Thursday, April 16, 2009

Back to the Future

One doesn't want to be a wet blanket, and one doesn't want to presume that the Chair of the Federal Reserve and the President either don't know what they are saying or are hoping that you will believe what they know to be nonsense, but I have been unable to suppress my incredulity on hearing President Obama say the end of the recession may be in sight. Then the Ben Bernanke hologram spoke up too about the light at the end of the tunnel and I have been in a daze ever since.
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Our leaders acknowledge the pain that will have to be borne but we will come out the other side and pretty soon too they say. In his weekly grumble Jim Kunstler argues the one point I've not heard debated by the people who says things are returning slowly to normal. In his blog "Clusterfuck Nation", Kunstler asks the question with no answer:
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Does it mean that American "consumers" (so-called) are awaited momentarily in the flat-screen TV sales parlors with their credit cards fanned-out like poker hands, ready for "action?" Not too likely with massive non-performance out in cardholder-land, and half the nation's electronics inventory wending its way onto Craig's List.
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Are we expecting more asteroid belts of new suburbs carved in the loamy outlands of Dallas and Minneapolis, complete with new highway strips of Big Box shopping and Chuck E. Cheeses? Go to banking's intensive care unit and inquire (if you can) among the flat-lining production home-builders and the real estate investment trusts on life support when they expect to rev up the heavy equipment.
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The idea that we're about to resume the insane behavior that induced the current epochal malaise of economy is so absurd it will only be heard in the faculty dining halls of the Ivy League. And if America is not picking up where it left off eighteen months ago -- the orgy of spending future claims on wealth unlikely to accrue -- then what is our destiny?
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It seems our destiny as a middle class is to shrivel up, burdened with left over debt, deprived of jobs and health insurance, the public treasury raided for short term props that end up recycling our credit into the hands of the banksters that gambled our futures away. It is bizarre that this is happening in front of us and we have no response. None.
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The banksters are claiming to have profits to show for the first quarter of this year and their profits have come on the heels of billions of dollars in payouts from the public treasury. Well, there's a trick- give me ten thousand dollars and I will find it easy to say my investments have returned a return higher by ten thousand dollars. At the same time these banksters got payouts from AIG under the table and they are now using that money to announce cheerfully they will pay back some of the bailout with their "profits." And the stock market reacts by going up and the President intones cheerfully that the end of the recession is in sight. And let's not forget the money AIG payed out secretly to try to cover some of it's impossible obligations, was tax money from the Treasury!
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On Bob's Sanity Blog, Bob O'Brien calls it redistribution of wealth, the former wealth of the middle class being slowly but inexorably redistributed to the New York Banksters. O'Brien says that for the time being the bail out monies paid to the banksters get's hoarded making the money we the people hold, become a smaller portion of all the money in circulation, thus debasing it's value. Then by leaking the hoarded money back into the system when deflation has killed asset value, the holders of our tax dollars get our assets at bargain basement prices:
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What happens when that unknown trillions of dollars lent/scammed goes into circulation - provided it ever does as anything but buying deflated assets for pennies on the dollar? What is the only result of increasing the number of dollars in circulation by double digit percentages? With stagnant or shrinking GNP, isn't devaluation of the currency the only outcome possible? More dollars backed by the same or smaller GNP. Hmmmm.
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I think we'll continue to see an effective shrinking of the money supply in use, even as all the pundits and economists pretend that's mystifying or difficult to grasp. My hunch is that the end run is to crunch liquidity via this tax and hoard mechanism to the point where asset values collapse over time (deflation), and then those hoarding all the dollars can buy assets for pennies on the dollar; sure, there's some inflation at that point, but that is all consistent with debasing the currency. As in the Depression, one must crush the middle class in order to confiscate their wealth, and that doesn't happen overnight. It takes many years before someone is willing to sell their house to feed their kids today. Redistribution takes time, and requires patience.
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Maybe I'm just paranoid. But that's exactly what happened in the Depression, and I see the signs in this as well - lawlessness on the part of the money trust, a wholly captured government kowtowing to the will of a few NY interests, a broken market system, plunging home values, constrained money supply via tax and hoard....
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The problem with this scenario is that it leaves us no way out and thus it is unpalatable to contemplate. In the same way that no one seems to want to acknowledge that continuing the great debt spiral is no way out of this crisis, no one wants to envisage generations of self improvement being wiped out by a cadre of Goldman Sachs alumni in government. It seems as reasonable to me as anything the dying mainstream media offers as a vision for the future, and much more plausible than President Obama's rosy view of a return to the past.

Tuesday, April 7, 2009

Bull Market

It presages good times to come, the recent rise of the stock market. Observers see signs and portents that we may be about to see the end of our recession, as housing prices "bottom out" they say. How odd it is to read of people daring to make prediction's about our economic crisis after so many failed predictions prior to the appearance of the downturn itself. I put no faith in predictions and make none myself. Almost none that is; no precise predictions because precision in guesswork makes no sense.Let me now make a prediction: we are nowhere near the end of this Depression.
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I look at the unemployment figures and I see disaster piling upon disaster, each month, whether you look at the official statistics (8.5%) or the shadow statistics (20%) or something in between (U6 at 13.5%). How can our economy improve with millions of people unemployed, broke and facing homelessness?
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The rest of the world is sinking too and I can see no sensible argument that we can pullout of our crisis if the rest of the globalized world is mired in failure. Mexico is in deep trouble but further away Japan is sunk, Ireland is sinking, Spain is teetering and the Ukraine is a basket case. As is everyone in between all around the world.
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The US government has thrown as much money as it can at the banks and insurance companies and nothing substantial has changed. Except the perception that things may be getting better and so it is the stock market goes up. On a perception. Are investors so desperate that they feel the need to feed themselves on fresh air sandwiches?
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On the other hand there is not much else to offer investors. President Obama's people absolutely will not punish the banksters or even try to get to the bottom of the fraud and corruption that wrecked the financial system, as unregulated as it was.And until they do clear the fraud up and bring true transparency our crisis will lumber along and drag us all down.
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I like the foreign policy initiatives, the support for scientific research, the sense that the President is a thoughtful member of my generation. I just deeply despise his reliance on Summers Geithner and Bernanke who all, in their ways, helped create this mess. Until they go we don't get transparency, and without that we don't get areal recovery. This blip is temporary. My prediction is worse to come. Take that to the bank of your choice.

Saturday, April 4, 2009

Write Downs

The Federal Government is proposing to buy failed bank assets at 84 cents on the dollar. They say it would go like this: private investors pay 6 cents, the Treasury 6 cents and FDIC 72 cents. Which actually leaves US taxpayers holding 78 cents on the dollar on "assets" worth far less according to independent economists. This blows my mind. One can only assume that President Obama and his economic advisers are so afraid of a total meltdown they will do anything to stave it off including making up fake valuations and printing money to "pay them off." None of which will end this crisis.
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The weird part is that the people President Obama has surrounded himself with are all of the Robert Rubin/Goldman Sachs school who fought, and won, the fight against the Glass-Stegall Act. By eliminating the barriers between banking and investing in 1999, Summers and Rubin managed to get rid of one of the last protections from the Great Depression Era regulatory laws. And the effect was predictable enough. Far from modernising banksters ability to compete it gave them the opportunity to cause a world wide train wreck. And that they did.
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Meanwhile the people at the top walk away with our millions and here we sit facing impoverishment through unemployment, now officially listed at nearly 16 percent for all classes of unemployed in the US. They tell us 25% marks official depression statistics. We're getting there. especially as the World Bank and the Organization for Economic Cooperation and Development have decided that there will no growth at all in the world's economy though 2010. Hard times appear to be here to stay, no matter what the G20 say. I don't know about the world economy but I know I'm depressed.

AIG's Fraud

It has been argued thus far that American International Group made poor investing decisions that led to what is essentially the insurance giant's collapse, and subsequent bail outs by US taxpayers, to the tune of some 200 billion dollars with more on the way. The theory has been that AIG was too big to fail, despite the credit derivatives swaps written by AIG's investment office in London led by one Joseph Cassano. Throughout the turmoil of the past six months, with Lehman Brothers collapsing along with several bank take overs and the essential nationalization of GM and the hoped-for sale of Chrysler to FIAT, AIG was viewed as the purveyor of poor decisions that needed to be propped up too. Reading an article on AIG's problems here http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=351 for ces one to a very different conclusion.
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The financial column called Instituional Risk Analytics or IRA, suggests that AIG has been practicing a form of fraud that pre-dates the creation and expansion of credit defaults swaps that have been the proximate cause of the economic collapse of the world's financial systems. The suggestion is that AIG has been helping corporations to cook their financial books by issuing phony re-insurance contracts. The idea was to appear to absorb ricks from companies while secretly voiding the re-insurance contracts with side letters, thus giving the companies the opportunity to write off burdensome obligations in what would have been felony evasions.
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It further seems the FBI and fraud investigators started to twig to these so-called side letters possibly around 2002-2003 and that was when Cassano and his mob started to work on credit derivative swaps, a form of selling reinsurance risk that in the end imploded wrecking all business credit. Furthermore Elliott Spitzer's name comes up in connection with the investigation and the suggestion has to float through one's mind that his sexual entrapment with a prostitute must have been engineered to bring about his downfall and interrupt the investigation.
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Finally IRA says French president Nicolas Sarkozy may have calmed down markedly at the recent G20 meeting (of 19 nations plus the European Union) as a consequence of his realising that without the US Government propping up AIG French re-insurer Societe Generale would have imploded also. That they say is why German Chancellor Angela Merkel continued to speak up- her country has no major exposure to AIG's fraud. However the wide reach of AIG's practices and the fraud involved have freaked out the US Government, ex-Goldman Sachs executives, and to try to cover up the extent of AIG's treacherous dealings they now find themselves obliged to try to keep the zombie company alive.
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This path of action is unsustainable according to IRA and more financial time bombs are expected. Just the sort of the thing that could blow apart the meet-and-greet success of the G20. That, an oil price expansion, a North Koren missile launch. Who knows what could set off the next round of shouting around the world. Cold comfort for the millions of newly unemployed.

Thursday, April 2, 2009

A G20 Glimmer

I was surprised or perhaps astonished to see the leaders of the world's 20 most industrialised nations getting together and actually forming the outline of an agreement on how to move forward. It might taken as an indication of how serious the situation seems to be that countries as far apart politically as Indonesia, Argentina, Saudi Arabia, China, France and the US and all the countries in between could start trying to work together. The details have to be announced or perhaps worked out and no doubt critics will tear the details apart, as they should. Nevertheless we see disparate ideas and ideologies working together across the globe and that's a first.
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I've never been much of a fan of globalization, nor of the apparent need for constant growth that motivates the industrialised world, but my fears about globalization caught fire when I saw the inexorable spread of economic chaos across the interconnected economies of the entire planet. It seemed like globalization had in effect come home to roost. It would be a good thing if globalization were for once to work for ordinary people and keep us at peace and at least trying to work things out.
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It seems too that the G20 have put the G8 to bed, and from here on out the Euro-centric talks between the most industrialised will be less important than talks that include the spectrum of nations and nowadays that means Japan China and Indonesia will be carrying more weight than ever before. Perhaps we might learn to enjoy the novel sensation for us, of not having to police the world. It seems a long way to go but perhaps this G20 summit really was historic. In 6 months when they follow up perhaps we shall learn it was a damp squib.

G20 Optimism

The leaders of the world's top 19 industrialised nations meeting in London are leaking optimism from their brief gathering, and I wonder if I should allow myself a glimmering of hope that something good may come of this meeting of the minds. The US and UK versus France and Germany is the dominant theme, with the Anglo-Saxons looking to get the economy of the world stimulated first and regulated second and the Euro-leaders wanting the opposite. The talking heads are sounding positive and no doubt negativity would be disastrous at this point as too many important people have said flat-out that this summit is a make or break effort to prevent a global depression.
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In March the United States found itself with just about three quarters of a million new unemployed. More than was expected, no surprise, by economists and a large enough number to freak anybody out. The notion that we the people are scared and angry is filtering in to the closed ranks of important people in Washington and there is some talk of punitive measures for banksters and re-insurers along the lines of the demands made of automakers. It's not called nationalisation but that is exactly what it is. So much the better if we are to continue down this path of forced government intervention.
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Because I'm not a survivalist and because I enjoy my middle class life and the prospect of an enjoyable job in a peaceful environment I want the G20 gathering to come up with something real, a series of agreed upon proposals that the world can act upon. And to make them credible everyone has to sign off. Happily the US is represented by a President who knows how to listen and be conciliatory, but France is led by a man who sees street riots and demonstrations every day at home, and he is reacting with fear which makes his demands rather strident. Nicholas Sarkozy wants his solution and he wants it now.
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I find it hard to believe that the G20 will come up with happy words and an agreement to put things straight, but I hope they do. If they find enough common ground to implement an action plan I hope that goes ahead. And I hope the leaders across the planet figure out it's in all our best interests to get along through this mess. All of which sounds highly unlikely. In just a few hours our masters will let us know our fates.

Wednesday, April 1, 2009

Mark to Bullshit

The debate continues about to evaluate the "assets" held by the banks. The Treasury plan for a public-private partnership can only get started if the value of the assets held by the banks can be negotiated. It's crazy to say it out loud but the fact is no one knows what those assets are worth. And what makes this even crazier is the banks won't admit what everyone else knows already" the assets they hold have (gasp!) lost value.
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They call it "mark to market" when they set a value on an asset by comparing the asset to the prices similar assets have been sold for recently. Take housing, the fundamental bank asset that is losing value these days be it as a mortgage or as a mortgage-backed security. The Feds would like to reorganize bank debt by purchasing those assets using the soon-to-be-created PPIF- public-private investment fund, which would, get this buy the crap assets of banks using 10 percent private money and 90 percent public money. Private money gets its share of profits and public money pays for all losses incurred. And remember these are crap assets so profits are not too damned likely.
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So the bank says crap asset A is worth 100. Mark-to-market shows recent sales of crap asset A similar products have sold for 10. mark-to-market says crap asset A is worth 10. The bank insists it's worth 100 because it loaned out 100 to buy the asset in 2005. So what do we do? You and I, being commonsense people, say let the bank go bankrupt then reorganize the assets for their real value, package them and sell them off to small regional banks around the country and let's keep moving. The banks say "change the mark-to-market rules." The Treasury, which is run by an ass appointed by President Obama, says "we'll think about it." Thus we prolong the economic crisis by refusing to acknowledge reality.
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It seems so simple and so obvious. If we continue to fund everything by continuing to borrow we will make things worse. So the federal government does just that. If we don't establish values faithfully to reality we can never work our way out of this crisis. As the banks are doing just that and as unemployment continues to rise I predict no possible end to this Depression can be in sight. And I'm just a dude with a laptop and an Internet connection. What on earth do our leaders think? They're supposed to be the brainy ones.