Sunday, October 11, 2009
Simon Johnson told PBS's Bill Moyers that he expects an even larger financial crisis to hit the United States in the coming years because the system was not fixed through reform, but rather through a massive injection of taxpayers' money into the failing banks.
"The short term opportunity was missed," Johnson said on Bill Moyers Journal Friday night. "There was an opportunity the Obama administration had. President Obama campaigned on a message of change. ... The time for change for the financial sector was absolutely upon us, this was abundantly apparent in January of this year."
Johnson continued: "Rahm Emanuel, the president's chief of staff, is known for saying 'Never let a good crisis go to waste.' The crisis for the big banks is substantially over. And it was completely wasted. The administration refused to break the power of the big banks when they had the opportunity earlier this year. And the regulatory reforms they are now pursuing ... will turn out to be essentially meaningless."
Johnson said that the bank bailout would not fix the long-term instability of the financial sector, and "when [the crisis] comes back, it will come back with a vengeance, and it will be I think even more devastating."
The government's policy towards the financial crisis amounts to "socialism for the big banks," US House Rep. Marcy Kaptur (D-OH) told Moyers and Johnson. "They've basically taken their mistakes and they've put it on the taxpayer ... that's socialism, that's not capitalism."
Kaptur has become something of a crusader for homeowners' rights in the wake of the housing crisis, as well as a major critic of US banks. Moyers played a clip of her giving a speech this past January in which she urged homeowners to ignore eviction notices and become "squatters in [their] own homes" if they need to.
So why should any American citizen be kicked out of their homes in this cold weather? ... Don't leave your home. Because you know what? When those companies say they have your mortgage, unless you have a lawyer that can put his or her finger on that mortgage, you don't have that mortgage, and you are going to find they can't find the paper up there on Wall Street. So I say to the American people, you be squatters in your own homes. Don't you leave. In Ohio and Michigan and Indiana and Illinois and all these other places our people are being treated like chattel, and this Congress is stymied.
Kaptur recounted an anecdote about inviting representatives of investment bank JPMorganChase, the largest forecloser of homes in Kaptur's Ohio district, to a meeting, and then waiting around all day as no one from JPMorganChase showed up -- until nearly the end of the day.
"That's how they treat our people," Kaptur said.
Asked what she thought of the Obama administration's decisions to have in place many of the figures associated with the financial collapse -- such as former Federal Reserve Bank of New York head Timothy Geithner, who is now treasury secretary, and Federal Reserve Chairman Ben Bernanke, a Bush administration appointee -- Kaptur said: "I don't think any individuals who had their hands in creating this mess should be in charge of cleaning it up. I honestly don't think they're capable of it."
In May, Johnson penned an article for The Atlantic in which he compared the US's financial system to that of a corrupt third-world country, and said that, if the IMF had given the US the same advice it gives developing countries, it would have told Washington to break up the banks.
Johnson described a "deep and disturbing" similarity between the US financial crisis and similar crises to have hit developing countries in earlier times:
Elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
Rep. Kaptur said the only way to reform the political system is to "take the money out" of it. "We have to get rid of the constant fundraising that happens inside the Congress," she said.
Watch the complete video of Bill Moyers' discussion with Simon Johnson and Rep. Kaptur here.
The following videos were broadcast on PBS's Bill Moyers Journal, October 9, 2009.
By Daniel Tencer
The government's record on youth unemployment will come under intense scrutiny this week amid fears that the number of jobless 16 to 24-year-olds will rise through the one-million barrier.
Economists believe the failure of large numbers of this year's school leavers and graduates to find work this summer will lead to a sharp jump in those under 25 without work when the data for August is released on Wednesday.
Hiring freezes have meant new entrants to the labour market have been badly hit by the recession and at 947,000, unemployment in the 16-24 age group is 300,000 higher than when Tony Blair came to power in 1997 pledging to combat the legacy of youth unemployment inherited from the Conservatives.
Professor David Blanchflower, a former member of the Bank of England's monetary policy committee and a labour market expert, said: "I think unemployment for the under-25s is certain to go through one million, if not this month then next."
The opposition has accused Labour of creating a new "lost generation" of young unemployed and the deepest recession since the second world war prompted Alistair Darling to announce a guarantee of a job, training or work placement for all 18 to 24-year-olds in this year's budget.
Blanchflower said that with youth unemployment making up more than a third of the 2.47m total, the government needed to step up its efforts. Urging an immediate increase in the school leaving age to 18, he added: "The government should do anything it can to stop young people being unemployed, including offering to pay them benefits while on internships."
Howard Archer, chief UK economist at IHS Global Insight, said: "A lot of young people who are unemployed now will still be unemployed next summer when the next group of graduates and school leavers will arrive."
The TUC expressed concern about rising youth unemployment but said it had doubts about unpaid work placements.
Brendan Barber, TUC general secretary, said: "The Future Jobs Fund will provide much needed help for 100,000 young people. Without this there is a real risk young people could be forced into a cycle of unpaid internships and work experience, which are no substitute for real jobs paying a decent wage."
John Philpott, chief economist of the Chartered Institute for Personnel and Development, said: "I would expect to see something of a jump this time."
He predicted that overall unemployment would continue rising well into 2010. "My feeling is that it will peak at around three million, which is a little bit better than we thought six months ago." However, he warned of the threat of a "job loss recovery", if growth is so weak that employers who have held onto staff through the recession are forced to lay them off.
Is Osama bin Laden still alive? I have dealt with this question in a recent little book entitled Osama bin Laden: Dead or Alive? The present essay summarizes the main points of this book.
Since the transference of power from the Bush administration to that of Barack Obama administration, the question of whether bin Laden is dead or alive has become more important.
Although George W. Bush famously said that he wanted Osama bin Laden “dead or alive,” he made clear that he was not serious about this. Besides stating that he was not concerned about bin Laden, he demonstrated this by diverting most of America’s military resources to Iraq. Bush could, of course, be unconcerned about bin Laden because he knew that, besides the fact that bin Laden had nothing to do with 9/11, he was probably dead anyway.
I do not know what President Obama and his people think about these matters, but their rhetoric presupposes that bin Laden was responsible for 9/11 and is still alive.
In November 2008, for example, a Washington Post story said:
In his White House address of March 27 of this year, President Obama said:
Obama has appealed regularly to these intelligence estimates, which have invariably claimed that bin Laden is hiding in Pakistan, somewhere along its border with Pakistan. This claim has been used to justify the extension of US military activity into Pakistan, with the result that people now speak of the “AfPak war.”
One way to argue against this war is to point out that, if these intelligence experts do not even know whether bin Laden is alive, they certainly cannot know where he is and what he is thinking.
There are, to be sure, other good arguments against the this war, and many critics are making these arguments. But to point out that bin Laden is almost certainly dead provides an argument that goes to the heart of the publically articulated rationale for this war.
Of course, another way to argue against this war would be to point out that bin Laden had nothing to do with 9/11. But even though our own FBI has admitted that it “has no hard evidence connecting Bin Laden to 9/11,” a large part of the American population has been conditioned to reject all revisionism about 9/11 out of hand. As we saw recently with “the Van Jones affair,” people are considered unfit for public service if they once signed a document suggesting that the official account of 9/11 might not be fully true.
My little bin Laden book is primarily for people who, besides assuming that Osama bin Laden was responsible for the 9/11 attacks, also believe that the AfPak war is justifiable because we need to prevent him from planning another attack. Many such people will turn against the war if they become aware of convincing evidence that bin Laden is almost certainly dead. There is considerable evidence for this conclusion.
This evidence is of two types: objective evidence and testimonies.
Objective Evidence that Bin Laden is Dead
The objective evidence includes the following facts:
First, up until mid-December 13, 2001, the CIA had regularly been intercepting messages between bin Laden and his people. At that time, however, the messages suddenly stopped, and the CIA has never again intercepted a message.
Second, on December 26, 2001, a leading Pakistani newspaper published a story reporting that bin Laden had died in mid-December, adding:
Third, bin Laden had kidney disease. He had been treated for it in the American Hospital in Dubai in July 2001, at which time he reportedly ordered two dialysis machines to take home. If you have ever wondered what bin Laden was doing the night before the 9/11 attacks, CBS News reported that he was being given kidney dialysis treatment in a hospital in Pakistan. And in January of 2001, Dr. Sanjay Gupta said – based on a video of bin Laden that had been made in either late November or early December of 2001 – that he appeared to be in the last stages of kidney failure.
Fourth, In July of 2002, CNN reported that bin Laden’s bodyguards had been captured in February of that year, adding: “Sources believe that if the bodyguards were captured away from bin Laden, it is likely the most-wanted man in the world is dead.”
Fifth, the United States has since 2001 offered a $25 million reward for any information leading to the capture or killing of bin Laden. But this reward offer has produced no such information, even though Pakistan has many desperately poor people, only about half of whom have been supportive of bin Laden.
Testimonial Evidence that Bin Laden Is Dead
In addition to this objective evidence, we had considerable testimony in 2002, from people in position to know, that bin Laden was dead, or probably so. These people included:
For this reason, perhaps, the stories about the demise of bin Laden largely came to an end in the latter part of 2002, when the United States was gearing up for its attack on Iraq. From then until now, there have been few such stories.
Recently, however, two former intelligence officers have spoken out. In October 2008, former CIA case officer Robert Baer suggested in passing during an interview on National Public Radio that bin Laden was no longer among the living. When Baer was asked about this, he said: “Of course he’s dead.”
In March of 2009, former Foreign Service officer Angelo Codevilla published an essay in the American Spectator entitled “Osama bin Elvis.” Explaining his title, Codevilla wrote: “Seven years after Osama bin Laden's last verifiable appearance among the living, there is more evidence for Elvis's presence among us than for his.”
This is an excellent article, with only one serious flaw. In 2007, Benazir Bhutto, being interviewed by David Frost, referred to Omar Sheikh as “the man who murdered Osama bin Laden.” Codevilla cited this statement as further evidence that bin Laden is dead. But Bhutto had simply misspoken: She had meant to say “the man who murdered Daniel Pearl,” which is the standard way of referring to Omar Sheikh. That she misspoke was shown the next day, when she told CNN: “I don’t think General Musharaf personally knows where Osama bin Laden is.” Ten days later, speaking to NPR, she reported having asked a policeman assigned to guard her house: “Shouldn’t you be looking for Osama bin Laden?” This flaw aside, Codevilla’s article provides good support for his claim that the widespread belief in bin Laden’s continued existence is not backed up by evidence.
What about the “Messages from Osama bin Laden”?
Many people, of course, assume that there is a lot of evidence that bin Laden is still alive, namely, the dozens of audio tape and video tape “messages from bin Laden” that have appeared since 2001. These tapes provide good evidence, however, only if they are authentic. The longest chapter of my book is devoted to this question.
I show, in the first place, that the technology for making fake audio and video tapes is now so advanced that even experts can be fooled. So although the press regularly tells us that intelligence agencies have authenticated the latest bin Laden tape, it is virtually impossible to prove a tape to be authentic.
It is sometimes possible, however, to prove a tape to be a fake. For example: If the person hired to play bin Laden writes with his right hand; if he is much heavier and darker than bin Laden was in a tape made about the same time; if he has fatter hands and shorter fingers; if his nose has a different shape. And if, in discussing the Twin Towers, he says that the fire melted the steel, whereas the real bin Laden would have known that a building fire cannot melt steel. I am speaking here of the video that was allegedly found by US troops in Jalalabad, Afghanistan, in November 2001, which is widely known as the “bin Laden confession video.”
Also obviously fabricated was the “October Surprise” video, which appeared on October 29, 2004, just in time to help George W. Bush get reelected. One clue that it was a fake, aside from its timing, is provided by its language. Bin Laden’s own messages were saturated with references to Allah and the Prophet Mohammed. But in this October Surprise video, Allah was mentioned rarely and the only “Mohammad” mentioned was Mohamed Atta. Also, whereas undoubtedly authentic bin Laden messages portrayed worldly events as cause or at least permitted by Allah, the speaker on this October Surprise video gave a purely secular account of events, even telling the American people: “Your security is in your own hands.”
The most obviously faked video is one that, appearing in 2007, was identical to the October Surprise video of 2004, except that the bin Laden figure now had a completely black beard, leading me to call it the video from “Blackbeard the Terrorist.” Although pundits tried, with straight faces, to explain why bin Laden might have dyed his beard, or put on a fake one, this video was best treated with the respect it deserved by a YouTube video featuring a actor wearing a very long, very black, beard, and saying:
Hello, long time no see. It is me, Osama bin Laden. And no, this not to be confused with just-for-men hair color commercial. . . . I make this video to prove to world that me still alive and kicking.
This video is very funny. But there is, of course, nothing funny about the fact that obviously fake bin Laden videos have been used, and are still being used, to justify the AfPak war, which continues to kill dozens if not hundreds of innocent people each week, including women and children attending weddings and funerals.
If my little book, by showing that bin Laden has probably long been dead, can help shorten this war, it will have served its main purpose.
Its other main point, to which a separate chapter is devoted, is that these fake bin Laden tapes appear to be simply one part of an extensive propaganda operation, in which the US military intelligence is using tax dollars – illegally – to propagandize the American public, with the aim of furthering the militarization of America and its foreign policy.
I hope my little book will stimulate the 9/11 truth movement, along with the anti-war movement in general, to take on more fully the task of exposing this propaganda effort, to which a growing portion of our tax dollars is being devoted.
David Ray Griffin is a frequent contributor to Global Research. Global Research Articles by David Ray Griffin
Hello, everyone! The talk you are about to hear is the result of a lengthy process on my part. My specialty is in thinking about and, unfortunately, predicting collapse. My method is based on comparison: I watched the Soviet Union collapse, and, since I am also familiar with the details of the situation in the United States, I can make comparisons between these two failed superpowers.
I was born and grew up in Russia, and I traveled back to Russia repeatedly between the late 80s and mid-90s. This allowed me to gain a solid understanding of the dynamics of the collapse process as it unfolded there. By the mid-90s it was quite clear to me that the US was headed in the same general direction. But I couldn't yet tell how long the process would take, so I sat back and watched.
I am an engineer, and so I naturally tended to look for physical explanations for this process, as opposed to economic, political, or cultural ones. It turns out that one could come up with a very good explanation for the Soviet collapse by following energy flows. What happened in the late 80s is that Russian oil production hit an all-time peak. This coincided with new oil provinces coming on stream in the West - the North Sea in the UK and Norway, and Prudhoe Bay in Alaska - and this suddenly made oil very cheap on the world markets. Soviet revenues plummeted, but their appetite for imported goods remained unchanged, and so they sank deeper and deeper into debt. What doomed them in the end was not even so much the level of debt, but their inability to take on further debt even faster. Once international lenders balked at making further loans, it was game over.
What is happening to the United States now is broadly similar, with certain polarities reversed. The US is an oil importer, burning up 25% of the world's production, and importing over two-thirds of that. Back in mid-90s, when I first started trying to guess the timing of the US collapse, the arrival of the global peak in oil production was scheduled for around the turn of the century. It turned out that the estimate was off by almost a decade, but that is actually fairly accurate as far as such big predictions go. So here it is the high price of oil that is putting the brakes on further debt expansion. As higher oil prices trigger a recession, the economy starts shrinking, and a shrinking economy cannot sustain an ever-expanding level of debt. At some point the ability to finance oil imports will be lost, and that will be the tipping point, after which nothing will ever be the same.
This is not to say that I am a believer in some sort of energy determinism. If the US were to cut its energy consumption by an order of magnitude, it would still be consuming a staggeringly huge amount, but an energy crisis would be averted. But then this country, as we are used to thinking of it, would no longer exist. Oil is what powers this economy. In turn, it is this oil-based economy that makes it possible to maintain and expand an extravagant level of debt. So, a drastic cut in oil consumption would cause a financial collapse (as opposed to the other way around). A few more stages of collapse would follow, which we will discuss next. So, you could see this outlandish appetite for imported oil as a cultural failing, but it is not one that can be undone without causing a great deal of damage. If you like, you can call it "ontological determinism": it has to be what it is, until it is no more.
I don't mean to imply that every part of the country will suddenly undergo a spontaneous existence failure, reverting to an uninhabited wilderness. I agree with John-Michael Greer that the myth of the Apocalypse is not the least bit helpful in coming to terms with the situation. The Soviet experience is very helpful here, because it shows us not only that life goes on, but exactly how it goes on. But I am quite certain that no amount of cultural transformation will help us save various key aspects of this culture: car society, suburban living, big box stores, corporate-run government, global empire, or runaway finance.
On the other hand, I am quite convinced that nothing short of a profound cultural transformation will allow any significant number of us to keep roofs over our heads, and food on our tables. I also believe that the sooner we start letting go of our maladaptive cultural baggage, the more of a chance we will stand. A few years ago, my attitude was to just keep watching events unfold, and keep this collapse thing as some sort of macabre hobby. But the course of events is certainly speeding up, and now my feeling is that the worst we can do is pretend that everything will be fine and simply run out the clock on our current living arrangement, with nothing to replace it once it all starts shutting down.
Now, getting back to my own personal progress in working through these questions, in 2005 I wrote an article called "Post-Soviet Lessons for a Post-American Century". Initially, I wanted to publish it on a web site run by Dale Alan Pfeiffer, but, to my surprise, it ended up on From The Wilderness, a much more popular site run by Michael Ruppert, and, to my further astonishment, Mike even paid me for it.
And ever since then, I've been asked the same question, repeatedly: "When? When is the collapse going to occur?" Being a little bit clever, I always decline to give a specific answer, because, you see, as soon as you get one specific prediction wrong, there goes your entire reputation. One reasonable way of thinking about the timing is to say that collapse can occur at different times for different people. You may never quite know that collapse has happened, but you will know that it has happened to you personally, or to your family, or to your town. The big picture may not come together until much later, thanks to the efforts of historians. Individually, we may never know what hit us, and, as a group, we may never agree on any one answer. Look at the collapse of the USSR: some people are still arguing over why exactly it happened.
But sometimes the picture is clearer than we would like. In January of 2008, I published an article on "The Five Stages of Collapse," in which I defined the five stages, and then bravely stated that we are in the midst of a financial collapse. And ten months later it doesn't seem that I went too far out on a limb this time. If the US government has to lend banks over 200 billion dollars a day just to keep the whole system from imploding, then the term "crisis" probably doesn't do justice to the situation. To keep this game going, the US government has to be able to sell the debt it is taking on, and what do you think the chances are that the world at large will be snapping up trillions of dollars of new debt, knowing that it is being used to prop up a shrinking economy? And if the debt can't be sold, then it has to be monetized, by printing money. And that will trigger hyperinflation. So, let's not quibble, and let us call what's happening what it looks like: "financial collapse".
So here are the five stages as I defined them almost a year ago. The little check-mark next to "financial collapse" is there to remind us that we are not here to quibble or equivocate, because Stage 1 is pretty far along. Stages 2 and 3 - commercial and political collapse, are driven by financial collapse, and will overlap each other. Right now, it is unclear which one is farther along. On the one hand, there are signs that global shipping is grinding to a halt, and that big box retailers are in for a very bad time, with many stores likely to close following a disastrous Christmas season. On the other hand, states are already experiencing massive budget shortfalls, laying off state workers, cutting back on programs, and are starting to beg the federal government for bail-out money.
Even though the various stages of collapse drive each other in a variety of ways, I think that it makes sense to keep them apart conceptually. This is because their effects on our daily life are quite different. Whatever constructive ways we may find of dodging these effects are also going to be different. Lastly, some stages of collapse seem unavoidable, while others may be avoided if we put up enough of a fight.
Financial collapse seems to be particularly painful if you happen to have a lot of money. On the other hand, I run across people all the time, who feel that "Nothing's happened yet." These are mostly younger, relatively successful people, who have little or no savings, and still have good paying jobs, or unemployment insurance that hasn't run out yet. Their daily lives aren't much affected by the turmoil on the financial markets, and they don't believe that anything different is happening beyond the usual economic ups and downs.
Commercial collapse is much more obvious, and observing it doesn't entail opening envelopes and examining columns of figures. It is painful to most people, and life-threatening to some. When store shelves are stripped bare of necessities and remain that way for weeks at a time, panic sets in. In most places, this requires some sort of emergency response, to make sure that people are not deprived of food, shelter, medicine, and that some measure of security and public order is maintained. People who know what's coming can prepare to sit out the worst of it.
Political collapse is more painful yet, because it is directly life-threatening to many people. The breakdown of public order would be particularly dangerous in the US, because of the large number of social problems that have been swept under the carpet over the years. Americans, more than most other people, need to be defended from each other at all times. I think that I would prefer martial law over complete and utter mayhem and lawlessness, though I admit that both are very poor choices.
Social and cultural collapse seem to have already occurred in many parts of the country to a large extent. What social activity remains seems to be anchored to transitory activities like work, shopping, and sports. Religion is perhaps the largest exception, and many communities are organized around churches. But in places where society and culture remain intact, I believe that social and cultural collapse is avoidable, and that this is where we must really dig in our heels. Also, I think it is very important that we learn to see our surroundings for what they have become. In many places, it feels as if there just isn't that much left that's worth trying to save. If all the culture we see is commercial culture, and all the society we see is consumer society, then the best we can do is walk away from it, and look for other people who are ready to do the same.
There is nothing particularly deep or magical about the five stages I chose, except that they seem convenient. They correspond to the commonly distinguished aspects of everyday reality. Each stage of collapse also corresponds to a certain set of beliefs in the status quo, that is about to go by the wayside.
It is always an impressive thing to observe when reality shifts. One moment, a certain idea is seen as preposterous, and the next moment it's being treated as conventional wisdom. There seems to be a psychological mechanism involved, where nobody wants to be seen as the last fool to finally get the picture. Everybody starts pretending that they've thought that way all along, or at least for a little while, for fear of appearing foolish. It is always awkward to ask people what caused them to suddenly change their minds, because with the fear of looking foolish comes a certain loss of dignity.
The most compelling example of lots of minds suddenly going "snap" is, to my mind, the sudden demise of the USSR. It happened with Boris Yeltsin standing atop a tank, and being asked the question: "But what will become of the Soviet Union?" And his answer, pronounced with maximum gravitas was: "Henceforth I shall only refer to it as the FORMER Soviet Union." And that was that. After that, whoever still believed in the Soviet Union appeared as not just foolish, but actually crazy. For a while, there were a lot of crazy old people parading around with portraits of Lenin and Stalin. Their minds were too old to go "snap".
Here in the US, we are yet to experience any of the really major, earth-shattering realizations, the ones that look preposterous immediately before and completely obvious immediately after they occur. We have had minor tremors, mostly relating to financial assumptions. Is real estate a good investment. Will private retirement allow you to retire? Will the government bail us all out? All the major realizations are yet to come, or, as my die-hard Yuppie friends keep telling me, "Nothing's happened yet."
But by the time something does happen, it will have been too late for us to start planning for it happening. It doesn't seem all that worthwhile for us to sit around waiting for the happy event of everybody else feeling foolish all at the same time. Arrogant though that may seem, we may be better off accepting their foolishness before they do, and keeping a safe distance ahead of the prevailing opinion.
Because if we do that, we may yet succeed in finding ways to cope. We may learn to dodge financial collapse by learning to live without needing much money. We may create alternative living arrangements and informal production and distribution networks for all the necessities before commercial collapse occurs. We may organize into self-governing communities that can provide for their own security during political collapse. And all of these steps put together may put us in a position to safeguard society and culture.
Or we can just wait until everyone starts agreeing with us, because we wouldn't want them to look foolish.
The important dynamic, when it comes to financial collapse, is obvious by now. It's the collapse of credit pyramids, "the whole house of cards" as President Bush put it. The technical term is "deleveraging," and the response is the bailout. The federal government will be bailing out the banks and the insurance companies, the auto companies, and state governments. Call it the bail-out treadmill: we are borrowing faster and faster just to keep from falling down. The treadmill is actually a good metaphor. Imagine what would happen if you went to a gym, got on a treadmill machine, and just kept punching up the speed, as high as it will go. What happens is you trip and fall, and find yourself flying backwards.
It is instructive to ask the question, Who are we borrowing this bail-out money from? People will tell you that we are borrowing it from "the taxpayer." But it's not as if federal tax receipts have automatically shot up by a few trillion over the past couple of months, and so this begs the question, Who is "the taxpayer" going to borrow this money from in the meantime? From other Americans? No, because our savings rate has been abysmally low for quite some time now, and what little we have saved is in housing equity, which is dwindling, and in stocks and bonds, through mutual funds and 401ks and such, which are down by a third or so. The value of these investments is crashing, and if we dumped these investments to raise the cash to fund this new debt, that would just make them crash even faster. In effect, we'd only be moving money from one pocket to another. So, really, the bailouts have to be financed by foreigners. And what if these foreigners decide not to trust us with any more of their savings? Then our only recourse is to "monetize" the debt: to print money.
And so the next question is, how much money would we have to print? The purpose of the bailouts is to provide liquidity to insolvent companies, to avoid deleveraging. To understand what that means, we have to understand that for every actual dollar within the economy, in the sense of it not being borrowed, there are over 13 dollars of borrowed money, which only exists while the debt can be rolled over. If our credit is maxed out while the economy is growing, that's bad enough, but the US economy is shrinking because of the recent oil shock. A smaller economy cannot carry as much debt, and this is part of the reason why we have deleveraging. Once the process of debt going sour gets started, it is hard to stop, and if deleveraging were to run its course, we would be down over 1300%. To monetize that much debt would require over 1300% inflation. And once that gets started, it becomes very hard to stop.
And, that, believe it or not, is actually the good news. Because most of our debt is denominated in our own currency - the US dollar - the US will not have to declare sovereign default, like Russia was forced to do in the 1990s. Instead, we can inflate our way out of national bankruptcy, by printing a lot of dollars. We will repay our national debt, but we will do so in worthless paper money, bankrupting our international creditors in the process. There is sure to be plenty of pain for everyone, especially everyone who is used to having plenty of money, because their money will no longer make the world go around. Once the US has to start earning foreign currency in order to pay for imports, you can be sure that imports will become quite scarce.
Here are before and after snapshots of the most salient characteristics of financial collapse, as they will affect the vast majority of the population. Here, I am assuming that commercial and political collapse are slower in arriving, and that government is still there to step in with emergency aid of various sorts, and that a market economy of some sort continues to function. It could come down to everyone walking around with their little food stamps debit cards, and the only place they can use them that's within walking distance is McDonalds, but I am assuming some semi-stable period during which other adjustments can occur before other stages run their course.
The adjustments would have to do with major aspects of the living arrangement, from where we live to how we grow food to how we relate to each other. With money scarce and not particularly potent, other ways of winning the cooperation of others would need to be evolved in a hurry. The financial realm can be seen as a complex system of fences: your bank account is fenced off from my bank account. This arrangement allows you and me to not worry too much about each other, provided each of us has enough to live on. Though this is largely a fiction, we can fancy ourselves to be independent economic players on a level playing field. But once these conceptual fences become irrelevant, because there is nothing behind them, we become each others' burden, in an immediate sort of way, that would come as a shock to most people. The indignity of such physical interdependence would be psychologically devastating to many people, raising the human toll from financial collapse beyond what you'd expect from a problem that really only exists on paper. This is going to be particularly hard for a nation brought up on the myth of rugged individualism.
Commercial collapse, when it arrives, will again cause much more of a psychological crack-up than you'd expect from a purely organizational problem. The quantities of immediately available goods and services right before and right after the collapse would remain about the same, but because market psychology is so ingrained in the population, no other ways of coping would be considered. Hoarding would become widespread, with looting as the obvious antidote. There would be an instant, huge black market for all sorts of necessities, from shampoo to vials of insulin.
The market mechanism works well in some cases, but it doesn't work at all when key commodities become scarce. It leads to profiteering, hoarding, looting, and other pernicious effects. There is usually a knee-jerk reaction to regulate the markets, by imposing price controls, or by introducing rationing. I found it quite funny that the recent clamoring for re-regulating the financial markets was greeted with cries of "Socialists!" Failing at capitalism doesn't make you a socialist, any more than getting a divorce automatically make you gay.
If by the time commercial collapse is upon us, there is still enough of the political system left intact to implement rationing and price controls and emergency distribution schemes, then we should count these among our blessings. Such heavy-handed governance is certainly not a crowd-pleaser during times of plenty, when it's also unnecessary, but it can be quite a life-saver during times of scarcity. The Soviet food distribution system, which was plagued with chronic underperformance during normal times, proved to be paradoxically resilient during collapse, allowing people to survive the transition.
If prior to commercial collapse the challenge is finding enough money to afford the necessities, afterward the challenge is getting people to accept money as payment for these same necessities. Many of the would-be sellers will prefer to be paid in something more valuable than mere cash. Customer service comes to mean that customers must provide a service. Given that most people won't have much to offer, other than their now worthless money, should they still have any, most purveyors of goods and services decide to take a holiday.
With the disappearance of the free and open market, even the items that still are available for sale come to be offered in a way that is neither free nor open, but only at certain times and to certain people. Whatever wealth still exists is hidden, because flaunting it or exposing it just increases the security risk, and the amount of effort required to guard it.
In an economy where the vast majority of manufactured items is imported, and designed with planned obsolescence in mind, it will be difficult to keep things running as imports dry up, especially imports of spare parts for foreign-made machinery. The pool of available equipment will shrink over time, as more and more pieces of equipment become used as "organ donors." In an effort to keep things running, entire cottage industries devoted to refurbishing old stuff might suddenly come together.
It is sometimes hard to discern political collapse, because politicians tend to be quite good at maintaining the pretense of power and authority even as it dwindles. But there are some telltale signs of political collapse. One is when politicians start moonlighting because their day job is no longer sufficiently gainful. Another is when regional politicians start to openly defy orders from the political center. Russia experienced plenty of each of these symptoms.
One thing that makes political collapse particularly hard to spot is that the worse things get, the more noise the politicians emit. The substance to noise ratio in political discourse is pretty low even in good times, making it hard to spot the transition when it actually drops to zero. The variable that's easier to monitor is the level of political embarrassment. For instance, when Mr. Nazdratenko, the governor of the far-east Russian region of Primorye, stole large amounts of coal, made strides in the direction of establishing an independent foreign policy toward China, and yet Moscow could do nothing to reign him in, you could be sure that Russia's political system was pretty much defunct.
Another telltale sign of political collapse is actual disintegration, where regions declare independence. In Russia, that was the case with Chechnya, and it led to a prolonged bloody conflict. Here, we might have a "Reconquista" where former Mexican territories become ever more Mexican, the South might rise again. New England, California, and the Pacific Northwest might decide to go their separate ways. Once the interstate highway system is no longer viable and the remaining domestic airlines are extinct, there is not much to keep the two coasts together. What once united the country was the construction of the continental railroad, but railroads have been too neglected to hold it together now. A country consisting of two halves tied together via Panama Canal is de facto at least two countries.
Yet another thing to watch for is foreign incursions into domestic politics. When foreign political consultants start stage-managing elections, as happened with Yeltsin's reelection campaign, you can be sure that the country is no longer in charge of its own political system. In the US, there is a gradual surrender of sovereignty, as sovereign wealth funds buy up more and more US assets. That sort of thing used to be considered akin to an act of war, but these are desperate times, and they are allowed to do so without so much as a nasty comment. Eventually, they may start making political demands, to extract the most value out of their investments. For instance, they could start vetting candidates for public office, to make sure that we remain friendly to their interests.
Lastly, the power vacuum created by the collapse of legitimate authority tends to be more or less automatically filled by criminal syndicates. These often try to commandeer the political establishment by getting their heads elected or appointed to political offices. Examples include Russian oligarchs, such as Boris Berezovsky, who got himself elected to Duma, the Russian parliament, and Mikhail Khodorkovsky, who thought he could use his oil wealth to buy his way into the political establishment. Luckily for Russia, Berezovsky is in exile in England, and Khodorkovsky is in jail.
A great many people in the US insist that they do not need government help, and that they would do just fine if only the government would leave them alone. But this is really just a pose; there is a great deal that that government does to make their lives possible. In the United States, the federal government keeps many people alive through programs such as Medicaid, Social Security, and food stamps. Local governments provide for trash removal and water and sewer line maintenance, road and bridge repair, and so on. Police departments try to defend people from each other.
When all of that starts to unravel, it is likely to do so from the bottom, not from the top. Local officials are more accessible than remote Washington bureaucrats, and so they will be the first to be overwhelmed by the anger and confusion of their constituents, while Washington remains unresponsive. One likely exception may have to do with the use of federal troops. It seems almost a given that troops repatriated from the more than 1000 foreign military bases will see action right here at home. They will be reassigned to domestic peacekeeping duties.
Aside from the big government programs, there is little available in the US to help those in need. Again, Americans make a big show of their philanthropy, but, compared to other developed countries, they are in fact quite stingy when it comes to helping those in need. There is even a streak of political sadism, which, for example, shows up in people's attitudes toward welfare recipients. This sadism can be seen in the so-called welfare reform, which has forced single mothers to work jobs that barely cover the cost of daycare, which is often substandard.
Aside from the government, there are charities, many of which are church-based, and so they have the ulterior motive of recruiting people to their cause. But even when a charity does not make any specific demands, its real purpose is to reinforce the superiority of those who are charitable, at the expense of those who are the recipients. There is a flow of forced gratitude from the beneficiary to the benefactor. The greater the need, the more humiliating is the transaction to the beneficiary, and the more satisfying it is to the benefactor. There is no motivation for the benefactor to provide more charity in response to greater need, except in special circumstances, such as immediately following a natural disaster. Where the need is large, constant, and growing, we should expect charities to matter very little when it comes to satisfying it.
Since neither government largesse nor charity is likely to provide for those who cannot provide for themselves, we should look for other options. One promising direction is a revival of mutual help societies, which take membership contributions and then use them to help those in need. At least in theory, such organizations are vastly better than either government aid or charities. Those who are helped by them do not have to surrender their dignity, and can survive difficult times without being stigmatized.
To make it intact through times of great need, the only reasonable approach, it seems to me, is to form communities that are strong and cohesive enough to provide for the well-being of all of their members, that are large enough to be resourceful, yet small enough so that people can relate to each other directly, and to take direct responsibility for each other's well-being.
If this effort fails, then the outlook becomes dire indeed. I would like to emphasize, once again, that we must do all we can to avoid this stage of collapse. We can allow the financial system, and the commercial sector, and most of the government institutions to collapse, but not this.
What makes this particularly challenging is that the existence of finance and credit, of consumer society, and of government-imposed law and order has allowed society, in the sense of direct, mutual help and of freely accepting responsibility for each others' welfare, to atrophy. This process of social decay may be less advanced in groups that have survived recent adversity: immigrant and minority groups, or people who served together in the armed forces. The instincts that underlie this behavior are strong, and they are what helped us survive as a species, but they need to be reactivated in time to create groups that are cohesive enough to be viable.
Culture can mean a great many things to people, but what I mean here is a specific very important element of culture: how people relate to each other face to face. Take honesty, for instance: do people demand it of themselves and others, or do they feel that it is acceptable to lie to get what you want? Do they take pride in how much they have or in how much they can give? I took this list of virtues from Colin Turnbull, who wrote a book about a tribe in which most of these virtues were almost entirely missing. Turnbull's point was that these personal virtues are also all but destroyed in Western society, but that for the time being their absence is being masked by the impersonal institutions of finance, commerce, and government.
I believe that Turnbull has a point. Ours is a cold world, in which the citizens are theoretically expected to fend for themselves, but in reality can only survive thanks to the impersonal services of finance, commerce, and government. It only allows us to practice these warm virtues among family and friends. But that is a start, and from there we can expand this circle of warmth to encompass more and more of the people who matter to us and we to them.
In his amazing book about the legacy of European colonialism, Exterminate all the Brutes, Sven Lindqvist makes the stunning observation that violence renders one unrecognizable. The aggressor, whether active or passive, becomes a stranger.
The violence does not have to be physical. One subtle type of mental violence that abounds in our world is the act of refusing to acknowledge someone's existence. We may believe that it makes us safer to walk past people without making eye contact. That is certainly true if our look is blank and indifferent, and it is then better to avert one's gaze than to look, and in effect to say: "I do not recognize you." That definitely does not make you any safer. But if your look says "I see you, you are OK," or even "I recognize you," then the effect is quite the opposite. Dogs understand this principle perfectly well, and so should people.
When I was doing a radio tour to promote my book, a lot of the AM radio motor-mouths who interviewed me would sum up the interview with something like "So this is all doom and gloom, isn't it." And then I would have maybe 15 seconds for a rebuttal. So here is my standard 15 second rebuttal: "No, my message is actually quite hopeful. I want to let people know that they can find ways to lead happy, fulfilling lives even as this doomed system crumbles all around them." Here, I can give you a longer answer.
I believe that the financial pyramid scheme and globalized consumerism are done. But I think that having no government at all is not an option. Forget entitlements, forget military bases on foreign soil, forget the three-ring circus that passes for representative democracy here, but we will still need agencies to print passports, to control the nuclear stockpile, as well as many other mundane but essential services that only a central government can provide. For most other needs, local self-government may be the best we can do, but that may not be bad at all.
Commercial collapse need not be final. It is quite possible that a new economy will arise spontaneously, one without all the frills and the waste, but able to provide for most of the basic needs. In the places that are socially and culturally intact, this is almost inevitable, as people take charge and start doing what's necessary without waiting for official sanction.
As far as social and cultural collapse, as I already mentioned, to some extent they have already happened, but this is being masked, for the time being, by the availability of finance, commerce, and government. But they can be undone, not everywhere, of course, but in quite a few places, because the instincts are there, and a dire common predicament can be the catalyst that changes society, bringing it closer to the human norm.
Knowing what to expect can provide us with peace of mind, even in the midst of collapse. Wallowing in nostalgia over the good old days, or denying that sweeping changes are before us -- these responses are definitely unhealthy.
If we know what's coming, we can start ignoring the things that we will not be able to rely on. If we do enough of this, we may find ourselves in a different world, quite possibly a better one, rather quickly. Here is a personal example. Some years ago, I decided to give up the car, finding it quite impractical, and started bicycling instead. It wasn't that easy at first, but once I got used to it, a strange thing happened to my perception: I started seeing cars quite differently. On the way to work in the morning, I would ride along a stretch of highway, which was always packed with cars. When you are driver, you see it as normal, because you are part of this herd of mechanized insects. But what I saw was sheet metal boxes with people imprisoned inside them, strapped down to a chair inside a tiny padded cell, and most of these poor crazies were just pictures of misery: an angry, desperate, lonely mob, condemned to move about in circles. And then I would happily pedal away, through a park and around a pond, and leave that horrible, dying world behind.
And so it is with a great many things. We can wait until the lifestyle that is killing the planet and is making us crazy and sick is no longer physically possible, or we can opt out of it ahead of time. And what we replace it with can be difficult at first, but quite a lot better for us in the end.
So let us summarize our findings. Financial collapse is already quite far along, and is guaranteed to run its course. Bailouts can make insolvent institutions look solvent for a time by providing liquidity, but one thing they cannot provide is solvency. For instance, no matter how much we bail out the auto companies, making any more cars will still be a bad idea. Similarly, no matter how much money we give to banks, their loan portfolios, loaded down with houses built in places that are inaccessible except by car, will still end up being worthless. By continuously nationalizing bad debt, the country will make itself into a bad credit risk, and foreign lenders will walk away. Hyperinflation and loss of imports will follow.
Commercial collapse is likewise guaranteed to happen. One key import is oil, and here the loss of imports will cause much of the economy to shut down, because in this country nothing moves without oil. But it should be possible to come up with new, far less energy-intensive ways to provide for the basic needs.
Political collapse is guaranteed as well. As tax receipts dwindle, municipalities and states will no longer be able to meet the minimal maintenance requirements for existing infrastructure: roads, bridges, water and sewer mains, and so forth. Municipal services, including police, fire departments, snow removal and garbage collection, will also be curtailed or eliminated. The better-organized communities may be able to find ways to compensate, but many communities will become impassable and uninhabitable, generating a flood of internal refugees.
Currently, the political class couldn't be farther from understanding what is about to happen. I listened in on one of the recent presidential debates (I don't have a television set, but I caught a chunk of it on NPR). It struck me that the two candidates spent most of the time arguing over ways of spending money that they don't have. For me, listening to them was a waste of time that I didn't have. I suspect that my book, would sell better if McCain got elected; nevertheless, I choose to remain selflessly apolitical. National politics is a distraction and a waste of time.
Actually, I should be gratified. A while ago I proposed a whimsical Collapse Party. The Collapse Party platform featured planks such as the freeing of prisoners to whittle down the prison population before a general amnesty becomes necessary due to lack of funds, a jubilee - forgiveness of all debts - to wipe the slate clean of all these bad loans, and a few others. Elsewhere, I proposed that it is a good idea to stop making new cars - just run down the ones we already have, and we'll run out of cars just as we run out of gas. I am happy to report that this has been banner year for the Collapse Party. Without fielding a single candidate, we managed to push through much of our agenda: many states are releasing prisoners due to the fiscal crisis, the federal government is now involved in avoiding foreclosures, a huge credit card debt write-off is in the works (not quite a jubilee, but still...) and now automakers are ready to consolidate or declare bankruptcy. Next year, perhaps we will repatriate troops and shut down overseas military bases, also in line with the Collapse Party platform.
Continuing with our recap, I see social collapse as avoidable, but not in all places. In many places, the task is to reconstitute society before the first three stages run their course, and it may already be too late. But this is where we need to make a stand, if only to be remembered for something more than the sum total of our mistakes.
Lastly, cultural collapse is something that's almost too horrible to contemplate, except that in some places it seems to have already happened, and is being masked by the various institutions that still exist, for the time being. But I believe that a lot of people will come around and remember their humanity, the better parts of their natures, when dire circumstances force them to rise to the occasion.
Also, there are some intact pockets of culture here and there that can be used as a sort of cultural seed stock. These are communities and groups that have seen some adversity in recent times, and have some social cohesion left over from the experience. They may also be those who made certain conscious decisions, to simplify their living arrangements in order to lead saner, more fulfilling lives. We must do all we can to avert this final stage of collapse, because what is at stake is nothing less than our humanity.
I hope that, if you have been following along, by this point this slide is self-explanatory. Collapse is not one monolithic thing. Each kind of collapse requires a response, be it jumping clear ahead of time, sitting it out, or opposing it with all you got. At this point, if anyone in this room got up and tried to tell us what to do to avoid financial collapse, we would probably find that quite funny. On the other hand, if we stand by and let social and cultural collapse unfold, then what's the point of any of this?
That's all. Thank you for listening.
This article is a talk that was originally given by Dmitry Orlov at the Community Solutions Conference in Michigan in November 2008.
Thanks to SO and KS for the formatting. This was an especially difficult job.
This past week the BLS released the September unemployment statistics and they worsened as usual, as America enjoys its recovery.
U-1–Those unemployed 15 weeks or longer, as a percent of the civilian labor force was 5.4%.
U-2-Job losers and persons who completed temporary jobs, as a percent of the labor force was 6.8%.
U-3-Total unemployed, as a percentage of the civilian labor force, the official unemployment rate, 9.8%.
U-4-Discouraged workers 10.2%.
U-5-Total unemployed plus discharged workers, plus marginally attached workers 11.1%.
U-6-Total unemployed as a percent of the civilian labor force 17%.
If the birth/death ratio is removed, U-6 is in reality 21.3% total US unemployment. The estimate is that 824,000, more jobs may be extracted from the payroll count for the 12-months ended next March. Such a revision would be the biggest since 1991. The BLS is underestimating job losses deliberately and has been for a long time. That would mean September’s loss would be some 300,000 not 263,000.
Such a revision would put job losses not at 4.8 million but 5.6 million jobs.
This is how government has operated for some time and will continue to as long as we allow them too.
Last week the Dow and the S&P fell 1.8%; the Russell 2,000 fell 3.1% and the Nasdaq 100 fell 1.9%. Cyclicals fell 2.5%; transports 3%; banks 2.8%, as broker/dealers gained 1.1%. Consumers rose 0.3%; utilities fell 2.69%; high techs fell 1.6%; semis 4.5%; Internets fell 1.6% and biotechs 4.1%. Gold bullion rose $12.00, as the HUI dipped 0.7%. The USDX rose 0.3% to 77.03.
Two-year T-bills fell 11 bps to 0.76%, 10-year notes fell 10 bps to 3.22% and 10-year German bunds fell 13 bps to 3.12%.
Freddie Mac 30-year fixed rate mortgage rates fell 10 bps to an 18-week low of 4.94%; 15’s fell 10 bps to 4.36% and one-year ARMs fell 3 bps to 4.49%. Jumbo 30’s fell 6 bps to 6.11%.
Federal Reserve credit fell $12.4 billion. It has fallen $126 billion ytd, but it is still up $742 billion, or 53% yoy. Fed foreign holdings of Treasuries and Agency debt rose $583 million to a record $2.855 trillion. Custody holdings for foreign central banks rose at a 17.9% rate ytd, and $389 billion yoy, or 15.8%.
M2 narrow money supply declined $8 billion to $8.310 trillion ytd and 5.2% yoy.
As the lack of government guarantees become known more money leaves money market funds. Assets sank again $53.5 billion to $3.429 trillion. They have fallen $401 billion ytd, or 36% annualized. They have increased only $30 billion, or 0.9% yoy.
We wonder what House and Senate members think when their constituents complain that banks are now charging 25% to 40% credit card interest? They simply don’t care, because these very same banks are paying off these elected representatives and senators via campaign contributions. That is an extra $700 billion to $1 trillion a year in earnings when the average family is having trouble putting food on the table. Couple this with virtually no income on savings and you have a dreadful situation. Americans are tax slaves to government and debt slaves to banks, a situation that cannot long persist. In addition banks want to charge more and subtly taxes will soon rise again.
Last week we forecast the fall in the Dow at 9,800 and so it has begun. The market has finally overpowered the manipulation of our government. It wasn’t that difficult. A 26 P/E ratio of trailing earnings that should be 14.5 times. The next leg down will test 6,000 to 6,600 on the Dow next year. All those who had a second chance to sell into the bear market will be doomed to greater losses than they experienced this year. It is time to again exit the market and move into gold and silver related assets. The banks and brokerage firms along with insurance companies have been driving this bear market with money from the Fed and the Treasury at 50 times leverage. The correction is underway as all these entities try to exit at the same time. Some are going to end up insolvent. This reminds us of 1922 in Germany and today’s Zimbabwe. Assets on bank and brokerage house balance sheets are going to be devastated. Even they do not really understand the debasement that has taken place. Every chart comparing everything with gold is in a state of collapse and that will become more evident shortly as gold soars to new heights. The mad overvaluation of the markets is about to end. The de-leveraging will take ten perhaps 20 years that is unless we have another world war. Fudging the figures just is not going to work. The PPI is climbing and no one seems to notice, particularly the media. Big inflation is on the way. It will be interesting to see just how much of the price increases businesses are going to absorb. Those on the edge are going to go bankrupt as debt doubles and doubles again.
All this is the result of the machinations of Illuminists who have created a corporatist fascist government for us, which will become the new world order, if we allow it to happen.
How can it be possible to have an economic recovery as we lose more and more jobs and that America manufactures very little. Private banks, Wall Street and insurance companies with vast amounts of wealth control our country, make no mistake about it. This is done by the private issuance of money and the deliberate creation of inflation, deflation and depression.
Inflation started to show up again beginning in May and this past month showed 25% growth in the PPI. That won’t show up in official government figures for the CPI, but it will in part be there. Will the corporations absorb the added cost or will they pass it on? Of course, they’ll pass it on.
Relentlessly the dollar is being abandoned worldwide. Unfortunately, the other G-20 currencies are not much better and that is why gold is so important. Keeping liquidity running into the system hasn’t worked and can’t work.
Our President’s pet group ACORN, a criminal enterprise, has had its funding pulled by the Ford Foundation. Annie E. Casey Foundation, the Charles Stewart Mott Foundation, the Marguerite Casey Foundation and Bank of America. Good riddance to bad rubbish.
The dollar has fallen from $124.00 on the USDX in 2002 to about 76.30 recently and was as low as 75.75 two weeks ago. Incidentally, someone should tell the liars at CNBC gold has risen by 300%. At both G-20 and G-7 summits there was little attention afforded to the plight and future of the dollar.
G-20 was full of the normal gobbligoop by bureaucrats running hither and yon, and accomplishing nothing more than creating a cloud of dust. They said they will maintain the global flow of capital as bank lending fell 14% yoy. Nothing has been done to repair the financial system. It is worse off now than it has been in two years, since the debacle began. In order to repair the system it has to be purged. The banks, brokerage houses, insurance companies and the Fed have to go into bankruptcy. This, of course, means Americans will lose 50% to 95% of their wealth, unless they are in gold and silver related assets. That is the cost of not paying attention, for not making the House, Senate and President do as they should. These so-called leaders have done everything possible to insure that there is no recovery. This while they tell us the global financial crisis is over. In addition the same crowd that created this disaster tells us over and over again that without their untimely and unprecedented support, the system would have collapsed.
You have to laugh at the G-7 and G-20. The latest is that world financial ministers have told the IMF to prepare guidelines to ensure an orderly and cooperative exit from fiscal and monetary stimulus. That can’t happen, because if it does the whole system will collapse. This is the IMF, which is selling gold because they will soon be broke, and haven’t made a correct decision in 60 years. The IMF is to provide insurance-style finance to well run emerging economies so they won’t build up foreign exchange. We have never heard anything stupider in our lives. As this transpired the World Bank’s President, Robert Zoellick, informs us the bank will be broke within a year.
Last month the BLS created 34,000 jobs via the net birth/debt adjustment (ratio). What a fraud. That is double the 18,000 for September 2008.
They are telling you what you are supposed to believe. That story is as believable as the WDO story that started the invasion and occupation of Iraq. Our President tells us Iran has a secret nuclear facility. This is information Iran told the UN’s International Atomic Energy Agency four days previously and miraculously our President discovered it. This, like the meetings of G-20, G-7 and demonstrations, serve as distractions to our pitiful economic and financial morass. This was to be used as an excuse to greatly increase sanctions, which are a form of warfare. All this is misinformation to cover up a two-year old credit crisis that is worsening by the day. Americans and others realize this. That is why spending is falling and savings are rising. This holiday season sales will be off 1% to 3% with the stimulus package. Otherwise they would have been off 5% or more. Recognition of our financial and economic situation has made banks reduce lending. It is obvious credit expansion has reached its limit and that is why lending and spending has slowed.
This all comes back to 8/15/71, the day the US left the gold standard. The only way the dollar can be saved is by a return to the gold standard. Unfortunately that won’t and can’t happen because we do not believe the US has any gold left and even if they did they still wouldn’t have a gold backed currency. They want the destruction of the dollar in order to implement a world currency from the IMF and in that process bring the world economic and financial system to its knees to force us to accept World Government. This is evident in the Illuminist goal to control all political, social and financial freedom. This is all being done by way of deception. The same deceit has been used in the TARP program. The purpose of which was to purchase troubled assets that cluttered balance sheets. What happened instead was that the funds were used to buy the shares of troubled banks and for banks to buy other failing banks and to speculate in markets. Another deception is that the Fed will wind down its monetization program. That is impossible, otherwise the system would collapse. Never mind the secret monetization going on in swaps and in secret Cayman accounts. In all of this saving of banks, Wall Street and insurance companies the public has been left behind and unemployment has flourished. All such programs are doomed to failure and your only protection is gold and silver related assets.
Goldman Sachs stands to receive a payment of $1bn – while US taxpayers would lose $2.3bn – if embattled commercial lender CIT files for Chapter 11 bankruptcy protection, people familiar with the matter said.
The payment stems from the structure of a $3bn rescue finance package that Goldman extended to CIT on June 6 2008, about five months before the Treasury bought $2.3bn in CIT preferred shares to prop it up at the height of the crisis. The potential loss for taxpayers would be the biggest to crystallize so far from the government’s capital injection plan for banks.
The agreement with Goldman states that if CIT defaults or goes bankrupt, it would be required to pay a make-whole amount that totals $1bn, the people familiar with the matter said.
While Goldman is entitled to demand the full amount, it is likely to agree to postpone payment on a part of that sum, these people added. A CIT filing last week said that it was in negotiations with Goldman concerning an amendment to this facility.
Goldman said: This would not be a windfall payment. The make-whole payment is simply the present value of the spread to be earned over the life of the facility.
CIT declined to comment. In an effort to prevent bankruptcy, it is working on a debt exchange offer that would virtually wipe out equity holders. In the event of bankruptcy, Goldman would reap more than $1bn because it also holds credit insurance that would be paid off.
Goldman said: “The credit default swaps Goldman Sachs purchased to prudently manage the risk associated with the CIT financing are not a directional ‘bet’ on CIT, but were bought to protect against the possibility of a precipitous decline in the value of the collateral.”
Michael Geoghegan, chief executive of HSBC, is so convinced there will be a second downturn in the coming months that he plans to delay any rush to expand the bank.
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US vacation timeshare sales may fall the most this year since the industry gained popularity in the 1970s. Sales may drop 30% this year from 2008, said Howard Nusbaum, president and chief executive officer of the American Resort Development Association.
Applications for Social Security benefits rose almost 50% more than expected this year because of the recession, according to the federal retirement program. ‘We are seeing a significant increase in both retirement and disability applications as a result of the recession,’ said Mark Lassiter, a Social Security spokesman. Agency statistics show that 2.57 million people requested benefits, up from the 2.10 million applications received during the previous 12 months.
State tax revenues in the second quarter plunged 17% from a year earlier as rising unemployment and reduced spending hurt sales- and income-tax collections. The decline was the sharpest since at least the 1960s. The biggest drop among major revenue sources was in state income taxes, which were down 28% from a year ago. Sales-tax revenues fell 9%.
Connecticut, the state with the most tax-supported debt, will borrow $2.25 billion over the next two years to balance its budget amid plunging income tax collections. [Let’s not forget they loaned $1 billion to the Hartford Insurance Group, which they‘ll probably never see again.]
Manhattan apartment prices fell for a second consecutive quarter, helping drive the biggest gain in sales in more than 13 years. The median price slid 8.4% to $850,000 in the third quarter from a year earlier, appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said. The number of sales jumped 46% from the second quarter.
Manhattan office rents fell 5.2% in the third quarter from the previous three months. Asking rents fell to an average of $50.98 a square foot from $53.76 broker Studley Inc. said. Rents for the best offices in Manhattan declined 6.4% to $62.38 a square foot in the period.
The U.S. Supreme Court rejected an appeal by Joseph Nacchio, the former Qwest Communications International Inc. chief executive officer convicted of selling $52 million in company stock based on inside information.
The justices, without comment, let stand a federal appeals court decision that upheld Nacchio’s conviction. His lawyers contended that Nacchio didn’t withhold any material information from the public about the company’s condition and that an expert witness was improperly barred from testifying at his trial.
“I am deeply disappointed by the court’s decision because I am convinced that he is innocent and did not receive a fair trial,” Nacchio’s lead Supreme Court lawyer, Maureen Mahoney, said in an e-mail.
Nacchio began serving what initially was a six-year sentence in April. An appeals court later ordered a trial judge to reconsider the prison term, saying the original sentence was based on a miscalculation of how much Nacchio gained from his illicit conduct.
Nacchio, 60, separately is seeking a new trial, arguing before a federal district judge in Denver that new evidence shows prosecutors mischaracterized the testimony of the company’s former chief financial officer.
Prosecutors said Nacchio should have disclosed in 2001 that Qwest’s recurring revenue was falling short and that the company was relying too heavily on the shrinking market for one-time sales of its network capacity. He was accused of accelerating his stock sales upon learning in April 2001 that Qwest missed its first-quarter forecasts for recurring revenue. [More then 600 other corporate officers did the same thing and not one was prosecuted because they made a deal with the Justice Department for their firms to accept fines on their behalf. Nacchio was not an Illuminists nor was he connected to their structure, so he goes to jail and no one else does, as an example, that you either cooperate or we destroy you.]
U.S. service industries expanded in September for the first time in a year as the emerging recovery spread from housing and factories to the broader economy.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 50.9, higher than forecast, from 48.4 in August, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.
New York University Professor Nouriel Roubini said stock markets may drop and billionaire George Soros warned the “bankrupt” U.S. banking system will hamper its economy, highlighting doubts about the sustainability of the global recovery.
“Markets have gone up too much, too soon, too fast,” Roubini, who accurately predicted the financial crisis, said in an interview in Istanbul on Oct. 3. U.S. stocks may suffer a “major decline” after climbing to the highest levels in almost a year two weeks ago,
U.S. consumers are “over-debted” and the country’s banking system has been “basically bankrupt,” Soros said in Istanbul today. “The United States has a long way to go.”
A measure of U.S. job prospects rose in September for the first time in more than a year, a sign job losses may not keep accelerating, a private survey showed.
The Conference Board’s Employment Trends Index rose 0.3 to 88.5, the first increase since January 2008 and the highest level since April, the New York-based private research group said today. The reading was down 16 percent from a year ago.
A government report last week showed payrolls in September fell more than forecast, a sign the economic recovery may be slow to gain speed. Federal Reserve Chairman Ben S. Bernanke last week said joblessness would remain above 9 percent through next year, indicating the central bank wouldn’t move quickly to drain cash from the economy.
The index “suggests that the trend of declining job losses will continue,” Gad Levanon, a senior economist at the Conference Board, said in a statement. “But the road to recovery is definitely going to be bumpy and may last unusually long, given the depth of the recession we have experienced.”
Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators should consider making secured creditors carry more of the cost of bank failures.
“This could involve potentially limiting their claims to no more than, say, 80 percent of their secured credits,” Bair said yesterday in a speech to a banking conference in Istanbul. “This would ensure that market participants always have some skin in the game, and it would be very strong medicine indeed.”
Bair’s comments go beyond any of her previous proposals for changing the way large and so-called systemically important financial institutions are regulated. She has long supported broadening the government’s powers in order to limit the impact on the financial system of an event such as last year’s bankruptcy of Lehman Brothers Holdings Inc.
The proposal would probably increase banks’ cost of funding and make it harder to find long-term financing because creditors would be watching closely for any signs of trouble, said William Black, associate professor of economics and law at the University of Missouri-Kansas City and a former bank regulator.
“It would make it gratuitously more expensive for banks to raise funds, even on a secured basis,” Black said.
Bair’s proposals, which would require legislation, aren’t part of the U.S. regulatory overhaul. The Obama administration has defended making auto industry bondholders accept losses as a condition of a government bailout, while saying the same approach shouldn’t apply to banks because of the havoc such changes may wreak on the financial system.
Financial markets should be subject to new taxes that will discourage “dysfunctional” trading and help pay for the damage the global crisis inflicted on poorer countries, Nobel Prize-winning economist Joseph Stiglitz said.
“The financial sector polluted the global economy with toxic assets and now they ought to clean out,” Stiglitz told reporters today in Istanbul, where he’s attending the International Monetary Fund and World Bank annual meetings. He said a tax is “much more feasible today” than in the past.
The IMF will study ways to tax the financial industry at the request of Group of 20 leaders, Managing Director Dominique Strauss-Kahn said last week. He dismissed the “very simplistic” idea of the so-called Tobin tax, a global charge on currency trades, which he said would be difficult to implement.
Stiglitz said any new levy should cover all asset classes, and will be easier to implement as more of the world’s financial transactions are brought under regulatory control.
Charges on contracts such as derivatives should be based on the gross value of the assets, to “discourage the kind of hidden leverage that helped cause this crisis” and rein in the “destructive innovation” of bankers, he said.
Money raised by the tax could be used to help poor countries who weren’t responsible for the financial crisis and are nevertheless suffering its consequences, Stiglitz said. The $700 billion offered by the U.S. government a year ago to bail out banks was equivalent to a decade’s-worth of all global aid to poor nations, he said.
The dollar fell after Group of Seven finance ministers omitted any mention of the currency’s weakness in their final communique. European stocks and U.S. index futures gained.
The U.S. currency declined against 13 of its 16 most-traded peers as of 12:17 p.m. in New York. The yen slipped versus all 16 after Finance Minister Hirohisa Fujii said the government will act if the foreign-exchange market moves in a “biased direction.” The Dow Jones Stoxx 600 Index of European shares rose for the first time in four days, adding 0.4 percent. Futures on the Standard & Poor’s 500 Index increased 0.6 percent.
Finance ministers and central bankers from the G-7 nations avoided any reference to the American currency’s decline, which sent the Dollar Index down 5 percent this year, after their Oct. 3 talks in Istanbul. Europe’s manufacturing and services industries expanded more than initially estimated in September, London-based Markit Economics said. In the U.S., service industries probably snapped 11 straight declines, a separate monthly report may show.
“A weaker dollar helps with the goal of global rebalancing, which appears to be a larger aim of the G-7,” Sophia Drossos, head of currency strategy at Morgan Stanley in New York and a former foreign-exchange manager at the Federal Reserve, wrote in a report today. This “reinforces our view that as long as a weak dollar is largely reflective of rate and growth differentials, the G-7 is unlikely to stand in the way.”
White House officials and Democratic leaders in Congress on Friday said they were weighing extending key elements of the economic-stimulus program as the nation grapples with a deteriorating job market. Obama administration economists said they would like the enhanced unemployment-insurance program to extend beyond its Dec. 31 expiration date. They also want to maintain a program that offers tax credits to pay 65% of the cost of health insurance policies under the COBRA program, which allows laid-off workers to purchase the health plans they had through their previous employer.
White House officials said they also are examining whether to extend a soon-to-expire tax credit for first-time homebuyers, but that provision faces a stiffer headwind. [This is exactly as we predicted in January.]
The details of the September Employment Report are uglier than the headline NFP number. U6 (comprehensive unemployment) is now 17%. The average workweek declined to 30.0 hours from 30.1;and the household survey showed a stunning 785k drop in employment. John Williams calculates total unemployment, adding people that have not looked for work for over one year to U6, at 21.4%.
The average amount of time it takes fired employees to find a new job exceeds the length of their standard unemployment benefits…the average duration of unemployment is now 26.2 weeks, longer than the 26 weeks of state benefits normally provided to workers who lose their jobs. It’s the first time that has occurred since the Bureau of Labor Statistics began keeping records in 1948.
Congress has extended unemployment benefits twice -- first in July 2008 and then as part of the stimulus bill signed in February. Currently, the unemployed are eligible for a total of 46 weeks of benefits, and those in states where the unemployment rate is more than 6 percent are eligible for 59 weeks.
America's army of long-term unemployed -- those without work for six months or more – has swelled to 5.4 million.
The figures raise the possibility that the government’s calculations continue to miss the mark. “We are probably still underestimating job losses,” said John Silvia, chief economist at Wells Fargo Securities. Once a year, the Labor Department revises its payroll figures after combing through tax records from the unemployment insurance program that covers practically all businesses. Those records are only available after a lag, explaining why it takes more than a year to make the tabulations. The department uses a formula, known as the birth/death model, to determine the influence on payrolls from the formation and demise of businesses. Because the government doesn’t know if a company fails to respond because it has gone out of business or is just late, it estimates the number of companies that may have folded. By the same token, it plugs in an estimate for the formation of new businesses to account for their hiring.
“This birth/death model is still assuming that we are getting new jobs from new-business creations,” David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto, said in an interview. “These additions are coming somewhere from ‘Alice in Wonderland,” he said.
Consumer bankruptcies soared 41 percent in September from a year before and climbed from August, as high unemployment and the housing market crash took their toll, the American Bankruptcy Institute said on Friday. http://www.reuters.com/article/ousivMolt/idUSTRE5915HC20091002
You can’t make up stuff like this! Reuters: Greenspan says Fed balance sheet an inflation risk "You cannot afford to get behind the curve on reining in this extraordinary amount of liquidity because that will create an enormous inflation down the road," Greenspan said at a forum hosted by The Atlantic magazine, the Aspen Institute and the Newseum.
The number of U.S. lenders that can’t collect on at least 20 percent of their loans hit an 18-year high, signaling that more bank failures and losses could slow an economic recovery.
Are perceptions of the bailout still negative, or are folks not as upset as they were a year ago?
Poole: It's clear that the general public is disgusted with the bailout. The general public understands that it's a grossly unfair and unreasonable situation for risks to be socialized and gains to be private. That's just common sense. What everybody seems to be hoping is that banks have learned a lesson, and I'm sure banks are going to be much more conservative.
But the same incentives for leverage are there that were there two years ago and three years ago that created this problem. In due time, some traders will be instructed to take those leveraged risks that come out with big profits, and it's going to be hard for others not to join in. It's going to be very hard for the Federal Reserve and others to stop them.
Using data from the Federal Deposit Insurance Corporation, Mr. Baker’s study found that the spread between the average cost at smaller banks and at larger institutions widened significantly after March 2008, when the United States government brokered the Bear Stearns rescue. From the beginning of 2000 through the fourth quarter of 2007, the cost of funds for small institutions averaged 0.29 percentage point more than that of banks with $100 billion or more in assets. But from late 2008 through June 2009, when bailouts for large institutions became expected, this spread widened to an average of 0.78 percentage point.
At that level, Mr. Baker calculated, the total taxpayer subsidy for the 18 large bank holding companies was $34.1 billion a year...Mr. Baker says it is important to continue measuring this difference in costs to see whether the subsidy disappears or whether it is a continuing transfer of income.
So far this year, nearly all of the earnings improvements have been achieved through major cost-cutting efforts. Overall selling and administrative costs among S.& P. 500 companies fell 5.7 percent in the second quarter versus the period a year earlier, according to a recent report by David J. Kostin, the chief United States equity strategist at Goldman Sachs.
This represents far more drastic cuts than were undertaken in the recessions of 1991 and 2001. Still, “you can only cut so much,” said Howard Silverblatt, senior index analyst at S& P. “At some point, you need to start seeing the business actually grow. You need to see increased sales” — sometimes called “top line” growth. That’s why Mr. Silverblatt says that revenue — not earnings — “will be the most important number for investors to watch.” The revenue declines are even more staggering on a dollar basis. From June 2008 to June 2009, revenue of the 500 companies tumbled by a total of $1.15 trillion. “That’s more than the entire fiscal stimulus,” Mr. Silverblatt said.
For nearly two years, economic issues have held the top spot in terms of importance among voters.
But the latest national telephone survey shows that 83% now view government ethics and corruption as very important, placing it just ahead of the economy on a list of 10 key electoral issues regularly tracked by Rasmussen Reports. Eighty-two percent (82%) of voters see the economy as very important.
This is the first time since October 2007 that voters have rated ethics and corruption as more important than the economy. Voters viewed the two issues evenly in November and December 2007 before placing a higher priority on the economy starting in January 2008.
Last month, 86% of voters said economic issues were very important while 80% saw government ethics that way.
The new findings come at a time when 43% of voters say the president is doing a poor job addressing government ethics and reducing corruption, up five points from early September and the highest level measured since he took office. Forty percent (40%) now give the president good or excellent ratings on his handling of the issue.
The Federal Reserve should be forced to identify companies that received loans from the central bank because it can’t demonstrate that borrowers would be harmed by the disclosure, according to lawyers who won a Freedom of Information Act lawsuit.
The details sought by the Bloomberg News unit of Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, aren’t proprietary, attorneys for the company said today in a court document opposing the Fed’s request for a court to halt disclosure of information while an appeal proceeds.
Bloomberg won a ruling from Manhattan’s chief federal judge on Aug. 24 affirming the right of U.S. taxpayers to know about the financial firms that borrowed money. Total lending by the Fed, which last year began extending credit directly to companies that aren’t banks for the first time since it was created in 1913, was $2.12 trillion on Sept. 30.
Divulging specifics about the loan program might touch off a run by depositors, unsettle shareholders and hurt the central bank’s “ability to perform important statutory functions at a time of economic upheaval,” Fed lawyers have said in legal filings.
Growing speculation over the potential end to dollar-based trading in the oil market may be part of the reason gold prices have rallied beyond $1,020 an ounce to stand near their highest level in 18 months.
And the strength was kept even as several top officials, including Saudi central bank chief Muhammad al-Jasser, denied the report.
Gulf Arab states, along with China, Russia, Japan and France, are planning to put an end to dollar-based trading in the oil market, according to an exclusive report published Tuesday in the U.K. by The Independent.
"News on gold's expected future role in oil transactions between these trading partners has sent the price past $1,020," said Peter Spina, chief investment analyst at GoldSeek.com.
'News on gold's expected future role in oil transactions between these trading partners has sent the price past $1,020.'
Peter Spina, GoldSeek.com
In place of the greenback, the nations plan to use a basket of currencies, including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar, the report said.
The Independent said the plans were confirmed by both Gulf Arab and Chinese banking sources in Hong Kong.
Several top Gulf central bankers immediately dismissed the talk, and the vice chairman of China's central bank made no mention of such a move in a speech.
The demise of the dollar
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading.
The revenue that banks and credit unions generate by letting customers overspend their accounts, then charging them a fee, increased 35 percent in two years, the Center for Responsible Lending reports in a study released Tuesday.
Culling figures gathered by the Federal Deposit Insurance Corp., the consumer advocacy group found that customers paid $23.7 billion in overdraft fees in 2008, up $6.2 billion from two years before.
In the past 12 months, an estimated 51 million Americans spent more than they had in their checking accounts, triggering either an overdraft or non-sufficient funds fee, the study found.
National chain store sales rose 0.4% in the five weeks of September versus the previous month, according to Redbook Research's latest indicator of national retail sales released Tuesday.
The rise in the index was compared to a targeted 0.3% drop.
The Johnson Redbook Index also showed seasonally adjusted sales for the period were down 2.2% from the last year and compared to a targeted 2.9% fall. The latest numbers are starkly different because they don't include Wal-Mart Stores Inc. (WMT), which earlier this year stopped giving monthly same-store-sales figures.
Redbook said, "Sales were firmer in the final week of September and thus ended the month above our retailers' target. Some retailers saw a firmer tone during the latest week, caused by cooler more fall-like temperatures in many parts of the country. However, not all agreed with this view."
Looking ahead, Redbook is projecting a 2.1% drop from a year ago for October, falling 0.9% from September. The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index rose 0.3% in the week ended Saturday from its level a week before on a seasonally adjusted, comparable-store basis.
A bout of cooler weather helped to spur customer traffic, especially at department stores and discounters, and helped the month to finish on a positive note, said Michael P. Niemira, ICSC chief economist.
The group expects retailers to report a 2% drop in same-store sales when the industry discloses its September results later this week. But Niemira said the decline could end up being narrower than that with the late-month improvement. The results exclude Wal-Mart Stores Inc. (WMT), which earlier this year stopped reporting same-store-sales figures.
Apartment vacancies rose to 7.8 percent in the third quarter, the highest since 1986, as rising unemployment reduced rental demand, Reis Inc. said.
Actual rents paid by tenants, known as effective rents, declined 2.7 percent from a year earlier, the New York-based property research firm said in a report today. Asking rents, or what landlords sought, fell 1.8 percent from a year earlier.
Job losses and falling wages are shrinking the pool of potential tenants. The U.S. unemployment rate rose to 9.8 percent in September, the highest since 1983, the Labor Department said Oct. 2.
Vacancies continued to rise despite what has traditionally been a strong leasing period for apartment properties, Victor Calanog, director of research at Reis, said in a statement. Given the inherent seasonality of rental and lease-up patterns we expect fourth-quarter figures to be even weaker, implying that we may break historic vacancy levels by year-end 2009.
The apartment vacancy rate was 7.7 percent in the second quarter and 6.2 percent in 2008’s third quarter, Reis said. Compared with the second quarter, asking rents fell 0.5 percent and effective rents fell 0.3 percent.
As acting director of a federal agency criticized for lax oversight of the American financial industry, John Bowman has only a few allies these days on Capitol Hill. Still, Bowman says, he relishes the chance to defend the Office of Thrift Supervision against efforts by President Obama and Congress to shut it down.
“It’s a lot of fun,’’ said Bowman, who, as the Office of Thrift Supervision’s former chief counsel was among the US officials who regulated American International Group Inc., Countrywide Financial, and other institutions whose risky practices helped trigger the nation’s economic crisis.
But the idea that Bowman and other federal banking regulators are fighting a sweeping financial industry overhaul taking shape in Congress has infuriated supporters of the legislation. The reforms are needed, they say, to keep regulators from again turning a blind eye to abuses, and prompting another meltdown.
“It’s unbelievable. They totally fell down on the job, and now they are protesting,’’ said Kathleen Day, a spokeswoman for the Center for Responsible Lending, a group that is backing the Obama administration’s proposals to merge responsibilities of several agencies and beef up rules protecting consumers.
In addition to the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the FDIC, and the Federal Reserve are all fighting key elements of the plan.
Open defiance from departments of the federal government has clearly annoyed the administration. But by law, the financial regulators are independent of the White House. Bowman was promoted by Treasury Secretary Timothy Geithner from chief counsel to acting director of the Office of Thrift Supervision in March. Comptroller John C. Dugan and FDIC chief Sheila Bair were both appointed by former President George W. Bush. Federal Reserve chairman Ben Bernanke was originally appointed by Bush, but Obama has nominated Bernanke for another term.
Critics have said the diffuse oversight responsibilities of these agencies, and their business-friendly approach to regulation, allowed banks, insurers, and Wall Street firms to engage in reckless mortgage lending and trading - ultimately requiring a taxpayer-financed bailout of $700 billion to prevent the US economy from sliding into a depression.
The Obama proposals, which are being drafted in detail by Representative Barney Frank of Newton in his role as chairman of the House Financial Services Committee, would merge the Office of Thrift Supervision into the Comptroller of Currency and reduce the consumer-protection powers of the other regulators.
In their place, it would create a new agency called the Consumer Financial Protection Agency to focus on guarding consumers from predatory lending and deceptive financial products, with broad authority to write and enforce rules.
Geithner, the administration’s point-man on the financial reforms, declined interview requests. But he explained his rationale for scrapping the old system and starting anew at a recent congressional hearing before Frank’s committee:
“We’ve had a test of whether that system worked. It didn’t work.’’
Frank said the existing set of regulators have shirked their consumer-protection responsibilities and instead were focused on the overall stability of financial institutions. The new agency is needed, he said, so that at least one financial regulator has consumers as its priority.
“I understand they are trying to protect turf, but it’s turf they haven’t cared much about,’’ he said. “The first time any of them have raised this issue of consumer powers was when we threatened to take it away.’’
The agencies, Frank said, “don’t want to lose their consumer powers to the consumer protection agency. But they’ve already lost them to disuse.’’
But Bowman and the other regulators insist that they have a legitimate case, saying they have been unfairly blamed for the economic crisis.
“We have very real concerns. To dismiss it as simply being turf is selling us short,’’ said Bowman.
The Fed did not respond to requests for comment from the Globe; spokesmen for the FDIC and the comptroller’s office referred to public testimony by agency leaders that expressed support for consumer protection but concerns about giving the proposed new agency enforcement powers that could be disruptive for business and raise costs at a time when banks are struggling to emerge from the recession.
Bowman defended his office’s record, citing 125 formal enforcement actions over the last 10 years, in addition to other steps that he said were never disclosed publicly because they did not rise to the level of formal actions.
“When we find certain kinds of activities on the part of institutions we regulate that are not consistent with consumer protection, we deal with it very quickly and very effectively, but we do so very privately,’’ he said.
The current patchwork system of financial regulation, with four different federal regulators, is the legacy of scattershot reforms over the past 145 years.
The Comptroller of the Currency was established during the Civil War to shore up the financial system. The Federal Reserve, established in 1913, is primarily concerned with monetary policy and fighting inflation, but also has some consumer protection responsibilities. The FDIC, a New Deal-era agency, guarantees deposits in bank accounts. The Office of Thrift Supervision was established amid the wreckage of the savings and loan crisis in 1989 to oversee thrifts, banks that concentrate on consumer lending.
Critics say the existence of four different regulators has allowed banks to go “shopping’’ for the regulator who will treat them the most leniently, a problem the critics say could be reduced with a single consumer protection agency that covers the whole financial system. Furthermore, Eugene Ludwig, who was comptroller of the currency during the Clinton administration and is now a critic of the regulatory system, said that since the agencies are funded by the assessments charged on companies they regulate, the agencies have an inherent incentive to keep banks from moving to other regulators.
House Republicans are largely opposed to the White House proposals that Frank is redrafting in his committee, especially the proposed Consumer Financial Protection Agency. They have cited the comments by Bowman and the other regulators.
Representative Jeb Hensarling, a Republican Financial Services Committee member from Texas, said he thought the regulators had a “legitimate concern.’’
But that he also opposed the proposed agency on a more fundamental level.
Giving the government so much power to oversee financial products, he said, “assumes consumers are intrinsically stupid.’’ [This is the response you get from sociopatahic Illuminists.]
An internal review by ACORN’s board of directors found that $5 million was embezzled from the community organization, far more than a previously reported sum of $1 million, according to documents from the Louisiana attorney general’s office.
The new amount was reported in a subpoena released Monday from an investigation by Attorney General Buddy Caldwell, the Times-Picayune reported yesterday. It is unclear if the money was taken from state, federal, or private funds, according to the subpoena.
Bertha Lewis, chief executive officer of the Association of Community Organizations for Reform Now, said the new embezzlement allegation is “completely false.’’ She said she would comment further after she and ACORN attorneys have a chance to review the subpoena.
Caldwell issued subpoenas in August seeking documents related to Wade Rathke, then the president of ACORN International, and his brother, Dale Rathke, who kept the group’s books. Those subpoenas targeted possible violations of state employee tax law, obstruction of justice, and violations of the Employee Retirement Security Act.
The attorney general made inquiries in June into alleged embezzlement within ACORN that happened 10 years ago. The group last year dealt with an internal dispute and a lawsuit involving accusations that Dale Rathke made nearly $1 million in improper credit card charges in 1999 and 2000. Rathke’s brother and a donor repaid the money.
But Caldwell said last month that the statute of limitations prevented prosecutors from taking action on the alleged embezzlement.
The subpoena issued Monday puts a new emphasis on the embezzlement issue. It appears to be in reaction to documents gathered from ACORN’s board as a result of the August subpoenas.
“Current high-ranking members of ACORN have publicly acknowledged that embezzlement did in fact occur, but the exact amount of the embezzlement was unknown until it was recently acknowledged in a board of directors meeting on Oct. 17, 2008, by Bertha Lewis and Liz Wolf that an internal review had determined that the amount embezzled was $5 million,’’ the new subpoena says.
Police used water cannons, tear gas, and pepper spray yesterday to disperse hundreds of demonstrators protesting against the annual meetings of the International Monetary Fund and the World Bank, held in Istanbul.
Dozens of masked protesters shattered the windows of a McDonald’s restaurant and several banks, also damaging vehicles as they ran into the streets behind Istanbul’s Taksim Square, which is less than half a mile from the site of the IMF and World Bank meeting.
The protesters, armed with firebombs and slings, repeatedly confronted the police in narrow back streets, but a heavy police presence prevented them from reaching the meeting. Thousands of police wearing gas masks and protective gear erected barriers and detained more than 70 protesters, said Muammer Guler, governor of Istanbul.
The protesters were mostly members of small leftist parties or labor unions. CNN-Turk television said foreign protesters were also involved. Police helicopters hovered above the crowds.
Clouds of tear gas filled the air above Taksim Square while firefighters battled a blaze set by protesters. Passersby and reporters were also affected by the tear gas.
[In January we predicted a second stimulus program of $2 trillion for 2010, so that politicians can get re-elected. Now finally 9 months later others are catching on.] The US government may announce another stimulus package in the first half of 2010 to revive economic growth and create jobs before mid-term elections, according to High Frequency Economics Ltd.
“When we get into next year, which is an election year, politicians will push for another round of stimulus and that will help to support growth,’’ Ian Shepherdson, economist at the Valhalla, N.Y.-based research firm, said. “But even with that, the idea of rebounding into a normal V-shaped cyclical rebound is going to be very difficult.’’
President Obama is considering a mix of spending programs and tax cuts to respond to widening job losses. He and his aides have forecast that employment growth will lag in an economic recovery as they try to tackle rising joblessness before midterm elections in November 2010.
The discussion of the initiatives, including a boost in transportation spending and an extension of an expiring tax credit for first-time homebuyers, comes as the White House is balancing rising concern about unemployment and a budget deficit the Congressional Budget Office estimates will total $1.6 trillion this year and $1.4 trillion in 2010.
In considering the measures, the administration must reconcile two potentially contradictory missions: combating rising unemployment through government intervention and the need to hold deficits down.
Mortgage applications in the U.S. rose last week to the highest level since May as near record- low borrowing costs boosted refinancing and sent purchases to a 10-month high.
The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan jumped 16 percent to 756.3 in the week ended Oct. 2 from 649.6 in the prior week. The group’s gauge of refinancing surged 18 percent and its measure of purchases climbed 13 percent.
Lower home prices, falling mortgage rates and tax credits to first-time buyers have shored up sales, helping stabilize the housing-market slump that precipitated the financial crisis. Mounting job losses and foreclosures are a reminder that a recovery, in both housing and the economy, will be slow to develop.
“The bottoming process in the housing market is under way,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York. “Residential investment should serve as a positive contribution to growth” in the third quarter.
The mortgage bankers’ purchase index increased to 306.1 last week, the highest level since January, from 270.4 the previous week, today’s report showed. The refinancing gauge jumped to 3,377.1, the highest level since May, from 2,857.3.
The share of applicants seeking to refinance loans rose to 66.3 percent of total applications last week from 65.3 percent.
Borrowing costs fell. The average rate on a 30-year fixed- rate loan decreased to 4.89 percent last week from 4.94 percent the prior week. The rate reached 4.61 percent at the end of March, the lowest level since the group’s records began in 1990.
At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be $530, or about $68 less than the same week a year earlier, when the rate was 5.98 percent.
The average rate on a 15-year fixed mortgage fell to 4.32 percent last week from 4.34 percent. The rate on a one-year adjustable mortgage jumped to 6.56 percent from 6.40 percent.
Recent data indicate the housing industry is emerging from its worst recession since the 1930s. The index of signed purchase agreements, or pending home sales, jumped 6.4 percent in August, a seventh consecutive gain, the National Association of Realtors said on Oct. 1.
Rent for office space is falling at the fastest pace in more than a decade as vacancies create a glut and landlords slash prices to attract tenants.
Nationwide, effective office rents fell 8.5% in the third quarter compared with the same period a year ago, the steepest year-over-year decline since 1995, according to Reis Inc., a New York real-estate research firm.
The decline came as companies returned a net 19.6 million square feet of space to landlords in the third quarter, slightly more than in the second quarter. For the first three quarters of this year, the net decline in occupied space totaled a record 64.2 million square feet, the highest so-called negative absorption recorded since Reis began tracking the data in 1980. (That doesn't count space that left the market as a result of the 2001 terrorist attacks.) The vacancy rate, meanwhile, hit 16.5%, a five-year high, according to Reis.
The collapse of a financial institution is not necessarily a disaster. If free markets are to thrive, we must not allow giant, state-supported banks to believe that they are indestructible, Niall Ferguson warns.
But this crisis was not the result of deregulation and market failure. In reality, it was born of a highly distorted financial market, in which excessive concentration, excessive leverage, spurious theories of risk management and, above all, moral hazard in the form of implicit state guarantees, combined to create huge ticking time-bombs on both sides of the Atlantic. The greatest danger we currently face is that the emergency measures adopted to remedy the crisis have made matters even worse.
By the end of 2007, 15 megabanks, with combined shareholder equity of $857 billion, had total assets of $13.6 trillion and off-balance-sheet commitments of $5.8 trillion – an aggregate leverage ratio of 23 to 1. They also had underwritten derivatives with a gross notional value of $216 trillion – more than a third of the total.
This is moral hazard run mad – a system in which a few giant banks get to operate as hedge funds with a government guarantee that if they blow up, their losses will be socialized...the real aim of government should be to give the TBTFs "positive incentives … to shrink and to reduce their leverage, complexity, and interconnectedness".
The best way of creating such incentives is to reiterate, preferably once a week, one key point: in case of failure, "the largest, most interconnected firms" should in future be wound up "in a way that protects taxpayers and the broader economy while ensuring that losses are borne by creditors and other stakeholders".
Felix Salmon: According to the OCC, they’re JP Morgan Chase, Goldman Sachs, Bank of America, Citibank, and Wells Fargo. Add up their “total derivatives” numbers in Table 1 of the latest OCC report, and you get $197 trillion, which is indeed 97% of the $203 trillion in total notionals.
But never mind that, and take a look at Table 2 instead….the size of Bank of America’s derivatives holdings spikes from $39 trillion to $75 trillion, while Morgan Stanley appears from nowhere to reveal itself as holding a more-than-healthy $41 trillion in derivatives. It seems that at Merrill Lynch and Morgan Stanley, the derivatives are generally held by the holdco rather than the bank, which allows the OCC to ignore them for the purposes of its headline calculations.
Add up the derivatives books at the holdcos, and the total isn’t $203 trillion any more: it’s $291 trillion — an increase of $88 trillion which is very hard to find in the OCC report unless you’re specifically looking for it. And never mind Wells Fargo, which was also something of an also-ran in the top five banks. The top five now comprise JP Morgan, Bank of America, Goldman Sachs, Morgan Stanley, and Citigroup, with derivatives holdings between them of $278 trillion. That’s 95% of the true total, or 137% of what the OCC would have you believe was the total.
A new value-added tax (VAT) is "on the table" to help the U.S. address its fiscal liabilities, House Speaker Nancy Pelosi (D-Calif.) said Monday night.
The VAT is a tax on manufacturers at each stage of production on the amount of value an additional producer adds to a product.
Pelosi argued that the VAT would level the playing field between U.S. and foreign manufacturers, the latter of which do not have pension and healthcare costs included in the price of their goods because their governments provide those services, financed by similar taxes. "They get a tax off of that and they use that money to pay the healthcare for their own workers," Pelosi said, using the example of auto manufacturers. "So their cars coming into our country don't have a healthcare component cost.
Pelosi is: 1) Trying to use the VAT as a tariff; and 2) ignorant of how a VAT is applied unless she intends to apply it only to imports, which would expose her scheme to use VAT as a surreptitious tariff.
Bob Chapman is a frequent contributor to Global Research. Global Research Articles by Bob Chapman