Ten Reasons Why the Stress Tests Are “Schmess” Tests and Why the Current Muddle-Through Approach to the Banking Crisis May Not Succeed

Author: Nouriel Roubini · May 8th, 2009 · 2566942009-05-08+14%3A06%3A56Nouriel+Roubini › Share This Print

What shall we make of the recently announced results of the stress test? Are they credible? Will they restore confidence in our battered financial system? Will the current approach to resolving the financial crisis work, be effective and minimize the fiscal costs of the financial bailout?

For a number of reasons these results are a significant underestimate of the capital/equity needs of these 19 large US banks. Also this underestimate of the losses and the current “muddle-through” approach to the banking and financial crisis may accelerate the creeping partial nationalization of the US financial system, exacerbate moral hazard distortions, not resolve the too-big-to-fail problem, increase the fiscal costs of this financial crisis, make the credit crunch last longer and lead some near insolvent financial institutions to become zombie banks. Let me explain in ten points why I hold such views (see also my two recent op-eds with Matt Richardson in the WSJ and the FT):

First, the stress tests are not stressful enough. As discussed in a previous note current levels of unemployment rates are already higher than those assumed in the more adverse scenario; and even assuming that the rate of job losses will slow down over the next few months to a 400-500K monthly range it is highly likely that the US will reach an unemployment rate of 10% by the fall of 2009, a rate of 10.5% by the end of 2009 and a rate above 11% some time in 2010; instead the parameters of the stress tests assumed that the unemployment rate would average 10.3% in the more adverse scenario in 2010, not 2009. Note also that the parameters for the more adverse scenario in the stress tests were a political compromise among the agencies involved in the stress tests; one of these agencies had found more realistic the hypothesis that the parameter for the unemployment rate in the more adverse scenario should be 12% rather than 10.3%. Moreover, the stress tests found that the 19 banks needed $185 bn of additional equity; the published figure of $75 is based on assets dispositions and capital raises of $110 bn that are still under way and, in most cases, not completed yet. Booking such increases in equity before they have occurred does not seem appropriate accounting procedure.

Second, the capital/needs of these banks depend on a race between retained earnings before writedowns/provisioning that will be positive given a high net interest rate margin and the losses deriving from further writedowns. It appears that regulators have overestimated the amount of such retained earnings for 2009-2010. The IMF recently estimated that retained earnings (after taxes and dividends) for all US banks – not just these 19 ones – would be only $300 bn total over the 2009-2010 period. The stress tests – instead – assumed much higher retained earnings – $362 bn – for these 19 banks alone for the 2009-2010 period in the more adverse scenario. Since these 19 banks account for about half of US banks assets if one were to use the IMF estimate of net retained earnings for these 19 banks their net retained earnings for 2009-2010 would be $150 bn rather than the $362 bn assumed by the regulators. While the IMF may have been too conservative in its estimates of net retained earnings it appears that regulators may have been too generous to these 19 banks in forecasting their earnings in an adverse scenario. Thus, ex-post capital needs will be significantly higher if net retained earnings turn out to be lower than assumed in the stress tests. While regulators resisted the banks’ attempt to use Q1 earnings (that were fudged via under-provisioning for loan losses, paper gains on securities via changes in FASB rules on mark-to-market, and accounting gains coming from the lower market value of bank liabilities) as proxy for the future profitability of banks it appears that such regulators were too optimistic in estimating what net retained earnings will be in 2009-2010.

Third, banks bargained hard to reduce the regulators estimates of needed additional equity. For example, according to press reports Citigroup was initially assessed to need an additional $30bn of equity; such figure was then reduced to $5 billion after aggressive bargaining by the bank. One can only guess how much higher were the regulators initial estimates of the banks’ capital needs and how much lower the published estimates became after the banks lobbied for lower figures.

Fourth, the estimates of additional losses on loans – $445 bn – appear to be relatively reasonable even if they could end up being significantly higher in a weaker macro scenario. But estimates of losses on securities – $154bn – are most likely too low. And the results of the stress scenario do not provide details on how much regulatory forbearance has been provided in the estimate of losses on securities; while current market values of some securities may be lower than long term values given an illiquidity premium many banks still keep many of these securities in the level 2 and 3 buckets and use a mark-to-model, rather than a mark-to-market approach to value these assets. Certainly in the last year regulators have been lenient and provided plenty of forbearance – on top of expensive formal guarantees of hundreds of billions of toxic assets for several banks – to reduce the amount of revealed losses on securities. Also, if one were to bring forward to today the writedowns/charge-offs for 2009-2010 estimated by the US regulators (an exercise that the IMF has done for all US banks in its recent Global Financial Stability Report) the TCE ratio for these 19 banks – and all US banks – would be effectively 0.1% today. So, the US regulators estimates of equity needs of these 19 banks are heavily depended on what net earnings before writedowns will be in 2009-2010.

Fifth, estimates of net retained earnings before writedowns are massively beefed up by the direct and indirect subsidies that the government is providing to the financial system: with the Fed Funds rate and deposit rates now close to 0% and with banks having been able to borrow since last year about $350 bn at close to 0% interest rates given the FDIC guarantee on new borrowings the bank can now earn a fat net interest rate margin that is a direct subsidy to financial institutions. The Fed is also losing a fortune on its three Maiden Lane funds that purchased toxic assets of Bear Stearns and AIG. On top of this major US financial institutions got a massive direct subsidy from the bailout of AIG. Overall, the US government has committed – between liquidity supports, recapitalization, insurance of bad assets, guarantees – over $13 trillion of resources to the financial system and already provided $3 trillion of such resources to the financial institutions. The financial system is already effectively a ward of the state in spite of the fact that all these direct and indirect subsidies have bailed out both the shareholders and the unsecured creditors of financial institutions. Even taking into account the fact that not all of these resources will represent a net long term loss to the US taxpayer even a conservative estimate of the net subsidy to the banks’ shareholders and unsecured creditors may be above $500 bn.

Sixth, in estimating equity needs of these 19 banks the regulators correctly used a measure of capital – Tangible Common Equity or TCE – that is narrower than Tier 1. Tier 1 capital includes many forms of capital – on top of tangible common equity – that are of poor quality as a buffer against losses or outright fishy: preferred equity and in particular intangible assets and goodwill. While Tier 1 capital of US banks was – at the end of 2008 – about $1,550 common tangible equity was only about $560 bn. The regulators estimated equity needs of the 19 banks based on a TCE ratio of 4% (as a percent of tangible assets). However, even 4% implies a leverage ratio for these banks of 25. The IMF instead – properly – considered a scenario where the TCE ratio is increased to 6% that is equivalent to a leverage ratio of 17 that represent the average leverage ratio for all US banks in the mid-1990s before leveraged shot up in the latest credit bubble. A capital adequacy ratio is also certainly necessary for these banks as they are systemically important: every academic analysis of systemic risk suggests that banks that are systemically important should have much higher capital in order to internalize the externalities deriving from too-big-to-fail distortions. And while Basel criteria for capital adequacy have not been yet revised to include this need for additional capital for too-big-to-fail banks the G20 and the FSF have already acknowledge the need to charge more capital for such large institutions.

Indeed, some national regulators have already moved to increase the capital required from their own banks: for example Switzerland has already unilateral imposed a 16% capital ratio for its systemically important banks to be phased in by 2013, a ratio that is double the Basel criteria of 8% for Tier 1 and Tier 2. Thus, it would have been appropriate that US regulators request that these 19 banks – that are all deemed to be systemically important – should aim to achieve a TCE ratio of at least 6% – not 4% – equal to the one prevailing in the mid-1990s for all US banks (not just the systemically important ones). The capital needs of all US banks would have been an additional $225 bn (based on IMF estimates) if the TCE ratio were to be increased from 4% to 6%. For these 19 banks a 6% TCE ratio – the minimum justifiable for systemically important institutions – would imply about an additional $100 bn of common equity compared to the estimates of the regulators.

Seventh, considering even only the need for a higher TCE ratio for too-big-to-fail banks – let alone the implications of other factor discussed above that would have increased the estimates of capital needs for US banks – all 19 banks would have required higher TCE. Giving a clean bill of financial health to half a dozen too-big-to-fail banks – including JP Morgan Chase and Goldman Sachs – that have survived this financial crisis only because of the massive direct and indirect subsidies received from the US government is a public disservice in two ways: first, it does not recognize that these banks survived the crisis only because of the government subsidies (liquidity, insurance, guarantees, recapitalization); second, it ignores the fundamental fact that too-big-to-fail banks should have much more tangible common equity than the one that they currently hold. It is reckless behavior by regulators to ignore the too-big-to-fail distortion that derives from excessively low capital ratios and not to start demanding from such systemically important banks additional capital to control for this negative externality.

Indeed, the problem with the current approach to the financial crisis is that the too-big-to-fail problem has become an even-bigger-to-fail problem and that moral hazard distortions from government bailouts have been sharply increased via trillions of dollars committed to backstop the financial system. First, while some significant support of the financial system was necessary and desirable to stop bank runs, reduce serious refinancing risks and avoid a more severe credit crunch the extent of the support and subsidy of the financial system has created the mother of all moral hazard distortions. Second, the current approach to crisis resolution has led to an even-bigger-to-fail problem because of the government inducing relatively less weak institutions to take over weaker ones. JP Morgan took over Bear Stearns and then WaMu; Bank of America took over Countrywide and then Merrill Lynch; and Wells Fargo took over Wachovia. And in the battle for Wachovia Citigroup aggressively fought Wells Fargo not because Wachovia was a sound banks (it was indeed insolvent and bust); it did so because taking over Wachovia would have made a too-big-to-fail Citi an even-bigger-to-fail bank with greater likelihood of government bailout. To put two weak – or near-zombie – banks together is like having two drunks trying to hold each other to stand straight. To resolve this even-bigger-to-fail problem a strategy of taking over near-insolvent institutions and then break them up in smaller, systemically-not-important pieces would have been appropriate. Alternatively, charging much higher capital ratios on too-big-to-fail banks – as optimal according to economic theory – would incentivize them to break themselves up in smaller pieces. But neither approach has been so far followed by US policy makers; and we have thus created the mother of all moral-hazard driven bailout distortions.

Eighth, the figures published by the US regulators are estimates of losses and capital/equity needs of the top 19 banks (those with assets above $100bn). Smaller US banks will have similar losses and capital needs. Based on the results of the stress tests some bank analysts have estimated that 60% of top 100 US banks (beyond the 19 ones in the stress tests) will need more capital/equity. Note that while large US banks (those with more than $4 billion in assets) have about 49% of their total assets into real estate assets the percentage of real estate assets for small US bank (those with assets below $4 bn) is about 63%. Thus, the losses for such smaller banks may end up being larger (as a % of their total assets) than the ones of large banks. The IMF recently estimated the additional capital needs of all US banks to be $275 bn if the TCE ratio is to increased to 4% and $500 bn if the TCE ratio has to go back to 6% (it average level for all US banks before the credit bubble of the last decade).

Ninth, the current muddle through approach to the banking crisis is predicated on the assumption that forbearance and time will heal most wounds of most systemically important banks: generous assumptions on net retained earnings before writedowns – and hope that the economy will rapidly recover – will allow banks to earn their way out of their current massive capital shortages. But while the government will now let banks found to need more equity to raise such equity in the next six months the ability of such banks to do that will be very limited: very few private investors would want to provide capital to a bank with massive expected writedowns, large capital needs and where such private capital investments will be further significantly diluted by a government that will need to increasingly convert its preferred shares into common equity. As it is the government will already soon own 36% of Citigroup and more in the future if Citi needs much more capital and is unable to raise it from private sources. A similar fate awaits Bank of America that now needs to fill an equity gap of almost $35bn.

Tenth, to avoid creating Japanese-style zombie large banks that are near insolvent and kept alive by trillions of dollars of government bailout support it would have been better to take different approaches that minimize the long-term government ownership or control of the financial system. There were three possible alternative approaches that made more sense.

One option would be a temporary nationalization of such near insolvent large banks: take them over, wipe out common and preferred shareholders, have unsecured creditors take some of the losses (haircuts on their claims and/or conversion of their claims into equity), separate good and bad assets and sell a clean-up bank – possible after breaking it up to create smaller pieces that are not too big to fail – as fast as possible to the private sector. This was the strategy followed for Indy Mac that was taken over last summer by the FDIC and sold back to a group of private investors in about six months. Such temporary nationalization option is feasible and orderly even for systemically important banks as long as Congress is willing to pass soon the new insolvency regime for large financial institutions.

A second option would be the approach favored by a number of economists of separating each troubled bank into a good bank and a bad bank and placing bad assets and unsecured claims into the bad bank while providing significant equity into the good bank to the unsecured creditors that would have losses on their bad bank claims. This solution combines separating good and bad assets and converting unsecured claims into equity and it minimizes the fiscal costs of a distressed bank resolution.

A third option would be to induce unsecured creditors – under the threat of a receivership that becomes credible once a special insolvency regime for too-big-to –fail banks is implemented – to convert their claims into equity. Then, the bad assets of the bank can be taken off the balance sheet of the bank via the PPIP program or a number of other alternative ways to separate good and toxic assets.

Each one of these three proposed solutions implies that unsecured creditors of banks take some losses and convert their claims into equity. Instead, the paradoxical result of the current US approach is that – in order to avoid a temporary nationalization of insolvent banks and in order to prevent unsecured creditors of banks from taking any losses – the result is a creeping and increasing partial nationalization of the financial system: the government will have to inject more preferred shares into troubled banks and convert more of its preferred shares into common equity. So, even without a temporary government takeover of the insolvent banks, we will end up with a longer-term partial government ownership of many large banks. To avoid this creeping partial nationalization inducing the banks creditors to convert their claims into equity would be a more sensible solution that minimizes the fiscal costs of the crisis, reduces the moral hazard of government bailouts and keeps more of the banking system into private hands.

The logic of the current muddle through approach is clear (leaving aside the fact that Wall Street is still partially capturing the US regulators and policy makers): providing unlimited liquidity and deposit guarantees to avoid bank runs and refinancing risks; subsidize banks and their rebuild of capital via near zero funding rates, a steep intermediation curve and rising net interest rate margins; hope that the economy recovers faster than otherwise expected (as the green shoots are rising) so that eventual bank losses are lower; hope that forbearance and time will heal most wounds by reducing the eventual level of charge-offs and writedowns and letting bank rebuilt capital via earnings before provisions; ignore moral hazard distortions in the short run while the banking crisis is still simmering and try to reduce such distortions in the medium term with a new and better regime of supervision and regulation of financial institutions; avoid takeovers of large institutions that would be disorderly in the absence of a special insolvency regime for such large banks; avoid the risk that, even in the presence of such special insolvency regime, unintended consequences of a takeover of a large bank lead to Lehman-like consequences; hope that fiscal costs of massive subsidies and bailouts of banks are contained if a virtuous cycle of economic recovery and restoration of confidence in the financial system rapidly emerges; subsidize restoration of securitization (with the TALF) and subsidize the separation of toxic assets from the banks’ balance sheet via government leverage and non-recourse loans (PPIP); avoid a more severe credit crunch via sensible supervisory and regulatory forbearance (mark-to-market suspension of FASB rules; closing regulators’ eyes on the true value of loans and assets; avoid forcing banks to recapitalize too fast and let capital adequacy ratios to slip in the short run; etc.); deal with the too-big-to-fail problem only if/when the crisis is over with higher capital charges once banks can better afford them ; eventually reform the system of regulation and supervision of the financial system.

However, the current muddle through approach of colossal regulatory forbearance and bailout of the financial system has some serious risks and shortcomings (see my two recent op-eds with Matt Richardson in the WSJ and the FT for an elaboration): it significantly increases the fiscal costs to the taxpayer of bailing out financial institutions (their shareholders and creditors); it creates the mother of all moral hazard distortions as literally trillions of dollars of financial resources have been used to backstop the financial system and bailout reckless bankers and traders and investors; it ends up with a persistent and possibly long-term government control and partial ownership of parts of the financial system; it does not resolve the too-big-to-fail problem as big banks are not broken up or given incentives to break themselves up; it risks to keep alive zombie banks leading to a more persistent credit crunch, economic stagnation, deflation and debt deflation; it leads to problems of medium term fiscal sustainability as the large fiscal cost of the bailout of the financial system creates serious public debt dynamics problems over time; it creates a serious exit strategy problem for monetary policy as the tripling of the monetary base and the central bank purchase of toxic and illiquid assets risks to eventually lead to price inflation or to another asset and credit bubble unless the massive creation of liquidity is mopped up as soon as the real economy recovers; and it may end up with a cosmetic reform of the regime of regulation and supervision of the financial system as soon as the financial crisis looks like beginning to bottoming out.

Indeed many Wall Street voices are starting to argue that the crisis is over, that bull times are back, that they don’t need further government support (while still being on the government dole in twenty different Fed/FDIC/Treasury bailout/subsidy programs/funds), that they can repay TARP money (using the $350 bn of funds that they borrowed at near 0% interest rates with a FDIC full guarantee of interest and principal), that the government should not over-regulate the financial system, that controls on bankers compensation are misguided, that no fundamental change of the financial system and of its regulation is needed. This is the self-serving chatter that we are starting to hear from the same reckless lenders, bankers and investors whose greed and wildly distorted bonus/compensation schemes – together with regulators that were asleep at the wheel and believing in self-regulation that means no regulation – caused the worst economic recession and financial crisis since the Great Depression. This is the new spin of those whose fake (as not being risk-adjusted) gains/profits/bonuses were privatized in the bubble times when fake wealth and bubble profits were created and whose trillions of dollars of losses have now been fully socialized and paid for by the taxpayer. Their arrogance is only second to their shameless Chutzpah.

One can only hope that policy makers will resist these siren calls can and design a reform of the regime of regulation and supervision of financial institutions (more capital, less leverage, more liquidity, incentive compatible compensation with a bonus/malus system, higher capital charges to deal with – and possibly break-up – too-big-to-fail financial institutions, global regulatory standards that prevent jurisdictional arbitrage, etc.) that reduce the risk that a financial crisis of this proportion will happen again.

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256694386 Responses2009-05-08+14%3A06%3A56Nouriel+Roubini to “Ten Reasons Why the Stress Tests Are “Schmess” Tests and Why the Current Muddle-Through Approach to the Banking Crisis May Not Succeed”

Sean • May 8th, 2009 at 1:12 pm

Sean is First!!!!

Hong Kong fun manager • May 8th, 2009 at 1:48 pm

first from Hong Kong

Guest • May 8th, 2009 at 1:58 pm

new thread

Anonymous • May 8th, 2009 at 2:21 pm

A despondent tone in the last few paragraphs of the article from Mr Roubini ? Does it mean he is resigned to direction pushed by “Arrogance” and “Chutzpah” winning over his pragmatic and clear eyed logic ?

ptm • May 8th, 2009 at 2:50 pm

Good for you Professor. We all need to keep telling the truth; delivering the straight talk. Eventually people will hear you, understand, and begin to pry loose the financial industry’s tight grip on Washington.

Softwarengineer • May 8th, 2009 at 2:55 pm

WALL STREET JOURNAL CALLS THE CURRENT/NEW FHA LOW DOWN PAYMENT (3.5%), LOW INTEREST LOANS TO “620 OR EVEN LOWER” CREDIT RATINGS THE POSSIBLE NEW 2009 SUBPRIME BUBBLEEconomists can call the subprime mess a million names, but any lender that approves a home sale to an unqualified buyer and backs its risk up with American tax dollars; yet the banksters, appraisors, realitors, etc grab their fees with no risk…sounds like the almost identical bubble reason of the 2000s rearing its same ugly head in the name of “FHA” uncontrolled growth again today, doesn’t it.Can’t we ever learn?

Guest • May 8th, 2009 at 2:57 pm

There was, but they pulled it down again. :-/

30inAugust • May 8th, 2009 at 3:14 pm

not to drag this out, but I just wanted to respond to MM CA on his follow up remark from the last thread:”MM CA,Well said. Thanks for clarifying. I think we all feel marginalized at this point, and need to find ways to regain a sense of control on a personal and local level. As we change our lives, others will notice, and perhaps we can right the ship before its too late.”Reply to this comment By 30inAugust on 2009-05-08 15:07:33

Guest • May 8th, 2009 at 3:26 pm

I have to say, even the good Doctor confuses me. One day he praises Geithner’s response to the crisis, the next day he’s calling stress tests “schmess” tests.I think I read somewhere that these guys still talk from time to time. How do you think that conversation goes:Roubini: “Stress tests, schmess tests. What are you drinking over there at the Treasury, Timmy?”Geithner: “Whatever, Roubi. All that matters is that the masses stay docile. Do you really think they’re going to understand your arguments better than mine? BWAH HA HA!Hey, by the way, I saw your picture on businessinsider.com. How’s that hot blonde I saw you with after your ‘Death of the World Financial System’ speech? Does she have any single friends?”Roubini: “She’s fine. I think. Okay, I don’t know. I really meant to call her back, but I’m pretty busy with my World Doom Tour, you know. And no, she doesn’t have any friends – wait, aren’t you married, Timmy? Oh, wait, not just a tax cheat, I guess…”(both laugh)Geithner: “Well, I gotta get back to work. There’s still a lot of wealth out there to transfer, and somebody’s gotta do it.”Roubini: “Allright. Keep up the good work. You’re giving me all kinds of great stuff to work with. We’ll talk to you soon.”Geithner: “Laters.”I don’t know – that’s just how it played out in my head. Anyone else want to take a shot at it?

Guest • May 8th, 2009 at 3:31 pm

So- the Professor has NOT gone wobbly. Good for you. It may be our only chance.

Direct Blame Correctly • May 8th, 2009 at 3:33 pm

Hopefully now you’ll stop praising Obama, Giethner and Summers for being an all star team who have done a ton in their first hundred days. They’ve done a ton of damage and are reinforcing the crony “capitalism” as if its all their good at. You’ll become a crony economist if you can’t call out your friends for doing lots of harm morally, pragmatically and professionally.

Guest • May 8th, 2009 at 3:34 pm

Roubini was tricked and he sounds a little ticked off. It’s sounds like he’s fully seeing the oligarchic/banker class have our elected officials in their back pockets and the people’s interest is lost with them. Maybe now he can start seeing how globilization was another banker/oligarch trick to pillage the economy. The bankers have been harvesting all our yields and giving us zero seeds for future growth. They continue in a multitude of ways…

MM CA • May 8th, 2009 at 3:34 pm

TY and here is the repost:let me restate… I feel sorry for the younger generations, there is a lot of truth in that, the parents of thelast 20 years did indeed not do enough to inform the younger generation. 2 parent working families, the needfor greed by the “boomers” a totally and ineffective Educational system that has just deteriorated over the last 20years… to those offended, it was not intentional and kudos to those that do and are paying attention andtrying to better themselves. My daughter graduates from college in 2 weeks, she Double majored and completed her college edcucation in 4 years, not 5, not 6 like msot do these days,and will only be 21 at the time of her graduation, but their are NO JOBS at this point other than 20k-30k jobs forher and that is not why she went to school. I am very connected with those in 20-30′s and i do sense their affinityfor Ipods, Gaming, not valuing saving, not fully understanding hard work, they expect to have what thier parents have orhad, but not fully understanding all that is going on now and wanting to help help effect change. The boomers and 40,50,60 somethings that created this absolute disaster and theft of our culturaland finanical morals should be held accountable, but again it was not all of us. in fact most of feel as if we have beenswimming upstream the past 10 years or so… in order to fix any problem you have to understand it first. and I’llend with thier are NO JOBS and NO GOOD JOBS on the horizon so how do we FIX that?Hide reply Reply to this comment By MM CA on 2009-05-08 13:39:31MM CA,Well said. Thanks for clarifying. I think we all feel marginalized at this point, and need to find waysto regain a sense of control on a personal and local level. As we change our lives, others will notice,and perhaps we can right the ship before its too late.Reply to this comment By 30inAugust on 2009-05-08 15:07:33

George • May 8th, 2009 at 3:35 pm

As share prices improove continousely, overvaluing most stocks, I assume the cheep government money is flowing into stock markets blowing up a bubble that will burst within 6 to 12 month when it will be visible that government programms will not have fixed the economic crisis. After that the crisis could accererate severly! No money will be left to bailout anyone, only heavy money printing, generating massive inflation could solve the problem.

MM CA • May 8th, 2009 at 3:46 pm

Sounds like Roubini had some good reasons for laying low and staying quite the last few weeks. He totally went off in this post and i suppose he was just waiting for confirmation and the ability to read the Stress test reults and dig into the numbers before pointing out 10 things he did. whatever his reasons, he sees many pitalls ahaead and little reason for a quick recovery….All i know is I continue to layoff and cut back employees working for me and I see no end in sight…this save/bailout/fix/solution is one big PR scheme/Ponzi Scheme to keep the public “happy”… I like they beleive that they are bailing out wanting to fight another day and some grand fix for all of our economy…. We have crossed into the sphere where none of this makes sense to anyone anymore because of the sheer size of the problem. When we talk about 10 billion, 20 billion, 75 billion as if it was nothing, let alone Trillions, it is impossible to comprehend, at elast for me… Roubini and others understand it better than i or most i suspect, but until there are Solutions and JOBS we are screwed…

puravidavid • May 8th, 2009 at 3:56 pm

“One can only hope…,” because reality will prove that the financializers have been made wealthier at the expense of taxpayers, shareholders and unsecured creditors. The latter two groups should be sheared more than they will be, due to the ignorant largess of the taxpayers who will be milked by Congress for the benefit of their most important constituents: the monied class.

JGU • May 8th, 2009 at 3:57 pm

Thousands of banks go bust, trillions more write downs, big banks insolvent, temporary stock market close, are we going to see these still, my good professor?Your tone seems to have changed.

JGU • May 8th, 2009 at 4:01 pm

Everyone has an agenda, everyone talks his own book. I learned something the hard way through this crisis, trust no one.

Bob • May 8th, 2009 at 4:18 pm

What are we looking at here? Inflation like it’s Weimar Republic? What are our honest chances of this unwinding quickly enough to self destruct the USA, (riots, revolution, cats and dogs sleeping together)?This sucks. Professor, I’ve been following you for several years, and some of your posts recently have been pretty cheery on Geithner and the current administration’s actions. It seemed a little hinky to me. I’m glad you’re back fair and straight again. So what happens now and when do we run out of rope?

Guest • May 8th, 2009 at 4:23 pm

In order to justify the stressfulness of the stress tests, folks keep repeating the line that the estimated losses would be worse than the Great Depression. That’s somehow supposed to be reassuring, and it appeals to the (entirely psychological) idea that however bad things get, the Depression is surely the low mark.But this is purely false comfort. The massive loan losses we’re seeing are simply the result of an economic downturn — it’s the result of an economic downturn coming on the heels of a period of horrible lending profligacy. Subprime, alt-A, no-doc, cov-lite, HELOC… all kinds of garbage was lent out.And besides, the crisis is fundamentally different than the Great Depression — Back then, the banks were fairly sound, and truly suffered a crisis of confidence. Now we have FDIC guarantees, guaranteed overnight lending and other measures to stave off the crisis of confidence, but gloss over the crisis of bank losses.So, sorry, this particular Great Depression comparison doesn’t do much for us.

Guest • May 8th, 2009 at 4:40 pm

I guess the Good Professor may not be obtaining a position anytime soon with one of the 19???

devils advocate • May 8th, 2009 at 5:15 pm

Dr. Roubini (and Paul Krugman in today’s NY Times) are saying the Govt is gamblingon creating a “recovery” to bail out the banksand the Govt is really going all out to fill the media with “good news”the USA – and China and Australia – are bottomingfactory production is beginning to rise, the stimulus is startingto kick in, and workers asre beginning to work more etc.big news! -stocks keep going up heralding the “recovery”I hope they win the bet

Anonymous • May 8th, 2009 at 5:58 pm

No actually, that was brilliant

Pecos Banker • May 8th, 2009 at 6:00 pm

As Roubini says, the current muddle through approach is based on “hope”: “HOPE that the economy recovers faster than otherwise expected (as the green shoots are rising) so that eventual bank losses are lower; HOPE that forbearance and time will heal most wounds by reducing the eventual level of charge-offs and writedowns and letting bank rebuilt capital via earnings before provisions; ignore moral hazard distortions in the short run while the banking crisis is still simmering and try to reduce such distortions in the medium term with a new and better regime of supervision and regulation of financial institutions; avoid takeovers of large institutions that would be disorderly in the absence of a special insolvency regime for such large banks; avoid the risk that, even in the presence of such special insolvency regime, unintended consequences of a takeover of a large bank lead to Lehman-like consequences; HOPE that fiscal costs of massive subsidies and bailouts of banks are contained if a virtuous cycle of economic recovery and restoration of confidence in the financial system rapidly emerges…”So naturally, one wonders, what is the basis of this HOPE? It’s nice to know that our fearless leaders have considered all aspects of the crisis and have decided on a course of action solidly based on HOPE.As for me, I HOPE as a taxpayer that I am not unduly burdened by a heavy tax burden to pay off Obama’s hope-based subsidies of the financial system. Alternatively, I HOPE that the dollar will not tank and that double digit stagflation will not ruin my retirement. HOPEFULLY, basing everthing on HOPE will give us reason to HOPE.

Hayes • May 8th, 2009 at 6:01 pm

“This is the new spin of those whose fake (as not being risk-adjusted) gains/profits/bonuses … One can only hope that policy makers will resist these siren calls … “___________It may be spin but it would appear that Turbo and his friends won the day -and as for policy changes – not a chance. Turbo, Summers, Rubin et al are counted among the authors of this crisis and “coincidentally” were summoned to resolve it. Why would one expect anything other than the outcome we are now experiencing. The corruption runs to the bone – Stephen Friedman, Chair of the NY Fed (Turbos former boss) resigned admist allegations of self dealing – e.g. he sat on Goldman’s board and was scooping up Goldman’s shares at the same time the Fed and Treasury were lining Goldman’s pockets.To think that somethine (anything) positive can come from this crisis is not realistic. The banksters are in control. They have won the day (though ultimately they and we will all lose).

rfreud • May 8th, 2009 at 6:18 pm

Yeah, Roubini has it about right, except perhaps when it comes to policy prescriptions. Here is my list of disagreements:One, The idea that a big problem bank can be washed through some kind of government process and turned back out on the street ready to make loans for economic purposes is pure hypothesis. Not IndyBank or anything else every handled by the FDIC or any bankruptcy court is of the magnitude of something like Citigroup or Bank of America.Two, The idea that once cleansed of problems and reprivatized with new capital, banks will be making lots of new, safe loans is at odds with a weak economic forecast–attractive new lending opportunities will not be robust until the economy is well into an upturn.Three, a moratorium or standstill on payouts to bond holders and preferred stock holders would increase banks’ retained earnings without necessitating conversion, haircuts, nationalization, etc. and all the disruptive precedents that follow. Those things may come before it is over, but for now why not maximize the earn out strategy, using existing FDIC enforcement authority.Four, as depositors, bondholders and taxpayers we need to be keeping our eye on the exposure of the FDIC with respect to insured deposits and bond guaranties. Yesterday, the Senate approved a $500 b Treasury line of credit for the FDIC. When the FDIC takes over a bank, it has to pay out on insured deposits and bond guaranties that are not covered by the proceeds of liquid assets. The applicable ratio is the acid test of cash, readily marketable securities at market and performing loans. Better stated, anything which is not unquestionably money-good, in the moment of the test at least, is to be excluded. This type of test is a natural complement to the type of forward looking stress test that has been so much the focus today. I fear the news relative to the solvency of the FDIC’s insurance reserves will be bad. The IMF’s numbers say as much. The TARP and other forms of “below the line” government support could well appear to be a sunk cost of holding the system together during the cardiac events of last Fall.Five, the government needs to start acting like it is the senior secured creditor dealing with an insolvent debtor, which in fact it is given the FDIC exposure. That is not inconsistent with protecting the system to everyone’s benefit.Six, as a policy direction, let’s unwind last year’s oddity of pushing broker-dealer investment houses to obtain bank charters and let’s start to withdraw Federal support from trading operations. Let’s get a clear definition of the banking function that is properly to be subsidized in hard times as distinct from everything else that so-called banks are doing today. Let’s stop counting credit default swaps and credit insurance in the calculation of capital.

Guest • May 8th, 2009 at 6:48 pm

The problem is mind set TPTB believe with all their hearts that an economy is driven through credit and not higher wages. They believe credit creates higher wages when it’s pretty obvious to me that jobs and good wages allow for the creation of credit. Over the long haul credit is really a way for the few to hoard or earn interest on their excess, but it comes on the back and expense of productivity. There is nothing new here it goes back to biblical times with excessive usury. It always ends in the same way-destruction which then leads to revolt and usually turns into a dark age.

Guest • May 8th, 2009 at 6:52 pm

I have very little money in J.P Morgan Chase but as soon as it is appropriate I will start banking at a small bank, that’s really our only way to fight back since elections are rigged.

Guest • May 8th, 2009 at 7:01 pm

A moratorium on bondholders- that’s pretty imaginative. Seems to be a big difference between manufacturing bondholders and housing or bank related bondholders. These banks and Geitner actually believe they can kick start the derivative industry, it will never be the same and without the FED stepping in to basically underwrite every single loan out there the system will collapse. There is no confidence in these banks or their instruments, avoiding transparency is ultimate suicide.

GSM • May 8th, 2009 at 7:21 pm

Comparisons between the GFC and the Great depression as it applies to the US now are misplaced. For the US experience they differ entirely. Meaning, this time the damage done will be much worse. In one word it can be summed up- COLLATERAL.In the 20’s the US was the worlds creditor. It was also the world’s factory. It was the favored place to invest in production, manufacturing etc. New and highly valuable technologies were being developed and then viably produced and sold worldwide. The US had real assets and real production for goods in serious demand. The Depression wiped out capital and shattered asset values, but the residual strength of the US then in it’s economy, savings and manufacturing industries ensured that COLLATERAL was there to support a return to future growth. A destructive World War helped to quickly correct the overcapacity issues. The US then prospered mightily again.Now it’s all entirely different. Over the last 3 decades the US manufacturing sector has been hollowed out, gutted. Cheap DEBT provided by Banks has provided the fuel for the US economy(not manufacturing , savings or production) and propelled asset prices. US Wages have stagnated as jobs, manufacturing and technology (save military related) fled overseas. In order to grow, the US grew it’s debt burden- massively. Public and private debt. US total debt and commitments are now more than 200% of GDP. Unfunded liabilities create a vastly greater burden of debt. And it’s all still sitting there.The US economy therefore essentially IS debt/credit. But debt/credit requires collateral. In it’s greed and stupidity, the US has destroyed the one thing that underpins it’s debt/credit based economic model. The COLLATERAL of it’s consumers. The housing stock. Property. Collateral has collapsed and is still collapsing. This is a death spiral for a credit based economy.This is the nightmare formula for a credit/debt based economy;Impaired collateral= minimal credit = stalled commerce = COLLAPSED ECONOMY.Businesses as we can see , is rapidly downsizing it’s capability and capacity to meet the much lower levels of demand emanating from a collapsed economy.Unsecured credit (credit cards)may still be available, but you can be sure that this will be at much reduced levels and higher costs. So in THIS type of economy one may well ask ;from where the recovery will come? And in a debt/credit based economy reliant on service industry jobs ; from where will come these new jobs to re-employ the 10+millions of un/under-employed who have been effected by this GFC so far (U6 series)?Because unlike the GD, I believe there is a new dynamic at play here. In the current model debt/credit based economy where SERVICES are so hugely important, massive job losses like now are not a temporary phenomenon. Job losses in this dynamic (jobs piggy backing off other jobs) are destroying future prospects of Service type jobs, making those type of job losses permanent job losses. They are not coming back. If my assumptions are correct about this debt based economy dynamic, for the foreseeable future (at least 5-10 years), the US economy cannot possibly grow enough to create the jobs (mostly service based) its increasingly unemployed population will need. The US , to me at least, seems to have entered a self perpetuating downward cycle of negative growth and rising unemployment – in this current economic model. And to where does that lead?While the question- “where are the job’s” is very important, “WHERE IS THE COLLATERAL?” is the question that needs to be answered.I think we see the answer now. It is Gov’t. Unless the Gov’t provides all or most of the collateral, borrowing and credit will more or less stop in the US and so will the US itself.I think I see now clearly why China has chosen this point to begin publicly voicing it’s serious concerns over the US’ ability to service it’s debts. Like me they see the US embarking down a worm hole leading straight towards the 2 disasters of hyperinflation and/or default . Because it is now abundantly obvious that for the US economic model to continue, the US Govt/Fed must become the bank – the US’ only bank. An unsustainable situation for a debt based economy. And this requires a whole lot more money – all of it newly printed to buy all that new debt.That is where all this leads.

Rcoutme • May 8th, 2009 at 7:42 pm

We can, Congress can’t.

Rcoutme • May 8th, 2009 at 7:48 pm

I see no ‘real’ difference in Roubini’s messages. He was always saying that there were problems. He also CONSISTENTLY maintained that the Stress Tests were nothing of the sort.

Rcoutme • May 8th, 2009 at 7:56 pm

You are wrong. Small banks will get gobbled up by bigger ones. Already FDIC is planning to jump their premiums–and guess who takes it up the wazoo. You guessed it, the small banks. The FDIC is charging based on % of moneys that are deposits. Small banks have a much, MUCH higher percentage that are deposits. The big guys have bonds (which do not count as deposits, even though the government is now guaranteeing those as well) so they will pay less proportionately than small banks.

WJH • May 8th, 2009 at 8:31 pm

Not to mention the government subsidizing the automotive industry: GM, Chrysler, GMAC, Chrysler Financial. At least another $100bn for just this year!

Guest • May 8th, 2009 at 9:23 pm

The most popular book in the white house now adays is “Animal Spirits”

redleg • May 8th, 2009 at 9:34 pm

Even if they win the bet, what has fundamentally changed since mid- September?Even winning their bet can only buy (rent?) a reprieve before reality kicks in again.Debt and cash spend the same, but you have to pay one back…

MM CA • May 8th, 2009 at 9:46 pm

My daughters name is HOPE and I “hope” for her that she does not have to pay the price for all this greed and theft of our social and financial morals as a country… BTW- yes one is 21 and HOPE is 2 years old… The choices that have been stolen from the youth of our nation is a disgrace… Short sellers, electronic traders, CC fees, Huge bonus payments, corrupt and if corrupt, STUPID political leaders…. What a mess we have become…. I do “hope” we all stand up and are counted and help fix this mess for the future generations, inlcuding my Daughter Hope…

MM CA • May 8th, 2009 at 9:50 pm

so the rich get richer and the honest get F..ked again… so many details, so many scams, so many payoffs, no wonder we cant solve anthing… The govt and the PTB and the banks and Wall street and Corporate Honchos are almsot all corrupt and greedy and intent on pretecting thier kingdoms, Americans be damned…

MM CA • May 8th, 2009 at 9:52 pm

GREAT POST GSM!

PeteCA • May 8th, 2009 at 10:05 pm

GSM … all that vanishing collateral is underpinning a gigantic system of financial derivatives – negotiated by the Wall Street banks. This situation can’t survive.PeteCA

GSM • May 8th, 2009 at 10:35 pm

PeteCA,You are absolutely correct.The fictitious capital of the derivitive mania has long since been vapourized. Untold Trillions, all gone.It leaves a black hole on the balance sheets of all effected banks/agencies that the stress tests (enabled by FAS157) were designed to specifically ignore. Into that bank/agency balance sheet void has rushed the US Gov’t/Fed , busily fabricating the illusion of credit (err Taxpayer funded debts) to keep the US credit economy from completely shutting down.In this dynamic, US paper is TOAST. I’m with the Chinese on this one.

Guest • May 8th, 2009 at 10:47 pm

You got it, GSM!

ptm • May 8th, 2009 at 10:47 pm

Behind this faltering economy and probable 10-year low, are fixed resources and a world population doubling in 60 years. To oil and feed this doubling, we will have to find, extract, and burn as much oil that has ever been burned in the last 100 years. And we have to grow more food than all the food that has ever been grown in the history of mankind since each doubling requires the same amount of resources that were consumed leading up to the doubling.So here is the truth, we have to prepare our children that (unless they climb the political power latter) life will never be as good as it is now. And life will become more and more difficult as they get older.

Chignos • May 8th, 2009 at 11:20 pm

Here’s the deal. Regardless of what all the intellects, Geithners, Bernankes try to do, the Americans are gonna do what they have to to make $ for themselves. And most of them will be moral about it, they won’t sell drugs. But they also won’t suck for the central gov’t propaganda about how they ought to participate in the public-private partnership to rid our society of the toxic assets the nitwits on Wall St. have invented. To Hell with their derivatives–or, putting it more mildly, no thank you, I’ll just stay in cash for now.There’s a whole lot of polite intellectual discussion and argument (and hollow political posturing) going on around this “financial crisis situation.” But when it comes right down to it, those wise who will make the decisions will do right and lead. All the rest will follow and figure out what happened later (and wish they had made specie).

MM CA • May 8th, 2009 at 11:24 pm

NO JOBS will evetually lead to No Collatarel also..The US govt cannot get blood out of rocks (aka the unemployed) who they goimg to tax to prop up the current collatarel and future collatarel needs? the rich? LOL…. US dollar is starting a long and steep decline.I think Roubini sees the future in this post… He knows the current fixes are not working and the only way to make remaining Collateral worth something and keep the dollar from crashing is some form of takeover of the banks… It might not be for 6 months or even up to a year… But Roubini will point to this post I believe quite a few times over the next year…

Chignos • May 8th, 2009 at 11:28 pm

Don’t split your infinitives…….”to basically underwrite.” forget ever using the word “basically,” =====it reveals you’re young…..a rookie writer. Also, it’s Geithner, not Geitner (though it’s pronounced the same).

Anonymous • May 9th, 2009 at 12:00 am

The “good professor” seems to have lost the plot. He has missed the bottom of the bear market and proved that he was just lucky that his naturally pessimistic personality called the top in 2006 a year before the true top in 2007.

Guest • May 9th, 2009 at 12:02 am

I had always assumed it was “Animal Farm”

george harter • May 9th, 2009 at 12:18 am

It is too bad you are SOO correct. What is wrong woith us, why can’t we enjoy being cheerleaders for a Scumocracy???George Harter, USA

Guest • May 9th, 2009 at 4:30 am

The stress test was mainly for foreign investors,so they don’t pull their cash out of US.

paul94611 • May 9th, 2009 at 4:42 am

There is another path to consider in all of this. Many either believe that we face a threat of deflation or inflation. I suspect that what we may well be faced with is a situation where asset values, wages and the cost of finished industrial goods continue to deflate while the governments of the US, UK and the Eurozone and many of the businesses and individuals of these economies face the prospect of debt inflation.I suspect that we may well be on the way to seeing the 30 years treasury at 6% in the not so distant future, regardless of the efforts at QE the federal reserve may employ. Many of those that find themselves in a dollar trap are bucking at the idea of continuing down that road without sovereign guarantees that their holdings will not suffer the ravages of lost value through inflation. However, without these same folks commitment to the current debt financing structure, indeed increased commitment to the current structure then we will witness much more of what we witnessed this past week with respect to auctions of the long bond.I have to consider the potential that the efforts by our financial leadership, both in and out of government ( who can tell the difference anyway) to pin their hopes upon the supposition that the green shoots currently so touted will create a great wave of optimism that will lift all boats. This while ignoring the root causes of the current crisis and the baked in losses yet to be realized will subject us all to the prospect that we will not only get another leg down in assets values and the rest, but will watch while the fed is held powerless to stop the rise in sovereign interest rates with the resultant costs to all.We will see……Thoughts anyone?

The Sniper • May 9th, 2009 at 4:53 am

“price is what you pay, value is what you get” said The W(ise) B(shter) of Omaha. Quiet true, but not in the sense he intended, i.e. buy oversold shares of companies with sound long term prospects. My interpretation is: you give real cash in exchange of the difference between hard liabilities, in the left hand column of a balance sheet, and the “value” of a bunch of assets, therefore assuming that those assets are actually worth more than their fairy tale “price” as per the BS column of said BS

Rohelio • May 9th, 2009 at 6:05 am

Thanks for a taste of reality, NR. Reminds me of lining up in front of the frig with all my siblings to get mom’s bitter spoon full of cod liver oil. Not tasty but you knew it was good for you.Nostalgia also takes me back to a time before I became aware that I was growing up in a violent and corrupt society.Today, the medicine that is needed is not a spoonful of vitamin enhancement. This illness is chronic and has far deeper roots. It is a disorder that afflicts both the patients and the caretakers.Diversity still exists on this planet and there are reservoirs of healthy living. My hope is that they can survive and flourish.

Anonymous • May 9th, 2009 at 6:20 am

At the end of the sixth paragraph of the tenth point (starting with the text “The logic of the current muddle…”) Nouriel states :”; deal with the too-big-to-fail problem only if/when the crisis is over with higher capital charges once banks can better afford them ; eventually reform the system of regulation and supervision of the financial system”However, significant reform is unlikely to happen since one of two things will occur : either the current financial system collapses or it eventually ends up on its feet again. In the former case there is little left to reform and in the latter case there will be little incentive to reform.Nouriel does seem to admit this himself later with the statement in the following paragraph :”; and it may end up with a cosmetic reform of the regime of regulation and supervision of the financial system as soon as the financial crisis looks like beginning to bottoming out”As long as Wall Street is capturing US regulators and policy makers there will be no change to status quo : i.e. do everything possible to rescue the prime stakeholders of the financial institutions (executives, creditors and shareholders – I intentionally exclude employees and taxpayers who lack influence).Has the USA discovered a new and improved version of capitalism (socialism for the rich) and is the price emulation of Japan?Where would we be without Nouriel’s analysis?

Hayes • May 9th, 2009 at 6:43 am

A suggested read from ZH (David Rosenberg’s final offering)http://zerohedge.blogspot.com/2009/05/green-shoots-or-rose-colored-glasses.htmlexcerpt“January’s 741K decline (employment) was likely the worst we will seeAt the risk of shooting the green shooters, let’s really assess the situation. Barring a catastrophe, it certainly looks as though the -741,000 print we saw in January was very likely the worst decline we will see in this recession. We won’t dispute that. But when you look at other cycles in the post-war era, what we see is that four months after the largest payroll decline, the losses are either negligible or we are actually swinging to positive job growth.Employment has never been this weak before at this stageSo, the most appropriate way to examine the data is to see what the labor market looks like at this stage – four months after the biggest monthly collapse – and we have news for you: We are losing 539,000 jobs, or 0.4% of the workforce. In fact, employment has never been this weak before at this stage – a full four months after the worst figure. Not once. This post-credit collapse/asset-bubble burst cycle remains an enigma, and we strongly believe that investors today who are buying stocks and selling bonds in anticipation of a sustained reflation trade are going to end up as disappointed as they were under similar conditions in 2002.”

Hayes • May 9th, 2009 at 7:14 am

Banks Won Concessions on Tests Fed Cut Billions Off Some Initial Capital-Shortfall Estimates; Tempers Flare at WellsWall Street Journal May 9, 2009By DAVID ENRICH, DAN FITZPATRICK and MARSHALL ECKBLAD

The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation’s biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining.In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits.The overall reaction to the stress tests, announced Thursday, has been generally positive. But the haggling between the government and the banks shows the sometimes-tense nature of the negotiations that occurred before the final results were made public.Government officials defended their handling of the stress tests, saying they were responsive to industry feedback while maintaining the tests’ rigor.When the Fed last month informed banks of its preliminary stress-test findings, executives at corporations including Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. were furious with what they viewed as the Fed’s exaggerated capital holes. A senior executive at one bank fumed that the Fed’s initial estimate was “mind-numbingly” large. Bank of America was “shocked” when it saw its initial figure, which was more than $50 billion, according to a person familiar with the negotiations.At least half of the banks pushed back, according to people with direct knowledge of the process. Some argued the Fed was underestimating the banks’ ability to cover anticipated losses with revenue growth and aggressive cost-cutting. Others urged regulators to give them more credit for pending transactions that would thicken their capital cushions.At times, frustrations boiled over. Negotiations with Wells Fargo, where Chairman Richard Kovacevich had publicly derided the stress tests as “asinine,” were particularly heated, according to people familiar with the matter. Government officials worried San Francisco-based Wells might file a lawsuit contesting the Fed’s findings.The Fed ultimately accepted some of the banks’ pleas, but rejected others. Shortly before the test results were unveiled Thursday, the capital shortfalls at some banks shrank, in some cases dramatically, according to people familiar with the matter.Interactive CHART (1) scroll down Interactive CHART (2) scroll downBank of America’s final gap was $33.9 billion, down from an earlier estimate of more than $50 billion, according to a person familiar with the negotiations.A Bank of America spokesman wouldn’t comment on how much the previous gap was reduced, though he said it resulted from an adjustment for first-quarter results and errors made by regulators in their analysis. “It wasn’t lobbying,” he said.Wells Fargo’s capital hole shrank to $13.7 billion, according to people familiar with the matter. Before adjusting for first-quarter results and other factors, the figure was $17.3 billion, according to a federal document.”In the end we agreed with the number. We didn’t necessarily like the number,” said Wells Fargo Chief Financial Officer Howard Atkins. He said the company was particularly unhappy with the Fed’s assumptions about Wells Fargo’s revenue outlook.At Fifth Third Bancorp, the Fed was preparing to tell the Cincinnati-based bank to find $2.6 billion in capital, but the final tally dropped to $1.1 billion. Fifth Third said the decline stemmed in part from regulators giving it credit for selling a part of a business line.Citigroup’s capital shortfall was initially pegged at roughly $35 billion, according to people familiar with the matter. The ultimate number was $5.5 billion. Executives persuaded the Fed to include the future capital-boosting impacts of pending transactions Static CHART (3) SunTrust Banks Inc. also persuaded the Fed to significantly reduce the size of its estimated capital gap to $2.2 billion, after identifying mathematical errors in the Fed’s earlier calculations, according to a person familiar with the matter.PNC Financial Services Group Inc., saw a capital hole materialize at the last minute. As recently as Wednesday, PNC executives were under the impression they wouldn’t need to find any new capital, according to people familiar with the matter. Thursday morning, the Fed informed PNC that it had a $600 million shortfall.Regulators said other banks also were told they needed more capital than initially projected.The Fed’s findings were less severe than some experts had been bracing for. A weeklong rally in bank stocks continued Friday, with the KBW Bank Stocks index surging 10%. Investors were especially relieved by the relatively small capital holes at regional banks. Shares of Fifth Third soared 59%, while Regions Financial Corp.’s $2.5 billion deficit led to a 25% leap in its stock.With the stress tests, government officials were walking a fine line. If the regulators were too tough on banks, they risked angering their constituents and spooking markets. But if they were too soft, the tests could have lost credibility, defeating their basic confidence-building purpose.All the back-and-forth is typical of the way regulators traditionally wrap up their examinations of banks: Regulators often present preliminary findings to lenders and then give them time to respond. The process can result in changes to the regulators’ initial conclusions. Some of the stress-test revisions, for instance, were made to account for the beneficial impact of the industry’s strong first-quarter profits.On Friday, some analysts questioned the yardstick, known as Tier 1 common capital, that regulators chose to assess capital levels. Many experts had assumed the Fed would use a better-known metric called tangible common equity. Static CHART (4) According to Gerard Cassidy, an analyst with RBC Capital Markets, the 19 banks’ cumulative shortfall would have been more than $68 billion deeper if the government had used the latter metric, which accounts for unrealized losses.Federal officials said their projections reflected the most comprehensive analysis ever conducted of the industry.The test results showed that the 19 banks faced a total of $599 billion in losses over the next two years under the government’s worst-case, Depression-like scenario. The Fed directed 10 banks to add a total of nearly $75 billion to their capital buffers to insulate themselves from potential losses.Banks pressed ahead on Friday with plans to fill their capital holes by tapping public markets. Wells Fargo raised $7.5 billion in stock through a public offering. The bank originally planned to raise $6 billion, but expanded the offering, which was valued at $22 a share, due to robust demand. Shares of Wells Fargo rallied $3.42, or 14% to $28.18.Morgan Stanley, which is facing a $1.8 billion capital hole, raised $4 billion by selling stock. Shares of Morgan rose $1.06, or 4%, to $28.20.

http://online.wsj.com/article/SB124182311010302297.html

MM CA • May 9th, 2009 at 7:39 am

Interesting about the 4 months trend… and the beat goes on when all the Chryslar layoffs hit, GM shuts down for a few months and the auto part suppliers keep shutting down…so with the 750 billion dollar stimulas that Obama got passed in Feb to save and create 3.5 million jobs as he promised during his campaign and so eloquantly informed us when the 750B did pass, we have nnow effectively rendered that stimulus nuetral with the loss of 3.5 Million jobs the last 6 months. And thats if you beleive that stimulus even created or saved one job. Obama and the Idiots he has advising him had better figure out how to tell the voters in 3 years why he should get re-elected when he never fixed the JOBS problem. in three years we could very easliy lose 15 million more jobs by current measuremnet standards. that folks is roughly 400k a month. it coudl be more…. that would be over 20 million jobs lost during the his 4 years…. True he inherited this problem as he keeps saying, but the free ride is over….. no one gets a 4 year pass…

Hubbs • May 9th, 2009 at 7:39 am

From New York Times2 Banks Cited in Stress Tests Find Ready InvestorsBy GRAHAM BOWLEYWells Fargo and Morgan Stanley quickly raised more than $15 billion between them, easing concerns about luring private investors to recapitalize the banks.Operative word is LURING.All of this seems to contrived to me. Delays in reporting the results of these stress tests suggest that someone had to line up investors ahead of time to mitigate the result.It is not a stretch of my imagination to believe that:1.) The stress test was contrived to placate the fears of the public.2.) In order to make the test appear meaningful, some sort of bar had to be established such that some institutions would fall short, but not too short.3.) That Wells Fargo and Morgan Stanley with the help of the Govt. and its surrogates may have had these investors lined up before the stress test results were announced, and with the goal of a quick follow through to show that these banks, despite falling below the “standards” of the stress test, were able to “privately” raise additional capital. HOW CONVENIENT!Indeed, we are living in treacherous times.

devils advocate • May 9th, 2009 at 7:55 am

I officially announce Dr. Roubini’s coinage of “schmess”as in”don’t schmess me up”"they schmessed up”"what a schmess up!”"schmess you!”——————————–The Schmess Betscenario 1the US consumer is back schmessingenough to bolster the banks once againresult:the US dollar gradually weakens as it schmesses (loses its safe haven appeal)oil rises to $75-100 barrelscenario 2the US consumer doesn’t schmess enoughdespite Govt stimulus/infrastructure spendingthe Govt has to print more money to cover the banks’ lossesresult:the US dollar fallsbecause Australia, Asia and BRIC rebound and their currenciesstrengthenthe IMF replaces the US dollar with SDRs as the world currencythe US borrows from the IMF but is required to tax more and cut its budget:the US dollar weakens/falls in both scenarios:gold rises as a hedge against this (and as a hedge against inflation/chaos)(chaos is a complete schmess)

devils advocate • May 9th, 2009 at 8:11 am

very sharp post!I really appreciate your accurate sum-upmy post above sees no way for US dollar but to weaken/fall tooeven if US slowly adds back jobs/home prices rise (more collateral)

Hayes • May 9th, 2009 at 8:13 am

Obama will, with out any doubt win a second term. Here’s what you want to think about – Michelle 2016 — the campaign has already started. The audience for her Sesame Street appearance will just be turning voting age about that time. Belive it, Michelle Obama will not only run in 2016 she will win.

MM CA • May 9th, 2009 at 8:17 am

NO JOBS, NO JOBS, NO JOBS- so whats the fix? here is one:Ask yourself how much have we injected into saving, fixing , bailing out Banks, Wall Street, Auto’s, Fannie, Freddie, China? by most estimates it is TRILLIONS… is it 4 trillion, 6 trillion, 11 trillion – probaby something in those numbers. Now what have they all done with that money? Most of the receipients of the “Trillions” have themselves made massive job cuts and layoffs. That alone tells me they dont feel they will need the workers moving forward to service the economy because they also see no JOB Creation.So back to the fix:There are probably 50 consistent posters on this site and another 50 or so who all contribute. Everyone writes well, thinks intelligently, comes across as caring for the country and its people, seems smart, seem like they have business backrounds… another words, Good people. So take those 100, Make Roubini the CEO, start a company and ask Obama for 1 Trillion in hard cash to run a buisiness that actaully creates jobs. here is what 1 trillion can create:My Plan Annual Cost Employees Salary Bene$1,000,000,000,000 $70,000 14,285714 $50,000 $20,000$2,000,000,000,000 $70,000 28,571429 $50,000 $20,000My Plan Annual Cost Employees Salary Bene$1,000,000,000,000 $84,000 11,904762 $60,000 $24,000$2,000,000,000,000 $84,000 23,809524 $60,000 $24,000Now we have just employeed over 14 million at 50K annual salaries, with full health, 20 paid vacations days, 401k/pension contributions – another full benefits. Cost 1 Trillion. I threw in scenario’s for what 2 trillion would do and also if everyone made 60K annually. Most fortune 500′s average about 30-40% in fringe costs. samller companies less. so i took the higest rate of 40%. make sure everyone is covered and not on the cheap. So everyone is already poking holes… What about overhead costs, facility costs etc…it all depends on what these folks do. right now they are employed doing nothing… so there are no fixed costs other than small administration costs for payroll and benfits. How about a Green energy company prodcuing solar, wind, alternative products for commericial and residential consumers throughout the country. It includes installing and maintaing these products… Get Boone Pikens to run it and have Roubini manage the $$$$ Rememebr everyone makes the same salary for now.Now figure that income taxes on this company and all the workers could effectivley return 150 Billion – 250 billion back to the gov’t annually. But the first three years of this effort, those taxes that would be paid have to be used for the overheads required to run a company this big.. for the company buy the materials needed. Revenue generation/prices for the products and serivces would be made afforadable to all.to sum it up- give me, give us 1-2 trillion and we could create anyhwere from 11 million to 28 million jobs depeneding on the amount received…But no instead, we have chosen to go down the roads of portecting and funneling Trillions the PTB that could care less about JOBS and JOB creation.The above is jsut to point out hwo the money should be used and sure anyone could poke holes in it, but its rough and high level. But i am convinced i could find 100 people form this site that could make soemthing similar work.

hektor • May 9th, 2009 at 8:19 am

Great post, although quite depressing given the situation. What we really have in the United States is a “Ponzi Economy”, a term Nouriel used a while back. The question is how (and when) will we ever be able to transition back to an collateralized economy instead of one simply supported with debt? Unless we become a major producer/exporter of value, real economic value, the wages of the working population will have to fall in line with the rest of the world which will mean a severe alteration in our collective standard of living. There is only so much money that can be created without underlying collateral – although I’m sure the treasury will try to push it as far as they can. In the meantime, our motto should be “Keep China Happy.”

Guest • May 9th, 2009 at 8:20 am

i think what they did was they converted preffered stocks that fed owns to common stock.

MM CA • May 9th, 2009 at 8:29 am

they each invested in each other… they are investing in each other with the bailout money they received… how many americans went out this week and bought stock in these Banks… answer – none… its 3 Card Monty aka enahanced Ponzi schemes… you are right on in your views…

Bakunin • May 9th, 2009 at 8:32 am

After the Potemkin villages, the Potemkin banks.I just spent 12 min. watching Bloomberg Propaganda Network, heavy artillery let loose. Interview of 2 renowned (unknown by me) financial sector analysts. Banks are a screaming buy, grossly overcapitalized, still trading at 1/3 of alltime highs after a 100% rally, and will revisit those highs by 2013, thanks to rapidly improving fundamentals, don’t wait until it’s too late to jump on the wagon, last time they were so overcapitalized was 1993, and look where they were 5 years later.

MM CA • May 9th, 2009 at 8:38 am

so at the end of the day, the banks who got us in this mess, got thier way and will explain future losses and problems at a later date… How in the F..k can they be trusted… As roubini has stated over and over they need to be taken over. this is jsut one big vicious cirle where they suck us in, F..k us and then do it over and over again.. i truly beleive they are so arrogant that they think they can continue liek this for ever. that is arrogance and schemeing attitude is eventually what brings any company or person down. Look no furthur than Madoff… the ? is when will they go away?

Apocalipstick • May 9th, 2009 at 8:44 am

Millions of delinquent homeowners would suddenly become good risks if they could buy their mortage at 50% discount with a refinancing loan at libor + 1pt; they might even be able to repay their credit card balances and save some money. But the powers that be preferred using those juicy spreads to make banks look profitable and solvent.

paul94611 • May 9th, 2009 at 8:49 am

About 70K of the gain in April employment came from the seasonal employment of mostly part time census workers. This is the first of an estimated 1.4 million that will be hired over the next three quarters for this task on a temporary not to exceed 2 year program. I suspect that in no other post war recession has there been such a seasonal employment input from the public sector. Without these inputs the employment picture would look much worse with April’s numbers reflecting one more month of 600K+.There is another little discussed item in the April numbers, both here and in Canada. That is the weight government officials are giving to the newly “self employed”. What I have noticed over the past year is an elevated number of projected increases in employment by small business. Since the hard numbers from last year indicating record failures in this sector I had been wondering how the BLS would address this issue and we now have the answer.I agree completely that we have here to fore never witnessed such prolonged sustained weakness in the employment picture after reaching a peak. However, after reviewing many of the recent statements made by fed officials and others I can only surmise that as the year progresses we will hear more and more regarding a permanent change in the context of how “full employment” is viewed. However one slices it I suspect that we will be looking at a U6 > 15% for a minimum of 2 years and perhaps as many as 10 from today. This will have consequences few appreciate as so many appear to be doubled over in the quest to observe those green shoots in action.Your observation that the equities/bonds debate is likely to disappoint many I believe is an understatement. Although we may well be entering a bear market for sovereign debt there is ongoing excellent fixed income opportunity in the better half of investment grade debt. Especially when compared to the equities + dividends in the same firms.Thanks for an excellent post.

Guest • May 9th, 2009 at 8:55 am

I would be cautious of fair use and posting a complete article. In order to protect this site from issues arising from this I would suggest you block quote the highlight of an article with the link up front.This article was an excellent catch though…

Guest • May 9th, 2009 at 8:58 am

Gerberviores spoon feeding canned banana’s to the general public…..

MM CA • May 9th, 2009 at 9:00 am

i have to laugh and politley disagree… Oabma and his wife are not the fix by themsleves for the woes of thsi country, what makes u think that. he is surrounded by idiots past and present that have gotten us in this mess…. if you can tell me that the 60 Trillion dollar medicare and SS insolvency has been fixed, all americans have health coverage, unemployment is at normal 3% levels, the budget deficits are gone and balanced then yes maybe what you say is plausible… I will never say never, but I hope they can accomplish all that…

Guest • May 9th, 2009 at 9:11 am

Yes, I would not be surprised if liars lied, even to someone as honest as the Professor. Stupid. The only way to succeed here is to not let them up until they cry uncle lest we become Japan. Empty homes that back mortgage bonds, credit being slashed while they claim it’s expanding…etc… Let’s just get the GDpain out of the way. And what’s up with all the market manipulation. So friggin obvious.

FAMC • May 9th, 2009 at 9:16 am

I think Roubini understood that, without Doom, his fame is at risk of being slowly faded. So that now it was more important do deliver his normal output than politics.

Guest • May 9th, 2009 at 9:25 am

let me clear something up for you. The Gov’t. wants GS and MS as banks…. so they can trade the markets for them, right? Right.

Hayes • May 9th, 2009 at 9:30 am

you were likely watching the clip with Dick Bove (Cramer in drag), which was on yesterday (but they are probably running it in a loop) – he has zero credibility and is the brunt of all manner of ridicule in the blogosphere.__________Dick Bove Says Buy Bank Stocks NowTHURSDAY, MARCH 20, 2008http://online.barrons.com/article/SB120603338728452289.html?mod=googlebarrons

Guest • May 9th, 2009 at 9:37 am

Just more feed for the cattle. Fatten ‘em up for the next slaughter.

PeteCA • May 9th, 2009 at 9:55 am

Look at it simply this way …Everything that we own that has value or earns us money – is going down in real valueEverything that we buy or we need – is costing us more in real value.The main exception to this would be the big drop in the oil price that happened over the last 12 months. But I believe that effect is temporary.The conditions I mentioned are consistent with a lifestyle that is undergoing a significant drop in living standards. If America was a “car”, the car would be downshifting into a lower gear.PeteCA

DMH • May 9th, 2009 at 9:58 am

GSM stated above: “A destructive World War helped to quickly correct the overcapacity issues. The US then prospered mightily again.”Once again, we have overcapacity, only this time it is China and not the U.S. which leads the way in capacity and collateral.The questions become: (1) how will this overcapacity be corrected, and (2) who will benefit when the overcapacity and the resulting imbalances are corrected.Absent the unlikely prospect that the key members of the global economy all embrace in a group hug, it is likely that war will be the method by which the overcapacity will be corrected. But will it be merely economic warfare or the military type? Who will benefit is anybody’s guess.If the overcapacity correction is achieved through economic warfare, it is hard to believe that the U.S. is well-positioned to win on that battlefield. That leaves military warfare and we all know that the U.S. is capable of dominating on that front, as long as it is a non-nuclear war. If, God forbid, it devolves into nuclear war, no one wins.

FEDup • May 9th, 2009 at 10:02 am

superb post! Could not the govt keep expanding (at all levels) and add jobs in place of paying unemployment benefits until stabilization is achieved?

Bakunin • May 9th, 2009 at 10:05 am

That’s the one. Amazing. What a track record. They’re telling the crowd what it wants to hear, the bull’s got momentum. I suspect the banks pump-primed the rally buying each other’s share with taxpayers money, now it’s reaping time, resell them (slowly, don’t spoil the party) to the gullible and book fat trading gains for Q2

kevin o'connor - toronto • May 9th, 2009 at 10:40 am

This is pump and dump on a galactic level. Everyone knows this recovery is not sound. Everyone in the know will be trying to grab his piece of the pie from this suckers rally. Don’t be a bag holder, get out of equities now before the market turns again and keep your powder dry until new lows and amazing bargains are available at year end with tax loss selling.

Hayes • May 9th, 2009 at 11:01 am

I had not been aware of the depth of the relationship between Nouriel Roubini and Larry Summers. Was anyone else here aware of just how tight Summers and Roubini appear to be.We know that Nouriel has spoken highly of Summers, Geithner et al from the beginning and that in a recent post he indicated he has periodic conversations with Summers – nothing earth shattering about that especially given his stint during the Clinton.But it would appear that Roubini’s relationship with Larry Summers goes somewhat deeper not only was Summers an advisor to RGE Monitor but also and investor and on RGE’s payroll.On the following PDF document released by the White House it details Summers’ business interests past and present.”RGE Monitor Advisor to the Board 1006 – 12.31/1008″ (last page (33) of PDF)Summers also was an investor in RGE where he made a gain of between $15,000 and $50,00 – (page 3)Summers also received compensation from RGE to the tune of $147,500. (page 3)href=”http://online.wsj.com/public/resources/documents/disclosure-LSummers04032009.pdf”> Larry Summers – Executive Branch Personnel – Public Financial Disclosure Report_________________And while Summers was still on Roubini’s payroll this (among many articles)

Nov 24, 2008NEWSWEEK: What are your thoughts on the team Obama assembled?Nouriel Roubini: The choices are excellent. Tim Geithner is going to be a pragmatic, thoughtful and great leader for the Treasury. He has experience at the Treasury and the IMF [International Monetary Fund], then the New York Fed. I have great respect for both Geithner as well as Larry Summers. I think both of them in top roles in economics in the administration were good moves. I think very highly of them both.http://www.newsweek.com/id/170712

Guest • May 9th, 2009 at 11:08 am

Glad someone has time to be anal retentive.

FEDup • May 9th, 2009 at 11:19 am

You are speaking too much common sense and your motive rests with truly helping the American worker; unfortunately, this is the antithesis of Washington’s goals.

FEDup • May 9th, 2009 at 11:30 am

WOW! This is why full disclosure and transparency are essential to correct analysis of any situation; otherwise, ulterior motives, conscious or subconscious, will always skew the outcome.

FEDup • May 9th, 2009 at 11:32 am

Additionally, one could leverage this idea further by employing many of these people as government and corporate watchdogs and regulators!

DMH • May 9th, 2009 at 11:35 am

Of course, this doesn’t mean that Professor Roubini doesn’t strenuously disagree with Mr. Summers on some key issues and I would suspect that the Professor has told him so. In fact, if their relationship gives Roubini an opportunity to press his views with the Obama Administration, then perhaps this could temper some of the unbridled pro-bankster tendencies exihibited by Mr. Summers and Mr. Geithner. From that perspective, their relationship is a good thing.

Hayes • May 9th, 2009 at 12:16 pm

Isn’t there something about arms length and full disclosure – Maybe I missed that in various posts over the past year. No doubt there is disagreement but from the get go the good Professor has heaped praise on Team Obama, much to the bewilderment of some readers here. Larry Summers – Executive Branch Personnel – Public Financial Disclosure Report and there is this from back in November right here on RGE – (partial disclosure to be sure but why no mention of Summers being on the RGE payroll?)”A few additional caveats on this interview:First, I told the Newsweek reporter – as full disclosure – that I had worked for Tim Geithner and Larry Summers when they were both at Treasury: I was head of a Treasury Office and the Senior Advisor to Tim Geithner in 1999-2000 who was at that time the Under Secretary for International Affairs while Larry Summers was Treasury Secretary. So some may that my positive views of the two may be biased/tinted by my working for them; on the other hand I know first hand about them and I have the greatest respect for their skills, intelligence, expertise, commitment to sound public policy and policy wisdom even if I may not always agree with all of their views.” RGE Nov 25, 2008 (while Summers was still on RGE’s payroll)

kevin o'connor - toronto • May 9th, 2009 at 12:31 pm

Wow! He’s just torn up the stress tests that are Geithner’s and Summers’ baby. It’s Doubtful to me he would have been harder on the policy if he did not have a previous relationship with them. However, I too am curious about ulterior motives here, specifically yours and some the other disparaging, innuendo driven posters. I have none, I’m just a Canadian with no vested interest except that of a concerned citizen. And you?

Guest • May 9th, 2009 at 12:33 pm

“Of course, this doesn’t mean that Professor Roubini doesn’t strenuously disagree with Mr. Summers on some key issues…”Yes, but he should have disclosed their relationship. It does give perspective to his posts.

Hayes • May 9th, 2009 at 12:49 pm

I’m not sure your to whom your post is directed – if you have been reading here for any length of time you would know that there has been an ongoing question as to why the professor was so high on the selection of Turbo and Summers – The fact he disagrees with the structure of the stress tests is consistent with his earlier posts – but if you read the WSJ and FT articles linked above or for that matter any other posts I am aware of on RGE or elsewhere, nary a word critical of either of those two, just praise.

FEDup • May 9th, 2009 at 1:09 pm

My point was and still is clearly stated above and applies to EVERYONE in government and in business (it’s called being ethical), especially those businesses who are given taxpayer money (those of US citizens). Since you are a Canadian citizen you probably have not been directly or as severely affected as most Americans by the irresponsible, opaque and undemocratic actions of Washington or the Elitist U.S. corporations. My perspective mimics that of the majority of hardworking Americans who are outraged by this debacle and are sick and tired of a “smoke and mirrors” clandestine, serpentine, inequitable approach in the identification and solution to this country’s problems-all of which would be a heck of alot easier to solve if there existed complete transparency, honesty and accountability!

Ishmael • May 9th, 2009 at 1:55 pm

In spite of his cynicism and realism, N. Roubini is and remains an economist with an academic and, maybe, public career to manage, on top of his smart startup known as RGE. I must say I’m a bit annoyed by his mediatic ubiquitousness, uncomfortably reminds me of a past media darling named A. Greenspan.As such, he has ambiguous relationships with other star economists such as Krugman, Summers or Stiglitz, which isn’t necessarily a bad thing, as a kinda diplomacy.Perhaps more relevant is that he keeps using the standard economic tools and metrics, when finicking about the true amount of hidden credit losses is a bit futile, given the very doubtful reliability of numbers when you wander out of the realm of mathematics and hard sciences. Worse than unreliable, many statistics are meaningless. The problem with this standard quantitative approach is that it distracts from the quest of structure (as in structural anthropology or structural linguistics). But it’s the academic straightjacket, and academia has a monopoly for the production of authoritative thinkers.

Hayes • May 9th, 2009 at 1:58 pm

“Wow! He’s just torn up the stress tests that are Geithner’s and Summers’ baby.”Is there even one pundit/analyst/economist who has not torn up the stress tests? perhaps CNBC’s Steve Liesman but that would be about it. Moreover the all important PPIP which has been ripped by many as outright theft is generally supported by Roubini.To compare the apparent non-disclosure of Summers as an investor in and paid advior to RGEmonitor would be like Calculated Risk having Robert Toll on his advisory board or Yves Smith’s Naked Capitalism being partially owned by Goldman Sachs and not letting their readers know.Knowing of the Roubini/Summers business relationship helps not only to explain the otherwise inexplicable admiration he has for Team Obama but also will help in parsing the professors outlooks and the bias that is built in.Hopefully somewhere on RGE the professor has disclosed Summers’ relationship,(but I have not been able to find it (I even went to archive.org but no mention of Summers in 2006 or 2007 that I could find on the RGE site), even it it is there he owes it to his readers to bring that relationship to their attention when he is endorsing Summers and friends.

David Seaton • May 9th, 2009 at 2:48 pm

The fools and thieves are back in force. Keep your clear eyed analysis coming professor.

MC Ripper • May 9th, 2009 at 3:08 pm

Unfortunately, it seems that a vast majority of US citizens are junkies, addicted to asset bubbles and Ponzi credit, and don’t care about ethics and being ripped off by the pusher as long as they can have their fix back.

subgenius • May 9th, 2009 at 3:09 pm

The overcapacity will be corrected as a result of a lack of base resources, and the benefit will be to the planetary constituents not involved in the idiocy of an endless economic growth paradigm.

subgenius • May 9th, 2009 at 3:11 pm

Agree. The current “players” ARE the problem – some just a little less so than others…

Guest • May 9th, 2009 at 3:29 pm

AS Cordell Hull was wont to say (and was he incorrect?): a trade war is the opening shot of a hot way.

Guest • May 9th, 2009 at 3:30 pm

that’s “hot war”

Guest • May 9th, 2009 at 3:37 pm

Very succinctly put, Pete. Thanks.Long-time “Guest” from Ventura County

Pecos Banker • May 9th, 2009 at 3:38 pm

Does this mean that Roubini is also tight with Rubin? I can’t stand that guy.

Mandarin • May 9th, 2009 at 4:39 pm

The Argentina Syndrome or How do You Pronounce “Geithner” with a Spanish Accent?Everybody’s tired of fearmongering and Depression Porn, Cassandras and curmudgeons. So kudos to Mr. Geithner for the Intermezzo. But Dracula isn’t dead yet. A plausible scenario for the end of this year: the Argentina Syndrome.The pitfalls of raising capital through government guarantees are many. Banks are still hoarding capital and raising interest rates to consumers. The stock of money increases, production does not.Zombified banks nominally make a profit, even as the value of money continues to decline. The process can be described as the financial system devouring the real economy and then, itself.Zombified banks hoard cash, and divert the hoardinto financial speculation. The excess cash in the system is diverted stocks and commodities but prices far exceed values, and these markets crash. Liquidity flows to the only commodity for which there is a demand: gold. We saw it in 2007 and we’re going to see it again. And then the banks through their agent at Treasury will ask for another bailout.The global crisis of confidence returns soon. Capital flight ensues into the only safe haven. Government debt is dumped and interest rates spike, even in a recessionary environment. The banks remain open, but the government falls – by resignation or palace coup.Obama’s Vietnam will not be Iraq or Afghanistan or Pakistan. It will be this. After reassurances that we have turned the corner and we see the light at the end of the tunnel, we won’t.What is to be done? In a corporatist democracy? Become visible in the only way that Power understands. Get out in public and protest. Don’t accept a permanent Depression. Get mad, and show it.

Chignos • May 9th, 2009 at 5:32 pm

That’s ano-retentive.

Anonymous • May 9th, 2009 at 5:58 pm

LOL!!! Missed the bottom? Wait until this Fall…..all hell is going to break loose.

Anonymous • May 9th, 2009 at 6:08 pm

I have a question…..if we hit the bottom of the bear market, then the underlying problems that caused the bear market in the first place have been fixed….right?Explain to me what is different RIGHT NOW than Sept. and Oct. 2008?????NOTHING!!!!All of the losses in the banking system were simply shifted to the US tax payer….this was the fix????China and the rest of the world are getting ready to take their ball and go home…..THEN WHAT?The worst depression the world has ever seen will take hold….capital is already LEAVING our nation like never before!!This is fact.

PeterJB • May 9th, 2009 at 6:11 pm

Message (to evoke thought):”To me, the relative strength of foreign stocks and currencies indicates that perhaps the global economy is not as impaired as many have feared. It has been my view all along that after the initial shock wears off, the world will be better off – once it no longer subsidizes the American economy. The shrinking U.S. current account deficit is evidence of this trend in action. Renewed strength in foreign stocks and weakness in the dollar may indicate that not only is the world decoupling from the U.S., but benefitting as a result.”http://news.goldseek.com/EuroCapital/1241809381.phpInteresting assessment methinks.Ho hum

Guest • May 9th, 2009 at 7:40 pm

The Worst Case Scenario (Someone Has to Say It)As late as June 2008, mainstream consensus held that the U.S. was heading for a “soft landing” and would avoid recession. Several months later, the slump was acknowledged to have started in January 2008, but we were supposed to see renewed growth by mid-2009, with unemployment peaking in the eight-to-nine percent range. A quick “shovel-ready” stimulus bag was supposed to set us back on the road to prosperity.In January, recovery projections were pushed forward to late 2009. Today, the consensus is for a mid-2010 recovery, with unemployment peaking at just over 10 percent. Clearly, the mainstream has struggled to catch up to reality for well over one year. What are the chances that they finally have it right this time?Moreover, the mainstream continues to see what is going on as a plain-vanilla recession that will be quelled with some on-the-fly monetary and fiscal tinkering. Washington, we are told, will pull us out of this slump—as soon as the masses can be enticed back to the shopping malls. Then things will return to how they were before. But what if the experts and politicians are wrong not only on their ever-changing recovery timeline, but also on the nature—nay, the very existence—of a recovery?America’s reigning political-economic ideology has demonstrably failed. Given that its government is obviously fumbling along without a clue, its foreign and domestic credit is tapped out, and its 300 million people are discovering that their hopes for continuous material improvement will never be met, could the U.S. be headed the way of the USSR?Instead of a recovery as the mainstream envisions it, what if America permanently bankrupts, impoverishes, and marginalizes itself? What if its cherished institutions fail across the board? For example, what happens when the police realize that their under-funded pension plans cannot support a decent retirement? Will they stay honest, or will they opt to survive by any means necessary? These are questions that the mainstream does not even begin to contemplate.In the interests of providing you with an alternate vision—something outside the mainstream—below are ten predictions for America through the year 2012. This is not boilerplate doom-saying. Rather, I am laying out in highly specific terms what will happen over the next three-odd years. Others have thrown around the term “Depression”, but I am going to tell you precisely what it means for you, your investments, and your community.When these predictions come true, I expect to be rewarded with a seven-figure consulting gig, a book contract, or a high-level position in whatever administration succeeds the doomed Obama team—that is, if anyone succeeds it at all.Prediction one. The twenty-five-year equities bubble pops in 2009. U.S. and foreign equities markets will stop treading water and realign with economic reality. Stock prices will cease to reflect the “greater fool” mentality and will return to being a function of dividend yields, which have long been miserable. The S&P 500 will sink below 500. In a bid to stem the panic, the government will enforce periodic “stock market holidays”, and will vastly expand the scope of its short-selling prohibitions—eventually banning short-selling altogether.Prediction two. With public pension systems and tens of millions of 401k holders virtually wiped out—and with the Baby Boomers retiring en masse—there will be tremendous pressure on the government to get into the stock market in order to bid up prices.Therefore, sometime in 2010, the Federal Reserve will create and loan out hundreds of billions of fresh dollars to the usual well-connected suspects, instructing them to buy up stocks on the public’s behalf. This scheme will have a fancy but meaningless name—something like the “Taxpayer Assurance Equities Facility”. It will have no effect other than to serve as buyer of last resort for capitulating smart-money types who want to get out of stocks entirely.Prediction three. Millions of new retirees—including white-collar people with high expectations for a Golden Retirement—will be left virtually penniless. Thousands will starve or freeze to death in their own homes. Hundreds of thousands will find themselves evicted and homeless, or will have to move in with their less-than-enthusiastic children. Already strained by the rising tide of the working-age unemployed, state and local welfare services will be overwhelmed, and by 2012 will have largely collapsed and ceased to function in many parts of the country.Prediction four. “Quantitative easing” will fail to restart previous patterns of lending and consumption. As the government sends out additional “rebate” checks and takes ever-more drastic measures to force banks to lend, hyperinflation could take hold. However, comprehensive debt relief via a devaluation of the dollar is even more likely. This would entail the government issuing one “new” dollar for some greater number of “old” dollars—thus reducing both debts and savings simultaneously. This would make for a clean slate a la Fight Club.As there are many more debtors than savers in the U.S., the vast majority would support devaluation. The Chinese and other foreign holders of our bonds would be screaming mad, but unable to do anything. Every country that has not found a way out of dollar-denominated reserve assets by 2012 will see its reserves eliminated.Prediction five. The government will stop pretending that it can finance continuous multi-trillion-dollar deficits on the private market. By late 2010, the sole buyers of new U.S. Treasury and agency bonds will be the Federal Reserve and a few derelict financial institutions under government control. This may or may not lead to hyperinflation. (See prediction four).Prediction six. As the need for financial industry paper-pushers declines and people have less money to spend on lawyers and Starbucks (SBUX), unemployment will rise until the private sector has eliminated all of its excess capacity and superfluous or socially needless jobs. The government’s narrow unemployment figure (U3) will rise into the high teens by late 2010. The government’s broader unemployment figure (U6) will cease to be reported when it reaches 25 percent—it will simply be too embarrassing. Ultimately, one in three work-eligible Americans will be unemployed, underemployed, or never-employed (e.g. college grads permanently unable to find suitable work).Prediction seven. With their pension dreams squashed, and their salaries frozen or cut, police and other local government workers will turn to wholesale corruption in order to survive. America’s ideal of honest, courteous, and impartial cops, teachers, and small-time local functionaries will have come to an end.Prediction eight. Commercial overcapacity will strike with a vengeance. By 2012, thousands of enclosed malls, strip malls, unfinished residential developments, motels, truck stops, distribution centers, middle-of-nowhere resorts and casinos, and small-city airports across America will turn into dilapidated, unwanted, and dangerous ghost towns. With no economic incentive for their maintenance or repair, they will crumble into overgrown, plywood-and-sheet-rock ruins.Prediction nine. By the end of 2010, tens of millions of households will have fallen behind on their mortgages or stopped paying altogether. Many banks will be unable to process the massive volume of foreclosure paperwork, much less actually seize and resell the homes.Devaluation (as mentioned in prediction four) could ease the situation for those mortgage holders still afloat, but it would also eliminate any incentive for most banks to stay in the mortgage business. In any case, the housing market in many parts of the country will lock up completely—nothing bought or sold.With virtually no loans being made, even the government will finally acknowledge that most banks are fundamentally insolvent. A general bank run will only be averted through a roughly one trillion-dollar recapitalization of the FDIC, courtesy of new money from the Federal Reserve.Prediction ten. As an economy is never independent of the society within which it functions, the next few paragraphs will focus on social and political factors. These factors will have as much of an impact on market and consumer confidence as any developments in the financial sector.Whether rightly or not, President Obama, having come to power at the dawn of this crisis, will be blamed for it by over 50 percent of the population. He will be a one-term president. In response to his perceived socialization of America, there will be a swarm of secessionist and extremist activity, much of it violent. Militias and armed sects will be more prominent than in the early 1990s. Stand-off dramas, violent score-settlings, and going-out-with-a-bang attacks by laid-off workers and bankrupted investors—already a national plague—will become an everyday occurrence.For both economic and social reasons, millions of immigrants and guest workers will return to their home countries, taking their assets and skills with them. The flow of skilled immigrants will slow to a trickle. Birth rates will plummet as families struggle with uncertainty and reduced (or no) income.Property crime will explode as citizens bitter over their own shattered dreams attempt to comfort themselves by taking what is not theirs. Mutinies and desertions will proliferate in an increasingly demoralized, over-stretched military, especially when states can no longer provide the educational and other benefits promised to their National Guard troops.There will be widespread tax collection issues, and a huge backlash against Federal and state bureaucrats who demand three-percent annual pay raises while private sector wages remain frozen or worse. In short, the “Tea Parties” of tomorrow will likely not be so restrained.Finally, between now and 2012, we are likely to see another earth-shaking national embarrassment on the scale of the 9/11 attacks or Hurricane Katrina and its aftermath. This will demonstrate conclusively to all Americans that their government, even under a savior-figure like Obama, cannot, in fact, save them.By 2012, there will be a general feeling that the nation is in immediate danger of blowing up or coming apart at the seams. This fear will be justified, given that the U.S. has always been held together by the promise of a continuously rising material standard of living—the famous “pursuit of happiness”—rather than any ethnic or religious ties. If that goes, so could everything else. We were lucky in the 1930s—we may not be so lucky again.http://seekingalpha.com/article/134820-the-worst-case-scenario-someone-has-to-say-it?ref=patrick.net

Average Jane • May 9th, 2009 at 8:06 pm

Brilliant. You’ve hit it on the nose.

Average Jane • May 9th, 2009 at 8:12 pm

Now that’s an interesting thought. Let’s get the guv’mint to hire more workers to spy on U.S. citizens–there can’t possibly be enough FBI agents out there to sift through all of our e-mails, blog posts, phone calls and snail mail. Uncle Sam Needs You To Spy On Your Neighbor!(Tongue firmly in cheek, FEDup.)

Average Jane • May 9th, 2009 at 8:15 pm

Of course it was all just a Really, Really Big Shew for China; you’re absolutely right (hat tip to the late Ed Sullivan, for those who remember him).

g Anton • May 9th, 2009 at 8:16 pm

Dr. Roubin’s analysis assumes that Tim Geithner designed his bank stress tests to truthfully ascertain the economic condition of the larger US banks, when in fact this is exactly what he didn’t want to do. Many of Tim’s actions (like his insistence of complete control over test design, data collection, etc.) give the lie to his stated objectives. What he did was first define his conclusions, and then design and execute his testing to produce the result he desired. Dr. Rubin should give him a grade of “A” for his mechanical skills in test manipulation and in theatrics, but he obviously deserves and “F” in deportment

Mr. Volatile man • May 9th, 2009 at 8:23 pm

The Age of the Great Depression and VolatilityNow we are coming the age of the great price volatility with the great growth depression. We will face the hyperinflation and hyperdeflation along the way because the central bank and government use the unreliable monetary and fiscal policies. We know the government faces the higher deficit and the debt level that cannot be paid in the future without doubling the tax. The central bank are printing money from the air without control and the only factor can change the central bank action is the inflation; that will cause the central bank to unwind the money printing program to the deflation. Surely, we all know that the price volatility, not the high inflation, creates the lower growth and at the end we will face the great growth depression with the great price volatility.I think now FED will face uncontrollable price especially commodities price that are going to the roof and it will cause the hyperinflation and surely, the 10-year bond yield will go to 10% at year-end. So the best investment should be long commodities and short long bond and once inflation is the treat of FED, the unwinding of money printing occur, the threat of hyperdeflation will come. Surely, price will be volatile and will cause all businesses are lost and bankrupt that is why we are facing the great growth depression with the great price volatility.The stress test show that the fragility in financial sector will go on to conceal the real problem but actually we are not only having the fragility in financial sector but also in the corporate, consumer and government sectors so the price volatility will cause more severe balance sheet deterioration in every sector and that is why the stress test like this give bad result for economy.

Guest • May 9th, 2009 at 8:35 pm

The transparency is in how the Gov. responds to a problem in front of them. The behavior is adolescent at best. How long can you cover up before the parents find out you’ve been using their credit card to ship booze to your home whilst they are at work??

JKH • May 9th, 2009 at 9:07 pm

Why are you using after tax earnings to compare with losses?The tests use pre tax estimates, which is the correct way.

Anonymous • May 9th, 2009 at 9:12 pm

You talk as if someone has flushed the toilet. If that’s true, where is that horrible order coming from?

Guest • May 9th, 2009 at 9:44 pm

@devils advocate on 2009-05-09 07:55:55″the US dollar falls”that would happen if the foreign exchange system was purely market driven. It is not that market driven.Looking at the deficits and the endless printing of money, the US dollar should already have collapsed. Besides this disaster actually started already 2006, and initially the dollar was falling. Then “something happened” and although the situation even got somewhat worse in USA, the dollar and other currencies pretty much stabilized.I think the issue is that it is not the US economy of the US dollar that is too big to fail, it is the status quo that is too big to fail.

Average Jane • May 9th, 2009 at 9:44 pm

I think, folks, that when the Middle Class wakes up and figures out it can’t have cable anymore for $100 a month, or cell phones with text messaging and photo capabilities for another $150 a month, computer internet services for $150 a month, and can’t buy the kids $500 video games once a month, and can’t afford the $2,000 a year auto insurance payments on the SUV, when the $2,000 mortgage payment on their $75,000 a year salary gets to be too much, when they wake up and figure out that all of their “stuff” are NOT necessities but are luxuries, then maybe, just maybe, we’ll start pulling together and putting a little common sense back into our lives.What was that about hope?

Guest • May 9th, 2009 at 9:50 pm

…or perhaps it could be that this stabilization could also happen if forex is purely “market driven”…?Since the decisions of the investors are based on “selfish advantage” and future perceptions…and other countries thinks that the US economy will completely collapse but meanwhile they want to protect their own currency from appreciating.On another hand I think also that often it is not the countries that buy the currency. It is international banks, for example US banks located abroad (e.g. in Singapore) buy the US dollar to protect their own positions.

Guest • May 9th, 2009 at 9:52 pm

sorry that was supposed to be”…and other countries think that the US economy will NOT completely collapse…”

Guest • May 9th, 2009 at 10:03 pm

Um…No. Not unless you’re on a gamer chat site, or youtube or someone’s blog. But then such a mature writer as yourself would probably not be posting on such unsophisticated sites.For your reference and personal edification: http://en.wikipedia.org/wiki/Anal_retentive(Sorry. HTML linking isn’t working so you’ll have to cut and paste it yourself.)Cheers.

Pecos Banker • May 9th, 2009 at 10:26 pm

g, thank you for your analysis. It’s good to see possible scenarios of what is coming, even if it is completely depressing. I feel like an idiot having let my 403b be tied up in dollar denominated annuities. Given that inflation seems likely, what do you think of TIPs? I’m losing my faith in gold. I remember it being around 400 after the big run up in the 1980′s. Now it’s 900. Big deal! What’s that, around 1% per year? The time to buy gold is when everyone *thinks* it will hedge against inflation. Will it hold it’s own against a declining dollar?By your prediction, anyone who can leave the USA ought to. Problem is, where to go? New Zealand, Australia, Canada, Nicaragua? Or maybe just stay in the US and learn how to use firearms?I wish MM CA would publish his most dire predictions! We really need to make decisions about our personal futures before it’s too late. Dmitri Orlov gives lots of good advice on how to survive during a crisis. See cluborlov.com.

PhilT • May 9th, 2009 at 10:38 pm

Interesting insight AJ.But I wonder if that sort of consumption mindset will be able to make the leap that you are hoping for in their/our lifetime. To unlearn behavior is not a human trait.

Pecos Banker • May 9th, 2009 at 10:44 pm

Average Jane,I don’t think the vast majority of people will wake up. They will just get mad and substitute one superstition for another. I wouldn’t count on many people pulling together and showing good sense during a crisis. We American’s have been conditioned to have a great sense of entitlement, and that will not easily be withdrawn. Only those who did not buy all the baubles in the good times will be likely to act civilized when the crisis hits big time–those who already exercised self-restraint and were capable of thinking long-term. If anything, it will be a time when sociopaths (you know, the ones you see behind you in your rear-view mirror who might be following you home) come out of the woodwork and lord it over the non-violent. God knows there are enough of those to go around! First order of business is to protect your kids and loved ones. Better start planning how to do that right now. This ship is going down!

Guest • May 9th, 2009 at 10:50 pm

Great name !No chance of putting Apocalipstick on a pig !!

Guest • May 10th, 2009 at 1:21 am

Nice to have you back, Nouriel! Never ever trust Obama, Rubin, Summers, Geithner or Bernanke again. And make a conscious effort not to care about fame and the perks that come with it.

Guest • May 10th, 2009 at 2:36 am

“When these predictions come true, I expect to be rewarded with a seven-figure consulting gig, a book contract, or a high-level position in whatever administration succeeds the doomed Obama team—that is, if anyone succeeds it at all.”Better not count your chickens, and don’t quit your day job.

PeterJB • May 10th, 2009 at 2:43 am

As it is:Obama, the false oracle, talks sweet and no more,Rubin and Summers make the big bucks,Geithner cooks the books and regulates accordingly,And Ben decanters the real economy into the coffers of the secondary economy;All this so that “the banking system” is restored as it is necessary for the real economy where,nothing could be further from the truth and reality.Yes, they are insane and irrational and blinded by their own misguided hands.But whatever, crunch time comes very soon now.Ho hum

Guest • May 10th, 2009 at 4:09 am

I think that Nouriel missed the bottom of the bear market because he understands the economy and not the stock market. They are two very different things. The stock market priced in a great depression and when taxpayer money turned that into a great recession the market had to turn on a dime and rise back to price in only a great recession. The March lows were too low with hindsight. Yes the economy is still turning down, but the stock market is looking toward an upturn in the economy late 2009 or early/mid 2010 and that means that stocks are good value even though the economy is still tanking. Everything is in the price and the only way is up so far as stocks are concerned. The fact that Nouriel has his retirement money in an index fund is an indication that he knows very little about stocks. He predicts the economy with a high degree of accuracy. But the economy is a lagging indicator of stocks, so I am convinced that stocks have seen the bottom and are now correctly priced for the eventual recovery.

Guest • May 10th, 2009 at 4:13 am

The horrible odour is coming from a bad economy. But the stock market is smelling the sweet smell of recovery next year and prices are rising like flowers scenting the coming of Spring. Dr Doom predicted the top and missed the bottom. One out of two is quite good; everyone else scored zero out of two.

Guest • May 10th, 2009 at 4:44 am

all of them have ONE thing in common in their background. Do some research and you will understand.

Guest • May 10th, 2009 at 5:06 am

how soon?

PeterJB • May 10th, 2009 at 5:46 am

You can start to hold your breathe ;-[>~30 – 90 daysHo hum

Guest • May 10th, 2009 at 6:39 am

Australia is an extraordinarily wonderful country

Guest • May 10th, 2009 at 7:19 am

That is too frigging funny!!!

Guest • May 10th, 2009 at 9:30 am

The commentary on this thread is stellar!Pecos Banker”They will substitute one superstition for another.”It is very likely that all avenues of disruption havebeen assessed and co-opted by the financial elite. They will buy the demagogues of these superstitions and use their rhetoric to further take control. The financial elite have thought this out carefully. We are in a truly unfortunate situation. There are no real effective ways of their control. They have CAPTURED both parties, most government officials, the cultural values oppossition, the press, and seem to have a true dictatorship in hand. America is full of truly decent folks who have been practically “hypnotized” by very sophisticated methods. Neuro linguistic programming is rampant in our media. The “1984″ Orwellian future is here! Control is very subtle and sophisticated. Most Democrats and Republicans are good people who have no idea that they are being manipulated like marionettes. The financial elite have a money making OTC Derivatives Casino that has the government pay for losses. The present chaotic system is perfect for maximizing profits at the expense of Main Street. Main Street is irrelevant to the financial elite. We are collateral damage on the way to Accumulation of Assets. The metaphorical God of Asset Accumulation is their metaphorical deity.

MM CA • May 10th, 2009 at 9:35 am

@PEcos- What i see and feel coming – i have adjusted somewhat. basically it will be a slow burn of bad economic and social news over a long period of up to 10 years. they have figured out the public will not tolerate it any other way. bad news will come in drips and drops and will allow people more time to adjsut to new ways of living and working… I will say that what is occuring daily i have seen coming. i am a numbers person and its all about the numbers and the numbers do not work anymore in this eceonomy… i will probaly post my updates sometime in the next 2 months…I do want it known, i am not a pessimist, i dont see my self as perpetuating doom and gloom, but more of realist. I look at what i see and determine if I beleive it… these days we are being lied to most of the time…Take the terror plane photo fiasco- does anyone beleive the reasons? but it couldve been totally innocnet, the problem is no one beleives what they say…The post above has some things that may happen, but it’s all over the map… it draws conclusions without backup…the solution lies in JOBS, EDUCATION for the youth, and fixing HEALTH CARE (SS and medicare $$$ Problem). without all three of them being fixed the numbers predict much hardship for tens of millions Americans.currently- 60 Million No health Ins.35-40 million on Food stamps25 Million U6 unemployed presently60 Trillion liabilty problem in SS and Medcicare that has to be fixed by 2019 or so.12 Trillion spent on bailouts/fixes past 12 months2 Trillion plus deficits for years to come20 Million unoccupied housing unitsThe numbers always tell the story…

MM CA • May 10th, 2009 at 9:37 am

Well said, the numbers don’t lie…

Guest • May 10th, 2009 at 10:45 am

All well and and good. However, most knowledgeable folks understand that NR worked in the Clinton Administration and would find no surprise of a relationship, including small cross investments. The larger point that I appreciate is how prescient NR has been. It has saved me tons of cash and aggravation. Any perceived conflict pales. Standing down to give a peer’s a chance to gain traction was understandable. That time has now appeared to have passed and NR is back on the horse. I can live with that.

Guest • May 10th, 2009 at 11:20 am

http://www.atimes.com/atimes/Global_Economy/KA06Dj04.htmlHenry Liu excels at fundamental analysis. The global wage arbitrage game is not sustainable. There is no longer huge debt to fill the hole of lack of globalaggregate demand. The race to the bottom in downward harmonization of wages is the fundamental defect of the globalization neo-liberal economic system. There are no economists left! The people that pass for economists are hired guns to justify an unsustainableyet elite profitable system. Why do we all ignore the issue of global aggregate demand? This crisis will actually have the effect of creating a situation,where wage earners will work for near slave wages just to survive. Do we want them to eat cake?

Pecos Banker • May 10th, 2009 at 11:50 am

Thanks, MM, glad to hear from you. I will wait patiently (outside the US) for your updates. It is pretty scary and we are so conditioned by watching TV and films, that it is hard to see the reality of what is occurring. It all seems like some kind of make-believe. Take the swine flu, for instance. They ratcheted up to level six and all of a sudden it seems to have disappeared from the radar. Similarly, people are still driving their Lexus cars to and from the mall, etc. Yet we know that many people are suffering immensely already. Things have a way of remaining hidden from sight in America.

subgenius • May 10th, 2009 at 12:12 pm

The way to deal with sociopaths is by generating COMMUNITY. I have lived in dangerous places following this strategy and consistently avoided harm. There is no time like the present to get started.

subgenius • May 10th, 2009 at 12:14 pm

see “Century of the Self” by Adam Curtis. It’s on youtube and video.google – it is in several 1 hour parts.

devils advocate • May 10th, 2009 at 12:15 pm

I see it this wayeverything we own went down in US dollars (prices)this was our collateral: houses, factories, land, business (stocks)everything that we need to buy (food, fuel, electric etc.)still costs a lotthe real value of the US dollar in terms of what we need to buy is the samebut earning it is a problem -CD rates of interest are low, unemployment is risingstocks stopped making moneythe key is job creationcreate jobs, creates income, creates consumptiondemand drives up the price of housesso far, the Govt has focused on stock price appreciationto create income and consumptionthe stock market is pricing in future job creationwhich GSM clearly shows will underscore Dr. Roubini’sprediction of a long weak recovery…and your post shows our “lifestyle” is disintegratingGSM’s post (above) is great!

Average Jane • May 10th, 2009 at 12:44 pm

I know, PhilT. It’s the “From my Cold, Dead Hands” syndrome, n’est pas?Growing up in the Midwest, I never really had much of an “entitlement” syndrome. My late Mom always told us kids to not aspire to that beyond which we were capable. In other words, I was never going to become a concert pianist. So there was a part of me that never aspired to owning a half-million-dollar home (who wants to clean 5,000 square feet?), or a hundred-thousand-dollar Jaguar.Nowadays I’m still waiting for home prices in this market to come back down to where a prudent person can afford it. Did everyone really think they could afford those $2,000 mortgage payments on a $50,000 a year salary? Did no one think about whether they’d have to factor in a car payment or their household income being cut in half?As with MM CA’s “no jobs” mantra, mine is “price-to-income ratio.” Homes are still not affordable if one is prudent. And I just can’t believe the auto companies are still touting 0% down payments, and the FHA is still touting 3.5% down on a home.We are still being sold a bill of goods, now by the government. They are still trying to get the Great American Consumer to ratchet up their debt again. They’re banking on that consumerist entitlement ideology that’s been pounded into us for the past 30 years.Gawd help us all.

Average Jane • May 10th, 2009 at 12:46 pm

Dearest subgenius, you are right. May the Force be with us.

Ex-terminator • May 10th, 2009 at 12:47 pm

At last someone who sees beyond the financial crisis smokescreen. I’ve argued, here and elswhere, for many months, that globalization (which is the result of both a systematic deregulation campaign started back in the 1970′s and a technological revolution in logistics), brought back the lumpenproletariat, the relentles pauperisation of workers, predicted by Karl Marx, leading him to say that when reaching perfection capitalism would collapse under the weight of it’s structural contradictions. Who fought hardest for free-trade and investment treaties (Nafta, Uruguay Round Agreements, China’s accession to the WTO, etc.), that opened their own markets to foreign competition? I’ll let you guess.

MM CA • May 10th, 2009 at 2:17 pm

Debt=some number on some accounting spreadhseet… is Debt really real? does one who owes have the abilty to pay back? does one who owns the debt have the ability to sieze real property valued at the debt level? Does Gold back Debt? NO JOBS is leading to inability to pay back debt… People with jobs earning 15.00 an hour cannot pay back debt either..Debt is just a number… it was the ultra rich hold over the general population to get them to act certain ways…. Money is the root of all evil….

Guest • May 10th, 2009 at 3:48 pm

http://www.cliffkule.com – Once Bond Yields get to about 6% (they are about 3.4% or so now), the stock market rally will keel over to bonds – spectre of rising bond yields over the stock rally…

PeterJB • May 10th, 2009 at 4:16 pm

Equilibrium? Nonsense!:”One would hope that economic theory had learnt from the Great Depression, and in particular from Fisher’s insights. Unfortunately, economics was eager to unlearn these lessons, because the very phenomenon of a Depression was anathema to a profession that had always sought to eulogise the market economy, rather than to understand it.”Indeed. Confidence trick.http://www.debtdeflation.com/blogs/2009/05/04/debtwatch-no-34-the-confidence-trick/Ho hum

Jason B • May 10th, 2009 at 5:19 pm

Let’s look at April decline:226K jobs added in the birth/death model, including 38K construction jobs, 1000 financial jobs, and 76K hospitality/leisure jobs. You believe that?Without the crazy DB mocel, we would have had been -765K, the highest yet.Check out http://www.chrismartenson.com/blog/session-new-feature-enrolled-members/18577Don't believe the hype.

Guest • May 10th, 2009 at 5:28 pm

Would they be that dumb?

g Anton • May 10th, 2009 at 5:40 pm

Maybe after 150 years, Henry David Thoreau’s “Walden” will again become a best seller.

Guest • May 10th, 2009 at 6:48 pm

TPTB forgot one fundamental thing that even Henry Ford knew almost 100 years ago: if wages are too low there simply won’t be enough people to buy your stuff. It’s that elementary.

Farnorth5 • May 10th, 2009 at 6:49 pm

Well,yes ptm there are two economies (Financial and Physical) At the end of the day,if the two do not match,you have problems whether you like it or not.Your “Future “observation is mathematically correct ,in that the worlds population has changed from 1 Billion to 6.6 Billion ,since 1900.Current examples are cities like Mexico coming from 450 Thousand to 22 Million during that time.No wonder the Mexican Govt cannot keep up and people are constantly crashing the border.Just one small Population/Resource problem for everyone to think about..technically speaking a “NEW” economic system is required,taking into account natural resources/human populations….Our financial system is not designed to cope with these numbers….

Guest • May 10th, 2009 at 7:19 pm

Definition of monetarism:Take any and all last ditch efforts to save the economy without ever resorting to paying workers and it of course is an oxymoron but with all the academic community supporting the capitalists they usually get away with it. Great article!Now if we can just get Roubini and Krugman to stop giving cover to the oligarch class so they can exploit labor in the name of “free-trade”. While Roubini and Krugman pursue their ultra idealistic academic utopia “free trade” nonsense the rest of us in the real world suffer with no jobs. It’s ironic to hear Roubini and Krugman criticize Laissez Faire capitalism when they’ve all along been huge supporters of “free-trade/globalization” even when it means as it has millions of lost jobs and suffering families. Being an idealist is a wonderful thing when you can afford it, the rest of us are supposed to starve for the next 50 years until their utopia free-trade brings about economic parity for the whole world which it never will because the system is controlled and manipulated by the uber rich anyway so all their academic genius is lost. Roubini and Krugman are lucky to have the luxury of being idealists even when TPTB use their academic gibberish as cover for labor exploitation. So who’s really Laissez Faire? because those two guys talk out of both sides of their mouths if you really listen.

farnorth5 • May 10th, 2009 at 7:27 pm

Well,as the Chinese have both the Capacity and Collateral ,their solution is to provide their new lower middle class etc with the credit abilities to purchase the goods and services from the current “under performing industries “. WOW,no longer a need to rely on exporting the same way as they have.I do not know where that leaves us ,but what the heck if it works it would be ok.

Guest • May 10th, 2009 at 7:32 pm

actually USA has been running a (unintentional) stress test on foreign investors since the scale of this disaster became public information…;-P

Guest • May 10th, 2009 at 7:42 pm

”Animal spirits,” said John Maynard Keynes, are the essential spring of capitalism. We depend on the animal spirits of investors, high earners and entrepreneurs for a growing economy.Keynes, a subtler analyst of market economies than the single-minded booster of high government spending that so-called Keynesian economists depict, knew whereof he spoke. People don’t just respond in linear quantum jumps to the incentives and disincentives they perceive around them. They perk up when their animal spirits are aroused, and they slump down into inertia when they are not.Barack Obama’s tax plans, announced in his budget message last week, threaten to depress the animal spirits that we depend on for economic recovery. I reach this conclusion on the basis of my past errors. In 1993, I – like many economic conservatives – predicted the Clinton tax increase, to a 39.6 percent marginal tax rate on high earners, would squelch economic growth. It didn’t, or at least not so much as to prevent what became, later in the decade, robust growth.http://www.washingtontimes.com/news/2009/mar/09/crushing-those-animal-spirits/

Pecos Banker • May 10th, 2009 at 8:06 pm

Has anyone seen the great article that was in Harpers Magazine in their April issue entitled: “Infinite debt: How unlimited interest rates destroyed the economy” ?Thesis is that the banks were making such a high rate of return on credit cards with interest rates as high as 30% that this sucked investment capital into the financial sector and away from the manufacturing sector. Harper’s won’t let you look at the article without a subscription, but there is a great interview of the author, Thomas Geoghegan on Democracy Now with Amy Goodman.Use this to see the interview:http://tinyurl.com/d2gsl6

Farnorth5 • May 10th, 2009 at 8:14 pm

AVERAGE JANE,you sure hit the right item with mortgages.Here is a 1958 version of an appropriate standard .(The decimal moved over one place for inflation)House Price : $250,000Down payment 50,000 (20%)Mortgage $200,000(calculation ; Mortgage payment is 30% of monthly salary,($4000 times 30%= $1,200 )Anybody recognize the shear stupidity of the current scene.We have people actually trying to restart the sick real estate/mortgage bubble…….

PhilT • May 10th, 2009 at 9:06 pm

“It is a characteristic of wisdom not to do desperate things.” - Henry David Thoreau

Average Jane • May 10th, 2009 at 9:29 pm

Thanks, Farnorth5.My Dad, who used to be a commercial loan officer at the local bank before he retired, told me when my parents bought their last home back in 1974 the price-to-income ratio was 1-1/2 times annual salary.The first time I ever looked at buying a home was in 1991 when the p-to-i ratio was 2-1/2 times annual salary.And 20% down payment; no exceptions.Ponder that.And yes, they are trying to reinflate the housing bubble. With the encouragement–nay, mandate–of We The People, no less. Give us enough rope, I guess, and we will indeed hang ourselves.

Guest • May 10th, 2009 at 10:26 pm

It’s appropriate now.

Chignos • May 10th, 2009 at 10:28 pm

Very interesting rhetorical question: “Does gold back debt?” I’m curious what everyone else thinks; somehow I kinda doubt it, but am open to anyone’s thoughts.The correct quote is not “Money is the root of all evil,” it’s “The love of money is the root of all evil.” The correction connotes a profound difference.

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

It may be the wrong place to come to *wink*.. but is there anyone here which has a bull case for the economy/markets? I am struggling to find any light at the end of the tunnel that isn’t an oncoming train, but hey, I may be psychologically impaired from finding positives. Now, I want logic behind the bull case, and not one based on hope and irrational exuberence.Anyone??

Guest • May 10th, 2009 at 11:51 pm

I cannot wait to see how the economic recovery will do when yields on 30 year US treasuries go up to 8% and the housing prices drop another 30%….These delusionary bulls should study the stock market during the great depression and read news articles that were written during all the bear market rallys….And even if the US stock market goes up it will be a bad performing asset in real terms. Every day the market goes up the dollar is sliding like there is no tomorrow. Good luck holding these worthless dollar based stocks!!!!

李家散人亡 • May 11th, 2009 at 12:44 am

【明報專訊】美國銀行壓力測試結果揭盅，10間不合格的銀行要集資746億美元但《華爾街日報》昨披露，政府在測試中讓步向銀行「放水」，令測試力公信力成疑。華府跟銀行經兩周討價還價，華府最終讓步，縮減美銀、花旗、富國三大行的資本要求規模約500億美元，加上華府計算資本水平時，又採用較寬鬆的一級資本充足比率，令銀行可少籌680億美元。19大行原要逾1900億美元補充資本，現只需約四折便了事，即少籌1180億美元（約9200億港元）。市場對壓力測試結果反應正面，但《華爾街日報》昨報道，測試結果公布前，華府跟參與測試銀行不時就集資額爭辯，至少一半銀行要求推翻結果。最後華府同意讓步，縮減要求銀行填補「黑洞」的資本，單是美銀、富國及花旗的集資規模，便減少約500億美元（見表），五三銀行（Fifth Third）及SunTrust亦獲得扣減。監管當局還因應銀行業首季業績理想，向下修訂資本要求。集資額據報較去年底的預估減少近200億美元。「集資額不反映虧損實况」報道引述知情人士透露，聯儲局 4月向銀行發表初步結果時，美銀、富國及花旗這3間集資額最高銀行的高層都大感不滿，認為儲局「誇大」其資金需求。美銀最初獲悉要集資超過500億美元時，感到「震驚」。花旗的資金缺口原本亦達350億美元，高層要求儲局一併考慮公司正進行的交易，作為提高資本計劃的一部分。曾公開表示壓力測試是「愚笨」的富國主席柯瓦希維奇（Richard Kovacevich），與當局的討價還價尤其激烈。有官員擔心富國可能興訟，迫使政府只好讓步。華府官員則為處理壓力測試的手法辯護，指華府回應業界訴求時，仍有維持測試的嚴謹性。但《華爾街日報》質疑，銀行最終只需集資746億美元，是銀行與華府討價還價的結果，並不完全反映銀行潛在經營虧損的實况。好友滿意料股市可漲兩成然而，在金融股大反彈下，許多大行仍看好後市，包括瑞銀、UniCredit及大和證券。大好友摩根大通首席美股策略師李爾（Thomas Lee）周末更向客戶宣稱，今年標普500指數將升至1100點，即離周五收市還有21％升幅。他指零售數據穩定、二手樓市場回暖及其他數據都顯示，衰退底部或在年中出現。但他又補充稱股市有機會再次試探3月的低位，之後才會回升，屆時投資者便可「大規模入市」。華爾街日報/紐約時報/金融時報

投資者 • May 11th, 2009 at 12:59 am

華府官員府回應後才會回國銀行許多大行仍看好後市, 行的高層都大感不滿其資金需求場回暖及其他有官員擔心富國可能興訟美銀. 月向銀行發表初步結果時業界訴求時華府官員則為處理壓力測試的手法辯護 (Lady GaGa) 行與華府討.

Wolf in the WIlds • May 11th, 2009 at 12:59 am

Please…. ENGLISH…. although I can understand it, not everyone else can.

Anonymous • May 11th, 2009 at 2:31 am

First of all, all that this really really really pertains to is one thing, and that is trade. During the Great Depression what really made things depressed was the lack of M1 to M5 money in the system (which occurred because the U.S. dollar was tied to gold) and there was not enough money in the system to move people to do progressive things (i.e. to trade). Now shadow bank activity created a raucous in the creation of securities by primarily supporting huge price distortions in security prices, which of course was allowed to happen through lack of regulation, what is actually at stake is the legitimacy of the banking system… and that is why I agree that the banking system needs to be cleaned/fixed up in order to be re-legitimized. Hyper-inflation will only occur if re-legitimization of the banking system is unsuccessful.What seemed to be lacking is money… and that is exactly what is being pumped into the system. Now all that these banks need to do now is create a ‘proper’ way of redistributing this newly created wealth into the system (through new loans, new securities, etc), and this should get the U.S. economy up and running again. Now what seems to be the problem is an efficient way of fixing up thing (and that is what Professor Rubini, and other professionals have been calling for… and efficient way of fixing things).Now what these (honorable) experts seem to be leaving aside is that when it comes to trade, what seems efficient may not be proper (with regards to the trade relationship). Trade comes hand in hand with power and the preferences of those who hold that power… People should not even bother getting angry about this because it is this power structure in the first place that established (and continues to establish) the value system. In the capitalist democracy of the United States the powers that created the international value system are now needing more circulated ‘legitimized’ money in order to retain control of their power of the system of land and labour organization. And more money/capital in the system will allow them to reap the fruits of land and labour, which are uniquely tied up to one another.I for one am as pessimistic as Mr. Roubini with regards to how long it will take to re-legitimize the banking system especially given the intricacies of the trade relationship. The U.S. market has hit bottom and will continue to do so (i.e. bump up and down from the bottom) until the banking system finds a way to re-organize the wealth that the U.S. government has legitimized (and is legitimizing still). In order to do this, the banking system and its regulators will have to correct what it did wrong, because the problem with money is really trust on what it is worth… in the modern global capitalist system, it’s how much a buck (of paper money) can produce… now what coordinates the power of a buck in the end is the system itself.. and the ability of that system to tap into resources. With regards to this (the tapping into resources), the U.S. is all powerful (e.g. as compared to Japan, etc.).

subgenius • May 11th, 2009 at 3:21 am

Allegedly the Industrial and Commercial Bank of China made an announcement on behalf of the Chinese government that the Yuan can now be used in international trade. By the end of this year it is expected that fully 50% of all transactions with Hong Kong will be denominated in the Yuan. Hong Kong re-exports 90% of its Chinese imports. Importer #1 is the European Union; importer #2 is the United States.That might just put the cat among the pigeons…

Guest • May 11th, 2009 at 3:30 am

Born 1891 in Vienna to Jewish parents, Bernays was nephew to psychoanalyst pioneer Sigmund Freud. His father was Ely Bernays, brother of Freud’s wife Martha Bernays. His mother was Freud’s sister, Anna. [2] In 1892 his family moved to New York City. In 1912 he graduated from Cornell University with a degree in agriculture, but chose journalism as his first career. He was married to Doris E. Fleischman in 1922.As well as being influenced by his uncle Sigmund’s ideas of the Unconscious, Bernays applied the ideas of the French writer Gustave LeBon, the originator of Crowd psychology, and of Wilfred Trotter, who promoted similar ideas to the English speaking world in his famous book Instincts of the Herd in Peace andhttp://en.wikipedia.org/wiki/Edward_Bernays

Guest • May 11th, 2009 at 4:05 am

subgenius do you have a link to the above story?

SantaClaus • May 11th, 2009 at 4:33 am

of course the prices were far more economical compared to peoples incomes back in 1950′s.So the banks were well able to expect a 20% down payment. It was far easier for people to save $5000 dollar for the down payment back then than it is to save $50K today. This is because peoples incomes have went down when compared to everything else.But on the other hand you could not run any bubbles of todays scale back then.The 20% down payment requirement would have helped to keep bubbles in check. But how do you get people to buy when peoples incomes have went down compared to everything else?If you are the government you work to loosen the credit. You don’t try to increase peoples incomes because that is un-capitalistic.Capitalistic philosophy allows for the government to make day-to-day living harder for people but not for the government to make day-to-day living easier for people.Capitalistic philosophy further allows for the promoters of itself to remind others of nonsense such as that in the book “Who Moved My Cheese”…in other words requirements that taste best when imposed upon others. What we need are the financial institutions to follow, if not the advise, at least the spirit, of this book.

Jason B • May 11th, 2009 at 5:20 am

http://www.asianews.it/index.php?l=en&art=15194&geo=2&size=A

Ex-terminator • May 11th, 2009 at 5:42 am

The factoryless money machine.The oldest example I can think of is Nike. From the very beginning the only thing that was done in the US was design, administration and marketing. The product was subcontracted to southeast Asia and the cost price was around, say, 7$ a pair.That example is the Ideal of all entrepreneurs in the age of globalisation. Huge profits for the founding shareholders, at most a few hudred high paid jobs in th mother country.Now a couple of weeks ago I saw on Bloomberg one of those mood elevating interviews with financial analysts, the one in question was demonstrating the unmatched strength of American entrepreneurs in high tech industries, saying that therein laid the future wealth of the Nation. To that effect he used the iPhone case, as the example to follow by all american businesses:The total added value of an iPhone (I guess ex-factory, not at retail level) is some 70$; out of that, 3$ go to the asian subcontractor, and 67$ to Apple inc. No wonder there ain’t no more blue collar jobs in the US.Last comment: Japan pioneered the hollowing out of manufacturing industry by direct investment in developping Asia, ever since the crash of 1990. No wonder it’s still mired in deflation 30 years later.

Ex-terminator • May 11th, 2009 at 6:11 am

I differ. A corporation with solid prospects and credentials, when the animal spirits are lively, can always find a way to fund investments. But most of manufacturing investment was made abroad, in low wage countries. What the financial vacuum cleaner did is reducing the already meagre available income of consumers, thus increasing the vast wealth of plutocrats, that fed bubbles in luxury real estate, stocks, art, trophy wives…

Dan • May 11th, 2009 at 6:36 am

“French output was down 1.4% on the previous month, said national statistics office INSEE. Economists had predicted a decline of only 0.5%.Production of electronic goods and output in the energy and food sectors fell, outweighing a rise in transport.Meanwhile monthly production in Italy fell for the 11th month in a row, down 4.6% on February’s output.Analysts had expected a monthly drop of 1.6%.”This is from BBC News

Guest • May 11th, 2009 at 6:43 am

“Despite Obama’s anti-protectionism rhetoric, Canadian manufacturers are finding themselves suddenly cut off from U.S. markets as his $800-billion (U.S.) stimulus plan takes effect”From The Globe & Mail

RED • May 11th, 2009 at 7:15 am

China revalues the Yuan up by 50% against the Dollar, gives Chinese consumers massive purchasing power.Bit of a stretch, but its got some legs. Of course the Chinese export machine is toast, but it looks like it is already, so why not revalue.

RED • May 11th, 2009 at 7:19 am

Well, China exports more than it imports, driving up demand for its currency. Eventually, this will make their wages/products uncompetitive with the rest of the world. So, bring it on…make the yuan convertible. Thats what the US has been asking the Chinese to do for the last 8 years.

The Alarmist • May 11th, 2009 at 7:49 am

Blah, blah, blah … $20k-to-$30k jobs are still jobs that can lead to something, including the building of personal character, responsibity, and (perhaps most important) real-world-experience.I’m in that generation that didn’t quite get all the goodies of the boomers, but also didn’t take on this overwhelming sense that we are entitled to be handed jobs that deliver the lifestyle our parents took years to earn into. So I took one of those shi**y $20k jobs years ago and built it into a nice portfolio management job over a decade that included B-school at night, and ultimately got there by meeting all sorts of people who kept me pointed or connected in the right direction (read that again … I went to B-school at night, so it wasn’t Ivy League connections that took me forward).So, to anser the Q “How do we fix that?” Tell your kid to take one of the jobs that are available and make something of it, even if it is just paying the rent and paying the dues for a couple of years. It might keep him or her out of your basement.

The Alarmist • May 11th, 2009 at 7:59 am

Nice thought, but too much of a pay-cut, and I already get 6 weeks of vacation … gee, I guess I’m doing better than I thought, so thanks for the perspective.

The Alarmist • May 11th, 2009 at 8:10 am

Australia always reminded me of California, but without the drive-by-shootings.

The Alarmist • May 11th, 2009 at 8:15 am

August-September always seems to be the time when things start to roll off the cliff.

The Alarmist • May 11th, 2009 at 8:22 am

不好

Guest • May 11th, 2009 at 8:26 am

That and of course almost no tax on capital gains and tax the bejeepers out of businesses, then there’s all the funneling programs like 401k etc. the list goes on as to how and why the FIRE economy sucked the wealth away from industry and workers into the hands of a few snake oil salesman on WallStreet. Obama is one of them, he’s an attorney for one, his grandmother was a banker so his life circumstances and values are made up so that he’s crazy enough to believe his industry brings value to the world or somehow creates something instead, he should be viewing the world where attorneys are guards of the system but not the system itself. The FIRE economy was never and will never be an economy it was meant to merely manage the economy however everyone involved in the FIRE economy believes the world rotates on their axis.

The Alarmist • May 11th, 2009 at 8:28 am

很好 !

Guest • May 11th, 2009 at 8:40 am

It’s worth saying again and again and again a profitable company can be destructive to a society and an unprofitable company can be very valuable to a society. And now we’re finding out the hard way that a profitable company is an absolute meaningless statement yet our whole society scholars included has been brainwashed into believing so. Everything is meaningless without context and capitalism can be very clever at disguising context, that or everyone is just plain stupid!

devils advocate • May 11th, 2009 at 8:50 am

New Zealand is great!-it’s so9mewhat like Canada without the severe cold

devils advocate • May 11th, 2009 at 8:55 am

@MM CAyour estimated #s are (unfortunately) correctTPTB have only one way to re-money people to “kickstart” consumptionand that is to raise the stock market upwith news to give the market hope, such as:-$5,000-10,000 back for buying American cars

PeteCA • May 11th, 2009 at 9:03 am

OK Wolf … here’s my thinking. First, forget the US markets. What you should be seeing from your vantage point is a significant move towards re-investment in Chinese and Asian stocks. I have not checked across Asia in general, but the Shanghai index is certainly moving upwards with some strength right now. While some of this is, no doubt, a direct result of liquidity injections by the Chinese bank – I believe you are also seeing real investment money flowing from the West to the East.Point being – although “decoupling” was shot down as a theory a couple of years ago, this current trend does represent “green shoots” towards real decoupling. It won’t happen overnight. But little by little as retail spending grows in China (and Asia), and new links emerge between Asia and the emerging markets, I think you’ll see the beginning of a new trend.What do you think? Confirm or deny. Feel free to shoot down the idea if you don’t buy it.PeteCA

Guest • May 11th, 2009 at 9:23 am

I don’t get it? Everyone says whatever you do don’t resort to protectionism it’ll only make things worse, yet it’s been perfectly acceptable for the Chinese to pursue an extremist protectionism policy in the form of currency manipulation and other policy’s aimed at creating high employment in their country. Yet when the U.S. tries to create employment for its people we’re shamed for being protectionists. The hypocrisy and double standards that always seem to favor the uber rich are astounding. How anyone can believe the b.s. anymore is beyond me, the colleges and text books have really brainwashed everyone into selling out their neighbor for the elites sake.

FEDup • May 11th, 2009 at 9:48 am

All actions/policies are to benefit those with the most power while trying to convince the masses that it benefits them. Wars, false enemies, globalization, immigration, health care, low wages, bubbles, etc are their methods of choice. Due to a lack of true transparency, regulation and moral responsibility, the “smoke and mirrors” game continues. It is truly sad that the masses are oblivious to what is really happening.

Guest • May 11th, 2009 at 10:59 am

Another example of monopoly “profits.” My doctor told me a few years back that the production cost of a soft contact lens was about 2 cents each — not adjusted for current inflation — for which I recently paid $400+ for an 18-months’ supply of day & night soft lenses, 6 boxes of 6 each. (Made in Indonesia by CIBA Vision)

Hubbs • May 11th, 2009 at 11:39 am

The most tired, worn out policy projections:1.) We will cut the deficit in half by the end of Obi’s first term.2.) We can cut costs in health care- sure..if you deny care. (Haven’t listened to Obi’s rambling on TV to this one yet)3.) We will create new jobs to jump start the economy.

Hubbs • May 11th, 2009 at 11:42 am

“Going to the candidates’ debate. Laugh about it shout about it when you have to choose, either way you look at it you lose” Simon and Garfunkle

Guest • May 11th, 2009 at 11:46 am

Dont forget “we will save and/or create new jobs”

Guest • May 11th, 2009 at 11:47 am

no.

Guest • May 11th, 2009 at 11:49 am

バンクオブアメリカが、 “ウォールストリートジャーナル”によると、政府が銀行には、テストで”レスキュー”譲歩は明らかなので、試験力の信頼性を疑問の余地がある基金にストレステストを、 10破たん銀行74600000000ドル調達の結果を発表。銀行との交渉は、ワシントンの2週間は、最終的な譲歩をワシントンの首都ワシントンのレベルの計算では、自己資本比率は現在のより寛大なレベルを使用しているのバンクオブアメリカ、シティグループは、 50000000000ドルほどの大きさの3つのラインの資本要件の豊かな国は、一緒の削減に比率は、銀行の少ない68000000000ドルを調達することができます。追加の資本のDahonオリジナルの19を超える190000000000ドルは、すでに割引リストですだけで、それは、以下（約920000000000香港ドル） 118000000000ドル調達に問題解決してください。テストの結果の正の圧力に市場の反応が、 ” The Wall Street Journal紙”報告は昨日、テスト結果の発表を前に、ワシントンが参加し、結果は逆に、銀行の少なくとも半分の時間を議論する時に銀行からの調達をテストします。最後に、米国の譲歩をしていただき、シティグループのファンドの規模は、米国だけでも、銀、豊かな国の首都の”ブラックホール”を埋めて銀行の要件を削減する合意調達について50000000000ドルで（表参照）に短縮される、フィフスサード銀行（第5回第3回）、 SunTrustも控除。銀行セクターの規制当局への対応もよく、第1四半期で演じ、資本要件に下方修正。よりも約20000000000ドルを削減することが報告されていると推定昨年末レイズ。資金の”量を設定する”現実の損失を反映していません同報告書は4月に予備的な結果は、銀行は、米国および銀は、豊かな国とアメリカ合衆国は、高レベルの3つの銀行は、最高の不満は、準備理事会” “誇張されたが、その資金調達のニーズが発表するための情報源は、連邦準備理事会いる。バンクオブアメリカは当初50000000000ドル以上は、 “ショックを受けていたが資金を調達してください。 “また、シティグループは35000000000ドル、高レベルの要件を準備理事会の口座に資金ギャップは、トランザクションを取るされた資金調達計画の一環として行われている。ストレステストの公開は” “大統領は、豊かな希维奇Porizkova （リチャードKovacevich ）、当局、特に激しいとの交渉の愚かであることを明示している。一部の関係者は、豊かな政府を訴えることができる強制的に選択の余地が譲歩しなければならなかった懸念している。まだテストの厳しさを維持し、その理由として、ワシントンの当局者に対処するためのストレステストの方法は、防衛、ワシントン業界の要求に対応すると言っている。しかし、 ” The Wall Street Journal紙”の挑戦は、銀行が最終的には74600000000ドルの資金は、銀行との交渉の結果であるワシントンを高めるため、銀行は、潜在的な営業損失の現実を反映するものではありません。お友達と期待される株式市場で最大2つに満足することができますしかし、金融株では大きな反発、 UBSの多くは依然として、 UniCredit 、大和証券など大手証券会社は、楽観を持つ。素晴らしい友人JPモルガンチェース米首席ストラテジストリア（トーマスリー）は、顧客には週末に、今年には1100ポイントに近い金曜日と21 ％の増加から上昇することはS ＆ P総合500種指数は主張している。彼は小売業のデータは、流通市場は、暖かく、およびその他のデータの安定性に言及したことを示している下部には、不況やその年の真ん中に。しかし、彼は株式市場の機会が少ない、 3月に再びテストする必要があります追加すると、それまでを手に、投資家を市場には”大規模なことができる。 “ウォールストリートジャーナル/ニューヨークタイムズ/フィナンシャルタイムズ

Guest • May 11th, 2009 at 11:51 am

Bank of America liberados os resultados dos testes de esforço, 10 bancos falidos E.U. dólares para 74,6 bilhões de angariação de fundos, mas sim “The Wall Street Journal” divulgada ontem que o governo faça concessões nos testes para o banco “emergência”, para estar aberto a questão da credibilidade do teste vigor. Washington duas semanas de negociação com os bancos, o derradeiro Washington concessões para reduzir o Bank of America, o Citigroup, os países ricos dos requisitos de capital das três linhas sobre o tamanho de 50 mil milhões de dólares E.U., juntamente com o cálculo do nível de capital, em Washington, que estão agora a utilizar um nível mais branda da adequação dos fundos próprios razão, o banco pode levantar 68 bilhões de dólares E.U. menos. Dahon original 19 a mais de 190 mil milhões de dólares E.U. de capital adicional, já descontado a lista é apenas prestes a resolver a questão, ou seja, criados 118 mil milhões de dólares E.U. menor (cerca de 920 mil milhões de dólares de Hong Kong).Mercado reação à pressão dos resultados do teste positivo, mas o “The Wall Street Journal” relatou ontem, antes da liberação dos resultados dos testes, com a participação de Washington para testar o banco levantadas ao longo do tempo a defender, pelo menos metade do banco para reverter o resultado. Finalmente, Washington concordou em fazer concessões e reduzir as exigências dos bancos para preencher o “buraco negro” da capital, só os Estados Unidos, prata, os países ricos e do tamanho do Citigroup é de captação de fundos será reduzido em cerca de 50 mil milhões de dólares E.U. (ver tabela), Fifth Third Bank (Quinta Terceira) e SunTrust também dedução. As entidades reguladoras em resposta ao sector bancário também teve bom desempenho no primeiro trimestre, o descendente revisão dos requisitos de capital. Elevar o final do ano passado do que tem sido relatada a reduzir a estimativa de cerca de 20 mil milhões de dólares E.U..”Definir o montante dos fundos não reflecte uma perda de realidade”O relatório citou uma fonte informada, o Federal Reserve Board, em Abril com os resultados preliminares liberados pelo Banco dos Estados Unidos e da prata, os países ricos e os Estados Unidos que levantou três alto nível os bancos têm o maior insatisfação que o Reserve Board “exageradas” as suas necessidades financeiras. Bank of America para angariar fundos que, inicialmente mais de 50 mil milhões de dólares E.U., a era “chocado”. O Citigroup também foi uma lacuna de financiamento até 35 mil milhões de dólares E.U., requisitos de elevado nível Reserve Board ter em conta a operação é realizada como parte de um plano para levantar capital. Teste ergométrico declarou publicamente que é “estúpido” Presidente do rico希维奇Porizkova (Richard Kovacevich), negociação com as autoridades especialmente intensa. Alguns funcionários se preocupam que os ricos maio demandar para forçar o governo não teve outra opção senão a fazer concessões.Washington funcionários para lidar com stress é a forma como a defesa, dizendo que Washington responder às demandas da indústria, há ainda a manutenção do rigor dos testes. No entanto, o “The Wall Street Journal” desafio, os bancos, em última instância, só 74,6 mil milhões de dólares E.U. para levantar fundos, bancos e Washington é o resultado da negociação, o banco não reflectir totalmente a realidade do potencial de perdas de exploração.Os amigos podem estar satisfeitos com o esperado bolsa em doisNo entanto, as grandes reservas financeiras no rebote, muitos ainda estão otimistas sobre ter grandes corretoras, incluindo as UBS, UniCredit e Daiwa Securities. Grande amigo JP Morgan Chase E.U. estrategista-chefe Lear (Thomas Lee) mais a seus clientes durante o fim de semana afirmou que o índice S & P 500 este ano aumentará para 1.100 pontos, isto é, a partir de sexta-feira de perto e 21% de aumento. Ele estava referindo-se à estabilidade do varejo dados, o mercado secundário, mais quentes, e outros dados mostraram que uma recessão no fundo ou a meio do ano lá. Mas ele acrescentou que o mercado de ações têm a oportunidade de testar mais uma vez a baixa no mês de Março, colhidos até então, os investidores terão a possibilidade de “grande escala para o mercado.”O Wall Street Journal / New York Times / Financial Times

Guest • May 11th, 2009 at 11:54 am

Bank of America veröffentlicht die Ergebnisse der Stress-Tests, 10 nicht Banken 74,6 Milliarden US-Dollar für Fundraising, sondern “The Wall Street Journal” gestern bekannt, dass die Regierung machen Zugeständnisse in den Tests auf der Bank “Rettung”, so steht die Frage nach der Glaubwürdigkeit der Prüfung Kraft. Washington zwei Wochen Verhandlungen mit den Banken, die ultimative Washington Zugeständnisse an die Bank of America, Citigroup, die reichen Länder der Eigenkapitalanforderungen der drei Zeilen über die Größe von 50 Milliarden US-Dollar, zusammen mit der Berechnung der Eigenkapitalanforderungen in Washington, sind sie nun mit einer milderen Ebene der Kapitaladäquanz Verhältnis, die Bank kann die 68 Milliarden US-Dollar weniger. Dahon ursprünglichen 19 auf mehr als 190 Milliarden US-Dollar zusätzlichen Kapitals, die bereits diskontiert Liste ist nur um die Angelegenheit zu regeln, das heißt, die 118 Milliarden US-Dollar weniger (ca. 920 Milliarden Hongkong-Dollar).Market Reaktion auf den Druck der Ergebnisse positiv, aber “The Wall Street Journal” berichtete gestern, vor der Veröffentlichung der Testergebnisse, mit der Teilnahme von Washington, um die Bank, die von Zeit zu Zeit zu behaupten, mindestens die Hälfte der Bank, um das Ergebnis. Schließlich, Washington vereinbarten Zugeständnisse zu machen und die Anforderungen der Banken, dass sie die “schwarze Loch” der Hauptstadt, in den Vereinigten Staaten allein, Silber, reichen Länder und die Größe der Citigroup Fundraising wird um etwa 50 Milliarden US-Dollar (siehe Tabelle), Fifth Third Bank (Fünfte Dritte) und auch SunTrust Abzug. Die Regulierungsbehörden in Reaktion auf den Bankensektor auch gut in das erste Quartal, die nach Überarbeitung in die Kapitalanforderungen. Heben Sie die Ende des vergangenen Jahres, als es wurde berichtet, dass die geschätzten rund 20 Milliarden US-Dollar.”Stellen Sie die Höhe der Mittel nicht die einen Verlust der Wirklichkeit”Der Bericht zitiert eine informierte Quelle, die Federal Reserve Board im April auf vorläufige Ergebnisse, die von der Bank der Vereinigten Staaten und Silber, in den reichen Ländern und den Vereinigten Staaten, dass die drei High-Level-Banken haben die höchste Unzufriedenheit, dass die Reserve Board “übertrieben” seine Finanzierung. Bank of America, um Gelder, die ursprünglich mehr als 50 Milliarden US-Dollar, das war “schockiert”. Citigroup war auch eine Finanzierungslücke von bis zu 35 Milliarden US-Dollar, hohe Anforderungen Reserve Board unter Berücksichtigung der Transaktion, die als Teil eines Plans zur Beschaffung von Kapital. Stress-Tests hat öffentlich erklärt, dass es “dumm” Präsident der Reichen希维奇Porizkova (Richard Kovacevich), Verhandlungen mit den Behörden besonders intensiv. Einige Beamte Sorge, dass die reichen Mai klagen, um die Regierung hatte keine andere Wahl, als zu machen.Washington Beamten den Umgang mit Stress Tests ist die Art und Weise der Verteidigung an und sagte, dass Washington auf Forderungen der Industrie, gibt es immer noch die Aufrechterhaltung der Strenge der Prüfung. Doch “The Wall Street Journal” Herausforderung, die Banken letztlich nur 74,6 Mrd. US-Dollar, um Fonds, Banken und Washington ist das Ergebnis der Tarifverhandlungen, von der Bank nicht voll und ganz den Realitäten der möglichen Verluste.Freunde können zufrieden sein mit dem erwarteten Börsen in zweiAllerdings ist die große finanzielle Erholung der Bestände, viele sind nach wie vor optimistisch, was mit großen Maklerfirmen, darunter UBS, UniCredit und Daiwa Securities. Freund JP Morgan Chase-Chef US-Stratege Lear (Thomas Lee) mehr an seine Kunden über das Wochenende machte geltend, dass die S & P 500 Index in diesem Jahr wird sich bis 1100 Punkte, das heißt, aus der Freitag der Nähe und 21% erhöhen. Er war auf die Stabilität des Einzelhandels Daten, dem sekundären Markt, wärmer, und andere Daten haben gezeigt, dass eine Rezession in den Boden oder die Mitte des Jahres gibt. Aber er fügte hinzu, dass die Börse haben die Möglichkeit, noch einmal testen Sie die niedrigen im März wieder bis dahin, die Anleger in der Lage, “in großem Maßstab auf den Markt zu bringen.”Das “Wall Street Journal” / “New York Times / Financial Times

Hubbs • May 11th, 2009 at 12:33 pm

Banks rush to raise money through stock offerings?Hurry up and issue stock while the market has temporarily rallied. Says the FED: Hurry up you guys and get your stock offerings sold, we can’t hold up the market any longer!Is this any coincidence to the wave of insider selling?Haven’t we heard this before? (Pumping stock to raise money at the front door, and CEOs quietly selling it through the back door?)

GuestKat • May 11th, 2009 at 1:10 pm

Did anyone see Roubini’s cameo on SNL? The pretend Roubini was interviewed by the Bee Gees (Justin Timberlake & Jimmy Fallon). Called him a genius.Dr. Roubini — Curious if they asked you to appear in person? You have indeed become a celebrity.

Guest • May 11th, 2009 at 1:50 pm

ETF settlement failureshttp://www.marketskeptics.com/2009/05/enormous-settlement-failures-in-etf.html

Guest • May 11th, 2009 at 2:23 pm

what is value?http://www.storyofstuff.com/

Gloomy • May 11th, 2009 at 3:15 pm

THE VALUE OF THE STRESS TESTS……was not that they indicated anything useful about the ultimate solvency of banks. Rather, for the first time, the financial system was actually examined in at least in a half assed way by the regulators. This task was something that you would have thought was being done all along by bank examiners, but obviously was not. I think the idea of the stress tests was to prevent sudden unexpected revelations and midnight rescues of insolvent institutions. To the extent that these tests are repeated periodically, they should perform this function. The stress tests don’t tell you squat about the eventual funding needs these banks will have. But it does give advance warning of how much immediate funding is need, thus averting “systemic risk” (unexpected failures) and on the fly rescues.

Pecos Banker • May 11th, 2009 at 3:19 pm

Remember the Boston “Big Dig”? That seemed like a boondoggle at the time, given that it was to cost $10 Billion. $10 Billion? That’s a drop in the bucket by today’s standards. Yet look what they got for the expense: a system of tunnels underneath the center that relieves traffic congestion and speeds up transit across Boston as well as a beautiful new bridge.Now, turning to the banks. Ah, the poor banks, they weren’t able to make it with usurious 30% credit card rates or a complicit congress that effectively exempted these debts from bankruptcy proceedings. And now we have the same hatchet-head Rubin protogees out there giving us the “What’s good for Goldman-Sachs is good for the country” treatment. Feel better now?

OuterBeltway • May 11th, 2009 at 4:04 pm

The latest BrainTrust article is up. Thesis: The real economy is in trouble, and has been for 20 years. Why? The West is suffering from a major labor shock, and the credit bubble just delayed the hit.Here’s the link: Economic Force: Labor Shock You see, income from labor has been propped up by bubble industries as manufacturing and I.T. left the building during 90′s. Now that the bubble’s burst, there’s nothing standing between us and the reality of competing head-to-head with someone that makes a tenth of what we do.If you’re wondering how we got into this mess, or what the next move is – I mean, a move that might actually work, that is – you need to read this article.For those new to the BrainTrust, we’re a gang of RGE bloggers that got tired of complaining about how bad things are, and decided to actually DO something about it. Check out this article – it was collaboratively written by 9 members of the BrainTrust, and I have to say, we’re proud of it. It’s nice work, and it’s solid.We invite the RGE stalwarts to read this article, and hit us with your best shot. We want your feedback, because this article contains some of the data and logic we’re going to use as the foundation for a great deal of work in the next two quarters.To help set us straight, we specifically invite responses from the likes of PeteCA, GSM, WolfInTheWilds, PhilT, Pecos Banker, Hubbs, MM CA, Mandarin…and anyone else that wants to take a crack at it. Put up your dukes!All teasing aside, we really would like to hear from you. No point building a house on a bad foundation, and this foundation needs a Stress Test. No, not that kind of stress test, I mean a *real* test. From people like you.Lastly, for those that claim that our BrainTrust moniker signifies some type of conceit – you should know that we got a good laugh out of that. If you knew us, you’d laugh, too.Check out our stuff, whydontcha, and let us know what you think.Best regards all around!

devils advocate • May 11th, 2009 at 4:21 pm

on target!everyone on the planet may play/trade short-term on the Americanstock market, but is moving away from “investing” in USAfor example, New Zealand’s national “super (mutual)” fund is discussingincrease buying into its own stock market, instead of elsewhere (guess),40% up from its current 18%.notice that each time US stocks rise 1%, the Asian and Australian and New Zealand stocks rise much higherand by the way, I believe the US stock market will go up a lot more NOWno matter the news, the numbers, the debtfor example, in todays NY Times (p.B7)Meredith Whitney expects credit card lenders (banks)to cut credit lines$2.7 Trillion through 2010 …this equals a 57% reduction of credit!so what?! The Govt will create “credit card cram”, issue “Govt Credit Cards”and on the good news the US stock market will rise a lothow could this be? remember: where there is a will there is a way

PeterJB • May 11th, 2009 at 4:37 pm

Something worthy to consider By Cynthia McKinneyMonday, April 20, 2009 7:00 PM:”The policy of ‘controlled chaos’ will be implemented and we will witness in major cities of the USA, UK and Europe of street battles, orchestrated by the Intelligence Services, between the white folks and the immigrant population. In the USA it will be against the Latinos and then the blacks . . . In the UK and Europe, it will be against mainly immigrants from Turkey, the Northern Mediterranean states and Pakistan and they are essentially Muslims. There is therefore, the added fuel of Islamic radicalism, which in the first place, was the creation of the Western intelligence services.”http://www.opednews.com/articles/The-Economy-From-Soros-an-by-Cynthia-McKinney-090420-68.htmlA delightful observation from a wonderful Lady. I wasn’t aware that Congresspeople were actually literate enough to read?Ho hum

Guest • May 11th, 2009 at 4:37 pm

Obama has said several times manufacturing jobs aren’t coming back and quote “we don’t want those jobs anyway”, instead of Keynesian stimulus Obama wants to send everyone back to school instead of a job you get guess what more loans to pay for school. And this is why we’re truly doomed we elected a president who is really stupid! He really believes everyone can be lawyers and bankers and create a healthy economy. He really said that, he’s also said things like credit is the life blood of our economy and other telling statements that show what an idiot he is and why we’re in deep trouble. I voted for the guy he sounded really smart but clearly he isn’t.

Guest • May 11th, 2009 at 4:41 pm

Wow, did you just hear the “Fast Money” dork losers? Yeah, they were ripping NR and at the same time implying that he may need to change his moniker from “Dr. Doom” to something else because he may be getting bullish on economy or the market or…Something! Based on ????????Ya gotta love idiots who put words in your mouth hoping you’ll change your opinion after they insult the sh!t out of you. “oh but he knows how to party”They said many inaccurate and insulting things. NR-you should never grace that crap hole again !!!

Guest • May 11th, 2009 at 4:47 pm

Gloomy, I’m the former publisher of a successful trade publication–now sold. Do you think our sales staff ever would have attended a major industry show to sell space and, if asked by a potential advertiser how’s business? would ever had said, terrible, in fact next year we may be out of business? NO. And I tell you that these unregulated big banks are in a business that needs and sells investment capital. Do you think they’re voluntarily ever going to tell anybody they’re in terrible shape? No.Add to that, the motivation of a Fed and Treasury that designed the stress tests in the beginning as a device to placate the markets and the public, and then withholds any severe news that would upset their recovery announcements, and you’ve got “schmess.”Which is all to say, I don’t think the “stress” tests will give advance warning of anything.

Guest • May 11th, 2009 at 4:51 pm

Well, hey, it worked for him, didn’t it?

Guest • May 11th, 2009 at 5:10 pm

That’s the exact logic he uses, it worked for me therefore it must work for every one, straight from the ego and void of real perspective.

Anonymous • May 11th, 2009 at 5:31 pm

It’ll take at least another 50 years to build a machine capable of emulating an averagely gifted human translator, and then, who knows, the machine might go on strike to get a decent salary.

MM CA • May 11th, 2009 at 5:34 pm

let me start with, I beleive Obama means well…and I believe he cares somewhat. After that I agree he is stupid. He lacks the experiance plain and simple and i’m not sure he is able to comprehend the massive amount of information being thrown at him. Couple that with the adivce he gets from most of his team, who just happen to be the same old people re-invented and people in the pockets of the Banks, PTB, Buisness, etc… and this mess jsut keeps getting worse. I am niether a Dem. or a Rep., i tend to vote who i think is best capable with the limted choices we are always given. I said before young Bush got elected he was the dumbest person i had ever seen going after an importante postion, let alone the Prez. Well when Obama got the nomination i felt the same way about him… I just dont see much there. You know what happens when a rookie or first year player doesnt produce in the Majors or in the NFL, they get sent to the minors or cut. OBAMA is a ROOKIE and we cant afford for him to learn on the job…. We are pushing 6 months now with him and what have we got to show for it but more and more NO JOBS!!there is a little part of me that thinks and greatly Hopes he pulls it off and becomes the next Babe Ruth of presidnets, because that would be best for all Americans…i’ll give him credit for sticking the bond holders at Chrsylar, he needs to go harder and faster after the real PTP and shut them down and give back to us what they have taken…

Guest • May 11th, 2009 at 5:56 pm

funny just before coming here (a couple of minutes ago), I read this article:G20 police ‘used undercover men to incite crowds’http://www.guardian.co.uk/politics/2009/may/10/g20-policing-agent-provacateurs

An MP who was involved in last month’s G20 protests in London is to call for an investigation into whether the police used agents provocateurs to incite the crowds.Liberal Democrat Tom Brake says he saw what he believed to be two plain-clothes police officers go through a police cordon after presenting their ID cards.Brake, who along with hundreds of others was corralled behind police lines near Bank tube station in the City of London on the day of the protests, says he was informed by people in the crowd that the men had been seen to throw bottles at the police and had encouraged others to do the same shortly before they passed through the cordon….

Gloomy • May 11th, 2009 at 5:57 pm

Sure they do. The stress tests show exactly how much cash needs to be infused into these dying corpses to keep them alive for the next 3 months or so. The lie is pretending they mean anything more than that.

Guest • May 11th, 2009 at 6:02 pm

Roubini:”First, the stress tests are not stressful enough. As discussed in a previous note current levels of unemployment rates are already higher than those assumed in the more adverse scenario;”Perhaps the government needs to use stronger fudge tools with the unemployment numbers…

Michael Khor • May 11th, 2009 at 6:11 pm

I am inclined to think that the Good Prof. should not stick his neck out too far pertaining to predicting the market bottom after being so successful prior to the current rally. Anyway, I always have high respect of his views. So Guest, what makes you so sure the market has bottom, for instance, in the next 12 months. Nevertheless, I believe that one can achieve hefty returns in this 9 weeks rally if one can get the timing right besides the stock selections. Therefore, it would be great if members of this community could exchange views and share their experiences to make money/trade for short term profits if this is a sucker rally.

MM CA • May 11th, 2009 at 6:30 pm

Great Article, well thought out, good comparisons… it Tells of what happened, what went wrong and why. it shows the problems for the Developing countries moving forward… but it does’nt seemt to address the US labor market, except in the terms of how the oversees labor market affects our Jobs. Need to read it again….I’ve wracked my head on where Good paying US JOBS will come from and it’s hard to see where. The one good paying industry we have left whcih is health care is about to go on a 10 year cost cutting/reseting hatchet job. no longer will RN’s make 100K plus i believe as an example. So take away health care and what else is there… Green Energy type jobs/industry – Big Oil wants no part of that anytime soon in the next 10 years… so what is left 15.00 an hour service jobs… maybe some 75k Financial jobs, some 60k manufacturing jobs… We have big problems figuring out where good paying jobs will come from…. all i know is we have 25M basically unemployed today and will push 30M by years end and who knows how many in a few years. And getting that many people back to work in jobs with some benefits and decent wages is going to be tough. And if anyone thinks for a second that employing literally 25-75 million in 30-40k a year jobs is going to fix things, and most with no benefits, no health coverage…well what can i say…I’ll say one more thing- having millions of people sitting staring at computers in thier current jobs is not helping and its in all industires…. email overload, laziness by email, email instead of voice communication, working from home is all BS… people for the most part cannot make anything at home… there had to be a point in our history where there was a balance, we need to identify it again and work towards that again. people went to work, they did real work with hands and mind, they produced somehting, they got paid a decent wage and they went home… and employers cared abotu emplpoyees more… the bottom line it seems these days is all that matters… and CEO needs to see in his mornign email that profits are up, costs are down so he can punch his buy or seel buttons in his stock accoutns and tell his “shareholders” how wonderful he is doing for them…

MM CA • May 11th, 2009 at 6:45 pm

and the beat goes on… its all in the numbers.. Shoot i remember in November Bush gave them until march 31 to fix their problems… and Obama said the same thing and here we are now in June. thsi will go forever.GM lost 55 Billion in 06 and 07. the entire US auto industry lost 350 Billion since 1997. So what chance do they have of ever turing a profit and paying anything back… Same with Banks, with the amount of losses already realized, the trillions of loses still on the books yet to be realized, how can they make a profit too to cover it all… WE are broke and we need a RESET. Either we do it on our own terms or others will do it for us, starting with ChinaYour Auto Bailout Tab: $83 Billion And Counting (GM)Bailing out our foundering auto industry will cost at least $83 billion, Time magazine reports.Here’s how they get there:$4.1 billion from the Treasury to Chrysler in debtor-in-possession financing last week gets us to $8.2 billion federal loans. (Loans we won’t ever see again.)$15.4 Billion for GM from the TARP, it could hit $27 billion before all is said and done.$5 billion went to GMAC.$1.5 billion to Chrysler financial.$5 billion to auto part suppliers.$4 billion for cash for clunkers.Billions more for covering warranties.$25 billion from the DOE to get more fuel efficient cars on the road.$8 billion more requested by auto part suppliers.$11.5 billion will be needed for GMAC according to the stress test.Like any good bailout, we’re probably just getting warmed up, says Time. The bankruptcy of GM could cost $100 billion.

Guest • May 11th, 2009 at 7:24 pm

Well it was a choice between the Rookie and the Old Guy, who’d been there so long he stank of Washington corruption. If this is a crisis never seen before, would McCain have been able to bring anything new to the table or would he have gone about it the same old way? I don’t think he would have been any more successful. But all that’s a moot point since he didn’t get the votes.I can appreciate the cry of “no jobs” but what new jobs are you proposing? We say we need jobs that produce something. What do we have that the world might want to buy. We’ve moved all of the manufacturing to China, and we could try to take that back, but they’re already established and can make it cheaper than we can. To scale up our manufacturing to a competitive level would take time and money. (Both of which mean more “no jobs” for a good while.) Lets see…what else have we got. We could make and export drugs, but we’ve picked the low hanging fruit and now it’s easier to import knockoffs. The development costs of new drugs are huge and the time frame is in years, not months. Again, still “no jobs.” What else have we got? Any ideas from the critics?I think the hope with promoting education is that somewhere, someone will come up with new marketable exports that we can scale up to replace the manufacturing sector. It’s going to take innovation, and then its going to need a system to rapidly re-train workers to speed the scale up. I think Obama is smarter than he appears. There are dozens of plans and sub plans being put into place and many with longer term goals. The first step is slowing/stopping the slide. Only then can we start climbing back up.

Guest • May 11th, 2009 at 7:38 pm

Good answer. I’ll buy the three-month prognostications. But as Hawkeye on M*A*S*H ((Mobile Army Surgical Hospital) would say: “They’re dead. I know they’re dead because in school we studied dead.”

FEDup • May 11th, 2009 at 7:43 pm

nice job keeping us posted on the probable real costs of the Great (cashing eating) Monster!

OuterBeltway • May 11th, 2009 at 7:47 pm

MM CA: thanks for the feedback. The BrainTrust teams – not just the ones we have now, but the ones that will form in the next few months – will answer the questions you posed.We have a three-step plan. First we figure out what the economy of tomorrow is actually going to be like. That’s what the Top-10 Forces series does.Second, we relate the forces into the Economic Weather Map. This is a simple, pictorial representation of the composite (all-togther-now) impact of those forces.Third, we use our economy-of-the-future Map to design business models that can survive in the economy of tomorrow. That’s the payoff: viable business models that can be implemented from the bottom up. No asking permission, no begging for credit – just use your head, hook up with the right people, and off you go.Maybe this all sounds like really hard work. Somehow, it’s not turning out that way. It’s fun. And it’s not gas-bag ventilating, either. The people on the team are do-ers.Just to give you an index of how potent this massive collaboration concept is, that article you just read was written over a one-month period by nine different people, most of whom were perfect strangers three months ago, and almost all of whom have never met one another. No professional editor. Lots of bits and pieces, widely dispersed educational and occupational viewpoints, lot of debate, and look what it produced.If you’re starting to get a little curious about the BrainTrust, and are wondering if maybe this “collaboration” thing might have legs, you’re not alone. A lot of people are wondering the same thing, and some of them are acting on their wonderment. Some of you readers are very potent people. Imagine what could be done by putting a potent tool like massive collaboration into the hands of people such as yourselves.Looking to build something new?Braintrust at realeconomy.org is a good place to investigate.

MM CA • May 11th, 2009 at 8:02 pm

Long term goals? where is the fix for 4 trillion more in toxic assests?Obama ran on and promising to implement the following:1. Create Jobs!2. Reduce oil dependency and increase Green Tech3. Invest in Education4. Solve SS and medicare looming Trillions of dollars in onsolvnecy5. Health care reform and health care for all6. Get out of Iraq and Afganistan ASAPthsoe are his top things he ran and is focusing on…Now look back at the last 6 Presidents and congress… Read the transcripts of inaugrial Address’s – they all said the same F..king thing…. to get elected… and what did they all accomplish but perpetuate the mess we are now in. also Not one of them dared to try and fix all those things at once as Obama is trying…let alone with the worst economy since the 1929-39 crisis.I have been told hundreds of dozens of plans and sub plans the last 24 years and it was all BS! That is why we are where we are now…Oboma is jsut mroe of the same. he lacks the proper connections, he lacks exp and he surrounded by Idiots. Is he not smart enough to understand he has/had the public behind him more than any other PREZ except maybe Reagan and could have elected to go hard and fast at the PTB and 300 million americans wouldve backed him… instead he has chosen to cater to the same special intrests….Fix the numbers of 300 Americans Obama, not the PTB…..relection is 3 years away and if has 25-75 million people with either no job or making 30k and no health insurance he will not be re-elected and it will be on to the next stupid idiot…I swear there are people that post here who could do a better job than these born and bred politicians… they are just liek rache horses…

Guest • May 11th, 2009 at 8:03 pm

while you are being first, how about Wanda Sikes or whatever her name is being the first joker at the dinner.She took her comments too far with respect to Rush.Yeah, things are heating up now.GM – bankruptcy is coming.Surgical I might add.there is gonna be a lot of bleeding after that surgery.Ah tell ya, Georgie boy would have kept you in a job, for better or for worse.

MM CA • May 11th, 2009 at 8:12 pm

She will do that and she already posseses the character traits you said as do many young people… but where to then? there are always people liek yourslef, but thsi day in age we have millions of americans that ahve been screwed, both young and old by thsoe that take adavnatage… those traits dont seem to be in abundance at the top of ecenomic ladder that is why we are in this mess… i worked for ATT in 70′s 80′ – my salry then was 50k or so… the people doing the same job now as i did then make 45-50k with most of thier benefits stripped… How can that be 30 years later? Sorry i dont trust the idiots and PTP and Corprate Moguls in charge these days. they spent the last 40 years robbing most americans of all that is good…

MM CA • May 11th, 2009 at 8:16 pm

repost from JB: Its all in the numbers, Devil is in the detials… NO JOBS!Let’s look at April decline:226K jobs added in the birth/death model, including 38K construction jobs, 1000 financial jobs, and 76K hospitality/leisure jobs. You believe that?Without the crazy DB mocel, we would have had been -765K, the highest yet.Check out http://www.chrismartenson.com/blog/session-new-feature-enrolled-members/18577Don't believe the hype.Reply to this comment By Jason B on 2009-05-10 17:19:37

MM CA • May 11th, 2009 at 8:20 pm

NO JOBS, NO JOBS, NO JOBS- so whats the fix? here is one:Ask yourself how much have we injected into saving, fixing , bailing out Banks, Wall Street, Auto’s, Fannie, Freddie, China? by most estimates it is TRILLIONS… is it 4 trillion, 6 trillion, 11 trillion – probaby something in those numbers. Now what have they all done with that money? Most of the receipients of the “Trillions” have themselves made massive job cuts and layoffs. That alone tells me they dont feel they will need the workers moving forward to service the economy because they also see no JOB Creation.So back to the fix:There are probably 50 consistent posters on this site and another 50 or so who all contribute. Everyone writes well, thinks intelligently, comes across as caring for the country and its people, seems smart, seem like they have business backrounds… another words, Good people. So take those 100, Make Roubini the CEO, start a company and ask Obama for 1 Trillion in hard cash to run a buisiness that actaully creates jobs. here is what 1 trillion can create:My Plan Annual Cost Employees Salary Bene$1,000,000,000,000 $70,000 14,285714 $50,000 $20,000$2,000,000,000,000 $70,000 28,571429 $50,000 $20,000My Plan Annual Cost Employees Salary Bene$1,000,000,000,000 $84,000 11,904762 $60,000 $24,000$2,000,000,000,000 $84,000 23,809524 $60,000 $24,000Now we have just employeed over 14 million at 50K annual salaries, with full health, 20 paid vacations days, 401k/pension contributions – another full benefits. Cost 1 Trillion. I threw in scenario’s for what 2 trillion would do and also if everyone made 60K annually. Most fortune 500′s average about 30-40% in fringe costs. samller companies less. so i took the higest rate of 40%. make sure everyone is covered and not on the cheap. So everyone is already poking holes… What about overhead costs, facility costs etc…it all depends on what these folks do. right now they are employed doing nothing… so there are no fixed costs other than small administration costs for payroll and benfits.How about a Green energy company prodcuing solar, wind, alternative products for commericial and residential consumers throughout the country. It includes installing and maintaing these products… I would declare a national solar energy mission — solar energy including waves, wind, photovoltaics, solar thermal and passive solar architecture. Open up the whole frontier and make that the priority as we convert our country to renewables. Get Boone Pikens to run it and have Roubini or(Braintrust)manage the $$$$ Rememebr everyone makes the same salary for now.Now figure that income taxes on this company and all the workers could effectivley return 150 Billion – 250 billion back to the gov’t annually. But the first three years of this effort, those taxes that would be paid have to be used for the overheads required to run a company this big.. for the company buy the materials needed. Revenue generation/prices for the products and serivces would be made afforadable to all.to sum it up- give me, give us 1-2 trillion and we could create anyhwere from 11 million to 28 million jobs depeneding on the amount received…But no instead, we have chosen to go down the roads of portecting and funneling Trillions the PTB that could care less about JOBS and JOB creation.The above is just to point out how the money should be used and sure anyone could poke holes in it, but its rough and high level. But i am convinced i could find 100 people form this site that could make soemthing similar work.

Guest • May 11th, 2009 at 8:45 pm

PeterJB would they be successful this time too or this time is different?

Guest • May 11th, 2009 at 9:02 pm

Pirates using london contactsMADRID (Reuters) – Somali pirates are planning attacks on ships using detailed information telephoned through by contacts in London, according to an intelligence report cited by Spanish radio on Monday.The pirates have built up a network of informants in London with access to sensitive data from shipping companies about vessels, routes and cargoes, according to a European military intelligence report that Cadena Ser radio said it had seen.The pirates receive their information by satellite phone and use sophisticated equipment to locate their targets, Cadena Ser said.The intelligence report also said that the pirates seem to avoid attacks on ships of some nationalities, including British shipshttp://news.yahoo.com/s/nm/20090511/ts_nm/us_spain_pirates

Guest • May 11th, 2009 at 9:04 pm

Nothing nowadays seems to be what it is.

Guest • May 11th, 2009 at 9:23 pm

This economy is not at rock bottom. No. The bottom that investors are building on is sand.But the news that the financial sector and the economy still need life support to function has not dampened market exuberance. Nor did Kansas City Fed President Hoenig’s statement last week “that despite signs of improvement, markets remain under stress and the economic outlook is uncertain.” Nor that he went on to say that “it will be some time before markets can be functional without government aid.”No. The market is riding up on a hype bubble that the financial sector is not yet dead. No matter, of course, that’s it’s survival is dependent on an artificial bank rate of zero, and the commandeered savings from old things, and the dumping of trillions in toxic debts into the backyards of the American people, and the constant robbery of the U.S. Treasury and U.S. wage earner, and the lining of its deep pockets with Fed fiat money by the trillion loads.“America, America, God shed his grace on thee”: Banks and Freddie and Fannie now on state welfare, GM dead, and Chrysler hanging by the ropes, while leaning on Italy’s Fiat (Fix It Again, Tony) who can’t make a car that won’t fall apart, with a corrupt car tsar at the wheel. And we look to Capitol hill, “from whence cometh our help.” Ha!So don’t tell me we’re all doing just fine. The economy’s had two quarters of more than 6% negative output, and Bloomberg quotes some guy telling us we’re all just bouncing around on the bottom–of a bathtub! while the Buffetts are hemming and hawing with, well, we don’t know… and the market “leaps like a calf let out of the stall in the morning.”No dice. Without the restoration of a strong American market, without free enterprise and a manufacturing base, without growth and jobs, without a financial sector that’s a service and not the operator of a banking casino that skims 41% of all corporate profits, Goldman Sachs won’t have anything of America’s to sell to China. Without America, China and Goldman Sachs won’t have anything to barter.And as for the Obama Administration’s rush into market-killing Socialism, Americans will not rise up and take that bait. Americans will not go the extra mile without a chance to share in the American dream.Ironic, isn’t it, that Goldman Sachs’ profit taking from selling off the country’s patents, manufacturing, and workers’ livelihoods fouled its own nest? Goldman knows everything but it doesn’t know the one thing that made America work! And that’s that other people have to make money, too.

Pecos Banker • May 11th, 2009 at 9:41 pm

Most people I talk to think that Obama had to use the same people who got us into this mess to get us out, because of their “expertise”. How do you disabuse people of that idea? Even Obama repeated the same mantra–he had to hit the ground running and these were the experts at hand–Summers, Geithner, etc. (Funny how there is always a plausible story that preempts criticism.) Then there is Obama’s “secret plan” cited recently on Miss America’s blog: the theory is that Obama is just giving these experts, and by extension, their masters Lord Paulson and Baron Dimon, the rope to hang themselves. The trouble with this story is that it fails Occam’s razor. The simpler explanation is that for whatever reason, Obama believes in these henchmen. Just as Bush served his masters (very successfully, it must be admitted!), so Obama is serving his masters. We taxpayers are just passive observers with no power other than the vote and because we are polarized and divided, the vote is not a threat to our toady congress. We are also hard-wired to give the nod to any well-presented, plausible story, as we vainly imagine ourselves to be intelligent. Thanks, MM CA for emphasizing that the truth is in the numbers–damn the stories.

Average Jane • May 11th, 2009 at 9:47 pm

Marvelous rant.

Guest • May 11th, 2009 at 9:51 pm

g,”socialism” has an egalitarian connotation.fascism does not.

Guest • May 11th, 2009 at 9:51 pm

Let me get this straight. You worked for ATT in the 70′s for a 50kish salary; clearly not a starter wage; and you have a two year old daughter? So you will be; what; 70 when she finishes college? Either you are incredibly irresponsible or you math simply does not work.

doesitmatter • May 11th, 2009 at 9:54 pm

“the level of culture that can be achieved in the United States is a life-and-death matter for great masses of suffering humanity.” N.ChomskyThe number of civilians killed in military operations, particularly American bombing raids, has become a chief source of Afghan disenchantment with the war against the Taliban. The United Nations estimated that more than 2,000 civilians were killed in fighting last year.Villagers and Afghan lawmakers disputed the initial American claims that Taliban grenades had caused the casualties. Muhammad Naeem Farahi, a Parliament member who is from the area and has followed the case closely, laughed at the suggestion. “No, that’s not true,” he said, “and I am someone who supports the American presence.”"One villager reached by telephone, Sayed Ghusuldin Agha, described body parts littered around the landscape. ‘It would scare a man if he saw it in a dream,’ he said.”

Farnorth5 • May 11th, 2009 at 10:10 pm

Talk about HOPE from the new President,I was hoping that after the first week in office,Paul Volker ,the former Fed Reserve Head would have lost his cool and said”Mr.President could I see you in your office for a minute?”After having closed the door, he would have said”I have bad news and good news,The bad news is that the continuation of the bank bailouts cannot work over time and is a scam.However the good news is there is a way of restarting the debt system by way of cancelling the existing debt on the banks balance sheets and starting over.It would require a temporary takeover and cleanup of the top 20 banks or so ,as they have half of the outstanding bogus debt on their books at the present time “What do you think ??????

Guest • May 11th, 2009 at 11:02 pm

HAHAHAH, Obama is a liar. HAHAHAHAhttp://finance.yahoo.com/news/White-House-Unveils-TaxRate-wallstreet-15210479.html?.v=4The Obama administration provided more details on the scope of its tax proposals, showing the impact of rate increases on higher earners would hit couples with about $235,000 of “taxable income,” or income after deductions and exemptions.—-Soon would hit couples with about $200k or $105k of blablabla after blablabla. Lie lie lie lie LIEBWAHAHAHAHA

Brett in Manhattan • May 11th, 2009 at 11:18 pm

“Most people I talk to think that Obama had to use the same people who got us into this mess to get us out, because of their “expertise”.”This is very similar to the same twisted logic that Roosevelt used to name Joseph Kennedy, a known stock manipulator, as the head of the SEC.

Guest • May 12th, 2009 at 12:03 am

Hayes, you missed your calling. This is a breaking story!

Guest • May 12th, 2009 at 12:06 am

It’s time to hit the streets–and I don’t mean a tea party.

MM CA • May 12th, 2009 at 12:19 am

Volker has been cast aside and it was a while ago… He was the odd man out… Obama went with the other idiots… your scenario probably played out too with Oabma and Volker, that is why he is out….

PeterJB • May 12th, 2009 at 4:53 am

This time be different.Ho hum

Guest • May 12th, 2009 at 6:12 am

PeterJBIn this age of mass information, misinformation and confusion do you think that people(i.e bernays) who started this mess(not just financial) to acheive goals to their end still are able to part fact from fiction OR the mess have taken its own character and even they are obleviuos to whats happening and what will happen(i think what was propaganda have bocome fact and part of daily life now)? in other words are their people in the world who know what is true and what is not? Thanks

Guest • May 12th, 2009 at 8:51 am

This is a dogma problem. The dogma says that the financial elite are the social darwinian winners and the rest are losers. The “iron law of wages” is being implemented. Pay the peons enough to barely survive and procreate to have further generations of peons. The social darwinian winner is the financial sector that controls all sectors and the information that we hear. They expect to own everything, and we should just shut up and keep our heads down and live on our knees.

MM CA • May 12th, 2009 at 8:55 am

All correct… late 70′s at ATT- MGMT.. my son is 24, daughter 20 and baby is 2 1/2. and the point of questioning me is? And what is irresponsible about giving the gift of life when one makes the CHOICE to do so..

Melvin T. Furd III Jr. • May 12th, 2009 at 9:38 am

Boy that doesn’t surprise me at all but thanks for posting this, I think it is very important. this is alluded to in other forums that the GlobalNew Order is simply pitting the ‘right’ against the ‘left’ as a wedge to put through their agenda. a clever but time worn ploy. just sayin’

Melvin T. Furd III Jr. • May 12th, 2009 at 9:46 am

” What do we have that the world might want to buy”Unleash the Green movement/ I know this sounds cliched but I happen to believe that manufacturing bullet trains, mag trains,monorail systems would be high on the list,Next I would urge an unleashing of technologies and businesses to clean up the oceans and rivers. they are a stinking mess all over.High on the list if not the highest is mass production of ‘alternative’ energy systems. Wind, solar fields all around the magnificent globe.Water purification systems of a grand scaleReforestation companies on a grand scale to fight the depleting rain forests and woodlandsOrganic farming exportsFood productionThe list goes on.

Guest • May 12th, 2009 at 10:49 am

From Brave New World of Governmental Finance by Eric J. Fry — specialist in international equities since the early 1980s | May 12, 2009“What marks our Great Recession for greatness is neither the loss of jobs nor the shrinkage in GDP,” declares James Grant, editor of Grant’s Interest Rate Observer, “but the immensity of the federal response to those afflictions. The scale of the government’s intervention is much more than unprecedented. Before 2008, it was unimaginable. We have reached the ‘kitchen sink’ phase of US counter-cyclical policy.“To try to exorcise the Great Depression, President Herbert Hoover deployed fiscal and monetary stimulus equivalent to 8.3% of gross domestic product,” says Grant. “To banish the demons of 2008–9, successive administrations have spent, or encouraged to printed, the equivalent to 28.9% of GDP. A macroeconomist from Mars, judging by these data alone, would never guess how much more severe was that depression than this recession. The decline in real GDP from August 1929 to March 1933 amounted to 27%; that from December 2007 to date, just 1.8%… so for a slump 1/15 as severe as the Depression, our 21st-century economy doctors administered a course of treatment more than three times as costly.”What does this all mean? Well, it probably means a couple of things, at least. The first thing it means is that the government will debase the currency for the sake of reviving the economy. A weakening dollar seems like one of the very best trades of the next three to five years. The second thing that the government’s outsized response means is that America’s national finances will be a disaster for years to come. No one can borrow $1 trillion without somehow paying a price… not even the richest country on the planet.The stock market rally of the last two months implies that the economy is recovering. But that’s a lie. The economy is not recovering, no matter how many times CNBC’s Larry Kudlow argues to the contrary. The economy is contracting…in almost every industry and in almost every way. Recovery takes time.“The deceptions of the Bubble Epoque, 2001–2007, were enormous,” writes Bill Bonner, here at Daily Reckoning. “The correction has been enormous too. And here are the same economists who mismanaged the economy, offering advice to governments who mismanaged their regulatory roles, about how to keep mismanaged companies alive, so that bondholders who mismanaged their investments might not go broke. That this will result in more misery is a foregone conclusion… The measure of that misery, if our iron law holds, is how adamantly governments fight to keep their mismanagement going.“Just looking at the numbers, the toll will be monstrous,” Bonner continues. “All over the world, interest rates have been cut and budgets padded. France’s deficit is running at 8% of GDP. England is running a deficit of more than 12% of GDP. And the U.S. is mobilizing as if it had been attacked by Martians. On the credit side, the feds have cut rates more than ever before, for a monetary boost equivalent to 18% of GDP, according to Grant. As to spending, $13 trillion has been pledged…an amount equivalent to a full year’s annual output of the United States of America. This response is 3 times more (adjusted to today’s dollars) than the U.S. spent to fight WWII. It is 12 times more (relative to GDP) than the total committed to fight the Great Depression.”http://www.lewrockwell.com/orig10/fry1.html

Guest • May 12th, 2009 at 10:51 am

This may be a dumb question, but I just don’t get the federal tax system. Why is it that a family that makes $250K/year in Mississippi is taxed the same as a family that makes $250K/year in California? The family in MS is wealthy and has much higher purchasing power than the family in CA. It seems to me that knowing the amount of income one makes is meaningless if it’s not in context with what one is able to buy with that income – cost of goods. Am I thinking of this all wrong?

Guest • May 12th, 2009 at 10:58 am

The strongest rallies are in Bear Markets(Nov 29, Jan 31, Oct 31), so don’t count your winnings while sitting at the table.It appears that the rally cry is to fianance the “fishing fleet”, to catch the next wave. Problem is we’re broke. Thefish are GONE and the outer edges of a perfect storm of post-peak-oil is only moving onto the radar screen. Wait until thevarious big economies and their big governments try to flog Bonds to pay for their liferafts!!! Roubini will look like anoptimist. Japan has lived the L-shaped recession. What makes everyone think we’re so smart as to escape a similar fate, with growth so pathetic it will drown most of us in a sea of sorrow?

Brett in Manhattan • May 12th, 2009 at 11:02 am

They have to divert viewers from the fact that with all their “expertise” none of them called the crash, neither did Cramer who called a bottom in July 08.I do recall one of the guys on Fast Money, Najarian, saying that Citibank was starting to look attractive AT 35. lol.

Guest • May 12th, 2009 at 11:11 am

Home Prices in U.S. Drop Most on Record in QuarterMay 12 (Bloomberg) — Home prices in the U.S. dropped the most on record in the first quarter from a year earlier as banks sold seized homes and foreclosures in California and Florida dominated sales.The median price fell 14 percent to $169,000, the National Association of Realtors said today. Prices dropped in 134 of 152 metropolitan areas, with the deepest declines in Cape Coral-Ft. Myers, Florida, and the San Francisco and San Jose areas.Distressed sales increased transactions in 17 states from the fourth quarter as speculators and first-time buyers purchased bank-owned properties. Such homes typically sold for 20 percent less than others, the NAR said today…“In areas with the biggest price declines, we also see much higher levels of distressed sales which are distorting the data…”The steepest price decline was in Cape Coral-Fort Myers, down 59 percent from a year ago, followed by Saginaw, Michigan, with a 54 percent drop. The next biggest decreases were Akron, Ohio, with a 48 percent decline, San Francisco, down 43 percent, and San Jose, California, with a 42 percent drop.The largest sales gain from a year ago was in Nevada, up 117 percent, followed by California which rose 81 percent, Arizona, up 50 percent, and Florida with a 25 percent increase…U.S. banks held $26.6 billion of repossessed real estate at the end of 2008, more than doubling from a year earlier, according to the Federal Deposit Insurance Corp. in Washington. The banking industry lost $26.2 billion in the fourth quarter, the largest loss in FDIC records.The average U.S. rate for a 30-year fixed mortgage was 4.84 percent last week, down from 6.05 percent a year earlier, according to mortgage buyer Freddie Mac. The rate fell to a record low of 4.78 percent last month…http://www.bloomberg.com/apps/news?pid=20601068&sid=aKkPN8keugMw&refer=homeNOTE: According to The Real Returns:[T]he median house price was at $163,500 in the month of January 2000. The median house price in April 2007…was at $229,100. The median house prices grew 40% from January 2000 to April of 2007.The average house price in January of 2000 was at $200,300 and in April of 2007 the average house price stood at $299,100. The average house prices grew about 50% from January 2000 to April of 2007…Median house price changes from March into April:March 2000 ($165,100) to April 2000 ($162,600)March 2001 ($166,300) to April 2001 ($175,200)March 2002 ($183,400) to April 2002 ($187,100)March 2003 ($185,100) to April 2003 ($189,500)March 2004 ($209,600) to April 2004 ($222,300)March 2005 ($229,300) to April 2005 ($236,300)March 2006 ($238,800) to April 2006 ($257,000)March 2007 ($257,600) to April 2007 ($229,100)DataSource: http://www.census.gov/const/uspricemon.pdfhttp://therealreturns.blogspot.com/2007/06/median-and-average-house-prices-in-usa.html

Greg • May 12th, 2009 at 11:13 am

Yeah, I heard that on Fast Money saying NR is an economist and never made anyone any money. By reading NR, I am postive in my investments since the beginning of 2008 – can any of those clowns say the same? Doubtful! The lady on there just kept hyping Citi – Great buy at $21, $18, $15… Dylan seemed like the only one was some sense – must have been because he left.

JoyceF • May 12th, 2009 at 11:21 am

I don’t think this is a dumb question at all. It seems that purchasing price parity based on location is the core concept, and whether this should (or could) be a basis for the US tax system. Would it lead to a more equitable tax scheme than the present one if?Maybe this notion underlies the choice of retirees (or very wealthy individuals) to become ex-patriots while still relying on US source income. After tax US dollars would support a higher standard of living than residing in the US.

Guest • May 12th, 2009 at 11:36 am

Not a silly question at all. And it raises an even more important question in my mind. Does a family making 300K and paying 35 percent in tax carry a heavier tax burden than someone making, say, 100K and paying 29 percent? Nominally, we all agree that the answer is yes. But in real terms, its not altogether clear because you have to look how an individual’s tax rate effects their purchasing power at their level of income to assess their “tax burden”.

Guest • May 12th, 2009 at 11:42 am

Very likely Goldman will just mover over to Shanghai and establish their primary business there. They just follow the money.

MM CA • May 12th, 2009 at 12:12 pm

The continuing Downward trend in housing prices will continue for two main reasons 1. Until at least 50% of the 20 Million surplus of unoccupied housing is consumed. 2. Until JOBS are created and Unemployment and Wages are dealt with. Housing numbers are just like the unemployment numbers? Do you accept the U2 rate or the U6 rate. the devil is in the details or NUMBERS these days…Depending on what region of the country, some are doing a little better and palces like california, florida, AZ, etc… will continue to see steep declines.What I dont get is they keep saying prices are down “only” overall about 18% nationally…Califonia is an abosulute disaster.look at this link: this is indicative of most of Calif and other areas of the country liek Florida, AZ, the NE… http://flippersintrouble.blogspot.com/Housing will go another 15-30% down in the next 12 months depending on area…

Guest • May 12th, 2009 at 12:21 pm

The professor has just coined a rebuttal to the “green shoots”. He told Poppy Harlow of CNN that we must also consider the YELLOW WEEDS. This will catch on in the public parlance. The Global Aggregate Demand and overaccumulation of Supply is the biggest risk in the short term. The professor sees a bottom towards the end of the year. My question is does the professor see a temporary bottom or a long term bottom. The only bottom I see right now is Harlow’s. Which I would like to say is extremely adequate.Please enlighten us with the dynamics of a late year bottom. I need the Syllogisms in the Logic.

Guest • May 12th, 2009 at 1:06 pm

Ironic, isn’t it? America’s Money Tyranny arranges for higher government-insured and easy-qualify FHA mortgage loans up to $700,000 in areas such as San Francisco and San Jose but seems willfully blind when it comes to taxing away the salaries needed in those areas to service these loans.Bluntly, the government goes where the money is in order to get it—regardless of the injustices. And in order to get it, it has to have common support for it—from the majority who don’t pay. If big government were to reduce taxes in areas expensive to live in, then it wouldn’t get as much money. It needs the people in San Jose and New York to pay the same as the people in Alabama regardless of the heavy hit to their standards of living.It’s the same principle used by insurance companies–to make money you have to extort it from the people who don’t file the claims, the safe drivers and the homeowners with something to lose. That’s why big government wants universal health care—so those who strive for healthy life styles and don’t file claims will have to pay for those with reckless lifestyles, and so that corporations who employ slave labor won’t have to pay for their health insurance.That’s why, according to BWAHAHAHAHA above, Obama is planning to snatch a bigger bite from the incomes of those couples with a $235,000 net. What damage will his big teeth do to a single person earning $150,000 with a $600,000 mortgage? (San Jose has 17% more men than women; New York has 16% more women than men.) A single’s mortgage is just as high as a couple’s, ditto his property taxes and his house insurance. Perhaps he can give up food.California’s big appetite government in Sacramento already is in a $15 billion hole after its recent big tax increases, a staggering hole expected to get bigger. So far, it hasn’t found a way to force businesses and professionals to remain in the state to be fleeced.Said Reuters on April 9, 2009, the state’s top income tax rate is now 10.425 percent [up from 9.3%]…and rises to 10.55 percent if certain economic triggers are hit…California lawmakers also boosted the state’s sales tax to 8.25 percent, [and] nearly doubled the vehicle license fee…And if that’s not enough, the current occupant of the Oval Office is now telling a private corporation (General Motors) what kind of products it can produce, how it can advertise them, and whether it can go bankrupt or not.What kind of ism is all this? It’s socialism.Socialism is not some benevolent equalizer: it destroys the standard for enterprise, for achievement and opportunity for the betterment of individuals. It reduces society’s institutions, businesses and individual performance levels to the lowest common denominator. It is the leveling out of growth. And as every government must have its rulers, socialism, like the attempts to create communism, enriches its rulers to the lifestyles of tyrants.

Guest • May 12th, 2009 at 1:14 pm

Shanghai’s loss will be our gain. Anyone for a going away party?

Sean • May 12th, 2009 at 1:16 pm

The only problem to this concept is — Should we price the Stock Price in the context of State/City?Like, For the same share of General Motor currently currently offered at $1.1:1) if you live California, you get to buy it at $1.5.2) for MS residents, they can buy it at $0.9Will this work? Remembered, this is ONE country

MM CA • May 12th, 2009 at 1:26 pm

Some quick updates to issues I saw in DEC 08 on the horizon: in quotes3. Dow at 5000 possibly 4000 -stays propped up by continued Gov’t purchases of shares and preferred shares- do not use as gauge of how economy is doing “Will occur by DEC 2009″4. S&P at 500 possibly 400- “Will occur by DEC 2009″7. Chrysler is gone by March. “Bankrupt in April 2009 survival out of Bankruptcy will be as an Entity 25% of what it was”8. GM goes under by Sept. “Bankrupt in June 2009- earlier then expected – survival out of Bankruptcy will be as an Entity 40% of what it was”9. GE files bankruptcy – “updated to 70% chance now sometime in 2010″10. Calif. state budget deficit hits 50 Billion- presently 41B – “5 of 6 Ballot initiatives will fail – problem will have grown to 60 Billion by June 1 2008 – State of emergency currently in effect will be elevated- FED will have to back stop sometime summer of 2009 – Bonds become literally worthless”11. All states and local Gov’t approach 300 billion deficits combined – “Revised to 400 billion by Jan 2010″12. Massive state and local Gov’t layoffs nationwide – “starts in fall of 2008″13. Official unemployment U2 hits 13%, unofficial unemployment U6 hits 25% – “will occur by Dec 2009″15. GDP shrinks at 6-8% for 2009 ( 2 qtrs of -6% already”16. Deflation takes strong hold until Sept 2009, at which point hyperinflation is roaring by Dec 2009. – “May push this to Summer 2010″17. US Dollar continues slow decline against Yen, Euro, Pound and Yuan – losses 50% by Dec 2009- Decline in progress”18. 2009 Federal deficit hits 2 Trillion – Update: 1st qtr almost 500 Billion “This target 09 run rate already hit”19. Total Bailout and Gov’t assistance programs approach 15 trillion from when it started in summer of 2008- currently at 12 trillion – “only 3 Trillion more to go”22. US treasuries become almost worthless – China holding the cards”24. Housing values decline another 15-25% from Nov 2008 levels- Calif., Fla., AZ, Nevada see even steeper declines – ” on pace for 30-40% now for 08- trend to continue into 2010 – 2010 to see 15-30%”25. States and local Govt’s raise taxes on everything, unless Federal Gov’t gives them help… this is going to be ugly- “in progress in many states, Calif., NY, NJ, Fla., etc…”26. Obama starts giving states and companies’ relief on Medical insurance premiums and costs… Possible full nationalization of Health care system gets underway in 2009- “if he doesn’t get this going faster and stronger the problem will get bigger- implemented Cobra relief so far”27. Fed possibly nationalizes entire banking system ” Still being discussed – lol”29. approx. 2 Trillion in more bad Res. mortgages/losses to be absorbed by banks and Gov’t – “moving towards 3 Trillion now”30. 1 in 3or4 mortgages fail. Prime and Alt A pool problem is actually worse and larger than sub prime problem – “in progress”31. Commercial real estate and rents fall off a cliff, 50% drop in values and 1.5 Trillion in losses. “In Progress”33. US possibly gets involved in much larger ground war somewhere to stimulate economy and jobs and deal with crisis in mid east/India/Pakistan/Russia/Korea34. Credit card Debt approaches 2 trillion in losses for banks and lenders “estimates now are approx. 1.5 Trillion”35. the Yankees with their new 3 players they paid 1/2 billion dollars to, win the world Series, but Yankee Revenue and profit implodes and Team gets in financial trouble. “See empty seats and 50% ticket price cuts in April 2009″36. 5-10 or more major sports teams go bankrupt in 2009 – “Phoenix Coyotes the first – will name others by the Fall of 09″39. People will think things are better for 1-2 months at times during the year, only to be hit over the head with more bad economic news and problems “currently in Second month of good news trend – will end shortly”40. these problems will last until at least 2012 as Americas struggle with all the resetting going on in the economy, from wages, to housing, to buying, to energy, to living simpler… – “No Change”41. Entire Gov’t and private Corp pension system is underwater by at least 2 trillion dollars and will be huge issue for Gov’t to deal with in 2009 – ” See Calpers, GM, other’s – still not a lot of coverage on this, but its happening”

MM CA • May 12th, 2009 at 1:28 pm

Correction on date……10. Calif. state budget deficit hits 50 Billion- presently 41B – “5 of 6 Ballot initiatives will fail – problem will have grown to 60 Billion by June 1 2009 – State of emergency currently in effect will be elevated- FED will have to back stop sometime summer of 2009 – Bonds become literally worthless”

MM CA • May 12th, 2009 at 1:40 pm

Obama’s Budget Hits Commodities And Options Dealers With Surprise Tax Hikehttp://www.businessinsider.com/obamas-budget-hits-commodities-and-options-dealers-with-surprise-tax-hike-2009-5

swede • May 12th, 2009 at 1:59 pm

No, it’s not. Why is it that people cannot get their heads around the fact that socialism IS NOT HIGHER TAXES, IS NOT TELLING CORPORATIONS HOW TO OPERATE. Socialism is collective ownership and administration of the means of production and distribution of goods, a society characterized by equality for all individuals, and an egalitarian method of compensation.The combination people keep referring to in the US as socialism is actually CORPORATISM or FASCISM.Get an education.

Guest • May 12th, 2009 at 2:12 pm

I recently heard a story, “Foreclosure City,” produced by a freelance company and aired on, I believe, NPR. Of the people interviewed, one couple lived in Los Angeles where both were employed. They happened to hear that really great houses could be bought in Las Vegas for not much money and that values still were really going up. And so they moved there, and bought into a gated community for value and security protection. But as time went on, the Las Vegas housing market started dropping. Their house became worth less and worth less–until it was worth less than they owed.And, then, one night they heard big raucous noises–teenagers had broken down the security gate, hundreds of them, and were having a wild party; the couple called the security police and eventually the revelers were dispersed. Later on, a thief crashed the gate. Houses everywhere were in foreclosure, many already boarded up.Then, the house next door was foreclosed on, and someone bought it. When the interviewer knocked on the door to check out the story, a little Mexican grandmother answered. When asked how many people lived there, she said, seven. The couple’s other next-door neighbor was in the auto detailing business. The people there brought in cars and worked on them all day long and then sat out on the lawn during the night drinking beer.Shortly thereafter the couple got a divorce. Their house was put into foreclosure and the young ex-wife moved back to Pennsylvania, to live with her parents.THE END

Guest • May 12th, 2009 at 2:22 pm

Second question then. What would we need to do to get these things moving. How do we make these things economically viable. Obama is getting crap for promoting trains already because of the high upfront costs and questionable returns on investment.All of the things on your list have either a high up front cost or would require greater political backing than they have. Seriously, there’s still a large US population that doesn’t believe that global warming exists and that thinks the green movement is full of wackos. How do we sell these technologies to the world when we can’t even sell them to our own citizens?Food is the only thing I can think of that might work in the short term, but many farms are subsidized already. Is there actually a world demand for Organic farming products?

Guest • May 12th, 2009 at 2:24 pm

Have you noticed who owns General Motors? The state. It’s socialism.

Guest • May 12th, 2009 at 2:46 pm

NO IT IS NOT. I DO NOT OWN GM. YOU DO NOT OWN GM.IT IS FASCISM. GM OWNS THE CITIZENS, NOT THE OTHER WAY AROUND

MM CA • May 12th, 2009 at 2:46 pm

This is a great read…. all in the numbers… I’d be interested in hearing others thoughts??Whole article with charts: http://www.businessinsider.com/henry-blodget-the-ken-rogoff-study-that-tim-geithner-refuses-to-read-2009-5The Ken Rogoff Study That Tim Geithner Refuses To ReadNiels C. Jensen of Absolute Return Partners isn’t buying the green shoots thing. He’s also thinks the huge market move is just a suckers’ rally. In ARP’s May letter, he notes that 1929-1932 saw four massive rallies of 20%+ and that such rallies are the hallmark of bear markets.But Niels’ real problem is with debt. Specifically, the amount of debt the world is going to have to take on to buy its way out of this crisis. This mountain of debt, Niels says, is likely to be vastly larger than the IMF, the US government, or anyone else is expecting.

MM CA • May 12th, 2009 at 2:53 pm

Rut ro is right… imagine what the States look like…Medicare is underfunded by approx 40 Trillion – Not Billion- 40 Trillion… Wheres the fix…Every January for the last 10 or so years Congress actually votes to deal with this problem the follwing year… some law says they were supposed to address it a long time ago and they keep voting to delay…. The clock is now Ticking…Before the current crisis, it was estimated to be insolvnet by 2019-2021 – so in 6 months we have chopped off 4 years or so and done nothing. I see the date moving up to 2012-2104 range if things dont improve in the Economy quickly… This whole Medicare/SS issue will make the last 10 months of problems look liek childs play….http://www.businessinsider.com/tax-revenues-collapse-medicare-and-social-security-going-bust-2009-5Tax Revenues Collapse! Medicare And Social Security Going BUSTRuh-oh.The Treasury has just come out with a big warning on Federal tax revenues. It boils down to this: Receipts are vanishing at a faster rate than expected (surprise!) and the entitlement programs are careening towards insolvency.According to the latest estimates, Social Security will take in less in revenue than it pays out each year by 2016. That’s just a few years. And the program will go completely insolvent by 2037 if no serious changes are made.Medicare will be insolvent by 2017.In terms of general revenues, here’s somethign pretty crazy, for the first time in decades the government ran a deficit in April — tax month.

Guest • May 12th, 2009 at 2:56 pm

Socialism can only be put into practice by a strong dictatorial government.Says F.A. Hayek in “The Road to Serfdom: A classic warning against the dangers to freedom inherent in social planning”: “Where freedom was concerned, the founders of socialism made no bones about their intentions. Freedom of thought they regarded as the root-evil of nineteenth-century society, and the first of modern planners, Saint-Simon, even predicted that those who did not obey his proposed planning boards would be ‘treated as cattle.’“Nobody,” says Hayek, “saw more clearly than De Tocqueville that democracy as an essentially individualist institution stood in an irreconcilable conflict with socialism:‘Democracy extends the sphere of individual freedom,’ he said in 1848; ‘socialism restricts it. Democracy attaches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.’”Yes, Swede, you are right, in that socialism is only another name for the old demand for an equal distribution of wealth. And I fear, as Hayek did, that socialism in America will be no more lead down the Road to Freedom than it did for the Russian people. For us as well as it was for them, it is the High Road to Servitude.Even Max Eastman, Lenin’s old friend, found himself compelled to admit that “instead of being better, Stalinism is worse than fascism, more ruthless, barbarous, unjust, immoral, anti-democratic, unredeemed by any hope or scruple.” He agrees that Stalinism is “better described as superfascist.”Said Eastman: “Stalinism IS socialism.” (Stalin’s Russia and the Crisis of Socialism [1940], p. 82.

Theta • May 12th, 2009 at 2:58 pm

To MM CA:I said “many have longer term goals” which means many, not all. Obama is no saviour and he can’t fix everything.Will he fail at some things. Yes.Will the world keep turning. Yes. I have been told hundreds of dozens of plans and sub plans the last 24 years and it was all BS!You’ve just now decided that it’s BS? What have you been doing the last 24 years? Maybe that’s my problem. I’ve only be old enough to vote for nine years. I haven’t had time to be old and cynical yet. Seriously, I’ve been trying to play catch up on all the goings on for the last couple of decades and these issues aren’t new. I’ve got books complaining about the environment and debt and incompetent politicians from fourty years ago. Has the message been around so long that people are deaf to it? There seems to be a monumental communication glitch.To PecosBanker:Good point. A polarized and divided electorate is no threat to congress. So how to unify people? So long as we keep swinging at the “masters” and “TPTB” the ever mysterious “they” we won’t get anywhere. We are also hard-wired to give the nod to any well-presented, plausible story, as we vainly imagine ourselves to be intelligent. Thanks, MM CA for emphasizing that the truth is in the numbers–damn the stories.So well-presented, plausible stories are out? Only porly presented implausibles are true? Well, no, we trust the numbers. Not the manipulated numbers, or the ones that are projections, or the statistics, or the other ones derived from other peoples models, but the real ones. Ok. I remember reading a lovely paper back in 2001 about the uncertainty in numbers (pertaining to the Bush, Gore election.) The authors end thesis was that the only way to remove all uncertainty was to pile up pieces of paper, one for each vote, into two piles and the largest pile was the winner. All numbers posess a certain degree of uncertainty, just like all stories. How to communicate that to people with a bianary perspective is a challenge.

swede • May 12th, 2009 at 3:09 pm

Glad that you cleared that up for me. I needed you to tell me from (I suspect) the “land of the free” (that locks up over 1% of it’s population) to know that Stockholm is in the hands of dictators.

swede • May 12th, 2009 at 3:11 pm

oh yes, and that it is NOT a democracy…

Guest • May 12th, 2009 at 3:16 pm

I don’t see that as the same thing at all. Prices are prices. Rate of taxation based on purchasing power is different.

MM CA • May 12th, 2009 at 3:32 pm

too many ism’s… Doesnt matter what it is.. bottom line it sucks these days in the US. Real dollars in people’s pockets are vanishing.. our way of life is changing, or what we had gotten used to… for good or bad depending on ones views…

MM CA • May 12th, 2009 at 3:36 pm

Legislation Coming This Week To Guarantee All Muni Bonds in all State and local Govt’s…. this is masked to include all states and local but ,its so that California doesnt go bankrupt or default this summer… so if this program gets done, it could be 300 Billion to 500B at a minimum over the next year…

MM CA • May 12th, 2009 at 3:38 pm

Is it me or is everyone else hearing and seeing about TAX and use fees now being talked/implemnted everywhere? but I/we all got Obamas weekly paycheck tax cut that avgerages 13.00 per worker…lol

Melvin T. Furd III Jr. • May 12th, 2009 at 3:39 pm

@guest”Obama is getting crap for promoting trains already because of the high upfront costs and questionable returns on investment. All of the things on your list have either a high up front cost or would require greater political backing than they have.Well there are some of us who say to hell with the military budget as it is. Talk about high upfront costs, and this has been going on for decades! Shift that money to trains and technology that serves mankind not one that destroys it. rather than B-1 Bombers and Stealth Bombers and Atom Bombs and Chemical agents and CIA agents and NSA agents and agent provocateurs and Hydrogen Bombs and Blackwater agents and God knows what else evil the masters of war are brewing. To hell with them! Shift the moneys to the people and our future sustainability. As Obama said in his campaign ‘Everywhere you look there is work to be done” I agree with him.” Seriously, there’s still a large US population that doesn’t believe that global warming exists and that thinks the green movement is full of wackos.”Well they’re are wackos all over the place. and there are more people who believe that it does exist. When a large majority of Nobel Scientists signed that statement about the definitivness of this warming I agree with them. I also believe my own eyes and feelings. When Antarctica is breaking up at alarming rates and summer now starts in March out here in California I am sorry, Global Warming is here. And it’s not just the climate but our Ocean life and animal life and plant life are being DECIMATED . This there is no argument about Our topsoils are also being decimated by inorganic fertilizers. Its just the plain facts, the minority are dead wrong, they’ve been voted out.How do we sell these technologies to the world when we can’t even sell them to our own citizens?It’ll sell to our citizens if we put them to work making these things that will save us. And believe me if we manufacture these mass transit systems and make them affordable they will catch on. The world is choked with car traffic.Food is the only thing I can think of that might work in the short term, but many farms are subsidized already. Is there actually a world demand for Organic farming products?Its not only the products but what the inorganic fertilizers are doing to our ground water and topsoil. We”re flirting with major dust bowls in the near future.

JoyceF • May 12th, 2009 at 3:40 pm

The original query of this mini-thread pertained to taxation of income. The premise was that identical incomes (taxed identically) in different parts of the country could purchase economically unequal amounts/values of goods/services. This raised the question of whether taxation should bring this into consideration when constructing the national tax scheme. Stocks traded on a national/international market are only one case of goods/services being available at different locations at the same price, not particularly relevant to the original query.

Guest • May 12th, 2009 at 3:48 pm

One cannot make taxation “fair.” For under its current form it is regressive; it takes money from the people who least should be paying it. There is only one way to make taxation fair and that is to have all monies collected under a national sales tax.But. politicians could make the current system more fair. When the despots took taxation away from being a small sum allocated as a civic responsibility to the village from which all had an understanding and a representation, it became a form of theft with the force of law.Modern centralized government is set up to reward itself and stay in power and grow. It had to find a way it could pay for those things, and the votes to stay in power, without paying for them itself. It had to get the money from us. In 1913, it found the way—a national income tax. Essentially, it is a system of punishment, of stealing. It tends to punish those people who earn their dollars fairly. The more a man works, the more they punish him. The more he contributes, the more growth he generates, the better job and education he has, the better paying citizen that he is, the more they make him pay.This form of taxation, of course, does not apply to America’s well-connected plutocracy with all its ill-gotten gains. As Teddy Roosevelt pointed out, “the really big fortune, the swollen fortune [the Goldman Sachs fortune], by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means.” These are the fortunes protected by the lobbyists, by the politicians and by the tax havens and the specially crafted laws.“To tax the community for the advantage of a class is not protection: it is plunder.” Benjamin Disraeli: Commons, May 14, 1850.

wethepeople • May 12th, 2009 at 4:02 pm

“Speaking at the White House Correspondents’ Association Dinner in Washington DC onSaturday 9 May, president Barack Obama said that “a government without newspapers, a government without a tough and vibrant media is not an option for the United States of America.”"Below the suface of this statement is something more alarming. The use of the term ‘government’ here is entirely inappropriate. By wrongly using the word ‘government’, Obama philosophically endorses the media and the state as partners, both dependent on the other for survival. His statement infers government control over speech, or limiting freedom of the press, but could conversely give undue influence to media in elections. The proper word(s) Obama should have used are, ‘a free society’ or ‘free people’ in place of the word ‘government’. A Freudian slip? Perhaps. Quasi-facsist? Perhaps. Let us be vigilent of our freedoms, lest we lose them! The press and media are of the people, just as the government is of the people. Do not fall for ‘pay per view’ news by the oligarchs of media. Information and data have a public utility function, and are not commodities, and therefore not only available to those who can afford the news or have the ability to pay for the news.

devils advocate • May 12th, 2009 at 4:22 pm

oh my God!———–great news – now muni yields can fall they’re so much safer we’ll have to pay much more for them…which means we switch to stocks!

devils advocate • May 12th, 2009 at 4:26 pm

oh my God!great news -now we need more than 2 trillions in health savings…which means we better get healthy!

Guest • May 12th, 2009 at 4:27 pm

Americans, in general, are becoming a very unhappy people.You and I, Swede, really are not arguing here about peoples choosing a political system. In the U.S., it’s no longer a question of people choosing. The U.S. has turned a corner. There is so much wealth and power here that all the world’s crooks have congregated here to try and take it. These dictators have gathered here to try to take all in this last hurdle. This isn’t compatible with an argument over who has the best system. This is like WWII–but fought with politics instead of weapons.Unfortunately, all the words to describe what is happening here have been corrupted. What we are experiencing are institutions and processes that are increasingly coming under state control. And the problem is that as the years go on, the citizens here are losing their control of the state.Now, if in your country, you feel that the people have control of the state, then that is a different system and it is, of course, of your choice.But keep in mind that these people of whom I speak have in mind a worldwide socialist state, ruled from New York, that will include you.

devils advocate • May 12th, 2009 at 4:32 pm

Dr. Doom has a strong competitor here

devils advocate • May 12th, 2009 at 4:38 pm

you need to watch much more TV and see thateverything is fine…everything is ok…everything is getting better and better…confidence is returning to the worldno matter what Jim Rogers says,the US dollar is good as …as…as..

subgenius • May 12th, 2009 at 4:39 pm

WTF? You speak of a worldwide socialist state in the making?swede states Socialism is collective ownership and administration of the means of production and distribution of goods, a society characterized by equality for all individuals, and an egalitarian method of compensation., a textbook definition.Are you proposing that these individuals in New York are going to hand over the reins of control to the people, and the standard of living (ie compensation) will be equalized? If so, count me in.If (as I suspect) you are saying that the NY future PTB are intending to make a global power grab, then I have to agree with swede – dress it up any way you like that is dictatorial fascism.

subgenius • May 12th, 2009 at 4:42 pm

That is, of course, ignoring what the Chinese might have to say about such a move.And, to be honest, I doubt we have the resources left to allow anyone to build and maintain a one-world government. Malthus and Gaia have teamed up and are riding in to kick the ass of the existing “masters of the universe”. ETA unknown, but closer every day.(RGE web people – how about an “edit” option for posts???)

iDon'tGetIt • May 12th, 2009 at 5:01 pm

I don’t get it ….

weedy seadragon • May 12th, 2009 at 5:06 pm

w,very interesting observation and comments.hmmm?

Guest • May 12th, 2009 at 5:11 pm

You guys are fighting over the wrong issues, income tax should be low and capital gains tax should be 50% that way capital gets put back into the economy instead of WallStreet.

Guest • May 12th, 2009 at 5:32 pm

g,but who owns the state?

Farnorth5 • May 12th, 2009 at 6:01 pm

As an observer from another country that also combines the private sector with “socialist” programs ,it looks like the type of system you have doesnt really matter at the moment,as your politicians lost the “balance of power”some time ago and are under the indirect control of the American/World Oligarchs ,who indirectly control all financial systems to their betterment and certainly not for the benefit of the American/Western Govt.lower middle class ($40K to $80K) this past 20 years…We all are observers at this time.Although not directly involved,I see it as a negative for all world society.At the end we are all trading partners and if equity does not exist the public does not benefit…..

Guest • May 12th, 2009 at 6:11 pm

Agreed. Why on earth would he use the term “government” instead of “America” or “Americans”?

Farnorth5 • May 12th, 2009 at 6:17 pm

Well Guest ,for sure everyone has to be reminded that the ONLY reason why Federal Income Tax was created before the First World War,in every country, was to ensure the World Banking Industry got their interest payments paid on the massive new Federal Bonds issued to fight the First World War and subsequent wars by all countries involved.We still do not “get it”.All Federal Govts like to EXERCISE MILITARY POWER and do it without charging the cost to the public directly.How popular would the current “WARS” be ,if we all had Federal Taxes raised 30% to pay for the them?????

Guest • May 12th, 2009 at 6:29 pm

The idea of the “national sales tax” somewhat incorporates the question/idea that started this mini thread regarding purchasing power in so much as the person making $250K in MS would theoretically have more disposable income to consume with than the person making $250K in CA.And as you said, The real “unfairness” comes from the amount of taxes (lack thereof) paid by the super wealthy, not those making $250K. My 12 year old said to me, “can’t they just make all the millionaires and billionaires pay a little more?” Ha!

Farnorth5 • May 12th, 2009 at 6:35 pm

Yes MM CA,over the last 100 years, house prices have ranged between 3 times and 5 times average salary,in each state .If the average wage is presently at $60k per year for California ,the average house price should fall to approximatly $60k times 3 ,or $180,000 before there is a significant recovery based on real wage incomes….The average $300k was obviously a rude joke on Californians and not sustainble in the long run…..

Guest • May 12th, 2009 at 6:47 pm

I’m with you. I’m in the same generation as you are and took a job making $30K right out of college. I did not feel entitled to go to any grad school of my choice b/c I didn’t have some one to pay for it for me and I didn’t think it was a good idea to take out student loans for $50k/year. I didn’t feel entitled to a Harvard MBA. I continued to work at my $30K/year job and sent myself to grad school at night at an in-state public school. I have now grown that $30K into a six figure management job in less than 10 years. I’ve been promoted faster than my co-workers that did go to the ivy league schools.

The Imprecator • May 12th, 2009 at 8:20 pm

And what right do you have to use the term Americans when there are some 700 million citizens of the American continent who are not US nationtals, whilst the aborigene people of that continent, frome Rio Grande to the Niagara Falls and from New England to California, have been all but been exterminated , as observed by Tocqueville, without infringing any formal rule of ethics?

MM CA • May 12th, 2009 at 8:25 pm

You will find out I suspect what it feels like to be lied to for decades… paying attention, yeah I have been… tried for many years to be beleive the PTB meant well, stay smart with own family and $$$, did better than most too I think, never screwed anyone, worked hard… Cyncical- I think not… I have watched this disaster first hand, all the misteps, all the promises… the problem is msot people were to caught up accumlating false wealth and debt and now and were not paying attention, which led to no change or ineffective change… Now everyone is wondering WTF happend… i sincerely hope people of all ages would like to see change now and will help, but the American way at times can be lazy and full of a sense of entitlement… I worry most for the young children, the teenagers and those younger than me….

MM CA • May 12th, 2009 at 8:28 pm

Guest • May 12th, 2009 at 8:30 pm

new thread

Guest • May 12th, 2009 at 8:53 pm

No question bud; you were irresponsible in your choice to bring life at that point in your life. You are irresponsible in bringing more life into an already overcrowded world. You are also so self centered you can’t see harm in what you do. So go with it. Do what YOU want to do. To heck with what is actually the correct or responsible track. You can always do a really poor job of spelling when you bitch about where things are because…… people were irresponsible.

RED • May 12th, 2009 at 9:29 pm

Yes, but they’re being brought back to life by borrowing at 0% and lending out at 5-30%.The heart is beating and time will bring it back to life.Every American is paying higher interest rates to subsidise these turkeys

Guest • May 12th, 2009 at 10:42 pm

To make paranoid people more paranoid.

Theta • May 12th, 2009 at 10:54 pm

Honestly I find it amusing you worry most for those younger than you. I worry most for those older than me. Everyone I know is young enough to roll with the punches. We may have high expectations, but they’re just expectations. It’s not like we have a set standard of living we’ve held for decades and now have to adjust down from.

Guest • May 12th, 2009 at 11:14 pm

@ MelvinI would love to say to hell with the military budget. Unfortunately that would put eighty percent of the people I know out on the streets. These people range from decorated military officers who have survived multiple wars, to scientists and engineers whose work is funded by the military but whose applications have helped advance the fields of semiconductors, flex circuitry, solar panels, nuclear security and satellites. Military funding provides most of the decent paying jobs in my state. We can’t just dump them. It’s not that easy. Check out href=”http://www.pgpf.org/resources/PGPF_CitizensGuide_2009.pdf” Page 9 and you’ll see a chart comparing federal expenditures in 1968 versus 2008 and you’ll see it went from 46% to 21%. I know people who have been working for DOD for the last thirty years and they tell stories of the ‘good old days’ when you had a file for miscellaneous money, and at the end of the year each group would have a round table at work and each person got to request whatever new instrument they wanted. The group would buy as many as they could afford and most of the time everyone got what they asked for. Most instruments were only used once and then put into storage. You can’t do that now. Budgets are MUCH tighter than they used to be. If we manufacture these mass transit systems and make them affordable they will catch on.That’s two significant IF’s. My question is HOW. How to make them affordable and how to convince people (which is the hard part) that this is the way to go.

Guest • May 12th, 2009 at 11:23 pm

Crap, I screwed up the link.Page 9

The Alarmist • May 14th, 2009 at 2:05 am

Die Machinen würde uns dann umbringen … the machines would then kill us.

CHRIS DAVIS • May 15th, 2009 at 8:23 am

$40tn actuarial deficit in Medicare due to USA refusal to implement rationing of surgical procedures for greedy AARP/senior class, which other 23 out of 24 OECD nations have already done

CHRIS DAVIS • May 15th, 2009 at 8:25 am

Wanna buy some 3% government bonds?

CHRIS DAVIS • May 15th, 2009 at 8:35 am

I read this Grant piece and was disappointed he failed to show key debt:GNP ratio during various recessionary periods under comparison. Without showing that this recession has probably the highest total debt to GNP ratio his argument becomes somewhat disingenuous: Grant never shows why letting the entire financial system collapse is a preferred case.

CHRIS DAVIS • May 15th, 2009 at 8:39 am

No one is preventing Californians from exiting their state in order to take advantage of these disparities, which they will do in increasing numbers.Meanwhile cost of housing in CA will probably continue to fall, but taxes are still way too high due to unsustainable expansion of govt sector

Mike1818 • May 16th, 2009 at 3:41 am

Can anyone translate these to English so we can converse with our Chinese friends?Thanks,Mike1818

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