Monday, October 31, 2011

Insecurity State

From a reflection by the self styled dollar vigilante on the loss of freedom in the US where wealth is evaporating for most and "document checks" are becoming to order of the day. Here's a cheerful story:

As a P.T. (often referred to as perpetual traveller, permanent tourist or prior taxpayer), I have travelled to nearly 100 countries. During those travels there has always been one defining moment, upon entry into a country, which shows that the country is what is generally thought of as a “third world country”.

It is the moment when, upon arrival, you are charged a fee to enter the country. The reason generally being that the government of the country has so destroyed the economy and/or they have so little understanding of what creates wealth that they think that the way to make their country prosperous is to charge a fee upon entry rather than allowing people to enter freely and transact, trade and spend their money in the economy. Either that or the government is so desperate for money that it uses this as a significant source of revenue.

They have this in Cambodia, Indonesia, Bolivia and numerous other similar countries. And now, they have it in the US.

The US has long-used “visa application fees” to bilk money from people in countries like Thailand as a way to raise money but now the US has announced that they are going to charge a $5.50 fee to Canadians upon entering the US.

The fee is ludicrous and counterproductive for many reasons. Not least of which is making it five dollars and fifty cents, ensuring that payment of the transaction will take twice as long as normal to make the extra change. Canadians who are one of the only large groups of people still bringing some economic activity into the US will both be turned off by having to pay to enter the US but also by the extra long lines to enter as they make change for this fee.

Not to mention the hilarity of calling it an “inspection fee”. Does this mean that if we would not like to be inspected then we don’t have to pay?


Checkpoints have recently gone up in Flint, Michigan and TSA VIPR (Visible Intermodal Prevention and Response) teams have spread our across Tennessee to stop drivers and “check their documents”.

As well, at the recent Libertopia conference I attended in San Diego I met three young freedom-lovers who told me that on their drive from Phoenix to San Diego they encountered three different checkpoints.


I have just returned from the US and, as usual, I had to make it through a plethora of government people to get out.

Luckily, I didn’t try to leave via one of the airports, like Boston Logan where the TSA has begun to conduct “chat-downs” where TSA goons will slime their way through crowds in the airport and chat with you! Should you refuse to chat with them you will be taken away for extra-screening!

However, I did go for my standard TSA patdown and, as is becoming more and more common, when you walk down the gangplank to the airplane there are a number of other government people hiding around the corner who stop you and ask if you are taking more than $10,000 with you. I snapped a photo of them on my way down.

As I walked down the runway, one of the men with guns told me, “go to the third man down, he can take care of you there.” Oh, is that what they are doing, taking care of us? It doesn’t feel that way.


Things in the US just get more and more bizarre.

As though all the government harassing isn’t enough, as I was about to leave the San Diego airport I spotted this “H1N1 vaccination station”.

H1N1 (remember the Swine Flu hoax?) has been shown to be nearly harmless yet still to this day, in the USA, there are places offering to give you H1N1 vaccinations. Those vaccinations, by the way, have been proven to cause chronic nervous system disorders. I, tragically, had this hit very close to home last year when my mother, unbeknownst to me, got talked into taking a Swine Flu vaccine shot. A few days later and she couldn’t walk anymore. She still, to this day, cannot walk.


The photos coming out of the US continue to look like something you’d see in a country like North Korea or in the old Soviet Bloc.

This photo, from a small gathering of Occupy Wall Street protesters in Phoenix, shows that not only the police outnumbered the protesters but showed the level of intimidation and force used against just a few people sitting in a park. Their crime? They were there after “curfew”. I’ve been searching my copy of the US Constitution for any reference to curfew but have yet to find anything.


I have already stated that I will never bring my family to the US until I see major changes and the TSA stop their radiation baths and groping. However, it is now getting very close to the point where I will stop going altogether.

For anyone who has their eyes open and are paying attention, the writing is on the wall as to what is going to happen in the US. All it will take is another 9/11 event or for the US Government to default on its debts or for the dollar to enter hyperinflation and the US will be locked down like a prison.

In many ways, it already is.

For those who live in the US, it is imperative to begin making moves now to protect yourself. Action items like attaining a foreign passport, moving your assets outside of the country and owning precious metals are just some of the things that all rational people in the US should be doing now.

Happy Birthday Conchscooter

Sunday, October 30, 2011

The Precariat

According to a British academic there is a new class of human, working in a precarious economic condition. Job security and longevity is gone for most people as the one percent strive to globalize everything to increase their profits at the expense of a living wage. Class envy? Maybe but most likely class fear. Loss of security ultimately leads to insecurity for all. An ugly forecast from the website:THE widening gulf between the super-rich and workers with a precarious hold on their jobs is putting the UK on a path to social unrest, an economist has warned.

On a visit to Wales, ahead of a lecture to Cardiff Business School, Professor Guy Standing warned of a growing class of people who have little chance of a long-term permanent job.

He suggested these people are to be found not only among the unskilled and low-waged, but also among degree-educated workers who find themselves in a succession of temporary or contract jobs, a far cry from the sort of job security seen by previous generations in Wales’ industrial heartlands.

The Professor of Economic Security at Bath University dubbed these people the “precariat” given their precarious grip on employment.

“This situation is one in which people have to act opportunistically in order to survive,” he said. “It is a very challenging situation.”

He attributed the creation of this growing class of workers to the decisions taken to deregulate global labour markets in the 1980s.

He said that while this globalisation of the jobs market led to increasing incomes for the richest in society it meant workers in the UK were competing against people in China and India who were on a fraction of their wages.

“Governments knew that if they liberalised too quickly, wages and benefits would drop like a stone and all the high-paid productive jobs would go to those countries,” he said. “They made a Faustian bargain, saying we can’t allow that, we will allow consumption to rise with cheap credit and use tax credits to top up wages. As a result government budget deficits began to rise and rise. Every Faustian bargain must be paid and that was what happened in 2008.”

Since Professor Standing’s book The Precariat: The New Dangerous Class was published in May there have been riots in the UK and protests in major European capitals. Most recently we have seen protest camps spring up on Wall Street and near the London Stock Exchange.

Professor Standing, who previously worked as an economist for the International Labour Organisation, is not surprised at growing levels of unrest.

“I think we are going to see a lot more protests,” he said. “I think you are seeing the emergence of a number of movements that have in common a fear of insecurity. At the moment we are at a ‘primitive rebel’ stage where Robin Hood thinking of taking from the rich and giving to the poor is still very prevalent rather than a strategy for structural reform.”

As for this “dangerous class” he has identified, he argues that they cannot be described as an “underclass”.

“The system wants these flexible workers,” he said. “It wants people to be insecure, because that lowers labour costs, but as a consequence millions of people are living insecure lives.”

The Professor said that young people leaving Welsh universities and colleges today have only a small chance of a secure long-term job.

“They are entering a lottery where they have bought a ticket, probably incurring many debts, and that lottery only has a few winners but many losers,” he said. “It has created a tremendous undercurrent of status frustration.”

But he is adamant that it is not just younger workers who ar joining the class.

“They are those who carry laptops and are making good money, but they are doing so in insecurity,” he said.

“There are a lot of people who are in denial until it hits them. People who are actually extremely insecure but don’t want to recognise it. But then sadly it hits them and they realise they have not got the savings, a network of people they can rely on, or entitlements to the sort of benefits they presumed were there.Now we are reaching the stage where a lot more people are sensing their own insecurity,” he added. “A lot of people, particularly those in their 30s and 40s, have become aware that it could happen to them any day. It is causing a lot of intergenerational difficulties. Traditionally people were likely to be looked after by their parents until about 20. Then they had 20 years with no help and then in the last 20 years they provided support to their elderly parents. People are now going into their 30s and 40s still looking to their parents for support in times of need and people don’t have enough wealth and income to look after elderly relatives.”

He suggests that as many as a third of the population could be defined as members of the “precariat”.

“It depends how you define it, and although I don’t want to give firm numbers, at least a quarter of the adult population is in insecure jobs, and together with the unemployed you are talking about a third,” he said.

“But that doesn’t take into account those people are in jobs that to outsiders seem relatively secure, but who are at risk every day. There is a lot of outsourcing, sub-contracting, people working in call centres and people who are seen as contractors, but who in fact are dependent.”

Professor Standing believes the current austerity measures of the coalition government are likely to heighten the levels of unrest, due to the cuts to the welfare state and the loss of traditionally secure jobs in the private sector.

He said that even some of the super-rich were now recognising the dangers of growing levels of inequality.

“The banking community and the elite of billionaires who dominate the international economy have done remarkably well,” he said. “Their incomes went up exponentially between the 1980s and 2008 and they have continued to go up. We have a situation where the super-rich have become the super-super-rich, which is inexcusable, and all the major parties in Britain went along with it.

“They have done very well, but some of them are wise enough to realise that if inequality and insecurity becomes so great that they are unsustainable then riots will break out and if cities are burned and retribution is taken then sooner or later they will be under threat. That is why you see Warren Buffet talking about the need for higher taxes.”

As for what could be done to tackle the problems of job insecurity, the professor suggests that one solution may be the state providing a basic income for everyone, which could then be topped up by earnings.

He warns that without new policies the other alternative is a shift to the far right as voters seek to blame their own insecurity on immigrant workers.

“I am an optimist and believe that a crisis point will lead to the emergence of new political policies,” he said. “I think that we will see an angry period for the next two to three years, but a new younger generation of political thinkers and policy-makers will start addressing these things in new ways that will eventually produce a much better set of policies and institutions.”

Saturday, October 29, 2011

Gov Scott Strikes Out

One of the marks of a society of law is where judges stand up and defend the laws of the land. So far so good, though the sort of disparaging remarks reported here never fill me with confidence when they come from people whose idea of political debate is to say my way or the highway.

Republican lawmakers in several states have expressed interest in copying Florida's law that drug tests welfare recipients in an attempt to save money. But the federal judge who halted the scheme Monday on constitutional grounds ridiculed a conservative think tank's estimate of the law's savings.

"Though the State offers, as evidence of the cost savings, a pamphlet from the Foundation for Government Accountability," U.S. District Judge Mary Scriven wrote in her order, "the data contained in the pamphlet is not competent expert opinion, nor is it offered as such, nor could it be reasonably construed as such."

The Sept. 14 pamphlet said the new law, which took effect in July, had already saved the state nearly $1 million. While only nine people actually flunked the test in the program's first two months, 565 went through every step of the application process but were denied benefits because they declined to take the test. If each such "drug-related denial" saved the state $1,600 in welfare costs for that applicant, that comes to roughly $923,000 in annual savings, according to the Foundation's arithmetic.

But there's no reason to assume each person who declined to take the test did so in fear of a positive result, Scriven wrote. Since the law required applicants to pay for their own tests, what if some of them couldn't afford the $30 cost? What if some of them considered it a violation of their rights?

And about that arithmetic: "These 'non-testers' cannot be reasonably counted as providing twelve months of savings, or so-called 'annualized savings,' because they are otherwise eligible and can begin receiving benefits at any point during the year by submitting a new application and a negative drug test," Scriven wrote. "Even as to those 2 percent of applicants who are known drug users, 'annualized savings' calculations inflate the claimed savings because those applicants do not have to forego an entire year of TANF assistance but may reapply after 6 months."

Scriven concluded the state "has not demonstrated any financial benefit or net savings will accrue as a result" of the law.

Tarren Bragdon, director of the Florida-based Foundation for Government Accountability and author of the report, has major beef with Scriven's characterization of his work.

"I just think judge Scriven's opinion clearly reflects her disdain for welfare accountability," Bragdon told HuffPost. "Throughout my entire public policy career, I've never come across Judge Scriven's name on any article, study, or report on welfare. So my question for her is, what credentials does she have to question my competency as a researcher?"

Though Bragdon's reports strongly imply applicants who decline to take drug tests do so because they're on drugs, he acknowledged in an interview there's really no way to know: "Obviously you can't determine what is the reason somebody doesn't take a test."

Another reason not to extrapolate annual savings from skipped drug tests is that the average welfare recipient receives money for just 4.5 months, according to the state Department of Children and Families. The shorter duration is reflected in Bragdon's most recent report, which also includes a more accurate per-month benefit of $250 instead of $130. The report says the law "has led to a dramatic 48 percent drop in monthly approvals, an overall drug-related denial rate of 19 percent, and almost $1.8 million in savings to taxpayers."

Bragdon's report says the state has only paid out $57,000 in reimbursements to applicants who passed the test, even though more than 7,000 people have done so. If each is repaid as they're supposed to be, reimbursements should run roughly $210,000. Previous back-of-the-envelope estimates have suggested the program's reimbursement costs could nearly outstrip its savings.

Just 2.5 percent of welfare applicants had dirty urine during the brief lifespan of Florida's drug screening program -- a lower rate of drug use than for the general population. Regardless, more than two dozen other states are considering similar proposals for welfare and other government benefits.

Oklahoma state lawmakers pushing welfare drug tests specifically cited Bragdon's analysis, calling Florida's initiative "a huge success in just its first two months." Bragdon said he's heard from legislators in Rhode Island and Arizona as well.

A spokesman for Florida Gov. Rick Scott (R), a strong proponent of the drug tests, did not respond to a request for comment.

A Scott spokesman previously told HuffPost that saving money was secondary to making sure welfare dollars benefited children and not drug users.

Arthur Delaney is the author of "A People's History of the Great Recession," HuffPost's first e-book.

Friday, October 28, 2011

Yet More Income Inequality

From the BBC's Jonny Dymond this consideration of the growing inequality in the US, something I have noted over many months. Its not clear to me that the implications of income inequality are clear to most Americans. The class envy mantra smothers any adult discussion of the vlaue of equity among Americans. Nevertheless the numbers, shorn of commentary tell the story whether Americans want to hear it or not. We are becoming Third World peasants.

Income inequality in the US has sharply increased in recent decades, a bipartisan analysis has revealed.

The Congressional Budget Office said income had trebled for the richest 1% between 1979 and 2007.

Meanwhile, a major poll shows anxiety for the future is high, with a majority saying the US is "on the wrong track".

The findings emerged as police used tear gas and mass arrests to force Occupy Wall Street protesters out of their camps in Atlanta and Oakland.

Some 50 people were arrested in Atlanta and 85 were held overnight in Oakland, California.

Occupy Oakland protesters are insisting they will return to their protest site only a few hours after police forced hundreds of people to clear out of the camp.

Many Occupy Wall Street protesters say they are making a stand against corporate greed and income inequality in the US.

The analysis from the CBO and the latest opinion poll are the backbone of a deeply unhappy narrative in America.

For many people the link is broken between the idea of American capitalism - that hard work will be rewarded, that your children will have a better standard of living than you - and the reality of the system.

Hard times have come and gone before. Incomes have been squeezed, and unemployment has been high. But the conjunction of events and attitudes is startling; economic insecurity, a vast and growing gap not just between rich and poor but between rich and middle class, and a sense of foreboding about the future, including deep distrust of the one body that people once looked to for solutions - the government.

The CBO analysis is sobering, but the period under review ends before the 2008 financial crisis and the bitter recession that followed. Things have only got worse since 2007 for America's poor and its middle class. And right now it is hard to see when things will start to get better again.
As rallies continued, the report from the bipartisan Congressional Budget Office indicated the nation's highest earners saw their household income almost triple in the years between 1979 and 2007.

After tax income increased by 275% for the wealthiest 1% of Americans but by just 18% for the poorest 20%, the report said.

In addition, the report revealed that in 2005-2007, the years immediately preceding the financial crisis, the top 20% of the population earned more after-tax income than the entire bottom 80%.

Democratic House Representative Sander Levin said the findings confirm what Americans already knew.

"The rules have been changed by the unfair tax policies of the last decade and our tax code is doing less to level the playing field than it was in the past."

The poll, conducted by the New York Times and CBS News, shows distrust of government is at its highest level ever.

Almost half of those asked said they thought the sentiment behind the Occupy Wall Street protests reflected the views of most Americans.

Two-thirds said wealth should be more evenly distributed in the US.

Some 28% of respondents believe the policies of President Barack Obama favour the rich, although a strong majority - 69% - said that was the effect of Republican policies.

The violence in Georgia and California comes as the Occupy Wall Street movement prepares to mark its sixth week of continuous protest.

In the early hours of Wednesday morning police moved into Woodruff Park in Atlanta, Georgia, after issuing warnings that demonstrators should leave.

Around 50 protesters were arrested after midnight, as helicopters circled overhead and trained spotlights into the city square.

In Oakland, California, riot police used tear gas and baton rounds and made around 85 arrests to clear protesters from Frank Ogawa Plaza.

Oakland has seen two nights of unrest at the Occupy protest Georgia State Senator Vincent Fort was among those arrested in Atlanta.

Referring to Atlanta Mayor Kasim Reed, he said: "He's using all these resources ... This is the most peaceful place in Georgia.

"At the urging of the business community, he's moving people out. Shame on him."

One protest organiser, Tim Franzen, said the city was facing a "crisis of priorities".

The mayor told the Associated Press news agency he was upset that a hip-hop concert with a crowd of 600 people was held over the weekend without a permit or security guards.

He said he also had security concerns after hearing reports that a man in the park was carrying an assault rifle

Thursday, October 27, 2011

Corruption Is Rife

Here is a surprising source for a critique of the world of business. At some point the number of people who come to understand this upside world that we know has taken our dream of democracy and honesty will be sufficient to tip this theory into mainstream reality. Until then we have to stand on the sidelines and know what we know and listen to our neighbors who haven't a clue.

Last March I reviewed Matt Taibbi’s important book Griftopia, an entertaining account of the through-going financial fraud that gave us the financial crisis. Taibbi shows that the US “superpower” can match any third world backwater in the magnitude of greed and fraud that is endemic in business and government. I would not be surprised if Taibbi’s book motivated the more aware participants of Occupy Wall Street.

Taibbi’s Griftopia was published last year. This year Henry Holt publishers have provided us with Gretchen Morgenson and Joshur Rosner’s Reckless Endangerment.
Morgenson and Rosner tell the story again, but with less drama and provocation. Possibly, it might be more acceptable to those gullible Americans who wrap themselves in the flag and refuse to believe that their country could ever knowingly do anything that is wrong.
I am not suggesting that Morgenson and Rosner pull their punches. To the contrary, the authors deliver enough knockouts to be contenders with Taibbi as world champions in exposing the reckless fraud that the US financial sector and its regulators now epitomize.
The financial crisis, which is very much still with us, did not result from accident or miscalculation; neither did it result because of a flaw in Alan Greenspan’s theory, as he told Congress when a feeble effort was made to hold him accountable. It was the intentional result of people motivated by short-term profits who wanted to get theirs and get out.
As Reckless Endangerment shows, fraud characterized every stage of the process from the fraudulent borrower incomes and credit scores that mortgage issuers gave to unqualified buyers, through the securitization of the mortgages and their triple-A investment grade ratings by the rating agencies (Standard & Poor’s especially, but also Moody’s and Fitch) to the investment banks that sold what the banks knew was junk to investors around the world as investment grade securities. Indeed, Goldman Sachs was simultaneously betting against the mortgage derivatives that it was selling to clients.
Investment banks, such as Goldman Sachs, which once considered it a matter of honor to represent the interests of customers, took advantage of the trust that had been built up in the past to commit fraud against customers in order to advance the banks’ short-term profits and the out-sized multi-million dollar managerial bonuses that these fraudulent profits produced.

Morgenson and Rosner provide a number of unique accounts of how those benefitting from fraud were able to defeat laws that were passed that would have held them to account. For example, the state of Georgia passed perfect legislation that held predatory lending to account. William J. Brennan Jr. and Georgia Governor Roy E. Barnes got the Georgia Fair Lending Act through the state legislature. It was a model for other states. As the federal regulators had thrown in the towel, the state laws would have prevent the worst part of the financial crisis, it not prevented the crisis altogether.
The Georgia law only lasted a few months, because the rating agencies saw that their enormous profits from issuing fraudulent investment grade ratings were threatened by the law. The corrupt rating agencies mischaracterized the consumer protection act as a jihad by regulators. Standard & Poor’s declared that it would no longer allow Georgia mortgages to be placed in mortgage securities that it rated.
In other words, Georgia mortgages could no longer be securitized. This announcement banned Georgia mortgage lenders from securitization. Thus, the law was overturned, and fraud ran wild.
These kind of mafia strong-armed tactics in order to protect at all costs the short-term mega-bonuses that drove the totally fraudulent system have never been held accountable or punished. Totally innocent people are held indefinitely and tortured by the US government for no other reason than to convince the gullible public that they are endangered by terrorists, but those who wiped out the home ownership and retirement pensions of millions of Americans now hold high and honorable positions on corporate boards and US regulatory agencies.
Federal regulatory agencies totally failed. Brooksley Born tried to use her statutory authority to regulate over-the-counter derivatives, but she was blocked by the Federal Reserve chairman, the US Treasure secretary, and the SEC chairman and forced to resign. As University of Chicago Nobel economist George Stigler predicted, regulatory agencies are captured by those who are intended to be regulated. This was the case. Regulators turned a blind eye to obvious criminal fraud, and were rewarded with lucrative positions in the financial community. The same for the US senators and representatives who repealed Glass-Steagal and other financial regulations.
For example, former US senator Phil Gramm who spearheaded the repeal of the Glass-Steagall Act, which separated commercial from investment banking, the repeal of which set up the financial crisis, was rewarded by being made vice chairman of the mega-bank UBS, a Swiss global financial services company.
What Taibbi, Morgenson and Rosner make clear is that while monster criminals continue to collect their multi-million dollar annual incomes, depressed single mothers, deserted by the men who fathered their child, are sent to prison for having small quantities of illegal drugs to boost their depressed spirits, and their children are put out to adoption.
This is “justice” in America where there is “freedom and democracy.”
Dr. Paul Craig Roberts is the father of Reaganomics and the former head of policy at the Department of Treasury. He is a columnist and was previously an editor for the Wall Street Journal. His latest book, “How the Economy Was Lost: The War of the Worlds,” details why America is disintegrating.

Wednesday, October 26, 2011

Military Gangs

When I read this story on the Business Insider website I was blown away. I shouldn't have been, considering what a good idea it is to send your youngsters into the military to leaner how to kill people. The gangs have figured it out, the question now is what are we going to do about it? I don't think the Second Amendment will save us from bullies and killers trained by the US Army. The prospect of actual societal collapse gets scarier every week .

The FBI has released a new gang assessment announcing that there are 1.4 million gang members in the US, a 40 percent increase since 2009, and that many of these members are getting inside the military (via Stars and Stripes).
The report says the military has seen members from 53 gangs and 100 regions in the U.S. enlist in every branch of the armed forces.
Members of every major street gang, some prison gangs, and outlaw motorcycle gangs (OMGs) have been reported on both U.S. and international military installations.
From the report:
Through transfers and deployments, military-affiliated gang members expand their culture and operations to new regions nationwide and worldwide, undermining security and law enforcement efforts to combat crime. Gang members with military training pose a unique threat to law enforcement personnel because of their distinctive weapons and combat training skills and their ability to transfer these skills to fellow gang members.
The report notes that while gang members have been reported in every branch of service, they are concentrated in the U.S. Army, Army Reserves, and the Army National Guard.
Many street gang members join the military to escape the gang lifestyle or as an alternative to incarceration, but often revert back to their gang associations once they encounter other gang members in the military. Other gangs target the U.S. military and defense systems to expand their territory, facilitate criminal activity such as weapons and drug trafficking, or to receive weapons and combat training that they may transfer back to their gang. Incidents of weapons theft and trafficking may have a negative impact on public safety or pose a threat to law enforcement officials.
The FBI points out that many gangs, especially the bikers, actively recruit members with military training and advise young members with no criminal record to join the service for weapon access and combat experience.
The full assessment is definitely worth checking out, if only for the pictures.

Tuesday, October 25, 2011

Default Isn't Greed

In response to the many who think defaulting on an underwater home is somehow immoral here's food for thought from the excellent Mark Stopa website (a Florida foreclosure attorney):

David Bornstein of the New York Times penned a nice article called When Lenders Won’t Listen. Here’s the part that really jumped off the page at me…

After describing the injustices experienced by several homeowners in their experiences with lenders, a competing view was presented:

There are those of us who were raised with the idea that if you make a bargain you keep it. If you say you will return something you have borrowed, whether it is a lawnmower from next door or a bank loan, then you do what you have said. … But then I was raised in a different America.

Unfortunately, I fear too many Americans, who remain unfamiliar with the foreclosure process, feel this way (presuming, of course, that position is from a homeowner and not a bank crony who is paid by the banks to sway public opinion by submitting such posts). Anyway, I loved the response of David Bornstein, the author of the article, who wrote:

Not all bargains are made in good faith, however. Borrowers and lenders, it turns out, did not share equal information in many cases. … It was predatory lending that decimated inner city neighborhoods — not anything that resembled fair deals. … [M]any homeowners across the nation did understand what they were signing even if they failed to appreciate the real risks. The difference was that the borrowers made their mistakes one house at a time, effectively as amateurs. The lenders made these mistakes as professionals, dealing with hundreds of thousands of borrowers, and they concealed the cumulative problem even as it was metastasizing. So now we have millions of homeowners who wouldn’t be in distress if not for the fact that they lost their jobs as a result of a recession that was precipitated by the very bankers who are now threatening to foreclose on them.

Wow. What a truly awesome way to describe the impetus for the problems we’re facing.

I urge all of you to forward that paragraph to your family, friends, and neighbors – unless, of course, you just want to forward this entire blog. ;) From the words of a New York Times columnist, let’s make everyone realize the banks are the bad actors in the foreclosure crisis. After all, the first step to a solution is recognizing the problem – and clearly the greed of the Wall Street Fat Cats was and is the problem.

Mark Stopa

Monday, October 24, 2011

Rubio's Flight From Reality

As reported by the BBC, we discover more hay making at the expense of Cuba. While Rubio has a low tolerance level for outrageous accusations it seems we are supposed to tolerate his "discrepancies." Never mind, everyone likes a good refugee story. Except this one isn't as told...

A Florida Republican often touted as a possible 2012 vice-presidential candidate has admitted his Cuban parents did not come to the US as exiles from Fidel Castro's rule.

Senator Marco Rubio acknowledges "getting a few dates wrong" about when they left the Caribbean island.

But the 40-year-old says any suggestion he had spun his background story for political advantage was "outrageous".

He maintains communism in Cuba was a defining event in his parents' lives.

The Washington Post reported on Friday, after examining official records and naturalisation documents, that Mr Rubio's parents had obtained US residence more than two years before Castro took power in 1959.

An entry on his official Senate website saying he is the son of "Cuban born parents who came to America following Fidel Castro's takeover" has now been amended.

The Tea Party favourite has also said in the past that his parents left Cuba before its revolution.

The first-term senator conceded on Friday that his parents had not come to the US after Castro took power.

Miami-born Mr Rubio wrote in a column for "If The Washington Post wants to criticize me for getting a few dates wrong, I accept that."

But he added that the report had made "outrageous allegations".

"To call into question the central and defining event of my parents' young lives - the fact that a brutal communist dictator took control of their homeland and they were never able to return - is something I will not tolerate," he wrote.

In his article, Mr Rubio said the discrepancy in dates would not tarnish his appeal with voters.

"They voted for me because, as the son of immigrants, I know how special America really is."

Sunday, October 23, 2011

Poverty In America

This story from the Christian Science Monitor might help answer those stupid critics of Occupy Wall Street. Blame the unemployed say the Republicans. Vote Republican if you dare. By Ron Scherer:

Think life is not as good as it used to be, at least in terms of your wallet? You'd be right about that. The standard of living for Americans has fallen longer and more steeply over the past three years than at any time since the US government began recording it five decades ago.

Bottom line: The average individual now has $1,315 less in disposable income than he or she did three years ago at the onset of the Great Recession – even though the recession ended, technically speaking, in mid-2009. That means less money to spend at the spa or the movies, less for vacations, new carpeting for the house, or dinner at a restaurant.

In short, it means a less vibrant economy, with more Americans spending primarily on necessities. The diminished standard of living, moreover, is squeezing the middle class, whose restlessness and discontent are evident in grass-roots movements such as the tea party and "Occupy Wall Street" and who may take out their frustrations on incumbent politicians in next year's election.

What has led to the most dramatic drop in the US standard of living since at least 1960? One factor is stagnant incomes: Real median income is down 9.8 percent since the start of the recession through this June, according to Sentier Research in Annapolis, Md., citing census bureau data. Another is falling net worth – think about the value of your home and, if you have one, your retirement portfolio. A third is rising consumer prices, with inflation eroding people's buying power by 3.25 percent since mid-2008.

"In a dynamic economy, one would expect Americans' disposable income to be growing, but it has flattened out at a low level," says economist Bob Brusca of Fact & Opinion Economics in New York.

To be sure, the recession has hit unevenly, with lower-skilled and less

-educated Americans feeling the pinch the most, says Mark Zandi, chief economist for Moody's based in West Chester, Pa. Many found their jobs gone for good as companies moved production offshore or bought equipment that replaced manpower.

"The pace of change has been incredibly rapid and incredibly tough on the less educated," says Mr. Zandi, who calls this period the most difficult for American households since the 1930s. "If you don't have the education and you don't have the right skills, then you are getting creamed."

Per capita disposal personal income – a key indicator of the standard of living – peaked in the spring of 2008, at $33,794 (measured as after-tax income). As of the second quarter of 2011, it was $32,479 – almost a 4 percent drop. If per capita disposable income had continued to grow at its normal pace, it would have been more than $34,000 a year by now.

The so-called misery index, another measure of economic well-being of American households, echoes the finding on the slipping standard of living. The index, a combination of the unemployment rate and inflation, is now at its highest point since 1983, when the US economy was recovering from a short recession and from the energy price spikes after the Iranian revolution.

In Royal Oak, Mich., Adam Kowal knows exactly how the squeeze feels. After losing a warehouse job in Lansing, he, his wife, and their two children have had little recourse but to move in with his mother. Now working at a school cafeteria, Mr. Kowal earns 28 percent less than at his last job.

He and his wife now eat out once a month instead of once a week, do no socializing, and eat less expensive foods, such as ground chuck instead of ground sirloin. "My mom was hoping her kids would lead a better life than her, but so far that has not happened," says Kowal.

"We have quite a few grandparents who are raising their grandchildren on a fixed income, feeding them and buying clothes for them when they can't afford to do [that for] themselves"Yvonne Womack

With disposable incomes falling, perhaps it's not surprising that 64 percent of Americans worry that they won't be able to pay their families' expenses at least some of the time, according to a survey completed in mid-September by the Marist Institute for Public Opinion. Among those, one-third say their financial problems are chronic.

"What we see is that very few are escaping the crunch," says Lee Miringoff, director of the Marist Institute in Poughkeepsie, N.Y.

Income loss is hitting the middle class hard, especially in communities where manufacturing facilities have closed. When those jobs are gone, many workers have ended up in service-sector jobs that pay less.

"Maybe it's the evolution of the economy, but it appears large segments of the workforce have moved permanently into lower-paying positions," says Joel Naroff of Naroff Economic Advisors in Holland, Pa. "The economy can't grow at 4 percent per year when the middle class becomes the lower

He would get no argument from Jeff Beatty of Richmond, Ky., who worked in the IT and telecommunications businesses for most of his career – until he hit a rough patch. He and his wife are living on his unemployment insurance benefits (which will run out in months), his early Social Security payments, and her disability payments from the Social Security Administration. Their total income comes to $30,000 a year.

"Our standard of living has probably declined threefold," he says.

Mr. Beatty, who used to make a comfortable income, now anticipates applying for food stamps. He and his wife have sold much of their furniture, which they no longer need because they have moved into a one-bedroom apartment owned by his sister-in-law.

Even people with college degrees are feeling the squeeze. On a fall day, Hunter College graduate and Brooklyn resident Paul Battis came to lower Manhattan to check out the Occupy Wall Street protest. He tells one of the protesters that America's problem is the various free-trade pacts it has approved.

Mr. Battis's angst over trade is rooted in the fact that two years ago he lost his data-entry job with a Wall Street firm that decided to outsource such jobs to India.

When he had the job, he made a comfortable income. Now his income is sporadic, from the occasional construction job he lands. He used to buy clothing from Macy's or other department stores. Now he goes to Goodwill or Salvation Army stores. He has even cut back on taking the city subways, instead riding his bicycle. Separated from his wife and his 15-year-old daughter, he says, "Try making child support payments when you don't have a regular income. I'm constantly catching up."

Even recently some Americans could tap the equity in their homes or their stock market accounts to make up for any shortfalls in income. Not anymore. Since 2007, Americans' collective net worth has fallen about $5.5 trillion, or more than 8.6 percent, according to the Federal Reserve.

The bulk of that decline is in real estate, which has lost $4.7 trillion in value, or 22 percent, since 2007. In Arizona, for example, more than half of homeowners live in houses that are worth less than their purchase prices.

Stock investments aren't any better. Since 1999, the Standard & Poor's index, on a price basis, is off 17 percent. It's up 3.2 percent when dividends are included, but that's a small return for that length of time.

"This is really a lost decade of affluence," says Sam Stovall, chief investment strategist at Standard & Poor's in New York.

Among those who have watched their finances deteriorate are senior citizens.

"Given the stock market, they are very nervous," says Nancy LeaMond, executive vice president at AARP, the seniors' lobbying group. "They want to keep their savings."

But Ms. LeaMond also notes that about 2 in every 3 seniors are dependent not on Wall Street but on Social Security. The average annual income for those over 65 is $18,500 a year – almost all of it from Social Security, she says. "This is not a part of America that is rich," she says.

At the same time, seniors are getting pinched in their pocketbooks.

"Our members are watching all the things they have to buy, especially health-care products, go up in price," says LeaMond.

In Pompano, Fla., some stretched seniors end up at the Blessings Food Pantry, which is associated with Christ Church United Methodist.

"We have quite a few grandparents who are raising their grandchildren on a fixed income, feeding them and buying clothes for them when they can't afford to do [that for] themselves," says Yvonne Womack, the team leader.

Others, she says, are forgoing food to pay for their medical prescriptions. "And then there is your ordinary senior whose Social Security [check] has not gone up in the last several years, but food and gasoline [prices] have skyrocketed," she says. (However, Social Security checks will go up 3.6 percent in January.) The Blessings, she notes, is now feeding 42 percent more people than last year. "We also provide food you can eat out of a can," she says. "We do have seniors who are living on the streets."

Researcher Geoff Johnson contributed to this report.

This story originally appeared in the Christian Science Monitor

Saturday, October 22, 2011

E-Mail Privacy

By Heather Brooke of the British Guardian newspaper:

Somewhere, a US government official is reading through a list of those who sent or received an email from Jacob Appelbaum, a 28-year-old computer science researcher at the University of Washington who volunteered for WikiLeaks. Among those listed will be my name, a journalist who interviewed Appelbaum for a book about the digital revolution.

Appelbaum is a spokesman for Tor, a free internet anonymising software that helps people defend themselves against internet surveillance. He's spent five years teaching activists around the world how to install and use the service to avoid being monitored by repressive governments. It's exactly the sort of technology Secretary of State Hilary Clinton praised in her famous "Internet Freedom" speech in January 2010, when she promised US government support for the designers of technology that circumvented blocks or firewalls. Now, Appelbaum finds himself a target of his own government as a result of his friendship with Julian Assange and the fact WikiLeaks used the Tor software.

Appelbaum has not been charged with any wrongdoing; nor has the government shown probable cause that he is guilty of any criminal offence.

That matters not a jot, because, as the law stands, government officials don't need a search warrant to access our digital data. Searching someone's home requires a warrant that can only be obtained by proving probable cause, but digital searches require no such burden of proof. Instead, officials essentially "self-certify" to a judge that the information they seek is, in their opinion, relevant to an ongoing criminal investigation. On this basis, Google and a small ISP called Sonic were made to hand over to the government all Appelbaum's email headers from the past two years.

Most people are not aware of the ease with which governments – free, open and so-called democratic – can access and peruse our private communications. This is because these court orders are commonly sealed. What is uncommon is for internet service providers to request the orders be unsealed so they can inform their customers, as Sonic and Google did in Appelbaum's case.

Privacy researcher Chris Soghoian estimates there are likely tens of thousands of these 2703(d) orders made annually by the federal government under the Electronic Communications Privacy Act. He bases this on the number of pen registers granted to the federal government annually: 12,000. These allow officials to intercept telephone and internet meta-data in real time.

"There's far more data to be had after the fact, so probably these 2703(d) orders are even more common," Soghoian says.

The fourth amendment of the US Constitution should protect against unwarranted search and seizure. Its inclusion in the Bill of Rights was a result of colonialists' anger at abuse suffered at the hands of British officials using writs of assistance. Writs were general warrants issued by the British Parliament to allow customs officials to search for smuggled goods, but in the American colonies, they were used by agents of the British state to interrogate people and raid their homes on the pretext of searching and seizing any "prohibited and uncustomed goods", which often meant "seditious" publications that criticised government policies or the King.

The colony of Massachusetts banned these general warrants in 1756 and when the governor overturned the ban, it was one of the sparks for the American Revolution. It's ironic then to see how, under the guise of "patriotism", these court orders have stripped away fourth amendment protections and granted to US officials the same unlimited powers of search and seizure that so aggravated the American revolutionaries.

Today, the privacy law surrounding our emails is woefully outdated, as it is based on the technology of the first email services of the 1980s. Back then, people dialled up their provider to download email onto their home computer. Mail left for over 180 days was considered in storage, so was not subject to the wiretap protections which were for information in transmission. This means email older than 180 days doesn't require a warrant whereas anything newer does. Now, with cloud services and extensive storage available through services such as Gmail, our primary archive of email is held more or less indefinitely. Ironically, this means the most important or sensitive emails receive the lowest legal protections. (The law is also weighted to protect unread mail over read mail so, strangely, spam that remains unopened because it goes straight to your junk folder has more privacy protections than read mail in your archives.)

Few citizens of the world will be adequately clued up on US surveillance laws, yet information stored on Facebook, Twitter, Google or any other American companies is subject to them. Unwarranted search and seizure by the government officials was unacceptable to the American revolutionaries. Shouldn't it be unacceptable in the digital age, too?

Friday, October 21, 2011

President Obama's Deception

When I voted for Barack Obama I like to say I voted for FDR and got Herbert Hoover instead, but compared to President Obama, Hoover was at least doing his best to cope with his Depression. President Obama, as pointed out eloquently here by Michael Hudson of Global Research in Canada, talks out of both sides of his mouth at once with disastrous results for us all in our current Depression.

The seeds for President Obama’s demagogic press conference last week were planted last summer when he assigned his right-wing Committee of 13 the role of resolving the obvious and inevitable Congressional budget standoff by forging an anti-labor policy that cuts Social Security, Medicare and Medicaid, and uses the savings to bail out banks from even more loans that will go bad as a result of the IMF-style austerity program that Democrats and Republicans alike have agreed to back.

The problem facing Mr. Obama is obvious enough: How can he hold the support of moderates and independents (or as Fox News calls them, socialists and anti-capitalists), students and labor, minorities and others who campaigned so heavily for him in 2008? He has double-crossed them – smoothly, with a gentle smile and patronizing patter talk, but with an iron determination to hand federal monetary and tax policy over to his largest campaign contributors: Wall Street and assorted special interests – the Democratic Party’s Rubinomics and Clintonomics core operators, plus smooth Bush Administration holdovers such as Tim Geithner, not to mention quasi-Cheney factotums in the Justice Department.

President Obama’s solution has been to do what any political demagogue does: Come out with loud populist campaign speeches that have no chance of becoming the law of the land, while quietly giving his campaign contributors what they’ve paid him for: giveaways to Wall Street, tax cuts for the wealthy (euphemized as tax “exemptions” and mark-to-model accounting, plus an agreement to count their income as “capital gains” taxed at a much lower rate).

So here’s the deal the Democratic leadership has made with the Republicans. The Republicans will run someone from their present gamut of guaranteed losers, enabling Mr. Obama to run as the “voice of reason,” as if this somehow is Middle America. This will throw the 2012 election his way for a second term if he adopts their program – a set of rules paid for by the leading campaign contributors to both parties.

President Obama’s policies have not been the voice of reason. They are even further to the right than George W. Bush could have achieved. At least a Republican president would have confronted a Democratic Congress blocking the kind of program that Mr. Obama has rammed through. But the Democrats seem stymied when it comes to standing up to a president who ran as a Democrat rather than the Tea Partier he seems to be so close to in his ideology.

So here’s where the Committee of 13 comes into play. Given (1) the agreement that if the Republicans and Democrats do NOT agree on Mr. Obama’s dead-on-arrival “job-creation” ploy, and (2) Republican House Leader Boehner’s statement that his party will reject the populist rhetoric that President Obama is voicing these days, then (3) the Committee will get its chance to wield its ax and cut federal social spending in keeping with its professed ideology.

President Obama signaled this long in advance, at the outset of his administration when he appointed his Deficit Reduction Commission headed by former Republican Sen. Simpson and Rubinomics advisor to the Clinton administration Bowles to recommend how to cut federal social spending while giving even more money away to Wall Street. He confirmed suspicions of a sellout by reappointing bank lobbyist Tim Geithner to the Treasury, and tunnel-visioned Ben Bernanke as head of the Federal Reserve Board.

Yet on Wednesday, October 4, the president tried to represent the OccupyWallStreet movement as support for his efforts. He pretended to endorse a pro-consumer regulator to limit bank fraud, as if he had not dumped Elizabeth Warren on the advice of Mr. Geithner – who seems to be settling into the role of bagman for campaign contributors from Wall Street.

Can President Obama get away with it? Can he jump in front of the parade and represent himself as a friend of labor and consumers while his appointees support Wall Street and his Committee of 13 is waiting in the wings to perform its designated function of guillotining Social Security?

When I visited the OccupyWallStreet site on Wednesday, it was clear that the disgust with the political system went so deep that there is no single set of demands that can fix a system so fundamentally broken and dysfunctional. One can’t paste-up a regime that is impoverishing the economy, accelerating foreclosures, pushing state and city budgets further into deficit, and forcing cuts in social spending.

The situation is much like that from Iceland to Greece: Governments no longer represent the people. They represent predatory financial interests that are impoverishing the economy. This is not democracy. It is financial oligarchy. And oligarchies do not give their victims a voice.

So the great question is, where do we go from here? There’s no solvable path within the way that the economy and the political system is structured these days. Any attempt to come up with a neat “fix-it” plan can only suggest bandages for what looks like a fatal political-economic wound.

The Democrats are as much a part of the septic disease as the Republicans. Other countries face a similar problem. The Social Democratic regime in Iceland is acting as the party of bankers, and its government’s approval rating has fallen to 12 percent. But they refuse to step down. So earlier last week, voters brought steel oil drums to their own Occupation outside the Althing and banged when the Prime Minister started to speak, to drown out her advocacy of the bankers (and foreign vulture bankers at that!).

Likewise in Greece, the demonstrators are showing foreign bank interests that any agreement the European Central Bank makes to bail out French and German bondholders at the cost of increasing taxes on Greek labor (but not Greek property and wealth) cannot be viewed as democratically entered into. Hence, any debts that are claimed, and any real estate or public enterprises given sold off to the creditor powers under distress conditions, can be reversed once voters are given a democratic voice in whether to impose a decade of poverty on the country and force emigration.

That is the spirit of civil disobedience that is growing in this country. It is a quandary – that is, a problem with no solution. All that one can do under such conditions is to describe the disease and its symptoms. The cure will follow logically from the diagnosis. The role of OccupyWallStreet is to diagnose the financial polarization and corruption of the political process that extends right into the Supreme Court, the Presidency, and Mr. Obama’s soon-to-be notorious Committee of 13 once the happy-smoke settles from his present pretensions.

Thursday, October 20, 2011

Seven Economic Lies

Robert Reich in his blog says not enough people know whats going on to be able to effectively direct our leaders.

The President’s Jobs Bill doesn’t have a chance in Congress — and the Occupiers on Wall Street and elsewhere can’t become a national movement for a more equitable society – unless more Americans know the truth about the economy.

Here’s a short (2 minute 30 second) effort to rebut the seven biggest whoppers now being told by those who want to take America backwards. The major points:

1. Tax cuts for the rich trickle down to everyone else. Baloney. Ronald Reagan and George W. Bush both sliced taxes on the rich and what happened? Most Americans’ wages (measured by the real median wage) began flattening under Reagan and have dropped since George W. Bush. Trickle-down economics is a cruel joke.

2. Higher taxes on the rich would hurt the economy and slow job growth. False. From the end of World War II until 1981, the richest Americans faced a top marginal tax rate of 70 percent or above. Under Dwight Eisenhower it was 91 percent. Even after all deductions and credits, the top taxes on the very rich were far higher than they’ve been since. Yet the economy grew faster during those years than it has since. (Don’t believe small businesses would be hurt by a higher marginal tax; fewer than 2 percent of small business owners are in the highest tax bracket.)

3. Shrinking government generates more jobs. Wrong again. It means fewer government workers – everyone from teachers, fire fighters, police officers, and social workers at the state and local levels to safety inspectors and military personnel at the federal. And fewer government contractors, who would employ fewer private-sector workers. According to Moody’s economist Mark Zandi (a campaign advisor to John McCain), the $61 billion in spending cuts proposed by the House GOP will cost the economy 700,000 jobs this year and next.

4. Cutting the budget deficit now is more important than boosting the economy. Untrue. With so many Americans out of work, budget cuts now will shrink the economy. They’ll increase unemployment and reduce tax revenues. That will worsen the ratio of the debt to the total economy. The first priority must be getting jobs and growth back by boosting the economy. Only then, when jobs and growth are returning vigorously, should we turn to cutting the deficit.

5. Medicare and Medicaid are the major drivers of budget deficits. Wrong. Medicare and Medicaid spending is rising quickly, to be sure. But that’s because the nation’s health-care costs are rising so fast. One of the best ways of slowing these costs is to use Medicare and Medicaid’s bargaining power over drug companies and hospitals to reduce costs, and to move from a fee-for-service system to a fee-for-healthy outcomes system. And since Medicare has far lower administrative costs than private health insurers, we should make Medicare available to everyone.

6. Social Security is a Ponzi scheme. Don’t believe it. Social Security is solvent for the next 26 years. It could be solvent for the next century if we raised the ceiling on income subject to the Social Security payroll tax. That ceiling is now $106,800.

7. It’s unfair that lower-income Americans don’t pay income tax. Wrong. There’s nothing unfair about it. Lower-income Americans pay out a larger share of their paychecks in payroll taxes, sales taxes, user fees, and tolls than everyone else.

Demagogues through history have known that big lies, repeated often enough, start being believed — unless they’re rebutted. These seven economic whoppers are just plain wrong. Make sure you know the truth – and spread it on.

Wednesday, October 19, 2011

Progressive Economic Failure

Chris Martenson is a thinker with his own highly regarded web page, where he gives out sober economic advice to any that care to listen. In considering this lengthy essay you might think he was hysterical, but he's not. That's how bad things look right now, across the board to a close and sceptical observer.

I do not toss around the idea of a market crash lightly but I am concerned that a materially adverse disruption to the financial markets is increasingly likely in the near future.

Perhaps a definition will be helpful as we begin. A 'market crash' is an event where there are no bids to meet a wall of selling. The actual amount of the percentage decline is less important to note than the amount of chaos, or loss of control, that a given market experiences. Some like to say that a market downdraft requires a decline of 10%, or maybe even 15% or 20% (or more), in order to qualify as a 'crash.' For me, the key factor is not so much the amount of the decline, but the pace of the decline.

With perhaps a quadrillion US dollars of hyper-interconnected derivatives outstanding -- that's the notional value, but who really knows what the real number is? -- an orderly market is essential for knowing whether or not the counterparty to one's trade is solvent. During periods of intense price swings in the market, such things are simply not knowable, and spawn the fear and paralysis that really define a market crash.

The Next Market Crash
Like everybody, I have no idea when the next market crash will occur, but I do happen to hold the view that a market crash is on the way. In fact, my view is that the entire future from here onward will be marked by sharp plunges (both crashes and regular market declines), followed by periods of stability, if not apparent recovery.

What I track instead are imbalances and risks. Sort of like being a fire marshal who takes note of an outlet with fifteen things plugged into it, some with frayed cords, located near a pile of old cleaning rags. I can't tell you for sure that a fire will result, only that the odds are elevated. A prudent person will take steps to remedy the situation or at least prepare for the possibility of a fire.

Here's one view of the possible trigger for the next meltdown from Dr. Robert Shapiro, advisor to Presidents Clinton and Obama, and now the IMF, as offered on BBC Newsnight on October 5, 2011:

"If they cannot address this [the sovereign debt crisis in Europe] in a credible way, I believe within perhaps two to three weeks, we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system.

We're not just talking about a relatively small Belgian bank, we're talking about the largest banks in the world. The largest banks in Germany, the largest banks in France that will spread to the UK in part through the sovereign debt problems in Ireland.

It will spread everywhere because the global financial system is so interconnected, all those banks are counterparties to every significant bank in the US and in Britain, and in Japan and around the world. This would be a crisis, in my view, more serious than the crisis in 2008."

What he's warning about here are two main things. The first is the risk of contagion, where problems in one area spread to another because everything is so intertwined. The second is that you can count on the rot spreading from the weaker periphery to the stronger core. Crisis always progresses from the outside in.

That dynamic has been playing out for months, and it should be obvious to the most casual of observers that the Greece situation has not been improved one iota by any of the steps yet taken.

The stakes could not be higher. Normally staid politicians are letting their guard down and saying previously unthinkable things. For example, this shocker recently came from the Polish finance minister:

Speaking to MEPs in Strasbourg on 14 September the Polish finance minister warned of the need to act rapidly to prevent grave danger for the EU. Making reference to a recent report entitled 'Euro Break Up - The Consequences' by Swiss financial giant UBS, he declared: "There is no doubt we are in danger. Europe is in danger of war breaking out within the next ten years".

A paper by UBS, normally known for its highly sober analysis, warned that historically, monetary unions do not break up without civil war or some other form of authoritarian reaction. "The risk of civil disorder questions the rule of law, and as such basic issues such as property rights. Even those countries that avoid internal strife and divisions will likely have to use administrative controls to avoid extreme positions in their markets", it said.

The Polish minister went on to warn of a doubling of unemployment within two years "even in the rich countries".

He concluded his comments by recollecting a recent conversation he had with an old friend who is now head of a major bank: "We were talking about the crisis in eurozone. He told me 'You know, after all these political shocks, economic shocks, it is very rare indeed that in the next 10 years we could avoid a war'. A war ladies and gentlemen. I am really thinking about obtaining a green card for my kids in the United States".

I'm not sure whether the US will be a much better place to ride out the storm if the European banking system collapses, as it will be only a matter of time before the US is exposed as being just as financially and fiscally ruined as the EU.

Another downturn here will further expose the fact that there are still towers of tottering debt that can only be serviced by an expansion, and a robust one at that. With this next revelation of systemic weakness, expect more debt defaults, institutional failures, and the same sort of banking weakness seen in Europe to occur in the US.

In short, there's every chance here that an even worse repeat of 2008 could happen at any time. And in my estimation, the chance that this will come in the form of a market crash is too high to ignore.

Right now, with the rot creeping from the outside in, I see those chances as not only high, but rising.

From the Outside In
It can be very difficult to envision what an 'outside in' crisis looks and feels like. In order to get a better feel for the dynamic, we turn to Phoenix, Arizona for an excellent case study.

Once the darling of the housing boom, with endless desert building lots enabling the most egregious sort of bubble sprawl, Phoenix is now in the grips of a horrific housing crash. Like all big adjustments, it appears to those experiencing it to be in slow motion.

A look at metro Phoenix's foreclosure crisis over the past five years shows an economic crash moving through time and space.

The collapse started in new-housing areas on the fringes and then swept inward, hitting more established areas as the unemployment rate climbed. Now, as the stock market struggles and speculation swirls about another recession, foreclosures are flaring in the Valley's luxury-home neighborhoods.

That's a perfect illustration of the 'outside in' dynamic. At the beginning of the bubble's burst, it was almost certainly unthinkable to the inhabitants of the wealthier neighborhoods that they would get swept up in the cataclysm. But they did -- first the weaker and more distant locales, then the middle-strength ones, and then the core.

A new Arizona Republic analysis, which maps out every home in default in the region over the past five years, is the first comprehensive look at the wave of foreclosures that has swept the Valley since the market began its steep decline in 2007.

The analysis, based on data from Phoenix foreclosure-information service AZ Bidder, plots individual foreclosures and overall trends by year.

It shows how the Valley's foreclosure crisis was more than one crisis. Foreclosures arose in waves, driven first by problematic mortgages, then by the job woes of the recession and now by lingering economic effects being felt in expensive neighborhoods.

It wasn't just caused by housing weakness alone, but the way that housing weakness led to job weakness, and how they ended up preying together on confidence in the bubble and ultimately dragging down the local economy.

One more perfect passage from that article that illustrates our point, that
as Phoenix's foreclosure crisis crept inward from the fringes during late 2008, it was being driven not just by subprime lending but also by the economy at large.

The state and the nation had fallen into a recession. Hundreds of thousands of jobs, many in the construction industry, were lost in Arizona.

As metro Phoenix's unemployment rate climbed, so did foreclosures. The number of borrowers losing Phoenix-area houses to lenders hit a record in 2009.

Foreclosures began to affect communities closer in, where less speculation and new building had taken place. Chandler, Gilbert and Glendale, as well as central and north Phoenix, began to see foreclosures climb and home values fall.

Similarly, the European debt crisis began in the weakest locales first (Ireland and Greece), then infected the middle countries (Portugal, Italy, and Spain) and now threatens to overrun the core (Germany and France). A wave of sovereign defaults will sweep across the region, progressing from the outside in with a self-sustaining and self-reinforcing dynamic, unless somehow stopped.

That's the important risk to focus on. And whether the crisis is a little one or one that ends in everyone's worst fear -- another war on the Continent -- remains to be seen. But the probability of an approaching market calamity is non-trivial. So that brings us to the main insight we are trying to convey here: We need to be prepared for a major market clearing event that finally allows the rot to be cleared from the system.

Progressive Failure
The problem in Europe is very far from resolved at this point, the recent happy noises about Belgium nationalizing part of Dexia bank notwithstanding. As an aside on that matter, I found this to be quite interesting. The Belgian state will buy the national subsidiary of embattled bank Dexia for euro4 billion ($5.4 billion) and provide tens of billions of euros in new guarantees as part of a wider bailout of the lender, the first victim of a new squeeze in European credit markets.

On top of the nationalization, the governments of Belgium, France and Luxembourg together will provide an additional euro90 billion ($121 billion) in funding guarantees for the bank for up to 10 years.

Belgium will provide 60.5 percent of these guarantees, 36.5 percent will come from France and the remaining 3 percent from Luxembourg.

This means Belgium is potentially on the hook for $78.6 billion in bailout funds for a single institution, which amounts to 17% of GDP (2010 figure). To put this into perspective for our US readers, that would be the equivalent of the USA guaranteeing $2.6 trillion...for a single bank. Anybody care to guess whether the amount that they decided to guarantee will be ultimately sufficient to cover the actual amount of the total potential losses? My guess is that over time the number will prove to be far, far below the final and true cost.

Even if the Dexia situation has been temporarily stabilized, Greece has not, and this is where the Europe story really begins. With Greek ten-year notes over 24%, two-year notes of 75%, and one-year notes over 150%, there is virtually no chance of anything happening other than a Greek default.

A writedown of Greek debt is inevitable here; the only question is, how much?

European Central Bank President Jean-Claude Trichet said Europe’s debt crisis now threatens the region’s financial system as officials race to put together a new plan to end the turmoil.

“The crisis has reached a systemic dimension,” Trichet told lawmakers in Brussels today in his capacity as head of the European Systemic Risk Board. “Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively.”

European leaders are trying to shore up the region’s banks as they debate how best to manage the fallout from any Greek default. Governments yesterday pushed back a summit amid opposition to Germany’s drive for deeper-than-planned Greek bond writedowns that Luxembourg’s Jean-Claude Juncker says may exceed 60 percent.

“Time is always of the essence when you have to be in a mode of crisis management,” said Trichet.

A 'writedown' is just another of many more pleasant-sounding terms that are being used instead of 'default,' which is precisely what Greece will soon be doing.

With the triggering of a default, the fear of contagion will spread, because, frankly, nobody really knows where the time bombs are located in the credit default swap (CDS derivative) markets. Sure, we can know roughly who is holding what, but each of these holdings is then linked to the primary institutions' own credit ratings, which themselves have vast piles of CDS paper attached to them. In other words, everything is so interconnected that it's nearly impossible for anyone, even the owners of these derivatives, to conduct an accurate risk-assessment or predict how they're going to behave during a market dislocation.

These in turn are held by other institutions and funds, which are heavily leveraged and exposed to the very same market forces that will assure that the exact opposite of hedging will erupt during the hairiest part of the coming rout.

For perspective, Greece has nearly 330 billion euros ($445 billion) of debt outstanding, on top of which CDS paper has been layered. That is, if Greek debt gets a 60% haircut, the basement-level losses we can expect as a result are $270 billion, but the CDS paper will certainly amplify that number much higher for some unlucky institutions.

For even more perspective, consider that Spain and Italy have nearly $3.4 trillion in debt, making their combined predicament worth about 7.5 Greek dramas.

If you think the big banks represent the smart money, I would remind you that when the subprime CDS disaster finally blew up, it was the big banks (and AIG) that were holding the bag -- supposedly the smartest of the smart money. I somehow doubt they are going to be any smarter this time.

The contagion fear here is that several mega banks (and/or funds) will fail as a result of these cross-correlated and therefore unhedged bets. When the European Banking Authority ran their stress tests a while back, several very large banks in Spain and France barely passed, and that was without booking any losses on any of their outstanding loans to Greece, Ireland, or Portugal. If one tips over, so will the rest, because they all owe each other.

Another form of contagion will come with the thought that if one major Western economy can default, others can, too. A precedent will have been set, and other over-indebted economies will suffer higher interest rates on their borrowing as a result. The thing about higher interest rates is that once they are past a certain level, they become self-fulfilling prophecies, virtually assuring that default is a mathematical inevitability (see Greece, above). Over the long haul, interest rates over the long haul cannot be higher than the nominal rate of GDP growth, generally speaking. In today's low-growth environment, that is a low bar, indeed; perhaps just 2%-3%.

A final concern for European banks (in particular) concerns bank runs, in which institutional and retail depositors decide to flee a given bank, causing it to topple over, as the first domino in a long line.

The bottom line here is that the European situation is quite far from resolved, and as we've been saying all along, it really can't until large losses are taken by someone. For now, the banks are trying desperately to convince the world that the losses should be shared by everyone through the miracle of inflation (with central banks printing money, a.k.a. "quantitative easing" or QE, to buy the bad debts off the banks) while the people of various countries are increasingly protesting this regrettable practice of socializing banks' losses, yet allowing privatized profits.

Expect Volatility

The key point to understand about our economy is that it is anything but straightforward and linear. It is a complex system, meaning that it has two characteristics of which we should be aware: It requires energy to maintain and/or increase its complexity, and it is unpredictable.

One typical feature of complex systems is that they tend to jump rather abruptly from one state to the next. Where they can exist in some sort of seeming equilibrium for quite a while, a sufficient exogenous shock (or a change in conditions, such as becoming energy-starved) can often cause them to transition rather suddenly to the next point of 'equilibrium'.

Said more simply, systems often have tipping points, where they no longer react to insults proportionally, but chaotically and sometimes violently. Phoenix, Arizona was coasting along just fine until experiencing a tipping point in its housing market that involved both the job market and the broader economy, dragging both down on the way to finding a new and much lower equilibrium point. What we have here is an ideal set of conditions for a tipping point to arise in our financial system. When such a tipping point occurs, you should expect wild volatility in the markets and be prepared for things to be moving far too quickly to react to with any sort of precision or grace.

Tuesday, October 18, 2011

Spain's Ill Health

According to Paul Day at Reuters in Madrid,the public health care system in Spain is starting to fall apart as austerity and debt unravel the welfare state in Western Europe. I can only imagine that this is what the banksters wanted when they set us all on a course of destruction, and that people and small business get hurt by this auto-da-fe is of no concern to the vampires sucking us dry.

Medical suppliers haven't been paid for as much as two years, emergency rooms have been shut down and doctors in Catalonia have been told to accept a pay cut or 1,500 medical residents will lose their jobs.

Spain's treasured public health care system has become the latest victim of the euro zone debt crisis.

"We haven't been paid, but there's nothing we can do about it. We need the contracts, so we're just going to have to wait it out," said a representative for a cleaning company who did not want his or the firm's name used for fear of a backlash.

The company, which says it is owed hundreds of millions of euros by the government of the Castilla-La Mancha region south of Madrid, is one of dozens of providers of everything from surgical swabs to disinfectants struggling to pay workers as Spain's regions delay payments to meet tight deficit targets.

The debt-burdened autonomous regions' spending cuts are a tangible sign of the present and future pain as Spain works to meet ambitious deficit reduction goals pledged to the European Union in the midst of an economic downturn.

Spain's political parties have kept their positions on the issue vague ahead of November 20 general elections, but even the most passionate defenders of the current system agree there is scope for cost savings and more efficiency.

Spain's conservative opposition, the People's Party (PP), which is expected to win in November, will likely cut into social welfare programs the incumbent Socialists have left untouched.

But even the Socialists now say they can find ways to reduce health spending without harming services. Examples include forcing car insurance firms to pay for the treatment of accident victims and sending foreign governments the bill when their citizens use Spanish hospitals.


Multinational pharmaceutical firm Roche says the Castilla y Leon region north of Madrid is more than 900 days behind on its bills, which has raised fears here that the company could start withholding drugs for some hospitals as it did in Greece, which is fighting off bankruptcy.

Spain's central government makes yearly transfers of income tax revenue to the country's 17 autonomous regions, which are in charge of administering health care and schools.

But the regions are being forced to make drastic budget cuts after piling up debt during Spain's property boom, the collapse of which in 2008 sent the country into recession and unemployment soaring to more than 20 percent.

As the regions squeeze spending wherever they can, what they owe to companies that provide health care services and products has risen 42 percent in a year to more than 4 billion euros, according to the Spanish Federation of Healthcare Technology, known as Fenin.

AT Kearney consultancy calculates the system's long-term deficit is 15 billion euros, a heavy burden for a government whose borrowing costs have soared in the euro zone debt crisis.

Margarita Alfonsel, secretary general of Fenin, says small companies in her federation "are suffering to an alarming extent due to the liquidity squeeze." She said some will have to lay off staff or go into bankruptcy.

The average number of days providers must wait for payment has risen in the past year to 415 days, from 285 days, she said.

"It was unacceptable before. Now it's totally incomprehensible," said Joaquin del Rincon, Spanish representative of Boston Scientific, which provides medical and surgical instruments to Spanish hospitals.

"We have to explain to our central offices that this is an ongoing problem in Spain made worse by the crisis," he said.


The government in Catalonia, Spain's wealthiest region, has shut down some clinics and emergency rooms over the past few months and has said it will lay off 1,500 medical residents if doctors refuse to accept pay and bonus cuts.

The residents in late September staged marches through the Catalan capital Barcelona and draped banners around hospitals, and doctors' unions have threatened to walk off the job. But many senior doctors are afraid to make a fuss and possibly lose their jobs when one in five Spaniards are out of work.

"All of this is because of years of mismanagement by the politicians. The money has run out," said one Catalan doctor, who asked not to be named.

"We don't know what is going on. We feel impotent to defend what we have. There is a huge fear of being sacked for doing so."

Budget pressures are not going away soon. Spain's economy cannot create jobs until it has sustained growth of 2 percent a year, which could be a few years away, meaning sky-high unemployment will drag on, restricting growth in income taxes.

And, as in many other developed countries, Spain's health system is burdened by an aging population enjoying long retirements on state pensions, while smaller families fail to fill the funding gap.

Unlike other countries with public health care, complaints about long waits to see a doctor are rare in Spain. But now patients in Catalonia are starting to have to wait and doctors warn the quality of care will decline.

"There will be less available budget for patients' needs because we may find ourselves in a situation where we have to spend a lot of money correcting residents' errors that could result from not having had the proper training," said Jose Blanco, head of hospital education at German Trias Hospital.


Prime Minister Jose Luis Rodriguez Zapatero has almost certainly guaranteed humiliation for his Socialists at the polls by implementing a wide-range of budget cuts to avoid mass dumping of Spanish debt by international investors.

In August he passed a bill to save the public system over 2 billion euros a year on drugs. Drug companies slammed the measure, which forces doctors to favor generic medicines over brand names, as inefficient, damaging to the system and badly thought out.

The PP, for its part, says the health sector must be reformed but are vague on details.

Economists at conservative think-tanks that advise the PP have floated the idea of co-payments - where patients pay some of the bill to discourage overuse of the system.

The system, which is common in many developed countries but anathema in Spain, is favored by almost 60 percent of doctors, according to a study by the Spanish Society of Primary Care Doctors.


Spain's health spending growth has slowed and what it spends on health care is in line with the average for developed nations at about 9.5 percent of GDP in 2009, according to figures from the OECD group of wealthy nations. The lion's share, 73.6 percent, is funded by the state.

The system is so good and so cheap that many people use their private health insurance for routine care but head to a public hospital if they are diagnosed with a serious disease or condition.

Cutbacks in the public health care system will force some people back into the private system, which many see as inadequate.

Silvia Sanz, a 31-year-old teacher with type 1 diabetes, is planning to give birth at a public hospital after she lost her first baby at a private clinic just a month before her due date. She has private health insurance but has been told the public system is best for a high-risk pregnancy and birth.

"In private, if anything goes badly, they don't have the means to deal with it properly and, when you go back to them, they tell you you're best to go public because they know they are better equipped to deal with complications than they are," Silvia said.

Foreigners can walk into 24-hour community clinics around Spain and get first-rate emergency care. When they ask for a bill, all they get is a startled look from a nurse. There is no cash register in sight.

Some doctors admit the system is perhaps too gold-plated.

"The Catalan health system has been excellent over the years. Perhaps too good. Foreigners only have to go through a little paper work and they are entitled to health care," said Gabriel Olle Fortuny, a doctor at Barcelona's Mataro Hospital.

"We've been giving a quality we can't afford."

Monday, October 17, 2011

Europe's Failure

Ilargi of The Automatic Earth has been ruminating on the future of Europe and destruction of the accepted order is the prediction.

Chancellor Merkel and President Sarkozy over the weekend promised to present a plan that they unabashedly declare will "resolve" the entire eurocrisis. Only, they won't let us know what's in it until the end of the month. Which can only possibly mean that they don't know either.

The announcement on Sunday used quite peculiar language, if you ask me. They said something along the lines of the plan being "sustainable and comprehensive", the sort of terms mostly used by politicians exclusively to make things look much better than they really are. They could have just said that they are working on a plan to make things better. Instead, they claimed they have the power to resolve the entire crisis, and sustainably too, whatever that means in this context.

They have no such power, and if they don't know that, they should be removed from what power they do have. Alternatively, both should be held accountable by their voters on November 1, when it will be crystal clear that the crisis has not been resolved. I must admit, I still can't fully fathom why they made that claim when there didn't seem to be any reason to.

Second, a committee representing the ECB/EU/IMF troika on Tuesday said that as far as they're concerned, Greece can get its next tranche of aid, some €8 billion. That too has some bizarro aspects to it. The aid is provided under a deal that was updated in July when the second Greek bailout was negotiated. That deal also included a provision that stipulated that private investors would take a 21% haircut on their Greek debt, provided some 90% would agree to participate (a condition to prevent a hard default).

Now, while the troika team was evaluating Greek compliance with other parts of the deal, such as budget cuts and austerity measures, they were at all times acutely aware that there were and are discussions ongoing about a much bigger haircut for investors, as in more like 60%. And that will make the July deal invalid. Which puts the approved €8 billion tranche in a somewhat strange light. To put it mildly.

Moreover, it is already obvious that Greece will not be able to meet its deficit targets, something that also risks invalidating the deal. The same is true for Spain, by the way, but that's another story for another day. That is, if the troika team finds time to fly to Madrid anytime soon.

Those Europeans whose money is used in this segment of the Greek bailout might want to ask their politicians for an explanation: why should we pay up when the conditions that were put on paying only 3 months ago are missed out on by a mile and a half? That could be a fun discussion. And if you ask questions in a sufficiently persistent manner, you may notice that they have no clue what they're doing, and they're very near the end of their very wits.

If I were a betting man, I'd put my money on the option that what is going on here are the preparations for dropping Greece. The idea being that if you kick out Athens, you can spend lots of money on ringfencing the banks in the remainder of the Eurozone. Such, undoubtedly, are at least some of the calculations.

Sarkozy sees both his banks AND his sovereign credit rating under immense pressure. If he can convince Merkel to use EFSF funds to catch the -Greek- fall of Société Générale and BNP, and he can simultaneously convince Moody’s that this means France lets Europe (co-) pay for catching that fall, so France can retain its AAA rating, he will have no qualms about pushing the Acropolis into the ocean.

It is, however, nowhere near that simple and easy. And Sarkozy knows it. But he seems increasingly willing to make the bet, to close his eyes and jump into the unknown, simply because the known looks ever more likely to catch up with him and his presidency. Seen from that perspective, maybe his claim that the crisis will be resolved by the end of the month isn't so peculiar anymore. It's then purely an act of desperation.

To begin with, a Greek hard default would trigger a credit event. That means credit default swaps on Greece will have to be "made whole". And there's no one party in the world that has a 20/20 360 overview of the total CDS out there. Wholesale chaos could ensue.

Then, banks with large Greek sovereign, let alone CDS, exposure, would face downgrades of their credit ratings, and trouble in lending markets, both interbank and bonds. Just in the past few days, we've seen Belgium nationalize Dexia, Greece nationalize its Proton bank, and Denmark (not even a Eurozone member) nationalize Max Bank. It looks like they are just the vanguard; there could be a whole lot of banks being either saved, or not: both options are expensive.

I’m not the first one to call this a Pandora's box, and I won't be the last. But I did say quite a while back that I thought Europe's leaders were losing control. And today that is more tangible than ever in the past 3 years.

There is nobody, and that includes Sarkozy and Merkel and their ilk, who can predict what happens if Greece defaults. And as if that's not enough of a headache for them, there isn't anyone who can predict what happens if Greece doesn NOT default, either. Therein lie the crux and the conundrum. It's a guessing game and a virtually blind gamble all the way forward from here.

If Athens is allowed to continue to fester on the European body politic, contagion is the key. The rot will spread to the rest of the periphery, and from there to the core. Very much like a disease will do. The (bond) markets are predatory. They will pick the weakest bits off one by one. If Greece, however, is cut off, those same markets are free to go after any and all of the other contestants for most feeble euro member.

Greece is not the problem, it's just the first sign that there is a much wider and deeper problem. Which inexorably leads to the conclusion that the Eurozone of 17 members will not exist much longer. And getting rid of Greece will not make it much more stable. There's still be Portugal, Ireland, Italy and Spain for the predators to go after. And somewhere during that process France will lose its AAA rating. Also somewhere during that same process US banks will need additional bailouts.

We're just getting started in round two of the great unwind. Europe's last hurrah is but the kick-off. And when I say Europe's last hurrah, I mean Europe as it is organized today. Europe will still be here tomorrow. But it will not look the same. Nor will it have the same leaders.