EconoMonitor

Nouriel Roubini's Global EconoMonitor

The Case For and Against Bank Nationalization

Secretary Geithner’s financial plan calls for stress tests at the large complex financial institutions (LCFIs). These tests are due to start this week. They will involve estimates on the eventual losses due to default on a wide variety of assets.

Economic analysts have already performed such a test at the aggregate level. It was not a pretty picture. For example, Goldman Sachs looked at the U.S. banking sector’s holdings of the current “toxic” pool of assets, such as option ARM residential mortgages, subprime residential mortgages, Alt-A residential mortgages, credit card debt, second liens/home equity loans, consumer auto loans, and commercial real estate. Expected losses come in at around $900 billion. These losses give the banking sector very little wiggle room. Therefore, there is the real possibility that some LCFIs are bankrupt – the face value of the liabilities exceed the current value of their assets.

I. Insolvent Financial Institutions

If a bank is insolvent, there are three general ways to attack the problem.

The first is unbridled free market capitalism. I am sympathetic to this view. I wish we somehow could figure out a way to let the market work and let these institutions fend for themselves. Shareholders, creditors and counterparties knew the risks they were getting into. After all, why is some debt secured, why do we have collateralized lending, why do riskier assets deserve larger haircuts, etc…? But when Lehman Brothers went down, we looked into the abyss. This would be the equivalent of nuclear armageddon for the financial system.

The second is to provide government aid to the insolvent bank, to in effect throw good money after bad. This is sanctioning private profit taking with socialized risk. Since October of this past year, the government has followed this strategy.  Let the banks plod along, throwing money here and there to keep them afloat, at usually way below market prices at a high cost to taxpayers.

It is not a totally crazy solution. There may well be a positive externality to spending taxpayer money to save a few so we can save the entire system. For economists specializing in the field of banking, however, this approach has a familiar ring. In Japan’s lost decade of the 90’s, Japanese banks kept loaning funds to bankrupt firms so as not to writedown their own losses, which resulted in the government supporting zombie banks supporting zombie firms.

As an example, consider the poster child for the “freebie” programs, the Temporary Liquidity Guarantee Program, started in late November of 2008. For a cost of 0.75%, it allows banks to issue bonds backed by the government, i.e., essentially risk free. The banks have accessed this market 97 times for $190 billion!

The biggest pig at the trough – Bank of America 11 times for $35.5 billion. But close behind, JP Morgan at $30 billion, GE Capital $27 billion, Citigroup $24 billion, Morgan Stanley $19 billion, Goldman Sachs $19 billion and Wells Fargo $6 billion. A not so surprising correlation with their respective writedowns (including merged entities), Bank of America $96 billion, JP Morgan $75 billion, Citigroup $88 billion, Morgan Stanley $22 billion, Goldman Sachs $7 billion and Wells Fargo $115 billion.

In terms of helping us move forward out of the financial crisis, this program has many problems. It charges the same amount for each institution, so it hardly separates the solvent from the insolvent institutions. It charges a fee which is grossly below what these institutions could issue in the marketplace given their current balance sheets, distorting the system. Wasn’t this the Fannie Mae and Freddie Mac problem? And it makes it less likely to cleanse the system of the toxic assets because these institutions can continue their way out-of-the-money option and hope that the prices of the toxic assets increase. In effect, the access to this capital allows them to continue to make the original bet.

The final way of addressing insolvency is nationalization. Over the past week, there has been debate about whether nationalization is the right word. According to a standard dictionary definition, it is the act of transferring ownership from the private sector to the public sector. Although this is literally what we are talking about here with certain banks, almost everyone agrees that the type of nationalization that would take place would be a temporary one. Thus, if everything went as planned, a better analogy would be of the government acting as a trustee in a receivership of the bank.

That said, I do think a term like nationalization is the appropriate description. It is a misnomer to think, as a number of pundits have suggested, that we have experience at nationalizing banks through the FDIC. For example, the latest bank (and 39th of the current crisis) to be closed by regulators is the Silver Falls Bank of Silverton, Oregon. It has three branches and assets of approximately $131 million.

It goes without saying that Silver Falls Bank is no Citigroup, Bank of America, Wells Fargo, or JP Morgan, among others. The complexity, size and systemic nature of these institutions deserve deep analysis.

The basic argument for nationalization is that we need an organization to simultaneously facilitate the reorganization of the LCFI and be a trustworthy counterparty to all the current and ongoing transactions. The only one with the balance sheet right now is Uncle Sam. But make no mistake about it. With nationalization of a LCFI, the government is the owner and the ultimate residual claimant. Once we take down the LCFI, we have crossed the Rubicon. The die is cast and there is no turning back.

II. Pros and Cons of Nationalization

It is therefore important to do it right.

  • The good bank, bad bank model. Nationalization one-nil.

In order to have a healthy economy, we need a healthy financial system, and for a healthy financial system we need to cleanse the system of the bad assets. Otherwise, creditworthy firms and institutions will not have access to the needed capital, and will prolong the economic downturn.

This is the primary benefit of nationalization of some of the LCFIs. In receivership, it is much easier to separate the bank’s good assets and bad assets – to divest the firm from its toxic assets and troubled loans. This is because insolvent institutions will never take this action. If they did, it would by construction force them under.

The way it would work is that the healthy assets and most of the bank’s operations would go to the good bank as would the deposits. Some of these deposits are insured, others (e.g., businesses and foreign holdings) are not. But the likelihood is that the good bank is now so well capitalized that there would be no threat of a bank run. The net equity, i.e., assets minus deposits, would be a claim held by the other existing creditors of the bank, namely shareholders, preferred shareholders, short-term debtholders and long-term debtholders.

The goal would be to reprivatize the good bank as soon as possible. After all, the point of the exercise is to create health financial institutions which can start lending again to creditworthy institutions. In almost every successful resolution of financial crises in other countries, this was the path.

Of course, the tricky part of nationalization is the handling of the bad assets. The bad assets would be broken into two types – those that need to be managed such as defaulted loans in which the bank would own the underlying asset, and those that could be held such as securities like the AAA- and subordinated tranches of asset-backed securities. With respect to the former, the government could hire outside distressed investors or create partnerships with outside investors as was done with the Resolution Trust Corporation in the S&L crisis.

Along with the equity of the good bank, these assets would be owned by the existing creditors. The proceeds over time would accrue to the various creditors according to the priority of the claims. Most likely, the existing equity and preferred shares would be wiped out in such an arrangement and the debt would effectively have been swapped into equity in the new structure. Under this scenario, it is quite possible, even likely, that taxpayers would end up paying nothing. This is because, for the LCFIs, these creditors cover well over half the liabilities.

  • Systemic Risk. Nationalization one-one.

The problem with the above solution is that it shifts all the risk of the insolvent institution onto the creditors of the LCFI. While this is fair to the extent the creditors were accruing the profits in normal times, it may lead to the “Lehman Brothers problem”, that is, this could create runs throughout the system.

Why did Lehman Brothers cause systemic risk?

Was it the counterparty risk, e.g., fear of being on the other side of interest rate swap, credit default swap, or repo transactions? This fear was well founded. Ask any hedge fund whose hypothecated securities disappeared in Lehman’s U.K. prime brokerage operations. It is pretty clear that the government would have to stand behind any counterparty transaction and publicly commit to this rule. Since most of these are margined and collateralized, however, many of the assets would show up in the good bank.

Or was it the short-term debt? The run on money market funds was directly attributable to the Reserve Primary fund’s holdings of a large amount of short-term Lehman commercial paper. One would presume the same thing would happen here as the short-term debt of all questionable LCFIs would come under pressure. It is highly likely that the government might have to step in.

As compared to the standard LCFI, Lehman had very little long-term debt. To understand whether a collapse in the LCFI’s long-term debt value is systemic, one would have to analyze the concentration of this debt throughout the system. If it is widely held, it is unlikely to have systemic consequences. Of course, it would have profound effects on future financing of these firms.

If the government has to cover the creditors, or at least some of them, what has been gained?

On the positive side, the system will have cleansed itself of the assets.

Moreover, to minimize the cost to taxpayers, it is not clear that the government will have to step in. If the government is completely transparent to the market who is solvent and who isn’t, and the reasons why this is, then the type of uncertainty that surrounded Lehman’s failure may be mitigated. Perhaps, the runs on the equity and debt of banks in September and October 2008 occurred because there was no clear message from the regulator.

That said, actions speak louder than words, and, in a dynamic setting where conditions change rapidly, solvent firms can become insolvent very quickly. While the government needs to do a thorough stress analysis, consistent across all the major banks, to find out the trouble spots, the only definitive way they can prevent a bank run on solvent institutions is to backstop all the creditors of these institutions. Maybe the government can provide a haircut, guaranteeing X% of the debt. In any event, in this case, the creditors of the insolvent institutions would not have to be protected.

  • The toxic asset problem. Nationalization two-one.

It has been argued that trying to implement nationalization will be near impossible because we won’t be able to price the hard-to-value, socalled toxic assets. It is actually the opposite. The current problem is that banks don‘t want to sell the assets at the price the market is willing to pay for them. If we were banks, we wouldn’t want to sell them either. As long as the government is providing us free money to continue, why not continue the option? Hope is eternal.

But let’s be real. The banks bought illiquid assets with credit risk using short-term liquid funds to borrow against. For taking these types of risk, the banks got paid a hefty spread. And, in normal times, they raked it in. But there is no free lunch in capital markets. In rare bad times, illiquid, defaultable, assets are going to get greatly impaired. There is no mulligan here. It will be easier to resolve this within a receivership.

To make the point using a real economy analogy, this past Christmas, Saks Fifth Avenue sold their designer lines at a 70% discount. Designer labels and boutique shops on Madison Avenue were up in arms. How could they sell $500 Manolo Blahnik shoes for $150? In this economy, they are $150 shoes.

Moreover, receivership allows one to separate out the assets without having to price them.

  • Managing a LCFI. Nationalization two-two.

Does the government have the ability to run a LCFI? In a recent conversation, Myron Scholes told me he was also in favor of nationalization, but as long as it lasts just 10 minutes.

With literally tens of thousands of transactions on their books, who is going to manage a LCFI while it is a government institution, good bank or bad bank? Certainly, no one envisions Barney Frank or Christopher Dodd as the Chief Investment Officers of these firms, but there are many concerns. The government can go and hire professionals as they have done with Fannie Mae, Freddie Mac and A.I.G. But much of the value of a Wall Street firm is in its vast array of intangible, human capital. This labor is incentive driven. How much franchise value will be lost during the nationalization process?

Let’s assume this gets sorted out and the government mirrors employment practices elsewhere at other firms. But then with the government’s protection in receivership, who is to prevent the LCFI from making too many, risky loans. They will have a competitive advantage over solvent, albeit less supported banks. This issue has recently come up with other government supported institutions. Indeed, the argument has been made that A.I.G. and Northern Rock to name just two have undercut their competition by respectively offering overly cheap insurance and mortgages.

  • Moral hazard. Nationalization three-two.

There is something unseemly about managed funds buying up the debt of financial institutions under the assumption that these firms are too-big-to-fail. In theory, these funds should be the ones imposing market discipline on the behavior of financial firms, not pushing them to becoming bigger and more unwieldly.

It has been said by many that this is not the time for thinking about moral hazard. I disagree. If we bailout the creditors, then effectively we have guaranteed all debt of future financial institutions. We have implicitly socialized our private financial system.

It is certainly true that we can institute future regulatory reform which tries to quell the behavior of LCFIs. But this will be complex and difficult to implement against the implicit guarantee of too-big-to-fail.

Thus, nationalization resolves the biggest regulatory issue down the road, namely the too-big-too-fail problem of banks that are systemically important. In one fell swoop, because the senior unsecured debtholders of the bank lose when it is nationalized, market discipline comes back to the whole financial sector.

So the large solvent banks will have to change their behavior as well, leading most likely to their own privately and more efficiently run spinoffs and deconsolidation. The reform of systemic risk in the financial system may be easier than we think.

III. Concluding Remark

We are definitely caught between a rock and a hard place. But the question is what can we do if a major bank is insolvent? Sometimes the best way to repair a severely dilapidated house is to knock it down and rebuild it.  Ironically, the best hope of maintaining a private banking system may be to nationalize some of its banks. Yes, it is risky. It could go wrong. But it is the surest path to avoid a “lost decade” like Japan.

IV. Case Study: Sweden[1]

Sweden has been cited frequently as a model of “nationalization”. While this is probably an exaggeration, the Swedish model is in many ways a model in terms of the principles it puts forth to handle a financial crisis. Putting aside the obvious fact that Sweden’s economy is much smaller and its financial institutions much less complex, it is a useful exercise to describe some basic facts.

The distribution of assets within the Swedish and U.S. banking system were similar. For example, while Sweden had 500 or so banks, 90% of the assets were concentrated in just six. In the U.S., while there are over 7,500 institutions, the majority of assets are concentrated in the top 15 or so.

Sweden’s credit and real estate boom in the late 1980’s closely mirror the U.S.’s similar boom prior to the current crisis. There was even a similar shadow banking system that developed during these periods – in Sweden, unregulated companies that financed their operations via commercial paper whereas in the U.S., unregulated special purpose vehicles (SPVs) via asset-backed commercial paper (ABCP). When the bubble began to burst, there was also sudden collapses in these markets as a few of these companies and SPVs began to fail.[2] Ultimately, the funding came back to the banks, causing them to have large exposure to the real estate market.

As conditions eroded in 1991, the Swedish government forced banks to writedown their losses and required them to raise more capital, otherwise to be restructured by the government. Of the six largest banks, three – Forsta Sparbanken, Nordbanken and Gota Bank – failed the test. One received funding and the other two, Nordbanken and Gota bank, ended up being nationalized.

These latter two banks had their assets separated into good banks and bad banks. The good banks ended up merging a year later and were sold off to the private sector. The poorly performing loans were placed in the bad banks, respectively named Securum and Retrieva. These banks were managed by asset management companies who were hired to divest the assets of these banks in an orderly manner. (It took around four years.)

The main lessons from Sweden are relevant, however, for the current crisis:

  1. Decisive action in terms of evaluating the solvency of the financial institutions.
  2. Some form of “nationalization” of the insolvent firms.
  3. Separation of these insolvent firms into good and bad ones with the idea of reprivatizing them.
  4. The management of the process was delegated to professionals, as opposed to government regulators.

The issue of course is whether the complexity of the institutions affect how these principles should be applied in the current crisis. Complexity alone does not nullify these principles.

Professor Richardson is a contributor to the NYU Stern School of Business project, “Restoring Financial Stability: How to Repair a Failed System”, John Wiley & Sons, March, 2009.


[1] Many of the facts here are taken from Tanju Yoralmuzer’s piece, “Lessons from the Resolution of the Swedish Financial Crisis.”
[2] In Sweden, in September 1990, a finance company called Nyckeln went bankrupt, while in the current crisis, in early August 2007, three ABCP funds run by BNP Paribas halted redemptions, leading to a run on the system.

271 Responses to “The Case For and Against Bank Nationalization”

Richard4691February 25th, 2009 at 11:24 pm

Prof., There are several things I would ask you to consider. One is a behavioral problem. It takes time for the human species to recognize or accept financial loss. The ability of existing managements and their supervisors to recognize deteriorated asset values has a limit. You see it every time a new management team comes in and promises to clean house. Six months or a year later, another manager arrives and repeats the cleansing. We are still at a stage in this process where none of the players can grasp the magnitude of the losses. No the banks, not their creditor, the government. Secondly, a succinct description of our problem in the banking or credit system would be that 67% of banking assets are concentrated in some ten institutions and in addition 50% of our credit is delivered via non bank channels (unregulated, unsupervised), mainly securitizations. So far, the government’s responses to the crisis have attempted to prop up this system, and to discuss regulating it more effectively, without seeming to ask the question of whether it is a good system. Wouldn’t it be nice to have a market mechanism whereby asset transfers at market prices caused recognition of losses, shrinkage of too big to fail banks and defeasance of securitizations? My proposal would be to have the government support financing available from smaller banks for defaulted homeowners to repurchase their properties at forelosure sales.

GuestFebruary 26th, 2009 at 8:40 am

The professor was the first to recommend a replayof the HOLC(Homeowners Loan Corporation)in his 10points with principal reductions. He was prescientin understanding this mess must be attacked fromtop down in restructuring the banking institutionsand from bottom up in reducing debt overhang. These are doable concepts, but the Banksters know there may possibly be only enough money for them only and the have instituted a full court press to squeeze every possible angle of profit. Theyare actually increasing the debt overhang fromthe credit card side and their usurious interestand charges to the poor bastards who are late.They are decreasing their liabilities from thetop by blatantly robbing the taxpayer.We are now setting a new record last held by theAsian subcontinent in their inaction at being exploited by the British East India Company.We are “truly exceptional”. We all sit and watchthe money being literally robbed from underneathour noses.

GuestFebruary 26th, 2009 at 4:04 pm

I fear the above comment is more exact than anything, and the main reason the curtain wasn’t pulled back sooner. Systematically I believe it’s been in play for the last eight years, with government groups and private sector sub groups, who for a better word consider themselves “Olympians” on top of the heap. They have siphoned all the money out off the top, with this war, and their hedgefunds, bastard loans etc. And it’s like they all phoned each other and were on the same page, cleaning out the cash at once.It reminds me of that scene in Michael Moore’s movie 911, when Bush was at that gathering in his tux, and addressed the room, filled with the elite wealthy black helicopter crowd, and friends, telling them, about the special club they were in. At the risk of sounded “out there” I believe the Patriot Act, allowed for non accountability in all sectors, including the financial sector. The unspoken code in the country was, you were a trader, if you questioned most anything for some time. Just un-American of you.Good people working in it, knew it was wrong, across the board. So, the country has been almost gutted, by mostly invisible greed, and a free for all Nafta didn’t help. And where is all the money? There was money to start out with. All those CD holders, who worked all their lives for a paycheck. Who’s got their money, in what bank account?That’s what I ask myself . Follow the money…….

GuestFebruary 26th, 2009 at 8:25 am

last on prior thread!Questions:1)life insurance is potentially the most succeptiblebusiness model to a ponzi scheme due to the fact thatpayments are collected and payouts are deferred.Why is nobody talking about AIG imitators?Insurance executives all play golf and envy each other’s bonuses. Who here believes that life insurance is not a total ponzi today?2)I would love to know why Derivatives are exempt fromfederal bankruptcy stays?3)I would love to know why naked shorting is prohibited, but naked CDS is allowed?(besides regulation issue)4)Fractional reserve from inception was a ponzi scheme of the Goldsmiths. We know the banks haveoff balance sheet problems and level 3 accounting.What makes anybody think that the Central Banks canprint enough money to cover all the tightly coupled and reinforcing ponzi schemes that we call theworld of finance and investment?I see ponzi ad infinitum! I suggest we hire BernieMadoff to invade another planet and use them as thenext layer in the borrow from Peter to pay Paul hustle!We have ponzied every human except the pigmies andthe amazon tribes! Anybody know any pigmies that wouldadopt me?Reply to this comment By Guest on 2009-02-26 08:20:24

economicminorFebruary 26th, 2009 at 9:45 am

It isn’t just life insurance but also annuities that are ponzied IMO. The company takes in a large sum and then promises a long term pay out. Where does all that money go? If it went into securitized instruments or even CRE, they are way underwater. Aw but they are insured by the likes of AIG….See the problem…By the way, nice analysis of the issues facing Receivership. Quite a dilemma we are in. No clear safe path in fixing our financial woes.As for the speeches Obama has been giving. He is selling HOPE.I think most of us would feel better about his sales campaign if he would quit just spending money and start doing something that actually fixes the underlying problems or sound like he actually understands them. There is to much debt in the private sector to be serviced with current income and that dynamic is deteriorating. Saving some jobs in not going to prevent a collapse of much of this unsupportable debt. He isn’t even fixing the reasons the banks were able to create all this unsupportable debt.His minions seem to think that the reason he won was to create more debt. They don’t understand that he won because the Republicans did an extremely poor job being conservatives. The Republicans were voted in to be Conservatives and they blew it and we had to vote them out but that doesn’t mean that we want more reckless fiscal shenanigans by the newly elected government. What’s with these people anyway? Is everyone in government or associated with government insane?

wethepeepsFebruary 26th, 2009 at 10:00 am

It’s the law of large numbers backing numerous risk models. These models are designed with low probability large negative outcomes, but as we have seen with sub-prime, it is not just sub-prime but the fraud and deceit laid bare within the system that sub-prime uncovered or unleased. This is the law of large numbers with leverage and in reverse. Probably akin more to gravity.

RanManFebruary 26th, 2009 at 8:50 am

The US government is not going to tell us the truth about the results of the stress tests. we already know that several of these large LCFI’s are insolvent. NR has said so, along with many others. The US government is going to try and “snow” the public once again by doctoring the results of these tests saying they are “well capitalized” hoping beyond hope that the confidence among banks will improve and things will get somewhat back to normal. This will not happen. The banks themselves KNOW where they stand and things may improve slightly but all we are doing is creating a more zombified bank. What a waste of time, money and resources because the US government continues to lie to the American public. They do not want to tell the truth for many reasons one of which is to create a massive run on the banks which would bring the fractional reserve banking system to it’s knees or worse.

GuestFebruary 26th, 2009 at 8:51 am

Bernanke’s Wonderland?MSN Money morning Market Report: 09:17 ET Dow , Nasdaq , S&P : [BRIEFING.COM] S&P futures vs fair value: +10.10. Nasdaq futures vs fair value: +8.00. A decidedly positive start is set for the stock market. The upbeat tone comes in the face of more grim economic data, which includes a worse-than-expected drop in January durable goods orders and a larger-than-expected increases in jobless claims. The positive bias, then, comes largely from word that the United Kingdom government will insure assets at banks to help protect against future losses. The U.S. government unveiled its own Capital Asset Purchase plan yesterday. The CAP essentially provides support for banks needing capital to weather deteriorations in economic data.

Ed BeaugardFebruary 26th, 2009 at 9:00 am

Hello,So, out of morbid curiosity, now that Mr. Geithner has ruled out nationalizing the banks(assuming that he means it), anyone care to estimate the odds of the U.S. entering the stag-deflation Depression(as Mr. Roubini describes it)?Would I be wrong in saying it’s now a near-certainty? After all, in the last few months the G-8(I think) economies have been contracting at a rate of what, 10 – 20% a year, so the crisis is not going to go away even with the stimulus and capital-injection for the banks.What do people think about this?Sincerely,Edouard P. Beaugard

economicminorFebruary 26th, 2009 at 10:11 am

Yes! Agreed.It isn’t just the financial system, which is enough in itself, but the spending spree that the federal government has embarked upon. Not that we don’t need functional roads and schools that don’t leak but we have a lot of underlying systemic failures going on because no one has ever wanted to pay to fix things. We borrow for consumption and build barriers to productive enterprise or remove barriers so that productive ideas and enterprise is easily exported with little pay back to this country or its citizens.Our educational system is broken, our transportation system is 20th Century and deteriorated, we import over half our liquid fuel which runs our rubber tire society. Our health care system cost twice what the single payer system in Europe costs and provides much less service to at least half our population. It is breaking down rapidly. So much of what we do in this country is last century and we don’t want to think critically and modernize. The ultra conservatives don’t want to pay a dime towards fixing anything and neither do the liberals. Both want to spend, just on different things.And we mask all this with numbers that are meaningless or outright false.Yes I think a stag-deflationary depression is coming and I don’t think fixing the financial system will prevent it. When things make no sense and are forced to continue until they break down, well, Herbert Stein said it best. When something can’t continue, it stops. We are there! Painting it bright blue won’t make it new again.

GuestFebruary 26th, 2009 at 9:04 am

Fractional reserve banking in private hands is an out right lie and a scam so just do the right thing and nationalize all banks. It is and has always been a government backed and supported business with all the profits going to private elitist and yet somehow it’s un-american to nationalize them. What’s un-american is to support bankrupt businesses that aren’t allowed to go bankrupt at tax payers expense.If any business is too important that failure cannot be allowed then tax payers should own the damn thing period!!!!!!!!!!!!!

GuestFebruary 26th, 2009 at 9:05 am

If any business is too important that failure cannot be allowed then tax payers should own the damn thing period!!!!!!!!!!!!!

GuestFebruary 26th, 2009 at 9:10 am

Just to know where everybody’s coming from, the author above, Matthew Richardson, is the Charles E. Simon Professor of Applied Economics in the Finance Department at the Leonard N. Stern School of Business and is the Sidney Homer Director of the Salomon Center and a Research Associate of the National Bureau of Economic Research.The National Bureau of Economic Research is a private body charged with determining the onset of a recession as well as its endpoint.The NBER is the largest economics research organization in the United States. Sixteen of the thirty-one American winners of the Nobel Prize in Economics have been NBER associates, as well as three of the past Chairmen of the Council of Economic Advisers, including the former NBER president, Martin Feldstein. NBER research is published by the University of Chicago Press.http://en.wikipedia.org/wiki/National_Bureau_of_Economic_Research

PeteCAFebruary 26th, 2009 at 9:24 am

Right. And his comment above was quite insightful:”Economic analysts have already performed such a test at the aggregate level. It was not a pretty picture.”That about says it all.PeteCA

GuestFebruary 26th, 2009 at 11:35 am

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is not a Nobel Prize. It was instituted by Sweden’s central bank in 1968 and first awarded in 1969Nassim Taleb has criticised the Prize for promoting economic theories based on a misunderstanding of risk. He points to the 1990 Prize in Economics, awarded to William Sharpe and Harry Markowitz for theories that, Taleb says, had already been undermined by the stock market crash of 1987; the 1997 Prize, awarded to Robert C. Merton and Myron Scholes for their option pricing formula; and the 2003 Prize, awarded to Robert F. Engle for his “ARCH” method of prediction of volatility, which Taleb says underperforms relative to volatility forecasts made by ordinary traders.[

UGA/MAPHDPARTWAYFebruary 26th, 2009 at 10:48 am

I get everything except the deflation part. Why do you believe the US gov will act in a similar fashion to JPN. It seems morelikely to me they will monitize the debt thru unending direct purchases of treasuries?

GuestFebruary 26th, 2009 at 10:53 am

Just speculating…what if everyone checked in with bankrate.com to see which banks in their area were rated 4 stars or 5. And then everyone moved their deposits to only those institutions beit they were not the LCFI ones–or, in the case of their CDs at the soonest possible time–then perhaps all the money would start naturally transferring to the healthier institutions, and those unhealthy ones would lose out. People just stop doing business with them. What am I missing here? Even if I have to start doing my banking by mail or via internet, I, for one, would be willing to switch if it meant that, by my action, I am preventing those unhealthy banks from having to become nationalized. I’d rather see them just go out of business the old fashioned way.

PeteCAFebruary 26th, 2009 at 11:54 am

Don’t worry about it. It doesn’t matter what the Gov’t does with preferred shares, of a drip feed on taxpayer money. It’s actually irrelevant.Why? Because everyone in the Powers-That-Be seems to have forgotten a basic principle. The whole idea behind any bank is TRUST. Yes, trust. That’s why people put their money in the bank. That’s why people take it there for investments. The money is still supposed to be there a year later.Bad banks are dead in the water. Would you leave your money there?!!! Neither will anyone else. There seems to be some kind of suppostion by the Gov’t that so long as FDIC insurance exists, people will just keep going to these ba banks.Rubbish. It’s game over when they get to this stage.PeteCA

GuestFebruary 26th, 2009 at 11:31 am

Exactly. That way good money will not go after bad, and the healthy banks would get the capital they need directly, from private investors.This is what would happen in a more natural course of events: The ones who made prudent decisions would be rewarded and the ones who didn’t wll have to suffer losses and face whatever outcome they bore for themselves.All the market needs is certainty. To know which ones are insolvent. The problem of capital could possibly be solved much more easily, as good money goes after good.The only problem apparently is the deravatives market, counterparty risk, the fact that these institutions are really intertwined. But should the govt resurrect these insolvent and zombie banks because they are so intertwined with the system, isn’t it also encouraging them to get more intertwined– to become “always–too-big–to-fail”– once the sysem recovers.Sooner or later the govt will have to face the fact that it will have to let a lot of institutions collapse, when throwing good money after bad starts becoming a political liability. The sooner that happens the better, as recovery will take place only once that happens. Right not its like throwing money into an abyss and hoping that the laws of nature will change and the money will some day repel from the blackhole and come back to the taxpayer. Because the economy will keep on getting worse thereby affecting the financial system and making these zombie banks an abyss.Someone aptly said that the market at this point lacks differentiation, to be able to recognize which institutions are sound and which aren’t sound. But the goverment is proving totally inept in being able to foster this process of differentiation by simply not allowing failure or initiating a process of differentiation in a orderly way.Close the markets for a week. Allow only sound institutions to open again. Nationalize the too-big-too-fail. The longer govt tries to avoid these drastic steps, the longer the economy will suffer, and thus the financial system will suffer– a negative loop– and the bigger the abyss will become.

GuestFebruary 26th, 2009 at 11:42 am

Consider this:X is solvent but suffering losses because of the economy, the increasing unemployment, defaults, and so onY is underwater and not sound but the investors, depositors can’t differentiate this.The govt could think about saving both and throw money at both, but the process of capital reallocation isn’t taking place. X might turn insolvent soon and Y might turn into an abyss soon. The negative loop between the economy and the financial system can become a “going concern”.However, if the investors knew X is relatively sound, the depositors can take money out of Y and put it in X. X is now sounder and able to lend again, start new bussiness, and thus lead to growth. Y liquidates. The economy suffers a shock but ultimately also starts a process of recovery.

GuestFebruary 26th, 2009 at 2:00 pm

I think the write downs are so large the government does not have the option to do anything other than to hide the actual loses, as stating the actual loses would crash the entire system. I believe it is that bad.

blindoneFebruary 26th, 2009 at 7:17 pm

g,’THAT BAD’. ?if it is that bad then it should have been crashedyesterday, or asap.current failure is no supporting argument to continuedoing the things that caused the failure in the first place. to the contrary.systemic collapse is actually the solution, not the problem. if the system worked well things would be different but the system is telling us…”let me go, i do not work.”we should listen to the system. ????

outer limitsFebruary 26th, 2009 at 12:00 pm

SIMPLE QUICK SOLUTION to this mess which should have been done over a year ago but should still work:Stop the foreclosure madness by allowing all of those in trouble to refinance at 3% with the lender to share 50/50 in the profits at time of sale. This would also make rental properties viable again and stimulate purchases. It would also put a floor on prices and most of the financial derivatives out there. Obama needs to tell the lenders: either you do this or we will nationalize you and we will do it!!!

Farnorth5February 26th, 2009 at 6:29 pm

Well “Outer Limit”you do have a plan that has worked in several small”One Industry Towns “in Western Canada, when the one industry fell apart.The refinance meant the original mortgage was changed to two mortgages .The first mortgage was at current value .the second was the original difference,but did not require payments until resale.The original owner kept the home with a sound mortgage payment(30%) of household income.As you indicated the share between owner and mortgage holder was split 50/50 on the new increased house value in two/three years.(The communities were sold as retirement communities with excellent local facilities in most cases).

GLOOMYFebruary 26th, 2009 at 12:17 pm

THE END OF THIS CHARADE IS CLOSING IN AS DEFAULT OR DEVALUATION IS INEVITABLE”The spending blueprint being sent to Congress today forecasts the government will run a deficit totaling $1.75 trillion in the fiscal year ending Sept. 30. That’s equivalent to about 12 percent of the nation’s gross domestic product.The U.S. is borrowing so much that it may have trouble paying the money back, said Jaemin Cheong, a bond trader in Seoul at Industrial Bank of Korea, the nation’s largest lender to small- and mid-sized companies.“Yields are headed higher,” Cheong said in an interview. “More issuance will be needed to support the economy. The possibility of default is more and more as time passes.”http://www.bloomberg.com/apps/news?pid=20601087&sid=aTa536B3vAAM&refer=home

Farnorth5February 26th, 2009 at 6:41 pm

Sorry to disappoint everyone,but the National Debt is NOT a mortgage to be paid down,but a line of credit were Government only budgets to make interest payments.The trick is to keep the Debt to GDP ratio below 50% for all Federal Govts.It is true the ratio has gone from 25% to 47.5% over the last eight years ($5 Trillion to $10 Trillion Debt).What the public dont know is with this last stimulus package the debt has gone over 60%.In theory the U S Bonds should be losing their Triple A rating about now,but everyone knows this will not be permitted.The real question is who will finance the interest? (10Trillion times 3.5%= $350Billion in interest payments)??????? EACH YEAR.

P1AQLFebruary 27th, 2009 at 3:02 am

Gloomy, Devalue against what?See: Dollar Sole Refuge as Traders Have ‘No Alternatives’http://www.bloomberg.com/apps/news?pid=20601087&sid=amqPuiEHM1w4&refer=homeMay the USD be with you.P1AQL

MM CAFebruary 26th, 2009 at 12:22 pm

What koolaid are these people drinking…. they didnt know this in january… can anyone beleive what the Govt or any company puts out. I go by what i see, read and my gut… and my gut says new car sales will fall to 7 million in 2009 and if things dont get better fast, much lower than that. use Housing starts as an exapmle… they were at 1.2/m annually in mid 08 and now on pace for 350k annually for 09. that is approx 65% decline. autos were at 14-17M in mid 08, so take 65% of that and you are below 7M annually. Who really needs a new car, not many people. even if someone does, try getting a loan if your credit score is not above 750….Ford Lowers U.S. Sales Outlook by 1 Million Vehicles (Update2)Email | Print | A A ABy Keith NaughtonFeb. 26 (Bloomberg) — Ford Motor Co., banking on a sales rebound to avoid taking federal aid, lowered its forecast for 2009 U.S. auto sales in an annual regulatory filing today.Ford said it now expects total U.S. car and truck sales to fall as low as 10.5 million vehicles this year, a reduction of 1 million from a forecast the company issued in January. Expecting auto sales will rise in the second half, the Dearborn, Michigan- based automaker continued to project a high-end estimate of 12.5 million vehicle sales in the U.S. this year.“There is a risk, however, that industry sales volume may not stabilize as early in 2009, or begin to improve as soon thereafter, as we forecast,” the company said in its filing. Ford reiterated its expectation that it will be able to avoid taking federal aid.

GuestFebruary 26th, 2009 at 2:18 pm

“The market” no longer exists, or even “a market”. What we have is a perverse suffocation of freedoms and liberties by government through its’ support of failed, parasitic, corporate statist banking elites.

GLOOMYFebruary 26th, 2009 at 1:03 pm

WE CAN ONLY DREAM IT WOULD HAPPEN HERESAN FRANCISCO (MarketWatch) — Iceland’s central bank chief, David Oddsson, will be driven from office after the country’s parliament passed a bill calling for his ouster, The Wall Street Journal reported Thursday on its Web site. Oddsson, who has been blamed by many for the collapse of Iceland’s banking system, has refused to step down and could only be removed from the post by an act of parliament, according to the Journal.

AnonymousFebruary 26th, 2009 at 1:16 pm

Far too big of an issue is being made of the management question, and the argument is mostly political.The key pieces to nationalization are that:1) it provides the most efficient avenue for removing the bad assets from the banks books and2) it allows for restructuring and recapitalization.The management question can be left up to the bondholders, as they would be the new equity holders.The new owners could also determine whether the bank was too big to manage. If so, let them break it up.Leaving these questions up to the new owners would make the nationalization process that much faster and efficient with less cost to taxpayers.

subgeniusFebruary 26th, 2009 at 2:06 pm

How Bank Bonuses Let Us All Downby Nassim Nicholas TalebOne of the arguments one hears in the compensation debate is that the bonus system used by Wall Street – as John Thain, former Merrill Lynch chief executive, put it – is there to “reward talent”. While I find this notion of “talent” debatable, I fully agree that incentives are the heart of capitalism and free markets – but certainly not that incentive scheme.In fact, the incentive scheme commonly in place does the exact opposite of what an “incentive” system should be about: it encourages a certain class of risk-hiding and deferred blow-up. It is the reason banks have never made money in the history of banking, losing the equivalent of all their past profits periodically – while bankers strike it rich. Furthermore, it is that incentive scheme that got us in the current mess.Take two bankers. The first is conservative. He produces one annual dollar of sound returns, with no risk of blow-up. The second looks no less conservative, but makes $2 by making complicated transactions that make a steady income, but are bound to blow up on occasion, losing everything made and more. So while the first banker might end up out of business, under competitive strains, the second is going to do a lot better for himself. Why? Because banking is not about true risks but perceived volatility of returns: you earn a stream of steady bonuses for seven or eight years, then when the losses take place, you are not asked to disburse anything. You might even start again, after blaming a “systemic crisis” or a “black swan” for your losses. As you do not disgorge previous compensation, the incentive is to engage in trades that explode rarely, after a period of steady gains.Here you can see that this mismatch between the bonus payment frequency (typically, one year) and the time to blow up (about five to 20 years) is the cause of the accumulation of positions that hide risk by betting massively against small odds. As traders say, they have the “free option” on their performance: they get the profits, not the losses. I hold that this vicious asymmetry is the driving factor behind investment banking.If capitalism is about incentives, it should be about true incentives, those resistant to blow-ups. And there should be disincentives to remove the asymmetry of the free option. Entrepreneurs are rewarded for their gains; they are also penalised for their losses. Now, by comparison, consider that Robert Rubin, the former US Treasury secretary, earned close to $115m (€90m, £80m) from Citigroup for taking risks that we are paying for. So far no attempt has been made to claw it back from him – only UBS, the Swiss bank, has managed to reclaim some past bonuses from its former executives.For hedge funds and medium-sized companies, the incentive problem might be a simple governance issue between private entities free to choose their contract terms. However, when it comes to banks and other “too big to fail” entities, the problem is severe: we taxpayers in our respective countries are funding these global monsters and are coughing up money for mistakes made by bankers who retain their bonuses and are hijacking us because, as we are discovering (a little late), banking is a utility and we need them to clean up their mess. We, in fact, are the seller of that free option. We should claim it back.The Obama administration has been trying to set compensation limits for banks under the troubled asset relief programme. But this is insufficient. We need to remove the free option. Beware the following situations.First, those who are taking risks even outside Tarp or society’s protection can still be gaming the system – since their risk-taking can result in a collapse, with the taxpayer having to step in. For instance, Goldman Sachs, the US bank, might want to avoid the limits on executive compensation for its managers. That should be fine so long as society does not have to bail out Goldman Sachs (or, worse, its creditors) in the future.Second, Vikram Pandit, Citigroup’s chief executive, while claiming to want to earn one single dollar a year in compensation unless the bank returns to profitability, is still getting a free option given to him by society. He does not partake of further losses; we do.Third, leveraged buy-out companies used the free option by borrowing heavily from the banks and taking monstrous risks: they get the upside, banks (hence we taxpayers) get the downside. These partnerships made fortunes in the past on deals that society will have to bail out. They too should have their past profits clawed back.Indeed, the incentive system put in place by financial companies has produced the worst possible economic system mankind can imagine: capitalism for the profits and socialism for the losses.Finally, I was involved in trading for 21 years and I can testify that traders consciously play the free option game. On the other hand, I worked (in my other job as risk adviser) with various military organisations and people watching over our safety. We trust military and homeland security people with our lives, yet they do not get a bonus. They get promotions, the honour of a job well done and the disincentive of shame if they fail. Roman soldiers signed a sacramentum accepting punishment in the event of failure. This is prompting me to call for the nationalisation of the utility part of banking as the only solution in which society does not grant individuals free options to look after its risks.No incentive without disincentive. And never trust with your money anyone making a potential bonus.© 2009 The Financial Times

GuestFebruary 27th, 2009 at 12:14 am

yeah, and why would the incentives have to be as high as they are on Wall Street? Surely they could be kept to $50K or less across the board.Yes it is sad that the bankers cannot have millions. But if that bothers them I recommend that they read a book that many commentators here would likely have regular grassroot Americans to read: Who Moved My Cheese? by Spencer Johnson.(NOTE: I personally do not like the book because of the US mentality to portray working class people like whiners while upper-class people are allowed to whine and “explain themselves”)

PeterJBFebruary 26th, 2009 at 2:23 pm

10:05 January 12th. 2003 (12/1/03)”INTELLECT IS DIRECTED BY INTUITION AND INTUITION DRIVEN BY INTELLECT” – PeterJBI post this here in reference to:”We (government) can guide the invisible hand of the market” President [email protected] Guest on 2009-02-26 12:36:21Comment: The invisible hand is ‘intuition’, but where, pray tell, is the ‘intellect’?Ho hum

blindclone, had to try this one.February 27th, 2009 at 7:38 am

pjb,while it is always a mistake to step in andattempt to respond to a rhetorical question,i find the inevitable ridicule irresistible.soo.it would seem, from what you say, that there isnow a paucity of intellect. seems true. so where is it?i would suggest that human life, like all life, as youare most profoundly aware, is cyclic and, on this plane,seasonal. as in seasonal nature life expression, manifestation,harbors or physically contains its intellect, integrity, etc.in its physical being while the season dictates the dormancyof its higher qualities. ( active intellect dormant ) but..there should be, in place, systems and hardwired arrangements(software integrity?) for such a season.the missing links. and .. our current expression of intellect, body,systems in place, seem to be incapable of “self” sustaining integrityto meet the challenges of the season.not to say intellect is extinguished, perhaps sleeping somewheredeep inside the root, waiting for the cycle , or big wheel, to turn.looking for opportunity, rather than annihilation.?next time, intellect should embed within its creations more of itselfand less ignorance. just my intuition talking.

subgeniusFebruary 26th, 2009 at 2:24 pm

The Labor Department said Thursday that first-time requests for unemployment benefits jumped to 667,000 from the previous week’s figure of 631,000. Analysts had expected a slight drop in claims.New home sales tumbled 10.2 percent to a seasonally adjusted annual rate of 309,000 last month, the worst showing on government records going back to 1963.The median sales price fell to $201,100 in January, a record 9.9 percent drop from the previous month.

GLOOMYFebruary 26th, 2009 at 2:27 pm

PENSION DEBACLE CONTINUES EXPLOSION”Adding to its woes, GM disclosed that its pension fund, one of the biggest in the US, has swung in the past year from a $20bn surplus to a $12.4bn deficit.”http://www.ft.com/cms/s/0/7348edd8-0403-11de-845b-000077b07658.html?nclick_check=1

PeteCAFebruary 26th, 2009 at 2:38 pm

We are at the stage now where the banking industry and the auto industry within the USA has essentially collapsed.There is no point in talking about saving bad banks. People will not put their money in bad banks.There is not much point either in keeping failed auto companies sustained with taxpayer dollars. Americans are not going to buy cars from a company that probably won’t exist in another year or two.Meanwhile, some financial commentators keep rationalizing that an economic recovery will take place – because “what goes down – must go back up”. That apparently is the entire strength of the logic.No, not necessarily. What goes down … can go down even more.The Fed and the Government have taken all the money from America’s future and pumped it into failed enterprises. That is exactly what is happening when trillions are being borrowed against a future payment that is “promised” to occur. This money can never be repaid by taxation – we ar elooking at permanently high levels of unemployment in America for quite some time. Since the Fed refuses to allow interest rates on US debt to increase, we are moving ever closer to a dollar collapse and an implosion in the US economy.PeteCA

GloomyFebruary 26th, 2009 at 2:44 pm

Well said Pete. I sat down in the lunchroom where a work and 2 coworkers, one a very liberal democrat and one a very conservative republican, were in complete agreement and both extremely angry at the bailout mania going on in Washington. America’s mood is beginning to change.

KenFebruary 26th, 2009 at 3:14 pm

While I agree with you in principle, people do put their money in bad banks because they are insured.At least with the autos, it can also be viewed as cheap stimulus to keep people employed during a recession. Pouring money into a dead bank is like pouring it down the toilette.

AnonymousFebruary 26th, 2009 at 3:09 pm

Regarding systemic risk,the government can guarantee some counter parties to mitigate this concern. Guarantee legitimate counter parties rather than those that are basically betting on a government handout.

1mania4uFebruary 26th, 2009 at 3:46 pm

We have a worldwide capital inadequacy. Sweden was able to pull off it’s bank nationalization plan because it was tiny with respect to the globe and there was more than adequate global capital to suppport it’s recapitalization. China is in the strongest capital (i.e. creditor) position in the world , but just like Warren Buffett did not have nearly enough capital to bail out AIG, China does not have nearly enough capital to bail out the global financial system, which effectively has seen the collapse of a 70 year asset ponzi scheme fueled by many unsustainable structures of obligation, at the root of which was the GSE’s FNM and FRE which flasely underpinned perpetual appreciation of residential real estate assets.That is why the newest plan form Geithner and a Japan style zombi bank scenario is the only palatable option. However, unlike Japan, I suspect we will suffer grerater pain than Japan because the Obama admin and Democratic Congress will raid all sectors of the capitalist economy to pay for the socialization of America.Yes, I would even classify those who think nationalization would work as optimists.There is no solution.

AnonymousFebruary 27th, 2009 at 2:29 pm

There is plenty of capital as long as one is willing to haircut the bond holders. The economics is straight forward, the politics is difficult.

ex VRWCFebruary 26th, 2009 at 4:27 pm

This author still has on rose colored glasses in many ways. For instance, he clings to the notion that taxpayers will not end up footing the bill for taking on all of the bad assets. Even the much ballyhooed RTC and Swedish nationalization resulted in taxpayer losses, and the problem is on a much more gigantic scale this time.He also reasons that nationalization will result in market discipline because the nationalization will impose a haircut on debt holders, which will in turn cause the banks to change their ways and somehow make themselves not too big to fail. So far two of his points in favor of nationalization are based on way too optimistic assumptions..In general the government does very little well. Remember this as we witness the government making power play after power play in their efforts to stem the crisis. For instance, they want to take over all student loans . he reasoning is because this is probably viewed as ‘vital credit’ and therefore the government should ensure it happens. Same with the TALF to backstop the securitization of all kinds of loans, the same with running an increasing percentage or mortgages through Fannie and Freddie, etc, etc. Don’t be surprised if the outcome of this toxic asset mess is that the government will think of itself as a mortgage lender to all.Just look at the government’s revenue system, the IRS and the tax code, for a glimpse at the future. Full of politically motivated loopholes, sliding scales, tax breaks of all kinds. It is not a revenue system it is a political tool and an albatross. Thats what our credit and mortgage system will be in the future. A politically motivated albatross.And, if the get the banks, look for much more of the same. The main problem with these people and their plans is that they have no idea of their limits. And little appreciation for the real problems out there. Way too much optimism, way too much ‘yes we can’, and, right now, way too much power concentrated in way too naive hands.

GuestFebruary 26th, 2009 at 7:39 pm

I second that reply comment. To paraphrase Einstein, “A problem cannot be solved using the same set of assumptions with which it was created”

Farnorth5February 26th, 2009 at 7:55 pm

Well it is true that the President probably is naive,in the sense he has not been involved in that particular environment.However what he has done in effect is to hire the “Best and Brightest Minds”who were, unfortunatly, actually involved in creating/supporting the existing banking system.It should come as no shock that staff recommendations in the long run will support the major banks continuing to lgally scam the system in the same manner they have done this past 10years or so.No one is going to give up their power or ability to continue to make the big bucks.The process will continue to be manipulated for the benefit of the Bankers.That is the real problem for the Administration.Who is going to win?,the Banks or the Public in the long run????? I certainly dont have an answer.

GloomyFebruary 26th, 2009 at 5:03 pm

Let’s see if anyone can pick out the contradiction in this phrase. How sad.WASHINGTON – Pledging “a new era of responsibility,” President Barack Obama unveiled a multi-trillion-dollar spending plan Thursday

GuestFebruary 27th, 2009 at 2:14 pm

A diet for the government is like the phrase written by Mason Cooley: “At the end of every diet, the path curves back toward the trough.”

KerkFebruary 26th, 2009 at 5:13 pm

Why not look to see what we did the last time we tried to fund massive expenditures by creating massive amounts of paper money – continentals?Obviously they opted for a system where the States could, if they so chose, declare only gold or silver legal tender. The US, if they so chose, could coin it and subsequently take a fee in seignorage.It isn’t a “perfect” system in the sense of providing for “full employment” or any other potential collectivist ideal, but it is certainly compatible with justice, domestic tranquility, common defence, general welfare, and most importantly – liberty. If we no longer believe in those principles, just say it.The actions obviously are screaming it, but no elite member apparently has the courage to state their beliefs and then attempt to persuade with logic or reason. Instead they wrap it with the attempt to help “the people.” Newsflash, you aren’t helping me with those principles stated above, which ironically are also the ones these folks swore to support. These actions are actually quite the contrary.These actions are promoting injustice, domestic upheaval, specific welfare, tyrrany, and quite probably the lack of common defence.Thomas Jefferson said, “Were we directed from Washington when to sow, & when to reap, we should soon want bread.” That is true, but when the government directs when to lend and at what rates, we will soon be in want of liberty.This issue goes way beyond the question, “to nationalize or not to nationalize.” It goes to the very heart of the preamble of the constitution. Do we still believe in those principles, or have we all been living a lie?

publiusFebruary 26th, 2009 at 5:37 pm

Kerk,Agreed. This will end in a Constitutional crisis – the question is, who will take the day?Horace Alexander, a friend of Gandhi’s, once said,”On your side you have all the mighty forces of the modern State, arms, money, a controlled press, and all the rest.On my side, I have nothing but my conviction of right and truth, the unquenchable spirit of man, who is prepared to die for his convictions than submit to your brute force…Here we stand; and here if need be, we fall.”If that same spirit still resides in the hearts of those who love the principles of freedom and liberty, I believe that “we the people” can resurrect our long dead yet cherished form of government. After all, right makes might, and who shall stand against us if God stands behind us?

GuestFebruary 27th, 2009 at 1:59 pm

Eloquently said. And in that same spirit:”Blandishments will not fascinate us, nor will threats of a ‘halter’ intimidate. For, under God, we are determined that wheresoever, whensoever, or howsoever we shall be called to make our exit, we will die free men.” JOSIAH QUINCY: Observations on the Boston Port Bill, 1774.

GuestFebruary 26th, 2009 at 6:19 pm

Now that we all can see Obama’s stead fast determination to bail out bank share holders the mood around here is pretty down. It’s called feeling helpless when you know you’re being robbed and there’s nothing you can do about it when even the apparent good choices let us all down. My faith in this country is shattered I see no sense of fairness everything is for the wealthy. The court systems are reserved for the wealthy you have to pay $300 dollars per/hr to be heard, the bankers and corporations are the only ones being heard by our government and the people are locked out. At this point I find myself hoping and praying for the most tragic of collapses because it seems like the only chance we may have for true change. Democracy turned out to be a lie.

Farnorth5February 26th, 2009 at 7:13 pm

Democracy wasnt the lie.The lie was the subversion of the election system by the very wealthy being able to control the elected and appointed people to modify the checks and balances to the extent that 1% of the people have now won the MONOPOLY GAME.The rest of us were not even left with enough purchasing power to keep the GAME going.The truth is in the “Old Days”most people where Farmers/Ranchers/Small Business people,who by their honest hard work could get ahead.Now with the Multinationals not caring where the labour comes from they actually dont give a dam about the condition of the American People.The profits are made offshore and through financial manipulation.The system wont clear itself until Banks/Finance Companies/Insurance Companies have NO right to contribute campaign funds.At the end of the day the peoples funds have to rule when Politicans are elected.As it is now they have no choice but to “Follow the Money”

GuestFebruary 26th, 2009 at 7:14 pm

TRILLIONS FOR THE BANKS. DIDDLY SQUAT FOR THE PEOPLEFeb. 26 (Bloomberg) — In California’s Contra Costa County, 40,000 families are applying for just 350 affordable-housing vouchers. Church-operated pantries are running out of food. Crisis calls have more than doubled in the city of Antioch, where the Family Stress Center occupies the site of a former bank.The worst financial crisis in seven decades is forcing thousands of previously middle-income workers to seek social services, overwhelming local agencies, clinics and nonprofits. Each month 16,000 people, including many who were making $60,000 to $100,000 annually just a few years ago, fill four county offices requesting financial, medical or food assistance.http://www.bloomberg.com/apps/news?pid=20601109&sid=as3PyDwmDEQY&refer=home

SoftwarengineerFebruary 27th, 2009 at 3:10 pm

DO YOU MEAN FIX AMERICA’S ECONOMY BY BAILING OUT AMERICAN BANKSTERS FUNDING THE RECENT TOXIC OVERPOPULATION LOANS?I differ with Obama and Bernanke on that economic direction, as its clearly leading to a chronic slamdunk depression in America [look at the horrifying actuals to date].Let’s really CHANGE America’s present direction, RE: spending wasteful trillions of dollars to bail out the overpopulation banksters [as a result I believe we’re enterring a small letter “l” recession, no recovery without American depopulation]; to a positive thinking “U” shaped recession the following way [by the way, I bring this idea up to just about anyone in America, and they totally agree with me]:Let’s not bailout the overpopulation banksters. Instead, let’s take our grandchildren’s tax money and create a new totally separate “nationalized” bank and buy the recent overpopulation toxic home loans, with our kids’ tax money.Call it the “We the People” Bank. Then our 2nd/3rd/4th/etc generation legal American kids/others can borrow the stimulus money from the “We the People Bank” and buy all the toxic loans from the bankrupt overpopulation banks for 25-50 cents on the dollar [what they’re worth].Its win/win for Americans, as our domestic kids/others can use the bailouts they pay interest on to buy up cheap homes from the recent overpopulation banksters.I believe this will likely cause the legal American economy to eventually thrive again [home prices will rise again]. And don’t tell me the same old, same old “Bush-like” bailing out the overpopulation banksters does, the actuals in America to date are horrifying.Its time for the overpopulation banksters to swallow the real American medicine….LOL

GuestFebruary 26th, 2009 at 8:45 pm

A large multinational financial corporation roams the seven seas using whatever jurisdiction will allow itto get the least regulation and taxation from nation states. As long as there are no global treaties to totally regulate the conduct of these extremely powerful entities, they will force a downward harmonization of nation state rules. The Bretton Woods institutions(IMF, World Bank, and GATT-WTO)were intentionally designed to provide an Anglo-Americanveto in all areas of financial and economic international interaction. We cannot have effectiveglobal treaties without democratizing these institutions. The Anglo-American bloc will notrelinquish power to democratize these institutions.Something must give. As long as these Large Multinationals are empowered by the Anglo-Americanbloc, there is no chance for Real Democracy. Whatwe have now is feigned democracy at the nation statelevel that is preempted by International Institutionsthat are autocratic and guarantee DEREGULATED HOT MONEY TO ROAM THE SEVEN SEAS, DEREGULATED COMMERCE,DEREGULATED FINANCE, ALMOST NON-EXISTENT LABOR REGULATIONS,AND DEREGULATED ENVIRONMENTAL EXPLOITATION.The Professor and many other top-notch economists knowthis predicament and are alway talking about REGULATORY ARBITRAGE AND JURISDICTIONAL ARBITRAGE.The only way to fix our problems is to start by creating a TRUE DEMOCRACY OF NATIONS at the international level and work down to the nation state.A true democratic United Nations with a democraticSecurity Council and a legislative assembly to formulate consensus on Global Nation State Treaties.All the other International Institutions must workon egalitarian principles of consensus. ‘THE POWERS THAT BE know that unless this is accomplished theycan play nation states against each other tosecure the regulatory and jurisdictional arbitrage.We truly do not have democracy, we have the illusion of democracy. We must break our illusions and workfor the benefit of Humanity. We are now a global village connected by the Internet, but we have notmade the adjustments needed to function commensurateto our circumstances.We could change the laws in the United States tommorow and the Global Multinationals would leave our jurisdiction and work elsewhere. They could shut us down if they saw fit. We must start from international treaties down to eliminate thefamous “Regulatory and Jurisdictional Arbitrage”.We could do this! It will be really hard! It isthe only way out!

GuestFebruary 26th, 2009 at 10:10 pm

it seems like Obama and Democrats are determined to destroy USA within 100 days where Bush and GOP failed in 8 years.

GuestFebruary 27th, 2009 at 9:47 am

is it? you show me a president who did more damage in his first 100 days then Obama, and I’ll eat my hat.

GuestFebruary 27th, 2009 at 1:25 pm

He wouldn’t be able to do much damage at all if some major groundwork hadn’t already been laid and been in progress already. The comment is idiotic because it lays everything at one man’s door, and that is idiotic. No, I’m not swk and I don’t agree with all that he posts, but in this case, I’d agree with him.

GuestFebruary 27th, 2009 at 2:05 am

I hope the nationalize several of the top 20 banks including citi and BOA then fire the management. Then break them up and make them so they are not to big to fail.They should make BOA as small as they were when they were nations bank or ncnb. It could happen to a nicer bunch

subgeniusFebruary 27th, 2009 at 2:58 am

From Dmitry OrlovOf Swans and TurkeysOn Monday I was on Equal Time Radio with Carl Etnier, WDEV, Waterbury, Vermont. The other guest was the technological optimist William Halal, author of Technology’s Promise: Expert Knowledge on the Transformation of Business and Society. Halal claims to be able predict the future of industrial civilization by talking to experts in different technology fields and then putting all of their predictions about their own fields together as a single map of things to come.My immediate reaction was along the lines of “Of course experts in any given field like to think that their field has a bright future!” and only later did it occur to me to put him in the context of Nassim Taleb’s work, allowing me to formulate a better response.Taleb is known for introducing us to black swans (reality-altering observations that invalidate earlier conventional wisdom) but another animal he should be rightly famous for is the Christmas turkey. Taleb says that asking an economist to predict the future is like asking the Christmas turkey what’s for dinner on Christmas: based on its entire lifetime of experience, the turkey expects to be fed on Christmas, not to be eaten. As far as the turkey is concerned, Christmas is a black swan-type event.But yesterday it occurred to me that this analogy extends to all professionals, and certainly to technologists and scientists: when asked about the future of, say, nanotubes, or nuclear fusion, or genetic engineering, they will predict that it’s bright, and continue to say so until the day their grants are canceled, their salaried positions eliminated, and their labs shut down for political and macroeconomic reasons they are ill-equipped to try to comprehend.This is precisely what happened during the demise of Soviet science the early 1990s: one moment there was a great scientific establishment boldly predicting a bright future for itself, and the next moment you had experts in holography making little religious holograms to sell at outdoor flea markets in order to buy food, aerospace metallurgists reinventing the straight razor to get a decent shave because disposable razors had disappeared, graduate students dropping their research projects and going off to make some money doing manual labor, and the entire faculty at once trying to find a visiting faculty position abroad.And so it seems to me safe to conclude that the future of your specific field of scientific or technological endeavor depends first and foremost on your ability to continue drawing a salary and receive funding, which, in turn, depends on a long list of things, with the viability of the particular field of endeavor somewhere near the bottom of that list. When asking an expert for an expert opinion, that expert is forced make assumptions about a multitude of factors that lie outside the expert’s narrow field of expertise. The most important assumption is that there is continuity in the surrounding environment – physical, social, and economic: the turkey’s assumption about getting fed tomorrow based on it being fed every day.Given what is happening all around us – be it physical resource constraints, climate upheaval, or unsustainable social tends – that assumption is highly questionable. With this basic assumption invalidated, an expert’s expertise regarding the future is no more impressive than the expertise of a Christmas turkey regarding Christmas.

SB007February 27th, 2009 at 3:59 am

Firstly, a big thank you to all the contributors on this blog that make the reading both informative, entertaining and somewhat addictive.It has been quite an eye opener reading and then trying to piece together a balanced view of where things are at and where they are heading.The number one problem in my humble and uneducated opinion is the lack of focus on maintaining and creating jobs in the private sector.Banks have cash that is not circulating into the pockets of small business and industry that can make a difference to people’s lives. I can have all the housing I want, but if I can’t afford to live there and feed my family, the end result is the equivalent of a noose around my neck, strangling the life out of my existence.How can the solution be any more than a derivative of the following?Business/production = income = food/shelter = growth = equity = quality of lifeWe want to jump in and fix the food/shelter issue, which is great, but with each decline in employment numbers there is less money to fix the problem and less capability to succeed.Personally if I had a choice between a job and house, my first choice would be a job (granted, if I was retired or disabled and watched my retirement funding flow into the sewer works, then the best outcome is still a revived economy to be able to invest in confidence that which I am able to afford – or to have an economy that can afford my reliance upon it).Perhaps my view is too simple and overlooks the macro problems, but in my mind the only liquidity problem is the funnel from Washington to Wall Street. When the house pipework breaks, I call for a plumber, not my banker.Presently there is a blockage in Wall Street, not main street – and they are in desperate need of a plumbing expert to unblock the crap they created.In simple terms, let the pipework flow directly to main street, and not via the blocked up sewers of “Bankers Alley.” Everyone’s getting sprayed with crap they don’t deserve and didn’t ask for – make it a fresh injection and stop telling me my taxes have to pay for toxic waste….. “toxic” makes it sound really bad, when all it means is forgone equity. When the merry-go-round stops, we all have to get off. The way to overcome loss and pain financially is to find a way to replace it. To find a way to replace it means giving people hope that real jobs are an immediate focus.There are literally thousands of opportunities and projects that could create “real jobs” not imaginary ones, yet the blockage is so tight on Bankers Alley that nearly all entrepreneurial pursuits are met with a wall of BS reasons that are only fathomable by executives with trumped up qualifications in risk management……… I’m thankful that I’ve never had to rely on a Monte Carlo simulation to feed my family or tell me when things are good/bad (I look out the window and if its raining I wear a raincoat, if its sunny I wear shorts).The US is a land of innovation and excitement. Taking the bad with the good is part of life. I don’t blame anyone for this mess, and I don’t really care how it happened. The only thing that matters is what is the best thing or group of things, that can breathe life into the job market and keep people off the streets – everything else will follow.Alas, we are at the root of the real problem – the finance sector has recruited so many people, a systemic failure really means driving the unemployment rate into double digits?So people who manage money are worth more than people who create money. People who manage money and pay themselves enormous bonuses for “advising” on business deals and creating “wealth” at the expense of “wealth creators” are insulated from reality.When my payroll is short, I dip into my pocket and pay wages for the people I hire. It would seem that when a banker’s payroll is short, they also dip into my pocket. I could have only wished that that advice paid for, was more than a lesson in cynicism.Sam

GuestFebruary 27th, 2009 at 5:03 am

What I don’t understand is that this Japanese stock market keeps on going up every day. At times I wonder what do they smoke..their economy contracted like 13 percent last quarter, probably 15 percent this quarter, and if this lasts for only two more quarters, then it has actually shrunk a whopping 13-15 percent. 13-15 percent of whatever 3-4 trillion economy that Japan has…it is sure to cause a collapse of goverment and political upheavel there…and if the recession in the US lasts thru the year, then the above contraction is bound to take place…The Chinese are known for gambling but are people sure that the true gamblers aren’t actually the japanese..

GuestFebruary 27th, 2009 at 5:18 am

The other thing that the firms need is to not only quants who can come up with valuations for risk and returns…what they need are ceos who put the quants, Financial historians, political risk managers, and the like on the table and consider the numbers among one of many opinions before making serious decisions. All the numbers are great, but they can conceal more than reveal: the assumptions treat instruments and risk in isolation, while the whole world we live is in interconnected. This crisis is not a failure of risk management, it is a failure of decision-making. And it is amply clear that the decision-making process is weak and one-dimensional right from the goverment.

KafkaFebruary 27th, 2009 at 5:50 am

While BO and his socialist pals absolutely disgust me is he at least being honest about the current U.S. economic climate in his rhetoric? Aside from the ludicrous budget projections for growth and tax revenues, he is probably understating the devastating economic effects of the current liquidity trap. While I do not believe in conspiracies per se because the current and past Government thefts that have occurred are readily apparent, funds flow data seems to suggest a substantial portion and increasing proportion of Treasuries were purchased by the private sector. Most suggest this is as a result of the tanking stock markets. Is it possible BO and his socialist pals are deliberately trying to keep the markets low (or worse) so private capital will continue to increase its funding of massive government growth through the purchase of Treasuries? Given that most Politicos except apparently BO (and he is the ultimate Politico) talk up the economy, the cash trail would certainly seem to suggest BO would prefer the side lined private capital go into Treasuries as opposed to the stock markets, the cash trail never lies. Note, fixing the banking sector aint that complicated but the more complicated it is made to appear and the more uncertainty created, the more likely it is private capital will flow into the much needed funding of treasuries. Is the Government now effectively in competition with all the companies it now controls for private capital? Is the government the ultimate manipulator of markets of proportions that Gross and Soros could not even comprehend?………………………………………………………………………………………………• That implies, I think, that the ability of the US to finance large deficits at low rates depends far more than it has in the past on private investors willingness to buy Treasuries. That was in doubt a few weeks ago when the markets were focused on the risk of a Treasury bubble and the scale of the Treasury issuance associated with the stimulus and various bailouts. Now the market is more focused on the risks tied to a strong global downturn — and the remaining risks in the financial sector …http://blogs.cfr.org/setser/2009/02/26/who-bought-all-the-treasuries-the-us-issued-in-2008-and-who-will-be-the-big-buyers-in-2009/

GloomyFebruary 27th, 2009 at 6:36 am

WHY IS OBAMA TALKING UP BALANCING THE BUDGET IN A DEPRESSION?Raising taxes and cutting any spending, even for pork, makes no sense in a depression. Then why talk this game up? Because Obama is trying to show that America will not be insolvent from all of these bailouts and stimulus packages. Because he knows that a tidal wave of new treasury issuance is coming this year. Because he knows foreign governments are getting skiddish about buying more of our debt and are wondering if we will be able to pay it back. Because he knows that in fact we are insolvent and he is hoping the world doesn’t finally see that the emperor has no clothes.

GuestFebruary 27th, 2009 at 7:20 am

very cute, philosophically speaking.The fact is that this downturn started already about year 2000 or perhaps even earlier.Obama is just trying to do what he can. Clearly his huge budget is not much about balancing the budget. But in any case dude is trying to do something. If you have better ideas, call the White House. Or Oprah – that might be the quickest way to get airtime.

GloomyFebruary 27th, 2009 at 1:25 pm

Um-how about break up the banking cartel for starters. Get rid of incompetents like Geithner and Bernanke for another. Put the 10 trillion dollars wasted on bank bailouts and guarantees in projects that will stimulate real growth, or at least save the money till you can find such projects.

AnonymousFebruary 27th, 2009 at 7:14 am

Taboos in talking about US economic subjects:- To mention the word “poor” – always say “middle class”;- To even remotely relate this crisis to anything similar to income distribution

GuestFebruary 27th, 2009 at 7:21 am

Obama’s budget plan assumes the classic incorrect socialist assumption that the status quo will remain – meaning that incentive to work and to make more profit… by going after the businesses/people making 250K or higher (which will by the way include all of us through hyperinflation within a few years), it will drive some businesses/people to only make up to 245K and then stop, drive some to work overseas, drive some to accounting based on two separate companies instead of one, and so on and so forth…

wethesheepleFebruary 27th, 2009 at 7:47 am

Forclosure is the oldest redistribution of wealth mechanism besides war on the planet, yet you never hear of it in those terms. Confiscation by the banksters when incomes inevitably stagnate or fall by the artificial busts created after the easy money booms.

GuestFebruary 27th, 2009 at 7:27 am

It’s Time to Break Up the Big BanksThe Geithner PutBy MIKE WHITNEYTimothy Geithner is putting the finishing touches on a plan that will dump $1 trillion of toxic assets onto the US taxpayer. The plan, which goes by the opaque moniker the “Public-Private Investment Fund” (PPIF), is designed to provide lavish incentives to hedge funds and private equity firms to purchase bad assets from failing banks. It is a sweetheart deal that provides government financing and guarantees for illiquid mortgage-backed junk for which there is no active market. As one might expect, the charismatic President Obama has been called in to generate public support for this latest addition to the TARP bailout. In this week’s address to Congress he said:“This administration is moving swiftly and aggressively to restore confidence, and re-start lending.“We will do so in several ways. First, we are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small business loans to the consumers and entrepreneurs who keep this economy running.”The Obama administration is clearly afraid to use the shifty Geithner to sell this boondoggle to the American people. Geithner’s last performance put the equities markets into a swan-dive.Details of the plan remain sketchy, but the PPIF will work in concert with the Fed’s new lending facility, the Term Asset-Backed Securities Loan Facility, or TALF, which will start operating in March and will provide up to $1 trillion of financing for buyers of new securities backed by credit card, auto and small-business loans. Geithner’s financial rescue “partnership” will also focus on cleaning up banks balance sheets by purging mortgage-backed securities (MBS).In Monday’s New york Times, Paul Krugman summed up the Geithner plan like this:”Now the administration is talking about a “public-private partnership” to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.Why not just go ahead and nationalize?”Why not, indeed, except for the fact that Geithner’s and his boss’s main objective is to “keep the banks in private hands” regardless of the cost to the taxpayer. The Treasury Secretary believes that if he presents his plan a “lending program” rather than another trillion dollar freebie from Uncle Sam, he’ll have a better chance slipping it by Congress and thereby preserving the present management structure at the banks. Keeping the banking giants intact is “Job 1” at the Treasury.The PPIF is a way of showering speculators with subsidies to purchase non-performing loans at bargain-basement prices. The Fed is using a similar strategy with the TALF which, according to the New York Times, could easily generate “annual returns of 20 percent or more” for those who borrow from the facility.From the New York Times:”Under the program, the Fed will lend to investors who acquire new securities backed by auto loans, credit card balances, student loans and small-business loans at rates ranging from roughly 1.5 percent to 3 percent.“Depending on the type of security they are borrowing against, investors will be able to borrow 84 percent to 95 percent of the face value of the bonds. Investors would not be liable for any losses beyond the 5 percent to 16 percent equity that they retain in the investment.“In the initial phase, the Treasury will provide $20 billion and the Fed will provide $180 billion. Treasury Secretary Timothy Geithner said last week that the Treasury could increase its commitment to $100 billion to allow the Fed to lend up to $1 trillion.”This is a ripoff, which is why the plan is being concealed behind abstruse acronyms and complex explanations of how the transactions actually work. The only way investors can lose money is if they hold on to the securities after they fall below 16 percent of their original value which, of course, is unlikely, since the buyers can bail out at any time leaving the taxpayer holding the bag. Call it the “Geithner Put”, another gift from Uncle Sugar to Wall Street land-sharks.Geithner thinks that by obfuscating the details of his plan, he’ll be able to carry it off with no one the wiser. But he’s mistaken. His credibility has already been badly battered by his chronic evasiveness. Now the pundits are blaming him for falling consumer confidence and the plummeting stock market.It is no surprise that the Fed announced its expansion of the TALF on the same day that Geithner presented his outline for a “public-private partnership”. The two plans represent the Obama Team’s strategy for “squaring the circle”, that is, for keeping the big banks in private hands while purging their balance sheets of worthless assets at the public’s expense. Here’s how it’s presented on the Fed’s website:”Under the TALF, the Federal Reserve Bank of New York will provide non-recourse funding to any eligible borrower owning eligible collateral… As the loan is non-recourse, if the borrower does not repay the loan, the New York Fed will enforce its rights in the collateral and sell the collateral to a special purpose vehicle (SPV) established specifically for the purpose of managing such assets… The TALF loan is non-recourse except for breaches of representations, warranties and covenants, as further specified in the MLSA”Non-recourse funding? In other words, the loans will be like mortgages, where if the homeowner finds that he is underwater, he can just walk away and leave the bank to cover the losses? In this case, it is the taxpayer who will be left taking the loss.The PPIF is basically the same deal, 90 percent government-funded “no risk” financing offered to the same speculators who just blew up the financial system. It’s a scam. The process allows Geithner to avoid assigning a market value to these garbage assets that no one wants. That means that he’s planning to pay inflated prices–up to $1 trillion– to keep the banks happy. Once their balance sheets are scrubbed clean, the banks can begin engineering their next swindle. Meanwhile, the hedge funds and private equity firms will demand refunds for the toxic waste they bought but cannot offload on skeptical investors. Once again, the government will pick up the tab.Does Geithner really think he can sneak this through?The markets aren’t going to like the idea of recapitalizing the banks through the backdoor. Wall Street will see right through the smoke n’ mirrors and hit the “sell” button. If the banks need recapitalizing, they will have to do it the old fashion way. They’ll have to restructure their capital, which means that shareholders get the ax, bond holders get a haircut, management gets the door, and the American people become majority shareholders. That’s how it works in a free market. When businesses are insolvent; they file for bankruptcy and the debts are written down. Geithner could save us all a lot of trouble by just doing his job and nationalizing them now.The Baseline Scenario’s Simon Johnson put it perfectly when he said:”Above all, we need to encourage or, most likely, force the large insolvent banks to break up. Their political power needs to be broken, and the only way to do that is to pull apart their economic empires. It doesn’t have to be done immediately, but it needs to be a clearly stated goal and metric for the entire reprivatization process.”

GuestFebruary 27th, 2009 at 10:47 am

Whitney asks, “Does Geithner really think he can sneak this through”?Why not? And he won’t have to “sneak” it through. The President of the United Banks will be waiting for him in the oval speakeasy, with champagne and hors d’oeuvres and prostitutes abounding, the old bosses Pelosi, Frank, Dodd and Reid enforcing the DC-NY Gang’s code of “omerta” — sworn to utter loyalty to the Fed and to keep the seal of silence on all its activities.

GuestFebruary 27th, 2009 at 7:29 am

http://www.ustreas.gov/press/releases/tg41.htmhttp://www.ritholtz.com/blog/When Geithner becomes David Copperfield with allthese assaults on the taxpayer, the only logicalassumption is that the situation is going Chernobyl.Citi is Frakenstein and so are the other monopolybankers! Geithner is either being held hostage toa sincere feeling that if he doesn’t prop the banks,we are steps away from the Dark Ages, or he is DoctorEvil!I just want you enter into a thought experiment. Thebanks are all strapped with Derivative Dynamite andthey are each holding a grenade. Geithner has to dotheir bidding or they blow us all to kingdom come!!!What do you guys think? Is he in a great bind tryingto do anything he can to float the Titanic or ishe Doctor Evil!!!a)Public servant in an impossible situationb)Doctor EvilIf you chose Dr Evil, find your local meeting placesand get yourself a group of people to march in yourbusiness suites to the local park, put up a soapbox,and make democracy work!THE SOAPBOX PROJECT!ALL WE NEED IS TO GET PEOPLE TO UNDERSTANDWHAT IS GOING ON AND THERE WILL BE A VIRALMEME THROUGHOUT THE POPULATION!!!

ranManFebruary 27th, 2009 at 8:19 am

Medic:I have a friend who is a long time nurse. She is not employed full-time by her employer. She works 20-35 hours per week and is totally dependant on the hospital who calls her 1 day ahead of time to either tell her to come in, or stay home. She works all different hours of the day. My question to you….is this the norm and what she should continue to expect? or is there something she can do to get more stable emplyment and therefore, lifestyle? Thanks.

MedicFebruary 27th, 2009 at 8:26 am

RanMan -That would depend on her employer. If she is working as a per diem employee, she will not have guaranteed hours. But for most hospitals anyway, part time help is anything over 24 hours a week (usually).If she is not part time, then for stability she should look for a part or full time position.That being said, as reimbursements decline, those positions are harder and harder to find. Just my area over the last year, I have seen 70 posted nursing jobs decrease to less than 15 this week between our 2 local hospitals. It’s not pretty out there.

GuestFebruary 27th, 2009 at 9:16 am

from 70 to 15…wow…are you saying that they were looking for 70 people and then canceled many of those ads?

MedicFebruary 27th, 2009 at 9:38 am

There were 70 posted nursing jobs between our 2 local hospitals a year ago. This week – 15 between them.Many open jobs have been frozen (they will not be filled) and my wife’s hospital is looking at layoffs in the next week.Hospitals have pulled the ads for open slots because it has become more cost effective to work a little short and cap their in patient beds (census). That means we don’t admit as many people as we used to – they either are sent home from the ER, or they are transfered to another hospital who has space.

HubbsFebruary 27th, 2009 at 10:03 am

Starting to see similar situation at my hospital. The hospitals throughout the country have over expanded…much like the housing and commercial real estate market have overbuilt. There has been quite the medical “arms race” with each hospital trying to acquire fancier and higher tech equipment. The hospital just built 44 million dollars worth of additions. now the surgical volume has dropped off, the family practioners are withdrawing their privileges from the hospital because of the time, hassle and requirement to provide uncompensated call coverage in the emergency rooms. This is in part aggravated by the fact that fewer of these people are insured, and that a non-surgical physician’s time is more efficiently/economically spent in the office.With profit margins declining, the hospital is closing floors. Nurses are being required to take on more patients. New nurses are NOT being hired. Nurses who specialize in one area,for example taking care of dialysis patients, are being floated to cardiac or surgical floors. No overtime is allowed. Cat Scan technicians are having to double up as orderlies to transfer patients.Switching to overseas, in the Philippines, it is all the rage to go into nursing with the intent of landing a job in the US. In fact, the nursing school numbers suggest this is just a diploma mill, designed to benefit those who run the schools, and the agencies which charge hefty fees to land graduates jobs. 50% of the graduates don’t pass the Nursing Boards in the Philippines.As health care expenses get squeezed here in US, even high paying nursing jobs may go by the wayside. I can’t figure out if this means immigration of H1-B visa nurses, (Deja Vu for engineers)at lower pay or rather just a shutting down of health care facilities here in the US to the point that a nursing shortage can’t become manifest.

MedicFebruary 27th, 2009 at 10:11 am

Hubbs -Check out my blogpost above if you have not yet – the biggest problem I see in the immediate future is the insurance industry. All you say is correct, but like homebuilders dependent on banks to finance buyers, we need the cash flow from insurers.Unless, of course, we nationalize.With patient populations growing in size as the Boomers get older, reimbursements dropping, state and national insurance programs strapped for cash and our collective medical workforce getting older, we are in deep trouble.

GuestFebruary 27th, 2009 at 8:23 am

I’d love to see the markets tank and lock-up on the down 1250 trigger by 11am. Then open at 1PM and tank again. Maybe that would wake Americans up to what is going on in this country. Wait, that’s exactly what Benny and Timmy are trying to prevent……….with this sloooooooooooow crash and burn.

GuestFebruary 27th, 2009 at 8:25 am

eventually everyone wakes up it’s 2010 and their 401k’s are 21k’s, without jobs or prospects and wonder what happened!!!!!!!!!!!!!!!!!!Time to protest in WDC!

GuestFebruary 27th, 2009 at 8:41 am

I guess my predictions at the end of decemeber are all happening… look at todays GDP1. 1500 banks go away- in progress- Citi in trouble- BOFA too2. 200,000 store closings – in progress- Gottshcalks Bankrupt3. Dow at 5000 possibly 4000 -stays propped up by continued Govt purchases of shares and preferred shares- do not use as gauge of how economy is doing- http://www.guardian.co.uk/business/feedarticle/82601014. S&P at 500 possibly 400- http://www.guardian.co.uk/business/feedarticle/82601015. Mortgage rates for new homes go to 3% and resale’s/refi’s at 3.75% – pushed by Obama6. Tax credit of at least 25k for home buyers7. Chrysler is gone by March.8. GM goes under by Sept.9. GE files bankruptcy – http://clusterstock.alleyinsider.com/2009/1/gm-gm-we-still-cant-rule-out-bankruptcy10. Calf state budget deficit hits 50 Billion- presently 41B11. All states and local gov’ts approach 300 billion deficits combined12. Massive state and local gov’t layoffs nationwide13. official unemployment hits 13%, unofficial unemployment hits 25% – current: http://clusterstock.alleyinsider.com/2009/1/jobs-numbers-much-worse-than-you-think14. Gas prices hover around 1.50 gallon unless there is major Mideast/Pakistani/Indian crisis then it goes to 5.00 quickly15. GDP shrinks at 6-8% for 200916. Deflation takes strong hold until sept 2009, at which point hyperinflation is roaring by dec 2009. – Update Jan30http://clusterstock.alleyinsider.com/2009/1/hyper-inflation-threat-cannot-be-dismissed-analystshttp://clusterstock.alleyinsider.com/2009/1/full-text-of-bernankes-speech17. US Dollar continues slow decline against Yen, Euro, Pound and Yuan – losses 50% by Dec 200918. 2009 Federal deficit hits 2 Trillion – Update: 1st qtr almost 500 Billion19. total Bailout and govt assistance programs approach 15 trillion from when it started in summer of 2008- currently at 8 trillion – http://www.bloomberg.com/apps/news?pid=20601087&sid=at6cYfv8wFJw&refer=home20. Total US liability approaches 60 Trillion by 200921. bond market collapses22. US treasuries become almost worthless23. China pulls the trigger and demands we pay back what we owe or they stop shipping goods to us or cut prices dramtically -(LONDON, Jan 15 (Reuters) – Societe Generale said on Thursday that the United States’ economy looks likely to enter a depression and China’s could implode.In a highly bearish note, veteran cross asset strategist Albert Edwards said investors should now cut equity exposure after a turn-of-the-year rally and prepare for a rout.He predicted that the S&P 500 index of U.S. stocks could be set for a fall of nearly 70 percent from recent levels.Edwards also raised the danger of a global trade war with China.”While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie elsewhere,” Edwards wrote.”It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression.”Edwards has long been one of the most bearish analysts in London, first with Dresdner Kleinwort and then with SocGen.But he called in October for clients to increase their exposure to equities, which he said were due a rebound.”We believe that the market is (now) set to quickly slide sharply towards our 500 target for the S&P,” he said.The S&P 500 <.SPX> stock index is currently at 842, up about 14 percent since hitting a low in November.)24. Housing values decline another 15-25% from Nov 2008 levels- Calif, Fla, AZ, Nevada see even steeper declines – http://www.housingwire.com/2009/01/14/foreclosure-activity-fires-back-up-in-california-report/25. States and local govts raise taxes on everything, unless Federal govt gives them help… this is going to be ugly26. Obama starts giving states and companies relief on Medical insurance premiums and costs.. possible full nationalization of Health care system gets underway in 200927. Fed possibly nationalizes entire banking system28. More Madoffs and ponzi scams totaling 1 trillion may happen, unless they hide the losses29. approx 2 Trillion in more bad Res mortgages/losses to be absorbed by banks and govt – http://www.bloomberg.com/apps/news?pid=20601213&sid=aTtVEJqx_S2w&refer=home30. 1 in 3or4 mortgages fail. Prime and Alt A pool problem is actually worse and larger than sub prime problem – http://www.housingwire.com/2009/01/14/foreclosure-activity-fires-back-up-in-california-report/31. commercial real estate and rents fall off a cliff, 50% drop in values and 1.5 Trillion in losses.32. Obama polls on effectiveness of handling job fall to Bush levels by end of 2009 – not his fault.33. US possibly gets involved in much larger ground war somewhere to stimulate economy and jobs and deal with crisis in mid east/India/Pakistan/Russia/Korea34. Credit card Debt approaches 2 trillion in losses for banks and lenders35. the Yankees with their new 3 players they paid 1/2 billion dollars to, win the world Series, but Yankee Revenue and profit implodes and Team gets in finaiancial trouble.36. 5-10 or more major sports teams go bankrupt in 200937. something happens in later part of year to unite the country… could be good or bad..38. Govt deals with civil unrest in parts of the country…..39. people will think things are better for 1-2 months at times during the year, only to be hit over the head with more bad economic news and problems40. these problems will last until at least 2012 as Americas struggle with all the resetting going on in the economy, from wages, to housing, to buying, to energy, to living simpler… – http://clusterstock.alleyinsider.com/2009/1/depression-odds-above-5041. Entire Govt and private Corp pension system is underwater by at least 2 trillion dollars and will be huge issue for Govt to deal with in 2009 – http://www.bloomberg.com/apps/news?pid=20601087&sid=aw9HrY21Ynno&refer=home another good link: http://blogs.reuters.com/great-debate/2009/01/14/pension-assumptions-hitting-the-wall/42. NorTel goes bankrupt- I called this one in Nov.

AnonymousFebruary 27th, 2009 at 9:26 am

33. As I’ve said, this will happen sooner rather than later. I would venture that the military industrial complex is ready to release its own version of a stimulus package any day now.AM

HubbsFebruary 27th, 2009 at 8:55 am

NationalizationIf Govt ownership of Citi has increased to 36%, then Govt nationalization is on schedule. All of this will be done piecemeal so as not to rock the boat. A little dilution here,a little dilution there. Stress test here, slip a little alphabet soup govt bailout there. The question really becomes when does the nationalization process finally get completed?

GuestFebruary 27th, 2009 at 8:57 am

it is an on-going evolving process and expect also nationalization to go to the auto sector and to the other US sectors… eventually more and more socialism and control…

GuestFebruary 27th, 2009 at 2:29 pm

Socialism out of absolute necessity because the elite looted our country with globalization and then easy credit schemes while they chanted “free market” mantras and let business regulate business etc.

GuestFebruary 27th, 2009 at 10:14 am

In Frank and Dodd Bankdom, it’s when Joe 6Pak has been soaked to death with all the “bad and ugly” and Citi makes off with the “goods.”

AfAFebruary 27th, 2009 at 9:16 am

I believe that Geithner is making a fatal error here. Everybody knows, or at least feels, that the only thing that separates Citi from collapse is time (and not the amount of injections). The continuing infusions of money and the latest conversion to common shares will ensures that, when time comes due, a nationalization/ restructuring of the bank will be a very impossible choice without incurring huge immediate costs to the taxpayers in the tune of hundred billions.The only other option left will be to let Citi go down, and that is a politically and systematically impossible.Therefore, what Geithner is doing is making sure taxpayers are incurring losses in a lost battle … of course the war is even more expansive

FEDupFebruary 27th, 2009 at 9:35 am

first it was “pickpocket Paulson” and now it’s “grab our money” Geithner robbing us and future generations blind while Obama keeps giving pep talks on the economy!

PeteCAFebruary 27th, 2009 at 9:23 am

NEWS …”WASHINGTON (AP) — The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.”And if the news on the 6.2% contraction doesn’t perk your taste buds, just imagine what the drop is for the 1’st quarter of ’09.Anybody still think that they can fudge the market today? We’re headed below Dow 7000. Might not happen today … but it will happen.PeteCA

GuestFebruary 27th, 2009 at 10:05 am

“the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.”That’s cute – it’s the consumers and businesses fault. Right.

see.clayFebruary 27th, 2009 at 11:55 am

doesn’t leave many other options, so it is just some big obtuse statement that means nothing because everyone alive is a consumer and most people cant print money so therefore are part of a business.

different blindGuestFebruary 27th, 2009 at 9:34 am

@ last thread, last comment.this was too good to let pass like that..We have let ourselves become a nation of criminals with high ideals (collectively, though probably not individually). Twain called Congress America’s only natural criminal class, but they are just the facilitators of our greed to bend the laws until we don’t know right from wrong anymore.Reply to this comment By Guest on 2009-02-26 17:05:27.it is not criminal to seek your own survival. ever. point one.it is criminal, violation of LAW, to put people in the position of having to violate”law” to survive. point one-b.so the question is do the “laws” have any integrity, correspondence to LAW, or arelaws just codified PORK. resulting in making life perverted, by design?ps.guest, great post…..thanks. mark twain, gold standard.

GuestFebruary 27th, 2009 at 9:59 am

“The nature of law is to maintain justice. This is so much the case that, in the minds of the people, law and justice are one and the same. There is in all of us a strong disposition to believe that anything lawful is also legitimate. This belief is so widespread that many persons have erroneously held that things are ‘just’ because law makes them so.“Thus, in order to make PLUNDER appear just and sacred to many consciences, it is only necessary for the law to decree and sanction it. SLAVERY, RESTRICTIONS, and MONOPOLY find defenders not only among those who profit from them but also among those who suffer from them.” FREDERIC BASTIAT, “The Law”

mike peas. blindpeas.February 27th, 2009 at 12:01 pm

and this….http://bastiat.org/en/the_law.html…..”Perverted Law Causes ConflictAs long as it is admitted that the law may be diverted from its true purpose — that it may violate property instead of protecting it — then everyone will want to participate in making the law, either to protect himself against plunder or to use it for plunder. Political questions will always be prejudicial, dominant, and all-absorbing. There will be fighting at the door of the Legislative Palace, and the struggle within will be no less furious. To know this, it is hardly necessary to examine what transpires in the French and English legislatures; merely to understand the issue is to know the answer.Is there any need to offer proof that this odious perversion of the law is a perpetual source of hatred and discord; that it tends to destroy society itself? If such proof is needed, look at the United States [in 1850]. There is no country in the world where the law is kept more within its proper domain: the protection of every person’s liberty and property. As a consequence of this, there appears to be no country in the world where the social order rests on a firmer foundation. But even in the United States, there are two issues — and only two — that have always endangered the public peace.Slavery and Tariffs Are PlunderWhat are these two issues? They are slavery and tariffs. These are the only two issues where, contrary to the general spirit of the republic of the United States, law has assumed the character of a plunderer.Slavery is a violation, by law, of liberty. The protective tariff is a violation, by law, of property.It is a most remarkable fact that this double legal crime — a sorrowful inheritance from the Old World — should be the only issue which can, and perhaps will, lead to the ruin of the Union. It is indeed impossible to imagine, at the very heart of a society, a more astounding fact than this: The law has come to be an instrument of injustice. And if this fact brings terrible consequences to the United States — where the proper purpose of the law has been perverted only in the instances of slavery and tariffs — what must be the consequences in Europe, where the perversion of the law is a principle; a system? “…..

PeteCAFebruary 27th, 2009 at 9:52 am

By the way … taking a look at this plot of the inflation-adjusted Dow, our real target for a bottom in this market could be below 5,000.http://www.chartoftheday.com/20090227.htm?TSpecial thanks to the folks at Chart-of-the-Day who usually manage to come out with some pretty relevant charts (and no I don’t get any freebies for saying this).What is significant about this current chart is the rapid RATE of decline for the current Dow. Something to think about.PeteCA

PeteCAFebruary 27th, 2009 at 10:01 am

And a parting comment from me today … about this whole subject of bad banks, nationalization, and bailouts.Ever stop to think about who’s getting all the bailout money?? And why we’re always talking about the same small clique of banks on Wall Street that benefits from handouts, taxpayer dollars, and special Government treatment???Ohhhhhhh … it’s not because these particular banks are paying huge bribes to Congressmen and US politicians, is it? Whoops, I didn’t mean to say bribes. What I meant to say was “campaign contributions”. How stupid of me.Remember what was said above in this blog?”Good money does not follow bad”Especially in the banking business. The citizens of this country are NOT going to throw their own personal savings down some deep rabbit hole … just because these Wall Street banks know how to shuck and jive the system. American citizens will actually do their own due diligence, and find one of the banks still left in America that has been managing money properly (for a long time).So why is Washington having a major problem with banks??? Why the constant bailouts, handouts, and excuses??? Because they are supporting the WRONG banks. If you throw money at the losers, then you are throwing everybody’s money away.It’s that simple.Call it like it is.PeteCA

GuestFebruary 27th, 2009 at 10:17 am

Don’t forget, they cannot let this banks go bankrupt because if bankruptcy kicks in, then the CDSs default; CDSs are immune from protection and must be paid; but how much? $1 trillion? $50 trillion (the world’s GDP), $100 trillion? No one knows.

PeteCAFebruary 27th, 2009 at 10:40 am

It always was complete blackmail by these banks. All the way down the road. They knew it, and that’s the way they played the game. That’s why they were still selling CDS even well into 2008.It’s also the same reason why all these junk US debts have been sold to China (agency debts, UST’s). Because if the Chinese bail on US assets, they get hurt as well.Everything in the system revolves around financial blackmail.But ask yourself one question. Does a system like this really stand up to the light of day, once things really break down? If blackmail is the only thing saving the Wall Street banks and US debt, just how long does this system stand on two legs???PeteCA

GuestFebruary 27th, 2009 at 10:56 am

one of those legs needs a knee replacement while the other a hip replacement: I don’t think they can stand much longer!

ranManFebruary 27th, 2009 at 10:13 am

My theory is………The government is giving these big banks all this money and they aren’t doing anything with it but leaving it at the FED to earn interest. hundreds of billions of dollars. Maybe a trillion?Once the economy really crashes, DOW, thousands of companies go belly up, unemployment 20+%, food shortages, etc……………..The banks come in with all that “cash” and buy up everything worth buying at pennies on the dollar! and get this…….they do it with money we gave ’em!Now they really own everything including the people. Brilliant!Rothschild would be pleased.

GuestFebruary 27th, 2009 at 2:38 pm

g,this is recapitalization , which is restoring systemic “integrity” , whichis a transfer of wealth / transfer of debt , plunder, legal, illegal and ponzi,which is governance by othermeans, elite private usurpery in defiance and a mockery of economic trust andthe moral fabric of humanity. global moral hazard.cruelly, it is the stuff of evolution. revelation, de evolution , revolution, deflation and revulsion.and mad (off) attempts at impossible survival. the end is just the beginningand the end is nigh , as is the bottom.surely the world need not be enslaved, indebted, perpetually toenrich a few fabulously unfortunate, hard luck, big stakes gamblers on a globallosing streak.no?triage, triage, ..find a big tent, set it up and start cutting…triage.. orstop feeding the zombie..I Walked With A Zombie LyricsSongwriters: N/A..I walked with a Zombie.I walked with a Zombie.I walked with a Zombie last night..(repeat) many times……

ranManFebruary 27th, 2009 at 10:43 am

Morbid:Could be. However, the government will outlaw the ownership of weapons first. The, they’ll be able to take over without a fight.

MorbidFebruary 27th, 2009 at 10:54 am

ranMan,It is a dire omen that Obi has such an attraction to Lincoln. It seems it will be Obi’s fate to preside over another CIVIL WAR – but one made much worse by the policies of his administration.Obama’s Muse

PeteCAFebruary 27th, 2009 at 2:41 pm

Absolutely the banks are “keeping their powder dry” until they can buy bargain deals at rock bottom prices. Too bad it coincides with a rock bottom economy for average Americans.PeteCA

GuestFebruary 27th, 2009 at 10:19 am

Remember to follow the money and keep your eye on thegame!http://www.aei.org/docLib/20090224_WhalenRemarks.pdfThe ten page Whalen indictment of Credit Default Swapshave the clues to the game! The game is who is goingto have the collateral in hand when corporations file Chapter 11? Who thinks they have first shot in bankruptcy and they don’t?1)CDS is regulatory arbitrage masquerading as innovation.”2)..”could be described as a grand criminal enterprise.”3)”Goldman Sachs, Citigroup, JPMorgan Chase(cds dealers) have gamed the political equation in Washington to extract every last dollar of regulatory arbitrage.”4)”CDS contracts and other qualified investment contracts in the OTC world have been made exemptto the automatic stay in bankruptcy and are evensenior to the other creditors in the bankruptcy estateshould the receiving party need to file a claim as was the case in the Lehman Brothers default.”Whalen knows the game! Read his 10 pages carefully!!!There is going to be a time when Whalen’s caveat willlight the bulb!!! Anybody own any GE stock?Now I will take my Capital hat off, and put my Humancap on.All of these potential “grand criminal enterprises” by acquisitors are designed to concentrate the wealthin a few hands when the musical chairs ponzi stops.This is just a high stakes game. Pathological acquisitors are always bored, because all theycan think about is accumulation of capital. Theyneed to play let’s corner the world’s money andblow up the economy, and then let’s “buy low andsell high”. They are money savants and human idiots!

DMHFebruary 27th, 2009 at 10:34 am

If that is really what is going on, the world will eventually figure it out, on a massive scale. Then, the banksters will have no where to hide and they will be unable to escape justice. The armies of other nations will be coming after them.

MorbidFebruary 27th, 2009 at 10:39 am

When the ObamaNation deals directly with all those criminal enterprise derivatives – then we will know that…Real Change Is On the Way

crgordonFebruary 27th, 2009 at 12:23 pm

Thanks for posting the link – a great read without undue emotional blather. My initial qualms about an AEI bias were quickly put to rest by Mr Whalen’s paper’s tone and tenor. May his voice resonate loud enough to make a difference.

GuestFebruary 27th, 2009 at 11:40 am

With these prognostications of prosperity coming when the economy recovers (Bernanke, maybe this year) and things are pretty wonderful again, my question is this: Why do they need the money that I have earned, why do they need to ride on my back, for their recovery?

GuestFebruary 27th, 2009 at 12:41 pm

Because Democrats believe we are all pieces of a puzzle to be used for the greater good of mankind. You are either for us or against us as they would say. To be independent in any way makes you a non conformer; you do not understand their big picture.

GuestFebruary 27th, 2009 at 11:45 am

Haiku for you (since we’re all turning Japanese?)Robert Rubin Goldman Sachsbanksters preside o’erRube Goldberg-ed economics

AnonymousFebruary 27th, 2009 at 11:55 am

Don’t you mean Chinese? Ok splitting the difference then Chijapnese.AM”We are no longer bastards. Just sons of bitches.”Genghis Khan Unplugged

AnonymousFebruary 27th, 2009 at 12:33 pm

Bloomberg Quote of the Day by……….Ellen ZENtner/Bank of Tokyo-Mitsubishi”But I always tell people that there is a light at the end of the tunnel and that light is the further we fall the closer we are to the bottom and that’s about the only good news we can take right now.”AM

crgordonFebruary 27th, 2009 at 12:39 pm

Interesting logic – one can take solace that when falling off an 80 story building passing the 4th, and then 3rd and then 2nd floors implies good news as one is closer to the bottom. I believe the result of achieving the bottom may not be as a “good news” event as some hope. We shall see.

subgeniusFebruary 27th, 2009 at 12:59 pm

more reaction from the streets…Feb. 27 (Bloomberg)When Berlin resident Simone Klostermann returned from vacation and couldn’t find her Mercedes SLK, she thought it had been towed. Police told her the 35,000- euro ($45,000) car had been torched.“They’d squirted something flammable into the car’s engine block in the gap between the windshield and the hood,” said Klostermann. “The engine was completely destroyed.”The 34-year-old’s experience isn’t unique in the German capital. At least 29 vehicles were destroyed in arson attacks this year, most of them luxury cars, according to police. The number is already about 30 percent of the total for 2008. The latest to go up in flames was a Porsche, on Feb. 14, two days after a Mercedes was set alight in a public car park.While youths in Athens protest by throwing Molotov cocktails, in Paris by toppling barricades, and in Budapest by hurling eggs at politicians, protesters in Berlin rage at their economic plight by targeting the most expensive cars — symbols of German wealth and power.A group calling itself BMW — the initials stand for Movement for Militant Resistance in German — has claimed responsibility for several attacks in left-wing magazines and Web sites, police spokesman Bernhard Schodrowski said.One-third of the incidents are classed as “political,” prompting officers to assign a special unit to investigate, Schodrowski said. No arrests have been made. Schodrowski attributed the arson to “a protest against the world economy and rising rents.”

2centsFebruary 27th, 2009 at 2:11 pm

@ 40 cents a share per year, I think “conventionally” this effectively confirms that GE believes that it’s share price is indeed worth nominally about $10. This gives a 4% yield.But unconventionally, GE needs to keep shareholders from fly’n the coop! What if GE is looking down the road and saying this still represents a good return say 8 – 10 % then maybe they’re expecting the share price to be $4 to $5 soon!

BKFebruary 27th, 2009 at 4:52 pm

GE, GM, Chrysler, CitiBank, and AIG all near bankruptcy. I see someone breaking down this weekend or at least within the month of March. I dont see how that could ‘improve’ the markets.I don’t see any sort of bounce coming…

slfFebruary 27th, 2009 at 5:14 pm

Hey, I was just arguing the idea of it being epic, not whether we’ll see any kind of bounce or breakdown. Frankly, I’m looking for someone to tell me why it’s epic, because then maybe I’d be more likely to believe that we’re closer to something resembling (reflecting?) reality.

TAFebruary 27th, 2009 at 1:24 pm

MA,Are you lurking today??? Would appreciate a few comments on flow and general happenings in your neck of the woods.

MAFebruary 27th, 2009 at 2:59 pm

Yep. I stop in every day.I’ve taken a break from economics.Every year around this time, I take up my annual crusade of fighting against Major League Baseball and their drug policy. It takes up most of my free time.I know it may sound trivial when comparred to economics… but I have always found baseball and our economy interrelated (I’ve even worked on a RGE article pointing this out, but I have held it up just in case the my news contacts go with my story. …they want “fresh” stories.)…and it is the little part of the world that I am trying to make a difference in.0% Player Eenhancing Drug drug tolerance will save lives, as the tricle down will lead to other sports, Colleges and High schools……and the socio-economic long term costs of genetic mutuations will multiply and eventually become staggering!OK, gotta go….and p.s. For all those Goldbugs who did not head my warning( at 850-900 level)… I congradulate you on well played move. For anyone who did get out at those levels, due to my call, I sincerely apologize….but I still TRULY believe that it will play out as I stated within a 3 month span.Miss America

TAFebruary 28th, 2009 at 8:06 am

I applaud your efforts! Drugs are a cancer, left unchecked, they devour the user. They have NO place in sports, or society for that matter.I know time is precious, particularly for those committed to building a better world beyond their own. However, I (we) would appreciate hearing from you more regularly (I sound like a mother proding her son away at college to call/write more often).Your longer posts are great(your latest is your best to date – well researched & well written), but your shorter daily posts are invaluable as they often provide insight into the back office machination’s that escape most.Best of LuckTA

2centsFebruary 27th, 2009 at 1:55 pm

Food for Thought:The administration’s projection of a $1.75T budget deficit for the current year means that when turned on its head the total personal income and corporate earnings taxes collected this year won’t even be enough to cover the deficit portion. Let me rephrase that. If all of the personal income and corporate earnings taxes were not used to pay for anything else, then there would still not be enough to cover the projected deficit!The only thing that would get paid would be SS/Medicare with the $0.9T of other taxes mainly FICA.In other words, the financial system’s bailout has completely outstripped all the other government spending and programs that have materialized over the entire life of the US!Not worried you say! Gov’t can handle it you say! We’ll work through this you say!If you believe that we can recover and pay off our debts then you surely believe in miracles! The US will have to approximately start collecting about 2.5 times the amount of taxes it currently receives, or earn it’s income!Highly trained and capable military w/latest technology — great monthly rates! — inquire now [email protected]

slfFebruary 27th, 2009 at 2:11 pm

“Not worried you say! Gov’t can handle it you say! We’ll work through this you say!”I hear something similar to this all the time on another board, but it goes a little differently. Like “Well, we can’t let X-company fail, because what would all the employees do? Millions out of work! It would be more expensive to let them go bankrupt!” And “We gave $$ to the bankers, and now you want to tighten the purse strings on everyone else?” And “Hey, we have to do something. Like you’ve got any better ideas? You think it would be better if we just let everyone fail?!”I simply can’t seem to get it into their skulls that there isn’t a bottomless well of available money, and that things will be ever so much more painful with a crappy sovereign rating, the reduced (and more expensive) ability to borrow especially right when we need it more than ever, a devalued (potentially worthless) currency, and the possibility of default.It’s no wonder we’ve found ourselves in this huge mess of debt. The depth & breadth of the we-can-always-borrow-and-spend-our-way-out-of-it mentality leaves me darned near awe-struck, and not in a good way.

AnonymousFebruary 27th, 2009 at 2:05 pm

Did anyone catch Christina Romer on Bloomberg today?I have to wonder if she’s on some powerful psychotropic happy dust.I’ve never seen a so-called economist so giggly and smiley no matter what the economic malaise being discussed. It’s like watching Barney and Friends.AM

prefers reality assertion, thoughFebruary 27th, 2009 at 2:19 pm

In the past year or so, I’ve learned never to ‘call it’ until the last 3 minutes. It’s still 38 minutes too early.

GuestFebruary 27th, 2009 at 2:32 pm

HITLER’S ECONOMICS (A Llewellyn H. Rockwell, Jr. classic, August 2, 2003)For today’s generation, Hitler is the most hated man in history, and his regime the archetype of political evil. This view does not extend to his economic policies, however. Far from it. They are embraced by governments all around the world. The Glenview State Bank of Chicago, for example, recently praised Hitler’s economics in its monthly newsletter. In doing so, the bank discovered the hazards of praising Keynesian policies in the wrong context.The issue of the newsletter (July 2003) is not online, but the content can be discerned via the letter of protest from the Anti-Defamation League. “Regardless of the economic arguments” the letter said, “Hitler’s economic policies cannot be divorced from his great policies of virulent anti-Semitism, racism and genocide… Analyzing his actions through any other lens severely misses the point.”The same could be said about all forms of central planning. It is wrong to attempt to examine the economic policies of any leviathan state apart from the political violence that characterizes all central planning, whether in Germany, the Soviet Union, or the United States. The controversy highlights the ways in which the connection between violence and central planning is still not understood, not even by the ADL. The tendency of economists to admire Hitler’s economic program is a case in point.In the 1930s, Hitler was widely viewed as just another protectionist central planner who recognized the supposed failure of the free market and the need for nationally guided economic development. Proto-Keynesian socialist economist Joan Robinson wrote that “Hitler found a cure against unemployment before Keynes was finished explaining it.”What were those economic policies? He suspended the gold standard, embarked on huge public works programs like Autobahns, protected industry from foreign competition, expanded credit, instituted jobs programs, bullied the private sector on prices and production decisions, vastly expanded the military, enforced capital controls, instituted family planning, penalized smoking, brought about national health care and unemployment insurance, imposed education standards, and eventually ran huge deficits. The Nazi interventionist program was essential to the regime’s rejection of the market economy and its embrace of socialism in one country.Such programs remain widely praised today, even given their failures. They are features of every “capitalist” democracy. Keynes himself admired the Nazi economic program, writing in the foreword to the German edition to the General Theory: “[T]he theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output produced under the conditions of free competition and a large measure of laissez-faire.”Keynes’s comment, which may shock many, did not come out of the blue. Hitler’s economists rejected laissez-faire, and admired Keynes, even foreshadowing him in many ways. Similarly, the Keynesians admired Hitler (see George Garvy, “Keynes and the Economic Activists of Pre-Hitler Germany,” The Journal of Political Economy, Volume 83, Issue 2, April 1975, pp. 391–405).Even as late as 1962, in a report written for President Kennedy, Paul Samuelson had implicit praise for Hitler: “History reminds us that even in the worst days of the great depression there was never a shortage of experts to warn against all curative public actions…. Had this counsel prevailed here, as it did in the pre-Hitler Germany, the existence of our form of government could be at stake. No modern government will make that mistake again.”On one level, this is not surprising. Hitler instituted a New Deal for Germany, different from FDR and Mussolini only in the details. And it worked only on paper in the sense that the GDP figures from the era reflect a growth path. Unemployment stayed low because Hitler, though he intervened in labor markets, never attempted to boost wages beyond their market level. But underneath it all, grave distortions were taking place, just as they occur in any non-market economy. They may boost GDP in the short run (see how government spending boosted the US Q2 2003 growth rate from 0.7 to 2.4 percent), but they do not work in the long run.”To write of Hitler without the context of the millions of innocents brutally murdered and the tens of millions who died fighting against him is an insult to all of their memories,” wrote the ADL in protest of the analysis published by the Glenview State Bank. Indeed it is.But being cavalier about the moral implications of economic policies is the stock-in-trade of the profession. When economists call for boosting “aggregate demand,” they do not spell out what this really means. It means forcibly overriding the voluntary decisions of consumers and savers, violating their property rights and their freedom of association in order to realize the national government’s economic ambitions. Even if such programs worked in some technical economic sense, they should be rejected on grounds that they are incompatible with liberty…Keynesian (or Hitlerian) policies unleash the sword of the state on the whole population. Central planning, even in its most petty variety, and freedom are incompatible…http://www.lewrockwell.com/rockwell/hitlers-economics.html

GuestFebruary 27th, 2009 at 2:50 pm

When will the lewrockewellers get real?! All they want is governments too weak to stand up to big bidness interests and they hate the idea of labor organizing while they love organized capital to have all the advantage over the citizenry! They are dangerously bonkers, these lewrockewellers thinking liberty from big bank big bidness tyranny is liberty we can do without!

GuestFebruary 27th, 2009 at 3:56 pm

Our “leaders” are out of reach: the Fed is out of bounds. And all the while their lies get greater and greater. The country has been taken over by a group of thieves, and you want Lewrockwellers to “get real” because all they want “is governments too weak to stand up to big bidness [sic?] interests.” America has a government in bed with prostitutes — “big” bizness and “big” bankness – and you want this illegal trafficking protected by organized government racketeers. Well, I want this dive exposed, and the perpetrators indicted under criminal charges. I’ve had enough of roughnecks in dinner jackets.Signed: a Lewrockweller

GuestFebruary 27th, 2009 at 4:10 pm

They are a bunch of fruit loops who want a dog eat dog let big business monopolize the whole planet run wild. These guys think letting every man for himself will create change but instead under their proposed liberty big business would consolidate and unleash their fury and political power on the unrepresented and create slavery. They are however right about the FED everything else they’re nothing but a bunch of uneducated nut cases.

PeterJBFebruary 27th, 2009 at 3:57 pm

“All they want is governments too weak to stand up to big bidness interests” @ aboveIn my World, government (“leadership”) would be totally replaced by technology as would labour leadership (read: all “leadership”) and monitored by ‘gatekeepers’ working with pure and basic physics.It’s my design;-)Anybody notice the huge leap in technological developments which we are creating? What is needed are a few human beings with some forward vision and a taste of the sweetness of destiny. ‘A vision, a vision; my Kingdom for a vision.’http://www.ritholtz.com/blog/ Golden ParachuteNone of the above need apply.Ho hum

PeterJBFebruary 27th, 2009 at 4:20 pm

Try a different (my) way of looking at technology that is to say, where technology is the practical expression and application of that which arises from the intellectual endeavours of Physics.Technology can be utilized to CREATE resources.Ho hum

subgeniusFebruary 27th, 2009 at 4:30 pm

Technology is the application of knowledge to create tools (and more knowledge). It relies on the availability of physical resources.Resources (raw materials) are constrained by planet Earth. Utilizing energy we can change the form of those resources, but eventually we are extremely likely to run out of the energy to do this in any major way.The EROEI of our primary energy sources are dropping.

GuestFebruary 27th, 2009 at 4:53 pm

I’ll buy that. I’d rather be on proven “automatic” pilot based on physical law such as supply and demand technology, et cetera, rather than on systemic looting by 21st century “leadership” based on vote by “majority” rule over my paycheck and piloted by a banking cartel and government of parasites.

PeterJBFebruary 27th, 2009 at 7:24 pm

Try going here:http://verbewarp.blogspot.com/2006_03_05_archive.htmlIt starts here – “A Warning to the East”and then scroll down to and,in particular:”Non-radioactive & Clean Nuclear Energy Production”@ subgeniusI don’t believe even for a nanosecond that energy is anything but infinite while I do believe that intellect is definitely seriously and self-voluntarily constrained. After all, all life is the expression of energy from which you can accept not only are we of energy, but intellect too.But then, it depends on what intellect actually is? ;-)>Ho hum

MarkFebruary 27th, 2009 at 3:59 pm

Once upon a time I would have agreed with you, but it should be clear to most of us now that bigger government results in more power to/for corporations.Mark

PeterJBFebruary 27th, 2009 at 5:27 pm

@ subgenius on 2009-02-27 16:30:28With respect: I almost totally disagree with you.We will never run out of resources or energy and such thinking is a belief system shilled by wannabee “leadership” (across the full spectrum)in order to maintain their hold of the pivotal points of the money flows (read: pyrates at the river mouth).Yesterday’s belief system is done and tomorrow’s belief system (read: a return to Physics) is well in the pipe, primed and ready to explode into a glorious future. Time to throw off the chain collars and embrace the future as it is here. Let the feral remain behind; they can clean the toilets for a living (as it should be)Ho hum

subgeniusFebruary 27th, 2009 at 5:33 pm

I didn’t say we will run out of energy, I said we will run out of the amount required to radically transform our base resources.

slfFebruary 27th, 2009 at 2:47 pm

I’m still really new to charts & such, so maybe I’m just a bit confused. I’m looking at the DJIA chart on Yahoo, and it has the red dotted line at the previous close–but yet, the points/percentage down seems to be based on today’s opening, rather than the close. So then I checked the chart at MarketWatch, and they’ve got their red line based at today’s open, rather than last night’s close. What’s going on?

PeteCAFebruary 27th, 2009 at 4:29 pm

Yahoo has a weird way of basing their market values from day to day. Your figures from Marketwatch are more reliable. Remember, electronic trading continues after close of the New York markets (floor trading). That’s why you’re seeing differences.PeteCA

slfFebruary 27th, 2009 at 4:32 pm

Well, I was asking because my spouse has been trading for over 15 years (that’s all he’s been doing for income the past year & a half), and he was confused also. He said the figures should be based on the previous close, not the current day’s open. Thanks, though.

slfFebruary 27th, 2009 at 7:08 pm

It appears that the numbers have now been corrected, although the chart still shows where it was originally listed at. My apologies to the board. I was genuinely confused, but I see now that it was something akin to ‘operator error’, in regards to how the numbers are entered or something similar. Thanks to all for your patience.

GuestFebruary 27th, 2009 at 3:22 pm

Anyone still invested in the 401K, IRA. There is still time to jump ship, or you can wait for them to zero out. A dollar in hand is better than 2 in the stock market.

PeteCAFebruary 27th, 2009 at 4:27 pm

India announces world’s cheapest car for just $2500. Holds 4 (small) people. 2 cylinders. 33 horsepower. One winshield wiper.http://news.yahoo.com/s/afp/20090226/wl_sthasia_afp/indiaautonanotatacompany_20090226081207OK, we probably won’t see it on any freeways in the USA soon. But they did meet their goal of $2500 for a car. And considering the very significant performance limitations – still the design doesn’t look that bad.Still think that gasoline consumption is going to decrease in the global economy?PeteCA

GuestFebruary 27th, 2009 at 4:58 pm

See what America could have been doing if it weren’t ruled by Big Lobby, such as OIL, aka Exxon Mobil Whatever? Ahh, the opportunites overruled by short run profit and gain.

tutterfrutFebruary 27th, 2009 at 5:12 pm

I don’t know if the consumption of gasoline will decrease on a global scale. What I do know is that I just got a nice insurance pay out for a total loss of my 11 year VW Transporter Van. I will send back my car’s license plate and in return will receive up to three year, a free(paid by the taxpayer) use of local busses and tramways. Europe is aging and if we stop importing people from Africa and other exotic locations, gasoline use over here will surely decrease at a rapid pace.When Tata launched its Nano(prototype) over a year ago, lots of city people here in Europe were very enthousiastic. But soon it became clear that global trade and globalization is a big lie because it would be impossible to let this car compete on our soil with the equivalent 10.000 euro models ‘made in Europe’ cars. Governments said it would not withstand the European safety tests. Bouhahah…But handing over trillions of Europeans’ savings in return for worthless CDOhno’s, YES WE CAN!Must have been high standard, quality control safety test for those vehicles…

PeteCAFebruary 27th, 2009 at 5:47 pm

I suspect that the American authorities will react in a similar fashion. They will ban the Nano because of a lack of safety features. But to be quite honest … this car could come in handy to a lot of people. If all you want to do is to drive in your local town or suburbs, and just go down to the market to buy a few groceries – then why do you need an enormous gas-guzzling car? Something like a Nano would be ideal for the purpose! If local townships wanted to promote conservation, they could easily designate certain roads as “Nano friendly”, and restrict very small vehicles to specific routes. It could be worked out … if people kept an open mind about this.PeteCA

Mother of GodFebruary 27th, 2009 at 4:45 pm

I cobbled together the following (hopefully helpful) observations from recent personal correspondence with my best egalitarian friend. We are discussing the global “financial” crisis, and hearing and noting ever-more-dire expectations/predictions of full-on econo-socio-political collapse. While escalating fears of impoverishment and chaos are all too easily understood in light of events and people’s degree of ‘economic confusions’, we’d like to add these considerations to the conversation:First, the convulsion is in money and credit, not in substantial wealth. The substantial wealth is still there; the fields, the plants, the animals, the buildings, the people who labour.Second, the response to the crisis will always be underestimating the size of the crisis – will always be “behind-hand” in facing facts. People will continue to respond late and inadequately – they will be slow to look outside their paradigms – but there will be responses, which will be increasingly realistic, so there will be money and therefore some transport and trade. Collapse is never total, and every incremental collapse will increase realism and thus reduce suffering. The demands of the people will produce some response, for no ruling class can afford to secure themselves against a too-angry populace; they have to give something to keep anger sufficiently low for them to be safe.[Note: This next is a reference to 2 corrective ‘root and trunk’ measures that elegantly solve all the branch, twig, stem and leaf problems growing from the tree of disaster capitalism – which measures I have posted here before and will post again soon in more detailed explanation.]The solutions offered by our plan are never irrelevant, because they are realistic. The trouble is that when there is no obvious trouble, people are too unreal to face facts and do anything practical, and when there is trouble, there is little leisure to consider solutions. Like with fixing the hole in the roof: no need to (they think) when it isn’t raining, and no chance to when it is. The solutions we give are the realism that people will be driven to by crisis, and the solutions will reduce the crisis. The collapse will continue until people become realistic.The collapse can be avoided at any time by countering the inequality – insofar as people reduce the inequality, the crisis will be reduced – nothing else will reduce the collapse. There is plenty of substantial wealth; the only lack is distribution of means to trade (money).People are thinking of a single sharp total collapse, but it collapses in stages, and some response is made – never fully realistic, but partially realistic. It can’t collapse to zero in one go. Loss of confidence in the money is a matter of degree. Even false confidence keeps the money up. And the more money evaporates, the more confidence there is in the remaining money. The money collapses towards reaching equality with the substantial wealth. The closer it gets to substantial wealth, the slower it falls. Eventually the substantial wealth (goods and services) holds up the money. Loss of money of course impacts on production, which requires trade, which requires money – but money never collapses totally, but collapses in stages. All the safety nets in society do not disappear totally, at once, but in stages. And the more things fall, the closer they are to recovery.Administrators come and go, but Governments have never fallen, never disappeared: there is always someone picking up the pieces and starting again. Government will disappear only when the second to last person disappears: as soon as you have group, you have government. People will always try to increase their safety, comfort, etc. There can be a degree of anarchy (using the term as commonly (if erroneously) generally understood to mean chaos, loss of beneficial social order), but there cannot be total anarchy, because people are not totally anarchic. Some people can have anarchic episodes, but all the people cannot have total anarchy all the time. If people were totally anarchic, they would never have planted a crop or built a house.The functional value of money is proportional to confidence. When there is overconfidence, as we have experienced, and that confidence declines, money disappears – but money is prevented from going to nothing by the work and people and products, which are the substance behind the money. There may be a period of under-confidence (after a crash), when people underestimate the value of money, but the substantial wealth will buoy this up – will after a time show that people are underestimating the substantial wealth backing the money.At any of these stages, all money is worth something, and a billion is ALWAYS worth a billion times as much as one dollar. Repeat: a billion dollars is ALWAYS worth a billion times as much as one dollar.World wealth has dropped maybe 10% – ‘lost’ trillions, of course, but not a big percentage of the total. It will drop further too – maybe 20%, something of that order, but not 50% or 75%. The correction happens when the overvaluation is big enough to be visible to people – and that is only 5% – something like that. Real estate has dropped 50% in places, in some countries, but the overall average for the whole economy is smaller.We can remind nervous, concerned people that if they don’t understand it all then they do not know that there is no solution. There is still land and people and work and systems and buildings and money. These will produce something, and the production will buoy the money to some extent. The fundamentals are still there – the ultimate safety net is people, who do stuff. Forget money for the time and look at the fundamentals, the substantial wealth, which is everywhere: people, land, etc. As said, the money at the top didn’t disappear – a billion is still worth a billion times as much as one dollar: a part of the value of every dollar disappeared. There will be a contraction, not a disappearance. The snail is pulling in his horns – he’s not vanishing. Part of the lifestyle will disappear – something off the top – a drop – but not to zero, but to 70% or 50%. Food doesn’t disappear till you reach 1%. Luxury spending increased after the 1929 crash, because those who cashed up just before the crash could then buy cheap. So clearly wealth didn’t disappear.Pay justice is always a live issue, always the issue that cuts across all other issues *especially* in depressions! In good times, the people don’t mind super-overpay. In bad times, FDR’s appear. FDR nearly put a 100% tax on income over $25,000 ($300,000 in modern dollars) and regretted he didn’t. The next FDR may do it in this bigger depression.Again, total collapse is impossible. Under-confidence is possible for a time – money is proportional to confidence – confidence never totally disappears, because there is still people, workers, land, buildings, infrastructure, systems, etc. Even the unrealistic confidence (the delay in facing facts) holds up money. There can only be a correction to the overconfidence, which for a while produces an over correction, but this overcorrection gets corrected by the substantial wealth showing the value of the money. There cannot be a total collapse, because land and people and infrastructure do not disappear. The stages of the collapse may be terrible in local effects (riots, etc), but overall, the substantial wealth sustains in a substantial way. It may look like things are in freefall, and headed for zero, but the trampoline of substantial wealth is below – the momentum of the fall to the trampoline drives the trampoline down below its level for a while, but the trampoline pulls the level of money back up to level.Even if all the governments and money and trade disappeared, there would be people and work, options, efforts, rolling up of sleeves and fulfilling needs using whatever was available. The ultimate wealth is people and nature – they produce everything, and will continue to do so.Oil will decline over 50-100 years, the price of oil will gradually rise and there will be less and less movement, but food transport will be the last to go – and local food use will happily increase; at the moment New Zealand is importing Italian kiwifruit! At the worst, we will go back to pre-oil lifestyle – the lifestyle that got us through till 1900. The higher the price goes, the slower we will use up oil – the more economical we will be with it. There is plenty of coal, and people will plant more trees if they need them – just like they bred horses when they needed them.People’s first reaction to change is big reaction – then they settle down and bear it. The rhetoric you get now is their first reaction, expressing the change in the most dramatic terms because change is new to them – but they quieten down as they get used to it. If you woke up and found the skies were now red instead of blue, your first reaction would be strong, but after a while you would get used to it.As I said before, the drop in confidence has removed something like 5-10% of world apparent wealth (the figure they put on wealth) – which is not a big difference. Of course, this is trillions, which sounds very dramatic and frightening, (which sells newspapers) but as a percentage, it is not large. It will drop to something around 15-20% at the bottom of under-confidence, before realism will reassert itself and bring the under-confidence back up to a realistic figure, between the peak and the trough.And all the time this is going on, the substantial wealth is undiminished.The thing is, people forget to look for the whole picture. They mistake part of the picture as being the whole reality – they mistake jigsaw puzzle piece for puzzle picture. One piece may be dark, and they think the picture is dark because the brighter parts of the picture are not in view from their perspective, are not in their consciousness – “omg! Loss of trillions! The sky is falling!” – but no.You just have to make a big noise around an hypothesis long enough and people will take it for truth. Throw a smokescreen of words and people will shout fire. Combine inadequate education in fallacious reasoning, the assertive overconfidence a phd gives some people, the people’s naïve reliance on phd’s and government and the media’s profiting from sensational news…and you get universal untruth. Add the universal hatred of being proved wrong and you have untruth set in concrete.When you have a little pay injustice, then something like 40% of people will be slightly overpaid. As the pay injustice grows, the top overpay grows and the percentage of overpaid shrinks. The more extreme overpay (which is now 100,000 times average pay) takes more underpaid people (99% are currently underpaid) plus more extreme degree of underpay to finance it (we now have 90% of people on 100th to 10,000th of average pay). That is the point, and no financial crisis changes that.Also, volatility in markets is proportional to pay injustice. More power in fewer hands means more power to make huge bubbles and be way above the law, buying the law, owning the law, making the laws, doing exactly as they please, without any checks or scrutiny. The price of liberty is eternal vigilance and vigilance about fairpay has been zero – he’s a billionaire, ah, how lovely, what a great man, we owe him a lot, we must be gentle with him, not anger or doubt him. God and the rich – these are how people project their great desire for a good loving father to take care of them, so they can live thought-free, without civic responsibility. It doesn’t matter how much he beats people, we don’t lose faith in him because it would mean we had to think and seek the truth and keep watch. What luck for governments that people don’t think (-Hitler)Not all the leverage ratio of the banks will disappear in the correction. People who say that this thin-air money isn’t real don’t understand money. There is the substantial wealth (the trampoline) and there is the confidence level, which goes overconfident and then under-confident and then returns to level (the trampoline). In the panic, the confidence level goes below trampoline level and the trampoline pulls it back up. After the correction, the trampoline level for bank leverage ratio may be 20-1, 10-1, whatever, but not 1-1.The bank leverage ratio creates money out of thin air, but this DILUTES all the money, it doesn’t destroy all the money. Twice the money means each dollar buys half as much, and incomes double. The injustice arises between old dollars and new dollars – getting paid in old dollars and buying in new dollars. The injustice in inflation is the government and banks stealing the national credit to back the dollars. The national credit belongs to the people who work, who have made the infrastructure, the substantial wealth that gives the nation its credibility or credit rating. The nation can sustain a certain level of debt without creditors losing confidence in that level of debt, and the level of debt is forced to return to a credible level of debt. There is never total loss of confidence in a nation, because there are still workers, and infrastructure and nature’s bounty (land, sun, muscles, brains etc).Like bubbles in a bath; the bath can sustain a certain level of bubbles (credit) because there is soapiness (infrastructure, systems) and there is agitation of the bathwater (work) – but sometimes there is a big bubble that is going to burst and the level of bubbles is going to suddenly drop.The stock market steadily grows with infrastructure growth. In a depression there is a blip of overconfidence and under-confidence, but it returns in around 3 years after the crash to the steady rising line (the trampoline).So our numbers remain good (Note: This is referring to the figures we’ve used to calculate fairpay), only needing change when the government devalues the dollars, as in Zimbabwe.The point remains that we should prevent individuals (wealthpower giants) being able to blow huge bubbles that temporarily affect the national credit and stability and order when they burst.At the peak of the overconfidence before the correction, the national wealth is of the order of 5-10% overvalued. The correction comes when the overvaluation becomes large enough to be visible to creditors, who are of course keeping a sharp lookout; it is their money on the chopping block.It takes time to work through the system, but if central banks double the money, income and prices double, too. Incomes and prices have been rising for many decades, for centuries. You know what prices and incomes were 200 years ago – a penny bought you a good hot meal, incomes were $100 a year – that sort of thing. $25,000 in 1930 is $300,000 now. Present global inflation at 4% a year doubles the money every 18 years. In the cold war years, there was about 10% a year inflation, which is why house prices rose 10% a year in that period. The inflation is a sneaky tax, which they used to finance the cold war, buy all those bombs. They then lend the new (stolen) money back to the people, making the people pay maybe three times the loan on a 30 year mortgage (stealing again) – for the privilege of borrowing money the government (devoured by the superrich) stole by the inflation, which dilutes your dollars, making you need to borrow more.Keynes said: governments can take money from the people through inflation. He should have said: governments DO take money…but he was going soft on the ruling class, to which he belonged. People find it very hard to believe the rich are thieves. The rich fool themselves and then fool the people, who they keep ignorant of economic realities by promoting economists who are fooled, who can’t see what the rich don’t want people to see. False arguments are cheaper than guns to keep the people suckers. It is only in the last 200 years that the ruling classes have allowed the people to be literate, and they haven’t yet allowed the people to be economically literate. And the people are too unwilling to think their way through the smokescreen thrown up by self-deception and greed.The strong point we have to make is that overpay is bad, is happiness-negative for the overpaid as well as the underpaid. If people see this (and good sense and all history prove it), justice will start looking good to them.At the moment, most of both underpaid and overpaid are thinking overpay is good. People are thinking in twos, in opposite poles, not seeing the option of the middle as the best alternative. They are thinking: underpay is bad, so overpay must be good – instead of thinking: underpay and overpay are bad, so pay justice is good. Like the Sophie Tucker saying: I’ve been poor and I’ve been rich – rich is better. But it isn’t; what’s better and best for prosperity, safety, and happiness is fairpay. Most of the present overpaid is new money, so old money has (with some few exceptions) fallen from overpay and overpower. Rags to riches to rags. The turnover among the overpaid is very high – crests don’t stay up.US $40 per hour for all working people including housewives, and students who successfully study in fields society wants studied, is a good but not exact figure for fairpay before the meltdown, and the meltdown takes off around 5-10%, and inflation is running at 4% a year, so the figure is perfectly good. It is a round figure anyway ($100,000 per year means $100,000 plus or minus 20%) – and it doesn’t matter what the figure is anyway, as long as it makes the point that something like 99% of people are now underpaid, that fairpay is higher for most people than what they get now or have ever got, that extreme pay injustice means most are below fairpay and will be paid more, they deserve to be paid more (they are creating that much substantial wealth (goods and services) by their work). All the work is equal to all the workproduct is equal to all the money, so world-average pay per hour is world-annual income divided by total workhours – around $40 US. World annual income is $25 trillion (1987) inflation adjusted – global inflation since 1987 has been between 32% and 4% – $25 trillion compounded with global inflation each year since 1987 brings it to $300 trillion (2009). Total workhours is total workers (around 4 billion), times world-average hours per year (around 2500).No work equals no workproducts equals money worth nothing. Twice as much work equals twice as much workproduct equals money worth twice as much (a dollar buying twice as much).Our figures are still good figures in the crisis – they are not just guesses – they are round figures because there are a million minor factors that affect figures to a small extent, and all the figures are constantly changing (a little) all the time – but they are solid within plus or minus 20%.One thing is absolutely solid – when you have super-extreme pay injustice, most people are below the average. The average is higher than anyone imagines – and that average is plenty for all. When you have a very skewed graph, with most low and a few very, very, very high, the average has to be well above what most get. The very, very, very high incomes ‘pull up’ the average – and we have highest income 10,000,000 times what 90% of people are getting, so they are pulling up the average well above what most people are getting, above what 99% are getting, above what 80% of Americans are getting.People see many poor, and they understandably but mistakenly think that the average will be below what ordinary Americans are getting – that the many poor will pull down the average below the ‘American ordinary’ level. But it is not the ‘ordinary’ American (neither rich nor poor) who is richest. The relatively few, the 1% who are overpaid up to 100,000 times average, pulls up the world average well above the American average. 50% of Americans have less than $2000 net equity (net assets – wealth) and 80% of Americans are below the average.People got by up to 1800 – in fact pretty well, worldwide, before the first world imperialism (plunder) went into high gear with industrial technology (guns, trains, etc) and impoverished the third world (after impoverishing most in the first world). And productivity has multiplied 20-fold since 1800 – so, again, there is plenty – there is super-abundance. If average income in 1800 was adequate, average income (substantial wealth, good and services) today is 20 times adequate.Our figures are from Sprout and Weaver, International Distribution of Income 1960-1987 Kyklos journal, volume 45 1992 pages 237-258 – inflation adjusted using IMF/ILO inflation figures. You have to compound the annual inflation figures – global annual income is now $300 trillion. Since 1987, global inflation went from 15% up to 32% in the early 90s and then down to 4% now. The Sprout and Weaver figures are PPP figures (purchase price parity figures) – which adjusts for the fact that products are cheaper in poor areas – supermarkets in poor areas have cheaper prices than supermarkets in ‘upmarket’ areas – they take smaller profits (= they steal less per customer).With pay injustice, the majority are always going to be below the average. The larger the pay injustice, the larger the majority who are below. With the real super-extreme pay injustice, 99% are below. Think of our swimming pool graph – if the pay justice level = one metre deep, and in reality 90% of the pool area ranges between 1 cm and 1/10th mm deep, then obviously most of the pool is practically empty and most of the water is up in the thin but very tall (100 kilometres tall!!) needle of overpay. The giant sucking machine of the legal thefts (and the successful illegal thefts) has done its work: we are relatively very close to one person having all (very close to maximal pay injustice).The 1000+ billionaires are economically the third richest country in the world. People dismiss the superrich because they are few, and because people cannot really conceive how extreme a billion dollars income per year is, relative to average or ‘ordinary’. A billion is 10,000 times average and 20,000 times American ‘ordinary’. ie, taking out 10,000 times what the billionaire puts in to the social pool of wealth by his work. The highest annual revealed income is $30 billion – and the highest annual concealed income is higher. Obviously the super-superrich have good reason to conceal, for if people knew the highest income they might wake up to the fact they are being robbed, and take action. Every plutocracy has fallen when things (poverty-wealth, slavery-tyranny) got so extreme that the people finally woke up – witness the American, French and Russian revolutions. Unfortunately, even then, the people still did not ‘get’ the absolute essential importance of pay justice, and let it go away again – pay ranged from 1cent to $10,000 per hour in America in the 1880s.NO ONE is a winner with inequality. The overpaid (both nations and individuals) are constantly falling and being replaced, like the water in a Las Vegas needle fountain – because overpay is attacked by both overpaid and underpaid, both internally and externally – attacked with intensity proportional to the extremeness of the pay injustice. Both overpay and underpay are stimuli to attack. The overpaid are attacked by both overpaid and underpaid – by everyone, including their subordinates, including their families. It stands to reason – and all history has no exceptions to this.People think that more money is always better because they ignore or forget the attack element. They focus only on the money, using selective consciousness, deleting or censoring the reality of the attack element. Conquering is the beginning of troubles – look what troubles came to the whites in South Africa – what troubles come to America today. Plundering makes enemies, enemies make defence needs, defence needs force more plundering (both internal and external), which makes more enemies (both internal and external). Eventually cost of defence exceeds income and the empire falls. The largest fortune is always smaller than the rest of the world, so it must fall – for as long as people have stomachs to feed and need to place their feet on land. The defence needs force robbing the people, so the plutocracy is attacked both internally and externally, by the underpaid within the country and the overpaid and underpaid external to the plutocracy. Pay injustice says to invaders: we have gathered the wealth, and weakened and alienated our people – ie, pay injustice causes invasions (eg, illegal immigrants, eg the sicilian mafia).This idea of ours is just to get people to open their spotlight focus on the money to see also the inevitable necessary attack element in overpay – and to see also that there is diminishing marginal utility in more money, which you can see by looking at the fact that the loss of $1000 in income when income is $1000 is catastrophic, and loss of $1000 when income is $100,000 is a very minor difference…still bad but far less bad – ie, all income money is not equal. 100 times the income is not 100 times the happiness, pleasure, satisfaction etc. – income money is very unequal. Satisfaction waits on desire; when the tummy is full, all food is worthless, more food can add nothing to happiness. The increase of happiness in going from $0 to $1000 is huge, the increase going from $1000 to $2000 is a bit smaller – and each additional $1000 income can do less and less, because more desires have been already satisfied – the finite limits of desires. A $4000 plate of truffles is not 4000 times as good as a good $1 meatball – maybe more like 4000th more pleasurable.Therefore overpay can do little good and must do harm proportional to the size of the overpay, therefore the net gain in overpay is negative. You gain constant worry over security, constant labour to maintain security, constant cost in life-time, money, and psychological wear and tear. Look at the labour of Hitler, Bush, Caesar, Cardinal Wolsey. Look at Stalin’s paranoid desperate activity purging suspected subordinates, Richard III’s troubles, the South African whites’ troubles, the British Indian Colonial troubles – do you think that people had much freedom from troubles when they had stolen so much, killed so many? What does it take out of you when you have to respond to troubles whether you are exhausted or not, respond to the constant eroding energy of the robbed?That more money is always better has been the simplistic leading idea of humanity for 1000s of years – and it is simply horribly wrong – and sense and all history shouts so. Violence gets to everyone, gets wherever humans get, and violence is proportional to pay injustice, is caused by pay injustice. Overpay is theft is injury, and injury is always paid back with interest. Injury never fades away – it just keeps attacking however it can. It is the golden rule we have never learned: hit people hit back. Kindness (non-injury) is essential for survival and happiness – it is the lesson of history we have not yet learned: Injustice is a vice (a cause of misery). It is love of overpay that is the root of all evils – which is good news, because we only have to see this to cut ‘all evils’ (99% of social problems) at the root.People think justice is a sacrifice, because they think more money is always better. It is very hard for them to realise justice has her arms full of happiness for overpaid and underpaid – waiting…waiting…waiting through the ages for people to see reality – the whole picture – the downside of overpay – the Lindberg’s child kidnapped and murdered – Barbara Woolworth dying with $3000. People think the rich are secure, up there permanently – it is everyone’s dream to be rich and free from troubles – it is easy for them to believe it because they want to believe it – and they want to believe it because they have troubles. If they placed their hope in pay justice, their hopes can be realised, far beyond their fondest dreams. Change their dream from: The landlords oppress the peasants, may I be a landlord – to: The landlords oppress the peasants, may there be an end to the sufferings of landlords and the sufferings of peasants. Look at the present wars among the Mexican druglords – look at the present endless struggles and dangers of the sheiks in northern Iraq – at the endless troubles of Queen Elizabeth I – at the electric fence prison of Rockefeller – at Howard Hughes dying alone, his teeth rotting in his head.But alas, it seems there is just not enough will in people to learn the truth – not enough alarm – not 100th enough realism or willingness to think. Not even though it means survival, $40 an hour, and world peace and friendliness and calm and democracy and freedom like they have never known. Since they can’t even understand that giving unlimited fortunes for what is absolutely limited work means having super-extreme, ever-growing overpay-underpay, unlimited tyranny-slavery and violence for everyone, what hope is there? They think that Bill Gates can do 180,000 years’ work in one year – they think Gates can build 18,000 $1 million homes in a year – so what sanity is there?(Shall we have cocktails at 7, m’dear?)Re the importance of nationalizing the fed reserve – it is very important, but is a branch problem. How are you going to do it before you fix the root problem, everyone thinking that overpay is good when it is evil for everyone? Fix the root problem and the branch problems fix themselves – or get fixed easily, with universal will to change it. If you nationalize the fed reserve, the same overpaid will dominate the nationalized reserve – nothing will change – the bad root will still drive the branch problems. The solution is never near the problem – did Pasteur find penicillin near the beds of the dying? No, he went away, following the causative line back from the beds to the root – and he cut the root and the people in the beds got well. People are trying to solve the problem near the problems – they are shortsighted.Same with all problems – they all go back to pay injustice, super-extreme undemocratic bias of power, the super-powerful way above the law, driven by defense costs to steal ever faster both internally and externally.Making the swimming pool of wealth vertical like a Las Vegas needle fountain (with all the water that rises falling) is like building a building ever-taller on an ever-shrinking base. It’s bound to collapse. Things haven’t changed since the tower of Babel, which was a metaphor for what was happening then – same as now – pay injustice creates confusion of tongues – everyone talking and no one learning or hearing.We need to make the point strongly that pay injustice is not just one more problem: it is the root problem, fixing which fixes all the problems – fixes suffocating bureaucracy, disinformation, tyranny, war, warmongering, starvation, overcrowding, corporate fascism, corruption, poverty, terrorism – it fixes everything. How can anything work when a few have most of the money, which is the lubrication for the social machine, the blood of the social body?If you want to stop raccoons becoming roadkill, only teaching raccoons traffic will do it: if you put up barriers they will just go round them.The elite have always been under extreme attack, always been miserable, desperate, hard-laboured, doomed. Happiness is horizontal not vertical. Kindness (non injury, non theft) is good, practical, real self interest, is happiness for everyone – therefore justice is good, beneficial, not a sacrifice for anyone. It’s amazing that history and story are unanimous, the desperate struggles of the overpaid, and no one has learned it.The rich may enjoy comforts and luxuries etc in the short run, but they can get no more enjoyment than the fairpaid on $40 an hour, because of physical limits of desires. All overestimation of rich enjoyment is moonshine glamour illusion – driven by underpaid people still having substantial desires to satisfy, by underpaid people living vicariously through their dreams of the fabulousness of being wealthy. The greater the underpay, the more glamourous and wonderful overpay appears. Ray Kroc said about his wealth: So what? I still only have two feet.Some rich do not fall within their own lifetimes, but people should be reminded that the overpaid experience power struggles all the time before they fall – family who want a piece of it, subordinates who want to take over – it is a hill of humans where everyone is being attacked from below and beside and above. Everyone below is trying to get higher to be less attacked/oppressed from above – corporate infighting, competing for jobs, golddiggers, kidnappers, thieves, embezzlers, hostile takeovers etc etc – necessarily so, inevitably, because no one settles for discomfort, everyone is uncomfortable, so everyone is moving in the hill.Equality: no one above or below, everyone happier, freer, safer, liberated from troubles, struggles, conflict, betrayal – in all groups – crime gangs, families, companies, nations, empires.Being rich – getting overpay – is not a win. It isn’t a win relative to pay justice, it is a vast loss of ease, trust, safety, leisure, relaxation, enjoyment, confidence. Everyone is a giant loser in the hill of humans – but people would rather kid themselves they are happy and right than face reality and improve their happiness really. Modern man’s pride is stronger than his will to live to be realistic to be sane to be practical to be happy.The rich have as much enjoyment as the fairpaid have – apart from the danger, which is proportional to the pay injustice – and the enjoyment is spoiled by the danger, by the absence of trust and safety. Like children with party cake – it is hard to enjoy what cake one has if everyone is constantly, ever more desperately and violently and sourly grabbing from everyone.It looks as though the problem is the human insistence that the solution be where people are looking – at the symptom level, at the detail level, at the part-picture level. People are mopping the floor instead of turning off the broken tap. They cannot understand why someone is leaving the problem of the wet floor in the living room and going away, upstairs (into the bathroom where the broken tap is) – they just ‘know’ that is the wrong thing to do – and they keep mopping the floor. They think the pay-justice solution is unrealistic because it isn’t addressing (directly) the wet floor.It is like looking for the lost keys where the light is better for looking, and not looking where the keys fell. You have to teach people that the solution (to the immediate problems and most other problems) is simple if they look where the keys fell, where the problem started. It takes mental discipline not to pluck off the vine where it is strangling the roses, but to trace the vine back to the root, where one cut will kill the whole vine and keep it in check permanently with little effort.People are fascinated by the immediate problems and can’t take their eyes off them to look at the big picture and see the root cause.Inability to pay debt causes a contraction, a drawing in of expansion, a re-structuring – never a total collapse – not even a half collapse or a quarter.Pay justice will always maximise spending, the efficiency of the cycle of production and consumption – and reduce violence which is a waste of money, lives, property, energy, confidence. The giant sucking machine has taken spending away from most, breaking the cycle.Pay justice will always be the only answer – one can’t steal and steal and steal without end. They saw this (to some extent) at the end of the 19th century, when economics practice changed from low wages to high wages. The Marshall Plan saw this, as the way to avoid loss of European markets and thus global loss of confidence.Increasing the money supply say 1% a month and GIVING this to everyone equally (only to save the vast bureaucratic cost of distinguishing the 1% overpaid and 99% underpaid) – which can be done by a computer, ie low bureaucracy – will increase spending, increasing production, increasing market confidence: you have to water the plants to make them grow. The gift (return of stolen earnings) overcompensates all the underpaid for the inflation effect and ‘robs’ the overpaid gently, unobtrusively, automatically through their spending. If the superrich cannot understand pay justice, they can at least understand that you have to leave enough wool on the sheep so you can fleece them again.Lastly, Hate is a luxury item – when things are tough, people rally round, know they have to be tolerant, loving, cooperative, caring, communal. When things are tough there is a rise in that sort of attitude – some turning from competition and antagonism to cooperation and compassion. Even if you do nothing, you have safety nets – family, friends, society. Very, very few people in America will starve. When one is going down, one feels that ‘maybe I will keep falling forever’, but there is the trampoline below – the energy of people, the productivity, even in social disorder, nature’s bounty. Things will come up again, even as they did after the last boom and bust and boom again. Life is a wave – the very fact of things going down stimulates people to turn things around. The 800 who own everything may even let Obama do an FDR – the big enough bust makes even republicans more responsible and realistic. People may even feel some shame – there has to be something good about the bottom of the wave because it is all up from there.I am reading The Greening of America (1970) – about the last time Americans tried to grow up, before the oil price hike made them scurry back into old patterns, shovelling heaps to their superrich father figures to get them out of the mess.I saw the movie Sharpe’s Challenge, with Sean Bean, about the struggles and dangers of the overpaid (and underpaid) in British Colonial India, wherein Sharpe says:And I thought for a moment all this [trouble] might have been for more than just to make rich men richer.

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highpayingjobsOctober 25th, 2011 at 10:12 am

I agree 100% with you on this "In order to have a healthy economy, we need a healthy financial system, and for a healthy financial system we need to cleanse the system of the bad assets."

That really is an essential point to take note of if we want a healthy economy, right?

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