Tuesday, June 30, 2009

Fish or cut bait?

Greetings good citizen,

What should we do tonight, good citizen, fish or cut bait? Not only does the MSM cut bait for us but they feed it to us as well.

If this scenario conjures a mental image of tank of pirahanna devouring schools of minnows, I’d say that was a pretty apt description.

Our culture has become used to a steady diet of ‘cannibalism’ where we are fed a steady diet of the foibles of public figures to keep our minds occupied to ensure we don’t make other, um, ‘less interesting’ connections that aren’t easily explained.

One of these disturbing issues is ‘opposition’. If we’re all in this together, then who is the ‘opposition’ and why do they prevail so often?

Is this a ‘flaw’ in our collective decision making process or are our decision-makers just too corrupt?

One is tempted to brand our decision-makers as stupid…but they continue to get away with playing both ends against the middle…which sort of ‘reverses’ the accusation, doesn’t it?

Sadly, this ignores another inconvenient fact. If our decision-makers act contrary to our collective wishes, there isn’t a thing we can do about it. So yet again, intellect is spared from ridicule.

Perhaps more perplexing is the fact that this problem has existed for over 230 years and no one has even attempted to solve it...well, no capitalist has ever proposed a solution, Anarchists have at least formulated a potential solution that works on a small scale.

I’m sure with a little refinement, a workable solution can be devised. But like most things political, it’s one of countless problems that incumbents aren’t particularly interested in solving.

Here’s another piece of ‘bait’ that nobody seems particularly interested in chewing on even though the fate of our nation depends on how we ‘solve’ this problem.

‘Competition’ within our cooperative society. Who the hell are we ‘competing’ against and why?

Bizarrely, this boils down to patented rights and processes that instead of producing a single superior product, provides us with multiple ‘competitive’ products, each with a unique feature but the products themselves are ‘redundant’.

Then we have the ‘other’ kind of competition that has nothing to do with unique features because it is all about price.

This is the ‘competition’ globalization is based on. Where ‘quality of life’ issues are totally ignored because the focus is on how little the worker can live on.

In a nutshell, the crisis we are currently experiencing is based in workers that aren’t paid enough to buy the products they produce, doing the jobs of the people expected to consume them.

0 + 0 = 0

Worse, 0 – 0 still = 0.

Are you ‘hoping’ for a ‘recovery’ good citizen? Well, you should rest easy because a recovery is already underway. The problem is that it is doubtful the ‘recovery’ will alter your dire circumstances a single iota.

We’re already headed for the ‘New Normal’ which, in essence, is an economy much smaller than we previously enjoyed.

Just like the last two recoveries, the economy will ‘shrink’ to a new ‘sustainable’ level of activity and ‘victory’ will be declared.

If you can’t find a job that pays you enough to live on, it’s not their problem; it’s yours!

If there is a ‘fatal flaw’ in capitalism (and its forebearer, feudalism) this is it.

Capitalism has ‘roots’ good citizen. Feudalism ‘begat’ capitalism because both are based on ‘property rights’.

Which is to point out that feudalism wasn’t so much ‘abandoned’ as it was ‘revised’.

No irony should be lost on the fact that the banks replaced the feudal lords in the role of ‘oppressor’. Sort of puts the public bailout of the banking system in a new light, doesn’t it?

Didn’t the system used to ‘sort off’ work?

For a while, debt produced something that kind of resembled prosperity but the problem with capitalism is the same as the problem with feudalism, it’s never enough.

Once the elite get a taste for wealth, their ‘appetite’ for more becomes unquenchable; and they cease to care who they have to crush to add even a little more to their stack.

It’s hard to feel sympathy for Bernie Maddof’s victims because they suffered from precisely this ‘disease’. It’s the same ‘disease’ that created collateralized debt obligations which lead to outrageous bonuses on Wall Street.

What is it I’m point to here good citizen?

The ‘definition’ of ‘economic recovery’. If we let the same people who put us in this position define the outcome it will be only a short period of time before the crisis is repeated, and it will be even worse than this time. (Albeit, I’m reasonably sure things will collapse before there is a ‘next time’.)

What should absolutely terrify you good citizen is the prospects of a declaration of economic recovery that isn’t accompanied by any economic ‘stabilization’.

Neither the ‘housing boom’ nor the ‘dot.gone’ era were ‘stable’ by any stretch of the imagination. For all of the insistence of the ‘economic robustness’ of our economy coming out of Washington, we were in fact living in a ‘hollow land’…and this hasn’t changed.

Soon, as soon as the beginning of next year, the ‘drumbeat’ of how ‘robust’ our economy has become will once again flood the airwaves. Only this time there will be a different tune in the background. The twin ‘armies’ of the homeless and the unemployed being rounded up as ‘domestic terrorists.’

You won’t be able to ‘see’ this robustness, but they will insist it is there. You’ll drive to your job (if you’re lucky enough to still have one) in incredibly ‘light’ traffic. Don’t be tempted to take advantage of this new ‘running room’ because the flip-side here is how the main roads will be bristling with police. Some of them on ‘revenue enhancement’ details and the others will be on the lookout to head off potential ‘disruptions’ to traffic flow.

Yes, the recovery will bring with it new events that will, for a while, become routine.

For example, it will be uncommon not to encounter at least one burning vehicle on either side of your commute that was rolled down an on ramp onto the highway during ‘rush hour’.

Cell phone and landline service will become unreliable due to the activities of ‘domestic terrorists.’ Um, I’d even be willing to bet there will be sporadic power outages from time to time. Add to that the semi-regular reports of mass breakouts from ‘terrorist’ detention facilities to the list…followed by reports of bloody gun battles between police and the terrorist’s not yet incarcerated kin…

Are these raving the product of a deranged mind? I’m sure some think so. I tend to find more disturbing the notion that the tens of millions of displaced will sheepishly enter the camps too small to accommodate them and remain there…pretty much until they die.

The US economy isn’t going to get any larger. They may insist that we still have a 13 trillion-dollar GDP… but 13 trillion already isn’t what it used to be.

Like the parable of the horse, good citizen, I can lead you to the water but I can’t make you think!

Nothing will change unless we take an active role in changing/fixing what is broken in our nation.

The principal thing that needs repair is the economy that pays too few, far too much, for doing too little.

Like the banking system, the ‘incentives’ are all wrong.

Thanks for letting me inside your head,


Monday, June 29, 2009


Greetings good citizen,

The mind is a funny thing as it is often only truly ‘aware’ of what’s going on in its immediate vicinity. Reports of other events elsewhere are usually accepted at ‘face value’. If the media reports things are going gangbusters, who are you to disagree?

And for a very long time now, the ‘news’ such as it is has seemed like it was being beamed in from another planet. I was consistently unable to independently verify the ‘robust’ economy boasted of by either Bush or Clinton.

The ‘Dot.gone’ era was particularly spooky because the markets were (like today) loaded with sky high share prices that had no basis in reality.

This was followed by the equally ‘funky’ real estate markets, where the words on everyone’s lips were, ‘Who the hell is buying this stuff at these prices?’. Like the dot.gone era, it was obvious there weren’t enough ‘qualified’ buyers for these prices to be realistic. (The 'housing boom' was also a 'symptom' of too much money seeking too little investment opportunity.)

A rather ‘simplistic’ but perfectly logical explanation for the ‘dot.gone’ era was the lack of investment vehicles juxtaposed against a glut of earnings among importers seeking ROI.

This explanation is eerily similar to why the Housing bust occurred. Although the housing bust had a decidedly ‘sinister’ backdrop to go with it and that was the raping of the world’s pension trusts, who were the largest buyers of ‘collateralized debt instruments’…

Well good citizen, if you too have been wondering whether all of the babbling about how ‘strong and vigorous’ our economy was unvarnished BS, then welcome to tonight’s offering . Where ‘job growth’, as measured over the past decade turns out to have been positively abysmal.

The Lost Decade... Part II

[Missed part one so this will have to stand alone…]

Earlier this week we took a look at the Lost Decade for the S&P 500. Business Week provides another lost decade... jobs (EconomPic detailed this trend at a higher level earlier this month):

Between May 1999 and May 2009, employment in the private sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.

It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. [But you knew that. It’s not what the media was telling you but it jives with what your brain absorbed as what was going on around you…even if you didn’t consciously recognize it.]

The chart below shows the number of jobs added / subtracted by sector.

[Since we don’t have a ‘photo bucket’ to work with, I’m gonna have to do this the hard way.

Rising ‘sectors’ were : Private Health care, Food & Drink ‘places’, gov’t Edu, Professional & business ‘services’, Gov’t itself (except health care and Ed), Social Assistance (assumedly non-profits like shelters and food pantries…), ‘Private Education’ (albeit modestly), Arts & Entertainment, Gov’t health…(which is a bit puzzling as Gov’t health is ‘excluded’ elsewhere) he last two sectors to ‘grow’ over the past decade are mining and financial services.

Shrinking sectors (otherwise known as ‘losers’) are as follows: Transportation & Warehousing (bigger vehicles and less inventory ‘on hand’ have cut into both sectors), Retail (which is a bit worrying given our ‘shopping mall’ economic model.), Accommodations (as teleconferencing ‘replaces’ face to face meetings.), Wholesale, another disturbing sign that illustrates the collapse of distributor networks.) Construction (largely due to ‘overbuilding.) Information and last but not least Manufacturing both of which have sustained heavy losses due to ‘off-shoring’.

The graph shows roughly how much each sector gained or lost respectively.]

Health care, education, and government sectors added a total of ~7mm jobs over the past 10 years. Everything else? A drop of almost ~4mm.

Do you agree with the above conclusion or does it look like the author ‘mis-read’ the graph?

If you click on the link and look at the graph, Manufacturing has lost more than 5 million jobs by itself!

While the ‘gain’ looks pretty close it behooves us to pay attention to where most of the gains have been made.

The leader is ‘private health care’ with what I’d ‘eyeball’ to be a gain of roughly 3 and a half million jobs ‘in the past decade’. Think about that, we aren’t talking the last quarter or even all of last year, we’re talking 3.5 million jobs over the past ten years combined!

If we ‘eyeball’ the next two, the ‘hospitality’ industry edged out the Education market by what looks like a hundred thousand or two jobs as both are on either side of the two million jobs mark. And this indeed gives us roughly 7 million in the ‘plus’ column.

The other six ‘up’ sectors don’t look like they’d add up to a whole million jobs combined.

Let’s return to our ‘minus’ side of the puzzle and ‘eyeball’ what the losing side looks like again.

The biggest single loser is manufacturing, hands down, at roughly 5 and a half million…but it looks like losses in IT are up there a little bit too. Maybe another half a million…on the other hand, ‘in-sourcing’ has been the big trend in IT via the H1B Visa program. So this quarter of a million may be larger than it appears.

Then we arrive at the ‘construction’ numbers. You know and I know that construction is ‘flat’ and has been for over two years…yet they have shed only…what’s it look like to you, a hundred thousand or maybe a hundred and fifty…over the last decade!

Well, if we use the BLS ‘Birth/Death’ model then there’s a new construction company opening every other week and it hires at least 20,000 men (to work on who knows what…)

Sorry good citizen but even this data from Business Week shows signs of being heavily ‘massaged’.

And in the meantime the news reports continue to be far removed from reality as you actually encounter it.

Perhaps most perplexing is how every week the labor markets shed over 600,000 jobs yet when we get to the monthly figures it magically shrinks to six hundred thousand or less.

There aren’t any jobs in the papers…so where are these two million laid-off workers finding work?

What industry is prospering when so many of us are hurting for income?

Are all of these ‘displaced’ workers finding jobs with the ‘aid’ organizations they appeal to? Which is pretty incredible because we’re talking about roughly two million people that definitely got the axe during the month but somehow miraculously ‘disappear’ when the ‘first Friday’ of the following month rolls around.

Understand what I’m saying good citizen, since the beginning of the year the ‘weekly average’ of job losses has been in the six hundred thousand range…while the monthly average has been reported to be around the six hundred thousand mark total.

Unless the people at the BLS can’t add, there is something very wrong here, beginning with the ‘assumption’ that the missing two million workers found jobs between the time they were laid off and the next reporting period.

I’m here and willing to listen to any potential explanation, theory or speculation regarding the unemployment number conundrum, which is shrouded in enigma and wrapped in mystery…

Thanks for letting me inside your head,


Sunday, June 28, 2009

Is the recession ending?

Greetings good citizen,

As promised, Mr. Mauldin has penned another missive on the topic of the ‘New Normal’ Although tonight’s offering isn’t nearly as ‘to the point’ as last weeks.

Last week he painted a fairly grim (but still optimistic by my standards) picture of what the future would hold…but what becomes more obvious is the ‘audience’ Mr. Mauldin is trying to reach is very different from regular working people I consider my audience to be.

Mr. Maudlin’s ‘thing’ is writing a subscription-based newsletter for investors. So these little ‘doodles’ posted on Barry Ritholtz’s site are ‘samples’ intended to get you to buy the newsletter. (I have a dozen short stories you can read on the net for free intended to encourage you to buy my novels.)

The ‘Big Picture’ is one of the most heavily trafficked financial sites on the web. Giving away a peek at his product for free should boost his subscriber base considerably.

‘Marketing’ aside, it is important to keep in mind that Mr. Maudlin is selling a product aimed at investors. While he is trying to win subscribers by pointing out the ‘slack’ that exists in mainstream financial reporting, he is not in the business of ‘scaring’ investors with too much honesty. Thus do I accuse him of ‘pulling his punches’ for the sake of not scaring off potential customers.

The End of the Recession?

I walked into the office yesterday evening and there was someone on CNBC talking about how the 50-day moving average of the S&P 500 rising above the 200-day moving average was telling us the market was getting ready to rise and the recovery had started. I listened to his babbling for another 2-3 minutes and couldn’t take it anymore (and no, it was not my friend Larry Kudlow, who is a lot more balanced than whoever was on.) [Um, Kudlow is the poster child for Wall Street cheerleading, if I recall correctly, it was Kudlow that coined the term ‘Goldilocks economy’ just before the dam burst.]

We keep getting told that the market is telling us “something,” usually that the recession is going to end. For some reason, people keep repeating the bromide that the market looks out about 6 months. To that I politely say, rubbish. [This is both correct and quite clever, many people can accurately ‘read’ the market but they fail to read it accurately on a consistent basis…this is why ‘me too’ players are constantly getting crushed.]

Riddle me this, Batman. Did the market see the recession in October of 2007? We were already in recession and the S&P 500 (see below) was making new highs! Where was the market prescience? Did it see the 25%+ drop in January of this year? And I could go back and cite scores of examples where the market “missed” the future turning points over the past ten decades. [PS. This piece is littered with graphs, to view the graphs, click on the link to the original piece.]

What about the shibboleth that the market turns up 6 months before the end of a recession? Sometimes that is true. But does it mean anything? The same people who said it meant something last December and January are saying it means something now. But now it’s June and the recovery is not here, so maybe the market wasn’t telling us something in January after all.

Gentle reader, there will be a recovery. We will talk about what kind in a few pages, if we have the time. And it is (statistically speaking) likely that the markets will have turned up before the actual recovery. But does that mean anything today?

Go back to the chart above. Notice that in 2003, when the market finally turned up, we were already well out of recession. And the market had a very quick 12% or so drop while we were in recovery, while later we went on to a 90% run-up! Was the drop telling us anything, or do we explain it away?

“In the short run,” St. Graham said, “the market is a voting machine. In the long run it is a weighing machine.” The voting is based on current sentiment, but what the market weighs in the long run is earnings. The market tries to forecast future income streams. And it gets it wrong as often as it gets it right.

Let’s look at this yet another way.

This is an important concept, and it should be a component of your economic BS detector. The CNBC host talked in breathless terms about the importance of the 50-day average moving above the 200-day average. It means nothing until it means something, and we won’t know what that something is for some time.

Earlier this week (Monday, I think) the 50-day average moved BELOW the 200-day average. The analysts at Bespoke Investment Group noted:

“Going back to 1928, this is the 25th time that the S&P 500 has declined through both of these levels on the same day. On page two we have provided a table showing each of these occurrences as well as the index’s returns going forward. Based on those prior instances, the S&P 500’s returns going forward have been notably negative. While the S&P 500 has averaged positive returns over the next week, average returns have been negative over the next month, three months, and six months.” (emphasis mine) [His]

But 33% of the time, the markets were up six months later, often by quite a bit. And sometimes down quite a bit, but on average only slightly. Which means that as a forward-looking indicator it is interesting but not anything I would put my money (or a client’s money) on!

(I saw some reports that differed, selecting fewer such data points and suggesting that market returns were up after such an event. Logically, that can’t be. Let’s be generous and just assume sloppy research.)

Before major market moves down, the 50-day average will always move below the 200 average. And the reverse is also true. It is not a sign. It is just what statistically MUST happen. And sometimes they reverse themselves, and sometimes they don’t. We have no way on God’s green earth of knowing whether the two moves (both up and down) this week will be bullish or bearish six months from now, based simply on the moving averages crossing. You can make the data say anything you want, but you are still just guessing.

Sidebar note: Trend Following 101. I spend a lot of time analyzing trend-following money managers of one kind or another. Basically, they look at data and try to spot trends and then invest in them. A trader who is right 70% of the time is amazing and very rare. 50% is more like it for successful traders. But they have sharp risk controls that cut their losing trades and let their winning trades “ride.” Being right 50% of the time can be profitable over time. (Being right 50% of the time is harder than it looks!)

But in the media you get these “analysts” who talk a good game, acting as if a 50-70% probability is something meaningful. “The market has turned. The recession is over.” And they say that when we have the first balance-sheet recession in 70 years, yet they want to compare garden-variety recessions to what we have now. Again, we can only know which of the moves (above and below the 200-day moving average) will be the real “indicator” in six months. It is only an indicator today to the extent
that we can drive our cars forward looking in the rear-view mirror.

The New Normal Is Still In Our Future

Now let’s take that principle a little further. Last week I detailed how air, trucking, and rail shipping is down 20% year-over-year. Global trade is down about 30% in the major exporting countries (see below).

World trade shrinks: Chart 1: Year-over-year change in total exports from 15 major exporting countries (1991 to 02-2009) - Chart 2: Year-over-year change in exports from 15 major exporters between February 2008 and February 2009 (size of circles reflects volume of exports in 2008)

End of the world? Do we just keep falling? No. At some point, six months or a year from now, the year-over-year comparisons become easier. If you are at 100 and fall to 80, then a year later you are at 88 and voila! you have a 10% increase! And the perma-bulls will be talking it up. The fact that you are still down 12% from the peak is ignored.

The point is that we have fallen quite a bit in a lot of major categories. There is really only so much you can fall. And then when you reach that new lower level of the New Normal, you begin to rise. At some point, we will be on the path to “recovery.” That does not mean that we will be back to the halcyon days of mid-2007 within a year. It just means that we have stopped falling and now have to adjust to the levels of the New Normal.

The Hidden Problem Within Unemployment Data

This is going to be most evident and painful in the unemployment numbers. Last month saw the number of unemployed rise by 345,000. What was not in the headline data was that 217,000 of those jobs were estimated from the “birth-death” ratio. The US economy creates new businesses that do not get counted in the data, so the BLS estimates what that number is, using previous data patterns. When the economy turns, it overestimates new jobs in recessions and underestimates them in recoveries. No conspiracy, it is just the best methodology we currently have.

But does anyone really think 200,000 jobs were created last month? The real number of lost jobs is worse than the headline. And next month the birth-death number will likely be over 200,000 again. Add another 100,000 or so to the headline number to get closer to reality,

Again, analysts talked about a turnaround because job losses were “just” 345,000. That is a higher number than any month in the 2001-02 recession, and larger than the month after 9/11. That is a green shoot? Yes, we will see the monthly unemployment numbers fall, but they are falling from historic highs. And based on some research by the San Francisco Federal Reserve, it is likely that we will see still higher unemployment that will persist for a while longer.

Let me quote and summarize through the research at http://www.frbsf.org/publications/economics/letter/2009/el2009-18.html. (It is not long, and worth reading.) [I have not visited the link, in the remote likelihood it contains what I wish to point out here. More ‘insidious’ than the ‘Birth/Death’ model is the fact that once you exhaust your unemployment claim, you are no longer counted. Your failure to find a job for the duration of your claim automatically makes you a ‘discouraged’ worker that has ceased looking for work…or the unemployment rate would be over 50%!]

“Our analysis generally supports projections that labor market weakness will persist, but our findings offer a basis for even greater pessimism about the outlook for the labor market. Specifically, we suggest that the relatively low level of temporary layoffs and high level of involuntary part-time workers make a jobless recovery similar to the one experienced in 1992 a plausible scenario.”

Essentially, there are always workers moving into and out of employment. What they note is that the patterns seem to be changing. In the ’70s and ’80s, job losses were quick and deep, but the recovery was also quick. In the last two recessions, job recovery was noticeably slower, giving rise to the term “jobless recovery.”

It was the lack of hiring, and not firing, that was responsible for the slow employment recovery. MY thought is that before 1990 many of the job losses in recessions were from manufacturing. Businesses were quick to lay off and quick to rehire. We now have fewer manufacturing jobs, so the rehiring process has been much slower in recent recessions. [It’s difficult to fault Mr. Maudlin because, bizarrely enough, most investors are totally ignorant of the job they did on the nation’s workers starting back in mid-seventies. While the problem of jobless recoveries didn’t become ‘acute’ until the 1991 recession, ‘job creation’ has been ‘off-pace’ since the Seventies, which has lead to the last two recessions having ‘jobless’ recoveries. It also explains why the ‘real’ unemployment rate is much closer to 50% than to the U6 20% figure.]

“The long and gradual return to pre-recession unemployment levels implied by the Blue Chip consensus forecast is consistent with a labor market recovery that is slightly weaker than that experienced in 1983 and slightly stronger than that experienced in 1992. However, should labor market conditions instead proceed along the path taken in the 1992 recovery, the unemployment rate could peak close to 11% in mid-2010 and remain above 9% through the end of 2011.” [Understand, the predicted ‘drop’ from 11% to 9% will have nothing to do with ‘job creation’; the drop will be due solely to people exhausting their unemployment claims. No irony should be lost on the fact that the ‘recovery’ (in corporate earnings) will be due to rising prices as well as shrinking compensation, each contributing to higher earnings/share prices.]

That is not in any Congressional budget forecast. Want to run an election campaign at 10% unemployment levels?

“… What does all this mean for the course of the labor market? We combine data on involuntary part-time workers with the standard unemployment rate to arrive at an alternative measure of labor underutilization. We plot this measure in Figure 3, which shows that the labor market has considerably more slack than the official unemployment rate indicates. The figure extends this labor underutilization measure using the Blue Chip consensus forecast for the unemployment rate as a benchmark and then adding a share of involuntary part-time workers based on the proportion of workers in that category to the unemployed during the current recession.

This projection indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate. This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing workforces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates.” (emphasis mine) [Yet another ‘aside’…to the average investor, they see a ‘global over capacity’ problem that nullifies investment in new manufacturing facilities that we desperately need. For some bizarre reason, investors ignore the ‘circle of wealth’, blowing off the fact that if you don’t create wealth, you won’t have any! This leads to catastrophic situations like the one currently facing us…read on!]

Was Income Really Up?

Now, let’s turn our attention to today’s headline. Income is surprisingly up. That has to be a green shoot, right? Well, not if you look at the underlying data.

Personal income from wages and salaries was down $12 billion in May. So how did income go up? A large increase in “government social benefits” and a decline in personal taxes accounted for all the gain, and then some. The increase was the effect from the recent stimulus package, which is (for now) temporary, and not the result of a recovering economy. Hardly green shoots. It is just borrowed money from another (government) source. In principle, it is not much different than home equity withdrawal, except that taxpayers are on the hook.

And those government subsidies are going to increase. Look at the graph below. What it shows is that the average duration of unemployment is at a 60-year high, and rising. It is now at 22.5 weeks. Unemployment benefits stop at 39 weeks, temporarily up from 26 weeks. More and more people each week are thrown into very dire circumstances when they fail to find jobs and lose the benefits. Care to wager whether, when Congress comes back from vacation, the time people are allowed to be on unemployment will be increased? [This isn’t a ‘maybe’, this is a ‘must do’ if they hope to prevent blood in the streets…and even then it many be too little too late.]

And speaking of the increase in government payments to individuals, what did they do with them? In aggregate, what is happening to this stimulus? The data came out today, and I must admit I was surprised. I have been writing for years that American consumers would start to save in this recession, but I (and nearly every credible observer I read) thought that we would see a more gradual rate of increase in the savings rate. The increase in savings has been nothing short of remarkable. (See graph below.)

From a negative 3% in late 2005 (the result of massive borrowing, primarily mortgage equity withdrawal and credit cards), we have risen to a positive 6.9%. That is the highest rate since 1993. The savings rate was less than 1% last August. And totals savings (on an annualized basis) was $608 billion in April, rising to $768 billion in May. That is a 30% month-over-month increase! Maybe the American consumer has found a new religion! [Another ‘misleading’ comment as paying down one’s debt is also considered ‘saving’. Most people don’t have ‘surplus income’ to save…and those that do are ‘stockpiling’.]

But, there is more than just a new savings fervor at work. Spending rose more than disposable income, so without that increased level of government transfer payments, it is unlikely that savings would have risen as much. Before we get too giddy about savings going through the roof, we need to wait a few months to see if this was the result of new savings religion or government transfer payments (stimulus), which will soon wind down

That being said, given the sharp increase in savings, it’s no wonder shipping is down 20% and global trade in the exporting economies by 30%. No wonder retail sales are down, except for Wal-Mart and other lower-price venues.

Final thought for today. The Congressional Budget Office released another report this week, saying that the current deficit levels are unsustainable. They suggest that either taxes must increase by $440 billion or spending must be cut by a like amount, or some combination. If you assume some of the new health-care and other programs are enacted, the number comes closer to $700 billion. [Apparently letting the Bush tax cuts expire would more than offset the ‘possible’ increase in health care expense (if we get a viable ‘public option’) but this comment also highlights who Mr. Maudlin’s ‘audience’ is…people with enough income to tax.]

This is not a Congress that wants to cut other parts of the budget by $700 billion. Raising taxes by $700 billion (over 4% of GDP) will dip us back into recession. Not raising taxes will result in debt that cannot be funded at anywhere close to today’s rates. A recent IMF study is very sobering about the worldwide problem of growing country debt. Finding a trillion dollars in the market every year, when every other country is also trying to raise debt is simply not going to happen. It will destroy the dollar. There are few good choices in front of us, and fewer still good choices that are likely.

OK. One final suggestion for your weekend reading. Atul Gawande, writing in The New Yorker, weaves a very sobering picture of the problem of reining in health-care costs. He contrasts two Texas border cities with similar demographics, yet one spends twice as much on health care. One town has doctors who order every possible test and the other doesn’t. There is no real difference in outcomes. And then compare it to other areas, and the problem facing any health-care policy becomes all too evident. Reportedly, Obama has had everyone read this, and you should too. It provides a very different angle
on the problem.

I’m guessing there is a link to the above mentioned article in the original post, on the other hand this study has been all over NPR for the past two weeks and it makes a pretty damning indictment of the ‘for profit’ medical system St. Ronnie saddled us with.

Although Mr. Maudlin’s take doesn’t appear to line up with mine because it is the government that is being ‘soaked’ for the, er, unnecessary testing of uninsured people.

This could be ‘twisted’ into an argument that publicly funded health care is ‘inefficient’ when the reality is private health care is, um, less than scrupulous…

At the end of the day good citizen, Mr. Mauldin has his audience and I have mine…and I ain’t looking for a single penny from you…

Thanks for letting me inside your head,


Saturday, June 27, 2009


Greetings good citizen,

It seems as though I have been encountering more and more ‘sympathetic voices’ as our once great society sinks beneath the waves of corruption perpetrated upon us by ‘entrenched wealth’ that seeks to ‘cement’ their perpetual ‘lordship’ over this land.

Understand that our situation is ‘unique’ good citizen, the crimes being perpetrated now would not have been possible even fifty years ago.

I have often eluded to the fact that we are at ‘war’ good citizen but this is not your ‘ordinary’ or conventional kind of war because the people that are under attack have nothing with which to defend themselves or their families with.

This new brand of ‘economic warfare’ could be countered with legislation…but the wealthy got to the government first.

It has become apparent that we no longer have the ability to, er, pass legislation that would stop the relentless attack on our paychecks.

As we are seeing (again) with the current health care overhaul proposals, the interests of the people are taking a back seat (of an entirely separate and distant vehicle) to the interests of the health insurance industry.

This is not ‘doing the people’s business’ unless we accept that personhood is being defined by our legislators as how much a particular constituency can/will contribute to their re-election fund…

How do you combat forces that have the power to (legally) separate you from what you need to live? Lose your job and it’s only a short step until you’ve lost everything else.

How do you resist that? Alone, you can’t.

This is why we need a government that protects us. We are ‘on our own’: they are united.

They can act with impunity because they ARE the law! We have been denied any avenue of legal recourse…because they ARE the law.

Global conquest is an ancient dream good citizen and we have finally arrived at a time in history where the world can be ‘conquered’ without a single shot being fired.

The question without answer at the moment is whether or not this new ‘Napoleon’ is a ‘noble and just’ type or if he/she is another Hitler that will fire up the gas chambers the moment their victory is complete?

Um, I should back away from these opening observations a bit because tonight’s offering isn’t nearly as radical as my own somewhat warped and twisted views…

Will America’s Besieged Middle Class Snap?

A paradox arises to the extent that it is true that the market is dependent on normative underpinning (to provide the pre-contractual foundations such as trust, cooperation, and honesty) which all contractual relations require: The more people accept the neoclassical paradigm as a guide for their behavior, the more the ability to sustain a market economy is undermined. This holds for all those who engage in transactions without ever-present inspectors, auditors, lawyers, and police: if they do not limit themselves to legitimate (i.e. normative) means of competition out of internalized values, the system will collapse, because the transaction costs of a fully or even highly "policed" system are prohibitive. This holds even more so for the regulators that every market requires. If those whose duty it is to set and to enforce the rules of the game are out to maximize their own profits, a-la-Public Choice, there is no hope for the system

Amitai Etzioni, The Moral Dimension: Toward a New Economics

I’ve been amazed at the complacency of Americans in the face of rape and pillage by the moneyed classes. Of course, I underestimate the impact of overwork and media brainwashing. If you are a member of the dwindling middle class, you are probably devoting all your energies to hanging on to your job and trying to be a decent partner and for those with families, parent. Any kind of sustained political action (unless you grew up with it in a serious way) is unlikely to rate as high as a tertiary concern. In our total information society, protesting has high odds of getting one’s mug in a video that could come back to haunt you. An arrest would show up in a background check. What a great way to keep the peasantry in line.

Civil disobedience went out of fashion with Thoreau, if not before then. Bourgeois sensibilities and taking to the barricades do not mix. Oh yes, we may admire Gandhi and Mandela, but they were oppressed and had little to lose in bucking the authorities (well take that back, Mandela did give that great speech at his trial about being willing to die). In the US, with the exception of the 1960s, protests have been mainly working class affairs. We have our mortgages and our social standing to consider.

But times may be a changin’. Angry investors tortured a savings-destroying money manager in Germany. Who knows what would have become of Bernie Madoff if his victims had gotten near him? And in an interesting bit of synchronicity, Leo’s post tonight is about the nouveau pauvre.

If the green shooters are proven correct, the odds of upheaval are close to nil. However, if things get worse, the US may reach a tipping point. But Americans like gore only on the big screen, and we don’t have a tradition of general strikes a more civilized way of registering serious discontent.

Marshall Auerback, at the end of a very good piece “Major Social Upheaval Likely if Bank Bonanza Continues,” suggests another angle, that of payment revolt:

By contrast, the current bonanza for banks is neither economically efficient, nor politically sustainable is driving the change in portfolio preference shifts is not only a misguided paradigm, but also an inability for the Obama administration to make a sensible, coherent case in what they are doing and why they are doing it. Their actions, in fact, seem to suggest that everything is ad hoc and that they are operating out of their depth, in effect continuing the same policies of the Bush/Paulson period, but on a much greater scale.

Ironically, this ultimately will also prove highly inimical to the interests of finance itself. When most of the home owning voters cannot pay their major debt or have no incentive to pay their mortgage debt, there will either be a debtors revolt that society will sanction or there will be a bailout of such a magnitude that mega moral hazard will affect private lending forever. Once these things happen, you will no longer have the social rules for private risk based lending. In other words, financial markets will be unlike anything ever seen before in private economies. Is this really what Wall Street wants, let alone American society as a whole? [There is another likely outcome at work here and it has to do with the ‘surplus population’ and how far the elite are willing to go to ‘trim’ this number to a ‘manageable’ size.]

Both FDR and JFK had a brain trust that could help forge public opinion. Obama has his halo, Geithner, and Summers. We’ve known from the start that was a misstep.
In the meantime, beyond automatic stabilizers, the door appears to be shutting to further active fiscal ease. I wonder if the stage is already being set for tax hikes, as rumors of a federal VAT (value added tax) have been floating around of late. Add this to rising commodity prices and interest rates, and the profile of any recovery may become increasingly in question, a la 1937-8. [I’m guessing the ‘reality based’ community is afraid to address what the implications are of this brand of broad based ‘marginalization’ will have on ‘impoverished’.]

Add to that additional bank write-offs, further credit contraction and a minimalist welfare system which leaves nothing in the way of social cohesion and the prospects for major social upheaval look dangerously likely. What is missing is a vision of a new growth path for the US. If a public backlash is to be marshaled to something more than retribution, that needs to come to the fore. Once you get beyond the pothole and school patching, what industries can be pushed forward through public seed capital or public private partnerships? The economist Hy Minsky pointed out a better way to solve both the liquidity and the income problem, while also providing full employment: by channeling government expenditure through an employer-of-last-resort program.

The current crisis could have been mitigated if increased household consumption had been financed through wage increases and if financial institutions had used their earnings to augment bank capital rather than employee bonuses. [While this argument touches all of the right chords, the end result would have been a return of the ‘inflation treadmill’ we suffered back in the 80’s. This argument provides the ‘illusion’ that there is such a thing as a ‘workable capitalist model’ while masking its critical flaw, the ‘profit motive’.]

The current system has failed because it was built on an incentive system that did just the opposite. [This argument is an attempt to paint the crisis as an ‘accident’ or an ‘error in judgement instead of the deliberate departure from sound practices it actually was.]

Auerback also points out earlier in the piece that the Great Depression government-created jobs were anything but make-work:

As Adam Cohen in his new book, NOTHING TO FEAR ,

[WPA] workers constructed or repaired more than 125,000 buildings, including 83,000 schools; 800 airports; 950 sewage plants; and 650,000 miles of roads. They built or improved 78,000 bridges and 25,000 playgrounds; terraced 271,000 acres of eroded land; and taught two million people to read. They also ran a famous Federal Art Project, which hired destitute artists to create murals for public buildings, posters, and paintings. The WPA produced a highly regarded series of state guidebooks and an acclaimed collection of interviews with former slaves, and it played a major role in building the San Antonio Zoo, New York City’s LaGuardia and Washington’s Reagan airports, and the presidential retreat at Camp David. In 1965, on the program’s thirtieth anniversary, The New York Times quoted a dispossessed North Carolina tenant farmer living in an abandoned gas station, which had been rescued by a WPA job. ‘I’m proud of our United States, and everything I hear The Star Spangled Banner I feel a lump in my throat,’ he said. ‘There isn’t another nation in the world that would have had the sense enough to think of WPA.”

One of the towns I lived in had a very large WPA-created park, and it looked as if it must have taken quite a bit of manpower. It is still the best feature of a largely blue-collar town. But our Darwinist model of capitalism seems to deem it wiser to blame lack of work on individuals' refusal to accept low enough wages, than consider that in a high-skill society with narrowly defined jobs, that labor is no longer all that fungible and people really can be unemployed through no fault of their own.

But in our current paradigm, enforcing market principles takes precedence over human dignity. And it looks like that paradigm will hold until it shatters under its own contradictions.

I have no love for coming across as the ‘madman’ all the time but with that said, you are most certainly aware that your ‘expectations’ are being ‘managed’.
Their strongest weapon is the unwillingness of the average citizen to ‘upset the apple cart’ when it is on the verge of righting itself.

Hopefully I’ve made it amply clear that there is not even a remote possibility that things will ever return to ‘normal’ (not without a major adjustment to the way we do the things we do.)

The ‘old’ apple cart is beyond salvage, the repeated assurances that things are progressing favorably are intended to stay your hand until you are too weak to fight back.

The rich ain’t suffering baby…but that’s no comfort to you or yours, especially if they are hanging out in a ‘tent city’ somewhere, waiting for the cops to roust them.

Is it a curious observation to make that the ‘homeless situation’ is being totally ignored by the media (especially when they are braying about non-existent ‘green shoots’?)

There ‘were’ 30 million US citizens living below the poverty line and double that receiving some form of ‘food assistance’ (I say ‘were’ because these are ‘old numbers’ from before the foreclosure/unemployment crises. There must be many more now.)

Tens of millions of US citizens in dire economic straits and US corporations still see ‘off-shoring’ as a ‘solution’ to their firm’s profitability.

If this is not ‘war’, I don’t know what is…

Thanks for letting me inside your head,


Friday, June 26, 2009

That's Incredible!

Greetings good citizen,

I’m thinking tonight’s offering falls under the category of things you see when you don’t have a gun…

As hard as it is to believe, there is a larger crisis, one much more serious than the financial problems the world is suffering at this time.

That crisis is more likely to than any other to throw our entire species into it’s own cesspool…

That crisis is the one where we can no longer trust ANY branch of the government (or the justice system) to protect the interests of the nation ahead of the interests of those who have suborned them.

You are no longer ‘voters’…you are no longer people…worse, you have never been ‘citizens’ because there is nothing in our laws that promise you the protection of society.

You are the barely necessary ‘rabble’ who are both feared and despised by our self-professed ‘betters’. Yes good citizen, if not for the ‘rabble’, our betters would be forced to do things for themselves, instantly making them ‘no better’ than we are…

Your ‘vote’ decides nothing and if you were indeed a ‘person’, you would matter, mostly because you had wealth and power which the rabble does not possess.

If you possess neither, then you obviously ‘don’t’ matter.

Not that you’ll ever hear anyone insult you like this to your face, the proof in the above statements lies in how you are treated.

Well, tonight’s piece is an example of how ‘people who matter’ are treated:

Banks Rescue Credit Card Trusts, Yet Keep Them Off Balance Sheet

America as banana republic is alive and well. Tonight's version is that anything that helps banks is permitted, official rules to the contrary.

Banks enjoyed lots of fun and profit from setting up various off balance sheet vehicles that are now coming a cropper. We saw the preview of this movie with structured investment vehicles, off balance sheet entities typically sponsored banks that borrowed heavily, usually 14 to one, and invested in medium term asset backed paper. When subprime worries got acute and the market for asset backed commercial paper dried up, the short-term funding for the SIVs could not be rolled, and the vehicles had to resort to credit lines to keep from liquidating the holdings. The issue in plain sight was that the investors in the SIVs made it clear that the banks were not going to walk from these entities without consequences.

I do not understand how these entities can be considered to be off balance sheet once the sponsor stepped in. Yes, the test is whether the sponsor is "obligated" to provide support. While from a contractual standpoint, they may not have been, but no one wanted that tested in court (if various winks and nods were found to have been commitments, that might have forced consolidation.)

We have the same issue in the fore with credit card trusts. This would seem to be a more clear-cut case than SIVs, since rating agencies 'fess up that their grades presume that banks will intervene in the event of a shortfall. As Joseph Mason and Eric Higgins wrote:

On Monday, May 11, 2009, Advanta Corp. announced that their credit-card securitization trust would go into early amortization and that they will shut down all of the accounts in the trust. What the casual observer (and most regulators) missed is that this announcement is also endemic of the problems at the heart of securitization: the “true-sale” classification from which securitizations obtain their off-balance sheet treatment.

A company like Advanta issues credit-cards through its banking subsidiary (Advanta Bank). These credit card receivables are then sold into a trust (Advanta Business Card Master Trust.) The trust then sells the cash flows from those receivables to investors. This trust is created as a truly-sold bankruptcy remote entity from Advanta Bank and Advanta Corp, allowing Advanta to treat the sale of credit-card receivables as off-balance sheet for regulatory and accounting purposes. Technically, Advanta Corp. has no liability for the assets that are sold into the trust and must not provide any recourse to the assets...

The problem with the arrangement is that it has always been a complete fiction

How can Advanta Corp. prevent early amortization without violating “true-sale” accounting? The truth is that they can’t. Providing recourse has historically been taken as implying that the receivables are assets of Advanta Corp. and should appear on their balance sheet!

Of course, the problem with implicit guarantees is that they are not legally binding. To see this consider Advanta’s May 11, 2009 announcement of the early amortization of their credit-card trust, where Advanta specifically says, “The securitization trust’s notes are obligations of the trust and not of any Advana entity.” What a difference a few days make. On April 30, 2009, management was going to save the securitization trust. On May 11, 2009, management is running away from the trust as fast as they can.
Hence, when it is expeditious, firms can ignore true sale provisions and as soon as things get rough true sale provisions protect them.

This problem is not new. A study by Higgins and Mason (Journal of Banking and Finance 2004) looked at recourse provided by credit-card issuers in the mid-1990s. Higgins and Mason found evidence of 17 instances of recourse provided over the 1991-2001 time period that were specifically announced by the parent company. These recourse events helped support 89 separate credit-card securitizations that had a combined value of $35.4 billion.

During the study period, every one of those recourse events violated regulatory rules, but were carried out with a blessing from the regulators despite having recognized the problems of implicit recourse

Since regulators have chosen to ignore implicit recourse, it has become institutionalized industry-wide. In their announcement regarding the downgrading of Advanta’s debt Fitch noted, “…early amortization would occur in the absence of intervention from Advanta within the next month. Intervention could come in the form of charge-off sales, a yield supplement account, or receivable discounting, as seen recently at other large card issuers.” Among those options, receivables discounting is specifically mentioned in the 2002 joint guidance as a prohibited recourse event that would force a parent company to take the securitized assets back on their balance sheets.

Moreover, such a statement means that Fitch – who rates asset-backed securities for a living – admits that they are, in part, basing their ratings on the expectation of implicit recourse being provided even though implicit recourse is : 1) a violation of true sale and 2) not contractually guaranteed.

Advanta was seen as a localized problem last month:

The company’s woes aren’t likely to spread to other asset- backed issuers, said JPMorgan’s [Christopher] Flanagan. Advanta’s “precarious liquidity and capital position” make the lender more vulnerable to deteriorating credit than its stronger counterparts, Flanagan said in a May 8 report.

Things look pretty different today. From the Financial Times:

Record credit card losses are pushing big US banks to come to the rescue of off-balance sheet vehicles they use to transform hundreds of billions of dollars in consumer loans into securities sold to investors.

The support provided by Citigroup, Bank of America, JPMorgan Chase and American Express underscores how the deteriorating health of the US consumer is opening new fronts in the financial crisis...

Although they are not obligated to support the pools of credit card receivables when losses mount, banks have done so to ensure investors continue to buy such securities.

The doomsday scenario facing banks is that credit card losses will rise to levels that force the vehicles to repay bondholders early.

Banks have been supporting card trusts by issuing – and then buying – bonds that would absorb the first layer of losses in the underlying loans.

This is designed to provide a protective buffer for existing bondholders.

BofA bought $8.5bn of junior debt from one of its trusts in the first quarter and put aside $750m to cover losses on the investment.

Citi bought $265m of so-called junior debt from one of its credit card trusts in October and an additional $2.3bn of junior debt from the same trust in April, according to a regulatory filing.

JPMorgan and Amex also have issued new junior debt for their credit card trusts.

In addition, JPMorgan has supported credit card bonds issued by Washington Mutual – the troubled lender bought by JPMorgan last year – by substituting its own credit card loans for WaMu’s lower quality ones.

The loss rate on the WaMu pool was 14.8 per cent in October. By comparison, a JPMorgan credit-card pool had an 8.1 per cent loss rate in May.

Can someone explain the accounting logic? Ah, silly me. It's called might makes right.

The part Yves doesn’t point at here is it is YOUR money being used to prop up these investment vehicles!

Is THIS part of ‘saving’ the Banking system? It’s obvious these investors made some bad choices but it is you that are paying for them!

Worse, these investors are being ‘made whole’ on devastatingly expensive credit card debt where the defaulting borrower was most likely paying 21 to 35% on! (One late payment baby and all of your cards shoot up to the maximum rate…which is likely what’s driving the default problem.)

As you are well aware, the markets ‘defied gravity’ yet again today as ‘investors’ once again ‘shrugged off’ other negative economic news to ‘buy in’ one again!

Retail Sector Gives Wall Street a Push

Published: June 25, 2009

Optimism about strength in the retail sector carried Wall Street higher on Thursday, even as the government reported that more workers were filing first-time jobless claims and receiving unemployment benefits.

Analysts said that investors were also covering some short positions — bets that shares will go down — and rethinking some of the recent pessimism that has pulled major indexes down by about 5 percent in the last two weeks. [The real ‘news flash’ here is the baseless assertion that investors actually ‘think’!]

“I think we were oversold based on the news, and so maybe we’re getting back to that equilibrium,” said Andrew M. Brooks, head of United States equity trading at T. Rowe Price. “We’re still coming out of this recession. There are some indications that things aren’t so bad.” [Although you may notice he doesn’t mention any of them…]

The forecasts of a continuing economic contraction have prompted some investors to question whether the market’s swift rise since March was too much, too soon. On Monday, stocks slumped 3 percent, the most since April, and many analysts said that it appeared that the rally was losing momentum.

But investors shelved those concerns on Thursday.

In the last hour of trading, the Dow Jones industrial average was up 146 points or 1.7 percent. The broader Standard & Poor’s 500-stock index was also 1.7 percent higher, and the technology-heavy Nasdaq was up 1.6 percent. [The Dow closed up 172 points today and was at 181 points when first checked the numbers in the early afternoon.]

Retail stocks surged as better-than-expected earnings at Bed, Bath and Beyond and a merger between Fashion Barn and Tween Brands heartened expectations about the consumer sector’s resilience. [Sales are ‘up’ at Bed, Bath & Beyond? This couldn’t possibly be related to the plague of bedbugs or other types of lice sweeping the nation…and the merger? What’s so ‘surprising’ about this attempt to ‘consolidate’ market share between two struggling retailers? How the hell do you get ‘resilient consumers out of that? Oh yeah, investors have already proven (repeatedly) they’re not too bright!]

The recession is culling winners from losers, analysts said. While some stores like Linens ‘n Things and Circuit City have shut down or declared bankruptcy, their troubles have created opportunities for rivals like Best Buy, which was up 3.5 percent, and Bed, Bath and Beyond, which rose nearly 10 percent.

Shares of energy producers rose as the price of crude oil rose $1.41, to $70.09 a barrel. [How the hell does that ad up to ‘good’ news? Increases in the price of energy affect the price of EVERYTHING, which is definitely not a good thing when the consumer is ‘tapped out’!]

And financial companies were slightly higher as the Federal Reserve chairman,Ben S. Bernanke, denied accusations that he had exerted improper pressure on Bank of America to complete its purchase of Merrill Lynch. In a tense hearing on Capitol Hill, Mr. Bernanke said he had never threatened to replace management at Bank of America if they pulled out of the deal. [Which leaves the rest of us parsing the difference between a ‘threat’ and a ‘promise’…]

The hearing offered some high drama as traders covered their positions and aligned their portfolios ahead of the end of the second quarter. [Like the pundits say, today’s action was for the most part a ‘short-squeeze’, it was the ‘tail’ wagging the dog. There is no ‘good’ reason to buy stock as conditions aren’t improving…so they come up with ‘lame’ stories like this one, which further destroys what little credibility they have left.]

“It’s short-covering on a quiet day, and everyone’s watching Bernanke,” said Sal Arnuk, co-head of equity trading at Themis Trading, referring to Mr. Bernanke’s testimony.

While rising unemployment still threatens to increase foreclosures, pare spending and pitch the economy deeper into recession, the disappointing numbers released Thursday did little to dampen investor sentiment. [because most of the buying was being done by the big trading desks themselves on their own behalf…using YOUR money!]

The Labor Department reported that initial claims for unemployment insurance rose 15,000 last week to a seasonally adjusted 627,000, and that the total number of people receiving unemployment bounced back after dropping for the first time in months.

Yow, look at those ‘rebounding’ unemployment figures! Retailers will be rolling in cash once more people lose what little income they had!

What’s truly ‘perverse’ is that ‘downsizing’ improves the bottom lines of the employers that engage in it. So ‘technically’, they have more money (even if they are eviscerating their customer base!)

As I pointed out at the beginning of tonight’s offering, the more they ‘play games’ like this, the less ‘credibility’ they have, adding fuel to a burgeoning movement for change, real change…change we can’t get from politicians.

Thanks for letting me inside your head,


Thursday, June 25, 2009

The purpose of civilization

Greetings good citizen,

The markets were, at last glance, treading water…although some would say they’re ‘levitating’ or floating at a valuation that has no basis in reality.

I just had one of those ‘duh’ moments where the obvious hit me right between the goggles. I’m watching a Bloomberg video where Nouriel Roubini was being grilled on the global economy by a female anchor and some guy in a bright pink shirt.

They were dancing around the topic of Eastern Europe and the ‘banking crisis’ over there that is threatening to wreak major havoc on Western European banks.

Um, in case you haven’t noticed, there is a common denominator here that raises some serious issues about why we exist.

The common denominator is that every one of these crises are centered on ‘banks’ and the epiphany I had was when the hell did civilization turn into a ‘life support system’ for the friggin’ banks (and by extension, bankers?)

Instead of working in concert to improve the lot of mankind (the ‘commonly understood’ purpose of civilization) we are mired in questions of how we’re going to ‘pay’ for all of these bailouts of collapsed economies?

Understand good citizen that what this crisis amounts to is a pissing contest over the fact that I gave you three rocks and you promised to give me back five, so where are my five rocks?

Worse, even if I ‘take possession’ of what you used the three rocks to purchase, I can’t recoup because nobody is willing to buy what you used the three rocks to purchase!

Simply put, the situation, as stated above, devolves into a question of who was the bigger idiot?

But no! The bigger idiot is demanding to be ‘made whole’ (under normal circumstances we’d tell the big idiot to go fly a kite…but the big idiot is a banker don’tcha know!) He’s claiming that if he isn’t ‘rescued from his own stupidity’, all of the ‘smaller idiots’ that trusted him to be frugal with their money will lose everything!

Naturally, the real issue here is why was the bigger idiot was trusted to handle any funds in the first place?

It sure looked like a sweet deal, five rocks for three, but stupid didn’t bother to find out what the borrower was going to do with the rocks before he lent them. He had a contract for repayment and as far as he was concerned, it wasn’t his problem.

And now he’s made it everyone’s problem.
There are a lot of ways of viewing this situation but I believe, returning to our ‘commonly accepted’ definition of civilization, that bonehead shouldn’t have been in a position to lend anyone rocks!

Worse, those ‘patriotic flag wavers’ are mighty quick to sing the praises of the great civilization that capitalism built for…truth be told, the capitalists.

Fuzzy distinction time. ‘Believing’ in capitalism does not make you a capitalist. The only thing that makes one a capitalist is the ‘ownership’ of capital (and even that doesn’t make you successful.)

While we’re here why don’t we take a good look at the ‘mighty’ civilization that was built for…um, ‘us’ by the capitalists.

The first thing to strike us is that our magnificent capitalist civilization is broke! How broke is it? It’s so broke that an income tax of 100% for a hundred years wouldn’t be enough to pay off our debts.

This, bizarrely, isn’t considered a ‘problem’ because nobody actually expects us to ever pay down, never mind pay off the debt we’ve been collectively saddled with. Like the loan sharks of old, all our creditors are really interested in is the ‘juice’.

It costs a couple of billion dollars a DAY to pay the juice on what we collectively owe…and we ‘borrow’ that too!

Then we come to budgets and what it ‘costs’ to keep civilization ‘running’.

We fund these obligations with taxes and ‘theoretically’ borrow this money from ourselves…but that’s not true either because we have a privately owned institution that ‘charges us’ to borrow our money from ourselves!

While this particular situation is not ‘illegal’, it should be. It’s taken them less than fifty years to turn the wealthiest nation in the world into the world’s largest debtor.

Yes, they still maintain the fiction that we’re ‘number one’, but we’re no longer ‘top of the heap’ in a ‘good way’.

Then there’s the health care issue, which is tightly coupled with aging population issue.

Where are the jobs in our badly broken economy? In our ‘too expensive’ health care sector. How well do you suppose that’s going to work out?

Speaking of jobs, if you can’t find one, it’s not the capitalist’s problem, it’s yours!

Which in itself is bizarre because the capitalist fully expects you to ‘pay’, whether you can afford to or not.

Which brings us full circle to the ‘purpose’ of civilization…or how we became a ‘life support system’ for the bankers of the world.

Maybe it’s just me but somewhere down the line the ‘banking system’ seems to have grown beyond its basic social function, which was to ‘efficiently allocate’ resources to where they would do the most good.

More importantly is the issue of what we can do about this ‘sure to end in disaster’ situation.

Well, the ‘money bone’ is connected to the ‘government bone’ because money is a ‘legal construct’. It is not possible to correct our money distribution process without, um, re-arranging the decision-making process, a process that exists to ‘preserve’ the current system.

There was an interesting broadcast on the BBC last night about ‘Greed’ and how to successfully ‘harness’ it. I didn’t listen to the whole show but I heard enough to get the gist of it.

Capitalists have always championed the notion that ‘Greed is Good’…which may be true if resources were set to infinity, otherwise more for you means less for anyone else.

Civilization is all about ‘balance’; civilization doesn’t work when a few have everything and the rest have nothing…and are forced to pay dearly for that!

Civilization will continue to strive to ‘balance’ itself, it is this persistent drive for balance that causes civilizations to collapse.

I don’t think anyone needs a magnifying glass to see that our current civilization has become extremely ‘unbalanced’…(and more than a little ‘unhinged’ as well!)

Which in itself contains a ‘good news’ and a ‘bad news’ situation rolled into one, the ‘good news’ is things can’t go on like this any longer, the ‘bad news’ is the likelihood that hitting the reset button will not change the ruinous system an iota. It will merely buy them a little time.

Make no mistake about it good citizen, they know things can’t continue the way they are. What we should all find as disturbing is that there has been zero discussion of what to do next.

Which means ‘what comes next’ is already a ‘done deal’, there’s nothing to ‘discuss’…and given the ‘chaotic’ nature of democracy, this approach is understandable, sadly, it has been proven repeatedly that our ‘betters’ are piss poor decision-makers, especially when it comes to ‘the common good’.

I’ll go a step further and predict most of us will find out about the ‘new rules’ when someone we know gets fucked for doing something they’ve been doing for years.

Your city or town will post ‘strange ordinances’ which your co-workers/friends living in different municipalities confirm have been issued in their towns/states too. Certain types of businesses will notify you they no longer perform this or that service or it will cost you extra if you want to continue to have it done.

Then there will other little dirty deals like ‘exemptions’ from paying overtime while charging you extra for the ‘convenience’ of being ‘serviced’ at night or on the weekend.

Hey, we all know there a million little things they might try to ‘enhance’ the private sector’s revenue stream, hell, we already know the ‘public sector’ is going to sock it to us so hard that we may not recognize the place when they’re done.

Imagine what the roads will look like when EVERYBODY is driving five miles an hour UNDER the speed limit. The traffic jams will be incredible…mostly because there will be a cop with a radar gun sitting under every other overpass/entrance ramp.

Why will all of this (and more) happen; because bankers need their ‘ROI’ so they can pay dividends to their investors and bonuses to their executives.

Which is to point out that the banking system is ‘leeching’ so much money out of our society that we can no longer pursue the purpose of civilization, otherwise known as the common good.

I know I’m laying it on a bit thick here but you know none of what I lay out here is ‘impossible’ or even particularly unlikely as it has happened before under more ‘despotic’ regimes.

I’ll leave you with my original point, when the hell did our society turn into a life support system for the greedy bastards that own the banks?

Thanks for letting me inside your head,


Wednesday, June 24, 2009

About Face

Greetings good citizen,

Do you smell at rat? After months of insisting that everything economic was ‘on the mend’, all of sudden they (the punditry) have done an abrupt about face…

It seems all of those ‘less bad’ bits of economic data that were heralded as ‘green shoots’ were actually pretty horrific after all.

As you are already well aware, the reason behind the sudden reversal has less to do with saving ‘credibility’ than with the potential to spark widespread civil unrest for not occasionally making a passing acknowledgement of reality.

That and our boy Ben Bernanke is up for ‘re-appointment’ in January.

Understand that Uncle Ben is the one who started the ‘green shoot’ nonsense as a defense of his (so far) reckless financial policies that obviously aren’t working.

Let’s phrase this question differently: How many of you would be willing to ‘take it to the streets’ if Obama re-appoints ‘Helicopter Ben’?

He got away with appointing Geithner and Summers because we (foolishly) believed he had the situation under control. That these ‘out of touch’ policy advisors would in fact be ‘advising’ him and not making policy, as they obviously are.

This, naturally, points to another ‘rat’ entirely but let’s not go there, the whole damn thing is confusing enough.

At this point in time, Mr. ‘Green Shoots’ looks like an idiot…but he is apparently a ‘useful idiot’ for those calling the shots.

Which is to say not only will there not be a ‘recovery’ in the second half of this year, if things continue on the path they’re on, there won’t be a recovery in the second half of this century!

In fact, there won’t be a recovery period! (But I’m pretty sure you already realize that.)

Not that there won’t be tons of ‘eyewash’ to the contrary, like we’ve seen since the crisis began and those of us old enough to know better realize the crisis started long before 2007, it goes all the way back to 1980, if not 1972.

History provides us with countless examples of capitalism turned predatory and tonight’s first offering gives us a peek at the precursor to the ‘Zimbabwe syndrome’.

Then we arrive at tonight’s second offering which makes a hell of a lot more sense after you’ve read the first part.

Postscript on the Inflation and Deflation Question

First, thanks to the many readers who mailed in a link to the book by Adam Fergusson at the Mises Institute. It is a good read, and free is much more attractive a price than $1,000 which is the price for a hard copy in good condition on Amazon. I purchased my own copy some years ago at a bookstall in Brighton. The online version is available here.

As to the discussion on inflation and deflation, I feel the need to make it clear that that inflation / deflation is a "policy decision" in a fiat currency regime with nothing preordained. In other words, either outcome is possible within a wide range of gradation. Most outcomes in the real world follow a similar pattern, not black and white but many shades of gray.

But not all things are equally possible. "Life is a school of probability."

If the Fed came out tomorrow and raised short-term rates to 22% we would see a stronger dollar and the beginnings of a monetary deflation.

This arbitrariness of a fiat currency is intellectually difficult for most people because their domestic money has a natural patina of 'confidence' and objective value to it.

It is an assumption, one of those shorthand beliefs that help us through day to day life without having to intellectualize and analyze every aspect of every decision. It comes from using that currency as a store of wealth and medium of exchange, almost every day of our life (presumably even an American can take a day off shopping occasionally) and assuming that it (money) will hold its value in the short term.

So we tend to invent 'rules' for the creation of money that preclude 'arbitrariness' and help us maintain our assumption set against 'black swan' thinking. When an assumption begins to conflict with the underlying reality it can become a 'prejudice.'

It is this very arbitrariness that is the goal of the central bank and statists whose preference is aggressive financial engineering. The limitation on the Treasury/Fed in a fiat regime is ultimately the value of the dollar and the sovereign debt. While people accept it, they can print it. This is a soft limitation with much more latitude than a hard external standard.

Having added the important caveat of possibility, given that the US is an enormous net debtor, it would be suicidal for the monetary authority to choose deflation as the Japanese did for their own particular reasons.

Almost all money issuing entities will choose inflation if they have the option. Sometimes they lose control of the process, the confidence game, and fall into a more serious and pernicious inflation and even hyperinflation. But this is not 'the norm.'

Our own Fed is rather arrogant these days, fully confident they know how to stop inflation given the Volcker experience. This may cause them to fall into a serious policy error on the inflationary side. In many ways our fate is no longer in their hands, but in those of our creditors, such as the Chinese.

Paul Volcker gave the odds of inflation in the current crisis as 99% for, allowing only for a serious policy blunder against it.

I wanted to highlight the Weimar experience to debunk the 'output gap' and the 'bank lending' restraints on the inflationary outcome. Much of what we hear on the financial channels smacks of propaganda, the 'confidence game.'

As for the need to create more debt, let us just say that the Fed and Treasury would have yeoman's work to monetize the debt obligations the US already has, which recent estimates put at north of 40 trillions. Even with inflation at their backs, the government will be pressing the default button selectively but surely in the coming years.

The most probably outcome is stagflation, perhaps quite serious IF the economy and financial system is not reformed. This could have the vestiges of a monetary deflation were we not a net importer and net debtor.

This is an important distinction between the US experience and that of Japan whose industrial policy is well known to be in the bureaucratic clutches of MITI and the various kereitsu. Japan sought to stimulate the economy while aggressively exporting their domestic productivity and inflation.

So, deflation is possible, but not probable. If people understand that, I will feel that I have done a good job in raising the level of understanding about monetary economics.

But isn't all this debate and too often name-calling amongst the bloggers a distraction from the real problem facing the average person, in the same sense as Paris Hilton, Survivor, big time wrestling, the McLaughlin Group and American Idol?

The banks must be restrained, and the economy brought back into balance, before there can be any sustained recovery.

This is as close as I’ve ever come to having a financial expert point directly to the ‘purely hypothetical’ nature of money.
If there is one thing people consistently fail to grasp it is that money isn’t the ‘fixed and immutable’ substance they ‘imagine’ it to be.

We think a buck is a buck…until we start moving that buck back and forth in time. Which is to say a 2009 ‘buck’ (in terms of purchasing power) is worth less than three cents of what a 1913 dollar would buy, yet both are ‘represented’ by very similar looking pieces of paper.

Much has been made over the public’s ‘reluctance’ to save. A big part of this is due to the ‘average’ person being unable to earn enough interest on their money to offset the rate of inflation.

You put a buck in the bank and withdraw it two years later you’ll only get 95 cents back. Which is to say you’ll get a whole buck back but it will only buy 95% of what it would have bought had you spent it immediately.

If you’ve got tons of money, there are ways of beating this ‘penalty’…but if you don’t then there isn’t. Which is to point out that it would take many (perhaps too many) years of ‘privation’ to accumulate enough to purchase a bond big enough that the interest rate does better than the rate of inflation.

And since the rate of, er, ‘depreciation’ is accelerating, most of us won’t live long enough to accumulate such a sum without experiencing a ‘windfall’ that puts us over the top.

So it is that the ‘utility’ of money is becoming less and less.

Work harder, work smarter and still make less.

For most of us ‘saving’ has already become an ‘exercise in futility’ and we’re rapidly approaching the point where work will prove similarly frustrating…because we have a huge ‘parasite’ problem.

We have people that have never lifted a finger in their entire lives that rake in more money in a day than you will earn in your lifetime.

I could go on about this for hours but best not to chew up too much of your valuable time good citizen, there’s little ‘profit’ in reading what you already know.

So we arrive at tonight’s final offering, one I didn’t dare to steal so I’ll link to it instead because these economic newsletters are ‘subscription only’ affairs and these guys WILL come after you.

Me likie this ‘King’ fellow, it’s hard not to like anyone that comes right out and calls investors ‘Patsies’.

Remember, these ‘Patsies’ are the same people driving the ‘global race to the bottom’, which might be better termed as the global race for higher ‘yield’…

When it’s all said and done, globalization isn’t about lower prices for consumers, it’s about higher profits for investors!

Globalization wouldn’t exist if there weren’t something in it for the investor that has repeatedly proven they don’t give a damn about the underpaid and over charged consumer.

Thanks for letting me inside your head,


Tuesday, June 23, 2009

The Slide

Greetings good citizen,

Apparently ‘Fear’ drove ‘Greed’ out of the markets again today as the Dow slid 171 points by roughly 2:00 PM EST.

Sadly, there has been no sign of ‘Sanity’ for the past three months and it’s presumed she’s ‘missing in action.’

‘Speculation’ has it that today’s release by the IMF of a rather gloomy economic outlook is responsible for the sudden ‘reversal’ of the market rally that is going into its third month.

Worse, what was initially seen as ‘green shoots’ has turned out to be ‘Poison Ivy and Hemlock’.

Nobody is doing anything about the deteriorating job market although, ironically, the US stimulus plan may be responsible for boosting China’s GDP from a projected positive one percent to a positive seven percent for the year.

In an eerie repeat of the housing crisis, where pundits repeatedly assured us the problem was ‘contained’ to the sub-prime market. I have recently seen several posts claiming we have ‘avoided’ the ‘Death Spiral’ where reductions in the labor force leads to a reduction in overall spending which leads to production cuts, which lead to further reductions in the labor force.

In my recent post ‘The New Normal’ we see precisely this variety of ‘creative destruction’ taking place. The six million jobs (and their related paychecks) are never coming back.

The reason to be concerned good citizen is because the people losing their jobs weren’t ‘greeters’ at Wally-Mart, the people that lost their jobs were stock brokers, mortgage executives, Real Estate brokers and banking executives, most of whom made a ‘pretty penny’ during the recent ‘good times’.

These highly compensated jobs fled not only our own job market but from job markets around the globe…never to return in our lifetimes, thanks largely to the global race to the bottom!

There are more questions than answers in tonight’s offering and I’ll be asking a few of them after this (comparatively) brief piece.

Wall St. Starts Week with a Slide

Published: June 22, 2009

Was all of that optimism about an economic recovery a bit too hasty?

Resurgent fears about the struggling economy jolted Wall Street and Europe on Monday, dragging stocks broadly lower after their first losing week in a month. The Dow Jones industrial average slumped to its lowest levels since late May, and the Standard & Poor’s 500-stock index slipped back into negative territory for the year. [Of course good citizen there has been quite a few reports of um, ‘absurd’ trades taking place while the markets were being ‘pumped up’ on what amounts to very low ‘volume’. Which is to say there are now a lot of stocks whose valuation has no relationship with their earnings or their market share. It seems their prices were ‘driven up’ (solely) in order to drive up the markets.]

A new report by the World Bank underscored broader concerns that the global economy was not ready to snap back from the worst downturn since World War II. The bank predicted that the global economy would shrink 2.9 percent [This is double its original prediction] this year before rebounding in 2010 [What happened to the ‘broad consensus’ that recovery would occur in the second half of THIS year?], and said that the world was “entering an era of slower growth” that demanded tighter oversight of the financial system. [Damn, aren’t we lucky the Treasury just put the banks in charge of regulating themselves by naming the bank owned Fed their new ‘regulator’?]

“The market’s gone too far, too fast,” said Karl O. Mills, president of the investment adviser firm Jurika, Mills & Keifer. “It’s writing checks that the recovery can’t cash.” [How long will it be before we’re in the same position for pretty much the same reason?]

After 3:30 p.m., the Dow Jones industrial average was down 156 points, or 1.9 percent, while the S.& P. 500 fell 2.5 percent. The technology-geared Nasdaq was off 2.8 percent.

At the close of European trading, the DJ Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 3.1 percent, while the FTSE 100 index in London was down 2.6 percent. The CAC 40 in Paris and the DAX in Frankfurt both fell 3 percent.

“Basically it’s a reality check,” Gerhard Schwarz, an equity strategist at Unicredit in Munich, said. Optimistic investors have bid stocks up by more than 30 percent from their nadir, he said, but “there’s been a lack of confirmation that it is justified. We’re waiting for hard economic data to show the economy has turned around.” [Otherwise the ‘recovery’ has all been a figment of the pundit’s imagination…or their greed in getting investors to buy via scaring them into believing the markets had ‘bottomed’.]

Investors sold financial stocks, apparently drawing little difference between big banks and small ones, banks that had returned government bailout funds and those that were still holding onto taxpayer money. Shares of Bank of America fell 6 percent while JPMorgan Chase and Morgan Stanley were down more than 2 percent. In Frankfurt, Commerzbank fell 6.7 percent and Deutsche Bank fell 6.3 percent.

Shares of Apple were down nearly 2 percent, to $136.99, after reports over the weekend that its chief executive, Steven P. Jobs, who has been on a medical leave since January for treatment of what he called a hormone imbalance, underwent a liver transplant two months ago.

Apple shares fell despite the company announcing that it had sold more than a million units of its latest iPhone model in the first three days.

The prices of commodities like crude oil, copper and gold slumped as investors faced the prospect that emerging markets and developed economies were not about to ramp up industrial production or witness a spike in levels of consumer demand and consumption. [Um, several scathing comments come to mind but I regularly belabor the point that investors aren’t too bright, the above two paragraphs merely serve as further proof.]

Crude oil futures fell $2.82, to $66.73 a barrel, their lowest levels in three weeks, even as discord and protests in Iran raised questions about the stability of one of the Middle East’s largest oil producers. Gasoline prices in the United States held steady at a nationwide average of $2.69 a gallon, according to AAA, the automobile club.

The declines in commodities pulled down energy producers like BP in London, Total in Paris and Marathon Oil and Chevron in New York. The declines also weakened companies that produce basic materials like chemicals and steel.

The day’s declines offered more evidence that a new bull market was not in the offing.

Stocks shot higher this spring after dipping to their worst levels in more than a decade, but many Wall Street analysts say investors who have dived back into the markets are ignoring fundamental problems in the economy. The S.&P. 500 is down 5 percent since earlier this month, and many analysts say the stock markets could get stuck in a broad trading range as investors look ahead toward a sluggish recovery.

Unemployment is rising and is suddenlyexpected to reach 10 percent or more, even after the broader economy begins to recover. Hundreds of big and small banks across the country are still on government lifelines. And while credit markets are returning to normal after last year’s financial crisis, analysts say higher interest rates on Treasury notes and mortgages threaten to disrupt the government’s attempts to right the economy.

Investors are paying close attention to the bond market this week as the Treasury Department prepares to auction a record $104 billion in government notes. Yields on the benchmark 10-year Treasury note fell to 3.69 percent on Monday afternoon, indicating higher demand for save-haven government debt. [Which still leaves the question of whether or not the debt of THIS government is even remotely ‘safe’?]

Okay folks, the Dow dropped another 40 point in the last 15 minutes of trading to close down and even 200 for the day…Understand that exchanges across the planet (except Asia) um, suffered large losses today.

Before today’s ‘plunge’ I was reading a piece that asked the identical question to the one raised in this article, What happens after the third quarter and nothing even resembling a ‘recovery’ fails to materialize?

Which is to suggest that maybe the boys in charge of the ‘smoke and mirrors’ decided to pull the plug before they created a full-fledged panic.

Hell, the economy still sucks but the boys at Goldman sucks Sachs have already announced that they expect to pay record bonuses this year!

How do you suppose they managed that?

Well, with the banks now firmly in charge of the justice system, we may never know.

As I stated earlier, this ‘turn of events’ raises more questions than it answers.

Of particular concern to all of us is how a ‘recovery’ will occur at all when the global economy is suffering from ‘over capacity’?

Which is a bit of a misnomer because the crisis is not due to a lack of consumers, it is due to inability of the consumer to purchase what is produced.

It is important to understand ‘why’ the consumer isn’t able to buy the goods. The consumer is both ‘over charged’ AND ‘underpaid’.

Understand good citizen that our current ‘bumper crop’ of billionaires got their heap from ‘somewhere’.

To understand how this works we need to go to the very beginning of the ‘production cycle’, the ‘raw materials’ themselves.

How much do raw materials ‘cost’ good citizen? They don’t cost the ‘owner’ a single cent because Mother Nature doesn’t have a cash register!

How much does ‘labor’ cost good citizen?

Same freaking answer but this time it’s due to the price of labor being contained in the price of the object produced, it’s actually a ‘profit center’ for the employer regardless of what step in the production process it is added!

Whatever you get paid, your employer makes that plus from your efforts!

How much do you suppose production equipment costs?

Yup, once again the answer is it’s free! The ‘cost’ of equipment is ‘amortized’ over the amount of goods that equipment produces.

Good to be the ‘employer’ isn’t it?

With so many ‘free’ things accruing to the owners of various endeavors, why is this pyramid collapsing?

The population continues to grow but opportunity/market share continues shrink.

When it’s all said and done good citizen the real problem here is that the name of the game is the same as it ever was…survival.

Our system of commerce, for decades if not centuries, has proven incapable of providing the means of survival for all that need those means. Despite the fact we have more than enough capacity to provide every living human with a ‘relatively’ abundant life.

For the third time in as many decades, the global economy will ‘shrink’ while the global workforce expands.

Perhaps, not too surprisingly, the ‘owners’ of commerce have decided to deal with the crisis by reducing their customer base rather than foregoing their very rich profits.

Which, logically, questions the wisdom of continuing to allow a few to ‘own’ what we all need to live.

It’s not a ‘meaningless’ question because in it is contained the key to the survival of our species.

Thanks for letting me inside your head,


Sunday, June 21, 2009

Obama's 'Make or Break' Summer

Happy Father’s Day, good citizens, (to those of you who are so blessed!)

I won’t hesitate for an instant to put forth the idea that ‘continuing the race’ is what it’s all about! It’s the ‘reason’ we exist. If you aren’t all about the kids and their future, you membership in society is seriously in question.

Because if it’s not about the kids, then it’s all about YOU! And you’ll be gone someday leaving humanity with precisely what? A bunch of unpaid bills and environmental desolation that made your small life a tiny bit more enjoyable!

As a species, we can’t afford that brand of economic shortsightedness to prevail any longer.

Sadly, the battle to save the planet for future generations isn’t going too well. You’d think the father of two precious little girls would be thinking about the kind of future they’ll have more so than the kind of future his (major) campaign contributors want to saddle us with…

So we arrive at tonight’s offering and the sinking ‘approval ratings’ of the current administration…

Obama’s Make-or-Break Summer

Published: June 20, 2009

THAT First 100 Days hoopla seems like a century ago. The countless report cards it engendered are already obsolete. The real story begins now. With Iran, universal health care, energy reform and the economic recovery all on the line, the still-new, still-popular president’s true tests are about to come.

Here’s one thing Barack Obama does not have to worry about: the opposition. Approval ratings for Republicans hit an all-time low last week in both the New York Times/CBS News and Wall Street Journal/NBC News polls. That’s what happens when a party’s most creative innovations are novel twists on old-fashioned sex scandals. Just when you thought the G.O.P. could never match the high bar set by Larry Craig’s men’s room toe-tapping, along came Senator John Ensign of Nevada, an ostentatiously pious born-again Christian whose ecumenical outreach drove him to engineer political jobs for his mistress, her cuckolded husband and the couple’s son. At least it can no longer be said that the Republicans have no plan for putting Americans back to work. [But only if they’re sleeping with you!]

But as ever, the lack of an adversary with gravitas is a double-edged sword for Obama. It tempts him to be cocky and to coast. That’s a rare flaw in a president whose temperament, smarts and judgment remain impressive. Yet it is not insignificant. Though we don’t know how Obama will fare on all the challenges he faces this summer, last week’s big rollout of his financial reform package was a big punt, an accommodation to the status quo. Given that the economy remains the country’s paramount concern — and that all new polling finds that most Americans still think it’s dire — this timid response was a lost opportunity. It violated the Rahm Emanuel dictum that “you never want a serious crisis to go to waste” and could yet prompt a serious political backlash.

A tip-off to what was coming appeared in a Washington Post op-ed article that the administration’s two financial gurus, Lawrence Summers and Timothy Geithner, wrote to preview their plan. “Some people will say that this is not the time to debate the future of financial regulation, that this debate should wait until the crisis is fully behind us,” they wrote by way of congratulating themselves on taking charge.

Who exactly are these “some people” who want to delay debate on the future of regulation? Not anyone you or I know. Most Americans were desperate for action and wondered why it was taking so long. The only people who Summers and Geithner could possibly be talking about are the bankers in their cohort who helped usher us into this disaster in the first place. Both men are protégés of one of them, Robert Rubin, the former wise man of Citigroup. [Yet for the grace of ‘Team Obama’ were supposed to ignore this stunning conflict of interest! As I have said before, I don’t really give a shit what Obama ‘says’, it’s what he’s ‘done’ (as well as the way it’s been done) that pisses me off! Deeds, not words!]

There are some worthwhile protections in the Summers-Geithner legislation, especially for consumers, but there’s little that will disturb these unnamed “people” too much. I’ll leave it to financial analysts to detail why the small-bore tinkering in the administration blueprint won’t prevent another perfect storm of arcane derivatives, unchecked (and risk-rewarding) executive compensation and too-big-to-fail banks like Citi. Suffice it to say that the Obama team has not resuscitated the Glass-Steagall Act, the New Deal reform that Summers helped dismantle in the Clinton years and that would have prevented the creation of banking behemoths that held the economy hostage. [Although I’d posit a tiny bit of grit and a generous helping of backbone would have worked just as well in heading off the current abomination…if Obama had ‘rallied the people’ (like FDR) we’d have answered his call…but that didn’t happen, did it?]

A particularly dramatic example of how the old Wall Street order remains intact can be seen by looking at the fate of credit-rating agencies like Moody’s, which gave triple-A grades to some of the cancerous derivatives at the heart of the economic meltdown. As Gretchen Morgenson of The Times reported last year, Moody’s sins during the subprime frenzy included upgrading its rating of securities underwritten by Countrywide Financial, the largest mortgage lender, after Countrywide complained that the ratings were too tough.

Since then, more details have emerged in this unsavory narrative. When the Securities and Exchange Commission charged Countrywide’s former chief executive, Angelo Mozilo, with securities fraud and insider trading this month, it produced e-mails from 2006 in which Mozilo referred to his company’s subprime loan products as “toxic” and “poison.” Mozilo wrote that “we have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet.” Yet Moody’s didn’t warn the public by downgrading Countrywide’s securities until the summer of 2007. Meanwhile, this supposed watchdog for investors, which, like other credit-rating agencies, is paid by the very companies it monitors, took its own tranche of the bubble. Moody’s profit margins even surpassed Exxon’s. [There’s more going on here than a mere ‘oops!’ This wasn’t a ‘slip-up’; it was a damn premeditated crime! A crime no one has (or likely will ever be) prosecuted for.]

And how have it and its peers in the credit-ratings game fared in the Obama regulation crackdown? Incredibly enough, they can still collect fees from the companies they grade. “It is as if Hollywood studios paid movie critics to review their would-be blockbusters,” wrote Eric Dash in The Times. [‘Same as it ever was’, yet more ‘Change you can believe in!’]

Non-Wall Street Americans who signed on to Countrywide’s toxic loans are doing far less well. The White House stood by passively this spring as banking lobbyists mobilized to castrate the administration’s Helping Families Save Their Homes Act. The final version eliminated the key provision that would have allowed judges to lower the principal for mortgage holders whose homes are worth less than their loans. Dick Durbin, the Democratic senator from Illinois, correctly observed in April that the banks are “still the most powerful lobby” in Congress and that “they frankly own the place.” [Is Mr. Rich being ‘unfair’ here? Isn’t this due to congressional Republicans trying to ‘sabotage’ the new administration? Methinks the voting record shows otherwise.]

The banks’ influence at the other end of Pennsylvania Avenue is also conspicuous. The revolving door between the government and Wall Street is as greasy as ever in this White House. It’s all too depressing that the administration enforced its no-lobbyists policy to shun a human-rights advocate, Tom Malinowski, a lobbyist for genocide victims in places like Darfur, but granted Geithner a waiver to appoint a former Goldman Sachs lobbyist, Mark Patterson, as his chief of staff.

Obama is very eloquent in speaking of the “culture of irresponsibility” that led us to the meltdown, but that culture isn’t changing so much as [it is] frantically rebranding[itself]. A.I.G. is now named A.I.U., and has employed no fewer than four public relations firms, including one whose bipartisan roster of shills ranges from the former Hillary Clinton campaign strategist Mark Penn to the former Bush White House press secretary Dana Perino.

Taxpayers are paying for that P.R., having poured $170 billion-plus into A.I.G. But we still don’t have a transparent, detailed accounting of what was going down last fall when A.I.G. and its trading partners, including Goldman, snared that gargantuan cash transfusion. Perhaps if there had been a thorough post-crash investigative commission emulating the Senate investigation led by Ferdinand Pecora after the crash of 1929, we would now have reforms as thorough as F.D.R.’s. It was because of the Pecora revelations that Glass-Steagall was put in place.

If you watch CNBC, of course, the recovery is already here, and the new regulations will somehow stifle it. The market is up, sort of. Even some bank stocks are back. Unemployment, as Obama reminds us, is a lagging indicator. And so, presumably, are all the other indicators that affect most Americans. One in eight mortgages is now either in foreclosure or delinquent, with the share of new mortgages going into foreclosure reaching a record high in the first quarter of 2009. Credit card debt delinquencies are up 11 percent from last year in that same quarter.

The test for Obama is simple enough. If the fortunes in American households rise along with Wall Street’s, he is home free — even if his porous regulatory fixes permit a new economic meltdown decades sadly, months hence. But if, in the shorter term, the economic quality of life for most Americans remains unchanged as the financial sector resumes living large, he’ll face anger from voters of all political persuasions. When the Fox News fulminator Glenn Beck says “let the banks lose their tails, they need to,” he illustrates precisely where right-wing populism meets that on the left.

It’s still not too late for course correction. Before rolling out his financial package, Obama illustrated exactly what’s lacking when he told John Harwood on CNBC: “We want to do it right. We want to do it carefully. But we don’t want to tilt at windmills.”

Maybe not at windmills, but sometimes you do want to do battle with fierce and unrelenting adversaries, starting with the banking lobby. While the restraint that the president has applied to the Iran crisis may prove productive, domestic politics are not necessarily so delicate. F.D.R. had to betray his own class to foment the reforms of the New Deal. Lyndon Johnson had to crack heads on Capitol Hill to advance the health-care revolution that was Medicare. So will Obama for his own health-care crusade, which is already faltering in the Senate courtesy of truants in his own party, not just the irrelevant Republicans.

Though television talking heads can’t let go of the cliché that the president is trying to do too much, the latest Wall Street Journal/NBC News poll says that only 37 percent of Americans agree. The majority knows the country is in a crisis and wants help. The issue has never been whether Obama is doing too much but whether he will do the big things well enough to move us forward. Now that the hope phase of his presidency is giving way to the promised main event — change — we will soon find out.

One can’t help but notice that while our attention is fixed on the economy, the real action is taking place in the ‘coup’ behind the scenes.

Laws are being broken left, right and center, all in the name of ‘rescuing’ the financial sector from a mess of their own making.

Mr. Rich is a smart cookie but like all pundits, his job is not to draw our attention to what’s really happening but to aid in drawing our attention away from the real issues.

You’ll notice there isn’t a single word of criticism for the stupefyingly idiotic plan to hand the keys to the economy over to the Federal Reserve, a ‘privately held corporation’ that is solely ‘owned’ by a consortium of banks!

Geez Bub, we can only wonder who thought this is a ‘good idea’?

What do you suppose the prospects are now that Glass-Steagal will be re-enacted or that any of the criminal financial instruments created to defraud investors out of their retirement funds will be prosecuted for their evil deeds?

Putting an entity that is ‘solely owned’ by the banks in charge of bank regulation represents such a huge ‘conflict of interest’ as to render the ‘rule of law’ meaningless.

The entire banking industry has ‘overstepped’ its chartered purpose, the reasons that banks exist at all.

Banks don’t exist as an ‘intermediary’ that unites savers with borrowers, it has turned into a vehicle to maximize the profits of the lenders, at the expense of those who need to borrow.

Understand good citizen the root cause of the homeless situation is the rich income stream housing provides for the banking system, our ‘true’ permanent ‘landlords’.

This isn’t simply predatory, it is both criminal and evil as well.

Let us return for a moment to the issue of the blatant ‘subversion’ of the ‘rule of law’. Once the legal system has been ‘hijacked’ there isn’t a ‘simple’ way to restore an unbiased system.

The old system must be swept away and a new one created to replace it. As we will quickly see, the banking system will prove ‘incapable’ of policing itself any more than the markets succeeded in policing themselves.

We are currently living with the end results of ‘self-policing’ markets and ‘non-existant’ bank regulation. How will making the banking system ‘self-regulatory’ improve matters?

Not only did our elected officials not ‘blink’ when a ‘bank owned’ entity was granted supreme authority over the banking system, not one of them ‘balked’ either.

The President may ‘appoint’ the Chairman of the Fed but you can bet your bottom dollar that the board of directors of the Fed has reserved the authority to sack any political appointee that refuses to act in the ‘best interests’ of the ‘corporation’ that cuts the Chairman’s salary!

It’s bullshit like this that has landed us right where we are today. It has produced a government that has repeatedly failed to protect society in favor of protecting legislators ‘personal income streams’.

It is precisely this thoroughly corrupt ‘hooray for me, screw everyone else!’ super secret, underhanded sort of ‘free for all’ that exists in the ‘halls of power’ that has hollowed out our economy and brought this nation to its knees!

And apparently the healing power of ‘sunshine’ can be denied with the stroke of a pen…failing that, requests for information that keep getting ‘lost’.

As we all know, only scoundrels and thieves require the ‘cloak of secrecy’, this is no way to conduct the people’s business!

Thanks for letting me inside your head,