Monday Business Edition

by: TheMomCat

Mon Oct 03, 2011 at 13:00:00 PM EST

• Greek gloom rocks markets, troubles lenders
  By Harry Papachristou and Jan Strupczewski
  ATHENS | Mon Oct 3, 2011 12:14pm EDT

  (Reuters) - Greece's admission that it will miss its deficit target this year despite harsh new austerity measures sent stock markets reeling on Monday and raised new doubts over a planned second international bailout.

  The gloomy news from Athens brought the specter of a debt default closer and will weigh on talks among euro zone finance ministers in Luxembourg later on Monday on the next steps to try to resolve the currency area's sovereign debt crisis.




• Greek economy stuck in recession, complicates fiscal efforts
  By Harry Papachristou and Ingrid Melander
  ATHENS | Mon Oct 3, 2011 10:59am EDT

  (Reuters) - Greece will remain trapped in recession next year, threatening the country's efforts to cut deficits and claw its way out of a debt crisis shaking the euro zone, budget figures showed on Monday.

  The economy will suffer a fourth consecutive year of contraction, shrinking by 2.5 percent in 2012 after an expected 5.5 percent slump this year, according to the 2012 budget draft submitted to parliament after talks with international lenders.

Should have brought the Gatlings

by: ek hornbeck

Mon Sep 26, 2011 at 07:04:35 AM EST

Europe Readying Yet Another "This Really Will Do the Trick" Bailout Package
Yves Smith, Naked Capitalism
Saturday, September 24, 2011

(I)n another bit of deja vu all over again, the powers that be in Europe are readying yet another bailout plan, this one supposedly big enough to do the trick once and for all. The problem is that was the premise of several of the last grand schemes, such as the EFSF and the ESM. The market calming effect relatively short lived because analysts quickly pencilled out the programs were inadequate in size and failed to address the problems of lack of a fiscal mechanism at the EU level and the need to address the elephant in the room, bank solvency.
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The new rescue program seeks to create a sovereign debt crisis firebreak at Greece, Portugal, and Ireland, when contagion has already put Spain, Ireland, and Belgium in the crosshairs. The high concept is leverage on leverage plus monetization: the EFSF, which is basically a CDO, would then provide the equity to a new fund, and the ECD would provide "protected 'debt'" I'm not at all certain what the latter is supposed to mean; reader input is welcome. But this sounds like a CDO squared, with an unfunded equity tranche, as a legal/political cover for the ECB monetizing Euro sovereign debt. Nevertheless, this mechanism will allegedly allow for sovereign bailout program of €2 trillion.

Similarly, the size of the bank recapitalization program is in the "tens of billions", vastly short of the €2-€3 trillion that some experts think is necessary. And note this is backwards: the debt needs to be written down directly (rather than trying to squeeze blood out of turnips via austerity) and banks recapitalized directly. Instead, the focus is (yet again) on bailing out the sovereigns, who will presumably still be expected to wear austerity hairshirts, which will worsen their debt to GDP ratios (even if this program does succeed in getting them cheaper debt in sufficient volumes).

The Eurocrats are going to be slow out of the gate. They want to launch the plan at the next G20 meeting, which is six weeks away, November 4. Mr. Market doesn't care about the schedules of the officialdom, and is highly unlikely to wait that long.

Euro Zone Death Trip
By PAUL KRUGMAN, The New York Times
Published: September 25, 2011

European policy makers seem set to deliver more of the same. They'll probably find a way to provide more credit to countries in trouble, which may or may not stave off imminent disaster. But they don't seem at all ready to acknowledge a crucial fact - namely, that without more expansionary fiscal and monetary policies in Europe's stronger economies, all of their rescue attempts will fail.
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Think of it this way: private demand in the debtor countries has plunged with the end of the debt-financed boom. Meanwhile, public-sector spending is also being sharply reduced by austerity programs. So where are jobs and growth supposed to come from? The answer has to be exports, mainly to other European countries.

But exports can't boom if creditor countries are also implementing austerity policies, quite possibly pushing Europe as a whole back into recession.

Also, the debtor nations need to cut prices and costs relative to creditor countries like Germany, which wouldn't be too hard if Germany had 3 or 4 percent inflation, allowing the debtors to gain ground simply by having low or zero inflation. But the European Central Bank has a deflationary bias - it made a terrible mistake by raising interest rates in 2008 just as the financial crisis was gathering strength, and showed that it has learned nothing by repeating that mistake this year.

As a result, the market now expects very low inflation in Germany - around 1 percent over the next five years - which implies significant deflation in the debtor nations. This will both deepen their slumps and increase the real burden of their debts, more or less ensuring that all rescue efforts will fail.
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Part of the problem may be that those policy elites have a selective historical memory. They love to talk about the German inflation of the early 1920s - a story that, as it happens, has no bearing on our current situation. Yet they almost never talk about a much more relevant example: the policies of Heinrich Brüning, Germany's chancellor from 1930 to 1932, whose insistence on balancing budgets and preserving the gold standard made the Great Depression even worse in Germany than in the rest of Europe - setting the stage for you-know-what.

Greece needs to default on its debt and exit the eurozone
If the current Greek government can't take the necessary steps to do this, it should give way to other political forces than can
Stergios Skaperdas, The Guardian
Monday 26 September 2011 05.00 EDT

Preparing for default involves the formation of a large number of expert teams to defend Greek interests with conviction. For the debt that is based on Greek law, Greece has the upper hand. Negotiations for other debt will be more difficult and protracted.

Since Greek banks will become insolvent, they will have to be nationalised and preparations will need to be made for that. The insurance and pension funds will need to be bailed out, too. For both banks and funds to be bailed out, the country will need its own currency. Therefore, exit from the eurozone would follow.
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(T)here is little doubt among economists that the easiest mechanism for a country to gain competitiveness is to have its currency depreciate. Hence, Greece having its own currency is the easiest path to gaining international competitiveness. Cars and iPhones will become more expensive but food might actually become cheaper and employment will pick up within a few months after the introduction of the new drachma. By contrast, unemployment and deprivation with no end in sight are the predictable results of following the troika's policies.
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The main problem with an exit from the eurozone is the transition period. Capital controls will have to be imposed. Temporary measures to ration foreign exchange for the importation of petroleum and other essential items will have to be undertaken. How will the Bank of Greece settle with the ECB? How will debt be converted from euros to drachmas?

The Battle of the Greecey Grass

by: ek hornbeck

Sun Sep 18, 2011 at 22:51:59 PM EST

We've seen this play before.  All of a sudden trillions of dollars of 'notional' value turn into meaningless scraps of paper (or ephemeral photons if you prefer) suitable for lining litter boxes or wrapping fish.

Except it's not even very good at that.

The biggest losers in the casino will turn to taxpayers to make good their losses or simply pretend that they don't exist.  Markets plunge because the trust in magic evaporates and suddenly skeptical children refuse to clap for dying confidence fairies anymore.

Folks, it's just a fucking light bulb on a string.

Sooner rather than later people are going to take their Greek bets off the table, followed shortly by Spain, Italy, France, and Germany.  The Euro will collapse, no longer a threat to the Dollar as a reserve currency.  Countries will struggle to rebuild 'national' financial systems.

This is all because governments, led by the United States, refused to force banks to deleverage and accept their losses in a timely fashion.

There won't be another 2008 bailout.  In Europe, where there is already violent rioting, Bankers and Ministers will be hung from lamp posts first.  In the United States the suicide would be political.

Austerity will not make the losses good either, everything everyone in the bottom 50% owns is a mere $1.4 Trillion.  Taking it all won't solve the problem.  Our elites are faced with a decline in their own standard of living that squeezing the poor can't mitigate.

Good say I.

What will work is more Socialist than Keynesian.  Mark to market and vaporize 'notional' value.  Seize assets and aggressively tax wealth to force investment.  Stimulate production by increasing demand.

Real estate values in Greenwich are going to decline and yachts rust in the harbor, but you know, it's better than selling apples on a street corner worrying that someone is going to cut you for your fancy ass Rolex and that's next.

The euro zone shuns Geithner
Felix Salmon, Reuters
Sep 16, 2011 16:55 EDT

(I)n sunny Wroclaw, (Geithner) fell spectacularly flat. He waltzed into a meeting of euro zone finance ministers (he took a private car, they shared a bus), and informed them that they should follow his lead and leverage the money in the EFSF. In unison, the finance ministers responded by saying "why, Mr Geithner, that's a simply spectacular idea, we're shamefaced to admit that we didn't think of it ourselves. Thanks for your advice, we'll follow it, to the letter, forthwith!"

Or, not so much(.)
...
I'm not sure that Geithner was the right person to send to Poland to try to knock European heads together. As the biggest shareholder of the IMF, he would probably have been better off conferring with Christine Lagarde and getting her to make his point for him. The Europeans were never likely to take well to the Americans telling them what to do, especially when their gentle attempts to ask something of Geithner (maybe you might consider getting on board with a financial transactions tax?) were unceremoniously dismissed out of hand by the Treasury secretary.

In any case, Geithner seems to have failed in whatever it was that he was trying to achieve: the only unanimity he managed to foster was in the belief that he had no business telling the euro zone what to do.

EU finance ministers break no new ground on debt crisis
By Jan Strupczewski and Gareth Jones, Reuters
Sat Sep 17, 2011 4:08pm EDT

"He (Geithner) conveyed dramatically that we need to commit money to avoid bringing the system into difficulty," Austrian Finance Minister Maria Fekter told reporters after the meeting.

"I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone, they tell us what we should do."

Geithner also pointed out that euro zone finance ministers could boost the firepower of their bailout fund, the 440 billion euro European Financial Stability Facility, through leveraging.
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Leveraging would mean that the EFSF could guarantee to cover potential losses of the European Central Bank on purchases of bonds of distressed euro zone sovereigns, boosting the fund's intervention potential even fivefold, officials said.
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EU finance ministers also agreed on Saturday that European banks must be strengthened in the follow-up to July stress tests, as a report said a "systemic" crisis in sovereign debt now threatened a new credit crunch.
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The agreement does not mean European banks are likely to get large, additional capital injections from public coffers -- it is just an acknowledgement of the results of the European bank stress tests in July.

The tests showed a financing gap for banks of only 6 billion euros -- a sum many investors believe could be much higher if the debt crisis worsens, and which is to be primarily covered by private capital.

Meetings on European Debt Crisis End in Debate, but Little Progress
By STEPHEN CASTLE, The New York Times
Published: September 17, 2011

The meetings were highlighted by the appearance by Timothy F. Geithner, the United States treasury secretary, whose advice, and warnings, drew a tepid reaction from the euro zone's finance ministers. And Mr. Geithner's rejection Friday of a European idea for a global tax on financial transactions prompted a debate about whether Europe should go ahead on its own.
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"The problem is that the politicians seem to be behind the curve all the time," added Anders Borg, Sweden's finance minister. "We really need to see some more political leadership," he said, citing a "clear need for bank recapitalization."
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One European official, not authorized to speak publicly, said the ministers "seemed to come to no operational decisions at all." The only positive news was an outline agreement on new laws to tighten the rulebook for the euro - though that was struck in Brussels.

Saturday's meeting ended promptly around noon, allowing ministers to leave before a demonstration in Wroclaw against austerity measures in Europe.

Euro Bulls Capitulate After Trichet Turnaround Cuts Forecasts
By Liz Capo McCormick, Lukanyo Mnyanda and Allison Bennett, Bloomberg Business Week
September 18, 2011, 11:22 AM EDT

French President Nicolas Sarkozy and German Chancellor Angela Merkel said Sept. 14 they are "convinced" Greece, which saw yields on its two-year note rise above 80 percent last week, will stay in the currency union, and central banks agreed a day later to lend the region's financial institutions dollars. While those moves bolstered the euro, the region's economy has turned weaker, leading traders to bet that the European Central Bank may lower interest rates over the next year instead of raising them, removing a key support for the currency.
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Mario Blejer, who managed Argentina's central bank in the aftermath of the world's biggest sovereign default, said Greece should halt payments on its debt to stop a deterioration of the economy that threatens the EU.

"This debt is unpayable," Blejer, who was also an adviser to Bank of England Governor Mervyn King from 2003 to 2008, said in an interview last week in Buenos Aires. "Greece should default, and default big. A small default is worse than a big default and also worse than no default."
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Even as Europe's sovereign-debt crisis worsened this year, the euro received support from prospects that the ECB would raise interest rates further to contain inflation. Now, that is looking less likely after ECB President Jean-Claude Trichet said at a press conference in Frankfurt on Sept. 8, after the central bank left its benchmark rate at 1.5 percent, that threats to the euro region have worsened and inflation risks have eased.
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Officials have contributed to investor skepticism. Bank of France Governor Christian Noyer said on Sept. 12 that French lenders are capable of facing any Greek response to sovereign- debt difficulties and have no liquidity or solvency problems. Two days before Moody's cut its long-term debt rating by one level Societe Generale's Chief Executive Officer Frederic Oudea told reporters on Sept. 12 that French banks "have no capital problem."

"Policy makers and bank leaders have all come out and said 'everything is fine,' but clearly everything is not fine," Louise Cooper, a market analyst at BGC International in London, said in an interview on Sept. 14. "The gap between the rhetoric and what the markets are saying about the level of the crisis is huge."

Financial Crisis: can the euro hope to survive?
By Martin Vander Weyer, The Telegraph
7:00AM BST 18 Sep 2011

(T)he market bounce was itself an irrational, wishful-thinking response - a misreading of an unprecedentedly dangerous situation. There is a far more persuasive argument that what we have just seen was another week of denial of the reality and imminence of the eurozone's existential meeting with destiny; another week, to use a currently popular cliché, of kicking the can down the road, rather than facing Europe's big issues head-on.

Look behind each of the week's news items and it's hard not to feel a sense of despair. Geithner was in Wroclaw not to slap his European counterparts on the back for their efforts to date, but to warn them to stop bickering and address the "catastrophic risk" inherent in a widespread state of unsustainable debt and fiscal delinquency.

It is apparent not only that US banks have lost confidence in their European counterparts and have started shutting them out of inter-bank funding markets, but also that US officials are busy making matters worse by seeking to shift blame for America's dire domestic performance on to influences from this side of the Atlantic. "Seventy-five per cent of the dark things happening in the world economy are because of the eurozone," one of Geithner's team said at Marseille.

And it is because of that widely held sentiment in the US financial community - the belief that European banks are sitting on crippling losses on their government bond holdings, and could go down like dominoes if Greece and others default - that the central banks' dollar funding scheme was necessary to stave off the onset of another credit crunch. Another freezing-up of the international banking system is the quickest possible way to turn current near-zero growth performance in the industrialised world into a global double-dip recession, with the second dip likely to be deeper, longer and more painful than the first.
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Markets are convinced of several things: that Greece is politically incapable of meeting the austerity demands imposed by the EU and the IMF, and is now locked into a spiral in which its debt position can only become worse as its economy deteriorates; that a default on Greek sovereign debt is therefore inevitable sooner rather than later, and will impose losses on European banks, including the likes of Société Générale and Crédit Agricole of France, which may in turn need to be bailed out by their governments; and that the eviction of a bankrupt and incorrigibly irresponsible eurozone member is not only a technical possibility but an economic necessity if the single currency is to survive at all.

The best hope now is for a managed Greek default and departure. As German transport minister Peter Ramsauer said this week, before Angela Merkel urged him to silence, "it might be risky and painful for Greece to leave the euro, but it would not be the end of the world".

At the other end of the spectrum, the worst fear is of a final, chaotic Greek episode provoking defaults by Ireland, Portugal and, conceivably, Italy and Spain in its wake. That would be Armageddon - and no one knows what appalling political consequences might follow.

Greek PM cancels U.S. trip as debt crisis deepens
By George Georgiopoulos and Dina Kyriakidou, Reuters
Sun Sep 18, 2011 9:32am IST

Finance Minister Evangelos Venizelos rushed to allay fears the cancelled trip signalled imminent default, saying such talk was "ridiculous", but the conservative opposition seized the opportunity to demand snap elections, fanning fears Greece lacks the will needed for tough measures ahead.

"The comments and analyses about an imminent default or bankruptcy are not only irresponsible but also ridiculous," Venizelos said in a statement.

"Every weekend Greece ... is subject to this organised attack by speculators in international markets."

Papandreou was in London, en-route to United Nations and International Monetary Fund (IMF) meetings, when he decided to turn back after discussing developments with Venizelos, government officials said.

From the Desk of Peter Tchir: "Is September 20th Greek Default Day?"
Daniel Alpert, Economonitor
September 17th, 2011

"If Greece is going to default, September 20th seems to be as good a day as any. Actually, it is far better than most to be GD-Day.

Two big bonds, the 4.5% of 2037 and the 4.6% of 2040 both have coupon payments due that day, totalling 769 Million Euro.  So if the IMF wanted to avoid letting another billion euro go down the drain, September 20th would be a good day to do it.  The IMF seems to have delayed approving another tranche for now, so Greece must already have the money for this payment?

The Fed Scheduled their meeting for 2 days.  It now starts on September 20th.  Maybe a co-incidence, but what better way to be prepared for new emergency policies?

CDS "rolls" on the 20th.  On the 21st, all Sept 2011 CDS will have expired.  My guess is that banks own more protection than they sold to the September 20th date, so defaulting while those contracts are still valid would be a net benefit to the banking system.  As a whole, triggering CDS will likely benefit banks as I can find banks that say they own protection against positions, but find more hedge funds are uninvolved or have sold protection to fund shorts in other sovereigns.

Suddenly, Over There Is Over Here
By GRETCHEN MORGENSON, The New York Times
Published: September 17, 2011

Billions of dollars in swaps have been written on sovereign debt, guaranteeing that those who bought the insurance will be paid if Greece or other countries default. As of Sept. 9, some $32 billion in net credit insurance exposure was outstanding on debt of Greece, Portugal, Ireland and Spain, according to Markit, a financial data provider. An additional $23.6 billion has been written on Italy's debt. Billions more in credit insurance have also been written on European banks, many of which hold huge positions in troubled sovereign obligations.

But since these instruments trade in secret, investors don't know who would be on the hook - as A.I.G. was in its ill-fated mortgage insurance - should a government default or a bank fail.
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Even after what we went through with A.I.G., the huge market in credit default swaps remains unregulated and still operates in the shadows. You can thank big banks that trade these instruments - and their lobbyists - for that.
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"We're seeing a lot of the same things in the markets that we saw in the Lehman era," Mr. Weinberg said, referring to that awful episode three years ago. "I can't tell you specifically and exactly how the fallout from Europe will pass through to us, but I certainly can't tell you it won't."

Exchange Traded Funds

by: ek hornbeck

Fri Sep 16, 2011 at 10:13:14 AM EST

Not so much.

Terry Smith has put together a list of 4 problems with ETFs as they are traded today of which I think #3 is the biggest-

Because you can exchange trade these funds, they are used by hedge funds and banks to take positions and they can short them. Because they can apparently rely upon creating the units to deliver on their short, there are examples of short interest in ETFs being up to 1000% short i.e. some market participant(s) are short 10 times the amount of the ETF. If the ETF is in an illiquid sector, can you really rely upon creating the units as you may not be able to buy (or sell) the underlying assets in a sector with limited liquidity? The danger of allowing short sales which are a multiple of the value of a fund in an area where it may not be possible to close the trades by buying back the stocks are clear, but amazingly, during the debate in which I have been engaged by various cheer leaders for ETFs, they have claimed that there is no such risk in shorting ETFs. They clearly do not understand the product they are peddling, and if they can't what chance has the retail investor got?

In other words leverage is creating notional supply in excess of the actual supply of an asset which leads to illiquidity when the demand exceeds it.

I'm sorry, you can't buy anymore X at any price.

Now economists would argue that there is always a price at which a supply of X is available and on certain theoretical levels they are correct, but there is a practical level at which the price becomes too expensive and someone, somewhere is either deprived of the item they had a contract to purchase OR is forced to spend lots of money making good those promises.

This is apparently what happened at UBS.

The $2 Billion UBS Incident: 'Rogue Trader' My Ass
Matt Taibbi, Roling Stone
POSTED: September 15, 8:39 AM ET

Investment bankers do not see it as their jobs to tend to the dreary business of making sure Ma and Pa Main Street get their $8.03 in savings account interest every month. Nothing about traditional commercial banking - historically, the dullest of businesses, taking customer deposits and making conservative investments with them in search of a percentage point of profit here and there - turns them on.

In fact, investment bankers by nature have huge appetites for risk, and most of them take pride in being able to sleep at night even when their bets are going the wrong way. If you're not a person who can doze through a two-hour foot massage while your client (which might be your own bank) is losing ten thousand dollars a minute on some exotic trade you've cooked up, then you won't make it on today's Wall Street.
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In the financial press you're called a "rogue trader" if you're some overperspired 28 year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you're a well-groomed 60 year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book.

In other words, "rogue traders" are treated like bad accidents and condemned everywhere from the front pages to Ewan McGregor films. But rogue companies are protected at every level of the regulatory structure and continually empowered by dergulatory legislation giving them access to our bank accounts.
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Sooner or later, this is going to blow up in our faces, and it won't be one lower-level guy with a $2 billion loss we'll be swallowing. It'll be the CEO of another rogue firm like Lehman Brothers, and it'll cost us trillions, not billions.

'Rogue trader'? That's the same as 'rogue reporter'
The 'rogues' are those who get caught while people presiding over systems that go wrong say: 'How deplorable'
Michael White, The Guardian
Friday 16 September 2011 06.40 EDT

A "rogue trader" in a City of London bank is really like a "rogue reporter" on the News of the World. He's the one who gets caught and sent to jail when the people who presided over the system that allowed him to lose $2bn - or, in Clive Goodman's case, to hack some royal phones - say "how deplorable" before business as usual is restored.
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Have we learned nothing? Apparently not. Adoboli is 31, with less visible expertise and experience than his evident ambition to make money. Who left him in charge of the tea money? Yet he was able to lose $2bn in a corner of the investment market known as exchange traded funds (ETFs), which even the FT is having a struggle explaining to its more ignorant readers (bank chairmen, people like that) in today's edition.

Apparently, they're the hottest thing since the collateralised debt products that blew up Lehman and others in 2008. The FT columnist Gillian Tett says she wrote a column in May warning that ETFs were heading for a scandal, but not quite this soon.

A rogue trader at UBS or a rogue bank?
by John Gapper, Financial Times
September 15, 2011 3:45 pm

Given the recent history of UBS, it is fair to ask if Kweku Adoboli is a rogue trader or his employer is a rogue bank.
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(T)he bank's entire senior layer of management was forced out following its involvement in the 1998 collapse of Long-Term Capital Management, the US arbitrage hedge fund run by John Meriwether. UBS had pressed to be closely associated with an operation it regarded as smartly and safely run.

There are similarities between the products relating to the LTCM case and the trading desk on which Mr Adoboli worked. As Izabella Kaminska of FT Alphaville points out, banks' Delta 1 desks traded and hedged exchange-traded derivatives in  ways that involve complex - and difficult to monitor - risk-taking. Mr Kerviel worked on SocGen's Delta 1 desk.

The Gold Bug

by: ek hornbeck

Thu Sep 08, 2011 at 08:36:50 AM EST

We estimated the entire contents of the chest, that night, as a million and a half of dollars, and upon the subsequent disposal of the trinkets and jewels (a few being retained for our own use), it was found that we had greatly under-valued the treasure.

When, at length, we had concluded our examination, and the intense excitement of the time had, in some measure, subsided, Legrand, who saw that I was dying with impatience for a solution of this most extraordinary riddle, entered into a full detail of all the circumstances connected with it.

Herr Doktor Professor-

So what determines the price of gold at any given point in time? Hotelling models say that people are willing to hold onto an exhaustible resources because they are rewarded with a rising price. Abstracting from storage costs, this says that the real price must rise at a rate equal to the real rate of interest.
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The logic, if you think about it, is pretty intuitive: with lower interest rates, it makes more sense to hoard gold now and push its actual use further into the future, which means higher prices in the short run and the near future.
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(T)his is essentially a "real" story about gold, in which the price has risen because expected returns on other investments have fallen; it is not, repeat not, a story about inflation expectations. Not only are surging gold prices not a sign of severe inflation just around the corner, they're actually the result of a persistently depressed economy stuck in a liquidity trap - an economy that basically faces the threat of Japanese-style deflation, not Weimar-style inflation. So people who bought gold because they believed that inflation was around the corner were right for the wrong reasons.

And if you view the gold story as being basically about real interest rates, something else follows - namely, that having a gold standard right now would be deeply deflationary. The real price of gold "wants" to rise; if you try to peg the nominal price level to gold, that can only happen through severe deflation.

2.48%

by: ek hornbeck

Mon Aug 08, 2011 at 07:47:33 AM EST

That, dear readers, is the interest rate the United States is paying on it's 10 year Treasuries today after the downgrade.  This is LESS than we were paying on Friday.

Frankly it could and should be 0%.  Far from being a neoliberal, I fall on the modern monetarist side of the fence and can find no rational explanation that we issue debt at all except outdated emotional attachments to a Gold Standard that hasn't existed for almost 40 years and a conscious, if unspoken, government policy of subsidizing the extremely wealthy.

Our Masters of the Universe aren't particularly bright.  I find their constant caterwauling about "uncertainty" particularly revealing.  Far from being brave risk takers, they're cowardly morons miserably longing for the days of the "carry trade" when you could get Yen at 0% interest, convert it, and park it in Treasuries at 5% with zero risk.

They only like fixed games and the natural and desired state of capitalism is government sanctioned mercantilist monopolies using the military and police power of the nation to eliminate competition.

East India Company anyone?  There's your real Tea Party.

What the market is telling us today is that there is in fact NO risk that the United States will not pay off its debts in dollars, the currency in which they're incurred.  The market is also telling us that the almighty Dollar has NO SUBSTITUTE as the International Reserve Currency.  It is the only one that exists in sufficient quantity to do the job and we are the only nation that is willing to accept the penalty in terms of a permanent trade deficit.  Last week both China (incidentally lower rated than the U.S.) and Switzerland explicitly acted to limit the use of their currency for this purpose, because they aren't willing to cede control of it to the market.

In fact what was the strongest candidate to replace the Dollar, the Euro, is taking a pummeling today despite the European Central Bank finally deciding to use their market power to limit the allowable decline in value (and consequent rise in interest) of Spanish and Italian bonds.

Yup, they've decided to "print" their way out and despite immediate negative impact there is no doubt that over the short and medium term the bond vigilantes, particularly those who have taken leveraged short positions, are going to get a buzz cut if not a shaving.  In other words a thoroughgoing asskicking.

Marshall Auerbeck-

Even with our existing legal constraints (predicated on a now non-existent gold standard system in which we are forced to sell bonds before Treasury spends), Treasury/Fed have other tools to counteract the alleged effect of this downgrade.  Mr. Bernanke can simply call up the NY Fed and gives Mr. Dudley instructions to buy all the 10-year UST on offer to keep the US 10 year at, say 2.5%. It is an open market operation, which the Fed performs all the time. And the banks cannot lend out these reserves, so it's not inflationary (see here for more explanation). Then, as Rob Parenteau and I have noted before, every time some so-called "bond market vigilante" tries to push it above 2.5% by shorting Treasuries, the Fed can slam their face into the concrete by having the open market desk buy the hell out of UST until the 10 year yield is back to 2.5%. Burn Fido enough times, yank his chain enough times, and like the Dog Whisperer, he gets it and stops.

Credibility, Chutzpah And Debt
By PAUL KRUGMAN, The New York Times
Published: August 7, 2011

(T)he rating agencies have never given us any reason to take their judgments about national solvency seriously. It's true that defaulting nations were generally downgraded before the event. But in such cases the rating agencies were just following the markets, which had already turned on these problem debtors.

And in those rare cases where rating agencies have downgraded countries that, like America now, still had the confidence of investors, they have consistently been wrong. Consider, in particular, the case of Japan, which S.& P. downgraded back in 2002. Well, nine years later Japan is still able to borrow freely and cheaply. As of Friday, in fact, the interest rate on Japanese 10-year bonds was just 1 percent.
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These problems have very little to do with short-term or even medium-term budget arithmetic. The U.S. government is having no trouble borrowing to cover its current deficit. It's true that we're building up debt, on which we'll eventually have to pay interest. But if you actually do the math, instead of intoning big numbers in your best Dr. Evil voice, you discover that even very large deficits over the next few years will have remarkably little impact on U.S. fiscal sustainability.
...
The truth is that as far as the straight economics goes, America's long-run fiscal problems shouldn't be all that hard to fix. It's true that an aging population and rising health care costs will, under current policies, push spending up faster than tax receipts. But the United States has far higher health costs than any other advanced country, and very low taxes by international standards. If we could move even part way toward international norms on both these fronts, our budget problems would be solved.

What the market is also telling us is that our economy sucks.  That these huge corporate earnings are largely illusionary in the absence of demand and that Washington's austerity policy, endorsed by Barack Obama and the Democratic Party, is a flat, abject failure.

Why do you think stocks are going down and (downgraded) bonds are going up?  It's because they are less attractive investments than the 2.48% Treasuries in a continuing Depression.

How bad is it?

by: ek hornbeck

Mon Aug 01, 2011 at 08:34:47 AM EST

G.D.P. Shocker: U.S. on Verge of Double-Dip Recession
Posted by John Cassidy, The New Yorker
July 29, 2011

When healthy, the American economy grows at an annual rate of close to three per cent. The Commerce Department's latest report on the gross domestic product (pdf) shows that between April and June, it expanded at an annual rate of 1.3 per cent, and between January and March it grew at an annual rate of just 0.4 per cent. The first-quarter figure is particularly stunning. Previously, the Commerce Department had estimated growth in the period at 1.9 per cent. What is to prevent a similar downward revision to the second-quarter figures? Nobody can say.

Consumer spending, which is the driving force of the American economy-it makes up more than two thirds of G.D.P.-has stalled badly. After expanding at an annual rate of more than two per cent for the previous year and a half, it was essentially flat in the second quarter. Unless consumers spend more readily in the second half of the year, there is no prospect of an economic rebound. But with gas prices still high, unemployment ticking up again, and their elected representatives in Washington paralyzed, it seems unlikely that American families will be flocking back to the malls anytime soon.
...
Retail sales hardly grew at all in June. Wall Street analysts who had been predicting growth of close to three per cent for the rest of the year are now busy trimming their estimates. Industrial production, the other item that the N.B.E.R. watches closely, has also been showing weakness. The Fed's index of industrial production declined slightly in April and May, before rising slightly in June. Manufacturing, the biggest component of industrial production, had its weakest quarter since the previous recession ended in mid-2009.
...
In one sense, the new G.D.P. figures are even worse than they seem. Bear in mind that they are all annualized. This means the government statisticians take the actual growth rate in the quarter and (roughly speaking) multiply it by four. Reversing the process (dividing by four) reveals that the economy expanded by just 0.1 percent in the first quarter and by roughly 0.3 per cent in the second quarter. These figures are so small as to be trivial.

Zandi (no Keynsian he) has predicted a loss of 1.1 million jobs from current policy, an analysis reinforced by Goldman Sachs.

We know what happens from implementing austerity policies in a Lesser Depression from the examples in Britain-

British Economy, After Austerity, at Zero Growth in the Past Nine Months
By: David Dayen, Firedog Lake
Tuesday July 26, 2011 8:15 am

What's amazing about this debt limit debate, and the headlong rush to austerity, is that we have empirical evidence of what can result, in this kind of economy, when you massively roll back spending. We even know what happens when you do that amid the threat of a debt downgrade rather than the fundamentals of the financial markets. All you have to do is look to Britain, which has never been the same since their austerity package was unveiled by the Tories.
...
Britain rolled back demand during a time when the economy was already weak, and they are suffering through the consequences. Instead of looking at this as a problem to be avoided, US policymakers are on the verge of emulating it. And not even in a good way: the British plan was at least somewhat balanced, with tax increases along with the spending cuts. This shows that the idea of a "balanced approach" is still flawed, because either way, you're reducing demand during a time with a demand shortfall.

And in States-

Conservative Budget Cuts Bad for State Economies

• Bigger State Spending Cuts == Higher Unemployment Rates
• Each 10% Cut == .04% Increased Unemployment


• Bigger State Spending Cuts == More Private Employment Losses
• Each 10% Cut == 1.6% Lost Private Employment


• Bigger State Spending Cuts == Weaker Economies
• Each 10% Cut == 1.6% Economic Contraction

State spending data are adjusted for inflation using the GDP price index. National changes have been removed from data on state unemployment rates, private payroll employment, and inflation-adjusted GDP growth to more clearly identify state-level economic performance. The analysis in the three charts weights each state's data by population size to give a better reflection of a national average effect of cutting state government spending on economic performance. Weighting the analysis as such does not materially change the significance or size of the effect of cutting state spending.

AUSTERITY DOES NOT REDUCE THE DEFICIT OR DEBT!

Sure Cure for the Debt Problem: Economic Growth
By CATHERINE RAMPELL, The New York Times
Published: July 30, 2011

Before its economy crashed, Ireland was a star of this sort of debt reduction. In the 1980s, Ireland's debt dwarfed its economy. Over the next two decades, though, that debt shrank to about a quarter of gross domestic product, largely because the economy went gangbusters.

"Ireland went from being, you know, the emerging market in a European context, to a very dynamic economy," says Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics and co-author of "This Time Is Different," a history of debt crises.
...
The same happened during the prosperous 1990s, which began with deficits and ended with surpluses. Former President Bill Clinton is often credited for that turnabout, as he engineered higher tax rates. But most economists attribute the surplus years primarily to extraordinarily rapid growth.
...
While it may be difficult or impossible to grow our way out of debt, the G.D.P. figures announced on Friday suggest that we could quite possibly shrink our way into bankruptcy. The austerity measures that Congress is debating would almost certainly slow growth further. That, in turn, might actually worsen the debt problem - the exact opposite of what their proponents suggest.
...
The problem is that reducing spending or raising taxes just now would hurt the already fragile economy. Another recession would not only be painful for ordinary Americans but would actually worsen the debt problem by reducing tax revenue.

Don't believe it? Consider this: Of the $12.7 trillion in additional federal debt that was accumulated over the last decade, about a third came from the souring economy.

Back in the Great Depression, Washington tightened its belt with disastrous results. Congress severely reduced spending in 1937, plunging the economy back into the hole. Ultimately, that meant even more federal borrowing.

Leaving aside the moral bankruptcy of starving the poor and elderly to death while leaving the wealthiest one tenth of one pecent untouched and accelerating their robbery of the middle class, this is bad, bad, bad economic policy.

And Barack Obama and the Democrats know it.  The People know it too.

Obama Approval Drops to New Low of 40%
Similar to his approval rating for handling the debt ceiling negotiations
by Jeffrey M. Jones, Gallup

PRINCETON, NJ -- President Obama's job approval rating is at a new low, averaging 40% in July 26-28 Gallup Daily tracking. His prior low rating of 41% occurred several times, the last of which was in April. As recently as June 7, Obama had 50% job approval.
...
Though Americans rate Obama poorly for his handling of the situation, they are less approving of how House Speaker John Boehner and Senate Majority Leader Harry Reid are handling it. Gallup does not include ratings of Congress or congressional leaders in its Daily tracking, and thus, there is no overall job approval rating of Boehner, Reid, or Congress directly comparable to Obama's current 40% overall job approval rating.

Obama's job approval rating among Democrats is 72%, compared with 34% among independents and 13% among Republicans. In the prior three weeks, his average approval rating was 79% among Democrats, 41% among independents, and 12% among Republicans.

Americans' Ratings of the Economy Also More Negative Amid Stalemate

The debt crisis may be contributing to a generally sour mood for Americans that stretches beyond political ratings. For example, Gallup's Economic Confidence Index, which is also tracked daily, averaged 49 July 2628, down 8 points in the last week and down 19 points since early July. The current index score is the worst Gallup has measured since March 2009.

The index consists of two questions, measuring Americans' ratings of current economic conditions and their assessments of whether the economy is getting better or worse. Currently, 52% say economic conditions are poor, the highest since August 2010. And 75% of Americans say economic conditions are getting worse, a level not seen since March 2009.

Electoral victory my ass.

Bad Policy, Bad Politics- Part 1

by: ek hornbeck

Mon Jul 11, 2011 at 15:04:51 PM EST

Economy Faces a Jolt as Benefit Checks Run Out
By MOTOKO RICH, The New York Times
Published: July 10, 2011

Close to $2 of every $10 that went into Americans' wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody's Analytics. In states hit hard by the downturn, like Arizona, Florida, Michigan and Ohio, residents derived even more of their income from the government.

By the end of this year, however, many of those dollars are going to disappear, with the expiration of extended benefits intended to help people cope with the lingering effects of the recession. Moody's Analytics estimates $37 billion will be drained from the nation's pocketbooks this year.
...
"If we don't get more job growth and gains in wages and salaries, then consumers just aren't going to have the firepower to spend, and the economy is going to weaken," said Mark Zandi, chief economist of Moody's Analytics, a macroeconomic consulting firm.

Job growth has remained elusive. There are 4.6 unemployed workers for every opening, according to the Labor Department, and Friday's unemployment report showed that employers added an anemic 18,000 jobs in June.
...
Consumers account for an estimated 60 to 70 percent of the country's economic activity, but two years into the official recovery, businesses are still complaining that people simply are not spending enough.
...
Because benefit payments tend to be spent right away to cover basic needs like food and rent, they provide a direct boost to consumer spending. In a study for the Labor Department, Wayne Vroman, an economist at the Urban Institute, estimated that every $1 paid in jobless benefits generated as much as $2 in the economy.

Government Aid Dissipating, Damaging Economic Performance
By: David Dayen, Firedog Lake
Monday July 11, 2011 6:55 am

The Times story tells a simple tale, one rooted in elementary macroeconomic theory, and one which has escaped everyone in Washington. If you reduce benefits on those who have the highest propensity to spend money, that money gets taken out of the economy, and GDP suffers. And GDP has a direct bearing on unemployment. Our automatic stabilizers actually worked decently during the Great Recession. In fact, most of the stimulus went to tax cuts and beefing up those stabilizers, through aid to states and expanded benefits (in fact, too much so, as public investment in jobs was barely a sliver of the total stimulus). No doubt Republicans will see this article as some evidence of lazy Americans living on the dole, but it's a direct result of an intelligently designed system to provide a safety net when the bottom drops out of the economy.

Herr Doktor Professor-

Regular readers of this blog know that I make a big deal of the failure of interest rates to rise despite massive government borrowing. There's a reason for that: what happens to interest rates is a key indicator of which economic model, and hence which economic policies, are right.

The Very Serious position has been that government borrowing will drive up rates, crowd out private investment, and impede recovery. A Keynes-Hicks analysis, by contrast, says that when you're in a liquidity trap, even large government borrowing won't drive up rates - and hence won't crowd out private investment. In fact, it will promote private investment by raising capacity utilization and giving firms more reason to expand.
...
What we usually get in response to this seemingly decisive data are a series of excuses - most recently, that rates were low because the Fed was buying all the bonds. Well, that program has ended, and interest rates are still low.

More Herr Doktor Professor on excuses-

The fact is, the United States economy has been stuck in a rut for a year and a half.
...
The truth is that creating jobs in a depressed economy is something government could and should be doing.
...
Our failure to create jobs is a choice, not a necessity - a choice rationalized by an ever-shifting set of excuses.

Excuse No. 1: Just around the corner, there's a rainbow in the sky.

• Remember "green shoots"? Remember the "summer of recovery"? Policy makers keep declaring that the economy is on the mend - and Lucy keeps snatching the football away. Yet these delusions of recovery have been an excuse for doing nothing as the jobs crisis festers.

Excuse No. 2: Fear the bond market.

• Two years ago The Wall Street Journal declared that interest rates on United States debt would soon soar unless Washington stopped trying to fight the economic slump. Ever since, warnings about the imminent attack of the "bond vigilantes" have been used to attack any spending on job creation.

  But basic economics said that rates would stay low as long as the economy was depressed - and basic economics was right. The interest rate on 10-year bonds was 3.7 percent when The Wall Street Journal issued that warning; at the end of last week it was 3.03 percent.

Excuse No. 3: It's the workers' fault.

• (I)f there really was a mismatch between the workers we have and the workers we need, workers who do have the right skills, and are therefore able to find jobs, should be getting big wage increases. They aren't. In fact, average wages actually fell last month.

Excuse No. 4: We tried to stimulate the economy, and it didn't work.

• Everybody knows that President Obama tried to stimulate the economy with a huge increase in government spending, and that it didn't work. But what everyone knows is wrong.
  ...
  What happened to the stimulus? Much of it consisted of tax cuts, not spending. Most of the rest consisted either of aid to distressed families or aid to hard-pressed state and local governments. This aid may have mitigated the slump, but it wasn't the kind of job-creation program we could and should have had. This isn't 20-20 hindsight: some of us warned from the beginning that tax cuts would be ineffective and that the proposed spending was woefully inadequate. And so it proved.

Neoliberal Economics has as much credibility as Stalinist Genetics.

Monday Business Edition

by: TheMomCat

Mon Jun 27, 2011 at 13:00:00 PM EST

Due to playing in the mud (don't ask, trust me it's messy), the Monday Business Edition will brought to you by c'est moi.

Consumer spending set to restrain second-quarter growth

(Reuters) - Consumer spending was flat in May, breaking a string of 10 straight months of gains, as households struggled with rising prices and automakers failed to deliver the models Americans wanted.

When adjusted for inflation, spending slipped 0.1 percent, the Commerce Department said on Monday, falling for a second straight month.

Los Angeles Dodgers file for bankruptcy

(Reuters) - The Los Angeles Dodgers filed for bankruptcy protection, blaming Major League Baseball Commissioner Bud Selig for rejecting a television deal that would have given the financially strapped baseball team a quick injection of cash.

Monday's filing marks a dramatic attempt by Dodgers owner Frank McCourt to keep the league from seizing the storied team, which he has owned since 2004.

Monday Business Edition

by: ek hornbeck

Mon Jun 06, 2011 at 08:39:11 AM EST

From Yahoo News Business

1 Japan's TEPCO shares down 28% to record-low
by Miwa Suzuki,AFP
2 hrs 38 mins ago

TOKYO (AFP) - Shares in Japan's TEPCO lost more than a quarter of their value Monday following a media report that the operator of the country's tsunami-hit nuclear plant would log a $7 billion loss in fiscal 2011. The stock was also hit by a reported comment by Tokyo Stock Exchange president Atsushi Saito that Tokyo Electric Power Co. should file for bankruptcy protection, a move that could hit shareholders hard. TEPCO stock fell to 206 yen mid-morning, down 80 yen or 28.0 percent from Friday, the maximum loss allowed for one trading day. It closed a shade better at 207 yen, down 79 yen or 27.62 percent.

Monday Business Edition

by: ek hornbeck

Mon May 30, 2011 at 08:53:29 AM EST

From Yahoo News Business

1 Germany to close all nuclear plants by 2022
by Deborah Cole, AFP
57 mins ago

BERLIN (AFP) - Germany on Monday became the first major industrialised power to agree an end to nuclear power in the wake of the disaster in Japan, with a phase-out due to be completed by 2022. Chancellor Angela Merkel said the decision, hammered out by her centre-right coalition overnight, marked the start of a "fundamental" rethink of energy policy in the world's number four economy. "We want the electricity of the future to be safer and at the same time reliable and affordable," Merkel told reporters as she accepted the findings of an expert commission on nuclear power she appointed in March in response to the crisis at Japan's Fukushima plant.

Monday Business Edition

by: ek hornbeck

Mon May 23, 2011 at 08:18:55 AM EST

From Yahoo News Business

1 Spain's Socialists suffer local election thumping
by Daniel Silva, AFP
Sun May 22, 6:01 pm ET

MADRID, Spain (AFP) - Spain's ruling Socialists reeled from spectacular local election losses Sunday as protesters vented outrage over the highest jobless rate in the industrialized world. Support for the government collapsed in the face of the beleaguered economy, soaring unemployment and massive street protests, a grim omen for 2012 general elections. With 98.21 percent of the municipal ballots counted, the Socialists had just 27.81 percent of the total vote compared to 37.58 percent for their conservative Popular Party opponents.

Monday Business Edition

by: ek hornbeck

Mon May 16, 2011 at 08:30:00 AM EST

Monday Business Edition is an Open Thread

1 Strauss-Kahn casts shadow over EU debt crisis talks
by Roddy Thomson, AFP
Mon May 16, 3:41 am ET

BRUSSELS (AFP) - The storm over the IMF chief's sex assault case threw a giant cloud Monday over a European finance ministers' meeting aimed at easing the euro debt crisis and considering a new bail-out for Greece. Domininque Strauss-Kahn, who has played a key role in striving to tame Europe's debt crisis, had been due at the talks that start from 1300 GMT. Replaced by his number two John Lipsky as acting International Monetary Fund chief as he battles to clear his name, Strauss-Kahn's arrest -- just as he was leaving to meet German Chancellor Angela Merkel -- saw the euro wobble badly before recovering in Asian trade.

Monday Business Edition

by: ek hornbeck

Mon May 09, 2011 at 08:35:17 AM EST

Now with 43 Stories.

From Yahoo News Business

1 Greece heads for audit after euro exit scare
by John Hadoulis, AFP
Sun May 8, 2:09 pm ET

ATHENS (AFP) - Greece heads for another audit of its battered finances this week after European officials closed ranks to quash fears of an inglorious Greek exit from the euro cited in a German online report. A high-level team of experts from the EU, the IMF and the European Central Bank will pore over plans by the Greek government to economise some 26 billion euros over three years to help bring down the country's enormous debt. "The mission will begin on Tuesday," a finance ministry source said.

Monday Business Edition

by: ek hornbeck

Mon May 02, 2011 at 08:42:05 AM EST

From Yahoo News Business

1 Japan passes 4 trillion yen disaster relief budget
by David Watkins, AFP
Mon May 2, 3:57 am ET

TOKYO (AFP) - Japan's parliament on Monday passed an emergency 4 trillion yen ($49 billion) relief budget to help fund reconstruction after the deadly March 11 earthquake and tsunami devastated northeastern regions. Ruling and opposition lawmakers put aside their differences in an effort to launch efforts to rebuild the country's quake-hit northeast as quickly as possible. But analysts warned the passing of the budget will not ease pressure on under-fire Prime Minister Naoto Kan, who has faced criticism over the government's handling of the crisis and the subsequent nuclear emergency.

Monday Business Edition

by: ek hornbeck

Mon Apr 25, 2011 at 07:51:31 AM EST

From Yahoo News Business

1 Japan auto giants see home output plunge post-quake
by Mike Patterson, AFP
Mon Apr 25, 3:29 am ET

TOKYO (AFP) - Japan's leading automakers said that domestic production plummeted in March after the massive quake and tsunami, which shut off parts supplies and led to widespread power shortages. Toyota, the world's biggest automaker, on Monday said production in Japan plunged 62.7 percent year on year in March, putting it in danger of falling this year from the global top spot it claimed from General Motors in 2008. Domestic output slumped to 129,491 vehicles, which Kyodo News agency said was the lowest since records began in January 1976.

Monday Business Edition

by: ek hornbeck

Mon Apr 18, 2011 at 08:46:12 AM EST

Now with 46 Stories.

From Yahoo News Business

1 Portuguese bailout talks start under Finnish shadow
AFP
2 hrs 8 mins ago

LISBON (AFP) - European and IMF officials were to start tough talks with Portugal Monday on the scale and modalities of a bailout, as a Finnish anti-EU party's election success cast doubt on its viability. Negotiations on the sum and payback conditions in a deal expected to involve tens of billions of euros follow an evaluation mission last week to Lisbon by the European Commission, the European Central Bank and the International Monetary Fund. The government of Prime Minister Jose Socrates government fell last month when parliament rejected an austerity plan, forcing Lisbon to bow to market pressure and seek an European Union-IMF bailout.

Monday Business Edition

by: ek hornbeck

Mon Apr 11, 2011 at 08:51:46 AM EST

From Yahoo News Business

1 Karzai unveils action on troubled Kabul Bank
by Sardar Ahmad, AFP
2 hrs 1 min ago

KABUL (AFP) - Afghan President Hamid Karzai on Monday announced action against bad loans and rogue shareholders in the war-torn country's troubled Kabul Bank, which came close to collapse last year. The bank had to be taken over by Afghanistan's central bank after claims that former executives granted themselves off-the-book loans worth a reported 900 million dollars which were partly used to buy luxury properties in Dubai. The crisis has highlighted chaos and corruption in Afghanistan's financial system, more than nine years after Karzai's Western-supported government replaced the Taliban regime following a US-led invasion in 2001.

Monday Business Edition

by: ek hornbeck

Mon Apr 04, 2011 at 08:49:40 AM EST

From Yahoo News Business

1 Japan business confidence dives after quake: BoJ
AFP
Mon Apr 4, 1:20 am ET

TOKYO (AFP) - Japanese business confidence in the outlook for the next three months has plunged following the March 11 earthquake-tsunami and subsequent nuclear crisis, the Bank of Japan said Monday. The central bank re-released Friday's quarterly Tankan survey to show the breakdown in the replies it received before and after the disasters. With most of the responses from companies received before March 11, the survey does not fully reflect the impact of the quake.

Monday Business Edition

by: ek hornbeck

Mon Mar 28, 2011 at 10:29:26 AM EST

From Yahoo News Business

1 Russia aims to boost caviar exports with fish farms
by Eleonore Dermy, AFP
Sun Mar 27, 6:10 pm ET

GAMZYUKI, Russia (AFP) - Once the world's top exporter of black caviar, Russia is building fish farms to harvest the gourmet delicacy as it aims to bring its sturgeon stocks back from the brink. In Gamzyuki, a tiny village in the Kaluga region, around 200 kilometres (125 miles) south of Moscow, a fish farm has the ambitious goal of producing 16 tons of the sturgeon eggs per year by 2014. Opened three years ago, it is one of dozens of sturgeon farms that have opened in Russia recently, aiming to rebuild the nation's reputation as the world's premium exporter of caviar.

Monday Business Edition

by: ek hornbeck

Mon Mar 21, 2011 at 09:02:41 AM EST

From Yahoo News Business

1 Disaster could cost Japan $235 billion: W. Bank
by Martin Abbugao, AFP
47 mins ago

SINGAPORE (AFP) - Japan's massive earthquake and tsunami could cost its economy up to $235 billion, or 4.0 percent of output, and reconstruction could take five years, the World Bank warned Monday. "If history is any guide, real GDP growth will be negatively affected through mid-2011," the Bank said in its latest East Asia and Pacific Economic Update report. But growth should pick up in subsequent quarters "as reconstruction efforts, which could last five years, accelerate", it added.

Monday Business Edition

by: ek hornbeck

Mon Mar 14, 2011 at 08:17:15 AM EST

Now with 47 Stories.

From Yahoo News Business

1 Tokyo stocks hammered, BoJ unleashes record funds
by David Watkins, AFP
25 mins ago

TOKYO (AFP) - Japanese stocks tumbled Monday and the central bank pumped a record amount of cash in a bid to soothe money markets shaken by Japan's biggest ever earthquake, a devastating tsunami and a nuclear emergency. Nuclear plant operator TEPCO dived almost 24 percent on fears of a meltdown at one of its reactors while producers such as Sony and Toyota tumbled as power shortages prompted blackouts and factories remained closed, hurting production. The Bank of Japan said it would pump a record 15 trillion yen ($184 billion) to help stabilise the short term-money market, making good on its pledge Sunday that it would unleash "massive" funds following the quake.

Monday Business Edition

by: ek hornbeck

Mon Feb 28, 2011 at 09:46:05 AM EST

Now with 50 Stories.

From Yahoo News Business

1 India increases social spending in pro-poor budget
by Penny MacRae, AFP
6 mins ago

NEW DELHI (AFP) - India's left-leaning Congress government on Monday unveiled a budget focused on helping the poor and rural masses with pledges to hike social spending by 17 percent and fight food inflation. Finance Minister Pranab Mukherjee, lifting the lid on government plans for the financial year from April 1, scaled up spending for farmers, fertiliser subsidies, food programmes, education and rural employment. "The country has carried for long enough the burden of hunger and malnutrition," Mukherjee told parliament, saying the money earmarked for social spending would amount to 36 percent of the total budget.

Monday Business Edition

by: ek hornbeck

Mon Feb 21, 2011 at 09:31:38 AM EST

From Yahoo News Business

1 China's Alibaba bosses step down after fraud probe
by D'Arcy Doran, AFP
52 mins ago

SHANGHAI (AFP) - Chinese e-commerce giant Alibaba.com said Monday its chief executive and head of operations had resigned after a probe found fraudulent suppliers had used the site to cheat buyers. David Wei and Elvis Lee resigned as chief executive officer and chief operating officer respectively, accepting responsibility for "systemic breakdowns" that allowed the fraud to happen, the company said in a statement. "The investigation confirmed that Mr Wei and Mr Lee and other members of senior management were not involved in any of the activities that led to the claims by buyers against fraudulent suppliers," the statement said.

Monday Business Edition

by: ek hornbeck

Mon Feb 14, 2011 at 09:58:37 AM EST

From Yahoo News Business

1 China overtakes Japan as world's No. 2 economy
by David Watkins, AFP
2 hrs 40 mins ago

TOKYO (AFP) - Japan lost its 42-year ranking as the world's second-biggest economy to China in 2010, with data on Monday showing a contraction in the last quarter due to weak consumer spending and a strong yen. While Japan was expected to fall behind a surging China in the year, the data underlined the weak state of a Japanese economy burdened by deflation, soft domestic demand and pressured by the industrialised world's biggest debt. "It is difficult for the deflation-plagued Japanese economy to achieve self-sustained growth," said Naoki Murakami, chief economist at Monex Securities.

Monday Business Edition

by: ek hornbeck

Mon Feb 07, 2011 at 09:51:09 AM EST

From Yahoo News Business

1 AOL to buy The Huffington Post for $315 million
By Anthony Boadle, Reuters
Mon Feb 7, 3:08 am ET

WASHINGTON (Reuters) - AOL Inc has agreed to buy The Huffington Post, the influential and rapidly growing news, analysis and lifestyle website, for $315 million, the struggling U.S. Internet company announced on Monday. The move will create a media group that will have a combined base of 117 million visitors a month in the United States, and reach 270 million people globally, AOL said in a statement. The deal follows efforts by AOL's chief executive Tim Armstrong to turn around the dial-up Internet access business by trying to turn it into a media and entertainment powerhouse, despite difficulties in attracting investors.

Monday Business Edition

by: ek hornbeck

Mon Jan 31, 2011 at 09:31:19 AM EST

From Yahoo News Business

1 Chinese property 'bubble' fuels hard landing fears
by Hui Min Neo, AFP
Sun Jan 30, 6:49 pm ET

DAVOS, Switzerland (AFP) - The world business elite raised concerns over China's property prices at its annual get-together in Davos, with some worrying that if the bubble bursts it could hurt growth. "Can China deflate its real estate bubble without generating a hard landing in its economy? It's a serious problem. The Chinese themselves are quite worried about it," said Nariman Behravesh, an analyst at IHS Global Insight. "If you look at the ratio of home values relative to GDP, China is about the same level as Japan's before Japan's bubble burst," he warned.

Monday Business Edition

by: ek hornbeck

Mon Jan 24, 2011 at 09:35:54 AM EST

From Yahoo News Business

1 Elites to tackle 'fundamentally changed' world at Davos
by Hui Min Neo, AFP
Sun Jan 23, 9:15 pm ET

DAVOS, Switzerland (AFP) - The eurozone's debt battle and the power shift towards emerging giants like China and India will be at the heart of discussions on a "fundamentally changed world" at this week's Davos meeting of global elites. "The world has fundamentally changed," said Klaus Schwab, founder of the World Economic Forum which organises the annual meeting at the Alpine resort. "One of the most important factors of the new reality is the shift of geopolitical and geoeconomic power from north to south, from west to east.

Does Money Make You Stupid?

by: ek hornbeck

Mon Jan 17, 2011 at 09:20:03 AM EST

I can of course only speculate (unless you want to give me some), but returning to the theme of last week's Gold diaries, including 2 by Translator- Popular Culture and Pique the question always is can you eat it?

Gold is easily digestible, since it is non reactive, but it has no nutritional value.  It's eating dirt, like the Haitians.

Oil is more dirt eating, only it goes up in the air to kill us and is quickly disappearing.  A real economist would expect the value of Gold v. Oil to decline due to supply and demand, but what do I know?

The real utility of Money is not as a store of value, but as a medium of exchange.  By turning over the ability to create money to private enterprises with little regulation through leverage we've encouraged a series of financial inflations in the speculative value of assets that will never be realized in a free market.

Even the most Randian will admit there will be winners and losers, their problem is that compared to their exposure to loss there is literally not enough money in the world to cover their bets.

Eventually it's this shadow economy that's going to have to take a hair cut and a devaluation.

Why?

Because that's where the money is.

If you are leveraging 30 : 1 (that is, betting 30 for every 1 you actually have) where is the bigger number?

Business News below.

Gold

by: ek hornbeck

Mon Jan 10, 2011 at 10:54:47 AM EST

One of the things we know about Loughner is that he's a Gold Bug.  This is the derisive term given to people who think that 'money' has some unique and special snowflake identification with a particular commodity.

Money is a medium of exchange and a store of value.

Let's examine that 'store of value' part.  What Gold Bugs are arguing for is an arbitrary limit on the supply of the primary medium of exchange.

Leverage says that financial institutions can create unlimited amounts of fictional exchanges of perceived value.

So that horse hasn't only left the barn, but the barn has burned down so there isn't even a door to close.

Any commodity's price is fundamentally related to it's economic utility unless speculation, sentiment, and marketing distort the market.  Diamonds should be dirt cheap because they're actually a very common gem stone.

On the other hand you have pork bellies, cotton, and oil,

William Jennings Bryan had at least to his credit that he didn't want to crucify the economy on a cross of gold.  Limiting your medium of exchange wastes resources that could otherwise be put to productive use.

'Money' is electrons in a database and photons on a screen.  It's worth what you can get for it.

Sad to say Gold Bugginess is not limited to fringe lunatic assassins.  Perfectly respectable Republican lawmakers in Georgia and Virginia think this is a good idea too.

Business News below.

What is Science?

by: ek hornbeck

Mon Jan 03, 2011 at 08:07:08 AM EST

I have a Liberal Arts background, a History Major (also Methodist) like George Walker Bush.

And shucks, my discipline has no predictive nature at all-

Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it. In the first stage of life the mind is frivolous and easily distracted, it misses progress by failing in consecutiveness and persistence. This is the condition of children and barbarians, in which instinct has learned nothing from experience. - George Santayana, The Life of Reason, Volume 1, 1905

The hard sciences tend to rely on replicable independent observations supporting a predictive theory that can be tested by experiment.

You know, facts.

The social sciences have the luxury of being mostly observational.  If you're honest.

Economics pretends to be a hard science, but it's really just a bunch of assumptions represented symbolically so it can be disguised as Math.  It's really as fuzzy as Philosophy.

Not so much a science as an argument.

Which brings me to this recent piece-

Academic Economists to Consider Ethics Code
By SEWELL CHAN, The New York Times
Published: December 30, 2010

Academic economists, particularly those active in policy debates in Washington and Wall Street, are facing greater scrutiny of their outside activities these days. Faced with a run of criticism, including a popular movie, leaders of the American Economic Association, the world's largest professional society for economists, founded in 1885, are considering a step that most other professions took a long time ago - adopting a code of ethical standards.

The proposal, which has not been announced to the public or to the association's 17,000 members, is partly a response to "Inside Job," a documentary film released in October that excoriates leading academic economists for their ties to Wall Street as consultants, advisers or corporate directors.
...
Mr. Lucas added: "What disciplines economics, like any science, is whether your work can be replicated. It either stands up or it doesn't. Your motivations and whatnot are secondary."

Since economics emerged as a modern discipline in the late 19th century, its practitioners have resisted formal ethical codes, said George F. DeMartino, an economist at the Josef Korbel School of International Studies at the University of Denver.
...
A recent paper (.pdf) by Gerald Epstein and Jessica Carrick-Hagenbarth of the University of Massachusetts, Amherst, found that many financial economists who weighed in on the Wall Street overhaul signed into law in July did not prominently disclose potential conflicts of interest.

Frauds and charletans.  Confidence men and bunco artists.

When will we replicate the results enough?

Business News below.

Monday Business Edition

by: ek hornbeck

Mon Dec 27, 2010 at 09:22:27 AM EST

From Yahoo News Business

1 Chinese web users sceptical on inflation-busting moves
by Susan Stumme, AFP
Mon Dec 27, 2:34 am ET

BEIJING (AFP) - Chinese web users on Monday expressed their anxiety about soaring consumer prices, despite a weekend interest rate hike and reassurances on live radio from the premier that inflation can be curbed. On Saturday, the central bank raised interest rates for the second time in less than three months as authorities ramp up efforts to curb rampant bank lending, rein in property prices and tame soaring inflation. In a sign of Beijing's awareness of mounting public concerns, Premier Wen Jiabao addressed the nation via live radio broadcast on Sunday, acknowledging the hardships for everyday citizens but insisting prices could be contained.

Just Plain Wrong

by: ek hornbeck

Mon Dec 20, 2010 at 10:07:46 AM EST

As Krugman points out-

When historians look back at 2008-10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything - yet they now dominate the political scene more thoroughly than ever.
...
(T)he fact is that the Obama stimulus - which itself was almost 40 percent tax cuts - was far too cautious to turn the economy around. And that's not 20-20 hindsight: many economists, myself included, warned from the beginning that the plan was grossly inadequate. Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.
...
(E)verything the right said about why Obamanomics would fail was wrong. For two years we've been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated with optimism or pessimism about recovery, but stayed consistently low by historical standards. For two years we've been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation - which excludes volatile food and energy prices - now at a half-century low.

And while it is true that Republicans are trying to write certain false narratives-

(T)he modern Republican Party is utterly dedicated to the Reaganite slogan that government is always the problem, never the solution. And, therefore, we should have realized that party loyalists, confronted with facts that don't fit the slogan, would adjust the facts.
...
It's not as if the story of the crisis is particularly obscure. First, there was a widely spread housing bubble, not just in the United States, but in Ireland, Spain, and other countries as well. This bubble was inflated by irresponsible lending, made possible both by bank deregulation and the failure to extend regulation to "shadow banks," which weren't covered by traditional regulation but nonetheless engaged in banking activities and created bank-type risks.

Then the bubble burst, with hugely disruptive consequences. It turned out that Wall Street had created a web of interconnection nobody understood, so that the failure of Lehman Brothers, a medium-size investment bank, could threaten to take down the whole world financial system.

It's a straightforward story, but a story that the Republican members of the commission don't want told. Literally.

Last week, reports Shahien Nasiripour of The Huffington Post, all four Republicans on the commission voted to exclude the following terms from the report: "deregulation," "shadow banking," "interconnection," and, yes, "Wall Street."
...
That report is all of nine pages long, with few facts and hardly any numbers. Beyond that, it tells a story that has been widely and repeatedly debunked - without responding at all to the debunkers.

In the world according to the G.O.P. commissioners, it's all the fault of government do-gooders, who used various levers - especially Fannie Mae and Freddie Mac, the government-sponsored loan-guarantee agencies - to promote loans to low-income borrowers. Wall Street - I mean, the private sector - erred only to the extent that it got suckered into going along with this government-created bubble.

Shahien Nasiripour-

During a private commission meeting last week, all four Republicans voted in favor of banning the phrases "Wall Street" and "shadow banking" and the words "interconnection" and "deregulation" from the panel's final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal.
...
The shadow banking system refers to the part of the financial system in which investors and other nonbanks like hedge funds and investment firms provide credit to borrowers, as opposed to more traditional banks. Interconnection refers to the links that bind financial institutions to one another, like derivatives, borrowings, and investments.

They're not the only ones.

Neo-Liberal economics, especially of the Trickle Down Voodoo Variety (call a spade a spade Paul) is a complete, abject failure.

Coming from Republicans or Democrats.

It's hard for me to fathom how these people can claim Economics is even a "Social" Science when their theories so blatantly violate the first law of Scientific Inquiry- Your Results Shall Be Testable AND Duplicatable.

The Stimulus That Isn't
By Robert Kuttner, The Huffington Post
Posted: December 19, 2010 07:41 PM

It is astonishing how the Beltway echo-chamber, most egregiously the editorial page and news columns of the Washington Post (hard to tell the difference), thinks this deal is good for the Republic. The Post has become a cheerleader for policies that fail to cure the economy and show off Obama as a weakling waiting to be rolled again.

The tax deal, re-branded as a stimulus program, is paltry and ineffective as economic tonic. What hardly anyone seems to have grasped is that the deal basically continues the status quo with almost no stimulus.

If the tax rates on the books in 2010 did not produce a recovery, why should we expect that the very same rates will change the economy in 2011?

Business News below.

What I hate about blogging.

by: ek hornbeck

Mon Dec 13, 2010 at 09:50:23 AM EST

I hate repeating myself, and yet I feel people need to be reminded about... well... facts.

Archaeology is the search for fact... not truth. If it's truth you're looking for, Dr. Tyree's philosophy class is right down the hall.

I woke up this morning convinced that someone, somewhere would be picking up on the fact that this "Tax Cut Stimulus Deal" is actually a A TAX HIKE for any Household in America making less than $40,000 a year (WHICH IS JUST ABOUT 50% OF THEM!) so your average Millionaire can pocket $70,000 a year.

And there's the totally non-stimulative nature of continuing the Bush Tax Cuts for the Weathiest 2% to begin with.  Over 10 years it hasn't contributed a single job AND people already have that money, they're not going to be doing anything new with it.  Washington/Wall Street Economics just doesn't add up in the ways (DID I MENTION A TAX HIKE ON 50% OF HOUSEHOLDS?) people understand.

And now Obama weighs effort to overhaul tax code.

I suppose I'm not surprised so much as appalled.

Tax Cuts don't work.  Supply Side Trickle Down Voodoo Economics is a fraud.

But if you're going to buy into that and get past your hefting bigotry and prejudice, then Mitt Romney is your boy and he'll kick Obama's ass.

Bloomberg denies interest, Dean and Feingold also, but blood is in the water.

One Term?  He'll be lucky to make it to '12 because he'll be impeached over his corrupt deals on the Health Insurance Companies Welfare Mandate.

Can't say I disagree.

The Why-Should-I-Get-Out-Of-My-Chair Gap in 2012
Robert Reich
Sunday, December 12, 2010

In the 2010 midterm elections Democrats suffered from a so-called "enthusiasm gap."

If Dems agree to the tax plan just negotiated by the White House with Republican leaders, they'll face a "why-should-I-get-up-out-of-my-chair" gap that will make 2010's Dem enthusiasm seem like a pep rally by comparison.

It's a $70,000 gift for every millionaire, financed by a gigantic hole in the federal budget that will put on the cutting board education, infrastructure, and everything else most other Americans need and want.

Business News below.

YAB: Yet Another Betrayal

by: ek hornbeck

Mon Dec 06, 2010 at 09:32:00 AM EST

While most commentators are focusing on Obama's sell-out on Tax Cuts for Billionaires, in the background he's also sold out on his campaign promise to Rust Belt Independents for no more NAFTAs.

Firedog Lake is practically the only site providing coverage-

• US Reportedly Reaches Agreement on South Korea Trade Pact
  By: David Dayen Friday December 3, 2010 1:25 pm

• White House Brags about Exporting our Pyramid Schemes to Korea
  By: emptywheel Saturday December 4, 2010 5:25 am

• Jamie Dimon, Chamber of Commerce and UAW Congratulate President Obama on the Glorious Occasion of His NAFTA-Style Korea Trade Agreement
  By: Jane Hamsher Saturday December 4, 2010 7:40 am

• UAW Sells Out American Workers for 800 Jobs
  By: emptywheel Saturday December 4, 2010 8:27 am

• Sherrod Brown: Obama's NAFTA-Style Korea Trade Deal A "Dangerous Mistake"
  By: Jane Hamsher Saturday December 4, 2010 9:23 am

• Linda Sanchez: Obama's NAFTA-Style Korea Free Trade Deal Will Send Jobs Overseas
  By: Jane Hamsher Saturday December 4, 2010 11:47 am

• Rep. Mike Michaud: I Will "Do Whatever I Can to Defeat" Obama's NAFTA-Style Korea Trade Deal
  By: Jane Hamsher Saturday December 4, 2010 12:21 pm

• US Chamber Watch: NAFTA-Style Korea Free Trade Supporters Are "Outsourcers All"
  By: Michael Whitney Saturday December 4, 2010 1:01 pm

• 159,000 Jobs Lost: The Price of NAFTA-Style Korea Free Trade
  By: Michael Whitney Saturday December 4, 2010 4:42 pm

• White House Celebrates Wal-Mart, PhRMA, AT&T, RIAA Support for NAFTA 2.0 in Korea
  By: Michael Whitney Saturday December 4, 2010 5:08 pm

• Steelworkers Chief Leo Gerard Takes Swipe at UAW's Bob King Over Obama's NAFTA-Style Korea Free Trade Deal
  By: Jane Hamsher Sunday December 5, 2010 9:43 am

Update:

Trade Does Not Equal Jobs
Paul Krugman, The New York Times
December 6, 2010, 9:43 am

One thing I'm hearing, now that all hope of useful fiscal policy is gone, is the idea that trade can be a driver of recovery - that stuff like the South Korea trade agreement can serve as a form of macro policy.

Um, no.

Our macro problem is insufficient spending on U.S.-produced goods and services; this spending is defined by

Y = C + I + G + X - M

where C is consumer spending, I investment spending, G government purchases of goods and services, X is exports, and M is imports. Trade agreements raise X - but they also lead to higher M. On average, they're a wash.

This, by the way, is why claims that the Smoot-Hawley tariff caused the Great Depression are nonsense. Yes, protectionism reduced world exports; it also reduced world imports, by the same amount.

There is a case for freer trade - it may make the world economy more efficient. But it does nothing to increase demand.

Business News below.

Nothing Left To Steal

by: ek hornbeck

Mon Nov 29, 2010 at 09:00:00 AM EST

The World is running out of money to insure the fictional assets of 'senior creditors' and banksters.

The problem is fundamentally leverage, the intellectual market laziness that makes financial institutions think they are entitled to make unlimited bets on 36:1 payouts every time.

When things get even a little difficult they whine and whine about how badly they are mistreated, but the fact of the matter is that there's going to be a haircut taken and the obvious target is the biggest one.  Spain is the next to go and Italy after that.  Euros were such a good bet.

And if you were smart and doubled down every chance you could get, you'd build up quite a pile of chips.

Not the kind you can eat.

So what are they worth?  Whatever Rick will pay for them in some medium of exchange that's good outside the casino.  Unless you want to barter, I have two passes out of Casablanca.

We've talked about Ireland and Iceland, but I wonder how many people are familiar with Dubai?

Today, Dubai has emerged as a global city and a business hub. Although Dubai's economy was built on the oil industry, currently the emirate's model of business, similar to that of Western countries, drives its economy, with the effect that its main revenues are now from tourism, real estate, and financial services.

I like this one because it has lots of numbers-

Dubai mulls sale of corporate champions
By Simeon Kerr in Dubai, Financial Times
Published: November 28 2010 18:42

Dubai is mulling the privatisation of home-grown corporate champions as a means to start paying down its estimated $110bn in debts, senior officials said.

Let's just stop right there and recognize that we're talking about an Ireland.  The proposal is to sell minority stakes in State Owned and Sovereign Wealth Fund Owned industries like their National Airline.

Mr Shaibani was speaking at an open forum held on Sunday, a rare moment of media engagement in an emirate that has faced a deluge of negative press since shocking markets with its standstill request a year ago, which ended with the restructuring of $25bn in debts at troubled conglomerate Dubai World.

Yup, that Dubai World, the one we were going to sell our ports to.  Now Dubai has already had a bailout from the UAE to the tune of $10 Billion in February of 2009 and assures us with the utmost gravity and reliability, just like Spain and Portugal, that they don't need any bailouts thank you very much.

We are rapidly reaching the point where negative outcomes for the bankster class are inevitable due to the sheer volume of their theft.

Business News below.

Conflicting Interests

by: ek hornbeck

Mon Nov 22, 2010 at 09:26:30 AM EST

This is not an easy story to tell in other's words, so you'll have to rely on mine.  I'm not an economist.

You'll read today that Ireland has accepted a bailout.  They'll get from 30 to 100 Billion Euros from the European Central Bank, International Monetary Fund (which includes the U.S), Sweden, and Britain (with minor chunks from others).  In return for that they're accepting an austerity plan that includes things like-

Middle class Irish families face the loss of tax credits and low paid workers, totalling 50 per cent of the labour force, will start to pay taxes for the first time.

Ireland's minimum wage is to be cut 13 per cent and all Irish households face a new £257 property tax from 2012. Welfare payments, including jobseekers allowance and child benefit, will be cut five per cent.

As well as the steep tax increases, the EU has demanded extra public sector job cuts with a demand to cut the Irish civil service by 28,000 between 2011 and 2014.

The job cuts are double the level the Irish has agreed with trade unions and are expected to fuel protests and strikes. A trade union demonstration, predicted to be the biggest in decades, will take place in Dublin on Saturday.

As you might imagine, this is not very popular with the voters on whom politicians depend for their phony baloney jobs-

Irish ministers are so concerned over protests that austerity plans to cut chauffeur driven cars and police outriders have been shelved to protect the government amid heightened post-EU bail-out security.

Support for Fianna Fail, Ireland's ruling party, has collapsed to 17 per cent the lowest level in 88-year history of the Irish Republic as pressure to hold a general election builds, threatening to plunge the country into more chaos.

What's not changing, yet?  Corporate Tax Rates.

Corporate tax in Ireland is 12.5 per cent, compared to 34 per cent in France, 30 per cent in Germany and 28 per cent in Britain and the policy is credited with attracting over 1,000 multinational companies such as Google and Pfizer to Ireland.

Now, why is a bailout of Ireland 'necessary' at all?  Well, to prevent senior 'secured' creditors from having to take a haircut in the form of simply defaulting on the debt or alternatively converting it to equity and then having its market value drop to zero.  In this case senior 'secured' creditors means the ECB (European Central Bank) and the Central Banks of France and Germany (British banks also have major exposure).

In fact the total exposure of France, Germany, and the other members of the 'Eurozone' to the failed and insolvent banks of Portugal, Spain, and Italy (the next dominoes in the inevitable demise of the Euro) makes them insolvent should they have to mark their assets to market instead of the delusional values they're now claiming on their books.  This has major political ramifications for the Very Serious People who have guided State Policy in the direction of a European Common Currency and a European Political Union for over 50 years now.

It exposes them as idiots.

What are the lessons to be taken away?  For one thing I invite comparison to the recommendations of the Catfood Commission, especially their insistence on imposing additional burdens on the middle class and the poor while cutting taxes on Corporations and the rich.

Trickle Down Supply Side Economics is a failure.  There is absolutely no evidence at all that it works.  Deregulation is equally a failure, Ireland was the Texas of Europe- a wild wild west.  As it turns out Texas was the biggest failure of Ronald Wilson Reagan's Savings and Loan bubble, followed closely by other 'Red' states like Oklahoma that are smaller but experienced higher per capita losses.

Politicians, particularly Democrats, who support these policies are going to lose their phony baloney jobs.  This includes Barack Hussein Obama.  Street protests like you've seen in Europe are not our style, but as we saw in 2010 we voted for change and we'll keep voting until we get it.

Republicans realize this which is why their goal is to block economic progress and hope that the disaffected vote either goes their way or stays home.  There is no reason to vote for a Democrat to enact Republican policies.

If Bloomberg runs in 2012 he'll be much more successful than Ross Perot.

Business News below.

The market can stay irrational longer than you can stay solvent

by: ek hornbeck

Mon Nov 15, 2010 at 09:24:32 AM EST

One of the emergent stories this weekend has been the question of whether Ireland is going to accept a bailout from the EU or the IMF.  The proximate problem is that interest rates on Irish debt (bonds) and the price of insuring it against defaults (Credit Default Swaps) rose quite sharply on Thursday and Friday.

No holding back the tide
By David Clerkin, Markets Correspondent, The Sunday Business Post
14 November 2010

The rate attached to Irish ten-year bonds, which days earlier had touched the already eye-watering level of 7.8 per cent, quickly eclipsed 8 per cent on Monday and smashed through 9 per cent on Thursday.
...
To put this spiral into context, it is worth noting that the rate stood at 6.8 per cent less than two weeks ago. It was 6.5 per cent a month ago. It was 4.7 per cent a year ago.
...
Some bond traders zeroed in on the market for credit default swaps (CDSs) - the insurance policies on offer to protect investors from a borrower becoming unable to repay their money. The CDS market, though thinner than the market in government bonds, exhibited equally grim characteristics last week. The CDS premiums on AIB debt - insurance against AIB defaulting - exceeded 10 per cent, and those on debt issued by other Irish banks continued their unwelcome rise.

As the market fate of the Irish government has been intertwined with those of the banks it guaranteed since September 2008, some traders spoke of a vicious circle. As Irish banks fell increasingly out of favour, fears over the Irish government's creditworthiness intensified.

Andrea Merkel made some remarks at the G20 Summit (which was so unproductive for Obama, but that's another story) about using the European Financial Stability Fund for another bailout that the Irish government is objecting to strenuously.

The Irish people?  Maybe not so much.

German solution seems irresistible to Irish people but not to the State
JOHN McMANUS, The Irish Times
Monday, November 15, 2010

Why is the Government against accessing the European Financial Stability Fund?

(Ireland, we) are led to believe, is a source of endless fascination, no little bafflement and some affection for the Germans. Right now they must be wondering why their chancellor, Angela Merkel, is being blamed for our latest crisis by the Taoiseach when she appears far more in tune with the Irish national mood than he does.

At a very fundamental level, all the German chancellor wants to do is change the rules of global finance so that the investors who lend money to feckless governments and banks must share the cost when things go wrong and thus be incentivised to act more responsibly. It's a sentiment that pretty much everyone in Ireland would support.

Her proposals have an added populist attraction in Ireland as, inter alia, they would involve the burning of bank bondholders, the cause célèbre of much of the economic commentariat. This is because it is hard to see how Ireland could restructure its own debt - the nub of Merkel's plan - without also restructuring the debts of the almost completely nationalised banking system.
...
From this point of view, the European Financial Stability Fund is starting to look irresistible. Not only do you get to burn the bond holders, you may even be able to help people out of negative equity! "What's not for these Irish to like?" Merkel can legitimately ask. "Nothing" is the answer most of us would give.

So why is it then that we have a situation where the German chancellor and most Irish people seem to want one thing and our Government and the financial establishment want the other?

The answer is that, unfortunately, we must live with the immediate consequences of what is a laudable effort to reverse the balance of power between the financial system and sovereign governments. It is admirable - and indeed necessary - because the overriding lesson of the global financial crisis has been that governments have found themselves servants of the financial markets rather than the other way around. But while we would all like to get to the sun-lit uplands envisioned by Merkel, Ireland unfortunately might not survive the journey.

What does Merkel get out of it?  The Euro is teetering on the brink and a lot of people are heavily invested in it, financially and politically.

Ireland and Greece should ditch the euro
By Peter Oborne, The Daily Telegraph
November 15th, 2010

This is what the Spanish prime minister, Jose Zapetero, declared in an interview with the Wall Street Journal as recently as September 22: "I believe that the debt crisis affecting Spain, and the eurozone in general, has passed."

Or let's listen to Patrick Honohan , governor of the Central Bank of Ireland, who soberly informed the markets last week that surging yields on Irish government debt would soon be back to normal levels. Both men are deluding themselves - and us. From time to time, events take a turn which is too grave, unsettling and unfathomable for politicians to cope with. They enter a state of denial. We are now living through one of those times.

The European Single Currency cannot be saved. Yet the euro elite are unable to bring themselves to acknowledge the magnitude of this disaster. They have convinced themselves that all is well. The pattern is familiar and indeed we in Britain experienced something very similar in the months leading up to Black Wednesday and the eviction of sterling from the Exchange Rate Mechanism in September 1992.
...
The euro elite is utterly ruthless. In its mission to save the euro, it is ready to throw tens of millions out of work and in the process destroy businesses, lives and whole economies. Consider the terrifying facts. The Irish economy has gone through recession and entered what economists call a depression. Its output contracted by an extraordinary 10 per cent last year, and may well do so again over the next 12 months.

In Spain, unemployment stands at 20 per cent, and youth unemployment a horrifying and tragic 40 per cent. The depths of misery lying behind these statistics cannot be exaggerated. A friend of mine who lives in the Spanish province of Andalusia tells me that some children in his village cannot go to school. This is because their parents cannot afford to buy them shoes. Effectively large parts of Europe are de-industrialising. In Greece, the economy may contract by 15 per cent over the next two years as a result of massive cuts in state spending.

For Greece and Ireland, there is an absurdly easy way back to economic growth: return to the drachma and the punt. Such a move would enable national currencies to fall back to levels where they can be internationally competitive - which in the case of hapless Greece would be approximately one third of where it stands today.

Assertions by the big bankers and eurocrats that such a move is technically impossible are self-serving and false. It would of course be very messy in the short term, but there are many examples of countries pulling out of currency unions with no lasting ill-effect.

The peripheral eurozone nations are being prevented from taking this sensible move by a cynical alliance between the big banks and the Brussels elite. The banks cannot countenance any contraction of the eurozone because once Greece, Ireland, Portugal and Spain pull out, they will have no choice but to default on their debts. Such a move would bankrupt almost all European banks. Between them these four countries have a combined sovereign debt of well over £1 trillion. A very large part of this debt is owned by the major European banks. The Bank of International Settlements estimates, for example, that French financial institutions have lent the equivalent of 37 per cent of total French GDP to these failing countries.

However there are also hugely powerful political considerations. The collapse of the euro project will come as a shattering blow from which the European project cannot recover. That is why key members of the Euro elite are so determined to use this moment to press forward with their plans for political and economic integration.

More about Ireland-

• How's that austerity thing working out for you? Mon Nov 08, 2010 at 10:04:33 AM EST
• Again- How's that austerity thing working out for you? Tue Nov 09, 2010 at 09:50:46 AM EST

Business News below.  Now with 51 Stories.

Inflation is Good!

by: ek hornbeck

Mon Nov 08, 2010 at 09:28:48 AM EST

Following the economic story is a trifle confusing because there are at least 2 threads to it.  One of those threads is the failure of our financial institutions and their systematic culture of fraud.

But another thread is the failure of academic economists and Washington policy makers to correctly diagnose and take action on our National economic problems.

Let me start by saying that what we are seeing in the United States macro economy is a textbook example of the complete and utter failure of Monetary Policy from Milton Friedman to Alan Greenspan.  What ails us is overcapacity and a lack of aggregate demand.  Businesses are making everything that anyone will pay for and could easily make much, much more at little marginal cost.

They are sitting on piles of cash which they are currently using to buy sort term treasuries at 0% interest (a safe way of parking it not investing it), stock repurchases, mergers and acquisitions, expanding overseas operations, and other non productive pursuits; non productive in this case meaning- Not Increasing U.S. Aggregate Demand.

Now the textbook response to a situation like this is for the Government to step in as a purchaser of last resort- Dig Holes.  Fill them up.  At least you're putting money in people's pockets and because of the Multiplier Effect Aggregate Demand will rise and your National economy will pick up.  Tested and proven.

Indeed, this is exactly the argument David Broder uses for advocating War with Iran!

Umm... aggressive warfare for economic gain is pretty specifically a war crime Dave.

But it does validate the idea of Government fiscal policy as a tool for jump starting the economy.

Instead of that we are pursuing a policy of pushing on a string.  The object of Bernake's $600 Billion repurchase is to create negative interest rates in the hopes that losing money by keeping it parked in T-Bills will spur investment.

A thin hope at best and as Krugman points out, by foregoing the chance to create increased expectations of inflation in general we are reducing that incentive.

Doing It Again
By PAUL KRUGMAN, The New York Times
Published: November 7, 2010

Eight years ago Ben Bernanke, already a governor at the Federal Reserve although not yet chairman, spoke at a conference honoring Milton Friedman. He closed his talk by addressing Friedman's famous claim that the Fed was responsible for the Great Depression, because it failed to do what was necessary to save the economy.

"You're right," said Mr. Bernanke, "we did it. We're very sorry. But thanks to you, we won't do it again."
...
For the big concern about quantitative easing isn't that it will do too much; it is that it will accomplish too little. Reasonable estimates suggest that the Fed's new policy is unlikely to reduce interest rates enough to make more than a modest dent in unemployment. The only way the Fed might accomplish more is by changing expectations - specifically, by leading people to believe that we will have somewhat above-normal inflation over the next few years, which would reduce the incentive to sit on cash.

The idea that higher inflation might help isn't outlandish; it has been raised by many economists, some regional Fed presidents and the International Monetary Fund. But in the same remarks in which he defended his new policy, Mr. Bernanke - clearly trying to appease the inflationistas - vowed not to change the Fed's price target: "I have rejected any notion that we are going to try to raise inflation to a super-normal level in order to have effects on the economy."

And there goes the best hope that the Fed's plan might actually work.

Think of it this way: Mr. Bernanke is getting the Obama treatment, and making the Obama response. He's facing intense, knee-jerk opposition to his efforts to rescue the economy. In an effort to mute that criticism, he's scaling back his plans in such a way as to guarantee that they'll fail.

Business News below-

The Morality of the Market

by: ek hornbeck

Mon Nov 01, 2010 at 08:12:22 AM EST

Nobel Prize winning economist Paul Krugman quotes with approval a comment from this post on Irish austerity-

Most people don't realize that "the markets" are in reality 22-27 year old business school graduates, furiously concocting chaotic trading strategies on excel sheets and reporting to bosses perhaps 5 years senior to them. In addition, they generally possess the mentality and probably intelligence of junior cycle secondary school students. Without knowladge of these basic facts, nothing about the markets makes any sense- and with knowladge, everything does.

How the Banks Put the Economy Underwater
By YVES SMITH, The New York Times
Published: October 30, 2010

The banks and other players in the securitization industry now seem to be looking to Congress to snap its fingers to make the whole problem go away, preferably with a law that relieves them of liability for their bad behavior. But any such legislative fiat would bulldoze regions of state laws on real estate and trusts, not to mention the Uniform Commercial Code. A challenge on constitutional grounds would be inevitable.

Asking for Congress's help would also require the banks to tacitly admit that they routinely broke their own contracts and made misrepresentations to investors in their Securities and Exchange Commission filings. Would Congress dare shield them from well-deserved litigation when the banks themselves use every minor customer deviation from incomprehensible contracts as an excuse to charge a fee?
...
The large banks, no doubt, would resist; they would be forced to write down the mortgage exposures they carry on their books, which some banking experts contend would force them back into the Troubled Asset Relief Program. However, allowing significant principal modifications would stem the flood of foreclosures and reduce uncertainty about the housing market and mortgage securities, giving the authorities time to devise approaches to the messy problems of clouded titles and faulty loan conveyance.

The people who so carefully designed the mortgage securitization process unwittingly devised a costly trap for people who ran roughshod over their handiwork. The trap has closed - and unless the mortgage finance industry agrees to a sensible way out of it, the entire economy will be the victim.

(Nobel Prize Winning) Economist Stiglitz: We need stimulus, not quantitative easing
By Ezra Klein, Washington Post Staff Writer
Saturday, October 30, 2010; 9:07 PM

The Fed, and the Fed's advocates, are falling into the same trap that led us into the crisis in the first place. Their view is that the major lever for economic policy is the interest rate and if we just get it right, we can steer this. That didn't work. It forgot about financial fragility and how the banking system operates. They're thinking the interest rate is a dial you can set and by setting that dial, you can regulate the economy. In fact, it operates primarily through the banking system, and the banking system is not functioning well. All the literature about how monetary policy operates in normal times is pretty irrelevant to this situation.
...
(T)he reason the private market for mortgages has dried up is that everybody knows the moment the government withdraws from the mortgage market, the effect will be that there will be a capital loss on the mortgages - and the same thing goes for our long-term bonds. Now we don't use mark-to-market accounting, so we'll pretend they don't occur, but they will have occurred. We'll have experienced a loss. The third point is that to avoid recognizing the loss, the Fed is likely to do silly things, like rather than buying and selling government bonds, they'll pay interest on deposits banks make to the Federal Reserve in order to absorb the liquidity.

There are two problems with this. First, it's costly, as we're now paying interest when we didn't before. Second, we don't know how well this will work. And because it's uncertain, you might say that the financial markets, recognizing we're going into uncharted territory, will request a risk premium. That'll hurt the U.S. Treasury and would be bad for the economy. So this is not costless. If it were the only instrument, you might say we have no choice. But it's not. Fiscal policy is a choice, or it should be a choice. By putting fiscal policy off the table, we're moving down the cost-benefit curve to something much riskier and much less cost-effective.

Mugged by the Moralizers
By PAUL KRUGMAN, The New York Times
Published: October 31, 2010

So what should we be doing? First, governments should be spending while the private sector won't, so that debtors can pay down their debts without perpetuating a global slump. Second, governments should be promoting widespread debt relief: reducing obligations to levels the debtors can handle is the fastest way to eliminate that debt overhang.

But the moralizers will have none of it. They denounce deficit spending, declaring that you can't solve debt problems with more debt. They denounce debt relief, calling it a reward for the undeserving.

And if you point out that their arguments don't add up, they fly into a rage. Try to explain that when debtors spend less, the economy will be depressed unless somebody else spends more, and they call you a socialist. Try to explain why mortgage relief is better for America than foreclosing on homes that must be sold at a huge loss, and they start ranting like Mr. Santelli. No question about it: the moralizers are filled with a passionate intensity.

And those who should know better lack all conviction.

John Boehner, the House minority leader, was widely mocked last year when he declared that "It's time for government to tighten their belts" - in the face of depressed private spending, the government should spend more, not less. But since then President Obama has repeatedly used the same metaphor, promising to match private belt-tightening with public belt-tightening. Does he lack the courage to challenge popular misconceptions, or is this just intellectual laziness? Either way, if the president won't defend the logic of his own policies, who will?

Business News below.

Puzzled?

by: ek hornbeck

Mon Oct 25, 2010 at 07:52:18 AM EST

H/T to letsgetitdone of Firedog Lake and Corrente for pointing out this 2 part piece by Bill Black and Randall Wray over at Huffington Post.

It's rather long but well worth the read as is letsgetitdone's commentary on it-

Democratic politicians profess to be puzzled about why people don't recognize all the current Democratic Congress has done for them. But, if, in fact, they are puzzled, and not just lying about it, then this only reflects on how out of touch they are.

There is not one big issue area in which Congress has acted in the past two years where their legislative outcomes have been fair to the middle class and to working people generally. And that's why people are so unhappy. Not because they're stupid. Not because they're ignorant. And not because their understanding of Washington is deficient.

It is just true that Administration and Democratic efforts in bailing out the banks, passing the stimulus bill, passing the credit card reform bill, passing its health care reform and its finreg bills, and continuing unemployment insurance for the long-term unemployed, have all ended in unjust legislative outcomes. People know that. They can sense and see the basic unfairness of the system and its bias toward those who are wealthy and powerful at the expense of other Americans.

Foreclose on the Foreclosure Fraudsters, Part 1: Put Bank of America in Receivership
William K. Black and L. Randall Wray
Posted: October 22, 2010 02:08 PM

Our first proposition is this: The entities that made and securitized large numbers of fraudulent loans must be sanctioned before they produce the next, larger crisis. Second: The officers and professionals that directed, participated in, and profited from the frauds should be sanctioned before they cause the next crisis. Third: The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, e.g., through fraudulent foreclosures. Foreclosure fraud is an inevitable consequence of the underlying "epidemic" of mortgage fraud by nonprime lenders, not a new, unrelated epidemic of fraud by mortgage servicers with flawed processes. We propose a policy response designed to achieve these propositions.
...
This nation's most elite bankers originated and packaged fraudulent nonprime loans that destroyed wealth -- and working class families' savings -- at a prodigious rate never seen before in the history of white-collar crime. They created the worst bubble in financial history, echo epidemics of fraud among elite professionals, loan brokers, and loan servicers, and would (if left to their own devices) have caused the Second Great Depression.

Nothing short of removing all senior officers who directed, committed, or acquiesced in fraud can be effective against control fraud. We repeat: Foreclosure fraud is the necessary outcome of the epidemic of mortgage fraud that began early this decade. The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents and have committed "fraud in the inducement." Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents. If the original documents do not exist the securities might be ruled no good. If the original docs do exist they will demonstrate that proper underwriting was not done -- so the securities might be no good. Foreclosure fraud is the only thing standing between the banks and Armageddon.

The second piece deals with 3 objections.

Foreclose on the Foreclosure Fraudsters, Part 2: Spurious Arguments Against Holding the Fraudsters Accountable
William K. Black and L. Randall Wray
Posted: October 24, 2010 11:53 PM

Who is Guilty?

Let us deal with the "borrower fraud" argument first because it is the area containing the most erroneous assumptions. There was fraud at every step in the home finance food chain: the appraisers were paid to overvalue real estate; mortgage brokers were paid to induce borrowers to accept loan terms they could not possibly afford; loan applications overstated the borrowers' incomes; speculators lied when they claimed that six different homes were their principal dwelling; mortgage securitizers made false reps and warranties about the quality of the packaged loans; credit ratings agencies were overpaid to overrate the securities sold on to investors; and investment banks stuffed collateralized debt obligations with toxic securities that were handpicked by hedge fund managers to ensure they would self destruct.
...

Macro Effects and Culpability

What is important to understand, however, is that the financial sector is largely culpable for the generation of speculative frenzy, the creation of the "financial weapons of mass destruction", and the transformation toward financial fragility that finally collapsed in 2007. In the aftermath we lost 10 million jobs and millions of homeowners lost their homes. The "collateral damage" inflicted by the SDIs (Systemically Dangerous Institutions) is now endangering tens of millions of American families -- most of whom played no role in the speculative euphoria. Almost half of American homeowners are already underwater or on the verge of going under. In short, it was Wall Street that turned our homes over to a financial casino -- and so far virtually all the losses have been suffered on Main Street.
...

Can the Frauds be Foreclosed?

The assertion that the SDIs cannot be resolved because of their size is unsupported. Very large institutions have already been resolved both in this country and abroad. The "too big to fail" (TBTF) doctrine has always been unproven, dangerous, and counter to the law. An institution that is not permitted to fail faces obvious adverse incentive problems. It also destroys healthy competition with institutions that are not considered TBTF. It encourages risk-taking and fraud. And it subverts the law, which requires that insolvent institutions must be resolved.

Business News below.

Turning Japanese

by: ek hornbeck

Mon Oct 18, 2010 at 08:11:15 AM EST

This is the future Paul Krugman keeps warning us about.

Japan Goes From Dynamic to Disheartened
The Great Deflation
By MARTIN FACKLER, The New York Times
Published: October 16, 2010

For nearly a generation now, the nation has been trapped in low growth and a corrosive downward spiral of prices, known as deflation, in the process shriveling from an economic Godzilla to little more than an afterthought in the global economy.
...
The classic explanation of the evils of deflation is that it makes individuals and businesses less willing to use money, because the rational way to act when prices are falling is to hold onto cash, which gains in value. But in Japan, nearly a generation of deflation has had a much deeper effect, subconsciously coloring how the Japanese view the world. It has bred a deep pessimism about the future and a fear of taking risks that make people instinctively reluctant to spend or invest, driving down demand - and prices - even further.
...
After years of complacency, Japan appears to be waking up to its problems, as seen last year when disgruntled voters ended the virtual postwar monopoly on power of the Liberal Democratic Party. However, for many Japanese, it may be too late. Japan has already created an entire generation of young people who say they have given up on believing that they can ever enjoy the job stability or rising living standards that were once considered a birthright here.
...
Economists said one reason deflation became self-perpetuating was that it pushed companies and people like Masato to survive by cutting costs and selling what they already owned, instead of buying new goods or investing.

"Deflation destroys the risk-taking that capitalist economies need in order to grow," said Shumpei Takemori, an economist at Keio University in Tokyo. "Creative destruction is replaced with what is just destructive destruction."

Business News below.

Now with 48 Story goodness.

Another Crisis Obama Ignored

by: ek hornbeck

Mon Oct 11, 2010 at 08:06:41 AM EST

As much as I would like it to be, the chief problem with Barack Hussein Obama is not Civil Liberties on which he is in fact objectively worse than George W. Bush and Dick Cheney.

Nope.

It's that he's a coward economically.

We KNOW! what works and policymakers have willfully choosen to avoid it for the sake of academic reputation and neo-liberal policy purity.

The latest symptom in our economic fever is Title Fraud.  If you've financed or re-financed your home in the last 10 years (and who wouldn't with the interest rates so low?) your title is now in doubt.

Not that this is a problem for you personally or, it shouldn't be. You've maintained your good faith payments to your servicing company which they've presumably used in a rational manner to keep that 2nd derivative universe (of which they are Masters 'Elanie' O'Donnell) cranking around.

In translation masturbatory fantasies of value created by leverage.

My ancient Economics 101 Perfesser (twisted and wizend from long years surviving an actual Depression) told me- "It's only paper profits until you sell it."

Your good old mortgage should protect your serfdom to your property, but the people who've placed their bets on black are going to be exceedingly disappointed when the wheel stops on double zero.  This market has a long way to crash.

And we've done nothing at all about it and the economic team (with the exception of Geither) jumped ship to avoid accepting responsibility for this disaster.

Except of course the buck stops at that Oval Office desk Obama occupies.

Government had been warned for months about troubles in mortgage servicer industry
By Zachary A. Goldfarb, Washington Post Staff Writer
Saturday, October 9, 2010; 10:11 PM

Consumer advocates and lawyers warned federal officials in recent years that the U.S. foreclosure system was designed to seize people's homes as fast as possible, often without regard to the rights of homeowners.

In recent days, amid reports that major lenders have used improper procedures and fraudulent paperwork to seize properties, some Obama administration officials have acknowledged they had been aware of flaws in how the mortgage industry pursues foreclosures.
...
Housing advocates and government reports gave several reasons why servicers try to foreclose so quickly.

In general, servicers make more money when they foreclose on a loan than when they find a better arrangement for the borrower. That's because the payments to the servicer decline when a loan is modified. But if instead the borrower is in default, the servicer adds fees on the account and can collect when the house is sold, even at foreclosure.

In addition, servicers are under pressure to continue to transfer the money paid by the borrower to the investor in the loan. When a borrower isn't paying the loan, the servicer has to cover the difference.

Moreover, servicers can expect to charge more if they receive higher ratings from credit rating agencies. And the faster a servicer forecloses when loans are in default, the higher the rating they stand to receive.

Business News below.

Definitions

by: ek hornbeck

Mon Oct 04, 2010 at 08:33:24 AM EST

Economics isn't much of a science.

Sure they try and dress it up with the maths and produce the pretty graph, but in the end the letters are all just acronyms designed to make words look like numbers and somehow impart the dignity of 2 + 2 = 4 to arguments considerably more specious (a hard currency pun).

Take for instance Keynesian.  Today it's being thrown as a slur and adopted to include almost anything that's not related to Monetary policy and a Friedmanite/Greenspan fantasy land where government employment doesn't produce anything of value (otherwise Capitalists would be doing it, by definition) and the concept of 'public good' is unknown.

The 2 leading schools of economic thought in the United States are the Freshwater School centered on the University of Chicago where Friedman taught and the Saltwater School which would be every one else.  Krugman has an essential summary.

But they're both Monetarist Schools and Monetary Policy prescriptions don't work when you have zero interest rates and incredible liquidity but your problems are under capacity utilization, over supply, and lack of aggregate demand.  You can't push a string.

Then you need Fiscal Policy and deficits don't matter.  We've grown or devalued our way out of every deficit we've ever had, our Currency is Sovereign (when I pay off my T-Bills I give you nice shiny greenbacks and tell you they taste great in a vinagrette), and who gives a rat's ass about devaluation anyway, the only people it hurts are bankers and billionaires and they both deserve a spanking (some prefer the haircut metaphor).

My point about labels is this-  my views about macro economics, political economy, are what is properly called Neo-Classical Synthesis believe it or not because they're grounded in Samuelson's seminal 1948 Economics.  Krugman, DeLong, Stiglitz, Reich, etc. get called Neo Keyesians but that's not what they're really about, they're all Samuelson Neo-Classicists.  Part of the problem with academic debate is that there has to be some otherwise you might lose your phony baloney job or, even worse, go out and teach some smelly undergraduates instead of sitting in your office writing papers.

Neo Liberal is an entirely different philosophy, but because lazy and stupid media people think anything new is Neo even though they live in the matrix and Liberal is Goldwater and Nixon, that one gets thrown around a lot too.

Krugman-

The point is that we have perfectly good models  for thinking about the state we're in - models in which we can describe what all the agents are doing and why, models that have done a very good job in terms of predicting how events have proceeded. Moving back and forth between simple new Keynesian models and their IS-LM translations, it was straightforward to show that a huge expansion in the monetary base could and would go along with continuing disinflation, that massive government borrowing would not cause an interest rate spike, and so on.

So what's wrong with my "one model to rule them all"? Well, it doesn't easily translate into anything that looks like monetarism - for a good reason: when short-term interest rates are near zero, the distinction between the monetary base, which the central bank controls, and the much broader class of safe short term assets, which it doesn't, more or less vanishes. That's not a bug, it's a feature; it says that when you're in a liquidity trap, thinking in terms of the supply and demand for money is just not a helpful way to approach the issues.

More Krugman-

But maybe this is an opportunity to reiterate a point I try to make now and then: economics is not a morality play. It's not a happy story in which virtue is rewarded and vice punished. The market economy is a system for organizing activity - a pretty good system most of the time, though not always - with no special moral significance. The rich don't necessarily deserve their wealth, and the poor certainly don't deserve their poverty; nonetheless, we accept a system with considerable inequality because systems without any inequality don't work. And before the trolls jump in to say aha, Krugman concedes the truth of supply-side economics, that's not an argument against progressive taxation and the welfare state; it's just an argument that says that there are limits. Cuba doesn't work; Sweden works pretty well.

And when we're experiencing depression economics, by which I mean a situation in which it's hard to create sufficient demand to achieve full employment - mainly because short-term interest rates are up against the zero lower bound - the essentially amoral nature of economics becomes even more acute. As I've said repeatedly, this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn't particularly wise.

The trouble in practice is that conventional modes of thought tend to prevail even when they shouldn't; in particular, public spending on the scale needed never seems to happen. That's why Keynes facetiously proposed burying bottles full of cash in coal mines, so people could dig them up again: since any proposal to spend money on things we need got shot down on grounds of prudence and efficiency, he proposed completely pointless spending instead.

Still More Krugman-

What I'd say about America now is that we have big problems, very much including too much talent going into financial fiddling, too few people who actually make stuff - actually, I worry as much or more about machinists as I do about scientists and engineers. But that observation has virtually no bearing on high unemployment right now. So I'd hope we can walk and chew gum at the same time, appreciating the structural problems but not letting that understanding get in the way of fighting the immediate jobs crisis.

Robert Reich-

My argument is just to opposite. For three decades American consumers managed to maintain demand despite flat real wages. They did this by sending women into paid work, working longer hours, and then borrowing to the hilt. But all these coping mechanisms have come to an end. So it's only now that we have to face the reality that most Americans have not shared in America's prosperity.

Now with 26 Stories from Yahoo Business News.

Ignorance, Greed, and Entitlement

by: ek hornbeck

Mon Sep 27, 2010 at 08:15:00 AM EST

Republican Economics as Social Darwinism
by Robert Reich
Sunday, September 26, 2010

In the late 19th century it was called Social Darwinism. Only the fittest should survive, and any effort to save the less fit will undermine the moral fiber of society.

Republicans have wanted to destroy Social Security since it was invented... Remember George W. Bush's proposal to privatize it? Had America agreed with him, millions of retirees would have been impoverished in 2008 when the stock market imploded.

Of course Republicans don't talk openly about destroying Social Security, because it's so popular. The new Republican "pledge" promises only to put it on a "fiscally responsible footing." Translated: we'll privatize it.
...
Republicans also hate unemployment insurance. They've voted against every extension because, they say, it coddles the unemployed and keeps them from taking available jobs.

That's absurd. There are still 5 job seekers for every job opening, and unemployment insurance in most states pays only a small fraction of the full-time wage.
...
Finally, like Hoover and Mellon, Republicans want to cut the deficit and balance the budget at a time when a large portion of the workforce is idle.

This defies economic logic. When consumers aren't spending, businesses aren't investing and exports can't possibly fill the gap, and when state governments are slashing their budgets, the federal government has to spend more. Otherwise, the Great Recession will turn into exactly what Hoover and Mellon ushered in - a seemingly endless Great Depression.

What are the results of Hoover/Mellon policies?

The Super Rich Get Richer, Everyone Else Gets Poorer, and the Democrats Punt
by Robert Reich
Friday, September 24, 2010

The super-rich got even wealthier this year, and yet most of them are paying even fewer taxes to support the eduction, job training, and job creation of the rest of us. According to Forbes magazine's annual survey, just released, the combined net worth of the 400 richest Americans climbed 8% this year...
...
From another survey we learn that the 25 top hedge-fund managers got an average of $1 billion each, but paid an average of 17 percent in taxes (because so much of their income is considered capital gains, taxed at 15 percent thanks to the Bush tax cuts).

The rest of America got poorer, of course. The number in poverty rose to a post-war high. The median wage continues to deteriorate. And some 20 million Americans don't have work.

Only twice before in American history has so much been held by so few, and the gap between them and the great majority been a chasm - the late 1920s, and the era of the robber barons in the 1880s.

Structure of Excuses
By PAUL KRUGMAN, The New York Times
Published: September 26, 2010

What can be done about mass unemployment? All the wise heads agree: there are no quick or easy answers. There is work to be done, but workers aren't ready to do it - they're in the wrong places, or they have the wrong skills. Our problems are "structural," and will take many years to solve.

But don't bother asking for evidence that justifies this bleak view. There isn't any. On the contrary, all the facts suggest that high unemployment in America is the result of inadequate demand - full stop.  ...
...
After all, what should we be seeing if statements like those of Mr. Kocherlakota or Mr. Clinton were true? The answer is, there should be significant labor shortages somewhere in America - major industries that are trying to expand but are having trouble hiring, major classes of workers who find their skills in great demand, major parts of the country with low unemployment even as the rest of the nation suffers.

None of these things exist. Job openings have plunged in every major sector, while the number of workers forced into part-time employment in almost all industries has soared. Unemployment has surged in every major occupational category. Only three states, with a combined population not much larger than that of Brooklyn, have unemployment rates below 5 percent.

Oh, and where are these firms that "can't find appropriate workers"? ... (T)he percentage citing problems with labor quality is now at an all-time low, reflecting the reality that these days even highly skilled workers are desperate for employment.

So all the evidence contradicts the claim that we're mainly suffering from structural unemployment. Why, then, has this claim become so popular?
...
I've been looking at what self-proclaimed experts were saying about unemployment during the Great Depression; it was almost identical to what Very Serious People are saying now. Unemployment cannot be brought down rapidly, declared one 1935 analysis, because the work force is "unadaptable and untrained. It cannot respond to the opportunities which industry may offer." A few years later, a large defense buildup finally provided a fiscal stimulus adequate to the economy's needs - and suddenly industry was eager to employ those "unadaptable and untrained" workers.

But now, as then, powerful forces are ideologically opposed to the whole idea of government action on a sufficient scale to jump-start the economy. And that, fundamentally, is why claims that we face huge structural problems have been proliferating: they offer a reason to do nothing about the mass unemployment that is crippling our economy and our society.

So what you need to know is that there is no evidence whatsoever to back these claims. We aren't suffering from a shortage of needed skills; we're suffering from a lack of policy resolve. As I said, structural unemployment isn't a real problem, it's an excuse - a reason not to act on America's problems at a time when action is desperately needed.

And for all their 'Galtian' Social Darwinist self reliance, what is the richest woman in the world doing?

Queen tried to use state poverty fund to heat Buckingham Palace
Ministers were asked if money earmarked for schools, hospitals and low-income families could be used to meet soaring fuel bills
By Robert Verkaik, The Independent
Friday, 24 September 2010

The Queen asked ministers for a poverty handout to help heat her palaces but was rebuffed because they feared it would be a public relations disaster, documents disclosed under the Freedom of Information Act reveal.

Royal aides were told that the £60m worth of energy-saving grants were aimed at families on low incomes and if the money was given to Buckingham Palace instead of housing associations or hospitals it could lead to "adverse publicity" for the Queen and the Government.

It seems our evil, greedy, immoral, hypocritical "betters" are all too willing to accept government handouts for "the right sort of people" and steal food out of the mouths of babies, the sick, and the elderly so they can line their pockets to impress others of their "class" with their conspicuous consumption and 'flash cash'.

Business News below.

How to feel poor on $500,000 a year

by: ek hornbeck

Mon Sep 20, 2010 at 05:46:14 AM EST

Monday Business Edition is an Open Thread

The Angry Rich
By PAUL KRUGMAN, The New York Times
Published: September 19, 2010

(I)f you want to find real political rage - the kind of rage that makes people compare President Obama to Hitler, or accuse him of treason - ... (y)ou'll find it ... among the very privileged, people who don't have to worry about losing their jobs, their homes, or their health insurance, but who are outraged, outraged, at the thought of paying modestly higher taxes.
...
(W)hen Forbes magazine runs a cover story alleging that the president of the United States is deliberately trying to bring America down as part of his Kenyan, "anticolonialist" agenda, that "the U.S. is being ruled according to the dreams of a Luo tribesman of the 1950s." When it comes to defending the interests of the rich, it seems, the normal rules of civilized (and rational) discourse no longer apply.
...
Tax-cut advocates used to pretend that they were mainly concerned about helping typical American families. Even tax breaks for the rich were justified in terms of trickle-down economics, the claim that lower taxes at the top would make the economy stronger for everyone.

These days, however, tax-cutters are hardly even trying to make the trickle-down case. Yes, Republicans are pushing the line that raising taxes at the top would hurt small businesses, but their hearts don't really seem in it. Instead, it has become common to hear vehement denials that people making $400,000 or $500,000 a year are rich. I mean, look at the expenses of people in that income class - the property taxes they have to pay on their expensive houses, the cost of sending their kids to elite private schools, and so on. Why, they can barely make ends meet.

And among the undeniably rich, a belligerent sense of entitlement has taken hold: it's their money, and they have the right to keep it.

In Which Mr. Deling Responds to Someone Who Might Be Professor Todd Henderson
J. Bradford DeLong, Department of Economics, U.C. Berkeley
September 18, 2010

As best as Michael O'Hare could determine (and Professor Henderson or whoever it is does not challenge him), the Henderson annual family budget is this:

$455,000 a year of income, of which:

• $60,000 in student loan payments
• $40,000 is employer contributions to 401(k) and similar retirement savings vehicles
• $15,000 is employer contributions to health insurance
• $60,000 is untaxed employee contributions to tax-favored retirement savings vehicles
• $25,000 building equity in their house
• $80,000 in state and federal income taxes
• $15,000 in property taxes
• $10,000 for automobiles
• $55,000 in housing costs for a $1M house (three times the average price in the Hyde Park neighborhood
• $60,000 in private school costs for three children
• $35,000 in other living expenses

And of this budget, Professor Henderson (or whoever) writes:

Like most working Americans, insurance, doctors' bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby.... [W]e have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive. If our taxes rise significantly... the (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center...

Now it is time for a reality check on this "most working Americans." The median household income in the United States today is $50,000. Half of all households make more than this. Half of all households make less. The big expenses in the Henderson family budget--their $60,000 a year in contributions to tax-favored retirement savings vehicles, their $25,000 a year savings building home equity, their $55,000 for housing, their $60,000 in private school costs, even their $10,000 a year for new cars--are simply out of reach for the overwhelming majority of Americans. Half of all households make less than $50,000 a year--the Hendersons make nine times that. 90% of households make less than $100,000 a year--the Henderson's make 4.5 times that. The Henderson's are solidly in the top 1% of American households, in the select 1% group that receives more than $350,000 a year.

By any standard, they are really rich.

But they don't feel rich. They have a cash flow problem. When the bills are paid at the end of the month, the money is gone--and they feel that they have to scrimp.
...
Professor Henderson's problem is that he thinks that he ought to be able to pay off student loans, contribute to retirement savings vehicles, build equity, drive new cars, live in a big expensive house, send his children to private school, and still have plenty of cash at the end of the month for the $200 restaurant meals, the $1000 a night resort hotel rooms, and the $75,000 automobiles. And even half a million dollars a year cannot (get) you all of that.
...
(W)hy does he think that that is the way things should be? ... (H)ere is the dirty secret: Professor Henderson thinks that that is the way things should be because he knows people for whom that is the way it is.
...
Professor Henderson in 1980 would have known who the really rich were, and they would on average have had about four times his income--more, considerably more, but not a huge gulf. He would have known people who were truly rich, and he would have seen himself as one of them--or as almost one of them.
...
Now fast forward to today.
...
Of the 100 people richer than he is, fully ten have more than four times his income. And he knows of one person with 20 times his income. He knows who the really rich are, and they have ten times his income: They have not $450,000 a year. They have $4.5 million a year. And, to him, they are in a different world.

And so he is sad. He and his wife deserve to be successful. And he knows people who are successful. But he is not one of them--widening income inequality over the past generation has excluded him from the rich who truly have money.

And this makes him sad. And angry. But, curiously enough, not angry at the senior law firm partners who extract surplus value from their associates and their clients, or angry at the financiers, but angry at... Barack Obama, who dares to suggest that the U.S. government's funding gap should be closed partly by taxing him, and angry at the great hordes of the unwashed who will receive the Medicare, Medicaid, and Social Security payments that the government will make over the next several generations.

And in the real world-

Poverty stats show the damage
By Carol Morello, Washington Post Staff Writer
Friday, September 17, 2010

In the second year of a brutal recession, the ranks of the American poor soared to their highest level in half a century and millions more are barely avoiding falling below the poverty line, the Census Bureau reported Thursday.

About 44 million Americans - one in seven - lived last year in homes in which the income was below the poverty level, which is about $22,000 for a family of four. That is the largest number of people since the census began tracking poverty 51 years ago.

Business News below the fold.

Geithner Gets It?

by: ek hornbeck

Mon Sep 13, 2010 at 08:00:00 AM EST

Monday Business Edition is an Open Thread

I don't believe it.  I think this is pre-election posturing.  Still, as some have suggested, it's possible this administration may be forced to make some policy promises that are not so easy to walk away from.

Geithner Urges Action on Economy
By DEBORAH SOLOMON, The Wall Street Journal
September 12, 2010

"If the government does nothing going forward, then the impact of policy in Washington will shift from supporting economic growth to hurting economic growth," Mr. Geithner said during an interview with The Wall Street Journal in his U.S. Treasury office, citing the example of countries who "shift too quickly to premature restraint" after a crisis, including the U.S. in the 1930s.
...
On Sunday, a top Republican lawmaker signaled there might be room to compromise on extending the Bush tax cuts for high-income earners but, in a sign of how fraught the issue is, his words drew immediate skepticism from Obama administration officials. "I want to do something for all Americans who pay taxes," House Minority Leader John Boehner of Ohio said on CBS' "Face the Nation." "If the only option I have is to vote for some of those tax reductions, I'll vote for it. But I've been making the point now for months that we need to extend all the current rates for all Americans if we want to get our economy going again, and we want to get jobs in America."

[The] typical error most countries make coming out of a financial crisis is they shift too quickly to premature restraint. You saw that in the United States in the 30s, you saw that in Japan in the 90s. It is very important for us to avoid that mistake. If the government does nothing going forward, then the impact of policy in Washington will shift from supporting economic growth to hurting economic growth.

Mr. Geithner, in the interview, rejected the view of many economists that allowing taxes to rise is unwise at this point in the recovery. The White House estimates the one-year cost of extension at $35 billion and the 10-year cost at $700 billion.

"We don't have unlimited resources," Mr. Geithner said. "We just don't think it would be responsible for this country, given the size of our future deficits, and given the substantial burden the middle class has been bearing over the past decade in particular, to go out and borrow $700 billion from our children so we can sustain those Bush tax cuts that only go to the wealthiest 2% of Americans."

He said the U.S. can no longer rely on consumer spending, which has long powered the economy, to be the growth engine that leads the recovery this time around and said Washington needed to plant the seeds for business investment and exports.

In the mean time here at The Stars Hollow Gazette we're going to keep teaching Samuelson and not Snake Oil Salesmen.

• Economics 101
• Striking Right at the Capillaries
• The Economic Damage of Republican Obstructionism
• Economics 101: Tonight's Reading Assignment
• Aggregate Demand
• Goolsbee: Chair Council of Economic Advisors
• Magical Thinking

Economics 101

by: ek hornbeck

Mon Sep 06, 2010 at 09:00:00 AM EST

I seem to be writing a lot about Economics these days.  Starting with The Big Fail (last week's Monday Business Edition) there are 7 diaries-

• It's only a Nobel Prize...
• "It's not that I'm an uncaring person"
• enthusiasm updated
• Pyramid Scheme
• Great Austerian Success Stories!
• Do you validate?

What are my qualifications to do this?  Absolutely none.  I'm a critic, not a reporter Jim; except that as a History major I was required to take Economics 101 (where I got a gentleman's B).  You might say I'm Neo-classically trained because along with millions of others my principal text was Economics by Paul Samuelson.

But I don't often rest my hat on my own analysis, I prefer to cite others who have not 'spent decades unlearning' the foundational principles of their "Science" (dismal though it is) in favor of Snake Headed Oil Salesmen hissing from the serpents in the garden (that's another Stargate joke).

The Real Lesson of Labor Day
By Robert Reich
Friday, September 3, 2010

Welcome to the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor - most of the rest of us - are unemployed, underemployed or underwater. The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, which, when added to the loss of public-sector (mostly temporary Census worker jobs) resulted in a net loss of over 50,000 jobs for the month. But at least 125,000 net new jobs are needed to keep up with the growth of the potential work force.
...
(T)he real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven't kept up with what the growing economy could and should have been able to provide them.
...
(The) Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures - Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage - leveled the playing field.

In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America's middle class shared more of the economy's gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

1938 in 2010
By PAUL KRUGMAN, The New York Times
Published: September 5, 2010

The economic moral is clear: when the economy is deeply depressed, the usual rules don't apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible - indeed, necessary - for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.

But the story of 1938 also shows how hard it is to apply these insights. Even under F.D.R., there was never the political will to do what was needed to end the Great Depression; its eventual resolution came essentially by accident.

I had hoped that we would do better this time. But it turns out that politicians and economists alike have spent decades unlearning the lessons of the 1930s, and are determined to repeat all the old mistakes. And it's slightly sickening to realize that the big winners in the midterm elections are likely to be the very people who first got us into this mess, then did everything in their power to block action to get us out.

If you still have the stomach for it I'll also cite this analysis on Open Left brought to my attention by Jay Ackroyd on Eschaton-

When we say "the Dems hate the Left" or they're beating up on "dirty fucking hippies", what we're REALLY saying is that, for the Third-Wayers, neoliberalism vs. social democracy is actually the whole ballgame.  The last vestiges of American social democracy - the New Deal and all its accoutrements - must be wiped out, at all costs.

They haven't been able to say so - because they need the votes of the "little people".  But there's almost no play left in that gambit.  With each [dispiriting] election betrayal (Clinton and NAFTA, Obama and Health Care, Obama and Social Security) the Democratic brand gets weaker and weaker.

We on the Left, the "netroots", etc., need to understand the centrality of this point more than we do.  The coming fight over Social Security is not one issue among many, it's the defining issue of this period.  Third Way politics is dependent on the bubble economy.  This has failed.  We can't go back there.  We have to make this known.

As Jay says- "Eventually you have to consider the possibility they are getting the policies they want to get."

The Big Fail

by: ek hornbeck

Mon Aug 30, 2010 at 08:00:00 AM EST

It's slowly starting to dawn on Institutional Democrats that they're going to lose big in November.  The consequences are very real.  Racist Radical Reagan Republicanism is a proven failure.  And Institutional Democrats?  They're a failure too because they knew what to do and didn't do it.

I'll put my policy prescription right up front, the only thing that will save Democrats at this point is massive downsizing- Rahm Emanuel, David Axelrod, Gibbs, Geithner and Summers, Salazar and Duncan.  Do I want heads on pikes?  Figuratively, yes.  These highly paid strikeout kings and clubhouse malcontents have to go for the good of the team.

And if not I hope you're happy with the crappy offices that come with minority status and one term Presidencies you corporatist whores.  Anyone who claims to care about "electoral victory" is a liar.

It's Witch-Hunt Season
By PAUL KRUGMAN, The New York Times
Published: August 29, 2010

So what will happen if, as expected, Republicans win control of the House? We already know part of the answer: Politico reports that they're gearing up for a repeat performance of the 1990s, with a "wave of committee investigations" - several of them over supposed scandals that we already know are completely phony. We can expect the G.O.P. to play chicken over the federal budget, too; I'd put even odds on a 1995-type government shutdown sometime over the next couple of years.

It will be an ugly scene, and it will be dangerous, too. The 1990s were a time of peace and prosperity; this is a time of neither. In particular, we're still suffering the after-effects of the worst economic crisis since the 1930s, and we can't afford to have a federal government paralyzed by an opposition with no interest in helping the president govern. But that's what we're likely to get.

If I were President Obama, I'd be doing all I could to head off this prospect, offering some major new initiatives on the economic front in particular, if only to shake up the political dynamic. But my guess is that the president will continue to play it safe, all the way into catastrophe.

Opposition Pay-offs
by Dave Anderson, 2010 August 29

The stimulus as passed in ARRA was necessary but insufficient.  It was too small at the topline number for the size of the output gap we actually faced (as the recession was deeper than the earlier data showed) and poorly designed with too much money going to AMT fixes and ineffective lump-sum tax-cuts.  The effective parts were pared back to please Sens. Collins, Snowe and Nelson.  And this was because the Republican Party realized they were the opposition and the job of the opposition is to oppose.  It also was because the Obama Administration likes to punch dirty fucking hippies, especially when they are right on the math and the political outcomes.

What Can Obama Really Do?
by Ian Welsh, 2010 August 29

The idea that Obama, or any President, is a powerless shrinking violet, helpless in the face of Congress is just an excuse.  Presidents have immense amounts of power: the question is whether or not they use that power, and if they do, what they use it for.

...

If Obama is not using that money and authority, the bottom line is it's because he doesn't want to.

Putting aside the question of what Obama could have accomplished already, if he wants to help everyday Americans, turn around Democratic approval ratings in time for the midterm elections, and leave behind him a legacy of achievement, he can still do it. If he wants to.

The Two Stories of This Terrible Economy, Yet Obama and the Dems Won't Tell Theirs
Robert Reich, Friday, August 27, 2010

If Obama and the Democrats would connect these dots they'd have a story that would make Americans' hair stand on end. We're in this mess because of big business and Wall Street. Government is needed to get us out of it.

...

So why haven't Obama and the Dems succeeded yet? Big business and Wall Street have used their money and political clout to stop government from doing as much as needs to be done.

The story is clear, and it has the virtue of being the truth. Why won't Obama and the Democrats tell it? Is it because big business and Wall Street have the money and political clout even to prevent the story from being told?

Policy Options Dwindle as Economic Fears Grow
By PETER S. GOODMAN, The New York Times
Published: August 28, 2010

"There are many ways in which you can see us almost surely being in a Japan-style malaise," said the Nobel-laureate economist Joseph Stiglitz, who has accused the Obama administration of underestimating the dangers weighing on the economy. "It's just really hard to see what will bring us out."

Japan's years of pain were made worse by deflation - falling prices - an affliction that assailed the United States during the Great Depression and may be gathering force again. While falling prices can be good news for people in need of cars, housing and other wares, a sustained, broad drop discourages businesses from investing and hiring. Less work and lower wages translates into less spending power, which reinforces a predilection against hiring and investing - a downward spiral.

Deflation is both symptom and cause of an economy whose basic functioning has stalled. It reflects too many goods and services in the marketplace with not enough people able to buy them.

Banks' Self-Dealing Super-Charged Financial Crisis
by Jake Bernstein  and Jesse Eisinger, ProPublica
Aug. 26, 10:09 p.m.

Over the last two years of the housing bubble, Wall Street bankers perpetrated one of the greatest episodes of self-dealing in financial history.

Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses:

They created fake demand.

More Business News below.

Monday Business Edition

by: ek hornbeck

Mon Aug 23, 2010 at 08:00:00 AM EST

We need to pinch pennies these days. Don't you know we have a budget deficit? For months that has been the word from Republicans and conservative Democrats, who have rejected every suggestion that we do more to avoid deep cuts in public services and help the ailing economy.

But these same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country.

What - you haven't heard about this proposal? Actually, you have: I'm talking about demands that we make all of the Bush tax cuts, not just those for the middle class, permanent.

...

And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that's the least of it: the policy center's estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. ... And the average tax break for those lucky few - the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year - would be $3 million over the course of the next decade.

In Striking Shift, Small Investors Flee Stock Market
By GRAHAM BOWLEY, The New York Times
Published: August 21, 2010

One of the phenomena of the last several decades has been the rise of the individual investor. As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country's households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks. So the turnabout is striking.

...

The notion that stocks tend to be safe and profitable investments over time seems to have been dented in much the same way that a decline in home values and in job stability the last few years has altered Americans' sense of financial security.

...

But then came a grim reassessment of America's economic prospects as unemployment remained stubbornly high and private sector job growth refused to take off.

Investors' nerves were also frayed by the "flash crash" on May 6, when the Dow Jones industrial index fell 600 points in a matter of minutes. The authorities still do not know why.

From Yahoo News Business

Special BP Blowout Disaster Coverage

1 Gulf claims chief says no-sue rule was his idea
By HARRY R. WEBER, Associated Press Writer
Sun Aug 22, 4:09 pm ET

NEW ORLEANS - The new administrator for damage claims from Gulf oil spill victims said Sunday it was his idea, not BP's, to require that anyone who receives a final settlement from the $20 billion compensation fund give up the right to sue the oil giant. But Ken Feinberg told reporters that he has not yet decided whether the no-sue requirement will extend to other companies that may be responsible for the worst offshore oil spill in U.S. history. He insisted that payouts from the claims facility he will run will be more generous than those from any court. Feinberg also ran the government compensation fund created after the 9/11 attacks, and there was a similar no-sue provision.

2 For Gulf tourism, problem is perception - not oil
By NOAKI SCHWARTZ, Associated Press Writer
Sun Aug 22, 1:51 pm ET

BILOXI, Miss. - On the great yawning porch that once belonged to Confederate president Jefferson Davis, two women sit in rockers listening to the cicadas and looking out over Mississippi Sound as they wait for their tour to begin. Before Hurricane Katrina, some 200 people came each day to visit the house - the only structure on the oak-shaded Beauvoir estate not destroyed by the storm. And that's just what's needed to break even. Tourism has dropped off 20 percent here, with just a few visitors on some days since BP PLC's well blew out in the Gulf of Mexico. The story here is mirrored across the Gulf Coast. Beaches have been cleaned of crude, the leak has been plugged and some cities never had oil wash ashore at all. Still, tourists stay away from what they fear are oil-coated coastlines - a perception officials say could take years to overcome and cost the region billions of dollars.

Outrageous?  We report...