Uno, and my first post

The beginning of the end of Suburbia…? The WSJ starts to think sohttp://online.wsj.com/article/SB121538754733231043.htmlWith Gas Over $4, Cities Explore Whether It’s Smart to Be DenseSacramento’s ‘Blueprint’ for Growth Draws National AttentionBy ANA CAMPOY July 7, 2008; Page A1 Wall Street JournalSACRAMENTO, Calif. — Gasoline was less than $2 a gallon when Mike McKeever brought his gospel of bikes, light rail and tightly packed neighborhoods to this state synonymous with cars, freeways and suburban sprawl."The development industry was very concerned," says Mr. McKeever, head of Sacramento’s regional planning agency. "The environmental community was openly negative," concerned that it was "just more talk, talk."1 Sacramento Area Council of Governments, Urban Advantage Sacramento officials used photo imagery to show how different parts of the city could be brought in line with their pedestrian-friendly vision. See how things could change.2 Seven years later, with gasoline hurtling past $4 a gallon, Sacramento has become one of the nation’s most-watched experiments in whether urban planning can help solve everything from high fuel prices to the housing bust to global warming."They’re really the model," says Steve Winkelman, a transportation expert at the Center for Clean Air Policy.For decades, backers of "smart-growth" planning principles have preached the benefit of clustering the places where people live more closely with the businesses where they work and shop. Less travel would mean less fuel consumption and less air pollution. Several communities built from scratch upon those principles, such as Celebration in Florida, sprouted across the country. But they were often isolated experiments, connected to their surroundings mainly by car. So, as gasoline remained cheap, the rest of the country continued its inexorable march toward bigger houses and longer commutes.Now, smart-growth fans see a chance to reverse that."Expensive oil is going to transform the American culture as radically as cheap oil did," predicts David Mogavero, a Sacramento-based architect and smart-growth proponent.Over the past 50 years, cheap gasoline has encouraged developers to build communities further and further away from city cores. Now, city planners are experimenting with "smart growth" that keeps work and shopping close to home. Sacramento — yoked to the car and mired in one of the lousiest housing markets in the country — offers an intriguing laboratory for that idea. Four years ago, just as oil was gaining momentum in its torrid climb to $140 a barrel and beyond, the six-county region adopted a plan for growth through 2050 that roped off some areas from development while concentrating growth more densely in others, emphasizing keeping jobs near homes.The local governments in the area aren’t compelled to follow the so-called Blueprint, but the plan — backed by a strange-bedfellows coalition of ordinary citizens, politicians, developers and environmentalists — shows signs of working, nonetheless."To me, the simplest way to test whether local governments are mainstreaming Blueprint growth principles is to look at…what is getting built," says Mr. McKeever. "The evidence there is pretty clear."Between 2004 and 2007, the number of projects with apartments, condominiums and town houses for sale in the region increased by 533%, while the number of subdivisions with homes on lots bigger than 5,500 square feet fell by 21%, according to housing-research firm Hanley Wood Market Intelligence.Things were different during the 1990s, as new single-family homes crept out to fill the abundant open spaces far from downtown. Traffic exploded, rising 66% from 1990 to 2003. In 2000, the American Lung Association ranked Sacramento 11th for the worst air pollution among U.S. cities — though, with about 1.4 million people, it was 28th in population.Facing the threat of losing its federal transportation funding because of its poor air quality, the Sacramento Area Council of Governments hired Mr. McKeever in 2001 to lead the region’s cleanup effort. He brought with him an eclectic environmental résumé: He’d run a business that used a door-size fan to test homes for leaks of precious heated or cooled air; he’d become an expert in siting houses so they got the most sun possible, saving on electricity; and he’d become a planning consultant, helping Portland, Ore., create a walking city with compact neighborhoods connected by buses, streetcars and light rail.When Mr. McKeever arrived in California, gasoline was relatively cheap and developers comfortable in building subdivisions the way they always had. He knew he would need to be able to paint a detailed, realistic picture of what life in the area would be like in 2050 if the traditional pattern of plopping one house on one acre of ground far from the owners’ jobs continued.Buildings’ ImpactHis staff collected information on all 750,000 pieces of property in the region, such as the number of housing units, people employed there, and return-on-investment rates generated by various building projects. They plugged those numbers into a database to be used with computer software Mr. McKeever helped develop to calculate the impact different kinds of buildings have on traffic, job growth and pollution.In 2003, he took the computer model on the road to workshop after workshop. This wasn’t the typical public hearing where officials sit in a row and take questions from the crowd. Instead, the more than 5,000 people who attended got a chance to use the computer program to play planner for a day, tweaking the mix of buildings to see what would happen."It sounds hokey," says the typically earnest Mr. McKeever, "but it’s about making democracy work."Wary DevelopersDevelopers were wary. The higher density was tantalizing, but they weren’t sure how to get financing and permits, how to build and market the new communities."My first big policy direction was, ‘You need to go stop this Blueprint thing at all costs,’" recalls Dennis Rogers, a lobbyist with the North State Building Industry Association.Mr. McKeever persevered. He conducted shuttle diplomacy of sorts, gliding between meetings with developers and environmentalists in a golf-cart-like neighborhood electric vehicle.3 Gradually, the builders began to accept Mr. McKeever’s argument that adding town houses, condos and apartments to the mix of single-family homes would expose them to more markets and protect them from a downturn in any particular one. At the same time, residents were becoming more open to alternatives to the typical suburban house thanks to what they were learning at the workshops."The building industry is one of the most customer-driven that you can find," says Marcus Lo Duca, a lawyer who has represented builders for 20 years. "You have to adjust what you do to meet what home buyers want."Dave Morris, an area developer, became a convert when he attended a workshop where officials presented their forecast of what the region would look like in 50 years if it kept growing in the same way. On a big screen in front of hundreds of people, they flashed traffic and air-quality figures that showed "you would commute faster on a bicycle," says Mr. Morris. The quality of life for communities without jobs nearby would nose dive."It was really an eye-opener," says Mr. Morris, 60 years old.At the time, he was building two gated communities with single-family homes on one-acre lots. Mr. Morris is now working on a 171-loft project that will include shops and offices in downtown Woodland, a small city northwest of Sacramento near the university town of Davis. The site is near a courthouse, one of the main employers in town, as wel
l as restaurants and coffee shops. It has access to public transit that can take residents to downtown Sacramento. The public library is just a few blocks away."I see gas prices making people take the Blueprint seriously," he says. "It’s kind of like not worrying about fast food till the doctor tells you that you have a bad heart."No. 1 ConcernA poll earlier this year by California State University, Sacramento, found that high gasoline prices were the No. 1 concern in the area and that 12% of respondents had changed jobs or moved in the past year to shorten their commute to work.Matt Overmyer moved to a new compact development in Roseville, a city northeast of Sacramento. It now takes him 15 minutes to get to his job as a manager of a Lowe’s home-improvement store, compared with the 45 minutes he drove from Folsom, a nearby town he describes as "suburbia at its finest."Mr. Overmyer’s new neighborhood sits at the western-most edge of Roseville, where cattle grazed not long ago. But unlike many of the typical suburban developments that sprouted on farmland surrounding Sacramento in previous years, his is designed around a "village square" with restaurants and shops. Once it’s built out, it will be just a couple of blocks away from Mr. Overmyer’s home. A school, which his 19-month-old daughter will attend once she’s old enough, has already been built less than half a mile away.Mr. Overmyer, 30 years old, now bikes to the grocery store, something he never did in Folsom. Because the houses in his new neighborhood are close together and share a back alley, he also interacts a lot more with his neighbors."My social life now consists of four neighbors up and down the street," he says. Before, he and his wife had to drive at least a few miles to see friends.Mr. Overmyer says he’s enjoying spending less time behind the wheel and "the bigger sense of community." He’s also pleased to see that the houses around him are already selling for more than what he paid for his last year.While the Blueprint is still only a guide and local governments have the final word on development, many have begun incorporating its principles into their local laws, giving them real teeth.In Rancho Cordova, a city east of Sacramento that has adopted a Blueprint-friendly development plan, residents in densely packed town homes and small houses can walk to work at nearby office parks. The light-rail line built to commute to Sacramento now serves as a tram for local residents."We’re a suburb that wants to become a city," says Linda Budge, Rancho’s mayor.In the spring, the regional-planning agency’s board took another major step by approving a $42 billion transportation plan designed to mesh with the Blueprint. Together, both are projected by 2035 to reduce the amount of driving per household by 8% and global-warming emissions per household by 12% from their 2005 levels.Now, California’s Transportation Department is offering grants to help other areas in the state create their own Blueprints. Two environmental groups have co-sponsored a bill in the state legislature encouraging other areas to follow Sacramento’s example. Think tanks such as the Center for Clean Air Policy are lobbying to include Blueprint methods in the federal transportation bill, which is up for reauthorization next year.Placer VineyardsBut Mr. McKeever, who became his agency’s director in 2004, still has battles to fight every day. Take, for example, Placer Vineyards, a 14,132-unit proposed housing development. It’s in a good Blueprint location, close to both Sacramento and the city of Roseville, a big job center. But the proposal doesn’t meet the Blueprint standard of an average 10 housing units per acre, which would translate into a 21,631-unit project. That’s the necessary density to accommodate its projected future population growth within the Blueprint’s boundaries."If you don’t build those 7,000 units there," Mr. McKeever says, "they will go somewhere else," potentially onto land that the plan called for remaining undeveloped.SACOG Mike McKeever, of the Sacramento Area Council of Governments Mr. McKeever negotiated with the project’s developers to present two plans to the Placer County Board of Supervisors for approval — the original plan, and the Blueprint version. But the board chose the developer’s less-dense, original plan. "I felt like they were pushing those 7,000 units on me," says county Supervisor F.C. "Rocky" Rockholm.Mr. Rockholm, one of the 32 government officials who sit on the regional planning board, voted for the Blueprint, but he argues that the denser version is wrong for the site, now just farmland dotted with cows and yellow mustard flowers. Area residents were concerned about the traffic the denser development would generate. Aside from the density issue, Mr. Rockholm says, Placer Vineyards will be Blueprint-compliant, with a bus transit center and trails and bike paths connecting homes to parks and schools, he says.But without density, counters Terry Davis of the area Sierra Club chapter, smart growth doesn’t work. His group joined the local Audubon Society to file a lawsuit against Placer County and the developers, charging them with destroying natural land with plans that "unnecessarily promote urban sprawl." The parties are in settlement talks.Plans for StreetcarEven projects that fully comply with the Blueprint have their problems. Mark Friedman, a local developer, is working on a mixed-use development across the Sacramento River from the California State Capitol, the heart of downtown. In his loftlike office, a retrofitted former Pontiac-dealership, Mr. Friedman points to a sleek architectural model to show how a streetcar would connect apartments, office buildings and retail, making cars unnecessary.Except that without building housing first, there won’t be enough people to justify the state and local money that will help finance a streetcar. And without the streetcar, the carless project doesn’t work. "It’s a chicken-and-egg situation," says Mr. Friedman.Building in the heart of the city costs more than creating subdivisions in empty land on city outskirts, says Mr. Friedman. But with the rising price of gasoline driving up the cost of commuting, he and other developers are finding healthy demand for their city projects at a time when suburban sales are slumping.Even though the area’s housing market has been wracked by price drops of 25% in the last year and one of the highest foreclosure rates in the country, Mr. Friedman says he already has sold nine of 28 town houses near downtown that he recently completed, and three more are under contract, "which is not bad considering the dismal state of the Sacramento real-estate market."Mr. Morris, the developer, says the housing downturn is hurting the places that have the "dumbest growth. Smart growth works when the rest of it doesn’t."Write to Ana Campoy at ana.campoy@dowjones.com4 URL for this article:http://online.wsj.com/article/SB121538754733231043.html

Looks like my call for a 500 point rally on the Dow was a week early.

from the previous thread…@randy on 2008-07-17 10:58:21I’m still waiting on NR to address why the US markets will not go down……I KNOW he knows about the actions of the PPT. Maybe this is a subject that is even taboo for NR?Another issue that I suspect is like a taboo is admitting that the current crisis is just as bad as, or worse than, the Great Depression. But as to market manipulations by the PPT, that would be interesting to hear about.

depreciation flippers step in with buy hold board em’ and writeup the rot

@Guest Re: FadesaSorry, I didn’t intend to mean that the business of Fadesa is the same as Fannie’s. I meant that Fadesa was importnt for the Spanish economy with high impact on job creation and GNP. In addition, the developer was becoming a symbol of Spanish brand internationally. It was grabbing most development contracts in Morocco during the last few years when the country started many big project.So the decision of the Spanish government to give up on them was not an easy one.On another note, here are the 19 companies on the CL (Cox’s List):BNP Paribas Securities CorpBank of America CorpBarclays PLCCitigroup IncCredit Suisse GroupDaiwa Securities Group IncDeutsche Bank Group AGAllianz SEGoldman Sachs Group IncRoyal Bank ADSHSBC Holdings Plc ADSJPMorgan Chase & CoLehman Brothers Holdings IncMerrill Lynch & Co IncMizuho Financial Group IncMorgan StanleyUBS AGFreddie MacFannie MaeExcept FNM & FRE, could we safely assume all the others are shareholders in the Federal Reserves?Mish makes good points that even in China, were shorting is restricted, the index is down 50% and that shorting provides liquidity to the market and a certain insurance that prices will rebound during short covering, especially in the presence of good news. Besides, aren’t these the market makers who are heavily involved in naked shorting while everybody else has to abide by the shorting rules? Isn’t the list basically saying to these banks you can short naked any stock you like (except FNM & FRE – for now) but nobody can do the same to you?From today on, I will create an investment strategy called the Nakes Cox Portfolio which is 100% long the CL and 100% everything else (ex. CL). We will see how will the portolio perform. In fact, if I had the means I would start a new ETF: Ultra Short Every Damned Finance, Banking and Insurance Stock Except CL (USED-FBI-SEC) So that everybody can enjoy the advantages.Please help, how can I do that? RGE bloggers will be the exclusive ETF share buyers and redeemers at a NAV discount.

With all that good news out there this week, how could stocks NOT rally?heh heh heh

@Nouriel Roubini: > “The emblematic symbol of this SUV craze was the monstrous Hummer that was driven as a symbolic totem of American macho culture and justified as a way to support our troop in Iraq: too bad that this gas-guzzler GM beast was financing the coffers of unstable petro-states (the Venezuelas, Nigerias, Irans, Iraqs, and some Arab states) that were busy financing terrorists around the world and building thousands of schools of religious fanaticism and fundamentalist hatred (“madrasas”) around Pakistan and the Middle East.”I wish you hadn’t said that. I like the economic part of your message but I’m not as enthralled with the religious part of your message.Sondra

hear ye hear ye, let it be known that from this day forward the financial stocks of the kingdom may only be bought.- Prince Cox on behalf of King George II

PPT is a fiction.So they go and buy stocks to boost the prices and then what? They have to sell the same shares someday which would bring down the prices. I can not see how can would work in the absence of unlimited capital behind it.

WAWAWA on 2008-07-17 14:01:03It is the timing of the buy and sell that is important. They may buy at a critical level and then sell slowly as the market force/short covering takes over. It’s like the old adage "don’t tell me what to buy, just tell me when".

People, people, people…The equity markets boom is quite simple. There is a massive sell-off of FNMA and FMAC to those with access to unlimited credit / lending facility. The buyers, are submitting there lowest performing Fixed assets as collateral for fresh cash that can in turn buy FNMA and FMAC at discount prices (based on the initial market fear) and in exchange, they now hold similar assets that have better fixed returns. (Both the purchased and lent securities are backstopped by the same working group.)The sellers need somewhere to park their brand spanking new cash. Equities!This is not a PPT/TPTB move… but rather a shift the market psyche.Miss America.p.s. Nouriel, ….Movie themed post??? You’ve got time for the movies??? I didn’t think your busy schedule allowed for that. With that in mind, and since your time is valuable, I’ll make a couple of post 2000-2008 movie suggestions, so you don’t waste time on the bad ones. For the bleak suburban life: American History X, JunoFor the Anarchist: Fight Club, V for Vendetta, American PsychoFor Comedy: Zoolander, South Park : bigger longer and uncutFor Adventure: Lord of the Rings 1-3, The Prestige, Kill Bill 1&2, Big Fish, TroyFor Comic Movies: Xmen1&2 only!, Spiderman 1-3, Iron Man, Batman BeginsFor appreciation of genius in cinema/creativity: Eternal Sunshine of the Spotless Mind, Memento, Donnie Darko, Adaptation (or any movie by Charlie Kuafman)For Political Statements: Hotel Rwanda, Inconvenient Truth, The Constant Gardener, Sicko, Babel, Thank you for Smoking, Syriana, Michael Clayton…and my # 1 choice for mocking the elite and their financial excess: (a TV show) Arrested Development. (buy all 3 seasons on DVD. Its worth every penny in laughs)p.p.s. Is Darth Paulson really your father? “join him, and together you will rule Wall St, as father and son!”

Stocks surging at the close to close at new highs…what a joke, what has changed the last two days accept the SEC has socialized 19 securities? Housing data horrible, philly fed horrible, down 8 months in a row, jobless claims grew, JPM earnings were down 53%, Wells upped their reserve by $1.5B, phony and fraudy are still insolvent, 300 banks will go under over the next year, so tell me, what the hell has changed?

Miss America, thanks for the useful movie tips. Recently I usually have time for films only on long transatlantic flights.

DJ Capital One 2Q EPS $1.21 Vs EPS $1.89 >COFDJ Capital One 2Q Net $452.9M Vs Net $750.4M, -40% >COFJ COF 2Q Earnings Alert: Thomson Reuters $1.31Looks like a miss. Trading lower AH

GOOG missed, down 8% after hours

4:11 p.m.[ZION] Zions Q2 net income 65c vs $1.43 a share

MSFT penny shy:4:16 p.m. [MSFT] Microsoft Q4 FactSet Research EPS view 47c 4:16 p.m. [MSFT] Microsoft Q4 net income 46c vs 31c a share

On Naked Capitalism today:The Financial Times reports that despite the snappy rally in bank stocks in the US, which may have been partly fueled by short covering, money market traders expect banks to face rough sailing till the end of 2010.From the Financial Times:Traders are betting that the credit crunch will still be hurting banks at the end of 2010 with financial institutions expected to be scrambling for cash to shore up their end-of-year balance sheets.A popular so-called butterfly trade in the money markets is showing expectations of three to four times the stress at the end of 2010 as before the credit crisis started to bite last summer, although it implies the situation will have improved sharply compared with today.Many executives are assuming the credit crunch will not carry on that long, although the majority of financial services senior managers believe it will take more than six months, according to a CBI/PwC survey last month.Laurence Mutkin, head of European rates strategy at Morgan Stanley, said money markets were pointing to long-running financial strains. “The market expects that these stresses will persist,” he said. “It is saying the system survives but individual institutions will have to fight hard to be among the survivors.”….Other measures of stress are running at high levels. The spread between the overnight index swap rate and Libor, the rate at which banks lend to each other, a spread seen as a pure measure of the risk, is seven to eight times as high as before the crunch. But it remains below the spikes prompted by fears of a complete collapse in the financial system last summer, at the end of last year and just before Bear Stearns was rescued in spring.(end)In case you took cheer from the Wells Fargo earnings report, which was the trigger to the rally in financials, consider this tidbit from Housing Wire: …http://www.nakedcapitalism.com/2008/07/traders-forecast-banking-stress-to-last.html

p.p.p.s. The FNMA/FMAC’s I’m referring to, that are being bought/sold, are the mortgage pieces. (Not to be confused with the stocks)TBA’s days will be interesting in the near future… Which reminds me of something I’ve wanted to speak on for quite some time:“Counterparty Risk” …..with relation to the Derivatives game. Much like TBA’s, most derivatives settle up through pairoffs or the equivalent of “round robins” (for more then 2 counterparties involved). Through that simple process, coupled with trading controls (that keep the Kerviel’s in check) the “counterparty risk” is legitimate…. …but SEVERELY OVERSTATED when you see the grand size of the derivative market. I’m not saying there isn’t CP risk… I’m just saying that it’s become a media weapon for defending and attacking different companies.Miss America

Merrill loses $4.6bn on $9.4bn writedownsBy Ben White in New York, Financial TimesPublished: July 17 2008 22:04 | Last updated: July 17 2008 22:04Merrill Lynch on Thursday said it lost $4.6bn in the second quarter following $9.4bn in credit-related writedowns. The performance, which trailed analyst expectations, brings Merrill’s losses for the last four quarters to about $18bn and has left the battered investment bank scrambling to sell assets to raise capital.Merrill shares dropped 8 per cent in after-hours trade to $28.06 and Moody’s downgraded the bank’s senior long-tern debt one notch to A2 from A1.The bank confirmed it would sell its 20 per cent stake in Bloomberg back to the financial news and data provider for $4.425bn and make other asset sales worth about another $4bn. Merrill failed to reach a deal to sell all or part of its 49 per cent stake in Blackrock, the asset management group.The company, slammed by the credit crisis, said it was close to a deal to sell a controlling interest in Financial Data Services, based on an enterprise value for the Merrill subsidiary of $3.5bn.Overall, Merrill said it lost $4.6bn, or $4.95 per share, compared with a profit of $2.1bn or, or $2.24 per share last year. Analysts on average expected a loss of $1.91.Merrill was hit by $3.5bn in losses on the value of its retained holdings in collateralised debt obligations, which are securities often backed by subprime mortgages. Merrill also had a $2.9bn writedown based on its hedges with monoline bond insurers. Other losses included $1.7bn in the investment portfolio of Merrill Lynch’s US banks and $1.3bn from certain residential mortgage exposures.Merrill reported better performance in rates, currencies, global markets financing and services, investment banking, global wealth management and other areas.Investment and commercial banks are being forced to sell assets to raise capital now that domestic and foreign investors are showing little interest in pumping more money into troubled US financial institutions. Many such investments by sovereign wealth funds and US institutional investors are now deeply under water.Merrill is funding Bloomberg’s purchase of the 20 per cent sake by providing debt that could later be syndicated to other investors.Merrill, one of the biggest producers of subprime mortgage-backed collateralised debt obligations during the credit boom, has raised nearly $18bn since December from investors including Singapore’s Temasek, the Kuwaiti Investment Authority, Tokyo-based Mizuho Bank, the South Korean sovereign fund and hedge fund TPG-Axon.Merrill’s figures contrast with those at JPMorgan Chase, which beat expectations with a profit of $2bn despite $2.4bn in new write-downs and credit provisions. JPMorgan, while far from immune from the credit crunch, has avoided the worst of the writedowns because it was not a larger producer of CDO’s and other subprime mortgage-related products.”This was a disappointing and difficult quarter for us in terms of bottom line,” said John Thain, chief executive. But he added that, outside of mortgage-related writedowns, Merrill’s “core franchise remained very strong.”Copyright The Financial Times Limited 2008

Another "sucker’s rally" in the last couple of days?Great post by the way Mr. Roubini — if interested in learning more about ‘the tragedy of suburban sprawl’ I recommend you all check out James Kunstler’s work: http://www.kunstler.com/

For those interested in further exploring how our cities have recently been planning for change, consider the New Urbanist movement and Congress of the new urbanism. Also, an excellent site for up to date planning around the world check out Planetizen.http://www.newurbanism.org/http://www.planetizen.com/landusehttp://www.cnu.org/hlowe

SOUNDS LIKE PAULSON MADE SHELBY AN OFFER HE COULDN’T REFUSE"Paulson met yesterday with Senate Banking Committee Chairman Christopher Dodd and Alabama Senator Richard Shelby, the top Republican on the banking panel, to try to address concerns that Treasury would have too much power under the plan. Paulson declined to comment upon leaving that meeting. `Positive Meeting’ “We had a very positive meeting, and think it’s going in the right direction,” Shelby said after the session. “We’re trying to do it right.” http://www.bloomberg.com/apps/news?pid=20601087&sid=a5EoXygGppsU&refer=home

@ Gloomy"SOUNDS LIKE PAULSON MADE SHELBY AN OFFER HE COULDN’T REFUSE"Hahahahaha.I guess IT WAS NOT PERSONAL, IT"S STRICTLY BUSINESS

Miss America, You said:“The equity markets boom is quite simple. There is a massive sell-off of FNMA and FMAC to those with access to unlimited credit / lending facility. The buyers, are submitting there lowest performing Fixed assets as collateral for fresh cash that can in turn buy FNMA and FMAC at discount prices (based on the initial market fear) and in exchange, they now hold similar assets that have better fixed returns. (Both the purchased and lent securities are backstopped by the same working group.)The sellers need somewhere to park their brand spanking new cash. Equities!p.p.p.s. The FNMA/FMAC’s I’m referring to, that are being bought/sold, are the mortgage pieces. (Not to be confused with the stocks).”So, is this one of El-Erian’s “hard-to-access investment opportunities” for “things high up in the capital structure” such as high quality mortgages and high quality bank debt?… for those with major capital?Are you talking about top of the line mortgages pieces owned by Fred and Fan with no subprime onus. How were they culled out of the couple’s properties and by whom?Who are the buyers “with access to unlimited credit / lending facility” and what "lowest performing Fixed assets” are they submitting? And to whom? Who are the sellers and why are they getting out now? Are they still fearful, but the buyers aren’t? I assume the buyers are submitting their bad MBSs to the Treasury for good cash (a privilege again for the primary dealers) and then handpicking Freddie and Fannie’s properties, leaving the taxpayers with junk absolute when our “takeover” turn comes.Might a big part of this be a bookkeeping trick where the buyer and seller are the same entity and only the return is changed, in that you say both “purchased and lent securities are backstopped by the same working group”?Who is the ” working group” backstopping these people: do you mean a credit insurer, or a temporary government entity that backs losses for these people with taxpayer money, Congress, the Term Securities Lending Facility (TSLF), the Primary Dealer Credit Facility (PDCF)?What is the size of the “new cash” going into equities? Do you have any idea what sector of equities? Could it be the Financial Sector? Could this be self-servicing, i.e. buying back with cash their own shares that artificially dropped below market value by engineered media rumor, such as the “Schumer kiss”?This whole thing doesn’t look very ethical or transparent to me. I know you said it was simple, but I guess I’m sub-prime. Could you spell it out a little, just for me? Thanks.SBB

@ Gloomy: “SOUNDS LIKE PAULSON MADE SHELBY AN OFFER HE COULDN’T REFUSE..”You got it. But buried deep in today’s Bloomberg article, “Paulson Lobbies to Get Fannie-Freddie Rescue Approved (Update2)” was a statement from Jeff Flake that is probably much closer to the truth:“Representative Jeff Flake, an Arizona Republican, said Paulson received a “mixed” reception from lawmakers.”I also heard the same on the radio. My take is that Hank Paulson’s program is going to be there for a while.Flake doesn’t want to deal in such a hurry. Several others in Congress are asking Paulson, “Why do we need to act so fast? Why don’t you want to tell us how extensive this is? Or, Freddie and Fannie didn’t ask for this. We’re not sure how much this will involve Congress. Others are asking for hearings. With a lame duck president saddled with such a low rating, many Republicans think they’re going to get creamed in this election unless they make a few friends. How better to do it than to represent the people! Frankly, I wouldn’t buy an MBS from Paulson, alias Goldman Sachs, let alone a “rescue” plan. Caveat Emptor!

Hey … I’m really encouraged.I just checked the list of the "19 Financial Companies That Cannot Be Shorted". By the way … it kinda’ reminds me of Harry Potter movies. "He Who Must Not Be Named" Anyway, I noticed that the FDIC is not on the big list. That’s great – because I’m going out to pile a huge number of naked shorts on the FDIC. They definitely don’t have anywhere near enough capital to get through this mess !!!!PeteCA——–P.S. Yeah, I’m just kidding.

Amerikan Dream Thanksjo6pac

AfA : “ aren’t these [The 19] the market makers who are heavily involved in naked shorting while everybody else has to abide by the shorting rules? Isn’t the list basically saying to these banks you can short naked any stock you like (except FNM & FRE – for now) but nobody can do the same to you?”I liked your post! And thanks for the list of The 19. I wonder who are The 19’s controlling shareholders? Also, do most of them use the same group of revolving directors? I too assume many are shareholders in the Federal Reserve and all, of course, access the Fed discount window like its their private ATM, while Paulson holds open the doors for them to the U.S. Treasury. It would really take extreme incompetence to fail after such backing.Our manufacturing base has been dismantled and moved piece by piece to foreign shores by many of these same folks, directly or indirectly, by hostile mergers and leveraged buyouts and takeovers of our finest companies, via “financing,” not a better mousetrap. Surely, widespread public scorn against these financial robber barons will resurface again as it did during the Great Depression.

dont like the fact utility is down and libor is heading up. oh wait, i feel disturbance in the force.

i dont like this either,why is MExico locking future contract for todays price?are they expecting price of oil to fall,strange when they know they are producing less and less oilhttp://money.cnn.com/2008/07/17/news/international/mexico_hedging/index.htm?postversion=2008071714NEW YORK (CNNMoney.com) — In the last three days oil prices have fallen by roughly $10 a barrel. Many analysts say slackening demand, or the threat of it, is the main culprit.But another force could be at work in the background. Last week various analysts said there was talk that Mexico, the world’s fifth largest oil producer, was hedging its bets – the country was said to be signing contracts to deliver oil several years into the future at today’s prices. Essentially, it was betting oil prices have peaked.

What worries the most about the economic crisis is the continuing change in American public and foreign policy. After 9-11 Americans embraced war, torture, kidnapping, and the shredding of the Constitution since most of these were aimed at brown foreigners. Bearing in mind that this proto-fascist state grew in an economic (pseudo) boom, the possibilites for further perversion of America during a real crisis are frightening.The masses in suburbia will lash out and blame someone, anyone for their shattered lives as long as it’s not them. Bomb Iran. Boycott France. Invade Venezuela. Anything to fill up the Hummer and buy more Twinkies.

It sounds as though Prof. Roubini is channelling Jim Kunstler.

I keep wondering when Professor Roubini is going to take off the gloves and hit us hard with what he really thinks…We are in an awful mess and much of it revolves around a lack of stewardship. This has resulted in an incredible waste of resources, both natural and synthetic, such as capital. Those advocating the new urbanism frequently fail to realize that such a building style is only viable with a strong local economy. If you look at small town America back in its pre-Depression prime, it was largely based upon transportation by rail, manufacturing, and services for local agriculture. Putting up yupscale condos over high end retail is not going to work in most places. I have come to think that during the last Depression, the New York financial power used their clout to wipe out most of the banking and credit structure in the more rural areas, which has starved them ever since. We need to work out ways of having a much less centralized economy once again. Power seems to like centralization, then the inherent problems in that model come into play and cause no end of difficulties. Kunstler has give us some good ideas on how to proceed, such as reinvigorating electric interurban rail lines, but how can we decentralize our economic power so that Podunk Hollow has a chance against New York and Washington D.C.? Any ideas on this here on the list?

Roubini is understating the problem. Without a manufacturing base, Americans have broke the bank without a way to pay it back. There will be hunger and quite possibly starvation. You can buy 25# bags of beans at Costco for less than $15. Shelf life of 3+ years. A no-brainer is something that you don’t even need a fuckin’ brain to figure out.

Political parties make a big issue of winning so they allegedly can pick judges and committee chairmen. But that power is nothing compared to the powers of the Federal Reserve and Paulson’s Treasury to decide who gets financial advantage. It’s no longer a secret which of the large investment banks are first in line to pick up the winnings and the bailout money.What a bottomless Christmas stocking they have, even while many Americans will be getting coal this year.I guess the compensation and year-end bonuses of the street’s five largest firms just didn’t keep up with inflation: a mere $65,600,000,000 for 2007 alone for Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns. Remember? Now they need some bail out money from Joe 6Pac. In comparison here are the approximate GDPs of various countries: Singapore $121 billion, Czech Republic $119 billion, Hungary $113 billion, Chile $100 billion, New Zealand $99 billion, Philippines $98 billion, Algeria $92 billion, Nigeria $83 billion, Ukraine $81 billion, Romania $79 billion, Peru $76 billion, Bangladesh $69 billion, Morocco $57 billion, Vietnam $48 billion, Croatia $37 billion, Tunisia $33 billion, Ecuador $32 billion, Belarus $29 billion, Dominican Republic $20 billion, and Uzbekistan $11 billion.F. A. Hayek, the Noble prize winning economist — explaining the loss of freedoms under socialistic central planning — wrote: “As the coercive power of the state alone decides who is to have what, the only power worth having will be a share in the exercise of this directing power.”The big question is, how to get that share? Anyone know Bernanke?

@ Guest "There is a bad feeling in Israel and dissatisfaction with the U.S. move," Israel told senior Washington officials, according to a source in Jerusalem. "There can be no concession on the demand to end uranium enrichment as a precondition to negotiating with Iran," Israel added.”So? I’m getting darn tired of these people ordering Americans around. Where is this spineless Congress going to draw the line? If the Israelis want war with every nation on earth, then let them send their boys, let them pay for it with their blood, sweat and tears – their money. Does this wretched body of Congress persons only represent oil men, Israelis, and bankers? This war has cost 1,000,000 Iraqis their lives. It has cost 4,000 American soldiers their lives. It has cost America its economy to the tune of $58,000,000,000. It has cost me my sleep. How many lives has it cost Israel? How much national wealth? And still they want to drop a bomb on Iran and start another war!So, “there’s a “bad feeling in Israel.” Well, isn’t that just too bad.

"…and my # 1 choice for mocking the elite and their financial excess: (a TV show) Arrested Development. (buy all 3 seasons on DVD. Its worth every penny in laughs)Written by Miss America on 2008-07-17 14:38:12"Yes! Hilarious show. I wish they made more seasons. But you musn’t forget Curb Your Enthusiasm for the "painful to watch" comedy.

Written by Guest on 2008-07-17 23:09:16THOSE BEANS FROM COTSCO CAUSED MAJOR CONSTIPATION FOR WASHINGTON MUTUAL.

Any time that our foriegn policy makes Isreal uncomfortable, we must be doing the right thing.The Isrealis have driven our foreign policy for far too long.

The way I presented the analysis suggests that F&F will in fact have access to the Fed without actually doing it in person – right now, F&F have access to the Fed only through the window, which is not secretive as the TSLF so any move from their part will bring bad publicity and start a sell-of in their shares and widening in agency spreads.

Dear Prof. Roubini,With due respect, you underestimate the power of consumers. Gandhi’s khadi movement (http://www.kamat.com/indica/culture/eco-friendly/khadi.htm) brought a merchantilist British Empire to its knees. America has the world’s most sophisticated consumer base. In the pecking order are, 1. investment bankers who are the smartest consumers; They value time over money and are always in a rush to buy apartments in Manhattan. 2. Then come your regular capitalists, who value money over labor e.g. buy a car – and finally, 3. come the socialists and stingy savers who value time-consuming labor over money.Of course, the invisible hand (i.e. that people will choose public transportation/apartments/less dining out with high energy prices) is very powerful. When the American consumer stops buying goods, the manufacturing base of the mercantilist economies (Germany, China, Japan) will collapse. It is a good thing that we don’t make anything. The American people will be relatively better off compared to the rest of the world. The mercantilist economies don’t have this core consumer strength. You say that debt is bad. But steady inflation of the dollar has taught smart Americans to NOT be long on dollars. The invisible hand has successfully crowded out the third category of unproductive consumers that I noted above i.e. there are no savers in America now.You wrote that Easy money (Fed Funds rate) contributed to Americans buying bigger homes. With due respect, the "easy" money came from the merchantilist economies via the lower 10 year bond yield; Correct me if I am wrong but Fixed rate mortgages and even ARMs initially are priced at a spread to the 10-year bond yield. I think that you underestimate the American people. With Jingle Mail, they will slap the banks in the face, who in turn will slap the merchantilist MBS investors in the face. When the merchantilist economies realise their folly, the American consumer will again adapt faster than they can blink. Without the Jingle Mail, they will continue to be long assets and short the dollar and win again. Since we have the world’s best consumer, the other economies will always eat out of our hand. Period. America, because of her consumers, will always be beautiful. Best,Print First Ask Questions Later.

From Paul Kasriel:"That was painless, wasn’t it? Or was it? Now that Fannie’s and Freddie’s paper is guaranteed by the Fed and is likely to be guaranteed by the Treasury shortly, if you were inclined to buy Treasury securities, why not buy a near-perfect substitute that is paying a slightly higher yield? In short, the yields on Treasury securities are likely to be higher than they otherwise would be as investors switch out of Treasuries into GSE paper. This means that the Treasury’s debt service costs going forward also will be higher than they otherwise would be. And, this means that the current or future tax burden on U.S. taxpayers will be higher than it other wise would be. As I have said on more than one occasion, there is no such thing as a free bailout. Some entity will pay."

HEY! This news should turn stocks green!9:45 a.m. [C] Citi CFO says prime mortgage portfolio deteriorating

Written by Prt1stAskQLater on 2008-07-18 06:39:12That was the most patriotic and yet disturbing thing I have read in awhile. Fantastic.

With the recent wave of restrictions/controls (i.e. restricting short sells, extending credit facilities, etc) being made, I have come to the cross road of an important question that needs to be asked…Are they putting these controls in place because:A. What has happened?B. What is currently happening?…or…C. What IS GOING TO happen?That’s all I got today. I’m going to be busy. SBB and JLC are pretty much in the ballpark about my prior posts. Sorry, but there’s no blueprint or details for this crap… Just trends Sorta like the “banklord” prediction I made a few months back… I nailed that!!! …cause guess what the new hot trend I’ve seen is?!?!?!Miss America

"Since we have the world’s best consumer, the other economies will always eat out of our hand. Period. America, because of her consumers, will always be beautiful."A rather simplistic view of how things will turn out this time, I’m afraid. Mercantilist economies are already finding lucrative markets outside the US, although they will certainly suffer in a global downturn. But our "brilliant" consumers with no savings, depreciating assets, and runaway inflation at a time when 30% are getting ready to retire and depend heavily on a bankrupt gov’t. is a perfect storm that will upheave the social order in this country. Will the mercatilists bail us out again after being so badly burned when the US consumer has no buying power any longer?

@MASHIACH BEN CHANA on 2008-07-18 00:40:09EURO WILL WORTH ZERO, BECAUSE RUSSIA WILL GO TO WAR WITH WIMPY NATO AND INVADE THE ENTIRE WESTERN EUROPE.I WILL LOVE TO SEE THE ITALIAN SOLDIERS FIGHTING WITH RUSSIAN SOLDIERS.As my dutch friends would have said, the thought that Russia attacks Europe is just an American fear.

So a few bits and pieces…Will the Euro be the new reserve currency? Maybe, if the Euro-zone is the largest consumer market AND we enter a new post BWII monetary system. As it stands it seems that the Euro is structurally weaker than other currencies…less ability to play FOREX games as there isn’t one central reserve. Under the floating system we have now it looks like the game is to push your currency lower than the reserve currency for a competitive edge exporting to the reserve market. The strong Euro stinks for big German manufacturers that want to sell to the U.S. Written by Prt1stAskQLater on 2008-07-18 06:39:12That was the most patriotic and yet disturbing thing I have read in awhile. Fantastic.Written by Jason B on 2008-07-18 08:55:24Ditto. Sounds good as long as our own representatives don’t shoot us in the foot trying to pin the tail on the consumer donkey to save their corporate buddies asses.And a little tip for happy surfing for any who might not know. Since links aren’t live in these posts here is the quickest way to open up links if you have Firefox as your browser. Select the link text with your cursor then CTRL + C to copy the text, CTRL + T to open a new tab, CTRL + V to paste the text in the new tab, then hit ENTER. Quicker than mousing around…

@MAthank you for your tip on XLTC. I’m loaded on them… they are still trading at considerable discount to the $32 purchase price.A couple of questions as I’m not an expert. From the news, the price is $32/share before fees and transaction costs. Does that mean the net price will be less than 32 and if so, typically by how much? The transaction should start on July 23 and be completed by 3rd qt. What’s the typical time frame for paying a little investor like me? i.e. when will I get the money?If this ends as expected, I’ll buy you dinner… you can pick the restaurantMiss Italy

What an ungrateful market! Citi is beating estimates and the market does not rally. I call this discrimination.@Prt1stAskQLater"America has the world’s most sophisticated consumer base." I think you forget:0. The elite who values power and money over 1, 2 & 3I never thought that consumers had power or that "consumerism" was a competitive advantage when they have no income. Seems both Porter and Ricardo missed this one. Thank God we outsourced all jobs to the ROW before we default on the credit they gave us."With due respect, you underestimate the power of consumers. Gandhi’s khadi movement brought a merchantilist British Empire to its knees."With all due respect, who is our Gandhi? And who is "British Empire" in this case?The "American Dream" that was built on cheap energy and cheap credit became a rigid "legacy" system with high sunk costs. The economy, or what is left of it, is highly inflexible and any change will come very slowly, given that consumers do not want to make any sacrifices. Even if a relatively cheap alternative energy is found, it will be hard to impose it on the system – especially on people/companies who will lose their profits from the current state of affairs. That, unless the "Invisible Hand" slams the consumer so hard on the face to wake him up from the Dream or that at least he would look shy and uneasy when asking for more credit.

Will the mercantilists bail us out again after being so badly burned when the US consumer has no buying power any longer?Written by Markar on 2008-07-18 09:28:15I’ve lost faith in the dollar, but that isn’t quite the same thing as believing that we will lose all buying power. As long as the U.S. military acts as the "world’s policeman", mercenary force for the Western PTB, we should continue in some fashion…possibly welded to Mexico and Canada for their cheap labor/natural resources.With great risk comes great opportunity. It feels like everything is in play…interesting times. Certain to be a rough ride for all us little people. I wonder how much I will get to see unfold.NYT blog on aging and dying had a great comment re:how do you want to die. I’m paraphrasing here:I want to be completely healthy to age 100 and then have my brain uploaded into a computer so that I can watch history unfold.Will China or the U.S. go down first? Hardest? China has masses of angry people that feel left out of economic boom, desertification, horrid pollution, the fastest aging country due to the 1 child policy.Russia is sitting on energy reserves, has nukes, but also is beset by disease, organized crime, and an imploding population.U.S. is in what would appear to be terminal debt, mired in a grinding occupation, Boomers aging out of the work force and onto the public dole, diminished natural resources (oil, water), virtually no manufacturing base.Elsewhere on the board we have the war torn ME…the Israelis and two flavors of Islam duking it out along with various less powerful tribes; tragic, near hopeless Africa; cruel, cunning, yet vulnerable Japan; exploited, manipulated SA. Toss in possible catastrophic climate change and peak oil.It’s a helluva game to watch. Damn shame billions of us are merely pawns to be sacrificed at need or whim.

Various Guest Comments …"So, “there’s a “bad feeling in Israel.” Well, isn’t that just too bad.""Any time that our foriegn policy makes Isreal uncomfortable, we must be doing the right thing. The Isrealis have driven our foreign policy for far too long.""PROFESSOR ROUBINI I WILL MAKE THE SECOND BET WITH YOU FOR 100000 US DOLLAR THAT AMERICA AND IRAN WILL GO TO WAR WITH EACH OTHER WITHIN NEXT FEW MONTH, "————–Comments:Watching the events in the Middle East this past week, I was left with a very uncomtable feeling. Although this prisoner swap appears to be just one event in a long sequence of problems, somehow I think it become quite symbolic of the forces that are driving the countries in the region. On the one hand, the Lebanese are celebrating because they had 5 prisoners returned alive (along with many other bodies of those killed). This seems to be bolstering a feeling in Lebanon that Hezbollah’s recent upsurge is being lifted by a divine purpose. If that’s the general conclusion, then it’s leading into dangerous waters. Meanwhile, the whole of Israel was in mourning over the loss of their two kidnapped soldiers. It appears that Israel sees its future role as diverging from American interests – meaning that they will take whatever steps are necessary to secure their country (regardless of American policy concerns). That may seem an obvious statement. But somehow this return of the bodies of the Israeli soldiers is likely to dramatically increase the resolve of the Israelis to defend themselves, even if it means shedding a large amount of their own blood to accomplish the ends. This new line of thinking – if that’s what these events portend – takes a very different turn from PM Olmert’s recent efforts to promote cooperation and negotiation for serious issues.I see nothing good in this.I am left with a very uneasy feeling.PeteCA

@ AfA on 2008-07-18 10:13:57We are in pathetic condition. But we’re not dead yet.Mostly I agree with Gloomy. My one bit of sunshine is that we are an immigrant country. Most U.S. citizens descend from non-natives, people that had the gumption to get up and do something to make their lives better. Yes, sadly many of those descendants seem to have devolved to the type that sits on their hands and whines for someone else to fix their problems, but I have hope that there is some spark of that earlier "can do" spirit that may be rekindled. Other wise those of us who are doers will be moving on in search of a new home.

@ K in TX,I agree with you. I didn’t intend to convey that everything is lost or that is the end of it. I am much more ‘optmistic’ than that. I just don’t like to turn my back to problems or blame others for self-inflicted pains. If it was up to me, I am ready to pay to crash all "bad things" – even if I didn’t benefit from it – in one day and start over.

FANNIE, FREDDIE SPENT MILLIONS ON LOBBYINGhttp://news.yahoo.com/s/ap/20080717/ap_on_bi_ge/fannie___freddie&printer=1;_ylt=Aqj28J5m5a_dTRbVS1rwltRv24cAJuly 17, 2008 – (AP) For years, mortgage giants Fannie Mae and Freddie Mac tenaciously worked to nurture, and then protect, their financial empires by invoking the political sacred cow of homeownership and fielding an army of lobbyists, power brokers and political contributors….Over the past decade, both Fannie and Freddie made the list of Washington’s top 20 lobbying spenders. They spent a combined $170 million to cultivate allies during that period, a bit less than the American Medical Association and a bit more than General Electric. At the same time, their executives have consistently led the mortgage-banking sector in campaign giving to members of Congress, contributing a combined $16.2 million since 1997.People who have lobbied on their behalf have played or are playing roles in the presidential campaigns of both Republican John McCain and Democrat Barack Obama…"Congress created this problem by creating special rules at Fannie Mae and Freddie Mac and ignored the problem for years," said Sen. Jim DeMint, R-S.C., a sharp critic of what he sees as a looming federal bailout…Fannie and Freddie have long been distinguished by their outsized influence. They spend heavily on lobbying and hire liberally from Capitol Hill’s revolving door and their executives give top dollar to political campaigns. They’ve also funneled contributions into select charities and think tanks…… says Wright Andrews, a veteran banking lobbyist. "They had both parties — and particularly the Democrats — under incredible control."To help keep themselves free from unwanted regulatory and congressional prying, the two mortgage giants have surrounded themselves with scores of well-connected allies. Fannie Mae’s 51-member lobbying stable, according to its most recent disclosure, includes former Reps. Tom Downey, D-N.Y., and Ray McGrath, R-N.Y.; Steve Elmendorf, a Democratic political strategist and former congressional aide; and Donald Fierce, a longtime GOP operative. Freddie Mac’s list of 91 lobbyists includes former Reps. Vin Weber, R-Minn., and Susan Molinari, R-N.Y.At times, the push for influence has gone over the ethical line. In 2006 Freddie Mac paid a $3.8million civil penalty to the Federal Election Commission to settle charges that it had used corporate resources to stage 85 fundraising dinners that raised $1.7 million for candidates for federal office. In internal documents, Freddie Mac described the events as an exercise in "political risk management." The fine still stands as the largest in the FEC’s 33-year history….”End of ExcerptsThis is a good explanation of why grassroots candidates cannot compete in Big Money Politics – a system that keeps recycling politicians or their facsimiles. And so it looks a slam dunk contest for Paulson to add another open-end bailout notch on his money buckle.

@ Miss America : >”Thus, some sort of immediate regulation/control/compensation needs to be developed on shorting that is coupled with failure. There should not be “restrictions”… but instead a penalty on profits on the shorts, where it has brought a company “to failure”. On the shorting side, it adds a risk factor that keeps “smelling blood” under control.”The injustice comes when the rules apply only when they benefit the well-connected players, i.e. Lehman Brothers, but not the disconnected, i.e. IndyMacBank.This is called “cheating.”Perhaps that is why Lehman Brothers has been with us since 1850 and probably will be with us in 2166.

Miss AMerica, I own one stock right now and have had it for years. It has almost been naked shorted into oblivion so the big pharma boys can buy there cancer threapy for virtually nothing. There has been more shares shorted than shares issued for years and I and other shareholders have sent letters to the SEC begging for them to stop this illegal practice. They have done nothing. Now, their hand-selecting 19 companies that will be protected by the SEC confirms to me that they allow naked shorting and condone it by looking the other way. WHO THE HELL IS GOING OT PROTECT ME?

If Cox was getting his a$$ kicked and I was the only person who could help him, I would look the other way-just like he has done to me for years!

Written by AfA on 2008-07-18 02:35:35Yes, thanks AfA I meant swapping in toxic MBS, not agencies. That was the Chivas Regal talking

http://web.nacm.org/cmi/cmi.aspClick on "Current Credit Manager’s Index Report" and get a glimps of what the front line people in the US are seeing…have a bucket by your feet…

HOW QUICKLY THEY FORGET All the celebrating over Citigroup comes just days after this article. Truly, most money managers and investors just don’t have a clue. July 14 (Bloomberg) — At an investor presentation in May, Citigroup Inc. Chief Executive Officer Vikram Pandit said shrinking the bank’s $2.2 trillion balance sheet, the biggest in the U.S., was a cornerstone of his turnaround plan. Nowhere mentioned in the accompanying 66-page handout were the additional $1.1 trillion of assets that New York-based Citigroup keeps off its books: trusts to sell mortgage-backed securities, financing vehicles to issue short-term debt and collateralized debt obligations, or CDOs, to repackage bonds. Now, as Citigroup prepares to announce second-quarter results July 18, those off-balance-sheet assets, used by U.S. banks to expand lending without tying up capital, are casting a shadow over earnings. Since last September, at least $100 billion of assets have flooded back onto Citigroup’s balance sheet, accompanied by more than $7 billion of losses. “If you start adding up all the potential exposures, it’s a huge number,” said Sam Golden, a former ombudsman for the U.S. Office of the Comptroller of the Currency who now heads the financial-industry practice for restructuring adviser Alvarez & Marsal in Houston. http://www.bloomberg.com/apps/news?pid=20601109&sid=a1liVM3tG3aI&refer=home

I don’t know if this creates a pattern or not, but for the last few days I remarked that the dollar was trading in the .6290 and .6315 euros range, setting a bottom when US markets are closed and touching the upper bound when they are open. I know that fluctuation is ‘normal’ but the fact that as soon as US markets close, the dollar goes back to its lows makes me wonder whether foreigner or US-based (using currency hedge) switched to day trading US indexes.

It doesn’t matter, Citi will be bailed out too.

@ Miss American and Guest on 2008-07-18 11:46:11The quickest and surest way to restrain short selling would be to require settlement of short transactions. Under the current rules of the DTCC – and you can guess who owns DTCC and writes the rules – short sellers never have to deliver on short sold stock. The SEC has had complaints about this for years, including demands for action from Congress, but refuses to intervene to protect those who buy stocks rather than short them.Instead, as Guest above notes, short sellers are able to sell multiples of the actual shares in issue for any given stock, focing prices down to near zero by overwhelming any buying. Without delivery, short selling is a criminal fraud. Unfortunately the US system is set up to perpetuate the fraud because it is run by the fraudsters.

Capone, if any of us could come up with someone, we would, but we respect you too much to give you bad advice.I looked up Patelco Credit Union where I do a lot of business and its Debt Consolidation loan is 16.15% APR for up to 60 months. Pentagon Federal Credit Union (?) has a bill consolidation loan for 8.99% up to $25,000. The rates sound terrible to me considering what the fed funds rate is and what rates are on certificates of deposit.All of us are in a catch-22. But you’ll find a good deal if you dig deep enough. My mortgage already looks like a consolidation on the level of Freddie and Fannie’s.ME

RE: The Cox ListFrom previous post: “Besides, aren’t these the market makers who are heavily involved in naked shorting while everybody else has to abide by the shorting rules? Isn’t the list basically saying to these banks you can short naked any stock you like (except FNM & FRE – for now) but nobody can do the same to you?”Today, through Bloomberg: “The U.S. Securities and Exchange Commission exempted market makers in stocks from the emergency rule aimed at preventing manipulation in shares of Fannie Mae, Freddie Mac and 17 Wall Street firms.“The exemption is “essential for separating legitimate market makers from those who may try to act illegally,” said Ira Hammerman, senior managing director of the Securities Industry and Financial Markets Association, Wall Street’s largest lobbying group.”HALLELUJAHWho are the market makers and who does SIFMA* represent? And who can practice naked short selling besides market makers? Answer mostly hedge funds. And who usually keep hedge funds as off-balance sheet?Most importantly, how could an investor execute a short selling without borrowing the securities first? Everything goes through the clearing unit DTCC (the Depository Trust & Clearing Corporation)From (seemingly outdated topic) Wikipedia:“Some blame DTCC as the keeper of the system where [naked shorting] happens, and charge that DTCC turns a blind eye to the problem. DTCC suggests that naked shorting is simply not widespread enough to be a major concern. "We’re not saying there is no problem, but to suggest the sky is falling might be a bit overdone," DTCC’s chief spokesman Stuart Goldstein said. DTCC General Counsel Larry Thompson dismissively calls the claims "pure invention … The North American Securities Administrators Association, representing state stock regulators, filed a brief saying that if the claims were correct, its shareholders "have been the victims of fraud and manipulation at the hands of the very entities that should be serving their interest … Critics also contend that DTCC has been too secretive with information about where naked shorting is taking place.”Also from an outdated article from MarketWatch (June 2006):“There are currently [as of 06] about half a billion shares in the U.S. that have been sold in the past but not delivered for settlement in the required three days, according to Robert Shapiro, a former undersecretary in the Commerce Department under President Bill Clinton …“These so-called fails-to-deliver trades can go on for a long time, and Shapiro estimates that roughly 12% of NYSE and Nasdaq stocks have fails-to-deliver that are at least two months old…“Because naked short selling involves the violation of technical trading rules, it could be easier to prove than more broadly based accusations like manipulation or conspiracy."This is killing young Corporate America, costing jobs and cheating people out of hundreds of millions of dollars with fake shares."So the reason that was keeping the DTCC from enforcing the law was that the sky was not falling (in 2006). Could the solution be that simple; a request from the SEC to DTCC to ban any share shorting without prior borrowing (within 3 days)?? Instead Cox orders that no investor can naked short anyone of his List, but that anyone in the List can short your stocks to bankruptcy. And that, outside the List, the rest can take off their cloths and short each other to death (he doesn’t really give a damn). Well, Mephistopheles said that corporations should be allowed to fail (no bailout for the ex-List).So here is the List, where is Ghost Rider?*Some information you may need to know about SIFMA:http://www.sifma.org/about/board.htmlhttp://www.sifma.org/about/members/http://www.sifma.org/about/manage.html

@London Banker on 2008-07-18 13:19:30…short sellers are able to sell multiples of the actual shares in issue for any given stock, focing prices down to near zero by overwhelming any buying. Without delivery, short selling is a criminal fraud. Unfortunately the US system is set up to perpetuate the fraud because it is run by the fraudsters.It is weird how many aspects of the US system are set up so that they can be used fraudulently. Good examples of this are the mortgage and insurance industries.

http://www.nytimes.com/2008/07/18/opinion/18morris.html?_r=1&oref=sloginAn appalling op-ed in the NYT about Israel’s need to attack Iran because otherwise Iran might attack Israel. Thankfully hundreds of public comments take the mad, irresponsible, amoral writer to task. Somehow Israel tries to twist the problem of its own aggression to something or someone else, when at bottom, the problem is, as always, still Israel’s aggression and paranoia. Just an appalling piece of work — the NYT should be ashamed of itself for printing such apocalyptic bile.

A big thank you to Nouriel Roubini for recommending the book “When Markets Collide” by Mohamed El-Erian. For those of us on this blog that want to invest our money wisely with the maximum return with the minimum of risk, I highly recommend reading this book cover to cover. Most of the investment recommendations will probably not surprise the regular contributors on the blog, but the book gives a grand overview of why the US is in such a funk and what to expect in the future. For investors he recommends paring down asset allocations in US Stocks to 15% and US Bonds to 5%. This is a major change from the conventional wisdom within the US of 60% stocks and 40% bonds mostly in the US. He also recommends a 27% allocation to commodities. International stocks, emerging economies stocks, and private placements make up 34%. International bonds 9% and special opportunities 8%. He expects a 5-7% real return with a standard deviation of 8-12% for this portfolio.He likes China and most of Asia and expects the Reminbi to appreciate considerably with respect to the US dollar. He dislikes bonds as he expects both inflation and interest rates to climb. He believes in the super-commodity cycle with lots of new consumers in Asia and the GCC wishing to improve their basic standard of living. In this respect he seems to agree with contributors to the blog more than with Nouriel. The difference may be that he is making a strategic allocation rather than a tactical one. I don’t know what Nouriel’s long terms outlook on commodities are. He also advocates protecting against black swan events as the world financial system is becoming more volatile and unexpected “events” might occur. He doesn’t seem to blame TPTB but thinks events are moving faster than economists can model or comprehend (Nouriel being the exception). This seems to be due to the rapid shift of power away from the industrialized countries to those of the emerging economies. Thank you Nouriel for the courage to speak up at a critical turning point for the US economy and allowing all of us access to this blog.- Charles

Where but on Roubini could we get a professional and succinct review of “When Markets Collide” in the caliber posted by Charles. Thank you for that, Charles. I watched the video twice – it was a very serious interview on Bloomberg’s part, the quality and dignity of the questions matched to El-Erian’s expertise.

OIL TREND CHANGE?Is it just me, or has oil broken below the bullish trend line where it has found support going back to February.I remember the Guest who likes to use the term "clueless deflationists" stating several times that as long as oil was in an upward trend it is going higher (and we are all morons).Guest, if you are here, has the trendline failed? Any TA honchos want to chip in?I thought TPTB would try to bring oil down before the elections, but I didn’t think they’d start this early. But, in addition to the breach of the trendline, there has been a lot of news this week (talking to Iran, Mexico locking in prices) that makes me think a reversal is nigh. If the US and Iran announce some sort of detente, me thinks the oil be crashin’ down.Hmmmm. Is it finally time to ditch OIL? I’ve tightened up my stop loss in case some big news comes out this weekend. Perhaps I should have tightened my stop earlier this week, but I’ve been waiting for a clear breach of that trend line.And if oil begins a reversal, what will happen to my gold, dammit?

@London Banker on 2008-07-18 13:19:30 &@ AfA on 2008-07-18 17:10:57The quickest and surest way to restrain short selling would be to require settlement of short transactions. Under the current rules of the DTCC – and you can guess who owns DTCC and writes the rules – short sellers never have to deliver on short sold stock. The SEC has had complaints about this for years, including demands for action from Congress, but refuses to intervene to protect those who buy stocks rather than short them.“Some blame DTCC as the keeper of the system where [naked shorting] happens, and charge that DTCC turns a blind eye to the problem. DTCC suggests that naked shorting is simply not widespread enough to be a major concern. "We’re not saying there is no problem, but to suggest the sky is falling might be a bit overdone," DTCC’s chief spokesman Stuart Goldstein said.Aye to both of you! Yes this seemingly contradiction between what is supposed to happen and what really happens is a true hairball. Yet, if one considers that not all transactions go through the DTCC then things start to make more sense. The FED and Treasury rely on the DTCC data to get a pulse on the world financial system (remember the DTCC processes worldwide markets, bonds, gov. securities, etc.) The DTCC data may very well show that naked sorts are “relatively” benign, however, some of the intermarket trading done by the “legitimate market makers” (not in the DTCC data) is a completely different story.The truth is that the exempt institutions are being exempted because there is no way they can cover their own naked shorts by Monday. Besides, that is how they plan to recover a good deal of losses (at least on paper) when everything really breaks to the downside! You see the downside profits must be funneled to these entities. Third party nakeds would dilute these profits! Whereas the non naked shorts theoretically have a valid couterparty who pays. This is the new M&A strategy for financials. Yeah, we can’t buy you, but you owe us so much that we’ll settle for a significant stake!

AfA on 2008-07-18 10:13:57 wrote: 0. The elite who values power and money over 1, 2 & 3AfA, I beg to differ that Power is an operating asset not a consumption asset. Power earns money. CEOs and Politicians love power and then make money. From War and Peace, "What is power? Power is the collective will of the people transferred to one person."( See http://www.online-literature.com/tolstoy/war_and_peace/358/ ) With all due respect, who is our Gandhi? And who is "British Empire" in this case?AfA, The US doesn’t need a Gandhi. That’s what the Invisible Hand is all about. Social progress does not come from the volatile appearance of virtuous leader; it comes from self-interest. I suggest that you go through The Wealth of Nations. Trust the Invisible Hand to try every other way until it finds the right way.Print First Ask Questions Later.

@ JLC on 2008-07-18 22:41:38If I recall correctly, Goldman Sachs called reduced weighting of oil in its commodities index in July 2006, signalling the beginning of the oil price fall that lasted just until two days after the 2006 elections. One suspects that the diplomacy with Iran and Israeli deal with Syria may be part of the strategy to bring down oil prices leading into the 2008 elections.

Professor thank you for identifying the solution to the shameful and flagrant waste of natural resources spawned by the move to the suburbs. Although the evolving crisis will be painful it appears American society will be forced to change for the better. Having followed this site for 2 years I have complete confidence in your analysis. Thank you again.

London BankerPerhaps you missed the news about the allience between Russia and Iran. Russions do not allow America to attack Iran. The american empire will collapse during the coming energy crises. A few years and Russia will be the biggest power in the world.

@Guest on 2008-07-18 17:59:28http://www.nytimes.com/2008/07/18/opinion/18morris.html?_r=1&oref=sloginAn appalling op-ed in the NYT about Israel’s need to attack Iran because otherwise Iran might attack Israel. Thankfully hundreds of public comments take the mad, irresponsible, amoral writer to task.O guest, it looks like you have not been convinced that Iran is EVIL, like the zombies and mummies in a Hollywood movie. The Iranians are actually not even human but rather some sort of space aliens that the US marine corps need to deal with.Apologies to any Iranians that may be reading this.Above is of course what the US and Israeli military would like the public to think. I suspect that they can both ask for more cash if the public has something to fear. Also, this way no one is too horrified if Iranian children start dying of cancer caused by depleted uranium weapons (as in Iraq). Nor would anyone feel too bad if some new novel weapons were used against them, or if it so happened that the old weapons were used in some new manner…It is always possible to spread distrust against someone else, and the more different that someone else, the easier it is to spread the distrust.

First off, I have never any intention to criticize anybody here and if I argue, it is only with much respect and humility. I am only submitting my thought to your review, which you can freely criticize.I have few beliefs that I think are basically against the mainstream thinking (and for which I have not theory or someone to quote) “free markets” and “socialism” are powers of nature not national policies. A nation or an economy may want to shape their policies any given time … It is not a dualist approach.I also think we got the wrong messages from Adam Smith’s “Wealth of Nations”. In my view too, Adam Smith was a purist not a theoretician. He was trying to describe the mechanisms with which the economy/markets work and he came to the conclusions that these mechanisms guarantee the optimal outcome for individuals and society. He was not theorizing about how the markets should be organized. The difference here is between markets ARE/CAN BE free and markets SHOULD/ OUGHT to be free. As I said earlier, free market is a power of nature, and trying to control and police a power of nature is an abominable aberration that WILL/MAY BE corrected by them (free markets). More specifically, first, in his book, Adam Smith was demonstrating the benefits of “division of labor” not “division of income”. Second, he was advocating “free markets” but not “laissez-faire” doctrine. Third, I believe that the “Invisible Hand” was not referring to “egoism” but rather to “arbitrage” decision. Of note also are the assumptions and limitations that Adam Smith (or others) that governs the 3 forces mentioned above and that force 2 governs both 1 & 3 and 3 governs 1.So, Adam Smith was advocating that LABOR specialization increases the benefits for the people unless; it is more costly to do so, the size of the market makes specialization inefficient, it is against 2 & 3 (against the forces of free markets or does not provide a good arbitrage alternative). It is far stretched to conclude from this that Adam Smith was advocating the “division of income” (my expression) – or division of decision – i.e. the idea that some work and earn income and others consume through debt/credit."It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy [using income earned from a specialization that costs others more to make than to buy]” Is in my opinion much different from: “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy [FULL STOP]”In fact I do not think there is mention in this section of the Wealth of Nation of credit and debt as a means to consumption. However, Adam Smith discusses an important aspect:“Labour, therefore, is the real measure of the exchangeable value of all commodities. The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” (a)On other different places, he argues that interest rates are an indicator of profits (b) and that profits are inversely proportional to wages (c)“"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” (d)So, you add (a), (b), (c) and (d) to the fact that Americans are highly indebted to conclude what the future of relation of labor to wage will be in the future. Debt interest in a certain way is a claim on an increasing future disposable income through labor (for individuals) and profits (for corporations). Corporations need to continuously increase their profits to pay their debt + interest, and since profits are inversely related to wages (especially when we move closer to systemic saturation) therefore individuals have to work more with stagnant or decreasing wages. And since they have to pay at least interests on their debts and that special interests do not like to make losses and are therefore inclined to increase prices (above the natural price), consumers will have to consume much less. That is a big trap waiting for the historical American Consumer advantage. I agree that imperialist and sometimes socialist foreigners (put as many quotation marks here as necessary) are in a temporary disadvantageous position if they don’t want lose their American demand or that Americans default on their debts, but these have a short, medium and long term powerful weapons (so to speak). In the short term, debtors/sellers cannot force Americans to pay or default, but they can (and suspect) easily force them to pay increasingly higher prices and higher interests. In the medium term, the effects of the shorter term may not lead creditors to default, but most certainly, will lead them to dispose of their most valuable assets to foreigners at fire sale prices, leading to a greater leverage and foreign ownership. In the longer term, due to forces from the medium term, the marginal profitability to sell to Americans will substantially decrease and more importantly, the losses to foreigners from a possible defaults have significantly diminished since they own most valuable assets, and on the other hand, the ROW would have been able to build a much larger consumer base (with more disposable income to spend) in their respective economies. I still do not see what sustainable advantage.The only thing that can “save” US from this outcome is military power. Well, the rest is just history. The other solution is that the value of untapped US commodities (oil, grey matter …) increases over time but that necessitates that foreigners demand for them is much greater than national consumption and I doubt these will be sufficient by themselves and need to be accompanied by more decrease in wages (I think of this as a reversed graphed function of the process happening in an Emergent country (China); in an Emergent market, the value of labor is much greater than the corresponding compensation (the value (to the ROW) line is rising and above the compensation line which is also rising), as the market tends towards maturation, the compensation line crosses the value line from below. When the market tends towards saturation, both lines revert and start declining, with the compensation line moving faster then crossing the value line from above – just personal theory).Back to Adam Smith. We may argue that free markets and laissez-faire are synonyms as well as egoism and arbitrage when it comes to international trade. But there is an important nuance here. When Adam Smith talks about specialization and outsourcing, he talks about it from a financially and decision making centered entity (Home). The home could indeed refer to either a household or a country, but the decision to specialize/outsource requires first that the Home has the income to spend on outsourced tasks. I also find it far stretched to view Adam Smith’s position as a pretext for an unreasonable, extravagant and forced globalization. (I am for a certain type of globalization where according to free markets, each entity is considered as economically integrated – disposing of proportionate consumption to their income, as I view the increase in outsourcing to China crossed the unsustainability line and was rather fueled by continuous credit creation and” subprime” demand for imported goods & services).Again, "It is the maxim of every prudent master of a family [or country], never to attempt to make at home what it will cost him more to make than to buy [as long as the Home’s disposable income warrant such buying]” Is in my opinion much different from: “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy [FULL STOP]”Therefore, the fact that a household or a country attempts to buy beyond they are able to afford or motivated to earn is
, in a rational and long-term view, an imprudent, foolish and SUICIDAL behavior.Also, in the context, Adam Smith was arguing against the idea at that time that “individualism is bad” and was trying to make a point that selfishness is not necessarily bad. That is a long way far from saying he was advocating that total self interest is good. More importantly, there is nothing that says that the self-interested/ arbitrage decisions do not integrate social(istic), humanitarian and other altruistic motives; it is in my self interest to not charge someone a unfairly high price not because I want him/her to come back and create retention, but because it brings me with peace of mind and an interior satisfaction I did something “right”.And to paraphrase Einstein again, [markets] do not care about mathematical (and theoretical) difficulties, they integrate empirically. I am deeply convinced that market just like many natural systems an old big and rusty electrical machine we pull a lever or push a button for fun to see what will happen but nothing happens. We do it again and again and still nothing happens. And when we conclude that that specific lever or button has no effect, the machine starts showing error and alert messages. I also see the market as subject to both chaos theory and closed-systems theory (both improperly defined by me). Chaos theory applies to stable (although overwhelming) set of rules and laws (regulating cause to effect relationships). Closed (but big) systems operate as open systems, which allows growth and predictability as long as the system is far from it’s saturation point. If we reach saturation in a closed system, the set of rules and laws change (e.g. change in historically stable correlation coefficients for positive to negative or from 1 to 0).

@ PeterJB on 2008-07-19 07:58:08Peter:I understand what you are saying and appreciate your sentiments. Looking strictly to the language of the Constitution, however, I see nothing that would preclude the federal government or any of the states from adopting or participating in socialism (fascism or Marxism would, however, appear to be precluded, although as the actions of the Bush Administration over the past seven and a half years demonstrate, de facto adherence to constitutional precepts calculated to restrain executive authority will always be fragile and subject to routine compromise and even outright violation). I would refer you to my earlier post (on 2008-07-16 01:54:17) in response to an anonymous poster who asserted that socialism is incompatible with the Constitution. If you have any specific arguments supported by the language of the Constitution itself, I would love to consider them. I find that most of us, over the course of our mortal existence, tend to develop and harbor our own paradigms of reality which act as filters through which we funnel and interpret information. Religious fundamentalists, for example, whether Christian, Jewish, Muslim, Hindu, or whatever, will construe holy scriptures of their faith in a way that consistently supports their pre-existing views of the world, ignoring or rationalizing or otherwise explaining away bits and pieces that don’t quite fit (literalist constructionists of the Bible typically only view the text literally when it conforms to a perspective they have already embraced as real and true). The same thing happens in politics and economics. Libertarians tend to view all events through the prism of their preferences for minimal government intervention, populist progressives see every problem in the world as a product of global corporatism gone amuck, monetarists view all economics problems as arising from and solvable by monetary policy, Keynesians look to fiscal origins of and solutions to macroeconomic problems, etc.SWK

@ Print First Ask Questions Later: "It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy…(from ‘Wealth of Nations’)Yes, this is the comparative advantage of real free trade — but America’s “free” trade has morphed into privileged trade — review the thousands of pages of NAFTA – and bloated monopoly. The “invisible hand” working here is clandestinely embezzling the country’s resources.An old economic maxim is that “What is in the best interests of the family is also in the best interests of the nation”So I ask, what “prudent master of a family” would allow his homestead to be seized by a few strangers who’ve garnered by hook or crook a 12% “share” of his property? What man would stand by while these new “owners” and their “chief executive officer” dismantle his barns, equipment, vehicles, appliances, furniture, storages and working capital and haul it offshore to a plantation lord? And then divvy the “earnings" amongst themselves? How, then, can he produce anything? He has no tools of production left.And then, to make matters worse, the blame is put onto him, the victim.

"The United States have developed a new weapon that destroys people but it leaves buildings standing. It’s called the stock market." —Jay LenoSWK

@ SWKCorrection:CAPITALISM: You have two cows. And you are the third one

SWK, I can’t help but think there is more going on with Fannie & Freddie than meets the eye.Informed people have known for months if not years that F&F were not adequately capitalized and will be technically insolvent during a period of sustained house price deflation. It is not news. Yet, last week it suddenly became a "crisis". Why are we freaking out about it now all of a sudden?Then Paulson comes out with his scheme for Congress to write a blank check for Treasury to buy stock in F&F?!? I mean, are there any worse proposals he could possibly have come up with. Its almost like he made them an offer that they must refuse.I am wondering if Paulson’s plan is designed to fail – to force congress to say no to a bailout of F&F (which Bush was against until recently) in order to force the situation, so that they can then say, hey we tried, but Congress let them fail. Once this plan is dead in the water, they will come up with something much more subtle but with much better benefits to their favored institutions.I think it is a bait and switch. I just have no idea what the switch is. Maybe its not about F&F at all. It just doesn’t add up. I have a bad feeling about this . . .

From a NY Times article(the references to professor Roubini is on pages 2 and 3):http://www.nytimes.com/2008/07/19/business/economy/19econ.html?ei=5087&em=&en=34e68d198d5c9bd7&ex=1216612800&adxnnl=1&adxnnlx=1216495826-6hEUsGgjKqy5EL1J+l4eCA"More than two years ago, Nouriel Roubini, an economist at the Stern School of Business at New York University, said that the housing bubble would give way to a financial crisis and a recession. He was widely dismissed as an attention-seeking Chicken Little. Now, Mr. Roubini says the worst is yet to come, because the account-squaring has so far been confined mostly to bad mortgages, leaving other areas remaining — credit cards, auto loans, corporate and municipal debt.Mr. Roubini says the cost of the financial system’s losses could reach $2 trillion. Even if it’s closer to $1 trillion, he adds, “we’re not even a third of the way there.”Congrats Professor..hopefully more people will start paying attention to what you say.

Dr R,One must remember that the vast majority of Americans spent the last ten years getting economically hammered, not buying Mc-whatevers.Secondly, I would like you to talk to the absurd amounts of money being extorted from the American University student, some of which is going into your pockets. Talk about the pot calling the kettle black!

"The doctrine of activist central banking owes much to its progenitor, the Victorian genius Walter Bagehot. But Bagehot might not recognize his own idea in practice today. Late in the spring of 2007, American banks paid an average of 4.35% on three-month certificates of deposit. Then came the mortgage mess, and the Fed’s crash program of interest-rate therapy. Today, a three-month CD yields just 2.65%, or little more than half the measured rate of inflation. It wasn’t the nation’s small savers who brought down Bear Stearns, or tried to fob off subprime mortgages as "triple-A." Yet it’s the savers who took a pay cut — and the savers who, today, in the heat of a presidential election year, are holding their tongues.Possibly, there aren’t enough thrifty voters in the 50 states to constitute a respectable quorum. But what about the rest of us, the uncounted improvident? Have we, too, not suffered at the hands of what used to be called The Interests? Have the stewards of other people’s money not made a hash of high finance? Did they not enrich themselves in boom times, only to pass the cup to us, the taxpayers, in the bust? Where is the people’s wrath?"http://www.nakedcapitalism.com/2008/07/jim-grant-why-no-outrage.html

Public services are offered a special tax status under the Internal Revenue Code. They are allowed to raise funds through state and local bonds, without paying taxes on the interest. This effectively gives them a lower interest rate than is available to private, profit-making entities. Makes sense, right? If we gave everyone a tax break than there would be no tax revenue for the government to function. But communities struggling to find money for investment in their water system shouldn’t be burdened with finding an extra few percentage points to give the federal government. But some corporations want these same tax benefits extended to them. Some public-private programs are already offered tax exemption from bond financing, but there is a cap on the number of these private activity bonds. H.R. 1708 would lift that cap, offering more tax-subsidized bonding to corporations.Taxpayer money should finance public utilities, not corporate profits. Tell Congress not to give tax breaks to corporate investors to privatize our water.

Professor Roubini-Have you ever considered making some of the RGE content (for instance new articles, not the reactions to the articles) available as downloadable podcasts? See for instance the way CNN and the WSJ do it. Americans could in that way listen to it while driving to work (as long as the job exists that is) in their SUVs. I would definitely listen to it while I am on the tube…Kind regardsRedCreek

SEC’s `Naked’ Short Sale Ban Raises Banks’ Complaints, WSJ Sayshttp://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=WM:US&sid=aUJXW_BUs2u4 By [bn:PRSN=1] Alexis [] XydiasJuly 19 (Bloomberg) — The U.S. Securities and Exchange Commission’s ban of “naked” short-selling in 19 financial companies has been criticized by firms that weren’t included, the Wall Street Journal reported.The American Bankers Association, which represents 8,500 banks, asked the U.S. market regulator to extend the emergency rule to all companies in the industry or risk making them a target for market manipulators, the newspaper reported, citing a letter from the organization.The Financial Services Roundtable, a group of 100 financial companies, and lender Washington Mutual Inc. have also requested an extension, the Wall Street Journal said. National City Corp. plans to do so, the newspaper added.To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

Ron Paul: "Some Big Events Are About To Occur"http://www.infowars.net/articles/july2008/170708Paul.htmTexas Congressman Ron Paul has warned the House that he is "convinced the time is now upon us that some Big Events are about to occur." that will cause liberty to go "into deep hibernation".Paul told the House:"These fast-approaching events will not go unnoticed. They will affect all of us. They will not be limited to just some areas of our country. The world economy and political system will share in the chaos about to be unleashed.""There are reasons to believe this coming crisis is different and bigger than the world has ever experienced. Instead of using globalism in a positive fashion, it’s been used to globalize all of the mistakes of the politicians, bureaucrats and central bankers." Paul continued.In one of Paul’s most memorable speeches to date, the Congressman spoke of rampant authoritarianism having replaced the principles of liberty that the United States was founded upon and warned that current empire building financed through inflation and debt signals a most frightening period in history."Our arrogance and aggressiveness have been used to promote a world empire backed by the most powerful army of history. This type of globalist intervention creates problems for all citizens of the world and fails to contribute to the well-being of the world’s populations. Just think how our personal liberties have been trashed here at home in the last decade." Paul urged fellow representatives.Paul outlined the history of the current economic crisis and alluded to key events such as the inception of the Federal Reserve System, the creation of the Bretton-Woods Monetary System and the creation of a "dollar bubble"."This bubble is different and bigger for another reason." Paul argued."The central banks of the world secretly collude to centrally plan the world economy. I’m convinced that agreements among central banks to “monetize” U.S. debt these past 15 years have existed, although secretly and out of the reach of any oversight of anyone–especially the U.S. Congress that doesn’t care, or just flat doesn’t understand."Yesterday, the Congressman also confronted Federal Reserve Chairman Ben Bernanke over what he described as a 35 plus year dollar bubble, telling him "You are probably the biggest taxer in the country", citing the inflationary fiat money system as the most unfair and regressive form of taxation there is.A stunned Bernanke put up little resistance and simply agreed with Paul, stating “Congressman, I couldn’t agree with you more that inflation is a tax, and that inflation is currently too high.”…

Folks this piece from rense.com is long, and I’m sorry about the length (there’s more if you activate the link), but this is VOLCANIC.THE BIG FINANCIAL BAILOUTS – PROTECTING THEIR OWN” by Joel Skousen – 7-18-8 http://www.rense.com/general82/bail.htm Cite source as Joel Skousen’s World Affairs Brief http://www.worldaffairsbrief.comAll the hype from Congress and the White House about bailing out establishment financial institutions only to "save America from the ravages of a depression" is merely a cover for a systematic protection racket aimed at saving those who brought this debacle upon us–and profited during the run-up. Now they want to profit on the way down too. As Darryl Schoon put it (bluntly), "Once the most powerful and productive economy in the world, the US, indebted by bankers and government spending beyond its ability to repay, is headed towards sovereign bankruptcy. The recent request by US Treasury Secretary–and more importantly former Chairman and CEO of investment bank Goldman Sachs– Henry Paulson to bail out Fannie Mae and Freddy Mac with US taxpayer dollars is but another indication of this destructive and parasitic relationship between bankers, government and the economy. That a private banker from a large Wall Street investment bank is also Secretary of the US Treasury is no coincidence. It is also no coincidence that once again, public monies from the US Treasury are being used to rescue private bankers and to indemnify their losses." This week I will attempt to illuminate the incestuous relationship between these financial Powers That Be (PTB) and how they intend to sap America’s individual wealth in order to salvage their crumbling speculative empire. Schoon goes on to describe how government has "the fox guarding the henhouse" by selecting major players in Wall Street brokerage houses and investment banks to serve as Sec. of the Treasury. Most bailouts have been engineered by these Treasury chiefs–directly benefitting there former employers. "Receiving taxpayer dollars from the US Treasury for their private benefit is not new to Goldman Sachs. In the 1990s, when the Mexican government defaulted on its bonds, investors at Goldman Sachs stood to lose billions of dollars. They didn’t. Buried deep in the subsequent $40 billion US bailout of Mexico was a $4 billion payment to Goldman Sachs, gratis of the US Treasury indemnifying Goldman Sachs against any losses on their investment in Mexican bonds. The fact that current US Treasury Secretary and former Goldman Sachs CEO Henry Paulson also recently used US funds to underwrite JP Morgan Chase’s private buyout of investment bank Bear Stearns and is now proposing to do the same with Fannie Mae and Freddie Mac is to be expected. For investment bankers, using public money to privately profit is business as usual." Jim Rogers, Chairman of Rogers Holdings summarized saying, "They’re ruining what has been one of the greatest economies in the world, [Bernanke and Paulson] are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this." –and pay we will, through rampant inflation. Nothing is more symptomatic of this "protecting our own" philosophy than Paulson’s latest move to shut down, temporarily, market short sales–but only those aimed at undercutting insider institutions. Reuters revealed this week that "US securities regulators issued an emergency rule on Tuesday to limit certain types of short selling in major financial firms, including Fannie Mae and Freddie Mac. The rule is the latest effort by the U.S. Securities and Exchange Commission to clamp down on market manipulation that some blame for the sharp declines in financial stocks and the demise of investment bank Bear Stearns in March. The rule will go into effect on Monday, July 21, and last through July 29, although it could be extended to last up to 30 days." In fact the ruling is not aimed at stopping market manipulation. Neither the Congress nor the White House were serious about stopping the obvious manipulation of oil prices–which all the big New York financial firms are involved in. But they certainly are interested in stopping others from short selling the stocks of the big brokerage firms. "The emergency rule applies [only] to 19 financial firms including Lehman Brothers, Goldman Sachs, Merrill Lynch, Morgan Stanley, JPMorgan Chase & Co and Citigroup Inc. The SEC said that a loss of confidence in markets can lead to panic selling, which may be further exacerbated by certain types of short selling." Yes, but the move only protects the big boys–no one else. This is clearly meant to ensure that outside investors cannot precipitate a selling streak to profit from the coming downturn in values at these banks and brokerage houses. Jon Nadler explains the process of short selling and why this temporary restriction won’t last: "Short selling, the WSJ explains, is a legitimate trading strategy in which traders aim to profit from falling stock prices. In a short sale, a trader borrows stock and then sells it, in hopes it will later fall in price. If it does, the short seller then buys the stock in the open market at the lower price, returns what was borrowed, and pockets the difference….Indications are that stock short-sellers enjoyed their best month in over seven years during June, as the stock market swooned on a raft of bad news. "Apparently, not every such trade may have been conducted with borrowed stocks in someone’s pocket. Some traders, in fact, may not have had any pockets to speak of, as they were…buck naked. This has caught the attention of regulators [Actually, it is a well known phenomenon that is permitted only for insiders] who were at first just focusing on Bear and Lehman trades and possible rumors." Quoting the Wall Street Journal, Nadler continues: "The SEC said Tuesday’s move aims to stop ‘unlawful manipulation through naked short selling’– the practice of selling stock short without taking steps to borrow it… So far, there’s much chatter, apparently, over whether the SEC’s plan, which is expected to go into effect on Monday and will expire in 30 days, will actually work. But based on the history of efforts to curb short selling, prospects don’t look good… In the 1990s, Hong Kong temporarily banned short sales, and the Malaysian finance ministry proposed that anyone caught short selling should be punished by caning. Neither measure prevented those markets from falling during or after the 1998 Asian crisis. "’In the near term, short sellers may see some marginal increase in their cost of borrowing, as brokers adjust their operations,’ said Laurel Fitz Patrick, a partner at Ropes & Gray who advises hedge funds. ‘Ultimately, neither this rule, nor the SEC’s indications that they are looking to bring enforcement cases against sellers spreading rumors, will reduce short selling if sellers believe a stock is overvalued.’" Only the insiders are told directly that they need have no fear of enforcement. These rules are meant to scare away the short selling competition, or from encouraging the general public from cashing in on this pre-depression windfall. INSIDER EXEMPTIONS FROM REGULATION Often the only visible sign of who is deep inside the protected establishment is by some obvious exception to the laws and regulations the rest of us have to abide by… (activate link for the "rest of the story")

HALF WAY TO ARMAGEDDONThe housing drop will necessarily continue as astronomical inventories mean supply will be far greater than demand for the forseeable future. Say we are maybe half way down the path of mortgage defaults and falling home prices. Look where half way home has brought us: the banking system is on the verge of total collapse. When we double todays foreclosures and cut home prices another 20% where will we be? When government is forced to effectively nationalize Fannie, Freddie, Citi, Morgan Stanley, Bank of America and the rest of the crowd, the moment of total economic collapse will occur, as the dollar collapses and treasury yields go through the roof. This is not speculation. It is a necessary outcome of current supply-demand dynamics in the housing market.

"Jim Rogers, Chairman of Rogers Holdings summarized saying, "They’re ruining what has been one of the greatest economies in the world, [Bernanke and Paulson] are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this." –and pay we will, through rampant inflation."@ Guest on 2008-07-19 20:21:56This is the evidence that the USA has arrived at full blown fascism; one rule for "us" and another rule for "them". The next staging point is total socio-economic collapse.(I might add, that Messrs. Benanke and Paulsen et al, don’t view / see their actions in these terms, as they can’t see the whole picture. They will most probably however in years to come, arrive at understanding and then revulsion at what they (have done) are doing.)Ho humPeterJB

@WAWAWA: “What does "monetize" debt mean?”Monetizing debt is paying off government debt by printing more money out of relation to its value. It leads to inflation. Hyperinflation often is defined as inflation rates above 50% Per Month.This is monetization of debt — in today’s news:HARARE, July 19 (Reuters) – Zimbabwe’s central bank will introduce new higher-value 100 billion Zimbabwe dollar notes on Monday as part of a desperate fight against spiralling hyperinflation, the bank said.Zimbabweans are suffering chronic shortages of meat, maize, fuel and other basic commodities due to the collapse of the once prosperous economy, which critics blame on President Robert Mugabe’s policies, including his violent seizure of white-owned farms.Central bank Governor Gideon Gono announced on Wednesday that inflation had surpassed 2.2 million percent, though some economists put it much higher.http://www.guardian.co.uk/business/feedarticle/7663377The most famous hyperinflation and monetization of debt occurred in Germany in the aftermath of World War I. The victorious allies demanded reparation payments far beyond the scope of ordinary sources of revenue. Between 1922 and November 1923 the average German inflation rate was 322% Per Month. The inflation rate in October 1923 rose to 41% Per DAY. It took wheelbarrow loads of cash to buy a loaf of bread…(In addition mortgages were monetized to the devaluing Reich mark but bank accounts were not. The Treaty of Versailles literally starved the Germany people, creating hopeless poverty and planting the seeds for WWII. — Guest)http://www.econ.duke.edu/~kdh9/Macro_Text_Webs/Second%20Draft/Chapter%2018_May%202005.pdfOther examples:A 500,000,000,000 (500 billion) Yugoslav dinar banknote circa 1993, the largest nominal value ever officially printed in Yugoslavia, was the final result of hyperinflation.A 100,000 Ukrainian karbovanets (used between 1992 and 1996) was taken out of circulation in 1996, and was replaced by the Hryvnya at an exchange rate of 100,000 karbovanzi = 1 Hryvnya (approx. USD 0.50 at that time, about USD 0.20 as of 2007). This translates to an average inflation rate of approximately 1400% Per Month between 1992 and 1996Here is another account of monetization:The power of taxation by currency depreciation is one which has been inherent in the State since Rome discovered it (Keynes, 1923).On March 18-19 of 2008 the Federal Reserve printed up 30 billion dollars and provided that sum to Bear-Sterns an investment bank that gambled its fortune on collateralized mortgage security packages and lost. That 30 billion dollar sum depletes the value of the dollars in a policeman’s wallet just as it does in Mary Jane Joe’s purse, and when these individuals go to the grocery store they will find a loaf of bread has jumped in price to accomodate the devaluation of their dollars when that 30 billion was printed electronically, out of nowhere, and forwarded to the Bear-Sterns Investment Bank.http://bernankesfed.com/

@Guest > “Yesterday, the Congressman [Ron Paul}…confronted Federal Reserve Chairman Ben Bernanke over what he described as a 35 plus year dollar bubble, telling him ‘You are probably the biggest taxer in the country’, citing the inflationary fiat money system as the most unfair and regressive form of taxation there is…”Bravo! Ron Paul. Bravo! We have a statesman!!

@ AfA on 2008-07-19 20:55:45You ask great questions and have a good insight of the shorts system. I’m not up to a detailed answer to each question because it gets complicated at that level and I’m not at all sure I could actually articulate my thoughts clearly with the detail.Let me say that the SEC basically handed the chosen 19 players a big stick. These players are the only ‘legit’ naked shorters allowed for these stocks. This allows these players to use the nakedness internally for their own benefit and it also allows them to choose those external players (clients, partners, friends, etc.) who they will either share upcoming proceeds with, or those external players (suckers, deep pockets, clueless, etc.) who they will leech off of. But let’s not forget those external players who they will enforce the rule upon and make them drop their shorts unless they find the stock to cover their shorts.Basically, this allows them to align winners and losers as they see fit and provides them a ‘weapon’ or tool to legitimize it. You see some of the shorts will bring handsome profits, while others will need to pony up the stock to cover their butt when the short doesn’t pay off.In the end people will wonder what happened when the dust settles. The PTB will point out that there was obviously no favoritism employed when several of the chosen players go kaput and others suddenly get recapitalized. Exactly, these are not all chosen players. Some are being destined to fail others are being destined to live a new life. It’ll look kind of random in the end maybe “market driven” will be the term used, but preordained is a more apt term here. Now if we just knew which were which?Hope that helps.

This constant diminishing of the people’s daily rations via the Fed’s confiscatory bailouts, usurious oil, and skyrocketing food prices is leaving more and more people looking at the proverbial empty bag.It reminds me of that old saw of the woman who decided to cut down, little by little, on the amount of oats that her horse received every day, in hopes of eventually eliminating all the daily rations. The procedure advanced slowly through the coming weeks until finally the daily ration was down to one grain of oats. But the horse died. Screamed the old woman, “Only one more day and I would have succeeded!”Now it looks as if Joe 6Pack is starting to flag, just as all the banks are screaming “where’s mine” as they fight over Joe’s last penny in this financiers’ free-for-all for bail money and SEC bounty. And all the while, those old pirates Bernanke and Chris Cox who’re piloting this leaky dingy, keep chanting, “It’s your job to sit there and bail, Joe. Bail, Joe!”“Fifteen men on the dead man’s chest” and all that! Yo-ho-ho, and a bottle of Chivas Regal!

@ 2centsSounds like the makings of a good movie…where the bad guy wins. Too bad The Government is now the bad guy.

Israel v Iran?Just where does Israel stand in regard to pre-emptive strike on Iran’s nuke’s? Has US informed Israel that it would have to go it alone, and therefore given Israel pause?Consider: if Israel knows it will get no help, then doesn’t this increase the chances of Israel using its nukes (under the assumption that it has developed them), and then what would happen?My impression is that Israel does not to or can not get into a protracted conventional war with Iran unless it has US backing.Thus, Israel may have to sit and sweat it out, and if a nuclear Iran emerges, then of course, like our financial situation which we put off for future generations to solve, nuclear exchange would be a catastrophic "solution" and possibly Israel’s only solution at a later date.If there has been a warming of relations through prisoner exchanges, US embassy in Iran, etc has this MAD scenario been rethought by Iran? I.e., has US basically told Iran…" Listen Iran, if you pick a fight with Israel or threaten them with development of your nuke and delivery system, then we will not come to their aid, and therefore they will have no other option but to use their nukes."In short, by US withdrawal of support of Israel, then Iran is forced to realize that it would no longer be involved in a conventional war with Israel.

monetization of bad asset (bad debt or bad equity value) will ultimately lead to destruction of currency and then economy. America is leading that way.

BACK UP THE TRUCKLast week’s spectacular short covering rally in the financials won’t last long and represents the last, best opportunity to make a killing shorting the financials. As Yves Smith pointed out, this rally was in magnitude an 11 sigma event, which almost certainly means a reversal is coming. The wolves were temporarily driven away by the SEC, but the financial cows are just too weak and sick and are irresistable targets for the hungry shorts. Then there was Paulson’s remarks today reported on AP:"WASHINGTON – Treasury Secretary Henry Paulson sought to reassure an anxious public Sunday that the banking system is sound," Can you imagine any better evidence that it is all going to unravel over the next few months? Back up the truck and get ready to make a fortune shorting this temporary rally!!

@Pete CaThought this would be of interest:Schwarzenegger Needs To Face Reality: California Is Insolvent http://globaleconomicanalysis.blogspot.com/2008/07/schwarzenegger-needs-to-face-reality.html

GloomyBelieve me … I’m seriously worried about it – the budget shortfall in California. Present proposals to put this thing off, or borrow to cover the shortfall, are drug-induced!California is in a BIG hole with our budget, and nobody is getting serious about it. The state has been scaping by because of income from Silicon Valley and defense spending. But I’ve got to be honest. I don’t see housing prices bottoming asny time soon, and I expect unemployment to keep going up. The future does not look pterry for California right now.I honestly don’t know what’s the matter with politcians in the USA right now. They are not getting the message. This goes for both the main parties. They seem to think that the old way of doing business, and just BS’ing their way up the ladder will still work. They don’t realize the huge gap that is growing between average Americans on the street and the folks that are in power. This growing gap will lead to a resolution sooner or later … and it isn’t going to be pretty (for the people OR for the Government).PeteCA

@Gloomy: “’WASHINGTON – Treasury Secretary Henry Paulson sought to reassure an anxious public Sunday that the banking system is sound,’ … Can you imagine any better evidence that it is all going to unravel ..?”The louder he talked of his honour, the faster we counted our spoons. (Ralph Waldo Emerson)

Sorry about the rant above. It probably doesn’t belong here, but then neither does Hubbs’ promotion of a unilateral attack on innocent civilians when no demonstrable threat exists.I’m not anti-Israel. I’m anti-aggression, anti-imperialist, anti-racist/religionist, anti-oil grabbing, anti-arms dealing, anti-lawlessness, and anti-BS.

@ Guest on 2008-07-20 01:19:34Henry Hazlitt was first and foremost a libertarian, and his comments about inflation being in the nature of a tax must be read with this in mind. His opposition to any government intervention in the economy whatsoever is legend. My understanding is that he did not have any formal academic training in economics — he did not hold even a Bachelor’s degree in the subject, much less a Master’s or Ph.D. — and his first book, written at age 19, was a work of philosophy of economics, not economics. He was not a trained economist, then, but a journalist in the field of business and economics. The Austrian School that he embraced is largely criticized by mainstream economists for its lack of academic rigor. In particular, its rejection of the use of the scientific method and empirical testing means that most or all of its claims are not falsifiable. It really amounts to little more than low grade dog food in the universe of economic nourishment. This is not to say that Mr. Hazlitt’s positions are inherently untrue; rather, that one should be especially cautious about embracing his conclusions as gospel, even though they may resonate with the listener.The term ‘tax’ refers to a charge of money imposed by a governmental authority on persons or property for public purposes. The term ‘inflation’ refers to a continuing rise in the general price level generally attributable to an increase in the volume of money and credit relative to available goods and services. They are not the same, Mr. Hazlitt’s flowery commentary notwithstanding. Inflationary cycles occur even in the absence of a managed economy.I suggest that the overarching point in the quotation of Mr. Hazlitt provided is that inflation is very bad, in that it has an effect similar to a regressive system of taxation when its greatest impact falls on those least able to bear its burdens. I would agree with this proposition. Where I would part company with Mr. Hazlitt would be in any suggestion that there could be no legitimate public purpose to be served in government intervention in the economy, even when such intervention necessarily results in bringing about inflation. It may sometimes preferable to suffer collectively a degree of inflation than to allow a large percentage of our fellow citizens to endure a protracted period of severe unemployment, especially if we are not going to provide an adequate social safety net to mitigate against that result.Thanks for bringing this point of view into the discussion. There is a lot of truth in what Mr. Hazlitt had to say about the dangers of inflation.SWK

USA – IranYou all missed the news. Including CNN, CNBC, …http://www.rense.com/general82/abyss.htmAfterwards:http://news.bbc.co.uk/go/pr/fr/-/2/hi/middle_east/7510899.stm

WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest."What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."A prominent finance expert asks Congress to help Americans rebuild their ficticious dreams.The current economic woes, brought on by the collapse of the so-called "housing bubble," are considered the worst to hit investors since the equally untenable dot-com bubble burst in 2001. According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent."Perhaps the new bubble could have something to do with watching movies on cell phones," said investment banker Greg Carlisle of the New York firm Carlisle, Shaloe & Graves. "Or, say, medicine, or shipping. Or clouds. The manner of bubble isn’t important—just as long as it creates a hugely overvalued market based on nothing more than whimsical fantasy and saddled with the potential for a long-term accrual of debts that will never be paid back, thereby unleashing a ripple effect that will take nearly a decade to correct.""The U.S. economy cannot survive on sound investments alone," Carlisle added.Congress is currently considering an emergency economic-stimulus measure, tentatively called the Bubble Act, which would order the Federal Reserve to† begin encouraging massive private investment in some fantastical financial scheme in order to get the nation’s false economy back on track.Current bubbles being considered include the handheld electronics bubble, the undersea-mining-rights bubble, and the decorative office-plant bubble. Additional options include speculative trading in fairy dust—which lobbyists point out has the advantage of being an entirely imaginary commodity to begin with—and a bubble based around a hypothetical, to-be-determined product called "widgets."The most support thus far has gone toward the so-called paper bubble. In this appealing scenario, various privately issued pieces of paper, backed by government tax incentives but entirely worthless, would temporarily be given grossly inflated artificial values and sold to unsuspecting stockholders by greedy and unscrupulous entrepreneurs."Little pieces of paper are the next big thing," speculator Joanna Nadir, of Falls Church, VA said. "Just keep telling yourself that. If enough people can be talked into thinking it’s legitimate, it will become temporarily true."Demand for a new investment bubble began months ago, when the subprime mortgage bubble burst and left the business world without a suitable source of pretend income. But as more and more time has passed with no substitute bubble forthcoming, investors have begun to fear that the worst-case scenario—an outcome known among economists as "real-world repercussions"—may be inevitable."Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal."Despite the overwhelming support for a new bubble among investors, some in Washington are critical of the idea, calling continued reliance on bubble-based economics a mistake. Regardless of the outcome of this week’s congressional hearings, however, one thing will remain certain: The calls for a new bubble are only going to get louder."America needs another bubble," said Chicago investor Bob Taiken. "At this point, bubbles are the only thing keeping us afloat." from the onion

With a quick search on the internet, I found these:“Inflation is like sin; every government denounces it and every government practices it”Frederick Leith-Ross“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”Ronald Reagan“Inflation is taxation without legislation”“Inflation is the one form of taxation that can be imposed without legislation.”Milton Friedman“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”John Maynard Keynes“The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”Alan Greenspan“I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.”Friedrich August von Hayek“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”Ernest Hemingway“This unchecked spending is growing faster than our economy, faster than inflation, and far beyond our means to sustain it.”Jim Nussle"If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless."“It will be asked how will the two masses of Continental and of State money have cost the people of the United States seventy-two millions of dollars, when they are to be redeemed now with about six million? I answer that the difference, being sixty-six millions, has been lost on the paper bills separately by the successive holders of them. Every one, through whose hands a bill passed, lost on that bill what it lost in value during the time it was in his hands. This was a real tax on him; and in this way the people of the United States actually contributed those sixty-six millions of dollars during the war, and by a mode of taxation the most oppressive of all because the most unequal of all.”Thomas Jefferson“But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”Ben Bernanke“The illusiveness of this concept of national income is to be seen in its dependence on changes in the purchasing power of the monetary unit. The more inflation progresses, the higher rises the national income.”“Government is the only institution that can take a valuable commodity like paper, and make it worthless by applying ink.”“The final outcome of the credit expansion is general impoverishment.”Ludwing Von Mises“The Consumer Price Index (CPI) is one of the more insidious statistics developed by our government because it directs the hostility of the inflation-weary public toward business and the marketplace instead of toward the cause: government mismanagement of currency and credit. . . . Real prices are not going up! The value of currency is going down.”“Inflation is the one form of taxation which even the weakest government can enforce, when it can enforce nothing else.”Unknown“In the fall of 1972 President Nixon announced that the rate of increase of inflation was decreasing. This was the first time that a sitting president used the third derivative to advance his case for reelection.”Hugo Rossi“Imagine believing in the control of inflation by curbing the money supply! That is like deciding to stop your dog fouling the sidewalk by plugging up its rear end. It is highly unlikely to succeed, but if it does it kills the hound.”Michael D. Stephens“Bankers know that history is inflationary and that money is the last thing a wise man will hoard.”William J. Durant "The financial system has been turned over to the Federal Reserve Board. That Board administers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money"Charles A. Lindbergh Sr., 1923“It’s taken almost two centuries for bankers to pull the wool over Americans’ eyes, but today you and I are working for intrinsically worthless paper that can be created by bureaucrats — created without sweat, without creative ability, without work, without anything but a decision by the Federal Reserve. This is the disease at the base of today’s monetary system. And like a cancer, it will spread until the system ultimately falls apart. This is the tragedy of the great lie. The great lie is that fiat paper represents a store of value, money of lasting wealth.”Richard Russell"Every Congressman, every Senator knows precisely what causes inflation…but can’t, [won't] support the drastic reforms to stop it [repeal of the Federal Reserve Act] because it could cost him his job."Robert A. Heinlein“I sincerely believe … that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.”Thomas Jefferson“The entire world economy rests on the consumer; if he ever stops spending money he doesn’t have on things he doesn’t need — we’re done for.”Bill Bonner“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”Henry Ford"The study of money, above all other fields in economics, is one in which complexity is used to disguise the truth or to evade truth, not to reveal it."John Kenneth Galbraith"Paper money eventually returns to its intrinsic value —- zero."Voltaire"Next to inflation, majority rule is the most ingenious scheme ever contrived by government. Most people have never dared to question the basic morality or logic in the assumption that the majority should have power over the minority. A majority of the people in the South once believed in black slavery. Did that make it moral? A lynch mob is majority rule stripped of its fancy trappings and its facade of respectability. In a community where homosexuals outnumber heterosexuals, should the majority have the right to outlaw sex between married partners of the opposite sex? In a community where atheists outnumber non- atheists, should the majority have the right to outlaw the practice of religion? … a dictatorship allows only a small number of people to interfere with the rights of others, a democracy makes it possible for great numbers of people to impose their will on others — through the force of government. Is an act of aggression more right if carried out by the majority than by a dictator? Since a
pproximately half the eligible voters vote this means that approximately 75% of the people are ruled by 25% of the people."Robert J. Ringer

@AfA on 2008-07-20 17:31:29"Next to inflation, majority rule is the most ingenious scheme ever contrived by government. Most people have never dared to question the basic morality or logic in the assumption that the majority should have power over the minority. A majority of the people in the South once believed in black slavery. Did that make it moral?I think this is an issue that will be with us always, or at least until the end of "this world". Most people in Germany also seem to have supported the National-Socialistic movement during WW2; they seem to have believed that it was correct to do what the government asked regarding the murder of Jews and other unwanted people. In Germany a person might have had a neighbor who worked for the army and participated in the murder; even though the neighbor may have felt that he was simply "obeying his superiors", it did not make his actions "right".Humans should follow a higher moral code than that set by a simple human government, but unfortunately that is not possible as the moral code would require a moral authority. Such a globally accepted authority does not exist.

@ Pete CADammit Pete, did you have to mention In N Out burger? Since I moved to Washington State from San Diego a few years ago, I have constantly longed for a double double animal style. When I visit family down there I try to hit In N Out every day.Now I’m craving it and the nearest one is in Redding, an 8 hour drive away. There is just nothing like it in the Pacific Northwest. And standard fast food like McD’s, Jack in the Box, et al is garbage. If In N Out sold franchises, I would open one up here.

@ Guest on 2008-07-20 18:06:02I agree that Mr. Hazlitt was a very accomplished man. As my self-educated grandfather used to say, however, "All great men have feet of clay." The fact that he is accomplished in spite of a lack of formal education is impressive, but does not mean his economic views should be accepted as sacrosanct.SWK

@ PeterJB 2008-07-20 17:14:50Thanks for your kind thoughts. The point you make is quite important. Once upon a time, the sciences were considered to be an integral part of philosophy. The schism you reference began, I believe, with the advent of logical positivism in the late 19th and early 20th centuries. I think scientists could use a little more philosophical training, and philosophers a little more scientific training. We might then have more balanced dialogue in our debates.SWK

@SWKMy point was that it is rare to see so many individuals from different educational levels, backgrounds, thought schools, periods … agree on something.I agree with you that inflation is only a by-product. It is a by-product of excessive government spending (of which political motives are quite clear). And I also think that people who quote Keynes to support government spending do not follow the man’s main message. I didn not study Keynes theories in detail, but from the few things I learned is that Keynes was advocating an increase of government spending only on infrastructure developments and other investments with positive multiplier effect and only DURING economic recession. The recent administrations dramatically increased their spending on unproductive and worthless "investments" on wars that should not have been fought, subsidies that should have never been given, bailouts that had no economic justification, promises that it can never keep … while America’s old infrastructures, educational systems, manufacturing base … are wearing out and the government do not spend anything close to interest payments on their rebuilding and maintenance.The slow and gradual monetization of all the debt resulting from excessive spending (in addition to decreasing tax collections due also to political reasons) results in a devaluation of the currency. The resulting inflation discourages anybody from saving and pushes the government, states, corporations, citizens to more borrowings (from foreigners) and excessive consumption. As inflation accelaretes even "labour" salaries and earning income becomes less attractive than just borrowing, and you know the rest.The government can also "profit" from high (real) inflation but low reported price index. It allows them to marginally reduce the value of foreigners debts and the value of citizens claims to public welfare and programs.

@ AfA on 2008-07-20 18:58:29>I didn not study Keynes theories in detail, but from the few things I learned is that Keynes was advocating an increase of government spending only on infrastructure developments and other investments with positive multiplier effect and only DURING economic recession.You are absolutely correct in this regard. It’s always been a problem, but especially so over the last 30 years, when we’ve not only borrowed to meet increased spending, but have actually cut the taxes that would have provided a greater measure of direct funding for these expenditures, even when the economy has been growing. Now, we’ve even forgotten how Keynesian policies are supposed to work in a recession. Instead of pursuing an economic stimulus package that consists of borrowing money to give to taxpayers just so they can keep our deficit-driven consumer spending afloat, shouldn’t the Bush Administration be spending any such borrowed money to fund government contracts with private industry to repair and replace our nation’s aging and failing infrastructure? It seems to me this approach would at least create jobs, buoy the economy, and produce real, tangible, and lasting public benefits.SWK

@ Anonymous on 2008-07-21 00:22:38We started down this road in the late 1800s. A lot changed in twelve short years. In 1877, in Munn v. Illinois, 94 U.S. 113 (1877) the U.S. Supreme Court ruled that the 14th Amendment cannot be used to protect corporations from state law. By 1882, in San Mateo County v. Southern Pacific Railroad Company, 116 U.S. 138 (1882), the court was presented with an argument that the drafters of the 14th Amendment intended it to include corporations as legal persons entitled to its benefits. The court did not rule on the issue at that time; however, four years later, in Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394 (1886), the Court, in obiter dicta (non-binding commentary in a court’s written legal opinion), expressed the view for the first time that the 14th Amendment does apply to corporations. The court didn’t cite any legal precedent for its conclusion in this regard, but rather, merely stated that "The court does not wish to hear argument on the question whether the provision in the 14th Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to corporations. We are all of the opinion that it does.” Soon thereafter, in 1889, the Court actually ruled that a corporation is a "person" with constitutional rights to due process and equal protection of the law. Minneapolis & St. Louis Railroad Co. v. Beckwith, 129 U.S. 26 (1889). The court’s ruling was without precedent, literally, but it paved the way for further rulings over the next 119 years that expanded corporate constitutional rights and changed our basic assumptions about the role of corporations in our society. Indeed, we’ve now elevated corporations, the lives of which may continue in perpetuity, to near equality with natural persons. Who bats an eye today when a company is referred to today as a "good corporate citizen?" Since when is a corporation "a native or naturalized person who owes allegiance to a government and is entitled to protection from it?" What allegiance does a U.S.-based multinational corporation owe to the United States? The notion that corporations are persons that should enjoy constitutional rights has become accepted, not just in the U.S., but globally. In ratifying its new constitution, for instance, South Africa expressly recognized the personhood of corporations and they enjoy rights under the South African constitution. This gradual blurring of the distinction between real people – us – and artificial legal persons, such as corporations, presents a real danger to democracy and free enterprise that is, frankly, below the radar screens of most folks. Corporate forms of business are very efficient and should be continued; however, we need to begin to reverse, if we can, the ever-expanding recognition of corporate constitutional rights, and return to something along the lines of the original notion of a corporation as an entity chartered for the good of the public, which may be subject to dissolution should it act in a manner contrary to that public good.SWK

@ Kerk on 2008-07-20 18:26:30"As John Maynard Keynes noted … "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose." "That is a pretty strong condemnation of inflation.I think it is a bit overdone, there are other interrelated pitfalls.Excessive anti-inflation initiatives can stifle growth, inflation control measures can give rise to other problems.The recent heavy emphasis on controlling inflation has, I think, contributed to current problems. Some of the present mess arises from the constant understating of the CPI to limit real wage growth and interest rates and thus"control" inflation.The control action (raise rates, tighten credit etc.) always comes after the inflation occurs.Relying on a single, one size fits all index number can add to the problems you are trying to avoid.Lately we have taken to understating inflation occurring in, for want of a better term, day to day living. This low inflation number approach has led to increased debt levels which have in turn produced the ongoing credit default and asset devaluation problems.Maybe we would have been better off taking the inflation onto the books when it occurred rather than hiding it and resorting to bond issues (card debt, mortgages and the like), to finance operating costs and where the prospect of redeeming the full value of the bonds is remote.We end up with a pass the parcel type of financial market where there are plenty of booby prizes to go around.Inflation can get out of hand when it is sensed that fair value is not available or when "over-exuberance" takes hold, and it inevitably leads to a prolonged and unpleasant reset.On the other hand, trying to tame inflation too aggressively, or worse, pretending you are when you aren’t, does more harm than good, it seems.It is not possible to avoid it completely and over zealousness can open the door to other economic ogres.Inflation is but one of the dangers an economy can encounter, deflation, wealth concentration and economic paralysis (depression) are arguably more damaging both economically and socially.We are now staring down the barrel of all of these bandits and we still have the inflation monkey on our backs.Reducing inflationary pressures by allowing the market to set energy prices is an obvious remedy which everyone seems strangely reluctant to embrace (demand is plumetting, price should have started to fall before now, product substitution should have kicked in etc.).The economy is primarily a resource distribution system, using it to implement social engineering ideas is really just rent seeking in a new hat and will result in dysfunctional allocation of resources.Notwithstanding the above, Keynes ideas about state debt financed economic stimulus are hard to argue with in a big downturn, just as long as the stimulus doesn’t amount to a shooting war.You don’t have much option but to involve the state when everyone else runs out of collateral or is unwilling to commit it due to lack of confidence.

we live a disgusting life.

An amazing piece of work, Dr. Roubini, simply amazing. Thank you.One point that you may have missed is that these people have very unhealthy life styles, and many have acute medical problems. And now, with all these additional worries implied by your work, they will eat and drink more and be under really heavy stress. Probably a significant number of them will turn to narcotics.In Mexico, most drug stores have a doctor associated with them on location, and the fees vary (depending on the eighborhood), from $1.00 to $3.50 for a consultation. I think in the USA, if you can get out of a doctor’s office for less than $200.00, your doing very well. (I don’t really know–the $200 is just a guess–but I suspect that even when visiting a traditional doctor’s office in Mexico, you’re at least an order of magnitude better off here than you would be in the USA.) So probably the US will soon have a large population of sick people without health insurance and without money in their pocket. Will this not have a really ebilitating effect on doctors, hospitals, and the drug industry? And will the federal government take up the slack?