401k Withdrawals Spike | Fed Zeppelin Sighting #2
 

[QUOTE=Fusion_power;226343]I'm somewhat skeptical of your jolly good humor aka caustic cynicism Ewmayer. In fact, you might just be a misanthrope.[/QUOTE]

If you're referring to the anthropoids who conspired to hollow out, offshore and Ponzi-financialize our once-thriving economy over the past 30 years in order to effect the greatest wealth transfer in history from the Many to the well-connected Few, then indeed, I am extremely "mis" that lot.

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[b]Fed Zeppelin Sighting #2:[/b]

For fans of the recently-popular field of Hindenburg-Omenology, we had Sighting #2 yesterday. Denninger - in one of his occasional non-rantish, non-xenophobic posts [I find him quite readable when it comes to market technicals and "inside trading tech"] - [url=http://market-ticker.org/archives/2596-Oh-The-Huge-Manatee!-Hindenburg-Omen.html]describes[/url].

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[b]401(k) Withdrawals Spike:[/b]

[url=http://money.cnn.com/2010/08/20/news/economy/fidelity_401k_withdrawal/index.htm]401(k) withdrawals hit 10-year high, says Fidelity[/url]. [i]Withdrawals from 401(k) retirement saving plans saw their biggest spike in over ten years, Fidelity Investments said on Friday, in the latest sign of a dismal economy.[/i]
[quote]Fidelity reported that 62,000 Fidelity participants made hardship withdrawals from their 401(k) workplace plans during the second quarter. That's up from 45,000 participants during the prior quarter, a 37% increase. That means that 2.2% of Fidelity customers took a hardship withdrawal in the second quarter, compared to 2% in the same period last year.

Boston-based Fidelity has $844 billion in retirement assets under management.

Fidelity also said that 11% of participants took out loans from their 401(k) over the past 12 months, an increase of two percentage points from the prior year. The average loan amount was $8,650 at the end of the second quarter.

The top reasons people took loans and made withdrawals were to prevent foreclosure or eviction, pay for college, or purchase a home, according to the firm.

"The current economy has forced some workers to borrow from their 401(k) accounts in order to pay for critical living expenses, ultimately jeopardizing their future retirement," said James MacDonald, president of workplace investing for Fidelity Investments.

He added that for some investors "taking a loan or a hardship withdrawal from their 401(k) may be their only option because it's their only form of savings. However, we want to make sure that before workers tap their retirement accounts prematurely, they are fully educated about both the penalty that may be incurred and the long-term implications for their retirement."

Fidelity said that withdrawals made by people younger than 59-and-a-half years old are taxed and are subject to a 10% penalty. The age of people making withdrawals ranged from 35 to 55.

David Wray, president of the Profit Sharing/401(k) Council of America, said that people making hardship withdrawals could pay a penalty of up to 40%, once state and federal taxes are added to the 10% penalty.

"People take a very significant hit when they take a hardship withdrawal," he said. [/quote]
[i]My Comment:[/i] In most cases, tapping one`s 401(k) - and incurring the hefty accompanying penalties - in order to continue to service one`s mortgage is a horrible financial trade-off. Much better to try to renegotiate the mortgage loan and if that fails, simply stop paying and prepare to move to a rental property (or more-affordable home) while waiting for the bank to foreclose - many folks have been doing this for over a year and are still waiting for the bank to foreclose.

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[b]The 10 Most Dangerous Jobs in America:[/b]

CNN/Money has click-bait-formatted summary of the [url=http://money.cnn.com/galleries/2010/pf/1008/gallery.most_dangerous_jobs/index.html]10 Most Dangerous Jobs in America[/url]: Here is the Job / Fatality rate (deaths per year per 100,000) and Median-wage summary, go to the original piece for more details about each job. Think about this Top-10 list the next time your local Police or Firefighters` Union agitates for better pay/benefits because "We put our lives on the line every day" ... well, so do a whole lot of "regular" unheralded folks who get paid a hell of a lot less for doing so:
[code]
Job Fatality rate Median wage Notes
------------- ------------- ----------- -----------------
Fisherman 200 $ 23,600 Mainly cold-water fishing (Alaska)
Logger 62 $ 34,440
Bush Pilot 57 $106,240 Mainly Alaska
Farmers, Ranchers 36 $ 32,350
Roofers 35 $ 33,970 Better safety training is steadily reducing the rate
Ironworkers 30 $ 44,500
Sanitation worker 25 $ 32,070 Meth-lab chemicals a new recent danger
Industrial machinist 19 $ 39.600
Truckers/Deliverers 18 $ 37,730 Highest total deaths of Top 10 due to large numbers
Construction laborer 18 $ 29,150
[/code]

Barry Ritholtz Interview With Felix Zulauf
 

[b]Barry Ritholtz Interview With Felix Zulauf:[/b]

And lastly for today, Barry Ritholtz has a great [url=http://www.ritholtz.com/blog/2010/08/felix-zulauf-up-close-and-personal-transcript/]long interview[/url] with famed Swiss-born investor Felix Zulauf ... here is my favorite excerpt from that:
[quote]...now, we are at the point where over the last decade, the regulators for the banking industry allowed the banks to reduce their equity capitals step by step, which really was another element creating the boom and the bubble in real estate and other sectors. And now we are here suffering from the fallouts of that bubble bursting…In Europe, it is even worse than in the US. And the problem then comes that the banks have to be bailed out. And bailing out the banks in the system pushed government debts to much higher levels. The question is, what will we do next time when the governments need to be bailed out.

Because the problem is that we are living in a fiction that we can enjoy a relatively high level of prosperity for our average citizens in industrialized countries by going more and more into debt. And Greece, in a way, was a stopping point. The markets said, “There is a limit, we are not financing it any longer.” And then the European Union was changed to a transfer union all of a sudden. Now, the next thing to drop is Spain, where we have a real estate problem that is bigger than in the US. There are more homes for sale in Spain than in all of the USA. And prices have so far only gone down 10 percent because there are no transactions. But once transactions are forced by the banks, because the banks are forced by the government to clean up the situation — then prices will come down 30 to 40 percent and probably end at 50 percent down and then the banking system is bust. And the insurance system is bust. And then the government has to bail them out and the government is bust. And then what?

So I see this problem of over-indedtedness moving from the periphery of our global credit system to the center. The center is the US. And believe me, the US has its own problems. Half of the US states are running deficits that are bigger than Greece.

I think this whole process will run another few years until it reaches the center. And the point is that at some point in time, the Central Banks [will] have to bail out the governments. And maybe on the way to that point, there will be some countries that will default, and then restructure — which would be the right thing to do, actually. But at the present time, Greece should have restructured. They should have claimed default and then the debt should have been restructured. But the problem was that the banks could not take that hit. So bailing out Greece was bailing out the banks.

I do not know what the final outcome will be. I think that historically, when you look at governments that are highly indebted, you have either defaults or you have printing money. I would assume that most of the European countries [aren't party to the latter] because they have the Euro and it is harder to run the printing press than if you had one country and one government that has sovereignty over its own currency. They [the European countries] will probably go towards restructuring. And within the group of sovereign countries (I would include the UK, Japan, and the US probably) — they will probably try to run the printing presses up and go into massive debasement of the currency. This will, of course, create a payoff later on in the currency markets and currency controls.[/quote]
[i]My Comment:[/i] Zulauf also has some incisive commentary about last year`s huge cheap-government-money-fueled bear market rally and where he thinks we are now:
[quote]We came out of a time when monetary policy worked extremely well for quite some time. It worked well for the economy because when the Fed banks cut interest rates and stimulated the system, you had good growth following through later on with a time lag. You had chemical markets rallying and equity markets and credit markets and commodities and et cetera.
[b]
This time is different, because we have such a high level of debt that monetary policy has become very inefficient. And in ‘09, monetary policy alone would not have worked if the Fed and other central banks did not go out and buy, for trillions of dollars and Euros, financial assets in the market directly. Because monetary policy alone did not work. We have basically zero interest around the world in the major industrialized economies and that alone is not working. In a situation where you have too much debt and the private sector begins de-leveraging, monetary policy doesn’t work[/b]. It’s similar to the situation in Japan, although the problems there were even more severe. What works is fiscal policy, and fiscal policy gave us this kick in ‘09 and carrying through the economy up to this day. But these fiscal stimulus programs will have run their course very soon. And then we are back to final demand.
[b]
So we have three factors moving the market. One was the stimulus demand, the other was the re-stocking of inventory throughout the manufacturing sectors of the world, and the third was financial banks manipulating financial markets up to the point where they got the prices where they wanted them. And I think quantitative easing to that degree is not possible in the current environment without first having a crisis again because you run into political problems. And the same is true for government spending of the size we have seen last year. Because the political framework is such that some people are very concerned with the debt that we are piling up virtually everywhere. And therefore, the markets are now forcing the hand and you see that markets are beginning to break down.[/b] The deflationary forces are gaining the upper hand and the western world is really hoping that China will bail us out by buying all the goods that we want to sell.

I just came back from a three-week trip to China and my view is very different. I think China is in the early stage of a decline with economy weakening that will turn into a hard landing.[/quote]

A Reader Frets About His 401(k)
 

ZeroHedge [url=http://www.zerohedge.com/node/192976]reports[/url] that today (like yesterday) we again had a Zeppelin sighting, making for a total of 3 in the past week. It`s not clear to me to what extent rapid repeat events carry statistical importance ... I would for now simply sum things up "signs of unusual stresses in the markets persist".

A reader - who I hope does not mind having his (I use the literary "his" denoting the singular person, but not literally specifying gender) private message excerpted - frets as to what to do. My advice to him generalizes to all folks in a similar situation - that is, not super-sophisticated about investing, not wanting to watch stock charts constantly, but wanting to keep their money safe:
[quote]I cannot understand economics, and the more I read your postings, the more I understand that I will never be able to understand. People are panicky and at the same time gullible animals who will trample everything when the time will come. I cannot begin to pretend that I can understand them or model them. But you can! :-)

Now with two HOs, even I am getting nervous.

Could you give me a simple advice where all of one's 401k should have been moved already yesterday - but if not yesterday, what about today?[/quote]
[i]My Reply:[/i] "The HO is at best a warning of watch-your-wallet in the stock markets ... even when it does successfully foreshadow a major downmove, the timing has ranged from a few days to 4 months out.

But given all the other bad macro news, I think the chances of a major plunge (10-30% down) between now and end of the year are quite high (at least 50/50) and the chances of missing a major rally in the same timeframe seem very slim.

For most 401k-type investors my advice is to move to cash (or a money-market cash-like fund, if your 401k has no pure-cash option). Then wait patiently ... one benefit of deflation (as opposed to the usual government-caused inflation) is that cash carries little or no lost-interest opportunity cost versus the alternatives.

Cheers, and remember not to smoke around those Hydrogen tanks. ;)"

Another bearish factor I don't recall having seen mentioned here lately:

"Another Threat to Economy: Boomers Cutting Back"

[URL]http://finance.yahoo.com/focus-retirement/article/110364/another-threat-to-economy-boomers-cutting-back?mod=fidelity-buildingwealth&cat=fidelity_2010_building_wealth[/URL]

[quote]America's baby boomers—those born between 1946 and 1964—face a problem that could weigh on the economy for years to come: The longer it takes for the economy to recover, the less money they'll have to spend in retirement.[/quote]

Roots of the Flash Crash: HFT Scammery
 

Those of you who may have been following the investigations into the May 6 "Flash Crash" may be familiar with [url=http://www.nanex.net/]Nanex[/url], the small private market-quote-software firm which has been doing most of the really insightful research into the causes of the crash and its links with high-frequency trading and the two-tier ("for-pay premium quote access" and "everybody else") market-quote balkanization "pioneered" by for-profit-exchanges trying to do what for-profit companies do, namely: maximize profits. (Bizarrely, there is a widespread misconception - as illustrated by Senator Kaufman`s quote in the NYT article below - that the equity markets are still in some way "public marketplaces" despite this for-profit 2-tiering of access to the same "public" markets).

Well, Nanex has completed its analysis, and found a smoking gun in the form of "do it yourself latency arbitrage via quote stuffing" by the HFTs. ZeroHedge has been following Nanex's ongoing analysis since Nanex started publishing their findings, and the New York Times finally deemed it worthy to chime in yesterday. Note the party-line "experts dismiss all this as tinfoil-hat conspiracy theory" closing to the NYT piece. They may be wishing they had waited one more day - read on to see why:

[url=http://www.nytimes.com/2010/08/23/business/23flash.html?_r=1&hpw]Stock Swing Still Baffles, With an Ominous Tone[/url]: [i]It sounds like “Wall Street” meets “The X-Files.”[/i]
[quote]The stock market mysteriously plunges 600 points — and then, more mysteriously, recovers within minutes. Over the next few weeks, analysts at Nanex, an obscure data company in the suburbs of Chicago, examine trading charts from the day and are stunned to find some oddly compelling shapes and patterns in the data.
[b]
To the Nanex analysts, these are crop circles of the financial kind, containing clues to the mystery of what happened in the markets on May 6 and what might have caused the still-unexplained flash crash.
[/b]
The charts — which are visual representations of bid prices, ask prices, order sizes and other trading activity — are inspiring many theories on Wall Street, some of them based on hard-nosed financial analysis and others of the black-helicopter variety.

To some people, like Eric Scott Hunsader, the founder of Nanex, they suggest that the specialized computers responsible for so much of today’s stock trading simply overloaded the exchanges.

He and others are tempted to go further, hypothesizing that the bizarre patterns might have been the result of a Wall Street version of cyberwarfare. They say high-speed traders could have been trying to outwit one another’s computers with blizzards of buy and sell orders that were never meant to be filled. These superfast traders might even have been trying to clog exchanges to outflank other investors.

Jeffrey Donovan, a Nanex developer, first noticed the apparent anomalies. “Something is not right,” he said as he reviewed the charts.

Mr. Donovan, a man with a runaway chuckle who works alone out of the company’s office in Santa Barbara, Calif., poses a theory that a small group of high-frequency traders was trying to introduce delays into the nation’s fractured stock-market trading system to profit at the expense of others. Clogging exchanges or otherwise disrupting markets to gain an advantage may be illegal....

“There is a credible allegation that there is seriously abusive practices going on,” said James J. Angel, a financial market analyst specialist at Georgetown University, “to the extent that somebody is firing in a very high frequency of orders for no good economic reason, basically because they are trying to slow everybody else down.”

At a Washington hearing on the flash crash last week, Kevin Cronin, director of global equity trading at Invesco, a big fund manager, warned about “improper or manipulative activity” in the stock market.

Traders at BMO Capital Markets in Toronto said they had also identified a “data deluge” a few minutes before the crash. They said people in the markets were poring over Nanex’s colorful charts.

“Whether they are intentional or not, the regulators should be looking into it closely,” said Doug Clark, managing director of BMO Capital Markets.

In an Aug. 5 letter to the Securities and Exchange Commission, Senator Edward E. Kaufman, Democrat of Delaware, warned about a “micro-arms race that is being waged in our public marketplace by high-frequency traders and others.” He said that the traders were moving so fast that regulators could not keep up.

[b]The idea that shadowy computer masterminds were trying to disrupt the nation’s stock trading struck many people as ridiculous. Wall Street experts generally characterize it as a conspiracy theory with little basis in fact.[/b][/quote]
[i]My Comment:[/i] Those wouldn`t be the same "experts" working for the firms who are making huge amounts of "free money" from the scam, would they? Because in the latest developments - this straight from the Nanex "breaking news" page today - it appears that one or more HFT players have in fact found a kind of holy grail of HFT-scammery by way of "do-it-yourself latency arbitrage". There is apparently a well-defined (but previously knowable only to folks whose hardware/software is capable of generating sufficient bogus-bid volumes to "sniff it out") bid volume at which the quote system begins to overload and above which latency balloons enough to be easily exploitable by the same quote-stuffing algos:

[url=http://www.nanex.net/FlashCrash/FlashCrashAnalysis_LOD.html]May 6'th 2010 Flash Crash Analysis: Continuing Developments[/url]
[quote][b]Latency On Demand?[/b]
Publication Date: August 23, 2010

We wanted to see the extent of the delay between NYSE quotes from CQS and OpenBook [b]on a more recent trading day[/b]. So we synchronized quotes from CQS and OpenBook for GE between 1pm and 4pm Eastern time and plotted 30 minutes worth of timestamp differences along with the quote price which are shown in Chart 1 below. We were surprised to see the frequency and magnitude of the delay. We thought high quote activity in a stock would cause a delay in that stock's quote, but could not find any correlation between the quote activity in GE and the delay.

Then we decided to focus on the one minute that had the highest delay, which is highlighted with a yellow circle in Chart 1. This one minute sample of the delay is plotted in Chart 2.
[b]
Instead of looking at the quote rate for just GE, we decided to plot the quote rate for all stocks that NYSE sends to CQS. In other words, we plotted the sum total number of quotes where the listed exchange and reporting exchange are NYSE. This is plotted in Chart 3, which has the same time interval as Chart 2.

You can see that there is a very strong correlation between the quote rate in Chart 3, and the delay in Chart 2. Whenever the quote rate in Chart 3 exceeds 20,000/second, a corresponding delay is seen in Chart 2. The higher or longer the quote rate exceeds 20,000/second, the greater the delay.
[/b]
We then looked at all 3 hours and noticed the same relationship between total NYSE to CQS quote rate and a delay in GE.

[b]Then something very disturbing dawned on us. If the average or base quote rate is around 10,000/second, then it only takes an additional 10,000 quotes/second to reach the magic 20,000 quotes/seconds where a corresponding delay is seen in NYSE quote from CQS. This 10,000 quotes/second can be in any stock or combination of stocks that NYSE sends quotes to CQS for.

The high occurrence of strange crop circles we have noted elsewhere, are suddenly beginning to make sense.[/b][/quote]

Economic stressors are showing up with distressing regularity. Recent news articles have pointed out that average single family house prices have slipped a few thousand dollars and that the volume of house sales is the lowest seen in several years. Today an article trumpets that oil has slid below the $72 price level. Yet the cost of necessities such as food is either flat or rising slightly. These are all signs of a market malaise called Deflation. While it is possible to fight inflation with interest rate adjustments, there are no effective tools to ward off deflation.

The real worry that comes with deflation is the relationship it has with unemployment. Severe periods of deflation go hand in had with fewer people having jobs. Perhaps more worrying about this economic cycle is the present indication that people who are working are getting paid less in real dollars (Adjusted for inflation, etc.) than they were getting 10 years ago.

DarJones

Brief recap of breaking econNews: Ireland debt [url=http://www.zerohedge.com/article/europe-prepares-bloodbath-open-after-ireland-lowered-sp-aa-aa-outlook-negative]downgraded yet again[/url] due to ballooning banking-sector bailout costs ... Illinois Teachers` Retirement System pension fund [url=http://www.zerohedge.com/article/has-illinois-teachers-fund-entered-death-spiral-aig-wannabes-go-broke-strategy-fails-pension]enters death-spiral financing mode[/url] ... Another day, another Hindenburg sighting (4th event in the series which began August 12th) ...


[url=http://www.nytimes.com/2010/08/22/business/22invest.html?src=me&ref=general]In Striking Shift, Small Investors Flee Stock Market[/url]. [i]Renewed economic uncertainty is testing Americans’ generation-long love affair with the stock market.[/i]
[quote]Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.

Small investors are “losing their appetite for risk,” a Credit Suisse analyst, Doug Cliggott, said in a report to investors on Friday.

One of the phenomena of the last several decades has been the rise of the individual investor. As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country’s households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks. So the turnabout is striking.

So is the timing. After past recessions, ordinary investors have typically regained their enthusiasm for stocks, hoping to profit as the economy recovered. This time, even as corporate earnings have improved, Americans have become more guarded with their investments.

“At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds” rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, “This is very unusual.”

The notion that stocks tend to be safe and profitable investments over time seems to have been dented in much the same way that a decline in home values and in job stability the last few years has altered Americans’ sense of financial security.

It may take many years before it is clear whether this becomes a long-term shift in psychology. After technology and dot-com shares crashed in the early 2000s, for example, investors were quick to re-enter the stock market. Yet bigger economic calamities like the Great Depression affected people’s attitudes toward money for decades.

...For a few months at the start of this year, things were looking up for stock market investing. Optimistic about growth, investors were again putting their money into stocks. In March and April, when the stock market rose 8 percent, $8.1 billion flowed into domestic stock mutual funds.

But then came a grim reassessment of America’s economic prospects as unemployment remained stubbornly high and private sector job growth refused to take off.

Investors’ nerves were also frayed by the “flash crash” on May 6, when the Dow Jones industrial index fell 600 points in a matter of minutes. The authorities still do not know why.

Investors pulled $19.1 billion from domestic equity funds in May, the largest outflow since the height of the financial crisis in October 2008.

Over all, investors pulled $151.4 billion out of stock market mutual funds in 2008. But at that time the market was tanking in shocking fashion. [b]The surprise this time around is that Americans are withdrawing money even when share prices are rallying.[/b][/quote]
[i]My Comment:[/i] Uh, no ... "Are rallying" describes the delirious-hope-and-liquidity-pump rally which started in March of last year and lasted roughly a full year ... until enough people began to question whether the Recovery Emperor really had any clothes. I think a lot of individual investors, having been thoroughly burned in 2008, have decided to use the Great 2009 Rally About Nothing to cut their losses and get out of the Ponzi Casino ... hopefully once and for all.


[b]Government-Supplied Housing Cocaine All Snorted, Home Sales Back To Face-Down Under a Table[/b]

[url=http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a0CIbgc_A1G4] Sales of U.S. Existing Homes Drop More Than Forecast[/url]. [i]Sales of U.S. previously owned homes plunged 27 percent in July, twice as much as forecast, evidence foreclosures and limited job growth are depressing the market.[/i]
[quote]Purchases plummeted to a 3.83 million annual pace, the lowest in a decade on record keeping and [b]worse than the most pessimistic forecast of economists surveyed by Bloomberg News[/b], figures from the National Association of Realtors showed today in Washington. Demand for single-family houses dropped to a 15- year low and the number of homes on the market swelled.[/quote]
[i]My Comment:[/i] One wonders what it might take to dent the rampant perma-optimism of "most economists". I`m guessing it would require something truly horrifying, like "loss of one`s Fed-sponsored professional economic-shill job, followed by actually trying to convince real-world employers that one`s skills extend beyond giving rose-colored Powerpoint presentations to uncritical audiences of one`s similarly-government-teat-suckling peers."

And speaking of paid shills, the folks at the NAR even managed to find a way to try to spin the above dismal data in a hopeful way, with a "lunatic counterfactual spin" quotient which would make their [url=http://en.wikipedia.org/wiki/Muhammad_Saeed_al-Sahhaf]spiritual mentor[/url] proud:
[i]
"July Existing-Home Sales Fall as Expected but Prices Rise."
[/i]
Yep, just ignore the "[strike]twice as much[/strike] as expected" part - we'll help you do that by omitting to mention it - and focus on the HUGELY POSITIVE news, Check out the MASSIVE PRICE RISE and ignore those pesky "error bars":
[i]
"The national median existing-home price2 for all housing types was $182,600 in July, up 0.7 percent from a year ago."
[/i]

[b]Fed Loses Latest Round In Fight To Keep Bailout Secrets[/b]

[url=http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aZ1VjaDY0d04]Fed Loses Bid for Review of Bailout Disclosure Ruling[/url]. [i]An appeals court refused to reconsider a decision compelling the Federal Reserve Board to release documents identifying banks that might have failed without the U.S. government bailout.[/i]
[quote]At issue are 231 “term sheets” documenting Fed loans to financial firms during 2008. The records, which include the banks’ names, the amounts borrowed and the collateral posted in return, were originally requested by late Bloomberg News reporter Mark Pittman through the Freedom of Information Act, which allows citizens access to government papers.

The amount the Fed and the U.S. government lent, spent and guaranteed to stem the recession and rescue the banking system peaked in March 2009 at $12.8 trillion, most of it following the September 2008 bankruptcy of Lehman Brothers Holdings Inc.[/quote]
[i]My Comment:[/i] On to the Supreme Court ... While the information at issue may no longer be hot news once that eventual decision is rendered - And I would not be at all surprised to see the FedHeads try to pull some bogus "voluntary disclosure (of reams of all except the really important stuff)" stunt - The SCOTUS ruling should settle beyond doubt whether our government is entirely bank-owned, or whether there may be some tiny glimmer of hope for us yet.

Your post highlights one of the most misused and abused tools today, Ewmayer.

Where do you measure from? It makes a tremendous difference in a fluctuating economy. Take for example, do you measure average house sale price from 2006 when the market was still near the bubblicious peak? or do you measure it from 2008 when the market was reeling from the bubble collapse? This is precisely the spin that you mention. If you measure from the market high, you get to see the huge drop in average single family house price. Which one is right?

[QUOTE]"July Existing-Home Sales Fall as Expected but Prices Rise."

Yep, just ignore the "twice as much as expected" part - we'll help you do that by omitting to mention it - and focus on the HUGELY POSITIVE news, Check out the MASSIVE PRICE RISE and ignore those pesky "error bars":

"The national median existing-home price2 for all housing types was $182,600 in July, up 0.7 percent from a year ago."[/QUOTE]

Where is that bugler from F-troop when you need him? He was pretty darn good at playing a dirge.

DarJones

The Hindenburg indicator hit the news front page in Yahoo today. It is surprising how much attention it is getting now. Does it highlight market volatility and instability? Yep, sure does.

Mortgage news is big news again today. By one current estimate, up to 10% of all U.S. home mortgages may face foreclosure. I suspect there are conditions where this could be significantly too low. This is also on top of the hundreds of thousands of foreclosures already completed over the last 2 years. What kind of market event would it take to double foreclosures over the next 3 years? That would require a significant rise in unemployment. We would have to see unemployment at least double from today. To borrow a term, that would represent a significant Black Swan event. Is it likely? Current models do not look like it will happen, just don't be totally surprised if the current models fail. We are dealing with seriously uncharted territory.

DarJones

Blind and Blinder | Friday Funnies
 

[b]Blind and Blinder[/b]

Former Fed Vice Chairman Alan Blinder had an op-ed in the WSJ yesterday saying in effect that "the economic recovery seems to be stalling" and contemplating option for the Fed to once again step in and "fix things":

[url=http://online.wsj.com/article/SB10001424052748703846604575448022122679194.html?mod=WSJ_hpp_sections_opinion]Fed Is Running Low on Ammo[/url]
[quote][b]You may have noticed that the complexion of the U.S. economy has turned a bit sallow of late. The Federal Reserve definitely has. At its Aug. 10 meeting, the Federal Open Market Committee (FOMC) shifted attention away from its former concern—how to tighten a bit—and toward a new concern: how to loosen a bit. By central bank standards, this turnabout came at warp speed.[/b]

Chairman Ben Bernanke has told the world that the Fed is not out of ammunition. It still has easing options, should it need to deploy them. The good news is that he's right. The bad news is that the Fed has already spent its most powerful ammunition; only the weak stuff is left.[/quote]
[i]My Comment:[/i] Wait a minute ... Could this be the same Alan Blinder, who only last month in a joint article with Moody`s Chief Economist Mark Zandi was telling us everything was hunky-dory, and that he and his fellow money-printing disciples of free-lunch borrow-and-spend-your-way-out-of-debt Keynesianology has saved the world? why, yes, it is:

[url=http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf]How the Great Recession Was Brought to an End[/url]


[b]No One Left to Sell CDOs To? Sell to Yourself![/b]

[url=http://www.ritholtz.com/blog/2010/08/no-one-left-to-sell-cdos-to-sell-to-yourself/]No One Left to Sell CDOs To? Sell to Yourself![/url]
[quote][url=http://www.propublica.org]ProPublica[/url] has a [url=http://www.propublica.org/article/banks-self-dealing-super-charged-financial-crisis]devastating take down[/url] of some of the self-inflicted wounds the big bailed out banks caused, all in the pursuit of bigger bonuses. Merrill lynch, CitiGroup, UBS, Goldman Sachs all come in for scathing criticism for their [url=http://projects.propublica.org/tables/circular_cdos]circular CDO sales[/url] to themselves:
[i]
“Over the last two years of the housing bubble, Wall Street bankers perpetrated one of the greatest episodes of self-dealing in financial history.

Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses: They created fake demand.

A ProPublica analysis shows for the first time the extent to which banks — primarily Merrill Lynch, but also Citigroup, UBS and others — bought their own products and cranked up an assembly line that otherwise should have flagged. The products they were buying and selling were at the heart of the 2008 meltdown — collections of mortgage bonds known as collateralized debt obligations, or CDOs. “[/i][/quote]
[i]My Comment:[/i] I expect a followup in the not-too-distant future, titled "No One Left to Sell Sovereign Debt To? Sell to Yourself!"


Leftovers from early this week:

[b]Failure Of Bank With Close Ties To Obama Costs Taxpayers $368 Million:[/b] And even better, the failed bank was sold right back to a newly-constituted holding company led by the same folks who ran the bank into the ground[/u] and backed - with the help of a generous taxpayer "donation" - by a "consortium of several large U.S. financial firms":

In a revival of multi-bank "Bank Failure Fridays", Eight failed banks were seized by the FDIC last Friday ... As The WSJ reports, the largest not only one has some interesting ties to the Obama administration, but was allowed to be "reconstituted" under much of the old management and at a hefty price to taxpayers - My link is to a piece by Mish on the failure which also links to ZeroHedge`s commentary on the hinkiness of the whole affair:

[url=http://globaleconomicanalysis.blogspot.com/2010/08/eight-banks-seized-one-with-ties-to.html]Regulators Seize ShoreBank; Management Takes Over[/url]. [i]Regulators seized ShoreBank Corp. on Friday and agreed to sell assets to a team led by the community lender's executives and backed by several large U.S. financial firms.[/i]
[quote]The bank closure, among the 118 failures in the U.S. this year, caps months of uncertainty for a $2.16 billion Chicago bank that had ties to the Obama administration and deep roots on Chicago's South Side. [b]The new institution will be known as Urban Partnership Bank and led by William Farrow, a former First Chicago Corp. executive who was ShoreBank's president and chief operating officer at the time of its failure[/b].

The decision to sell to management is a rare move by the Federal Deposit Insurance Corp., which generally bars investors who own more than 10% of the failed bank from bidding on its assets. The FDIC also typically wants to know if bidders have "ever been an officer or director of a failed institution" and "participated in a material way in one or more transactions that caused a substantial loss to any such failed institution," according to an FDIC document.

The structure of the deal "is unusual," said Atlanta banking attorney Chip MacDonald.

The holding company will remain intact, according to a person familiar with the deal. [b]Urban Partnership is backed by a consortium of large U.S. financial institutions, including Bank of AmericaCorp., Goldman Sachs Group Inc. and Morgan Stanley[/b].[/quote]
[i]My Comment:[/i] "Unusual" is a polite way of saying "Stinks to high heaven". As Mish notes, "It is crystal clear there were irregularities in attempting to keep this turkey of a bank alive, irregularities in who was allowed to bid, irregularities in selling the assets to failed management, and a suspicious single bid by a consortium of large U.S. financial institutions." But look at the bright side - at least the [strike]taxpayer-bailed-out serial crooks[/strike] kind folks running the new Urban Partnership holding company aren`t trying to do anything really dastardly, like, say, build a "terrorism victory mosque" at the site of the former ShoreBank.


[b]Former Fed Governor Mishkin Paid $124,000 to Write Glowing Report on Iceland before its Collapse[/b]

[url=http://globaleconomicanalysis.blogspot.com/2010/08/former-fed-governor-mishkin-paid-124000.html]Former Fed Governor Mishkin Paid $124,000 to Write Glowing Report on Iceland before its Collapse; Mishkin Never Disclosed he was Paid[/url]
[quote]Former Fed Governor Frederic Mishkin was paid $124,000 in 2006 to write a glowing report on Iceland. He never bothered to disclosed that fact.

Moreover, [b]the title of his report has since been change from "Financial Stability in Iceland" to "Financial Instability in Iceland"[/b]. What's up with that?[/quote]
[i]My Comment:[/i] Fast Freddy "Iceman" Mishkin is the man ZeroHedge fondly refers to as "The Man Who Singlehandedly Destroyed Iceland`s Economy". One wonders how much more Mishkin got paid for that "Crucial 2-letter insertion edit" work on his original report.


[b]Friday Humor: The Gathering of Government Labor Statistics[/b]

Moron of the Week | Realwirtschaftler
 

[b]Moron of the Week:[/b]

...None other than our old pal Paul Krugman, who in [url=http://krugman.blogs.nytimes.com/2010/08/27/nobody-could-have-predicted-2/]musing about the apparent insufficiency[/url] of the 2009 economic stimulus of nearly $1 trillion in new-borrowed money, reveals that he truly believes that government make-work jobs can substitute for real sustainable private-sector job creation:
[quote]But the stimulus wasn’t nearly big enough to [b]restore full employment[/b].[/quote]
[i]My Comment:[/i] Right ... we have debt-and-unsound-lending-explosion-driven housing bubbles for that.


[b]Neologism Des Tages: "Realwirtschaftler"[/b]

In the field of politics there is a popular term taken from the German, [i]Realpolitik[/i], literally "real politics". A popular definition of this is "a ruthlessly realistic and opportunist approach to statesmanship, rather than a moralistic one, esp as exemplified by Bismarck", but here I`d like to use the less-nationalist version of the term, i.e. as used to distinguish politics grounded in the messy complexities and often-unsatisfactory compromises of the real world from ivory-tower political science as often taught at university.

In that spirit I`d like to introduce the term [i]Realwirtschaft[/i], literally "real economics". Note that German already has a common usage for the [url=http://de.wikipedia.org/wiki/Realwirtschaft]same term[/url]:

[i]"Unter dem Begriff Realwirtschaft (realer Sektor) wird in der Volkswirtschaftslehre der Teil der Gesamtwirtschaft bezeichnet, der nicht zum monetären Sektor zählt."[/i]

Translation:

[i]"The term Realwirtschaft (real sector) is used in the field of applied economics to describe the part of the overall economy which does not belong to the financial sector."[/i]

That is different than my usage here, but fits nicely into the same framework because it deals with the "real" productive sector of the economy so often neglected by neoclassical and Keynesian/monetarist (briefly, "Ponzi") economic theory.

Practitioners of (my form of) Realwirtschaft are still "economists", but because I so often use "economist" as a pejorative - because the overwhelming majority of its practitioners deserve such - I find myself looking for a term to distinguish practitioners of "real economics" from their odium-deserving economics-as-a-quasi-religion-practicing "colleagues". I find the German facility for stringing together nouns and modifiers handy in this respect, hence the term [i]Realwirtschaftler[/i], meaning "practitioners of real economics". Anyway, well-known Aussie [i]Realwirtschaftler[/i] Steve Keen has another gem about the distressing tendency of most of the economics profession to ignore something as crucial as private-sector debt in the theories and models, and the high price everyone pays when top governmental-position economists and central bankers succumb to such lunacy:

[url=http://www.debtdeflation.com/blogs/2010/08/29/what-bernanke-doesn%e2%80%99t-understand-about-deflation/]What Bernanke Doesn't Understand About Deflation[/url]:
[quote]That sucking sound will continue for many years, because the level of debt that was racked up under Bernanke’s watch, and that of his predecessor Alan Greenspan, was truly enormous. [b]In the years from 1987, when Greenspan first rescued the financial system from its own follies, till 2009 when the US hit Peak Debt, the US private sector added $34 trillion in debt. Over the same period, the USA’s nominal GDP grew by a mere $9 trillion.

Ignoring this growth in debt – championing it even in the belief that the financial sector was being clever when in fact it was running a disguised Ponzi Scheme – was the greatest failing of the Federal Reserve and its many counterparts around the world.[/b]

Though this might beggar belief, there is nothing sinister in Bernanke’s failure to realise this: it’s a failing that he shares in common with the vast majority of economists. His problem is the theory he learnt in high school and university that he thought was simply 'economics' – as if it was the only way one could think about how the economy operated. In reality, it was 'neoclassical economics', which is just one of the many schools of thought within economics.

Let’s call a spade a spade: two of the key beliefs of the neoclassical school of thought are now coming to haunt Bernanke – because they are false. These are that the economy is (almost) always in equilibrium, and that private debt doesn’t matter.

One of Bernanke’s predecessors who also once believed these two things was Irving Fisher, and just like Bernanke, he was originally utterly flummoxed when the US economy collapsed from prosperity to Depression back in 1930. But ultimately he came around to a different way of thinking that in 1933 he christened 'The Debt Deflation Theory of Great Depressions'.

[b]You would think Bernanke, as the alleged expert on the Great Depression had read Fisher’s papers. And you’d be right. But the problem is that he didn’t understand them[/b] – and here we come back to the belief problem. The Great Depression forced Fisher – who was also a Neoclassical economist – to realise that the belief that the economy was always in equilibrium was false. [EWM: Keen`s detailed quotes by Bernanke and Fisher to support his "didn't understand" claim have been snipped here for brevity].

[b]We might not be in such a pickle now if economics had started to become more of a science and less of a religion[/b] by following Fisher’s lead, and abandoning key beliefs when reality made a mockery of them. But instead neoclassical economics completely rebuilt its belief system after the Great Depression, and here we are again, once more experiencing the disconnect between neoclassical beliefs and economic reality. [/quote]
[i]My Comment:[/i] And lastly, this next blurb should have appeared yesterday (I'm updating every 100 days) but I forgot to post before leaving work - See the bottom of post #165 in this thread if you need an explanation of the timeline here:

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

[30 August 2010] Today is Day [b]1300[/b] since the start of the global financial crisis, and there have been [b]0[/b] related criminal convictions.

So what do you think should have happened? No stimulus at all in 2009? [url]http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf[/url] talks about what would have happened then. Ernst, your and Mish's attacks on Krugman are sounding increasingly deranged and lacking in basic courtesy and respect.

[QUOTE=garo;228023]So what do you think should have happened? No stimulus at all in 2009? [url]http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf[/url] talks about what would have happened then. Ernst, your and Mish's attacks on Krugman are sounding increasingly deranged and lacking in basic courtesy and respect.[/QUOTE]

Garo, for you to claim I have not put forth (or linked to) numerous alternative suggestions for what-to-do in this thread is just silly, and I have no intention of wasting my time by doing your homework for you and digging out post-by-post the numerous proposed alternatives for the bank bailouts, the stimulus package, etc. It all comes down to whether you want to admit that the only real cure for too much bad debt is to force the bad debt out into the open, take the needed painful medicine now, and start tackling the structural issues that afflict the economy and government and personal finances at all levels, or continue to waste huge sums of money (necessarily borrowed at the expense of future prosperity and growth) maintaining the pretense that there is a magic elixir which will allow us to "grow and stimulate" out way out from under that colossal mountain of debt and unsustainable financial commitments.

I have no problem calling Ponzi master Greenspan a moron for believing (or at least pretending) that there is no such thing as "to much debt" and that perpetually living beyond one's means is a viable basis for an economy. I similarly have no problem calling Krugman a moron for advocating the same lunacy at the sovereign-debt level, and for claiming -as in the post I linked yesterday - that government make-work jobs can substitute for genuine productive private-sector employment. I save my respect for those who deserve it, and in this case, we are way beyond mere subjective "honorable people can disagree" differences - Krugman and his ilk are advocating the mathematically impossible. If my resulting derision makes me "deranged" in your eyes, then 'tis a form of 'madness' I gladly embrace.

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

[url=http://www.nytimes.com/2010/09/01/world/asia/01kabul.html?src=me&ref=world]Troubles at Afghan Bank Jolt Financial System[/url]. [i]The Afghan government intervened to shore up a deeply troubled bank on Tuesday, sending shock waves through the capital and prompting fears that Afghanistan’s pervasive corruption had now put the country’s entire financial system at risk.[/i]
[quote]Sherkhan Farnood and Khalilullah Frozi, the top executives of Kabul Bank, abruptly left their jobs this week at the demand of officials at the Central Bank of Afghanistan, after the discovery that Kabul Bank’s losses might exceed $300 million. That number far exceeds the bank’s assets.

The Central Bank installed its own chief financial officer, Masood Khan Musa Ghazi, as the chief executive of the bank.

Afghan and American officials expressed alarm not only at Kabul Bank’s financial condition but also at the prospect of a collapse of confidence in Afghanistan’s fragile financial system, which was built from scratch after the ouster of the Taliban in 2001.

The immediate concern was that news of the bank’s financial irregularities, already spreading through the capital, would prompt a run on the bank itself and that the panic would spread to other financial institutions. Bank deposits in Afghanistan are not guaranteed by the central government, officials here said.

“This could be catastrophic for the country,” a senior Afghan banking official said. “The next few days are critical. I am worried.”
[b]
Kabul Bank and its chairman, Mr. Farnood, lie at the heart of the political and economic nexus that sustains — and is sustained by — the government of President Hamid Karzai. Mr. Frozi was an adviser to Mr. Karzai’s presidential re-election campaign last year, and Kabul Bank provided millions to Mr. Karzai’s campaign.

American investigators say that Mr. Farnood’s unorthodox financial dealings, which included lending tens of millions of dollars to himself and other politically connected Afghans, have long been shielded from scrutiny by his close ties to Mr. Karzai.
[/b]
American officials said the intervention by the Central Bank was personally approved by President Karzai himself, after he was briefed about the details of Kabul Bank’s financial condition and its irregularities.

Investigators and bank regulators say Kabul Bank is also tied to the inquiry into New Ansari, the money-transfer firm, or hawala, that is suspected of moving billions of dollars out of the country for Afghan politicians, drug traffickers and insurgents. Kabul Bank used the firm, whose dealings are nearly impossible to track, to transfer at least $60 million out of the country, a bank shareholder said.

For a bank to use a hawala to move money is inherently suspect, investigators say, because a financial institution like Kabul Bank already has the means to transfer the money electronically. Electronic transfers are easier for regulators to follow.
...
In interviews, Afghan officials and businessmen described Kabul Bank as Mr. Farnood’s personal fief, which he used to reward himself, shareholders and political allies who could advance his financial interests.

First among the beneficiaries was Mr. Farnood himself, the officials said. He invested about $140 million of the bank’s money in the real estate market in Dubai in the United Arab Emirates, [b]said Mahmoud Karzai, the president’s brother and a Kabul Bank shareholder[/b]. Among those properties were more than a dozen multimillion-dollar villas in Mr. Farnood’s name, some of them on Palm Jumeria, an island off Dubai’s coast, Mr. Karzai said.

The Dubai real estate market collapsed in 2008, wiping out much of Mr. Farnood’s investment and leaving Kabul Bank with the losses. A senior Afghan banking official said that the bank’s estimated losses were believed to be about $300 million, with assets of about $120 million.

It is not clear what Mr. Farnood did with all the properties he purchased, but he made at least some of them available to his friends and allies. One of them was Mahmoud Karzai, who owns about 7 percent of the bank. Speaking in an interview from Dubai, Mr. Karzai said he had rented one of Mr. Farnood’s villas for the past year and a half.

Mr. Karzai said the bank’s troubles — and Mr. Farnood’s opaque dealings — had made him decide to vacate soon.

“I want to move to a different house,” Mr. Karzai said. “I want to cut this out.” [/quote]
[i]My Comment:[/i] "I want to cut this out"...translation; "My free oceanside villa, hookers and blow are under threat ... time to lie low for a little while until this blows over." Seriously, these mega-corrupt scumbags are the ones the U.S. (which abetted Karzai`s massive election fraud last year) is entrusting the future of Afghanistan to? Good luck with that ... but given that the U.S. - by supporting such loathsome, nation-looting crooks - has no chance of winning the "hearts and minds" battle necessary to prevail, why not save a lot of time, expense and many more lost lives, and simply hand back the country to the Taliban now?

[QUOTE=garo;228023][url]http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf[/url] talks about what would have happened then.[/QUOTE]

This analysis from the article caught my eye: [quote] TARP has been a substantial success, helping to restore stability to the financial system and to end the freefall in housing and auto markets. Its ultimate cost to taxpayers will be a small fraction of the head- line $700 billion figure: A number below $100 billion seems more likely to us, with the bank bailout component probably turning a profit.[/quote]

It is beyond me how anyone can claim the government will turn a profit on all the crap mortgage backed securities it overpaid for.

George, Don't let the left hand know what the right hand is doing.

Look carefully at Fannie and Freddie and you will see part of the picture how the MBS are being hidden.

DarJones

[QUOTE=Prime95;228078]It is beyond me how anyone can claim the government will turn a profit on all the crap mortgage backed securities it overpaid for.[/QUOTE]

Well, we need to be careful here to spot the shell under which the crap-MBS really is being hidden. IIRC there were actually relatively few MBS purchases under TARP - as originally proposed by Paulson, Bernanke et al TARP was indeed intended to purchase "troubled, illiquid assets" and thus "magically help restore banks` balance sheets to a semblance of solvency" - but in the end opted to mostly preferred stock and warrants in the banks, which avoided the whole messy "how to value this toxic crap" issue. Here`s what Wikipedia [url=http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program]says about the breakdown[/url] of TARP spending as of early 2009:

[quote]As of February 9, 2009, $388 billion had been allotted, and $296 billion spent, according to the Committee for a Responsible Federal Budget. Among the money committed, includes:[35]

* $250 billion to purchase bank equity shares through the Capital Purchase Program ($195 billion spent);
* $40 billion to purchase preferred shares of American International Group (AIG), then among the top 10 US companies, through the program for Systemically Significant Failing Institutions ($40 billion spent);
* $20 billion to back any losses that the Federal Reserve Bank of New York might incur under the Term Asset-Backed Securities Loan Facility (none spent);
* $40 billion in stock purchases of Citigroup and Bank of America ($20 billion each) through the Targeted Investment Program ($40 billion spent)
* $12.5 billion in loan guarantees for Citigroup ($5 billion) and Bank of America ($7.5 billion) through the Asset Guarantee Program (none spent);
* $25 billion in loans to automakers and their financing arms through the Automotive Industry Financing Program ($21 billion spent)

The Congressional Budget Office released a report in January 2009 reviewing the transactions enacted through the TARP. The CBO found that through December 31, 2008, transactions under the TARP totaled $247 billion. According to the CBO's report, the Treasury had purchased $178 billion in shares of preferred stock and warrants from 214 U.S. financial institutions through its Capital Purchase Program (CPP). This included the purchase of $40 billion of preferred stock in AIG, $25 billion of preferred stock in Citigroup, and $15 billion of preferred stock in Bank of America. The Treasury also agreed to lend $18.4 billion to General Motors and Chrysler. The Treasury, along with the FDIC and the Federal Reserve, has also agreed to guarantee a $306 billion portfolio of assets owned by Citigroup.[7]

The CBO also estimated the subsidy cost for transactions under TARP. The subsidy cost is defined as, broadly speaking, the difference between what the Treasury paid for the investments or lent to the firms and the market value of those transactions, where the assets in question were valued using procedures similar to those specified in the Federal Credit Reform Act (FCRA), but adjusting for market risk as specified in the EESA.[7] The CBO estimated that the subsidy cost of the $247 billion in transactions before December 31, 2008 amounts to $64 billion. An updated analysis from the Committee for a Responsible Federal Budget estimates a budgetary impact of $80 billion for all TARP spending as of 02/3/09.[35][/quote]

Or perhaps George was referring to the non-TARP (but roughly contemporaneous) [i]"The Treasury, along with the FDIC and the Federal Reserve, has also agreed to guarantee a $306 billion portfolio of assets owned by Citigroup"[/i], which is similar in spirit (i.e. spread the total losses out over years) to the Fannie/Freddie backstopping.
My take is that because TARP sensibly included terms (e.g. no executive bonuses) most firms find overly restrictive, all those - mainly the too-big-too-fails - which have other ways to get the government to give them free money have made a big show of repaying their TARP monies, and are back to paying huge bonuses, many while still having huge amounts of toxic assets they are currently artificially valuing (thanks to the govt-sponsored suspension of the longstanding FASB mark-to-market accounting rules) and/or holding off-balance-sheet (much as the government is keeping its Fannie/Freddie commitments and Social-Security borrowings off balance sheet). all while continuing to get getting bailed out by other means.

"Other means" includes the myriad of discount lending facilities the Fed opened in 2007 and 2008 (borrow at effectively 0%, invest in Treasuries yielding 2-3% for a risk-free return), the FDIC Temporary Liquidity Guarantee Program, and most especially the Fed's $Trillion-plus MBS-purchasing spree which ended this past spring. The beauty of running most of the real bailouts through the Fed and the Treasury's backstopping of Fan and Fred is the sheer lack of transparency - The Fed has only said how much it *spent* on MBS, not how it decided to set the purchase price. IMO that is where most of the real bailouts are occurring - safely out of sight on the Fed's "balance sheet", whose size, management and expansion rate are beyond the control of congress and the executive branch. There it sits, with the as-yet-unbooked losses on the crap-MBS waiting to be converted into currency devaluation by way of the Fed's usual "slow bleed to zero" stealth-taxation mechanism.

[quote=garo;228023]So what do you think should have happened?[/quote]Let me point out that [I]Ernst is the only person so far to have contributed a detailed entry[/I] for my "Alternate scenarios for post-Sept. 15 2008" thread at [URL]http://mersenneforum.org/showthread.php?t=12816[/URL]

I've been hoping to have entries there from conservatives -- who, collectively, nationally, seem to be just saying "NO" to everything that has been tried, but somehow managing not to have the fortitude to set forth a noticeable plan of what they would have had the government do instead.

Apparently, today's conservatives would prefer that the country had just gone into the dump a la Hoover and that we have a second Great Depression, gambling that their well-honed ability to blame everything on liberals would result in dazzling enough fiscally-illiterate voters to persuade them to restore political power to the folks who caused this crisis.

I'll bet Barry Goldwater would've set forth some coherent plan that had more words than "NO". (Of course, today's GOP leaders would've been horrified by such a rational appeal, because it ignores think-tank findings that the best way to sway voters is to use framing and a carefully-selected set of phrases to reach them on subconscious emotional levels.)

Usually when govt. mouth-pieces claim that "TARP" will not lose too much money or will make money they may be technically correct but as Ernst rightly points out there are so many other forms of bank bailouts - and the neverending sinkholes of Fannie and Freddie that provide a backdoor bailout to the banks - that that sort of a statement is misleading at best.

Ernst, I'm in full agreement with you on bank bailouts, the lack of regulation and all that. But bailouts and stimulus are two separate issues. It is possible to be in support of one but not the other. And not be called a moron for doing so, thank you very much!

@George: Zandi and Blinder are not exactly my favourite economists</understatement>. But their analysis of what might have happened deserves some attention.

@cheesehead: Ernst's solution is great and I mostly agree with it but it only deals with the financial crisis. He does not present any solutions for the "economic" crisis so I think I am well within my rights to ask him how he would deal with that. Also, what will be the effect on unemployment of the steps he proposes. And taxes? Debt-deleveraging is necessary. But done the wrong way or done too fast, it can make the economy much much worse.

@All: I would again urge everyone to read Jeremy Grantham's latest from July [URL]http://www.gmo.com/websitecontent/JGLetter_SummerEssays_2Q10.pdf[/URL]
My position is to simply ape his position on everything :smile:

Thanks for the kind words, cheesehead ... garo, with respect to alternatives to last year's stimulus package and how to deal with the unemployment crisis, my main 2 themes are thus:

[1] For stimulus to have any chance of being effective, it needs to produce (either directly or indirectly) more GDP growth than it costs - this is why the "priming the pump" metaphor is commonly used by its advocates. Simply overpaying folks to refill potholes and work on overpriced local-pork-barrel projects provides paychecks but does zilch (or close to zilch) in terms of supporting sustainable economic growth. Looking at the great Depression, you see the FDR administration tried many things, and failed at many (perhaps most) of them, but the point is, they had their priorities right (help out main street, provide jobs but also gain some real broader societal benefit from doing so), and some of those projects (Hoover Dam and the interstate highway system come to mind) proved huge wins down the road. For me, that nearly-$trillion spending package could have instead been targeted at ending America's overreliance on fossil fuels (especially oil) and initiating the largest clean-tech R&D effort in history, a sort of "Green Energy Manhattan Project". That would have long-term economic, environmental and national-security benefits.

[2] I have no problem with extending unemployment benefits in a genuine jobs crisis like we have at present, but firmly believe in getting something back in return for those checks - e.g. some kind of national community-service initiative. See my previous posts (and the ensuing discussion) in this thread about that.

And of course this needs to be in the context of forcing the bad debt hobbling the economy into the open - there can be no real recovery before many of the debt-excesses of the past several decades are wrung out. And the "learning to live within our means" theme needs to apply not just to overleveraged households but to the government as well.

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

Quick roundup of the major stories of the past few days: Lehman`s Dick Fuld [url=http://www.ritholtz.com/blog/2010/09/dick-fulds-fantastic-revisionism/]lied his ass off to the FCIC yesterday[/url] and appears to have gotten away with it ... [url=http://www.nytimes.com/2010/09/02/opinion/02thu3.html?_r=1&ref=opinion]NYT editorial[/url] about corporate execs crying about a provision in the new financial reform law that requires companies to disclose the ratio between a chief executive’s pay package and that of a typical employee...and the SEC is very belatedly (but hopefully better-belatedly-than-neverly) [url=http://www.zerohedge.com/article/sec-investigating-hft-quote-stuffing-and-sub-pennying]looking into several of the most-popular HFT market-scamming practices[/url], specifically those of "Quote Stuffing" and "Sub-Pennying". Since the aforementioned ZeroHedge article summary is based on a WSJ piece, we of course must temper all the evidence of flagrant market-manipulation by the HFTs with a nice-sounding blurb about the wonderful benefits to "the average investor" of such "financial innovations":
[quote]The transformation of the stock market [i][into a rigged computer-algo-manipulated casino][/i] has some benefits for investors, of course, including some lower costs. And some [i][of the leading HFT scamhouses][/i] say greater volume of canceled orders is a natural consequence of high-speed markets, where traders constantly troll across the exchanges for the best price.[/quote]
The last "best price" bit is soon after negated by an example of clear scammery-via-quote-stuffing-induced latency arbitrage ... and as to the sheer numbers involved:
[quote]An eye-popping number of the stock quotes entered in the U.S. market's exchange system are canceled.

For example, on Feb. 18, trading volume on the Nasdaq exchange totaled about 1.247 billion shares, according to data compiled by T3 Capital Management, a New York hedge fund. However, over the course of the same day traders submitted offers to buy or sell stock for roughly 89.704 billion shares. In other words, only 1% of the orders posted on Nasdaq actually traded.[/quote]


[b]Yesterday`s ISM Numbers and the "Sniff Test"[/b]

Noted [i]Realwirtschaftler[/i] David Rosenberg comments on yesterday`s market-buoying "much better than expected" [url=http://globaleconomicanalysis.blogspot.com/2010/09/rosenberg-says-ism-flunks-sniff-test.html]ISM numbers[/url] (which he says don`t pass the sniff test, since the headline number seems much better than the sum of its regional parts), and concludes with a commentary on the ongoing debate as to whether we are merely in a very deep recession, or

[url=http://www.zerohedge.com/article/what-depression-anyway-and-why-we-continue-be-it]What is a depression anyway, and why do we continue to be in one?[/url]:
[quote]I can understand how emotional the debate can get over whether or not we have actually just stumbled along some post-recession recovery path or whether or not this is actually a depression in the sense of a downward trend in economic activity merely punctuated with noise that is influenced by recurring rounds of government intervention. The reality is that the Fed cut the funds rate to zero, as was the case in Japan, to little avail. Then the Fed tripled the size of its balance sheet - again with little sustained impetus to a broken financial system. Government deficits of nearly 10% relative to GDP, or double what FDR ever ran during the 1930s, have obviously fallen flat in terms of providing and lasting impact to the economy.

This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless “quick fix” towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $6 trillion of excess debt that has to be extinguished either by paying it down or by walking away from it (or having it socialized). Look, we can understand the need to be optimistic, but it is essential that we recognize the type of market and economic backdrop we are in. [/quote]


[b]Robert Reich | The Stock Market Rally Versus the World's Economic Fundamentals:[/b]

Robert Reich’s latest epistle – I agree with everything he says except for the ‘we need more stimulus’ advocacy. OTOH I am not as hard on RR as on ‘stimulus to the moon in ever-huger amounts’ folks like Krugman, because Reich always makes clear that his number one concern is the labor market, and he advocates not pork-barrel-megastimulus but rather more-targeted lots-of-jobs-for-the-money and “economic sectors which should be drivers of future sustainable growth” (e.g. cleantech) stimulus. I know Mish will likely disagree even on that, but hopefully despite such policy debates our readers will find the “Can China Inc really pull the whole world out of recession?” theme illuminating:

[url=http://robertreich.org/post/1050316182/the-stock-market-rally-versus-the-worlds-economic]The Stock Market Rally Versus the World's Economic Fundamentals[/url]

[QUOTE=ewmayer;228215]...we of course must temper all the evidence of flagrant market-manipulation by the HFTs with a nice-sounding blurb about the wonderful benefits to "the average investor" of such "financial innovations"...[/QUOTE]

I'm a simple man (a simpleton?). To me the stock market is a zero sum game. In every transaction you have a buyer, a seller, and a middleman/broker. Every dollar the middleman/broker makes must come from either the buyer, the seller, or both.

With this background, I cannot comprehend any argument as to how HFT, which generates billions for the middlemen/brokers, is of any value to the average investor - the buyers and sellers.

HFT quote stuffing allows a computer to shove so many orders into a system that all orders on that system become delayed. If the delay is long enough, the computer can then go to an alternate computer market and find tiny differences in price between the two that can be exploited. There is ZERO benefit of any sort for the average investor, it is all about benefit for the HFT.

There are other manipulations that you can speculate about. I came up with 3 other methods that could be used to exploit the market including 'tweening' (getting between the bid/ask price to skim off slices), 'leading' (detect a competitors market action and get ahead of it), 'shoving' (use a barrage of buy/sell orders to manipulate the price of a given stock either up or down with a final liquidation of position at a profit). If I can think of ways to do this you can bet the smart cookies writing the programs can think of better ways. The thing is that as more HFT's get in the fray, they tend to cancel each other out. This postulates that an arms race of sorts is going on as they search for new ways to skim before others can balance it.

DarJones

Ernst,
[1] I totally agree. Barry Ritholtz posted a list of things where a stimulus can be spent too. But remember there will always be people who will try to game the system for their personal benefit. You haven't yet proven how much of the past stimulus was wilfully wasted and how much was gamed and how much was actually used. Again Ritholtz had a post showing where the stimulus went. It doesn't seem all that bad too me.

Your pal Mish and the WSJ , on the other hand, would just cut taxes on the rich which as again Ritholtz points out is the most inefficient form of stimulus there is. Why not a payroll tax holiday on the first 20k or 40k as Reich has suggested in the past?

[2] Agree somewhat.

@Prime95: Bingo. It IS a zero-sum game.

A funny thing happened on the way to Medicare
 

[url]http://www.angrybearblog.com/2010/09/medicare-headline-you-didnt-see-and.html[/url]

[QUOTE]For years we have been regaled with scary, scary numbers about how Medicare's projected unfunded liability was in the TENS OF TRILLIONS. And sure enough if you consulted the Medicare Report and examined the actuarial projections for Medicare Part A you would find that number. But a funny thing happened with the 2010 Report and is shown in the data table above: the 75 year number is down to $6.9 trillion, a big number but only 0.5% of projected GDP over that period, and the infinite future number is actually a [B]$600 billion SURPLUS[/B].

Oddly this multi-multi trillion dollar turnaround did not result in banner headlines in the NYT or the WaPo[/QUOTE]

or for that matter Mish :smile:

The bonehead economists are coming out of the woodwork with a vociferous cry of "spend more money!"

Cut to the bottom line and what they want to do is spend more money on infrastructure with the intent of jump starting the economy. They ignore a fundamental paradigm shift that has taken place over the last 2 years. The average sentiment is more toward save money, pay down debt, and DON"T BORROW ANY MORE!

The part that blows me away is the stupid stuff that has been suggested. One article suggests a high speed rail system and improvements to the air traffic control system. While there may be a small argument in favor of improving air traffic control, there is zero benefit to most current high speed rail proposals. I would have trouble objecting to a long term program to jump start solar power systems but, even then, only over a long term that does not involve spending large sums of money. More solar tax credits anyone?

Regardless, if they want to commit political suicide, all they have to do is continue talking about spending more money and raising taxes to pay for it.

DarJones

Fusion_power,

Would you please add a link to the article you are referring to? I would like to know more about these "zero benefit" rail proposals. It is difficult for me to believe that a rail system would not benefit the United States. Unless you are saying all of the proposals look like this one [URL="http://en.wikipedia.org/wiki/Marge_vs._the_Monorail"]The Monorail[/URL].

Matthew, That is the magic. They don't mention rails from where or to where, all they say is 'build a high speed rail system'. It is like that multibillion dollar bridge in Alaska that was going to serve 50 people. It would never have paid for itself.

A second grader can do the math, X billions spent, (pick your number of riders) X Dollars per trip X reasonable interest rate / number of years on the note = more government waste.

There are only a few locations in the U.S. that could benefit from high speed rail. Washington to New York is one of the very few.

You can find the articles on Yahoo.

DarJones

Marshall Auerback: The Real Lesson From the Great Depression
[url]http://www.ritholtz.com/blog/2010/09/the-real-lesson-from-the-great-depression-fiscal-policy-works/[/url]

[QUOTE]The key to evaluating Roosevelt’s performance in combating the Depression is the statistical treatment of many millions of unemployed engaged in his massive workfare programs. The government hired about 60 per cent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York’s Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown. It also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country’s entire rural school system, and hired 3,000 writers, musicians, sculptors and painters, including Willem de Kooning and Jackson Pollock. So much for the notion that government jobs are not “real jobs”, as we hear persistently from critics of the New Deal!
[/QUOTE]

Midterm Election Vote-Buying Kicks Into High Gear
 

[QUOTE=garo;228673][url]http://www.angrybearblog.com/2010/09/medicare-headline-you-didnt-see-and.html[/url]
[quote]For years we have been regaled with scary, scary numbers about how Medicare's projected unfunded liability was in the TENS OF TRILLIONS. And sure enough if you consulted the Medicare Report and examined the actuarial projections for Medicare Part A you would find that number. But a funny thing happened with the 2010 Report and is shown in the data table above: the 75 year number is down to $6.9 trillion, a big number but only 0.5% of projected GDP over that period, and the infinite future number is actually a $600 billion SURPLUS.[/quote][/QUOTE]
LOL, you actually put any stock in 75-year and "infinite time horizon" projections like these? If so, I have a social security program which is "not only solvent, it`s running a large surplus" to sell you. Here are the numbers I look at when evaluating such claims - whenever I see a geometrically-growing (in inflation-adjusted per-beneficiary terms) cost component weighed against an essentially flat (or asymptotically slower-growing) revenue-stream, I call BS on any related claims of 'solvency' or 'long-term viability':
[quote]The costs of Medicare doubled every four years between 1966 and 1980.[44] According to the 2004 "Green Book" of the House Ways and Means Committee, Medicare expenditures from the American government were $256.8 billion in fiscal year 2002. Beneficiary premiums are highly subsidized, and net outlays for the program, accounting for the premiums paid by subscribers, were $230.9 billion.

[b]Medicare spending is growing steadily in both absolute terms and as a percentage of the federal budget. Total Medicare spending reached $440 billion for fiscal year 2007 or 16% of all federal spending and grew to $599 billion in 2008 which was 20% of federal spending[/b].[45] The only larger categories of federal spending are Social Security and defense. Given the current pattern of spending growth, maintaining Medicare's financing over the long-term may well require significant changes.[46][/quote]
Also, you made no mention whatsoever of the elephant under the rug, Medicare Part D, the prescription-drug benefit, whose costs are mushrooming. (Big Pharma lobbied hard to get Part D passed, and to make the coverage apply to as many new expensive drugs of dubious benefit as possible).

On to your "Real Lesson From the Great Depression" link, which is for me a more-interesting (because the math is not obviously out of whack with the claims of its proponents) issue, and one where I differ significantly with Mish:
[quote]So much for the notion that government jobs are not “real jobs”, as we hear persistently from critics of the New Deal![/quote]
They are not "real jobs" in the sense of being private-sector jobs paid for by the proceeds of something that is produced and sold or some service that is provided (ultimately) to help someone else produce something of value. Make no mistake about it, New-Deal-projects jobs were government make-work jobs - so the real question comes down to to what extent all that deficit spending later paid for itself by laying the groundwork for future economic growth (which in this case would require a World War and ensuing demographic baby boom to be realized). It`s pretty clear the infrastructural megaprojects - e.g. Hoover Dam and the interstate highway system - did so, in spades (Although one should include unexpected environmental costs of such projects in any later evaluation of "was it worth it"-ness). Most of the other projects (e.g. the national-parks-related ones) were money-losers in strictly economic terms, but if one values the noneconomic benefits of such efforts (as one should, and as I do), these were also worthwhile. For me the bottom line, though is this: If you`re going to spend huge amounts of government money to alleviate the effects of an economic depression, you should try very hard to get something of value for society for your money, and to make those monies go as far as possible. That is the key difference between the government`s deficit spending then and now ... compare the $30 prevailing wage requirement for stimulus-program pothole-fillers now with the conditions of the [url=http://en.wikipedia.org/wiki/Civilian_Conservation_Corps]Civilian Conservation Corps[/url] then. The huge built-in expense of overpaying people makes such programs much less cost-effective today, and as a result, such programs make a much smaller dent in the overall employment picture.

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

[b]Whenever a Politician Says "It`s Not" ... It Is:[/b]

I heard a very pithy piece of advice about politicians over the weekend ... of all places, during one of the host segments of the local Saturday-night chiller-cinema show (This week`s feature was a little 1959 B-number with the U.S. title of [url=http://www.imdb.com/title/tt0053344/]Blood Creature[/url], filmed in the Philippines and co-starring the lovely - and 50s-babe-style bullet-brassiered - Greta Thyssen, a.k.a. Miss Denmark 1952, whose short career an IMDB amateur-biographer succinctly sums up with the wink-wink=nudge-nudgy 'All in all, Greta took advantage of the equipment she had, made it work for her, and got her "fifteen minutes."'...Personally, since the movie in question involved a Dr. Moreau-esque mad scientist on a lonely island doing bizarre medical experiments in an attempt to turn a panther into a manlike creature, I think a better B-movie schlock-title would have been "Manther" ... but I digress):

[b]"Whenever a politician goes out of his way to tell you that he is *not* something, or that one of his proposals is *not* some thing ... he (it) is."[/b]

Let`s see: Richard Nixon, "I am not a crook" ... he was a crook. Bill Clinton: "I did not have sex with that woman" ... he did. Dubya Bush and Tony Blair (I`m paraphrasing here) "There was no secret deal to invade Iraq irrespective of what the 2002 WMD inspections revealed" ... there was.

This rule of thumb appears to work very well if one replaces 'politician(s)' with 'most economists', and replaces the literal 'not' with a broader set of phrasings conveying the same kind of negation ... e.g. "Most economists see little chance of a relapse into recession" == "relapse into recession is guaranteed".

With that in mind, consider the following 2 stories in light of the fact that these latest proposals are being described by their proponents as "Not a second round of stimulus spending", and "not more deficit spending":


[b]With Midterm Elections Looming and Economic recovery Nowhere In Sight, Administration Switches to Desperation Mode:[/b]

[url=http://www.nytimes.com/2010/09/07/us/politics/07obama.html?_r=1&partner=rss&emc=rss]Obama Offers a Transit Plan to Create Jobs.[/url]. [i]President Obama, looking to stimulate a sluggish economy and create jobs, called Monday for Congress to approve major upgrades to the nation’s roads, rail lines and runways — part of a six-year plan that would cost tens of billions of dollars and create a government-run bank to finance innovative transportation projects.[/i]
[quote]The White House did not offer a price tag for the full measure or say how many jobs it would create. If Congress simply reauthorized the expired transportation bill and accounted for inflation, the new measure would cost about $350 billion over the next six years. But Mr. Obama wants to “frontload” the new bill with an additional $50 billion in initial investment to generate jobs, and vowed [b]it would be “fully paid for.” The White House is proposing to offset the $50 billion by eliminating tax breaks and subsidies for the oil and gas industry[/b].[/quote]
[i]My Comment:[/i] Oh, "It`s paid for", is it? Suuuuuuuuuuuuuuuuuuuure it is ... as in "Give us this vote-buying bribe money now, and we promise to pay for it via future elimination of tax breaks and subsidies, which will of course never occur because the industries targeted have much too powerful a lobby in congress."


[url=http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aodRxBiAV9MU]Obama to Propose Business Tax Relief, Spending to Spur Growth[/url]. [i]Obama tomorrow will announce an expanded tax incentive to encourage business investment, an administration official said on condition of anonymity. Obama also will urge Congress to extend permanently and expand a research-and-development tax credit for businesses, costing about $100 billion over a decade. He began the rollout of initiatives yesterday in Milwaukee, calling for $50 billion in the first of a six-year program to fix roads, railways and runways and modernize the air-traffic control system.[/i]

[i]My Comment:[/i] Milwaukee is an interesting choice - might that have anything to do with the fact that Illinois is broke (they have literally stopped paying $billions in bills-due) and Democratic candidates running the midterm elections there are in trouble? Thus we get talk of "more infrastructure spending", which is thinly disguised vote-buying. If the R&D tax credit - which I agree should be extended and expanded, as long as it promotes genuine cutting-edge domestic R&D of the type which not get done anyway (one criticism of the existing R&D tax credit is that much of it 'rewards' big companies for doing what they would be doing to stay competitive anyway) - is such a great idea, why was its expansion and overhaul not part of the original stimulus package?

OTOH, the R&D tax-credit has long been a favorite of Republicans ... so perhaps that part of the proposal is a clever way to [url=http://robertreich.org/post/1079916360/why-obama-is-proposing-whopping-corporate-tax-cuts-and]put Republicans in a bind[/url].

[quote=Fusion_power;228698]There are only a few locations in the U.S. that could benefit from high speed rail. Washington to New York is one of the very few.[/quote]That is an interesting statement which bears closer examination and analysis.

Purely for the sake of argument, I'll throw in a route which runs along the west coast from San Diego, via LA and the Bay Area to Sacramento. A case may be made to go as far as Vancouver (Canucks permitting) or Seattle (otherwise).

Remember: for distances up to around 1000 mile / 1500km the point-to-point time of a HST journey is comparable or better than that of aircraft. That's the European and Japanese experience anyway. At 300kph or better for a train ,the reduced time for security and check-in easily pays for the 800kph or so of a regional jet. The fuel economy, measured in litres per passenger kilometre, is generally rather better for rail travel --- or so I believe.

I don't think anyone would seriously suggest that the LAX-BOS route would be better served by train, any more than LHR-ATH is in Europe. However, SAN-SFO looks entirely plausible to me.


Paul

[quote]They are not "real jobs" in the sense of being private-sector jobs paid for by the proceeds of something that is produced and sold or some service that is provided (ultimately) to help someone else produce something of value. Make no mistake about it, New-Deal-projects jobs were government make-work jobs[/quote]

Oh FFS! Schools were make-work and not real? The tri-borough bridge is not real. The doctor in a government hospital that fixes you up is not doing a "real job" according to you. I think you need to get over this obsession about what is real and what is not. Just because something is paid for by the government does not make it any less real. That said, I agree that the current stimulus is not doing a great job of spending the money effectively. But I think that has a lot to do with the politics and the socio-cultural evolution of the US.

The point which you miss is that left to its own devices, the private sector just hoarded its money and did nothing to get the economy moving. From 1929 to 1933 things kept getting worse and worse. There's an infographic on Barry Ritholtz's blog today about the deflationary spiral.

And oh yeah:
[URL]http://www.michaelmoore.com/words/mike-friends-blog/happy-fuckin-labor-day[/URL]

[QUOTE=garo;228884]Oh FFS! Schools were make-work and not real? The tri-borough bridge is not real. The doctor in a government hospital that fixes you up is not doing a "real job" according to you.[/QUOTE]

You misunderstand me completely, so let's take this point by point:

1) Schools, if they serve a genuine educational need and are competently and cost-effectively run, can provide large net economic benefits. However, many modern-day [url=http://news.yahoo.com/s/ap/20100822/ap_on_re_us/us_taj_mahal_schools]school building projects[/url] very clearly fit the mold of "gigantic fiscal boondoggle". Do most students really benefit from having electronic smart boards in every classroom? Are computers really a cost-effective educational tool? [I admit under some circumstances thay can be, and for some computer-oriented subjects they are of course indispensable ... but do elementary and junior-high-level kids really benefit, relative to the massive install/maintenance/eternal-upgrade-cycle cost?]

2) The bridge: The result of the project is of course very real in both he tangible sense and the lots-of-people-got-paid-to-build-this sense. If the resulting piece of infrastructure proves economically useful, even in the diffuse "this bridge will save millions of person-hours of otherwise wasted commute time, thus provides a net benefit to the economy as a whole" sense, then that is a good use of taxpayer money, even of the jobs provided were transient.

On the other hand, a "bridge to nowhere" as made famous in Japan post-1990, that provides trivial economic benefit at huge cost, and is thus make-work-purely-for-make-work's sake.

3) If the doctor is providing quality medical care in a cost-effective manner, great. If OTOH the doctor is overtreating and doing huge amounts of expensive diagnostic tests which provide little benefit, in the context of a system which incentivizes expensive treatment over simple preventive medicine, then you end up with a system as here in the U.S., where we spend twice as much on average per patient relative to the next-most-expensive medical system in the world (IIRC that is Switzerland), get on average no better (or even slightly worse) outcomes for our money, and where a huge fraction of the populace has no medical insurance whatsoever (I.e. no "government hospital" to go to to begin with), then we got a big problem.

But all three of the points you raise happen in the private sector as well as the public sector, particularly point 3. Turning everything over to the private sector is NOT a panacea. Only the dull and hard work of better administration and improving efficiency is. And there are examples galore that show us that the private sector can get it spectacularly wrong too. Plus there is the issue of "Tragedy of the Commons" which makes it imperative for the state to intervene in many cases. Can you let private sector actors decide whether to build a bridge or not? If those decisions were left to the private sector the state of US infrastructure would be far worse than it is now. The private sector is steeped in myopic short-termism.

[QUOTE=garo;229011]But all three of the points you raise happen in the private sector as well as the public sector, particularly point 3. Turning everything over to the private sector is NOT a panacea. Only the dull and hard work of better administration and improving efficiency is. And there are examples galore that show us that the private sector can get it spectacularly wrong too. Plus there is the issue of "Tragedy of the Commons" which makes it imperative for the state to intervene in many cases. Can you let private sector actors decide whether to build a bridge or not? If those decisions were left to the private sector the state of US infrastructure would be far worse than it is now. The private sector is steeped in myopic short-termism.[/QUOTE]
You'll get no disagreement from me there, Garo - On this subject, Paul Krugman actually did a rare thing, namely said [url=http://krugman.blogs.nytimes.com/2010/09/07/infrastructure/]something I agree with[/url]:
[quote]Some bleary-eyed thoughts from Japan on the reported administration proposal for $50 billion in new spending:

1. It’s a good idea
2. It’s much too small
3. It won’t pass anyway — which makes you wonder why the administration didn’t propose a bigger plan, so as to at least make the point that the other party is standing in the way of much needed repair to our roads, ports, sewers, and more– not to mention creating jobs. Once again, they’re striking right at the capillaries.

Beyond all that, the new initiative is a chance for me to air one of my pet peeves: the stupidity of the claim, which you hear all the time — and you’ll hear again now — that it’s always better to provide stimulus in the form of tax cuts, because individuals know better than the government what to do with their money.

Why is this claim stupid? Because Econ 101 tells us that [b]there are some things the government must provide, namely public goods whose benefits can’t be internalized by the market[/b].[/quote]
Note however that, since governments by definition cannot produce the net wealth required to fund such projects, they do need to be careful in their allocation of such public funds. Just because it`s "pro bono publicum" does not mean one should gladly overpay for it. Finite resources ... this is where Krugman and I differ radically, as he is convinced that that the U.S. government possesses effectively unlimited ability to borrow at near-zero interest rates for as long as it chooses to do so. He frequently taunts us deeply misguided learn-to-live-within-your-means types with posts along the lines of "so where are these invisible 'bond market vigilantes' ... nowhere to be see, that's where."

Buddy, you better hope they stay invisible, because once you see them, it`s quite often too late.

Anyway, back to the topic of government spending on vital infrastructure: So what megaprojects do readers here see which have the potential to bring long-term net economic benefits outweighing their cost? I.e. along the lines of the depression-era Hoover Dam and Interstate Highway system, or more recently, the Internet.

Two which occur to me offhand:
[b]
1. National alternative-fuel infrastructure grid;

2. A national [url=http://en.wikipedia.org/wiki/Thorium]Thorium reactor[/url] R&D program[/b], intended to get a working, cost-effective standardized reactor design to market in 10-15 years. [Looking at the immense promise of this technology, it is shocking to me that the U.S. simply abandoned a promising research program into in during the 1960s ... fortunately, other countries have picked up the ball, yet another example of the U.S. basically abdicating a leadership role in a major area due to lack of long-view-taking leadership.

Other suggestions? Comments?

[QUOTE]From 1929 to 1933 things kept getting worse and worse. There's an infographic on Barry Ritholtz's blog today about the deflationary spiral.[/QUOTE]

Thats an oversimplification of a complex situation. For the sake of argument, let it stand for now.



As Ewmayer points out, there are a few significant areas where government support would pay big dividends.

1. Alternative fuel infrastructure - presuming this would be natural gas fueling stations provided via a tax incentive to existing stations, I agree. The long term benefit would be tremendous.

2. Thorium Reactors - I won't comment except to say that these could be as much boondoggle as boon.

3. Development of renewable energy on a paradigm shifting basis - This would require a major investment of both private and public funds. If done on the scale required, it could make a major difference in our future availability of energy and on our reliance on hydrocarbons. I'm limiting this to solar, wind, and tide power at present, but there are other possibilities.

4. High speed Internet infrastructure - The internet is rife with bottlenecks, slow speed access points, and overcrowding on major backbone routes. A combination of tax incentives and private investment could get fiber deployed to every home and business in the U.S. for about $500 billion.

The above would be worth serious consideration for long term cost benefit analysis. Note that 3 of them are energy and 1 is communication.

I'm going to add a challenge to this: Come up with as many ideas as possible that fit the criteria of needing government support and providing maximum long term benefit and post them here. There is a very diverse range of intellect on this forum, exceeding most government think tanks unless I miss my guess.

DarJones

While on the topic of infrastructure:
[URL]http://www.ritholtz.com/blog/2010/09/us-infrastructure-report-card-d/[/URL]

[QUOTE]One of the callers was a civil engineer who suggested we take a look at the [URL="http://www.infrastructurereportcard.org/"]US Infrastructure Report Card[/URL] (infrastructurereportcard.org), which grade the US on a variety of factors. The 2009 Grades include: Aviation (D), Bridges (C), Dams (D), Drinking Water (D-), Energy (D+), Hazardous Waste (D), Inland Waterways (D-), Levees (D-), Public Parks and Recreation (C-), Rail (C-), Roads (D-), Schools (D), Solid Waste (C+), Transit (D), and Wastewater (D-).[/QUOTE]

Proof that (Paul Krugman == Moron)
 

[b]Paul Krugman is a Moron, and Here is The Ironclad Proof[/b]

To those who might still be shy at calling a Nobel Laureate in economics a "moron", as I repeatedly do of esteemed laureate and deficit-spending-without-bounds NYT shill Paul Krugman, you need not fear - ZeroHedge has published the most damning piece of evidence - in this case acutely self-inflicted by Krugman - yet to support the case that Krugman is indeed an irredeemable serial-bunk-spewing high priest of Ponzi-economic doom:

[url=http://www.zerohedge.com/article/how-keynesian-archduke-krugman-recommended-housing-bubble-solution-all-americas-post-tech-bu]How Keynesian Archduke Krugman Recommended A Housing Bubble As A Solution To All Of America's Post Tech Bubble Problems[/url]
[quote]Enter exhibit A: New York Times, August 2, 2002, "[url=http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse]Dubya's Double Dip?[/url]" Name the author:
[i]
"The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. [b]And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.[/b][/i][/quote]
[i]My Comment:[/i] So, how did that all work out for us, Paul? At least Greenspan had the modicum of decency to finally admit he was wrong, even if in highly-qualified terms, and too late after the fact to do any practical good.

But the bit about "this...not being a typical post-war recession" and thus requiring "unusual" government intervention to "fix" ... that sounds strangely familiar, somehow ... where have I heard that recently? Oh yeah ... pretty much the same thing - only much truer now than in the previous government-abetted bubble-boom-and-bust of 2001-2002 - the pundits are saying (correctly) about the current post-housing-bubble depression. A few of the ZH reader comments are priceless, to wit:
[quote][b]by three chord sloth
on Wed, 09/08/2010 - 00:33
#568892[/b]

He doesn't think he's wrong. I guarantee you he and his defenders think his idea was brilliant, Bush just did it wrong. Obama is doing it wrong. The masses just don't listen and obey enough. The implementers are deceitful and treacherous. Dark and mysterious foreign forces undermined his plans. All of the above... and more.

[b]
by 1984
on Wed, 09/08/2010 - 02:34
#568964
[/b]
Yep. The housing bubble didn't work because it wasn't big enough. [/quote]


[b]Yes, the Greek Government Is *Still* Lying About Its Finances[/b]

[url=http://www.bloomberg.com/news/2010-09-07/greek-debt-deals-hidden-from-eu-probed-as-400-yield-gap-shows-bond-doubts.html]EU Probes Hidden Greek Deals as 400% Yield Gap Shows Doubt[/url]. [i]Four months after the 110 billion- euro ($140 billion) bailout for Greece, the nation still hasn’t disclosed the full details of secret financial transactions it used to conceal debt.[/i]
[quote]“We have not seen the real documents,” Walter Radermacher, head of the European Union’s statistics agency Eurostat, said in a Sept. 2 interview in his Luxembourg office. Eurostat first requested the contracts in February.

Radermacher vows new toughness when officials from his staff head to Greece this month to come up with a “solid estimate” of the total value of debt hidden by the opaque contracts. “This is a new era,” he said.

Greece is the only euro country [i][which we know about so far][/i] that lied about using these complex swap contracts after Eurostat told countries to report them in 2008, Radermacher, 58, said. It also likely signed a greater number of individual agreements than any other euro member, based on information it has provided to Eurostat, he said. Greece’s debt was 115.1 percent of its total economic output last year, second among the 16 counties that share the euro, behind Italy’s 115.8 percent.

“What the Greeks did was an absolute cardinal sin,” said Ruairi Quinn, former finance minister of Ireland who presided over the 1996 meeting where debt and deficit limits for countries joining the euro were set. “They deserve to be punished for it. I think they have been severely punished for it.”[/quote]
[i]My Comment:[/i] Three predictions:

1. Greece will prove to be not the only EU country which lied about debt-concealing swaps, though it may prove to have been the worst offender in relative terms;

2. Multiple Eurozone banks - and possibly American ones other than Goldman Sachs - will turn out to have actively aided and abetted the fraud;

3. The "punishment" for such "cardinal sins" will consist of much stern language and public handwringing, followed by many billions in additional bailout monies.


[b]Consumers Shun Credit Cards, Debit Card Usage Rises[/b]: Some startling statistics and shifts in behavior here:

[url=http://globaleconomicanalysis.blogspot.com/2010/09/consumers-shun-credit-cards-credit-card.html ] Consumers Shun Credit Cards - Credit Card Usage Drops, Debit Card Usage Rises[/url]
[quote]Total payment volume for debit cards surpassed credit-card volume for the first time in 2009 and will continue to eclipse it in 2010, according to a report released today by the Pleasanton, California-based market-research firm that specializes in financial services.

[b]Fifty-six percent of consumers said they had used a credit card in the past month compared with 87 percent who said they had in 2007, according to the study, which surveyed 3,294 people in November 2009 for that question[/b]. Other findings were based on data collected online from 5,211 respondents in March 2010 and 5,000 consumers in November 2009. If the rate of decline continues, 45 percent of consumers will reach for a credit card in 2010, the study said.

Long-Term Shift

Another cause for reduced credit-card use is financial reform aimed at protecting consumers, which has decreased the number of new cards given and cut available spending limits, the Javelin report said. Federal legislation that limits overdraft fees, caps on fees banks charge merchants for debit-card transactions and credit-card legislation mean banks have to recoup losses and are only giving cards to the most creditworthy borrowers, the study said.

[b]Younger people also favor debit over credit because of the immediate nature of making a payment, which means the shift to debit will be long-term[/b], said Van Dyke.[/quote]
[i]My Comment:[/i] Now we just need to start seeing a similar pay-as-you shift with respect to the federal government`s "credit card"...but I fear the latter will not occur voluntarily, and thus will be all the more painful (and "most economists" will call it "unexpected") when fiscal austerity finally does get forced on us.

Proof that Ernst Mayer is an even bigger Moron
 

He doesn't read the articles he quotes :smile:. Krugman was not supporting a new housing bubble. He was just saying that that is what Greenspan wants to do. In fact the column is decidedly negative about the outlook and says a double dip is quite likely.

[quote] Bear in mind that business forecasters are under enormous pressure to be cheerleaders: ''I must confess to being amazed at the venom my double dip call still elicits,'' Mr. Roach wrote yesterday at cbsmarketwatch.com. We should never forget that Wall Street basically represents the sell side.

Bear in mind also that government officials have a stake in accentuating the positive. The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed. Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble.

But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.
[/quote]

I did a bit more digging and found that ZeroHedge is not the first major economics blog/venue to have pointed out the unspeakable irony of Krugman`s 2002 self-hatchet piece ... here are some others:

[url=http://globaleconomicanalysis.blogspot.com/2009/06/krugman-and-mcculley-deja-vu-all-over.html]Krugman and McCulley, Déjà Vu All Over Again[/url] – Mish, 16. Jun 2009


[url=http://theglitteringeye.com/?p=7346]Dammit They Did What I Said[/url] - 16. June 2009 ... This blogger also unearths a post-housing-bubble followup in which Krugman truly breaks the hypocrisy-o-meter:
[quote]He must hate it when people follow his advice. I trust he’s not cursing Alan Greenspan now. Oh, dear. [url=http://krugman.blogs.nytimes.com/2008/03/16/greenspan-lectures-us-again/]Here’s Paul Krugman from March 2008[/url]:
[i]
Oh, and the man who failed to see the housing bubble and refused to do anything about subprime — and has yet to admit to making any mistakes — ends by reaffirming his laissez-faire faith…
[/i]
As Ralph Waldo Emerson said, a foolish consistency is the hobgoblin of little minds.[/quote]


[url=http://www.businessinsider.com/krugman-in-02-greenspan-needs-to-create-a-housing-bubble-2009-6]Krugman In `02: 'Greenspan Needs To Create A Housing Bubble'[/url] - 17. Jun 2009 ... this one has a postscript citing Krugman`s [url=http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/]response to the ensuing chatter[/url], in which he tries to pooh-pooh it as much ado about very little, the old "but I wasn't really advocating a housing a bubble, even though my words were" evasion strategy. Well, I did read it again, Paul, and your later denial reminds me very much of Greenspan`s later denials-in-the-face-of-clear-facts that he ever advocated alternative "exotic" mortgage products like subprime loans, pay-option ARMs, etc.

Ernst,

I think you and some of those others may have been so motivated by a desire to slam Krugman that you've been careless in your reading of that 2002 article.

You apparently failed to notice that the paragraph the Zerohedge article quoted was out of context. It needs to be interpreted in the context of Krugman's preceding paragraph (which only Mish included in his quote):

[quote]A few months ago the vast majority of business economists mocked concerns about a ''double dip,'' a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I've repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.[/quote]The second paragraph is describing the "story" of the "arguments of the double-dippers" mentioned in the first of those paragraphs. While I'd agree that it [I]could[/I] be read as meaning that Krugman agrees with it, it could [I]instead[/I] be read as merely a paraphrase of the double-dippers' arguments without Krugman's implicit recommendation of every single point, in which Krugman simply failed to include one or two words to make that distinction clear.

Krugman said the double-dippers made sense, and their story looked plausible, but that's not the same as recommending every single point they did. Furthermore, this other possibility seems consistent with Krugman's explanation at [URL]http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/[/URL]

Here's how the ambiguity could be resolved very simply:

[U][I]Show us other Krugman articles from 2002 where he unambiguously expresses that his own opinion is to recommend a housing bubble.[/I]
[/U]
(Surely, if Krugman was actually advocating a housing bubble, he would have said so more than once at the time. So ... where else did he say it?)

Yet I don't see you or any of the others showing us any other such occurrence that would demonstrate that Krugman is weaseling now.

If you can do that, I'll agree with your interpretation.

But if you can't, and that article is the only one from 2002 in which any statement Krugman made can possibly be (mis)interpreted as his own recommendation of a housing bubble, rather than a grudging admission of necessity, then I think several folks owe Krugman an apology for their rush to judgment.

But cheesehead, slamming a Nobel laureate and calling him a moron is a far more enjoyable activity than doing due diligence and reading the whole article. People have needs. And some people have a need to thumb their noses down at people who may disagree with them.

[QUOTE]But cheesehead, ..... some people have a need to thumb their noses down at people who may disagree with them. [/QUOTE]

That won't make krugman any less a moron nor will it make greenspan any less culpable. The fundamental economy over the last 30 years could be described as the 'age of bubbles'. I expect that some smart cookie in years to come will figure out that there is a fundamental shift in market dynamics in the offing.

I'm reminded of blowing bubbles with bubble gum when I was a kid. Once I got 5 pieces of gum in my mouth and proceeded to blow a bubble over a foot in diameter. It was really nice.... until it popped and blew gum all over my face. Do you see any parallels with the internet bubble? the housing bubble?

DarJones

[quote=Fusion_power;229166]The fundamental economy over the last 30 years could be described as the 'age of bubbles'. I expect that some smart cookie in years to come will figure out that there is a fundamental shift in market dynamics in the offing.[/quote]That's interesting ... your "last 30 years" reminded me of Arthur Schlesinger's theory of U.S. history, which I mentioned in early 2008. (Second half -- ignore the first half -- of post #223 of the "New U.S. President" thread, [URL]http://mersenneforum.org/showpost.php?p=127816&postcount=223[/URL])

Schlesinger's theory was that there has been an approximately-60-year cycle in U.S. history, where we've had about 30 years of a "private interest" supremacy when market forces were unleashed and government retreated, alternating with about 30 years of "public purpose" supremacy when the opposite occurred -- market forces being tamed and government expanding.

These 30-year cycles should not be confused with the much-faster alternation of political parties in power!

In this theory, the past three decades have been a "private interest" period, and we're now changing over to a "public purpose" period.

Your 30-year "'age of bubbles'" fits the "market forces were unleashed" characteristic of Schlesinger's "private interest" periods.

[QUOTE=cheesehead;229117]Ernst,

I think you and some of those others may have been so motivated by a desire to slam Krugman that you've been careless in your reading of that 2002 article.

You apparently failed to notice that the paragraph the Zerohedge article quoted was out of context. It needs to be interpreted in the context of Krugman's preceding paragraph (which only Mish included in his quote):

The second paragraph is describing the "story" of the "arguments of the double-dippers" mentioned in the first of those paragraphs. While I'd agree that it [I]could[/I] be read as meaning that Krugman agrees with it, it could [I]instead[/I] be read as merely a paraphrase of the double-dippers' arguments without Krugman's implicit recommendation of every single point, in which Krugman simply failed to include one or two words to make that distinction clear.

Krugman said the double-dippers made sense, and their story looked plausible, but that's not the same as recommending every single point they did. Furthermore, this other possibility seems consistent with Krugman's explanation at [URL]http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/[/URL][/quote]

Richard, I read Krugman`s bit about the then-double-dip predictors as saying he agrees with their pessimism about recovery, and agrees that what is needed is to unleash pent-up consumer spending, and that a great way to do that would be - as the double-dippers say - for the Fed to create a housing bubble - but that he, Krugman, [b]does not think it is possible for the Fed to do so[/b]. We could spend hours parsing Krugman`s phrasing, but - to use a Krugmanite turn of phrase - "as J. Grayson Liburne put it in an April guest-blogger piece for the Christian Science Monitor":

[url=http://www.csmonitor.com/Business/Mises-Economics-Blog/2010/0407/Paul-Krugman-the-Fed-and-the-housing-bubble]Paul Krugman, the Fed, and the housing bubble[/url]
[quote]As I [url=http://mises.org/daily/3539]wrote[/url] last July, context is not Krugman’s friend in this matter…

“…the first paragraph introduces the “double-dipper iconoclasts”, and then clearly states that he, Krugman, [i]agrees[/i] with them. The second paragraph then outlines the “basic point” of the double-dippers, which again, he [i]agrees[/i] with. And the basic point in question is that to “fight this recession the Fed…needs soaring household spending.” Krugman then continues to say [i]how[/i] the Fed would need to accomplish this goal, which [i]again[/i], he supports; he says that the recession needs to be fought with soaring household spending, which Alan Greenspan needs to induce by creating a housing bubble to replace the Nasdaq bubble. By writing, “[b]as[/b] Paul McCulley of Pimco put it”, Krugman is not “merely” quoting another person; he is using someone else’s phraseology to express his [i]own[/i] opinion.

Another protestation is that Krugman was saying the housing bubble won’t work, since later in the editorial he wrote:
[i]
“Judging by Mr. Greenspan’s remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman’s crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.
[/i]
But this protestation completely ignores the fact that when Krugman wrote in the editorial…
[i]
‘Despite the bad news, most commentators, like Mr. Greenspan, remain [b]optimistic[/b].
[/i]
and…
[i]
But [b]wishful thinking[/b] aside, I just don’t understand the grounds for [b]optimism[/b]. Who, exactly, is about to start spending a lot more? (Emphasis added.)’
[/i]
…he was clearly characterizing a housing bubble as an [i]object of optimism[/i], whether or not he thought it was possible. In other words, at best, Krugman could be interpreted as saying that it would be [i]great[/i] if Greenspan could pull off a housing bubble, but that he, Krugman, doubts whether he’ll be able to accomplish such a worthy feat.

So it should be clear that the Fed causing a housing bubble in order to bring about “soaring household spending” was Krugman’s [i]optimal situation[/i], whether or not he thought it was do-able at the time. Given the consequences of the housing bubble that [i]did[/i] ultimately happen, that alone should be enough cause for the public to [url=http://mises.org/daily/3583]stop listening to this [strike]moron[/strike] fellow[/url].[/quote]

Now to your next point -

[QUOTE=cheesehead;229117]Here's how the ambiguity could be resolved very simply:

[U][I]Show us other Krugman articles from 2002 where he unambiguously expresses that his own opinion is to recommend a housing bubble.[/I]
[/U]
(Surely, if Krugman was actually advocating a housing bubble, he would have said so more than once at the time. So ... where else did he say it?)

Yet I don't see you or any of the others showing us any other such occurrence that would demonstrate that Krugman is weaseling now.

If you can do that, I'll agree with your interpretation.

But if you can't, and that article is the only one from 2002 in which any statement Krugman made can possibly be (mis)interpreted as his own recommendation of a housing bubble, rather than a grudging admission of necessity, then I think several folks owe Krugman an apology for their rush to judgment.[/QUOTE]
As requested, here - courtesy of mises.org - is a veritable treasure trove of [url=http://blog.mises.org/10153/krugman-did-cause-the-housing-bubble/]low-interest-and-bubble-advocating[/url] quotes by Mr. Krugman from 2001. The money quote for me form that collection is this one:
[quote]I’ve always favored the let-bygones-be-bygones view over the crime-and-punishment view. That is, [b]I’ve always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments[/b]. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly — that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.

[b]However, let’s give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed’s four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It’s still not clear that Mr. Greenspan has caught up with the curve — let’s have at least one more rate cut, please — but the interest-rate cuts do, cross your fingers, seem to be having an effect.[/b]

If we succeed in avoiding recession, this will mark a big win for let- bygones-be-bygones, and a big loss for crime-and-punishment. And that will be very good news not just for this business cycle, but for business cycles to come.

July 18, 2001[/quote]

Okay, I'm convinced now. I withdraw my objections.

From these quotes, I get the impression that Krugman seems to think that interest-rate adjustments could [strike]prevent[/strike] control bubbles as long as the adjustments were swift-enough and substantial-enough.

I sympathize with that wish, but it occurs to me that the Fed's interest-rate adjustments are one-dimensional (okay, maybe sorta two- or three-, since there's more than one type of rate they can adjust), whereas the economy's response is multidimensional. Housing sales might not move in phase with business capital investments, which might not move in phase with GDP, which ...

Following the context of this thread re blowing bubbles but letting the economy down easy, it appears that the only way so far to ease down one bubble is to blow another. Said another way, you can either take your recession now or you can push it down the road a ways and take it later. The problem with this is easily summed up with the old adage 'if you ignore a problem long enough, it will get worse, much worse'.

Which leads to the thought that perhaps the best course is never to blow bubbles in the first place.

[QUOTE]That's interesting ... your "last 30 years" reminded me of Arthur Schlesinger's theory of U.S. history, which I mentioned in early 2008.[/QUOTE]

There does seem to be a pattern with roughly a 60 year cycle in the economy. Whether it fits your quote or not, I do not know.

DarJones

Subprime Goes to College
 

[b]Phrase of the Day[/b]

This is only tangentially related to the thread topic in that it is about America`s long-standing (and still not dampened enough) consumer fetish ... today`s "how to turn a phrase" award goes to expert phrase-turner Matt Taibbi, who writes in his [url=http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/199701/83512]Rolling Stone blog[/url]:
[quote]A few weeks [ago] I tried on a friend’s recommendation to get into [i]Entourage[/i] and gave up after it struck me that it was the same show as [i]Sex and the City[/i] – a drama about a foursome of impulsive yuppies with lots of disposable income who spend half of each show buying brand-name consumer products to make them feel better about having no brains/soul. And the plot of pretty much every reality show is the same: ordinary middle American Joes with poor taste meet silver-tongued, fake-boobed Hollywood/New York shopping expert, who tells them what a shitty house they’ve been living in and what ugly shoes they’re wearing, and hands them a bunch of cash so that they can shop themselves back to superficial respectability. The public seems to have a limitless appetite for this awful stuff, which makes me wonder if it’s possible to clinically diagnose an entire country with depression. [/quote]


[b]How Debt Can Destroy a Budding Relationship[/b]

[url=http://www.nytimes.com/2010/09/04/your-money/04money.html?_r=1&pagewanted=1]How Debt Can Destroy a Budding Relationship[/url]. [i]Nobody likes unpleasant surprises, but when Allison Brooke Eastman’s fiancé found out four months ago just how high her student loan debt was, he had a particularly strong reaction: he broke off the engagement within three days.[/i]
[quote]Ms. Eastman said she had told him early on in their relationship that she had over $100,000 of debt. But, she said, even she didn’t know what the true balance was; like a car buyer who focuses on only the monthly payment, she wrote 12 checks a year for about $1,100 each, the minimum possible. She didn’t focus on the bottom line, she said, because it was so profoundly depressing.

But as the couple got closer to their wedding day, she took out all the paperwork and it became clear that her total debt was actually about $170,000. “He accused me of lying,” said Ms. Eastman, 31, a San Francisco X-ray technician and part-time photographer who had run up much of the balance studying for a bachelor’s degree in photography. “But if I was lying, I was lying to myself, not to him. I didn’t really want to know the full amount.”

At a time when even people with no graduate degrees, like Ms. Eastman, often end up six figures in the hole and people getting married for the second time have loads of debt from their earlier lives, it should come as no surprise that debt can bust up engagements. Even when couples disclose their debt in detail, it poses a series of challenges.

When, exactly, are you supposed to reveal a debt of this size during the courtship? Earlier than you’d disclose, say, a chronic illness?

Even if disclosure doesn’t render you unmarriageable, tricky questions linger. If one person brings a huge debt to a relationship, who is ultimately responsible for making good on the obligation? And if it’s $170,000, isn’t the more solvent partner going to resent that debt over time no matter how early the disclosure comes? After all, it will profoundly affect every financial decision, from buying a home to how many children to have.

These were the questions that weighed on Kerrie Tidwell. A third-year student at the Medical College of Georgia and an aspiring emergency room doctor, she doesn’t worry so much about her ability to pay back her loans.

Ms. Tidwell, 26, is involved in a serious relationship with Stefan Kogler, an architect who is a native of Austria and living in Vienna. To Europeans, who often pay little or nothing toward their university studies, the idea of going deeply into debt to get educated is, well, foreign.

Ms. Tidwell feels no guilt about the $250,000 in debt she will probably run up, including some from a master’s degree program she completed in London, where she and Mr. Kogler met. “I didn’t acquire it because I go out and shop a lot,” she said. “It’s because I’m doing something that I’ll love for the rest of my life.”

Still, if she and Mr. Kogler are going to move in together and get engaged, she wants their financial arrangements to be clear and fair. But how do you define fair when you’re bringing a quarter of a million dollars in debt to a relationship? [/quote]
[i]My Comment:[/i] In my opinion, there is a strikingly similar - just on a different time scale - dynamic in U.S. higher-education as there was recently in real estate, which could well be dubbed the "college cost bubble". Just as during the housing bubble a seemingly endless supply of easy credit helped fuel a wild asset price runup, the ever-increasing availability of college-financing credit schemes (with the direct encouragement and sponsorship of the federal government) over the past 3-4 decades has inflated a huge “college cost bubble”, by allowing college tuition and related costs to increase at a rate significantly higher than inflation, year after year, for decades. College administrators have had no market-based incentives to rein in costs while the credit spigot has been open and the supply pressure ever-increasing. Compared to housing the bubble in college costs has been a “slow speed” one, but it has been no less spectacular in terms of magnitude.

And the rationale behind making credit as widely available as possible is also exactly analogous: With housing we had the misguided notions that “homeownership is a basic right” and that “the more people own a home, the better off the economy and country will be” … with college we have “higher education is a basic right”, and “the more people have a college degree, the better off the economy and country will be”. 100% pure unadulterated codswallop, especially when the cost of the college degree in question (including the opportunity cost of attending school versus entering the workforce sooner) is as disproportionate to the expected increase in earnings power - if any - it brings. $170,000 for a degree in "photography"? Getthefuckouttahere...

By the way, in his next blog posting after the one linked in my previous post, Taibbi has a pro-union (or perhaps more accurately, anti-faceless-corporatist) rant ... I would qualify this only with "many thousands of overpaid union workers can bankrupt their employer (or city, or state) just as surely as a few greedy executives can" ... the problem is that we seem to have lost a reasonable middle ground in these things:

[url=http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/202082/83512]On ESPN and "Replaceable" People[/url]
[quote] Almost everyone who has a job is economically "replaceable," but shit, outside an Ayn Rand novel, there's more to it than that. Does it make economic sense to fire the auto worker who mangles his hand in the factory machinery and bring in a younger guy with all his fingers? How about the secretary who refuses to fuck the boss, isn't she replaceable? Couldn't we put her ungrateful ass out on the street and bring in another, hotter girl to do the same job at the same price? How about a teacher who refuses to pass his failing students on to the next class? How about the worker on the oil rig who complains about his company's safety procedures? The aforementioned steelworker who gets a little too old and becomes too much of a liability to the company health plan? The government civil servant who turns whistleblower?

Yes, Colin [i][Cowherd, host of an ESPN afternoon [url=http://sports.espn.go.com/espnradio/show?showId=theherd]sports show[/url]][/i], you spoiled little fuckhead, we can replace all of these people. After all, you're right, none of them are truly valuable, at least not like Simon Cowell or Rush Limbaugh, anyway.

But we don't always replace them, because some people in our past spent generations fighting to push us up above the level of savages. Unions aren't perfect, and they don't always pick the right causes to fight for, but they have to exist precisely because the vast majority of workers are replaceable, which is to say not special, which is to say vulnerable. Not that Cowherd would have any reason to know this, but that's what a "job" is, as opposed to what he and I both have, careers -- a job always involves shelving your own personal creativity and ambition to at least some degree, in order to push someone else's idea along for a while.

Measuring people by how much numerical wealth they produce is a kind of psychopathy -- it's that kind of thinking that led to Larry Summers[sup]*[/sup] famously saying that African countries are "underpolluted," because poisoning people in low-GDP African states makes less sense than poisoning the relatively more economically productive citizens of Western countries in Europe and America.

That kind of thinking is spreading, because our pop culture priests have succeeded in filling the population with shame and nervous self-loathing to the point where they think of anyone who isn't an employer as a parasite, and anyone who isn't rich and famous, or trying to be, as a loser. People even think of themselves this way, which is why there are so many down-and-out people voting to give tax breaks to the same bankers who've been robbing them for years, and booing when the mere concept of unions shows up for a few seconds in a football game. It's sad, and a lot of it's the fault of mean little assholes like Cowherd. Shame on him. [/quote]

[sup]*[/sup][i][Obama top economic advisor, former Harvard president, a.k.a. "the man who single-handedly set back Harvard's endowment by a decade" and all-around candidate for "biggest douchebag in the history of the known universe"][/i]

Lessons from the Great Depression
 

[url]http://www.eurointelligence.com/index.php?id=581&tx_ttnews[/url][tt_news]=2895&tx_ttnews[backPid]=901&cHash=50b405da12

The entire article is worth reading. I quote a couple of extracts below.
[QUOTE]To someone who had lived through the 1930s, this would not have seemed at all strange. The 1920s had seen a gradual reconstruction of the international economy, and with it signs that Germany was being successfully reintegrated into the international community: the signing of the Locarno Treaties in 1925, Germany's admission to the League of Nations in 1926, the agreement of the Young Plan in August 1929. Moderates had reasons to be optimistic. The Nazis obtained just 2.6% of the vote in 1928.
Then, in late 1929, the Great Depression hit and everything fell apart. Thanks to Brüning’s deflationary policies, Germany’s national income fell by more than a quarter, and official unemployment rose to almost a third of the labour force. Optimism was replaced by a profound sense of insecurity. Inevitably, the extremist parties benefitted. In 1930 the Nazis increased their share of the vote to 18.3%, while in July 1932 they scored 37.8%. By this stage Brüning was gone, his successor adopted some modestly stimulative policies, and there were signs of a partial recovery. Not coincidentally, in November 1932 the Nazi share dipped to 33.1%; but by then it was too late, and the Weimar Republic was doomed.
[/QUOTE]

[QUOTE]To quote Tony Judt: “why have we been in such a hurry to tear down the dikes laboriously set in place by our predecessors? Are we so sure that there are no floods to come?”[/QUOTE]

Very good post by Barry
 

[url]http://www.ritholtz.com/blog/2010/09/economic-stimulus-try-these-7-ideas/[/url]

[QUOTE]If you were going to give me a trillion dollars to stimulate the economy so that the next expansion could proceed, here’s what I would do:[INDENT]1) [B]One Year Payroll Tax Holiday[/B]: Want to increase job creation and reduce unemployment? Tax it less. A 12 month employer FICA holiday will encourage job creation.
[I]How to pay for it[/I]: Raising both the retirement age and the cap on FICA contributions.
2) [B]Capital Investment 1 year 100% Deduction[/B]: The administration has already proposed a variation on this. It was an effective tax credit when done in 2004-05, but the drawback was it encouraged CapEx over new hiring. The idea of the payroll tax holiday is that it prevents that drawback.
[I]How to pay for it[/I]: Via gains from the [B][/B]Corporate Tax-Free Repatriation (#3)
3) [B]Corporate Tax-Free Repatriation[/B]: US corporations are sitting on trillions of dollars of cash in their overseas divisions. A one year tax holiday to bring that back to the US. It can be structured in tiers (0%, 5%, 10%). The goal should be to bring to the US a trillion plus in overseas profits.
[I]How to pay for it[/I]: Its free; These are overseas revenues that are untaxed by the US.
4) [B]Pure Science R&D Program for Alternative Energy[/B]: Gains in the basic science of solar energy conversion, battery storage, alternative biofuels, etc has been incremental. The private sector does not patience for multi-year or basic science R&D.
[I]How to pay for it[/I]: Via a [URL="http://en.wikipedia.org/wiki/Pigovian_tax"]Pigouvian tax[/URL] on gasoline, phased in over 5 or 10 years.
5) [B]Mortgage Principal Write Down Plan[/B]: Buyers paid too much, banks lent too much against residences at the top of the RE cycle. To get the sector healthy again requires prices to normalize, which is now occurring thru Foreclosure. An alternative is a voluntary principal write-down, where [U]both the borrower and lender split the losses[/U]. An underwater home is refinanced at its 2011 appraisal value, with the mortgage shortfall rolled into a 10 year interest free balloon payment. Banks cut the balloon loan in half in year 10, rolling it into the existing mortgage (assuming the owner stays current on mortgage).
[I]How to pay for it[/I]: There is no costs, but Congress would need to make the 10 year zero interest free tax free, and permission the banks to defer reserving for eventual balloon defaults for the same 10 year period.
6) [B]Electrical Grid Refurbishment[/B]: This is both an economic and national security issue: The electrical grid is an unreliable mishmash of public and private ownership, vulnerable to both blackouts and cyber-attacks. It needs to be upgraded [U]yesterday[/U].
[I]How to pay for it[/I]: A one cent per kilowatt hour grid tax.
7) [B]Airports, Ports, Roads, Bridges, Tunnels[/B]: The US was one of the first nations to build out a massive interstate highway system. We love big construction projects, but we seem to dislike the maintenance. Most of the transportation grid in the US is falling apart, in need of a massive repair. Many US airports look like they are from 3rd world countries.
[I]How to pay for it[/I]: Usage tolls on roads, ports, bridges, landing slots.
[/INDENT][/QUOTE]

Next Round of Irish Banking Crisis?
 

Two related pieces from the [i]Irish Independent[/i] describe the dire straits facing Ireland and banks:

[url=http://www.independent.ie/opinion/analysis/emmet-oliver-defaulting-on-anglo-debts-now-on-agenda-2341142.html]Irish Labour Party Leader: Defaulting on Anglo debts now on agenda[/url]
[quote]These are desperate economic times. So desperate that the subject of Ireland defaulting on its bank and sovereign debts is now routine conversation among academics, bankers and economists.

However, up until now, such an idea was rarely entertained by senior politicians, but in a surprising move yesterday the leader of the Labour Party, Eamon Gilmore, came very close to suggesting such a course of action when he talked about the Government "negotiating" with bondholders in Anglo Irish Bank.

While Mr Gilmore trenchantly denied such an approach meant defaulting, he certainly came very close to that position. According to the last balance sheet published for Anglo Irish Bank, bondholders have €16.5bn invested in the bank, while other investors have €2.4bn invested in more risky subordinated bonds at Anglo.

While there is almost unanimous agreement now that the subordinated bondholders should be either given nothing or very little by the Irish State, the more pressing issue is whether Ireland, which now owns Anglo, should welch on obligations to the senior debt holders, most of them German, British and French asset and pension funds.

Mr Gilmore said he was not recommending a default on these debts, but instead was suggesting negotiations begin with the holders. This suggestion has a populist ring to it, because as long as the bondholders don't absorb any losses, it means all of the Anglo losses are absorbed by the Irish taxpayer instead.[/quote]
[i]My Comment:[/i] The article goes on to describe the 2 likely scenarios: outright haircut for bondholders or debt-for-equity swap, both of which amount to much the same thing.

And there are definite rumblings pointing to a Greek-style bailout/austerity/restructuring involving the IMF:

[url=http://www.independent.ie/national-news/government-perilously-close-to-calling-in-imf-report-warns-2341197.html]Irish Government perilously close to calling in IMF, report warns[/url]
[quote]TAOISEACH Brian Cowen last night insisted he would fight on -- but his economic woes deepened as a major new report warned the country was perilously close to calling in outside help from the EU or the IMF.

After a disastrous three days, Mr Cowen offered little comfort to disgruntled Fianna Fail backbenchers as he failed to outline what changes he would make to his leadership, communications and lifestyle as a result of his 'Morning Ireland' interview debacle.

But the persistent grumbling over his leadership was overshadowed last night by two new economic blows.

The cost of borrowing for the country moved higher again on international bond markets, after falling back following last week's government decision to split Anglo Irish Bank.

And a report from Barclays, one of Europe's largest banks, said Ireland may yet need financial help from the IMF or the EU if conditions got any worse.
...
While Ireland has raised most of the money it needs for this year, the cost of Anglo and the scale of the deficit meant any further financial shocks could push the country over the edge, the bank warned.[/quote]
[i]My Comment:[/i] Any of our Irish readers care to fill in us non-Gaelic speakers what a "Taoiseach" is?

[i]Update: I see via an online Gaelic dictionary that Taoiseach [pronounced tee-shuckh] means "prime minister".

Ah yes! There is an amusing exchange going on in the otherwise excellent irisheconomy.ie thread: [URL]http://www.irisheconomy.ie/index.php/2010/09/17/nama-presentations/[/URL]

All the VIs (vested interests) are making all the right noises about this being ridiculous and unhelpful and that Ireland is totally fine. But in the end, I am of the opinion that there will be a bailout or restructuring in the next 5 years.

PS: The Morning Ireland interview debacle is when he showed up for a radio interview and sounded drunk or hung-over.

[quote=garo;230146]PS: The Morning Ireland interview debacle is when he showed up for a radio interview and sounded drunk or hung-over.[/quote]He wasn't pulling a [URL="http://movies.msn.com/movies/article.aspx?news=596057&affid=100055"]Joaquin Phoenix[/URL]?

Listen to it yourself. It is the 14th of September:
[url]http://www.rte.ie/radio1/podcast/podcast_morningireland.xml[/url]
[URL="http://www.irishtimes.com/newspaper/breaking/2010/0917/breaking19.html"]Cowen pledges to be 'more cautious' in his social life[/URL]
[URL="http://www.irishtimes.com/newspaper/breaking/2010/0917/breaking19.html"]17:32Taoiseach plans to be more careful after radio interview embarrasses Government[/URL]

Boner Saves the World for Capitalism, Part MDCLXXI
 

A bit of irreverent Friday humor to end the week: While we're on the subject of controversial Irish lads...

Anybody see those inane Louis Vuitton handbag ads featuring U2 frontman Boner (that's the U.S. spelling ... we don't do faux-Latin over here, y'all) and Ali (the model, not the boxer) on Safari in Africa? Picture a small plane parked out in the middle of the African savanna ... out steps Boner wearing his wraparound anal-explorer sunshades, preceded by willowy beauty Ali, both looking fabulously stylish and ready for anything the African plains can throw at them ... because they've got their overpriced Louis Vuitton bags, of course. The subtitle for the ad should be "Presenting the 2 people on earth most in need of trampling by an enraged elephant."

The ad mentions that some money is going to charity, or something. I guess that`s supposed to make it "not Boner's latest ego-trip". LOL...Perhaps [i]South Park[/i] best [url=http://www.southparkstudios.com/clips/155665]captured the essence of the Bonerous one[/url].

Ah, found a [url=http://www.dailymail.co.uk/femail/article-1308429/Stuck-Louis-Vuitton-moment-Bono-Ali-Hewson-pose-French-megabrand--clothes-ethical-label.html]link about the ad[/url] (if you thought I was being snarky, check out the user comments to that) - It's actually Boner and model-slash-wife Ali, and the photo is by Annie Leibovitz, who is apparently working overtime to raise cash to [url=http://en.wikipedia.org/wiki/Annie_Leibovitz#Financial_troubles]keep her life's work out of the repo man's clutches[/url]:

NBER "Recession Over" / UK Readers: Be Very Afraid
 

[url=http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a4Krx3jfaiMk]NBER: Worst U.S. Recession Since 1930s Ended in June 2009.[/url]
[quote]The longest and deepest U.S. recession since the Great Depression ended in June 2009, lasting 18 months, the National Bureau of Economic Research said.
[i]
“The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007,” the Cambridge, Massachusetts-based bureau’s business cycle dating group said today in a statement. “The basis for this decision was the length and strength of the recovery to date.”
[/i][/quote]
[i]My Comment:[/i] Doesn`t that make you feel ever so much better? Woohoo! part like it`s 1999! (Except for the hangover that was the dotcom bubble bursting the following year, that is). LOL, "length and strength of the recovery to date" ... you mean, length = zero, and strength = "nonexistent"? (Admittedly, I'm weird in that I don't credit government borrowing, spending and "stimulating" at over 10% of GDP as "economic growth".) But keep repeating the magic incantation: "THE recovery ... THE recovery ... THE recovery..." - and one day you will wake up to find it came true. Maybe - in fact likely - it will have come true somewhere else than here, but hey, let`s not pick nits. But in one very narrow sense the NBER is right: For the Wall Street Ponzi-finance crowd and their ill-gotten bonuses, there has indeed been a very robust recovery. And as we know - because the Wall Street Ponzi-finance crowd tell us so - the stock market and the Wall Street bonuses which accompany its every rise, are exceedingly reliable forward-looking indicators. We can`t say with any reliability how far forward the markets are looking at any given time, nor can we tell which direction they are treating as "forward", but that doesn't make it not true.


[b]UK Proposal: Are your wages are belong to us[/b]

[url=http://www.cnbc.com/id/39265847]UK Proposes All Paychecks Go to the State First[/url]: [i]The UK's tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.[/i]
[quote]The proposal by Her Majesty's Revenue and Customs (HMRC) stresses the need for employers to provide real-time information to the government so that it can monitor all payments and make a better assessment of whether the correct tax is being paid.

Currently employers withhold tax and pay the government, providing information at the end of the year, a system know as Pay as You Earn (PAYE). There is no option for those employees to refuse withholding and individually file a tax return at the end of the year.

If the real-time information plan works, it further proposes that employers hand over employee salaries to the government first.

"The next step could be to use (real-time) information as the basis for centralizing the calculation and deduction of tax," HMRC said in a July discussion paper.

HMRC described the plan as "radical" as it would be a huge change from the current system that has been largely unchanged for 66 years.

Even though the centralized deductions proposal would provide much-needed oversight, there are some major concerns, George Bull, head of Tax at Baker Tilly, told CNBC.com.

"If HMRC has direct access to employees' bank accounts and makes a mistake, people are going to feel very exposed and vulnerable," Bull said.

And the chance of widespread mistakes could be high, according to Bull. HMRC does not have a good track record of handling large computer systems and has suffered high-profile errors with data, he said.

The system would be massive in terms of data management, larger than a recent attempt to centralize the National Health Service's data, which was later scrapped, Bull said.

If there's a mistake and the HMRC collects too much money, the difficulty of getting it back could be high with repayments of tax taking weeks or months, he said. [/quote]
[i]My Comment:[/i] Oh, yeah, this sounds like a great idea..."much more efficient to just hand over your pay to the government and let them decide what to do with it", and all that. What could possibly go wrong there?


[b]States Latest Ploy to Hide Insolvency: Pension-Accounting "Trickeration"[/b]

[url=http://www.nytimes.com/2010/09/18/business/18pension.html?pagewanted=1&_r=2&ref=business&src=me]The Illusion of Pension Savings[/url]
[quote]Earlier this year, Illinois said it had found a way to save billions of dollars. It would slash the pensions of workers it had not yet hired. [b]The real-world savings would not materialize for decades, of course, but thanks to an actuarial trick, the state could start counting the savings this year and use it to help balance its budget.[/b][/quote]
[i]My Comment:[/i] (I had previously believed that "Trickeration" was an invention of flamboyant boxing promoter Don King, but while quick-researching to make sure I attributed it properly, I see that it in fact comes from Harlem Renaissance poet Langston Hughes. But I digress...).

The above is on top of the fact - as reported in the weekend edition of the WSJ - that most states are *still* [url=http://online.wsj.com/article/SB10001424052748704358904575477731696162858.html]using grossly-unrealistic[/url] assumption of 8% annual returns (a yield based on the heyday of the Late, Great Greenspan Equity-Market Bubble, and which was possible only by a similar rise in overall debt creation, which for so long masked the fact that middle-class wages were essentially flat over the entire period, while at the same time decent-paying middle-class jobs were steadily being shipped abroad.

As the above WSJ piece notes, pension-fund assumptions are still have a long way to go to match "the new normal", but some states have slashed their return assumptions from 8.5% to - hold on onto your seats, folks - (gasp) 8%, and the extreme bears of the bunch are even considered further raising the "pension shock and awe" factor by lowering their assumed annual return to (one trembles to even contemplate such horrors) - 7.75%:
[quote]The median expected investment return for more than 100 U.S. public pension plans surveyed by the National Association of State Retirement Administrators remains 8%, the same level as in 2001, the association says.

The country's 15 biggest public pension systems have an average expected return of 7.8%, and only a handful recently have changed or are reconsidering those return assumptions, according to a survey of those funds by The Wall Street Journal.

Corporate pension plans in many cases have been cutting expectations more quickly than public plans, but often they were starting from more-optimistic assumptions. Pension plans at companies in the Standard & Poor's 500 stock index have trimmed expected returns by one-half of a percentage point over the past five years, but their average return assumption is also 8%, according to the Analyst's Accounting Observer, a research firm.

The rosy expectations persist despite the fact that the Dow Jones Industrial Average is back near the 10000 level it first breached in 1999. The 10-year Treasury note is yielding less than 3%, and inflation is running at only about 1%, making it tougher for plans to hit their return targets.

Return assumptions can affect the size of so-called funding gaps—the amounts by which future liabilities to retirees exceed current pension assets. That's because government plans use the return rates to calculate how much money they need to meet their future obligations to retirees. When there are funding gaps, plans have to get more contributions from either employers or employees.[/quote]
[i]My Comment:[/i] Absent drastic inflation, they will be lucky to achieve half that over the coming decade, and we might very well be facing another decade of “big fat zero” return-ness, if Japan is any guide.

Who blinked?


[QUOTE]The Obama administration's top economic adviser, Larry Summers, will be stepping down from his post at the end of 2010, the White House announced Tuesday.

Summers, the director of the National Economic Council, will return to Harvard University, the White House said. His departure comes as the administration is struggling with poor reviews of its stewardship of the economy after a deep recession that has unemployment at nearly 10 percent. [/QUOTE]

My impression of him is somewhere between poor and shltty. He was a major voice in the bailout bonanza that fueled the banks and wall street over the last 2 years.

DarJones

@Fusion_power

I guess Hah-vahd is looking to get Larry back so he can once again help the school "slash billions from its bloated endowment". I'm sure his Wall Street pals will make sure to thank him most generously for ending the recession - for them and only them, of course.

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

[url=http://www.ritholtz.com/blog/2010/09/its-official-recession-ended-june-2009/]I see that[/url] Barry Ritholtz has simply swallowed the government data regarding GDP, retail sales, etc, and "fully agrees that based on these clear unambiguous technical indicators, the recession is indeed over" (I paraphrase). As one reader commented, if the government chose to print a $trillion and give it to the banks - oh wait, that's basically what they did, i.e. it's not merely a hyperbolic hypothetical scenario - thus "raising GDP" by that amount, how in blazes does that have bugger-anything to do with whether the real economy, that involved in the making of actual goods and providing of actual services, is in or out of recession? And yet it is one of the 5 data points NBER uses to "call" economic cycles.

Similarly, "Real Personal Income" (datum #2) does not subtract out government transfer payments, which have increased massively during the past 2 years, are not decreasing, and amount to more deficit-based spending.

Industrial Production (datum #3) does not subtract out government stimulus spending ... Retail Sales (#4) do not account for the pulled-forward demand due to yet more government borrowing-and-bribery, i.e. the homedebtor and cash-for-clunkers payments. (Which also had the perverse side effects of causing people to pay more for those items in many cases than they would have without the incentive, due to the artificially raised short-term demand resulting from the incentive). The ensuing plunge in both sales categories has not yet been factored in NBER's calculations, but for now, "it pulled out of recession!"

And of course, the clearest indicator of what's going on in the real economy, Total Nonfarm Payrolls (#5) has still not budged significantly from its end-of-2009 low, and is back at pre-2000 levels, meaning that relative to total population we've lost around 10 million jobs in the past 2 years, and are still showing no signs of a turnaround on that front. But that datum simply gets dismissed by the "experts" as "a lagging indicator", which I have come to believe is a euphemism for "difficult for the government to manipulate upwards", the only one of the 5 indicators having that distressing quality.

I did hear one interesting twist on the "recession is over" theme, though - according to the official definitions, that means that any second wave of shit hitting the economic fan would be an entirely "separate event", and could no longer be laid at the feet of the W. Bush administration -- as this [url=http://www.nytimes.com/2010/09/21/business/economy/21econ.html?_r=1&src=me&ref=business]New York Time piece puts it[/url]
[quote]The announcement also implies that any contraction that might lie ahead would be a separate and distinct recession, and one that the Obama administration could not claim to have inherited.[/quote]

Another completely ludicrous notion, but expect the Right to be spinning the double-dip in these "This one is all Obama's" terms heading into the midterm elections.

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

p.s.: I should add that my real beef abiut the NBER's end-of-recession call is not so much with their definition, which in the sense of "recession means the economy is receding" is technically correct (again from the NYT piece):
[quote]In its statement on Monday affirming the recession’s end, the bureau took care to note that the recession, by definition, meant only the period until the economy reached its low point — not a return to its previous vigor.

“In declaring the recession over, we’re not at all saying the unemployment rate, or anything else, has returned to normal,” said James H. Stock, an economics professor at Harvard and a member of the business cycle committee.

“We clearly still have a long ways to go.”[/quote]
Rather it is the fact that most politicians, pundits and mainstream media aggressively misconstrue "end of recession" with "growth has resumed" ... bumping along the bottom of a deep chasm is what we're really doing.

Well Ewmayer, I guess you are in the drink on this one.

[QUOTE]from Yahoo: NEW YORK – Two men convicted of leading a $100 million mortgage fraud were sentenced Tuesday to prison in a scheme that amassed a cast of corrupt mortgage brokers and lawyers to dupe sellers and buyers and pocket money that banks lent people to buy real estate.

AFG Financial Group Inc. President Aaron Hand was sentenced in Manhattan to 8 1/3 to 25 years in prison. CEO Eric Shields got 5 1/2 to 16 years behind bars. The ranges reflect the possibility of time off for good behavior.

The Garden City, N.Y.-based mortgage brokerage house was a hub of fraud, prosecutors said, with spokes that reached into many corners of the mortgage business: corrupt appraisers who inflated property values, bank employees who signed off on buyers' forged bank statements, lawyers who supposedly represented buyers but were actually in league with AFG Financial and more.

"Crime was the business of AFG," Manhattan District Attorney Cyrus R. Vance said Tuesday. For Hand, Shields and others, he said, "it was literally their job."

The scam left sellers empty-handed, buyers with ruined credit, homes in foreclosure and investors with worthless investment products linked to the bad mortgages, prosecutors said.

Hand, 39, and Shields, 45, were convicted in July of charges including enterprise corruption, the state's version of racketeering.[/QUOTE]

It seems that SOMEONE is finally going to prison for mortgage fraud. Can you count up the days for this aspect of the financial meltdown?

DarJones

[QUOTE=Fusion_power;230847]It seems that SOMEONE is finally going to prison for mortgage fraud. Can you count up the days for this aspect of the financial meltdown?[/QUOTE]

Thanks for the link...Gladly - let me dig out my 100-day-incremental calendar ... August 30 was Day 1300 since the start of my unofficial "subprime mortgage meltdown fraud" calendar, so here we go, based on today`s date and the convictions you mention:
[b]
Today is Day 1323 since the start of the global financial crisis, and there have been 2 related criminal convictions.[/b] [Only a few thousand behind schedule, but hey, it`s a start]

And allow me to accompany that with some other suitably fraud-related links...


[b]GMAC Financial and JPM/Chase Alleged to Engage in Massive Florida "Foreclosure Mill" Fraud:[/b]

Karl Denninger has been following this story closely since it broke last week ... here are links to his pieces, oldest at top:

[url=http://market-ticker.org/akcs-www?post=166998]Ally, actually "GMAC Mortgage", which changed its name to reduce the "stigma" with taking billions in taxpayer bailouts, has apparently halted foreclosures[/url]: [i]GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.[/i]

[url=http://market-ticker.org/akcs-www?post=167043]Alan Grayson Petitions FL Supreme Court - Foreclosures[/url]: [i]
Three foreclosure mills - the Law Offices of Marshall C. Watson, Shapiro & Fishman, and the Law Offices of David J. Stern - constitute roughly 80% of all foreclosure proceedings in the state of Florida. All are under investigation by Attorney General Bill McCollum. If the reports I am hearing are true, the illegal foreclosures taking place represent the largest seizure of private property ever attempted by banks and government entities.[/i]

[url=http://market-ticker.org/akcs-www?post=167052]More On GMAC/Ally Foreclosures[/url]: [i]It appears that at least one (and perhaps more) "inside officers" in various law firms filed thousands (and maybe tens of thousands) of affidavits they did not read and thus could not have attested to.[/i]

[url=http://market-ticker.org/akcs-www?post=167055]And Naw, This Wasn't Pervasive....[/url]: [i]And if you haven't seen enough of the foreclosure affidavit story.... forwarded to me by Representative Grayson's office....[/i]

[url=http://market-ticker.org/akcs-www?post=167103]Let Me Guess: It Was Just GMAC/Ally. No?[/url]

[url=http://market-ticker.org/akcs-www?post=167106][KD] How To Resolve The Foreclosure Mess[/url]: [i]We now appear to have a pattern of conduct here where organizations trying to foreclose on homeowners are in fact submitting forged (that is, willfully known to be false) affidavits to courts around the nation.[/i]

[url=http://market-ticker.org/akcs-www?post=167122]MAC/Ally Responds[/url]: [i]Sept. 21 (Bloomberg) -- Ally Financial Inc., whose GMAC Mortgage unit halted evictions in 23 states amid allegations of mishandled affidavits, said its filings contained no false claims about home loans.[/i]


[b]Bell, CA City Officials Arrested, Charged With Misappropriation of Public Funds:[/b]

[url=http://latimesblogs.latimes.com/lanow/2010/09/bell-officials-arrested-as-prosecutors-are-set-to-file-criminal-charges.html]Bell officials arrested as prosecutors are set to file criminal charges.[/url]
[quote]At least eight city of Bell officials were arrested Tuesday morning, a source said, as L.A. County Dist. Atty. Steve Cooley prepared to announce criminal charges in the municipal salary scandal.

Former Bell City Manager Robert Rizzo, whose high salary sparked the outrage that led to the investigations of the city, was among those arrested in the sweep. No details have been released, but a source not authorized to speak publicly about the case said that Rizzo; former Assistant City Manager Angela Spaccia; Mayor Oscar Hernandez; Councilmembers Luis Artiga, Teresa Jacobo and George Mirabal; and former Councilmembers George Cole and Victor Bello were among those arrested.

[Updated at 11:22 p.m.: Cooley filed charges against eight Bell officials Tuesday, alleging that they misappropriated $5.5 million in public funds. Rizzo has been charged with 53 counts of misappropriation of public funds and conflict of interest.[/quote]
[i]My Comment:[/i] Now we just need similar actions in hundreds of municipalities across the country where similar outrages have occurred and are ongoing. On the local news a few days ago, there was a piece saying that in the wake of CA Attorney General (and gubernatorial candidate, currently locking horns with former eBay CEO Meg Whitman) Jerry Brown forcing disclosure of all CA public official salaries (as a direct result of the Bell scandal), there have been roughly a dozen cities right here in the bay area - including Sunnyvale where I work - identified in which officials, typically city managers, earn in excess of $300,000 per year.

[QUOTE=ewmayer;230823]@Fusion_power

I guess Hah-vahd is looking to get Larry back so he can once again help the school "slash billions from its bloated endowment". .[/QUOTE]

America's gain is Harvard's loss.

[QUOTE=R.D. Silverman;230946]America's gain is Harvard's loss.[/QUOTE]

Barry Ritholtz - back in lucid Wall-Street-skeptic mode today - has a nice piece on how Obama`s appointment of summers to head his economic team was the diametrical opposite of "change you can believe in".

[url=http://www.ritholtz.com/blog/2010/09/summers-good-riddance/]Summers: Good Riddance[/url]
[quote]Summers was the Treasury Secretary when Glass Steagall was repealed. Instead of speaking out against the irresponsible Gramm–Leach–Bliley Act (Financial Services Modernization Act of 1999) that allowed the [b][i]Financialization of America[/i] [/b]to progress, he actively supported it. Instead of explaining to the public how Glass Steagall had prevented every Wall Street crisis since the Great Depression from spilling over onto Main Street, he rolled over for Citibank.

Understand that the repeal of Glass Steagall was [u]not[/u] a cause of the crisis. But, it allowed the net damage to be far greater and extend far wider than it would have otherwise been. From a libertarian perspective, it was emblematic of the corporate takeover of the legislative process. For a hefty fee (aka campaign donation) you could pretty much write the regulations that covered your own industry. [i]How could that ever go wrong?[/i]

Summers oversaw the passage of the even more ruinous Commodities Futures Modernization Act of 2000. The CFMA exempted all financial derivatives from any and all regulatory oversight. The CFMA not made the AIG collapse possible, it made it highly likely. It helped to set up both the Lehman and Bear Stearns` collapses. The CFMA allowed AIG FP to write over $3 trillion in derivatives, reserving precisely zero dollars in case these insurance policy-like obligations had to be paid out.

[u]Failing upwards[/u]: When Obama appointment the Rubin duo of Summers and Geithner, it a perverse reward for a job done poorly. The two were creatures of the banking system, and were unlikely to do anything that threatened the existing order. Even worse, it created a dynamic where the new administration was committed to defending the policies that helped to contribute to the crisis in the first place. Instead of [b][i]To Hell with the Banks, Save the Banking System[/i][/b], we got the exact reverse. This was Rubin`s lasting gift to the Obama White House: A third term for George W. Bush`s economic policies. When Obama becomes a one-termer, it will be his own fault for following this horrific economic advice.[/quote]

p.s.: While we`re on the topic of hubris-addled Wall Street assholes: Here's an item that`s quickly made the rounds of the economic blogosphere, namely the story - I believe ZeroHedge broke it, but perhaps they merely got the most hits when they ran with it - about Warren Buffett billionaire Berkshire Boys` club buddy Charlie Munger speaking at my alma mater Michigan and telling astonished audience ... well, let me just link and quote:

[url=http://www.zerohedge.com/article/munger-tells-25-million-americans-suck-it-and-thank-god-bank-bailouts-brk-benefits-95-billio] Munger Tells 25 Million Americans To "Suck It In", And To "Thank God For Bank Bailouts" As BRK Benefits From $95 Billion Of TARP Funding[/url]
[quote]There is a reason why many countries institute mandatory retirement age: it is so that when dementia strikes, and people spout any damn thing that comes to mind, only the nearest four walls are subject to their insanity. Alas, when it comes to Berkshire Hathaway, no such luck. And while we have extensively discussed Warren Buffett's recent inexorable decline from merely a successful rider of the biggest cheap credit bubble in history to a captured puppet of Wall Street courtesy of his tens of billions of Wall Street-related investments, little has been said about his even older, and apparently even more affected by the unpleasant side-effects of a public televised senescence, sidekick, Charlie Munger. Luckily, courtesy of Bloomberg we now know just how deep the rot runs in the Berkshire family. During a discussion at the University of Michigan, the 86 year old told the 25 million of Americans who comprise the 16.7% of the underemployed population in the country, to [b]"suck it in and cope."[/b] Not only that, but apparently, all those who have been without a job for 99 weeks and more and no longer have recourse to insurance benefits, should [b]"thank God for bank bailouts."[/b] Why of course he would say that: after all $26 billion worth of direct BRK investments were the recipient of over $95 billion in bailouts. So when it comes to him, thank god for the bailout indeed... But when it comes to the little man, old Charlie is all about doing the right thing.[/quote]

p.p.s.: I see Matt Taibbi has also [url=http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/207609/83512]picked this one up[/url], though he admits he`s on a deadline, so I expect he'll have more to say on the subject later.

Bloomberg seems to be the original source quoted by columnists. [URL]http://www.bloomberg.com/news/2010-09-20/berkshire-s-munger-says-cash-strapped-should-suck-it-in-not-get-bailout.html[/URL]

[quote]To another who asked whether the government should have bailed out homeowners instead of Wall Street, Munger said: “You’ve got it exactly wrong.”

“There’s danger in just shoveling out money to people who say, ‘My life is a little harder than it used to be,’” Munger said at the event, which was moderated by CNBC’s [URL="http://search.bloomberg.com/search?q=Becky%20Quick&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1&partialfields=-wnnis:NOAVSYND&lr=-lang_ja"]Becky Quick[/URL]. “At a certain place you’ve got to say to the people, ‘Suck it in and cope, buddy. Suck it in and cope.’”[/quote]Reminds me of a quote from someone else five years ago:

[quote]And so many of the people in the arena here, you know, were underprivileged anyway so this (chuckle) – this is working very well for them.[/quote]

While we sat idly by....

Rome Burned

The Great Depression sank cold slivers into our spines.

The Great Bubble Collapse ate away our savings and our livelihoods.

Did you know there is a skunk in the outhouse? Really.

Take a close look at Fannie Mae and Freddie Mac. Take a really close look and see what it is that stinks to high heaven. Between the two of them, they have consumed $150 billion that ultimately is guaranteed by taxpayers. They are NOT finished. The best I can anticipate, they will be used to gulp down another $80 billion to prop up the mortgage market over the next 18 months. AIG cost $180 billion but with time and manipulation we will probably get back most of it. But Fannie and Freddie represent a total irreversible LOSS. Like I said, Skunk in the Outhouse. Why is it that this level of incredible waste is allowed? Why do taxpayers pick up the bill for such incompetence?

Yeah, I know. It is a bit melodramatic.

DarJones

[url]http://kfmonkey.blogspot.com/2009/03/ephemera-2009-7.html[/url]

[QUOTE]There are two novels that can change a bookish fourteen-year old's life: [I]The Lord of the Rings[/I] and [I]Atlas Shrugged[/I]. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs. [/QUOTE]

From Middle Earth to Rare Earths...
 

Mish has a nice news roundup of the recent diplomatic and territorial spat between China and Japan, which escalated to idiotic levels thanks to Japan`s irritating propensity to pretend it is still the 1930s, and whose resolution has a crucial economic aspect:

[url=http://globaleconomicanalysis.blogspot.com/2010/09/rare-earth-diplomacy-japan-holds.html]Rare Earth Diplomacy:[/url] [i]Japan Holds Chinese Boat Captain; China Blocks Rare Earth Exports to Japan; China Holds 4 Japanese on Spy Charges; Captain Set Free[/i]
[quote]Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has blocked exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.

China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths, which sell for several hundred dollars a pound.

Japan has been the main buyer of Chinese rare earths for many years, using them for a wide range of industrial purposes, like making glass for solar panels. They are also used in small steering control motors in conventional gasoline-powered cars as well as in motors that help propel hybrid cars like the Toyota Prius.

American companies now rely mostly on Japan for magnets and other components using rare earth elements, as the United States’ manufacturing capacity in the industry became uncompetitive and mostly closed over the last two decades.

The Chinese halt to exports is likely to have immediate repercussions in Washington. The House Committee on Science and Technology is scheduled on Thursday morning to review a detailed bill to subsidize the revival of the American rare earths industry. The main American rare earths mine, in Mountain Pass, Calif., closed in 2002, but efforts are under way to reopen it.

The House Armed Services Committee has scheduled a hearing on Oct. 5 to review the American military dependence on Chinese rare earth elements.

The Defense Department has a separate review under way on whether the United States should develop its own sources of supply for rare earths, which are also used in equipment including rangefinders on the Army’s tanks, sonar systems aboard Navy vessels and the control vanes on the Air Force’s smart bombs.[/quote]
[i]My Comment:[/i] Perfect illustration of the dangers of single-sourcing an entire industry over time for efficiency`s sake. The U.S. has a decent native supply of rare earths, but China can extract and refine them much more cheaply due to the usual reasons China can do things much more cheaply: Zero concern for the environment and worker safety and low labor costs. The U.S. doesn't want to annoy its #2 trading partner and risk "stifling the ever-nascent economic recovery" by imposing tariffs would would raise prices on many Chinese goods, so as a result the field our native production capacity withers to zero and now our addiction to cheap consumer goods boomerangs as a potentially huge strategic liability. Japan is even more over a barrel because they have no significant native supply of rare earths, and their export industry uses massive quantities of them. Faced with what they belatedly realized is an existential threat to their industrial economy they had no choice but to cave in. Fortunately for them, the stakes in human terms this time were tiny - but the loss of political face is much more significant, especially coming in the wake of the recent announcement that China has passed Japan to become the second-largest economy in the world.

[QUOTE=ewmayer;231345]The U.S. has a decent native supply of rare earths, but China can extract and refine them much more cheaply due to the usual reasons ...[/QUOTE]Most everywhere has a decent native supply of rare earths. They are not particularly rare and they are very widely distributed. Chemists tend to call them lanthanides these days at least in part because of the "rare" misnomer.

The main problem is that they are pretty uniformly distributed, which means their concentration is generally rather low. China has cornered the great majority of the uncommon sources of rocks which have a relatively high concentration of lanthanides.

Paul

Couple of good reads today:
[URL]http://www.bloomberg.com/news/2010-05-13/american-companies-dodge-60-billion-in-taxes-even-tea-party-would-condemn.html[/URL]
[QUOTE]While [URL="http://www.bloomberg.com/apps/quote?ticker=FRX:US"]Forest Laboratories Inc.[/URL], the medicine’s maker, sells Lexapro only in the U.S., the voyage ensures most of its profits aren’t taxed there -- and they face little tax anywhere else. Forest cut its U.S. tax bill by more than a third last year with a technique known as transfer pricing, a method that carves an estimated $60 billion a year from the U.S. Treasury as it combines tax planning and alchemy. (See an interactive graphic on Forest’s tax strategy [URL="http://www.bloomberg.com/insight/lexapro.html"]here[/URL].)
Transfer pricing lets companies such as Forest, [URL="http://www.bloomberg.com/apps/quote?ticker=ORCL:US"]Oracle Corp[/URL]., [URL="http://www.bloomberg.com/apps/quote?ticker=LLY:US"]Eli Lilly & Co[/URL]. and [URL="http://www.bloomberg.com/apps/quote?ticker=PFE:US"]Pfizer Inc.,[/URL] legally avoid some income taxes by converting sales in one country to profits in another -- on paper only, and often in places where they have few employees or actual sales.
[/QUOTE][B][URL="http://www.ritholtz.com/blog/2010/09/you-vs-corporations/"]The Left Right Paradigm is Over: Its You vs. Corporations[/URL]

[/B][QUOTE]The new dynamic, however, has moved past the old Left Right paradigm. We now live in an era defined by increasing Corporate influence and authority over the individual. These two “interest groups” – I can barely suppress snorting derisively over that phrase – have been on a headlong collision course for decades, which came to a head with the financial collapse and bailouts. Where there is massive concentrations of wealth and influence, there will be abuse of power. The Individual has been supplanted in the political process nearly entirely by corporate money, legislative influence, campaign contributions, even free speech rights.[/QUOTE]

[QUOTE=ewmayer;231345]


<snip>

especially coming in the wake of the recent announcement that China has passed Japan to become the second-largest economy in the world.[/QUOTE]

Let's open a betting pool: What year will they overtake the U.S.?
It will happen; they have 4 to 5 times our population.

[QUOTE=R.D. Silverman;231651]Let's open a betting pool: What year will they overtake the U.S.?
It will happen; they have 4 to 5 times our population.[/QUOTE]

I agree, it is inevitable, but I also fear the day it happens, because if it means that they have become as per-capita resource-use-intensive as most of the developed nations currently are (with the U.S. being the "world leader" in that dismal category), it will represent an unprecedented ecological catastrophe. This is not to blame the Chinese for doing what pretty much every other developed nation has done - merely a statement of fact, that the world cannot handle U.S.-style resource pillaging and pollution-spewing, on a scale an order of magnitude greater, without what are likely to be extremely dire consequences.

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

So last week we saw a big old Wall street rally day to end the week, even though the economic data are mixed-to-bad at best. Allow me to attempt to capture the bipolar nature of the dynamic by way of a letter (e-mail) I just sent to the editor of the local paper, the San Jose Mercury News, commenting on Saturday's business section.

I`ve supplemented the message text with the original AP story links as hosted on google.com, as at least one of the SJ Merc ones is subscriber-only - They have a nominal 125-word limit so I had to be very terse:
[quote]
To the editor, San Jose Mercury News (letters@mercurynews.com)
Subject: Fact-Checking August New-Home Sales

I couldn`t suppress a chuckle at reading your loud headline in Saturday`s business secton, "[url=http://www.google.com/hostednews/ap/article/ALeqM5jmT59dgLTTziX4p9X9MRBRpWZGdQD9IEH0CG0]Markets Riding a Hot Streak[/url]". Among the various "reasons" cited for Friday`s rally, especially guffaw-worthy was: "...An increase in new-home sales last month." On page 3 of the very same section, we have, "[url=http://www.google.com/hostednews/ap/article/ALeqM5i2oWiNsPQpakRTA0sYe8x_5DkEXwD9IEBUS80]New-home sales: Pace is second-slowest on record[/url]", which states "The only time new home sales were slower was in May, when the sales pace was 282,000. That`s the worst pace on records dating back to 1963. July`s results had been the worst on record, but were adjusted upward." Do you fact-check this stuff or simply reprint it as issued by the Ministry of Economic Propaganda? Interestingly, despite its actually having the facts correct. the latter article was apparently of insufficiently relentless bullishness to warrant a front-page treatment.[/quote]

[QUOTE=ewmayer;231662] < snip > a letter (e-mail) I just sent to the editor of the local paper, the San Jose Mercury News, commenting on Saturday's business section.
[/QUOTE]Sock it to them!

(BTW, isn't that the paper that gets exclusive first-notice of new Mersenne primes?)

[QUOTE=cheesehead;231711]Sock it to them!

(BTW, isn't that the paper that gets exclusive first-notice of new Mersenne primes?)[/QUOTE]
They didn't print it ... "these facts are not bullish enough, we must print some better-sounding replacements".

Dunno if the Merc ever had any special arrangement to break news of an M-prime ... I vaguely seem to recall there may have been such an arrangement once, but don't recall it being a regular deal. Perhaps George or Luke Welsh can refresh my memory.

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

[b]Obama not "Lying About Jobs", Obama "Widely Misunderstood About Jobs"[/b]

(If you saw Denninger`s "he lies" about this yesterday afternoon, it`s because I sent him (and Mish, and Barry) the Reuters link)

[url=http://links.reuters.com/r/7EU6K/49A1C/8ZOB9A/B61A1/FKI3SH/YT/h]Obama says U.S. not in a jobless recovery[/url]: [i]President Barack Obama said on Monday the United States must accelerate job growth, but he said the country was not experiencing a "jobless recovery" as it pulled out of a recession.[/i]
[quote]"We've seen eight months in a row of private sector job growth. We're actually seeing more job growth so far in this recovery than we did in the last recovery that we had back in 2001," Obama said during an interview on NBC television.[/quote]
[i]My Comment:[/i] Ah yes, a comparison with those heady days of massive job creation which were the “recovery” from the 2001 recession…talk about setting the bar low…

President Obama is correct - We`re not in a "jobless recovery", we`re in a "job loss recovery", since we are not creating enough jobs to absorb new entrants into the workforce, much less put a dent in the ranks of the 8 million folks who lost their jobs during the past 3 years.


[b]Iceland refers former prime minister to court over bank crisis[/b]

[url=http://www.theglobeandmail.com/news/world/iceland-refers-former-prime-minister-to-court-over-bank-crisis/article1730460/]Iceland refers former prime minister to court over bank crisis[/url]: [i]Iceland's former prime minister has been referred to a special court, a development Tuesday that could make him the first world leader to be charged in connection with the global financial crisis.[/i]
[quote]Lawmakers voted 33-30 to refer charges against former prime minister Geir Haarde for allegedly failing to prevent Iceland's 2008 financial crash that toppled the government, brought protests and crippled the national currency.

The special court has never before been convened. The court handles cases in which the parliament, the Althingi, decides to act against ministers on their handling of duties.

Mr. Haarde, former prime minister and ex-leader of Independence Party, is no longer in parliament. He did not run in the 2009 elections.

Iceland, a volcanic island with a population of just 320,000, went from economic wunderkind to fiscal basket case almost overnight when the credit crunch took hold.

After dizzying economic growth that saw banks and companies in this tiny Nordic nation snap up assets around the world for a decade, the global financial crisis wreaked political and economic havoc in Iceland. Its banks collapsed within a week in October, 2008[/quote]
[i]My Comment:[/i] Icelanders not dicking around ... here in the U.S. we have yet to even indict a single bankster-crook, ratings-agency crook or gross-regulatory-negligence perpetrator ... there they are going straight for the (now toppled) top.

At the risk of harping, I must also once again point out that what happened in Iceland was not "economic growth" nearly so much as "risk and leverage explosion". It is important to call such things by terms reflecting their true nature... if one continually refers to X as "Y", one risks a kid of subliminal cognitive self-delusion which may prevent one from truly admitting the X-nature of the thing. Referring to the fiscal insanity in Iceland even in passing as "economic growth" makes it sound like here was a potential good thing which somehow went awry, when the whole scheme was rotten from the very beginning and at best guaranteed to hollow out Iceland`s productive economy by luring the citizenry into the fast-money casino of Ponzi finance.

[b]Apple Gets Bitten by Mini-flash Crashes[/b]

Apple shares (AAPL) had a couple of "mini-flash-crashes today ... well-known that that stock is a favorite of the HFT bots, but to see such sudden moves in such a liquid issue should be worrisome to anyone holding it - after the huge run-up it's had one normally wants to protect one's profits by setting a stop-loss sell order, a sensible range would be in the 5-10% range ... but these moves seem specifically designed to take out those kinds of stops, while not being large enough to trigger the post-May-6th "circuit breakers" and get the trades nixed as a result. Live by the HFTs, die by the HFTs. And Wall Street wonders why retail investors continue to flee the casino.

The Apple flash crash was because of a rumour that their COO Tim Cook - who ran the company while Jobs was sick - was leaving.

Correct me if I am wrong, I thought Iceland's woes were primarily a result of using excessive leverage combined with overpaying for underperforming "assets".

DarJones

Foreclosure Fraud Update: Fake Court Summons!
 

@garo: You mean "2 separate rumors about Cook departing, spaced roughly 3 hours apart"? I can see how such a rumor could cause someone to dump a wad of shares, but to do so "at market" is odd for a big shareholder (which apparently is what happened - this wasn't thousands of day-traders getting stopped out here, though that certainly may have been a side effect). Also, the suddenness and steepness of the plunges were apparently very reminiscent of the flash crash, in that AAPL literally went bidless for a time. For that to happen in an issue that liquid is very suspect. Perhaps it's not so much outright manipulation as simply a broken market structure ... time will tell.

@Fusion: The issue s to what extent key politicians and regulators in Iceland may have aided and abetted the financial insanity - much as here in the U.S., just that in Iceland the people still have some semblance of a functioning representative democracy, "balls" if you will.

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

[b]Foreclosure Fraud Update: Fake Court Summons![/b]

As seen on multiple finance blogs ... my link is to Barry Ritholtz` version:

[url=http://www.ritholtz.com/blog/2010/09/florida%e2%80%99s-foreclosures-nightmare/]Florida’s Ongoing Foreclosures Nightmare[/url]
[quote]Attached is a court order quashing a foreclosure service process service ([url=http://www.ritholtz.com/blog/wp-content/uploads/2010/09/100622_Jeffs_Order-on-Motion-to-Quash-Service-of-Process.pdf]PDF here[/url]; [url=http://www.ritholtz.com/blog/2010/09/judge-quashes-counterfeit-foreclosure-service/]embed here[/url]) because of a counterfeit court summons.
[b]
Apparently what’s happening is that private process servicer companies may not be serving people with summons, and are simply counterfeiting the documents so they can keep the fees without doing the work. That means that you could theoretically be foreclosed on without ever knowing there was even a foreclosure case against you.
[/b]
This judge got wise to it.

Below are two more stories about the problem. The first is from the Florida Bar News, and the second is from prominent financial blogger Mike Konczal on the rampant violations of property rights.

[url=http://www.floridabar.org/divcom/jn/jnnews01.nsf/8c9f13012b96736985256aa900624829/ea7677d1e30f1032852577a400663455!OpenDocument]Florida Bar News: Faulty filings hamper clearing foreclosures[/url]

Key quote: “If we had everyone defending their foreclosure, we’d never get through this.”

[url=http://rortybomb.wordpress.com/2010/09/29/floridas-foreclosures-nightmare/]Florida’s Foreclosures Nightmare[/url]

Simply astonishing ... [/quote]
[i]My Comment:[/i] If this goes viral, it will be a very easy thing for every foreclosure-notice recipient to challenge every document presented by the alleged holder of the note ... perhaps more importantly, if it becomes apparent that this sort of stuff was as widespread as is starting to look plausible, judges are going to start to treat would-be-foreclosers with much more skepticism than has been the case to date. As Barry notes, that last quote is telling.

Here is a related Washington Post piece:

[url=http://www.washingtonpost.com/wp-dyn/content/article/2010/09/28/AR2010092806523_pf.html]Lost in the system that took the house]Lost in the system that took the house[/url]
[quote]As more of these practices are coming to light, the entire foreclosure system is facing the threat of grinding to a halt. Connecticut, California and Colorado have frozen all foreclosures by one major lender, and other states are pondering whether to follow suit.

The vast majority of families facing foreclosure do not fight their lenders. But that may change as a growing number of homeowners are contending in lawsuits that the process appears so flawed that they have the right to challenge their cases, even as they admit to missing payments.

Economists say such a trend threatens to overwhelm an overburdened legal system struggling to handle the aftermath of the housing collapse, as well as delay a correction in home values that the real estate market desperately needs to return to normalcy.

Legal experts say many homeowners may have legitimate cases, and even lenders in some instances are withdrawing foreclosure documents for fear that they might not hold up if challenged.

The deep flaws in the foreclosure process came clear last week after Stephan, an employee of Ally Financial’s GMAC mortgage unit, admitted in a sworn deposition that he signed off on up to 10,000 foreclosure documents a month for five years without reviewing them thoroughly. That prompted Ally, which took a $17 billion federal bailout and is majority-owned by the government, to halt evictions in 23 states last week. Stephan also signed foreclosures for hundreds of other mortgage companies, including J.P. Morgan Chase.
[b]
A picture is emerging is of an industry – from loan officers in local offices in neighborhood strip malls to the financial titans of Wall Street – eager to purge bad mortgages from its books. To speed that process, documents and signatures were forged, notary witnesses were faked and those responsible for checking court filings never read the massive stacks that passed across their desks at a breakneck pace, attorneys and law enforcement officials say[/b].[/quote]

Via [URL="http://www.ritholtz.com/blog/2010/09/top-10-ideas-for-goldman-sachs-new-ad-campaign/"]Barry Ritholtz[/URL]:

[QUOTE][INDENT][B][U]Top 10 Ideas for Goldman Sachs New Ad Campaign[/U][/B]
10. Goldman Rapes, Pillages & Sachs
9. Government Bailout: $29 billion
SEC Settlement: $550 million
Doing God’s work? Priceless.
8. Making you forget about Bernie Madoff one CDO at a time
7. Let us do for you what we did for Greece.
6. Goldman Sachs: America’s Counterparty
5. Like we care what you think of us . . .
4. Goldman Sachs: There Are Some Things Money Can’t Buy. For Everything Else, Use JPMorgan.
3. Putting the zero in zero-sum game.
2. The Rothschilds were Pussies
And the number 1 new advertising slogan for the new Goldman Sachs ad campaign:
1. We put the [I]douche [/I]in [I]fiduciary[/I].
[/INDENT][/QUOTE]

[url]http://www.cbsnews.com/stories/2010/10/01/business/main6918853.shtml[/url]

[QUOTE]Federal regulators say a large trading firm's use of a computer sell order triggered the May 6 market plunge, which sent the Dow Jones industrial average dropping nearly 1,000 points in less than a half-hour.

A report issued Friday by the Securities and Exchange Commission and the Commodity Futures Trading Commission determined the so-called “flash crash” was caused when the trading firm executed a computerized selling program in an already stressed market.

That set off two waves of “liquidity drains”, when market players swiftly pull their money from the stock market.

The Dow Jones was down about 2.5 percent at 2:30 p.m. when the trader, which the report does not name, placed an enormous sell order on a futures index of the Standard & Poor's 500 stock index. The trade on the E-Mini S&P 500 was automated by a computer algorithm that was trying to hedge its risk from prices declines.

The trade triggered aggressive selling of the futures contracts and that sent the index down about 3 percent in four minutes. [/QUOTE]

Based on the above, I don't see where anything has really been done to prevent such future events. Welcome to the world of tomorrow where flashcrash is a new word.

DarJones

The SEC's Flash Crash report is unmitigated crap, it basically trots out the same long-discredited "fat finger order" claim that made the rounds immediately after the crash. The e-mini trade in question was neither unusually large nor executed improperly. The only part that rings true is about the HFTs: basically one or more of these predatory algos had stuffed the quote order queue with bogus never-intended-for-execution orders, throwing a wrench into what should have been a problem-free dispatching of the legitimate e-mini order which the SEC is blaming for the day's events - the resulting market dislocation was promptly piled on by more HFTs trying to front-run everybody (this is the "hot potato" scenario the report describes, correctly), and all hell broke loose.

Instead of admitting "the 2 tier market structure introduced by for-profit exchanges and exploited by HFTs has led to a fundamentally broken market", the SEC is basically still trying to convince that "fundamentals are sound."

ZeroHedge and Denninger have multiple articles detailing just how flawed/misleading/misguided the SEC report is. I suggest interested readers check them out.

Barry Ritholtz comments on the SEC Flash Crash report:

[url=http://www.ritholtz.com/blog/2010/10/report-skynet-caused-flash-crash/]SEC/CFTC Report: SKYnet Caused Flash Crash[/url]

Again, the SEC report in fact explains nicely how a not-unusually-large S&P e-mini sell order (believe it or not, by the standards of the S&P e-mini futures market $4B is not unusually large) was turned into a full-on market crash by the same penny-skimming predatory HFT algos I mentioned Friday - the report simply fails to lay the blame squarely on the profit-motivated 2-tier market structure which has led to this fundamentally broken system.

Because the SEC has done nothing to fix the real issue except put in place some phony ‘confidence restoring circuit breakers’, this stuff is still going on, as well – there are near-daily ‘flash crashes’ in individual issues the HFTs happen to be trying to penny-skim, just none has happened to take down the whole market … yet.


And Matt Taibbi takes on the Tea Party:

[url=http://www.rollingstone.com/politics/news/17390/210904?RS_show_page=0]Tea & Crackers[/url]: [i]How corporate interests and Republican insiders built the Tea Party monster[/i]
[quote]A hall full of elderly white people in Medicare-paid scooters, railing against government spending and imagining themselves revolutionaries as they cheer on the vice-presidential puppet hand-picked by the GOP establishment. If there exists a better snapshot of everything the Tea Party represents, I can't imagine it.[/quote]

IMO both major parties - not just the Republicans - have themselves to blame for helping to create said monster.

Oh c'mon, the Republicans are far more to blame for the Tea Party than Democrats. But more than either party it is Fox News and billionaires like the Koch brothers. Excellent article by Frank Rich in the NYT:
[url]http://www.nytimes.com/2010/10/03/opinion/03rich.html[/url]

[QUOTE]. On primary eve, a spokesman for the National Republican Senatorial Committee badmouthed O’Donnell’s “disturbing pattern of dishonest behavior.” On election night, Karl Rove belittled her “nutty” pronouncements and “checkered background” on Fox News. But by the morning after, bygones were bygones. The senatorial committee’s chairman, John Cornyn, rewarded O’Donnell’s “dishonest behavior” with an enthusiastic endorsement and a big check. A sweaty Rove reversed himself so fast you’d think he’d been forced to stay up all night listening to Glenn Beck’s greatest hits at top volume in a Roger Ailes re-education camp.[/QUOTE]

Academic Economists and Wall Street
 

[URL]http://chronicle.com/article/Larry-Summersthe/124790/[/URL]

[QUOTE]Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Department's Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates.

In my film you will see many famous economists looking very uncomfortable when confronted with their financial-sector activities; others appear only on archival video, because they declined to be interviewed. You'll hear from:

Martin Feldstein, a Harvard professor, a major architect of deregulation in the Reagan administration, president for 30 years of the National Bureau of Economic Research, and for 20 years on the boards of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose derivatives deals destroyed the company. Feldstein has written several hundred papers, on many subjects; none of them address the dangers of unregulated financial derivatives or financial-industry compensation.

Glenn Hubbard, chairman of the Council of Economic Advisers in the first George W. Bush administration, dean of Columbia Business School, adviser to many financial firms, on the board of Metropolitan Life ($250,000 per year), and formerly on the board of Capmark, a major commercial mortgage lender, from which he resigned shortly before its bankruptcy, in 2009. In 2004, Hubbard wrote a paper with William C. Dudley, then chief economist of Goldman Sachs, praising securitization and derivatives as improving the stability of both financial markets and the wider economy.

Frederic Mishkin, a professor at the Columbia Business School, and a member of the Federal Reserve Board from 2006 to 2008. He was paid $124,000 by the Icelandic Chamber of Commerce to write a paper praising its regulatory and banking systems, two years before the Icelandic banks' Ponzi scheme collapsed, causing $100-billion in losses. His 2006 federal financial-disclosure form listed his net worth as $6-million to $17-million.

Laura Tyson, a professor at Berkeley, director of the National Economic Council in the Clinton administration, and also on the Board of Directors of Morgan Stanley, which pays her $350,000 per year.

Richard Portes, a professor at London Business School and founding director of the British Centre for Economic Policy Research, paid by the Icelandic Chamber of Commerce to write a report praising Iceland's financial system in 2007, only one year before it collapsed.

And John Campbell, chairman of Harvard's economics department, who finds it very difficult to explain why conflicts of interest in economics should not concern us.[/QUOTE]The whole article is worth reading and I am very interested in the movie.

[QUOTE=garo;232587]Oh c'mon, the Republicans are far more to blame for the Tea Party than Democrats. But more than either party it is Fox News and billionaires like the Koch brothers.[/QUOTE]

I meant that both major parties have ceased to actually try to provide a genuine alternative to each other. They may differ on this or that piece of legislation, but in the end they serve the same corporate masters.

The one think the Republicans deserve special ignominy for, though, is their encouragement of the "willful ignorance movement" which brought us things like "creation science", blaming the financial meltdown on the Community Reinvestment Act, etc. In that vein, I just put this book on my Christmas wish list:

[url=http://www.amazon.com/Idiot-America-Stupidity-Became-Virtue/dp/0767926153/ref=tmm_pap_title_0]Idiot America: How Stupidity Became a Virtue in the Land of the Free [/url]

You'll find me in complete agreement with both points you make there.

The Onion explains the state of economy, markets
 

[url=http://www.theonion.com/articles/something-about-tax-cuts-or-earnings-or-money-or-s,18169/]Something About Tax Cuts Or Earnings Or Money Or Something In Recent Economic News[/url]
[quote]September 29, 2010 | ISSUE 46•39

WASHINGTON—Some sort of tax cut or earnings or money or something was reported in economic news this week in further evidence that a lot of financial- related things have been going on lately.

According to numerous articles and economics segments from major media outlets, experts on banks and such have become increasingly concerned over a new extension or rates or a proposal or compromise that could signal fewer investments, and dollars, and so on.

The experts confirmed that the stimulus has played a role.

"This is a clear sign of a changing cycle," some top guy at one of the big banks in New York said of purchasing power parity or possibly rate of return during a recent interview on CNN. "Which isn't to say that a sustained drop in wages couldn't still occur, even if the interest paid on reserves is lowered."

"In short, it's possible but not probable that growth could outpace our initial expectations," added the banking guy, who went on to say other money things, too. "It depends on investor sentiment."

The man, who also apparently mentioned the Nasdaq, the Dow, and the Japan one at some point or another, talked for a really long time about credit or reductions or possibly all these figures, which somehow relate to China.

Greece was also involved.

An analyst from Citigroup or Citibank announced on Monday that the Federal Reserve System is doing too much, while the Fed has failed to accomplish its goals to increase inflation or interest, which are different things. In addition, he was critical of the Fed's efforts to regulate the Bernanke.

[url=http://www.theonion.com/articles/something-about-tax-cuts-or-earnings-or-money-or-s,18169/][Full Article][/url][/quote]
[i]My Comment:[/i] And on the corporate-owned government front, a potential crucial development:

[url=http://www.theonion.com/articles/american-people-hire-highpowered-lobbyist-to-push,18204/]American People Hire High-Powered Lobbyist To Push Interests In Congress[/url]
[quote] October 6, 2010 | ISSUE 46•40

WASHINGTON—Citing a desire to gain influence in Washington, the American people confirmed Friday that they have hired high-powered D.C. lobbyist Jack Weldon of the firm Patton Boggs to help advance their agenda in Congress.

Known among Beltway insiders for his ability to sway public policy on behalf of massive corporations such as Johnson & Johnson, Monsanto, and AT&T, Weldon, 53, is expected to use his vast network of political connections to give his new client a voice in the legislative process.

Weldon is reportedly charging the American people $795 an hour.

"Unlike R.J. Reynolds, Pfizer, or Bank of America, the U.S. populace lacks the access to public officials required to further its legislative goals," a statement from the nation read in part. "Jack Weldon gives us that access"...[/quote]

"Credit for the Recovery"

[URL]http://www.nytimes.com/2010/10/06/opinion/06gross.html[/URL]

This op-ed points out that recent apparent declines in consumer and mortgage debt are more bookkeeping actions than actual changes in consumers' debt-incurring behaviors.

[quote=Daniel Gross]Every time the United States suffers a recession, trendspotters hasten to identify signs of frugality, extol the rediscovery of thrift and find evidence that Americans are finally (finally!) kicking their demon debt habit. We crack open history books to locate the anti-debt impulse in pre-revolutionary America and troll through quotation collections for ammunition. I’ve been around long enough to go through this exercise twice — first in the early 1990s and then in 2001 after the dot-com bust. Here we go again.

Since the comprehensive, economy-wide debt bubble of the aughts burst spectacularly in September 2008, Americans, we are told, have rediscovered their inner skinflint. Indeed, the savings rate, which fell into negative territory in 2005 at the height of the boom, bounced back strongly. Through 2009 and thus far in 2010, Americans have been setting aside 5 percent to 7 percent of disposable income as savings. Web sites like [URL="http://couponmom.com/"]couponmom.com[/URL] and Groupon have attracted millions of penny-pinching users.

When the Federal Reserve reports figures on consumer credit, despite the dry prose, we conjure up visions of shoppers throwing their Visa cards into public bonfires. “Household debt contracted at an annual rate of 2 1/4 percent in the second quarter, the ninth consecutive quarterly decline,” the central bank reported last month. The outstanding balances of revolving credit accounts — i.e. credit cards — peaked in 2008 at a little less than $1 trillion, and have fallen for 22 straight months, to $827 billion in July 2010.

It’s a great story — if you believe it.

In fact, though, since the Lehman Brothers debacle in September 2008, the nations’ total indebtedness has continued its inexorable rise, some measures of consumer debt are starting to rise again and the easy-money, no-money-down culture still prevails in crucial sectors.

Oh, and a look at the data suggests that the decline in personal debt is driven less by Americans giving up on credit cards than on credit card issuers giving up on Americans.

[URL="http://cardhub.com/"]CardHub.com[/URL], a credit-card industry site, crunched data from rating agencies and the Federal Reserve and found that in the 18-month period from January 2009 through June 2010, [URL="http://education.cardhub.com/q2-2010-credit-card-debt-study/"]American lenders simply wrote off $124.1 billion in credit card balances as uncollectable.[/URL] That accounts for nearly the entire $134 billion decline in revolving credit balances outstanding in the same period. And in the second quarter of this year, company write-offs were actually nearly $10 billion greater than the amount consumers paid down.

A similar dynamic may be taking place in the much larger housing-debt market. Mortgage debt has fallen for nine straight quarters — from $10.5 trillion in the first quarter of 2008 to $10.1 trillion in the second quarter of this year. But anyone who works in the industry knows that most of this decline can likely be ascribed to lenders writing off many of the loans they had heedlessly extended during the boom.

. . .

In an economy in which consumers account for 70 percent of activity, credit is both a vital lubricant and the indispensable fuel. Money may make the world go ’round, but credit makes the gears of commerce run smoothly.

. . .[/quote]

Cheesehead, while Gross is not entirely off-base in the context of a credit-based economy, he seems to be seeing "facts" which no one else is privy to - see the links in my MotWee at bottom.

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

Well, well, well ... just as the mass-foreclosure-paperwork-fraud scandal seems poised to blow sky-high (with AGs in most of the 50 states looking at some kind of legal action against the [strike]major crime syndicates[/strike] big banks and mortgage servicers involved), Reuters reports this interesting little bit of legislative, um, 'interestingness':

[url=http://www.cnbc.com/id/39550663]Bill Toughening Foreclosure Challenges Passes Quietly[/url]: [i]A bill that homeowners advocates warn will make it more difficult to challenge improper foreclosure attempts by big mortgage processors is awaiting President Barack Obama's signature after it quietly zoomed through the Senate last week.[/i]
[quote]Published: Thursday, 7 Oct 2010 | 4:28 AM ET

By: Reuters

[u]The bill, passed without public debate in a way that even surprised its main sponsor, Republican Representative Robert Aderholt, requires courts to accept as valid document notarizations made out of state, making it harder to challenge the authenticity of foreclosure and other legal documents[/u].

The timing raised eyebrows, coming during a rising furor over improper affidavits and other filings in foreclosure actions by large mortgage processors such as GMAC, JPMorgan and Bank of America.

Questions about improper notarizations have figured prominently in challenges to the validity of these court documents, and led to widespread halts of foreclosure proceedings.
[u]
The legislation could protect bank and mortgage processors from liability for false or improperly prepared documents.
[/u]
The White House said it is reviewing the legislation.

"It is troubling to me and curious that it passed so quietly," Thomas Cox, a Maine lawyer representing homeowners contesting foreclosures, told Reuters in an interview.

A deposition made public by Cox was what first called attention to improper affidavits by GMAC.

Since then, GMAC, JPMorgan and others have halted foreclosure actions in many states after acknowledging that they had filed large numbers of affidavits in which their employees falsely attested that they had personally reviewed records cited to justify the foreclosures.

Cox said the new obligation for courts to recognize notarizations of documents filed by big, out-of-state companies, would make it more difficult and costly to challenge the validity of the documents.

The law, the "Interstate Recognition of Notarizations Act," requires all federal and state courts to recognize notarizations made in other states.

The law specifically includes "electronic" notarizations stamped en masse by computers.

Currently, only about a dozen states allow electronic notarizations, according to the National Notary Association.
[b]
"Constituents" Pressed For Passage
[/b]
After languishing for months in the Senate Judiciary Committee, the bill passed the Senate with lightning speed and with hardly any public awareness of the bill's existence on Sept.27, the day before the Senate recessed for midterm election campaign.

The bill's approval involved invocation of a special procedure.

Democratic Senator Robert Casey, shepherding last-minute legislation on behalf of the Senate leadership, had the bill taken away from the Senate Judiciary committee, which hadn't acted on it.

The full Senate then immediately passed the bill without debate, by unanimous consent. The House had passed the bill in April.

The House actually had passed identical bills twice before, but both times they died when the Senate Judiciary Committee failed to act.

Some House and Senate staffers said the Senate committee had let the bills languish because of concerns that they would interfere with individual state's rights to regulate notarizations.

Senate staffers familiar with the judiciary committee's actions said the latest one passed by the House seemed destined for the same fate.

But [u]shortly before the Senate's recess, Judiciary Committee Chairman Patrick Leahy pressed to have the bill rushed through the special procedure, after Leahy "constituents" called him and pressed for passage.

The staffers said they didn't know who these constituents were or if anyone representing the mortgage industry or other interests had pressed for the bill to go through.

These staffers said that, in an unusual display of bipartisanship, Senator Jeff Sessions, the committee's senior Republican, also helped to engineer the Senate's unanimous consent for the bil[/u]l.[/quote]
[i]My Comment:[/i] The "unusual display of bipartisanship" here is not at all unusual if one recognizes whose interests the lawmakers in question actually represent ... corporate-owned all the way.


[b]Moron of the Week:[/b]

...Is Daniel Gross, who writes in an [url=http://www.nytimes.com/2010/10/06/opinion/06gross.html?_r=1]op-ed in the NYT[/url], with NYT in-house economic overlord Paul Krugman likely smiling broadly at the 'wisdom' expressed here:
[i]
"The renewed willingness and confidence to [u]spend money we don’t have[/u] is vital to the continuing recovery".
[/i]
Which makes me wonder "recovery of what? Ponzi-financier bonuses? Didn't those already 'recover' in record fashion last year?". Thankfully, non-Ponzi-economist David Rosenberg has seen fit to [url=http://www.zerohedge.com/article/david-rosenberg-bashes-daniel-gross#comments]take Mr. Gross to the proverbial woodshed[/url]. I find most amusing that at the end of the op-ed we see the following note about the author:

[i]Daniel Gross, author of “Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation,” is the economics editor and columnist at Yahoo! Finance.[/i]

You just can't make this stuff up...

[QUOTE=ewmayer;232847]Cheesehead, while Gross is not entirely off-base in the context of a credit-based economy, he seems to be seeing "facts" which no one else is privy to - see the links in my MotWee at bottom.[/QUOTE]Did you follow the link to [URL]http://education.cardhub.com/q2-2010-credit-card-debt-study/[/URL] that Gross provides? Anyone is "privy" to that link AFAIK -- it's not hidden.

I don't see where either Rosenberg or you take into account the lender write-downs that Gross cites. Your ridicule isn't going to be convincing until you show that you aren't simply ignoring part of Gross's explanation.

[QUOTE=cheesehead;232885]Did you follow the link to [URL]http://education.cardhub.com/q2-2010-credit-card-debt-study/[/URL] that Gross provides? Anyone is "privy" to that link AFAIK -- it's not hidden.

I don't see where either Rosenberg or you take into account the lender write-downs that Gross cites. Your ridicule isn't going to be convincing until you show that you aren't simply ignoring part of Gross's explanation.[/QUOTE]

Gross writes:
[quote]“As the economy slowly recovers, there are signs that Americans are rediscovering their free-spending ways. Total consumer credit, which includes non-revolving debt like car loans, have stabilized, and it rose in both June and July. It’s back to where it was in the second quarter of 2009.”[/quote]

As Rosenberg notes:
[quote]We just went to the Fed’s database and saw that in July, outstanding consumer credit shrank $3.6 billion and has contracted now in each of the last six months and in 18 of the past 19, which makes it mathematically impossible to have gone back to 2009 Q2 levels. And, the August data for bank-wide consumer loans showed a $6.0 billion slide.[/quote]
How do we reconcile these apparently-incompatible data? Let`s look at the data at the Cardhub link:
[code]
Outstanding Outstanding Quarterly Quarterly
Revolving Credit Card Credit Card Credit Card
Consumer Debt Debt Charge-Off Rate Charge-Off in $
Q2 2010 $823.4 $806.9 10.8% $21.8
Q1 2010 $835.7 $818.9 10.1% $21.7
2009 $894.0 $876.1 $81.6
Q4 2009 $894.0 $876.1 9.4% $20.6
Q3 2009 $893.5 $875.6 10.1% $22.1
Q2 2009 $905.2 $887.1 9.77% $21.6[/code]

The numbers in both "outstanding" columns are both steadily decreasing ... but then we see annotations like this:
[quote]
Q2 2010

* In Q2 of 2010, outstanding credit card debt decreased relative to Q1 2010: $12,054,000,000
* In Q2 the credit card charge-off rate in dollars was: $21,827,510,600
* Consumer pay down: -$9,773,510,600
(a negative number indicates an increase in debt)
* Relative to last year: 249% more than the increase last year
* CONCLUSION: Consumers accumulated almost $9.8 billion more credit card debt in Q2 than Q1 2010, given that the drop in outstandings is smaller than the dollar amount that was charged-off. This is 249 percent more debt accumulation than was accumulated in this quarter last year.[/quote]
Indeed, if chargeoffs are larger than the decrease in CC debt in a given period, that implies consumers actually spent more using their CCs, just that they were defaulting on existing debt faster than they were racking up new debt. That seems to be what Gross is referring to ... but he specifically says "total consumer credit has stabilized", without making mention "I added chargeoffs". And e.g. in Q2 2010 we see above that total credit decreased by $(12.3 + 12.0) = $24.3 billion, i.e. decreased slightly even if one factors in that $21.8 billion of the decrease was due to chargeoffs (The difference is thew $3.6 billion net decrease Rosenberg mentions ... there is a $.1 billion rounding error difference between my figures and his - he is probably using more-precise raw data, rather than the rounded table data above).

If we do the same computation for the full year, we see total credit decreases (starting with Q2 2009 - Q3 2009) of $23.2, -1.0, 115.5 and 24.3 billion, versus quarterly chargeoffs of $22.1, 20.6, 21.7 and 21.8 billion. Total decrease in credit = $162 billion. Of that $86.2 is due to chargeoffs. Conclusion: There is no "stabilization" here in the overall trend. Gross is cherry-picking just the last quarterly change and drawing a spurious "stabilization" trend conclusion.

The mere willingness of consumers to rack up more credit contributes nothing - in fact contributes negatively - to any economic recovery, if the credit default rate is as large or larger than the increase in credit. Somebody has to eat that defaulted debt, there is no free lunch as far as the overall balance of payments is concerned.

If anything, consumers are saying, "hey, if you're gonna keep giving me access to new credit cards even after I default, I'd be an idiot not to lather, rinse and repeat ... I gotta feed my family here."

Obama To "Pocket Veto" Foreclosure-Easing Bill
 

Thank goodness he had the common sense - or smelling the rotting fish, the survival instinct - to do the right thing here:

[url=http://dealbook.blogs.nytimes.com/2010/10/07/obama-plans-to-veto-foreclosure-bill/]Obama Plans to Veto Foreclosure Bill[/url]: [i]As slipshod bookkeeping by some big mortgage lenders continued to rattle the housing market on Thursday, another major lender indicated it would suspend sales of foreclosed homes and White House officials said President Obama would not sign a bill that critics suggested could facilitate foreclosure fraud.[/i]
[quote]White House officials said Thursday that President Obama would not sign a little-noted measure that suddenly gained attention amid questions about some big lenders’ slipshod bookkeeping on home foreclosures, Jackie Calmes of The New York Times reports from Washington.

The president’s pocket veto — rejecting a bill by withholding his signature while Congress is away — effectively kills the measure since lawmakers, who are out of town until after the Nov. 2 midterm elections, are not in position to override his decision with a two-thirds vote of the House and Senate.
...
Critics, particularly consumer groups, said the measure for interstate notarizations would have made it even easier for banks and other lenders to rush the foreclosure process. JPMorgan Chase, Bank of America and GMAC Mortgage have stopped foreclosures in nearly half the states, pending investigations into the process.

A fourth major lender, PNC Financial Services Group, has also suspended sales of foreclosed homes for 30 days, according to a memo from a title insurer, Commerce Title, that works closely with the bank.

PNC is alerting title insurance companies that it is postponing the closings effective immediately, according to the memo. “We have been given notice from PNC Legal that there is a moratorium going into effect” on residential foreclosures, the memo from Commerce Title said.

A PNC spokesman, Frederick Solomon, declined to comment beyond saying that the lender was reviewing its mortgage servicing procedures.

PNC, which is based in Pittsburgh, became one of the country’s largest lenders with the acquisition of Ohio-based National City Corporation two years ago. National City, an aggressive lender during the housing boom, collapsed during the financial crisis.

Given the outcry over the far-reaching foreclosure crisis, Congressional aides said lawmakers were unlikely to take umbrage at Mr. Obama’s decision to let the notary measure expire. The White House, in announcing the pocket veto, indicated that it could work with Congress later on some alternative. [/quote]
[i]My Comment:[/i] In related news, Florida congressman Alana Grayson [url=http://www.zerohedge.com/article/grayson-sends-letter-geithner-bernanke-demanding-foreclosure-freeze-warns-systemic-bank-fail]sent a letter yesterday[/url] to the newly-established [url=http://www.reuters.com/article/idUSTRE6900GS20101001?feedType=nl&feedName=ustopnewsearly]federal Financial Stability Oversight Council[/url], demanding a foreclosure moratorium and warning of the systemic risk to the banking system (gee, that sounds familiar) inherent in their mass-scammery now seeing the light of day:
[quote]"So far, banks are claiming that the many forged documents uncovered by courts and attorneys represent a simple 'technical problem' with foreclosure processes. This is not true. What is happening is fraud to cover up fraud... The banks didn't keep good records, and there is good reason to believe in many if not virtually all cases during this period, failed to transfer the notes, which is the borrower IOUs in accordance with the requirements of their own pooling and servicing agreements. As a result, the notes may be put out of eligibility for the trust under New York law, which governs these securitizations. Potential cures for the note may, according to certain legal experts, be contrary to IRS rules governing REMICs. As a result, loan servicers and trusts simply lack standing to foreclose. The remedy has been foreclosure fraud, including the widespread fabrication of documents. There are now trillions of dollars of securitizations of these loans in the hands of investors. The trusts holding these loans are in a legal gray area, as the mortgage titles were never officially transferred to the trusts... The liability here for the major banks is potentially enormous, and can lead to a systemic risk." [/quote]

Mish also has [url=http://globaleconomicanalysis.blogspot.com/2010/10/sec-failure-to-regulate-mbs-resulted-in.html]piece on this today[/url], which quotes securitization expert Janet Tavakoli describing the robo-mortgage-industry as "... a massive, widespread, interconnected Ponzi scheme with various types of concurrent fraud". And Denninger has some [url=http://market-ticker.org/akcs-www?post=168578]excellent commentary[/url] on the whole issue, noting how seriously the states - and let`s admit that they may also sense a [url=http://news.firedoglake.com/2010/10/06/ohio-attorney-general-sues-gmac-seeks-25000-per-false-affidavit/]budget-boosting mega-fine opportunity here[/url] - take such matters:
[quote]The immediate action that must be taken is to force all payments into court escrow - that is, a court-held suspense account - until it is sorted out who actually owns what.

Freezing foreclosures doesn't fix it - if you're not paying, then you're not paying. But at the same time if the trust doesn't actually own the paper they have no right to the money! The solution to these problems is known and already available under the law - it's a court-ordered suspense account held by the clerk for all payments and trustee sales until the courts figure out who owns what.

The proper remedy under the law for institutions that tendered assets into a trust that they knew or had reason to know did not meet the qualifications for that trust is for the transaction to be unwound - for the bank to be forced to refund the full face value of the mortgage and repurchase it. For those assets that were never conveyed the solution is likewise for the bank that was supposed to convey it to repurchase the asset.

This resolves the problems with chain of title at the same time it resolves the problems with the REMICs.

But, at the same time, it sticks the banks that performed the securitizations (all big financial institutions) with these non-performing loans - that is, the financial liability for their actions.

Once the above is sorted out let those who have actual ownership of these notes and can prove it come to the court and prove up their ownership under strict standards of proof, claiming their funds.

Then those who wish to foreclose, forebear or renegotiate are free to do so as they wish - and they are also required to recognize the losses that came from the bad lending practices.

With more than $1 trillion in outstanding non-agency REMICs of this sort, and another $5 trillion or so at Fannie and Freddie, if half - a reasonable estimate of those that might be compromised - are forcibly unwound and the bad loans are recognized at their recovery or renegotiated value then we're going to need that Dodd-Frank resolution authority- for all the major banks.

This, incidentally, is exactly [url=http://market-ticker.org/?singlepost=2199735]what Institutional Risk Analytics was basically saying the other day[/url].

We have to force these resolutions folks. These REMICs must go through all their paper and prove up its provenance in each and every case. If they are either holding empty boxes or bad notes that did not meet the claimed credit quality they must be forced back onto the issuers, because it is both manifestly unjust to allow the major financial institutions to get away with screwing your pension funds, insurance companies (e.g. annuities, etc) and similar, and we must resolve the title issues that are now being exposed as massive and pervasive across the country.
[b]
Private property rights have as their highest expression the ownership of real estate. It is for this reason that states have historically taken very seriously the recordation of titles, assignments and a proper chain of ownership proof in these matters. What the banks have done - intentionally - is severely damage that sacred trust and personal property ownership right, and they must not be allowed to get away with it. This same scam was run during the 1920s with the Florida "swampland" fiascos and it took YEARS to sort it out. We must start now.[/b][/quote]
[i]My Comment:[/i] On a related-but-lighter note, Jon Stewart of [i]The Daily Show[/i] manages to [url=http://www.zerohedge.com/article/jon-stewart-humor-high-frequency-signing-scandal]find some humor in the foreclosure-signing scandal[/url].

[b]In Other Financial-Scammery News:[/b]

[url=]Ex-trader Kerviel sentenced to 3 years in jail[/url]: [i]PARIS (Reuters) - Former Societe Generale trader Jerome Kerviel was sentenced to 5 years in prison, with 2 suspended, by a Paris court on Tuesday for his role in a trading scandal and ordered to reimburse the French bank 4.9 billion euros ($6.8 billion).[/i]

[i]My Comment:[/i] Maybe they can take it out of his weekly allowance...

p.s.: Here is a link to a related Janet Tavakoli [url=http://voices.washingtonpost.com/ezra-klein/]interview with a Washington Post reporter[/url], in which she calls the mortgage-securitization-paperwork racket "the biggest fraud in the history of the capital markets." And it was government-aided and abetted all the way. Recall that as early as 2004, just as the Fed-ZIRP-enabled housing bubble was really getting rolling in tandem with the Wall Street mortgage-securitization frenzy, the FBI warned the government of mounting evidence of "an epidemic of mortgage fraud." Nothing was done, even though the top regulators here - the SEC and the Fed - are [b]required by law[/b] to look into such matters. As Ms. Tavakoli notes:
[quote]"When we had the financial crisis, the first thing the banks did was run to Congress and ask for accounting relief. They asked to be able to avoid pricing this stuff at the price where people would buy them. So no one can tell you the size of the hole in these balance sheets. We’ve thrown a lot of money at it. TARP was just the tip of the iceberg. We’ve given them guarantees on debts, low-cost funding from the Fed. But a lot of these mortgages just cannot be saved. Had we acknowledged this problem in 2005, we could’ve cleaned it up for a few hundred billion dollars. But we didn’t. Banks were lying and committing fraud, and our regulators were covering them and so a bad problem has become a hellacious one."[/quote]

Headline of the week
 

From the UK Telegraph today (hat tip ZeroHedge) ... this explains the positive economic news which drove the markets higher today:

High Frequency Trading is in the news again today. It seems a few - very few - people are paying a little attention. I don't expect this link to last very long so read it while it is fresh. Don't expect any mind bending revelations, but it is a decent "how it works in layman's terms" description. There is not nearly enough verbiage concerning the risk to the market. Things like circuit breakers are NOT going to remove the risk.

[url]http://www.cbsnews.com/stories/2010/10/07/60minutes/main6936075.shtml[/url]

[QUOTE]
"What's the point of buying and selling a stock that you hold for three minutes?" Kroft asked.

"Same objective that all other participants have in the market, is to make money. You buy low, sell high, that's how you make money," Narang said.

"And the computer will know when to buy and when to sell?" Kroft asked.

"Sure, the computer is monitoring real-time data and it knows what to do with that data and how to make decisions based on that," Narang replied.

What Narang and other high frequency traders tell their computers to do is to make a profit of a penny or less, 40 million times day.

They scan the different exchanges, trying to anticipate which direction individual stocks are likely to move in the next fraction of a second based on current market conditions and statistical analysis of past performance. But the computers have no real understanding of who these companies are and what they do.
[/QUOTE]

DarJones

[QUOTE=Fusion_power;233157]High Frequency Trading is in the news again today. It seems a few - very few - people are paying a little attention. I don't expect this link to last very long so read it while it is fresh. Don't expect any mind bending revelations, but it is a decent "how it works in layman's terms" description. There is not nearly enough verbiage concerning the risk to the market. Things like circuit breakers are NOT going to remove the risk.

[url]http://www.cbsnews.com/stories/2010/10/07/60minutes/main6936075.shtml[/url]



DarJones[/QUOTE]


One very simple solution (which of course will never get by Congress):

Require a minimum holding time of perhaps a few hours....

Or just ban the practice outright....

[QUOTE=Fusion_power;233157]High Frequency Trading is in the news again today. It seems a few - very few - people are paying a little attention. I don't expect this link to last very long so read it while it is fresh. Don't expect any mind bending revelations, but it is a decent "how it works in layman's terms" description. There is not nearly enough verbiage concerning the risk to the market. Things like circuit breakers are NOT going to remove the risk.

[url]http://www.cbsnews.com/stories/2010/10/07/60minutes/main6936075.shtml[/url]



DarJones[/QUOTE]


From the referenced article:

"Actually, high frequency traders are getting the same market information that Saluzzi gets. They are just getting it a little bit sooner - it's only a few fractions of a second sooner, but if you are running supercomputers, Saluzzi says, it can be an eternity. "

By insider trader laws, this is ILLEGAL. One is not allowed to make a trade
based on any information unless the information is available to EVERYONE.

For example: suppose I have insider information about an announcement
that my company is about to make. I, of course, can't act on it. But
I can act on it once it it announced to the public. But if (say) it is
announced at 10AM, I can't trade at say 10:01 AM. I must wait until the
information disperses through the public. This is part of the statute. It
is black letter law.

Therefore these high frequency trades are CLEARLY violating the law,
since they do not wait sufficient time for the public to read and
absorb the information upon which they are acting.

[QUOTE=R.D. Silverman;233161]From the referenced article:

"Actually, high frequency traders are getting the same market information that Saluzzi gets. They are just getting it a little bit sooner - it's only a few fractions of a second sooner, but if you are running supercomputers, Saluzzi says, it can be an eternity. "

By insider trader laws, this is ILLEGAL. One is not allowed to make a trade
based on any information unless the information is available to EVERYONE.[/QUOTE]
Oh, but it *is* available to everyone ... just not at the same time. But you too can have the advance-look access the HFTs enjoy - you just need to pay the relevant exchange a couple million per year. Stop being such a cheapskate, Bob. :)

[QUOTE]For example: suppose I have insider information about an announcement
that my company is about to make. I, of course, can't act on it. But
I can act on it once it it announced to the public. But if (say) it is
announced at 10AM, I can't trade at say 10:01 AM. I must wait until the
information disperses through the public. This is part of the statute. It
is black letter law. [/QUOTE]Ah, here you mke the grave mistake of assuming we are still a nation of laws. That is only true for the little people.

[QUOTE]Therefore these high frequency trades are CLEARLY violating the law,
since they do not wait sufficient time for the public to read and
absorb the information upon which they are acting.[/QUOTE]BTW, you may be interested to know that none other but the U.S. Congress has exempted itself from those odious insider-trading laws. For example, the WSJ has a recent article about this longstanding loophole:

[URL="http://online.wsj.com/article/SB10001424052748703431604575522434188603198.html?mod=WSJ_hps_MIDDLETopStories"]Congressional Staffers Gain From Trading in Stocks[/URL]
[quote]WASHINGTON—Chris Miller nearly doubled his $3,500 stock investment in a renewable-energy firm in 2008. It was a perfectly legal bet, but he's no ordinary investor.

Mr. Miller is the top energy-policy adviser to Nevada Democrat and Senate Majority Leader Harry Reid, who helped pass legislation that wound up benefiting the firm.

Jim Manley, a spokesman for Mr. Reid's office, initially defended Mr. Miller's purchase of shares in the company, Energy Conversion Devices Inc. He said the aide had no influence over tax incentives for renewable-energy firms, and that other factors boosted the stock.

But on Sunday, Mr. Manley added: "Mr. Miller showed poor judgment and Senator Reid has made it very clear to Chris and all his staff that their actions must not only follow the law, but must meet the higher standards the public has a right to expect from elected officials and their staffs."

Mr. Miller isn't the only Congressional staffer making such stock bets. At least 72 aides on both sides of the aisle traded shares of companies that their bosses help oversee, according to a Wall Street Journal analysis of more than 3,000 disclosure forms covering trading activity by Capitol Hill staffers for 2008 and 2009.

The Journal analysis showed that an aide to a Republican member of the Senate Banking Committee bought Bank of America Corp. stock before results of last year's government stress tests eased investor concerns about the health of the banking industry. A top aide to the House Speaker profited by trading shares of Freddie Mac and Fannie Mae in a brokerage account with her husband two days before the government authorized emergency funding for the companies. Another aide to Republican lawmakers interested in energy issues, among other things, profited by trading in several renewable-energy firms.
[B]
The aides identified by the Journal say they didn't profit by making trades based on any information gathered in the halls of Congress. Even if they had done so, it would be legal, because insider-trading laws don't apply to Congress.
[/B]
A few lawmakers proposed a bill that would prevent members and employees of Congress from trading securities based on nonpublic information they obtain. The legislation has languished since 2006.

"Congressional staff are often privy to inside information, and an unscrupulous person could profit off that knowledge," says Vincent Morris, a spokesman for Rep. Louise Slaughter (D., N.Y.), a leading backer of the "Stop Trading on Congressional Knowledge Act," or STOCK Act. "The public should be outraged there is no law specifically banning this."
[B]
When the bill was introduced nearly five years ago, just 14 other lawmakers endorsed it. The current version of the bill has fared worse: Only nine lawmakers support it. There is no companion legislation in the Senate.
[/B]
Congressional aides have ringside seats on the making of laws that affect American business. Receiving salaries up to roughly $170,000 a year, they can glean information about policies and government action before the public. They have access to information about hearings or legislation that can move stocks and markets.

The current Congressional disclosure rules on stock trading stem from a scandal involving Robert Baker, a senior Senate aide, in the early 1960s. Mr. Baker was accused of using his Senate office for personal gain, partly involving the operation of a network of vending machines. He was eventually convicted of income-tax evasion and spent 16 months in prison.

The scandal led to a Senate rule in 1968 that required lawmakers and aides to disclose information about their finances. The House of Representatives imposed similar requirements about the same time.

The rules require all members of Congress and about 1,700 of the highest-paid congressional aides to disclose information once a year on their finances, such as their assets, debts, spouse's employment and other sources of income they earn, including capital gains from trading securities. Some 15,000 lower-paid Congressional staffers aren't covered by the disclosure rule.

Unlike many Executive Branch employees, lawmakers and aides don't have restrictions on their stock holdings and ownership interests in companies they oversee. Congressional rules say that requiring employees to do so could "insulate a legislator from the personal and economic interests that his or her constituency, or society in general, has in governmental decisions and policy."

An analysis of financial-disclosure forms for 2008 and 2009 compiled by the website LegiStorm shows that several hundred congressional aides bought or sold stocks. At least 72 traded the stocks of companies their bosses write laws for.

The disclosure only requires dollar ranges for stock holdings and capital gains, so it is impossible to calculate from them precisely how much aides make trading stock in dollar terms. (Some aides opted to give precise numbers to the Journal.) Still, because the disclosure forms specify the days when shares were bought and sold, the Journal was able to calculate the minimum profits that aides made in percentage terms.

The calculation involved taking the high price on the day the stock was purchased and the low price on the day it was sold. If an aide bought the stock below that daily high or sold it above that daily low, the actual profit would have been bigger than the Journal calculation.

The Journal's analysis comes at a time of close government involvement in U.S. business. Much of the trading was in industries dependent on government help, such as the financial-services and renewable-energy industries.

A number of aides invested in financial stocks. Karen Brown, an aide to Sen. Mike Crapo (R., Idaho), a Senate Banking Committee member, traded Bank of America stock on seven occasions in 2009, according to filings. She bought a total of between $3,003 and $45,000 of the bank's shares in three trades on April 17 and April 27 and sold between $51,002 and $115,000 in September. Her minimum gain during that period would have been 43%.

At the time of the purchases, Bank of America was discussing with the government the findings of "stress tests" used to gauge the safety of U.S. banks. On May 7, 2009, BofA shares surged when the stress-test results were made public, easing investor fears.

After it was contacted by the Journal, Mr. Crapo's office said the trades were made by Mrs. Brown's husband, "independent of any direction from Mrs. Brown." The office said Mrs. Brown has since filed an amended financial-disclosure form.

Susan Wheeler, a spokeswoman for Mr. Crapo, said: "There is no relation between Senator Crapo's service on the Banking Committee and any decisions made by Mr. Brown regarding the trades in question."

A spokeswoman for Mr. Crapo's office declined to specify the precise purchase and sale prices of the stock.

On Oct. 23, 2009, Mrs. Brown's form indicates two additional purchases of BoA for a total of between $65,002 and $150,000.[/quote]

Not that the markets are manipulated or anything..
 

Been amusing the past weeks watching the steady pumping of the equity markets - one could almost hear the secret marching orders given to Brian Sack, head of the NYFED's prop-trading desk: "Must pump the DJIA above 11,000 ahead of the elections, so as to have some positive fake-economic data to point to."

Last Friday the month-long ramp job finally achieved the magical "psychologically important" level, the next ,000-ending level in the almighty Dow. So today, some folks who are obviously not getting with the program actually had the temerity to try to sell some of their overpriced shares near the close, which briefly threatened to once again drive the almighty Dow below the magical "psychologically important" 11,000 level. Can't be having that, folks:

As of October1, there have been 130 US [URL="http://www.fdic.gov/bank/individual/failed/banklist.html"]bank failures.[/URL]

In all of 2009 there were 140.

Speaking of October, it is a very well represented month when it comes to largest [URL="http://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average"]percentage and point changes in the DJIA[/URL].

No one wants to talk about [URL="http://nobelprize.org/nobel_prizes/economics/laureates/2010/"]rope[/URL] in the house of...?