Foreclosure Crisis: The Florida "Rocket Docket"
 

The WSJ`s [i]Real Time Economics[/i] blog has the number of the day:

[url=http://blogs.wsj.com/economics/2010/11/06/number-of-the-week-102-trillion-in-global-borrowing/]$10.2 Trillion in Global Borrowing[/url]: [i]Next year, fifteen major developed-country governments, including the U.S., Japan, the U.K., Spain and Greece, will have to raise some $10.2 trillion to repay maturing bonds and finance their budget deficits, according to estimates from the International Monetary Fund. That’s up 7% from this year, and equals 27% of their combined annual economic output.[/i]

[i]My Comment:[/i] BTW, "repay maturing bonds" in this manner is also called "roll over one`s maturing debt", or more succinctly, "keep the debt ponzi scam going for another year." The article goes on to note that the U.S. is the worst offender in terms of debt-rollover-as-percent-of-GDP, ranking "ahead" even of countries like Greece.


[b]Matt Taibbi Blows the Lid Off the Florida Foreclosure Mills:[/b]

...Especially interesting is how the Florida courts are complicit in this mass deprivation of homeowner legal rights and trampling of centuries-old property law:

[url=http://www.rollingstone.com/politics/news/17390/232611]Matt Taibbi: Courts Helping Banks Screw Over Homeowners[/url]: [i]Retired judges are rushing through complex cases to speed foreclosures in Florida[/i]
[quote] The foreclosure lawyers down in Jacksonville had warned me, but I was skeptical. They told me the state of Florida had created a special super-high-speed housing court with a specific mandate to rubber-stamp the legally dicey foreclosures by corporate mortgage pushers like Deutsche Bank and JP Morgan Chase. This "rocket docket," as it is called in town, is presided over by retired judges who seem to have no clue about the insanely complex financial instruments they are ruling on — securitized mortgages and labyrinthine derivative deals of a type that didn`t even exist when most of them were active members of the bench. Their stated mission isn`t to decide right and wrong, but to clear cases and blast human beings out of their homes with ultimate velocity. They certainly have no incentive to penetrate the profound criminal mysteries of the great American mortgage bubble of the 2000s, perhaps the most complex Ponzi scheme in human history — an epic mountain range of corporate fraud in which Wall Street megabanks conspired first to collect huge numbers of subprime mortgages, then to unload them on unsuspecting third parties like pensions, trade unions and insurance companies (and, ultimately, you and me, as taxpayers) in the guise of AAA-rated investments.
...
The rocket docket wasn`t created to investigate any of that. It exists to launder the crime and bury the evidence by speeding thousands of fraudulent and predatory loans to the ends of their life cycles, so that the houses attached to them can be sold again with clean paperwork. The judges, in fact, openly admit that their primary mission is not justice but speed. One Jacksonville judge, the Honorable A.C. Soud, even told a local newspaper that his goal is to resolve 25 cases per hour. Given the way the system is rigged, that means His Honor could well be throwing one ass on the street every 2.4 minutes.

[b]Foreclosure lawyers told me one other thing about the rocket docket. The hearings, they said, aren`t exactly public. "The judges might give you a hard time about watching," one lawyer warned. "They`re not exactly anxious for people to know about this stuff." Inwardly, I laughed at this — it sounded like typical activist paranoia. The notion that a judge would try to prevent any citizen, much less a member of the media, from watching an open civil hearing sounded ridiculous. Fucked-up as everyone knows the state of Florida is, it couldn`t be that bad. It isn`t Indonesia. Right?

Well, not quite.[/b] When I went to sit in on Judge Soud`s courtroom in downtown Jacksonville, I was treated to an intimate, and at times breathtaking, education in the horror of the foreclosure crisis, which is rapidly emerging as the even scarier sequel to the financial meltdown of 2008: [i]Invasion of the Home Snatchers II[/i]. In Las Vegas, one in 25 homes is now in foreclosure. In Fort Myers, Florida, one in 35. In September, lenders nationwide took over a rec­ord 102,134 properties; that same month, more than a third of all home sales were distressed properties. All told, some 820,000 Americans have already lost their homes this year, and another 1 million currently face foreclosure.[/quote]
[i]My Comment:[/i] And here is Taibbi`s as-usual scathing take on the fraud and systemic greed undergirding the whole affair:
[quote]Throughout the mounting catastrophe, however, many Americans have been slow to comprehend the true nature of the mortgage disaster. They seemed to have grasped just two things about the crisis: One, a lot of people are getting their houses foreclosed on. Two, some of the banks doing the foreclosing seem to have misplaced their paperwork.

For most people, the former bit about homeowners not paying their damn bills is the important part, while the latter, about the sudden and strange inability of the world`s biggest and wealthiest banks to keep proper records, is incidental. Just a little office sloppiness, and who cares? Those deadbeat homeowners still owe the money, right? "They had it coming to them," is how a bartender at the Jacksonville airport put it to me.
[b]
But in reality, it`s the unpaid bills that are incidental and the lost paperwork that matters. It turns out that underneath that little iceberg tip of exposed evidence lies a fraud so gigantic that it literally cannot be contemplated by our leaders, for fear of admitting that our entire financial system is corrupted to its core — with our great banks and even our government coffers backed not by real wealth but by vast landfills of deceptively generated and essentially worthless mortgage-backed assets.

You`ve heard of Too Big to Fail — the foreclosure crisis is Too Big for Fraud. Think of the Bernie Madoff scam, only replicated tens of thousands of times over, infecting every corner of the financial universe. The underlying crime is so pervasive, we simply can`t admit to it — and so we are working feverishly to rubber-stamp the problem away, in sordid little backrooms in cities like Jacksonville, behind doors that shouldn`t be, but often are, closed.
[/b]
And that`s just the economic side of the story. The moral angle to the foreclosure crisis — and, of course, in capitalism we`re not supposed to be concerned with the moral stuff, but let`s mention it anyway — shows a culture that is slowly giving in to a futuristic nightmare ideology of computerized greed and unchecked financial violence. The monster in the foreclosure crisis has no face and no brain. The mortgages that are being foreclosed upon have no real owners. The lawyers bringing the cases to evict the humans have no real clients. It is complete and absolute legal and economic chaos. No single limb of this vast man-­eating thing knows what the other is doing, which makes it nearly impossible to combat — and scary as hell to watch.
...
When I arrive, Judge Soud and the lawyers are already arguing a foreclosure case; at a break in the action, I slip into the chamber with a legal-aid attorney who`s accompanying me and sit down. The judge eyes me anxiously, then proceeds. He clears his throat, and then it`s ready, set, fraud!

Judge Soud seems to have no clue that the files he is processing at a breakneck pace are stuffed with fraudulent claims and outright lies. "We have not encountered any fraud yet," he recently told a local newspaper. "If we encountered fraud, it would go to [the state attorney], I can tell you that." But the very first case I see in his court is riddled with fraud.[/quote]

[QUOTE=ewmayer;236736][i]My Comment:[/i] And here is Taibbi`s as-usual scathing take on the fraud and systemic greed undergirding the whole affair:[/QUOTE]I've seen some interesting articles lately about the foreclosure beast but haven't organized anything. Robo-signing is some kind of scandal that I haven't looked into as yet. Another intriguing article that I read, somewhat unrelated, was about adverse possession.

added: there is a lot to all of this. I don't remember where I read it (perhaps here), but I read about a collector that used fake courtrooms and fake judges with fake rulings to fool some s.o.b.s. And somewhere I read about some new tricks that lawyers are coming up with to be paid with all this insolvency and delinquency -- something about 2nd mortgages being created to pay the lawyers and some legal house receiving hundreds of payments of $500 or so per month from clients.

I've looked a bit more. So much of this is in Florida. Some of what I read about some adverse possession being run larger scale with renters or such (the word escapes me at the moment -- Grounds watchmen who pay instead of being paid), was in Florida. So is that rocket docket court article ewmeyer mentions. The court is one corner of the triangle, the document mills another. I like this article I just read: Inside a Florida Robo-Signing Document Assembly Line: [url]http://www.dailyfinance.com/story/real-estate/inside-a-florida-robo-signing-document-assembly-line/19709219/[/url]

Ewmayer, That article is long on innuendo and short on facts. Reading your writing over the last 3 years has converted me into a sceptic and a pessimist of epic proportions. I want to see facts, not innuendo. He doesn't even bother to explain what is wrong with the mortgages, just says they are bogus, fraudulent, lies, etc. That does NOT cut it.

DarJones

[QUOTE=Fusion_power;236758]Ewmayer, That article is long on innuendo and short on facts. Reading your writing over the last 3 years has converted me into a sceptic and a pessimist of epic proportions. I want to see facts, not innuendo. He doesn't even bother to explain what is wrong with the mortgages, just says they are bogus, fraudulent, lies, etc. That does NOT cut it.

DarJones[/QUOTE]I think it is going to be a while before statistics and factoids that don't really matter are assembled. A problem is that all of this collateralized crapola that we have been talking about over the years here is of a scale that the courts can't handle -- couldn't, wouldn't, shouldn't. Then there is the fact that some states require court handling of foreclosures etc, while some don't. It is a patchwork all over the place and there is a freaking amazing backlog of stuff to process and it crosses all the state lines. Look at the legal web pages. Lawyers are having a hard time getting some judges to accept that these defendants are entitled to due process at all. Sure there is all the other stuff we have been talking about: upside down stuff, no personal responsibility, squatting, yada yada yada -- But - Most of that shouldn't matter when a defendant is having his day in court. It is his day. This portion of the process is getting the shaft. And people have a lot of bad to say about lawyers, but they are unsung heroes many times in my opinion. Look around the web especially on legal web pages. From the article I mentioned above:[QUOTE]Contrary to the banks' blanket denials that they've never tried to wrongfully foreclose on anyone, in cases that Forrest has defended he has encountered two banks trying to foreclose on the same mortgage; two foreclosure law firms filing suit to foreclose on the same mortgage; and banks trying to foreclose on properties sold for cash at a short sale. While those cases don't represent the majority of his clients, the numbers are significant, particularly when you consider that he doesn't represent all distressed Florida homeowners[/QUOTE]The other shoe has dropped and foreclosures are frozen all over the country, the details vary (attorneys general, and voluntary ones) and all this pending backlog is yet another pall on the hopes that the real estate market will ever recover.

[QUOTE=Fusion_power;236758]Ewmayer, That article is long on innuendo and short on facts. Reading your writing over the last 3 years has converted me into a sceptic and a pessimist of epic proportions. I want to see facts, not innuendo. He doesn't even bother to explain what is wrong with the mortgages, just says they are bogus, fraudulent, lies, etc. That does NOT cut it.

DarJones[/QUOTE]

I agree. He suggests that the foreclosures are being done to cover
up massive unerlying fraud, yet does not indicate the nature of this
fraud, does not indicate how foreclosures cover it up, and does not
indicate how banks profit from the foreclosures.

You all make good points, but you didn't think I was just relying on Taibbi's word for it, did you? ;) I like Taibbi because his work adds very human color to an issue which can seem numbingly faceless due to its sheer scale. Yes, he does have a tendency toward tendentious "little people"-favoring writing.

The article is short on wider-ranging statistics, but the illustrative case he provides of banks deliberately destroying the paperwork, using the MERS facility (set up by the banks in contravention of property and title law in just about every state) to allow electronic "titles" to be swapped like stock in an eTrade account, and then forging documents when pressed to show the original paperwork appears to be very widespread. Barry Ritholtz, Karl Denninger and ZeroHedge have done a much better job at assembling stories and statistics which indicate that the fraud is indeed massive. I suggest anyone who is interested spend a few weekend afternoons or mornings reading through headlines of articles on those sites from the past month to gain a better sense of the scale of this thing.

As to Bob's question about how banks profit from foreclosures, that is a good one, and the answer is the reason I dislike referring to the issue in terms like "foreclosuregate", which look at the issue from (IMO) the wrong end. The *real* underlying issue here is one of *securitization* fraud - that is where the real money was made. The fraud is only coming to light now that millions of those mass-securitized mortgages are in the foreclosure process. The banks may not make money from the foreclosure per se and in many cases have delayed foreclosure because it allows them to keep the mortgage on their books at a fake "performing" value longer - but at some point foreclosure followed by a short sale becomes more attractive than keeping the nonperforming asset. (And a short sale allows the new mortgage to - ta da! - be resecuritized, albeit typically at a lower "value" than the previous one.) Also note that many of the big securitizers additionally rigged the pooling and servicing agreements for the mortgages they made and securitized in a manner which does in fact [url=http://market-ticker.org/akcs-www?post=171392]allow them to profit handsomely[/url] from a default - this appears to be one major reason the Treasury-sponsored HAMP program has been such a dismal failure - because many of the banks have rigged the game so they stand to make more money from getting the debtor to default than they would from a loan modification!

Now the MERS system was key to the securitization business, because a typical securitization has each mortgage in the pool being securitized changing "hands" as many as half a dozen times. Destroying the original record not only allowed this process to proceed quickly, it also allowed for a whole lot of funny business in the securitization - mortgages already in foreclosure getting included in securitizations as "performing", the same mortgage getting included in multiple securitizations, that sort of thing. All of these things have been well-documented via the above sites and others.

And of course MERS allowed the banks to defraud the states out of tens of billions of dollars in [url=http://market-ticker.org/akcs-www?post=171930]recording fees[/url].

Perhaps the best "primer on the epidemic of mortgage fraud" is this 2-part essay by former S&L regulator Bill Black on the Huffington Post. Black focuses on the particular case of Bank of America, which is likely the largest participant in (and beneficiary of) mortgage fraud by way of its acquisition of Countrywide:

[url=http://www.huffingtonpost.com/william-k-black/foreclose-on-the-foreclos_b_772434.html]Foreclose on the Foreclosure Fraudsters, Part 1: Put Bank of America in Receivership[/url]
[quote]After a quick review of its procedures, Bank of America this week announced that it will resume its foreclosures in 23 lucky states next Monday. While the evidence is overwhelming that the entire foreclosure process is riddled with fraud, President Obama refuses to support a national moratorium. Indeed, his spokesmen on the issue told reporters three key things. As the Los Angeles Times reported:
[i]
A government review of botched foreclosure paperwork so far has found that the problems do not pose a "systemic" threat to the financial system, a top Obama administration official said Wednesday.
[/i]
Yes, that's right. HUD reviewed the "paperwork" problem to see whether it threatened the banks -- not the homeowners who were the victims of foreclosure fraud. But it got worse, for the second point was how the government would respond to the epidemic of foreclosure fraud.
[i]
The Justice Department is leading an investigation of possible crimes involving mortgage fraud.
[/i]
That language was carefully chosen to sound reassuring. But the fact is that [b]despite our pleas the FBI has continued its "partnership" with the Mortgage Bankers Association (MBA). The MBA is the trade association of the "perps." It created a ridiculous on its face definition of "mortgage fraud." Under that definition the lenders -- who led the mortgage frauds -- are the victims. The FBI still parrots this long discredited "definition." That is one of the primary reasons why -- in complete contrast to prior financial crises -- the Justice Department has not convicted a single senior officer of the large nonprime lenders who directed, committed, and profited enormously from the frauds.[/b]

Note that the Justice Department is not investigating foreclosure fraud. HUD Secretary Donovan's statement shows why:
[i]
"We will not tolerate business as usual in the mortgage market," he said. "Where there have been mistakes made or errors, we will hold those entities, those institutions, accountable to stop those processes, review them and fix them as quickly as possible."
[/i]
Note the language: "mistakes", "errors", "processes" (following the initial use of "paperwork"). No mention of "fraud", "felony", "criminal investigations", or "prosecutions" for the tens of thousands of felonies that representatives of the entities foreclosing on homes have admitted that they committed. Note that Donovan does not even demand that the felons remedy the harm caused by their past fraudulent foreclosures. Donovan wants them to "fix" "processes" -- not repair the harm their frauds caused to their victims[/quote]

[url=http://www.huffingtonpost.com/william-k-black/post_1214_b_779193.html?just_reloaded=1]Let's Set the Record Straight on Bank of America, Part 2: Eliminating Foreclosure Fraud[/url]
[quote]We did not call for a long-term foreclosure moratorium. Our proposal created an incentive for honest lenders to clean up their act quickly by eliminating foreclosure fraud. We will devote a future post to our proposals for dealing with the millions of homes that the fraudulent lenders induced borrowers to purchase even though they could not afford to repay the loans.

Bank of America's data add to our argument that hundreds of thousands of its customers were induced by their lenders to purchase homes they could not afford. The overwhelming bulk of the lender fraud at Bank of America probably did come from Countrywide, which was already infamous for its toxic loans at the time that Bank of America chose to acquire it (and also most of Countrywide's managers who had perpetrated the frauds). The data also support our position that fraudulent lenders are delaying foreclosures and the sales of foreclosed homes primarily in order to delay enormous loss recognition.

The fraud scheme inherently strips homeowners of their life savings and finally their homes. It is inevitable that the homeowners would become delinquent; that was the inherent consequence of inducing those who could not repay their loans to borrow large sums and purchase homes at grossly inflated prices supported by fraudulent inflated appraisals. This was not an accident, but rather the product of those who designed the "exploding rate" mortgages. Those mortgages' initial "teaser rates" induce unsophisticated borrowers to purchase homes whose values were inflated by appraisal fraud (which is generated by the lenders and their agents) and those initial teaser rates delay the inevitable defaults (allowing the banks' senior managers to obtain massive bonuses for many years based on the fictional income). Soon after the bubble stalls, however, the interest rate the purchasers must pay explodes and the inevitable wave of defaults strikes. Delinquency, default, foreclosure, and the destruction of entire neighborhoods are the four horsemen that always ride together to wreak havoc in the wake of epidemics of mortgage fraud by lenders.

Out of these millions of fraudulent mortgages, Bank of America claims to have modified 700,000; of these, 85,000 are under HAMP. Still, the Treasury says that the bank has another 375,000 mortgages that already meet HAMP terms. In other words, Bank of America has been shockingly negligent in its efforts to modify mortgages. The Treasury reports that the bank's performance is far worse than that of the other large banks. Alternatively, Treasury could be wrong about the mortgages; Bank of America may be refusing to modify mortgages for homeowners who appear to qualify for the HAMP terms because it knows the data Treasury relied upon is false. Their unusually low rate of HAMP modifications could be the result of the extraordinarily high rate of mortgage fraud at Countrywide.

Bank of America has admitted that HAMP's "implicit" purpose is to help the banks that made the fraudulent loans -- not the borrowers. That goal was the same goal underlying the decision to extort FASB to gimmick the accounting rules -- delaying loss recognition.[/quote]

By way of illustration of how widespread mortgage fraud on the part of the big banks may be, here is a [url=http://fcic.gov/hearings/pdfs/2010-0407-Bowen.pdf]snip from a recent deposition[/url] given by a former Citibank executive:
[quote]These mortgages were sold to Fannie Mae, Freddie Mac and other investors. Although we did not underwrite these mortgages, Citi did rep and warrant to the investors that the mortgages were underwritten to Citi credit guidelines.
[b]
In mid-2006 I discovered that over 60% of these mortgages purchased and sold were defective. Because Citi had given reps and warrants to the investors that the mortgages were not defective, the investors could force Citi to repurchase many billions of dollars of these defective assets.[/b] This situation represented a large potential risk to the shareholders of Citigroup.

I started issuing warnings in June of 2006 and attempted to get management to address these critical risk issues. These warnings continued through 2007 and went to all levels of the Consumer Lending Group.

We continued to purchase and sell to investors even larger volumes of mortgages through 2007. And [b]defective mortgages increased during 2007 to over 80% of production.[/b][/quote]

None of the articles are doing a good job of laying things out but there is more than smoke here. There are a lot of hands examining this elephant but they aren't understanding or explaining it that well themselves. I can't champion or really intelligently expand or even properly argue points that I feel are important without organizing and doing a lot more thinking on this than I care to, so I do understand that it is unfair that I am taking a position (and a somewhat strident one at that) in an intellectual discussion without doing reasonably backing up what I say with supporting information.

What I have been doing is, over time in the course of general news skimming that I do, developing an opinion, but without developing the clarity of noting the points that I would use if I were to try to explain or defend it.

When they were collaterallizing this stuff, among the untested processes they were doing was implementing new ways of documenting a trail of ownership of the note that corresponds to a particular piece of property debt. A lot of that got shoveled into something called MERS (Mortgage Electronic Registration System). But there are a lot of mistakes and omissions and carelessness in the entire process.

Now all kinds of large debt holders are trying to process and fairly get paid on the debt that they hold but a lot isn't properly documented. This is the part where things are going wrong. The big institutions who in past decades really did not act shoddy at all on this are relying on improper methods to present clear information for each piece of property that appears in court. It has taken considerable time for the Judicial system to realize that business is not the same as usual; it is not really the mindset on a foreclosure to think that they need to check all the notarized or otherwise attested facts or check the legal path or provenance of what appears in front of them. Nor can the process handle the need for them to do so.

The shlub defendants are not helping the process; they can't, or won't pay up the amounts in dispute before their day in court and they each have annoying or complicated stories to tell without clarity of what is important legally. Lawyers have been chary about getting involved in much of this because the defendants are broke already, etc. And much, much too often as different pieces unfold, it is hard to like the defendants. There are the delinquencies, the hemming and hawing about how many people, who is earning, where money comes from -- the usual things that turn up often as the defendants don't have things organized to present their facts -- not to mention the wrong, illegal, distasteful things and profligacy that turns up when effort is expended on their behalf.

But the process has been given much too much leeway on the big business side and they grinding too many debt holders through a messed up process. Big business has been doing all kinds of questionable things to push the process forward from their end. No chain of executives is standing in front of Congress saying things like cigarette smoking doesn't cause cancer. What is happening is that lots of documents that look like attested, notarized, ordinary signed documents don't have the attention to detail and the true facts that we have relied on in the past. Please look at all the robo-signing stuff. I can't do justice to explaining it. There is an imbalance here that is making it hard for the shlub to get genuine due process in court.

As you see I have a lot of opinion and not much fact. Also much of what is wrong about the process is not the courtroom stuff but instead the Wall Street side of big business and greed and hiding risk that we have been reading about over the last couple of years on this thread -- but on that side I am even less informed or capable of properly discussing.

The fundamental process is flawed start to finish. The U.S. govt backs securitization of mortgages because it enables more people to 'live the American dream'. If you want to question this, please take a look at the mortgages that fannie and freddie deal in.

The first flaw in the process is that the mortgages were marketed to a group of people who could not pay using the premise that property values always go up to justify doing so. This fell apart when property values collapsed. The people who had borrowed could not pay so the mortgage went into default.

The banks were effectively middlemen in this process. They wrote the mortgage and skimmed a percentage off the top in the process thereof. Once the mortgages were written and enough of them were aggregated, they were securitized and sold off to investors lured by relatively high returns. The bank slapped itself roundly on the back and chuckled all the way to the bank because they had made a cut of money and they no longer held the bag, it had been passed on to some unwitting schlup. And caveat emptor, if by chance a mortgage defaults, the banks wrote the rules that they get to collect another fee for servicing the foreclosure action. This means the bank makes money coming and going.

The various ratings agencies were seriously negligent because they rubber stamped millions of blocks of aggregated mortgages with triple A ratings. Now you can argue this several ways, but the underlying issue is that they did not care what the fundamentals of the mortgages were, all they cared was that a good rating on a mortgage group paid them big dollars. This was a case of the fox guarding the henhouse.

The buyers of the mortgages wound up being a huge number of banks and investor groups around the world. China in one way or another holds a huge chunk. These groups wanted to de-risk the mortgages they were holding so they did the obvious, they took out insurance policies.... with AIG. Thus, when the RE market collapsed, AIG was on the hook for about $200 Billion. Since our good public servants at the fed and treasury could NOT let the economy crash, they had to bail out AIG using borrowed money guaranteed by the taxpayer. Now we as taxpayers are on the hook for the outright fraud that started with a bank writing a mortgage and then selling it via securitization.

What amazes me is that these obliviots just went through an election and they STILL don't see what has the average Joe so upset.

Ewmayer, you may like Taibbi's writings, but imo, he does way too much blathering.

What do we do to fix the above failings? It would require a new legal framework for mortgage securitization where the writer of the mortgage is accountable in the event of default and where mortgages were much more regulated than they will ever be with our current political leadership.

DarJones

[QUOTE=Fusion_power;236908]
What do we do to fix the above failings? It would require a new legal framework for mortgage securitization where the writer of the mortgage is accountable in the event of default DarJones[/QUOTE]

I have suggested this before. Fat chance.

Or we could disallow securitization in the first place. You gave out a
mortgage? You own it.

We could also bring back laws requiring separating commercial from
investment banking.

Irekand gets "Respite" | The GM IPO
 

[url=]http://links.reuters.com/r/3KFH5/EL3RG/EXZC3W/C0MV9/7A5CY2/YT/h]Respite for Ireland, euro after sharp selloff[/url]: [i]Market pressure on Ireland and other euro zone states eased and the single currency made up ground on Friday after Europe reassured bondholders they would not be forced to take a hit in the event of a new bailout in the bloc.[/i]

[i]My Comment:[/i] And why on earth shouldn`t bondholders share in the pain? I`m with [url=http://www.bloomberg.com/news/2010-11-12/european-ministers-hold-crisis-talks-at-g-20-amid-ireland-bailout-concern.html]German PM Merkel[/url] on this: "We can’t constantly explain to our voters that taxpayers have to be on the hook for certain risks rather than those who make a lot of money taking those risks."


[This is a bit of catch-up from last week`s news]

[url=http://www.reuters.com/article/idUSTRE6A00U420101105?feedType=nl&feedName=ustopnewsearly]China and Germany belittle U.S. actions before G20[/url]: [i]China rebuffed on Friday a U.S. plan to set limits for trade imbalances and Germany dubbed the Fed's money-printing policy "clueless," setting the stage for what could be a fractious G20 summit next week.[/i]

[i]My Comment:[/i] I see Reuters has picked up the "clueless" meme ... the term German FinMin Schäuble used is "ratlos" (Same "Rat" meaning "advice or council" which appeats in "Rathaus", "Stadtrat", etc), which more accurately - and this changes the flavor of the comments significantly - translates as "at a loss" or "having not a clue" as to how to proceed. "Ratlos" lacks the extremely pejorative implications of "clueless", it can be used benignly ("I found myself at a loss") or mildly-critically in the sense of describing someone who appears to be in over his head, but the English "clueless" is more accurately conveyed in German as e.g. "Er hat nicht die leiseste Ahnung..."

But what I found most interesting about an-otherwise-typically-useless G20 meeting was that Obama, less than a week after Bernanke announced a fresh spurt of US money-printing madness, had the unmitigated gall (or perhaps cluelessness) to criticize China for its "currency manipulation." I suspect he may have lost whatever remaining tiny semblance of credibility he had on matters of economic and monetary policy with that little bit of pot-calling-the-kettle-black.


[url=http://links.reuters.com/r/YMQP2/S70XQ/081NWG/M4IRJ/97WTZU/YT/h]GM $13 billion IPO to cut Treasury stake to 43 percent[/url]: [i]General Motors on Wednesday finalized terms for a stock offering of about $13 billion to repay a controversial taxpayer-funded bailout and reduce the Treasury to a minority shareholder.[/i]
[quote]GM's filing with the U.S. Securities and Exchange Commission is the final step before it begins marketing what is expected to be one of the largest-ever IPOs. The investors are expected to span the globe and include sovereign wealth funds.

The automaker plans to sell 365 million common shares at $26 to $29 each, raising about $10 billion at the midpoint, according to updated initial public offering papers filed with the SEC.

In addition, GM said it planned to sell about $3 billion of preferred shares that would convert to common shares under mandatory provisions, a less risky form of equity that could attract dividend and growth-fund investors.

The IPO would value GM at just over $41 billion at the midpoint of the price range. Assuming exercise of warrants that are in-the-money, the share count jumps roughly 300 million to 1.8 billion and GM's value rises to just under $49 billion.

It is all but certain that U.S. taxpayers would face a loss on the automaker's still controversial bailout. GM needs a market value of roughly $70 billion if U.S. taxpayers are to break even.

By comparison, GM's more successful but smaller rival Ford Motor Co is currently worth about $49 billion.

"That would make sense," said Bernie McGinn, chief investment officer at McGinn Investment Management in Alexandria, Virginia, who owns Ford stock. "Ford has done everything right, and GM is a year out of bankruptcy and it has a new CEO."

McGinn said the discounted value for GM also reflected the urgency for the Obama administration to exit its investment in the U.S. automaker.

"I think this is a political thing. It's being driven by Washington," he said. "They just want to get out. And if you talk about eating $10 billion in losses, this is a city that can eat trillions of dollars."

One source familiar with the offering said, "(The Treasury) decided they wanted a massive upside." The source was not authorized to speak with the media and declined to be named.

"The tough actions that the Administration took to get the auto industry back on its feet and [b]save over one million jobs[/b] played a crucial role in putting our economy on the path to recovery," the U.S. Treasury said in a statement.[/quote]
[i]My Comment:[/i] Even if you take the Treasury shill`s number at facxe value - a highly dubious proposition - "Save over one million jobs" here or abroad. And if a significant chunk of those "ye shall be saved by the miraculous touch of Lord Keynes, praise be!" jobs are domestic ones, to what extent are they precisely the kind of uncompetitive overpaid, over-benefitted union-monopoly jobs which (coupled with decades of greed and shortsightedness at the executive level) helped propel GM into bankruptcy in the first place? The fact that I haven`t heard about mass howls of protest and pickets in the streets by workers at the "New GM" has me worried as to what extenbt the company has tackled its deep structural problems.

[QUOTE=ewmayer;237216][url=]http://links.reuters.com/r/3KFH5/EL3RG/EXZC3W/C0MV9/7A5CY2/YT/h]Respite for Ireland, euro after sharp selloff[/url]: [i]Market pressure on Ireland and other euro zone states eased and the single currency made up ground on Friday after Europe reassured bondholders they would not be forced to take a hit in the event of a new bailout in the bloc.[/i]

"We can’t constantly explain to our voters that taxpayers have to be on the hook for certain risks rather than those who make a lot of money taking those risks."

[/QUOTE]

Damn right. When one invests one takes risks. Sometimes bonds are
defaulted. Sometime stocks lose money. Bondholders should take the loss.

ZeroHedge on the GM IPO
 

Let`s just say the ZH crew are a wee bit skeptical as to the value proposition for retail buyers here - the value proposition for the US government in pumping the share price as high as possible so Treasury can dump its stake at a minimal loss is self-evident:

[url=http://www.zerohedge.com/article/hft-king-getco-make-sure-gm-ipo-does-not-crash-will-be-designated-market-maker]HFT King Getco To Make Sure GM IPO Does Not Crash, Will Be Designated Market Maker[/url]:
[quote]The administration is doing [b]everything[/b] it can to make sure that the worst IPO in history, that of Government Motors of course, will not be DOA. The latest news is that Getco has been appointed to be a DMM for the year's most important IPO. As Bloomberg reports: "The Chicago-based firm will be tasked with helping trading go smoothly when the auto maker returns to the New York Stock Exchange after a 16-month absence, expected to occur Thursday. NYSE Euronext (NYX) spokesman Christiaan Brakman confirmed that Getco was selected from among the exchange's five designated market makers, who are responsible for buying and selling shares, [B]smoothing trade imbalances and providing liquidity in designated symbols in return for incentives paid by the exchange[/b]." Well, by now it should be all too clear what "providing liquidity means."

In other words, expect Getco to internalize and churn any sell interest and make sure that the stock can only go up, up, up, until enough of it is in retail hands at which point it can find its fair value, somewhere in the neighborhood of zero.[/quote]
[i]My Comment:[/i] I'm amusing myself imagining a possible text message exchange between Timmay Gee over at Treasuray to his boss Barray Oh, should the IPO run into trouble despite the pulling out of all the stops:

TG: POTUS U THER?

BHO: POTUS HER. SUP, HOMES?

TG: BD NUZ, GM IPO DOA :(

BHO: WTF? R U KDING??

TG: NOT KDNG. MKT SEZ IPO = POS

BHO: WAT BOUT HFT PIMP?

TG: U MN PIMP R PUMP?

BHO: PUMP, SORY SPELING

TG: HFT CAUSE FLSH CRSH, HD 2 KBOSH HFT

BHO: GONA KL GTCO fTARDS FK FK FK!

TG: WAT 2 DO?

BHO: CN U BLAM FAT FNGR TRADE?

TG: HEL YA, LTS DO THAT

BHO: KOOL, POTUS OUT, LTR

TG: LTR, POTUS

Ireland given 24-hour take-this-bailout ultimatum
 

As reported by [i]The Guardian[/i]:

[url=http://www.guardian.co.uk/business/2010/nov/15/ireland-portugal-spain-european-debt-crisis]Ireland told: Take EU bailout or trigger crisis[/url]: [i]Dublin warned it has 24 hours to make decision as EU emergency talks loom amid fears Irish banks` contagion may spread to other eurozone countries[/i]
[quote]An increasingly isolated Irish government was coming under mounting pressure tonight to seek a European or International Monetary Fund bailout within 24 hours amid fears that contagion from its crippled banking sector might spread through the weaker eurozone countries.

Portugal, Spain, the European Central Bank and opposition parties all urged Brian Cowen`s coalition government to remove the threat of a second crisis in six months by putting a firewall between Ireland and its partners in the 16-nation single currency.

With finance ministers from the eurozone due to hold emergency talks tomorrow night, financial markets were expecting Dublin to finalise negotiations with the EU over the terms of a deal to allow Ireland to rescue banks laid low by the collapse of the country`s construction boom.

"The Irish problem is spreading, but it could get more volatile," said Ashok Shah, chief investment officer at London Capital, a fund management firm. "They have to get this bailout, they have a period of time before it gets impossible, before nasty things happen. The longer they leave it, the more difficult it will get."

Portugal has seen its borrowing costs rocket along with Ireland`s as speculation has grown that it too may have to consider a bailout. Its finance minister, Fernando Teixeira dos Santos, told the Wall Street Journal his country had been hit by a contagion effect caused by fears about Ireland`s ability to pay its debts.

"I would not want to lecture the Irish government on that," he said. "I want to believe they will decide to do what is most appropriate for Ireland and the euro. I want to believe they have the vision to take the right decision."

The Bank of Spain governor, Miguel Ángel Fernández Ordóñez, a member of the European Central Bank`s governing council, told a banking conference in Madrid he expected an "appropriate reaction" by Ireland to calm the markets. He later told reporters: "The situation in the markets has been negative due in some part to the lack of a decision by Ireland. It`s not up to me to make a decision on Ireland, it`s Ireland that should take the decision at the right moment." Ewald Nowotny, another ECB governing council member, said in a radio interview the EU wanted a "quick, good solution to Ireland, so that there will be no spillover" to other heavily indebted countries such as Portugal and Spain.

Weekend reports that Ireland was holding bailout talks with the EU helped ease pressure on Irish borrowing costs today, with the yield on benchmark 10-year Irish bonds easing to 8.1% from a peak of over 9% last week. The premium that investors demand to hold Irish 10-year bonds over benchmark German bunds (known as the spread) also fell to 545 basis points, down from a record 652 basis points last Thursday.

Analysts warned, however, that the selling would quickly resume if Ireland tried to go it alone. "The expectation of a bailout for Ireland helped its spreads to recover from last week`s capitulation," said Gavan Nolan, a credit analyst at Markit. "It`s good to talk." Despite Ireland`s insistence that it doesn`t need to be rescued, investors say the country needs support, given the fragility of its moribund banking system, and the high borrowing costs limiting the capacity of companies to raise funds.

Ireland`s Europe minister, Dick Roche, said rumours that it was on the verge of seeking a bailout could be "very, very dangerous".

He conceded: "There is continuous talk going on backwards and forwards about the level of our debt but the suggestion that that constitutes going to the IMF or the bailout is just irresponsible." Ireland`s opposition`s finance spokesman, Michael Noonan, said he believed European intervention was "under way" and matters would come to a head within 24 hours. The government, he said, was "fighting a rearguard action for appearances purposes".

Noonan said a bailout could lead to Ireland being suspended from the bond markets for three or four years.[/quote]
[i]My Comment:[/i] While not wishing to make in any way light of Ireland`s plight, "suspension from the bond markets for three or four years" - the nation-state analog of having one`s credit card cut up - seems a not-to-be-ruled-out option for weaning oneself off one`s debt addiction and making a fresh start. Hell, the Russains defaulted in 1998, and despite having a much weaker economy at the time than Ireland (and one much less able to generate wealth than Ireland`s strong tech economy), see to be doing quite well, although robust oil and mineral-commodities markets have helped there. (However note that the post-default currency depreciation and post-Soviet lack of a social safety net devastated many Russian retirees).

ZeroHedge readers - for what [url=http://www.zerohedge.com/article/ireland-told-take-bailout-or-be-responsible-pan-european-contagion]that`s worth[/url] - appear to be solidly in the "Do like Iceland and tell the international bankster cartel to sod off" camp. Denninger [url=http://market-ticker.org/akcs-www?post=172300]concurs[/url], noting that the proposed bailout would put every Irish man, woman and child on the hook for roughly 20,000 Euros of banking-system debt, on top of what they owe personally already, much of which is a result of buying into the speculative real estate bubble the same now-insolvent banking system helped inflate.

Any Irish readers care to give us a sense of the man-in-the-street feelings about the situation there? Garo, what`s your take?

[QUOTE=ewmayer;237250]While not wishing to make in any way light of Ireland`s plight, "suspension from the bond markets for three or four years" - the nation-state analog of having one`s credit card cut up - seems a not-to-be-ruled-out option for weaning oneself off one`s debt addiction and making a fresh start. Hell, the Russains defaulted in 1998, [/QUOTE]

Yep. And LTCM went belly up as a consequence and they had to be
bailed out......

[QUOTE=R.D. Silverman;237258]Yep. And LTCM went belly up as a consequence and they had to be
bailed out......[/QUOTE]

Did you mean "had to be" or simply "were"?

Many are of the opinion that LTCM was the first big step on the road to the serial government bailouts of overleveraged big financial players and to-big-to-fail-ness that is the sorry norm nowadays. Had LTCM been allowed to fail and the investors in it and lenders to it forced to take their losses, with the government doing only what was needed to make the unwind as orderly as possible (i.e. to limit contagion and stem systemic panic), maybe some actual useful lessons would have been learned. Instead, outrageous leverage and running of giant financial firms with otherwise perfectly good low-risk business models as huge speculative hedge funds became the norm, rather than the spectacularly-failed exception LTCM should have become.

[QUOTE=ewmayer;237261]Did you mean "had to be" or simply "were"?

Many are of the opinion that LTCM was the first big step on the road to the serial government bailouts of overleveraged big financial players and to-big-to-fail-ness that is the sorry norm nowadays. Had LTCM been allowed to fail and the investors in it and lenders to it forced to take their losses, with the government doing only what was needed to make the unwind as orderly as possible (i.e. to limit contagion and stem systemic panic), maybe some actual useful lessons would have been learned. Instead, outrageous leverage and running of giant financial firms with otherwise perfectly good low-risk business models as huge speculative hedge funds became the norm, rather than the spectacularly-failed exception LTCM should have become.[/QUOTE]

Were.

LTCM shows how pathetic economists really are. Multiple Nobel prize
winners couldn't get it right. It also shows that giving a Nobel prize
in economics is also pathetic.

[QUOTE=R.D. Silverman;237299]LTCM shows how pathetic economists really are. Multiple Nobel prize
winners couldn't get it right. It also shows that giving a Nobel prize
in economics is also pathetic.[/QUOTE]

About once a week, I engage in what is a sort of economic self-flagellation ritual for me by forcing myself to have a look at the recent blog entries of hyper-Keynesian (and recent economics laureate) Paul Krugman. Occasionally amongst the "stimulus needs to be much bigger" and "we can borrow and pump-prime our way out of this if we just buy more printing presses" there just happens to be a useful nugget (of the non-turd variety), even if it`s one of the contrarian variety. Today`s intellectual nugget of anti-wisdom:

[url=http://krugman.blogs.nytimes.com/2010/11/15/the-problem/]The Problem[/url]
[quote]The situation: over the past decade, households ran up what is almost universally regarded as an excessive amount of debt — shown here for the United States, but also in the UK, Spain, and elsewhere. They are now being forced to pay down that debt by cutting spending.

The question is, what will replace their spending?[/quote]
[i]My Comment:[/i] If the spending was - as your "ran up excessive debt" comment correctly notes - unsustainable, why on Earth is it necessary or desirable to replace it? ("Replace" being a euphemism for "substitute and/or stimulate by other means"). What part of "living within one`s means" do you fail to grasp? If the problem is excessive spending, the only possible solutions are to (a) raise income to match the spending level, and (b) spend less. The Keynesians want us to believe in their per "virtuous cycle" hypothesis, whereby stimulating spending causes businesses to expand and hire, thus creating jobs and raising the overall economic wage base, thus supporting more spending, etc. The past 3-4 decades of steady offshoring of good-paying jobs and their replacement by lower-wage/unproductive or none-at-all jobs show the fallacy of this argument. Merely getting folks to spend more does not improve the overall wage base, in an environment of global wage arbitrage and with a population which has grown increasingly idle, less-educated (especially in areas which support real wealth-producjng economic activities, e.g. engineering and science) and - partly as a result of Keynesian free-lunch preachings - believes that by speculating in the "right" asset bubble du jour something can be had for nothing.
[quote] We’re told that we can’t have fiscal expansion, because that’s Big Government. And now we’re being told that we can’t have monetary expansion, which might induce businesses and low-debt consumers to spend more, because that’s debasing the dollar. Oh, and while we’re on that, we can’t allow the dollar to fall, which might help exports.[/quote]
[i]My Comment:[/i] We can`t have fiscal expansion because the first multitrillion-dollar rounds of it did fuck-all for the real economy, and more of it is going to blow up in our faces at some point in the not-distant future, as the markets` reactions to QE2 reveal. (Bond yields have [url=http://online.wsj.com/article/SB10001424052748703326204575616321781875884.html]actually risen[/url] in the past month, and commodity prices are rising to levels which are crushing profit margins because in the current non-recovered economy lack of demand prevents producers from passing the inflation the Fed is deliberately trying to stoke on to consumers). Also, those low-debt consumers of which you speak are in low debt precisely because they are the rare types of folks who resisted the urge to live beyond their means while you lot were doing your darndest to get everyone to lever up. Your money-printing idiocy isn`t going to get those folks to spend more, and everyone else is in hock up to their eyeballs, since the paying-down-of-debt you mention as necessary in your opening paragraph has barely begun in earnest - partly as result of the government trying with all its might to keep to the debt-bubble party going by way of various misguided "stimulus" measures.[quote]So, what? Yes, corporations are sitting on lots of cash — but why should they expand capacity when weak consumer demand means they aren’t using the capacity they have? [/quote]
[i]My Comment:[/i] Uh, , corporations may be sitting on record piles of cash, but you forgot to mention that they are also sitting on record piles of debt. (A lot of business used the record-low corporate bond rates - even lowest-rated junk is enjoying low rates as investors desperate for above-zero yield buy anything promising above 5%). But of course you Keynesians and debt merchants of the world like to treat debt as a form of wealth, don`t you? Hence the nifty replacement of "debt" by the much-nicer-sounding word "credit".

----------

Bob, if it`s any consolation, the economics "Nobel" is not a real Nobel ... it is an entirely separate prize sponsored by the Royal Bank of Sweden "In memory of Alfred Nobel". Basically they arrogated the name "Nobel" to lend their Ponzi-conomics award some instant credibility.

[QUOTE=ewmayer;237349]
Bob, if it`s any consolation, the economics "Nobel" is not a real Nobel ... it is an entirely separate prize sponsored by the Royal Bank of Sweden "In memory of Alfred Nobel". Basically they arrogated the name "Nobel" to lend their Ponzi-conomics award some instant credibility.[/QUOTE]

Yes. I knew that. But it is still a sham. Like the so-called "peace prize".

[QUOTE=R.D. Silverman;237356]Yes. I knew that. But it is still a sham. Like the so-called "peace prize".[/QUOTE]On the topic of Nobels, but not really on economics there are a number of historical oddities in the awarding of the prizes. The peace prize is perhaps the strangest --- Tom Lehrer claims he gave up satire when Kissinger won his --- but literature runs it a close second.

Even the hard sciences such as physics have their quirks. One was given for demonstrating that the electron behaves like a particle. Another was given to the former's son for demonstrating that the electron behaves like a wave.

Although the peace prize may be a sham on all to many occasions, it is sometimes rightly awarded IMAO. The Red Cross has been a worthy recipient, again IMAO, as has several others.


Paul

[QUOTE=xilman;237359]Even the hard sciences such as physics have their quirks. One was given for demonstrating that the electron behaves like a particle. Another was given to the former's son for demonstrating that the electron behaves like a wave.[/quote]
That quirk nicely mirrors both the particle/wave duality of QM and the generational shift amongst physicists which was needed to fully embrace its implications.

[quote]Although the peace prize may be a sham on all to many occasions, it is sometimes rightly awarded IMAO. The Red Cross has been a worthy recipient, again IMAO, as has several others.[/quote]This year's was OK by me - make a political statement but also make sure to give the prize to someone who has genuinely accomplished something (and at great personal risk) in the interest of world peace and/or human rights. Last year's ... not so much. (I write this as the 2009 awardee continues to busily escalate the war in Afghanistan and defends/continues nearly all of the Bush/Cheney-era human rights abuses).

[url=http://money.cnn.com/2010/11/17/news/economy/housing_starts/index.htm]Housing starts hit lowest level in 18 months[/url]: [i]New home construction fell to an 18-month low in October, the government said Wednesday.[/i]
[QUOTE]"Right now there is little demand for any kind of new construction," Bullard said. "And you have to factor in this time of year as well. This is not prime time for the housing market."

October's rate of 519,000 is the third lowest recorded since Jan. 1959.

"We are right back in the bottom of the trough in terms of housebuilding," said Robert Dye, senior economist for The PNC Financial Services Group.

Much of the weakness stems from lower numbers in the multi-family home construction, he added.

Permits for future construction rose to a seasonally adjusted annual rate of 550,000 last month, 0.5% above the revised rate of 547,000 in September, but fell short of expectations.

While the rate did increase, economists were expecting 570,000 permits in October.[/QUOTE]

Unfortunately, the rate of new housing starts is extremely low and seems to be set to stay that way. Anyone want to make three guesses why? It is almost laughable to see how MSM continues to blather "good news!!! The rate of decline is less than it could have been!) The reality is that people who build houses are out of jobs and desperately searching for something that will bring in a paycheck. A cousin of mine has been searching for 2 years now with only erratic work along the way. He has built houses for the last 20 years.... until now.

DarJones

[QUOTE=Fusion_power;237473]Unfortunately, the rate of new housing starts is extremely low and seems to be set to stay that way. Anyone want to make three guesses why? It is almost laughable to see how MSM continues to blather "good news!!! The rate of decline is less than it could have been![/QUOTE]

The positive-sounding ending they added to the above article is indeed laughable:
[quote]Permits for future construction rose to a seasonally adjusted annual rate of 550,000 last month, [b]0.5% above the revised rate of 547,000 in September[/b], but fell short of expectations.

While the rate did increase, economists were expecting 570,000 permits in October.

If one positive can be taken from the report, it is the slight increase in permits, Bullard said. To top of page[/QUOTE]
So a whopping one-half-of-one-percent (yowza and shazam!)...I'm sure the error bars on those numbers are an order of magnitude greater than that "positive trend" the idiot analyst points to.

Let's also look at the unrevised-versus-unrevised comparison for housing starts .. the CNN piece curiously omits to mention the magnitude of the September-numbers revision (I'm sure it was mere oversight ... not enough bytes to hold the extra characters, or something):

[url=http://www.dailyfinance.com/story/real-estate/housing-starts-october-fell-multifamily-homes-real-estate/19721834/?icid=sphere_copyright]Housing Starts Plunged 11.7% in October[/url]
[quote][b]September's total was revised downward to a 588,000-unit annual rate from the initially-estimated 610,000-unit rate[/b], according to the latest report from the Census Bureau and the Department of Housing and Urban Development.

The September revision underscores why economists caution investors not to put too much faith in the initially-released housing starts data: That data contains a significant margin of error and revisions can be large. [u]Analysts also underscore that it can take three to five months for a housing trend to form, and retrenchments are common: One occurred as a result of the revised September data, which turned a three-month uptrend into a two-month dip[/u].[/quote]
So comparing the 519k initial October number versus the 610K initial September number gives an even greater 14.9% month-over-month decline. Notice the extremely bullish headlines that got put on the now-shown-to-be-a-laugh 610K starts number for that month:

[url=http://www.marketwatch.com/story/housing-starts-rise-03-to-610000-in-september-2010-10-19]Housing starts rise for 3rd straight month, up 0.3%[/url]: [i]September’s 610,000 pace defies expectations; building permits drop[/i]

Spotted on the web: Yesterday, ZeroHedge reported that disagreements in the post-election, pre-swearing-in-of-new-members "lame duck" congress may allow the Bush-era tax cuts (which amount to an estimated $370 bln/year less revenue to the federal government) to expire completely - the big debate having been about whether to extend them for all but the wealthy (gross incomes >+ $200k/year) or to include the top earners as well - a reader opined thusly, in an apparent homage to the classic Frank Zappa song [URL="http://www.lyricstime.com/frank-zappa-fembot-in-a-wet-t-shirt-lyrics.html"]"Fembot in a Wet T-Shirt"[/URL] (one of the tracks from [I]Joe`s Garage[/I]):
[I]
"Because tax cuts for the mega rich are so stimulating."
[/I]
------------------------

Noted perma-curmudgeon Ambrose Evans-Pritchard of [I]The Daily Telegraph[/I] comments on the EMU`s downward spiral:

[URL="http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008667/the-horrible-truth-starts-to-dawn-on-europes-leaders/"]The horrible truth starts to dawn on Europe's leaders[/URL]: [I]The entire European Project is now at risk of disintegration, with strategic and economic consequences that are very hard to predict.[/I]
[quote]My own view is that the EU became illegitimate when it refused to accept the rejection of the European Constitution by French and Dutch voters in 2005. There can be no justification for reviving the text as the Lisbon Treaty and ramming it through by parliamentary procedure without referenda, in what amounted to an authoritarian Putsch. (Yes, the national parliaments were themselves elected – so don’t write indignant comments pointing this out – but what was their motive for denying their own peoples a vote in this specific instance? Elected leaders can violate democracy as well. There was a corporal from Austria … but let’s not get into that).

Ireland was the one country forced to hold a vote by its constitutional court. When this lonely electorate also voted no, the EU again disregarded the result and intimidated Ireland into voting a second time to get it “right”.

This is the behaviour of a proto-Fascist organization, so if Ireland now – by historic irony, and in condign retribution – sets off the chain-reaction that destroys the eurozone and the European Union, it will be hard to resist the temptation of opening a bottle of Connemara whisky and enjoying the moment. But resist one must. The cataclysm will not be pretty.[/quote]

The GM IPO and Contrast With Bank Bailouts
 

So the big "new GM" IPO was today ... stock closed down about a buck from its $35 offering price, but - in no small part to a little [url=http://www.zerohedge.com/article/getco-chruns-nearly-entire-gm-float-stock-closes-lows-day-and-1-below-break-price]HFT magic[/url] by Getco, the firm the USgov hired to "provide supporting liquidity" to the IPO - the offering can be considered a success, at least for the offerers, including the U.S. Treasury (and by extension the taxpayer), the major stakeholder. Taking a larger retrospective view, Barry R. contrasts the government treatment of bankrupt GM with the treatment of the bankrupt TBTF banks:

[url=http://www.ritholtz.com/blog/2010/11/banks-prepackaged-bankruptcy/]Too Bad Banks Missed Out On the GM Treatment[/url]
[quote]Contrary to popular belief, it wasn’t the credit crisis and recession that killed GM — the crisis merely revealed the structural deficiencies that were there all along. The company had diversified into auto finance, then home finance, all the while designing boring, poorly manufactured machines that got poor gas mileage and were vastly inferior to their European and Japanese counterparts. Insolvency was inevitable.

The weakened mid-western firm lacked the lobbying muscle to force an ill advised bailout. Rather than give GM the Hank Paulson bank treatment — throw trillions at them and hope for the best — Uncle Sam actually took an intelligent approach to the issue.

But even a weakened giant, a shadow of its former self, GM was still a substantial employer. That had political ramifications in an election year. Instead of letting them do the Lehman Brothers face plant into the pavement, the choice was made for a prepackaged bankruptcy.
[b]
This was the single best decision of the bailout era.
[/b]
It seemed to be the only decision that was not made in a panic. It adhered to the rules of capitalism — when your company is insolvent, it goes into reorganization or dissolution. The brutal, Darwinian rules of the market and of bankruptcy applied — not the influence of lobbyists, or special favors from Senators. The Treasury Secretary’s former gig was not running an auto company, he ran a Wall Street bank — so there could be no special favors expected to come from that quarter either.

Instead, Uncle Sam’s involvement was to provide Debtor-in-Possession financing. The bankruptcy plan was obvious: Wipe out shareholders, give bond holders a haircut, fire management, pare the company down to a sustainable size without sentiment.

This was what was done. A turnaround plan was created and executed. If the company met its milestones, the firm would be taken public, which would allow the government to significantly reduce its stake and exposure to GM. The Fed also helped, keeping financing rates at ultra low levels.

The long term stock sale plan would lead to the taxpayers being made nearly whole. All told, it was a wild success. Malcolm Gladwell argued that Rick Waggoner should get more credit and Steve Rattner less, for GM’s effective turnaround; many of the new models that are now doing so well were first created and planned for under Waggoner’s tenure 5 years ago.

So what is arguably the most successful bailout of the 2007-2010 era was in fact a non-bailout: It was a bankruptcy reorganization that eliminated the most toxic aspects of a century old rust bucket of a company. The new firm has clean books, is well capitalized, is without crushing debt, has a less onerous labor contract, pension and health care obligations. Its hard not to see how this was anything but a ginormous winner for all involved.

Which brings me to the Banks...[/quote]
[i]My Comment:[/i] While I have my issues with the GM bailout - and it will be interesting to see if the same taxpayers who "win as a result of a successful IPO" end up losing if all those shares snapped up by mutual and pension funds drop significantly in price over the coming months and years - I agree that the prepackaged bankruptcy model should definitely have been considered for the banks. (And still should, given that many of the biggest ones are still wildly insolvent at any quasi-realistic valuations of the trillions in toxic loans they are carrying around and valuing at face thanks to government-sponsored of accounting fraud, i.e. repel of the FASB mark-to-market accounting standards).

[QUOTE=ewmayer;237693]So the big "new GM" IPO was today ... stock closed down about a buck from its $35 offering price,[/QUOTE]
[QUOTE=http://finance.yahoo.com/news/First-day-trading-of-GM-apf-2339978096.html]After being priced at $33 a share in the IPO, the stock opened at $35. It ended the day at $34.19, a gain of 3.6 percent, after trading as high as $35.99 in the first few minutes of trading.[/QUOTE]
I think that it was an up, not a down.

[QUOTE=Uncwilly;237715]I think that it was an up, not a down.[/QUOTE]

$33 is the "official" IPO price, which is somewhat arbitrary - I used the $35 open as my reference, since that's the opening retail price.

One of the writers for Barron`s discusses the role of HFT firm Getco and the various underwriters` "mystery fees" in the GM IPO:

[url=http://blogs.forbes.com/emilylambert/2010/11/18/gm-gives-high-freq-firm-the-keys/?partner=yahootix]GM Gives High-Freq Firm The Keys[/url]
[quote]When General Motors’ stock started trading Thursday on the New York Stock Exchange, it marked a milestone. Not just for the car maker formerly known as Government Motors. The day also represented an important coming out of sorts for Getco, the high-frequency trading shop that handled the opening of GM trading.

It’s a stunning ascent. A year ago Getco was basically a mysterious firm hiding out behind a closed door in Chicago. Now it has handled the biggest offering in history, selected over some far more famous and established firms including Bank of America and Goldman Sachs. It looks like Getco, not long ago an outsider, is part of the establishment and a pillar of the American economy, or something of the sort.

Why Getco? “No comment,” says a GM spokesman. Getco is similarly tight-lipped.

To be sure, Getco’s role should not be confused with that of the underwriter at an investment bank. Underwriters prepare a company for a stock launch. They take the company on a road show to meet potential investors, and they set the opening price for the stock. For this, they take their mammoth fees. (Supposedly these fees are clearly found in the prospectus. If you see them, please e-mail me.) GM’s lead underwriters were Morgan Stanley and JP Morgan Chase.

But once those underwriters did their work for GM, it was Getco’s turn. GM selected Getco to be what the exchange calls a “designated market maker.” This is the company that NYSE has tasked with maintaining a fair and orderly market in the stock once it trades. Getco, as this super-special market maker, has some obligations. It promises to buy and sell the stock at the best going price and to trade even when stock price starts to get out of whack, to smooth out volatility.

It also makes money for this. It doesn’t collect fees like the underwriters do, but it will be rewarded in an ongoing fashion through its trades. It gets certain advantages that can lean the market in its favor and can lead to nice profits. There’s no guarantee of profits, and making markets like this has turned into a competitive space. But it can be a sweet deal. Why else would a firm like Getco want the job?

The designated market maker is a variation on the old “specialist” firm. Those firms were also tasked with keeping an orderly market but were accused by many of taking advantage of their role. The specialist firms generally had and exploited big informational advantages. NYSE replaced specialists with the watered-down version of designated market maker after penny spreads and electronic trading made the old boys obsolete and uncompetitive.[/quote]
[i]My Comment:[/i] According to [url=http://www.businessweek.com/news/2010-11-17/gm-ipo-raises-20-billion-selling-common-preferred.html]this article[/url], the U.S. Treasury needs to sell its entire stake (they sold about a fifth of it today) at an average of ~$44 per share to break even on their GM "investment". Apparently the IPO also had the effect of bailing out a [url=http://blogs.forbes.com/joannmuller/2010/11/18/uaw-cashes-in-on-gm-ipo-pledges-to-help-gm-stay-viable/?partner=yahootix]big UAW retirement trust[/url] for GM workers.

We can debate the proper opening-price reference, but Yahoo! Finance must know something no one else does, since their [url=http://finance.yahoo.com/q/bc?s=GM]GM summary page[/url] - despite correctly listing the "previous close" (i.e. the official IPO price) as $33 and the open as $35 - indicates an eye-popping 4,458.67% rise on the day:

[QUOTE=ewmayer;237719]< snip >

Yahoo! Finance must know something no one else does, since their [URL="http://finance.yahoo.com/q/bc?s=GM"]GM summary page[/URL] - despite correctly listing the "previous close" (i.e. the official IPO price) as $33 and the open as $35 - indicates an eye-popping 4,458.67% rise on the day:[/QUOTE]... an improper comparison to the old class of now-penny-stock shares.

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

Warren Buffet has an NYT op-ed defending the mid-September 2008 actions taken to prop up AIG, etc.

"Pretty Good for Government Work"

[URL]http://www.nytimes.com/2010/11/17/opinion/17buffett.html?src=me&ref=general[/URL]

[quote]... Just over two years ago, in September 2008, our country faced an economic meltdown. [URL="http://topics.nytimes.com/top/news/business/companies/fannie_mae/index.html?inline=nyt-org"]Fannie Mae[/URL] and [URL="http://topics.nytimes.com/top/news/business/companies/freddie_mac/index.html?inline=nyt-org"]Freddie Mac[/URL], the pillars that supported our mortgage system, had been forced into conservatorship. Several of our largest commercial banks were teetering. One of Wall Street’s giant investment banks had gone bankrupt, and the remaining three were poised to follow. [URL="http://topics.nytimes.com/top/news/business/companies/american_international_group/index.html?inline=nyt-org"]A.I.G.[/URL], the world’s most famous insurer, was at death’s door.

Many of our largest industrial companies, dependent on [URL="http://topics.nytimes.com/top/reference/timestopics/subjects/c/commercial_paper/index.html?inline=nyt-classifier"]commercial paper[/URL] financing that had disappeared, were weeks away from exhausting their cash resources. Indeed, all of corporate America’s dominoes were lined up, ready to topple at lightning speed. My own company, [URL="http://topics.nytimes.com/top/news/business/companies/berkshire_hathaway_inc/index.html?inline=nyt-org"]Berkshire Hathaway[/URL], might have been the last to fall, but that distinction provided little solace.

Nor was it just business that was in peril: 300 million Americans were in the domino line as well. Just days before, the jobs, income, [URL="http://topics.nytimes.com/your-money/retirement/401ks-and-similar-plans/index.html?inline=nyt-classifier"]401(k)’s[/URL] and money-market funds of these citizens had seemed secure. Then, virtually overnight, everything began to turn into pumpkins and mice. There was no hiding place. A destructive economic force unlike any seen for generations had been unleashed.

Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm.

. . .

... In the darkest of days, [URL="http://topics.nytimes.com/top/reference/timestopics/people/b/ben_s_bernanke/index.html?inline=nyt-per"]Ben Bernanke[/URL], Hank Paulson, [URL="http://topics.nytimes.com/top/reference/timestopics/people/g/timothy_f_geithner/index.html?inline=nyt-per"]Tim Geithner[/URL] and [URL="http://topics.nytimes.com/top/reference/timestopics/people/b/sheila_bair/index.html?inline=nyt-per"]Sheila Bair[/URL] grasped the gravity of the situation and acted with courage and dispatch. And though I never voted for [URL="http://topics.nytimes.com/top/reference/timestopics/people/b/george_w_bush/index.html?inline=nyt-per"]George W. Bush[/URL], I give him great credit for leading, even as Congress postured and squabbled.[/quote]

[QUOTE=cheesehead;237760]Warren Buffet has an NYT op-ed defending the mid-September 2008 actions taken to prop up AIG, etc.

"Pretty Good for Government Work"

[URL]http://www.nytimes.com/2010/11/17/opinion/17buffett.html?src=me&ref=general[/URL][/QUOTE]

Ah yes - that appeared several days ago in the NYT - my local paper reprinted it front and center in the op-ed page today. (Same prominent location they usually reprint Paul Krugman`s spend-your-way-out-of-debt Keynesian epistles, all unquestioningly.)

Barry Ritholtz, for one, took exception to Warren`s latest self-serving, faux-altruistic "keep up the great work, Uncle Stupid!" op-ed ... his riposte also contains one of the most concise, lucid summaries of the deregulatory and policy insanity that got us here (Ellipses in the quotebox indicate my redactions-for-length):

[url=http://www.ritholtz.com/blog/2010/11/dear-uncle-sucker/]Dear Uncle Sucker . . .[/url]

[i]For many years, I’ve been a fan of Warren Buffett’s long term approach to value investing. Understanding the value of a company, regardless of its momentary stock price, is a great long term investing strategy.

But it pains me whenever I read commentary from Buffett that glosses over reality or is somehow self-serving. His OpEd in the NYT today – Pretty Good for Government Work – paints an artificially rosy picture of the Bailout, ignores the negatives, and omits his own financial interest in government actions.

What might he have written if Sir Warren was dosed with some sodium pentothal before he sat down to pen that “Thank you” letter? It might have gone something like this:[/i]
[quote]DEAR Uncle [strike]Sam[/strike] Sucker,

I was about to send you a thank you note for bailing out the economy . . . but then some nice men dressed in Ninja outfits came in and shot me full of truth serum. That led me to make one more set of edits to my letter thanking you for saving the economy.

It also helped me recall some things I seemed to have forgotten in my other public pronunciations about the bailouts.

I suddenly recalled who it was who allowed the banks to run wild in the first place: You. Your behavior before, during and after the crisis was the epitome of a corrupt and irresponsible government. You rewarded incompetency, created moral hazard, punished the prudent, and engaged in the single biggest transfer of wealth from the citizenry of the United States to the Wall Street insiders who created the mess in the first place.
[i]
Kudos.
[/i]
Before I get to the bailouts, I have to remind you that in:

• 1999, you passed the Financial Services Modernization Act. This repealed Glass-Steagall, the law that had successfully kept main street banking safely separated from Wall Street for seven decades. Even the 1987 market crash had no impact on Main Street credit availability, thanks to Glass-Steagall.

• 1997-2010, you allowed the Credit Rating Agencies to change their business model, from Investor pays to Underwriter pays — a business structure known as Payola. This change effectively allowed banks to purchase their AAA ratings, and was ignored by the SEC and other regulators.

• 2000, you passed the Commodities Futures Modernization Act. It allowed the shadow banking industry to develop without any oversight by the Commodity Futures Trading Commission, the SEC, or the state insurance regulators. This led to rampant creation of credit-default swaps, CDOs, and other financial weapons of mass destruction — and the demise of AIG.

• 2001-04, the Fed, under Alan Greenspan, irresponsibly dropped fund rates to 1%. This set off an inflationary spiral in housing, commodities, and in most assets priced in dollars or credit.

• 1999-07, the Federal Reserve failed to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned such standards as employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability.

• 2004, the SEC waived its leverage rules, allowing the 5 biggest Wall Street firms to go from 12 to 1 to 20, 30 and even 40 to 1. Ironically, this rule was called the Bear Stearns exemption.

These actions and rule changes were requested by the banking industry. Rather than behave as adult supervision, you indulged the reckless kiddies, looking the other way as they acted out. [i]You were the grand enabler of the finance sector’s misbehavior[/i]. Hence, you helped create the mess by allowing the banking sector to run roughshod over decades of successful constraints. ([i]Kudos[/i] again on that).

There were voices warning about the upcoming crisis, but you managed to turn a deaf ear to them: Warnings about subprime lending, problems with securitization, against the false claim that residential real estate never went down in value, or that the models forecasting VAR were wildly understating risk. An economy driven by growth dependent upon credit fueled consumption was unsustainable, and yet you encouraged that reckless credit consumption. The compensation schemes for Wall Street were hilariously short term (ignored by you); the crony capitalism of Boards of Directors that undercut market discipline was similarly ignored. You encouraged the hollowing out of the US economy, allowing it to become increasingly “Financialized” at the expense of industry and manufacturing. What was once a small but important part of the economy became dominant, yet unproductive, with your blessing.

When the crisis struck, you did not seem to understand the role you should play. Instead of stepping up to halt the financialization, to unwind it, you gave away the shop. You failed to extract concessions from firms on the verge of bankruptcy. Your negotiating skills were embarrassing. In the face of meltdown, you panicked.

You could have undone the decades of radical deregulation at that moment. You could have fired the incompetent management, wiped out the shareholders who invested in insolvent companies, gave the creditors and bond holders a major haircut for their foolish lending. Instead, you rewarded them for their gross incompetence.

The solutions you ran with were ad hoc, poorly thought out, improvised. You crossed legal boundaries, putting the Fed in the position of violating its charter and exceeding its mandates. You created a Moral Hazard, the impact of which may not be felt until decades in the future.

...
Well, Uncle Sam, you delivered a motherload of cash. Considering the dollar sums involved, your actions were remarkably ineffective. What was left over afterwards was a wildly over-leveraged consumer whose credit limits had been reached; State and municipal budgets were heavily dependent upon that excess consumer spending, creating huge budget holes because of it. Net net: The resultant economy was in the worst recession since the Great Depression.

...
I would be remiss if I failed to mention my personal positions in this: I made a killing in Goldman Sachs and GE. My investments in Wells Fargo would have been a disaster if not for you. Don’t even get me started with me being the largest shareholder in Moody’s – that was some clusterf#@k. And considering all of the counter-parties that Berkshire Hathaway has, we risked being just another insolvent investment firm along with everyone else had nothing been done.

So I must say thanks to you, Uncle Sam, and your aides. In this extraordinary emergency, you came through for me — and my world looks far different than if you had not.

Your grateful but wide-eyed nephew,

Warren[/quote]

Irish bank runs accelerate
 

I misstated the amount of its stake in GM the U.S. Treasury sol;d yesterday - they sold around 50% of their total holdings, implying that they would need to sell the remaining half at an average price around $55 per share to break even.

In other news, runs on Irish Banks are accelerating, despite soothing talk from government officials and the ECB that a bailout is in the works, all will be well, etc:

[url=http://www.forbes.com/feeds/ap/2010/11/19/business-financials-eu-ireland-allied-irish-banks_8152403.html?boxes=Homepagebusinessnews]Allied Irish says it`s lost 17 percent of deposits[/url]
[quote]Allied Irish Banks announced Friday it has lost a staggering €13 billion ($18 billion), or 17 percent, of its total deposit base since June in the latest evidence of cash flight from Ireland`s debt-crippled banking sector.

Earlier this month two other banks, Bank of Ireland and Irish Life & Permanent, reported suffering losses of more than 10 percent of deposits in recent months.

The cash flight from Irish banks has accelerated since September, when the government raised its estimated bill for bailing out five banks to at least €45 billion ($62 billion), a figure that many analysts said was still too low.

The news comes as a team of international finance officials works with the Dublin government on the outlines of a rescue loan aimed at easing the impact of the banks` losses on the government`s stressed finances. Growing fears of a cash run on Ireland`s banks triggered this week`s emergency mission by European Central Bank and International Monetary Fund experts to Dublin.

In its management statement - which had been expected to be published earlier this week before the EU-IMF intervention - Allied Irish said institutions and businesses accounted for most of the lost deposit business. It said the European Central Bank and Irish Central Bank had provided short-term loans to cover the shortfall in cash but provided no figures.

Officials at Allied Irish said the bank had €74 billion in customer deposits at the end of June but just €61 billion today.

Allied Irish was once Ireland`s largest business, but it has suffered a spectacular fall since 2008 in line with the collapse of a construction-dependent economy. It recently has sold two of its best assets, a majority stake in Bank Zachodni of Poland and a minority stake in M&T Bank of New York, in a bid to drum up €10.4 billion in cash demanded by Ireland`s new financial regulator.

But the bank admitted Friday its cash drive has come up far short. It reiterated that its efforts to sell Allied Irish`s British division has been put on hold because of a lack of credible offers.

As a result, the bank said it now planned to try to sell €6.6 billion ($9.05 billion) in new shares next month - an offer likely to have only one buyer, the government. The expected sale would take the government`s stake from 18 percent to more than 90 percent.

...
The government already has nationalized three other bailed-out banks: Anglo Irish, Irish Nationwide, and the Educational Building Society. It has a 36 percent stake in Bank of Ireland. Irish Life & Permanent is the only Irish-owned bank that has received no state funds.[/quote]
[i]My Comment:[/i] Mish has a nice roundup on the current state of the Irish banking sector, including an article on the human cost of the property bust: [url=http://globaleconomicanalysis.blogspot.com/2010/11/run-on-allied-irish-banks-customers.html]Ghost estates and broken lives: the human cost of the Irish crash[/url].

[QUOTE=ewmayer;237807]

<snip>

What might he have written if Sir Warren was dosed with some sodium pentothal before he sat down to pen that “Thank you” letter? It might have gone something like this:[/i][/QUOTE]

Applause! Applause! Awesome letter. I single out one point:

"The compensation schemes for Wall Street were hilariously short term (ignored by you); "


Allowing financial institutions to award ridiculously obscene bonuses/salaries
based upon short-term criteria is what prompted Wall Street employees
to take ridiculous risks in the first place. The employees did not care if
things went wrong as long as they got their bonuses.

I call this "looting of the stockholders". The stockholders are the real
owners of a company. The money that got paid in bonuses should have
gone to them instead, perhaps in the form of dividends.

We need to give CONTROL of all public companies back to the owners.
We need a law requiring that all corporate compensation plans be subjected
to a BINDING vote of the stockholders at every annual meeting.
At the same time, there should be a requirement that all bonuses be
paid equally to all employees. This would stop the skimming at the top.
Finally, we need a law requiring that all corporate compensation be in the
form of salary ONLY. No more stock grants, stock options, etc.

Note that it is in the best interest of the stockholders to set salaries at
the right level. Too low and they won't get qualified employees. Too high
and they deprive themselves of the profits.

We also need an Alternative Minimum Tax for corporations just as there is
for individuals.

[QUOTE=R.D. Silverman;237818]Applause! Applause! Awesome letter. I single out one point:

"The compensation schemes for Wall Street were hilariously short term (ignored by you); "


[/QUOTE]

Let me also ask the following:

Among all of the foreclosures, do we have any data as to how many
occurred as a result of people walking away from negative equity versus
those who legitimately can't pay because of unemployment/large medical
bills/etc?

We should put a law in place that allows the courts to examine the finances
of people who have stopped paying. If they truly CAN NOT pay, then
proceed with the foreclosure. If the evidence indicates that they CAN pay,
but that the mortgage is under water (negative equity) then they should
be required to keep paying. When they bought the house there was no
guarantee that it would keep its market value. We should force payment
by wage assignment if needed.

Opinions?

[QUOTE=R.D. Silverman;237818]We also need an Alternative Minimum Tax for corporations just as there is
for individuals.[/QUOTE]That thought provoking idea gets my vote. It is disheartening to hear that some profit making companies are paying zero tax.

[QUOTE=R.D. Silverman;237818]
We need to give CONTROL of all public companies back to the owners.
We need a law requiring that all corporate compensation plans be subjected
to a BINDING vote of the stockholders at every annual meeting.
At the same time, there should be a requirement that all bonuses be
paid equally to all employees. This would stop the skimming at the top.
Finally, we need a law requiring that all corporate compensation be in the
form of salary ONLY. No more stock grants, stock options, etc.

Note that it is in the best interest of the stockholders to set salaries at
the right level. Too low and they won't get qualified employees. Too high
and they deprive themselves of the profits.
[/QUOTE]

Stockholder democracy at the moment is deeply Soviet; yes, there's in principle one vote per share, but it defaults to being cast as the board suggests (you can't abstain), and the big organisations who hold as nominees most of the shares issued never ask the people whose money bought the shares for an opinion and will, if pushed, just add a 5% annual management charge to any account in which the ultimate-shareholders deign to request the ability to vote.

So everything gets passed by 98%-2% unless something of the scale of the California teachers' pension scheme is trying to make a point; the big organisations are always voting in the interest of the mutual-fund-running class, and their employees are sufficiently keen on non-executive directorships in the future that they won't do anything to irritate the companies.

I don't think I have the necessary capability to figure out what the third level of managers at BP should be paid, any more than I have the necessary capability to figure out how many Type 45 frigates the Royal Navy should be ordering: in principle I vote for the board of directors who are professionals tasked with making that decision, just as I vote for an MP who is a professional tasked with the naval decision.

Maybe the underlying issue is that no company has a Loyal Opposition.

[QUOTE=fivemack;237822]Stockholder democracy at the moment is deeply Soviet; yes, there's in principle one vote per share, but it defaults to being cast as the board suggests (you can't abstain), and the big organisations who hold as nominees most of the shares issued never ask the people whose money bought the shares for an opinion and will, if pushed, just add a 5% annual management charge to any account in which the ultimate-shareholders deign to request the ability to vote.

So everything gets passed by 98%-2% unless something of the scale of the California teachers' pension scheme is trying to make a point; the big organisations are always voting in the interest of the mutual-fund-running class, and their employees are sufficiently keen on non-executive directorships in the future that they won't do anything to irritate the companies.

I don't think I have the necessary capability to figure out what the third level of managers at BP should be paid, any more than I have the necessary capability to figure out how many Type 45 frigates the Royal Navy should be ordering: in principle I vote for the board of directors who are professionals tasked with making that decision, just as I vote for an MP who is a professional tasked with the naval decision.

Maybe the underlying issue is that no company has a Loyal Opposition.[/QUOTE]

Senior execs sit on each others' boards. The results are ridiculous
compensation schemes. They scratch each others' backs.

Perhaps one solution is to put a legal cap on salary: No more than (say)
25 times the corporate median can be paid to any employee. And to
have the salary structure follow some fixed statistical distribution,
i.e. a Bell curve or similar.

And any bonuses get paid as a fixed percentage of salary to ALL employees.

Something needs to be done.

[QUOTE=R.D. Silverman;237823]Senior execs sit on each others' boards. The results are ridiculous
compensation schemes. They scratch each others' backs.

Perhaps one solution is to put a legal cap on salary: No more than (say)
25 times the corporate median can be paid to any employee. And to
have the salary structure follow some fixed statistical distribution,
i.e. a Bell curve or similar.

And any bonuses get paid as a fixed percentage of salary to ALL employees.

Something needs to be done.[/QUOTE]

Maybe put restrictions on boards?? Do not allow senior level execs at
any public company to sit on the board of another?

I'm just seeking ideas.......

[QUOTE=fivemack;237822]
I don't think I have the necessary capability to figure out what the third level of managers at BP should be paid, any more than I have the necessary capability to figure out how many Type 45 frigates the Royal Navy should be ordering: in principle I vote for the board of directors who are professionals tasked with making that decision, just as I vote for an MP who is a professional tasked with the naval decision.

Maybe the underlying issue is that no company has a Loyal Opposition.[/QUOTE]

However:

The ones who make the decisions about how many frigates to build do
not themselves personally profit from their decision!

In many cases boards of directors do. Perhaps we should have a
requirment that anyone who can personally profit from a board decision
not be allowed to sit on the board??? Maybe the same should apply to
senior management?

Rewards need to come from an *external* source. One should not be allowed
to make decisions as an employee if one directly benefits from that decision.

i.e. get rid of conflicts of interest??


Just another idea........

[QUOTE=R.D. Silverman;237824]I'm just seeking ideas.......[/QUOTE]

If I understand correctly, the law states that the Board of Directors and the company officers have a fiduciary responsibility to act in the best interest of the shareholders.

So, in theory we have all the laws we need on the books already. Why aren't the current laws working? Because the judicial system almost always sides with the Board and company officers.

I've seen cases where, in the face of a takeover, the Board passes a "poison pill" to save their own jobs, the stock immediately tanks, and the courts uphold that is in the best interest of the shareholders! Ridiculous.

This needs to change -- and I don't know how you do that. Perhaps Congress needs to pass new laws clarifying what "best interest of the shareholders" really means.

If we give our greedy shyster lawyer class a fighting chance in juicy lawsuits when Boards go way overboard on compensation the problem will quickly resolve itself.

[QUOTE=Prime95;237828]If I understand correctly, the law states that the Board of Directors and the company officers have a fiduciary responsibility to act in the best interest of the shareholders.

.[/QUOTE]

Explain to me how awarding huge bonuses to EMPLOYEES is in the
best interests of the shareholders...?

Doing so takes money out of the shareholders' pockets and puts it into
the hands of the employees.

[QUOTE=R.D. Silverman;237833]Explain to me how awarding huge bonuses to EMPLOYEES is in the
best interests of the shareholders...?.[/QUOTE]

I can't explain it to you, but the courts buy into the Board's arguments that huge salaries and bonuses are in the shareholder's best interest.

[QUOTE=R.D. Silverman;237833]Explain to me how awarding huge bonuses to EMPLOYEES is in the
best interests of the shareholders...?

Doing so takes money out of the shareholders' pockets and puts it into
the hands of the employees.[/QUOTE]
Incentives to the right people in the right way can make a difference.
[url]http://www.smh.com.au/business/santa-clive-gives-mercs-to-workers-20101119-180r9.html[/url]
Admittedly the article is not much more than a press release, but hey...

[QUOTE=Prime95;237840]I can't explain it to you, but the courts buy into the Board's arguments that huge salaries and bonuses are in the shareholder's best interest.[/QUOTE]
I think the theory is that "a properly incentivized employee will work harder to provide value-add to the company, thus increasing shareholder value." This is one of those somewhat-subjective (since cause and effect are impossible to precisely correlate when it comes to such things as human behavior) optimization problems which allow for a range of "what is optimal" judgment large enough to drive a proverbial truck through, rather like the "what is the optimal level of taxation" one.

At the low-compensation extreme, paying someone nothing to work would be strongly disincentivizing for most - only people of independent means who will do the work out of some non-monetary motivation would work under those circumstances. Interestingly, the volunteer-work model actually works very well for charities, but we are talking here about competitive capitalistic enterprise.

Moving up the scale: Once you get to a "reasonable" pay grade, i.e. sufficient to cover an employee's living expenses and allow them to feel reasonably financially secure, then they are at least "reasonably incentivized", and the main reason to pay them more is that you want to retain their services and doing so would be unlikely at their current pay. This is the "best and the brightest" argument, the one which Wall Street likes to stretch to extremes.

So the big question is: At what pay level does the law of diminishing (or even negative) returns come into play? Negative returns at very high compensation levels is IMO an issue much-neglected by economists, because it is the kind of perverse outcome which is hard to fit into their nice clean "rational" models. (Also. admitting such outcomes are possible might make it hard for an academic economist to justify getting paid big $ to sit on corporate boards - think Paul Krugman and Enron, for example). But it seems to me the effect is not only real, but at stratospheric compensation levels is nearly ubiquitous. Immense wealth, like immense power, is both addictive and behavior-warping. This is not to say that all billionaires are busy driving their companies into the dirt ... Steve Jobs at Apple is still creating very great value for shareholders. But compare his incentive structure to the perverse ones which in the past few decades have come to dominate on Wall Street, and you'll see a key difference. If you concoct an incentive structure which rewards people for taking outsized risks irrespective of long-term consequences, why would expect any kind of self-restraint to reign?

[QUOTE=markr;237845]Incentives to the right people in the right way can make a difference.
[url]http://www.smh.com.au/business/santa-clive-gives-mercs-to-workers-20101119-180r9.html[/url]
Admittedly the article is not much more than a press release, but hey...[/QUOTE]

OK, But Mr. Palmer, who made the decision to reward the employees
was the plant's OWNER.

[QUOTE=ewmayer;237857]Moving up the scale: Once you get to a "reasonable" pay grade, i.e. sufficient to cover an employee's living expenses and allow them to feel reasonably financially secure, then they are at least "reasonably incentivized", and the main reason to pay them more is that you want to retain their services and doing so would be unlikely at their current pay. This is the "best and the brightest" argument, the one which Wall Street likes to stretch to extremes.

.[/QUOTE]

It is horseshit. I am nowhere close to being paid what Wall Street pays,
but the company does not need to pay me more to retain my services.

[QUOTE=R.D. Silverman;237863]It is horseshit. I am nowhere close to being paid what Wall Street pays,
but the company does not need to pay me more to retain my services.[/QUOTE]

So by definition, your company does not need to pay you more to retain your services. OTOH, if you felt underpaid and made them aware of the fact, they might pay you more ... or decide that you're a greedy asshole and fire you.

Also, as you - perhaps unintentionally - note, pay is a very context-dependent thing. Let's say you're a programmer/software-geek working in Silicon Valley. You make low 6 figures working on some interesting coding and algorithmic problems, and are perfectly happy doing so. One day, a big Wall Street firm comes along, says they need people like you for their quant-finance/HFT-algo group, and offers you twice what you're presently making. (This is not entirely a hypothetical example I'm concocting here ... a couple years ago I found myself the object of a serious recruiting pitch by D.E. Shaw, the somewhat-mysterious hedge fund for which Larry Summers used to work. From what I could glean, they were working on some kind of ultra-secret custom-architected supercomputer ... I'm guessing it wasn't for climate simulations.)

You take the job, move to NYC, and a couple years later find yourself feeling naggingly underpaid and discontented. Why? Because your new line of work has no potential for satisfaction aside from making money - it's all about the money here, the money colors everything and reminds you of the fact wherever you go. And you find yourself making other people very rich, and surrounded by people who make unbelievable amounts of money, in a milieu which values that, and only that.

[QUOTE=ewmayer;237869]So by definition, your company does not need to pay you more to retain your services. OTOH, if you felt underpaid and made them aware of the fact, they might pay you more ... or decide that you're a greedy asshole and fire you.
[/QUOTE]

It would not matter if I did make them aware. The company has very formal
rules about raises. One can't just ask for a raise. OTOH, if I said that
I was dissatisfied with my salary during the formal annual review process,
my guess is that your last surmission would apply....

[QUOTE]

<snip>

You take the job, move to NYC, and a couple years later find yourself feeling naggingly underpaid and discontented. Why? Because your new line of work has no potential for satisfaction aside from making money - it's all about the money here, the money colors everything and reminds you of the fact wherever you go. And you find yourself making other people very rich, and surrounded by people who make unbelievable amounts of money, in a milieu which values that, and only that.[/QUOTE]

Amusing. I interviewed with D.E. Shaw when I was laid off from RSA.

They did not make me an offer, but I was glad. I did not like some
of the attitude that they conveyed during the interview.

I also interviewed with Goldman-Sachs when I was laid off from MITRE
in 1994. They wanted to hire me, but did not because (essentially)
all of Wall Street put on a hiring freeze at that time. Their attitude
about money came through loud and clear during my interview via
a number of off-hand remarks made by a number of people.

Also note that I would not accept twice my current salary to work on
Wall Street now, because it would not cover the added expense of
having to work in New York. It really is horribly expensive.

One pig is dead, long live the PIGS!!!
 

[url]http://news.yahoo.com/s/ap/eu_ireland_financial_crisis[/url]

[QUOTE]Reflecting the national mood, the Sunday Independent newspaper displayed the photos of Ireland's 15 Cabinet ministers on its front page, expressed hope that the IMF would order the Irish political class to take huge cuts in positions, pay and benefits — and called for Fianna Fail's destruction at the next election.

"Slaughter them after Christmas," the Sunday Independent's lead editorial urged. [/QUOTE]

Not that I have a horse in this race, but it seems to me that blaming the politicians is becoming a national pasttime. Do you think they are to blame for a building driven asset bubble? Of COURSE not, just ask them, same as we can ask Greenspan and others here in the U.S.

To this point, Greece has had to have a bailout triggered by a badly skewed socialist economy with overpaid and underworked entitlement employees. Now Ireland is at the vault snuffling for an initial support loan that will run about 70 Billion Euros and has a high potential to double that amount over the next 2 years. Spain and Portugal are skating on dangerously thin ice with probable need for a bailout within 8 months.

So what is the real risk of these countries going belly up? The overall risk is that they will trigger a cascade where France, then England will be swept up which will collapse the EU with resulting financial devastation. Such an event would cause worldwide fallout.

Somewhere in this world, we need some real pessimists to have an impact. Black Swans continue to surprise these blatherskites.

DarJones

Insider trading rears an ugly head
 

Insider trading scandal: [url]http://www.cbsnews.com/stories/2010/11/19/national/main7072496.shtml[/url]

[QUOTE](CBS) Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter, reports the Wall Street Journal.

The probes are both civil and criminal in nature, say people familiar with the matter.

The investigations have the power to expose a culture of insider-trading within the financial industry. Federal authorities say there are new ways non-public information is passed to traders through experts tied to specific industries or companies.

Firms being examined include Primary Global Research LLC, a Mountain View, Calif., firm that connects experts with investors seeking information in the technology, health-care and other industries. Goldman Sachs and John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., have also been examined.

Kinnucan sent an e-mail on Oct. 26 telling hedge-fund and mutual-fund clients of the FBI visit.

Some charges could be brought before year-end, say the sources. [/QUOTE]

Any blooming idiot should be able to tell that a huge amount of insider info is being shared. All you have to do is watch the market action just before a buyout or takeover or whatever feat du jour occurs.

DarJones

[QUOTE=Fusion_power;238125]So what is the real risk of these countries going belly up? The overall risk is that they will trigger a cascade where France, then England will be swept up which will collapse the EU with resulting financial devastation. Such an event would cause worldwide fallout.[/QUOTE]

Bingo - Notice that the *real* reason Ireland was dragged/cajoled/threatened into a bailout post haste was not the rocketing rate on its sovereign debt - Ireland has enough previous bailout money in hand to ensure it doesn`t need to issue any new debt until around middle of next year - but rather the very real risk of metastasis on 2 major fronts:

1. It hasn`t just been Irish debt whose yield spreads have been ramping - the yields on the other PIGS have been following Ireland`s higher, and several of those other countries need to go to the debt markets much sooner than Ireland does;

2. I read in [url=http://online.wsj.com/article/SB10001424052748704312504575618963922181240.html]several places[/url] that banks in other Eurozone countries have $650 billion exposure (via real estate debt, credit-default swaps and the usual array of risk-spreading "financial innovations") to the Iriah banking sector.


[QUOTE=Fusion_power;238219]Insider trading scandal: [url]http://www.cbsnews.com/stories/2010/11/19/national/main7072496.shtml[/url]

Any blooming idiot should be able to tell that a huge amount of insider info is being shared. All you have to do is watch the market action just before a buyout or takeover or whatever feat du jour occurs.[/QUOTE]
The WSJ had this as the [url=http://online.wsj.com/article/SB10001424052748704170404575624831742191288.html?mod=WSJ_hp_LEFTTopStories#articleTabs%3Darticle]lead article in their weekend edition[/url], and as is their wont, hilariously downplayed the likely amounts of ill-gotten gains in question:
[quote]The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, [b]are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars[/b], the people say. Some charges could be brought before year-end, they say.[/quote]
[i]My Comment:[/i] "Tens of millions"? Excuse me while I spew coffee out my nose. Sorry, "tens of millions" is what a handful of juicy insider tips to hedge funds gets you. Gosh, if I didn`t know better, I`d think the WSJ had some kind of agenda with respect to making as light as possible of the rampant culture of fraud in the financial industry. (They`ve been doing similarly relentless soft-peddling w.r.to the ever-growing dog-ate-my-mortgage-paperwork/securitization/foreclosure-fraud scandal).

Cheesehead, you are spot on with you comment about "All you have to do is watch the market action" ... the problem is, for lo these many years the SEC has very noticeably not been doing so. ZeroHedge provides more examples of blatant insider trading in a typical month than the SEC probably prosecuted during the entire in-bed-with-Wall-Street era which appears to be at last ending. Problem is, the biggest and most pervasive frauds are going on in plain sight and are in many case orchestrated by the federal government or its agents (most prominently the Federal Reserve) itself. Suspension of mark-to-market accounting rules for banks, anyone? Failure to take the legally-required prompt corrective action w.r.to insolvent banks by the FDIC ... the Fed buying-on-undisclosed-terms and holding trillions in securities lacking the required "full faith an credit of the U.S. government" ... the Fed making a mockery of the latter by continually debasing the currency in an ill-advised effort to refloat the insolvent banks, under the guise of "stimulating the economy by encouraging lending" ... the list goes on, and on, and on. (Barry R. mentioned numerous other biggies in his recent "Dear Uncle Sucker" parody of Warren Buffett`s self-serving NYT op-ed).

[b]p.s.:[/b] It seems the "Irish bailout" is far from being a done deal ... this issue has a very chance of toppling the government, if enough of the citizenry realize they are about to be sold even further down the river of debt servitude in order to bail out other nations` banks and bond investors. Ireland need to grow a "C" and do like their neighbors to the northwest in Iceland have done. Freeing yourself from the tyranny of international bankers will be painful, but worth it.

[QUOTE=ewmayer;238256][I]My Comment:[/I] "Tens of millions"? Excuse me while I spew coffee out my nose. Sorry, "tens of millions" is what a handful of juicy insider tips to hedge funds gets you. Gosh, if I didn`t know better, I`d think the WSJ had some kind of agenda with respect to making as light as possible of the rampant culture of fraud in the financial industry. (They`ve been doing similarly relentless soft-peddling w.r.to the ever-growing dog-ate-my-mortgage-paperwork/securitization/foreclosure-fraud scandal).[/QUOTE]Ernst, shame on you! You are forgetting a golden rule: Never ascribe to malice that which is adequately explained by incompetence.

The sub-editor at the WSJ quite clearly made a typo and used "millions" when he/she/it obviously meant "billions". Only one letter different and the two letters in question are very nearly adjacent on a qwerty keyboard.

Paul

[QUOTE=xilman;238277]The sub-editor at the WSJ quite clearly made a typo and used "millions" when he/she/it obviously meant "billions". Only one letter different and the two letters in question are very nearly adjacent on a qwerty keyboard.[/QUOTE]

True, true ... and the article didn't specify precisely how many tens ... perhaps in the realm of the MSFM different rules apply than in scientific and mathematical discourse, where by stating approximate numbers this way one implies an order of unity constant applied to the order of magnitude being discussed.

It could be that to the denizens of Wall Street "tens of thousands" can substitute for "tens" ... especially if those tens of thousands were rightly and properly swindled away from someone else.

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

NYT op-ed writer Ross Douthat opines on Ireland and her latest spate of troubles:

[url=http://www.nytimes.com/2010/11/22/opinion/22douthat.html?ref=opinion]Ireland’s Paradise Lost[/url]
[quote]For an American tourist weaned on Gaelic kitsch and screenings of “The Quiet Man,” the landscape of contemporary Ireland comes as something of a shock. Drive from Dublin to the western coast and back, as I did two months ago, and you’ll still find all the thatched-roof farmhouses, winding stone walls and placid sheep that the postcards would lead you to expect. But round every green hill, there’s a swath of miniature McMansions. Past every tumble-down castle, a cascade of condominiums. In sleepy fishing villages that date to the days of Grace O’Malley, Ireland’s Pirate Queen (she was the Sarah Palin of the 16th century), half the houses look the part — but the rest could have been thrown up by the Toll brothers.

It’s as if there were only two eras in Irish history: the Middle Ages and the housing bubble.
...
There was a time, not so very long ago, when everyone wanted to take credit for this transformation. Free-market conservatives hailed Ireland’s rapid growth as an example of the miracles that free trade, tax cuts and deregulation can accomplish. (In 1990, Ireland ranked near the bottom of European Union nations in G.D.P. per capita. In 2005, it ranked second.)

Progressives and secularists suggested that Ireland was thriving because it had finally escaped the Catholic Church’s repressive grip, which kept horizons narrow and families large, and limited female economic opportunity. (An academic paper on this theme, “Contraception and the Celtic Tiger,” earned the Malcolm Gladwell treatment in the pages of The New Yorker.) The European elite regarded Ireland as a case study in the benefits of E.U. integration, since the more tightly the Irish bound themselves to Continental institutions, the faster their gross domestic product rose.

Nobody tells those kinds of stories anymore. The Celtic housing bubble was more inflated than America’s (a lot of those McMansions are half-finished and abandoned), the Celtic banking industry was more reckless in its bets, and Ireland’s debts, private and public, make our budget woes look manageable by comparison. The Irish economy is on everybody’s mind again these days, but that’s because the government has just been forced to apply for a bailout from the E.U., lest Ireland become the green thread that unravels the European quilt.

If the bailout does its work and the Irish situation stabilizes, the world’s attention will move on to the next E.U. country on the brink, whether it’s Portugal, Spain or Greece (again). But when the story of the Great Recession is remembered, Ireland will offer the most potent cautionary tale. Nowhere did the imaginations of utopians run so rampant, and nowhere did they receive a more stinging rebuke.

To the utopians of capitalism, the Irish experience should be a reminder that the biggest booms can produce the biggest busts, and that debt and ruin always shadow prosperity and growth. To the utopians of secularism, the Irish experience should be a reminder that the waning of a powerful religious tradition can breed decadence as well as liberation. (“Ireland found riches a good substitute for its traditional culture,” Christopher Caldwell noted, but now “we may be about to discover what happens when a traditionally poor country returns to poverty without its culture.”)

But it’s the utopians of European integration who should learn the hardest lessons from the Irish story. The continent-wide ripples from Ireland’s banking crisis have vindicated the Euroskeptics who argued that the E.U. was expanded too hastily, and that a single currency couldn’t accommodate such a wide diversity of nations. And the Irish government’s hat-in-hand pilgrimages to Brussels have vindicated every nationalist who feared that economic union would eventually mean political subjugation. The yoke of the European Union is lighter than the yoke of the British Empire, but Ireland has returned to a kind of vassal status all the same.[/quote]
[i]My Comment:[/i] For those of you not familiar with the John Wayne classic "The Quiet Man" - it`s one of my least-favorite of his films, personally speaking - be aware that for an allegedly quiet man, JW`s character sure does a lot of noisy brawling in the movie.

[QUOTE=ewmayer;238256]Cheesehead, you are spot on with ... "All you have to do is watch the market action" ...[/QUOTE]You meant to credit Fusion_power (DarJones), of course. :-)

- - -

Thank you again, Ernst, for initiating and keeping-up this stream of news and commentary on the financial crisis.

100,000 expected to flee Ireland economic crisis
 

[b]Quotable: [/b]One of Barry Ritholtz`s readers, "ZackAttack", had this to say about the SEC "expert network" investigation:
[quote]A corrupt government taking down a host of worthless rentiers. One can only pray for a tragic collapse of the courtroom that kills all parties involved.

False flag, to take your eyes off securitization fraud.[/quote]

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

Mish has a potpourri of Eurozone news ... note the title really should read "Irish PM [b]to dissolve[/b] government":

[url=http://globaleconomicanalysis.blogspot.com/2010/11/irish-pm-dissolves-government-spanish.html]Irish PM Dissolves Government; Spanish Banks Face Debt Challenge; Greece May "Shut-Down"; Meaning of "Guarantee"; Should Ireland Ditch the Euro?[/url]

[url=http://www.thefirstpost.co.uk/71677,business,100000-expected-to-flee-ireland-economic-crisis-]100,000 expected to flee Ireland economic crisis[/url]: [i]Short-term debt crisis could turn into long-term brain drain crisis[/i]
[quote]With unemployment at 13 per cent and an EU-led bailout of the banks seemingly a foregone conclusion, the Irish government expects 100,000 skilled workers to leave the country over the next four years.

The new wave of emigration will be a blow to a country which only a few years ago was urging its diaspora to consider returning to work for the 'Celtic Tiger'.

Next week a national protest will call for the government to find alternatives to its plan to cut a further €15bn from the national budget. But many see the writing on the wall and are heading to information fairs where they receive advice on finding work in Australia or Canada.

Sean Heading, an official with the Technical Engineering and Electrical Union responsible for such an event held last night said: "Some have found themselves out of work for a month or two, but we are now starting to see people who have not had work into a second year.

"Giving people emigration advice is not necessarily what we want to be doing, but we are doing it for all the right reasons."
[b]
Analysts warn any upsurge in emigration could turn a short-term debt crisis into a long-term brain drain.
[/b]
Michael Casey, former chief economist of the Central Bank of Ireland and author of Ireland's Malaise says: "Most Irish people want to stay where they are, but if you think about it, the head suggests something else. A brain drain on any scale would be a loss to the country. [/quote]
[i]My Comment:[/i] The fact that the unnamed "analysts" are understating the situation as a "short term debt crisis" - although I suppose on geological time scales that will prove to be true - makes me wonder if many of these same "analysts" were the ones who were so helpful in promoting the notion that a society can grow wealthy merely by selling of overpriced real estate amongst its members, that the massive debt bubble which accompanied that was "healthy credit growth", and to the skeptics that "things are different here".


Barry R. put up this post yesterday commenting on a WSJ op-ed by Burton Malkiel, one of the high priests of "Over the long haul, buy and hold is the best strategy"-ology:

[url=http://www.ritholtz.com/blog/2010/11/is-‘buy-and-hold’-still-a-viable-investment-strategy]Is ‘Buy And Hold’ Still A Viable Investment Strategy?[/url]
[quote][b]Comment:[/b] Malkiel is famous for his 1973 classic “[url=http://www.amazon.com/exec/obidos/ASIN/0393315290/thebigpictu09-20]A Random Walk Down Wall Street[/url].” In it he argued for the “strong” form of the efficient market hypothesis which states no one person can outperform the market, so don’t try. Just own the indicies for long periods of time and you’ll do as well as any active manager.

Malkiel’s ideas spawned the idea of the index fund, starting with the Vanguard S&P 500 index and eventually the ETF.

In the op-ed above Malkiel is “defending his baby,” asserting that owning indices for long periods is the best investment one can have. Active managerment does not work.

However, as we detailed in our November Total Return Review, data on stock and bonds goes back to 1803 (no typo!) and the last 30 years (1980 to 2010) is the only 30-year period where bonds have outperformed stocks. The charts and table below are from that report.

Malkiel argues that a rebalancing technique will produce superior returns. What he neglects to mention is bonds have outperformed stocks for a generation and counting. How did that happen?[/quote]
[i]My Comment:[/i] I wanted to wait 24 hours to give time for a full round of reader commentary, and was not disappointed - reader "kaleberg" posted this gem of a reply:
[quote]It should be obvious why bonds have outperformed stocks for the last 30 years. Until the 1980s, stocks paid dividends and were evaluated on their ability to pay those dividends. Investors often talked about “coverage”, how well the company’s earnings covered their anticipated dividends. Yes, it was possible for a stock price to rise without a corresponding rise in dividends based on the company’s anticipated growth, but this growth was expected at some point to pay off in higher dividends.

In the 1960s and 1970s, a group of theorists argued that dividends don’t matter. We get this in financial circles every so often. Dividends don’t matter. Earnings don’t matter. Blah, blah, blah. If you can convince enough people you can make a killing and then it doesn’t matter, at least not to you, whether earnings or dividends matter or not. Investors and corporate management began to believe this, and dividends suddenly didn’t matter. Consider how much easier it is to cook the books when one doesn’t have to actually ever pay dividends. [url=http://en.wikipedia.org/wiki/Ivar_Kreuger]Ivar Kreuger[/url] [i][ewm: Swedish entrepreneur and industrialist whose partly-legitimate, partly-ponzi financial empire collapsed during the Great Depression][/i] would have retired to Santa Barbara instead of blowing his brains out in Paris.

Actually having to pay dividends does two things. One, it forces a certain level of financial discipline in that the company has to pay its owners their cut of the profits. The money has to be available as cash – all of it, and on time four times a year. Two, it gets the money out of the hands of the corporate management who would otherwise squander it, usually on their own salaries and bonuses, but also on clueless projects that no sane investor using his or her own money would consider.

Bonds, unlike stocks since 1980, require companies to make cash payments as interest.

From an investor’s point of view, the difference is extremely important. Bonds and dividend paying stocks in a climate of dividend competition align management interests with investor interests. Without dividends and dividend competition, corporate ownership has no real meaning.[/quote]

[QUOTE=ewmayer;238372][b][i]My Comment:[/i] I wanted to wait 24 hours to give time for a full round of reader commentary, and was not disappointed - reader "kaleberg" posted this gem of a reply:

Actually having to pay dividends does two things. One, it forces a certain level of financial discipline in that the company has to pay its owners their cut of the profits.

<snip>

From an investor’s point of view, the difference is extremely important. Bonds and dividend paying stocks in a climate of dividend competition align management interests with investor interests. Without dividends and dividend competition, corporate ownership has no real meaning.


[/QUOTE]

Damn right.

Apologies for not being able to provide an insider's take on the Irish situation. Been busy at work! In the meantime, [B]the reports of California's demise are highly exaggerated[/B].
[url]http://finance.yahoo.com/banking-budgeting/article/111398/the-truth-about-california[/url]

[QUOTE=garo;238386]Apologies for not being able to provide an insider's take on the Irish situation. Been busy at work! In the meantime, [B]the reports of California's demise are highly exaggerated[/B].
[url]http://finance.yahoo.com/banking-budgeting/article/111398/the-truth-about-california[/url][/QUOTE]

Interesting ... But Arends conveniently glosses over a few small details, including:

- Of the "$90 billion budget", nearly [b]one third[/b] is having to be *borrowed*. (Which means that to balance things without further slashing the tax rate would need to spike to well over 15% ... it's easy to keep one's state&local tax burden at a "low, low 10-percent plus" if one is willing to run a massive budget deficit;

- The size of the state GDP is impressive, bit SFW? The only thing that matters in this debate is how much of that accrues to tax revenues;

- "non-partisan Legislative Analysts' Office": Just because they are allegedly non-partisan does not imply that their economic forecasts are anything but delusionally optimistic rubbish. Why do you think this year's budget deficit estimate was revised massively upward almost immediately after the budget was finally and much-belatedly passed?

- Unemployment remains stuck above 12%, and CA is borrowing $40 million PER DAY from the FedGov to help it meet mandatory unemployment-compensation payments. That comes to well over $10 billion per year in new borrowings, which begin to come due next September. Do you think unemployment will have magically plunged by half (roughly what is needed to eliminate the borrowing need here) by then?

- A few quotes from "[url=http://www.taxfoundation.org/research/topic/15.html]venerable Tax Foundation[/url]" which Arends seems to have found unworthy of inclusion in his piece:
[quote]Estimated at 10.5% of income, California's state/local tax burden percentage stands at 6th highest nationally, above the national average of 9.7%...[b]California's 2011 Business Tax Climate Ranks 49th[/b]...California's Corporate Income Tax Rate is the Highest in the West...California's Sales Tax Rate Is Highest in the Nation.[/quote]

- California is so desperate for revenues (and knows it will be unable to raise taxes much more in the current "awesome" state budget climate) that it is busily putting state-owned buildings on sale for short-term-budget-hole-masking leaseback schemes.

- Yes, VC investment and high-tech remain some of the bright spots in the CA economy ... but focusing on that is like reducing the NY state economy to "Wall Street paid record bonuses in 2009".

Anyway, if CA is in such frickin' great shape, perhaps the Boston-based Mr. Arends should actually spend some time here, maybe spend a little time away from the VC suites on Sand Hill Road in Palo Alto volunteering at the local soup kitchens and food-aid centers, which continue to see all-time record demand as their donations base remains stuck in "bad to very bad".

[QUOTE=ewmayer;238394]Interesting ... But Arends conveniently glosses over a few small details, including:

<snip>

Anyway, if CA is in such frickin' great shape, perhaps the Boston-based Mr. Arends should actually spend some time here, maybe spend a little time away from the VC suites on Sand Hill Road in Palo Alto volunteering at the local soup kitchens and food-aid centers, which continue to see all-time record demand as their donations base remains stuck in "bad to very bad".[/QUOTE]

Excuse my ignorance. Most people (me included) do not see very much
of the actual politics of other states. I have however seen some articles
about California. They have suggested that most of the problems are
due to the voters voting themselves "bread and circuses" entitlements
through ballot initiatives. At the same time the laws prohibit the
legislature from making any cuts. This essentially limits the ability of
the legislature to govern. I have seen suggestions that California has
the most disfunctional government of any state: not because of incomptence,
but because their hands have been tied by the voters' passing of so
many entitlements.

If I am wrong, please correct me. Please comment on my remarks.

Tax revenue is down in all states because people are out of work.
California is not alone in this regard.

I agree with Bob here. The problem is the voters who pass silly propositions and legislators, particularly the legislators who are either little Endian or big Endian but generally do not make any fiscal sense.

Regardless, CA still has the best economy in the US which, BTW, is NOT totally dependent on FIRE. If CA wanted to balance it's budget all it needs to do is secede from the US and keep all federal tax revenue from its citizens.

I think Ernst that you have perma-bear goggles on and refuse to look at the positive side of anything at all. If not CA, then where? Name a state in the US that is in better shape. And I don't just mean the state budget but the overall health of the economy.

Bob, you are correct in your take on the budget morass in CA, and the blame for it falling both on the voters and the state government - voters want the state to spend on their various pet programs, and pols are happy to buy votes with promises to do just that. One of the propositions which just passed in the early-November elections is to change the 2/3-vote requirement for passing a budget to a simple majority. That is supposed to help, but given the level of fake-budget-balancing sleight of hand which has gone into the past 2 budgets, merely making it easier to pass a budget isn't going to solve the problem.

Bottom line in California is that over the past decade state spending nearly doubled, revenues (especially now that the RE bubble is over) have not increased nearly fast enough to keep up, and the state's spending priorities have gotten massively out of whack - as the governor noted in his [url=http://gov.ca.gov/speech/14118/]state of the state address[/url] earlier this year, over the past 30 years prison spending has gone from 3% to 11% of the general fund, whereas higher-education spending has actually dropped from 10% to 7.5%. The present numbers yield a banana-republic-style ratio. Similarly, the public-employee pension and benefit costs (and even worse, future commitments) exploded under Schwarzenegger's predecessor ... [url=http://californiawatch.org/watchblog/states-pension-liability-tops-500-billion-stanford-study-finds]current estimates[/url] of unfunded pension liabilities put the number at around a half-TRILLION dollars.

It's not merely the sheer amounts, but even more so the trends, which are dire. I hope you are right and things are really not as bad as many (including me) make them out to be ... but the numbers tell me a different story.

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

In the latest update on the growing expert-network/hedge-fund insider-trading probe, SAC Capital, the outfit run by Steve Cohen, one of Barry Ritholtz`s "people I most admire", has publicized the fact that it too is the target of a Federal subpoena. Barry appears to have a rather different standard of likely-guilt here than with respect to the mortgage-securitization-fraud investigatees:

[url=http://www.ritholtz.com/blog/2010/11/sac-ked/comment-page-1/#comment-452688]Sac-ked![/url]: [i]Marketwatch is reporting that SAC Capital Advisors LP told investors in a letter that it got a government subpoena, according to a person who received the update from the hedge fund firm.[/i]
[quote]I have no idea how Cohen trades, but the rumors are already pinging around trading desks that where there is smoke, there is fire.

Call me old school, but [i]innocent until proven guilty[/i] is still the law. If SAC is found guilty, you can tar and feather them, but until then, I’d rather reserve judgment until the evidence is out there (No, we don’t no any business with them).[/quote]
[i]My Comment:[/i] Paraphrastically inspired by Paul`s quoting of Heinlein`s (or Hanlon`s, depending on which of the two main claimants you credit) famous "Razor" epigram yesterday, I posted the following reply in the comments:

"We obviously don't know yet what information the Feds are acting on, but ZeroHedge published some rather specific questions to SAC back on 4. November, which they reprise in their update on the story today:

[url]http://www.zerohedge.com/article/sac-discloses-government-subpoena[/url]

Barry, obviously in a court of law the standard is innocent until proven guilty. But given the revelations in the past several years about the real "secrets of success" of some of the biggest names on Wall Street - John Paulson hand-picking worst-of-the-worst crap to stuff into Goldman's abacus CDO and then betting big against it without that being disclosed to buyers of the toxic sludge (I still am baffled as to how Goldman pays the fine and Paulson is considered innocent in the matter), Warren Buffett turning into the biggest bailout whore in history (and not a single person from Moody's yet put on trial for fraud), and on and on - I'm inclined to say that at least as far as the court of public opinion is concerned, it is not unreasonable to apply a standard (to paraphrase Heinlein's Razor) of

'Never ascribe to financial genius that which is adequately explained by insider information.'"

[QUOTE=garo;238404]Regardless, CA still has the best economy in the US which, BTW, is NOT totally dependent on FIRE. If CA wanted to balance it's budget all it needs to do is secede from the US and keep all federal tax revenue from its citizens.

I think Ernst that you have perma-bear goggles on and refuse to look at the positive side of anything at all. If not CA, then where? Name a state in the US that is in better shape. And I don't just mean the state budget but the overall health of the economy.[/QUOTE]

"Best" depends very much on your metric. Size of GDP is one metric, there CA is of course good ... but we rank near the bottom of the 50 in terms of unemployment rate, business climate, housing affordability, etc.

Yeah, for me persoanlly and my region things are better than in most other parts of the country - and of course more than mere economics factors into my personal metric: I very much enjoy the mild climate. Hopefully the 1 in 8 of my fellow employable citizens who is out of work at least enjoys the mild weather, too.

Garo, you are possibly right in that I have become overly pessimistic - not about my own lot, but about that of my state and the U.S. But then I think back to late 2007 and early 2008, when folks were telling me I was too pessimistic about what was then called the "subprime mortgage crisis". Anyway, garo, I will agree with you on one thing - compared to your home country of Ireland, things in CA are going relatively swimmingly.

And even though you've been very busy as you said, a little local perspective form over there when you spare a few minutes would be very much appreciated.

Greece is down
Ireland is down
Who's next?

Arguably, it will be Portugal. The dynamics are different for Portugal than for either Greece or Ireland. Portugal is suffering from a terminally weak economy and has borrowed heavily over the last several years to support socioeconomic programs. The underlying problem is that the debt is approaching an unsustainable level.

When will Portugal's death reflex hit? Sometime between now and February 2011 is most likely for the simple reason that a huge load of debt matures early in 2011. Most of that debt will be refinanced which opens the door to the bond traders who want higher interest rates to support the debt sale. As the interest rate goes up, Portugal's ability to repay goes down. Estimated cost $85 Billion dollars U.S.

What about Spain? Well, Spain is much bigger than Portugal in overall size of economy and in potential to devastate the EU. But Spain is not as likely to tumble...... yet. The unknown factor for Spain is the ongoing weakness in the world economy which is limiting export potential and increasing costs inside the nation. Since their currency is tied to the Euro, they can't just devalue the currency without destabilizing other EU members. It is a very fine line they must walk if they are to avoid a cataclysmic event. Please note that if Spain has to be bailed out, it could have more impact than Greece, Ireland, and Portugal combined.

DarJones

[QUOTE=Fusion_power;238468] Please note that if Spain has to be bailed out, it could have more impact than Greece, Ireland, and Portugal combined.[/QUOTE]
and no-one dares even think about Italy.

Paul

Noticed this headline from the morning of November 24 "Dredge" Report.

[URL]http://www.chinadaily.com.cn/china/2010-11/24/content_11599087.htm[/URL]

This development is perhaps not important news, but another seeming step downward in the confidence and "portability" of the not, so almighty, anymore, United States currency.

One cannot help but to become quite increasingly concerned about the increasing political and military instability during the last several months (i.e. U.S. elections, just recent Korean incidents, etc.).

[QUOTE=xilman;238475]and no-one dares even think about Italy.

Paul[/QUOTE]

No.

[url=http://www.youtube.com/watch?v=pAPEfdjvTqE&feature=related]Doowop[/url]

David

On a lighter note (and since this is effectively my Friday this week, since we have the next 2 days off work due to the U.S. Thanksgiving holiday), courtesy of the jokemeisters at (of course) ZeroHedge, we present for your enjoyment:

[url=http://www.zerohedge.com/article/guest-post-federal-reserves-visa-card-statement#comments]The Federal Reserve's VISA Card Statement[/url]

(My favorite is the name of the PR firm).


Happy and safe Thanksgiving travels to our U.S. readers ... if you happen to be flying, make sure to increase your enjoyment by opting out of the virtual strip search and instead asking for the "serial molester four-handed-grope-and-all-body-frottage special" as your friendly local airport's security line. Think of it as a free full-body massage courtesy of the TSA. It's patriotic, democratic, and lots of fun for the whole family. Take that, you freedom-hating terrorists! And bring on the inevitable body-cavity bombs - all those millions of yearly free pelvic and prostate exams U.S. citizens will enjoy at airports next year as a result will save billions in health care costs. And that's the kind of economic (and pelvic) stimulus package I'm sure we can get bipartisan agreement on.

Shopshiving, Black Friday, and other manias
 

In an exceedingly rare alignment of opinions, both Mish and I find ourselves agreeing with Paul Krugman in suggesting that Ireland should tell the international banking cartel to take their "bailout" and shove it:

[url=http://globaleconomicanalysis.blogspot.com/2010/11/in-rare-agreement-with-krugman-onerous.html]In Rare Agreement with Krugman; Onerous "Bailout" Rates of 6.7% Denied; Don't do Stupid Things; "Tell the EU and IMF to Shove It!"[/url]
[quote]Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts.

Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.

Or to be more accurate, they’re bearing a burden much larger than the debt — because those spending cuts have caused a severe recession so that in addition to taking on the banks’ debts, the Irish are suffering from plunging incomes and high unemployment.

But there is no alternative, say the serious people: all of this is necessary to restore confidence.

Strange to say, however, confidence is not improving. On the contrary: investors have noticed that all those austerity measures are depressing the Irish economy — and are fleeing Irish debt because of that economic weakness.

Now what? Last weekend Ireland and its neighbors put together what has been widely described as a “bailout.” But what really happened was that the Irish government promised to impose even more pain, in return for a credit line — a credit line that would presumably give Ireland more time to, um, restore confidence. Markets, understandably, were not impressed: interest rates on Irish bonds have risen even further.

Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.[/quote]
[i]My Comment: [/i] I think Mr. K. may have intended "...is worse than a mistake; it`s a crime" in that last sentence. One can only hope that the Irish people have [url=http://www.telegraph.co.uk/news/worldnews/europe/ireland/8164714/Thousands-protest-against-Irish-bail-out.html]not woken up to the peril facing them and their children[/url] too late.


[URL=http://www.ritholtz.com/blog/2010/11/please-santa-let-this-be-the-last-christmas-in-america-thats-supposed-to-save-the-u-s-economy]Please, Santa, Let This Be the Last Christmas in America that’s supposed to “save” the U.S. economy[/url]: [i]Santa, please, please, please strangle the idiotic fantasy that Americans buying a bunch of junk (or gift cards for after-Christmas purchases of junk) will “save” the imploding U.S. economy. My Christmas wish to Santa: please let this be the last Christmas in America that is dominated by the propaganda that holiday retail sales have any more impact on the $14.7 trillion U.S. economy than a moldy, half-eaten fruitcake left over from 2007.[/I]
[quote]Fact: total holiday retail sales were $504 billion in 2009. Holiday sales–National Retail Federation.

That means holiday retail sales are a mere 3.4% of the U.S. GDP.

Despite the Financial and Mainstream Media’s pathological obsession with holiday retail sales numbers as proxies for the “health” of the entire U.S. economy, holiday sales don’t really change much:

2007: (pre-recession) Holiday sales: $516 billion
Holiday sales as percentage of annual retail sales: 19.5%

2008: Holiday sales: $495.5 billion
Holiday sales as percentage of annual retail sales: 18.6%

2009: Holiday sales: $504.8 billion
Holiday sales as percentage of annual retail sales: 19.4%

So the start of the 2008-09 recession saw a drop of $21 billion in holiday sales: statistical noise in a $14.7 trillion economy and a modest 4% decline from pre-recession levels. 2009 saw sales rise by about $10 billon (about 2%), so a rise of 2% from 2009 would return holiday sales to pre-recession levels.

Now the propaganda machine is cranking up to announce that a 2% increase in holiday retail sales means the U.S. economy is off and running. Santa, please, please, please order your reindeer to stomp the life out of the idiotic fantasy that Americans buying a few billion dollars more needless junk from China is any sort of evidence that the U.S. economy is “growing at a healthy clip.”[/quote]
[i]My Comment: [/i] Every year the around-Thanksgiving materialistic madness seems to grow worse. The past decade has seen the post-holiday "Black Friday" shopping elevated to some kind of quasi-patriotic, economy-saving, retail-survival-determining orgy of over-consumption. This year we not only saw the now-expected legions of Black Fridayists camping out overnight outside the local Best Buy and Costco, but an increasing number of retail stores were open on Thanksgiving day itself, so instead of making a point of stepping off the dual treadmills of work and pre-Christmas shopping and making a point of spending some time with family and friends, lots of people were out shopping on the holiday and camped out the night before Thanksgiving. So now Black Friday is preceded by "Shopsgiving", followed two days later by "Cyber Monday", and since Saturday was not yet co-opted by the mercantile festivities, that has now been dubbed "Small Business Saturday" by a retail trade group.

And some of the "fabulous sale" items the camper-outers mentioned in interviews on the local newscasts were simply inane ... some lady mentioned getting pajamas at Target for $9.99, "twenty dollars off the regular price". Suuuuuuuuuuure they were ... and of course retailers have cleverly exploited the collective mania by either posting falsely inflated "regular prices", or selling "Black Friday special" versions of popular items such as electronics which are feature-stripped versions of the items whose "regular price" is being cited, or the classic first-come-first-serve [url=http://www.scam.com/showthread.php?p=884626]limited quantity item[/url] scam.

One healthy sign I saw - which of course was spun as a "worrisome trend for the economy" by the retailers - is that many folks, while still getting up at insane hours to grab that price-cut plasma TV their well-being depends upon, were spending cash rather than abusing their credit cards as in years past. However, I fully expect debt merchants like Visa and Mastercard to report "healthy increases in card usage", just as retailers will report "healthy sales increases" in every conceivable category which somehow do not appear later in the sales tax receipts. Mish has roundup of some stories so far which illustrate the disparity between the breathless "gazillions of rabid shoppers say `what recession?`" headlines and more sober data from actual store-traffic-monitoring systems.

FBI raids send warning to hedge funds
 

[url=http://www.reuters.com/article/idUSTRE6AL4DT20101124?feedType=nl&feedName=ustopnewsearly]FBI raids send warning to hedge funds[/url]: [i] (Reuters) - FBI raids on hedge funds were a sign that prosecutors feared evidence in a widening insider trading probe could be destroyed, but the dramatic daytime searches may also have been intended to shake up the secretive hedge fund world, legal experts said.[/i]
[quote]Investigators most likely swooped down on the funds Monday in Connecticut and Massachusetts because they had a major concern that subpoenas for information would not be properly obeyed, lawyers and investigators said.

The raids served another purpose: warning the broader financial industry that a serious prosecution effort was underway.

"I think there is a desire to send a message to people who are not currently the target of criminal investigations that there is a cost to engaging in this type of potentially criminal behavior," said Ross Gaffney, a former FBI agent in Miami who is now a principal in the forensic consulting firm Gaffney Gallagher Philip.

Gerald Lefcourt, past president of the National Association of Criminal Defense Lawyers, said that the only justification for such search warrants is the government's concern that documents could either be destroyed or simply not produced.

"There may be another motive, but I view this as an improper motive -- and that is to simply scare people," Lefcourt said. "And it certainly does have that effect."

Prosecutors and the FBI need approval by federal judges before carrying out search warrants. They need to show proof that the destruction of evidence is highly probable.

Monday's raids on three large hedge funds in Connecticut and Massachusetts with billions of dollars each under management are a precursor to a series of new insider trading cases to be unveiled, possibly by year end, lawyers with knowledge of the situation said.

Agents searched and removed documents or information from computer servers at Diamondback Capital Management LLC and Level Global Investors LP in Connecticut and Loch Capital Management, a Boston-based firm.

The raids have grabbed headlines and sent shivers through hedge funds just more than a year after prosecutors charged Galleon hedge fund founder Raj Rajaratnam with conspiracy and securities fraud related to suspected insider trading.

U.S. prosecutors described that case as the biggest probe of insider trading at hedge funds in the United States. In all, 23 hedge fund managers, traders, company executives and lawyers were charged. Fourteen have pleaded guilty.

Rajaratnam, who is free on bail, has pleaded not guilty and is expected to go on trial in January.

Lawyers and former agents say the new investigation could go on for weeks or months yet. Potential cooperators could be talking to prosecutors and the FBI behind the scenes, some may come forward, or others may clam up as a result of the raids.

"This is not standard operating procedure in a white-collar case," said Ellen Zimiles, a former federal prosecutor who heads global investigations and compliance at Navigant Consulting. "The fact that three entities were searched at the same time could mean investigators believe there is a connection, or this is a larger investigation. This is a very clear warning shot."

Lawyers and former FBI investigators said decisions to serve search warrants are not taken lightly. One disadvantageous outcome could be investigators overwhelmed with information that might have been pared down by a narrowly targeted subpoena for documents and trading records.[/quote]
[i]My Comment: [/i] I find it highly amusing that Gerald Lefcourt, "past president of the National Association of Criminal Defense Lawyers", believes that "concern that documents could either be destroyed or simply not produced" is an improper motive for using warrant-based searches rather than a more polite (and oh so document-shredder friendly) subpoena-based approach.

Once upon a time....

Banks were banks and they loaned money to people who would work and pay them back with interest.

Then came the great social upheaval.

Where the losses of banks were suddenly the problem of entire nations because failure of a bank could cause great pain..... for the owners of the bank and the other banks that loaned them money.


But Greece was a different story. Greece was a socially overspent economy. It was foundering because of a different set of problems.


Iceland was not like Greece. Iceland was purely a case of private banks that failed. Iceland refused to bail out the private banks.

Ireland is most similar to Iceland. So what should Ireland do?

Eager readers are waiting for the conclusion of this Just So Story.

I am certain that heads will roll before it is done.

DarJones

Mish has a nice roundup the goings-on with the "Irish Bailout" ... As he correctly notes, it is really the Irish banks - which should be nationalized and broken up or sold off - and the buyers of all that now-bad debt created by the banks - which includes of course other large banks on the continent - which are getting bailed out. Flat-out idiocy to sign every citizen of the country up for long-term debt slavery rather than starting with healthy haircuts for the investors. Did you think there was no risk attached to all those juicy-yield-promising MBSes? Well, what the bailout as currently constituted says is just that: Profits are privates, but losses will be socialized.

One particular snip related to the terms of the funding especially caught my eye:

[url=http://globaleconomicanalysis.blogspot.com/2010/11/terms-of-enslavement-irish-citizens-say.html]Terms of Enslavement; Irish Citizens Say "Default"; Agreement Violates EU and Irish Laws; 50 Ways to Leave the Euro[/url]
[quote]Ireland first must run down its own cash stockpile and deploy its previously off-limits pension reserves in the bailout. [b]Until now Irish and EU law had made it illegal for Ireland to use its pension fund to cover current expenditures[/b]. This move means Ireland will contribute euro 17.5 billion to its own salvation.[/quote]
[i]My Comment:[/i] So just because The IMF and Irish PM Brian "Cowardly Liar" Cowen thinks it`s OK, they can by fiat violate both the laws of the EU and Ireland?

Note that I am firmly of the opinion that some serious level of austerity for Ireland is inevitable, of for no other reason that my preferred solution - default on the banks` accumulated debt, nationalize and break up same banks, leave the Euro - implies that Ireland would be effectively shut out of the international debt markets for at least a decade, and thus would need to live strictly within its means going forward. But to place all of the burden on the taxpayers and none on the banks`s investors is simply nuts. Of course "protecting the rights of the holy bondholders" (read: the international bankster cabal) from any losses on investments gone bad is the number one priority of ECB president Jean-Claude Trichet:

[url=http://globaleconomicanalysis.blogspot.com/2010/11/bond-threat-dismantled-much-maligned.html]Much Maligned Bondholders Do God's Work; ECB Creates Incentive to Gamble[/url]
[quote]"Starting today, bondholders need not be concerned with who they lend money to, why, or what risks there are in doing so."

"Not only will this help ease turmoil in the markets, but bondholders can now think in terms of winning rather than the more mundane investing because the ECB and IMF will backstop all losses from trading bonds."[/quote]
[i]My Comment:[/i] Nice try at a clever rewording of bondholders-are-not-investors and describing them in "much maligned" pariah terms which attempt to eliminate any thought of anyone trying to stick them with the losses suffered from their own (non)investments. Mish is so impressed at Trichet`s "commitment to bondholders" that he hilariously spoofs him as going on to add (paraphrasing of Goldman Sachs CEO Lloyd Blankfein`s non-famous non-spoof comment about the holiness of investment banking):
[quote]"The debt crisis is over. We are willing to grant Greece and Ireland as much time as they need. If an extra-four-and-a-half years to repay emergency loans proves insufficient, we are willing to wait an extra-hundred-and-a-half years".

When asked if he meant 150 years or 100.5 years, Trichet replied, "I mean as long as it takes to make the ECB whole, forever if necessary. The important thing is for bondholders to never suffer losses. Heaven forbid we should ever unsettle bondholders by insinuating they may have to take some losses. Bondholders in general, not just Goldman Sachs bondholders, do God's work."[/quote]
[i]My Comment:[/i] He did forget to add "There are no American infidel crusader troops in the holy land between the rivers, Iraq. Never!"

"Tiny house movement thrives amid real estate bust"

[URL]http://news.yahoo.com/s/ap/us_tiny_houses[/URL]

[quote=Terence Chea]GRATON, Calif. – As Americans downsize in the aftermath of a colossal real estate bust, at least one tiny corner of the housing market appears to be thriving. To save money or simplify their lives, a small but growing number of Americans are buying or building homes that could fit inside many people's living rooms, according to entrepreneurs in the small house industry.

Some put these wheeled homes in their backyards to use as offices, studios or extra bedrooms. Others use them as mobile vacation homes they can park in the woods. But the most intrepid of the tiny house owners live in them full-time, paring down their possessions and often living off the grid.

"It's very un-American in the sense that living small means consuming less," said Jay Shafer, 46, co-founder of the Small House Society, sitting on the porch of his wooden cabin in California wine country. ...[/quote]Another manufacturer: Katrina Cottages ( [URL]http://katrinacottagehousing.org/[/URL] ) "A dignified alternative to the FEMA trailer."

[QUOTE=cheesehead;239276]"Tiny house movement thrives amid real estate bust"[/QUOTE]

Just in time for the holidays, also available in [url=http://sanfrancisco.cbslocal.com/2010/11/27/fairmont-hotel-unveils-two-story-gingerbread-house/]gingerbread[/url].

They had a piece on this on the local news a few days ago - frickin' incredible.

[QUOTE=ewmayer;239287]Just in time for the holidays, also available in [url=http://sanfrancisco.cbslocal.com/2010/11/27/fairmont-hotel-unveils-two-story-gingerbread-house/]gingerbread[/url].

They had a piece on this on the local news a few days ago - frickin' incredible.[/QUOTE]
Shameful waste of potential foodstuffs and money.

[QUOTE=ewmayer;238987][i]My Comment: [/i] I think Mr. K. may have intended "...is worse than a mistake; it`s a crime" in that last sentence.[/QUOTE]Mr. K. probably wrote what he intended : from a Wikipedia [URL=http://en.wikipedia.org/wiki/Louis_Antoine,_Duke_of_Enghien]article[/url][quote]Either Antoine Boulay de la Meurthe[2] (deputy from Meurthe in the Corps législatif) or Napoleon's chief of police, Joseph Fouché,[3] said about his execution "C'est pire qu'un crime, c'est une faute", a statement often rendered in English as "It was worse than a crime; it was a blunder." The statement is also sometimes attributed to French diplomat Charles Maurice de Talleyrand-Périgord. Sometimes the quote is given as, "It was worse than a crime; it was a mistake."[/quote]Jacob

[QUOTE=S485122;239392]Mr. K. probably wrote what he intended : from a Wikipedia [URL=http://en.wikipedia.org/wiki/Louis_Antoine,_Duke_of_Enghien]article[/url]Jacob[/QUOTE]

Ah ... so the saying is meant ironically in the "the only offense worse than a crime is a blunder" sense - thanks for the reference.

In other news - this broke yesterday - Wikileaks founder Julian Assange tells [i]Forbes[/i] that he has some "interesting" material on one of the [url=http://blogs.forbes.com/andygreenberg/2010/11/29/an-interview-with-wikileaks-julian-assange/]biggest U.S. banks[/url], with popular sentiment pointing toward Bank of America.

I find it interesting that it took the U.S. Department of Justice over 2 years since the start of the subprime-mortgage implosion and ensuing events to begin looking into [url=http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8169469/US-Justice-Department-conducting-very-serious-investigation-into-insider-trading-on-Wall-Street.html]Wall Street[/url] (and notice that the probe announced yesterday is into insider trading, which is surely big business, but dwarfed by the mortgage/securitization/ratings fraud which helped blow the housing bubble), but it took them all of one *day* to start a criminal investigation into the [url=http://www.reuters.com/article/idUSTRE6AS3WJ20101129?feedType=RSS&feedName=topNews&rpc=22&sp=true]diplomatic-cables leaks[/url]. Bit of a double standard there, boys?

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

[b]Failed Economists Try Modeling Careers:[/b]

[i][I apologize in advance for the level of sardonicism in my comments below, but reading articles which portray economics even remotely as any sort of "rigorous quantitative science" bring out the derisive, hooting, :poop:-throwing primate in me][/i]

[url=http://online.wsj.com/article/SB10001424052702303891804575576523458637864.html]Economists' Grail: A Post-Crash Model [/url]
[quote]Physicist Doyne Farmer thinks we should analyze the economy the way we do epidemics and traffic.

Psychoanalyst David Tuckett believes the key to markets' gyrations can be found in the works of Sigmund Freud.

Economist Roman Frydman thinks we can never forecast the economy with any accuracy.[/quote]
[i]My Comment:[/i] Is it just me, or do the two sillier-sounding suggestions of the three (well, one silly, the other amounting to an admission of "my profession is useless") correlate with the two fields having the most dubious claims to the title of "sciences"?
[quote]Disparate as their ideas may seem, all three are grappling with a riddle that they hope will catalyze a revolution in economics: How can we understand a world that has proven far more complex than the most advanced economic models assumed?[/quote]
Complex? Depends on your definition. Any untrained layperson could have looked at a chart of Case-Shiller historical home price trends starting around 2004 and told you something looked out of whack. Yet most "exsert economists" including Messrs Greenspan and Bernanke (who were in no small paret responsible for the hockey-stick-shaped distortion in that data series) resolutely deny that "bubbles can be spotted in real time". Comlecity, or willful blindness on the part of the modelers. Of course most anything one`s pet model excludes by fiat is going to appear troublesome and "complex".

[feces-flinging primatological commentary continued from above]

[quote]The question is far from academic. For decades, most economists, including the world's most powerful central bankers, have supposed that people are rational enough, and the working of markets smooth enough, that the whole economy can be reduced to a handful of equations. They assemble the equations into mathematical models that attempt to mimic the behavior of the economy. From Washington to Frankfurt to Tokyo, the models inform crucial decisions about everything from the right level of interest rates to how to regulate banks.

In the wake of a financial crisis and punishing recession that the models failed to capture, a growing number of economists are beginning to question the intellectual foundations on which the models are built. Researchers, some of whom spent years on the academic margins, are offering up a barrage of ideas that they hope could form the building blocks of a new paradigm.[/quote]
Aw crap, you just had to pull out the oh-so-overused "new paradigm" trope. News flash: 100-[a tiny fraction of 1]% of the time, when a bunch of folks in a particular pursuit say "we need a new paradigm", what they really mean is "we are grossly incompetent and should all be fired and forced to get day-laborer jobs".
[quote]"We're in the 'let a thousand flowers bloom' stage," says Robert Johnson, president of the Institute for New Economic Thinking, launched last year with $50 million from financier George Soros, a big donor to liberal causes who has long been a vocal critic of mainstream economics. The institute so far has approved funding for more than 27 projects, including efforts by Messrs. Farmer and Tuckett aimed at developing new ways to model the economy.[/quote]
Is that the same as the "abuse a thousand metaphors in the pursuit of self-aggrandizement" stage?
[quote]Some of academia's most authoritative figures say the new ideas are out of the mainstream for a good reason: They're still very far from producing a model that demonstrably improves on the status quo.[/quote]
In my decidedly out-of-the-mainstream opinion, monkeys throwing darts at a corkboard of randomized economic predictions improves on the status quo.
[quote]"I guess I'll wait until I see these models and what they can and cannot do," says Robert Lucas, an economist at the University of Chicago who won the Nobel Prize for his work on "rational expectations," the concept at the very heart of modern orthodoxy.[/quote]
I rationally expected you would say just such a thing, professor.
[quote]New York University's Mark Gertler, who with now-Federal Reserve Chairman Ben Bernanke did ground-breaking work in the 1980s on how financial troubles can trip up the economy, says economists already have many of the tools they need to fix the current models.[/quote]
Let me guess: Turn the dartboard upside down? Blindfold the monkeys and spin them around a few times before letting them throw? By the way, Chairman Bernanke has done more recent work on "how financial troubles can trip up the economy" ... problem is, he`s switched from pure theory to "applied research".
[quote]"It strikes me as not productive to say that all we have done is a complete waste," he says.[/quote]
It may not be "productive", but that does not make it "false".
[quote]"The profession is extremely competitive. If you have a better idea, it's going to win out."[/quote]
"Competitive" in what sense? "Handful of equations voted 'most likely to succeed' by one`s like-minded ivory-tower cronies?"
[quote]Today's models emerged from a revolution of their own. In the 1970s, economists were struggling to figure out how policy moves, such as raising taxes or cutting interest rates, could change how people behave. They were also eager to subject their own reasoning to the unforgiving judge of mathematical logic.[/quote]
Translation: What economists refer to as the "Unforgiving judge of mathematical logic" is more commonly known as "the equals sign".
[quote]So they populated their models with rational people who can calculate the value of various possible moves and choose the optimal path. A person deciding whether to buy a car, for example, would take into account the potential return on investing the money, the probability that car prices will rise, and the chances that an increase in tax rates will cut into her disposable income.[/quote]
Perhaps if you stopped trying to be oh-so-politically-correct and added a 'him' to your models, you`d see the problem - No matter how rational the 'hers' of the world may be in isolation, once you include the 'hims' in the mix, you get a bunch of 'uses', followed by little 'thems', marital bliss, martial strife, messy divorces, 'exes', alimony, lawyers, 'her' irrationally selling 'his' Jaguar on Craiglist for a 'song' just to spite 'him', 'him' shacking up with a different 'her' who is a realtor and getting into the 'flip this house' line of trade, then having that go bust, getting hooked on crystal meth and sinking into a downward spiral of drugs and crime ... in short, all the messy things that make for a *real* economy.
[quote]By translating peoples` preferences into equations, and finding the point at which they meet those of firms and other players, the models forecast an exact trajectory for the economy. That feature makes them very attractive to economists, who can plug in a change in interest rates and see precisely how the move might affect an entire country`s output for the next few years.[/quote]
Ah, so it`s an exact science - known equations, precise inputs, combine to get precise outputs. Just like weather forecasting!
[quote]The problem, says Mr. Farmer, is that the models bear too little relation to reality. People aren`t quite as rational as models assume, he says. Advocates of traditional economics acknowledge that not all decisions are driven by pure reason.[/quote]
I "Kant imagine" why that would be...
[quote]Mr. Farmer sees a perhaps greater flaw in the models` mathematical structure. A typical "dynamic stochastic general equilibrium" model—so called for its efforts to incorporate time and random change—consists of anywhere from a few to dozens of interlinked equations, which must agree before the model can spit out a solution. If the equations get too complex, or if there are too many elements, the models have a hard time finding the point at which all the players` preferences meet.[/quote]
Well, I can tell you up front that my preference is for a "free lunch". Problem solved. See, you didn`t even an existence proof for that one.
[quote]To keep things simple, economists leave out large chunks of reality. Before the crisis, most models didn`t have banks, defaults or capital markets, a fact that proved problematic when the financial crisis hit. They tend to include only households, firms, central banks and the government.[/quote]
Well, OK, for folks who insist on making things more complicated than they need to be in order to justify the creation and maintenance of entire academic departments of endowed-chair econo-blowhards, we have some useful simplifications now, since in the post-crisis model there is just the central-bank/governmental "central scrutinizer", which is the political arm of the firms. What were formerly called "households" are now simplified to "pool of forced labor".
[quote]The field of economics has already borrowed from psychology to help explain the sometimes irrational behavior of people and markets. Psychologist Daniel Kahneman shared a Nobel Prize in 2002 for his work identifying the ways in which humans systematically overestimate or underestimate risk.

Mr. Tuckett goes one leap further. Extensive interviews with money managers have led him to posit that because certain financial instruments are so volatile and hard to value, they trigger humans` tendency to fantasize. Borrowing language from Sigmund Freud, he calls such financial assets "phantastic objects," which people see alternately as capable of fulfilling their dreams of wealth and power or utterly worthless and repulsive.[/quote]
Yeah, like "homes", you mean? I admit mine was looking a bit repulsive last weekend, until I did a thorough cleaning, took out the garbage and did the laundry.

Snarkiness aside - again I apologize, I needed to get my recommended daily allowance of that just now - there is some genuinely interesting stuff in the article. My overall take is this: Any economic model which fails to allow for irrational expectations and decidedly nonequilibrium economic states (just as there are many physical phenomena which cannot be described by classical equilibrium thermodynamics), is doomed to fail.

I find it especially hilarious that central-bank economists continue to deny the pervasiveness of irrationality and disequilibrium. After all, blowing nonequilibrium bubbles and encouraging irrational expectations is something central banks - especially the U.S. Fed - are expert at. Yet their very own models refuse to admit of that which they themselves create. The lunatics truly are running the asyla.

I just came across #131 of Frank Jacobs's blog Strange Maps (now at bigthink.com):

"131 - US States Renamed for Countries With Similar GDPs"

[URL]http://bigthink.com/ideas/21182[/URL]

It's slightly out-of-date (2007), but it might be interesting for envisioning various EU countries in financial trouble as the US states with similar GDP (or vice versa, for Europeans).

Iceland -> (not shown) somewhat more than Wyoming
Greece -> Connecticut
Ireland -> Nevada
Portugal -> Kentucky
Spain -> (not shown) between Texas(Canada) and New York(Brazil)
Italy -> (not shown) somewhat less than California(France)
UK -> (not shown) somewhat more than California

- - -

(apparently, this is one of the most-viewed strange Maps items)

But see this update:

"135 - Update On the GDP Map of the USA"

[url]http://bigthink.com/ideas/21186[/url]

Economic modeling: is a lot like trying to model the path of a ship in a hurricane with human ballast in the hold that insists on randomly moving from side to side of the ship whenever an especially strong gust of wind hits.

Come to think of it, I better patent this idea. It might just work!

DarJones

[QUOTE=ewmayer;239419][feces-flinging primatological commentary continued from above]



The question is far from academic. For decades, most economists, including the world's most powerful central bankers, have supposed that people are rational enough, and the working of markets smooth enough, that the whole economy can be reduced to a handful of equations. They assemble the equations into mathematical models that attempt to mimic the behavior of the economy. From Washington to Frankfurt to Tokyo, the models inform crucial decisions about everything from the right level of interest rates to how to regulate banks.

[/QUOTE]

One thing missing from virtually every model is what is known as catastrophe
theory. They fail to model the drastic results that follow from an outlier
event occurring. The penalty functions applied to outlier events
UNDERVALUE the cost and consequences of these outlier events. As a
result, overall risk is under-evaluated.

[QUOTE]
In the wake of a financial crisis and punishing recession that the models failed to capture, a growing number of economists are beginning to question the intellectual foundations on which the models are built.
Ah, so it`s an exact science - known equations, precise inputs, combine to get precise outputs. Just like weather forecasting!

Quote:
The problem, says Mr. Farmer, is that the models bear too little relation to reality. People aren`t quite as rational as models assume, he says. Advocates of traditional economics acknowledge that not all decisions are driven by pure reason.
[/QUOTE]

BINGO!!! We have a winner!!!!

Traditional economics also fails to acknowledge and model reality in another
way: insider trading. They do not model insider trading and fail to
acknowledge its consequences. Oh hell! They fail to acknowledge its
very prevalent [b]existence[/b].



[QUOTE]
To keep things simple, economists leave out large chunks of reality.

[/QUOTE]


DOUBLE BINGO!!!


[QUOTE]
Snarkiness aside - again I apologize, I needed to get my recommended daily allowance of that just now - there is some genuinely interesting stuff in the article. My overall take is this: Any economic model which fails to allow for irrational expectations and decidedly nonequilibrium economic states (just as there are many physical phenomena which cannot be described by classical equilibrium thermodynamics), is doomed to fail.

[/QUOTE]

AMEN.

A quick note on the Irish situation
 

The government here is utterly incompetent. As a wag here said, when they went to the EU to negotiate the bailout it was the boys from Offaly and Tallaght versus the heirs of Richelieu and Bismarck. The markets correctly think that this "bailout" does no favours to Ireland and it remains a high sovereign default risk.

Three very good pieces by Barry Eichengreen, Wolfgang Münchau and Kevin O'Rourke.

[url]http://www.irisheconomy.ie/index.php/2010/12/01/barry-eichengreen-on-the-irish-bailout/[/url]
[url]http://www.irishtimes.com/newspaper/opinion/2010/1202/1224284564382.html[/url]
and[URL="http://www.eurointelligence.com/index.php?id=581&tx_ttnews[tt_news]=2973&tx_ttnews[backPid]=901&cHash=484db55c3a"] here[/URL]

There are just so many indicators that you can watch to see how the economy is performing. Currently, it is moribund if not downright senescent. How so? Just look at the jobless rate figures out this morning. You can easily find better reading than this fodder.

[url]http://news.yahoo.com/s/nm/20101203/ts_nm/us_usa_economy[/url]

The misleading information is saying that the economy added 50,000 jobs but the overall unemployment rate rose to 9.8%. Factor in the 2 million with extended unemployment benefits that are expiring and a lackluster jobs market and you get a picture that is far less rosy than was hoped.

The true unemployment rate has to be considered as people who lost jobs, people who quit looking for jobs, newly graduated kids who want jobs, folks who are going to school because they can't find a job, and people who have short term or part time jobs. (you can add a few more categories if you choose) Until the true unemployment number drops by 2% or more, you DON'T HAVE A RECOVERY!

So when does it look like a real and measurable recovery will kick in? Nobody can predict this, but at present, it looks to be at least 2 years and maybe more than 10 years from now.

Here is another disturbing thought. There is a huge surge of baby boomers who own homes (or are paying mortgages) who will be retiring over the next roughly 20 years. As they retire, roughly half of them will sell their houses so they can live off the equity. Now my question is: Who will buy their houses? Consider that the current generation won't have enough money to buy the houses that will hit the market. What does this do to those rosy projections of increasing home value over the next 20 years?

DarJones

[QUOTE=Fusion_power;239830]Here is another disturbing thought. There is a huge surge of baby boomers who own homes (or are paying mortgages) who will be retiring over the next roughly 20 years. As they retire, roughly half of them will sell their houses so they can live off the equity. Now my question is: Who will buy their houses? Consider that the current generation won't have enough money to buy the houses that will hit the market. What does this do to those rosy projections of increasing home value over the next 20 years?[/QUOTE]You've left out the other side of the equation: [U]where those retirees go to live after selling their homes[/U]. For every retiree selling a home, there's one more person in the market for a retirement living space.

There's another important aspect of this aging of the Baby Boom:

I was just listening to a report about home-care vs. nursing homes which pointed out that in one state there was a waiting list of 3000 nursing home residents who were quite capable of living on their own -- with some home-care (far less expensive than nursing-home residence) -- but could find no affordable wheelchair-accessible housing.

There is a big potential demand -- and it's only going to get bigger in the next couple of decades -- for [U]handicapped-accessible housing[/U]. [I]That[/I] is where we'll see the next big housing boom, but most commentators are overlooking it.

Single-family non-handicapped-accessible housing may be a glut, but there's entrepreneurial opportunity there for upgrading such existing houses to handicapped-accessible. (Throw in a solar hot-water system, while you're at it!) But we don't hear that in the doom-and-gloom news, do we?

- - -

Three years ago I was recovering from surgery with a cast on one leg. My apartment is on the first floor, but getting to it from outside the building requires traversing at least five steps. If my apartment had been wheelchair-accessible, I could've left the recovery center/nursing home a month sooner than I did, saving Medicare and me a couple of thousand dollars each.

That certainly made me look at my future situation harder. I can't necessarily count on being fully mobile for the rest of my life. My present apartment could still be suitable [I]if[/I] it were handicapped-accessible, but it isn't (not only because of the entry steps).

And there are tens of millions of other Boomers like me. Many of us are going to wind up somewhat handicapped, one way or another, for several of our remaining years.

You want housing demand? You want to reduce medical-care expense? The way is here, for those thinking slightly out of the conventional box. Entrepreneurs should look at getting [strike]ahead of[/strike] in tune with this wave.

[QUOTE=cheesehead;239926]I was just listening to a report about home-care vs. nursing homes which pointed out that in one state there was a waiting list of 3000 nursing home residents who were quite capable of living on their own -- with some home-care (far less expensive than nursing-home residence) -- but could find no affordable wheelchair-accessible housing.

There is a big potential demand -- and it's only going to get bigger in the next couple of decades -- for [U]handicapped-accessible housing[/U]. [I]That[/I] is where we'll see the next big housing boom, but most commentators are overlooking it.[/QUOTE]

Sorry, but the cost of basic modifications to most homes (entryway ramp, accessible bathrooms) is not that great ... and as you say, it's far less expensive than nursing/senior-home option, so the net effect is in fact likely to be deflationary. In a broader vein, I am skeptical of the frequent "economic boom in healthcare for aging boomers" arguments ... the basic question none of the healthcare-as-economic-stimulus advocates has addressed to my satisfaction is, where is the net economic value-add from eldercare? (Note this is not an argument that money should not be spent on such things, just whether there is a net economic gain to be had here or not).

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

So our feckless "leaders" in Washington are wrangling over a "budget compromise". The key issues are that the hypocritical deficit-chickenhawk Republicans are insisting that the budget-busting Bush tax cuts be extended for everyone, while Dems and Obama have drawn their "line in the sand" at single folks earning < $200k and married coupled < $250k. Note that the tax cuts currently cost ~$350 bln per year, with the folks above those "wealthy" income levels accounting for about one-fifth of that. The Reps claim that tax cuts for the rich are economically stimulative, which is patently false (Former labor Sec. Robert Reich has written extensively on [url=http://robertreich.org/]his blog[/url] about this fallacy). The Reps. also claim that "lots of small business owners earn more than a quarter-million a year and yet are not wealthy" ... come again? Why does owning a small biz make a given income level "worth less" than for non-business owners? Also, the Reps. conveniently act as though letting the tax cuts expire for the higher earners would somehow be nonprogressive, when in fact the mythical "not wealthy" small biz owner making more that a quarter-million would only see the higher rate on the income *exceeding* the minimum threshold.

The dems` pet issue is a one-year extension of long-term unemployment benefits, which is estimated to cost ~$60 bln/year, about the same as extending the tax cuts on the wealthy. They and Obama also want some kind of yet-another-stimulus package. all this is happening against the backdrop of the recently-released recommendations of the bipartisan Deficit Commission, which were [url=http://www.msnbc.msn.com/id/40489484/ns/politics-capitol_hill/]voted down last week[/url] but the story spun as a positive "because there was bipartisan support" for the recommendations. (If there was not *enough* support for the measure, does it really matter what the breakdown of votes on the losing side was? Some of the folks who voted 'yes' may have simply engaged in a common form of political two-facedness, voting for the measure only after they were sure it was going to fail).

Anyway, so the most-likely "compromise" appears to be one in which both sides get what they want, the Dems will get their unemployment extension while they hide behind the fig leaf that extension of the tax cuts for all is "merely temporary until the nascent/fragile/elusive economic recovery takes hold and no longer needs the government to prop it up", The Reps get their continuation of tax breaks for the wealthy, and there`ll probably be some kind of "compromise" stimulus package as well (where the "compromise" will again be that everyone gets pork-barrel spending for their home district), and budget hole ends up yawning even wider. Lovely, just lovely. (Mish has a similar take, with links [url=http://globaleconomicanalysis.blogspot.com/2010/12/meaning-of-compromise.html]here[/url] ... In a rare "this is good" piece he also comments on and approves of the Obama administration`s revival of long-stalled trade-agreement talks with South Korea, which culminated in a [url=http://globaleconomicanalysis.blogspot.com/2010/12/obama-signs-trade-agreement-with-south.html]signed pact[/url] last week).


[url=http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8182605/Chinas-credit-bubble-on-borrowed-time-as-inflation-bites.html]
Royal Bank of Scotland Says China`s Credit Bubble on Borrowed Time, Warns of Sovereign Default by China[/url]
[quote]"Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning," said Tim Ash, the bank’s emerging markets chief.

Officially, inflation was 4.4pc in October, and may reach 5pc in November, but it is to hard find anybody in China who believes it is that low. Vegetables have risen 20pc in a month.

Diana Choyleva from Lombard Street Research said the money supply rose at a 40pc rate in 2009 and the first half of 2010 as Beijing stoked an epic credit boom to keep uber-growth alive, but the costs of this policy now outweigh the benefits.

The economy is entering the ugly quadrant of cycle – stagflation – where credit-pumping leaks into speculation and price spirals, even as growth slows. ... The froth is going into property. Prices are 22 times disposable income in Beijing, and 18 times in Shenzen, compared to eight in Tokyo. The US bubble peaked at 6.4 and has since dropped 4.7. The price-to-rent ratio in China’s eastern cities has risen by over 200pc since 2004

As it happens, Fitch Ratings has just done a study with Oxford Economics on what would happen if China does indeed slow to under 5pc next year, tantamount to a recession for China. The risk is clearly there. [b]Fitch said private credit has grown to 148pc of GDP, compared to a median of 41pc for emerging markets. It said the true scale of loans to local governments and state entities has been disguised.[/b]

The result of such a hard landing would be a 20pc fall in global commodity prices, a 100 basis point widening of spreads on emerging market debt, a 25pc fall in Asian bourses, a fall in the growth in emerging Asia by 2.6 percentage points, with a risk that toxic politics could make matters much worse.
[b]
If there is a hard-landing in 2011, China’s reserves of $2.6 trillion – or over $3 trillion if counted fully – will not help much. Professor Michael Pettis from Beijing University says the money cannot be used internally in the economy.

While this fund does offer China external protection, Mr Pettis notes wryly that the only other times in the last century when one country accumulated reserves equal to 5pc to 6pc of global GDP was US in the 1920s, and Japan in the 1980s. We know how both episodes ended.[/b][/quote]
[i]My Comment:[/i] Speaking of global commodity prices ... I like to watch non-U.S. news networks for most of my international news these days, both because U.S. network news has always been slanted and because in the past several decades it`s become distressingly info-tainment-ized. (Anyone who use to watch [i]Nightline[/i] back in the day with Ted Koppel will surely recognize this phenomenon, if they can force themselves to watch even a few minuts of the present incarnation of the program). Most commonly the BBC. DW-TV (Deutsche Welle), and for a real rag-on-die-Amerikaner-fest, RT (Russia Today). Last Friday evening I was watching DW-TV and almost spewed tea out my nose from guffawing when the business-news commentator, with a straight face, asserted that the recent runup in commodity prices has been due to "the accelerating global economic recovery". Rampant money by the Fed and the ECB and the blowing of a colossal credit bubble in China of course have not the slightest thing to do with it, it's all "robust demand fundamentals".

And an interesting footnote to the above is that just-released Wikileaks cables reveal that not even (or better especially not) Chinese top officials [url=http://www.zerohedge.com/article/wikileaks-reveals-chinese-top-officials-say-not-trust-countrys-economic-data]believe the official economic data there[/url].

Washington-style "consensus", part 2
 

Matt Taibbi`s latest blog post starts with an amusing "ya got the wrong dude, dude" moment apparently suffered by conservative commentator David Gergen in a recent roundtable, which then morphs into a [url=http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/239443/83512]very nice discussion[/url] of social security, the Bush tax cuts, and the nature of Washington "consensus" politics:
[quote][i][NYT reporter Matt][/i] Bai is talking here about some very clear and obvious choices Obama is about to make. There`s the question of whether or not to extend the insane Bush tax cuts, and paired up with this is the recent return of that unkillable Beltway cliche, the notion that Social Security is going broke and that the solution to the nation`s deficit reduction problems lies there.

Let`s be clear about what`s going on here. Social Security was never the cause of the nation`s debt problems. This issue dates all the way back to the Eighties, when Ronald Reagan hired Alan Greenspan to chair the National Commission on Social Security Reform, ostensibly to deal with a looming shortfall in the fund. Greenspan`s solution was to hike Social Security tax rates (they went from 9.35% in 1981 to 15.3% in 1990) and build up a "surplus" that could be used to pay Baby Boomers their social security checks 30 years down the road.

[b]They raised the SS taxes all right, but they didn`t save the money for any old Baby Boomers in the 2000s. Instead, Reagan blew that money paying for eight years of deficit spending and tax cuts. Three presidents after him used the same trick. They used about $1.69 trillion in extra Social Security revenue (from the Greenspan hikes) to pay for current-day goodies, with the still-being-debated Bush tax cuts being a great example. This led to the infamous moment during Bush`s presidency when Paul O`Neill announced that the Social Security Trust Fund had no assets.

Well, duh! That is what happens to a fund, when you spend 30 years robbing it to pay for tax cuts for [i][JP Morgan CEO][/i]Jamie Dimon and [i][Goldman Sachs CEO][/i]Lloyd Blankfein. It will tend to get empty. But of course this wasn`t presented to the public as being the consequence of too many handouts to wealthy campaign contributors: this was presented as a problem of those needy goddamned old people wanting to retire too early and being just far too greedy when it came to actually wanting their Social Security benefits paid out.
[/b]
And so in all seriousness none other than Alan Greenspan proposed back in 2004 that the "social security problem" be rectified by means of reforms that should sound familiar to those reading the news of late: raising the retirement age and cutting benefits.
I wrote about this in purl=http://www.rollingstone.com/politics/news/17390/222206][i]Griftopia[/i][/url], but there`s one more key fact here. Social Security taxes are capped, which means that above a certain level (I believe it`s $106,000 this year) there are no additional taxes. Which means that Jamie Dimon pays a disproportionately small amount of Social Security tax -- an arrangement that makes sense, if that money is only going to one place, i.e. back, later on, to the person who paid the taxes, in the form of Social Security benefits.
[b]
But if all that money is just going into a big pile to be stolen by a long line of presidents who are using it to pay for things like pointless wars and income tax cuts for their rich buddies, the Social Security cap means that this stealth government revenue source disproportionately comes from middle class taxpayers. Add in the fact that the proposed solution to the budget problem now is cutting Social Security benefits, and what you get is a double-screwing of middle-class taxpayers: first they see their Social Security taxes used to fund tax cuts for the wealthy, and then they see cuts to their benefits to pay for the fallout from that robbery.[/b]

Of course, that`s not how Bai is presenting it. In his telling of the story, Obama is going to be presented with sober, correct analysis (the Bush tax cuts must be preserved, while Social Security bennies must be cut), and whether or not he forges ahead and defies his hysterical and irrational base to make those cuts will reveal the extent of his character. ... in other words, those of us who think robbing Social Security a second time to pay for the continuation of the obscene Bush tax cuts -- well, that`s "demanding fealty to the one" and "brooking no dissent" and lacking "thoughtfulness and openness to new ideas."
On the other hand, approving those Social Security cuts and green-lighting the continuation of those insane tax breaks -- tax breaks that were extremely radical even by Republican standards when Bush originally passed them amid two preposterously expensive war efforts -- well, that`s being "pragmatic" and seeing "all dogma " as "anachronistic."

Here`s what this all comes down to, dogma or no dogma: who is going to pay for a) the Bush tax cuts b) the bank bailouts and c) the Iraq and Afghanistan wars? If you want to get there by making janitors and pipe-fitters wait until they`re 69 to retire, raise your hand. If you want to get there by making Jamie Dimon rent out his 900-foot rooftop terrace in Chicago two nights a year, raise your hand.

The really infuriating thing? Bai has it backwards. The real consensus, i.e. the consensus of actual human beings, outside Washington, overwhelmingly backs the idea of not f***ing with Social Security benefits and ending the Bush tax cuts for people making more than $250,000. In fact, only 26% of Americans support extending the cuts for everybody.

So when Bai talks about "bipartisanship" and suggests that extending the Bush cuts is a move to the center, what he`s talking about is the Washington consensus.[/quote]
[i]My Comment:[/i] Note that the U.S. government plays similar "borrow from itself" games with the other "trust funds" like Medicare as well ... the total borrowings-against-these accounts, the misleadingly-named "intragovernmental holdings" (a better name would be "internal borrowings") is nearly $5 trillion at present. And since this whole scam was started, there has not been a single year - not even the legendary "Clinton surplus" years - in which the public debt (or surplus) minus the new internal borrowings has been positive. In other words, there has never been an instance in the past 30 years in which the total U.S. government debt shrank.

Apologies for the triple-witching thread-spammery, but the "budgetary compromises" being floated in DC get ever more ludicrous. Quick summary: Wrangling in congress: Democrats want to "help balance the budget" with higher taxes (i.e. by allowing the Bush tax cuts to expire) on the wealthy, and of course want to spend more on unemploymentextensionsmallbusinessinfrastuctureinvestinamericasfutureandsavethesepuppiesfromcertaindeath benefinvestmentimulus goodies which would of course more than negate any extra revenue from the partial tax-cut expiration. Republicans want to "help balance the budget" by nixing another unemployment-benefits extension for those whose 99-weeks-on-the-dole has run out, and continue the tax-cuts-for-the-rich, which would of course more than negate any extra revenue from the non-extension of unemployment benefits. So the 2 sides "compromise" by combining their spend-more proposals and throwing out their respective reduce-debt proposals.

Not to be outdone in its willingness to "compromise on deficit reduction" by keeping the "deficit" part and ditching the "reduction", the White House just proposed cutting social security payroll taxes for the coming year, since after all, giving every worker money to buy another plasma TV next year will be sufficiently stimulative of the Asian economy that it will help restore the solvency of the Social Security trust fund, or something:

[url=http://online.wsj.com/article/SB10001424052748704156304576003441518282986.html?mod=WSJ_hp_LEADNewsCollection]White House Proposes Payroll-Tax Holiday[/url]: [i]WASHINGTON—Aides to President Barack Obama are proposing a one-year reduction in the payroll tax as part of negotiations with Congress on a broader package to stave off income-tax increases due to take effect next year.[/i]

And anyway, since they're gonna raise the SS retirement age to as high as is needed to make up for 30 years of government robbing the trust fund anyway, they can just tack on an extra year later (hint: "sometime during a future administration") to make up the shortfall caused by their "generosity" today.

Maybe another soon-to-be-announced compromise will be the economically stimulative "start a third war" ... but with North Korea or Iran? Oh hell, let's just compromise and do both.

[QUOTE=ewmayer;240403]Apologies for the triple-witching thread-spammery, but the "budgetary compromises" being floated in DC get ever more ludicrous. Quick summary: Wrangling in congress: Democrats want to "help balance the budget" with higher taxes (i.e. by allowing the Bush tax cuts to expire) on the wealthy,
[/QUOTE]

I'd like to see the tax cuts repealed period. I'm willing to pay more in taxes.
TANSTAAFL.


[QUOTE]and of course want to spend more on unemploymentextensionsmallbusinessinfrastuctureinvestinamericasfutureandsavethesepuppiesfromcertaindeath benefinvestmentimulus goodies
[/QUOTE]

At the same time we should get rid of these 'goodies'. I think 99 weeks
of unemployment insurance is ridiculous. 52 weeks maximum should be plenty.

At the same time, congress should be passing legislation that encourages
hiring. e.g. strong tax breaks to companies that hire. (heavy) tax penalties
for moving jobs offshore. And create an AMT for corporations.

And let's get the f*ck out of Afghanistan. NOW. How much are we spending
there?

And let's bring back the 1950's vis-a-vis marginal tax rates.

[QUOTE=R.D. Silverman;240501]I'd like to see the tax cuts repealed period. I'm willing to pay more in taxes.
TANSTAAFL.




At the same time we should get rid of these 'goodies'. I think 99 weeks
of unemployment insurance is ridiculous. 52 weeks maximum should be plenty.

At the same time, congress should be passing legislation that encourages
hiring. e.g. strong tax breaks to companies that hire. (heavy) tax penalties
for moving jobs offshore. And create an AMT for corporations.

And let's get the f*ck out of Afghanistan. NOW. How much are we spending
there?

And let's bring back the 1950's vis-a-vis marginal tax rates.[/QUOTE]


The best thing of all would be to do what Massachusetts does. No
deficit spending at all. Our state constitution prohibits it.

Of course we need to allow for an extreme emergency like a real war.
Congress could override the 'no deficit' rule by say a 95% vote.

$2 Trillion deficit on tap for 2011
 

The NYT reports the estimated [url=http://www.nytimes.com/2010/12/07/us/politics/07cong.htm]cost of the emerging budgetary "compromise"[/url] as a whopping $900 billion over the next 2 years, ON TOP of the current deficits. The CBO/Treasury folks "estimate" the latter at slightly less than $1.5 trillion per year but based on the actual 12-month issuance rate of debt it looks to be around $1.6 trillion. Add $450 billion in new borrowings and, congratulations, Washington, a scant 3 years after running your first trillion-dollar deficit, you are on schedule to have your first $2 trillion one. They must think Moore's Law applies to U.S. sovereign-debt issuance there in D.C. Sheer, unmitigated, reckless, insanity. No one can be sure how this greatest Ponzi scheme of all time will end, but when - not if - it does, it`s gonna be ugly in a way that will make 2008 look a mild case of the financial sniffles. And it will mean both the end of the "American empire" in the global-superpower sense, and I suspect it will smash the myth (which exists mainly in the minds of Americans anymore) of American exceptionalism for good.

Former Clinton labor secretary Robert Reich calls the compromise [url=http://robertreich.org/post/2132901013]"An abomination"[/url]:
[quote]The deal the President struck with Republican leaders is an abomination.

It will cost $900 billion over the next two years — larger than the bailout of Wall Street, GM, and Chrysler put together, larger than the stimulus package, larger than anything that’s come out of Washington in years.

It makes a mockery of deficit reduction. Worse, the lion’s share of that $900 billion will go to the very rich. Families with incomes of over $1 million will reap an average of about $70,000, while middle-class families earning $50,000 a year will get an average of around $1,500. In addition, the deal just about eviscerates the estate tax — yanking the exemption up to $5 million per person and a maximum rate of 35 percent.

And for what? ...[/quote]
[i]My Comment:[/i] Since we refuse to embrace austerity, some time in the not too distant future, austerity will embrace us. And unless the Republicans are actually foolish enough to place an incompetent demagogue like Sarah Palin on the 2012 presidential ticket, Obama may have just doomed himself to being a one-term president.


And on a for-your-amusement note, NYT high priest of neo-Keynesianism Paul Krugman [url=http://krugman.blogs.nytimes.com/2010/12/06/inside-job/]blogs that he finally went to see the movie [i]Inside Job[/i][/url]:
[quote]...about the economist-bashing: I thought it was basically fair. There aren’t, I think, all that many cases when economists are literally paid to offer a specific opinion — although Greenspan’s defense of [i][1990s S&L crisis crook-poster-child Charles][/i]Keating qualifies. But the movie didn’t say there are. [b]What it suggested, instead, was a kind of soft corruption: you get paid a lot of money by the financial industry, you get put on boards, but only if you don’t rock the boat too much[/b].[/quote]
[i]My Comment:[/i] So did you rock the boat any back in the day when you got paid a lot of money by, and put on the board of Enron, Professor K.? Remember? Enron, whose "new economy business model" you lauded in new-paradigmish terms?

[p.s.: Krugman sees the budget deal as containing some good but overall "too little, too late". But of course this is a guy who apparently believes that the problem with the late housing bubble was that it just wasn't big enough to lead to a truly self-sustaining recovery from the post-dotcom-and-9/11 recession. But he has a "Nobel" prize and we don't, so he must be right.]

The Lighter Side of Political "Compromise"
 

Was going to post this over in the Warlogs thread since it ends with a quip about (and my comment turns on that) Assange, but the "compromise" humor seems more-apt here, following the stories of the past 2 das. BTW, the latest developments are that Assange [url=http://www.telegraph.co.uk/news/worldnews/wikileaks/8186786/WikiLeaks-founder-Julian-Assange-is-refused-bail.html]has turned himself into the authorities[/url] in the UK for questioning and was refused bail, but said he will fight any attempt to extradite him to Sweden.

[url=http://www.huffingtonpost.com/andy-borowitz/in-latest-compromise-with_b_793232.html]In Latest Compromise With GOP, Obama Agrees He Is a Muslim[/url]
[quote]WASHINGTON (The Borowitz Report) -- In his latest effort to find common ground with Republicans in Congress, President Barack Obama said today that he was willing to agree that he is a Muslim.

Differences over his religious orientation have been a sore point between the president and his Republican foes for the past two years, but in agreeing that he is a Muslim, Mr. Obama is sending a clear signal that he is trying to find consensus.

"The American people do not want to see us fighting in Washington," Mr. Obama told reporters at the White House. "They want to see us working together to improve their lives, and Allah willing, we will."

But Mr. Obama's willingness to back down on his claim of being a Christian does not seem to have satisfied his Republican opposition, as GOP leader John Boehner (R-Ohio) today insisted that the President must also agree that he was born in Kenya.

While Mr. Obama did not immediately agree to Rep. Bohener's demand, he hinted that yet another compromise might be in the offing: "My place of birth has been, and will always be, negotiable."

White House sources indicated today that the president might be willing to meet the GOP halfway on his birthplace and say that he was born in the middle of the Atlantic Ocean.

Elsewhere, moments after his capture in London, WikiLeaks founder Julian Assange said, "I knew I shouldn't have signed up for [url=http://en.wikipedia.org/wiki/Foursquare_(social_networking)]Foursquare[/url]."[/quote]
[i]My Comment:[/i] The best part about the Swedish sex-crime allegations against Assange is that one of the two women making the accusation was apparently so outraged at Mr. Assange`s previous-night refusal to stop having sex when the condom he was using allegedly broke that in a fit of extreme pique she left the flat where the tryst had occurred, marched right over to the nearest shop selling foodstuffs, and bought oatmeal, which she then cooked for herself and Assange. I guess this truly was a case of "Stockholm syndrome". (I kid you not - for a pieced-together timeline of the whole affair culled from stories in the Sewdish [i]Aftonbladet[/i] tabloid, see [url=http://rixstep.com/1/20100914,00.shtml]here[/url].)

[QUOTE=R.D. Silverman;240502]The best thing of all would be to do what Massachusetts does. No
deficit spending at all. Our state constitution prohibits it.
[/QUOTE]

[URL="http://en.wikipedia.org/wiki/Balanced_budget_amendment"]http://en.wikipedia.org/wiki/Balanced_budget_amendment[/URL]

From the above it looks like there has been attempts to make your statement an amendment to the US Constitution.

[QUOTE]On May 4, 1936, Representative Harold Knutson (R-Minnesota) introduced a resolution in support of a Constitutional Amendment that would have placed a per capita ceiling on the federal debt in peacetime[/QUOTE]

Matthew, there have been numerous attempst (which died at various stages of the process - the one you cite probably got farther along than the rest) to write some kind of balanced-budget clause into the Constitution.

Even if the Knutson amendment had become law, I wonder if it would have any effect now, since America is in a perpetual state of war.

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

So the bond markets appear to be reacting very negatively to the latest budgetary idiocy out of Washington ... the [url=http://finance.yahoo.com/q/bc?s=TYZ10.CBT]10-year bond[/url] - which is the one most closely tied to mortgage rates - has plunged more than 2% in the past 24 hours, which is simply a massive move.

In an interesting (and little-reported by the MSM) aspect of the budget "compromise" is that the Republicans got every budget-busting thing they wanted - mainly extension of tax breaks for the rich, and the Dems similarly got several hundred billions in new pork (and pork extensions), with one key exception: The [url=http://www.zerohedge.com/article/they-did-what]Build America Bonds[/url] program, essentially a subsidy for Municipal bond issuance and perhaps the only thing which has kept multiple states` budget woes from reaching the all-out crisis stage, was nixed by Republicans. Muni bond markets, which were already quite jittery in the past several months, have (in sync with Treasuries) reacted [url=http://finance.yahoo.com/q/bc?s=MUB]badly[/url].

In another [url=http://globaleconomicanalysis.blogspot.com/2010/12/lies-half-truths-and-100-hubris-on-60.html]self-serving interview last Sunday[/url] on [i]60 Minutes[/i], Bernanke said that (a) The Fed is not printing money, and (b) That he is "100% confident" that all non-money which the Fed is printing will not lead to inflation in commodity prices. Both are flat-out, bald-faced lies: By the Fed's [b]own definition[/b] of "money supply" (technically known as M2) they have printed trillions, and the price of key industrial commodities has been rising steadily for the past 18 months. Oil just shot past $90 per barrel yesterday for the first time since the short-lived speculative oil bubble of summer 2008. In my area I recall gasoline briefly touched $4.50/gallon that summer, collapsed to under $2 by December. I've been keeping tabs on the price at the same local Valero station I pass every weekday on my way to work, and it's been rising steadily, up 7 cents in the past week to $3.22. I don't recall it ever having been this high at this time of year. So, Zimbabwe Ben, you are 100% sure that $4 gasoline and a climate of dismal job creation coupled with now-rising mortgage rates are the cure for what ails us?

To give you a sense of just how wildly disingenuous Bernanke has been with respect to the Fed`s money-printing and its (alleged) effect on mortgage rates: Since hitting an all-time low

And recall that Bernanke at the time said, in yet another self-serving (or perhaps 'blatantly propagandistic' is more apt) Op-Ed in [url=http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html]The Washington Post[/url]:
[quote]This approach [buying huge amounts of mortgage-backed securities and setting interest rates on Fed lending to banks near zero] eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. [b]Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.[/b] Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion. [/quote]
All the Fed-economists` pet delusions on front and center display here: Stock market valuation is a barometer of economic health, lower mortgage rates will make housing "more affordable" (yeah, we saw how "affordable" housing became from 2002-2007), record-low-corporate bond rates will encourage business expansion and hiring, fake paper "wealth" will fuel people to spend money they don't have which will somehow create "real wealth", yada, yada, yada. Uh, didn't we already try this starting back in 2002? That worked out great, didn't it?

Let's see: The Greenspan experiment in slashing interest rates led to the biggest consumer debt bubble in history, housing became much *less* affordable since the doubling in prices more than compensated for the low interest rates (and millions of folks who could not have afforded houses at the old lower prices even with low rates were lured into the speculative frenzy), rather than creating a "virtuous circle", the same insane policies created a vicious cycle and only hastened the ongoing evisceration of the middle-class wage base, and even with record-low corporate debt issuance rates for most of the past several years, companies are very pointedly *not* investing the cheaply-borrowed funds to create jobs, because the real issue is lack of demand from tapped-out consumers who can no longer be induced to go further into debt at *any* interest rate. And the "positive reaction" to the QE2 announcement in the mortgage-bond markets has proved to be very short-lived. In other words, epic failure on all fronts.

Jon Stewart of [i]The Daily Show[/i] - funny how the "fake news" shows seem to be the best at actually providing critical commentary on the news these days - has a nice [url=http://www.thedailyshow.com/watch/tue-december-7-2010/the-big-bank-theory]piece on Bernanke's lies here[/url], titled "The Big Bank Theory".

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

And I see that it's time for the next 100-day update to my unofficial "subprime mortgage meltdown fraud" calendar:
[b]
Today is Day 1400 since the start of the global financial crisis, and there have been 2 related criminal convictions.[/b]

All that glitters is not gold. some is fools gold.
 

In a major concession that the Euro is in deep doodoo, this article showed up on BBC today. [url]http://www.bbc.co.uk/news/business-11953413[/url]

[QUOTE]He (Gordon Brown) said that Europe's banks - including the UK's - faced massive liabilities and had inadequate capital to absorb losses, creating the risk of a Europe-wide banking crisis.

The warning echoed complaints by Irish opposition politicians that their country had been strong-armed by Brussels into footing the bill for rescuing the Irish banks, because failing to do so could have sparked a wider European banking crisis.

Mr Brown also said that the structural reforms needed to make the euro work as a single currency area had not been carried out, or even agreed.

He said that European politicians had to "seize the initiative from the markets" by preparing a comprehensive solution to its financial and economic problems, or else face countries being picked off one-by-one.

Failure to solve the euro's problems would condemn Europe to "an unnecessary and avoidable period of low growth and high unemployment, and diminishing living standards" he said. [/QUOTE]

I make no claims of being an expert on monetary policy, but it seems to me that if you spend more than your income, at some point you MUST pay the price of profligacy. The recent blow-off with Ireland was nothing more than a sacrificial lamb thrown to the wolves so the rest of the sheep could continue to graze in innocent denial. While the U.S. problems are different than those facing the Euro, a concern has to be that a major collapse of the EEC would lead to a sympathetic collapse here in the U.S. QE Ben can't print money into a stagnant world economy and if he can't print money, then our debt problem suddenly becomes MUCH more significant.

DarJones

Addendum: Perhaps the only thing funnier (and sadder in its own way) than the above Daily Show video is that Paul Krugman is [url=http://krugman.blogs.nytimes.com/2010/12/08/bond-vigilantes-still-invisible/]now claiming on his blog[/url] that the recent rise in mortgage/bond interest rates is not due to the "bond vigilantes" punishing Washington' fiscal recklessness, but rather - wait for it - "increased confidence in the robustness of the economic recovery and the helpful effects of QE2 and the latest budget deal in helping that along."

Which is interesting, because none other than fellow money-printer Bernanke said quite the opposite of "increased confidence" and "robust recovery" in the speeches (e.g. the above WaPo op-ed) justifying QE2.

[QUOTE=ewmayer;240352]Sorry, but the cost of basic modifications to most homes (entryway ramp, accessible bathrooms[/QUOTE][which may require some wall-moving to provide that access], accessible kitchens [lower counters, clearances for wheelchair when appliance doors are open, replacing over-stove items with more-reachable versions], stairway seat-elevators in multi-level houses, ...[quote]) is not that great ... and as you say, it's far less expensive than nursing/senior-home option, so the net effect is in fact likely to be deflationary.[/quote]Yes, I suppose lowering the costs of health care in general could be deflationary.

Does that deflation argument apply to other cases, besides health care, where a capital (or other short-term) expense allows long-term operational cost reduction?

Lowering a company's labor costs by building a replacement factory in another country and replacing current domestic workers with lower-paid production workers? Lowering factory operating expenses by substituting robots for people?

Fixing heat leaks and inadequate insulation in houses? Installing better-insulating windows and doors? Installing solar water heating? Installing photoelectric panels? Getting ones car tuned up?

Are all of those deflationary?

Or are they just cases of some sectors (e.g., nursing homes, utilities, petroleum) having lower growth because of consumer investment in other sectors (e.g., construction and renovation, maintenance, manufacturing green-energy stuff)? Is any such shift deflationary if the current expenditures in the second sector is smaller than the future-discounted value of avoided operational expenses and investment in the first sector?

[quote]... the basic question none of the healthcare-as-economic-stimulus advocates has addressed to my satisfaction is, where is the net economic value-add from eldercare? (Note this is not an argument that money should not be spent on such things, just whether there is a net economic gain to be had here or not).[/quote]I wasn't intending to make a healthcare-as-economic-stimulus argument.

First, I was pointing out that Fusion_power left out the other side of the baby-boomers-selling-their-homes argument. Then I was pointing out that reducing healthcare costs could be related to a shift in the nature of part of the housing market that wasn't being discussed much -- an opportunity for private investment.

I suppose that niche market might be (or already is being) stimulated as a result of a certain demographic phenomenon, but can that really be twisted into a healthcare-as-economic-stimulus argument?

[b]Quote of the Day:[/b]

A ZeroHedge reader comments thusly on the MSM (a better acronym would be PGP, for "Parrots of Government Propaganda") headlines about the tax cut and spending "compromise" heading for a vote in Washington:
[quote]What a crock of shit puppet theater!
[i]
"tax deal could yield millions of jobs"
[/i]
Isn't this an [b]extension[/b] of Bush cuts? Where are the f^%##^ jobs now?[/quote]

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

In a rare piece of good news, Germany and France have both rebuffed a proposal by Euro Group head Jean-Claude Juncker to combine the sovereign debt from the entire Eurozone into a common "E-Bond" vehicle, which would in effect be the sovereign-debt equivalent of subprime-mortgage-backed securities, i.e. stuffing a load of toxic sov. debt from countries like the PIIGS into such a bond, adding a smidge of highly-rated German debt, then labeling it all "Triple-A extraplusgood" - yeah, that worked really well for housing, until the scam blew sky-high:

[url=http://globaleconomicanalysis.blogspot.com/2010/12/france-joins-germany-to-nix-junkers.html]France Joins Germany to Nix Juncker's Junk Bond Proposal to Save the Euro[/url]


In another rare piece of hopefully-good news, longtime anti-Fed-funny-money advocate and erstwhile 2008 presidential candidate Ron Paul has officially been named [url=http://www.zerohedge.com/article/its-official-ron-paul-head-monetary-policy-subcommittee]Head of the House Monetary Policy Subcommittee[/url]. This gives him the power to subpoena Fed officials, among other things - we shall see whether anything substantive comes of it, but hopefully it will at least signal to Bernanke et al that their days of reckless money-printing and backdoor-bank-bailing-outing with zero accountability may be coming to an end.

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

Bloomberg`s Jonathan Weil comments on the recently announced Justice Department "Huge Crackdown on Financial Fraud" and pronounces it a sham:

[url=http://www.bloomberg.com/news/2010-12-09/wall-street-s-worst-at-least-can-do-the-math-commentary-by-jonathan-weil.html]Wall Street's Worst at Least Can Do the Math: Jonathan Weil[/url]
[quote]It’s bad enough that there have been no criminal convictions of any of the executives who helped bring the banking system and our economy to its knees. Now the Justice Department is touting trumped-up numbers as it tries to show it’s cracking down on financial fraud.

This week U.S. Attorney General Eric Holder held a news conference to praise the results of Operation Broken Trust, which he called “a critical step forward in law enforcement’s work to protect American investors.”

Holder said the sweep by President Barack Obama’s Financial Fraud Enforcement Task Force began Aug. 16 and resulted in 231 cases against 343 criminal defendants as of Dec. 1. All told there were 64 arrests, 158 indictments or complaints, 104 convictions and 87 sentencings, according to the Justice Department’s tally. Holder also credited the operation with 60 civil suits against 189 defendants.

The statistics looked squirrely on their face. Some of these cases began years ago, long before the multiagency task force was formed. It’s obvious what the prosecutors did here, too. First they tracked down every small-fry Ponzi scheme, affinity fraud and penny-stock pump-and-dump they could find that had advanced through the courts since mid-August. Then they totaled them up and called it a sweep, lumping together cases that had nothing to do with each other.

[i][Weil proceeds to demolish the government propaganda][/i]

The task force’s executive director, Robb Adkins, said in an interview that the point of this week’s announcement was to increase public awareness about these types of frauds and “send a message to would-be wrongdoers.” He said “there was a very large detailed effort to track the numbers,” and that he didn’t want anyone to think the task force was trying to take credit for investigations that started before Operation Broken Trust.

When I asked him why the government hadn’t prosecuted any senior executives from companies at the heart of the financial crisis, he said: “Where there is wrongdoing we will bring charges, but beyond that I just can’t comment.”

By all outward appearances, it seems the Justice Department either doesn’t want to prosecute systemically important frauds, or doesn’t know how. Or maybe it’s both.
[b]
It wasn’t always this way. More than a thousand felony convictions followed the savings-and-loan scandal of the 1980s and early 1990s. Some of the biggest kingpins, such as Charles Keating of Lincoln Savings & Loan, went to jail. With this latest financial crisis, there’s been no such accountability.

Operation Broken Trust may be a fitting name. Unfortunately it’s for all the wrong reasons. The public already knows not to trust the government. Flimflam P.R. stunts such as this one at least offer us a useful reminder of why.[/i][/quote]
[i]My Comment:[/i] If any of the convicted in the above dragnet turn out to be significant players in in mortgage-bubble-related fraud, I will update my "N convicted" running tally accordingly. But pickpockets and purse thieves don`t signify.

UK Protests / CONsumer Credit / MERSenne Primer
 

[URL="http://www.nytimes.com/2010/12/10/world/europe/10britain.html?_r=2&partner=rss&emc=rss"]Protesters Attack Car Carrying Prince Charles[/URL]
[quote]LONDON — Britain’s coalition government survived the most serious challenge yet to its austerity plans on Thursday when Parliament narrowly approved a sharp increase in college fees. But violent student protests in central London, including an attack on a car carrying Prince Charles and his wife, Camilla, to the theater, provided a stark measure of growing public resistance.
...
The violence provided a disturbing backdrop to the day’s political events, which were themselves a watershed moment for the seven-month-old coalition government of Mr. Cameron. Ahead of the parliamentary vote on the college fee increase, the government confronted a difficult rupture as the Liberal Democrats, who are the coalition’s junior partners, split among themselves, raising questions over the coalition’s long-term survival.

Although half of the Liberal bloc in the House of Commons voted against the tuition fee increase, the coalition won the vote by a margin of 323 to 302 votes. The 21-vote margin was far short of the coalition’s nominal 84-vote majority, and threatened at one point to dwindle even further as Liberal leaders considered abstaining in a bid to keep their party together. In the end, the Liberal leader Nick Clegg and other Liberal ministers voted for the increase, though two Liberal ministerial aides resigned.

Without the continued backing of the Liberals, Mr. Cameron’s Conservatives would likely have to face a new election, with no certainty they could win a contest that would be sure to center on the austerity program. [/quote][I]My Comment:[/I] Pretty silly of the convoy to head straight into an area where violent protests were already underway ... not to excuse the violence,, but it seems the students want the upper crust to "share the austerity".

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

In a postscript on the Thanksgiving start-of-Christmas-shopping madness, an interesting statistic emerges:

[URL="http://globaleconomicanalysis.blogspot.com/2010/12/lowest-percent-in-27-year-history-use.html"]Lowest Percent in 27-Year History Use Credit Cards Over Thanksgiving Weekend[/URL]: [I]Got cash? People are shunning credit cards like never before in history. Card issuers are fighting back with huge incentives to get people charging again. So far its not working.[/I]

Of course the debt-merchant pumpers have seized on the latest statistics which show total "consumer credit" rising - what they omit to note (at leats in the headlines I`ve seen on this) is that the only category which actually increased significantly is one which did not used to be classified as consumer credit, namely federally-supported [URL="http://globaleconomicanalysis.blogspot.com/2010/12/is-credit-contraction-over.html"]student loans[/URL]:
[quote]What do you know? Outstanding U.S. consumer credit expanded $3.3 billion in October after eking out a $1.3 billion increase in September. This is the first back-to-back gain since just before Hank Paulson took out his bazooka in the summer of 2008.

Does this mean the credit contraction is over? Hell no.

First, the raw not seasonally adjusted data show a $700 million decline. Once again, it was federally-supported credit (ie. student-backed loans) that accounted for all the increase last month ? a record $31.8 billion expansion. Commercial banks, securitized pools and finance companies posted huge declines ? to the point where excluding federal loans, consumer credit plunged $32.5 billion, to the lowest level since November 2004 (not to mention down a record 9% YoY). Over the past three months consumer credit outstanding net of federal student assisted loans has collapsed $76 billion — this degree of contraction is without precedent.[/quote][I]My Comment:[/I] We may just need to augment the old bromide about statistics to read: "Lies, damned lies, statistics, and consumer credit data".

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

The whole fraudulent-title and bogus-securitization issue with MERS (which was a concoction of the big banks and mortgage issuers) at its core has been out of the media spotlight of light (which is probably why bank stocks have been rising) ... but it is far from dead. Turns out now that in MERS` official publications they turned several hundred years of property law on it head and openly recommended destroying the chain of title. But the folks who hatched MERS are - probably rightly - very confident that can get congress to post-facto legalize the fraud:

[URL="http://market-ticker.org/akcs-www?post=174590"]MERS Smoking Gun[/URL]
[quote] Here's the deal. This financial crisis is like Shrek's onion. As you peel back layer after layer of sleaze, you find that the whole damn thing is fraud. We are talking about tens of trillions of dollars of it. Tens of thousands of individuals were involved. It was thorough. It was blatant. It was even transparent, right under the noses of regulators and supervisors. It was normal business practice. It never had any fear of prosecution or punishment. Even today, it taunts the impotent administration, daring President Obama to do anything.

And it expects to win. The fraudsters have Congress in their back pocket and plan to rush through legislation to validate ex post all of their illegal activity. It is almost a foregone conclusion that Congress will pass a law early next year to legalize everything MERS and the big banks did -- lending fraud, recording fraud, tax fraud, securities fraud, and foreclosure fraud. There will be no rule of law to protect private property in the United States. Wall Street can claim any property it wants -- no proof required. That is what President Bush meant when he proclaimed a new "Ownership Society" -- [URL="http://www.levyinstitute.org/publications/?docid=14"]as I wrote back in 2005[/URL]. The plan all along was to put the bottom four deciles of Americans into permanent indebtedness while the top fraction of one percent would transfer ownership of everything to itself. So far, President Obama has stuck with the program -- overseeing the greatest wealth transfer in human history.[/quote]

[QUOTE=ewmayer;241120]
[i]My Comment:[/i] Pretty silly of the convoy to head straight into an area where violent protests were already underway ... not to excuse the violence,, but it seems the students want the upper crust to "share the austerity".

[/QUOTE]

Austerity?

"with tens of thousands of young people angered by a doubling, or potentially even a tripling, of government-regulated tuition fees, to a maximum of about $14,200 a year. "


$14,200/year??? My heart bleeds peanut butter. I would [b]love[/b] it if I
only had to pay $14.2K/yr for each of my kids!