Mystery Economic Theater 2010

[ewmayer]

Originally Posted by xilman

Isn't that roughly what FusionPower said? The value of the gold at the current exchange rate is less than the face value of the debt. Either he was being ironic, or he was implying that inflation will make the physical gold have a value in dollars equal to the size of the debt in dollars when it becomes time to pay up.

Ah, that makes more sense - Interestingly, even though the dollar went through significant previous bouts of devaluation in recent decades (e.g. the 'stagflation' of the late 1970s), gold did not behave the way one would have predicted during those episodes. I suspect there is a significant subjective aspect which one might call "credibility of the fiat currency regime" responsible for that, as well as the factor that even in times of significant price inflation (currency devaluation) if there are attractive investment alternatives to hard assets like gold, the price of the latter may not track inflation because demand may remain low. This seems to have been the case throughout much of the last 3 decades, beginning with (using a US-centric timeline based on presidential-administrations) the Reagan bull market and culminating with the near-20-year Greenspan bull (or bubble, take your pick) market. Now we have the double-whammy of the bull being dead and the dollar regime having lost credibility since the attempts to weasel-default on the federal debt via devaluation are so transparent. Hence the rocket shot in gold (and other commodities, including oil, which is back to close to $100 per barrel despite global demand still being quite weak due to the global recession).

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

[ewmayer]

In France, Labor Strikes Head for Showdown: Hundreds of thousands of people took to the streets of Paris and other cities on Tuesday ahead of a parliamentary vote on the country’s pension system.

PARIS — Flights were canceled, frantic drivers searched for fuel and hundreds of thousands of people, young and old, took to the streets of Paris and other cities on Tuesday as protests over President Nicolas Sarkozy’s plans to change France’s pension system mounted in advance of a parliamentary vote.

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

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

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

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

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

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

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

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

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

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

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

“I think these strikes are more about other things,” he said, likening them to a referendum on Mr. Sarkozy. “This is a reaction against the elite.”

My Comment: The last comment is interesting, in light of the fact the protests appear to be fomented and organized by a kind of "entitlement elite" who are justifiably loath to give up their cushy current benefits, even though they are simply unsustainable.

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

[ewmayer]

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

#Bank of America to Revive Foreclosures; Shares Climb: Bank of America Corp. will “defend our shareholders” by disputing any unjustified demands that it repurchase defective mortgages, Chief Executive Officer Brian T. Moynihan said in an interview.

Most claims “don’t have the defects that people allege,” Moynihan said on Bloomberg Television today, referring to so- called putbacks, in which guarantors or investors in mortgage- backed securities ask to return bad loans. “We end up restoring them, and they go back in the pools.”

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

The cost of buying back mortgages that didn’t meet investors’ standards declined about 30 percent to $872 million from $1.25 billion in the second quarter. The company expects a cost averaging $500 million each quarter for “the next couple of years or so” tied to faulty loans, a Bank of America executive said on a conference call with analysts. The sum of outstanding claims submitted by investors jumped 71 percent to $12.9 billion from $7.5 billion as of last year’s third quarter.

My Comment: Moynihan is either ravingly delusional or lying through his teeth. More about that shortly ...

The bank said yesterday it will start resubmitting foreclosure affidavits in 102,000 cases in which judgment is pending. Under pressure from lawmakers and state officials, bankers had been delaying action until they could answer allegations that filings were marred by so-called robo-signing, in which employees vouched for the accuracy of court filings without personally checking loan records. Bank of America’s suspension had included all 50 states as it reviewed documents.

“Our initial assessment findings show the basis for our foreclosure decisions is accurate,” Dan Frahm, a company spokesman, said yesterday.

My Comment: So, you were able to "thoroughly assess" the documentation quality in over 100,000 foreclosure cases in roughly the same time it took you to rubber-stamp robo-sign them in the first place? Suuuuuuuuuuuuuuuuure you were ... Well, that little earnings-manipulation-caused rally (if you choose to refer to a 10-cent or roughly 1% advance as a rally, which Bloomberg pretty much does) in BofA shares didn`t last long, and was already fizzled out when this next headline hit the newswires:

Pimco, New York Fed Said to Seek BofA Repurchase of Mortgages: Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.

The bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service the loans properly, their lawyer said yesterday in a statement that didn’t name the firms.

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

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

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

Countrywide also hasn’t met its contractual obligations as a servicer because it hasn’t asked for repurchases itself and is taking too long with foreclosures, either because of document or process mistakes or because it doesn’t have enough staff to evaluate borrowers for loan modifications, Patrick said. If the issues aren’t fixed within 60 days, BNY Mellon should declare Countrywide in default of its contracts, she said.

My Comment: Prediction: There will be a tidal wave of such "putback" lawsuits, involving potentially several trillion dollars worth of the fraud-riddled, shoddily underwritten and bogusly-rated MBS issuance which typified (and was a key factor in helping to inflate) the housing bubble.

[ewmayer]

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

Stop Being so Agreeable, Paul Krugman!

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

Rare and Foolish

I don’t know about you, but I find this story deeply disturbing, both for what it says about China and what it says about us. On one side, the affair highlights the fecklessness of U.S. policy makers, who did nothing while an unreliable regime acquired a stranglehold on key materials. On the other side, the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation.

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

“There is oil in the Middle East; there is rare earth in China,” declared Deng Xiaoping, the architect of China’s economic transformation, in 1992. Indeed, China has about a third of the world’s rare earth deposits. This relative abundance, combined with low extraction and processing costs — reflecting both low wages and weak environmental standards — allowed China’s producers to undercut the U.S. industry.

You really have to wonder why nobody raised an alarm while this was happening, if only on national security grounds. But policy makers simply stood by as the U.S. rare earth industry shut down. In at least one case, in 2003 — a time when, if you believed the Bush administration, considerations of national security governed every aspect of U.S. policy — the Chinese literally packed up all the equipment in a U.S. production facility and shipped it to China.

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

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

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

Breaking News: China Embargoes Rare Earths

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

China Is Said to Halt Exports to U.S. of Some Key Minerals: China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted shipments of some of those same materials to the United States and Europe, three industry officials said on Tuesday.

The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further ratchet up already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese officials are willing to use their growing economic muscle.

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

China mines 95 percent of the world’s rare earth elements, which have broad commercial and military applications, and are vital to the manufacture of diverse products including large wind turbines and guided missiles. Any curtailment of Chinese supplies of rare earths is likely to be greeted with alarm in Western capitals, particularly because Western companies are believed to keep much smaller stockpiles of rare earths than Japanese companies do.

My Comment: This has the potential to affect the numerous rare-earth-dependent industries in similar fashion as the Arab oil embargo of the early 1970s did oil-dependent sectors. In an echo of the 1930s, we are seeing trade wars breaking out all over the globe.

[Fusion_power]

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


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

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

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

DarJones

[ewmayer]

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

Guest Post: iDepression 2.0: Dude, where's My Job?

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

Barry Ritholtz described how the Federal Reserve provoked housing bubble further warped an already unbalanced American job market:

Job creation has taken place across a wide swath of industries – much more than just residential construction. Sure, developers, builders, and subcontractors saw job growth explode. But it was far more than that. From real estate agents to mortgage brokers, from designers to contractors, plus the many employees of stores like Home Depot (HD) and Lowes (LOW), the Real Estate industrial complex was responsible for a disproportionate percentage of new job creation. From 2001, to the housing peak in 2005, the total number of Realtors, as a percentage of the Total Labor Force, gained nearly 50%.

The reality is that Greenspan, Bernanke, and the rest of the Federal Reserve Governors “created” millions of jobs that were not sustainable. Their policies distorted an already tenuous economic model, dependent upon consumer spending, no savings, and delusions of home wealth. The chart below paints the picture of sorrow. The key points are:

* The number of employed Americans has declined by 7.4 million since 2007.
* Goods producing jobs have declined by 19% since 2007, while service jobs have only declined by 2.8%.
* Luckily, Government jobs have actually increased since 2007.
* The population of the US has increased by 10.8 million since 2007.
* The working age population has increased by 6.5 million since 2007, while the work force has only increased by 1 million.
* Only 58.5% of the working age population in the U.S. is currently employed versus 64.4% in 2000, a lower level than in 1978.
...
The truth is that the country should still have 64.4% of the working age population employed today as we did 10 years ago. That means we should have 153.5 million employed Americans today. Instead, we have 130.2 million employed Americans. That is a 23.3 million job deficit and the Obama administration crows when we add 50,000 new jobs in a month. Welcome to iDepression 2.0.

No Way Out

The United States of America is a hollowed out shell of the great industrial machine that dominated the world after World War II. The BLS data unequivocally proves this is so. The chart below compares American jobs in 1970 versus today. The storyline about good paying manufacturing jobs being shipped overseas is absolutely true. The population of the United States in 1970 was 203 million. Today, the population of 310 million is 53% higher. During this same time frame manufacturing jobs have declined from 17.8 million to 11.7 million, a 34% decrease. The corporate oligarchs that run this country will tell you this is due to efficiency. The truth is that these jobs were shipped to China in order to enrich the oligarch CEOs and their MBA efficiency “experts”. The key disturbing facts from this data are as follows:

* Goods producing jobs as a percentage of all jobs have declined from 31.2% in 1970 to 13.8% today.
* Lawyers, accountants, financial advisors and other paper pushing professions made up 12.4% of jobs in 1970 versus 18.7% of all jobs today.
* Obese Americans love to go out to restaurants and be served. Hospitality employees now make up 10.1% of the workforce versus 6.7% in 1970.
* Obese, vain, stupid Americans have also benefitted the Health Services and Education industries as the number of nurses, proctologists, teachers, school administrators and Beverly Hills TV surgeons has surged from 6.4% of the workforce to 15.1%. You’d think we would be healthier and smarter with these figures. We’re not.

My Comment: Meanwhile, the right-wing and banking-industry friendly folks over at the WSJ editorial board are still doing their best to pretend that "Foreclosuregate" (which is really a misnomer, since the fraud permeated the entire mortgage-issuance and securitization chain, and is only coming to light as a result of the ongoing foreclosure tsunami) is no big deal, just some minor paperwork snafus which will get cleared up in a jiffy. That's right, and in late 2007 and 2008, "Subprime was contained", nothing to see there either, folks - safe go out and buy equities, which are of course (as ever) "on sale".

[ewmayer]

Britain Plans Deepest Cuts to Spending in 60 Years: The British government on Wednesday unveiled the country’s steepest public spending cuts in more than 60 years, reducing costs in government departments by an average of 19 percent, sharply curtailing welfare benefits, raising the retirement age to 66 by 2020 and eliminating hundreds of thousands of public sector jobs in an effort to bring down the bloated budget deficit.

Wednesday’s announcement of £83 billion, about $130 billion, in cuts by 2015 represents a big political gamble for Britain’s fledgling Conservative-led coalition government.

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

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

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

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

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

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

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

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

In June, Mr. Osborne also said that the value-added tax — a tax paid on most consumer goods in Britain — would increase in January, to 20 percent from 17.5 percent.

My Comment: That is called "dealing with fiscal reality" - It will be interesting to compare how well the U.S. handles its coming fiscal reckoning. Based on the fact that most of our governmental officials are still in deep, deep denial about the depth of the cuts needed and are still deluding themselves about that ever-nascent huge frickin` economic recovery (I suspect many are in fact hoping for another revenue-boosting bubble like dotcom and housing to come along in the near term, ruinous as those were in the long term) which is just around the ever-elusive metaphorical corner, I`m guessing "not very".

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

[ewmayer]

Movie Review: "Inside Job"

LA Times (Kenneth Turan) and NY Times (A.O. Scott) reviews of the new documentary of the 2008 financial crash as anything-but-an-unfortunate-accident, Inside Job:

Movie review: 'Inside Job': Charles Ferguson presents a clear-eyed, sobering, commendable account of how the global economic crisis developed.

What happened?

What hit us?

How did things go so horribly wrong?

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

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

Who Maimed the Economy, and How: As I was watching “Inside Job,” Charles Ferguson’s meticulous and infuriating documentary about the causes and consequences of the financial crisis of 2008, an odd, archaic sentence kept popping into my head. The words come from the second chapter of “The Scarlet Letter” and are spoken in frustration and disgust by an old Puritan woman who watches Hester Prynne, publicly disgraced but without any sign of remorse, making her way from Salem’s prison to a scaffold in its market square. She “has brought shame upon us all ...” the anonymous woman remarks. “Is there not law for it?

“Inside Job,” a sleek, briskly paced film whose title suggests a heist movie, is the story of a crime without punishment, of an outrage that has so far largely escaped legal sanction and societal stigma. The betrayal of public trust and collective values that Mr. Ferguson chronicles was far more brazen and damaging than the adultery in Nathaniel Hawthorne’s novel, which treated Hester more as scapegoat than villain.

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

Matt Taibbi`s forthcoming book, Griftopia

Rolling Stone has an excerpt from Matt Taibbi`s forthcoming book, Griftopia:

Exclusive Excerpt: America on Sale, From Matt Taibbi's 'Griftopia': Our cash-strapped country is auctioning off its highways, ports and even parking meters, finding eager buyers in the Middle East

Here`s yet another diabolic cycle for ordinary Americans, engineered by the grifter class. A Pennsylvanian like Robert Lukens sees his business decline thanks to soaring oil prices that have been jacked up by a handful of banks that paid off a few politicians to hand them the right to manipulate the market. Lukens has no say in this; he pays what he has to pay. Some of that money of his goes into the pockets of the banks that disenfranchise him politically, and the rest of it goes increasingly into the pockets of Middle Eastern oil companies. And since he`s making less money now, Lukens is paying less in taxes to the state of Pennsylvania, leaving the state in a budget shortfall. Next thing you know, Governor Ed Rendell is traveling to the Middle East, trying to sell the Pennsylvania Turnpike to the same oil states who`ve been pocketing Bob Lukens`s gas dollars. It`s an almost frictionless machine for stripping wealth out of the heart of the country, one that perfectly encapsulates where we are as a nation.

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

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

For that last stage we have to look overseas, to more cash-rich countries we now literally have to beg to take our national monuments off our hands at huge discounts, just so that our states don`t fall one by one in a domino rush of defaults and bankruptcies. In other words, we`re being colonized — of course it`s happening in a clever way, with very careful paperwork, so we have the option of pretending that it`s not actually happening, right up until the bitter end.

My Comment: The full excerpt (the above is but an excerpt from the exceprt ;) also has some interesting notes about the relative-value trajectories of oil and the dollar, e.g. "The effect of the 1973 oil embargo was dramatic. OPEC effectively quadrupled prices in a very short period of time, from around three dollars a barrel in October 1973 (the beginning of the boycott) to more than twelve dollars by early 1974.". With oil prices around $80 per barrel today, the rise from $3 per barrel in October 1973 represents an average annual rate of oil-price inflation of [((80/3)^1/27-1) * 100%] or nearly 13%. Note that prices of refined products such as gasoline have risen less (between 10-15x here in the US... I don`t know offhand whether the proportion of that which is due to various taxes has changed significantly), probably because refining costs are more likely to track broader inflationary trends.

Barry Ritholtz comments on the forthcoming Taibbi book here. He concludes with this sentence containing several of the 50-cent German-philosopher-style words so beloved by academics and liberal arts majors trying to look schmart at parties:

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

Perhaps he meant to say,

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

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

[jasonp]

Ferguson's "High Stakes, No Prisoners" was a very entertaining read on running a software company at the dawn of the internet age.

[dorcheat]

Hello folks,

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

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

http://www.inforum.com/event/article/id/295587/

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

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

[schickel]