[QUOTE=ewmayer;253979]Let`s hope the Irish give Brussels and the rest of the "Euro über Alles" cabal a hearty Iceland-style middle finger (or index and middle, assuming the Irish use the UK-style 2-finger salute).[/QUOTE]AFAIK, the Irish follow the British rather than the US standard in this respect.
[QUOTE=ewmayer;253979]Let`s not forget that revolutions have been fought over the issue of taxation without representation and similar self-determination issues.[/QUOTE]Yes, let's not forget that. I, for one, pay taxes to the Infernal Revenue Service, despite not having any representation in that part of the world. I am not alone. The US quietly forgot that slogan long ago, just as soon as the thought they could get way with it.

Paul

Barry Ritholtz has a rant today about how the Republicans are trying to gut the SEC:

[url=http://www.ritholtz.com/blog/2011/03/gop-more-madoffs-please/]GOP: More Madoffs, Please[/url]
[quote]If you can’t stop the legislation, you can defund it.

That is what our Chart of the Day shows, the net impact of defunding regulation. As we previously discussed 1 year ago (SEC: Defective by Design?), there has been a concerted effort at keeping regulators under-funded. The SEC has lacked sufficient staff, thus holding enforcement efforts to a minimum.

This is not an accident. Imagine being allowed to have an army and guns, but no bullets are allowed. The banks and big Wall Street firms are very comfortable with this arrangement. And as Matt Taibbi made clear (Why Isn’t Wall Street in Jail?) , the revolving door between the SEC and Wall Street has prevented any criminal prosecutions

And its not a bi-partisan issue this go around, its the crazy wing of the Republican Party:
[i]
“Congressional Republicans intent on big spending cuts are on a collision course with Wall Street’s top regulators over a plan to slash millions from agency budgets.

Lawmakers are targeting the Commodity Futures Trading Commission and the Securities and Exchange Commission. The work of both agencies is set to balloon as the Dodd-Frank financial reform law is implemented. . . .

The most recent comprehensive spending bill produced by House Republicans would chop the CFTC’s funding by $56.8 million — almost a third of the agency’s entire budget — over the next seven months. Funding at the SEC would be cut by $25 million over the same time period.”
[/i]
To give you an idea of what this looks like, consider the chart above — it shows how the SEC caseload has risen, while its budget remains flat.[/quote]
[i]My Comment:[/i] This may be true, but is so very far from pinpointing the root problem with the SEC that I felt compelled to post a reply/rebuttal, which I reproduce here:

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

More funding will do absolutely nothing to fix the real problem, which is that the SEC is completely captured, corrupted and co-opted by the industry it is charged with overseeing. Did no one here actually *read* Taibbi’s latest Rolling Stone piece? Barry, you frequently mention the demise of old-fashioned investigative journalism, well here ya go:

[url]http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=1[/url]

[quote]The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can’t balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC’s army of 1,100 number-crunching investigators to make their cases. In theory, it’s a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.

That’s the way it’s supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for [i]protecting[/i] financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who’s in office or which party’s in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.

The systematic lack of regulation has left even the country’s top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. “I think you’ve got a wrong assumption — that we even [i]have[/i] a law-enforcement agency when it comes to Wall Street,” he says.[/quote]

And for those of you – including Barry in a post from last year, when the SEC announced its new director of enforcement – who were hoping things might change in the wake of the biggest collective fraud in human history, so sorry to disappoint:

[quote]In the end, of course, it wasn’t just the executives of Lehman and AIGFP who got passes. Virtually every one of the major players on Wall Street was similarly embroiled in scandal, yet their executives skated off into the sunset, uncharged and unfined. Goldman Sachs paid $550 million last year when it was caught defrauding investors with crappy mortgages, but no executive has been fined or jailed — not even Fabrice “Fabulous Fab” Tourre, Goldman’s outrageous Euro-douche who gleefully e-mailed a pal about the “surreal” transactions in the middle of a meeting with the firm’s victims. In a similar case, a sales executive at the German powerhouse Deutsche Bank got off on charges of insider trading; its general counsel at the time of the questionable deals, Robert Khuzami, now serves as director of enforcement for the SEC.[/quote]

I urge readers to read the full article, which concludes with a very revealing vignette from a conference on financial law enforcement held last November in NYC – then, pray tell, tell us again with a straight face that the problem is that the SEC needs more funding.

[QUOTE=ewmayer;254115]I urge readers to read the full article, which concludes with a very revealing vignette from a conference on financial law enforcement held last November in NYC – then, pray tell, tell us again with a straight face that the problem is that the SEC needs more funding.[/QUOTE]The biggest problem as I see it are the revolving doors between regulation and the regulated. These aren't just Wall Street/SEC & DOJ, but also Aerospace/Defense Borg, Mining etc./BLM etc. No solution is apparent to me because the dynamic tensions between harnessing motivated self-interest and the controls on excess get circumvented at every turn of the turnstile.

February Jobs Report (Not Steve. the other kind)
 

Mish breaks down the latest monthly employments report from the BLS; one-line summary: Halfway decent on the surface, still woefully short of actually creating enough net jobs to make a dent in unemployment (or better, total-employment, since the BLS ignores you if you`ve been out of work for too long):

[url=http://globaleconomicanalysis.blogspot.com/2011/03/bls-jobs-report-nonfarm-payroll-192000.html
]BLS Jobs Report: Nonfarm Payroll +192,000, Unemployment Rate 8.9%; Reflections on the Jobs Report[/url]
[quote]This was a solid jobs report, not as measured by the typical recovery, but one of the better reports we have seen for years. Moreover, 30,000 government jobs bit the dust. The higher that number, the better off we will all be. +212,000 private jobs is a good number. However, I suspect this may be as good as it gets for a while.

At the current pace, the unemployment number would ordinarily drop, but not fast. However, many of those millions who dropped out of the workforce could start looking if they think jobs may be out there. Should that happen, the unemployment rate could rise, even if the economy adds jobs at this pace. It is very questionable if this pace of jobs keeps up. I rather doubt it in fact.

Bear in mind that the unemployment rate varies in accordance with the "household survey" not the reported headline jobs number.

In the last year, the civilian population rose by 1,853,000. Yet the labor force dropped by 312,000. Those not in the labor force rose by 2,165,000.

In January alone, a whopping 319,000 people dropped out of the workforce. In February (this months' report) another 87,000 people dropped out of the labor force.

Were it not for people dropping out of the labor force, the unemployment rate would be over 11%.[/quote]
[i]My Comment:[/i] Gallup`s latest parallel survey, which chooses not to treat the long-term-unemployed and underemployed as [i]desaparecidos[/i] is as usual, a bit more sobering than the government`s, as Mish`s "numbers behind the numbers" notes allude to:

[url=http://www.zerohedge.com/article/gallup-reports-underemployment-surges-199-jobs-situation-deteriorates-bad-february-2010]Gallup Reports Underemployment Surges To 19.9%, February "Jobs Situation Deteriorates": As Bad As 2010[/url][quote]On one hand we have the Department of Truth about to tell tomorrow that NFP based on various seasonal and birth death adjustments increased by 250,000. On the other hand, we have Gallup which actually does real time polling without a procyclical propaganda bias. And Gallup does't have any good news:

[b]"Unemployment, as measured by Gallup without seasonal adjustment, hit 10.3% in February -- up from 9.8% at the end of January. The U.S. unemployment rate is now essentially the same as the 10.4% at the end of February 2010."[/b]

And the one indicator that nobody in the mainstream media will touch with a ten foot pole:

[b]"Underemployment, a measure that combines part-time workers wanting full-time work with those who are unemployed, surged in February to 19.9%. This resulted from the combination of a sharp 0.5-point increase since the end of January in the percentage unemployed and a 0.5-point increase in the percentage working part time but wanting full-time work. [u]Underemployment is now higher than it was at this point a year ago (19.7%)."[/u][/b][/quote]
[i]My Comment:[/i] Not to worry, a Fed-and-hope-levitated stock market will surely cure all these ills.

And by way of a third view on today`s "U.S. Employment Trends" roundup, Karl Denninger comments on the dynamics of offshoring - It`s always interesting to read KD on this subject, because his attitude here make him sound like a lefty, in strak contrast to his frequent "100% concealed handgun ownership will stop crime" rants. He is at odds with Mish on the topic of offshoring as well: Mish dismisses it more or less in terms of "hey, that`s wage arbitrage in the global economy for you, buster... learn to deal with it by lowering your expectations or raising your productivity, or shut up," without seriously considering to what extent offshoring is simply a way of circumventing environmental and labor-condition standards shared by most developed economies:

[url=http://market-ticker.org/akcs-www?post=181533]Introducing the "We R Screwed" Indicator[/url]
[quote]Those who have read my work for a while know that I strongly support environmental and wage-parity tariffs. I do not consider this "protectionism", but rather leveling the playing field for those nations that corporations intentionally exploit through both near-slave labor conditions and the ability to dump pollutants into the air and water (not to mention poisoning their workers) as a means of "competing" with US workers and manufacturing. They then export their products back here and claim to be geniuses.

[url=http://market-ticker.org/akcs-www?get_gallerynr=1249]This is the evidence[/url] for my position.

This chart shows the annualized (that is, seasonality removed) change in employment adjusted for population change.

[i][EWM: The integral of the data over a given time span gives the total change in jobs relative to population over that period. The average of the data gives the annual rate of change of jobs relative to population, and this looks to be around -2,000,000 jobs/year over the past decade.][/i]

One must always look at employment ex population changes. If you add 1 million people of working age to the population then you must subtract them out of the employed figures to figure out whether your workforce, as a percentage of the total working-age population, is growing or shrinking. This is essential since those who are not working but of working age are a huge net drain on the government and economy.

The claims that we are "net beneficiaries" of off-shoring, that H1B Visas make us "more competitive" in our corporations, and that we're "doing ok" in regard to our employment situation when one ignores the recession we just went through are proved utterly fallacious by this chart.

In point of fact even during the "boom times" of the most-recent recovery - from 2003-2007 - we managed to barely improve actual employment, and even then, only on a sporadic basis!

This came despite the allegedly-strong economy.

In short, there was no "strong economy" in point of fact. The claims were false. They were predicated on a lie - that expanding credit in fact is expanding wealth.

It isn't.

The employment base, when one looks at it ex-population, never expanded to any material degree at all even in 2000, which was the top of the market. It also never recovered any material number of jobs from 2003-2007.

We cannot recover until we address this. And we cannot address this so long as we continue to allow corporations to offshore jobs and import cheap workers on the H1B program.

We must impose tariffs that level the playing field for American production and shut off importing foreign workers who come here with subsidized educations while our graduates are coming into the workforce with six-figure debts, requiring salaries $18,000/year and more in excess of what that foreign worker can do the same job for.[/quote]
[i]My Comment:[/i] The 2 charts in this [url=http://www.zerohedge.com/article/about-jobs-improvement-under-president-obama]related ZeroHedge link[/url] illustrate KD`s point about the labor participation rate falling nearly continuously throughout the past decade.

Have a good weekend, all!

NYT on MERS | Obama Considers Tapping Oil Reserve
 

The NYT has a lengthy piece on that electronic black hole of mortgage recordkeeping, MERS:

[url=http://www.nytimes.com/2011/03/06/business/06mers.html?_r=3&partner=rssnyt&emc=rss&pagewanted=all]MERS? It May Have Swallowed Your Loan[/url]: [i]For more than a decade, the American real estate market resembled an overstuffed novel, which is to say, it was an engrossing piece of fiction.[/i]
[quote]Mortgage brokers hip deep in profits handed out no-doc mortgages to people with fictional incomes. Wall Street shopped bundles of those loans to investors, no matter how unappetizing the details. And federal regulators gave sleepy nods.

That world largely collapsed under the weight of its improbabilities in 2008.

But a piece of that world survives on Library Street in Reston, Va., where an obscure business, the MERS Corporation, claims to hold title to roughly half of all the home mortgages in the nation — an astonishing 60 million loans.

Never heard of MERS? That’s fine with the mortgage banking industry—as MERS is starting to overheat and sputter. If its many detractors are correct, this private corporation, with a full-time staff of fewer than 50 employees, could turn out to be a very public problem for the mortgage industry.

Judges, lawmakers, lawyers and housing experts are raising piercing questions about MERS, which stands for Mortgage Electronic Registration Systems, whose private mortgage registry has all but replaced the nation’s public land ownership records. Most questions boil down to this:

How can MERS claim title to those mortgages, and foreclose on homeowners, when it has not invested a dollar in a single loan?

And, more fundamentally: Given the evidence that many banks have cut corners and made colossal foreclosure mistakes, does anyone know who owns what or owes what to whom anymore? [/quote]
[i]My Comment:[/i] Full piece is long but worth it.


[b]Obama Considers Tapping Oil Reserve[/b]

[url=http://www.nytimes.com/2011/03/07/business/energy-environment/07oil.html?ref=us]Obama Considers Tapping Oil Reserve[/url]: [i]President Obama is considering opening up the nation’s strategic oil reserve as the administration grapples with how to deal with rapidly rising gas prices.[/i]
[quote]“It’s something that only has been done on very rare occasions,” Mr. Daley said on “Meet the Press” on NBC, adding, “It’s something we’re considering.”

Administration officials have sent mixed signals about the possibility of opening the reserve, which would add supply to the domestic oil market and tend to push down prices.

Energy Secretary Steven Chu said on Friday that the administration was monitoring prices, but he has been reluctant to endorse more aggressive steps.

“We don’t want to be totally reactive so that when the price goes up, everybody panics, and when it goes back down, everybody goes back to sleep,” he said.

A few days earlier, Mr. Chu said the administration was watching the situation closely, but it expected oil production that had been lost in Libya would be made up by production elsewhere.

Administration officials continue to emphasize the critical need for long-term steps to reduce oil use, like improving the fuel economy of cars and promoting battery-powered vehicles.

But recently, five Senate Democrats have called for opening the reserve, which is stored in four salt domes in Texas and Louisiana. And on Feb. 24, three House Democrats from New England, where oil is used to heat homes, wrote to Mr. Obama saying that while exporters could increase production, “they also profit from oil price spikes and therefore have little incentive to quickly respond with the increased supply needed to calm markets.”

In recent days, prices for the American benchmark crude, West Texas Intermediate, have exceeded $100 a barrel. Oil for April delivery settled at $104.42 a barrel on the New York Mercantile Exchange on Friday.

The average price for a gallon of unleaded gasoline was $3.50 on Sunday, AAA reported, up from $3.12 a month earlier. Gasoline prices routinely rise as the weather turns warmer and people drive more, leading some experts to predict gasoline at $4 a gallon this summer.

The Strategic Petroleum Reserve was established in response to the Arab oil embargo of 1973-4. It was tapped most recently in September 2008 in response to Hurricanes Gustav and Ike. At that time, the Energy Department arranged “exchanges” with oil companies whose normal supplies had been interrupted; the oil companies later made restitution in oil. The last time the government sold oil from the reserve to address supply interruptions was in 2005, after Hurricane Katrina.

Sales were also made in January 1991 to calm global markets as the United States invaded Kuwait, which had been occupied the previous year by Iraq.

The government suspended oil purchases when prices were approaching a peak in 2008, before the recession began. In that case, members of Congress argued that acquisitions for the reserve were contributing to higher prices, harming consumers. [/quote]
[i]My Comment:[/i] Oh my, this seems very akin to a subsidy for the oil companies ... nowhere does the article mention any of the kinds of things needed to keep it from being gamed in that fashion, for example:

1. If you engage in "oil loans" in order to make up for supply shortfalls, how do you ensure that recipients if the loans pass on the benefits to consumers by way of lower prices?

2. Similarly, if you instead decide to sell oil from the strategic reserve in order to lower end-user prices, how do you set the required below-market rate, and how do you ensure that recipients of the below-market prices pass on the benefits to consumers by way of lower prices?

3. Since most big oil companies are by necessity multinationals, how do you make sure that the government subsidies implied by such use of the SPR at least stay in the U.S., even if some portion thereof inevitably ends up helping the bottom line of the corporate recipients?

[QUOTE=ewmayer;254555][I]My Comment:[/I] Oh my, this seems very akin to a subsidy for the oil companies ... nowhere does the article mention any of the kinds of things needed to keep it from being gamed in that fashion, for example:

1. If you engage in "oil loans" in order to make up for supply shortfalls, how do you ensure that recipients if the loans pass on the benefits to consumers by way of lower prices?

2. Similarly, if you instead decide to sell oil from the strategic reserve in order to lower end-user prices, how do you set the required below-market rate, and how do you ensure that recipients of the below-market prices pass on the benefits to consumers by way of lower prices?

3. Since most big oil companies are by necessity multinationals, how do you make sure that the government subsidies implied by such use of the SPR at least stay in the U.S., even if some portion thereof inevitably ends up helping the bottom line of the corporate recipients?[/QUOTE]... and that's all entirely aside from what was supposed to be the reason for creating the Strategic Petroleum Reserve in the first place: a domestic emergency reserve to be used (to provide essential fuel for our military, for example) in case of another foreign embargo on U.S. imports. It isn't called the Consumer Price Stability Petroleum Reserve -- at least, not yet.

There is nothing surprising in this statement.

[QUOTE]Lower-wage industries -- things like retail and food preparation -- accounted for 23 percent of the jobs lost during the recession, but 49 percent of the jobs gained over the last year, a recent study (pdf) by the National Employment Law Program found. Higher-wage industries, by contrast, accounted for 40 percent of the jobs lost, but just 14 percent of the jobs gained. In other words, low paying jobs are increasing as a percentage of total jobs, while high-paying jobs are on the decline.[/QUOTE]

[url]http://news.yahoo.com/s/yblog_thelookout/20110309/ts_yblog_thelookout/jobs-returning-but-good-ones-not-so-much[/url]

DarJones

[QUOTE=ewmayer;254555]

[b]Obama Considers Tapping Oil Reserve[/b]

[url=http://www.nytimes.com/2011/03/07/business/energy-environment/07oil.html?ref=us]Obama Considers Tapping Oil Reserve[/url]: [i]President Obama is considering opening up the nation’s strategic oil reserve as the administration grapples with how to deal with rapidly rising gas prices.[/i]

[/QUOTE]

I see the rise in gas prices as a GOOD thing. Hopefully it will help force
people off SUV's and other gas guzzlers and reduce our requirment for
oil. It will help push us to move toward alternative sources.

With one proviso, however. Oil companies should be required to pay back
ALL (and I do mean ALL) extra profits in the form of taxes. By "extra"
one could use e.g. profits over and above (say) 2009 levels.

[QUOTE=R.D. Silverman;254753]I see the rise in gas prices as a GOOD thing. Hopefully it will help force
people off SUV's and other gas guzzlers and reduce our requirment for
oil. It will help push us to move toward alternative sources.

With one proviso, however. Oil companies should be required to pay back
ALL (and I do mean ALL) extra profits in the form of taxes. By "extra"
one could use e.g. profits over and above (say) 2009 levels.[/QUOTE]Hear, hear!

Paul

I would prefer the enormous cost of our oil-related military presence around the world (and amount of in-country standing forces related to being able to "project power" into those areas of the world at all times) be reflected in the price of oil. It'll never happen, but the resulting "miltary-oil-complex tax" would certainly shock people into reassessing whether driving that guzzler or heating that super-sized, poorly-insulated jiffy-built McMansion is worth it.

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

Denninger makes an interesting point in his brief review of the latest weekly jobless claims released this morning (and every Thursday):

[url=http://market-ticker.org/akcs-www?post=181975]Claims And Trade Balance: Ugh[/url]
[quote]The drop in extended benefits may be roll-offs. [u]The regular claims look good, but we have to be careful here, because we're getting to the point now, with the length of this turndown, where people may simply not qualify even though they were laid off.[/u]

In order to qualify for a new claim you have to have a fairly significant work history and it must be unbroken. If you ran out of benefits, got a job and then got laid off again within a reasonably-short period of time it's entirely possible (and indeed likely) that you would be denied a new initial claim.[/quote]


[b]Trust is Necessary for a Stable Economy[/b]

The ZeroHedge contributor who writes under the alias "George Washington" has a nice review article on the role of trust (institutional as well as individual - the former lies the rub) in fostering a stable, productive economy:

[url=http://www.zerohedge.com/article/top-economists-trust-necessary-stable-economy-trust-wont-be-restored-until-we-prosecute-wall]Top Economists: Trust is Necessary for a Stable Economy ... But Trust Won't Be Restored Until We Prosecute Wall Street Fraud[/url]
[quote]Most policy makers still don't understand the urgent need to restore trust in our financial system, or the need to prosecute Wall Street executives for fraud and other criminal wrongdoing.

But top economists have been saying for well over a decade that trust is necessary for a stable economy, and that prosecuting the criminals Is necessary to restore trust.

[u]Trust is Necessary for a Stable Economy[/u]
...
Political economist Francis Fukiyama wrote a book called [i]Trust[/i] in 1995, arguing that the most pervasive cultural characteristic influencing a nation's prosperity and ability to compete is the level of trust or cooperative behavior based upon shared norms. He stated that the United States, like Japan and Germany, has been a high-trust society historically but that this status has eroded in recent years.[/quote]
[i]My Comment:[/i] "Eroded" is putting it very mildly indeed. Lots of good article links and commentary in the full piece.

[QUOTE=R.D. Silverman;254753]I see the rise in gas prices as a GOOD thing. Hopefully it will help force
people off SUV's and other gas guzzlers and reduce our requirment for oil. It will help push us to move toward alternative sources.[/QUOTE]I second that.

[quote]With one proviso, however. Oil companies should be required to pay back ALL (and I do mean ALL) extra profits in the form of taxes. By "extra" one could use e.g. profits over and above (say) 2009 levels.[/quote]... and, to be consistent, you also think the government should be required to pay windfall tax credits to the oil companies when the market "wind" blows prices the other way, correct?

When one considers the long "pipeline" through which oil travels on its way from source to consumer, one realizes that windfall profits are primarily the rise in value of inventory oil-in-transit when oil prices rise, and that when oil prices fall, the companies experience equal but opposite windfall losses -- which [U]don't[/U] get headlines -- because their inventory of oil-in-transit has lost value due to the same market forces. That's why they're called "windfall" -- because the "profits" and "losses" produced by market-forced price changes were not due to the oil company's own decisions or competency.

Indeed, oil companies are forced to report windfall "profits" and "losses" by standard accounting methods. They are not given the opportunity to average them out over a longer run so as to separate market-forced price changes from the financial results of their own decisions and competency.

So, informed fairness requires supporting that both phases of the windfall situation be treated by the equal-but-opposite taxing principle. Otherwise, one is simply demonstrating ignorance of the oil market reality and/or prejudice against easy targets for blame-shifting.

For clarification:

Silverman was referring to an extra tax [I]surcharge[/I] on profits deemed to be "windfall".

I'm pointing out that to be fair, this would need to be balanced by an equally extra tax [I]credit[/I] on windfall losses.

Or, we could just leave the tax laws as they are now. Rather than applying a prejudicial "windfall" legal label, with different tax rate, to those portions of profits/losses which are due to the effect on inventory of market price changes beyond a company's control, simply tax those profits/losses the same way both they and other profits/losses are taxed now.

- - -

By the way, are there any examples in another industry of a tax [I]surcharge[/I] (not merely the ordinary tax rate) being applied to the portion of gain, in market value of a company's inventory, due to market price changes beyond a company's control between the time the company acquires/manufactures/produces that inventory and the time it sells that inventory?

- - -

If the purpose of "windfall" tax surcharge proposals is only to punish companies for:

a) operating in an industry where their inventories are subject to changes in value because of market price changes, or

b) being big, or

c) operating in an industry which is the only one (unless I've forgotten another case) where the retail prices of its leading products are required by law to be prominently posted for any passerby to be able to read, or

d) being in the news a lot, or

for any reason not mentioned yet,

then ... please spell out the justification.

BTW, in regard to b): I am in favor of _slightly_ progressive tax rates on corporation profit, if applied uniformly across industries.

[url=http://www.nytimes.com/aponline/2011/03/13/world/asia/AP-AS-Japan-Earthquake-Economy.html?ref=world]Japan Central Bank Injects Funds as Stocks Plunge[/url]: [i]Japan's central bank injected a record 7 trillion yen ($85.5 billion) into money markets and the Tokyo stock market nosedived Monday on the first business day since an earthquake and tsunami devastated the country's northeast and raised dire worries about the economy.[/i]
[quote]The benchmark Nikkei 225 stock average fell 487 points, or 4.8 percent, to 9,767.18. Worries about the economic impact of the disaster triggered a broad sell-off that hit all sectors.

The Bank of Japan moved quickly to try to keep financial markets stable. By flooding the banking system with cash, it hopes banks will continue lending money and meet the likely surge in demand for post-earthquake funds.

Immediately after the earthquake, the central bank pledged to "do its utmost," including providing liquidity. A one-day policy meeting was scheduled for later Monday.

Preliminary estimates put repair costs from the earthquake and tsunami in the tens of billions of dollars — a huge blow for an economy that lost its place as the world's No. 2 to China last year, and was already in a fragile state.

Japan's economy has been ailing for 20 years, barely managing to eke out weak growth between slowdowns, saddled by a massive public debt that, at 200 percent of gross domestic product, is the biggest among industrialized nations.

"In the short term, the market will almost surely suffer and stocks will plunge. People might see an already weakened Japan, overshadowed by a growing China, getting dealt the finishing blow from this quake," said Koetsu Aizawa, economics professor at Saitama University.

The nation's big-three automakers, meanwhile, said they would halt all production in Japan due to widespread damage to both suppliers and transport networks in the region.

The Bank of Japan pledged to pump more money into financial markets when it holds a policy board meeting Monday. There is not much left for the central bank to do regarding interest rates, which are already close to zero.

Tens of billions of dollars are expected to be needed to rebuild homes, roads and other infrastructure — requiring public spending that will add to the national debt.

"The impact on Japan's economy will be devastating," said Sheila Smith, senior fellow for Japan Studies at the Council on Foreign Relations, a New York-based think tank. "The long-term economic blow to a country already struggling to lower its budget deficit ... will be significant."

Noting the 1995 earthquake in Kobe cost $132 billion and was the world's most expensive natural disaster, she said it was too early to say whether the losses from Friday's disaster would be on that massive a scale. [/quote]
[i]My Comment:[/i] I am 100% certain the cost of the current disaster will far exceed that of the Kobe quake when all is said and done, though that could stretch over several decades - think how long it will take to decommission/contain the ruined nuclear reactors and replace the resulting loss of generating capacity. That alone will cost $tens of billions, perhaps on the order of $100 Bln if a significant fraction of Japan's nuclear reactors - including ones not seriously damaged in the present instance but at similar risk - need to be decommissioned and replaced.

Mish explains the seeming paradox of why the Yen is strengthening in the wake of the crisis and the government's ensuing flood of money-printing, as well as debunking the idea (promoted by some the usual Keynesian stimulus advocates) that this disaster will have the silver lining of being "economically stimulative" [url=http://globaleconomicanalysis.blogspot.com/2011/03/scramble-to-avert-meltdowns-death-toll.html]here[/url].

[Update: I composed the above last night, but forgot to click 'submit' after previewing ... anyway, the Yen did initially spike higher but then [url=http://globaleconomicanalysis.blogspot.com/2011/03/radioactive-releases-in-japan-could.html]sold off[/url].]

And speaking of Keynesian nonsense, so far the Ayatollah of Keynesianism, The NYT [url=http://krugman.blogs.nytimes.com/2011/03/13/japan/]Paul Krugman[/url] has only noted that reassuringly - and somehow "in defiance of the fiscal hawks" Japanese government bond interest rates have fallen rather risen on the central banks' money injection. Well, I expect one of the main ways the central bank is injecting new-printed capital into the banking system is by buying previously-issued government debt from the banks, which of course will tend to drive down interest rates.

[And even if the initial "tsunami of liquidity" does not involve bond buying, there are surely market expectations of such].

[QUOTE=ewmayer;255150]And speaking of Keynesian[/QUOTE]... which reminds me of something:

As I understand it, the Keynesian theory is that increasing government expenditures and/or the budget deficit stimulates the economy, correct? (But many argue that that theory is wrong.)

Isn't the following equally Keynesian: Decreasing the budget deficit (such as by raising taxes) and/or decreasing government expenditures would tend to slow down a rising economy ? Or does Keynes differentiate between raising taxes and decreasing expenditures in that regard?

[url="http://www.kalzumeus.com/2011/03/13/some-perspective-on-the-japan-earthquake/"]This[/url] has an alternate viewpoint on the severity of the damage in Japan.

[QUOTE=jasonp;255298][url="http://www.kalzumeus.com/2011/03/13/some-perspective-on-the-japan-earthquake/"]This[/url] has an alternate viewpoint on the severity of the damage in Japan.[/QUOTE]

That author makes some interesting points, but - specifically with respect to the nuclear plants - for someone to claim, as he does, that
[i]
"There is currently a lot of panicked reporting about the problems with two of Tokyo Electric’s nuclear power generation plants in Fukushima. Although few people would admit this out loud, [u]I think it would be fair to include these in the count of systems which functioned exactly as designed.[/u]"[/i]

is similarly disingenuous as Homeland Security czar Janet Napolitano claiming, in the immediate aftermath of the underwear-bomber incident a couple of Christmases ago, that "the system worked".

[QUOTE=ewmayer;255367]

is similarly disingenuous as Homeland Security czar Janet Napolitano claiming, in the immediate aftermath of the underwear-bomber incident a couple of Christmases ago, that "the system worked".[/QUOTE]

Careful here. Even Bruce Schneier supports this view that "the system
worked".

They got as far as scramming the operating cores and cooling them down...then the diesel backups for cooling got flooded, and the hydrogen residuals exploded....and the seawater is going to ruin the reactors and their cores....
I think someone must have falsified the records about the Tsunami studies.....

[QUOTE=Christenson;255384]They got as far as scramming the operating cores and cooling them down...then the diesel backups for cooling got flooded, and the hydrogen residuals exploded....and the seawater is going to ruin the reactors and their cores....
I think someone must have falsified the records about the Tsunami studies.....[/QUOTE]"Never ascribe to malice ..."

All that's required is for no sufficiently senior person to have said, "What happens if a tsunami disables the diesel backups after an earthquake has severed power lines and ruptured resupply roads?"

[QUOTE=R.D. Silverman;255371]Careful here. Even Bruce Schneier supports this view that "the system worked".[/QUOTE]Strangely enough, I'm on Bruce's side on this one.

[url=http://www.nytimes.com/2011/03/16/world/asia/16contain.html?src=me&ref=world]Experts Had Long Criticized Potential Weakness in Design of Stricken Reactor[/url]
[quote]The warnings were stark and issued repeatedly as far back as 1972: If the cooling systems ever failed at a “Mark 1” nuclear reactor, the primary containment vessel surrounding the reactor would probably burst as the fuel rods inside overheated. Dangerous radiation would spew into the environment.

Now, with one Mark 1 containment vessel damaged at the embattled Fukushima Daiichi nuclear plant and other vessels there under severe strain, the weaknesses of the design — developed in the 1960s by General Electric — could be contributing to the unfolding catastrophe.

When the ability to cool a reactor is compromised, the containment vessel is the last line of defense. Typically made of steel and concrete, it is designed to prevent — for a time — melting fuel rods from spewing radiation into the environment if cooling efforts completely fail.

In some reactors, known as pressurized water reactors, the system is sealed inside a thick steel-and-cement tomb. Most nuclear reactors around the world are of this type.

But the type of containment vessel and pressure suppression system used in the failing reactors at Japan’s Fukushima Daiichi plant is physically less robust, and it has long been thought to be more susceptible to failure in an emergency than competing designs. In the United States, 23 reactors at 16 locations use the Mark 1 design, including the Oyster Creek plant in central New Jersey, the Dresden plant near Chicago and the Monticello plant near Minneapolis.
[b]
G.E. began making the Mark 1 boiling-water reactors in the 1960s, marketing them as cheaper and easier to build — in part because they used a comparatively smaller and less expensive containment structure.
[/b]
American regulators began identifying weaknesses very early on. [/quote]
[i]My Comment:[/i] So I guess if you define "system working as designed" in this case as "designed so that if the cooling systems ever failed, the primary containment vessel surrounding the reactor would probably burst as the fuel rods inside overheated, spewing radiation into the environment", then yes, "the system worked" so far and is on track to "fulfill its design parameters" beautifully. I stand corrected.
[quote]In 1972, Stephen H. Hanauer, then a safety official with the Atomic Energy Commission, recommended that the Mark 1 system be discontinued because it presented unacceptable safety risks. Among the concerns cited was the smaller containment design, which was more susceptible to explosion and rupture from a buildup in hydrogen — a situation that may have unfolded at the Fukushima Daiichi plant. Later that same year, Joseph Hendrie, who would later become chairman of the Nuclear Regulatory Commission, a successor agency to the atomic commission, said the idea of a ban on such systems was attractive. But the technology had been so widely accepted by the industry and regulatory officials, he said, that “reversal of this hallowed policy, particularly at this time, could well be the end of nuclear power.”

In an e-mail on Tuesday, David Lochbaum, director of the Nuclear Safety Program at the Union for Concerned Scientists, said those words seemed ironic now, given the potential global ripples from the Japanese accident.

“Not banning them might be the end of nuclear power,” said Mr. Lochbaum, a nuclear engineer who spent 17 years working in nuclear facilities, including three that used the G.E. design.

Questions about the design escalated in the mid-1980s, when Harold Denton, an official with the Nuclear Regulatory Commission, asserted that Mark 1 reactors had a 90 percent probability of bursting should the fuel rods overheat and melt in an accident.

Industry officials disputed that assessment, saying the chance of failure was only about 10 percent.

Michael Tetuan, a spokesman for G.E.’s water and power division, staunchly defended the technology this week, calling it “the industry’s workhorse with a proven track record of safety and reliability for more than 40 years.”[/quote]
Until last week. Analogously, one could argue that "The cold-war-era nuclear arms race helped keep the world safe from nuclear war for over 50 years." I feel ever so much better knowing that.

[quote]Mr. Tetuan said there are currently 32 Mark 1 boiling-water reactors operating safely around the globe. “There has never been a breach of a Mark 1 containment system,” he said.[/quote]
Until now. [The high levels of radiation strongly suggest that at least one containment system has been seriously compromised.]

So, spinning statistics like Mr. Tetuan is paid to do but in the opposite direction, should we conclude that "Mark 1 containment systems have at least a 1-in-30 chance of failing catastrophically over the design lifetime of the reactor"?

[QUOTE=ewmayer;255425]Until last week. Analogously, one could argue that "The cold-war-era nuclear arms race helped keep the world safe from nuclear war for over 50 years." I feel ever so much better knowing that.

Until now. [The high levels of radiation strongly suggest that at least one containment system has been seriously compromised.]

So, spinning statistics like Mr. Tetuan is paid to do but in the opposite direction, should we conclude that "Mark 1 containment systems have at least a 1-in-30 chance of failing catastrophically over the design lifetime of the reactor"?[/QUOTE]Are these the Space Shuttle Challenger disaster hearings? The words seem quite similar.

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

Time for a(nother) review of Richard Feynman's comments ( at [URL]http://www.fotuva.org/feynman/challenger-appendix.html[/URL] )

which end with:

"[FONT=verdana,helvetica,arial]For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.[/FONT]"

(Psst! Republicans! That was for you, too.)

I've posted many times, using thousands of words, about the conservative strategy, formed in the late 1970s, to give tax breaks to the wealthy at the expense of the middle class, but this guy does it better with one chart (of course). Go see it:

"Chart shows low tax burden for rich"

[URL]http://news.yahoo.com/s/yblog_thelookout/20110316/ts_yblog_thelookout/chart-shows-low-tax-burden-for-rich;_ylt=AqQRacAOhjtfyjgybwmruXWs0NUE;_ylu=X3oDMTRscmw0dHIwBGFzc2V0A3libG9nX3RoZWxvb2tvdXQvMjAxMTAzMTYvY2hhcnQtc2hvd3MtbG93LXRheC1idXJkZW4tZm9yLXJpY2gEY2NvZGUDbW9zdHBvcHVsYXIEY3BvcwM0BHBvcwMxBHB0A2hvbWVfY29rZQRzZWMDeW5faGVhZGxpbmVfbGlzdARzbGsDY2hhcnRzaG93c2xv[/URL]

Related:

"Who Rules America: Wealth, Income, and Power"

[URL]http://sociology.ucsc.edu/whorulesamerica/power/wealth.html[/URL]

"Income tax chart shows assault on middle class"

[URL]http://news.yahoo.com/s/ac/20110316/bs_ac/8078506_income_tax_chart_shows_assault_on_middle_class;_ylt=Aq1ttaV2sjOaBvF_XJdVpIWUU80F;_ylu=X3oDMTQ1NzRyZmd1BGFzc2V0A2FjLzIwMTEwMzE2LzgwNzg1MDZfaW5jb21lX3RheF9jaGFydF9zaG93c19hc3NhdWx0X29uX21pZGRsZV9jbGFzcwRjY29kZQNyZG5iZQRjcG9zAzMEcG9zAzMEc2VjA3luX3RvcF9zdG9yaWVzBHNsawNpbmNvbWV0YXhjaGE-[/URL]

[QUOTE=cheesehead;255605]Are these the Space Shuttle Challenger disaster hearings? The words seem quite similar.[/QUOTE]I meant that the [i]reasoning[/i] seemed quite similar.

Last decade's job losses comparable to 1929-39
 

[This first item is from last Friday, 18. March]

As it happens, today is another (count % 100) == 0 day, specifically Day 1500 in my unofficial running days-since-start-of-the-global-financial-crisis-let`s-see-who`s-in-jail-as-a-result tally, and we have 1 new jailbird ... alas, not one of the crooks running the fraudulent-finance show, so this will do 0 to provide the "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street" incentive advocated by an unnamed congressional aide in Matt Taibbi`s latest [i]Rolling Stone[/i] article on the subject. Instead we get an 8-year prison term handed out to a former Goldman programmer for allegedly stealing code - code whose only purpose is to rig markets and rip off retail investors, mind you - while the folks who profit most from use of such code and who helped orchestrate much more damaging financial crimes retain their de facto immunity from prosecution:

[url=http://www.zerohedge.com/article/sergey-aleynikov-gets-8-year-prison-sentence]Sergey Aleynikov Gets 8 Year Prison Sentence[/url]
[quote]The man who singlehandedly almost stole Goldman's algorithm that could "manipulate markets" (p 8, lines 4-7) is now the person with the biggest prison sentence to come out of the entire financial crisis. Sergey Aleynikov has just gotten a 97 month sentence for doing absolutely nothing but copying some Goldman code that would likely never be recreated by anyone. In the meantime the bank execs who should be in jail, are currently benefiting from their co-opted Fed to allow them to collect taxpayer-funded dividend payments. Justice may be blind, but not in America, where its eyes have been unfortunately poked out. On the other hand, at least Aleynikov did not get the gas chamber.[/quote]

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

[url=http://innovationandgrowth.wordpress.com/2011/03/16/a-decade-of-labor-market-pain/]A Decade of Labor Market Pain[/url]
[quote] In February 2001, nonfarm payrolls hit their business cycle peak of 132.5 million. Ten years later, the latest data pegs February 2011 payrolls at 130.5 million, a 1.5% decline. To put this in perspective, the ten-year period of the Great Depression, 1929-39 saw a 2.3% decline in nonfarm employment, roughly the same magnitude.

But even that 1.5% understates the extent of the pain for most of the workforce. I divide the economy into two parts. On the one side are the combined public and quasi-public sectors, and on the other side is the rest of the economy. Public, of course, refers to government employees. ‘Quasi-public’, a term I just invented, includes the nominal private-sector education, healthcare, and social assistance industries. I call them ’quasi-public’ because these industries depend very heavily on government funding. For example, social assistance includes ‘child and youth services’ and ‘services for the elderly and disabled’, which are often provided under government contract.

The chart below shows employment growth in the public/quasi-public sector, compared to employment growth in the rest of the economy, with February 2001 set to 100. We can see that public/quasi-public employment rose steadily over the past ten years, and is now up 16%. By comparison, the rest of the private sector is down 8% in jobs over the past 10 years.

Once again, we look at the Great Depression for an analogy. From 1929 to 1939, government employment rose by about 30%. If we back that out, then private sector non-ag jobs fell by 6% over the Depression decade. That compares to the contemporary 8% decline in private non-ag non-quasi-public jobs since 2001. So by this measure, the past 10 years have been worse for the labor market than the decade of the Great Depression.[/quote]
[i]My Comment:[/i] I`d be interested to see the private-sector jobs further broken down into 2 categories: [1] FIRE Economy (Finance, Insurance, Real Estate) and [2] Everything Else. We know that the FIRE economy has [url=http://macromon.wordpress.com/2011/02/03/americas-fire-economy/]grown hugely since roughly the end of WW2[/url] at the expense of the "old smokestack" manufacturing economy ... I expect after a brief hiccup in 2008-2009, FIRE has resumed its growth trajectory, in no small part due to unprecedented government largesse targeting that sector above all else as "key to economic recovery". Note also the unintentionally chart caption on the preceding link-page, which charts "value-add as % of sector GDP". Really the "value add" simply measures "size of sector as % of GDP" ... the reality is that FIRE adds little if anything in value to the productive economy; rather it is at this point almost entirely parasitical. There might have been a time, many, many years ago, when FIRE, despite its inevitable greed-run-amok and speculative excesses, actually resulted in a net + for the economy as a whole, by steering capital toward productive uses, but if there ever was such a time, it was at least 2 decades ago, probably more.

In related (un)employment-trends news, Mish has a recent posting comparing recent trends government (BLS) numbers against [url=http://globaleconomicanalysis.blogspot.com/2011/03/gallup-poll-pegs-unemployment-rate-at.html]private-poll results from Gallup[/url].

[QUOTE=ewmayer;255425][URL="http://www.nytimes.com/2011/03/16/world/asia/16contain.html?src=me&ref=world"][/URL]Until last week. Analogously, one could argue that "The cold-war-era nuclear arms race helped keep the world safe from nuclear war for over 50 years." I feel ever so much better knowing that.[/QUOTE]Personally, I think that is very likely to be a true, but a rather over-simplified, analysis.

In my opinion, the reason that the only the US has indulged in nuclear warfare is that it became clear quite early on that collateral damage from the use of nuclear weapons was unacceptably high. The conjunction of computer modelling, spy satellites and first-strike-resistant launchers convinced everyone (*) that starting a nuclear war was not worth the expense.

As the saying goes: you can never have too much overkill.

Paul

(*) Back in the good old days, the US, the USSR, the UK, France and China were the only powers capable of doing significant damage to each other or anyone else. These days, we can add Israel, India and Pakistan to the list and replace the USSR with Russia. North Korea is still incapable of doing significant damage to anyone else but could be obliterated by any one of the others.

[QUOTE=xilman;256296]Personally, I think that is very likely to be a true, but a rather over-simplified, analysis.

In my opinion, the reason that the only the US has indulged in nuclear warfare is that it became clear quite early on that collateral damage from the use of nuclear weapons was unacceptably high. The conjunction of computer modelling, spy satellites and first-strike-resistant launchers convinced everyone (*) that starting a nuclear war was not worth the expense.[/QUOTE]

...Except that it only became clear after the dissolution of the Soviet Union - in fact the really shocking revelations here did not come until 2002 - just how awfully close the U.S. and USSR had come to nuclear war - in particular during the [url=http://en.wikipedia.org/wiki/Cuban_Missile_Crisis#Crisis_ends]Cuban Missile Crisis[/url]:
[quote][b]Post-crisis history[/b]

Arthur M. Schlesinger, Jr., a historian and adviser to John F. Kennedy, told National Public Radio in an interview on October 16, 2002 that Castro did not want the missiles, but that Khrushchev had pressured Castro to accept them. Castro was not completely happy with the idea but the Cuban National Directorate of the Revolution accepted them to protect Cuba against U.S. attack, and to aid its ally, the Soviet Union. Schlesinger believed that when the missiles were withdrawn, Castro was angrier with Khrushchev than he was with Kennedy because Khrushchev had not consulted Castro before deciding to remove them.
[u]
In early 1992, it was confirmed that Soviet forces in Cuba had, by the time the crisis broke, received tactical nuclear warheads for their artillery rockets and Il-28 bombers. Castro stated that he would have recommended their use if the U.S. invaded despite knowing Cuba would be destroyed.
[/u]
Arguably the most dangerous moment in the crisis was only recognized during the Cuban Missile Crisis Havana conference in October 2002. Attended by many of the veterans of the crisis, they all learned that on October 26, 1962 the USS Beale had tracked and dropped signaling depth charges (the size of hand grenades) on the B-59, a Soviet Project 641 (NATO designation Foxtrot) submarine which, [u]unknown to the U.S., was armed with a 15 kiloton nuclear torpedo. Running out of air, the Soviet submarine was surrounded by American warships and desperately needed to surface. An argument broke out among three officers on the B-59, including submarine captain Valentin Savitsky, political officer Ivan Semonovich Maslennikov, and Deputy brigade commander Second Captain Vasili Arkhipov. An exhausted Savitsky became furious and ordered that the nuclear torpedo on board be made combat ready. Accounts differ about whether Commander Arkhipov convinced Savitsky not to make the attack, or whether Savitsky himself finally concluded that the only reasonable choice left open to him was to come to the surface. During the conference Robert McNamara stated that nuclear war had come much closer than people had thought. Thomas Blanton, director of the National Security Archive, said, "A guy called Vasili Arkhipov saved the world."[/u]

The crisis was a substantial focus of the 2003 documentary, [i][url=http://en.wikipedia.org/wiki/The_Fog_of_War]The Fog of War[/url][/i], which won the Academy Award for Best Documentary Feature.[/quote]

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

Paul Krugman actually makes sense today, since he is not discussing the wonders of government borrowing to solve all economic ills;

[url=http://www.nytimes.com/2011/03/21/opinion/21krugman.html?ref=opinion]The War on Elizabeth Warren[/url]
[quote]Last week, at a House hearing on financial institutions and consumer credit, Republicans lined up to grill and attack Elizabeth Warren, the law professor and bankruptcy expert who is in charge of setting up the new Consumer Financial Protection Bureau. Ostensibly, they believed that Ms. Warren had overstepped her legal authority by helping state attorneys general put together a proposed settlement with mortgage servicers, which are charged with a number of abuses.
Fred R. Conrad/The New York Times

But the accusations made no sense. Since when is it illegal for a federal official to talk with state officials, giving them the benefit of her expertise? Anyway, everyone knew that the real purpose of the attack on Ms. Warren was to ensure that neither she nor anyone with similar views ends up actually protecting consumers.

And Republicans were clearly also hoping that if they threw enough mud, some of it would stick. For people like Ms. Warren — people who warned that we were heading for a debt crisis before it happened — threaten, by their very existence, attempts by conservatives to sustain their antiregulation dogma. Such people must therefore be demonized, using whatever tools are at hand. ...[/quote]
[i]My Comment:[/i] Ah, those wascawwy Wepubwicans ... they have roughly as much credibility on the subject of financial (de)regulation as they do on climate science.

The PIIGS are grunting again today. Portugal, is now on the verge of government collapse. Austerity measures proposed just a few months ago are being rejected in effect setting the stage for a calamitous default with resulting efforts to bail them out.

When you are spending nearly twice as much as you are taking in as taxes, you have to borrow to offset the red ink. Eventually the debt burden cannot be resolved by anything less than cathartic fiscal surgery. Portugal is on the brink.

One has to ask, When will Spain bite the bullet?

Note to self, hot barbecued pig wings might just be the wave of the future. We all know these pigs can't fly so they obviously don't need the wings. we might as well put them to good use. Second note to self, what if the pig being barbecued is the U.S.?

DarJones

Who said it?
 

This is a bit aside from the usual economics, except that matters military and economic almost invariably overlap to some degree. For instance, those [url=http://en.wikipedia.org/wiki/Tomahawk_missile]Tomahawk cruise missiles[/url] we've all gotten used to seeing launched from U.S. ships (in place of the more-old-fashioned naval artillery bombardment) in various interesting and apparently-deemed-cruise-missile-worthy parts of the world? Those cost about $1 million each, and that`s just the direct replacement cost of the missile, not the support infrastructure needed to store, launch and control it.

(I had a buddy in the UofMichigan AeroE program who went to work for [url=http://en.wikipedia.org/wiki/Williams_International]Williams International[/url], the company that makes the very high-tech [url=http://en.wikipedia.org/wiki/Williams_F107]small jet turbine engines[/url] for those. It's a shame those inevitably get destroyed along with the rest of the missile - each would suffice as a beautifully designed high-end propulsion source for a small private jet or other small vehicle needing high-reliability, high-efficiency compact jet propulsion.)

But without further ado, today's "who said it?" pop-quiz:
[quote]The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation.

As Commander-in-Chief, the President does have a duty to protect and defend the United States. In instances of self-defense, the President would be within his constitutional authority to act before advising Congress or seeking its consent. History has shown us time and again, however, that military action is most successful when it is authorized and supported by the Legislative branch. It is always preferable to have the informed consent of Congress prior to any military action.[/quote]

[QUOTE=Fusion_power;256374]When you are spending nearly twice as much as you are taking in as taxes, you have to borrow to offset the red ink.[/QUOTE]Not quite true.

You can raise money by selling assets. The UK raised billions from privatization in the 1980s and then had a nice little earner teaching other countries how to follow suit. The Bank of England has since sold off a few tonnes of gold, at a rather poor price in my opinion, to raise a few more quid for spending.

More recently, the UK raised a few more billions by selling 3G spectrum. I suppose that this could be described as a form of taxation if the definition is stretched a bit further than is usual.

Paul

[url]http://www.economist.com/content/global_debt_clock[/url]

the problem is i don't have the average amount the world makes per year to help calculate if the world can ever be debt free.

[QUOTE=xilman;256384]More recently, the UK raised a few more billions by selling 3G spectrum. I suppose that this could be described as a form of taxation if the definition is stretched a bit further than is usual.[/QUOTE]

Indeed, wireless spectrum auctions are one of the last few remaining "free money" cash cows for governments - "selling" something which cost them nothing and which exists only in the form of "the right not to have someone else transmit photons in a particular frequency range in this geographic locale", for a premium price.

(Many readers will likely have heard the recent scandal in India in which corrupt/incompetent government officials at the Indian space agency and state-run telecom firm essentially away an estimated $40-50 billion worth of wireless spectrum).

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

Mish has the latest on the troubles in Portugal`s government:

[url=http://globaleconomicanalysis.blogspot.com/2011/03/portuguese-government-on-verge-of.html]Portuguese Government on Verge of Collapse[/url]: [i]Unless there is an unexpected breakthrough within hours, it's likely the end of the line for Portugal's Prime Minister who has threatened to resign if parliament does not approve austerity measures he seeks.[/i]
[quote]Portugal's government is on the verge of collapse after opposition parties withdrew their support for another round of austerity policies aimed at averting a financial bailout.

The expected defeat of the minority government's latest spending plans in a parliamentary vote Wednesday will likely force its resignation and could stall national and European efforts to deal with the continent's protracted debt crisis.

The vote comes on the eve of a two-day European Union summit where policymakers are hoping to take new steps to restore investor faith in the fiscal soundness of the 17-nation eurozone, including Portugal.[/quote]
[i]My Comment:[/i] ...And it appears the government collapse is [url=http://www.zerohedge.com/article/portuguese-government-rejects-austerity-plan-government-collapses]a done deal[/url].

On the heels of [url=http://uk.ibtimes.com/articles/127191/20110326/uk.htm]mass protests against government cutbacks in the UK[/url], please consider Paul Krugman`s latest paean for maintained high levels of government spending "until the recovery is self-sustaining":

[url=http://www.nytimes.com/2011/03/25/opinion/25krugman.html?ref=opinion]The Austerity Delusion[/url]
[quote]Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.

What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.

It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.

It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.

Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.

So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned in the face of phantom risks and delusional hopes. On one side, we’re constantly told that if we don’t slash spending immediately we’ll end up just like Greece, unable to borrow except at exorbitant interest rates. On the other, we’re told not to worry about the impact of spending cuts on jobs because fiscal austerity will actually create jobs by raising confidence.

How’s that story working out so far?

Self-styled deficit hawks have been crying wolf over U.S. interest rates more or less continuously since the financial crisis began to ease, taking every uptick in rates as a sign that markets were turning on America. But the truth is that rates have fluctuated, not with debt fears, but with rising and falling hope for economic recovery. And with full recovery still seeming very distant, rates are lower now than they were two years ago.

But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts.

Just ask the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.

That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.

And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right.

But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.

Which brings me back to what passes for budget debate in Washington these days.

A serious fiscal plan for America would address the long-run drivers of spending, above all health care costs, and it would almost certainly include some kind of tax increase. But we’re not serious: any talk of using Medicare funds effectively is met with shrieks of “death panels,” and the official G.O.P. position — barely challenged by Democrats — appears to be that nobody should ever pay higher taxes. Instead, all the talk is about short-run spending cuts.

In short, we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems. And here’s what we know from experience abroad: The confidence fairy won’t save us from the consequences of our folly. [/quote]
[i]My Comment:[/i] As usual with Krugman-on-spending, where to begin? First off, one can argue that Portugal`s bond-interest rates have rocketed upward because bond markets saw the resistance to Mr. Socrates` proposed austerity measures as a sign that Portugal would be unable to rein in its budget issues and as a result would require a bailout ... which appears to have been spot-on. Second, the reason Irish bond yields have risen is that despite the austerity measures taken by the government there, the banking system is still in deep trouble - In other words, the bond markets see that mere austerity will not be enough. Krugman conveniently omits the Icelandic-style option, in which Ireland would have forced 'austerity' on the bondholders in its insolvent banks rather than having its citizenry bear all the pain. Sure, the debt markets would have threatened to shut Ireland out from any new borrowing, but with the bondholder-haircut and a relatively modest amount of fiscal austerity there would be no *need* for more borrowing. What do I care what the interest rate on that credit card is if I don`t use it?


[b]In Prison for Taking a Liar Loan[/b]

Looks like the government is finally getting serious about "cracking down" on mortgage-related fraud ... one meaningless low-level petty-fraudster at a time. [url=http://globaleconomicanalysis.blogspot.com/2011/03/fdic-cash-for-keys-proposal-would-pay.html]Mish has all the juicy details[/url]:
[quote][b]In Prison for Taking a Liar Loan[/b]

Of all the crooked bankers from the top on down, of all the millions of potential cases, government managed to go after a one person who took out two liar loans.

Please consider [url=http://www.nytimes.com/2011/03/26/business/26nocera.html?_r=1]In Prison for Taking a Liar Loan[/url]

This story is truly amazing, you have to read it to appreciate it.

I do not condone liar loans but sending someone to prison for that is more than a bit ridiculous. The punishment should fit the crime.

By the way what does it cost to imprison someone for 2 years? Meanwhile let's recap my rolling list of bank fraud and what little was done about it.

[b]Rolling List of High Profile Fraud Targets[/b]

[i]October 10, 2010[/i]: [url=http://globaleconomicanalysis.blogspot.com/2010/10/fdic-authorizes-1-billion-lawsuits.html]FDIC Authorizes $1 Billion Lawsuits Against Failed-Bank Executives; Token Search for Low-Profile Scapegoats [/url]

[i]April 29, 2010[/i]: [url=http://globaleconomicanalysis.blogspot.com/2010/04/barofsky-threatens-criminal-charges-in.html]Barofsky Threatens Criminal Charges in AIG Coverup, Goldman Sachs Abacus Deal, TARP Insider Trading; New York Fed Implicated[/url]

[i]April 16, 2010[/i]: [url=http://globaleconomicanalysis.blogspot.com/2010/04/no-ethics-no-fiduciary-responsibility.html]Rant of the Day: No Ethics, No Fiduciary Responsibility, No Separation of Duty; Complete Ethics Overhaul Needed[/url]

[i]March 2, 2010[/i]: [url=http://globaleconomicanalysis.blogspot.com/2010/03/geithners-illegal-money-laundering.html]Geithner's Illegal Money-Laundering Scheme Exposed; Harry Markopolos Says "Don't Trust Your Government"[/url]

[i]January 31, 2010[/i]: [url=http://globaleconomicanalysis.blogspot.com/2010/01/77-fraud-money-laundering-insider.html]77 Fraud, Money Laundering, Insider Trading, and Tax Evasion Investigations Underway Regarding TARP[/url]

[i]January 28, 2010[/i]: [url=http://globaleconomicanalysis.blogspot.com/2010/01/secret-deals-involving-no-one-aig.html]Secret Deals Involving No One; AIG Coverup Conspiracy Unravels[/url]

[i]January 26, 2010[/i]: [url=http://globaleconomicanalysis.blogspot.com/2010/01/questions-geithner-cannot-escape.html]Questions Geithner Cannot Escape[/url]

[i]January 07, 2010[/i]: [url=http://globaleconomicanalysis.blogspot.com/2010/01/time-to-indict-geithner-for-securities.html]Time To Indict Geithner For Securities Fraud[/url]

[i]October 20, 2009[/i]: [url=http://globaleconomicanalysis.blogspot.com/2009/10/bernanke-guilty-of-coercion-and-market.html]Bernanke Guilty of Coercion and Market Manipulation[/url]

[i]July 17, 2009[/i]: [url=http://globaleconomicanalysis.blogspot.com/2009/07/paulson-admits-coercion-where-are.html]Paulson Admits Coercion; Where are the Indictments?[/url]

[i]June 26, 2009[/i]: [url=http://globaleconomicanalysis.blogspot.com/2009/06/bernanke-suffers-from-selective-memory.html]Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America "Turd in the Punchbowl"[/url]

[i]April 24, 2009[/i]: [url=http://globaleconomicanalysis.blogspot.com/2009/04/let-criminal-indictments-begin-paulson.html]Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis[/url][/quote]

SIGTARP Barofsky Goes Out Blasting
 

[url=http://www.nytimes.com/2011/03/30/world/europe/30iht-spain30.html?_r=1&ref=world]In Troubled Spain, Boom Times for Foreign Languages[/url]
[quote]MADRID — Facing high unemployment at home, more Spaniards are seeking work abroad. But they are confronting a significant hurdle: their poor foreign-language skills, in particular a lack of English.

With a 20 percent unemployment rate, twice the European average, labor mobility has become a burning issue in Spain, prompting some business leaders to call for an overhaul of the Spanish education system that would make better language training a priority.
...
There are early suggestions that the next generation will have sufficient communications skills to work outside Spain: More children are now being taught by English speakers as part of their regular class work. At the same time, more adults are playing catch-up, notably trying learn German to respond to employment offers in Germany, which has the largest economy in Europe.

One place where educational changes are under way is Madrid. A program run by the regional government has made about a third of primary state schools bilingual. The government expects to raise that proportion to half by 2015.

On a recent morning at the Rosa Luxemburgo school in the district of Moncloa-Aravaca, 10-year-olds were studying the human body in English, learning terms like “salivary glands” and “esophagus.” One of them, Macarena Ferrán, said that she also got to practice English regularly while vacationing abroad, last summer in the Netherlands. As to her long-term ambition, “I would like to live in New York because it looks like a very interesting city,” she said in almost flawless English.

For the current generation of Spanish job-seekers, however, working in New York might be more of a distant dream. While there are no reliable comparative statistics, language-school owners like Richard Vaughan even argue that “the level of English is lower than 15 years ago,” reflecting a general decline in education standards in Spain.

Mr. Vaughan, a Texan who moved to Spain in the 1970s, now runs Vaughan Systems, the largest English language teaching company in Spain. He estimated that [u]“fewer than 5 percent of the students graduating from schools of engineering, law or business possess a working knowledge of English.”[/u][/quote]
[i]My Comment:[/i] 5 percent is shockingly low...


[b]SIGTARP Barofsky Goes Out Blasting[/b]

...with a scathing Op-Ed about the "success" of TARP in today`s NYT:

[url=http://www.nytimes.com/2011/03/30/opinion/30barofsky.html?ref=opinion]Where the Bailout Went Wrong[/url]
[quote][u]TWO and a half years ago, Congress passed the legislation that bailed out the country’s banks. The government has declared its mission accomplished, calling the program remarkably effective “by any objective measure.” On my last day as the special inspector general of the bailout program, I regret to say that I strongly disagree.[/u] The bank bailout, more formally called the Troubled Asset Relief Program, failed to meet some of its most important goals.

From the perspective of the largest financial institutions, the glowing assessment is warranted: billions of dollars in taxpayer money allowed institutions that were on the brink of collapse not only to survive but even to flourish. These banks now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed “too big to fail.”

Though there is no question that the country benefited by avoiding a meltdown of the financial system, this cannot be the only yardstick by which TARP’s legacy is measured. The legislation that created TARP, the Emergency Economic Stabilization Act, had far broader goals, including protecting home values and preserving homeownership.

These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken “into account.” Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.

The act’s emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directs the department to do just that.

But it has done little to abide by this legislative bargain. Almost immediately, as permitted by the broad language of the act, Treasury’s plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation’s largest financial institutions, a shift that came with the express promise that it would restore lending.

[u]Treasury, however, provided the money to banks with no effective policy or effort to compel the extension of credit. There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds.[/u] It was only in April of last year, in response to recommendations from our office, that Treasury asked banks to provide that information, well after the largest banks had already repaid their loans. It was therefore no surprise that lending did not increase but rather continued to decline well into the recovery. (In my job as special inspector general I could not bring about the changes I thought were needed — I could only make recommendations to the Treasury Department.)

Meanwhile, the act’s goal of helping struggling homeowners was shelved until February 2009, when the Home Affordable Modification Program was announced with the promise to help up to four million families with mortgage modifications.

That program has been a colossal failure, with far fewer permanent modifications (540,000) than modifications that have failed and been canceled (over 800,000). This is the well-chronicled result of the rush to get the program started, major program design flaws like the failure to remedy mortgage servicers’ favoring of foreclosure over permanent modifications, and a refusal to hold those abysmally performing mortgage servicers accountable for their disregard of program guidelines. As the program flounders, foreclosures continue to mount, with 8 million to 13 million filings forecast over the program’s lifetime.

Treasury Secretary Timothy Geithner has acknowledged that the program “won’t come close” to fulfilling its original expectations, that its incentives are not “powerful enough” and that the mortgage servicers are “still doing a terribly inadequate job.” But Treasury officials refuse to address these shortfalls. Instead they continue to stubbornly maintain that the program is a success and needs no material change, effectively assuring that Treasury’s most specific Main Street promise will not be honored.

[u]Finally, the country was assured that regulatory reform would address the threat to our financial system posed by large banks that have become effectively guaranteed by the government no matter how reckless their behavior. This promise also appears likely to go unfulfilled. The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. They reasonably assume that the government will rescue them again, if necessary. Indeed, credit rating agencies incorporate future government bailouts into their assessments of the largest banks[/u], exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle.

Worse, Treasury apparently has chosen to ignore rather than support real efforts at reform, such as those advocated by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, to simplify or shrink the most complex financial institutions.

In the final analysis, it has been Treasury’s broken promises that have turned TARP — which was instrumental in saving the financial system at a relatively modest cost to taxpayers — into a program commonly viewed as little more than a giveaway to Wall Street executives.

It wasn’t meant to be that. Indeed, [u]Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises. This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.[/u][/quote]

[url=http://www.reuters.com/article/2011/03/30/us-usa-housing-congress-idUSTRE72S7R720110330?feedType=nl&feedName=ustopnewsearly]House votes to kill main Obama foreclosure aid[/url]: [i](Reuters) - The House of Representatives on Tuesday voted to kill President Barack Obama's signature program to help struggling homeowners avoid foreclosure.[/i]
[quote]A bill to terminate the program was approved on a 252-170 vote. But the bill is unlikely to clear the Senate.

It was the last in series of four measures brought forward by newly empowered House Republicans to end government assistance for homeowners hurt by the housing crisis.

Republicans argued the foreclosure prevention plan, known as the Home Affordable Modification Program, is ineffective and not worthy of taxpayer support amid soaring budget deficits. The vote broke largely along party lines.

The program, which offers incentives for lenders to modify loans, was launched to great fanfare in the spring of 2009. The Obama administration had hoped it would permanently lower mortgage payments for 3 million to 4 million homeowners.

But fewer than 600,000 borrowers have received permanent loan modifications, and the program has been widely criticized as ineffective from critics on both the left and the right.

"The HAMP program is a failure," said Representative Patrick McHenry, the North Carolina Republican who sponsored the bill. "If we can't eliminate this failed program, what program can we eliminate?"

Analysts see the votes as an effort by Republicans, who last seized control of the House in an election in November with an anti-bailout, anti-spending message, to score points with their political base.[/quote]
[i]My Comment:[/i] Given that this is the same program described by SIGTARP Barofsky as a "colossal failure" in the op-ed I quoted in my post above from yesterday, you won`t find me shedding many tears over this. I just wish the government made the lenders involved in the getting-people-into-homes-they-cannot-possibly-afford debacle pay the price of their recklessness and lawbreaking, not just the folks who should never have been allowed to "buy" such homes. anyway, since this all just partisan poltical posturing anyway, it`s probably not worthy of further discussion.


[url=http://www.reuters.com/article/2011/03/30/us-obama-energy-idUSTRE72S3C820110330?feedType=nl&feedName=ustopnewsearly]Obama wants to curb U.S. oil imports by a third[/url]: [i]WASHINGTON (Reuters) - President Barack Obama will set an ambitious goal on Wednesday to cut U.S. oil imports by a third over 10 years, focusing on energy security amid high gasoline prices that could stall the country's economic recovery.[/i]
[quote]"What we were talking about was breaking the pattern of being shocked at high prices and then, as prices go down, being lulled into a trance, but instead let's actually have a plan," Obama told party activists in New York late on Tuesday.

"Let's, yes, increase domestic oil production, but let's also invest in solar and wind and geothermal and biofuels and let's make our buildings more efficient and our cars more efficient. Not all of that work is done yet, but I'm not finished yet. We've got more work to do," Obama said.

The White House says this is a deliberate turn toward energy security and will be followed by other events to highlight his strategy.

"He'll be laying out the goal ... that in a little over a decade from now we'll reduce the amount of oil we import from the rest of the world by about a third," a senior administration official told reporters in Washington.[/quote]
[i]My Comment:[/i] So the president wants to do what just about every president since Reagan has promised but abjectly failed to make good on, eh? I say, keep printing trillions a year to fund Wall Street bailouts and insane government spending, and the resulting currency debasement will eventually get you your hoped-for reduction in oil imports. $10-per-gallon gasoline has a tendency to do that.


[b]The CRA Debate, Revisited[/b]

I thought Barry Ritholtz had - in multiple postings the past several years - pretty much laid to rest the assertion made frequently by the political right that the 1970s-era Community Reinvestment Act and its more-recent expansion during the Clinton presidency, played any significant role in the orgy of risky lending which occurred during the late great Housing Bubble and ongoing bust. But Mish posted a piece yesterday which makes me much less certain on that score:

[url=http://globaleconomicanalysis.blogspot.com/2011/03/how-cra-fueled-housing-bubble.html]How the CRA Fueled the Housing Bubble[/url]:
[quote]President Obama wants to expand the [url=http://en.wikipedia.org/wiki/Community_Reinvestment_Act]Community Reinvestment Act[/url]. Thus it should be no surprise that a self-serving report by the Obama Administration concludes that CRA "greenlining" (forcing banks to lend to low-income neighborhoods) did not contribute to the housing bubble or the financial crisis. The IBD article Mish quotes from is done in a Fiction/Fact bipartite format ... I`ll only quote the "Fiction" snips, interested readers can go to the full article for the (IBD-alleged) countering Facts:

Investor's Business Daily takes apart ACORN and the CRA in an editorial [url=http://www.investors.com/NewsAndAnalysis/Article/567464/201103291826/Community-Reinvestment-Act-Separating-Fact-From-Fiction.htm]Community Reinvestment Act: Separating Fact From Fiction[/url]:
[i]
[b]FICTION:[/b] Because the CRA was passed in 1977, long before the subprime crisis, it couldn't have caused the recent explosion in bad loans.

[b]FICTION:[/b] "Many of these (CRA) loans were not very risky," the FCIC report claims.

[b]FICTION:[/b] Only 6% of subprime loans were originated by banks subject to the CRA, so the vast majority of risky lending was not tied to the law.

[b]FICTION:[/b] "These loans performed well," the FCIC report maintained.[/i][/quote]
[i]My Comment:[/i] The article also notes that one of the chief government proponents of "CRA was not an issue in the mortgage crisis", FCIC chair (and California Democratic party stalwart, former CA treasurer and unsuccessful CA-gubernatorial candidate) [url=http://en.wikipedia.org/wiki/Phil_Angelides]Phil Angelides[/url] may have some major conflicts of interest with respect to the CRA. Of course this kind of allegation is often used as a pre-emptive smear tactic, but again - read the article and make your own judgment as to its merits, or lack thereof. Mish concludes
[quote]The CRA certainly did not cause the financial crisis. However, it did contribute to it.

Ironically, the very same people who insisted money be lent to people who could not afford houses are the very same people now bitching about those same "predatory loans".

Forcing banks to lend money is a piss poor idea. Piss poor loans help neither the lender nor the borrower. Yet, those who added fuel to the housing bubble have now whitewashed their role in the affair and beg for still more funds.

President Obama want to expand the CRA. Instead it should be added to the scrap heap of history along with Fannie Mae, Freddie Mac, HUD, HAMP, and thousands of affordable home programs all of which did anything but make homes affordable.

Now that home prices are falling, one might think the affordable home advocates would be happy. They are not. The hypocrites now want to prop up home prices on the belief that falling home prices hurt neighborhoods.[/quote]

I sense a heavyweight econo-blogger slugout coming over the issue.

[QUOTE=ewmayer;257191][i]My Comment:[/i] So the president wants to do what just about every president since Reagan has promised but abjectly failed to make good on, eh? I say, keep printing trillions a year to fund Wall Street bailouts and insane government spending, and the resulting currency debasement will eventually get you your hoped-for reduction in oil imports. $10-per-gallon gasoline has a tendency to do that.
[/QUOTE]

The only way that it is going to happen is if it is driven by market forces.
It won't happen by government mandate. Any such mandate would
cause pain to at least one group of people and politicians
don't want to upset voters.

How about a mandate that by 2015 every car (not trucks) must get
40 MPG? How about putting a big premium (e.g. $20K) on the sale of
every SUV or other gas guzzler (e.g. v8 or other big engine sports car)??
Let's raise the gas tax by $1.00-$2.00/gallon to be used [b]strictly[/b]
for infrastructure repair? Or for improving public transportation?

Most people are unwilling to make such sacrifices for the good of our
descendents.

Let the screaming begin!


What this means is that gas prices must indeed rise to a level that makes
alternatives attractive.

[QUOTE=ewmayer;257104][url=http://www.nytimes.com/2011/03/30/world/europe/30iht-spain30.html?_r=1&ref=world]In Troubled Spain, Boom Times for Foreign Languages[/url]

[i]My Comment:[/i] 5 percent is shockingly low...


[b]SIGTARP Barofsky Goes Out Blasting[/b]

...with a scathing Op-Ed about the "success" of TARP in today`s NYT:

[url=http://www.nytimes.com/2011/03/30/opinion/30barofsky.html?ref=opinion]Where the Bailout Went Wrong[/url][/QUOTE]

See:

[url]http://www.huffingtonpost.com/robert-reich/the-truth-about-the-econo_b_842998.html[/url]

"New" Irish Government Serves Same Masters
 

This morning, Barry Ritholtz posted some

[url=http://www.ritholtz.com/blog/2011/04/advice-to-irish-prepackaged-bankruptcy-for-banks/]Advice to Irish: Prepackaged Bankruptcy for Banks[/url]
[quote][i]Our story so far:[/i] Irish banks went hog tulip-wild, building out a huge residential and commercial boom. The construction was far beyond actual demand for the former Celtic tiger; it was essentially speculation run amuck.

Ireland had briefly found the pot-o-gold at the end of the rainbow: Everyone was making oodles of loot. Banks were lending money, investment firms were underwriting massive bond offerings, construction was booming, accountants and lawyers well well fed, all manner of jobs plentiful. It looked like Ireland had tapped into a massive wealth creation machine. In reality, it was halfway between a nation of greater fools and a Ponzi scheme.

And as these bubbles typically go, so long as the music is playing, all the fools danced the night away. Until the band suddenly stopped, and the reckoning was upon them.

For the first time in 15 years, emigration was greater than immigration. The Irish budget went from surplus to an highest deficit (by far) in the history of the Eurozone: 32% of GDP.

For reasons we have yet to fully learn, the Irish government decided to guarantee the banks’ recklessness. The 2009 bail out, plus the additional monies needed, will put the 4.5 million people in Ireland on the hook for €15,000 each — about $21,337.50 in dollars per person.

I normally am reluctant to offer up advice to sovereign nation as to how to conduct their affairs. But the new Irish government seems so very close to making a leap away from the rest of the bailout driven world and into the correct posture, that I had to add my two cents.

The bailouts in the US are instructive. Giving banks money to rescue themselves from their own actions does not lead to a long term healthy economy in a capitalistic system. Banks take advantage of the easy money, leverage themselves up all over again, and produce record profits.

But the banks are a negative, not positive, contributor to the economy post bailout. Capitalism isn’t a charity, and this was precisely what the US should have expected (and what a few people warned against). The risk reappears, no lessons are learned, moral hazard gets writ ever larger.

The alternative to the Japanese approach, adopted in part by the US, is the Swedish system. This is what the US FDIC does: Insolvent banks have their deposits guaranteed by the government, the banks are then liquidated, shareholders wiped out, senior management fired, assets than sold off to pay for the losses. Whatever is left over goes to the bondholders.

That is roughly what was done with General Motors. The GM prepackaged bankruptcy saved what was worth saving, reorganized the company, and allowed it to move forward.

This is what the US should have done with their own banks, but refused to. Both the Bush and Obama White Houses ceded their decision making on this issue to the former head of Goldman Sachs (Hank Paulson as Bush Treasury Secretary) and Citigroup Director and prior Co-Chairman of Goldman (Obama’s Economic advisor Robert Rubin).

The Irish politicians who made the bailout decision were tossed out. The new government has a window to not only show some backbone, but to take their country back from the bankers who bankrupted it.

Here’s hoping the Irish are smarter than the rest of the fools who now find themselves indentured servants to reckless bankers.[/quote]
[i]My Comment:[/i] Ah well, the faint hope that the "new, improved" Irish government would actually represent the people who elected them rather than the international banking mafia lasted all of an hour or two after Barry`s posting appeared:

[url=http://globaleconomicanalysis.blogspot.com/2011/04/ireland-caves-in-to-trichet-backs-of.html] Ireland Caves in to Trichet; Backs of Irish Taxpayers Will be Broken[/url]
[quote]Ireland yielded to the European Central Bank to protect bondholders even as its bailout bill for the region’s worst banking crisis moved to as much as 100 billion euros ($142 billion) after stress tests.

The ECB in Frankfurt was “solidly opposed” to imposing losses on investors in senior bank debt, Finance Minister Michael Noonan told broadcaster RTE today. The ECB agreed to provide “ongoing” funding for the banks, he said.[/quote]

It is funny in a way to watch the cascade effect. Here piggy piggy, which of the PIIGS is now grunting at the Euro trough? Could it be Portugal? Oh my!

[url]http://www.bbc.co.uk/news/business-12993318[/url]

[QUOTE]Mr Socrates said the country was "at too much risk that it shouldn't be exposed to".

The government has long resisted asking for aid but last week admitted that it had missed its 2010 budget deficit target.

Portugal follows Greece and the Irish Republic in seeking a bail-out.

"I always said asking for foreign aid would be the final way to go but we have reached the moment," Mr Socrates said.

"Above all, it's in the national interest."

European Commission President Jose Manuel Barroso said in a statement that Portugal's request would be processed "in the swiftest possible manner, according to the rules applicable".

He also reaffirmed his "confidence in Portugal's capacity to overcome the present difficulties, with the solidarity of its partners".
Borrowing costs

Mr Socrates did not say how much aid Portugal would ask for. Negotiations will now be underway and the BBC's business editor Robert Peston said rescue loans could amount to as much as 80bn euros ($115bn; £70bn).

Mr Socrates was speaking after Finance Minister Fernando Teixeira dos Santos said it was necessary to resort to financial aid from the EU.
Continue reading the main story
Analysis
Matthew Price Europe correspondent, BBC News

First Greece, then Ireland, now Portugal. But unlike the previous two bail-outs, this one does not seem to have provoked panic - either in the corridors of power here, nor on the markets.

The EU's top economic official Olli Rehn called the Portugese decision a "responsible move". The President of the European Commission Jose Manuel Barroso - himself Portugese - said the request would be processed as quickly as possible.

A team could be dispatched to Portugal in the coming days.

EU finance ministers hold a scheduled meeting in Hungary at the end of the week. Portugal will be top of the agenda.

The European Commission and the European Central Bank are both expected to be involved in the bail-out funding. The International Monetary Fund says it stands ready to help as well.

Earlier, the government raised about 1bn euros after tapping the financial markets in order to repay loans, but will have to pay a higher interest rate to lenders.

Portugal's cost of borrowing has risen sharply since the minority Socialist government resigned last month after its proposed tougher austerity measures were defeated in parliament.

Since then several rating agencies have downgraded the country's debt.

An informal meeting of European finance ministers had already been scheduled for Thursday in Budapest. Portugal was not originally on the agenda but is expected to be discussed.

The UK Treasury Minister Mark Hoban will attend. A source at the Treasury said that the bilateral loan the UK offered to the Irish Republic was "very much a special case" and a similar offer is "not on the table" for Portugal.

Jan Randolph, head of sovereign risk at IHS Global Insight, told the BBC that Portugal might organise "some sort of bridging loan" in the short term.

But he added: "The real big loan over several years will require a medium-term plan and I don't think that can be agreed until the new government comes into place."

Elections are likely to take place in a few months' time. [/QUOTE]

It would be more impressive if it were not such a sad state of affairs.
Portugal - socialist nation, major debt from social programs, high unemployment, etc.
Ireland - bank debt, should have hammered the banks
Iceland - bank debt, somewhat hammered the banks
Italy - This one is the big question mark. I suspect social programs and government sculldudgery will take them down eventually.
Greece - socialist nation, entitlement citizenry, social program debts
Spain - combination of causes, banks, socialist programs, entitlements, etc.
USA - This is the grandaddy of them all. Bank debt, ignorant FED, lack of effective regulation, the potential is devastating.

Of the above, Portugal, Ireland, and Greece are in bailout purgatory.... or is that heaven? Iceland is cutting a wake in uncharted waters. What about Spain? My best projection says that 20% unemployment, overpriced social programs, and an increasingly jittery market point to Spain needing a bailout within 6 months. Anyone want to make odds?

DarJones

[QUOTE=Fusion_power;257815]Of the above, Portugal, Ireland, and Greece are in bailout purgatory.... or is that heaven? Iceland is cutting a wake in uncharted waters. What about Spain? My best projection says that 20% unemployment, overpriced social programs, and an increasingly jittery market point to Spain needing a bailout within 6 months. Anyone want to make odds?[/QUOTE]

Well, given that Spain [url=http://market-ticker.org/akcs-www?post=183789]just announced[/url] that it has "absolutely ruled out the need for a bailout" - repeating almost verbatim the noises Portuguese PM Socrates was making until only a few short weeks ago - I'd say the odds of Spain needing some form of emergency assistance (which the ECB will try very hard to call something "not a bailout", at least at first) by year's end are extremely good.

And of course all the "remedies" so far (at least outside of Iceland) have done nothing to solve the core issue, which is that someone needs to take a loss on all that bad debt, and suffer the consequences. So the ECB is, like the US Fed, engaged in a massive temporizing exercise, kicking the can down road as best they can, hoping for a miracle, or - even better - for them to find a way to stick taxpayers and the prudent (i.e. folks who actually still have money) with the entire bill without causing a mass uprising leading to dissolution of the Eurozone.

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

Gonna be a lazy shite today and simply post today`s econo-headlines-with-links for [url=]ZeroHedge[/url]:
[list][*]China Inflation May Hit 6%, No End to Tightening ([url=http://www.chinadaily.com.cn/business/2011-04/06/content_12279431.htm]China Daily[/url])[*]Portugal Bailout May Reach $129 Billion ([url=http://online.wsj.com/article/SB10001424052748704013604576248254141025180.html]WSJ[/url])[*]Brazil Takes Fresh ‘Currency War’ Action ([url=http://www.ft.com/cms/s/0/288b4b0a-60a5-11e0-a182-00144feab49a.html?ftcamp=rss#axzz1Iq70JMhA]FT[/url])[*]Obama Says Meeting ‘Narrowed the Issues’ on Budget Impasse ([url=https://360.gs.com/gs/portal/home/fdx/?st=1&d=10818846]Bloomberg[/url])[*]Government Shutdown Threatens 800,000 As Obama Seeks Solution ([url=http://www.bloomberg.com/news/2011-04-07/government-shutdown-threatens-800-000-as-obama-seeks-solution.html]Bloomberg[/url])[*]Ireland will need another bailout, says former IMF director ([url=http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/apr/07/ireland-second-bailout-imf]Guardian[/url])[*]Japan to Head Off Hydrogen Blast ([url=http://online.wsj.com/article/SB10001424052748704013604576246031636413412.html]WSJ[/url])[*]U.S., Italy Consider Arming Rebels to Speed Qaddafi Ouster ([url=http://www.bloomberg.com/news/2011-04-07/u-s-said-to-consider-arming-libyan-rebels-while-pushing-for-qaddafi-exile.html]Bloomberg[/url])[*]European banks in further capital calls ([url=http://www.ft.com/cms/s/0/a917d7f6-604c-11e0-abba-00144feab49a.html#axzz1Iq70JMhA]FT[/url])[*]Expected Rate Rise in Europe Hits Commodity Prices ([url=http://www.ft.com/cms/s/0/f7f4c48a-6081-11e0-9fcb-00144feab49a.html#axzz1Iq70JMhA]FT[/url])[/list]
[b] Germany Frowns On Financially Innovative Euro Coin Recycling Program[/b]

[url=http://www.nytimes.com/2011/04/06/business/global/06coins.html?_r=1&adxnnl=1&ref=world&adxnnlx=1302039405-yYj7wk7Ze1xKSpuPmIfeKA]Germany Arrests 6 in Euro Fraud Ring[/url]: [i]German prosecutors have arrested six men in one of the biggest and most unusual thefts in German history, one that defrauded the country’s central bank of some $8.5 million.[/i]
[quote]FRANKFURT —It was not a glamorous Hollywood-style bank heist. No tunnels. No rappelling from helicopters. Not even a single ski mask.

Just an unusually heavy carry-on bag, which a female flight attendant struggled to carry through Frankfurt’s airport after arriving from China.

But when curious customs agents took a look, they found evidence that may have helped them crack one of the biggest frauds in history against the Bundesbank, Germany’s august central bank. Authorities say the fraud has cost the bank about 6 million euros, or $8.5 million.

Inside the flight attendant’s bag, the authorities say, were thousands of 1-euro and 2-euro coins that had supposedly been scrapped after years of use but had been methodically reconstructed so they could be cashed in.

According to prosecutors, in recent years a fraud ring involving flight attendants has toted 30 tons of supposedly scrapped euro coins back into Europe from China. Recyclers in China were supposed to have melted down the old coins, which had been removed from circulation and sold as scrap metal.

Instead, officials say, the band and its accomplices painstakingly restored the coins, then fooled the Bundesbank into redeeming them for paper currency or money transfers into bank accounts. Last week, German authorities arrested six men in and around Frankfurt in connection with the case. The investigation is continuing, said Doris Möller-Scheu, a Frankfurt prosecutor, who did not rule out further arrests. [/quote]
[i]My Comment:[/i] So here you have some hard-working, industrious folks in Germany and China trying to supplement their meager incomes and help the environment by way of an innovative coin-recycling program, and the powers-that-be coming down all heavy-handed on it. Sheesh. I say this is preferable to the much more toxic and large scale "financial innovation" practiced by the big banks every day without penalty.

Very nice reader-comment exchange on ZeroHedge today, in response to [url=http://www.zerohedge.com/article/corn-and-crude-convergence]a post about rising oil and corn prices[/url] by ZH veteran Bruce Krasting:
[quote][b]by Mercury
on Thu, 04/07/2011 - 12:54
#1145628
[/b]
[i]"The conclusion is that the dog (crude) is wagging the tail (corn)."[/i]

But corn is also a food staple and in an inflationary environment, you cut back on oil/gas before you cut back on corn (or it's substitutes).

Some very smart people are saying that rising commodity prices are simply a manifestation of the next bubble. It can't really be inflation they say because some things are going up in price (and at different rates) and some things (tech, cars, RE) aren't going up at all.

To me at least it seems obvious that Fed induced inflation shows up in equities: pretty much in real time, commodities: with a very small lag...if at all, things that use commodities as signifigant inputs: a much longer lag and in places where increased efficiencies are still greater than rising input costs (technology basically - areas where things like Moore's Law applies etc. like Ipads, TVs etc.)....perhaps no price inflation at all. No car price inflation either since demand is weak in part because of the price inflation of other goods that people need more.


[b]by Imminent Crucible
on Thu, 04/07/2011 - 14:21
#1146136
[/b]
Those "very smart people" just aren't very old, Mercury. The idea that "it can't be inflation because everything isn't going up at the same rate" is easily debunked, if you lived through the 1970's.

Monetary inflation doesn't negate supply/demand factors. It just distorts markets and nominal prices. In the 1970's, which I remember all too well, prices went up faster than wages. Much faster. Some prices (like fuel) went up much faster than the official CPI inflation rate, while others (like house prices) barely broke even.

House prices aren't going up with gold, oil and corn today because the banks are stuck with a 10 year supply, if you count all the [nonperforming loans] that they haven't yet foreclosed on. On top of that, new home sales are only 20% of what they were at the peak of the real estate craze.

In a stagflation like today, as in the 1970s, money flows will determine which prices go up fastest. The Fed is firehosing money at stocks and bonds; the consumer is directing his garden hose at food and fuel. This fundamental dynamic can be tinkered with, but it won't be reversed. The only thing that can reverse it is to shut off the presses.

At which point both the markets and the economy collapse together.[/quote]
[i]My Comment:[/i] The price for the cheapest grade of self-serve gas as the local Valero station I`ve used as my price reference since the gas-price runup in the /spring of 2008 passed $4 last weekend...this morning it was up to $4.07. In 2008 it didn't hit that level until 2 months later in the year, eventually topped out at $4.50, and then collapsed in the Fall, in approximate synchrony with much of the global financial system and economy. I have a feeling that this time around prices are going to stay elevated for quite a while - even a reversion into full-blown global recession will only partly undo the effects of the rampant money-printing by the world`s major central banks over the past 3 years.

Gas is heading higher EWM. The dynamic playing out now is an old refrain where pumping up the supply of US dollars depresses the value of the $ on world markets which then causes oil to rise. As the supply of dollars rises depressing the dollar on world markets, oil must rise since it is traded in dollars.

It is interesting to me that when gas hit $4.30 per gallon a couple of years ago, everyone gasped and stopped traveling which increased supply and reduced demand forcing prices to tumble. I bought gas as low as $1.35 just 2 years back after that price collapse. Now we are up to about $3.65 per gallon on average in this area. I expect it to be over $4 within 4 weeks.

DarJones

Over-coiffed, anal-retentive deficit Robespierres
 

Matt Taibbi takes on the "bold and courageous deficit-slashing budget proposal" recently put forth by GOP "pinstriped prep-school cutie" darling Paul Ryan in one his latest blog postings:

[url=http://www.rollingstone.com/politics/blogs/taibblog/tax-cuts-for-the-rich-on-the-backs-of-the-middle-class-or-paul-ryan-has-balls-20110407]Tax Cuts for the Rich on the Backs of the Middle Class; or, Paul Ryan Has Balls[/url]:
[quote]The problem, of course, is that to actually make significant cuts in what is left of the “welfare state,” one has to cut Medicare and Medicaid, programs overwhelmingly patronized by white people, and particularly white seniors. So when the time comes to actually pull the trigger on the proposed reductions, the whippersnappers are quietly removed from the stage and life goes on as usual, i.e. with massive deficit spending on defense, upper-class tax cuts, bailouts, corporate subsidies, and big handouts to Pharma and the insurance industries.

This is a political game that gets played out in the media over and over again, and everyone in Washington knows how it works. Which is why it’s nauseating (but not surprising) to see so many commentators falling over themselves with praise for Ryan’s “bold” budget proposal, which is supposedly a ballsy piece of politics because it proposes backdoor cuts in Medicare and Medicaid by redounding their appropriations to the states and to block grants. Ryan is being praised for thusly taking on seniors, a traditionally untouchable political demographic . [u]Here is how old friend David Brooks, taking a break from his authorship of breathless master-race treatises, put it in a recent column[/u] called [url=http://www.nytimes.com/2011/04/05/opinion/05brooks.html]“Moment of Truth”[/url]:
[i]
Over the past few weeks, a number of groups, including the ex-chairmen of the Council of Economic Advisers and 64 prominent budget experts, have issued letters arguing that the debt situation is so dire that doing nothing is not a survivable option. What they lacked was courageous political leadership — a powerful elected official willing to issue a proposal, willing to take a stand, willing to face the political perils.

The country lacked that leadership until today. Today, Paul Ryan, the Republican chairman of the House Budget Committee, is scheduled to release the most comprehensive and most courageous budget reform proposal any of us have seen in our lifetimes…
[/i]
Brooks sums up the Ryan proposals this way:
[i]
The Ryan budget will put all future arguments in the proper context: The current welfare state is simply unsustainable and anybody who is serious, on left or right, has to have a new vision of the social contract. The initial coverage will talk about Ryan’s top number — the cuts of more than $4 trillion over the next decade. But the important thing is the way Ryan would reform programs…
[/i]
Brooks then goes on to slobber over all of Ryan’s ostensibly daring proposals, from the Medicare block grants to the more obnoxious Medicare voucher program (replacing Medicare benefits with vouchers to buy overpriced private insurance, which Brooks calls the government “giving you a sum of money” to choose from “a regulated menu of insurance options”).
[u]
What he doesn’t mention is that Ryan’s proposal also includes dropping the top tax rate for rich people from 35 percent to 25 percent. All by itself, that one change means that the government would be [url=http://www.bloomberg.com/news/2011-04-05/ryan-tax-rate-goal-would-require-u-s-lawmakers-to-consider-favored-breaks.html]collecting over $4 trillion less over the next ten years[/url][/u].

Since Brooks himself is talking about Ryan’s plan cutting $4 trillion over the next ten years (some say that number is higher), what we’re really talking about here is an ambitious program to cut taxes for people like… well, people like me and David Brooks, and paying for it by “consolidating job-training programs” and forcing old people to accept reduced Medicare benefits.[/quote]
[i]My Comment:[/i] I snipped the opening bit of Taibbi-esque color from the above because I wanted to stick to the more substantive discussion. But Taibbi - even if you disagree with him - is too good a wordsmith to ignore like that, so here is the opening by way of an end-of-work-week sendoff to our loyal readership:

[i]"Paul Ryan, the Republican Party’s latest entrant in the seemingly endless series of young, prickish, over-coiffed, anal-retentive deficit Robespierres they’ve sent to the political center stage in the last decade or so, has come out with his new budget plan. All of these smug little jerks look alike to me – from Ralph Reed to Eric Cantor to Jeb Hensarling to Rand Paul and now to Ryan, [u]they all look like overgrown kids who got nipple-twisted in the halls in high school, worked as Applebee’s shift managers in college, and are now taking revenge on the world as grownups[/u] by defunding hospice care and student loans and Sesame Street. They all look like they sleep with their ties on, and keep their feet in dress socks when doing their bi-monthly duty with their wives."[/i]

I keep thinking that one day the politicians are going to realize the desperate nature of the debt load the U.S. is carrying. Fat Chance!

/begin rant

Obama is now ready to publicize his own version of the deficit reduction du jour. Instead of balancing the budget in anything resembling a reasonable solution, we get to listen to the republicans attempt to lower tax rates on the wealthy and the democrats equally voluble to raise taxes on the wealthy. Isn't it about time somebody realized that there we are living the parody of (only 10 people in the United States and one of them pays taxes and that ONE is about dead from overwork)?

The underlying problems are already so huge that they may be beyond resolution. The only way we can eliminate some of this huge burden of debt is by getting businesses like GE to actually pay a fair amount of tax, cutting tax shelters and write offs, increasing taxes in a meaningful way, eliminating "take from the rich, give to the poor" programs like earned income credit, doing significant surgery on programs like medicare/medicaid, etc, etc....

end rant/

So get ready for another dog and pony show complete with popcorn and tiddlywinks. This promises to be entertaining... for a few minutes at least.

DarJones

Finally, Eleven indicted for bank fraud
 

Ernst can finally raise is count of financial villans facing indictment. Better late than never. The Department of Justice indicted 11 people for major bank fraud yesterday. Hooray, those scumbags will finally pay for their fraudulent mortgages, packaging toxic crap up and selling it as grade A paper, and sending the bill to Uncle Stoopid when it all fell apart.

[url]http://content.usatoday.com/communities/gameon/post/2011/04/fbi-cracks-down-on-3-biggest-online-poker-houses-poker-stars-full-tilt-poker-absolute-poker/1[/url]

Oh wait. My bad, this wasn't related to mortgage fraud and scandal. These guys wanted people to play poker online with their own money. Well, maybe the DOJ knows something I don't, maybe this really is a bigger crime than blowing up the entire U.S. and world economy.

Upon further reflection, I do feel so much safer knowing I will not face financial ruin playing poker with that $1000 I had online. Maybe the Feds can invest that $1000 in some mortgage backed securities from one of the big banks....

S&P rate US prospects "negative"
 

"If an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns.

[URL]http://www.bbc.co.uk/news/business-13118834[/URL]

And the news today is that the Pain in Spain falls mainly on the Lein.

Bad pun I know. But you will note that Spain is paying a significantly higher interest rate because speculation is growing that they are in deep dip.

Of the PIIGS, only Italy is not yet feeling the effects. Spain will be at least another 6 months and maybe a year before the inevitable.

[QUOTE]Spain had to pay a much higher interest rate on new debt, there was speculation of a possible default by Greece and a nationalist party in Finland made big gains in an election Sunday.[/QUOTE]
[url]http://moneywatch.bnet.com/economic-news/news/stocks-sink-after-s-p-issues-warning-on-us-debt/6219028/[/url]

Taking Xilman's and other information into account, the U.S. has enjoyed many years of low interest rates. Now it is shaping up to change.

DarJones

George, not feeling the love for the DOJ priorities these days?

[QUOTE=xilman;258903]"If an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns.

[URL]http://www.bbc.co.uk/news/business-13118834[/URL][/QUOTE]

So, anyone want to venture bold predictions on how long the government money-printers manage to "soothe the debt markets" before this finally blows sky-high? (A la Greece, whose 2-year bonds are now "yielding" over 20% ... I use quotes because "yield" implies the bond buyers will actually get paid back their principal in non-devalued currency units at the rate of interest in question).

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

PayPal co-founder Peter Thiel (via Mish, with commentary) echoes a conversation I had via e-mail with the same Mish last year about an "education bubble" fueled by subsidized student loans, the fast-growing business of degree mills, and the false promise that "a college degree is the key to everything in the modern economy":

[url=http://globaleconomicanalysis.blogspot.com/2011/04/education-bubble-student-loan-debt.html]The "Education Bubble"; Student Loan Debt Passes Credit Card Debt, Expected to Hit $1 Trillion[/url]:
[quote]Peter Thiel, co-founder of PayPal says We’re in a Bubble and [url=http://techcrunch.com/2011/04/10/peter-thiel-were-in-a-bubble-and-its-not-the-internet-its-higher-education/]It’s Not the Internet. It’s Higher Education[/url].

“A true bubble is when something is overvalued and intensely believed,” he says. [u]“Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”[/u][/quote]
[i]My Comment:[/i] a good point marred by a horrible analogy, since most of the world does not believe in the religion which features Santa Claus, and even the part that does generally disabuses its progeny of that fable before age 10. Better would be, "It is the absolute taboo. It’s like telling the world that overpopulation is at the heart of every single one of our major global problems not directly tied to excess leverage in the financial sector." But back from my pet-peevishness to the meat of the article:
[quote]Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe. The excesses of both were always excused by a core national belief that no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated.

Making matters worse was a 2005 President George W. Bush decree that student loan debt is the one thing you can’t wriggle away from by declaring personal bankruptcy, says Thiel. “It’s actually worse than a bad mortgage,” he says. “You have to get rid of the future you wanted to pay off all the debt from the fancy school that was supposed to give you that future.”

Thiel’s solution to opening the minds of those who can’t easily go to Harvard? Poke a small but solid hole in this Ivy League bubble by convincing some of the most talented kids to stop out of school and try another path. The idea of the successful drop out has been well documented in technology entrepreneurship circles. But Thiel and Founders Fund managing partner Luke Nosek wanted to fund something less one-off, so they came up with the idea of the “20 Under 20? program last September, announcing it just days later at San Francisco Disrupt. The idea was simple: Pick the best twenty kids he could find under 20 years of age and pay them $100,000 over two years to leave school and start a company instead.[/quote]
[i]My Comment:[/i] While I applaud Thiel`s initiative, my wider-scale and less-radical solution is a 2-parter:

[b]1. Get the government out of the student loan business.[/b]

If the government stopped subsidizing higher-education loans, such loans would not disappear, but would become harder to get, because those making them would actually have an interest in seeing they get repaid. One effect of this would be that the cost of the loan would reflect things like "expected earnings potential of the degreed loan recipient". Yes, I know this would be horribly unfair to many lib-arts fields like poli sci and gender studies. Legions of would-be-degree seekers in such fields would be forced to learn a useful skillset, possibly depriving them of the opportunity to write the Great American PhD Thesis on critically important subjects like "clitoral imagery in the childhood art of Maurice Sendak". I weep at the prospect of such a devastating cultural loss. But hard times call for hard choices.

"But that`s only 1 part!" you cry. The second part is needed because the first is about as likely to occur as getting government out of the home-mortgage business;

[b]2. Make the interest-rate cost and amount-limits of student loans reflect the expected earnings potential of the loan recipient[/b], which calculus includes the national and school-specific earnings and dropout rate for the field in question.

Mish also has his own list of remedies, which are worth a read of the full piece.

[QUOTE=ewmayer;258923]
[b]2. Make the interest-rate cost and amount-limits of student loans reflect the expected earnings potential of the loan recipient[/b], which calculus includes the national and school-specific earnings and dropout rate for the field in question.

.[/QUOTE]

Would not price discrimination laws get in the way? It would be like
"red-lining Black neighborhoods" vis-a-vis mortgage loans.

I can't see this happening.

[QUOTE=R.D. Silverman;258927]Would not price discrimination laws get in the way? It would be like "red-lining Black neighborhoods" vis-a-vis mortgage loans.[/QUOTE]

That is the argument the politically correct crowd would of course make, but red-lining is an example of lenders using "other criteria" to jack up loan costs beyond the only criterion which should be of relevance, namely ability of the borrower to service the debt.

If you take a degree in some field and consider average starting (or career-weighted) wages of recipients of such a degree, odds of someone who pursues such a degree finishing it and the like, those all directly impact ability to service student loan debt. Now if you start red-lining black or hispanic applicants for student loans, that is akin to what you describe in the mortgage arena.

But you're right, such a common-sense approach has a snowball's chance in hell of getting considered, because someone throwing out the word "discrimination" in political debate about such things has a similarly discussion-halting effect as the word "rationing" does in a debate on healthcare cost containment.

(I always find the latter phenomenon amusing, because the retort is so obvious ... "Well [u]of course[/u] we're discussing 'rationing' of healthcare spending. We have finite resources, so [u]by definition[/u] we must ration them out.")

But be aware, I am so extreme in my "rational thinking" that I find it eminently sensible to do things like charge obese people more for plane fare, in proportion to the extra fuel cost incurred. (Not dissimilar from charging more for extra bags - just in this case the baggage is personal. Pound-for-pound, fuel-cost impact is the same, so why discriminate against poor Luggage-Lugging Larry?). Arrayed against me are legions of civil-rights activists who even claim it is unreasonable to charge someone extra because they are so overweight that they need 2 seats. (OTOH, one time years ago I had to fly with one leg in full-length cast which needed the seat in front of me to be folded down - the airline had no trouble "discriminating against me" on that basis and charging me for 2 seats.)

[QUOTE=ewmayer;258933]But be aware, I am so extreme in my "rational thinking" that I find it eminently sensible to do things like charge obese people more for plane fare, in proportion to the extra fuel cost incurred. (Not dissimilar from charging more for extra bags - just in this case the baggage is personal. Pound-for-pound, fuel-cost impact is the same, so why discriminate against poor Luggage-Lugging Larry?).[/QUOTE]Just imagining:

There's a weight scale at each gate? Or at the TSA area?

Hmmm... I can see that motivating folks to "make the weight" before a flight, similar to what wrestlers do. The airlines would carry more bottled water on flights, for all the passengers who had dehydrated themselves before the weigh-in.

It would motivate some to leave at home all the keys they wouldn't use during the trip, and empty all coins out of pockets. Wear their lightest-weight shoes, and shorts instead of pants. No socks.

Weigh-in at check-in.

Some sort of facilities added to airport terminals for folks trying to lose a last pound or two before the weigh-in?

Hmm... sweatier (from the pre-flight workout) passengers, as well as dehydrated ones. (No socks, also, remember.) Better upgrade the cabin air filtering, and stock Febreeze on planes.

[QUOTE=cheesehead;258947]Just imagining:

There's a weight scale at each gate? Or at the TSA area?[/quote]
Just have each would-be flier weighed together with their luggage. You could either compute a fuel surcharge based on some baseline total weight, say 250 lbs for men, 200 for women, less for kids in various age ranges. Customers knowing they will exceed the limit are free to prepay extra, otherwise their credit card gets dinged at checkin time. (Or credited, if they come in under).

[quote]Hmmm... I can see that motivating folks to "make the weight" before a flight, similar to what wrestlers do. The airlines would carry more bottled water on flights, for all the passengers who had dehydrated themselves before the weigh-in.[/quote]
No problem - charge them for any drinks above some standard ration, so the dehydrators would get charged at least as much for replenishing it in-flight as they saved from sweating it off.

[quote]It would motivate some to leave at home all the keys they wouldn't use during the trip, and empty all coins out of pockets. Wear their lightest-weight shoes, and shorts instead of pants. No socks.[/quote]
Again, a win-win: Less metal means less waiting in security lines, and less clothing will make the obligatory TSA [strike]groping[/strike] pat-down easier and quicker.

[quote]Weigh-in at check-in.[/quote]
Just like I said.

[quote]Some sort of facilities added to airport terminals for folks trying to lose a last pound or two before the weigh-in?[/quote]
Not our job to help you cheat the fuel surcharges, buddy. Take it outside.

[quote]Hmm... sweatier (from the pre-flight workout) passengers, as well as dehydrated ones. (No socks, also, remember.) Better upgrade the cabin air filtering, and stock Febreeze on planes.[/QUOTE]
Or just open a couple windows...

I have a simple yet cunning plan to guard against dangerously dehydrated passengers, which again kills two metaphorical birds with one proverbial stone: Make every would-be flyer pee in a cup as part of the security screening. Hey, we're one [url=http://www.schneier.com/blog/archives/2009/09/ass_bomber.html]butt-bomber[/url] away from cavity searches anyway, so mandatory drug screening is entirely appropriate. Anyway, back to the cunning part: If you can't produce at least (say) 8 ounces of urine, you're presumed to be either dehydrated or hiding something, so you don't fly. Failures-to-whiz could be given (or better, make 'em pay through the nose for it) a 16 oz. bottle of water and a 2nd chance to pass the whiz test within the next hour.

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

p.s.: Bob S. will appreciate the butt-bomber link ... it's to Bruce Schneier's blog. Some of the reader comments are quite precious, such as [i]"just waiting for the first joke about explosive diarrhea..."[/i]

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

Getting back to the issue of the U.S. debt crisis (the media and pundits will take their sweet time calling it that, but there's no use beating the bush any longer, I say), author Nomi Prins[/url] has a pithy essay on the subject titled [url=http://www.nomiprins.com/thoughts/2011/4/18/captain-obvious-sp-vs-captain-oblivious-tim-geithner.html]"Captain Obvious (S&P) vs. Captain Oblivious (Tim Geithner)"[/url]::
[quote]Today, S&P – that beacon of toxic asset rating foresight (which has yet to be slapped with any monetary accountability for its collusive role in bringing down our economy) came to the [url=http://www2.standardandpoors.com/spf/pdf/events/UnitedStatesofAmericaRatingAffirmedOutlookRevisedToNegative.pdf]astonishing conclusion[/url] that the United States has a debt problem, and tagged the country with a 'negative watch' label. The S&P report proceeded to highlight fiscal spending issues, related political debating, and our ridiculously high debt vs. GDP percentage, which is only a few points below 100, as points of main contention. It paid minor lip service to the ‘financial crisis’ as being a factor. It surprisingly (not) shied away from blaming ongoing and potentially further devastating fallout from the overleveraged mortgage related assets still clogging the books of the Fed, housing agencies and financial firms as the banking system maintains the appearance of solvency only through federally supported accounting gimmickry and an exceedingly generous and ‘easy’ Federal Reserve keeping assets bid and rates low in the face of inflation it chooses to ignore.[/quote]
[i]My Comment:[/i] The [url=http://en.wikipedia.org/wiki/Nomi_Prins]Wikipedia entry[/url] for Ms. Prins mentions the title of her latest book, which gave me a chuckle:
[quote]"Nomi Prins is an American author, journalist, and Senior Fellow at Demos [i][A nonpartisan public policy think tank][/i]. Prins is publicly known for her latest whistleblower-like book, [url=http://en.wikipedia.org/w/index.php?title=It_Takes_a_Pillage:_Behind_the_Bonuses,_Bailouts,_and_Backroom_Deals_from_Washington_to_Wall_Street&action=edit&redlink=1][i]It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street[/i][/url]. One account of the book was discussed on C-SPAN After Words with U.S. Senator Bernie Sanders. Prins has been the subject of discussion and referenced on issues relating to the current state of the U.S. economy [3] and has published spending figures on federal programs and initiatives related to the 2008 bailout. Prins’ work has been cited for possible reinstatement of the Glass–Steagall Act as well as future regulatory reform of the financial industry including the too big to fail problem."[/quote]
Perhaps Ms. Prins` book is best read to the musical accompaniment of [i]The Pillage People[/i]:

"Bank man, there's no need to feel down.
I said, bank man, pick yourself off the ground.
I said, bank man, 'cause you're in a new town
There's no need to be unhappy.

Bank man, there's a place you can go.
I said, bank man, when you're short on your dough.
You can stay there, and I'm sure you will find
Many ways to have a good time.

It's fun to stay at the T - A - R - P..."

[QUOTE=ewmayer;258959]

Originally Posted by cheesehead
Just imagining:

There's a weight scale at each gate? Or at the TSA area?

<snip>
Just have each would-be flier weighed together with their luggage.
<snip>[/QUOTE]

And on the subject of the TSA:

[url]http://www.infowars.com/humor-grandma-got-molested-at-the-airport[/url]

[QUOTE=ewmayer;258933]That is the argument the politically correct crowd would of course make, but red-lining is an example of lenders using "other criteria" to jack up loan costs beyond the only criterion which should be of relevance, namely ability of the borrower to service the debt.

If you take a degree in some field and consider average starting (or career-weighted) wages of recipients of such a degree, odds of someone who pursues such a degree finishing it and the like, those all directly impact ability to service student loan debt. Now if you start red-lining black or hispanic applicants for student loans, that is akin to what you describe in the mortgage arena.

But you're right, such a common-sense approach has a snowball's chance in hell of getting considered.[/QUOTE]

Actually, price discrimination is legal in some circumstances: It is
permitted if one can prove that it is cost based. Unfortunately,
it costs the same to give a loan to someone majoring in e.g. 19th
century French poetry as it does to give one to someone majoring in
e.g. civil engineering.

It is also legal to deny a loan if the issuer feels there is a high risk
involved in whether it will be paid back.

[QUOTE=R.D. Silverman;258965]Actually, price discrimination is legal in some circumstances: It is
permitted if one can prove that it is cost based. Unfortunately,
it costs the same to give a loan to someone majoring in e.g. 19th
century French poetry as it does to give one to someone majoring in
e.g. civil engineering.

It is also legal to deny a loan if the issuer feels there is a high risk
involved in whether it will be paid back.[/QUOTE]

Bob, you forgot to include RISK in your cost basis......but substituting red-lining for risk is always a hazard.... :-) !

Matt Taibbi`s latest piece is based on the results of the Fed`s financial-crisis-spawned bailout-o-rama finally being made public, after the Fed lost a FOIA lawsuits which its high-priced legal team dragged-out for as long as possible (your taxpayer dollars at work, keeping you in the dark about the financial crimes committed by a key arm of "your" government, as it were) and was on the wrong end of an act of congress (one of the very few things the current congress did right):

[url=http://www.rollingstone.com/politics/news/the-real-housewives-of-wall-street-look-whos-cashing-in-on-the-bailout-20110411]The Real Housewives of Wall Street[/url]: [i]Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?[/i]
[quote]America has two national budgets, one official, one unofficial. The official budget is public record and hotly debated: Money comes in as taxes and goes out as jet fighters, DEA agents, wheat subsidies and Medicare, plus pensions and bennies for that great untamed socialist menace called a unionized public-sector workforce that Republicans are always complaining about. According to popular legend, we're broke and in so much debt that 40 years from now our granddaughters will still be hooking on weekends to pay the medical bills of this year's retirees from the IRS, the SEC and the Department of Energy.

Most Americans know about that budget. What they don't know is that there is another budget of roughly equal heft, traditionally maintained in complete secrecy. After the financial crash of 2008, it grew to monstrous dimensions, as the government attempted to unfreeze the credit markets by handing out trillions to banks and hedge funds. And thanks to a whole galaxy of obscure, acronym-laden bailout programs, it eventually rivaled the "official" budget in size — a huge roaring river of cash flowing out of the Federal Reserve to destinations neither chosen by the president nor reviewed by Congress, but instead handed out by fiat by unelected Fed officials using a seemingly nonsensical and apparently unknowable methodology.

Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record. Staffers in the Senate and the House, whose queries about Fed spending have been rebuffed for nearly a century, are now poring over 21,000 transactions and discovering a host of outrages and lunacies in the "other" budget. [u]It is as though someone sat down and made a list of every individual on earth who actually did not need emergency financial assistance from the United States government, and then handed them the keys to the public treasure[/u]. The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans [i]each[/i] to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. "Our jaws are literally dropping as we're reading this," says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. "Every one of these transactions is outrageous."

But if you want to get a true sense of what the "shadow budget" is all about, all you have to do is look closely at the taxpayer money handed over to a single company that goes by a seemingly innocuous name: Waterfall TALF Opportunity. At first glance, Waterfall's haul doesn't seem all that huge — just nine loans totaling some $220 million, made through a Fed bailout program. That doesn't seem like a whole lot, considering that Goldman Sachs alone received roughly $800 billion in loans from the Fed. But upon closer inspection, Waterfall TALF Opportunity boasts a couple of interesting names among its chief investors: Christy Mack and Susan Karches.

Christy is the wife of John Mack, the chairman of Morgan Stanley. Susan is the widow of Peter Karches, a close friend of the Macks who served as president of Morgan Stanley's investment-banking division. Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income ... This is what welfare for the rich looks like.

...

Christy and her pal Susan launched their investment initiative called Waterfall TALF. Neither seems to have any experience whatsoever in finance, beyond Susan's penchant for dabbling in thoroughbred racehorses. But with an upfront investment of $15 million, they quickly received $220 million in cash from the Fed, most of which they used to purchase student loans and commercial mortgages. The loans were set up so that Christy and Susan would keep 100 percent of any gains on the deals, while the Fed and the Treasury (read: the taxpayer) would eat 90 percent of the losses. Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment.
.,.
A key aspect of TALF is that the Fed doles out the money through what are known as non-recourse loans. Essentially, this means that if you don't pay the Fed back, it's no big deal. The mechanism works like this: Hedge Fund Goon borrows, say, $100 million from the Fed to buy crappy loans, which are then transferred to the Fed as collateral. If Hedge Fund Goon decides not to repay that $100 million, the Fed simply keeps its pile of crappy securities and calls everything even.

This is the deal of a lifetime. Think about it: You borrow millions, buy a bunch of crap securities and stash them on the Fed's books. If the securities lose money, you leave them on the Fed's lap and the public eats the loss. But if they make money, you take them back, cash them in and repay the funds you borrowed from the Fed. "Remember that crazy guy in the commercials who ran around covered in dollar bills shouting, 'The government is giving out free money!' " says [former bank regulator William] Black. "As crazy as he was, this is making it real."
...
The public has no way of knowing how much Christy Mack and Susan Karches earned on these transactions, because the Fed has repeatedly declined to provide any information about how it priced the individual securities bought as part of programs like TALF. In the Waterfall deal, for instance, we know the Fed pledged some $14 million against a block of securities called "Credit Suisse Commercial Mortgage Trust Series 2007-C2" — but that data is meaningless without knowing how many units were bought. It's like saying the Fed gave Waterfall $14 million to buy cars. Did Waterfall pay $5,000 per car, or $500,000? We have no idea. "There's no way of validating or invalidating the Fed's process in TALF without this pricing information," says Gary Aguirre, a former SEC official who was fired years ago after he tried to interview John Mack in an insider-trading case.[/quote]
[i]My Comment:[/i] Now apply the same we-have-no-idea-what-they-paid to the Fed`s $1.25 [i]trillion[/i] MBS-shopping spree started in the spring of 2009. I keep saying, TARP is the small potatoes of these monster bailouts, because it was so public and carried exec-comp restrictions which the Wall Street crooks found onerous, especially once they realized there were all these other, much-more-secret ways of getting free government cash.

And finally, the coda:
[quote]Perhaps the most irritating facet of all of these transactions is the fact that hundreds of millions of Fed dollars were given out to hedge funds and other investors with addresses in the Cayman Islands. Many of those addresses belong to companies with American affiliations — including prominent Wall Street names like Pimco, Blackstone and . . . Christy Mack. Yes, even Waterfall TALF Opportunity is an offshore company. It's one thing for the federal government to look the other way when Wall Street hotshots evade U.S. taxes by registering their investment companies in the Cayman Islands. But [i]subsidizing[/i] tax evasion? Giving it a federal bailout? What the f***?

As America girds itself for another round of lunatic political infighting over which barely-respirating social program or urgently necessary federal agency must have their budgets permanently sacrificed to the cause of billionaires being able to keep their third boats in the water, it's important to point out just how scarce money isn't in certain corners of the public-spending universe. In the coming months, when you watch Republican congressional stooges play out the desperate comedy of solving America's deficit problems by making fewer photocopies of proposed bills, or by taking an ax to budgetary shrubberies like NPR or the SEC, remember Christy Mack and her fancy new carriage house. There is no belt-tightening on the other side of the tracks. Just a free lunch that never ends.[/quote]

By the way, since most of the stuff Taibbi describes in his articles is either outrageous or just flat-out depressing, I find it essential to supplement the articles with the lighter-hearted commetaries and reader letters on [url=http://www.rollingstone.com/politics/blogs/taibblog]Taibbi's blog[/url]. For example:
[quote][i]Matt,

About how many times a day do you find yourself saying "What the f***?" to nobody in particular? I'm up to about 23 these days.

Mike[/i]


Mike,

Maybe twice or three times a day. Fewer than before, certainly. See, what I've done, and you all can try this yourselves, is to simply avoid reading the news as much as possible. I read old books and the only periodicals I even look at lately are NFL draft guides. I've read Nolan Nawrocki's draft booklet like 400 times already. To me he’s the greatest novelist since Waugh. That does wonders for my general sanity, but then I'll have something happen like last Friday, when I went into 30 Rock to do a hit on Cenk Uygur's show and saw him talking about a poll that had Donald Trump leading the field of prospective Republican candidates. Donald Trump has 26% of the Republican vote right now? [i]What the f***[/i]? Things like that, honestly, I don't even want to know, until I have no choice… [/quote]

Briefly returning to the criminal-convictions-resulting-from-the-financial-crisis theme, we do have a +1 increment today:

[url=http://www.bloomberg.com/news/2011-04-19/ex-taylor-bean-chairman-convicted-of-conspiracy-fraud-1-.html]Ex-Taylor Bean Chairman Farkas Found Guilty on All 14 Counts in Fraud Case[/url]:
[quote]Lee Farkas, the ex-chairman of Taylor, Bean & Whitaker Mortgage Corp., was found guilty of 14 counts of conspiracy and bank, wire and securities fraud in what prosecutors said was a $3 billion scheme involving fake mortgage assets.
...
Prosecutors said Farkas, 58, orchestrated one of the largest and longest-running bank frauds in the U.S. that duped some of the country’s largest financial institutions, targeted the federal bank bailout program and contributed to the failures of Taylor Bean and Montgomery, Alabama-based Colonial Bank. [/quote]
[i]My Comment:[/i] I suspect the key reason for the prosecution of Mr. Farkas may lie less in the "wire and securities fraud" thing than the "duped some of the country’s largest financial institutions" bit.

(Psst: I hear nasty rumors that Mr. Farkas was also involved in far more nefarious activities, including - brace yourself, and send the children into the next room - [i]online poker[/i]. If that's true, they should lock him up and throw away the key, just like they did that other nation-threatening criminal, wikileaker Bradley Manning, who has now gone 9 months in solitary with no trial in sight.)

William Black provides some excellent perspective on the Farkas conviction and its place in the larger scheme of things on his blog, including the key fact that this case was only prosecuted after being dragged into the light of day by now-retired SIGTARP Neil Barofsky. After blasting the complete inaction of the Bush administration vis-a-vis the mortgage fraud epidemic, Black has little better to say about our present leadership:

[url=http://neweconomicperspectives.blogspot.com/2011/04/einmal-ist-keinmal-once-is-never.html]Einmal ist Keinmal (Once is Never)[/url]
[quote]Senator Obama warned of the wave of mortgage fraud and called for increased budgets for the FBI and DOJ to investigate and prosecute the frauds. He could have made the investigation and prosecution of the major accounting control frauds one of the nation’s top priorities. The result would have transformed his administration and the public support for those holding the elite frauds accountable. The DOJ press release says all the right things.
[i]
President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.
[/i]
But DOJ has not “walked the walk.” Instead, we have one case brought not because of the underlying accounting fraud involving its lending, but because the leaders of the accounting control fraud sought to rip off TARP and came to the attention of one of our two (the other is Elizabeth Warren) most vigorous and effective public servants – Neil Barofsky (SIGTARP). Unfortunately, Mr. Barofsky has resigned.[/quote]

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

Nice op-ed by the NYT`s Joe Nocera on one of the key federal financial "regulators" which has probably gotten too little attention around here: Mr. Nocera does not mince words:

[url=http://www.nytimes.com/2011/04/19/opinion/19nocera.html?_r=1]Letting the Banks Off the Hook[/url]
[quote]Judging by last week’s performance, it sure looks as though the country’s top bank regulator is back to its old tricks.

Though, to be honest, calling the Office of the Comptroller of the Currency a “regulator” is almost laughable. The Environmental Protection Agency is a regulator. [u]The O.C.C. is a coddler, a protector, an outright enabler of the institutions it oversees.[/u]

Back during the subprime bubble, for instance, it was so eager to please its “clients” — yes, that’s how O.C.C. executives used to describe the banks — that it steamrolled anyone who tried to stop lending abuses. States and cities around the country would pass laws requiring consumer-friendly measures such as mandatory counseling for subprime borrowers, or the listing of the fees the banks were going to charge for the loan. The O.C.C. would then use its power to either block or roll back the legislation.

It relied on the doctrine of pre-emption, which holds, in essence, that federal rules pre-empt state laws. More than 20 times, states and municipalities passed laws aimed at making subprime loans less predatory; every time, the O.C.C. ruled that national banks were exempt. Which, of course, rendered the new laws moot.

You’d think the financial crisis would have knocked some sense into the agency, exposing the awful consequences of its regulatory negligence. But you would be wrong. Like the banks themselves, the O.C.C. seems to have forgotten that the financial crisis ever took place.

It has consistently defended the Too Big to Fail banks. It opposes lowering hidden interchange fees for debit cards, even though such a move is mandated by law, because the banks don’t want to take the financial hit. Its foot-dragging in implementing the new Dodd-Frank laws stands in sharp contrast to, say, the Commodity Futures Trading Commission, which is working diligently to create a regulatory framework for derivatives, despite Republican opposition. Like the banks, it views the new Consumer Financial Protection Bureau as the enemy.

And, as we learned last week, it is doing its darndest to make sure the banks escape the foreclosure crisis — a crisis they created with their sloppy, callous and often illegal practices — with no serious consequences. There is really no other way to explain the “settlement” it announced last week with 14 of the biggest mortgage servicers (which includes all the big banks).[/quote]
[i]My Comment:[/i] Rest of the op-ed describes the OCC`s ongoing attempt - which will likely succeed as long as the (federal) courts continue to uphold the sanctity of (federal) pre-emption - to torpedo attempts by the various state AGs to actually punish the big banks for foreclosure fraud.

"IMF Bombshell: Age of America Nears End"

[I](However, read the IMF reaction update at end)[/I]

[URL]http://finance.yahoo.com/banking-budgeting/article/112616/imf-bombshell-age-america-end-marketwatch[/URL]

[quote=Brett Arends][I]
This column has been updated to include a reaction from the IMF.[/I]

The International Monetary Fund has just dropped a bombshell, and nobody noticed.

For the first time, the international organization has set a date for the moment when the "Age of America" will end and the U.S. economy will be overtaken by that of China.

And it's a lot closer than you may think.

According to the latest IMF official forecasts, China's economy will surpass that of America in real terms in 2016 — just five years from now.

Put that in your calendar.

. . .

[B]The Comparison That Really Matters [/B]

In addition to comparing the two countries based on exchange rates, the IMF analysis also looked to the true, real-terms picture of the economies using "purchasing power parities." That compares what people earn and spend in real terms in their domestic economies.

Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America's share of the world output down to 17.7%, the lowest in modern times. China's would reach 18%, and rising.

Just 10 years ago, the U.S. economy was three times the size of China's.

. . .

[B]Updated With IMF Reaction [/B]

The International Monetary Fund has responded to my article.

In a statement sent to MarketWatch, the IMF confirmed the report, but challenged my interpretation of the data. Comparing the U.S. and Chinese economies using "purchase-power-parity," it argued, "is not the most appropriate measure… because PPP price levels are influenced by nontraded services, which are more relevant domestically than globally."

The IMF added that it prefers to compare economies using market exchange rates, and that under this comparison the U.S. "is currently 130% bigger than China, and will still be 70% larger by 2016."

My take?

The IMF is entitled to make its case. But its argument raises more questions than it answers.

First, no one measure is perfect. Everybody knows that.

But that's also true of the GDP figures themselves. Hurricane Katrina, for example, added to the U.S. GDP, because it stimulated a lot of economic activity — like providing emergency relief, and rebuilding homes. Is there anyone who seriously thinks Katrina was a net positive for the United States? All statistics need caveats.

Second, comparing economies using simple exchange rates, as the IMF suggests, raises huge problems.

Currency markets fluctuate. They represent international money flows, not real output.

The U.S. dollar has fallen nearly 10% against the euro so far this year. Does anyone suggest that the real size of the U.S. economy has shrunk by 10% in comparison with Europe over that period? The idea is absurd.

China actively suppresses the renminbi on the currency markets through massive dollar purchases. As a result the renminbi is deeply undervalued on the foreign-exchange markets. Just comparing the economies on their exchange rates misses that altogether.

Purchasing power parity is not a perfect measure. None exists. But it measures the output of economies in terms of real goods and services, not just paper money. That's why it's widely used to compare economies. The IMF publishes PPP data. So does the OECD. Many economists rely on them.

[I][EMAIL="brett.arends@wsj.com"]Brett Arends [/EMAIL]is a senior columnist for MarketWatch and a personal-finance columnist for The Wall Street Journal.[/I]
[/quote]

Mish has an interesting post today (featuring a detailed and well-thought-out article by Michael Pettis) asserting that despite all the hue and cry abroad (especially in the BRIC nations) about the world needing to abandon the dollar as the global reserve currency, that this is a smokescreen, since it would actually hurt the BRIC export-based economic-growth model. Worth a read:

[url=http://globaleconomicanalysis.blogspot.com/2011/04/bogus-threats-to-us-reserve-currency.html]Bogus Threats to US Reserve Currency Status: No Country Really Wants It![/url]
[quote][the italicized snip is Pettis, rest is Mish]
[i] If cheaper consumption is such a gift, it is hard to explain why attempts by the US to return the gift to countries whose consumption costs are artificially high – demanding for example that these countries revalue their currencies and so reduce costs for their own consumers – are always so indignantly rejected. No one, it seems, is eager to lower their consumption costs at the expense of employment growth, and yet reserve status may very well require this trade-off.

The massive imbalances that this system has permitted are destabilizing for the world because they permit large and unstable debt buildups both in countries that over-produce, like China and Japan, and those that over-consume, like the US. If the world were forced to give up the dollar, there is no doubt that there would be an initial cost for the global economy – it would reduce global trade somewhat and it would probably spell the end of the Asian growth model. But giving up the dollar would also lower long-term economic costs for the US and reduce dangerous global imbalances. [/i]

I am quite sure that Pettis has this correct. After all, if reserve currency status was such a gift, why doesn't China take the steps that would make it possible. Why doesn't Europe?

The fact is, for all their bitching, nearly every country on the planet does not want to relinquish their "export growth model". Every week there is some trumped-up report by someone about how China is trading more in the Yuan with Russia and Southeast Asia countries. In the grand scheme of things such trade in Yuan nearly meaningless, not representative of a significant adjustment.

Mathematically, the fact remains, the US runs a huge trade deficit, and countries accumulate US assets, most frequently US Treasuries.

The Fed is fighting back by attempting to force the US dollar lower. Mathematically every currency cannot be weak relative to each other. Central bank actions to achieve the impossible are behind the rise in commodities, especially silver and gold.
[b]
Unstable Mess
[/b]
The irony in this mess is those cheering the demise of the US and the US dollar look at baby-step moves countries like China make in that direction as if that would hurt the US.

The reality is the US would be better off (and so would the world), were the US to lose reserve currency status. Nonetheless, don't expect it any time soon. China is not ready and Europe is in the midst of a sovereign debt crisis that will not go away for years.[/quote]

And while we`re on the topic of commodity-price ramps, silver is nearing $50 per ounce, which is close to its January 1980 [url=http://en.wikipedia.org/wiki/Nelson_Bunker_Hunt]Hunt Brothers high[/url] in absolute terms, although still appreciably below that in inflation-adjusted terms. Thank you, U.S. deficit-spending and your enablers in the Treasury and Federal Reserve - though Mish thinks there also is a significant [url=http://globaleconomicanalysis.blogspot.com/2011/04/taking-silver-profits-swapping-silver.html]speculative-bubble component[/url] to the price at these levels, which, given all the "silver to the moon!" rah-rah-ing by the metalheads over at ZeroHedge of late, is likely to be true.

(In an interesting coincidence with other current events, Wikipedia notes that Nelson Hunt "played a very significant role in the discovery and development of the oil fields in Libya which would later be nationalized by Muammar al-Gaddafi".)

That means that the 10-lb bulk bag of U.S. silver/copper WW2 nickels I bought about 15 years ago for only 3-4x face value has appreciated to around $2.50 [url=http://www.coinflation.com/coins/1942-1945-Silver-War-Nickel-Value.html]per nickel[/url]. Of course now I wish I'd bought several tons of the things.

[QUOTE=ewmayer;259753]
And while we`re on the topic of commodity-price ramps, silver is nearing $50 per ounce.[/QUOTE]Back in the good old days a pound sterling was the value of a pound (12 troy ounces) of silver. If I've done my sums correctly, 12 * USD 50 = GBP 360.

An inflation of only 360-fold in 1200 years, or 0.5% annually, is pretty good going by most standards!

Paul

McDonalds: 1M applicants for 50K McJob Openings
 

[url=http://www.bloomberg.com/news/2011-04-28/mcdonald-s-hires-62-000-during-national-event-24-more-than-planned.html]McDonalds Hires 62,000, Turns Away Over 938,000 Applicants For Mostly Minimum Wage, Part-Time Jobs[/url]

This is clearly very bullish news for the ever-strengthening U.S. economic recovery, as all those newly-hired part-time minimum-wagers will be happily spending half their new paychecks on $5-per-gallon gasoline to get to work and back. Highly economically stimulative, that.

Hopefully this hiring binge by Mickey D's and similar employment bastions of the new expectations-downsized American "muddle class" will be enough to get most of those nattering nabobs of negativity who are the [url=http://www.zerohedge.com/article/more-americans-think-america-depression-growing]71% of Americans[/url] who still irrationally believe the economy is "in a depression", "in a recession" or "slowing down" on board with the government's "happyFlowerPuppyDreams your way to recovery!" program of positive-thinking.

Inflation keeps cropping up. We've had energy inflation i.e. the price of gas at the pump and electricity, etc. for quite a while. The bugaboo now is the price of food which has increased dramatically in the last year. Now thing about this a bit. The CIP-U which is the official measure of inflation says we are up 2.3 percent in the past year. But energy and food are up double digits. Here is an article that tosses some mud at the CPI.
[url]http://news.yahoo.com/s/dailybeast/20110502/ts_dailybeast/13790_niallfergusonthegreatinflationofthe2010s[/url]

[QUOTE]Back in March, the president of the New York Federal Reserve, William Dudley, was trying to explain to the citizens of Queens, N.Y., why they had no cause to worry about inflation. Dudley, a former chief economist at Goldman Sachs, put it this way: “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful. You have to look at the prices of all things.” Quick as a flash came a voice from the audience: “I can’t eat an iPad.”[/QUOTE]

So what is the realistic inflation rate? If you read the article, it suggests 10%. I would agree with that based on my cost of eating and purchasing gas for my car.

What do we have to look forward to? Real term inflation should run between 10% and 14% for the next year at least.

Just for background, my last post on this topic was Feb 15, 2011.

DarJones

Just arrived in my mailbox: a help-wanted advertisement that is for light electronics assembly work and warehouse kitting, receiving and shipping at a local company about three miles away.

What's notable is that this is the first help-wanted mailing I've received in a long time that is not for "work-at-home". It's mass-mailed ("Dear Neighbor"), but evidently directed to households relatively near the work location of a small (130 employees) electronics firm.

[QUOTE=Fusion_power;260307]Inflation keeps cropping up. We've had energy inflation i.e. the price of gas at the pump and electricity, etc. for quite a while. The bugaboo now is the price of food which has increased dramatically in the last year. Now thing about this a bit. The CIP-U which is the official measure of inflation says we are up 2.3 percent in the past year. But energy and food are up double digits. Here is an article that tosses some mud at the CPI.[/QUOTE]

Ah yes, the old "hedonic adjustments" fudging of the CPI ... Now see, if you stopped being such a tech hedonist and next time you needed a replacement iPad, instead of greedily buying a new iPad2 you bought just *half* and iPad2 - same processing power as the iPad1 for roughly half the price - you would enjoy the benefits of the technological advances the esteemed Mr. Dudley lauds, and have money left over to buy this "food" of which you speak.

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

Matt Taibbi has a mailbag-related blog entry today explaining [url=http://www.rollingstone.com/politics/blogs/taibblog/mailbag-why-i-cant-vote-for-ron-paul-20110502]why he cannot vote for Ron Paul[/url]. While most of his beef is with (Rand) Paul the younger, the newsletters he cites from the elder Paul in the 80s and 90s indicate that the apple may not have fallen as far from the tree as some (including me) like to believe.

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

And on a lighter note, We present a small selection of Selected quotes from the Royal Wedding.

No, no, not from any of those stuffy "news outlets"... ours are far more interesting, they are from the readership and fashion mavens at GoFUGYourself.com - The FUG being a reference to the neologism “fugly”, which is a contraction of “effin ugly”, as in “that outfit is so effin ugly, it’s ‘fugly’.”

We proceed directly to the most crucial story, the incisive fashion critique of the royal entrance [hey, football and entertainment royalty is still royalty, innit?] of Not-Yet-Quite-A-Sir David Beckham, [url=http://en.wikipedia.org/wiki/Order_of_the_British_Empire]OBE[/url] (that is apparently *not* commonly followed by a "/GYN" - I must say, I find British medical jargon terribly confusing) and his once-again-pregnant-but-still-committed-to-the-sky-high-stilettos wife Victoria, neé Posh Spice Adams:

[url=http://gofugyourself.com/royal-weddingpalooza-well-played-posh-and-becks-04-2011]Royal Weddingpalooza Well Played, Posh and Becks[/url]
[quote]jcpdiesel21: "I don’t care for Posh’s hat. Like Rupert Everett said on TLC this morning, it looks like it has tentacles."

Rae: "In that third picture in the slideshow, Becks looks like Ricky Gervais’ younger, thinner, taller, hot brother. It’s weirding me out in a big way."

Meryl: "Why on earth is Becks wearing his OBE on the wrong side of his jacket? What a knob. Posh looks darling, though."

Sandra: "I must confess that back in the day, I had these two pegged as “white trash with money”. But they’ve grown up nicely and stayed together, so I like them better now.

Also, when I am Empress of the Universe, I shall decree formal [url=http://en.wikipedia.org/wiki/Morning_dress]morning suits[/url] EVERY DAY for EVERY MAN! Unless he has a formal dress uniform, of course. Don’t guys realize how incredibly hot we find well-dressed fellows to be?"

Patricia: "I kind of thought they looked like the Evil Godparents arriving to place a curse on the firstborn of the couple. Not that they didn’t look attractive and fashionable. Just that there was an dark aura of evil surrounding them. It happens."

Noire: "How is it possible to be that pregnant, wearing that high of shoe? That woman is a mutant!"

jerkygirl: "I actually love that hat, but WHY did she have to wear it protruding from her forehead like some kind of sawed-off unicorn horn???"[/quote]

U.S. Sues Deutsche Bank Over Mortgage Practices
 

[url=http://www.nytimes.com/2011/05/04/business/04mortgage.html?ref=business]U.S. Sues Deutsche Bank Over Mortgage Practices[/url]: [i]The United States government sued Deutsche Bank on Tuesday, demanding at least hundreds of millions of dollars to make up for bad loans that the bank issued.[/i]
[quote]In a complaint filed in Federal District Court in New York, the government accused Deutsche Bank and a unit, known as MortgageIT, of “knowingly, wantonly and recklessly” failing to adequately scrutinize borrowers, then lying to federal officials who pointed out shortcomings.

The suit involves Deutsche Bank’s involvement with the Federal Housing Administration, an arm of the government that guarantees mortgages made to less qualified borrowers than those who have loans backed by Fannie Mae or Freddie Mac.

MortgageIT was qualified to issue F.H.A.-backed loans and from 1999 to 2009 the unit sponsored more than 39,000 such loans, worth more than $5 billion, according to the complaint. The bank knowingly used the government guarantee on unqualified, risky loans, the complaint says, because it was able to then quickly sell those loans to investors.

By this year, the complaint says, about a third of those loans had defaulted, costing the government $386 million, but the final cost is expected to exceed $1 billion. Many of the losses, the complaint says, were caused by false statements the bank and its MortgageIT unit made to the government about the loans.

The bank had “powerful financial incentives to invest resources into generating as many F.H.A.-insured mortgages as quickly as possible for resale to investors,” the complaint says. “By contrast, Deutsche Bank and MortgageIT had few financial incentives to invest resources into ensuring the quality of its F.H.A.-insured mortgages.”

At a news conference, the United States attorney for the Southern District of New York, Preet Bharara, said that Deutsche and MortgageIT had “indulged in the worst of the industry’s lending practices.”

The defendants ignored every red flag, he said, and “repeatedly abused the public’s trust.”

The government has filed relatively few cases against big banks related to the financial crisis, and those it has filed have mainly been civil complaints, like the one filed Tuesday against Deutsche Bank. The government has found it difficult to prove intent to defraud, and investigators got off to a slow start in building possible cases during the crisis because regulators were primarily focused on stabilizing the system back in 2008. The Department of Justice has generally had more success prosecuting small mortgage brokers and borrowers for mortgage fraud than it has had in pursuing major financial institutions. The case against Deutsche Bank does not name any individual bank employees.[/quote]
[i]My Comment:[/i] A.k.a. "Too Big to Jail"...

[QUOTE=Fusion_power;260307]
So what is the realistic inflation rate? If you read the article, it suggests 10%. I would agree with that based on my cost of eating and purchasing gas for my car.
[/QUOTE]

How much of your actual expenditure goes on eating and purchasing gas?

So far this year, 2.1% of my outgoings have been on travel, 11.9% on food and 41.4% on rent and utilities, with 32.1% going on 'fun' and 'savings' combined. Increasing the price of food and travel by 10% wouldn't be a problem.

[QUOTE=fivemack;260465]How much of your actual expenditure goes on eating and purchasing gas?

So far this year, 2.1% of my outgoings have been on travel, 11.9% on food and 41.4% on rent and utilities, with 32.1% going on 'fun' and 'savings' combined. Increasing the price of food and travel by 10% wouldn't be a problem.[/QUOTE]

It doesn't take more than a 1-2% loss of discretionary-purchasing power at this point to turn a very-fragile recovery (that's if you believe the government's characterization) into another round of contraction. (Though higher gas prices feed into GDP, so the fact that people have less money to spend on other things - like debt-servicing - won't show up in GDP per se, except via second-order effect.)

Remember, it's not the fiscally prudent folks who drove the boom and bust (though they are as always being forced to disproportionally foot the bill), it's the vast crowd of typical-overleveraged-consumerBots. For an underwater homedebtor who is just barely able to make payments with gas at $3 per gallon, loss of $50-100 per month due to higehr gas prices can be the last straw. Recall that with the massive leverage in the financial system circa 2006, it only took a roughly 4% drop in home prices to trigger the biggest recession since the 1930s. Consumer leverage is (thankfully, and no thanks to the government here) slightly lower now, but systemic leverage is still at or near record highs, and only government deficit spending of over 10% of GDP is keeping GDP nominally flat-to-barely-positive. When you are skating on the ragged edge of a double-dip, a 1-2% hit is a lot.

[QUOTE=ewmayer;260393]Ah yes, the old "hedonic adjustments" fudging of the CPI ... [/QUOTE]Ever nostalgic for the days when buggy whips were still included, eh?

[QUOTE=ewmayer;260431]

[I]My Comment:[/I] A.k.a. "Too Big to Jail"...[/QUOTE]But that's a good one!

Re my cost of living:

1. $400 per month rent (unchanged for 10 years)
2. $250 per month food (up from $200 2 years ago, but I also raise a garden for veggies which keeps it down a bit)
3. $65 per month gas in car (I work from home, so very little gas used, but this is still up $25 from 2 years ago)
4. $100 per month heating or cooling according to season gas heat, electric heat pump air conditioning (unchanged in 3 years).
5. $45 per month water service and garbage collection (up $5 as of 2 years ago)
6. various insurance, car, health, etc. $650/month (up from $450/month 2 years ago)
7. various taxes local, state, federal $2150/month
8. Cellphone $100/month (down $10 from 2 years ago)

Analyzing the above, in the past 3 years, my increase in cost of living has been in gas, food, insurance, and water/garbage service. But the part that hurts the most is to see how much taxes eat away at my income. The taxes I pay exceed my total cost of living.

DarJones

Gas-price / GDP correction | Weekly Claims Suckage
 

[QUOTE=ewmayer;260514]It doesn't take more than a 1-2% loss of discretionary-purchasing power at this point to turn a very-fragile recovery (that's if you believe the government's characterization) into another round of contraction. (Though higher gas prices feed into GDP, so the fact that people have less money to spend on other things - like debt-servicing - won't show up in GDP per se, except via second-order effect.)[/QUOTE]

Correction needed here: Consumers using money they would have spent on other things to cover the increased cost of fuel (direct and via secind-order effects) is a wash as far as GDP is concerned, but the higher cost of imported oil and petroleum products is subtractive from GDP. (Unless imports are reduced proportionally, which is unlikely in an oil-import-dependent economy like that in the U.S. and many developed(ing) nations). Recall the most-common method of computing GDP, the [url=http://en.wikipedia.org/wiki/Gross_domestic_product]expenditure method[/url]:

GDP = P + I + G + (X - I) = private consumption + gross investment + government spending + (exports - imports) .

Here in the U.S., yesterday's weak ADP payrolls report (used for tracking job creation in a manner independent of the government stats) and sharply-lower ISM numbers (which reflect major margin compression due to higher producer-prices-paid) were followed today by a very bad [url=http://globaleconomicanalysis.blogspot.com/2011/05/weekly-unemployment-claims-soar-to.html]weekly jobless claims number[/url] - After trending below 400,000 for much of the year, the last 3 weeks have been back above that level, and today`s latest number was a whopping 474,000, close to the "5"-led numbers which clearly indicate recessionary contraction in the jobs market. Watch that trend closely in the coming months.

And my note last Friday about the price of silver touching $50/ounce but likely having a significant speculative-bubble component has been brone out ... down 30% since then.

Guess what's the second biggest negative balance-of-payments (i.e., exports minus imports) category (behind #1 oil) for the U.S.

- -

According to a TV show: seafood.

Was too busy at work last Thursday and Friday (code-checkin-related deadline I was working furiously to meet) to post updates and links, so a bit of catch-up today:

Last Friday the government (BLS, via their monthly "Establishment Survey") released their monthly employment statistics, which were diametrically opposed (and much more bullish) than the previous day`s Household Survey monthly jobs data generated by the independent polling firm ADP. (See my link to those numbers in my post of 05 May above). According to the BLS the U.s. economy added 244,000 jobs in April - roughly double the number needed to keep up with population growth, and about as robust a figure as we have seen for this datum all throughout this alleged (and ever-"nascent", "fragile", etc) "recovery" - while at the same time the unemployment rate *rose* from 8.8% to 9.0%. These 2 data are not necessarily at odds, and indeed the MSM dutifully put the requisite positive spin on the latter number, saying that "unemployment rate rose because people re-entered the workforce in search of ever-more-plentiful jobs being created by the ever-strengthening (but still nascent and fragile and in need of the Fed pumping $100-200B per month into the financial markets to 'maintain confdence') recovery".

Only ... Not so much. If the rise in the unemployment rate were indeed to increased optimism among job-wanters causing many long-term-unemployed (who had magically been deleted from the official "labor force" as a result of their slackerish ways) and causing them to become active job-seekers, then the labor force should necessarily have grown. But it didn`t, and in fact continues to contract in relentless fashion. Mish attempts to resolve the paradox:

[url=http://globaleconomicanalysis.blogspot.com/2011/05/digging-still-deeper-in-fridays-jobs.html] Digging Still Deeper In Friday's Jobs Report; What's the Real Unemployment Rate?[/url]
[quote]The fact is, employment fell by 190,000 according to the Household Survey and another 131,000 people dropped out of the labor force last month or the unemployment would have been even higher. Fewer people (131,000 to be precise) wanted a lob and looked for jobs in April than in March.

The Obama administration as well as mainstream media wants to play job numbers both ways, that is to say they want to use the Household Survey when it suits their purpose and the Establishment Survey otherwise.

Regardless, close scrutiny of the details in the report shows the headline numbers were far worse than they looked.

I commented on that in my Friday post BLS Jobs Report: Nonfarm Payroll Headline Number Looks Good, Beneath the Surface, Awful where I said ...
[i]
In the last year, the civilian population rose by 1,817,000. Yet the labor force dropped by 1,099,000. Those not in the labor force rose by 2,916,000. In January alone, a whopping 319,000 people dropped out of the workforce. In February another 87,000 people dropped out of the labor force. In March 11,000 people dropped out of the labor force. In April, 131,000 dropped out of the labor force. The 4-month total for 2011 is 548,000 people dropped out of the labor force.

Many of those millions who dropped out of the workforce would start looking if they thought jobs were available. Indeed, in a 2-year old recovery, the labor force should be rising sharply as those who stopped looking for jobs, once again started looking. Instead, an additional 548,000 people dropped out of the labor force in the first four months of the year. Were it not for people dropping out of the labor force, the [U3] unemployment rate would be well over 11%.
[/i]
Ilargi at Automatic Earth Blog in Trojan Lies picked up on my post and commented "Indeed, I’d venture that if you add in all those who’ve left the work force since 2008, you’d end up way above 11%. All in all, the total number of people in the working age population who are not in the labor force hit a new all time high of 86.248 million in April. And Wall Street likes that."
[i]
[EWM: Gory numerical details omitted for readability - but folks interested in the actual numbers in play will want to read the full article]
[/i]
The BLS says those who worked as little as 1 hour last week are considered employed.

According to the BLS, there are now 8,600,000 workers who want a full-time job but instead are working part-time. The BLS labels this group "part-time for economic reasons".

The number of rose by 167,000 last month.

Before companies hire full-time workers, many of those working part-time will see their hours rise first.

If you factor in those working part-time for economic reasons the unemployment rate rises to 15.9%, and if you factor in students and those in forced retirement who really would rather be working, it is likely another 1-2 points higher still.[/quote]


[b]Op-Ed in WSJ By Leader of the True Finns Party, Opposing European Bank Bailouts[/b]

[url=http://online.wsj.com/article/SB10001424052748703864204576310851503980120.html]Timo Soini: Why I Won't Support More Bailouts[/url]
[quote]When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept them. Europe is suffering from the economic gangrene of insolvency—both public and private. And unless we amputate that which cannot be saved, we risk poisoning the whole body.

The official wisdom is that Greece, Ireland and Portugal have been hit by a liquidity crisis, so they needed a momentary infusion of capital, after which everything would return to normal. But this official version is a lie, one that takes the ordinary people of Europe for idiots. They deserve better from politics and their leaders.

To understand the real nature and purpose of the bailouts, we first have to understand who really benefits from them. Let's follow the money.

At the risk of being accused of populism, we'll begin with the obvious: It is not the little guy that benefits. He is being milked and lied to in order to keep the insolvent system running. He is paid less and taxed more to provide the money needed to keep this Ponzi scheme going. Meanwhile, a kind of deadly symbiosis has developed between politicians and banks: Our political leaders borrow ever more money to pay off the banks, which return the favor by lending ever-more money back to our governments, keeping the scheme afloat.

In a true market economy, bad choices get penalized. Not here. When the inevitable failure of overindebted euro-zone countries came to light, a secret pact was made.

Instead of accepting losses on unsound investments—which would have led to the probable collapse and national bailout of some banks—it was decided to transfer the losses to taxpayers via loans, guarantees and opaque constructs such as the European Financial Stability Fund, Ireland's NAMA and a lineup of special-purpose vehicles that make Enron look simple. Some politicians understood this; others just panicked and did as they were told.

The money did not go to help indebted economies. It flowed through the European Central Bank and recipient states to the coffers of big banks and investment funds.[/quote]
[i]My Comment:[/i] Interestingly, the WSJ heavily [strike]censored[/strike] scrubbed the above online Op-Ed after initially posting it - Denninger compares the before and after versions [url=http://market-ticker.org/akcs-www?post=185817]here[/url].

Mr. Soini`s words - PC-sanitized by the WSJ editorial stooges or not - are as frank, concise and honest as I have heard from any politician with regard to the bailing-out of the big banks and debt-mired Eurozone countries. Mish has more on "Lying ECB liars and the lies they continue to tell" here:

[url=http://globaleconomicanalysis.blogspot.com/2011/05/true-finns-party-chairman-greece.html]True Finns Party Chairman: Greece, Ireland and Portugal Ruined; Gangrene Spreads; Enron Looks Simple; Spain Next Zombie[/url]

Speaking of economic impacts:

There's a possibility that the currently-flooding Mississippi River might break through the artificial control structures, into the Atchafalaya River, making that its new main channel and relieving New Orleans of any levee-worry ever again. OTOH, the reduced levee-worry would not be much compensation for other effects.

The current flood will be the strongest test ever for the Old River Control Structure ([URL]http://en.wikipedia.org/wiki/Old_River_Control_Structure[/URL]) that prevents this re-channeling.

From [URL]http://www.wunderground.com/blog/JeffMasters/comment.html?entrynum=1798[/URL]
[quote]Downstream from Memphis, flood waters pouring in from the Arkansas River, Yazoo River, and other tributaries are expected to swell the Mississippi high enough to beat the all-time record at Vicksburg, Mississippi by 1.3' on May 19, and smash the all-time record at Natchez, Mississippi by six feet on May 21, and by 3.2 feet at Red River Landing on May 22. Red River Landing is the site of the Old River Control Structure, the Army Corps' massive engineering structure that keeps the Mississippi River from carving a new path to the Gulf of Mexico. I'll have a detailed post talking about the Old River Control Structure later this week. Its failure would be a serious blow to the U.S. economy, and the great Mississippi flood of 2011 will give the Old River Control Structure its most severe test ever.[/quote]May 21, 2011 will not be the end of the world, but it could be the last day our current maps of lower Louisiana are accurate. [URL]http://upload.wikimedia.org/wikipedia/commons/e/e2/NO_District_Inundation_Spring_May_2011.jpg[/URL]

[URL]http://www.americaswetlandresources.com/background_facts/detailedstory/LouisianaRiverControl.html[/URL] has more detail about how this situation developed over the past 500 years, and a more detailed description of what might be the result of a capture by the Atchafalaya.

[quote]. . .

[FONT=Arial, Helvetica, sans-serif]I[/FONT][FONT=Arial, Helvetica, sans-serif]n the aftermath of the huge floods that would cause the main flow of the river to jump to the Atchafalaya River, aside from the cost, anxiety, tragedy, and aggravation of dealing with massive amounts of water being in the wrong place, there would be lingering issues that would change the way of life on the lower Mississippi. Instead of 70% flow down the lower Mississippi and 30% flow down the Atchafalaya, the percentages would probably reverse. The Atchafalaya would be a rushing, raging river, even during the fall for a period of time until it scoured the channel and filled in the lower reaches so that the flow would diminish. Morgan City would have to be relocated, as would other communities and many businesses, possibly including the massive infrastructure of the offshore oil and gas industry. Fisheries would be altered measurably all across the delta. Oyster reefs would be immediately destroyed, and would take several years to reestablish and become productive. It would probably take two decades to adapt to the new environment around present day Morgan City. Additionally, pipelines, bridges, and the like that cross the Atchafalaya would be destroyed or rendered unsafe. The ruptured natural gas pipelines would place stress on fuel supplies for energy companies, but they would quickly change to more costly fuel sources and have little or no interruption of service. Imagine the traffic jams when and if bridges on I-10, U.S. 90, and U.S. 190 collapse (what about the railroads)? All trans-state traffic would have to be rerouted to I-20 via I-55 through Jackson, Mississippi, adding up to 615 miles to the trip (not to mention time delays from the traffic jams). The protective levees of the Atchafalaya Basin would have to be upgraded to handle the new pressure from spring flows. And, oh my gosh, think of the negative impact on the crawfish supply!

[/FONT][FONT=Arial, Helvetica, sans-serif]The lower Mississippi would still have a copious amount of water, but it would be slack compared to today. Shipping could continue to be an important industry, but it would be interrupted for a time. The slack water would allow (cause) the thalweg to fill in and stop deep-draft shipping. However, after intensive dredging efforts it may be found that a 50 ft channel can be easily maintained because of the tremendous decrease in sediment. New Orleans, possibly Baton Rouge, and all other cities and towns along the lower Mississippi would no longer be able to get their drinking water from the river. It would become too salty, since the lower fresh water flow would not offset the tidal movement of the Gulf. Can you imagine the cost of piping or trucking enough drinking (and flushing, etc.) water from north of Lake Pontchartrain to supply the needs of Greater New Orleans? Can you imagine Greater New Orleans without water for drinking and sanitation? Even when the water was just barely increasing in salinity, there would be severe damage to water heaters, fire sprinklers, fire truck pumping systems, and more. The quality of our coffee! As mentioned above, the fisheries (especially those associated with the fresh water river) would suddenly change. And what about the massive petrochemical industry corridor? Aside from the impact on shipping, which they could weather over time, industry could no longer use fresh river water for thermo-electric cooling. The saltier water would corrode all the pipes and related instrumentation. Of course, industry would change to salt-tolerant materials, but that would be costly and time consuming. Also, the sugarcane industry would have problems without sufficient fresh water.

[/FONT][FONT=Arial, Helvetica, sans-serif]All of this adjustment, and we have not delved into the intensity of impact on people's lives during the crisis and the adjustment period. All normal routines would stop. Businesses would be closed, as would schools, normal government, etc., etc. Virtually the entire population would spend months and months just coping - just putting their and others' lives back together. Imagine the emotional strain to the population - people losing a lifetime of accomplishment. This would be a tragedy of monumental proportions. It would interrupt life much like World War II.

[/FONT][FONT=Arial, Helvetica, sans-serif]One can also imagine the impact on the nation. Massive use of Federal dollars to protect and restore Louisiana's infrastructure. Loss of natural gas (there would be brown-outs throughout the eastern seaboard). Commerce would be interrupted by restriction of travel and Louisiana's inability to focus on supplying items traditionally demanded from her natural resources by the nation. Prices of all Louisiana products (from the natural resources [fisheries, oil, gas] to industrial products [polyvinylchloride, polyethylene, etc.]) would soar. The interruption of the pogie fisheries would be very negative for such food industries as chicken, catfish, and hogs (see the last section of the notes). New Orleans is one of the most important ports in the nation, and it would suddenly cease to function; all shipping and related industries on the Mississippi River would stop. International trade would be further imbalanced. The massive fertilizer business would shut down and the agriculture industry would falter. [/FONT]
[FONT=Arial, Helvetica, sans-serif]
[/FONT][FONT=Arial, Helvetica, sans-serif]And what about the economy of south Louisiana? For a period of time, all the revenue would dry up and tourism would collapse. [I]Even Mardi Gras would possibly come to a halt!!![/I] Only the mosquitoes would do well! And probably the cockroaches and Formosan termites. [/FONT]
[FONT=Arial, Helvetica, sans-serif]
[/FONT][FONT=Arial, Helvetica, sans-serif]Long term, we would adapt. Once the drinking and sanitation water issues were resolved, tourism would return. Coastal erosion could be reversed on the west side of the present-day Mississippi River. Shrimp, oysters, and other fisheries would probably flourish after a number of years due to new marshes being produced and nutrient rich sediments being redistributed.[/FONT]
[FONT=Arial, Helvetica, sans-serif]
[/FONT][FONT=Arial, Helvetica, sans-serif]This would obviously place a lot of stress on at least two generations of residents. We would survive, but it would be a new Louisiana and Mississippi River delta. [/FONT]
[/quote][URL]http://www.cwi.colostate.edu/publications/is/50.pdf[/URL] is a 1983 study of the situation.

It notes (page 63) that failure of the five most vulnerable interstate natural gas pipelines crossing the Atchafalaya basin would reduce natural gas supplies to 28 states, including Connecticut (23%), Massachusetts (18%), and Rhode Island (25%). These figures are from 1983, but they give an idea of potential natural gas distribution disruption after an Atchafalaya capture.

Matt Taibbi`s latest on the Vampire Squid:

[url=http://www.rollingstone.com/politics/news/the-people-vs-goldman-sachs-20110511]The People vs. Goldman Sachs[/url]: [i]A Senate committee has laid out the evidence. Now the Justice Department should bring criminal charges[/i]

You'll pardon me if I don't hold my breath for any justice department task force here - as a person wise in the ways of Washington said, [i]"It's said that there's a different set of laws for the rich than for the poor. The truth is, for the rich there is no law."[/i]

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

So it's been an interesting week for the legions of commodities speculators ... oil had a 1-day drop of around 10% last week, another big one today. Of course while oil was rising, gas prices were marching up in lockstep, with little or no time-delay between the two. Now that oil is down over 10% in the past week, gas prices at my local station have dropped a whopping - wait for it - 0.5% fr the cheapest grade, and not at all for the others. Woo hoo! A reader of my local paper expresses what I think is a typical sentiment here:

[url=http://www.mercurynews.com/opinion/ci_18011511?nclick_check=1]Pain at the pump stems from greed[/url]
[quote]It is a crime how, if the price of a barrel of oil goes up, gas goes up the same day. The same day. And keeps going up with the price. When the price of a barrel of oil goes down, the price of gas stays the same for almost a month or more, usually taking three months to go back down. A law should be enacted that oil cannot be traded as a commodity because of greed and its effect on the world economy. The oil-producing countries and oil companies have already made enough profit off the rest of the world.

Terrence Healy
Santa Clara[/quote]

Due to the increased volatility (and clear signs of speculative excess) in many of these markets, some of the big commodities-trading venues (e.g. COMEX) have been hiking margin requirements. If you're fully leveraged that means you have to sell part of your position, so it's a good way to see how much speculative leverage there is in a particular market. Let's see ... silver, which ZeroHedge has been pumping relentlessly for the past few months, would appear to have been just a wee bit frothy based on the result:

Mish's latest on the accelerating bust in Oz:

[url=http://globaleconomicanalysis.blogspot.com/2011/05/economic-bust-in-australianear-record.html]Economic Bust in Australia: Near-Record Corporate Bankruptcies, Employment Drops Unexpectedly; Rise in Bad Home Loans; Record Low Property Transactions[/url]

And Barry Ritholtz has a delicious take-Microsoft-to-the-woodshed post in the wake of their ludicrous (but hopefully ultimate-demise-hastening) purchase of Skype:

[url=http://www.ritholtz.com/blog/2011/05/how-microsoft-caused-the-dotcom-bubble/ ]How Microsoft Caused the DotCom Bubble and why their Skype ‘Hail Mary’ is irrelevant[/url]

Galleon Hedge Fund manager Raj Rajnaratnam [url=http://www.bloomberg.com/news/2011-05-11/rajaratnam-is-found-guilty-of-all-counts-in-galleon-insider-trading-trial.html]convicted yesterday[/url] on all 14 insider-trading counts, faces many years in prison. Since that is 2008-financial-crisis-unrelated, our running total of criminal convictions related to that crime wave remains at a massive 1. And since the Feds (as I predicted they would) [url=http://www.bloomberg.com/news/2011-05-11/u-s-banks-said-to-offer-to-pay-5-billion-to-resolve-state-mortgage-probe.html]appear to be doing all they can[/url] to bury the whole MERS mortgage-fraud issue under what (relative to the ill-gotten gains involved) amounts to a wrist-slap fine coupled with blanket immunity forever-after, don't expect to see any criminal convictions on that front, either. The fact that leading state AGs [url=http://swampland.time.com/2011/05/09/foreclosure-probe-chief-asked-bank-lawyers-for-money/#ixzz1M74IG0XD]are openly in the banks' pockets[/url] does not inspire confidence that perhaps the state AGs will rebel against DC's attempts to whitewash the issue:
[quote]...in response to queries from TIME, [Iowa attorney general Tom] Miller says he initiated fundraising calls to several national firms that represent big banks after he had announced his intention to investigate the foreclosure mess. “In September and October, I tried to reach out to people that I’d worked with and I thought had respect for me and potential support for me and tried to raise money from them,” Miller says. “And a number of them were from national firms.”[/quote]

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

And on a David-Hasselhoff-related note (which I'm sure forum owner and DH-fan-for-life Xyzzy will appreciate): Many people made fun of the Hoff and his buddies on the long-running SoCal lifeguard drama [url=http://www.imdb.com/title/tt0096542/]Baywatch[/url] for playing vapid, shallow characters. But their real-world counterparts, while many of them still may be vapid and shallow (I can't say - they don't let us NoCal nerds hang out with them), are having the last laugh when it comes to job pay and benefits:

[url=http://globaleconomicanalysis.blogspot.com/2011/05/orange-county-lifeguards-make-200k.html]Orange County Lifeguards Make $200K Annually, Can Retire at Age 50 With 90% Pay[/url]

IMF Head Arrested at JFK, Charged With Rape
 

This story which broke over the weekend would be worthy of the "News of the Weird" section of the local paper, if not for the fact that the charges are so serious and the accused is of such a high profile:

[url=http://www.nytimes.com/2011/05/15/nyregion/imf-head-is-arrested-and-accused-of-sexual-attack.html?_r=1&hp=&pagewanted=print]I.M.F. Chief, Apprehended at Airport, Is Accused of Sexual Attack[/url]
[quote]The managing director of the International Monetary Fund, Dominique Strauss-Kahn, was taken off an Air France plane at Kennedy International Airport minutes before it was to depart for Paris on Saturday, in connection with the sexual attack of a maid at a Midtown Manhattan hotel, the authorities said.

Mr. Strauss-Kahn, 62, who was widely expected to become the Socialist candidate for the French presidency, was apprehended by detectives of the Port Authority of New York and New Jersey in the first-class section of the jetliner, and immediately turned over to detectives from the Midtown South Precinct, officials said.

The New York Police Department arrested Mr. Strauss-Kahn at 2:15 a.m. Sunday “on charges of criminal sexual act, attempted rape, and an unlawful imprisonment in connection with a sexual assault on a 32-year-old chambermaid in the luxury suite of a Midtown Manhattan hotel yesterday” about 1 p.m., Deputy Commissioner Paul J. Browne, the department’s chief spokesman, said.

Reached by telephone, Benjamin Brafman, a lawyer, said he would be representing Mr. Strauss-Kahn with William Taylor, a lawyer in Washington.

“We have not yet been able to meet with our client and we may have more to say tomorrow,” said Mr. Brafman, who said he had been contacted late Saturday night. He said Mr. Strauss-Kahn was being housed at the police department’s Special Victims Unit.

Early Sunday morning, Mr. Brafman said that his client “will plead not guilty.”

Mr. Strauss-Kahn, a former French finance minister, had been expected to declare his candidacy soon, after three and a half years as the leader of the fund, which is based in Washington. He was considered by many to have done a good job in a period of intense global economic strain, when the institution itself had become vital to the smooth running of the world and the European economy.

His apprehension came at about 4:40 p.m., when two detectives of the Port Authority suddenly boarded Air France Flight 23, as the plane idled at the departure gate, said John P. L. Kelly, a spokesman for the agency.

“It was 10 minutes before its scheduled departure,” Mr. Kelly said. “They were just about to close the doors.”

Mr. Kelly said that Mr. Strauss-Kahn was traveling alone and that he was not handcuffed during the apprehension.

“He complied with the detectives’ directions,” Mr. Kelly said.

The Port Authority officers were acting on information from the Police Department, whose detectives had been investigating the assault of a female employee of Sofitel New York, at 45 West 44th Street, near Times Square. Working quickly, the city detectives learned he had boarded a flight at Kennedy Airport to leave the country.

Though Mr. Strauss-Kahn received generally high marks for his stewardship of the fund, his reputation was tarnished in 2008 by an affair with a Hungarian economist who was a subordinate there. The fund decided to stand by him despite concluding that he had shown poor judgment in the affair. Mr. Strauss-Kahn issued an apology to I.M.F. employees and to his wife, Anne Sinclair, an American-born French journalist whom he married in 1991.

In his statement then, Mr. Strauss-Kahn said, “I am grateful that the board has confirmed that there was no abuse of authority on my part, but I accept that this incident represents a serious error of judgment.” The economist, Piroska Nagy, left the fund as part of a buyout of nearly 600 employees instituted by Mr. Strauss-Kahn to cut costs.

In the New York case, Mr. Browne said that it was about 1 p.m. on Saturday when the maid, a 32-year-old woman, entered Mr. Strauss-Kahn’s suite — Room 2806 — believing it was unoccupied. Mr. Browne said that the suite, which cost $3,000 a night, had a foyer, a conference room, a living room and a bedroom, and that Mr. Strauss-Khan had checked in on Friday.

As she was in the foyer, “he came out of the bathroom, fully naked, and attempted to sexually assault her,” Mr. Browne said, adding, “He grabs her, according to her account, and pulls her into the bedroom and onto the bed.” He locked the door to the suite, Mr. Browne said.

“She fights him off, and he then drags her down the hallway to the bathroom, where he sexually assaults her a second time,” Mr. Browne added.

At some point during the assault, the woman broke free, Mr. Browne said, and “she fled, reported it to other hotel personnel, who called 911.” He added, “When the police arrived, he was not there.” Mr. Browne said Mr. Strauss-Kahn appeared to have left in a hurry. In the room, investigators found his cellphone, which he had left behind, and one law enforcement official said that the investigation uncovered forensic evidence that would contain DNA.

Mr. Browne added, “We learned that he was on an Air France plane,” and the plane was held at the gate, where Mr. Strauss-Kahn was taken into custody. Later Saturday night, Mr. Browne said Mr. Strauss-Kahn was in a police holding cell. [/quote]
[i]My Comment:[/i] I wonder if there is a subtext here, of financial despots - like despots of all kinds - believing themselves to be above the law. My guess is that Mr. Strauss-Kahn believed himself to be diplomatically immune.

[b]Update:[/b] It appears that Mr. Strauss-Kahn has been denied bail. Not that he`s a "flight risk" or anything...

This ABC News article explains why diplomatic immunity [url=http://abcnews.go.com/International/imf-chief-dominique-strauss-kahn-charged*****-sexual/story?id=13609991]apparently does not apply[/url]:
[quote]According to senior police officials Strauss-Kahn has no diplomatic immunity, despite his position with the IMF, which makes him technically an administrative official with the United Nations.

Strauss-Kahn was in New York on private business when the incident allegedly occurred, so any diplomatic immunity would apparently not apply in the case.[/quote]

[QUOTE=ewmayer;261193]Matt Taibbi`s latest on the Vampire Squid:

<snip, snip>

A law should be enacted that oil cannot be traded as a commodity because of greed and its effect on the world economy.


[/QUOTE]


Amen. Actually, commodities trading is IMO, little more than legalized
gambling using borrowed money. It should be outlawed ENTIRELY.

Why should e.g. Internet Poker be illegal? Can you say "hypocrisy"?

[QUOTE=ewmayer;261541]This story which broke over the weekend .......

[URL="http://www.nytimes.com/2011/05/15/nyregion/imf-head-is-arrested-and-accused-of-sexual-attack.html?_r=1&hp=&pagewanted=print"]I.M.F. Chief, Apprehended at Airport, Is Accused of Sexual Attack[/URL]

[/QUOTE]

Not the first statesman who is accused or convicted for such an act.
I refer to Moshe Katsav, Muammar al-Gaddafi, Bill Clinton.....

[QUOTE=moebius;261559]Not the first statesman who is accused or convicted for such an act.
I refer to Moshe Katsav, Muammar al-Gaddafi, Bill Clinton.....[/QUOTE]

Bill Clinton was [b][i]NEVER[/i][/b] accused of a sexual assault of any kind.

He was accused of lying about getting a blow job (consensual!) from Monica.

[QUOTE=R.D. Silverman;261564]Bill Clinton...[/QUOTE]
may be, at least he was embroiled in a sex scandal, and is just the shining exception in my series of evil

[QUOTE=ewmayer;261541][i]My Comment:[/i] I wonder if there is a subtext here, of financial despots - like despots of all kinds - believing themselves to be above the law. My guess is that Mr. Strauss-Kahn believed himself to be diplomatically immune.[/QUOTE]
Allegedly a pattern for this individual at least, [URL="http://www.smh.com.au/world/he-attacked-me-like-a-rutting-chimp-writer-20110516-1epz9.html"]according to a local paper[/URL]:
[QUOTE]A TV program aired in France in 2007, and shown again on Sunday, showed Tristane Banon, the god-daughter of Mr Strauss-Kahn's second wife, describe her escape from an attack by a man she likened to a ''rutting chimpanzee''.

Banon, who had been writing a book in 2002 and had asked Mr Strauss-Kahn for an interview, said she was forced to fight him off. ''It finished very badly, very violently … I kicked him. When we were fighting I mentioned the word rape to make him afraid but it didn't have any effect. I managed to get out,'' she said.[/QUOTE]

[QUOTE]Thierry Saussez, a former adviser to the French President, Nicolas Sarkozy, [...] was reported in The Guardian as saying that those who expressed surprise about Mr Strauss-Kahn's alleged behaviour were displaying sheer hypocrisy. ''Everyone in Paris has known for years he had something of a problem. Not many female journalists are prepared to interview him alone these days.''[/QUOTE]

[QUOTE=R.D. Silverman;261546]Amen. Actually, commodities trading is IMO, little more than legalized
gambling using borrowed money. It should be outlawed ENTIRELY.

Why should e.g. Internet Poker be illegal? Can you say "hypocrisy"?[/QUOTE]

There is some value in commodity trading and commodities futures...if, for example, you know you are going to need a barrel of oil in december, but you don't want to take all of the risk of the higher price then, then a contract today for christmas delivery of a barrel of oil at a fixed price makes sense...you might pay a little more or a little less than otherwise, but you get to move on with things and have your barrel of oil at Christmas...

I vote simply for large effective margin requirements (like 25%) on all this stuff -- that is, the detachment from preparedeness for delivery is the problem.

[QUOTE=Christenson;261577]There is some value in commodity trading and commodities futures...if, for example, you know you are going to need a barrel of oil in december, but you don't want to take all of the risk of the higher price then.....[/QUOTE]

It is still legalized gambling and the brokers are little more than bookies
(Trading Places......). I will accede to commodity trading but 25% margin
is [i]far[/i] from adequate IMO. It is gambling with borrowed money.

[QUOTE=R.D. Silverman;261582]It is still legalized gambling and the brokers are little more than bookies
(Trading Places......). I will accede to commodity trading but 25% margin
is [i]far[/i] from adequate IMO. It is gambling with borrowed money.[/QUOTE]

In the end, unfortuneately, the real difference between gambling and investing is the fact that investors all afford business suits, and it's called leveraging when someone else's money is borrowed.

Little different than the meaningless distinction between amateur and professional olympic athletes.

Would you settle for half, or do you want 80-100% margin?

[QUOTE=Christenson;261587]Would you settle for half, or do you want 80-100% margin?[/QUOTE]

No. How about forcing the person contracting for a barrel of oil in December to actually take delivery of that barrel. No reselling the contract. That should curb speculation and allow legitimate hedging of risk for businesses.

[QUOTE=Prime95;261590]No. How about forcing the person contracting for a barrel of oil in December to actually take delivery of that barrel. No reselling the contract. That should curb speculation and allow legitimate hedging of risk for businesses.[/QUOTE]

Exactly. Note that some of the big iBanks have even gamed that somewhat by investing in physical storage facilities - but at least that limits the amount of speculative trading to what's for sale (or what their facility can handle), instead of this insanity of every barrel of oil "changing hands" multiple times before someone actually takes delivery. And there are costs and very real risks associated with such physical storage.

McClatchy newspapers had a nice piece recently on the price of speculation in the oil markets - I love how they take all the various "reasons" for high oil prices given by sell-siders and folks profiting from the speculation and rip each and every one of them to pieces using actual data:

[URL="http://www.mcclatchydc.com/2011/05/13/v-print/114190/speculation-explains-more-about.html"]Speculation explains more about oil prices than anything else[/URL]
[quote]WASHINGTON — Feel like you're being robbed every time you fill the gas tank? Not sure who to blame? Try Wall Street.

That's not the conventional explanation, but it's the one the facts point to. Usually analysts say today's high prices stem simply from "supply and demand." They mean demand for oil and gas is rising and supplies aren't keeping up, so people bid up their price. But global and U.S. supplies are plentiful and demand is stable, so that's not it.

Then the analysts say it's because the market's afraid Middle East turmoil will interrupt oil supplies, so nervous buyers are bidding up prices to ensure they lock in a contract for oil now, just in case it's scarce later. There's probably some truth to that, but after five months of turmoil, there's been no significant impact on Middle East oil supplies, even as prices have see-sawed, so that's not credible either.
[B]
Here's what's credible: Some 70 percent of contracts for future oil delivery are now bought by financial speculators — largely big investment banks and hedge funds — who never take control of the oil. They just flip the contract for a quick profit.
[/B]
Only about 30 percent of oil contracts are bought by a purchaser that actually intends to use the oil, such as an airline. That's according to the Commodity Futures Trading Commission, which regulates trade in those contracts.

"I'm convinced ... that speculators are actively manipulating (prices)," said Michael Greenberger, a University of Maryland law professor who in the 1990s headed the CFTC's trading division.

"It's harder and harder for any reasonable observer to dismiss the role of excessive speculation in this market," said Michael Masters, a professional Wall Street investor who knows how this game works. He's testified before Congress repeatedly that speculators are pushing prices up well beyond what supply and demand would warrant.

They both point to a $15 weekly swing in oil prices in early May and $5 a barrel moves on oil prices in a single day — with no obvious change to supply or demand.

Exxon Mobil Chief Executive Rex Tillerson noted Thursday in testimony before the Senate Finance Committee that this year's oil prices don't make any economic sense, though that's not quite how he put it. He said that current fundamentals and production costs would dictate oil in the range of $60 to $70 a barrel. That's at least $43 cheaper than this year's highs of $113 a barrel reached on April 29 and May 2.

But Tillerson declined to opine about the role of speculators, saying only that the price of oil "will be wherever it will be."

Hundreds of billions of dollars are being made through this speculation — both in the regulated futures market and on the larger unregulated over-the-counter swaps market, where private bets about the movement of oil prices take place. It's producing lots of new billionaires on Wall Street and driving oil company profits through the roof.

And it's punishing everyone who drives.

"The sheer volume of new capital coming from hedge funds, financial traders and other long-term passive investors — interests that mostly buy oil futures to turn a quick profit — is creating artificial demand and driving up the price for consumers," said Sen. Maria Cantwell, D-Wash., in a statement accompanying a letter she and 16 other U.S. senators issued Thursday. They, like Greenberger and Masters, urge the CFTC to impose rules limiting speculators' ability to do this.

Masters and Greenberger advocate a return to limits that prevailed for much of the past century. Those limits effectively reined in speculation to about 30 percent of the oil market.

"We need some speculation. We need enough to provide grease for the wheels of the hedgers, but not so much that they drive price formation," Masters said.
[B]
A McClatchy review of two decades of data compiled by the CFTC documents the boom in speculative trading amid rising prices. In the 1990s, the ratio of speculative trades to trades made by commercial users of oil was tilted heavily toward users of crude. But from 1991 forward, the big financial players such as Goldman Sachs and J.P. Morgan Chase won exemptions that freed them from limits on how much they could speculate in futures markets.
[/B]
They became classified as commercial traders, as if they were an airline hedging price risks in jet fuel. The big banks needed to invest in futures contracts to hedge bets they made in the unregulated swaps market. And the government, in the tenth year of Reagan Republicanism, was happy to reduce regulations on markets. Oil "swaps" increased from $13 billion in the 1990s to more than $313 billion in July 2008 at oil's peak price, Greenberger said .

In mid-2006, CFTC data began distinguishing Wall Street's trades from industrial users, calling the strictly financial ones "non-commercial." Suddenly, the record shows that speculative trades raced past commercial trades.

Prior to the 1990s, speculators made up about 30 percent of the futures market. In the latest reporting period, the ratio on May 3 stood at 68 percent speculators to 32 percent users of oil. Meanwhile, the volume of total reported trades has grown five-fold since 1995, underscoring the impact of speculation on futures markets.

"It tells me that there are more speculative positions than there has ever been in history, particularly in the energy sector, I don't mean only crude oil," said Bart Chilton, a CFTC commissioner who thinks excessive speculation is at least part of the cause of soaring oil prices. "In all of the energy sector, we've seen a 64 percent increase in speculative positions since the (oil price) high of 2008."

While those numbers are stark, the numbers on supply and demand make it clear that the high prices aren't coming from there. There is no shortage of oil stocks by historical standards. There's an estimated 3 million to 4 million barrels per day (bpd) of excess oil production capacity in the world today. That's much more than when supplies were tight in 2008.

U.S. oil production, too, continues to grow. It rose from 4.95 million bpd in 2008 to 5.36 million bpd in 2009, followed by 5.5 million bpd last year — even with the BP disaster in the Gulf of Mexico. The Energy Information Administration forecasts U.S. production to hold at that level this year and rise again next year, to 5.54 million bpd.

U.S. crude oil stocks on April 29, the date oil peaked this year above $113 a barrel, stood at 1.768 billion barrels, according to the EIA. That's about 700,000 barrels more than in July 2008, when oil prices hit all-time highs.

And that's plenty to meet U.S. needs, because consumption isn't growing.

The U.S. consumed 20.68 million barrels per day in 2007. Then came the financial crisis, and consumption dipped to 19.5 million bpd in 2008. Last year the number was 19.5 million bpd. This year's projection is 19.28 million bpd.

So if supplies are plentiful and consumer demand isn't rising, why are prices?

Could it be that refineries aren't able to produce enough gasoline? No. Refiners are running their plants at below cruising speed, and they've got lots of room to produce more if consumers need it. The latest data from EIA on the rate at which refineries are utilized showed a rate of 79.8 percent in February. That's 20 percent below full-blown production, and it hasn't been that low since 1986. If demand for gasoline were soaring, these plants would be cranking at a higher rate.

The American Petroleum Institute, the oil industry lobby, disputes this last example, noting that gasoline production continues at near record levels despite the low refinery utilization rates.

"The amount they're squeezing out of the barrel (of oil) has gone up significantly," said John Felmy, the group's chief economist.

Asked if excessive speculation is to blame for high prices, Felmy said no. He said growing economies such as China and India are gobbling up oil and that global energy data shows the price is "pretty consistent with fundamentals," and that "it really tells the tale of a tight market."

That's not what the Paris-based International Energy Agency said Thursday. It forecast flat global oil demand this year. It dialed back its projection for growth in consumption to 1.3 million bpd, less than half last year's growth of 2.8 million bpd.

The report said, "Our own estimates for global oil demand show a marked slowdown, with preliminary March data suggesting near zero annual growth for the first time since summer 2009."[/quote][I]My Comment:[/I] The problem of course is that the iBanks have captured the CFTC just as they've co-opted most of the other government regulatory apparatus. And our feckless political leadership lacks the guts to call bullshit on that.

sold!

Assuming the theater continues, how long before we get a serious crash and serious reform? Guesses?

[QUOTE=Christenson;261653]sold!

Assuming the theater continues, how long before we get a serious crash and serious reform? Guesses?[/QUOTE]

Predicting the when with any precision is always the trickiest thing, but the global warning signs seem to be aligning now:

- Europe debt crisis erupting with renewed force

- Signs of slowing (mainly as government can-kicking Ponzi schemes reach their limits) worldwide

- Signs of credit-bubble stress in China and the BRICs

- U.S. Housing market in a second major downleg, job market (with a few notable exceptions, mainly Wall Street and Tech) still sucking hard, Fed money-printing now clearly stoking hard-goods inflation while wages stagnate.

I predict before end of the year there will be major turmoil, with the obligatory photos of panicked [strike]traitors[/strike] traders on the covers of the WSJ and major newspapers. They didn't give a rat's ass about the millions of "panicked underwater borrowers" (at least not in the headline-photo sense) for the past 2 years while the markets were buoyed by trillions in central-bank money-printing, but as soon as they see some "anxious traders", well, stop the presses.

[i]When Black Friday comes
I'll stand down by the door
And catch the grey men when they
Dive from the fourteenth floor...[/i]

-- Steely Dan, [url=http://www.steelydan.com/lyrkaty.html]Black Friday (1975)[/url]

Responding out-of-order:

[QUOTE=Prime95;261590]That should curb speculation and allow legitimate hedging of risk for businesses.[/QUOTE]Would you want to curb stock market speculation by requiring that common stock could be sold only to the company that issued it, and that no one could purchase stock except directly from the issuing company?

If not, how does that significantly differ from your oil-contract proposal? (Actually, it's more generous than your proposal; it allows reselling back to the one who issued it.)

[quote]No. How about forcing the person contracting for a barrel of oil in December to actually take delivery of that barrel. No reselling the contract.[/quote]Suppose I'm in a business where I legitimately need a barrel of oil in December. I buy a contract. Then events beyond my control eliminate the anticipated use I had in mind for that barrel.

There's another person who will happily buy that contract from me for [I]his[/I] anticipated use for the barrel of oil in December. But you would have me forced to retain the contract which has become useless to me, and not allow someone else to purchase it from me.

Alternative A: In December, I take delivery, then the other guy buys it from me and arranges transport to his place.

What is the purpose of making the other guy wait, then get the barrel from me, instead of just purchasing the contract from me, then presenting it to the oil's owner with the new shipping address (or however those things are handled)?

Alternative B: The other guy deals only with the oil's direct owner by purchasing a fresh new contract. Except ... the oil's owner sadly informs the other guy that he can't legally sell him a contract because [I]he's already sold contracts for all the barrels he owns that will be available in December[/I]. It would be fraud to issue another contract for the same barrel that I already have contracted for.

Again, you make the other guy wait, find me and my barrel, and arrange transport from me to him after it's delivered to me, instead of just a single transport from owner to other guy -- What is the role of this double transport in curbing speculation?

Alternative C: I can sell my contract, but only back to the oil's owner, so that he can re-sell/reissue it to the guy who needs it.

But then -- why do you require that rigamarole instead of my directly selling it to the other guy, who presents it to the oil's owner with the new shipping address (or however those things are handled)?

- -

The basic problem with your proposal is that it affects [I]all[/I] commodity contract transactions -- both speculation [I]and[/I] ordinary legitimate business -- instead of being aimed only at the undesirable speculative transaction.

(I'm rather surprised that this comes from someone who previously expressed distaste for [strike]unnecessary[/strike] government regulation. :-)

[QUOTE=cheesehead;261672]
Would you want to curb stock market speculation by requiring that common stock could be sold only to the company that issued it, and that no one could purchase stock except directly from the issuing company?[/quote]

A poor analogy. Excessive oil prices and oil price volatility has a pervasive [i]daily[/i] negative impact on the entire economy. Generally, stock market speculation only has a negative impact if and when the bubble bursts.

The common good suggests we adopt effective regulations in curbing this daily negative impact. I'm not saying this is the only possible solution, I am saying it would be effective.

There are already regulations in place to reduce stock market speculation, such as margin requirements, short sale rules, stopping trading in individual stocks and the entire market.

[quote]
Suppose I'm in a business where I legitimately need a barrel of oil in December. I buy a contract. Then events beyond my control eliminate the anticipated use I had in mind for that barrel.

...

The basic problem with your proposal is that it affects [I]all[/I] commodity contract transactions -- both speculation [I]and[/I] ordinary legitimate business -- instead of being aimed only at the undesirable speculative transaction.[/quote]

Legitimate business has many more options than you spell out. If an airline contracts for a million barrels in December but a slowdown causes it to only need 900,000, then the airline can burn the 100,000 barrels in January.

Alternatively, the airline could decide to only hedge 800,000 barrels of its anticipated December need, buying the rest on the spot market.

Which is better for the country: a few businesses forced to take delivery of oil they no longer need and then must resell or a 30% speculation premium on the price of oil for everyone?

[quote]
(I'm rather surprised that this comes from someone who previously expressed distaste for [strike]unnecessary[/strike] government regulation. :-)[/QUOTE]

You have grossly misrepresented my beliefs by striking out the word "unnecessary".

One point I would like to add the above debate: Unlike your typical hedge fund, an airline [i]clearly has a legitimate business use[/i] for the oil (jet fuel, actually) whose price they are attempting to hedge via futures contracts.

Perhaps that, more that forced-delivery, should be the main criterion for entry into the industrial-commodity futures markets.

Physical delivery *would* still makes sense for businesses whose main business is at the wholesale level, e.g. suppliers to airlines and such. We don't want to eliminate that crucial portion of the (legitimate) market, but do need to recognize the different roles of the intermediary distributor and the end users.

Now, the day Goldman Sachs actually starts delivering 90% or more of the oil they speculate in to end users, fine. But all they and their ilk ever do is play in (and manipulate, by weight of sheer buying power and computer-algo tricks) the "paper" markets.

The analogy with the equity markets is indeed poor. If speculators cause the price of company X shares to come at a hefty premium, so what? No productive-economy business needs company X shares to operate. People can simply not buy the shares when the price gets too rich, with no harm to the real economy.

[QUOTE=ewmayer;261193]So it's been an interesting week for the legions of commodities speculators ... oil had a 1-day drop of around 10% last week, another big one today. Of course while oil was rising, gas prices were marching up in lockstep, with little or no time-delay between the two. Now that oil is down over 10% in the past week, gas prices at my local station have dropped a whopping - wait for it - 0.5% fr the cheapest grade, and not at all for the others. Woo hoo![/QUOTE]There are some who believe that higher oil prices are a benefit, and I don't mean the oil producing nations.

An incentive to develop alternative sources of energy and more efficient uses of energy is likely to be beneficial in the long run, even though there may be short term pain. Remember that petroleum (literally "rock oil") came into widespread use because whale oil was becoming prohibitively expensive as the reserves started running low.

I'm personally of the opinion that oil is far more valuable as a chemical feedstock than as a source of energy. We can burn methane, for example, directly to CO_2 and H_2O and extract the energy. Converting methane to more complex organic chemicals is undoubtedly possible but generally requires a large amount of input energy. Cracking higher hydrocarbons into something useful requires much less energy.

Paul

[QUOTE=xilman;261702]There are some who believe that higher oil prices are a benefit, and I don't mean the oil producing nations.

An incentive to develop alternative sources of energy and more efficient uses of energy is likely to be beneficial in the long run, even though there may be short term pain. Remember that petroleum (literally "rock oil") came into widespread use because whale oil was becoming prohibitively expensive as the reserves started running low.[/quote]
You'll get no disagreement with me there - And if the price premium were actually going to help us wean ourselves off our addiction by e.g. funding alternate-energy R&D, that would be great. But instead all those hundreds of billions of dollars per year in price-excesses are going straight into the pockets of the market-riggers and professional speculators, who in fact want to keep the worst of both worlds for the real economy: They want to (a) keep prices inflated, and (b) preserve economic dependence on oil, because that`s easy money for them.

[QUOTE=ewmayer;261704]You'll get no disagreement with me there - And if the price premium were actually going to help us wean ourselves off our addiction by e.g. funding alternate-energy R&D, that would be great. But instead all those hundreds of billions of dollars per year in price-excesses are going straight into the pockets of the market-riggers and professional speculators, who in fact want to keep the worst of both worlds for the real economy: They want to (a) keep prices inflated, and (b) preserve economic dependence on oil, because that`s easy money for them.[/QUOTE]I would suggest that the price premium [i]is[/i] helping us to wean us. For example, ordinary consumers are showing tendencies to drive less and to purchase fuel-efficient cars. According to the news suppliers I use, this appears to be a world-wide phenomenon and, indeed, one which started back in the seventies. Average fuel efficiency hasn't been increasing monotomically throughout that period but the correlation between efficiency and time is significantly positive.

Paul

[QUOTE=xilman;261712]I would suggest that the price premium [i]is[/i] helping us to wean us.[/QUOTE]

Perhaps I wasn't sufficiently clear - my point above was not whether the high price was leading to less fuel consumption - it indubitably is - but that I would greatly prefer the price premium to go toward furthering that same end goal (e.g. via an alternative-energy-R&D-funding carbon fuel tax) rather than into lining the pockets of Wall Street iBank and hedge-fund douchebags.

[QUOTE=ewmayer;261718]Perhaps I wasn't sufficiently clear - my point above was not whether the high price was leading to less fuel consumption - it indubitably is - but that I would greatly prefer the price premium to go toward furthering that same end goal (e.g. via an alternative-energy-R&D-funding carbon fuel tax) rather than into lining the pockets of Wall Street iBank and hedge-fund douchebags.[/QUOTE]

Or put it into social changes that make less energy use possible...including mass transport and getting freight and possibly even people on rails.