EconoMonitor

Nouriel Roubini's Global EconoMonitor

Stress Test Zombies: Not Too Big To Fail? Tough Tootsies Little Banks!

From the Institutional Risk Analyst:

There are certain professions in which the collective genius of the American people dominates the field: semiconductor design, fast food product differentiation, fire-control systems for air-to-air combat, and con artistry. That these are not, at the moment, sufficient to earn a current account surplus, is a problem being worked on, not least by the service exporters in the latter occupation.

John Dizard Financial Times March 1, 2009

Last week, we learned from Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner that Washington lacks the guts to fix the problems eating away at the US financial system, at least so far. So large are the derivative-fueled losses and so majestic the collective incompetence of the Congress, regulators and the Sell Side dealers on Wall Street in enabling these losses, that the judgment of the single party state called Washington is to simply hide the problem under an ever-widening public TARP.

Now, in most parts of the country, a TARP is used to cover unneeded things, usually a pile of stuff nobody wants, far in the back yard. This is essentially the plan articulated by Bernanke and Geithner: Buy the bad assets, invest more capital in the zombie banks, and hope asset prices eventually recover. This is not a plan to do anything but buy time and extend losses. The scary part is that nobody else in the Obama White House seems to know enough about finance to argue the point.

As we told the subscribers to IRA’s Advisory Service, the Fed and Treasury have created a rule without reason, a ridiculous standard that only ensures the unsoundness and instability of the US financial system. Apparently, banks that fail the Supervisory Capital Assessment Program stress test will not be broken up as required by law, but instead given more capital at taxpayer expense. This is the solution to the financial crisis embraced by President Barack Obama. There is no market discipline, no bad results for the bond holders who stupidly funded these giant derivatives-driven, risk-creation machines.

Below is our best guess as to the identity of the 19 or so banks that are part of the stress test process. We hear in the community that these 19 domestic financials are the de facto “Too Big Too Fail” banks, which of course means that all other banks are not part of the group. We should probably add American International Group (NYSE:AIG) and the Depository Trust and Clearing Corp, which owns a Fed member bank, to the TBTF list.

image001_512_52.gif

Notice that there are no foreign-owned banks as part of the stress test group. Note too that there are several banks on the list that are rated “F” by the IRA Bank Monitor as of year-end 2008. These negative ratings are driven both by negative ROEs as well as above-average realized credit losses.

We see two issues facing Bernanke, Geithner and the Obama Administration when it comes to the cowardly “feed the zombies” approach articulated last week. First, it is not sustainable financially and must eventually be changed because of funding constraints. And two, the policy of subsidizing the bond holders of the largest banks is unworkable politically and must eventually also be changed to conform with domestic political reality. That’s right, at some point the Obama Administration may need to choose between our foreign creditors and American voters.

The Bernanke/Geithner approach to not dealing with the financial crisis amounts to a hideous public subsidy of the global transactional class, a transfer of wealth from American taxpayers to the institutional investors who hold the bonds and derivative obligations tied to the zombie banks, AIG and the GSEs. All of these companies will require continuing cash subsidies if they are not resolved in bankruptcy.

Remember that the maximum probably loss (“MPL”) shown in The IRA Bank Monitor for the top US banks with assets above $10 billion, also known as Economic Capital, is a cash number representing the amount of incremental capital the banks may require to absorb the losses from a 3-4 standard deviation economic slump, such as the one we have today. If you include the subsidy required for the GSEs and AIG, the US Treasury could face a collective funding requirement of $4 trillion through the cycle. Do Ben Bernanke and Tim Geithner really believe that they can sell such a program to the Congress? To put it in perspective, the $250 billion in the Obama Budget for additional TARP funds will not quite cover Citigroup (NYSE:C).

Bottom line: The policy decision articulated this week by Bernanke and Geithner represents the largest transfer of wealth in American history, yet no legislation and been passed and no meaningful debate has occurred. The biggest danger facing the markets is that Ben and Tim still do not seem to have a clue what to do about the big banks — other than to write more checks against the public trust. The conflict over this decision to pass the cost to the taxpayer, between the Fed, Treasury and the Congress, on the one hand, and the Wall Street dealer banks is staggering, yet nothing is said in the Big Media.

The Fed and Treasury claim that situations like C and AIG cannot be addressed idiosyncratically, to paraphrase our friend David Kotok, but the reality is more complex. Fact is, the Sell Side dealers have leveraged the real economy via OTC derivatives to such a degree that bailing out toxic waste sites like AIG, several large Euroland banks and the world of structured finance could cost trillions of dollars. That is the true cost of the crisis. The only issue is whether we recognize it directly, via a public resolution, or hide the costs via public subsidies and future inflation.

If we wish to preserve some semblance of market discipline in the US, an alternative strategy must be found. Until somebody, somehow gets to President Obama and effectively refutes the self-serving argument of the Fed and Treasury that we can’t resolve C or AIG, the cost of the zombie dance party can only grow. The way you end the need for public subsidy is by resolving these firms via a restructuring and forcing the bond and equity holders of the bank’s public parent company to absorb the cost of marking assets to market. If we establish a hard rule regarding solvency and break up rather than recapitalize zombie firms, then we have started to apply a real solution.

Mark to Market Accounting

To answer your many questions about our view on mark-to-market accounting, the damage – or adjustment – is done. We opposed the way the return to FVA was handled because it was too much driven by accounting and not enough other issues around business reporting. We need to be cognizant of not just accounting goals and rules, but also business reporting, investor relations, legal and business issues in order to assess this question.

We like the idea of more disclosure. We just think that swings in short-term prices observed by M2M need be confirmed by time, then you begin to convince us that the observed average price over a period of time equals value and should affect assets or income.

We submitted individual comments on same to The Financial Crisis Advisory Group (FCAG) of the IASB and FASB. Members of the financial community who care about M2M should attend the open meetings hosted by FASB and submit comments to the FCAG as well.

When we stated on Bloomberg TV a while back that M2M was an attempt by the accounting industry to deal with the growing opacity and deliberate inefficiency of the OTC world, our friend David Reilly ran downstairs and declared our conversion to the forces of good “on the road to Jerusalem.” Fair enough. Our recommendation is that we continue to report M2M price swings, but be more reasonable when it comes to writing down performing assets vs. income and charging-off credit exposures that are paying as contracted. The inclusion of something that resembles an impairment test may be part of the eventual solution.


Originally published at The Institutional Risk Analyst and reproduced here with the author’s permission.

141 Responses to “Stress Test Zombies: Not Too Big To Fail? Tough Tootsies Little Banks!”

GuestMarch 13th, 2009 at 4:36 pm

Why is every sensible person screaming nationalize the banks yet our government seemingly laughs at us.

MarkMarch 13th, 2009 at 5:01 pm

I’m guessing that it’s because the government is afraid to wipe out shareholders, who might very well be comprised of lots of foreign investors (who would likely cease doing business with US businesses = capital drain).mark

BlackyBlackMarch 13th, 2009 at 6:10 pm

I’ve read somewhere that the reason the government is afraid to wipe out shareholders of the banks is that the largest shareholders of the banks are the other banks. I’m not sure if this is completely accurate, but it would make sense and provide a reasonable excuse (nationalization of one or two banks would threaten the market capitalization of other banks).

BlackyBlackMarch 13th, 2009 at 6:36 pm

Sorry I meant capital base not market capitalization. Also, nationalization would be a credit event and trigger pay outs on credit default swaps bought to protect against the nationalized bank’s default. I think this means that if you nationalize one big bank you pretty much crash the whole system. And it would not be confined to the US. Foreign (European) banks own shares in the troubled US banks and vice versa.

MarkMarch 13th, 2009 at 6:58 pm

@BlackyBlack:Foreign (European) banks own shares in the troubled US banks and vice versa.Yes, I think that this is a sizable component (and why the call to work with other countries around the globe).TPTB, through a lack of enforcement (and encouragement), effectively pee’d in the nest and are now trying to figure out how to get rid of the stink. All nests are stinking and everyone knows it.Mark

JoeMarch 19th, 2009 at 7:41 am

I don’t think the shareholders are the issue. I mean, Citi is already down about 90% from its high last year… is it really such a big deal if investors lose that last 10%? It would be a drop in the bucket compared to what they’ve already lost.The issue is that “nationalization” is a dirty word for Americans. My solution it for Obama to simply nationalize the banks, but come up with a nice-sounding name for it so the public doesn’t realize what’s going on. Then he can fix the problem, and maintain his popularity… everyone wins.It’s sort of like when a genocide occurs in Africa, but the US doesn’t want to get involved… all they need to do is call it a “conflict”, or some other euphemism, and it doesn’t seem so bad to the American public. Politics is a simple game.

JohnMarch 14th, 2009 at 7:58 pm

Why would a government owed by the elite do anything BUT was their owner tell the to do? It’s survival of the fittest, and – in case you didn’t notice – the owners of the government were FIT enough to make a very wise purchase. I’d be laughing too if I were them.

Irini FountoulakiMarch 19th, 2009 at 3:52 am

Politics created this crisis and politics drives the outcome. The US is a debtor nation and the US authorities are very frightened of upsetting foreign creditors.Politicians like Obama are only interested in ‘bread and circuses’ to keep their poll ratings high. The man has never had to take a difficult and unpopular decision in his life. He lives by winging it and promises.The Obama ‘Spendulus’ solution requires extensive debt financing. Angry, upset foreign creditors would kill these plans and provoke a huge political crisis just at the outset of his presidency.In short, a bigger future bubble as crisis management for a bubble that burst. Obama is just the right guy for this and no doubt that is why he was elected. American voters deserve what they choose!

ex VRWCMarch 13th, 2009 at 4:33 pm

First?We have in Obama what amounts to a banker-in-chief right now. What his main mission seems to be is to ‘get credit flowing again’. He’s working at it every day, don’t you know. Up to a point we can give him a pass on this, and say ‘well he’s being led astray by his advisors’. This point is now passing.Next we need to look at – what is really the strategy? The short term thinking you identify cannot be the sum total of the endgame they are expecting. Maybe they have no good plays, and are just hoping the subject somehow gets changed. Maybe they are hoping it can be blamed on Europe, or China. They must know the political calculus, at the end of the day, will expose the bankruptcy of their position and actions. They must know endless handouts to the banks will have to end.Its a pity that it is just being approached so expediently and with so little conviction, forethought, or vision. I had surely hoped for better.

GuestMarch 13th, 2009 at 5:44 pm

Warrren Buffett, who was a supporter of Barack Obama and still thinks he’s the “right guy,” in recent days has leveled what could be considered a complete upending of the administration’s optimistic plans for delivering its progressive and Democratic government dream package. Buffett said dealing with the problems in the economy is “job one,” and that proposing too many major projects and major priorities all at once can get in the way of solving the real problems in the economy.In what was apparent criticism of Obama’s far-reaching, long-range plans, Buffett said it is hard to gather unity behind such plans when you try to force feed everything through at one time. Some observers of these comments point out that Buffett’s criticism spells real danger for major Obama objectives, such as his healthcare omnibus.And, if I may add my two cents, where will Obama find funds for his costly programs if he continues handing all the taxpayers’ money to the banks?

GuestMarch 14th, 2009 at 3:35 am

Buffet is considered about Berkshire Hathaway. Obama is considered about America. Either way nonsensical throwing of money about should immediately stop. This is a very dangerous precedent that is being set– whatever the reasons be– that none of the too-big-too-fail will be either nationalized or allowed to fail. In essence, this implies that the losses will be socialized. This will erode the moral fabric that drives capitalism. Every firm will try to get a larger balance sheet and become too big too fail. An institution worth 1 dollar (1 trillion assets and 1 less than 1 trillion liabilities) will also be aquired if free money were there to capture the concept of too-big-to-fail.

economicminor on the roadMarch 14th, 2009 at 9:56 am

I want some one to look into who these actual bond holders are.Follow the money.Who is being supported by these bail outs?I suspect that some of the problems are the FCBs but I also suspect that our entire social contract with the retirees is in jeopardy along with cities, counties, states and our uber wealthy. The money to fund these bonds and all the underlying derivatives are owed to people at the end of the day. This I suspect is what is at the bottom of the Obama Administration’s actions more than anything else.What are the consequences IF these banks are allowed to fail?Against that is the issue as to whether they can be kept from failing. Logic and reason and Austrian Economic Theory suggests to me that this is futile but the consequences are horrible. Just imagine what would happen in Arizona or Florida or many place in the US if we have a wide scale collapse of our pension systems. Or if cities, counties or even states had to declare bankruptcy? And all happening at the same time!I suspect that they have to try. Even if this is an egregious transfer of wealth from the future of our young to the not so young. Enslaving those with little voice in favor of those who yell the loudest and vote regularly.Is there a list of who holds these bonds on the listed institutions and also who is at risk when the underlying assets are marked to market instead of marked to fantasy?

methinksMarch 14th, 2009 at 11:24 am

We can guarantee trillions of dollars to the financial sector, yet we can’t guarantee pensions? The financial sector does not create wealth, they parasitically live and speculate off of the wealth created by labor. If the financial system collapses we can start over. Tell me: What is the value of the $1.3 quadrillion of derivatives out there? ZERO! We sometimes lose sight of this

Jason BMarch 13th, 2009 at 6:49 pm

The strategy? Take as much of our money as they can before the whole thing falls apart.The way banks are acting, no one will ever believe in them again. The bankers aren’t dumb, they know this. The only reason they are being so blatent is because this is the endgame, no one will ever have to trust them again.

GSMMarch 13th, 2009 at 8:53 pm

Precisely Jason B, and I am truly astounded why the US population generally have not woken up to this very important point.The US will certainly chnage now, forever. But the US banking system, as we all know it, is gone.It is finished. And the Banksters know it. But there is enough residual power and influence still there to hobble any US Administration. Which is why you see Giethner, all alone there in Treasury, seemingly powerless other than to do nothing. But of course, THAT IS HIS ROLE. As an enabler, Geithner represents the Banksters interests, which currently are to loot the US system prior to the financial edifaces crumbling completely.

GuestMarch 14th, 2009 at 12:56 am

Greenspan has already blamed it all on China in a Washington Post op ed piece that came out yesterday while he takes no responsibility for his FED actions and lack of regulatory policy that helped us to get in this dire situation. What extreme arrogance on the part of this man! If only the leaders of our nation had the same sense of honor that the people of the asian nations have.

GuestMarch 14th, 2009 at 2:53 pm

Ultimate blame was Reagon/supply side economics aka laissez faire economics. That was the beginning of labor exploitation which led to economies being dependent on credit. That then led to the problem worsening by Asian countries racing to devalue their currencies.

GuestMarch 13th, 2009 at 4:33 pm

Are there any comparable blogs in terms of the content, comments, links, etc? Things have seemed a little weird around here lately, so I’m interested in expanding my bookmarks. Thanks

GuestMarch 13th, 2009 at 4:46 pm

Could you be more specific? I think what you may be sensing is the outright anger and outrage people are feeling because our President refuses to force bond and derivative holders to take a loss and instead is in essence stealing from our families and future. People are furious and the mass media is ignoring our cries, so yea there maybe some weirdness going on around here but it may be the healthiest weirdness you can find.

GuestMarch 13th, 2009 at 4:56 pm

No, I agree, the anger and outrage is healthy regarding what’s going on in the nation and world these days. What I’m referring to some of the behavior exhibited by a few of the posters lately. Sharing opinions is fine and I’ve really enjoyed the intelligence and insight of most of the commentary in the past year or so, but it lessens the experience to have to start sifting through stereotypes and name-calling.

GuestMarch 13th, 2009 at 5:32 pm

I think it maybe people’s frustration coming out in insensitive ways, however I do believe the level of intensity should be ratcheted up like it is.

GuestMarch 13th, 2009 at 5:37 pm

I think some of it is a little beyond insensitive. Insensitive implies that one doesn’t necessarily realize what one is doing, and I don’t believe that’s what is going on. I agree that the level of intensity should be ratcheted up, but turning on each other is not productive.

MorbidMarch 13th, 2009 at 5:03 pm

Highjack Outrage

The policy decision articulated this week by Bernanke and Geithner represents the largest transfer of wealth in American history, yet no legislation and been passed and no meaningful debate has occurred.

AnonymousMarch 13th, 2009 at 4:48 pm

What’s to wonder? The cozy arrangement between politicians and the big banks is the only explanation that makes sense about what is going on.

GuestMarch 13th, 2009 at 4:52 pm

It’s thievery in plain view, a sense of helplessness starts taking over as we start realizing our president is betraying us.

PeteCAMarch 13th, 2009 at 5:05 pm

I suppose I’ve been as guilty of anyone for using the term “banks” indiscriminately. We should recognize that there are at least two classes of banks in our country. The large investment banks on Wall Street who collectively contributed to a lot of this mess (with plenty of help from the Fed, Treasury and Congress). And a separate group of regional banks (small and mid-size) who not only did not cause this problem, but actually maintained good lending standards.The proper solution to the US banking crisis is to let the big banks go down, with substantial (or total) losses to their bondholders. The management of these banks failed. Period. They should not be rewarded. Or for that matter nationalized. But by now we know that the Fed is not going to take this proper course of action.In a proper resolution, control of the remaining banking system should transfer to the regional banks that kept good conservative policies. The management of these banks should essentially rise to the top, and form the of a new banking system.I have no hope that Obama, the Fed, the Congress, or Wall Street will ever support such a resolution.I do have a little hope that the American people will have the sense to get their money OUT of these banks that collectively trashed our economy. By moving our money to the remaining banks that are not in trouble, we can do something to promote the kind of change that we want to see. Will this be enough? I’ve got no idea. But it’s a start. I don’t see how the “bad banks” can continue to maintain control if people just will not support them or do business with them.PeteCA

ex VRWCMarch 13th, 2009 at 5:13 pm

Pete,There needs to be a way to somehow get the money out of the debt/credit system so many find themselves caught up in. Even if I don’t bank as B of A, if my mortgage ends up being bundled and handled by them, I still have my money there (or will be sending it there).Unfortunately, what I see instead is large scale debt/mortgage modifications. The end result is people will remain indebted to these banks for an even longer period of time.Its all about the debt, not the savings, at this point. Thats where they have us hooked. Ideas? Debt restructuring that falls outside ‘the system’, perhaps?

Farnorth5March 13th, 2009 at 5:17 pm

Pete,I second the motion .It is one of the few common sense decisions a person can make.To make a point of shoring up the GOOD regional banks gives a potential opportunity for recovery.

MM CAMarch 13th, 2009 at 5:24 pm

I agree now, but what about when the dollar crashes and cash will be practicaly worthless because of hyper-inflation when it does collapse… there are no easy answers. so much for trying to plan for retirement… everything is short term now…

economicminor on the roadMarch 14th, 2009 at 10:37 am

If the dollars injected go to replace dollars lost in deflationary debt collapse, IS there any gain or is it a Zero Sum game? Or worse?In other words, if the dollars are really disappearing into a black hole (deflationary debt collapse), the consequences will not be inflation but continued deflation as the new dollars do not come from productive activities but come from new debt. Even at 3% interest, there is still a deflationary value in new debt because it is not being used productively and it has a cost.

MarkMarch 13th, 2009 at 5:38 pm

Pete,Forgot to add that I totally agree with your urging to remove money from the bad banks. Most of my money has been in a local-based credit union for a long time.Your suggestion is another example of us doing for ourselves (rather than expecting someone else to do it).Mark

GuestMarch 13th, 2009 at 6:09 pm

And, lest we forget, the structure of the Fed was pure cartel, a group of independent banks that joined together in a shared monopoly to reduce competition and thereby increase profitability.Represented at the secret formation of the Fed on Jekyll Island were representatives of the world’s leading banking consortia: Morgan, Rockefeller, Rothschild, Warburg, and Kuhn Loeb—driven together to fight their common enemy, competition.In 1910, the number of banks in the United States was growing at a phenomenal rate, and had doubled to over 20,000 in just the previous 10 years, according to Gabriel Kolko in “The Triumph of Conservatism” 1963.Competition was the new trend and in 1913, the Federal Reserve Act cut it dead.Says G. Edward Griffin: “What the bankers wanted was to intervene in the free market and tip the balance of interest rates downward, to favor debt over thrift. To accomplish this, the money supply simply had to be disconnected from gold and made more plentiful or, as they described it, more “elastic.”The utopia the cartel created for itself, that would avoid the word “bank” altogether and would conjure up the image of the federal government itself whereby the taxpayer would pick up the cartel’s inevitable losses, was The Federal Reserve System.

GuestMarch 14th, 2009 at 4:22 am

Agreed. The solution is to let the bad banks fail and let the good banks take assets(if there is still any) from the bad banks. Now the authorities are taking assets from the good banks and giving them to the bad banks so the bad banks can compete with the good banks. This is horrible morality and terrible economics.If Fed let LTCM fail in 1998, some investment banks would have taken such a hit that some people would have to leave and the battered banks would change their business practices. That way, Lehman Brothers would probably still be there today. Bear Sterns would probably still be there today. With Fed’s bail-out, they became even more reckless and went on to do crazy things. Today Fed is doing it again, who knows what will happen in the future.

MorbidMarch 13th, 2009 at 5:06 pm

Chris,What happens if these to-big-to-fail are allowed to fail? How does that play out in the USA and the global scene? Does it heal by way of a Depression?Thanks

Tired of ThisMarch 14th, 2009 at 8:21 am

I would like to know this too. If these too-big-to-fail and too-big-to-rescue banks are failing, then by definition, doesn’t that mean they can’t be rescued? At this point, I feel we are throwing good money after bad. Let’s take the medicine and get it over with instead of this death by a thousand cuts.

economicminor on the roadMarch 14th, 2009 at 10:46 am

good money meaning new debt that is not being put to productive means vs. debt that could be?In this environment, IS there any place to put money to work productively? With all the over production and huge existing debts that have to be serviced?I say no. Not until we have finally wiped off the books most of this non productive debt first. This unwind is going to take years. Not 56 months but years.Why isn’t this being allowed? Because it will be devastating to all of us and especially those at the top of the economic ladder. The higher up, the further it is to ground level. They are also the ones still running the game so will be doing everything possible to prop up their positions.In the end, it won’t work but they have to try, just like you would if you were in their position.

MorbidMarch 14th, 2009 at 6:33 pm

No thanks to Chris, but here is a glimpse into how this plays out globally if AIG is allowed to fail. Something that comes up later in this thread from a post of Charles.

An AIG failure would likely result in the immediate seizure of certaininsurance businesses of AIG by domestic and foreign regulators.– The seizure by one regulator in a given region (e.g., Asia) would almostcertainly have a domino effect and lead to the seizure of insurance businessesin multiple jurisdictions across the region– Once these assets were effectively nationalized they would be out of the reachof the U.S.– Given the substantial “footprint” of AIG’s insurance presence in these regions,the consequence of a seizure would significantly impair, if not cripple, the entireinsurance industry within certain regions– Even if there is not an immediate seizure of the insurance businesses, there willbe significant policy cancellations which will likely lead to seizures Seizure of foreign assets could lead to:– Loss of assets to repay the Federal Reserve– Collapse of AIG’s public debt– Loss of value of the U.S.Treasury’s Preferred Shareshttp://www.scribd.com/doc/13112282/Aig-Systemic-090309

Tired of ThisMarch 15th, 2009 at 8:01 am

Re: collapse of the entire insurance industry. Meaning health, disability, auto, fire/home, business, etc., or just the parts related to structured finance? Year 2000 was supposed to cause a hard infrastructure debacle, but of course it did not. Perhaps I am being ingenuous in likening the wolf-crying surrounding the financial system collapse to the Year 2000. No doubt a failure of a “systemically” important company would cause significant difficulties, but I am losing my taste for throwing trillions of dollars at these failed companies in what will most likely be a futile attempt to save them and leave us with two problems (imminent failure of these companies and trillions of debt) instead of one. Let’s just get this over with and start unwinding these companies in as orderly a manner as possible.

MarkMarch 13th, 2009 at 5:11 pm

Whalen writes:We see two issues facing Bernanke, Geithner and the Obama Administration when it comes to the cowardly “feed the zombies” approach articulated last week. First, it is not sustainable financially and must eventually be changed because of funding constraints. And two, the policy of subsidizing the bond holders of the largest banks is unworkable politically and must eventually also be changed to conform with domestic political reality. That’s right, at some point the Obama Administration may need to choose between our foreign creditors and American voters.Yes, unsustainable! Always, everything must be analyzed with regard to sustainability.Lose foreign creditors and face a huge loss of credit (further hits to the financial sector and dollar) Lose the American voters and… (big hit to debt- burden on future generations). Rock <situation> Hard-place.It’s the debt issue. It’s why we were able to get out of the Great Depression: we weren’t a debtor nation back then.We talk about wealth transfer, but the transfer is primarily occurring between the existing black holes (powered by the wealthy) and further generations (when taxes are raised THEN it’ll be on the current population).Mark

blind muleMarch 13th, 2009 at 11:18 pm

m,i’m thinking that the transfer of wealth has a real time impact as well. one undebatable result of not letting deflation run it’s course is that those whosaved money are being punished for being thrifty,today, where they should be rewarded by finding theirmoney to be worth more.those who gambled and lost now want to steal wealthfrom those who were more cautious. moral hazard.today, with this generation.what this says is the fools get to continue leadingthe world into oblivion. moral hazard. survival hazard.the chinees are concerned that the u.s. do the right thing to protect their investments. now these are the facts.in this country, we already have a few extra muleskicking in the stall and some of these mules have got to go or the walls will fail to hold the roof.the communist chinees need not lecture the ponzi mulesnor do i believe they are innocent investors whoare unaware of the fraudulent investments they enjoygambling with.if they want to kick around in the stall they will need to take a serious haircut, just like all the other jack asses.or, we can destroy what is left of this scared planet.just a thought.

AnonymousMarch 13th, 2009 at 7:13 pm

Has anybody noticed the conspicuous absence of Santelli? Did someone pee in his cup of tea?

GuestMarch 14th, 2009 at 1:03 am

Perhaps, but I think I was the first one to comment on how stupid he was on market watch’s blogwanna join a tea party?no thanks I think I’ll pass and sit this one out.John Stewart was great last night btw

Mother of GodMarch 13th, 2009 at 7:19 pm

Dr. Jack Rasmus has a Ph.D in Political Economy and currently teaches economics and politics at St. Mary’s College and Santa Clara University in California. He is an author and producer. Jack was an economist and analyst for several global companies and before that, for more than a decade, a local union president, business representative, contract negotiator, and organizer for several labor unions.His book, “THE WAR AT HOME: The Corporate Offensive From Ronald Reagan to George W. Bush”, released 2006, is a 536 pages account of corporate and government policies since 1980 attacking American middle and working class incomes, wages, jobs, pensions, taxes, health benefits, and social security. It is an extensively researched, nonfiction book that describes the evolution of corporate-government policies from 1980 to 2005 that have shifted more than $1 trillion dollars a year, every year, from 90 million American middle and working class households to the wealthiest 10% and corporations.With more than 500 references and 45 tables and graphs, the book examines in detail topics such as the Great American Tax Shift, the 30 Year Pay Freeze, Free Trade and the loss of 10 million jobs, the creation of more than 40 million part time and temporary jobs, the destruction of unions, dismantling of the postwar pension and healthcare systems, and the theft by Congress and Presidents of more than $2 trillion from the Social Security Trust Fund. Solutions and proposals are offered to reverse the current corporate offensive at the end of each chapter, as well as a new proposal for reorganizing the trade union movement in the concluding chapter.At this link you can read the fascinating Preface and the Table of Contents (and you can order the book). (and no, I don’t know the man and he doesn’t know me).kyklosproductionsAn enlightening snip about Chrysler’s bailout being “the analog version”, from the preface:THE CENTURY-LONG AMERICAN PERESTROIKAAmerican history shows that every few decades the corporate elite and their political representatives restructure the economy to exploit opportunities for expansion in a changing world. To assist the restructuring, the domestic ‘rules of the game’ between Business and Labor, the social relations between their respective associated groups and constituencies, are redefined and changed.Over the past century the restructuring and redefining of ‘rules of the game’ have occurred on at least four separate occasions.snipUnion efforts to resurrect the New Deal legislative tradition thus died with the defeat of Labor Law Reform. Henceforth, unions and workers would be on a constant defensive at the social-legislative level. 1978 was clearly the watershed with regard to the Corporate Offensive at that level. Thereafter, union efforts would focus on trying to prevent the further unraveling and dismantling of the New Deal tradition and its progressive laws.If the defeat of Labor Law Reform and the renewed targeting of New Deal legislation by corporate interests marked a renewal of the Corporate Offensive ‘from the top down’—then ‘from the bottom up’ new corporate strategies at the point of production were being rolled out and tested as well after 1978. The imminent fourth Corporate Offensive in the 20th century would not only occur at the legislative level, but at the sphere of production level as well.Earlier in the 1970s the corporate focus was on eliminating leapfrog bargaining, strikes and settlements across industries. At the end of the decade the focus would expand to breaking up within industries what was called ‘pattern bargaining’. In intra-industry wide bargaining, for example, a nationwide settlement with a company like GM or US Steel would be replicated at a Ford or a Bethlehem Steel. The test case for this occurred in 1979 at Chrysler Corporation involving the autoworkers and their union, the UAW. Chrysler would become the test model for a new corporate strategy and formula at the sphere of production for undermining intra-industry bargaining and contracts in manufacturing. It was a harbinger of things to come.In 1979 Chrysler Corporation was facing bankruptcy due to a series of bad business decisions and a slow response to new competition from Asia. Chrysler asked for a billion dollar bailout guarantee by the U.S. government. Responding to demands by Chrysler’s bank creditors, President Carter supported Chrysler management and its banks’ insistence on major concessions by the UAW and auto workers as part of the condition for the loans. Carter leaned on the UAW to agree to concessions in exchange for the government guarantee of the bailout of the company. From this strategic settlement was born the new model that would spawn the corporate runaway shop movement of the 1980s, widespread concession bargaining by unions, and ultimately would produce what came to be known as the ‘Rustbelting of America’.What the AFL-CIO and UAW did not realize at the time was that the Chrysler bailout was not an isolated, one time event. It was the pilot program. It was the test case of how to break the back of union bargaining power in manufacturing. It would lead to the decades-long corporate practice of unrestrained outsourcing. Combined with Free Trade practices and policies at both the government and sphere of production level, it would lead to subsequent exporting of US manufacturing jobs on a massive scale.The Chrysler model was eventually replicated elsewhere throughout manufacturing during the next two decades. Chrysler was the analog for the manufacturing sector comparable to what was already underway with the ‘double breasted’ open shop drive in the construction industry. Both would decimate union membership. Not coincidentally, UAW union membership peaked in 1979 at 1.5 million members at the time of the Chrysler settlement. It has since declined to 624,000 at the end of 2003.The Chrysler model made effective use of the threats of the plant shutdown and the runaway shop to paralyze unions and workers with a deep fear of losing their jobs. Once that fear was sufficiently established, it then legitimized and helped promote the widespread penetration into collective bargaining and union contracts of new ‘rules of the game’ at the point of production. Increasingly common in union contracts thereafter were corporate provisions like two-tier wage systems, unrestricted outsourcing, expanded management rights language, lump sum pay bonuses in lieu of scheduled wage increases, and the steady elimination of Defined Benefit Pension plans and their replacement with Defined Contribution and Individual Pension plans based on 401Ks. All the above became staple corporate demands and objectives in contract negotiations, particularly in Manufacturing during the Reagan era and beyond. Collective bargaining increasingly focused on concessions during the new decade of the 1980s, and concession bargaining has continued to deepen and spread ever since.While concessionary bargaining did not originate in 1979, it now became conscious corporate strategy from that point, practiced by more and more major manufacturing corporations. The Chrysler model thus marked the beginning of the decline of intra-industry bargaining within the manufacturing sector. It ushered in concessionary bargaining on a wide scale. At the point of production the new corporate strategy was simple: threaten to close down the plant and use the threat to break up industry-wide contracts, then install two-tier wage schedules, expand managements rights clauses in contracts to enable almost unlimited freedom to outsource and/or remove entire groups of workers from the bargaining unit, give workers lump sum payments instead of raises in their wage schedule, and substitute pensions with no guarantees of retirement payments for union pensions which guaranteed levels of benefits. Chrysler became the model of what the Corporate Offensive could achieve with the right combination of business-government pressure, threat, and aggressive action.Sources critical of Labor tend to blame the leadership of the manufacturing unions as primarily responsible for allowing the decline in union bargaining power in manufacturing since Reagan. They cite the unwillingness of the leadership to directly confront the plant shutdown/runaway shop developments of the 1980s due to fear of a Reagan response similar to his destruction of the Air Traffic Controllers at the time. They note AFL-CIO leadership over-reliance on Democratic Party help, which was never delivered, instead of taking action and developing its own industry level counter-strategy. Or they point to more senior, better paid workers too willing to agree to lesser pay and benefits (two-tier wage schedules) for younger workers coming into the industries. But American workers in manufacturing and elsewhere did fight. In steel, rubber, meatpacking and elsewhere. They just did so in a very fragmented, industry by industry, and more often company by company approach. There was no coordinated effort to stop the snowball effect of the plant closures-runaway shop strategy, or the legislation and changes in tax and trade that made such corporate strategy financially attractive.These criticisms also overlook and greatly underestimate the massive corporate effort that underlay that offensive launched during the early Reagan years to undermine the manufacturing unions in America. They assign little or no role to the Government policies that provided the incentives, or the role of the courts and NRLB in legitimizing and institutionalizing the various changes at the sphere of production level reflecting the “new rules of the game”. More than any other cause, it was the CEOs and governing boards of corporations that took the lead in destroying industry-wide bargaining agreements with their constant threats—frequently followed by action—to shut down plant after plant and move them first to the South, then to Latin America, and then elsewhere offshore.Today outsourcing and offshoring are words the American public has become increasingly aware of as more and more white collar professional, business services, software engineering, and other tech jobs are also rapidly being transferred abroad. But outsourcing and offshoring have been devastating manufacturing jobs in America since Reagan and the early 1980s. In mid-1979 there were 21.2 million manufacturing jobs in America; as of the end of 2004 the number has declined to only 14.3 million. Just about 7 million high quality, well paid, good benefits, mostly unionized jobs have been lost in the U.S. in Manufacturing alone, nearly 3 million of which occurred under George W. Bush during his first term.By the end of 1978, barely two years after taking office, the Carter administration was essentially played out as a force that might establish an effective defense of the New Deal and protect prior legislative gains. One of the great historic shortcomings of the Carter administration was its failure to develop any strategy whatsoever to revitalize the New Deal—as had been done, for example, in the decade of the 1960s with the passage of Medicare. The conditions certainly were there. The Democrats had control of the Congress and the Presidency. Not since 1932 had the party in 1976 a better opportunity to achieve something in the wake of Watergate, the ending of the Vietnam War, and the severe recession of 1974-75—all events on the Republican Party’s watch. Had they been able to do so, the history of the past three decades might well have been quite different. But the extraordinary weak leadership and lack of vision by Carter and other Democratic Party notables allowed a reopening for, and rigorous renewal of, a new fourth Corporate Offensive once again at the close of the decade of the 1970s.The final political coup de grace was then delivered to the Carter administration. By late 1979, the decision had been made by the corporate elite to force Carter out. Global business competition was intensifying once again at the close of the decade and more aggressive tax and trade policies were being demanded, none of which Carter was capable of delivering.In 1979-80 the Federal Reserve chairman, Paul Volcker, spokesperson for finance capital and the banking sector in America, adopted a policy of driving up interest rates well beyond anything justified by the general economic conditions. Volcker’s efforts had the intended result. Inflation and interest rates fed off each other in the short run, driving both to levels to 15% and more by early 1980, an election year. What quickly followed on the eve of the November elections was the sharpest drop in the economy, more than 4%, up to that point in the postwar period. Even a steeper and more rapid recession than that of 1973-75. Volcker handed Reagan his number one campaign slogan, the first ‘cue card’ for the 1980 election campaign: “Are you better off today than before the current (Carter) administration took office!”. It all but ensured Reagan’s election that year.Both the new political equation and the elements of a new Fourth Corporate Offensive were now in place. All that remained was to put Ronald Reagan in the White House and the corporate elite to begin in earnest a new era of restructuring, a new offensive against workers and their unions at the sphere of production level, and a new legislative assault on the New Deal.The Fourth Corporate Restructuring & Offensive, 1980-2005The post-1980 restructuring is characterized on the Business side by the rapid unraveling of the business regulatory rules of the game established as part of the New Deal in the 1930s and wholesale deregulation of entire industries and sectors of the economy. Another hallmark has been the radical redistribution of taxes and acceleration of shifting of tax burdens from corporations and the wealthy to the American working class population. Other major elements of the restructuring have been the introduction of unprecedented financial innovations and communications technologies, the transfer offshore of much of the US manufacturing sector, the restructuring of much of the work force and jobs markets in the U.S. from traditional, permanent full time work to forms of part time, temporary, and otherwise ‘contingent’ work, the establishment of new institutions and rules for world trade, and the closer absorption of the U.S. Media into the U.S. Industrial-Military-Government complex.Snip againThe assault today on American workers’ standard of living, basic economic interests, and political rights are coming more quickly, from more directions, and are increasingly virulent and bold. During the decade of the 1990s it was at times intermittent; at other times aggressive, especially in terms of trade and job restructuring. Since 2000, however, the assault has been steady, coming from multiple directions, and gaining in momentum. For those on the receiving end—American workers and their families—it is becoming increasingly clear that something basic has changed. Something fundamental is underway. In this, the first decade of the 21st century the ‘rules of the game’ are once more in flux. The chapters that follow are about those most recent changes in the ‘rules of the game’—and what the consequence has been for 105 million American workers and their families since Reagan took office through the first term of George W. Bush.End of preface snip from Jack Rasmus’ The War at HomeREVIEWED by Laurence H. Shoup, “Z” Magazine, October 2005:The dominant institution in American society is the corporation, an instrument of aggrandizement for the few that enriches its already wealthy owners through a never ending process of commodification and privatization. The corporation’s goal is to make everything, even life itself, into a salable commodity, and it tries to turn every type of public property into private property, owned by and for the few. As a result, the earth and all of its life giving resources, from land and water to ores and oil, is being privatized into fewer and fewer hands, with dire consequences for numerous life forms worldwide, including billions of poverty stricken human beings. Current statistics illustrate how successful the corporation has been in helping the several hundred thousand families that make up the core of the corporate rich to reach a level of wealth and power beyond what any ruling class has ever known. The U.S. corporate rich, the top 1% of the population, holds nearly 40% of the country’s wealth, the top 10% over 70%, while the bottom 80%, making up the core of the working population, controls only 16%.Not only is inequality in America grotesque, it is increasing due to an ongoing economic class war on poor and working people launched about twenty-five years ago by our nation’s dominant corporations. This class war has been very successful for the rich. As billionaire Warren Buffet recent exclaimed: “my class is clearly winning”. Working people, on the other hand, are clear losing. The corporate class war has been a disaster for the vast majority of our people.In an important new book, THE WAR AT HOME: THE CORPORATE OFFENSIVE FROM RONALD REAGAN TO GEORGE W. BUSH, Jack Rasmus explores these key themes. Filled with facts and analysis, including 45 tables and 540 endnotes, and coming at a key historical moment, THE WAR AT HOME comprehensively illustrates the all-sided corporate attack on working people and their leading organizations conducted both historically and since 1980. In so doing, he makes a major contribution to our understanding of what has been going on, illustrating in depth how every societal institution which supposedly promotes the general welfare, from government at all levels, down through the Democratic Party and its trade union allies, has failed to protect the American working class from the disastrous consequences of unbridled corporate rule.Rasmus uses the theme of periodic corporate offensives to good effect in reviewing the history of the last century to illustrate how we got to our present predicament. He sees four different corporate offensives since the 1890s, the latest and ongoing one dating from about 1980. In chapters which form the core of the book, Rasmus focuses on how the corporate power structure, using both top down legislation and bottom up actions at the point of production, has, over the past thirty years, been able to transfer about $9 trillion from over 100 million working class Americans to the wealthiest 5% of households. This has been done through tax cuts for the corporations and the rich (for example, the corporate tax rate was 23% in 1969 but is now only 7%), along with tax increases for workers; through ‘free trade’ and runaway shops, which has cost our country ten million jobs, seriously undermining our unions; through further reducing wages by contingent employment, reducing overtime pay and not raising the pathetically low minimum wage; through forcing workers to pay for health care or do without; and through reducing or eliminating pension benefits and stealing the Social Security surplus. Now they are even boldly attempting to privatize this program. Rasmus also suggests how to turn around the ongoing rout and disorganization of the U.S. working class, offering ‘suggested solutions’ at the end of most chapters, along with useful theoretical discussions of some key issues such as the ideology of ‘free trade’.THE WAR AT HOME is a path breaking work which will stand as a milestone on the road to a fight back by and for working people, the vast majority of the American population. Jack Rasmus has performed a major service to the movement by starting what needs to be a great debate about our collective future. Those who do not want us to connect the dots about the profound transformation now occurring due to the economic warfare of the corporate rich hope that the majority now being marginalized into oblivion never find out about and read this book. Of course, this is the very reason that it is so important that we all should read it and spread the word about The War At Home.Laurence H. Shoup is an Historian and author of the book, Imperial Brain Trust: The Council on Foreign Relations and U.S. Foreign Policy.The final verdict, it seems to me, is that if you want to get beyond the “big G” hot button issues successfully exploited by various reactionary politicians in recent campaigns—God, gays, guns and the like—and find out what has really been going on, give THE WAR AT HOME a look. It has some great labor cartoons by Jim Swanson and a few simple graphs even I was able to follow. Most important, it is a sobering and path-breaking effort to “put it all in one place.” As such, it is clearly a valuable service to “the people” in what is most assuredly their time of need.THE DISPATCHER, June 2005

FEDupMarch 13th, 2009 at 7:40 pm

An interesting post-let me summarize my views:”I pledge allegiance to the flag of the Banksters of the United States of America, and to the Monopoly for which it stands; one World under their control, indivisble, with economic Slavery and Injustice for all.”

Mother of GodMarch 13th, 2009 at 8:04 pm

FEDup, We must promise to wear a t-shirt when we recite the pledge, that says “good manners are so fucking important” – and we are never to forget that as the victims, this shit is all our fault because we are just pollution.

awakenedMarch 14th, 2009 at 1:11 am

great post is it yours cause I’d like to use it? Thanks for the laugh in spite of my guilt cause its really not a laughing matter.

GuestMarch 14th, 2009 at 8:03 am

Every time you raise the minimum wage, products and services rise to the occasion and effectively take the raise away. Its only effect is to raise the cost of living.

GuestMarch 14th, 2009 at 8:03 am

Every time you raise the minimum wage, products and services rise to the occasion and effectively take the raise away. Its only effect is to raise the cost of living.

GuestMarch 14th, 2009 at 9:34 am

You have no evidence of that to provide us, because the historical data prove it’s another cheap-labor predator lie.

GuestMarch 14th, 2009 at 11:44 am

Much better to tax the wealthy then they can’t pass the costs down the line. In particular tax the hec out of capital gains so the wealthy can’t hoard all their money in unproductive ponzi schemes.

Mother of GodMarch 13th, 2009 at 7:34 pm

On ” Objectivity “Layla Anwar, Uncensored ArabwomanbluesThursday, 12 March 2009Someone told me the other day, that I needed to be more “objective” about Iraq…She added, in her typical Western analytical mind, her mind geared towards “enquiry and impartiality”, that “objectivity” would help me assess the situation better…She was trying to make me understand — my situation better…see it from a different perspective, a perspective that would neatly fit into her mind…or into whatever her mind can absorb, a rational empirical mind…”Let us put feelings aside”, she said…she was the detached ,impartial observer of our tragedy…of our carnage…and she wanted me to understand. Understand what ?My cells do not need to understand, they know…my eyes do not need to understand, they saw, my ears do not need to understand, they heard…Understand what ?That the color of blood is red ? That history has been erased and turned into ashes and modern ruins ? What is there to understand ?What is there to understand about bulging bellies and bulging eyes wasting away in radioactive toxicity ? What is there to understand about mass graves that are still being unearthed as I type…what is there to understand about a society torn apart, living behind tall walls and ghettoes…What is there to understand ?What is there to understand about half a million orphans living in the streets of Baghdad or 5 million orphans scrounging for shelter and food, or millions of widows waiting for death ? What is there to understand ?One grave digger said ” business is down, but it is still business…as usual.”They asked him if his job gave him the blues…He replied ” not at all, I feel secure and peaceful with the dead…”Understand that, if you can — in your “objective”, “impartial” minds…You never lived in a tent, nor do you go begging for residency permits to be renewed…you do not hide your accent, nor your origins, you do not need to pretend that you are not here, nor there… Now, that is objective.And the sound of bombs and endless stories of absent ones are not your daily music either…and lost relatives in ghost prisons are not part of your scenery…and you do not safely tuck away pictures of what used to be your home and you don’t ask a traveller to discreetly take pictures of it so you will never forget…so it can stay in your “objective” minds…When they call you and ask you “do you need anything from here” you do not say ” send me some earth in a plastic bag, so I can smell it again…”How can a nose be objective and impartial ?But please remain impartial…so the Westerner can understand…Because his mind is a pigeon hole, where everything is classified by order…by alphabetical lists, like a deck of cards, the famous deck of cards…ABCDEFG…1234567…process orders…what comes first….what comes last…the wonders of the enquiry mind. Microscopic lenses dissecting human lives…for the noble aim of Objectivity.Like a neatly framed painting…order…make order out this chaos if you can…Make order of this collapsed tower, this collapsed fortress, make order…so we can all become so objective and understand…understand what the mind can no longer comprehend…You do not need order, I need order…I need order, they need order…we need orderly grounds, because we are all hanging there by a thread and the profound abyss is below us…we need order, not you.That is why Iraqis preferred daily mantra is “security, security…we don’t want food, we don’t want water, we don’t want electricity, just give us security…”And who made them so insecure ? Who took away order from them ? Who is it that objectively studied them in order to break and destroy them ?Who else, but that same mind that enquires into objectivity…And if it only stopped here…Not only that, but you are distrusted, disbelieved, and accused of exaggerations…The impartial mind does not believe you…Does not want to believe you. Because your language has changed, you speak another language…a language he does not understand…a language he created but which he cannot master…So you find yourself in a position where you need to prove with “facts” what this objective mind created in your life, with deeds…It becomes incumbent upon you to bring proof and evidence of the chaos they created…of the destruction they wrecked…And you find yourself in a malicious bind, a bind that you did not even ask for…a bit like an innocent prisoner bound by chains and not knowing if he will ever exit this dark dungeon… you too, become a prisoner of this discourse, of this “objective” mind…You find yourself in a corner, where they placed you. Just like an innocent prisoner trying to remember facts to tell to the judge, if he ever sees one…facts like numbers, dates and names….the prisoner makes a list in his head, alphabetical and numerical lists in order…in a perfect order…I walk around carrying a pad and a pencil. I need to give proof, to back up my claims, my reality. I have to jot down names and dates, numbers in a morgue, precise information backed by “concrete solid evidence”, so I can appease the objective mind…I become a prisoner of the discourse. Their discourse.I even feel it when I write on this blog…Could you be more specific ? Can you explain why ? You need to provide evidence. Can you change your style ? You need some editing. Provide links. Back your claims. Change your language. The wording in English is not correct. Do you need to use these foul sentences ? This makes no sense. This is not politically correct. That is insulting. Why bring this up now ? This is not the time for it. You are lacking objectivity. You are generalizing. It did not happen that way. This is pure propaganda. You are lying…Mince your words Woman, turn them around, change their colorings, give them new dimensions, weigh them, objectify them just like they objectify you and them, so they can understand in their objective minds…the intent, extent and depth of their own indifference and destructiveness…Turn your inner and outer world,banish the desert storms and the whirlwinds,dam the riversstop the currentserase the feelings with a rubber, blank them out,become the zombie of PTSDappeal to them, so they can pity you.this is what they want to hear, need to hear…their flip side is the Savior…the objective saviorwho needs to understand before he saves…before he saves you, from himself…Yet at the same time, control yourself, control your feelings and emotions because the objective mind does not accept what drops out from his frame…what is not aligned in with his thoughts…Rise above it all and become the Nietzchean superman and superwoman…become God like, but don’t show your Godliness because the objective mind cannot take anything that is not empirically proven…So do not label them but label yourself…they need the labels, after all they labelled you. Labelled you and given you a code bar too. Digital prints and eye scans. Biometric measures and numbered you. Fit the label…so they can understand, objectively understand.Sidestep your pain, your sleepless nights, your grief, your loss, your confusion, your isolation, your absent ones, sidestep your heart…and fit the label.Listen well and explain calmly, don’t get over excited, don’t bring up the past, focus on the here and now, on the future…objectively.Tear it away…uproot your memories, uproot your pain, uproot yourself, and become Impartiality, a living example of Blankness.This is what you need to do, to be understood by the Objective Mind.Alternatively — you rip the objective portraits and pictures, you tear the information and the data, you dig even deeper into your inner wilderness, into your thorns, into your wounds…let them bleed again, expose them to fresh air and sunlight, expose them to Life…A rebirth, not the one they told you about, not their birth pangs nor their labour pain, the pains of their new world order, but yours…your new world order…Expose them to History and to Life, so you can live again.Do not let them cut your tongue with “objectivity”.Hurl it, roar it…Become the warrior and the poet of your own Liberation…with Wisdom, an ancient Wisdom, your ancient Wisdom.uncensoredarabwomanblues

PeteCAMarch 13th, 2009 at 7:50 pm

MOG: It would help if you could skim these articles and post just the most relevant paragrpahs. You can always include a link to the full article.cheers, PeteCA

Mother of GodMarch 13th, 2009 at 7:55 pm

what?Except for that last one (which anyone can see would have been ruined) I AM reading, trimming and just posting snips and links!

GuestMarch 13th, 2009 at 9:58 pm

“To find out the true state of facts, to report them with fidelity, to apply to them strict and fixed principles of justice humanity and law; to inform as far as possible the very conscience of nations, and to call down the judgement of the world on what is false, or base, or tyrannical, appear to me to be the first duties of those who write.”- Henry Reeve

blinded half-mute.March 13th, 2009 at 10:05 pm

jb,perhaps you have not noticed that economicsand bank stress testing is also self indulgentblithering and could be considered a form ofsystemic navel inspection. the womens poetryi find to be moving and human unlike the crapcoming out of the fed, treasury, or the wall streetbankers, which is neither poetic, moving, human ortrue.adolescent? i disagree. quite adult. maybe too adult for “economic” consideration.?

blind muleMarch 14th, 2009 at 12:33 pm

j,not to beat a dead horse, or create any conflict,but poetic written expression is ubiquitous throughout all history and exemplified in all fieldsof human inquiry. it will never be extinguished or become redundant.the iraqi women thing puts a perspective on the very economically significant expenditure in excess of 1 trillion dollars that has resulted in excess of 1 million human corpses. if this isn’teconomically significant or relevant, then the field of economics has no basis in reality whatsoever. are we human or are we units of economic demand?anyway, since we have no way of controlling other peoples posting why not just take what you like / need and let the rest disappear into never land. there are bigger fish to focus on, no?

GuestMarch 14th, 2009 at 8:17 am

I like old muscle cars and could post entire articles that would completely destroy this blog as any one else here could do concerning any hobby or interest they may have as well. But this blog is not for muscle cars or poetry, or old women’s problems in other countries all due to the lack of unions in Iraq etc.

methinksMarch 14th, 2009 at 2:33 pm

It is not poetry and she is not an old woman. She is speaking to you narrow, pathologically self-absorbed Americans who have destroyed a civilization called Iraq. Americans ask her to be more “objective” about the carnage she has witnessed and lived through. It is akin to asking survivors of the Holocaust to me more objective about the nazis.Just like the ruling elite, nothing matters except me and mine.

PeteCAMarch 13th, 2009 at 7:49 pm

Found this article after a noticing a comment from Casey Research. I wonder how Americans will vent their rage???—————————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.More in original article.————PeteCA

blind muleMarch 13th, 2009 at 10:11 pm

p,stealing tires and rims, shoplifting, drinking,drug abuse, buggery, drive by shootings and a constant diet of fast food. that’s my guess.of course the list needs to be fleshed out.??

Mother of God, keeping it realMarch 13th, 2009 at 8:14 pm

From: The World Question Centerhttp://www.edge.org/q2009/q09_4.html#kraussThe 2009 question put to thinkers: What will change everything?Answers from Physicists:LAWRENCE KRAUSSPhysicist, Director, Origins Initiative, Arizona State University; Author, Hiding in the MirrorTHE USE OF NUCLEAR WEAPONS AGAINST A CIVILIAN POPULATION”With Nuclear Weapons, everything has changed, save our way of thinking.” So said Albert Einstein, sixty three years ago, following the Hiroshima and Nagasaki bombings at the end of World War II. Having been forced to choose a single game changer, I have turned away from the fascinating scientific developments I might like to see, and will instead focus on the one game changer that I will hopefully never directly witness, but nevertheless expect will occur during my lifetime: the use of nuclear weapons against a civilian population.Whether used by one government against the population of another, or by a terrorist group, the detonation of even a small nuclear explosive, similar in size, for example, to the one that destroyed Hiroshima, would produce an impact on the economies, politics, and lifestyles of the first world in a way that would make the impact of 9/11 seem trivial. I believe the danger of nuclear weapons use remains one of the biggest dangers of this century. It is remarkable that we have gone over 60 years without their use, but the clock is ticking. I fear that Einstein’s admonition remains just as true today as it did then, and I that we are unlikely to go another half century with impunity, at least without confronting the need for a global program of disarmament that goes far beyond the present current Nuclear Non-Proliferation, and strategic arms treaties.Following forty years of Mutually Assured Destruction, with the two Superpowers like two scorpions in a bottle, each held at bay by the certainty of the destruction that would occur at the first whiff of nuclear aggression on the part of the other, we have become complacent. Two generations have come to maturity in a world where nuclear weapons have not been used. The Nuclear Non-Proliferation Treaty has been largely ignored, not just by nascent nuclear states like North Korea, or India and Pakistan, or pre-nuclear wannabies like Iran. Together the United States and Russia possess 26,000 of the world’s 27,000 known nuclear warheads. This in spite of the NPT’s strict requirement for these countries to significantly reduce their arsenals. Each country has perhaps 1000 warheads on hair trigger full alert. This in spite of the fact that there is no strategic utility at the current time associated with possessing so many nuclear weapons on alert.Ultimately, what so concerned Einstein, and is of equal concern today, is the fact that first use of nuclear weapons cannot be justified on moral or strategic grounds. Nevertheless, it may surprise some people to learn that the United States has no strict anti-first-use policy. In fact, in its 2002 Nuclear Posture Review, the U.S. declared that nuclear weapons “provide credible military options to deter a wide range of threats” including “surprising military developments.”And while we spend $10 billion/yr on flawed ballistic missile defense systems against currently non-existent threats, the slow effort to disarm means that thousands of nuclear weapons remain in regions that are unstable, and which could, in principle, be accessed by well organized and well financed terrorist groups. We have not spent a noticeable fraction of the money spent supposedly defending against ballistic missiles instead outfitting ports and airports to detect against possible nuclear devices smuggled into this country in containers.Will it take a nuclear detonation used against a civilian population to stir a change in thinking? The havoc wreaked on what we now call the civilized world, no matter where a nuclear confrontation takes place, would be orders of magnitude greater than that which we have experienced since the Second World War. Moreover, as recent calculations have demonstrated, even a limited nuclear exchange between, say India and Pakistan, could have a significant global impact for almost a decade on world climates and growing seasons.I sincerely hope that whatever initiates a global realization that the existence of large nuclear stockpiles throughout the world is a threat to everyone on the planet, changing the current blind business-as-usual mentality permeating global strategic planning, does not result from a nuclear tragedy. But physics has taught me that the world is the way it is whether we like it or not. And my gut tells me that to continue to ignore the likelihood that a game changer that exceeds our worst nightmares will occur in this century is merely one way to encourage that possibility.GERALD HOLTONMallinckrodt Professor of Physics and Professor of the History of Science, Emeritus, at Harvard University; Coeditor, Einstein for the 21st Century: His Legacy in Science, Art, and Modern CultureDEPLOYMENT OF A SIGNIFICANT ROGUE NUCLEAR DEVICEAn answer can be given once more in one sentence: the intentional, hostile deployment‚—whether by a state, a terrorist group, or other individuals‚—of a significant nuclear device.ANTON ZEILINGERUniversity of Vienna and Scientific Director, Institute of Quantum Optics and Quantum Information, Austrian Academy of SciencesTHE BREAKDOWN OF ALL COMPUTERSSome day all semiconductors will break down and therefore all computers as, besides historic instruments no computers exist today which are nor based on semiconductor technology. The breakdown will be caused by a giant electromagnetic pulse (EMP) created by a nuclear explosion outside Earth’s atmosphere. It will cover large areas on Earth up to the size of a continent. Where it will happen is unpredictable. But it will happen since it is extremely unlikely that we will be able to get rid of all nuclear weapons and the probability for it to happen at any given time will never be zero.The implications of such an event will be enormous. If it happens to one of our technology based societies literally everything will break down. You will realize that none your phones does work. There is no way to find out via the internet what happened. Your car will not start anymore as it is also controlled by computer chips, unless you are lucky to own an antique car. Your local supermarket is unable to get new supplies. There will be no trucks operating anymore, no trains, no electricity, no water supplies Society will completely break down.There will be small exceptions in those countries where military equipment has been hardened against EMPs making the army available for emergency relief. In some countries even some emergency civilian infrastructure has been hardened against EMPs. But these are exceptions as most governments simply ignore that danger.MAX TEGMARKPhysicist, MIT; Researcher, Precision Cosmology; Member, Scientific Directorate, Foundational Questions InstituteACCIDENTAL NUCLEAR WARA serial killer is on the loose! A suicide bomber! Beware the West Nile Virus! Although headline-grabbing scares are better at generating fear, boring old cancer is more likely to do you in. Although you have less than a 1% chance per year to get it, live long enough, and it has a good chance of getting you in the end. As does accidental nuclear war.During the half-century that we humans have been tooled up for nuclear Armageddon, there has been a steady stream of false alarms that could have triggered all-out war, with causes ranging from computer malfunction, power failure and faulty intelligence to navigation error, bomber crash and satellite explosion. Gradual declassification of records has revealed that some of them carried greater risk than was appreciated at the time. For examples, it became clear only in 2002 that during the Cuban Missile Crisis, the USS Beale had depth-charged an unidentified submarine which was in fact Soviet and armed with nuclear weapons, and whose commanders argued over whether to retaliate with a nuclear torpedo.Despite the end of the Cold War, the risk has arguably grown in recent years. Inaccurate but powerful ICBMs undergirded the “mutual assured destruction” stability, because a first strike could not prevent massive retaliation. The shift toward more accurate missile navigation, shorter flight times and better enemy submarine tracking erodes this stability. A successful missile defense system would complete this erosion process. Both Russia and the US retain their “launch-on-warning” strategy, requiring launch decisions to be made on 5-15 minute timescales where complete information may be unavailable. On January 25 1995, Russian President Boris Yeltsin came within minutes of initiating a full nuclear strike on the United States because of an unidentified Norwegian scientific rocket. Concern has been raised over a recent US project to replace the nuclear warheads on 2 of the 24 D5 ICBMs carried by Trident Submarines by conventional warheads, for possible use against Iran or North Korea: Russian early warning systems would be unable to distinguish them from nuclear missiles, expanding the possibilities for unfortunate misunderstandings. Other worrisome scenarios include deliberate malfeasance by military commanders triggered by mental instability and/or fringe political/religious agendas.But why worry? Surely, if push came to shove, reasonable people would step in and do the right thing, just like they have in the past?Nuclear nations do indeed have elaborate countermeasures in place, just like our body does against cancer. Our body can normally deal with isolated deleterious mutations, and it appears that fluke coincidences of as many as four mutations may be required to trigger certain cancers. Yet if we roll the dice enough times, shit happens — Stanley Kubrick’s dark nuclear comedy “Dr. Strangelove” illustrates this with a triple coincidence.Accidental nuclear war between two superpowers may or may not happen in my lifetime, but if it does, it will obviously change everything. The climate change we are currently discussing pales in comparison with nuclear winter, and the current economic turmoil is of course nothing compared to the resulting global crop failures, infrastructure collapse and mass starvation, with survivors succumbing to hungry armed gangs systematically pillaging from house to house. Do I expect to see this in my lifetime? I’d give it about 30%, putting it roughly on par with me getting cancer. Yet we devote way less attention and resources to reducing this risk than we do for cancer.

GuestMarch 13th, 2009 at 9:05 pm

As man strays farther away from righteousness, he moves closer to destruction; this is all prophesized in the Bible: eternal life and happiness will be granted to those who pass HIS criteria and judged according to their deeds; manwill exist in a place free of all evil: Heaven, not Earth!

2centsMarch 14th, 2009 at 12:01 am

@ MOGI must respectfully disagree with your line of thought.First, EMP is a little more complicated than nuclear bomb = the malfunction of everything electronic. There is an optimal altitude of detonation based on several factors that will deliver the maximum disabling effect. One important factor is that the further away the detonation the lower the energy delivered actually it decays by the distance squared. The idea is to deliver a minimally acceptable pulse to the broadest area in other words trading off effectiveness vs. coverage. I can assure you form an EMP perspective an extra-atmospheric detonation would be a very poor choice. There were theories at one time that it would set the ionosphere on ‘fire’, but most data now suggest that it would at most cause a temporary discombobulation of the outer atmosphere that would eventually heal. You would be surprised at how many computers would survive just fine. There are other ways to disable electronic devices that are more effective (no not via the network or a backdoor for you conspiracists).Second, smuggling a nuclear weapon that actually functions via a critical mass reaction is not an obvious exercise. Countries have a difficult time just making one to fit on a truck let alone a missile. The more likely nuclear weapon would be a ‘dirty’ bomb. However, such a device is not terribly effective (of course you happen to be very close to it, your perspective would be different). There are other tactics that would be easier to carry out and much more effective (no I’m not inclined to share that). Therefore why choose nuclear.Third, it is possible for a country to carry out a nuclear attack against another, but it would be but a few moments before it wished that it had more thoroughly considered that option.Fourth, if Einstein’s fear comes true then GHuA!

ranManMarch 14th, 2009 at 8:24 am

2cents..Nice post and I agree with you! Having a nuclear background from the Navy, I’m familiar and your point about optimal altitude is correct. In addition, I think the computing device needs to have power applied to be effected. So computers that are off and not plugged in or protected in some way (the government protects theirs) will not be effected.

Mother of GodMarch 14th, 2009 at 9:38 am

For clarity’s sake, it’s not my line of thought of you’re commenting upon – the words all belong to the physicists listed.

Jason BMarch 14th, 2009 at 10:55 am

Again, completely irrelevant to stress testing or economics.MOG, why did you choose this blog to hijack? Quit spewing here, please.Like the above commenter said, I also have many interests besides economics. But I understand why its not appropriate to cut and paste articles from those topics here. Where are your manners? You are a blog troll.

GuestMarch 14th, 2009 at 2:48 pm

Jason could you please stop attacking MOG it is starting to get really annoying. If I don’t want to read a post I scroll past it it’s extremely easy to do.

AnonymousMarch 14th, 2009 at 11:27 am

You might want to enquire why the Fed has designated 10 financial institutions as critical infrastructure for compliance with EMP resiliency. This started in 2002 naturally, when Bushco started seriously planning using EMP in the Middle East/Europe.Those critical infrastructure with European locations were forced to establish back up operations in the US. Go Google, it’s there.If there is use of an EMP weapon, despite Iran/Pakistan/OBL getting the blame, it will have been the action of the USA. Disabling the electronic infrastructure of Eastern Europe (Russia) and the Middle East will be one way of saying “Game Over” that helps preserve US hegemony – and provides the perfect excuse for military occupation of essential geography.Those planning this figure it will restore the USA to its Post-WWII economic and political dominance in the world.Go figure . . .

crgordonMarch 13th, 2009 at 10:00 pm

Chris,Great post, thank you.The decision really does reduce to will the bond holders be made whole by the US Gov (read: funded by US taxpayers). The choices are: Protect the bondholders and cripple the government for an indeterminate period of years (decades?) through massive transfer of wealth from the US taxpayers to the bondholders. Or cripple the bondholders by reneging on debt with an indeterminate quid pro quo by the bondholders (including sovereign wealth funds, foreign governments, US pensions, etc). Both choices are fraught with danger. Does the US want to deal with internal insurrection or foreign insurrection? Selfishly, I would rather protect the tax payer and renege on the debt. Why are the bondholders a privileged class of investors?Thanks,crgodon

PeteCAMarch 13th, 2009 at 10:09 pm

The bond holders included the Chinese, influential people in Saudi Arabia, and pension funds. The Fed and the Finance & Banking Committee are smart enough to realize that if they P*** off these people, it’s more or less game over.PeteCA

crgordonMarch 13th, 2009 at 10:27 pm

Agreed. And it really does seem that it is “game over”. Just as the creation of debt was unsustainable, the collection of taxes from future taxpayer income is unsustainable to make whole the bondholder debt. It doesn’t take a rocket scientist to figure this one out.

PeteCAMarch 13th, 2009 at 10:53 pm

Yeah. I think this is game over – no matter what. They are just trying to take the political path which draws the least attention and outrage. For now.PeteCA

AnonymousMarch 14th, 2009 at 12:46 am

Pete,Watched Cramer v Stewart. Looks like real journalism is decoupling from the “Old media”.Possibly, newer banking institutions are evolving at this very instant (we just do not know about it) that will allow the real economy to decouple from the banksters.

blind muleMarch 13th, 2009 at 10:31 pm

p,the fed is not that smart as evidenced by thecurrent situation. you give them too much credit.the game is over. it’s now to the grab as grab canstage, until the money runs out. fear and the hordingimpulse at play. ?

MorbidMarch 14th, 2009 at 7:17 am

Avoiding Explosions In The Financial MarketsPeteCA, Subgenius, Blind Mule, crgordon,…Finally I find someone (Jeffery Sacks – an American economist and Director of the Earth Institute at Columbia University) who explicitly acknowledges why the AIG bailout, to say nothing about the rest of the criminal banksters. They cannot let them fail or the entire global financial system will explode, if one goes down it drags all the rest over the cliff as well. This is not accountability. Unelected people are betting the Nation.May I inquire of the Professor why such a clear statement about our situation has not been provided to this forum? Or is it that I am just really slow and have had to piece this together with the others on this forum over the last few months. It would have helped me a lot to understand the conflicting points of view regarding bail-outs, bail-ins, versus nationalization. It seems if you let them fail you get an explosion, if you prop them up you bet the country and eventually get hyperinflation because of all the debt that has to be serviced. As noted above – GAME OVER. Here is the key remark – the reference link follows but nothing more on this theme I bring up here.

…the AIG bailout, you are doing that to avoid explosions in the financial markets, not because there is anything so innovative in their recovery that you are making a bridge to a new kind of insurance company. You just don’t want the defaults on Credit Default Swaps to destroy the whole financial system, which it could. That’s a quite different motivation (than trying to save GM).

Death of the Internal Combustion Engine

subgeniusMarch 14th, 2009 at 11:51 am

Interesting how they state “GM will not bring out any new internal combustion engine model, they will be hybrid…..etc”Sadly, an economist makes a fool of themselves again. A hybrid is an I.C.E with a generator and batteries added.They also, unfortunately, cost considerably more to manufacture (both cash and resource-wise) – and therefore either COST THE CONSUMER (*currently broke*) CONSIDERABLY MORE….or….the company NEEDS A BIG HANDOUT to bring the cost down to compete with other (non-hybrid) vehicles.”The end of the I.C.E” “new technological age” etc etc. Not likely. The tech is a poor replacement (in terms of ease of manufacture and use) for dino-cars. Battery tech and distributed grid tech and power generation tech all need to come along before these statements meet reality. Personally I expect that the development of said techs is going to be too slow to save “the system” as currently experienced, though of course I could be wrong.Add to this the fact that European, Japanese and Korean cars have been produced using small, high-efficiency diesel engines that give in excess of 50mpg without any hybrid tech and you begin to see what a misguided attempt this is.On to the bailout….So basically they are telling us the system is bust, but by sending “good funds” (if money via the printing press can be called such) after bad – but essentially bailing out using a thimble, as the true size of the issue is MUCH larger than allocated funds – the system somehow avoids the reality and stays afloat?

methinksMarch 14th, 2009 at 2:56 pm

Jeffrey Sachs, while at Harvard, designed a “shock therapy” for the Russianeconomy after their collapse. He assisted the transnationals in pillaging the country and created the oligarchy that controls most of the wealth today.I guess this is his new public face.

GuestMarch 13th, 2009 at 10:01 pm

“Now to what higher object, to what greater character can any mortal aspire, than to be possessed of all this knowledge, well digested and ready at command, to assist the feeble and friendless, to discountenancethe haughty and lawless, to procure redress of wrongs, the advancement of right, to assert and maintain liberty and virtue, to discourage andabolish tyranny and vice?” – John Adams

AnonymousMarch 13th, 2009 at 10:08 pm

Geith is just another hopelesschangeazoid who wants to keep the asset bubble from deflating. Meanwhile China is flexing it’s financial muscle and laughing at the US. I think I’ll go rent Blade Runner and start studying up on my Mandarin, the future is gonna have a distinct Asian bent. Change is a coming alright, a change in the world reserve currency.

NedMarch 13th, 2009 at 10:58 pm

In the news. Unemployment debit cards. One “fee” after another to use them. A guy was charged 40cents to check his balance!!! There is nothing left.

subgeniusMarch 13th, 2009 at 11:43 pm

Well, of course – how else are they to separate money from the poor, since they no longer qualify for NINJA loans on houses?

GuestMarch 14th, 2009 at 11:24 am

What’s even more criminal is JP Morgan Chase issues the cards which means yes they get to boost their reserves and for longer periods of time; what a scam. In Michigan they weren’t even asking just automatically sending debit cards out, a lot of people were angry because they ended up throwing out the cards thinking they were credit card come- ons.

PeteCAMarch 13th, 2009 at 11:57 pm

Will Britain Go Bankrupt ???”And we thought we were bearish … A research report caused a bit of a frisson in the UK press yesterday. Apparently, British house prices could fall by as much as a further 55%. Oh, and there’s a real risk that the country could go bust on top as well.This isn’t a set of forecasts from some fringe pressure group. It’s a report from Numis Securities, a leading firm of analysts.But all’s not yet lost. There’s still a solution, says Numis. Trouble is, it’s probably too painful to have any chance of happening… “—————-Here’s the link:http://www.moneyweek.com/news-and-charts/economics/will-britain-go-bankrupt-14669.aspxAnd to save everyone a lot of trouble … the answer is very likely YES.Not that anyone wants to talk about that any more – at least no more than anyone wants to admit that the USA is headed towards a financial collapse.Honestly, the situation is like looking like a group of terminally ill patients in a hospital ward, and their relatives don’t want to accept the diagnosis. But that doesn’t change the underlying condition.PeteCA

Farnorth5March 14th, 2009 at 5:06 pm

Well yes Pete:The Bank Debt to GDP RATIOs are;USA 150%England 400%Iceland 900%The “JOKE”is that at the beginning of the 30’s Depression the US Banks were at 50%.We never learn .It certainly brings into sharp focus the size of the required “HAIRCUT”that everyone is avoiding in Washington and elsewhere.I have friends in Europe who are saying things like”My God our local bank went and copied these idiot’s “,meaning the Investment Banks et al !!!!!!!

2centsMarch 14th, 2009 at 12:31 am

Proof that we haven’t bottomed yet. I got a coupon (printed @ the register) at the grocery the other day that gave $3.00 off any meat purchase the next time you buy X & X along with Y. O.K. so the next time at the store I have meat X & X and Y (I buy them anyway) and I’m expecting $3.00 off. No, not this time says the cashier and she hands me a new coupon (printed at the register) that actually gives me the $3.00 the next time I come in!What! I got a coupon that entitled me to another coupon!Reading the fine print says it does just that, but at initial glance it appears as a regular coupon. These food companies are enjoying increased sales (people eating home more) and still high prices due to the way-by-gone commodities run-up, but they sure know how to make feel like they are delivering a bargain.BEWARE (The sponsoring company by the way was K-R-A-F-T)

blind muleMarch 14th, 2009 at 2:12 am

http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3815…..It’s seems fitting then, in this 75th anniversary year of the Federal Reserve System, to look at the life of Warburg, one of the System’s architects and staunchest proponents.Warburg’s Early Banking ExperiencePaul Warburg was born in Hamburg in 1868. The offspring of a prominent German banking family, he had been trained in banking in the European financial capitals. After attending the university, at age 18 he began his career in London where for two years he worked for a banking and discounting firm, followed by a short stint with a London stockbroker. After that he moved to France and gained additional experience at the Russian bank for foreign trade, which had an agency in Paris. He then traveled to India, China and Japan before returning to Hamburg to become a partner in M.M. Warburg & Co., the family banking firm.Warburg’s father had fully expected that Paul would take charge of his family’s banking business along with his brothers Aby and Max, but in 1895 Warburg married an American citizen, Nina Loeb, an accomplished violinist, and began to live part of the year in New York. Six years later, at age 34, he left Germany, took up permanent residency in the United States, and accepted a position as a partner at his father-in-law’s firm, Kuhn, Loeb and Co.—one of Wall Street’s most important and respected banking houses. While adapting quickly to his new business, he still viewed the United States through the eyes of a European banker and was literally shocked at what he considered the primitive status of banking and financial affairs….Aldrich Reconsiders His PositionThe European interviews of the National Monetary Commission had a profound influence upon Aldrich. He had a clear plan for reform when he returned from Europe, radically different from his original beliefs. The change in the senator’s thinking was so drastic that Aldrich’s biographer explained it as an epiphany, saying, “Aldrich was converted on the road to Damascus.”When Aldrich and the National Monetary Commission returned from Europe in the fall of 1908, Aldrich asked Warburg to present his own ideas and answer questions regarding the European interviews at a meeting at New York’s Metropolitan Club.After Warburg’s Metropolitan Club testimony, Aldrich pulled the banker aside and told him that he liked his plan for reform but he was being too timid about it. Warburg was surprised to learn that Aldrich, who before his European travels had not favored centralization and had advocated a national currency backed by government bonds, had changed his thinking and envisioned a European-type central bank for the United States. While Warburg now warned the senator against attempts to establish a full-scale central bank in the European sense—believing it politically unrealistic— he was nonetheless encouraged.A particular key feature of the European systems persuaded the senator to reconsider his thinking. According to commission member Sen. Theodore Burton, the concept of currency backed by commercial assets began to take hold in Aldrich’s mind in London, and the interviews in Berlin finally convinced him. Commission Assistant George Reynolds concurred, noting that “the experience and practice of German bankers in meeting the needs of commerce in their country demonstrated to Aldrich the validity of the use of commercial assets as a basis for currency. The idea, formerly so obscure, came home to him in great force from its demonstration in a non-political, practical atmosphere.”…

blind muleMarch 14th, 2009 at 2:33 am

http://www.federalreserve.gov/aboutthefed/section9a.htm.Federal Reserve ActSection 9A. Participation in Lotteries Prohibited(a) A State member bank may not–1. deal in lottery tickets;2. deal in bets used as a means or substitute for participation in a lottery;3. announce, advertise, or publicize the existence of any lottery;4. announce, advertise, or publicize the existence or identity of any participant or winner, as such, in a lottery.Back To Top(b) A State member bank may not permit–1. the use of any part of any of its banking offices by any person for any purpose forbidden to the bank under subsection (a), or2. direct access by the public from any of its banking offices to any premises used by any person for any purpose forbidden to the bank under subsection (a).Back To Top(c) As used in this section–1. The term “deal in” includes making, taking, buying, selling, redeeming, or collecting.2. The term “lottery” includes any arrangement whereby three or more persons (the “participants”) advance money or credit to another in exchange for the possibility or expectation that one or more but not all of the participants (the “winners”) will receive by reason of their advances more than the amounts they have advanced, the identity of the winners being determined by any means which includes–1. a random selection;2. a game, race, or contest; or3. any record or tabulation of the result of one or more events in which any participant has no interest except for its bearing upon the possibility that he may become a winner.3. The term “lottery ticket” includes any right, privilege, or possibility (and any ticket, receipt, record, or other evidence of any such right, privilege, or possibility) of becoming a winner in a lottery.Back To Top(d) Nothing contained in this section prohibits a State member bank from accepting deposits or cashing or otherwise handling checks or other negotiable instruments, or performing other lawful banking services for a State operating a lottery, or for an officer or employee of that State who is charged with the administration of the lottery.Back To Top(e) The Board of Governors of the Federal Reserve System shall issue such regulations as may be necessary to the strict enforcement of this section and the prevention of evasions thereof.[12 USC 339. As added by act of Dec. 15, 1967 (81 Stat. 609) effective April 1, 1968. Corresponding prohibitions are contained in section 5136B of the Revised Statutes, section 20 of the Federal Deposit Insurance Act, and section 410 of the National Housing Act with respect to national banks, nonmember insured banks, and institutions insured by the Federal Savings and Loan Insurance Corporation, respectively.].so does this mean the fed can’t legally touchcredit default swaps?

PeteCAMarch 14th, 2009 at 10:44 am

Ha! Ha! Ha! Ha! Ha!I thought I could see where you were going with this. Why don’t you tell Ron Paul to ask this same question to Mr Bernanke, the next time he testifies in Congress ??!PeteCA

serialsaverMarch 14th, 2009 at 5:34 am

The cart is before the horse. Without the legislative heavy lifting the includes a quid-pro-quo for the use of taxpayer dollars isn’t even being discussed in our hallowed hall of government. In particular, restoration of Glass-Steagall Act and complete repeal of the 1999 Commodities Futures Modernization Act are imperative to restoring the imbalances created over the past 25 years. These two simple legislative changes would indeed separate ‘good bank from bad bank’. Would give Main Street a freaking break from the abuses of manipulated inflation and massive transfer of wealth to the top tier and overseas. In the ’80s the collapse of the common money markets wiped out a revenue stream for countless retirees whose savings were in simple Certificates of Deposits. Today we see that making the stock market the sole repository of decades of savings from WORK is folly and provided that endless liquidity of the diversified financial banking sector to risk. Risk they did, the lynch-pins of economies through their ‘innovative’ products to include our very economic sovereignty.Changing the gambling casino we call the Stock Market today is also mandatory to return it to an investors market rather than a traders market. Clarity in accounting and ratings will be necessary to restore confidence for the common investor to return. People who are not wealthy enough or risk adverse should be allowed to chose their level of risk in keeping the value of the dollars by savings with modest returns in exchange for that safety not connected to the stock market.It is indeed not only cowardly but greedy to continue with the same structures and allow failures/criminal behavior to be supported without consequences. Massively complex regulatory regimes only will serve the same function the regulatory regime served previously, to allow the most enabled to rig the game in their favor opaquely to maintain obscene wealth and power.

serialsaverMarch 14th, 2009 at 10:38 am

Indeed and has been for some time, the imbalances and excesses became so esoteric and illusionary they couldn’t possibly see the hazards to our economy or the worlds by default.Until we produce more than we consume, save more than we spend and are allowed paths to relative financial solvency through work and rewards without ever changing rules; this economy will not heal. Returning to a society which values ownership over debt will no doubt be painful and fraught will its own hazards.

serialsaverMarch 14th, 2009 at 2:07 pm

True except sacrifices to stay out of debt have become too heavy; a generation was raised to fund their every need on credit. A system of diminishing returns for labor in real wages, hyper-inflationary levels for critical services,daily living and carrots for the young and naive effectively won out. From cradle to grave, debt became the fuel to live an ordinary life. Credit cards are issued as is debt for college students who increasingly are burdened to get out of debt even with a job, if one dares to raise a family or dares to believe they can own even a modest home; without the ever rising valuations in the stock market and real estate the hope of ever being out of debt is lost. The vicious cycle of indebtedness begins even before emotional maturity. It was and is unsustainable, provided few other paths towards sustainable solvency even with high levels of discipline and did not allow for choices that were either achievable or desirable. A paradigm shift in culture, just as was produced after the hardships suffered by the generation of WWII and the Great Depression will likely result.

blind muleMarch 14th, 2009 at 11:01 am

mog,at whatever you like, but not behind the curtain.ok? and please, not beneath the surface. and iftptb have not fixed a dollar value to it pleasedo not bring it up. do we agree? and don’t makeme page down too much. i don’t like it. it makesmy life more difficult to have to think about these”other” people and ideas, they just interfere with myability to be recognized. thank you in advancefor your compliance with my wishes and judiciousstandard. now you go and have a good day!.ps.. never mind that the world is headed for aradical shift of which we know almost nothing, that being because we have not given it our attention and creative capacities. oh well, i guess someone else will take care of it. somewhere?

MM CAMarch 14th, 2009 at 9:01 am

another ponzi schem in the making: read the reporthttp://boombustblog.com/index.php?option=com_docman&task=doc_download&gid=138http://www.google.com/finance?client=ob&q=NYSE:PPD

blind muleMarch 14th, 2009 at 10:15 am

@ speaking of controlling your tongue and thoughts.more censorship. is it a good thing for the general well being of the people? does it makeus more secure? enlightened?.http://onlinejournal.com/artman/publish/article_4476.shtml.Eyes wide shut: A look at British news censorshipBy Jerry MazzaOnline Journal Associate Editor.Mar 13, 2009, 00:22.”I hope the late Stanley Kubrick won’t mind my borrowing the title of his film, which was shot in London and the Home Counties. I don’t think he would if he knew that February 12, 2009, marked “the enforcement date for section 76 of the Counter Terrorism Act 2008.” As reported in the UK’s Guardian, from that date on “a photojournalist who documents political dissent on the streets — and sometimes the fields — of Britain,” would be subject to prosecution under that act.Since little mention of this major incursion of civil liberties has crossed the pond, and even less has been picked up by American “media,” I thought I’d pen a word or two about it. As with the deadly, former Bush administration, terror legislation has been rough-handedly applied by the British government. Great Britain is now using section 76, CTA-2008, to not only criminalize protestors but to criminalize those foolish enough to think they’re free enough to report on said dissent, i.e., photographers and filmmakers.From February 12 on, it is an offense to “elicit information” or even “attempt to elicit information” about any member or former member of the armed forces, intelligence services, or even a police officer in Great Britain. It’s been an offense in Northern Ireland since 2000,….”…”And so, it would be major, like high concept, baby, if American photojournalists, writers, newsmen, and other famous faces could weigh in on this issue to help our cousin in Great Britain”

Casual GuestMarch 14th, 2009 at 11:29 am

Obama case for eligibility to be President and C-in-C has been taken to (1) US Atty. for the US Dist. of Columbia (a federal court), and (2) US AG. The writer/atty. requests for appointment of a jury under the US Constitution’s “Quo Warranto” provision and prays that: (1) the jury should find out where O was born, and (2) the court (not the jury) should interpret whether a person owing allegiance to a foreign power at the time of his birth, even if born in US, is a “natural born citizen” as enshrined in the US Constitution. O was a UK subject at the time of his birth (even if born in Hawaii to a US mother), since Sr. O was a UK subject at that time.http://naturalborncitizen.wordpress.com/2009/03/13/open-letter-to-united-states-attorney-jeffrey-taylor/#comments

AnonymousMarch 14th, 2009 at 12:06 pm

Last I checked, being born in the USA was sufficient for citizenship under the Constitution.Also, explain how John McCain, born in Panama, gets to be a “natural born citizen”?

London BankerMarch 14th, 2009 at 12:07 pm

Winston Churchill’s mother was American. Maybe he shouldn’t have been allowed to be Prime Minister of Britain either . . .

MedicMarch 14th, 2009 at 12:48 pm

LB – nice to see you back.I trust things are better in your neck of the woods than they are here.But hey, we have Jon Stewart on the case – perhaps things may get better…….

subgeniusMarch 14th, 2009 at 12:52 pm

G20 vow they “are committed to deliver the scale of sustained effort necessary to restore growth” and thus “pull the world out of recession”.It’s official, they either:A) Don’t understand the basic reality of life on a finite planetorB) Are lying to keep their power and privilege.

MorbidMarch 14th, 2009 at 1:05 pm

orC) Keep the masses dumbed down and dribble the disaster down the road – hoping like this to avoid massive civil unrest all at once.

MedicMarch 14th, 2009 at 3:59 pm

Charles -Who produced this document? Can anyone verify its authenticity?What’s the background on its origination? Who did the reasearch?

CharlesMarch 14th, 2009 at 4:15 pm

Medic -Good points. I don’t know the answers to your questions.The link came fromhttp://www.boingboing.net/2009/03/09/aig-has-insured-16-t.html”And you thought AIG’s $62 billion quarterly loss last month was bad — turns out that the company has a further $1.6 trillion in outstanding derivatives exposure, according to this leaked memo that AIG sent to the US Treasury in order to beg for another $30 billion. Aig Systemic 090309 (via The Dynamics of Cats)”- CharlesPS I appreciate all your posts.

MorbidMarch 14th, 2009 at 6:08 pm

Here is an insight as to why insurance companies are next. I have been wondering why they are next to be in trouble. People panic and pull out their accumulated dollars where ever they are it seems. I don’t see how this will not eventually cause the financial markets to simply EXPLODE!

Over the past decade, the voluntary termination rate on individual policiesdeclined remarkably (to six percent by 2007) as consumers could obtain liquidityfrom numerous other sources.A significant rise in surrender rates – inspired by consumers needs for cash orbecause of rumored or real failure of insurance companies – could be disastrous.Because of widespread loss of liquidity, the industry would struggle to raiseadequate cash to meet surrender requests. A run on the bank in the life andretirement business would have sweeping impacts across the economy in theU.S. In countries around the world with higher savings rates than the U.S., thefailure of insurance companies like AIG would be a catastrophe. http://www.scribd.com/doc/13112282/Aig-Systemic-090309

AnonymousMarch 14th, 2009 at 5:03 pm

“Receivership of Chase/Citi/Wells/BOA+ GS. Well, Chase & GS might still be above water -put they are the pluses to the other minuses (which will include Fannie/Freddie/AIG). Plus GS has to pay on 2 counts -Counterparty to AIG & they created a large part of this mess. New banks that failed will be absorbed into one of these entities.Stockholders wipe out. Bondholder saved. All of the corporations once out of receivership – will become Mutual Corporations -they will become the Financial Utilities.They will all become centrifuges to sort & cancel out CDS/MBS, etc.Housing -all mortgages in trouble -one refinance attmept as per FDIC protocol -if not the short sale/ if not then foreclosure -with title transfer to HUD for residential and Commerce Dept for CRE. HUD will transfer title (for low/middle income rental housing with some with laddered selling allowance in 5-15 yrs) to local housing authorities & charities with strong supervision, some grant money & Line of Credit for supplies of purchase thru the General Services Administration (Fed Gov’t Landlord agency). Same for Commerce Dept. – Using the CRE with the Small Bus Adm. & local authorities to create local/regional/small business incubators. -which the CRE can provide free/low cost start up physical presence -Think equivalent of subsidize housing for small business.)Transfer of wealth back to the little guy – Financial Stabilization -> All of the above banks would do as follow -> Lower all present loan fees & percentage to single digits -based on risk. Pay more on savings accts. Create an account like are popular in Europe -Ing Direct has them here under the Electric Orange. Essentially an electronic payment acct with a line of credit. If your positive you earn interest & if negative you pay a very low/decent interest. Allow people to roll over the car loans/Line of Equity/Credit Cards/Mortgages into this account. Will required direct deposit of income & cancellation of loans/loan accts transfer into it, as well as new loans can only be taken out thru the bank & properly qualify – Or high penalties & expulsion from program apply. (think of a non-legal system way of modified bankruptcy, minus all the fees & high interest. If persons are compliant frees up capital for qualified people + does not penalize & put into a corner & in fact incetivise those that are in the margin.Of course it would never happen – Because “the banking system once to have the cake and eat it too” & our legilsators are sold out. No politician would have the balls to do something like this. Specially kill Goldman Sachs.

HayesMarch 14th, 2009 at 5:08 pm

G20 Finance Ministers and Central Bank Governors Communiqué, March 14, 2009, South Lodge, United Kingdom (key excerpt)2. Our key priority now is to restore lending by tackling, where needed, problems in the financial system head on, through continued liquidity support, bank recapitalisation and dealing with impaired assets, through a common framework( attached**). We reaffirm our commitment to take all necessary actions to ensure the soundness of systemically important institutions.** Restoring Lending: A Framework for Financial Repair and Recovery

Our key priority now is to address the uncertainties around the value of assets held on banks’ balance sheets, which are significantly constraining banks’ lending. This uncertainty, and the extent to which banks are holding capital to protect themselves from further potential extreme losses, is preventing them from restoring lending to business and households, with damaging consequences to our economies.A cooperative and consistent approach by national authorities to programmes addressing impaired assets should be based on the following principles:International cooperation1. Given the interconnectedness of the global financial system, international cooperation is important to maximise the effectiveness of these measures and reject financial protectionism. Cooperation has the potential to further maximise the benefits of these actions and address spillovers, in particular by increasing confidence in financial stability, minimising distortions to the market and maintaining a level playing field, supporting developing countries and emerging market economies, while defending taxpayers’ interests.Programme Design2. Programmes should be appropriate to the characteristics of the banking, legislative and fiscal frameworks. International cooperation is critical in addressing negative spillovers. Programmes should be implemented quickly, comprehensively and have a limited enrolment period.Eligibility of assets and institutions3. The eligibility of assets for support should be kept flexible due to the difference in balance sheet compositions, the conditions in different countries and because the amount and type of impaired assets is likely to differ across financial sectors. There should be a specified cut-off date prior to announcement of the programme. Priority should be given to institutions which pose a significant risk to financial stability.Risk transfer and burden sharing4. If risk is to be transferred from the banking sector to governments, it should be at a fair price, including through fees, with appropriate risk sharing, to limit the cost to the government as well as prevent moral hazard, provide the right incentives to the participating institutions and maintain a level playing field across financial institutions, both nationally and internationally. Banks’ shareholders should be required to contribute to the maximum extent possible to loss or risk coverage prior to government intervention.Transparency and disclosure5. Consistent with prudential considerations, there should be a full and transparent disclosure of the impairment of banks’ balance sheets. Stress testing should include a rigorous and up to date assessment of their exposure to potential losses and of their future viability, including their capacity to continue lending and absorb potential losses in order to avoid international distortions.Governments should manage in a transparent way impaired asset resolution programmes. In order to build market confidence, governments should disclose the processes, standards and results of their impaired asset management programmes.Valuation6. While valuation methodologies may vary depending on the proposed asset resolution program, it is critical that those methodologies are applied transparently, objectively, consistently and in a cooperative way, in order to promote a level playing field across countries and financial institutions, and to advance prudential objectives while limiting the exposure of the state to potential losses. Supervisory authorities should have an important role in validating valuation processes. This will ensure that the risk is transferred from the banking sector to governments at a fair price, including through fees, with appropriate risk sharing, to limit the cost to the government, provide the right incentives to the participating institutions and minimise distortions.Management7. Firms receiving support should continue to be run according to business principles in order to prevent distortions of the effective allocation of credit to the private sector or to institutions not participating in the scheme. Conditions should be included, such as on pricing, compensation or restructuring, to limit any conflict of interests or moral hazard, with support designed to align the incentives for banks to participate and the conditions imposed on beneficiary banks with public policy objectives.Restructuring8. Restructurings should focus on maximising the effectiveness of any government support and the long-term viability of an institution and should depend on pricing relative to expected losses, the capacity of the bank to withstand residual exposures and the bank’s access to other support. Where sound restructuring is supported by merger or acquisition cross-border deals, close collaboration with the relevant foreign authorities is essential.Conditions9. Government support is a privilege and must come with strong conditions, such as a commitment to continue providing credit to appropriately meet demands according to commercial criteria, improving governance, dividend policy restrictions and executive remuneration caps. It may involve appropriate restructuring, including as necessary measures to limit competition distortions.Monitoring10. Taxpayer interest must be protected and banks participating in asset support programmes should be closely monitored.Timing11. Government support should be temporary and should include well-defined exit strategies and incentives.Public Finances12. Government support measures should be part of a sustainable medium-term fiscal strategy.

HayesMarch 14th, 2009 at 5:30 pm

It would be great if London Banker could come out of blog retirement (temporarily) and post on his blog a reaction to the G20 plans.

g AntonMarch 14th, 2009 at 5:15 pm

Bernanke, Geithner, and Obama? Sounds like a 21 century remake of the three stooges. Look out, Stooges–surely, Moe, Larry, and Curly are no match for their 21 century counterparts (Ben, Tim, and Barack)!

Average JaneMarch 14th, 2009 at 5:42 pm

The Great American Consumer is baaack! The evidence is: I drove past one of the local malls today and it was jammed. Couldn’t see an open parking spot.The Beast has been unleashed! All the pent-up demand has been loosed! We must and we can Buy, Buy, Buy Again! Because the stock market is up! Four whole days of straight gains!! Never mind those losses! Housing’s making a comeback! And those millions of unemployed? Magically those jobs are coming back, and soon! Same with those 401(k)s! It’s All Good!!Happy days are here again! We’ve turned the corner! Dust off your credit cards! Make sure you’ve got that HELOC up to date! We The People have suffered long enough!! We’re in the money, we’re in the money, we’re in the money!We are doomed.

GuestMarch 14th, 2009 at 5:47 pm

Jim Cramer’s full explanation of stock market manipulation (this is a Must Watch not to be confused with the Daily Show video)http://news.cnet.com/8301-13846_3-10196471-62.html