Spain is back in headlines again, this time because the banks are teetering on the brink of a massive bankruptcy. The trigger is a complex series of fundamental issues starting with @25% unemployment which is causing property values to plummet which is causing mortgage defaults which hits the banks bottom lines. Overall, this represents a stagnant economy that has very little hope of recovery except from an external bailout. Unfortunately, banking insiders appear to be denying there is a problem which means the problem grows worse. This is not a case of "the emperor is wearing no clothes", rather it is like the Colorado river carving out the grand canyon.

[url]http://www.cbsnews.com/8301-500395_162-57424142/big-spanish-banks-slip-closer-to-bankruptcy/[/url]

I'm still holding to my prognostication of 2.8 years for the full impact to be felt, but stipulate that there will be significant efforts to prop them up well before that time.

DarJones

Did you know there was a TARP Report? (Well, that's not exactly its name, and this covers more than just TARP.)

"The Financial Crisis Response
In Charts
April 2012"

[URL]http://www.treasury.gov/resource-center/data-chart-center/Documents/20120413_FinancialCrisisResponse.pdf[/URL]

Lots of nice charts and graphs of official government figures.

[QUOTE=cheesehead;298163]Did you know there was a TARP Report? (Well, that's not exactly its name, and this covers more than just TARP.)

"The Financial Crisis Response
In Charts
April 2012"

[URL]http://www.treasury.gov/resource-center/data-chart-center/Documents/20120413_FinancialCrisisResponse.pdf[/URL]

Lots of nice charts and graphs of official government figures.[/QUOTE]That is a big change from the initial draft TARP proposal that could easily fit on a half page with room left on it to set down your coffee cup or doodle.

Added:
Here it is in the New York Times: [URL="http://www.nytimes.com/2008/09/21/business/21draftcnd.html"]Text of Draft Proposal for Bailout Plan[/URL]. My half page remark is only a slight exaggeration.

My favorite part [ /sarcasm ]
[QUOTE]Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.[/QUOTE]

[QUOTE=ewmayer;297121]


And while we're on the topic of reality checks, here is one for the U.S. [url=http://www.zerohedge.com/news/guest-post-epic-fail-part-one]Epic Fail, Part 1[/url][/QUOTE]

Has part 2 appeared? I can't find it. Googling for "ZeroHedge Epic Fail"
does not turn it up.

[QUOTE=R.D. Silverman;298183]Has part 2 appeared? I can't find it. Googling for "ZeroHedge Epic Fail" does not turn it up.[/QUOTE]

Have not seen part 2 yet - will post here when I do. The author(s) gave no timeline for the next installment.

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

PBS` outstanding documentary series [i]Frontline[/i] just concluded a 4-part series on "the financial crisis which never ended" last night - here is the series link:

[url=video.pbs.org/video/2229573859]Money, Power and Wall Street[/url]

Regular readers of this blog will be familiar with most of the major issues covered by the series, but many of the details, especially some of the behind-the-scenes politics which went on (and are ongoing) were new to me. While I would have liked to see a bit more coverage of some of my pet issues, such as the rampant-unprosecuted-fraud aspect Bill Black rails against and the wholesale transfer of banks` toxic debts to sovereign and central-bank balance sheets, overall they did an outstanding job. Using the internal Fed documents finally prised out of Bernanke et al`s hands last year by the famous Bloomberg FOIA lawsuit, they cite the figure of total loans, gurantees and other commitments made by the Fed to banks not just in the US but all over the globe at the height of the 2008 crisis as a massive $7.77 trillion, fully half of US GDP.

The 2 biggest surprises for me:

1. Early in the Obama administartion, when the raging debates were going on about whether to really tackle reforming the financial industry 1930s-style or say stern words and then bail them out in hopes they would "see the light" (which is what actually occurred), the main proponent on Obama`s economic team of the former "Swedish style" approach to the TBTF banks was Larry Summers, who I have long reviled and oft vilified in these pages. Now with LS being a former hedge-fund guy I would not be surprised to learn that he was massively shorting the TBTF banks at the same time he was advocating nationalizing them and breaking them up as a top participant in the debates about how to deal with them, but I cannot assume that. Hence my surprise.

2. One of the more candid interviews given by a Wall Street insider was a Morgan Stanley structured-finance guy. He had some interesting things to say about the toxic derivatives which were peddled by the iBanks to municipalties around the globe (think Jefferson County, AL, sewer-bond scandal and resulting bankruptcy) and put much of the blame - not surprisingly for someone working on Wall Street - on the folks so easily seduced by the accompanying sales pitches. Basically that no one asked even the most basic questions about the financial alchemy being promised by the bankers, such as "You say that by engaging in this interest-rate-swap derivatives scheme, we can lower the borrowing cost on our sewer-bond issue from 5% to 1%, assuming the global interest rate this is tied to continues to 'behave normally'. Since you are also earning roughly 5% as your fee and someone is in effect buying bonds with a nominal yield of 5%, who is the loser in this bit of magic?"

The same structured-finance guy said of the derivatives (mainly complex and designed-to-be-opaque currency swap deals) being sold by iBanks to indebted sovereigns to disguise the true state of the budgets (think Goldman Sachs helping Greece lie its way into the EMU), that the EuroStat budgetary authority tasked with overseeing the related accounting "had to know ... in fact I know that they knew" that Greece (and Italy, and, and) were lying.

They also did a nice coverage of Occupy Wall Street in part 4, including interviews with several OWSers who worked on Wall Street during the housing-bubble years. These were mostly young (late-20s/early-30s) talented science/math/engineering folks recruited by Wall Street iBanks and hedge funds out of college and induced to set aside their personal qualms about the nature of the Beast they went to work for with starting salaries 2,3,4x what they could earn by working in their fields, and promises of literal mega-bonsues for top performers as they rose through the ranks. In answer to the question posed by critics of "what is it that OWS really wants?" and the criticism that OWS does not understand the industry it is railing against, [i]Frontline[/i] cited a common profile of the more-educated OWSers as being a recent college grad, deep in student-loan debt, facing dismal job prospects, if any. "They see Wall Street as a black box, and all they know is that the output of that black box is not working for them."

[QUOTE=ewmayer;297785]And your wording implies that gamma-rays have little difficulty penetrating gold?

Since you mentioned scintillators, one more W-involving compound I wanted to ask you about is Lead Tungstate (PbWO[sub]4[/sub]), which occurs naturally as the mineral Stolzite, and is produced in highly pure form for use as scintillators in e.g. particle accelerators. Clear as window glass (but much less hard, interestingly enough), denser than iron. Sounds like fascinating stuff: "And it makes a great paperweight". Wikipedia does not list a melting point. Ever seen or work with the stuff?[/QUOTE]Ah, only just seen this post.

Never worked with lead tungstate so can't help there.

Gamma rays are absorbed by gold and tungsten but, there again, they are absorbed by everything. I don't know the half-length absorption as a function of energy off-hand but it's doubtless findable. The out-coming fluorescence photons are also scattered, absorbed and re-emitted at lower wavelengths. However, absorption in either direction isn't really important as long as enough gets in and enough gets out, which means that you need high enough brightness sources and sensitive enough detectors. Given that gamma-rays are used to examine steel castings and welds anything up to a metre thick, it's not difficult to get a source bright enough to shine through a few centimetres of gold or tungsten. Very few fluorescence photons need to be able to get out again to be able to determine their energy spectrum with sufficient precision to distinguish between the two elements --- it's not as if you need to perform imaging just to detect impurities.

[QUOTE][ewmayer] PBS` outstanding documentary series [i]Frontline[/i] just concluded a 4-part series on "the financial crisis which never ended" last night - here is the series link:

[url=video.pbs.org/video/2229573859]Money, Power and Wall Street[/url][/QUOTE]

I've seen the first of the 4-part series; looks excellent, and am relieved you give it a good review, as I'd hate to think it was all lies and spin. That first part really helped me understand the causes, and early stages, of the financial crises. Looking forward to the next ones, to better my understanding of the political part of it all.

Norm

Last night I caught a rebroadcast of the following 2005 PBS [i]Independent Lens[/i] documentary on life for workers in a bluejeans factor in China - worth checking out (I give the Wikipedia link, which links to the PBS series site):

[url=http://en.wikipedia.org/wiki/China_Blue]China Blue[/url]

I'm rather amazed this even got made - the end credits note the serious problems the filmmakers had with Chinese authorities, though they do not note to what extent the film contains material that was approved, i.e. did not have to be smuggled out. It is interesting to see what the factory owner considers as making him a "soft touch" with regard to his treatment of the workers. It's quite possible that the conditions shown indeed do qualify as benign relative to 'iron fist'-run factories. The many ways the management and foreign customers of Chinese factories use to present a fictionalized version of their labor conditions to the outside world (e.g. advance notice of inspections, mass falsification of timecards, dismissal of workers who refuse to lie to inspectors and outsiders, etc) are described.

But hey, that was made way back in 2005 - I'm sure conditions for Chinese mfg workers have improved by leaps and bounds sine then. (Cough, cough)

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

[url=http://links.reuters.com/r/YMQP2/P5YJR/HY5A1D/SJRKF/R3DHAW/YT/h?a=http://links.reuters.com/r/YMQP2/P5YJR/HY5A1D/SJRKF/5V15IG/YT/h]Can portfolio theory save lives?[/url]: [i]Reuters | With U.S. biomedical research under assault by everyone from patients to Congress for turning so few scientific discoveries into treatments, a leading finance expert says decisions about what studies to bankroll should be made the same way pension funds, mutual funds, and university endowments decide how to invest their money.[/i]

"Let`s conservatively assume 8% annual returns in perpetuity, even if real wage growth in the economy is 0 ... and these 'CDO squared' mortgage-backed securities being offered by Bear Stearns promise to return more than that, especially if house prices keep doubling every 5 years, which seems a reasonable historical baseline. What could possibly go wrong?"

[QUOTE=ewmayer;298315]
[URL="http://links.reuters.com/r/YMQP2/P5YJR/HY5A1D/SJRKF/R3DHAW/YT/h?a=http://links.reuters.com/r/YMQP2/P5YJR/HY5A1D/SJRKF/5V15IG/YT/h"]Can portfolio theory save lives?[/URL]: [I]Reuters | With U.S. biomedical research under assault by everyone from patients to Congress for turning so few scientific discoveries into treatments, a leading finance expert says decisions about what studies to bankroll should be made the same way pension funds, mutual funds, and university endowments decide how to invest their money.[/I]
[/QUOTE]The promoters of this view seem to assume that they can predict not only the worth of the outcome, but also the cost of finding and producing the cure before the cure exists. That's just one place where the analogy between medical research and financial portfolios breaks down.

BTW, wouldn't you think that the sorts of conservatives who railed about the proposed health care bill "death squads", because those would decide whether someone will live or die, would apply similar logic to financially-based decisions on what kinds of research to pursue -- that the panel that makes the allocation decisions also decide whether a certain group will live or die? Why isn't this the instant reaction to the "portfolio theory" proposal?

I know the article just came out today -- but I'd be interested in tracking how long it will take for that analogous conservative reaction to appear -- or for someone to explain why, in the conservative worldview, the two situations are not analogous in that manner (or the unlikely admission that the "death squad" rhetoric was purely political, not ideological).

Friday Humor: USA Number 1, Euro Losers
 

[b]Friday Humor:[/b] Is masquerading as a supposedly serious article in the New York Times:

[url=http://www.nytimes.com/2012/05/04/business/us-chose-better-path-to-economic-recovery.html?ref=world]U.S. Chose Better Path to Recovery[/url]

I expected better than this "USA Number 1!" drivel from the likes of the NYT`s Floyd Norris - Samples of the delusional 'reasoning':

1. [i]"The unemployment rate in the United States has been steadily falling"[/i]:

Floyd should perhaps have waited for [url=http://links.reuters.com/r/CRB2Q/53HYE/HY5A1D/CA7CJ/U1E6NI/YT/h?a=http://links.reuters.com/r/CRB2Q/53HYE/HY5A1D/CA7CJ/DWOQZH/YT/h]today`s payroll survey numbers[/url] - also see [url=http://globaleconomicanalysis.blogspot.com/2012/05/payroll-disaster-nonfarm-payroll-115000.html]Mish`s take here[/url] - before prattling about the mighty hiring boom sweeping the US. Ever heard of 'labor force participation rate', Floyd?

2. [i]"In Europe this week, a meeting of finance ministers trying to negotiate details of how banks will be forced to raise capital — and whether some countries can require their banks to have more capital — produced no agreement but provided more reasons to doubt whether the banks are safe. In the United States, the Federal Reserve’s quarterly survey of lending officers indicated that lending conditions were improving. "[/i]:

This would be the same Fed which saw no housing bubble until the obvious one blew up; the same Fed whose head then reassured us that "subprime is contained", so contained in fact that a few months later the same Fed bailed out the globally insolvent banking sector to the tune of nearly 8 *Trillion* dollars in near-zero-interest loans, wholesale face-value-purchase of toxic assets and bad-loan guarantees to infinity and beyond? So now when they mistake a student-loan bubble driven in no small part by millions of out-of-work mid-lifers going back to school to "retrain" while they wait for labor market conditions to improve to somewhere back above "dismal" as "lending conditions improving", you find this credible?

3. [i]"It was also necessary to bail out the lenders at the center of the American home mortgage system, Fannie Mae and Freddie Mac. That, too, is unpopular in many circles, especially since there are politicians proclaiming that those two government-sponsored enterprises were the sole cause of the financial crisis. They were not, of course. Most of the really bad loans were made by privately financed lenders who believed they had little reason to care if the loans were good, since they planned to sell them immediately to investors."[/i]:

Of course the GSEs were not the sole, nor even the main cause of the crisis. That would be the same Fed cited in [2] above, which drove borrowing costs to historic lows and kept them there for a record time in the early 2000s in a foolish attempt to mitigate the collapse of its previous pet bubble (dotcom) by blowing an even bigger one.

4. [i]"The other area where American policy seems to have worked better is monetary policy. The Federal Reserve’s purchase of large amounts of securities — known to some as quantitative easing — was critical in restoring liquidity to American banks and making it possible for them to continue lending. The European Central Bank avoided disaster with its own program to pump cash into banks but, as two Morgan Stanley economists, Joachim Fels and Elga Bartsch, noted this week, that move was “not a circuit breaker that transferred risk from the private sector to the central bank’s balance sheet.” It has bought time, but fundamental problems remain. "[/i]:

So buying all those toxic MBSes whose market value remains unknown but is quite likely less than half what the Fed paid - we don`t know the terms, of course, but Bernanke is on record a few months before the MBS-buying -spree commenced as saying that the "the Fed should overpay for illiquid assets" as a deliberate policy to "restore liquidity" to the system - is what led to the same non-existent lending boom which spurred the non-existing hiring spree noted in point [1]? Gotcha.

None of this is to suggest the Euros are not right and royally fooked - they are, and probably are even worse than the U.S., in no small part due to political divisions, whereas here in the US we have fully bipartisan support for bailing out the reckless and imprudent banks and not prosecuting any of the top players in the largest mass-fraud in US history. But let`s try not to injure ourselves with excessively violent self-back-patting there, Floyd, OK?

[b]Friday Humor, 2er Teil:[/b]

[i]Small humorous addendum[/i]: I realize that making fun of people's names (especially if the amusement is based on a name common in a given ethnic group-different-than-one's own) is a bit lame, but in this case the humor is not due to the name sounding funny, rather to it sounding funnily like ... anyway, I just stopped by the management office for my apartment complex to pick up a package which had been left there by UPS.They keep such hold-for-resident-pickup packages in a pair of large shelving units, one for last names starting with A-M, the other for N-Z. So I'm looking through the A-Ms for my name, and come across a small box addressed to "Qin Kong".

"Hey big fella, package for you ... so climb on down off that skyscraper and come pick it up, OK?"

Japan Nuclear Shutdown | China Demographics
 

[QUOTE=ewmayer;298481]None of this is to suggest the Euros are not right and royally fooked[/QUOTE]

And speaking of being fooked, Japan is facing decades of power shortages:

[url=www.nytimes.com/2012/05/05/world/asia/japans-leaders-fret-as-nuclear-shutdown-nears.html?ref=world]Japan’s Leaders Fret as Nuclear Shutdown Nears[/url]: [i]Barring an unexpected turnaround, Japan on Saturday will become a nuclear-free nation for the first time in more than four decades, at least temporarily.[/i]
[quote]Japan’s leaders have made increasingly desperate attempts in recent months to avoid just such a scenario, trying to restart plants shut for routine maintenance and kept that way while they tried to convince a skittish public that the reactors were safe in the wake of last year’s nuclear catastrophe. But the government has run up against a crippling public distrust that recently found a powerful voice in local leaders who are orchestrating a rare challenge to Tokyo’s centralized power.

As the last of 50 functional commercial reactors is set to go offline Saturday, that local resistance to turning plants back on has confronted Japan’s leaders with a grim scenario: with the nation’s once vaunted balance of trade already deteriorating, they now face the looming prospect of summer power shortages that [url=http://www.nytimes.com/2012/04/16/world/asia/amid-manufacturing-decline-japan-weighs-a-reinvention.html]could drive still more factories to close or move abroad[/url].[/quote]


Moving to Japan`s huge western neighbor, Mish features an article by "economic demographer" Nicholas Eberstadt of the American Enerprise Institute on the demographic challenges facing - surprise! - China. Mish`s headline is a tad sensationalistic, but accurate if one applies the multidecadal time scales applying to such demographic trends, meaning this is a "slow motion crash" by typical economic-trend timescales:

[url=http://globaleconomicanalysis.blogspot.com/2012/05/chinas-population-poised-to-crash-in.html]China's Population Poised to Crash in Perfect Demographic Storm[/url]
[quote]China’s rise over the last generation has been stunning, but straight-line projections of its future power and influence ignore that [u]its birthrate is 30 percent below the replacement rate[/u].

The Census Bureau predicts that China’s population will peak in 2026, just 14 years from now. Its labor force will shrink, and its over-65 population will more than double over the next 20 years, from 115 million to 240 million. It will age very rapidly. Only Japan has aged faster -- and Japan had the great advantage of growing rich before it grew old. By 2030, China will have a slightly higher proportion of the population that is elderly than western Europe does today -- and western Europe, recall, has a higher median age than Florida.
[b]
China’s Challenges
[/b]
China, notoriously, has another demographic challenge. The normal sex ratio at birth is about 103 to 105 boys for every 100 girls. In China, as a result of the one-child policy and sex- selective abortion, that ratio has been 120 boys for every 100 girls. From 2000 to 2030, the percentage of men in their late 30s who have never been married is projected to quintuple. Eberstadt doesn’t believe that having an “army of unmarriageable young men” will improve the country’s economy or social cohesion.[/quote]
And the economic implications:
[quote]By almost all accounts today, no major economy has more radiant prospects for the coming decades than China. Such assessments are predicated on extrapolation of the country‘s extraordinary recent record of performance into the future. Over the past generation, China‘s economic transformation has been nothing less than dazzling. In the three decades following Deng Xiaoping‘s 1978 moves toward overarching systemic reform, by Angus Maddison‘s reckoning, China‘s GDP grew almost ten-fold: averaging an estimated 7.5% growth a year for 30 years—and if we go by other sources, China‘s growth rates would have been even more rapid. No economy in world history has ever grown so fast for so long. Over this same interim, China also emerged from self-imposed autarky to become a major player in the world economy. Today it is number one in both merchandise exports and in holdings of foreign exchange reserves. In aggregate, China now appears to be the world‘s second largest economy, edging out Japan last year.

Chinese policymakers confidently predict the country‘s torrid growth will continue on into the future; Beijing officially forecasts annual growth rates of roughly 7% per year between now and 2030. This rosy prognosis is accepted by many in the world financial community, and even by some of the intelligence and security services that advise Western governments. But there is a major problem with this optimistic reading of China‘s economic future—it does not seem to take into account the demographic tempests that China will have to weather in the years immediately ahead. A wide sweep of new, powerful and fundamentally unfamiliar demographic forces are now gathering in China in the years ahead, and will buffet the country simultaneously. China is confronting the demographic version of the perfect storm, and these new demographic realities may ultimately force us to revise today‘s received wisdom about China‘s rise.[/quote]
As legendary baseball figure Yogi Berra once said, "Predictions are hard, especially about the future."