Oh Boy! Stimulus!

Peter Schiff talked about the ills of government economic influence in a discussion on CNBC, 12/28/2008.

While others on the panel attempted to argue for accepting the “inevitability” of more financial regulation, Schiff urged that such measures be resisted. The other establishment talking heads bizarrely promoted the idea of accepting government mandated measures despite the fact that they have proven to make the problem worse in the past and have done nothing to stimulate the economy over the second half of 2008. This is akin to being in a car hurtling towards a brick wall and not slamming on the breaks but preparing for the “inevitability” of crashing through it.

“The problem was in the 1920’s, the Federal Reserve blew up a stock market bubble, when it burst we needed to have a severe recession but Hoover wouldn’t let that happen, he tried to intervene, he tried to prop up companies, he tried to keep companies from failing, he was the most interventionist president up until that point - he started the Great Depression,” said Schiff, adding that Roosevelt then compounded the problem through the rest of the 30’s.

Schiff predicted that the ultimate bottom for the Dow would mean it was worth just one ounce of gold and that it would hit a low of value between five and seven ounces of gold next year.

“It’s gonna be a huge decline in the price of stocks and a huge rise in the price of gold as well,” said Schiff, adding that the creep away from the dollar would soon turn into a “stampede”.

Ode to a Modern Hero

One person can still make a difference.

University of Utah student Tim DeChristopher single-handedly disrupted Friday’s auction of Utah’s pristine wilderness to oil and gas companies when he "bought" 22,000 acres of land in an attempt to save the property from drilling.

The sale had been strongly opposed by many environmental groups. Stephen Bloch of the Southern Utah Wilderness Alliance said, "This is the fire sale, the Bush administration’s last great gift to the oil and gas industry."



http://www.democracynow.org/2008/12/22/posing_as_a_bidder_utah_student

The following transcript is from Democracy Now:

AMY GOODMAN: The Bureau of Land Management held a controversial auction Friday to sell oil and gas drilling rights to nearly 150,000 acres of wilderness in southern Utah. The sale had been strongly opposed by many environmental groups. Stephen Bloch of the Southern Utah Wilderness Alliance said, "This is the fire sale, the Bush administration’s last great gift to the oil and gas industry.”

A coalition of environmental groups opposed to energy development on public lands filed a lawsuit last week to block the auction. They struck a deal with the Bureau of Land Management that allowed the auction to proceed on the condition that the leases on the most contested portions of the land will not be issued for another thirty days, until a federal judge hears the case.

Actor Robert Redford has been among those speaking out against the sale of these lands.

ROBERT REDFORD: Anyone who’s been there can testify to the fact that there is no place like these lands. These lands are not Cheney’s and Bush’s. The lands are ours. They’re ours, because they’re a part of our legacy, they’re part of the human American legacy. No place on earth, for anyone—as Congressman Baird has said, no place on earth can speak to the balance of beauty and nature like these areas. And the fact that they would—there’s so much deception, so much sleight of hand here. I mean, how would you feel if you had an heirloom that was centuries-old in your family, and someone came in while you were not looking or they distracted you by creating something over here, and they took it away from you? How would you feel? This is not their land. It’s our land. These are public lands. And the BLM is supposed to be protecting those lands on our behalf.

Now, once these lands are taken away, they’re gone. And gone doesn’t come back. So I feel pretty strongly that we have to do everything. It isn’t a question of trying to talk to them. Forget that. That doesn’t work. They’ve been trashing the environment ever since they came in, almost like they had a duty to do so. But when they trash our lands, and not theirs, and claim it’s their prerogative, then something’s pretty criminal. So I say stop it. Enough is enough. Not only will it not serve the purpose they keep stating—it’s not going to provide any new energy—it’s going to pollute what we’ve already got, and it’s going to take away something that is ours to give to our children, their children and their children and their children. So I feel pretty strongly about this. I appreciate being given the chance to speak to it. As I said before, it’s an emotional situation for me. And we should not allow this to happen. It’s criminal.

AMY GOODMAN: Actor Robert Redford, opposing the sale of Utah wilderness to oil and gas companies. While many environmental groups launched campaigns to oppose the sale of the land, one student in Salt Lake City attempted to block the sale by disrupting the auction itself. Twenty-seven-year-old Tim DeChristopher posed as a potential bidder and bid hundreds of thousands of dollars on parcels of the land, driving up prices and winning some 22,000 acres for himself, without any intention of paying for them.

The Bureau of Land Management must now wait over a month before it can auction off these properties, but by then the bureau will no longer be run by the Bush administration.

Tim DeChristopher was arrested Friday and is scheduled to appear in court later today. He joins us in Salt Lake City.

Welcome to Democracy Now!, Tim DeChristopher.

TIM DeCHRISTOPHER: Good morning, Amy. It’s great to be here. I read your book last summer and really enjoyed it.

AMY GOODMAN: Well, thanks. Why don’t you start off by telling us what happened on Friday? What did you start off planning to do that day? Where were you?

TIM DeCHRISTOPHER: I started off, actually, at a final exam at the university and went straight from there down to the BLM office. And I saw some protesters walking back and forth outside, and I knew that I wanted to do more than that and that this kind of injustice demanded a higher level of disruption. And so, I just decided that I wanted to go inside and cause a bigger disruption.

And from there, I found it really easy to get inside and become a bidder, and went inside and was in the auction room. And once I was in there, I realized that any kind of speech or disruption or something like that wasn’t going to be very effective, but I saw pretty quickly that I could have a pretty major impact on the way this worked. And it just took me a little bit of time to build up the courage to do that, knowing what the consequences would be. And so, I started bidding and started driving up the prices for some of the oil companies. And throughout that time, I knew that I could be doing more and could really set aside some acres to really be protected. And so, then I started winning bids and disrupting it as clearly as I could.

AMY GOODMAN: How does it work? You get a paddle?

TIM DeCHRISTOPHER: Yeah. I just had a bidder paddle and just kept raising it as much as I could.

AMY GOODMAN: And you ended up buying what? Over 22,000 acres of land?

TIM DeCHRISTOPHER: Right.

AMY GOODMAN: And where was this land?

TIM DeCHRISTOPHER: Honestly, I didn’t know at the time. But now it turns out that a lot of that land was the land right around Arches National Park and in Labyrinth Canyon and Mineral Point and beautiful places like that. So it turned out pretty well.

AMY GOODMAN: And now what are your intentions? Or first, I should ask, what was the response of the people in the room? When did they understand who you were? Or did they, at the time?

TIM DeCHRISTOPHER: Once I started buying up every parcel, they understood pretty clearly what was going on. And so, at that point, they stopped the auction, and some federal agents came in and took me out. And from other people who were in the room afterwards, I guess there was a lot of chaos, and they didn’t really know how to proceed at that point. But then, I was away talking to the federal agents at that point.

AMY GOODMAN: When did they arrest you?

TIM DeCHRISTOPHER: Well, they took me into custody there on Friday, and they had me for a few hours. But it was a pretty cordial conversation that I was having with them. I was very clear about what I was doing and why I was doing it. I told them all my motivations and why the environmental movement, as it’s been, and myself included, hasn’t been effective and why I felt it was necessary to take more drastic actions. And so, they took my statement there and decided that I wasn’t a threat, and so they released me. But charges haven’t been pressed yet. That’s going to happen later today.

AMY GOODMAN: I’m looking at the Salt Lake Tribune article on you. It says, “He didn’t pour sugar into a bulldozer’s gas tank. He didn’t spike a tree or set a billboard on fire. But wielding only a bidder’s paddle, a University of Utah student just as surely monkey-wrenched a federal oil- and gas-lease sale Friday, ensuring that thousands of acres near two southern Utah national parks won’t be opened to drilling anytime soon.”

Can you talk about how it is that this land was being auctioned off? And what were the other companies, organizations in the room that were buying it up?

TIM DeCHRISTOPHER: Well, basically, the Bush administration was trying to rush through this auction as quickly as possible to get it done before Obama took office, because they knew that it wouldn’t be acceptable under any other administration other than Bush and Cheney. And so, they just circled vast swaths of southern Utah. Their initial announcement, they included pieces of property that had houses on them in Moab and included property that they didn’t even have rights to drill in or they didn’t have rights to sell off and included a lot of areas around national parks. And so, they rushed through the process and didn’t have time to do adequate environmental impact statements, didn’t have time to take an adequate amount of public comment or even input from other federal agencies. And there was a big battle with the National Park Service, because they were upset over a lot of areas that were included in there. But luckily, they also didn’t have time to make sure that all the bidders were bonded, which is how I got in so easily.

AMY GOODMAN: Is this land you have walked, traveled, enjoyed?

TIM DeCHRISTOPHER: I’ve been around that area a lot, and a lot of southern Utah and the wilderness throughout this state, I’ve enjoyed for a long time. And that’s why I originally came here. I spent my first two years in Utah working for a wilderness therapy program and spending most of my time out there in some of the beautiful lands of Utah.

AMY GOODMAN: I want to go on in the Salt Lake Tribune piece, where it says, “During the confusion that followed DeChristopher’s removal, Sgamma”—I don’t know if I’m pronouncing this person’s name right, Kathleen Sgamma, director of government affairs for the Independent Petroleum Association of Mountain States—“said she had seen Southern Utah Wilderness Alliance attorney David Garbett ‘communicating’ with DeChristopher during the auction. She questioned whether SUWA”—that’s the Southern Utah Wilderness Alliance—“had been acting in concert with [DeChristopher] the BLM dubbed a ‘nuisance bidder.’” That was you. Were you working with other groups in the room?

TIM DeCHRISTOPHER: No, no. There was no kind of a plan or anything. The extent of the communication that the SUWA attorney had with me was he dropped his business card in my lap on his way out the door, as he did with a lot of the other bidders who won land, because they were intending to try to protect some of those afterwards, hoping that the oil companies would be willing to give them up later.

But it was just me in there acting alone. It wasn’t especially premeditated. I got in there and saw the opportunity to make the difference and then realized that, seeing that opportunity, I couldn’t ethically justify not taking it. I knew that as bad as this could possibly turn out, if I ended up going to prison, then I could live with that. But if I saw an opportunity to protect the land of southern Utah and I saw an opportunity to keep some oil in the ground and give us a better chance for a livable future and I passed up that opportunity, then I wouldn’t be able to live with that. And so, I just had to make that choice on my own.

AMY GOODMAN: Tim DeChristopher, you’re not alone. Members of the National Park Service; members of Congress; John Podesta, head of the President-elect Barack Obama’s transition team, have all said the lease sale should be halted or altered to accommodate environmental concerns. What was the response of, well, the protesters outside, now the environmental groups, as your action has become known?

TIM DeCHRISTOPHER: The response has really been overwhelming, and that’s been the most powerful part of the whole thing for me. Over the past two-and-a-half days, I’ve just got an overwhelming amount of support from all across the country and from different parts of the world. People have been standing up, inspired and encouraged to take action on their own, which is really powerful. And people have been coming out of the woodwork to support me. The former director of the BLM, Patrick Shea, has now volunteered to lead my legal team pro bono. And so, he’s on our side in a big way, and he’s a great asset to have.

This has really been emotional and hopeful for me to see that kind of support over the last couple of days, because I did feel like I was putting myself out on a limb there alone, and now, after thousands of supportive statements from people, I see that, you know, for all the problems that people can talk about in this country and for all the apathy and, you know, the eight years of oppression and the decades of eroding civil liberties, America is still very much the kind of place that when you stand up for what is right, you never stand alone. And that’s been really powerful for me to witness.

AMY GOODMAN: Has anyone offered simply to pay for the land that you bid for and succeeded in winning? What was it, at $1.8 million?

TIM DeCHRISTOPHER: Right. There’s been a lot of discussion of that, and I’m not sure if that would completely take the problem away or not, if the people of America just stood up and re-bought the land that was already theirs. That might be an option that we have to pursue, but at this point, we’re not sure.

AMY GOODMAN: So, now there’s two kinds of land. One is what you bid for, didn’t win, but you upped to the price for everyone else, something like to the tune of half-a-million dollars, so other bidders, like oil companies, whatever, had to pay more, because you were in there bidding against them.

TIM DeCHRISTOPHER: Right.

AMY GOODMAN: And then there’s the land you actually bought. Now, that land—

TIM DeCHRISTOPHER: Right.

AMY GOODMAN: —can’t go up again until something like February, is that right? Which means a new administration, an administration who—we know at least the head of the transition team, John Podesta, has expressed concern about the sale of this land. The land whose price you upped just by bidding, though you didn’t win, that could be sold within this ten-day period?

TIM DeCHRISTOPHER: My impression of that is that those oil companies can give that back if they feel like they purchased it in any kind of way that’s not acceptable to them, because I happened to drive the cost of their oil up a little closer to what the actual cost of producing oil is and the actual external costs that all the rest of us are going to have to pay.

AMY GOODMAN: What are the charges you’re facing right now? And are you willing to go to jail?

TIM DeCHRISTOPHER: The charges haven’t been released yet, so I don’t know what charges I’m facing. There’s a good chance that they are going to be significant charges. And, you know, obviously, I’m going to fight those. And, of course, I don’t want to go to jail. And I’m willing to, if it comes to that, but, you know, I’m not looking to be a martyr or anything like that.

I’ve seen the need for more serious action by the environmental movement and to protect a livable future for all of us. I’ve seen that need for a long time. And frankly, I’ve been hoping that someone would step up and someone would come out and be the leader and someone would put themselves on the line and make the sacrifices necessary to get us on a path to a more livable future. And I guess I just couldn’t wait any longer for that someone to come out there and had to accept the fact that that someone might be me.

AMY GOODMAN: Are you a student?

TIM DeCHRISTOPHER: Yes, I’m an economics student at the University of Utah.

AMY GOODMAN: Is this your school break?

TIM DeCHRISTOPHER: Yeah. I just took my last final exam on Friday morning and went straight from there down to the auction.

AMY GOODMAN: Has the University of Utah said anything to you, officials there express support or otherwise?

TIM DeCHRISTOPHER: No, and, you know, I wouldn’t expect them to come out and make any official statement. Some of my professors, a lot of students have contacted me and expressed their support. The professors, especially, have been really supportive and have joined my team so far. And, you know, they kind of did their job beforehand. They kind of did their job in getting me ready for this and committing me to hold true to my values and in teaching me what was going on. In fact, the final exam that I took on Friday morning, one of the questions was about this oil sale and about, if only the oil companies were bidding on this land, are they actually going to be paying the real price for the production of oil? And, of course, the answer that the professor was expecting is no, they’re not, because there’s a lot of external costs that all of us have to pay for the production of oil that aren’t included in those. So they did their part ahead of time in putting me where I needed to be.

AMY GOODMAN: Tim DeChristopher, thank you for joining us. You’ll have an interesting essay to write when you go back to school: “What I Did on My Winter Vacation.”

TIM DeCHRISTOPHER: I guess so.

AMY GOODMAN: Tim DeChristopher is a University of Utah economics student. We will follow his case. He goes to court later today. He disrupted Friday’s auction of Utah’s pristine wilderness to oil and gas companies by buying up some of the land himself.

From Heroes to Zeroes

On December 16, the Bernanke Fed took the most unusual step of lowering the overnight inter-bank lending rate (the federal funds rate) to an unprecedented zero percent with an upside limit of 0.25 percent. The Fed further announced that it will buy “large quantities” of mortgage-backed securities, and is considering doing the same thing with longer-term Treasury bonds. This means the Fed is ready to debase the U.S. dollar to artificially low levels in order to re-inflate the U.S. economy. The Fed wants to trigger monetary inflation and change deflation expectations so they can float excess debts away in a sea of newly created money. Normal functioning of private credit and capital markets is therefore suspended, and so the Fed will micro-manage failing markets for the foreseeable future, or at least as long as U.S. deflationary pressures persist.

The Fed is also taking big chunks of ownership in large private U.S. banks in order to recapitalize them and to let them deleverage themselves in an ‘orderly’ way. Today the White House leaked plans to similarly allow U.S. car manufacturers to enjoy an ‘orderly’ bankruptcy.

Why is our government taking the tack of apparent socialist extremism, and what will be the financial and economic intended and unintended consequences?

First of all, let’s keep in mind that the Fed is the only central bank in the world that is both public- and private-owned. Bankers sitting on the Fed board can make decisions to lend new money to themselves at whatever rate they choose. The entire American financial and fiscal system is run by bankers, either at the Fed or at the Treasury. Indeed, beginning on January 20 (2009), the Obama administration’s Treasury Secretary will be the current president of the New York Fed, Mr. Timothy Geithner, who will be replacing Secretary Henry Paulson, himself a former CEO of the Wall Street investment bank Goldman Sachs. Although the U.S. President initiates and Congress approves the nominations of the seven members (currently only five in exercise) of the Federal Reserve Board of Governors (for a 14-year term), the de facto managing of the Fed is left to bankers. This is done through the Federal Open Market Committee (FOMC) which implements monetary policy through open market operations and other discounting policies and discount loans. It is comprised of the seven members of the Board of Governors and five presidents of the twelve Federal Reserve District Banks. The Chairman of the Fed Board is also the Chairman of the FOMC. The President of the New York Fed is always on the FOMC and acts as its Vice Chairman. The remaining 4 fed member slots are shared and rotated among the remaining 11 District Banks. In fact, the presidents of all twelve Federal Reserve District Banks are present at the FOMC meetings, but only five are enabled to vote at any given time. But, since members of the Fed board often originate from the regional Fed banks or from private banks, bankers are often in the majority in deciding American monetary policy.

Secondly, by taking over private financial markets, the Fed is, in effect, covering its own mistakes (and those of the SEC and of the U.S. Treasury) for having allowed the building up of a shaky pyramid of asset-backed securities (ABS), not the least being the toxic mortgage-backed securities, and the sweaty gambler-like credit default swaps (CDS), amounting to the big giant knee in our collective groin that is causing our continued economic crumpling to the ground.

It is my feeling that the Fed, by creating a bond bubble, is only (surprise!) postponing the day of reckoning and is buying time. When the bond bubble bursts (and believe me, it will burst as all bubbles must), the U.S. economy will be pushed much farther downhill. Many capitalized pension funds will fail, for example, buying many retirees a one-way ticket toward sudden Madoffian-style poverty. Inevitable spikes in interest rates will hurt investments and damage the economy even more.

Meanwhile, a bout of competing currency devaluations has been launched, since other governments and other central banks will have to try to debase their own currencies if they want to avoid importing the worst of the U.S. economic downturn. This will be reminiscent of what happened during the 1930s economic depression. In the mildest of terms, this is not a pretty perspective for the future of fiat currencies.

It seems that the Fed has an uncanny talent for creating financial and economic bubbles. In the late 1990s, after the Asian financial crisis and after the near failure of the hedge fund Long-Term Capital Management (LTCM), in September 1998, the Greenspan Fed flooded the U.S. economy with liquidity and created the 2000 tech bubble. The same Greenspan Fed aggressively lowered the Federal Funds rate from 6.5 percent to 1 percent in 2004, thus paving the way to the worst housing bubble in American history. Now, the Bernanke Fed is at it again, and, by lowering the federal funds rate to close to zero and by announcing that it stands ready to monetize U.S. Treasury debt, it is actively blowing into what has the appearance of one of the worst bond bubbles ever.

The Fed has bestowed so much money on banks in exchange for their bad debts while the banks themselves remain unwilling to lend, that bank excess reserves at the Fed have exploded to more than half a trillion (November 2008), which is ten times what is required. Clearly the economy is in a liquidity trap. There is a lot of money in the system, but it is not circulating. When the Fed creates more liquidity, it is like pushing on a string. By lowering short-term interest rates to close to zero, therefore, the Fed is helping itself before helping others, since it will be paying less interest on Banks’ excess reserves, most of which came from the Fed anyhow.

We the electorate have, through a complete lack of resistance, anger and outrage, permitted the Fed, Congress, the Treasury, and the Executive Branch to wield a massive, blundering hammer on the framework of a delicate and very troubled economy. Our government and Fed, in step with other governments and central banks, are repeating mistakes we should have learned from previous downturns and turning what should have been a bad recession into a full-blown global depression. By allowing the pillaging, we must now prepare ourselves and face the consequences. God have mercy on us for squandering the freedoms so many died to provide and protect, only to watch from beyond the battlefield as we summarily piss away freedoms because we were too busy taking them for granted.

HOPE on a Rope

Project HOPE for Homeowners was supposed to help 400,000 homeowners avoid foreclosure. 312 applied for help.

How many homes were saved from foreclosure? ZERO.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Sleigh Broke, Please Help, God Bless

Ready or Not, Here Comes Round-Two

I've been screaming for many months about the coming second wave of the mortgage meltdown, but to hear Scott Pelley tell it, the pending Alt-A bombs and Pay Option Arm resets crept up on us just last night. It's a shame our leadership (if you can call them that) can only aim their fire extinguisher at the expanding nuclear fireball rather than proactively clearing the flammables before a known approaching conflagration consumes us.

What they're trying to do is like putting out a wildfire with a grass whip and an indian pump. Fire-1, Firemen-0.

In light of the paralyzing 'news' in Pelley's 60 Minutes report, many financiers and real estate pundits are calling for market bottoms as early as spring 2009. Sadly, happy nonsense only loads the opium into the pipe so we can continue to inhale deeply until the bank repos the den. Then we can, with a clear conscience, stare glassy-eyed at the evicting Sheriff and swear we never saw it coming.

No More Mixed Messages

Congress made Detroit Big-Three CEOs get on their knees and beg for bridge loans, demanding what equated to pre-capitalization proof of success concerning how they planned to fix a broken manufacturing model. At virtually the same time, in the same town, the same Congress quite literally forced and continues to shove billions of taxpayer dollars down the throats of the same greedy bunch that got us into this financial crisis in the first place.

Why does no-one seem to notice or care about the obvious contrasting standards?

At least I'm not the only one who wants an answer.

Beyond This Point There Be Monsters

By this morning’s global headlines, world financials seem more like a runaway freight train than an economy responding to heroic (if misplaced) attempts at life support.

By now you’ve heard the Detroit bailout bill got squashed by Senate Republicans. This, combined with increasing feelings of toxicity toward U.S. debt from foreign central banks should mean that Wall Street’s usual Friday dose of Dow- and NASDAQ-smack will be withheld, which should produce the kind of withdrawal symptoms that no one but addicts and rehab centers should ever have to see. Or, another possibility is that we'll all see a heartfelt rush to Detroit's rescue on the Hill today that swoops in and saves us from a serious drubbing... putting off the inevitable pain for another five minutes.

World-market stock prices sank all night and U.S. futures are falling off a cliff as I write this. But as difficult as this should be to watch, if Detroit’s denial of funds is any sign of reasonableness taking hold on Capitol Hill suggesting that the never-ending cash spigot might be turned off at some point, then we may actually be able to find a bottom somewhere from which real recovery can begin. Face it, the continued throwing of cash at every outstretched hand is unethical, unrealistic, unsustainable and unconscionable. Given recent events of late that have propped up unfounded hopes of government intervention in every strapped sector, however, I think the guns are loaded for some real trouble… like protests-becoming-riots sort of trouble. I believe we Americans are about to segue into a new, yet sadly predictable stage in grieving the loss of untold trillions of dollars in wealth, that is, the turn from shock to anger. I believe the manifestation of this displeasure with policy makers, white collar criminals and people whose only crime might be appearing wealthy will not be too subtle.

In my opinion, we are in a very, very different and difficult position than that to which we have become accustomed. No one has full information on the size, scope, and scale of this problem, and our coffers are incredibly stretched while Paulson and Bernanke keep wielding 'solutions' akin to experimental drug trials and exploratory surgery with really blunt instruments. One big market accident or one big blow-up in ANY of the unorthodox strategies intended to provide a soft landing to this plane crash could sink the whole damn thing. I don't think I can get too dramatic here.

As news of Detroit’s cash denial sinks in, there are two major business reports due out today that are cause for concern. First, the Labor Department will release its monthly figures for the Producer Price Index (a measurement of the price of goods at the wholesale level) at 8:30 this morning. PPI is expected to decline 2% for November, according to a consensus of economist projections compiled by Briefing.com, following a decline of 2.8% the prior month. Also at 8:30 a.m. ET, the Commerce Department will release its retail sales figures for November which are expected to show a drop in the neighborhood of 2%.

I would not be too surprised to see automatic trading stops kick in today, but as you know there’s been no predictability anybody could count on in daily market numbers for quite some time. There is still some twisted, macabre comfort in the fact that $8 trillion is holding the American market together; that kind of scratch should give us the feeling of normalcy right up until all hell breaks loose.

8 Really Scary Predictions from Fortune Magazine

Dow 4,000.
Food shortages.
A bubble in Treasury notes.

Fortune spoke to eight of the market's sharpest thinkers and what they had to say about the future is frightening.

http://money.cnn.com/galleries/2008/fortune/0812/gallery.market_gurus.fortune/index.html

Infinite Indemnity

Here is a graph from the U.S. Bureau of Labor Statistics. It compares official government unemployment data for November 2007 and November 2008 over a broad range of job sectors.

(Click on the graph to enlarge)

The data is disturbing. You tell me… are we in a recession or a depression?

Unlike previous recessions since the 1980s, even the health care and education industries are suffering due to misguided FIRE Economy (Finance, Insurance, and Real Estate) investment practices that caused them expand budgets and take on enormous debts and imploding state budgets funded by income and real estate taxes. Federal spending is still strong (and why not--it's other nations' money AND LOTS OF IT) but state spending is collapsing along with state budgets as state and local tax revenues implode.

This is not looking good at all, in my opinion…

We'll Make Great Pets

Americans listen while congress grills the Big Three about the automakers' plans to cut expenses, re-think, re-tool, and re-wire... and the majority of us common folk don't think the companies deserve a dime because they failed to adapt production fast enough to survive these rocky economic times. $34 billion dollars, we tell our congressmen and congresswomen, is a completely ludicrous amount to spend on the idiots from Detroit. That's $100 for every man, woman and child in the country! We'd have to be stupid to give them that money!

But at almost the same time, in the same town, Hank Paulson and Ben Bernanke rushed congressional permission to spend $750 billion to boost the economy, and in only six weeks time that number became $8.5 trillion in cash and guarantees. Much of this money went to banks that said 'no thank you,' but were forced to take the money anyway. If the bank didn't really need it, the bank simply bought other banks. And why not? All that money was pushed on the banks with no strings attached, not even a wink and a nudge! So I guess you can lead a bank to money, but you can't make it lend. Boy, are our faces red or what??

Somehow all our eyes are on the (relatively) inexpensive Detroit loan requests while the REAL money (our money and our children's money and our children’s children's money) gets spent on nobody-knows-what because the plan changes every three days to the tune of about $25,000 for every man, woman and child in the country. It must be the best magic trick in history, because the biggest cube of money anyone could imagine has just disappeared.

Why does no-one seem to notice or care about the obvious contrasting standards? Congress browbeats Detroit and makes car manufacturers get on their knees and beg while showing us how they'll fix a broken manufacturing model, while the same Congress quite literally forces taxpayer dollars at the same greedy bunch that got us into this financial crisis in the first place.

The cold truth is that we Americans will blindly give blank checks with no strings attached to banks who charged us $17.5 billion in overdraft fees in 2007 while we tell Detroit to go piss-up-a-rope for selling us the gas guzzlers that greedy American consumers demanded they provide.

To the rest of the world, we must look like monkeys humping a football.

Reason simply no longer applies, and the irony of our insane and contradictory thinking is not lost on our benefactors. Countries like China, for example, upon whom we rely to purchase our debt so that we can sustain our otherwise unsustainable bone-headed lifestyles, are beginning to realize that investing in American debt is no longer in their best interests. China's disastrous investments in Blackstone, the private equity fund, Morgan Stanley, the investment bank, and Barclays Bank appear to have dulled the appetite for further gambles. Like congress watching Detroit, China is watching the befuddled and bewildered ways our best and brightest financial experts are dealing with the ongoing bloodletting of American capital and liquidity. With China risking massive social turmoil next year as their economy slows and the number of angry jobless grows, a leading Communist Party scholar has warned, it can no longer keep dumping trillions of yuan down American rat holes.

China, and most of the other countries from which we’ve borrowed so heavily, must now deal with rat holes of their own.

Peter Schiff Gets It

The so-called "bailout" is nothing more than very expensive recovery avoidance. Sooner or later we must accept the pain of recovery, or recovery will be forced upon us. The latter option would be most unpleasant.

Cannibalistic, actually.

Warning Signs of the Pending Great Compression

The truly amazing nuggets of wisdom are found in media outlets based outside America's borders. A major U.K. newsgroup cites sources within Citibank projecting two different outcomes resulting from our force-feeding cash and guarantees to the Greedy Beast we created...

Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world's monetary system with liquidity, according to an internal client note from the US bank Citigroup.

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world's authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3526645/Citigroup-says-gold-could-rise-above-2000-next-year-as-world-unravels.html

Neither scenario will be acceptable to us, but the Beast cares not for our opinion.

The American Dream was plundered by growth for growth's sake... the ideology of the cancer cell. We created, and still nurture, a society where money is a magnet for more money. Wall Street's best and brightest succeeded in creating a demand for more demand, which supplied the illusion of eternal prosperity long enough to sucker most of us into the game. There was never any mental defense against this attack; accusations of ignorance, stupidity, "they brought it on themselves," or, "they should have read the fine print" kept those apparently more fortunate arrogantly blind to the fact that it could just as well have been you or I who got caught in the financial trap.

Now the whole world is trapped, and there is egg on the wisest faces. Unfathomably large amounts of money and guarantees are being thrown at the problem, and with the exception of inevitable and brief bear market rallies, our and our childrens' money only appears to make the monster hungrier. A happy ending in the immediate future seems quite unlikely.

The new economic reality, born of vainglory and lust for comfort and convenience, marks this generation's greatest gift to our impoverished progeny, who as yet have no idea their futures have been so inexorably mortgaged. We have unleashed a kind of economic slavery upon them and upon ourselves; in effect, we are now indentured to creditors whose faces we will never see. I hope the word ‘captors’ is not a more accurate descriptor, but I fear they will be anything but benevolent.

Follower Paladin offers the following insight:

Greed, and the myth of mandatory growth, are forces too powerful to resist. That doesn't mean that the natural dynamics of economics and the environment (and, by the way, while some consider those two to be separate issues that are at odds with each other, I consider them hard connected -- in other words, they benefit or suffer together) will lose out to human misconduct. Just the opposite. In the end, both will win; they just will win ugly. And, frankly, neither will care what happens to us humans.
--Paladin

This would make for great reality TV if it were happening on somebody else's planet.

No Accountability, No Outrage, No Problem

Paulson, Bernanke, Bush, and every single elected official serving in both the U.S. House of Representatives AND the Senate can kiss my ass.

EVERY SINGLE GODDAMN ONE OF THEM.

This is the end of the financial world as we know it.

Little Green Eggs and Ham

CNN is airing video about aliens this week. If they're really here, you know they're tuning in.

Why Washington Cannot Prevent Depression

The debt crisis, the primary catalyst of the economy’s decline, is far too big for the U.S. government to control.

Here are the facts:

1. Based on the Federal Reserve’s Flow of Funds report, there are now $52 trillion in interest-bearing debts in the U.S.

2. Based on estimates provided by the U.S. Government Accountability Office and other sources, it’s safe to assume that there are also at least $60 trillion in contingency debts and obligations now starting to kick in — for Social Security, Medicare and other pensions.

3. Separately, the Bank of International Settlements reports that the total value of debts and bets placed worldwide (derivatives) is $596 trillion, or more than a half quadrillion. A quadrillion is a one followed by every zero ever seen by everyone who ever lived; it's a number we should be using to discuss astrophysics... not economics.

In contrast, even after the most reckless outpouring of government bailouts in recent months, the total rescue money announced in the U.S. so far is $2.7 trillion; this is a huge, unwieldy amount, but it is still minuscule in comparison to our cosmic-scale debt accumulation.

The numbers are not directly comparable, but just to get a sense of the magnitude of the problem, compare the size of the debts and bets outstanding (the first three bars in the chart) with the size of the $2.7 trillion in bailout commitments thus far (barely visible in the chart).

Still, most people insist, “If only Washington can avoid the mistakes it made in the 1930s … if only Washington can peremptorily nip this crisis in the bud … if only Washington can be our lender and spender of last resort … Great Depression II will never come to pass.”

What they don’t see is the fact that the debt build-up in the U.S. today is far greater than it was on the eve of Great Depression I. Indeed, in the chart below, Claus Vogt, the editor of Sicheres Geld (the German edition of our Safe Money Report) shows how...

Prior to the 1930s, the total debt in the U.S. was between 150% and 160% of GDP. Now it’s close to 350% of GDP.

Moreover, he reminds us that this chart does not even include derivatives, which barely existed in the 1930s but which are now sinking banks deeply into the red.

With the economy already falling, Washington cannot — and will not — fund the bailouts with higher taxes. Nor will it do this by making major cuts in government expenditures. Instead, at this phase of the crisis, the government will try to finance its folly largely by borrowing the money. Lots and lots and lots and lots and lots of money.

Three weeks ago, the U.S. Treasury department announced that it is borrowing $550 billion dollars in the fourth quarter, more than the entire deficit of fiscal year 2008.

Two weeks ago, Goldman Sachs estimated that the upcoming borrowing needs of the U.S. Treasury will be a shocking $2 trillion — to finance the bailouts, to finance the existing deficit and to refund debts coming due. That’s four times the size of the entire deficit. This means you can expect an avalanche of new Treasury bond supplies, crowding out private borrowers and putting severe upward pressure on interest rates. And, needless to say, higher interest rates cannot end the debt crisis; they can only make it worse.

The rushed, puny government bailouts, which only passed muster in the House because of pork-bribes and threats, come too little too late to end this crisis. A depression, sadly, is unavoidable.

Days of Ripple and Crabgrass

Feel like stylin' and profilin' while the poor and downtrodden shed tears of unfathomable poverty and sadness? Your chariot awaits thee in Hong Kong, where luxury has never been cheaper. Taxes, title, import fees and shipping are extra.

Stickin' It to The Man

If you could fall behind on your mortgage knowing that you will not lose your home, will not need to move out, and that the loan will be favorably restructured (at a much lower monthly payment) once you're 90 days delinquent, would you do it? That is exactly what many underwater Fannie and Freddie customers could do under a re-structuring plan that will halt all foreclosure and eviction proceedings between Nov. 26 2008 and Jan. 9, 2009. Most will not qualify, but for those who do it will be a once in a lifetime opportunity to have their cake and eat it too.

There are a few catches. For one thing, your loan has to be owned or guaranteed by Fannie Mae or Freddie Mac, and it has to be worth at least 90% of your home's present value. Additionally, your current mortgage payment must be at least 38% of your income. Your credit will take a hit, but a FICO spokesman said that "one isolated delinquency will do less damage to your score than it has in the past," and that "if it was me and I was certain that I could keep my home even after missing a couple payments by working out a deal with the lender, that's what I would do."

This is priceless. It's also somewhat disturbing, but I'm getting used to that.

Economist Peter Schiff notes that the scheme rewards more than just default; it rewards seemingly crazy behavior like quitting one's job. Many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.

This is a once-in-a-lifetime opportunity. People are going to feel like complete morons if they don't participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn't afford.
--Peter Schiff, President, Euro Pacific Capital

Technically, Schiff is correct, and it's not a crime to default on your mortgage. If you can reduce your principal amount by hundreds of thousands of dollars just by quitting your job for a few months, that's a deal that might actually make sense for some people depending on their situation. It's a pretty perverse incentive for the government to pony-up, but that's the hand that millions of Americans are now being dealt.

The irony here is delicious. Banks are perfectly happy playing around with the fine print of credit-card agreements to better screw their customers. That said, it stands to reason that these same customers would start optimizing their own situation with respect to the banks.

"We Admit It. We Have No Idea What's Going On"

Most of the news this morning reflects yesterday’s -427.47 point Dow bath and the general feeling that the recession is not only here now, but will be deep and lengthy. Overseas stock markets fell sharply Thursday, taking a cue from Wall Street, as investors remained anxious about the grim outlook for the global economy and corporate profits. In the U.S. layoffs are accelerating beyond already bleak expectations and older Americans, once close to retirement, are facing new economic realities and grieving the massive loss of money they scrimped and saved for retirement.

U.S. reports number of people making first-time unemployment claims rose to 542,000 last week - highest level in 16 years - yet at 8:00 a.m. President Bush said he would veto any bill that would extend emergency unemployment benefits. By 10:00 a.m. President Bush said he would sign it.

The Wall Street Journal's Market Watch weighs in on the Fed’s bad outlook in the video that follows; they have no idea what's happening either:
http://www.marketwatch.com/video/asset/analyzing-the-fed-gloomy-outlook/968A3DB2-B46A-487D-8255-D2D82A6645AE

As messed up as everything looks, however, nothing is so out of whack as the scenario painted for us by the Big-3 CEOs who packed their tin begging cups in their designer luggage which they hauled from Detroit to D.C. aboard their private luxury jets. My favorite part of the hearings went something like this...

"Gentlemen, if any of you flew commercial to these proceedings raise your hand.... let the record show no hands were raised."
"Gentlemen, if you are prepared to sell your corporate jet and fly back home commercial, raise your hand... let the record show no hands were raised."
"Couldn't you all have downgraded to first class or jet-pooled or something to get here? It would have at least sent a message that you do get it."

To critics of the Big-3's mode of transportation during these dark times, GM spokesman Tom Wilkinson said, "Making a big to-do about this when issues vital to the jobs of millions of Americans are being discussed in Washington is diverting attention away from a critical debate that will determine the future health of the auto industry and the American economy."

People judge you, especially when you're on the radar. Is there a Patron Saint of Dumbasses?

The Battle of Wits Has Begun

What's the impact to me if investors and others stop buying U.S. debt? I've heard lots of columnists say that as the U.S. debt increases, it's less likely that we can borrow money or at least we'll have to pay a higher interest rate. Is this something I'd notice in service cuts, government layoffs, etc., or would nothing seem to change?
-Matt K. Tacoma, WA

If or when investors lost their appetite for U.S. Treasury debt, you would notice the change.

If investors gradually decided they didn’t like our debt, the Treasury would simply increase the amount of interest paid on newly issued debt. This is how long term interest rates are determined. (The Federal Reserve sets only very short-term interest rates that apply to banks lending to each other. Banks also peg their so-called prime rate to the Fed’s short-term rate.)

Every time the Treasury auctions debt, it takes bids from investors who want to buy it. Whoever bids to accept the lowest interest rate wins the bid. That helps the Treasury keep borrowing costs low. Demand for Treasury debt has its ups and downs. When the dollar is falling, for example, investors usually want a higher rate to make up for the impact of that falling dollar on their investment. Those higher rates push up the cost of other long-term loans like mortgages.

Credit has become much harder to get — but not because of a lack of investor interest in Treasuries. The problem is that banks are afraid to lend because the system is still riddled with private debt — mostly backed by mortgages — that may go bad. Most mortgages will be fine, but they’ve been so scrambled up in complex pools of securities that no one knows exactly who’s holding the bad ones. It’s kind of like someone offering you 10 glasses of water and then telling you one of them is poison — but they can’t tell you which one.

That makes it pretty risky to take a drink.

The good news is that, despite the current financial turmoil, a rapidly slowing economy and huge the levels of U.S. debt, investors around the world are still snap-ping up Treasuries as fast as they’re printed. For the time being, the U.S. Treasury is still seen as the safest place to put your money. That strong demand has helped give the dollar a big boost in value against other foreign currencies. It’s impossible to predict how long that will last. These days, it’s impossible to predict just about anything related to the economy or financial markets.
--John W. Schoen, Senior Producer, msnbc.com

Petit Fours and Metit Fours

Sculptors Nora Liganno and Marshall Reese created this work of carved ice entitled 'Main Street Meltdown' to personify the ravages of disappearing wealth over time. The ice made its debut on 79th anniversary of Black Tuesday, the stock market crash that caused the Great Depression, Wednesday, Oct. 29, 2008 in New York. By Friday, what had not evaporated was mingling with angry Yankee-sweat in street-level gutters and trickling down to the sub-strata that are the New York City sewage and subway systems.

I thought the pic was pitch-perfect with respect to the continuing dull ache of business and financial reports that are due to drip our way in the coming week. The one I'm looking most forward to is The Home Depot's earnings report. I say this because I've been surfing the company's website and noticed they recently got into the electronics and office supply game. The stuff is priced pretty terribly out-of-whack, though, and I'll specifically mention a Canon MF-3240 all-in-one laser printer they'll sell for $495 plus tax and shipping that you can get for $100 and shipped free from Amazon. Same printer, $400 more at The Home Despot!

Home Depot: http://www.homedepot.com/webapp/wcs/stores/servlet/ProductDisplay?storeId=10051&langId=-1&catalogId=10053&productId=100528347&categoryID=503331
Amazon:
http://www.amazon.com/Canon-imageCLASS-Multifunction-Printer-0989B001/dp/B000EILTCQ/ref=pd_bbs_sr_1?ie=UTF8&s=electronics&qid=1226904651&sr=8-1

Yummy! Home Depot forecasts an 8% revenue decline for 2008, further souring previous estimates of 5% and 6.5%, which slightly exceeded market expectations. Maybe selling printers at a 500% retail mark-up saved their bacon, nevermind the slaughtered electronics customers.

Fair, Balanced, and Wrong

Q: What's worse than being wrong?
A: Being hated for speaking the truth.

Watch the boys and girls of Fox News get a year's worth of Peter Schiff shoved up their asses. It might be funny if this was happening on someone else's planet, but I doubt it.

I watched this clip several times; I felt a little worse with each viewing. The third time was enough... I had to stop. By then it was like looking at a reflection of our society with a bunch of hideous monsters playing the parts of all of us, while acting out the script we wrote during our last 30-odd years of bubble-building. The piety and haughtiness I saw in those who offered nothing but contempt for the man who dared express an opinion that differed from Fox-thought left me feeling cold, empty, and ashamed. When I realized that these buffoons were the same people whom we're trusting to get us out of this colossal mess, I felt worse than I ever thought possible to feel and still live.

Using the benefit of hindsight, we can appreciate the stomach-wrenching truth of Schiff's prophetic warnings as the Fox News Force gleefully marginalize and minimize his every (correct) prediction. But when the clip ends, we're jarred awake with the ultimate buzz-kill of our current economic reality and the deafening yet nebulous sucking-sound coming at us from dead ahead.

Technically speaking, the Great Depression lasted 44 months. That is the length of that that the economy was continuously shrinking between 1929 and 1933. Of course, the contraction was so devastating that the entire decade of the 1930's became known as the "depression era", simply because, once we had fallen into that abyss, it took a long time to crawl out, and even then not without setbacks (e.g., the "Roosevelt Recession" in the late 1930's). It will doubtless take us many years to recover from the current depression even after the economy stops contracting. Also one should not underestimate the ingenuity of the Federal Government in finding ways to prolong it.
--Astatula Map

Beyond the Fat Cats

The New York Times' Bob Herbert has a thought or two on the bailout. Number one, it's getting bigger, and fast. Number two, it's only helping the champagne and caviar crowd. I have another thought to add: number three, the part of the bailout shoved down the banks' throats is going toward buying other banks, not going toward loans that would ease the choke-hold of economic implosion.

For now, let's stick with Herbert's lament.

The fat cats who placed the entire economy at risk with their greed and manic irresponsibility are trying to lay claim to every last dime in the national Treasury. Meanwhile, we’re nowhere close to an economic recovery program that will help the people who are hurting most.

Back in September, with the credit markets frozen and the stock markets panicking, the treasury secretary, Henry Paulson, was telling anyone who would listen that his $700 billion bailout package had to be passed with lightning speed — no time to look at it too closely, no time for dissent.

The package was modified, but hurriedly. Now we learn that while all eyes were focused on this enormous new burden for American taxpayers, Mr. Paulson’s department was also engineering — separate and apart from the bailout — what The Washington Post described as “a quiet windfall for U.S. banks. ”

With virtually no public attention, and without the input of Congress, Treasury made a change in an obscure tax provision that benefited banks to the tune of well over $100 billion. Was this good policy? In the absence of proper scrutiny, how is it possible to know?

We’ve also learned that the government bailout of the giant insurer, the American International Group — already more than $100 billion — is apparently insufficient. Tens of billions more are needed.

When the Champagne and caviar crowd is in trouble, there is no conceivable limit to the amount of taxpayer money that can be found, and found quickly.

But when it comes to ordinary citizens in dire situations — those being thrown out of work or forced from their homes by foreclosure or driven into bankruptcy because of illness and a lack of adequate health insurance — well, then we have to start pinching pennies. That’s when it’s time to become fiscally conservative. President Bush even vetoed a bill that would have expanded health insurance coverage for children.

We can find trillions for a foolish war and for pompous, self-righteous high-rollers who wrecked their companies and the economy. But what about the working poor and the young people who are being clobbered in this downturn, battered so badly that they’re all but destitute? Can we find any way to help them?

In an article on Sunday, The Times mentioned a young woman in Philadelphia, Kyuana Everett, who is 21 years old, has a high school diploma and is desperate for work. “I’ve tried everything,” she said, “retail sales, office work, but the employers all say they have too many staff and they’re not hiring now.”

The article noted that Ms. Everett cannot even afford to rent a room for herself. She stays with her grandmother, secretly, in a home for the aged.

This is no ordinary recession. With brokerage houses, banks and a mammoth multinational insurance company depending on the Treasury for resuscitation, and with automakers like General Motors staring bankruptcy in the face, it has the feel of a monster downturn, a recession on steroids.

That kind of downturn buries people at the bottom of the economic ladder. We have an obligation to look out for them as well as for the banks and the A.I.G.’s of the world.

If I could place a message on the desk of the incoming president, it would have just one word: Jobs.

With credit cards maxed out, the stock market in the tank, family savings depleted and home equity evaporating, that weekly or monthly paycheck has never been so important.

Congress and the new administration need to think big — bigger than the stimulus package of $100 billion or so, which is being kicked around. Now is the time for a coast-to-coast “Rebuild America” infrastructure program. Put people to work repairing and rebuilding roads and bridges, decrepit schools and ancient sewer systems. Get the construction industry back on its feet.

And now is the time to get going on candidate Obama’s promise to move the country as close as possible to a system of universal health insurance. Pump the money from that vast project into the economy and get those jobs up and running.

And let’s get some help, quickly, to the families who are suffering most from the housing crisis — the ones trembling and heartbroken in the dark shadow of foreclosure.

The naysayers will claim that all of this is too expensive, that we can’t afford it. Where were they when we invaded Iraq? And how do they feel about the staggering amounts being funneled, with nothing like the proper oversight, to the banks and Wall Street?

Let’s try investing in America and its people for a change, rather than just hurling our billions into the abyss.

Bob Herbert
The New York Times, November 10, 2008 http://www.nytimes.com/2008/11/11/opinion/11herbert.html?_r=1&th&emc=th&oref=slogin

Plunder, American-Style

U.S. Bank Tower--Figueroa, Los Angeles, California

It is said that the American banking system is based on confidence and trust. When banks trust one another, they lend to each other, and then all the banks’ friends get to borrow money to buy the things they want. That’s great, but some time ago, this system got quietly ridiculous. Now all we're doing is buying skyscrapers for banks. Here's how I got there...

When banks trust other banks, they extend credit to each other, manufacturers, wholesalers, retailers, and consumers like you and me. Manufacturers use their credit to buy raw materials then use those materials to manufacture goods. Wholesalers guess what we want to buy, and then borrow the money from banks to make sure they have enough stock to cover what we want. Retailers take the banks' wonderful credit and use it to buy wholesalers' merchandise, then we consumers buy these things with more wonderful credit the bank gave us -- Visa, Master Card, American Express -- and American capitalism skips along its merry way singing tra-la-la. The ugly part, which we seldom ponder, is that banks make money at every single stage in the life of a product. In essence, banks have a chance to make money at least five or six times on the same item before it ever reaches the end consumer.

Let's follow an ordinary refrigerator from manufacturer to consumer. Banks get paid in each of the following points in the young fridge’s life:
1. Manufacturer needs loan for parts, payroll, and overhead before they can make the first refrigerator. Bank makes loan; bank gets repaid later.
2. Wholesaler needs capital to buy refrigerators to sell to retail distributors. Bank makes loan; bank gets repaid later.
3. Distributors need money for big trucks and drivers to ship refrigerators to retail stores. Bank makes loan; bank gets repaid later.
4. Retailers need credit to pay wholesalers and distributors for refrigerators they will keep in stock and put into the stores where end consumers can drool over them. Bank makes loan; bank gets repaid later.
5. You want a new refrigerator. You go shopping, and find that the latest and greatest fridges can all talk to you and all the other gadgets in your house, as well as keep track of what kind and how much food you keep in the fridge, and even go online and order more when you run out. Wondering how the hell you ever lived one freaking day without THAT, you whip out your plastic and take that sucker home. When the retailer swiped your card, the bank made you a loan for the purchase amount and the bank gets paid back for thirty years with a predatory rate of return on your purchase because you only pay the minimum payment on your credit card bill every month.
6. Credit Card-issuing banks charge retailers an override on the purchase price of your new fridge (this is in addition to the interest they collect from cardholders). In addition to the money they make from collecting your interest, therefore, the bank also pockets another 3-4% of the refrigerator’s retail price… which YOU paid for because that amount was already built-in to the retail price of the unit. Now go ahead and add all the invisible and incalculable fees upon fees: transaction fees, account set-up fees, participation fees, late fees, overlimit fees... the list goes on ad-nauseum. Makes you feel real warm and fuzzy inside, does it not?

That, my friends, is why all the tall buildings downtown have bank names on them. The credit crisis must be pretty darn big to throw a monkey wrench into a scam that beautiful. This system, the banking system -- not American car companies, not distressed homeowners in imminent risk of foreclosure -- is where George Bush, Hank Paulson, Ben Bernanke and the US Congress voted to focus the mighty laser of financial assistance in our time of need.

THANK GOD OUR GOVERNMENT TAKES CARE OF US.

Art Imitating Life

Same Credit, Different Day

If you're a financial institution, it has become a little easier to borrow money. But for most of the rest of us, borrowing is tougher than ever.

Two months ago, the freeze-up of the wholesale lending markets used by banks to fund day-to-day operations caused the financial system to break down. That crisis has eased significantly, thanks to government loan guarantees and lots and lots and lots and lots of taxpayers’ money shoved into big bank coffers.

The problems didn’t go away, of course; they just changed ownership. It’s not the banks’ problem anymore; it now rests squarely on the shoulders of American tax-payers. Since bank lending practices now broadly restrict credit to only those who can really afford it, businesses and consumers are hard-pressed to get loans. Since our society is no longer accustomed to paying-as-we-go, the new reality of less free-flowing credit is intensifying the global economy's downward spiral.

About 85 percent of domestic banks told the Fed they had imposed stricter lending standards on large and mid-size commercial borrowers, while 75 percent said they had done so for small businesses. At the same time, 60 percent indicated they had tightened criteria for credit cards, and 65 percent clamped down on other consumer loans. The government doesn’t like it, but they can’t figure out how to force banks to lend in a way that doesn’t stink of socialist or dictatorial policy. You know… reality.

Frustrated, Massachusetts Democrat Barney Frank (chairman of the House Financial Services Committee), warned that the banking industry faced congressional ire if it used bailout money to pay dividends and bonuses or buy out other institutions. I find this interesting because what’s being said behind closed doors does not even remotely resemble what’s being said in public.

The mixed signals and continued economic slide are making an already paranoid and panicky public downright schizophrenic. They want answers. I really think it’s time for honesty here, because folks have just about had it with the crap Washington has been making up. It might actually be time to tell the American people that nobody knows how deep the trouble is, how long it will last, or worse… what might make things feel even the tiniest bit better.

Bankers argue that it's legitimate to use public money to buy securities such as corporate debt, because those markets also were shut by the credit lockdown. And they say allowing strong banks to buy weak ones also serves the public good because it means taxpayer money wouldn't be needed to pay off depositors at failing institutions. They point to JPMorgan Chase's takeover of insolvent Washington Mutual in September, carried out without use of Federal Deposit Insurance Corp. funds. They don’t mention it was done that way because the FDIC was insolvent as well, and could never have covered for the huge amount of toxic debt that choked WaMu’s balance sheets so badly.

Actually, there’s lots of credit available; you only need three things to get it: good credit, proof of income and money for a down payment. That seems sensible to me. That seemed sensible to most banks before they lost their damn minds lending money to anyone with a heartbeat on the foolish notion that property values could never deflate. I’m glad banks returned to more sensible lending practices. They should have thought of it sooner. If they had, we would all be in much better shape. Instead, the mess is staring back at us, its eyes hungry and yellow, nostrils flared and quivering from the smell of fresh and frightened prey.

Numbers for Fun and Profit

The U.S. jobs report comes out today and the numbers are going to suck, but those numbers are a bunch of horseshit anyway. All the gubment’s numbers are made-up crap. This is lovingly referred to as “creative accounting.”

I’m certain creative accounting played a very large part in the saga of the Great Compression, which is my new preferred descriptive moniker for the economic trouble du jour. Do you like it? I just made it up. People have been throwing around the word ‘crisis’ way too easily, people who don’t even know what the word crisis really means. The word crisis does not apply when you can't find your car keys, or your checking account is overdrawn, or you run out of gas on the freeway; it means your ass is falling off. FALLING OFF. In terms of the American economy, this has not yet occurred for most of us. Most of our posteriors still cling to our anteriors. JUST WAIT.


Let’s think about creative accounting for a moment.

Gubment jobless figures do not count people who have just given up and stopped looking, or exhausted their unemployment benefits, or just fallen off the jobless roles because they've been looking for work beyond the amount of time it should take an out-of-work person to find a job (in the gubment's learned opinion, of course). This means that there are many, many more people out of work than the gubment admits. The reason the gubment lies to us about the real unemployment number is two-fold: first, it makes us look more prosperous to the rest of the world, and second, it makes us feel better about ourselves and our leadership. Problem is… the numbers are stinking rotten dirty lies we allow ourselves to be told because the fake numbers help us feel better than the real numbers would. God bless the miracle of creative accounting!

Another example… banks lie to other banks about the numbers on their balance sheets. Banks take their real asset numbers, beat them half to death with a number two lead pipe, then perform reconstructive surgery until the newly transformed numbers appear pretty enough to lie about how well the bank is doing. Bank A knows other Banks B, C and D are lying because Bank A is lying too; it’s all very Zen. The end result is that trust boils off into space resulting in the cessation of interbank lending, and poof… credit contracts, credit evaporates, loan channels freeze up, and people and businesses get cut off from access to the cash they ‘need’ to function. God bless the miracle of creative accounting!

Another example… rating agencies are the self-appointed watchdogs who sell us their opinion on companies overall health so we know which businesses are solid and which are not, which companies to invest in with vigor and which companies to flee from in terror. Rating agencies rated financial firms with the feeling that the good times would never end (or even slow appreciably, for that matter), extending best ratings to companies that were actually illiquid or even insolvent. They did so in the face of death-defying logic and multiple historical examples that should have warned everyone that the bender could not last forever. Reason flew out Wall Street windows left and right, replaced by twisted and perverted yet gorgeous numbers that told us all in no uncertain terms to pour every cent we had into housing and other bullet-proof swap-protected investments. When the ugly truth leaked out, AAA-rated investment vehicles turned to junk overnight. Trillions and trillions and trillions of dollars in wealth boiled off into the atmosphere like it was never even there. God bless the miracle of creative accounting!

Creative accounting flourishes because we allow it and we expect it; hell, we encourage it. American consumers actually prefer being misled when lies make us feel better about ourselves. We are such a narcissistic bunch that it’s no wonder every human civilization that ever lived imploded into sand and sea, leaving behind nothing more than shards of pottery and glass. If the economy is really based on consumer sentiment (our mood, for God's sake), then brothers and sisters it is time to grab the dogs and the guns, load up the truck with carefully chosen items, and head to the hills. Our precious, pouting economy -- bless its heart -- is getting ready to throw one hell of a wicked tantrum.

We made up sweet stories of unprecedented prosperity, of unending gains on investments, of unceasing new riches gained in climbing property values that would rocket us all to riches, of a stock market that would see us through to our golden years when we could finally relax and retire at a standard of living that would have turned the Pharaohs of ancient Egypt olive-green with envy. We fantasized of the benevolent rich, who would graciously allow the money they spent on quilted toilet paper, pedicures, massages, meditation supplies, and single-malt to trickle down to the grateful masses who would leap with joy whenever the rich were living extra well, because it meant that all that money would roll down their asses and rain all over us so those less fortunate could enjoy an extra skewer of gopher with their Sunday supper.

Our grand economy now teeters on straw and quicksand, thanks in large part to the wonders of creative accounting. It's folly; it's nothing but fairy tales we keep repeating until we don't know the difference between truth and fiction. We should have rooted out the garbage long ago but the warm, moist bed of lies felt so good. We've still not stopped. We must stop lying now, and it will be painful. We must stop, or soon we’ll be nothing more than shards of pottery and glass.

And plastic. Lots and lots and lots… of plastic.