were in Basque country in northern Spain last week, we heard people ask how it was possible that Spaniards buy €300.000 apartments on a €1000 monthly salary. When I was in Portugal 10 years ago, people were already taking out mortgages that could by default only be characterized as multi-generational, since they were clearly impossible to pay off in one lifetime with their incomes.

There's a lot more pain to come in the European periphery. Think Italy. Romania, Hungary, Baltics. And then it will spread to the core, France, Holland, Germany. Still, rest assured that all politicians and bankers and brokers and financiers will keep on kicking that snowball down the road. Until they can't. Until it's become a snow mountain. That you will be trapped in.

And if you feel smug about being in the US when you read things like this about Europe, don't. Just don't. What will happen in Spain will happen in California, and what Ireland goes through, Illinois will. This is a global crisis, not a local one. And no, this particular time is not different, and neither is your particular location, no matter where you are.

It's at times as amusing as it is tragic to hear people in Holland or France or Canada or Euskadi (the name the Basque have for their country) argue passionately why they will be better off than others, but it's no more than Wile E. Coyote frantically kicking his legs around one more time inside the emptiness of nothing but hot air. Every single region will be hit so hard any thought of bragging rights will soon be forgotten.

All those banks, European, American, Canadian, are counterparties to each other's lost wagers. If one major global bank falls, all will start shaking on their foundations. They will have taken all of their countrymen's money by then, though. And it's already too late to prevent that from happening. All you can still do now is to try and get out of the way of that snowball that's headed in your direction. Get out of debt. Think about your basic needs.

It's all really simple from here on in. As simple as it is sad.

Happy holidays to you and yours from The Automatic Earth.

Lloyds writes off half of Irish loans"
by Harry Wilson - Telegraph

Lloyds Banking Group and Royal Bank of Scotland shares tumbled on Friday after Lloyds said it had effectively written-off more than half of its outstanding loans to Irish borrowers. Lloyds shares closed down 3.6pc at 66.5p, while RBS's fell 5.7pc to 37.82p as the market took in the impact of the new write-downs.

In a statement, Lloyds said it had seen a "further significant deterioration in market conditions" in Ireland and that a further 10pc of its £26.7bn portfolio of Irish loans would be impaired by the end of the year. "We are concerned that any economic recovery in the Republic of Ireland may take longer to achieve, and that asset prices will remain depressed for longer than previously anticipated," said Lloyds.

Provisions to take account of the worsening in the portfolio will amount to an additional £4.3bn this year and total provisions now cover about 54pc of the entire loan book, effectively meaning Lloyds does not expect to get back at least half of its Irish loans. The huge write-offs have largely been driven by the collapse of the Irish property market and 90% of the bank's loans against commercial property in Ireland are impaired, meaning that the borrower is either behind on payments or unable to service the debt.

Friday's warning comes just over six weeks after Lloyds released an interim management statement in which it said it expected Irish impairment levels to remain unchanged on the amount seen in the first half of the year. Ireland's austerity budget and the continuing uncertainty in the country over its political situation were cited by Lloyds as the two main reasons for its increasingly pessimistic outlook on its Irish portfolio.

Despite the announcement, analysts at Nomura retained their "buy" recommendation on Lloyds shares and said the new write-offs were not significant enough for them to change their view on the bank. Nomura warned, though, that the charges against problem loans were likely to rise and that additional provisions could be made in the years to come.

The broker also said that the implications of the Lloyds writedown could be more significant for RBS. "We believe RBS remains more geared to the negative read-across, given its apparently larger Irish portfolio of £52.5bn and what we believe to be a lower coverage ratio [some 10pc of Ulster Bank loans, compared with 28pc now at Lloyds]," wrote the analysts.

Last month Ireland was forced to go to the European Union and International Monetary Fund, which together with support from non-euro countries, including the UK, provided the country with an €85bn (£72bn) emergency bail-out package. Earlier this week the Irish government passed a new budget and agreed to accept the bail-out despite widespread condemnation among opposition politicians.

Ireland Credit Rating Is Cut Five Levels by Moody's; Outlook Negative
by Finbarr Flynn - Bloomberg

Ireland’s credit rating was cut five levels by Moody’s Investors Service and further downgrades are possible as the government struggles to contain losses in the country’s banking system. The rating was lowered to Baa1 from Aa2, Moody’s said in an e-mailed statement from London today. That’s three levels above non-investment grade and the same level as countries including Russia and Lithuania. The outlook on the rating is "negative," Moody’s said.

Irish lawmakers on Dec. 15 voted to accept an 85 billion- euro ($113 billion) aid package from European governments and the International Monetary Fund to stabilize the country’s finances. Moody’s said that confidence in Irish banks "evaporated" in the run-up to the bailout. "While a downgrade had been anticipated, the severity of the downgrade is surprising," Glas Securities, the Dublin-based fixed-income firm, said in an e-mailed note today.

As European governments struggle to stop contagion from Greece and Ireland to other nations, Moody’s this week said it may lower Spain from Aa1. It also placed Greece’s Ba1 rating on review for a possible downgrade. European Union leaders agreed at a meeting in Brussels yesterday to amend the bloc’s treaties to create a permanent crisis-management mechanism in 2013.

Bank Costs
While Ireland’s government had said it’s fully funded through mid-2011, investors dumped the country’s bonds on concern that the cost of the bank rescue would swamp the state. Government figures on Nov. 28 showed that Ireland may spend as much as 83 billion euros, more than half of its gross domestic product, to support banks including Allied Irish Banks Plc.

The government plans to cut spending by about 20 percent and raise taxes over the next four years to narrow its deficit. The budget shortfall will be 12 percent of GDP this year, or 32 percent including a banking rescue, the government estimates. "The austerity measures could have feedback effects on economic growth, on domestic demand, and that’s something that should be monitored," Dietmar Hornung, an analyst at Moody’s, said in an interview. He said it is "very unlikely" that Ireland will default on its debt.

Irish borrowing costs initially rose after the bailout was agreed on Nov. 28, before declining. The extra yield investors demand to hold Ireland’s 10-year bonds rather than the German equivalent, Europe’s benchmark, widened to a euro-era record of 680 basis points on Nov. 30. It was at 533 at 9:09 a.m. in London, up from 521 yesterday.

"Ireland has managed high levels of indebtness in the past and has shown political cohesion and commitment to enacting difficult fiscal consolidation measures," Hornung said. "The government is making considerable investments in its banking system that might ultimately generate income."

Debt Riots Break Out in Greece
by Adam Sharp - Wealth Daily

Today [Thursday] is the anniversary of the Boston Tea Party.

In Greece, demonstrators staged a protest of their own. Thousands took to the streets yesterday, rallying against government cutbacks and corruption.

The protests started out as peaceful affairs; by afternoon, things had gotten nasty.

hatzidakis attached in Athens riotsWhen the mob arrived at the Greek Parliament building, they spotted a well-known politician, Kostis Hatzidakis (pictured right).

His fellow Athenians proceeded to stone the former MP. That's right, they stoned him.

The politician survived, but Greece and the EU may not. Not as we know them anyway.

The riots were violent, as shown in this footage. Riot cops can be seen clashing with large groups of protesters.

Gov't troops launch volleys of tear gas at protesters, who are busy launching their own attack — a barrage of Molotov cocktails.

In another display of populist anger, English protesters attacked a Rolls Royce carrying Prince Charles and his wife last week.

Some in the crowd could be heard chanting "off with their heads".

The Royals escaped unharmed, save some damage to their Rolls Royce; rowdy protesters did manage to bust out a side window and ding up the exterior.

There are lessons for the EU and United States in this mess.

Bond holders versus the populace
Social unrest like this isn't supposed to happen in the Western world. Yet, here we are.

Confusion remains about about how we got here. This is primarily a story about bonds, and who owns them.

Who owns the bonds of at-risk EU nations?

First and foremost: European banks. The banks are so exposed to EU debt that a default by just one nation would lead to a chain of events that would likely crush them.

By securing a "rescue package" for a troubled borrower nation, banks simply ensure that they are not forced to eat losses.

Debt is transferred directly onto the public's lap, preferably. In the case of Ireland, they did so by raiding the public pension fund to the tune of $35 billion.

But these rescues are likely to fail. Once a nation is in need, its alternatives to default are limited. You can only squeeze a bad debtor so much. At some point, bad debt must be forgiven.

Default is the risk banks take when they lend money to nations in the form of bonds, and it's happened countless times throughout history.

Games like the ones being played now by the EU only delay the inevitable for a few years, and spread the pain around a bit.

The Iceland example
Imagine if Greece had followed Iceland's example, telling creditors, "Sorry, we don't want to be saddled with unpayable debts for eternity."

I suspect we'd all be better off if they did default — and the sooner the better. Their debts are unsustainable; far too costly to maintain.

Banks would fail and need to be nationalized. Bond holders would take losses. The EU would be forced to evolve or dissolve.

Public sector jobs would take a hit. Low-productivity jobs (like many government positions) would begin flowing to sustainable industries. Smith's invisible hand would do its work, and after a few lean years, sustainable growth would return.

Take the case of Iceland. One of the first victims of the financial crisis is already recovering...

By turning down the big banks offer, the country has set itself up for growth. It's population, unlike much of Europe, won't be saddled with the massive debt spawned bailing out zombie banks.

Meanwhile, banks remain firmly in control in Europe and the United States...

Interesting times ahead
Unfortunately, I see riots in Europe as a sign of things to come.

The U.S. should expect similar unrest within three years. States are broke, pensions are horribly underfunded, and a Medicare disaster looms on the horizon.

Something has to give.

And when it does, social programs will be slashed along with everything else. Unemployment, welfare, food stamps — all these things will face cuts. Do you want to be in Detroit when that happens? Or any major urban center, for that matter?

My goal isn't to frighten anybody; it's to underscore the importance of these issues.

Because so far, nothing fundamental has changed (oh, the irony of that word change), nor has anything been fixed. TBTF banks are more fail-proof than ever, lining their pockets at 2007 bubble levels.

The power-elite financiers remain in control: the same group of Bob Rubin devotees who set the stage for the meltdowns of 2000 and 2007 — Tim Geithner, JPM & Goldman, and of course the Bernank, among others.

Paul Volcker has gained a little more respect in the Obama administration, which is a positive development. Even the Fed has a few rational folks, like Hoenig and Fisher. But they're outnumbered 20-1 by banksters, of course.

On the verge
Not to be overly dramatic, but we stand at a historic crossroads. If we choose the right path, America and the world could be on a path to sustainable growth in as little as two to three years.

If we choose the wrong one — the road we're currently on, by the way — we're looking at least a decade of poor growth, likely negative growth in real terms (after inflation).

As asset prices rise due to Fed printing, living costs will increase. Wages will not keep up — they never do. Corporate margins will be squeezed and compressed. Not a pretty outcome.

Unfortunately, stagflation, the economist's worst nightmare, seems increasingly likely in America.

The answer lies in drastic gov't spending cuts, starting with military. But the wheels of progress turn slowly in DC, and they usually turn in the wrong direction.

The only consolation prize from this scenario, as I see it, is the bull market in precious metals. Metals should continue to gain until pressure finally forces the Fed to change course, which I suspect is still a ways off.

And that's why we've been advising readers to own gold and silver for the last five years.

Play the hand you're dealt, not the one you wish you were.

PIGS Exposure Table, Explaining the Panic by Numbers
by Mike Shedlock - Global Economic Analysis

To explain the ECB's panic over Spain, all one needs to do is look at this "exposure table" from the recently published BIS Quarterly Review. I highlighted areas of interest.

click to enlarge

Exposure to Spain
Germany - $216.6 billion
France - $201.3 billion
Great Britain - $136.5 billion
US - $172.8 billion

Exposure to Ireland
Germany - $186.4 billion
France - $77.3 billion
Great Britain - $187.5 billion
US - $108.3 billion
Spain - $17.7 billion

Exposure to Portugal
Germany - $44.3 billion
France - $48.5 billion
US - $35.6 billion
Spain - $98.3 billion

Exposure to Greece
Germany - $65.4 billion
France - $83.1 billion
US - $36.2 billion

Note that Spain which itself needs to be bailed out, has a $98.3 billion exposure to Portugal (which will probably need to be bailed out next), as well as a $17.7 billion exposure to Ireland (bailout underway).

Spain and Ireland are the big boys here, but the whole thing is a mess. The table does explain the panic at the ECB and EU to contain this mess. However, it is simply too late. The only question is how long will it take before this blows sky high?

UK banks face an extra £80bn of bad debts
by Philip Aldrick - Telegraph

Britain's four largest lenders are facing losses on loans to consumers of up to £80bn over their own forecasts, the Bank of England has warned.

The four banks – Royal Bank of Scotland, Lloyds Banking Group, Barclays and HSBC – have set aside £71bn in provisions, the Bank noted. However, losses on consumer debts alone – such as mortgages and credit cards – will be £100bn if "write-off rates return to their pre-crisis average" and £150bn if losses on bad debts hit "levels seen in the early 1990s recession", the Bank said in its Financial Stability Report.

The extra impairments will "be a further drain on banks' profits" and, in the extreme case, would amount to 28pc of lenders' £281bn of total core tier one capital – their buffer against future problems.

Although "manageable", the Bank said the extra bad debts are just one risk the industry is facing. A resurgent eurozone crisis would also devastate UK bank profits. The lenders have a £210bn exposure to Spanish and Irish debt – about 75pc of total capital. Another £288bn is in German and French debt, which may suffer if the eurozone crisis worsens.

In addition, the Bank said, UK lenders have to refinance £400bn to £500bn of wholesale funding in the next two years, having managed just £130bn this year. If refinancing costs rise 50pc above current levels as funding conditions deteriorate, the Bank said, lenders would lose "around 15pc of pre-tax profits in 2011 and 20pc in 2012".

Pressure on banks' profits comes as they begin an eight-year transition to new regulatory standards on capital and liquidity. The industry has warned that the new rules could reduce global growth by more than 3pc over five years and cost a potential 9.7m jobs.

The Basel Committee on Banking Supervision said on Thursday that the world's biggest banks will have to find €577bn (£489bn) of capital ahead of the new rules' introduction in 2019. The Bank said UK lenders are ahead of the pack and can meet the new rules without putting economic growth at risk, urging banks to pay less in bonuses and dividends to build up capital reserves. Banks are expected to distribute about £7bn in bonuses this year, with the first pay rounds due early next year.

"By maintaining historical retention rates, the major UK banks could meet the new capital requirements by the end of the transition period while still increasing risk-weighted assets by around 7pc per annum – roughly comparable to the average between 1998 and 2003," the Bank said. It urged boards to "apply restraint in distribution of profits to equity holders and staff", suggesting bonuses should be paid in non-cash form, such as "contingent capital or subordinated debt".

Nick Clegg, the deputy prime minister, warned on Thursday that the government would not "stand idly by" if banks pay out huge bonuses at the expense of increasing lending.

The Bank struck a rare supportive note for the industry, remarking that "resilience among UK banks has improved over the past year, including progress on refinancing debt and on raising capital buffers". British banks are now safer, in terms of capital levels, than rivals in the US and the eurozone. As a result, they are getting preferential treatment from the markets, the Bank added.

HOORAY! Europe Just Kicked The Can Down The Road
by John Mauldin - Thoughts From The Frontline

How often did we as young kids go down the street kicking a can?

"Kicking the can down the road" is a universally understood metaphor that has come to mean not dealing with the problem but putting a band-aid on it, knowing we will have to deal with something maybe even worse in the future.

While the US Congress is certainly an adept player at that game, I think the world champions at the present time have to be the political and economic leaders of Europe.

Today we look at the extent of the problem and how it could affect every corner of the world, if not played to perfection. Everything must go mostly right or the recent credit crisis will look like a walk in the Jardin des Tuileries in Paris in April compared to what could ensue.

From the point of view of not wanting to so soon endure another banking and credit crisis, we must applaud the leaders of Europe. The PIIGS collectively owe over $2 trillion to European and US banks. German, French, British, Dutch, and Spanish banks are owed some $1.5 trillion of that by Portugal, Ireland, Spain, and Greece by the end of June, 2010. That figure is down some $400 billion so far this year, which means that the ECB is taking on that debt, helping banks push it off their balance sheets. For what it's worth, the US holds, according to the Bank for International Settlements, about $353 billion, or 17%, of that debt, which is not an inconsequential number.

Robert Lenzner notes something very interesting about the latest BIS report, out this week:

"What's curious, though, is that for the first time the BIS has broken out a new debt category termed 'other exposures, which it defines as 'other exposures consist of the positive market value of derivative contracts, guarantees extended and credit commitments.' These 'other exposures' - quite clearly meant to be abstruse - amount to $668 billion of the $2 trillion in loans to the PIIGS.

"So, bank analysts everywhere; you now have to cope with evaluating derivative contracts that could expose lenders to losses on sovereign debt. Be on notice!"

What did I write just last week? That it is derivative exposure to European banks that is a very major concern for the world and the US in particular. It is not just a European problem. I predicted in 2006 that the subprime problem would show up in Europe and Asia. This time around, European banks present a similar if not greater risk to the US.

A collapse of a major European bank could trigger all sorts of counterparty mayhem in the US banking system, at least among our major investment banks. And then people would want to know which bank was next. This is yet another reason why the recent financial-system reform was not real reform. We still have investment banks committing bank capital to derivatives trading overseen by regulators who don't really understand the risk. Who knew that AIG was a counterparty risk until it was? Lehman was solid only a month before until it evaporated. On paper, I am sure that every one of our banks is solid - good as gold - because they have their risks balanced with counterparties all over the globe and they have their models to show why you should go back to sleep.

Kicking the Can Down the Road
And that is why I applaud the ECB for stepping in and taking some risk off the table. We do not know how close we came to another debacle. Does anyone really think Jean-Claude Trichet willingly said, "Give me your tired, your poor, your soon-to-default sovereign debt?" Right up until he relented he was saying "Non! Non!" He did it because he walked to the edge of the abyss and looked over. It was a long way down. Bailing out European banks at the bottom would have cost more than what he has spent so far. It was, I am sure, a very difficult calculation.

I remember writing a letter not so long ago, quoting Trichet on that very topic. He was vehemently opposed to any ECB involvement in something that looked like a bailout. And then he wasn't. I do hope he writes a very candid memoir. It will be interesting reading. The reality is that there was nowhere else to turn. There were no mechanisms in the Maastricht Treaty for dealing with this situation. What I wrote the following week (or thereabouts) still stands. This was and is a bailout for European banks in order to avoid a banking crisis. Many European banks, large and small, have bought massive sums on huge leverage of sovereign debt, on the theory that sovereign debt does not default. Some banks are leveraged 40 to 1!

The ECB is now earnestly continuing to kick the can down the road, buying ever more debt off the books of banks, buying time for the banks to acquire enough capital, either through raising new money or making profits or reducing their private loan portfolios, to be able to deal with what will be inevitable write-downs. It they can kick the can long enough and far enough they might be able to pull it off.

There is historical precedent. In the late '70s and early '80s, US banks figured out that if you bought bonds from South American countries at high rates of interest and applied a little leverage, you could practically mint money. And everyone knew that sovereign countries would not default. That is, until they did.

Technically, every major bank in the US was insolvent then. I mean really toes-up, no-heartbeat bankrupt. So what happened? Mean old Paul Volker - he who willingly plunged the US into recession to vanquish the specter of inflation - allowed the banks to carry those South American bonds on their books at full face value. He kicked the can down the road. And the banks raised capital and made profits, shoring up their balance sheets.

In 1986 Citibank was the first bank to begin to write down those Latin American bonds. Then came Brady bonds in 1989. Remember those? Brady bonds were as complicated as they were innovative. The key innovation behind their introduction was to allow the commercial banks to convert their claims on developing countries into tradable instruments, allowing them to get the debt off their balance sheets. This reduced the concentration risk to the banks. (To learn more about Brady bonds, and a very interesting period, go to and also google "Brady bonds.")

So it worked. Kicking the can down the road bought time until the banks were capable of dealing with the crisis.

Different Cans for Different Folks
The ECB has chosen a different way to kick that old can (and a large and noisy one it is!), but it is not without consequences. Trichet has let it be known that dealing with sovereign-debt default issues should not be the central bank's problem, it should be a problem for the European Union as a whole. And I think he is right, for what that's worth.

If the ECB were to keep this up, even in a deflationary, deleveraging world it would eventually bring about inflation and the lowering of the value of the euro against other currencies. That is not the stuff that German Bundesbankers are made of. So they have been pushing for a European Union solution.

At first, the political types came up with the stabilization pact in conjunction with the IMF. But this was never a real solution, other than for the immediate case of Greece ... and then Ireland. It has some real problems associated with it. It could deal with Portugal but is clearly not large enough for Spain. It is worth nothing that the political leaders of both the latter countries have loudly denied they need any help. Hmm. I seem to remember the same vows just the week before Ireland decided to take the money.

One of my favorite writers, Michael Pettis penned this note:

"Its official - Spain and Portugal will need to be bailed out soon. How do I know? In one of my favorite TV shows, Yes Minister, the all-knowing civil servant Sir Humphrey explains to cabinet minister Jim Hacker that you can never be certain that something will happen until the government denies it."

Ultimately, the EU has three options. But before they get there - or maybe better said, before there is a crisis that forces them to get there - they will continue to kick the can down the road. They are really very good at it. We will consider those options in a little bit; but first, let's look at just one aspect of the problem that will lend some context to the various paths among which they must choose. And that will take us on a detour back to our old friend Greece, where this all started.

More Debt is NOT the Solution to Too Much Debt
Greece is being forced into an austerity program in order to be able to continue to borrow money. But it has come with a cost. Unemployment is now at 12.6%, up from less than 7% just two years ago. And Greek GDP continues to slide. Let's look at some charts and data from my favorite slicer and dicer of data, Greg Weldon.

Notice that Greek GDP is down over 7% for the last 9 quarters, and there is no reason to believe there will be a reversal any time soon.


A declining GDP is just not good for the country, but it also makes it more difficult for Greece to get back into compliance with its EU fiscal deficit-to-GDP requirements. The problem is that GDP is declining faster than the fiscal deficit. Normally, a country would devalue its currency (and thus its debt), maybe restructure its external debt (or default), and then try to grow its way out of the crisis.

Let's go back and look at what Iceland did, as compared to Ireland, which is trying to take on more debt to bail out its banks, that is, to bail out German and French and British banks.

This is what I wrote a few weeks ago, and it bears repeating:

Look at how upset the UK got when Iceland decided not to back their banks. Never mind that the bank debt was 12 times Iceland's national GDP. Never mind that there was no way in hell that the 300,000 people of Iceland could ever pay that much money back in multiples lifetimes. The Icelanders did the sensible thing: they just said no.

Yet Ireland has decided to try and save its banks by taking on massive public debt. The current government is willing to go down to a very resounding defeat in the near future because it thinks this is so important. And it is not clear that, with a slim majority of one vote, it will be able to hold its coalition together to do so. This is what the Bank Credit Analyst sent out this morning:

"The different adjustment paths of Ireland and Iceland are classic examples of devaluation versus deflation.

"Iceland and Ireland experienced similar economic illnesses prior to their respective crises: Both economies had too much private-sector debt and the banking system was massively overleveraged. Iceland's total external debt reached close to 1000% of its GDP in 2008. By the end of the year, Iceland's entire banking system was crushed and the stock market dropped by more than 95% from its 2007 highs. Since then, Iceland has followed the classic adjustment path of a debt crisis-stricken economy: The krona was devalued by more than 60% against the euro and the government was forced to implement draconian austerity programs.

"In Ireland, the boom in real estate prices triggered a massive borrowing binge, driving total private non-financial sector debt to almost 200% of GDP, among the highest in the euro area economy. In stark contrast to the Icelandic situation, however, the Irish economy has become stuck in a debt-deflation spiral. The government has lost all other options but to accept the E85 billion bailout package from the EU and the IMF. The big problem for Ireland is that fiscal austerity without a large currency devaluation is like committing economic suicide - without a cheapened currency to re-create nominal growth, fiscal austerity can only serve to crush aggregate demand and precipitate an economic downward spiral. The sad reality is that unlike Iceland, Ireland does not have the option of devaluing its own currency, implying that further harsh economic adjustment is likely."

This is what it looks like in the charts. Notice that Iceland is seeing its nominal GDP rise while Ireland is still in freefall, even after doing the "right thing" by taking on their bank debt.


Greek five-year bonds are now paying 12.8%. It is hard to grow your way out of a problem when you are paying interest rates higher than your growth rate and you keep adding debt and increasing your debt burden.


Each move to deepen government cuts in Greece will result in further short-term deterioration of GDP, which makes it even harder to dig out of the hole. And Greece is a particularly thorny problem. The taxi drivers are outraged that they might have to use meters. Why? Because that means someone could actually track the amount of money they take in. Government workers are striking over 10% pay cuts. And on and on.

It is the same song but with a different verse for the rest of the countries in Europe that have problems. While Ireland is very different from Greece, assuming massive debt in a deflating economy will only turn Ireland into an ever-larger burden unless they can get on the path to growth again. Ditto for Portgual, Spain, and....

Et Tu, Belgium?
One country after another in Europe is coming under pressure. This week the debt of Belgium was downgraded, and the accompanying note from Standard and Poor's observed that:

"Belgian's current caretaker government may be ill-equipped to respond to shocks to public finances. The federal government's projected 2011 gross borrowing requirements of around 11 percent of GDP leaves it exposed to rising real interest rates."

At some point, if a country does not get its fiscal deficit below nominal GDP (and this is true for the US as well!) it will run into the wall. Credit markets will no longer lend to it. In Europe, the lender has become the ECB, but that may - and I emphasize may - change with the establishment of a new authority for the European Union to sell bonds and use the proceeds to fund nations in crisis. Under the proposal, each nation would assume a portion of the total debt risk. That may be a tough sale, as it appears there will need to be a treaty change and then country-by-country votes for such a change.

It will also mean that countries that accept such largesse will endure a very stern hand in their fiscal affairs. This is potentially a very real surrender of sovereignty. Some countries may decide it's worth the price. Others, on the funding side of the equation, may decide they have to "take one" for the good of the European team.

This fund is to be launched in 2013, which gives EU leaders some time to flesh out the idea and sell it.

A second choice is for some countries to leave the euro but stay in the EU. Not all members of the EU participate in the eurozone. Leaving would be hugely messy. It is hard to figure out how it could be done without serious collateral damage. Even if Germany were to decide to be the one to leave, which they actually could, as the new German currency would rise over time, it would also mean their exports would be less competitive within Europe.

A third choice (which could be combined with the first choice) is radical debt restructuring. Convert Greek bonds into 100-year low-interest bonds, giving the Greeks (or Irish or Portuguese ...) the time and ability to service the debt, along with real controls on their spending. Of course, that is default by another name, but it allows the fiction. Something like Brady bonds. You hit the reset button and kick the can a long way down the road.

That choice too has political and economic consequences. Someone has to cover the losses on the mark-to-market for those bonds. Who takes the hit?

Let me close with this bit of insight from one of my favorite analysts, MartinWolfe of the Financial Times (

"This leads to my final question: could the eurozone survive a wave of debt restructurings? Here the immediate point is that the crisis could be huge, since one restructuring seems sure to trigger others. In addition, the banking system would be deeply affected: at the end of 2009, for example, consolidated claims of French and German banks on the four most vulnerable members were 16 per cent and 15 per cent of their GDP, respectively. For European banks, as a group, the claims were 14 per cent of GDP. Thus, any serious likelihood of sovereign restructuring would risk creating runs by creditors and, at worst, another leg of the global financial crisis. Further injections of official capital into banks would also be needed. This is why the Irish have been "persuaded" to rescue the senior creditors of their banks, at the expense of the national taxpayer.

"Yet even such a crisis would not entail dissolution of the monetary union. On the contrary, it is perfectly possible for monetary unions to survive financial crises and public sector defaults. The question is one of political will. What lies ahead is a mixture of fiscal transfers from the creditworthy with austerity among the uncreditworthy. The bigger are the former, the smaller will be the latter. This tension might be manageable if a swift return to normality were plausible. It is not. There is a good chance that this situation will become long-lasting.

"Still worse, once a country has been forced to restructure its public debt and seen a substantial part of its financial system disappear as well, the additional costs of re-establishing its currency must seem rather smaller. This, too, must be clear to investors. Again, such fears increase the chances of runs from liabilities of weaker countries.

"For sceptics the question has always been how robust a currency union among diverse economies with less than unlimited mutual solidarity can be. Only a crisis could answer that question. Unfortunately, the crisis we have is the biggest for 80 years. Will what the eurozone is able to agree to do be enough to keep it together? I do not know. We all will, however, in the fairly near future."

My only small disagreement is on whether it will be in the "near future." World champion can kickers can put off the day of reckoning longer than you might think. On the other hand, when that day does come, it will seem to have come so quickly and with so little warning. There is no way to know what the markets will do about this, so it pays to stay especially vigilant and flexible.

EU shocked by Irish debt downgrade
by Emma Rowley - Telegraph

European leaders received a nasty shock as the credit agency Moody's downgraded Ireland's debt, even as the politicians closed a summit intended to prop up confidence in the eurozone. The dramatic downgrading of Irish debt by five levels sent the cost of the country's borrowing up, as yields - the returns demanded by wary investors - on 10-year government bonds rose more than 24 basis points to pass 8.6pc.

If Ireland cannot stabilise its debt then further revisions may follow, warned Moody's, which has also told Greece and Spain their ratings could fall. "I don't understand what they do," Nicolas Sarkozy, the French president, said of the agency's latest move. "This decision – I simply call it stunning."

However, the International Monetary Fund (IMF) warned that Ireland is not on track to hit its target of achieving a budget deficit of 3pc of GDP by 2015. The beleaguered nation faces significant risks that could affect its ability to repay the IMF's share of the €85bn (£72bn) international bail-out it received, the fund said.

The European Central Bank (ECB) on Friday said it has arranged to borrow up to £10bn from the Bank of England in a temporary swap to ease liquidity at Irish banks. The ECB this week said it would arm itself with more capital to resist the eurozone's debt crisis, which has seen solvency fears push nations' borrowing costs sky high. Analysts took the latest move to indicate that Irish banks are short of sterling, as deposits and wholesale funding fall away.

The developments came as European leaders on Friday closed a two-day summit in Brussels, where they agreed to tweak the EU treaty to create a permanent financial safety net to resolve future crises. Germany insisted that the long-term mechanism, to come into force in 2013, would come with the condition, enshrined in the treaty, that it only be activated "if indispensable to safeguard the stability of the euro as a whole".

"The heads of state and government of the eurozone stand ready to do whatever is required to ensure the stability of the eurozone as a whole," said Herman Van Rompuy, the EU president. However, the leaders did not decide to increase the existing rescue fund, the European Financial Stability Facility, or allow it to be used more flexibly to buy bonds. Fabio Fois, economist at Barclays Capital, called it "another missed opportunity to calm the markets".

Dominique Strauss-Kahn, the head of the IMF, has warned against Europe's "piecemeal" approach. Separately, on the summit's sidelines, the UK won support for plans to freeze the shared EU budget in real terms. "Countries are tightening their belts to deal with their deficits. Europe cannot be immune from that," said Prime Minister David Cameron.

EU to Create Post-2013 Crisis Tool, Spars Over Near-Term Moves
by James G. Neuger and Jonathan Stearns - Bloomberg

European Union leaders agreed to amend the bloc’s treaties to create a permanent debt-crisis mechanism in 2013 as they struggled to bridge divisions over immediate steps to stabilize bond markets.

A day after the European Central Bank armed itself with more capital to resist the crisis, the EU weighed measures such as using the bloc’s main rescue fund to buy bonds of fiscally distressed countries including Portugal and Spain. "This will be taken under consideration in the next coming weeks," Luxembourg Prime Minister Jean-Claude Juncker told reporters late yesterday at an EU summit in Brussels. The summit is slated to end around 1 p.m. today.

For now, Germany ruled out topping up the current 750 billion-euro ($1 trillion) emergency fund or using it more flexibly, reinforcing skepticism in markets about Europe’s search for the right formula to quell the fiscal contagion that threatens the euro. The future setup "is to some extent window-dressing as it does not solve the current crisis," said Carsten Brzeski, an economist at ING Group NV in Brussels. "European leaders failed to address the issue of debt sustainability and possible insolvency problems prior to 2013."

The euro gained 0.8 percent to $1.3345 at 10:50 a.m. in Brussels, while bonds of Portugal, Spain, Greece and Ireland slipped. Moody’s Investors Service followed up warnings that it may cut the credit ratings of Spain and Greece by announcing today that it downgraded Ireland by five notches to Baa1 from Aa2, with a negative outlook.

Talks Under Way
EU officials said deliberations are under way over more flexible use of the main 440 billion-euro component of the fund instead of waiting until the last minute to arrange all-or- nothing lifelines like the 85 billion-euro package granted to Ireland on Nov. 28. Such steps would ease strains on the ECB, which has bought 72 billion euros of weaker countries’ debt since May to stabilize markets. Yesterday, the ECB shored up its capital base to guard against losses from the purchases, voting to almost double its capital to 10.76 billion euros.

"Let’s be candid," International Monetary Fund Managing Director Dominique Strauss-Kahn said in an interview on "Charlie Rose" on PBS. "The European Union needs a little more time, until maybe the beginning of next year, to be able to produce a comprehensive package." Driven by a German public outcry against propping up fiscally reckless countries, Chancellor Angela Merkel ruled out putting more money on the table or further entwining Europe’s economies through joint bond sales.

‘Long Process’
In a departure from German insistence that each country determine its own fate, Merkel said today that maintaining national fiscal discipline won’t alone put the 16-nation euro region on a sounder footing. "It is just as important that we move toward a common economic policy step by step," Merkel told reporters in Brussels today. "It will be a long process."

Merkel was fresh from winning an EU commitment for a treaty amendment to set up a crisis-resolution system in 2013 that would allow financial aid "if indispensable" to underpin the euro and might force bondholders to bear some of the costs of future rescues. German insistence on cutting bond values when countries get into trouble in the future triggered the latest phase in the debt crisis, culminating in Ireland’s support package and triggering concern that Portugal and Spain will be next.

While costs for bondholders aren’t mentioned in the two- sentence amendment agreed on last night, the leaders endorsed a Nov. 28 decision by finance ministers that writedowns may take place on a "case by case" basis in accord with IMF practices. ECB President Jean-Claude Trichet called the pledge not to mandate bond writeoffs a "useful clarification."

Merkel needed the amendment to prevent German high-court challenges to the future aid mechanism, which the EU wants to get up and running when the current rescue package lapses in mid-2013. The compromise text reads: "The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality."

Merkel didn’t get everything she wanted. Germany originally pushed to allow financial aid only as a "last resort," language that might have ruled out contingency credit lines or given the IMF the lead in sorting out Europe’s economic woes. Last overhauled a year ago, the treaty is the EU’s equivalent of a constitution, binding on EU institutions in Brussels and on national governments’ handling of European affairs. All 27 countries, including the 11 outside the euro region, would need to ratify the amendment by Jan. 1, 2013.

European Central Bank arms itself for Spanish crisis
by Ambrose Evans-Pritchard - Telegraph

The European Central Bank (ECB) is to double its capital base to cope with "credit risk" stemming from the eurozone debt crisis, paving the way for direct action to shore up the Spanish debt markets if necessary.

The ECB said it would raise its subscribed capital by €5bn (£4.2bn) to €10.76bn, the first increase since the launch of the monetary union. "Basically they are insuring themselves in case they have to step up bond purchases, and that probably implies Spain," said Julian Callow from Barclays Capital. "They have to be ready to dig the fire-break early on this because Spain is too large to handle, and there is risk of contagion to Italy."

The ECB's move came as Spain braved the debt markets following a downgrade alert by Moody's. Madrid paid the highest interest rates for a decade with yields on 10-year bonds rising to 5.45pc, compared with 4.63pc in November. Spain's government and banks have to refinance almost €300bn of debt next year, leaving the country prey to a buyers' strike. "The auction wasn't a disaster but the markets are going to lose patience very quickly if the bond spreads widen further," said Elizabeth Afseth from Evolution Securities.

The ECB has so far bought €71bn of Greek, Irish, and Portuguese bonds in a bid to cap yields, but this was done against Bundesbank objections, and may breach EU treaty law. Jean-Claude Trichet, the ECB's president, is irked that the bank is having to shoulder the burden of propping up the EMU periphery, blurring the lines between fiscal and monetary policy. Critics in Germany say the ECB is turning into a "bad bank" for toxic debts.

Mr Trichet has tried to nudge EU leaders into taking over the task by deploying the EU's €440bn rescue fund in eurozone debt markets, meeting German resistance. Officials fear that the ECB could face losses on bond purchases, as well as loans worth €334bn to Greek, Irish, Portuguese, and Spanish banks – much of it in exchange for suspect housing collateral. Barclays Capital said eurozone central banks have already lost about €5bn.

A report by Goldman Sachs said EMU states hold $760bn (£487bn) of Spanish debt securities, on top of other loans, or three-quarters of all foreign holdings. "Debt sustainability in the European periphery is to a very large extent a domestic problem for the eurozone," it said. France has $252bn, Germany $212bn, Luxembourg $77bn, Ireland $62bn, The Netherlands $61bn, and Belgium $48bn. Outside EMU, Britain has $69bn and the US $26bn.

The loss profile is different to the US housing crisis, when European creditors were heavily on the hook. American banks will not return the favour by absorbing big losses if the EMU debt woes escalate.

Newly Built Ghost Towns Haunt Banks in Spain
by Suzanne Daley and Raphael Minder

Yebes, Spain — It is a measure of Spain’s giddy construction excesses that 250 row houses carpet a hill near this tiny rural village about an hour by car outside of Madrid. Most of these units have never sold, and though they were finished just three years ago, they are already falling into disrepair, the concrete chipping off the sides of the buildings. Vandals have stolen piping, radiators, doors — anything they could get their hands on.

Those few families who live here keep dogs to ward off strangers. Yebes is hardly unique. The wreckage of Spain’s once booming construction industry is everywhere. And much of it sits as bad debt on the books of Spain’s banks, which once liberally offered financing to developers and homeowners alike.

Just how big a loss the banks are facing is unknown, at least publicly, and that has investors worried — the cost of financing Spain’s debt rose 18 percent in the last month alone. But the potential costs of failure go far beyond that. Spain’s economy, the fifth largest in Europe, is much bigger than Ireland’s or Greece’s, and a bailout of its banks could be far more costly, an event that could push the government into default and end up dooming the euro itself.

The Bank of Spain says the banks have about $240 billion in "problematic exposure" out of $580 billion invested in real estate and construction, a situation, they say, the banks are capable of handling. But not everyone believes that. Unlike American banks, Spanish banks have done little to open their books. Along with other banks in the euro zone, they underwent a stress test last July, and all but five of Spain’s smaller savings banks passed.

The trouble is that some Irish banks that also got a clean bill of health in that round of tests subsequently collapsed, raising a threat to the country’s solvency that has still not been quieted — on Friday, Moody’s slashed Ireland’s credit rating to near-junk status and warned of further downgrades — despite a bailout. Those failures undermined the credibility of the whole stress-test exercise and forced regulators to announce recently that the results of further tests would be published early next year.

The Bank of Spain is moving to lift confidence in its banks by forcing them next year to disclose more details about their holdings and to start acknowledging troubled assets faster. But just how much are those assets worth? Rafael Valderrabano, who founded the Básico real estate company 18 months ago to help banks sell property they are repossessing from developers, says the country is full of situations like Yebes. Right now, he says, he is trying to sell units in 40 apartment blocks near Cuenca, an area southeast of Madrid that is sparsely populated. "Who went to develop in this place?" Mr. Valderrabano asked. "Who did this? Worse, who financed this?"

A better known real estate debacle is a sprawling development in Seseña, south of Madrid, one of Spain’s "ghost towns." It sits in a desert surrounded by empty lots. Twelve whole blocks of brick apartment buildings, about 2,000 apartments, are empty; the rest, only partly occupied. Most of the ground floor commercial space is bricked up.

The boom and bust of Spain’s property sector is astonishing. Over a decade, land prices rose about 500 percent and developers built hundreds of thousands of units — about 800,000 in 2007 alone. Developments sprang up on the outskirts of cities ready to welcome many of the four million immigrants who had settled in Spain, many employed in construction.

At the same time, coastal villages were transformed into major residential areas for vacationing Spaniards and retired, sun-seeking northern Europeans. At its peak, the construction sector accounted for 12 percent of Spain’s gross domestic product, double the level in Britain or France. But almost overnight, the market disappeared. Many immigrants went home. The national unemployment rate shot up to 20 percent. And the northern Europeans stopped buying, too. But government officials now say the worst is over, with housing prices down a modest 12.8 percent from the peak, according to the Bank of Spain.

"Most of the adjustment in housing prices has already taken place," José Manuel Campa, Spain’s deputy finance minister, said recently, though he allowed that there was a lack of good information on real estate sales. Still, skeptics abound. One is Jesús Encinar, the founder of Spain’s most popular property Web site, He says that the Spanish authorities are striving to engineer a soft landing of the housing market that would give more time to offload surplus housing at reasonable prices.

But he believes prices still have a long way to fall, by 30 or 40 percent, maybe more. "Some people who said there was no housing bubble are now saying we are at the bottom," Mr. Encinar said. "But I say we have several years to go." He is not alone in scoffing at some of Spain’s numbers.

In a report last April, the French bank Société Générale dismissed many of the assertions made by Spain’s banks, pointing out that Spain had one of the fastest rates of expansion in construction, had the largest number of mortgages per capita and was the most overbuilt among its peers. Yet prices had fallen the least. "We find it impossible to reconcile the banks’ claims of asset quality stability and the macro facts," the report said.

There is also little agreement even on the number of housing units for sale. José Manuel Galindo, president of Madrid’s association of real estate developers, noted that one of Spain’s leading property appraisers, Tinsa, recently estimated that there were 10,000 unsold housing units around Spain’s capital city. Government figures, however, put the figure as high as 50,000 units, he said. "What is amazing to me is that nobody is investing in doing a very thorough and reliable study of what is the exact supply and demand," Mr. Galindo said.

There is, however, broad agreement that many of Spain’s empty units are in areas where there is little demand for them, particularly along the southern coastal areas where hills have disappeared under vast housing developments. Practically overnight, Spain’s banks have been forced to begin managing vast real estate portfolios, a role most were ill equipped to take on. "They do not know how to take care of this housing stock or how to rehab properties," said Raúl García García, from Tinsa.

While some banks have set up networks to sell property, many others are floundering, having trouble just keeping track of the keys. "They take the old guys who are sitting around and say: ‘Hey, you are in charge of real estate now,’ " Mr. Encinar of said. "Some are not even answering the phone."

Experts say that whatever is on the market now is only a piece of what is in the pipeline from distressed homeowners and developers. Mr. Encinar says the banks are holding back on putting property on sale, afraid to bring prices crashing down. Fernando Acuña, co-founder of, a Web site that sells housing on behalf of the banks, said as many as 100,000 repossessed units were now for sale in Spain, a number that "could double or triple."

Still, eager to begin getting some of the property off their balance sheets, some banks have been offering deep discounts and special mortgage rates. Experts say the banks are being slightly more choosy these days about who lend to. But the new loans — almost all of which are at variable rates — could create a second wave of defaults down the road when interest rates rise. Next year may produce a new round of defaults from developers as well. In the early days of the crisis, many banks renegotiated their loans. But experts say many of those deals will expire next year, and without any significant change in the economy, most developers will be no better off.

The tension between banks and developers, once happy accomplices in a booming business, is palpable. Mr. Galindo says that the banks are not lending to developers who have half-built projects and that they are favoring customers who want to buy bank-owned property when giving out mortgages.

The biggest challenge for the banks is that they are likely to end up owners of vast amounts of undeveloped land. José Luis Suárez, an expert on real estate at the IESE business school, said 65 percent of bank lending to developers is tied up in land, enough to build 758,000 more housing units. "That gives you an idea of how long it could take for the market to digest all this," he said.

Owner’s Equity in US Real Estate Down 55.7%
by Barry Ritholtz - Big Picture

These two charts paint a devastating picture of the US housing market.

Its not just that the market value of US residential real estate fell about $6.2 trillion dollars (versus Case Shiller’s 33%) peak to trough fall; the uglier number is the owners equity RE: It is off 55.7% over the same period.

Market Value US Residential Real Estate

Owner’s Equity, US Residential Real Estate

CoreLogic: House Prices declined 1.9% in October
by Bill McBride - Calculated Risk

Notes: CoreLogic reports the year-over-year change. The headline for this post is for the change from September to October 2010. The CoreLogic HPI is a three month weighted average of August, September and October, and is not seasonally adjusted (NSA).

From CoreLogic: Home Price Index Shows Decline for Third Straight Month, October Home Prices Declined 3.93 Percent Year Over Year
CoreLogic ... today released today released its October Home Price Index (HPI) which shows that home prices in the U.S. declined for the third month in a row. According to the CoreLogic HPI, national home prices, including distressed sales, declined by 3.93 percent in October 2010 compared to October 2009 and declined by 2.43 percent* in September 2010 compared to September 2009. Excluding distressed sales, year-over-year prices declined by 1.5 percent in October 2010 compared to October 2009. ...

“We are continuing to see the weakness in home prices without artificial government support in the form of tax credits. The stubborn unemployment levels and seasonality are also coming into play,” said Mark Fleming, chief economist for CoreLogic. “When you combine these factors with high shadow and visible inventories, the prospect for a housing recovery in early 2011 is fading.”

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index is down 3.93% over the last year, and off 30.2% from the peak.

The index is 2.2% above the low set in March 2009, and I expect to see a new post-bubble low for this index - possibly as early as next month or maybe in early 2011.

David Stockman: US can’t afford tax cuts

Congress Sends $801 Billion Tax Cut Bill to Obama
by David M. Herszenhorn - New York Times

Congress at midnight Thursday approved an $801 billion package of tax cuts and $57 billion for extended unemployment insurance. The vote sealed the first major deal between President Obama and Congressional Republicans as Democrats put aside their objections and bowed to the realignment of power brought about by their crushing election losses.

The bipartisan support for the tax deal also underscored the urgency felt by the administration and by lawmakers in both parties to prop up the still-struggling economy and to prevent an across-the-board tax increase that was set to occur if the rates enacted under President George W. Bush had expired, as scheduled, at the end of the month. Administration officials said Mr. Obama would sign the package into law on Friday.

The final vote in the House was 277 to 148 after liberal Democrats failed in one last bid to change an estate-tax provision in the bill that they said was too generous to the wealthiest Americans and that the administration agreed to in a concession to Republicans. The amendment failed, 233 to 194. Supporting the overall measure were 139 Democrats and 138 Republicans; opposed were 112 Democrats and 36 Republicans.

The bill extends for two years all of the Bush-era tax rates and provides a one-year payroll tax cut for most American workers, delivering what economists predict will be a needed lift. The Senate approved the package on Wednesday by 81 to 19. The White House and Republicans hailed the deal as a rare bipartisan achievement and a prototype for future hard-bargained compromises in the new era of divided government.

But the accord also showed that policy-makers remain locked in an unsustainable cycle of cutting taxes and raising spending that has proven politically palatable in the short term but could threaten the nation’s fiscal stability in years ahead. Some Republican critics of the deal had said the Bush-era rates should be extended permanently, complaining that to do otherwise would create economic uncertainty. But some analysts said that such certainty was an illusion, given the longer-term problem with the deficit.

"Republicans are talking a lot about certainty," said Matthew Mitchell, a research fellow and tax policy expert at George Mason University. "But even if they had won some sort of a victory where they got the current tax rates written in stone, spending is on such an unsustainable path in terms of entitlements, it really isn’t certain at all."

The temporary nature of the deal, however, could lend momentum to broader efforts to overhaul the tax code and tackle the deficit. With the tax debate now scheduled to resume at the height of the 2012 presidential election, some lawmakers said they hoped the fiscal landscape could be redrawn and the cycle of lower taxes and higher spending brought to a halt.

Throughout the debate in recent weeks, lawmakers in both parties expressed unhappiness with the tax agreement, and that there seemed to be an increasing recognition of a need to tackle the long-term problems. In recent days, 22 senators — 12 Democrats, 9 Republicans and 1 independent — signed on to a resolution pledging to "devise a comprehensive plan for addressing the fiscal concerns of our nation" by focusing on "tax reform, spending restraint and debt and deficit reduction" in 2011.

That pledge suggested lawmakers might want to avoid repeating this debate in two years, and instead focus on proposals to clean up the tax code and potentially reduce rates for individuals and corporations alike, while simultaneously trying to bring spending in line. "The era of deficit denial is over," said Bruce Reed, the executive director of Mr. Obama’s bipartisan commission on reducing the national debt. "They’re just having a big year-end close-out."

Senator Tom Coburn, Republican of Oklahoma, for example, voted against the tax deal on Wednesday even though he is a champion of lower taxes. But Mr. Coburn, as a member of the debt commission, voted in favor of its blueprint for reducing the debt through 2020. Mr. Coburn had proposed an alternative to the tax deal on Wednesday, seeking to reduce its cost using a number of strategies endorsed by the commission.

As the House moved toward approving the tax package, liberal Democrats railed against it and delayed the final vote by several hours after briefly objecting to the terms of debate. The House speaker, Nancy Pelosi of California, accused Republicans of forcing Democrats "to pay a king’s ransom in order to help the middle class."

Many of the Democratic opponents said the package would do too much for the wealthy, and warned that the payroll tax cut could undermine the stability of Social Security. "It’s a huge giveaway to the super-rich in tough economic times," said Representative Jim McDermott, Democrat of Washington, who called the plan "craziness." Representative Peter Welch, Democrat of Vermont, said, "This legislation creates too few jobs and too much debt."

Representative Jerrold Nadler, Democrat of New York, said he feared the one-year cut in the Social Security payroll tax, to 4.2 percent from 6.2 percent on income up to $106,800, would weaken Social Security because Republicans would insist on it being made permanent, and Democrats would relent. "We know that politically once you make that tax cut it will be impossible to restore it," Mr. Nadler said.

Some Republican critics said the package would add too much to the deficit, and they objected to maintaining extended jobless aid without offsetting the cost with spending cuts elsewhere. But most Republicans said they supported the deal. "We are crawling out of the worst economic downturn in generations," said Representative Eric Cantor, Republican of Virginia, who will be the majority leader next year. "The choice is to act now or impose a $3.8 trillion tax increase."

Mr. Cantor also reminded Republicans to recognize the limits of their new House majority. "We could try to hold out an pass a different tax bill, but there is no reason to believe the Senate would pass it or the president would sign it if this fight spills into next year," he said. Even some fierce conservatives said they were putting aside reservations about the overall cost to back the plan. "I am going to fight to put this nation back on the road to fiscal sanity," said Representative Jeb Hensarling, Republican of Texas, announcing that he would vote aye.

In the Senate, Democrats on Thursday night abandoned efforts to pass a $1.2 trillion spending bill to finance the federal government through Sept. 30, and said they would accede to Republicans demands for a short-term stop-gap measure instead. Senators said the stop-gap bill would run through the early part of next year, at which point Republicans will have greater leverage over spending decisions.

Senate Republicans had pledged to stop the spending measure, even though it included millions of dollars for projects that they had requested, and had threatened to force the entire bill, which is more than 1,900 pages, to be read aloud on the Senate floor. Mr. McConnell, in floor remarks, praised the Appropriations Committee, of which he is a member, for its work on the spending bill that he and other Republicans blocked.

This Retail Recovery Isn't Real And Is Going To End In Q1 2011
by Daniel Alpert, Westwood Capital

We are updating the chart we released in last month’s report entitled Retail Sales as the Echoes of a Pre-Crisis Habit, to reflect data through November, with respect to retail sales, and through October with respect to consumer credit.  See the revised chart at the end of this email and attached.
Our seasonally adjusted, three month moving average growth rates for sales and credit continue to exhibit the pattern discussed in the report.  Note particularly that retail sales growth plateaued in October/November and the rate of consumer deleveraging has slowed dramatically through October.  In fact, we saw two straight months of actual growth in consumer credit (September/October), a phenomenon not seen since July 2008, when consumer credit was still relatively available.
If we are correct in our interpretation of the data presented below, we should see a pullback in retail sales and consumer credit outstanding in Q1 as consumers, once again, bump up against credit line limits in the relative absence of new credit facility extension, amidst little change in aggregate disposable incomes.  As we noted last month:

Expansion and contraction of retail sales in the post-panic U.S. economy has been predominantly the result of fluctuations in the use and repayment of consumer credit facilities, not the normal recovery patterns expected following a garden-variety recession These activities principally represent the overall recent patterns of consumer saving, punctuated by periodic dis-saving as credit facilities free up, are employed again, and then must be paid down anew.

The only way out of the foregoing micro-cyclical pattern is, obviously, through net growth in aggregate incomes, which can only be realized by through increased wage rates or an increase in employment.  Recent evidence of new consumer credit creation (including, disturbingly, sub-prime) may underlay the MoM credit growth we are seeing, but that should prove limited without an improvement in incomes.

Here is the revised graph:

The Market Is Overbought, Overextended And Overvalued
by Comstock Partners

After an 86 percent gain in 21 months the market looks overbought, overextended and overvalued. Furthermore the economy is unlikely to grow enough to reduce unemployment, lead the Fed to raise the funds rate or cause any significant amount of inflation.

Although the combination of QE2 and the White House/Congressional compromise on the tax extension issue is being touted as the great elixir that will spur economic growth we think that growth will be subdued and temporary. Indeed QE2 is already looking like a failure in its early stages. No matter what the "experts" say now, it was chrystal clear from the get-go that the Fed’s intention was to lower long rates, not raise them. As it stands today the sharp rise in the 10-year Treasury bond is likely to further weaken an already dead housing market by enough to offset any additional growth that QE2 could have provided.

Furthermore, the combination of QE2 and the big projected increase in the budget deficit caused by the compromise tax bill has helped spur another jump in commodity prices that will reduce real consumer income and negate much, if not all of the intended boost to consumer spending.

In addition economic growth will be tempered by the temporary nature of the stimulus, continuing high unemployment, a moribund housing sector, the dire condition of state and local finances, a lack of readily available credit and the ongoing fragility of a banking sector that is still loaded with toxic assets that are significantly overvalued on banks’ balance sheets.

Another major headwind to growth is the ongoing need to reduce household debt to normal levels after the credit binge of recent years. Consumer credit excluding student loans continued its year-long slide in October, falling by $32.5 billion, and the unwinding has barely started. Although consumer spending has perked up recently, we note that a national survey indicated that the percentage of people saying that they used their credit cards over the Thanksgiving day weekend was the lowest (17%) in the 27-year history of the survey.

According to major credit card companies, the use of personal credit cards dropped 11% in the 3rd quarter from a year earlier. Does all of this sound like a consumer ready to spend freely? We think not.

As if all of the above weren’t enough, the chances of financial and economic crises overseas, particularly in Europe, China and Japan are exceedingly high. The turmoil in the European Union is not a temporary crisis that will be cured with the wave of a wand.

A number of the weaker EU nations are basically insolvent, and their debts, sooner or later will have to be restructured. The New York Times and Wall Street Journal recently highlighted the exposure of German, French, British and Spanish banks to the debts of Greece, Ireland and Portugal. The IMF has warned that if the EU doesn’t come up with a permanent solution the EU economy could go off a cliff. Meanwhile the austerity measures being imposed on the troubled countries will be a drag on the EU economy for some time to come. As for China and Japan, we’ll leave that for future comment.

In light of these problems we believe that investors are overly optimistic. An 81% market rise in 21 months has already discounted a lot of good news—-some of which will not happen. The market looks overbought and overextended, and is showing signs of an imminent top with lagging breadth, a lower number of new highs, overenthusiastic sentiment, higher-volume down days and a more frequent number of late-day selloffs. At this juncture we think that potential upside progress is limited while downside risk is high.

The Wall Street Tax Debate That Never Was
by Les Leopold - Huffington Post

"In a remarkable show of bipartisanship, the House gave final approval to the measure just before midnight Thursday, overcoming an attempt by rebellious Democrats who wanted to impose a higher estate tax than the one Obama agreed to." ~ Associated Press

This tax "reform" bill is as stunning for what it ignores as for what it proposes. Many people have rightly criticized the bill's lavish tax breaks for the super-rich, especially the needless estate tax cuts that will benefit only America's wealthiest 6,600 families.

We've also been wringing our hands over the way this bill only worsens our hugely distorted distribution of income and wealth. Even Ben Bernanke is worried: The income gap, he said recently, is "creating two societies. And it's based very much, I think, on educational differences."

Most Americans would agree that our society is splitting apart. But most also would agree that the super-rich probably got there because they are just way smarter than the rest of us. Which is one reason why so many Americans are reluctant to tax the rich. They figure the wealthy deserve what they are smart enough to earn. What is entirely missing from the debate and from the bill is any recognition that a large portion of the super-rich gained their wealth from the financial sector. And that money is highly suspect:

Wall Street elites "earned" much of it by creating bubbles and toxic assets that had little or no real economic value to begin with--and that ultimately crashed our economy.

Have we forgotten how angry we were only a year or so ago when we realized that our tax dollars were going to bail out financial industry high rollers? Remember how galling it was to see $13 billion in tax dollars go to Goldman Sachs to cover its bad bets (at full value) with AIG? And how appalling it was that afterwards when that money went right back into their enormous bonus pool?

It's hard to believe that just a short while ago I naively thought the country was ready to rein in Wall Street. We actually were thinking about how to keep the financial sector from siphoning wealth from the real economy -- like the trust busters did a century ago. I swear I remember politicians, including the President, talking about how lowering Wall Street pay would encourage our best and brightest to turn away from Wall Street and towards science, medicine and education -- work that would strengthen instead of undermine our economy. I even remember former Fed Chair Paul Volcker saying that the only real financial innovation in the last 30 years was the ATM, and the rest of it was all garbage.

For a time, it seemed our society was developing some new common sense about Wall Street's money mischief. We just knew that hedge funds were gaming our system -- and no one could legitimately "earn" $900,000 an hour (the average annual take for the top ten hedge fund managers). Especially not at a time when 29 million of us were without full-time jobs.

A year ago, it seemed clear that Wall Street was draining away our economic wealth and adding very little in return. We were actually debating how best to move this wealth back to the real economy BEFORE it became part of Wall Street's obscene profit, income and bonus pool. Why aren't we doing something about the $100 billion of Wall Street bonuses now being awarded, when we know that money comes from taxpayer bailouts and from suspect speculative activities?

There was a moment, albeit a short one, when it seemed that at least progressives in Congress would focus on the two taxes that would be game changers:
  1. A tax on hedge funds. All hedge fund income should be taxed at the top income tax rate of 35 percent and not at the 15 percent capital gains rate. (That would generate from the richest 25 hedge fund gurus alone twice what we'll gain by the opportunistic freeze on federal employee wages.)

  2. A financial transaction tax. Place a small tax on each and every financial transaction. This would not affect the trades of 99.9 percent of all Americans. But it would put a major crimp in the games that the big boys play. Let the quants use their brain power to cure cancer rather than to craft complex computerized trading systems that leave society with less than nothing. A small transaction tax could generate over a $100 billion a year from Wall Street--and in the process, bring those ridiculous bonuses and profits back in line with the real economy.

But here we are in December 2010, having a debate about "tax reform" that hasn't even touched on these two tax ideas. Help me out here. How is this possible? Has the progressive moment passed so far into history that it already seems "unrealistic" to even discuss how to stop Wall Street from ripping us off again?

We seem to have contracted financial Alzheimer's. Maybe putting up some yellow stickies would remind us: Wall Street crashed our economy -- not public employees, not lower-income home buyers, not government spending or the deficit or regulations or Fannie or Freddie. Systematic private greed by a handful of giant financial institutions tore a gaping hole in our economy and the perps are getting off scot-free. We don't even have the nerve to make them pay a windfall profits tax to compensate us for a tiny portion of the damage they've done. Wouldn't most Americans welcome some restitution from Wall Street?

Only a year ago people were talking about an angry populist uprising that would make life miserable for the pampered and privileged. Instead we got a Tea Party that attacks government taxes, regulations and spending, and in effect, let's Wall Street entirely off the hook. President Obama seems to have given up any pretense of reining in our financial elites as he invites them to join hands with him at the White House.

He even called those who held out against tax breaks for the rich "sanctimonious." Most congressional Democrats are following him down that right-of-center path. And the Republicans are at the head of the parade, leading us back to the future...lower taxes, fewer regulations and more money for the few....and a declining middle class.

To paraphrase Tony Mazzocchi, the late visionary labor leader, it's like the entire political establishment is marching backwards into the 21st century. Wake me up when we get there.

Federal Government Cuts Off Recession Relief Money To States
by Laura Bassett - Huffington Post

Despite soaring unemployment and the 19 million Americans currently living in "deep poverty," federal funds for the Temporary Assistance For Needy Families (TANF) program have entirely dried up for the first time since 1996, leaving states with an average of 15 percent less federal funding for the coming year to help an ever-increasing number of needy families.

TANF, the federal program that replaced welfare under the Clinton Administration, provides a lifeline for families and workers who have exhausted all of their unemployment benefits. According to a new report by the Center for Budget and Policy Priorities, "more homeless families will go without shelter, fewer low-wage workers will receive help with child care expenses, and fewer families involved with the child welfare system will receive preventive services" now that Congress has passed legislation that will end funding for the TANF Contingency Fund in 2011.

Congress also failed to reauthorize an emergency fund for a subsidized job program on September 30 that would have allowed states to provide emergency help to needy families and place low-income people in subsidized jobs.

In fiscal year 2011, every state except Wyoming will experience up to a 20 percent reduction in recession relief funds. The CBPP reports that many states have already drastically reduced their subsidized job programs after being cut off from federal funding, costing tens of thousands of people their jobs. Some states are also considering substantial cuts to programs for low-income families with children, including child care subsidies for working parents and programs that address substance abuse, caring for a disabled child, and other challenges.

"This is not what Congress intended when it reformed the welfare system in 1996," said Liz Schott, Senior Fellow at CBPP. "Helping welfare recipients find work in this economy requires more help from the federal government, not less."

64% Of US Jobless Have Been Out Of Work For More Than A Year
by William Alden - Huffington Post

When Catherine Gettings was laid off last year, she didn't just lose her source of income. She entered a seemingly irreversible purgatory, in which the longer she remained unemployed the more likely she was to stay that way.

She'll never forget the day she was fired, she said -- August 14, 2009 -- because it marked the start of an entirely new phase of her life. Once a store manager at a Dress Barn in Midlothian, Va., earning $21 an hour, she is now barely scraping by on unemployment benefits. As she has gradually shed health insurance, a 401(k), credit cards, a car and even a bank account, she is now two months behind on her mortgage and says she could lose her house when her benefits expire in January.

Gettings' situation is all too familiar. Of the nation's unemployed workers, nearly six in 10 have been job-hunting for more than a year, according to a survey released Thursday by the John J. Heldrich Center for Workforce Development at Rutgers University. A third have searched for more than two years.

The unemployed, which comprise nearly 10 percent of the nation's workers, are seeing their financial situation worsen. A full 80 percent of the survey respondents said they've had to spend less on something formerly fundamental in their lives -- things like food, housing or health care -- with 40 percent having to forgo essentials entirely. By a margin of nearly two to one, most unemployed workers believe they will not return to the condition they were in before the Great Recession began.

Like many in her position, Gettings foresees no improvement in her situation, despite almost daily job-hunting and despite her natural optimism. She won unemployment benefits after making a case that she was fired through no fault of her own: The sales associates who worked under her weren't properly recording their hours, she said. But those benefits, which now sustain her, also carry a crippling stigma.

"I've been on multiple interviews," she said. "The first thing they ask: 'Why did you leave your last job? Tell me exactly what happened.' When you explain to them what happened, nobody wants to hire you." Unemployment tends to be a self-perpetuating condition. When the survey began in August last year, 25 percent had been unemployed for more than a year. In March this year, that figure had increased to 48 percent. By November, it was 64 percent.

"As people get further away from their last experience with employment, their most important asset deteriorates, and that is their network," said Carl Van Horn, director of the Heldrich Center and a co-author of the study. As the unemployed lose job contacts, the contacts they do have turn against them. "Employers sometimes become suspicious, of what's wrong with this person," Van Horn said. "A stigma attaches to them."

Gettings, 54, said she searches the Internet daily for job openings. She contacts people two or three days a week. She even went to a resume class and re-designed her resume -- all to no avail. During a recent interview, she said, her prospective employer told her she was "overqualified." "I didn't care. Let me be a cashier. Let me be a sales associate," she said. "Nobody's hiring. Nobody's hiring. Nobody's hiring."

The jobs crisis has become an epidemic. According to Van Horn, three out of four adult Americans have a family member or close friend who has experienced a job loss. In Gettings' case, almost every member of her family, she said -- her husband, her sister, her brother-in-law and her 31-year-old step son -- is also unemployed. This has taken a psychological toll. The Rutgers survey found a widespread disillusionment among the unemployed: 57 percent said they believed hard work does not guarantee success. What's more, 41 percent said they doubt the ability of either the president or the soon-to-be Republican Congress to fix the problem.

As Van Horn pointed out, this pessimism, which makes people less willing to take the risks that are necessary for financial improvement, poses a serious threat to the economy. "Something that lasts this long and is this widespread tends to have much more profound effects long-term," he said. "This may be very much like the effect of the Great Depression."

Gettings, for her part, tries to look on the bright side. The one positive thing to come out of her situation, she said, is that she has learned to sew. She has made place mats and table scarves, which her family members will receive for Christmas. "We weren't going to put a Christmas tree up this year. But we had to," she said. "The only thing that has kept us going is family."

Gettings, who said she has been working ever since she was 15 years old, now has no retirement savings to look forward to. When her benefits expire in January, she said, she could end up on the street. "I just need a chance," she said. "I just need somebody to give me a chance."

Two States Sue Bank Of America For Mortgage Fraud
by Bob Christie - Huffington Post

Attorneys general in Arizona and Nevada filed civil lawsuits Friday against Bank of America Corp., alleging that the lender is misleading and deceiving homeowners who have tried to modify mortgages in two of the nation's most foreclosure-damaged states.

Bank of America violated Arizona's consumer fraud law by misleading consumers who tried to reduce their monthly payments to keep their homes, state Attorney General Terry Goddard said. The bank also violated the terms of a 2009 consent agreement requiring its Countrywide mortgage subsidiary to implement a loan modification program, the Arizona lawsuit alleges.

Hundreds of homeowners kept making their mortgage payments because Bank of America repeatedly assured them that their loans were being modified, Goddard said. Instead, many lost their homes anyway. "Those people could have used that money for something else," Goddard told The Associated Press. "They were deceived into continuing to make mortgage payments when they had no hope of saving their homes."

Nevada Attorney General Catherine Cortez Masto told the AP that the Silver State's lawsuit was a last resort to try to get the bank to change its ways. It was filed after several discussions with bank managers led to assurances but little more. "Clearly there is a disconnect between what Bank of America tells me at the management level and what's happening on the front line," Masto said. Masto said separate lawsuits show the bank's problems with consumers are widespread.

"The only thing that I'm asking is that (Bank of America) give them a reasonable response in a timely manner," she said. "It is, in my perspective, a callous disregard for what we are telling them." Nevada and Arizona are among the states hardest hit by homeowners who have defaulted on mortgages in the last few years as adjustable payments soared, people lost their jobs, and home values collapsed. One out of every 99 households in Nevada received a foreclosure notice last month, according to RealtyTrac Inc., and Arizona's rate wasn't far behind.

The Arizona attorney general's office was deluged with consumer complaints and launched an investigation more than a year ago, Goddard said. Settlement talks with Bank of America began in April but ultimately collapsed Thursday. Goddard, a Democrat, is leaving office in January after an unsuccessful run for governor and will be replaced by Republican Tom Horne. A Bank of America spokesman criticized Goddard for filing the lawsuit in his last days in office while multistate negotiations on foreclosures were under way.

Dan Frahm, a senior vice president for the Charlotte, N.C.-based bank, said it shares the attorneys general's goal of helping homeowners. "We are disappointed that the suits were filed at this time, however, because we and other major servicers are currently engaged in multistate discussions led by Attorney General (Tom) Miller in Iowa to try to address foreclosure related issues more comprehensively," Frahm said in an e-mailed statement. "Bank of America has been a cooperative partner with the attorneys general, has worked with state leaders to evolve programs and resources to broaden assistance to distressed customers, and we are already under way with further improvements to our processes and programs for Bank of America customers," Frahm said.

Bank of America has completed nearly 750,000 loan modifications and has foreclosed on fewer than half that many homes, Frahm said. Many of the foreclosures did not qualify for loan modifications.
The Arizona lawsuit, filed in Maricopa County Superior Court, alleges that the bank has repeatedly violated an October 2008 consent agreement between Bank of America and 11 states requiring the bank's Countrywide subsidiary to modify hundreds of thousands of loans. Arizona's agreement was finalized in 2009.

Countrywide was accused of engaging in widespread deceptive practices with its customers, and Bank of America agreed to reduce principal or interest payments by up to $8.4 billion on those loans.
But Bank of America, which had acquired Countrywide in July 2008, failed to make timely decisions on modification requests and went ahead with foreclosures, Goddard said. Bank of America is the No. 1 loan servicer in both Arizona and Nevada. It's also tops in complaints to Arizona regulators, and not just because of its size, Goddard said. "They're head and shoulders above any other financial institution," he said. "Nobody's got a great record, but Bank of America's is worse than any of them.

Friday's lawsuit in Arizona asks for contempt citations against the bank for violating the consent agreement. It also seeks restitution for consumers, civil penalties, legal fees, plus $25,000 for each consent agreement violation and up to $10,000 for each violation of the Arizona Consumer Fraud Act. Nevada's complaint accuses the bank of operating its loan modification program in violation of the Nevada Deceptive Trade Practices Act. It seeks civil penalties and restitution along with other fees. Bank of America shares rose 5 cents to $12.57 Friday.

U.S. Bank Collapses Reach 157 This Year as Six More Lenders Are Shuttered
by Dakin Campbell - Bloomberg

Regulators shuttered six banks holding a total of $1.23 billion in assets, including three in Georgia and one each in Arkansas, Minnesota and Florida, as real-estate losses drive this year’s bank failures to 157. Florida has lost 29 lenders this year while 21 banks in Georgia were seized, the Federal Deposit Insurance Corp. said today in statements on its website. Regulators have closed 322 banks since the start of 2008. Today’s six closures cost the FDIC’s deposit-insurance fund a total of $267.6 million.

"We’re over the hump in terms of number of failures and the average size, and potentially in the cost of them," Bert Ely, a banking consultant in Alexandria, Virginia, said in an interview. The crisis is "far from over but we’re making headway." This week’s failures may be the final closures for 2010 because regulators seldom shut down banks on holiday weekends, Ely said. The next two Fridays are Christmas Eve, a market holiday in the U.S., and New Year’s Eve.

More than 500 banks may fail before the cycle that started in 2007 comes to a close, "given the severity of the problems and the prolonged nature of the recovery," Ely said. The FDIC said last month that its list of "problem" banks -- those at heightened risk of failure -- rose 3.7 percent to 860 in the third quarter, the most in 17 years. Banks on the confidential list had $379.2 billion in assets as of Sept. 30, down from $403 billion at the end of the second quarter.

Property Values
The financial crisis drove down home and commercial property values and pushed the unemployment rate above 10 percent. The U.S. economy rose 2.5 percent in the third quarter after declining as much as 6.8 percent in the fourth quarter of 2008, according to the U.S. Department of Commerce. The average over the last 20 years is growth of 2.9 percent.

The largest failure today was Coral Gables, Florida-based Bank of Miami, which was purchased by 1st United Bancorp of Boca Raton, the FDIC said. 1st United picked up almost $375 million in deposits, more than $442 million in assets and three branches. "Their deposits are safe, FDIC-insured, and readily accessible," 1st United Chief Executive Officer Rudy Schupp said in a statement. "Customers will be able to conduct business as usual at their existing branch locations with their familiar banking associates."

Three banks in Georgia were shuttered, the largest being Chestatee State Bank of Dawsonville, the FDIC said. Little Rock, Arkansas-based Bank of the Ozarks Inc. added about $240 million in deposits and four branches with the Chestatee purchase.

Bank Rises to Record
Bank of the Ozarks rose to a record close of $42.60 today in Nasdaq Stock Market trading. It has surged 46 percent this year. This is the lender’s fourth failed-bank purchase this year, according to FDIC data. Regulators also closed United Americas Bank, of Atlanta, and Appalachian Community Bank of McCaysville, Georgia, the FDIC said. Macon, Georgia-based State Bank and Trust Co. bought United, and Madisonville, Tennessee-based Peoples Bank of East Tennessee purchased Appalachian.

In Arkansas, regulators shut First Southern Bank of Batesville and the FDIC sold it to Southern Bank, based in Missouri. Southern paid the FDIC a 0.25 percent premium to acquire almost $156 million in deposits at First Southern. Farmers & Merchants Savings Bank of Manchester, Iowa, purchased Community National Bank of Lino Lakes, Minnesota. It was the eighth bank to be closed by regulators in Minnesota this year, the FDIC said.

U.K. Cuts Hit Home
by Alistair MacDonald - Wall Street Journal

Local Governments Dig Deep After Years of Spending Freely

Norwich, England—In this eastern city, the drive to cut the U.K.'s massive budget deficit will soon boil down to some basics: streetlights going dark, cuts in care for the elderly, and ending subsidized diapers for new parents.

Like hundreds of local governments here, Norfolk County Council is drawing up plans for painful cuts that will end a decade of plenty for councils and change the face of public services across Britain.
In October, the Conservative Party-led coalition government announced cuts of £83 billion ($131.11 billion) over four years, the most aggressive among major economies. Local councils were told to cut 28% from their budgets, well above the average of 19% the Treasury asked of other government departments.

"It's a different world for local councils. The decade of real term increases in spending is over," said Gerry Stoker, professor of governance at the University of Southampton. Some councils are being dragged kicking and screaming to the cutting table. But some, like Norfolk's, are trying to look at it as a chance to change the way they operate. "The changes will allow us to refocus the role of the state," said Derrick Murphy, the leader of the Conservative-dominated Norfolk council. Mr. Murphy said that after the next four years, "we will not revert to the status quo."

In making the cuts, councils such as Norfolk's could become a test for the "Big Society" philosophy that Prime Minister David Cameron has struggled to sell to the country. The goal of that philosophy is for private individuals and groups to take over some state functions, engendering individual responsibility and community and saving money. In Norfolk, that could mean using volunteer staff in places like libraries to supplement smaller professional staffs.

Like any business looking to trim fat, councils like Norfolk's are looking at merging back offices—in this case, with those of other councils— as well as outsourcing some functions, trimming staff and selling buildings. Museums and libraries will cut opening hours; £126,000 could be saved from turning off some street lights; and social services, such as a center for the hard of hearing and blind, may close.

In some places, local politicians from the Liberal Democrat party are taking to task the Tories—their partners in the coalition government. "The Conservative proposals are slash and burn," said Diana Clarke, a Liberal Democrat councilor in Norfolk. She expects tough cuts to services in which the government intervenes in problems such as teenage pregnancy, drug addiction and antisocial behavior by young people.

Such cuts would scale back the political edifice erected by the Labour government that left office this year after 13 years in charge. Labour encouraged free markets—but taxed the proceeds so the government could fund social programs. Local government revenues from central-government grants, local taxes and other measures more than doubled from 1997, when Labour won power, to the latest financial year.

Opposition politicians say the cuts are as much about a Tory ideological desire to shrink the size of the state as they are about deficit reduction. Mohammed Pervez, the Labour Party leader of Stoke on Trent City Council, remembers feeling shock when the local government cuts were announced and went even deeper than expected. "The government says these cuts are going to be fair. They won't be fair on the people of Stoke on Trent," he said.

In Norfolk, the cuts dominate talk among older people in an area where around 21% of the population is age 65 and over, compared with 16% in England as a whole. Most days, 85-year-old Edith Pocock scours the local newspaper for news about the cuts. "A lot of us are frightened. Not all old people have something to fall back on," she said.

Norfolk is one of England's most rural regions. Public buses are expected to run less, and the council proposes that parents pay £784 a year for bus travel that currently is subsidized and free. That could deter some parents from providing their children with a higher education, critics say. Sophie Paddock, 16, takes a bus five miles from her house on the edges of the Norfolk Broads to her high school. Without a bus, she will rely on her mother, a single parent, she said. Once the school has closed at the end of the day, "I'll spend hours hanging round, nowhere to study," she said. "Hardly encouraging people to go to college."

Many people predict big changes to their lifestyle. For 10 years, Pat Lane has visited a center for the elderly and people with learning difficulties four days a week. There he meets friends, plays pool and table tennis and learns to garden. His only charge: 20 pence for cups of tea and coffee. Recently, he was told the center will face cuts and may even close. "What happens to us? Where are we going to go?" said Mr. Lane, 57, who suffers from severe arthritis and diabetes.

Mr. Murphy insists the Norfolk council will still protect the vulnerable, such as the elderly and children in social care. Even locals who support many local services sometimes questioned Labour-era largess. A few years back, a new library was built in the nearby town of Wymondham. Ms. Pocock wondered what was wrong with the old one, which had been housed in an old church. "We do like new things, but sometimes silly money is spent," she said.

D D Deflation
by Dan Weintraub

Ilargi: This got me so stark raving mad! A Congressman who says Capitol Hill have no time to deal with getting first responders health coverage with some lamer than lame blubber about respect for Christian holidays, to which a victim of this nonsense simply reacts: "You won't find a single New York City firefighter who considers it a sign of disrespect to work in a New York City firehouse on Christmas." What on earth ever went so wrong in what was once such a promising nation?

Watch Jon Stewart's Utterly Devastating Segment With 9/11 First Responders
by Glynnis MacNicol - Business Insider

Last night Jon Stewart continued his impressive tirade against Congress for its shameful failure to pass health benefits for 9/11 First Responders.  Except instead of using a series of satirical clips to rail against them Stewart invited four first responders -- all of whom are suffering from serious health issues -- to come on his show and discuss the utterly, totally, devastating results. 


VK said...

Nuclear war is likely at some point. As the resource pie shrinks, the spoils go to he who can undercut his competitors the most. First strike wins in a negative sum game. In a positive sum game with rising resources it simply is not worth it as there is more to go around. 

Whoever strikes first decisively will win the resource battle. Be it the US, Russia or China.

VK said...

The biggest question of the next century?

How does one survive a population bottleneck of such epic proportions.

1) Survival skills
2) Be damn lucky

Anything else?

bluebird said...

VK - I would add the love and trust of family, and neighbors.

Phlogiston Água de Beber said...


If you do not have the love and trust of family and neighbors then you are not damn lucky. If you are damn lucky and have survival skills then you only need to hope your luck holds. Sadly, lady luck is known to be fickle. Even sadder, hardly any of us actually have real survival skills.

Jim R said...

Or kicking the snowball down the hill, perhaps?

Phlogiston Água de Beber said...


TPTB do not have a problem with lots of people dying, but I think they are quite averse to wholesale destruction of real wealth assets and markets. As I commented on the previous post, nuclear blackmail will come out of the closet and be the diplomatic tool of first resort. Why wouldn't all the nuclear powers agree to that and work out a reasonable apportionment?

China gets to keep manufacturing.
Russia gets to dominate energy markets.
Usanistan gets to keep marauding all over the world shooting people that are strange to them.
France and Israel get to keep pretending they are special and bashing muslims.
Pakistan and India get to keep bothering each other over their religious differences.
I have read sometime ago in the British press that GB does not control their nukes, so it is possible that they might get cut out. That's the problem with being a poodle.

Steve From Virginia said...

Well, you have to admit it. Humanoid reaction to peak oil -- so far -- has left a lot to be desired.

Lots of looting, lotsa finance chicanery, lots of risk- shifting to young children and senior citizens, lots of people in poor countries trying to experience the American 'Flying Carz' experience before it vanishes forever ... not a lot to recommend 'leadership' and 'ekonahniks' to anyone in particular.

Everyone understands something profound is going on, nobody wants to admit the implications. These being that from this moment on all humans will have to start working again. Nobody knows what to do!

Nobody wants to work: we have shifted labor to our energy slaves for too long. We have forgotten how to work, how to make it into something other than pointless, useless toil.

The machine slaves have become the masters. Useless toil is a machine paradigm, it reduces the human components to the analogous machine mindlessness, repetition and soul- destroying ennui.

Real, creative work isn't like that, remember? Work is engaging. It is machine principles that have made work obsolete: made it into a form or murder.

That's it! The death of art, the death of virtue and courage, the death of honesty and its cousin honor, the machine death of peace and husbandry, quiet and learning, curiosity and trust, patience and understanding. What we have instead is iPods.

Whoopee ...

Or, is it iPads? In this manner we've unhinged ourselves, the best tools that we at one time possessed to manage difficulties have been landfilled like all the other 'good things' we had 'back in the days' like $20 oil and clean water.

Peak understanding ... I don't know how to make a graph for that one.

Erin Winthrope said...

So why is the stock market sill going up?

Why aren't we hearing about those consumer spending and gdp metrics you talked about a few months ago.

3rd quarter GDP comes in at 2.5% when you predicted it would be revised downward.

Everyone knows 4th quarter GDP will be blazing.

Your charts from this fall said we'd see big-time negative #s by 3rd - 4th quarters

WHAT HAPPENED....and why don't you revise your stuff in real-time or acknowledge previous claims don't add up??

Erin Winthrope said...

About those markets.....

They've persisted in a steadily growing pattern for much longer than you two ever expected.

Why can't they continue to persist longer than you expected.

Glennjeff said...

Awesome celestial geometry Monday 20th close to mid-night.

Total eclipse of The Moon on the winter solstice.

opposite to (by definition)

The Sun conjunct Mercury conjunct Mars conjunct Pluto conjunct Dragons Head

Perfectly square to Jupiter conjuct Uranus.

Bad Moon Rising indeed. Should show up in the markets somewhere as well as civil unrest and sudden failures of electrical and mechanical systems - no way I would use aircraft or ships for instance. Decided in September to look at taking profits before this day but "Buy Silver Crash JPMorgan" so maintaining holding pattern.

lautturi said...

Lautturi, Ilargi, Lautturi... not that it matters much to non-Finnish speakers. I took that name honoring the boatman Charon on rivers Styx and Acheron in the Ancient Greek mythology. You know - the guy who ferried poor bastids to Never-neverland (or something like that).

Idea was pretty much with the lines "abandon hope all ya enter this boat with me". Not many people have made that connection yet as my website name in Finnish means "in the same boat". Playing with the words...

...which reminds me - how about BIGA-PIGS? Goes well with modern rapspeak and/or Xmas-time I believe...

Alexander Ac said...


what is your 95 % time horizon of (nuclear) war?

And what do you think should be the best motivation to survive nuclear war?

philsharris said...

Expanding acronym: BIGAPIGS?
In Gb,aka mainland British Isles, the financial wizardry continues, but that map of Ireland rings bells here. In this rural area straddling the Scots / English Border within 25 mile of our house there are 2 'stranded' unfinished / unsold up-market housing schemes and one larger 'postponed'. Probably fewer than 100 houses, but they look like flotsam after an exceptional tide.
I had a vision this morning of those 'new' city skylines: Dublin, London, (even as far as Dubai and Shanghai?) of massive towers some empty, otherwise housing, what? Smart young people twiddling computers to finance the building of similar buildings elsewhere?
No productive revenue stream from any of this lot - just monumental waste?
happy christmas or whatever your version

Ilargi said...

"Lautturi, Ilargi, Lautturi... not that it matters much to non-Finnish speakers."

You're fixed.


Ilargi said...

"Your charts from this fall said we'd see big-time negative #s by 3rd - 4th quarters"

No, they did not. They suggest trendlines, not certainties, and I've always said that. I have also gone out of my way to explain that neither I, nor CMI's Rick Davis, nor Doug Short, could be sure about the shifts we had to apply to the respective CMI indices.

However, we all find the indices, and their correlations with BEA and S&P data, too interesting to ignore simply because we can't be sure whether to shift them 2 months or even 6.

As for: "Everyone knows 4th quarter GDP will be blazing."

Really? We'll have to see, won't we? My latest graph showed a -0.5% number. This was based on the 365-day index, for which, once again, there is considerable uncertainty when it comes to the proper shift to apply. I do think that the initial focus on the 91-day index was a bit careless, because of the inherent volatility. It's just that neither Doug nor Rick had yet done a graph on the 183 and 365. In that regard, it's a learning process.

That said, the trendlines stand, so barring huge problems with the CMI model, GDP will have to fall in line at a not too distant point in the future.

Interestingly, while the 91-day has seen a significant uptick in the past 2 months -but recently started falling again-, the 183 and 365 have kept going down, albeit at reduced speed.

I'll certainly get back to these numbers and graphs in the new year.


Ilargi said...

"About those markets.....

They've persisted in a steadily growing pattern for much longer than you two ever expected."

Steadily growing is a bit too smooth in my view, but yes, we would have expected them to fall sooner.

"Why can't they continue to persist longer than you expected."

Like forever?

I think the answer is quite obvious. Looking at the US, if you read Zillow on housing, Americans lost another $1.7 trillion on real estate value, or $17,000 per household. Believe it or not, this will become untenable at some point. No, we can't pinpoint an exact date, but then, that's not at all our focus anyway. We want to convince people that now's the time to get out of the way of that growing snowball.


Redbriars said...

@ Steve from Virginia 12:03am

Wendell Berry had some fascinating things to say about how we view and value work.

I found this quotation online from one of his essays:

There is nothing more absurd, to give an example that is only apparently trivial, than the millions who wish to live in luxury and idleness and yet be slender and good-looking. We have millions, too, whose livelihoods, amusements, and comforts are all destructive, who nevertheless wish to live in a healthy environment; they want to run their recreational engines in clean, fresh air….

The growth of the exploiters’ revolution on this continent has been accompanied by the growth of the idea that work is beneath human dignity, particularly any form of hand work. We have made it our overriding ambition to escape work, and as a consequence have debased work until it is only fit to escape from. We have debased the products of work and have been, in turn, debased by them. Out of this contempt for work arose the idea of a nigger, at first some person, and later something, to be used to relieve us of the burden of work. If we began by making niggers of people, we have ended by making a nigger of the world. We have taken the irreplaceable energies and materials of the world and turned them into jimcrack “labor-saving devices.” We have made of the rivers and oceans and winds niggers to carry away our refuse, which we think we are too good to dispose of decently ourselves. And in doing this to the world that is our common heritage and bond, we have returned to making niggers of people: we have become each other’s niggers.

But is work something that we have a right to escape? And can we escape it with impunity? We are probably the first entire people ever to think so. All the ancient wisdom that has come down to us counsels otherwise. It tells us that work is necessary to us, as much a part of our condition as mortality; that good work is our salvation and our joy; that shoddy or dishonest or self-serving work is our curse and our doom. We have tried to escape the sweat and sorrow promised in Genesis – only to find that, in order to do so, we must forswear love and excellence, health and joy.

Thus we can see growing out of our history a condition that is physically dangerous, morally repugnant, ugly. Contrary to the blandishments of the salesmen, it is not particularly comfortable or happy. It is not even affluent in any meaningful sense, because its abundance is dependent on sources that are being rapidly exhausted by its methods. To see these things is to come up against the question: Then what is desirable? - Wendell Berry, The Agricultural Crisis, A Crisis of Culture. p. 16, 17


I read the whole essay not long ago and found it fascinating. As a matter the entire collection of essays is well worth a read. He is a Thoreau for our time.

VK said...

Where do these morons keep coming from?

Like seriously. The FED is printing $100 Billion per month and retail investors have been fleeing stocks for 33 consecutive weeks.

Anyone seen the long term DOW chart? That is one insane head and shoulders pattern forming. When the Market does turn, it will be a multi year decline.

Ps- On nuclear war. Within 15 years as per Jay Hansons time frame. Oil production will be down by 30 million barrels by then per day or more. Gonna get fugly.

eeyores enigma said...

It seems obvious that the world attained the record high flow rates of oil because of record high "virtual wealth" thru financialization.

There are three main factors that determines oil production;

Financial, Technological, Geological.

In that order.

When the global financial collapse eventually gets underway in ernest there will be catastrophic energy collapse.

And it is my opinion that there is no way TPTB can forestall financial collapse for 10 or 15 years, nor does it look like they can wind it down slowly.

I do believe that the current plan of insuring that the
Empire is the last one standing is best thing for the world. Even though it looks like they are simply looting the treasury they are in fact shoring up the empire until the China bubble pops.

I recently heard that 60% of Chinas economy is construction and they are already overbuilt. The average condo in china is priced the same as an average condo in the US only the average income is only $3500. They WILL pop...big time.

The only problem with this is that the China PTB (TCPTB) may want to distract their population from their economic collapse the same way that every large economy historically has which is WAR.

Poor Bernank and Guy-th-ner taking all this flack from all sides when all they are trying to do is save the world.

eeyores enigma said...

Steve from Virg

We will soon reach Financial Singularity where nobody has to work, their money will work for them.

Legendary Armor Rōnin said...

"So why is the stock market still going up?

"3rd quarter GDP comes in at 2.5%...

"Everyone knows 4th quarter GDP will be blazing."

According to the U.S. Department of Commerce's Bureau of Economic Analysis: "Gross Domestic Product, 3rd quarter 2010 (second estimate): Current-dollar GDP -- the market value of the nation's output of goods and services – increased 4.8 percent, or $171.5 billion, in the third quarter."

According to the U.S. Treasury Department's Bureau of the Public Debt, the U.S. Federal gov't borrowed and spent $407.3 billion in 3Q 2010.

According to the U.S. Bureau of Labor Statistics, in 3Q 2010, the INCREASE in the number of involuntary part-time workers - individuals working part time because their hours had been cut back or because they were unable to find a full-time job (seasonally adjusted): 845,000

So, to recap, nearly a million more people who wanted full-time work had to settle for part-time, and the gov't borrowed 238% of the purported increase in GDP.

Would any sane person believe that to be a sustainable trajectory?!?

Given that the answer is no, (see Greece, Ireland, et al.), then there can be no "investing" in the markets yet, only trading and speculating - i.e., "gambling".

To encourage ordinary, everyday people to "step right up, spin the wheel..."

Well, the only proper response to that is to quote The Animals:

There is a house in New Orleans
They call the Rising Sun
And it's been the ruin of many a poor boy
And God I know I'm one

Oh mother tell your children
Not to do what I have done
Spend your lives in sin and misery
In the House of the Rising Sun

Ilargi said...

Please note: Stoneleigh is a guest at Mike Ruppert’s podcast at 9.00 pm EST tonight, December 19.


Cassandra said...

I think this is worth noting re GDP: hedonics. For me it was a 'all I know, is that we don't know the half of it' moment.. my cynicism can't keep up with reality.

"Here’s an example, though, of how far from reality GDP has strayed. The reported number for 2003 was a GDP of $11 trillion, implying that $11 trillion of money-based, value-added economic transactions had occurred.

However, nothing of the sort happened.

First, that 11 trillion included $1.6 trillion of imputations, where it was assumed that economic value had been created but no actual transactions took place.

The largest of these imputations was the “value” that the owner of a house receives by not having to pay themselves rent. Get that? If you own your house free and clear, the government adds how much they think you should be paying yourself rent to live there and adds that amount to the GDP. "

Really worth a read, it's from


LynnHarding said...

The Cargo Cultists are getting anxious. They are sitting around idly on their little piles of whatever and the gods are not paying attention! (They stare at the screen instead of the sky.) "When, when when" they implore Ilarge & Stoneleigh, "when will you tell us exactly what to do so that we can retire and never work again?"

M said...

Interesting thoughts from Steve from Virginia and Redbriars.

John Ruskin was a big influence on The Arts and Crafts Movement embracing of “facture”-- the handmade transparently revealing process and execution -- and it’s not hard to understand why:

“The rudeness of ignorance which would have been painfully exposed in the treatment of the human form, is still not so great as to prevent the successful rendering of the wayside herbage; and the love of change which becomes morbid and feverish in following the haste of the hunter and the rage of the combatant, is at once soothed and satisfied as it watches the wandering of the tendril, and the budding of the flower. Nor is this all : the new direction of mental interest marks an infinite change in the means and the habits of life. The nations whose chief support was in the chase, whose chief interest was in the battle whose chief pleasure was in the banquet would take small care respecting the shapes of leaves and flowers; and notice little in the forms of the forest trees which sheltered them, except the signs indicative of the wood which would make the toughest lance, the closest roof, or the clearest fire. The affectionate observation of the grace and outward character of vegetation is the sure sign of a more tranquil and gentle existence, --sustained by the gifts, and gladdened by the splendour, of the earth. In that careful distinction of species, and richness of delicate and undisturbed organization, which characterize the Gothic design, there is the history of rural and thoughtful life influenced by habitual tenderness, and devoted to subtle inquiry ; and every discriminating and delicate touch of the chisel, as it rounds the petal or guides the branch, is a prophecy of the development of the entire body of the natural sciences, beginning with that of medicine, of the recovery of literature, and the establishment of the most necessary principles of domestic wisdom and national peace.”

The Nature of Gothic

scandia said...

I can barely keep up with the " crises" in NA and the EU. This story comes out of Asia.

Bangladesh investors riot over stock market slide

Coco said...

This is the kind of thing that gives me a stomach ache - bank closing in Italy. From Beppe Grillo´s blog:

For more on Spain´s economic issues, I occasionally read Ibex Salad, but they are sometimes so ¨glass half full¨ that I question their analysis, maybe that´s just me. Click on the ¨Real Estate Economy¨ category tag for exclusively real estate related posts.

Jim R said...

I don't know where you got that silly idea. Keep reading. Even better, go back and read some of Stoneleigh's writing from TOD Canada. If you want stock tips, read ZeroHedge or similar.

Speaking of denial, my spouse still thinks we are going to spend our retirement cruising around America in our mobile home, like her cousin did about twenty years ago. I am quite certain the probability of that happening is 0.000, but it's been hard to point out the rather unpleasant facts to her.

Hombre said...

Steve from V - Good post. Robert Pirsig made an excellent case for the "quality" element of work, the love-to-do-it aura in his famous book of the 70's. A great classic too, IMO.
Reminds me of the old story of the craftsman's love for his work.

A passing peasant once asked a mason, "What are you doing sir?"
"I'm laying bricks" came the reply.
The peasant went to a nearby mason and repeated his query.
"I am building a great cathedral" the man answered.

Phlogiston Água de Beber said...

The 15 year window for a nuclear war sounds about right. May not even be that wide. After all, that is about the time Duncan said we might run out of electricity. Well before that time the world will be too poor to invest much in maintaining those weapon systems. And they do need a lot of maintenance. Chances are that most of them won't work.

If most of them did work and the nuclear winter theory held up then the question of "motivation to survive nuclear war" would be moot. I can't think of any reason to survive one in any case.

Kudos to SFV and Redbriars. For my money, two of the best comments I've ever read.

zander said...

@ Ilargi.
That illustration of the ghost estates is astonishing, good journalism sir.

@Phil Harris.
Whereabouts are you Phil?

Simply brilliant post mate.

For those inclined, there's a wonderful vitriolic piece posted over at Mcphersons place that's about as good a commentary of the UK at present as it's possible to accurately describe.


Bigelow said...

Overstock accuses Goldman. Merrill of racketeering

Phlogiston Água de Beber said...

The market performance of the past few months reminds me of something I witnessed about 10 or 11 years ago. While employed by a startup that had IPO'ed.

Unlike almost all its competitors of the period, its stock did not rise on the first day, or any subsequent day. In fact, never exceeded the initial price. It slowly drifted lower for a few months. Suddenly and on the basis of absolutely no news whatsoever, it shot up to about twice its initial price for about one day and then collapsed.

Only one answer made sense to me. The people who are not to be screwed had let the banksters know that walking the plank could be in their future. It had to be the banks that bought them out of their crappy stock at a good profit.

I think the same thing is happening now on a massive scale. The banks are the main buyers and those who shall not be screwed are the main sellers. A little at a time of course. They are holding a lot and dumping it all at once could not be hidden. The whole system would go KA-BOOM. If they can keep the game alive, it may go on for many more months. After that I am guessing that the markets and banks just collapse.

What would those wealthy parties being doing with their cashout loot you may ask? How about something like gobbling up land parcels. Probably to be assembled into the feudal estates on which the strong and healthy among us will be put to hard work as serfs.

That should obviate the need for any nuclear war, or even blackmail. TPTB much prefer slaves to scorched rubble. Many of us who are not strong and healthy will, I imagine, fairly quickly find ourselves standing on queue at Lord Charon's dock.

ghpacific said...

Spanish ghost towns have nothing on China.

John Hemingway said...


You must be kidding about nuclear war? And nuclear subs? Where do they fit into your scenario? If either the US, or Russia or China strike first, it will not be a quick victory, as you seem to think. The subs, always out there, always on patrol, would certainly launch their nukes in the event of a first strike by an enemy, destroying that enemy and its country. Everyone knows this, it's called MAD, Mutual Assured Destruction, and as a policy it has been around since at least the 1960's.

Phlogiston Água de Beber said...

Dmitry Orlov has posted an interesting new topic that broaches the idea of graphing Peak Empire

jal said...

ghpacific said...
Spanish ghost towns have nothing on China.

If there will be mass migration, in China, from the country side, then they have made the preparations.

There are many disasters that could happen which would warrant the use of those cities.

I find that those cities are a better investment of their surpluses than what has happened in the WEST.


none can outdream God. said...

or playing kick the can on avalanch mountain.

Nassim said...

I keep on reading about the property bubble in Spain having popped and the reassuring words of the bankers and their representatives that the prices will not drop any further.

Whenever, I want to reconnect with reality, I bring up a page like the following: Property for sale in Sitges, near Barcelona

I see that the nicer houses are still selling at around 5000-9000 Euros/square metre (400-800 dollars/square foot). Two bedroom apartments for a million dollars and so on.

When I was a teen, I spent 4 months each year in this place and so I can relate to it quite well. I mean, this stuff was worth very little in the 1960's when the only road to Barcelona was along the cliffs and most traffic was by train. I wonder what it will be like in 5 years' time.

ghpacific said...

jal said...
"There are many disasters that could happen which would warrant the use of those cities."
Agreed, but as James Kunstler likes to point out, large apartment complexes such as in NYC will be unable to operate their elevators and air conditioning once cheap oil is kaput. Also, those cities seem awfully nice for basic living needs. I'm betting more of the Chinese return to their agrarian roots rather than migrating to shining citadels on a hill, but who complains at the business end of a rifle?

Unknown said...

Snow is threat to retail revival

I thought I send you this link, the title matches well with blog title. I am not laughing about the snow as I might not be able to fly away on Tuesday.

ogardener said...

Blogger Baby Boomer said...

"So why is the stock market sill going up?

Because if the stock market goes down so does the value of the pension funds - local, state and federal, and when the pension funds go down hard and are unable to meet their current and future obligations.... well, you can imagine. Of course other areas of the interconnected Ponzi will additionally be affected like getting food to your local grocery store or keeping the spent nuclear waste cool, calm and collected. Not a pretty sight. I could go on and I'm hoping you're beginning to get the picture.

EconomicDisconnect said...

Well we are maybe approaching some kind of inflection point. SDoon I imagine the ECB will "guarantee" loan losses to no end and the US FED/Treasury will undrwrite all state debt. As long as the money is not needed in the "in the hand" sense this may all work but I have to think at some point someone in the chain will wonder just what they own or just have a claim to. This should blow over soon, everything else does.

Anonymous said...

"Veterans for Peace White House Civil Disobedience to End War"!

Candace said...

I largely enjoy this blog and the comments until people start waxing idyllic about "work" (even as opposed to useless toil).  My mother never liked Thoreau.  She felt like he did the equivalent of living off his parents while talking about how independent he was.  She would never have thought going back to the land was great.  She grew up on a farm and did not advocate the life style.  I accept that we are approaching TEOTWAWKI but please don't expect others to be happy about it.  It is now and always has been more fun to read a book or listen to music than it is pull weeds.

Glennjeff said...

The Day After Tomorrow

Unseasonal snowfalls in Australia

Erin Winthrope said...

$10 for clothes in .....1920 ???

I'm more than a little surprised by the price of clothing in your headline picture.

Jesus, if that's how much people paid for clothes in 1920, then I'm glad my shorts are stitched in Bangladesh.

Glennjeff said...



Glennjeff said...

Pet - A Perfect Circle

VK said...

@ John Hemigway

Greetings! Best way to think about a positive sum game and a negative sum game is as follows.

Positive sum game: Deserted island with 3 beautiful young women and one man. Within one year, all three are likely to be pregnant.

Negative sum game: 3 men on an island with one lovely lass. Within one year atleast two of the men are likely to be dead and the third might be in the worst case; seriously injured or dead.

Point being: The world we are moving into is a negative sum game. To even stand a chance of winning you must undermine the competition and strike first.

Hombre said...

Candace - "It is now and always has been more fun to read a book or listen to music than it is pull weeds."
Amen to that! ;-)

"Books are the carriers of civilization. Without books, history is silent, literature dumb, science crippled, thought and speculation at a standstill."

Anonymous said...

Musical Break

Weeding through older albums,I came across this Richard Thompson tune. A man ahead of his times.

Bank Vault in Heaven

I'm not sure it's a whistling tune but here,so you can at least sing along:

Got a bank vault in heaven, got my name on the door
Every day I get richer, add a little bit more
Come you tellers and lenders and lend me some more
Got a bank vault in heaven and it's mine for evermore

And the angels sing "Fly, fly, fly"
The angels sing "Fly, fly, fly"
Fly from the darkness that covers you all
Fly to the sky where the only wall is infinity, infinity

Going to shine down from heaven right into your room
Take the minds of your children right off to the moon
Every mud hut and igloo, every penthouse and farm
I'll shine down from heaven and I'll do my snake-charm

And the angels say "Sing, sing, sing", "Sing, sing, sing"
Oh the whole world is singing the same happy tune
Something so low even hound dogs can croon to insanity, insanity

Oh there's a signpost in heaven, in the firmament blue
You can run to the wastelands, but it points straight at you
I've got a bank vault in heaven, what joy will it bring
All you Punchs and Judys, I'll be pulling your strings

John Hemingway said...


Greetings VK:-)

My point is that with those subs roaming the oceans, and the French and the British have them too, there are no longer any quick victories. After the first strike, the counter strike is guaranteed (the infamous M.A.D. strategy). Nuclear war, as it stands now, is just suicide.

Anonymous said...

Gulf Stream Stopping, Northern Europe Freezing because of Deepwater BP oil spill killed it.

Oops, I thought that pesky Gulf of Mexico spill was behind us, Mission Accomplished and all that fine PR (propaganda, not public relations) telling the sheep that all is well.

Time shifting the real effects of ecological disasters is a lot like kicking a can down the road, to a Point that is.

I guess the Gulf Loop fell off the rails after BP tossed a spanner in the gears. What a shock.

rcg1950 said...

re Comments from Steve from VA, Redbriar, Candace et al -

Got me thinking more about the profound and radical analysis of Ivan Illich who I've been re-reading of late. I recommend his work to all.

"The symptoms of accelerated crisis are widely recognized. Multiple attempts have been made to explain them. I believe that this crisis is rooted in a major twofold experiment which has failed, and I claim that the resolution of the crisis begins with a recognition of the failure. For a hundred years [this was written around 1970] we have tried to make machines work for men and to school men for life in their service. Now it turns out that machines do not “work” and that people cannot be schooled for a life at the service of machines. The hypothesis on which the experiment was built must now be discarded. The hypothesis was that machines can replace slaves. The evidence shows that, used for this purpose, machines enslave men. …

The crisis can be solved only if we learn to invert the present deep structure of tools; if we give people tools that guarantee their right to work with high, independent efficiency, thus simultaneously eliminating the need for either slaves or masters and enhancing each person’s range of freedom. People need new tools to work with rather than tools that “work” for them. They need technology to make the most of the energy and imagination each has rather than more well-programmed energy slaves."

Ivan Illich, from “Tools for Conviviality”

Frank said...

@VK, John H is absolutely right about the missile boats. First strike does not win if there is a second strike.

So far that has saved our collective ass. There are enough rumors about xxx head of state that was going down trying to take the world with him and being stopped by his own people that I'd bet that at least a couple are true.

Even most psychopaths will only murder a billion people if it will actually help them.

scandia said...

@rcg1950...Excellent reference to Ivan Illich. I'll be looking for " Tools for Conviviality"
The quote says, " People need new tools to work with rather than tools that ' work ' for them."
An idea so simply and profound.

Recent posts on work are shaking up my thinking!

John Hemingway said...


Of course, with the eventual collapse of the USA, things will change, even for the subs, and at that point someone might get the not so bright idea of launching a first strike on the USA. But I think that the Military will probably be the last thing to go in the States.

scandia said...

Back in November I attended a mini environmental conference with Robert Rapier as one of the speakers. Someone asked if there was a video. I can now refer interested readers to

Another conference will be held in the spring of 2011. I have recomended Stoneleigh as a speaker to the organizers.

theyenguy said...

The economic problem in Europe stems from the European banks are unable to recapitalize themselves; they have no credit seigniorage as they are burdened with non-marketable sovereign debt of Portugal, Italy, Ireland, Greece and Spain. The only capital the banks receive is by selling debt to the ECB.

The European banking crisis, which Herman van Rompuy referred to as the sovereign crisis, is a two fold crisis, that of debt sovereignty and of sovereignty itself.

The nations have lost fiscal fiscal sovereignty and fiscal seigniorage, as demonstrated by the high interest rates they must pay. The question arose in early May 2010, with the provision of seigniorage aid to Greece: who shall be in charge of nation state economy, its tax philosophy and public spending? With the acceptance of aid, Greece’s leaders waived national sovereignty, and European Leaders meeting in Summit announced European economic governance. At a later date they announced fiscal federalism with a plan for vetting of national budgets before they are presented to state legislatures. Global corporatism, that is state corporate rule, now governs Europe and its people, those in Greece are the first to be subjected to internal devaluation and increasingly harsh austerity. Those living in the Eurozone are no longer citizens of sovereign nation states, they are residents living in a region of global governance.

Seeing such debt overhang, bond vigilantes, will be calling interest rates higher globally, followed in place by currency traders selling the Euro, FXE, and other world currencies, causing bank stock, and corporate stock values to fall.

A catastrophe is coming out of rising sovereign debt interest rates, as well out of further global competitive currency devaluations at the hands of the currency traders, resulting in a financial market place implosion, the European Financial Institutions, EUFN, will fall quickly falling in value, taking the entire global financial system down, resulting in Götterdämmerung, an investment flame out, bringing forth a new age.

Out of the chaos, Bible prophecy foretells in Revelation 13:5-10, that a Sovereign, that is a Chancellor, such as Angela Merkel or Herman van Rompuy or John Redwood will rise to govern. And Revelation, 13:11-17, foretells a Seignior, that is a Banker, such as Wolfgang Schäuble, or Olli Rehn, or Jean-Claude Trichet, or Gordon Brown or Jose Manuel Barroso, will rise to provide credit.

The Seignior will have fiscal sovereignty to control deficit spending, enforce internal country devaluations, provide a common EU Treasury for both taxation and transfer payments, assure mutual guarantees of the EU debt, and as Timothy Geithner called for, implement unified regulation of banking globally. All seigniorage, both credit and fiscal will come and go through the Seignior, who will make decisions on where money is spent. The Seignior will coordinate all aspects of economic policy, includes taxes, wages.

Ilargi said...


That must be the most hilarious comment I've seen here in ages. Just couldn't bring myself to delete it.

The Bible foretells Gordon Brown and/or Olli Rehn?!


Toby said...

Just listened Mike Ruppert's Stoneleigh-interview. Nicole was great as always, and so was Ruppert.

Maybe I've missed this in previous interviews, but first time I heard Stoneleigh saying that because so many people are against the dollar, that being on the opposite side, ie bullish and waiting for trend reversal, is the most profitable thing and is what the insiders are doing.

I guess this can be interpreted from Stoneleigh's other interviews also, but being said like that made a lot of sense to me.

Phlogiston Água de Beber said...


I am oh so grateful that you didn't delete Theyenguy's comment. It's not only hilarious, it is also a revelation of sorts. The popularity of such beliefs stands as a guarantee of the kind of dismal future that awaits this tormented globe.

What the hell was Gutenberg thinking? Couldn't he have found something else to try out his new press on?

Now I like to reference old Crazy John as much as anybody, but only the part about the four guys on colorful horses.

Hombre said...

Ilargi - Re: Theyenguy
Thanks, I imagined it being layed out in scribbled detail on Fox's whiteboard economics expert! ;-)

John Hemingway said...


Great stuff, Angela Merkel straight out of the Bible;-)

Phlogiston Água de Beber said...

@John Hemingway

I may be misremembering, but weren't there mentions of Angels in that book? Maybe Crazy John did see Angela in one of his visions. But, Olli Rehn or Gordon Brown? As the horsemen maybe. :)

John Hemingway said...

Hey, given theyenguy's source, it's gotta be true, no?;-)

snuffy said...

Today was a banquet of food forthought

I am taking it easy for a few hours..woke up stiff and sore as could be.Work in cold weather is not my idea of a good time.Life goes on.

I see from the comments that I am not alone in my assertions that "there will be war".My guess is there is a whole lot going on us "peasants"have not a clue about.The really grim news,like the true CAMEL numbers for all our banks/credit unions,or what we have in store for someone who attacks the CONUS is buried so deep

Honestly,I don't think the feudal model will work he for one reason."The peasantry got guns". One of the greatest control mechanisms use to control the "lower classes"was restricting their access to "modern" swords/shields/armor ect.
When peasants requested to settle their disagreements by "trial by combat"[which sometimes they did],they had to use clubs to beat their opponent to death.

Firearms change the whole game, as the samurai found out when nobles trained for a lifetime,with sword and bow could be struck down by the most base-born peasant soldier with a musket he had a weeks training with.

Weapons are game changers.
I don't know how many reply's you get like theyenman,but once in a while let one in,they are amusing...

It tires me to no end to see endless requests for date certain when this ball will blow up.It will when It will...Your asking the wrong questions.What should be on your mind is how can I be as ready as I can for this disaster...[please not this year].

I need to get back to work

Bee good,or
Bee careful

p01 said...

It's comments like that which suck the last drops of hope out of me. Maybe McCarthy's vision the deranged chantings is in fact what awaits us.


Phlogiston Água de Beber said...


Guns change nothing, except the range at which carnage can be inflicted. For there to be feudal lords, they will have to command firepower as well. And it will be the heavy firepower. What do you think all those generals, colonels and majors are gonna do when they see their retirement plans go up in smoke? Lead their troops to join the starving rebels. I don't think so.

How much ammo do you think we peasants have stored away? Do you think they are just gonna let us go out and get supplies and do our chores? They'll burn us to the ground and shoot anything that moves. Heck most of the peasants will probably waste all their ammo shooting at each other. There was an interesting comment today over at Cluborlov about the Byzantines spending the last years of their empire fighting each other instead of the Turks. So it goes.

I'm afraid my friend that it is feudalism or Mad Max. Serf sounds bad, but I'm pretty sure that it beat the hell out of being Max. What was required of a serf? Work, pay taxes and defend the estate. Er ah, what it is we are doing now? You'd probably even get to keep living in your house. If you only use you firearms for hunting, you might even to get to keep them.

scandia said...

@theyenguy, I think you make a valid point that the nations of Europe are losing sovereignty. Certainly Canada has sovereignty
in name only.We'll get to keep the flag.
I have a sentimental attachment to nationhood and the full range of rights and responsibilities that go with it. Perhaps younger generations don't have the same identity and attachment to nation?

Redbriars said...

@ Snuffy

Honestly,I don't think the feudal model will work he for one reason."The peasantry got guns".

I remember reading an analysis of why humans evolved away from the gorilla / chimp model of a silverback with harems and the dis-enfranchised young males cast out into the hinterlands, and the suggestion was that that model breaks down when the young males discover that they can gang up on the silverback and destroy him from a distance with thrown rocks.

Income disparity is our modern version of "silverback power disparity" and I expect that it will be resolved in much the same manner.

Lynford1933 said...

Good video:

Glennjeff said...


Would it be possible for you to find something "authoritative" on The Thermohaline Current PLEASE.

This is the best I could come up with Thermohaline Current Stalls July 28 2010

Remember Arch Crawfords August 1 prediction?

Phlogiston Água de Beber said...

Sunshine said...

Even though most nations, religions and races think of themselves as special.
The Jews are in a sense truly unique and special since they have been pruned and thinned by the Europeans.

Well, I think that settles that question, at least for Israel. Are there any French persons that would like to claim that they don't think their tribe is special? As for the second part of my quip, maybe bashing was the not most precise verb I could have selected, but I still think it is close enough.

I hate to disappoint you Sunshine, but I don't hate Jews or any racial or ethnic group. I think that would conflict with the fact that most of my favorite entertainment personalities are Jews and Negroes. I try to call'em like I see'um. Individual members of any group can be devils or angels. I rather imagine the distribution of different houses of worship in Israel bears some relationship to the number of worshipers. Just as it does here in Usanistan. A few months ago I listened in on a Skype video call between my step-daughter and a friend of hers living on a kibbutz. She was quite unhappy with the attitude of her colleagues there regarding the muslim residents of the area. And that it was made clear to her that she should keep her opinions to herself. Intolerance is just part of the human genome I guess. She was quite looking forward to getting back to the US.

In any event, I think all the Peoples of the Books have plenty to answer for, but they don't have to answer to me. That is too bad about Mt. Carmel. I've seen my fair share of massive forest fires and they conjure images straight out of Dante. I do think it is rather shameful though that they wouldn't let the Palestinian firefighters come back to join the post-game celebration.

Oh yes, and here's a heaping helping of love.

Phlogiston Água de Beber said...


This is the best I could come up with on short notice, via Google.


Nassim said...


I am glad you think that Israel is a blessing to all its neighbours. Having been one of its neighbours, I think you should know that it is viewed as a distinctly European entity. I don't just mean by its participation in the Eurovision Song Contest either.

Sadly, most of its neighbours - and I am not just talking about the corrupt rulers - think that the Europeans were very happy to send their Jews elsewhere. I mean, Russia has sent around 1.5 million to Israel, for example. Personally, I have no opinion either way as I don't know enough about this subject.

It is worth pointing out however that this part of the world is grotesquely overcrowded when the availability of basic resources like water and agricultural land is taken into account. I can however sympathise with those who use Israel as a stepping-stone towards going to the USA or Australia (our immediate neighbours here are Goldbergs from Israel). There even are quite a few who return to Russia - 100,000 Former Soviet Jews
In Israel Return To Russia. I mean, they are only 0.16% of the Russian population but the president of Russia, Medvedev, is probably of Jewish origin. He claims that he is Armenian but the Armenians think otherwise.

Some years ago, I read a story about how an Israeli TV team staged a practical joke. They got a couple of Russian actors to wear Russian police uniforms near a Russian settlement in Israel. These guys stopped cars and demanded bribes (Russian style) or they would impose fines for some fictitious infractions. The car passengers were happy to pay up and did not question the matter. Later, this went out on TV to the amusement of many :)

Ilargi said...

New post up.

The United States of Disintegration