Viva La$ Vega$

On September 1, 2010, In The Public, By Joe Costello
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Gonna set my soul on fire
Got a whole lot of money that’s ready to burn
So get those stakes up higher
I’m gonna keep on the run
Gonna have me some fun
If it costs me my very last dime
If I wind up broke up, well
I’ll always remember I had a swingin time
– Viva Las Vegas

The WSJ has a must read piece from the currency table, which rolls 24/7. The Journal writes,

Currency trading volume around the world has hit $4 trillion a day,…the $4 trillion mark represents a 20% gain from $3.3 trillion in 2007, the last time the global foreign-exchange markets were surveyed, according to the Bank for International Settlements.

….the continued rise in trading reflects the increased globalization of investing. With the big developed economies of the U.S., Europe and Japan struggling, investors are turning toward other markets for returns and generating more foreign-exchange trading in the process.

Now small investors are increasing their foreign-currency exposure. They are piling into mutual funds which make bets on currencies as a core part of their strategy. More broadly, U.S. stock mutual funds that invest overseas have taken in $42 billion over the past year, according to Morningstar Inc.

In addition, exchange-traded mutual funds, whose shares trade like stocks, are making the currency markets more accessible to small investors. There are now 44 currency ETFs, up from 16 in April 2007, according to Morningstar. In 2004 there was only one.

But it gets better. Can you say leverage? Can you say bubble? Boy, just looking at how currency markets are operating, all you can say is thank god for Frank/Dodd, right?

Currency trading usually involves placing bets with borrowed money. That has regulators concerned about individual investors’ ability to handle large amounts of leverage, though action has been limited so far.

On Monday, federal regulators backed off a plan to place stricter limits on how much individual investors who trade currencies can borrow.

Currently, investors can borrow $100 for every dollar they invest. The Commodity Futures Trading Commission, which regulates foreign-exchange trading in the U.S., tried to cut that amount to $10.

But after a wave of protests from brokers and individuals, it settled on $50 for every dollar invested, which is the amount of borrowing many large brokers currently allow.

No, no, baby! This place is hot! You can’t cut 100 to 1 leverage down to 10 to 1, where’s the fun in that? Hell! You can’t make shit in this stock market, even with all Ben’s pumping!

Kevin Rodgers, global head of foreign-exchange derivatives at Deutsche Bank in London, says funds of all stripes—hedge funds, mutual funds and sovereign-wealth funds—are seeing the currency markets as a distinct asset class and not just a way to make an investment priced in another currency.

Trading among “nondealers,” which includes hedge funds and mutual funds, grew 42% to $1.9 trillion per day…

So, here’s the results when the Fed and other central banks started the last bubble by inflating/deflating currency with ZIRP policies, QE, and other methods of pumping money into deflating global assets markets. They are undermining the value of money itself, and more importantly the current structure of currency markets allows them much less control than they think. The question is what happens when this bubble pops? The general answer is economic carnage, what that looks like specifically is the real question, and a money maker, that is if you can figure out how to keep it in a currency with any value.

Viva! Viva! Viva!

Cross-posted from

Viva La$ Vega$

 
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Broken Politics, Bubble Pricing, Environment, and Agriculture

On August 30, 2010, In The Public, By Joe Costello
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Shed your fears and lose your guilt
Tonight we burn responsibility in the fire
We’ll watch the flames grow higher

As I was standing by the edge
I could see the faces of those who led pissing theirselves laughing
Their mad eyes bulged and their flushed faces said,
“The weak get crushed and the strong grow stronger.”
In the funeral pyre, we’ll watch the flames grow higher
– Paul Weller

However effective you think “markets” are at pricing, one thing you can say is bubbles completely distort pricing mechanisms to the point of being valueless. When you add into that a corrupt political process using government to further distort costs, you get a system that is completely dysfunctional and incapable of meeting the challenges of the times. Here’s two good examples. The first is a piece in the Post about the establishment environmental groups lamenting the fate of climate legislation in DC. Any legislation to increase fossil fuels price was doomed with the financial crisis and resulting economic slowdown, though in return, the slowing economy gave you the greatest reduction in fossil fuel use in 30 years, certainly much greater than any proposed legislation at this point. Much, certainly not all, of the established environmental movement has propagated the notion that the mechanisms, culture, and practices that led us to environmental breakdown are going to be the same ones offering solutions. Let’s look at one, the idea that a broken politics, without first being repaired, can get us needed change. The Post has a piece with one of the most ludicrous quotes I’ve seen in 30 years following politics:

“The oil industry has tremendous reach and control in the United States Senate,” said David Di Martino, a spokesman for Clean Energy Works, a coalition of more than 60 groups that includes big names such as the Sierra Club, the Natural Resources Defense Council and the Environmental Defense Fund. “Our mistake was miscalculating . . . how far into the Senate it went.”

Miscalculating? Really? The oil industry has power in DC? Don’t misunderstand, this kind of political thinking is rampant in environmental circles. Many think they don’t need to educate the public and can just pull the levers of a broken system. Try to get money from the big non-profit funders for public education on taxing oil. You can start with Pew founded by Sun Oil, then go to the Rockefeller Foundation, or if both of them don’t work try the Ford Foundation. There’s few funders who believe in public education, after all its expensive, and well, who wants to deal with the great unwashed. And don’t worry, they won’t react when the price of energy goes up, Al Gore has told them the world’s ending.

Anyway, right now on energy there’s two viable things to push, money for renewables and efficiency/conservation.

The environmental movement is simply about looking at the human impact on natural resources and natural systems. Energy of course is fundamental, but even more so is food, you can go without energy a lot longer than without food. Now, there’s been a growing number of stories about potash(potassium) appearing in the news, since BHP is attempting to take over one of the world’s largest producers. Mined potash is a necessary element to modern agriculture practices. Limited increasingly by area, that is Canada and Russia dwarf all other known reserves, the price of potash, like many other agriculture commodities went through a massive price spike before the financial crisis. Here’s an interesting BBC discussion on the entire global agriculture issue(tx zerohedge). Pay attention to Hugh Hendry’s quote near the end. He states,

“For thirty-years, the price of agriculture has collapsed, fallen 90% in real terms. So, we haven’t invested in this sector. As a society, as a world society we acutely vulnerable to the business of feeding ourselves.”

Agriculture prices have been falling for a couple hundred years. Modern agriculture practices developed in the last hundred years are totally tied to fossil fuels, and no doubt, the last three decades precipitous fall is also tied to the preceding great rise in commodity prices caused by the oil crisis of the 1970s. But Mr. Hendry’s point is well taken, we haven’t invested in agriculture, in large part because our bubble financial system of the past quarter-century has not accurately priced its importance. If you want to bet which of the great environmental threats will be the first to bite us, I’d put money on our completely unsustainable agriculture practices.

The most important point of both these stories is what got us here isn’t going to get us out.

 
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American Paradox

On August 26, 2010, In Background and Research, The Public, By Joe Costello
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I’m ready and hyped, plus I’m amped
Most of my heroes don’t appear on no stamps
Sample a look back, you look and find
Nothing but rednecks for 400 years if you check
Our freedom of speech is freedom or death
We got to fight the powers that be
Lemme hear you say
Fight the power
- Public Enemy

To truly appreciate America, you have to understand its paradoxes. They are great. The first modern republic birthed in the original sin of slavery. A nation of immigrants that destroyed the native population, and time after time worries about the next wave of immigrants. The history of immigrant bashing is old as the republic, always coinciding with economic downturns. The Know-Nothings of the 1850s worried about the first great mass of German and Irish immigration, and of course the protestant nation worrying about papism. There were the Japanese interments of WWII. More recently, in order to get reelected governor of California in 1994, Pete Wilson embraced the anti-immigrant, anti-Mexican Prop 187. He won, but destroyed the Republican party in California. And of course we have the most recent idiocy in Arizona. A nation of immigrants, which every once in awhile tries to close the door, that’s paradox.

If you understand this trait in the American psyche, while it doesn’t make it anymore palatable to watch the latest manifestation, it does give you some helpful context. Especially if you keep in mind that over time, America has been as successful, more so than most, using the principles and practices of this republic’s founding, to mix the nationalities of Europe and more fitfully other peoples from across the planet into a relatively healthy concoction. After two-hundred years, there is little discrimination based on European nationality. The great black underclass, many still struggling for economic and cultural equality, fifty years ago stood up and claimed their full rights as citizens, a revolution that shook the entire society atop it. Even Native Americans have finally gained a little retribution with the casino industry. So, today as we struggle to incorporate new immigrants, some from Mexico, an old and continuing struggle, many more recently from Southwest Asia and the Middle East, we can draw some understanding, though not acceptance, from America’s great paradoxical history.

However, the recent anti-immigrant wave is developing in a new economic environment, one that is very different from much of the past. The United States from its beginning enjoyed a massive cornucopia of land and natural resources. It developed into the world’s foremost industrial power, and after WWII was far and away the planet’s strongest economy. But in the last several decades, there has been a great change. The financial system with the assistance of much of the American political class, began dismantling the American industrial sector and shipping it over seas. Now, the relationship of the financial sector to the rest of the America has always had some problems, but over the last three decades, their interests have diverged to the point of outright hostility. It was Wall Street after all who profited on both sides, financing the dismantling of American industry and rebuilding it across the planet. It was also Wall Street who profited most by the resulting stagnation in American wages, replacing good paying jobs with debt.

It’s time to end much of the corporate globalization experiment. There’s many reasons for this, and I’ll throw out that energy and environmental reasons are  amongst the largest. We need to reform our economy from the ground up, and that importantly means reincorporating into the economy the advantages of locality. We need to start raising tariffs. We should start with imported oil, that would be a good signal to rest of the world of the seriousness of our intentions for reforming the American economy. Of course, no attempt at reforming the American economy can be started without first reforming American politics. Finance owns our political class. They have aided and abetted the dismantling of the economy. Remember in 1992 when Ross Perot talked(I can’t more highly recommend watching Ross here) about that giant sucking sound from south of the border, he was right in hearing, though wrong in direction. That sucking sound was coming out of DC. If you hear a DC elected official advocate “free-trade”, immediately vote them out.

Give us your tired, your poor, and your huddled masses yearning to breathe free, but keep your cheap goods. The country that started the corporate globalization experiment needs to end it — another paradox.

Cross-posted from

 
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Money, oil, and reform

On August 24, 2010, In Corporations, free markets, By Joe Costello
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Money is certainly an interesting phenomenon. It has never had a very good relation to the actual real economy — the production and consumption of physical goods — nonetheless it is essential for the economy to operate. When Jimmy Stewart asks his guardian angel in “It’s a Wonderful Life”, if he has any money, the angel chortles, “We don’t need money in heaven.” Mr. Stewart, just rescued from a suicide attempt instigated by bankruptcy, indignantly replies, “Well, it sure comes in handy down here Bub!” And so it does, but that doesn’t stop money from being a rather queer phenomenon.

I just finished reading an excellent history on Spain in the early 17th century. Spain was in decline, the economy no longer sustainable, but it still had twice a year shipments of silver from New Spain — Mexico and Peru. The Spaniards could rely on the shipments of silver so they could continue their military misadventures and sustain the parasitic lifestyles of the aristocracy, who by this point had pretty much destroyed the Spanish economy. The book, Count-Duke Olivares: The Statesman in an Age of Decline states, “Seventeenth-century Castile was a rentier society, with people at many social levels drawing a substantial portion of their income from rentas, in the form of annuities on state bonds and individual or corporate bonds.” Sound familiar? As the real Spanish economy declined, the annual boatloads of silver from New Spain became increasingly essential to propping-up the rentier economy, even though the silver itself provided no real wealth to the economy. Sort of like our financial system and unfortunately our entire economy, without the Fed dumping boatloads of money into the system at this point, the whole thing would collapse. But, make no mistake, this continued dumping of money distorts the real economy.

An unhealthy financial system becomes increasingly useless as a measure for the real economy. One must increasingly look to real goods, particularly to natural resources, and I’m not referring to the valueless metals gold and silver, to measure the true health of the economy. For modernity, there is one resource far more valuable than all the others — oil. It is not coincidental that you can trace the beginning of the transformation of the American economy from one of physical production to rentier at approximately the time domestic American oil production peaked in 1970, followed closely by the oil shocks of the 1970s. The American economy was irrevocably changed.

Cheap oil, not money, be it the dollar, yuan, yen or euro, is the foundation of modern life. The most astounding fact of recent American life is how for three decades, we’ve done everything we can to avoid the issue, thus increasingly harming the American and the entire global economy. Paul Schwartz of The Council of Foreign Relations has a good post(tx jesse) on the oil numbers and China, simply, they don’t work. For years, I’ve been using the simple fact that if three-quarters of the Chinese used oil on the same per capita basis as Americans, and Americans continued doing the same, there would be no oil for anyone else — no one! The nut of Mr. Schwartz piece is,

If China’s recent economic growth pace continues, it will surpass South Korea’s current per capita GDP shortly after 2020 – meaning that the world may be forced onto alternative energy sources much sooner than it realizes.

No may be about it, though it is for this exact reason Chinese per capita economic growth rate will not be able to continue its pace, call it the Oil Yoke. As soon as global economic growth reaches a certain rate, the price of oil is going to choke it right back down. This gives truth to the biggest lie of corporate globalization, that the world could live like Americans, well not even Americans can live like Americans anymore. But that’s OK, we can live better, but it in the short-run certainly doesn’t help the Chinese, whose centrally controlled economy went full force in building a cheap oil infrastructure, only to belatedly find out cheap oil doesn’t exist anymore.

When we talk about reform, whether it’s financial, political, or industrial, it all starts at one place, with energy. America has reached peak-energy consumption, and no amount of money the Fed pumps in the system is going to change that. We have both the necessity and tremendous opportunity to restructure the American economy based on renewable energy sources and even more imperative, design it to use a lot less energy than we use today. We have both the knowledge and capability, we lack the will. Having reached peak energy consumption, creating an economy based on renewables and design efficiency will not be adding new wealth, but distributing existing wealth, and that is going to require hardheaded political and financial reform. We could do a lot worse than starting by tying money to energy.

Cross-posted from Money, oil, and reform

 
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WHO IS TALKING ABOUT WHAT MATTERS?

On August 23, 2010, In Corporations, Current Leadership, free markets, By Danny Schechter
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Aren’t job losses and foreclosures as important as a “Ground Zero Mosque” (that isn’t a mosque, hasn’t been built or even at ground zero?)

By Danny Schechter, Author of The Crime Of Our Time

We know we live in hard times that are on the verge of getting harder with 500,000 new claims for unemployment last week, a recent record.

The stock market may be over for now as fear and panic drives small investors out. Big corporations hoard stashes of cash rather then hire workers. The D-Word (depression) is back in play.

Foreclosures are up, and the Administration’s programs to stop them are down, well below their stated goals, only helping 1/6th of those promised assistance.

And here’s a statistic for you: 300,000. That’s the number of foreclosure filings every month for the past 17 months. This year, 1.9 million homes will be lost, down from 2 million last year. Is that progress? In July alone, 92, 858 homes were repossessed.

At the same time, the number of cancelled mortgage modifications exceeded the number of successful ones.  According to  MI-Implode, last month, “the number of trial modification cancellations surged to 616,839, greatly outnumbering the 421,804 active permanent modifications.”

And don’t think this is only a problem that affects the homeowners about to go homeless. The New York Times quotes Michael Feder, the chief executive of the real estate data firm Radar Logic to the effect that we are all at risk.

“My concern is that if we have another protracted housing dip, it’s going to bring the economy down,” Mr. Feder said. “If consumers don’t think their houses are worth what they were six months ago, they’re not going to go out and spend money. I’m concerned this problem isn’t being addressed.”

The larger point is that even if you believe the economy is already down, it can go lower. No one knows how to “fix it” either just as BP couldn’t plug the “leak” that, truth be told, is still oozing oil.
So what are we doing about it? Are we demanding debt relief or a moratorium on foreclosures? Are we shutting down the foreclosure factories?
Nope.

Progressives are spending time and wasting passion this August debating on an Islamic Cultural Center near Ground Zero, invariably responding to the provocations and agenda of adversaries. They are always on the defense, never taking the offense.
Who is beating the drum for job creation and a new economic policy? Maybe the unions, but their voice is muted and ignored in the electronic noise machine.  Marches are planned by the UAW and Rev. Jesse Jackson on August 28th in Detroit and in  Washington on 10.02.10. But the expected war of the words between Rev. Al Sharpton and Glenn Beck over the legacy of the March on Washington is expected to generate more heat.

Meanwhile, even as the Administration seems to be finding signs of a “recovery,” a parade of failures march on from the discovery that there is an oil slick the size of Manhattan in the Gulf to the persistence of frauds in finance from state pension funds in New Jersey to the case against the head of the Bank of America.
Even worse, Shorebank, one of the banks that community activists considered a national model of social responsibility has gone down in Chicago, the 104th bank to fail this year with 15 branches including some in Detroit and Cleveland. It was also active in 40 countries. In June, it reported over $2 billion in deposits. By August, it was gone.

In all, 349 US banks have disappeared since 2007.

ShoreBank promoted itself as a community development and environmental bank. It was based in Michelle Obama’s old neighborhood with the slogan “Lets Change The World.”  Now the world of Wall Street has changed the bank with a partnership of investors including American Express, Bank of America and Goldman Sachs taking over under the name “United Partnership.”

Hundreds of other banks are on the FDIC hit parade and may be next.

There were many worse casualties in banking in the past according to Barry James Dyke’s informative book, Pirates of Manhattan. He notes that ten thousand banks failed during the depression and 2,900 bit the dust in the S&L crisis. The current number may have been higher had Congress not bailed out the Banksters who used some of our money to play PacMan, gobbling up smaller institutions.

AP reported, “ShoreBank lost $39.5 million in the second quarter amid soured real estate loans. The bank had been under a so-called cease and desist order from the FDIC for more than a year, requiring it to boost its capital reserves. ShoreBank was able to raise more than $146 million in capital this spring from several big Wall Street institutions. It was unable, however, to secure federal bailout funds it sought from the Treasury Department’s Troubled Asset Relief Program.”
Republicans are “investigating” alleged Administration support for the Bank, AP explained, “Rep. Darrell Issa of California, the senior Republican on the House Oversight and Government Reform Committee, sent a letter to a White House legal adviser asking specific questions on possible contacts between administration officials and executives of ShoreBank or potential investors.
The White House has said no administration officials met with ShoreBank concerning its rescue or requested help from financial institutions on its behalf.”
Questions raised by Republicans, of course, seek to politicize the issue when it is the FDIC ‘s deal with the big banks that needs to be probed, as Zero Hedge explains:

“As it stands, Goldman and 11 other banks are receiving a multimillion dollar gift to conduct a portfolio liquidation run-off of ShoreBank’s assets, while merely making sure existing deposits are serviced.”
(Note: the FDIC is led by a Republican. Hmm.)

Blogger Mike, “Mish” Shedlock concludes: “The FDIC’s handling of Shore Bank smells as bad as a pile of dead alewives on a Chicago beach in mid-July.
My question is: Why didn’t the Administration help shore up ShoreBank (if it could be shored up) as they did so many of the “too big to fail” banks?

Their hands-off attitude, perhaps in fear of being criticized, as they were anyway, helped doom the bank and, by extension, the idea that we could have socially responsible lending institutions.

So much for the priorities and power of Obama’s “Chicago Mafia.”

If they don’t have the guts to save a bank in their own hometown they know has meant so much to so many, is it any wonder they won’t take on the crimes on Wall Street?

Last week, Treasury Secretary Tim Geithner was complaining that he is being falsely identified as a “Goldman Guy,” insisting he never worked for the financial institution that was recently branded a “Giant Squid On The Face Of Humanity.”

He doesn’t seem to realize that the speculation is not based on the details of his resume but on an assessment of his track record as a toady for the pals he worked with when he ran the Federal Reserve Bank in New York.

And by the way, Tim, why the hold–up on the appointment of Elizabeth Warren to run the new Consumer Financial Protection Bureau in your old institution?  Is she too smart and popular for you?
Why the fiddling while our modern Rome burns?

News Dissector Danny Schechter directed Plunder The Crime of Our Time, a DVD and a companion book, The Crime Of Our Time on the financial crisis as a crime story. Comments to: “mailto:dissector@mediachannel.org” dissector@mediachannel.org

 
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Shock Doctrine and the $

On August 23, 2010, In The Public, By Joe Costello
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Foreman was a panic about to go in the insane
Trying to get the workers out the way of the train
Engineer blowing the whistle long and long
Can’t stop the train had to let it roll on
– Let It Rock, Professor Chuck Berry of St. Louis, Mo

A couple years ago, Naomi Klein wrote a book called, The Shock Doctrine. Basically, she documented the global pattern of the last few decades where a nation hit with a crisis — natural, financial, political — would become open game for Randian, Friedmanite, University of Chicago sociopaths, who would insist on fire sales for public assets, placing the society further under the control of mega-corporations and the local looting class. Asia, Russia, South America, and Africa the paradigm and documentation was distressing. Today’s Wall Street Journal article on the fire sale of local government assets across the US demonstrates the Shock Doctrine remains alive and well, while the dominant economic doctrine of the past three decades, the worship of sociopaths, remains firmly entrenched.

The Journal’s story begins:

Cities and states across the nation are selling and leasing everything from airports to zoos—a fire sale that could help plug budget holes now but worsen their financial woes over the long run.

California is looking to shed state office buildings. Milwaukee has proposed selling its water supply; in Chicago and New Haven, Conn., it’s parking meters. In Louisiana and Georgia, airports are up for grabs.

About 35 deals now are in the pipeline in the U.S., according to research by Royal Bank of Scotland’s RBS Global Banking & Markets. Those assets have a market value of about $45 billion—more than ten times the $4 billion or so two years ago, estimates Dana Levenson, head of infrastructure banking at RBS. Hundreds more deals are being considered, analysts say.

Let’s not forget who is in the middle of all these deals — Wall Street. Here you have a list drawn-up by the Royal Bank of Scotland, one of the biggest pigs in the pen, recipient of one of the largest bailouts in history, now listing US public assets on the block for cheap. Follow the whole story-line folks. Wall Street, with a great deal of criminal fraud, tanks the US and global economy, gets bailed out by your tax dollars, and continues to survive largely through Fed cheap money and other public subsidies. Instead of anyone going to jail, they go on a shopping-spree, using your money, buying your public assets made cheap by the economic collapse they engineered. There you go folks, that is the US economy 2010. If you can tell me how its any different than Mob activity, aside no one goes to jail and it’s much much more lucrative, let me know. Don’t forget, all this is aided and abetted by YOUR elected officials.

In one of the better notes of our public officials’ culpability, a must watch interview(tx zerohedge) with former Fed Governor Fred Mishkin, who was paid $124,000 to write a paper on how Iceland was the picture of financial stability a year before the whole thing crashed — good work if you can get it.

Finally, Doug Noland has a good piece in the Asia Times on the last bubble, sovereign debt. John Hussman has good piece on whether the Fed can tank the dollar with their next round of QE, remember the Royal Bank of Scotland said a couple months ago, it needed to be ten trillion dollars. That should do it! My advise, hold-off on purchasing US public assets, the deals haven’t even started.

Let it Rock.

 
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on the death of politics

On August 22, 2010, In Background and Research, Current Leadership, By Joe Costello
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Man is naturally a political animal…There is then in all persons a natural impetus to associate with each other in this manner, and he who first founded civil society was the cause of the greatest good; for as by the completion of it man is the most excellent of all living beings, without law and justice he would be the worst of all, for nothing is so difficult to subdue as injustice in arms: but these arms man is born with, namely, prudence and valour, which he may apply to the most opposite purposes, for he who abuses them will be the most wicked, the most cruel, the most lustful, and most gluttonous being imaginable; for justice is a political virtue, by the rules of it the state is regulated, and these rules are the criterion of what is right. — Aristotle, Politics

So, Australia had an election with no conclusion. The same thing happened in Britain a couple months ago, Germany and France in the last few years. In November, we’ll see the same thing in the US with the Reps taking control of the Congress, creating true stagnation, not the stagnation dressed as reform we’ve had over the last 18 months.

We are witnessing the death of industrial politics. One would be tempted to say Western politics is a dead medium, but that would be ahistorical. However, it would be completely accurate to say Western politics is insolvent, incapable at this point of meeting the challenges of the times, stuck in the clothes knitted for it two-centuries ago — representative government atop an industrial infrastructure. In fact, it is only in industrializing areas of the globe that politics seems, wrongly, to have any vibrancy, for it is in these areas industrial politics can incorrectly be construed as vital.

In the industrial West, politics has lost life. We have a politics of the status quo, upheld by “both” sides of the political spectrum. Western politics is controlled by large corporate interests, supported in the halls of government by a caste of political eunuchs. The cultural left and cultural right, indoctrinated in the same industrial pabulums, fight over the disbursements of diminishing returns based on various slave identities, the only real disagreement by the two sides is how active a role the government should play in societal looting.

Presently, events are the only real politics in the West. They act as a growing violent tide, each successive wave pulling out more sand, undermining the foundation. In reaction, our politics futilely attempts to replace the sand. This process can continue for a long time, but without a revitalization of our politics, a rethinking of the foundations of industrial society, politics will become increasingly reactionary.

We are political animals, we need a healthy politics.

 
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housing

On August 19, 2010, In The Public, By Joe Costello
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Well, they had a meeting in DC yesterday and the Treasury Secretary, Wall Street, banks, and MBS bondholders all agreed something should be done with Fannie and Freddie, as long as no one, except maybe homeowners, incurred any losses. Fannie and Freddie represent a lot that’s wrong with our government. It became a bipartisan cesspool of corruption, jobbery and incompetence over the past decade, for which every public revelation only led to expressions of surprise by DC officialdom. Most recently Fannie and Freddie became dumping grounds for the worst of the real estate dreck, and that’s saying something.
Fannie and Freddie played a role in the housing bubble. The last couple months the housing market, let’s leave out the commercial market which is worse, has stalled. All the Fed and Treasury blowing couldn’t reflate the bubble, and prices will continue their slow movement down for a very long time. Remember the NASDAQ ten years on is at 40% of its bubble peak, while Japanese real estate, 20 years on, is just over 20% of its peak value, so that leaves at lot downward room for US housing, depending on how big you think the bubble was.

Most interesting of course is how all the thinking remains quite bubbly. Bill Gross of PIMCo came out and warned last week that without any gov guarantee PIMCO would quit the mortgage market. Mr. Gross’ fund sits on $36 billion in MBS, so he has a definite interest. Even more bubbly was Mr. Gross’ suggestion yesterday that the US government back refinance of all mortgages currently paying over five percent:

Massive refinancing of the nearly 60% of mortgages backed by the government that are one full percentage point above today’s 4.5% mortgage rates would provide quick stimulus “as well as a potential lift of 5-10% in terms of housing prices,” he said.

I suppose a chunk of that is now held by PIMCO and the implicit government guarantee would then be explicit, or better you could just get it off your books, plus free money right? I guess that’s win-win-win. I didn’t hear any idea on what would be done with the 25% of the people underwater in their mortgages. It will be a long long time before real estate in this country heads up, bet on it.

Cross-posted from Archein:

housing

 
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Bubble, Bubble, Toil, and Trouble

On August 13, 2010, In Background and Research, By Joe Costello
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Me and my baby gonna get on a train that’s gonna take us away,
We’re gonna live in a tent, we’re gonna pay no more rent, we’re gonna pay no more rates,
We’re gonna live in a field, we’re gonna buy me gun to keep the policemen away.
Gonna pass me a brand new resolution,
Gonna fight me a one man revolution, someway,
Gonna start my rebellion today.
But here come the people in grey,
To take me away.
– Ray Davies

Bubble, Bubble

Gillain Tett has a must read piece (tx yves) in the FT regarding the heart of the past financial bubble. It’s based on a good IMF paper, good information can indeed come from bad sources. The piece is much easier to understand if you replace the term “rehypothecation” with Ponzi. Here’s the nut:

Second, as the IMF paper shows, this rehypothecation (Ponzi) activity can be so frenetic it can significantly affect the overall volume of leverage in the system. The IMF paper calculates that, by 2007, the seven largest US brokers were getting about $4,500bn of funding from rehypothecation activity, most of which was not recorded in their accounts or the US government’s flow of fund data.

That’s $4.5 trillion, one third of the entire US economy and here dear reader, you see why all the blowing in the world by Mr. Bernanke and every other central banker is not going to reflate the bubble. We have a choice, we can clear the books and get rid of all the bad debt, or we can all spend the next twenty years working a crippled economy paying off a bunch of debt that was at its foundation fraudulent.

Toil

The financial press has been a gush this morning with the news that German economy grew, wait for it, a whole 2.2%. That’s the largest growth rate in the German economy in twenty years. The FT describes it as “stellar”. Phew! Talk about you’re new normal. Just think if the Euro goes down to fifty-cents, or the neo-Deutsche Mark is released at 75 cents, the Germans might reach 3%.

And Trouble

A liberal education — Barbara Ehrenreich has a piece in The Nation in which she states, “the federal government, avatar of liberal hope for at least a century, has become hopelessly undemocratic, poisoned by corruption and structurally snarled by partisan divisions.” It even gets better, though there’s a gratuitous slam at the Tea Partiers at the end. The final step of a liberal education will be the over, and too often badly educated left understanding it does indeed have some common ground with “angry white-boy America”, that would be trouble indeed.

Liberals of the United States run from DC, you have nothing to lose but your chains.

Cross-posted from Archein:

Bubble, Bubble, Toil, and Trouble

 
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COUNTDOWN TO COLLAPSE: The Recovery is Not Recovering

On August 13, 2010, In Congress, Corporations, By Danny Schechter
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From the author of The Crime Of Our Time

Financial journalist Charles Gasparino whose career trajectory took him from Newsweek to CNBC to Fox News was on with Bill O’ Reilly doing what the host of the factless Factor likes to do the most: promote Fox News.  In the course of their self-promotional banter, Gasparino let sip an unverifiable story about a meeting of top CEOs speculating about whether President Obama really is a secret Socialist.

Stories like this, invented or not, freak a White House ever eager to reassure the business world of their loyalties. That is no doubt why Robert Gibbs, the  President’s Press  Secretary took a whack at the “professional left,” a statement he later said had been “inartful” but did not withdraw.

Writing on OpEd News, Kevin Gosztola was not surprised:

“While circumstantial, the best evidence for why Gibbs would feel like uttering the aforementioned remarks is the shift of money from Wall Street to Republicans ahead of the election… The Democrats earned 57 percent of campaign contributions from securities and investment industries.

The situation compels the Obama Administration, especially White House press secretary Gibbs, to whip the left and the sections that are most listened to by voters into line not only because money from business interests needs to swing back the other way but because disappointed and disillusioned voters will likely stay home, not donate to Democratic Party campaigns, not make phone calls, and refuse to go door-to-door canvassing prior to Election Day if they do not fall in line.”

According to a preliminary analysis, the Center for Responsive Politics reports that “individuals and political action committees linked to the financial and real estate sectors swung hard to the Republicans with their giving since last year….
In March 2009, 70 percent of money from the sector went to the governing party, but by this summer, 68 percent was going to the opposition, as Democrats fought to pass some version of a financial overhaul.”
The motivation for Gibbs’ remarks may or may not be tied to signaling Wall Street but the deeper truth is that everyone, right and left alike, seem frustrated and at the same time powerless to check the continuing economic decline.

The private sector is not creating jobs. The GOP is blocking the government from doing more stimulus programs while the system seems to be unraveling. All the talk of cutting deficits by conservatives or ending tax cuts by liberals will not give the economy the boost it needs. There is a paralysis of analysis and a stalemate.

The markets were more freaked by the recent pessimism oozing from the Fed than any partisan punditry. The slowdown they are worried about has already doomed any heavily-hyped “recovery.”

And the public knows it, according to the recent polls.

What’s worse is the tea leaves offer few signs of a turnaround any time soon even if General Motors is selling more cars—many, may we be reminded,  in China. (The GM CEO who last week took a nasty ingrate smack at GM being perceived as “Government Motors,” demanding the government sell all of its shares, has just announced he is leaving!  I wonder why?)

The Carlysle Group is taking over while the automaker launches a new program of subprime lending, the very predatory dealmaking that got them in trouble in the first place.

Does anyone ever learn from history, or care about how communities are being destroyed as a financial crisis becomes a social crisis at the grass roots level?

Check out what happened at that mall in Atlanta where thousands of people nearly rioted to get on a public housing waiting list. The Congress returned from its recess to pass new monies to keep teachers teaching and cops patrolling. They did so by slashing food stamps so the unemployed and poor –some 41% of people who rely on them—will have to cut back further.

What a trade-off.

As for insuring the stability of an increasingly volatile system, will the new financial reforms make any difference?  It doesn’t look like it. The LA Times reported, “As Wall Street scrambles to find the best and most profitable way to operate under the new financial reform law, Goldman Sachs Group Inc. — the firm that was expected to suffer the most under the legislation — could emerge practically unscathed…

“…we think we are well positioned to be a market leader under the new rules,” said Jack McCabe, co-head of Goldman’s derivatives clearing service business.

Richard Bove, a bank analyst at Rochdale Securities, said he had changed his view of the law’s effect on Goldman.

“I thought this company was going to be really harmed by this bill; now I’ve figured out that it’s not going to happen,” he said. “They should win big here.”

That’s Goldman’s reason to celebrate its “big win” What about the others? The truth is we will not know for a awhile, for a long while, for many, many years. So much for any sense of urgency even after former Fed Head Paul Volcker said we are running out of time.

Bloomberg News explained why,

“Many of the measures ordered by Congress and global regulators, aimed at cushioning the financial system in future crises, are years away from being implemented. The Basel Committee on Banking Supervision plans to give the world’s banks until 2018 to comply with limits on how much they can borrow. Parts of the Volcker rule, a provision of the new Dodd-Frank Act that would force firms to cut stakes in in-house hedge funds and private-equity units, may not go into effect for a dozen years…

“Based on our experience of government’s ability to execute these things effectively and in a timely way, we are almost uncovered now from any future financial risk for at least another 8 or 10 years, and that’s a little scary,” said Roy Smith, finance professor at New York University’s Stern School of Business and a former banker at Goldman Sachs Group Inc

Economist Nouriel Roubini, one of the first to forecast our crisis, worries that major economies in Europe are at risk and could fall. At the same time I am reading articles that contend, “The US is more bankrupt than Greece.”  Another reports the IMF saying the US is bankrupt but most Americans don’t know it.
What else don’t we know?

At the same time, the folks who brought us this crisis are still riding high, making multi-million dollar “settlements’ to cover up fraudulent practices.  In recent weeks, Goldman Sachs, Countrywide and, now, Wells Fargo have just done that in part to avoid prosecutions.

Their CEOS are going on vacation to spend their ill-gotten gains, not to jail to pay for their crimes. And the “professional left”—whatever that is supposed to be—is more pissed at Robert Gibbs blathering at that podium than the banksters maneuvering behind the scenes.

Can anyone tell me what’s wrong with this picture?

Just one footnote: In this week of growing economic despair, an 81 year old senior citizen named Bernard Stone stood outside the unemployment office in Harlem with a flyer of his own making calling on President Obama to issue an executive order closing all American-owned factories outsourcing jobs. If they don’t do it, their executives should, he suggests, lose their citizenship and be deported  to the countries to which they exported American jobs.

“The hundred or so people who read my leaflet liked that part,” he told me.

News Dissector Danny Schechter directed the film “Plunder: The Crime of Out Time” to investigate the financial crisis as a crime story. (Plunderthecrimeofourtime.com) Comments to dissector@mediachannel.org

 
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