Nouriel Roubini's Global EconoMonitor

Nationalize the Banks! We’re all Swedes Now

From the Washington Post:

The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s — or the United States in the 1930s — the only way to save it is nationalization.

As free-market economists teaching at a business school in the heart of the world’s financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner’s recent plan to save it has many of the right elements, it’s basically too late.

The subprime mortgage mess alone does not force our hand; the $1.2 trillion it involves is just the beginning of the problem. Another $7 trillion — including commercial real estate loans, consumer credit-card debt and high-yield bonds and leveraged loans — is at risk of losing much of its value. Then there are trillions more in high-grade corporate bonds and loans and jumbo prime mortgages, whose worth will also drop precipitously as the recession deepens and more firms and households default on their loans and mortgages.

Last year we predicted that losses by U.S. financial institutions would hit $1 trillion and possibly go as high as $2 trillion. We were accused of exaggerating. But since then, write-downs by U.S. banks have passed the $1 trillion mark, and now institutions such as the International Monetary Fund and Goldman Sachs predict losses of more than $2 trillion.

But if you think that $2 trillion is high, consider our latest estimates at RGE Monitor, the financial Web site that we run: Those estimates suggest that total losses on loans made by U.S. banks and the fall in the market value of the assets they are holding will reach about $3.6 trillion. The U.S. banking sector is exposed to half of that figure, or $1.8 trillion. Even with the original federal bailout funds from last fall, the capital backing the banks’ assets was only $1.4 trillion, leaving the U.S. banking system about $400 billion in the hole.

Two important parts of Geithner’s plan are (i) “stress testing” banks to separate viable institutions from bankrupt ones and (ii) establishing an investment fund with private and public money to purchase bad assets. These are necessary steps towards a healthy financial sector.

But, unfortunately, the plan won’t solve our financial woes because it assumes that the system is solvent. If implemented fairly for current taxpayers (i.e., no more freebies in the form of underpriced equity, preferred shares, loan guarantees or insurance on assets), it will just confirm how bad things really are.

Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and allow lending finally to resume. Of course, the economy would still stink, but the death spiral we are in would stop.

Nationalization — call it “receivership” if that sounds more palatable — won’t be easy, but here is a set of principles for the government to go by:

First, and this is by far the toughest step, determine which banks are insolvent. Geithner’s stress test would be helpful here. The government should start with the big banks that have outside debt, and it must determine which are solvent and which aren’t in one fell swoop to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong.

Second, immediately nationalize insolvent institutions. The equity-holders will be wiped out, and long-term debt-holders will have claims only after the depositors and other short-term creditors are paid off.

Third, once an institution is taken over, separate its assets into good and bad ones. The bad assets would be valued at current (albeit depressed) values. Again, as in Geithner’s plan, private capital could purchase a fraction of those bad assets. As for the good assets, they would go private again, either through an IPO or a sale to a strategic buyer.

The proceeds from both these bad and good assets would first go to depositors and then to debt-holders, with some possible sharing with the government to cover administrative costs. If the depositors are paid off in full, then the government actually breaks even.

Fourth, merge all the remaining bad assets into one enterprise. The assets could be held to maturity or eventually sold off with the gains and risks accruing to the taxpayers.

The eventual outcome would be a healthy financial system with many new banks capitalized by good assets. Insolvent, too-big-to-fail banks would be broken up into smaller pieces less likely to threaten the whole financial system. Regulatory reforms also would be instituted to reduce the chances of costly future crises.

Nationalizing banks is not without precedent. In 1992, the Swedish government took over its insolvent banks, cleaned them up and reprivatized them. Obviously, the Swedish banking system was much smaller than the U.S. system. Moreover, some of the current U.S. financial institutions are much larger and more complex, making analysis difficult. And today’s global capital markets make gaming the system easier than in 1992. But we believe that, if applied correctly, the Swedish solution will work here.

Sweden’s restructuring agency was not an out-of-control bureaucracy; it delegated all the details of the clean-up to private bankers and managers hired by the government. The process was remarkably smooth.

Basically, we’re all Swedes now. We have used all our bullets, and the boogeyman is still coming. Let’s pull out the bazooka and be done with it.

272 Responses to “Nationalize the Banks! We’re all Swedes Now”

MedicFebruary 13th, 2009 at 12:28 pm

Indeed Professor – let’s pull out THAT bazooka! Let’s stop with this stupid, ill-conceived and foolish TARP garbage. We want to know our deposits are in institutions that are SOLVENT. I don’t give a rat’s ass about the stock price – I want to know my bank will be around in 20-30 years. Today, I don’t know that. In fact, today I highly doubt it.Scream it from the rooftops folks. NATIONALIZE and be done with it.

SoftwarengineerFebruary 13th, 2009 at 12:37 pm

E-VERIFY WAS STRICKEN FROM THE STIMULUS BAIL OUTE-verify is almost 100% effective to make sure tax payer dollars [funded by our grand children] go only to legal citizens and those with green cards.THEY DON’T WANT E-VERIFY BECAUSE IT WORSENS HOME FORECLOSURE RATES.The money changers are horrified, they gave illegal loans to illegal aliens and E-verify would stab them in the bank heart. Its that simple in my book, but they’d never admit it. They pretend they’re charitable and for the poor, but they’re as greedy as wolves.Its also very clear, its unfair to pay off anyone’s principle and they’ve already gutted savings’ interest rates to artificially prop RE and destroy retirements [we can’t afford to retire anymore gang]….so what do we do?Nothing, the idiots bought the homes thinking they’d make a killing and the elite want bail outs of foreclosures to keep their McMansions from becoming worthless. Let RE rot.If we’d controlled growth and kept an industrial base with 200,000,000 people in America [no immigration since 1990] we could have avoided this mess.Now our kids go to overpopulated schools with no tax base as they seek to increase the 13.9% unemployment [that’s 22 million of us folks] with giveups and P/T desparates included in the 7.6% unemployment rate post NAFTA figure Clinton dreamed up as window dressing in 1998 [CNN uses the real 13.9% unemployment figure too, as it directly compares to the 17% Great Depression figure].We had a 17% Great Depression unemployment rate, so the 13.9% figure is darn close folks.We don’t need anymore open border clown growth stealing our jobs and lowering our incomes, in the name of charity, but we all know its horrifying greed.Its time for an immediate sabattical from uncontrolled growth immigration in America, for our childrens’ sake and a real environmental green plan that works [status quo, with phony recycling and over-priced hybrids, clearly fails environmentally when coupled with simultaneous uncontrolled population and debt growth].You pro-growth Greenspan economists got a better plan or do you admit like Greenspan recently did that he didn’t know what he was doing?Maybe you should listen to some common sense from an engineer for once. By the way, I’m a greedy homeowner too, but am fighting the impulses.

methinksFebruary 13th, 2009 at 12:41 pm

What happens with insolvent banks will be a political decision not an economic decision. The people in whose interests this society is organized will not give up one dime unless they are forced to by the American people.FDR was fought tooth-and nail by the oligarchs while he was trying to save their system for them.What happens or doesn’t happen will be decided by the American people. It will be determined by how angry they get and how hard they push.This is not about ” great ideas,” it never is.

GuestFebruary 13th, 2009 at 12:44 pm

Speaking of “free-market” economists such as Goldman’s Timothy Geithner, I repeat…Yes, every bank robber has his own self-interest at heart, whether it be Robert Rubin or Willie Sutton.It is estimated that Willie Sutton stole perhaps $2 million in his career, and spent more than half his adult life in prison. My estimate is that Goldman Sachs has stolen $2 trillion and has spent its entire long life wallowing in power, feasting at an epicurean banquet and swaggering around in a “chinchilla robe of sybaritic lavishness.”And just as the Goldman Gang is an accomplished robber of the public purse, so was Sutton an accomplished bank robber. But he didn’t mug old ladies to get their savings while the stupid sheeple cheered him on for eliminating “hoarders.” No, Sutton was of better stuff! He never robbed a bank when a woman screamed or a baby cried.And just as Goldman and Wall Street banksters have been “forced” to live on handouts, er, bailouts, so for a while did Willie. After a series of decisions by the U.S. Supreme Court led to Sutton’s release on Christmas Eve in 1969 from Attica State Prison, he was in ill health and had to live on bailout, er, welfare payments.And true to gangster/bankster form, once a free man, Willie spoke about prison reform and consulted with banks on anti-robbery techniques, just as Goldiman is now consulting with Congress on bank regulatory reform and “stimulus.” What ironic displays of pure chutzpah!Never under estimate the stupidity of the people and their elected representatives. For, as John Dryden said in 1682, “They who possess the prince possess the laws.”

Joe12PackFebruary 13th, 2009 at 12:46 pm

Quoted from

Here is what Taleb and Roubini are telling us with their answer that they keep their money in cash – roughly translated this means “We expect the markets to decline still more. We expect to lose anything we put into the markets. We believe that money is safer in holes in the backyard than in the stock market.”

IncognitoFebruary 13th, 2009 at 1:29 pm

The banking system’s balance sheet is the inverse of the real economy’s balance sheet. That is, if the loan is an asset for a bank, it is a liability for the consumers and businesses. Thus, the situation of the financial sector at any time is almost the mirror image of an economy.Nationalizing the banks will only shift the risk from private to public incentive. The problem today is the inability of the borrowers to pay their debts. As long as the borrowers were able to pay their debts banks would not be in trouble. That’s why it is more important to help the borrowers rather than the banks. Any help to borrowers should be done at the expense of lenders as every agent in an economy is interconnected to a number of other agents in some form. This can be achieved via debt restructuring and taxation of the wealthy.Moreover, there has to be an incentive for businesses to increase their funds so that the default probabilities can be lowered given an improvement in capital. Such an incentive may be achieved if a temporary (or permanent) tax deduction is provided for fund raising and mergers & acquisitions. The government may also reduce the business taxes, and increase the income taxes for the wealthy. By reducing the taxes for businesses, US might attract foreign investment. In this way, the income stream providers (businesses) for the society may be made live longer and job losses may be slowed. In addition, the tax deduction for fund raising will provide a substitution for borrowing.In addition, the current account deficit has to be disciplined in terms of quota securitization for certain transaction amounts and products. Instead of securitizing the loans in an economy it is better to securitize the quotas to let markets to determine the right to import so that there will be a balance between real and fictive assets. If there was an excess credit in US economy, it was also because the borrowing from foreign countries was huge given a large current account deficit.In sum, the aim of an economy is to keep a balance between the capital and loans so that monetary circulation provides an economy wide hedge.

AnonymousFebruary 13th, 2009 at 1:44 pm

The real reason people move here is because American capital has gutted their homes and made it impossible for them to live there. You want closed borders and a resurgence of manufacturing? They want their forests, oil, gold, water rights, and fish back. Think you can broker a deal?The sad reality is, people will always flock to the capital-dense areas when they aren’t allowed to make a living outside the system. When NAFTA came in, and removed protections from all of us, it was really the final exploitative nail in the coffin for all working people, especially farmers. I think it is interesting that you allude to NAFTA and the environment obliquely, but don’t actually say what needs to be done. The ‘open border’ you speak of doesn’t exist. In fact, that is the one NAFTA aspect that doesn’t adhere to free market principles, which demand the free movement of capital AND labor. If we remove NAFTA (which only requires a six month warning from any member state, by the way) and stop allowing capital to seek out and explore the fastest, cheapest, riskiest (and environmentally damaging) investment choices, including currency speculation, maybe people could be happy in their own homes, tending their own land, and being victimized by their own banks.

AnonymousFebruary 13th, 2009 at 1:48 pm

Apologies for the off topic post…Will You Help Me With My Next Film? …a request from Michael Moore>> February 11, 2009>> Friends,>> I am in the middle of shooting my next movie and I am looking for a few brave people who work on Wall Street or in the financial industry to come forward and share with me what they know. Based on those who have already contacted me, I believe there are a number of you who know “the real deal” about the abuses that have been happening. You have information that the American people need to hear. I am humbly asking you for a moment of courage, to be a hero and help me expose the biggest swindle in American history.>> All correspondence with me will be kept confidential. Your identity will be protected and you will decide to what extent you wish to participate in telling the greatest crime story ever told.>> The important thing here is for you to step up as an American and do your duty of shedding some light on this financial collapse. A few good people have already come forward, which leads me to believe there are many more of you out there who know what’s going on. Here’s your chance to let your fellow citizens in on the truth.>> If you have any info that would help, please contact me at my private email address:>> For the rest of you on my email list who don’t work in the financial industry, you’re probably wondering, “What the heck is this all about? I thought he said he was making a romantic comedy!”>> Well, I just can’t say much right now. I’m sure you can understand why. One thing I can tell you is that you’re gonna like this movie when I’m done with it. Oh, yeah…>> So, again, if you work for a bank, a brokerage firm or an insurance company — or if you have seen things or heard things that you believe the American people have a right to know — please contact me at>> Thank you in advance for your help!>> Yours,> Michael Moore>>

GuestFebruary 13th, 2009 at 1:56 pm

How Will Obama’s Deficits Be Financed?By Paul Craig RobertsFebruary 12, 2009 — Who remembers economists’ hysteria over the “Reagan deficits”? Wall Street was in panic. Reagan’s fiscal irresponsibility was bringing the end of the world.The fiscal year 2009 federal budget deficit that Obama is inheriting, and adding to, will be ten times larger in absolute terms than Reagan’s biggest and a much larger share of GDP in percentage terms. Yet, economists are sending up no alarms.Paul Krugman, for example, couldn’t damn Reagan’s puny deficits enough. But today he thinks the deficit can’t be large enough!The central issue of the stimulus and bailout plans is how to finance the massive budget deficit. This issue remains unaddressed by economists and policy makers.As far as I can tell, the government, its advisers and cheerleaders think financing the deficit will be a cakewalk, like the Iraq War.I am tempted to claim that economists’ nonchalance about the massive deficit is an indication that Krugman and the whole lot of them are converts to supply-side economics—”deficits don’t matter.” I triumphed, and economists have become my acolytes. The Nobel Prize will arrive tomorrow.Only we supply-side economists never said that deficits don’t matter. We said that deficits have different causes and consequences. Some are problematic. Some are not, or are less so.Obama’s deficit is problematic. It is a massive deficit, far beyond anything ever before financed on planet earth. It is arriving at a time when pressures on the dollar as reserve currency have mounted from decades of rising trade deficits. The deficit is hitting the financial markets when the rest of the world is in turmoil from ingestion of toxic Wall Street financial instruments. The US must service massive debt when the US economy is hollowed out from the offshoring of manufacturing and professional service jobs. The Obama deficit is a far more serious deficit than the “Reagan deficits.”As President Reagan’s first Assistant Secretary of the Treasury for Economic Policy, my job was to find and implement a cure for “stagflation.””Stagflation” was the word used to describe the worsening “Phillips curve” trade-offs between inflation and employment. The postwar policy of Keynesian demand management relied on easy money to expand employment and GNP and used recession and unemployment to cool down inflation when inflation got out of hand. Over the years, the trade-offs worsened. It took more inflation to get the economy going, and more unemployment to cool down the inflation.This problem worsened during Jimmy Carter’s presidency. Reagan used the “misery index,” the sum of the unemployment and inflation rates, to boot Carter from office.Keynesian economists concluded from the Great Depression that the way to maintain full employment was for the government to manage aggregate demand. If the sum of consumer and investor demand was not sufficient to maintain full employment, government would step in. By running a deficit in its budget, economists thought that government could add enough additional demand to bring employment up to full.The way this policy was implemented was to use easy monetary policy to stimulate demand and high tax rates to restrain excessive consumer spending that could push up inflation. The Keynesian economists did not understand that the high tax rates contributed to inflation by restraining the output of goods and services, while the easy money drove up prices.Keynesians had no solution for the problem their policy had caused, so Congress and President Reagan turned to supply-side economists who offered a solution: restrain demand with tighter monetary policy and increase supply with greater after-tax rewards.Supply-side economics reversed the policy mix of demand-side economists. Instead of easy money and high tax rates, there would be tighter money and lower tax rates… (End of excerpt)GUEST SUMMARIZES: Roberts makes the case that Keynesian economists “bitterly resented the de-throning of their orthodoxy” and explains how, in his view, Paul Volcker was part of the problem misreading the Reagan tax rate reductions as a Keynesian stimulus to consumer spending that would worsen inflation…and instead of giving the supply-siders the gradual reduction in the growth of the money supply they wanted, he slammed on the money brakes.“The economy went into a serious recession just as Reagan’s tax cuts passed,” says Roberts. “The embittered Keynesians wanted to blame the recession on the tax cuts, but that was inconsistent with their own analysis. So they seized on the deficits that resulted from the recession and blamed the tax cuts. ( Read the full explanation ~) Roberts:The “Reagan deficits” thus resulted from the unanticipated collapse of inflation. As inflation came in below forecast, nominal GNP came in below forecast. Thus, tax revenues were less. But appropriation bills are in nominal dollars, which meant that real spending was greater than intended because inflation was less than forecast.Wall Street believed that the “Reagan deficits” would cause inflation, but, of course, they did not cause inflation as they were the consequences of the collapse in inflation.This shows how totally wrong conventional opinion can be even when it tries to think. Today no policy maker or establishment economist is thinking at all.The “Reagan deficits” were neither financed by printing money nor dependent on recycling of surplus dollars by trading partners. The deficits were no threat to the dollar, which was thought to be too strong. The increased after-tax return on investment reduced the flow of US capital abroad, and we financed our own deficit.This brings us back to the original question: How is the Obama deficit going to be financed?

ex VRWCFebruary 13th, 2009 at 2:54 pm

Nationalization may be unavoidable but…Why do we continually cite the experiences of single countries that have dealt with banking crises in the past as a model for what to do in a global crisis in the present? Typically, countries that have trouble end up exporting their way out of it, as has happened in Asia. In a global downturn, this tactic cannot be expected to work. Therefore bank nationalization is only a small part of the solution, and probably the easiest one. Much more difficult is the redesign of the economy to be sustainable and more stable in the future.Nationalization merely provides a vehicle for orderly writedowns of debt. It allows the government to better manage the process of deleveraging. But it does not solve the fundamental problem of too much debt that has to deleverage. And it will not be free of cost. When the people pitching this say the bad assets could be held and eventually make a gain for the taxpayer, they are blowing smoke. The cost of any so called ‘fix’ will be enormous.

GuestFebruary 13th, 2009 at 2:59 pm

I ain’t no Swede…”Sweden and the Myth of Benevolent Socialism” by David Dieteman (March 13, 2001)”I was walking through Gamla Stan, the Old Town in Stockholm, when it struck me that Sweden was the only country I’d ever been in with no visible crazy people. Where were the mutterers, the twitchers, the loony importunate?”P.J. O’Rourke, Eat the Rich, Ch. 4Sweden is the poster state for those who believe in the power of the government to solve all problems.Frequently referred to as a “benevolent” socialist or social democratic state, to distinguish it from the run-of-the-mill socialist butcher shop, such as Cuba, China, North Korea, the USSR, and most of Africa, Latin and Central America, and Asia, Sweden is the Promised Land of the Left. Where the USSR was a departure from the genius of Karl Marx, Sweden shows the potential.(As an aside, O’Rourke notes that the US ambassador to Sweden at the time of his visit was Thomas Siebert. He was Bill Clinton’s roommate at Georgetown. O’Rourke also notes that Mrs. Siebert is a friend of Hillary Clinton. Americans can stop wondering where the most intelligent and courageous female politician ever known finds inspiration for her collectivist dreams.)As usual, the rosy picture painted by the Left could not be farther from the truth.First, assume that everything the Left has to say about Sweden is true. This would only make Sweden the exception which proves the rule. In other words, even if Sweden were heaven on earth, this fails to answer the question of why Cuba, China, North Korea, the USSR, and most of Africa, Latin and Central America, and Asia are much more akin to Hell on earth.Second, it must be noted that the touted stories of Swedish socialism, if not generally false, omit important facts.For starters, unlike the godless state to which American leftists aspire, Lutheranism is the state-supported religion of Sweden. (Despite this fact, less than 10 per cent of Swedes regularly attend church.)With respect to claim that Swedish socialism shows the “success” of socialism, as O’Rourke notes, free trade reigned in Sweden from roughly 1846 until the Social Democrats were elected in 1932. After 1932, Sweden was helped by its neutrality in World War Two. Unlike Germany, Sweden’s major cities were not bombed flat. The Social Democrats, then, had a great deal of wealth produced by capitalism and undamaged by war to share as political spoils.According to a Swiss federal government statistical comparison of Switzerland and Sweden, the percentage of Swedish unmarried pregnancies in 1996 was 54% percent – roughly equal to the black community in the United States. The reason for this high rate of unwed pregnancies is apparent in both cases, and it is not illegal drugs: the state gives incentives to unwed mothers in the form of social benefits, with predictable results. Why go through the hassle of getting married or staying married when a government check means that such a decision has no practical consequences for your life? Over the long-term, a 54% illegitimacy rate can only undermine Swedish society.Worst of all, the Swedes have not always acted benevolently, as reported on page A1 of the August 29, 1997, Washington Post,From 1934 to 1974, 62,000 Swedes were sterilized as part of a national program grounded in the science of racial biology and carried out by officials who believed they were helping to build a progressive, enlightened welfare state…In some cases, couples judged to be inferior parents were sterilized, as were their children when they became teenagers.Margot Wallstrom, the Swedish Minister of Health and Social Affairs, told the Post that “there was nothing secret about the sterilization program. It was carried out in the light of public debate at a time when Swedes believed they were creating a society that would be the envy of the world.” The Swedish Institute for Racial Biology, founded in 1922, was the first national institute of the kind. The Swedes were also the first to sterilize the mentally ill, beginning in 1934.One woman, aged 72 at the time of the Post article, was sterilized “because she couldn’t read a blackboard because she did not have eyeglasses and was deemed to be retarded.”The Post also reports that Dagens Nyheter, the Swedish newspaper which ran a multi-part documentary of the sterilization program, contended that the ruling party at the time – the Social Democrats – “accepted the policy as an essential part of their overall philosophy.” This claims is supported by the fact that, as noted above, the Social Democrats came to power in Sweden in 1932. In other words, they waited a mere two years before embarking on a program of eugenics. This would appear to make the eugenics program a high priority for the Social Democrats, as Dagens Nyheter contended.The Irish Times of August 30, 1997, meanwhile, reports that “90 per cent of [those sterilizied] were women,” and that “the practice, which predated and outlived Nazi Germany, started as an attempt to weed out perceived genetic weaknesses, mental or physical defectsand ended as a method of social control.” According to Professor Gunnar Broberg, “Young girls were told they would be set free from [mental] homes and prisons ‘if we are allowed to make you calmer.’”Interestingly, among the supporters of the sterilization program were Gunnar and Alva Myrdal, according to a 1991 Swedish radio documentary produced by Bosse Lindquist. Gunnar Myrdal was a socialist economist who shared the 1974 Nobel Prize for Economics with Friedrich Hayek. Gunnary Myrdal has also been praised as a “pioneer” in race relations.Unfortunately, sterilizations are just the tip of the iceberg. As the Irish Times and Agence-France Presse reported on April 7, 1998, a Swedish Television documentary reveals that Sweden lobotomized perhaps 4500 “undesirables,” in some cases without the consent of their families:Some 500 lobotomies were conducted on patients who were not from mental hospitals…including a seven-year-old boy in Umeaa in northern Sweden in 1949. Diagnosed as “mentally retarded, hyperactive”, he died during surgery.”…One man featured in the documentary, who was lobotomised in 1963, is now 67 and has no concept of time, still believing that his children are small.In part, the benevolent socialist government of Sweden hoped to discover whether “lobotomies could cure alcoholics and criminals.”Sweden also “forced hundreds of ‘mentally deficient’ Swedes to let their teeth rot after being force-fed candy in dental experiments.”The allegedly “benevolent” Swedish social democrats, then, behaved very like the Nazis…Since the Swedish revelations, other apparently “clean” countries have found similar skeletons in their cupboards…Europe and the rest of the world indeed ought to face facts and admit their hypocrisy where eugenics and human rights are concerned.Europe and the rest of the world should also give up their search for a magical socialist solution to the material conditions of human existence.As Ludwig von Mises writes in The Anti-Capitalistic Mentality, it is capitalism – based upon individual liberty and private property – which has materially advanced human life from mud huts and horrific infant mortality rates to the comfort in which much of the world lives today.It is also in capitalist nations – where the right to liberty and the right to property are protected – where men and women have been comparatively free from the eugenic nightmares of other nations. Although prisoners and “mental deficients” were sterilized in the United States, such programs never reached the levels they reached in Sweden, let alone in Germany under the National Socialists.Mr. Dieteman is an attorney in Erie, Pennsylvania, and a PhD candidate in philosophy at The Catholic University of America.

snsFebruary 13th, 2009 at 3:12 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.

Forensic economistFebruary 13th, 2009 at 3:27 pm

Legal news from California – co-incident indicators of recessionFrom the Contra Costa County Times Bar Association magazine:1. A new law fines owners of vacant homes (ie banks) up to $1000 a day if the house is blighted.2. Bankruptcy filings, after dropping in 2006 jumped 65% in 2007 and 68% through 10/08 in Northern California3. Estate tax issues have become less common as assets shrink.4. In family law (ie divorce law)a.we may see more domestic violence as people who would otherwise separate continue to live under the same roof because no one can afford to move out.b. Family law might not be a good field as the assets to split shrink in value, leaving less for attorneys’ fees.5. Employment law will be a growth field as employers terminate a disproportionate number of the disabled, older workers and minorities. Smart clients will consult an employment attorney before laying off workers.6. Clients are getting increasingly annoyed with high legal fees. Quote: “you billed me for reading my holiday card to your firm?”7. Mediation – faster and cheaper than litigation – will be a growing field.

OrionFebruary 13th, 2009 at 3:30 pm

Dr Roubini, Obama (aka the Mesiah)obviosuly thinks you are way off base; the article;PRESIDENT OBAMA: Well, you know, it’s interesting. There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what’s called “The Lost Decade.” They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn’t see any growth whatsoever.Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you’d think looking at it, Sweden looks like a good model. Here’s the problem; Sweden had like five banks. [LAUGHS] We’ve got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would — our assessment was that it wouldn’t make sense. And we also have different traditions in this country. <end quote>I personally have more faith in your suggestion that is also based on work done by others on many countries in crisis.

The SwedeFebruary 13th, 2009 at 3:57 pm

Yes most of what you write is true. But we could also discuss your treatment of the native people from whom you stole the land.You should not throw stones when you are sitting in a house of glass as the swedish saying goes.

ex VRWCFebruary 13th, 2009 at 4:10 pm

America would not live as the Swedish do:- Like most European countries, the vast percentage of the population is housed in apartment blocks.- On a a bus near Gripsholms Slott, I climbed aboard. The sign read “700 Kroner fine for not buckling your seat belt”. On a bus.- Ride any commuter train and look at the people on board. I have never seen so many long faces. And this was at Midsummer, not in the dead of winter when there is no sun.On the plus side, the people were friendly enough. But travel in any European country, and get past the tourist sites. You will observe a lifestyle that most Americans would not accept, despite the extensive social welfare states they boast.

PeterJBFebruary 13th, 2009 at 4:39 pm

Talking about “stimulus” or what “leadership” erroneously wants us to believe is what their new “policy” (hah) is going to be:From Mish (as always profound, succinct and factual):Context: Have Your Cake And Lend It Too”Two arms of the government are saying exactly the opposite thing – it’s ridiculous,” added Melvin, who is also chief investment officer at investment firm C.S. McKee.I have commented on this before and the error in the above statement is the number “Two”, as the multi-headed Hydra takes that which it gives and gives to itself what it takes; smoke and mirrors.The heart of the socio-economic force is honest and most powerful and has said, to that pack of sewer rats that comprise “leadership”: ‘enough, we are fed-up with your incompetence, your lies, your stupidity, your self-agenda, your total lack of morality, your deceit, your dishonesty, so our message is, we the consumer, don’t heed you anymore; you may have the superficial flares of our emotions but that is not our heart; our core; Your time has come; you are done, we are going to burn this milking shed to the ground and then we are going to re-build.’ “Be-gone”!Energy is a wonderful Universal force and phenomenon that permeates all that we know and obeys the inviolate Laws of Thermodynamics and not the mere commands of those pitiful mortals that seek to scam their fellow man.We should know this because it is what we are.It’s physics; pure physics.Ho hum

PeterJBFebruary 13th, 2009 at 4:54 pm

I believe the answer was recently made by Mr Geithner who apparently said (warned)that results will take some time before the new policies kick in, or words to that effect.IOW, he infers that some day they (he) will get it right; one day! Time!Ho hum

PeteCAFebruary 13th, 2009 at 4:56 pm

I’m starting to sound like a broken record … but here goes:It is NOT possible to have an enormous global derivatives system that is built on top of the foundation of an insolvent banking system. The system is guaranteed to collapse. PERIOD.At this stage – the US Gov’t should be taking emergency action to order all the big Wall Street banks to close out their derivatives trades. Pronto. This fiasco has gone on for far too long. They need to shut it down, before the entire global banking system implodes.It is useless at this stage to keep running around trying to find ways to prop up the US housing market. We’re way past that point. The free market is performing the adjustment that is necessary – without anyone’s help or interference.Pres. Obama and his economic advisors need to focus on the real problem, and move quickly.PeteCA

redlegFebruary 13th, 2009 at 5:06 pm

And it sure is hard to bury the jars when the fround is frozen. That’s why I stuff cash into the sofa cushions!

redlegFebruary 13th, 2009 at 5:12 pm

I noticed last night that a bill was introduced in the US House that would ban naked CDS’s. I don’t have a link right now, but it looked like a step in the right direction should it get enacted

GuestFebruary 13th, 2009 at 5:18 pm

Sometime this year, taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:Q. What is an Economic Stimulus Payment?A. It is money that the federal government will send to taxpayers.Q. Where will the government get this money?A. From taxpayers.Q. So the government is giving me back my own money?A. No, they are borrowing it from China. Your children are expected to repay the Chinese.Q. What is the purpose of this payment?A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.Q. But isn’t that stimulating the economy of China ?A. Shut up.

GloomyFebruary 13th, 2009 at 5:22 pm

Of course you are correct. But certainly nothing of the kind will occur. Common sense and clear thinking are unwelcome by TPTB, who are busy looting and trashing our nation. The sheeples watch silently with big eyes. Sit back, have a beer, and watch this hopeless charade unfold. And laugh and cry at the human tragedy.

nik og jayFebruary 13th, 2009 at 5:49 pm

Americans are going to have learn to lives they can afford whether they like it or not. No more ‘chateaus-to-go’.Bet in 5 years time most Americans would be happier to live in Sweden than what they’ll have; New orleans stretching from sea to shining sea.

GuestFebruary 13th, 2009 at 5:52 pm Teresa Ghilarducci of the New School has designed a promising and plausible plan (available at the Economic Policy Institute’s website,, or in her book When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them). With payroll savings of 5 percent and government-guaranteed returns on investment, average workers could count on pensions that would replace 70 percent of pre-retirement earnings when combined with Social Security. Low-wage earners could be subsidized by government to make up for inadequate pay. Private retirement plans that collect a higher percentage of pay and provide higher benefits could continue, so long as they exceed the federal standard. One great virtue of this approach is that nobody gets left behind, dependent on charity, the predatory instincts of the financial system or the magic of the marketplace.

nik og jayFebruary 13th, 2009 at 5:58 pm

this is ridiculous : propaganda from 2 failing systems.a–laissez faire capitalismb–the catholic church (was raised a Catholic)PJ O’Rourke was funny in the 80s now he is boring drunk spewing out the same GoP tax cut cliches. Yawn.The experience of being poor, sick, mad etc would be preferable in Sweden to the US.Any society will provide myriad anecdotes of bad, mad and dangerous treatment of the weak etc. How about some stories from black people in New Orleans???

GLOOMYFebruary 13th, 2009 at 6:16 pm

KEEP YOUR EYE ON THE BALLI’m talking about the end game. Which is now starting. Beginning with the popping of the treasury bubble, to be followed by monetizing of debt, to be followed by dollar collapse. Finally culminating in a massive gold bubble.Feb. 13 (Bloomberg) — Treasuries fell, pushing yields on 10- and 30-year securities up the most in two weeks, as bond dealers sought to find buyers for the record $67 billion in notes and bonds the government sold this week.“What’s really driving the market today is the digestion of the Treasury supply,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “It’s more than offsetting the news on the economic-data front with the drop in consumer confidence.”The U.S. will probably borrow $2.5 trillion during the fiscal year ending Sept. 30 as the budget deficit swells amid programs to thaw credit markets and revive the economy, according to primary dealer Goldman Sachs Group Inc. That’s almost triple the $892 billion in notes and bonds the government sold in the prior 12 months.

GloomyFebruary 13th, 2009 at 6:27 pm

The Bank of England’s Governor admitted yesterday that Britain is now in “deep recession” and signalled that it is ready to start “printing money” as soon as next month in aggressive, last-ditch moves to limit the slump.Mervyn King indicated that the Bank is poised to move beyond relying on further interest rate cuts to combat recession. It will give a green light within weeks to a strategy of “quantitative easing”, the modern equivalent of printing money, he made clear.

GuestFebruary 13th, 2009 at 6:31 pm

I didn’t mean to throw stones — I meant to criticize socialism. I like Swedes – a very handsome people and, I presume, peaceful people. But I hate socialism, whether Swedish or Cuban or Marxist. I like a market-steered economy and a government where the state, that social apparatus of coercion and compulsion, does not interfere with the market and with the citizens’ activities directed by the market. I don’t want a production czar or a population czar.The state, as Ludwig von Mises says, “cannot conjure away the scarcity of the factors of production, it cannot make people more prosperous, it cannot raise the productivity of labor. All it can achieve is to prevent gangsters from frustrating the efforts of those people who are intent upon promoting material well-being.”And America is failing even to do that as she heads hellbent into socialism to protect a bankster system of finance. And that’s why I am not a Swede: I don’t want to go there. The history of America and the Pilgrims and the Indians and the U.S. Calvary is a big subject…and we can discuss our “treatment of the native people from whom [we] stole the land,” if you wish, and even Norway’s investments around 1900 to 1940 to wipe out the Sami culture. But neither of these stories comes near socialism’s history of atrocity on its way to its the final step — communism.Is America to use banksterism and alleged “financial crisis” to exchange her economic freedom for dictatorial government, to free the police power of the state?As Mises said, “A man is free as far as he shapes his life according to his own plans. A man whose fate is determined by the plans of a superior authority, in which the exclusive power to plan is vested, is not free…”We’re not “all Swedes now.” I am not a Swede.

BossFebruary 13th, 2009 at 6:37 pm

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.Thomas Jefferson, (Attributed)

ksivaFebruary 13th, 2009 at 6:46 pm

I don’t believe banks are insolvent if the underlying on their toxic assets start performing. In order for that to happen we ALL need to restore confidence in capitalism; shaking-up the banking system will create more waves, viz Sept’08 Lehman et al. Roubini and hedge fund community have notional trillions at stake via CDS bets. Those CDS will be void if no defaults! Voila.

FEDupFebruary 13th, 2009 at 6:49 pm

DEMAND AND YOU SHALL RECEIVEI demand that every single American family and worker (100 million) receive an equal share of the 10 trillion dollars the our govt has already spent or guaranteed to big business. That means we all get 100,000 cash which we can use to pay off our debts, save or spend. This would immediately stimulate the economy and restore the stability of the non reckless banks. And, if our great and wise leaders decide to spend 20 trillion, that’s fine also, then we each get 200,000. In fact, let rich Uncle Sam spend as much as he wants; as long as it goes DIRECTLY to the people. But you may worry about businesses failing and making the crisis worse; I don’t think so. Businesses fail all the time and if there is a demand, a new business replaces it. With 100-200k each, I don’t think we’ll have any problem starting new businesses to replace the poorly managed ones. And we can do it WITHOUT taking out loans from those wonderful megabanks that are always there to help the little guy. The only problem I see with my proposal is that it would destroy many of the elite’s business empires and give all Americans a fair chance in life by getting back all those taxes we have paying into the system for so long on everything imaginable and unimaginable. And believe it or not, if all American united and demanded this compensation from our govt., they would have to comply. You may call me crazy, but you couldn’t call me poor!

GuestFebruary 13th, 2009 at 6:50 pm

What we see from the DC/Wall St mob is CORPORATISM, not socialism. Another term for corporatism is fascism.

nik og jayFebruary 13th, 2009 at 7:00 pm

before criticizing socialism maybe find out what it is. Sweden is not a socialist country.If you think it equates to Cuba you are dim.

Jason BFebruary 13th, 2009 at 7:23 pm

I had some serious reservations about posting this, since fear and rumor start bank runs. But;1. This blog has been very valuable to me, I am absolutely sure of this, and I want to give back.2. I am not the only one saying this3. This blog does not have enough audience to create a bank run.the TARP and bank recapitalization is clearly not working. The US is going to have to nationalize the banks. This may happen in the next few months. This means they will be shut down for a banking holiday, triaged, and some will go into FDIC receivership. There is some doubt that the FDIC has the funds to make all depositors whole in this situation, since last year they in essence said they did not. In fact, an “Insurance fund” doesn’t actually exist at all. So at best you may not have access to your funds for several days, at worst you may never get it back.I would advise removing some or all of your money from the bank, or at least spreading it among several safe banks.

GuestFebruary 13th, 2009 at 7:30 pm

So the “open border” doesn’t exist? And the “real” reason that 42,687,224 Hispanics by the 2005 Census estimate have ”moved” here “is because American capital has gutted their homes and made it impossible for them to live there [in Mexico].”And all that these 42,687,224 people want back is “their forests, oil, gold, water rights, and fish.” And could we broker a deal?Well, yes. I think Americans would give back all those things that they have in their individual possession, particularly the fish, so that the Hispanics can “move” back home to Paradise and their benevolent government and its pristine stewardship of resources. And, then, perhaps, our government and bankers will give us back all the subsidies we’ve paid and are paying to the Hispanics on their underwater mortgages, schooling, food stamps, utilities and property taxes, crime damage, Medicaid, IRS cash returns-instead-of-tax -payments, and for their low corporate wages doing the jobs that formerly paid us a living wage. And then, maybe, ”we’ll” be allowed to make a living and not have “our” homes gutted and “our” jobs commandeered – by international banker capital, by global corporate capital and by “our” one-way socialism for Wall Street government.Go for it, Anonymous. You can be our ombudsman. After all, on a global plantaton, there’s really no place left to go, is there?

GuestFebruary 13th, 2009 at 7:49 pm

I can’t wait for the movie I love Michael Moore movies anyway but the bankers ripping off society has angered me more than any injustice I’ve witnessed to date so there should be lots of brilliant material for a great movie-people are outraged. But unfortunately websites like these don’t reach large scale audiences at least the average American anyway, and a Michael Moore movie might help do that better. I’ve been doing my part with letters to congress and bumper stickers etc. But the general public has no idea how badly they’re getting screwed right now, so we need this movie ASAP! Hurry!

GuestFebruary 13th, 2009 at 7:57 pm

We all get that we know it’s no panacea and the pain we’re going to endure but the thought of private bankers getting one more cent from us makes us sick with anger!!!!!!!!!!!!!!!!!!3 Cheers for the courageous Professor.

MichelleFebruary 13th, 2009 at 7:59 pm

The media claims that Geithner’s banking plan (non-plan)was the reason for Tuesday’s stock market sell-off. I keep repeating that watching for CDS auctions will tip off what’s really happening behind the scenes. Gee, could it be a Nortel CDS auction that caused the plunge??? How many more of these auctions can we endure before investors just stay clear of ALL markets and store cash under their mattresses?I concur that CDS and all derivatives be purged from the system and fear a financial collapse if left unattended. What I have observed so far is that the derivatives market is shrinking and I believe investor demand will eventually lead to a non-viable market. This is my hope, and I see signs that Congress is finally waking up to the systemic risks of derivatives.Something wicked this way comes, I sense. We will see what happens in mid-March, but I hope for everyone’s sake that you have prepared for a chain of events that will make last fall look like a cake walk. Too many signs that are pointing to disaster, and I just hope I’m wrong. Prepare my friends.

GuestFebruary 13th, 2009 at 8:02 pm

You can feel the “N” word in the air. It is gradually creeping into the MSM. The balloon has been floated and, somewhat surprisingly, it hasn’t created the shock and awe that I thought it would. Professor Roubini’s posts of late seem to suggest that the Obama Administration may be inching toward facing the prospect that nationalization might have to be seriously considered.With the size of the U.S. deficit as large as it is and with the bond market very jittery and skeptical of the long term solvency of the U.S. government, I think people need to be concerned about whether the FDIC can make whole all covered deposits. It is the big banks that appear most likely to be nationalized and they have huge amounts of deposits to be covered by the FDIC. At best, it is likely to take the FDIC a long time to get the money back into the hands of depositors.The world is drowning in debt. Depositors are merely creditors of the banks. It appears highly likely that there is going to eventually have to be a massive restructuring of debt across the globe and in all sectors of the global economy, and I suspect that includes debt owed by governments, debt owed by banks, debt owed by businesses, and debt owed by consumers. As I see it, this debt restructuring doesn’t necessarily have to be earth shattering and tumultuous. However, to avoid this, the world is going to need some extraordinary leaders to step up and convince Wall Street and the Banksters and the Big Businesses and the Little Businesses and the Consumers to GROW UP AND BE ADULTS FOR A CHANGE! A very difficult task, at best, but it must be done.

GuestFebruary 13th, 2009 at 8:02 pm

I can’t believe the Liaise Faire zealots dare to raise their heads. Our country is in ruins and they still dare? We need to kick Rush off the air not through censorship but by breaking up the evil media monopolies and the radio empires that have brainwashed our public.

GuestFebruary 13th, 2009 at 8:09 pm

ARBETE OCH TRYGGHET at alla ARBETAREPARTIET: Work and safety, for all! the Social Democratic poster from the election, 1936, still holds. The Social Democrats have dominated Swedish politics for almost a century and the basic message is still the same, says Wikipedia.And, unlike America, the last war in which Sweden was directly involved was in 1814, when Sweden by military means forced Norway into a personal union with Sweden, a union which lasted until 1905. Since 1814, Sweden has been at peace, adopting a non-aligned foreign policy in peacetime and neutrality in wartime. Therefore, she does not have to maintain a defense, but can piggy back on the good will of allies if danger threatens.However, Sweden is big on revolution, i.e., sexual “revolution.” This from Wikipedia: “Throughout the 1960s and 1970s Sweden was seen as an international leader in what is now referred to as the sexual revolution, with gender equality having particularly been promoted. At the present time, the number of single people is one of the highest in the world. The early Swedish film I Am Curious (Yellow) (1967) reflected a liberal view of sexuality, including scenes of love making that caught international attention, and introduced the concept of the “Swedish sin”. Sweden has also become, in recent decades, fairly liberal regarding homosexuality, as is reflected in the popular acceptance of films such as Show Me Love, which is about two young lesbians in the small Swedish town of Åmål. In the absence of legislation on same-sex marriages, Sweden offers both registered partnerships and domestic partnerships for same-sex couples. Cohabitation (sammanboende) by couples of all ages, including teenagers as well as elderly couples, is widespread although in recent years it has become administratively problematic with regard to proof in claims of “spousal” social security. Recently, Sweden is experiencing a baby boom.”And, not to be forgotten, the Nobel Prize comes from Sweden, from the inventor of dynamite, Alfred Nobel.So, I have looked into what Sweden is…and I’m still not interested. And, oh, is it still true that your tax rate on the workers is still 80 percent: perhaps this makes Sweden 20% capitalistic?

GuestFebruary 13th, 2009 at 8:13 pm

Everyone keeps talking about the “N” word and I know we finally got a black president in office and all but in reality we’re all still “niggers”. Slavery never ended Obama is just a ruse to hide the fact that we’re all slaves to the bankers!!We need another civil war!

subgeniusFebruary 13th, 2009 at 8:22 pm

Interesting article:The Complexity TheoryA discernible change is taking place in the forum of environmental awareness. As the subject matures and our insights deepen, specific concerns are now accompanied by a general uneasiness as leading philosophers and scientists begin to examine the structure of our modern civilization and question its viability. One of these new avenues of consideration is Complexity Theory.Complexity Theory argues that societies become progressively more unstable and vulnerable as the network of interconnections within them increases — not particularly good news for a globalizing system in which increasing complexity is precisely the thrust of economics, finance, manufacturing, technology and almost everything else we do. The sobering implications may explain why many proponents of Complexity Theory preface their comments with an apology. “We don’t want to tell you this,” goes the essence of their message, “but we think you should know.” When the New Scientist published two articles on Complexity Theory (Apr. 5/08), its editor anticipated some reader discomfort. “We are predisposed to pay attention to bad news,” noted the editorial. “There is a good reason for this. We need to be warned of difficulty and danger so we can protect ourselves…. [But] if the warning is too scary or distressing, we attack the messenger as a doom monger.”Complexity Theory comes with its hint of doom, ominously reminding us that no civilization has ever survived the stresses of history, with the possible exception of China and Byzantium — in a much reduced state for 450 years following the 15th century Arab invasions. But Sumer, Persia, Egypt, Greece, Maya and even Rome all collapsed, primarily because they succumbed to overwhelming complexities.Joseph Tainter, writing in The Collapse of Complex Societies, explains why. “For the past 10,000 years, problem solving has produced increasing complexity in human societies” (Ibid.). Food production is a classical example. Each time people find the solution to a food shortage — irrigation, fertilizer or plants with higher yields– the population rises to meet the food supply and the next problem to solve is more complicated and challenging. Every solution adds extra levels of organization, complexity and interdependence, which adds inefficiency and diminishing returns for the total amount of energy expended.Progress is a process of perpetual problem solving, with each new solution adding more specialists and more layers of peripheral tasks that don’t directly address the problems being solved. A civilization finally peaks at its maximum level of complexity when all its efforts are being used just to maintain its equilibrium. Then an unusual adversity arises: invaders, crop failure, disease, climate change, depletion of a critical natural resource, or anything that stresses a structure already precariously balanced. Then the civilization collapses and reorganizes itself at a simpler level.Civilization’s simplest structure is the hunter-gatherer tribe, a hierarchy with one leader and a few followers. Feudal societies are based on the same linear model. This explains why the catastrophe of the Black Plague of 1348 could kill about a third of Europe’s population without a discernible effect on the society’s stability — 80% of the people were peasant farmers so the system simply shrunk but held together.Tainter contrasts this with a similar plague and death rate that struck the Roman empire in 170 CE. Although also hierarchical, the Romans had huge urban populations that were wholly “depended on peasants for grain, taxes and soldiers” (Ibid.), and a complex infrastructure of administrators, builders, labourers and slaves. The weakening of these lateral connections compromised the empire’s structure and set in motion an unstoppable and fatal decline.Compared to the Roman empire, the networks of interdependence in our present global systems are orders of magnitude more complicated — and comparably less resilient. Efficiency, the hallmark of modern economics, is precisely the fine tuning of higher levels of interdependence to minimize duplication and waste. Think of manufacturing with just-in-time delivery systems, or cities which typically store only a three-day supply of food, or hospitals which rely on the daily arrival of drugs, blood and oxygen — Michael Osterholm of the University of Minnesota reminds us that “most medical equipment and 85% of US pharmaceuticals are made abroad” (Ibid.).Now imagine the consequences if one link were removed from this network of interdependence. If truck drivers stopped delivering supplies to factories, cities and hospitals. If refineries did not make fuel for trucks. If tankers or pipelines could not send oil to refineries. Or if a highly infectious pandemic kept truck drivers from delivering anything anywhere. The same fear could ground all airplanes. A study by Warwick McKibben of the Lowry Institute for International Policy in Australia calculated that a pandemic equivalent to the Spanish flu of 1918 would kill 142 million people today and cause a 12.6% crash in global GDP — the flu killed 3% of those infected compared to the 63% that could die from an H5N1 bird flu pandemic (Ibid.). Or, to be less hypothetical about the failings of complexity, we are now learning what happens to the global economy when a few decisions to allow unsupported mortgages in the United States infects the entire international financial system.Complexity Theory is an uncomfortable subject, particularly given the unsettling stresses we are measuring in food production, climate change, resource depletion, ecosystem damage, pollution and population growth. But the theory has its saving graces. It does make us more aware of our vulnerabilities. And it does argue for simplification and local self-sufficiency, particularly for essentials such as food supply and energy production. The incentive to begin thinking and acting with foresight should compensate for the need to be apologetic.

GuestFebruary 13th, 2009 at 8:31 pm

Laissex faire does not mean: Let soulless mechancial forces operate. It means: Let each individual choose how he wants to cooperate in the social division of labor; let the consumers determine what the entrepreneurs should produce. Planning means: Let the government alone choose and enforce rulings by the apparatus of coercion and compulsion. Ludwig von MisesSo you see, the question comes down to whose planning? As Mises asks, “Should each member of society plan for himself, or should a benevolent government alone plan for them all? The issue is not automatism versus conscious action; it is autonomous action of each individual versus the exclusive action of the government. It is freedom versus government omnipotence.”The Federal Reserve System is a central bank of private shareholders, a cartel of central planners with a Board of Governors. It is currently America’s great god State. The Fed would agree with you: laissez faire must be rejected.”Laissez faire means: Let the common man choose and act; do not force him to yield to a dictator.”The common man told the Congress he did not want a bailout of the investment bankers. Bush, Obama, Frank and Dodd, and Paulson and Geithner, said you will bail out the banks. The common man still says he does not want the investment bankers bailed — and again the common man is being forced to yield — to the dictator — to the great god State.

GuestFebruary 13th, 2009 at 8:39 pm

This is not a crisis of confidence.All banks are dead, living like zombies now because of the derivatives beast, underlying will not perform inflating the economy. Face reality.if everybody pys its debt there will be no money in circulation, this must end ! The derivatives must end.The banking must die ! For me , and for the world.

GuestFebruary 13th, 2009 at 8:43 pm

Voluminous police reports through the years chronicle my wailing and screaming in fear, often far into the night, as neighbors and family complain until the police come by the house in their squad cars to investigate, like I am so stupid that I don’t know enough to shut up when I see them coming! Morons!But my distress is because of the same thing that has been haunting me for years: inflation in the money supply always portends inflation in the price of something, and then inflation in the prices of some things, and then inflation in the prices of all things as all that new money and credit is injected in to the economy, going round and round, bidding up the prices of a fixed-in-the-short run supply of goods and services, higher and higher until people cannot afford to buy food, which is such a Bad, Bad Thing (BBT) that all I can do is hole up in the Big Beautiful Mogambo Bunker (BBMB) and whimper in fear, tapping out “SOS” on my Mogambo Interstellar Emergency Transmitter (MIET) so that intelligent beings passing through this quadrant of the galaxy will come and please, please, please rescue me from this godforsaken planet of morons, governed as it is by the worst of the worst, who have predictably produced the worst of the worst results by allowing cancerous growth of government and government debt, made worse by a cancerous growth in suffocating debt in every sector of the economy, by the simpleminded expedient of monstrous deficit-spending, bought and paid for by the loathsome Federal Reserve creating the requisite money and credit to finance it all! SOS! SOS!The Really Bad News (RBN) is that this is not working anymore – a fact made manifest by Howard Silverblatt, a senior index analyst at Standard & Poor’s, who says that in the last quarter of 2008, the earnings of the S&P 500 index were a NEGATIVE $7.56 a share! Wowsy wow wow! We’re freaking doomed!So I run to my messy desk and, after a short search, manage to turn up both an unread issue of Hot Shameless Naked Babes magazine and the chart of the earnings of the S&P 500, where I see that Miss January says that she has “done it all and loved every depraved moment” meaning that she is now on the decline, which I notice is surprisingly reflected in the fact that the earnings of the S&P 500 are similarly in decline.To prove it, in September 2007, the companies in the S&P 500 index earned a cumulative $85 a share. Earnings are now at $46 a share (back to where they were in 2004!) and still heading down with a vengeance.As are the dividends (if you really want something to worry about!) which did not top out until the end of 2008 when they hit $28 a share, and which are still amazingly paying a big, juicy dividend of $25 a share, which seems high when one is looking at outright losses of $7.56 a share in the last quarter of last year! Hahaha!I had a feeling that this was somehow significant, as in the old “the stock market is doomed because it is so freaking overpriced” kind of way, but I did not know HOW significant until Mr. Silverblatt went on to say, “There has never been an as-reported index level in the red.” Never! In history!Now you know part of the reason that Congress has officially gone into Panic Mode, which was unofficially announced by reporting that “The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion.”Now, I think you will agree that that is a lot of money, and Bloomberg notes that “the $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world,” and is “enough to pay off more than 90 percent of the nation’s home mortgages.”The reality is that only about $200 billion is actually slated to be spent before September, and the other $9.5 trillion of future “stimulus spending” is in the form of commitments that are “lending programs and guarantees, almost all under the authority of the Fed and the FDIC”, which I take to mean, “When our scumbag friends need to be saved from taking a loss on their stupid bets, we will print up the money they need, up to an estimated $9.5 trillion”! Hahahaha! adds, as if we had to be reminded what a bunch of lying, thieving scumbags these people are, “The recipients’ names have not been disclosed.”And speaking of lying, thieving scumbags… For some reason, the NYSE Member’s Report – showing what the stock market insiders and specialists are selling and buying and shorting – is no longer available in Barron’s because, as phrases it, “The NYSE is no longer compiling this data for us on a weekly basis.”It’s all too, too weird, leading me to summarize, with trembling voice, that if this is not the perfect time to be buying gold, silver and oil to protect yourself, then when is? Hahaha! Whee! This investing stuff is easy!

GuestFebruary 13th, 2009 at 9:58 pm

See folks?If you disagree with what TPTB are doing to our country, you’re a racist.Political Correctness works – just look at the post above. Promoted by higher education and the media in western society, it has forced all of us, through a modern day sort of ‘excommunication’, to stay silent and accept the destruction of our labor markets, our social systems and ultimately our sovereignty. I wonder if this was planned.The people who are profiting from the demise of our nation smile when they see comments like yours. Their efforts have been successful. Good sheeple, you.

GuestFebruary 13th, 2009 at 10:11 pm

What an excellent point…so I’m not a solo voice in the wilderness.I posted a reply to a local editorial that supported the stimulus. I challenged them to note the scale of debt succumbing to deleveraging, and how that debt is central to our debt-fueled consumer spending that drives 70% of GDP. This Debt Unwind process generates mounting evidence of not just the end of the 23-yr cycle of a consumer-spending-driven GDP. It’s also the frightful reality that we’ve entered a Structural Economic Transformation. We’re careening towards an unknown new economic model. The scale of the Debt Unwind fogs our mind. We are not seeing the forest for the trees while the Unwind is rendering unworkable the very concept of a 300 million-person nation depending on a service-driven economy. Debt Unwind renders debt unstable for bridging the wage gaps presented by the thoughtless hasty shift en masse to service jobs and even to “knowledge” jobs (aka our hordes of cubicle jockeys).Debt Unwind exposes the ineffective utility of the vaunted “Creative Class” that mushroomed from over-lapping asset bubbles and engorged gobs of debt to buy lofts and support trendy wine bars in revitalizing urban areas.The previous Structural Economic Transformation (1973-1984) in the USA was documented by the service sector’s own academics, economists and policymakers who observed and championed what was befalling the “poor other guy”, that blue-collar worker, over a wrenching 11-yr period.But now the roles are reversed.Today’s academics, economists, policymakers & pundits can’t bear to admit they’re now at the wrong-end of a brutish Structural Economic Transformation of unknown duration and trajectory; hence their refusal to admit or discuss it.We need to keep pressing these points in blogdom as well as in our local media until it can’t be ignored. Puny multi-national stimulus packages are no match for a deflating $640 Trillion inter-continental asset-price bubble or for the Debt Unwind at its core that also gets fed by recession and deflation. Structural economic change is inevitable.

AnonymousFebruary 13th, 2009 at 10:25 pm

The Combustible Initiator that Accelerated the Kaboom by the Black Crude SwanFuel prices. Yes, things were going along pretty much like they always had in Mayberry, U.S.A., that is up until oil and gas producers decided to mega-rape the public – ala obscene oil profits by your Exxons of the world. Speculators too abetted the entire public molestation right in broad daylight while market overseers were out doing other more important things apparently and politicians doled out platitudes while hauling in those greedy oil CEO’s in front of Congress for a thorough tongue lashing – oh the humanity – as they extolled the malevolence of major league baseball steroid abuse during the rest of their busy legislative schedules.When gasoline hit $4.50+/gal that was it. That was all it took to wipe out the thin budgets out of a bunch of people that were living pay check to pay check. You know, all those that barely were making the mortgage much less the car payment that lived right across the street from you, that drove 3 new SUV’s getting 12 freeway mpg. Talk about a hit to ‘Consumer Confidence’. It was the grand doozy of consumer confidence hits alright.So Consumers well-Shell-shocked by then (no pun intended) went into hyper personal no-spending overdrive and started shelling out a whole lot less on ‘luxuries’ no matter what the price, then businesses hit the air jake brakes laying off that same guy across your very street. Who could blame his employer while gasoline prices were predicted by every other pundit on t.v. that it was about to hit $8/gal before the year was up and that that same employer’s cost of doing business was going to sky rocket as a result? What was Mr. Employer supposed to do? Hire more employees, give Bob the neighbor a 10% raise plus bonus, and then eat more costs so the consumer wouldn’t have to pay more until such undeterminable time that fuel costs went down? So all this is all it took to get the mother of all economic avalanches moving down the valley and into a living room near you.So there, now you have it – a finger pointed precisely at the right initiator culprits – oil companies, oil conglomerates, oil speculators, ad nauseum.Of course pretty much everyone knew that this ‘Black Swan’ of an oil-related event was always known as a definite possibility – but folks always are optimistic that if it did happen they would just adapt somehow and life in suburbia would go on like nothing had happened. After all everyone could just go ‘greener’. And adapt they did. A little too much adaptation as it were because by then the economy engine being velocity of money just dove off the proverbial cliff so hard you could hear wallets clamp shut like grizzly bear traps. The Black Swan had tread at exactly the right place at exactly the right time. What were the odds you say? Pretty good if you think about it, right?So remember, next time you fuel up your car and then hear on the news that oil companies or refiners made record profits again don’t blame the banksters for everything that went wrong with our economy. Granted the banksters are plenty guilty for our state of affairs but the fuse was lit by those barons of petroleum-based combustibles. No doubt about it. The barons of oil have a veritable flock of these Black Swans in their coops ready to be released into the countryside at a board of director’s need for more profits notice.Btw, have you noticed how gas prices are going up a lot again even when oil is down? And have you noticed not a peep about that from our fearless leaders in Congress as they focus on a myriad of nuances in this ‘stimulus plan’?There are plenty more avalanches out there. And plenty more oily and combustible Black Swans out there too – probably just in time when the economy starts to recover. Heck if I were a betting man I would bet that more than just a few bank CEO’s on the hot seat right now are praying that Obama ‘nationalizes’ first some other industry – you know one that’s even slimier and slicker than even their’s.AM

ChignosFebruary 13th, 2009 at 10:35 pm

So, if the truth is that the CDSs pay off when the little banks are nationalized because of mark-to-market accounting, Roubini makes a killing on his CDSs and we end up with a 7 bank monopoly in the US. (The Goldman Sachs banks collect all the depositors). Roubini talks a lot about “not talking my book,” but that’s exactly what he’s doing. C”MON, you want me to have no respect at all for Roubini? OK, the only way I’ll have no respect for the vaunted professor at all is if it turns out he’s just an idealist, wants only what’s best for the national interest, has no financial dog in this fight at all. Then I’ll have absolutely NO RESPECT WHATEVER for someone who’s really NOT INTERESTED ENOUGH TO PUT HIS MONEY WHERE HIS BLOG IS!

AnonymousFebruary 13th, 2009 at 10:36 pm

Well since you raised the issue, I must remind you that we “Hispanics” have been in what later became characterized as the United States since at least the 1500’s (we even have birth certificates authenticated by the Catholic Church to prove our residency here). The notion that we somehow just arrived is simply historically inacurate. Similarly, the notion that we have to “move back” to someplace other than the United States where we have lived since the 1500’s is nonsensical. Lastly, your inference that this global economic armageddon was perpetrauted by anyone other that “red blooded wall steet americans” is also ridiculous.

redlegFebruary 13th, 2009 at 10:53 pm

Oh yeah, war is a great way to force demand. It is also a colossal waste of resources, not to mention life.We would be better off with some selective culling than a civil war, but even that shouldn’t be considered (yet)

GuestFebruary 13th, 2009 at 11:19 pm

Can somebody explain what exactly the derivatives system is?I’m also wondering what it would/will look like if the system should start to fail as PeteCA suggests. Would that look like a stock-market crash or a bank system default? Any ideas?

PeterJBFebruary 14th, 2009 at 12:39 am

“Heck if I were a betting man I would bet that more than just a few bank CEO’s on the hot seat right now are praying that Obama ‘nationalizes’ first some other industry – you know one that’s even slimier and slicker than even their’s.”AMOh, you mean the Real Estate Industry then?Chairman Mao had it right when he walked into the doors of Office; he had them, and all that hung off them, shot. Sounds alright to me.;-)Ho hum

GuestFebruary 14th, 2009 at 2:42 am

Nouriel, I thought USA was Japan, not Sweden…make up your mind;-)Anyway…what if we can just get 100,000+ Chinese (0.01% of the population of China) to buy homes in USA…US is a fairly open society so they would settle easier than in many other parts of the world…The Chinese are coming, to buy bargain US homes

RohelioFebruary 14th, 2009 at 2:51 am

@FedupCan do! You will get your tidy sum of TP…..daz after a few fat shloinkers have backed off and had a few burps n’such.

GuestFebruary 14th, 2009 at 3:23 am

Do like the swedes? You have to look at the whole picture. The swedes raised their taxes to the outerbelt of our galaxy

PeterJBFebruary 14th, 2009 at 3:55 am

Okay: How about this?”More than a quarter of people applying for such claims have their rights to the benefit challenged as employers increasingly act to block payouts to former workers.The proportion of claims disputed by former employers and state agencies has reached record levels in recent years, according to the Labor Department numbers tallied by the Urban Institute.Under state and federal laws, employees who are fired for misbehavior or quit voluntarily are ineligible for unemployment compensation. When jobless claims are blocked, employers save money because their unemployment insurance rates are based on the amount of the benefits their workers collect. “ eh?Complexity Theory? Nonsense!Ho hum

PeterJBFebruary 14th, 2009 at 4:05 am

Someone asked here what the immediate future would hold.My answer: Black Markets and Revolution.Oh, apologies; I said that before.Ho hum

GuestFebruary 14th, 2009 at 4:14 am

Not Hispanics, but illegal aliens, people how crossed the border illegally. The solution is simple, do not hire them. PASS LAWS NOW ! THAT IF YOU HIRE AN ILLEGAL WORKER, YOU LOSE YOUR BUSINESS LICENCE

GuestFebruary 14th, 2009 at 4:19 am

The figures don’t change by nationalizing the banks. Creating ‘bad banks’ – like it has been done with UBS toxics in Switzerland – is and remains much more appropriate. Or like the Dutch did with ING. What we need is a much less restrictive Basle II, which is causing the European banks unnecessary write-offs, as we all by now know. The Roubini Plan is a bad plan. Wiping out shareholders is wiping out millions of shareholders, i.e. consumers.A guest from the Netherlands.

MorbidFebruary 14th, 2009 at 4:38 am

Peter,Just curious – have you read Chilling Stars – the 2nd Edition?I found it to be a wonderful bit of science that shows a clear link between gamma rays and cooling cloud formation.Your Epistemological article hit a note I could resonate with,

This infers strongly that any major or signficant shift in the embedded collective behaviour of men will need its origins in external cause.

Where the world is heading it seems to me is into The Tribulation.

PeterJBFebruary 14th, 2009 at 5:05 am

I’m into physics; facts of certainty.For example: The expression of the inviolate Laws of the Universe can be witnessed on a surface, where such is termed parochial and viewed through the essential bias of milieux.Otherwise, we are, in Mind, precisely the same as the Universe, that is to say, Mind; or, self-organizational and heuristic probability or, attitude.I think that my view is bigger than those of others, yet I do not indulge in awe?Ho hum

nik og jayFebruary 14th, 2009 at 5:15 am

Guest – you are truly an idiot.You are using a poster from 1936 to prove a point. Very unpersuasive. I am sure I could find all kinds of posters from history to *prove* all kinds of nonsensical things that are not true.And, oh, is it still true that your tax rate on the workers is still 80 percentNo. Its not.If you are representative of American *thought*, there is no hope, your country is f*uckt and deservedly so.

generalKurtzFebruary 14th, 2009 at 5:29 am

really the issue is that financial system is built on the interests of blood thirsty capitalists whose only concern is to get rich without producing a thing! That’s why the speculation creates financial products that grow like an avalanche and bursts when people realize that it is empty. Check the previous crisis; how many of them happened because of a real economic problem like lack of commodities, lack of skills or a natural disaster etc.? I am telling you, after everything is over, bankers and traders will emerge as winners in the long term again. The losers will be, like always, the lower income families.So today we are again only trying to treat the wound but not address the virus that keeps haunting the world’s economy. OK let’s restore the banking, that’s fine, but why did this crisis start in the first place?That’s the question we have to answer and solve. Otherwise, Prof’s suggestions are just temporary cures too like Geithner’s….

GuestFebruary 14th, 2009 at 6:16 am

For the sake of freedom and our children’s sake it may turn into that given how powerful the bankers are; us against the bankers!

GuestFebruary 14th, 2009 at 6:29 am

Without a powerful government to represent the people, powerful merchants and industrialists would enslave us all, put young children to work, take away education and create a class system. Ron Paul and the Libertarians got it right so far as nationalizing the FED but what we need is a government that counters the effect of quasi government/corporations! Or governments that actually work for and represent the people. At one time I considered myself a Libertarian and was a big supporter of Ron Paul and I still am as so far as I believe he has integrity however some of his ideals and the Libertarians views are pie in the sky and very flawed. We don’t need the wild west economy to each his own and every man to himself, it would be a complete disaster. Taking away the FED won’t stop power from trying to continually consolidate and enslave the masses we need a vigilant force representing the people to protect us ie. government!

edwardbFebruary 14th, 2009 at 7:12 am

I’m not a Swede either but I’m also not so narrow minded that I don’t see the benefits of socialism as well as it’s problems. A high school student would be given a failing grade for equating Sweden’s form of government with North Korea or Cuba. The comments on eugenics in Sweden ignore the fact that the U.S., Canada among many other ‘advanced’ countries practised forced sterialization for mental ‘defectives’. On a lighter note, the penalty for not wearing a seat belt here is $170.00. The arguments given are one-sided, misleading, selective and show no depth of analysis. Your passion has exceeded your judgement.

GuestFebruary 14th, 2009 at 8:11 am

“The people in whose interests this society is organized” will go beyond methink’s eloquent statement. They will use political stealth totake every other dime you have in you pocket. It is no longer optional to fail to coordinate an orderly and eloquent series of “teach ins” and marches. It must be done with education and serenity. No idiot provocateurs should be allowed. Let us all turn off the idiot box andtalk to each other with analytical serenity.We think therefore we are!

GuestFebruary 14th, 2009 at 8:48 am

I have read the present and past threads and we have a fertile soil for emergent ideas, but methinks was kind enough to post our limitations in this thread.”What happens with insolvent banks will be a political decision not an economic decision. The people in whose interests this society is organized will not give up one dime unless they are forced to by the American people.FDR was fought tooth-and nail by the oligarchs while he was trying to save their system for them.What happens or doesn’t happen will be decided by the American people. It will be determined by how angry they get and how hard they push.This is not about ” great ideas,” it never is.”Hide replies Reply to this comment By methinks on 2009-02-13 12:41:15Nationalization, Banks as a utility or Simplification of Banking, Destructuring OTC Derivatives from the system, ETC….Nothing will get done until we do what methinks suggests. It is very American! We gather in coffeeshops like Samuel Adams and we petition our government for a redress of grievances! Those incontrol of politics will not give up their plansunless we become participatory in our democracy.We waste the great efforts of Roubini, Taleb, andothers who have used their intellect to motivateus. We must be humble enough to listen to each otherand respect each others opinion and we must use allmedia to Petition our Government for a redress ofgrievances. But we must move now! Time is not onside! Keep in mind that Trillions have been spentin a short interval. Once the money is diverted to”the people in whose interest society is organized”,the game will be over. They will then become “fiscally responsible” and take away your SocialSecurity and Medical Retirement Benefits to coverthe vacuum of money.

GuestFebruary 14th, 2009 at 9:07 am Greider has been warning us since “Secretsof the Temple”.In all fairness here is the response to his article.You chose who you think is analyzing the issue correctly. is Greider’s counter to the response media outlet should post the response to theirarticles side by side with the original!

MichelleFebruary 14th, 2009 at 9:09 am

Guest,Here’s are some links to help you get started on learning about credit default swaps, which is essentially credit insurance on debt. But derivatives come in many flavors such as equities, commodities, interest rates, etc. and are supposed to serve as a hedge against increasing or decreasing prices or rates, depending on which direction needs to be hedged.

TobyFebruary 14th, 2009 at 9:28 am

Info about Swedish bank crisis the early 1990s, Sweden faced a banking and exchange rate crisis that led it torescue banks that had experienced large losses on their balance sheets and thatthreatened a collapse of the banking system. Some analysts and others argue thatSweden’s experience could provide useful lessons for the execution and implementationof the Emergency Economic Stabilization Act of 20081. The banking crisis facing theUnited States is unique, so there are no exact parallels from which to draw templates.Sweden’s experience, however, represents a case study in how a systemic banking crisiswas resolved in a developed country with democratic institutions. The Swedish centralbank separated out good assets, which it left to the banks to oversee from bad assets,which it placed in a separate agency with broad authority to work out debt problems orto liquidate assets. Four lessons that emerged form Sweden’s experience are: 1) theprocess must be transparent; 2) the resolution agency must be politically and financiallyindependent; 3) market discipline must be maintained; and 4) there must be a plan tojump-start credit flows in the financial system. This report provides an overview of theSwedish banking crisis and an explanation of the measures Sweden used to restore itsbanking system to health.

GuestFebruary 14th, 2009 at 9:40 am

JUST A POEMIt was in the year 2009When our economy just stopped on a dimeAs my credit dropped to zeroPeople said don’t worry, Obama is our heroThen my home dropped 50% in priceAnd I screamed out “now I’ve been hurt twice!”Next I started to worry about my jobAnd then my wife began to sobI said, “honey, don’t worry, things will be ok”She looked at me and replied “I also lost my job today”I told her that we would eventually pay back our debtShe wryly smiled and said “you wanna bet?”I knew she was right but would not agreeShe then turned to me and said “let’s just flee!”I asked her “what do you mean?”And she replied “let’s live our dream”Again I asked “what do you mean?”And she said “live a simpler life and work as a team”I shouted “let’s live cheap and become self sufficient”She chimed “grow our own food and never be deficient”So we packed our bags and left the USAFinally free from all the economic frayAnd we tell our friends who often have too much to bear”Wake up and get the hell out of their!”

leo70February 14th, 2009 at 11:07 am

What judgement? The one passed onto them every Sunday by their bigot preacher? Or the one that they teach at Catholic University? The thing that amazes me the most about all these churchgoers bigots in the US is that they do not realize that Jesus was a Communist. Talk about having been lobotomized…

GuestFebruary 14th, 2009 at 11:12 am

The Recovery Plan From Hellexcellence from Michael Hudson (can’t believe this hasn’t been put up here already!)To read and to distribute – a crucial article that packs a valuable understanding for your friends and family who are largely unawares of the big picture. Print a copy or a few and leave it behind in the dentist’s office, etc.

GuestFebruary 14th, 2009 at 11:21 am

thank you for saying it for me. you’re speaking excellent sense. it’s those who hope to eternally prey on cheap labor who want to shrink government small enough to drown it in the bathtub. the rest of us realize we need to accept the responsibility for self-governance through vigilance about justice: the purpose of government.

GuestFebruary 14th, 2009 at 11:26 am

Government is not the enemy it’s corporate interest! but Ron Paul and Rush Limbaugh say let them reign free and everything will take care of itself. Oh rubbish!- these guys are two of the biggest knuckle heads on the planet!

ArmchairFebruary 14th, 2009 at 12:41 pm

Yesterday’s NYT had a cool article about Takanake, the guy who finally performed the Herculean task of cleaning out the Japanese banking system. There is a cool picture of him looking like a serious auditing bad-ass. The article validates everything Roubini is saying.The U.S. might be locked into an ideological death-trap, but I don’t care. Roubini gives me hope and I am hanging onto that.

snsFebruary 14th, 2009 at 12:45 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.

cmmnsnsFebruary 14th, 2009 at 1:03 pm

these Obama people are going to put the final nails in the economic coffin.i don’t want to hear one more iota of hope and change or any other rhetoric! i want a plan. plain and simple. a plan with line item designations and specific graphs and projections. i don’t care if half of them prove to be incorrect. i just want the base level minimum effort that serious men and women would put forth before asking for close to 800billion, which, in case you aren’t aware of yet, is JUST THE BEGINNING of what will be requested to bail out what in essence is a STRUCTURAL problem which requires core redesign and not merely throwing good money at bad money.the shadow banking industry is kaput. the traditional banking system will most likely need to be nationalized. the Obama people start out in comic fashion, despite all of the thoughtful pauses in the thoughtful responses by the figurehead.

NathanFebruary 14th, 2009 at 1:35 pm

You have asked this question multiple times in multiple threads, please stop! Go back and read what the man wrote 4 months ago. He said that he had a 401k, but no active self directed investments. SO HE DID NOT PULL HIS 401K OUT OF THE MARKET, AND HE DOES NOT HAVE ANY SELF DIRECTED INDIVIDUAL INVESTMENTS IN THE MARKET. Now please drop this question even if this isn’t sufficient at this point it is OBVIOUS that NR is not going to answer you, nor should he, it’s his damn business not yours.

GuestFebruary 14th, 2009 at 1:42 pm

America under Obama and his “social” Democrats will head farther and farther down the road to serfdom, as has Sweden since 1932. And the consequences may even be worse for America — because of the diversity of her population with its many problems.It is important for us to look in depth at Sweden’s economic policies and how this welfare state is on the rocks and what this means for America.A key word in America’s dangerous future is just that, “social.” It’s interesting to compare, for example, America’s past economic history to the current situation in Sweden, with its “ worldwide reputation as a high-tax welfare state.” However, even with the dubious honor of having “the world’s highest tax burden” – there may be signs of hope at the ballot box in Sweden. Although Sweden’s dominant social democratic party since 1932 has won national as well as local elections proposing higher taxes in recent years, in 2006 the Moderate Party and its allies narrowly defeated the Social Democrats.Extensive details of Sweden’s welfare economy are painted into in a disturbing picture by Dr. Sven R Larson, a research fellow with the Center for Freedom and Prosperity Foundation, in an unbelievable treatise, “The Swedish Tax System: Key Features and Lessons for Policy Makers,” June 2006.Dr. Larson shows how Sweden’s crippling and high tax rates and its heavy burden of government “have combined to stunt economic performance and lower living standards…an unfortunate development for a nation that used to be among the world’s richest.”Taxes in Sweden consume more than 50 percent of GDP: inflation-adjusted growth averages less than 3 percent per year.The key here is the emphasis that the Swedish government puts on various aspects of its citizens’ lives. In Sweden, for example, the varying tax rates are indications of where the country’s leaders place their priorities.For example, the value added tax in Sweden is 25 percent (contributing 30 percent of government revenue), with preferential rates for the same lobbyists as in the U.S: food, hotels, camping, ski lift cards – 12 percent; works of art sold by the artist – 12 percent; newspapers, books and magazines – 6 percent; public transit, livery services – 6 percent; theatres, movies and concerts – 6 percent; and zoological gardens and sports events – 6 percent.There’s little dispute that Sweden’s government, media and pornography and allied industries have advanced under her taxing programs all the while her wealth is diminishing. Unfortunately, this is the pattern of recent U.S. government emphases – no regulations on pornographic content on television, a relaxation of monopoly regulations for media, Hollywood, and gaming, and tax advantage and special regulation for risk taking on Wall Street and for national corporations cum globalization and outsourcing.It is no wonder that America’s major media and financial sectors are in the tank with the Obama Administration. The coverage of the stimulus bill, for example, is proof of these incestuous relationships. America’s media is no longer a force of journalism.The top marginal income tax rate in Sweden is about 57 percent (and) while punitive, the top rate used to be nearly 90 percent. Payroll taxes are a significant burden, totaling nearly 40 percent of income.And although “ Sweden continues to have a very competitive corporate tax regime” that is taxed at 28 percent compared to the former 50 percent-plus tax rate, “small businesses endure high compliance costs, particularly compared to large corporations. Combined with high marginal tax rates, which reach 65 percent including payroll taxes, this makes it difficult for small companies to become big companies.” Bankruptcies are high.Wealth in Sweden is taxed annually at 1.5 percent after deductions, with a 30 percent national flat tax on individual savings and investment income.Sweden’s tax policies have damaged her future: from having been an average “investor,” Sweden has declined to bottom rank among this peer group; about 20 to 25 percent of the work force is unemployed and “most of them are ‘stashed away’ in the statistics on long term sick leave, in labor market programs, or in early retirement and similar programs”; taxing professionals onerously has discouraged education and college graduates account for half or more of recent emigrants as their emigration continues to grow at 5-7 times the growth rate of the population; high taxes and excessive regulations have encouraged many large corporations to leave the country — almost the entire pharmaceutical industry has moved including Pharmacia and Astra; within the automotive industry Volvo Cars was broken out of the Volvo Corporation and sold to Ford and GM took over SAAB Automobile with SAAB building two of its four models for the American market outside Sweden and Volvo expanding its Netherlands and Belgium operations significantly; major corporations such as IKEA and TetraPak (that gave the world the “sausage stuffing” procedure for manufacturing and filling milk cartons) also have moved abroad.Such is the picture of economic stagnation resulting from mob rule that elects itself a welfare state. Sweden, according to Dr. Larson, “needs to fundamentally re-think the welfare state and move to an economic system based on self-reliance and economic opportunity growth.”The same can be said for America.

Octavio RichettaFebruary 14th, 2009 at 1:49 pm

Gee, this is a truly outstanding interview! I didn’t watch it but actually read the transcript attached word by word.The only thing on the “bright side” is that, here in the US we have not gotten to the point Professore Johnson has to walk around campus with a bunch of bodyguards;or have we?The Professore brought up the subject up himself! the Knife or The Ballad of Mack the Knife, originally Die Moritat von Mackie Messer, is a song composed by Kurt Weill with lyrics by Bertolt Brecht for their music drama Die Dreigroschenoper, or, as it is known in English, The Threepenny Opera. It premiered in Berlin in 1928. The song has become a popular standard….In the best known English translation, from the Marc Blitzstein 1954 version of The Threepenny Opera, which introduced the song to English-speaking audiences, the words are:Oh the shark has pretty teeth dear,And he shows them pearly whiteJust a jack-knife has Macheath dearAnd he keeps it out of sight.This is the version popularized by Louis Armstrong (1956) and Bobby Darin (1959) (Darin’s lyrics differ slightly), and most subsequent swing versions. Weill’s widow, Lotte Lenya, the star of both the original 1928 German production and the 1954 Blitzstein Broadway version, was present in the studio during Armstrong’s recording. He spontaneously added her name to the lyrics, which already named several of Macheath’s female victims.The rarely heard final verse — not included in the original play, but added by Brecht for the 1930 movie — expresses the theme, and compares the glittering world of the rich and powerful with the dark world of the poor:German/English translationDenn die einen sind im DunkelnUnd die andern sind im LichtUnd man siehet die im LichteDie im Dunkeln sieht man nichtThere are some who are in darknessAnd the others are in lightAnd you see the ones in brightnessThose in darkness drop from sight

GuestFebruary 14th, 2009 at 1:52 pm

Under the current proposed Plan N, Lesson 2), “the resolution agency must be politically and financially independent,” cannot be accomplished with Timothy Geithner, aka Goldman Sachs, in the U.S. Treasury, which means that Lesson 1), “the process must be transparent,” already is nullified.

Octavio RichettaFebruary 14th, 2009 at 1:55 pm

BTW, ECRI’s WLI continues in the basement: Cycle Recovery Remains ElusiveReutersFebruary 13, 2009(Reuters) – A measure of U.S. future economic growth slipped further along with its annualized growth rate in the latest week, indicating a hazy reading of economic recovery, a research group said on Friday.The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 106.1 for the week ending Feb. 6, from a revised 106.6 in the previous week.The index’s annualized growth rate fell to minus 24.8 percent from a revised minus 24.5 percent, hitting its four-week low since Jan. 9 when it read negative 25.2 percent.”With WLI growth falling once again, a business cycle recovery remains elusive,” said Lakshman Achuthan, the Managing Director at ECRI.The index fell to a nine-week low, the lowest reading since Dec. 5, 2008, when it was 105.7.Achuthan said the weekly index slipped due to slower housing activity and money supply growth, partly offset by higher commodity prices.

Octavio RichettaFebruary 14th, 2009 at 1:58 pm

Gee, you know, it feels like it will never again rain here, farm country in Argentina. It has now been almost two months with no meaningful rain in key farming areas.

GuestFebruary 14th, 2009 at 2:12 pm

B.S. corporate fascism! There’s a banking troll lurking this website trying to throw doubt in our minds. The oligarchy of the world have the U.S. population making $10 dollars an hour or less when the cost of living is $20 per/hr or more. They’ve destroyed our unions, sold our jobs to peasants around the world(who are still peasants) yet they pay themselves 100’s of millions in salaries and bonuses while the populations struggle to survive. People around the world are dying of poverty yet the people who have billions in their bank account care not! And now we have to listen to how if we dare take back from the thieves that we’ll have even less to go around. Well I for one am more than willing to take that risk, I’d be willing to starve to death to see an end to such evil and greed! This system is not worth saving anymore the neo-con, neo-lib republicans have had their way with our government since Reagan and it ended in utter failure! But they won’t give up until we take them down completely! Their greed is what’s destroying capitalism or threatening to, not socialism. Socialists views have been shamed and completely silenced for 30 years and now they try an blame this demise on socialists views that haven’t even existed, they’re desperately searching for ghosts to blame when of course there are no ghost just pure greed. So socialism is making a come back out of mere necessity and human compassion because their greed and corrupt policies left us all holding the bag! Socialistic cries from the public are a result of their failed wrongful policy not the boogie man!

ThoreauFebruary 14th, 2009 at 2:21 pm

KPMG KPMG KPMG/Tax Shelter Tax Shelter Tax Shelter. Of course all the banks are insolvent and KPMG audits a disproportionate amount of them. You thought KPMG’s tax shelter shenanigans were disturbing, such activities were nothing compared to the 100s of Billions of fraud contained in the banks financial statements that KPMG audits. Just remember Flynn and his high priced lawyers tried to help put all the tax shelter partners in prison, what do you think Flynn is going to do to all the Audit Partners who have helped the banks engage in massive fraud by signing off on fraudulent bank financial statements? Though it is difficult to muddle through the fraudulent KPMG bank financial statements, it is not impossible and from that you can profit. Many of us made a small fortune shorting Citibank the KPMG audit client just by understanding the fraudulent nature of Citi’s financials. It is like taking candy from a baby, a favorite KPMG saying.As one small example for all you dopes who somehow think the system is not and has not always been rigged by liars and thieves, Citi’s 10q as of 9/31/08 shows capital of about $126 billion yet its market cap as of today is $19 Billion (though it is likely insolvent). Forget about FAS 157 there are a million ways around it, the more difficult scam to discern is the use of SIVs to offload bad assets from Citi’s balance sheet so it does not have to recognize the losses. To Citi’s credit it does disclose in footnote 15 of its 10q potential exposure of about $130 Billion for part of their SPEs. Of course such amount is in excess of its stated book capital and almost 7 times larger than its current market cap and likely massively understated.I know no one saw this coming; you can’t know the unknown; and all KPMG did was follow the accounting rules. Then how come a dope like me could figure it out? Further, that is what the tax partners thought before Tim Flynn, Joe Loonan and Swen Holmes tried to get them put in prison. In fact, many beginning as early as 2005 saw this problem coming like Dr. Roubini and used simple math to explain why. If KPMG is so expert at anything, why didn’t KPMG see this coming and warn all the decimated Citi investors. Personally, I am glad KPMG continued to produce the self evident fraudulent financials because me and my kind made a fortune off all the idiots who think any integrity exists within the fraudulent accounting statements or companies (such statements are reflective of).In fact, Dr. Roubini is suggesting formally nationalizing all the banks (which most of are already 100% owned on a fair market value basis) because the system is insolvent. It may be time to short these fraudulent companies yet again if he is right, any thoughts?15. SECURITIZATIONS AND VARIABLE INTEREST ENTITIESThe following tables summarize the Company’s significant involvement in VIEs in millions of dollars:As of September 30, 2008(continued)Maximum exposure to loss insignificant unconsolidated VIEs(continued) As of December 31, 2007(1)Total maximum exposure ConsolidatedVIE assets SignificantunconsolidatedVIE assets(2) Maximum exposure to loss insignificant unconsolidatedVIE assets(3)$ — $ 63 $ — $ —— 35 — —— 1,385 — —$ — $ 1,483 $ — $ —$ 63,462 $ — $ 72,558 $ 72,5581,337 — 27,021 2,1542,501 22,312 51,794 13,9792,034 1,353 21,874 4,76237,032 4,468 91,604 34,29716,560 17,003 22,570 17,8433,430 53 13,662 2,7112,124 2,790 9,593 1,643— 58,543 — —317 140 11,282 2121,795 12,809 10,560 1,882$ 130,592 $ 119,471 $ 332,518 $ 152,041$ 35 $ 604 $ 52 $ 45$ 162 $ — $ 23,756 $ 162$ 130,789 $ 121,558 $ 356,326 $ 152,248Total stockholders’ equity 126,062 126,962 (1 )

GuestFebruary 14th, 2009 at 3:04 pm

Such is the picture of economic stagnation resulting from mob rule that elects itself a welfare state. Sweden, according to Dr. Larson, “needs to fundamentally re-think the welfare state and move to an economic system based on self-reliance and economic opportunity growth.”At least the Swedes get something in return for their tax dollars. What do we get? I wonder how many Swedes, if given a choice, would trade their system for ours?

Octavio RichettaFebruary 14th, 2009 at 3:09 pm

The following interview appeared in Barron’s this week. Here is a free link so that the anonymous copyright watchdogs that linger around here can go bother a poor soul other than myself. guy saw the crisis as early, if not earlier, than the Professor. There is a lot of agreement with the Professor’s views, but it is not 100% agreement. IMHO, the Professor is starting to go a bit overboard with his predictions about losses in the financials and the nationalization drive. If you want to know why, read the interview.BTW, I don’t like being a contrarian just for the sake of it but it is kinda obvious the Professor’s views are becoming/are now the mainstream; AND the mainstream is seldom right. I am not saying we are anywhere close to the bottom in the crisis. But, IMHO, it ain’t a bad idea to take what you read here with a grain of salt; the same way you should everything you read. I always keep in mind what my dad, who only made it to fifth grade but reads a whole lot more stuff than I do (none of it economics/finance-related thank god!), still tells me: “Paper can stand whatever you write on it”.

GuestFebruary 14th, 2009 at 3:16 pm

Can the last presidential election be redone?Ever since it became clear as to who was going to be the next P, the shape of things of the general populace has been getting from bad to worse. Perhaps, things would have been better off but for the vast majority of Americans being just dubm-headed! Such is the state of affairs in a country of “well-educated” people. I think only those people should have the right to vote who have a “sound head” over their shoulders. What do ya tink?

GuestFebruary 14th, 2009 at 3:40 pm

Maybe it’s similar in how most people agree that murder is a wrongful and punishable act, so are the people wrong because it’s popular to believe murder is a terrible thing to do? Just as in now how the population cringes when we see the government giving our children’s future away to banksters and you’re absolutely right that horrible feeling the population is feeling and venting right now is very popular, so then should we not trust our feelings because they’re popular?Have we been wrong all this time about murder, rape, and stealing just because it’s popular to agree those things are criminal acts? Should I ignore all of my instincts, outrage, and sensibilities that tell me I’m being raped by the government and bankers just because every one else thinks or believes the same thing as me?Your post reminds me of those snobby pseudo kids in college that as soon as a band became popular they would automatically dislike them just so they could always say how different and individualistic they were. The Beatles were a damn good group, and no matter how popular they became they were always damn good group! Stealing is wrong no matter how much society agrees it is wrong!

TupiFebruary 14th, 2009 at 4:28 pm

I think that it isn`t fair to nationalize (socialization of the losses) in order to privatize latter, almost certain, to the same interests (socialism for the riches) that build this financial time bomb with the cumplicity of federal supervisory bodies. It isn`t also fair to see the same people linked to Wall Street vulture financial interests of all species/kinds leading the federal supervisory bodies/Treasury proposing and implementing the financial rescues packages that benefits the financial speculators. The financial system is a vital public service, like a health service. They are also inherently unstable: the essence of a bank, after all, is that it does not hold enough funds to cover all the claims of its depositors at any one time. Ensuring the safety of the system requires that competition between banks should be surpressed. Furthermore, policy questions as to where credit should be channeled are issues of great economic, social and political moment. Thus, public ownership of the credit and banking system is rational and indeed necessary, along with democratic control. A public-utility model along these lines can, in principle, operate within capitalism. Even now the bulk of the German banking system remains in public hands, through savings banks and Landersbanken. The Chinese financial system is overwhelmingly centred on a handful of huge, publicly owned banks. It is possible to envisage such a public-utility model operating with privatized banks with state control (at least, with stringent regulations). The post-war Japanese banking system could be held to have had this character, with all its banks stricktly subordinated to the Bank of Japan`s policy control. The post-war British commercial bank cartel could also be viewed as broadly operating within that framemork. A pure private capitalist credit system, centered on banks, would operate under the logic of money capital –M-M`–: advancing money to others to make more money. Once this principle is accepted as the alpha and omega for the banking system, the functional logic points towads the Greenspan apotheosis: the model adopted in the US and the UK since the 1980s: making money-capital king. It entails the total subordination of the credit system`s public functions to the self-expansion of money capital. Indeed, the entire spectrum of capitalist activity is drawn under the sway of money capital, in that the latter absorbs an expanding share os the profits generated across all others sectors (In 2006, no less than 40 per ecnt of American corporate profits accrued to the financial sector). So what is needed is a public-utility credit and banking system geread to capital accumulation in the productive sector. But as things are evolving, we´ll persist with the same errors of the past, that is, with a credit and banking system that will subordinate all other economic activities to its profit drives and manias&crashes. Again and again, taxpayers will pay. What a kind of people!!!

GuestFebruary 14th, 2009 at 4:33 pm

BRAVO, 2nd guest, for calling BS corporate fascism what it is. The destructive results of allowing inequality consume far more of the pie than people realize in a million ways they have not seen nor understood and make the total pie smaller, not bigger. Equality will grow the total size of the pie, equality will not make it smaller. Equality is the only win-win-win proposition. Inequality is lose-lose-lose and then lose some more. Americans were tricked into being frightened of the mere words socialism and communism by the people who benefit from the irrational fear generated. I’m not a socialist nor communist, believing capitalism can be married to justice without changing isms, but the thorough hoodwinking of Americans means they react and rationalize instead of thinking rationally with cool heads on these matters.

GuestFebruary 14th, 2009 at 4:39 pm

ouch. will you guys be the next Melbourne (area), Australia? will the atmosphere itself ignite from the oils in the air when your trees burn? friends of mine there say it’s the worst disaster ever in their lives…does Argentina waste water trying to grow cotton where it shouldn’t be grown like Oz did/does?

GuestFebruary 14th, 2009 at 4:40 pm

Wow! Neo-con mouthpieces still believe that folks are buying their revisionary drivel?Get a grip, man. The American banking system is insolvent and the Empire is collapsing. It’s going to be tough to reinvent that reality.Excerpt from NYT article – October 17, 2004:”In the summer of 2002, after I had written an article in Esquire that the White House didn’t like about Bush’s former communications director, Karen Hughes, I had a meeting with a senior adviser to Bush. He expressed the White House’s displeasure, and then he told me something that at the time I didn’t fully comprehend — but which I now believe gets to the very heart of the Bush presidency.The aide said that guys like me were ”in what we call the reality-based community,” which he defined as people who ”believe that solutions emerge from your judicious study of discernible reality.” I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ”That’s not the way the world really works anymore,” he continued. ”We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.””

PeterJBFebruary 14th, 2009 at 4:52 pm

I have reason to believe than Mr. Geithner cannot be trusted one iota (from this side of the equation) and that Mr Benanke believes of himself other than he is; a dud and false pretender.So I give you two scenarios for you to consider:1. The “global economic collapse” “evil-doer” (that has now wiped out the significance of Al-Qaeda and the War-on-Terror), is a huge conspiracy by the rich and powerful to scam all the wealth of the World, bring in Central Banker Power and to enslave all us Joe6packs ad infinitum,or2. That the global economic collapse is merely the result of incompetence and stupidity – pervasive and ubiquitous – of every level of government, bureaucracy and the economic and academic industries.Now I put it to you:Which is the case? Number 1 is very bad but if this is correct, then someone knows what he/she/they are doing and therefore have the skill sets (and assets) to unwind their mechanisms,But, in the Second scenario, the skill sets, will and integrities are missing and fools and braggarts, wannabees, and loud mouths have their hands on the keys to the vaults.I ask you. Which is the worst scenario?Ho hum

GuestFebruary 14th, 2009 at 4:56 pm

My apologies Guest #2 … this response was intended to go under the original post by Guest #1 / the poster anxious to see the US become a totalitarian corporate state.Too many darn Guests around here, it seems. :DI hope that this response ends up where I intend to go.

MadridFebruary 14th, 2009 at 5:04 pm

I used to read Professor Roubini 2 years back before he was on every financial channel 24/7, and I’ve admired his contributions greatly. But now, with his ubiquitous appearances on all manner of news channels, I’ve begun to be suspicious that he has some other agenda.Surely, a professor needs some time to do some research and reading on the ongoing crisis before us– when do you ever have time to do research, Dr. Roubini, when each and every day I see you on Bloomberg, on CNBC, on TechTicker, at Davos, in Dubai, in Moscow? Also, where are your numbers? You are mentioning Wells Fargo and JP Morgan (in another essay on RGE), and are saying that they are both insolvent, and they well might be insolvent, but where are your numbers to prove this. Where is your look at their balance sheets and their last quarterly statements? JPM has yet to have a loss, and Wells Fargo has had profitable quarters until Q4, when it took some impairment charges related to its acquisition of Wachovia. Now you might be right, that both of these banks are insolvent, but your essays seem to be getting more and more specific about certain banks and less and less reliant on real numbers. Where the hell are your numbers to prove the claims that you have made about specific equities?One other question I have for you: you mention that all these banks should be put in receivership and then sold off to private equity firms. Which private equity firms do you mean? Can you name the kinds of private equity firms that can afford the trillions of assets that we are talking about here? Presumably when BAC, C, WFC, and JPM and 10 other banks that you argue are insolvent all go bankrupt, the market is going to tank like nothing before. Where are people going to raise the private equity in order to purchase such assets at any price that is going to make it worth the government’s while? IN other words, either the government, when it takes responsibilities for the debts of these companies, is going to take enormous losses anyway, and then sell the cleaned up assets at a big loss, or the government is just going to find it more convenient to keep the assets and avoid creating more government debt. In the case of the worst stock market crash in the last century (which is what such an event would cause), I predict the government simply finds it more convenient to hold on to such assets and transform banks into a public utility. And as soon as it does so, every other bank in the country is toast as well, since who is going to do business at a private bank, when you can get a loan from the government ( and then lobby your congressman about the terms of the loan in order to create more favorable terms for yourself).But let’s assume that private equity firms in this country or elsewhere have enough capital to buy these huge monstrosities? These firms are going to benefit handsomely from your little plan, aren’t they? They are going to buy the biggest banks with the largest assets in the world at pennies on the dollar, at the expense of taxpayers and shareholders (pension funds, etc).Either that, or sovereign wealth funds from foreign countries are going to come into the US and gobble them up, in which case, the US will completely lose control of its destiny and permanently descend into third world status.Then there are the 10s of trillion dollars of credit default swaps that have been issued on the bonds of these banks. What happens to them? Is the government going to assume responsibility for paying off all those CDS’s to counterparties that will risk going bankrupt as well when these big banks go down? Where is the end of this? The quantity of CDS’s just for Citigroup bonds is supposedly in the 10s of trillions. Having 4 huge banks go down all at once would make AIG’s failure look like a walk in the park.I am sorry, but I have lost my trust in Doctor Roubini at this point– I don’t know who he works for or why he thinks it is his job to say 10 times a day on every news channel with little or no evidence that all the banks in this country are bankrupt. Yes, he has been right about a lot of things, but unfortunately he is now exploiting his accuracy and is helping to create the panicked situation in which an even greater crash occurs. And that is not in anyone’s interest (except the private equity firms, who would pick up the pieces at pennies on the dollar). He may well be right about the bankruptcy of all these banks, but he sure enjoys being on TV 24/7 talking about it and thus creating less and less confidence in the market thereby insuring a more serious crash.I think a better solution would be for the IMF, together with US governments and European governments, to cancel all CDS contracts for any party that does not own the security in question. At that point, allow capitalism to do its job and get rid of the bad players, and then we will see if JPM and WFC and USB and all the rest of the names that Roubini names are bankrupt. I am not long on any of these equities, but I suspect that the latter three will struggle through (along with the real culprits in all of this, Goldman and Morgan). Having the government choose which banks are bankrupt and then which private equity firms are going to pick up the pieces is not the way.

PeterJBFebruary 14th, 2009 at 5:35 pm

The key to your worst fears:”Dominique Strauss-Kahn, managing director of the International Monetary Fund, who is also in Rome, said that the worst had probably yet to be seen. “The problem is that the effect on the ***real economy***, for the most part, is still to come,” he said. (emphasis mine) hum

GuestFebruary 14th, 2009 at 5:51 pm

Yea but I think part of the debate is that these banks are serving a vital function to society, I think part of the logic behind nationalization is so they can continue being of service with a healthier capacity. I don’t believe when we talk about nationalizing these big banks we’re talking about closing their doors all we’re talking about is eliminating shareholders and forcing bond holders to take losses. Socializing losses for bankers is what people are up in arms about.

MadridFebruary 14th, 2009 at 6:47 pm

But the entire problem right now is that there are too many banks in this country, and the entire industry needs to be downsized, just as the automobile industry and the manufacturing industry were downsized. The fact that there are too many caused them to take unnecessary risks in order to make profits. If the market functions the way it normally would, it will in time downsize the number of banks either through bankruptcies or through M and A. By nationalizing them, you will go from having too many banks to just having one. I don’t believe that once these big banks are nationalized that any remaining bank, no matter how small or well capitalized, will be able to survive. What shareholder will be willing to hold a bank stock after they see so many shareholders wiped out? And what kind of investment would it be in any case? How could the remaining publicly owned banks be anywhere near as well capitalized as the government endorsed ones? When seeking out a loan or a bank for deposit, would you choose one of the remaining publicly owned ones, or the one endorsed by the government? Of course you would choose the one from the government. If you begin nationalizing banks without them having gone through the natural process of bankruptcy first, you can be sure that that each and everyone other bank will go bankrupt in the days and weeks that follow.But let’s say some did survive. The main competitor to the leftover publicly owned banks would be a government endorsed super bank or collection of banks that would simply destroy any such banks that were left over. Dr. Roubini speaks of getting an IPO going to make public such new banks or turning them over to private equity, but who is going to decide who is going to do the IPO? Is it going to be Goldman Sachs, who has been making a bundle by shorting the existing bankshares of the old banks? What kinds of regional and ethnic problems will occur when people from San Francisco, Charlotte, Minneapolis, Atlanta etc. see New York effectively given first dibs on bank assets that used to be owned more regionally?The fact is that the US is not Sweden. Sweden could do what it did, because it was ethnically homogenous, and even then, I am sure certain regions felt that they were trampled over during the nationalizations. In this country, you could have the beginnings of real ethnic and regional struggle over who is going to profit from these new entities. Who is going to control them? Where are they going to be based?Last thing I would say: the problem in the US is not that there is too little lending. It was that there was and is way too much– too much lending and too much borrowing. We need less banks in this country, not a government sponsored entity that is going to lend out easy money to people that need to learn to get along without being indebted. That would be to create exactly the same problem over again. The country needs a time for healing, when people pay off their debts, when they save money instead of spending it on new houses and cars and boats and vacation houses. Roubini’s plan just causes more indebtedness, more borrowing, another cycle of boom and bust.If you let the market do its job, it will eliminate a bunch of banks, and the ones that are left will be more prudent in their lending practices.The more I see of Roubini, the more I think he wants to crash the market because he wants to see this grand experiment of nationalization. But the US is not Sweden, and I am actually not sure this whole experiment worked in Sweden that well anyway.

GuestFebruary 14th, 2009 at 7:27 pm

the times they are a-changing! Dedicated to The Swede – as an offer of peace…from Guest 13~14:59:37. With Sweden’s opportunity, with her healthy, intelligent people and her productive land with its great location for trade on the Baltic Sea, I wish you well.Sweden’s turn from socialism | The Washington TimesJune 16, 2007 — June 16, 2007 STOCKHOLM — Imagine a life where work is optional and the state guarantees a minimal standard of living regardless of employment or effort. Such a cradle-to-grave entitlement system has been the centerpiece of Swedish politics since 1932.Last September, 2006, a political earthquake shook the Riksdag (parliament) here in Stockholm when Swedish voters decided to cast off former Prime Minister Goran Persson’s venerable Social Democratic government in favor of a more market-oriented political alliance led by Moderate Party leader, Fredrik Reinfeldt…In 1950, with its industry intact and crucial iron and timber resources at hand, Sweden became the third-wealthiest economy, only behind the United States and the Soviet Union…Under this umbrella of semi-isolation, between 1952 and 1972 Social Democratic leaders Tage Erlander and Olof Palme built a welfare state of social programs that promised economic and political equality for all. New types of taxes such as the VAT (value-added tax) along with substantial increases with existing taxes such as for income and property funded the highest proportion of government spending in the industrialized world.The Swedish government still spends more money than any other government in the world, relative to gross domestic product (GDP). But changes are afoot…To Sweden’s credit, some of its economic reforms have already surpassed the United States. Its social security is partially privatized, the inheritance tax is eliminated, and most people no longer pay any primary residential property tax.”Social security, and the combined three levels of income taxes can still reach as high as 85 percent,” says Swedish attorney and entrepreneur, Ulf Sandstrom…Foreign capital is digging in. Many Swedish industries have merged and/or been bought with foreign capital. Volvo, Ericsson, Saab, ABB and Telia (the former State telecom) are no longer entirely Swedish-owned. On May 25, the Nasdaq Stock Market Inc. agreed to buy the Swedish stock exchange OMX for $3.7 billion to form NASDAQ OMX Group…Despite direct investments, more than 80 percent of new jobs come from small businesses, not the traditional corporations…[E]mployers’ reluctance to create Swedish jobs is a very flexible and widely abused sick leave policy.Though Swedish women receive very generous social benefits as a reward for having children, such as monthly allowances and up to 18 months of paid maternity leave, many feel entitled to take sick days for personal or family reasons that are costly for companies. Swedish fathers may take a six-month paid leave but frequently donate the time to the mothers. Low-income women with young children are most likely to abuse the system.Swedish journalist, Ulf Nilson of the newspaper Expressen, frequently refers to the Swedish work force as “the sickest in the world,” reflecting the statistical facts comparing it to other nations in the Organization for Cooperation and Economic Development.Currently, employers must pay the first four days of an employee’s illness without documentation from a physician. Virtually anyone can claim to feel ill on any given Friday or Monday with no fear of being questioned. Mr. Reinfeldt’s new government intends to reverse high employment costs by reducing the allowance given to sick pay and increasing the scrutiny needed for workers to claim medical leave.The long-term effect is a reluctance of Swedish employers to hire women, a topic deemed politically incorrect to discuss in a country that prides itself with a longstanding feminist tradition…Many young women, like the men, feel they must make their own future. In the medium-sized town of Halmstad, Ana Svensson, 28, recently purchased Olivia’s clothing boutique rather than work for Kommune (the local government office) or try to find the few corporate positions available. Instead, she prefers to run her own business because of the independence it brings her…At age 41, Mr. Reinfeldt is a member of this younger generation of Swedes that strives to embrace the changing global economy while adjusting existing cultural and institutional rules away from a tarnished socialist dream that sheltered Sweden for so many years.A global reality pressured most directly by its membership in the European Union has forced Sweden to open its semi-isolated, protected market. Today, Mr. Reinfeldt’s nonsocialist alliance reflects a generational change similar to political shifts recently witnessed in France and Germany.Josiah R. Baker teaches economics at Rollins College in Winter Park, Fla., and recently received a Swedish government grant to research changes in economic policies in Stockholm.

GuestFebruary 14th, 2009 at 7:48 pm

Very informative, very beautiful and very poignant. How wonderful to live in such breathtaking beauty with the Baltic Sea and the North Sea thundering and crashing against your shores! (Reading bottom up as I do with this new format, I saw this magnificent panorama after I posted below – Best to you, Guest.)

PeterJBFebruary 14th, 2009 at 7:49 pm

From Mish:”Geithner is easily the worst of Obama’s cabinet picks.”Agreed and Geithner will become THE most dangerous man in Obama’s Cabinet ably assisted by Mr Benanke (the next Pope), et al. Geithner will drive the USA into the dirt and then some. Geithner will ram the separation of the classes as supremely rich and poor; he will destroy the Middle-classes and give Americans a long period of stagnation and Geithner will oversea the coming American revolution that shall eventually evolve out of sporadic civil unrest. Geithner is an incompetent as his record clearly shows – for all to see and besides he is a priori dishonest, irresponsible, a bigot and a liar! And that makes him well suited (pun intended – but he has a lousy tailor) for Washington and the continuing era of destructive-economic-policy. All this has been exposed during recent testimony and conveniently overlooked as he is, in Washington terms; well qualified for the role.Mish is on the ball, as usual. Pay attention.Ho hum

blindmanFebruary 14th, 2009 at 7:51 pm

pjb,loved it! i have to do the whole verbe but have been unable to complete. i’m working on it. all this accelerated chaos is messing with my fishing and old time banjo ambition. don’tlaugh!a practical approach to health, global and human, and salvation. now there is an ideathat is so simple, true and important that it must be ignored or somehow perverted andpolitically spun into oblivion. but that is them, and that was then… if there is de evolution then there must be evolution and perhaps the evolution can beinspired by the former.i am currently distracted but compelled to comment. always love the right link, thanks.brilliant. people mistakenly assume the ubiquitous and essential are insignificant and irrelevant. (signature of ignorance). the source of the problems. we need a smack in the face, just to get our attention. ?what is it that determines or inspires one to change phase, to move on to the next perspective? chance, birth, genetics, situational dynamics etc? evolution. the universeadjusting to itself. hahahahahaahahaaaaaaaaaaa..good weather and tempting fishing reports? or is it a smack in the face? a good bloody nose?.”sane fear is a mans best friend” john cale.but the next line is ” you add it up it brings you down, you add it up it bringsyou down.”anyway. like i said i’m distracted. many things have been left neglected as ……..the beat goes on……. … . . . .. . . . .. .it would have served me well to have learned to speed read. accelerating to chaos.

GuestFebruary 14th, 2009 at 8:10 pm

What righteous, blustering, hypocritical, grandstanding! Of all senators, it is Boehner and his ardently pro-business and extreme free-market positions that got us into this mess. From where does this shell-of-man claim moral high-ground? It is a the hight of hypocrisy from a senator who has done every dirty trick in the book to advance his career and party. So I ask you Minority Leader Boehner, of the thousand bills you have voted on, how many of them have you read?I bet Ron Paul read every bill he voted on!

GuestFebruary 14th, 2009 at 8:11 pm

Well giving these banks tax payer lifelines is an atrocity! I don’t think anyone cares so much as how we dissolve these banks so long as we don’t get taken down with them and that they don’t get another dime of our children’s future.

blindmanFebruary 14th, 2009 at 8:18 pm

pjb,i would guess that both scenarios are in play, triage will determine which pretenderto legitimacy will be seated on the throne of redundancy. but when they “succeed” theywill be facing a powerful enemy. all of mankind. the smart may decide to take a fall.?i’m still distracted.. i’l be back later… gotta i think al quida was part of the proping mechanism for the dollar and that maysoon become, or may have become, unnecessary, redundant.( in a pedestrian sense ).??

MadridFebruary 14th, 2009 at 8:32 pm

You’re not a very strong reader, are you?Im not saying they need “tax payer lifelines.” In fact, that is what Dr. Roubini is saying needs to happen, even though he says to destroy the shareholders in the process (I suppose, out of some sadism that is hidden under that tossle of hair). I am saying don’t give them anything from now on, and pretty soon you will get some divergence in stock price that will separate out the good banks from the bad ones. The bad ones will fail, the shareholders will be wiped out (Dr. Roubini and you will have your blood), and then we can move on with the surviving banks. Their weakness over time will allow lending to come back into the system, but not until people have learned to live for a while without the debt levels that we have lived with for the last 20 years.Additionally, I have to note that your attitude is quite immature– the fact is that so many entities and people are to blame in this mess that one can’t really center all the blame on the banks. Even without all the CDS, CDO, the MBS, and everything else, just the popping of the real estate bubble would have been and has been calamitous. And the RS bubble was not caused by the banks– it was caused by the Fed.

GuestFebruary 14th, 2009 at 8:34 pm

nationalize banks and wipe out common, bond? this crisis is because of borrowers can’t or refuse to honor their debt obligation. what about wipe out those borrowers? let foreclose all that defaulted or gonna default. lets wipe out those home owners. just nationalize banks is not enough. to wipe out all debt, wipe out all borrowers and bar them from borrow for next couple decades.

HayesFebruary 14th, 2009 at 8:34 pm

G-7 Says ‘Severe’ Downturn to Persist, Vows to Reverse SlumpFeb. 15 (Bloomberg) — Group of Seven finance chiefs vowed to tackle a “severe” economic downturn that will persist for most of 2009 without spelling out new steps to do so.The G-7’s finance ministers and central bankers said in a statement released after talks in Rome yesterday that they were working to restore confidence in markets and revive the world economy. They predicted the full effect of individual rescue packages will “build over time.” …

GuestFebruary 14th, 2009 at 8:35 pm

put a record on all that defaulted and keep that record for next couple decade and bar them from subprime borrowing again.

HayesFebruary 14th, 2009 at 8:40 pm

a must read from YvesSaturday, February 14, 2009Another Sign That Volcker is Marginalized (And a Preview of His Program

HayesFebruary 14th, 2009 at 8:42 pm

and another”We Are Threatened by a Veritable Disaster”

HayesFebruary 14th, 2009 at 8:46 pm

and thisA large, truly global slumpPosted on Friday, February 13th, 2009By bsetserChina’s GDP growth stalled in the fourth quarter, which represents an enormous deceleration from its typical fast growth.US GDP fell at a close to 4% annualized rate in the fourth quarter. The decline would have been steeper but for a big buildup in inventories. That will subtract from growth in q1.Japanese GDP growth fell by around 10%. Some estimates are now even putting the q4 fall, annualized, at close to 12%. The fall in smaller Asian economies was often even larger.

Thomas E. MillerFebruary 14th, 2009 at 8:56 pm

CDSs sre semantics surrounded by theoretical mathematics,there is no “money for nothing”,if you can abide tearing yourself from your Ivory Tower,take a walk through a “middle class” or even better, a lower class, neighborhood.There is no disposable income;there is mostly no money at all to meet the basic survival needs of millions of working people right here in the U.S.of A.Just DEBT,loads and loads of Plastic,Paper,Digital ad infinitum DEBT!The economic manipulators ( i.e.IMF,World Bank et al)just couldn’t contain their greed,so voila,the system is BROKE.Roubini is correct and time will bear that out!!!!Wake up and smell the coffee(or bullshit or whatever you wish to call it)the game is up.I wish you well.

blindmanFebruary 14th, 2009 at 9:00 pm

ben looks like he just finished eating henry paulson, and he is not a smallman. satisfying. tim is gesturing as if to say…” i have no idea where he went? maybe he’s under the table?” ” he was here just a few minutes ago?”apparently the guys to his left are aware of the circumstances. maybe contemplatingwho is for desert? that should be what is for desert.?that’s my guess but, obviously, i was not there.

GuestFebruary 14th, 2009 at 9:29 pm

Fine, this is what makes a proper argument and you label it for what it is, socialism. And if all of you think that this is the way to go, then Sweden is your answer.Sweden was free to make its experiment because the U.S. up to this time has handled all its military conflicts. So it created its current nest – and those who love it can all nest in it.But change is in Sweden’s political air. After being pushed economically downhill all these years by its elected socialistic leaders and with its finest and best educated young people leaving The Swedish Dream for a better dream, the Swedes in 2006 elected a more moderate, more capitalistic government, albeit only narrowly. And, Sweden has a habit of returning the socialists to power.But how you people can confuse the principles of laissez-faire capitalism and the economics of Ron Paul and Ludwig von Mises and Paul Craig Roberts and Henry Hazlitt and our Founders with “B.S. corporate fascism” escapes me.As Voltaire lamented, “It is hard to free fools from the chains they revere.”

GuestFebruary 14th, 2009 at 9:56 pm

Common on, Peter JB. You don’t really believe Geithner is the source of our problems, do you, good or bad pick? Frankly, I’d rather have a bad pick in the treasury than a smooth pick whom the sheeple love.Problem-wise, Geithner is a gnat. Our problem is the leviathan he represents. As one of America’s greatest statesman, Louis McFadden wrote on July 30, 1930, in “Basis of Control of Economic Conditions”: This control of the world business structure and of human happiness and progress by a small group is a matter of the most intense public interest. In analyzing it, we must begin with the internal group which centers itself around J.P. Morgan Company [affiliated with the House of Rothschild and all its other affiliates]. Never before has there been such a powerful centralized control over finance, industrial production, credit and wages as is at this time vested in the Morgan group… The Morgan control of the Federal Reserve System is exercised through control of the management of the Federal Reserve Bank of New York. ~Have things changed so much, Peter JB, that firing a hireling of the NYFed will assuage the world’s bondage?

GuestFebruary 14th, 2009 at 10:45 pm

And let us not forget wholesale corruption. To save this international banking group — these shadowy figures behind the Federal Reserve System — and the Americans who front for the unknown figures known as the “London Connection,” is to destroy ourselves, as we are now being destroyed. Are we forever to bow to those who would enslave and impoverish us? We have been handed a means of escape that may never cross our way again: are we to fall on our knees and offer our hands to be bound and retied by an all-consuming money monopoly?Are we so delusional we no longer recognize liberty?As you say, “let the market do its job, it will eliminate a bunch of banks, and the ones that are left will be more prudent in their lending practices.” And, hopefully, the market with a push from new representatives will eliminate the Federal Reserve “System.”

Octavio RichettaFebruary 14th, 2009 at 10:48 pm

I like your post. It is cool. But still I urge you to read the article. I do not doubt quite a few banks, even big ones, will go under. But the assumptions on the value of the toxic stuff is way too pessimistic. Just a couple 100 billion USD from uncle Sam and the valuation metrics will change dramatically. read the Barron’s editorial this week. I am not talking my book. I am a little guy with about 3% of my liquid net worth placed on XLF leap calls. I may loose 100%, I honestly don’t care; but I doubt all financials in the US will be nationalized.

Octavio RichettaFebruary 14th, 2009 at 10:54 pm

wow! Do you think the political clown who knows his little niche assures him reelection read the stuff? Hi is just another &%^*bag.

GuestFebruary 15th, 2009 at 12:40 am

The Federal Reserve will advance any amount needed to the FDIC– all that is needed is an accounting entry. If the seizure(s) takes place at 5pm on a day certain the funds will be available to insured depositors at the opening of business the next business day. Anyone who thinks you need to print little pieces of paper with pictures of Presidents is living in the 19th Century.

blindmanFebruary 15th, 2009 at 12:49 am

pjb,and, it has been saidand i paraphrase, that this “witnessing on a surface” makesan impression in mind and thisis accompanied by a general void which informsor relates to the particular original mental modification. as in…yoga, (union), is the inhibitionof mental modification,or recognition of the dynamicof the rising of content in mind andthe corresponding and endless cycle ofrenewal and destruction.destruction and renewal. and most importantlythe space or breath embedded in the cycle..the “reductionist” technique of attention to,extention of, theunderlying void, or consciousness, with no objectfollowing “witness on a surface” EXPERIENCE.identificationand absorption into/with this associated spaceis considered by some to providea window into the universe, ( consciousness )perhaps from the inside out.up and down the ladder of attitude.or a means of transcending time and space. knowing. possibly. seeing. or being…through experience / reflection and aforementioned ,revealing the nature, precisely, of the essentialbias of milieux. the future. or the presentor cause being effect.i still indulge in awe. and other stuff…but..i was never the sharpest toolin the shed.peace. that i bias.!

snsFebruary 15th, 2009 at 1:00 am

nathan: roubini explicitly stated the contradictions in a public forum hence he made it everyone’s business. the contradiction stated in a public forum makes the question legitimate. did i ask you? no i did not. therefore it is not YOUR business to answer for the man. please mind your business. i shall continue posting the question (it was listed as Featured Blog Comments in the prior blog for a reason) until i get a satisfactory response.thank you

blindmanFebruary 15th, 2009 at 2:01 am

pjb,to witness a structure fulfill its function is always reassuring. it gives merenewed faith in the laws of the universe and sometimes i need that. but lawsare laws and they say you can’t be in two places at once? so for peopleto be in the right place requires that they stop existing in the wrong place.or to do the right thing in any instant you have not to be doing the wrong thing.we will be forced to stop doing the wrong thing, it is the source of thecollapse and the collapse is making the continuation of that behaviorevidently fruitless and impossible. so the opportunity arises to do something else, perhapsthe right thing. structure that is based and built in practical circumstance tofunction. very possible. every day people are falling from the chain of futilityand ignorance. and the days are getting longer.

Brett in ManhattanFebruary 15th, 2009 at 2:02 am

In case you have taken a look at the stock prices of the big banks, the shareholders have already been wiped out for all intents and purposes. Citibank was a 50-55 stock which is now $3.

GuestFebruary 15th, 2009 at 2:06 am

the sooner other countries stop buying our t-bills the better. this nonsense has to stop.first, our gov’t is insolvent. only 4th grade math required here. 12T today on its way to 20T by 2011. at 20T and 3% interest, that’s .6T in yearly interest, or 30% of total tax revenues just to pay interest. is an impossible amount of principle. period.second, housing is still WAY overvalued. those who own a home wish like hell it weren’t so, but know deep down it is. still another 20% correction, or $2T of mortgage write downs to go, which will bring down the banks and lead to the nationalization being discussed. just more debt for #1 above that gets written off when the gov’t goes bankrupt.third, the majority of the citizens in our country suck ass. not you people reading this. the other 99.9% that are fat, lazy, horribly selfish, and uneducated. they are taken advantage of by big business and by our political system. at the end of the day, that is what is responsible for bringing us down. they can’t control their spending. they can’t control their desires. they can’t control their children. they don’t hold themselves responsible so neither does the gov’t they elect. this is what is driving #1 and #2 above. roubini’s narrative on how this ends doesn’t factor in the rot that is at the core of this, and there is no magic stimulus or quick fix for this.complete economic collapse. that’s what’s on tap. followed by a decade of hard times that will wipe the drug induced smile off the face of our country. in the end we’ll be a happier people, just need a heavy dose of tough love and discipline … and before you know it this will be a place worth fighting and dying for again.

Guest from the NetherlandsFebruary 15th, 2009 at 3:07 am

The difference is that nationalizing doesn’t create future stock value for existing sharholders, irrespective of the current stock price. The simpel method is always to nationalize, to clear the balance sheet and to take the cleaned bank to the NEW shareholders instead (paying a much higher price for the stocks than where the old shareholders had to leave it behind). Roubini c.s. delivers the statement that big N word or receivership should be the real final solution of the credit crisis, but it simply isn’t. Moreover, it is rather idiocy to nationalize institutions just because no one can properly judge the real value of these toxic assets. One of the main things to consider is to leave it all under appropriate governmental guarantee until that value can be determined again (when trading toxic assets can be resumed). So let’s all wait until housing prices have reached their bottom. This is the crux anyway. Nationalizing banks and cleaning balance sheets now only creates misery, and not a dime of added value. One of the drawbacks of RGE Monitor in this instance is that all these wrong stories get their own dynamics at the end. No one seems to understand the importance of less stricter ruling in Basle II, adding to this that nationalizing banks or companies is not a medicine to this illness, that persists from overlending and overconsumption.

GuestFebruary 15th, 2009 at 6:17 am

None of the banks’ shareholders complained when their stocks were sky-high due to the fake, debt-bubble-driven boom of the past decade, all under Basel II.

GuestFebruary 15th, 2009 at 7:33 am

when countries stop buying treasury or t-bill, the government will start printing.what government need to do is do nothing to intervene the market. no TARP, no STIMULUS, cut down government and local government spending, cut down social welfare, social security, and medicare benefits.and we need to wipe out all common and debt of failed institution. we need to wipe out all borrowers who can’t or refuse to honor their debt obligation and record them as “not allow to access credit for next couple decade”. we need to wipe out all irresponsible borrowers and lenders. may be we should put some of irresponsible borrowers and lenders in prison.But Obama and Geithner can’t do it, can they? NO, WE CANT.

GuestFebruary 15th, 2009 at 7:40 am

yes, wipe out all irresponsible borrowers who gonna default and record them as “not allow to credit for next couple decade” -> wipe out irresponsible home owners, credit card loan/student loan/auto loan/business loan borrowers. if they gonna default, mark them. wipe out irresponsible lenders -> all insolvent institutions should be in government receivership. wipe out federal government and local government useless spending -> cut government spending (need to cut to the bone), go BK, or print alots of dollar to wipe out all public debt. put all democrats behind bar, their strategy of tax and spend will destroy USA. need to arrest all of them and put them behind bar under patriot act.

GuestFebruary 15th, 2009 at 7:46 am

Will the conservatives just please die off, you’ve destroyed our country with economic inequality and now you want to blame the poor. Just please finally die off you’ve done all the damage we can handle with your selfish,hateful message hidden behind “We need more responsibility” rhetoric. You know what lies behind all that “responsibility” nonsense is a shallow insecure pitiful man who blames welfare recipients for all their problems.

DRFebruary 15th, 2009 at 7:52 am

OR, a long time reader and very infrequent contributor…I’m very appreciative of the community of posters like you who add substantively to the conversation, and not with ‘guest’ which I just skim past.My observation to my fellow Canadians and those living specifically in Toronto…just had my mortgage renewed for 5 years at 4%. Speaking with the Mortgage Manager of my local TD Bank. I asked him how home prices were coming in, the banks appraisal versus the homeowners expectations. This week; the homeowner thought the house was valued at $1.25 Million; the city’s tax assessment was $850k; the Bank’s appraisal? $680k. Make of it as you will.DR

GuestFebruary 15th, 2009 at 8:11 am

Why does everyone equivocate socialism to communism? We all look to the Soviet Union and China as examples of socialism but really those are dictatorships hiding behind the moral nameplate of socialism. Couldn’t socialism be practiced with free elections? etc.What’s interesting is that a new pattern in the world is starting to emerge we’re starting to see a major shift towards a hybrid of capitalism and socialism. In other words it’s dawning on society that neither ‘ism’ really works well on its own and every industry and or concern for public welfare has to carefully weighed on a case by case basis. This is exciting I feel because we’re moving in the direction of true intellectualism or thoughtful concern for the welfare of all.

GuestFebruary 15th, 2009 at 8:29 am

you are an idiot. we can’t nationalize banks and wipe out all common and debt holders. we need to inject capital into financial institutions to fix their balance sheet overtime.

GuestFebruary 15th, 2009 at 8:55 am

Socialism, Communism and Capitalism are economic systems. Dictatorship and Democracy are political systems. China used to be a communist dictatorship. Now it is more of a capitalist dictatorship. And yes, socialism can be practiced with free elections. See most European countries for this.I certainly hope we are moving towards a more socialistic existence, like what we had in the 30s to the 80s. Despite what the hypercapitalists say, it won’t mean people can’t get rich. It just means we will care for our poor, handicapped, unemployed, etc.

GuestFebruary 15th, 2009 at 9:06 am

we need 8 weeks paid vacation, unemployment compensation for 1/2-1 year, and universal health-care and college like in France. we also need to boost income tax to 40% to qualify as socialist country.

Pecos BankerFebruary 15th, 2009 at 9:25 am

According to what I read recently re: Senator Kantorovich (SP?) discussing the near meltdown on Sept 18, the FDIC insurable limit for depositors was upped to $250,000 just to instill confidence and avoid a precipitous meltdown. Like all insurance, it only works when there is are a limited number of cases and fails in a systemic crisis. This whole situation with the banks has gotten beyond ridiculous.

Pecos BankerFebruary 15th, 2009 at 9:56 am

Antal Fekete just wrote a fascinating paper over on Safehaven.com this paper he explains his “Iron Law of the Burden of the Debt”. Basically, he uses some simple mathematics–specifically showing that the liquidation value of perpetual debt can be modeled by an infinite series which discounts payments on perpetual debt to their present value–to demonstrate that serial reductions of the interest rate by central banks have the effect of magnifying this debt exponentially and making it impossible to pay off. This is because all currencies are now irredeemable–ie, not backed by gold. The debt thus “behaves like nuclear fuel: once the threshold is reached and exceeded, chain reaction sets in and the monetary system explodes.” People have trouble with this idea because one tends to favor halving interest rates for paying off loans, for example. But this works in reverse for perpetual debt.He claims the White House has been hijacked and that only speculators are buying government debt to obtain risk-free profits with no faith that the government will ever repay the debt. He concludes that deflation will be unleashed, pension funds will go up in smoke, and all countries will face hyper-inflation.I hope some of you will read this paper and weigh in on his argument. Someone like OR who is very adept with financial mathematics, perhaps?

Thomas MillerFebruary 15th, 2009 at 10:26 am

The “poor other guys” jobs have all left for foreign soil.Good luck on a “service” economy which skims the gravy(“profits”)from whom it is rightfully due and with those funds “creates” a service economy.Look at employment statistics,which jobs produce more capital than their employment numbers employ(manufacturig,mining,agriculture&constuction )to name a few. These jobs PRODUCE wealth,they don’t just slush it around Wall St. calling it “profit”.

GuestFebruary 15th, 2009 at 10:29 am

But, my dear, who will make the sandwich for you to share? Why bite the hand that feeds you?A Fool: A person who pervades the domain of intellectual speculation and diffuses himself through the channels of moral activity. He is omnific, omniform, omipercipient, omniscient, omnipotent. He it was who invented letters, printing, the railroad, the steamboat, the telegraph, the platitude and the circle of the sciences. He created patriotism and taught the nations war — founded theology, philosophy, law, medicine and Chicago. He established monarchical and republican government. He is from everlasting to everlasting – such as creation’s dawn beheld he fooleth now. In the morning of time he sang upon primitive hills, and in the noonday of existence headed the procession of being. His grandmotherly hand has warmly tucked in the set sun of civilization, and in the twilight he prepares Man’s evening meal of milk-and-morality and turns down the covers of the universal grave. And after the rest of us shall have retired for the night of eternal oblivion he will sit up to write a history of human civilization. A. Bierce

GuestFebruary 15th, 2009 at 10:31 am

Well see this is exactly how the government comes up with its figures too. My house is worth 150k I just recently had it appraised but the city says no it’s worth $250k. If I could sell it for 250k right now I would kiss a gorilla!

PeteCAFebruary 15th, 2009 at 10:41 am

By the way … it is impossible for the US to nationalize its banking system without figuring out a way to handle all the derivatives transactions. That’s the elephant in the middle of the room. Who takes ownership and responsibility for all these deals?Some have proposed closing the derivatives trades by just nixing the agreements. But this violates contract law, and it shifts the burden of losses onto other players in the banking system (e.g. European banks could be big losers if interest rate swaps are declared null and void). This would cause the US Gov’t & financial system to be completely alienated from the global banking system, OR it means that the Fed must pay $$ reparations to cover all the potential losses from the derivatives trades. Either way – it looks like an enormous nightmare. This is why I objected a long time ago when the Fed started stepping in and bailing out all these Wall Street banks – they potentially set themselves up as the financial backstop to the entire global derivatives system. It puts them on a path where they are destined to go down in flames.PeteCA

GloomyFebruary 15th, 2009 at 11:01 am

“Just last week, the new United States director of national intelligence, Dennis C. Blair, told Congress that instability caused by the global economic crisis had become the biggest security threat facing the United States, outpacing terrorism”

PeteCAFebruary 15th, 2009 at 11:14 am

Subgenius gave a link to a recent commentary by Dmitri Orlov above. For those of you who don’t know Orlov – he has been forecasting the collapse of the USA as a superpower for many years. His thoughts are drawn from parallels about what happened to the former Soviet Union.I took a look at the link … because I have been thinking about Orlov’s ideas again lately. Here is a quote from a long, interesting recent article by Orlov:”So that’s what we have now. The ship [US economy] is on the rocks, water is rising, and the captain is shouting “Full steam ahead! We are sailing to Afghanistan!” Do you listen to Ahab up on the bridge, or do you desert your post in the engine room and go help deploy the lifeboats? If you thought that the previous episode of uncontrolled debt expansion, globalized Ponzi schemes, and economic hollowing-out was silly, then I predict that you will find this next episode of feckless grasping at macroeconomic straws even sillier. Except that it won’t be funny: what is crashing now is our life support system: all the systems and institutions that are keeping us alive. And so I don’t recommend passively standing around and watching the show – unless you happen to have a death wish.Right now the Washington economic stimulus team is putting on their Scuba gear and diving down to the engine room to try to invent a way to get a diesel engine to run on seawater. They spoke of change, but in reality they are terrified of change and want to cling with all their might to the status quo. But this game will soon be over, and they don’t have any idea what to do next.”PeteCA

GloomyFebruary 15th, 2009 at 11:33 am

John Maudlin:”But European banks may be in far worse shape. Bruno Waterfield of the London Daily Telegraph reports to have seen an eyes-only document prepared by the European Commission for the finance ministers of the various EU member countries. The problem revealed in the report is an estimated write-down by European banks in the range of 16 trillion pounds, or about $25 trillion dollars! The concern is that bailing out the various national banks for such an unbelievable amount would push the cost of government borrowing to much higher levels than we see today.As my kids would say, “Really, Dad, you think so?” Europe is somewhat larger than the US, so think what my gold-bug friends would say if the US decided to borrow $25 trillion to bail out US banks. The dollar would be crucified! The euro is going to get a lot weaker if bank problems are even half of what the report says they are. The British pound sterling is already off almost 30% and, depending on what the real damage is to their banking system, it could get worse.Waterfield reports, “National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors — particularly those who lend money to European governments — have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.”The Commission figure is significant because of the role EU officials will play in devising rules to evaluate ‘toxic’ bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries.”Part of the problem is that European banks were far more highly leveraged than US banks. Some banks were reportedly leveraged 50:1. And they lent money to Eastern European projects and businesses which are now facing severe financial strain and plummeting local currencies.Let that number rattle around in your head for a moment: $25 trillion. Even $5 trillion would be daunting. But the problem is that Europe does not have a central bank that can step in and selectively save banks from one country without taking on all euro zone member-country banks. Yet, as noted above, some countries may not have the wherewithal to save their own banks. It is reported that some Austrian banks are hoping that Germany will step in and help them. Given Germany’s problems, they may have a long wait.”

GuestFebruary 15th, 2009 at 11:42 am

Have we (meaning US) driven the World economy off a cliff and, if so, won’t we be expected to take the largest share of the losses, and if we do not, what then ?

GuestFebruary 15th, 2009 at 12:07 pm

“We shall now proceed to construct the Socialist order”: V.I. Lenin: Address, Congress of the Soviets, November 8, 1917“That which is called Socialism, Marx named the first, or the lower, phase of Communism.” V.I. Lenis: Sochinenlya (Works), 4th ed., Moscow 1949, Vol. 25, p 442: Political Science Quarterly, Vol. LXXLSaid Joseph Stalin, “Our Soviet society has succeeded in achieving socialism, in the main, and has created a socialist order, i.e., has achieved what is otherwise called among Marxists the first or lower phase of Communism. It is known that the fundamental principle of this phase of Communism is the formula: ‘From each according to his abilities; to each according to his need.’“But Soviet society has not yet succeeded in bringing about the higher phase of Communism, where the ruling principle will be the formula: ‘From each according to his abilities; to each according to his needs.’” New Soviet Constitution, p. 11.Though Stalin’s Russia was not socialist but a dictatorship – as is Mugabe’s Zimbabwe, Kgalema Petrus Motlanthe’s South Africa and Chávez’ Venezuela — his description of what Soviet society wanted has become a description of where America is headed — a dictatorship of the proletariat. That’s what you want and that’s what America is achieving. And if America isn’t a dictatorship, why is it that we don’t have any representation in Congress? Why is it that the people can’t be heard? Why does it do no good to contact your representative?This dictatorship of “our betters” uses the mob to rule the rest of us. It is using “an excess of democracy” to move us rapidly toward totalitarianism.As Robert Ringer said, “Wealth can be produced if men are free. If men are not free, then slaves produce wealth for those in power.”

GuestFebruary 15th, 2009 at 12:59 pm

I believe that’s right it’s Obama’s resistance to change along with the Wall Street boys giving him orders that will destroy are only hope. Wall Street and the White House are clearly taking the ship down and all the rest of us with it so as not to give up the broken status quo.Prepare yourself because Obama turned out to be one of them!

GuestFebruary 15th, 2009 at 1:09 pm

And all I do is dream of gold….Reply to this comment By Gloomy on 2009-02-15 11:36:16Be careful!Forget about inflation. There has never been in the history of the world an inflationary run while land prices were declining. The amount of debt being destroyed as the monster of a debt bubbles implodes will suck down all asset prices and just absolutely collapse the velocity of money.Factor in some serious de-leveraging by every single kind of market participant, and there is no way commodities can resume their ‘secular Bull market’ for years to come.Take a look at copper for example. Copper just smashed through a multi-year trend line after putting in a long topping formation. Since 2006 prices have been hitting the same highs and getting rejected. This break down is of utmost importance.Game over.I’m firmly in the deflationist camp.”As soon as the fear and panic subsides, the easy money will be made SMASHING gold short as people finally realize that inflation is what we HAD and that deflation is what we will HAVE. MA be wrong?hlowe

GuestFebruary 15th, 2009 at 1:14 pm

Clarification.This article came out September 30, 08.From David Rosenberg at Merril Lynch (now Bank of America) today:Referring to MA above is in regard to his post on gold.hlowe

GloomyFebruary 15th, 2009 at 1:17 pm

Gold’s value ain’t got nothing to do with inflation or commodities. Gold is money pure and simple. Governments around the world are taking out debt that they can’t repay. And little by little this fact is dawning on investors. Will Europe imlpode and the dollar be strong? Think of the gold that Europeans will purchase. What will happen when the US is forced to buy large quantities of tresuries as auctions fail due to insufficient buyers for the massive supply? Think of the gold Americans will buy.

GuestFebruary 15th, 2009 at 1:31 pm

That’s right we need to jump start the economy by creating a bubble in bank stocks funded by hard working tax payers who have no extra money but we’ll just in debt them up to their eye balls and steal their children’s future because foolish investors lost their a$$. Sorry if you lost your a$$ in the stock market but maybe the more honorable thing to do would have been to invest your money in a business that created jobs for people instead of partaking in the ponzi scheme stock market. People with money speculating on pieces of paper and lies is what created this fiasco and you want us to go back to the same thing?-crazy

subgeniusFebruary 15th, 2009 at 1:58 pm

People in positions of power are still playing by the old rules, and the vast majority of the population are expecting a return to what they believe to be the status quo – missing the obvious point that there has been continual change for a couple hundred years….Just look at the constant back and forth over “inflation vs. deflation”The currencies you are arguing about will quite probably cease to function. They become toilet paper.Even my wife, who often argues my position with her friends, is still looking for the next cute new dress/great new boots/etc. – She really does still believe that a career and all the easy living success brings are just around the corner. I can see no evidence of anybody really preparing for the problems ahead. Its the childhood mentality of “if I don’t think about it, it can’t happen…”I live in earthquake-central, and after a bit of a trembler last year I asked everybody I met for a week about their preparations “just in case” – The response was universally “absolutely nothing”. This was from (highly) educated individuals who have been living in a risky place most/all of their lives. The same kind of thinking holds for “Tornado Alley” – who in their right mind would live in a trailer with no easy access to a storm cellar…apparently a lot of families…If people in these situations with a known risk factor can’t overcome the inertia to prepare (which would take maybe 1 day and $100 in the case of SoCal), what hope for a society that has existed in a much more coddled state for the entirety of their lives?

subgeniusFebruary 15th, 2009 at 1:59 pm

My favorite quote from the many in the previously-posted article – this is quite probably where I will be in a decade or so:Or perhaps you want to start a community health clinic, so that you can provide some relief to people who wouldn’t otherwise have any health care. You don’t dare call yourself a doctor, because these people are suspicious of doctors, because doctors were always trying to rob them of their life’s savings. But suppose you have some medical training that you got in, say, Cuba, and you are quite able to handle a Caesarean or an appendectomy, to suture wounds, to treat infections, to set bones and so on. You also want to be able to distribute opiates that your friends in Afghanistan periodically send you, to ease the pain of hard post-collapse life. Well, going through the various licensing boards and getting the certifications and the permits and the malpractice insurance is all completely unnecessary, provided you can surround yourself with a lot of well-armed, well-trained, mentally unstable friends.

blindmanFebruary 15th, 2009 at 2:03 pm

Flying Burrito BrothersSin City.(Graham Parsons/Chris Hillman). 1969This old town is filled with sinIt’ll swallow you inIf you’ve got some money to burnTake it home right awayYou’ve got three years to payBut Satan is waiting his turn..This old earthquake’s gonna leave me in the poorhouseIt seems like this whole town’s insaneOn the thirty-first floor your gold-plated doorWon’t keep out the Lord’s burning rain..The scientists say it’ll all wash awayBut we don’t believe anymore’Cause we’ve got our recruitsIn their green mohair suitsSo please show your I.D. at the door..This old earthquake’s gonna leave me in the poorhouseIt seems like this whole town’s insaneOn the thirty-first floor your gold-plated doorWon’t keep out the Lord’s burning rain..A friend came around tried to clean up this townHis ideas made some people madBut he trusted his crowdSo he spoke right out loudAnd they lost the best friend they had..This old earthquake’s gonna leave me in the poorhouseIt seems like this whole town’s insaneOn the thirty-first floor your gold-plated doorWon’t keep out the Lord’s burning rain..On the thirty-first floor your gold-plated doorWon’t keep out the Lord’s burning rain.. of those songs with a certain message for the ages, for ears that hear this particularlanguage and iconography.

GuestFebruary 15th, 2009 at 2:11 pm

Thank you for posting this, subgenius. It’s fascinating.Before too long we shall see how much the US is like USSR (or America like Russia).I always thought in our bankrupting the USSR with the arms and CIA race we were also bankrupting outselves. They just fell first.

GuestFebruary 15th, 2009 at 2:12 pm

Will the capitalist just please die off, you’ve destroyed our country with economic inequality and now you want to blame the socialism. stop blames welfare recipients for all problems you capitalist pigs caused.

GuestFebruary 15th, 2009 at 2:26 pm

yes, please take care of poor and unemployed. we are entitle to live and enjoy life. please give us unemployment benefits for 1/2-1 years, give us free medical/dental coverage, free college if we decide to go to school for career training. we also need free child-care program. and free food stamp and housing? thanks Obama.

GuestFebruary 15th, 2009 at 2:30 pm

Gram Parsons “Ooh Las Vegas”Ooh, Las Vegas ain’t no place for a poor boy like meOoh, Las Vegas ain’t no place for a poor boy like meEvery time I hit your crystal cityYou know you gonna make a wreck out of meWell, the first time I lose I drink whiskeySecond time I lose I drink ginThird time I lose I drink anything’Cause I think I’m gonna winOoh, Las Vegas ain’t no place for a poor boy like meNoOoh, Las Vegas ain’t no place for a poor boy like meEvery time I hit your crystal cityYou know you gonna make a wreck out of meWell, the Queen of Spades is a friend of mineThe Queen of Hearts is a bitchSomeday when I clean up my mindI’ll find out which is whichOoh, Las Vegas ain’t no place for a poor boy like meOoh, Las Vegas ain’t no place for a poor boy like meEvery time I hit your crystal cityYou know you gonna make a wreck out of meInstrumental (Electric Guitar)Well, I spend all night with the dealerTryin’ to get aheadSpend all day at the Holyday InnTryin’ to get out of bedOoh, Las Vegas ain’t no place for a poor boy like meOoh, Las Vegas ain’t no place for a poor boy like meEvery time I hit your crystal cityYou know you gonna make a wreck out of me.

subgeniusFebruary 15th, 2009 at 2:30 pm

The US didn’t bankrupt the USSR – though it likes to believe otherwise for that frisson of self-validation the belief of being the “one true power” brings…

GuestFebruary 15th, 2009 at 2:49 pm

PepsiCo and Coca Cola profits dropped 4Q 2008. They are giving their various reasons, but I’ll tell you what, IMO, is taking a big gulp out of their profits – the $2.75 to $3.25 for a 12-ounce glass of their brown sugared water – with ice cubes — charged in most U.S. restaurants these days. I was in a mid-priced restaurant Sunday evening and the waiter, instead of asking what we’d like to drink, asked, “Do you want anything to drink besides water?” Which caused me to look around, and sure enough, no one was drinking anything but water.Said the AP, 2.13.09. – PepsiCo Inc., the global snacks and soda maker, said Friday that its fourth-quarter profit fell 43 percent as the stronger dollar shrunk profits…the world’s second-biggest beverage maker after Coca-Cola Co., earned $719 million, or 46 cents per share, down from $1.26 billion, or 77 cents per share, a year earlier… PepsiCo Americas Beverages posted a 10 percent sales decline as the North American soft drink industry saw its first year-over year sales decline.Both Coke and PepsiCo said a stronger dollar reduced quarterly operating income.Said Reuters — More than three-quarters of Coke’s sales volume comes from abroad…Coke said global sales by volume rose 4 percent. JPMorgan analyst John Faucher called that “kind of remarkable” since eight large beverage and household product makers have reported results so far, and Coke is only the second to see a quarterly gain, after Colgate-Palmolive Co.Coke said net income fell to $995 million, or 43 cents per share, in its fourth quarter, from $1.21 billion, or 52 cents per share, a year ago. Coke said a stronger dollar reduced quarterly operating income 9 percent.Said Reuters: Coke’s U.S. sales have been hurt as high gas prices kept many people away from gas stations and convenience stores and the recession leads people to cut back on dining out. Yet Coke Chief Executive Muhtar Kent told reporters that lower gas prices have helped sales recover, at least at restaurant drive-throughs.

GuestFebruary 15th, 2009 at 3:03 pm

You are the people who think if you can hang by your legs from a tree and shout epithets at the emperor, or call Reagan or Bush or Obama dirty names, you have freedom.

GuestFebruary 15th, 2009 at 4:11 pm

“To Alter or Abolish” 2.14.09 by David BardallisNote: The following letter was found left behind at a local drinking establishment; the authors’ identity is unknown. It is passed along without comment.”That whenever any form of government becomes destructive of [life, liberty, and the pursuit of happiness], it is the right of the people to alter or abolish it…” ~ Declaration of Independence of the American Colonies, 1776Dear Federal Government,Drop dead.Excuse us. Some may consider such bluntness to be indecorous, but why beat around the bush? In any case, we’ve been around this bush (Bush?) too many times to count already. It’s time to let you know what we really think of you, what we say behind your back, what we whisper to each other when you leave the room.We hate you. We want you to drop dead. Or, anyway, to go away and never come back. You are not welcome anymore. We have tolerated you – and we emphasize “tolerated” – for a long time, long after whatever romance there may have been was gone. We can pretend no more. You are disgraceful, boorish, nauseating, corrupt, shameful, arrogant, dishonest, self-serving, parasitic, disgusting, hypocritical, and rotten to the core. You have not even one redeeming quality. There is nothing you offer that we want any longer…We suppose you can be forgiven if this letter comes as a shock. “Why,” you say, “what do you mean? I still command great respect and inspire widespread adulation. And I still care about you. Isn’t it obvious?”It’s true that, in public, we often nod our heads and agree with you, even defer or appear to defer to you. But we assure you that this happens not out of respect; rather, it arises merely from the fact that you have a lot of guns and a bad temper…At any rate, our revulsion toward you has finally come to outweigh any fear we have of you. We refuse to keep our real feelings in for even one more second. We want you gone from our lives. And we mean completely. Vamoose. Go. Die.Please understand we aren’t here to argue. No special new subsidy, tax break, or privileged “loophole” is going to sway our opinion or make us change our minds about this. We’ve been there, done that, for too many decades to count now. Likewise, your threats are starting to make us yawn and even laugh. You see, we know all your tricks now. We can see through your lies because we’ve heard them all so many times before. We are fully aware of your true nature, and we see that that nature is radioactive evil, wrapped in a tattered blanket of ignorance, foolishness, and stupidity.Look, we know it’s only a matter of time anyway. Your dimwittedness, greed, fraudulence, and moral bankruptcy are finally starting to catch up to you. Even your former employees admit as much. Do you remember Paul Craig Roberts, one of your past Treasury officials? Today he says of your latest economy-wrecking and warmongering efforts:”The world has never seen such total mindlessness. Napoleon’s and Hitler’s marches into Russia were rational acts compared to the mindless idiocy of the United States government…”Our state governments are starting to feel the same way about you that we do. Many are openly refusing to obey your so-called “REAL ID” attempt at creating a national “your papers, please” regime of Hitlerian proportions. Some are even starting to make noises about the Tenth Amendment, which reiterates that you aren’t allowed to just do anything you feel like doing. (We are not big fans of our state governments either, but at least they don’t start wars, counterfeit our money, and prop up tyrannies across the globe.)…In conclusion and just so we’re clear: We’re done. Pack up and get out. Better yet, don’t pack – all that stuff belongs to us in the first place. Just get out. And when you finally, mercifully, do kick the bucket, please make sure it is in some place far away from us, where we won’t have to smell the stench of your hideous, rotting corpse.Signed,Every Normal Human Being in America and the Rest of the World

Octavio RichettaFebruary 15th, 2009 at 4:36 pm

it is all back to CDSs. A great one from CW:What Is Really Killing the Big Banks?By Christopher Whalen | Friday, February 13, 2009As the Obama Administration performs triage on the housing and credit markets, one of the most damaging aspects of the financial crisis has been largely overlooked. Christopher Whalen, hailed by Nouriel Roubini as one of the leading independent analysts of the U.S. banking system, explains the problem of credit default swaps.

GuestFebruary 15th, 2009 at 4:36 pm

At last, a viable explanation of why we can’t “print” our way back to prosperity…”Obama’s Opening Salvo” by Peter SchiffFebruary 13, 2009 — There is nearly universal agreement that the opening salvo of the Obama Administration’s campaign to restore health to the financial system, delivered this week by new Treasury Secretary Geithner, fell with a loud and ugly thud. The most common criticism is that the announcement was short on detail. What is abundantly clear, however, is that the new Administration intends to push spending back up to pre-crash levels and to fill the entire credit void that has disappeared into the black hole of the American financial system. Whether or not the prior levels of spending and lending were justified by market conditions then, or now, appears to be largely unexamined.In the worldview of Geithner and like-minded economists, credit, rather than savings, is the central figure in the economic equation. Therefore, he sees anything that eases the process of lending to be an effective economic policy. With such a view in mind, the centerpiece of Geithner’s plan is the commitment of up to $1 trillion to revive the collapsed market for securitized debt. In the lead up to the Crash of 2008 securitization, more than anything else, permitted Americans to borrow more than they had ever borrowed before.Developed primarily over the last 10 years, securitization permitted loans of all shapes and sizes to be packaged into investment-ready securities. The system worked, fueling unprecedented levels of lending in the home, auto, student, and credit card sectors. But in the last few years as the collateral underpinning these securities has collapsed in value, the trillions of dollars of securitized debt now in circulation has become the toxic sludge at the bottom of our financial pit. Geithner is making the false assumption that cleaning up and rebuilding the securitization market is a prerequisite for a healthy economy.Our nation’s short history with wide securitization has simply shown that the process can lead to massive mispricing of assets and risk. By artificially rebuilding the securitization market, and committing taxpayer funds as collateral, the U.S. economy will be pushed farther and farther out on a leveraged limb, until no amount of market medicine can prevent a total economic collapse.In truth, the only vital function provided by securitization was that it offered foreign savers a pathway to lend directly to American consumers, and Wall Street executives a new asset class to over-leverage for massive profits. Our economy must dispense with these gimmicks if it hopes to pursue a meaningful recovery.After more than a decade of unsustainable borrowing and spending, the private sector is currently attempting to restore balance through reduced consumer and mortgage credit, greater savings, and lower asset prices. With its trillions of dollars of credit injections and stimulus programs, the government hopes to allay this process by force-feeding Americans a diet of more borrowing. They feel that a restored securitization market will help. It won’t. It will just grease the skids for a quicker collapse.Credit, whether securitized or not, cannot be created out of thin air. It only comes into existence though savings, which must be preceded by under-consumption. Since savings are scarce, any government guarantees toward consumer credit merely crowd out credit that might otherwise have been available to business. During the previous decade too much credit was extended to consumers and not enough to producers (securitization focused almost exclusively on consumer debt). The market is trying to correct this misallocation, but government policy is standing in the way. When consumers borrow and spend, society gains nothing. When producers borrow and invest, our capital stock is improved, and we all benefit from the increased productivity.Consumers default on credit much more frequently than businesses. This is because businesses typically use loans to expand, and then have greater cash flow to repay the debt. In contrast, consumers typically borrow to consume and in the process do not improve their ability to repay. As a result, one would expect consumer credit to be harder and more expensive to obtain. But that is currently not the case. Government guarantees have altered the playing field, so that now consumers are still being offered credit while businesses are being shown the door. By shifting credit away from producers, fewer goods and services will be produced for consumers to buy and fewer employment opportunities provided for them to earn money with which to buy the goods.To restore prosperity, credit (derived from savings rather than a printing press) must flow to producers. Greater liquidity for business will lead to legitimate job creation, increased production, and rising living standards. By further encumbering the economy with burdensome regulation, and by transferring business decisions to vote-seeking politicians who will bail out the irresponsible, reward failure and punish success, the government will create a society destined for misery.In an interview following his announcement, Geithner stated that government should replace the demand lost by the private sector. However, those with even a marginal grasp of economics know that demand is unlimited. It is the ability to spend that is not. While Americans still want all the things they wanted years ago, they have made the rational choice that they can no longer afford to buy at the same levels they once did. Using a printing press to replace this lost ‘demand’ will simply cause consumer prices to rise. Printed money does not create new purchasing power, but merely redistributes it from savers to borrowers. And since the plan will severely undermine the real productive capacity of our economy, there will not be much purchasing power left to redistribute!Mr. Schiff is president of Euro Pacific Capital and author of “The Little Book of Bull Moves in Bear Markets” (Wiley, 2008).

Octavio RichettaFebruary 15th, 2009 at 4:38 pm

A great contrarian piece by Kasriel. If you are only interested in reading “100% gloom” stuff; then, skip this one:-)

subgeniusFebruary 15th, 2009 at 4:49 pm

Where is the resource base for this “recovery” of which he talks?IMHO another economist who can’t see the reality of resource depletion and overpopulation. I am not trying to to be the 100% gloom merchant, but until one of these golden boys can explain how we are going to overcome physical constraints it seems the only logical position…

Octavio RichettaFebruary 15th, 2009 at 4:56 pm

IMHO, Fekete’s paper does not hold water. Specific treasury securities have finite lives; and, the perpetuity argument Mr. Fekete’s uses is totally irrelevant unless you consider the liquidation of the US imminent.The formula shown in the paper is a trivial one. It is correct, even though the choice of notation is a bit awkward; however, the formula does not provide support, i.e., it is not central to the conclusions of the paper.If you want to know more about the US “Capacity to expand Treasury debt” read the Kasriel link I posted below. Which closes with:”It is not my role to endorse government policies. It is my role to forecast the impact of government policies on the economy. I believe that large increases in federal government spending that are monetized by the Fed and the banking system will result in a recovery in real economic activity. When that recovery sets in depends on how quickly the federal government increases its spending and by the magnitude of that increase. We can debate whether tax rates should be cut or federal spending should be increased. We can debate what kinds of spendingshould be increased. We can debate whether the federal government should increase any of its spending. But the facts of the 1930s appear to be pretty clear – monetized increased federal government spending does result in increased real economic activity in the short run.The economic data are likely to be abysmal through the first half of this year. The popular media will reinforce the gloom of the data. The same pundits who did not see this downturn coming will not see the recovery coming either. My advice to you is to keep your eye on the index of Leading Economic Indicators. If history is any guide, the LEI will signal a recovery well ahead of the pundits.”

Octavio RichettaFebruary 15th, 2009 at 4:58 pm

IMHO, the “economics” in Kasriel’s analysis are correct. The questions you are posing could have been posed back in 1933-1937; still, GDP grew at over 9% then.

Octavio RichettaFebruary 15th, 2009 at 4:59 pm

My reply to Pecos Banker above is relevant to this post:IMHO, Fekete’s paper does not hold water. Specific treasury securities have finite lives; and, the perpetuity argument Mr. Fekete’s uses is totally irrelevant unless you consider the liquidation of the US imminent.The formula shown in the paper is a trivial one. It is correct, even though the choice of notation is a bit awkward; however, the formula does not provide support, i.e., it is not central to the conclusions of the paper.If you want to know more about the US “Capacity to expand Treasury debt” read the Kasriel link I posted below. Which closes with:”It is not my role to endorse government policies. It is my role to forecast the impact of government policies on the economy. I believe that large increases in federal government spending that are monetized by the Fed and the banking system will result in a recovery in real economic activity. When that recovery sets in depends on how quickly the federal government increases its spending and by the magnitude of that increase. We can debate whether tax rates should be cut or federal spending should be increased. We can debate what kinds of spendingshould be increased. We can debate whether the federal government should increase any of its spending. But the facts of the 1930s appear to be pretty clear – monetized increased federal government spending does result in increased real economic activity in the short run.The economic data are likely to be abysmal through the first half of this year. The popular media will reinforce the gloom of the data. The same pundits who did not see this downturn coming will not see the recovery coming either. My advice to you is to keep your eye on the index of Leading Economic Indicators. If history is any guide, the LEI will signal a recovery well ahead of the pundits.”

subgeniusFebruary 15th, 2009 at 5:04 pm

In 1937 we still had 90% of easily-recoverable oil reserves in place, and a global population 50% of what it is now…As I see it, the biggest failing in economics at present is a wholesale ignoring of the physical environment.

Guest, alsoFebruary 15th, 2009 at 5:34 pm

Yes, Thoreau, tons of money on the short side. I have been short since 2/08. Real Estate, retail, China, Semi-conductors, etc., all worked well.You asked for opinions, so how about this. Short the dollar, long gold.I am a simple person. An independent busines man with interest in current events, politics, and economics, I share your question. How is it that we can see this stuff coming, but our exalted leadership sems not to have a clue? A friend of mine, a pharmacist, pulled out of the market completely 9/07, much to the chagrin of his Merril Lynch broker. He saw it 5 months ahead of me, but we both felt what was happening in our businesses and to those around us. We both knew instinctively that the economy was deteriorating, that debt levels were too high, that the consumer was hurting and the rising energy prices were draining their resources.Of course, having the experience of the Tech bubble and portfolio wipe-out that followed, many of us are cautious and vowed “never again” to let this hapen to our nest eggs. We are paying attention, but damn, it’s hard to win!

Guest, alsoFebruary 15th, 2009 at 5:47 pm

#1 is the worst, because if the negative forces are truly so smart and powerful, there is no hope. Stupidity we can fight with some chance of winning – a few skirmishes anyway. Either way, we end up poorer, but with #2, we may eventually emerge with some freedoms and dignity.Do Dah

Guest, alsoFebruary 15th, 2009 at 6:07 pm

“But the entire problem right now is that there are too many banks in this country, and the entire industry needs to be downsized, just as the automobile industry and the manufacturing industry were downsized. The fact that there are too many caused them to take unnecessary risks in order to make profits”Excuse me, but are you a banker? The above excerpt is just B.S. The reason for all of this mess is GREED, LACK OF REGULATION AND OVERSIGHT, AND THE REPEAL OF GLASS STEGALL.Plus, no serious person is caling for permanent nationalization and the creation of some monolithic National Bank – just the opposite – and I am sure that you know it.Local banks and savings and loan companies around here are largely doing just fine, and I would gladly do business with them rather than a National Bank.Let’s bust up the ‘too big to fail’ boys and forever separate basic banking from the more speculative side of the financials. Too big to fail = too big to bail.

Guest, alosFebruary 15th, 2009 at 7:06 pm

Yes. New form arising. Unfortunately, under new form:Capitalism = Profits Privatized, Losses Socialized

GuestFebruary 15th, 2009 at 7:30 pm

How can the Obama Adminsitration devise a proposal to deal with bank undercapitalization and insolvencies without first reviewing and evaluating the precise nature, extent and impact of the credit default swap problem? Is this what is holding them up? Or do they just plan to ignore it?

MadridFebruary 15th, 2009 at 8:50 pm

Why would you assume I am a banker? I just said LET THE BANKS FAIL, which is what the market is supposed to do in this case.I agree that there was a failure of regulation here and when I said they suffered from unnecessary risk-taking, that is the same thing as your word, GREED.My problem is what happens when they are nationalized? After it nationalizes these banks, the government is either going to find out that no one can afford the good assets at any reasonable price, in a manner that will not insure the government does not take a huge loss. In which case, it will launch a gov. sponsored entity like FRE and FNM, that will succeed in pushing the rest of the smaller regional banks that you speak of out of business. OR The gov’t will simply be giving the good assets to their friends in private equity concerns and hedge funds for nothing, meanwhile destroying retirement funds and mutual funds all over the country. It will be the greatest transfer of wealth from the middle classes to the upper classes in the history of the country.Also, you are very mistaken that community and regional banks are doing well. The commercial real estate bomb is just going off now, and that is going to hit the smaller banks. You obviously don’t have a clue about the real problems here, which is affecting each and every bank in the country, not just the big banks.The best plan is to cancel all CDS that doesn’t involve actually holding the security on which the CDS was issued (this was an unregulated market anyway), and then let the banks that fail fail. Use the FDIC to pick up the pieces, and move on.There is no quick fix to this, and Roubini is prescribing a quick fix, which is also helping to tank the market as well– the problem has to work itself through the system, in a way that does not cater to what I suspect are Nouriel Roubini’s friends in private equity firms and hedge funds.

economicminorFebruary 15th, 2009 at 9:25 pm

Herbert Stein said that when something makes no sense, it just stops. Doesn’t need a reason but this time there are many reasons.I really don’t think it makes any difference what the politicos do in the bigger picture, banks are going to fail. Maybe all of the big ones. Or they are going to be broken up. Either by internal decisions or from external forces. They have built huge unsustainable organizations based on not only servicing debts that aren’t profitable but creating more new debts which has slowed way down. Not many trust them and the politicos can do all the lending them dollars and the banksters can act like viable organizations but they aren’t any more.It is all just a matter of time and timing.

AnonymousFebruary 15th, 2009 at 10:59 pm

One hopes you are right. Unfortunately there are Black Swans looming about waiting for your ‘recovery’ to materialize. Read my above thoughts on them waiting in the wings from big oil…….the Black Crude Swan: By Anonymous on 2009-02-13 22:25:59AM

AnonymousFebruary 16th, 2009 at 12:06 am

I think usa needs massive migration right now, we need the worlds savers to come with cash money and buy the homes in different states.I have written about that before also maybe we should even give those people citizenship right a way if they make a purchase over 400k.Chinnese ,Brasilian , Slovenian , Vietnamies doesnt matter from all over the world if you have saving to pay cash USA has to open the doors.If you can sell 5 million homes in usa this way and have another 20 million more population it wont hurt usa so much.Dont forget those savers all have their bussiness in their countries and they know how to invest. They might create their own bussiness or they can use those homes as their vocation homes doesnt matter but it would help the home market and also Banks a lot.I dont think 20 million more population will be bad for usa.With the immigration from the borders we will reach that number in 10 years easily anyways.

Hubba the SwedeFebruary 17th, 2009 at 5:18 pm

Yes sure taxes are high, but they are spent reasonably effectivly. Our masses are reasonable well educated, we live long and the country is nice, clean and have a very effective buerocracy.As long as taxes are spent wisely education, healthcare and utilities actually cost less when run by the goverment than when run by private companies. An extra plus is that middleclass people dont need to worry about being sick or save money to educate their kids, instead they can focus their energy on work and family (long live M. Weber).

DifilosofaFebruary 20th, 2009 at 3:08 pm

It is unfortunate that ideological rigidity is looming large in the current unstable environment. The market failed woefully and free-marketers of all persuasions should forget about the so-called fundamentals, at least for now. It would take nearly a miracle to rectify the situation. The print and electronic media will not, in all likelihood, get the writers of this analytical piece to speak because they are not Washington operatives. It behooves all free market economists to step up to the plate and force the issue. Not heeding the advice in this piece might signal the end of free market economics, as we know it. By the way, Karl Max might be chuckling in his grave now!

AnonymousFebruary 21st, 2009 at 5:33 pm

Are “credit unions” banks? What kind of shape are the credit unions in? I haven’t heard about any of them going bankrupt, but it seems to me that they have been acting more and more like banks over the years, and could be considered as small banks. It’s quite common now that anyone can join a credit union, although initially they were for employees of a a given company, etc. Also, it seems that credit unions provide the same services as banks. Probable the big difference is that all credit union customers are indivivuals (at least I think that this is true.)

g AntonFebruary 21st, 2009 at 9:00 pm

Firstly, the article states “immediately nationalize insolvent institutions”. To nationalize all non-solvent banks at the same time would be a real mess and a national disaster. Procedures must be defined that would allow a take-over of a single bank or eventually a limited number of banks (perhaps in a step by step manner) that would be completely transparent to the banks clients. Start with a single small bank pilot take-over and proceed in a very careful and low profile manner. If done correctly, clients of other banks would have no reason to be spooked.Secondly, the takeover should be managed and administered by the FDIC and not the Treasury. Not only is this how the government is organized, but I agree with Gerald Celente, who says that Obama’s recent treasury department appointments are has-been “strike-out artists”, and the only thing they know is how to keep their fingernails clean.

EyeFebruary 22nd, 2009 at 8:40 am

Technicaly no banks are solvent. We have a fractional reserve banking system with a fiat currency where the banks are lending out 10 to one on their depositors. The banks collateral has gone down significantly in the bursting bubble so the effective reserve ratio is even worse than 10 to 1. The whole premise in this “scheme” is that economic growth sustains the fractional reserve system. This is why economic contractions in fiat currency regimes is so terribly painful. Had adequate reserves been had in gold the nations banking system would have effectively hedged for the inevitable downturn in the economy.

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