Friday, September 30, 2011

European Disintegration

Marshall Auerback has been ruminating on the future of a united Europe and he doesn't see much that seems good.

I’ve been in Amsterdam and met some people very well connected with the ECB. The topic de jour is the apparent split between the Germans and the ECB, especially in light of the resignation of Jürgen Stark last week from the ECB executive board. This has been a move hailed as a German protest of the errant ways of the ECB, andStark is now touting his conservative ideas around Europe in a hope to undermine the central bank’s current interventions. That’s the public line.

But the people to whom I’ve spoken here contend that Stark’s resignation does reflect the reality that the Germans are losing out as far as the ECB goes. The profound objections to what the ECB is becoming on the part of Germany is also accompanied by a realisation that it is the only supranational game in town and has little choice but to take on this quasi-fiscal function that it is now undertaking.

Stark (and Weber before him) had no desire to associate themselves with this but the resignation reflects the view that they were powerless to stop it.Most of the ‘blame the Mediterranean profligates rhetoric we’ve been hearing has been diversionary, to draw local attention away from the fact that Germany’s hardcore Bundesbankers are losing this battle. .

The pan-Europeanists are the ones who will support a coordinated response to financial issues, not coincidentally because this will be the only way to retain existing benefit levels once some sovereigns and the banks exposed to them go soft.

Stark’s replacement, Asmussen, is an SPD guy and even though he makes all of the same hawkish noises, he’s not as hard-line as Stark. It was also indicated to me that if Germany were to go for the Hans Olaf Henkel proposal of a DM bloc (to which I alluded in an earlier post), it would screw the French totally and they won’t stand for it.

Much of the German hard-line, then, is domestic posturing. Even Finance Minister Wolfgang Schauble (who always makes it a point to repeat the party line in public) quietly acknowledges that Germany will have to recant in the end. In a recent speech in Brussels, Schauble gave the chat in German and included the usual rants about the lazy Greeks, profligate Irish, etc., but right at the end of his speech, switched to Italian and quoted Galileo’s “Eppur si muove” (and yet it moves) which was said to have been uttered by the Italian scientist after being forced to recant in 1633 before the Inquisition, his belief that the Earth moves around the Sun. In effect, Schauble was effectively undercutting the public message of Germany and acknowledging the political reality that Germany would have no choice but to go along with what the ECB was doing or the euro itself would blow up.

The question arises as to what form this quasi-fiscal role on the part of the ECB will take going forward. Warren Mosler has come up with the idea of “revenue sharing” proposal on the part of the European Central Bank, and this strikes me as the most technically feasible proposal, as well as one that will be consistent with the recent strictures set out in Germany’s Constitutional Court decision brought two weeks ago.

The proposal is for the ECB to distribute trillions of euros annually to the national governments on a per capita basis. The per capita criteria means that it is neither a targeted bailout nor a reward for bad behavior. This distribution would immediately adjust national government debt ratios downward which eases credit fears without triggering additional national government spending. This serves to dramatically ease credit tensions and thereby foster normal functioning of the credit markets for the national government debt issues.

The trillions of euros distribution would not add to aggregate demand or inflation, as member nation spending and tax policy are in any case restricted by the Maastricht criteria. Furthermore, making this distribution an annual event greatly enhances enforcement of EU rules, as the penalty for non compliance can be the withholding of annual payments. This is vastly more effective than the current arrangement of fines and penalties for non compliance, which have proven themselves unenforceable as a practical matter.

Yes, it means that the ECB loses some of its “profitability” because it pays interest on reserves at the national central banks. In any case, as a short term measure, the ECB can easily manufacture ‘profits’ if it continues to buy the bonds of these distressed PIIGS and then doesn’t allow them to default, although clearly this program would stop once the revenue sharing begins.

There are no operational obstacles to the crediting of the accounts of the national governments by the ECB. What would likely be required is approval by the finance ministers. I see no reason why any would object, as this proposal serves to both reduce national debt levels of all member nations and at the same time tighten the control of the European Union over national government finances.

This looks legal to me, and still the obvious/best solution?

It also helps with their problem of enforcing the growth and stability pact which, whatever one thinks of the questionable economics underlying it, was the only way that the concept of the euro could have been sold politically in Germany. Arguably, the revenue sharing proposal would enhance the SGP and thereby help to entrench Germany’s “stability” culture in the euro zone.

I suspect that the Germans might ultimately find the revenue sharing proposal more palatable on a number of grounds. As I indicated, it doesn’t violate the “no bailout” rule (in fact, Germany is the biggest recipient of the funds if it’s done on a per capita basis). Even if you said the money credited to the national central banks could only be used to retire existing public debt (which I think is the only way you could sell it politically in Germany), you would deal effectively with the national solvency issue.

Think of it like a rights issue for a heavily indebted company: Company X has a debt to equity ratio of 200% and the markets won’t fund it because of perceived solvency concerns. Somehow, said Company X launches a 1 for 1 rights issue and gets the debt to equity down to 100%. Market concerns about bankruptcy are alleviated and the capital markets open up to the company again. Likewise if you do the revenue sharing. You don’t solve the problem of aggregate demand, but you reduce the solvency concerns and reopen the capital markets to the euro zone countries again.

And the other way you sell it to the German public is that (as Wolfgang Munchau of the FT has rightly argued), it makes the SGP more credible and enforceable because now you are providing a mechanism to ensure compliance. Rather than fining a miscreant company (try getting an EU official to go to Athens to collect a fine today for violating the SGP; he’d be lucky to get out alive), you withhold funds.

Credit the national central bank accounts to a sufficient degree to bring the ratios down to, say, 60% levels required by the SGP and then enforce it rigorously. Yes, there is no economic logic to the SGP, but it’s the only way you’d ever get the Germans to agree to this proposal and, in any case, a 3% deficit in a normalised economic environment does give you some growth. You could still cut off the “profligates” such as Greece if you thought they weren’t complying or enforcing desired “structural reforms”, but eliminate the contagion risk by continuing to credit other countries (and let’s be honest: other than the die-hard Hellenist romantics, nobody in the euro zone could care less what happens to Greece except insofar as it creates contagion threats for other members of the euro zone).

To repeat: the revenue sharing proposal would be non-inflationary. What’s inflationary with regard to monetary and fiscal policy is actual spending. These distributions would not alter the annual actual government spending and taxing as demanded by the austerity measures and ongoing growth and stability pact. They simply address the solvency issue, which has effectively cut the PIIGS off from market funding (because the markets believe they are insolvent).

Under the proposal, member nations remain bound to their current spending and taxing imperatives. Bonds get retired and replaced with reserves, which we know does not lead to inflation either because reserves aren’t lent out.

The problem with the European Financial Stability Fund (EFSF( solution is that the EFSF only has a limited life and the German Constitutional Court decision means that you cannot replace it with a permanent mechanism, such as the proposed ESM

And the EFSF is a dishonest fig leaf, since all of the money ultimately comes from the ECB anyway, as the sole creator of euros. The ECB is probably ill-suited to conduct quasi-fiscal operations over the longer term, but it’s the only game in town now. Everybody now recognizes that fact. At least the operations under the revenue sharing proposal are conducted with a clear set of consistent rules, rather than the discretionary, non-transparent manner in which the ECB is conducting its bond buying operations right now. It’s an effective interim mechanism (which won’t violate the German Constitutional Court), but provides the euro zone time to develop a fully fledged fiscal union with debt issuance power, which is ultimately what is required.

Yes, this idea seems radical, but two years ago, so too did the idea of buying sovereign debt in the secondary markets by the ECB. During the panic of May 2010, the ECB bought €16.5 billion the first week, €10 billion the second, and €8.5 billion, €6.50 billion, €4 billion, and €4 billion for each successive week, ending with €1 billion for its last real week of activity on 9 July 2010 for a total of €54.5 billion seven weeks of operation.

Since the week of 4 August, it purchased €22 billion the first week, followed by €14.3 billion, €6.6 billion, €13.3 billion, €13.9 billion and €9.8 billion last week for a total of nearly €80 billion in six weeks. This represents about €13.3 billion per week, i.e. over 71% higher than the weekly purchases begun in May 2010, as Erwan Mahe, the author of “Thaler’s Corner, has recently highlighted in his research.

Longer term, you clearly will need a fiscal union of sorts.

Let’s take my country, Canada, for a moment. Imagine that the two largest Canadian provinces, Ontario and Quebec, were independent countries. If this were the case, their debt burdens would consist of their existing debts plus their respective shares of the federal debt (about 23% for Quebec and about 40% for Ontario). Their capacity to repay those debts would be determined by their respective tax bases – i.e. each province’s nominal GDP.

How would those debt burdens look? Answer: probably not very good. In fact, as the Canadian brokerage house Brockhouse Cooper has pointed out,

Ontario and Quebec would each be more indebted than Spain (albeit slightly less than Portugal). This reflects the significant social spending responsibilities of the Canadian provinces, which are responsible for healthcare and education – the two largest government expenditure items in Canada. Naturally, these spending commitments are funded via fiscal deficits and debt issuance.

Quebec and Ontario are also somewhat similar to Spain and Portugal in that they do not control the currency in which they issue debt (the Canadian dollar, controlled by the Bank of Canada – a central bank that is, in turn, controlled by the federal government). So, given the poor fiscal fundamentals and inability to print money, surely bonds issued by Ontario and Quebec should trade in line with bonds issued by Spain and Portugal? Wrong – yields on 10-year Ontario and Quebec bonds are significantly lower than yields on Spanish or Portuguese bonds.”

So, why are Canadian provinces getting away with high debt loads and the inability to print money? Because of fiscal federalism and the pooling of risk within the Canadian monetary union. There is an implicit understanding that the federal government will rescue any Canadian province that runs into trouble in the bond market, which provides a strong indication that the monetary union is also If Europe did opt for this solution, the creditworthiness of each country would be aggregated into that of the broader Eurozone.

This would be credit-positive for the entire region, since the overall debt burden of the Eurozone is not much higher than that of the United Kingdom or the United States. The joint-and-several guarantee, coupled with robust fiscal rules, would make Eurobonds more or less similar to the bonds issued by the most creditworthy entities within Europe.

But that’s a multi-year project. In the meantime, you need a credible plan to address the immediate market concerns of growing national insolvency perceptions in the euro zone (which are gradually spreading to the core). The ECB has to be the entity that leads this effort, much as it hates the idea and much as the Germans likely despise it. That’s the real story behind the Stark resignation and the public fury now featuring so prominently in the German press and parliament.

Thursday, September 29, 2011

Gold Saves All

Jim Willie of Financial Sense says all the efforts so far have done nothing to right the economic problems sweeping the world. His answer? Gold, perhaps.

Wow! The billboard signals of extreme crisis are overwhelming. Three years of near 0% with no recovery. A full year of ample USTreasury and mortgage bond monetization with no recovery. Tons of cash aid deliveries to the big US banks with no recovery. Some key corporate nationalizations with no recovery. Oodles of errant stimulus programs with no recovery. Some important misdirection in home loan aid initiatives with no recovery. The US Federal Reserve admits it can do nothing more as a recovery remains elusive. The USGovt is paralyzed by disguised fascist warmongers opposed by disguised marxist collectivists, but intent on maintaining the status quo among bank fraud. An approved accounting fraud directive is kept in place to present a picture of bank solvency. Intermediate credit markets have come to a standstill. The US stock market is in tatters. The USTreasury Bond market is the only conventional rally at work. And with all these programs, developments, and events, the USEconomy moves toward a recession with relentless determination and purpose, In today's age of lying about price inflation by at least 5%, that means the recession is about to turn into a Minus 5% Recession after never exiting the recession recognized in 2009. The billboard messages are dire, ugly, dreadful, dangerous, and full of destruction, typical of systemic failure. Too bad the Keynesian textbooks do not have a chapter on banking system insolvency, or one quarter of the households living in negative equity, or central bank toxic paper pits, or global currency war, or confiscation of tyrant accounts. The ineffective monetary & fiscal policy has ushered in the nightmarish systemic failure. That is what is occurring.

Many Dire Marquee Messages

Big US banks remain insolvent. The claim is greater financial health versus 2008, but only because they grade their own balance sheet assets and shove much toxic paper to the USFed. As credit engines, they sputter. As USTBond carry trade mechanics, they hum along. Their REO home inventory is strangling them.


Central bankers finally see the futility of attempting to recapitalize the giant insolvent hollow trees called the big banks. The banks are losing capital faster than they can take in new capital, either from gifts by central banks (toxic bond redemption) or secondary stock issuance (long gone opportunity).


The US housing market is stuck in quicksand. Low mortgage rates mean nothing to home loan applicants who must pass very strict FICA tests. They mean nothing to home loan applicants who must refinance their loans or default, suffering under the weight of negative home equity.


The USFed enjoys falling long-term rates since their credit assets rise in value. That makes the central bank look less broken. They cannot send back the so-called Excess Reserves to the big banks (actually Loan Loss Reserves) since the central bank would look more wrecked.


The Shadow Banking system requires $1 trillion per year in replenishment, as the bone marrow rapidly vanishes within the US banks. Mortgage bonds and asset backed financial products lead the way in colossal erosion on their balance sheets.


USGovt budget process has turned into tragic comedy in a powerful stalemate. The emphasis has been on spending austerity and management of the debt limit. The reality is that the limit has been reached again, probably breached. The reality is that renewed spending for urgent economic stimulus will overwhelm any budget prudence.


The US leaders have squandered time, money, and political capital. They have missed the opportunity for reform and remedy. Devotion to bank redemptions and avoidance of liquidation have wasted money. Vacant vapid stimulus programs have wasted time. The nation has run out of time. Breakdown and panic have begun in earnest. The political arena has a closed door toward well conceived actions.


The central bank franchise system is being recognized for its failure, ineptitude, helplessness. The system is saturated with debt. The solution to treat the excess of debt is to add to the debt levels and to let loose the dogs of monetary hyper-inflation.


A bank run has begun in Europe, with epicenter in France. The land of France belongs among the PIGS nations, since the big French banks are the primary broken shepherd creditors for the PIGS. They hold more than all the other nations combined almost in Greek debt. They own huge levels Italian debt. Siemens and Lloyds have abandoned France, yanking money out.


China had been gobbling up PIGS sovereign debt bought at discount. They took a truckload from Greece and Portugal, in return for consideration on key conversions of assets or gold bullion. They are in talks with Italy. But they have a different treatment for France, pulling out of the currency market forward and swap contracts in trading lines for the benefit of French banks. China is angry about the European Union decisions against a market economy.


The Competing Currency War spreads like wildfire, still not properly recognized, seen as isolated actions by central banks. Nations like Brazil and Switzerland suffer from a rising currency, as their export trade is damaged on higher prices. Rate hikes backfire. Nations whose currencies are falling have seen an associated steep decline in business investment and seizures in the interbank lending. Rate cuts do not address insolvency.


Central bankers met in Poland to address the worsening chronic global financial crisis. They agreed on nothing except they despise US Treasury Secy Geithner. The European bankers believe the Financial Stability Fund for bailouts is adequate, a very wrong view.


Grandiose aid to PIIGS nations failed to halt their momentum into the pits. A ripe $360 billion in collective aid failed to put these broken nations on a proper footing off cloven hoofs. The aid was actually bank aid to the Central European and London bankers. The key is the Poison Pills forced down the PIIGS throats in the pigpen. Now comes a string of sovereign debt downgrades, extending to Italy.


The USFed does not comprehend the principles of capitalism. They believe that the USEconomy is driven by disposable cash in consumer hands, and by stock market investment trickle down. Economists and banking officials are ignoramuses one and all. The reliance upon Panhandle Doctrine for consumers and Parasite Doctrine for banks has killed the nation.


The deep acceptance and tolerance of constant war and preoccupation with security has led to $2.5 trillion in squandered war costs and $600 billion in squandered security agency costs. The United States embrace of Fascism has killed the nation.


The USDollar is losing its secure status of global reserve. The Chinese Yuan is expanding in bilateral trade accords and supporting currency swap facilities. The London bankers aid China in creating viable off-shore Yuan trading centers. Times are really bad when even Nigeria diversifies away from US$-based assets.


Raids on foreign national accounts continue unabated. The funds in Egypt were taken ($60 billion) as London offered sanctuary, while Mubarek faces a bizarre court procedure for murder and theft. The funds in Libya were frozen ($90 billion) as the US, London, and Europe did confiscations through freeze, but give assurance that it will be returned when the stated 348 requirements are met, as in never.


The entire system from numerous different corners attempts to translate the list of ailments into simple terms of confidence and volatility. The actual watchwords are insolvency and deterioration, with momentum gathering toward systemic collapse. The implication is that the monetary system is breaking down.


The interconnection of financial firms extends within continents and across the vast oceans to render them tied to the same global fate. If one big bank fails, or one nation fails, then the contagion will be rapid.


Attention has gathered on the corrupted accounting of the popular but tainted exchange traded Gold & Silver funds. The gold inventory is under scrutiny for usage in COMEX deliveries, enabled by questionable shorts to the GLD and SLV shares by its own custodians. The Bar Lists are regularly seen as erroneous and suspicious.


The central banks of Shanghai Coop Org (SCO) member states, observer states, and dialogue partners are almost all purchasing gold, overtly or covertly. Or else they are demanding the return of their gold bullion from the US & London centers. The latest demand was from Chavez of Venezuela. Russia is accumulating gold, shutting off its export. China is accumulating gold, making citizen ownership easier.


The rally to ruin is in the USTreasury Bond market. Despite the downgrade slapped on the USGovt debt by Standard & Poors, the long-term bond yield has fallen well below the benchmark 2.0% level. It is under 1.8% today. The official government bond market is crowding out the business credit market. The end of the road is around 1.5%, at which point little if any profit potential will be perceived. The role of Interest Rate Swaps is critical, but not well understood to start a phony process that the public joins. The machete slices doled out to the saving community in puny interest yield is harsh and cruel. Gold will be seen as taking in diverted profits from USTreasury Bond proceeds.


Enduring Gold Consolidation
The uptrend in the Gold chart is intact. A massive breakout is in a period of consolidation since August. Expect more USFed monetization purchase of USTreasury Bonds, a process that has not stopped. The main emphasis of the USFed and QE discussion is simple. They continue the debt monetization but have decided not to talk about it anymore, in an end to transparency. Expect more USGovt stimulus, as austerity is shoved aside. Expect $2 trillion in USGovt deficits next year, as revenues are on the decline and urgent new stimulus programs will be eventually passed. Gold rises from the ruin of the monetary system and elimination of all safe havens. People should not be discouraged by the relatively minor selloffs in Gold & Silver. The gold price is still at or above the uptrend line even after the minor panic on Thursday. Even at $1740, a hefty 12% gain in gold asset appreciation has been seen since the June $1550 price, for only one quarter in time. What a rout! What a distortion! What a joke! Climb aboard! When the storms pass and need for bank recapitalization occurs, the need for economic stimulus occurs, the need for more sovereign bond redemption occurs, the need for more debt monetization (new & rollover) occurs, the Gold price will fly past the $2000 mark.

Memories are indeed very poor and fleeting. The market slammed the Gold price in early May back down to $1500 during ambushes, yet in only four months new highs over $1900 were registered. History will repeat itself, but without the weak hands on the wagon train. They never learn, and neither do the nitwit Deflation Knuckleheads. They are consistently half blind. They were overrun by the gold train this summer, but maintain their arrogant erroneous views. Prepare for a massive Gold rally when the recapitalization, stimulus, redemption, and monetization comes forth in a very public manner. During the collapse underway, Gold & Silver will be among the very few assets standing. The USTreasurys eventually will be wanted by nobody except the USFed central bank. Their bid will be alone, leading to a USDollar symbolic of the failed monetary system. The USTBond will be in retreat from the 1.5% low point in yield, as foreign creditors will finally jump off the asset bubble zeppelin before it lights up in flames.

Few people know the story behind the Hindenburg. The United States denied supply of helium to Germany in a trade war, which resulted in the high risk usage of hydrogen. In parallel, foreign creditors will deny legitimate funding to the USTreasury Bond market, a process well along. The USGovt in turn has resorted to the high risk usage of direct monetary inflation, in the perverse debt monetization window. The investment community wants even more of it (hydrogen). History will repeat itself. Who could ever forget the New York Post headline after the death of Leonid Brezhnev during the Cold War? REDS BREZH DEAD! The next headlines could read: YANKS JIG UP!

Wednesday, September 28, 2011

Military: Peak Oil Is REal

With the news out of Europe wrecking our chances of a Merry Christmas, the issue of no more oil coming out of the ground has taken a back seat. However it's still there and the reality of Peak Oil isn't going away because we've forgotten about it. From the Falls Church news website, of all places this discussion of quasi official reports on the subject:

In the last five or six years at least 20 major studies have been published by governmental and non-governmental organizations that either deal with or touch upon the possibility of severe energy shortages developing in the near future.

Studies done by governmental entities, however, are rare for nearly all of the world's governments still prefer to wait as long as possible before confronting the myriad of problems that will accompany declining oil production. Exceptions to this phenomenon of denial, however, seem to be military organizations that have realistic planning baked into their DNA. All professional military services know that in the last century they have become so dependent on liquid fuels that their effectiveness would be severely degraded should shortages or extremely high oil prices develop.

Last year two military planning organizations went public with studies predicting that serious consequences from oil depletion will befall us shortly. In the U.S. the Joint Forces Command concluded, without saying how they arrived at their dates, that by 2012 surplus oil production capacity could entirely disappear and that by 2015 the global shortfall in oil production could be as much as 10 million b/d. Later in the year a draft of a German army study, which went into greater detail in analyzing the consequences of peaking world oil production, was leaked to the press. The German study which was released recently is unique for the frankness with which it explores the dire consequences which may be in store for us.

The Bundeswehr Transformation Center, the organization that prepared the study, starts with the assertion that as there are so many forces in play, it is impossible to determine an exact date for peak oil, but that it will become obvious in hindsight. The Germans also believe that it is already too late to complete a comprehensive global transition to a post fossil fuel economy. They introduce the notion of a peak oil induced economic "tipping point" that would trigger so much economic damage that it is impossible to evaluate the possible outcomes.

For the near future the study foresees that a very large increase in oil prices would harm the energy-intensive agricultural systems that produce much of our food. Not only could the costs of fertilizers and pesticides become prohibitive, but the massive amount of oil-dependent transportation needed to move agricultural products long distances could make food unaffordable for many.

The study goes on to postulate a "mobility crisis" that would arise from substantial increases in the costs of operating private cars and trucks. Although sudden shortages could be relieved by volunteer and regulatory measures, ultimately the mobility crisis would feed into and add to the worsening economic situation.

As oil is used either directly or indirectly in almost 90 percent of industrial production, major increases in the price of oil would change most price relationships. Domestic and foreign trade will have to adapt to these new relationships but doing so will likely lead to economic upheavals. As businesses transform to less oil-dependent forms of services and production, there would likely be an extended period of "transformation unemployment" that will become a major economic problem. A case could be made that our current "jobs" crisis is simply the leading edge of the "transformation unemployment" that could go on for decades.

The German study maintains that all countries on earth will sooner or later be faced with the problem of transitioning to a post-fossil fuel age. As such a transition has never happened before, there are no guidelines for how it is to be accomplished. Of great significance is the willingness of nations to implement the economic policies necessary to effect the transformation to the post fossil fuel age. Forms of government will be sorely tested. The Germans who have much experience in these matters note that only continuous improvement in individual living conditions forms the basis for tolerant and open societies. Given the widespread unemployment and high mobility costs that are almost certain to accompany the transition to a post fossil fuel world, democratic forms of government are likely to face severe challenges. We all remember the Weimar Republic. Also of note are recent studies within the OECD that show that voting for extremist and nationalist political parties tends to increase with economic setbacks.

For the immediate future, however, the German Army study foresees: 1. increasing oil prices that will reduce consumption and economic output (i.e. a recession or worse); 2. increasing transportation costs that will lead to lower trade volumes - less income for many and unaffordable food for some; and 3. pressure on government budgets as they must keep populations fed, deal with the social consequences of mass unemployment, and attempt to invest in sustainable sources of energy. Governmental revenues are bound to fall as unemployment increases along with resistance to further taxation.

In the medium term, most companies would come to realize that the global economy is going to be shrinking for a long time and act accordingly. In an indefinitely shrinking economy, savings would not be invested as profits could no longer be made or borrowing costs paid. In this environment, the banking system, stock exchanges and financial markets would have a hard time surviving.

Banks would be left with no reason to exist as they would not be able to pay interest on deposits or find credit-worthy companies or individuals. The final step would be the loss of confidence in currencies and with them the ability to carry on normal economic transactions outside of barter.

If all this sounds extreme to American ears, remember the Germans have been through far more than we have in the last century. What is interesting is the way they are telling it like they see it - no pulling of punches here.

Tuesday, September 27, 2011

The President's Lies

From Salon, this fascinating look inside the workings of the Obama Adminstration:

Glenn Greenwald The Geithner mystery solved
By Glenn Greenwald

Reviewing "Confidence Men" -- Ron Suskind's new book critically examining President Obama's management of the financial crisis -- The New York Times' Michiko Kakutani ponders this mystery raised by Suskind:

Mr. Suskind suggests that the administration's problems in dealing with the fiscal crisis began with the president's choice of his economic team. He wonders why Mr. Obama turned away from the advisers who had seen him through the campaign (including more progressive thinkers like Mr. Stiglitz, Robert Reich and Austan Goolsbee), and relied instead on two men associated with the deregulatory policies of the past, Mr. Geithner, the Treasury secretary, and Mr. Summers, the chief economic adviser. Both men had served in the Clinton administration (with Treasury Secretary Robert E. Rubin, who would later join Citigroup as a senior adviser and board member); their actions, Mr. Suskind contends, "had contributed to the very financial disaster they were hired to solve."

Of course, one might ask the same of Obama's penchant for filling the most important positions in his administration -- including his Vice President, Secretary of State, and Defense Secretary -- with supporters of the Iraq War. But about Geithner, Suskind unwittingly solved the mystery he raised: Kakutani notes that "one top banker quoted in these pages refers to [Geithner] as 'our man in Washington' for helping avert more systemic changes affecting Wall Street."

Continue reading
Geithner wasn't chosen and hasn't remained despite being "associated with the deregulatory policies of the past" and despite being the bankers' "man in Washington." He is empowered precisely because of those facts, as was pointed out even before Obama's inauguration. That Geithner and Summers were empowered after enabling the financial crisis through Wall Street subservience isn't a mystery; it's the explanation. (And just by the way, replacing the word "despite" with the phrase "because of" is -- in general -- one of the most valuable tools for translating Washington propaganda into reality; here is an excellent example showing how that works, from the first paragraph of a New York Times article two weeks ago:

Documents found at the abandoned office of Libya’s former spymaster appear to provide new details of the close relations the Central Intelligence Agency shared with the Libyan intelligence service -- most notably suggesting that the Americans sent terrorism suspects at least eight times for questioning in Libya despite that country's reputation for torture.

Note how the paragraph instantly transforms from misleading nonsense into obvious truth simply by changing "despite" to "because of"; this repeatedly is an effective instrument for deciphering propaganda -- e.g., the U.S. continues to brutalize people in the Muslim world "despite" the fact that doing so produces more Terrorism and thus ensures Endless War.)

Perhaps most notable about the Suskind chapter on which Kakutani focuses is the process by which Obama featured progressive economists during the campaign, only to immediately subordinate them to Wall-Street-subservient officials once in power. Feigning progressive leanings for political gain is Obama's modus operandi; as Matt Taibbi recently put it in explaining why he no longer listens to Obama's speeches:

I remember following Obama on the campaign trail and hearing all sorts of promises before union-heavy crowds. He said he would raise the minimum wage every year; he said he would fight free-trade agreements. He also talked about repealing the Bush tax cuts and ending tax breaks for companies that move jobs overseas.

It's not just that he hasn't done those things. The more important thing is that the people he's surrounded himself with are not labor people, but stooges from Wall Street. Barack Obama has as his chief of staff a former top-ranking executive from one of the most grossly corrupt mega-companies on earth, JP Morgan Chase. He sees Bill Daley in his own office every day, yet when it comes time to talk abut labor issues, he has to go out and make selected visits twice a year or whatever to the Richard Trumkas of the world.

Listening to Obama talk about jobs and shared prosperity yesterday reminded me that we are back in campaign mode and Barack Obama has started doing again what he does best -- play the part of a progressive. He's good at it. It sounds like he has a natural affinity for union workers and ordinary people when he makes these speeches. But his policies are crafted by representatives of corporate/financial America, who happen to entirely make up his inner circle.

That's why -- after 2 1/2 years -- we suddenly see an outburst of "fighting for jobs" and, now, a call to raise taxes on the rich. He does that precisely because everyone -- especially the rich -- knows it will not and cannot happen. We're now formally in (re-)election season, so it's time again to haul out the progressive music. Some Democrats are honest and cynical enough to acknowledge that Obama is doing all these things purely for political gain and -- because his re-election is their top priority -- to celebrate it even while acknowledging it will never become reality (see here and here as examples). From that perspective, I suppose having him give speeches where he advocates for jobs and taxes on the rich is preferable to his endorsing austerity and Reaganomics as he had been doing for months But whatever else is true, none of this presages an actual change in how the government functions or, especially, on whose behalf it labors. That's precisely why he feels free to advocate such things without alienating his funding base. It's still the government of Tim Geithner and his bosses/owners; election season (combined with rising elite fear of social unrest) just requires a bit more pretense to obscure that fact.

Monday, September 26, 2011

Why Ron Paul Could Win

This piece was written by Robin Koerner and appeared on HuffPo. The thesis compares the Churchillian rise to power with the possibility that Ron Paul represents a similar rise to power at a crucial moment in US history. I want to be a fan of Ron Paul but his fearsome adherence to religious values espoused by the nutter wing of the right and his total lack of any coherent health insurance reform put me off. I fear that in the end he will get my support because like a moth circling the flame I cannot tear myself away from what he represents. He offers the true change that President Obama lied about and that will never come from the mainstream grease jobs on the right. How tempting it is to throw one's vote to the only leader who has correctly identified in public the reasons for the Twin Towers attack...the man who promises to end overseas wars and bases and who offers us a promise of secular constitutional future.

It's hard to tell if the idea that Ron Paul cannot win in 2012 is more ignorant, in its complete lack of historical sophistication, or more arrogant, in its claim to certainty amid all the complexity of 300 million lives and the myriad issues that affect them.

Sometimes, perhaps once in a few generations, a nation can undergo what a mathematician or physicist would call a "phase change." The classic example of such a thing is a pile of sand. Every grain you add makes the pile slightly steeper and slightly higher without moving any of the other grains inside the pile, until eventually one grain is added that causes an avalanche of sand down the sides of the pile, moving thousand of grains and changing the shape of the pile.

Such behavior can be exhibited by all complex systems, and a nation -- it should be obvious -- is much more complex than a pile of sand.

The important point for those who would presume to make such grand predictions as "Dr. Paul cannot win" is that no examination of the pile of sand before the point of avalanche would tell you that, or when, the avalanche will eventually happen.

But happen it does; indeed, happen it must.

And there are numerous examples of abrupt and dramatic phase change in the politics of great nations.

The U.K., the country of my birth, provides a compelling and closely relevant example. As every schoolboy knows, Churchill led Britain to victory in the Second World War. Indeed, he did as much as any man on Earth ever has to save civilization as we know it.

Three months after the entire nation poured into the streets to cheer this great leader (the man a few years ago voted by Britons the greatest Briton of all time), Churchill went to the country in a general election to retain his position as prime minister. There was simply no way he could lose. The best slogan the Labour party, his opposition, could come up with was, "Cheer Churchill. Vote Labour."

And amazingly, that is exactly what the nation did. Churchill was defeated. No one anywhere -- including the people of Britain who voted in the election -- had even thought about the possibility. No newspaper had considered it. After all, the election was a foregone conclusion in Churchill's favor. And yet an unseen, perhaps unconscious, will of the people caused a cultural and political phase-change in the British nation that they neither knew they wanted nor knew they had the power to cause.

Many historians now say that the unseen sentiment that produced this result that shocked not just the British but the whole world was the idea that all the blood and treasure lost to maintain the freedom of the British empire and the Western world demanded something more than continuation of the old political settlement. After a huge crisis, the people wanted a whole new system. In 1945, the Labour Party, with its vision of state-delivered cradle-to-grave security of health and basic material well-being (welfare state), in some way met that national desire for a grand political change.

Following what was in fact a landslide victory for the Labour party, the character of the nation changed massively, and more change rapidly followed in the British identity, as an empire was lost and the mantle of the world's greatest power was handed to the U.S.A.

Those who have noted that one of Ron Paul's greatest qualities is his humility might also be interested to know that Churchill had put down Clement Attlee, who defeated him, with the words, "A modest little man, with much to be modest about."

Perhaps a more fanciful comparison, but nonetheless indicative: no one in China was predicting that the Long March of Mao, which began in defeat and despair, would end in Beijing with victory and the proclamation of a whole new nation under a whole new political system.

And which newspapers were pondering the possibility of the First World War just a month before it happened?

We cannot see past a phase change. I don't know if the U.S.A. will have undergone one at the time of the 2012 election, but the necessary conditions for one are all in place, as far as I can tell.

One has to reach back a good way in American history for a time of such rapidly rising sentiment that not only are our leaders unable even to think of real solutions to the problems of greatest concern (rather than just making expedient changes at the margin), but also that the prevailing political and economic system is structurally incapable of delivering any long-term solutions in its current form.

The sheer range and interconnectedness of the problems that the nation faces are such that any permanent solution to any one of them will require profound systemic change that will necessarily upset many economic, political and cultural equilibria. And that is nothing more than a definition of a national phase change.

The average American may not know what is to be done, but she can sense when the system has exhausted all its possibilities. At that point, not only does the phase change become reasonable; it becomes desirable -- even if what lies on the other side cannot be known.

As anyone can find out just by talking to a broad cross-section of Ron Paul's supporters, his base is not uniform in its agreement on the standard issues of typical American party-political conflict. In fact, Paul supporters vary significantly even in their views of what in the old left-right paradigm were the "wedge-issues." Rather, they are united around concepts that could almost be called meta-political: whether left and right really exist, and, if they do, whether they are really opposed; whether centralized government should even be the main vehicle for political change, etc.; and whether there are some principles that should be held sacrosanct for long-term benefit, even when they will hurt in the short-run.

For those with eyes to see, such realignments and re-prioritization may even be glimpses of America after its next phase change.

If Ron Paul has committed support from 10 percent of the adult population, and most of that 10 percent support him precisely because they believe he represents a whole new political system, an entirely new political settlement, then we may be close to critical mass -- just a few grains of sand short of the avalanche.

Another piece of evidence that the nation is close to a phase change and a gestalt switch is the very fact that the prevailing paradigm (from which the mainstream media, established political class, etc., operate) has to ignore huge amounts of data about Ron Paul and the movement around him to continue to make any sense. The studied neglect of data as "irrelevant" is invariably indicative that the neglected data are hugely important. If information doesn't really matter, why go to all the effort of ignoring it?

Specifically, on all the metrics that a year ago everyone accepted as useful indicators of political standing, Ron Paul is not just a front-runner but a strong one.

First, and most directly, he does extremely well in polls. The organization of his grassroots support is not just excellent; it is remarkable, by historic and global measures. His ability to raise money from actual voters is second to none. His appeal to independents and swing voters is an order of magnitude greater than that of his competitors. Secondarily, he has more support from military personnel than all other candidates put together, if measured by donations; he has the most consistent voting record; he has the magical quality of not coming off as a politician; he oozes integrity and authenticity, and, as far as we know, he has a personal life and marriage that reflects deep stability and commitment.

To believe that Ron Paul's victory is a long shot in spite of all standard indicators that directly contradict this claim is to throw out all norms with which we follow our nation's politics -- and that is a huge thing to do. The only way it can be done honestly is to present another set of contradictory reasons or metrics that are collectively more powerful than all those that you are rejecting. I am yet to find them.

If it is true that the studied neglect of data to hold tight to a paradigm is the best evidence that the paradigm is about to collapse, then the massive and highly subjective neglect of all things Paulian is specific evidence that the country is moving in Paul's direction.

Of course, none of this means that Paul will definitely win. But it does mean that a bet against him by a politician is foolhardy and by a journalist is dishonest.

It is worth returning to Churchill's career for an even more delicious example: just days before he became the great wartime leader, his career had been written off as that of a kook, and he was being discussed as someone who had extreme ideas and whose thinking did not reflect the mood of the nation. The House of Commons was abuzz with his decline and imminent fall.

And then, rather suddenly, something he had been saying for many years -- that there was something rotten in the state of Germany -- became so obvious that it could no longer be avoided. Once the nation saw that he had been right all along, he became the leader of the free world in very short order. His career changed. Britain changed. The world changed. No one had seen that coming, either. In fact, everyone thought they knew what was coming: the kook was about to disappear into political backwaters, if not the political wilderness.

Do I even need to draw the parallel?

If Paul wins, it won't be because he is the kind of candidate Americans have always gone for. It will be precisely because Americans have collectively decided on a dramatically new way of doing business -- a new political and economic paradigm -- and then he'll not only have ceased to be a long shot; he'll be the only shot.

Sunday, September 25, 2011


As Jack Riepe (of Twisted Roads fame) put it to me on the phone last week, too bad the President couldn't give us half a billion dollars- we'd have done no worse with the moeny than his solar powered buddies. This fiasco points us away from renewable energy which is decidedly too bad and in the direction of one more horrid political scandal that this country doesn't need. And none of us is better off for this evidence of yet more money wasted. From zero hedge:

As more developments arise in the Solyndra case, we find the specifics of how it was none other than Jacob Lew, the head of the Office Management Bureau, elsewhere known as the guy who puts together all those forecasts that Obama pulls out of his hat as seeing growth of 3.7% in 2012 here and budget savings of $4 trillion there, got subpoenaed, and not just over anything, but over the deal that is rapidly becoming Obama's Solargate: Solyndra. As a recap: the man who is the "expert" on how the US will get out of its multi-trillion deficit had to be subpoenaed by Congress to explain his secretive actions that ended up most likely harming US taxpayers for reasons still unknown (but not for long), and what is far worse, Congress has to subpoena the head of the OMB because it failed to exercise proper oversight of the stimulus money in the $787 billion American Recovery and Reinvestment Act... and all this under the tutelage of a White House which recently won an award for Anti-Secrecy....which was present to the president by among other Gary Bass of OMB Watch...And somehow we are expected to believe that fiscal stimulus in America has even a remote chance of being allocated productively (a fatal Keynesian flaw which Andy Lees described earlier) instead of pumping up crony capitalism schemes that enrich vested interests, and which drown in opacity and obscurity over which not even Congress has any supervision?

Saturday, September 24, 2011

China Ponders

Ambrose Evans-Pritchard writing in the Daily Telegraph has, as usual, a slightly contrarian view of China and their economic growth. It is something of a popular joke now to imagine a future where we learn Mandarin in school and follow Chinese economic developments from our outpost of their Empire. Here we learn that perhaps they are planning and thinking harder than we in the failing West give them credit for doing.

When America became the first casualty of the global credit bubble in 2007, Europe's political elites thought it had nothing to do with them.

Even after Lehman and AIG collapsed a year later -- and Europe's economy crashed into slump -- it remained an article of faith in Berlin, Paris, and Rome that this was just fall-out from the Anglo-Saxon casino. Few understood that the 'China Effect' had engendered credit bubbles everywhere, and that Europe's variant was even more pernicious because euro-banks were more leveraged, with much greater liabilities, and the structure of EMU concentrated the damage on weaker states with no policy defence against sovereign collapse.

US Treasury Secretary Tim Geithner must have felt a twinge of Schadenfreude as he exhorted EU finance ministers in Poland to rescue their banks or face "catastrophe". The Germans and Austrians barked back at him, of course, but at least debate is joined. Europe cannot blame America any longer, and if the US really were to slash spending right now -- as Germany's finance minister seems to want, like the disastrous Bruning, circa 1931 -- EMU would be in even deeper trouble.

In my view, Germany's austerity nihilism will precipitate a dramatic policy shift by the US over coming months. The risk -- or solution -- is that Washington will write off Europe as irretrievably hopeless and re-order the global landscape. The US will not let free-riders exploit is its precious stimulus forever. It may seek to form a global growth bloc, open only to stimulators. And woe betide Germany. But that is a column for another day.

By the "China Effect", I mean the Asian trade tsunami that flooded Western markets and deflated the price of everything from shoes and clothes, to washing machines and solar panels. This seduced Western central banks into running uber-loose monetary policies for twenty years, and disguised the build-up of dangerous asset bubbles. It was coupled with Asia's "Savings Glut", as Ben Bernanke calls it. The rising powers accumulated $10 trillion of reserves, either because they were holding down currencies to gain trade share, or because their economic and social structure was geared towards mercantilism and excess output.

China's consumption rate has fallen to 36pc of GDP from 48pc in the late 1990s. Academic libraries are bursting with PhD papers trying to explain why. Some posit the welfare theory, arguing that aging citizens must save for a future with almost no pension or health provision; others that China has frantically leveraged an infrastructure and manufacturing boom to buy time and contain the wrath of 200m migrant workers.

Whatever the mix: there is simply too much global investment, and too little consumption. The system is out of joint. It does not feel like the 1930s because we are richer in the West, with a better safety net, and emergency stimulus has so far cushioned the effects, but Bertil Ohlin, John Maynard Keynes, and Irving Fisher would find it unnervingly familiar.

The Savings Glut flooded global bond markets, especially the EMU markets as central banks rotated into euros. Hence the collapse in yields during the long bubble. Pension funds were forced to search for better return in ever riskier countries and assets to match their liablities. This is why Greece was able to borrow for ten years at 26 basis points over Bunds, and Spain at four points of spread at the end of the boom, and why Italy's €1.8 trillion public debt did not seem to be a problem. It hid all sins.

Capital was hanging from the lowest branches, almost free for all. America took it, Britain took it, Iceland took it (a lot), and Euroland took it. Yet China itself must ultimately be a victim of this warped structure as well, and that is where we are in late 2011. Act III of the global denouement is unfolding. The world will have to lance the debt boils of Asia as well before clearing the way for another cycle of global growth.

The facts are simple. China dodged the Great Contraction of 2008-2009 by unleashing credit on a massive scale. Zhu Min, the IMF's deupty chief and a former Chinese official, said loans had jumped from 100% of GDP before the crisis to around 200% today -- if you include off-books financing from letters of credits, trusts, and such like. To put this in perspective, a study by Fitch Ratings found that credit in America rose by just 42% of GDP in the five-year period before the housing bubble popped. It rose by 45% of GDP in Japan from before the Nikkei cracked in 1990, and 47% before the Korean crisis in 1998.

Home construction is running at 10pc of GDP, about the same as Spain in the`burbuja' of late 2006, and much higher than in either Korea or Japan at any point during their catch-up Tiger phases. "China's banking system is the largest, fastest-growing, but most thinly capitalized among emerging markets. Such a rapid run-up in leverage is a sign that the incremental return on credit has declined," said Fitch. The economic boost from each extra yuan of credit collapsed from 0.75pc to 0.18pc during the crisis and has yet to recover.

My impression from China's "Summer Davos" in Dalian is that Beijing's elite is less deluded about the risks than Europe's leaders were for so long. "The whole world needs to lower its expectations from China," said Lee Kaifu, the country's software mogul. "There is an even bigger threat than a global double-dip, and that is a prolonged recession with no growth and very limited policies to fight it. We are already in it."

Cheng Siwei, head of Beijing's International Finance Forum and a former vice-president of the Communist party's Standing Comittee, said China is entering a "very tough period" as growth runs into the inflation buffers, paralysing the central bank. "The inflation rate and the growth rate are conflicting with each other: it is very troubling," he said. China faces the sort of the incipient stagflation that hit the West in the 1970s.

Matters have reached the point that even a light tap on the brakes by China's central bank -- through credit curbs (deposit rates are still minus 3pc in real terms) -- is already threatening a hard-landing. Dr Cheng said local authorities had built up $1.7 trillion in debt, mostly using arms-length finance vehicles. This is coming back to haunt. "The tightening policy is creating a lot of difficulties and causing defaults. This is our version of subprime in the US, and the government is taking this very seriously," he said.

Whether the housing market will also set off a chain of defaults is the great question dividing analysts. "Decidely bubbly," is the IMF's politically-correct view. Its own data shows that price to incomes ratios range from 16 to 22 in the Eastern cities of Shenzen, Shanghai, Beijing, and Tianjin, multiples of the worst extremes in the very tame US boom. Caixin Magazine reports that Guangzhou R&F Properties is slashing prices by 20pc, and other big developers may soon follow.

China has not abolished economic gravity. Its policy of yuan suppression against the dollar and euro has been impossible to sterilize, leading to an imported credit bubble of epic proportions. Its export-led strategy has left it with a deformed economy that relies on perma-demand from exhausted debtors in America and Europe.

As China premier Wen Jiabao said in Dalian, "China's development is not yet balanced, coordinated and sustainable." The next five-year plan is a breakneck switch towards a domestic growth. Bravo, but awfully late.
China is acutely vulnerable to the second leg of depression in the West -- should that occur -- and cannot conjure a second rabbit out of the hat. This will not stop the rise of China as the great force of 21st Century, any more than America's jolting upset in 1930 stopped US ascendancy.

Yet economic history has taught us two iron-clad rules. There is no escape from credit hangovers, and surplus trading powers suffer just as much as deficit states -- if not more --once Kondratieff slumps turn really serious.

Friday, September 23, 2011

Ironic Detachment

Poor Representative Fleming he needs a better PR hack, a more industrious accountant and someone with a more refined sense of irony to be his friend. Muddling up personal income with business income is a tough call. We have the lowest tax rates in the industrialized world, with the biggest corporate loopholes of which there are too many embarrassing examples recently publicized. Yet we have reporters not falling around laughing when these clowns make these ludicrous statements and act sincere. Meanwhile Representative Bozo thinks cutting pensions, unemployment benefits and medical care are acts that do not fall under the class warfare label. Why oh why can we not have some Democrat somewhere stand up and call out these monsters for what they are?

Rep. John Fleming (R-La.), who earned $6.3 million last year, appeared on MSNBC Monday morning to express opposition to President Barack Obama's deficit reduction plan, which includes a proposal to raise taxes on the wealthy.

Fleming charged that the plan is a terrible idea which kills jobs provided by wealthy "job creators" who pay personal income taxes. When asked about his business ventures -- including his role in a number of Subway restaurants and UPS stores -- Fleming told MSNBC host Chris Jansing that his business expenses left him with little to tax "by the time I feed my family."

The $6.3 million, Fleming said, is "before you pay 500 employees, you pay rent, you pay equipment and food."

"The actual net income of that was a mere fraction of that amount."

“By the time I feed my family, I have maybe $400,000 left over," Fleming said.

Jansing pointed out that to a person making $40,000 or $50,000 per year, making $400,000 annually is "not exactly a sympathetic position," but Fleming responded by calling his success a "virtue" and noting that “class warfare has never created a job."

"This is all about creating jobs," Fleming said. "This is not about attacking people who make certain incomes."

Thursday, September 22, 2011

Euro Disaster Continues

From Canada's Global Research this essay adding to the opinion that the Euro is doomed.
Christine Lagarde, head of the IMF wants bold concerted action by a unified Europe to save their economies. She doesn't seem likely to get it.

There are those who make excuses for the Federal Reserve and for the European Central Bank as well. Both are controlled by the banking community and are only interested in enriching themselves. These central banks take their orders who own or control these central banks. In the case of the ECNB and other sovereign banks, they are responsible for the terrible state of finances in the euro zone. Yes, we know the banks, and sovereign bans made the loans or brought the bonds, but the ECB has a direct connection into these institutions. The ECB president Jean-Claude Trichet is supposed to be a very bright banker. If that is so, why did this happen on his watch? We will tell you why. It is because he serves the bankers and not the people. He is just another front man for the Illuminists, just as Mr. Bernanke is. Mr. Trichet has only 2-months to go and then he can rejoin his banker friends.

As a result of Europe’s version of the financial wild west Greek credit default swaps are at a record 3,470 BPS as investors, citizens and others await default. Greek two-year yields rose 852 BPS and the Italian 10-year notes rose 12 BPS to 5.39%. The euro was off 3.9% this past week and probably is headed lower. These past three weeks Mr. Trichet engaged in a bond buying program of Italian and Spanish bonds, is a foolhardy undertaking. It resulted in the resignation of Mr. Stark, because he opposed the bond-buying program. Mr. Stark was the vice chairman of the German Bundesbank for four years. German banker Alex Weber and Bundesbank President Jens Weidmann also agree with Mr. Stark.

The 2008 credit crisis wreaked havoc on European, UK and US markets and as a result the latest episode, which has been playing out over the past two years, has really taken its toll on the value and stability of the euro. The euro zone is in a state of contagion with six of its sovereign members in serious financial trouble. The pull of saving the euro has been much stronger than a common sense approach to allow the insolvent to go bankrupt, something that was inevitable, and which we predicted years ago. This same pressure, or mind set, is what propelled the ECB to violate its own rules to arbitrarily buy the bonds of Italy and Spain in the open market. These acts are what finally pushed Germany citizens over the edge. It is a fundamental difference culturally, socially and financially between sovereign nations that have very little in common. We have lived among these cultures and speak their languages. We knew from the very beginning that the European approaches to amalgamation would never work. The European common market and then the European Union, an unnatural combination of people’s anthropologically, which had little in common. The 3% public debt formula that came out of the Maastricht Treaty was unattainable for at least 1/3 of euro zone members; along with one-interest rate fits all was a loser since its inception. That is because each economy was and is at a different stage of financial and economic development. The EU was an experiment and a forerunner for world government. It is as simple as that. Yes, the euro zone is crumbling and the bankers who control all these politicians and bureaucrats are going to lose out and take their losses and in that process many will face failure and rightly so. The creators of the EU, euro zone and ECB have a failing monstrosity on their hands, an expanding debt crisis. What could the ECB and sovereign central banks have been thinking about to allow such extension of credit? It defied all the rules of prudent banking. There are many to blame here reaching all the way back into the 1960s. The dogged insistence of merging of nations under the pretext of preventing future wars, when in fact it was a blatant attempt to create a one-world government.

The debt bubble has enveloped Greece, Ireland and Portugal and most likely will suck in Belgium, Spain and Italy in the process. There is absolutely no way a financial crisis can be avoided and it’s already been in this stage of failure for two years. No country can bailout these six without destroying themselves. Can 21 nations find $4 to $6 trillion to bail out the six? We do not think so, and we have said this from the beginning. Fragile isn’t the word for it, neither is contagion. The operative phrase is object failure.

Wednesday, September 21, 2011

Loan Fraud

From New Economic Perspectives an excerpt from an interview by the excellent Jim Puplava with an strongly worded William Black, a Professor of Economics at the University of Missouri, intimately invovling in righting the Savings and Loan Crisis Black speaks vigorously on a subject dear to my heart: why no one has gone to jail for the damage done to the world's economy:

The Savings & Loan crisis was a tragedy in two parts. First part was not fraud, it was interest rate risk. But the second phase, which was vastly more expensive, was to defraud and the National Commission that looked into the causes of the crisis said that the typical large failure fraud was invariably present. And there were real regulators then. Our agency filed well over 10,000 criminal referrals that resulted in over 1,000 felony convictions and cases designated as nature. And even that understates the grade in which we went after the elite. Because we worked very closely with the FBI and the Justice Department, to prioritize cases—creating the top 100 list of the 100 worst institutions which translated into about 600 or 700 executives—and so the bulk of those thousand felony convictions were the worst fraud, the most elite frauds.

In the current crisis, of course they appointed anti-regulators. And this crisis goes back well before 2007 and of course it is continuing, it does not end at 2009. So the FBI warned in open testimony in the House of Representatives, in September 2004—we are now talking seven years ago—that there was an epidemic of mortgage fraud, their words, and they predicted that it would cause a financial crisis, crisis being their word, if it were not contained. Well no one thinks that it was contained.

All right so you have massive fraud driving this crisis, hyperinflating the bubble, an FBI warning and how many criminal referrals did the same agency do, in this crisis. Remember it did well over 10,000 in the prior crisis. Well the answer is zero. They completely shut down making criminal referrals and whichever administration you hate the most, you can hate because while most of this certainly occurred in the Bush Administration, the Obama Administration has obviously not changed it. Obviously did not see it as a priority to prosecute these elite criminals who caused this devastating injury.

Another way to look at it is, how much fraud is there and we know the following: There are no official statistics on sub prime and similar categories because there are no official definitions. So there is a little wishy-wishy in this but the best numbers we have are that by 2006, half of all the loans called sub-prime, were also liars loans. Liars loans means that there was no prudent underwriting of the loan. And total, about one-third of all the loans made in 2006, were liars loans.

Now that's an extraordinary number, especially when you look at the studies. And here I am going to quote from the Mortgage Bankers Association. That is the trade association of the perps and this is their Anti-Fraud Specialist Unit, and they reported this to every member of the Mortgage Bankers Association in 2006. So nobody can claim they did not know. They found three critical things, first they said this kind of loan where you do not do underwriting is, and I am quoting again, “an open invitation to fraudsters.” Second, they said “the best study of this found a 90% fraud incident.” In other words, if you look at 100 liars loans, 90 of them are fraudulent. And third they said, therefore these loans where the euphemism is stated income are Alt-A loans, actually deserve the title that the industry calls the Behind Closed Doors, and that is liars loans. The other thing we know from other studies and investigations, is that it was overwhelmingly lenders and their agents that put the ‘lie’ in liars loans. Now that is obvious when you look at the lies about appraisals, because homeowners cannot inflate appraisals. But lenders can and how they did it was shown in an investigation by then New York Attorney General Cuomo, now Governor, who found that Washington Mutual, which is called WAMU, and is the largest bank failure in the history of the United States, and indeed the history of the world, had a black list of appraisers. But you got on the black list if you were an honest appraiser, and refused to inflate the appraisal.

Similarly, we know that you could get, for example, a California jumbo mortgage, that’s one say the size of $800,000. As a loan broker, just one of these, you could get a fee of $20,000. If it hit certain parameters. And those parameters would have to do with what is the interest rate, but also what is the loan to value ratio, and what is the debt to income ratio. So the loan to value ratio is how big is the loan compared to the value of your house. Well that is an easy ratio to gimmick, and we have just explained why, by inflating the appraisal. If you inflate the appraisal then the loan to value ratio falls and the loan looks like it is a lot safer, and you can sell it to Wall Street for significantly more. The debt to income ratio, well that is even easier to gain. The debt is simply how much are you going to borrow to buy the house. And the income is, what is the income stated on the loan application for the borrower. Except that this is a liars loan, so the lender has agreed that it is not going to check. It is not going to verify whether the income is real. And so the loan broker can write down any income number he or she wants. And that will gimmick that ratio and again it will put it into the sweet spot, for all of these things, so that you could get your $20,000 fee. Now step back and ask yourself, many of these guys who are loan brokers, their previous job was literally flipping burgers, right. So are you going to leave it up to the borrower to come up magically with the right income and the right appraisal when they don’t even know what the magic numbers are and cannot inflate the appraisal? Of course not. You are going to do it as the loan broker. You are going to tell the borrower to write in a greatly inflated income number, or maybe you are afraid that they are too honest, so you may simply write it in yourself, which happened in many cases.

So again, we got thirty, roughly one-third of all the loans by 2006, after these warnings. They rapidly increased the number of liars loans they made. One-third of them are liars loans and 90% of them are fraudulent, which is to say, that the amount of fraud annually was well over a million fraud a year. We are talking about hundreds of billions of dollars in fraudulent instruments.

We have known for centuries, that if you don’t underwrite loans, or if you don’t underwrite insurance, you’ll get something called "adverse selection". And that means you get the worse possible borrowers or people being insured and the expected value of lending to somebody, in conditions of serious adverse selection, is negative. Or to put that in English, that means if you lend this way, you lose money. And we have known this for centuries. This is like betting against the house in Las Vegas. You could win some individual bets, but you stay at the table for three years, and you are going to lose everything. And as we say, you will lose the house, to the house. And, that is exactly what is going to happen here. So yeah, the CEO’s knew all about this. Why did they do it? And the answer is, here is the recipe, it’s got four ingredients for creating what the Nobel Prize Winner in Economics, George Akerlof and his colleague Paul Romer said in 1993 was "a sure thing". And that sure thing is what in criminology we call accounting control fraud.

So control fraud is when the person who controls a seemingly legitimate entity, uses it as a weapon to fraud. In the financial sphere, the weapon of choice is accounting. So here are the four ingredients of the recipe that produce a sure thing of record accounting income.

Grow like crazy
Make preposterously bad loans but at a premium yield.
Have extreme leverage. That means you have a ton on debt.
Put aside only ridiculously low allowances for future loan losses.

You do those four things, you are mathematically guaranteed to report record, albeit fictional, profits in the short term. You are also guaranteed with modern executive compensation, to make the Senior Executives wealthy, and you are guaranteed, because after all, if you think about those four ingredients, they are the perfect recipe as well for maximizing real losses. And that’s why the title of Akerlof and Romer’s article says it all, “Looting: The Economic Underworld of Bankruptcy for Profit.” The firm fails but the executives walk away rich. This is the same concept with my book “The Best Way to Rob a Bank Is to Own One.” It is these internal people who control the seemingly legitimate entity that can get away with financial murder. And here is the really bad news. I mean that is bad news right there, but the really bad news, is that this tends to happen as the FBI warned, and again in 2004, seven years ago. So the next time you hear some moron tell you that no one could have predicted this, it was predicted by the Premiere Law Enforcement entity in the world dealing with white-collar crime.

Tuesday, September 20, 2011

Europe's Future

This essay by Peter Boone and Simon Johnson of NYT discusses the future of the united European economy in light of what is effectively a default by Greece. We live in a world where our leaders extend and pretend, printing money to keep the economic status normal, or as normal as they can, so our treasuries can continue to be looted by our banking and corporate elites. In Europe this plan has not gone down too well with a restive population whereas in the US the dream of American exceptionalism keeps the population stupefied and quiescent. Greece will default; the question is who will pay? Germans? Banks? China? Americans? Anyone except those responsible is my guess.

Uncertainty about potential loan losses in Europe continues to roil markets around the world. For many investors, taxpayers, and ordinary citizens there is no clarity on the exact current situation – let alone a stable view about what could happen next. What should any friends of Europe — the US, G20, IMF, perhaps even China — strongly suggest that they do?

A good start would involve being honest on four points. There is nothing pleasant about the truth in such crisis situations, but continued denial increasingly becomes dangerous to all involved.

Greece is on the front burner. Currently on offer is a debt swap for private sector lenders that, once it goes through, will effectively guarantee 33 cents for every 1 euro in bonds that they currently hold. The downside protection here is attractive to banks – made possible by the fact they will now get hard collateral in the restructured deal (meaning that Greece buys the bonds of safe EU countries, like Germany, and holds these where creditors could get at them).

The first brutal truth is that this is a default by Greece and all attempts to deny this or use another word just muddy the waters.
Greece can probably afford to service debt restructured to this level – although that will depend also on the final terms of EU and IMF funding. But the second truth is that this is a wasted opportunity for Greece. It does not put their debt problems behind them and, most likely, they will be back to ask for further reductions in principal in the future.

The ice has been broken: The EU has agreed that a euro area member can default. Greece should now go all the way – aiming to end up with new bonds that have a 3 year grace period on interest and 10 year grace period on principal.

The third truth – and most difficult for many to stomach – is that, in the context of any such deeper debt restructuring, the Greeks should cut public sector wages across the board and bring down other spending to make their budget deficit much smaller immediately. They and the IMF need to assume another recession in 2012 and no growth for five years. They should aim to balance the primary budget on a cash basis in 2012 (since there would be no interest due, this would also mean they need no cash from any kind of lender). In this scenario, they could collateralize the new bonds with state property.

There is nothing particularly fair or at all just about this set of outcomes. Everyone in Greece is hurt now by the consequences of excessive spending, big deficits, and reckless lending (to the government) in the past.

The issue is: What are the alternatives? If it adopts some version of this deeper debt restructuring approach, Greece can stay in the euro zone and find its way back to growth (assuming the world economy does not go down again sharply). Its private sector will eventually rebound.

In contrast, if Greece were to leave the euro zone, its financial system would cease to operate – at present Greek banks depend to a great extent on support from the European Central Bank (for more background and the available numbers, see our recent Peterson Institute policy brief, Europe on the Brink; Do not try to run any modern economy on a purely cash basis; the further fall in GDP would be enormous.

And if Greece pays its debts at the currently proposed level (33 cents in the euro), it will struggle to grow. The tax revenue needed to service that debt would burden businesses and households for decades – enterprising and productive people will move their fortunes and their futures elsewhere in the euro area or to the United States.

The fourth and most dangerous truth is that Italy and Germany are not ready for the next stage of the euro crisis.

Any further adverse developments in Greece will precipitate a run on Italy – involving investors selling Italian government debt. The European Central Bank is currently prepared to buy Italian bonds, to keep down interest rates below 6 percent.

The Germans are obviously very worried by this approach – hence the resignation last week of Jurgen Stark, who was the senior German representative in ECB management. He has been replaced by someone who is likely to take an even tougher line on bond buying.

Aside from the politics, the risk is that the euro loses credibility and falls steeply in value. The ECB thinks it can “sterilize” any bond buying by also selling its own bonds into the market – this would mean no net increase in the supply of money (just fewer Italian bonds and more ECB bonds being held by the private sector).

As a technical matter and in the short-term, the ECB may be right. But the ECB is taking on a lot of credit risk – if a big country defaults, the ECB would need to ask member governments to provide it with more capital and this is the kind of transparent fiscal hit that politicians hate.

And if ECB funding seems really unconditional, this just encourages countries not to be careful about their fiscal deficits. “Fiscal dominance” – meaning a central bank always buys up government bonds to keep interest rates down – is a recipe for big inflation.

Expect a great deal of shouting behind the scenes at the highest level in Frankfurt (ECB headquarters) and in European capitals. Instability seems unavoidable. Significant inflation may also follow – although first we will see serious recessions in the troubled European periphery, a ratcheting up of bond buying, and repeated political crises.

Monday, September 19, 2011

God And The Right

Alternet's Paul Rosenberg is trying his hand at satire. Time for a laugh, even if it is a little dry hacking cough rather than a fully belly laugh.

Why is it that whenever disaster strikes, right-wing religious nuts seem to have all the fun? Some might say it's just because they're sadists, but they always seem to find the silver lining. 9/11? God's calling on America to repent! (No, not for it's foreign policy, you dummy!) Hurricane Katrina? It was that darned homosexual parade the organizers forgot to tell anyone about!

Whatever disaster strikes, there's always an up-side in religious rightland, always somebody to point the finger at with glee. How come they get all the fun?

So when the East Coast got a one-two punch last month, earthquake-hurricane within a few days of one another, it got me thinking. When another hurricane followed up afterward, it was more than I could bear. And so, I offer you a list of God's Top 10 Targets from a not-so-right-but-possibly-more-righteous point of view.

There are at least three different ways to approach this subject, and we have examples of all three. First is to identify specific target groups for repeated offenses—sinners who just won't mend their ways. Second is to identify geographic targets for specific offenses—sin city or state, as the case may be. Third is to identify specific individuals.

1. Republicans, for bearing false witness.

It's not just one of the Ten Commandments -- the Bible has repeated warnings against slander, false testimony and plain old lying. But Republicans apparently think that God was talking to somebody else—the exact opposite of their usual assumption—especially since Barack Obama arrived on the scene. Obama was born in Kenya, he is a Muslim, he's a socialist, a Marxist, a fascist, he hates white people (like his mom and his grandparents), he hangs out with terrorists. It goes on and on and on.

God has repeatedly told them not to act like this—yet they pay Him no mind. It's not just Obama, either. When it comes to science, things get just as bad, be it evolution, global warming, reproductive health, or gender orientation; when the science isn't on their side, the lying and slander take up the slack. It's not just that the science is against them, you see. Scientists are fraudsters; they are always conspiring against God and his people, according to some of the more whacked out types—like GOP senators, for example. God may have a great deal of patience, but when folks start trying to drag Him into the mix, that's when the earthquakes and hurricanes begin.

2. The Religious Right, for ignoring Jesus on the separation of church and state.

More than 1,600 years before John Locke and 1,700 years before Thomas Jefferson weighed in on the subject, Jesus said, “Render therefore unto Caesar that which is Caesar’s and unto God those things which are God’s.” (What's more, he said that, in part, as a way of opting out of a tax revolt!) But the Religious Right defiantly continues to oppose Him. God's been extremely patient with them over the years, but that patience has finally run out, as the most anti-separationist elements of the Religious Right—known as dominionists—have come increasingly to the fore. Some might say they're embarrassing Him personally. Others will say it's starting to get really dangerous. Whatever the reason, God's had enough.

3. The nativist right and the GOP, for a rash of anti-immigrant laws.

“Thou shalt neither vex a stranger, nor oppress him: for ye were strangers in the land of Egypt.” Exodus 22:21 could not be clearer—unless, of course, we switched from the King James Bible to the New International Version: “Do not mistreat an alien or oppress him, for you were aliens in Egypt.”

But for some in the GOP, them's fightin' words. All they can think about is disobeying God. They are positively possessed with the Satanic spirit of disobedience. It began with Arizona's SB-1070 last year. And while a number of states followed Arizona's lead with anti-immigrant laws of their own, the most notorious was Alabama, which faced "a historic outbreak of severe weather" in April.

The same day the law was signed, Alabama’s Episcopal, Methodist and Roman Catholic churches filed a separate lawsuit, claiming the law unconstitutionally interferes with their right of religious freedom. Church leaders said the law “will make it a crime to follow God’s command.” Among other things, the suit said, “The bishops have reason to fear that administering of religious sacraments, which are central to the Christian faith, to known undocumented persons may be criminalized under this law.” If criminalizing Christian sacraments isn't inviting divine retribution, what is?

4. The predatory lending industry and all who enable them.

There are numerous Bible passages condemning usury. Typical of these is Exodus 22:25: "If you lend money to one of my people among you who is needy, do not be like a moneylender; charge him no interest." Naturally, the whole of modern capitalism is built on ignoring a broad reading of this. But predatory lending is a particularly egregious form of defiance. It's proved rather costly to our country as well.

A Wall Street Journal article on December 31, 2007 reported that Ameriquest Mortgage and Countrywide Financial, two of the largest U.S. mortgage lenders, spent $20.5 million and $8.7 million respectively in political donations, campaign contributions, and lobbying activities between 2002 and 2006 in order to defeat anti-predatory lending legislation. Such practices contributed significantly to the financial crisis that plunged us into the Great Recession. But it seems that wasn't a clear enough lesson, especially since those who lobbied most intensely benefited most from the bailouts as well, according to an IMF study. So earthquakes and hurricanes are an old school, Old Testament way for God to make his point.

5. The GOP, for its contempt for the poor.

For more than half a century, the GOP has attacked Democrats and liberals for their concern for the poor. At least since the 1980s, the neo-liberal wing of the Democratic Party has tried to distance themselves from the poor, and reposition the party as defenders of the middle class, instead. The GOP has responded with policies to impoverish the middle class as well, so that they can be safely demonized, too.

But the GOP's venom for all but the wealthy has reached new heights during the Great Recession. Not only should those who caused the crisis be taken care of while all others suffer—far too many national Democratic politicians seem to agree on that one—but a renewed rhetoric of contempt for the poor has emerged, in direct contradiction to what Jesus said, in Luke 6:20: “Blessed are you who are poor, for yours is the kingdom of God."

Increasingly, it seems, Republicans don't think poor people are even human. In January 2010, South Carolina Lt. Governor Andre Baurer (R) compared poor people to stray animals: He told an audience that his grandmother told him "as a small child to quit feeding stray animals. You know why? Because they breed." He compared this to government assistance, which he said is "facilitating the problem if you give an animal or a person ample food supply. They will reproduce, especially ones that don't think too much further than that. And so what you've got to do is you've got to curtail that type of behavior. They don't know any better." Then, in early August, Nebraska Attorney General Jon Bruning, the frontrunner for the GOP senate nomination, compared poor people to scavenging racoons. Talk like that is what causes earthquakes and hurricanes.

6. Privatized public utilities, for the worship of Mammon.

Public utilities are natural monopolies, totally unsuited to private enterprise, since there is no competitive marketplace. This, of course, makes them perfect targets for monopoly capitalists—Mammon's greatest worshipers.

Against them, God struck a mighty blow. In Mansfield, Massachusetts, which has had its own municipal power service since 1903, electrical service was restored for most customers within 24 hours after Irene hit, even though 4,000 out of 9,500 households had lost power—quite unlike what happened to nearby communities served by a commercial outfit. According to a local report, the storm “uprooted old trees and knocked down utility lines all over town.”

“Unlike homes and businesses in Easton, Norton and Foxboro, however, local customers did not have to wait for National Grid to respond with crews or listen to a recording on the telephone.... [M]uch of Easton waited three days for power to return and areas of communities such as Foxboro are still in the dark.” According to another report, about Foxborough, “The outrage expressed... is similar to the movie Network in the scene where people flung open their windows and said, 'I'm as mad as hell, and I'm not going to take this anymore.'”

Then there are a couple of geographically specific targets:

7. Virginia.

Virginia was the site of the earthquake's epicenter and the second state where Irene made landfall, so the state is a target-rich environment.

There's House Majority Leader Eric Cantor. On God's bulls-eye scale, the epicenter near Mineral, Virginia is in Cantor's district—a direct hit. And in budget negotiations this year, Cantor's contempt for the poor came through loud and clear. He's been the most aggressive congressional leader when it comes to budget-cutting and pushing the economy as hard as possible over the cliff. Then, after the earthquake hit, Cantor said any federal relief would have to be offset with spending cuts, and quipped, “Obviously, the problem is that people in Virginia don’t have earthquake insurance.” He reiterated his demand for offsetting cuts when Hurricane Irene hit shortly afterward—even though he voted against such a provision after Tropical Storm Gaston hit the Richmond area in 2004.

Then there's Virginia Attorney General Ken Cuccinelli. No way he escapes God's wrath. Cuccinelli's widely criticized witch-hunt against eminent climate scientist Michael Mann represents the most extreme right-wing attack on the mythical “climate-gate” scandal, which consisted primarily of scientists making snide remarks about ignoramuses like Cuccinelli. He's all wrapped up in sin of bearing false witness. Which is where Hurricane Irene comes in—although it surely doesn't help that Cuccinelli is suing to keep people sick, and has told Virginia's colleges and universities that they can't ban anti-gay discrimination.

And, of course, Virginia Governor Bob McDonnell has tried to have it both ways with God, as well as with the people of Virginia. On the one hand, all the way back in 1989, he wrote a Christian Reconstructionist M.A. thesis, “The Republican Party’s Vision for the Family: The Compelling Issue of the Decade” at the College of Law at Pat Robertson’s Regent University. McDonnell's authorship of the thesis came to light during his 2009 campaign for governor, but because the establishment is in deep denial about Dominionism in general, and Christian Reconstructionism in particular, the full weight of his thesis never really sunk in. On the other hand, McDonnell has tried very assiduously to walk away from that past, given that almost no one wants to admit to such extreme views. He's wobbled back and forth on a number of issues, but generally tried to strike a reasonable demeanor—in sharp contrast to Cuccinelli. But God doesn't like folks who run hot and cold, which is why McDonnell's a target, too.

Finally, just to be a wee bit bipartisan about it, we need to include Virginia's Democratic Senator Mark Warner in our list—though with a bit of twist. On the day of the earthquake, Warner was scheduled to speak at the Library of Congress Packard Campus for Audio Visual Conservation in Culpepper, Virginia. He arrived about 10 minutes after the quake, according to the local Star Exponent, which reported:

The building had been emptied of its staff and the approximate 75 people who came to hear Warner so the former governor talked from under a tree atop Mount Pony.

“I was not going to mention the fact that one of the last times I was in Culpeper there was a tornado,” he said of an appearance years ago at CulpeperFest marked by wild weather. “If you don’t want me to come back, there’s an easier way to do this. If we start seeing frogs, it may be a sign of things to come,” he said.

So it's not that God is angry with Warner, exactly. He just targets Warner for amusement, to see what he'll say next. And, of course, because he, too, represents Virginia, truly a state of sin.

8. North Carolina.

Hurricane Irene could have barreled directly into South Carolina, but it delivered a stiff upper-cut to North Carolina instead. And why not? Governor Bev Perdue tried her darnedest to protect the state. She vetoed its draconian budget bill, only to see her veto over-ridden. It too was an attack on the poor -- the bill didn't just fail to balance spending cuts with tax increases, it actually let a temporary one-cent sales tax expire, along with some income taxes on high earners, while cutting $124 million in local education funding on top of $305 million cut in previous years. Perdue also vetoed a highly restrictive abortion law—one that, among other things, has a 24-hour waiting period, and force-feeds anti-abortion propaganda to women seeking an abortion—call it the “Bearing False Witness By Doctors Act.” But that veto was over-ridden as well—by a single vote in the state senate. So, really, God's hand was forced on this one. He had no choice but to strike North Carolina, and strike it hard.

Finally, there are two individual targets to consider:

9. Rick Perry.

While the one-two punch of the Virginia earthquake and Hurricane Irene were far removed from Texas Governor Rick Perry's stomping grounds, God had not forgotten Perry, but was merely preparing to toy with him. Perry, after all, had responded to a terrible drought in Texas not by implementing any long-term policy measures (which might make Texas better able to deal with the prospects of more severe droughts to come as global warming impacts increase), but by calling on Texans to pray.

Back in April, Perry proclaimed the "three-day period from Friday, April 22, 2011, to Sunday, April 24, 2011, as Days of Prayer for Rain in the State of Texas.” Since then, however, things have only gotten worse, as Timothy Egan noted in the NY Times “Opinionator” blog, "[A] rainless spring was followed by a rainless summer. July was the hottest month in recorded Texas history....Nearly all of Texas is now in 'extreme or exceptional' drought, as classified by federal meteorologists, the worst in Texas history. Lakes have disappeared. Creeks are phantoms, the caked bottoms littered with rotting, dead fish.”

Somehow, though, it seemed like most folks outside of Texas had no idea of Perry's failed prayer initiative. That's where God came in, following up Irene with the tantalizing prospect of a Gulf of Mexico storm that would finally bring relief to the Longhorn state. But alas no. First Tropical Storm Jose petered out entirely, then Tropical Storm Lee turned to Louisiana instead. If you pray with Perry, you obviously take the Lord's name in vain. As one frustrated Texan wrote on Reddit, “Perry's prayer has been answered. The answer was 'No'.” God is making things perfectly clear, as Richard Nixon would say: If you want someone praying for America in the White House, Rick Perry is not your guy.

10 God.

Yes, it's true, God Himself was one of the main targets of God's wrath, particularly during the earthquake, which did remarkably little damage to the living. But, as Rob Kerby noted at BeliefNet, churches took some pretty hard hits:

“Churches seemed to bear the brunt of Tuesday’s 5.8 earthquake on the East Coast.

“Significant damage was reported to Washington, D.C.’s National Cathedral and St. Peter’s Catholic Church, historic St. Patrick’s Church near Baltimore, and two churches in Culpepper, Va., close to the epicenter — St. Stephen Episcopal Church and Culpepper Christian Assembly.”

Okay, so maybe God's not self-flagellating. Maybe it's the tenants who are being targeted. But who's to say, really? And if the God's wrath biz is all about appropriating authority to cast blame around, then why not think really big, and proclaim God Himself to be the target? Pat Robertson & company have monopolized this gig for far too long. If the rest of us are to have any hope of catching up, we're got to make ourselves a splash. And what better way to make a splash than proclaiming that God is the target?