Mystery Economic Theater 2010

[Fusion_power]

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

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

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

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

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

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

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

DarJones

[ewmayer]

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

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

[cheesehead]

Originally Posted by ewmayer

Sorry, but the cost of basic modifications to most homes (entryway ramp, accessible bathrooms

[which may require some wall-moving to provide that access], accessible kitchens [lower counters, clearances for wheelchair when appliance doors are open, replacing over-stove items with more-reachable versions], stairway seat-elevators in multi-level houses, ...

) is not that great ... and as you say, it's far less expensive than nursing/senior-home option, so the net effect is in fact likely to be deflationary.

Yes, I suppose lowering the costs of health care in general could be deflationary.

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

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

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

Are all of those deflationary?

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

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

I wasn't intending to make a healthcare-as-economic-stimulus argument.

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

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

[ewmayer]

Quote of the Day:

A ZeroHedge reader comments thusly on the MSM (a better acronym would be PGP, for "Parrots of Government Propaganda") headlines about the tax cut and spending "compromise" heading for a vote in Washington:

What a crock of shit puppet theater!

"tax deal could yield millions of jobs"

Isn't this an extension of Bush cuts? Where are the f^%##^ jobs now?

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

France Joins Germany to Nix Juncker's Junk Bond Proposal to Save the Euro


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

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

Wall Street's Worst at Least Can Do the Math: Jonathan Weil

It’s bad enough that there have been no criminal convictions of any of the executives who helped bring the banking system and our economy to its knees. Now the Justice Department is touting trumped-up numbers as it tries to show it’s cracking down on financial fraud.

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

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

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

[Weil proceeds to demolish the government propaganda]

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

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

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

Operation Broken Trust may be a fitting name. Unfortunately it’s for all the wrong reasons. The public already knows not to trust the government. Flimflam P.R. stunts such as this one at least offer us a useful reminder of why.[/i]

My Comment: If any of the convicted in the above dragnet turn out to be significant players in in mortgage-bubble-related fraud, I will update my "N convicted" running tally accordingly. But pickpockets and purse thieves don`t signify.

[ewmayer]

Protesters Attack Car Carrying Prince Charles

LONDON — Britain’s coalition government survived the most serious challenge yet to its austerity plans on Thursday when Parliament narrowly approved a sharp increase in college fees. But violent student protests in central London, including an attack on a car carrying Prince Charles and his wife, Camilla, to the theater, provided a stark measure of growing public resistance.
...
The violence provided a disturbing backdrop to the day’s political events, which were themselves a watershed moment for the seven-month-old coalition government of Mr. Cameron. Ahead of the parliamentary vote on the college fee increase, the government confronted a difficult rupture as the Liberal Democrats, who are the coalition’s junior partners, split among themselves, raising questions over the coalition’s long-term survival.

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

Without the continued backing of the Liberals, Mr. Cameron’s Conservatives would likely have to face a new election, with no certainty they could win a contest that would be sure to center on the austerity program.

My Comment: Pretty silly of the convoy to head straight into an area where violent protests were already underway ... not to excuse the violence,, but it seems the students want the upper crust to "share the austerity".

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

Lowest Percent in 27-Year History Use Credit Cards Over Thanksgiving Weekend: Got cash? People are shunning credit cards like never before in history. Card issuers are fighting back with huge incentives to get people charging again. So far its not working.

Of course the debt-merchant pumpers have seized on the latest statistics which show total "consumer credit" rising - what they omit to note (at leats in the headlines I`ve seen on this) is that the only category which actually increased significantly is one which did not used to be classified as consumer credit, namely federally-supported student loans:

What do you know? Outstanding U.S. consumer credit expanded $3.3 billion in October after eking out a $1.3 billion increase in September. This is the first back-to-back gain since just before Hank Paulson took out his bazooka in the summer of 2008.

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

First, the raw not seasonally adjusted data show a $700 million decline. Once again, it was federally-supported credit (ie. student-backed loans) that accounted for all the increase last month ? a record $31.8 billion expansion. Commercial banks, securitized pools and finance companies posted huge declines ? to the point where excluding federal loans, consumer credit plunged $32.5 billion, to the lowest level since November 2004 (not to mention down a record 9% YoY). Over the past three months consumer credit outstanding net of federal student assisted loans has collapsed $76 billion — this degree of contraction is without precedent.

My Comment: We may just need to augment the old bromide about statistics to read: "Lies, damned lies, statistics, and consumer credit data".

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

MERS Smoking Gun

Here's the deal. This financial crisis is like Shrek's onion. As you peel back layer after layer of sleaze, you find that the whole damn thing is fraud. We are talking about tens of trillions of dollars of it. Tens of thousands of individuals were involved. It was thorough. It was blatant. It was even transparent, right under the noses of regulators and supervisors. It was normal business practice. It never had any fear of prosecution or punishment. Even today, it taunts the impotent administration, daring President Obama to do anything.

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

[R.D. Silverman]

Originally Posted by ewmayer

My Comment: Pretty silly of the convoy to head straight into an area where violent protests were already underway ... not to excuse the violence,, but it seems the students want the upper crust to "share the austerity".

Austerity?

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


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

[ewmayer]

Originally Posted by R.D. Silverman

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

As always, "hardship" is a relative term ... and entitlement addiction is just as bad (if not worse) in terms of withdrawal pangs than classic hardcore drug addiction.

Remember, most people (especially in non-basic-need-challenged developed economies) are not unhappy when "reality "is somehow objectively "bad" ... they are unhappy when perceived reality fails to meet their expectations. Unrealistic expectations and reality perceived through the warped lens of an entitlement mentality are thus at least as big a source of unhappiness as any real hardship.

[Fusion_power]

"Bankers' bonuses to face strict limits in Europe"
http://www.bbc.co.uk/news/business-11967012

They recommend requiring that banks:
* appoint an independent remuneration committee
* defer 40-60% of bonuses for three to five years, and pay 50% of bonuses in shares (rather than cash)
* set a maximum bonus level as a percentage of an individual's basic pay
* exclude any "award for failure" from severance pay packages
* publish pay details for "senior management and risk takers".

All good things to do and because it is EU wide, it will limit the ability of bankers to scream about moving somewhere less restrictive. Unfortunately, it is a bit like closing the barn door when the horse is already loose. It is also a significant step that the U.S. will have to consider.

Meanwhile the Committee is also preparing a new and much more rigorous round of stress tests for Europe's banks.

They follow the near-collapse of the Irish Republic's banks, despite the fact that they passed a previous round of stress tests held over the summer.

The new tests will be used to determine how much additional capital banks must take on to absorb potential losses on their investments.

This is a far more revealing statement. In a nutshell, it means the EU is finally recognizing that they have a systemic problem with technically underwater banks and that a massive influx of cash is the only way they can stabilize the system. What does this mean for Ireland? Sorry Ireland, you already made your bed, you have to keep your socialized bankster debt all to yourself. The other EU nations are manipulating fast and furious to avoid a similar fate.

DarJones

[R.D. Silverman]

Originally Posted by Fusion_power

"Bankers' bonuses to face strict limits in Europe"
http://www.bbc.co.uk/news/business-11967012


They recommend requiring that banks:
* appoint an independent remuneration committee
* defer 40-60% of bonuses for three to five years, and pay 50% of bonuses in shares (rather than cash)
* set a maximum bonus level as a percentage of an individual's basic pay
* exclude any "award for failure" from severance pay packages
* publish pay details for "senior management and risk takers".

I have suggested these sorts of things before. Allow me to add:

Bonuses should be awarded EQUALLY to ALL employees. If a company does
well, it is not just those at the top who should be allowed to skim off
corporate profits.

Require stockholder approval for bonus plans.

[xilman]

Originally Posted by R.D. Silverman

Austerity?

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


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

To the best of my knowledge I don't have any kids. That doesn't mean I don't pay for the tuition of university students. In much of the overdeveloped world university education is paid for largely through taxation.

I've no real idea but wouldn't be surprised to find that I pay around as much for university education over my productive lifetime as you do for tuition for your kids. I've certainly paid more than the true cost of my own "free" undergraduate years.

Paul

[Fusion_power]

Paul, TANSTAAFL.

I would quote a few of Heinlein's similar mnemonics but most of them are X rated.

DarJones