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It Is Time to Nationalize Insolvent Banking Systems

Author: Nouriel Roubini  ·   ·   › Share This Print

A year ago I predicted that losses by US financial institutions would be at least $1 trillion and possibly as high as $2 trillion. At that time the consensus such estimates as being grossly exaggerated as the naïve optimists had in mind about $200 billion of expected subprime mortgage losses. But, as I pointed out then, losses would rapidly mount well beyond subprime mortgages as the US and global economy would spin into a most severe financial crisis and an ugly recession. I then argued that we would then see rising losses on subprime, near prime and prime mortgages; commercial real estate; credit cards, auto loans, student loans; industrial and commercial loans; corporate bonds; sovereign bonds and state and local government bonds; and massive losses on all of the assets (CDOs, CLOs, ABS, and the entire alphabet of credit derivatives) that had securitized such loans. By now writedowns by US banks have already passed the $1 trillion mark (my floor estimate of losses) and now institutions such as the IMF and Goldman Sachs predict losses of over $2 trillion (close to my original expected ceiling for such losses).

But if you think that $2 trillion is already huge, our latest estimates RGE Monitor (available in a paper for our clients) suggest that total losses on loans made by U.S. financial firms and the fall in the market value of the assets they are holding will be at their peak about $3.6 trillion. The U.S. banks and broker dealers are exposed to half of this figure, or $1.8 trillion; the rest is borne by other financial institutions in the US and abroad. The capital backing the banks assets was last fall only $1.4 trillion, leaving the U.S. banking system some $400 billion in the hole, or close to zero even after the government and private sector recapitalization of such banks. Thus, another $1.4 trillion will be needed to brink back the capital of banks to the level they had before the crisis; and such massive additional recapitalization is needed to resolve the credit crunch and restore lending to the private sector. So these figures suggests that the US banking system is effectively insolvent in the aggregate; most of the UK banking system looks insolvent too; and many other banks in continental Europe are also insolvent.

There are four basic approaches to a clean-up of a banking system that is facing a systemic crisis:

1.      recapitalization together with  the purchase by a government “bad bank” of the toxic assets;

2.      recapitalization together with government guarantees – after a first loss by the banks – of the toxic assets;

3.      private purchase of toxic assets with a government guarantee and/or – semi-equivalently – provision of public capital to set up a public-private bad bank where private investors participate in the purchase of such assets (something similar to the US government plan presented by Tim Geithner today for a Public-Private Investment Fund);

4.      outright government takeover (call it nationalization or “receivership” if you don’t like the dirty N-word) of insolvent banks to be cleaned after takeover and then resold to the private sector.

Of the four options the first three have serious flaws: in the bad bank model the government may overpay for the bad assets – at a high cost for the taxpayer – as the true value of them is uncertain; and if it does not overpay for the assets many banks are bust as the mark-to-market haircut they need to recognize is too large for them to bear.

Even in the guarantee (after first loss) model there are massive valuation problems and there can be very expensive risk for the tax-payer (an excessive guarantee that is not properly priced by the first loss of the bank, the fees paid and the value of equity that that the government receives for the guarantee) as the true value of the assets is as uncertain as in the purchase of bas assets model. The shady guarantee deals recently done with Citi and Bank of America were even less transparent than an outright government purchase of bad asset as the bad asset purchase model at least has the advantage of transparency of the price paid for toxic assets.

In the bad bank model the government has the additional problem of having to manage all the bad assets it purchased, something that the government does not have much expertise in.  At least in the guarantee model the assets stay with the banks and the banks know better how to manage and have a greater incentive than the government to eventually work out such bad assets.

The very cumbersome U.S. Treasury proposal to dispose of toxic assets – that was presented by Treasury Secretary Tim Geithner today – can be best understood (subject to the large fog of uncertainty about its many details) as combining taking the toxic asset off the banks’ balance sheet with providing government guarantees to those private investors that will purchase them (and/or public capital provision to fund a public-private bad bank that would purchase such assets). But this plan is so non-transparent and complicated that it received a thumbs down by the markets as soon as it was announced today as all major US equity indices went sharply down.

The main problem with the Treasury plan – that in some ways it may resemble the deal between Merrill Lynch (ML) and Lone Star (LS) – is the following: Merrill sold its CDOs to Lone Star for 22 cents on the dollar; and even in that case ML remained on the hook in case the value of the assets were to fall below 22 as LS paid initially only 11 cents (i.e. ML guaranteed the LS downside risk). But today a bank like Citi has similar CDOs that, until recently, were still sitting on its books, at a deluded and fake value of 60 cents. So, since the government knows that no one in the private sector would buy those most toxic assets at 60 cents it may have to promise a guarantee (formally or informally by putting capital into a public-private bad bank that will receive extra lending from the private sector) to limit the downside risk to private investors from purchasing such assets. But that implicit or explicit guarantee would be hugely expensive if you need to induce private folks to buy at 60 what is worth only 20 or even 11. So the new Treasury plan may end up being again a royal rip-off of the taxpayer if the guarantee is excessive given the true value of the underlying assets. And if instead the implicit or explicit guarantee is not excessive (if the public-private bank truly tries to discover the value of such assets as in the formal Treasury proposal) the banks need to sell the toxic assets at their true underlying value that implies massive writedowns that will uncover the insolvency of such banks. I.e. the emperor has no clothes and a true valuation of the bad assets – without a huge taxpayers’ bailout of the shareholders and unsecured creditors of banks – implies that banks are bankrupt and should be taken over by the government.

Thus all the schemes that have been so far proposed to deal with the toxic assets of the banks may be a big fudge that either does not work or works only if the government bails out shareholders and unsecured creditors of the banks.

Thus, paradoxically nationalization may be a more market friendly solution of a banking crisis: it creates the biggest hit for common and preferred shareholders of clearly insolvent institutions and – most certainly – even the unsecured creditors in case the bank insolvency hole is too large; it provides a fair upside to the tax-payer. It can also resolve the problem of avoiding having the government manage the bad assets: if you selling back all of the assets and deposits of the bank to new private shareholders after a clean-up of the bank together with a partial government guarantee of the bad assets (as it was done in the resolution of the Indy Mac bank failure) you avoid having the government managing the bad assets. Alternatively, if the bad assets are kept by the government after a takeover of the banks and only the good ones are sold back in a re-privatization scheme, the government could outsource the job of managing and working out such assets to private asset managers if it does not want to create its own RTC bank to work out such bad assets.

Nationalization also resolves the too-big-too-fail problem of banks that are systemically important and that thus need to be rescued by the government at a high cost to the taxpayer. This too-big-to-fail problem has now become an even-bigger-to-fail problem as the current approach has lead weak banks to take over even weaker banks. Merging two zombie banks is like have two drunks trying to help each other to stand up. The JPMorgan takeover of insolvent Bear Stearns and WaMu; the Bank of America takeover of insolvent Countrywide and Merrill Lynch; and the Wells Fargo takeover of insolvent Wachovia show that the too-big-to-fail monster has become even bigger. In the Wachovia case you had two wounded institutions (Citi and Wells Fargo) bidding for a zombie insolvent one. Why?  Because they both knew that becoming even bigger-to-fail was the right strategy to extract an even larger bailout from the government. Instead, with nationalization approach the government can break-up these financial supermarket monstrosities into smaller pieces to be sold to private investors as smaller good banks.

This “nationalization” approach was the one successfully taken by Sweden while the current US and UK approach may end up looking like the zombie banks of Japan that were never properly restructured and ended up perpetuating the credit crunch and credit freeze. Japan ended up having a decade long near-depression because of its failure to clean up the banks and the bad debts. The US, the UK and other economies risk a similar near depression and stag-deflation (multi-year recession and price deflation) if they fail to appropriately tackle this most severe banking crisis.

So why is the US government temporizing and avoiding doing the right thing, i.e. take over the insolvent banks? There are two reasons. First, there is still some small hope and a small probability that the economy will recover sooner than expected, that expected credit losses will be smaller than expected and that the current approach of recapping the banks and somehow working out the bad assets will work in due time. Second, taking over the banks – call is nationalization or, in a more politically correct way, “receivership” – is a radical action that requires most banks be clearly beyond pale and insolvent to be undertaken.  Today Citi and Bank of America clearly look like near-insolvent and ready to be taken over but JPMorgan and Wells Fargo do not yet. But with the sharp rise in delinquencies  and charge-off rates that we are experiencing now on mortgages, commercial real estate and consumer credit  in a matter of six to twelve months even JPMorgan and Wells will likely look as near-insolvent (as suggested by Chris Whalen, one of the leading independent analysts of the banking system).

Thus, if the government were to take over only Citi and Bank of America today (and wipe out common and preferred shareholders and also force unsecured creditors to take a haircut) a panic may ensue for other banks and the Lehman fallout that resulted from having unsecured creditors taking losses on their bonds will be repeated again. Instead if, as likely, the current fudging strategy – of temporizing and hoping that things will improve for the economy and the banks – does not work and in 6-12 months most banks (the major four and the a good part of the remaining regional banks) all look like clearly insolvent you can then take them all over, wipe out common shareholders and preferred shareholders and even force unsecured creditors to accept losses ( in the form of a conversion of debt into equity and/or haircut on the face value of their bond claims) as the losses will be so large that not treating such unsecured creditors would be fiscally too expensive.

So, the current strategy – Plan A – may not work and the Plan B (or better Plan N for nationalization) may end up the way to go later this year. Wasting another 6-12 months to do the right thing may be a mistake but the political constrains facing the new administration – and the remaining small probability that the current strategy may by some miracle or luck work – suggest that Plan A should be first exhausted before there is a move to Plan N. Wasting another 6-12 months may risk turning a U-shaped recession into an L-shaped near depression but currently Plan N is not yet politically feasible.

But with the government forcing Citi to shed some of its units/assets and the government starting stress tests to figure out which institutions are so massively undercapitalized that they need to be taken over by the FDIC the administration is putting in place the steps for the eventual and necessary takeover of  the insolvent banks.

You can expect a similar path and an eventual government takeover of most financial institutions in other countries – such as the UK – where many banks are effectively insolvent.

So while Plan A is now underway today’s very negative market response to this Treasury plan suggest that it will not fly. Markets were expecting a more clear plan but also a plan that would bail out shareholders and creditors of insolvent banks.  Unfortunately that is not politically and fiscally feasible. It is thus time to start to think and plan ahead for for Plan N (“nationalization” of insolvent banks).

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557 Responses to “It Is Time to Nationalize Insolvent Banking Systems”

slf • February 10th, 2009 at 4:39 pm

What I’d like to know is whether the govt is truly incompetent, or if they’re getting done exactly what they want to get done, and we’re simply assuming that it’s incompetence. Apart from that, I agree with you.

Anonymous • February 10th, 2009 at 4:51 pm

Typo in the middle of 2nd paragraph the “$400 million in the hole” should be “$400 billion in the hole.” Great article though, thanks again RGE!

FAMC • February 10th, 2009 at 4:52 pm

microeconomics -> a guy that spends more money than he owns …-> bankruptcy.macroeconomics -> a country that spends more than … -> Lets “counterfeit” money. This is the hidden tax. Who benefits most from it?Will the socialist wealth allocation scheme implemented using plan 1, plan 2, plan 3etc… invalidate the logic of the macroeconomic aggregation ?I do not think so. In fact, these schemes should be transparent for we to know who is receiving the money indirectly extracted from the people that accepted the American Capitalistic System.

MLK • February 10th, 2009 at 4:59 pm

Like Japan, politics in US has been too strongly interwined into the free market system that hinders policy makers to come up more rational plan that would more likely to benefit the taxpayers. Plan A looks like another of those bailouts that promote cronyism and to enrich those politically well-connected financial wizards.

Anthony D'Amato • February 10th, 2009 at 5:07 pm

Why doesn’t the government set up its own national bank that flat-out competes with all the private banks and perhaps drives them one-by-one out of business? The government bank can enjoy unlimited leverage, offer the lowest interest rates, and be guaranteed not to fail.

Guest • February 10th, 2009 at 5:34 pm

The Gov’t doesn’t have to manage a nationalized bank anymore than current shareholders manage the current zombies. They could fire the old management and hire new. There’s no lack of competent business and finance pros in the US.

Jason B • February 10th, 2009 at 5:36 pm

The American consumer drove world economic development based on the explosion ofdebt. Now we are maxed out on debt. Our monetary system is based on fractionalreserve banking, in which money is loaned into existence. More money must be loanedso the previous borrower has the additional debt-based money to pay off the loan PLUSINTEREST. Once debt stops expanding, the borrowers don’t have the money to pay offtheir loans plus interest. The demand for dollars increases, and the value ofdollars increases. This isn’t good, but a symptom of a deadly illness in theeconomy, like a high fever. Some debtors are caught without a chair once the lendingmusic stops, can’t find the dollars they need to pay off their debt plus interest,and default. When they default, all the money they borrowed into existence ceases toexist, and is no longer available for others to pay their debts. These defaults arewidespread, and since we have a debt-based monetary system the economy is thrown intodeflation as debt-money is destroyed. The administration wants to get credit flowingagain to stop this dynamic.There are several confounding and compounding factors that make the solution morecomplicated than just getting credit flowing again.One is the high existing indebtedness. Consumers have no more capacity to borrow.Another is the negative savings rate. Easy credit inflated the value of assets.Everyone could get their hands on money, so prices inflated. That created a wealtheffect, making people think that they no longer had to save because the value oftheir assets was increasing. Now that easy credit is gone, assets are values aredecreasing. Even if the consumer had the capacity to borrow, they wouldn’t untiltheybuilt up savings again.Another is that easy credit moved future purchases into the present. Anyone who wasgoing to buy anything – a car, washing machine, refrigerator, furniture, did sowith 1 year no interest loans. Everyone has everything they will need for years, andconsumption will suffer. Since consumption is now over 70% of our economy (!), thiswill have a terrible effect on the US.Securitization is another. The debt was bundled together based on actuarialcalculations of whatever, divided into tranches and insured, then rated AAA and sold,then insured again with Cd O’s and so on. Now that the underlying loans aredefaulting the securities are declining sharply in value. Those who insured thesecurities or are the counterparty to a CDO on a trigger event like the securitydeclines in value below a certain point are being forced to pay up and are beingdragged down too (AIG).Another is the off-shoring of manufacturing, and the decline of manufacturing in theUS. Now that the financial services based economy has imploded, there is nothing totake its place. We make much fewer products here that we can sell to the rest of theworld. We have no manufacturing jobs for people to be employed at in order to make adecent wage and pay off their debts and buy stuff. We have a ‘service based’economy, but who to sell services to? Unemployed people don’t make a good market, orgood tourists.Housing is another. A house is the most expensive thing most people will ever ‘own’.Ownership of housing is way more widespread than ownership of stocks. More peopleare affected by a housing crash than a stock crash, and on a much larger scale.There is also a massive overhang of housing supply, since it was overbuilt during theboom.The upcoming retirement of baby-boomers is another. Born after WWII, they are thelargest demographic in society, moving through time and influencing everything. Theyhave amassed massive assets (equity, homes, bonds, you name it) in their peak earningyears, and are now depending on selling those assets to finance their retirement.What happens when this huge cohort tries to sell their assets in the marketplace tothe much smaller cohort behind them? seehttp://www.census.gov/population/www/projections/np_p2.gif .They flood the market with supply, which reduces price. There will be massivedownwardpressure on asset prices for the foreseeable future.Even if the Administration solution can get credit flowing again, there is no waythat it will be taken up by consumers. Even if it was, credit is not a solution tothe confounding problems. That Pandora box has already been opened.According to this graph:http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600-h/IMFresets.jpgwe are currently in a lull in mortgage resets. This will ramp up again this summer.The first wave put us in the trouble we’re in now. The losses revealed theweaknesses in our economy. It triggered the credit crisis. Now we have reducedconsumer spending, reduced retail profits, layoffs, retail failures, closing retailstores, empty malls and commercial mortgage failures. The retail chapter 11′s andcommercial mortgage failures, layoffs and knock-on effects will be on top of thesecond wave of resets in the Credit Suisse graph.It is going to be a hell of a summer.

Brooks • February 10th, 2009 at 5:36 pm

When I was watching the Roubini Bloomberg and CNBC interviews today I was cracking up. The CNBC interviewers were annoying and idiotic. The Bloomberg interview was at least professional. Still, what got me cracking up was the fact that none of the interviewers seemed to understand what Roubini was saying, which is that consumers need to deleverage and pay down their debt before this crisis will end. The interviewers kept saying, well, will this work if we can get consumers to borrow or spend or take on more leverage/debt? Well, if not, will this work instead? Yet, all of the solutions they were proposing Roubini had already said at the very beginning wouldn’t work, so they were just wasting their time.The entire establishment needs to alter its perception of the dynamics occurring in the economy right now. We are no longer in a world where the Fed can simply induce more leveraging/spending through low rates and that will automatically end the recession. I’m wondering how long it will take before our politicians and the media figure that out.

Guest • February 10th, 2009 at 5:39 pm

Receivership now is best. Paulson already ripped off the taxpayers once. If it happens again, the Democrats will lose what little credibility they have; and the Republicans will try to blame the Dems while setting the public up for a third facist rippoff in behalf of the banks.

Guest • February 10th, 2009 at 5:43 pm

Is the professor intimating that Geithner may have dug himself a hole with this plan, because he either gives an excessive guarantee or the true price discovery will show the banks to be insolvent?Is it possible that Geithner is going to provide the excessive guarantee? This would be the worst possiblescenario for the taxpayer. The private equity capitalinvestors would benefit and the banks will have an artificial benchmark for other troubled assets. Thetaxpayer would get drilled!!!!

Anonymous • February 10th, 2009 at 5:45 pm

I certainly agree. I think the entire point everyone – except apparently Congress – pretty much understands now is that we don’t have any latitude for anymore major mistakes ala Paulsen. This is metaphorically a financial high wire act without a net.AM

Guest • February 10th, 2009 at 6:03 pm

I don’t know about that. I find them somewhat amusing in their childlike manner.It’s the individuals that post “you people posting “First!” are idiots…” that are really annoying.

economicminor • February 10th, 2009 at 6:07 pm

Nouriel thinks they think there is hope to pull a rabbit out of a hat and still come out as total ultimate winners. Here is why I don’t think so.He also thinks that TPTB think that Nationalization is to radical.. I say they are in denial of not only what is going down but of their loss of power to do anything about it. They still believe they are the Masters of the Universe, yet time has passed them by and they have strangled their support system with to much debt. Nationalization is like defeat. They go down in flames with Nationalization. They are losers!Don’t you think they will do everything and anything they can to protect their possitions of power and authority?From the previous thread re: GeithnerActually these people have grown up and have life experience all during the bubble years. People are mostly herd animals and do not like standing out against the main stream thinking. So all the experts were trained when things were in inflationary bubble mode and now that change of circumstances have occurred, they have no belief in the new reality so they just keep doing what they did before.It is a denial at its best. But beyond denial, they have a belief system that has been fashioned and trained and tested during a long series of upward bubbles and debt increases. Now we have hit the wall of Zero Hour, they really do not have the tools, skill sets and most importantly the belief that new tools and new skills are needed.You know how hard it is to change. Whether it is eating foods that are not good for you or smoking cigarettes or going to the same stores or restaurants, change only comes after you have that heart attack and your choice is to change or die. I have conscientiously worked at changing my eating habits to lose weight for years and at least I am not getting heavier. It is extremely difficult to change!That is why drugs and alcohol are such a problem. And often it means changing your friends too. No it really isn’t a conspiracy, it is just human nature. When we hit the wall hard enough, change will happen. We aren’t there yet!These guys live so disconnected to the reality of every day life that they haven’t personally felt the changes we have or had any of this affect them. They see the numbers but if you know that eating fatty steak every night is bad, it isn’t the same thing as losing your job or your house or having a heart attack and almost dying. These guys do not have that facing them.

SJL • February 10th, 2009 at 6:21 pm

I believe Chuck Todd from NBC tried to get to this deleveraging point at the news conference yesterday, but the President went around him with his answer.

Bob • February 10th, 2009 at 6:22 pm

NR, excellent piece! Very logically thought through. What I might suggest is that at the current rate of decent our government can’t afford to wait 12 months. They need to take all four banks out now and get ahead of the game. Stress tests will show that the last two can’t withstand the decent in asset deflation.

James • February 10th, 2009 at 6:23 pm

Ho. lee. crap.Take a look at this video of Rep. Paul Kanjorski explaining how the US was 3 hours from total world meltdown. In a span of 2 hours, $550 billion was withdrawn from money market funds on a huge bank run.I had heard that hedge funds did this. WHY? Were they purposely trying to destroy the world? Were they foreign-power-backed?

I was there when the secretary and the chairman of the Federal Reserve came those days and talked to members of Congress about what was going on… Here’s the facts. We don’t even talk about these things.On Thursday, at about 11 o’clock in the morning, the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States to a tune of $550 billion being drawn out in a matter of an hour or two.The Treasury opened up its window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks.They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic and there. And that’s what actually happened.If they had not done that their estimation was that by two o’clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.Now we talked at that time about what would have happened if that happened. It would have been the end of our economic system and our political system as we know it.

Some commentary from dailykos and some from Motley Fool.

Guest • February 10th, 2009 at 6:25 pm

Well said Brooks,If I here “We’ve got to start the banks lending again” I’m gonna puke. The problem is nobody wants to borrow. When people see how much they have been cheated by the establishment and see that the news media are not on their side and the politicians won’t do anything to take on the establishment, of course they stop borrowing. People aren’t that stupid – they know they are being cheated and slammed every day by the rich and powerful.The establishment needs to wake up and realise their greed will eventually cost them their country.

bcdogs • February 10th, 2009 at 6:33 pm

Two drunks trying to hold each other up indeed. Thank you for putting that sentence in there Prof. R. At least it gave me something to chuckle about!

slf • February 10th, 2009 at 6:34 pm

“It would have been the end of our economic system and our political system as we know it.”Frankly, I think it’s already ended, for all intents and purposes. I mean, it’s been hijacked, which is about the same thing. Although most people don’t seem to realize it yet.

Chignos • February 10th, 2009 at 6:35 pm

If Geithner and Bernanke had a good idea about how to get us out of this recession/depression…….THEY WOULD HAVE ALREADY DONE IT. That’s why there were no specifics from Geithner today. They are winging it.

Guest • February 10th, 2009 at 6:36 pm

Ok so the political will to nationalize is still not there well it is with the public so whose political will are we talking about oh you mean extremely wealthy investors will!So risk the health of the entire U.S. economy for one last desperate attempt to save status quo so Warren Buffet won’t take it on the chin with his huge ownership of Wells Fargo and BofA?Sounds like Roubini is posting actual detailed political rhetoric coming out of the Treasury and White House. Good to know the details so now we can discredit their shallow hollow excuses.

Guest, also • February 10th, 2009 at 6:37 pm

As Geithner talked, the market tanked. The financial community is very disappointed, having wished for guaranteed safety. He delayed his speech from Monday to Tuesday, hoping the Senate bill would also pass around the same time and give him some cover. When that did not happen, he had to leave out too many details in his speech and could not make the promises his financial buds were eagerly awaiting….too many people are watching. It is just sooo much easier to steal when no one is paying attention. What exactly did he say today that could not have been said yesterday?Sadly, we are controlled by a fraternity that absolutely will not throw their brothers overboard until they have already thrown over everyone else.It is time to sink or swim.

Guest • February 10th, 2009 at 6:39 pm

And someone who is so rigid needs to take a deep breath, hold it for 10 seconds. Now count to ten. Feel better?

Guest • February 10th, 2009 at 6:44 pm

Bull is what I have to say, so we risk the entire U.S. economy and rip off tax payers because we’re scared investors will bail on Wells Fargo and Chase? Ridiculous but I must say quite a brilliant excuse!If Chase and Wells investors bail out it’s ultimately because their financial position is extremely weak to begin with, the only reason investors are hanging on is because investors are waiting for the potential freebies. The whole logic is brilliant but a major fraud. I hope Roubini isn’t that naive?

Alejandra Castellanos • February 10th, 2009 at 6:54 pm

Professor Roubini: Isn’t the deferral to plan N a disguised way (and a rip-off) through which unsecured creditors will have enough time to pull out and have the government bail them out, by simply giving those at risk the sufficient time for the government, the Fed, etc. to step in and take out those that have an unsecured creditor status? After all, the government has said that all the faucets are opened to satisfy any liquidity requirements banks have! Is this not going to be a “covered” rip-off anyway?

David Levner • February 10th, 2009 at 7:00 pm

Thank you, Professor Roubini, for your excellent analysis. In the past you have said that if we don’t take over insolvent institutions, then they will take huge risks–I think you called it gambling for redemption. If these institutions act prudently, they know they will fail.Unless the huge risks pay off, then the hole we taxpayers are in gets even deeper. As they say in Texas, “if you find yourself in a hole, stop digging.”You wrote above that it isn’t politically “feasible” to nationalize some of the big banks today. But political leaders, if they are truly leaders, can change what is feasible by convincing the public that the unpopular is desirable or necessary. Would the stock market plunge if some banks were nationalized? Sure! Will it plunge anyway?

PeteCA • February 10th, 2009 at 7:07 pm

It’s been said many times, but we’ll say it again. “It’s not the news – but how the market reacts to the news.”Keeping that in mind – today’s market movement after the passage of the Obama stimulus package is a significant development. Stimulus passed … Market plummets.PeteCA

FEDup • February 10th, 2009 at 7:11 pm

Neither Obama, Beranke, Geithner or anyone else in govt knows what to do because they have to answer to the elite bankers who want total recapitalization at taxpayer’s expense thereby risking a national revolt by working americans. Putting aside all the politics and special interests, the solution is clear and simple: let the insolvent businesses fail and be replaced by new, smaller, transparent and honestly regulated new ones. This is the greatest opportunity since the Great Depression to break up the special interests and monopolies and look how Geithner refuses to present a clear, transparent, detailed plan to the public. They are hanging on for dear life to the old monarchy until they can figure out how to install 24 hour printing presses in each of the Mega banks without the public realizing it. My guess is $999 billion (they don’t like using the word trillion) now, with many more trillions to follow as soon as they can sneak it by the public and it may not be that difficult since the imperialistic FED pretty much does what it wants to under a cloak of secrecy.

Guest • February 10th, 2009 at 7:21 pm

That’s the thing the public wants the banks nationalized it’s only politically unpopular to the wealthy share holders of the banks when you really get down to it.

MM CA • February 10th, 2009 at 7:21 pm

Unless Obama and his few “real” “concerned” advisors have the guts to stand up to the PTB.. We are doodmed… He needs to go on the offensive now…. be radical and go on the offensive and hold the greedy/corrupt accountable…He has a limited time to do this before they surround him and he becomes ineffective and loses the support of the average joe american… Wall street and corprate Boards and Execs are almsot all responsible for this… take the fortune 500, 20 people ine ach compnay, throw in 10,000 more from Wall street and the banking sytem and presto, 11000 of greediest and corrupt people rendered ineffective and replace them with smart, carign americans…I think Obama gave Tim G. one shot and he misfired today… He will be gone within 6 months…

ex VRWC • February 10th, 2009 at 7:25 pm

I finished my blog on financial engineering. It is something I have been toying with for a while – what is it that rubs me the wrong way when I hear so called ‘financial professionals’ on the radio or on CNBC. What is a financial professional (or a financial engineer if you will) and what is wrong with the system our ‘financial engineers’ built? On Financial Engineering

Guest • February 10th, 2009 at 7:29 pm

Sounds like the gig is up the banks are headed for nationalization but before they do they want to make shareholders whole again so those elitist oligarch’s can purchase the banks back from the government once they’re made whole again by tax payers.Tax payers will pay to make the banks whole again and will also pay the current owners to buy the banks back once they’re clean. It’s time to revolt!!!!! Get rid of Obama(and I naively voted for him)

Rohelio • February 10th, 2009 at 7:30 pm

Name one president who stood up to the FED (and survived).Name atleast three presidents who died for there efforts.

Hubbs • February 10th, 2009 at 7:37 pm

Staking the claim of first is a rite of passage here on this blog. And it also serves as an introduction. What other blog can boast of this distinction?Geithner’s testimony can be summed up as ” We don’t know how big a mess we have gotten ourselves into, we have no idea how to get out or when or if we will ever get out. Please be patient with us. We are making this up as we go along.All I can see to do is to nationalize the bad banks and make public a tabulation of the troubled assets and how much was paid for them and let the vultures (private investors) have at it, with the caveat that no investor who has received directly or indirectly financial assistance from the govt can bid. This is the most direct way to transparency and to sequestration of the bad assets. Let the smaller banks that didn’t screw up grow their way the old fashioned way: by sound banking and conservative risk management. Just as a forest burns down, the new growth will regenerate.

Guest • February 10th, 2009 at 7:39 pm

same here:This page can’t be found.Safari can’t open the page “http://calculatedrisk.blogspot.com/” because the page doesn’t exist. Make sure the address for the page is correct.

Guest • February 10th, 2009 at 7:40 pm

They know how to fix the economic problem they’re real problem is how they can fix the problem while remaining in power too. The people who created the problem are still in power and they want to fix the problem without giving up their power. The question is how far will they go? are they willing to destroy the U.S. to preserve their power.Very clever excuse for not nationalizing the banks got to remember these are the same people that created the derivative scam so creative lying and brilliant excuses are second nature to them!

Guest • February 10th, 2009 at 7:44 pm

This time is different in that the internet has exposed the FED to a lot of ordinary people. They’re control over the media is no longer enough to prevent public back lash against the crooked banking system we have!

Pecos Banker • February 10th, 2009 at 7:48 pm

exVRWC,I think the main thing that went wrong, other than the obvious moral faults of rating agencies and other actors, unbridled greed, etc, etc, was the idea that you could reduce risk on highly risky assets by packaging them and spreading the risk around to widely dispersed purchasers of these assets. I would like to see the mathematical reasoning behind this concept, as there is a mathematical basis for so much else that is done in the world of finance. Actually, financial mathematics is very interesting and for the most part very solid. Take a look at Sheldon Ross’ book Mathematical Finance. This guy is as solid a mathematician as they come and his book is very enlightening. The Black and Scholes model is a great PDE–partial differential equation–and the Ito calculus comes straight out of probability theory. These are great advances, so I wouldn’t fault mathematical finance. Most likely it just got co-opted by those idiots at the top–the lunch eaters, as Dmitri Orlov would say.

FEDup • February 10th, 2009 at 7:55 pm

THE U.S. IS THE GREATEST COUNTRY IN THE WORLD; FOR CROOKS, THAT IS! “A Chinese court has handed a death sentence to Li Peiying, a former chairman of Capital Airports Holding Co., for bribery and embezzlement of more than 100 million yuan ($14.6 million), according to a state media fficial..”Do you think we’d be in the mess we’re in now if this was the U.S. policy?

farmboy • February 10th, 2009 at 7:57 pm

What huge investment in BofA? Do you have a source for this? Wells Fargo and Goldman are the best positioned banks right now. Wells will have wrote down all of its Wachovia bad assets by another quarter from now and be on the lookout to fill in its national footprint with small acquisitions over the summer from failed banks.

Guest • February 10th, 2009 at 8:02 pm

I am very concerned. The professor has made a magnificent case that Geithner will have to overpay under the Public Private Investment Fund in order toprevent the banks from being discovered to be insolvent.Geithner was very adamant that his concept would revolve around the Public Private Investment Fund and the professor has just given us a syllogism proof that he either overpays the guarantee or the banks will be discovered insolvent. Geithner is is a corner, and is trapped by his own concept to overpaythe guarantee. The corporate media will not report the professor’s great analysis. We either dispersethe professor’s comments everywhere or we are goingto wake up one day and the Public Private InvestmentFund with the overpay guarantee will be a reality.Do a little accounting of the illogical actions thathappened when we all knew it was not the best thingfor the country. We all knew that the Iraq War was notsuch a great idea, and nobody could stop it

Guest • February 10th, 2009 at 8:14 pm

That’s because the peoples interest is not expressed through our government it’s those with the vastest fortunes who’s interests are heard and protected. Our entire political system disenfranchises the have nots.

Hayes • February 10th, 2009 at 8:20 pm

could it be that the fix is in? Destroy expectations via Timmy’s horrible performance today and then slowly administer more heroin to resuscitate the markets or are they devoid of any solutions and/or know this is a lost cause.

Chignos • February 10th, 2009 at 8:21 pm

I misblogged. Geithner, Obama, Summers, Paulson, Bernanke do know how to fix the problem………they don’t want to fix it. End mark-to-market accounting. It would cost the treasury $0. It would piss off Goldman Sachs. It would mean the banks would be solvent again. It would prevent the feds grabbing the little banks to give to the big banks.When assets are sufficiently deflated (after the stimulus and TARP are spent….and fail….OR….if the Congress doesn’t permit more stimulus and TARP…..doubtful), the SEC will suspend mark-to-market……and voila! All the cheap firesale assets will be owned by the wheels on the east coast (thanks a lot Arlen Specter, Susan Collins, and Olympia Snow), and the stock market will go right back up.Roubini is a little too clever. Once the little banks are nationalized, the toxic assets will be cleansed, at taxpayer expense, of course. These banks will then be sold to Goldman Sachs and their ilk. You people back in NY, Penn., Maine, etc. better wise up and put the pressure on these Senators/President. The banking monopolies that will result will knock you out eventually……..or will themselves fail by being a little too clever by half.Or….if it all gets to looking hopeless maybe you should just quit trying to whip ‘em and join ‘em………i.e., just sell out and buy GS–it was down today.

TiberiusTARP • February 10th, 2009 at 8:25 pm

Staking the claim of first is a rite of passage here on this blog. And it also serves as an introduction. What other blog can boast of this distinction?Actually, the “first post” custom started toward the end of the last housing downturn at a site called Slashdot (widely regarded as the first successful blog, though this was years before the term was coined).I ran across something amusing in Tacitus’ Annals of Imperial Rome today:Meanwhile a powerful host of accusers fell with sudden fury on the class which systematically increased its wealth by usury in defiance of a law passed by Caesar the Dictator defining the terms of lending money and of holding estates in Italy, a law long obsolete because the public good is sacrificed to private interest. The curse of usury was indeed of old standing in Rome and a most frequent cause of sedition and discord, and it was therefore repressed even in the early days of a less corrupt morality. First, the Twelve Tables prohibited any one from exacting more than 10 per cent., when, previously, the rate had depended on the caprice of the wealthy. Subsequently, by a bill brought in by the tribunes, interest was reduced to half that amount, and finally compound interest was wholly forbidden. A check too was put by several enactments of the people on evasions which, though continually put down, still, through strange artifices, reappeared. On this occasion, however, Gracchus, the praetor, to whose jurisdiction the inquiry had fallen, felt himself compelled by the number of persons endangered to refer the matter to the Senate. In their dismay the senators, not one of whom was free from similar guilt, threw themselves on the emperor’s indulgence. He yielded, and a year and six months were granted, within which every one was to settle his private accounts conformably to the requirements of the law.Hence followed a scarcity of money, a great shock being given to all credit, the current coin too, in consequence of the conviction of so many persons and the sale of their property, being locked up in the imperial treasury or the public exchequer. To meet this, the Senate had directed that every creditor should have two-thirds his capital secured on estates in Italy. Creditors however were suing for payment in full, and it was not respectable for persons when sued to break faith. So, at first, there were clamorous meetings and importunate entreaties; then noisy applications to the praetor’s court. And the very device intended as a remedy, the sale and purchase of estates, proved the contrary, as the usurers had hoarded up all their money for buying land. The facilities for selling were followed by a fall of prices, and the deeper a man was in debt, the more reluctantly did he part with his property, and many were utterly ruined. The destruction of private wealth precipitated the fall of rank and reputation, till at last the emperor interposed his aid by distributing throughout the banks a hundred million sesterces, and allowing freedom to borrow without interest for three years, provided the borrower gave security to the State in land to double the amount. Credit was thus restored, and gradually private lenders were found. The purchase too of estates was not carried out according to the letter of the Senate’s decree, rigour at the outset, as usual with such matters, becoming negligence in the end.Everything old is new again.

Guest • February 10th, 2009 at 8:28 pm

It’s something I’ve read in countless articles maybe I’m wrong but it wasn’t really the point I was trying to make anyway. I’m pretty sure he or his company is a big shareholder of BofA though.At this point I hope all the banks fail they should be public utilities and they’re earned interest should go back to tax payers not private owners who as a result become too powerful and too big to fail and obviously as we haver all seen gain unprecedented influence and power over our government to the point where the banks are like dictators and our government is a theater show. Fractional reserve banking should = government owned for fairness to the tax payer and common man!!!!!

jugglingcdos • February 10th, 2009 at 8:32 pm

it does not matter anymore…(believe me, they know that too)”dust in the wind” “all the tarps are dust in the wind”

Guest • February 10th, 2009 at 8:43 pm

As I posted a few thread back:I am sure we will get more developments (from this crisis) that moves this world toward a specific direction more conductive to certain not-yet-publicized plans. After all, that is the sort of developments we got from 9/11: loss of civil rights, domestic spying, more executive power to the Prez, etc.This economical crisis may not lead to further changes of such nature, but will likely lead to further changes involving either restrictions or increased government influence over peoples finances (directly or indirectly, e.g. by owning employers and banks).Eventually the governments will come public with their plans. They just need to set up the world so that the plans can be carried out quickly. Or what did you think was the reason for sites like google and facebook to collect all that data. Even if they do not use the data themselves it will get used by those whom they provide it to.In the end they just need a public excuse. That will come in the form of the next crisis (this one and 9-11 were not excuses for the final act, these were needed to excuse the “configuration changes”…changes in law etc).—P.S. Both the 9/11 situation and this one were brought to us by US government (as explained e.g. here: http://www.ae911truth.org). Obama should set up a new 9-11 truth commission. But will he? Likely not? Why – I thought he was supposed to be “different”?

g Anton • February 10th, 2009 at 8:47 pm

I hate to disagree with Dr. Roubini–I do it with fear and trembling and hat in hand, but I think that it’s well past time to nationalize the banks.

Guest • February 10th, 2009 at 8:56 pm

End mark to market so banks never again have to disclose losses and can leverage our financial system 10,000 times more than they already have?The banks aren’t lending to the tapped out public period whether or not they mark to marketing is irrelevant. There’s no one to lend to and no way to lower interest rates any more than they have. Without mark to market imagine how bad of shape we would be in 5 years from now.If they end mark to marketing only the stupidest investors on the planet would start buying into the banks. The cat is out of the bag changing the accounting rules won’t restore confidence thats plain ridiculous!It’s no different than easing margin requirements and allowing more irresponsibility-silly!

Guest • February 10th, 2009 at 9:00 pm

g,he is different. i think. he is the first…AFRICAN american PRESIDENT. not irish american, chinees american, italian american, israeli american, german american, etc.. the first one.coincidentally africom is coming into its own and the term is heard more frequently recently on national petroleum radio, npr. and i love that gold backdrop they set him up with when he speaks from the white house interiors. what could it all mean? i really don’t know.

subgenius • February 10th, 2009 at 9:02 pm

Responding to criticism from Congressional leaders, Mr Geithner said the Obama administration’s plan put in place “the broad architecture”, with details to be fleshed out in the coming weeks. But Kevin Logan, a senior US economist at Dresdner Kleinwort, said: “They have a plan for a plan but they don’t really have a plan. The whole proposal is so vague as to create new uncertainty, and maybe the problem is really so bad that they haven’t worked out how to solve it.”independent.co.ukNo shit, Sherlock.My question: why do these fools still have jobs?

Guest • February 10th, 2009 at 9:06 pm

No no Roubini was playing devils advocate with himself in this article or at least being non-committal. My guess is he got a courtesy call from Geithner or somebody from the Treasury’s office who explained and somewhat successfully argued their resistance to nationalizing the banks. Perhaps Roubini naively fell for it he is an honest guy an honest people tend to be a bit gullible and give the benefit of the doubt. None the less Roubini was i think just relaying the N resistors current argument, as to how much he himself bought into it is a little unclear.

wawawa • February 10th, 2009 at 9:13 pm

These current events truly demonstrates who runs Washington (US administration and US congress).Washington is not run neither by democrats nor republicans, the political system is run by kleptomanias (e.g. Wall Street firms).

Chignos • February 10th, 2009 at 9:17 pm

If you think that mark-to market accounting truly reflects the condition of banks, and if you think banks are not lending, that is because you believe the tripe in the media. Banks are lending. This myth that they are not lending is nuts. Just look at their monthly totals.And think about what else you’re saying. The public is “tapped out”–another myth. Why do you think Obama and Geithner are trying to attract private capital into their scheme? Doesn’t sound like they’re “tapped out” to me. Sounds more like they’re not yet “tapped out” enough for Obama and Geithner.Only the stupidest investors on the planet would invest in any other than GS or MS until Obama-Geithner and the media have shot their wad (and it won’t be long).

Guest • February 10th, 2009 at 9:31 pm

“kleptomaniac” implies that they have no control over what they’re doing. I think it’s better covered under the term “thieves”.

subgenius • February 10th, 2009 at 9:38 pm

Actually, I should elaborate:Yes – the banks should be nationalized under stringent regulations that essentially wipe out all claims on them unless they are allowed to fail and new banks are capitalized with the newly announced funding, as under the current system the future needs such action to keep the idiocy of capitalism predicated on perpetual growth to continue.This is my opinion taking in to account the politics of the moment, though really I think the system we have come to know is failed for reasons espoused by many here, and that all attempts to save it are doomed to failure due to the continuing refusal to accept the constraints of our physical environment.I would like to see action to create a sustainable future for the children of those that have any. I have grave doubts TPTB will ever see this and will, instead, attempt to continue in the misguided path they have followed for the last century.This was brought back to me recently when I revisited an old argument I made regarding the pursuit of what I personally consider massive foolishness (in an unrelated, mainly academic subject – though with strong links to the military-industrial complex), and once again encountered the same old bull$**t from those who dedicated their careers to furtherance of said massive foolishness. It would appear that most people find it impossible to separate reality from their dreams of personal greatness, to the point that they will ignore any evidence, no matter how strongly argued, in favour of their perceived position as “great thinkers” and “powerful players”. It has been disheartening to see just how many supposedly intelligent individuals are prepared to fight all comers to defend their little meaningless corner, rather than accept the best efforts at divining the “truth”. My experience comes from primarily from applied and theoretical sciences, rather than the markets, but the same old bull$**t pervades all I see, everywhere…Unless people learn to deal with reality (I think that M.O.G. was closer to reality than most “playaz” in the finance and political worlds), we as a species are truly screwed. All the plans in discussion by TPTB are simply going to hasten the end and make the drop more precipitous, painful and generally fatal to all the myriad fascinating aspects of life on this planet. We appear, to me, to be going in exactly the wrong direction and doing our best to avoid the actions that will make, as Dmitry Orlov puts it, the collapse be like stepping out of a first floor window. Rather, we as a “civilization” (I am beginning to doubt that we should apply that term to ourselves) are acting to increase the distance we have to fall when it all finally hits the ultimate buffers of reality.

Guest • February 10th, 2009 at 9:48 pm

A damning survey of the Federal Reserve System’s first fifteen years appeared in the “North American Review” of May, 1929, by H. Parker Willis, professional economist who was one of the authors of the Act and First Secretary of the Board from 1914 until 1920. Willis wrote:“The element of idealism the President [Woodrow Wilson] prescribed and believed we could get on the principle of noblesse oblige from American bankers and businessmen was not there. Since the inauguration of the Federal Reserve Act we have suffered one of the most serious financial depressions and revolutions ever known in our history, that of 1920-21. We have seen our agriculture pass through a long period of suffering and even of revolution, during which one million farmers left their farms, due to difficulties with the price of land and the odd status of credit conditions. We have suffered the most extensive era of bank failures ever known in the country. FORTY-FIVE HUNDRED BANKS (4500) have closed their doors since the Reserve System began functioning. In some Western towns there have been times when all banks in that community failed, and given banks have failed over and over again. There has been little difference in liability to failure between members and non-member banks of the Federal Reserve System…“The best illustration of what the System has done and not done is offered by the experience which the country was having with speculation, in May, 1929…“The ‘small man’ from Maine to Texas has gradually been led to invest his savings in the stock market, with the result that the rising ride of speculation, transacted at a higher and higher rate of speed, has swept over the legitimate business of the country… The Federal Reserve Board…did its utmost to assure the average man that he should feel no alarm about his savings. Yet the Federal Reserve Board issued on February 2, 1929, a letter addressed to the Reserve Bank Directors cautioning them against the grave danger of further speculation.“What could be expected from a group of men…eager only to ‘stand in’ with the ‘big men’ whom they know as the masters of American finance and banking.”And thus it was — before the Crash of 1929 and the Great Depression.And thus it is now, with, as Roubini point outs, 6-8 banks controlling about 80 percent of the market … Further, it is reported by the NY Daily News that more than 1000 banks may fail during the next three to five years as the recession intensifies and loan losses climb…How well the drafters of the Federal Reserve “System” have succeeded with their plan for total control of the money and credit of the people of the United States. How well, indeed.

redleg • February 10th, 2009 at 10:05 pm

It appears to me (an amateur) that the Obama administration is hedging based on what the Republicans are doing. If they Nationalize right out of the gate they fear getting Newted a la 1994. So they try something else first.What really makes me want to spit is anyone who intentionally uses a disaster for personal gain.

blindman • February 10th, 2009 at 10:29 pm

SustainabilityFrom Wikipedia, the free encyclopedia.For the concept in music theory, see sustain..Sustainability, in a broad sense, is the capacity to maintain a certain process or state. It is now most frequently used in connection with biological and human systems. In an ecological context, sustainability can be defined as the ability of an ecosystem to maintain ecological processes, functions, biodiversity and productivity into the future.[1]Sustainability has become a complex term that can be applied to almost every facet of life on Earth, particularly the many different levels of biological organization, such as; wetlands, prairies and forests and is expressed in human organization concepts, such as; ecovillages, eco-municipalities, sustainable cities, and human activities and disciplines, such as; sustainable agriculture, sustainable architecture and renewable energy.For humans to live sustainably, the Earth’s resources must be used at a rate at which they can be replenished. However, there is now clear scientific evidence that humanity is living unsustainably, and that an unprecedented collective effort is needed to return human use of natural resources to within sustainable limits.[2][3]Since the 1980s, the idea of human sustainability has become increasingly associated with the integration of economic, social and environmental spheres. In 1989, the United Nations Brundtland Commission articulated what has now become a widely accepted definition of sustainability: “[to meet] the needs of the present without compromising the ability of future generations to meet their own needs.”.the mind and eyes need transparency to see , to hear and know. the heart and lungs need clean air to breath. the mouth and body need clean water and nourishment to digest. the body also needs warmth in colder latitudes. shade in warmer ones.that is all that is needed, and much of it is freely and naturally available. the species other needs can be satisfied by use of imagination, creativity, and intelligence..transparency, air, water, food, energy. the core.should be “sacred” and secure, the root of happiness.justice.thought. people would be right to demand these things, but not to excess, of any legitimate governing entity.(social order).i think it is possible. almost simple enough, and it need not interfere with other sound human ambitions. if we ever civilize ourselves then maybe we can profitably export and globalize that.

Guest • February 10th, 2009 at 10:42 pm

Have you heard the latest Congressional scam? It’s in legislation sponsored by Gary L. Ackerman, Democrat of New York, that would shore up banks with public pension funds. It’s a win-win for government employees and for Wall Street bankers. And a lose-lose for taxpayers.Ackerman, who’s a member of the House Financial Services Committee, has been circulating a draft bill that would allow some of the trillions of dollars in public pension funds to be pooled to create a sole-purpose entity that would buy up to $250 billion worth of preferred stock in America’s banks. That would strengthen the banks’ balance sheets, says Ackerman.Writes the New York Times today, “Since the nation’s banks are shaky, and pension funds cannot afford more investment losses, Mr. Ackerman’s measure also calls for the Treasury to guarantee the funds’ principal, plus an annual return of about 8.5 percent.“This guarantee would solve one of the biggest problems now facing most public pension funds: They need to achieve average annual investment returns of 8 percent, and in today’s markets, they cannot do so with the types of securities they area required to invest in.” (Never mind that so many of them have “made missteps.” Says Ackerman, “Sometimes, you have to do things to benefit people who didn’t behave so well.”)Says the Times, “Plan rules generally limit the amount of market risk the plans can take on. At the moment, risk-free assets like Treasury bills are paying next to nothing. The benchmark 10-year Treasury is yielding just under 3 percent…”“Getting the plans back into balance would then mean pumping in lots of cash, which presumably would come from taxpayers in the states and municipalities that sponsor the plans. Local governments would be hard-pressed to come up with the extra money in this downturn.“A federally guaranteed return of 8.5 percent, meanwhile, would avoid much misery, and give the public pension funds a new lease on life. There would, of course, be considerable risk that the banks would not be able to generate those returns, in which case the federal government would be on the hook, as it would for any loss of the funds’ principal, under the proposal.”There you have it, folks. Fat and bald, blubbering NY bank sycophant, Rep. Gary Ackerman, wants to guarantee reckless public pension fund managers an 8.5% percent return so they can shoot for a 25% percent risk return on Wall Street. What the hey, if they lose it’s guaranteed, principal and all by taxpayers at 8.5%.And Wall Street will love it, as well: in-and-out risk, guaranteed.Never mind that you and your 401k or private pension or mutual fund are earning “next to nothing” at 2.50%. Pay up, buddy. Your non-producing superiors in government deserve their guaranteed 90 to 100% of salary retirement checks after 25 to 30 years of shuffling papers, with cost of living raises and full family health insurance. You can slug on till age 67 or ‘til you drop dead. Who gives a blast?What jumped-up trash resides in the hall of Congress – your “house of representatives.”

Ernst • February 10th, 2009 at 11:14 pm

Government should give a flat out guarantee to the majority of the banking system. This should provide protection from losses for all creditors except shareholders. Losses are to be covered in the first place by shareholder capital. The Fed would have to supply all needed liquidity to the banks at normal interest and repayment terms without need for any collateral. The Fed and/or the Tresury would also have to supply any needed loans in foreign currency. All banks receiving this guarantee must have their assets realistically valued by an independent professional government entity. This would separate wholly insolvent banks from potentially solvent ones. All expected loan losses would have to be disclosed and realistic values should be given to all assets. Liquidity must be maintained in the banking system to avoid it’s collapse. The terms for recapitalization must try to avoid, to the extent possible, moral hazard.

Wolf in the Wilds • February 10th, 2009 at 11:35 pm

Marking to market is not the issue. Not marking to market just makes the visibility a lot worse. Think of it this way: imagine you are invested in a bank that has a lot of assets but do not realistically price the risk. Then imagine that the risk bears out and the bank is insolvent. You wouldn’t know because they did not mark the assets. So one day, you own a supposedly healthy bank, and the next it goes bankrupt. Would you still knowingly invest?Mark to market is the correct way of pricing this risk, as long as this risk is traded. Even if the market is supposedly over compensating for that risk, it doesn’t mean it is not correct. Putting your head in the sand does not make the problem go away. It just makes you less prepared for it.

Guest • February 10th, 2009 at 11:35 pm

To put this in perspective, it’s interesting to note that in 1920 when 1,000,000 farmers were forced from their farms because of the price of land and “credit conditions” created by the Fed, the population of the United States stood at 106,000,000, with just 24.5 million households. And, in the early 1930s, prices dropped so low that many more farmers went bankrupt and lost their farms. In some cases, the price of a bushel of corn fell to just eight or ten cents.According to Iowa Pathways, “During World War I, farmers worked hard to produce record crops and livestock. When prices fell they tried to produce even more to pay their debts, taxes and living expenses. In the early 1930s…some farm families began burning corn rather than coal in their stoves because corn was cheaper. Sometimes the countryside smelled like popcorn from all the corn burning in the kitchen stoves.“[A]fter 1929 things began to be hard for city workers as well. After the stock market crash, many businesses started to close or to lay off workers. Many families did not have money to buy things, and consumer demand for manufactured goods fell off. Fewer families were buying new cars or household appliances. People learned to do without new clothing. Many families could not pay their rent. Some young men left home by jumping on railroad cars in search of any job they could get. Some wondered if the United States was heading for a revolution…“[S]ome ways farmers were better off than city and town dwellers. Farmers could produce much of their own food while city residents could not. Almost all farm families raised large gardens with vegetables and canned fruit from their orchards. They had milk and cream from their dairy cattle. Chickens supplied meat and eggs. They bought flour and sugar in 50-pound sacks and baked their own bread. In some families the farm wife made clothing out of the cloth from flour and feed sacks. They learned how to get by with very little money. But they had to pay their taxes and debts to the bank in cash. These were tough times on the farms.“The Federal government passed a bill to help the farmers. Surplus was the problem; farmers were producing too much and driving down the price. The government passed the Agricultural Adjustment Act (AAA) of 1933 which set limits on the size of the crops and herds farmers could produce. Those farmers that agreed to limit production were paid a subsidy. Most farmers signed up eagerly and soon government checks were flowing into rural mail boxes where the money could help pay bank debts or tax payments.“When factories and stores shut down, many workers lost their jobs. In Dubuque [Iowa], for example, 2,200 workers lost their jobs between 1927 and 1934 when their firms closed, while only 13 new businesses opened—employing only 300 workers. That meant a loss of 1,900 jobs. Dubuque railroads employed 600 workers in 1931; three years later, only 25 jobs remained.“Before the Great Depression, people refused to go on government welfare except as a last resort. The newspapers published the names of all those who received welfare payments, and people thought of welfare as a disgrace. However, in the face of starving families at home, some men signed up for welfare payments. For most it was a very painful experience.“Town families could not produce their own food. Many city dwellers often went hungry. Sometimes there were soup kitchens in larger cities that provided free meals to the poor. Winters were an especially hard time since many families had no money to buy coal to heat their houses.“The government created programs to put Americans to work. The Works Progress Administration (WPA) hired many men to work on parks, roads, bridges, swimming pools, public buildings and other projects. Teen-age boys were hired by the Civilian Conservation Corps (CCC). They lived in barracks, were given clothing, and provided with free meals. The small salary that they earned was sent back to help their families. The CCC boys planted trees, helped create parks, and did other projects to beautify and preserve natural areas.“The 1930s are remembered as hard times for many American families. With the coming of World War II, the government began hiring many men to serve in the army. Factories began receiving orders for military supplies. But the memories of the Depression did not go away. Many Americans worried that when the war ended, hard times would come again.”http://www.iptv.org/iowapathways/mypath.cfm?ounid=ob_000064The Federal Reserve System has been a blight upon the prosperity of America. It is an oligarchy that should never have been permitted in a free society and if ever America is to be restored to her former greatness, it must be abolished. It has deprived Congress of its sovereignty and our country’s systems of checks and balances of power set up by Thomas Jefferson in the Constitution. It is a money machine that finances an elite of international bankers and puts all men’s labors at their disposal.

DaRkJaWs • February 10th, 2009 at 11:38 pm

Actually a better question is why the government doesn’t have it’s own insurance company. Because any profits made by insurance companies only find their way into the investor class’ pockets and the executives’ pockets. By having the cheapest insurance rates around, the lower and middle class could easily afford the insurance, and w/ everyone having insurance from the government rates would be lower than any private insurance company could ever offer.

Guest • February 10th, 2009 at 11:45 pm

Ah, Fedup. You’ve got it: The U.S. is the greatest country in the world — for crooks.”Crime is contagious. If the government becomes a law-breaker, it breeds contempt for law.” Louis D. Brandeis: Dissenting, Olmstead v. U.S., 277 U.S. 438 (1923).How this once great land has been confused and abused.

Jason B • February 10th, 2009 at 11:58 pm

thanks, just pointing out that the big picture is terrible. I cut and pasted from notepad, which screwed up the formatting.

Guest • February 11th, 2009 at 12:06 am

“The Growing Army of Angry Men Whose Lives Have Been Destroyed by the Federal Government” by Mark R. CrovelliOne of the hardest things to deal with in the current economic depression is the disgusting hypocrisy of the U.S. congress, the new president, and the members of the Federal Reserve System. It is one thing to be told, as we all are, that we must hand over fat wads of our hard-earned money to these warmongering and thieving snakes or face jail terms, but one feels a whole new level of revulsion when these people make statements to the effect that they, and they alone, are in a position to “save the economy” by “creating jobs.” These statements are made by people who have done virtually everything in their power to destroy the American economy over the last few decades, but who have now proclaimed themselves to be our saviors. Only the most naïve and unlearned among us could possibly be falling for the idea that a bunch of self-serving politicians, bureaucrats and bankers are going to “save” us from problems they have caused.On its face, the idea that politicians, bureaucrats, and bankers could “save” the economy is laughable. These are people, after all, who live exclusively at our expense. That is, these are people whose entire livelihoods are dependent upon taking money away from productive people and spending it on themselves and their favorite wasteful projects…What the political and bureaucratic classes are actually accomplishing very well, however, is creating a veritable army of angry men whose lives have been destroyed by the federal government. Many have lost their jobs, thanks to the collapse of the largest artificial economic boom in American history – a boom that was directly caused by the actions of the federal government and the Fed. In addition, thanks to years of merciless and ceaseless money creation by the Fed, this army of men has found that their savings purchase fewer and fewer goods over time. This depreciation of the dollar will inexorably increase astronomically over the next few years as the massive amount of new money the Fed and treasury have already jointly printed, and are planning to print over the coming months and years, floods the system.This army of angry men has very little to be optimistic about in the near future. At best, they might be able to keep their present jobs in the private sector – shouldering a heavier and heavier portion of the tax burden that funds the congress and president’s wars and socialization schemes, while the value of their savings continues to erode into dust. Those who have lost their jobs might be permitted to work on Mr. Obama’s “public works” projects, and thereby become virtual slaves to the whims of the political and bureaucratic classes. Many others will simply find it easier to start sucking at the state’s teat in the form of unemployment insurance or food stamps, et cetera, and thereby lose all respect for themselves. One thing is certain for every member of this army of angry men, though; every single one of them will now find it very difficult, if not impossible, to carve out a living for himself, on his own terms, and without being at the complete mercy of politicians, bureaucrats, and bankers he has never even met. The age of the independent, responsible, and free American citizen is now dead.The hour is fast approaching when each and every one of us will have to decide for ourselves whether we will try to fight this devastating government machine, or join it.http://www.lewrockwell.com/crovelli/crovelli23.html

Guest • February 11th, 2009 at 12:22 am

China’s January Exports Fall 17.5%, Most Since 1996Feb. 11 (Bloomberg) — China’s exports fell by the most in almost 13 years as demand dried up in the U.S. and Europe, worsening the outlook for jobs and industrial production in the world’s third-biggest economy.Shipments declined 17.5 percent in January from a year earlier, the customs bureau said on its Web site today, after falling 2.8 percent in December. The latest number was worse than the 14 percent decline forecast in a Bloomberg News survey of 14 economists.China’s economic slide has already cost the jobs of 20 million migrant workers, adding pressure on the government to boost consumption and expand a 4 trillion yuan ($585 billion) stimulus package. Government researchers have advocated weakening the yuan against the dollar to support exports, a move that could add to trade tensions amid the worst financial crisis since World War II.“All China’s major trading partners are in recession,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “Boosting domestic demand is extremely important.”Imports declined 43.1 percent in January from a year earlier, the biggest decline since Bloomberg data began in 1995, on the nation’s waning demand for raw materials for manufacturing and lower commodity prices. The trade surplus was $39.11 billion, the second-highest on record.http://www.bloomberg.com/apps/news?pid=20601068&sid=axZwl6OyPaZY&refer=home

Payam • February 11th, 2009 at 12:23 am

One comment: You’re an idiot. The free market kills the economy and you go after the ones trying to save it. The very definition of a fool.

Little Saver • February 11th, 2009 at 12:37 am

If even our greatest supporters are getting worried, I’m getting worried too:Feb. 11 (Bloomberg) — China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.To late my boy, damage is done, money is going through the doors, bonuses included.

Dr.Dan • February 11th, 2009 at 12:37 am

China Deflation : China is TOAST China faces a bout of deflation, economists warned on Tuesday as data revealed that inflation dropped to its lowest in 2½ years in January and that the price of goods leaving factory gates fell 3.3 per cent in January.In the latest sign of economic weakness in the country, consumer price inflation fell for the ninth month in a row to 1 per cent in January from 1.2 per cent the previous month as prices for clothing, transport and housing tumbled.Ha Jiming, economist at China International Capital Corporation, said inflation would be minus 1 per cent in February and factory-gate prices would decline 6.3 per cent.However, most analysts say that China will avoid a prolonged period of deflation, which could lead to a sharp drop in output as consumers and companies delay spending, because of the aggressive monetary and fiscal stimulus policies introduced by the Chinese authorities.The government has abandoned quotas for new credit growth and has urged state-owned commercial banks to help finance a Rmb4,000bn (£404bn, $586bn) fiscal spending plan over two years.State media reported this week that new loans issued in January reached Rmb1,200bn, which, if confirmed, would represent the third month in a row of sharply higher credit expansion. Economists expect the Chinese central bank, which has cut interest rates five times since September, to ease monetary policy further.Even if prolonged consumer price deflation is avoided, economists said that the drop in prices of goods leaving at the factories level was likely to depress further corporate profits, which are an important source of funding for investment in China. Producer prices could fall by as much as 10 per cent, said Yu Song at Goldman Sachs, which “would make industrial profits look very bad”.McDonalds, the world’s largest fast-food chain, said last week that it was cutting the prices on some of its meals in China by as much as one-third to attract customers to its 1,050 restaurants across the country.Meanwhile, Zhou Xiaochuan, the head of China’s central bank, stressed the need for the global financial system to reduce its dependency on the dollar. Countries should “steadily push toward diversification in the international monetary system in the long term,” he said.

JLC • February 11th, 2009 at 12:58 am

Andrew Jackson stood up to an earlier incarnation of the central bank and won.The problem is that in general the American public is much more docile and ignorant these days.

JLC • February 11th, 2009 at 1:09 am

Payam, it is seldom that you comment without resorting to an ad hominem attack. Many of your comments are ad hominem and nothing else.You are living in a world of mirrors.

Irmanator • February 11th, 2009 at 1:15 am

Isn’t that the plan with health insurance? “If you like your plan, stick with it. If you don’t have a plan, you can buy into the same plan that members of congress enjoy.”

Mark • February 11th, 2009 at 3:33 am

I think that there are explicit instructions as to how this is all supposed to turn out. And I think that it’s contained in the words “the meek shall inherit the earth.”Mark

Octavio Richetta • February 11th, 2009 at 3:47 am

http://www.ft.com/cms/s/0/2802e3a8-f77c-11dd-81f7-000077b07658.html (free link)dam Smith gets the last laughBy P.J. O’RourkePublished: February 10 2009 19:22 | Last updated: February 10 2009 19:22The free market is dead. It was killed by the Bolshevik Revolution, fascist dirigisme, Keynesianism, the Great Depression, the second world war economic controls, the Labour party victory of 1945, Keynesianism again, the Arab oil embargo, Anthony Giddens’s “third way” and the current financial crisis. The free market has died at least 10 times in the past century. And whenever the market expires people want to know what Adam Smith would say. It is a moment of, “Hello, God, how’s my atheism going?”Adam Smith would be laughing too hard to say anything. Smith spotted the precise cause of our economic calamity not just before it happened but 232 years before – probably a record for going short.“A dwelling-house, as such, contributes nothing to the revenue of its inhabitant,” Smith said in The Wealth of Nations. “If it is lett [sic] to a tenant for rent, as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue.” Therefore Smith concluded that, although a house can make money for its owner if it is rented, “the revenue of the whole body of the people can never be in the smallest degree increased by it”. [281]*Smith was familiar with rampant speculation, or “overtrading” as he politely called it.The Mississippi Scheme and the South Sea Bubble had both collapsed in 1720, three years before his birth. In 1772, while Smith was writing The Wealth of Nations, a bank run occurred in Scotland. Only three of Edinburgh’s 30 private banks survived. The reaction to the ensuing credit freeze from the Scottish overtraders sounds familiar, “The banks, they seem to have thought,” Smith said, “were in honour bound to supply the deficiency, and to provide them with all the capital which they wanted to trade with.” [308]The phenomenon of speculative excess has less to do with free markets than with high profits. “When the profits of trade happen to be greater than ordinary,” Smith said, “overtrading becomes a general error.” [438] And rate of profit, Smith claimed, “is always highest in the countries that are going fastest to ruin”. [266]The South Sea Bubble was the result of ruinous machinations by Britain’s lord treasurer, Robert Harley, Earl of Oxford, who was looking to fund the national debt. The Mississippi Scheme was started by the French regent Philippe duc d’Orléans when he gave control of the royal bank to the Scottish financier John Law, the Bernard Madoff of his day.Law’s fellow Scots – who were more inclined to market freedoms than the English, let alone the French – had already heard Law’s plan for “establishing a bank … which he seems to have imagined might issue paper to the amount of the whole value of all the lands in the country”. The parliament of Scotland, Smith noted, “did not think proper to adopt it”. [317]One simple idea allows an over-trading folly to turn into a speculative disaster – whether it involves ocean commerce, land in Louisiana, stocks, bonds, tulip bulbs or home mortgages. The idea is that unlimited prosperity can be created by the unlimited expansion of credit.Such wild flights of borrowing can be effected only with what Smith called “the Daedalian wings of paper money”. [321] To produce enough of this paper requires either a government or something the size of a government, which modern merchant banks have become. As Smith pointed out: “The government of an exclusive company of merchants, is, perhaps, the worst of all governments.” [570]The idea that The Wealth of Nations puts forth for creating prosperity is more complex. It involves all the baffling intricacies of human liberty. Smith proposed that everyone be free – free of bondage and of political, economic and regulatory oppression (Smith’s principle of “self-interest”), free in choice of employment (Smith’s principle of “division of labour”), and free to own and exchange the products of that labour (Smith’s principle of “free trade”). “Little else is requisite to carry a state to the highest degree of opulence,” Smith told a learned society in Edinburgh (with what degree of sarcasm we can imagine), “but peace, easy taxes and a tolerable administration of justice.”How then would Adam Smith fix the present mess? Sorry, but it is fixed already. The answer to a decline in the value of speculative assets is to pay less for them. Job done.We could pump the banks full of our national treasure. But Smith said: “To attempt to increase the wealth of any country, either by introducing or by detaining in it an unnecessary quantity of gold and silver, is as absurd as it would be to attempt to increase the good cheer of private families, by obliging them to keep an unnecessary number of kitchen utensils.” [440]We could send in the experts to manage our bail-out. But Smith said: “I have never known much good done by those who affect to trade for the public good.” [456]And we could nationalise our economies. But Smith said: “The state cannot be very great of which the sovereign has leisure to carry on the trade of a wine merchant or apothecary”. [818] Or chairman of General Motors.* Bracketed numbers in the text refer to pages in ‘The Wealth of Nations’, Glasgow Edition of the Works of Adam Smith, Oxford University Press, 1976The writer is a contributing editor at The Weekly Standard and is the author, most recently, of On The Wealth of Nations, Books That Changed the World, published by Atlantic Books, 2007

Octavio Richetta • February 11th, 2009 at 3:54 am

Free Link:http://www.ft.com/cms/s/0/19678568-f792-11dd-81f7-000077b07658.htmlNow we know: the shorting ban was a mistakeBy Paul MarshallPublished: February 10 2009 19:26 | Last updated: February 10 2009 19:26While UK regulation of hedge funds has much to commend itself in comparison with other financial centres, notably the US, the specific approaches taken to short selling – specifically the four-month ban and the subsequent proposals on disclosure – do nothing to enhance our credentials for global leadership. On the contrary.The one great benefit of the UK’s ban on short selling financial stocks, which ended on January 16, is that it provided the perfect laboratory in which to assess the policy’s merits. The conclusion is unequivocal – it was a mistake. …

Anonymous • February 11th, 2009 at 3:55 am

wow…——————————————http://www.globalresearch.ca/index.php?context=viewArticle&code=DEC20090210&articleId=12252Catastrophic Fall in 2009 Global Food Productionby Eric deCarbonnelGlobal Research, February 10, 2009Market OracleAfter reading about the droughts in two major agricultural countries, China and Argentina, I decided to research the extent other food producing nations were also experiencing droughts. This project ended up taking a lot longer than I thought. 2009 looks to be a humanitarian disaster around much of the worldTo understand the depth of the food Catastrophe that faces the world this year, consider the graphic below depicting countries by USD value of their agricultural output, as of 2006.

Octavio Richetta • February 11th, 2009 at 4:05 am

This is what happens when you try to make up losses “fast” by increasing risk taking. The money that is gone is gone. There is no easy, fast way to recover it.http://www.bloomberg.com/apps/news?pid=20601087&sid=a0xZSCggzu_g&refer=homeCredit Suisse Reports SF6.02 Billion Loss on Trading (Update2)By Elena LogutenkovaFeb. 11 (Bloomberg) — Credit Suisse Group AG, Switzerland’s second-biggest bank, reported a record fourth-quarter loss after the worst financial crisis since the Great Depression battered trading results. …

Octavio Richetta • February 11th, 2009 at 4:19 am

Good observation. I am down in Argentina and the drought has been terrible here. I own calls on DBA Jan 2011 Leaps with a $25 strike price. Commodity dynamics are extremely complex but I do hope to make some money on this trade.

PeterJB • February 11th, 2009 at 4:20 am

“Markets were expecting a more clear plan but also a plan that would bail out shareholders and creditors of insolvent banks. Unfortunately that is not politically and fiscally feasible. It is thus time to start to think and plan ahead for for Plan N (“nationalization” of insolvent banks). “@ RoubiniNo surprise here from ‘this top rate er, finest economic team ever assembled’ or whatever… but as I said, this team just ain’t capable of a “Plan” and neither are the “leaders”. Professor, you may remember stating that this Obama economic team was the ANSWER and I get from your above article today, that you are starting to realize that you may have erred somewhat. IMO Mr Geithner would be better employed as a messenger boy as he is no thinker but merely a consensual vulture droid in a long chain of gophers selling their own advancement through deception and stealth or suitspeak bulls%&t.Too bad, as there are plenty great talents in the USA just waiting to get into this and solve it under the guidance of any number of great leaders in these economic matters – but it is clear, that none of these great will be allowed anywhere near the problems – so the USA will soon collapse; that isn’t a “plan”; it is the result of incompetence, self-agenda and plain stupidity.”It is thus time to start to think and plan ahead …”????Why start now? Why break a perfect record?Incompetence; a game the whole family can play, like incest!Ho hum

Little Saver • February 11th, 2009 at 5:33 am

Incontinence: when losses become too great to hold.No problem yet, pampering will do for a while.Thereafter, others get the privilige to clean up. Not our problem

P1AQL • February 11th, 2009 at 6:07 am

Prof. Roubini wrote:

Of the four options the first three have serious flaws: in the bad bank model the government may overpay for the bad assets – at a high cost for the taxpayer – as the true value of them is uncertain; and if it does not overpay for the assets many banks are bust as the mark-to-market haircut they need to recognize is too large for them to bear.

I humbly disagree with Prof. Roubini. There’s no need to nationalize. Here’s why.1. The US consumer is no longer willing to spend – John Herrmann confirmed on Bloomberg Onthe Economy that 87% of the stimulus check money was saved.2. Since the US Consumer is no longer spending, ‘spending’ can be forced by way of higher taxes, which feed into the Government to guarantee higher prices of the toxic waste in the public private ‘bad bank’ fund as outlined by Tim Geithner in approach #3 above.i.e. there is no problem with the overvaluation of toxic assets which will be funded by forced spend via a higher tax rate since the consumer is not spending anyway.What is so wrong about removing the poison after the bloody diarrhea? The body will take time to heal. No eating junk food outside means more time to work at the office!Call it RTC II or called public guaranteed private bad bank. RTC’s are all about public guarantees anyway followed by a securitization issue to private parties.Same wine, new bottle. The point is they don’t want to call it RTC II. But I did get my RTC II!!!Nationalization will kill the grease (investment bankers) that exists between the cogs of entrepreneurs and investors that makes American society benefit from new stuff! We’ll end up with five year plans with the private banks gone.As Prof. Roubini says, there’s no point in talking about Plan N since, you guessed it,Politics drives Economics. As Mr. Gump might say, That’s all I have to say about that. Period.Best,P1AQL.

Little Saver • February 11th, 2009 at 6:08 am

OK, the N-word is fallen. Now it’s waiting for the bank’s sanctity, untouchability to fall. When will Washington be ready for this?

FAMC • February 11th, 2009 at 6:17 am

All but evenly.Banks, that will receive new money before others will be the first to spend it, therefore the privileged spenders.The older capitalist rules do not work anymore.If you consider the leverage of banks you will detect that the great majority is technically broken.I think the crucial question is: Where this huge money amount comes from?

Guest • February 11th, 2009 at 6:19 am

It was rational but unclear whether he changed his mind on the immediacy need for nationalization. Almost like he was buying the N resistance excuses, after all he has relationships with the very people resisting nationalization. This has been the professors problem all along he has a certain loyalty and bond with these crooks because he worked with them on a personal and professional level. I believe he allowed his judgement to be clouded or misguided. ie. the excuse the prof. gave the bankers was bull!!!!!!

Guest • February 11th, 2009 at 6:30 am

Our government essentially sold our jobs out in exchange for treasury note purchases except only China got the better of the deal as far as a countries needs are concerned. Now the U.S. wants to put the Genie back in the bottle but can’t because we are dependent on their credit and cheap goods and are praying for a miracle to save us but the writing is on the wall eventually we are doomed!!!

Hayes • February 11th, 2009 at 6:55 am

a great summary from Yves

I cannot recall a major US policy initiative being met with as much immediate revulsion as the so-called Geithner plan. Even the horrific TARP, which showed utter contempt for Congress and the American public was in some ways less troubling. Paulson demanded $700 billion, nearly $200 billion bigger than the Department of Defense, via a three page draft bill, nothing more that a doodle on a napkin, save that it did bother to put the Treasury secretary above the law. But high-handedness was the hallmark of the Bush Administration; it was only the scale and audacity of the TARP that was the stunner.And the TARP initially did have some supporters (perhaps most important, among the media, who trumpeted the “Something must be done” case). Fans are much harder to find for the latest iteration of the seemingly neverending “let’s throw more money at the banks” saga.As we, and increasingly others, have said, the Obama economic team is every bit as captive to Wall Street’s interests as the Bushies were. The differences increasingly look stylistic, not substantive.Treasury Secretary Geithner presented today what in essence was a plan to come up with a plan. I now understand why he is so loath to have government run banks. He presumably sees himself as an elite bureaucrat, as his glittering resume attests…

http://www.nakedcapitalism.com/2009/02/geithner-plan-smackdown-wrap.html

Chignos • February 11th, 2009 at 7:06 am

I guess you’ve never invested in a bank, since you seem to “know” that mark-to-market provides an investor transparency. MBSs, CDSs, CDOs—-this soup is so opaque, no one knows what it’s worth; that’s why they’re called “toxic.”Ending mark-to-market wouldn’t provide transparency either, it would only (probably only temporarily) prevent more financial meltdown. Again, it would cost $0. It would give toxic-holders time to determine the true value of their toxic assets.The government should allow the market to play this out. Borrowing a load of money to correct a problem caused by a load of borrowing is a load. The “leaders” of this nation who’ve proposed this should not pass go, should not collect $200. They should go directly to Madoff’s penthouse.

Guest • February 11th, 2009 at 7:08 am

How can someone who makes $10 an hour (the woman who called Kanjorski) and has children to support not qualify for food stamps? I couldn’t support myself on $10 an hour. Nationalize the banks, get it over with, and start pumping money into the lowest levels of the economic totem pole. These people need money to live and will have to spend whatever you give them. They don’t have a choice.

Guest • February 11th, 2009 at 7:08 am

How can someone who makes $10 an hour (the woman who called Kanjorski) and has children to support not qualify for food stamps? I couldn’t support myself on $10 an hour. Nationalize the banks, get it over with, and start pumping money into the lowest levels of the economic totem pole. These people need money to live and will have to spend whatever you give them. They don’t have a choice.

Guest • February 11th, 2009 at 7:18 am

http://www.ft.com/cms/s/0/9ebea1b8-f794-11dd-81f7-000077b07658.htmlIf Martin Wolf is right and the bottom line is thatGeithner has 3 constraints:1)No nationalization2)No loss to the bondholders3)No more TARP money from CongressThe Private Public Investment Fund which would financeprivate equity capital forays into troubled assets with a government guarantee would be limited to theassets that don’t have excessive divergence from themarket price to the offer price. If they diverge as in the Professor’s Citi 60 to 20 example, the price would be too high for the taxpayer and these funds would not be part of the Plan. This Plan would handlethe better assets to raise funds for the banks. So where does that leave the bad assets that have divergence from what the price on the books to reality? They are going to try to sell the better assets to raise money. They are going to inject money after the OCC-FED “stress test”. They are chosing theJapanese Zombie Solution. If the Surplus Countries inAsia go hog wild and have massive Fiscal Programs andthe Germans and Europeans have massive Fiscal Programs, a miracle could happen. They are waiting formiraculous global Fiscal coordination. This is the only thing that could allow Geithner to use this Zombie Approach. G-7 next week, G-20 in April.This is tantamount to faith based economics.

Hayes • February 11th, 2009 at 7:25 am

Ken RogoffIn a HARDtalk interview broadcast on Monday 9 February, Stephen Sackur talks to economist Ken Rogoff.The world economy is in a mess. The pain is being felt from Wall Street banks to Chinese toy factories.But is the prolonged downturn going to change fundamentally the global economic rules?Ken Rogoff was the Chief Economist at the IMF from 2001 to 2003 and is a renowned student of economic history.He talked to Stephen Sackur about the difference a new president can make.Full Interview in the video link belowhttp://news.bbc.co.uk/1/hi/programmes/hardtalk/7878661.stm

Hayes • February 11th, 2009 at 7:37 am

From CIDRAP (Center for Infectious Disease Research & Policy — University of Minnesota)Panasonic’s pandemic-related move fuels questions, concernLisa Schnirring * Staff WriterFeb 10, 2009 (CIDRAP News) – News reports that Panasonic Corp. has asked some of its overseas employees to send their families home to Japan because of the threat of pandemic influenza fueled puzzlement and speculation today about the global H5N1 riskhttp://www.cidrap.umn.edu/cidrap/content/influenza/panflu/news/feb1009panasonic-br.html

Guest • February 11th, 2009 at 7:37 am

This credit crisis will create a mammoth food shortage for late 2010. Farmers around the worlddepend on credit more than any other business.The Green Revolution requires huge inputs that must be financed. The question is will governmentslook the other way and allow the herd to be culled?

Hayes • February 11th, 2009 at 7:45 am

Panasonic Orders Some Families Home on Pandemic Risk (Update1)Feb. 10 (Bloomberg) — Panasonic Corp., the world’s largest maker ofhttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=azrgmB6nSoU8

Guest • February 11th, 2009 at 8:05 am

The genesis of all the asset inflation was the global imbalances of trade caused by corporations needing cheap labor exporting countries to hike up CEO salaries and Corporate Earnings. It is now in the hands of the Cheap Labor Exporting countries to create internal domestic demand to consume the excess capacity that the credit crisis is causing. The workers in these countries must save 1/2 their wages to be secure because they have no government economic stabilizers. The present crisis requires fiscal stimulus of great size, but also requires that Chinacreate security for the workers, so they can consume.Stephen Roach, Martin Wolf, Nouriel Roubini and othershave been warning that the trade imbalances would haveunintended consequences. The asian savings were mishandled by unregulated banks causing inflated non-productive assets all over the world. The onlything that will truly bail out the world economyis to create conditions where the workers in the exporting countries can have more security to spend.

Anonymous • February 11th, 2009 at 8:07 am

But the debt/disposable income ratio would be untouched with your strategy…Lend… To Whom ?More lending in a context of high debt/disposable income would tend to raise the debtors savings in the medium/long term, worsening the situation if not followed by a considerable GDP & disposable income growth.The GDP & disposable income multiplier of the new lending would have to be high.

Guest • February 11th, 2009 at 8:26 am

Everytime there is a monetary crisis, the Avian Flubecomes news and capital flees the periphery to thefinancial metropole countries. Been there done that!!!

Anonymous • February 11th, 2009 at 9:00 am

I have been following Roubini’s posts for several months now and have been generally very persuaded by much of what he says. One thing I don’t understand — as a lay person, I am not an economist — is why is it impossible for the government to be able to value the toxic assets but so easy for it to identify which banks are insolvent? It seems strangely inconsistent. Is the implicit (or not so) suggestion that the government would be granted new investigatory powers to get to the bottom of banks’ balance sheet. Wouldn’t this be pretty complicated? How was it done in Sweden?

Guest • February 11th, 2009 at 9:05 am

I would say they know exactly what they are worth but does the government really want for the public to know what the true value is, I would say not.

Guest • February 11th, 2009 at 9:14 am

Again, our (US) GDP is not what we think it is. It is overstated and thus lower, so the Debt to GDP ratio is actually larger! GDP has been pumped by consumer and other forms of leverage and government accounting gimmicks like hedonics. Keep an eye on the Fed tax revenue to Debt ratio. That is what should move our credit rating and long term interest rates, if foreign lenders are atuned. Who knew the terms ‘subprime’, ‘ninja’ and ‘liar loans’ would refer to our own government debt?

Guest • February 11th, 2009 at 9:56 am

Here they come ~New York State Tax Bill Would Seek More From Top Wage EarnersFeb. 11 (Bloomberg) — New York state’s highest earning taxpayers would pay thousands of dollars more in income taxes under a proposed bill that sponsors say would raise $6.2 billion and help ease a $13 billion deficit next year.The measure’s sponsor, Manhattan Democrat Eric Schneiderman, said the move would provide an alternative to increasing the sales tax on clothes and trimming Medicaid and school budgets that opponents say would hurt the poor and middle class.Opponents say New York’s top 1 percent of earners, who accounted for 36 percent of the state’s total income tax in 2008, shouldn’t have to take more of the tax burden. They also say it would encourage the wealthiest residents to flee…Senate Majority Leader Malcolm Smith of Queens, whose Democratic Party holds a 32 to 30 edge on Republicans, also isn’t supporting the bill, which has at least 10 sponsors including Schneiderman.“A millionaire’s tax should only be considered as a last resort,” Smith said in an e-mailed statement.The bill also drew opposition from Republican Senate Minority Leader Dean Skelos of Rockville Centre, Long Island, who said if the Democrats “have their way, the bracket will drop down even lower.“I guarantee you they are going to get down to the $100,000 range,” he said.State budget analysts predict that losses on Wall Street and the U.S. recession will reduce the number of millionaires in the state to 44,538 in 2009 from 53,827 two years ago…http://www.bloomberg.com/apps/news?pid=20601087&sid=a4BINoAEWAcU&refer=home

Guest • February 11th, 2009 at 9:57 am

As Peter has been explaining all along, this is about power and gain and protecting the powers that be. In six months although it will be clear to all that these banks are insolvent don’t hold your breath the banks to be nationalized. Puppets will only dance according to the stings their masters pull.Once again read the stated purpose of Tri-Lateral Commission members. Geithner is just doing his sworn duty.

FEDup • February 11th, 2009 at 10:11 am

GARY L. ACKERMAN-MORON OF THE NEW YEAR!Did it ever occur to our illustrious leaders including Mr. Ackerman that if banks were offering 8.5% interest on savings accounts to all Americans we would become a nation of savers not speculators, have sufficient funds for retirement, social security, healthcare, etc. Of course the main reason for not doing this is because then it would be much harder for others (banks and financial markets) to take our money by enticing us into risky high leverage ventures (our current situation) which often reward those who use our money with 10-100x returns. It is simply amazing that these immoral crooks are allowed to hold office and exert any influence over the rest of us!

Guest • February 11th, 2009 at 10:19 am

“Toxic” assets are essentially un-paid American bills. Given where the economy is going (that’s close to, into, or beyond a great depression), what do you think they are worth? $0.75/$1.00; $0.50/$1.00; maybe $0.25/$1.00? When these Structured Investment Vehicles (SIVs) have been sold on the open market they get about $0.05/$1.00!About 10 or so years after the great depression, old debt yeilded about $0.40/$1.00. So in some sense it does make sense for the government to buy and hold the toxic assets.

Andre • February 11th, 2009 at 10:20 am

Nouriel, here is what i don’t understand in your nationalization proposal. You are saying — government should come in and wipe out equity, preferreds, and unsecured debt. One small problem with it — you won’t be able to raise public capital for financials for a long time. This companies will stay nationalized for a long time. However, bigger problem is that it makes banks to be “openly” insolvent from the current state of banks being “technically” solvent. There is more owed to depositors than banks have even after you wipe out all stake holders. Citi has $770B and BoA has $880B in deposits — together they have more than money supply, M1 of US which is $1.5T. Hence if you scare even 10% of depositors into demanding cash, these banks and whole US financial system is going to collapse as there is no that much cash there and any denial of withdrawal will lead to bank run. Don’t you agree?

TfT • February 11th, 2009 at 10:33 am

If this is the case, say an 800% return in 15 years (in the example above $0.05/$1.00 -> $0.40/$1.00), why are there no private smart ‘investors’ or speculators jumping right in? The return does not look too bad, does it? Is the problem that nobody knows when the AFTER would starts or even happen under what circumstances, namely, too many uncertainties?If this is such a good deal, I don’t think these banksters would let anyone else to get it. They’d swallow it in no time.

Guest • February 11th, 2009 at 10:35 am

Hollow, laughable threat: If you don’t keep allowing us to steal from this community, we’ll go steal elsewhere.Mad laughter at this total farce goes here.

sns • February 11th, 2009 at 10:40 am

Roubini: you said earlier that you did NOT pull your investments from the market before the recession that you predicted hit. Now in this recent blog you claim to not have any investments in the market. Is the latter due to the former? In other words, despite seeing it coming you LOST money and now have no more investments hence you can claim that “I never trade in markets and so I am never “talk my book” when I present my views.”Perhaps you should better define what you mean by “markets” since you explicitly admitted to losing money in your stock market investments.

edwardb • February 11th, 2009 at 10:53 am

The manhattan project and landing a spacecraft on the moon and safely returning the astronauts to earth both show that government can manage large projects. The problem is that the ruthless and the well connected are promoted above the competent except in extraordinary times.

Guest • February 11th, 2009 at 11:05 am

“The Stimulus of Abominations”by Michael S. RozeffFebruary 11, 2009 — The federal government is about to pass a law that authorizes $800 billion or so of new expenditures. The Secretary of the Treasury will be introducing other new measures today. More such will be forthcoming. In addition, the Fed’s monetary policy will support this spending.These measures will not turn the economy around in a meaningful sense. The government cannot spend our way to more wealth. Lawmakers and bureaucrats are empowered to make laws and enforce them. They are in no position to do what millions of businesses do, which is find out what we want, produce it, and distribute it at affordable prices. They are in no position to select and invest in effective capital goods that make production more efficient and raise real wages and incomes.It is not that the government cannot print money and spend it, and get others to borrow and spend. It can. It has. It will…It is not that the government cannot make the unemployment statistics look better (usually after a considerable lag). It can…It is not that the court economists cannot eventually find some statistics to crow over. They can and will…It is not that politicians and court journalists cannot fabricate plausible but fallacious economic stories and blame the free market for all economic ills. They can and will…It is not that all of these powers of government, the academy, and the press cannot ignore history and the clear-headed thinking of great minds of the past, while fastening upon their own ignorant and distorted versions of economics. They can. They have. They do, and they will.It is that these people of the state, their rhetoric, and their policies, are not directed toward creating a sound and real foundation for growth in real incomes. Their policies are based on extracting resources by force from the productive and using them to build a flimsy straw house that will collapse with the next wind. They offer nothing to encourage saving. In fact, they burden the saver and the productive. Since saving is the source of investment, they offer no fuel for entrepreneurial activity. Since entrepreneurs are the source of employment, they offer no support for jobs that can raise real incomes… Like vendors of snake oil, they offer fake palliatives and nostrums while the real illness lingers and runs the patient down.Their policies will run down the stock of capital goods in the economy and leave Americans the poorer. We will be less able to maintain our business hallmarks of innovation, drive, responsiveness, and flexibility…In 2008, the federal government passed the following notable measures to address the country’s economic problems:· February 13, 2008. Economic Stimulus Act of 2008. About $160 billion in tax rebates. Increases in mortgage loan limits.· July 30. Housing and Economic Recovery Act of 2008. FHA to guarantee up to $300 billion in new mortgages. Fannie Mae and Freddie Mac placed under the Federal Housing Finance Agency.· October 1. Emergency Economic Stabilization Act of 2008. The U.S. Secretary of the Treasury authorized to spend $700 billion on the banking system.· On February 13, the S & P 500 stock index was 1364. On July 29, it was 1288. On October 1, it was 1161. Seven trading sessions later, it was 885, a crash of 24 percent. At present, it is 871…Obama’s press conference expresses the wrong economic theory at the outset. It is the theory that consumer spending is the economy’s fuel and that without this fuel being burned the economy stops. Conversely, this theory says that if the consumer is fueled up with any kind of job or money, then he can restart the economy and make it run. This same idea, which is the Keynesian idea, has dominated thought around the world for decades, despite its falsity… Obama wants to generate consumption. He also calls it demand. This is the wrong approach built on the wrong theory.The right approach is to generate saving. This generates investment in areas of genuine want and need, which in turn generates jobs and incomes on a non-inflationary basis. In this way, real incomes can rise. There can be no genuine consumption without the production that provides the wherewithal to buy the product. The horse must come before the cart and pull it, and that horse is production…Michael S. Rozeff is a retired Professor of Finance.http://www.lewrockwell.com/rozeff/rozeff268.html

Question Everything Bar Nothing • February 11th, 2009 at 11:19 am

If doing the things in the stimulus that congress is proposing to do will be so darn yummygood for the economy, why weren’t they doing the same things long ago/all along?Don’t these congress critters actually convict themselves of pre-meditated non-legislation by passing the stimulus in a hurry now?By insisting on the absolute necessity of this stimulus, aren’t they admitting that for a long time they wouldn’t do what would help working Americans – until they were left with NO other choice?(I’m not saying stimulus isn’t required – I’m convinced it certainly is. But I’m against THIS bill passing – very much against it. They are (thanks to devious Daschle) slipping in future poison re control of healthcare decision-making, for one important awful thing.)

Anonymous • February 11th, 2009 at 11:23 am

I am convinced the stimulus package is pork and the only reason why people support it is beause they are afraid to say that the emperor has no clothes,

Anonymous • February 11th, 2009 at 11:23 am

I am convinced the stimulus package is pork and the only reason why people support it is beause they are afraid to say that the emperor has no clothes,

Guest • February 11th, 2009 at 11:24 am

Nationalizing the financial system is just one more way to consolidate more power to the government.After 9-11 (that other government created crisis) the government was given a lot more power than what it could have otherwise obtained. This current economical crisis (also caused by the government – or at least fueled by them through lack of oversight) is used to do the same.

TfT • February 11th, 2009 at 11:27 am

@All,Sorry for the off-topic post. I am trying to find some charities and orgnizations that focus to help pregnant women, young children, women with young kids, and/or disadvantaged children. However, I don’t get many satisfactory results.I did make contributions to orgnizations under UN like World Food Program (WFP) and The United Nations Children’s Fund (UINCEF) but started to wonder if the bucks really get to the needy after reading PeterJB’s comments about the waste and incompetence in similar orgnizations.It will be highly appreciated that you can advise some trustworthy orgnizations with these focuses.Although I am not that smart to decode MA’s wisdom to make some $$$, I very agree with him in his comments “to pass some good to others” (when possible). Well, my family just makes an OK living but am fortunately still able to try a little to help others, especially to the forementioned groups.Thank you very much for your advice in advance.

slf • February 11th, 2009 at 11:28 am

The ones who support it do so because they believe that if there were a better idea, someone would have introduced it and congress would be running with it (yes, that is kind of funny, isn’t it–congress listening to logical common-sensical ideas). They also believe that passing this bill, in any form, with any amount of pork masquerading as ‘stimulus’, is better than doing nothing. Sigh.

TfT • February 11th, 2009 at 11:29 am

As some background info to my previous post, I usually use Charity Navigator to check charities. One thing I noticed that some heads at some well-known orgnizations do get very nice compensation. For example,Karen Sendelback at Friends of the World Food Program: USD$301,828Richard E. Stearns at World Vision: USD$373,540Charles J Lyons at US Fund for UNICEF: USD$429,135(All info comes from Charity Navigator.)For large orgnizations like WFP or UNICEF, the percentage of the compensation to their heads are much less due to much larger budgets but the absolute monetary term is still huge (to me). For smaller charities, the compensations of the orgnization heads may run more than 10% of the expenses. My impression would be that ‘compassion’ would play a role in the ‘compensation’ of charities’ heads. But it looks like not necessarily. They may be just ‘regular executives’ to run an orgnization, charity or otherwise.

Jason B • February 11th, 2009 at 11:47 am

This arguement of TARP this, bad bad bank, good bad bank, etc, is a farce. Its like the yellow plastic cups that drop from the ceiling in an airplane as it’s crashing. All they do is hide your terrified expression from the passenger next to you, they don’t protect you from the crash.They are discussing the arrangement of deck chairs on the Titanic.

Guest • February 11th, 2009 at 12:26 pm

Bank of America’s Bernstein Says Bank-Rescue Plan Won’t WorkBy Lynn ThomassonFeb. 11 (Bloomberg) — The U.S. Treasury’s bank-rescue plan won’t repair the financial system or revive credit markets, Bank of America Corp. strategist Richard Bernstein said as he recommended avoiding the industry’s shares.Treasury Secretary Timothy Geithner pledged up to $2 trillion in government financing yesterday for programs aimed at spurring new lending and addressing mortgage assets that are difficult to value. The government’s prior measures to prop up financial institutions included backing $118 billion of Bank of America securities and injecting $45 billion into the Charlotte, North Carolina-based bank after it bought Merrill Lynch & Co.“Financial stocks are likely to be as toxic to portfolio performance as banks’ assets are to their balance sheets,” New York-based Bernstein wrote in a research note. They plunged yesterday, driving the Standard & Poor’s 500 Financials Index to an 11 percent drop, on skepticism the rescue package will work.Bernstein said the government should increase deposit insurance, seize assets, shut “large” banks and encourage takeovers.“The history of bubbles clearly shows that the significant consolidation of the financial sector is inevitable,” the strategist wrote. “The latest Treasury program is simply another attempt to stymie the consolidation process.”http://www.bloomberg.com/apps/news?pid=20601087&sid=apJRc8r_9GDE&refer=homeIf even BOA dont want this, why these Gov crocks?

We exist in The Matrix - really truly • February 11th, 2009 at 12:37 pm

From “The Audacity of Hope” by Barack Obama (pp 86-87):The Founders recognized that there were seeds of anarchy in the idea of individual freedom, an intoxicating danger in the idea of equality, for if everybody is truly free, without the constraints of birth or rank and an inherited social order…how can we ever hope to form a society that coheres?Paul Street at Zmag calls this a “nauseating paean to aristocratic rule” and asks “How’s that for commitment to the democratic and egalitarian ideals to which the United States so often lays special claim?”And here is Barack Obama, speaking to the masters of “American” finance capitalism at the headquarters of NASDAQ, Wall Street, New York City, September 17, 2007:“I believe all of you are as open and willing to listen as anyone else in America. I believe you care about this country and the future we are leaving to the next generation. I believe your work to be a part of building a stronger, more vibrant, and more just America. I think the problem is that no one has asked you to play a part in the project of American renewal.”Now, if President Barack Obama believes aristocratic rule, inequality, and the continuance of an inherited social order with constraints based on birth and rank are essential for having a cohesive society in America, what do you suppose he feels constitutes the masters of finance capitalism “playing their part in the project of American renewal”?

Guest • February 11th, 2009 at 12:52 pm

@FEDup: “GARY L. ACKERMAN-MORON OF THE NEW YEAR!Did it ever occur to our illustrious leaders including Mr. Ackerman that if banks were offering 8.5% interest on savings accounts to all Americans we would become a nation of savers not speculators, have sufficient funds for retirement, social security, healthcare, etc. Of course the main reason for not doing this is because then it would be much harder for others (banks and financial markets) to take our money by enticing us into risky high leverage ventures (our current situation) which often reward those who use our money with 10-100x returns. It is simply amazing that these immoral crooks are allowed to hold office and exert any influence over the rest of us!” 10:11:10FEDup, you can capture and capsulize and summarize like no one else. A rare gift.The secret of entrepreneurship, growth, living and having a government is a trust in each other and what we have, and that means that we need a medium of exchange that we can depend on, whether it’s a bushel of apples bartered for a repair job or a currency both traders can trust.If you turn this trust and medium of exchange over to a third party, not the government but a private banking cartel, and let it fluctuate the value of the currency, using fine words such as efficiency, stability, protection of currency, liquidity, accommodative monetary policy, quantitative monetary easing, policy prescriptions, easy money, portfolio rebalancing, monetization — all nothing more than filthy black lies — that third party will raise up within itself a monied aristocracy making a lottery of all private property.It was not the citizens of the United States who went to the government and said we need a private organization to manage the currency — the bankers did, in the dead of the night, in a train to Jekyll Island, Georgia, in total secrecy, on a first-name basis only for anonymity, and there, in 1913, they set the rates and our fate. That’s why my earned interest rate is 2 percent, why inflation is 12 percent, and why the Wall Street bankers can offer public employee pension fund managers investing in risk both a guaranteed principal and a 8.5 percent return – a la Rep. Gary Ackerman’s proposal above. And that guaranteed 8.5 percent is not the average, that’s just a floor. In bad times it’ll be 8.5, in really good times it’ll be 20 percent. And the average citizen’s rate in good times will go waaay up to 6 percent and in bad times with prices of necessities raging… drop to 1 and 2 percent. That’s fairness and currency trust – the bankers and their friends get returns that fluctuate between 8 to 20+: Joe 6Pack gets 1 to 6-.

Guest • February 11th, 2009 at 1:04 pm

You are taking quotes out of context. You are seeing things in those quotes that aren’t there. Obama isn’t for aristocratic rule. He isn’t for inequality. To think he is for this is nonsense.

ScaredtoDeath • February 11th, 2009 at 1:08 pm

‘Thank you, Lord Jesus!’ Excited young man lands job — for a day — after asking Obama a question’ (headline from USA Today story, Feb 11, 2009)The Messiah cometh! As the world falls to pieces, President Obama glides across the country, bestowing blessings on 19 year old burger-flippers and 63 year old homeless women.All hail, Obama, our kind and merciful leader…Eyes glaze over as the chanting continues, “YES WE CAN, YES WE CAN…”

subgenius • February 11th, 2009 at 1:19 pm

…but you ignore the fact that in a closed system (planet Earth), you cannot have compound growth without destroying the system…8.5% doubles the original stake in around 8.5 years. I don’t see the planet doubling in capacity or resources in the same time frame.

GM • February 11th, 2009 at 1:21 pm

Weakening the $ is the only way for EM to consume more of what they produce while we consume less of what they produce.Isn’t it obvious?

GMeli • February 11th, 2009 at 1:22 pm

Weakening the $ is the only way for EM to consume more of what they produce while we consume less of what they produce.Isn’t it obvious?

Toby • February 11th, 2009 at 1:34 pm

Couldn´t agree more, I started to understand what you are saying after listening to Al Bartlett. It is really just basic physics and some common sense saying that we do not have endless of resources.”The greatest shortcoming of the human race is our inability to understandthe exponential function.” – Prof.Al Bartletthttp://www.albartlett.org/presentations/arithmetic_population_energy_video1.html

Pseudothyrum • February 11th, 2009 at 1:53 pm

Now Roubini wants to nationalize basically the entire banking system and thus Sovietize America by further centralizing virtually all economic activity?What the hell has happened to his views? A few months ago he was raving and angry about America being turned in to the ‘USSRA’ – http://www.rgemonitor.com/roubini-monitor/253625/the_transformation_of_the_usa_into_the_ussra_united_socialist_state_republic_of_america_continues__at_full_speed_with_the_nationalization_of_aigSomething doesn’t seem right here…

Red pill is curious • February 11th, 2009 at 1:57 pm

Is there a wider context that renders these words unimportant? I’m trying to imagine one, but without success, I’m afraid. You say I have drawn incorrect conclusions…from these words Obama wrote…about what Obama believes/supports…but you forgot to share the differing conclusions you yourself draw from them.

Michael LitteBig • February 11th, 2009 at 2:03 pm

After reading that Sec Treasurer Timothy Geithner thanked Office of Thrift Supervision Director John Reich for helping to shape bank policy really in my opinion hurts the credibility of revitalizing the US banking system. Director Reich is responsible for the lack of supervision,regulation and enforcement of US mortgage lending thrift banks.Reich through his lack of leadership and through his self importance is a good portion of the mortgage meltdown. Director Reich has been ineffective and almost negligent in his obligations to the safe and sound banking doctrines especially when it comes to mortgage lending. I believe that President Obama would be smart toget rid of Reich, after all Reich serves at the Presidents pleasure.If Reich stays, then the nightmmare continues. Geithner at this point has not impressed me either.

FEDup • February 11th, 2009 at 2:14 pm

g. thankyou for the compliment and I extend the same to you for being able to delve beneath the surface and flesh out the underlying issues.

Guest • February 11th, 2009 at 2:17 pm

Elections are over.Hasnt he nothin better to do than talkin shit at dumb events?Oh yes, its the only thing he can,yes he can.But nothing else.

Guest • February 11th, 2009 at 2:25 pm

Roubini’s call for nationalization, that “creates the biggest hit for common and preferred shareholders of clearly insolvent institutions and – most certainly – even the unsecured creditors in case the bank insolvency hole is too large,” has not changed and, IMO, has not been influenced by either Geithner or Summers who both are proponents of Plan A. And, as Roubini points out, nationalization “provides a fair upside to the tax-payer.” (I myself, of course, would have said a “fairer” upside in that I don’t believe the taxpayer should be forced to make up anyone’s losses on Wall Street.)I agree with Dr. Roubini, that of the four options, the N option is the best. Roubini has held his course, all along, for nationalization with a sell-back of “all of the assets and deposits of the bank to new private shareholders after a clean-up together with a partial government guarantee of the bad assets (as it was done in the resolution of the Indy Mac bank failure)” to “avoid having the government managing the bad assets.” Or, as he points out, “Alternatively, if the bad assets are kept by the government after a takeover of the banks and only the good ones are sold back in a re-privatization scheme, the government could outsource the job of managing and working out such assets to private asset managers if it does not want to create its own RTC bank to work out such bad assets.”To really understand where Roubini is coming from, one needs only read “Roubini: Anglo-Saxon model has failed,” Roubini’s Feb. 9, 2009 Global EconoMonitor post. In this post, Roubini answers questions from FT.com readers. These readers ask the right questions and go right to the economist who has the answers – Nouriel Roubini. I am sorry the post thread was of so short a duration.These questions hit to the economy’s heart and Roubini pulls it all together, answering so many questions that, heretofore, have not been fully answered. Here are those questions:It is pretty much consensus now that 2009 will be a zero growth year for the world economy (something that you forecast well in advance). It seems that the major risk for the following years is having a lost decade of Japanese-style stagnation but on a worldwide basis. How are the governments in US and Europe faring so far in their effort to avoid that? Marco, Sao PauloHow can Davos, a gathering of the greediest, most avaricious and incompetent people of the planet, ever fix any of the problems they have created in the first place, and hugely benefited from?. Do you agree that when the boom was at its height, you were mistreated there when you tried to draw attention on the looming crisis? Are you now afraid of being now co-opted by the system and losing your independence? Marcel Knecht, Villa Santiago, MexicoIt seems clear that governments will not allow their banking system to fail altogether and that they will intervene to rescue whenever needed. My question is: The governments will save the banks, but who will save the governments? Is it possible that we are about to see countries default? What does that mean for the global economy? Which countries are the ones who pose the greatest risk? Jonathan AradWhat level of oversight is now appropriate from the financial regulatory authorities? Do they need very large new measures or should they have a light touch? Ashok SoniHow long will be before we can tell if the US and UK governments’ plans to rescue the banks prove effective or not? If they don’t when do you think lending will recover to near-normal levels? Canh Humphries, BeckenhamTo balance the US economy – given the US structural current account deficit – the fiscal deficit needs to baloon. Can the US default on its debt? Alessandro Magnoli Bocchi, Kuwait. [And, a related question also addressed in the next answer]: What are the possible damaging, unintended consequences of the US stimulus plan? Alessandro Magnoli Bocchi, KuwaitDo you think investigations and prosecutions should be conducted by the U.S. Government on the naked short selling of equities in the stock market? Should they be? Erich Benner, Blythewood, South CarolinaHas financial globalization come to an end? Jacques Ergas, ChileWill the crisis bring about a permanent, significant shift in the economic power balance of the world? Giles Chance, ChinaDo you believe in the projections made by the Chinese officials predicting a return to steady growth when all the planned stimulus measures have been implemented? Do you expect a reversal in the decisions taken the last 5 years to outsource a majority of the developed economies production to China? Fiorini Mauro, BelgiumI have read your grave warning about deflation. But, nevertheless, won’t the enormous increases in money supply (out of thin air largely) eventually give rise to serious inflation, possibly hyperinflation? George Todd, Benalmadena, SpainYou recently mentioned total credit losses of $3.6 trillion compared to current losses of $1.6 trillion. Will the institutional and geographic distribution of the $2 trillion increase match that of the first $1.6 trillion, or will it be new regions and new institutions, that will get sucked in? Paul BroderIs the solution to just keep re-inflating bubble after bubble to recapitalize our consumer driven economy or is it time for a huge systemic paradigm shift away from consumerism? What type of shift would you envision and would it destroy the economy as we currently know it? Robert Singer, Oregon, USACould any of the weak eurozone countries should be forced out of the single currency because of the effects of the crisis, and if that happened, how is the euro likely to behave? Vincenzo, ItalyMany analysts are now predicting that the bond market is the last and most serious bubble which will burst shortly. Do you agree? Mike, Qatar ENDRoubini’s answers are worth the reread. Perhaps they help explain why Bloomberg reporter, Julianna Goldman, referred to Dr. Roubini when she asked her question to Barack Obama during his White House press conference:“Many experts, from Nouriel Roubini to Senator Schumer, have said that it will cost the government more than a trillion dollars to really fix the financial system. During the campaign, you promised the American people that you won’t just tell them what they want to hear, but what they need to hear. Won’t the government need far more than the $350 billion that’s remaining in the financial rescue fund to really solve the credit crisis?”

Gloomy • February 11th, 2009 at 2:32 pm

THE NEXT BUBBLE?Wanna know what the next bubble is going to be after the treasury bubble collapses? I’m gonna make an educated guess. It’s gonna bet its gonna be gold and it won’t pop until (like all bubbles) it reaches levels currently unimagined by even the most raging bulls (some crazy number like, I don’t know, $10,000 per ounce). Notice how government borrowing and printing are really ramping up? Notice how gold keeps inching up as assets are imploding? Notice how gold mining stocks have really started to take off in the last month (up 20% over the last month and up 7% today!). The gold market is starting to get its legs. Pay attention.

Guest • February 11th, 2009 at 2:57 pm

It is my understanding that NR is referring to a temporary takeover of the insolvent banks by the state, not converting private industry into ones controlled by government as in the U.S.S.R.The problem today is that the bankers are the government and it is pretty hard to trust them to do what is right in the interests of the people. And one of things they dearly love is change: they like it when things are getting bad or in flux, because something has to be done – and they thrive on that opportunity. Then they can call their self-serving opportunistic actions anything to assuage the Congress — recovery, investing in our future, or nationalization, and it might be the opposite of nationalization.Dr. Roubini is an idealist: he believes in noblesse oblige. Sadly, if the government ends up nationalizing the insolvent banks, guess who will write the legislation? Geithner and Summers. Remember Paulson with the first $700 billion bailout for the bankers — no no, no, we refuse to give Congress any oversight or tell exactly what assets the government will buy, then okay, okay, okay and, finally, gives in to some pretense stipulations from Congress? Then, he went on and did exactly as he wanted. And now, the story of Congress and the bonuses…

Guest • February 11th, 2009 at 3:16 pm

AMERICA NEEDS MASSIVE PERSONAL DEBT RELIEF FOR ITS CITIZENS.That is the only thing that will fix this current crisis and free up people to spend some more – if the debt of banks and corporations is being written off by the hundreds of billions if not trillions, then they need to start allowing individuals to write-off much of their personal debt as well.Too many Americans have gone in to massive debt JUST TO LIVE, or get an education, or get a car so they can go to work and the grocery store and survive, and a basic roof over their head.Wages have not kept pace with inflation in the past 20+ years…Americans have thus been forced to go in to debt JUST FOR BASIC SURVIVAL.It is criminal what has happened in America – we need personal debt relief NOW.

Hayes • February 11th, 2009 at 3:50 pm

I watched Turbo yesterday and the hearings today.We are all really screwed – between the media, the banksters and the politicians there is no accountability and no desire to do anything other than cover their backsides or line their pockets.There is no hope.

Guest • February 11th, 2009 at 5:16 pm

JUST A POEM:Today, I listened to Timmy’s planHe said it will take some time to workBut is he really doing all he can?1 trillion for this, another trillion for thatWith no details or time frame,Seems to me alot of crap.Meanwhile, the Dems and Reps argue back and forthAbout how their plan is the best oneBut they don’t seem to know south from north.The markets go up and the markets go downNot knowing which way is rightThey must think Congress is a bunch of clowns.As businesses and households go brokeOur leaders try to convince usThe taxpayers won’t ge soaked.Yet there is mistrust all aroundFroom the left and from the rightMany are scared that our country will drown.So I say to all who are truly concernedThat our leaders are not helping usLet them know, if they mess this up, they are the one’s who will be burned!

Guest • February 11th, 2009 at 5:16 pm

I would agree the United States is one big scam, it’s a sad helpless realization that the people have no representation.

Guest • February 11th, 2009 at 5:19 pm

The problem is that the few who have benefited from this system are in power and want things to stay the same. Unfortunately it will take a complete collapse to get change because they are too powerful and their roots run so deep.

Guest • February 11th, 2009 at 5:28 pm

“Now Roubini wants to nationalize basically the entire banking system and thus Sovietize America by further centralizing virtually all economic activity”I’ll bet you’re in finance because your statement says it all implying all economic activity revolves around banking. Banking and finance creates zilch nada nothing it is a pseudo economy no pun intended. Banks should be run like the post office because all they do is act like parasites to true industry and the real economy pillaging interest off of real productivity and then dare call themselves the heart or engine of growth, and now the sheer weight of their misdeeds and corruption threaten to destroy the real economy.

Guest • February 11th, 2009 at 5:36 pm

I’d much rather give it to them than the way it currently works where mammoth corporations dictate policy and exploit labor and resources without us having any say what so ever. At least government workers aren’t paid 100 million dollar salaries, yea sure they would mismanage everything just like the corporate swines but at least they wouldn’t get away with trillions in severance packages. This is truly a war between the common people and the corporate elites/thieves!

suleman maniya • February 11th, 2009 at 5:42 pm

Is Dr Roubini short on banking/financial stocks. There should be an analysis about the behaviour of stocks and equity markets just before Dr Roubini has an interview because who knows the premium clients might have gotten a free lunch.Dr Nouriel Houdini, I believe , makes a lot of sense when we talk of nationalization. Can the Dr inform us about the impact such will have on the US households since a lot of them hold financial stocks and the tailspin the markets will go into when nationalization takes place and more losses to equity holders. This may also be followed by other countries and the cross investments of US firms in those firms might also suffer. We are heading into a black hole.

Guest • February 11th, 2009 at 5:45 pm

“you won’t be able to raise public capital for financials for a long time.” You mean like they’re able to raise public capital now? Once they’re clean public capital will come easy banks have always been the most profitable business in the world. Fractional reserve banking is always insolvent but I would trust my money in a bank owned and supported by U.S. tax payers way more than I trust them privately owned now. Sweden did it and it was the most successful bank bailout in the history books. I’m sorry but your argument makes little sense to me.

Guest • February 11th, 2009 at 5:53 pm

End mark to market and my money goes under the mattress cause when the shit hits the fan the government will default for sure. End transparency and you can forget about my trust in anything! (Not that I have much left anyway)

pa • February 11th, 2009 at 6:12 pm

artifically contrived double dipping tax avoidance schemes (ddt’s)Huge loans disguised as commercial investments for tax purposes ?????????The OECD published a report last year, largely drafted by experts from the UK, which revealed that British banks were generating “very large profits” from such stratagems. It said: “A significant amount of their involvement in aggressive tax planning relates to the interbank finance market and trading by banks on their own account … The amounts involved can be very large, with single deals involving funding of billions and tax advantages of hundreds of millions.”http://www.guardian.co.uk/business/2009/feb/11/tax-gap-lloyds

Guest • February 11th, 2009 at 6:14 pm

A propos the Thoughts of Adam Smith, did anyone note this in FT?”Mr Wen says that when he travels he always carries a copy of The Theory of Moral Sentiments by Adam Smith, the Scottish economist, which lays out the moral underpinnings for governing societies – and market economies. “Adam Smith wrote that in a society if all the wealth is concentrated and owned by only a small number of people, it will not be stable,” he says.”

jugglingcdos • February 11th, 2009 at 6:38 pm

what happened to Cicero??yeesss he ate some iron (no lead at the time)Marcus Cicero – 55 BCThe budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, assistance to foreign lands should be curtailed lest Rome become bankrupt, the mobs should be forced to work and not depend on government for subsistence.

Guest • February 11th, 2009 at 6:46 pm

suleman maniya: Dr Roubini … premium clients might have gotten a free lunch.The one getting the free lunch, is YOU!

Guest • February 11th, 2009 at 6:58 pm

If I had a hammer, I’d hammer out a lot more than Mary Allin Travers of the folk group Peter, Paul and Mary, along with Peter Yarrow and Noel “Paul” Stookey, one of the most successful folk-singing groups of the 1960s, hammering out danger, hammering out warning, love all over this land, with the hammer of justice. And if I had a bell, the bell of freedom, I’d ring out danger, I’d ring out a warning, all over this land…I’d hammer in our Constitution, and property rights, and goodness and happiness and the light of freedom. I’d hammer out peace and love, love, love for the Palestinians and the Afghans and the Iraqis and the Russians and the Serbs and the black Africans and the white farmers… I’d hammer out hate and prejudice and greed and pain… And if I had a bell, the bell of freedom, I’d ring in brotherhood and prosperity and forgiveness and truth. I’d ring in sunshine and innocence and understanding and hope and the wonders of this world…and joy, joy, joy…I’d ring in America and her miraculous beginnings, her goodness, her trust in God and her greatness and her potential, the father of our country… If I had a bell of freedom… if I had a hammer of justice… If….And if not, if not, then I will ring once again the bell in the Old Belfry at Lexington; I will hammer out once again darkness and peril and need…I will hammer in revolution…for liberty, for liberty, liberty…“So through the night rode Paul Revere;And so through the night went his cry of alarmTo every Middlesex village and farm,—A cry of defiance, and not of fear,A voice in the darkness, a knock at the door,And a word that shall echo for evermore!For, borne on the night-wind of the Past,Through all our history, to the last,In the hour of darkness and peril and need,The people will waken and listen to hearThe hurrying hoof-beats of that steed,And the midnight message of Paul Revere”The Midnight Ride of Paul Revere (last verse)by Henry Wadsworth Longfellow April 19, 1860

GSM • February 11th, 2009 at 7:33 pm

Words are cheap.Judge not by what a man speaks, but by his actions.Obama has not got off to a good start at all; crooks in Treasury and snakes in suites pulling the strings on his Economic team. Unless he dumps Summers and Geithner real fast (not likely), the Rubin strings and that of the Bankster elites cannot be severed. Those strings control the taps on the pipeline of money now puring Trillions of taxpayer treasure into Wall St Banks and brokerages.

DocBerg • February 11th, 2009 at 7:41 pm

The problem I see with attempting to nationalize the banks is that the banks have been basically running the federal government for years. This was made obvious to even the most obtuse observers the way that the initial TARP was rammed through the Congress, and then operated under a radically different set of methods than were set up in the bill. It put the treasury secretary above the law, and these gentlemen are, Surprise!!!…bankers.

2cents • February 11th, 2009 at 7:55 pm

I too agree with Nouriel that door #4 is the correct way to go. There are many ways to Nationalize, and herein lies the next problem.I have said in the past that the bad assets need to be segregated and left with the current share/bond holders. The good assets need to be aggregated and the bank recapitalized with a proportion of this being vested with the same share/bondholders on a book value ratio (as of say Aug 1, 2007) of good to bad assets. (I tried to search for my earlier post, but it’s not easy on RGE. I think it was during a dialog with MA maybe he can recall it.)Anyhow, I see that Brad Sester has entertained similar thinking:

There is perhaps a third option: handing the toxic assets over to the banks’ existing equity investors and the banks long-term unsecured creditors, assigning the deposits to the remaining “good” bank and recapitalizing the new bank with public funds.

Also, over at ft.com Willem Buiter has voice a similar proposal.

Under the Soros proposal, some additional capital might have to be injected into the ‘side pockets’, presumably by the state. Under my new good banks proposal, the new good banks would take on the (guaranteed or insured) deposits of the legacy bad banks (which would lose their banking licenses) and would buy the good assets of the legacy banks. Should deposits exceed good assets, the state would have to make up the difference initially with government debt on the balance sheet of the new good banks. Should deposits be less than good assets, the new good banks would be able to borrow from the sovereign to finance the acquisition of the good assets from the legacy bad banks. This would cleanse bank balance sheets and transform them into good banks but leave them undercapitalized. Soros suggests that $1 trillion of the estimated $1.5 trillion required to recapitalise the existing banking system should be directed to the cleansed banks. Soros believes or hopes that some of the money required to capitalise the new, cleansed banks could come from the private sector. Under my proposal, and that of Stiglitz, the state would initially capitalise the new banks on its own.

It seems that nationalization is a ways off yet and based on the plan presented by Geithner yesterday. Currently, I see the “bank review” i.e. “stress test” as being the administration’s preferred tunnel to the other side. First they will continue to provide an environment where the banks can earn fat margins with steep yield curves. Given an adequate amount of time this will mathematically work. The question just becomes how bad is it and how long will it take?Second, since things are pretty bad and the timeframe for the above process to complete appears to be rather long, they will use the review/stress test to speed things up a bit. Theoretically speaking, there are three possible outcomes of these “reviews.”• The banks are in really bad shape — this is not going to happen! They haven’t said this to date and they aren’t about to admit it down the road.• The banks are overall in good shape – this is not going to happen! It isn’t true and if they did say this people would feel betrayed about all the shenanigans that already have gone on. Also, people would expect quick improvements and since that isn’t possible, this outcome is close to zero odds.• Some banks are okay, but others are in trouble – Bingo! We have a winner. Unfortunately, while largely true, it won’t come out quite the way you expect. Because the basic premise rings true and is believable, this is the sound bite that will ring out. Underneath, the bigger banks will be shored up by smaller banks labeled as failing. The criteria will be such that it is proportionally much harder for smaller banks to appear as healthy. Consequently, many viable assets will then be handed over to the larger banks.This will shorten the recovery, lessen the direct taxpayer burden, but will ultimately create impossible to save entities in the future. The only way to fix that is to nationalize the big banks and marginal smaller banks and then divvy them up and spin them back out as smaller but healthier institutions.

Guest • February 11th, 2009 at 8:08 pm

What is criminal is the amount of crap one thinks one needs. I’m 52.When I was 25No PC, No cell phone, No I pod, No $100 mo cable bill, etc. Just like this so called stimulis package, people have gone into debt for crap, not productivity. A car? buy one for transportation instead of ego. Education? Next time try math class, instead of Ethiopian Ancient History.

drunk • February 11th, 2009 at 8:44 pm

OK then. Just take the whole problem and pass it back to the banks. Roll everything back to Jan 1, 2008, and pretend government did zilch. No government ‘interference’. Let the banks just keep on ‘managing’ everything they created. Are you prepare for the outcome?- All Big 5 investment banks wiped out and liquidated (instead of only Layman Brothers)- AIG totally wiped out- Freddie and Fannie wiped out- Citi, BoA and just about all of the big commercial banks wiped out or in crisis due to public panic- $5T of saving account wiped out because of bank run and no government FDIC insurance- Every foreign bank and country will dump dollar and Treasuries because no government to support them and because F&F agency bonds are worthless. Dollar becomes peso.- Weimar hyperinflation takes off and you need US$50,000 to buy a loaf of bread- Housing foreclosures hit 10 million- Unemployment hit 20%Do I need to continue?

Guest • February 11th, 2009 at 9:00 pm

@ Rohelio: “Name one president who stood up to the FED (and survived). Name at least three presidents who died for there efforts.” 2009-02-10 19:30:13Answer: Part I — Andrew Jackson. Part II — James Garfield, Abraham Lincoln, John F. KennedyAndrew Jackson: The year 1832 is significant because that was the year of the big showdown over the rechartering of the Bank of the United States between President Andrew Jackson and the bank’s president, Nicolas Biddle. Jackson won the showdown, the bank became defunct, and the Whig Party was created largely in response to it and in response to Henry Clay’s failure to prevail with the “Tariff of Abominations,” which would have raised average tariff rates to nearly 50 percent.The best published account of the “bank war” between Andrew Jackson and Nicolas Biddle is Robert Remini’s “Andrew Jackson and the Bank War.” Jackson considered fiat money to be “the instrument of the swindler and the cheat. For Andrew Jackson, hard money – specie – was the only legitimate money; anything else was a fraud to steal from honest men.” (Remini, p. 19). Jackson also believed that the doctrine of states’ rights meant that a central bank was unconstitutional. This view was quite pervasive, especially in the South. As Timberlake writes (p. 83): “The states . . . . were properly jealous and fearful of encroachment by the federal government. Since a central bank would necessarily be a federal bank and would maintain and operate state branches from a distant center, proponents of states’ rights found opposition to a national bank almost mandatory.”Jackson suspected that a central bank would be controlled by Northern bankers and would be used to manipulate politics…Jackson had good reason to fear political manipulation by a central bank. The first president of the Bank of the United States (BUS) was Navy Captain William Jones, who had no banking experience and who had just gone personally bankrupt. Murray Rothbard blames him for the Panic of 1819 in his book of the same title, which is cited by Remini.The Second BUS was run by Nicolas Biddle (considered a Rothschild agent), who continued to politicize the bank in many ways, including granting low-interest loans and “consulting contracts” to politicians who would support the bank’s expansion…http://www.hiddenmysteries.org/conspiracy/history/lincolngreenbacks.htmlSaid Jackson to a delegation of bankers discussing the Bank Renewal Bill of 1832: “You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.”He did.There was a failed assassination attempt on Jackson on January 30, 1835, in Washington D.C. while Jackson was at the U.S. Capitol to attend a funeral. There was an attempted impeachment of Jackson in 1868 that failed.Part II ~ Assassinated Presidents Who Stood Against the Central Bankers:James Garfield:James Garfield became President in 1881 with a firm grasp of where the problem lay. “Whosoever controls the volume of money in any country is absolute master of all industry and commerce… And when you realise that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.” James Garfield 1881.Within weeks of releasing this statement President Garfield was assassinated.Both Abraham Lincoln and John F. Kennedy were assassinated while they held the high office of President of the United States. Both of these former presidents had also created their own money system to run the United States while they were in office is this just a coincidence?Abraham Lincoln:During the Civil War (from 1861-1865), President Lincoln needed money to finance the War from the North. The Bankers were going to charge him 24% to 36% interest. Lincoln was horrified and went away greatly distressed, for he was a man of principle and would not think of plunging his beloved country into a debt that the country would find impossible to pay back.Eventually President Lincoln was advised to get Congress to pass a law authorizing the printing of full legal tender Treasury notes to pay for the War effort. Lincoln recognized the great benefits of this issue. At one point he wrote:”… (we) gave the people of this Republic the greatest blessing they have ever had – their own paper money to pay their own debts…”The Treasury notes were printed with green ink on the back, so the people called them “Greenbacks”.Lincoln printed 400 million dollars worth of Greenbacks (the exact amount being $449,338,902), money that he delegated to be created, a debt-free and interest-free money to finance the War. It served as legal tender for all debts, public and private. He printed it, paid it to the soldiers, to the U.S. Civil Service employees, and bought supplies for war.Shortly after that happened, “The London Times” printed the following:”if that mischievous financial policy, which had its origin in the North American Republic, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed, or it will destroy every monarchy on the globe.”The Bankers obviously understood. The only thing, I repeat, the only thing that is a threat to their power is sovereign governments printing interest-free and debt-free paper money. They know it would break the power of the international Bankers.After this was published in “The London Times”, the British Government, which was controlled by the London and other European Bankers, moved to support the Confederate South, hoping to defeat Lincoln and the Union, and destroy this government which they said had to be destroyed…The North won the War, and the Union was preserved. America remained as one nation.Of course, the Bankers were not going to give in that easy, for they were determined to put an end to Lincoln’s interest-free, debt-free Greenbacks. He was assassinated by an agent of the bankers shortly after the War ended.Thereafter, Congress revoked the Greenback Law and enacted, in its place, the National Banking Act. The national banks were to be privately owned and the national bank notes they issued were to be interest bearing. The Act also provided that the Greenbacks should be retired from circulation as soon as they came back to the Treasury in payment of taxes.In 1972, the United States Treasury Department was asked to compute the amount of interest that would have been paid if that 400 million dollars would have been borrowed at interest instead of being issued by Abraham Lincoln.They did some computations, and a few weeks later, the United States Treasury Department said the United States Government saved 4 billion dollars in interest because Lincoln had created his own money. So you can about imagine how much the Government has paid and how much we owe solely on the basis of interest…John F. Kennedy:No United States president since Abraham Lincoln dared to go against the system and create his own money, as many of these so-called elected presidents were actually only instruments or puppets of the Bankers. That is until President John F. Kennedy came into office.President Kennedy was not afraid to “buck the system”, for he understood how the Federal Reserve System was being used to destroy the United States. As a just and honorable man, he could not tolerate such a system, for it smelled corruption from A to Z. Certainly he must have known about the Greenbacks which Abraham Lincoln created when he was in office.On June 4th, 1963, President Kennedy signed a presidential document, called Executive Order 11110, which further amended Executive order 10289 of September 19th, 1951. This gave Kennedy, as President of the United States, legal clearance to create his own money to run the country, money that would belong to the people, an interest and debt-free money. He had printed United States Notes, completely ignoring the Federal Reserve Notes from the private banks of the Federal Reserve.Our records show that Kennedy issued $4,292,893,825 of cash money. It was perfectly obvious that Kennedy was out to undermine the Federal Reserve System of the United States.But it was only a few months later, in November of 1963, that the world received the shocking news of President Kennedy’s assassination. No reason was given, of course, for anyone wanting to commit such an atrocious crime. But for those who knew anything about money and banking, it did not take long to put the pieces of the puzzle together. For surely, President Kennedy must have had it in mind to repeal the Federal Reserve Act of 1913, and return back to the United States Congress the power to create its own money.It is interesting to note that, only one day after Kennedy’s assassination, all the United States notes which Kennedy had issued were called out of circulation…and destroyed…http://www.prolognet.qc.ca/clyde/pres.htm

Tom K • February 11th, 2009 at 9:02 pm

There is, nor will there be, a Geithner strategy for the banks. But there will be an Obama & White House strategy that Geithner may announce and to implement.The White House has already decided to wipe out the zombie banks over Geithner objection. The issues are politics, public optics, blowback from Wall Street, and the actual mechanisms. These have to be done carefully, in stages, and the WH has to be seen as being ‘forced’ into making such a radial move.Step 1 is to play fussy, hard-to-catch, struggling for a solution. That was what Geithner did yesterday. Wall Street will be in uproar over his lack of a clear easy bailout plan, while the rest of the country and some famous pundits will demand ‘kill the zombie bank’ approach. Geithner already opened the can by offering to ‘stress test’ the banks. That’s a code word for wiping out the zombies. Yesterday Obama gave an interview with this words “Wall Street is looking for an easy way out. There is no easy way out.” That’s his signal for wrecking time ahead for the banks.Step 2 is to put those clowns in front of Congress and convince the public they should be shot. Everybody will agree.Step 3 is to announce a voluntary ‘stress test’ plan. One that’s going to dig into the books for skeletons. Meaning those who don’t volunteer are either healthy or should jump into receivership. Those who dare to volunteer will be restructured with public money and put into adult supervision.In short, nationalization American style is coming. What about all the complexities, murky strategies, confusing words. Smoke screen my friend.

Chignos • February 11th, 2009 at 9:08 pm

You’re starting to get the idea. They used to say you shouldn’t trust anyone over thirty. Then they realized you should drop the zero.

Guest • February 11th, 2009 at 9:19 pm

We’re really in trouble because these issues are a little too complicated: If the banks are nationalized then they would no longer be for profit no huge salaries no mega bonuses all the “bankers ” would be forced to make a more honest wage and profits would go to help fund the federal government not billionaire shareholders and CEO’s. How many postal workers do you know that are getting super wealthy?I think we are doomed because this is a relatively simple concept as far as a lot of these issues go and most people can’t understand them ie. the bankers and politicians are going to plunder this nation because the public and I don’t even think the pres. really understand the banking system, people’s eyes glaze over when you try talking about this stuff.

Guest • February 11th, 2009 at 9:27 pm

Tom K you’re quickly restoring my faith in Obama and in democracy. Is this your opinion or do you have some inside knowledge? I sure hope you’re right!

Guest • February 11th, 2009 at 9:28 pm

I have been wary and watching this. I got out of gold too early, because I knew it could be manipulated by the government and the Fed and the investment bankers — just as it was in the early eighties. There is no doubt they will pull the rug out from under, when the harvest is ripe and ready and plentiful — for them. In the eighties it rose and then fell like a lead balloon and many people who owned gold were devastated because it fell swiftly and severely.Apparently you believe this is a long way away at some crazy number like maybe $10,000 an ounce: it is unfortunate that we can’t rely on market supply and demand or a stable currency…but we can’t and I can’t afford to gamble against the insiders. Yet the value of my cash is dwindling…which means I’ve nowhere to go. Gold, at least, isn’t paper…but, what is it really worth???

sns • February 11th, 2009 at 9:44 pm

Roubini: you said earlier that you did NOT pull your investments from the market before the recession that you predicted hit. Now in this recent blog you claim to not have any investments in the market. Is the latter due to the former? In other words, despite seeing it coming you LOST money and now have no more investments hence you can claim that “I never trade in markets and so I am never “talk my book” when I present my views.”Perhaps you should better define what you mean by “markets” since you explicitly admitted to losing money in your stock market investments.

leo70 • February 11th, 2009 at 9:48 pm

My favorite is Save the Children. Probably the best run charitable organization is the Bill and Melissa Gates foundation, but they do not accept small donations. They do give large grants to other NGOs, and Save the Children is one of those to which they contribute the most.

Anonymous • February 11th, 2009 at 10:50 pm

this is no Eighties…not even the 30′sthis is back to ice age kinda econ, the problem today is the SYSTEM itself..the SYSTEM has failed, back then only bubble bursts.. tulip mania, housing mania, farm land mania, Dot Com mania.. etc etc, now the system itself is bursting….we have debt issue, we have rampant speculation, we have a currency issue..or currencies issuesfirst USD was back by gold, then back by nothing, now what are you gonna peg it with.. sand???even the GD doesnt have horrifying statistics being churned out almost daily nowdays(except unemployement, but we’re getting there)you askedYet the value of my cash is dwindling…which means I’ve nowhere to go. Gold, at least, isn’t paper…but, what is it really worth???i think Mark posted a good answer-During the course of human history, gold has survived all of fiat currency failure, all of em’ every single one of em…:Dsatisfied??

PeteCA • February 11th, 2009 at 11:05 pm

Just an obvious point here …It is NOT possible for a Government that is hopelessly in debtto bail out citizens who are hopelessly in debt.It is also NOT possible for citizens who have jobs to better themselveswhile the Government is printing money faster than the economy is producing real wealth.In this situation, people who are lucky enough to have good jobs will feel like they are spinning their wheels. Most average people will feel like they can’t keep up, and they are slowly drowning in financial problems. And a growing number of people will become completely outcast and disenfranchised.But is anyone in Washington or Wall Street telling you this???PeteCA

Guest • February 11th, 2009 at 11:22 pm

And while we’re on the subject of “logic that’s not happening” in Washington DC …During 1979-1989 the Soviet Union sent 115,000 troops to Afghanistan. They were eventually forced to retreat – after losing roughly 14,500 casualties.Today the USA has about 30,000 soldiers in Afghanistan, and the Obama administration plans to double this figure to 60,000. But the US Army admits that it would take at least 600,000 soldiers to effectively win a counter-insurgency in this mountainous country.This is not a direct comment about US foreign policy on terrorism.It’s not a criticism of our US troops in any way.It’s about a commitment that little chance of winning.America needs to completely change its expectations and policies.PeteCA

irving fphelmph • February 11th, 2009 at 11:35 pm

thanks for this link blindman. very appropriate for this forum. a Yale scholar on the environmental tragedy that is taking place right before our eyes.illuminating.We are losing the planet. we are destroying the planet. The system that we are operating in cannot succeed. The profit mode is so powerful and we are in a world of docile consumers. We need to get beyond todays capitalism in order to save the planet.

RH42 • February 11th, 2009 at 11:40 pm

what about the other side?what about the debt holders?you can’t avoid the pain. if you hold debt thats wiped out thats painful too

blindman • February 12th, 2009 at 12:01 am

speaking of enlightening. george had this stuff figured out before anybody else. he told us all, we laughed,but did not really get the depth and severity of the joke. if we did we might not have laughed, more damned irony.and speaking of “we will not apologize for our way of life” obama.well, then we are the clowns and fools of the world, the leaders..this video will explain it all. war, peace, money, bubbles, even the solution to deleveraging..http://www.youtube.com/watch?v=MvgN5gCuLac.they are printing more money because people can’t afford the stuff. all the prices are wrong (too high) so cashis king, and stuff is just stuff. if we want to destroy our lives and our childrens lives fighting over itwe certainly can, but we don’t have to do that..less is more. true in art, science and life. maybe economics.

blindman • February 12th, 2009 at 12:07 am

i,you are welcome! gary null does some really good interviews and commentaries. available at that site.don’t miss the carlin video below! blast from the past becoming more relevant every second.

P1AQL • February 12th, 2009 at 12:09 am

@We exist in The Matrix,I think you have completely quoted Obama out of context. The single powerful theme in the book is to find the right balance between two extreme views on a subject such that the community benefits. This means that one person’s right should not be to trample on anothers right. e.g. freedom of movement v/s property rights, right over one’s body v/s right to life or higher taxes for the elite v/s killing the entrepreneurial spirit. Each chapter in the book addresses an area, gives a glimpse on the extreme views and discusses middle ground that focuses on the benefit to society.Fire can burn you but that doesn’t mean we have to do without it.Democracy doesn’t have the answers but we’ll try every wrong way until we get the right way and find the balance and set a precedent. Like electing Obama.Best,P1AQL.

P1AQL • February 12th, 2009 at 12:31 am

Hi Gloomy!Between the guy with the gold and the guy with the gun, I’ll make friends with the guy with the gun. The guy with the gun ends with the gold too!i.e. the guys with carrier battle groups have the gold – if they’re printing, so what?Best,P1AQL

blindman • February 12th, 2009 at 12:55 am

p,i agree. but it is possible for a people to learn from history and whathas failed and why. then it is up to them to do what will likely not fail or perish.if we can be intelligent about it, we can survive with dignity and humor, leave somethingof value to our children, and possibly profit the world.. ambitious, but within the realmof possibility. the world has had all the cd squareds and mbss it can take. exploitationand weapons and mind control are also losing favor.the country needs to make something the worldwants or needs. disenfranchized people need employment. energy is always in demandand becoming scarcer and will become more expensive while technology is advancing.the sun is the sun. this is just a perfect opportunity.as far as the money goes.. it was always going to end this way. unavoidably bankrupt. that is the engineof a fractional reserve fiat currency, IMPENDING DESPERATION. now, the impending part is over and allthat is left is DESPERATION. madoff/ponzi/fed.in this environment there are no good jobs and no good communities because the system that youbenefit from by having a job itself is corrupted and failing, so your employment has been fundamentallycorrupted. part of the system is the system and we are all in this together, like it or not.communities, same thing, they are all connected.what we have to do is understand what we do and make that harmonious with the principalsustainability. conservation , ecology etc. new knowledge base for a new system, structure and function.a new perspective born of the potential of consciousness. yes. the desperate engine of debtor capitalismis history. that is why the central banks are giving away “money”. no matter how much they print, they alwaysjust make more debt and desperation and we already have too much…. stuff. but never enough energy. values.integrity. joy. music. or time. art.

Guest • February 12th, 2009 at 1:03 am

Pete, this is the kind of outrage we’re going to be made to bear and listen to from the financiers’ media while their CEOs and bankers continue to strip the American public dry and line their pockets with the people’s money – through bailouts, outsourcing, contracts with third world dictators for the use of slave labor instead of American workers, revolving directorships and CEO pools, tax havens such as the Cayman Islands, monopolies and mergers, control of the money supply and interest rates and the currency presses with total secrecy, control of the Congress and all regulation (including taxes) that’s written for the elites’ benefit, lobbyists, stock options, and “bonuses” and Wall Street manipulation and media/Hollywood/pornography-industry control…as they continue to distance themselves from the average workers wage at a phenomenal rate now approaching about 500 to 1. Will we ever be financially free of these parasitic gangsters and banksters who’re ruining our country and our lives?Strip-Club Chief Is What Banks Afford With Obama CapFeb. 11 (Bloomberg) — Eric Langan could run a U.S. bank, based on his $494,713 salary last year, according to President Barack Obama. Langan would rather stay in his job, overseeing 18 strip clubs as chief executive officer of Rick’s Cabaret International Inc.“A bank? No. I’m not interested in working for a bank,” Langan said in a telephone interview from his office in Houston. Besides, he just got a raise to $600,000, putting him $100,000 over Obama’s cap for a top official of a financial institution receiving federal bailout funds.A half-million dollars may not buy a seasoned executive for a major U.S. financial institution, said James Reda, managing director of James F. Reda & Associates, a compensation consultant in New York. Linda McMahon, whose World Wrestling Entertainment Inc. produces the syndicated television show “WWE Friday Night Smackdown,” would make the cut, as would CEOs of a cafeteria company and discount online retailer.On Wall Street, “$500,000 will get you someone five years out of Harvard Business School or a sixth-year associate at a major law firm,” Reda said. “It’s not going to get you a lot.”Just 14 CEOs in the Fortune 1000 and five from the companies in the Standard & Poor’s 500 Index make under the $500,000 bar, according to Equilar Inc., which analyzes compensation data. Many of those are founders or major shareholders, such as Apple Inc.’s Steve Jobs, who gets a $1 annual salary and owns about $550 million in stock.Billion-Dollar CEOsCEOs coming in under the Obama ceiling managed companies with a median market value of $182.6 million and sales of $152.6 million in 2007, Redwood Shores, California-based Equilar said.The heads of the five biggest Wall Street firms took home more than $1 billion in the five years through 2007, according to data compiled by Bloomberg. Bank of America Corp., the nation’s largest lender that purchased broker Merrill Lynch & Co., was worth $38.6 billion at the close of New York Stock Exchange composite trading today.“These mega-banks just live in a different universe,” said Tony Gorrell, chief financial officer of closely held Sutton Bank of Attica, Ohio, which has nine branches. His salary is “not even close” to reaching the half-million mark, Gorrell said.“I think Citibank’s so complicated that you’d need a lot more than that to run it,” he said.‘So Complicated’Citigroup Inc. had 323,000 employees at the end of last year and 200 million customer accounts in more than 100 countries. The company hasn’t released CEO Vikram S. Pandit’s 2008 salary.Pandit, who took the job in December 2007, got 1 million shares as part of a “sign-on” bonus in January 2008 in addition to a $2.5 million “retention equity award,” Citigroup said.Pandit also received $165 million in 2007 when he sold Old Lane Partners LP, the New York hedge fund he co-founded. Citigroup closed Old Lane in June and took a $202 million writedown on its $800 million investment. His predecessor, Charles O. “Chuck” Prince, earned $15.1 million in 2007.Pandit said today he will take a salary of $1 and no bonus until the bank, which has accepted $45 billion in government bailout money, returns to profitability. He made the pledge in testimony before the U.S. House Financial Services Committee, which called eight bank CEOs to Washington to explain how they were using government rescue funds.Retaining ExecutivesMorgan Stanley’s John Mack told lawmakers that pay restrictions will erode the company’s ability to retain executives.“At the most senior levels, I’m not as concerned,” Mack, 64, said. “The levels below that, we are seeing it already, with some of our European managing directors.”The $500,000 rule applies to banks that receive capital injections under the program outlined by Treasury Secretary Timothy Geithner yesterday, and not to the 361 financial institutions that already received Troubled Asset Relief Program aid. They paid their CEOS an average $3.65 million annually, Equilar said. Those with assets above $10 billion gave their chiefs an average $11 million, the firm said.The rules announced by Obama on Feb. 4 limit total compensation, including salary, bonus and stock. Awards of restricted shares, which can’t be sold until taxpayers are paid back with interest, are allowed. Perks including country club memberships and use of corporate jets aren’t banned, according to the Treasury Department.‘Obscene Bonuses’For many top officers, “base pay is the smallest part of their compensation, at the largest companies anyway,” said Vineeta Anand, chief research analyst at the AFL-CIO, a Washington-based labor federation that supports pay limits.Restricted stock would give a CEO a shot at a big payday, said Jonathan Johnson, who made $250,000 last year as president of Overstock.com Inc., a discount online retailer based in Salt Lake City. A $500,000 maximum seems reasonable given some Wall Street executives’ “obscene bonuses,” Johnson said.A corporate leader grossing $500,000 would earn about $300,000 after taxes, said Milton Pedraza, CEO of the Luxury Institute, a New York-based market researcher.The executive might afford a two-bedroom, one-bath apartment in Manhattan worth about $1.5 million, rather than a multimillion-dollar suburban mansion, he said.“Instead of having several maids, they’re going to have one,” Pedraza said.$770,000 MedianThe U.S. government has limited compensation before. In October, then-Treasury Secretary Henry Paulson barred tax deductions on salaries greater than $500,000 a year at companies receiving TARP assistance. In 1993, Congress outlawed writing off more than $1 million.Compensation went up anyway, said Carola Frydman, a Massachusetts Institute of Technology finance professor who studies compensation.Median yearly pay was about $770,000 for executives at the largest U.S. companies in the 1950s, Frydman said in a telephone interview from her office in Cambridge. The median jumped to $2.36 million in the 1990s and $4.08 million in the first half of this decade.CEOs with paychecks of less than $500,000 a year include McMahon of Stamford, Connecticut-based World Wrestling Entertainment and Christopher Pappas, who runs Luby’s Inc., a cafeteria-style restaurant chain in Houston.Pay CutMcMahon, who made $498,227 in 2007, has been nominated to the Connecticut Board of Education and is too busy to answer questions, said her spokesman, Robert Zimmerman. Pappas, who gets a $400,000 annual salary, also declined to comment, said spokesman Rick Black.Brookdale Senior Living Inc. CEO Bill Sheriff would have qualified, until the Brentwood, Tennessee-based network of 550 assisted-living centers and retirement communities boosted his $200,000 salary to $600,000 on Jan. 1. The increase made up for a drop in dividends, spokesman Ross Roadman said.John Dicus, CEO of Capitol Federal Financial in Topeka, Kansas, made about $835,000 last year running the holding company for the 40-branch Capital Federal Savings Bank and isn’t interested in taking a pay cut to head a Fortune 500 bank, he said.“I’m sure some people will do it,” Dicus said. “If you put too many strings on the banks, they might not be successful.”Langan, CEO of Rick’s Cabaret, said he doubts any of the dancers at his Rick’s Cabaret, Club Onyx, XTC Cabaret or Tootsie’s night clubs would seek new careers in finance.“I’ve got girls making over a quarter of a million a year in New York,” he said.

Ed • February 12th, 2009 at 1:19 am

You’re assuming fractional banking is a good and necessary thing. Governments suck at just about everything (except the military). It might be worthwhile to go back to the original experiment (the formation of the American Republic) and see if we can gleen some wisdom from what was proposed and initially implemented. So much has been bastardized over the past 230 years it is hardly recognizable. No where in the constitution or original bill of rights is banking referenced. The Federalist Papers do speak to the significant perils of creating a government banking system.The only time an institution can realistically lend more than it takes in is if the depositors supplying the funds agree to a longer term of deposit than the lending period. This by its nature places limits. The delta becomes the fractional reserve. Basing the fractional reserve system on demand deposits and a 10-1 ratio is a ponzi scheme that always will result in severe booms and busts. Somewhat simplistic but perhaps it is time to simplify – the complexities of todays multi-variant financial vehicles are absurd and almost guarantee abuse and corruption. Wait, they do guarantee it – we are living the consequences.Government fairness is an oxymoron. Just wait until we have government health care – these are the same folks who run the Veterans Admin Hospitals, Soc Sec, etc. I’ve experienced a VA hospital – not a nice place. When they (our representatives) are forced to live by the same services that we the common man must live by will we have some level of equity.

Mark • February 12th, 2009 at 1:21 am

So, you’ve got an inside to a parallel universe? You no more know what would have happened than today’s actors know what the outcome of their actions will be: I heard (Harry Reid?) say that the stimulus WILL create 3 million jobs. Really? He has a crystal ball? Nope. It’s a projection, yet he/they make the statement as fact, much like you have.You’ve got your slow drain. Be happy with it… But don’t complain if it takes decades (if ever) to gain any sort of stability.Mark

blindman • February 12th, 2009 at 1:22 am

p,agreed again. Afghanistan is where foreign powers sent their young soldiers to die. we know that and if thisadministration does it they prove they are a fraud.pakistan has nukes. iran will have nukes. washington knows it. the entire middle east military presenceon the part of the u.s. is to create the illusion that our military is providing security and stabilityin the region and as payback the region backs the federal reserve notes with the oil trade and treasurypurchases. not to mention the opium and money laundering and synthetic demand of the hardware, militaryindustrial stuff that is eating our lunch, not protecting us.actual diplomacy and innovative technology development, exchanges and or sales could replace the blood shed.i think we could have many more allies and far fewer enemies if we had a different approach to securingsustainability and energy in this region. our foreign policy has been the most poorly thought out and executedact of state imaginable. it makes the bankers distribution of junk securities look kind.(parallel) to be honest,the people behind these decisions are self serving kleptocrats who don’t have two brain cells to rub togetherbut the worst part is they don’t even care. we are thoughtless.

Mark • February 12th, 2009 at 1:30 am

The government can’t even run a military! And speaking of the military and the abuses of our constitution (from http://etext.virginia.edu/jefferson/quotations/jeff1480.htm):”There are instruments so dangerous to the rights of the nation and which place them so totally at the mercy of their governors that those governors, whether legislative or executive, should be restrained from keeping such instruments on foot but in well-defined cases. Such an instrument is a standing army.” –Thomas Jefferson to David Humphreys, 1789. ME 7:323″I do not like [in the new Federal Constitution] the omission of a Bill of Rights providing clearly and without the aid of sophisms for… protection against standing armies.” –Thomas Jefferson to James Madison, 1787. ME 6:387″Nor is it conceived needful or safe that a standing army should be kept up in time of peace for [defense against invasion].” –Thomas Jefferson: 1st Annual Message, 1801. ME 3:334″Standing armies [are] inconsistent with [a people's] freedom and subversive of their quiet.” –Thomas Jefferson: Reply to Lord North’s Proposition, 1775. Papers 1:231″The spirit of this country is totally adverse to a large military force.” –Thomas Jefferson to Chandler Price, 1807. ME 11:160″A distinction between the civil and military [is one] which it would be for the good of the whole to obliterate as soon as possible.” –Thomas Jefferson: Answers to de Meusnier Questions, 1786. ME 17:90″It is nonsense to talk of regulars. They are not to be had among a people so easy and happy at home as ours. We might as well rely on calling down an army of angels from heaven.” –Thomas Jefferson to James Monroe, 1814. ME 14:207″There shall be no standing army but in time of actual war.” –Thomas Jefferson: Draft Virginia Constitution, 1776. Papers 1:363″The Greeks and Romans had no standing armies, yet they defended themselves. The Greeks by their laws, and the Romans by the spirit of their people, took care to put into the hands of their rulers no such engine of oppression as a standing army. Their system was to make every man a soldier and oblige him to repair to the standard of his country whenever that was reared. This made them invincible; and the same remedy will make us so.” –Thomas Jefferson to Thomas Cooper, 1814. ME 14:184″Bonaparte… transferred the destinies of the republic from the civil to the military arm. Some will use this as a lesson against the practicability of republican government. I read it as a lesson against the danger of standing armies.” –Thomas Jefferson to Samuel Adams, 1800. ME 10:154Mark

Mark • February 12th, 2009 at 1:45 am

The problem would be that we’d no longer have a GDP, given that consumption had comprised 72% of our GDP. Saving would mean reduced consumption, which would mean reduced production, which would mean less jobs, which would mean more unemployed, which would mean greater debt…There is no OUT. All roads lead to the cliff. We should acknowledge this and prepare to brake.Mark

Mark • February 12th, 2009 at 1:56 am

Clearly, however, the US was posed to leap from the GD into a big industrial period which found it a leader in oil exports and unchallenged in manufacturing. Now the US is the greatest debtor nation, relies on 60%+ oil imports and is far from a leader in manufacturing. It’s not the same. There is no turning point ahead, that’s why no one is willing to pick up this toxic stuff. The crap that we have (been buying/investing in) will be of little use in the future. It’s the Great Turning…Mark

Mark • February 12th, 2009 at 2:04 am

Look to assist your local community. Nothing could be better than helping people feed themselves. We’re going back to an agrarian society, like it or not.Mark

Guest • February 12th, 2009 at 2:09 am

Big Brother/Big Sisters has programs and a philosophy that might meet your requirements.http://www.bbbs.org/site/c.diJKKYPLJvH/b.1539755/k.323E/Donating__Donate_to_Charity_Donate_online_easily_to_Big_Brothers_Big_Sisters.htmI also recommend contacting any local church for suggestions of how to help people in your neighborhood. I highly recommend annonimity for these donations. Once had my heating oil tank filled up on December 24th by some kind soul and I’ve never forgotten it!

Mark • February 12th, 2009 at 2:12 am

Finally! Yes, people are finally getting it! Thank you all for giving me some hope that there’s intelligence in this here universe!I’m still waiting for Roubini (and others) to explain how we can have sustained growth. They can’t, and they won’t. Therefore, ALL of their proposals are sure to fail (and I’d be happy to wager anyone on this point).Mark

Mark • February 12th, 2009 at 2:19 am

Amen! And that’s how at least 2/3rds of the world’s population survives (on $3/day or less). I’ve never had a credit card. No debt. No TV. A 19-year-old econo car (still gets 33+ mpg). Commute to/from work by bike. Eat out only rarely. And… I recognize that my standard of living WILL go down!Mark

Mark • February 12th, 2009 at 2:30 am

But none of this makes the debt go away. Job losses will still pile on.The real smoke screen is that we’re continuing to get suckered into staying hinged to this failing/failed system (and I mean in its totality).Mark

Mark • February 12th, 2009 at 2:47 am

Carlin, a modern day prophet…less is more. true in art, science and life. maybe economics.Or, “enough is enough.”Mark

Matrix Red pill handling the truth • February 12th, 2009 at 3:57 am

so the conclusion to be drawn from this block is that Obama doesn’t say what he means and doesn’t mean what he says and his worshippers will exhaust ingenuity finding ways to cling to their destructive denial in his defense. thanks for the clear lesson, P1AQL and guest.

Has no one any brains at all? • February 12th, 2009 at 4:11 am

Bill Gates is the RECEIVER of heaps and heaps and heaps and heaps of society’s charity, not the GIVER of charity. How patently obvious can this fact get before people see it??? Bill Gates is a LEGAL THIEF in possession and control of vast, vast resources millions of other working poor people are literally starving to death for!! Why is called a philanthropist??!! He’s a king of stratospheric WELFARE: for CHRISSAKE look at his pile of WELFARE society has heaped upon him and how his obscene MONEY makes more obscene money for no work and no sacrifice at all!

Guest • February 12th, 2009 at 4:14 am

I am starting to vehemently despise rich first-worlders who partied on and now declare the party is over before the rest of the world can have any quality of life. That’s one MEAN meme you’ve got going there, Mark. Sick, untrue, and mean as hell.

Octavio Richetta • February 12th, 2009 at 4:23 am

Gee, you know, a space collision, even for orbiting satellites, is supposed to be a virtually zero probability event; but it happened.U.S., Russian Satellites Collide in First Space Crashhttp://www.bloomberg.com/apps/news?pid=20601087&sid=aj_qIXHekghg&refer=homeNow, back to the subject of this blog. Confidence, the key ingredient in the recipe for recovery once central bankers/governments have thrown everything monetary/fiscal they have got AND the kitchen sink at the WW economic crisis, is nosediving WW and; once again, all asset classes, except gold and treasuries, are falling off a cliff.I just watched the Bloomberg JR video posted above. Did you notice the guy’s mumbling/dreadful face towards the end, when asked about his investing? Not all that different from the Banksters faces in their congress testimony yesterday.On JR’s comments on Geithner and his plans, I have one thing to add. The tax cheating incident killed this guy. Confirming him as treasury secretary was the BIGGEST mistake the Obama administration has made so far, and they haven’t been at the helm for even a month! If Obi and Co. continue blundering at this rate, they will make us all wish GWB were back:-)I hope I turn out to be wrong, but, IMHO, a perfect storm that could make the events of October and November feel like a walk in the park is brewing quite fast.

Wolf in the Wilds • February 12th, 2009 at 4:54 am

I think it is already beginning. The economic numbers in the Emerging Markets are pointing to a disastrous decline in industrial production, the kind of decline that is usually found after a few years of depression, in months. EM lives on foreign investment and foreign consumption. And operational and financial leverage is extremely high. These countries are blowing up and it will drag the financial system through another massive round of writeoffs.The financial crisis of 08 has morphed in to the economic and EM crisis of 09. And in all likelihood, we will see a G7 currency crisis before this is all over. So 08 is the appetiser, the aperitif before the main course. We could have stopped this development in 08 if policy makers made the right decisions. I think its too late now.

PeterJB • February 12th, 2009 at 5:19 am

From: Mish”He added: “We are being told that not only are we facing the worst recession in 100 years, but that it will last for over a decade – far longer than Treasury forecasts predict.”Thank Christ someone has realized what’s going on – even if they are 2.5 years late.Now that is England – so you ‘Mericans and the rest of the World need to catch on too… what a happy crowd we will all then be… they may, even here in Australia, catch on, too … well, miracles take a little longer!Ho hum

Guest • February 12th, 2009 at 5:35 am

Let us suppose that Geithner’s Private Public Investment Plan will first aim to sell the least troubledmortgage backed securities from the banks to TCW type firms that can disassemble the mortgages. The banks would raise money if the government finances and guarantees the purchases. Geithner injects newcapital into the banks after the stress test. He now has helped the bank balance sheets. He would thenbuy the toxic assets for the government to hold to maturity. The pricing of the least troubled assets has the least divergence between market price and offer price and the government guarantee and financing will motivate the Vulture Distressed Asset specialists who set up the CDOs in the first place, and will ding the taxpayer the least up front. I think of this as Receivership by Vulture Capital. He is selling the good assets first to raise cash to maintain the viability of the banks. The toxic assets that the government buys to maturity is the big problem, because the taxpayer would take a big hit. I think he is trying the only way short of nationalization. Will it work? We need input from our Distressed Asset Hedge Fund lurkers!http://www.reuters.com/article/bondsNews/idUSN1138705420090211

Mark • February 12th, 2009 at 6:11 am

California: Farmers back in business[excerpt:]What a difference a bad economy makes. The collapse of the construction industry and a slump in the restaurant and food service sector have sent thousands of people back to looking for work on California farms, which not so long ago were hurting for workers.”We have had no trouble getting workers for the winter vegetable harvest,” said Jon Vessey, who farms 7,000 acres near El Centro, Calif. “There is a bigger supply of labor this year than last year or the year before.”Labor experts, union officials and farmers themselves say they are seeing this happening across the state.Food, Shelter, Water. Duh!I’d be happy to place any bets. NOTE: because I detest the big AG I remove myself from making any money on this shift…Mark

Guest • February 12th, 2009 at 6:33 am

Wolfie — Can you elaborate on the EM crisis please ? The industrial product is falling alriught but is it really depression like figures ? I see the korea exports were only down to 2005 levels. ?

Guest • February 12th, 2009 at 7:24 am

compelling info-if it is accurate-and if so, this is what our public, media and leaders should openly discuss!

Hayes • February 12th, 2009 at 7:32 am

From NCIrving Fisher’s Debt Deflation Theory and Its Relevance Today

I’m sure readers have noticed that talking about the global economic downturn as a depression is suddenly respectable. A mere three months, use of that term would have gotten one branded as a alarmist (even Nouriel Roubini, who has a taste for drama, often used the code of “L shaped recession”).As a result, economists and commentators are re-examining the Great Depression, particularly since some doubt that the officialdom has drawn the correct lessons from it.One respected economist from that era whose work is often praised but seldom followed is Irving Fisher. In a VoxEU article, Enrique Mendoza argues in favor of Fisher’s debt deflation theory, Read more

Javier • February 12th, 2009 at 7:35 am

Please distiguish: nationalize is when ownership of assets bank, oil, etc. is taken by a state or domestic investors of a country from foreign owners. Statize is when a state is the owner of domestic or foreign banks or any other assests. Private (wall street bandits) benefits, taxpayers (people) losses. How neat!

Hayes • February 12th, 2009 at 7:39 am

and an interesting article from SAWhy Deflation Will Persist for Longer Than You Think

One of the most hotly watched economic indicators is the Consumer Price Index (CPI), as it is a proxy for inflation in the US economy. This is an extremely important number, especially given the state of the US consumer and its impacts on yields in the fixed income markets. At the beginning of the year, with sky rocketing commodity prices and increasing food prices we were looking at a period of extreme inflation during the beginning of a downturn, Read more

Andre • February 12th, 2009 at 7:55 am

The question was to Nouriel, are you him? “…banks have always been the most profitable business in the world” ????? Really, based on what? By return on assets all types of financial activity are second worst among US sectors, above only airlines, and this number is based on very good times of very cheap credit and very high global growth. All so called “good” performance is based on insane leverage that helped it in good times, RAROC has been steadily going down for years. When you include bad times that are here, a hit to assets of the order of 10-20% and unwind of leverage that must happen, it will be the absolute worst return on both equity and assets over all industries by far.

Guest • February 12th, 2009 at 8:11 am

We all need a laugh break! At the same time this “surreal conversation” points out all thepossible tools the “banking establishment” may have at their disposal in the real world. Thereal world is dirt, grime and grit. Bruce Krasting indulges in idealizing a conversation between”Big Paulie” and “Timmy” prior to the release of the bailout plan. It is funny, but it also gives youa realistic menu, and I would also include some scam to draw in pension plans to be 100% in financialstocks in the market. They have a wide kitchen sink to throw stuff in!!!Don’t underestimate the power of the bankers and the extremes to which they will go to return likea phoenix from the dead! Reality is that they will try everything in the arsenal!http://brucekrasting.blogspot.com/2009/02/transcript-of-conversation-between.html

Toby • February 12th, 2009 at 8:14 am

Okay, all of you with insight in economics know these questions outside and in. For all others, you will get a in my opinion a good information. Then of cause, the alternative monitory system “can” be debated.Questions:Who issued the money?Why did they do so?Where was the money created?What gives the money its value?How was the money created?How well does (or did) it work?Is the money supply system compatible with sustainability?If you hesitate on these question, readhttp://www.feasta.org/documents/moneyecology/contents.htm

PeteCA • February 12th, 2009 at 9:18 am

Looks like the market is headed down into another one of those periods of significant losses. If this continues, the support at S&P500 = 800 is not likely to hold. There is no obvious (technical) support level below this … it’s all a guessing game.Sure looks like certain big financial players in the market took advantage of the news about the Obama stimulus plan (over the last couple of months) to sell into “apparent strength” (i.e. try to convince the small guys that the market was due for a big rebound under the stimulus). Looks like the same big players are now dumping their stocks.PeteCA

Hayes • February 12th, 2009 at 9:24 am

volume is very light – but it fell through 822 so I agree we look like another leg down is beginning – but we’ve been here before and PPT are likely watching closely -But CNBC are pleased that we are off the lows of the session -

MM CA • February 12th, 2009 at 9:37 am

LOL – CNBC would be pleased even if the market dropped to S&P 400 because the upside would be tremendous… BTW how mnay of the 300 million average Joe americans own stock these days…my guess less than 5%.. if that…. So at the end of the day 275M or americans could car eless about the markets, let alone CNBC… Trust in markets by average joe is gone forever…

Octavio Richetta • February 12th, 2009 at 9:59 am

Excellent question. Just a couple of points before I answer:In posts such as the one above my intention is to try to reflect the best I can what I believe market sentiment to be at a given point in time. This type of post is tactical (as opposed to strategic) in nature. So the tone of such posts may change from highly optimistic to extreme pessimism in the blink of an eye. This does not mean my opinion on the economy turns around like a weathervane. I am just trying to reflect the best I can how markets perceive the state of the economy which is not quite the same; i.e., I am just trying to play the beauty contest game (i.e., picking the winning girl which may not be the prettiest one) the best I can.If I were correct my my assessment, the thing to do would be to liquidate long positions now and buy them again at lower prices. That is what my gut feeling tells me. However, I have decided to stick to my strategy (a move I may later regret*) and stay put with what I have (no trading). The reason being that timing exit and entry points correctly is mighty hard. I went long leap call options on equity and commodities at what I thought were low enough entry points with the intention of withstanding the levels of volatility we have witnessed in this roller coaster market since leap options, in particular, are very illiquid and expensive to trade.Of course, this is the posture that works for me at this juncture; the posture that matches the level of risk I am willing to take. This may be different for someone else. Rest assured, that, FWIW, I will post here any changes in my perception of the market/trading moves. In a timely fashion. I will do so until early April when, as usual, I will go underground for about six months. Unless I manage to get Internet access at the remote locations I usually hang around.* My greatest concern is that what we are witnessing is not just volatility but the market moving to a level where given the economic fundamentals 650-750 will be “the new size 5″; i.e., the new bottom.

Octavio Richetta • February 12th, 2009 at 10:00 am

This one is in response to:out of curiosity are you changing your investment positions because of the impending storm?Hide reply Reply to this comment By Hayes on 2009-02-12 07:47:14 Excellent question. Just a couple of points before I answer:In posts such as the one above my intention is to try to reflect the best I can what I believe market sentiment to be at a given point in time. This type of post is tactical (as opposed to strategic) in nature. So the tone of such posts may change from highly optimistic to extreme pessimism in the blink of an eye. This does not mean my opinion on the economy turns around like a weathervane. I am just trying to reflect the best I can how markets perceive the state of the economy which is not quite the same; i.e., I am just trying to play the beauty contest game (i.e., picking the winning girl which may not be the prettiest one) the best I can.If I were correct my my assessment, the thing to do would be to liquidate long positions now and buy them again at lower prices. That is what my gut feeling tells me. However, I have decided to stick to my strategy (a move I may later regret*) and stay put with what I have (no trading). The reason being that timing exit and entry points correctly is mighty hard. I went long leap call options on equity and commodities at what I thought were low enough entry points with the intention of withstanding the levels of volatility we have witnessed in this roller coaster market since leap options, in particular, are very illiquid and expensive to trade.Of course, this is the posture that works for me at this juncture; the posture that matches the level of risk I am willing to take. This may be different for someone else. Rest assured, that, FWIW, I will post here any changes in my perception of the market/trading moves. In a timely fashion. I will do so until early April when, as usual, I will go underground for about six months. Unless I manage to get Internet access at the remote locations I usually hang around.* My greatest concern is that what we are witnessing is not just volatility but the market moving to a level where given the economic fundamentals 650-750 will be “the new size 5″; i.e., the new bottom.

PeteCA • February 12th, 2009 at 10:05 am

Mike Shedlock has some good comments on the Kondratieff economic cyles here at this link:http://globaleconomicanalysis.blogspot.com/2009/02/wealth-does-not-pass-three-generations.htmlI have spoken before on this blog (some time ago) about the Kondratieff cycles and the approach of a possible Kondratieff Winter for the global economy. Some people confuse the Kondratieff cycles with the cycles predicted by the folks at Elliot Wave. I have never looked into the Elliot Wave theories, although the idea for them may have arisen from the work done by Mr Kondratieff (a Russian). But it’s important to understand that Kondratieff’s observations were based on the behavior of western capitalist economies over several centuries of data. They are long-term economic and business cycles.The subject is interesting – especially if you also look at another article by James Quinn.http://www.financialsense.com/editorials/quinn/2009/0210.htmlMr Quinn is quoting a study by Strauss and Howe who looked at long-term periods in the American economic cycle, and how this tied to generations of people living in America. These authors also came to the conclusion that we are looking at a major long-term low in the USA from now until 2020.These ideas support the theory that we could be headed for a global depression, a Greater Depression, or some similar long-term decline in the world economy.PeteCA

Guest • February 12th, 2009 at 10:13 am

Tom K, have you looked at Obama’s appointments — such as Summers (Goldman), Geithner (Goldman) — and handlers — such as Podesta (Soros), Axelrod and Emanuel (Chicago mob) — and his Congress — Frank and Dodd (Fed banker reps), Pelosi (Democrats get it all), Schumer and Ackerman (New York banker reps)? Have you looked at the NY Fed – such as Chair Friedman (Goldman), President Dudley (Goldman) and Dimon (JP Morgan) – and the Fed — Bernanke (Fischer and Citigroup), and Kohn (Fed poster child from 1970-2009) — or the World Bank — Zoellick (Goldman) — or the Bank for International Settlements (BIS) — Guillermo Ortiz Martinez (Group of Thirty)? Have you looked at Obama’s campaign financiers…? Is your name on the list below, Tom K?This table lists the top donors to this candidate in the 2008 election cycle. The organizations themselves did not donate , rather the money came from the organization’s PAC, its individual members or employees or owners, and those individuals’ immediate families. Organization totals include subsidiaries and affiliates:University of California $1,123,898Goldman Sachs $955,223Microsoft Corp $791,342Google Inc $782,964Harvard University $779,460JPMorgan Chase & Co $642,958Citigroup Inc $633,418Sidley Austin LLP $565,788Stanford University $558,184Time Warner $542,651National Amusements Inc $536,235Wilmerhale Llp $522,792Skadden, Arps et al $505,074UBS AG $505,017Columbia University $502,866IBM Corp $489,842Morgan Stanley $483,523US Government $477,506University of Chicago $456,209Latham & Watkins $454,599http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=N00009638QUOTES:”…the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.” Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (1966) [Quigley was Bill Clinton’s mentor at Georgetown.]On November 21, 1933 President Franklin Roosevelt told Edward M. House ‘The real truth .. is, as you and I know, that a financial element in the larger centers has owned the Government ever since the days of Andrew Jackson – and I am not wholly excepting the administration of W[oodrow]. W[ilson]. The country is going through a repetition of Jackson’s fight with the Bank of the United States – only on a far bigger and broader basis.’http://en.wikipedia.org/wiki/Bank_for_International_SettlementsI hope you are right, Tom K. But I won’t believe it until I see it.

Guest • February 12th, 2009 at 10:38 am

I’m glad I sit in an office by myself — else how could I laugh out loud while silently perusing the reality on this blog. What caught my funny bone was your priceless: “CNBC would be pleased even if the market dropped to S&P 400 because the upside would be tremendous…” How right on. I make a game of watching the financial media’s frantic search for the one speck of gold in a pan of economic rocks and marvel at its ingenuity in turning it into a cry of major strike to stampede the investors.

David in Seattle • February 12th, 2009 at 11:02 am

It should not surprise anyone that the government is involved in such massive price manipulation (stocks and home prices).American has lost its capacity to generate real wealth through industrial production (the great multiplier), so the only alternative left is to create phony wealth through one-day rallies on Wall Street and supporting home prices. I remember one of the Fed governors saying that higher home prices should support higher spending because people “feel richer.”This is like saying a bodybuilder on steroids “feels stronger,” or a junkie on heroine “feels better”. I guess you can call the Fed Dr. Feelgood because all they do is make the people feel better while in fact they are destroying them.

Guest • February 12th, 2009 at 11:03 am

Fractional reserve banking has never made any sense what so ever to me, it’s like a drug that makes everyone feel really good for a little while until we’re all addicted and sick and unhealthy after that it only makes the drug dealers super wealthy(money creators). It’s only positive merit or logical argument is that it’s a system of “Trickle down economics” -wealth redistribution to the brightest and most hard working people but of course in reality it never works out that way as tax laws completely undermine any trickle down effect it might have, so it’s really just a system to steal from the working class and give to the ultra wealthy-becoming a huge drain on society.Without Fractional Reserve banking there wouldn’t be such a drain on production or really the distribution of productive gains. Money would be spread more evenly and average people could afford to buy a brand new car with cash after saving only a year or two, the cost of products like cars etc. would also be far less and affordable. The notion that over the long haul fractional reserve banking adds something positive or productive to a society is a straight up lie or statement made out of ignorance-people who don’t understand math! It’s unsustainable and merely a system to take advantage of workers and pass the buck down to future generations. I wish more people understood that nothing can truly be created from nothing as a far as this physical reality goes that we all live in!

Guest • February 12th, 2009 at 11:07 am

Government Bonds May Be Last Bubble: Jim RogersFebruary 10, 2009 — Investors will have to short government bonds at some point despite their current attraction, as the amount of debt issued is “staggering” and inflation risks are down the road, Jim Rogers, CEO of Jim Rogers Holdings, told CNBC Tuesday.The low rates policy promoted by central banks is likely to pop a fresh bubble in government bonds sometime in the future, Rogers said.”I was short long-term government bonds in the US, I had to cover a little loss because the head of the central bank said he was going to buy US long-term bonds, and he’s got more money than I do,” he told “Squawk Box Europe.”"I plan to sell short US government long bonds sometime in the foreseeable future… I don’t know when, whether it’s this quarter or this year,” Rogers said.If long-term interest rates continue to go down, then “you’ve got to sell short government bonds, because the numbers are just staggering” when it comes to the amount of debt issued by the US and the UK, he explained.”Government bonds may be the last bubble that is developing. I’m not short government bonds right now,” Rogers said.The rise in the US dollar was likely caused by short-sellers covering their bets but the trend was unlikely to last long-term, he said.”There are huge short positions in the dollar, everybody is trying to cover. I’m not selling my yen yet, but it’s an artificial rally too.”"I sold all of my sterling, I wouldn’t buy sterling for the next 5 to10 years. The same is happening to the US economy, I’m not picking on the UK,” Rogers added.He reiterated his view that, with North Sea oil reserves dwindling and the City of London shrinking because of the financial crisis, the UK had no big industries to fall back upon. The euro and other currencies from the Continent are likely to fare slightly better than sterling, but they were not a ‘buy’ in his view, Rogers said.”I’m not buying any of these currencies at the moment. I still own the euro, I don’t own sterling anymore, I still own the Swiss franc. Europe at least is not a huge debtor, like the UK is,” he said.Commodities continue to be the safest bet as fundamentals were good because when the economic downturn is over, the world will need raw materials, he said.”The fundamentals of commodities are improving through all of this,” Rogers said. “You’re not going to see a mine of any kind opening in 10 to15 years.”Agricultural commodities, where prices fell a lot, oil and gold may also be good for investors, according to Rogers.”I’m buying gold just because I’m periodically buying gold, because I do expect it to be much higher over the next decade,” Rogers said, adding that history has never seen all major central banks printing money “as fast as they can” at the same time.”I know we’re going to have serious inflation down the road,” Rogers said.http://www.cnbc.com/id/29115526/

Guest • February 12th, 2009 at 11:11 am

Follow up to that” Nationalization of the banking industry and FED would counter act the negative affects of Fractional reserve banking because then profits would go to the tax payer. That would be the second best option short of ending the practice all together ie. any and all ponzi schemes like social security etc. should be government owned. Privately owned Ponzi schemes are clearly illegal in this country except for the banking industry- ridiculous!

economicminor • February 12th, 2009 at 11:13 am

I really doubt that!Maybe more encumbered with debts so that they have less room to actually do any thing about it. Or at least they feel like they have less room. But as more and more get foreclosed upon, all these people will be free to protest and angry at how they have been treated vs. the banksters.TPTB have no idea what they are doing and how angry Americans can become. They are playing with fire.AND there is probably no way to turn this around at this point.

Guest • February 12th, 2009 at 11:20 am

Excerpt: “Consumer spending is set to contract…”U.S. Retail Sales Unexpectedly Halt Six-Month SlideFeb. 12 (Bloomberg) — Sales at U.S. retailers unexpectedly halted a record six-month slide in January, an advance that may not be sustained as job losses climb.The 1 percent increase followed a 3 percent drop the prior month, the Commerce Department said today in Washington. Excluding cars, the gain was 0.9 percent. Last month’s rise reflected higher gasoline prices and more spending on items including clothing and food.“There were enough post-holiday sales to lure people into the stores; the question is whether that is sustainable — and the answer is, obviously not,” said Tom Porcelli, a senior economist at Castlestone Management Ltd. In New York. A “collapsing’ job market means spending will deteriorate further, he said.Separate figures today showed the number of Americans collecting unemployment benefits reached a record 4.8 million two weeks ago, reinforcing the threat to spending. Economists anticipate household purchases will tumble further in the first half of the year…The figures aren’t adjusted for inflation, so price increases can influence the data. The average cost of a gallon of regular gasoline last month rose by 10 cents to $1.78 a gallon, according to AAA…Retailers are nonetheless bracing for the first annual drop in sales in at least 14 years, according to the National Retail Federation. January same-store sales dropped 1.6 percent from a year ago, the International Council of Shopping Centers reported last week.Consumer spending is set to contract again this quarter after falling in the second half of 2008, economists predict. Purchases haven’t declined for three consecutive three-month periods since records began in 1947.The world’s largest economy may contract at a 5.5 percent annual pace this quarter after shrinking at a 3.8 percent rate in the last three months of 2008, according to a forecast by economists at Morgan Stanley in New York. Last quarter’s drop was the biggest since 1982.The unemployment rate jumped to 7.6 percent in January, the highest level since 1992, the Labor Department said last week. Payrolls plunged by 598,000, bringing the total number of jobs lost over the last 13 months to 3.6 million…http://www.bloomberg.com/apps/news?pid=20601087&sid=aFDYAuBwkhT0&refer=home

economicminor • February 12th, 2009 at 11:21 am

you must not have muchand who is going to guard your home?that idea is ludicrous!If you were lucky, you’d live a week!

ex VRWC • February 12th, 2009 at 11:24 am

America is being sold at a fire-sale. This is the only thing that sustains the increases in house sales when they happen, and also these retail numbers. Unfortunately, what this really means is that the deflationary price spiral is accelerating.Next fire-sale item – US Treasuries. Watch us give away the future even more quickly and with higher and higher yields and more and more debt on offer.

economicminor • February 12th, 2009 at 11:34 am

There wouldn’t be much capital to use for productive purpose either.What went wrong here wasn’t fractional reserve banking but a total break down in the regulatory oversight. Also the repeal of Glass Steagal which allowed banks to create all kinds of weird securitized instruments to sell to unsuspecting third parties all rated AAA. It isn’t the basis of banking that is the problem but the fact that complacency allowed an unimaginable amount of risk into the system.

subgenius • February 12th, 2009 at 11:54 am

It was never a “green” revolution”, it was always a “black (gold) revolution” that relied entirely on petrochemicals. Of serious worry is the increasing rate of soil erosion brought on by agriculture – which was seriously intensified by the adoption industrial agriculture techniques. Mighty problems are headed our way as the availability of these petro resources hits the buffers, and the erosion problem would eventually cause the “black revolution” to crash. There are also problems arising from the build out of suburbia over once-fertile flood plains and other high quality land, poisoning of the land from the tailings of mining operations, and aquifer destruction.

littleann • February 12th, 2009 at 11:54 am

Question: If any of these zombie banks eventually become nationalized, what effect will that have on the SKF for instance or other indexes? Will they (skf) skyrocket because the “nationalized” banks are worthless or will the index be immediately rebalanced with only the “solvent” banks. Thanks!!!

subgenius • February 12th, 2009 at 11:58 am

…as long as he has ammo…It is a non-trivial problem to continue to produce the ammunition for modern firearms without a large industrial base.

Hayes • February 12th, 2009 at 12:24 pm

Goldman convened a major meeting right after Turbo Timmy’s “plan” to come with plan b – according to CNBC – market sold off just as that news came out a few minutes ago

Anonymous • February 12th, 2009 at 12:27 pm

Let us not forget Spock Lite either. ‘Treasury’ Dept. may soon have to be renamed into something else more appropriate.AM

Guest • February 12th, 2009 at 1:14 pm

The only thing about Gary Null and the environmentalist movement is that they got on the wrong track with AlGore leading the charge with his political-science as displayed in “An Inconvenient Truth” – presuming that global warming is cause by human activity. All the research I read on this, such as in “Chilling Stars” indicate man-made global warming is a drop in the bucket compared to the main forcing which is the solar-magnetic and earth-magnetic variations and that influences cloud cover which reflects the solar heating back into space. We in fact are heading into another global cooling event – mild it seems.

pa • February 12th, 2009 at 1:48 pm

“handing the toxic assets over to the banks’ existing equity investors and the banks long-term unsecured creditors, assigning the deposits to the remaining “good” bank and recapitalizing the new bank with public funds. “that is the most sane idea i have read.

Guest • February 12th, 2009 at 1:50 pm

Bloomberg today reports that “the unemployment rate jumped to 7.6 percent in January, the highest level since 1992, the Labor Department said last week. Payrolls plunged by 598,000, bringing the total number of jobs lost over the last 13 months to 3.6 million…”But, if current U.S. unemployment rates were calculated as they were prior to the Clinton-era, the U.S. economy already is in Great Depression unemployment territory. In fact, unemployment reached 18 percent of the workforce in January 2009.Unemployment in the Depression years ranged from 17 percent in 1931 to 25 percent in 1933 to 17 percent in 1938.Here are the figures (gauged from a chart line): 3.5% in ’28, 5.2% in ’29, 9% in ’30, 17% in 31, 23% in ’32, 25% in ’33, 22% in ’34, 20% in ’35, 17.5% in ’36, 15% in ’37, 17% in ’38, 17.2% in ’39, 14% in ’40. (Source: Michael R. Darby, ‘Three-and-a-half Million Employees Have Been Mislaid, Or an Explanation of Unemployment, 1934-1941,’ Journal of Political Economy, February 1976, p. 8)Reports Robert S. McElvaine in “The Great Depression”: But in 1939, a full decade after the crash, 9.4 million Americans remained unemployed…17.2 percent of the work force.Paul Craig Roberts, Assistant Secretary of the Treasury under Reagan, cites John Williams to clarify current distortions in Government statistical reporting: “Statistician John Williams (shadowstats.com/)…notes that built-in biases in seasonal adjustment factors caused a 118,000 understatement of January job losses, bringing the actual January job loss to 716,000 jobs.“The payroll survey counts the number of jobs, not the number of employed as some people have more than one job. The Household Survey counts the number of people who have jobs. The Household Survey shows that 832,000 people lost their jobs in January and 806,000 in December, for a two month reduction of Americans with jobs of 1,638,000.“The unemployment rate reported in the US media is a fabrication. Williams reports that‘during the Clinton Administration, ‘discouraged workers’ those who had given up looking for a job because there were no jobs to be had–were redefined so as to be counted only if they had been ‘discouraged’ for less than a year. This time qualification defined away the bulk of the discouraged workers. Adding them back into the total unemployed, actual unemployment, [according to the unemployment rate methodology used in 1980] rose to 18% in January, from 17.5% in December.’”References:http://www.vdare.com/roberts/090208_fools.htmhttp://ingrimayne.com/econ/EconomicCatastrophe/GreatDepression.html

PeteCA • February 12th, 2009 at 2:03 pm

This raises a very interesting point. Think about this …We all know that the Fed has a team of economists that are involved in economic modeling. Reportedly, Mr Bernanke is a fan of theoretical models of the US economy – as one tool to assist with forward projections. According to rumor, Greenspan was not fond of this approach and tended to rely upon current data gathered by the Fed.Anyway … it’s abundantly clear that the standard Labor Department data (unemployment) are erroneous. At least, the data in the published reports are skewed because of a variety of biases (and bad assumptions in the data collection). But the real question is … what numbers is Bernanke using in his own modeling efforts??? Because if he’s using the standard Gov’t figures then anything that comes out of his computers is highly suspect. On the other hand, if he’s doing what I suspect he’s doing, then he’s actually using “realistic estimates” (e.g. unemployment data) that may be significantly different from what the Gov’t is telling the public. Which is why – when Obama comments that we could be nearing an economic “catastrophe” – that we should be watching this process with some interest.But the bottom line is simply this … Unemployed people don’t pay cradit card bills, mortgages or rents.Regardless of what the misleading statistics from the Labor Dept actually say, the real effect is the knock-on for delinquencies in all kinds of debts in America. So who are we fooling by publishing misleading data. Only ourselves, I guess. Obama should clean this up. There’s no point to the exercise. The USA needs accurate estimes of important economic data, or we’re never going to get anywhere.PeteCA

blindman • February 12th, 2009 at 2:04 pm

http://www.youtube.com/watch?v=w1tMMd86w2Y&NR=1.david korten, agenda for a new economy, interview. w amy goodman..”from phantom wealth to real wealth”….??? “..the illusion that money is wealth” 5:30balls doesn’t seem to get it will not be 15 years, “it” will never be the same..”The economy is going to define our politics in this region and in Britain in the next year, the next five years, the next 10 and even the next 15 years,” Mr Balls said. “These are seismic events that are going to change the political landscape. I think this is a financial crisis more extreme and more serious than that of the 1930s, and we all remember how the politics of that era were shaped by the economy.”.he is thinking inside a historic paradigm that has completed its cycle and is now dysfunctional.”the world” will not forget what it has learned in the last 80 years to go back to that point in history.something new is on the horizon…a thought.

PeteCA • February 12th, 2009 at 2:12 pm

You know who seems to be calling the shots the most accurately right now … the oil market. Watch the price of oil. Yeah – I know that OPEC is making cuts (and all that stuff). But the majority of oil investors seems to be betting on the supply vs. demand curve, and the oil price sure looks like it is forecasting a serious reduction in global economic activity. That’s it. By the way, I highlighted a published article a week or so back (from one of the Puplava brothers) that clearly showed that one of 2 things was going o happen: either the oil price is set to make a major spike this year, or global GDP is due for a significant drop. And right now the oil market seems to be betting on the latter outcome (an oil spike can’t be ruled out if a crisis occurs, but the market is betting along the lines of economic activity).I don’t agree with the way oil is priced in the current markets (pricing mechanisms are screwed up in my opinion), and I’m strongly sympathetic to the objections published by Matthew Simmons on this issue. He makes a lot of good points. But the oil market is what it is … and it’s interesting to think about the implications in terms of global economic activity.PeteCA

pb_2_au • February 12th, 2009 at 2:17 pm

My tactic is similar but why call options? Just start to pick your survivor sectors and add to index positions even if they start to fit into kid sizes.

PeteCA • February 12th, 2009 at 2:18 pm

Not an accident. They tried to suck in as many LONG positions as they could while the stimulus bill was being debated. Then they “sold the news” as soon as the bill came to the point of completion.

Guest • February 12th, 2009 at 2:22 pm

So, we’ve now taken a step back from the precipice with the latest announcement out of the whitehouse, where the government will apparently be subsidizing morgages for these homeowners that pass a “stress test” and allowing judges to reduce principle. This is doomed to fail because it will only encourage defaults, rather than discourage them. Who in the world is going to pay their mortgage if their neighbor gets his principle crammed down because he/she couldn’t pay? There will be some serious unintended consequences here!PKB

ranMan • February 12th, 2009 at 2:50 pm

PPT at it again. Don’t expect the market to do anything like it “should”. Obama and team are following in GWB’s footsteps more and more. What change?

Guest • February 12th, 2009 at 2:51 pm

Hey, we’re approaching Friday the 13th and the weekend is here with Valentine’s Day on Saturday–can’t be having a disaster just yet, you know.

ranMan • February 12th, 2009 at 2:52 pm

I think it’s time all the banksters are locked up, the banks nationalized, assets sold off, full transparency, full-disclosure no matter how bad the short-term news or results. The sooner this happens, the sooner the recovery starts.

Guest • February 12th, 2009 at 2:58 pm

http://www.reuters.com/article/topNews/idUSTRE51B6B620090212The federal government is going to subsidize a mortgage rate buydown fortroubled mortgages that can show hardship. If the payment on a 8% mortgageis 2000, and the government buys it down to 5%, the government pays the reductionto the investors. There is going to be a Standardized Modification Means test.Fannie and Freddie will be involved supposedly! This is conjecture and speculationat this point. They are attacking the debt overhang as the Professor recommended!

Guest • February 12th, 2009 at 2:59 pm

Honestly, how long can they keep manipulating the markets like this? Today they said retail sales rose a “Surprising 1%” in January, but many analysts openly said no one believes these numbers any more given how many retailers have collapsed.They can lie, cheat, and prop up the markets right before close. It’s only a matter of time before the whole ponzi scheme collapses.Ask Madoff.

Guest • February 12th, 2009 at 2:59 pm

i think ppt is really worried this time, since the technical analysis of a symmetrical triangle that resolves to the downside in the direction of the trend projects a first stop at around 630 on the S&P and then later around 540 or so on the S&P…

Guest • February 12th, 2009 at 3:01 pm

here we go again – soon there will be issues at the borderline of the means test – like “if I can be a little poorer and slightly in worse condition, I can then qualify” – this encourages less incentive and increases poverty

Guest • February 12th, 2009 at 3:04 pm

NEW YORK (MarketWatch) — U.S. stocks pared their losses on Thursday after Reuters reported the Obama Adminstration is creating a program to subsidize mortgage payments for at-risk homeowners.

Octavio Richetta • February 12th, 2009 at 3:04 pm

I have no idea what moved the market up so fast. I just went for a nap and when I woke up found out the market went up vertically. I should have covered my APOL short earlier. in any event I shorted on 2/5 at $84.79 and covered today at $81.855. I could have covered well under 80 earlier today… It iz 2 out of two with this puppy (i.e., two winning short trades on diz POS stock)

Guest • February 12th, 2009 at 3:12 pm

The prospective use of 50 billion to set up a federal subsidizedmortgage buydown for troubled mortgage borrowers who may not bedelinquent, but can show hardship. All based on statements fromJames Lockhart FHFA.

Guest • February 12th, 2009 at 3:13 pm

275 Dow points in 1 hour – This must be a movie and the PPT is using fairy dust! It just don’t make any sense!

Octavio Richetta • February 12th, 2009 at 3:13 pm

Leverage with downside risk protection which comes at a hefty price in terms of the ticking clock associated with options.There is a fair chance equity and commodity markets will be lingering at current levels/be even lower two years from now in which case you loose 100% of your capital if you just buy and hold the options. I have posted quite a bit on my rationale for using leaps (badly bruised Ackman Target fund comes to mind), including sensitivity analysis on the price decline of leap options as they age. Try a Google search with my name and other key words and something may come up.

blindman • February 12th, 2009 at 3:17 pm

g,i think this is debatable and have read that geologically speaking we are currently in an ice age presently,just in a retreating phase. gary null is quite assertive and that is what it is but he is brilliant, not infallible.political people always simplify and politicize issues for the masses, us. what i look for is not content from themso much as do they point in the right direction for “our” attention. not to distract us but to advise the public.dirty air is bad for the environment and for breathing purposes. that is undisputed. if we get an energy revolutionpartially out of the threatof global warming that is fine with me although we need it for many other reasons.the cycle of carbon is interesting though and the idea that we are putting so much into the atmosphere anddestroying forests and actually changing the ph (acidification) of the ocean..http://en.wikipedia.org/wiki/Ocean_acidification.this is potentially ruinous.i will check that “chilling stars”, thanks. 27 year cycles are out there too. pa posted an oil articlea few threads back where the author cited that.bottom line is conservation and judicious resource exploitation, starvation diet, is the only lifeextending diet known. (proven). it makes economic sense. use less, save more and in lean timesyou may be fortunate enough to have something to drink, eat and be merry. if things get really badthen maybe not. but the principle is not disproved by the misfortune, just amplified.the paradox of thrift is no paradox at all. it is the insight that proves and predicts the demiseof the system that abhors it.and i ain’t no Quaker or shaker.

ranMan • February 12th, 2009 at 3:17 pm

Everyone:News out about the top 18 banks being audited as we speak! Mish has a good article on it. He doesn’y like it.1. A massive audit of the 18 largest banks is underway.2. There is no transparency in the audit.3. There are no details on the alleged “stress test”. Moreover, an audit can hardly be construed to be a stress test.What’s next????

Octavio Richetta • February 12th, 2009 at 3:17 pm

Hartford Falls After Ouster From U.S. Commercial Paper Programhttp://www.bloomberg.com/apps/news?pid=20601087&sid=a69p8mDcHaNQ&refer=homeOuch! Barron’s has been touting this puppy in the last few weeks. I guess they missed the boat on this one.

Octavio Richetta • February 12th, 2009 at 3:23 pm

U C, what is going on with Geithner is what I refer to as the cheating spouse syndrome. Even if what you are doing is 100% correct, and your behavior is 200% fine, the cheated spouse will continue to doubt the cheating spouse. The dynamics of this can of course change over time. So if the market starts realizing the FED/Treasury do mean business, market dynamics make change on a dime.People do forgive but do they forget?

Anonymous • February 12th, 2009 at 3:29 pm

Barry-O is starting to remind more and more of Gerald Ford everytime he speaks. Pretty soon he’s gonna hand out badges with………….”Whip Deeflation Now”!AM

Guest • February 12th, 2009 at 3:31 pm

Yeah, but this particular cheating spouse (fed/treasury) has a long history of cheating. And lifting up the bedcovers has revealed a lot of other cheating spouses.

Brett in Manhattan • February 12th, 2009 at 3:44 pm

People who are well versed in economics seem to misunderstand the stock market as they continually link price movements with economic news and data.It doesn’t take a PPT to stop a slide. All you need is too much company on the short side.

Guest • February 12th, 2009 at 3:50 pm

/sarcasm-onBecause all the fundamentals point to a strong market and therefore one should be long?/sarcasm-off

Tom K • February 12th, 2009 at 4:09 pm

Mark, we should be honest to ourselves. The US as a whole is already in technical bankruptcy, but distribution of debt is not even. Private sector debt is >100% of GDP, much of it cannot be repaid. Government (federal) is high at around 60% but it is ‘manageable’ and lower than quite a few other developed countries. Rise above the trees, even forests, and view from the satellite: the grand strategy is to transfer private debt (including banks) to public, i.e. to the federal government, who can absorb a few more trillions before it reaches the level of Japan government. (Of course Japan is different – it has massive private sector savings.) Coupled with pumping the stimulus, fixing a few things on the financial sector, the debt transfer actions will stabilize the economy.As a result, the federal government will hold a few trillions of wastes. Then it will do what every country has done with this problem – 1) inflate the money supply to deflate the value of the debt, 2) sell it back to the private sector later. Sound OK? There is a cost my friend.The inflation that will be used to ‘make the debt go away’ will cut the US standards of living by half in a few years. Since there is no way the US can increase its productivity and creativity by the same measure to compensate over the same period, there WILL BE a substantial net drop in standard of living. Also, that same inflation will drive foreign holders of US investment away, thus hastening the day of the end of USD international reserve. These are the prices US must pay down the road a) substantial drop of standard of living, say 30%, 2) lost of currency reserve power and thus end of US economic and military world hegemony.My views are not based of any ideology or politics. I am 100% neutral. It is based on facts and the reality of history. No country can escape that.

Guest • February 12th, 2009 at 4:21 pm

Stimulus is welfare giveout. it is not about preserving jobs or creating new jobs. it is not about stimulating economy, but burdening economy with more public debt and future taxes. NO, WE CANT.

Guest • February 12th, 2009 at 4:22 pm

Karl-Erik Wärneryd, author of Stock-market psychology: How people value and trade stocks,” demonstrates investor psychology is an important discipline for economic psychology and that it contributes significantly to the understanding of the behavior of individual investors.So, if Big Brother can manipulate stock moves with the PPT, why not manipulate investor psychology with BLS numbers? After all, investor behavior plays a significant role along with market reality in booms, crashes and bubbles. So bring on the media hype, bring on the bubble maestro — blow tech bubbles, blow house bubbles, blow credit bubbles, blow bond bubbles, blow currency bubbles, blow commodity bubbles, blow gold bubbles, blow soap bubbles.And ignore the pops and the collateral damage. If Big Brother tells you that in America there are no “savers,” then it’s all right for Bernanke to push all the old people’s savings underwater (there’s no place for the old things to make an outcry, anyway). And, hey, if only 7.2 of the workforce is unemployed, that’s no big deal: cover up the 18 percent and, voila, there’s no depression. Just ignore all those men standing on street corners with their outstretched hands – they’re just winos. And if college grads can only find work at McDonald’s, hey, they’re “employed” aren’t they?And if the government shows retail sales are up, even if actual sales are really down but prices have spiked up the figures, well, so what if the stores are closing?Invest! The future is bright. Good times are comin’. The BLS tells us so.

Octavio Richetta • February 12th, 2009 at 4:30 pm

So with so many trillion dollars flying around and housing being at the center of the economic crisis, a naive solution just occurred to me. A lot of bery smart people have invested quite a bit of brain power into solving this problem so my idea probably raises more questions than it answers. But still here it goes.Does anyone remember Johnny RiskCamp (sp?) and his stop housing evictions line?The idea is as follows: put a floor on the subprime/Alt-A toxic mortgage-backed securities by having the government immediately take over the properties that default on their mortgages and continue making payments based on a reduced principal and interest rate that reflects the credit rating of uncle Sam. This would immediately provide a floor on the pricing of these securities. As for the unscrupulous/naive/cheated folks who originally purchased the properties, they can be made to move out or stay paying rent. Since virtually 100% of them have zero equity on the property they would have no claim whatsoever on the property.What would be the year one approximate cost of such a move be?For each trillion USD worth of principal the US government takes over the out of pocket annual cost is in the order of 1 billion USD (10%, give it a generous 6% of principal for interest plus capital amortization plus 4% administrative overhead); And, don’t forget the US government now owns the property which will be worth at least 50% of the reduced principal (i.e., the new outstanding mortgage amount) owed which will appreciate over time.We can start discussing fairness issues but who said life is fair*? With so much unfairness going on this is just one more drop in the bucket.* From an old post of mine:Just watched the 1995 film <,i>Four Rooms featuring Tarantino as one of the directors. Here is the script:http://www.script-o-rama.com/movie_scripts/f/four-rooms-transcript-quentin-tarantino.htmlWhy do I bring this up? There is a GREAT LINE in the movie that in a nutshell tells what our country is all about. The line shows the reason behind people being so mad at the unfair way in which Hanky, Benny, Tim, and now Obi are handling the credit crunch:It’s not right. It’s not right and it’s not f*ck*n’ fair!But why should that surprise anybody? When the hell has America ever been fair?We might be right every once in awhile, but we’re very rarely fair.Octavio Richetta on 2009-01-16 19:53:35

Guest • February 12th, 2009 at 4:36 pm

That’s because the pros have turned it into a casino, economists somehow expect it to follow fundamentals but Wall Street is nothing more than a bunch of day traders.

Guest • February 12th, 2009 at 4:43 pm

That’s a concise logical solution. Some may argue that you are creating an artificial floor that will eventually collapse to future market pressure. Even though that’s true, the government is going to spend the money regardless so why not apply it directly to the root cause for a few years and let the market settle down slowly? Makes sense, no?It will not happen and I’ll tell you why…because there is a more fundamental unfairness in America. It’s the wealthly debt owners manipulating government and clinging to their miserable debt until the bitter end of economic collapse arrives.

generalKurtz • February 12th, 2009 at 4:45 pm

Sometimes I think they should behave as the Austrian School and let the nature take its course. Don’t do anything! Just let the losers fail and be wiped out. The natural selection! No matter how long this process will continue, at the end, there will be a more robust economy developing…. I mean, at the end you have to go and buy bread and somebody has to make it! I don’t know why we let these greedy financiers scare us. The world’s end will not come from bad mortgages believe me…Why do we try to maintain a system which creates balloons? Roubini says that $3.8 trillion will be wiped out. OK but this is not like, physically, money will be burned right? At the end it will move from someone to someone else’s hand or it will be wiped out on papers. But if that is the case, it never existed in the first place… Isn’t that true? This is all speculative! Such money never existed.I think as long as speculation element is not removed from finance and asset values are not their real values backed by real merchandise, commodities, we’ll go from one crisis to another one forever….

Guest • February 12th, 2009 at 4:45 pm

This is all true but even in its most modest form fractional reserve banking being that it’s privatized is counter intuitive after a certain time period, once population stops growing etc. It is a ponzi scheme to redistribute wealth even when practiced moderately, it shouldn’t be privately owned. People would go nuts if they allowed social security to be privatized without real capital to support it why does the public allow ponzi banking to be privately owned?-because they don’t comprehend it, incidentally neither do a lot of economists or finance majors.

blindman • February 12th, 2009 at 4:47 pm

r,i like it..http://www.newsday.com/business/ny-bzfbi126032487feb12,0,4716070.storyRise in fraud cases is ‘straining’ FBI.”The 38 corporate cases linked to the financial crisis have the potential to be as complex as that of Enron Corp., which collapsed in 2001. The cases involve companies that “everybody knows about,” Pistole said without naming them, and include possible manipulation of financial statements, accounting fraud and insider trading, he said.The FBI has reassigned some agents from terrorism cases to financial crimes.’

Brett in Manhattan • February 12th, 2009 at 4:52 pm

It always was a casino. I have books written 100 years that describe 95% of the transactions as speculative trades. The stock market can be described in two words: Accumulation, Distribution. With that in mind, if you were a Wall St. operator, would you accumulate when times are good or bad?

FEDup • February 12th, 2009 at 5:09 pm

I CAN’T WAIT until I read the details on this new housing BOONDOGGLE. How much you wanna bet this will vastly increase the number of people who suddenly cannot afford their mortgage payment or if the rules are too strict, it will hardly put a dent in the number of foreclosures. Maybe a good paying, steady, productive job would be a better option; oops, I forgot, there are’nt too many of those left.

ex VRWC • February 12th, 2009 at 5:09 pm

they can be made to move out or stay paying rentDo you seriously think the government will get in the business of ‘making people move out?’ This whole thing is because, collectively, people are living above their means. If you demanded market based rent from people, guess what, they will still be living above their means, and they won’t be able to pay. But they would remain.The end result of all these mortgage bailouts will be the same – we will have government sponsored ‘home ownership’, with no incentive for ownership, and no upside for ‘homeowners’. Think of neighborhoods full of people with no incentive to maintain their property, no incentive to enforce any standards, or improve their homes. If you want to see what looks like, I suggest you look at public housing as it has historically performed in the US. Its not a pretty picture.It is a cheapening of our standard of living, with the added twist that now government, who historically does very little well, will be involved. And it won’t solve the financial crisis anyway, because we have diagnosed a symptom of the downturn (housing price decline) as the cause (wage/trade imbalance and excess debt) . Bad diagnosis, no cure. Just a lot of money and effort wasted on symptom relief.

Octavio Richetta • February 12th, 2009 at 5:11 pm

Ups!http://www.bloomberg.com/apps/news?pid=20601087&sid=a9bSTaiOyy3U&refer=homeGregg Says It Would Be Difficult to Serve in Cabinet (Update1)By Nicholas JohnstonFeb. 12 (Bloomberg) — Senator Judd Gregg, a Republican who withdrew his nomination to lead President Barack Obama’s Commerce Department, said it would have been difficult to serve in the Cabinet because he wouldn’t have been able to support the president’s polices 100 percent.“It became clear to me that it would be very difficult, day in and day out, to serve in this Cabinet or any Cabinet,” said Gregg, of New Hampshire. “It really wasn’t a good fit and I wouldn’t be comfortable doing this.”“Bottom line, this was simply a bridge too far for me,” said Gregg, who also said he won’t run for re-election to the Senate in 2010. He said he couldn’t “be myself” while serving in the Cabinet.“I did not handle this the way I usually handle issues, which is definitively and quickly,” Gregg said. “I readily admit this was a huge error on my part.”To contact the reporter on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.netLast Updated: February 12, 2009 17:40 EST

Octavio Richetta • February 12th, 2009 at 5:16 pm

Interes-ting!:Fed Holdings of Notes, Loans Decline as Credit Eases (Update1)Email | Print | A A ABy Craig TorresFeb. 12 (Bloomberg) — Total assets on the Federal Reserve’s consolidated balance sheet fell for the sixth straight week to $1.84 trillion as credit conditions improved, allowing banks to borrow in private markets.The Fed’s holdings of loans, bonds, short-term notes and commercial paper hit a record of $2.31 trillion on Dec. 17. Total assets stood at $1.85 trillion on Feb. 4 and $1.92 trillion on Jan. 28. …All of a sudden, diz and other news headlines at Bloomberg seem to indicate bulls are back at least for a short while. I am glad I covered my APOL short today…http://www.bloomberg.com/?b=0

Guest • February 12th, 2009 at 5:25 pm

This is getting very interesting, Goldman Sachs(biggest players) holds an emergency meeting after Geithner plan. Apparently the people at the New York Fed don’t even know what’s going on with the plan and Wall Street is panicking? The bankers are getting scared as Obama may be turning on them and forcing Geithner to give out grey wishy washy details of the bailout. Could it be that Obama is getting ready to screw the powerful bankers? Is the White House starting to disconnect and distant itself from Wall Street? Did we just elect a president who may finally be looking out for the common people? Are we saved from ‘evil’ bankers finally? Our nation and world is held in bondage to these slime balls who hold closed door meetings and try to dictate government policy with the leverage of their stolen wealth. Does Obama have the courage and conscience to stand up to this evil!Stay tuned I’m beginning to be hopeful, I’ll deal with whatever inflation I have to so long as the power of private bankers is removed. Collapse the dollar I don’t care just take the bankers power away!!!

Cahill • February 12th, 2009 at 5:27 pm

A very oversimplified solution but one which I think bears vetting out.1. The US government does set up the bad bank and purchases ALL estimated bad assets.2. This is essentially a loan and the banks will pay back 100% of the amount purchased plus interest over say 50 years. (and yes I know it’s not a true loan but it’s either this or fail)3. If any any recovery on these assets is ever made they go into the government/taxpayer coffers the banks don’t get any benefit from them.This allows the banks to free up their balance sheets and get back to the basics of lending and financing,not speculating and creating toxic debt (there need to be very stringent rules on this). This allows the government to make the banks pay for this mess not the taxpayer. The government will issue debt like they always do but it will be paid back by the banks payments and any toxic asset recovery.I’m well aware that big banker and investors would sh#t their pants if this ever came about and many would fuss and gripe that the banks only turning a 3-5% profit isn’t reasonable, but after the losses we have all faced I guarantee you most individual investors would take it if they knew it was more secure.

Octavio Richetta • February 12th, 2009 at 5:56 pm

Not just public housing, historically, RE returns have, at best, kept up with inflation. I have always seen owning a house more as a pleasurable expense than an investment.

Octavio Richetta • February 12th, 2009 at 6:04 pm

Banksters, businessmen in general, and even common folk are so used/attached to the laizes-fair, no regulation environment, and thiking that is the only rthink that works, that the setting of some fairness rules by the Obi administration will initially be greeted with nasty withdrawal pains by the market. So, IMO, in the short/medium terms Obi’s action may actually drive the market down.

Guest • February 12th, 2009 at 6:18 pm

So why the hec are peoples 401 k’s and retirement plans locked up into these markets? Imagine Bush and the Laise Faire nut heads wanted to socialize social security! What’s even more amazing is that these same fools still dare to raise their heads and continue espousing off their bla bla.

PeteCA • February 12th, 2009 at 6:48 pm

It’s one of 2 things … because we’ve seen this playbook before.Either a very liberal sprinkling of fairy dust,OR WORSE the folks on Wall Street got wind that there will be a release of information by the Gov’t tomorrow that is intended to boost the market.Watch tomorow’s news.PeteCA

Guest • February 12th, 2009 at 6:53 pm

People are upset and think that the bankers are manipulating the bailouts to their benefit. The stock market is probably going to go down with the bailouts rather than up because the bailouts are going to be damaging to the economy. I can read in the testimony and how the bankers are being questioned in Congress that Congress is trying to separate itself from the bankers. Things are getting hot back home.Congress will give in to the bankers until it all blows up. The evidence is that there’s going to be a blow up against Congress and the bankers—things already are blowing up.If Congress had to tax each of us to get the money to pay for the bad debts of the bankers and their irresponsible borrowers, there would be blood in the streets by now. Instead, the Fed is stealing our money surreptitiously by inflating the amount of paper money – extracting the purchasing power of every earned dollar. The bankers are taxing us by inflation and transferring the economy’s wealth to themselves.And the economy is faltering. What hypocrisy that the stock market goes up on banker bailout trillions extracted from the producers, on wealth transfers to the indigent from the producers, on government make-work projects paid for by the producers, on stolen wealth from the tiny savings accounts of those who suffered deprivation and saved… What a farce.The economic genius Henry Hazlitt said that “continuous new injections of currency or bank credit in place of real savings…can create the illusion of more capital just as the addition of water can create the illusion of more milk. But it is a policy of continuous inflation. It is obviously a process involving cumulative danger. The money rate will rise and a crisis will develop if the inflation is reversed, or merely brought to a halt, or even continued at a diminished rate… Persistence in this device must eventually raise interest rates.”Continued Hazlitt, “When they say that the way to economic salvation is to increase credit, it is just as if they said that the way to economic salvation is to increase debt… When they say that the way to national wealth is to pay out government subsidies, they are in effect saying that the way to national wealth is to increase taxes…”Said Hazlitt: Our politicians have forgotten the Forgotten Man—it is always the Forgotten Man who is always called upon to stanch the politicians’ bleeding heart by paying for his vicarious generosity.The economy is imploding. The banker/government leviathan has impoverished Peter in order to lavish it on Paul. If the stock market is a portent of America’s economic future, the stock market is headed for a massive implosion.

T Durante • February 12th, 2009 at 6:55 pm

1st day on this site.What a great synopsis of this clusterf*** we are dealing with.Thanks I really just want to go back and bury my head in the sand. :o (

blindman • February 12th, 2009 at 6:57 pm

tk,standard of living will go down 30%? for which part of the population? thepart that made millions creating crap financial s? no. i think you describe astronomic debttransferred to those not worthy of “credit money” but perfectly worthy of a reduction instandard of living by assuming billions of dollars of bad debt of their “superiors”creation. no.? is this the system of free market capitalism that inspires andenergizes the human spirit? sounds like a dead religion, Mithraism or something.that was one that was centered around a warrior hero figure and a bull. ;0.i don’t think citizens will buy it.moral hazard has it’s limits. it can become toxic moral hazard. etc.in conclusion, i think you are correct. they will try it but they may choke on it.—;o-0..==..?ps. i think the solution you desribe would also result in a 100% reduction of the constitutionof the united states of america, but, historically, that has not been a problem.pss. i am having trouble imagining how an unemployed indebted person with no assets could shoulderthe burden of a 30% reduction in their standard of living. ? i guess that is why it is a crisis.

Hayes • February 12th, 2009 at 7:10 pm

Two interesting headlinesBloomberg – China Economy Shows Signs of Recovery on Stimulushttp://www.bloomberg.com/apps/news?pid=20601087&sid=a5BC4xOWQhR8&refer=homePettis – More terrible trade numbers from Chinahttp://mpettis.com/2009/02/more-terrible-trade-numbers-from-china/

FAMC • February 12th, 2009 at 7:12 pm

Agree. Good points. It is interesting that some people think that using their computers to create money can fix the structural problems of an economy based almost only on “services”, banking and credit/debt.People need real things but today the manufacturer is China.Universities like to publish papers because of the status.it doesnt matter if the paper reflects reality and many academics supported the fractional banking system, that allows bankers to leverage 15:1 or more.Regrettable.

PhilW • February 12th, 2009 at 7:21 pm

I put forward an idea very similar to this a while ago on this board. The government undertakes to buy up homes at say, 70% of outstanding loan where they are coming up for foreclosure or the occupants have walked. So MBSs have guaranteed minimum value, lenders take a haircut, but a manageable one, people still have places to live, but no longer own them. Seems quite a fair solution to me. Far better than bailing out the bankers.But it may be too late now. Its not just credit crunch anymore, the Depression is under way

Wolf in the Wilds • February 12th, 2009 at 7:22 pm

IP is the key indicator. In the 1930s, it took 3years for the IP in the US to drop 20%. In Japan, Korea, the Baltic states..etc, it happened over a period of 2 months. The idea that we have such a steep drop in production implies that (a) manufacturers are all caught on the wrong side of the fence, (b) investment will not be forthcoming with that much excess capacity available. The export decline is one element but the real number to look at is the Industrial Production Indices. We can hope for a bounce in March but as of January, activity remains very depressed. And anecdotal evidence points to no recovery in orders.EM is geared towards the export market and that is one reason why IP has collapsed in such a sharp rate. What we have is a total collapse of demand for final products and the leveraged impact on EM is huge. On top of the economic and production leverage, a lot of these countries also have huge financial leverage. Hot money flowed into these countries to finance the growth. With growth turning into contraction, there will be outflow of capital putting further pressure on the governments of these countries. This is the classic EM crisis (the Latam crisis, the Mex crisis, the Asian crisis etc), except this time, it is global.

subgenius • February 12th, 2009 at 7:56 pm

California’s impending collapse…There have been a LOT of earthquakes in California in the past 12 hours or so – all small so far.map

Guest • February 12th, 2009 at 8:15 pm

Oh please. Your euphoria is upsetting. You say, “Goldman Sachs (biggest players) holds an emergency meeting after Geithner plan,” and that, “ apparently the people at the New York Fed don’t even know what’s going on with the plan and Wall Street is panicking?”Timothy Geithner is Goldman Sachs. Timothy Geithner is the Fed…the NYFed…the World Bank…the Bank of International Settlements…the IMF.Goldman Sachs is regrouping to confront the unexpected reaction to Its Plan. Timothy Geithner is suffering for his backslide into penny ante crime; the power elites would kill him if they could for dodging $50,000 in unpaid taxes after all the money they’ve put into his training. Can’t you see it in is face? He is a haunted man.How much more evidence, circumstantial and otherwise, do you need to know that Goldman Sachs is at the epicenter of the controlling elite, at the hub of the world power center, that Goldman Sachs is writing policy for the U.S. Congress? How many years of evidence do you need?Just as Volcker – America’s poster banker – was schooled by the international bankers, so was Geithner.Compare Volcker’s history to Geithner’s and understand your enemy: Eustace Mullins, whose book “The Secrets of the Federal Reserve” was burned in Germany, banned by publishers in the United States, and praised by the greats such as Wright Patman on the House Banking & Currency Committee (1937-1976) and by Col. Robert R. McCormick who published “The Chicago Tribune” and by Sen Robert Taft, Republic majority leader in the Congress, wrote in 1985: “In reality, Volcker is more of a politician than an economist. After attending the London School of economics (the bankers’ graduate school), and finding out who issues the orders of the international financial community, Volcker has ever since played the game. Not once has he failed to carry out the order of the ‘London Connection.’”Executives like Geithner and Volcker are front men, paid employees who continue to receive their paychecks only as long as they carry out their employers’ instructions. Just as Volcker’s background was charted, so was Geithner’s.“Volcker attended Princeton, obtained an M.A. at Harvard, and went to the London School of Economics 1951-52. He then came to the Federal Reserve Bank of New York as an economist from 1952-57, economist at Chase Manhattan Bank, 1957-61, with Treasury Department 1961-65, as deputy under secretary for monetary affairs, 1963-65, and under secretary for monetary affairs, 1969-74. He then became President of the Federal Reserve Bank of New York from 1975-79, when Carter, at the behest of Robert Roosa and David Rockefeller appointed him Chairman of the Federal Reserve Board of Governors…“Behind Volcker stands Robert Roosa, Secretary of the Treasury in Carter’s cabinet, and representing Brown Brothers Harriman, the Trilateral commission, the Council on Foreign Relations, the Bilderbergers, and the Royal Economic Institute. Roosa was a trustee of the Rockefeller Foundation, and a director of Texaco and American Express…“On June 18, 1983, President Ronald Reagan announced “that he was reappointing Paul Volcker as Chairman of the Federal Reserve Board of Governors for another four years…”Has anything changed? No! Nothing, nothing has changed!

ranMan • February 12th, 2009 at 8:20 pm

the stock market is being manipulated on a daily basis just like the gold market. Did you see that recovery in the end of the day? The markets will only go down if there is a catastrophic event that causes the banks to break from the “script” they are all playing to. This event could be a terrorist attack or something. Otherwise, it’s business as usual, take a position, release some news that moves a stock or specific industry group, sell your position and take a profit, rinse and repeat. It makes me sick to my stomach to see what this country has become….and most people haven’t got a clue.

Guest • February 12th, 2009 at 8:21 pm

This is a simulation (takes a few minutes to load) very disturbing to watchhttp://urbanearth.usgs.gov/wp-content/themes/usgs/images/scec-shakeout-simulation-rt.wmv

jugglingcdos • February 12th, 2009 at 8:30 pm

i thought there’s a pot of gold at the end of every rainbowhmm… even leprechauns are trying hard to keep up with demandRare photo of the ‘end’ of the rainbowhttp://sciencedude.freedomblogging.com/2009/02/08/rare-photo-of-the-end-of-the-rainbow/18022/

subgenius • February 12th, 2009 at 8:34 pm

ouch – I had better move… I just watched the video rendering for LA (I live pretty much downtown). 2′ vertical movement from about 1 minute in…Thanks for the link (I think…)

economicminor • February 12th, 2009 at 8:40 pm

By Naked Capitalism on WednesdayThis is good and definitely worth the read..Then you’ll understand what’s going on and why it isn’t working.

Bernanke an expert on the Great Depression???One of the reasons I am partial to Australians is that they are critical thinkers, not easily cowed by authority or conventional wisdom.In the US, one of the reasons that Fed chair Ben Bernanke is given so much deference (aside from the fact that we treat people in positions of power with kid gloves) is that he is regarded as an expert on the Great Depression, and has also studied Japan’s Lost Decade.Steve Keen, author of Debunking Economics and professor at the University of Western Sydney, has taken a look at some of Bernanke’s writings on the Great Depression and finds them wanting, Serious wanting. I’ve read some of Bernanke’s work on Jaoan, and quite a few of his speeches, and was bothered by some of the assumptions and omissions. Keen tears into Bernanke with a gusto that I find refreshing.This is a long excerpt from a much longer and worthwhile post (hat tip reader Tom):A link to this blog….reminded me of Bernanke’s book Essays on the Great Depression, which I’ve been aware of for some time but have yet to read. I’ll make amends on that front early this year; fortunately, an extract from Chapter One is available as a preview on the Princeton site (I couldn’t locate the promised eBook anywhere!; in what follows, when I quote Bernanke it is from the original journal paper published in 1995, rather than this chapter).To put it mildly, Bernanke’s analysis is not promising.The most glaring problem on first glance is that, despite Bernanke’s claim in Chapter One “THE MACROECONOMICS OF THE GREAT DEPRESSION: A Comparative Approach” that he will survey “our current understanding of the Great Depression”, there is only a brief, twisted reference to Irving Fisher’s Debt Deflation Theory of Great Depressions, and no discussion at all of Hyman Minsky’s contemporary Financial Instability Hypothesis.While he does discuss Fisher’s theory, he provides only a parody of it–in which he nonetheless notes that Fisher’s policy advice was influential:Fisher envisioned a dynamic process in which falling asset and commodity prices created pressure on nominal debtors, forcing them into distress sales of assets, which in turn led to further price declines and financial difficulties. His diagnosis led him to urge President Roosevelt to subordinate exchange-rate considerations to the need for reflation, advice that (ultimately) FDR followed.He then readily dismisses Fisher’s theory, for reasons that are very instructive:Fisher’s idea was less influential in academic circles, though, because of the counterargument that debt-deflation represented no more than a redistribution from one group (debtors) to another (creditors). Absent implausibly large differences in marginal spending propensities among the groups, it was suggested, pure redistributions should have no significant macroeconomic effects. ” (Bernanke 1995, p. 17)This is a perfect example of the old (and very apt!) joke that an economist is someone who, having heard that something works in practice, then ripostes “Ah! But does it work in theory?”.It is also–I’m sorry, there’s just no other word for it–mind-numbingly stupid. A debt-deflation transfers income from debtors to creditors? From, um, people who default on their mortgages to the people who own the mortgage-backed securities, or the banks?Well then, put your hands up, all those creditors who now feel substantially better off courtesy of our contemporary debt-deflation…What??? No-one? But surely you can see that in theory…The only way that I can make sense of this nonsense is that neoclassical economists assume that an increase in debt means a transfer of income from debtors to creditors (equal to the servicing cost of the debt), and that this has no effect on the economy apart from redistributing income from debtors to creditors. So rising debt is not a problem.Similarly, a debt-deflation then means that current nominal incomes fall, relative to accumulated debt that remains constant. This increases the real value of interest payments on the debt, so that a debt-deflation also causes a transfer from debtors to creditors–though this time in real (inflation-adjusted) terms.Do I have to spell out the problem here? Only to neoclassical economists, I expect: during a debt-deflation, debtors don’t pay the interest on the debt–they go bankrupt. So debtors lose their assets to the creditors, and the creditors get less–losing both their interest payments and large slabs of their principal, and getting no or drastically devalued assets in return. Nobody feels better off during a debt-deflation (apart from those who have accumulated lots of cash beforehand). Both debtors and creditors feel and are poorer, and the problem of non-payment of interest and non-repayment of principal often makes creditors comparatively worse off than debtors (just ask any of Bernie Madoff’s ex-clients).Having dismissed–and barely even comprehended–the best contemporary explanation of the Great Depression, Bernanke is now trapped repeating history. It is painfully obvious that the real cause of this current financial crisis was the excessive build-up of debt during preceding speculative manias dating back to the mid-1980s. The real danger now is that, on top of this debt mountain, we are starting to experience the slippery slope of falling prices.In other words, the cause of our current financial crisis is debt combined with deflation–precisely the forces that Irving Fisher described as the causes of the Great Depression back in 1933.Fisher was in some senses a predecessor of Bernanke: though he was never on the Federal Reserve, he was America’s most renowned academic economist during the early 20th century. He ruined his reputation for aeons to come by also being a newspaper pundit and cheerleader for the Roaring Twenties stock market boom (and he ruined his fortune by putting his money where his mouth was and taking out huge margin loan positions on the back of the considerable wealth he earned from inventing the Rolodex).Chastened and effectively bankrupted, he turned his mind to working out what on earth had gone wrong, and after about three years he came up with the best explanation of how Depressions occur (prior to Minsky’s brilliant blending of Marx, Keynes, Fisher and Schumpeter in his Financial Instability Hypothesis [here's another link to this paper]). In his Econometrica paper, Fisher argued that the process that leads to a Depression is the following:“(1) Debt liquidation leads to distress selling and to(2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes(3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be(4) A still greater fall in the net worths of business, precipitating bankruptcies and(5) A like fall in profits, which in a “capitalistic,” that is, a private-profit society, leads the concerns which are running at a loss to make(6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to(7) Pessimism and loss of confidence, which in turn lead to(8) Hoarding and slowing down still more the velocity of circulation. The above eight changes cause(9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.” (Econometrica, 1933, Volume 1, p. 342)…In its own way, this is a very simple process to both understand and to model…So why didn’t Bernanke–and other neoclassical economists–understand Fisher’s explanation and develop it?Because an essential aspect of Fisher’s reasoning was the need to abandon the fiction that a market economy is always in equilibrium.The notion that a market economy is in equilibrium at all times is of course absurd: if it were true, prices, incomes–even the state of the weather–would always have to be “just right” at all times, and there would be no economic news at all, because the news would always be that “everything is still perfect”. Even neoclassical economists implicitly acknowledge this by the way they analyse the impact of tariffs for example, by showing to their students how, by increasing prices, tariffs drive the supply above the equilibrium level and drive the demand below it.The reason neoclassical economists cling to the concept of equilibrium is that, for historical reasons, it has become a dominant belief within that school that one can only model the economy if it is assumed to be in equilibrium.From the perspective of real sciences–and of course engineering–that is simply absurd. The economy is a dynamic system, and like all dynamic systems in the real world, it will be normally out of equilibrium. That is not a barrier to mathematically modelling such systems however–one simply has to use “differential equations” to do so. There are also many very sophisticated tools that have been developed to make this much easier today–largely systems engineering and control theory technology (such as Simulink, Vissim, etc.)–than it was centuries ago when differential equations were first developed.Some neoclassicals are aware of this technology, but in my experience, it’s a tiny minority–and the majority of bog standard neoclassical economists aren’t even aware of differential equations (they understand differentiation, which is a more limited but foundational mathematical technique). They believe that if a process is in equilibrium over time, it can be modelled, but if it isn’t, it can’t. And even the “high priests” of economics, who should know better, stick with equilibrium modelling at almost all times.Equilibrium has thus moved from being a technique used when economists knew no better and had no technology to handle out of equilibrium phenomena–back when Jevons, Walras and Marshall were developing what became neoclassical economics in the 19th century, and thought that comparative statics would be a transitional methodology prior to the development of truly dynamic analysis –into an “article of faith”. It is as if it is a denial of all that is good and fair about capitalism to argue that at any time, a market economy could be in disequilibrium without that being the fault of bungling governments or nasty trade unions and the like.And so to this day, the pinnacle of neoclassical economic reasoning always involves “equilibrium”. Leading neoclassicals develop DSGE (”Dynamic Stochastic General Equilibrium”) models of the economy. I have no problem–far from it!–with models that are “Dynamic”, “Stochastic”, and “General”. Where I draw the line is “Equilibrium”. If their models were to be truly Dynamic, they should be “Disequilibrium” models–or models in which whether the system is in or out of equilibrium at any point in time is no hindrance to the modelling process.Instead, with this fixation on equilibrium, they attempt to analyse all economic processes in a hypothetical free market economy as if it is always in equilibrium–and they do likewise to the Great Depression…At first, Fisher was completely flummoxed: he had no idea why it was happening, and blamed “speculators” for the fall (though not of course for the rise!) of the market, lack of confidence for its continuance, and so on… But experience ultimately proved a good if painful teacher, when he developed “the Debt-Deflation Theory of Great Depressions”.An essential aspect of this new theory was the abandonment of the concept of equilibrium.In his paper, he began by saying that:We may tentatively assume that, ordinarily and within wide limits, all, or almost all, economic variables tend, in a general way, to ward a stable equilibrium. In our classroom expositions of supply and demand curves, we very properly assume that if the price, say, of sugar is above the point at which supply and demand are equal, it tends to fall; and if below, to rise.However, in the real world:New disturbances are, humanly speaking, sure to occur, so that, in actual fact, any variable is almost always above or below the ideal equilibrium.Therefore in theory as well as in reality, disequilibrium must be the rule:Theoretically there may be—in fact, at most times there must be— over- or under-production, over- or under-consumption, over- or under spending, over- or under-saving, over- or under-investment, and over or under everything else. It is as absurd to assume that, for any long period of time, the variables in the economic organization, or any part of them, will “stay put,” in perfect equilibrium, as to assume that the Atlantic Ocean can ever be without a wave.” (Fisher 1933, p. 339; emphasis added)He then considered a range of “usual suspects” for crises–the ones often put forward by so-called Marxists such as “over-production”, “under-consumption”, and the like, and that favourite for neoclassicals even today, of blaming “under-confidence” for the slump. Then he delivered his intellectual (and personal) coup de grâce:I venture the opinion, subject to correction on submission of future evidence, that, in the great booms and depressions, each of the above-named factors has played a subordinate role as compared with two dominant factors, namely over-indebtedness to start with and deflation following soon after; also that where any of the other factors do become conspicuous, they are often merely effects or symptoms of these two. In short, the big bad actors are debt disturbances and price- level disturbances.While quite ready to change my opinion, I have, at present, a strong conviction that these two economic maladies, the debt disease and the price-level disease (or dollar disease), are, in the great booms and depressions, more important causes than all others put together…Thus over-investment and over-speculation are often important; but they would have far less serious results were they not conducted with borrowed money. That is, over-indebtedness may lend importance to over-investment or to over-speculation.The same is true as to over-confidence. I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt. (Fisher 1933, pp. 340-341. Emphases added.)From this point on, he elaborated his theory of the Great Depression which had as its essential starting points the propositions that debt was above its equilibrium level and that the rate of inflation was low. Starting from this position of disequilibrium, he described the 9 step chain reaction shown above.Of course, if the economy had been in equilibrium to begin with, the chain reaction could never have started. By previously fooling himself into believing that the economy was always in equilibrium, he, the most famous American economist of his day, completely failed to see the Great Depression coming.How about Bernanke today? Well, as Mark Twain once said, history doesn’t repeat, but it sure does rhyme. Just four years ago, as a Governor of the Federal Reserve, Bernanke was an enthusiastic contributor to the “debate” within neoclassical economics that the global economy was experiening “The Great Moderation”, in which the trade cycle was a thing of the past–and he congratulated the Federal Reserve and academic economists in general for this success, which he attributed to better monetary policy:“In the remainder of my remarks, I will provide some support for the “improved-monetary-policy” explanation for the Great Moderation.”Good call Ben. We have now moved from “The Great Moderation!” to “The Great Depression?” as the debating topic du jour.On that front, his analysis of what caused the Great Depression certainly doesn’t imbue confidence. This chapter (first published in 1995 in the neoclassical Journal of Money Credit and Banking [ February 1995, v. 27, iss. 1, pp. 1-28]–the same year my Minskian model of Great Depressions was published in the non-neoclassical Journal of Post Keynesian Economics [Vol. 17, No. 4, pp. 607-635]) considers several possible causes:A neoclassical, laboured re-working of Fisher’s debt-deflation hypothesis, to interpret it as a problem of “agency”–”Intuitively, if a borrower can contribute relatively little to his or her own project and hence must rely primarily on external finance, then the borrower’s incentives to take actions that are not in the lender’s interest may be relatively high; the result is both deadweight losses (for example, inefliciently high risk-taking or low effort) and the necessity of costly information provision and monitoring)” (p. 17);Aggregate demand shocks from the return to the Gold Standard and its effect on world money supplies; andAggregate supply shocks from the failure of nominal wages to fall–”The link between nominal wage adjustment and aggregate supply is straightforward: If nominal wages adjust imperfectly, then falling price levels raise real wages; employers respond by cutting their workforces” (p. 21).None of these “causes” includes excessive private debt–the phenomenon that I hope now even Ben Bernanke can see was the cause of the Great Depression–and the reason why he and neoclassical economists like him are no longer discussing “The Great Moderation”.More on this topic (What’s this?)Marc Faber: “I Think it Might Be Far Worse [Than the Great Depression] Precisely Because of the… (George Washington’s Blog, 1/12/09)A Depression Compendium (Financial Armageddon, 2/1/09)The Fed’s Bubble Trouble Will Cause Rates to Spike and Spawn Hyperinflation (Money Morning, 1/14/09)Read more on Federal Reserve, U.S. Economic Cycles at Wikinvest

Of course, this is what I believe anyway so it is like reinforced circular thinking.. Like they do… But so far I have not heard a decent argument against this set of theories.

blindman • February 12th, 2009 at 8:41 pm

g,i agree. it begs growth at all human cost for the sake of survival of the indebted which isprobably at least to the proportion of 10 to 1 if the reserve is 10 to 1.? it is structurallyantisocial and we then wonder why society is so anti social. by design! fulfilling function.at least if the government of the people was exploiting the citizenry the people would know whereto go to get justice. as it is the bankers are stateless and offshore and global.what a scam. their local front men throw up their hands and say “blame it on the world”.people just don’t get it, we have been thoroughly brainwashed. failure is our only hope. hahah.kill the fed. or stand back and watch them commit suicide.i’m sure they have broken every law known to man so the fbi or justice dept. or sec could step inand expedite the thing if they cared to.

Guest • February 12th, 2009 at 8:43 pm

How interesting that U.S. President Barack Obama was a summer associate in the Chicago office of Sidney Austin LLP, though he never joined the firm as a full-time associate and that he met his wife, Michelle Obama (who was an associate at Sidley Austin at the time), while he was a summer associate at the firm. And that Sidney Austin just happened to be Obama’s eighth largest contributor in his presidential campaign. It’s a small world afterall, isn’t it?

economicminor • February 12th, 2009 at 8:52 pm

Only inflation is a wealth transfer scheme. Debt can be productive OR it can be destructive depending upon how it is used. It is up to the user to not be stupid. A long time ago, the lenders didn’t let you be stupid as they were afraid they wouldn’t get paid back.. Now that the government is the creator of most debt, no one cared and it just got crazy.It really is to bad that government has such a potential to do good but generally does bad. I guess greed and power corrupt to much.

Tom K • February 12th, 2009 at 8:56 pm

A reduction in the standard of living due to currency devaluation affects everybody of course. What will happen is the spreading out of unpayable debts to the entire country. This is not my or someone theory. This is exactly what has happened to ALL countries in history in the same situation as the US. That said, one needs to also observe the following:1) Other countries who have large trade with the US will also get hurt, and they will likely experience a drop of SoL. So that the net SoL drop in the US will be less. Each affected country will find their own solution to combat their SoL hit. Some will stimulate their domestic market, some will diversify trade partners, some will do a crash course in education and create new amazing products. Some will fail to do so and fall further behind.2) What will the US do to combat the big drop in SoL coming? Clearly, there is no financial-led solution, as that strategy (in other word, the series of monetary bubbles) has ran its course and reached its limit (to put it most gentlemanly).What about realignment in international trade? This strategy is now also running into fundamental geographical limit. During the 70′s-80′s, US drove the economy via trade engines of Japan and western Europe. During the 90′s, with the USSR busted, US went into Russia and eastern Europe, plundered like mad dog and made a ton of money. Using NAFTA, US also enjoyed stable trade with Canada and Mexico. Putin has put to a stop to the plunder in his backyard. Then US shifted the engine to China, and made an obscene amount of money from that. (Well, for the corporations Wall Street that is. The highly uneven distribution of wealth from China trade is an internal US problem, not a China trade problem.) That engine has now ran dry because there is no more gas on the consumer side, and because the Chinese government has enough of US debt. *Where can the US go, the next engine?* There is nowhere to go, my friend I regret to say. The global geographical trade limit has been reached for the foreseeable future.3) But there is ONE MORE non-geographic place to go. To salvage something. That place is, yes, the USA itself. The new engine must be the people, the PEOPLE, of the US. Re-create intelligence, inventions, quality, knowledge, productions. Rebuild a true 21th infrastructure of the highest order, smartly designed. This might sound obvious but it is not. This is what the US has abandoned for more than 2 decades, and proceeded to make money by manipulating money what was created out of thin air.This is by no means easy for any of the affect countries hit by the current climate. Certainly not easy for the US. Because so much has been neglected and abandoned. A 75% consumer society by definition produce 25%, and 25% cannot sustain 100%. But is the national choice before 300 million people. There truly is NOWHERE to go, but back to ourselves.

sns • February 12th, 2009 at 9:08 pm

Roubini: you said earlier that you did NOT pull your investments from the market before the recession that you predicted hit. Now in this recent blog you claim to not have any investments in the market. Is the latter due to the former? In other words, despite seeing it coming you LOST money and now have no more investments hence you can claim that “I never trade in markets and so I am never “talk my book” when I present my views.”Perhaps you should better define what you mean by “markets” since you explicitly admitted to losing money in your stock market investments.

blindman • February 12th, 2009 at 9:09 pm

e,debt is need or want. it is part of life, natural. the institutionalization of it, the legalizationof the negotiation of it opens the door to a universe of fraud. all manner of transfers, legitimate, borderlineand outright illegitimate. and..without inflation (wealth transfer scheme) fractional reserve lending collapses at the starting gate.

AfA •