The delusional complacency that the “worst is behind us” is rapidly melting away…and the risk of another run against systemically important broker dealers

Author: Nouriel Roubini · June 27th, 2008 · 2528692008-06-27+10%3A39%3A04Nouriel+Roubini › Share This Print

After the collapse in mid-March of Bear Stearns and the ensuing bailout of Bear’s creditors and the extension of the Fed’s lender of last resort support to systemically important members of the “shadow banking system” (the non-bank broker dealers that are primary dealers) a sense of delusional complacency emerged in financial markets based on fairy tales such as “the worst is behind us”, the “recession will be short and shallow”, that “housing is bottoming out” or even that “we will avoid the recession”. This chorus of cheerleaders included policy makers that had missed the incoming financial tsunami for most of 2007, CEOs and senior financial sector folks who had lost hundreds of billions of dollars with their reckless lending, and investments and a bunch of self serving spin-masters talking non-stop their long books on CNBC and other financial media. This circus of “the worst is behind us” became a pathetic and louder chorus in the two months from mid-March till the end of May. This delusion was for a short couple of months supported by rising stock prices, reduction in credit spreads and interbank spread that, however, remained very high and indicated a persistent liquidity and credit crunch.

But this delusional complacency is now rapidly collapsing as financial markets are back to panic mode. Let’s detail how…

Those of us who had predicted this economics and financial mess (the worst housing bust since the Great Depression, the subprime and mortgage meltdown, the bust of the credit bubble, a nasty liquidity and credit crunch, high and rising oil prices, an ugly recession) well before (in the summer of 2006) 99% of the world had even heard the term “subprime” held to our sound and analytically grounded views that: this would be the housing was not bottoming out, that this would be the worst housing recession since the Great Depression and that home prices would eventually fall 30% plus, that millions of underwater households are at risk of walking away from their homes (“jingle mail”), that the we were in the eye of the financial storm (rather than past it) and this would be the worst U.S. financial crisis since the Great Depression, that credit losses would mount over time well above $1 trillion, that we would have a systemic banking and financial crisis with hundred of institutions going belly up, that the stock market would fall back into serious bear territory after another and last sucker’s rally, that the recession would be deep and protracted (12 to 18 months and U-shaped rather than V-shaped), that the Fed would stay on hold (or even cut rates further by year end) as the economic and financial crisis becomes more severe, that the world would not decouple – financially and/or economically – from the U.S. contraction, that the exchange rate policies of the BW2 countries (partially sterilized intervention creating easy monetary conditions and excessive credit growth) would lead first to asset bubbles and then to rising inflation as the needed real exchange rate appreciation would occur through a rise in prices if the nominal appreciation would be prevented, that BW2 would come under severe strain once this asset bubble would go bust and inflation rose.

Now the delusional complacency in markets is melting away or, better, going bust. With the 3% plus fall in US equity prices on Thursday stock prices are well below their bottoms of mid-march at the peak of the financial panic and back to level not seen since the fall of 2006. Also, credit spreads and interbank spreads are rising again towards their peak levels. Thus, the liquidity and credit crunch is significantly worsening. As argued in this forum the economic contraction would lead to a sharp rise in credit losses well beyond subprime: from subprime to near prime and prime, to commercial real estate, to credit cards, student loans and auto loans, to leveraged loans that financed reckless LBOs, to muni bonds, to further losses from the downgrade of monoline insurers, to industrial and commercial loans, to corporate bonds, to CDS losses.

In February this forum argued that credit losses would be at least $1 trillion. At that time that figure was derided as excessive but by now the IMF says losses will be $945 billion, Goldman Sachs estimates them at $1.1 trillion, George Magnus of UBS estimates them at $1 trillion and the hedge fund manager John Paulson (who made a fortune last year betting against subprime) is estimating them at $1.3 trilliion. Thus, it is now clear that $1 trillion is not a ceiling but rather a floor estimate for what those financial losses will be.

The deleveraging process for the financial system has barely started as most of the writedowns have been for subprime mortgages; the writedowns and/or provisioning for the additional losses have barely started. Thus, hundreds of banks in the U.S. are at risk of collapse. The typical small U.S. Bank (with assets less of $4 billion has 67% of its assets related to real estate; for large banks the figure is 48%. Thus, hundreds of small banks will go belly up as the typical local bank financed the housing, the commercial real estate, the retail boom, the office building of communities where housing is now going bust. Even large regional banks massively exposed to real estate in California, Arizona, Nevada, Florida and other states with a housing boom and now bust will go belly up.

And even large banks and broker dealers are now at risk. After the bailout of Bear Stearns’ creditor and the extension of lender of last resort liquidity support the tail risk of an immediate financial meltdown was reduced as that liquidity support stopped the run on the shadow banking system. Indeed in March we were an epsilon away from such meltdown as – without the Fed actions – you would have had a run not only on Bear but also on Lehman, JP Morgan, Merrill and most of the shadow banking system. This system of non-banks looked in most ways like banks (borrow short/liquid, leverage a lot and lend longer term and illiquid). So the risk of a bank-like run on non-bank (whose base of uninsured wholesale short term creditors/lenders is much more fickle and run trigger-happy – as the Bear episode showed – than the stable base of insured depositors of banks) became massive. Thus, the Fed made its most radical change of monetary policy since the Great Depression extending both lender of last resort support to non-bank systemically important broker dealers (via the PDCF) and becoming a market maker of last resort to banks and non-banks (via the TAF and the TSLF) to avoid a full scale sudden run on the shadow banking system and a sure meltdown of the financial system.

While the tail risk of such a meltdown has now been reduced the view that systemically important broker dealers – that have now access to the TSLF and the PDCF – now don’t risk a panic-triggered run on their liabilities is false; several of them can still collapse and not be rescued. The reasons are as follows: liquidity support by the Fed is warranted for illiquid but solvent institutions but not for insolvent ones; and the risks that some of the major broker dealers may face is not just of illiquidity but also insolvency (Lehman had as much exposure to toxic MBS, CDOs and other risky assets as Bear did). The Fed already tested the limits of legality (as argued by Volcker) in its bailout of Bear’s creditors.

Suppose that a run – triggered by concerns about illiquidity and solvency – occurs against a major broker dealer (say Lehman) would the Fed come to the rescue again? The answer is not sure: such broker dealer has access to the PDCF but sharply borrowing from this facility would signal that the institution may be bleeding liquidity and be in trouble; thus large access to the Fed facility may cause the run on the liabilities of such financial institutions to accelerate rather than ebb. The reason is as follows: if creditors of the broker dealers knew with certainty that the Fed liqui
dity tab is open and unlimited the existence of the facility would stop the run. But if there is any meaningful probability that the amount that the Fed would be willing to lend to an institutions using that facility is not unlimited and is not unconditional then use of the facility may accelerate the run – as those first in line would have access to the liquidity provided by the Fed lending to the broker dealer in trouble while those waiting may be stuck once the lending stops. This is akin to a currency crisis in a pegged exchange rate regime triggered by a run on the forex reserves of a central bank. Once the reserves are running down and investors expect that the central bank will run out of reserves the run accelerated and the collapse of the peg occurs faster.

So why the Fed would not provide unconditional and unlimited liquidity to a broker dealer in trouble and thus allow the run to occur? Several reasons: the Bear Stearns actions were borderline illegal; the Fed cannot keep on bailing out any major broker dealer in trouble; the Fed may be running out of Treasuries to swap for illiquid/toxic securities; the Fed is starting to face credit risks from swapping and holding toxic assets (the $29 billion given to Bear, the hundreds of billions swapped via the TAF and TSLF); the authorization for the PDCF expires in the fall; the Fed should not bail out – with risks to its own balance sheet institutions that may be insolvent on top of being illiquid.

Thus, the delusion that TSLF and PDCF implies that the risk of a run against systemically important broker dealers is now close to zero is just a delusion. If a run against Lehman or another broker dealer starts again and this broker dealer borrows $5 billion from the Fed and then $10 billion investors and creditors of this institutions – who need to decide whether to pull out or keep their credit lines – will ask themselves whether the Fed would allow this broker dealer to borrow $10 and then $15 and then $20 and then $25 and then $30 billion and then even more. Unless the Fed credibly commits to unconditional and unlimited lending the use of the facility by a broker dealer in trouble may accelerate rather than stop the run on its short term liabilities. Thus, the argument that – in a world where the Fed has extended its lender of last resort support to non-bank financial institutions – the risk of a run against these institutions is now close to zero is flawed.

Certainly the rising financial tsunami ahead as the economic contraction gets worse, the financial/credit losses mount, the credit and liquidity crunch gets worse will test both the ability and the political willingness of the Fed to further bail out major financial institutions that are in serious trouble. So the worst is well ahead of us – not behind us – for the real economy and financial markets.

Roubini of NYU Says U.S. in Recession, Sees Global Risk

June 26 (Bloomberg) — Nouriel Roubini, professor of economics at New York University’s Stern School of Business, talks with Bloomberg’s Tom Keene about the U.S. economy, global economics, the role of central banks, and “systemic” risks to the U.S. financial system.

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252869223 Responses2008-06-27+10%3A39%3A04Nouriel+Roubini to “The delusional complacency that the “worst is behind us” is rapidly melting away…and the risk of another run against systemically important broker dealers”

FF • June 27th, 2008 at 10:51 am

Hi Sis. I’m Uno.

Softwarengineer • June 27th, 2008 at 11:00 am

WE NEED A REPLACEMENT FOR GLUEBOARD HOUSE MANUFACTURINGAn industrial base is needed in America ASAP, as all the CEO globalism excuses and shopping for excess labor at cheaper rates is fueling the real estate fire like raw gasoline.In 1978 the Boeing Company developed the 757/767 airframe with 70% technicals (folks with 1 to 2 years of college) and engineers; as it was a rousing success with real estate propped up with real Democrat type American wages. We didn’t shop for cheap labor and lame brain excuses to add excess workers in our country; we just developed the plane with mostly domestic brains.We need to look at our current dilemma not only in Dr. Roubini’s excellent economist viewpoint and timely prediction; but we need to point at the root cause of the economic collapse: "poor CEO planning with subpar globalism wages".Hyper inflation of commodities is jet fuel poured on the recession fire and its going to take common sense technical planning to get us out of this mess. Its not going to happen over night either, we let it get too bad over-relying on a replacement dinosaur industrial base, glueboard housing manufacturing.

ptm • June 27th, 2008 at 11:10 am

I’m guessing that if you multiply the $per barrel by 3%, you can get get a rough idea of the cost of gas/gal.Barrel Gallon$130 = $3.90$135 = $4.05$140 = $4.20$145 = $4.35$150 = $4.50..$200 = $6.00

Guest • June 27th, 2008 at 11:14 am

The Bear Stearns’ bailout represents a public turning point in government tyranny as evidenced by Treasury Secretary Hank Paulson’s June 19 statement: "We must limit the perception that some institutions are either too big or too interconnected to fail. If we are to do that credibly, we must address the reality that some are." Like Bush, when it comes to selecting winning and losing private companies in the United States, Paulson intends to be “the decider.”This statement by Paulson leaves no doubt that the undertow beneath the nation’s financial system is so strong that eminent collapse is a possibility.Reuters’ Glenn Somerville, in his recent article “Paulson Urges Stronger Fed Role on Wall Street,” said that Paulson urged quick action to give the Federal Reserve explicit authority to step in to protect the financial system if its stability is threatened.Said Somerville, “U.S. policy-makers, including Paulson, are now striving to put in place a new regulatory framework clarifying the ground rules for such an emergency backstop.”In short, Paulson has admitted what everybody on Main Street has been saying for a year or more. His statement no doubt was made to quiet down those saying the Fed is picking its favorites to save.What incredible arrogance — to believe that Americans would accept a government official’s admitted role as the “decider” of which private businesses in the United States can be completely destroyed and which private business can be given full, unqualified support from the U.S. Treasury! The case of Bear Stearns clearly demonstrates it is no longer who’s “too big or too interconnected to fail,” but who’s “too well-connected to fail.”

Guest • June 27th, 2008 at 11:21 am

VIX DOWN 2% now – even with the indexes being down!

K in TX • June 27th, 2008 at 11:29 am

Written by KJ Foehr on 2008-06-26 19:40:04So China and Japan could buy our banks with their FOREX dollar surpluses via SWFs – cut out the middle man!Anyone want to call a bottom for GM? Educated guesses anyone? I was ticked off a couple of years ago when GM announced that in spite of rising oil prices they would continue to focus on trucks & SUVs. I take GM somewhat personally since my father is a GM retiree.

K in TX • June 27th, 2008 at 11:35 am

@ptmSo if gas is at $7 a gallon in 2012 that would put oil at about $235?http://www.theglobeandmail.com/servlet/story/RTGAM.20080626.wrubin0626/BNStory/FrontMATTHEW TREVISANGlobe and Mail UpdateJune 26, 2008 at 1:47 PM EDTA new forecast calls for gasoline prices to hit $7 (U.S.) a gallon in the next two years and oil to soar to $200 a barrel by 2010.The report by CIBC World Markets also predicts there will be 10 million fewer cars on the road in the United States by 2012.“Over the next four years, we are likely to witness the greatest mass exodus of vehicles off America’s highways in history,” Jeffrey Rubin, the lead author, wrote in Thursday’s report.

Abys Maleviolent • June 27th, 2008 at 11:51 am

When CNBC begins advocating short-selling for the masses, it is a form of desperate MSM capitulation. What are they saying? We can no longer spin out any positive that people will accept. We are very afraid of a massive sell-off with offer-fails or no-bids. We are encouraging anyone and everyone to get a short position in order that when a big break occurs the short-covering of all the smalls will provide some ask/buys and soften the decline. In other words, long fall expected, shorts will help dampen and absorb descent.I don’t like it.

ptm • June 27th, 2008 at 11:59 am

K in TX on 2008-06-27 11:35:48 – “Over the next four years, we are likely to witness the greatest mass exodus of vehicles off America’s highways in history,” Jeffrey Rubin, the lead author, wrote in Thursday’s report.IMO, this is the frothy front end of waves of inflation. As the dollar devalues, it shows up first in the price of oil and then the inflation waves settle down as they pass through the economy. Yes, real oil prices are up, but not by much compared to inflation. (Again, this is my opinion and I need more data to support it.)And just like we have been saying for months, inflation makes us all poorer and that is what is pushing the marginal in society off the roads.Anybody up for BEV conversions? There is only a handful of people doing BEV conversions around the country. I have a gut feeling it’s a great business opportunity…

Anonymous • June 27th, 2008 at 12:08 pm

Has anyone else noticed that we are being blackmailed by OPEC? Over the past several months statements by OPEC officials has said that higher oil prices are caused a falling dollar, but a recent statement by the president of OPEC predicting $170 oil this summer if the dollar continues to fall sounded more like a threat. Make no mistake, OPEC countries hold $100s of billions of dollars (if not trillions) that have lost half their value the last six years. If the Fed does not wise up and raise interest rates to protect the dollar, OPEC will get their money back through higher oil prices.

Anonymous • June 27th, 2008 at 12:12 pm

Brilliant analysis by Prof Roubini.I can’t think of anyone else barring Michael Whitney who extensively quotes Prof Roubini in his articles and Prof.Michael Hudson who have correctly predicted this crisis.Have included some articles …Road to Serfdom – An illustrated guide to the coming real estate collapse, Harpers Magazine April 2006 (pdf)-Prof Michael Hudsonhttp://www.michael-hudson.com/articles/debt/Hudson,RoadToSerfdom.pdfAn Interview with Michael Hudson on the Economy The Game is Over. There Won’t be a Reboundhttp://counterpunch.org/whitney06212008.html

Capone • June 27th, 2008 at 12:20 pm

maybe an emergency rate hike would prick the oil bubble, wait can’t do that. well how about a cut to help the stock market and growth, shoot can’t do that either… welcome to Pandora’s Box Ben… i wish i could remember the date well over a year ago where i wrote here suggesting that the MSM learn to say STAGFLATION, STAGFLATION, STAGFLATION

Capone • June 27th, 2008 at 12:23 pm

what the hell is going on with the VIX ? this is crazy ! it makes me a little nervous in terms of do they know we are near a bottom ? i am short until we crash don’t get me wrong – this VIX is a mystery… perhaps they are checking all of the rocket boosters before it is launched into space – there is smoke coming from them now at 24…

JGU • June 27th, 2008 at 12:30 pm

The Americans need a depression to learn a lesson that they can not thrive on other people’s money. For so many years they exploited the developing countries like China with their green color toilet paper, and they dream that it will continue forever. Come on, there is no need to understand those "complicated" economic theories to see through this. We need to celebrate that integrity and honesty may eventually come back to life with a depression.

Capone • June 27th, 2008 at 12:38 pm

@JGU, consumerism is the issue. If you are so concerned about the Americans spending too much consider combatting the spread of a practice which completely exhausts and wastes the planet’s resources – CONSUMERISM. too late – the same old powers that be have already exported the practice around the world. by the way, the WORLD went right along with Americans spending. "exploit" seems a bit misguided as people were happy to produce and sell all of their garbage to Americans.

Guest • June 27th, 2008 at 12:40 pm

Remember how they have played LIBOR? And how it changed the TED spread indicator? The VIX has been a trader’s radar for these last several months: I don’t think it beyond reason that some "monkeywrenching" is going on. Becareful just using the VIX for gauging anything, especially bottoms now.

Guest • June 27th, 2008 at 12:43 pm

@CaponeYou add the color to these commentaries. And now with living through that bear squeeze and coming into some significant money, we need you to load up on some liquor and give us a soulful rant! :*\

Capone • June 27th, 2008 at 12:45 pm

@Guest on 2008-06-27 12:40:47 – i agree completely they may be rigging it, BUT my gosh people HAVE to buying puts on their S&P stocks ? ! ? some clever folks out there are probably arbitraging the implied volatilities of the actual S&P stocks versus the VIX and printing money… technically, i see nothing but a crash straight ahead – i know it feels like controlled demolition and has been so far but the technical picture is one i have looked for for over 2 years and it is there RIGHT NOW !

oily brush • June 27th, 2008 at 12:47 pm

no worry bulls…I am going to do some naugthy things to cheer you up!

KJ Foehr • June 27th, 2008 at 12:56 pm

The S&P500 has just fallen below the closing lows of March 10 (1273.17) and 17 (1276.60). The intraday low of the year is 1256.98 (March 17). The official bear market line (20% decline) is 1252.12.The Dow has already gone into bear market territory and if it holds, that will get a lot of attention in the press over the weekend, increasing the possibility of Monday being a capitulation day.It is time to give Dr. Roubini some credit — again. He called the April and May rally another sucker’s rally, and he has been proven correct once again. Bravo Professor!

tutterfrut • June 27th, 2008 at 1:09 pm

Moody’s says Morgan Stanley may get downgradehttp://www.marketwatch.com/news/story/moodys-warns-may-downgrade-morgan/story.aspx?guid=%7B6076DFE8%2D1718%2D4A38%2D8D57%2DAAA1C4BE7CC6%7D&dist=hplatestMoody’s says…Moody’s says…they should hear what Gloomy’s says…

Capone • June 27th, 2008 at 1:12 pm

i have to play "devil’s advocate" reluctantly here and ponder a muted response controlled by TPTB as a potential way to hide the bottom ? thoughts ?

Guest • June 27th, 2008 at 1:17 pm

Thank you for warning us so far ahead. I have been amazed that so many "experts" on the financial media have for so long argued against what you saw coming even as it became more apparent. They simply shift from no problem, to slow growth, to shallow recession etc.

KJ Foehr • June 27th, 2008 at 1:21 pm

Capone on 2008-06-27 13:12:18“i have to play "devil’s advocate" reluctantly here and ponder a muted response controlled by TPTB as a potential way to hide the bottom ? thoughts ?”It looks like there is an attempt underway right now to rally off the 20% decline line – again. Whether that is caused by technicians or TPTB or the PPT, I have no idea. But if it is a bottom, it is a stealth bottom, and probably a very temporary one, IMO.

KJ Foehr • June 27th, 2008 at 1:28 pm

Guest on 2008-06-27 13:17:33“Thank you for warning us so far ahead. I have been amazed that so many "experts" on the financial media have for so long argued against what you saw coming even as it became more apparent. They simply shift from no problem, to slow growth, to shallow recession etc.”No reason to be amazed, that is normal, IMO. The so called experts usually have a hidden agenda involving selling stocks, propping up the market, preventing panic, etc., that skews their opinion or causes them to lie outright.The truth is out there, you just need to do a little research and find a few people whose opinion who really respect and who have good track records (like Roubini), then stick with them, and ignore the rest.They keep the truth hidden until it can no longer be denied, then they declare the worst is over and it’s time to buy – as always!

Play On • June 27th, 2008 at 1:29 pm

Goldman is manipulating the S&P by playing with the oil price. Oil just dropped $3. From up 3 to flat in an hour!

ESTr • June 27th, 2008 at 1:43 pm

yes yesAre we witnessing a massive Goldman led Bear Trap?Strange days indeedMost peculiar, mama!Insanity laughs….

Capone • June 27th, 2008 at 1:54 pm

@ESTr – speaking of insanity – i had to flip a few of the peanuts in my position to the long side as a sanity hedge…

Octavio Richetta • June 27th, 2008 at 1:58 pm

Thanks professor. It looks like my question on Wachovia was a timely one:-)

Octavio Richetta • June 27th, 2008 at 2:00 pm

How long has Gloomy been missing?

Capone • June 27th, 2008 at 2:02 pm

@OR he went on holiday this week starting monday

Guest • June 27th, 2008 at 2:16 pm

Paulson’s latest order to the PPT traders: "Make sure the market closes positive today!".

Randy • June 27th, 2008 at 2:22 pm

can someone tell me how the PPT can manipulate the market for so long? I have no doubt the market is rigged. I just don’t understand how it’s being rigged. Doesn’t someone (PPT?) have to have an awful ot of money to do this and wouldn’t this manipulation show up somewhere on someone’s books?????? Help ould be appreciated………..:>

tutterfrut • June 27th, 2008 at 2:22 pm

So, with this Dow official bear market entry over and done with, whom of you can advice us a good contrarian(bull) blog to change camp, away from the masses?

Play On • June 27th, 2008 at 2:25 pm

I’d like to make the bull argument:Buy the S&P when has topped out! When that is the 64k question. Look for Goldman to try to get out of its long energy positions and the issue sell recommendations on all the drillers and majors. Just like the lowered the boom on BA and GM this week!

Play On • June 27th, 2008 at 2:26 pm

when OIL topped out

Anonymous • June 27th, 2008 at 2:28 pm

Whatever happened to Bernard? Haven’t seen Michael the Banker either?

Joe12Pack • June 27th, 2008 at 2:38 pm

Does anyone have a sense of how credit unions will fare, compared with banks? Is there any reason to think that those institutions might be on more solid ground?

Randy • June 27th, 2008 at 2:56 pm

@ Joe12PakI’ve looked into the bank versus credit union issue. It all depends on if your CU delved into the MBS business. If they did, you might want to consider another one. Other than that, what I’ve found out is that CU’s are a little safer.

KJ Foehr • June 27th, 2008 at 2:57 pm

Monday!Why would someone buy ahead of this weekend and Monday!?…Monday Monday, can’t trust that day,Monday Monday, sometimes it just turns out that wayOh Monday morning, you gave me no warning of what was to beOh Monday Monday, how could you leave and not take me.Every other day, every other day,Every other day of the week is fine, yeahBut whenever Monday comes, but whenever Monday comesYou can find me cryin’ all of the time…Song: Monday, Monday, The Mamas And The Papas, 1966

KJ Foehr • June 27th, 2008 at 3:07 pm

Well “they” did it; they kept the Dow above bear market territory and the S&P500 above the March closing lows. It’s days like these that make me question my doubt of the PPT.I expect a rally on Monday now. Capitulation may have been averted once again – for now…

tutterfrut • June 27th, 2008 at 3:10 pm

"Why would someone buy ahead of this weekend and Monday!?"1.Because the headlines say it’s at a 20% discount?2.Hey, the stimulus check is to stimulate!3.Roubini contrarians jumping in?4.Only one bank/broker going broke over the weekend?

bob • June 27th, 2008 at 3:18 pm

Roubini is king.. i’ve been following his advice for a long time…he has called it right time and time again… every single time it seems like someone criticized him… but he stood his ground… Dr Roubini,,, Thank you so much for letting us follow and learn…

Guest • June 27th, 2008 at 3:37 pm

Professor, thanks a lot for preparing us in advance.I hope once this mess is cleared policy makers realize that they should also care about sending correct and fair information to common masses rather than trying to keep bubbles floating. At least the length and ferocity of pain may be less as compared to what may happen now.

Mark • June 27th, 2008 at 3:41 pm

OK, here’s my "Gloomy" input for the day:http://www.antiwar.com/blog/2008/06/26/ron-paul-on-iran-and-energy-policy/It just isn’t going to turn out well…Mark

Guest • June 27th, 2008 at 4:06 pm

Professor, thanks for sharing your views with us and preparing us well in advance!

fyego • June 27th, 2008 at 4:23 pm

What happens when the Federal Reserve starts making "margin" calls on the brokers when the ABS securities that they have given loans on get downgraded and the Fed requires more collateral so that they don’t get stuck with bad securities….

Alessandro • June 27th, 2008 at 5:01 pm

Imagine what keyword is running hot on Google right now (via Google Trends):"bear marketHotness: On Fire" (!)http://www.google.com/trends/hottrends?q=bear+market&date=2008-6-27&sa=X

Wild Bill • June 27th, 2008 at 5:07 pm

Another home run for Professor Roubini! I hope more people who influence our economy will begin to pay attention to you. Hang tough professor. We need you more than ever now.

KJ Foehr • June 27th, 2008 at 5:17 pm

fyego on 2008-06-27 16:23:58“What happens when the Federal Reserve starts making "margin" calls on the brokers when the ABS securities that they have given loans on get downgraded and the Fed requires more collateral so that they don’t get stuck with bad securities….”IMO, that won’t happen; the Fed will ignore it. Remember, in this situation, they are on the side of the banks, not the government / taxpayers. Financial chaos must be avoided at all costs because if the banks go down, the economy collapses too. Then it becomes “Mad Max” time.

Octavio Richetta • June 27th, 2008 at 5:33 pm

Despite the 3% decline in equity markets. I still don’t see fear/panic of holding equities at these valuations. Lot’s of "macho" bulls still out there. I am waiting patiently for el dia de yerra.* The day cattle ranchers in Argentina gather the herd to burn the cattle mark into the newborn and CASTRATE the baby bulls. A couple of years later when the novillos (castrated bulls) are slaughtered, they make some of the finest beef in the world.

Octavio Richetta • June 27th, 2008 at 5:35 pm

Despite the 3% decline in equity markets [yesterday],…

kilgores • June 27th, 2008 at 5:45 pm

@ KJ Foehr 15:07:44>Well “they” did it; they kept the Dow above bear market territory and the S&P500 above the March closing lows. It’s days like these that make me question my doubt of the PPT.Hmmm….maybe it’s time to initiate that Freedom of Information Act request to the PPT and ask them for any documents reflecting their intervention in today’s market to avoid the 20% threshold? SWK

KJ Foehr • June 27th, 2008 at 5:59 pm

Octavio Richetta on 2008-06-27 17:33:16“Despite the 3% decline in equity markets. I still don’t see fear/panic of holding equities at these valuations. Lot’s of "macho" bulls still out there. I am waiting patiently for el dia de yerra.”Someone on Bloomberg TV today summed up the VIX enigma best: It is not fear driving the market lower now, it is cash flow. I think that captures the essence of it. People expect the market will go down, and it has largely been an orderly decline, thus no panic. But as earnings projections are brought down and rising inflation further erodes those cash flows, people will be moving money out of stocks. Fear / panic will happen on capitulation days, but the rest of the time they are walking not running out of stocks. I would like to see an interim capitulation Monday or Tuesday followed by another short-term rally before the final decline to the bottom in the fall. But Monday is looking more like an up day now so the short-term direction is less clear – next week could be a typical holiday up week. If there is no selling on Monday afternoon, I will close some regional bank shorts as they are looking rather sold out and I am worried about a rebound. I was expecting a failure before now, but no sign of one yet…Oil is the wildcard though; another up day on Monday could bring on capitulation, but a decline might allow a rally to start.

Octavio Richetta • June 27th, 2008 at 6:03 pm

Some [fresh out of the oven] good reading from Mohamed El-Erian:http://www.pimco.com/LeftNav/Viewpoints/2008/When+Markets+Collide+El+Erian+June+2008.htm

AfA • June 27th, 2008 at 6:06 pm

@KJF… YesAbsent a week-end action a la Bear Sterns.

ESTrader • June 27th, 2008 at 6:11 pm

Anyone want to call a bottom for GM? Educated guesses anyone? I was ticked off a couple of years ago when GM announced that in spite of rising oil prices they would continue to focus on trucks & SUVs. I take GM somewhat personally since my father is a GM retiree.Written by K in TX on 2008-06-27 11:29:39GM is a corpse…….Bankruptcy?http://www.traders-talk.com/mb2/index.php?showtopic=90263scroll down thruSorry

Capone • June 27th, 2008 at 6:58 pm

Bush on f ing CNBC monday night for wag the dog episode #1,000,000 on kudlow and company… can we possibly tank again in front of his tv show ? gentlemen, i picked the wrong shorts (so far) this time around and quite frankly, i am devastated…

KJ Foehr • June 27th, 2008 at 7:01 pm

K in TX on 2008-06-27 11:29:39“Anyone want to call a bottom for GM? Educated guesses anyone? I was ticked off a couple of years ago when GM announced that in spite of rising oil prices they would continue to focus on trucks & SUVs. I take GM somewhat personally since my father is a GM retiree.”I thought for years, since the first oil shock in the ‘70s, that the American auto companies were stupid. They were caught with their collective pants down when oil spiked the last time and Japanese auto makers ate their lunch with small high MPG cars. That’s when Toyota et all grabbed a big chunk of the market, and it has been downhill ever since for US automakers. Now 30 years later, the exact same thing has happened! For the last two decades they were building bigger and bigger and bigger cars, culminating with Hummers, Lincoln Navigators, Ford Expeditions, etc. Any fool could see cheap oil was not going to continue forever. So what was their contingency plan? It appears they didn’t have one. So why did this happen? Were they really stupid? Well it’s hard to believe such a large group of intelligent educated business people , engineers, and others could really be that stupid for so long! No, I now think the reason was margins. Because of the burden of extremely high pension and health care costs for their workers, American automakers were forced to pursue the higher profit margin trucks and SUVS. They intentionally turned their backs on small cars because of lower margins. (However, I never quite understood this as Lexus and Infiniti, BMW and even Mercedes sell small cars that are undoubtedly high margin, but as an outsider, I must assume GM and Ford know more than me.)This was a very easy decision to make because Americans are (mostly) all from Texas when it comes to cars; they want the biggest they can get! So GM and Ford gave them what they wanted, and to hell with peak oil and the long-term impact of their short-sightedness.Now that the market has shifted to lower margin cars, they won’t be able to make it, IMO.I have not studied the financials, but my gut intuition tells me all three US carmakers are toast. Chrysler will be gone soon, and GM and Ford will need to merge to eke out a few more years of survival. But it is not going to get any easier: what is going to happen when Chinese automakers begin exporting their cars to the USA? Toyota will be number one before the end of the year, if they aren’t already.Re: Chrysler: I read the other day that Nardelli had bet the farm on a redo of the Dodge Ram truck. That was his ticket to survival – talk about bad judgement / timing!

Guest • June 27th, 2008 at 8:04 pm

"A new forecast calls for gasoline prices to hit $7 (U.S.) a gallon in the next two years and oil to soar to $200 a barrel by 2010."my call $200 by 2009. and $250 by 2010. $150 this year in my target.

Guest • June 27th, 2008 at 8:05 pm

"If the Fed does not wise up and raise interest rates to protect the dollar"are you expecting helicopter Ben revel his inner Volcker? good luck, you will need it.

Guest • June 27th, 2008 at 8:06 pm

"The d" should be "THE D":The FedRes that is, Mr. Benanke will do what he is told to do and that will be that which the GOP donors and lobby believe what is good for them – in the short term.The panic is now biting in and in Australia the RBA will fuel inflation – and thus killing growth and the folks that it is mandated to protect – to save the "boys". RBA will print as much money for the bankers (whankers) as they want in exchange for "securitized crap". er toxic paper.Ooops there goes…. another inflationary boost and screw the people; it is almost time for ‘soylent green’.What we have in "leadership’ is a group of false pretenders that are totally incompetent, which have migrated to gross corruption and will do EVERYTHING they can to protect their own interests, across the board – and screw the real economy and the people that drives it!THE USA which was a bastion of liberty and freedom is being taken down and the whole World will follow. Why? "Leadership" follows just like sheep. You Americans are now on the brink of depression, demographically speaking.It is time for the Captain and crew to get into the lifeboats.There is nobody anywhere who has the interests of "civilization" and those attached thereto, at heart. Sad, but not one single person.Ho humPeterJB

Guest • June 27th, 2008 at 8:11 pm

"when OIL topped out"forget that, oil is in up trend channel. until up trend channel is broken, it will keep going up. and it will keep going up, until central banks around the world unite to fight inflation. so far i don’t see it happening now or in future. it is inflation ,inflation, and more inflation.

Guest • June 27th, 2008 at 8:16 pm

Something to consider:""If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." – Thomas Jefferson, Letter to Treasury Secretary Albert Gallatin (1802)Ho humPeterJB

Medic • June 27th, 2008 at 8:38 pm

Here’s something fun to try at home!Figure out your average yearly driving miles for all vehicles owned; divide that by your miles per gallon (for each vehicle); multiply that result by today’s gas price (sure to rise). Next, multiply your yearly home heating fuel requirement by today’s price. Now sit down and figure out how much those two totals are of your take-home pay……Oh! I think I just threw up in my mouth a little. Got to go…….I’m glad inflation is not really a concern. I know I have been receiving pay increases that have kept pace with reality…….not my reality, but the Fed’s reality.

AfA • June 27th, 2008 at 9:20 pm

I have a thought. What if OPEC and/or other producing countries just decrease their production proportionally to the decrease in US consumption (and other countries entering a recession). The premise and excuse will be quite sound. "We are producing at levels we think are appropriate to current consumption and right now we are in a supply/ demand equilibrium"Is not that sufficient to keep prices at current levels if not higher.

Guest • June 27th, 2008 at 9:28 pm

"What if OPEC and/or other producing countries just decrease their production proportionally to the decrease in US consumption"I have another thought. What if OPEC and/ or other producing countries can increase their production at all? and decrease in USA consumption doesn’t matter, while there is increase in global consumption and subsidies?

Guest • June 27th, 2008 at 9:30 pm

correction: can’tWhat if OPEC and/ or other producing countries can’t increase their production at all?

Guest • June 27th, 2008 at 10:42 pm

I, of course do like Prof. Roubini’s analysis, since they define the correct pessemistic outlook for the US economy. But it is all not that difficult to foresee. Just taking a look at the principals of austrian economics will show you that the delusion that is kept up by the Fed will eventually fail. I actually think that it will be even worse than Prof. Roubini states. I rather think that the Fed will keep the course of inflation, which will eventually lead into a hyperinflationary depression. How else can the huge amounts of debt ever be paid back? Inflate the money!!!! The best way to tax the middle class without officially anouncing it.

Guest • June 27th, 2008 at 11:18 pm

Talking of "civilization" and de-volution." Agençe France-PresseAmerican planes over Vietnam in 1966. In the second half of the 20th century, wars killed three times more people than was previously thought, with the worst toll of 3.8 million in Vietnam, a new study reveals.Credit: U.S. Air ForceANU – Masters of Contemporary SciencePARIS: Wars around the globe killed three times more people during the second half of the 20th century than previously estimated, according to a study released today.Some 5.4 million deaths caused by armed conflicts occurred between 1955 and 2003 in 13 nations surveyed, ranging from a low of 7,000 in the Democratic Republic of Congo to 3.8 million killed in Vietnam.Killing is such a wonderful humane occupational experience; indeed, it really builds the man: well done America, et al! ‘I wanna be a "leader", just like George and go an’ kill all them "islamic fascists" and anyone that has something that we want.And just think how much printed paper we can acquire through the process; Wow.Excuse me while I go and puke!ho humPeterJB

AfA • June 28th, 2008 at 12:46 am

@ PeterJBRe: Wars around the globe killed three times more people during the second half of the 20th century than previously estimatedStill not good enough. And I guess we are far behind schedule for the 2010 targets.And here is one more reason why you may want to go kill them:http://www.israelnationalnews.com/News/News.aspx/126533I found this theory more plausible then the Fed/Treasury/inflation/ credit squeeze explanations.

JLC • June 28th, 2008 at 12:56 am

Nice analysis professor. Now why did I have to read this just before bed?

Guest • June 28th, 2008 at 1:17 am

Talking about "fascism" and its evolution:"June 28 (Bloomberg) — The Senate’s top banking legislators told the Federal Reserve and Securities and Exchange Commission to hold off on enacting a deal to oversee Wall Street, concerned that regulators are proceeding without consulting Congress."http://www.bloomberg.com/apps/news?pid=20601087&sid=abTqeHNFARmc&refer=homeObviously "leadership" not only think that the public is irrelevant but so is Congress. They appear to be correct about the latter but its the former that normally do the hanging so their irrelevance should be rated as high risk. LOLAustralia appears to be already in a fascist mode and the new PM appears to be done having shot his bolt giving the Cayman Island Re’s a 5% rise. Diesel Prices here are at Aust$9.00 per gallon half of which is Federal Tax and 10$ State Tax neither which are keen to let go their share. So, growth slows as tax is zealously gouged from the unwashed irrelevants’, and cash and credits are printed for the Boys’ in the Banks in exchange for RBMS so that they can hoard more and created higher inflation effects. Good fascist practice. You can have a house loan for a standard 100% down and interest over 55 years at 9.5%:-)>Australia appears to be poised to obediently follow the USA through the jaws and into the bowels of hell.Ho humPeterJB

Guest • June 28th, 2008 at 1:19 am

Apologies:Diesel Prices here are at Aust$9.00 per gallon half of which is Federal Tax and 10$ State Tax neither which are keen to let go their share. AboveSHOULD READDiesel Prices here are at Aust$9.00 per gallon half of which is Federal Tax and 10% State Tax (GST) neither which are keen to let go their share.PeterJB

Guest • June 28th, 2008 at 2:00 am

"And here is one more reason why you may want to go kill them:http://www.israelnationalnews.com/News/News.aspx/126533I found this theory more plausible then the Fed/Treasury/inflation/ credit squeeze explanations."@ AfA on 2008-06-28 00:46:00Don’t believe anything that Middle East Media Research Institute (MEMRI) publishes; they are a shill group for the Washington based Neocons who are trying to justify their hunger to kill."them" appears to be a good word for describing who should be next on the hit list so I ask you – after you have killed all them, who gets it next? Remember Stalin’s purges? those who were the willing and eager killers of their own peoples, got onto the later lists of "them". Be careful for what you wish for.Killing and the support for killing, is the lowest form of life form behaviour. Its the sort of behaviour that Americans excel at.BTW: IMO the opinion sucks: think about it.Ho humPeterJB

AfA • June 28th, 2008 at 2:41 am

@ PeterJB,Sorry I’ve been sarcastic.The "them" I used describes me and half of my family.

Guest • June 28th, 2008 at 2:53 am

Prof. Roubini,You are always one step ahead of the markets. Thank you for sharing your views with us. The market will definitely test the FED again soon. I think this time FED might be out of bullets.

Guest • June 28th, 2008 at 4:28 am

NYTimes.comBanks Trimming Limits for Many on Credit CardsSaturday June 21, 7:35 pm ET By ERIC DASH The easy money that led Americans to depend on credit cards to pay their bills is starting to dry up.After fostering the explosive growth of consumer debt in recent years, financial companies are reducing the credit limits on cards held by millions of Americans, often without warning.- http://biz.yahoo.com/nytimes/080621/1194787221529.html?.v=13

Guest • June 28th, 2008 at 5:13 am

Talking of Interesting Information hidden away in the depths of the murky waters:"June 27, 2008 9:01AMThe Bank of America Housing Bailout BillBy Elizabeth MacDonaldThe new housing bailout bill would let mortgage lenders off the hook for sour mortgages, as it would let the Federal Housing Administration assume the risk for these bad debts, shifting the burden to taxpayers and bond investors.However, two “discussion documents” about a potential housing bailout bill, both of which are stamped “confidential and proprietary” that Bank of America (BAC: 24.59, -0.22, -0.88%) authored and circulated among Congress, shows that the legislation now making its way through the corridors of Washington, DC is almost word for word what Bank of America wanted.And in a revealing disclosure, the Bank of America documents state that “we believe that any intervention by the federal government will be acceptable only if it is not perceived as a bail-out of the bond market.”http://emac.blogs.foxbusiness.com/2008/06/27/the-bank-of-america-housing-bailout-bill/Its really difficult to see where corruption doesn’t function in America.Well, Ho humPeterJB

WAWAWA • June 28th, 2008 at 5:48 am

“Barclays warns of a financial storm as Federal Reserve’s credibility crumbles”http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/27/cnbarclays127.xml

wormyboy • June 28th, 2008 at 9:15 am

Here is a good article proving the existence of the PPT and how it operates.http://www.financialsense.com/fsu/editorials/deepcaster/2008/0627.html

Miss Italy • June 28th, 2008 at 9:47 am

Talking about fascism:in Italy the new majority is pushing a couple of laws that reveal an original concept of democracy and the general accepted balance of powers- one will address the ‘problem’ of leak to media of the content of recorded telephone calls by judges during investigation of crimes. Instead of fixing this by requiring to keep secret those informations not directly related to the crime and clearly subject to the right to privacy, they want to reduce the effectivness of wire tapping by reducing it’s use to a very narrow pool of crimes. Other crimes like, but not limited to, homicide, kidnapping, false financial statements, ‘simple’ (not mafia) organized crime, corruption, bribery, pollution, sexual and domestic violence would be excluded. Also in the first draft they request to limit the time allowed to wire tapping to 3 months, so as to further weaken the collection of proofs- The second will ask for a blackout period of one year for a wide range of processes, with the excuse to streamline some of them. Clearly after one year the suspended ones will have to restart and clough the system worse than before. Avoiding a full list of which ones to stop and which to proceed, let me give one example: if the judge has two processes going, one for corruption and one for drug use (not dealer, just use), guess which one will stop and which one will proceed….If the ultimate purpose of the government is to stop completely the already broken work of investigation and judgment they can say it openly.I couldn’t believe democracies can be so fragile and so beaten not just with sofisticated and somehow limited attacks by those in powers like in USA but also with plainly open and systematic actions like it’s happening in one of, so far, strongest democracies in the world.Miss Italy

kilgores • June 28th, 2008 at 12:04 pm

Dr. Roubini:Just listened a second time to your excellent 26 June 2008 interview by Tom Keene of Bloomberg on the Economy. You indicated that you felt the only options for resolving the mortgage crisis would be a government bailout of banks or, in the alternative, a government acquisition of troubled mortgages themselves. Given the evidentiary problems mortage holders have had in proving up their right to foreclose in court (due to loss of notes and other paperwork as ownership of debt has changed hands in securitization), it seems to me the government will ultimately have to write off a good bit if the debts as uncollectable). This could take several years to do, but I’d would free financial institutions in the meantime to move on, helping to resolve the credit crisis much sooner. SWK

kilgores • June 28th, 2008 at 12:39 pm

@ wormyboy 09:15:30>Here is a good article proving the existence of the PPT and how it operates.>http://www.financialsense.com/fsu/editorials/deepcaster/2008/0627.htmlThank you for this post. Very interesting article. Didn’t need proof of the existence of the PPT — that’s a matter of public record — but how it operates has remained, and still remains, a mystery to me. This article has helped me understand a bit more about new alternative forms of direct intervention by the Fed, but it still leaves a lot of my questions unanswered. For example, the article describes how the Fed potentially can impact equity markets through the issuance of Repurchase Agreements to Primary Dealers to inject liquidity into the markets. It remains unclear, however, by what means the Fed could actually influence how that money is used by the Primary Dealers. The author of the article assumes that the Fed can and does direct the purchase of equities (when it is stated, for example, that "[T]he several Primary Dealers (e.g. Goldman Sachs, J.P. Morgan Chase, Citibank), who apparently work under the Fed’s direction, are able to use these loaned funds to buy or sell various securities and futures to affect the markets."), but there is really no evidence that the Fed is actually controlling the manner in which the private concerns who receive these funds spend the loans received. I therefore remain skeptical about the existence of any mechanism by which the PPT would be able to intervene purposefully and directly in equity markets by controlling the purchase of equities, even though from time to time the Fed may well be providing short-term leverage to private institutions by which such purchases could be carried out.SWK

Guest • June 28th, 2008 at 1:24 pm

ESTrader and K in TXI’m in agreemnt with ES. I think there’s a real chance that we’ll see at least one of the big auto companies in Detroit go bust. Under normal circumstances, this would be a critical item for the US Govt. Think of the problems that would happen with soaring unemployment and troubles with the unions. But can the Fed and the Govt possibly bail out all of the following:1) Merril Lynch (and maybe another big bank)2) Fannie and Freddie3) GM and/or FordI don’t think so. Big fish are going down here.———————————-MarkI’m with you.This thing is looking a lot worse now.The US economy is starting to look like the North Pole …broken pieces of ice floating on the sea.I’m raising the chances that we see a depression in the US now.PeteCA

Chrisropher • June 28th, 2008 at 2:19 pm

Plunge Protection TeamThe PPT supposedly works though trader number 990N. Do a google on "990N" and many articles will come up on how the PPT buys/sells up to 20% of the SP500 on some days. Of course, take all of this with a grain of salt, and use your own mind and intuition to determine what is really going on.Here is one such link:http://www.dailyreckoning.com/Featured/WhoControlsAccount990N.htmlWe definitely live in interesting times.One thought about Dr Roubini’s article. If there is another Bear Stearns problem – perhaps Lehman – how would the Fed even react? Would the Fed lower interest rates to 0% in less than a month? How much money could be printed and injected into the system to calm the credit crisis? And, how quickly could this be done? And, how would this affect inflation – and in turn energy and food prices?OK, so the Fed calms everyone down and rates are at 0% (like they were in Japan) and inflation gets out of control – what happens the next time someone bigger blows up? like BofA, JPMorgan, or ???

4822 • June 28th, 2008 at 2:22 pm

If we don’t start drilling and using our own oil, I am afraid the Chinese and/or Saudis will offer us quick cash for our oil fields.

Mr. Bullocks • June 28th, 2008 at 2:45 pm

Dear Prof. Roubini,I apologize for my behavior. Maybe you were right:American ‘meltdown’ reason for money injection Fortis.28th of June, 9:10BRUSSELS/AMSTERDAM – Fortis expects a complete collapse of the US financial markets within a few days to weeks. That explains, according to Fortis, the series of interventions of last Thursday to retrieve € 8 billion. "We have been saved just in time. The situation in the US is much worse than we thought", says Fortis chairman Maurice Lippens. Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also Citigroup, General Motors, there is starting a complete meltdown in the US"Original article in De Telegraaf:http://www.dft.nl/bedrijven/fortis/4339542/Amerikaanse__rsquo_meltdown_rsquo__reden_geldinjectie_Fortis.htmlPlease use translate.google.com in case you don’t believe me.Kind regards,Mr. Bullocks

Guest • June 28th, 2008 at 3:34 pm

Many here blame the American people for the nation’s economic problems, claiming that they “have lived beyond their means for years” and that “a gentle slide of the dollar” is one way to correct the problem. Our economic problem is not that “Americans have lived beyond their means.” Our problem is that the government and the Federal Reserve have lived beyond the people’s means, impoverishing the people and the public purse via unchecked credit expansion and deficit spending.The Fed’s unprecedented depreciation of the currency is causing untold suffering in the lives of millions of Americans, particularly those of savers and pensioners and commuters whose jobs depend on transportation. The nation is swindling its own people by printing a chronically depreciating paper currency.The government and the people who use the government for their own ends are parasites. The more free enterprise capitalism achieves, the more they take. If they can’t get it with a 40 percent income tax, then they take it with inflation. Their motto is, “What the traffic will bear.” A good example is Mastercard and Visa et al who have been creaming 2 percent off the total dollar amount charged for gasoline. Rather than add a nominal service charge, they initiate a usurious volume charge.Economist Henry Hazlitt pointed out early last century that inflation, itself the cause of so much human misery, is in the main the consequence of government economic intervention.When Alexander the Great visited the philosopher Diogenes and asked whether he could do anything for him, Diogenes is said to have replied: “Yes, stand a little less between me and the sun.” As Hazlitt says, “It is what every citizen is entitled to ask of his government.”The government has nothing to give without first taking it away from somebody else.

AfA • June 28th, 2008 at 4:02 pm

@ Guest "Our economic problem is not that “Americans have lived beyond their means.” Our problem is that the government and the Federal Reserve have lived beyond the people’s means, impoverishing the people and the public purse via unchecked credit expansion and deficit spending." Maybe but that is no excuse. A person who claims to be raped without trying to defend himself and struggle is considered to be consenter and therefore no rape charges can be established. Wasn’t the government supposed to be representing the people who, in their full awareness give their voices to the same administration the fist time, the second time and the nth time. Tell me when was the last time you heard people going into strike for high oil prices, bailouts … Governments in Europe are so afraid of their people when they block all raods … Even in despotic countries, people march against their own government to demonstrate their anger and disagreement with the risk to lose their lives.

Guest • June 28th, 2008 at 4:08 pm

Nouriel Roubini, whose genius always gets beyond perusing the short term to look at the long term effect on all groups, aptly describes the fix we’re in, and the pitfalls of having the government take over the marketplace. I maintain that the shadow economy’s visible access to the Fed is merely the tip of the iceberg. They’ve got 24-hour unlimited access to the Fed. They’ve got their man, Hank Paulson, in the U.S. Treasury. They’ve got thousands of treasury employees all over the world. And it’s all run by Goldman Sachs. Why go through the motions that there’s some kind of economic justice system that decides who gets the money? Not only does Goldman Sachs have access to the treasury, it can knock down the stock market as witnessed this week when it hit GM hard by a downgrade to a "sell" recommendation, and when Citigroup hit a new low on a downgrade from Goldman Sachs analyst William Tanona who told investors to sell Citigroup stock short as losses mount.

Guest • June 28th, 2008 at 4:21 pm

@AfA: “Tell me when was the last time you heard people going into strike for high oil prices, bailouts…”This society was designed as a representative democracy. And the “representative” part is now broken. It does no more good to write a letter to your Congressman than it does to vote for the narrowly selected candidates of the two almost identical political parties. To stand up and shout at the authorities at the moment brings only laughter, a ticket or a night in jail. When the center of gravity of the thinking people begins to put pressure on the system through their independent actions such as — at the extreme — withholding taxes, then the pressure is likely to work. In the meantime, you are right, we’ve got a big problem.

kilgores • June 28th, 2008 at 4:25 pm

@ Chrisropher 14:19:03Interesting comment on ’990N." May be an urban legend, but you never know, do you?>OK, so the Fed calms everyone down and rates are at 0% (like they were in Japan) and inflation gets out of control – what happens the next time someone bigger blows up? like BofA, JPMorgan, or ???Unfortunately, I think we wind up like Japan in the 1990s. Can’t go any lower. All the Fed could do then would be to take some of the actions Dr. Bernanke set out in his 2004 paper about things central banks could do at the zero bound.Someone suggested to me recently that they thought the Fed might just jack up interest rates to bolster the dollar and attract foreign money into U.S. debt instruments. This might make imports somewhat cheaper again, if it worked, but I can’t really see this as a serious option. Seems to me it would drive the U.S. economy right into the ground, just like the double-dip in the Great Depression when the Fed raised interest rates in the mid-1930s out of misplaced concerns about inflation.SWK

kilgores • June 28th, 2008 at 4:39 pm

For anyone who may be interested, here you can read President Reagan’s Executive Order establishing the "PPT":http://www.archives.gov/federal-register/codification/executive-order/12631.htmlSWK

AfA • June 28th, 2008 at 5:12 pm

@ ChrisropherThanks for the link, it sound quite plausible (no sarcasm) and might explain the abnormally low VIX."OK, so the Fed calms everyone down and rates are at 0% (like they were in Japan) and inflation gets out of control – what happens the next time someone bigger blows up? like BofA, JPMorgan, or ???"If and when that happens (0% rates) I believe that BofA and JPM will be the least of our concerns. Imagine how much commodity prices will shoot up, equities tanking, unemployement, and panic all over the place, out of the USD and US markets.

Guest • June 28th, 2008 at 6:09 pm

"This society was designed as a representative democracy."@ Guest on 2008-06-28 16:21:53Americans have a huge conceptual problem with their very being and existence or, most appear never to have had the plot.The USA was designed as a Republic and those founding fathers knew that the system would eventually break down by the hands of those ‘representatives’ and all that hangs off them. The only thing "democratic" about America were its election process and that didn’t last very long either.The USA was designed as a country to be founded in Law as the founders knew that "democratic" systems of government are unstable and fail.It would also appear that the "Law" side of this Republic is / has crumbled as well.Is it not obvious that there is no free-market system any more? As someone said here long ago, all the horses in the race are doped to the gills and the trick is, to bet on that horse that is doped to win.Ho humPeterJB

Medic • June 28th, 2008 at 6:22 pm

Peter JB:The biggest problem we have, and the reason we don’t have riots in the streets today, is that the vast majority of our population has little understanding not only of their own history, but of other nations and the world as a whole. We are fat, lazy, uneducated and lulled into existence by our TV’s. Ask any 10 Americans on the street about any facet of our government and you will get a very limited and likely incorrect answer. But ask them who won on American Idol last year and you will get 9/10 to answer correctly and excitedly. Sheep indeed. Stupid sheep. Disinterested sheep – being led to the slaughter by the MSM who tell them "all is well" and "there is nothing to see here". I hope this gets better, but I am concerned that my daughter’s generation will have to be the ones who make it so. For now, I am in hopes my planning will allow me to ride out the storm and protect my family from the worst of it.

Guest • June 28th, 2008 at 6:46 pm

Talking of the future and as life goes on:From our position somewhere in a stance of as certain as it gets, we must prepare for the future; now.So I propose that after the ritual hanging and lopping of heads (Madam Guillotine) that can with great certitude be entrusted to the masses led by those bureaucrats that feel their time of destiny has come (and are wetting their pants with glee and anticipation, as we speak);we should cast our minds to preparation, planning and above all, on learning from the mistakes and errors of recently past events. A total review is in order.As the totem of this urgent and vital function we must at first mount the flag of optimism; co-joined with some form of dignity, accord, courage and of course, as much integrity as can be mustered.We know we must eat and drink (water) and, er breathe (preferably oxygen) so; so much for that. What next you ask?Alas, we need "leadership" – above all else; this be critical (You Americans could start with Ron Paul). This be the hard part as there will be many feral wishing to ply their crafts of stealth, deception, theft and sophistry and these must be allowed to fall through the cracks to roast on the red embers of hell’s fires before being let loose into the next millennium’s society, a priori.The technological parts are easy; we just re-tool the socio-economic World – in technology where the worms and sewer rats will find it most difficult to gnash the very fabric of those WMD; human emotions.So, onward with optimism and technology; circle the wagons and shoot the first pair (and all) of the feral eyes that light up in our campfires.Obviously, such and undertaking would not only be beneficial and far better than watching TV (God forbid) but it is now mandatory that the re-building processes begin with great urgency, while the hanging tree fodder (current leadership and near future collateral damage) ensure that the past is totally destroyed; in their favour and terms, naturally.PeterJB

Guest • June 28th, 2008 at 7:13 pm

PeterJB: "From our position somewhere in a stance of as certain as it gets, we must prepare for the future; now."I have no idea where the political future will take us in America. Maybe bread lines. Maybe AK-47′s in the street. Who knows. I doubt that our next president (whoever he is) will be even remotely ready to handle the looming disaster that is coming at us. At this stage it’s not even clear that the current Republicans can string this facade together long enough to get past the election in November.Up till now I have tried to stay pretty balanced – and not be overly influenced by extreme economic thinking. But at this stage I think it’s high time I started collecting extra food for my family – in our pantry. And some other things that will keep us safe in the city. There is a real possibility for a substantial rise in unemployment in the USA, along with a rise in misery and crime rates. It’s a pretty fair bet that the states of Florida, Michigan and California are headed for a depression. I couldn’t say about the others yet. It’s also a pretty fair bet that Wall St is going to be a lousy place to hold a job in 2009. Very likely the rate of anxiety, depressions and suicide are going to go up a lot. People in the financial and banking business would be smart to get out now – if they still can.PeteCA

Guest • June 28th, 2008 at 8:17 pm

"But at this stage I think it’s high time I started collecting extra food for my family – in our pantry."@ PeteCA on 2008-06-28 19:13:00Hoarding food is just not sustainable unless you have well armed and stocked bunkers like your DC "elite". It is not the answer. In some parts of the World people are turning their neighborhood footpaths (sidewalks) and other unoccupied areas into vegetable gardens. besides hoarding also makes you a target.No, the answer is elsewhere and the free-market economy – which does exist – will generate the answer. I believe that that answer is hardwired in as IRM (Innate Response Mechanisms (J Campbell) and as seeds of revolution and mass demographic movements. Your mileage will vary but prepare yourself for a really wild ride across the Universe into an environment totally different from that you have become used to all your life; until today. I believe that the other side will be delightful but the fires of hell must be first traversed accordingly.America needs "leadership"; badly and in all sectors, and none are visible apart from Ron Paul who, although I am drawn to his values and fine character, may be just not strong enough to defeat the beasts of the night.Cheer up in the meantime, as this is much better than TV; treat this whole episode as an adventure as we humans are firstly, pioneers and are just no damned good at civilization..PeterJB

AfA • June 28th, 2008 at 9:13 pm

@ PeterJBBut leadership is created and protected. It is not innate and should not be venerated. Created and protected refers to preparing an administrative environemnt and system that protect leadership from itself (conflict of interest, banning of all kinds of lobbying), motivated (get paid in options and stocks, that is dollar and forbidden from converting/investing in other currencies so to speak) and held accountable (long term responsibility beyond the end of one’s term).Unless of course we decide to wait for the Messiah.

Guest • June 28th, 2008 at 9:36 pm

"Unless of course we decide to wait for the Messiah."@ AfA on 2008-06-28 21:13:41You can wait if you like but if you have ever done any religious studies of serious magnitude you will find that it was said in the most ancient times of written history, that after the creation bit the rest has been left to us. In other words, we are on our own. Get over it. Motion and rest.As for innate, I agree; where I was merely suggesting that both revolution and hanging are innate; not "leadership".And, Yes; "leadership" should be protected for it is not a job for the profane and cowardly eager volunteers, but for the dedicated artisans of humility and those of qualitative intellectual experience. (Not your usual presidential lackey scum).PeterJB

AfA • June 28th, 2008 at 10:42 pm

The messiah waiting thing was sarcasm about the state if inertia in our society not a conviction from my part.I basically agree with you except maybe that I do not trust a man (or woman) left alone in their decision making no matter how "dedicated artisans of humility" they are and "qualitative intellectual experience" they have.It is just that power corrupts, if not despotism, then elitism.

WAWAWA • June 28th, 2008 at 11:15 pm

Hi Fellows: How about this !!?Ben Bernanke, the chairman of the United States Federal Reserve Bank, faces a general investigation by the International Monetary Fund. Just one more example of the Fed losing its power.http://www.spiegel.de/international/world/0,1518,562291,00.html

WAWAWA • June 28th, 2008 at 11:27 pm

From the above link.Another problem for Mr. Dollar is that it will be several months before his actions take effect. Officials with the International Monetary Fund (IMF) have informed Bernanke about a plan that would have been unheard-of in the past: a general examination of the US financial system. The IMF’s board of directors has ruled that a so-called Financial Sector Assessment Program (FSAP) is to be carried out in the United States. It is nothing less than an X-ray of the entire US financial system.As part of the assessment, the Fed, the Securities and Exchange Commission (SEC), the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team. They will be required to answer the questions they are asked during interviews. Their databases will be subjected to so-called stress tests — worst-case scenarios designed to simulate the broader effects of failures of other major financial institutions or a continuing decline of the dollar.Under its bylaws, the IMF is charged with the supervision of the international monetary system. Roughly two-thirds of IMF members — but never the United States — have already endured this painful procedure.For seven years, US President George W. Bush refused to allow the IMF to conduct its assessment. Even now, he has only given the IMF board his consent under one important condition. The review can begin in Bush’s last year in office, but it may not be completed until he has left the White House. This is bad news for the Fed chairman.

GM • June 29th, 2008 at 1:29 am

I have recently noticed that Astoria Federal Savings has its corporate headquaters (at least 50,000 sqft) in Lake Success, NY for sale and they are selling other property to come up with capital. I wonder if this is just one example of what is to come in this country.

Guest • June 29th, 2008 at 1:39 am

"It is just that power corrupts, if not despotism, then elitism."@ AfA on 2008-06-28 22:42:07Yes I had assumed that you had indulged in more sarcasm but I thought I would respond with a straight face anyway. All the actions of men can be explained in the terms of physics; science if you like.I agree with you – no man or woman can resist the temptations and thus the corruption of power: this lesson we should have learnt, by now.And this is why I propose technology built around our weaknesses and strength, as our socio-economic backbone. We know that no man can be trusted, a priori; we know that no man can resist power and we know that growth comes from the spirit of man which must be unleashed in a qualitative manner.So we know the fundamentals and we have the tools so why don’t we do it?: because those in power wish to remain in power and the rest are watching American Idol.As regards IMF and FedRes incl. Ben Benanke, see:http://www.theinternationalforecaster.com/International_Forecaster_Weekly/The_Fed_and_its_Mad_MoneyHowever, the blame game is childish and gets us nowhere and allows the guilty to remain hidden; its the "elite" culture that needs to change.Every major institution in our World, needs to be systematically dismantled. Elitism can never hold the centre because of our IRM to hang those who we believe brings misery to our comfort. Actually, we bring the misery to ourselves and it is we that should hang.Ho humPeterJB

MASHIACH BEN CHANA • June 29th, 2008 at 2:40 am

Top US commander briefed on IDF’s four-front strategy in potential Iran war contextJune 29, 2008, 9:08 AM (GMT+02:00)Top US commander Adm. Michael Mullen sees for himselfThe visiting Chairman of the US Chiefs of Staff, Adm. Michael Mullen, carried out a guided tour of Israel’s borders with Syria, Lebanon and the Gaza Strip over the weekend. It was led by the IDF chief of staff Lt. Gen. Gabi Ashkenazi and OCs Northern and Southern Commands, Maj. Gens. Eisenkott and Galant.He was briefed on IDF tactics in a war on all these potential flashpoints in the context of a comprehensive conflict with Iran and then held long conversations with defense minister Ehud Barak and Ashkenazi.DEBKAfile’s military sources report that it is very unusual for the top American commander to carry out a close, on-the-spot study of Israel’s potential war fronts. It was prompted on the one hand by skepticism in parts of the US high command of Israel’s ability to simultaneously strike Iran’s nuclear installations and fight off attacks from three borders while, at the same time, Adm. Mullen showed he was open to persuasion that the IDF’s prospective tactics and war plans were workable.Military circles in Washington, commenting on the large-scale air maneuver Israel carried out with Greece earlier in June, have opined that 100 warplanes are not enough for the Israel Air Force to destroy all of Iran’s secret nuclear sites; more than 1,000 would be needed. Israel military tacticians in contact with US commanders have countered that, while Iran’s secret nuclear locations are scattered and buried deep, still, every chain has weak links and is therefore vulnerable.The tough threats issued by Iranian Revolutionary Guards commander Mohamed Ali Jafari on Saturday, June 28, were prompted by the Adm. Mullen’s Israeli border tour, word of which was flashed to Tehran by Syrian-Iranian observation posts inside Syrian and Lebanese borders.(The Sunday Times added that Iran moved its ballistic Shihab-3 missiles into launch positions, with Israel’s Dimona nuclear plant among its possible targets.)Saturday, DEBKAfile reported:The IRGC chief, Mohammad Ali Jafari issued Tehran’s toughest and most explicit threats yet in response to recent reports of Israeli preparations to strike Iran’s nuclear installations.Hinting at an American attack, he said: “If there is a confrontation between us and the enemy from outside the region , definitely the scope will reach the oil issue.”After this action (of imposing controls on the Gulf waterway), the oil price will rise very considerably,” he said.Speaking to the Iranian newspaper Jam-e Jam, Jafari differentiated between Iran’s responses to possible American and Israeli attacks.The oil weapon would be applied in reprisal for the former – “and this is among the factors deterring enemies”, he said, while “Israelis know if they take military action against Iran… the abilities of the Islamic and Shiite world, especially in the region, will deliver fatal blows.”Jafari noted that Israel was in range of Iranian missiles.He said Iran’s “allies in the region” could also retaliate, referring to those living in “Lebanon’s heartland of South Lebanon,” without naming Hizballah.US forces were “more vulnerable than the Israelis” because of their troops in the region. “Iran can in different ways harm American interests, even far away,”Jafar warned Iran’s neighbors not to let their territory be used.“If the attack takes place from the soil of another country … the country attacked has the right to respond to the enemy’s military action from where the operation started," he said.

WAWAWA • June 29th, 2008 at 3:28 am

LEAP/E2020 Summer 2008 Alert – July-December 2008: The world plunges into the heart of the global systemic crisishttp://www.europe2020.org/spip.php?article553〈=en

Guest • June 29th, 2008 at 6:54 am

hey does anyone know if the daily digest is on the fritz or is being phased out? that was my favorite part of RGE monitor!the world is coming to an end; watch wall-e

kilgores • June 29th, 2008 at 6:56 am

@ WAWAWA 03:28:38Merci pour l’affichage. Il s’agit là d’un excellent site Web et de l’article.SWK

K in TX • June 29th, 2008 at 8:46 am

@ Medic on 2008-06-27 20:38:13Okay, so I just had to check it out. Not too bad right now because we drive a compact and a sub-compact, and we moved closer to my spouse’s job. Still getting dinged though and expect it to get worse. We are renting a place where he could take a bus and then a train if need be. Wonder what the "petrol premium" would be if you could break out the transportation portion of goods.Thanks for the GM comments. Not unexpected, though GM has been working to shed its legacy costs with employee buyouts and benefit cuts. Sounds like general sentiment is "too little, too late" all around.@ Peter JB, et alWhere do you think the elites will be sailing to in their lifeboats? Spouse and I have been looking at leaving the U.S. for a couple of years. We visited Vancouver and like Canada in general, but with their U.S. ties and the SPP…hmmm. Ireland was hot for awhile as there is supposed to be a lot of IT there and love their emphasis on education for all. We have read about Bush and his purchase of a big spread in SA…wonder if he knows something, or just wants a hole to hide in. Octavio, anything to share re:Argentina? Some footage I saw of a small town in Patagonia looked like the Texas Hill Country meets Alaska, very beautiful.

Markar • June 29th, 2008 at 9:11 am

Where do you think the elites will be sailing to in their lifeboats?Dubai. Who do yo think think they are building those hundred million dollar islands in the shape of globe, replete with water desalination for?

Daltoni • June 29th, 2008 at 10:01 am

> Dubai.Good riddance.

Octavio Richetta • June 29th, 2008 at 10:06 am

Written by kilgores on 2008-06-29 06:56:48This is the translation:http://translate.google.com/translate?u=http%3A%2F%2Fwww.europe2020.org%2Fspip.php%3Farticle552%26lang%3Dfr&sl=fr&tl=en&hl=en&ie=UTF-8JPM trading below the March lows:http://finance.yahoo.com/echarts?s=JPM#chart1:symbol=jpm;range=6m;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedAnother FED bailout coming?

Octavio Richetta • June 29th, 2008 at 10:14 am

Written by K in TX on 2008-06-29 08:46:02This will sound really silly but I don’t know much of Argentina. I started visiting Argentina for work (cities of BA and Cordoba) in the early 90s but it was all work. I retired to live in Argentina in May 2006 but have been busy settling down. Hopefully, the touring will start when we return in the fall. The south is great. I live in cattle country just because my wife wants to be close to her family. Otherwise I would have picked a place such as San Martin de los Andes where I wouldn’t mind to spend even winters:http://www.sanmartindelosandes.gov.ar/turismo

Octavio Richetta • June 29th, 2008 at 10:22 am

Take a walk around CR:http://calculatedrisk.blogspot.com/US economy train wreck in steady course.

Octavio Richetta • June 29th, 2008 at 10:48 am

http://biz.yahoo.com/ap/080628/buffett_lunch.htmlNo comment.

Guest • June 29th, 2008 at 11:37 am

"It’s very scary to see that families are put in a situation where they can’t even pay on a zero interest mortgage," Goins said.http://www.winknews.com/news/local/21814514.html

Capone • June 29th, 2008 at 1:08 pm

The PPT acting outside of its original charter has “painted the tape” or artificially manipulated and extended the bull market to a level so far above its true value, that perhaps through financial poetic justice, they may fall on their own sword. The widespread knowledge of the existence of this entity and their repeated interventions have also created a psychological belief across the entire spectrum of the marketplace that they will be there no matter what happens. The Federal Reserve, in strikingly similar fashion, also acted OUTSIDE of its primary purpose and destroyed the currency along with their own credibility. The Fed, like the PPT has acted in the interest of painting the equity tape strategically cutting rates at precise technical moments of danger in the equity markets while ignoring their true responsibility of a strong currency. Amazingly, they cut rates as the dollar printed all time lows – this will go down in the history books as INCREDIBLE ! The Fed along with the PPT have clearly created the belief there is a safety net in place for equities at some “sensible” level.99.8% of anyone I ask about a crash say it is not possible (contrarian says CRASH). They will not allow it. This includes people who believe the system is in danger of completely imploding. There are theories out there that point to there being a belief "they" would not allow a crash in equities prior to 29 and / or 87. Check. Shiller also pointed out the psychology at play once the plunge began. Many people as now saw the similarities between 87 and 29 and ended up merely acting out what they already knew (need quotes around Shiller comment too lazy to look up now) Check. Do tell me – how is now any different than then ? The belief there can be no crash was tested last week and just may be pressed again this week.@OR, How is Peru as country to live for an American expatriate and otherwise ?

Capone • June 29th, 2008 at 1:23 pm

the DOW knife has fallen and stopped on a Friday extremely close to the same percentage amount from the highs as the DOW knife fell on the Friday prior to Black Monday, any buyers here ? Equities heeerrreee, Equities heeerrreee get your falling knife equities heeerrreee. I hope the Barron’s Pakistan front editorial comments were a joke. If they eliminate short selling for a month in the US, we all may as well be playing cards at the casino. At least the rules do not change during the game… And what happens to the short ETFs for that period of time anyways ? The same editorial made a slight reference to oil intervention. The Fed has introduced the alphabet soup in new credit facilities, cut rates, PPT interventions, etc. Why no intervention in the oil markets ? ? ? Hello ? ? ?

Mark • June 29th, 2008 at 1:44 pm

About the motives of the Fed and or PPT, I just don’t see that it should be a mystery about what they are and have been doing. The entire system ONLY functions on growth. Growth is what keeps these elitists on top.It’s claimed that everything that’s going wrong is due to psychological reasons. It’s because the consumer isn’t happy, or some other such distraction away from the real reason.As I’ve been saying for a long time now the markets can no longer hold back on the realization that growth is ultimately the cancer that will kill them. Cheap oil was the mask that kept us/them from seeing this reality. Well friends, the curtain of cheap oil is coming down.None of us can change these facts. However, we do need to keep TPTB from torching the earth with nukes. Anything else and we have the ability for do-overs, but not with nukes…As stated earlier in this thread, stockpiling food isn’t going to work for the long haul; this is because there isn’t going to be any cyclical correction back Up: but having _some_ food on hand _is_ a smart thing to do for buffering shortages. Better is to support your local food growers; they’re the only ones that you can’t live without.Mark

FRIEND OF WASHINGTON MUTUAL • June 29th, 2008 at 1:55 pm

Here’s a beaten-down mortgage broker in Las Vegas that’ll walk you through the Countrywide-led Late Great Mortgage Ponzi SchemeThe fact that Chris Dodd rushed legislation to bail out Countrywide and BofA, before holding hearings on how Countrywide and the REIC got the US into this mess in the first place, is not only corrupt it’s immoral.Watch this video and you’ll get a better sense of the systemic mortgage fraud that infected the US these past few years, starting with greedy unethical mortgage brokers willing to do anything for a commission, and ending on Angelo Mozilo’s doorstep.I’d love to see guys like this testifying in front of Congress, under oath, about what they knew, when they knew it and who was in on the Big Scam.I’d love to see current and former Countrywide employees grilled.And eventually, you just know all of it will lead to The Kingpin himself, The Godfather, Mr. Angelo Mozilo.http://housingpanic.blogspot.com/2008/06/heres-mortgage-broker-in-las-vegas-who.html

Guest • June 29th, 2008 at 2:02 pm

"The PPT acting outside of its original charter has “painted the tape” or artificially manipulated and extended the bull market to a level so far above its true value"Exactly. Although people are discouraged that the free market appears to have vanished (it’s "doped" if you will), I don’t believe it’s gone. Instead, it’s the PPT that is making a major mistake here. The free market is an enormously powerful creature. They may think they can control it or subdue it, but it will rise from a deep subterranean level and shake out the whole system. Putting this in practical terms: The P/E values of US stocks are too high. They don’t reflect the fact that we are losing our competitiveness. This all has to shae out in the long term. What is the free market after all. Just profit and loss. That’s all. But those are the most powerful forces in the economy. They can’t be quelled or subdued forever."but having _some_ food on hand _is_ a smart thing to do for buffering shortages. Better is to support your local food growers; they’re the only ones that you can’t live without."Right you are. Having more food stored in pantries allows Americans to ride out temporary shortgages. It won’t cure the problem of long-term inflation of food costs (these may eventually correct downwards again … but who knows?). For people living in major US cities, though, there is a deepending problem. We are highly dependent upon the US transportation industry for everything we use and eat. And that transportation system is toed to oil prices. So it looks to me like the preferred place to live in America in the next decade is probably not in a lot of the large cities.In my particular case, I live in Los Angeles. Besides issues related to the economy, we also have the on-going threat of a major earthquake. It’s always a togh issue to deal with because it’s very improbable (will I still live here in 5 years?), but a really big disaster if it actually occurs. Lately the US Geological Survey has put out a another series of warnings about a rising chance of a major quake, both in San Francisco and So. California. Yet I can tell you practically that many, many people living here have very few earthquake supplies put away. They’re just busy coping with the pressures of life, and it’s hard to stay organized with earthquake preparedness. In addition, the population has exploded (large communities all the way from Los Angeles to San Diego now). So the end result is that a major natural disaster will completely overwhelm everybody’s resources. California won’t be able to handle it. Even the Feds will be way behind the ballgame on this one – the scope is just too vast. Therefore, the reason for putting food in pantries is to safeguard your family – by making it unnecessary to go out into the streets where there is looting and unrest. I suspect that New Orleans (during Katrina) could be a picnic compared to Los Angeles after a major quake.PeteCA

AfA • June 29th, 2008 at 2:58 pm

I just don’t know how to take the increasing and ever-gloomy alerts from major banks around the world. Societe Generale just joined a long list of banks warning of the coming "financial disaster" and said major US indexes will fall by 70%.I do not know if it is just a competition between economic strategists about who will issue the gloomiest analysis. Or, knowing how banks are usually behind the curve, and from a contrarian standpoint, that maybe a bullish signal at least in the short run.But I don’t think so. I would guess that, as we approach the sunset time, the Signs in the sky are becoming clearer that more ‘economists’ are able to spot them.

Octavio Richetta • June 29th, 2008 at 3:10 pm

@OR, How is Peru as country to live for an American expatriate and otherwise ?Written by Capone on 2008-06-29 13:08:53I only have second hand knowledge about Peru. My understanding is that Argentina is a lot safer. But look at it this way, Venezuela is more or less an Iraq without the bombs and here I am! The key is that you need to know your way around. If you have a Peruvian friend living there it would make a big difference.

Octavio Richetta • June 29th, 2008 at 3:39 pm

Does this mean there will be no recession I should cover my shorts?:-)http://www.thestreet.com/story/10423680/1/cramer-the-way-ahead-is-down-and-other-observations.htmlhese columns from Jim Cramer originally appeared on RealMoney on Friday, June 27. They are being republished here as a bonus for readers of TheStreet.com.The Way Ahead Is DownSell everything. Nothing’s working. Revisit when the prices are adjusted for a big recession, soaring inflation and a crushed consumer. Sell at 12,000 and come back at 10,000. Even better: Short it. …

kilgores • June 29th, 2008 at 3:39 pm

@ AfA 14:58:55>Societe Generale just joined a long list of banks warning of the coming "financial disaster" and said major US indexes will fall by 70%.Do you have a URL reference you could post? I’d be interested in reading what SG has to say…SWK

AfA • June 29th, 2008 at 4:06 pm

@ SWKRe: SocGen warning:"Few are gloomier about that prospect than Albert Edwards, strategist at Société Générale in London. “America is leading the way, diving into deep recession as a collapse in consumer confidence induces the great unwind,” he said. Edwards compares the economy with a pyramid scheme that is poised to crash to earth and interest-rate changes can do nothing to avert it. He thinks Wall Street and the other main markets have a lot further to drop, and will end up 70% below the peaks of last year. That would imply a level of just 500 for the S&P 500, which was at 1,280 on Friday, and 4,500 for the Dow, compared with Friday’s closing level of 11,346. The FTSE 100, which closed at 5,530 on Friday, will plunge to 3,000, he predicts. The good news is that he expects the oil price, which was above $142 on Friday, to slump to $60 a barrel. The bad news is that he sees this occurring as a result of “deep” recession in the advanced economies and a sharp slowdown in emerging markets."http://business.timesonline.co.uk/tol/business/economics/article4232875.ece

Guest • June 29th, 2008 at 4:43 pm

Anyone remember the 1960s Incredible String Band song with the lines.."Way back before, before wild World War ThreeWhen we moved to Paraguay-ee…"The Bushes bougtt a big spread there thinking they could hide out in typical Texas bad guy fashion as Paraguay has had no extradtion treaty with the U.S. (or anywhere) under the dictatorship. However President-elect Frenando Lugo is expected to return Paraguay to the community of nations. We shall see what we shall see.

Guest • June 29th, 2008 at 4:43 pm

"I don’t believe it’s gone. Instead, it’s the PPT that is making a major mistake here. The free market is an enormously powerful creature. They may think they can control it or subdue it, but it will rise from a deep subterranean level and shake out the whole system."@PeterCAYou are absolutely correct, of course. The free-market economy is alive and well and is reacting to decades of abuse and manipulation by the high priests of ignorance. And, it will win! Your mileage may vary.Ho humPeterJB

Jason B • June 29th, 2008 at 4:50 pm

I beg of you all – remember that the smart money is always too early. Wait until after the Olympics and the November Elections in the US.

J. • June 29th, 2008 at 5:13 pm

@Anonymous on 2008-06-27 12:08:13It was during the mid 1980s that OPEC lost the ability to adminster prices — price formation shifted into financial markets. This seemed to work so long as futures referenced to actual trade in benchmark physicals but, as production and shipments of these latter declined, as their actual trade became thinner, there were also increased instances of manipulation to the point that, in 2000, Saudi Aramco and some other large exporters began pricing in reference to such measures as the Brent Weighted Average (BWAVE) as determined on what used to be the (London) Intl. Petroleum Exchange which, in 2001, was acquired by the Intercontinental Exchange (ICE).Conveniently, it was at approximately the same time that certain large Investment Banks began to promote commodities as an asset class while, on the other hand, falling equity prices made this more attractive to non-traditionals such as pension funds.No conspiracy but, in conjuction with negative real interest rates and weakening dollar, a simple confluence of events which have assisted in pushing commodity prices higher than strict fundamentals have justified (though there has been no shortage of stories meant to justify).If interested in a short history of the different oil price regimes, read Section 2. THE EVOLUTION OF THE OIL PRICING SYSTEM: A BRIEF HISTORICAL ACCOUNT in the attached:http://www.google.com/u/oxfordenergy?q=cache:uPy8mJ-FgZ0J:www.oxfordenergy.org/pdfs/WPM31.pdf+WPM+31&hl=en&ct=clnk&cd=1&gl=us&ie=UTF-8

tutterfrut • June 29th, 2008 at 5:27 pm

‘Interest Rates Have Been Too Low for Too Long’Jürgen Stark, 60, the chief economist of the European Central Bank (ECB), speaks with SPIEGEL about the growing threat of inflation, planned interest-rate increases and the consequences of the financial crisis.http://www.spiegel.de/international/business/0,1518,562281,00.htmlquote:SPIEGEL: You are thought to number among the hawks who want to raise interest rates as soon as possible. Is that a correct impression?Stark: Some even distinguish between hawks and super-hawks. I don’t get involved in that sort of discussion. We’re not ornithologists.

tutterfrut • June 29th, 2008 at 5:37 pm

On the other hand you have today’s article in the same SPIEGEL where the German finance minister, Steinbrück warns the ECB not to raise rates, because it would slow growth even more…http://www.spiegel.de/wirtschaft/0,1518,562818,00.html

Octavio Richetta • June 29th, 2008 at 5:37 pm

Nowhere to go:http://www.nytimes.com/2008/06/30/business/30markets.html?_r=1&ref=business&oref=sloginFalling Prices Grip Major Stock Markets Around the World By CARTER DOUGHERTYPublished: June 30, 2008FRANKFURT — As the United States markets edge toward bear territory, losing nearly 20 percent of their value from last fall’s peak, investors might wonder where they can turn for relief.The gloomy answer: nowhere.Many of the major markets in Europe and around the world have already entered a bear market. Germany and France are among the markets suffering the most, and once high-flying emerging markets in countries like China and India have collapsed even more drastically. Higher inflation, exploding energy costs, troubled credit markets and worries about an inflationary psychology, it turns out, are global concerns. And fixing these problems — and bringing optimism back to stock markets worldwide — is proving to be difficult for central bankers, who are trying to contain inflation without risking even slower growth.“The recent downturn in equities is essentially about investors worrying that central banks are going to be tougher than anyone had expected,” said Erik F. Nielsen, chief Europe economist at Goldman Sachs. The market numbers are uniformly grim.In Europe’s largest economy, Germany, the benchmark DAX index is off slightly more than 20 percent this year, and the CAC-40 in France is down almost 22 percent. The Euro Stoxx 50, a gauge for the 15-nation euro zone, has declined by about 24 percent. The nearly 15 percent decline in the FTSE 100 in Britain looks tame by comparison.Emerging market indexes have fared even worse. The Hang Seng in Hong Kong has plunged nearly 21 percent, the Shanghai Composite has lost nearly half its value this year. The Bombay 500 in India lost about 38 percent.The declines at major stock markets worldwide suggest that the same economic concerns are in play: rising inflation, which has been caused for the most part by record oil prices. Oil hit a new high of $140.21 a barrel on Friday.And central banks around the world, including the United States, are indeed moving to head off resurgent inflation by raising interest rates. While such a move can contain inflation, it can also squelch growth. Indeed, the likelihood of higher interest rates has already been fueling the market sell-offs as investors around the world try to digest all manner of bad economic news. In Australia, inflation is running near its highest level in 16 years, and in March the central bank raised the benchmark lending rate to a 12-year high. The People’s Bank, China’s central bank, tightened credit again this month by raising banks’ reserve requirements for a second time. China is struggling to control inflation without hurting its fast-growing economy; the same story is playing out in Indonesia and India. On Sunday, the world’s top central bankers began a two-day meeting in Basel, Switzerland, where they were considering approaches to calm nerves about inflation while avoiding a shock to economic growth. The United States is near or in recession, while growth is fading in Europe.On Thursday, the European Central Bank may take matters into its own hands. In all likelihood it will raise its benchmark interest rate by a quarter percentage point, to 4.25 percent, hoping to curb inflation of both food and energy prices. Prices in the 15-nation euro area rose by 3.7 percent in the year through May, nearly double the bank’s informal goal of just below 2 percent.The Federal Reserve appears poised to follow suit. Last week the central bank voted to hold the short-term federal funds rate steady at 2 percent, ending a series of rate cuts. But it also hinted strongly that worries about inflation might compel it to raise the rate later this year. The rate affects what consumers pay for mortgages, car loans and other credit. “Europe tends to paint this in black and white,” said Ethan S. Harris, chief United States economist at Lehman Brothers in New York. “In the U.S., the balancing act is going on.”The absence of a unified global strategy for calming inflation has not been lost on investors who are searching for an anchor of stability, and coming up short.“When you have central banks around the world doing different things — following a different road map — that can be problematic,” said Quincy Krosby, chief investment strategist at The Hartford, a financial services firm.Then there is the politics.The European Central Bank’s decision to get out in front is being debated in Europe, where growth is cooling under the pressure of oil prices, the strong euro, and fading demand in the United States. The bank’s primary mandate is to keep inflation low, but that does not stop European politicians from worrying about growth.Oil prices, while an enormous factor in the decision-making that will go on this week in Europe, are only part of the calculation. A more generalized inflation, feeding through to consumer prices and influencing demands for higher paychecks, also deprives businesses of the confidence that they had until recently about how to make decisions on building factories, hiring employees or developing products.“The longer inflation remains high, the more damaging it will be for longer-term economic growth prospects,” Morgan Stanley wrote in a report about inflation creeping upwards worldwide. “High inflation rates usually go hand-in-hand with a higher variability of inflation, which raises uncertainty and can thus reduce investment spending.”Stock market volatility caused by inflation worries has also complicated the pressing task of recapitalizing banking systems, above all in the United States but also in Europe.As equity markets crumble, much-needed recapitalizations “become more and more difficult” because investor appetite for new sales of shares declines, Mario Draghi, the Italian central bank chief, who heads global efforts to reform financial regulation, said last week. Efforts to overcome the credit squeeze, in other words, have become hostage to the economic slowdown that the squeeze helped create.Charles Duhigg and Michael Grynbaum contributed reporting from New York.

kilgores • June 29th, 2008 at 5:43 pm

@ AfA 16:06:34Thanks!SWK

Octavio Richetta • June 29th, 2008 at 5:53 pm

I don’t mean to take credit away from the Professor but it looks like inflation, something most economists have set aside for a long time as a possibility, may turn out to be the more deciding factor in bringing a U shaped recession instead of subprime/the credit crunch. It is true that high inflation may be mainly a result of the commodity bubble which was probably ignited by the FED’s bail out low rates. But still, IMO, my observation has some validity: The U-shaped recession may be coming but people who predicted it (i.e., the Professor, Gary Shilling, etc.) missed the role of inflation as a key catalyst.A not so perfect/fair? analogy would be an MD predicting a patient would die from hearth disease and then the patient ends up dying of cancer. Yes, the patient ends up dying but the MD "looks good" only against the colleague who said the patient was in perfect health.One more example of how difficult a game economic forecasting is.

Octavio Richetta • June 29th, 2008 at 5:58 pm

The observation above was prompted by the NYT I posted above. You need to read that article in order to fully understand where I am coming from.

Octavio Richetta • June 29th, 2008 at 6:11 pm

I was pretty loud about the stupidity of this rule a few months back:http://www.aleablog.com/new-bond-math-2-2-4/New Bond Math: -2 + -2 = 4Bloomberg blames Wall Street for using FASB 159 [mandatory] rule ! Blame the beancounters instead.Leave it to Wall Street to profit from its own distress.Merrill Lynch & Co., Citigroup Inc. and four other U.S. financial companies have used an accounting rule adopted last year to book almost $12 billion of revenue after a decline in prices of their own bonds. The rule, intended to expand the “mark-to- market” accounting that banks use to record profits or losses on trading assets, allows them to report gains when market prices for their liabilities fall.The new math, while legal, defies common sense. Merrill, the third-biggest U.S. securities firm, added $4 billion of revenue during the past three quarters as the market value of its debt fell. That was the result of higher yields demanded by investors spooked by the New York-based company’s $37 billion of writedowns from assets hurt by the collapse of the subprime mortgage market.“They can post substantial gains as a result of a decline in their own creditworthiness,” said James Cataldo, a former director of treasury risk management for the Federal Home Loan Bank of Boston and now an assistant professor of accounting at Suffolk University in Boston. “It’s completely legitimate, but it doesn’t make sense by any way we currently have of thinking of net income.”

Medic • June 29th, 2008 at 6:32 pm

Thoughts on Asia’s next several hours? I’m thinking DOWN…….Oh, and watch gold. I think the $1000 barrier goes down this week, next week tops.

J. • June 29th, 2008 at 6:52 pm

@Guest on 2008-06-28 15:34:29; "The government and the people who use the government for their own ends are parasites. The more free enterprise capitalism achieves, the more they take."Could have been a rallying cry by the early and revolutionary class of capitalists as they struggled to end the reactionary weight of political/bureaucratic regimes built up during the Middle Ages. Having taken state power, this same class found it increasingly necessary to use that power for its own ends, which have had much less to do with the ideology of "free enterprise capitalism" than the drive to maximize profits. Over and over for no short period, we’ve seen that, when faced with crisis, ‘free enterprise’ runs begging to be saved, and a ‘salvation’ most often accomplished via socialization of costs.Different angle, the sole source of new value creation is labor but not all labor is productive of such value; corporate bureaucracies for example fall into the unproductive category but neoclassic economics generally fails to make any distinction between productive and not…and that form of economics began its ascendancy over a century ago. This economics rose not to critique and explain the system but promote and support it on the basis of particular very questionable axioms which fail to capture the actual movement of exactly the system we are all part of and, contrary to most beliefs, is historically limited: had beginnings and will have endings.

WAWAWA • June 29th, 2008 at 7:05 pm

You think Roubini is a pessimist, think again.http://business.timesonline.co.uk/tol/business/economics/article4232875.ece

Octavio Richetta • June 29th, 2008 at 7:21 pm

check this out. Housing about to turn around? THAT is a big joke!http://www.financialarmageddon.com/Despite the gloomy website name. A very realistic take on what awaits all kinds of RE in the US. A must read if you want to know watz going on out there from the people in the front lines trying to make a buck by buying cheap RE

Guest • June 29th, 2008 at 7:51 pm

Despite predictions of another Black Monday following last Thursday’s drop, so far the Asian markets are showing spectacular indifference.

Guest • June 29th, 2008 at 8:06 pm

yeah guest above youre right………..then again oil has risen almost to USD142!!!maybe not todaythere’s a lot days to choose fromblacktueday,wednesday,thursday,friday or my favourite monday… its a 5/5 probability

Guest • June 29th, 2008 at 8:07 pm

A "most dangerous moment"http://calculatedrisk.blogspot.com/2008/06/lawrence-summers-most-dangerous-moment.html

Anonymous • June 29th, 2008 at 9:00 pm

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/30/cnbis130.xmlGlobal economy faces deep slowdown, warns central bankers’ clubBy Edmund Conway, Economics EditorLast Updated: 1:19am BST 30/06/2008The global economy may be heading for a far deeper crisis than is expected and a bout of deflation in the world’s biggest economies is now a possibility, according to one of the world’s most highly regarded economic institutions.The Bank for International Settlements has warned that many in the City and elsewhere may have underestimated the scale of the coming economic downturn in one of its most sombre portraits yet of the international financial system.The Swiss institution – known as the central bankers’ bank – issued the alert in its annual report, released today.advertisementIt warned that the sub-prime crisis in financial markets was merely a reflection of growing debt burdens in the developed world, which could soon contribute to a deep slowdown.The financial crisis in full"The difficulties in the sub-prime market were a trigger for, rather than a cause of, all the disruptive events that have followed," it said. "Moreover… the magnitude of the problems yet to be faced could be much greater than many now perceive."The warning will cause particular concern among participants in the financial sector, as the BIS was among the earliest major institutions to warn that the world could face a credit crisis and financial slump.The report draws stark comparisons between the current crisis and a variety of others including the Great Depression.It said: "Historians would recall the long recession beginning in 1873, the global downturn that began in the late 1920s, and the Japanese and Asian crises of the early and late 1990s respectively." In each episode, a long period of strong credit growth coincided with an increasingly euphoric upturn in both the real economy and financial markets, followed by an unexpected crisis and extended downturn."In virtually every instance, some form of new economic discovery or new financial development provided a further ‘new era’ justification for rapid credit expansion, and predictably became a focus for blame in the downturn."More on economicsMost sobering is the report’s warning that developed economies including the US and Britain could face deflation.It said: "The eventual global slowdown could prove to be much greater and longer lasting than would be required to keep inflation under control. This could potentially even lead to deflation, which would evidently be less welcome."•Profitability in financial services is falling at its fastest rate in at least 19 years as the credit crisis continues to hurt, a new study indicates. A balance of 44pc of firms have reported a fall in profits in the quarterly financial services survey released today by the CBI and PricewaterhouseCoopers. It is the worst result since the survey began in 1989.

YANKEE • June 29th, 2008 at 10:01 pm

Hi All -Long time, no speak. Still have my job, but cuts are imminent, imho. Interviewed for a different position in my company: in Risk Management!!! Fairly ironic. Let’s see where that goes…I am pretty risk averse!I think we are close to black swan day. I am fairly depressed actually.Even if I am ok (which is my no means assured) I do not want to live around such misery. Maybe people are blind or are unsophisticated, but the honest ones do not deserve what is going to hit them this winter. I wish I would be able to help them, but I am not bill gates…Medic: I am not having luck on solar. I am not getting good info. Hey, I am buying a 49cc scooter in a couple of weeks! Would only be ok for us 8 mos/yr, but not bad for short trips. fyi: they are selling out as soon as they are offloaded. I am going for a honda – I hope its reliable. If you have any advice there, would greatly appreciate.Also for everyone out there: I ordered a pellet stove for my mom 2 weeks ago (Harman). Backlog? I got mine in 3 weeks back in Feb. When is my mom getting hers? NOVEMBER.If you are sitting on the fence, order it now if you want it for winter.just letting you all know……I guess we all just need to hang in there.lrlcyn@gmail.com if anyone has good solar info.big thanks.yankee

AfA • June 29th, 2008 at 10:59 pm

Wow, I never imagined that 2 days (thursday, friday) would have that much effect on people. I can see people’s mood quickly shifty. That and we didn’t even see something remotely close to Black Monday.

Guest • June 29th, 2008 at 11:25 pm

oil is going towards USD200honestly, i think equities mkt will collapse well before then,hey who knows..

Guest • June 30th, 2008 at 12:19 am

http://theblogattheendoftheworld.blogspot.com/2008/06/us-meltdown-imminent-says-fortis.html

MASHIACH BEN CHANA • June 30th, 2008 at 12:33 am

Report: Bush boosts covert actions in Iran * Julian Borger, diplomatic editor * The Guardian, * Monday June 30, 2008 * Article historyThe Bush administration has significantly increased covert military operations inside Iran aimed at destabilising the country’s government, according to a US report published yesterday.The report, in the New Yorker magazine, quotes military, intelligence and congressional sources as saying that CIA and special forces operations were ordered by George Bush in a "presidential finding" in the past few months. It said Bush sought – and congressional leaders from both parties approved – $400m (£200m) for the secret war, which includes abductions and assassinations.According to the report’s author, Seymour Hersh, the operations inside Iran have been under way since last year but have recently been "significantly expanded".However, Hersh – who broke several stories on the intelligence fiasco before the Iraq war- reported yesterday that there was considerable resistance from US generals and the defence secretary, Robert Gates, to White House pressure for an all-out attack.The operations described by Hersh involve support for Baluchi and Arab separatist groups in Iran, "seizing members of al-Quds, the commando arm of the Iranian Revolutionary Guard, and taking them to Iraq for interrogation, and the pursuit of ‘high-value targets’ in the president’s war on terror, who may be captured or killed".There have been reports from Iran of assassinations of military officers, which Tehran has sometimes blamed on US and British operations. Both the US and Britain insist they are focused on diplomatic means to convince the Iranian government to suspend uranium enrichment and reprocessing.Earlier this month an international delegation to Tehran delivered a package of economic and diplomatic incentives for the government to comply with UN security council demands. Yesterday, the Iranian foreign minister, Manouchehr Mottaki, said the package was being studied "carefully and strongly".Iran insists its nuclear programme is purely peaceful, while western governments believe it is being used as a front for developing weapons, despite a US intelligence estimate published late last year concluding that Iran had closed down its weaponisation programme in 2003. The EU has intensified its travel and financial sanctions on Iran, while the Bush administration has said it will press for more punitive measures in the security council.There has been persistent speculation that the Bush White House is considering air strikes against Iranian nuclear facilities before it leaves office next January.Over the weekend, the commander of Iran’s Revolutionary Guards, Major General Mohammad Ali Jafari, told a Tehran newspaper that Iran would retaliate against any US or Israeli attack on its nuclear installations by targeting the global oil supply.

MASHIACH BEN CHANA • June 30th, 2008 at 12:40 am

ran sets up 31 martial districts, prepares 320,000 graves for war deadDEBKAfile Exclusive ReportJune 29, 2008, 10:31 PM (GMT+02:00)Iranian Army Brig. Gen. Mir-Faisal BaqerzadehIran has divided the country up into 31 military sectors as part of its stepped up preparations for war, DEBKAfile’s Iranian sources report. Sunday, June 29, Brig. Gen. Mir-Faisal Baqerzadeh, head of the Iranian Army’s Foundation for the Remembrance of the Holy Defense and MIAs, said the 320,000 graves were to be dug for enemy forces in case of an attack on Iranian territory.“We don’t wish the families of enemy soldiers to experience what Americans had to go through in the aftermath of the Vietnam War,” said Baqerzadeh.Our sources report that it was obvious to the average Iranian that the graves, concentrated in the border regions, were intended for prospective domestic victims of US and Israeli bombardments.The plan to divide the country into 31 military districts was approved at a top-level consultation at the office of Supreme Ruler Ayatollah Ali Khamenei last week.Each sector will have its own command center headed by a Revolutionary Guards officer-in command, which in a war contingency will assume control of the district government and keep supplies of food, water, medicines running as well as emergency services for evacuations.A military force attached to each command will be responsible for maintaining order and responding to problems.According to DEBKAfile’s military sources, Iran has in effect established a home front command controlled by the Revolutionary Guards and manned by the million- strong Basij volunteer militia, the Guards’ local reserve units. This arrangement guarantees the government regime in Tehran effective control of every part of the country in any war contingency.Print

MASHIACH BEN CHANA • June 30th, 2008 at 12:52 am

Annals of National SecurityPreparing the BattlefieldThe Bush Administration steps up its secret moves against Iran.by Seymour M. Hersh FOR FULL ARTICL SEE THE LINK BELOWhttp://www.newyorker.com/reporting/2008/07/07/080707fa_fact_hersh

Jkiss • June 30th, 2008 at 1:45 am

Shorts out of the water…The pattern over the past two weeks is quite similar to previous intra bear market declines that immediately preceded intra bear market bottoms and sharp rallies. Accordingly, I closed all of my short positions late Friday, and even took a modest long position, may boost this tomorrow. The market always does exactly what it wants to do and could of course continue down a bit further, there’s certainly plenty of gloomy news about right now. Regardless of whether the bottom was last Friday or Monday or a little later, the last rally ending May 19 was ten weeks, over twice as long as usual, IMO the next rally will be on the short side, say two weeks.

FRIEND OF WASHINGTON MUTUAL • June 30th, 2008 at 2:17 am

Mortgage stress to hit 1m homesRachel BrowneJune 29, 2008ALMOST one in 10 Australian households is suffering from mortgage stress, with the figure predicted to come close to 1 million homes within three months.Research by Fujitsu Consulting reveals that 784,000 of Australia’s 8 million households suffer from some form of mortgage stress.Of that, 318,000 homes were in severe stress while 465,000 were in mild stress.Fujitsu Consulting’s managing consulting director, Martin North, blamed rising interest rates as well as increases in petrol and grocery costs.He estimated that stress would extend to 923,000 homes by September. "Interest rates have increased steadily for the past six years and consumers are paying more for petrol and food and other things," he said."It’s a perfect storm and it’s creating stress for a lot of people."The 12 interest rate rises since May 2002 have led to repayments on an average $300,000, 25-year loan increasing from $1992 a month in 2002 to $2584 today.NSW has the highest rates of mortgage stress with 260,000 households affected, of which 105,000 are in severe stress.While most economists define mortgage stress as having to pay more than 30 per cent of the household income in mortgage repayments, Fujitsu Consulting surveyed 26,000 people, asking them questions such as whether they had reprioritised general spending patterns to make mortgage repayments and if they had missed a mortgage repayment.NSW has the highest mortgages of any state as well as the most defaults and delinquencies – where a homeowner does not meet a monthly repayment by the due date.State Government figures show that there were 1077 court-ordered home repossessions in the first quarter of 2008, compared with 921 in the first quarter of 2007.June figures show that of the top 10 worst areas for delinquency, nine were in NSW and six of those were in Sydney. "NSW is suffering the most severe stress and more defaults," Mr North said. "And it’s not just battlers. It’s happening in more affluent areas such as Chatswood and Bondi. Normally those people would be fine but they were relying on the stockmarket and of course the stockmarket has taken a bath so suddenly they don’t have the income from their investments."Wizard Home Loans chairman Mark Bouris, whose company conducted the research in conjunction with Fujitsu Consulting, said he was starting a campaign to educate home borrowers about mortgage stress."I hope people see these figures and get a bit scared about borrowing money as a result of this. It’s not in our interests for our clients to get into trouble."No lender wants to foreclose on a mortgage because it’s a lose-lose situation for them and their clients

Alessandro • June 30th, 2008 at 5:56 am

The ECB attempted to bully the FED into hiking rate. They failed miserably.Now it’s the turn of the FED to bully the ECB into staying pat. Would the ECB hike in the middle of a global stock market crash? Will the markets bounce furiously once the ECB is beaten into submission by the bailout pro? Place your bets.

Mr. Bullocks • June 30th, 2008 at 6:12 am

@AlessandroYes, of course. Didn’t you get the message today. Inflation rate in Eurozone at 4%. Way above the target of 2%. Rate hike of 1/4 point expected. They will do it this week and announce further rate hikes.

Alessandro • June 30th, 2008 at 6:51 am

The FED/PPT is apparently letting the US (and world) stocks crash just before the ECB meeting. Does this sound like a bully? If stocks are let go further down the ECB will be in a box. At least this appears to be the plan.

Octavio Richetta • June 30th, 2008 at 6:55 am

Wishful thinking?http://www.bloomberg.com/apps/news?pid=20601087&sid=aP3UCawLQPS4&refer=home

Octavio Richetta • June 30th, 2008 at 6:57 am

Nom this is no typo:…The London interbank offered rate, or Libor, surged 111 basis points to 3.61 percent, from 2.50 percent on June 27, the British Bankers’ Association said today. …http://www.bloomberg.com/apps/news?pid=20601087&sid=avXDRzpiA9o4&refer=home

Octavio Richetta • June 30th, 2008 at 6:57 am

No, this is no typo:…The London interbank offered rate, or Libor, surged 111 basis points to 3.61 percent, from 2.50 percent on June 27, the British Bankers’ Association said today. …http://www.bloomberg.com/apps/news?pid=20601087&sid=avXDRzpiA9o4&refer=home

Play On • June 30th, 2008 at 8:04 am

Letting Iran build a bomb = MUNICHLook at Iranian intransigence today. Threating suicide bombers in boats will attack Gulf shipping. Imagine Iranian suicide bombers with atomic weapons. Mr. Bush the economy stinks anyway. Lets do what we have to do!

Guest • June 30th, 2008 at 8:52 am

9:46 U.S. June Chicago PMI 49.6% vs. 49.1% May9:46 U.S. June Chcago PMI prices paid 85.5% vs. 87.5% in May

Guest • June 30th, 2008 at 9:09 am

IMF finally knocks on Uncle Sam’s doorDate: June 30 2008David HIrst IMAGINE the Reserve Bank of Australia, concerned that its friends in the city of Sydney (but perhaps Melbourne) who, having wallowed in wealth all their adult lives, were no longer gainfully employable and their wildly extravagant lifestyles were in danger, and, having the powers to intervene in the market, decided to do just that on their behalf.Imagine them offering to enter the market and buy shares that would prop up the foolish gambles of the bankers, gambles they had encouraged them, until recently, to take by providing them with cheap money.On top of that, they told this group they would provide hundreds of billions of dollars in credits to these same profiteers on the grounds they were so big and important to the economy they were indeed too big to fail.Then, imagine, despite pouring untold taxpayers money into stocks and allowing their cronies access to vast sums, the system continued to fail. So they announced they would need greater power and with it more secrecy.For its growing band of critics has, perhaps unwittingly and in the interest of public good, this has become the principal function of the US Federal Reserve.If this was to happen in Australia the International Monetary Fund would be hammering at the door of the Reserve Bank. But Australia does not have a President’s Working Group on Financial Markets, commonly known as the Plunge Protection Team, that allows the US Government to prop up the markets by buying shares. But to imagine the IMF investigating the US financial system is unthinkable, or was. But, at the weekend, Der Spiegel reported that the IMF would conduct a full investigation into virtually every aspect of it.Der Spiegel wrote that the IMF had "informed" Federal Reserve chairman Ben Bernanke of plans that would have been unheard of in the past: a general examination of the US financial system. The IMF’s board of directors has ruled that a so-called Financial Sector Assessment Program is to be carried out in the US.This, Der Spiegel wrote, "is nothing less than an X-ray of the entire US financial system", adding that "no Fed chief in US history has been forced to submit to the kind of humiliation that Ben Bernanke is facing".The fact that the IMF is knocking on the very doors of its parents and waving legal papers about who lost the house, the car and the kids will, if the past is anything to go by, be buried in the US by pom-pom waving on CNBC telling all what a great time it is to buy.But the news that the US Fed has now lost its last vestige of credibility did not end with the German report.The Telegraph from London weighed in, following the Royal Bank of Scotland’s statement last week (also lost on the US public) that it was time to head for the crags, and reported Barclays Capital’s closely watched Global Outlook analysis that said US headline inflation would hit 5.5% by August and the Fed would have to raise interest rates six times by the end of next year to prevent a wage spiral.If the Fed hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it," the report found. "They have zero credibility, and the Fed is negative if that’s possible. It has lost all credibility."Der Spiegel reports that the IMF is threatening to seriously study the accounts of America, something President George Bush is determined to prevent at least while he is in the White House, informing the IMF that it can begin its investigation but cannot complete it until he leaves office…

Guest • June 30th, 2008 at 9:29 am

Stocks will not be allowed to breach that magic -20% mark! Even thought the rest of th eworld appears to be onto the Bush admin and the Fed…Funny how we started all of this, we stand in a recession and yet China, still growing GDP double digits, their stock market is down what…some 50% from its highs…give me a break!

KJ Foehr • June 30th, 2008 at 9:33 am

IndyMac Bancorp (IMB) appears to be dying. Now trading at 62 cents, down 23%. It was halted at one point this morning, but I don’t know why.

Capone • June 30th, 2008 at 9:41 am

VIX is pretty firm here considering the day’s action or should I say inaction… still hanging around 24ish even though we are up… tune into tonight to CNBC to see the Bush Pep rally at 7 Eastern – can’t sell-off in front of that apparently… it would be ok with me if we did of course

Roller • June 30th, 2008 at 9:42 am

We have failed to develop Global Institutions to provide a Perspective of the Viability of Humanity for the future. Democracy is not viable without the mechanisms to implement it beyond the Nation State Level. We are now harvesting the neglect of a Global Perspective. Our faith in a Rogue Capital model for evolution of society is not based on a Scientific Perception of Reality. All Rogue Individual actions must be tempered by the rule of law and institutions.This is the moment for a Paradigm Shift. Our Global Institutions must assert themselves as Civil Advisors to encourage our Nation States to behave more democratically and peacefully. Unless there is a paradigm shift soon, resource wars, climate change, food shortage, disease will be the only future. There must be a new sense of Responsibility to Humanity. If we maintain our MYOPIA, we will not exist as a species soon.

Guest • June 30th, 2008 at 10:17 am

June 30, 2008 By HEATHER TIMMONSNew York Times News ServiceNEW DELHI – Discontent is sweeping through India in the form of widespread protests over land use, food, fuel and jobs…i guess the human beings that live outside the gated wealthy communities are not feeling the trickle down love of globalization?

Guest • June 30th, 2008 at 10:21 am

The dow will finsish up 300 points today for qrt-end cheerleading!

Guest • June 30th, 2008 at 10:27 am

Nice 150 point turnaround on the Dow-faked the mystic -20% level this morning to suck in som emore shorts then WHAM!

ESTrader • June 30th, 2008 at 11:00 am

working group ‘saved’ ES 1275 three times in a/h globex (last night): at 0445, 0530 and 0800. Day session low (so far) today? Well it’s 1275 (10:03), imagine that.

Capone • June 30th, 2008 at 11:00 am

in addition to the , quarter end window dressing, first of the month and holiday week historically bullish biases, we are extremely oversold. is it that simple, BUY ? as a perma-bear and perma-contrarian, the peanuts in my position have all been flipped back into the puts 100%…

Guest • June 30th, 2008 at 11:09 am

WOW! Gross dissing Obama already!!!http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+July+2008.htm

Capone • June 30th, 2008 at 11:11 am

Buy `Crash Protection’ Puts on European Stocks, Goldman Says By Alexis XydiasJune 30 (Bloomberg) — Investors should buy “crash protection” against a plunge this year in European stocks because losses are likely and insurance costs are low, according to Goldman Sachs Group Inc. European and American investment bankers and central bankers, Group Hug ? Where is the love ?

Guest • June 30th, 2008 at 11:40 am

"The FED/PPT is apparently letting the US (and world) stocks crash just before the ECB meeting. Does this sound like a bully? If stocks are let go further down the ECB will be in a box. At least this appears to be the plan."and higher commodities price will bully everyone to charge higher price and hike rate. what Ben helicopter & co try to bully other doesn’t really matter.

FRIEND OF WASHINGTON MUTUAL • June 30th, 2008 at 12:14 pm

U.S. attorney charges 28 people in Metro Detroit with mortgage fraudPaul Egan and Mike Wilkinson / The Detroit NewsDETROIT — U.S. Attorney Stephen Murphy on Thursday described mortgage fraud as a widespread economic scourge in Michigan and said his office has launched a crackdown with the assistance of the FBI and other agencies.Murphy said at a news conference that since March, his office has charged or convicted 28 people with a variety of fraud and money laundering charges in 15 separate cases related to alleged mortgage fraud with losses exceeding $50 million.The local crackdown — in which 24 people have been charged since March and four others have pleaded guilty — is part of a broader national initiative. In Washington, the U.S. Justice Department and the FBI on Thursday announced "a national takedown of mortgage fraud schemes," saying 404 defendants around the country were charged in 144 cases since March 1.AdvertisementMichigan ranks third in the nation for mortgage fraud, according to a recent FBI report.The Detroit News reported in November that widespread mortgage fraud in the region had cost residents and lenders hundreds of millions of dollars and forced thousands of homeowners into foreclosure, prompting calls for more enforcement."Mortgage fraud tears at the core of our households, our economy and the American dream," said Toni Chrabot, the agent in charge of the FBI’s Oakland County office.The cases detailed in Detroit run the gamut from allegations of inflated appraisals, use of false income documents and false identities to obtain mortgages, and use of false deeds, liens and other false real estate records to obtain funds. Investigators and prosecutors say it’s difficult to keep up with the volume of mortgage fraud complaints they receive, partly because the cases are often complex and time-consuming to unravel."This is not even the tip of the iceberg that sank the Titanic," said Warren real estate agent Ralph Roberts, who has written books about mortgage fraud and gives lectures around the country on how to detect and avoid it. "I believe that mortgage fraud has trashed the economy of the whole country."Victims include not only lenders and title insurance companies but homeowners such as Patti and Marc Cammarata.They say in 2002 and 2003, more than a dozen homes in their affluent northern Shelby Township neighborhood were purchased for well over the asking price by people who often didn’t keep up their property and were rarely seen. Prices, which ranged from $500,000 to $600,000, spiked to $700,000 and up.Most are now in foreclosure; the unfinished landscaping and curtainless windows remain. "There was a lack of neighborhood or community because you never knew who was living here," Patti Cammarata said.According to the FBI, many fraud cases start with the purchase of a home, followed by a faulty appraisal that pushes the home’s value well-above the purchase price. The criminal then gets a "straw buyer" — someone with good credit to apply for a loan to buy the home based on the higher appraisal, earning a profit for the mastermind of the crime. Typically, the home is abandoned and falls into foreclosure, costing the lender and the community.Murphy denounced the criminals but called on the mortgage industry to "clean up its act" and require more proof that borrowers can pay off loans."If there is money and an ability to get it, criminals will take advantage of it," Murphy said."We’ve prosecuted as many cases as we can. We have a lot of work to do."One of those who bought near the Cammaratas was Irving Sims, 44, who bought four homes for a total of nearly $2.5 million. All the mortgages went into default. Murphy said Sims recently pleaded guilty to getting a $466,000 loan using a fake tax return that falsely showed he earned nearly $250,000 a year."I’m glad they finally indicted someone," said Skip Maccarone, the Shelby Township supervisor. He made Sims the focus of a report he gave to the FBI on potential mortgage fraud about three years ago. The township had been monitoring the sales for several years and gave the FBI a list of suspicious sales.Maccarone said he had been wondering how long it would take to make Sims and others pay for the fraud they could see for years."At least there’s some movement," he said. "Some light is better than none."The individuals Murphy named as having been charged since March with federal crimes related to mortgage fraud are: Nicole Malane, 30, of Birmingham; Kurt Warren Heintz, 37, of Grand Blanc; James Jeffrey Fish, 40, of Howell; Aubry Terbrack, 65, of Troy; Denise Money, 52, of Ferndale; Julieta Galvez Flores, 34, of Farmington Hills; Roberto Carmen Lemos Jr., 35, of Detroit; Phillip Blevins, 56, of Bloomfield Hills; John Husar, 39, of Sterling Heights; Cynthia Crump, 53, of Bloomfield Hills; Tanya Davis, 49, of Southfield; Arnold Jankowski, 61, of Warren; Shannon Ferguson, 36, of Canton Township; Dennis Tamburo, 39, of Washington Township; Mario Lalios, 30, of Shelby Township; Gregory Patrick Davis, 30, of Detroit, who ran Interactive Property Services and Efficient Mortgage in Southfield; Melissa N. Harris, 24, whose city of residence was not available; Ali Akil, 40, of Dearborn; John Marras, 41, of Plymouth; Mark Ward, 33, of Howell; Nishon Johnson, 37, of Detroit; Jonathone J. Johnson, 32, of Detroit; Wanda Henley, 54, of Detroit; and Irving Sims, 44, of Shelby Township, who has pleaded guilty to providing false income information to a lender.Complete identifying information was not immediately available on the other people named by Murphy on Thursday.The local cases are not related to the arrest Thursday morning of two former Bear Stearns officials in New York and New Jersey. In New York, the FBI announced the arrests of Matthew Tannin and Ralph Cioffi — ex-managers of Bear Stearns hedge funds — and said they will face criminal charges related to the collapse of the subprime mortgage market.

ptm • June 30th, 2008 at 12:14 pm

Flash Update, June 30th, 2008, JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICSThe current circumstance results from years of deliberate debasement and neglect of the U.S. currency by the political miscreants in that former malarial swamp on the Potomac. Contrary to the popular policies of political gratification of the moment — seen for a number of administrations and various Fed chairmen — the dollar does matter, and so does the budget deficit. The dollar issues are coming to a head.At some point, oil producers likely will be forced to abandon oil pricing based in U.S. dollars. The broad effect of that would be an intensified inflation spike in the United States, with the energy-inflation impact much mitigated in the non-U.S. dollar world.If the abstract concept that 40% of the dollar backed with mortgage-backed securities does not scare away treasury note buyers, then surely inflation will chase them away led by the oil producers. And that’s why Iran is seen as dangerous. It’s the first middle-east country to begin selling it’s oil on a non-dollar market. BTW, if oil markets do drop the dollar, then we can justifiably use the word hyperinflation.

Guest • June 30th, 2008 at 12:15 pm

http://www.bloomberg.com/avp/avp.htm?N=av&T=Al-Attiyah%20Says%20Ships%20Laden%20With%20Oil%20Have%20%60No%20Buyers'&clipSRC=mms://media2.bloomberg.com/cache/vUXCl_LLHUQM.asfOil false inflation as a means to dampen crash into deflation? Make your own conclusions, but I wouldn’t touch oil!

Guest • June 30th, 2008 at 12:16 pm

http://www.bloomberg.com/avp/avp.htm?N=av&T=Hennecke%20Says%20U.S.%20Faces%20'Hyperinflationary%20Depression'&clipSRC=mms://media2.bloomberg.com/cache/vVkI8WexWY2M.Hyperinflationary depression

scared & Confused • June 30th, 2008 at 12:22 pm

Written by Guest on 2008-06-30 09:09:22Regarding the coming US financial "X-ray" in our future by the IMF, can anyone shed a little light on the subject for me? It sounds absolutely terrifying! Why would I continue to put my hard earned money into a 401K when I see the "perfect financial storm" brewing?Of the other countries that have been subject to these audits, does anyone have any results as to what was found?…"President George Bush is determined to prevent at least while he is in the White House, informing the IMF that it can begin its investigation but cannot complete it until he leaves office"… That about says it ALL for me

Novice • June 30th, 2008 at 12:36 pm

As my name indicates- I am a novice at economics. But I am a student of what is happening in the world. I have seen the looming economic earthquake coming for several years now. And the closer we get to "The d- day" (depression) the more news comes out that it is inevitable. Many of you will balk and scoff at my thoughts here and I don’t blame you, for they sound crazy even to me. But if you study more than economics you will see a trend of biblical proportions going on in the world- a trend toward democratic socialism. I have studied the New Age Movement in depth and they outwardly sound like a bunch of lunatics- but when you follow the white rabbit Neo- you will find that there are powerful entities around the globe involved in bringing about "the plan" for the new age. Part of the plan is a move away from political sovereignty. What is the easiest way to accomplish this? Economic failure. Capitalistic Americans will gladly give up their rights to put food on their tables- eventually. We are swiftly headed toward a global economic system much different than we are used to. The current economic system of greedy world bankers and the like- will be blamed for the coming crash and people will be clamoring for a change. Just my observations as a novice economist.Novice

Alessandro • June 30th, 2008 at 12:48 pm

@ES TraderES trading lower again. Care to guess where it will spike up for the short-covering rally everyone is waiting for?

AfA • June 30th, 2008 at 12:58 pm

@ Alessandro,I am with you that Fed is trying to corner ECB, but I don’t think Trichet has any other choice, although if he keeps rates unchanged, we may witness a temporary dip in oil prices (not sure if the decrease in oil price will more than offset the lost value of the Euro against dollar).

AfA • June 30th, 2008 at 1:00 pm

Waiting for the 3pm man to come and save the day again.

Alessandro • June 30th, 2008 at 1:04 pm

LEH is crashing on volume. Is today’s short-covering rally cancelled?

Capone • June 30th, 2008 at 1:07 pm

i have believed we would have a hyperinflationary depression in the US for a while now. i hope the TPTB and those fortunate individuals who have made billions (Congratulations ! well Done !) off of this mess will take whatever action is necessary to prevent starvation in the US and find ways to take care of traditional families.@Novice and whoever is interested in a way out there tangent, pardon the religion Professor, "biblical" from novice leads me to comment on what I see. I see a world whose values have fallen so far from anything remotely dictated as a guide for people to live by whether you are reading the Torah, Koran or the Bible, that a reckoning is required and is coming. I notice things that are coincidental yet make you scratch your head… for example – the #1 song in the US by a gangster rapper In Da Club or whatever it is called. During this period there were two human catastrophes in the US in clubs? One involved many people being burned alive in a club in Rhode Island and another involved many people being trampled to death in Chicago. Unexplainable natural phenomena – 60 mile long ant colonies, 1,000s of sharks in the waters off the coast of Florida The weather, as far as I know, may not be controlled by man (Chinese are working on it) and we have flooding throughout the world, tsunamis, earthquakes, fires killing hundreds of thousands and displacing millions from their homes ? One thing is certain. People at least in the US will have their attention focused less on the morally polluted, pop corn, bull sh_ _, materialistic alternative culture born in Hollywood returned right back where it should be on traditional core values and on helping each other. Traits, values and strong conviction which any strong society under any foundation of faith should possess. I am not aware of any religion which provides for the free for all of values which currently resides in at least the US…Romans 12:19-21Beloved, never avenge yourselves, but leave itto the wrath of God, for it is written, “Vengeance is mine, I will repay, says the Lord.” 20 To the contrary, “if your enemy is hungry, feed him; if he is thirsty, give him something to drink; for by so doing you will heap burning coals on his head.” 21 Do not be overcome by evil, but overcome evil with good.

4822 • June 30th, 2008 at 1:18 pm

@ Novice" Capitalistic Americans will gladly give up their rights to put food on their tables- eventually."Possibly, on the other hand many I know are extremely suspicious of government solutions andcapabilities. I see lots of independant initiative coming to the fore as well.

Capone • June 30th, 2008 at 1:34 pm

Lehman new low, oil new high, NYSE new highs 51 to lows 428 and yet the scoreboard averages say market is UP ?

Maundermin • June 30th, 2008 at 1:53 pm

Capone,Nice scriptures, and I agree with your post. I would just like to add, that the meaning of "vengeance is mine" is that no human (fallen being) is justified in exacting punishment on his fellow man, only the lord is. Even paul speaks about not finding any fault with himself, but also admitting that only the lord can rightly judge whether or not such is true. Timothy speaks about the "last days" as being replete with "dreamers" who would "defile the flesh", "reject authority," and speak evil of dignitaries (something Romans 13 admonishes followers of God to not do, on account of national leaders being apointed by God, not man), yet not even Michael the archangel, when disputing with the devil over the buriel place of Moses, dared bring a reviling accusation against him, but instead, said, the Lord rebuke you. The verse about giving food and water to your enemies is sometimes misconstrued when read in isolation from the rest of scripture. The verse does not suggest that we give our enemies food and water, so that heaps of fire and coal would poured on their head. The meaning: Just as Christ is the perfect judge, and perfectly Holy, we also must try to emulate Christ, so that by showing our enemies mercy, they would be able to see the love of Christ, turn from their sin, and escape the justice and vengeance of eternal hell fire.

Guest • June 30th, 2008 at 1:53 pm

Who’s decoupling?…the Norwegian government said it would not bail out Narvik and the other "Terra towns", arguing that the government is not an insurance policy for bad management decisions. So now the people of Narvik must find ways of paying off the loss…." The politicians assumed they were in safe hands…Terra securities case "shows the extent to which the financial markets are so integrated, and how fast the risk spread from California to the rest of the world". And for the residents of Narvik, it could mean that essential public services are cut to atone for mistakes made both at home and abroad."Gwladys Fouché in Narvik, Norway guardian.co.uk, Monday June 30, 2008

Capone • June 30th, 2008 at 2:07 pm

@Maundermin, thanks for expanding and clarifying… "judge not lest ye shall be judged" is sometimes difficult to remember; however, combined with the above 12 19-21 has deep meaning to me.

Robert Louis • June 30th, 2008 at 2:17 pm

On the subject of judgement day. Perhaps we should institute here on earth the means of disciplining market players who act unethically. Of course, civil and criminal courts could punish the guilty, but above that like other professions we need peer and professional scrutiny that has teeth to punish. Like the attorney, when professional misconduct or unethical behaviour is alleged, the state bar begins an inquiry. Its threshold of proof is lower than the courts. It can discipline by revoking license to practice temporarily or permanently. It can apply a variety of ever increasing punishments to maintain professionalism and integrity of the courts.Likewise, traders and operators should be publicly pilloried if guilty and have their ability to practice in financial trades curtailed or prohibited, additionally their ability to socialize or in any way interact with trade peers should be barred.Reputational blemish, peer shunnage, public announcements of misconduct, and prohibition from practice would soon remedy much of the systemic abuse.While this might diminish somewhat the ability to "innovate" within the financial constraints, it would very likely provide a hefty firewall to the financial crashes as a consequence of foolhardy, fraudulent, and fictitious manipulations of value. THE BLACK SPOT UPON MALFEASANCE as Tom Gunn might say.Unfortunately in our present condition, we have all black spots and not oceans enough to rinse them away.

ESTrader • June 30th, 2008 at 2:17 pm

ES trading lower again. Care to guess where it will spike up for the short-covering rally everyone is waiting for? Written by Alessandro on 2008-06-30 12:48:471281 stopped it for now, but i would have guessed 1275 because that’s the level they ‘saved’ this morning in globex, we’ll see how it pans out into the close. I was looking for a retest of 1275 to draw in some more shorties, then squeeze ‘em?

Robert Louis • June 30th, 2008 at 2:25 pm

I failed to add that this framework to scrutinize financial dealings works only if the behaviour is independently conceived. If it is a behaviour encouraged by central banks, or if it is a tacit "last gasp" government policy–a systemically incentivized public corruption then only overhaul of laws and government will suffice.

Capone • June 30th, 2008 at 2:31 pm

@Robert Louis, there is no discipline whatsover. in fact a trader who has made money in the past and then one year "blows out" or loses enough money that his current backer fires him, almost always is welcome in another shop to trade for his "experience" trading.

Capone • June 30th, 2008 at 2:52 pm

was oil discovered below a MCD franchise ? barring this, MCD is not justified at these levels based on where the DOW is and where it is going. they push and push for a green close in the averages for "W"’s pep rally tonight on CNBC. what about the green close in the VIX ? is "W" going to announce a ban on short selling tonight. if not, I would not be long this market on your money…

KJ Foehr • June 30th, 2008 at 2:59 pm

Financials, wow!LEH down 11%ABK down 16%PMI down 17%MTG down 13%XL down 14%IMB down 23%CORS down 12%AIG down 4.5%WB down 4.2%And those are just the big downers on my screen!

KJ Foehr • June 30th, 2008 at 3:02 pm

SKF at an all time closing high over 156.Time to sell / cover shorts for a bounce or financial meltdown ahead?New money to be put to work on July 1?

Capone • June 30th, 2008 at 3:05 pm

@KJ, that is ok look at the scoreboard, DOW & S&P up small everything is just fine. today is a good example for the IMF to investigate. NYSE new highs 53 to lows 471.

KJ Foehr • June 30th, 2008 at 3:20 pm

Well “they” kept it above the bear market line again today.But who needs a bear market when financials are dropping like stones!?This can’t continue much longer; we are either headed for capitulation or a short covering rally – and soon!

AfA • June 30th, 2008 at 3:25 pm

“We’re hearing that there may be a possibility of Lehman being taken over,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages $6 billion in San Antonio. “There hasn’t been any positive news on this firm for the last couple weeks and the value of the deal might not be in the best interest of Lehman shareholders.”http://www.bloomberg.com/apps/news?pid=20601087&sid=aWJH7g4l_bCI&refer=home

Capone • June 30th, 2008 at 3:36 pm

@KJ, I agree with you 100%. my vote surprise, surprise is for capitulation… Bear bailout = super rally and now potential Lehman "bailout" / purchase = super rally again ? me no think so… in fact, it would fit the elements of casino behavior for the market to crash on the rumor of this purchase / bailout… corn was down limit today, was wheat at least down meaningfully if not limit ? welcome to commodity futures trading, where there may be multiple days in a row of down limit and NO WAY OUT for some of the longs – sorry about those stop loss orders that went unexecuted… how is POT looking here ?

AfA • June 30th, 2008 at 3:43 pm

It seems that BIS warning posted here few weeks ago was from last year, the new report just came out and it is at least as gloomy as last year’s.http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/30/ccbis130.xmlFor those who do not like/ trust Evans-Pichard, I think the full report should be posted soon on the BIS website.

Maundermin • June 30th, 2008 at 3:49 pm

Can someone please explain to me the concept of "short covering, " it would be greatly appreciated, thanks.

Guest • June 30th, 2008 at 4:02 pm

""President George Bush is determined to prevent at least while he is in the White House, informing the IMF that it can begin its investigation but cannot complete it until he leaves office"… That about says it ALL for me"@ scared & Confused on 2008-06-30 12:22:23Don’t concern yourself grasshopper; the IMF is just as corrupt and incompetent as all of the UN operations. Bush doesn’t have the mentals’ to be worried but his naive minions could be expecting a political recourse through IMF tampering er bribery.Ho humPeterJB

KJ Foehr • June 30th, 2008 at 4:16 pm

Capone on 2008-06-30 15:36:33“… Bear bailout = super rally and now potential Lehman "bailout" / purchase = super rally again ? me no think so… in fact, it would fit the elements of casino behavior for the market to crash on the rumor of this purchase / bailout… how is POT looking here ?I agree, a LEH takeunder is probably bearish now; the context is different than it was when BSC was sold. People will begin to wonder, how many more will there be? Who is going to buy all the banks that fail? Why hold banks / financials when these takeunders mean losses to shareholders? Where is it all going to end? Will the FED run out of money? Etc.It’s hard to see a big rally now. The world knows the economy and the market are toast. So “sell the rallies” will be everybody’s plan from here. But when everyone is selling when the market rallies, how can it have a sustained rally? I think most likely way forward is for a big capitulation that takes the sell the rally game plan off the table. Then the value players can come in and pick among the ashes, but whether they will profit or get burned a la 1930 – 32 is the big question.Of course, if short interest really is as high as people say, then the potential for a sharp rally must not be ruled out entirely…I don’t do POT, but may start looking for some commodity shorts soon.@Maundermin on 2008-06-30 15:49:34"Can someone please explain to me the concept of "short covering, " it would be greatly appreciated, thanks."I am not sure if this is what you are asking for, but covering is simply buying back what you have sold short.

Capone • June 30th, 2008 at 4:31 pm

anyone ever hear of Bear Sterns or Lehman Brothers ? who the heck are they ? I don’t know, I am still just glad we are not technically in a bear market or a recession at this point.

Guest • June 30th, 2008 at 4:31 pm

Talking of the USA. The "Democracy" that never was and the "Republic" that never was to be er for very long:"Gore Vidal: No, Congress has never been more cowardly, nor more corrupt."http://www.presstv.ir/detail.aspx?id=61813&sectionid=3510302Says it all really.Ho humPeterJB

Maundermin • June 30th, 2008 at 4:51 pm

Thanks KJ Foehr, that was helpful.

Forensic economist • June 30th, 2008 at 5:19 pm

Reasons why there will be no attack on Iran despite Sy Hersh’s article.From the SF Chronicle. The author is a former Chevron/Texaco employee. Europe is dependent on Russian natural gas. A pipeline is planned across Turkey to Iran and the Caspian. The major winner of an attack on Iran would be Russia. Western Europe would be a major loser."… there is a pipeline system called Nabucco on the drawing board that could lessen the dependence on Russia and diversify European energy supplies… Nabucco would begin in the Caspian Sea region and wind its way through Turkey, Bulgaria, Romania and Hungary to Austria – and ultimately connect with the European gas grid for further distribution throughout Western Europe….Nabucco will go nowhere as long as the United States works to keep Iranian gas out of the pipeline. This can only mean that Russian gas will continue to dominate the European market and that Europe will grow more vulnerable to Kremlin political manipulation…Long sought by U.S. oil and oil service companies, lifting sanctions would help facilitate the flow of capital, equipment and know-how needed to bring natural gas from Iran to Europe…"http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/06/29/INA611EBPC.DTL&hw=nabucco&sn=001&sc=1000

Dead Souls • June 30th, 2008 at 5:20 pm

With UBS under investigation for tax fraud, Societe General’s botched attempt with trader Kerviel to push US markets, Fortis’ sucker punch, and Barclay’s coordinated attack, it looks like the European’s are trying economic warfare and are probably holding huge short positions on US indexes. Panic the sheep and herd them to your cover range and bankrupt a huge number of US firms–code name Kick’em when yer down. Personally although we are very, very fragile at present in US, I don’t think they’ll let this stand. It is tantamount to a physical attack on the WTC.Just the beginning of the ugly we will see as the superfed rats show their true colors and use their colossal obesity to rock the boat. If you’re short be exceptionally nimble with protections in place. This is going to be a steroidal casino with superfast action and plethora of unintended consequences. Barclays, UBS, Fortis have sunk their own battleship. First by breaking code of silence amoung peers, second for seriously pissing off the USA financial system, third because they imbibed deeply from the punchbowl themselves. Desperate swan songs from black swans in a hurricane induced tsunami.Of course, it might not be that bad.

Chips All In • June 30th, 2008 at 5:37 pm

The inflation conspiracy exists. Hot money from Fed garbage loans to IBs and PDs comes with an understanding. Hit commodities, PMs, basic mat’ls. Hit ‘em hard. Keep driving and driving it up. Window closes otherwise. Intent? Counteract the accelerating and soon to avalanche deflation. US monetary policy may not thrive but can do some good at the margins with an inflationary background. But with deflation of any scale? Zero interest rates for perpetuity cannot entice either lenders or borrowers in deflation. Defaults are exacerbated by deflation more than inflation. Fed toolbox rendered completely ineffective in deflationary depression. So…inflate, inflate, inflate. All necessities–inflated. All luxuries and discretionary consumables–deflating hard. All present inventory–deflating. All future inventory builds–hyperinflating. Ability to service loans? Difficult but not impossible as under pure deflation.What will be final verdict? This inflation conspiracy may actually amplify the harmful effects of coming depression. Attempts by Central Bankers to mitigate collapse may actually amplify and exponentially doppelgang the coming hard landing.

AfA • June 30th, 2008 at 7:23 pm

@ Dead SoulsYes, because JP Morgan, Lehman, Goldman Sachs et al are all saints and angels. It is much easier to put the blame on evil foreigners.It seems to me that most banks do not even listen to what their strategists and analysts have to say. Although I know most of them are sell-side, I wonder sometimes why their employers pay them if they do not even consider their analysis and recommendations.

Octavio Richetta • June 30th, 2008 at 9:19 pm

Two great reads:A reasonable housing price forecast:http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/06/30/the-end-of-the-inflation-scare.aspxAn excellent analysis on inflation prospects (will the GaveKal guys be right this time around:-):http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2008/06/30/the-end-of-the-inflation-scare.aspx

Guest • July 1st, 2008 at 6:46 am

New thread!

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