American Un-Beauty: The Crisis of the Suburbian (McMansions and Gas-Guzzling SUVs) Way of Life
A whole genre of films – such as American Beauty and Twin Peaks just to cite two cult classics – have unveiled the moral ambiguities – and at times the darkness – that lurk behind the bucolic and idyllic façade of American Suburbia. The pretty and prototypical image of such suburbian lifestyle is the seven-bedroom and four-bathroom McMansion with a driveway where three gas-guzzling SUVs are parked (one for dad, one for mom and one for the kids) and a sprawling green lawn that is perfectly manicured with sprinklers spewing hundreds of gallons of water a day.
Thanks to the worst housing recession since the Great Depression, sky-high gasoline and energy prices and rising water shortages from global warming this suburbian American dream way of life is turning into an economic and financial nightmare. Let us count the ways of this nightmare…
Suburbia, exurbia, commuter towns, dormitory communities, urban sprawl into rural areas, edge cities, lack of public transportation, highways and reliance on private motor vehicle transportation are the sociological traits of the last few decades of American suburbian life. That McMansion plus gas-guzzling SUVs way of life was turbocharged in the last decade by a housing bubble and cheap gasoline and low heating costs. Given the biggest credit bubble and asset bubble and housing bubble in US history American looking for bigger and bigger homes moved farther and farther away from cities and centers of business, commerce, industry and work. The mean commute time for U.S. metropolitan areas was 25 minutes in 2006 but for dozen of millions of American households in exurbia that commute time was over one hour each way every working day.
Easy money (Fed Funds rate too low for too long, down to 1% until 2004) and the most lax supervision and regulation of the financial system and of mortgages allowed Americans to “afford” bigger and bigger homes farther and farther away from cities and centers of work: first suburbia, then exurbia, then rural sprawl, then hedge cities. Over time the distance that American had to drive from their homes to places of work and shopping and leisure grew as you could afford a seven-bedroom McMansion if you were 60 or 80 miles from a city or work rather than only 10 or 20 miles. With cheap gasoline and cheap energy and heating costs that lifestyle made sense. It was cheap to heat your monster McMansion, it was cheap to buy and drive a bigger and bigger gas-guzzling SUV and more of such SUV. We had not only a subprime and near prime and prime mortgage and credit bubble but also a massive auto loan credit bubble that – like for mortgages – allowed Americans to buy oversized SUVs and pick-up trucks with zero downpayment, zero interest, and negative amortization. Indeed the reckless auto loan bubble was as toxic as the subprime and mortgage bubbles.
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.
But now this suburbian Amerikan Dream has turned into a nightmare.
For the last few decades over-investment in housing – the most unproductive form of accumulation of capital – has been heavily subsidized in 100 different ways in the U.S. government: tax benefits, tax-deductibility of interest on mortgages, use of the FHA, massive role of Fannie and Freddie, role of the Federal Home Loan Bank system, and a host of other legislative and regulatory measures.
The result was that the U.S. invested too much – especially in the last eight years – in building its stock of wasteful larger and larger homes and housing capital and of larger and larger private motor vehicles (whose effect on the productivity of labor is zero) and has not invested enough in the accumulation of productive physical capital (equipment, machinery, etc.) that leads to an increase in the productivity of labor and increases long run economic growth. This financial crisis is a crisis of accumulation of too much debt – by the household sector, the government and the country – to finance the accumulation of the most useless and unproductive form of capital, housing and large private trucks (calling them cars is a misnomer) that provide only housing services to consumers and have no effect whatsoever on the productivity of labor. Even the dream of a well manicured green lawn is now threatened by a rising shortage of cheap water given global warming and the wasteful underpricing of water use – now a seriously scarce resource – in the American West. Now these McMansions and soccer-mom trucks and the broader sprawl of suburbian/exurban housing are now worth much less – in net present value terms – in many and different ways. First, you have the biggest housing bust since the Great Depression and a cumulative fall in home prices that will be at least 30%. Thus, the value of the biggest asset of the American household sector is now in free fall and up to 40% of households with a mortgage (21 million of them) may end up underwater, i.e. with negative equity in their homes, and walk away from them via “jingle mail”. Second, the market value of gas-guzzling SUVs is plummeting with gasoline prices well above $4 a gallon. Third, the rise in heating and transportation costs further reduces the values of suburbian homes located in the far boonies of exurbia and edge cities for two additional reasons: a) the high oil and heating prices makes it outrageously expensive to heat those excessively big homes; b) households living in suburbian and exurban homes that are far from centers of work, business and production that are not served by public transportation are burdened with transportation costs that are becoming unsustainable given the high price of gasoline. So on top of the housing bust that will reduce home values by an average of 30% relative to peak high oil/energy prices make the same large homes in the far boonies of suburbia/exurbia worth even less – probably another 10 to 15% down – because of the cost of heating palatial Mac Mansions and because of the cost of traveling dozens of miles to get to work in gas guzzling SUVs. Thus, it is time to stop this destruction of national income and wealth that a cockamamie decades long policy – subsidizing the accumulation of wasteful and unproductive housing capital, not building public transportation and subsidizing car driving via bigger and bigger highway – has caused.
In the meanwhile this bust of housing and this spike in oil and energy prices creates a severe economic and financial crisis that will radically change where and the way American live, work and play. On top of the ghost towns of the American West – the thousands of empty new homes in new suburbian and exurban developments in California, Nevada, Arizona, Florida and other states – you will have the decay of existing suburbian communities as millions of foreclosures will lead to the economic and social decay of existing towns: fiscal crises from the housing bust, municipalities defaulting, hundreds of empty and vandalized foreclosed homes in housing busted towns and communities, fall in public services, etc. The entire neighborhood goes when rows of foreclosed and vandalized homes reduce the value of remaining homes, increase crime and destroy the fabric of entire communities. The entire social fabric of many suburban and exurban communities is starting rotting to its core. Millions will lose homes and move to rented homes and apartments (or give up their home deeds to their creditors and have th
eir ownership converted into medium term leases on their homes to avoid formal foreclosure); leasing and rental will reduce the social benefits and community building associated with home ownership.
Next, cities and metropolitan areas will rethink their policies towards urban sprawl: greater public transportation, greater housing development closer to city and business/industry centers rather than in far flung commuter towns, greater urban density and concentration rather than endless sprawl, end of the explosion of traffic and road congestion, reduction in driving and in air pollution, more people moving to live in apartments and cities served by public transportation rather than suburban homes.
Moreover, patterns of leisure will also change over time: in the short run the recession and the severe squeeze on the real incomes of US households from high oil, energy and food prices means much less discretionary spending: less dinners out of suburbian homes (more dining in rather than dining out), less movies and more TV watching, less socializing outside of the home (as parents puts curfews on driving costs of teenage kids) and more socializing at home and over the internet (Facebook, MySpace, and even tax rebates spent on surging online porn traffic as cheap forms of home “entertainment”), less vacations in far flung location and more “staycations” (vacations staying at home).
In the short run this changing pattern of consumption will make the recession more severe through an “animal spirits” effect. U.S. households are already depressed (not a “mental depression” as suggested by a McCain advisor but a real economic/financial depression) because of falling home prices, risk of foreclosures, losses of jobs or concerns about losses of jobs, rising oil, energy and food prices, flat incomes and wages and now falling real incomes, high costs of health care and education, falling stock market wealth, high debt ratios (mortgages, credit cards, auto loans, student loans), high and rising debt servicing ratios (given reset of mortgages and consumer credit interest rates), concerns about globalization and offshore outsourcing and a general middle class malaise that is now hitting both blue collar workers and white collar workers, working classes as well as middle classes. And now the American dream of a happy suburbian life with a McMansion, gas-guzzling SUVs and well-watered manicured lawn is threatened by collapsing home price, surging gasoline, heating and energy prices, and a shortage of cheap water given global warming and massive underpricing of water use.
The Keynesian animal spirits will worsen in the short run the economic recession. The 1990-91 recession was initially caused by the real estate – commercial and residential – bubble of the 1980s in the American west and south going bust in the late 1980s causing a severe banking crisis (the bust of thousands of Savings & Loan thrifts specialized in real estate lending) and leading to an economy-wide credit crunch by 1990 that tipped the economy into a recession by June of 1990. On top of this housing and credit bubble going bust that caused the recession the Iraqi invasion of Kuwait in August of 1990 caused a significant spike of oil prices that worsened that economic downturn until the spring of 1991 when – after the war with Iraq was won – oil prices fell and business and consumer confidence recovered. That recession caused by a housing bust and an oil shock was also called the “CNN Recession” as in 1990-91 nervous Americans stayed home watching the Iraq war on TV rather than going out to dine, to enjoy the movies at the Cineplex and shop at their suburbian malls.
Today a same phenomenon is occurring: with gasoline above $4 dollars a barrel we have “staycations” rather than real vacation, less trips to the mall (unless you need to stuff yourself on cheap Chinese goods at Wal-Mart), Nintendo/Playstation and internet home entertainment. And now with the Wii you don’t even need to go to the golf course or to the gym to exercise; you can play virtual golf or any sport from the comfy seat of your potato couch. America: welcome to the brave new and cheap world of virtual reality, virtual vacations and virtual entertainment and leisure.
So the biggest credit, housing, auto and asset boom and bubble in U.S. history is now cracking the suburbian “American Beauty” dream and turning it into an “American Ugly” nightmare. The economic, financial, social and political consequences of this earthquake will be radical and significantly change the American way of life for the long run.
242 Responses to “American Un-Beauty: The Crisis of the Suburbian (McMansions and Gas-Guzzling SUVs) Way of Life”
Uno, and my first post
As an ex-pat, I sit on the outside looking in. I left when I thought I was the one who was crazy. I am staying out of th US – Costa Rica has its own craziness but none of includes the name Geo W or the massive manipulation of markets and news.crGordon
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 firstname.lastname@example.org URL for this article:http://online.wsj.com/article/SB121538754733231043.html
Good analysis by Dennis Kucinich’s economic advisor, basically in line with Nouriel’s:http://www.counterpunch.org/hudson07152008.htmlAnd one by Ralph Nader on Socialism, DC style saving Capitalism:http://www.counterpunch.org/nader07172008.html
Looks like my call for a 500 point rally on the Dow was a week early.
WHAT THE HELL JUST HAPPENED OT STOCKS????
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.
Tomorrow is options expiration day. You don’t think they are going take a loss on the huge short positions.
depreciation flippers step in with buy hold board em’ and writeup the rot
Eklavya,check out Hudson’s book "Superimperialism"— defines the essential elements of dollar hegemony and trapping our trading partners in the confinement of recycling our paper dollars into paper Treasuries… written in 1972!
@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.
I am also interested in hearing Mr. Roubini’s thoughts on the manipulation of the markets and how exactly the PPT working group is able to accomplish it. The media certainly plays a role in that manipulation as well. Can the markets be manipulated forever? Is there a point of no return? Are they printing money to buy up stocks? How long can this manipulation continue? It seems that at the slightest hint of good news the markets go green, despite the overwhelming cascade of bad news. I often wonder if they are just waiting for the right moment to let the axe fall? Conspiracy theorists would fall over each other to find out that was true. Would enjoy hearing your thoughts Nouriel.
With all that good news out there this week, how could stocks NOT rally?heh heh heh
If oil falls below $130, you will see dow up 500 points. Money appears to be leaving bonds and commidities and entering stocks-plain and simple…
@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
NOURIEL FINALLY SAYS "IT"US households are already depressed (not a “mental depression” as suggested by a McCain advisor but a real economic/financial depression) because of falling …
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
OILI wonder when it will dawn on investors that falling oil and commodity prices are actually bad news for the economy, indicating that the global demand is dropping and that the global economic meltdown is really kicking into gear (interestingly Chinese growth and inflation are both reported to be slowing today). These morons in the stock market casino can never see past the headline and bother to think about what the information they get really means. Of course the real question is whether demand drops will be enough to offset the collapse of the dollar which will occur as Fannie and Freddie and other large banks become effectively nationalized. So ultimately the price of oil and commodities will be the product of these two forces going in opposite directions. I’m not sure which portends a worse outcome, rising or falling oil. I do know this though: either way, the depression will march on.
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.
Cruse closes below $130 for first time in a month. Close $129.29
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".
Right on, Gloomy. The economy will be the indicator as to where Wall Street is heading. Show me some improvement in the economy. TPTB can manipulate the stock market, they can manipulate the media, they can manipulate the dollar, they can manipulate oil, BUT, they can’t manipulate the economy. Manufacturing is down, inflation is up making its biggest jump in 28 years, consumer confidence is low and debt is overwhelming spending, growth is slowing and wages are stagnating. No bread lines, yet, but the unemployment lines are growing. The economy is based on money people have to spend and what they’re going to go with it. Just to give more money to Fat Fannie and Fertile Fred and Moneybags JP Morgan – the United States wealthiest welfare recipient — doesn’t mean the people are going to have any more money to spend. Fox Radio said this morning that some banks aren’t accepting checks from IndyMac customers. The reason given is that there’s “going to be a hold on the check.”Here’s the take on the L.A. Times blog:More strange doings tonight surrounding the failure and federal takeover of IndyMac: some rival banks are refusing to honor cashier’s checks written by IndyMac — even though those checks are backed by the federal government.John Bovenzi, the FDIC official now running IndyMac, tells the Los Angeles Times today he is "deeply troubled by reports that there are financial institutions that are refusing to honor or are placing excessive holds on IndyMac Federal checks."On latimes.com tonight: "Sheryl MacPhee, 46, said she liquidated a certificate of deposit at IndyMac’s San Marino branch Tuesday morning after a two-hour wait. She then took the cashier’s check to a Washington Mutual branch in South Pasadena to deposit."MacPhee said a WaMu manager told her that under a new corporate policy, the bank was not accepting IndyMac checks. If a customer insisted on depositing the check, it could be eight weeks or more before the full amount would be accessible, she said she was told…" End.The banks don’t even put their trust in this government.
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!”
Is this why the market is rallying?"Part of that weak economic outlook can clearly be attributed to mortgages. In a surprisingly short conference call with analysts, Dimon suggested that losses in JP Morgan’s prime mortgage book could triple in the foreseeable future as the credit mess moves out of subprime and into Alt-A and jumbo loans.“Prime looks terrible,” he told analysts on the call. “And we’re sorry, and there’s nothing else we can say.”"We were wrong, we obviously wish we hadn’t done it,” Dimon told analysts. “We’re very early in the loss curve.”"High CLTV seconds in particular are “performing poorly,” according to the company’s investor presentation."http://www.housingwire.com/2008/07/17/jp-morgans-dimon-prime-mortgages-look-terrible/
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.
IMO, what’s happening in part in this market is that the Financials went lower than they should have, dropping too fast. Then, we got the news that Fannie and Freddie will never have to worry about anything for the rest of their lives. The Financials jumped back somewhat and still might. It was a given they were going up a little because they were pushed down too much – just market math. But that doesn’t mean they’re healthy or economy-driven or not going down. Just my opinion. Just the boys getting rich by playing the “news.” I try to remember that Wall Street and the Economy are not same thing; related but not connected. To say they are, IMO, is like saying Reno is connected to the U.S. economy. Both are gambling houses: Sometimes you win, sometime you lose, mostly you lose. All those big hotels and strip malls in Reno and limos on Wall Street aren’t there because they’re losers; they’re constantly taking profits or they’re out on the street. Now that profits are getting shaky in the casino, the government has stepped into the game. The SEC’s move was to stop the shorts from hunting down the wounded, to defend and camouflage the beasts from the real market while the government is patching them up. IMHOThere’s a cartoon today of Mr. and Mrs. Taxpayer meeting Fannie and Freddie.Mr. and Mrs. Taxpayer are a little tiny couple looking up at big fat Fannie and Freddie whose stomachs are hanging out and who’re about 10X bigger than the Taxpayers. Fan and Fred are standing in front of a vast yard of trashed houses with little tin cups in their hands and Fred, morosely, is saying: “Yous don’t wanna know the details.”(Just read Miss America! That’s investing savvy. Thanks!)
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
Merrill Lynch 2Q Loss/Shr $4.97 Vs EPS $2.24 >MERMerrill Lynch 2Q Rev Negative $1.48B Vs $8.98B >MERJ Merrill Lynch 2Q Loss $4.65B Vs Net $2.14B >MERHuge miss. Trading lower AH.
GOOG missed, down 8% after hours
4:13 p.m.[ZION] Zions reports $38.8 mln in Q2 pretax impairment losses
4:11 p.m.[ZION] Zions Q2 net income 65c vs $1.43 a share
4:15 p.m. [AMD] Advanced Micro Devices Q2 loss $1.96 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
4:24 p.m.Capital One income falls 40% on drop in U.S. card income
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
L.A. Land: latimes.com« Tracking L.A. home prices and sales | Main | They’re back: Return of the flippers (seriously) »WaMu wary of IndyMac cashier’s checksJyysognc More strange doings tonight surrounding the failure and federal takeover of IndyMac: some rival banks are refusing to honor cashier’s checks written by IndyMac — even though those checks are backed by the federal government.John Bovenzi, the FDIC official now running IndyMac, tells the Los Angeles Times today he is "deeply troubled by reports that there are financial institutions that are refusing to honor or are placing excessive holds on IndyMac Federal checks."On latimes.com tonight: "Sheryl MacPhee, 46, said she liquidated a certificate of deposit at IndyMac’s San Marino branch Tuesday morning after a two-hour wait. She then took the cashier’s check to a Washington Mutual branch in South Pasadena to deposit. "MacPhee said a WaMu manager told her that under a new corporate policy, the bank was not accepting IndyMac checks. If a customer insisted on depositing the check, it could be eight weeks or more before the full amount would be accessible, she said she was told."More: "WaMu spokeswoman Olivia Riley declined to discuss details of the bank’s check policies. ‘We have a check hold policy that takes into consideration a variety of factors,’ she said. ‘WaMu is accepting checks from IndyMac customers; however, depending on the specifics, funds will be subject to an extended hold period.’ Wells Fargo said it too was placing extended holds on many IndyMac checks as a precaution."Officials at the Office of Thrift Supervision, WaMu’s chief regulator, are investigating the complaints about the checks, OTS spokesman William Ruberry said." Your thoughts? Comments? E-mail story tips to email@example.com.Photo Credit: Bloomberg NewsINSHALLAH SOON THEY WILL NOT HONOR WASHINGTON MUTUAL CHECKS
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
Dr Roubini that article was the closest to my heart as (IMO) it reveals a potential shift in people’s mindset and provides a snapshot of an organically rooted way of life. markets might go up and down, various indexes might fluctuate, commodities might get speculated upon but what you captured here is an impact several layers below, in the limbic cortex…whatever disconnect might happen between the economy, finance, markets and the day to day life, it all revolves around (and will get back to) basic human behavior in the end. that potential shift in a way of living is revealing, beneath layers of smoke and mirrors, of the magnitude of the change we’re witnessing. thank you for pursuing this exercise beyond the pure economic/technical benefits of the analysis.
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
"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."that is where you are wrong. PPT has print press.
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/
Tomorrow’s trading is anyone’s guess. IMO the trading will be sideways between tomorrows close and 12000 on the DOW until after the Olympics. From there it will launch one way or the other through the election.
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
@ Guest >The bank confirmed it would sell its 20 per cent stake in Bloomberg back to the financial news and data provider… Well, if that don’t beat all for a disinterested press.For 20 years Merrill Lynch’s held a stake (I bet it did!) in the company founded by New York mayor Michael Bloomberg in 1981… Kinda grew up together.
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
Miss America on 2008-07-17 15:44:34 – 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…Do you have insight on the mechanisms the derivative market uses to creates its own money and the rate of credit growth? (If it has increased by $500 trillion in the first half of 2008, it may grow to $2 quadrillion by the end of 2008.) And what do you think is a reasonable statement of risk: 50%, 25%, 10% loss? At the current derivative market value of $1 quadrillion, a 10% loss would be a $100 trillion. Surely that should be a significant monkey wrench in the gears of the world’s economic engine? Thanks in advance for your thoughts.
@ Gloomy"SOUNDS LIKE PAULSON MADE SHELBY AN OFFER HE COULDN’T REFUSE"Hahahahaha.I guess IT WAS NOT PERSONAL, IT"S STRICTLY BUSINESS
I know little about the economy except what I see on the street, which is why I read this blog religiously. I’ve learned a helluva lot. What I see each day- the vapidness of our mass culture, our excesses, our waste of natural resources, our insistence on growth, our being held ‘captive’ by elites are somehow illuminated here in economic theories and banter. I do know a bit about movies, so forgive me Miss America, I would like to make my list using your template I just somehow couldn’t resist. For the bleak suburban life: American Beauty, River’s Edge,Blue Velvet, The SopranosFor the Anarchist: A Nous La Liberte, Modern Times,Duck Soup,Weekend,Pierrot le fou,Band of Outsiders,Rebel Without A Cause.For Comedy: Spinal Tap, Young Frankenstein, The Disorderly Orderly,The Apartment,Some Like it Hot, Ninotchka, Big Business (Laurel and Hardy)The Cure(Chaplin)For Adventure: The Man Who Would Be King, Treasure of the Sierra Madre, Aguirre,Wrath of God,Runaway Train, The Seven Samauri, The Searchers, A Fistful of Dynamite, The Train, Flight of the PhoenixFor Comic Movies: American Splendor, Crumb,Kung Fu Panda,Toy StoryFor appreciation of genius in cinema/creativity: Citizen Kane, In A Lonely Place, 2001 A Space Oddysey,Dr Strangelove, 400 Blows, Virgin Spring, The Seventh Seal, 8 1/2, La Strada, Night of the Hunter,The Last Laugh,Sunset Boulevard,Rashoman,Sweet Smell of Success,West Side Story, Rosemary’s Baby, Tokyo Story,The Red ShoesFor Political Statements: Wall Street,There Will Be Blood,Citizen Kane,It’s A Wonderful Life, Taxi Driver, Chinatown, Two or Three Things I Know About Her, Ace in the Hole, Kiss Me Deadly. A Touch of Evil, High and Low, Ikiru,American Madness My # 1 choice for mocking excess: Scarface
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
In this particular issue I only partially agree with Roubini. Yes the past excesses have to be wriggled out of the system. The burst of housing bubble, credit crisis, higher energy prices and ensuing inflation is going to cause a lot of pain in the short run. However, I believe that human ingenuity will triumph at the end. Let me clarify what I mean. House prices and stock prices, of course, will fall till it hits a floor (builders stop building houses and stock price sink) but it is the energy prices that will change the energy landscape of the future. This cycle of price rises in oil has brought in innovation that will change our dependence on oil for ever. There is a huge potential to generate energy from solar and wind power that will become more competitive with gas and oil. Nuclear power can be another alternative. However many innovation in energy generation (see http://www.blacklightpower.com/ ) can change the whole economics of energy industry and make energy quite abundant and possibly cheap. This coupled with break though in battery technology can not only make electric and fuel cell vehicles competitive to IC engines, it probably will replace them forever by next decade. Thus I believe that the energy cost inflation is temporary and as energy cost decreases and electric and plug in hybrid vehicles become ubiquitous transportation costs will decrease. I think that the death of suburbia because of energy cost inflation is premature, but it is true that change in demographics will bring more people back to city as they realize they do not need a Mac Mansion in the later years of their life.
@ 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!
Earlier Post: "WaMu spokeswoman Olivia Riley … We have a check hold policy that takes into consideration a variety of factors,’ she said. ‘WaMu is accepting checks from IndyMac customers; however, depending on the specifics, funds will be subject to an extended hold period … Your thoughts? Comments? "So, just about the time that these people can cash their IndyMac checks at WaMu … then WaMu will go bust. So they’ll have to take their WaMu check somehwere else. I see a business opportunity here. People could hire special couriers who act as proxies and stand in line at the latest bank that’s just failed, collect their check, then drive around all the other banks in town looking for a place to cash the check. And so on … day after day.How long before Americans start pulling their savings out of banks and putting it into hard assets that they can trade for goods and food?PeteCA
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.
Dr. Roubini:I would appreciate if you answer or write about the following.Will/Would Euro become world reserve currency instead of U.S. $ in near future?AND, if such a thing happens, what would be the consequences for the U.S. .Thanks.
Amerikan Dream Thanksjo6pac
europe union becomeing soverign state by Jan 2009? what is that all about?
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.
At least there seems to be one person with integrity in the Feds to speak the truth about Fannie Mae & Freddi, William Poole.http://www.foreignpolicy.com/story/cms.php?story_id=4395.
dont like the fact utility is down and libor is heading up. oh wait, i feel disturbance in the force.
strange,a lot of money is flowing out of equities..the last time they saved BS mkts didnt go up this fast..geopolitics – US now wants to talk to Iran, Israel swapping dead soldiers with Lebanon, Oil price fallssomething is brewing…
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.
Enjoy this, Sen. Bunning vs. Paulson.http://www.youtube.com/watch?v=-VV6ST1Pmk4
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.
sorry for the off topic post..OMG!!! Bush has pull a good one on Putin,cant believe he finally did something rightif this is true, US can secure Iran’s oil (safely, Iran will presumably buy in USD, yeah saved again) and at the same time break Iran’s ties with RussiaI think US has changed its stance in the Mid East, are we reverting back to Cold War stance?? plus EU doesnt like the energy relationship with gazpromwhat does this do the overall economy??any thoughts??Report: U.S. to station diplomats in Iran for first time since 1979 http://www.haaretz.com/hasen/spages/1002762.htmlLast update – 12:03 17/07/2008 Report: U.S. to station diplomats in Iran for first time since 1979 By Barak Ravid, Haaretz Correspondent, and The Associated Press Tags: Iran, U.S., nuclear program The United States intends to station diplomats in Iran for the first time since the 1979 Islamic Revolution which saw a severence of ties between the two countries, The Guardian reported on Thursday. The move would be a step in the direction of setting up a full embassy in Iran, a dramatic political shift for the Bush administration, which has spent the last few years guiding international pressure on Tehran over its contentious nuclear program. The Guardian report comes a day after the U.S. announced plans to send a senior envoy to meet with a senior Iranian representative to discuss Iran’s nuclear program, an announcement met with concern in Israel. Advertisement "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.
It sounds as though Prof. Roubini is channelling Jim Kunstler.
@guestmy 2 centsprice of oil comes down,how many percentage i dont know (we will see whether Peak Oil theory is true or not)USD strengthen a bit (even though Debt level is still high)Bush have a chance of saving the econ at the time of his resignation
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?
This is the link to the Guradian’s report.http://www.guardian.co.uk/world/2008/jul/18/iran.usforeignpolicy2
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.
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?
@Written by Guest on 2008-07-17 22:21:38or prob its not about the econ, just logistics and supply of oilif Iran is one of US allies, then Russia and China is surrounded, theres a wall of nations stretching from the caucasus to the far east with US interest, US fleet will safely traverse the Arabian,Indian, Mediterranean Seas,Now this is what i expect from my CC
@ 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.
WAWAWA on 2008-07-17 21:08:23EURO 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.
"…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.
THE AMERICAN ARE PLAYING THE OLD STYLE BRITISH POLITIC WITH IRAN, 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, AGAIN IF YOU LOOSE I WOULD LOVE LIFE TIME FREE MEMBER SHIP AT RGE MONITOR, IF I LOOSE I WILL GIVE YOU 100000 US DOLLAR. IF YOU LIKE I CAN HAND YOU THE 100000 DOLLAR INADVANCE IN ESCROW ACCOUNT.THE HEZBOLLAH CELLS ARE HIDING IN MAJOR AMERICAN CITIES AND MAJOR EUROPEAN CITIES READY TO STRIKE WITH CHEMICAL AND BIOLOGICAL WEAPONS HIGH MILITARY QUALITY POTENCY., I AM SURPRISED WHY THE US GOVERNMENT IS NOT HANDING OUT GAS MASKS TO ENTIRE POPULATION OF USA THE SAME WAY ISRAEL DID WITH THEIR POPULATION. THERE COULD BE GOD FORBID MILLIONS OF CASUALTIES. WHAT WILL BE THE ECONOMICAL IMPLICATION?
Written by Guest on 2008-07-17 23:09:16THOSE BEANS FROM COTSCO CAUSED MAJOR CONSTIPATION FOR WASHINGTON MUTUAL.
SBB – I think what Miss America is referring to is those who have access to the TAF and/or TSLF. This is from Reuters: "The U.S. Federal Reserve will undertake a $75 billion 28-day Term Securities Lending Facility (TSLF) auction on Thursday, according to the New York Fed on Wednesday.The Fed will accept riskier Schedule 2 collateral in exchange for Treasuries, which primary dealers can then lend out to get short-term cash loans in the U.S. repurchase market, to help shore up balance sheets, the New York Fed announced on its Web site."Correct me if I’m wrong Miss America. If spreads on Fannie/Freddie debt (agencies) are wider than treasuries, but they now presumably have a government backing, the PDs can get the treasuries, cuse them to buy agency debt, and make money on the spread even though agencies now appear to be the same risk as treasuries. They are making money on the spread risk free.Not only that, but they can swap their current stock of agencies for treasuries, sell the treasuries for cash, use the cash to buy agencies, and keep making free money on the spread each time there is a TSLF auction. They can keep recycling agencies through the Fed and make money on the spread each time.
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.
@ JLC"Not only that, but they can swap their current stock of agencies for treasuries, sell the treasuries for cash, use the cash to buy agencies, and keep making free money on the spread each time there is a TSLF auction. They can keep recycling agencies through the Fed and make money on the spread each time."I don’t think MA meant GSE’s agencies but Mortgage paper. However your explanation brought me a frightening thought. The Fed just announced it will accept F&F’s paper (I guess not agencies since they do not hold them but rather mortgage paper). Now, I do not know which of these papers were already accepted as collateral for the TSLF or not or whether the fact that FF have now access to TAF is meant too be subjective (FF personally) or objective (FF paper not matter who is swapping it). Whether MA was referring to mortgage pieces or agencies, it could be that this move allows PD’s to "roll over" FF papers the way you presented it (swap toxic waste for treasuries / repo them for cash / buy FF paper / swap them for treasuries / repo them for cash / buy FF paper …) Until .. until Freddie & Fannie are partly nationalized.Of course I could be just hallucinating and my analysis is totally off. This is why I am submitting it to you to correct me.
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.
In keeping with the theme of my post today, I’ll add movie suggestions of The Sting and Dirty Rotten Scoundrels.I’m suggesting that the central banks and regulators acted the role of shills to get the dupes (you and me) to part with our cash in the Big Con.http://www.rgemonitor.com/financemarkets-monitor/253041/equitable_inequality_and_iniquity
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.
http://www.ft.com/cms/s/0/cef44da4-542b-11dd-aa78-000077b07658.htmlWas George Herbert Walker Bush the first dip? And does brace yourself mean brace yourself as in imminent collision with immoveable force…or brace yourself like first honeymoon, as in "Mildred, I’m ready, brace yourself!"?Either way it’s not going to be pleasant.
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."
LOLOL the 2X’s long ETF for both the S&P and Russell are UP!! Even thought eh S&P is DOWN 3 points and the techs are DOWN 26 points!! The VIX is alson down almost 2%!! US MARKETS ARE OFFICIALLY BROKEN FROM ALL THE FRAUD AND INTERVENTION GOING ON!
HEY! This news should turn stocks green!9:45 a.m. [C] Citi CFO says prime mortgage portfolio deteriorating
Shame on Citi for fudging their numbers!!!! I wonder how much toxic stuff they moved to level 3 to get their books looking good!They’ll all get what’s coming to ‘em in the end.
Written by Prt1stAskQLater on 2008-07-18 06:39:12That was the most patriotic and yet disturbing thing I have read in awhile. Fantastic.
Both Mexico and Turkey raise rates…US $ is screwed!
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
@JLC “SBB – I think what Miss America is referring to is those who have access to the TAF and/or TSLF.”Your inductive explanation using facts available is one of the clearest, well-written explanations of a complicated, deliberately obscured issue that I’ve read. Where were you when Greenspan was giving his reports? Thank you, very much, and thank you AfA for further insight. Like artful magic disclosed, it looks so self-evident when revealed. SBB (Sub-Prime)
"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?
ECRI weekly index plunges! -1.1 this week.
@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.
@WAWAWA on 2008-07-17 21:08:23Will/Would Euro become world reserve currency instead of U.S. $ in near future?AND, if such a thing happens, what would be the consequences for the U.S.I would like to know the professors thoughts on this too, although I suspect that at the moment there are probably just a good amount of speculations. Besides the ECB might prefer that the dollar stays as the reserve currency, as that would keep the oil cheaper and help to reduce the inflationary pressures (since oil is priced in dollars). Or perhaps I am wrong in that this is one of the consequences of the dollar being the reserve currency?
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…
@WAWAWA on 2008-07-17 14:01:03PPT 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.You are probably right(?) Even if they sold the stocks at a much slower rate than they bought them, they would have to still keep a pause in between buying the stock. Or they return them to the company without actually selling them, would that work? I know, sounds a bit ridiculous;-PBut perhaps the SEC coming out with rules to stop short selling is actually an indicator that PPT is, as you say, fiction.
@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
@ Miss America: “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 — Just keep sending us the financial scoops and world-class predictions from the Big Apple and we’ll be more than happy trying to connect the dots. You were the first kid on the Street with that one. Again! You’re all-American, Miss America.SBB (Sub-Prime)Guess what the new hot trend I’ve seen is?!?!?! — Palatial regalia bunkers for bankers? Nondeflatable bubbles? Billion dollar bills with Alan Greenspan’s picture, backed by the FDIC for 28 months? A Drop-Your-Own-Dollars helicopter for the kiddies from Bernanke Bros for Christmas?
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.
Miss America, I think you already have your answer. Nobody saw the importance/ramifications of the new FASB accounting tiering for pricing assets when the rule change was implemented but everyone sees why it was done now! The panic on the part of the Fed, the Treasury and now the SEC tells me they know somthing…and it aint gonna be pretty when the general population finally gets wind…
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
One more comment on the subject of …"They Who Must Not Be Shorted"[ am, of course, referring to the list of 19 financial companies that can no longer be shorted (at least by naked short selling)].Of course, the SEC was well within its right to address the problem of naked short selling. I’ve got no problem with that. Stopping the growing tide of naked short selling might add some real stability to the markets. But if that was the goal … then the SEC should have addressed the topic as a general problem.And also, if that was the goal, then why doesn’t the SEC investigate the apparent large volume of naked short positions on Bear Stearns, shortly before that company went under?But instead we find this really strange development where we have just 19 financial companies listed. No naked shorts on these guys. Did I say "strange"? Could I say warped, twisted or even corrupt instead? It sure leaves the impression that it’s OK for the exempt 19 companies to piling naked shorts on everyone else – but heaven help anyone returns the favor. The situation in Washington and Wall St just seems to be getting worse and worse.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.
@ Pete CA… I am a big fan. I haven’t praised you much on the sight, but I read your posts twice typically. (I go back every now and again to year old blogs in this sight just to see what the psyche was at parallel times. I’ve found your post to be consistently dead on.) With regards to Iran vs America, I’ve got a good source that said it wouldn’t happen. (I posted a while ago about this saying: If Israel was to go in, they know they’d be doing it alone.) That should be enough of a deterrent… I hope.As for shorting… The way I see it, there’s a major flaw of shorting stocks.Going long, and going short are both very necessary means of trading. They keep the balance in place. Every action, needs an equal and opposite reaction. Where the balance needs readjustment is when a shorting can result in complete failure. There is no equal and opposite action on the long side. 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. Momentum should be based on financials, trends and psyche. Under the current system, momentum can lead to self propelling momentum. …and thus, self fulfilling prophecies of manipulators.This process will help alleviate market manipulation. (or at least the psyche of the perception of manipulation) Stocks/companies can still fail. …but instead, their failure will be based on true sellers, and non buyers. A return to the purposeful fundamentals of a failure.I’m sure there can be 1,000 caveats added to help create a “perfect” system… but in broad terms, this is what I feel needs top be done.I am aware of legal actions that corporations have taken against the shorts in the past… but there is no hard/fast rule on the “failure” side. …and likewise, the current legal route is anything but “swift”Miss America – So much for being too busy. I had a few extra minute before lunch.p.s. Miss Italy – everything is worked into the price.
@ 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.
12:07 p.m. [FRE] SEC may give market makers exemptions from shorting rule
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.
Lobbyists and lawyers are the rectal cancer of America. You can’t neccesarily see them behind the scenes, but they slowly rott you from the inside out!
@ 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.
From Accuweather: Say hullo to ma liddle fren, $150 oil"The wave is currently situated over warm water with relatively low wind shear overhead. The wave’s close proximity to Venezuela is hindering its tropical development. The threat for development will increase later today into the weekend as the wave treks northwestward into the open waters of the central Caribbean. The wave, likely as at least a tropical storm, is forecast to reach the Yucatan Peninsula later this weekend, then the southwestern Gulf of Mexico early next week."
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?
@Dr. Barry Mishra: > I believe that human ingenuity will triumph at the end…Yes, yes, yes! We must regain the fundamental dynamics of this nation’s early history that allowed America to build upon her unprecedented wealth and strength, to harvest the creativity of her people under liberty protected by a Constitution that strictly limited the power of a central government. We must not allow another Age of Robber Barons to dismantle our nation’s production base, to jeopardize our system of patents and property rights, to separate our people from their gainful employment, and deny us hope and opportunity and political representation.
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!
EVEN THE MOB HAS ITS PROBLEMSHas the SEC EVER publically admitted, in detail, to selectively enforcing rules for some companies, but not others? Does anyone know of a precident? What a terrible gaff to reveal the names of the banking cartel who run our government. The Godfather (Paulson) will not be pleased. I wonder how long the Capo who runs the SEC will last before he is "disappeared".
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
Thanks SBB. And thank you Chivas Regal for aiding my powers of induction . . .
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…
THE RALLY IN FNANCIALSListening to the radio and TV a bit today, one gets the idea that the financials have maybe turned a corner. Here is a little info on Level 3 assets from Minyanville in May (I can’t find anything more recent) as a little reality check:"Finally, Level Three assets are the least liquid of the firms’ trading assets and therefore are valued using what are called "unobservable inputs." Level Three assets include real estate, mortgage-backed securities, private equity investments and possibly even "undertakings of great advantage, but nobody to know what they are" (cf. South Sea Bubble).The three magic words that make an asset a Level 3 asset are "no observable inputs." What this means is that not only are they hard to price, but nearly impossible to sell.Recently there’s been such deterioration in all types of mortgages that more and more assets are finding their way into this category. Also, this is the first time insurance companies have made the list. I think the list will continue to grow.Ten companies now have more Level 3 assets than capital. In order they are (as a % of total shareholder equity:1) Bear Stearns (BSC): 313.97%2) Morgan Stanley (MS): 234.88%3) Merrill Lynch (MER): 225.4%4) Goldman Sachs (GS): 191.56%5) Lehman (LEH): 171.18%6) Fannie Mae (FNM): 161.48%7) Northwest Air (NWA): 142.02%8) Citigroup (C): 125.06%9) Prudential (PRU): 119.36%10) Hartford (HIG): 108.52%"
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
“Well, Lucy, life does have its ups and downs you know,” explained Charlie Brown.“But why,” protested Lucy, “why should it?! Why can’t my life be all ‘ups’? If I want all ‘ups’, why can’t I have them? Why can’t I just move from one ‘up’ to another ‘up’? Why can’t I just go from an ‘up’ to an ‘upper up’? I don’t want any ‘downs’. I just want ‘ups’ and ‘ups’ and ‘ups’.”It turns out, unlike crooked Fannie and Freddie and Brother Lehman, Lucy wasn’t well connected to a secret bank cartel and hadn’t paid for a few politicians along the way.
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.
OMINOUS FOR CITIWhen one considers the off balance sheet liabilities of Citi and contemplates the "relatively" small writedowns taken this quarter, one begins to get an ominous feeling. Citi must writedown carefully, being careful to keep adequate capital on hand to meet regulatory requirements. The fact that they are "light" on writedowns, IMO, means that they were unable to raise sufficient capital. I think this is a very ominous sign for Citi.
It doesn’t matter, Citi will be bailed out too.
http://www.youtube.com/watch?v=-VV6ST1Pmk4@WAWAWA on 2008-07-17 22:08:38thanks for that link! when things get really dicey, some comments usually reserved for behind the scenes occur in public. there is a growing body of must see video from this period. add this one to the library of that crazy radical man Ron Paul’s (100% pure sarcasm) Bernanke questions.@all, with much humility, i have to make the following request : does anyone know of a legitimate company who consolidates debt – not looking to file or "get out" just consolidate at one rate preferably lower than what i am currently paying ? thanks
@ 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.
Written by Miss America on 2008-07-18 09:14:55IMO, the flurry of new rules, regulations, and consolidations/eliminations are motivated by two related events.First, in less than six months a new administration will assume control and there are too many wild cards associated with regime change to risk leaving the heavy lifting (and its many loose ends) to a new administration.Second, what’s important isn’t what’s happened, what’s currently happening or even what’s GOING to happen, its how the landscape will look after the dust settles, and that the end result will be achieved by purposeful design, not merely chance events and responses.As you’ve pointed out previously, events are used to move chess pieces – some win, some lose and many get crushed in the process. Events are also used to create anxiety, fear and hopelessness as well as intended responses such as pacification and mobilization.The end game isn’t the events themselves or even the responses to them; its how the landscape will look after the dust settles, specifically, the concentration of national political and economic capital.If the crisis discussed herein is as deep and as broad as some maintain, is it possible that not just neighborhoods, but entire nations (i.e. government/ideology) will disappear?Perhaps I’m jaded by this past year’s events, but it seems that more than just higher down payments and an end to short sales is in the offing, its feels more like the shifting of tectonic plates.TA
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
In yesterday’s opinion piece, Johann Hari provides an overview of how one man, Phil Gramm, is at the center of the economic mess that we find ourself today.One thing she does not point out is that Ron Paul ran against Phil Gramm for that Texas senate seat and what a different world it would be today if Paul has won that senate race! …Enron was his biggest campaign contributor, and employing his wife to the tune of a million bucks.So thanks to Gramm, nobody was watching over Enron any more. As a result, they embarked on a massive programme of fraud and pillage. After taking over the electricity market in California, they deliberately engineered blackouts in entire cities to drive up the price for power. In a surreal move, Gramm blamed "environmental extremists" – the nearest bogeyman to hand – even after it was proven Enron execs had paid the power plants to "get creative" in turning out the lights.Gramm learned from the Enron scandal – to go further and push harder. He turned his attention (and his fund-raising) to the mortgage companies. Since the 1930s, there had been an unwritten deal in US politics: the government would rescue the banks if they grew sick, but in return the banks had to take the sensible medicine of regulation. Gramm thought this was "crazy": why would banks ever need to be rescued in a free market?So in 2000, while everybody was riveted by the Gore vs Bush stand-off in Florida, Gramm slipped into a vast 3,000-page bill 268 pages radically deregulating the banking system. A legal textbook later called this "a stunning departure from normal legislative practice"; few lawmakers noticed it was there when they voted. Suddenly, the roles that had been reserved in the US for regulated banks were handed over to a vast network of unregulated financial institutions called the "shadow banking system." They began to offer wildly unsustainable mortgages to the poor at supersonic interest rates. Through accountancy-acrobatics, they then bundled these risky loans into exotic packages of derivative commodities.All this was only legal because of Gramm’s legislative footwork. He swiftly moved on from the Senate to a megabucks job at UBS, one of the banks raking in billions from his changes.http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-we-have-everything-to-fear-from-mccain-869681.html
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
@ptm on 2008-07-18 16:37:25He swiftly moved on from the Senate to a megabucks job at UBS, one of the banks raking in billions from his changes.UBS? That’s one of those trashy Swiss banks employing people with non-existent moral standards. Of course now when the cat is out the bag, they are trying to clean up their image. No problem with that as long as they reimburse to the various governments the millions in lost tax revenue…This article mentions both US and Australia as been affected:http://www.smh.com.au/news/national/tax-havens-closed-as-lowy-files-revealed/2008/07/18/1216163156772.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.
Apropos Phil Gramm:http://www.bloggingstocks.com/2008/07/10/ubs-exec-and-mccain-advisor-phil-gramm-u-s-is-nation-of-whine/Phil Gramm, UBS AG (NYSE: UBS) vice chairman and senior economic advisor to John McCain (R.-AZ), thinks we’re a nation of whiners. Gramm’s UBS is a leader on three important fronts in the effort to destroy the U.S. economy: the $1.3 trillion subprime mortgage catastrophe, the $330 billion Auction Rate Securities (ARS) freeze, and a tax evasion scheme of unknown magnitude.…
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.
Interview with Mohamed El-Erian on Bloomberg.http://tinyurl.com/5r3sul
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
@ Guest on 2008-07-18 17:59:28That’s the most fanatistic (from fantasy/fanatism) article I read since a long time.Even if we assume Iran want/will acquire the nuclear weapon and even if it had real intentions to attack Israel, it simply cannot do that. Not because of the Mutual Assured Destruction. But simply because Israel is a tiny country in a highly mixed area. Any Iranian attack would result in more Arab (Muslim & Christian) casualities than Israelis. Arabs are already not big fans of Iran (I am not talking about the peoples here), so could that happen, it will mean the end of Mullah’s reign without even the need for Israel to retaliate.
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.
Dr. Roubini, this is one of the most infomative and educational pieces I’ve ever read. Thank you so much for your insite and even more for allowing the rest of us access to your web site.
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?
I thought this line written by a blogger summed up America’s financial climate:There seems to be a sense of entitlement among the monied interests that makes them believe the average American is ripe for financial assault and robbery any time.
@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!
Also bearish for oil, I heard that this week (was it Monday?) the US suspended deliveries to the strategic petroleum reserve under the 2008 transportation bill that was signed in May.
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.
Whether consumption is virtue or note is a good debate. Further more on power, I had previously presented Niall Ferguson’s Cash Nexus on this board. Here is the post from a prior thread at http://www.rgemonitor.com/blog/roubini/232095 at 2007-12-13 00:26:05(I apologize of reposting – I can’t get a single URL to an comment like at Mish/CR, etc. Here you go with bold added for emphasis:@Lyle: A Big Thank You for bubbleworld! As a token of appreciation let me give you The Cash Nexus by Niall Ferguson http://www.amazon.com/Cash-Nexus-Money-Modern-1700-2000/dp/0465023266 The book traces hundreds of years of economic and political (i.e. Money and Power) history of the UK’s bond market and other institutions (the ‘square of power’) that made the British Empire possible. Prof. Ferguson’s thoughts practically forced me to ‘evict’ myself from my overvalued home in 2004 through a sale much to my spouse’s chagrin. I will thank him eternally for that! @Donald Dross With all due respect, as bubbleworld does admit, the awesome credit machine, that the Fed is, helped us win the 2nd World War. @Prof. Roubini, I am glad you’ve finally joined the Print First camp. I think the Fed is saving its ammo for a ‘shock and awe’ cut. IMHO, Alan Greenspan was right about worrying about a ‘Fat Tail’ deflation (Low Probability High Magnitude Impact) event. Now my comments on initial reading of BubbleWorld (I couldn’t resist!): "Friends of Europe organized themselves into eminent groups to support the European thesis for war debt cancellation at the expense of the American taxpayer." How about a Friends of USA to cancel consumer debt at the expense of the Sovereign Wealth Fund state’s taxpayer? Remember "You are either with us or against us" ? "Yet you will be almost persuaded that tariff barriers as such were the ruin of foreign trade, not credit inflation, not the absurdity of attempting by credit to create a total of international exports greater than the sum of international imports, so that every country should have a favorable balance out of which to pay its debts, but only this stupid way of people all wanting to sell without buying." See what can happen if you eliminate the American consumer? Atleast she wants to buy something without selling anything! "The loss that fell upon the private investor fell also upon the whole country." That’s why the default rate has to be capped with Hank’s across the board Deal. "But if we lend our credit to foreign countries and they build pyramids with it, we have to spend money in foreign travel even to look at them; and if we lend our credit for skyscrapers and railroads and power plants to be built in foreign countries and these turn out badly we cannot send the sheriff to seize them." Clearly, the European banks cannot sieze sub-prime foreclosures in Phoenix, so the foreclosures have to stop. ’nuff said, Print First Ask Questions Later. Written by Prt1stAskQLater on 2007-12-13 00:26:05
@ 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.
From the Wealth of Nations:http://www.online-literature.com/adam_smith/wealth_nations/24/"It is the maxim of every prudent master of a family,never to attempt to make at home what it will cost him more tomake than to buy. The tailor does not attempt to make his ownshoes, but buys them of the shoemaker. The shoemaker does notattempt to make his own clothes, but employs a tailor. The farmerattempts to make neither the one nor the other, but employs thosedifferent artificers. All of them find it for their interest toemploy their whole industry in a way in which they have someadvantage over their neighbours, and to purchase with a part ofits produce, or, what is the same thing, with the price of a partof it, whatever else they have occasion for."Now when an American consumer walks into a Wal-Mart Supercenter, is there anything he or she can "attempt to make at home what it will cost him more to make than to buy." The answer is nothing. So what is "it for their interest to employ their whole industry in a way in which they have some advantage over their neighbours"? It is what Wal-mart (or for that matter China) is willing to accept in return:Answer is Credit Cards and US Dollars. American Consumers hold an unlimited advantage in supplying credit and US Dollars. In other words, completely rational selfish SMART behavior. When there comes a time when making something will be cheaper than buying it, the American Consumer will again morph in real-time to a producer and win again. It’s 300 years experience of highly selfish behavior coming to the fore for the good of the country. In other words, its called Alpha – being relatively better off.Checkmate.Best,Print First Ask Questions Later.P.S. Afa, in answer to your question as to who is today’s British Empire, it is China. If and when the US Consumer shuts down, China will desperately look for buyers (countries) of its production. If those countries don’t have enough carrier battle groups, good luck to them.
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.
"Hence, it appeared to me that you were suggesting socialism was somehow inherently incompatible with the Constitution and its Bill of Rights." SWK@ kilgores on 2008-07-16 07:21:44The USA Constitution is a very powerful ‘statement of rights and intent". The Founding Fathers intentionally constructed it knowing that the enemy was not without but within. It declared freedom, liberty, justice and – most importantly, "the pursuit of happiness". Keyword, ‘pursuit’, a verbe and "right". IOW one can soar like the eagle or crawl like the mouse; with respect and protection; please note that duty of office always (normally or typically) infers and or states protection of the Constitution first.Socialism is a form of government whereby it invokes the lowest common denominator and allows NO tall poppies – in theory. Socialism is grey, dull and boring, It is "Waiting to Die". Socialism is mediocrity which in the USA and elsewhere is shilled as "Excellence" in Edward Bernase style. Fascism is just a further and more advanced form of socialism where the people are disenfranchised in favour of the corporation, or if you will are officially classed as victims rather than citizens. The move from Socialism to Fascism is slow but sure. Europe is already back on track despite the EU bureaucratic endeavors to the contrary and Australia is firmly fascist – in a variety of demographic variants; most bureaucrats just don’t know it (or prefer not to know it) yet.So, the process from the USA Declaration of Independence through its Constitution into Socialism began almost before the ink was dry; predictably, and now Socialism soars onwards to Fascism rapidly. Fascism now invokes socialism to cover its losses; the peasants will pay and then they shall be controlled.Why? Incompetence of Leadership that is to say, leadership use neither their intellect or intelligence; they are in automatic mode and re-enact history.Is Socialaism compatible to that declaration of the US Constitution in its original intent and statement of rights. Answer, Absolutely NOT!Do not mistake human events that are just human for socialism.Now this democracy, socialism and fascism stuff is ideology. There can be NO ideology; it represents the stupidity of idiots who claim themselves intelligent.The US Constitution is no ideology; it is a scientifically prepared document that gave it a chance to bring people along the road in the pursuit of happiness with a hope of freedom, liberty and justice, knowing that it wasn’t foolproof and would probably fail. They were right; it has failed!Accordingly, so will the US economy as the fundamentals have changed since the introduction of the Constitution and with every change, the fundamentals get further out of sync and very soon, the whole thing just collapses; it is almost there.The USA is now moving into the final stages of the Anglo Dutch, Venetian, Greek economic systems. There is now no intellect nor necessary intelligence on the leadership horizon so the system will bifurcation into ‘us and them"; fascism and onwards on "revolution".An interesting note:The term "revolution" is cathodic and etymologically means – taken through the ancient Hebrew – "To glorify the Word of God".Apologies for the delay but I have been in travel.Ho humPeterJB
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.
I should add, that the "fundamentals" are to innate intelligences, intellects, intentions, knowledge and experience inherently found within the original Constitution document, as structure and organization.The USA once was unique and a place where eagles soared but now, it is merely a place for fools and mediocrity. Trust has fled.Ho humPeterJB
@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.
Does anyone remember Detroit’s answer to the oil crisis of the late 1970s and early 1980s? "K" cars?
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).
Also, now that I red PeterJB piece, I generally agree with him.Politicians mistaken free markets for capitalism and mistaken cooperation for socialism. The first two are forces of (human) nature (that is egoism and affection) and the latters are policies to enforce one form over the other which is impossible without a total collapse of the system.And then there is fascism, the most dangerous form of both, which chooses to follow either at any given time depending which serves its interests at that time (capitalism when profits are high and socialism when losses are incured). That is in direct contrast with but may be easily thought to be the form of equilibrium between human selfishness and altruism (which are stable over time). The difference resides in the fact that fascism represents, from general public stand point, a procyclical fat tail while general balance represents counercyclical short tail in the normally distributed utility function (utility in its broadest definition)
@ 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
I made a mistake in my first post, I meant:"I have few beliefs that…“free markets” and “solidarity” are powers of nature not national policies. A nation or an economy may want to shape their policies at any given time based on either or neither. It is not a dualist approach however."
@ 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.
Anyone care to speculate about how long it will take before Freddie or Fannie actually begin borrowing federal money, or before the federal government acquires equity in either?SWK
"The United States have developed a new weapon that destroys people but it leaves buildings standing. It’s called the stock market." —Jay LenoSWK
Just so we’re all on the same page:SOCIALISM: You have two cows. The State takes one and give it to somebody else. COMMUNISM: You have two cows. The State takes both of them and gives you some milk. FASCISM: You have two cows. The State takes both of them and sells you some milk. NAZISM: You have two cows. The State takes both of them and shoots you as an enemy of the State. BUREAUCRACY: You have two cows. The State takes both of them, kills one and pours the milk down the drain.CAPITALISM: You have two cows. You sell one and buy a bull. SWK
@ SWKCorrection:CAPITALISM: You have two cows. And you are the third one
British finance minister paints bleak picture of economyhttp://news.yahoo.com/s/afp/20080719/bs_afp/britainpoliticseconomyfinance_080719132644;_ylt=Atf8W_gU83TUvJB35I.iBkus0NUEBritain’s economic downturn is worse than previously thought and there is no extra money available for public spending, Chancellor of the Exchequer Alistair Darling said in an interview published Saturday.Darling also told The Times newspaper that taxpayers were at the limit of what they were willing to pay, a day after official data showed a record deficit in Britain’s public finances, and reports that the government might bend its budget rules."At Christmas most people remained hopeful there would be an improvement by the autumn," he said."Most people would now say it’s far more profound. It’s affecting every economy and everybody. I can’t say how long it will last."He added: "We are going through a very, very difficult time."Darling said that the economic picture was "at the bottom end of my range" set out in his annual budget in March.On public spending, the finance minister said he has been "very clear with my colleagues that there is no point them writing in saying, ‘Can we have some more money?’ because the reply is already on its way and it’s a very short reply.""I told them at the last meeting of Cabinet they’ve got to manage within the money they’ve got."The Office for National Statistics said on Friday that public sector debt at the end of June was at 38.3 percent of GDP, but increased to 44.2 percent when the impact of nationalised mortgage lender Northern Rock is included.Public finances were at a record deficit of 15.5 billion pounds in June compared with the same time last year, well over market expectations of a 12.3-billion-pound deficit.The Financial Times, meanwhile, reported that finance ministry officials were working on plans to revise the rules to allow for increased borrowing without raising taxes amid the current economic downturn.One of the fiscal rules sets a government borrowing limit of 40 percent of national income.In The Times interview, Darling played down the report and reiterated comments made Friday that the Treasury constantly reviews its fiscal rules.He noted, however, that while voters will "pay their fair share … you can’t push that.""My judgment is that there are a lot of people in this country who feel they work hard, they make their contribution and they’re feeling squeezed."The housing market in Spain may be on a downhill direction, but to what degree was it fueled by mortgages taken in UK?
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 . . .
MCMANSIONS GOING FOR UPPER 100SI was visiting Fresno this week and saw signs for new large gated community McMansions; alleged to sell below [?] builder cost at upper 100s….better find a realitor friend to help you with the maze of foreclosure sales if you’re a buyer. Imagine the air conditioning bill for those monsters, the Sierras got lots of snow pack this year, so the lawns were green….assuming you were a slave lord farmer, the only workers out there with money for water or McMansions.I’m seeing new car lots fill up with trucks, SUVs, and V-8s [6 cyls too]; some with "price reduced" signs on ‘em. I see lots of shiny newer used SUVs for $2500 in people’s lawns lately too.Speaking of
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.
THE TURNING POINTIMO a great turning point was reached this week as plans to bail out Fannie and Freddie were accepted by Congress. Let’s look back at what was said about this in April:"NEW YORK (CNNMoney.com) — Among the nightmares lurking around the corner for the already battered housing and credit markets would be a meltdown at mortgage financing giants Fannie Mae and Freddie Mac.Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor’s recently placed an estimated price tag on this worst case scenario — $420 billion to $1.1 trillion of taxpayer’s money. This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980′s and early 1990′s. That cost taxpayers about $250 billion in today’s dollars. S&P added that saving Fannie (FNM) and Freddie (FRE, Fortune 500) might cost so much that the federal government’s AAA credit rating, the top possible rating, might even be at risk. If that was lost, then all federal government borrowing would become more expensive.http://money.cnn.com/2008/04/21/news/economy/fannie_freddie/?postversion=2008042217I realize that S&P retracted this statement this week, but this retraction was likely under implicit or explicit government pressure. I also realize the ratings agencies will never cross the government by downgrading treasuries. But the fact of the matter is that the markets will gradually begin treating treasuries as less than AAA, and this will accelerate as the housing market continues to implode, Fannie and Freddie’s writeoffs accelerate, and the economic meltdown really takes hold over the next 12 months.S&P’s analysis was correct and now that the de facto nationalization of Fannie and Freddie have begun, the gates of economic hell for our country have begun to swing open.
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!
"highly selfish behavior" CANADA’S VALUABLE FRESH WATER IS NOT FOR DUMPING TOXIC WASTESOTTAWA – An emerging coalition of conservation, Aboriginal, and social justice organizations is calling on the federal government to immediately stop the practice of allowing mining companies to use Canada’s lakes as dumping grounds for toxic mine wastes.It is illegal under the Fisheries Act to dump toxic material into fish-bearing waters. However, in 2002, the government amended the Act’s Metal Mining Effluent Regulation (MMER) to allow lakes and other freshwater bodies to be re-classified as “tailings impoundment areas,” thereby allowing mining companies to get around the general prohibition.Environment Canada announced that, under the MMER, at least 11 mines in Canada are seeking permission to destroy healthy natural water bodies with their mine waste. Eight of these mining projects are being processed in 2008. This is in addition to two lakes that are already being destroyed under Schedule 2 of the regulation.Aboriginal groups are concerned that the federal government is developing environmental policies and amending regulations in a way that will have a dramatic impact on Aboriginal and treaty rights. Changes to the MMER and additional listings under Schedule 2 are being made on a mine-by-mine basis without meaningful input or consultation with the Aboriginal peoples of Canada. Since the MMER is a federal regulation, these changes will affect Aboriginal peoples across Canada. The groups say there should be national consultation.“Using lakes as dump sites for mining companies ignores Aboriginal peoples’ teachings and our deep respect for land, waters, and living forms,” says Roger Hunka, of the Maritime Aboriginal Peoples Council. “If advisors to the Prime Minister and Cabinet recommend using this regulation to destroy fresh waters, then they will be allowing more toxic wastes to be dumped into living lakes and waters, as well as clearing the path to add even more water bodies to Schedule 2. Inviting mining companies to come onto traditional ancestral homelands of Canada’s Aboriginal peoples and consciously allowing them to destroy lakes and waters with toxic tailings is an insult to Aboriginal peoples—indeed, to all Canadians who value a healthy environment. We’re telling government to stop transgressing against Canadian values. Stop using lakes as dump sites for toxic mining wastes.” The coalition is not trying to stop mining in Canada. It is simply asking that government require mining companies to use existing technologies for managing mine waste, or invest in new technologies and stop using lakes as tailings dumps.“Prior to 2002, mining companies in Canada were required to protect surface and ground water using existing technologies, even if these were more costly than simply dumping waste into a lake,” says Catherine Coumans of MiningWatch Canada. “It is inexcusable that they should be allowed to destroy lakes in Canada when they know that they would not be allowed to do so in the United States or other developed countries.”Allowing mining companies to use lakes as waste dump sites amounts to a massive subsidy to the mining industry at the expense of publicly owned fresh water resources; this to an industry that made a net profit of over $80 billion in North America in 2007.“More and more mining companies are proposing to use lakes as tailings dumps because it is profitable for them,” says John Werring, of the David Suzuki Foundation. “They can save millions of dollars in operating costs by doing this. But is that sufficient reason to destroy our treasured natural resources? We thought that in this day and age, companies would want to be more environmentally responsible, not less so.”“Coming from a government that has committed to a National Water Strategy, these changes to Schedule 2 are especially counterproductive,” says Celeste Côté, of Sierra Club Canada.The coalition agrees that freshwater ecosystems are far more valuable in the long run than any mined resource and should be protected. The coalition believes that dumping toxic wastes into natural water bodies is inherently unsustainable and contradicts the government’s stated commitment to sustainable development, and that Schedule 2 should be repealed in the interest of all Canadians.“Allowing a lake to be turned into a dump site for a private company is nothing short of privatizing a public resource that is essential to life. Contaminating a water body will have devastating consequences on entire watersheds at a time when the world is dealing with a fresh water crisis,” says Maude Barlow, of the Council of Canadians.- 30 -
"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
Corporations reap more protection and greater power from various trade and investment agreements, measures and rules. The World Bank promotes them, governing bodies turn the agreements into law, and international arbitration tribunals enforce the corporate friendly rules. Challenging Corporate Investor Rule exposes how these trade and investment agreements work against consumers’ interests, and how they undermine environmental and social safeguardshttp://www.foodandwaterwatch.org
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.
"clueless deflationists"i said that, look at 3 years chart. do you think uptrend is broken? i wont worry about it until oil break below $110.
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
"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."@ SWK@ kilgores on 2008-07-19 11:43:32You are, of course, correct and this is where the essence (not the strict literal sense of the wording) is derived; Mind is everything and the Constitution represents a written codifice in simplification of the past culminations of a number of men who had indeed structured and organized knowledge with experience. Knowledge when it is dynamically inter-related with and mixed with experience, becomes the man.The US Constitution and declaration of what should be in these lands, was the greatest attempt at civilization ever attempted and in direct contrast to the European and British systems of population management and harvest; this has now been neutralized and eroded albeit from within due directly to the inability of leadership to understand their own Constitution in scientific terms. Incompetence.The end game will pan out predictably but what comes out as a result will not be predictable and the timing of such events are unknowable.@ AfA on 2008-07-19 11:29:56 CorrectThere is no difference between all the ideologies (socialism, fascism, communism, Nazism, etc., ad nauseum) except the staging points; it is the same work in progress; it is protean which screams loudly that man is not utilizing his intellect or Mind.Ho humPeterJB
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 firstname.lastname@example.org
A guest wrote the following. What’s the company and drug: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?
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.”…
I’m convinced that agreements among central banks to “monetize” U.S. debt these past 15 years have existedWhat does "monetize" debt mean?
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")
@ 2cents"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."Thank you. That was the idea I was indirectly making. If anything, it shows that regulators failed miserably their mission and still refuse to correct what has been done. As you said, regulators should obviously know that most of the nakeds are made by market makes ex. DTCC and then they try to rely on the data provided by the DTCC to get a pulse on the world financial system. How absurd is that?What’s more absurd is the fact that the SEC says that naked shorting is illegal only when it drives prices down. This is almost impossible to prove unless the short seller is stupid enough to put all his shorted securities on one account. This is the same type of stupidity as GSE’s "implicit guarantee".The SEC, according to Regulation SHO, excludes the following from naked shorting ban:1 – Broker or dealer accepting a short sale order from another registered broker or dealer 2 – Bona-fide market making 3 – Broker-dealer effecting a sale on behalf of a customer that is deemed to own the security pursuant to Rule 200 through no fault of the customer or the broker-dealer.To be honest I did not go into details but, the first exception is recursive: a broker/dealer cannot execute a transaction unless the order is coming from another broker/dealer which cannot submit the order unless it is coming from either exception 2 or 3. Exception 3 looks justified and reasonable. Exception 2 was made under the idea/pretext that market makers increase liquidity. You agree with me that no one of the 19 names of the Cox list lacks liquidity. Therefore, per Regulation SHO, naked short selling on major market makers/ banks was already illegal since 2005. How, per the same regulation, could anyone naked short sell any of the big banks UNLESS it is another major market maker included in the list or a smaller one (not included).This is in fact very confusing to me at least. What is the purpose of the new rule? Why give an exception to the rule to the only person who can safely execute the rule (absurd)? The rule is exactly the same as 2005′s Regulation SHO except it delimits not the cause of shorting (exceptions) but the targets.Question to you: if hedge funds were presumably involved in naked shorting, they have only two options: either go through the DTCC (then they can be easily flagged) or through market makers (through options I guess). Is this right? If the first one says the nakeds activity is benign and the second are excepted from the regulation, how could the SEC ever enforce the new rule? It may be possible that is meant only to scare either hedge funds (which I think know what they are doing and seem unconcerned) or the individual investors from normal shorting (the headlines were reporting "short sale ban") and pushes them to cover their shorts.And if the SEC cannot enforce regulations in presumably transparent markets with readily accessible information, how the hell could congress and other regulators could accept an aberration like this:“Lehman Brothers expects to have agreement from rival investment banks and other investors by the fourth quarter to take stakes in a new joint venture with the London Stock Exchange to launch a “dark pool” trading platform.“Dubbed Baikal, it would be the first dark pool to involve both an exchange and a significant number of investment banks, assuming other banks are willing to invest in the project. “Dark pools are off-exchange venues where large orders can be traded in anonymity without prices being displayed on the public or “displayed” order book usually found on exchanges.”http://www.ft.com/cms/s/0/5e247e6e-50f7-11dd-b751-000077b07658.html
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.
With regards to the US Constitution, I’d like to define a few terms first.Collectivism is an economic system where the production and distribution of goods and services are planned by a central body (communism, socialism, fascism, among others, are just variations of what body has control).A market economy is an economic system where the production and distribution of goods and services are planned by each individual.Each system is subject to various rules. One is much more compatible with individual liberty while the other is much more compatible with absolute arbitary authority – which is also the definition of tyranny (Granted, the word tyranny has a significant derogatory connotation today, but that is all it means). One is much more resilient to systemic catastrophe while the other is not. While it is possible for mass manias with individuals acting as a collective (this is what is meant when Adam Smith mentions – one time in over a thousand pages – the "invisible hand." He simply says that each individual, acting as such but a part of whatever society he/she resides, unknowingly – as if by an invisible hand – acts to produce the wealth of a nation, or on the contrary, destroys the wealth), it is much more possible for a central body to err in determining the wants and desires of all individuals.That said, the constitution has – in a literal sense – some collectivism inherent in it. Government does serve vital purposes as described by Smith. The constitution gives authority to a central body to determine, in some way, shape, or form, limited controls over the production and distribution of goods and services. However, it specifically enumerates those areas which the Congress has authority. One crucial area was money. The US could coin money. The states could only declare gold and silver legal tender. The states didn’t have to declare anything legal tender. If they did, it could only be those commodities. And, the US could only coin it and regulate the value of it and of foreign coin. It left the control of those commodities to the people. Additionally, the Congress could tax and borrow. However, if taxing in a direct manner (capitation), it had to be apportioned based on the representation that the people had in the House. It wasn’t based on the Senate which was the states check for their sovereignty. Even if it were, only the House could pass appropriations. The House has to be elected every two years. It gave the people a much more expedient redress for grievances with regards to monetary matters. What redress is there today? Apparently not much. This is only one area dealing with the constitution and either collectivism or a market economy. However, a sound medium of exchange is a significant lifeblood of commerce. When a central body, be it a congress or a board of governors, has control over the fiscal and monetary policy, it is certainly more compatible with collectivism than a market economy. That isn’t how it was designed, but it is how it currently operates.Even more dangerous and insidious, is being taxed through inflation by an unelectable body. Nonetheless, the Congress passes legislation in the form of tax law in attempts to direct the flow of new money created by the Fed. That is definitely not what the Constitution says, but it is how it currently works. Additionally, it is two central bodies attempting to determine the production and distribution of goods and services – or attempting to determine the wants and values of all 300 million citizens. Actually, with the notes from the Fed being the global reserve currency, I would venture to say that they are attempting to determine the interests and values of a few billion.
"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
"With regards to the US Constitution, ""Actually, with the notes from the Fed being the global reserve currency, I would venture to say that they are attempting to determine the interests and values of a few billion."@ Kerk on 2008-07-19 21:55:08Firstly, I doubt very much that "they" have any idea of what "they" are doing, in real terms.Secondly, the prime purpose of Government is to:1.To provide infrastructure, defense and co-ordination2. To provide and manage socio-economic trends (human behaviour) towards and on behalf of the future generations; mainly through education and example. In other words tangible hope and where The original US Constitution did this admirably and uniquely.The USA no longer has this capacity.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/
@ GloomyI read that creidt default swaps on Treasuries widened significantly this week. Apparently some segments of the credit market are not happy about the US Gov’s attempts to make the implicit F&F guarantee explicit.
@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!!
@ TA HonchoThanks for your response. I think it all depends on which uptrend we are talking about.Looking over the past 3-4 years, it looks to me that oil could fall to a level around $60 per barrel and still be in a long term bullish trend. You’ll get no argument from me there. I’d be extremely surprised to see it get that cheap again. And if it did, I would buy all the black gold I could.In my previous post I was referring to the short term trend going back to February, when it jumped from the 90′s up close to 150. My comment was that trend appears to be broken. Time will tell whether it is a decisive move, but it seems the price action combined with the political and geo political situation could lead to a short term reversal.I’m looking for my next buying opportunity.
@ 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.
@ Kerk on 2008-07-19 21:55:08>Even more dangerous and insidious, is being taxed through inflation by an unelectable body. Nonetheless, the Congress passes legislation in the form of tax law in attempts to direct the flow of new money created by the Fed. That is definitely not what the Constitution says, but it is how it currently works. Additionally, it is two central bodies attempting to determine the production and distribution of goods and services – or attempting to determine the wants and values of all 300 million citizens. Actually, with the notes from the Fed being the global reserve currency, I would venture to say that they are attempting to determine the interests and values of a few billion.__ Interesting comments. I don’t, however, find it all that outlandish or shocking — and certainly not dangerous and insidious — that the Fed’s actions give rise to inflation. While folks like to call this a tax, is isn’t. Inflation doesn’t cause revenues to flow from the citizenry to the government to fund government functions. Inflation is just a by-product of interest-rate and related decisions of the Fed, which has been expressly authorized by our elected representatives, acting within their constitutional authority, to make those decisions. This is no different than what happens at every level of government — federal, state, and local — on a daily basis. Our elected officials make policy decisions, but the implementation of those decisions is left to professional staffers — civil servants — to whom authority is delegated by elected representatives. While the Federal Reserve has the authority to act within the ambit of its statutory responsibilities on its own without further prior approval from Congress or the President, and can generate its own revenues without need for Congressional funding, Congress retains the power to oversee the Fed’s actions and can expand or contract by statute the Fed’s responsibilities. Like the federal judiciary, whose members are appointed for life to ensure that their important decisions are beyond the influence of politics, the Fed enjoys great independence so that its important economic decisions will not be unduly swayed by the prevailing winds of public opinion. As for the Constitution, it was intended to be a living document. Its authors were well aware that they could not anticipate how the political and economic destiny of the country would evolve, so they crafted a framework that would prove adaptable as times changed. We will always be witnesses to states of affairs that are not referenced anywhere in the Constitution, and that’s to be expected. Just because things "currently work" in a way not referenced expressly in the Constitution does not imply unconstitutionality in letter or spirit. SWK
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!
@SWK “Interesting comments. I don’t, however, find it all that outlandish or shocking…that the Fed’s actions give rise to inflation. While folks like to call this a tax, is isn’t…”From the great economist, Henry Hazlitt:“The country as a whole cannot get anything without paying for it. Inflation itself is a form of taxation. It is perhaps the worst possible form, which usually bears hardest on those least able to pay. On the assumption that inflation affected everyone and everything evenly (which is never true), it would be tantamount to a flat sales tax… It is a tax not only on every individual’s expenditures, but on his savings account and life insurance. It is, in fact, a flat capital levy, without exemptions, in which the poor man pays as high a percentage as the rich man…“Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce.“It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.”
@ 2centsSounds like the makings of a good movie…where the bad guy wins. Too bad The Government is now the bad guy.
@Guest on 2008-07-19 22:58:57@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.So is monetization of debt the reason behind Zimbabwe’s hyperinflation? I am curious to know. I thought UK had something to do with the situation there, as they don’t like that Mr. Mugabe.
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.
"SEC Chairman Christopher Cox’s announcement that naked short selling of 19 financial companies, including the GSEs, would no longer be allowed"but do we have naked long buying equivalent? the way i see, this is all part of stock market not allowed to fall.
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.
SWK,From your comment about inflation not being a tax, I don’t think I explained it very well. The Treasury goes further into debt to fund their expenses – and many high level personnel say deficits don’t matter – and the Fed creates new notes to buy their debt. This creates inflation, period. Whether it flows into stocks, bonds, real estate, commodities is to a large extent influenced by fiscal policies or laws regulating short selling, margin requirements, mortgage deductions, etc. The volume of money has been expanded and my purchasing power has been diluted – unless I am the first one to get access to that new money like instances occuring around Bear Stearns or Fred and Fran. It is a source of revenue to the government, and my purchasing power has been reduced whether it was direct with-holding or indirect through inflation. As to the constitution being a living document, it is if you are referring to the amendment process. If you are saying it is a living document in that the legislators, executors, or judges can change it with laws, orders, or decisions, then you are speaking to something else. Obviously many, many people have come to believe that, and it is the reason we have moved from a federal, constitutional republic to a "democracy." Democracies allow 51% of the populus to allot themselves bread and circuses from the other 49%. That surely won’t last very long. Nonetheless, in a democracy, one doesn’t need a constitution. The law lives and breathes to the whims of the 51%. In that type of system, I don’t want to be part of the 51% or the 49%.
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!!
Miss AmericaThatks for the kind remarks. I apreciate your recent insights into Fannie & Freddie, and the short selling issue.A few remarks that may be helpful to you. Here in Los Angeles I’m continuing to see cutbacks in restaurant hours. Until recently, family often went to local restuarants that serve meals in the price range of $40-$50 for a family of four (2 adults, 2 kids). Nearly all of our favorite restaurants (Thai, Japanese) have now eliminated their lunch hours entirely and are only serving dinner menu’s – due to reduction in custmoer traffic. One of the most popular restaurants here – that serves a combo of Chinese and American dishes – was only half full last Friday night. It used to be packed with people. So very definitely US consumers are continuing to cut back on discretionary spending. And the big winner in this? At least out here it appears to be "In-N-Out Burger". This hamburger chain has always had a loyal following because they serve all their food fresh (nothing frozen), and because they really do streamline the drive-through process. Well … theser guys are now jam packed with business. That place is hopping. So as families downscale their budgets, the winners are the fast-food chains that can add "extra value" (such as fresh ingredients).As for myself, most of my (limited) discretionary income is going into motorcycle parts and clothing right now. I recently bought a bike to save gas costs on commuting. So I have been slowly acquiring the necessities for that mode of travel … clothing, safety gear, and some additions to the motorcycle. It’s been interesting to follow the dialog in the forums that deal with motorcycles. These folks are still very passionate about their breed of vehicles, and their budgets are not as crimped as auto owners. So the motorcycle crowd is still spending some good $$ on safety, accessories and customizing for their bikes. The businesses that support these goods are probably doing a better trade than most. Meanwhile our family is scaling back on food costs. We try to buy organic when we can, since it’s better for the kids (and us too). Price differentials have forced us to switch from Whole Foods Market to Trader Joes, since the latter are much more competitive in prices over a wide range of items. Too bad in a way, because the large upscale Whole Foods stores had an impressive line up of organic foods and healthy fare. But it’s pricing itself out of existience as inflation in food prices becomes rampant.PeteCA
@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
@ So is monetization of debt the reason behind Zimbabwe’s hyperinflation? I am curious to know. I thought UK had something to do with the situation there, as they don’t like that Mr. Mugabe…”Well, certainly no creditor would want Mugabe paper for debt repayment anymore. It’s worthless. So, perhaps "monetization of debt" is too polite a term for what is happening. Hyperflation at 2,200,000%+ in Zimbabwe is to the point where the value of the monetary unit is dropping far faster than the quantity of money either is or can be increased. Zimbabwe is in a stage of disaster: the scheme is bankrupt. The citizens probably are back to a cashless barter system if they have anything left to barter. Mugabe is just a vicious despot playing at "central banking". As far as any UK involvement, I wouldn’t know. England has unclean hands. She certainly did nothing to help protect the lives and properties of the white farmers left in Zimbabwe, the former Rhodesia and once the breadbasket of Africa. Mugabe uses propaganda for what he does and for what he wants. So he blathers about how he has to stop this or that continual colonization by foreign powers tying to get their hooks into the commerce of the country. According to “The New American” in August of 2007, “As President Jimmy Carter’s emissary to Africa, Andrew Young (Carter’s Ambassador to the United Nations) played a pivotal role — along with Secretary of State Cyrus Vance, National Security Adviser Zbigniew Brzezinski, and other Carter administration officials — in enthroning Mugabe’s terror regime and turning much of the Dark Continent into the nightmarish slaughterhouse of chaos and terror it has become…“He [Mugabe] has bathed Zimbabwe in blood, turned it into a police state, and ruined what was previously one of the most prosperous economies in Africa. Finally, the former darling of the Liberal Establishment has been repudiated by virtually all except Communist China and his fellow African Marxist despots.“How could Rhodesia/Zimbabwe, a thriving, vibrant, multi-cultural example of Western-style civilization, once a shining beacon for Africa, have turned into hell on Earth?” http://www.thenewamerican.com/node/5059
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
@ HubbsWhy is it whenever Israel unilaterally and aggressively targets a country that has not attacked it and kills uncounted innocent civilians, it gets away with saying that the mass killings were necessary to defend Israel against some existentialist threat the country might have posed at some future time?This is BS. Iran hasn’t attacked another country for over 25 years. Iran may wish Israel didn’t exist, but Iran’s government has never threatened to attack Israel except if attacked first by Israel. The BS about nukes is just BS. Iran is a target for its oil, with the US occupying countries either side of Iran and wanting a complete set on the Middle East oil monopoly board.If Israel strikes Iran, with or without nukes, the unwritten compact which allowed Israel to exist under different rules to all other nations on earth is going to be reviewed and revised. Israel won’t like the result. Even Americans might notice that Israel is too aggressive, too lawless, too racist, too expensive, and too dangerous to keep as an ally.
@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)
Sir Roubini,While your insight into American lifestyle is pretty practical, modest and thought provoking, are you suggesting that America should start living like China where everything is miniature? We should also acknowledge that even as of today, America is at the forefront in business, technology, healthcare, education, defense etc which enables them to afford this expensive lifestyle. Even if you look at fundas like size of economy, GDP/debt ratio etc Dollar is still the world’s best currency there is.Current issues for the economy are:- Shortage of oil supply- capital loss due to deflation of home pricesI live in San diego and these days I find more people on the look out for homes. Housing prices have started to stabilize atleast in metros.I am afraid your future outlook for market and America is a tad biased and not comprehensive.Best Regards,Rajeev Gandhi
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.
London Bridge is falling down…http://business.timesonline.co.uk/tol/business/economics/article4363962.eceFrom The Sunday TimesJuly 20, 2008UK economy heads for ‘horror movie’David Smith and Dominic O’Connell BRITAIN is facing an “economic horror movie” because of a “toxic mixture” of a moribund credit market and volatile oil prices, according to a leading forecasting group. The Ernst & Young Item club, which uses the Treasury’s economic model, will argue in a report tomorrow that the economy will struggle to avoid recession. This comes as a survey by the Institute of Directors shows that business confidence has slumped to the lowest level ever recorded, with company chiefs increasingly gloomy about the investment climate. These reports follow an interview with Alistair Darling in which the chancellor admitted the downturn would be more “profound” and last longer than he had expected. Also, Sir Win Bischoff, chairman of Citigroup, the American financial giant, believes that house prices in Britain and America will keep falling for another two years. The Ernst & Young Item club predicts growth of only 1.5% this year, slowing to 1% in 2009. It says consumer spending will slow to a standstill, rising by only 0.2%, and forecasts a two-year drop in investment. It also warns that the chancellor’s budget strategy has been thrown into “turmoil” by the downturn and an unplanned £2.7 billion tax giveaway. It predicts the budget deficit will top £50 billion and the “current” budget deficit, used to determine the golden rule, will remain in the red for at least the next three years. Peter Spencer, chief economist at the Item club, said: “Both on the high street and in the housing market it is going to get a great deal worse before it gets better. We have already seen a housing crisis that has morphed from a credit crunch to a general collapse in confidence as prices have tumbled. “Our worry is that without the usual medication from the Bank of England – which would have nasty inflationary side-effects in this environment – consumers will follow suit, moving from their current state of denial into a state of despair.” Meanwhile, the Institute of Directors’ quarterly business opinion survey shows business optimism at its lowest level since the survey began in 1996. The proportion of company directors “more versus less” optimistic about their company’s prospects fell to -25%, compared with -17% three months ago. Two-thirds of bosses think their own business is still performing well, though this was down on 74% last time. Graeme Leach, chief economist at the institute, said that while the fall in business confidence was worrying, the survey’s results were mixed. “Company directors seem to be saying we are doing okay at present but ask us again in three to six months and it could be hell out there,” he said. “There are real difficulties in interpreting business confidence at the moment because there is a record gap between actual performance and future perceptions.” Among the more optimistic signs in the survey, a net 12% of firms plan to increase employment and a balance of 8% think profits will go up. Asked about their investment plans rather than the general climate, a net 11% planned a rise. There was also a small rise in pricing intentions, with a balance of 15% of firms intending rises, against 12% three months ago. “The sharp fall in overall business optimism is very worrying and points towards a recession,” said Leach. “Other results in the survey suggest we can still escape with a sharp slowdown over 2008-9. The survey suggests the pressure on the corporate sector for a labour shake-out is muted. Whether this situation will hold is the key uncertainty.” The credit crunch is forcing more businesses into difficulty, according to research by the insolvency specialist Begbies Traynor. It monitors the number of firms reporting “critical” problems – those facing winding-up petitions or more than £5,000 in county-court judgments against them. The figure ballooned in the second quarter to 4,258, nearly seven times more than in the same period last year. The figure is up 30% on the first quarter of this year, with retail, construction and IT firms hit hardest. Mark Fry at Begbies said the figures reflected companies’ increased willingness to pursue money owed to them. “It shows the general increase in financial pressure. Anyone with a big exposure to property has been severely affected – it has gone into freefall,” he said. The Federation of Small Businesses is tomorrow expected to say that large groups have extended payment terms to their suppliers in an effort to ease their financial difficulties. One company likely to be singled out is Alliance Boots, which changed its payment terms at the start of the year. It now takes 75 days to settle invoices, and applies a 2.5% settlement fee. The move has infuriated suppliers. Justine Thompson, director of MTA International, which supplies staff-training packages, said: “It says on the Boots website that they are committed to treating their suppliers ethically and fairly, but these bully-boy tactics amount to a kind of theft. I think it’s absolutely outrageous.”
@ 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
Iran vs Israel + the USA: You may like to consider http://www.ericmargolis.com/and ora historical lot of analysis from http://xymphora.blogspot.com/ – his consistent position has been that the USA will not attack Iran, especially now.Ho humPeterJB
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
"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@ kilgores on 2008-07-20 16:57:29I have found your comments to be most interesting in their balanced approach, which is fairly unusual these days. I would like to add comment that since science was introduced, where ‘science’ is the specialized divisioning of physics, society has become dependent upon specialist opinion rather than broad (polymath – big picture) opinion.For example, Mr Benanke as a specialist Ph.D obviously knows little of human behaviour and or cosmology and or archeology and or history, etc., but a lot about the crash of ’29.Having our socio-economic events guided by such specialists is as potentially dangerous as being governed by politicians who know very little about anything substantial. And when the two co-join, well, expect the worst; the rest is luck or time and positionHo humPeterJB
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
London Banker, I can assure you that you never “rant.” And, IMO, the time to speak up for peace and diplomacy is before a tragedy, not after.An opt-ed piece July 18 in the New York Times on “Using Bombs to Stave Off War” drew 440 comments from 7:58 am to 7:00 pm until a “Comments are no longer accepted” flag appeared.Comments from around the world were overwhelmingly against the arguments for an Israeli attack on Iran put forth by the author, Benny Morris, a professor of Middle Eastern history at Ben-Gurion University and the author, most recently, of “1948: A History of the First Arab-Israeli War.” Most readers’ comments agreed with the sentiments of one who called the piece “an appalling, myopic, destructive essay. Discussing the use of nuclear weapons in such cold-blooded terms misses the entire point that a use of nuclear weapons again by any entity anywhere is very likely the beginning of the end of history…”The time to debate Morris is now, not when it’s too late. His article begins:“ISRAEL will almost surely attack Iran’s nuclear sites in the next four to seven months — and the leaders in Washington and even Tehran should hope that the attack will be successful enough to cause at least a significant delay in the Iranian production schedule, if not complete destruction, of that country’s nuclear program. Because if the attack fails, the Middle East will almost certainly face a nuclear war — either through a subsequent pre-emptive Israeli nuclear strike or a nuclear exchange shortly after Iran gets the bomb…“It is in the interest of neither Iran nor the United States (nor, for that matter, the rest of the world) that Iran be savaged by a nuclear strike, or that both Israel and Iran suffer such a fate. We know what would ensue: a traumatic destabilization of the Middle East with resounding political and military consequences around the globe, serious injury to the West’s oil supply and radioactive pollution of the earth’s atmosphere and water.“But should Israel’s conventional assault fail to significantly harm or stall the Iranian program, a ratcheting up of the Iranian-Israeli conflict to a nuclear level will most likely follow…”Morris says recent reports about Israeli plans and preparations to attack Iran indicate “the period from Nov. 5 to Jan. 19 seems the best bet, as it gives the West half a year to try the diplomatic route but ensures that Israel will have support from a lame-duck White House.”
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
Israel should strive for a diplomatic solution to the problem they have with Iran. It is not USA’s job to do it in Israels behalf. If Israel feels that they are too small and/or powerless to put pressure on Iran, they need to ask UN for help. On the other hand, Israel has repeatedly ignored UN resolutions concerning various issues at least since 1970. This is a luxury that Saddam Hussein was not given due to his "evilness". Yes, we "know" that he or his sons tortured people, but so does the US (it is just called "interrogation" nowadays). We also know that he launched an attack against Kurds, in which innocent people died, but the US launched an attack against Iraq in which innocent people have also died.Nevertheless, the bottom line is that a diplomatic solution for the problem requires diplomatic behavior. Demonizing a country or its leadership, or attempting to twist what it’s leaders say in public, is not going to help Israel in this regard.
@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.
@SWK > "My understanding is that he [Hazlitt] 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." Henry Hazlitt (1894-1993)By: Llewellyn H. Rockwell, Jr.http://mises.org/about/3233“If you want to know where American supporters of free markets learned economics, take a look at "Economics in One Lesson" by Henry Hazlitt. A brilliant and pithy work first published in 1946, at a time of rampant statism at home and abroad, it taught millions the bad consequences of putting government in charge of economic life. College students all across America and the world still use it and learn from it. It may be the most popular economics text ever written…"Henry Hazlitt was a libertarian philosopher, economist and journalist for The Wall Street Journal, The New York Times, and Newsweek, among other publications. He was credited with bringing Austrian economics to an English-speaking audience. Among other books he wrote are a major work on ethics, "The Foundations of Morality," and "The Failure of the New Economics," a detailed chapter-by-chapter critique of Keynes’s "General Theory" (of which he wrote that he was "unable to find in it a single doctrine that is both true and original. What is original in the book is not true; and what is true is not original.")His most famous quote: "Wit is the salt of conversation, not the food."Books –·Thinking as a Science, 1915 ·The Way to Will Power, 1922 ·A Practical Program for America, 1933 ·The Anatomy of Criticism, 1933 ·Instead of Dictatorship, 1933 ·A New Constitution Now, 1942 ·Freedom in America: The Freeman (with Virgil Jordon), 1945 ·The Full Employment Bill: An Analysis, 1945 ·Economics in One Lesson, 1946 ·Will Dollars Save the World?, 1947 ·Forum: Do Current Events Indicate Greater Government Regulation, Nationalization, or Socialization?, Proceedings from a Conference Sponsored by The Economic and Business Foundation, 1948 ·The Illusions of Point Four, 1950 ·The Great Idea, 1951 ·The Free Man’s Library, 1956 ·The Failure of the ‘New Economics’: An Analysis of the Keynesian Fallacies, 1959 ·The Critics of Keynesian Economics (ed.), 1960 ·What You Should Know About Inflation, 1960 ·The Foundations of Morality, 1964 ·Man vs. The Welfare State, 1969 ·The Conquest of Poverty, 1973 ·To Stop Inflation, Return to Gold, 1974 ·The Inflation Crisis and How to Resolve It, 1978 ·From Bretton Woods to World Inflation, 1984 ·The Wisdom of the Stoics: Selections from Seneca, Epictetus, and Marcus Aurelius, 1984 ·The Wisdom of Henry Hazlitt, 1993Henry Stuart Hazlitt was born in Philadelphia, son of Stuart Clark Hazlitt and Bertha Zaunder Hazlitt. Stuart died at the age of 28, when Henry was a baby. When Henry was six, his mother enrolled him in Girard College, a home for "fatherless white boys" set up by a local philanthropist. His mother remarried and they moved to Brooklyn when Henry was nine, where he attended public schools. His earliest ambition was to become a psychologist "like William James," but his family’s financial situation forced him to give up that idea. After a year-and-a-half of night school at City College, he had to look for a way of earning money…Said H.L. Mencken: “He is one of the few economists in human history who could really write.”
@ 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.
@ Kerk on 2008-07-20 11:17:04>… [Inflation] is a source of revenue to the government, and my purchasing power has been reduced whether it was direct with-holding or indirect through inflation. Thanks for the clarification. Well, I suppose, then, that inflation becomes an implicit source of revenue not only to the government, but to any private persons holding debt, since it allows debt to be paid off in dollars that are worth less in real terms. I understand what you are saying, but I don’t believe governments create inflation for the purpose of raising revenue in this manner because, inter alia, it’s simply inefficient. It is a by-product of policies calculated to do other things that take priority as a matter of public policy, such as minimizing the breadth, depth, and duration of unemployment. It is very much like a regressive tax in its effects on the less fortunate, though, as another poster noted in quoting Henry Hazlitt. >As to the constitution being a living document, it is if you are referring to the amendment process. If you are saying it is a living document in that the legislators, executors, or judges can change it with laws, orders, or decisions, then you are speaking to something else. I am not simply referring the to process by which the Constitution may be amended. I am saying that the Constitution was written in anticipation that its authors could not foresee every conceivable change in society — political, economic, technological, social, moral, or otherwise — that would occur in the future, and that the Constitution was designed to evolve as the country’s needs evolved.The Constitution cannot be changed by legislative enactment of a statute. It cannot be changed by executive order. It can, however, be interpreted by the courts in light of the particular circumstances of a dispute or matter at issue based. To do this, a court will look not just to the plain text of the Constitution in a vacuum, but to prior court decisions construing the Constitution in both similar and different factual contexts.Judicial decisions are frequently mischaracterized as "legislation from the bench" by "activist judges" by those who have some disagreement with the final result. The notion that judges in this country have run amuck and have usurped the authority of the Legislative and Executive branches of government is nothing but a myth. What is a myth, however, is the notion that the Constitution is a static document, the language of which is subject to "strict construction." There is no such thing.For example, how does one determine what constitutes an "unreasonable search and seizure" prohibited by the Fourth Amendment? The Constitution tells us unreasonable searches and seizures are prohibited, but intentionally fails to delineate the concept further. What about "due process of law" and "equal protection of the law?" The Constitution does not define these concepts for us, nor tell us when our rights to them may be violated in given factual circumstances. It is up to a court to make that determination.In its 1965 decision in Griswold v. Connecticut, the U.S. Supreme Court ruled that the Constitution protected an individual’s right to privacy. The Constitution mentions the term ‘privacy’ nowhere. How, then, did the majority reach its decision? In a nutshell, the opinions in that case provided various rationales, based on a careful analysis of the text of the Constitution and prior case law. One was that individuals retained certain rights to privacy in the context of other constitutional rights, the so-called "penumbra of privacy." Another was that the right arose under the Fourteenth Amendment’s protections to due process of law. A third opinion pointed out that the Ninth Amendment says that just because the Constitution only mentions certain individual rights in its text does not mean that these unnamed rights do not continue to exist, and suggested that the right to privacy was one such unnamed right. When I say the Constitution is a living document, then, I mean that is was intended to address any number of circumstances and disputes that had never before arisen at the time of its drafting. It was meant to be a dynamic, not a static, document that would serve our country for centuries to come.SWK
@ 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
@ AfA on 2008-07-20 17:31:29Great compilation of inflation-related quotes!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
SWK,Your definitions of taxation and inflation are pretty accurate. However, may we assume that the fed. gov’t only has the power to borrow, tax, and coin money? With that assumption, how is it possible for the government to fight wars costing over 1/2 trillion dollars while lowering taxes, and having a total debt obligation almost 10 trillion? It is certainly not done by coining money since the fees generated by seignorage certainly won’t cover those expenses. That only leaves more borrowing since taxes are a political no-go. When new debt is bought by the creation of new Fed Notes – which have legal tender status (a most critical point) – it is a stealthy tax. This tax is a charge of money (loss of purchasing power) by a governmental agency (done in a roundabout manner through Congress upping the debt limit and the Fed using it’s legal tender status to dilute the supply of their notes without a necessarily corresponding drop in demand since there is an inherent demand based on their legal tender status) for public purposes. Granted, there may be public good, but it is disproportionately advantageous to those who get access to the new money first.As John Maynard Keynes noted in his book "The Economic Consequences of the Peace" on p. 134, "Lenin was certainly right. 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."
@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.
@ Kerk on 2008-07-20 18:26:30Well if, as you correctly point out, Congress is constitutionally authorized to borrow money, and as a consequence, generates harmful inflation, then what is the issue? If we don’t like what they’re doing, we throw the rascals out, right?This brings us to the real crux of the problem, which relates to the erosion of the ability of the people to exercise control over elected officials through the ballot box. I think some serious problems have developed for all of us as a result of the evolution over the past 150 years or so of judicial and legislative recognition of constitutional rights in corporations. Granted, corporations cannot vote as natural persons do, but in allowing them to acquire rights formerly reserved to natural persons, such as rights of free speech under the Constitution, we have injected into our political system myriad new forms of economic and political corruption that undermine the basic precepts of the Republic. After all, if corporations can participate in the political process by funding candidates for office, by lobbying Congress, by insinuating their minions into positions of executive authority within the very regulatory bodies charged with overseeing and controlling their activities to ensure that the public interest is protected, the ability of voters to exercise meaningful control of their government through elections is diminished substantially.SWK
@ 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
SWK wrote: "This brings us to the real crux of the problem, which relates to the erosion of the ability of the people to exercise control over elected officials through the ballot box. I think some serious problems have developed for all of us as a result of the evolution over the past 150 years or so of judicial and legislative recognition of constitutional rights in corporations."From your mouth to God’s ear. This is the crux of the problem, and you dared to state it. Bravo!
@ 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
One major court decision that has enabled corporations to corrupt our political process is the 1978 case of First National Bank of Boston v. Bellotti, 35 U.S. 765 (1978), in which the U.S. Supreme Court struck down, on First Amendment grounds, state restrictions on spending by corporations on political referenda. Until Bellotti, this right previously had been allowed only with respect to news media corporations.The dissent in this case was particularly poignant: “[T]he special status of corporations has placed them in a position to control vast amounts of economic power which may, if not regulated, dominate not only our economy but the very heart of our democracy, the electoral process . . . The State need not allow its own creation to consume it.” Even Justice Rehnquist dissented, stating: “The blessings of perpetual life and limited liability [that corporations enjoy]. . . so beneficial in the economic sphere, pose special dangers in the political sphere.”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.
In my Philadelphia neighborhood, a train will take you downtown for less than the cost of gas, but the jobs aren’t downtown anymore. They are 20 miles away, along a congested interstate. Many people who were already anti-sprawl, myself included, would like to believe that cities and inner-ring suburbs will benefit from the run-up in energy costs. The problem is, in many cities, sprawl has for some time been less about employees moving farther away from work and more about employers moving farther away from urban centers in search of cheap land and low taxes made viable by highways.
we live a disgusting life.
Octavio, I’ve been waiting for you.Capone wrote on 07-18: “@all, with much humility, i have to make the following request: does anyone know of a legitimate company who consolidates debt – not looking to file or "get out" just consolidate at one rate preferably lower than what i am currently paying ? thanks”As no one here had any suggestions for Capone, I thot you might. There are a lot of ins and outs to this rocky biz, and hopefully you might know of the best way to get the best deal? Haven’t heard from Capone since, so I don’t know if he has found a better rate… But I know there are lots of sharks in loan waters…sue
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?
I do not know where you got the information on the story that was aired last night about the end of Surburbian Life, but I will tell you this, the whole show made me sick. Come on you guys need to get to the right places. I would love to be offered a part-time job and know that I had a guaranteed amt. of money coming in each month. Just call our family one of those that fall TROUGH THE CRACKS!!!!!!! I do no qualify for Medicaid, too old, but yet do not qualify for Medicare either, too young. Where did you guys come up with this information???? You need to come and see real people from day to day who are just trying to survive. You guys are so out of touch. C. Berguson – North Carolina