Using a more realistic nominal GDP deflator I have no doubt we already are in a recession.  Ernst

 A Bubble that Broke the World, by Garet Garrett  http://www.mises.org/books/bubbleworld.pdf  There are many books about the Great Depression, but I have always wanted to find a book that described the events of the 1920′s that led up to it. I searched in vain until today (Monday), when I found Garrett’s book. I have read a lot of books in my life, but there have only been a few times when I started reading something and couldn’t stop. This was one of those times.  The “Bubble” book was published in 1932. There are eerie similarities between then and now, but the players are different. In the 1920′s, the US was lending money to everybody else; now it’s the reverse. But the structure of the situation is the same.  This is a must-read if you want to know how hard landings happen. I will have a more detailed review later. I am only about two thirds of the way through it tonight.  

@GSM If other FCB’s follow the US down in a rate cutting race as seems ever more likely, then we could see a temporary/ medium term halt in the US dollar decline   would they do that GSM, even with razor sharp inflation teeths at their necks?  rising prices would wreak havoc.. in developed or developing nations.. its the same unless Govt of the world turns to more draconic measures, i expect a lot of upheavals and violence  hmmh..this would actually justify those detention facilities built by***    

The again, maybe I should borrow to the hilt and buy gold cash-THEN ask for help from Uncle Sam

Surely the FED will cut rates, but it will be unefficient.   IRWIN KELLNER Falling into the liquidity trap Commentary: Economy’s problem isn’t lack of money; it’s lack of confidence We learned this in the 1930s, when, after first shrinking the money supply enough to pull prices down by about 25%, the Federal Reserve of that era tried to force-feed liquidity into the economy with the hopes of pushing it out of its slump.  It didn’t work. Lenders were reluctant to lend, while potential borrowers did not want to borrow.  Banks were struggling under mountains of loans gone sour and were in no frame of mind to throw good money after bad. For their part, most firms were not willing to assume new debts, since falling sales and earnings led them to conclude that there was little productive use they could make out of these borrowed funds.  The great economist John Maynard Keynes dubbed this phenomenon a “liquidity trap.” It was perhaps the first realization that the Fed’s powers were not as great as previously thought.  This was most disconcerting, since the main reason behind the creation of the Fed back in 1913 was to ensure that panics, such as the one in 1907 that was caused by insufficient liquidity in the economy, could be nipped in the bud – if not prevented altogether by a generous dollop of liquidity from the central bank.  The Panic of 1907, like others before it, led to a recession. The liquidity trap of the 1930s was part and parcel of what came to be known as the Great Depression.  Today there are some similarities to the liquidity trap of the 1930s. The credit crunch is clearly one of them. No matter what the Fed does on Tuesday, it will not be able to thaw out the frosty financial markets.  This is because the markets lack confidence. As I wrote two weeks ago, “fear, and not a lack of liquidity, is what’s freezing up the credit markets … and … it’s going to take a lot more than infusions of liquidity to thaw them.” See Nov. 26 column  You know that fear is stronger than greed these days when banks refuse to lend to each other – never mind to businesses or to consumers.  A good indication of this is the three-month LIBOR spread against comparable maturity Treasuries. It’s over 200 basis points (2 percentage points) today versus an average of about 25 bps between 2003 and this past spring.  What’s driving this fear is uncertainty over the underlying value of securities backed by home mortgages.  Treasury Secretary Henry Paulson’s offer to freeze interest rates for as long as five years for some subprime borrowers raises more questions than it answers – not the least of which is setting a precedent of government intervention changing the rules of the game for investors.  The value of these mortgage-backed securities will also be determined by what happens to housing prices, and as I wrote last week, nationally, median home prices will have to fall at least another 20% before families can afford to buy. See Dec. 3 column  There’s little the Fed can do at this point other than injecting liquidity to push rates lower while persuading lenders to make credit more readily available.  However at some point the Fed will have to draw the line, lest it create not only a new moral hazard, but the groundwork for a new round of inflation as well.  http://www.marketwatch.com/news/story/falling-liquidity-trap/story.aspx?guid=%7B06D7C105%2D44C5%2D4251%2D8BF4%2D225AFF376CF6%7D  Rate cuts will damage dollar and reduce Treasuries sales. This can lead to monetarization of debt (the FED will buy Treasuries from goverment and foreigners). Such massive money creation would cause hyperinflation…

compared to last week  EU stock markets are calm today i feel a cool breeze blowing.. **ssshhiivveringg**

Everyone talks about what to do to keep the game going in face of everything failing and worthless. Or, how to deflate in comfort.  Perhaps this state of affairs should be viewed as an opportunity. For instance, we have global growth and Yes, indeed we have some fairly decent bubbles (never seen before) so why not go on the offensive and give this growth bubble some heavy structure?  It will mean global infrastructure projects e.g. a new super fast global Internet – a rail system (some connections tunnels and bridges – Start the development of Antarctica (hello, the ice is melting and the land is available)- efficient food distributions systems for grains, etc., etc. There are many opportunities here.  Lets re-evaluate investment / growth investments to what is tangible and what isn’t so tangible ( like CDOs’ etc.)  And, Yes, let us protect what is important to er civilization in terms of the future and not “comfort” per se, now.  Let’s develop under-developed countries on a global planning – we have BHP Billiton, Rio and many big players – food suppliers, manpower and service providers.  Let’s start a Global Infrastructure Authority and keep politicians and their ilk out of it (if possible).  Bottom-line: The solution isn’t that difficult; while the bubble is inflated – pour in infrastructure and keep it inflated with structure!  Why think deflation? – lets think “dynamic civilization moving forward”. Build!  To me, the solution is easy – the hard part is keeping the ghouls from our lives.  PeterJB

@Berserker; ”who should emerge the strongest? “  A very pertinant qustion. My sense is that the best performers (which may still perform well below current levels) will be those nations with a strong financial/banking system, a resource based economy , a credible Central Bank and a strong balance sheet.  In that regard I would guess the GCC oil states , Australia, Russia, Canada primarily. China possibly. If there is a decoupling to be seen (and a credible judgement on that is yet to be made) I think it will fall along those lines. But this will become a global event felt by all . So I believe the question still remains; to what extent?

@London banker  Thanks for your “one the ground” perspective. six years ago most Americans considered the Euro a novelty or joke. Much press was given to resistance to the EU especially in England and France. In a current video a prominent American rap star fuels a night on the town with EUROS. Times change.

@berserker  as funny as it may sound, i would say the answer is the US and the dollar. decoupling is a nice story, good for selling stocks, but it is something that (should) happen in the future, not today. when the us tanks, it’s going to drag the whole world with it. that china will continue to grow at 10+% without US demand is ridiculous.  i don’t think a us recession will cause a global recession, but global growth is going to come in a lot less than people think. in such an environment, i would expect “flight to quality” in the sense of not only Treasuries but US asset generally, i.e. shares of US multinationals. for this you need dollars. despite all the evils of subprime, backdating etc. the US is still the safest and most transparent place to invest.   What are you going to buy in Euros? Bunds are close to Treasury quality, but that’s a pretty small market. Hard assets? Germany/Austria are ok, but differs from the anglo-american model. Most of the rest of the continent is a 3rd world country.

@ Peter JB  No offense intended, but your post proposing “global planning” for under-developed regions and “pouring in infrastructure” to build “a dynamic civilisation moving forward” sounds a lot like the appeal of the National Socialists and the Communists during the Great Depression. Both claimed that through authoritarian direction of the economy they could restore economic dynamism. Both succeeded for a time. Neither experiment, however, merits repeating.  I am wary of any “solution” which requires further concentration of political authority or economic control in the hands of a very few decision makers. I am quite sure virtually all of Europe and the “under-developed” nations of the world would share my concern.

@ London Banker  F.D.R. was no authoritarian lightweight either. It takes a lot of power to make GOLD ILLEGAL. I hope we don’t see the likes of him again.

The current environment seems like a severe contraction based on declining levels of consumption.. This recession is deserved because of excessive speculation and corruption and incompetence.  

 @ happy-renter on 2007-12-11 05:07:22  ”So, while the US is responsible for this mess, a lot of other places are going to get it far worse.”  The US is not responsible for this mess – we all are – collectively – its a humanity thing. And Yes, other places will feel pain but No, the USA will feel the greatest pain of all!   @ peter jb    ”Why are some countries developed and other developing? (China was a great power 1000 years ago, but has spent the last few hundred outside the fold.)”   PJB Doubled edged question – the question should be: Why is the USA devolving?   ”This begs a second question: Why do developed nations have a responsibility to help developing nations?”   PJB Because we are all human beings on the same planet, perhaps? ( i never stated that they did – on the contrary, i put my faith in the innate mercantile nature of the individual, a priori, and the greatest of that humanoid individual called Man)  PeterJB 

@ Lessorbee  Excellent comment. You are a talented writer. Wish I could read this kind of comment more often. Thanks.

Please look at these figure and you’ll understand what is coming soon.  http://www.federalreserve.gov/releases/z1/Current/z1r-3.pdf  Not difficult why during the third quarter there was still growth.  More low interest, more debt, more fake “”"growth”"”…. More hard landing.  

Eurozone Friend: Many American people who arrive to a Euro-country (usually through the military) also end up staying here. Sure they always talk about how much they miss the good old US of A.   But I don’t see them in a big hurry to go back. I wonder why.

@ happy renter  Why are Americans only happy when denigrating others? Why can they never admire or find profitable the example of any other culture, economy or society? Is America – number one for prisoners per capita and income inequality, low ranked for education and healthcare – really such a paradise? Can you learn nothing from others that might improve your lot?  I read these strange screeds from America describing “the Muslims” taking over Europe, the slums of Paris, the tyranny of high taxes, the fragility of European institutions, and I do not recognise either my people or any other people here that I have seen with my own eyes and know from my many friends.  How fragile is American arrogance that it can only be maintained at the denigration of all others societies?  Your Eurozone friend graciously invites you to visit. Maybe you should. Maybe you will find what a Belgian friend of mine described: “Here we are not allowed to be rich, but we are all enabled to live very well.”   We do not have gated communities, huge convict populations, massive poverty, poor dying untreated and uncared for, natural disasters met with armed militias rather than relief workers.  Wave your flag. Perhaps that is all that remains you to be proud of as the rest of the world advances beyond America’s influence or threat.

The quality of these blogs is getting more and more scruffy; comments are approximate and not supported by any evidences. There are oblique qualitative references and not much research.   

I have done some research into the annual reports of Washington Mutual and Countrywide to get a better idea of the likelihood that they might be wiped out.    The numbers can be found here on my blog:    http://wallstreetexaminer.com/blogs/ducalion/?p=130#more-130  

 @Lyle  The Bubble Book you mentioned is exceptional. It was so good, I read it in one sitting and plan to read it again.  A Bubble that Broke the World, by Garet Garrett    http://www.mises.org/books/bubbleworld.pdf    

Trade group lifts outlook for 2008 home sales, insists US housing market is stabilizing Monday December 10, 2:03 pm ET  By Alan Zibel, AP Business Writer    WASHINGTON (AP) — Bucking conventional wisdom, a trade group for real-estate agents on Monday said the battered housing market is on the verge of stabilizing and inched-up its outlook for 2007 and 2008 home sales. http://biz.yahoo.com/ap/071210/housing_forecast_realtors.html

FWIW, with yesterday’s spike in interest rates, the fair value of the S&P500 is now down to 1454.50, over 4% LOWER than where we trade today…

Excerpt:  Meredith Whitney, the CIBC analyst who prompted a $369 billion drop in the value of US shares on November 1 by issuing a negative note on Citigroup, yesterday warned that America was in the middle of “THE WORSE CREDIT MARKET EVER”.  http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3031428.ece  And yet the stock market remains close to its all-time record high (3.5% off).  How can this possibly be?  Does this not scream “Plunge Protection Team”?   Given the unbelievable circumstances that we are all witnessing at this very moment, I find it utterly astounding that the media is totally failing to question the US government about this matter. 

Hallo  We should be more cool and make one sharp difference:  a) As beeing a hospital we say:  this and that would help to bring the sick man back on his feet; we should give him this rate-dosis, that protectionisme-injection; … By doing so, we do the same what NouRou did in the last blog about the bailout of the big banks.  That is the medical perspective: the well meaning and helpfull adviser.  b) As beeing a spectator ore speculant we say: How will the future, the facts tomorrow be? We don’t say: please, how can I help you, sick man? We say: the confusion of rates/CNY/politics(Iran)/big money flows/… will present what kind of reality?   I’m glad to see NouRou is back from helping in the sick room; and even more: he has not lost the will to stay cool.   globumedes

Bernarnd said:  How can this possibly be? Does this not scream “Plunge Protection Team”?  ———–  IMHO this is what is happening with stocks…  1..The long term investors, i.e. mutual fund, pension and endowments are all convinced that the economy will rebound relatively quickly because the Fed will cut rates as much as it takes. So, they are NOT selling. They are not buying either, but the crucial point is they are not selling.  2.. Speculators are almost entirely of the hedge fund/private equity fund kind, running Other Peoples’ Money for 2/20%. They have no incentive to sell because then their customers will simply take their money out. No reason to pay 2% to sit on cash.  3.. Individual investors, the ONLY people running their own money and thus quicker to sell when things turn sour, are almost entirely absent since 2001. They have shifted the money to funds and those that are left, participate to a great extend through equity derivative products, such as trackers.  4.. This leaves the market with lots of “holders” and few natural sellers. Now add the “derivativization” of the stock market and you have a situation where just a few big players can quite easily “manipulate” the market. I am certain they wouldn’t use this word, however, and they surely would not view themselves as “The PPT”. They are just out to make a buck through reading the market correctly and using their (temporary) dominant position. Not that there isn’t a “nudge” here and there from the higher ups…  This will end when/if real money investors believe the Fed cannot help and the slowdown will turn into a serious, long recession. At that point they will simply sell stocks and there is no PPT in the entire world that can stop prices from going down when real money holders sell. None.

Bernanke Dollars and Glass Beads  Ah, the excitement of rate-cut week — The Bernanke-Cramer Circus back in town, with front page posters of the money wizard in full face on every news kiosk, financials waving dollar signs, Street bets at fever pitch, investor shills hawking Fed RateCut as a cure oil for a dollar now so sick it can’t stand.   There is something fishy about bailout banknote paper and rate-cut curealls that are not paid for in blood and sweat—a stench of inflation so high it could pitch the whole economy into hell.  Why save? What you save the money monopoly swipes by creating money out of thin air for the well-placed few, while raising prices for you and making your money and income worth less in goods and services.  One wonders how long the Brooklyn Indians took glass beads in trade from the Dutch traders after realizing the beads had no reverse exchange value. One also wonders how long will the American people will take Bernanke banknotes whey they realize they have no commensurate exchange value for goods and services rendered.  At least glass beads were pretty. 

 Why Helicopter Bernanke is slashing interest rates to Zero destroying the US Dollar ? http://www.marketwatch.com/news/story/13-reasons-why-bushs-mortgage/story.aspx?guid=%7B9CE18A60%2DC0CF%2D4CB4%2DA38B%2D6AFFE1D6E37E%7D  First, the context: Fortune magazine recently put CEOs such as Citi’s Prince and Merrill’s O’Neill under the microscope: “What Were They Smoking?” The best-and-brightest lost $165 billion, but exited rich, with hundreds of millions.   Now we need to ask guys like Paulson, Bernanke and their Beltway buddies: “What are you guys still smoking?” Bailout? Freeze? Voluntary? They must be smoking hundred dollar bills from lobbyists because this government intervention scheme smells bad.   Why? Because all these solutions are being dreamed up by the same political and financial geniuses who got us into the problems in the first place. The same guys who failed to act before the economy spun out of control. Trusting those same guys makes absolutely no sense! They were clueless going in. They’re clueless about the solutions.   Let’s look at the 13 reasons why all the bailout fixes are just cosmetic PR that politicians and lobbyists spin for the masses, to gloss over Wall Street’s greed and stupidity during the latest bull run-up, while pandering to voter naiveté, undermining America’s long-term needs, and proving once again that our leaders cannot manage our nation effectively.  

I agree, the comments in this blog are becoming horribly objective, irrational, and hyperbole filled… The hard science of the economicist seeking pragmatic viewpoints is being superseded by fearmongering and irrational BEARISH behavior… this blog is now a part of the masses…

Lili,  Ummm… we are in a minsky moment, there is no doubt about it, an inflection point in the current markets – do you actually have a question … I’m sure as not reading 64 pages to learn that Minsky did credit bubble analysis.

London Banker  One more thing regarding health insurance – Please be fair about the state of the UK’s National Health System (NHS). While the American system may not be the, best, perfect etc., some aspects of the NHS are downright scary. Dirty hospitals (MHRA, C Diff), long waits for surgery followed by cancelled operations, etc. As a banker working in the city, I’m fairly confident you are on some private health insurance scheme, as are all the NHS doctors I know…  I pray my kids will never need the local A&E, assuming it does not get closed due to budget constraints.  

@ London STUD  ”Most humans have a similiar level of intelligence.”  I don’t think this is true at all. I live near Tampa, FL and I’m consistantly amazed how dumb people are. They are living in a fog and have no clue what is going on. All most people here care about is what was on TV last night and where they are going out to dinner. I’m kind of beyond caring now and am just looking out for my immediate family. It’s unfortunate, but I think most people are going to get what they deserve.

Ya know, it is amazing at the misinforming that goes on! These conflicting headlines are on Martewatch.com…  ”Dow 20,000? it may be in Fed’s hands” ”Fed cut paves path to Dow 15,000″  And then on the same front page, there is this:  ”Merrill sees mild recession”  What is interesting is that just before recessions, we typically have had an avg correction in stocks of -28%. So, if we are headed into recession, how can the Dow RALLEY over 10%???? Fed rate cuts don’t drive earnings and rate cuts usually take 9 mo-12 mo’s to show up in the economy…

Paulson’s Interest rate ‘freeze’ – the real story is Criminal fraud  http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/09/IN5BTNJ2V.DTL&feed=rss.business   Blockbuster “Freeze” Story Reveals More Banking Crimes  Attorney Sean Olender’s recent San Francisco Chronicle fraud expose, mentioned above, defines the real reason why Countrywide, JP Morgan, Bank of America and others met secretly with Treasury Secretary Hank Paulson to implement his ”freeze” brainchild. It was to avoid having to buy back loans at face value if there was fraud in the origination process.” The article implicates both Paulson and Goldman Sachs.  The key of the “freeze,“ says the California attorney, “is to refinance those borrowers whose current loans involve fraud in the origination process. And I assure you it was a minority of borrowers whose loans didn’t involve fraud.”  By refinancing these borrowers’ loans, mortgage originators and bundlers hope to trick investors into agreeing to loan modifications which would disclose the ‘real’ wage and asset information of the borrowers. “Once the foreclosure occurred, they could say, ‘Fraud? What fraud? You knew the borrower’s real income and asset information later when he refinanced.’  “Investors in mortgage bonds have contractual ability to require banks to buy back the loans at face value if there was fraud in the origination process…”  “Ultimately,” writes Olender, “the people in these secret Paulson meeting were probably less worried about saving the mortgage market than with saving themselves. Some might be looking at prison time.”  Olender notes that “No one is talking about the fact that these people created the problem and profited to the tune of hundreds of billions of dollars from it.”  According to Olender, “As chief of Goldman Sachs, Paulson was involved, to degrees as yet unrevealed, in the mortgage securitization process during the halcyon days of mortgage fraud from 2004 to 2006… Paulson became the U.S. Treasury secretary on July 10, 2006, after the extent of the debacle was coming into focus for those in the know,” he said.  Goldman Sachs achieved accolades in the markets for having bet heavily against the housing market, Olender wrote. The success of its strategy…also”means that Goldman Sachs saw this coming at the same time they were bundling and selling these loans…”  The San Mateo attorney concludes: “We are on the cusp of a mammoth financial crisis, and the Federal Reserve and the U.S. Treasury are trying to limit the liability of their banking friends in the guise of trying to help borrowers. At stake is nothing short of the continued existence of the U.S. banking system.” 

@ London Banker>> Historically, the expansion of credit and the expansion of corruption are very highly correlated. (Sorry, I can’t find the cite for the study where I read this.) I do not believe it possible that budgets blew out to historic proportions under Nixon, Reaga/Bush and Bush ’43 by accident.    But fiscal and political discipline was restored under Carter and Clinton, and may be again by the next president. I am hopeful that as before in hard times, Americans will come together to sort their problems and restore accountability and the centrality of the Consitution in their domestic governance, and transparency and price discovery in their markets.

Devil’s Advocate Argument for Intermediate US Equity Rally Sentiment is too negative Too many are calling for recession In Barron’s Julius Baer Manager pointed out massive amounts of cash no longer go to debt and now go to equities through Sovereign Wealth Funds etc. See Bovespa (there was a huge dip in the index due to currency mishap) This administration prevented the dip from exceeding 10% so now we just have the super equity rally coming… See 1986 dip compared to now and what happened the year before Black Monday Powers that be just may have made this happen (9 11)… http://www.youtube.com/watch?v=1Yx9NRX37SM …so why can’t they make a super negative-sentiment-burning bear-burning crippling rally happen in the face of the housing and credit crisis – a) it would meet the casino requirement of burning the most people and of course b) it magically quiets the nerves of the masses related to the potential systematic failure of the global banking system  There is a dilemma / debate between recession/ deflation equity performance and hyperinflation equity performance going on for US dollar equities.   Professor, you are all too familiar with these sequences in emerging countries. How can you be sure of a deep equity decline when you have seen first hand how the Bovespa was hyperinflated ? Should the substantial dip in equities already have occurred in the US by now ? If it has not, then is it hyperinflation of nominal equity price time or soon ?  I tried to look at the Bovespa and Russian Index for hints of equity performance around time of currency weakness / collapse. After a healthy dip in the indices, both obviously recovered substantially right ? The DOW could be the Bovespa even with all of this news and it may end up like the Bovespa doubling tripling – remember it is monopoly fiat money and does not have to equate to any good economic fundamental news WHATSOEVER – Fiat illusion knows no bounds. One question is will there be something more than a lousy 10% sneeze in front of the move up ?  For the record, I am near term short and wondering about the intermediate picture 80 20 short / long perhaps ?   Humbly Submitted,  Amateur Poster, JMa 

@Bernard This doesn’t make any sense. If you have any further thoughts to add, it is much appreciated.  Written by Bernard on 2007-12-11 12:06:05  Bernard, the old models don’t work cause the rules have changed. We now have M1, M2, M3, and MDumb. The dumb money changes everything.

“I hope I’m not pitching way above my league, but why do most people think Australia will weather this storm well?” @ slumlord  Interesting question. But, I don’t think Australia will weather the coming global meltdown well at all but (again) it will feel its pain later than the major powers.  Australia is unique to the Western World as it doesn’t really have any government – only a very efficient three level tax regime based on the individual. The individual is not seen as potential ‘profit centres’ of a mercantile nature and therefore “wages” remain a priority in order to keep the status quo.  Under the liberal swing Britain rules and under the labour swing, wages rule er somewhat where in the middle everything else is for sale such as minerals – anything but Australia ownership. Banks do not favour investment in Australia industry – its a a colonial thing.  Australia has no water yet Australia still is an agricultural economy. Selling dirt hasn’t changed that, and the growth deficit is derived from the preference for foreign ownership.  Our Telstra for example was created by selling Australian national telco assets to shareholders and then appointing Americans to run the show (anybody but Australians) who now extract a 32billion dollar annual profit from ~20m people by overcharging highly (~A$80) for a marginal “dialup” Internet connection that they call “broadband”. Naturally, Telstra today is founded and operated in Bernasian sophistry a la amerciana. A totally dysfunctional service designed to profit merely the shareholders. I don’t mind this but I would like a bit of bandwidth.  And so for the rest of it. As you mention, you are correct and Australians are as gullible as Americans when believing in their elected representatives.  New Labour is untested and there is absolutely no reason whatsoever, that it will be any different for the performance of past Labour governments that is to say, consisting of gouging the public purse and just screwing essential logic into insanity.  However , given the opportunity, Australia could do well but alas, Australian’s will never get that opportunity while they remain a colony of the British Empire and reject self-government. In order to grow up, Australians need to become an independent republic and take charge of their won affairs while accepting the responsibilities of office.  ”weather well” I don’t believe so – Australia in their warm consensual trust of Canberra (which has moved to Sydney in reality) will feel much pain – after the ‘shock and awe’ of misplaced trust comes into view.  PeterJB

Musical Chairs  An old adage has it that government is similar to a house of prostitution. And every four years, the voters are allowed to choose a new piano player.  How foolish,IMHO, of London Banker to say in earlier comments that “budgets blew out to historic proportions under Nixon, Reagan/Bush ’43” but that “fiscal and political discipline was restored under Carter and Clinton, and may be again by the next president.” By next president I assume he means a Democrat.  It is absurd to me that anyone would single out the Clinton and Carter administrations as fiscally sound and believe that Hillary or Obama, if elected, will solve America’s financial ills with more taxation, more welfare and more Fed. Only the moles on this site would agree.  History shows that nothing is further from the truth. American politics has dissolved into a one-party system, ruled from the top down, not from grassroots up. Neither the base of the Democrat Party nor the base of the Republican Party is happy with the status quo—they are angry.  Both political parties and their financial backers are desperately trying to keep the stock market up before the primaries—to stop Ron Paul. A nationwide Zogby poll shows Paul is the only Republican candidate who can stop Hillary Clinton. (It was a blind poll of Republicans, Democrats and Independents.)  Ron Paul is the people’s candidate; to keep Paul off the ballot the one-party political/financial consortium will stop at nothing. You see it happening now.  America does not need the guidance of a failed socialist system—we have M the system that created the greatest miracle on earth. We just want it back.  

http://www.mises.org/books/bubbleworld.pdf   Yeah, been reading it too. Page 18 so far, really cool stuff. You’d think it was written yesterday. Especially this part:  ”Speculation was in the air, and the speculators wanted to buy, buy, buy, and the bankers and brokers dealing in securities supplied that demand… In other words, I do not think you would be justified in holding the bankers responsible for the wide speculative craze that worked through the country. I think they were trying to supply what the customers wanted… I think the banker is like the grocer. He supplies what his customer wants.”  Market is remarkably calm so far. Some of the smart money has very quietly positioned itself in defensive postures. Other than that, just an average day in the park…

@ Guest on 2007-12-11 13:03:20  I think you are probably right. That comment was naive. While fiscal rectitude might have been an option in earlier regimes (as I recall, Clinton cut social welfare spending quite a lot and Carter appointed Volker with his harsh medicine of high rates), neither party currently evidences any desire to look into the causes of the current imbalances or to take the necessary steps to correct them. It will have to be done the hard way, by debt deflation, as Professor Roubini suggests.

Hellasious,    PPT’s existance has been a debatable point.   MY thoughts  1) Look at shadow M3 after Bernanke took over and M3 stopped reporting. 2) Look at stock market parabolic rise after Paulson was appointed. 3) Paulson committed publicly a few times that he is recharging the executive workforce of Fed/Trasury/SEC from 1 meeting every 6 weeks to once every 2 weeks.  Well, more importantly from my “guess”, Paulson et al comes into power because Bush and Greenspan saw what happened in 2000 – 2002 bear market. They realize there is a Tremendous need to recharge the working committee to prevent another Deflationary Recession.  Especially in the last recession, Greenspan suggested Housing Bubble as the last and most potent resort to delay the economic problem. Recalled that after Sept 11 he met with Bush many many times in a short time span, and then Bush started talking about Ametican Dream in every speech, and Greenspan lower the rate to unimaginably low, and then Greenspan publicly embrace ARMs!!!   All these effort seem coincident ?? Afraid not.   If Japan offered any clue to USA economy future, the most important conclusion is — NEVER NEVER NEVER Allowed the largest 2 asset classes (Stock + Housing) to deflate at the same time.   You got housing going down. Now Enter Paulson + Depression Sepcialist Bernanke + Active working comittee to stop Stock Slide.   These does not occur randomly and coincidently. The plan had been laid out.

At London Banker, As far as your rant about how bad America is compared to how great Europe is…I’m sure you’re not including the UK or London which has some of the same problems here including overpriced real estate. In fact, Spain has a blown RE bubble and this is spreading in Europe I believe. Also it would be tough to bow and courtsey for a Land Baroness Queen.

Dow down 150+ NASDAQ down 25+ FTSE down 80+ Hang Seng down 800+  Even Indian Banker is unlikely to be able to record another record high this week.

@JMa on 2007-12-11 10:25:12 wrote: “I thought some ARMs are set based on LIBOR ?”  Interesting lead. I googled on LIBOR based ARMs and came across some cached info at http://72.14.235.104/search?q=cache:25VsCIPsNnMJ:www.sfproperties.com/about_news_unihomes3.html+ARMs+linked+to+LIBOR+ratio&hl=en&ct=clnk&cd=10 Quote: “Loans linked to the LIBOR rate are especially attractive to high-end buyers, who Chin describes as “very sophisticated” and “willing to assume more risk.”” Also, “However, LIBOR loans carry significantly more risk than more traditional ARMs, since the rates are not capped.”  The Fed has pretty much has tried to link the discount window with 3 month LIBOR now which should keep LIBOR in check.  Can anyone on this board provide the percentage of ARMs linked to LIBOR?   Thanks, Print First Ask Questions Later (Well another 25 bips just got printed yoohoo!)  

@London Banker  and you have not seen anything yet.  Wait for the banks to announcing billions of further write-downs in the next days.  Then magically everything will be super again just in time for the year-end rally. Unless things don’t get out of hand.  Just my pet conspiracy theory.

FED is scared. scare of not cutting, economy will fall. scare of cutting to spark inflation rise. so it is doing incremental 25bp rate cut and see approach.

@London Banker, Well since you put it so friendly London Bankster…stay where you are since you know it all…you can help the Queen and the Royal Family get more filthy rich…there’s a lot of great places in America…have you checked out the entire USA…great rural and mountain towns…people are friendly in the interior of the country…people had to get out of England for a reason…and the Constitution was born…now we need to use it here. But w/o a constitutionalist like Ron Paul, the looting will continue. How’s the Rothschild family doing? Ever read ‘Dicken’s London’?

I kind of agree with ashkan on this one : the markets are social constructions and cannot exist in a political vacuum. The integrist free-market theory is a myth.

Lily – Great paper.  Too much to digest — slowly but surely

The 2:00 witching hour is upon us–RALLY TIME PPT, RALLY TIME! You must show pople, via a positive close today, that the markets agree with the Fed and nothing is wrong ;^)

Thanks Lili, We are going for a long ride with central banking and government ‘planning’…WallFedGovCorportism and we are going where ever ‘they’ take us even with blog ‘noise’ of the angry supporters. 

And with that so-called tantrum the stock market thinks they can scare Benni into another quick cut? They need to take lessons from a 2-year-old.  LondonBanker: I’m used to this from other countries but I didn’t expect it to happen in the US too. I’m properly shocked now.

Why is the yen falling so sharply against the dollar?  thanks 

@Lili  LOL! the dollar is the one falling off the cliff!  It an effect of the carry-trade unwinding.

@ Octavio Richetta  I was short in August when the discount rate “surprise” led a huge rally. Ouch. I was positioned slightly less badly when the Fed cut 50bp in September, but still wrong having thought them more responsible for the dollar holders and inflation.  This time I relied on our own Rich H and his cryptic hints about 1000 point swings and coordinated action backed by central bank credit. I reread every one of his posts over the weekend. I’ve made good money the past hour.   When the market is down 1000 points, as Citori suggests it will be guided, I will likely reverse position. Why fight JP Morgan?

@ Octavio Richetta  I should say that none of my positions are in US indexes. As these are presumably rigged, I have shifted to markets where there is less likelihood of US intervention or manipulation, although more likelihood of US credit/trade contagion. I figure this gives me somewhat more predictable results and response times for any further “surprises”.

@Citori  Mish blog post on Bank CD rate:  http://globaleconomicanalysis.blogspot.com/2007/12/wave-of-bank-failures-is-coming.html  Take a look at the second place in the highest rate… MER!

Met a guy a few days ago who told me that he was in *Reverse Mortgages* – busy as hell all over the World and making megabucks.  I asked him what are *Reverse Mortgages*, rather naively.  He said to me:  They are special loans of up to around 50% of a house value especially for people beyond ~65 who no longer work, have a high asset value in their property but no cash to live well.  Loan amounts and conditions vary based on the age of the owner.   I asked him:  Then they must expect to pay you back based on home value escalations to which he said Yes – but then I said: But around the World today, home values are plummeting?  He smiled and replied: Yes, we know. And, we hold only secured first creditor mortgages,  but quickly and defensively added: But we offer a non negative payback clause unlike other competitors which means the borrower total debt will never exceed the value of the property. He then laughed.  The point is: the landed asset – as people die we go to the front of the queue because there are many more buyers coming onto the market and home prices will eventually rise again. It’s a futures market based on cheap credit.  I would like to rename these:   *Soyent Green Mortgages* Mortgages which go beyond the grave.   Is there really any point in owning a home? Or, is there really any point in growing old:-)?  PeterJB

@Alessandro Take a look at the second place in the highest rate… MER!  Written by Alessandro on 2007-12-11 14:42:19  Thanks. My Daddy was just a country boy, but he always warned me against banks offering more than the rest of the herd. I like Mish’s blog and read it.

but Cramer wanted 50 wa wa wa how is 1490 support in the S&P 500 ? is it holding ? ha ha ha oh wait, 1,490 is resistance again ha ha ha  sorry felt like being childish for a moment

@ Lili & Lyle  Thanks for the reading material – great stuff…  @ ashkan  Having lived in a wide range of locales, I am with London Banker on the question of where the best places to live can be found. My preference is for Sweden, despite the huge tax burden. LondonBanker’s Belgian friend had it right.   …Unfortunately I currently reside in Hell / LA – though at least the sushi is better than Europe… 

 reverse mortgages – are another innovative(predatory) fee generator that rewards agents who sell larger unnecessary loans. I think that the problem with these Peter JB is that you won’t be dead by the time you run out of cash although some might wish they were.  

 @London Banker  [to ashkan] “By all means, stay where you are and make America better. We will all gain by it.”  If ashkan moved from the US to Britain, it would raise the average IQ of both countries.  

Hah. Hah.  It isn’t Peter Schiff, but this is the sort of quality I’ve come to expect from Fox-free news. As a result, it isn’t clear at all that any immigration is required to raise UK relative IQ.  BBC: US rates reduced for third time

@ ES Trader  Aloha! I know you were out there waiting for the wave. Did you catch the curl?

@Bernard   ”And yet the stock market remains close to its all-time record high (3.5% off).    How can this possibly be?    Does this not scream “Plunge Protection Team”?”    I’d appreciate your reaction (and any others who’d care to comment)  on this (excerpted) from George Friedman at Stratfor as an explanation:   ”Every time the news on the subprime situation sounds so horrendous that it seems the U.S. markets will crash, the opposite occurs. In fact, markets in the United States rose through the early days, then sold off and now have rallied again. Where is the money coming from?  We would argue that the money is coming from the dollar bloc and its huge free cash flow from China, and at the moment, the Arabian Peninsula in particular. This influx usually happens anonymously through ordinary market actions, though occasionally it becomes apparent through large, single transactions that are quite open. Last week, for example, Dubai invested $7 billion in Citigroup, helping to clean up the company’s balance sheet and, not incidentally, letting it be known that dollars being accumulated in the Persian Gulf will be used to stabilize U.S. markets. This is not an act of charity. Dubai and the rest of the Arabian Peninsula, as well as China, are holding huge dollar reserves, and the last thing they want to do is sell those dollars in sufficient quantity to drive the dollar’s price even lower. Nor do they want to see a financial crisis in the U.S. markets. Both the Chinese and the Arabs have far too much to lose to want such an outcome. So, in an infinite number of open market transactions, as well as occasionally public investments, they are moving to support the U.S. markets, albeit for their own reasons.  It is the only explanation for what we are seeing. The markets should be selling off like crazy, given the financial problems. They are not. They keep bouncing back, no matter how hard they are driven down. That money is not coming from the financial institutions and hedge funds that got ripped on mortgages. But it is coming from somewhere. We think that somewhere is the land of $90-per-barrel crude and really cheap toys. The Chinese and the Arabs are not in the U.S. markets because they like the United States. They don’t. They are locked in. Regardless of the rumors of major shifts, it is hard to see how shifts could occur. It is the irony of the moment that China and the Arabian Peninsula, neither of them particularly fond of the United States, are trapped into stabilizing the United States. And, so far, they are doing a fine job.”  Thanks.      

Interesting Item from ftalphaville…  http://ftalphaville.ft.com/blog/2007/12/11/9549/siv-watch-citis-secret-sales/  SIV: Citi’s Secret Sales: ”people familiar with the vehicles say their size has been cut from $83bn at the end of September to about $66bn largely by selling pro-rata portions of a SIV’s portfolio of assets to investors in the most junior notes at market values. Citi is also talking to some investors about directly swapping their holdings for underlying assets”.

@ London Banker and others who live outside the United States:   You can’t even begin to imagine how stupid, blind, and zenophobic most Americans really are. Here you can travel 3,000 miles and people still speak the same language. Why learn a foreign language. America is huge. Who needs other countries… The same mass media, the same school curricula. A vast homogenized “Market” is what we are. We have elected the leaders we deserve. Only in America could you score points by capitalizing on the fact that your opponent(John Kerry, loser of the 2004 Presidential elections) is fluent in French. Americans have no capacity for critical thinking(thank you education system); if we actually began to think our noble leaders will be in huge trouble. The true cost of our current foreign entanglements does not bite yet. There is no military draft and the monetary expense is just another bunch of numbers. America is morally, intellectually and financially bankrupt. Just thought you should know.  

ABC,  Thanks for providing that excerpt from Stratfor. The explanation could make a lot of sense of what is happening in the stock market. It was very well written as well.  I think this unprecedented stock market behaviour is either the result of the PPT or the result of foreign central bank money creation. One or the other.  If it is the result of foreign central bank money creation, that will come to an end. It is not sustainable. I wrote a commentary addressing this earlier in the year:  http://wallstreetexaminer.com/blogs/ducalion/?p=126#more-126 

@ashkan  i hope youre not bothered by the IQ thingy, those guys are kiddin with ya your post are also good and helpfull  if youre a guy you wouldnt take it so hard but hmmm if youre a Gal, maybe you Would take that seriously anyway its just a joke 

@ JMa on 2007-12-11 10:25:12 “I thought some ARMs are set based on LIBOR ?”  Yep. Some ARMS are tied to LIBOR, some are tied to Treasuries, some use the prime rate as their benchmark.   Many of the teaser rates on the ARMs were set below their applicable benchmark. When they reset, they will generally be higher than the benchmark. So even if the benchmarks come down, like prime or treasuries have, the average reset rate might still be 4-5% higher than the teaser rate was.  Prime borrowers might jump from 3% or 4% up to 7%-8% (this is a vague approximation based on a 3 year ARM I had a while back). Subprime borrowers generally started higher at 7% to 8% and will reset over 11% to 12% or even more.  Again, some of the benchmarks coming down might lessen the pain of some of the borrowers, most people will still see their rates skyrocket when they reset. And the LIBOR spread is still widening. Its going to get a lot more expensive to service the debt on a depreciating asset – I think many people are going to walk when they add up the numbers.  These ARM resets are going to further constrain liquidity.

Ha Ha ha anonymous 1…funny.  OK guest…no problemo…I know we need a little roasting to deflate the egos a little…I know the audience is just teasing. @the Swede and subgenius…try Baja.

@Bernard  Thank you for the link to your previous writing.   Do you think then that China will terminate its fixed rate in the very near future?   You say that skyrocketing interest rates will cause a real estate crash . . . but it is already crashed with low rates. How do you see the move playing out? A more prolongued real estate crash? And you see a market crash at that point? Is this really the lesser evil for China?  

In the WS article above, AG assigns zero responsibility to the FED in the formation of two huge asset bubbles under his watch. it will be interesting to see how economists respond…

@Octavio In the WS article above, AG assigns zero responsibility to the FED in the formation of two huge asset bubbles under his watch. it will be interesting to see how economists respond…    I expect that from AG, a man who gets his best ideas in the bathtub. He washed away all semblance of blame and guilt.

@ Sean ”If Japan offered any clue to USA economy future, the most important conclusion is — NEVER NEVER NEVER Allowed the largest 2 asset classes (Stock + Housing) to deflate at the same time.”  Good point.

@ London Banker  ”I met an American woman from one of those friendly mountain towns. She was sold at 15 by her father to one of the neighbours 28 years older. She left 12 years later with five kids to make it on her own. Great woman. Shame about the American Bible-belt Taliban, though”  I have to take exception to your comment here. As someone who has lived on the road, traveling through over 40 states in the US and Canada, I must say that many of your stereotypes are not representative of the American people. As a city dweller traveling through the countryside, I too had similar stereotypes when I first set out on the road.  Most people in the rural towns I traveled through would give you the shirt off their back if they thought it would help you out. There was a real sense of decency, community, and concern for fellow man. Everyone wanted to be your friend. Way different that what I was used to in the city.  My wife and I had several breakdowns in our crappy RV, and we learned the core decency of the rural folks through our hardships. People took us into their homes, fed us, and helped us get back on the road more than once. Southern hospitality is no myth.  Don’t get me wrong, I am ashamed of the way my country has behaved both at home and abroad, and of what it has become. But its not fair to paint its citizens with a broad brush as your statement implied. The American people didn’t create this state of events, it was imposed upon them by the political money machine. Its not like they allow us much choice in the big picture. Whether it is elections, economic and fiscal policy, geopolitics . . . the power of the people is tightly controlled by the powers that be. We have “options” but not much in the way of choice. In spite of all this, most of us are pretty cool. There are fewer bad apples among us than you would think.  I enjoy your comments and your point of view immensely, but I thought you were above this sort of condescension.

This is an interesting article..  http://www.ft.com/cms/s/0/0546b38e-a84b-11dc-9485-0000779fd2ac.html  Looks like Fed is saying “Damn moral hazard!”.  If they are taking corporate risk as collateral for loans, what will they take next? Liquidity collateral is supposed to be of the highest quality (govt debt). Any other sort of collateral is an effective underwriting of credit risk. This is a dangerous step in the wrong direction, though some would say extraordinary times would require extraordinary measures. Would it encourage the banking system to resume lending? Probably not. The main problem of the markets now is the willingness and the ability to lend. It is risk adversion and capital contraints. No amount of liquidity provided in such a manner can increase the propensity to lend. The central bank needs to address the core issues: transparency on asset prices and the true capital position of the banks in the financial system. Anything less than that will just breed more distrust and fear. If the true numbers indicate insolvency, so be it. Only then can the repair begin.  You cannot disguise a compost heap. It will always smell bad.

i dunno bout you all but italian truckers are having a ball!! …official “recession” havent even started  whats to come?? Anarchy is the name of the game  ROME (AFP) – - Thousands of trucks continued to block Italian roads early Wednesday defying an order  by Italy’s transport minister to end a highly-disruptive truck drivers’ strike at midnight.  Alessandro Bianchi issued the decree after talks broke down between unions and government on the  second day of a planned five-day strike, saying the move was necessary to protect the delivery of essential supplies. The decree ordered the unions to instruct their members to abandon their protest against rising fuel prices   and return to work from midnight Tuesday, but Italian media said the unions had refused to lift roadblocks and   had instead announced their intention to continue the strike.  ”This measure was deemed necessary because of the gravity of the situation on the road and motorway   network,” Bianchi said in a statement. 

Guest on 2007-12-12 01:34:41 ”i dunno bout you all  but italian truckers are having a ball!!  …official “recession” havent even started    whats to come??  Anarchy is the name of the game”   They better get this contained quickly…  ROME, Dec. 11 (UPI) — Striking Italian truckers left an estimated 80 percent of the nation’s gas pumps empty Tuesday, creating long lines of cars at those still open. http://www.upi.com/NewsTrack/Top_News/2007/12/11/italian_truckers_tie_up_commerce/6478/  Rotting produce was all that was left on many supermarket shelves, with fresh meat, milk and fruit also in short supply.  Gas station associations say about 60 per cent of pumps in the country have been idled and most of those still open could run dry within a day. http://news.therecord.com/News/article/281173  Look at those pictures of empty store shelves… http://tvnz.co.nz/view/page/536641/1501031  Having a 7eleven at home these days doesn’t seem to be a bad idea after all…

@tutterfruit  to those who thinks we will fall sofly and orderly like blown dried leaves are Dreaming..   

Well the flight instructors said the Saudis were complete failures…

Interesting that the FED has come to its senses and has NOT cut rates yet. As a matter of fact IT SHOULDN’T.

The Crony Capitalists at the Fed have done it again! The 25bp cut was just the distraction and set up for “socialising losses” on the huge portfolios of illiquid garbage at the banks.  The loan auction liquidity facility to be announced today will allow the banks to foist even more unmarketable and low rated garbage on the Fed as collateral for more M3 money creation.  The modest 25bp cut was the whitewash of monetary respectability on the front of the house while they slip more hooch from the still in the kitchen out by the back door to the waiting line of debt-addicted cronies on Wall Street. Sucks. Stinks. Short the dollar.

The Fed did cut rates. Just not as much as the markets had hoped they would. As one can tell by the slight dips in the stock prices. It shouldn’t last long though. People are still feeling much too greedy/bullish to completely sell out yet.

 OMG!!  Russia is up to something but what???  http://news.bbc.co.uk/2/hi/europe/7139959.stm Russia suspends British Council    The Russian government has ordered the British Council to close down virtually its entire operation in Russia by the beginning of January.  The Russian foreign ministry said the council, which promotes British culture abroad, was operating illegally.   The British Council has said its operations in Russia are not illegal.   Moscow said a bilateral agreement to regulate the council’s activities was not signed after four Russian diplomats were expelled from the UK in July.    

@Lili, Looked at L.Randall Wray’s ‘Lessons from the Subprime Meltdown’ you suggested…he’s an academic economist I presume. I skipped to his recommendations: -Enhanced oversight of financial institutions. -A housing finance model that promotes stability rather that speculation. -Policy that promotes rising wages for the bottom half. -Policy that promotes employment. -Monetary policy that stabilizes interest rates. I CAN SEE THESE RECOMENDATIONS COMING IN HILLARY’S STUMP SPEECHES! Sure these controls would prevent another real estate bubble IF they were enforced! The Fed had the POWER to regulate ‘predatoty’ lending. Investors will go to sleep and look for another bubble if RE isn’t happenin’ any more. This is good for primary homeowners IF these controls were enforced. Strict controls are coming and all the hot money in REALTOR sales, building, mortgage rep contract writing, investment banking, stock broker sales, will be flat, boring, and not lucrative. No bubble, no trouble, no ‘Show Me The Money!’ Yawn… But I know regulations and more regulations and litigation and more litigation is coming. Don’t like the title of the paper because it narrows this global credit to ‘subprime’. The author also said Minsky never addressed ‘a situation…in which households consistently spend more than their incomes’. well tahts’ the banks ‘Gravey Train’ and now the Banks with credit controls will be left with…yawn…average profits…yawn…this will put all you ‘hot to trot’ investors who are jazzed by the ‘action’ to sleep…a deep sleep. This paper will be Hillary’s Economic platform to reform the credit industry. Oh…and where are all the jobs(employment) and higher wages with the other ‘new’ market controls in place. Controls will mean MORE unemployment for workers in these RE and credit and related industries because this regulation crackdown will inhibit ‘growth’(profit) in these areas which are already crashing NOW! Yawn…  

Free link to the AG article:  http://opinionjournal.com/editorial/feature.html?id=110010981 and a point of view:  http://economistsview.typepad.com/economistsview/2007/12/alan-greenspan.html  ”The Fed did what it needed to do in 2003 to keep the economy moving forward, but that doesn’t mean the policy could not have been improved. In any case, the policy, however necessary, had subsequent consequences that Greenspan seems unwilling to take responsibility for. In addition, the role that his laissez faire attitude may have had in blocking regulatory interventions that might have prevented or attenuated the crisis is conveniently omitted from the story Greenspan tells. Was the crisis his fault? I wouldn’t go that far. Could he have done more to prevent it or reduce its severity? Here I think the answer is yes.”

@ Northernbanker and others.   I’m about half way through Garet Garrett’s “Bubble” Everyone shuold take some time off from this blog to read it. His writing style is somewhat dated but very clear and consise. Here’s a gem from pg.47:   ”In this refinement of procedure what happens is that imaginary wealth is exchanged for real wealth; and the real wealth is consumed by those who produced nothing in place of it.” BINGO  Was it Michael the Banker who noticed senior citizens closing their savings accounts. These people are the “canary in the coal mine”. Meanwhile I meet a lot of people who don’t understand the phrase “a run on the bank” or even grasp it’s explaination. They must have slept in history class. However, people who remember the depression have good cause not to trust the FDIC.  Like the ancient Greek said “there is nothing new under the sun”.

@Written by Guest on 2007-12-12 03:52:24  with abundant amount of NG and Oil, owh.. believe me sir they are in COntrol British isle i believe is on the last part of that NG pipe line.. am i Correct??  

Indian markets scale all time high. Third time in a week   Its interesting that one of the commenters here mentioned its not a great time to be an india. How wrong and how naive !!

“I have reluctantly concluded that bubbles cannot be safely defused by monetary policy or other policy initiatives before the speculative fever breaks on its own” Former Federal Reserve chairman Alan Greenspan argued in an article published by The Wall Street Journal today  http://www.ireland.com/newspaper/breaking/2007/1212/breaking21.htm

The FED is a joke and should have done nothing instead of trying to sustain a bubble that has imploded. Lowering rates IS THE DISEASE NOT THE CURE.

Reading Hellasious’ blog and comments here also, along with the news today of the Fed’s version of the Hail Mary Alliance, it seems to me that the ante has now been significantly upped. The question really is; why now?   Taking a thread from “what is keeping markets elevated?” , I suspect that the real glue holding them together substantially is JOBS. Specifically, the numbers that still indicate employment is growing- even when it is most certainly not, in the US anyways. Sentiment towards the market, hope if you like, is being maintained due to the absence of negativity in the job numbers- a muddle through metality is holding sway. I also suspect that that job data is about to dramatically change and the ground is now being prepared for the resulting collapse in consumer confidence and its knock on effects that this will bring with it. The numbers are rigged. Perhaps such overwhelming evidence is now appearing that job numbers can no longer can be disguised?  The various indebtedness of the US consumer – Mortgage (upside down or soon to be?), Credit Card, Auto etc are at generational highs- some moreso. Rising unemployment in such a highly debt leveraged environment will devastate confidence and immediately impact household spending. From an earlier post, this shows the fine edge now being walked by the US consumer;  In a terrible bind? Tapping your 401(k) may not be smart  “If your retirement date is still decades away, it’s tempting to tap your 401(k) plan for emergency cash. Nearly 20% of companies reported an increase in loans and hardship withdrawals from 401(k) plans during the fourth quarter, according to a survey of corporate executives and chief financial officers by Duke University and CFO magazine. The most common reason: to make mortgage payments.”   http://www.usatoday.com/money/perfi/columnist/block/2007-12-10-401k-withdrawals_N.htm   Defaults on all manner of debt securities are setup to dramatically rise; mortgages, credit card debt, auto loans, commercial property loans etc. This will set off more SIV and attendant toxic paper liquidations that will all end up impacting directly to bank balance sheets and solvency.   No wonder the Fed needs to set up the new liquidity facility. A bailout of this magnitude defies description.  This could be the terminal event for the dollar.       

From Lyle’s bubble book link above. http://www.mises.org/books/bubbleworld.pdf  See by yourself how history repeats itself. If you want to guess how this crisis will continue to unfold (e.g., Cuomo’s sub-prime investigation); then, this is a must read (the post is about 4 pages of the first 32 pages of the book but big savings vs. reading the whole 32 pages)  Two years later the crystal burst. Within four years the loss upon American investments abroad was incalculable.  Of the new Latin-American bond issues that had been recommended to investors by the very best Wall Street banks and their bond-selling affiliates—of these alone, fifty-six issues, aggregating more than eight hundred millions of dollars, were in default; and the fate of others not actually in default was very uncertain. In Europe, with a general moratorium on war debts and reparations, with a private moratorium running to Germany, another one to Austria, another one to Hungary, and with war debts and private debts involved iii one great maelstrom of political controversy, the value of the American investment, present or ultimate, was very indefinite. Bonds of the German Government selling on the New York Stock Exchange at thirty to sixty cents on the dollar, bonds of the State of Prussia at twenty-five cents, bonds of the City of Berlin at twenty cents, Hungarian bonds at fifteen to forty cents, many of the private bonds of European industry a little better or a little worse; and these were all bonds that had been eminently sold to the American investor within five or six years at ninety, ninety-five and one hundred.  Then one by one the international bankers appeared before committees of inquiry of the United States Senate, all saying they thought the bonds were good and all alike disavowing further responsibility. They had not guaranteed the bonds or the validity of them. They were not responsible for how the money was spent or misspent; the borrowers were responsible. And as for the foreign bond delirium in this country, that was something the people, that is to say, the private investors, had done to themselves.  Before the Committee on Finance of the United States Senate, the head of the second largest national bank in Wall Street, who represented also the most aggressive bond-selling organization in the world, appeared and said: “We are merchants. With respect to bonds generally, we are merchants.”  A member of the most powerful private international banking house said to the same committee: “We are merchants. That is what we are, just like any merchant, in the grain business, in the cotton business, or anything else.”  The head of the largest national bank in Wall Street, one that owns also a very powerful bond-selling organization, appeared before the Senate Committee on Manufactures. The committee was hearing bankers on the question of establishing a national economic council and it was asking him what the bankers had done to restrain a wild use of American credit before the collapse. He said: ”Speculation was in the air, and the speculators wanted to buy, buy, buy, and the bankers and brokers dealing in securities supplied that demand. . . . In other words, I do not think you would be justified in holding the bankers responsible for the wide speculative craze that worked through the country. I think they were trying to supply what the customers wanted. . . . I think the banker is like the grocer. He supplies what his customer wants.”  And to that committee the head again of the second largest national bank in Wall Street, who appeared twice in Washington—looking at the same subject, namely, the delirious use of American credit in foreign securities— said: “It came about in part by reason of the public’s interest in, and fever and fervor for, investments and speculation, if you will. It came about as a result of the demands of foreign countries for funds and an obvious appetite on the part of the American public for investments therein. The investment banking community became one of the tools by which the demands on each side operated to satisfy their requirements.”  Grocers, merchants and automatic tools. And the people Mr. Morrow wrote about all did it to themselves. Their sudden appetite for foreign bonds was so voracious that if they had read in every case the banker’s prospectus, which few of them did, they perhaps would not have noticed the line in smaller type that always appeared at the bottom and read: “The information contained in this circular has been obtained partly from cable and other official sources. While not guaranteed, it is accepted by us as accurate.”  Not even the accuracy of the information was guaranteed by the banker.  The Senate Committee on Finance learned a good deal about the merchant banker trade. It learned how foreign bonds originate in Wall Street and how they get from there to the hands of the individual investor. As in trade generally, there are parts, three at least and sometimes four, corresponding to the parts, respectively, of manufacturer, jobber, wholesaler, retailer.  There is first the bank that discovers and originates the bond issue. Let the borrower be a foreign government. The bank undertakes to buy from the foreign government so many bonds of a certain character at 90, and to pay for them on maybe the tenth day following the public offering. This originating bank then calls in a jobbing group of two or three banks of its own rank and says to them: “Here is a good thing. We will share it with you at 901/2.” So the jobbing group underwrites the bond issue at 9 1/2 , which is the first step-up. The jobbing group then forms a large syndicate of wholesalers, to whom it will sell the bonds at 92. This is the second step-up. The wholesalers know the retail trade; that is their business. Each wholesaler has a card index of retail bond dealers all over the country, with notations indicating about how many bonds of a certain kind each retailer may be expected to sell to the banks in his neighborhood and to the individual investors in his community. The wholesalers, by letter, telephone and telegraph, offer this new bond to the retail trade at 94, which is the third step-up, and the retailers will sell them to the public at 961/2, so that the retailer’s profit will be 21/2 per cent., which is the last step-up.  When all these arrangements are made, the jobbing group advertises the bonds in the newspapers and at the same time establishes on the curb market, or over the bank counters, a public quotation a fraction above the retail price, say, 965/8. This is the public offering. The origina
ting house delivers the bonds to the jobbers, who deliver them to the wholesalers, who scatter them widely to the retail trade, and that day thousands of bond salesmen begin to solicit the small-town bank presidents and all the people Mr. Morrow wrote about, to buy the bonds. As the bonds are sold, the money starts moving from the many local sources toward Wall Street. Ten days after the public offering the wholesalers settle with the jobbers and the jobbers settle with the originating house and the foreign government gets its money. There are variations of the price steps, and, if the bond issue is small and juicy, the jobbers may go direct to the retail trade or the wholesalers themselves may perform the jobbing function, so that there may be only three steps instead of four; but with such slight modifications, the method as described is standard.  The only risk the Wall Street banker takes, you see, is in judging the public appetite. If his judgment is good the bonds are sold and paid for before the foreign government gets the money. The desirability of that result explains the speed and high tension at which all the machinery works.  All of that the committee could understand. Given the point of view of the international banker, that he is like a grocer, and then the uncontrollable demand on the part of the American public for his merchandise, it could understand why representatives of Wall Street banking houses went frantically to and fro in the world, pressing American credit upon foreign governments, foreign cities, foreign corporations, soliciting them to issue bonds to satisfy that American appetite; why at one time twentynine such representatives were all soliciting a small Latin- American country to make a bond issue in Wall Street; even why American bankers paid large commissions, vulgarly mentioned as bribes, to influential private persons in foreign countries who could lead them to a new bond issue. It received with pleasure an acknowledgment of practical error from the head of a private banking house who said: “Yes, but it is also true that those things existed not only in Latin America, but the world over, relating to governments, municipalities and industrial concerns. In other words, the accumulation of capital in America was seeking an outlet. The bankers were the instruments of the outlet. They were the purveyors of capital. The bankers competed to a degree that in retrospect was wholly wrong. I am not speaking morally.”  And yet all the simplicity of light that could be brought to bear upon these points seemed only more and more to obscure one another. The committee became very uneasy about it. Given again that inebriate demand on the part of the American investor which obliged the merchant banker to search the world for foreign borrowers, why then was it necessary for the bankers to adopt the intensive merchandising methods of industry in order to dispose of their merchandise? One would suppose it had sold itself, even faster than it could be originated. Why were foreign bonds so expensively advertised? Why were they pressed upon the investor through costly, he-type selling organizations, by house-to-house canvass, even in some cases by radio ballyhoo? Questions to this point seemed always to embarrass the banker witnesses. The least indefinite answer either of the Senate committees got was made by the head of the foremost banking organization in Wall Street. He said: “Oh, undoubtedly salesmanship and advertising facilitate business; but you must remember that the banker cannot make that profit from his advertising and salesmanship unless the market is there to sell on, and unless the public is there to buy.”  One point was too clear. There was no American policy. First and last, exclusive of the loans by United States Government to its European war associates, private American credit to the incredible aggregate, roughly, of fifteen billions was loaned in foreign countries—without a policy.  …S. Parker Gilbert, the American Agent General for Reparation Payments, under the Dawes Plan, addressed a public protest to the German Government, which he concluded by saying: “I have attempted to bring together in the foregoing pages the accumulating evidences of overspending and overborrowing on the part of the German public authorities, and some of the indications of artificial stimulation and overexpansion that are already manifesting themselves. These tendencies, if allowed to continue unchecked, are almost certain, on the one hand, to lead to severe economic reaction and depression, and are likely, on the other hand, to encourage the impression that Germany is not acting with due regard to her reparation obligations.”  That made no difference. Wall Street ignored the warning. Again, writing from Paris to American bankers, November 3, 1926, Mr. Gilbert said: “I am constantly amazed at the recklessness of American bankers in offering to the public the securities of German States on the basis of the purely German view of Article 248 of the Treaty of Versailles. It is a simple matter, of course, to get letters from the financial authorities of the German States setting forth the German point of view, and I can easily understand the willingness of the German authorities to sign letters stating the German point of view, but it does seem to me difficult to justify the action of the American bankers in offering the securities to. the public on the basis of such letters, without giving the slightest hint that the German point of view is not accepted by the Allied governments, and that, in fact, the Allied point of view is diametrically opposed.”     

@tutterfrut ”Having a 7eleven at home these days doesn’t seem to be a bad idea after all…”  Written by tutterfrut on 2007-12-12 02:22:18   It’s the supply chain, people…..If you got a distruption, you got to have a stash…..I’m not crazy, Rich H, just been there and done that…..got to have plan, just in case.

http://www.bloomberg.com/apps/news?pid=20601103&sid=a9FMqzJonp.0&refer=news  U.S. Stock-Index Futures Rise; Citigroup, Merrill, Ford Climb   By Andreas Hippin  Dec. 12 (Bloomberg) — “U.S. stock-index futures advanced as investors speculated yesterday’s losses following the Federal Reserve’s interest-rate decision were exaggerated”…  IMO, Hippin has got it wrong. The real reason (as posted above, LessorBee and others) is that the Fed is contemplating taking all kinds of junk as collateral at their discount window as early as today (Once again, FT seems to be at the forefront of reporting)   http://www.ft.com/cms/s/0/0546b38e-a84b-11dc-9485-0000779fd2ac.html (this link should work for all)  Fed to overhaul provision of market liquidity By Krishna Guha in Washington   Published: December 12 2007 05:01 | Last updated: December 12 2007 05:01  The Federal Reserve is set to announce as early as TODAY a fundamental overhaul of the way it provides liquidity in financial markets in a bid to tackle head-on severe strains in the interbank money market.  The US central bank is expected to unveil a new liquidity facility through which it will auction loans to a large number of financial institutions, accepting a broad range of securities as collateral in return. …  A large number of banks can in principle borrow directly from the Fed through the discount window against a wider range of collateral. But in a recent speech Don Kohn, vice-chairman, said the market “stigma” of borrowing from the Fed was preventing the discount window from serving its proper function as a backstop to market liquidity.  As a result, most mortgage lenders are turning to the Federal Home Loan Banks rather than the Federal Reserve as a lender of last resort. The new Fed plan aims to change that..…  Any comments on the effectiveness of this move? If this works (vis-a-vis the “meager” 25 basis points cut yesterday), then I will have to back away from my post yesterday (which I wrote under the assumption of no further FED action until January).   London Banker:    On the market, except for short covering rallies on “manufactured” good news, my feel is that the market is coming to its senses and that the balance of December should be a pretty bad month for equities worldwide (Regardless of the so called PPT, mutual funds, hedge funds, etc.)    But then, again, as JP Morgan once said when asked about the market, he just said “it will fluctuate” He was way smarter than me:-) Making comments on the market is the best way of getting egg in one’s face:-)   Written by Octavio Richetta on 2007-12-11 14:27:42   LessorBee on 2007-12-12 04:01:52 Changes in the discount rate can be made by the Fed board in Washington without the approval of the entire 17-member policy-making Federal Open Market Committee, which sets the federal-funds rate target, the report added.  Interesting… is Ben acting on his own due to lack of support for this measure yesterday?  Is one of the objectives here is to guaranteeing that equity markets to have a wonderful holiday season:-)?        

@Indian Banker, Gotta hand it to Indian Banker … a new Sensex high  http://www.moneycontrol.com  LB, Sip a cuppa tea and enjoy the show  IB, How about lunch at Dum Pukht at the Grand Maratha?  Print First Ask Questions Later

This just seal the fact “Bernanke is the most evil FED Chief ever”. Maybe Greenspan too.  FED’s job is to ensure maximum employment, and low inflation. We have high inflation, and job was not bad.  So FED is essentially saving the speculators of housing and stock bubble!!  Now Bernanke want another “innovative” move to GIVE FREE MONEY AWAY!!  No penalty from Discount Window!! SUBPRIME MORTGAGE WELCOME AS COLLATERAL AT FACE VALUE!! FED IS ACTING AS BIG BANK LENDER AS LAST RESORT!  ================================================================  http://biz.yahoo.com/rb/071212/usa_fed_liquidity.html?.v=5   ” … including another cut in the discount rate, longer-term loans to money-market dealers, and easier collateralized loans from the Fed .”  ” … Insinger predicted a sharp sell-off in Treasuries if the measure is introduced because current yields reflect safe-haven buys rather than interest rate expectations. “  ” … an overhaul by the Fed was likely to take the shape of a new liquidity facility to auction loans to banks. The Fed could make the move on Wednesday …”   ” … allow the Fed to provide liquidity directly to a large number of financial institutions against a wide range of collateral without the stigma of its existing discount window loans”

The Fed also announced foreign exchange swap lines with the European Central Bank and the Swiss National Bank. The Bank of Canada is also a partner in the liquidity plan. The first auction will be held on Monday Dec. 17  http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BDCBA9D15%2DFFBE%2D46A8%2D9301%2D0DC0E0D12693%7D&siteid=mktw  Can someone explain me what an exchange swap line is?

congratulations to Wolf in the Wilds on 2007-12-12 01:20:03  He was the first person to bring to our attention the latest fed move.

The liquidity auctions are the Fed’s desperate/amateurish moves to confuse the non-pros about the Discount Window stigma. But when all is said and done, a bank that borrows from the Fed in these auctions will still be borrowing from a lender of last resort, for an extended period. Would YOU want to have your money on deposit with a bank that HAS to or WANTS to borrow from a lender of last resort? Yes, holding an auction is a clever way to confuse the issue somewhat, but the stigma remains.  And what if, despite the stigma, the demand is so high that the $20 billion (a very small amount in the interbank market) goes at 40-50bp over Fed Funds? What will the Fed do then – double down? Triple down? Throw money from the window?  These are pretty desperate moves…

Central banks around the world launching “new liquidity vehicles” Commodity market must rally to sun.  ”We’ve thought for some time the market was going to be volatile and trendless until the end of the year,” said Brian Gendreau, investment strategist for ING Investment Management. “The Fed rate cut didn’t do it to help us get through this weak patch in the economy. These new liquidity vehicles, and coordination with foreign central banks, is what investors were looking for.”  The dollar fell against the euro and pound but rose versus the yen. Gold prices rose. http://biz.yahoo.com/ap/071212/wall_street.html

Central banks around the world launch “new liquidity vehicles”. Commodity market must rally to sun.  ”We’ve thought for some time the market was going to be volatile and trendless until the end of the year,” said Brian Gendreau, investment strategist for ING Investment Management. “The Fed rate cut didn’t do it to help us get through this weak patch in the economy. These new liquidity vehicles, and coordination with foreign central banks, is what investors were looking for.”  The dollar fell against the euro and pound but rose versus the yen. Gold prices rose. http://biz.yahoo.com/ap/071212/wall_street.html

dovish FED bend to wall street boys and start global bailout program (dollar killing program). I heard on CNBC dovish FED is going to abuse repo liquidity vehicle. Wow, this morning, the rumor is confirmed. shocking. Commodity market must rally to sun.  —  http://housingfinland.blogspot.com/2007/12/global-bail-out.html ”The US dollars will be provided by the Federal Reserve to the ECB, up to $20 billion, by means of a temporary reciprocal currency arrangement (swap line)”  If I translate, “helicopter” Ben is now running full steam on its money printing press, flooding the market with liquidity. I’m not sure about the consequence of this action. After all the banks that had not taken risks and have had rigorous risk management won’t be rewarded instead the reckless lenders will.  

“The US central bank is expected to unveil a new liquidity facility through which it will auction loans to a large number of financial institutions, accepting a broad range of securities as collateral in return. … “  sounds like a god damn global bailout for bankers and hedge fund that is stuck with subprime problem. dovish FED is starting bailout to suck in all bad loans and socialize loss to people of America!!

Regarding the new “temporary liquidity facility” from the Fed:  It is only $20 BILLION. This amounts to “nothing” in the interbank lending market.   http://biz.yahoo.com/ap/071212/fed_credit_crunch.html?.v=5  Ask yourself:  What is the total volume of loans outstanding in the interbank lending market?  I have read that in the UK interbank market alone, the total loans at the end of September amounted to approximately $500 BILLION. This doesn’t even count the huge US interbank market.  http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/03/cnrates103.xml   This looks like a drop in the ocean. 

You know, that was pretty slick of the Crony Cabal. They cut by 25bp yesterday, tempting in the shorts and bears, and then slam them today with the heavy club of a massive multi-currency bailout.   I was lucky enough to close out my shorts early this morning at a tidy profit. I feel sorry for the bears who are going to be squeezed by yet another round of Bernanke and Paulson’s favorite game of bear squeeze.  Ultimately, this is just another ploy that will fail to address the real problems with illiquidity and poor creditworthiness. Perhaps the pain will have to show up as mass bankruptcies and layoffs in the real economy before the financial markets will even take notice.

10:30 U.S. crude inventories down 700,000 barrels in   latest week  Oil up +2.18% to $91.98

The Fed and Hank hard at work trying to save their cronies’ bonuses for the year! Bear short sqeeze was planned, count onit! What the Fed has done here is effectively lowered the discoune rate up to another 50 bps points becuase the minimum bid is thei OIS rate which should reflect the markets expected average FF rate over the term of the “loan”. Also, by calling this an “auction” they are trying to remove the stigma of “going to the window”. What a joke, everyone will know that when Countrywide is the big bidder, things still will smell rotten. Come on people, when you take a crap and spry air freshener, you now have stinky air freshener crap, plain and simple…

Clues are glaring today. Bank indexes are barely up today and with the jump in rates, fair value on the S&P is now down to 1439.82. Wait until earnings adjustments for 2008 start pouring in…you have been warned, January through April will be EXTREMELY difficult for 401K’s that are long stocks…

Uh oh. It looks like the Bank of England is spoiling the party again by telling the truth: the auctions are for a paltry amount, that paltry amount will be sterilised by cutting other monetary interventions, and they are going to be a bit stricter about collateral. Sounds like they might be getting fed up with forestalling the inevitable. The comment below about “confidence” almost shouts that this a con job without substance to anyone paying attention.  Reuters: “Central bank sources said the issue at stake was tackling confidence, not liquidity as the actual amounts of cash on offer were in the greater scheme of things not so large.  The BoE said the total size of reserves offered in its December and January operations will be raised to 11.35 billion pounds from 2.85 billion, of which 10 billion pounds will offered at a 3-month maturity. This will be offset against other operations, however.  It will also accept a much broader variety of collateral such as AAA-rated tranches of UK and European Economic Area (EEA) prime residential mortgage-backed securities and covered bonds rated AAA, although this is not quite as wide a range as it offered to take in September.”

the equity markets rejoiced as the Fed and financial mafia of the US called in other world banks for help confirming with 100% vivid clarity this issue is TOO BIG FOR THE US GOVERNMENT TO HANDLE  TOO BIG TO FIX   NOT TOO BIG TO FAIL   sorry for the caps…  

U.S. foreclosures rise 32% in November!

“Come on people, when you take a crap and spry air freshener, you now have stinky air freshener crap, plain and simple…   Written by Guest on 2007-12-12 09:42:32″  Sorry, but that was worth repeating.  It sure does stink. Why the hell didn’t they announce this yesterday? They had to suck in the shorts.  These bastards play rough & dirty.

11:30 Fed official sees no stigma attached to auction plan 11:30 Fed official defends timing of liquidity plan announcement 11:30 Auction plan not aimed at any one institution: Fed official 11:30 Tues. stock drop did not spur Fed auction plan: Fed official

11:30 Fed official defends timing of liquidity plan announcement   Yeah RIGHT!! They knew what the markets were pricing in and set the stage to kill the shorts! They knew the shorts would be out in full force on the huge disappointment, expecting another large sell-off today. The Fed plyaing the game of the almighty is extremely dangerous….

Anyone else get the sence that the markets are hanging on by a thread today? The bank index $bkx is now DOWN almost 1% and the community bank index $ACBQ is near unchanged now. I think large traders used the short covering this am to quietly lighten up. Once they all start running for the door, lookout…

 I’m leaving. If the boss calls, find out who he is.

first dovish FED stoped publishing M3 and released press saying they will be more transparent. now they are giving money to ‘anonymous’ banks or hedge funds or blablabla. Sure, transparency? Hey nicolas, what ya say about dovish FED again? Have enough cry already? Keep weeping for eternity.

@happy-renter  “The French model I would say is the worst. Consider for example bankruptcy. In the Anglo-American model, the most important thing is meeting creditors’ claims(after statutory of course). In France? “Safeguarding the business,” i.e. maintaining jobs. Now you tell me, all else equal, do you want to be a creditor of a French firm or a British one?”  I tackled you on your third world metaphor concerning anything that is not either German or Austrian in continental Europe. May I call again for decency on your side. Specifically now.  I invite you to consider the way the French banking system operates. The local regulatory body, the “commission bancaire”, is absolute no joke and the subprime mess is technically and legally impossible.   You are first badly informed and, on top of it, absolutely prejudiced. Banking and business are different matters here in Paris. They always were.  I’ll look for no excuse concerning the way providers of industrial capital – both local foreign ownership – have been handled since the Miterrand years. But no foreign corporation in France financially ever suffered something even vaguely on par with what is currently happening in the field of US MBS securities.   Regulations have been dropped or regulators were asleep at the wheel. The result is showing sorely.  Should the US courts of justice make sure that a significant portion the corrupt securities provided as AAA from 2005 to 2007 are returned by Wall Street participants as cash at facial value, I’d change my mind.   Should I expect that to happen?  French happy-renter

JLC: “Most people in the rural towns I traveled through would give you the shirt off their back if they thought it would help you out. There was a real sense of decency, community, and concern for fellow man.”  As someone who grew up in the rural South, I believe that what you say is only conditionally true. I’m afraid it’s necessary to consider the discouraging findings of Robert D. Putnam of Harvard, who found that diversity leads to distrust. For example, 30 years ago I went into a rural store in the South with a longhaired Jewish friend from Brooklyn. Despite the total lack of threatening behavior, the elderly owner of the store thought he was being robbed, only because my friend looked different and talked different. If the occupants of the brokendown RV you mentioned were, say, Sikhs wearing turbans, I promise you the locals would not offer the shirts off their backs.  This decency, cohesion, and generosity does certainly still exist in some places in America, and it is a wonderful thing. In deciding on a place to retire, I had to consider the criteria that support these good things: The area must have an economic history based on family farms (as opposed to, say, manufacturing, mining, or hardscrabble subsistence; the population density must be low; there must be limited cultural diversity; for reasons of geography and terrain or even regulation, the area must be relatively immune to suburbanization or colonization for vacation homes; and the person moving in must be fluent in the local dialect and culture or be from a culture that is easily recognized as compatible. For example, I have found that travelers from rural Wales can go all over Appalachia and be immediately accepted, because social cues are similar and the dialects of English produce mutual charm and trust.   One more land-eating real estate boom like the one we just went through and the remaining areas of rural trust in America may be lost for all time, especially those areas where land prices remain low enough for cheap development. One recent study found that, in North Carolina, 6,000 farms and 300,000 acres have been lost to development since 2002.   More and more people are recognizing the damage done by the colossal misapplication of capital during the mortgage boom. Few, I’m afraid, have recognized what globalization and unsustainable growth are doing to our social capital.   

Where do I see the Yields on the bonds (both govt and corporate ?)  I want to move to Bonds. Pls suggest a website

Question for Bernanke:  At what point is this “oil thing” going to stop? Is at $100 a barrel? $150? $200? or $500? And as a follow up: Do you think the minimum wage will still be $6.35/hr when a gallon of gas is $12 a gallon? AT WHAT POINT WILL PEOPLE WANT REAL WAGE INCREASE TO MAKE UP FOR THESE HIGHER COSTS BEING PASSED ON TOP THEM?

Daltoni and JLC  Regards being treated well in the US.   I tend to concur with JLC. I travelled around the US in a 160K Buick Celebrity with my wife (ex now). The last time I did one of those trips was in April 2002. I am dark (from Sri Lanka) have a goatee or at times a full beard. After 9/11 I guess most would think I was middle eastern. Just to illustrate, on last trip after 9/11 car breaks down on road to Sandusky, Ohio. Gentlemen puts me and wife up at home, arranges for a rental car thru wife job at car dealership (Jeff and Linda, I recall. Info on an older computer and and Jeff had run for congressman as a republican !!). Just one of the many stories.  regards  barr 

As one of the rural Americans (hillbillies) that several references have been posted about, I would like to make a comment. Our system works because your word is your bond. If I make a deal with someone and later it proves that it wasn’t legitimate or I misrepresented the terms, I am shunned by everyone. Perhaps Wall Street could benefit by the same standard.  Regards, James Thompson   Eastern Kentucky   

Professor, I was wondering if you could make a post to comment on John Hussman’s analysis that the Fed’s open market actions are ultimately useless and ineffective…  http://hussmanfunds.com/wmc/wmc071008.htm

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