Strange Days by Jim Kunstler

Strange Days

Even while a wave of reflex nausea washed over America last week, and the unemployment rolls swelled by much more than another half million, the greatest stock market suckers' rally in seventy years pulled in the last of the credulous. These are strange days. The earth is heaving and the buds swelling again -- at least north of the equator, where most of the action is -- and the global economy, which was supposed to be a permanent new add-on to the human condition, is sloughing away in big horrid gobs. But no one in charge of anything can believe it. The banking fiasco has introduced so much noise into the system that world leadership can't think straight.

What they're missing is real simple: peak oil means no more ability to service debt at all levels, personal, corporate, and government. End of story. All the other exertions being performed in opposition to this basic fact-of-life amount to a spastic soft-shoe performed before a smokescreen concealing a world of hurt. If the "quantitative easing" (money creation) and fiscal legerdemain (TARPs, TARFs, et cetera) happen to jack up the "velocity" of the new funny-money, and the world resumes its previous level of oil use, the price of oil would rise again -- this time astronomically because the previous crash of oil prices crushed the development of new oil projects to offset depletion -- and the global economy will crash again. Only the next phase of the disease is liable to move beyond the financial and into the social and political realms. Disorder of various kinds will rule -- toppled governments, civil unrest, international tension and conflict.

Continue Reading

William Black's interview

BILL MOYERS: When you wake in the middle of the night, thinking about your work, what do you make of that? What do you tell yourself?

WILLIAM K. BLACK: There's a saying that we took great comfort in. It's actually by the Dutch, who were fighting this impossible war for independence against what was then the most powerful nation in the world, Spain. And their motto was, "It is not necessary to hope in order to persevere."

Now, going forward, get rid of the people that have caused the problems. That's a pretty straightforward thing, as well. Why would we keep CEOs and CFOs and other senior officers, that caused the problems? That's facially nuts. That's our current system.

So stop that current system. We're hiding the losses, instead of trying to find out the real losses. Stop that, because you need good information to make good decisions, right? Follow what works instead of what's failed. Start appointing people who have records of success, instead of records of failure. That would be another nice place to start. There are lots of things we can do. Even today, as late as it is. Even though they've had a terrible start to the administration. They could change, and they could change within weeks. And by the way, the folks who are the better regulators, they paid their taxes. So, you can get them through the vetting process a lot quicker.


Complete Interview

Civilization at the Crossroads by John Meyer

OUR ENEMY THE CORPORATE STATE

In our last letter we stated that, "American capitalism ended in 1913 and remains "An Unknown Ideal." We also commented that, "A troubling question arises: Has the financial community hijacked government?"

We are going to discuss those issues in an historical and philosophical context. We all today live in a twilight zone where things seemingly are and yet aren't. We must travel down some roads, which are troubling and rather dark. But, it is necessary, because it is today's reality. We can say at the start that you will find the trip unbelievable - I know I did when I first stumbled down this path. Matter of fact, at first I totally dismissed it as absolute insanity and therefore not possible. For, it was inconceivable that the morality of man could descend to such naked malevolence.

To look more deeply into our history is necessary, because almost all that comes from our "intellectual" community, is propaganda and spin. Before we heap cures on a dying patient, first and always diagnose. Diagnosis is the art or act of identifying the disease. All the talk about free markets and capitalism having failed and always what we need is more regulation and intervention are deliberate obfuscations. Naturally, with this propaganda barrage, Socialism keeps "gaining" by default. You have to be on another planet to think that what we have had for the last century is capitalism or free markets.

So - every once in awhile it pays to stand back and locate one's position in reality. Events have gone well beyond the field of economics, finance and politics. Sub rosa forces seem to be spinning us deep into an Orwellian existence. The Founding Fathers created a Constitutional Republic. It was not a democracy. The Founding Fathers were quite outspoken on this. Madison in a passage in The Federalist wrote: "there is nothing to check the inducements to sacrifice the weaker party or an obnoxious individual. Hence it is that such democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths."

The natural and inalienable rights of the individual trumped the majority vote of a mob. The State was to be the servant of the individual. The Declaration of Independence was the culmination of the Enlightenment and Classical Liberalism. The individual and the concept of property rights were elevated to be supreme. The individual was set free from the collective, king or god to pursue his own rational self interests. This noble experiment propelled the United States to a level of achievement, which has never been equaled. Productivity is the essential requirement of life. In fact, life demands it. It is metaphysical. That is, it is biocentric. Life is a constant process of self-sustaining and self generated action. The individual is the creator and to deny or impinge, in any way, on the products of his efforts leads society down the road to slavery. The right to life and by extension his property is the source of all rights.

Continue Reading

The Soft Panic of 2009 Has Just Begun

The Soft Panic of 2009 Has Just Begun

By Andrew Mickey, Q1 Publishing

Highlights:

New York is the “canary in the coal mine” when it comes to CRE. A year ago, vacancy rates in the Big Apple were between 7% and 8%. The rate climbed to 10.9% at the end of 2008. Now, just three months later, the vacancies are up to 12%. And they’re still going to go.

Climbing vacancy rates have pushed the cost of renting way down. The lease rate on a square foot of office space went from $74.49 to $65.18 in just the past three months. That’s a 12.5% decline in just three months. Keep in mind; this is in New York City where some of the world’s most valuable CRE is. We can only imagine what is going on across the country.

CRE has its own vicious cycle. Unemployment increases, demand for office space decreases, rents fall, and then commercial property prices fall. CRE prices have already fallen and the next leg down could make the subprime crisis look like a cakewalk.

In the end (yes the end is near – this was a bit long, but it’s not a simple topic and the risks posed warrant the time), the CRE debt issues are a ticking time bomb. With unemployment on the rise, vacancy rates rising, rents dropping, and CRE loans on the brink of default, this is shaping up to be a big problem.

The deal to unload the iconic Hancock Tower is just a sign of what’s to come. There are buyers now. But when liquidations increase, you’ll see prices fall much faster than the three year near-50% decline in the price of the Hancock Tower.


Read Article

When Empires Fall - George Santayana

No one rings a bell when an empire falls. No one sends out an alert when an empire decays. Most of the people who live in such nations continue to live their normal lives. They think that life will go on as before. Two thousand years ago, Romans numbed their minds by watching circuses and gladiators. Today, Americans numb their minds by watching sports, "Dancing With The Stars," and "American Idol." Only the external appearances differ. The fundamentals are the same. Is America asleep? I fear it to be so.

In my newsletter, I have written extensively about the move toward dumping the dollar as the world's reserve currency. It might not happen this week (when the G-20 meeting takes place). However, it will happen. When an empire's currency falls, the empire falls. No exceptions.

On March 30, 2009, President Obama fired the CEO of General Motors, once the greatest of all American corporations. Think about it. The federal government now dictates who should, or should not, serve as the CEO of a PRIVATE CORPORATION. Representative Barney Frank has now proposed legislation which would allow the federal government to set ALL SALARIES OF ALL EMPLOYEES of companies which have accepted federal financial assistance. What do you think that Thomas Jefferson and James Madison would say about that? What would they do?

I have no sympathy for Mr. Wagoner, the CEO of GM. No one should excuse the stupidity of GM's management. They made just about every bad business decision which could have been made. However, bad business decisions do not go unpunished in free markets. The free market would have disposed of Mr. Wagoner and GM quite well. If we had free markets, GM would have gone bankrupt months ago. The "good" parts would have been bought, and the bad parts would have been liquidated. Instead, as a practical matter, the United States government will now run the company. Welcome to GM: Government Motors.

I fully realize that many Americans do not care any more, but there is no Constitutional authority for what Mr. Obama has done with GM. None. If you haven't read the Constitution lately, perhaps you might consider doing so now. Let me know if you see anything which would allow a federal politician to force a CEO of a private corporation to resign. If you do not think that the Constitution is important, perhaps you would prefer to live in a world in which politicians decide what is legal as the mood strikes them. After all, it's for the greater good.

Now that GM will be run by bureaucrats from Washington, it will be interesting to see what kinds of "free market" business decisions they will make. What will they do about all their labor union friends in the UAW? Will they mandate job cuts? That wouldn't be a big vote-getter, would it? Will they allow GM to manufacture the kinds of vehicles that the public wants, or will they dictate what kinds of vehicles must be made? I'm betting that the government will do the same stellar job with GM that it has done with AMTRAK. Bring back the Yugo!

I suspect that very few modern Americans have ever heard of the Roman Emperor Diocletian. Thank our public education system for that. In the early third century A.D., Diocletian had a currency crisis on his hands. The Roman coinage had been debased to such an extent that inflation was running rampant. Even though this had been caused by the government, Diocletian blamed "profiteers" and "speculators." In 301 A.D., he imposed The Edict on Maximum Prices. He forbade merchants from raising prices. He set wage controls. Those who refused to abide by the price controls were subject to the death penalty. At the same time, Diocletian continued his policy of minting large quantities of coins of low precious metals content, thus causing increasing monetary inflation.

What happened? Normal business activities ceased. A huge black market arose. A barter economy grew. The official Roman currency increasingly became worthless. The Roman economy did not stabilize until years later. Rome lasted a while longer. It wasn't sacked by the barbarians until about 100 years after Diocletian. However, under Diocletian, the empire had embarked upon the road to debasement. There is a lesson in all of this, although it is clear that our current leaders will not heed it. Humanity has been at this fork in the road in the past. The Romans took the wrong turn, and our current leaders seem likely to do the same.

Our current problems are not the result of too much free market capitalism. To the contrary, we have had too little free market capitalism. We live in a society in which the Fed, a central bank, sets certain important banking interest rates. An interest rate is the price of money. Setting interest rates by central planning committee is a form of imposing price controls. If we lived in a free market economy, ALL interest rates would be set by free market forces. Most of our current problems have happened because central planners artificially set low interest rates. This, in turn, sent a false message to borrowers about the price of money, and it ignited the biggest real estate bubble in world history. We are now paying the price.

When central government planners interfere with private businesses by hiring, firing, setting wages, and dictating industrial policies, they are attempting to do the same things which failed when Diocletian tried them more than 1,700 years ago. Our present leaders think that there is no aspect of the economy which government planners should not attempt to control. The only way one can entertain such a belief is to ignore the clear lessons of thousands of years of history.



"Those who cannot remember the past are condemned to repeat it."

Article by George Santayana

South Park version of economic mess - Hilarious

Nobody Is Smarter Than You Are - Terence McKenna

Terence McKenna: Culture is not your friend

"Official" Failed Bank List

FDIC Site - List of Failed Banks

So far 21 banks have failed since the start of this year. That is almost 2 banks folding every Friday. Intrestingly, i was listening to a show on radio where they described how FDIC is hiring almost 600 so called secret agents for one of their regional offices to assist in the process of taking over failed banks. In addition, FDIC decides who will take over the failed bank; whether selected new owner wants to participate or take over the failed bank is never considered.

I am wondering if FDIC's one regional office is ramping uP hiring of so called army of secret agents, what does it say about the banking industry? How many more banks will go under? Commrcial Real Estate have barely begun the process of deleveraging.

Speaking Truth to Power

Speaking Truth to Power
by J. R. Nyquist
Weekly Column Published: 03.27.2009

Diogenes the cynic was a Greek philosopher of the fourth century B.C. who walked the streets of Athens carrying a lamp in broad daylight. People asked what he was doing. He said, “I am just looking for a human being.” After Plato offered Socrates’ definition of humanity as “featherless bipeds,” Diogenes brought a plucked chicken to Plato’s Academy, saying, “Behold! I have brought you a human being.” When captured by pirates and sold into slavery his new master asked what his trade was. “Governing men,” he replied, adding that he wished to belong to someone who needed a master. One morning, when Diogenes was basking in the sun, Alexander the Great came to see him. Wishing to do the philosopher a kindness, Alexander asked if there was any favor he could bestow. “Yes,” replied Diogenes. “Stand out of my sunlight.”

The integrity of Diogenes has much to do with his independence. He was not interested in advancing his career, winning the favor of princes, or making money. He didn’t flatter his teachers or the public. When he spoke, there was no reason to distrust what he said. He had nothing to sell, so he had no motive to flatter or manipulate. In today’s world we have become very comfortable buying and selling things. It is also our habit to say what is pleasing to our superiors. More and more, our culture emphasizes the necessity of having a career, of promoting oneself, of making money and impressing other people.

To be wise, to love wisdom, requires a different emphasis than that of today’s culture. It requires an emphasis on truth and clarity. To be successful today, to advance your career, truth and clarity aren’t always appreciated. Perhaps you have heard that the customer is always right. And everyone with common sense knows that the boss is right – because he is the boss. Despite our egalitarian pretenses, rank is an inescapable reality of human existence. And when rank and privilege are abused, when truth is disregarded, what is the underling to do? Should he, like Socrates, drink the hemlock? Alexander the Great admired the nobility of Diogenes, because Diogenes revered his own clarity and the truth above all mortal masters. The Macedonian said, “If I were not Alexander, then I should wish to be Diogenes.”

Continue reading

Postal Service Asks Congress for Bailout

Postmaster General John Potter said Wednesday the financially strapped U.S. Postal Service will run out of money this year without help from Congress.

The only lingering question, Potter told a House subcommittee, is which bills will get paid and which will not. He did say ensuring the payment of workers' salaries comes first. But Potter also said other bills may have to wait.

Potter's appearance came as the agency, which has lived on a reputation of serving through wind, rain and all sorts of obstacles, seeks permission to reduce mail delivery to five days a week. It also wants to change the way retiree health benefits are amassed to save money.

"We are facing losses of historic proportion," he said. "Our situation is critical."

Read rest of the article.

How latest plan can and most likely will go wrong

Open letter to FDIC Ombudsman by Karl Denninger @ Market Ticker
Now that the Treasury Plan to "cleanse" the market of "toxic assets" has been put forward, I have noted that The FDIC is the entity that will both guarantee the debt issued and vet the bidder list.

I also note the following quote from The FDIC:

The FDIC will provide oversight for the formation, funding, and operation of new public-private investment funds (“PPIFs”) that will purchase loans and other assets from depository institutions. The Legacy Loans Program will attract private capital through an FDIC debt guarantee and Treasury equity co-investment. Private market equity investors (“Private Investors’) are expected to include but are not limited to financial institutions, individuals, insurance companies, mutual funds, publicly managed investment funds, pension funds, foreign investors with a headquarters in the United States, private equity funds, and hedge funds. The participation of mutual funds, pension plans, insurance companies, and other long term investors is particularly encouraged.

There is a potential problem here.

Let's say that I am a bank ("financial institution") with $100 billion in "toxic assets". I have them on my balance sheet at 80 cents on the dollar. The market has them marked at 30 cents. We do not know what the held-to-maturity performance will be, since that requires knowing the future, although for the moment let's assume that they are cash-flowing at the present time.

What I (the bank) do know, however, is that if I sell them at 30 cents I take a monstrous loss - perhaps enough to force me under Tier Capital limits and thus render me subject to an FDIC enforcement action. I therefore will not sell for 30 cents so long as I have any belief whatsoever that the cash flow - or any government subsidy - will exceed that value.

If I, as a "financial institution" can participate as a bidder in these auctions I can foist off my loss onto the taxpayer. Here is how I can rig the game so as to avoid an otherwise-inevitable loss:

•I become a "bidder" and "bid" on my own assets at 75 cents.
•I am providing 5 or 10% of the money. The rest is covered by Treasury, The Fed and the FDIC via guaranteed bond issuance.
•The loan, ex my contribution, is non-recourse. That is, I can lose 5 or 10% of the total portfolio purchased, but nothing more.
Now the "assets" (a passel of CDOs?) turn out to be worthless. I lose 5% of $75 billion, or $3.75 billion that I put up, plus the other nickel on the original mark, but that's all.

The taxpayer gets hosed for the remaining $71.25 billion dollars.

This can and will be done if the "sellers" of these assets are allowed to bid either directly or indirectly as it provides a means for banks to intentionally dump bad assets at a certain loss that is much smaller than their expected realized loss over time, shifting the rest of the loss to the taxpayer.

This program has the potential to shift literally $500 billion or more in losses onto the taxpayer, not through the operation of "bad luck" but rather through what amounts to a bid rigging operation.

Be aware that I, along with many others, have figured this out. Also be aware that as taxpayers and your ultimate boss, we do not intend to sit still and allow the public treasury to be looted in such a fashion.

The FDIC's job is to prevent that sort of looting operation by prohibiting the sellers of these assets from having any financial interest in the bidding side of the equation, directly or indirectly, and I along with many others intend to hold you to that obligation.

I like the outline of this program if and only if it cannot be gamed in this or similar fashion. Provided that does not occur, this program has the potential to provide great benefit to both the banking system and our economy.

If, however, the financial institutions that created this mess in the first place are allowed by the FDIC and Treasury to use it as a looting operation to intentionally shift their bad assets onto the Taxpayer you can expect that we the people will hold our government to account.

Transmitted by email to ombudsman@fdic.gov

Noam Chomsky - Political System Explained

Debt Monetization has consequences

Posted by Karl Denninger in Monetary at 15:31

Actions Have Consequences

So The Fed thinks it can print its way out of this eh?

MOSCOW, March 19 (Reuters) - China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday. Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions, among other measures in the text of its proposals to the April G20 summit published last Monday.

Calls for a rethink of the dollar's status as world's sole benchmark currency come amid concerns about its long-term value as the U.S. Federal Reserve moved to pump more than a trillion dollars of new cash into the ailing economy late Wednesday.

Russia met representatives of China, India and Brazil ahead of the G20 finance ministers meeting last week, as the big emerging powers seek to up their influence on decision-making globally. Their first ever joint communique did not mention a new currency but the source said the issue was discussed.

Oops.

By the way, if you want to see lots of "fun" in our currency markets along with a near-immediate bond dislocation, get the oil producers along with China and Russia to agree on a new reserve currency and......

That'd be "goodnight Uncle Sam."

Congress might want to rethink their concept of spending more than they make, thereby effectively calling for "Quantitative Easing" and similar shenanigans.

Yes, I know that contracting spending to tax revenues would be extraordinarily painful and end the stupidity of doing things like granting unlimited "free" medical care in hospitals to illegal aliens.

But if you think an announced change in Social Security, Medicare and similar programs would be bad, how bad do you think one would be that occurs as the consequence of forced action if our bond market was to implode?
Welcome to crazy-town Mr. Bernanke!

What is Bubba Effect?

Gold Market is being Manipulated

A nice hockey stick chart - Hyperinflation anybody?

GRAND ILLUSION – THE FEDERAL RESERVE

GRAND ILLUSION – THE FEDERAL RESERVE
by James Quinn
March 11, 2009

So if you think your life is complete confusion
Because your neighbors got it made
Just remember that it's a Grand illusion
And deep inside we're all the same.
We're all the same...

America spells competition, join us in our blind ambition
Get yourself a brand new motor car
Someday soon we'll stop to ponder what on Earth's this spell we're under
We made the grade and still we wonder who the hell we are

Styx – Grand Illusion

The whole world is in a state of complete confusion. Americans are coming to the realization that their lives have been a grand illusion. You thought your neighbor had it made. They were driving a Mercedes, spent $40,000 on a new kitchen with granite countertops and stainless steel appliances, sent their kids to private school, had a second home at the shore, and took exotic vacations all over the world. Now their house is in foreclosure and you are paying to bail them out. The anger and outrage in the country is at the highest level since the Vietnam War. The American public is being misled by government officials, politicians, and the Federal Reserve regarding the causes of this crisis and the solutions needed to solve our economic tribulations.

The average American does not know much about the Federal Reserve. The government and the Federal Reserve prefer to operate in the shadows. If the American public understood what their policies have done to their lives, they would be rioting in the streets. Henry Ford had a similar opinion:

"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Continue Reading

Anti-Democratic Nature of Bailouts

Noam Chomsky: Current crisis demonstrates anti-democratic nature of financial system

Benoit Mandelbrot thinks we're all screwed