Misery Economic Theater 2011

[ewmayer]

In forum-local micro-economic news, I see forum owner/operator Mike (a.k.a. Xyzzy) is down to less than one month`s ISP charges worth of donation money ... I have suggested to him to simply issue some sovereign debt and tell the ECB that we face imminent default and economic catastrophe unless they buy our bonds, but he suffers from a mysterious ailment known in the medical community as "pride" which apparently keeps him from taking me up on my ECB-bailout suggestion.

So please forgive him for his intransigence and making a small donation. (Or a frickin` huge one, if you want to act as mersenneforum`s own "Uncle Warren" Buffett (but in a more-altruistic sense).

[cheesehead]

Originally Posted by rogue

I think her point is that states should have more autonomy WRT education. The problem (as I see it), is that federal mandates can be a hindrance to good education. For example, did the No Child Left Behind Act improve the level of education or did it significantly impact the cost of education without improving it?

No Child Left Behind was a REPUBLICAN invention!

(So much for Republican claims to want states to have more autonomy. They're quite willing to ram things down states' throats when they want to.)

Maybe her end goal is to eliminate public education.

Oh, of course it is!

[fivemack]

Thanks very much for the reminder. I have donated a sum equal to ten cents per post that I've made - it's probably less than 10% of what I've spent on electricity running things for mersenneforum, and I quite like the idea of thinking that you shouldn't make a post that isn't worth ten cents.

To retain context for this thread, I'll claim that I've made it out of the money I made over the last three years by repeatedly betting that Barclays would be bailed out.

[ewmayer]

Followup on Robert Reich`s economic-inequality piece:

One more note about the Robert Reich "Inequality" piece discussed in several recent posts: It occurred to me this morning that Reich specifically did not exempt his former boss, President Clinton, from the "3 decades of the Great Regression" theme. That is fair, because especially on the financialization-of-the-economy and financial-deregulatory fronts, Clinton acted exactly like the stereotypical Republican would have: In other words, he bought the Kool-Aid being peddled by Greenspan and the financial lobby. Clinton did not compound his misjudgments there via warmongering and tax-slashing like his successor did, but nonetheless, he is not blameless for his part in continuing the ruinous hollow-shell-economy trend that has brought the U.S. and the world economy to the brink.

On a more-partisan (but humorous) notes, Reich`s latest blog entry is a "preview" of tonight`s Republican presidential-candidate debate:

Nonetheless, listen tonight (if you can bear it) for anything other than standard Republican boilerplate since the 1920s — a wistful desire to return to the era of President William McKinley, when the federal government was small, the Fed and the IRS had yet to be invented, state laws determined worker safety and hours, evolution was still considered contentious, immigrants were almost all European, big corporations and robber barons ran the government, the poor were desperate, and the rich were lived like old-world aristocrats.

In the late 1950s and 1960s, the Republican Party had a brief flirtation with the twentieth century. Mark Hatfield of Oregon, Jacob Javits and Nelson Rockefeller of New York, Margaret Chase Smith of Maine, and presidents Dwight Eisenhower and Richard Nixon lent their support to such leftist adventures as Medicare and a clean environment. Eisenhower pushed for the greatest public-works project in the history of the United States — the National Defense Highway Act, which linked the nation together with four-lane (and occasionally six-lane) Interstate highways. The GOP also supported a large expansion of federally-supported higher education. And to many Republicans at the time, a marginal income tax rate of more than 70 percent on top incomes was not repugnant.

My Comment: Well, at least on the "big corporations and robber barons ran the government, the poor were desperate, and the rich were lived like old-world aristocrats" issues the country is already in the "gilded age" (allegedly) desired by the GOP.


German Court Rules EFSF/Bailouts Legal But Hurdles Remain

German Court Rules EFSF/Bailouts Legal But Hurdles Remain

As expected, the Court ruled that the eurozone bailouts are compatible with German Basic Law, since, according to the Court, they do not provide an excessive burden on the German budget, do not constitute a significant transfer of power away from the Bundestag nor impact negatively on the euro’s purchasing power, as had been suggested by the claimants. However, the Court also gave the Bundestag’s Budget Committee an effective veto over future activation of the eurozone’s bailout fund, the EFSF, and reinforced German constitutional restrictions on the introduction of Eurobonds.

[European reformist think tank] Open Europe Economic Analyst Raoul Ruparel said,

“Giving the Bundestag’s Budget Committee the final say over the use of the bailout fund is welcome from a democratic point of view, but will add another element of uncertainty to the eurozone crisis. However, so far the Budget Committee has consistently taken the government line on the bailout, albeit reluctantly, and it remains to be seen whether it dares to exercise its new power. The calls for the whole Bundestag to have a greater say in the dispersion of financial aid are, therefore, likely to continue.”

“The ruling also seems to further entrench the German government position that Eurobonds are a no-go, by warning that Germany should not assume other countries’ liabilities. However, the wording used by the Court also seems to suggest that joint debt in the eurozone could be constitutionally allowed if it involved a stronger German say over other member states’ fiscal policies. This could set Europe up for a major clash of national democracies in future, should Eurobonds be deemed necessary to hold the Single Currency together in the long term.”

“Controversially, the Court did not give an opinion on the legality of the ECB’s bond purchase programme – despite the potential implications this programme has on price stability and the ECB’s independence. This unsettling question is likely to resurface in future.”

My Comment: Sounds to me like the German Constitutional Court (Bundesverfassungsgericht - gotta love that Germanic word-concatenation) desired to not rock the boat with their ruling - basically they punted on all the substantive issues.


Perspective on the SNB currency peg

Die Welt has an article on the SNB`s drastic meassure of a Swiss-Franc peg, including an interesting historical perspective, specifically the parallels with the 1978 post-oil-shock SNB intervention to keep the CHF in check versus the Deutschmark. For our non-erman-speaking readership, the title/subheading translate as "Swiss pull out the currency cudgel: The national bank resorts to drastic measures and pegs the Franc to the Euro. This is intended to stop the upward flight of the domestic currency"; Google Translate should do an adequate rough job on the content. (I just tried GT on the title, it renders it as "Swiss get the currency club out: The National Bank does to drastic measures and binds the Franks to the euro. So shall the height of the flight's motto must be stopped", so try not to giggle while reading the auto-translation):

Schweizer holen die Währungskeule heraus: Die Nationalbank greift zu drastischen Mitteln und bindet den Franken an den Euro. So soll der Höhenflug der eigenen Devise gestoppt werden.


Bernanke's Waterloo

Mish has an excellent Austrian-economic analysis of the abject failure of central-bank (mainly U.S. Fed, but also elsewhere) monetary policy to stimulate consumer demand, and pronounces Bernanke`s "student of history" grade as "fail" - Good stuff:

Bernanke's Waterloo; Midst of Deflationary Collapse or Brink of Inflationary Disaster? 12 Specific Recommendations

In typical recessionary periods past, the Fed has been able to lower interest rates and stimulate demand for credit. Demand for credit ultimately stimulates broad economic activity via an increase in aggregate demand. But in deleveraging cycles as opposed to typical business cycles, interest rates can fall to zero and still not positively influence demand for credit. This is exactly what has occurred in the current cycle. You may remember from our discussions over the years we asked one question again and again, "is this a business cycle or a credit cycle?" The only borrower of substance in the current cycle has been the Federal Government, yet we are currently reaching the limits of Government balance sheet expansion tolerance, as clearly witnessed by the debt ceiling melodrama. This has only served to weaken the US as a credit. Again, the inability to generate demand for credit by almost any means (and in our present circumstance historic means) is simply a classic fingerprint of a generational deleveraging cycle.

Bernanke No Student of History

Never in modern history have we faced the type of domestic labor market circumstances we face today. As we've tried to describe, monetary policy is powerless to change this. If Mr. Bernanke was the true student of history he would fully realize exactly the circumstances we've described. It's not that we don't have precedent. The US in the 1930's and Japan over the last two decades are the model. Looking at the Depression years and claiming the issue was that the Fed was not loose enough misses the key fingerprint character points of a generational deleveraging cycle completely. Again, the refusal of Bernanke and friends to even acknowledge Austrian or Kondratieff economic constructs has been and will continue to be their policy making downfall. Who knows, maybe all of this will find its way into the economics textbooks of tomorrow. Let's hope so anyway for future generations. But as the old market saying goes, people don't repeat the mistakes of their parents, they repeat the mistakes of their grandparents.

My Comment: Some other insightful quotables from the above Mish article roundup:

This morning, in the aftermath of Fed Chairman Ben Bernanke’s speech on Friday, the editorial page of the Wall Street Journal noted, “Mr. Bernanke also lectured that ‘U.S. fiscal policy must be placed on a sustainable path,’ though not by cutting spending in the short-term. So the Fed chief joins the Keynesian queue of spending St. Augustines – Lord, make us fiscally chaste, but not yet.”
...
After 11 years of declining social mood, the notion that further monetary stimulus has limited use is hardly a surprise. As I have cautioned so many times, when it comes to the consumer it is not the depth of a recession that matters, but rather its length. And while for policymakers and financiers this may feel like a three-year-old recession (and for some even just a three-week-old recession!), for the American consumer this is a decade-old recession that has deteriorated well into a depression.

[ewmayer]

Some very interesting developments in the story of now-bankrupt solartech startup Solyndra in the past several days. The "mystery" here relates to how the government`s massive $500-million-plus stake in the firm - which based on relative size and the fact that is taxpayer-funded, always stands to get paid back first in the event of bankruptcy of this kind of venture - somehow ended up being subordinate to a private investment in the form by a prominent Obama backer. ZeroHedge has a nice roundup with links:

Bankrupt Obama Stimulus Darling Raided By Feds

After breaking the story of Solyndra`s shady taxpayer funded practices (which were not enough to stave off bankruptcy, and yet another confirmation that government stimulus in the form of subsidies is virtually always an epic failure), Bruce Krasting subsequently delved into the one entity that somehow had managed to get priority interest to subordinated government loans to the tune of $528 million in government funding: Argonaut Ventures, and specifically one George Kaiser who just happens to be a material fund-raiser for the president. And while it is not known yet whether the embedded improprieties in this peculiar relationship will end Obama`s chances for reelection, things are starting to stink. Because as Bloomberg reports, as of a few hours ago, the company`s headquarters was raided by the Feds. While at this point they are certainly looking for signs of criminal malfeasance by management, it won`t be long before they put two and two together and decided to analyze the logic behind the funding, and why it is that an Obama-favored person will get his money out first while US taxpayers will likely suffer a total wash.

My Comment: Here are a few snips from the investigative piece on the Solyndra/Argonaut/Obama/Kaiser connection by ZH`s Bruce Krasting yesterday:

(Oklahoma oil billionaire George) Kaiser is an important link in this story. He is also a very big fund-raiser for Obama. He is often referred to as a "Bundler". In this case that means he encouraged/pushed others to put up money for the big O’s campaign.

The Tulsa World filed a story Re the Kaiser connection earlier today. (What better place to get the news than a home town paper). Quotes from the TW article:

The bankruptcy filing indicates that Argonaut Ventures, an investment arm of the Tulsa-based foundation, holds almost 39 percent of Solyndra`s parent, 360 Solar Degree Holdings Inc.

Okay, so who is behind Argonaut Ventures?

In an emailed statement to the Tulsa World, a representative of the George Kaiser Family Foundation said the organization made the investment through Argonaut.

So the family foundation was the source of the money that got Solyndra going. But George Kaiser tried to distance himself from this very ugly story. A quote from a Kaiser "spokesperson":

"George Kaiser is not an investor in Solyndra and did not participate in any discussions with the U.S. government regarding the loan".

Interesting that Kaiser is doing his level best to distance himself from the stink. But it does not work for me:

George Kaiser is chairman of BOK Financial Corp. and owner of Kaiser-Francis Oil Co. Argonaut is headed by Steve Mitchell, who also served on Solyndra`s board of directors.

So Kaiser wants us to believe that the Family Foundation he runs invested some $300mm of the families "excess cash" and he did not really know about it. The guy who is running the family’s investments (Steve Mitchell) is also sitting on the board at Solyndra. And we are supposed to believe that George Kaiser was just a passive investor? Not a chance.

We have Mr. Kaiser on the record on this. Again, his words:

"George Kaiser did not participate in any discussions with the U.S. government regarding the loan".

He never spoke to Obama about this? Not even once? Not even when Obama went (twice) to the company’s manufacturing offices in PA and CA? I don’t believe that denial.

There is one very slippery fact that I am wondering about. It has to do with subordination. This a legal issue on who gets paid first in a bankruptcy. In all cases the equity is last on the list. But that is not the situation with Solyndra/Kaiser. From Bloomberg:

In February, Solyndra and its lenders reorganized the company’s debts, putting the U.S. loan behind $69.3 million owed to other lenders, including an affiliate of Solyndra’s biggest shareholder, Argonaut Ventures.

This kind of stuff is not supposed to happen. The equity interest of the Kaiser family got a preference as to the right of repayment from Solyndra. Kaiser got in front of the line. He got in front of the US Government’s $528mm IOU from Solyndra. Kaiser got in front of the interests of the American taxpayer. There had to be some very serious arm-twisting going on in the background to achieve this feat.
.
I’ve looked at the BK filings. The company is going to sell its assets in an effort to pay of all creditors. The question is who gets paid first and what are the liquidation proceeds.

Solyndra had lousy technology. There are tons of flat panel manufactures left standing. Whatever Solyndra has for sale is not going to be worth much. I’m guessing around 20 cents on the dollar from book. The company has listed $859mm of assets. By my calculation the cash value will be under $200mm.

There are employee claims that come first. Next in line come trade creditors. Then comes the senior unsecured debt owed to Argonaut. The lawyers (There are a ton of big shots already involved) will get their pound of flesh. That leaves next to nothing for Uncle Sam. The taxpayers are going to take it in the ear for $400-500 million.

This story will hound Obama. His campaign got big bucks from a guy who ended up costing the Feds a very big penny. This is a story that could drag Obama down. He either has to step up and explain how this could have happened or he can say nothing. He has to provide some clarity on the George Kaiser connection. If he chooses to keep mum on this mess he will have to face Congressional hearings for the next 18 months. There will be a story in the paper every week or so. The Republicans will see to it. This is a story that could turn an election.

My Comment: Looking after the interests of Oklahoma oil billionaires ... Obama joined the wrong party, he should be running as a Republican.

[only_human]

Originally Posted by ewmayer

Some very interesting developments in the story of now-bankrupt solartech startup Solyndra in the past several days. The "mystery" here relates to how the government`s massive $500-million-plus stake in the firm - which based on relative size and the fact that is taxpayer-funded, always stands to get paid back first in the event of bankruptcy of this kind of venture - somehow ended up being subordinate to a private investment in the form by a prominent Obama backer.

More interesting yet, the FBI has now raided the joint:
FBI Raids Bankrupt Solyndra as Lawmakers Question Finances I decided to punt on selecting a choice quote; both smelly business and spin abound.

This Mercury News article has better information on the raid and mentions DOE efforts to restructure the debt and monitor the company.
FBI agents search Solyndra's Fremont headquarters

[ewmayer]

And on a lighter note:

Obama's Speech: Ali G Style

I knew Google Translate had an “English to Elmer Fudd” option…did not know about the “English to Ali G” option. ☺

[Christenson]

Originally Posted by only_human

More interesting yet, the FBI has now raided the joint:
FBI Raids Bankrupt Solyndra as Lawmakers Question Finances I decided to punt on selecting a choice quote; both smelly business and spin abound.

This Mercury News article has better information on the raid and mentions DOE efforts to restructure the debt and monitor the company.
FBI agents search Solyndra's Fremont headquarters

Give me a better president than THIS!!!!!!!!
(How, I don't know!)

[ewmayer]

Originally Posted by Christenson

Give me a better president than THIS!!!!!!!!
(How, I don't know!)

Looks like your alternatives are going include some folks who "don't believe in this whole 'science' cult" and whose idea of "reproductive choice" is "should I indoctrinate 10 foster children in evangelical Christian dogma, or 20?"

Rumors of bad-news-coming-this-weekend weighed on markets today...say bye-bye to Wednesday`s "Europe is saved! Part XXV1" rally. Obama`s "big, bold, beautiful, bodacious jobs plan" (suuuuuuuuuuuuuuure it's already paid for, Mr. President - If you just ignore the 'costs' part of it) looks DOA. While it's sorta-good that at least the tax cuts he proposed were tipped more toward the lower-end than the rich, is slashing Social Security pay-ins and thus making SS even more insolvent a good idea? Overall, the speech sounded more like re-election positioning "I can beat the other party over the head for a whole year for not immediately rushing to implement my BBBBJL" than like he really believed what he was saying. And all those "roads and bridges in need of repair and potholes needing to be filled" - didn't those get fixed with the first ginormous stimulus package?

Funny to look at a DJIA chart for today (below)...if you look at the little move in the last half-hour you'd swear there was some exogenous force trying very, very hard to nudge the index to close just above 11,000 ... alas, 'twas not to be. (Those "key psychological levels" are quite key, psychologically speaking, you know.)

Have a good weekend, all ... I may go watch "The Debt", heard it's quite good. Steven Soderberg's latest, Contagion, is the kind of material that too often gets put into the wrong hands, but in the present incarnation looks promising. (Though I'll wait to hear some first-hand commentary from friends who go see it).

Here the promised DJIA chart:

[garo]

Stark's resignation was the first blow for the Euro this morning which was followed by chatter of imminent Greek default. Then there were rumours that the German govt. was taking steps to ensure that German banks would be protected in the event of a Greek default this weekend. The Euro has collapsed in 10 days from 1.454 to 1.366. The endgame is near.

[Christenson]

OK, how does an individual win the endgame?