The inside scoop on the MERS mass-mortgage scam
 

Karl Denninger posts and discusses highlights of a legal analysis by Christopher Lewis Peterson of the University of Utah College of Law, of the shell company at the heart of the coupled mortgage=securitization and illegal-foreclosure scandal raging in the U.S. and now generally referred to (in the tradition of most post-Nixon-and-Watergate-Hotel-breakin political scandals in the U.S.) as "Foreclosuregate":

[url=http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1684729]Two Faces: Demystifying the Mortgage Electronic Registration System's Land Title Theory [/url]
[quote][b]Abstract:[/b]
Hundreds of thousands of home foreclosure lawsuits have focused judicial scrutiny on the Mortgage Electronic Registration System (“MERS”). This Article updates and expands upon an earlier piece by exploring the implications of state Supreme Court decisions holding that MERS is not a mortgagee in security agreements that list it as such. In particular this Article looks at: (1) the consequences on land title records of recording mortgages in the name of a purported mortgagee that is not actually mortgagee as a matter of law; (2) whether a security agreement that fails to name an actual mortgagee can successfully convey a property interest; and (3) whether county governments may be entitled to reimbursement of recording fees avoided through the use of false statements associated with the MERS system. This Article concludes with a discussion of steps needed to rebuild trustworthy real property ownership records.[/quote]

A few selected highlights - underline/boldface mine:

[quote]In the mid-1990s mortgage bankers decided they did not want to pay recording fees for assigning mortgages anymore.11 This decision was driven by securitization—a process of pooling many mortgages into a trust and selling income from the trust to investors on Wall Street. Securitization, also sometimes called structured finance, usually required several successive mortgage assignments to different companies. [u]To avoid paying county recording fees, mortgage bankers formed a plan to create one shell company that would pretend to own all the mortgages in the country[/u]—that way, the mortgage bankers would never have to record assignments since the same company would always “own” all the mortgages.12

They incorporated the shell company in Delaware and called it Mortgage Electronic Registration Systems, Inc.13

[u]Even though not a single state legislature or appellate court had authorized this change in the real property recording[/u], investors interested in subprime and exotic mortgage backed securities were still willing to buy mortgages recorded through this new proxy system.14
...
Acting on the impulse to maximize profits by avoiding payment of fees to county governments much of the national residential mortgage market shifted to the new proxy recording system in only a few years. [u]Now about 60% of the nation’s residential mortgages are recorded in the name of MERS, Inc. rather than the bank, trust, or company that actually has a meaningful economic interest in the repayment of the debt.15 For the first time in the nation’s history, there is no longer an authoritative, public record of who owns land in each county.[/u]
...
Both the MERS-as-an-agent and the MERS-as-an-actual mortgagee theories have significant legal problems. [u]If MERS is merely an agent of the actual lender, it is extremely unclear that it has the authority to list itself as a mortgagee or deed of trust beneficiary under state land title recording acts[/u]. These statutes do not have provisions authorizing financial institutions to use the name of a shell company, nominee, or some other form of an agent instead of the actual owner of the interest in the land. After all the point of these statutes is to provide a transparent, reliable, record of actual—as opposed to nominal—land ownership.

[u]Conversely, if MERS is actually a mortgagee, then while it may have authority to record mortgages in its own name, both MERS and financial institutions investing in MERS-recorded mortgages run afoul of longstanding precedent on the inseparability of promissory notes and mortgages.[/u]
...
As a practical matter, [u]the incoherence of MERS’ legal position is exacerbated by a corporate structure that is so unorthodox as to arguably be considered fraudulent[/u]. Because MERSCORP is a company of relatively modest size, it does not have the personnel to deal with legal problems created by its purported ownership of millions of home mortgages. [b]To accommodate the massive amount of paperwork and litigation involved with its business model, MERSCORP simply farms out the MERS, Inc. identity to employees of mortgage servicers, originators, debt collectors, and foreclosure law firms.22 Instead, MERS invites financial companies to enter names of their own employees into a MERS webpage which then automatically regurgitates boilerplate “corporate resolutions” that purport to name the employees of other companies as “certifying officers” of MERS.23 These certifying officers also take job titles from MERS stylizing themselves as either assistant secretaries or vice presidents of the MERS, rather than the company that actually employs them. These employees of the servicers, debt collectors, and law firms sign documents pretending to be vice presidents or assistant secretaries of MERS, Inc. even though neither MERSCORP, Inc. nor MERS, Inc. pays any compensation or provides benefits to them. Astonishingly, MERS “vice presidents” are simply paralegals, customer service representatives, and foreclosure attorneys employed by other companies. MERS even sells its corporate seal to non-employees on its internet web page for $25.00 each.24[/b] Ironically, MERS, Inc.—a company that pretends to own 60% of the nation’s residential mortgages—does not have any of its own employees but still purports to have “thousands” of assistant secretaries and vice presidents.25[/quote]
[i]My Comment:[/i] I am not a lawyer, but my spidey sense tells me - and the above analysis confirms - that Wall Street and the mortgage industry are in deep doo-doo when it comes to legal standing here. No wonder they tried so hard last week to get a legal get-out-of-jail-free bill passed with a few "friendly" legislators who were more than happy to bend U.S. congressional-procedure rules to the breaking point and slip through a long-languishing 2005 bill (which had been conceived to tackle this very issue, but in open debate) in the dead of night as it were. As the article I linked last week about said bill (HR 3808) noted, even the bill's original sponsor was surprised to see it "pass".

Liberté, égalité, inactivité
 

[url=http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a4uG_rzKkNbM]French Workers Strike Against Sarkozy Pension Plan[/url]: [i]Railway and Paris subway workers and as well as teachers, air-traffic controllers and port and refinery employees walked out to protest plans to raise the retirement age to 62 from 60 and lift the age for a full pension to 67 from 65. Unions, which warn they may renew the strike every 24 hours unless the government backs down, said 244 marches will take place across France today in cities including Toulouse, Marseille and Nantes.[/i]

Interesting how the best way to get union parasites off their butts is to give them an excuse to avoid working. They are willing to work very hard to avoid working, so to speak. And I know it's a really cheap shot, but I couldn't resist advertising a [url=http://despair.com/effort.html]suitable-for-framing poster[/url] capturing this ethos:

BTW, If you are still swallowing any of the MSM propaganda about Foreclosuregate being due to any bad-but-less-than-awful things such as "flaws", "errors", "expediency", "rush to foreclose", etc, you are missing how deep and pervasive the rot here is. Structured-finance expert Janet Tavakoli has called the mortgage-securitization-paperwork racket "the biggest fraud in the history of the capital markets."

Today, Barry Ritholtz takes a turn: Link and a few choice snips - all embedded links and highlighting-for-emphasis are Barry's in this case:

[url=http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-is-so-dangerous-to-property-rights/]Why Foreclosure Fraud Is So Dangerous to Property Rights[/url]
[quote]There seems to be a misunderstanding as to why the [b]rampant and systemic foreclosure fraud[/b] is so dangerous to American system of property rights and contract law. Some of this is being done by people who are naked corporatists (i.e., the [url=http://www.ritholtz.com/blog/2010/10/clueless-or-liars/]WSJ Editorial Board[/url]) excusing horrific conduct by the banks. Others are excusing endemic property right destruction out of genuine ignorance.
...
As we noted [url=http://www.ritholtz.com/blog/2010/10/foreclosure-fraud-reveals-structural-legal-crisis/]previously[/url], esteemed economists such as [url=http://ild.org.pe/mystery/chapter3]Hernando de Soto[/url] have identified that the respect for title, proper documentation, contract law and private property rights are the [u]underlying reason capitalism works in Western nations, but seems to flounder elsewhere[/u].
...
It is impossible to perform that many foreclosure reviews and data verifications in a single day. The only way this could happen is via a systemic banking fraud that orders its employees to violate the law. Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed.

This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED).

The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent documents to be entered into court as actual evidence (no live witness required). Hence, we have no only fraud, but contempt of court on top of it (BOTH OF WHICH REQUIRE PROSECUTION).

Law firms preparing the legal documents are not doing their job of further verifying the information. And, it seems certain states such as Florida have foreclosure mills who were set up from the outset as fraudulent enterprises. (EVEN MORE PROSECUTION NEEDED).

Lastly, some service processors are not bothering to do their job. This is the last step in the foreclosure proceedings that would put a person on notice of the errors (YET MORE FRAUD).

There are multiple failsafes and checkpoints along the way to insure that this system has zero errors. Indeed, one can argue that the entire system of property rights and contract law has been established over the past two centuries to ensure that this process is error free. There are multiple checks, fail-safes, rechecks, verifications, affirmations, reviews, and attestations that make sure the process does not fail.

It is a legal impossibility for someone without a mortgage to be foreclosed upon. It is a legal impossibility for the wrong house to be foreclosed upon, It is a legal impossibility for the wrong bank to sue for foreclosure.

And yet, all of those things have occurred. The only way these errors could have occurred is if several people involved in the process committed criminal fraud. This is not a case of “Well, something slipped through the cracks.” In order for the process to fail, many people along the chain must commit fraud.[/quote]

Fresh off his Rolling Stone article on the Tea Party movement (if you liked that, here is a hilarious blog followup on Alaska Tea Party senatorial candidate [url=http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/218982/83512]Joe Miller[/url]), Matt Taibbi still is seeing things through tea-colored glasses, but his latest finance-related blog entry nonetheless can serve as an excellent primer on central bank "Quantitative Easing" (in this case widely predicted second round of such by the US Fed, a.k.a. QE2, not to be confused with the famous luxury liner). Specifically, why Wall Street loves QE, even though it is a reliable sign that the economy is in really deep doo-doo:

[url=http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/217520/83512]The Fed's Magic Money-Printing Machine, Act 2[/url]
[quote]It’s amazing, given the attention the Tea Party allegedly is paying to government waste and government spending, that there hasn’t been more controversy about the now-seemingly-inevitable arrival of "QE2" – a second massive round of money-printing cooked up by the Fed to prop up both the government and certain sectors of the economy. A more overtly anticapitalist and oligarchical pattern of behavior than the Fed’s "Quantitative Easing" program could not possibly be imagined, but the country is strangely silent on the issue.

What is "QE"? The first round of "quantitative easing" was a program announced by Ben Bernanke last March in response to the financial crisis, ending in March of this year. In what will soon be known as "QE1"(i.e. once QE2 is announced), Bernanke printed over a trillion dollars out of thin air, then used that money to buy, among other things, mortgage-backed securities (MBS) and Treasury Bonds. In other words, the government was printing money to a) lend to itself and b) prop up the housing market, with Wall Street stepping in to take a big cut.

That was QE1. There has long been speculation that another trillion-plus money-printing program called QE2 is coming, but only recently have there been concrete hints from the Fed along those lines ... most everyone now expects the Fed to announce a new QE program in November. The big banks have now openly begun to predict this, with JP Morgan Chase among others raising its odds of the Fed buying mortgages in the next 6 months from 10% to 50%. Another effect we’re seeing is that mortgage originators are hiring again, in anticipation of being able to fork out QE-funded mortgages.

QE is difficult to understand and the average person could listen to a Fed official talk about it for two hours right to his face and not understand even the basic gist of his speech. The ostensible justification for QE is to use a kind of financial shock-and-awe approach to jump-starting the economy, but its effects for ordinary people are hard to calculate. Theoretically the entire country has some sort of stake in this program, as (among other things) U the Homeowner may see your home value stay stable or fall less than it would have thanks to this artificial stimulus. You also may be able to buy a house when you wouldn’t before, thanks to declining mortgage rates.

And jobs, I suppose, may theoretically be created by all this dollar meth being injected into the financial bloodstream – although the inflationary effect of printing trillions upon trillions of new dollars would probably wipe out the value of the money you make at that job. When it comes to calculating what QE actually does for you, or how much it harms you, that question is just very hard to answer.

But one thing we know for sure is that big banks and Wall Street speculators are real, immediate beneficiaries of the program, as they suddenly have trillions of printed dollars flowing through the financial system, with endless ways to profit on the new chips entering the casino.

And by an amazing coincidence, many of the biggest players in the financial services industry have a habit of buying up MBS or Treasuries just before these magical money-printing programs of the Fed send their respective values soaring. If you own a big fund, for instance, and you know that the Fed is about to buy a trillion dollars of mortgage-backed-securities through a new Quantitative Easing program, buying a buttload of MBS a few weeks early is a pretty easy way to make a risk-free fortune. One of the worst-kept secrets on Wall Street is that the big bankers and fund managers get signals about the Fed’s intentions about things like QE well before they are announced to the rest of us losers in the public.

A hilarious example of this cozy insiderism popped up just a few weeks ago, when PIMCO bond fund chief Bill Gross let it slip on a live CNBC interview that he was getting inside info from the Fed. The interview is with former Goldman analyst and (now) CNBC anchor Erin Burnett, as well as my slimeball former colleague from the Moscow Times and (now) CNBC bobblehead Steve Liesman, who slobber typically over the bond king in the segment.

Gross at one point says this:

"What is important going into November is the staff forecast for economic growth for the next 12-18 months. Our understanding is that the Fed is about to downgrade their forecast from 3% down to 2%. Which in turn would suggest that unemployment won’t be coming down… and so that would be the trigger to my way of thinking for Quantitative Easing in November."

The admission is so untoward that the ex-Goldmanite Burnett immediately races to clean up the problem, saying to Liesman, who is also on the panel, "We don't have that forecast yet, right, Steve?"

At which point the ever-helpful Liesman replies, "We won't get that for 3 weeks, Erin. That's when it comes out with the minutes of this meeting ."

Check out 5:20 of [url=http://www.zerohedge.com/article/did-bill-gross-just-confirm-live-tv-he-has-advance-look-non-public-fed-data]this video[/url] (courtesy of Zero Hedge):

There are so many different ways for Wall Street guys to make risk-gazillions off of QE, it’s not even funny. When I was researching the "[url=http://www.rollingstone.com/politics/news/12697/64868]Wall Street Bailout Hustle[/url]" story last year, for instance, I learned about one fund that loaded up on MBS before the first QE announcement, then saw their MBS skyrocket in value after QE – at which point the fund sold off a lot of its MBS holdings and bought Treasuries, effectively taking money from the Fed and lending it right back to the government at interest.

Beyond that, QE is a highly dubious idea in general, and probably an indication that the economy is worse off than it seems by far. When the Fed stops being able to stimulate the economy by the traditional method of slashing interest rates, and has to resort to printing money by the trillions, that is a sure indication that things in the economy are seriously FUBAR. If this is what it takes to prop up home values and keep the government liquid and the stock market from collapsing, we’re all in a lot of trouble.

Add to that the nearly infinite possibilities for corruption when one group of private citizens (i.e. big banks) gets concrete info about government stimulus before others, and QE2 has the potential to be a fiasco of oligarchical manipulation, the worst example possible both of government meddling in the market and of corporate cronyism and regulatory capture. It should be a huge political issue for both the left and the right, and yet it is not an issue at all outside of Wall Street, where there are few objections to the impending arrival of this new rush of money – and what few objections there are seem mostly to be intellectual and theoretical.[/quote]

Florida's Grayson pressing for prosecutions
 

Reported in numerous venues, here is the link to [url=http://www.ritholtz.com/blog/2010/10/grayson-to-fbi-prosecute-the-frauds/][i]The Big Picture's[/i][/url]:
[quote]October 14, 2010

Robert S. Mueller III
Director Federal Bureau of Investigation
935 Pennsylvania Ave, NW
Washington, DC 20535

Robert O'Neill
US Attorney
Central District of Florida
400 North Tampa Street, Suite 3200
Tampa, FL 33602


Dear US Attorney Robert O'Neill and Director Mueller,

When it comes to foreclosures, there is mounting evidence of a state of rampant lawlessness in Central Florida. There are increasing signs that big banks routinely evade laws meant to protect homeowners, in many well-documented cases of ‘foreclosure fraud’. Despite the demonstrated existence, for instance, of ‘robosigners’ signing affidavits attesting to documents that they have never seen, the parties engaging in such misconduct are not being brought to justice. Big banks are mischaracterizing this as mere “technical problems,” and apologizing only where there is clear and very public evidence of harm.

It is not enough for big banks only to apologize for fraud, perjury, and even breaking and entering – when they are caught. It is time for handcuffs. Fraud does not become legal just because a big bank does it.

On September 20, 2010, after my office found evidence of systemic foreclosure fraud perpetrated by big banks and foreclosure mills, I called for a halt to illegal foreclosures.

Since then, big banks such as Bank of America, JP Morgan Chase, GMAC, PNC and others have suspended foreclosures or foreclosure sales. These banks are still claiming that the massive fraud they have perpetrated amounts to nothing more than a series of technical mistakes. This is absurd. This is deliberate, systemic fraud, and it is a crime.

To give but two of the many available examples, attached is a deposition from an ex-employee of one of the largest ‘foreclosure mills’ in the state, the Law Offices of David Stern. In it, this employee testifies under oath that it was routine for that office to falsify documents regarding military records, in order to move foreclosure cases along more quickly.

The local media has reported on the case of Nancy Jacobini; a contractor for JP Morgan Chase broke into her home after the bank mistakenly foreclosed on it. JP Morgan Chase ‘apologized’ for terrifying her. But we do not have an apology-based legal system; we have a system of laws. I am writing to ask you to enforce them.

The organized and systematic manufacturing of falsified documents to deprive people of their homes is not only a threat to the integrity of the legal system. It also aggravates and extends the weakness in the housing market. Who is going to feel comfortable buying a home if a big bank can simply take it, whether or not that bank has a right to it? Given the securitization of mortgage-backed securities, this misconduct is a threat to our securities markets as well. But fundamentally, this is a question of protecting basic property rights – if you don’t own it, then you shouldn’t try to take it. Without clear property rights, and a legal system that insists on clear proof of those rights before transferring ownership by force, the economy will fall apart.

If perpetrators of perjured affidavits and other systematic criminal activity can get off simply with civil liability -- or even less, an insincere bureaucratic apology -- the freedom that Americans enjoy will erode quickly in the face of lawless seizures of property. I appreciate your work on the joint Middle District of Florida’s Mortgage Fraud Initiative, and respectfully request that the efforts of your offices turn towards reining in this rampant criminality.

Regards,

Alan Grayson
Member of Congress[/quote]
[i]My Comment:[/i] How much do you want to bet that the bank-owned stooges in the gubbermint try very hard to make all these shenanigans [url=http://syntheticassets.wordpress.com/2010/10/11/moral-hazard-and-the-foreclosure-crisis/]legal retroactively[/url]?

[i]"Over the past half century the financial industry has not treated the law as a bedrock institution that constrains the nature of its activities, but rather as a set of rules that can be forced to adapt to the industry’s needs and desires. Thus, the industry knowingly and deliberately creates standardized contracts that are either designed to circumvent the law or in some cases flatly illegal under current interpretations of the law, and then when a case involving the contract arises (which in many instances happens only long after the standardized contract has become an institution), the financial industry tells the court that the dubious or illegal contract is so widespread that the court would create systemic risk by enforcing the law."[/i]

Another day which threatened to have stocks selling off into the close, on the increasing realization that foreclosuregate is a very real threat to the banks ... thanks goodness for the ever-watchful of our Dear Chairman and his bestowing another invisible handjob to help pump up flaccid equity prices. But c'mon guys, you were only a teeny bit short of getting that sucker to close green - couldn't you have turned up the NYFED stock-buying spigot just a little more? People - not me, mind you, but there are always some of little faith - might start to question your omnipotence:

[QUOTE=ewmayer;233262]Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed.

This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED).

The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent documents to be entered into court as actual evidence (no live witness required). [/QUOTE]

This is not new, either- we had two different banks (Flagstar and Lehman Bros) claim to own our mortgage simultaneously clear back in 2001. A two-year nightmare. Both swore they had in their possession the original, signed notes; both refused to produce the documents for us or for the other bank. Our lawyer advised not paying the mortgage to either one until they could figure it out, because he said we’d never get any money back. Flagstar even foreclosed, and the note in our credit report read “Foreclosure Proceedings Started/ Never Late on Payments”. They did not even see the irony of that.
It cost us hundreds of hours of time, thousands of dollars in lawyers' fees.

Our loan was part of a set of “problem” loans, sold by one bank to two different banks (a profitable practice), after which they declared bankruptcy (equally profitable if you do it right, I guess; you get to keep all that money you made selling things twice). One of the other “problem” mortgages that ours was bundled with was a mortgage apparently taken out by a dead man. Witnessed and Notarized, mind you, but signed many months after he was deceased. Must have really wanted that house.

I came out of it with no respect at all for banks or lawyers. Ours or theirs. None of what’s happening is even mildly surprising after what I experienced during those two years.

Norm

For Once, Krugman Makes some Sense
 

Norm, thanks for the story of your personal mortgage-ownership-morass nightmare ... one wonders how many folks have been victims of similar unjust harassment.

On the same topic, I notice that NYT Head Keynesian stimulator Paul Krugman, when he gets off his pet theme of "you, too, can borrow your way out of debt", can actually make sense:

[url=http://www.nytimes.com/2010/10/15/opinion/15krugman.html?_r=1&partner=rssnyt&emc=rss]The Mortgage Morass[/url]
[quote]American officials used to lecture other countries about their economic failings and tell them that they needed to emulate the U.S. model. The Asian financial crisis of the late 1990s, in particular, led to a lot of self-satisfied moralizing. Thus, in 2000, Lawrence Summers, then the Treasury secretary, declared that the keys to avoiding financial crisis were “well-capitalized and supervised banks, effective corporate governance and bankruptcy codes, and credible means of contract enforcement.” By implication, these were things the Asians lacked but we had.

We didn’t.

The accounting scandals at Enron and WorldCom dispelled the myth of effective corporate governance. These days, the idea that our banks were well capitalized and supervised sounds like a sick joke. And now the mortgage mess is making nonsense of claims that we have effective contract enforcement — in fact, the question is whether our economy is governed by any kind of rule of law.

The story so far: An epic housing bust and sustained high unemployment have led to an epidemic of default, with millions of homeowners falling behind on mortgage payments. So servicers — the companies that collect payments on behalf of mortgage owners — have been foreclosing on many mortgages, seizing many homes.

But do they actually have the right to seize these homes? Horror stories have been proliferating, like the case of the Florida man whose home was taken even though he had no mortgage. More significantly, certain players have been ignoring the law. Courts have been approving foreclosures without requiring that mortgage servicers produce appropriate documentation; instead, they have relied on affidavits asserting that the papers are in order. And these affidavits were often produced by “robo-signers,” or low-level employees who had no idea whether their assertions were true.

Now an awful truth is becoming apparent: In many cases, the documentation doesn’t exist. In the frenzy of the bubble, much home lending was undertaken by fly-by-night companies trying to generate as much volume as possible. These loans were sold off to mortgage “trusts,” which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.

This is very, very bad. For one thing, it’s a near certainty that significant numbers of borrowers are being defrauded — charged fees they don’t actually owe, declared in default when, by the terms of their loan agreements, they aren’t.

Beyond that, if trusts can’t produce proof that they actually own the mortgages against which they have been selling claims, the sponsors of these trusts will face lawsuits from investors who bought these claims — claims that are now, in many cases, worth only a small fraction of their face value.

And who are these sponsors? Major financial institutions — the same institutions supposedly rescued by government programs last year. So the mortgage mess threatens to produce another financial crisis.

What can be done?

True to form, the Obama administration’s response has been to oppose any action that might upset the banks, like a temporary moratorium on foreclosures while some of the issues are resolved. Instead, it is asking the banks, very nicely, to behave better and clean up their act. I mean, that’s worked so well in the past, right?

The response from the right is, however, even worse. Republicans in Congress are lying low, but conservative commentators like those at The Wall Street Journal’s editorial page have come out dismissing the lack of proper documents as a triviality. In effect, they’re saying that if a bank says it owns your house, we should just take its word. To me, this evokes the days when noblemen felt free to take whatever they wanted, knowing that peasants had no standing in the courts. But then, I suspect that some people regard those as the good old days...[/quote]

Barry R. has a post comparing spending numbers for the past 5 presidents to all the tea party vilification of Obama as a big spender:

[url=http://www.ritholtz.com/blog/2010/10/hey-big-spender/]Hey, Big spender[/url]
[quote]There seems to be an increasing amount of rhetoric about government spending — how much of it there is, whether or not it’s affordable, the extent to which Obama is bankrupting the nation, that government spending is “crowding out” what the private sector might spend, etc., etc. So, does it wash?[/quote]
[i]My Comment:[/i]BTW, an interesting data point in light of Rogoff et al's work showing that debt-to-GDP of 90% appears to be a kind of critical threshold ... U.S. total debt outstanding (including SS borrowings) passed 90% this year:

[url]http://en.wikipedia.org/wiki/United_States_public_debt[/url]

The accompanying charts also show a very clear upward ramp beginning (not surprisingly) at the end of Dubya's term. You can point fingers of the "he was just a big a spender as I was" variety all you want, but the bottom line is, with revenues likely to remain depressed for at least a decade, the current fiscal trajectory is a fast path to the crisis we've been steering toward (and trying to grow, inflate and borrow-to-stimulate our way out of) for decades.


Robert Reich takes “QE lite” (and by extension, QE 2) to task:

[url=http://robertreich.org/post/1328014052]The Fed’s New Bubble (Masquerading as a Jobs Program)[/url]: [i]The latest jobs bill coming out of Washington isn’t really a bill at all. It’s the Fed’s attempt to keep long-term interest rates low by pumping even more money into the economy (“quantitative easing” in Fed-speak)[/i]
[quote]The idea is to buy up lots of Treasury bills and other long-term debt to reduce long-term interest rates. It’s assumed that low long-term rates will push more businesses to expand capacity and hire workers; push the dollar downward and make American exports more competitive and therefore generate more jobs; and allow more Americans to refinance their homes at low rates, thereby giving them more cash to spend and thereby stimulate more jobs.

Problem is, it won’t work. Businesses won’t expand capacity and jobs because there aren’t enough consumers to buy additional goods and services.

The dollar’s drop won’t spur more exports. It will fuel more competitive devaluations by other nations determined not to lose export shares to the US and thereby drive up their own unemployment.

And middle-class and working-class Americans won’t be able to refinance their homes at low rates because banks are now under strict lending standards. They won’t lend to families whose overall incomes have dropped, whose debts have risen, or who owe more on their homes than the homes are worth — that is, most families.

So where will the easy money go? Into another stock-market bubble.[/quote]

And just think, all that U.S. debt is backed up with $340 billion in gold reserves at $1300 per ounce.

DarJones

[QUOTE=Fusion_power;233746]And just think, all that U.S. debt is backed up with $340 billion in gold reserves at $1300 per ounce.[/QUOTE]

Not since tricky Dick Nixon took us off the gold standard, it's not ... it's now backed with an impressive-sounding "full faith and credit" thingie, which roughly translates to "we promise to pay, but make no promises as to the relative purchasing power of the dollars you thought you bought, compared to the ones we will give you when the note matures."

[QUOTE=ewmayer;233752]Not since tricky Dick Nixon took us off the gold standard, it's not ... it's now backed with an impressive-sounding "full faith and credit" thingie, which roughly translates to "we promise to pay, but make no promises as to the relative purchasing power of the dollars you thought you bought, compared to the ones we will give you when the note matures."[/QUOTE]Isn't that roughly what FusionPower said? The value of the gold at the current exchange rate is less than the face value of the debt. Either he was being ironic, or he was implying that inflation will make the physical gold have a value in dollars equal to the size of the debt in dollars when it becomes time to pay up.

Paul

[QUOTE=xilman;233831]Isn't that roughly what FusionPower said? The value of the gold at the current exchange rate is less than the face value of the debt. Either he was being ironic, or he was implying that inflation will make the physical gold have a value in dollars equal to the size of the debt in dollars when it becomes time to pay up.[/QUOTE]
Ah, that makes more sense - Interestingly, even though the dollar went through significant previous bouts of devaluation in recent decades (e.g. the 'stagflation' of the late 1970s), gold did not behave the way one would have predicted during those episodes. I suspect there is a significant subjective aspect which one might call "credibility of the fiat currency regime" responsible for that, as well as the factor that even in times of significant price inflation (currency devaluation) if there are attractive investment alternatives to hard assets like gold, the price of the latter may not track inflation because demand may remain low. This seems to have been the case throughout much of the last 3 decades, beginning with (using a US-centric timeline based on presidential-administrations) the Reagan bull market and culminating with the near-20-year Greenspan bull (or bubble, take your pick) market. Now we have the double-whammy of the bull being dead and the dollar regime having lost credibility since the attempts to weasel-default on the federal debt via devaluation are so transparent. Hence the rocket shot in gold (and other commodities, including oil, which is back to close to $100 per barrel despite global demand still being quite weak due to the global recession).

An interesting statistic: The weekend paper has a big double-page with summaries of around a thousand of the most widely owned mutual funds, covering pretty much all investment sectors. I did a quick scan of the 5-year performance columns this past weekend, looking for the outlier categories, and was startled to see that gold-index funds were the top performers over the past 5 years, not just the past 1 or 2. (Avg annual return of over 20% over that period ... I found only 2 non-PM specialty funds which were close to matching that, one a China-specialized, the other a Latin-America special.) Even more interestingly, note that there was no particularly dramatic gold price spike tied to the beginning of the 2008 financial crisis ... instead, since late 2005 gold has seen a remarkably [url=http://chart.finance.yahoo.com/z?s=GLD&t=my&q=l&l=on&z=l&p=s&a=v&p=s&lang=en-US&region=US]steady ramp[/url], which seems to contradict my above "bull markets are bad for gold prices" hypothesis. Hmmm ... I shall have to give that more thought. Perhaps the price-inflationary nature of the great housing bubble was mirrored both in a rise in equity and gold prices, i.e. one had unprecedentedly large leveraged-money (i.e. created via debt expansion) flows chasing a roughly fixed pool of assets, and thus creating inflation. Which the world's chief money-printers (i.e. the folks running the US Fed and the US banking system which created so much of the new leveraged 'bank capital') of course refused to see, because they exclude silly things like housing and equity prices from their inflation formulae.

In France, Labor Strikes Head for Showdown
 

[url=http://www.nytimes.com/2010/10/20/world/europe/20france.html?_r=1&ref=world]In France, Labor Strikes Head for Showdown[/url]: [i]Hundreds of thousands of people took to the streets of Paris and other cities on Tuesday ahead of a parliamentary vote on the country’s pension system.[/i]
[quote]PARIS — Flights were canceled, frantic drivers searched for fuel and hundreds of thousands of people, young and old, took to the streets of Paris and other cities on Tuesday as protests over President Nicolas Sarkozy’s plans to change France’s pension system mounted in advance of a parliamentary vote.

The protests came on the sixth day of national strikes or demonstrations since early September. Initial figures from government ministries said that fewer public workers had participated than in previous stoppages. Over all, the Interior Ministry said 480,000 people were demonstrating across France by midday, compared to 500,000 in protests a week ago. But the number of high schools reporting class boycotts and other student protests had risen to a high of 379.

Garbage workers, teachers, armored truck drivers supplying automated teller machines and an array of others joined the strikes on Tuesday. Protest organizations said demonstrations were planned at more than 260 sites across the country, ratcheting up the battle of nerves between the authorities and unions, which are demanding that the government retreat from reforms like administrations did in 1995 and 2006 when confronted by outrage against tax and labor law changes.

While most protests seemed orderly, around 300 young people threw up barricades of garbage cans to snarl traffic in the Place de la République in central Paris and scuffles were reported between rock-throwing students and riot police firing tear-gas in the outlying neighborhoods of Nanterre and Mantes-la-Jolie. In the south-eastern city of Lyon, 20 people were arrested in the central Bellecour district for setting fire to cars and at least five shops were looted, French television stations reported.

The disruptions have gained momentum since the first national protest on Sept. 7, and have been compounded by an eight-day strike at oil refineries and blockades of fuel depots, leaving motorists scrambling.

In central Paris, drivers lined up at gas stations hoping to fill their tanks before a two-week school vacation begins this weekend. Many waited for as long as an hour, creeping toward pumps in the hope that they were not yet empty of fuel. Some drivers from the suburbs said they had tried to fill up at other stations on their way into the city, but without success. Around one third of France’s 13,000 service stations have run out of some products, according to the government.

But Mr. Sarkozy has shown no sign of abandoning his plan to raise the minimum retirement age to 62 from 60.

On Tuesday, he said it was his duty to enact the reforms and he promised measures to guarantee fuel supplies. “I understand the worries,” he said. “In a democracy, everyone may express themselves, but they should do it without violence or excesses.” He said a “certain number of troublemakers” had joined the protests. “I will ensure with the forces of order that public order is guaranteed,” Mr. Sarkozy said. “That is my duty, too.”

His plan to raise the minimum retirement age is in line with a broader European trend. Over all, the continent is aging and, as people live longer with smaller families, fewer young people are available to pay for the continent’s social safety nets.

On Tuesday, the police said a high school in Le Mans, southwest of Paris, was destroyed by arson in the early hours, but it was not clear if the blaze was linked to the protests. Transport authorities in Paris said commuter rail services would be cut by as much as a half.

The national railroad authority also announced cancellations of around half its high-speed and normal services on Tuesday, but said the Eurostar Paris-London link would not be affected. The authority said support for the strike among railroad workers seemed to be running at around 30 percent compared to 40 percent for the previous stoppage a week ago.

At the Gare du Nord station in Paris, travelers waited on benches, then raced for trains running on a reduced schedule. “It’s absolutely absurd,” said Emmanuel de Boos, 56, a writer from the western city of Nantes. “We absolutely need to reform the retirement system as it exists today.”

“I think these strikes are more about other things,” he said, likening them to a referendum on Mr. Sarkozy. “This is a reaction against the elite.”[/quote]
[i]My Comment:[/i] The last comment is interesting, in light of the fact the protests appear to be fomented and organized by a kind of "entitlement elite" who are justifiably loath to give up their cushy current benefits, even though they are simply unsustainable.

Or perhaps - especially in light of the broad participation in the latest strikes - I am misunderstanding some key part of the social dynamic at work here? I realize that mass student protests are a longstanding tradition in France ... perhaps it's a form of "direct democracy" which has less to do with the specific issue at hand than it does with importance of reminding the government that their power is not unlimited. (If so, we could use some of that here in the almost-catatonically-docile-when-it-comes-to-street-protests U.S.

BofA Hit With First Big MBS Putback Suit
 

Bloomberg`s "Worldwide News" section today opens with this bullish-sound headline:

[url=http://www.bloomberg.com/news/2010-10-18/bank-of-america-plans-to-revive-foreclosures-on-102-000-homes-shares-gain.html]#Bank of America to Revive Foreclosures; Shares Climb[/url]: [i]Bank of America Corp. will “defend our shareholders” by disputing any unjustified demands that it repurchase defective mortgages, Chief Executive Officer Brian T. Moynihan said in an interview.[/i]
[quote]Most claims “don’t have the defects that people allege,” Moynihan said on Bloomberg Television today, referring to so- called putbacks, in which guarantors or investors in mortgage- backed securities ask to return bad loans. “We end up restoring them, and they go back in the pools.”

Bank of America, the largest U.S. lender, said as it reported third-quarter results today that mortgage investors were pushing the company to repurchase almost $13 billion of loans whose standards were challenged. Shares of the Charlotte, North Carolina-based company declined 9.1 percent last week, reaching their lowest in more than a year, amid scrutiny of foreclosures and speculation that investors may force lenders to buy back faulty loans.

The cost of buying back mortgages that didn’t meet investors’ standards declined about 30 percent to $872 million from $1.25 billion in the second quarter. The company expects a cost averaging $500 million each quarter for “the next couple of years or so” tied to faulty loans, a Bank of America executive said on a conference call with analysts. The sum of outstanding claims submitted by investors jumped 71 percent to $12.9 billion from $7.5 billion as of last year’s third quarter. [/quote]
[i]My Comment:[/i] Moynihan is either ravingly delusional or lying through his teeth. More about that shortly ...
[quote]The bank said yesterday it will start resubmitting foreclosure affidavits in 102,000 cases in which judgment is pending. Under pressure from lawmakers and state officials, bankers had been delaying action until they could answer allegations that filings were marred by so-called robo-signing, in which employees vouched for the accuracy of court filings without personally checking loan records. Bank of America’s suspension had included all 50 states as it reviewed documents.

“Our initial assessment findings show the basis for our foreclosure decisions is accurate,” Dan Frahm, a company spokesman, said yesterday. [/quote]
[i]My Comment:[/i] So, you were able to "thoroughly assess" the documentation quality in over 100,000 foreclosure cases in roughly the same time it took you to rubber-stamp robo-sign them in the first place? Suuuuuuuuuuuuuuuuure you were ... Well, that little earnings-manipulation-caused rally (if you choose to refer to a 10-cent or roughly 1% advance as a rally, which Bloomberg pretty much does) in BofA shares didn`t last long, and was already fizzled out when this next headline hit the newswires:

[url=http://www.bloomberg.com/news/2010-10-19/pimco-new-york-fed-said-to-seek-bank-of-america-repurchase-of-mortgages.html]Pimco, New York Fed Said to Seek BofA Repurchase of Mortgages[/url]: [i]Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.[/i]
[quote]The bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service the loans properly, their lawyer said yesterday in a statement that didn’t name the firms.

Investors are stepping up efforts to recoup losses on mortgage bonds, which plummeted in value amid the worst slump in home prices since the 1930s. Last month, BNY Mellon declined to investigate mortgage files in response to a demand from the bondholder group, which has since expanded. Countrywide’s servicing failures, including insufficient record keeping, may open the door for investors to seek repurchases by bypassing the trustee, said Kathy Patrick, their lawyer at Gibbs & Bruns LLP.

“We now are in a position where we have to start a clock ticking,” Patrick, who is based in Houston, said today in a telephone interview.

MetLife Inc., the biggest U.S. life insurer, is part of the group represented by Gibbs & Bruns, said the people, who declined to be identified because the discussions aren’t public. TCW Group Inc., the manager of $110 billion in assets, expects to join BlackRock, the world’s largest money manager, and Pimco, which runs the biggest bond fund, in the group, the people said.

Countrywide also hasn’t met its contractual obligations as a servicer because it hasn’t asked for repurchases itself and is taking too long with foreclosures, either because of document or process mistakes or because it doesn’t have enough staff to evaluate borrowers for loan modifications, Patrick said. If the issues aren’t fixed within 60 days, BNY Mellon should declare Countrywide in default of its contracts, she said. [/quote]
[i]My Comment:[/i] Prediction: There will be a tidal wave of such "putback" lawsuits, involving potentially several trillion dollars worth of the fraud-riddled, shoddily underwritten and bogusly-rated MBS issuance which typified (and was a key factor in helping to inflate) the housing bubble.

China Embargoes Rare Earths!
 

This post (which I planned to put up tomorrow) was intended to be fairly docile and food-for-thought-ish:

[b]Stop Being so Agreeable, Paul Krugman![/b]

Wow - For the second time in less than a week I find myself agreeing with Paul Krugman, again on an issue not related to the Keynesian-berus-Austrian-economic-policy debate:. In this case, Krugman weighs in on the Chinese rare-earth monopolyy, which figures in my post of 24 September:

[url=http://www.nytimes.com/2010/10/18/opinion/18krugman.html?src=me&ref=general]Rare and Foolish[/url]
[quote]I don’t know about you, but I find this story deeply disturbing, both for what it says about China and what it says about us. On one side, the affair highlights the fecklessness of U.S. policy makers, who did nothing while an unreliable regime acquired a stranglehold on key materials. On the other side, the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation.

Some background: The rare earths are elements whose unique properties play a crucial role in applications ranging from hybrid motors to fiber optics. Until the mid-1980s the United States dominated production, but then China moved in.

“There is oil in the Middle East; there is rare earth in China,” declared Deng Xiaoping, the architect of China’s economic transformation, in 1992. Indeed, China has about a third of the world’s rare earth deposits. This relative abundance, combined with low extraction and processing costs — reflecting both low wages and weak environmental standards — allowed China’s producers to undercut the U.S. industry.
[b]
You really have to wonder why nobody raised an alarm while this was happening, if only on national security grounds. But policy makers simply stood by as the U.S. rare earth industry shut down. In at least one case, in 2003 — a time when, if you believed the Bush administration, considerations of national security governed every aspect of U.S. policy — the Chinese literally packed up all the equipment in a U.S. production facility and shipped it to China.

The result was a monopoly position exceeding the wildest dreams of Middle Eastern oil-fueled tyrants.[/b] And even before the trawler incident, China showed itself willing to exploit that monopoly to the fullest. The United Steelworkers recently filed a complaint against Chinese trade practices, stepping in where U.S. businesses fear to tread because they fear Chinese retaliation. The union put China’s imposition of export restrictions and taxes on rare earths — restrictions that give Chinese production in a number of industries an important competitive advantage — at the top of the list.

Then came the trawler event. Chinese restrictions on rare earth exports were already in violation of agreements China made before joining the World Trade Organization. But the embargo on rare earth exports to Japan was an even more blatant violation of international trade law.

Oh, and Chinese officials have not improved matters by insulting our intelligence, claiming that there was no official embargo. All of China’s rare earth exporters, they say — some of them foreign-owned — simultaneously decided to halt shipments because of their personal feelings toward Japan. Right...[/quote]

[b]Breaking News: China Embargoes Rare Earths[/b]

I was going to post the above tomorrow to avoid excessive one-day-spamming-of-the-thread, but this breaking story forced my hand:

[url=http://www.nytimes.com/2010/10/20/business/global/20rare.html?_r=1&hp]China Is Said to Halt Exports to U.S. of Some Key Minerals[/url]: [i]China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted shipments of some of those same materials to the United States and Europe, three industry officials said on Tuesday.[/i]
[quote]The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further ratchet up already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese officials are willing to use their growing economic muscle.

“The embargo is expanding” beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities. They said Chinese customs officials imposed the broader shipment restrictions Monday morning, hours after a top Chinese official had summoned international news media Sunday night to denounceUnited States trade actions.

China mines 95 percent of the world’s rare earth elements, which have broad commercial and military applications, and are vital to the manufacture of diverse products including large wind turbines and guided missiles. Any curtailment of Chinese supplies of rare earths is likely to be greeted with alarm in Western capitals, particularly because Western companies are believed to keep much smaller stockpiles of rare earths than Japanese companies do. [/quote]
[i]My Comment:[/i] This has the potential to affect the numerous rare-earth-dependent industries in similar fashion as the Arab oil embargo of the early 1970s did oil-dependent sectors. In an echo of the 1930s, we are seeing trade wars breaking out all over the globe.

Note to self. Irony goes right over Ewmayer's head. Fortunately, he gets it when pointed out.


Of all the events over the last 3 years, the most telling is the repeated rocking of the market that I can best parallel to a massive earthquake with a series of aftershocks. The latest aftershock is the first shots fired in the mortgage putback war. And it WILL be war. The banks have no choice but to say "you bought it, you own it" and the mortgage don't-really-holders have no choice but to say "you sold us trash and we don't want it, take it back!". While I can't readily foresee the results, there are going to be sumo wrestler style body blows and slams. It promises to be entertaining at best. At worst, it has the potential to again destabilize the banking system on at least a par with the situation 2 years ago.

Major events:
0. inflation of dot.com bubble over roughly 8 years 1992-1999.
1. dot.com bubble collapse (circa 2000, Richter 5.5)
2. Greenspan inflates a housing bubble to heal the markets over the next 7 years.
3. Housing bubble collapses circa late 2007 (more drastic market effect than dot.com, Richter 8)
4. Financial markets seize up as lenders refuse to lend for about a year. (major aftershock, Richter 6.0)
5. Bush is on the way out and Obama in with TARP. Intent is to buy up the "troubled" assets. circa late 2008
6. TBTF Banks are tricked, forced, coerced, begging to get tarp funds so they don't go bankrupt. Did we mention accounting standard "easing"? circa early 2009
7. Major corporate bankruptcy filings for GM, Chrysler, and a handful of other big businesses. (circa mid-2009, richter 4.5)
8. Market instability increases culiminating in mini-collapses triggered by computer trading causing trading stop circuit breakers to be deployed. (circa early 2010, richter 3.5, just a good tremor)
9. Mortgagegate rears its ugly head. The first salvo comes in Maine where a former industry insider deposes an employee of a big bank and takes him apart. (3rd quarter 2010, first felt like a rumble, now feels like a major aftershock)
10. Mortgage holders file for putbacks to shove the mortgage trash back into the hands of the banks that sold them. The shoe has not yet dropped on this, but worst case could be another Richter 8 event. (circa October 2010)

Maybe I assigned the shock values incorrectly in the above, but I think most will get the idea.

DarJones

Dude, Where's My Job?
 

Nice guest post on ZH today documenting in graphic detail the hollowing-out of the productive economy of the U.S. over the past 4 decades - Most people following this thread probably already had a sense of this, but seeing the tabulated figures in all their shocking glory is really something.

[url=http://www.zerohedge.com/article/guest-post-idepression-20]Guest Post: iDepression 2.0[/url]: [i]Dude, where's My Job?[/i]
[quote]Every politician in the U.S. is running for election on a platform of “creating” new good paying jobs for Americans. Only one problem. Politicians don’t create jobs. Businesses create jobs. When politicians and the Federal Reserve get involved in the job market, bad things happen. The excessively low interest rates put in place by the Federal Reserve created a housing bubble that led to the “creation” of 1 million new construction jobs between 2002 and 2006. Of course, the bubble burst has led to the loss of 2 million construction jobs since 2007. What the myopic pundits on CNBC don’t realize, because they aren’t programmed to think, is that the Greenspan Housing Bubble “created” millions of other jobs that had no chance of being sustained. The number of realtors grew from 750,000 in 2000 to 1.3 million in 2006. We needed hundreds of thousands of new mortgage brokers and appraisers to falsify documents and not conduct proper due diligence. Wall Street needed to hire thousands of new MBA shysters to create fraudulent packages of toxic mortgages and the rating agencies needed to hire thousands of Burger King level thinkers to stamp AAA on the packages of toxic mortgages. These were just the direct jobs created by Easy Al. Home Depot, Lowes and a myriad of other home retailers built thousands of stores to service the needs of all these new “homeowners” and hired hundreds of thousands of clerks, installers, and cashiers. Once the delusion really got going, the “equity” from the homes generated jobs at car dealers, restaurants, cosmetic surgery centers, cruise lines, and yacht retailers.

Barry Ritholtz described how the Federal Reserve provoked housing bubble further warped an already unbalanced American job market:
[i]
Job creation has taken place across a wide swath of industries – much more than just residential construction. Sure, developers, builders, and subcontractors saw job growth explode. But it was far more than that. From real estate agents to mortgage brokers, from designers to contractors, plus the many employees of stores like Home Depot (HD) and Lowes (LOW), the Real Estate industrial complex was responsible for a disproportionate percentage of new job creation. From 2001, to the housing peak in 2005, the total number of Realtors, as a percentage of the Total Labor Force, gained nearly 50%.
[/i]
The reality is that Greenspan, Bernanke, and the rest of the Federal Reserve Governors “created” millions of jobs that were not sustainable. Their policies distorted an already tenuous economic model, dependent upon consumer spending, no savings, and delusions of home wealth. The chart below paints the picture of sorrow. The key points are:

* The number of employed Americans has declined by 7.4 million since 2007.
* Goods producing jobs have declined by 19% since 2007, while service jobs have only declined by 2.8%.
* Luckily, Government jobs have actually increased since 2007.
* The population of the US has increased by 10.8 million since 2007.
* The working age population has increased by 6.5 million since 2007, while the work force has only increased by 1 million.
* Only 58.5% of the working age population in the U.S. is currently employed versus 64.4% in 2000, a lower level than in 1978.
...
[u]The truth is that the country should still have 64.4% of the working age population employed today as we did 10 years ago. That means we should have 153.5 million employed Americans today. Instead, we have 130.2 million employed Americans. That is a 23.3 million job deficit and the Obama administration crows when we add 50,000 new jobs in a month. Welcome to iDepression 2.0.[/u]
[b]
No Way Out
[/b]
The United States of America is a hollowed out shell of the great industrial machine that dominated the world after World War II. The BLS data unequivocally proves this is so. The chart below compares American jobs in 1970 versus today. The storyline about good paying manufacturing jobs being shipped overseas is absolutely true. The population of the United States in 1970 was 203 million. Today, the population of 310 million is 53% higher. During this same time frame manufacturing jobs have declined from 17.8 million to 11.7 million, a 34% decrease. The corporate oligarchs that run this country will tell you this is due to efficiency. The truth is that these jobs were shipped to China in order to enrich the oligarch CEOs and their MBA efficiency “experts”. The key disturbing facts from this data are as follows:

* Goods producing jobs as a percentage of all jobs have declined from 31.2% in 1970 to 13.8% today.
* Lawyers, accountants, financial advisors and other paper pushing professions made up 12.4% of jobs in 1970 versus 18.7% of all jobs today.
* Obese Americans love to go out to restaurants and be served. Hospitality employees now make up 10.1% of the workforce versus 6.7% in 1970.
* Obese, vain, stupid Americans have also benefitted the Health Services and Education industries as the number of nurses, proctologists, teachers, school administrators and Beverly Hills TV surgeons has surged from 6.4% of the workforce to 15.1%. You’d think we would be healthier and smarter with these figures. We’re not.[/quote]
[i]My Comment:[/i] Meanwhile, the right-wing and banking-industry friendly folks over at the WSJ editorial board are still doing their best to pretend that "Foreclosuregate" (which is really a misnomer, since the fraud permeated the entire mortgage-issuance and securitization chain, and is only coming to light as a result of the ongoing foreclosure tsunami) is no big deal, just some minor paperwork snafus which will get cleared up in a jiffy. That's right, and in late 2007 and 2008, "Subprime was contained", nothing to see there either, folks - safe go out and buy equities, which are of course (as ever) "on sale".

Britain Plans Deepest Cuts to Spending in 60 Years
 

[URL="http://www.nytimes.com/2010/10/21/world/europe/21britain.html?_r=1"]Britain Plans Deepest Cuts to Spending in 60 Years[/URL]: [I]The British government on Wednesday unveiled the country’s steepest public spending cuts in more than 60 years, reducing costs in government departments by an average of 19 percent, sharply curtailing welfare benefits, raising the retirement age to 66 by 2020 and eliminating hundreds of thousands of public sector jobs in an effort to bring down the bloated budget deficit.[/I]
[quote]Wednesday’s announcement of £83 billion, about $130 billion, in cuts by 2015 represents a big political gamble for Britain’s fledgling Conservative-led coalition government.

Britain’s public deficit is one of the highest among developed economies, running at 11.5 percent of total economic output, compared with 10.7 percent for the United States and 5.4 percent for Germany. Though the Conservatives have so far made a persuasive case for the deep cuts, outmaneuvering a weakened Labour opposition, the country has yet to feel anything like the pain that is to come as the retrenchment begins to take hold.

“There’s a growing acceptance and public awareness that this is necessary, that these measures are needed,” Helen Cleary, deputy political director for the Ipsos Mori polltakers, said in an interview. “But I don’t think people will really understand what it all means until the cuts start to bite.”

The coalition government is also gambling that the reductions in public outlays will stimulate the private sector and restart growth, rather than send the economy back into a tailspin, as liberal economists have warned.

Britain has been bracing for the cuts for months, after Mr. Osborne announced in June the details of the so-called spending review, but Wednesday was the first time the government had set out its plans, department by department.

[B]Mr. Osborne said that 490,000 public sector jobs would be lost over the next four years[/B], some to attrition. At the same time, payments to the long-term unemployed who fail to seek jobs will be cut, he said, saving $11 billion a year. Additionally, he said, a new 12-month limit will be imposed on long-term jobless benefits, and measures will be taken to curb benefit fraud.

Mr. Osborne said an increase in the official retirement age to 66 from 65 would start in 2020 — four years sooner than planned — saving $8 billion a year. Britain has already said it will stop paying child benefit payments to people earning more than around $70,000 a year.
...
Britain has about six million public sector jobs, about one fifth of all jobs in the economy, according to the Office for National Statistics. But it was not clear what the impact of shedding 490,000 of them — about 8 percent of the total — would have on unemployment. Mr. Osborne has continually said that the private sector will take up the slack, employing more people as the economy emerges from the doldrums.

Mr. Osborne promised annual savings of 7.1 percent in the budgets of local government councils and said there would be a freeze followed by a 14 percent cut in tax money allocated to maintaining Queen Elizabeth II’s household. Public housing tenants, he said, will face higher rents closer to the market rates for private housing. [B]Military spending will be cut by 8 percent by 2014, he said, but he promised not to reduce spending on British forces in the Afghanistan war.[/B]
...
The average cut in the budgets of government departments, he said, will be 19 percent, not the 25 percent he had initially threatened.

He said a temporary tax on bank balance sheets would be made permanent. Many Britons, like Americans, are angry with big banks for their role in the world financial crisis. Mr. Osborne said the government would seek to extract “the maximum sustainable taxes” from financial institutions.

In June, Mr. Osborne also said that the value-added tax — a tax paid on most consumer goods in Britain — would increase in January, to 20 percent from 17.5 percent.[/quote][I]My Comment:[/I] That is called "dealing with fiscal reality" - It will be interesting to compare how well the U.S. handles its coming fiscal reckoning. Based on the fact that most of our governmental officials are still in deep, deep denial about the depth of the cuts needed and are still deluding themselves about that ever-nascent huge frickin` economic recovery (I suspect many are in fact hoping for another revenue-boosting bubble like dotcom and housing to come along in the near term, ruinous as those were in the long term) which is just around the ever-elusive metaphorical corner, I`m guessing "not very".

I found the bit about the Afghanistan war interesting - my guess is that the Brits are hoping the Americans will pull out (or at drastically draw down) in 2011 as scheduled, allowing the UK to do similar (or probably, pull out completely). I.e. talk a tough "stay the course" talk now to try to keep morale high and not embolden the Taliban (as if they needed any more emboldening, now that they have been officially given a seat at the negotiation table - which IMO is idiotic, since they have proved time and again that they are not interested in anything short of full control of the country), while hoping for a ready-made excuse to GTFO in the near future.

Movie, Book Reviews: "Inside Job", "Griftopia"
 

[b]Movie Review: "Inside Job"[/b]

LA Times (Kenneth Turan) and NY Times (A.O. Scott) reviews of the new documentary of the 2008 financial crash as anything-but-an-unfortunate-accident, [url=http://www.imdb.com/title/tt1645089/]Inside Job[/url]:

[url=http://articles.latimes.com/2010/oct/15/entertainment/la-et-inside-job-20101015]Movie review: 'Inside Job'[/url]: [i]Charles Ferguson presents a clear-eyed, sobering, commendable account of how the global economic crisis developed.[/i]
[quote]What happened?

What hit us?

How did things go so horribly wrong?

You have questions, "Inside Job" has answers. After watching Charles Ferguson's powerhouse documentary about the global economic crisis, you will more than understand what went down — you will be thunderstruck and boiling with rage.

For this smart and confident film, thick with useful information conveyed with cinematic verve, lays out in comprehensive but always understandable detail the argument that the meltdown of 2008 was no unfortunate accident. Rather, the film posits, it was the result of an out-of-control finance industry that took unethical advantage of decades of deregulation. It's enough to make you want to keep your money in a mattress.[/quote]


[url=http://movies.nytimes.com/2010/10/08/movies/08inside.html]Who Maimed the Economy, and How[/url]: [i]As I was watching “Inside Job,” Charles Ferguson’s meticulous and infuriating documentary about the causes and consequences of the financial crisis of 2008, an odd, archaic sentence kept popping into my head. The words come from the second chapter of “The Scarlet Letter” and are spoken in frustration and disgust by an old Puritan woman who watches Hester Prynne, publicly disgraced but without any sign of remorse, making her way from Salem’s prison to a scaffold in its market square. She “has brought shame upon us all ...” the anonymous woman remarks. “Is there not law for it?[/i]
[quote] “Inside Job,” a sleek, briskly paced film whose title suggests a heist movie, is the story of a crime without punishment, of an outrage that has so far largely escaped legal sanction and societal stigma. The betrayal of public trust and collective values that Mr. Ferguson chronicles was far more brazen and damaging than the adultery in Nathaniel Hawthorne’s novel, which treated Hester more as scapegoat than villain.

The gist of this movie, which begins in a mood of calm reflection and grows angrier and more incredulous as it goes on, is unmistakably punitive. The density of information and the complexity of the subject matter make “Inside Job” feel like a classroom lecture at times, but by the end Mr. Ferguson has summoned the scourging moral force of a pulpit-shaking sermon. That he delivers it with rigor, restraint and good humor makes his case all the more devastating.[/quote]


[b]Matt Taibbi`s forthcoming book, [i]Griftopia[/i][/b]

Rolling Stone has an excerpt from Matt Taibbi`s forthcoming book, [i]Griftopia[/i]:

[url=http://www.rollingstone.com/politics/news/17390/222206]Exclusive Excerpt: America on Sale, From Matt Taibbi's 'Griftopia'[/url]: [i]Our cash-strapped country is auctioning off its highways, ports and even parking meters, finding eager buyers in the Middle East[/i]
[quote]Here`s yet another diabolic cycle for ordinary Americans, engineered by the grifter class. A Pennsylvanian like Robert Lukens sees his business decline thanks to soaring oil prices that have been jacked up by a handful of banks that paid off a few politicians to hand them the right to manipulate the market. Lukens has no say in this; he pays what he has to pay. Some of that money of his goes into the pockets of the banks that disenfranchise him politically, and the rest of it goes increasingly into the pockets of Middle Eastern oil companies. And since he`s making less money now, Lukens is paying less in taxes to the state of Pennsylvania, leaving the state in a budget shortfall. Next thing you know, Governor Ed Rendell is traveling to the Middle East, trying to sell the Pennsylvania Turnpike to the same oil states who`ve been pocketing Bob Lukens`s gas dollars. It`s an almost frictionless machine for stripping wealth out of the heart of the country, one that perfectly encapsulates where we are as a nation.

When you`re trying to sell a highway that was once considered one of your nation`s great engineering marvels — 532 miles of hard-built road that required tons of dynamite, wood, and steel and the labor of thousands to bore seven mighty tunnels through the Allegheny Mountains — when you`re offering that up to petro-despots just so you can fight off a single-year budget shortfall, just so you can keep the lights on in the state house into the next fiscal year, you`ve entered a new stage in your societal development.

You know how you used to have a job, and a house, and a car, and a wife and a family, and there was food in the fridge — and now you`re six months into a drug habit and you`re carrying toasters and TVs out the front door every morning just to raise the cash to make it through that day? That`s where we are. While a lot of this book is about how American banks used bubble schemes to strip the last meat off the bones of America`s postwar golden years, the cruelest joke is that American banks now don`t even have the buying power needed to finish the job of stripping the country completely clean.

For that last stage we have to look overseas, to more cash-rich countries we now literally have to beg to take our national monuments off our hands at huge discounts, just so that our states don`t fall one by one in a domino rush of defaults and bankruptcies. In other words, we`re being colonized — of course it`s happening in a clever way, with very careful paperwork, so we have the option of pretending that it`s not actually happening, right up until the bitter end.[/quote]
[i]My Comment:[/i] The full excerpt (the above is but an excerpt from the exceprt ;) also has some interesting notes about the relative-value trajectories of oil and the dollar, e.g. "The effect of the 1973 oil embargo was dramatic. OPEC effectively quadrupled prices in a very short period of time, from around three dollars a barrel in October 1973 (the beginning of the boycott) to more than twelve dollars by early 1974.". With oil prices around $80 per barrel today, the rise from $3 per barrel in October 1973 represents an average annual rate of oil-price inflation of [((80/3)[sup]1/27[/sup]-1) * 100%] or nearly 13%. Note that prices of refined products such as gasoline have risen less (between 10-15x here in the US... I don`t know offhand whether the proportion of that which is due to various taxes has changed significantly), probably because refining costs are more likely to track broader inflationary trends.

Barry Ritholtz comments on the forthcoming Taibbi book [url=http://www.ritholtz.com/blog/2010/10/griftopia/]here[/url]. He concludes with this sentence containing several of the 50-cent German-philosopher-style words so beloved by academics and liberal arts majors trying to look schmart at parties:

[i]"I don’t always agree with Taibbi’s conclusions, but he manages to tap into the [u]Zeitgeist[/u] of the nation’s [u]angst[/u] better than anyone else."[/i]

Perhaps he meant to say,

[i]"I don’t always agree with Taibbi’s [u]Sturm-und-Drang[/u]-filled [u]Weltanschauung[/u], but he manages to tap into the [u]Zeitgeist[/u] of the nation’s [u]angst[/u] better than anyone else, without indulging in cheap [u]Schadenfreude[/u]."[/i]

I'll bet the lib-arts-major chicks at NYU really go for that sort of stuff. [i]"So, do you kommen hier often, babykuchen?"[/i]

[url="http://en.wikipedia.org/wiki/Charles_H._Ferguson"]Ferguson's[/url] "High Stakes, No Prisoners" was a very entertaining read on running a software company at the dawn of the internet age.

Hello folks,

I am new at mersenneforum.org, but I have lurked here for years. The intelligent and informed commentary concerning this MET2010 at this site is most admirable, but also most troubling: for all of us.

If I may, I would like to direct you to a link from the Fargo (ND), Forum. It speaks of the experiences of Senator Kent Conrad, the Senate Budget Committee charman during the infamous meetings of mid September 2008 and the notorious all night Saturday meeting during what I think is October 4th of 2008.

[URL]http://www.inforum.com/event/article/id/295587/[/URL]

It sure would be nice to read transcripts of those two meetings.

When accessing the Fargo Forum, be sure your cookies are turned on. Also after reading a story, before clicking another Fargo Forum hyperlink, be sure you to delete that cookie, otherwise in-forum.com will insist for registration. In other words, they allow you to read one story, then they will insist on registration to read further.

:razz:

[QUOTE=ewmayer;234151] With oil prices around $80 per barrel today, the rise from $3 per barrel in October 1973 represents an average annual rate of oil-price inflation of [/QUOTE][((80/3)[sup]1/37[/sup]-1) * 100%] = about 9.3%

(1973 was 37 years ago, rather than 27. Time flies when you're having fun. :-)

[quote]Note that prices of refined products such as gasoline have risen less (between 10-15x here in the US... I don`t know offhand whether the proportion of that which is due to various taxes has changed significantly), probably because refining costs are more likely to track broader inflationary trends.[/quote]

[QUOTE=ewmayer;234151][B]Movie Review: "Inside Job"[/B]

LA Times (Kenneth Turan) and NY Times (A.O. Scott) reviews of the new documentary of the 2008 financial crash as anything-but-an-unfortunate-accident, [URL="http://www.imdb.com/title/tt1645089/"]Inside Job[/URL]:

[URL="http://articles.latimes.com/2010/oct/15/entertainment/la-et-inside-job-20101015"]Movie review: 'Inside Job'[/URL]: [I]Charles Ferguson presents a clear-eyed, sobering, commendable account of how the global economic crisis developed.[/I][/QUOTE]Rats. I didn't know about (or didn't pay attention to) this movie when it was here several months ago.

Now, it's showing in Chicago. Hmmm...

[QUOTE=dorcheat;234167]Hello folks,

I am new at mersenneforum.org, but I have lurked here for years. The intelligent and informed commentary concerning this MET2010 at this site is most admirable, but also most troubling: for all of us.

If I may, I would like to direct you to a link from the Fargo (ND), Forum. It speaks of the experiences of Senator Kent Conrad, the Senate Budget Committee charman during the infamous meetings of mid September 2008 and the notorious all night Saturday meeting during what I think is October 4th of 2008.

[URL]http://www.inforum.com/event/article/id/295587/[/URL]

[/QUOTE]

dorcheat, welcome to the forum. I recognize your username as a very old contributor to GIMPS. At least since 2002-2003 if I am not mistaken.

Regarding the article, you linked above, it sounds very much like a CYA (Cover Your Ass) job. There is no denying that the crisis was very serious. But it is very irresponsible of Conrad to say that it was either TARP and the AIG bailout or another Great Depression. The problem is not that something was done. The problem is that the wrong stuff was done. The interests of the taxpayer were sacrificed in favour of the banks on almost every single occasion. AIG was used as a backdoor bailout for lots of Wall Street and European banks. Ditto Fannie and Freddie. They forgot Bagehot's maxim about central bank lending in times of trouble: Lend freely but at punitive rates of interest. Instead, the banks were give a free ride and the wider economy continued to suffer.

[QUOTE=garo;234268]Regarding the article, you linked above, it sounds very much like a CYA (Cover Your Ass) job. There is no denying that the crisis was very serious. But it is very irresponsible of Conrad to say that it was either TARP and the AIG bailout or another Great Depression.[/QUOTE]I disagree.

All the evidence I've seen indicates that at that time (mid-September 2008) we did indeed face a serious global financial crisis of Depression-bringing proportions.

We're accustomed to seeing exaggerations in political and financial discussions nowadays, but one thing that has been [U]under[/U]stated in public discussion is how bad the situation was in mid-September 2008.

[quote]The problem is not that something was done. The problem is that the wrong stuff was done.[/quote][I]I invite you to post your detailed analysis[/I] in my "Alternate scenarios for post-Sept. 15 2008" thread at [URL]http://mersenneforum.org/showthread.php?t=12816[/URL] !!

[quote]AIG was used as a backdoor bailout for lots of Wall Street and European banks. Ditto Fannie and Freddie.[/quote]... because so many banks had, through unregulated trade in leveraged securities, put themselves into a single-point-of-failure situation.

[quote]Instead, the banks were give a free ride[/quote]Yes, there should have been/should be more punishment meted out for their sins, but bringing down the wider financial world would have been more collateral damage than it was worth.

I fully agree with the following statements from the forum post:
[quote=www.inforum.com]. . .

“If people could have been in that room and seen what I saw, what I heard – this notion that we should have just done nothing is so utterly far-fetched and detached from reality, that it really concerns me,” Conrad said.

“There seems to be an incredible disconnect between the reality of what we confronted and what some people believe were the alternatives,” he said.

. . .

Conrad said Thursday the Obama administration and Democratic leaders failed to properly explain why TARP was necessary ...

“We have done a horrible job of explaining to people why certain things had to be done, how serious the situation was,” he said.

At the time, a complete explanation would have made matters worse, though, Conrad said.

“I’ve thought back a lot: Why weren’t we more clear as to how serious this was?” Conrad said. “And I remember, we were told: ‘Look, if we say how serious the situation is, it could lead to a financial panic.’ ”

But, he added, “at some point, the people of the country needed to be told just how serious the situation had been and needed to be told why these steps had to be taken.”

Conrad said TARP’s success has been lost in political talking points. All but $29 billion of the $700 billion-package will be paid back by those companies that received aid, he said.

In some cases, such as the banks, taxpayers will actually profit from the legislation, Conrad said.[/quote]It is irresponsible (or ignorant) for folks to call TARP a "giveaway" without acknowledging this 96% payback.

[quote]. . .

... TARP demonstrated its worth by preventing the economy from hitting rock bottom.

Without any federal intervention, the U.S. would have had 8.1 million fewer jobs in the second quarter of 2010 than it did, Conrad said, citing calculations by leading economists.

The unemployment rate also would have climbed to Depression levels of 15 percent or more by this quarter of 2010, compared to the current rate of 9.7 percent, Conrad said.[/quote]I've not yet seen anyone present a biting criticism of the AIG bailout that acknowledges how critical the September 2008 situation was, and most of that criticism is stuffed with ideological talking points rather than real analysis.

I see that cheesehead is taken in hook line and sinker with the MSM propaganda about the "96% payback" of TARP. Instead of datamining and posting lots of links, I just invite you to read Barry Ritholtz's Bailout Nation. That does a great job of explaining everything that went wrong including the AIG bailout.
Start by reading these posts:
[URL]http://www.ritholtz.com/blog/category/bailouts/[/URL]
Then get back to me!

[QUOTE]I've not yet seen anyone present a biting criticism of the AIG bailout that acknowledges how critical the September 2008 situation was, and most of that criticism is stuffed with ideological talking points rather than real analysis.[/QUOTE]

You are the one who is coming up with hot air and empty talking points here mate. Do you even know the numbers? Do you know that AIG paid the banks 100 cents to the dollar? Do you know the main beneficiaries? Do you know that AIG's deal with Uncle Sam has been re-negotiated three times, the latest being this summer? Why does Obama's treasury keep making the deal sweeter for AIG when the crisis is no longer an emergency? Please answer these questions or as Barry likes to say, "Pour yourself a tall cold glass of STFU!"

...To say nothing of the fact that TARP was sold as a program to recapitalize the banks by purchasing their "troubled" assets, and then repurposed - in many respects without congressional approval - in completely different fashion. TARP (at least in its eventual, much-modified form) did have one thing right, though - recipients were subject to strict exec-compensation restrictions. Which was of course the program's undoing as an effective means to recapitalize ... once the original recipients got past the initial panic of the this-just-got-rammed-down-out-throats phase and the big players quickly realized that Uncle Sam was also offering multiple backdoor-bailout facilities which lacked the odious exec-comp restrictions of TARP, the ones who were able to do so tripped over each other in their rush to "pay back" TARP.

Barry Ritholtz is of the opinion - and the numbers and timing certainly are supportive of this hypothesis - that the reason TARP was forced onto all of the big banks, including several who said they didn't need the funds, and quickly repaid them - was to cover up the fact that the biggest of them, Citigroup, was insolvent, and to a degree that would have been impossible to disguise for much longer. (It took the government until the following Spring to come up with the clever "solution" of suspending the longstanding mark-to-market accounting rules for banl capital and replacing them with "mark to fantasy", where they remain to this day.)

And meanwhile, the *real* troubled-asset purchases have been occurring in even larger amounts, in a place where they can be much better hidden and carry no restrictions for the beneficiaries - that is, the Fed's "balance sheet", which swelled by over trillion dollars last year, and is set to expand further as Bernanke and crew ready for yet another round of "quantitative easing". Why do you think the stock market keeps rallying even though the real economy shows zero signs of emerging from its depressed state?

(For those unfamiliar with the Fed's funny-money balance sheet, the increase represents money "printed" to buy toxic assets likely worth far less, with the difference scheduled to be made up by present and future generations of the great unwashed who will see the purchasing power of their money continue to shrink and who are earning near-zero interest on any money they have managed to save from the hands of Wall Street and the debt merchants running the banking sector. It is why, as long as the Fed exists, the U.S. will never "default on its obligations" - at least not explicitly. Hey, as long as you can continue to sucker people into lending you their gold which you "repay" with devalued scrip, you'd be an idiot not to take advantage of their [strike]stupidity[/strike]generosity.)

Lastly, before anyone pipes up with "even Citigroup has repaid xxx% of TARP" - don't forget the $300 billion loan guarantee they received along with their TARP monies, and which the U.S. taxpayer remains on the hook for. Like garo said, for every dollar in visible TARP monies the banks received, there are multiple dollars in much-better-hidden backdoor-bailout monies. Obfuscating the true taxpayer cost of the bailouts is a huge priority for the government.

A belated welcome to recently-unlurked reader dorcheat ... one of our aims here at MET2010 central is to convert as many lurkers (who may feel unable or unwilling to contribute to the discussion at first) to well-informed, critically-minded contributors as possible.

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

[b]Addendum to above TARP/QE Post:[/b]

By way of Mish, an analysis by John Hussman of the misguidedness of quantitative easing:

[url=http://globaleconomicanalysis.blogspot.com/2010/10/liquidity-traps-falling-velocity.html] Liquidity Traps, Falling Velocity, Commodity Hoarding, and Bernanke's Misguided Tinkering[/url]: [i]John Hussman has an interesting post this week on the misguided policies of the Bernanke Fed and how quantitative easing promotes commodity speculation and hoarding but does nothing for the real economy. Please consider Bernanke Leaps into a Liquidity Trap[/i]

Hussman knocks it out of the park here, in terms of the clarity of his reasoning (and unlike the folks running the futile money-printing policy circus, he backs everything up with data):
[quote][b]...the precise level of long-term interest rates is not the main constraint on borrowing here. The key issues are the rational desire to reduce debt loads, and the inadequacy of profitable investment opportunities in an economy flooded with excess capacity.[/b]

One of the most fascinating aspects of the current debate about monetary policy is the belief that changes in the money stock are tightly related either to GDP growth or inflation at all. Look at the historical data, and you will find no evidence of it.

You can see why monetary base manipulations have so little effect on GDP by examining U.S. data since 1947. Expand the quantity of base money, and it turns out that velocity falls in nearly direct proportion. The cluster of points at the bottom right reflect the most recent data.

Just to drive the point home, the chart below presents the same historical relationship in Japanese data over the past two decades. [b]One wonders why anyone expects quantitative easing in the U.S. to be any less futile than it was in Japan.[/b][/quote]
[i]My Comment:[/i] With respect to the last point, the incisive analysis which has led our economic leadership to conclude that QE will work here even though the virtually-identical approach has failed miserably (except in terms of ballooning trhe national debt - there, it has succeeded spectacularly) to revive the moribund Japanese economy despite over a decade of multiple attempts is this gem of reasoning: "The U.S., is not Japan". (I *knew* there was a reason they pay these folks big bucks and give them economic fake-Nobel prizes sponsored by a big Swedish bank.)

p.s.: Regular readers of Mish`s blog know that he has been beating the it's-deflation-not-inflation-stupid drum for years, but methinks his POV here has gotten a bit dogmatic, as he seems to [url=http://globaleconomicanalysis.blogspot.com/2010/10/massive-inflation-in-china-us-inflation.html]making great efforts[/url] to sweep the various forms of "selective inflation" (e.g. in commodity prices) the Fed's easy-money policies have led to under his deflationary rug. Mish seems to narrowly view price inflation only in terms of prices paid by the consumer/end-user, which - except in commodities where margins were already razor-thin or sellers effectively collude on pass-through pricing (e.g. gasoline sales) - indeed are not showing clear inflationary signs in the U.S., due to weak demand. I say that producer-price inflation is still inflation: Whether the inflationary price gets paid by the consumer in terms of higher prices or the producer in terms of reduced profitability, there is still a diversion of capital to service the price increases taking place.

[b]p.p.s:[/b] Breaking News: Neil Barofsky, the special inspector general appointed for TARP, has just a released an apparently-quite-scathing 300-page quarterly report on the "success" of the program:

[url=http://www.zerohedge.com/article/sigtarp-calls-out-tim-geithner-various-violations-including-data-manipulation-cruel-cynicism]SIGTARP Calls Out Tim Geithner On Various Violations Including Data Manipulation, Lack Of Transparency, "Cruel" Cynicism, And Gross Incompetence[/url]

[QUOTE=garo;234337][QUOTE=cheesehead;234306]I've not yet seen anyone present a biting criticism of the AIG bailout that acknowledges how critical the September 2008 situation was, and most of that criticism is stuffed with ideological talking points rather than real analysis.[/QUOTE]

You are the one who is coming up with hot air and empty talking points here mate. Do you even know the numbers? Do you know that AIG paid the banks 100 cents to the dollar? Do you know the main beneficiaries? Do you know that AIG's deal with Uncle Sam has been re-negotiated three times, the latest being this summer? Why does Obama's treasury keep making the deal sweeter for AIG when the crisis is no longer an emergency? Please answer these questions or as Barry likes to say, "Pour yourself a tall cold glass of STFU!"[/QUOTE]See what I mean, folks?

Not

one

single

word

about

how critical the September 2008 situation was.

[QUOTE=cheesehead;234373]how critical the September 2008 situation was.[/QUOTE]

Agreeing that things were very dire in the Fall of 2008 - as most here will do - is not the same as agreeing the "desperate times call for idiotic-and-or-illegal remedies". So much of the banking system was insolvent in 2008 and the credit markets had largely ground to a halt. Government steps in, bails out the TBTFs to the tune of several $trillion, punishes none of the guilty parties (the insolvency was mostly self-inflicted), and aside from restoring a false sense of confidence in the financial sector (or better, the sense that if you are deemed a TBTF financial firm, no matter how badly you screw up, the government has your back), none of the fundamental issues that led to the crisis has been addressed in any serious way. Worse, by visibly and deliberately not prosecuting the criminal rackets which brought us all the misery, the government has further emboldened them.

Garo,

My opposition to some single aspect of an opinion posted here does not constitute whole-hearted endorsement of all opposition to the poster's views. Please refrain from treating it as such, lest you be thought as hot-headed as I have been several times in the past. :-)

[QUOTE=ewmayer;234377]Agreeing that things were very dire in the Fall of 2008 - as most here will do - is not the same as agreeing the "desperate times call for idiotic-and-or-illegal remedies".[/QUOTE]You aren't implying that the phrase in quotes represents my views, are you? It doesn't.

[quote]So much of the banking system was insolvent in 2008 and the credit markets had largely ground to a halt.[/quote]So, do you agree with me that it was [U]necessary[/U] for the U.S. government to intervene (in [I]some[/I] manner), because private interests were unable to cope with the situation through market forces and ordinary business procedures -- in contradiction to what so many conservatives have maintained?

[quote]Government steps in, bails out the TBTFs to the tune of several $trillion,[/quote]What were the workable alternatives in mid-September 2008?

[quote]punishes none of the guilty parties[/quote]I've consistently condemned that.

[quote]and aside from restoring a false sense of confidence in the financial sector[/quote]... which was a short-term necessity for preventing a panic, but the truth should have come out more into the MSM since then.

[quote]none of the fundamental issues that led to the crisis has been addressed in any serious way.[/quote]I agree.

[quote]Worse, by visibly and deliberately not prosecuting the criminal rackets which brought us all the misery, the government has further emboldened them.[/quote]I agree.

cheesehead, please read some of the posts I linked above. I don't think it is possible to have an intelligent discussion without that. I have posted several dozen times on this thread and its predecessor so I'm not going to rehash my positions again. As Ernst said, the severity of the situation in 2008 does not excuse the stupidity of several aspects of the bailout.

BTW, you are the one who jumped into this trying to defend the actions of this and the previous administration wholesale. I will leave you with the SIGTARP report on the Treasury's actions. Neil Barofsky has spent a lot of time on this and is far more informed and competent to comment on the government's actions than you or I will ever be.
[url]http://www.zerohedge.com/article/sigtarp-calls-out-tim-geithner-various-violations-including-data-manipulation-cruel-cynicism[/url]

And please try not to threadspoil with long posts quoting the previous posted wholesale followed by a one sentence reply.

One more datapoint:
[url]http://www.ritholtz.com/blog/2010/10/sigtarp-report-treasury-hid-aig-losses/[/url]

[QUOTE=garo;234405]cheesehead, please read some of the posts I linked above.[/QUOTE]Since you're a careful reader, you'll have noticed that I keep referring to the situation on September 15 (or sometimes "mid-September"), 2008. The AIG action was decided then. TARP was not.

I have not been referring to TARP (except for one side remark about 96% payback) and I have not defended TARP. Please stop citing TARP criticisms in response to my requests for ideas about the situation on September 15, 2008. Yes, I realize that TARP was a response to the September 15 situation, but it was not the initial emergency action the U.S. government took. (For one thing, TARP had to be passed by Congress. The actions to which I was referring were taken by the executive branch.)

(Two years ago, when TARP was passed, my position was neutral. I did not think I knew enough to be either a supporter or detractor at that time. I objected to what I thought at that time were mischaracterizations of TARP, but only to set the record straight, not defend TARP in general. I have continued to protest mischaracterizations of TARP, but not defend it.)

[quote]As Ernst said, the severity of the situation in 2008 does not excuse the stupidity of several aspects of the bailout.[/quote]I'm not talking about any aspects other than what happened on the weekend of September 15, 2008 (aside from the 96% remark). Why don't you comment on them instead of all the after-stuff like TARP? (I accept your dispute of the 96% as being properly in response to me, but not all the other TARP stuff.)

[quote]BTW, you are the one who jumped into this trying to defend the actions of this and the previous administration wholesale.[/quote]Simply not true. Please don't paint me with some broad brush because you're too lazy to distinguish between one thing and another.

I repeat:

My opposition to some single aspect of an opinion posted here does not constitute whole-hearted endorsement of all opposition to the poster's views. Please refrain from treating it as the latter

Ok so why don't you tell us what you think was done right on Sep 15 2008 and what was done wrong given the grave situation the US financial system was in at the point.

The big story on Sep 15 was Lehman and not AIG. That happened the same weekend but has since been renegotiated three times. The original terms of the agreement were actually quite okay. It is what has happened since then that is a problem.

BTW, Conrad speaks about TARP and that interview/article was the original subject of discussion so it matters not a whit that you claim that you are not talking about TARP.

PS: I feel that this discussion is going down the (rabbit)-hole again and I'm disinclined to get into another he said she said type thing.

[i]Rolling Stone[/i]gadfly-reporter-in-chief Matt Taibbi is in Florida, researching a magazine piece on foreclosuregate and the systemic mortgage-issuance, chain-of-title and securitization fraud it is revealing:

[url=http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/225410/83512]Bank of America Admits Many Foreclosure Mistakes[/url]
[quote]So I'm on my way to Florida, to work on a story about the foreclosure crisis. On my way I wanted to post this [url=http://www.zerohedge.com/article/bank-america-finally-confirms-foreclosure-errors-and-whopping-incidence-rate]bit of news[/url], that Bank Of America has conceded to a significant percentage of errors in its review of pending foreclosures.

This clashes directly with what it said on October 18, when it said that an initial review indicated that "the basis for our foreclosure decisions is accurate." It now says that between 10 to 25 of the first few hundred foreclosures it reviewed were faulty. And that's only what the bank is admitting to.

There has been a tremendous effort in the media to blame this foreclosure crisis on homeowners who over-borrowed and the lawyers who represent them. (A Wall Street Journal article last week blaming a Jacksonville lawyer named James Kowalski for [url=http://online.wsj.com/article/SB10001424052702304410504575560072576527604.html?mod=WSJ_hps_MIDDLEForthNews]destroying the universe[/url] was a new low in crisis reporting and some of the worst journalism I've ever seen). The truth, and I'll get into this in detail when the magazine piece comes out, is that this foreclosure fiasco is a story about wide-scale bureaucratic fraud, with a kind of mortgage counterfeiting and a gangbang mentality with regard to the securitization process has infected the entire system. Since mortgages and mortgage-backed securities are in everything — in your pensions, in insurance portfolios, on the balance sheet of the Fed and its bailout facilities (making all Americans stakeholders in subprime notes) — a wave of phantom and/or mismarked mortgages has the potential to wreck the entire economy, which is why everyone from Ben Bernanke on down is shitting bricks as this story (and disclosures like this BOFA thing) unfolds. This business is, believe me, a LOT worse than even Bank of America is admitting, and it's not confined to just a few reckless banks. Anyway, more to come later.[/quote]
[i]My Comment:[/i] Meanwhile, our Dear Leadership and the Wall Street lapdog media are doing their utmost to try to downplay, mischaracterize (note the almost-universal avoidance even of the word "fraud"; instead we see a litany of politer liar-words like "mistake", "error", "glitch" and "technical issue" in most MSM coverage of the fiasco) and blame-shift onto someone else (typically the underwater borrowers, most of whom deserve to be foreclosed on, but few of whom are likely to have engaged in mass-scale fraud.

This Bloomberg piece is a perfect example of the calling-it-something-much-nicer-than-it-is when it comes to the mortgage fraud issue - I've boldfaced the weasel-words:

[url=http://www.bloomberg.com/news/2010-10-25/bair-says-u-s-regulators-will-likely-uncover-more-flaws-in-foreclosures.html]Bair Says Regulators Will Uncover More [b]Flaws[/b] in Foreclosures[/url]
[quote]Regulators are likely to discover more [b]problems[/b] related to loan servicing by some of the biggest banks as they probe claims that documents were [b]mishandled[/b], Federal Deposit Insurance Corp. Chairman Sheila Bair said.

“We are going to get into more and more [b]problems[/b] with the [b]issues[/b] that are surfacing now on servicing,” Bair said today at a housing conference in Arlington, Virginia. Resulting litigation could “ultimately be very damaging to our housing markets if it ends up prolonging those foreclosures that are necessary and justified,” she said. Bair didn’t provide details on what other [b]problems[/b] she thought might arise.

JPMorgan Chase & Co., Bank of America Corp. and Ally Financial Inc.’s GMAC Mortgage unit are among loan servicers that temporarily halted foreclosures to review paperwork after court documents showed employees may have submitted affidavits without confirming their [b]accuracy[/b].

The FDIC, the Federal Reserve and the Office of the Comptroller of the Currency are conducting joint examinations, with teams inside the firms responsible for handling mortgage payments from homeowners. Results of those exams will determine the federal government’s next steps, Bair said.

“Ultimately this [b]problem[/b] will require some type of global solution,” she said. “In developing that solution, I would suggest that all interested parties consider some type of triage on foreclosures” such as safe harbor relief for vacant properties or interest-rate reductions for borrowers.

[u]Bair said she doesn’t think congressional legislation will be needed to address the issue.[/u][/quote]
[i]My Comment:[/i] Right - why bother to try to change the law, when you can simply ignore it?

If you buy property, you have to have some reasonable proof that is can be legally sold. This proof takes various forms depending on state laws. It may be a certificate of title or it may be a historical trace of all previous owners such as an 'abstract'. The underlying concept is that the land must be proven to be viable to be sold.

Mortgages do not have any viability requirements. There are no laws that prohibit selling them nor any proper means of certifying that they can be sold in the first place. This is the "law" that is not currently in existence. It is my opinion that mortgage derivatives should be sold in the market but ONLY if they are verified and certified first. This is not a black and white proposition. For example, is a no-money-down mortgage just as good as a mortgage that had a 25% down payment? Further, before a mortgage derivative could be rated by one of the ratings agencies, I think the rating agency should certify the viability in concrete terms. This has NOT been part of any ratings agency to date.

DarJones

[QUOTE=garo;234437]Ok so why don't you tell us what you think was done right on Sep 15 2008 and what was done wrong given the grave situation the US financial system was in at the point.[/QUOTE]Just before that weekend, AIG had suffered a sudden downgrading of its securities (due to ratings agencies starting, at last, to take a first step toward recognizing reality). Because it had previously taken advantage of its status as a top-rated firm to refrain from providing full collateral for CDSs, etc. that it had traded with other financial institutions, the downgrading meant that it suddenly had to provide that collateral which it had neglected to provide while top-rated. But AIG didn't have the cash to do so.

Because the CDSs were part of a vast web of highly-leveraged but unregulated "securities" that banks had traded with each other around the world, and because AIG was one of the largest traders of those "securities", an AIG collapse would have immediately brought about the collapse of numerous other financial institutions around the world. Their collapse would have spread to many others and shut down the world financial system.

Avoiding that worldwide collapse required that AIG somehow immediately get its hands on several dozen billion dollars. The only entity capable of supplying that was the government. (I think there may have been an appeal to private entities about supplying this, but they were unable to do so.) So, it was necessary for the Fed to set up an $85 billion credit line for AIG to prevent the collapse.

That Fed action was a thing "done right".

However, you wrote that it was "very irresponsible of Conrad to say that it was either TARP and the AIG bailout or another Great Depression." That is what I disagreed with, because without the AIG bailout, its collapse probably [I]would[/I] have caused something similar in scope to the Great Depression.

As for whether TARP was a correct action to take as a necessary followup to the Sept. 15 AIG bailout, that is a separate matter. I explained my views on TARP earlier. I could post additional conclusions I make now, but not until we clear up this misunderstanding as to what I disagreed with and what I didn't.

[quote]The big story on Sep 15 was Lehman and not AIG.[/quote]Half-right.

First, Lehman's share price collapsed in early September. Then, as investors learned of the nature of the rot in Lehman's assets, they quickly looked at other companies holding similar assets. AIG was the biggest of those. As said earlier, ratings agencies began to recognize reality and downgraded AIG from its top-ranked status. That brought about the sudden Sept. 15 need for collateral etc. as mentioned above.

Yes, Lehman also declared bankruptcy then, and that was a big story, but we know now that it was the AIG predicament that was so much more serious that it required extraordinary action. (I think a Lehman-alone collapse could have been handled through normal bankruptcy procedures.) Had the latter part been immediately known to, and appreciated by, the public, [I]that[/I] would have been the headline item just after that weekend.

[* edit - [i]Time[/i] magazine's view: [url]http://www.time.com/time/business/article/0,8599,1841699,00.html[/url] ]

[quote]That happened the same weekend but has since been renegotiated three times.[/quote]What's happened since that weekend can be debated, but that's not what my "I disagree" applied to.

[quote]BTW, Conrad speaks about TARP and that interview/article was the original subject of discussion so it matters not a whit that you claim that you are not talking about TARP.[/quote]Cute.

You don't want to admit that you misinterpreted what I wrote, and then painted me with a broad-brush exaggeration of what my actual position was, so you just declare that what I claim doesn't matter.

No need to apologize; just stop doing it.

[QUOTE=Fusion_power;234493]Mortgages do not have any viability requirements. There are no laws that prohibit selling them nor any proper means of certifying that they can be sold in the first place.[/QUOTE]Might not that differ state-to-state?

[QUOTE]Might not that differ state-to-state? [/QUOTE]

It does not differ enough to matter. The big banks found numerous innovative ways to circumvent state laws. Otherwise, we would not have the current mortgage mess. The underlying fault - still unaddressed - is that crappy mortgages were written, securitized, and sold as investment grade securities. Until that legal hole is plugged we will not have a safe mortgage market.

DarJones

Chris Whalen: Government fraud is "treason"
 

Chris Whalen of [i]Institutional Risk Analytics[/i] has a must-read piece ... I was going to mention Ford Motor Company`s fine earnings report separately, but because Whalen also discusses it in his full article, I`ve added a link to the Ford news (the article also talks about VW) in the first quoted line:

[url=http://us1.irabankratings.com/pub/IRAstory.asp?tag=451]Triple Down: Fannie, Freddie, and the Triumph of the Corporate State[/url]: [i]"John Bull can stand many things but he cannot stand two per cent." That aphorism, quoted by Walter Bagehot, a 19th-century editor of The Economist, expressed savers` traditional distaste for very low interest rates. For the first three centuries of the Bank of England`s existence, 2% was indeed as low as the central bank was willing to let interest rates fall. Not even the Depression, nor the long Victorian period of stable prices, induced the bank to go any further. Some minimum return on capital was deemed to be required. -- Buttonwood, [i]The Economist[/i], September 16, 2010[/i]
[quote]Despite examples of the [url=http://www.bloomberg.com/news/2010-10-27/volkswagen-brand-nine-month-profit-quadruples-on-china-demand.html]success of restructuring with [Ford][/url] and even General Motors, the invidious cowards who inhabit Washington are unwilling to restructure the largest banks and GSEs. The reluctance comes partly from what truths restructuring will reveal. As a result, these same large zombie banks and the U.S. economy will continue to shrink under the weight of bad debt, public and private. Remember that the Dodd-Frank legislation was not so much about financial reform as protecting the housing GSEs.

[b]Because President Barack Obama and the leaders of both political parties are unwilling to address the housing crisis and the wasting effects on the largest banks, there will be no growth and no net job creation in the U.S. for the next several years.[/b] And because the Obama White House is content to ignore the crisis facing millions of American homeowners, who are deep underwater and will eventually default on their loans, the efforts by the Fed to reflate the U.S. economy and particularly consumer spending will be futile. As Alan Meltzer noted to Tom Keene on Bloomberg Radio earlier this year: "This is not a monetary problem."

Indeed, the public embrace by the Federal Open Market Committee of further quantitative easing or "QE", instead of calling for the immediate restructuring of the largest zombie banks, actually threatens to push the U.S. into a deeper and far more dangerous economic path.

... Resolution and liquidation is how a free market economy regenerates. The trouble is, the approach taken with the large banks and the GSEs is precisely the opposite of that applied to smaller lenders. The policy of the Fed and Treasury with respect to the large banks is state socialism writ large, without even the pretense of a greater public good.

Forget Treasury Secretary Tim Geithner lying about the relatively small losses at American International Group (AIG), [b]the fraud and obfuscation now underway in Washington to protect the TBTF banks and GSEs totals into the trillions of dollars and rises to the level of treason[/b]. And the sad part is that all of the temporizing and excuses by the Fed and the White House will be for naught. The zombie banks and GSEs alike will muddle along until the operational cost of servicing bad loans engulfs them. Then they will be bailed out -- again -- or restructured.

...Over the past several years, the large zombie banks actually looked better on our [Banking Stress Index] survey than the average, this due to overt subsidies, QE and low interest rates. But now the larger lenders are sinking under the weight of rising servicing costs, falling asset returns and other problems linked to mortgage securitizations. So while the Fed continues to try to revive the largest banks via massive monetary ease, the FOMC is at the same time preparing to do further damage to solvent lenders, insurers and other investors via QE2.

The IRA has spoken to a number of executives in banks and life insurance companies about the impact of QE and Fed zero interest rate policy on their income statements and balance sheets. The universal message: If rates do not return to "normal" levels by year-end, the pain in terms of reduced earnings on assets and the resultant negative cash flow will start to become so apparent that the financial markets will actually notice. In particular, we have been told that by year end several of the largest publicly traded banks and life insurers could show significant declines in net interest earnings due to QE -- declines driven by falling net interest income that may provoke ratings downgrades. And [b]when this next systemic crisis comes -- whether in December or later in 2011 --- the full blame will belong to the members of the Bernanke Fed and the Obama Administration.[/b]

Being Technically Solvent

Back in July of 2008, John Hussman of the Hussman Funds wrote a great essay, "Bagehot`s Rule and the Cost of Being 'Technically Insolvent'" in which he reminded us all that [b]while the British economist Walter Bagehot believed that central banks should lend aggressively in times of financial insolvency, the rate of the loans should be very high -- not zero as is the current FOMC policy.[/b] Hussman wrote:
[i]
"Bagehot`s name has surfaced in a few editorials in recent weeks, but they have invariably focused on the "lend freely" portion of his advice, while overlooking Bagehot`s admonition to impose costs, capital requirements, and other safeguards where public funds are concerned. In short, liquidity should be available to Fannie Mae and Freddie Mac, but the interest rates charged should be very high."
[/i]
[b]Of course the problem of adopting Bagehot`s rule regarding high real credit costs is that you immediately expose all of the insolvent financial institutions -- including the US Treasury.[/b] This the Obama Administration, Treasury Secretary Geithner and the functionaries on the FOMC will not do. But the examples of Ford, GM and the smaller banks in the U.S., most of which have restructured without bankruptcy, suggest that the path to economic renewal requires reorganization and losses to creditors.

In the case of the large banks and GSEs, this means a great deal of pain for investors and taxpayers alike when, no, if, these institutions are finally restructured. But that is the good news and thereby lies the path to national recovery. [b]What we need from the Fed is some leadership on the issue of making the White House take responsibility for restructuring the economy. Barack Obama has got to stop blaming George Bush for a problem that was decades in the making and which now belongs to him alone. Get over it, Mr. President, and get to work.[/b][/quote]

[QUOTE]an AIG collapse would have immediately brought about the collapse of numerous other financial institutions around the world. Their collapse would have spread to many others and shut down the world financial system.
[/QUOTE]

Prove it! I have read this line many times but have never seen any supporting evidence.

[QUOTE=cheesehead;234501]...an AIG collapse would have immediately brought about the collapse of numerous other financial institutions around the world. ... So, it was necessary for the Fed to set up an $85 billion credit line for AIG to prevent the collapse.

That Fed action was a thing "done right".[/QUOTE]

Done wrong.

Unlike Garo, I'll grant you and the Fed's analysis that an AIG collapse could lead to catastrophic world-wide meltdown and action was necessary. (For Garo to get his proof, the Fed would have to have let AIG collapse and see what ensued).

The fallacy is that a complete bailout is the only possible solution. Here's my basic outline for a solution that is slightly riskier but IMO a "fairer" solution in that those that took the risks get stuck with the consequences. With all the "geniuses" working at the Fed, I'm sure they could have improved on it.

The Fed seeing AIG does not have assets to back up its collateral requirements announces that AIG will likely go bankrupt in the coming days and it also announces what the consequences will be:

1) Shareholders will be wiped out. Sorry, that's what happens when you invest in a company run by reckless idiots.
2) Everyone stay calm -- AIG has many valuable assets that will be sold off. The Fed fullly expects bondholders and holders of failed CDS that AIG "insured" will receive 30, 50, 70, or whatever-the-estimate-was cents on the dollar.
3) Rather than troubled U.S. banks waiting years for bankruptcy court to figure it out and AIG assets to be sold, the Fed would make 0% interest loans to U.S. banks with claims against AIG. This insures banking liquidity.
4) The Fed coordinates with other central banks so that they can provide the same assurances of support to non-U.S. banks.
5) The Fed announces any number of other warm, fuzzy statements that it has many tools in its arsenal, won't let the banking system fail, blah, blah, blah.


Under such a system, Goldman Sachs does not receive a multi-billion dollar gift straight from the U.S. taxpayers. Goodbye, ill-deserved big fat bonuses in 2009. U.S. taxpayer money is not used to prop up foreign banks.

[QUOTE=ewmayer;234543][URL="http://us1.irabankratings.com/pub/IRAstory.asp?tag=451"]Triple Down: Fannie, Freddie, and the Triumph of the Corporate State[/URL]:[/QUOTE]From the article:
[quote=The Institutional Risk Analyst][SIZE=3]Despite examples of the success of restructuring with F and even General Motors, the invidious cowards who inhabit Washington are unwilling to restructure the largest banks and GSEs. The reluctance comes partly from what truths restructuring will reveal. As a result, these same large zombie banks and the U.S. economy will continue to shrink under the weight of bad debt, public and private.[/SIZE][/quote][SIZE=3]Although an immediate propping-up of AIG was necessary, and that was a thing "done right" IMO, the failure to follow up that action by directly confronting the mess at the banks and government-sponsored enterprises and begin cleaning it up by forcing the worst ones to restructure was a big "thing done wrong". TARP was therefore largely or entirely (I haven't decided yet) a thing "done wrong".

The government should have declared that its Sept. 15 rescue of AIG was only a short-term patch, to be followed by allowing other financial companies [I]and AIG itself, once the immediate crisis was over[/I], to go into bankruptcy.[/SIZE][SIZE=3] The terms of the Sept. 15 loan to AIG should have spelled that out, and required that AIG restructure (or divest or whatever the proper solution would have been) itself by, say, 2-3 months from that date. Though the whole CDO/CDS/etc. situation was too big to have been quickly remedied, a determined beginning to carefully knock off pieces of it should have begun that fall. That would have been a thing "done right" ... if it had happened.

[/SIZE]

[QUOTE=Prime95;234558][QUOTE=cheesehead;234501]...an AIG collapse would have immediately brought about the collapse of numerous other financial institutions around the world. ... So, it was necessary for the Fed to set up an $85 billion credit line for AIG to prevent the collapse.

That Fed action was a thing "done right".[/QUOTE]Done wrong.[/QUOTE]But you contradict yourself in your very next paragraph: "action was necessary".

[quote]Unlike Garo, I'll grant you and the Fed's analysis that an AIG collapse could lead to catastrophic world-wide meltdown and action was necessary. (For Garo to get his proof, the Fed would have to have let AIG collapse and see what ensued).[/quote]Thank you, but that changes your "done wrong" to a "done right".

[quote]The fallacy is that a complete bailout is the only possible solution.[/quote]... but I did not make or express that fallacy. The $85 billion was only to prevent an instant global collapse, not to provide a compete bailout. Note that AIG later needed much more than that $85 billion for its bailout.

You, like garo, invalidly extrapolated statements I made about a very specific time to infer that my opinions about the later period would match his/your false assumptions about me. You both seem to have assumed that you knew what I thought should have happened after Sept. 15 [I]even though I hadn't yet ever posted my opinion about actions in the post-Sept. 15 period[/I].

[QUOTE=garo;234550]Prove it! I have read this line many times but have never seen any supporting evidence.[/QUOTE][I]Time[/I] and [I]New York Times[/I] published explanations right after the Sept. 15 weekend. Here is the NYT:

[URL]http://www.nytimes.com/2008/09/16/opinion/16lewitt.html?_r=1[/URL]

[quote=NYT]Why the Fed Can’t Let A.I.G. Go Under

. . .

But there is a bigger potential failure lurking: the American International Group, the insurance giant. It poses a much larger threat to the financial system than Lehman Brothers ever did because it plays an integral role in several key markets: credit derivatives, mortgages, corporate loans and hedge funds.

Late Monday, A.I.G. was downgraded by the major credit rating agencies (which inexplicably still retain an enormous amount of power in the marketplace despite having gutted their credibility with unreliable ratings for mortgage-backed securities during the housing boom). This credit downgrade could require A.I.G. to post billions of dollars of additional collateral for its mortgage derivative contracts.

Fat chance. That’s collateral A.I.G. does not have. There is therefore a substantial possibility that A.I.G. will be unable to meet its obligations and be forced into liquidation. A side effect: Its collapse would be as close to an extinction-level event as the financial markets have seen since the Great Depression.

A.I.G. does business with virtually every financial institution in the world. Most important, it is a central player in the unregulated, Brobdingnagian credit default swap market that is reported to be at least $60 trillion in size.

Nobody knows this market’s real size, or who owes what to whom, because there is no central clearinghouse or regulator for it. Credit default swaps are a type of credit insurance contract in which one party pays another party to protect it from the risk of default on a particular debt instrument. If that debt instrument (a bond, a bank loan, a mortgage) defaults, the insurer compensates the insured for his loss. The insurer (which could be a bank, an investment bank or a hedge fund) is required to post collateral to support its payment obligation, but in the insane credit environment that preceded the credit crisis, this collateral deposit was generally too small.

As a result, the credit default market is best described as an insurance market where many of the individual trades are undercapitalized. But even worse, many of the insurers are grossly undercapitalized. In one case in the New York courts, the Swiss banking giant UBS is suing a hedge fund that said it would insure nearly $1.5 billion in bonds but was unable to do so. No wonder — the hedge fund had only $200 million in assets.

If A.I.G. collapsed, its hundreds of billions of dollars of mortgage-related assets would be added to those being sold by other financial institutions. This would just depress values further. The counterparties around the world to A.I.G.’s credit default swaps may be unable to collect on their trades. As a large hedge-fund investor, A.I.G. would suddenly become a large redeemer from hedge funds, forcing fund managers to sell positions and probably driving down prices in the world’s financial markets. More failures, particularly of hedge funds, could follow.

Regulators knew that if Lehman went down, the world wouldn’t end. But Wall Street isn’t remotely prepared for the inestimable damage the financial system would suffer if A.I.G. collapsed.

While Gov. David A. Paterson of New York on Monday allowed A.I.G. to borrow $20 billion from its subsidiaries, that move will only postpone the day of reckoning. The Federal Reserve was also trying to arrange at least $70 billion in loans from investment banks, but it’s hard to see how Wall Street could come up with that much money.

More promisingly, A.I.G. asked the Federal Reserve for a bridge loan. True, there is no precedent for the central bank to extend assistance to an insurance company. But these are unprecedented times, and the Federal Reserve should provide A.I.G. with some form of financial support while the company liquidates its mortgage-related assets in an orderly manner.

. . .[/quote]My next post will quote the [I]Time[/I] article.

[URL]http://www.time.com/time/business/article/0,8599,1841699,00.html[/URL]

[quote=Time]Why the Government Wouldn't Let AIG Fail

After establishing a supposed hard line against bailouts over the weekend with Lehman Brothers, the government abruptly abandoned it Tuesday and [URL="http://www.federalreserve.gov/newsevents/press/other/20080916a.htm"]announced an $85 billion Federal Reserve loan[/URL] to insurance giant AIG. The explanation: AIG was deemed too huge (its assets top $1 trillion), too global and too interconnected to fail.

That, and the fact that unlike with Lehman — where the possibility of failure was openly discussed for months and to a certain extent planned for — federal officials and market participants don't seem to have really focused on AIG's problems until this week. While the company's insurance subsidiaries are regulated by New York insurance superintendent [URL="http://www.ins.state.ny.us/bios/bios_ed_sup.htm"]Eric Dinallo[/URL], it is overseen at the holding company level by the federal Office of Thrift Supervision, which mostly regulates the savings and loan industry. Plus, it was awfully hard for outsiders — and even insiders — to understand the gravity of the company's problems. "You can read through every financial statement in the world and have absolutely no clue as to the risks they are taking," says [URL="http://www.atlanticpartnership.org/?p=200"]Leo Tilman[/URL], a former Bear Stearns strategist who now runs the advisory firm L.M. Tilman & Co.

The particular risks that brought the company to the brink of bankruptcy seem to lie not with its core insurance businesses but with its derivatives-trading subsidiary [URL="http://www.aigfp.com/"]AIG Financial Products[/URL]. AIG FP, as it's called, merits a mere paragraph in the nine-page description of the company's businesses in its [URL="http://www.ezodproxy.com/AIG/2008/AR2007/HTML2/aig_ar2007_0055.htm"]most recent annual report[/URL]. But it's a huge player in the new and mysterious business of credit-default swaps: derivative securities that allow banks, hedge funds and other financial players to insure against loans gone bad.

AIG generally sells credit-default swaps, thereby promising to insure others against defaults. It's a great business when defaults are low; when they rise it can turn toxic. AIG FP lost more than $10 billion in 2007 and $14.7 billion in the first six months of this year. That, along with losses in other investment portfolios, has cut deeply into the parent company's capital reserves. The credit-default-swap contracts decree that if AIG's credit rating drops below a certain level, it has to fork over $13 billion in collateral to the buyers of the swaps. Monday night, because of the losses at AIG FP and in AIG's investment portfolios, Moody's and S&P cut the company's ratings. After that, the consensus was that the company could survive only another day or two.

The New York Fed asked Goldman Sachs and JPMorgan Chase & Co. to try to arrange a $70 billion private loan for AIG, but that didn't go anywhere. Treasury officials [URL="http://www.bloomberg.com/apps/news?pid=20601087&sid=a11UW1B8w8uM&refer=home"]mulled[/URL] a government conservatorship as with Fannie Mae and Freddie Mac, but it [URL="http://www.reuters.com/article/bondsNews/idUSWBT00972920080916"]might have required an act of Congress[/URL] to make that happen. So the Fed devised a deal in which AIG agrees to repay the loan with asset sales and give the government (and thus taxpayers) a 79.9% equity stake in the company.

Confused? You're not alone. The best case for the bailout seems to be that nobody has the faintest idea what the consequences of AIG's failure for financial markets would be, but the fear was that it could lead to total chaos. The biggest fears had to do with the credit-default swaps, which AIG appears to have sold in large quantities to practically every financial institution of significance on the planet. RBC Capital Markets analyst Hank Calenti [URL="http://www.bloomberg.com/apps/news?pid=newsarchive&sid=auT7xM5x3Yyo"]estimated Tuesday[/URL] that AIG's failure would cost its swap counterparties $180 billion.

"Its collapse would be as close to an extinction-level event as the financial markets have seen since the Great Depression," [URL="http://www.nytimes.com/2008/09/16/opinion/16lewitt.html"]wrote money manager Michael Lewitt in Tuesday morning's New York [I]Times[/I][/URL]. There's also the fact that through its insurance policies AIG touches far more regular Americans (and consumers around the world) than Lehman Brothers did. Plus, AIG's insurance businesses make so much money that they could conceivably [URL="http://time-blog.com/curious_capitalist/2008/09/why_bailing_out_aig_might_be_a.html"]pay off the cost of the bailout within a few years[/URL]. [/quote]

[QUOTE=cheesehead;234566]... but I did not make or express that fallacy. The $85 billion was only to prevent an instant global collapse, not to provide a compete bailout. Note that AIG later needed much more than that $85 billion for its bailout.[/QUOTE]

Sorry, IMO, still "done wrong".

Why piss away $85 billion on an incomplete bailout only to force AIG into bankruptcy a few weeks later? I again say force bankruptcy immediately.

You even claim later it was "done wrong", or at least "done poorly", by stating:

[quote]The government should have declared that its Sept. 15 rescue of AIG was only a short-term patch, to be followed by allowing other financial companies and AIG itself, once the immediate crisis was over, to go into bankruptcy.[/quote]

[quote]You, like garo, invalidly extrapolated statements I made about a very specific time to infer that my opinions about the later period would match his/your false assumptions about me. You both seem to have assumed that you knew what I thought should have happened after Sept. 15 even though I hadn't yet ever posted my opinion about actions in the post-Sept. 15 period.[/quote]

I made no such extrapolations. You stated that the $85 billion propping up of AIG was "done right". It is my opinion that the $85 billion prop-up was the incorrect response on that date.

If you had stated that on Sept 15 the Fed needed to "do something" then I would have agreed with you. When you say, "done right" you are implying both "do something" and "did the right something".

[QUOTE=Prime95;234579]Why piss away $85 billion on an incomplete bailout only to force AIG into bankruptcy a few weeks later? I again say force bankruptcy immediately.[/QUOTE]I don't see you acknowledging the difference between the global situation on Sept. 15 and the global situation later on. The situation on Sept. 15 and the situation on, say, Sept. 20 were different in an important respect. (Read the NYT and Time articles.) Until you've taken that into account, your argument is useless.

The Sept. 15 AIG crisis had the possibility of wreaking [I]global collapse[/I] (because AIG's ties to derivatives throughout the world meant that [I]its[/I] collapse at that particular time would've been so much more consequential than any other institution's collapse [I]at that time[/I]). That's what an immediate AIG bankruptcy had a high chance of bringing about! (Note that Lehman Brothers [I]was[/I] allowed to go into bankruptcy [I]because it was so much smaller than AIG that its collapse did not present a global threat![/I]

[U]After[/U] the global collapse was averted, [I]then[/I] it was not proper to continue to bail out AIG.

[quote]You even claim later it was "done wrong", or at least "done poorly", by stating:[/quote]You are mistaken. Until you acknowledge the difference between actions on Sept. 15 and actions later on, you continue to misinterpret me by falsely extrapolating my Sept. 15 support of AIG assistance to include post-Sept. 15 AIG bailout. I don't think the further AIG bailout beyond the immediate Sept. 15 crisis was proper.

Perhaps you misinterpreted my sentence
[quote]The government should have declared that its Sept. 15 rescue of AIG was only a short-term patch, to be followed by allowing other financial companies and AIG itself, once the immediate crisis was over, to go into bankruptcy.[/quote]to mean that I wanted the government to make that declaration as soon as it announced its Sept. 15 action. I didn't say that -- but I'd agree that I didn't make what I wrote crystal-clear, and that it was reasonably possible to misread my sentence as meaning that it was to be done in the Sept. 15-18 period. (Announcements about Sept. 15 were made Sept. 18.)

I intended for that declaration to be made only several days or more later after the immediate global crisis had been clearly averted -- but I didn't make that clear.

[quote]I made no such extrapolations.[/quote]As I've just explained, you did so -- by showing no awareness of the difference between Sept. 15 and later on, so that you've failed to distinguish between my support for Sept. 15 and supposed-by-you, but not stated-by-me, support for later bailout.

[quote]You stated that the $85 billion propping up of AIG was "done right". It is my opinion that the $85 billion prop-up was the incorrect response on that date.[/quote]... but you have not yet shown us why it was proper to risk the global collapse!

[quote]If you had stated that on Sept 15 the Fed needed to "do something" then I would have agreed with you.[/quote]Actually, I did say that earlier (second paragraph of post #616), in addition to my more specific statements.

[quote]When you say, "done right" you are implying both "do something" and "did the right something".[/quote]Yes, that's correct.

George, you have to show us that you understand the gravity of the Sept. 15 situation, in contrast to the later situation, before you'll convince me or anyone else who has the clue about Sept. 15 that your argument holds water.

This has degenerated into the standard wrangling match that happens whenever cheesehead gets deeply involved in a thread. I don't have time for this so I will excuse myself from the AIG discussion after this comment.

I do agree that AIG should not have been let collapse in a disorderly fashion a la Lehman. But like George I think the way it was done was not right. And that is precisely the problem I have with Mr. Conrad and cheesehead's formulation. That the choice was between doing it the precise way that things were done and doing nothing. That is the dishonest part that I disagree with. George's plan, for instance, is far superior to those two alternatives. And there have been many other plans proposed by people such as Barry Ritholtz that take into account the severity of the situation and that action needed to be taken but at the same time assign significant losses to those who made investments instead of lumping everything to the taxpayer.

And with that I hold my peace.

I too am tired of the wrangling. It was done the way it was done. I too agree that it was done wrong, but that does not change the way it fell out. The question now should be "how do we handle this going forward?". If you note carefully, AIG has via re re re negotiation weaseled out of financial responsibility for repaying the loans. This is what happens when a major debt obligation is converted into an "ownership stake" in a company. Granted that there are some situations where it can work, but in AIG's case, there is no way the company can recover sufficiently for the taxpayer dollars to be recovered. Note that the initial $85 Billion was just the tip of the iceberg compared to later amounts. This pig has so much lipstick on that it looks like a baboon's rear end rubbed in poke weed berry juice.

My major disagreement is that AIG was not immediately forced into a limited bankruptcy ala GM or something similar. My secondary disagreement is with the hundreds of millions of dollars that AIG subsequently paid out in bonuses to the same !#@#%@# that created the mess in the first place. Those bonuses were paid with taxpayer dollars. Had they been forced into bankruptcy, those bonuses could have been canceled!

DarJones

[QUOTE=garo;234617]That the choice was between doing it the precise way that things were done and doing nothing. That is the dishonest part that I disagree with.[/QUOTE]It's dishonest to represent my position as choosing "between doing it the precise way that things were done and doing nothing".

[quote]George's plan, for instance, is far superior to those two alternatives.[/quote]But he hasn't shown us how it would've averted global financial collapse, so it doesn't meet my criterion for acceptability.

I'm quite willing to agree that some other action might have also been okay -- if someone shows me. I don't recall seeing the "many other plans proposed by people such as Barry Ritholtz that take into account the severity of the situation and that action needed to be taken but at the same time assign significant losses to those who made investments instead of lumping everything to the taxpayer" that satisfy me, but I never claim to have seen all those plan proposals. It's even possible that I've simply forgotten having read some plan that satisfies me -- or even that I read something before I had formulated my current conditions for acceptability, but don't recall it now.

Please direct me to descriptions of such plan proposals, so that I can evaluate them -- before you condemn me for rejecting something I haven't yet seen or don't recall!

I said that what was done was "done right", but that doesn't mean I think nothing but that "precise way" would've been okay. I never characterized what was done as "the only possible way it could've been done right". I do put a condition on "done right" that it would have to have averted collapse of the global financial system, but I've never maintained that only the "precise way" it was done was possible to meet that condition.

You've once again distorted my views by extrapolating my comments past what I actually said. Please stop it.

Hint: You could've, instead, [U][I]asked[/I][/U] me whether any other action besides that "precise way" would've been okay with me.

But you didn't do me that courtesy.

Instead, you just flat out accused me of holding the view that the only alternative to doing precisely what was done was to do nothing.

Try being a bit humbler about someone else's views. Consider that you might not actually know what someone else has in mind that he hasn't actually expressed.

(BTW, that's one criticism of Obama -- that he's too sure he knows others' views, so he doesn't do enough listening.)

Retiring CFTC judge alleges corruption
 

This story first broke (e.g. on Ritholtz and ZeroHedge) a couple of weeks ago ... I wanted to wait for some more corroboration before discussing it. Note that - in a manner very reminiscent of what they`ve been doing with the foreclosuregate scandal, the industry whores at the WSJ editorial board immediately tried to smear judge Painter`s credibility by dredging up the scurrilous accusations about his alleged senility. Utterly disgusting ... but don`t take it from me, here is an LA Times piece dated Tuesday:

[url=http://www.latimes.com/business/la-fi-hiltzik-20101026,0,180301.column]Retiring CFTC judge`s allegations should concern small investors[/url]: [i]Judge George Painter`s contention that a colleague had vowed never to rule in an investor`s favor appears to be borne out by the record. Yet a court case over guardianship of the ailing Painter is being used to dismiss his words.[/i]
[quote]Cards on the table: When George H. Painter says the game is rigged against the small investor in Washington, I have reason to take him at his word.

Even when his word comes wrapped up like a bombshell.

Painter, 83, detonated that bombshell recently in the course of announcing his retirement as an administrative law judge for the Commodity Futures Trading Commission, effective in January. In a public notice, he accused his lone colleague on the CFTC bench, Bruce Levine, of having made a vow nearly 20 years ago never to rule in a complainant`s — that is, an investor`s — favor.

"A review of his rulings," Painter stated, "will confirm that he has fulfilled his vow."

He asked the CFTC, which regulates the commodity futures markets, to bring in a new judge instead of transferring his pending cases to Levine. The two judges rule on allegations of fraud or other misdeeds brought by investors against futures brokers and traders.

Strong words, but not entirely out of character for Painter. And they`ve stirred up a fairly ugly cloud of dust, involving claims and counterclaims about Painter`s physical and mental health, traded between his wife and other members of his family in a Maryland court. Whether the court case would have reached the newspapers if not for Painter`s attention-grabbing resignation is hard to say. But it`s now being used to dismiss his attack on Levine as the words of someone who`s not all there.

I first encountered Judge Painter nearly three decades ago, when he issued a number of stern rulings involving a Newport Beach investment operator I had been writing about.

The investment firm, Monex International, had been hawking illegal futures contracts, he ruled. In one case, he found that Monex had ignored a customer`s repeated pleas to cash out her deteriorating stake, and awarded her $20,000 in reparations.

When I reached Painter again last week, he didn`t seemed to have changed much. "It`s gone to hell," he said, referring to the standing of the investor at the CFTC. "But it`s always been that way, hasn`t it? We`re not prosecuting the bad guys." For the record: He sounded perfectly lucid.

Under normal circumstances, Painter`s view might be taken to heart by the bureaucratic establishment in Washington. It was regulatory agencies` failures to look out for consumers that helped win enactment of a new consumer protection agency this year. Furthermore, the CFTC has long had the character of a place where regulations go to die — although, to be fair, that`s not entirely the fault of its commissioners.
[b]
In 1998, during the Clinton administration, then-CFTC Chairwoman Brooksley Born urged Congress to place over-the-counter derivatives, then a $100-trillion business, under the agency`s control. She was rudely slapped down by her fellow financial regulators, who said things were fine. That was before derivatives helped bring down Enron Corp. in 2001 and the world financial system in 2008.

One of Born`s predecessors as CFTC chair was Wendy Gramm, wife of former Sen. Phil Gramm (R-Texas), who pushed through key financial deregulatory legislation while he was senator.

After leaving the CFTC, Wendy Gramm joined the Enron board. She was still there when the company went under. The CFTC chair to whom Judge Levine supposedly made his pledge, according to Painter, was Wendy Gramm. (I couldn`t reach her or Levine for their comments on Painter`s remarks.)
[/b]
Returning to the case involving Judge Painter`s health, his wife of eight years, Elizabeth Ritter, has petitioned to be made his legal guardian. Ritter, a CFTC attorney, says Painter was diagnosed with Alzheimer`s disease in February and transferred to a residential treatment center in June.

She says Painter`s son, Douglas, and other relatives improperly removed him from the center, got him a lawyer to file for divorce, and have kept him on the move cross-country to keep him isolated and disoriented.

Douglas Painter, a Los Angeles attorney, contends that Ritter overmedicated his father in preparation for the Alzheimer`s tests and tried to isolate him from his friends and family, and that no one else has reported seeing the symptoms in his father that Ritter reports.

"Elizabeth just wants what`s best for him to protect his well-being and his dignity," her lawyer, Kim Viti Fiorentino, told me. Judge Painter`s lawyer, Jean Galloway Ball, responded: "He`s in full control of his affairs, and if he needs assistance he can make his own choices."

It`s fair to say that, whatever one thinks of the allegations about Judge Painter`s treatment, the litigation process alone is Dickensian, and one can only hope that the judicial system works its way through the competing claims quickly and puts an end to it.

But it shouldn`t distract the CFTC from facing up to Painter`s assertions about Levine. I did a cursory search of both judges` rulings in reparations cases, in which investors seek to recoup losses due to alleged fraud, going back to 2007.

In that period, Painter found for investors at least five times, and Levine once (in that case he cut the investor`s $114,000 claim to $52,000). Both also dismissed a lot of claims. The most recent ruling I could find from Painter was a closely reasoned 21-page decision dated Feb. 26, about the time Ritter says he was first diagnosed with Alzheimer`s and well after she says he first exhibited severe behavioral problems, including alcoholism.
[b]
It would be hard for the commission to claim it has been unaware of serious issues with Levine`s work. My search found three cases in which it overturned dismissals by Levine, sometimes with harsh words for his performance.

In 2007, for instance, the CFTC concluded that Levine committed "procedural errors" and "severely prejudiced" an investor in his $74,000 complaint against a futures broker. The commission awarded the investor more than $32,000.

In another case, the commission overruled Levine`s dismissal of an investor`s complaint twice before finally transferring the matter to Painter. He awarded the investor, a 75-year-old retiree, $47,627.

In a third case, the CFTC bounced a dismissal back to Levine with instructions to waive the procedural rule that prompted his dismissal. Levine dismissed it again, throwing in for good measure harsh words about the commission`s performance.

In 2000, the Wall Street Journal — in a piece Painter appended to his resignation notice — found that during his eight years at the commission, Levine had never found for an investor except in a few cases involving defunct commodities firms.
[/b]
He still has that reputation. Steven Berk, an investor protection attorney in Washington, says, "It`s an open secret among my brethren that if you get Levine, he`s not going to rule for the investor."

It`s possible that Levine`s record is fairer than it looks or that his dismissals were the product of sound legal reasoning, not bias.

But if the CFTC has been harboring in its bosom a judge with a pronounced hostility to the consumer all these years, how sad is it that it took another judge`s parting blast to wake it up?[/quote]

Just a meta-comment to cheesehead:

If you could be a bit more succinct and less prone to pointless wrangling of the you-said-I-said-type I would pay more attention to your views. As it is I neither have the time, nor the inclination.

GE's Effecdtive tax rate = 3.2%
 

It is becoming clear that on the revenue side of the equation, one of the major reasons (if not *the* main one) the US government has a gigantic hole in its balance sheet is that US corporations - especially huge multinational ones led by familiar names such as Google ("don't be evil" apparently does not include dodging billions of dollars in taxes per annum) and (of course) Goldman Sachs-and-Pillages - have exploited loopholes in the tax code (many of which they lobbied hard for) to reduce their effective tax rates to near zero. Latest egregious example on this front is GE, as ZeroHedge explains:

[url=http://www.zerohedge.com/article/how-ge-paid-total-5-billion-domestic-taxes-betwen-2002-and-2009-639-billion-domestic-revenue]How GE Paid A Total Of $5 Billion In Domestic Taxes Between 2002 And 2009 On $639 Billion In Domestic Revenues[/url]
[quote]One of the more popular topics recently is the collapse in corporate tax revenues, and the resultant push by the administration to ramp up taxation at the corporate level. As Zero Hedge has been disclosing for two months now, it all has to do with the now discredited concept of the "wall of money", which is mostly accumulated offshore and is thus not only available domestically, but is not taxed by the US. However, one company which has somehow managed to slip through the cracks is the infamous General Electric: the company, that in addition to the banks, has been the biggest beneficiary of Obama's taxpayer largesse. Here are the numbers: in the period between 1991 and 2009 GE's pretax income is cumulatively $293 billion on which however the firm has paid only $25.2 billion in current domestic taxes, or a 8.58% cumulative tax rate. Yet [b]where it gets wild is the narrower period between 2002 and 2009, during which timeframe the firm made a generous $164.4 billion in pretax net income (not to mention $639 billion in domestic revenue, just over half of total revenues of $1.2 trillion) it paid only $5 billion in domestic current taxes, or a 3.17% tax rate![/b] So our question to the administration is how does $639 billion in domestic revenue, and $164 billion in total net income, result in $5 billion in taxes? Perhaps if the desperately broke administration is so concerned about refilling its empty coffers, it should first of all look at the most profitable (presumably) company in America... And perhaps CNBC can share some coverage on the topic of its parent company's taxation strategy.[/quote]
[i]My Comment:[/i] Happy Halloween, everybody - may yours be less "tricky" than a GE accountant.

[QUOTE=ewmayer;234880]It is becoming clear that on the revenue side of the equation, one of the major reasons (if not *the* main one) the US government has a gigantic hole in its balance sheet is that US corporations - especially huge multinational ones led by familiar names such as Google ("don't be evil" apparently does not include dodging billions of dollars in taxes per annum) and (of course) Goldman Sachs-and-Pillages - have exploited loopholes in the tax code (many of which they lobbied hard for) to reduce their effective tax rates to near zero. Latest egregious example on this front is GE, as ZeroHedge explains:

[url=http://www.zerohedge.com/article/how-ge-paid-total-5-billion-domestic-taxes-betwen-2002-and-2009-639-billion-domestic-revenue]How GE Paid A Total Of $5 Billion In Domestic Taxes Between 2002 And 2009 On $639 Billion In Domestic Revenues[/url]

[i]My Comment:[/i] Happy Halloween, everybody - may yours be less "tricky" than a GE accountant.[/QUOTE]

"I pledge allegiance to.....
... and to the republic for rich it stands"

[QUOTE=ewmayer;234880]It is becoming clear that on the revenue side of the equation, one of the major reasons (if not *the* main one) the US government has a gigantic hole in its balance sheet is that US corporations - especially huge multinational ones led by familiar names such as Google ("don't be evil" apparently does not include dodging billions of dollars in taxes per annum) and (of course) Goldman Sachs-and-Pillages - have exploited loopholes in the tax code (many of which they lobbied hard for) to reduce their effective tax rates to near zero. Latest egregious example on this front is GE, as ZeroHedge explains:

[url=http://www.zerohedge.com/article/how-ge-paid-total-5-billion-domestic-taxes-betwen-2002-and-2009-639-billion-domestic-revenue]How GE Paid A Total Of $5 Billion In Domestic Taxes Between 2002 And 2009 On $639 Billion In Domestic Revenues[/url]

[i]My Comment:[/i] Happy Halloween, everybody - may yours be less "tricky" than a GE accountant.[/QUOTE]

How much of this profit did GE return to the stockholders in the
way of dividends?? Where did the profits go? Or did it all go into
the hands of the senior executives running the company???

[QUOTE=garo;234617]This has degenerated into the standard wrangling match that happens whenever cheesehead gets deeply involved in a thread. [/QUOTE]

Does anybody other than the attacked person still bother reading his long boring "You haven't admitted that you said" and "You haven't admitted I said ..." posts? I long ago stopped reading cheesehead posts at the first such statement.

[QUOTE=wblipp;235038]Does anybody other than the attacked person still bother reading his long boring "You haven't admitted that you said" and "You haven't admitted I said ..." posts? I long ago stopped reading cheesehead posts at the first such statement.[/QUOTE][AOL]Me too!!![/AOL]

[QUOTE]Housing is the most affordable it's been since the pre-boom years. During the boom, Zandi said, prices were overvalued by about 50%; today it's close to zero. [/QUOTE]

Overvalued close to zero? According to who? The best I can tell, there is nothing to prevent another 30% slide in house prices, or even a 50% slide. Where do these pundits get these numbers? I'm not going to speculate which hole they come out of.

The underlying problem with the housing market is that several million houses are headed to market with weak demand and few buyers. No matter how much money you throw at that situation, the result is depressed prices.



On a different topic, the Quantitative Easing (QE) bomb is about to be laid. Why do I call it a bomb? Lets look at the net effect. We have a relatively fixed amount of dollars tied to a relatively fixed amount of value in this world. Now we arbitrarily increase the number of dollars by an amount equal to roughly 5% of the total without changing the underlying value behind the dollars. Now lets talk about a retired couple living on a pension and maybe a social security check, but between the two they get by fairly well. Enter QE with dilution of value and voila, you have a situation where the fixed income couple is now in desperate straits because their money no longer has the purchasing power to buy the necessities of life. So when you think about QE, remember that we are talking about taking money away from people and giving it to the corporate financial juggernaut. Those people include YOU and ME! I am deliberately reducing this to extremely simple terms. You can quibble if you choose, but the overall concept will stand on its own legs. Want to see it in action? Just look at the conversion rate for yen to dollars today.

DarJones

[QUOTE=Fusion_power;235195]On a different topic, the Quantitative Easing (QE) bomb is about to be laid.[/QUOTE]

Indeed - to use a phrase popularized during a little dust-up that erupted in 1776 or thereabouts, this kind of central-bank-caused deliberate currency debasement is the ultimate form of "taxation without representation", because congress has no say in such "monetary policy" matters, and continues to give the FedHeads a free pass as they make mockery of the "stable prices" part of their mandate, by freely and openly interpreting it as "stable rate of inflation", with the "stable" part of the self-modified mandate being rather optional, and made doubly obscure by deliberate obfuscations in the government measurements of CPI. (E.g. prices of dollar-value-sensitive items such as food and fuel stripped out of "core inflation", liberal application of "Hedonic adjustments" which assume that ground chuck is equivalent to top sirloin if folks can no longer afford the latter and opt for the former...not yet clear where "dog food" ranks on this scale, "Owner equivalent rent" subbed in for actual home prices, that sort of stuff).

OTOH, your point about the dollar/yen exchange rate raises an interesting question: The Japanese have been steadily (and spectacularly unsuccessfully) attempting to QE their way out of their late great RE bubble-and-bust for nearly 2 decades now, but their currency continues to show freakish strength. Anyone have any insights as to why? Could it be that - unlike in most profligate-spending countries - the Japanese were able to do most of their debt issuance domestically, by essentially trading an entire nation's accumulated savings for over 100% GDP-worth of near-zero-yielding government IOUs? I must admit the continuing strength of the yen baffles me, and it must be both baffling and worrisome for the Japanese leadership, which knows that its export economy is the sole thing keeping the country from all-out collapse, and said export economy is highly sensitive to such currency fluctuations. (There have been numerous recent intervention attempts by the Japanese central bank, which have proved both futile and expensive).

Of course there are Fed defenders - PhD economists, no less - who are now arguing that spiking commodities prices are in fact a [url=http://www.zerohedge.com/article/fed-trying-force-surge-commodity-prices-and-input-costs-diapason-explains-why-precisely-case]good thing[/url]:
[quote]"In fact, if the increase in oil prices is gradual, the persistent rise in inflation can cause a GDP expansion."[/quote]
[i]My Comment:[/i] That`s right - An economy which cycles 10% more dollars, each of which is worth 10% less in terms of purchasing power, counts as "economic growth" to these innumerate fools.

On a lighter note, in a very funny take on QE (and an even funnier riff on the name of country-music legend Merle "The Hag" Haggard), reader "Merle Hazard" sent Mish a little homegrown C&W video:

[url=http://globaleconomicanalysis.blogspot.com/2010/11/musical-tribute-to-quantitative-easin.html]Musical Tribute to Quantitaive Easin'[/url]

...And ZeroHedge has an [url=http://www.zerohedge.com/article/iceland-volcano-gods-angry-again-threaten-european-airspace-latest-volcanic-eruption]amusing headline[/url] on the latest (literal) rumblings out of Iceland, which does not omit the obligatory farting-in-the-general-direction-of-a-certain-Frederic-Mishkin:
[quote]More unpronounceable geological mayhem is about to come to the fore out of Iceland's business end. The country's volcano gods, which as we pointed out previously demand the sacrifice of a former FRBNY henchman to be placated, will not be denied, and will likely make airplane travel in and out of Europe just that more problematic, and just in time for the holiday season. While most have been following the tremor activity around Katla, this time the action takes us to the heretofore unknown, to most, Grimsvotn. As AP reports "torrents of water are pouring from a glacier that sits atop Iceland's most active volcano, an indication that the mountain is growing hotter and may be about to erupt, scientists said on Monday."[/quote]

"Grim's votin'"

Political commentary from a geological feature?

[QUOTE=ewmayer;235269]Indeed - to use a phrase popularized during a little dust-up that erupted in 1776 or thereabouts, this kind of central-bank-caused deliberate currency debasement is the ultimate form of "taxation without representation"[/QUOTE]Yeah, that is something which seemed like a good idea at the time but didn't last for long. Duplicity of the US government again.

[spoiler]In case you don't get it, many people pay taxes to the US government but are disenfranchised at election time. Bitter, moi?[/spoiler]


Paul

[QUOTE=cheesehead;235316]"Grim's votin'"[/QUOTE]

He changed his mind, is staying home due to a bad case of the Sneffels.

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

In today`s news: Australian dollar now worth more than $US for first time since 1982 ... Irish debt yields soar once again ... Banks reported to be sitting on a 9-YEAR-long [url=http://globaleconomicanalysis.blogspot.com/2010/11/9-years-of-housing-backlog-at-current.html]backlog of home inventory[/url] (yes, years, not months) ... rumors in Europe of a December 7 [url=http://www.zerohedge.com/article/december-7-unofficial-pan-european-bank-mutiny-day]bank run as form of protest[/url], a kind of "flash mob bank run" ... latest midterm election predictions have the Republicans gaining not just a majority in the House of the Representatives, but gaining a significant majority; Senate looks like a tossup at the moment, could end up split 50/50 (which would represent a pickup of a whopping 10 seats for the GOP). I almost perversely hope the GOP wins a majority in both houses, because then it would quickly prove that they are equally clueless at fixing what really ails us as are the Democrats, and that their talk about fiscal discipline was exactly the hypocritical empty blather most of us who watched the "fiscal restraint" they showed during the W. Bush years believe it to be.

[b]Election-related aside:[/b] I actually ran into an otherwise-intelligent-seeming person over the weekend who has decided to throw his hat in with the Tea Party ... ugh. He started ranting about the nameless evil that is, um, named Obama, at which point I couldn't resist a jibe along the lines "Well, what did you expect from a Muslim terrorist who's not even a citizen of the U.S.?" He laughed and said, "haw - I don't think he's a Muslim ... but I do think he's not a citizen." Where do folks like this come from? (This particular one, not completely surprisingly, hails from Alabama.) Of course since most of us will never be in a position to personally view the relevant physical evidence, it leaves endless room for charlatanry and "unreasonable doubt". You say "dude, that`s idiotic", and the claimer can simply retort "well, have you seen the birth certificate? Huh? have you? Yeah, I didn't *think* so." So how does one try to reason with such a person? (I didn't in this case, BTW, but the general question remains).

To me, the ridiculousness of such claims is embodied by this: Anyone in the US who has a relative or neighbor who has been screened for a security clearance has an idea as to how thoroughly the government does such things. So the idea that the same paid-to-be-paranoid national security apparatus is going to risk giving the nuclear codes and commander-in-chief status to someone without doing an unbelievably thorough background check is simply ludicrous.[/i]

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

The US Social Security Administration admitted to a tiny boo-boo in its recent data releases related to the top-earning Americans ... if you call a factor-of-6x overestimation "tiny", that is:

[url=http://www.bloomberg.com/news/2010-11-02/-invalid-multiple-tax-forms-by-supposed-billionaires-skew-wage-figures.html]`Invalid' Forms by Supposed Billionaires Skew U.S. Wage Figures[/url]: [i]The Social Security Administration asked its inspector general to investigate how a $32.3 billion mistake skewed its statistics on 2009 wages in the U.S.[/i]
[quote]Two people were found to have filed multiple W-2 forms that made them into multibillionaires, an agency official said yesterday. Those reports threw statistical wage tables out of whack and, in figures released Oct. 15, made it appear that top U.S. earners had seen their pay quintuple in 2009 to an average of $519 million.

The agency yesterday released corrected tables that showed the average incomes of the top earners, in fact, declined 7.7 percent to $84 million each.

Social Security spokesman Mark Lassiter provided few details about the W-2 forms and declined to answer questions about how they were filed, how many were filed by the same two people, or if a hoax was suspected. [b]“We call it erroneous, you call it fictitious. It’s the same thing,” Lassiter said. “There were some invalid, I guess is the best way to put it, W- 2s.”[/b][/quote]
[i]My Comment:[/i] Now about the "validity" of those GDP, inflation, and unemployment numbers...


Denninger has a long, non-rantish, and very interesting piece today which re-examines the common theses as to what caused the Great Depression (and similar economic downturns in the not-too-distant past), and puts forth an alternative hypothesis to the effect that it is not the usual suspects (market crashes followed by deflationary pressures which are not swiftly counterbalanced by massive government stimulus spending), but rather the phenomenon of profit margin collapse (which can be due to either or both of input-price spikes and lack of final demand), often driven by misguided government attempts to reflate bubbles, debase currencies or engage in knee-jerk trade-war-inducing protectionism, which turn triggering events like market crashes into wide-scale depressions. Definitely worth a read:

[url=http://market-ticker.org/akcs-www?post=170949]On The Reality Of Depressions; Bernanke`s Folly[/url]: [i]The common claim, often repeated, is that Ben Bernanke knows what caused The Great Depression and he (has avoided / can avoid / will avoid) one here - because he's studied it in depth.[/i]
[quote]Has anyone questioned the primary thesis behind why there was a Depression?

I don't think so.

But I think we should.

In 1929 the stock market crashed. But stock market crashes were not new things then. Indeed, monstrous, violent moves in the market were the norm from 1900 when we first have Dow Jones data - onward to the start of the "Roaring 20s" - roughly in 1924.

As the below chart shows, there were serious and extremely violent market crashes in 1901-03, 1906-08, 1917 and of course 1920 - the one nobody talks about.

1920 is where I would like to focus my attention. It came on the heels of World War I. A huge number of returning troops came into the workforce, overwhelming labor supplies. There were serious changes in fiscal and monetary policy on top of it. There is much attention paid to a claim that The Fed basically caused the Depression by raising rates from 4.75% to 7%. This is implausible as the triggering cause, although it certainly slowed bank lending. More importantly, there was a large inflation in both asset and general price levels, with the DOW rising from 80 - 120 - a 50% increase in less than a year.

President Harding was urged by Herbert Hoover (then Commerce Secretary) to protect private businesses, including banks, from the consequences of their bad decisions. He refused. The contraction was extremely sharp, with deflation of, according to some estimates of approximately 18% at retail and more than 30% at wholesale. GDP fell by 7%.

Unemployment also rose rapidly, reaching over 11%.

But the recovery was equally swift. Having been purged of inefficient businesses and excessive debt, the economy came roaring back. By 1923 full employment had once again been reached and industrial production registered an astounding 60% increase. The stock market came roaring back at the same time, with the DOW going from 65 to 105 in about a year.

What was different after the crash of 1929?[/quote]
[i]My Comment:[/i] I disagree with his opening "I don`t think so" claim, but a very interesting article nonetheless. The issue of margin collapse is especially critical at the current juncture because Bernanke`s ongoing efforts to debase the currency seem to be "bearing fruit" (if one can describe the effects in such positive-sounding terms), and there are big-time signs of margin collapse all around us. Mish says inflation is not a worry because lack of demand has prevented producers from passing their increased input costs onto consumers in most cases (i.e. there are no clear signs of "cost-push inflation") and hence is not a worry, but if inflation on the producer side is destroying profit margins, that seems rather a good reason to worry to me. Again, I think in this case Mish - who likes to say that most inflation gauges are measuring the wrong thing, and that true inflation is "an increase in money supply and credit" - is the one who may be taking his eyes off the ball by ignoring any inflationary signs lying outside his own pet definition. I shall have to give this one some thought.

Denninger continues with effects of cost-push inflation at the personal level, as captured in the latest economic data:
[quote]A million people came off unemployment benefits over the last month. This month's personal income and spending shows that spending is continuing while income is collapsing. This is margin compression at the personal level, and we have multiple companies and reports showing insane amounts of cost-push pressure on inputs, with Kimberly-Clark, among others reporting the highest increases in input cost pressures in the firm's history. Look at the GDP report. Virtually all of it was inventory - 1.44% of the 2% headline. Without the inventory build we saw only 0.56% GDP growth, and the deflator - the implicit inflation gauge in the numbers - stands at 2.2% across all products and services.

Even high-flying companies like Apple are reporting margin pressures. But don't be fooled by firms like Apple and other semiconductor manufacturers. High-tech toys are great, but you can't eat them, they won't heat your house, and you can't get to work in one. You have to look at the necessities and their derived products to see where we're headed - and there, it does not look good at all.[/quote]
[i]My Comment:[/i] All, I want to know is, where can I get one of those W-2 forms that makes one into a multibillionaire?

[QUOTE=ewmayer;235342]... but I do think he's not a citizen." Where do folks like this come from? (This particular one, not completely surprisingly, hails from Alabama.) Of course since most of us will never be in a position to personally view the relevant physical evidence, it leaves endless room for charlatanry and "unreasonable doubt". You say "dude, that`s idiotic", and the claimer can simply retort "well, have you seen the birth certificate? Huh? have you? Yeah, I didn't *think* so." So how does one try to reason with such a person? (I didn't in this case, BTW, but the general question remains).[/QUOTE]The state in which I was born (Oklahoma) long ago destroyed my birth certificate.

All certificates were microfilmed before being destroyed. When I've requested a copy of my birth certificate, they send me a copy on paper, from the microfilm image.

Does that inability to produce the original paper certificate mean I lost my citizenship, or am ineligible to be President?

That's the retort to use with "birthers" -- ask [I]them[/I] to show you [I]their[/I] original birth certificates!!! Many might learn for the first time that they're in the same situation as the President -- or, perhaps, that by their own standards they're ineligible to vote.

[QUOTE=cheesehead;235394]Does that inability to produce the original paper certificate[/QUOTE]

If I understand the situation correctly, this isn't the same thing as what keeps feeding the birther's conspiracy theory. My understanding (from memory here, so the details may be a bit garbled) is that Hawaii has a birth certificate and a "Certification of Live Birth." The Certification of Live Birth has less information, and is sometimes called the "Short Form Birth Certificate." The controversy lives on because only the short form has been made publicly available. I'm not aware of anything the makes is impossible to produce the long form. I'm also not aware of anything that makes it necessary to produce the longer form.

The QE2 Sails Again
 

So Bernanke announced QE2 to the tune of $600B over the next 6 months ... basically the Fed is going to monetize all net Treasury debt issuance over that time span. More tellingly, the Fed statement made it clear that this latest round of money-printing madness is completely open-ended ... basically they are now officially committing to printing asnd printing "until the economy recovers". As if one thing had anything to do with the other. (If anything, any correlation between the two will pove to be of the inverse variety.) Markets needed a day to figure out whether they liked this, today have "seen that it is good".Of course oil and commodity prices are predictably ratcheting upwards in roughly the same amount that equities are ... oh, yeah, squeezing the crap out of everyone who doesn't have most of the net worth tied up in stocks is going to really boost the economy.

ZeroHedge reminds of us via a 2008 news piece from another insane currency-printing banana republic:

[url=http://www.zerohedge.com/article/headlines-2008-zimbabwe-stock-exchange-soars-others-crash]Headlines From 2008: "Zimbabwe Stock Exchange Soars As Others Crash"[/url]
[quote]While markets across the world have been crashing, the Zimbabwe Stock Exchange has being seeing record gains as citizens turn to equities to protect their money from the country's hyperinflation. The benchmark Industrial Index soared 257 percent on Tuesday up from a previous one day record of 241 percent on Monday with some companies seeing share prices increase by up to 3,500 percent. But before Wall Street traders start packing their bags and heading south, they should bear in mind that these figures are just another representation of Zimbabwe's collapsing economy and are almost meaningless in real terms. Zimbabwe, once a regional breadbasket, is staggering amid the world's worst inflation, a looming humanitarian emergency and worsening shortages of food, gasoline and most basic goods. Inflation is at 231 million percent, but some experts put it more at about 20 trillion percent. [/quote]
[i]My Comment:[/i] And that`s why we like to call him "Zimbabwe Ben" Bernanke ... BTW, the official band name for Zimbabwe Ben and his merry band of mad money printers is (in tribute to an Elton John hit) "Bennie and Inkjets".

As the dollar slowly sinks in the west ...
 

[QUOTE=ewmayer;235564]So Bernanke announced QE2 to the tune of $600B over the next 6 months ...
[/QUOTE]The currency markets are also showing what they think of the QE2 re-fit. Some telling graphs are available at [url]www.xe.com[/url]

When even the GBP is starting to look strong against the USD, despite the UK's less than optimal economy, you have to start wondering.

Paul

The desperate jockeying for position in the currency market will cause lots of screaming as the currency wars accelerate. Nobody wants to have a strong currency when the world economy is stuck in the doldrums. It is funny, QE2 will hurt the average person on the street, make foreign governments angry because of declining currency, and does not in the end do anything realistically helpful to the economy.

I hate to say it Paul, but IMO, the GBP is headed even lower than the dollar. The central bank can't continue to prop it up without serious blood letting.

DarJones

[QUOTE=Fusion_power;235571]I hate to say it Paul, but IMO, the GBP is headed even lower than the dollar. The central bank can't continue to prop it up without serious blood letting.[/QUOTE]

Gotta disagree with you on this one - unlike the US, the UK has made a credible start at the kind of harsh fiscal austerity needed to begin to rein in decades-long overspending. The US is doing precisely the opposite, and almost deliberately trying to rub the rest of the world's noses in it, a kind of "look at what we can do because we have the world's reserve currency" arrogance.

The anti-Fed pundits keep saying that the bond markets will punish us for our profligacy at some point, but now that the Fed *is* the bond market (much like the government now is the mortgage market), is that even possible? Perhaps because for every dollar of new debt issuance we have to roll over roughly 5 dollars of maturing debt, there is still some semblance of a bond market ... but I wonder. Perhaps the Ponzi masters at the Fed have that covered by way of their being in bed with the primary dealers, so even if foreign governments switch to not buying (or becoming net sellers) of treasury debt, the PDs can show their continuing "gratitude" for the various government bailout monies by making sure the debt auctions are well-bid. And by gradually shortening the average maturity date of the total debt (e.g. by replacing long-duration maturing debt with shorter-duration new paper), the Treasury can keep the rollover beast under control for quite some time. Of course there are limits to that as well, but the whole point is to buy time and pray for recovery to magically occur, and/or for the dollar to become sufficiently debased so the debt-to-GDP ratio levels out or even shrinks. Back to the taxation-without-representation theme there.

[QUOTE=Fusion_power;235571]I hate to say it Paul, but IMO, the GBP is headed even lower than the dollar. The central bank can't continue to prop it up without serious blood letting.[/QUOTE]Then we'll have to agree to disagree. The BoE has spent the last two years doing most everything it can to make the GBP weaken rather than prop it up. Interest rates have been at an all-time low of 0.5% for 20 months and we've had our own batch of QE.

Although it may sound like a mutual-admiration society, I'm with Ernst on this matter.


Paul

Modern Debt Collection | How to fix the economy
 

[b]Modern Debt Collection:[/b]

Courtesy of our legal-eagle friends at the Bankruptcy Law Network (hat tip: Mish), for your horrified amusement, we present some interestingly creative debt-collection tactics:

[url=http://www.bankruptcylawnetwork.com/2010/11/02/debt-collector-scam-reaches-new-low-the-unicredit-bogus-courtroom-scam/]Debt Collector Scam Reaches New Low: The Unicredit Bogus “Courtroom” Scam[/url]
[quote]It isn’t easy for consumers to protect themselves these days, from robo-signers, foreclosure-rescue scams, and all manner of abusive collection tactics, but the Unicredit scam may take the prize for sheer audacity. [b]It seems that Erie, Pennsylvania debt collection agency Unicredit not only set up a fake courtroom, complete with phony judge, with which to bamboozle and intimidate, but it dressed up employees like sheriff’s deputies to “serve” faked court papers on consumers.[/b]

The Unicredit scam, as outrageous as it is, differs mainly in scope from tactics that are commonly used by creditors and collection agencies, whose stock in trade is to mislead, exaggerate, and intimidate.

And while I haven’t seen the pseudo-courtroom scam before, the pseudo-law enforcement official is nothing new.

It’s not always easy when you are scared and someone is breathing down your neck, but again, that is a debt collector’s stock in trade. The more urgent he makes everything sound, the more likely you won’t slow down to think, and ask yourself some practical questions.

The most important and most practical advice is to go see an attorney. If you’re being threatened with legal action, an attorney can tell you what really can (and can’t) happen. If you’ve already been intimidated or scammed into giving up something you shouldn’t have, an attorney can tell you how to redress the situation.[/quote]
[i]My Comment:[/i] Ah, but what if the fake cops get you into a fake interrogation room and tell you (falsely but convincingly) that under the provisions of the 2005 Bankruptcy "Reform" Act, you that you don't have the right to see an attorney until you sign certain (very real) waivers of legal rights? What next? Fake CIA "enhanced interrogation specialists" giving debtors (real) waterboardings to soften them up?

It's enough to almost make one yearn for the honest straightforward harshness of Dickensian debtor's prisons...


[b]How to Fix the Economy, Zimbabwe-Ben Bernanke Style:[/b]

Why, keep the stock market from ever dropping again. To that end, today's non-manipulated stock market closing 15 minutes brought to you by "The Chairman":

CA Budget Tricks, Part oo | Sarah Palin on QE2
 

From my neck of the woods, here is one of the many ways California managed to "close a $20 billion budget gap" this past year:

[URL="http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2010/11/07/state/n100503S24.DTL"]Calif borrows $40M a day to pay unemployment[/URL]: [I]With one in every eight workers unemployed and empty state coffers, California is borrowing billions of dollars from the federal government to pay unemployment insurance.[/I]
[quote]The Los Angeles Times reports that the state owes $8.6 billion already, and will have to come up with a $362-million payment to Washington by the end of next September.

The continued borrowing means federal unemployment insurance taxes are going to increase, upping the annual payroll costs $21 a year per worker.

California tops the list of 32 states that have borrowed a total of $41 billion to pay claims.

The state took out its first loan from the federal government early last year, to deal with rising payment of benefits and number of claims.[/quote][I]My Comment:[/I] So that first major payment due next September covers a whopping nine *days* of unemployment borrowings? Oh, yeah, this is going to end really well.

[B]Sarah Palin may be a bubbleheaded demagogue...[/B]

...but at least the persons(s) in her inner circle who wrote this for her use seem to have a clue (I know, I am as shocked to see myself writing this as most of you):

[URL]http://www.nationalreview.com/corner/252715/palin-bernanke-cease-and-desist-robert-costa]Palin to Bernanke: ‘Cease and Desist’[/URL]
[quote]I’m deeply concerned about the Federal Reserve’s plans to buy up anywhere from $600 billion to as much as $1 trillion of government securities. The technical term for it is “quantitative easing.” It means our government is pumping money into the banking system by buying up treasury bonds. And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air.

The Fed hopes doing this may buy us a little temporary economic growth by supplying banks with extra cash which they could then lend out to businesses. But it’s far from certain this will even work. After all, the problem isn’t that banks don’t have enough cash on hand – it’s that they don’t want to lend it out, because they don’t trust the current economic climate.

And if it doesn’t work, what do we do then? Print even more money? What’s the end game here? Where will all this money printing on an unprecedented scale take us? Do we have any guarantees that QE2 won’t be followed by QE3, 4, and 5, until eventually – inevitably – no one will want to buy our debt anymore? What happens if the Fed becomes not just the buyer of last resort, but the buyer of only resort?
...[/quote][I]My Comment:[/I] Of course this is followed by examples of the price inflation caused by the Fed`s money-printing, which include the price of oil, which immediately leads to a relapse into "drill, baby, drill!" ... gotta take the bad with the good, I suppose. Sarah Palin - the political analog of the chick with the really pretty face and the huge derriere.

[B]Irish Debt Woes Intensify:[/B]

[URL="http://www.nytimes.com/2010/11/08/business/global/08debt.html?_r=1"]Irish Debt Woes Revive Concern About Europe[/URL]: [I]When interest rates soared last week on Irish government bonds, it served as a grim warning to other indebted nations of how difficult and even politically ruinous it could be to roll back decades of public sector largess.[/I]
[quote]An Irish bond market already in free fall plunged further after Ireland announced on Thursday that it planned to nearly double its package of spending cuts and tax increases to try to rein in its huge deficit. Investors took it not as a sign of resolve but rather of Ireland’s desperation and uncertainty about the true extent of its problems.

The yield on Ireland’s 10-year bond climbed to 7.6 percent on Friday, expanding the gap with the 2.5 percent interest rate on comparable bonds issued by Germany, which is emerging most strongly from the European debt crisis.

Borrowing costs in Spain, Portugal and Greece also spiked upward again, as investor concern re-emerged that those countries would be hard-pressed to bring their deficits under control and avoid defaulting on their bonds.

Even as global stock markets rallied last week, those bond market jitters were a forceful reminder of how wary investors remained after Europe’s debt crisis last spring, despite the commitment of a combined 750 billion euros ($1.05 trillion) in bailout funds by the European Union and the International Monetary Fund.
...
Prime Minister Brian Cowen’s increasingly shaky political standing in Ireland may be threatened by the new deficit reduction measures, which will cut to the heart of the Irish welfare system, including health care.

In Greece, regional elections on Sunday were viewed as a test for the Socialist Party led by Prime Minister George Papandreou, whose government’s austerity measures have been wildly unpopular. In a televised address, Mr. Papandreou claimed victory in the elections and viewed the results as support of his economic policies.

International concerns about the high budget deficit in the United States, and Washington’s seeming willingness to print money rather than tackle tough debt-cutting measures, help partly explain the recent anti-American criticism from countries as diverse as Brazil, China and Germany. Countering those critics may be one of the biggest tasks for President Obama in Seoul, South Korea, this week at the Group of 20 meeting of the leaders of the world’s biggest economies.

Within Europe, though, the more immediate concerns involve Ireland. Its debt woes have stoked fear that it might even need to follow Greece and request a bailout from the European Union and the International Monetary Fund. Such a move could do lasting damage to Ireland’s credit standing.

For the moment, at least, that outcome seems improbable. Unlike Greece earlier this year, Ireland has enough cash on hand to allow it to finance government operations through June 2011. And it has, at least temporarily, withdrawn from the bond market instead of paying the new, higher interest rates, which Irish officials say do not adequately reflect the country’s true economic condition.[/quote]

Silver Goes Parabolic | Who Said It?
 

[b]Silver Goes Parabolic:[/b]

In the wake of the recent allegations (see [url=http://www.zerohedge.com/article/whistleblower-exposes-jp-morgans-silver-manipulation-scheme]here[/url], [url=http://www.zerohedge.com/article/civil-and-criminal-probes-launched-against-jp-morgan-silver-market-manipulation]here[/url], [url=http://www.zerohedge.com/article/andrew-maguire-re-emerges-ex-goldman-trader-exposes-jpmorgan-hsbc-latest-silver-price-manipu]here[/url] and [url=http://www.zerohedge.com/article/rico-suit-filed-against-hsbc-and-jpmorgan-silver-market-manipulation]here[/url]) implicating Barclays and JP Morgan in a long-running and highly profitable manipulation of the silver futures market (in a nutshell, JPM acquired a huge set of silver short positions via its shotgun marriage to the now-defunct Bear Stearns back in the spring of 2008, and has since then been busily manipulating the silver market at selected intervals in order to depress the price and profit from whichever batch of shorts is due to expire next), silver has seen a parabolic price ramp, more than doubling off its 52-week low and hitting a new high of $29 per ounce today, likely fueled in no small part by the erstwhile maipulators getting a well-deserved short-squeezing. That price-ramp has led to some interesting phenomena, for instance related to commemorative coinage issue in Germany:

[url=http://www.zerohedge.com/article/guest-post-germany-unwittingly-adopts-silver-standard-due-soaring-price]Guest Post: Germany Unwittingly Adopts A Silver Standard Due to Soaring Price[/url]
[quote]Silver's sky-shot to a new 30-year high of $27.73 per ounce has led to a new phenomenon in Germany. For the first time in history it is theoretically possible to buy two last series of silver coins with a denomination of €10 and a silver content of 0.535 ounces for less than the silver equivalent. According to a report in German Daily "Welt" the soaring silver price has forced the German government to bring forward the starting time of sales of the 2 commemorative coins into October to save face. The coins now have a value of €10.66 but have to be sold at the denominated Euro value.

As this story is widely circulating in Germany it can be expected that these coins will be sold out by tomorrow.
Germany's time on a theoretical silver standard - the country was on a bi-metallic standard before the Weimar Republic in the 1920s - won't last long, though.

In order to counter soaring silver prices and keep the denominated value below the silver value the country has announced it will reduce the silver content to 10 grams or 0.3215 ounces in its commemorative silver coin line from January 2011.[/quote]
[i]My Comment:[/i] And to think, here in the US, non-numismatic-quality (due to high wear) WW2-era "silver nickels" (roughly 35% Ag) could be had in bulk for only a few times face value as recently as a few years ago - in fact, if one hunts around one might still be able to pick up some bulk coins at below their current melt value.


[b]Who Said It?[/b]

Today`s quiz question: Who wrote the following hagiographical piece about mega-corrupt (and now thankfully defunct) Texas energy [strike]racketeering cabal[/strike] company [url=http://en.wikipedia.org/wiki/Enron]Enron[/url]`s "innovative and new-economy-ish" business model? (The foregoing Wikipiece is highly recommended background reading by the way ... see how many places and in what contexts you can spot the name "Gramm")

[quote]The retreat of business bureaucracy in the face of the market was
brought home to me recently [b]when I joined the advisory board at
Enron[/b]--a company formed in the '80s by the merger of two pipeline
operators. In the old days energy companies tried to be as
vertically integrated as possible: to own the hydrocarbons in the
ground, the gas pump, and everything in between. And Enron does own
gas fields, pipelines, and utilities. But it is not, and does not
try to be, vertically integrated: It buys and sells gas both at the
wellhead and the destination, leases pipeline (and
electrical-transmission) capacity both to and from other companies,
buys and sells electricity, and in general acts more like a broker
and market maker than a traditional corporation. [b]It's sort of like
the difference between your father's bank, which took money from its
regular depositors and lent it out to its regular customers, and
Goldman Sachs[/b]. Sure enough, the company's pride and joy is a room
filled with hundreds of casually dressed men and women staring at
computer screens and barking into telephones, where cubic feet and
megawatts are traded and packaged as if they were financial
derivatives. (Instead of CNBC, though, the television screens on the
floor show the Weather Channel.) The whole scene looks as if it had
been constructed to illustrate the end of the corporation as we knew
it.[/quote]
[i]My Comment:[/i] Hint: Not Wendy Gramm (wife of "destroyer of worlds" ex-Senator Phil Gramm, who later viewed the vast economic destruction he helped bring about and declared the resulting recession to be "mental") ... BTW, the bit about Goldman Sachs is especially rich ... the commenter lauds GS for being superior to "your father's bank" owing to its great financial innovation - of course we now know that the chief difference between the two kinds of institutions are that "you father's bank" actually had an interest in helping folks like him succeed, whereas the Goldman Sachses of the world are run as pure pillage-for-profit machines ... just as was the case with Enron.

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

p.s.: Here is the 1-year price chart for silver ... this is what tarders refer to as "going parabolic", and indeed one can nicely fit a parabola to the past few months` (and even more so the past several weeks') runup:

And speaking of parabolic blowoffs...
 

...they tend to reverse dramatically, often once a big short-squeeze (and resulting panic buying) has finished being covered - here is the latest intraday SLV chart:

Reviving the Rare-Earths Industry Outside China
 

Following up on last month's unofficial China embargo of rare-earth-minerals exports, the NYT "Room for Debate" feature has a nice [url=http://www.nytimes.com/roomfordebate/2010/11/08/can-the-us-compete-on-rare-earths?ref=opinion]online discussion[/url] about the prospects of reviving the rare-earths mining and manufacturing industry in the U.S. - other countries having adequate indigenous supplies of the basic ores will be in a similar situation. The following snip summarizes the dilemma resulting from decades of having offshored the business:

[url=http://www.nytimes.com/roomfordebate/2010/11/08/can-the-us-compete-on-rare-earths/for-the-us-starting-a-rare-earth-mine-is-the-easy-part]The Mines and Minds Are in China[/url]: [i]The only rare earth mine in the United States that is anywhere near becoming fully operational is The Mountain Pass mine in California. While we have the capability to mine and process the reserve there, starting a mine in and of itself will not completely solve our problems.[/i]
[quote]One of the biggest challenges we face is our lack of technological expertise going forward. From about the 1950s to 1980s, the U.S. broke new ground in innovations with rare earths.

For example, we began to use europium as a phosphor for the red in color televisions. General Motors, simultaneously with Japan’s Hitachi, invented the neodymium-iron-boron magnet for use in their vehicles. The two companies fought over the patent, which ended up being split. The technology was eventually transferred to China and today there are no companies in the U.S. that manufacture these powerful magnets, which are critical to many high-tech applications. We also made significant contribution in utilizing rare earth elements as fluid cracking catalysts in the petroleum refining industry. And numerous energy and military applications were developed.
Molycorp in Mountain Pass Isaac Brekken for The New York Times Molycorp's Mountain Pass mine in California.

China realized the value in its rare earth resources early on. If you look at China’s rare earth industry, you will see that it has undergone a major transformation. China, which once focused on exporting rare earths in their raw forms, has shifted its end goal from production to innovation. In the 1970s, China was just exporting rare earth mineral concentrates. By the 1990s, it began producing magnets, phosphors and polishing powders. Now, it is making finished products like electric motors, batteries, LCDs, mobile phones and so on.

Through all the effort that the Chinese government has put into the industry, China has accrued tens of thousands of experts working on the research and development of rare earth elements. Meanwhile, the numbers of rare earths scientific experts in the United States has diminished and pales in comparison.

If we don't have the experts required to take the rare earth elements to their next levels, that is, going from oxides to metal compounds or creating magnets or other critical compounds, then there is nothing we can do other than to ship them back to China for further processing, which puts us back to square one. [/quote]
[i]My Comment:[/i] Some shorter key-snips from the other contributors to the discussion:

[url=http://www.nytimes.com/roomfordebate/2010/11/08/can-the-us-compete-on-rare-earths/how-to-mine-rare-earths-in-our-own-back-yard]Using Our Own Back Yard[/url]: [i]The process of bringing back the rare earth industry has already started with the reactivation of Molycorp’s Mountain Pass mine in California.[/i]
[quote]...we need to change the way we buy cars, phones and windmills. Currently, batteries, cellphones and Prius motors are essentially disposable -- after use they go to landfills and scrapyards where scavengers take their parts. We need to create a system where the manufacturer owns the minerals forever, and thus needs to design with the intent of recycling (or upcycling) these resources indefinitely. This will not only ensure that we have a greater pool of usable rare earths; it could also change the way we manufacture and may create jobs that cannot be outsourced. [/quote]

[url=http://www.nytimes.com/roomfordebate/2010/11/08/can-the-us-compete-on-rare-earths/a-glut-of-rare-earths]A Glut of Rare Earths?[/url]: [i]The hullabaloo over the supply of rare earth elements seems likely to be short-lived. Many companies are responding to this – not just in the United States, but in Australia, India, Japan and elsewhere -- so the concern of the moment is not what should we do, but whether we are headed toward a bursting of a rare earth bubble in the next five years or so.[/i]
[quote]For far-reaching economic and political reasons, the U.S. should invest in a domestic rare earth industry. China's recent unofficial embargo of rare earths was a wake-up wall for the U.S. to accelerate its effort to keep ahead in technological development.

American companies like Molycorp in California and Wings Enterprises in Missouri will have to figure out how to mine rare earths economically, while minimizing the environmental impact, including the potential leaking of radioactive thorium into water supplies. The presumption is that they will.

The production plans of two companies alone – Molycorp and Australia's Lynas Corporation – will add the equivalent of 35 percent of China's current production to the market. Other companies have similar plans, hence a abundance of supply is a likely scenario. That is when trouble will begin. China is bound to respond by dropping its prices and starting a bloodbath in the industry.[/quote]

[QUOTE=ewmayer;236303][quote]we need to change the way we buy cars, phones and windmills. Currently, batteries, cellphones and Prius motors are essentially disposable[/quote][/QUOTE]"What do you mean [I]we[/I], white man?"

Some of us have been recycling such stuff for years.


Paul

[QUOTE=xilman;236304]"What do you mean [I]we[/I], white man?"

Some of us have been recycling such stuff for years.[/QUOTE]

I also go out of my way to pick up discarded batteries I find lying around and bringing them to my work, where we have battery-recycling bins in every building. But the U.S. overall is still dismal at recycling such things. That is the "we" to which I was we-ferring.

recycling and unemployment benefits
 

It is not just the act of recycling materials that has to change in the U.S. It is the design of products that do not have materials that limit recycling and changing the overall mentality to recycle everything possible. As an example, my company sells digital switching equipment in Europe that has to comply with standards such as a specific type of paint that facilitates recycling. There are also requirements that a company must provide a recycling system for beginning to end support of manufactured goods. Such a system does not exist in the U.S.

On a different tack, Yahoo has an article this morning:
[QUOTE]Fewer people applied for unemployment aid last week, the third drop in four weeks.

The Labor Department says initial claims for jobless aid dropped by 24,000 to a seasonally adjusted 435,000. Many Wall Street economists expected a smaller decrease.

If the decline continues, it could signal meaningful improvement in the job market. The four-week average of claims, a less volatile measure, fell 10,000 to 446,500.

That's the lowest level for the average since the week that ended Sept. 13, 2008, just before the financial crisis intensified that weekend with the collapse of Lehman Brothers. [/QUOTE]

I've become increasingly pessimistic over the last 3 years so I ask how this could be skewed. That pessimism says that the single biggest reason for fewer jobless benefit claims is likely to be that benefits have expired for a large number of people. Do you see mention of this in the above? No, what you see is that jobless claims declined. This is garbage reporting. What should be shown is how many new jobs were created and how many positions filled to correspond to the drop in jobless benefit claims. I'll grant that tracking how many people have jobs is more difficult than tracking how many applied for jobless benefits, but still, tracking jobs would be a reliable indicator that people are getting off the unemployment benefit wagon for the right reason!

DarJones

[QUOTE=ewmayer;236293]...they tend to reverse dramatically, often once a big short-squeeze (and resulting panic buying) has finished being covered - here is the latest intraday SLV chart:[/QUOTE]

I will express a controversial opinion.

All derivatives and all short selling of both equities and commodities should
be totally banned.

[QUOTE=ewmayer;236307]I also go out of my way to pick up discarded batteries I find lying around and bringing them to my work, where we have battery-recycling bins in every building[/QUOTE]
Note that recycling of batteries is a very nice idea, but the majority of batteries everyone uses today are alkaline batteries, and nobody has figured out how to effectively recycle them yet. The heavy metal content of alkaline batteries has gone way down over the last few years. Hopefully everyone thinks twice about throwing away more exotic batteries like ni-cads, which is natural because they're so expensive.

(IIRC all this was in wikipedia)

[QUOTE=R.D. Silverman;236472]All derivatives and all short selling of both equities and commodities should be totally banned.[/QUOTE]

And all totalitarian control freaks should at least try to understand what purpose forward contracts, futures contracts and other derivatives serve, before they advocate totale vernichtung of all the filthy money changing for being too Jewish.

[QUOTE=Fusion_power;236446]On a different tack, Yahoo has an article this morning:
[snip]

I've become increasingly pessimistic over the last 3 years so I ask how this could be skewed. That pessimism says that the single biggest reason for fewer jobless benefit claims is likely to be that benefits have expired for a large number of people. Do you see mention of this in the above? No, what you see is that jobless claims declined. This is garbage reporting. What should be shown is how many new jobs were created and how many positions filled to correspond to the drop in jobless benefit claims. I'll grant that tracking how many people have jobs is more difficult than tracking how many applied for jobless benefits, but still, tracking jobs would be a reliable indicator that people are getting off the unemployment benefit wagon for the right reason!

DarJones[/QUOTE]

You forgot to mention the most-obvious game that gets played with the weekly claims, over and over again, namely that the Labor Department announces the latest (preliminary) claims number, and then compares it in true apples-to-oranges fashion to the previous week's *revised* number. And in nearly every case the previous week's number gets revised upward (i.e. worse than initially announced), so nearly every week the bogus comparison shows "claims dropped", and yet the number never seems to get out of the 400-500k range. And each time the MSM unquestioningly report the "improvement". Here's a Mish article illustrating how initial claims, after recovering from the mass-job-loss phase of the Great Recession and dropping below 500k/week at the end of last year, have been essentially flat since, and at a level that indicates the economy is still slowly losing jobs, to say nothing of generating enough jobs even to keep up with population growth, and to say nothing of actually starting to make a dent in the 10-million-pl;us jobs lost in the past 2 years:

[url]http://globaleconomicanalysis.blogspot.com/2010/11/weekly-claims-show-job-stagnation-for.html[/url]

How can any reasonable-minded person look at the [url=http://2.bp.blogspot.com/_nSTO-vZpSgc/TNMMEimiTHI/AAAAAAAAJpU/vy5TyGMyefg/s1600/weekly-claims-2010-11-04B.png]third figure[/url] in that article and conclude that things have improved on that front this year? Especially compared to the pre-recessionary trendline.

Companies play the same kind of games with earnings reports: After each quarter's report you give bullish guidance, which helps boost your share price. Then over the ensuing quarter you steadily guide lower, so by the next quarterly earnings report you always manage to beat your-now-much-lowered expectations. Lather, rinse, repeat. And we won't even get into how most corporate earnings computations these days are works of fiction, e.g. disguising your losses as a never-ending series of "one-time charges", and getting market "analysts" (who are in bed with many of the same companies they cover, i.e. paid to be relentlessly bullish) to ficus on the fiction that is "operating earnings", rather than stodgy old (revenues - expenses) thing.

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

In other news, Euro-periphery (especially Irish) bond spreads once again shooting into the stratosphere - yield spreads on Irish sovereign debt shot up by over 10% to over 600 basis points (i.e. > 6% over the benchmark German Bund) in just one *day*. Watch this space...

And the sugar high from Banana-Republic Bennie's much-ballyhooed QE2 announcement appears to have worn off very quickly indeed. Was good for a huge 48-hour short squeeze in the financials, though).

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

Bob, you are right to be concerned about financial instruments such as options and derivatives. But to my mind, the problem is not the instruments themselves - they were devised for very good reasons - but in the fact that our feckless (and in many cases criminal - look at former senator Phil Gramm, his wife Wendy, and their involvement with government, the CFTC and private industry, especially notorious commodity-markets manipulators like Enron was) government regulators have allowed rampant, systematic abuse of all these devices, to where the vast majority of their usage is no longer related to their original purposes of hedging risk, but rather to manipulate markets and engage in pure hig-leverage speculation.

To me, some much more sensible steps which don't throw the baby out with the bathwater include:

- Actually enforce the longstanding ban on naked shorting;

- Ban two-tiered (i.e. designed to provide advantageous informational asymmetry for those willing to pay for it) markets and HFT - the latter could be accomplished instantly by forcing all bids to stay live for at least a few seconds;

- Require traders in commodities and related futures and derivatives to demonstrate a "legitimate material interest" in the commodity being traded, that is, allow for legitimate price-hedging by actual users of the commodities, but get e.g. Goldman out of the oil and soybean markets.

- Restore and vigorously enforce longstanding leverage limits which were nixed (or raised to ridiculous levels) at the behest of Big Finance in the past decade.

[QUOTE=Calvin Culus;236489]And all totalitarian control freaks should at least try to understand what purpose forward contracts, futures contracts and other derivatives serve, before they advocate totale vernichtung of all the filthy money changing for being too Jewish.[/QUOTE]

ROTFLMAO

[QUOTE=ewmayer;236490]

<snip>

especially notorious commodity-markets manipulators like Enron was) government regulators have allowed rampant, systematic abuse of all these devices, to where the vast majority of their usage is no longer related to their original purposes of hedging risk, but rather to manipulate markets and engage in pure hig-leverage speculation.

[/QUOTE]

But this is exactly the problem. And I see enforcement as being
impossible/totally impractical.

It's not just that the abuse results in market manipulation. If the
manipulation only affected other speculators, it would not be so bad.

But the manipulation also affects consumers and the rest of the public who
are not directly involved in the market. Look at what speculation/manipulation
of oil futures does at the gas pump just to cite one example.

[QUOTE=R.D. Silverman;236492]But this is exactly the problem. And I see enforcement as being
impossible/totally impractical.

It's not just that the abuse results in market manipulation. If the
manipulation only affected other speculators, it would not be so bad.

But the manipulation also affects consumers and the rest of the public who
are not directly involved in the market. Look at what speculation/manipulation
of oil futures does at the gas pump just to cite one example.[/QUOTE]

Any successful trader will tell you that bullying the market is a recipe for disaster. From an interview with Bruce Kovner:

[url]http://books.google.com/books?id=jNG7r-Ul7jwC&pg=PA69[/url]

Eventually the manipulator will run out of cash and the problem solves itself. Your homework for today is to learn that any attempt to regulate markets is always an attempt to manipulate markets. Any society that fails to realize this is doomed [B]because[/B] of regulation, not inspite of regulation.

[QUOTE=Calvin Culus;236499]Any successful trader will tell you that bullying the market is a recipe for disaster. From an interview with Bruce Kovner:

[url]http://books.google.com/books?id=jNG7r-Ul7jwC&pg=PA69[/url]

Eventually the manipulator will run out of cash and the problem solves itself. Your homework for today is to learn that any attempt to regulate markets is always an attempt to manipulate markets. Any society that fails to realize this is doomed [B]because[/B] of regulation, not inspite of regulation.[/QUOTE]

ROTFLMA.

[QUOTE=R.D. Silverman;236492]But this is exactly the problem. And I see enforcement as being
impossible/totally impractical.

It's not just that the abuse results in market manipulation. If the
manipulation only affected other speculators, it would not be so bad.

But the manipulation also affects consumers and the rest of the public who
are not directly involved in the market. Look at what speculation/manipulation
of oil futures does at the gas pump just to cite one example.[/QUOTE]
Disagree - prior to the Gramm-led "modernization" of the commodities markets, abuses were much less widespread. To use the example of oil markets - just require futures trading to be matched against actual delivery-taking on a quarterly or yearly basis. If at the end of the year it turns out you took delivery of less than [insert minimum required fraction here] of the contracts you traded in, you get a hefty fine for speculation, with repeated violations getting you banned entirely.

Similar with naked shorting - simply require large traders in puts to demonstrate that there was actual borrow-of-shares involved.

To my mind, the biggest problem (and this is just as bad under the current administration as it was under the last one) is not that the rules are nonenforceable, but rather that they are not being aggressively enforced. You don't need to catch all crooks to provide a deterrent effect, but do you do need to catch a decent number, and actually punish the proven-to-be-guilty, to an extent that they cough up all of their ill-gotten gains and enough on top of that to really sting. If I know that even if I get cuaght I'm going to get a slap on the wrist, why would I be deterred? Classic example: former Countrywide CEO Angelo "Orange-glo" Mozilo recently paid a $5m fine for some of the crap he pulled. Pretty hefty, eh? Well, not really, because he made hundreds of millions from engaging in mass mortgage fraud, and got to keep nearly all of it. Same goes for the many thousands of other Wall Street, mortgage-industry and ratings-agency crooks who helped bring us the great crash of 2008. Not *one* of the big fish has been held accountable, and only a handful of little fish.

(Note that Bernie Madoff was not involved in the RE-bubble crookery, though the increased scrutiny that resulted from the 2008 meltdown may have helped convince the government to actually look into his "business model", over a decade after they got their first credible evidence that he was running a Ponzi from whistleblower Harry Markopolous).

As S&L-era prosecutor william Black recently wrote, "control fraud is only made worse by forbearance". Control fraud being what Big Finance is engaged in, and forbearance being the official policy of our federal government in the matter.

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

Note to Calvin Culus: You're lucky Bob is Irish, otherwise he might have taken umbrage about your jew-finance comment.

[url]http://en.wikipedia.org/wiki/Walras'_law[/url]

A direct consequence is that if a society cannot balance its budget then at least one other market will not be in equilibrium either. The attempt to manipulate the market for labor by increasing the deficit illustrates just how ignorant the public is and how unfit its elected officials are to successfully govern our society.

funny how mephitis megachiroptera gets into the fray..... again.

Mass student protests against set-to-skyrocket fees by college students in Britain yesterday ... Irish bond spreads topped 7% today, meaning the country is effectively shut out of the bond-markets and will most likely need an ECB rescue in the coming months ... and China reported an "official" inflation rate of 4.4%, which - shock and surprise - exactly matched the official expectations, but is probably at least 10x lower than the real figure, based on boots-on-the-ground-level reports from that credit-bubble-ridden nation. Oh my, it`s gonna be ugly when that one eventually bursts.


Cisco shares got hammered after hours yesterday (and shockingly, are still down 15% as I write this ... daily Fed-sponsored "wealth effect supporting" ramp job apparently has not yet begun) on a rather grim earnings forecast - this is Denninger`s "margin compression" in action. I guess we now know why corporate insider selling-to-buying ratios have broken all records the past few months, even as the market has hit 2-year highs. Mish comments at length - pay special attention to the data about cable TV subscriptions in there:

[url=http://globaleconomicanalysis.blogspot.com/2010/11/congratulations-to-cisco-insiders-for.html]Congratulations to Cisco Insiders for Dumping 6,620,750 Shares, 60% of Holdings in 6 Months; Cisco CEO Whines about Taxes; Is Chambers Worth a Dime?[/url]: [i][Cisco's huge earnings warning] may portend the end of the ramp in capital spending on technology by corporations. If so, what's left of the recovery (if anything) is all on the backs of consumers.[/i]

[QUOTE=ewmayer;236690]Mass student protests against set-to-skyrocket fees by college students in Britain yesterday ... Irish bond spreads topped 7% today, meaning the country is effectively shut out of the bond-markets and will most likely need an ECB rescue in the coming months ... and China reported an "official" inflation rate of 4.4%, which - shock and surprise - exactly matched the official expectations, but is probably at least 10x lower than the real figure, based on boots-on-the-ground-level reports from that credit-bubble-ridden nation. Oh my, it`s gonna be ugly when that one eventually bursts.


Cisco shares got hammered after hours yesterday (and shockingly, are still down 15% as I write this ... daily Fed-sponsored "wealth effect supporting" ramp job apparently has not yet begun) on a rather grim earnings forecast - this is Denninger`s "margin compression" in action. I guess we now know why corporate insider selling-to-buying ratios have broken all records the past few months, even as the market has hit 2-year highs. Mish comments at length - pay special attention to the data about cable TV subscriptions in there:

[url=http://globaleconomicanalysis.blogspot.com/2010/11/congratulations-to-cisco-insiders-for.html]Congratulations to Cisco Insiders for Dumping 6,620,750 Shares, 60% of Holdings in 6 Months; Cisco CEO Whines about Taxes; Is Chambers Worth a Dime?[/url]: [i][Cisco's huge earnings warning] may portend the end of the ramp in capital spending on technology by corporations. If so, what's left of the recovery (if anything) is all on the backs of consumers.[/i][/QUOTE]

And of course none of the insiders who dumped all this equity will ever
be prosecuted for insider trading...... (further illustrating my previous point
about manipulations and inability to prosecute).

The Mish article is dead on.

Congress needs to do something about out-of-control senior executives.
They are quite literally looting the companies that they run.
Control needs to be returned to stockholders. We need laws preventing
U.S. corporations sending $$ and jobs overseas. We need to close
tax loopholes for large U.S. corporations...

All of this has the proverbial snowball's chance. The Demotwits could not
get it done while they had control, and now that the Republitards have
control, there is even less chance.

[QUOTE=ewmayer;236690]Mass student protests against set-to-skyrocket fees by college students in Britain yesterday[I].[/I][/QUOTE]Students have almost always been revolting. The surprise is how docile they've been in the last few years.

Paul

[QUOTE=xilman;236695]Students have almost always been revolting.

Paul[/QUOTE]


Maybe they should bathe more often???