[quote=ewmayer;170182][URL="http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5160120/A-Copper-Standard-for-the-worlds-currency-system.html"]A 'Copper Standard' for the world's currency system?[/URL]: [I]Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.[/I]

[quote]...

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).[/quote][/quote]... but failing to mention the metal [I]lithium[/I], which is currently a key component of batteries for hybrid and all-electric cars.

[URL]http://ergobalance.blogspot.com/2008/05/world-lithium-supplies.html[/URL]

[URL]http://www.sterlinggroupventures.com/pdf/maverickmetal.pdf[/URL] (which, while never mentioning batteries, has lots of info on properties and the other uses of lithium)

[URL]http://evworld.com/article.cfm?storyid=1180[/URL]

However, as the first commenter to the ergobalance/energybalance article points out, there are competing energy-storage technologies which might sometime surpass lithium-using batteries in importance. Perhaps China is not concerned with stockpiling lithium because of that (not to mention that refined lithium metal is tricky to store).

Lithium metal would be hard to store, but I think it's generally shipped as the carbonate. The big lithium hope is Bolivia - there are some salt pans with high lithium concentrations on the altiplano - but I believe there's reasonably similar geology in Tibet so it may even be available indigenously.

[QUOTE=fivemack;170193]Lithium metal would be hard to store, but I think it's generally shipped as the carbonate. The big lithium hope is Bolivia - there are some salt pans with high lithium concentrations on the altiplano - but I believe there's reasonably similar geology in Tibet so it may even be available indigenously.[/QUOTE]

Wikipedia indicates that you are right about the "available indigenously" in China, but [url=http://en.wikipedia.org/wiki/Lithium#Natural_occurrence]in a form[/url] more akin to that commonly used here in the U.S.:

"China may emerge as a significant producer of brine-based lithium carbonate around 2010. Potential capacity of up to 55,000 tonnes per year could come on-stream if projects in Qinghai province and Tibet proceed.[url=http://www.meridian-int-res.com/Projects/Lithium_Microscope.pdf][31][/url]"

Note the other caveat a few paragraphs above the foregoing quote:
[quote]There are widespread hopes of using lithium ion batteries in electric vehicles, but one study concluded that "realistically achievable lithium carbonate production will be sufficient for only a small fraction of future PHEV and EV global market requirements", that "demand from the portable electronics sector will absorb much of the planned production increases in the next decade", and that "mass production of lithium carbonate is not environmentally sound, it will cause irreparable ecological damage to ecosystems that should be protected and that LiIon propulsion is incompatible with the notion of the 'Green Car'".[31][/quote]

Geithner: Not Just Lying About His Taxes Anymore
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aOE309jQZ_jY&refer=news]Geithner Says `Vast Majority' of U.S. Banks Have More Capital Than Needed[/url]: [i]Treasury Secretary Timothy Geithner told a congressional panel that the “vast majority” of U.S. banks have more capital than needed.[/i]

[i]My Comment:[/i] Terrible Timmay just can`t stop lying - any "excess" capital most of the banks have is "borrowed" money courtesy of the U.S. taxpayer (which Timmy and his pals at Treasury are busily figuring out how to magically turn into "nonborrowed" money courtesy of the U.S. taxpayer - make no mistake, this is the biggest looting operation in history, going on right before our eyes, folks), and the biggest troublemakers have yet to set aside anywhere near the loan loss reserves that would be required to offset the likely eventual losses from their bad-loan portfolios. Of course they really can`t do the latter, because it would render them instantly and obviously insolvent. So we muddle on, and the government hopes that simply continuing to throw more money at the biggies and looking the other way as they crank up rates and fees on every transaction made by the same taxpayers who are bailing them out will allow them to gradually shore up their balance sheets, so when the housing market bottoms (really soon, they hope) and the economy turns around (ditto) and the flood of foreclosures abates, they will have staved off insolvency (only just) at the cost of a couple trillion dollars of front- and back-door bailout money and continue with their normal pillaging and privatized-profiteering-and-socialized-risk-taking operations. But let`s hear from one of the chief crooks benefitting from the looting operation himself:


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aQa7HRv95VxM&refer=news]Citigroup's Pandit Says He Will Repay `Every Dollar' of TARP Rescue Funds[/url]: [i]Citigroup Inc. Chief Executive Officer Vikram Pandit, addressing shareholders after his stock price tumbled 88 percent in a year, said the company will recover and vowed to repay “every dollar with interest” of the $45 billion the bank received in government bailout funds.[/i]

[i]My Comment:[/i] In recent weeks the banks have been falling over themselves in their rush to proclaim "they want to repay the TARP money". What they of course refer to is merely the "front door" bailout money, which (in relative terms) is chump change compared to the "back door" bailouts. Using Citigroup as an example, the latter include the recent conversion of preferred shares the government purchased as part of a large capital injection into common shares - at 3x the prevailing market price. Then there is the matter of the $300 billion in Citigroup loans the government is guaranteeing ... and the government using the FDIC as a slush fund for the banks, by having FDIC guarantee hundreds in billions of dollars of added capital-raising borrowings by the banks, a below-market-borrowing-cost subsidy which Moody`s chief economist Mark Zandi described thusly in a [url=http://www.nytimes.com/2009/04/15/business/economy/15bank.html]recent NY Times article[/url]:

[i]“I don’t know how you measure that subsidy,” said Mark Zandi, the chief economist at Moody’s Economy.com. “That’s why they say it’s invaluable. It’s an infinite subsidy. It’s their franchise value.”[/i]

And note a key difference between the "front door" and the "back door" bailout money: The TARP money comes with severe (at least by Wall Street standards) limits on executive compensation; the FDIC subsidy carries no such restrictions.


[b]Quote of the day:[/b] This pithy summing-up managed to sneak in between the bull v bear flames and counterflames on one of the Yahoo MBs:

[i]"We cannot save this economy.........we can only prevent a crash landing of catastrophic proportions........think about it....we make virtually nothing....consumer economy....and the consumer is FINISHED......gimme a break this will end three ways badly... really bad... or......poof"[/i]


[b]Cartoon of the day:[/b] Hilarious installment of Chip Dunham's [i]Overboard[/i] yesterday has the ship`s mice discussing high and low finance:

What if CRE Market Collapsed and No One Heard It?
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aDZB7iYmizno&refer=news]U.S. Home Prices Rise 0.7% in First Back to Back Monthly Gain in Two Years[/url]: [i]U.S. home prices rose 0.7 percent in February from January, the first consecutive monthly gain in two years, a sign that low interest rates may be moderating declines in real estate values.[/i]

[i]My Comment:[/i] Indications of a genuine bottom or merely a pause in the slide induced by last fall`s temporary foreclosure moratoria (now lifted, with [url=http://zerohedge.blogspot.com/2009/04/california-foreclosures-jump-80-in-q1.html]predictable consequences[/url]) and massive government subsidies to lower mortgage rates to below market?


ZeroHedge has an interesting [url=http://zerohedge.blogspot.com/2009/04/some quant stats.html]Q1 report[/url] from the Friedberg Mercantile Group (a Quant hedge fund) - I excerpt only the macroeconomic bits below:
[quote]The US is heading towards an astronomic $3 trillion fiscal deficit, an amount that represents 21% of GDP and that exceeds the entire 2008 budget. Clearly, the Feds have overdone it, and in a big way. There is no possible way for the US Treasury to fund, uneventfully, this amount in a stabilized economy, that is, an economy no longer experiencing the type of free fall seen during the last quarter of 2008 and the first couple of months of 2009. At present rates, domestic savings would be woefully insufficient, especially if they are called upon to finance normal business requirements, and foreign savings will certainly not be forthcoming, at least not on that scale. That leaves the Treasury with two bad choices, one worse than the other: substantially higher long term rates or Fed monetization. Please note: stock prices have been on a tear recently, not because the market expects significant gains in economic growth/productivity and a surge in earnings. That will not happen under this administration. The true reason for this mini bull market is that the market senses a huge rise in inflation. Better to own businesses and tangible assets, it reasons, than fixed income pieces of paper. This is true. But, we suggest, it’s better yet to own the tangible assets directly, gold and commodities.

Surplus countries will see their currencies appreciate. This will be bullish for China and Asia in general, though their international reserves will initially be mauled. Others, too, will benefit. Upward floats and the accumulation of tangible international assets instead of other nations’ liabilities will change Bretton Woods II forever.[/quote]
[i]My Comment:[/i] I`m not one of the goldbugs who keep crying that gold will hit $2000, $5000, $10000 per ounce any day now when the US $ "collapses", but do think roughly 10% tangible assets (bullion or collector coins) should be a standard portfolio hedge against the worst case hyperinflationary scenario, which IMO is still only a remote possibility, but a lot less remote than it was before the Treasury and Fed embarked on their unprecedented monetization binge last year.


Mish asks, [url=http://globaleconomicanalysis.blogspot.com/2009/04/commercial real time bomb goes off but.html]What if Commercial Real Estate Imploded and No One Paid any Notice[/url]?
[quote]The Commercial Real Estate Time Bomb has gone off but it has been lost in the euphoria of economic cheerleading and bottom calls based on dubious (at best) earnings reports from banks.

...The sentiment [url=http://money.cnn.com/2009/04/16/markets/thebuzz/index.htm?cnn=yes]expressed by Paul La Monica at CNN[/url] reminds me of the the optimism in residential real estate that lasted for close to a year before the bottom fell out of the market. Now, even though it is widely understood that commercial real estate follows with a lag, optimism reigns supreme. Check out the subtitle: "Even if commercial real estate weakens further, the market probably won't collapse."

I disagree. Many regional banks that avoided the residential debacle, are now left holding the bag on commercial loans.

...America's love affair with the mall is not coming back. Boomers headed into retirement dependent on the real estate bubble have now taken a massive hit on both their houses and their stock portfolios. Neither is coming back soon. Retirement plans will be scaled back to include less travel, fewer toys (boats and cars), and less shopping in general. Moreover, a new wave of frugality has hit the children of boomers.

...And so a tsunami of commercial real estate bankruptcies is just offshore, fueled by a change in consumer attitudes. Few have bothered to take note. Complacency in commercial real estate is not justified nor will it be rewarded.[/quote]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=anA.WOxto6qQ&refer=news]Soaring U.S. Deficit Means Billions in Bond Sales as Tax Receipts Collapse[/url]: [i]Millions of lost jobs mean billions in lost tax revenue for the U.S. government, and billions in additional Treasury debt to fund a federal budget deficit that may soar to more than four times last year’s record $454.7 billion.[/i]
[quote]With spending on unemployment insurance and other safety net programs rising, the deficit is already at a record $956.8 billion six months into the fiscal year. To help close that gap, the Treasury Department has more than quadrupled borrowing, pushing the government deeper into debt.

“Tax receipts are just collapsing,” said Chris Ahrens, head of interest rate strategy at UBS Securities LLC in Stamford, Connecticut, one of 16 primary dealers required to bid at Treasury auctions. The need to sell more debt “is a big issue in the Treasury market and it is ongoing. The surging budget deficit is the primary cause.”

The government will have to sell $2.4 trillion in new bills, notes and bonds in fiscal 2009, according to UBS. From October through December, the Treasury sold a record $569 billion, up from $82 billion in the same period a year earlier, and auctioned another $493 billion in the last quarter, up from $156 billion. That helps to make up for the drop in tax receipts, pay for the rise in spending and refinance maturing debt. Along with the principal, the sales add additional interest costs to the deficit for years to come. [/quote]
[i]My Comment:[/i] Things are no better in fellow debtor nation the UK:

[url=http://www.bloomberg.com/apps/news?pid=20601102&sid=ajM6M8UiTXW8&refer=uk]Darling Plans Record Budget Deficit, Higher Taxes on Motorists, Smokers[/url]: [i]Chancellor of the Exchequer Alistair Darling raised taxes on motorists, smokers and the rich as he forecast the worst recession since World War II and the biggest budget deficit in the Group of 20 nations.[/i]
[quote]The Treasury will borrow 269 billion pounds ($392 billion) more than estimated in November. It will raise taxes by 3.2 billion pounds on people earning above 100,000 pounds a year and 6 billion pounds through duties for alcohol, tobacco and gasoline, Darling said in his annual budget in London today.

The moves left Prime Minister Gordon Brown’s government little room to stimulate the economy before the next election, which must be held by the middle of 2010. Darling’s expectation that growth will resume by the end of this year is too optimistic and suggests taxes will rise again, said Andrew Smith, chief economist at the accounting firm KPMG.

“Even though Darling insists that the end of the recession is in sight, we are still looking at eye watering budget deficits,” Smith said. “Plans for repairing the public finances are long on ambition but short on detail. Significant additional tax hikes will ultimately be necessary.” [/quote]
[i]My Comment:[/i] Notice the collective mass delusion (or perhaps coordinated lying in a desperate attempt to turn the lie into a self fulfilling prophecy) on the part of economists and policymakers: Worst is behind us, we see green shoots (are you sure those aren`t Marijuana buds?), glimmers of "hopiness", recovery in 2nd half of 2009, blah, blah, blah. Compare and contrast with the litany of lies, false prophecies and utterly wrong-headed "analyses" on the part of the same cabal last year. The words may have changed slightly to fit current events, but the song remains the same.

Banks Balk at Chrysler Proposal | Freddie CFO: RIP
 

[url=http://www.freep.com/article/20090422/BUSINESS01/90422042/Granholm++Bailed-out+banks+suffocating+Chrysler]Michigan Governor: Bailed-out banks killing Chrysler[/url]: [i]Gov. Jennifer Granholm joined those denouncing creditors of Chrysler LLC for their unwillingness to make concessions on outstanding debts, specifically targeting financial institutions that have accepted loans from the federal government.[/i]
[quote]Among Chrysler’s chief lenders are JPMorgan Chase, Citibank, Goldman Sachs and Morgan Stanley. They have asked for 40% ownership and a seat on the Chrysler board of directors in exchange for reducing their debt from $6.9 billion to $4.5 billion.

“Who knew that bailing out the banks would mean that they could kill the auto industry,” she told reporters at an unrelated event. She said the livelihoods of thousands of families are in the balance.

The institutions are playing “a very risky game” by proposing what amounts to a windfall for them, rather than accepting a market-based settlement proposed by the Obama administration.[/quote]
[i]My Comment:[/i] Perhaps this game of chicken is less risky for the banks than it would seem - after all, they know full well that the game is heavily rigged in their favor. The huge disparity in the government`s treatment of the banks and automakers provides ample evidence of that bias. Oh, and did I mention that the U.S. Treasury is for all intents and purposes a division of Goldman Sachs? I did get a chuckle out of the oxymoronic phrase, "market-based settlement proposed by the Obama administration", however.


[url=http://online.wsj.com/article/SB124040188797343215.html?ru=yahoo&mod=yahoo_hs]Freddie's Acting Finance Chief Is Found Dead - WSJ Online[/url]: [i]RESTON, Va. -- David Kellermann, acting chief financial officer of Freddie Mac, one of the housing-finance companies backed by the U.S. government, was found dead at his suburban Washington home early Wednesday.[/i]
[quote]Mr. Kellermann's wife, Donna, told local police he committed suicide, local television station WUSA reported, citing sheriff's deputies in Fairfax County. Police wouldn't confirm that the death was a suicide, only saying the body was unattended and that there were no signs of foul play.

In a statement, Freddie Mac's interim CEO, John Koskinen, said, "The Freddie Mac family is truly saddened by the news this morning," and that Mr. Kellermann's "extraordinary work ethic and integrity inspired all who worked with him." Treasury Secretary Timothy Geithner, in prepared text, said, "Our deepest sympathies are with his family and his colleagues at Freddie Mac during this difficult time."

Mr. Kellermann became Freddie's acting finance chief in September, succeeding Anthony S. Piszel amid a broader overhaul of top management. He had previously been the company's controller and principal accounting officer.

Mr. Kellermann's job made him responsible for financial controls and reporting at Freddie Mac, which is based in nearby McLean, Va. He had been with the company for more than 16 years, starting as a financial analyst and auditor in 1992, according to the company's Web site.

Investigators from the Securities and Exchange Commission and Justice Department have been questioning officials of Freddie Mac about possible accounting violations and other matters in recent months, the company disclosed in March.

Freddie disclosed in the recent SEC filing that in September it received a federal grand jury subpoena from the U.S. Attorney's Office for the Southern District of New York seeking documents related to accounting, disclosure and corporate-governance matters. That subpoena was later withdrawn, Freddie has disclosed, and the investigation was taken over by the U.S. Attorney's Office for the Eastern District of Virginia.

"We know of no connection between this terrible personal tragedy and the ongoing regulatory inquiries discussed in our recent SEC filing," said David Palombi, Freddie's chief spokesman.[/quote]
[i]My Comment:[/i] Hmmm ... This ones bears watching for further developments. My condolences to his family, in any event.


[url=http://money.cnn.com/2009/04/22/news/international/China_forecast.reut/index.htm]China's economic outlook brightens[/url]: [i]People's Bank of China, Goldman Sachs and other prognosticators say government stimulus efforts are working.[/i]

[i]My Comment:[/i] "Prognosticators" here appears to equate to "interested parties", in the sense of having a financial interest. Speaking of "interest", I found it "interesting" that nowhere in the article does the word "export" appear. It`s mostly a mishmash of official government spokespersons and Goldman Sachs pumpers spouting off about the "target GDP growth figures" - these are the ones that nearly always just get met or exceeded and whose "measurement" is entirely up to the Chinese government - and miscellaneous smoke-blowing about "inflation expectations" and "green bamboo shoots". What a load of horse pucky. Interestingly, while the banksters and brokerage types quoted in the article are almost uniformly bullish, one senior-official-not-working-for-a-bank had the guts to at least hint at the true state of things:
[quote]Lou Qinjian, deputy minister of industry and information technology, said overcapacity, including in the steel and auto sectors, was intensifying due to weak domestic and global demand.

"We can not easily conclude that the economy has bottomed out. The industrial situation remains serious," he told a forum.[/quote]
Translation: "Our export economy has collapsed, and any domestic demand growth to counteract that will only come at the price of a breakneck consumer-credit expansion". That is of course followed by more banker/broker-dealer BS:
[quote]Paris-based Michala Marcussen, head of strategy and economic research at Societe Generale's asset management unit, said she shared concerns about a possible rise in sour loans and fretted that part of the 35% rally in Shanghai stocks so far this year had been fueled by breakneck credit growth.

"Having said that, I also believe Chinese equity market is attractively priced and I still believe that to be the case," Marcussen told reporters in Singapore.[/quote]
[i]My Comment:[/i] Translation: "There are clear signs of yet another huge equities bubble about to pop - but we encourage our customers to keep bidding up prices on the Bubble, so we can continue to rake in commissions and margin fees."

Banks to Get Results of "New" Stress Tests Friday
 

[url=http://www.reuters.com/article/marketsNews/idUSN2218868720090422]Banks to Get Results of "New, Tougher" Stress Tests Friday[/url]: [i]U.S. banks will be briefed by regulators as early as Friday on how they performed in government "stress tests," before the results are made public later, The Wall Street Journal reported, citing government officials.[/i]
[quote] Some estimates of banks' likely losses that were used in the stress tests were tougher than expected, the newspaper said.

"Under a more adverse scenario, which assumes a 10.3 percent unemployment rate at the end of 2010, banks would have to calculate two-year losses of up to 8.5 percent on their first-lien mortgage portfolios, 11 percent on home-equity lines of credit, 8 percent on commercial and industrial loans, 12 percent on commercial real estate loans, and 20 percent on credit card portfolios," the paper said, citing a confidential document from the Federal Reserve.

The Fed declined to comment.

These assumptions could result in losses equal to more than half of Tier 1 bank capital, investment bank Westwood Capital estimated. Tier 1 capital is a measure of capital relative to assets, accounting for how risky the assets are.

For a group of 13 stress-tested banks -- including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp, and Wells Fargo -- Westwood Capital forecast $240.2 billion in losses, or 56 percent of their total Tier 1 capital.

"This a very disturbing bit of leaked information," Westwood Capital wrote in a research note on Wednesday.[/quote]
[i]My Comment:[/i] B..b..but, Timmay G said just yesterday that banks were flush with capital and doing just great. You`re totally harshin` my buzz here, man.

I must admit I`m still stunned at the apparent fact that the stress tests may have actually been rejiggered (the originally quoted "worst case scenario" was a complete joke) to something with a semblance of actual stressfulness.

Paulson, Bernanke, BofA's Lewis under scrutiny...
 

...for possible conspiracy to commit securities fraud:

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aVZ5ftKbJq7E&refer=news]Bank of America Pushed by Paulson to Complete Merrill Purchase, Cuomo Says[/url]: [i]Bank of America Corp. Chief Executive Officer Kenneth D. Lewis failed to tell shareholders about mounting losses at Merrill Lynch & Co. because of pressure from federal regulators to complete the takeover, according to New York State Attorney General Andrew Cuomo.[/i]
[quote]Henry Paulson, who was Treasury secretary last December, may have threatened to remove the management and directors of the Charlotte, North Carolina-based bank if they didn’t comply, Cuomo wrote in a letter to Congress that was released today. Lewis also was told not to disclose his opposition to the Merrill deal because of “staggering” deterioration at the brokerage, or the regulator’s action, according to Cuomo.

Lewis and the board of the biggest U.S. bank by assets are under fire for not telling shareholders that New York-based Merrill’s fourth-quarter loss was spiraling toward $15.8 billion before they voted to approve the deal in December. Shareholders cast ballots April 29 on whether to re-elect directors including Lewis and split his roles as chairman and CEO. Some investors are calling for the 62-year-old Lewis, CEO since 2001, to resign. [/quote]
[i]My Comment:[/i] Karl Denninger claims Paulson`s pressuring Lewis to keep mum about the losses a Merrill [url=http://market-ticker.denninger.net/archives/982-Paulson-and-Bernanke-Indictment-Time.html]constitutes a conspiracy to commit fraud[/url], in the sense that it was Paulson telling Lewis to violate his fiduciary responsibility to BofA shareholders. Mish [url=http://globaleconomicanalysis.blogspot.com/2009/04/let-criminal-indictments-begin-paulson.html]echoes this[/url] in a post today:
[quote]New York State Attorney General [url=http://www.marketwatch.com/news/story/Text-Cuomo-letter-Merrill-Lynch/story.aspx?guid=%7BB8E72006-7E48-402A-BC65-589141E2E520%7D]Andrew Cuomo's letter to the SEC and Senate Banking Committee on the Bank of America, Merrill Lynch Merger[/url] provides strong evidence of coercion to commit securities fraud by former Treasury Secretary Paulson and Fed Chairman Ben Bernanke, and actual securities fraud by Bank of America CEO Kenneth D. Lewis.[/quote]

Bizarro Days | The Atlantic: Why I Fired My Broker
 

Two of the story headlines that caught my eye on the CNN/Money homepage this morning:

[url=http://money.cnn.com/2009/04/24/markets/markets_newyork/index.htm]Stocks rally on Ford, AmEx[/url] - "Ford Motor, considered to be the healthiest of the three Detroit automakers, said it lost $1.4 billion in the first quarter as it contended with the worst quarter for the industry in 26 years."

Lower down on the page we see:

[url=http://money.cnn.com/2009/04/23/news/companies/american_express/index.htm]AmEx profits tumble 56%[/url] - "Profits at American Express declined by more than half in the latest quarter, the company said Thursday, as spending by cardmembers slowed and credit troubles continued to mount."

Draw your own conclusions about the strength of the alleged fundamentals driving the recent stock market rally. Certain wacky internet conspiracy-theoretical bloggers [url=http://zerohedge.blogspot.com/2009/04/goldman-sachs-principal-transactions_23.html]seem to believe[/url] that the fact that [url=http://www.goldmansachs666.com/]The Evil Empire[/url]'s automated-trading programs have been responsible for [u]more than half of the NYSE trading volume[/u] of late may just have a little to do with it. Ha, ha, those guys are so zany!


[url=http://www.nytimes.com/2009/04/24/business/24chrysler.html?_r=3]NYT Breaking: U.S. Is Said to Push Chrysler to Prepare for Chapter 11[/url]: [i]DETROIT — The Treasury Department is directing Chrysler to prepare a Chapter 11 bankruptcy filing that could come as soon as next week, people with direct knowledge of the action said Thursday.[/i]

[i]My Comment:[/i] Quite possibly this id intended (among other things) to give the government more cramdown leverage in its ongoing negotiations with GM stakeholders. Last night I heard on the German DW-TV broadcast that Fiat is now seeking a stake in GM spinoff Opel - how their finances would permit that *and* a merger with Chrysler is questionable. In other moribund-automaker news:

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aiqI9VhrWpJQ&refer=news]GM to Shut 13 North American Plants for Multiple Weeks as Car Sales Slump[/url]: [i]General Motors Corp. said it will idle 13 U.S. assembly plants for multiple weeks to reduce inventory after its U.S. vehicle sales fell 49 percent this year through March.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aa6ogsncMDo4&refer=news]Fed Reports 30% Loss on Bear Stearns Mortgage Loans[/url]

[i]My Comment:[/i] Remember Bernanke`s confident assurances-at-the-time that the American taxpayer would most likely make money from the deal? Suuuuuuure we will, Ben.


[url=http://www.theatlantic.com/doc/200905/goldberg-economy]Why I Fired My Broker -- The Atlantic, May 2009[/url]
[quote]For most of our adult lives, my wife and I have behaved in the way responsible cogs of capitalism are supposed to behave—we invested in a carefully calibrated mix of equities and bonds; we bought and held; we didn’t overextend on real estate; we put the maximum in our 401(k) accounts; we gave to charity; and we saved, but we also spent: mainly on gasoline, food, and magazines. In retrospect, we didn’t have the proper appreciation for risk, but who did? We were children of the bull market. Even at its top, my investment portfolio was never anything to write home about. Its saving grace was that it was mine. And I imagined that when we did cash out, at 60 or 65, I would pass my time buying my wife semisubstantial pieces of jewelry and going bass fishing like the men in Flomax commercials.

Well, goodbye to all that. I took a random walk down Wall Street and got hit by a bus.

How am I sure it’s goodbye? The signs are rampant, but one has become stuck in my mind: a video of Richard Bernstein, the chief investment strategist for Merrill Lynch (sorry, I mean the Merrill Lynch division of Bank of America, which, by the time you read this, may be the Bank of America division of the United States Government), advising Merrill clients such as myself that one of the best financial strategies to adopt now would be to extend my “investment time horizon.”

“If one were to trade the S&P 500 for one day, the probability of losing money is about 46 percent,” Bernstein states. “However, as one extends that time horizon from one day to one month to one quarter to one year to 10 years, the probability of losing money decreases as the time horizon lengthens.”

To which I would add this observation from Keynes: “In the long run, we are all dead.”

This is what I heard Bernstein say: give up. You’re not going to make money on your investments in the next 10 years, or 15, or 20, so you should stop worrying about your portfolio and go to the movies like everyone else.

I called Bernstein and asked him if he was, in fact, advocating a form of Stoicism. He said I was misinterpreting his views. “This is not some sort of psychological compensation device. What I’m saying is that in looking for investment ideas, we should be looking over a five-, six-, seven-year time period. You have to give an investment strategy time to reach gestation.”

But my investment strategy gestated for 15 years. And then it died.[/quote]
[i]My Comment:[/i] The bit about the author`s Merrill Lynch broker advising to him to buy shares of [url=http://en.wikipedia.org/wiki/index.html?curid=633532]Boston Chicken[/url] (before it became the much blander-sounding [i]Boston Market[/i], whose stock never did seem to be able to regain its IPO price, and which filed bankruptcy a few years later, was acquired by McDonald's, which recently flogged it off to a private-equity partnership) brings back memories ... one of my sister`s early jobs out of college was on the young-brokers-in-love circuit at the Merrill office in downtown San Francisco. Thankless job ... spending your days cold-calling people who didn`t know you from Adam and trying to get them to trust you, a 20-something wannabe stockbroker, with their life`s savings, hitting up friends and family to buy some prospects-wildly-exaggerated stock issue just to get a few entries in your monthly sales tally while the veteran brokers skimmed nearly all the commissions resulting from your hard work. Anyway, sis, in the one and only investment she got me to make with Merrill that had a chance of turning a profit in less than 10 years (if ever), managed to get me a small piece of the Boston Chicken IPO which Merrill was co-underwriting. Giving favored clients a piece of a hot IPO has long been a popular form of brokerage-firm baksheesh, the idea being that the client would sell the shares immediately to profit from the first-day "pop" - in essence free money, except of course for the poor retail sucker forced to buy the now-almost-always-overpriced shares on the open market. Sis told me as much, i.e. sell at open and thank me later. But being one of those poor retail slobs whose function is to serve as a "liquidity provider" to the capital markets, this advice was contrary to all the staid "buy and hold" advice brokers invariably give to us poor [strike]retail slobs[/strike] liquidity providers, and I couldn`t bring myself to do it. So I held, watched the shares bleed day after day, and wound up selling at a loss - but thankfully I sold within the year, so it was a modest loss. Boston [strike]Chicken[/strike] Market ... it made me glad to be a Market chicken, as it were.

Remind me to tell y'all the story of Merrill and their pushing of the [url=http://www.scripophily.net/disney.html]Eurodisney[/url] bond offering some day...let`s just say that was another can't-lose deal that could and did and that for the past 15+ years I`ve been with Fidelity, who never cold-call me or peddle Hot Stocks, charge me $8 per trade irrespective of size (unless it`s a penny stock), throw in a nice range of services like free checking and a no-fee Visa debit card with purchase insurance included, and any losses have been of my own doing.

In the early 1960s, my father started investing in stocks through a broker recommended by relative. After a couple of years of seeing monthly statements of wrongly-timed churning during market fluctuations, he swore off brokers and did his own investigations, with subsequent improved results.

I'm sure there are some good brokers; I just don't know how to pick 'em without risking significant financial losses. I have a copy of [i]The Only Investment Guide You'll Ever Need[/i].

[quote=cheesehead;170877]I'm sure there are some good brokers; I just don't know how to pick 'em without risking significant financial losses.[/quote]

We don't agree very often, but I totally agree here.

I once told my broker:"I want to sell 500.000 shares of XYZ short, without putting the price through the floor", and he goes out and finds this *huge* number of suckers from Wisconsin, all willing to buy in lots of around $10.000, and he's made a killing in commissions off me.

So, prices make the anticipated decline over the next couple of months and I'm floatin', but then I lose 50% of my profits the day I'm trying to cover, because the bastard is front-running me!

Some people simply have no shame.

Daily News Roundup: Swine Flu, Automakers
 

Our lead story today is not directly economic in nature, except in the sense that pandemics and global trade are invariably inseparable to some extent:

[url=http://www.cnn.com/2009/HEALTH/04/27/swine.flu/index.html]73 cases of swine flu confirmed; hundreds more feared[/url]
[quote] Forty of those cases are in the United States, 26 in Mexico, six in Canada and one in Spain, a WHO representative said.

Later Monday, health officials in Scotland said two cases of swine flu had been confirmed there.

Hundreds more cases are suspected, especially in Mexico, where as many as 103 deaths are thought to have been caused by the virus, the country's health minister said. More than 2,000 cases have been reported but not confirmed in the country.

Federal officials confirmed 20 new U.S. cases on Monday.

A federal official said they were at the same school in New York in which eight U.S. cases were confirmed earlier. More than 100 students at the school were out with flu-like symptoms last week.

The outbreak is a particular concern because of who it is hitting hard, United Nations Secretary-General Ban Ki-moon said Monday.

"We are concerned that in Mexico, most of those who died were young and healthy adults," he said. Video Watch Mexican officials discuss flu plan »

President Obama said Monday that the swine flu outbreak is a "cause for concern and requires a heightened state of alert," but is not a "cause for alarm."

He added that the federal government is closely monitoring emerging cases and had declared a public health emergency as a "precautionary tool to ensure that we have the resources we need at our disposal to respond quickly and effectively."

Meanwhile, the European Union's health commissioner Monday called on people to avoid traveling to both the United States and Mexico, which seems to be the epicenter of the outbreak.

Swine influenza, or flu, is a contagious respiratory disease that affects pigs. It is caused by a type-A influenza virus. Outbreaks in pigs occur year-round. The current strain is a new variation of an H1N1 virus, which is a mix of human and animal versions.

When the flu spreads person-to-person, instead of from animals to humans, it can continue to mutate, making it harder to treat or fight off because people have no natural immunity.[/quote]
[i]My Comment:[/i] The current strains of the virus appear susceptible to 2 of the front-line antivirals, but I wonder how long that will last: people are going to start popping Tamiflu doses like candy, making the emergence of a resistant strain nearly inevitable. So it`s a race against time: get a vaccine developed and into mass-scale production before a multidrug-resistant (and still virulent) strain emerges. The etiology of the disease in Mexico is worryingly similar to the 1918 "Spanish" flu pandemic. There was a weird video on the news last night, of 2 Mexican pro soccer teams playing a league match in a huge stadium devoid of spectators.


[b]Today`s interesting macroeconomic data point:[/b] [url=http://zerohedge.blogspot.com/2009/04/105-trillion-of-us-economy-backstopped.html]Over 70% of the U.S. economy is currently backstopped in one way or another by the U.S. government[/url]. But don`t you dare call it "socialism"... we prefer "systemic-risk-cleansed free markets".


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aCgKcmOaA.gQ&refer=news]Chrysler Reaches Labor Agreement With U.S. Union, Ratification in Canada[/url]: [i]Chrysler LLC, racing against an April 30 deadline to cut labor costs or face bankruptcy, reached a tentative contract agreement with its biggest U.S. union and won ratification of an accord with Canadian workers.[/url]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a2KvUxKmASGk&refer=news]General Motors Bondholders Say Debt-Equity Exchange Is Unlikely to Succeed[/url]: [i]General Motors Corp. bondholders find the automaker’s offer to exchange their $27 billion in debt for equity unlikely to succeed, according to a person familiar with the committee representing creditors.[/i]
[quote]That’s because the offer by GM, the biggest U.S. automaker, treats bondholders worse than other claimants, such as unions, said the person, who declined to be identified because the discussions are private. At least 90 percent in principal amount of the notes must be exchanged by June 1 to satisfy the U.S. Treasury and avert a bankruptcy, GM said today in a statement.

Bondholders are being asked to swap all their claims for 10 percent of the equity in the reorganized company. The offer is contingent on cutting at least half of GM’s $20.4 billion of obligations to a United Auto Workers retiree-medical fund, known as a Voluntary Employee Beneficiary Association, through a debt- for-equity exchange that would give the VEBA as much as 39 percent of common stock in the Detroit-based carmaker.

“This is an offer that’s designed to fail,” said Kip Penniman, an analyst at fixed-income research firm KDP Investment Advisors in Montpelier, Vermont. “To get 90 percent of them to agree to such a deal where there’s no cash, no other debt and pure equity while leaving the union VEBA arrangement unchanged from previous considerations is absurd.”[/quote]
[i]My Comment:[/i] High-stakes game of chicken going on here ... the bondholders know full well they may fare even worse in bankruptcy court, but obviously want to hold out as long as they can to try to get GM to sweeten the deal. But I have a sneaking suspicion the pension obligations are eventually going to end up in the lap of the U.S. taxpayer...but getting back to the bondholders, i.e. all the "fixed-income analysts" who are talking their book as in the above quote, the really funny part is that they were offered a far better deal just last month and blew it off:
[quote]The Obama administration ousted Chief Executive Officer Rick Wagoner last month, saying that GM’s plan to return to profit wasn’t aggressive enough, and ordered new CEO Fritz Henderson to cut the automaker’s debt by more than initially demanded. GM will be forced to go into a government-supported bankruptcy without deeper cost cuts from its creditors by June 1, the administration said.
[u]
Before Wagoner was removed, GM had proposed that bondholders swap more than three-quarters of their stake for equity, according to a person familiar with the talks. That offer would have given bondholders 90 percent of the equity of the reorganized automaker and a combination of cash and new unsecured notes, the person said at the time[/u].[/quote]
[i]My Comment:[/i] Oh yeah, holding out really worked well for y'all the last time around, didn't it?

London Bankers Face "Last Straw" Tax Increase
 

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aKCdIuHonoTM&refer=news]London Bankers Look for Way Out After `Last Straw' Increase in Tax to 50%[/url]: [i]Demetris Efstathiou, a hedge-fund trader and a Londoner for two decades, listened last week to Chancellor of the Exchequer Alistair Darling outline a plan to raise taxes on high earners. Then he decided to leave Britain.[/i]
[quote]“There is no reason for me to stay here anymore,” said Efstathiou, a 38-year-old Cypriot who moved to London in 1990. “This tax increase is the last straw. This government is no longer interested in the City.”

Prime Minister Gordon Brown’s proposal to boost the tax rate to 50 percent from 40 percent on income above 150,000 pounds ($220,000) pushed headlines about “class warfare” onto the front pages of the capital’s newspapers. It also prompted predictions from business groups that it would undermine the U.K.’s competitiveness and lead to an exodus of financial talent. Brown was portrayed as Vladimir Lenin in a cartoon on Page One of the Daily Telegraph.

The income-tax change, set to take effect next year, would give the U.K. a higher top rate than Spain, Italy, Germany, France and the U.S., according to KPMG, the accounting firm. Among the 30 members of the Organization for Economic Co- operation and Development, the country would jump to seventh from 19th in the rankings of tax rates, accounting firm Ernst & Young said.

The initiative is part of the government’s efforts to contain a planned budget deficit of 12.4 percent of gross domestic product, Britain’s biggest in peacetime. The Treasury expects the tax to raise about 2.2 billion pounds next year when government borrowing will be 173 billion pounds. Darling’s budget calls for 703 billion pounds of deficits in the five years through April 2014. [/quote]
[i]My Comment:[/i] Allow me to put forth the following modest alternative proposal, which would give corporate executives an incentive to keep their compensation at levels which are not the egregious multiples of rank-and-file-employee salaries we have been seeing in the past decade, during which average CEO pay has risen beyond all reason relative to regular-employee pay and has in many cases become completely decoupled from corporate performance:

Assume the average rank and file worker at ExampleCorp earns R. For an ExampleCorp executive earning E in total compensation, tax the first R of that at the regular tax rate, and subject the excess X (in an integral-over-X fashion, with X ranging from 0 to (E-R)) to a tax-rate surcharge of X/R percent over the prevailing tax rate, with the highest total rate not to exceed 100%, obviously. Thus, using U.S. tax rates (with maximum rates around 30% in the high-income brackets) as a rough guide, if am a CEO and my average rank-and-file employee makes $50,000 per year, I could earn up to roughly 30x that, or up to around $1.5 million per year, before my tax rate incurs an "egregious executive pay penalty". The more my pay rises above that, the bigger the hit. If I decide in Wall-Street fashion to pay myself a couple tens of millions, fine - but most of that goes straight to the government. You could say, "but shouldn't CEO pay be reflective of corporate performance?", i.e. a CEO of a highly profitable firm should not be penalized for being extremely well-paid. I say, the above proposal allows such a CEO to be very well-paid, but only if they share some of that profit with the rank-and-file employees first. If you want to give yourself a 100% bonus because your company had a great year, fine - but your regular employees get a 100% bonus that year, too. Seems fair to me.

[quote=ewmayer;171212]
[B]Today`s interesting macroeconomic data point:[/B] [URL="http://zerohedge.blogspot.com/2009/04/105-trillion-of-us-economy-backstopped.html"]Over 70% of the U.S. economy is currently backstopped in one way or another by the U.S. government[/URL]. But don`t you dare call it "socialism"... we prefer "systemic-risk-cleansed free markets".
[/quote]

I am afraid that just ain't right. There is plenty wrong with the way this and the previous administration are managing the economic crisis but socialism it ain't. Go read the dictionary definition.! It would be far more accurate to call it "The shameful looting of the US taxpayer by the super-rich and well-connected."

Garo, I was playing on the fact most folks in the U.S. have a rather bizarre notion (or variety of notions) of what "socialism" means, ranging from "government safety net for everything" to "really high taxes" to "totalitarian regime and 100% thought control". But for the most the part the associations (or better, mis-associations) are negative - think "national socialism" - so whenever a politician/right-wing-talk-radio-host/demagogue wants to end any kind of reasoned debate on an issue involving potentially increased government involvement in anything, they resort to the "this is socialism!" card.

Anyway, the massive government-backstop of All Things Financial is very much a kind of socialism, but since it's only occurred now that the reckless-capitalism-run-amok shit has hit the systemic-risk fan, it`s socialism of the Wall-street-beloved "we all get to share in the losses" kind.

It is privatized profits and socialized losses. But to call it socialism is the same as calling say Zimbabwe a democracy. I expected a better understanding of socialism from you :).

From an American blog on the topic of executive pay:

[quote] What impresses me about this is that, bluntly stated, Americans are complete sheep. And they can't scale what real theft is.
If some poor soul breaks into a person's house and steals $50 in cash, no one in this country has a problem with the homeowner blowing the burglar's head off.
But if a group of senior banking executives effectively steals $50,000 from [I]every[/I] house in America, no one says a word.
[/quote]

[QUOTE=ewmayer;171214]
[i]My Comment:[/i] Allow me to put forth the following modest alternative proposal, which would give corporate executives an incentive to keep their compensation at levels which are not the egregious multiples of rank-and-file-employee salaries ...[/QUOTE]


I like it- and there is a form of precedent for such a sliding structure; I believe that in certain cases, a company's owner is limited in what he can legally put away in a 401(k) plan for himself by the amount his employees are putting away. Our prior owner made the company's 401(k) plan extremely attractive, and openly explained that he was limited in how much he could put in it by how much the employees participated. In your plan, if upper management wants to pay themselves more, but avoid the increasing tax burden, they must first raise the rank-and-file pay.

Good plan-

Norm

Costs of a pandemic | Green, Shoots, and Lies
 

[url=http://www.telegraph.co.uk/health/healthnews/5228878/Estimates-of-economic-costs-of-a-flu-pandemic.html]Estimates of economic costs of a flu pandemic[/url]: [i]The World Bank estimated in 2008 that a flu pandemic could cost $3 trillion and result in a nearly 5pc drop in world gross domestic product. The World Bank has estimated that more than 70m people could die worldwide in a severe pandemic.[/i]

[i]My Comment:[/i] Nothing [url=http://www.nytimes.com/2009/04/28/health/policy/28health.html?ref=politics]alarming[/url] to see here folks, just cover your mouth when you cough or sneeze and all will be well ... One thing I was very disappointed to not hear any coherent discussion about from the CDC health officials on C-SPAN yesterday was the "asymptomatic infectivity" window: You had one top CDC official (Besser) saying "we see no reason to impose travel restrictions ... just monitor airports for people showing signs of possible infection, blah, blah." Hello? We know that the incubation time for this disease is 1-4 days. If a person is infectious during the incubation time (and that's what I wanted to hear something about, even if speculation based on other better-studied strains of flu), wouldn't that be a compelling argument for imposing travel restrictions to and from countries.areas which are hotspots of the outbreak, irrespective of whether a would-be traveler is showing signs of sickness? It seems that with modern air travel a several-day presymptomatic infectivity window is exactly the thing one needs to be the most concerned about, i.e. rapid spread of a pandemic agent occurring right under one's nose, so to speak. In that scenario, by the time one obviously-sick person gets stopped at an airline gate, hundreds or even thousands of asymptomatic carriers may have already dispersed all over the globe. Think of the movie "12 Monkeys".


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a5UJkWsSlcKY&refer=news]Chrysler's Banks, U.S. Government Said to Reach Agreement on Reducing Debt[/url]: [i]Chrysler LLC’s banks reached a tentative agreement with the U.S. government to exchange $6.9 billion in secured debt for $2 billion in cash, according to a person with knowledge of the negotiations.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a.JioUJOTODc&refer=news]U.S. Consumer Confidence Jumps, Home-Price Drop Slows in Evidence of Shift[/url]: [i]Consumer confidence in the U.S. jumped by the most since 2005 this month as stocks rallied, mortgage rates dropped and Americans anticipated more jobs would become available.[/i]

The "green shoots" media campaign remains in full swing: Notice that of the 3 "greenish and possibly shooty" items in the italicized subheading above, one (the stock rally) is largely manufactured on coordinated fake-earnings reports from banks, the second is manufactured by the government (by e.g. buying huge amounts of GSE debt and ignoring that the default rate on said debt is soaring) and the third is a mix of manufactured (government stimulus spending) and delusional (said spending will make only a small dent in the jobs numbers, and will create next to no real sustainable economic activity). With respect to the "slowing in home price declines", that`s like saying "Notice that as a function like 1/x or exp(-x) decays toward zero, the rate of decay, as measured by the magnitude of the respective derivatives -1/x^2 and -exp(-x), also goes to zero. This is great news for home prices following a similar trend!" Of course real home prices may indeed be getting close to the long-term (and decidedly nonzero) asymptote represented by the Case-Schiller housing index, but they ain`t going to "shoot" back up any time soon, and that "stabilized" level still leaves tens of millions of people holding mortgages for far more than their houses are worth, i.e. the level of mortgage *debt* is and remains huge even if housing prices are "stabilizing". This looking-for-an-Nth-derivative-which-actually-has-positive-sign smacks of desperation on the media-spin side, which brings me to

[b]Heard on the Street:[/b] Some pithy perspectives from the retail-investor level (both of these happen to take the bearish view, but if you think such skepticism isn`t justified you really need to find a different thread ;) spotted "in the wild" that is the Yahoo Finance MBs:
[quote][b]interactiveMedia, 28 Apr 2009 13:53 EDT
Subject: More Great News About the Economy to feed the rally[/b]
The 10-City and 20-City composite indexes posted year-over-year declines of 18.8% and 18.6%, respectively. That was slightly better than January, when they fell by 19.4% and 19%, respectively, year-over-year.

Wow, talk about desperate. If this is what leads to market rallies these days, imagine when composite indices are so beaten down with double digit losses in another year and a 14% loss is seen as an improvement over 15% next year. The people buying into these horrendous reports and interpreting them as positive news are deluded.


[b]froggywithfries, 28 Apr 2009 13:55 EDT[/b]

But, but, consumer confidence is soaring!

I'm guessing that's temporary due to tax refunds.


[b]interactiveMedia, 28 Apr 2009 14:34 EDT[/b]

If consumer confidence were really soaring, we would be seeing positive earnings from all of the big retail and consumer companies. Instead the numbers coming out from them are record losses and nothing short of disastrous. In this depressed economic climate, with huge personal wealth loss at all levels, where would consumers come up with the money to pay for these things anyway? More home equity loans, more credit card debt, etc....
The only money stimulating this economy and holding it from record lows is the government which is borrowing money it doesn't have and telling us that everything is going as well as can be expected.
Everyone else is either broke or holding on to what they have for when the crisis gets worse. The government and the banks are lying to you because by making you believe everything is okay, things will be back to normal. But that is not true. This is not some cyclical meltdown. This is an economic unwinding that has been overdue for many years and and the only reason it is not worse is because the gov is selling out future generations by saddling them with unheard of debt in order to try to stabilize the house of cards that has been built up over the past 20 years with fake paper wealth.[/quote]
[i]My Comment:[/i] Indeed, I expect tax refunds are significantly higher this year due to all the 2008 investment losses being written off. But like so much other personal revenue these days, it`s going toward paying down debt and saving for a rainy day - which of course is bad for a pathological-levels-of-debt-based economy like ours. But it`s not spending and credit that need to rise again, it`s the basic economic model that needs to get tossed.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aSEzWR13td1A&refer=news]Bair Looks Beyond Tests, Says FDIC Needs Power to Close Holding Companies[/url]: [i]Federal Deposit Insurance Corp. Chairman Sheila Bair, looking beyond stress tests that will determine the health of the top 19 U.S. banks, said her agency should have the authority to close even the biggest lenders.[/i]
[quote]The “too-big-to-fail concept” should be “tossed into the dustbin,” and the FDIC should have the power to close “systemically important” financial firms, Bair said in a New York speech yesterday. “Given our many years of experience resolving banks and closing them, we’re well-suited to run a new resolution program,” she said. [/quote]
[i]My Comment:[/i] Sheila, Sheila, Sheila, how many times do me and Bennie and Timmy have to remind you to get with the program? "systemically important" means "must be bailed out at all costs", and we do mean [url=http://globaleconomicanalysis.blogspot.com/2009/04/bank-of-america-70-billion-short-of.html]all costs[/url] - securities laws be damned, financial disclosure regulations be damned, Federal Reserve Act be damned, cost to the taxpayer and to smaller better-run banks be damned. Man, I *told* George Dubya and Hank P. that this was the kind of trouble we`d get once we started doing the "Pee Cee" thing and letting chicks (ones not working for the Hoover Institution like Condie, that is) into the club. This stuff was so much easier when it was just us Goldman boys and the occasional Skull-and-Boneser to play the heavy...

[QUOTE=garo;171272]..It is privatized profits and socialized losses... [/QUOTE]

IMO, this is the "imperfect implementation of collectivist principles" as defined by Karl Marx.

Markets Cheer Worst GDP performance in 50 years!
 

Re. above discussion of the Marx brothers: We're not a socialist commune ... we're an anarcho-syndicalist collective ...


Today`s macro-economic news summary from the U.S. can be pretty much summed up as [url=http://money.cnn.com/2009/04/29/news/economy/gdp/index.htm]Markets Cheer Worst back-to-back GDP performance in 50 years[/url].


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a97rZxZqE4S8&refer=news]Chrysler Bankruptcy, Fiat Alliance Said to Be Announced by Obama Tomorrow[/url]: [i]President Barack Obama plans to announce tomorrow that Chrysler LLC will be placed into Chapter 11 bankruptcy, leading to an alliance with Italian automaker Fiat SpA, people involved in the matter said.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ajqVEZXXLO1w&refer=news]Stocks in U.S. Advance as Most S&P 500 Companies Beat Earnings Estimates[/url]: [i]U.S. stocks rose, driving the Standard & Poor’s 500 Index toward its biggest monthly advance since 2000, as companies beating profit forecasts outnumbered those that trailed by 10-to-1 and investors speculated bank losses have peaked.[/i]

[i]My Comment:[/i] The article neglects to mention how much those earnings estimates have been lowered in the past months, i.e. the "I can kick butt in the pole vault if I lower the bar 15 feet" phenomenon, but shhh! Don`t tell the rampaging bulls ... they`re flying high from smoking all those "green shoots" right now, it would be unkind to harsh their buzz with real data like unemployment and GDP.


Spotted in a [url=http://www.ritholtz.com/blog/2009/04/i-am-a-prophet-of-doom/#more-24228]They Named Names[/url] thread on Barry Ritholtz`s blog:
[quote]As a registered Republican ... I totally agree with your criticism of Obama, but looking from his perspective, I can understand why The Big O has chosen not to wean us off our habit of relying on money printing, government bailouts, and mountains of debt. Think of the US electorate as 130 million or so crack addicts. You aren`t going to get re-elected if all of a sudden, you take away the crack.[/quote]

[quote=ewmayer;171562]Spotted in a [URL="http://They%20Named%20Names"]They Named Names[/URL] thread on Barry Ritholtz`s blog:[quote]As a registered Republican ... I totally agree with your criticism of Obama, but looking from his perspective, I can understand why The Big O has chosen not to wean us off our habit of relying on money printing, government bailouts, and mountains of debt. Think of the US electorate as 130 million or so crack addicts. You aren`t going to get re-elected if all of a sudden, you take away the crack.[/quote][/quote]Does the registered Republican understand that it has been [U]Republicans[/U] who have been addicting this country to relying on money printing and mountains of debt since 1980?

Total debt run up during Republican administrations from 1980 through fiscal year 2008: $ 8 trillion.

Total debt run up during [U]all other[/U] presidential administrations in the other 200 years of U.S. history since 1788 (ratification of Constitution): $ 2 trillion.

[QUOTE=cheesehead;171565]Okay, tell us how [I]you[/I] would simultaneously minimize the "wolf" probability, minimize the chance of unnecessarily impacting the world economy, and maximize the chance of catching a potential pandemic before it's too late to prevent its full flowering[/QUOTE]

The worst-case airline-vectored scenario involves airborne transmission, so let's focus on that: One thing I have long advocated would be to equip all passenger planes operating in and out of the U.S. with a simple kind of air-sampling system, just a compact shoebox-sized sampler which would collect swatches of floating particulates down to virus size. These would be cyclable, i.e. a new swatch would be exposed every 8-24 hours, and designed so a month's worth of swatches at a time would come in a preloaded cassette that would be swapped out as part of routine maintenance. The used cassettes would be cold-stored for some period of time - if small enough, this could be literally years, which could prove important in a forensic-pathogenics sense.

In case of a major outbreak where airborne transmission is suspected, part of the sdtandard emergency response would be to collect the swatches from every airliner daily and send them to a CDC or WHO-approved lab to test for the pathogen implicated in the outbreak. That way if passengers on a flight have been exposed we'd know fairly quickly, but would not have shut down air travel or inconvenience passengers in any way.

Other routes/modes of transmission require thought: For instance, is it feasible in case of a really nasty bug to collect nasal swabs at border crossings?

You're right about not shutting down the economy to an inordinate degree, but that does need to be weighed against the spanish-flu type scenario, i.e. the very real probability of a pandemic which ends up killing on the order of 1% or more of the world's population? What's 100 million lives worth these days? But merely looking for "obviously ill" people at airports is idiotic, in my opinion. We need to be just a little smarter than that.

Compare sampling-based proposals such as the above one to the amount of money being spent on e.g. near-earth asteroid detection - not that I'm against the NEO search, I just want the $ spent on such catastrophe-prevention efforts to be roughly proportional to the potential lives saved.

[QUOTE=cheesehead;171567]Does the registered Republican understand that it has been [U]Republicans[/U] who have been addicting this country to relying on money printing and mountains of debt since 1980?

Total debt run up during Republican administrations from 1980 through fiscal year 2008: $ 8 trillion.[/QUOTE]

All true, but is more of what ails us really a likely cure for what ails us? do we really want to spend trillions to "loosen credit markets" when it was too-loose credit markets that were at the root of the current crisis? I voted for Obama, but I have a real issue with him letting the same kind of Keynesian Klown Kabal as under Bush running his economics effort.

p.s.: I forgot to include a link with my "they named names" reference in my post above - added, so you can read the article and browse the reader replies.

[quote=ewmayer;171577]All true, but is more of what ails us really a likely cure for what ails us?[/quote]The ultimate homeopathy test, eh?

I don't claimed that the Bush/Obama plan is a better way to proceed than any possible alternative. (Go ahead; try to find a quote where I said so!) I've noted that it's in line with the mainstream Keynesian view, but not that I think that is the best possible view. I've questioned several aspects, and am mightily scared of the consequences if they turn out badly. But the GOP hasn't proposed any coherent alternative, other than a drumbeat of "No" !

All I wrote in what you quoted was a challenge to Republicans to admit a truth about their own party. I think that if they were to do so, they could be a more effective opposing force than the Spector-less GOP now is.

[quote]do we really want to spend trillions to "loosen credit markets" when it was too-loose credit markets that were at the root of the current crisis?[/quote]Now, Ernst, that's just pathetic rhetoric. You're using "loosen" and "too-loose" in two different senses, but pretending that they're parallel. C'mon.

[QUOTE=cheesehead;171700]You're using "loosen" and "too-loose" in two different senses, but pretending that they're parallel. C'mon.[/QUOTE]
Not at all - the government/Treasury/Fed wonks keep talking about getting folks to start spending again by way of "getting credit to flow". Since U.S. household debt is at historically unprecedented levels (i.e. many if not most households are flat broke in terms of net equity and are only able to function by hitting the plastic get-into-debt-ez card), where do you think that "consumer led recovery" is supposed to come from? That's the broken U.S. Ponzi-economic model I've been talking about week in and week out for over a year in this thread and the previous 2008 version thereof. Did you miss the memo?

Credit markets are all about people and corporations *borrowing* money to buy stuff. If that "stuff" is put to productive use such credit can prove exceedingly useful - but would you characterize our collective decades-long binge of bidding up home and equity prices to simply insane valuations, building huge homes we need to store all our foreign-made crap and huge SUVs to seat our overfed butts and providing the ever-increasing-proportion of public-sector employees (read: government employees, bureaucrats, functionaries and other taxpayer-funded parasites) with cushy early retirement and unbelievably generous overtime and sick-leave policies as "productive"?

What did you think I meant by credit markets having been "too loose" and the government's ongoing multitrillion-dollar (much of which is borrowed money, fittingly, and the rest courtesy of Uncle Ben's Magic Electronic Money-Printing Press) efforts to "loosen them" again after last year's Big Freeze?

Allow me to illustrate the issue via a clear graphic - this is courtesy of ZeroHedge, in a [url=http://zerohedge.blogspot.com/2009/04/comparing-todays-vegas-back-lot-to-real.html]recent article[/url] in which they examine the structural similarities/disparities between 1982 - the low-point start of the last great multidecadal bull market - and today, which most of the mainstream media are dutifully touting as the likely low point of the current contraction -- a suitable title for the graphic would be "What's Wrong With This Picture?":

Apropos socialism:

[I]“One great problem that we have before us is to preserve the rights of property; and these can only be preserved if we remember that they are in less jeopardy from the Socialist and the anarchist then from the predatory man of wealth. It has become evident that to refuse to invoke the power of the nation to restrain the wrongs committed by the man of great wealth who does evil is not only to neglect the interest of the public, but is to neglect the interests of the men of means who acts honorably by his fellows."[/I]

Teddy Roosevelt, May 30, 1907

[QUOTE=garo;171777]Apropos socialism:

[I]“One great problem that we have before us is to preserve the rights of property; and these can only be preserved if we remember that they are in less jeopardy from the Socialist and the anarchist then from the predatory man of wealth. It has become evident that to refuse to invoke the power of the nation to restrain the wrongs committed by the man of great wealth who does evil is not only to neglect the interest of the public, but is to neglect the interests of the men of means who acts honorably by his fellows."[/I]

Teddy Roosevelt, May 30, 1907[/QUOTE]

Barry Ritholtz has a blog posting today which echoes that sentiment, titled [url=http://www.ritholtz.com/blog/2009/05/us-vs-europe-who-is-the-welfare-state/]US vs Europe: Who is the Welfare State?[/url]:
[quote]Today is May Day, and while International Workers’ Day (Labour Day in the UK), means little in the USA, its a big holiday in Europe. Banks and markets are closed on the continent, (England celebrates on Monday).

Speaking with Mike Panzner this morning (his clients are mostly Europeans) made me think about this: Which region is the true Socialist state?
[i]
-Europe has cradle to grave health care plans, generous unemployment benefits, and free or subsidized college costs.

-The US gives away public assets (oil, gas, mineral rights) for pennies on the dollar, has huge subsidies and tax breaks, and bails out reckless speculators.
[/i]
It turns out that both regions are welfare states — only in Europe, the natural population (i.e., people) is the recipient, while in the US, the corporate population is the beneficiary.[/quote]

Macroeconomics-interested readers will also want to read the post right below that one, which notes that if it were not for a plunge in imports to the U.S. in Q1 2009, the recently-reported Q1 GDP number would have reflected a horrendous contraction of -12% (annualized), rather than the merely-dire -6% which Wall Street took as a sign that the economy was improving. ("Ignore that negative first derivative, folks ... it's the much-nicer-looking second derivative that you want to focus on ... and if that looks bad, too, try the 3rd ... and the 4th ... or just feed some rosy-sounding 'worst is behind us ... green shoots ... glimmers of hope' bullcrap to the media.")

[b]Food for thought:[/b] In putting the obligatory this-sounds-bad-but-trust-me-it's-really-a-good-thing spin on the Chrysler bankruptcy (or more accurately, the most-recent Chrysler bankruptcy) yesterday, Obama said that going into bankruptcy is "not a sign of weakness". That's right, in the modern American economy - the greatest economy on Earth, goddammit - bankruptcy is something the best of the best aspire to, a sign that a corporation has achieved true greatness. Think Lehman Brothers, AIG, Fannie and Freddie, and now Chrysler. Why, most corporations would give their right arm to get their name added to that list of luminaries. So let's review our U.S. Ponzi-economic Newspeak:

- Down is Up;
- Red is Black (or perhaps Green);
- Solvency is Weakness;
- Bankruptcy is Strength;
- Less Negative is Positive;
- Borrowing is Saving;
- Credit is Wealth;
- Spending your own money is bad;
- Spending other people's money is good;
- Prudence is punished;
- Risk is its own reward.

Did I leave anything out? I was gonna throw in "Housing prices can go up at double-digit percentage rates per year forever, even while real incomes stay flat", but it just seem sufficiently short and snappy.

[QUOTE=AES;168447]This caught my attention. Forgive me if this has previously been brought to light. But, after all, we're paying for it.

[URL="http://www.thenation.com/doc/20090420/hayes"]http://www.thenation.com/doc/20090420/hayes[/URL][QUOTE]Thanks to an obscure tax provision, the United States government stands to pay out as much as $8 billion this year to the ten largest paper companies. And get this: even though the money comes from a transportation bill whose manifest intent was to reduce dependence on fossil fuel, paper mills are adding diesel fuel to a process that requires none in order to qualify for the tax credit. In other words, we are paying the industry--handsomely--to use more fossil fuel. "Which is," as a Goldman Sachs report archly noted, the "opposite of what lawmakers likely had in mind when the tax credit was established."


The massive tax subsidy has barely been reported in the press, but it's caused a stir in the paper industry, which is struggling to stay profitable in the teeth of the recession. "Everybody's talking about it," paper industry analyst Brian McClay told me. "In the US and elsewhere in the world--in Canada and Brazil and Chile and Europe."[/QUOTE][/QUOTE]

[QUOTE=only_human;168677]This is a howling outrage and I wonder why the MSM still have not picked it up. [SIZE="1"][B][edit: many sites have now picked up on this][/B][/SIZE]
[URL="http://www.google.com/search?as_lq=http%3A%2F%2Fwww.thenation.com%2Fdoc%2F20090420%2Fhayes&btnG=Search"] (google search )link:http://www.thenation.com/doc/20090420/hayes[/URL] finds only 4 external sites linking to that thenation.com page. The actuality of the kind of gaming the system that this article talks about indicates a larger problem yet; businesses will seek out money regardless of the funding intent - anything else would be a disservice to the bottom line and shareholders; generally no other direct obligations exist.

Web articles on this:
[URL="http://www.google.com/search?hl=en&q=%22alternative-fuel+tax+credit%22+paper+mills"](Google)View all web results for alternative-fuel-tax-credit paper mills[/URL]

News articles:
[URL="http://news.google.com/news?um=1&ned=us&hl=en&q=%22alternative-fuel+tax+credit%22+paper+mills&cf=all&scoring=n"]Google News date sorted search on "alternative-fuel tax credit" paper mills[/URL][/QUOTE]
[URL="http://www.latimes.com/business/nationworld/wire/sns-ap-us-earns-international-paper,0,7849829.story"]Alternative fuel tax credit, reduced spending, boost International Paper's 1st-qtr profit[/URL][QUOTE]For IP, the program gave the company a $330-million tax credit in the first quarter, boosting its net income to $257 million, or 61 cents per share, from $133 million, or 31 cents per share, a year earlier.[/QUOTE][QUOTE]Looking ahead, IP is in line to receive slightly more than $1 billion this year from its participation in the alternative fuel cash tax credit program.

Although several senators want to cut paper companies from the program, resistance from colleagues is expected to keep that from happening any time soon.
[/QUOTE]

Average equity in mortgaged homes a scant 15%
 

It seems the swine "flew" over to a different thread, so I'll have to content myself with talking about the pigs on Wall Street...

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aE0KaVAKRxfc&refer=news]U.S. Stocks Gain as S&P 500 Almost Erases Decline for Year; Alcoa Advances[/url]: [i]U.S. stocks rose, pushing the Standard & Poor’s 500 Index to within 0.8 percent of erasing its 2009 loss, after home sales topped estimates and manufacturing in China increased for the first time in nine months, boosting confidence the global recession is easing.[/i]
[quote]“There’s tremendous potential for recovery,” John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees about $200 billion, said in a Bloomberg Radio interview. “It’s possible investors will pile into stocks as soon as there is some whiff of better economic news.” [/quote]
[i]My Comment:[/i] Dude, what rock have you been living under? That`s what they've been doing now for 8 straight weeks. And it`s not like that there hasn't been plenty of bad news - it`s just been getting ignored/discounted in the "Worst is over! Dow to 30000!!" euphoria. It will be interesting to see if a year down the road the markets will have proven to have been forward-looking and oh-so-perspicacious or whether a phrase like "stampeding herd of delusional fools" will prove more apt.


Stunning statistic from a recent [url=http://www.ritholtz.com/blog/2009/05/homeowners-equity-less-than-15/]Barron`s article[/url]: When one factor the homes-owned-free-and-clear (roughly 1/3 of all homes) from the statistical analyses of the U.S. housing market, the remaining 2/3 of homeowners - the ones with a mortgage - [u]have an average home equity of just 15%:[/u]
[quote]Interesting discussion on negative equity in this week’s Barron’s. Citing Stephanie Pomboy’s recent missive, Alan Abelson takes a closer look at some of the negative details around corporate profitability and homeowner equity.

When it comes to Homeowners Equity, the official data is misleading. Why? Pomboy notes the Fed data is accurate but misleading. It includes both the homes with mortgages and those owned free and clear.

Why is this significant? About a third of homes have no mortgages whatsoever. The unencumbered properties improve the homeowners equity data from the Fed’s Flow of Funds report. Add in 33% of homes with 100% equity and it skews the data. The total looks better.

Before you say “So What?” consider the following: We know that those homeowners that do not have mortgages — i.e., 100% equity — cannot default. So if we want to understand the potential further mischief real estate land can cause, it is the mortgaged properties we should be watching. Back out the third of home owners that have no mortgage — the 33% of homes with 100% equity — and the Fed’s measure of 43% net equity drops precipitously.

Thus, Pomboy’s assertion that it would be more informative to say that those homes with a mortgage have homeowners equity of less than 15%.[/quote]
[i]My Comment:[/i] The data "are", Barry ... the data "are".


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a9jSNVDYXQoE&refer=news]Obama Seeks to End Tax-Haven Strategies That Save Companies $190 Billion[/url]: President Barack Obama proposed raising about $190 billion over the next decade by outlawing three offshore tax-avoidance techniques used by U.S. companies such as Caterpillar Inc. and Procter & Gamble Co. He also would make it riskier for Americans to stash money in tax-haven banks.[/i]

[i]My Comment:[/i] $190 Billion is a whole lot of money ... that`s, like, almost as much as the government has thrown at AIG in the past 6 months. And it's almost 10% of what this year`s federal budget deficit will end up being. It appears that under the new administration, the only officially sanctioned way to rip off the government to the tune of billions will be to run a huge financial institution into the ground and then cry, "too big to fail!"

I was, however, impressed that certified tax cheat (now Treasury head) Tim "TurboTax Timmy" Geithner was able to stand next to the president and keep a straight face during the proceedings...stone-cold icewater in that man`s veins, very impressive.


And speaking of the shadow government that is Goldman Sacks-and-Pillages (note Geithner never himself worked for GS, but his chief of staff is a former Goldman lobbyist, his predecessor Paulson of course ran Goldman, and Goldman was a major Obama campaign donor), we have a tiny conflict of interest concerning Geithner`s replacement as head of the New York Federal Reserve:

[url=http://online.wsj.com/article/SB124139546243981801.html#mod=rss_whats_news_us_business]WSJ Online: New York Fed Chairman's Ties to Goldman Raise Questions[/url]
[quote] The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after.
[u]
During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy.[/u][/quote]
[i]My Comment:[/i] I mean, really, these guys are just rubbing our noses in it here - they know they run the financial show in Washington, could take the markets down in an instant if they chose to do so (Don`t believe me? check out some of the recent articles on ZeroHedge about the percentage of NYSE daily trading volume which is due to program trading by a single company - Goldman Sachs), and that gives them the kind of leverage that they can flout whichever laws they want with impunity.

[quote=ewmayer;172342][I]My Comment:[/I] The data "are", Barry ... the data "are".

< snip >

[URL="http://online.wsj.com/article/SB124139546243981801.html#mod=rss_whats_news_us_business"][/URL]and that gives them the kind of leverage that they can flout whichever laws they want with impunity.[/quote]Ernst, Barry's on line 2 with some kind of complaint about that last clause.

It was evil gnomes that done it!
 

[QUOTE=cheesehead;172523]Ernst, Barry's on line 2 with some kind of complaint about that last clause.[/QUOTE]
Tell him he'll have to wait - I have a Mr. Blankfein on line 1, not sure what he wants but he sounds upset. This could take a while.

On to today's rant against Ponzi economics:

[url=http://money.cnn.com/2009/05/05/news/economy/bernanke_jec/index.htm]Bernanke: Economy to turn up in '09[/url]: [i]Federal Reserve chairman says recovery will begin later this year, but there will be several more bumps in the road.[/i]

[i]My Comment:[/i] "Bumps" ... like "all of next year", you mean? Let`s hear what our more-sober-minded cousins in Europe have to say about their own prospects for economic recovery:


[url=http://news.bbc.co.uk/2/hi/business/8032349.stm]European Economy "will shrink 4%" in 2009, no recovery until late 2010[/url]: [i]EU economies will contract by 4% in 2009, the European Commission has forecast - more than twice what it predicted at the start of the year.[/i]
[quote]"The European economy is in the midst of its deepest and most widespread recession in the post-war era," said EU Economic and Monetary Affairs Commissioner, Joaquin Almunia.

"But the ambitious measures taken by governments and central banks in these exceptional circumstances are expected to put a floor under the fall in economic activity this year and enable a recovery next year." [/quote]
[i]My Comment:[/i] Pesky continental pessimists, trying to pee on Bennie B`s green-shoots parade...Anyway, it would be positively catastrophic if throwing several trillions of dollars in new-printed money at the problem and effectively guaranteeing debts of the entire U.S. banking, credit-card and commercial-loan industry *failed* to produce some "green shoots", even if those are mostly in the form of "better than expected" taxpayer-sponsored bank earnings and much of that money being used by the recipients not to ease credit but instead to speculate in the stock market, bid up their own shares, squeeze short sellers, etc.

But note the hearty dose of typical central-banker self-important claptrap: Take credit for "things not being worse than they are" due to your "heroic efforts" - well, it`s not like we can turn back the clock and rerun the experiment a second time now, is it? One could argue that it was central banks (especially the U.S. Fed) and their manipulation of interest rates and sweeping under the rug of systemic risk in their effort to stave off the (needed) contraction in the wake of the 2000 dotcom bubble`s collapse that did much to contribute to the current, much bigger, crisis. But instead the central [strike]wankers[/strike] bankers pat themselves on the back for doing such great things to Save The World, engage in a huge power grab orgy, and prepare to get back to serial bubble-blowing and "free"-markets-meddling as usual.

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aKIWWLUgPxNw&refer=news]Coca-Cola, Oracle, Intel Use Cayman Island Addresses to Avoid U.S. Taxes[/url]: [i]Seagate Technology, the world’s largest maker of hard disk drives, is headquartered in Scotts Valley, California. Yet the documents it files with the Securities and Exchange Commission list its address on South Church Street in George Town, the capital of the Cayman Islands.[/i]

[i]My Comment:[/i] It seems the IRS has been turning a blind eye to the multibillion-dollar corporate tax cheats for years - but I`m sure using their auditors to go after small-fry (relatively speaking) individuals for a few $10k here and there is a far better use of their (taxpayer-funded) resources. I expect the real reason is that individuals (unless their name is Warren Buffett or something similalrly billionaire-ish) can't hire influential lobbying firms and influence lawmakers to be "more responsive" to their needs. It was of course all part of the "business friendly" practices of the Bush administration. U.S. is giving Swiss banks a hard time about aiding tax dodgers ... seems we should first have looked in our own back yard.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aOFZVf8Tr3D0&refer=news]Bankruptcy Sleuths Trace Missing Cash to Traders' Receipts for Lap Dancers[/url]: [i]As Sentinel Management Group Inc. neared collapse in August 2007, piling up $950 million in losses, the Northbrook, Illinois-based investment firm wrote clients, saying it was yet another victim of the credit crunch -- an asset manager that grew too fast as it tried to ratchet up gains for customers.[/i]
[quote]The Securities and Exchange Commission didn’t buy the explanation of the 28-year-old company, which had about $1.4 billion under management, most of it for futures or commodities traders and hedge funds.

After a week-long examination, the SEC filed a civil suit against Sentinel in U.S. District Court in Chicago, accusing the company of, among other things, using client money to secure a $500 million credit line.

“The clients had no way of knowing that their assets had been used by Sentinel to obtain financing for its own purposes,” the SEC complaint says.

The task of unwinding Sentinel’s affairs and recovering money for an estimated 200 customers now falls to 56-year-old Frederick Grede, a former Chicago Board of Trade executive who is among the nation’s more than 1,400 federally appointed bankruptcy trustees.

These trustees -- along with overseers known as receivers -- find themselves in brisk demand these days as they sort through an avalanche of companies felled by the credit crisis and an assortment of alleged crooks and con artists who may have played a role in it.

...As he delved into Sentinel’s demise, [bankruptcy trustee Frederick] Grede says [u]the case began to look like a parable of the current economic crisis[/u]. Grede laid out that case in a lawsuit filed in October 2007 in Chicago’s U.S. bankruptcy court against Sentinel’s chief trader, Charles Mosley, and its controlling shareholders, CEO Eric Bloom and his father, Philip Bloom, the company’s founder.

In that suit, he alleges that the company defrauded and misled clients with “phony” returns while assuring those customers their cash was being parked in safe, liquid commercial paper or U.S. Treasuries. Grede says Sentinel was actually making huge bets on unorthodox 30-year instruments that turned out to be another example of financial engineering gone awry -- and hiding those bets with misleading accounting.

Grede says he began to understand Sentinel’s fondness for those instruments as he probed the machinations of Mosley, who had an alleged fondness for boozy lap dances, limousine rides and, according to additional lawsuits filed by Grede against outside brokers, bribes.
[u]
“I call it leverage gone wild,” Grede says.[/u][/quote]
[i]My Comment:[/i] Indeed, "leverage gone wild" is as good a parable of the current economic crisis as any.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aye5Fzy0L_ss&refer=news]Wall Street Is Seen Emerging From Collapse Much Like Pre-Crisis Industry[/url]: [i]Wall Street, after getting billions of taxpayer dollars, will emerge from the financial crisis looking much the same as before markets collapsed, said H. Rodgin Cohen, chairman of law firm Sullivan & Cromwell LLP.[/i]
[quote]“The system will look more like what preceded the current environment than many people seem to believe,” Cohen said yesterday at a panel discussion on the future of Wall Street sponsored by Bloomberg News in New York. [u]“I am far from convinced there was something inherently wrong with the system.”[/u][/quote]
[i]My Comment:[/i] Wow, talk about denial and hubris - what, it was evil magic subprime gnomes who live under mushrooms deep in the forest and come out at night to play havoc with the balance sheets and loan portfolios of the banking sector that caused the meltdown? That`s right folks - your taxpayer dollars are being spent at an unprecedented rate so the Wall Street crooks - aside from a few highly-publicized fall guys like Bernie Madoff - don`t have to learn a single painful lesson from their own misdeeds. Ain`t America great?

"Justifying His Fiscal Policies, Obama Borrows From the G.O.P."

[URL]http://www.nytimes.com/2009/05/01/us/politics/01budget.html?fta=y[/URL]
(registration required)

[quote=Jackie Calmes]For 30 years, Republicans have held as an article of faith that tax cuts spur the economy and generate more revenue. “Deficits don’t matter,” as former Vice President Dick Cheney said. Now President Obama is adapting Republican arguments to his own agenda — only substituting spending for tax cuts.

. . .

Obama advisers acknowledge a similarity between the president’s economic justification for spending and supply-siders’ rationale for tax cuts. But they say Mr. Obama would never go so far as Republicans who claim that tax cuts pay for themselves. ...[/quote]

[QUOTE=cheesehead;172594]"Justifying His Fiscal Policies, Obama Borrows From the G.O.P."[/QUOTE]
I got no problem with trying to stimulate some parts of the economy that could and should produce real viable, strategic parts of the economy moving forward - e.g. Green tech. But throwing monstrous sums of money in all directions at make-work projects (which in many cases will hinder real recovery by making labor artificially expensive - why should I work for $15 an hour for a private contractor when I can get $25 an hour patching potholes over and over again as part of the government-sponsored Remake America's Roads project) and propping up corporations which should be allowed to fail - especially in the banking sector, that I have a problem with. To top it off, Obama went out of his way to appease the same Republicans by retaining some of the Bush-era tax cuts for the wealthy.

But back to the Republicans - if they merely merely misguided ideologues it would be one thing, but they apparently think being "pro-business" means actively encouraging corporate fraud:

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aPus5C5B.JhQ&refer=news]SEC Under Chairman Cox Slowed Probes, Shrank Fines, Watchdog's Report Says[/url]: [i]The U.S. Securities and Exchange Commission was plagued by internal conflicts before the regulator drew fire for missing Bernard Madoff’s $65 billion Ponzi scheme, a U.S. government watchdog said.[/i]
[quote]Under former SEC Chairman Christopher Cox, the agency instituted policies that slowed cases and led enforcement-unit lawyers to conclude commissioners opposed fining companies, the Government Accountability Office said in a report today. An unidentified attorney said it was “widely felt” commissioners prevented the division from “doing its job,” according to the report.

...When Cox became chairman in August 2005, he stepped into a partisan dispute among SEC commissioners over whether it was appropriate to sanction public companies for violating securities laws. Democratic commissioners argued that fines helped deter misconduct. [u]Republicans countered that shareholders ultimately paid SEC penalties.[/u][/quote]
[i]My Comment:[/i] Our dear Repugnican lawmakers apparently don`t feel that the hard "punishment deters crime" line they so like to take with petty and non-white-collar criminals should apply to corporate crooks - gosh guys, ya think maybe augmenting some of those SEC fines with actual [b]jail time[/b] for the worst offenders might help deter such fraud, thus in the long run proving beneficial to shareholders? Oh wait, I`m being "anti-business" ... my sincerest apologies.


[url=http://money.cnn.com/2009/05/05/news/companies/gm_shareholders.reut/index.htm]GM shareholders may get wiped out[/url]: [i]General Motors Corp. Tuesday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the United Auto Workers union.[/i]

[i]My Comment:[/i] I guess that`s one way to avoid bankruptcy ... rob Peter (shareholders) to pay Paul (Government, bondholders and UAW). This is the corporate analog of the "Behind Door #3" option for getting out of of debt detailed below.


[b]Chart of the Day:[/b] This one is a doozy - total consumer credit since 1940. (Note this does not include mortgage debt, which is far larger still, but exhibits a distressingly similar historical profile.) Notice how the recent unprecedented (except for perhaps the 1920s, not pictured in the chart) ramping-up was at pretty much the same slope throughout both the Clinton and W. Bush presidencies. The key constant throughout both of those 8-year spans? None other than Mr. Alan "EZ Money" Greenspan. (In fact you can see the beginning of his reign in the ramp-up coming out of the 1982 recession - the sharp ramp-up that ensued only being broken by the early 1990s recession (which helped get Clinton elected) and at the extreme far right, the current downturn. That is a whole lot of debt hanging over Americans` heads. And there are only 3 things you can do to get out of debt:

1. Pay it down - Many Americans have begun doing just that. Now, roughly $20000 per consumer doesn't sound awfully daunting, but realize that a large fraction of those consumers are also carrying a massive load of mortgage debt (in many cases more than the value of the home it bought), and over a half-million per month are losing their jobs.

2. Default on it - Many Americans have been and will be doing just that, but that simply transfers the debt to the issuing creditor, many of whom are busy transferring it one step further up the food chain, to the U.S. government, i.e. the taxpayer. Alas, outright default is not a viable option for a country like the U.S. - besides the resulting banana-republic stigma, it would cripple our ability to engage in much future international trade and commerce, and result in sudden severe financial crises in both the public and private sector, which would require radical austerity measures on the part of both - the kind the IMF forces "banana republics" to undertake when they default on their debt. Luckily, the U.S. - thanks to the miracle that was the post-WW2 Bretton-Woods agreement - has rigged the debt game in its favor and thanks to the magic of its (these days electronic) printing press, has available to it a Third Way:

3. Inflate your way out if it by printing money - this amounts to a future tax on all your citizens whose money will get reduced in value as a result, but without the stigma of having to actually tell your citizens that you`ll be raising their taxes or having to get congress to authorize it. Ditto for issuance of more government debt, which at some point in the future must needs be monetized - it's just another variant of the E-printing-press scam. Sweet!

U.S. Loses "only" 539,000 jobs in April
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=ab6j.DEexl3I&refer=news]U.S. Loses 539,000 Jobs, Fewer Than Forecast, in Sign Economy Stabilizing[/url]: [i]Payrolls in the U.S. shrank by the least since October last month as employers detected signs the worst of the recession had passed and government hiring stepped up for the country’s next census.[/i]

[i]My Comment:[/i] And I thought job losses were *cumulative* ... Good thing gubbermint census hiring (i.e. creating non-productive one-time-only disposable jobs) made the numbers more lipsticky, and also that GM waited until May to announce it`s closing over 20,000 dealerships ... "thank you for making the April jobs report look 'less horrible than expected', GM! Here`s some more bailout money by way of thanks..."


[url=http://money.cnn.com/2009/05/07/news/economy/state_budget_gaps/index.htm]Reeling states hit by April tax shortfalls[/url]: [i]States struggle to close new shortfalls before fiscal years end in June. Too late for spending cuts, states must tap into reserves or federal stimulus funds.[/i]
[quote]Over the past two years, as the economy has weakened, states found their tax revenues were coming in below estimates. These shortfalls led to a cumulative budget gap exceeding $100 billion for fiscal year 2009, according to the National Conference of State Legislatures. As a result, states have had to slash spending on social programs and education, lay off or furlough state workers and raise fees and taxes -- some multiple times over the past year.

Federal stimulus money has helped soften some of the cuts, experts said. But the revenue shortfalls continue to widen.

The latest blow came from the April 15 income tax returns, which states are tallying now. The weak stock market has decimated capital gains tax revenue, upon which many states depend, experts said.

Already, several states have found revenues coming in well below estimates, prompting officials to scramble to close gaps. Massachusetts and Ohio, for instance, are facing new gaps that could exceed $900 million each. In other states, officials will huddle in coming days and issue new budget estimates.

In Massachusetts, April tax revenue came in $953 million, or 35%, less than a year ago. Officials had anticipated that revenue would fall, but it came in $456 million below their most recent estimate, made on April 15. The bulk of the shortfall came from a $905 million drop in income taxes.[/quote]
[i]My Comment:[/i] Gosh folks, maybe y`all should`ve added those niggling details about "massive capital losses for most investors in 2008" and "mass unemployment" into your tax-receipt forecasts. What, you though Bernanke`s "green shoots" were going to pay the bills?


[url=http://money.cnn.com/2009/05/07/news/economy/obama_budget_details/index.htm]Weeding the budget of $17 billion[/url]: [i]Obama administration proposes cuts in funding for more than 100 federal programs in latest salvo in 2010 budget fight.[/i]
[quote]"There is a lot of money being spent inefficiently, ineffectively, and -- in some cases -- in ways that are actually pretty stunning," Obama said.

The $17 billion in savings amounts to roughly 0.5% of the more than $3.5 trillion in spending approved for next year, or 1.2% of the projected $1.4 trillion deficit next year if the president's overall budget is adopted.

Obama said it nevertheless is real money -- even by Washington standards.

"To put this in perspective, this is more than enough savings to pay for a $2,500 tuition tax credit for millions of students as well as a larger Pell Grant -- with enough money left over to pay for everything we do to protect the National Parks," he said. [/quote]
[i]My Comment:[/i] "To put this in perspective, this is about as much money as the government threw at AIG every fortnight since last Fall..." does Obama think we`re really that stupid, that this negligible "budget cutting" (much of which is merely shifting money around, not actual cutting) is going to make any kind of sizable dent in the gigantic budget hole the folks in Washington are busy digging? "Look honey - I lost a year`s worth of salary in Vegas over the weekend, but saved $2 at the coffee shop today by reusing my cup! Damn, I`m fiscally responsible!"


Former IMF chief economist Simon Johnson and his partner Peter Boone in running the global-economic website [url=http://baselinescenario.com/]http://baselinescenario.com/[/url] have a nice op-ed piece today which examines whether the U.S. and Europe are [url=http://www.cnn.com/2009/POLITICS/05/08/johnson.economy/index.html]turning Japanese[/url]:
[quote]The current rally in stocks marks one clear success -- the fear of a systemic collapse due to loss of confidence in our financial system has subsided. This is good news, and an important achievement of President Obama's team.

However, our "turning Japanese" phase may just have begun. The [url=]stress tests[/url] that were just completed do not mark the renewed health of our banking system. We still have 22 percent of Americans with houses worth less than their mortgages, and there are parallel problems for commercial property and other sectors.

Many bankruptcies are yet to come. Most publicly traded large homebuilders are deep in debt, yet they are burning cash and waiting to see if -- magically -- the two-year stock of unsold housing can somehow disappear.

We've barely begun to downsize our auto industry, and the parts suppliers and dealers that go along with it, to reflect the lower level of consumer spending and scarcer availability of credit for the future. All of this is also true across much of Europe.

In essence, Europe and the United States both are saddled with zombie banks (which don't really lend), zombie corporations (which don't grow), and a decline in the relative size of the working population (as more people try to retire). This "Japanese" scenario can persist for many years.

The biggest risk now is that the Federal Reserve and the Treasury try to re-leverage our way out of a Japanese-style prolonged recession by flooding the economy with cheap credit -- like they did in 2002, but to an even greater degree.

Cheap government finance for powerful banks is a great cocktail for re-election; running stress tests that weren't really stressful is a good indication this is where policy is heading.

This time the money won't come from consumers (or from China, as it did after 2002); it will be American and European central banks providing funds and our governments running massive budget deficits.

If this is the strategy, the next crisis will be even more traumatic. Budget deficits over 10 percent of Gross Domestic Product and trillions of dollars of new loans to the banks from the Federal Reserve are recipes for hyperinflation and, if the Fed and Treasury don't pull away the punch bowl soon, sharply increasing inflation is very much in the cards.[/quote]
[i]My Comment:[/i] I added a link to Mish`s review of the "stress tests" in the above quote. I like Mish's proposed "real stress test" scenario:
[quote]Since Bernanke is willing to brag [i]“The examiners found that nearly all the banks that were evaluated have enough Tier 1 capital to absorb the higher losses envisioned under the hypothetical adverse scenario.”[/i], I say prove it by canceling the fraudulent Public Private Investment Plan (PPIP) taxpayer ripoff.[/quote]

[url]http://www.ft.com/cms/s/0/158f174a-3bed-11de-acbc-00144feabdc0.html[/url]
[QUOTE]
[...]
The granddaddy of all bear markets, 1929 –1932, had six false alarms with an average gain of 47 per cent. And Japan’s ongoing bear saw the Nikkei rise by at least a third four times in its first four years with 10 more false dawns since then.

[...]

For what it is worth, the US market’s best-informed participants do not find valuations compelling. April saw the lowest level of insider buying (by people associated with the company) ever recorded by research firm TrimTabs with insider selling 14 times as high. Likewise, companies sold 64 per cent more shares than they bought in April.

This last point though may be a contrarian indicator of a true bull market. Corporate America hardly displayed prescience prior to the bust, after all.[/QUOTE]

The single biggest economic slam pending is the bankruptcy of GM. Chrysler already has bitten the bullet, now it is GM's turn. From an economic perspective, it is not a matter of GM avoiding bankruptcy, it is just a matter of when. All the indicators point toward a filing in the first week of June.

The major ramifications of bankruptcy include:

1. Union benefits and wages will be cut by court order.
2. GM will shed the boondoggle retirement plan.
3. Insurance benefits will be cut
4. layoff benefits will be cut closer to normal ranges.
5. 2/5 of all dealerships will close.
6. parts suppliers will be forced into bankruptcy.
7. major brands Pontiac, Saturn, Hummer, and GMC will go the way of Oldsmobile.
8. They will keep 3 major brands including Chevrolet, Buick, and Cadillac.
9. The GMC brand will stay around but only as they apply it to alternative fuel vehicles.
10. Market ripples will be felt throughout North America as plants are closed.
11. Taxpayers will be left with about $100 Billion in pension, benefit, and company loan obligations. Can you say RIPPED OFF?
12. The legal wrangling will go on for the next 10 to 20 years.



I'm not sure there is a good part other than giving the company a chance to survive and eventually recover.

DarJones

[QUOTE=Fusion_power;173081]The single biggest economic slam pending is the bankruptcy of GM. Chrysler already has bitten the bullet, now it is GM's turn. From an economic perspective, it is not a matter of GM avoiding bankruptcy, it is just a matter of when. All the indicators point toward a filing in the first week of June.[/QUOTE]
Yep, I think Chrysler was just a warm-up for the Obma administration - by forcing Chrysler's senior bondholders to take huge haircuts (via a combination of behind-the-scenes armtwisting and vilification in the press) they are sending a clear signal to GM's creditors, perhaps figuring that if they can extract bankruptcy-style concessions on the part of GM creditors but avoiding an actual bankruptcy process (a GM BK would make Chrysler's look like a walk in the park, partly due to the size differential and partly because of GM's huge and systemically-risky GMAC finance arm) that's the best of both worlds.

The other big slam, though, is the ongoing implosion of many state budgets, most notably that of [url=http://globaleconomicanalysis.blogspot.com/2009/05/california-continues-to-implode.html]California[/url]. CA's state assembly kicked the crisis can down the road a couple months by passing a "budget" which put all the really hard choices on the plate of the voters in the upcoming May 19th special election, but 5 of the 6 budget-hole-closing measures on the ballot are trailing badly in the polls, and the media scare campaign being run to try to drum up support for the initiatives seems to be ineffective. This could be one version of the taxpayer revolts many have been predicting.

[QUOTE=ewmayer;173095]
The other big slam, though, is the ongoing implosion of many state budgets, most notably that of [url=http://globaleconomicanalysis.blogspot.com/2009/05/california-continues-to-implode.html]California[/url]. CA's state assembly kicked the crisis can down the road a couple months by passing a "budget" which put all the really hard choices on the plate of the voters in the upcoming May 19th special election, but 5 of the 6 budget-hole-closing measures on the ballot are trailing badly in the polls, and the media scare campaign being run to try to drum up support for the initiatives seems to be ineffective. This could be one version of the taxpayer revolts many have been predicting.[/QUOTE]I, as one Californian, have little sympathy for the state's budget problems and don't feel like carrying their water this coming election. Too many times there have been budget items like buying Librarians cars for me to feel like they can or will control their spending.

[QUOTE=only_human;173101]I, as one Californian, have little sympathy for the state's budget problems and don't feel like carrying their water this coming election. Too many times there have been budget items like buying Librarians cars for me to feel like they can or will control their spending.[/QUOTE]What about the poor schmucks that have to do with 1/2 staff and meet regulatory requirements. People who work for the government because they desire to do the civic minded work that only is done by the government. Not back-filling positions because of budget reasons, but facing fines that would pay for some of the positions is the crazy stituation that some agnecies are facing. Or, declining to pressure a surplus senior manager to retire with full pay, and instead streeting 3 laborers that are getting the physical work done.

There are plenty of quality civil servants that are not taking their vacation days, because the work has to get done, much less unpaid furlough days.

Just because you have seen a few stinking rotten apples, are you willing to throw out the baby with the bath water? I hope that you can only get a day off when the dmv is shut down. Or you try to get planning approval, pull a building permit, get inspections, and power hook-up from an under staffed government. Stimulas monies are going to police and fire, but schools are laying off the young and otherwise enthused teachers (so they will head off to other careers, or maybe the green pastures of high quality prep/private schools, thus draining skill from the public system). Trash collectors and waste water workers are not getting protected the same way the other public health and safety workers are. FAA doesn't want to staff up too much with controllers before the old ones retire (because of budget issues), hope you don't want to fly.
Hope you don't drive through a municipality that has problems with street light/lighting workers, or street paving crews.

Or want your child to go to a state university, those lazy government professors. Or know someone that will wind up at an under funded county run emergceny hospital.

I may have struck a nerve, and I apologize for that.
From just about anyone's point of view, the system is broken.
[QUOTE]Or, declining to pressure a surplus senior manager to retire with full pay, and instead streeting 3 laborers that are getting the physical work done.[/QUOTE]That problem won't be fixed by providing more money. This is part of the problem that kills my desire to pay more into a system that has priorities like that.
[QUOTE]Stimulas monies are going to police and fire, but schools are laying off the young and otherwise enthused teachers (so they will head off to other careers, or maybe the green pastures of high quality prep/private schools, thus draining skill from the public system).[/QUOTE]Apparently, bad teachers can't fired unless they get caught in some sexual scandal. We seem to have plenty of time to chase sexual scandals but otherwise disregard who is actually doing their jobs. Again, hard to want to fund.

[QUOTE]Trash collectors and waste water workers are not getting protected the same way the other public health and safety workers are.[/QUOTE]Why? Must we raise the tide of money until we lift all boats or can we break the damn thing and then fix it?

...
Or how about this lovely chestnut?
[URL="http://www.latimes.com/news/local/la-me-health-cuts8-2009may08,0,4592200.story"]U.S. threatens to rescind stimulus money over wage cuts[/URL] Because the state government cut unionized home healthcare workers pay from maximum of $12.10 per hour to a maximum of $10.10 in order to save a mere 74 million, California's $6.8 billion in stimulus money is at risk. And just try to get the two-thirds vote in Legislature (including contentious Republican votes) to reverse it before it goes into effect on July 1st. Fat chance.

[QUOTE]I hope that you can only get a day off when the dmv is shut down.[/QUOTE] As for my last trip to the DMV, it should have been unnecessary. It was for a vision test and a new photo. AAA does not take photos in their DMV services, as I would have gladly done it there if they provided it. The vision test should have been unnecessary in this day and age because I have had two optometry visits in the last three years and two glasses prescriptions filled. Maybe when pressed they will find some way to request that data be shared (with my very easily given acceptance) and the entire trip could have been avoided. Another thing, the DMV is selling vehicle history data to businesses like Carfax. This data is provided by other states without charge. By forcing people to pay a third party, the consumer isn't being served. Carfax isn't the the party that the DMV should be serving.

[QUOTE=only_human;173114]That problem won't be fixed by providing more money. This is part of the problem that kills my desire to pay more into a system that has priorities like that.[/quote]I should have said at "nominal full pay" retirement level, where it makes no difference if one comes in to work or retires. No extra money is spent to pay them, unless a small incentive to retire.

[quote]Apparently, bad teachers can't fired unless they get caught in some sexual scandal. We seem to have plenty of time to chase sexual scandals but otherwise disregard who is actually doing their jobs. Again, hard to want to fund.[/quote] You missed the point. Because of depressed revenues, school districts are trimming staff to make ends meet. Teachers that don't yet have tenure (those that are generally under 2 years in) can be furloughed much easier. They often don't have the cash reserves that an older person would, therefore they need to get a new job sooner (to live and pay-off student loans).

[quote]Why? Must we raise the tide of money until we lift all boats or can we break the damn thing and then fix it?[/QUOTE]You missed the point again. Police and fire are the sexy parts of public health and safety, those that provide for a sanitary society are not, they don't have the same fear factor available to them (if we aren't funded crime will increase / houses will burn). Those that keep society well by dealing with the disposal of disease causing waste, is an unsexy job, even bus drivers are better thought of (Ralph Kramden vs. Ed Norton). But, those that have had sewage spills into their streets, or trash pilled up in the streets, can tell you, those jobs are important (but no one notices when all is going well).

The politcally powerful do what they will, those on the lower levels will suffer. Sad but true.

New young, enthusiastic, vigorous, teachers without tenure won't have a place in these fiscally messed up years unless we can get rid of some of the bad older teachers that are paid more and take up space. That was my point.

As for sewage and other essential services being neglected over sexier or scarier services, that is not going to be fixed by throwing money that way. That is like watering a whole lawn to get the flowers on the walkway. You can do it but there is not enough money to go around.

Just a couple of years ago, we finally stopped paying a telephone luxury tax that was established over one hundred years ago to help pay for the Spanish American war, since 1898! Now is the time to fix a few things. When money got tight, all the Ponzi started getting caught. Similarly, now is the chance to fix some of the other ways cash is spent with only trickles getting to some of the things we need. If the cash is reduced and the things we need are all of a sudden not funded, then the ticks that are still sucking the blood out of the system stand out in greater contrast. Nothing will be fixed if sufficient money exists to remove the current pain without making changes.

[quote=Uncwilly;173105]There are plenty of quality civil servants that are not taking their vacation days, because the work has to get done, much less unpaid furlough days.[/quote]

Really?

[quote=Uncwilly;173105]I hope that you can only get a day off when the dmv is shut down. Or you try to get planning approval, pull a building permit, get inspections, and power hook-up from an under staffed government.[/quote]

Oh, I see!

Without the dmv we wouldn't have cars, because permits build houses, inspections generate wealth, and monopolies are efficient!

You forgot to mention that without somebody handing out visas, people wouldn't know how to travel, and without meter-maids people wouldn't know where to park!

[quote=only_human;173146]New young, enthusiastic, vigorous, teachers without tenure won't have a place in these fiscally messed up years unless we can get rid of some of the bad older teachers that are paid more and take up space. That was my point.[/quote]

Geez, what happened to the new young, enthusiastic, vigorous, teachers the gummint hired 30 years ago?

Thank you for pointing out why private schools are doing so much better at teaching children: if your business-model is to generate income for teachers, you go out of business.

[quote=Oscar Wilde]Nothing that is worth knowing can be taught.[/quote]

Moron of the Week, long overdue!
 

[QUOTE=Uncwilly;173105]Just because you have seen a few stinking rotten apples, are you willing to throw out the baby with the bath water? I hope that you can only get a day off when the dmv is shut down. Or you try to get planning approval, pull a building permit, get inspections, and power hook-up from an under staffed government. Stimulas monies are going to police and fire, but schools are laying off the young and otherwise enthused teachers (so they will head off to other careers, or maybe the green pastures of high quality prep/private schools, thus draining skill from the public system). Trash collectors and waste water workers are not getting protected the same way the other public health and safety workers are. FAA doesn't want to staff up too much with controllers before the old ones retire (because of budget issues), hope you don't want to fly.
Hope you don't drive through a municipality that has problems with street light/lighting workers, or street paving crews.

Or want your child to go to a state university, those lazy government professors. Or know someone that will wind up at an under funded county run emergceny hospital.[/QUOTE]

Uncwilly, I don't think anyone in their right mind wants a collapse in state government functioning - but to frame the real issue, I suggest you ask yourself the same question I've been asking myself for the past few months: [I]"CA state budget more than doubled since 2000 - what did all that extra spending buy?"[/I]

Were all those state services you mention woefully underfunded in 2000? (I certainly don't recall that being the case). Was state infrastructure in a state of collapse relative to today? (Ditto.) Was inflation running in the double-digits the past decade? (No - except maybe in housing prices, and taxes on those drove a large portion of the budget windfall). So - where did all that extra spending go? *That* is the real issue, and many of the answers are appalling - google "Vallejo city employee wages and benefits" to see what I mean. And the problem is the kind of unsustainable spending Vallejo was doing is just an example of what's been going on statewide the past decade.

[b]Moron of the Week:[/b] I've been exceedingly remiss in my awarding of this coveted prize, for which I apologize. But this week, even though it`s only just begun, has already given us such a stellar candidate, I decided it was high time to hand out another MotWee:

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aA7Kx7Je5XeM&refer=news]U.S. Recession May Have Ended in April, Barclays' Knapp Says: Chart of Day[/url]: [i]The longest U.S. recession since the Great Depression may have ended last month, according to Barry Knapp, a strategist at Barclays Capital.[/i]

Sounds like someone's been smoking far too many of Mr. Obama's "green shoots". I guess besides unemployment, other macroeconomic measures such as consumer spending & debt, industrial output, housing starts, business lending and that wacky "GDP" thing are all now considered lagging indicators, as in "We here at Barclay's Bullish Decree that Great Recession is Officially Over, so get with it, world economy!"

[QUOTE=only_human;173119]...
Or how about this lovely chestnut?
[URL="http://www.latimes.com/news/local/la-me-health-cuts8-2009may08,0,4592200.story"]U.S. threatens to rescind stimulus money over wage cuts[/URL] Because the state government cut unionized home healthcare workers pay from maximum of $12.10 per hour to a maximum of $10.10 in order to save a mere 74 million, California's $6.8 billion in stimulus money is at risk.[/QUOTE]The Obama administration seems to have backpedaled and sent out mixed messages on this. One official says that a letter was sent out "inadvertently."
[URL="http://www.latimes.com/features/health/la-me-cal-healthcuts12-2009may12,0,376097.story"]White House officials say no decision has been made to rescind state's stimulus payment[/URL][QUOTE]The announcement is at odds with what state officials said they had explicitly been told. Gov. Arnold Schwarzenegger's administration said they were notified by senior Obama staff on May 3 that California's plan to cut wages for unionized home healthcare workers violated the law that authorized the stimulus package.
[/QUOTE]

Krugman: V-Shaped Recovery `Extremely Unlikely'
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aE0mkwMWHxQs&refer=news]Krugman Says V-Shaped Recovery Anticipated in Markets `Extremely Unlikely'[/url]: [i]Paul Krugman, Princeton University’s Nobel Prize-winning economist, said global economic prospects don’t justify the two-month rally that has restored $8.9 trillion to stock markets around the world.[/i]
[quote]Speculation government spending packages and interest-rate cuts worldwide will reinvigorate the global economy has helped the MSCI World Index rally 37 percent since falling to its lowest since 1995 on March 9. The U.S. Standard & Poor’s 500 Index surged 34 percent in that time.

“It looks to me now as if the markets are now pricing in a rapid recovery, that they’re pricing in a V-shaped recession, which I consider extremely unlikely,” Krugman, 56, said at a forum in Shanghai today. “The market seems to be looking as if this is going to be an average recession, but it’s not.” [/quote]
[i]My Comment:[/i] Regular readers of this thread will not be surprised when I say I`m with Krugman on this one - it may not turn out to be quite as bad as Japan`s "lost generation" after their RE bubble burst, but the policymakers in the U.S. are almost item-by-item repeating the failed measures attempted by Japan (ZIRP, massive stimulus make-work spending, bailouts for the banks) and hoping for a radically different outcome. The U.S. economy has the advantages of being much more diverse and flexible and we don`t have the problem compounded by a shrinking workforce (although we do have the problem of a rapidly increasing number of retirees), but our debt overhang is vastly larger.

In another recent op-ed Krugman also notes the "dangerous signs of complacency" with respect to the banking sector in a [url=http://www.nytimes.com/2009/05/08/opinion/08krugman.html]recent NY Times op-ed[/url], even citing the very same idiot banker I took to task at the bottom of my post of 05 May:
[quote]What we’re really seeing here is a decision on the part of President Obama and his officials to muddle through the financial crisis, hoping that the banks can earn their way back to health.

...But what worries me most about the way policy is going isn’t any of these things. It’s my sense that the prospects for fundamental financial reform are fading.

Does anyone remember the case of H. Rodgin Cohen, a prominent New York lawyer whom The Times has described as a “Wall Street éminence grise”? He briefly made the news in March when he reportedly withdrew his name after being considered a top pick for deputy Treasury secretary.

Well, earlier this week, Mr. Cohen told an audience that the future of Wall Street won’t be very different from its recent past, declaring, “I am far from convinced there was something inherently wrong with the system.” Hey, that little thing about causing the worst global slump since the Great Depression? Never mind.

Those are frightening words. They suggest that while the Federal Reserve and the Obama administration continue to insist that they’re committed to tighter financial regulation and greater oversight, Wall Street insiders are taking the mildness of bank policy so far as a sign that they’ll soon be able to go back to playing the same games as before.

So as I said, while bankers may find the results of the stress tests “reassuring,” the rest of us should be very, very afraid.[/quote]

The headlines this morning are telling. One says that U.S. retail sailes are down. Another says mortgage foreclosures were above 300,000 for second month. A third is about stock market "volatility". Without going into the arguments over the state of the economy, the hucksters who keep saying we are recovering are sitting on a bed of nails.... or is that needles.

Anyone who believes this recession will be a V down and then back up looks to be in for some bad news.

No word at all from GM though their stock price is telling us something. Are we listening?

DarJones

[QUOTE=Fusion_power;173415]The headlines this morning are telling. One says that U.S. retail sailes are down. Another says mortgage foreclosures were above 300,000 for second month. A third is about stock market "volatility". Without going into the arguments over the state of the economy, the hucksters who keep saying we are recovering are sitting on a bed of nails.... or is that needles.

Anyone who believes this recession will be a V down and then back up looks to be in for some bad news.

No word at all from GM though their stock price is telling us something. Are we listening?[/QUOTE]
Links to articles about the retail sales figures below - note again that economists consider the latest drop to be a "surprise", just like anything that doesn't fit their preconceived notions of a quick V-shaped recession followed by a roaring consumer-led recovery. Foreclosure spike also not a surprise to anyone who's been paying attention and knew that the "green shoots" of the recent drop in foreclosures was strictly an artificial astroturf rug covering a onetime spate of foreclosure moratoria by lenders awaiting details of the new administration's overblown "Hope for Homedebtors" initiatives and a lengthening of past-due standards by mortgage lenders (e.g. loans now need to be 120 days past-current to be marked delinquent, as opposed to the previous 60 days) in an effort to paper over the ongoing deterioration in their loan portfolios. It seems to have been part of a concerted "green shoots" campaign between the government and the financial/housing sector, one of whose chief aims apparently was to boost the share prices of the financials in advance of the phony "stress test" results, thus making it easier for said firms to raise the "more modest than expected" new-capital amounts indicated by the stress tests by issuing new shares. In that sense, it was a resounding success, as share prices of the 19 stress-tested too-big-to-fail institutions more than doubled since their early March lows - for some like Citgroup and BofA, share prices have increased 3,4,5-fold in the past 2 months. They thus get a several-week window to recapitalize relatively cheaply before the government-mandated moratorium on bad economic news expires. (Or before it simply becomes too much bad stuff to pretend away).

As far as what GM`s share price may be telling us, Mish's take (shared by many other folks not buying into the green-shoots propaganda) is that bankruptcy now appears inevitable, that the GM execs who dumped their shares this week [url=http://globaleconomicanalysis.blogspot.com/2009/05/1000-gm-dealerships-forced-out-may-15.html]are all but stating that the shares are worthless[/url], and perhaps most importantly, that a successfully restructuring under Chapter 11 is far from a given.

-----------

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aLqc3woGnzWE&refer=news]Retail Sales in U.S. Unexpectedly Drop as Unemployment Cuts Into Purchases[/url]: [i]Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is prompting consumers to boost their savings.[/i]
[quote]The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Excluding auto dealers, sales fell 0.5 percent.

Fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers’ ability to spend for years, analysts said. As long as the biggest part of the economy is constrained, any recovery from the worst recession in at least half a century is likely to be subdued. [/quote]
[i]My Comment:[/i] Please, stop it with the "unexpectedly" already ... What, you thought all those millions of newly unemployed folks would use their newfound leisure time to go shopping? Notice also the pattern of revisions ... consistently, as with the BLS and unemployment, the numbers are geting revised to the "worse than initially announced" side in the following months. So either their models suck eggs, or there is a concerted effort to put lipstick on the initially-announced numbers, the ones that garner headlines. It`s like printing a bigus news story on page A1 of the paper, then quietly retracting it a couple days later in the fine print at the bottom of page A17.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aEHwRd7hcxP4]California Home Prices to Fall 36% More, Fitch Says[/url]: [i]California home prices may decline by another 36 percent over the next year to 18 months, more than any other state, Fitch Ratings said.[/i]

[i]My Comment:[/i] Put a fork in CA's state budget, because it`s finished - tax revenues will continue falling for several years at least, and with $20B+ per year deficits accumulating at the current outlay levels, something has to give in a very big way.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=ahkAfsNV1rcQ&refer=news]`Good Bad' Economy Inspires Americans to Splurge in Sign Slump May Ease[/url]: [i]Brooke and Doug Sterenberg booked a seven-day, $2,800 cruise to the Bahamas on Carnival Corp.’s ship the Conquest, with its three-deck-high Twister water slide. It’s the family’s reward for Doug keeping his job.[/i]
[quote]“He made it through the first round of layoffs” at the Houston unit of bankrupt chemicals maker LyondellBasell Industries AF SCA, said Brooke, a 37-year-old mother of two. “We feel like we can’t control what’s going to happen in the future. No matter what, our family deserves a week away.” [/quote]
[i]My Comment:[/i] Excuse me, but that`s the most idiotic thing I`ve heard all week - well, at least since Monday`s MotWee award to the Barclay`s analysts who declared the recession over. You may not be able to control your husband`s odds of avoiding future rounds of layoffs, but you have *complete* control over this kind of discretionary spending. But hey, it`s the American way - live it up now, run up those credit cards, and if ol` Dougie gets layed off from his [u]already bankrupt[/u] company, just default on your mortgage and credit cards and let the banks and the taxpayers pick up the tab. As far as I`m concerned, in times like these, my "reward" for keeping my job is ... my job. did you even consider perhaps socking that money away into the kids` college fund? No, of course you didn`t.

And speaking of credit-card defaults...

[url=http://www.bloomberg.com/apps/news?pid=20601087&sid=a_FhoI2A4ZsM]Advanta’s Card Shutdown May Imperil Customers, Debt Holders[/url]
[quote]May 12 (Bloomberg) - Advanta Corp., the credit-card issuer for small businesses, may leave 1 million customers scrounging to find new lenders and debt holders facing losses of 35 percent after the company shut down accounts to preserve capital.
[u]
Advanta will cease lending June 10 after uncollectible debt reached 20 percent[/u] as of March 31, according to a statement and filings yesterday by the Spring House, Pennsylvania-based firm. The lender earmarked $1.4 billion to buy back securitized card loans with offers of 65 cents to 75 cents on the dollar.

This would be the first so-called early amortization of a trust since 2003, according to JPMorgan Chase & Co. analyst Christopher Flanagan.

“Early amortization has been viewed as a catastrophic event for issuers,” Scott Valentin, an analyst at Friedman Billings Ramsey & Co., said today in a research note. Advanta’s filing said that the charge-off rate for uncollectible loans may increase after accounts are closed. Valentin said that’s likely because “the cards have substantially less utility to cardholders,” cutting the incentive to keep up with payments.

“They’re hoping they can stay alive barely until the environment changes,” said David Robertson, president of the Nilson Report, the Carpinteria, California-based industry newsletter. This is “a big sign that the credit-card industry has problems that are going to be around for several years.”

Advanta was the 11th-biggest U.S. credit-card issuer at the end of 2008 with about $5 billion in outstanding balances, and the only major lender focused on small business borrowers, Robertson said.[/quote]
[i]My Comment:[/i] Note that CC defaults hit firms which lend the money, like Advanta and many regional banks - transaction processors like Visa and Mastercard only suffer from the contraction in consumer spending and credit by way of reduced processing-fee revenue.

"Treasury wants more financial regulations"

[URL]http://news.yahoo.com/s/ap/20090513/ap_on_go_ca_st_pe/us_treasury_regulation[/URL]

[quote]The Obama administration is asking Congress to extend its oversight of the financial system to include the shadowy market of derivatives, the kind of complex financial instruments that helped bring down the giant insurer AIG.

In a draft two-page letter to congressional leaders, the Treasury Department says it wants to create a central electronic-based system that would track the buying and selling of derivatives. It also wants to ensure that financial firms selling the instruments have enough capital on hand in case they default and subject them to stringent standards of conduct and new reporting requirements.

. . .[/quote]

[QUOTE=cheesehead;173449]"Treasury wants more financial regulations[/QUOTE]

Maybe they should start with their buddies over at the Federal Reserve:

[url=http://zerohedge.blogspot.com/2009/05/federal-reserve-can-not-account-for-9.html]Federal Reserve Cannot Account For $9 Trillion In Off-Balance Sheet Transactions[/url]

[quote=ewmayer;173451]Maybe they should start with their buddies over at the Federal Reserve:

[URL="http://zerohedge.blogspot.com/2009/05/federal-reserve-can-not-account-for-9.html"]Federal Reserve Cannot Account For $9 Trillion In Off-Balance Sheet Transactions[/URL][/quote]

From that article:

[quote=Tyler Durden]
(P.S. Zero Hedge uses the term "anyone" generically, with the presumption that the Fed's Inspector General should traditionally receive most memos on memorandum items that deal with a dollar sign and +/- 12 zeros after it).[/quote]Hmmm... maybe the problem is that the missing amounts don't have many zeros in them, like $123,456,789,012. Only one zero, so that might slip under the radar?

Or maybe the existence of digits 1-9 needs to be brought to Durden's attention to offset the column title's hypnotic influence?

The Economy in Pop Culture: Comic Art - [i]Monty[/i], 4 May:

The Economy in Pop Culture: Comic Art - [i]Get Fuzzy[/i], 14 May:

The Economy in Pop Culture: Comic Art - [i]Dilbert[/i], 9 May:

Latest "green shoots" quip:

"Reality is now going around spraying Roundup on those green shoots."

The worldwide economy reminds me of a sci-fi story I read years ago about a ship going to Venus where they found a very stable and stagnant culture. The culture had done the same things the same way for thousands of years. Circumstances forced the ship crew to introduce a change to this stable system in the form of a stimulant (like caffeine) that would allow individuals to increase their production beyond norms. The net effect was to destabilize the stagnant society so much that the powers in control had to act to save their culture.

The parallel with the worldwide economy is that we have used stimulants to increase production for so many years that we can no longer function without stimulants. Lack of stimulants (ready credit, lots of borrowing and spending) is now destabilizing the entire system.


DarJones

[quote=Fusion_power;173660]The parallel with the worldwide economy is that we have used stimulants to increase production for so many years that we can no longer function without stimulants. Lack of stimulants (ready credit, lots of borrowing and spending) is now destabilizing the entire system.[/quote]

It's called "withdrawal". The system is not destabilized and quite the contrary is true: it is returning to a stable state, as all [URL="http://en.wikipedia.org/wiki/Martingale_%28betting_system%29"]Martingale-Strategies[/URL] will eventually fail.

Deflation is Here | Hard Times on Dealer Row
 

[url=http://money.cnn.com/2009/05/15/news/economy/CPI_April/index.htm]Consumer price drop is biggest since '55[/url]: [i]Government says 0.7% annual decline is the largest in nearly 54 years. Monthly prices unchanged.[/i]
[quote]On a monthly basis, consumer prices were unchanged, in line with the consensus estimate of economists surveyed by Briefing.com.

The overall index was affected by a sharp decline in energy prices, which fell 2.4% in April, and are down 25.2% on an annual basis.

Oil prices averaged about $50 a barrel in April, down 55% from an average of about $112 a barrel in April of 2008. [/quote]
[i]My Comment:[/i] Everyone but gasoline retailers seems to be getting the deflationary message - Oil down 55% YoY, but gas prices at my local Valero station have only dropped 40%. Nothing like a little sticky-pricing ... anyway, The real danger of inflation resulting from the flood of e-money "printed" by the Fed over the past year won`t hit until the economy starts to genuinely recover, or at least genuinely hits bottom. For now, ongoing price deflation (and note the govt doesn`t measure housing prices in their consumer-price stats, so missed both the huge in-and-deflation in asset values there in the past 10 years) due to demand destruction is the modus operandi.


[url=http://money.cnn.com/2009/05/15/news/companies/gm_dealers/index.htm]GM whacks 1,100 dealers[/url]: [i]Automaker makes big cut as part of plan to drop 40% of dealer network. Many are expected to leave the business this year.[/i]

Click-bait alert on this next one - suggest you turn off your flash/javascript/image-display if you want to read the content sans distraction:

[url=http://money.cnn.com/galleries/2009/smallbusiness/0905/gallery.car_dealerships.smb/index.html]Hard times on dealer row[/url]: [i]Chrysler shuttered 789 dealerships nationwide. Now these dealers and their employees are recovering from the shock and looking to the future.[/i]

While economic hard times are hitting on many fronts, underwater mortgages will be a major concern for many years. The government assistance programs that were supposed to help refinance mortgages are limited to those that have at most a 105% differential (property value vs mortgage amount). In other words, relatively high potential to repay and a good probability the underlying property value will recover. The problem with this is that many mortgages are at 130%. These homeowners have very little incentive to refinance and lots of reasons to just walk away from the mortgage. What would you do if you owed $200,000 on a home valued at $140,000?

So why is this important? Well, figures released today indicate that about 5% more homeowners are underwater now than at the end of 2008. This translates to an ongoing slide in market value. The underlying real estate market has flattened out from the precipitous slide of 2008, but is still declining. The cities with the most underwater mortgages are located in California, Nevada, and Florida. These are the markets that saw the greatest increase in home sale prices over the last 10 years.

As of today, about 22% of mortgages U.S. wide are underwater and of that, roughly half are beyond 130% deep. This will translate to an incredible number of foreclosures over the next year and will drain the economy until the underlying property vaues stabilize. It is mind boggling to think that up to 10% of all mortgages existing at the end of 2008 will terminate in foreclosure.

Do your due diligence and you will see that the overall economy can't truly recover until systemic issues such as this have finished resetting.

DarJones

[QUOTE=Fusion_power;174009]These homeowners have very little incentive to refinance and lots of reasons to just walk away from the mortgage. What would you do if you owed $200,000 on a home valued at $140,000?

[/QUOTE]

So let's bring back debtor's prison. Make it a criminal act to walk away.

Noone guaranteed property values when they bought the home.

[quote=R.D. Silverman;174019]So let's bring back debtor's prison. Make it a criminal act to walk away.

Noone guaranteed property values when they bought the home.[/quote]

Why not put them in concentration camps and gas them? Then the society wouldn't even have to pay to lock them up!! And the stimulus!!! Create jobs making crematoria & Zyklon B!!!! Let's conduct medical experiments on divorcees with Asberger's!!!!! Health plan to cure cancer!!!!!!

The solution is to make declaring bankruptcy very easy, so losses can be written off quickly, and go on from there. A financial intermediary's job is to figure out which business or individual deserves credit and if the financial intermediary isn't any good at doing his job, he should lose money. Dumbass.

[QUOTE=__HRB__;174025]The solution is to make declaring bankruptcy very easy, so losses can be written off quickly, and go on from there.[/QUOTE]
If you make it too easy, credit markets will shut down, because no with money and in possession of their wits will want to lend money. Oh wait, that's exactly what's been happening for the past 2 years...

When someone defaults (e.g. bankruptcy), what do you think happens to the debt? The magic "debt writeoff fairy" waves its magic wand and makes the debt go "poof", and some accountant marks an red X in a dusty ledger and no one is the worse off?

[QUOTE=R.D. Silverman;174019]So let's bring back debtor's prison.
Noone guaranteed property values when they bought the home.[/QUOTE]Many of theses folks had no ablity to buy. The lenders got greedy. They made fast money on them. So did loan brokers, as did real estate agents. All of them are supposed to act as a sanity check. Auto dealerships run ones credit before selling.

Those in professional positions that took greed over their knowledge and training are the guilty ones.

[quote=ewmayer;174031]If you make it too easy, credit markets will shut down, because no with money and in possession of their wits will want to lend money. Oh wait, that's exactly what's been happening for the past 2 years...[/quote]

Credit markets will not shut down for businesses that are credit worthy and more importantly if the risk is uncorrelated to the other borrowers. Good banks were able to identify that the risk investing in real-estate is highly correlated, so they limited their exposure.

Concerning the consumer credit business...for the lenders this was pretty much: easy come, easy go. Again, the banks' job is to diversify the risks, and there are always sectors that are booming.

[quote=ewmayer;174031]When someone defaults (e.g. bankruptcy), what do you think happens to the debt? The magic "debt writeoff fairy" waves its magic wand and makes the debt go "poof", and some accountant marks an red X in a dusty ledger and no one is the worse off?[/quote]

The consequence is that the lender gets punished for foolish behavior. If all his borrowers file for bankruptcy, this mechanism guarantees that he won't remain in the lending business.

Consider, that the problem is not only that foolish lenders would have to write off bad loans, but that financial intermediaries who do their job well, are not able to take command of the (future) resources.

Basically you want to get people to declare bankruptcy quickly, so that the incompetent lenders are also forced out of business as fast as possible.

UCLA Study: FDR's policies prolonged Depression
 

[QUOTE=__HRB__;174042]Basically you want to get people to declare bankruptcy quickly, so that the incompetent lenders are also forced out of business as fast as possible.[/QUOTE]
That would require some faint semblance of a free-enterprise system to be in place - I'm afraid none of the world's leading economies fall into that category these days. here in the U.S. the government is busy rewarding the most-outrageously-bad actors in the financial sector by deeming them "too big to fail" and guaranteeing their debts ... privatized profits and socialized losses, it's the new American Way. Heck, beyond doing everything in its power to keep the TBTF Banks on life support, the government is actively encouraging them to make even *more* risky loans, because the U.S. Ponzi Economy requires a neverending expansion of consumer debt to "function".

------------------

[url=http://money.cnn.com/2009/05/18/news/economy/geithner-talf.fortune/index.htm]Geithner`s gift to Wall Street[/url]: [i]As the first TALF-backed deals for Ford, Honda and Harley`s debt hit the market, professional investors see an opportunity to make a killing.[/i]
[quote]NEW YORK (Fortune) -- Imagine if you were not really in the market for a house but the government came along and said that it would finance 94% of a home`s purchase price with a mortgage rate of less than 3%. Still not interested? Wait, Uncle Sam has some additional sweeteners: if you do the deal and buy the house for only 6% down, you also get the equivalent of rental income every month to the tune of at least an annualized yield of 10% of the purchase price.

But wait there`s still more: if, say, after two years, you decide you don`t want the house any longer, you can just walk away from it. No need to pay the balance of the mortgage (it won`t affect your credit rating), and you can keep the rental income received to date.

That`s essentially the deal that Treasury Secretary Timothy Geithner has offered qualified professional investors who participate in the so-called TALF (Term Asset-Backed Securities Loan Facility). Two months into the program as the first TALF- backed deals hit the market, you can see why the likes of hedge fund Fortress Investment Group are drooling over it. "I`m a big believer in the impact that TALF can and should have," Fortress CEO Wes Edens said on a May 6 investor call, adding that he expects that Fortress will be "a big participant" in the TALF program "three to six months from now."
0:00 /24:35Geithner opens up

The first few TALF deals -- one for Ford Credit (the financing arm of the automaker), another for American Honda Receivables Corp., a third for the student loan company Sallie Mae and a fourth for motorcycle icon Harley Davidson -- shed some light on our tax dollars at work.

"I`ve had accounts that dropped everything they were doing to take a look at this TALF financing," one Wall Street trader explained. "It was like nothing they had ever seen. It beats any financing that the private sector could ever come up with. I almost want to say it is irresponsible."[/quote]
[i]My Comment:[/i] Allow me to finish the TraydaBoyz` quote: [i]"...but I`m making too much of a killing on it to allow myself any serious qualms about 'taxpayer rape' and such."[/i]


[url=http://money.cnn.com/2009/05/15/news/international/Europe_GDP.reut/index.htm]EU economy shrinks 2.5%[/url]: [i]Recession deepens in Europe, but economists say the first three months of 2009 may be the low point.[/i]
[quote]PARIS (Reuters) -- Europe sank to what may be the recession's low point in the first quarter of the year as tumbling German exports and investment plus further sharp drops in output elsewhere sped up the pace of a year-old contraction.

Official estimates on Friday showed the first quarter was the worst on record at European level, although more up-to-date business surveys suggest that early 2009 may prove to be the low point of the first global recession since World War Two.

"Although we are nowhere near the peak in unemployment, we can safely assume that the first quarter was the worst in terms of the pace of decline," said Martin van Vliet, an economist at ING bank.[/quote]
[i]My Comment:[/i] Ah yes, the old "second derivative" argument there - BTW, our English-speaking readers may be interested to know that the German for "Green Shoots" is "Grün schießt". (I before E ... I before E ... although I`m sure Herr Grün does the other, as well.)


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aEoat0Yp8Iz0&refer=news]Bunds Beating Treasuries for First Time Since 2005 as ECB Lags Behind Fed[/url]: [i]European bonds are beating Treasuries for the first time in four years as the European Central Bank lags behind the Federal Reserve in efforts to revive contracting economies.[/i]

[i]My Comment:[/i] Don`t forget to check out the accompanying exercise video, "Bunds of Steel".


[b]Historical Perspectives: Did Roosevelt`s Policies Hinder Recovery From The Great Depression?[/b]

Interesting link on Mish`s blog today:

[url=http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx?RelNum=5409]UCLA economists calculate FDR's policies prolonged Depression by 7 years[/url]: [i]Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.[/i]
[quote]After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.

Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.[/quote]

[quote=ewmayer;174077]That would require some faint semblance of a free-enterprise system to be in place - I'm afraid none of the world's leading economies fall into that category these days.[/quote]

That's true, but I'm not convinced that a society with a free-enterprise system is not possible.

It took a while for "separation of church and state" to get accepted as a good idea, so I see no reason why a "separation of enterprise and state" won't eventually be accepted as a good idea, too.

Of course, like all other good ideas, this will be under constant attack. But, since you know that I'm convinced that reality is darwinistic, I am convinced that it is only a matter of time until the opposition has been wiped out.

BTW, it isn't relevant which is the leading economy today, but to identify the best candidate for leading economy of tomorrow, to go there and make it happen. When people like Jim Rogers find reasons relocate to Singapore, taking profits and leaving is at least worthy of consideration.

My current "Nearest Neighbors" are 1932 and 1976, so depending on whether 2012 resembles 1980 or 1936, I'm staying or I'm definitely outta here.

This is a brief followup to the Alternative Fuel Tax Credit abuse by paper mills that has so outraged me in this thread.

[URL="http://www.washingtonpost.com/wp-dyn/content/article/2009/05/01/AR2009050103861.html?wprss=rss_politics/congres"][B]Paper Firms Cashing In Before Loophole Plugged[/B][/URL]
[QUOTE]the Joint Committee on Taxation has had to raise its estimate of the cost of the credit nearly 50-fold, from $61 million to $3.3 billion. Wall Street analysts put the cost as high as $8 billion.[/QUOTE]
Paper mills produce a byproduct called "Black Liquor" that they burn for energy and because leaks of it are toxic to fish. By adding a minuscule amount of diesel fuel to the "Black Liquor" they qualify for this $.50 credit for each gallon of "Black Liquor" that they have been burning since the '30s. What's a few billion here and there? Well at over $3 billion, that is $10 per man, woman, and child in the United States. I wonder how many lives would be saved if the equivalent funds were devoted to, say, flu shots.

[URL="http://www.washingtonpost.com/wp-dyn/content/article/2009/05/08/AR2009050803776.html?wprss=rss_business"][B]Obama Seeks to Halt Alternative Fuel Tax Credit for Paper Industry[/B][/URL]
[QUOTE]As part of its fiscal year 2010 budget proposal, the administration rewrote the alternative fuel provision to exclude the paper industry. If approved by Congress, that would take effect Oct. 1. To end the payments earlier, lawmakers would need to write the change into another piece of legislation.

The alternative fuels provision, originally part of the 2005 highway bill and expanded in the 2007 energy bill, said that any company mixing alternative fuels with even a tiny bit of traditional fossil fuels would qualify for a 50 cent a gallon tax credit. The provision is scheduled to expire at the end of 2009.[/QUOTE][QUOTE]Companies began filing papers with the Internal Revenue Service late last year and early this year to qualify, and payments and credits quickly mounted. International Paper said recently that it received $540 million in the first quarter alone, including $145 million in direct payments from the Treasury. Temple-Inland estimated that it could receive payments for 550 million to 650 million gallons this year, which would amount to about $300 million. [B]Because the tax credit is refundable, companies with no profit or tax liability can get direct payments.[/B][/QUOTE]

U.S. Federal Tax Revenues down 30% | MotWee 2x!
 

[url=http://money.cnn.com/2009/05/18/pf/Robert_frank.moneymag/index.htm]Cornell economist: How to solve the financial crisis[/url]: [i]Robert H. Frank explains why a culture of excessive risk taking flourished - and what might push everyone from money managers to homebuyers to act more prudently.[/i]
[quote]As a writer and an economics professor at Cornell University, Robert Frank has been trying for years to bridge the gap between the classroom and the real world. Though he has proved his command of the essentials of his profession - he wrote a textbook with Federal Reserve Board chief Ben Bernanke back in 2000 - his vision of economics is broader and more thought-provoking than most.

In "The Winner-Take-All Society" (1996) and "Luxury Fever" (2000), Frank analyzed the economic logic underlying sky-high salaries in business, sports, and entertainment, and the effects of luxury spending on middle-class Americans. In "The Economic Naturalist" (2007), he used economic principles to explain quirky questions of everyday life, like why drive-through ATMs have Braille buttons. [/quote]
[i]My Comment:[/i] Hmmm ... why *do* drive-thru ATMs have Braille buttons? My first guess would be that they are essentially the same make as non-drive-thru ATMs (which require Braille buttons), so it`s simply easier to go with a single kind. I must remember to also the Professor about the hot-button issue currently is roiling the field biblical scholarship - i`m referring of course to the question of whether Adam & Eve had navels.

But getting back on-theme, the money quote for me was when Frank suggested why salary caps are a bad idea in every industry *but* Big Finance:
[quote]In the case of, say, the software industry, there's a link between earnings and the extent to which good employees benefit the economy. [u]In the finance industry there's no such link. Those companies earn more when they hire smarter people largely because smarter people can figure out more devious ways to unload risk onto other people.[/u]
[b]
Anytime it looks as if individuals are generating huge profits for a financial firm, I think the presumption should be that there's some market failure they're exploiting.[/b] Regulation can eliminate those failures and therefore those profits. Pay caps are a clumsy instrument. But if you had them in the financial industry, life would go on. [/quote]


[url=http://zerohedge.blogspot.com/2009/05/guest-post-tax-revenues-tanking.html]Casey Report: U.S. Government Tax Revenues Tanking[/url]
[quote]After combing through the past 25 editions of the “Monthly Treasury Statement of Receipts and Outlays of the United States Government,” which is compiled and published by the Treasury Department’s Financial Management Service, we created [url=http://2.bp.blogspot.com/_FM71j6-VkNE/ShHGYeT14hI/AAAAAAAACqc/y1d0rdx1DJU/s1600-h/USGovernmentMonthlyReceipts.jpg]the following chart[/url].

Here’s what’s going on:

* In 2007 and 2008, government tax revenues averaged about $633.15 billion per quarter. For the first quarter of 2009, however, the numbers just in tell us that tax receipts totaled only about $442.39 billion -- a decline of 30%.

* Looking to confirm the trend, [u]we compared the data for April – the big kahuna of tax collection months – to the 2007-2008 average, and found that individual income taxes this year were down more than 40%. The situation is even worse for corporate income taxes, which were down a stunning 67%![/u]

* When you add in all revenue from all sources (including Social Security revenue, government fees, etc.), the fiscal year-to-date – October through April – revenue shortfall comes to 19%, vs. the 14.6% projected in Obama’s budget. If, however, the accelerating shortfall apparent year-to-date, and in April in particular, continues, the spread between projected and actual tax receipts will widen considerably.

Tellingly, for the first time since 1983, the U.S. government posted a deficit in April. That’s a big swing in the wrong direction, as the bump in personal tax collections in April historically results in a big surplus -- on average about $68 billion.

What are the implications of this tanking tax revenue?

For starters, it means the federal government deficit is going be as bad or worse than the $2.5 trillion Bud Conrad, chief economist of Casey Research, projected it to be last year.

If the shortfall in individual and corporate tax revenue persists -- and we expect it will -- then the deep hole the government is already digging for itself will be that much deeper.

Using the government’s own expense projections, the revenue shortfall, even if it doesn’t worsen further, would push the fiscal 2009 budget deficit up to about $1.958 trillion. For reasons we’ve discussed at some length in The Casey Report, those expense projections are likely to be significantly understated.

Case in point, in January the government projected a $1.2 trillion deficit for fiscal year 2009… in March, just three months later, they upped the projection to $1.8 trillion. [u]That $600 billion “adjustment” alone totaled more than any full-year budget deficit in the nation’s history.[/u]

Yet, the real fly in the ointment is that the actual borrowing by the Treasury is likely to be at least half a trillion dollars more than the deficit.

That’s because the Treasury is buying toxic paper (mortgage, credit card loans, etc.) and putting them on the books with a higher value than the market is willing to assign. While that makes the budget deficit appear smaller, it doesn’t negate the fact that the government still must borrow the money needed to buy the toxic paper in the first place. The additional revenue shortfall means they have to raise that much more money. Based on the struggle they had pushing the $14 billion in long-term notes at the latest auction, it becomes increasingly apparent that when push comes to shove, the only way the government is going to come up with the money needed to meet its aggressive spending is to print it up.[/quote]
[i]My Comment:[/i] Mirror image of what is happening at the state and municipal level. The California special election on the ballot measures related to the compromise budget agreement of March (a.k.a. "desperate lawmakers try to punt the real decision-making to voters") is occurring as we speak. Despite dire warnings from governor Schwarzenegger and lawmakers that failure to pass the supplemental budget resolutions - which include nifty sleights-of-hand such as "borrowing $5 billion against future state lottery proceeds" - polls indicate nearly all the measures are likely to fail. This could be the opening salvo in the first of what are likely to become many state-level tax revolts.

But the Obama administration is promising to "cut the deficit in half" over the next few years - yeah, good luck with that. But who cares ... we can just print our way to prosperity, assuming we can sweet-talk Zimbabwe into selling us some of that hoard of blank linen currency-paper which they cornered the market on.


[b]Moron(s) of the Week:[/b] This week`s economic booby prize is a dual award to a pair of deserving economists, for preaching the virtues of high inflation ("Making people`s savings dwindle in purchasing power will provide an incentive for them to stop their un-American savings-glut accumulation and go out and spend, spend, spend!"):

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=auyuQlA1lRV8&refer=news]Fed Should Fuel Faster Inflation to Help U.S. Economy, Mankiw, Rogoff Say[/url]: [i]What the U.S. economy may need is a dose of good old-fashioned inflation.[/i]
[quote]So say economists including Gregory Mankiw, former White House adviser, and Kenneth Rogoff, who was chief economist at the International Monetary Fund. [u]They argue that a looser rein on inflation would make it easier for debt-strapped consumers and governments to meet their obligations. It might also help the economy by encouraging Americans to spend now rather than later when prices go up.[/u]

“I’m advocating 6 percent inflation for at least a couple of years,” says Rogoff, 56, who’s now a professor at Harvard University. “It would ameliorate the debt bomb and help us work through the deleveraging process.” [/quote]
[i]My Comment:[/i] Classic punish-the-prudent-in-order-to-bail-out-the-profligate scensario. So much for the U.S. Constitution protecting one from government confiscation of property without due compensation, eh? But I do so relish the delicious turn of phrase "good old-fashioned inflation". Yep, I remember the good old inflationary days back in Weimar ... when a simple wheelbarrow was sufficient to carry all you needed ... to buy a loaf of bread. That crisp new money made for a clean-burning fire on those cold winter nights, too.

[quote]In the case of, say, the software industry, there's a link between earnings and the extent to which good employees benefit the economy. [U]In the finance industry there's no such link. Those companies earn more when they hire smarter people largely because smarter people can figure out more devious ways to unload risk onto other people.[/U]
[B]Anytime it looks as if individuals are generating huge profits for a financial firm, I think the presumption should be that there's some market failure they're exploiting.[/B] Regulation can eliminate those failures and therefore those profits. Pay caps are a clumsy instrument. But if you had them in the financial industry, life would go on.[/quote]Bull. Bull! Bull!!

1. In money terms all trades are zero-sum, but markets allocate risk according to the degree of risk-aversion, so, as the many people playing the lottery are actually willing to pay for risk, it is not surprising that markets deliver risk to those idiots. As strategies with negative pay-off are sub-optimal, markets make sure that people who play them run out of resources as fast as possible, which is a good thing: stupid people simply shouldn't have money.

This is [U][I][B]not[/B][/I][/U] market failure. In fact it's the opposite!

2. Regulation needs to be enforced and therefore isn't free.

3. Adverse selection leads to regulation failure: people in favor of regulation are - by definition - losers, who are not smart enough to "unload risk", so regulation will always be at least one step behind.

4. Financial markets have no borders, so the smart people will simply move outside of US jurisdiction which wouldn't stop them from unloading risk unto dumb Americans.

[quote=ewmayer;174215][I]My Comment:[/I] Hmmm ... why *do* drive-thru ATMs have Braille buttons?[/quote](* sigh *)

[I]It's so that [U]the blind passenger in the taxicab's back seat[/U] can do his/her own transactions, after the taxi driver has stopped with the back door window opposite the ATM keyboard,[/I] without needing someone else to press the buttons for him/her.

(Sheesh ... do folks think that blind people walk all the way every time they want to get somewhere?)

[quote]I must remember to also the Professor about the hot-button issue currently is roiling the field biblical scholarship - i`m referring of course to the question of whether Adam & Eve had navels.[/quote]... and why Adam had testicles when he was created (Before Eve) ...

[QUOTE=cheesehead;174271](* sigh *)

[I]It's so that [U]the blind passenger in the taxicab's back seat[/U] can do his/her own transactions, after the taxi driver has stopped with the back door window opposite the ATM keyboard,[/I] without needing someone else to press the buttons for him/her.

(Sheesh ... do folks think that blind people walk all the way every time they want to get somewhere?[/QUOTE]Even if we hypothesize that blind people do indeed walk all the way every time, it would still be cheaper for ATM manufacturers to produce only one style of keypad buttons and to install them in all their machines.

Paul

[quote=xilman;174274]Even if we hypothesize that blind people do indeed walk all the way every time, it would still be cheaper for ATM manufacturers to produce only one style of keypad buttons and to install them in all their machines.[/quote]ATMs I've seen[sup]*[/sup] usually have the Braille embossed into (or taped onto) the facade surface next to the buttons rather than on the buttons themselves (which project through holes in the facade). Besides, there has to be Braille identification next to the separate openings for cash dispensing, card insertion (or swiping), receipt dispensing and deposit envelope insertion anyway, and all that would be on the facade next to those openings.

(Just as with floor buttons in elevators.)

- - -

[sup]*[/sup] - I used to program ATM terminal handler software.

[QUOTE=Uncwilly;174032]Many of theses folks had no ablity to buy. The lenders got greedy. They made fast money on them. So did loan brokers, as did real estate agents. All of them are supposed to act as a sanity check. Auto dealerships run ones credit before selling.

Those in professional positions that took greed over their knowledge and training are the guilty ones.[/QUOTE]

Adults are responsible for their own actions. Noone put a gun to the
heads of people and forced them to buy a house they could not afford.

Mortgage costs are KNOWN. Computing them involves simple arithmetic.

It is not the responsibility of lenders to protect people from their own
stupidity.

Drive-through ATMs have braille because it's required by law. To be specific, section 4.34.4 of the [I]ADA Accessibility Guidelines for Buildings and Facilities[/I] (Appendix to Part 1191, 36 CFR Chapter XI, issued pursuant to the Americans with Disabilities Act of 1990) says, "Instructions and all information for use [of an automated teller machine] shall be made accessible to and independently usable by persons with vision impairments."

The regulation exists primarily for appearance. If you're blind, these regulations are next to useless.

Banks Use Employee Life Insurance to Fund Bonuses
 

[QUOTE=cheesehead;174271]... and why Adam had testicles when he was created (Before Eve) ...[/QUOTE]

[i]In the garden of Eden lay Adam,
Complacently stroking his madam.
And loud was his mirth,
For on all of the Earth,
There were only two balls - and he had 'em![/i]

----------------------------

Having made that seminal poetic contribution to the discussion, we next turn to today's news roundup: BofA [url=http://money.cnn.com/2009/05/19/news/companies/bank_of_america_offering.reut/index.htm?postversion=2009051921]does a majorly-dilutive new-share offering[/url] a day after being upgraded by Goldman Sachs (highly [url=http://market-ticker.denninger.net/archives/1051-WHERE-ARE-THE-DAMN-COPS-BAC.html]convenient timing[/url] there, eh? I wonder how many BAC shares GS sold into their own pump), typical insider-trading gamezz in the Wall street casino (yawn) ... Fed [url=http://money.cnn.com/2009/05/20/news/economy/fed_minutes/index.htm?postversion=2009052016]sprays Weed-B-Gone[/url] on those green shoots it's been touting, i.e. the usual "we would to hereby revise our earlier forecast from 'outright falsehood' to 'delusionally hopeful'..." stuff from Bennie and da boyzz ... Ah, here it starts getting interesting:

[url=http://market-ticker.denninger.net/archives/1052-Ok,-Youre-A-Crook-Obama.html]Administration: The Fox Really Knows Chickens - So Let the Fox Guard the Henhouse[/url]
[quote]May 19 (Bloomberg) -- The Obama administration may call for stripping the Securities and Exchange Commission of some of its duties under a regulatory reorganization that could be unveiled as soon as next week, people familiar with the matter said.

The proposal, still being drafted, is likely to give the Federal Reserve more power to supervise financial firms deemed too big to fail. The Fed may inherit some SEC functions, with others going to other agencies, the people said. On the table: giving oversight of mutual funds to a bank regulator or a new agency to police consumer-finance products, two people said. [/quote]
[i]My Comment:[/i] Karl Denninger (no fan of the in-bed-with-Wall-Street Bush-era SEC) really gets even more than usually frothy at the mouth when he [url=http://market-ticker.denninger.net/archives/1052-Ok,-Youre-A-Crook-Obama.html]contemplates this proposal[/url] for the "new SEC". Fox, keys to the henhouse are under the doormat...

But speaking of Bank Regulators and the many sensible things they`ve been doing in the past decade:

[url=http://online.wsj.com/article/SB124277653430137033.html]Banks Use Life Insurance to Fund Bonuses[/url]: [i]Controversial Policies on Employees Pay for Executive Benefits, Help Companies With Taxes[/i]
[quote]Banks are using a little-known tactic to help pay bonuses, deferred pay and pensions they owe executives: [u]They're holding life-insurance policies on hundreds of thousands of their workers, with themselves as the beneficiaries.[/u]

Banks took out much of this life insurance during the mortgage bubble, when executives' pay -- and the IOUs for their deferred compensation -- surged, [u]and banking regulators affirmed the use of life insurance as a way to finance executive pay and benefits[/u].

Bank of America Corp. has the most life insurance on employees: $17.3 billion at the end of the first quarter, according to bank filings.[/quote]
[i]My Comment:[/i] As if we needed any more proof that megabank executives are lower than pond scum ... heck, using such a metaphor is an insult to pond scum, which actually serves a useful purpose.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aMkMXYrEwqpg&refer=us]Pension Benefit Guaranty's Deficit Triples in Six Months to $33.5 Billion[/url]: [i]Pension Benefit Guaranty Corp.’s deficit tripled to $33.5 billion in the past six months as companies canceled retirement plans in the U.S. recession, the head of the government-owned corporation said.[/i]

[i]My Comment:[/i] Companies slashing costs by dumping retirement obligations on the PBGC ... this will not end well. Like the FDIC, the PBGC is already teetering on the edge of insolvency, and as Mish notes, the bankruptcy of first Chrysler and (likely) next GM could easily [url=http://globaleconomicanalysis.blogspot.com/2009/05/automotive-pension-disaster-42-billion.html]add over $40 Billion in unfunded pension "guarantees"[/url] to the PBGC`s already dire balance sheet. But the absolute best (in an ironic sense) twist in the tale of the PBGC has got to be [url=http://www.boston.com/news/nation/washington/articles/2009/03/30/pension_insurer_shifted_to_stocks/?page=full]this little gem of worst-case timing[/url] on its part:
[quote]Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn.[/quote]
[i]My Comment:[/i] And now you know where much (if not most) of that $33.5 billion hole came from. But that will seem like peanuts a couple years down the road, when PBGC will be facing Fannie and Freddie style insolvency-on-an-unspeakable-scale. Suggest the interested reader check out the full article - The lying liar (Charles Millard, who it should be noted is a former managing director of [u]Lehman Brothers[/u]) who ran the agency under the Bush administration actually has the gall to claim "the new investment policy is not riskier than the old one". I kid you not - he actually said that. But hey - who are we unwashed-rabble types to question the word of a [b]former managing director of Lehman Brothers[/b] when it comes to gauging risk?

Oh, and fittingly, GM spent much of the past several years loading up its pension program`s investment portfolio with - ta da! - now nearly-worthless GM shares, which they finally dumped last month for around $1, i.e. at just a *slight* discount to the purchase price. One wonders: since it`s not illegal for them to buy their own shares for their pension fund, would it also be legal for them to *short* their own shares?

UK, US at Risk of Debt Downgrade | GM Cramdown
 

[url=http://www.bloomberg.com/apps/news?pid=20601102&sid=aOE_VdAxmzqI&refer=uk]U.K. May Lose AAA Rating at S&P as Government Debt Approaches 100% of GDP[/url]: [i]Britain may lose its AAA credit rating for the first time as government finances deteriorate in the worst recession since World War II.[/i]
[quote]Standard & Poor’s lowered its outlook on Britain to “negative” from “stable” and said the nation faces a one in three chance of a ratings cut as debt approaches 100 percent of gross domestic product. The pound fell the most in four weeks versus the dollar before rebounding, the FTSE 100 Index slid 2.8 percent and the cost of insuring U.K. debt against default rose.

Britain needs to sell a record 220 billion pounds ($349 billion) of bonds in the fiscal year through March 2010 as the economy contracts and Chancellor of the Exchequer Alistair Darling predicts that the budget deficit will reach 175 billion pounds, or 12.4 percent of GDP. The U.K.’s worsening finances parallel the public perception of Prime Minister Gordon Brown, whose Labour government has trailed the Conservative opposition for more than a year in polls.[/quote]
[i]My Comment:[/i] MarketWatch notes that the UK and US [url=http://www.marketwatch.com/story/sp-cuts-uk-outlook-to-negative-from-stable]are on very similar trajectories here[/url]:
[quote]The move by Standard & Poor's raises the prospect not only of a credit-rating downgrade in Britain but a lowering of the outlook in the U.S., which has taken a similar path of big spending and quantitative easing to escape the credit-led recession. [/quote]


[url=http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXwaub9bebEI]GM Reorganization ‘Blatantly Unfair,’ Bondholder Says[/url]
[quote] May 21 (Bloomberg) -- The U.S. government’s reorganization plan for General Motors Corp., the nation’s largest automaker, is “blatantly unfair” to bondholders, said one investor, Mark Modica.

“If we just look at the offer, we have the Treasury and the UAW forgiving $20 billion of debt and getting 89 percent of ownership, and the bondholders are forgiving $27 billion and getting 10 percent ownership,” Modica, a bondholder, told Bloomberg Television. “If anyone thinks that’s fair, they’re not a GM bondholder.”

Modica, a business manager at a Saturn dealership in Chalfont, Pennsylvania, is a member of a group of GM debt holders calling themselves the “Main Street Bondholders.” The investors are in Washington to seek meetings with President Barack Obama’s auto task force and members of Congress to discuss the plan for GM’s revival.

An ad hoc committee of large bondholders including Franklin Resources Inc. is pushing its own restructuring plan for GM, calling for 58 percent of the equity in a reorganized automaker. The group represents institutions holding about $12 billion in GM debt.

Modica said he favors a scenario where bondholders would receive 50 percent of a reorganized GM. He said retirees holding GM’s bonds will be hurt by the proposal. [/quote]
[i]My Comment:[/i] Readers may be asking themselves, "why should I care about the whining of some big-money GM bondholders?" The reason is that the conditions being crammed down the throats of GM debtholders - very similar to those recently forced on Chrysler bondholders - illustrate a deeply disturbing tendency of the Obama administration to flout contract law, allegedly "in the best interests of the nation".

All the similar-themed proposals to e.g. allow judges to modify mortgage contracts as they see fit (cramdown legislation - fortunately that failed, at lest this time around), Chrysler and GM senior secured bondholders being treated like day-trading market speculators and arm-twisted into taking pennies on the dollar and waiving their right to seek better terms in bankruptcy court, or having their appeals tossed out by judges whose paychecks come from the government and whose chances of future promotion depend on the favor of the current administration - These are not trivial legal rights which are being run roughshod over in the name of National Economic Exigency - this is a wholesale abrogation of long-established contract law. As one of Barry Ritholtz` regular readers [url=http://www.ritholtz.com/blog/2009/05/quote-of-the-day-12/#comments]comments[/url]:
[quote]It occurs to me that the end-game for all this is that there isn’t one. The sanctity of contract, i.e., the freedom to enter into a legally-enforceable relationship by two consenting entities/adults, has been destroyed. Contracts, be they residential notes and mortgages, or secured commercial bonds, or CDS’s, are written on water. What do they mean? Whatever the government says they mean. Heretofore the government’s role had been providing an enforcement mechanism for contractual relationships. It now has now become a third-party to them all, deciding on its whim which it will support and which it will destroy.

We are rapidly moving to a regime where we are ruled by men and not by law, justified by the thin reed of economic contraction that still does not even remotely approach the worst of the last century. To retain its newly-acquired power, the government will need to keep a continued state of economic agitation and fear alive. It proclaims that its naked power grab is just an attempt to solve the problems brought on by the market economy. Not true. Its power grab is just that–an expansion of its purpose and size and power for its own sake.

Once the economy settles down, don’t expect a dialing down of government power and influence. Organizations do not willingly decrease their power and influence. The government will need to instill a new fear to keep the governed in thrall to its power. Time will tell what they’ll pick next.[/quote]
The parallels with the Bush administration post-9/11 are unmistakable, only the nature of the permanent state of emergency has changed.

[quote=ewmayer;174440][URL="http://www.bloomberg.com/apps/news?pid=20601102&sid=aOE_VdAxmzqI&refer=uk"][/URL][I]My Comment:[/I] Readers may be asking themselves, "why should I care about the whining of some big-money GM bondholders?" The reason is that the conditions being crammed down the throats of GM debtholders - very similar to those recently forced on Chrysler bondholders - illustrate a deeply disturbing tendency of the Obama administration to flout contract law, allegedly "in the best interests of the nation".

All the similar-themed proposals to e.g. allow judges to modify mortgage contracts as they see fit (cramdown legislation - fortunately that failed, at lest this time around), Chrysler and GM senior secured bondholders being treated like day-trading market speculators and arm-twisted into taking pennies on the dollar and waiving their right to seek better terms in bankruptcy court, or having their appeals tossed out by judges whose paychecks come from the government and whose chances of future promotion depend on the favor of the current administration - These are not trivial legal rights which are being run roughshod over in the name of National Economic Exigency - this is a wholesale abrogation of long-established contract law. As one of Barry Ritholtz` regular readers [URL="http://www.ritholtz.com/blog/2009/05/quote-of-the-day-12/#comments"]comments[/URL]:

The parallels with the Bush administration post-9/11 are unmistakable, only the nature of the permanent state of emergency has changed.[/quote]Moral hazards of starting down certain roads ... including the roads that earlier led to those roads ...

[quote=R.D. Silverman;174290]It is not the responsibility of lenders to protect people from their own
stupidity.[/quote]

If you don't understand that it is in the lenders interest to lend money to people who make wise investments, then I agree with your ex-wife's lawyers that you shouldn't own anything.

[QUOTE=__HRB__;174456]If you don't understand that it is in the lenders interest to lend money to people who make wise investments...[/QUOTE]

On the contrary, it was in the lender's best interest to loan money to absolutely anyone, pocket a fat commission, and resell the loan to some other poor sap.

Oh, you're the poor sap -- a taxpayer.

[quote=Prime95;174458]On the contrary, it was in the lender's best interest to loan money to absolutely anyone, pocket a fat commission, and resell the loan to some other poor sap.

Oh, you're the poor sap -- a taxpayer.[/quote]

I think his Highness has the agent mixed up with the principal. The 'lender' his Highness is referring to, is effectively only acting as an agent on behalf of the actual lender, because the loan is essentially an item in transit.

[URL]http://en.wikipedia.org/wiki/Contract_theory[/URL]

Frankly, I cannot feel sorry for the current taxpayer, either. If you elect economic illiterates who promise to make you better off by picking your own pocket, then that's what you get!

[QUOTE=Prime95;174458]On the contrary, it was in the lender's best interest to loan money to absolutely anyone, pocket a fat commission, and resell the loan to some other poor sap.

Oh, you're the poor sap -- a taxpayer.[/QUOTE]

We're not poor saps. We're BRILLIANT in a Guinness "all six at once" kind of way.

[quote=__HRB__;174462]If you elect economic illiterates who promise to make you better off by picking your own pocket, then that's what you get![/quote]... just as what you get when you elect a professional actor who as Prez quite convincingly looks you straight in the eye (through TV) and says he's vetoing a bill because it contains too much spending, when what he really means is that he'll sign the bill after [I]more[/I] spending (in the categories he prefers) is [I]added[/I].

[quote=ewmayer;173716][I]My Comment:[/I] Everyone but gasoline retailers seems to be getting the deflationary message - Oil down 55% YoY, but gas prices at my local Valero station have only dropped 40%.[/quote]

[URL]http://news.yahoo.com/s/ap/20090521/ap_on_bi_ge/summer_gas_prices;_ylt=AvLmjKHw4_kxWCWo0AX0L6Zv24cA;_ylu=X3oDMTE1djUzZjdhBHBvcwMxBHNlYwN5bi1jaGFubmVsBHNsawNnYXNjb3N0c21vcmU-[/URL]

"Gas costs more, but don't expect a repeat of 2008"

[quote]. . .

... For much of this year, there has been a glut of gasoline in storage around the country, keeping prices low. And demand has been light because of the poor economy.

But gasoline has jumped in May. Oil refineries, trying to make money just like any other business, are taking in less oil because of the glut in gas, and those cutbacks are showing up at the pump.

At the same time, prices are starting to rise for seasonal reasons. Americans drive more in summer, and federal and state laws require different, more expensive gasoline blends this time of year.

The trading markets are at work, too. By mid-February, the price of oil had fallen so far — below $34 a barrel, compared with a peak of $147 last July — that large investors couldn't resist buying in.

Investing momentum feeds on itself, and government data suggests speculative trades are on the rise, meaning people are buying in simply because they know they can sell for a quick profit.

"There's no lack of gasoline right now or the lack of ability to produce it, and anyone who says speculators are not playing a role in this run is delusional," said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service.

The same thing happened last year, to a much greater extent. ...

. . .

Even the kind of cataclysmic event that sends gas prices into a spike, like a hurricane in the oil-rich Gulf of Mexico, probably won't push gas past $4 a gallon this summer, analysts say.

. . .

So how high will gas go?

Darin Newsom, senior energy analyst at DTN in Omaha, Neb., said he expects the average price for regular unleaded to push $2.80 a gallon this summer — higher than many other forecasts. Even if a devastating hurricane strikes, he thinks prices will stay below $3.10 a gallon.[/quote]

[QUOTE=ewmayer;173716]Everyone but gasoline retailers seems to be getting the deflationary message - Oil down 55% YoY, but gas prices at my local Valero station have only dropped 40%.[/QUOTE]

...and up another 15 cents per gallon (roughly 6%) since I posted that a week ago.

It is interesting to ponder to what extent the plunge in gas (and generic energy) prices in the past year has helped to keep the Great Recession from being even worse. Gas approaching $3 per gallon will certainly stunt the growth of some of those mythical green shoots in the stubbly starter lawn of (alleged) economic recovery.

Why California is Bankrupt, 5/26 update
 

I recently read that here in California nearly a quarter-million people are on the state payroll ... there's one obvious reason the state is effectively bankrupt.

Well, to be fair, the bloated state payroll is not the only reason:

[url=http://74.125.155.132/search?q=cache:DKmPi14OQN4J:www.mercurynews.com/topstories/ci_12439808]Pumping water and cash from the Delta - San Jose Mercury News[/url]:
[quote]As the West Coast's largest estuary plunged to the brink of collapse from 2000 to 2007, state water officials pumped unprecedented amounts of water out of the Delta only to effectively buy some of it back at taxpayer expense for a failed environmental protection plan, a MediaNews investigation has found.

The "environmental water account" set up in 2000 to improve the Delta ecosystem spent nearly $200 million mostly to benefit water users while also creating a cash stream for private landowners and water agencies in the Bakersfield area.

Financed with taxpayer-backed environment and water bonds, the program spent most of its money in Kern County, a largely agricultural region at the southern
end of the San Joaquin Valley. There, water was purchased from the state and then traded back to the account for a higher price.

The proceeds were used to fund an employee retirement plan, buy land and groundwater storage facilities and pay miscellaneous costs to keep water bills low, documents and interviews show.

Revenues from those sales also might have helped finance a lawsuit against the Department of Water Resources, the same agency that wrote the checks, documents show.
[u]
No one appears to have benefitted more than companies owned or controlled by Stewart Resnick, a Beverly Hills billionaire, philanthropist and major political donor whose companies, including Paramount Farms, own more than 115,000 acres in Kern County.

Resnick's water and farm companies collected about 20 cents of every dollar spent by the program.
[/u]
Those companies sold $30.6 million of water to the state program, participated as a partner in an additional $16 million in sales and received an additional $3.8 million in checks and credits for sales through public water agencies, documents show.

"For a program that was supposed to benefit the environment, it apparently did two things — it didn't benefit the environment and it appears to have enriched private individuals using public money," said Jonas Minton, a water policy adviser to the Planning and Conservation League, a California environmental advocacy group.[/quote]
But it`s the aforementioned folks who are generating are these great ideas for wasting money and providing an ever-bigger bureaucracy requiring ever-more bureaucrats to "run" it.

For a stark recent-historical summary of the explosion in CA state spending, see [url=http://sunshinereview.org/index.php/California_state_budget]this site[/url]. Money quote:
[quote][b]Causes of the crisis[/b]

* [b]The state budget is based on assumptions about future revenue:[/b] According to California's 2004-2005 state finance director Tom Campbell, the source of the long-term problem is that assumptions of future revenue are unreliable, and when they prove wrong, the spending has already been committed.[6]

* [b]Productivity drain:[/b] According to Devin Nunes, a congressman from California, one source of the problem is that the "entrepreneurs, investment capital and the hardy workers who made it a global leader in agriculture, technological innovation and scientific research" are fleeing the state because it has an unattractive tax and regulatory burden. California has the sixth-highest tax burden in the country.[9]

* [b]Significant increases in compensation of state and local government employees:[/b] Michael Haley of the Napa Valley Taxpayers Alliance points out that [u]the funds required for the expanded pension and compensation of government employees that began in 2000 "are more than we can ever hope to collect in taxes, even with large tax increases, and it centers around the state’s main expense, employee compensation". Haley also notes that during the Gray Davis tenure, pension promises were unsustainable: "Safety personnel can now retire with 90 percent or more of their highest salaries at age 50, and other employees can retire with 75 percent or more at age 55."[/u][38] [/quote]

GM bankruptcy 'inevitable' | Bond Market Smackdown
 

Whoops, forgot to post my lunchtime-assembled econo-summary:

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aQRu1hnuUeTc&refer=news]GM Bankruptcy Is Considered `Inevitable' as Bondholders Reject Swap Offer[/url]: [i]A General Motors Corp. bankruptcy filing became almost certain after the 100-year-old automaker failed to persuade enough bondholders to take equity in a streamlined company in exchange for $27 billion of debt.[/i]


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=a6PE4NB3ns5k&refer=news]`Problem' U.S. Banks Rise to 15-Year High as FDIC's Insurance Fund Erodes[/url]: [i]U.S. “problem” banks climbed 21 percent to the highest total in 15 years in the first quarter, and provisions set aside for loan losses weighed on industry earnings, the Federal Deposit Insurance Corp. said.[/i]


But wait - not a day goes by anymore without at least a couple of eternally-hopeful "green shoots" stories, which the mass media (and Wall Street gambling addicts) seize upon like drowning men grasping at scraps of flotsam - well, here ya go:

[url=http://money.cnn.com/2009/05/27/real_estate/existing_home_sales/index.htm]Home resales inch up in April[/url]: [i]The residential real estate market picked up slightly in April, as increasingly affordable home prices drew in hesitant buyers.[/i]
[quote]The National Association of Realtors reported that existing home sales ticked up 2.9% last month to a seasonally adjusted annual rate of 4.68 million units compared to the revised rate of 4.55 million in March.

The sales came in slightly ahead of expert forecasts of 4.66 million annual units, according to a consensus estimate of analysts compiled by Briefing.com, but are still off 3.5% from the 4.85 sold 12 months ago.

First-time homebuyers continued to drive sales, according to Lawrence Yun, NAR`s chief economist, but there was also a seasonal rise of repeat buyers.

"Most of the sales are taking place in lower price ranges and activity is beginning to pickup in the mid-price ranges, but high-end home sales remain sluggish," he said.

The median price of homes sold in April was just $170,200, a 15.4% year-over-year drop.[/quote]

Sounds pretty "hopier than expected", don't it? Not so fast - a later-in-the-day CNN market-summary article gives the above numbers in a more revealing context, as
[i]
"Sales of existing homes increased 2.9% in April to 4.86 million homes sold, [u]up from a downwardly revised pace of 4.55 million in March[/u], according to the National Association of Realtors."
[/i]
So it`s the same monthly statistical fakery the BLS has been using with jobless numbers, to wit:

1. Give an initial "headline" number which you know is likely on the rosy side, thus garnering loud "better than expected!" spin from the mainstream media;

2. The following month, quietly revise the previous month`s figure downward - The press will dutifully note the downward revision, but in the small print.

3. The downward revision of last month`s numbers will thus make the new numbers (not yet revised) look relatively better, so all the loud "headline" news looks eternally "better than expected", even though the true numbers may not be improving one bit, or may in fact be deteriorating further. Lather, rinse, repeat.

4. Augment the above unrevised-apples-versus-revised-oranges comparison scam with a bit of seasonality-based trickery: In parts of the year (mainly Spring) where home sales tend to rise month-over-month, compare month-over-month sales figures in the media releases, without taking account of seasonality. "April sales up 4%!" looks far better than "April sales down 10% year-over-year", don`t you think? Then, in parts of the year where sales typically drop month-over-month (Fall and Winter), you give whichever of the month-over-month or year-over-year comparison happens to looks "better than expected". If both figures look really bad, you attribute the downturn to "seasonality" and/or cry that the government needs to do more to lower mortgage rates. Actually doing so (e.g. by way of the Fed using its limitless electronic checking account to buy up billions of dollars in agency debt from Fannie and Freddie at below-market rates) of course amounts to a huge taxpayer subsidy of the realty industry, but 99% of Americans would have switched back to watching [i]American Idol[/i] long before reaching the phrase "agency debt" in the above sentence anyway, so shhh! - let`s not tell them, they're already quite broken up at seeing Adam robbed of his deserved Idol crown, and only because he wears more eyeliner than the benighted folks in [insert names of neighboring states which the folks in your own state look down upon] can handle.

Of course it is beginning to appear as though the Fed's ability to force mortgage rates below market [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aF0VQ.cbvEtI&refer=news]may be more limited[/url] than its ability to print money out of thin air. Karl Denninger [url=http://market-ticker.denninger.net/archives/1066-It-Is-Failing-ALL-OF-IT.html]points out[/url] that today`s brutal bond market smackdown caused a popular real-time rate quote on a 30-year fixed-rate mortgage to jump 30% percent in a matter of a few hours - it will surely settle back down a bit, but if rates can`t be kept artificially low, then the shit is going to hit the fan big-time all over again as borrowing rates on everything - including the tsunami of Uncle Sam`s newly-printed IOUs - explode.

But back to the housing green-shoots theme...

Notice also the vague blurb (unsupported by any data) from chief NAR shill Yun about "activity ... beginning to pickup in the mid-price ranges". Uh, If most of the sales are at the low end (read: Foreclosure/Distress sales) where prices have allegedly stabilized and multiple bids are once again all the rage, but activity is "beginning to pick up" in the mid-range, then how did the median price still manage to plunge? Oh, I see: Yun probably considers some blip like "two mid-price homes sold in April 2009, versus just one in April 2008" a sing that things are "picking up". Anyway, Mish promptly [url=http://globaleconomicanalysis.blogspot.com/2009/05/manhattan-awash-in-office-space.html]throws cold water[/url] (or more appropriately for our extended gardening metaphor, Roundup weed killer) on that:
[quote][b]California Stats[/b]

* There has been no increase in organic house sales in California in 18 months.
* Foreclosure-related resale market at the point of maximum demand.
* Total sales vs. foreclosure supply is heavily imbalanced.

"Over 50% of all sales are foreclosure related and that is snuffing out demand from other sectors."[/quote]

I had to laugh at the end of the above CNN/Money article, which gives a Realtor`s perspective on consumers` irrational hesitancy to jump both feet first into the housing market:
[quote]The market has failed to move ahead despite several factors helping to drive sales. On the plus side: Prices have sunk nearly 20% during the past 12 months; mortgage rates are historically low; and the first-time homebuyers tax credit effectively discounts homes by up to $8,000 for qualified buyers. [u]Offsetting those positives are the troubles in the overall economy, including the jump in unemployment from about 5% 12 months ago to 8.9% in April[/u].[/quote]
...and the fact that in many regions of the country, despite the huge price drops in the past year, houses are *still* overpriced with respect to historical price/income ratios.
[quote]The gloomy economic news discourages potential buyers, according to Tom Kunz, CEO of real estate broker Century 21. [u]"Look at the average consumers," he said. "They come home and turn on the news and hear about another large corporation laying off workers. They`re saying, `Oh my gosh. What do I do?`[/u]"[/quote]
Why, buy one of them thar "bargain-priced" homes with no money down (thanks to Government Mortgage Bubble Reflation Plan 9(x)), of course. Unless you`re one of these irrational nervous-nelly types and are actually worried about possibly losing your job, or taking on too much debt. It`s downright un-American to think that way, BTW.
[quote]Mostly, they`re not buying. Even falling prices, usually a stimulus for potential homebuyers, is currently a double-edged sword. Lower prices encourages some to buy while simultaneously convincing others to wait because they think prices will drop further.
[u]
Kunz said timing the market that way is often a mistake. Not only can buyers miss the bottom but mortgage rates can rise from the current low rates and the increase could wind up costing consumers money[/u].[/quote]
[i]My Comment:[/i] That`s right, in the mind of a realtor (who obviously has your best interest at heart, not their bottom line) the best time to buy is "now, now, now!" After all, it is inevitable that the economy will come roaring back any day now, housing prices will quickly return to Greenspanian bubblicious levels, and all will be rosy in Realty World once again ... except for those fraidycats who missed The Bottom. After all, economic bottoms are always narrowly V-shaped ... protracted recessions were banished back after World War 2 by an act of congress, or something.

[QUOTE=ewmayer;175019]
[...]
Of course it is beginning to appear as though the Fed's ability to force mortgage rates below market [url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aF0VQ.cbvEtI&refer=news]may be more limited[/url] than its ability to print money out of thin air. Karl Denninger [url=http://market-ticker.denninger.net/archives/1066-It-Is-Failing-ALL-OF-IT.html]points out[/url] that today`s brutal bond market smackdown caused a popular real-time rate quote on a 30-year fixed-rate mortgage to jump 30% percent in a matter of a few hours - it will surely settle back down a bit, but if rates can`t be kept artificially low, then the shit is going to hit the fan big-time all over again as borrowing rates on everything - including the tsunami of Uncle Sam`s newly-printed IOUs - explode.
[...]

[/QUOTE]

An interest rate hike now will make some big waves.

[URL="http://www.cnbc.com/id/30968861"]http://www.cnbc.com/id/30968861[/URL]
[quote]
The stock market is watching the bond market, wary a spike in interest rates will derail a fragile economic recovery and snuff the market's rally.
[/quote]

More fun with statistics! | The BankUnited Fraud
 

[QUOTE=ewmayer;175019]4. Augment the above unrevised-apples-versus-revised-oranges comparison scam with a bit of seasonality-based trickery: In parts of the year (mainly Spring) where home sales tend to rise month-over-month, compare month-over-month sales figures in the media releases, without taking account of seasonality. "April sales up 4%!" looks far better than "April sales down 10% year-over-year", don`t you think?[/QUOTE]

Yet another perfect example of this described [url=http://www.ritholtz.com/blog/2009/05/new-home-sales-fall-34/]here[/url]: MoM sales are statistically unchanged at +0.3% ±14.5% - but note the green-shooty positive *sign* on the 0.3%! This is great news!!! YoY are down hugely (and stat-significantly) at -34.0% ±11.0%. Guess which of the 2 figures the mainstream media trumpet? Here, I`ll give you a clue:
[quote]• [url=http://www.bloomberg.com/apps/news?pid=20601068&amp;sid=a_syIHolWEnY&amp]Bloomberg: New-Home Sales in U.S. Climbed 0.3% to 352,000 Pace[/url]

• [url=http://www.marketwatch.com/story/us-april-new-home-sales-up-slightly]Marketwatch: Home sales up a paltry 0.3%[/url]

• [url=http://www.reuters.com/article/businessNews/idUSTRE54R3T320090528]Reuters: US new home sales rose 0.3 percent in April[/url]

• [url=http://www.google.com/hostednews/ap/article/ALeqM5i2oWiNsPQpakRTA0sYe8x_5DkEXwD98FA3I00]Associated Press: April new home sales inch upward [/url]

• [url=http://online.wsj.com/article/SB124351361133562355.html]WSJ: New-Home Sales Rise as Prices Tumble[/url][/quote]
Oh no, there`s no bullish bias in the MSM at all...whatever might have given you *that* idea?


Over at the ZeroHedge blog, Tyler [url=http://zerohedge.blogspot.com/2009/05/welcome-marla.html]welcomes a new contributor[/url]:
[quote]Despite all my efforts, Zero Hedge keeps growing. Like a tumor. I always said if I had a tumor I would name it "Marla." So now we are stuck with Marla. Marla Singer, to be precise. In addition to stealing from laundromats, chain smoking and attending testicular cancer support groups, Marla brings to Zero Hedge a bitter blend of confrontational, thought-provoking prose, and razor sharp insight. Forgive her if her reporting resembles an expletive-laced stream of consciousness. She constantly has a stomach-full of Xanax. I won`t bore you with the details of her background in finance. Suffice it to say that, as tumors go, she is a Zero Hedge level tumor. She pisses me off on a regular basis, but, as the only way to truly grow is through conflict, we all will benefit from her (twisted) perspectives. Zero Hedge, I give you, Marla Singer.[/quote]
...and Marla does not disappoint, beginning her ZH tenure with a cracking article on the sordid insider-fraud story within the recent [url=http://www.rgemonitor.com/financemarkets-monitor/256776/bankuniteds_sordid_history]BankUnited failure[/url]:

[url=http://zerohedge.blogspot.com/2009/05/like-bankunited-sex-crime.html]Like A BankUnited Sex Crime[/url]: [i]In the annals of rank regulatory intercourse there isn`t much more severe debauchery than the distant history that is the BankUnited story.[/i]
[quote]Picking through some of BankUnited`s public filings we discovered some interesting details.

From BankUnited's 2007 10-K:
[i]
For the 2007, 2006 and 2005 fiscal years, BankUnited retained the law firm of Camner, Lipsitz and Poller, Professional Association ("CLP"), as general counsel. [u]Alfred R. Camner, Chief Executive Officer and Chairman of the Board of Directors of BankUnited, is the Senior Managing Director of CLP. For the 2007, 2006 and 2005 fiscal years, BankUnited paid CLP approximately $4.9 million, $3.6 million, and $3.5 million, respectively, in legal fees allocable to loan closings, foreclosures, litigation, corporate and other matters. Errin Camner, Managing Director of CLP, is the daughter of Alfred R. Camner.[/u]

In fiscal 2005, CLP subleased approximately 2,223 square feet of office space from BankUnited in Coral Gables, Florida. The sublease extends through January 31, 2014 and may be renewed for up to four additional five-year terms, subject to BankUnited's exercising its right to renew under the master lease. Under the terms of the sublease the minimum annual rent for the property is $61,249. Payments from CLP to BankUnited during the fiscal year 2007 totaled $79,026 consisting of rental payments and $12,533 paid to BankUnited as reimbursements for tenant improvements for the fiscal year 2006 and $87,161 consisting of rental payments and $22,598 paid to BankUnited as reimbursements for tenant improvements for the fiscal year 2006 and in fiscal year 2005 BankUnited was paid $52,265 in rent. BankUnited believes that the terms of the sublease reflect market rates comparable to those prevailing in the area for similar transactions involving non-affiliated parties at the time the sublease was made. (emphasis added)
[/i]
Camner, Lipsitz and Poller and its predecessor Stuzin and Camner prior to 1998 seem to be no more than single-client (or nearly single client) firms designed to extract fees from a public institution. This has, unsurprisingly, been going on for a long time. Going back through 10-Ks and DEF 14As we find the following amounts paid to Camner, Lipsitz and Poller:

2007: $4.9 million
2006: $3.6 million
2005: $3.5 million
2004: $3.6 million
2003: $3.7 million
2002: $2.3 million
2001: $2.1 million
2000: $2.5 million
1999: $2.7 million
1998: $2.2 million

We run out of data on specific payments to Camner, Lipsitz and Poller in 1998 not because we run out of 10-Ks or DEF-14As, but rather because these disclosures are not made prior to the 1998 DEF-14A. We do have disclosures on the overall professional fees paid by BankUnited to parties unknown, which are in the 10-Ks:

1997: $1.6 million
1996: $0.9 million

Of course, it is claimed that a substantial portion of these fees are "rebated back," but it is not clear what portion that is, exactly, how long the rebating takes (this would constiute an interest free loan after all) or how those payments are structured, exactly.

Forgetting this for a moment, we have about $31 million in inflation-unadjusted cash flowing from the bank into a small, dedicated law firm run by the Bank's Chairman and CEO. Coincidentally, it is not clear from the filings what portion of these fees went to the principals of Camner Lipsitz and Poller or its predecessor Stuzin and Camner.
[u]
Is it possible that Camner Lipsitz and Poller and/or Stuzin and Camner have been charging above market rates as a means to supplement the incomes of senior bank executives and circumvent reporting requirements? If so it certainly wouldn't be the first time this tactic was used to avoid disclosure.[/u][/quote]
[i]My Comment:[/i] A.k.a. "How Wall Street works", Chapter 119.6, section H17, subparagraph 93464(c).

GM Bankruptcy Filing Set for 1. June
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=axMQSpTxgYL0&refer=news]GM Will File for Bankruptcy June 1; Accord Reached With Some Bondholders[/url]: [i]General Motors Corp., the world’s largest automaker until its 77-year reign ended in 2008, plans to file for bankruptcy protection on June 1 and sell most of its assets to a new company, people familiar with the matter said.[/i]

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aE_j_CA8fCao&refer=news]Mortgage Delinquencies, Foreclosures in U.S. Rise to Records Amid Job Cuts[/url]: [i]Mortgage delinquencies and foreclosures rose to records in the first quarter and home-loan rates jumped to the highest since March as the government’s effort to revive the housing market lost momentum.[/i]

Still only 20% of GM bondholders onboard with this "new, improved" proposal ... but methamphetamine-fueled Wall Street casino addicts loving this fabulous news. Who cares about the largest corporate bankruptcy in U.S. history and possibly a half-million job losses up and down the GM food chain, when some Russian money outfit just decided that that pillar of economic growth and industrial production [i]Facebook[/i] [url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aiNWAC.UueNI&refer=news]is worth $10 Billion[/url] by buying a 1% stake for $100 million? (Down a mere $5 Billion from what Microsoft decided it was worth last year). Millions of people "friending" each other and obsessively clicking AdPorn on Facebook is obviously the key to a robust economic recovery! FDR had World War 2 to help pull America out of the Great Depression ... BHO has Facebook. I wonder if 50 years from now they`ll be referring to the legions of Facebook users in similarly glowing terms as the WW2 veterans, as "the greatest generation". I mean, can you really put a value of Saving the Entire World, then from Hitler, this time around from economic collapse?

[URL="http://www.nytimes.com/2009/05/27/business/27auto.html?_r=1"]U.S. Expected to Own 70% of Restructured G.M.[/URL] (NY-Times):

[I]"There are cultural challenges, too. Can the government help turn around a company known for its bureaucratic approach to business?"[/I]



If journalists fail to spot the irony in statements like this, the [I]Gleichschaltung[/I] has already happened.


.

Mortgage "Black Wednesday" | Mama Bair bares teeth
 

[QUOTE=AES;175033]An interest rate hike now will make some big waves.

[URL="http://www.cnbc.com/id/30968861"]http://www.cnbc.com/id/30968861[/URL][/QUOTE]

The fallout from this rate instability is potentially much larger than has been reported in the mainstream media (MSM) - Mish has a nice piece on the ripple effects:

[url=http://globaleconomicanalysis.blogspot.com/2009/05/mortgage-market-locks-up.html]Mortage Market Locks Up[/url]: [i]Yesterday 10 year treasury yields went soaring and the mortgage market literally seized up. Mark Hanson at the Field Check Group has this report that I can share.[/i]
[quote]The negative consequences of 5.5% rates are enormous. Because of capacity issues and the long timeline to actually fund a loan very few borrowers ever got the 4.25% to 4.75% perceived to be the prevailing rate range for everyone A significant percentage of loan applications (refis particularly) in the pipeline are submitted to the lender without a rate lock. This is because consumers are incented by much better pricing to lock for a short period of time…12-15 day rate locks carry the best rates by a long shot. But to get this short-term rate lock, the loan has to be complete enough to draw loan documents, which has been taking 45-75 days over the past several months depending upon the lender’s timeline. Therefore, millions of refi applications presently in the pipeline, on which lenders already spent a considerably amount of time and money processing, will never fund.

Furthermore, many of these ‘applicants’ with loans in process were awaiting the magical 4.5% rate before they lock -- [u]a large percentage of these suddenly died yesterday[/u]. To make matters worse, after 90-days much of the paperwork (much taken at the date of application) within the file becomes stale-dated and has to be re-done with new dates -- if rates don’t come down quickly many will have to be cancelled out of the lender’s system. To add insult to mortal injury, unless this spike in rates corrects quickly, a large percentage of unlocked purchases and refis will have to be denied because at the higher interest rate level, borrowers do not qualify any longer. For the final groin kicker, a 5.5% rate just does not benefit nearly as many people as a 4.5%-5% rate does. Millions already have 5.25% to 5.75% fixed rates left over from 2002-2006.[/quote]
[i]My Comment:[/i] This is why the MSM obsessing about the monthly "mortgage applications surge!" green-shoots data is incredibly misleading - unless all those mortgage apps [u]actually fund, and do so at the ballyhooed `low, low, rates`[/u] it`s just a huge waste of time and paperwork, and every would-be buyer or refinancer who goes through the process only to be denied or "please resubmit"ted may think long and hard about doing business with a mortgage banker again anytime soon, `low government-sponsored teaser rate` or not.

For those who want a really detailed, gory CMBS-market-insider`s explication of Wednesday`s rate-spike shock, MortgageNewsDaily.com [url=http://www.mortgagenewsdaily.com/mortgage_rates/blog/78362.aspx]has a good one[/url]: I give only a telling macroeconomic/market-psychology snip therefrom (underlines are mine; boldface highlighting is theirs):
[quote]Wait..isn`t the market always right? Allegedly...unless you consider that "crisis exhaustion" (swine flu) has altered the market`s perception in such a way that the opinion of right and wrong is skewed (no foundation for good or bad at this point). "Better than expected" has become a means for celebration lately...maybe this "loss of perception" has put the market in a place where rational vs. irrational psychological behavior is no longer discernible. After all, [u]"better than expected" doesn`t always mean long term recovery...especially when the relative comparison is record economic weakness[/u]. [b]Do you think the market can come to grips with the fact that the Fed is so deeply intertwined in the credit markets (entire banking system) that investors have no choice but to play along with the Fed`s every aspiration? [/b][/quote]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aQvSZSAK7rKE&refer=news]Bair Becomes Bane of Too-Big-to-Fail Banks as Enforcer Geithner Must Trust[/url]: [i]Sheila Bair, chairman of the Federal Deposit Insurance Corp. and a lifelong Republican, boarded Air Force One for the first time in February. Neither President George H.W. Bush nor his son, President George W. Bush, had invited her on the world’s most famous jet in the five years she worked for them. It was a Democratic president, Barack Obama, who asked her to fly to Washington after the two had unveiled his administration’s foreclosure relief plan in Mesa, Arizona.[/i]
[quote][strike]"Sheila, come on back here and give me some sugar"[/strike]"Sheila, come on back. I want to talk to you," Obama told Bair, who was seated in the plane’s conference room. He then escorted her into his airborne Oval Office for their first private meeting, where they discussed the government’s role in alleviating the worst financial crisis since the 1930s.

“It was great,” Bair says of her meeting with the president. “He’s got an agenda which we share. Banks are a means to an end. You stabilize the banks to support the economy. But you don’t stabilize the banks for the sake of stabilizing the banks.”

After being left out of big decisions by Bush administration officials, such as the push last year for the $700 billion bank bailout, Bair, 55, has become one of the most powerful policy makers in Washington. Driven by a combination of circumstances and her own candor, Bair has presided over the biggest expansion of the FDIC’s authority since its founding in 1933 to insure bank deposits.[/quote]
[i]My Comment:[/i] (Sorry, couldn`t resist a little sophomoric Friday-follies faux-edit there ... a thousand pardons, "We apologise for the fault in the subtext. Those responsible have been sacked.") ... Ironically, as head of a borderline-insolvent too-big-too-fail institution, Sheila and the Bank Mafiosi may have more in common than she cares to admit. But she does appear to be becoming a useful counterweight to the Geithner-led bail-out-the-banks-at-all-costs-even-if-it-means-gang-rape-of-the-taxpayer crowd:
[quote]As Bair builds her power, soaring bank failures are jeopardizing her agency’s deposit insurance fund, which had dwindled to $13 billion in the first quarter, the lowest amount since 1993 following the savings-and-loan crisis. She requested more funding from Congress, which on May 19 more than tripled the FDIC’s borrowing authority from the Treasury Department to $100 billion. Lawmakers also approved a temporary boost of the credit line to $500 billion.

In 2008, Bair says, her struggle with midlevel Treasury Department officials turned tense as they stonewalled her proposal to use federal funding to prevent foreclosures. [u]And she tussled with Timothy Geithner, then the president of the Federal Reserve Bank of New York, over the request last year that the FDIC guarantee all debt issued by lenders[/u] -- a move she rejected because it would expose her agency to big losses.

Geithner’s Respect

“I’m from Kansas; I’m not from New York,” Bair says. “I’m a lot of things that are different. So maybe that does give me some more independence of thought and daring to not care who I offend.”

Following Obama’s election in November, [u]Geithner tried to have her ousted for not being a team player[/u], according to people familiar with the matter. Through a spokesman, Geithner declined to say whether he sought to remove Bair from office.

[strike]"Man, will someone please get that freaking b*tch out of my hair?"[/strike]"I have great respect for her," Geithner told Bloomberg TV on May 21. “She’s a strong advocate for her agency and a strong advocate for her points of view.” [/quote]
[i]My Comment:[/i] "We apologise again for the fault in the subtext. Those responsible for sacking the people who have just been sacked, have been sacked." Seriously, someone needs to remind Terrible Timmay G that it`s the Federal [u]Depositor[/u] Insurance Corporation, not the "Friends of Timmy bad-loan bailout slush fund."

Friday Funnies
 

A bit of Friday humor courtesy of our friends at [i]The Onion[/i]:

[url=http://www.theonion.com/content/news/nation_ready_to_be_lied_to_about]Nation Ready To Be Lied To About Economy Again | The Onion - America's Finest News Source[/url]
[quote]WASHINGTON—After nearly four months of frank, honest, and open dialogue about the failing economy, a weary U.S. populace announced this week that it is once again ready to be lied to about the current state of the financial system.

Tired of hearing the grim truth about their economic future, Americans demanded that the bald-faced lies resume immediately, particularly whenever politicians feel the need to divulge another terrifying problem with Wall Street, the housing market, or any one of a hundred other ticking time bombs everyone was better off not knowing about.

In addition, citizens are requesting that the phrase, "It will only get worse before it gets better," be permanently replaced with, "Things are going great. Enjoy yourselves."

"I thought I wanted a new era of transparency and accountability, but honestly, I just can't handle it," Ohio resident Nathan Pletcher said. "All I ever hear about now is how my retirement has been pushed back 15 years and how I won't be able to afford my daughter's tuition when she grows up."

"From now on, just tell me the bullshit I want to hear," Pletcher added. "Tell me my savings are okay, everybody has a job, and we're No. 1 again. Please, just lie to my face."
...
According to a CBS News/New York Times poll, 98 percent of Americans no longer appreciate President Barack Obama's attempts to break down the economic crisis into simple terms they can understand. Instead, many say the president should have the decency to insult their intelligence by using complex jargon to confuse and deceive them, perhaps even implying that the subprime mortgage fallout was just a big misunderstanding that resulted from a clerical error. [url=http://www.theonion.com/content/news/nation_ready_to_be_lied_to_about][Full Article][/url][/quote]
[i]My Comment:[/i] LOL, it would be merely hilarious if it weren`t so close to the mark.

The GM shoe dropped today, the final song was sung, the curtain closed.

Whats that you say? They are going to come back?

Well, technically you are correct, but they will never be the same. One thing you CAN look forward to is some really cheap prices for new cars.


So what is the next major crisis we will face?

Arguably it will be large scale bankruptcies of small businesses and the ongoing banking morass. Two factors will drive this. The first is the continuing malaise in the real estate market, and the second is the no confidence vote many banks have acquired. The loss of small businesses will be triggered by larger events such as the closing of many GM locations and similar knock on effects.

The banking industry has a rather nasty outlook because of FDIC funding. Cut all the mouth exercise to reality and it is evident that the reserve is not large enough. Present estimates put it at about $13 billion. This will be absorbed within the next 2 months and then they will have to borrow to close down a bank.

DarJones

[QUOTE=Fusion_power;175500]The GM shoe dropped today, the final song was sung, the curtain closed.[/QUOTE]

After opening lower than last Friday's close, GM common stock actually *rose* today, despite the fact that it is sure to be worth nil in very short order. We live in Bizarro world ...

Now some of that might simply be short covering, but if I were short GM I'd simply wait for the price to get closer to zero before the next options expiry date - I have a feeling that there are in fact a whole of day-trading fools who believe that "the new GM" will actually have something to do with the stock of the "old GM", and are about to learn a painful lesson in "bankruptcy 101".

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I`ve been saying for a while now that the current financial/real-estate/debt crisis is in many ways the ultimate failure of Reaganomics, in the sense that deregulation of financial markets (and the accompanying anything-goes attitude on Wall Street, as epitomized by the "greed is good" ethos immortalized in the Reagan-era Oliver Stone film [url=http://www.imdb.com/title/tt0094291/]Wall Street[/url]), an explosion of government spending, and the appointment of Alan Greenspan to head the Federal Reserve are all Reagan legacies, and were continued and extended by all 3 of the ensuing presidents - Bush Sr, Clinton and Bush Jr. In an op-ed in today`s NY Times, Paul Krugman adds another toxic Reagan legacy to the mix: The elimination of the Depression-era minimum-down-payment requirements for mortgage loans:

[url=http://www.nytimes.com/2009/06/01/opinion/01krugman.html?ref=opinion]Paul Krugman | Reagan Did It[/url]: [i]The change in America’s financial rules was Ronald Reagan’s biggest legacy and the gift that keeps on taking.[/i]
[quote]“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot.” So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.

He was, as it happened, wrong about solving the problems of the thrifts. On the contrary, the bill turned the modest-sized troubles of savings-and-loan institutions into an utter catastrophe. But he was right about the legislation’s significance. And as for that jackpot — well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression.

For the more one looks into the origins of the current disaster, the clearer it becomes that the key wrong turn — the turn that made crisis inevitable — took place in the early 1980s, during the Reagan years.

Attacks on Reaganomics usually focus on rising inequality and fiscal irresponsibility. Indeed, Reagan ushered in an era in which a small minority grew vastly rich, while working families saw only meager gains. He also broke with longstanding rules of fiscal prudence.

On the latter point: traditionally, the U.S. government ran significant budget deficits only in times of war or economic emergency. Federal debt as a percentage of G.D.P. fell steadily from the end of World War II until 1980. But indebtedness began rising under Reagan; it fell again in the Clinton years, but resumed its rise under the Bush administration, leaving us ill prepared for the emergency now upon us.

The increase in public debt was, however, dwarfed by the rise in private debt, made possible by financial deregulation. The change in America’s financial rules was Reagan’s biggest legacy. And it’s the gift that keeps on taking.

The immediate effect of Garn-St. Germain, as I said, was to turn the thrifts from a problem into a catastrophe. The S.& L. crisis has been written out of the Reagan hagiography, but the fact is that deregulation in effect gave the industry — whose deposits were federally insured — a license to gamble with taxpayers’ money, at best, or simply to loot it, at worst. By the time the government closed the books on the affair, taxpayers had lost $130 billion, back when that was a lot of money.

But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down.

These restrictions were put in place in the 1930s by political leaders who had just experienced a terrible financial crisis, and were trying to prevent another. But by 1980 the memory of the Depression had faded. Government, declared Reagan, is the problem, not the solution; the magic of the marketplace must be set free. And so the precautionary rules were scrapped.

Together with looser lending standards for other kinds of consumer credit, this led to a radical change in American behavior...[/quote]

The FDIC is clearly going to run out of money by the end of the year; on the other hand, by this point that's basically an accounting issue, I suspect they will get grants rather than loans from the central government in order to keep working, since losing the ability to bail out broken banks is something of an election-loser.

I don't know if the insurance payments from banks to FDIC have gone up; insuring banks is a quintessentially bursty business, where you get lots of income in many years (and banks infuriated at having to pay some fraction of 1% of their deposits annually in insurance when no bank has failed for a decade) and huge outgoings in some years, it might well actually be better to remove the hypothecation, have a tax on deposits held by banks and write cheques from central government to bail out banks when they fail.

[quote=fivemack;175620]I don't know if the insurance payments from banks to FDIC have gone up; insuring banks is a quintessentially bursty business, where you get lots of income in many years (and banks infuriated at having to pay some fraction of 1% of their deposits annually in insurance when no bank has failed for a decade) and huge outgoings in some years, it might well actually be better to remove the hypothecation, have a tax on deposits held by banks and write cheques from central government to bail out banks when they fail.[/quote]

Or one could simply let the depositors lose their deposits. Or let the depositors insure themselves.

This would ensure that banks have an incentive to develop techniques to prove that deposits are safe, and depositors have the incentive to check whether a bank is safe.

Logic tells us that systematic risk cannot be diversified (insurance against the apocalypse is impossible), and there is not only moral hazard on the banking side, but also on the side of the FDIC, since there is an incentive to hold no reserves (i.e. underestimate risk) and treat the contributions as disposable income.

Your homework is to list the reasons why markets haven't evolved any business-to-business or business-to-consumer banking insurance.

No homework needed. This would result in precisely the scenario we see playing out with credit default swaps. One company sold $trillions of them and now that company is having to be bailed out by the govt. The objective of deposit insurance is to prevent bank failure from wiping out the depositor. That risk has to go somewhere. In this case, it goes to the FDIC. The only effective way of managing risk at this level is via a govt backed organization. Any industry led organization would ultimately be underfunded and would fail. In essence, FDIC spreads the risk among all banks and therefore among all bank depositors.

DarJones