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Tuesday   October 14   2008

here comes the sun

Here are some great sun pictures. Looks kind of hostile.

The Sun

  thanks to Huffington Post

09:13 AM - link

economy

It's certainly been all economy all the time around here lately. I know I have some other links around here somewhere. It's just that everything else pales by comparison. Hopefully, these will be the last economy links for the week. Unless, of course, more shit hits the fan.

When $700 Billion is Chump Change

"Once a run gets started it is rational for other people to join in." - Mervyn King, Governor of the Bank of England, commenting on bank runs Probably about now the people who actually wanted the massive bailout of the Wall Street crooks are asking themselves, "What exactly did we buy with the $700 Billion in taxpayer money?" It's a little late to ask that question You don't purchase a car without kicking the tires, you don't purchase a home without having the foundation inspected, and you don't bail out Wall Street unless you made certain that the money isn't going to be wasted. With the DOW dropping nearly 2,300 points in just the 7 days since the bailout was announced, the sheeple are realizing that they've been mugged by the crooks yet again. Except this time the taxpayer wasn't held up. We gave them our wallets willingly. Now here's the kicker: That $700 Billion is only the downpayment. The real payments are already happening and Congress didn't vote on it. How much is this going to cost all of us? More than you can possibly imagine. The global financial crisis is turning into a bigger drain on the U.S. federal budget than experts estimated two weeks ago, ballooning the deficit toward $2 trillion. Bailouts of American International Group, Fannie Mae and Freddie Mac likely will be more expensive than expected. States are turning to Washington for fiscal help. The Federal Reserve said this week it will begin buying commercial paper, the short- term loans companies used to conduct day-to-day business, further increasing costs. And analysts now say the $700 billion bank- rescue plan passed by Congress last week may have to be significantly larger. Can you even imagine a $2 Trillion yearly deficit? To put this into perspective, this country has accumulated just over a $10 Trillion in 230 years. Now we'll be adding 20% to that in a single year, and then do it again next year. Where is all that money going to come from in a country with no savings?

Global Economic Crisis Likely To Have Profound Consequences For US Politics, World Relations

The global economic crisis is likely to have profound, long-range consequences for American politics and for the relations of the United States with the rest of the world, severely constraining any effort to maintain or revive the Bush administration's propensity for unilateralism, and posing a broad international challenge to free market ideologies, according to a range of experts. The scope of these changes remains uncertain, and all those who responded to October 11 and 12 inquiries from the Huffington Post warned that predictions in these circumstances are perilous. But there is a strong consensus that it would be a mistake to minimize the coming upheavals. In the United States, economic developments have the potential to lay the groundwork for a political transformation with major alterations in both the composition of, and balance of power between, the major political parties. There are "reasons for thinking that the American election of 2008 may be the equivalent of the election of 1932 - an electoral sea change ushering in a new wave of government intervention and, if that intervention is successful, a durable electoral realignment," says Peter Hall, Krupp Foundation Professor of European Studies at Harvard, in a wide-ranging analysis he provided to the Huffington Post, available in full at the end of this article.

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It's Wall Street's Turn to Bolster Confidence

In putting several trillion dollars in government funds on the line, the country has now done just about everything that Wall Street could have asked to address the financial crisis. The question now, as John Kennedy might have put it, is what Wall Street is ready to do for its country. So far, the answer is not much. After getting their closed-door briefing yesterday from Paulson on the government's latest initiatives, Wall Street's finest literally ran from the Treasury to their waiting limousines, bypassing a media scrum eager to convey any scrap of wisdom or insight. Court reporters will tell you they can always tell the innocent from the guilty on these kinds of perp walks, and the Wall Street crowd yesterday looked particularly guilty, unable even to conjure up a soothing word to a nation fretting over its shrunken 401(k)s, or a simple thank you to taxpayers for having saved their bacon. Their silence and invisibility throughout this crisis attests to the moral and political bankruptcy of a financial elite that is the perfect match for the financial bankruptcy they have now visited upon their investors, their creditors and their customers. After yesterday's "historic" meeting, we are told by industry apologists that we are supposed to be grateful to nine leading banks for having "volunteered" to accept additional capital from the Treasury, along with a government guarantee for newly issued bank debt, even if it means having to accept a dilution of existing shares and a few harmless restrictions on their operations. Pardon me if I'm less than blown over by this munificent offer, but it hardly seems commensurate either with the severity of the current crisis or the depth of the banks' culpability in fomenting it. If Wall Street were truly serious about convincing Main Street that we're all in this together, its top executives would have stepped before the cameras yesterday and promised not to cut lines of credits to long-standing business customers who have never missed a payment. They would have committed themselves not to foreclose on any homeowner who is willing and able to refinance into a new, government-guaranteed, fixed-rate mortgage set at 85 percent of the current value of the property. They would have offered to suspend dividend payments until capital levels had been restored to pre-crisis levels. They would have given us their solemn promise not to advise clients to hold on to their own investments while quietly dumping whatever they can from their own portfolios and shorting every security in sight. With the Treasury now desperate for help in managing its new rescue efforts, they would have volunteered, at no cost to taxpayers, the services of some of those investment bankers and financial wizards who now don't have much else to do. And the maharajas of finance could have set a wonderful example if they had all gotten together and agreed to work for a dollar a year until the crisis has passed.

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  thanks to Talking Points Memo

But the maharajas of finance will do no such things. Instead they will be back to their old tricks of scam and fraud that got us into this mess.

Banktron

economy

Fed Announces Unlimited Borrowing

Economic Globlization and Speculation Coming Home to Roost

With the current economic crisis which seems to be spreading across the world we are dealing with far more than a “subprime” crisis, or an attempt to “quarantine “toxic debt.” There is a much bigger avalanche waiting to come tumbling down. Namely the derivatives market now estimated to be over $1 quadrillion (that is 1,000 trillion) in global derivatives holdings. That makes the current $700 billion bailout look like less than a drop in a very large bucket. As the long predicted crash started unfolding, I have been nagged by a long sequence of events that seem to be culminating at the current moment. There have been significant structural changes in the U.S. and elsewhere that have impacted both labor markets, and capital. In terms of labor markets (also known as workers) the transitions have been stark. In the United States we have watched the long term decimation of the manufacturing sector and a transition to a “service” economy. I remember the concerns in the 1980’s about the transformation of the U.S. economy from a production economy to a consumer economy. This trend was accelerated with broad implementation of corporate-driven globalization and formalized by the passage of NAFTA (North American Free Trade Act) and the rewriting of GATT (General Agreement on Tariffs and Trade). These two international trade agreements were structured along similar philosophies. Namely the removing of “boundaries” to trade, and enhancing the “boundaries” around workforces. Those boundaries were national boundaries and national sovereignty. We saw the exportation of U.S. job (outsourcing and off-shoring) accelerate. We also started seeing the merger mania of the 1980s which have continued to the present. In fact, they are a prominent feature of the current crisis. Other nations, in a competitive and revolving fashion, became the cheap, exploitable labor force for a global economy. China, maximizing on its single most abundant resource (people) successfully positioned itself as the cheap workforce for global corporations searching to always maximize profit. (Now they too import even cheaper labor). All along this path towards removal of boundaries, there has been increasing financial and investment penetration in an increasingly intertwined global financial market.

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  thanks to Culture of Life News

The Nausea Express
by Jim Kunstler

The G-7 world, the club of "developed" western nations plus Japan, has commenced an ordeal of suddenly waking up much poorer. All the desperate work-arounds being engineered by governments and central banks on an al fresco basis are intended to overcome this stunning basic fact, and none of them will. The benchmarks of everything are in flux -- stocks, bond values and yields, commodity prices, most especially currencies -- but these tend to disguise the basic fact of growing and spreading impoverishment. Is oil priced at $80 a barrel this morning? That's nice. Except if the company that employs you is about to fold up and you face a holiday season of driving frantically around Atlanta in search of another job, which the odds are against you find finding. Or if you're living on a retirement fund that's just lost 37 percent of its value and it's time to fill the heating oil tank. Iceland is the poster-child du jour for this. The little island nation of about 320,000 souls (roughly half of Vermont's population) lately grew a banking sector that thrived on something-for-nothing finance. In little more than a month, its banks have imploded like mini death stars, leaving Iceland with a pariah currency. Since it has to import just about everything, and it suddenly finds itself unable to pay for imports, the people are stripping the grocery markets of whatever remains there now. You wonder what they will do in two weeks. Ten years from now there may be 32,000 of them left, subsisting on blubber sandwiches. I exaggerate perhaps a little, but who really knows where all this leads? Here in the USA, the Treasury, enjoying new and seemingly limitless powers of discretionary spending, has begun shoveling dollars into every truck that backs up to the loading dock. The numbers are staggering. In ten days it's reached into the trillions in loans and handouts. Most of this money is getting sucked directly into the black hole of debt and margin calls of one kind or another. This is previously-presumed wealth that is now un-presumed. It's leaving the system, never to be seen again. One useful way of thinking about it is to regard it as our society's previous borrowings against our own future. Thus, we are seeing our future vanish into a black hole -- our future comfort, health, and basic nourishment.

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Rescue for the Few, Debt Slavery for the Many
Congress Should Bail Out of the Bailout

We are now entering the financial End Time. Bailout “Plan A” (buy the junk mortgages) has failed, “Plan B” (buy ersatz stocks in the banks to recapitalize them without wiping out current mismanagers) is fizzling, and the debts still can’t be paid. That is the reality Wall Street avoids confronting. “First they ignore you, then they denounce you, and then they say that they knew what you were saying all the time,” said Gandhi. The same might be said of today’s overhang of debts in excess of the economy’s ability to pay. First the policy makers pretend that they can be paid, then they denounce the pessimists as spreading panic, and then they say that of course students have been taught for four thousand years now how the “magic of compound interest” keeps on doubling and redoubling debts faster than the economy can squeeze out an economic surplus to pay. What has ended is the idea that “the magic of compound interest” can make economies rich without having to work and without industry. I hope we have seen the end of derivatives formulae seeking to make money by playing in a zero-sum game. A debt overhang always ends either in foreclosure of the debtor’s property, or in a debt annulment to preserve the economy’s overall freedom and equity. This means that the postmodern economy as we know it must end – either in financial polarization and debt peonage to a new oligarchic elite, or in a debt cancellation, a Jubilee Year to rescue society. But when the government says that it is reviewing “all” the options, this reality is not one of them. Treasury Secretary Henry Paulson’s first option was to buy packages of junk mortgages (collateralized debt obligations, CDOs) to save the wealthiest institutional investors from having to take a loss on their bad bets. When this was not enough, he came up with “Plan B,” to give money to banks. But whereas Britain and European countries talked of nationalizing banks or at least taking a controlling interest, Mr. Paulson gave in to his Wall Street cronies and promised that the government’s stock purchases would not be real. There would be no dilution of existing shareholders, and the government’s investment would be non-voting. To cap the giveaway to his cronies, Mr. Paulson even agreed not to ask executives to give up their golden parachutes, exorbitant annual bonuses or salaries.

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The Bailout in Plain English
Speaking in the Tongues of Brokers

Any number of cultural historians have noted the American belief that success is a sign of God's favor. And over the past couple of decades he has had a downright love fest with the already-rich. So much so that the richest 400 Americans now have more money stashed away that the combined bottom 150 million Americans. Some $1.6 trillion bucks. This was accomplished by selling off or shipping out ever available asset, from jobs to seaports, smashing usury and anti-monopoly laws, raiding the public coffers and manipulating the medium of exchange and blackmailing the peasantry regarding common needs such as heath care and energy to keep their asses warm -- to name a few. The ultimate coup was to convince the entire nation that the well being of the rich, meaning the well being of Wall Street, was indeed the common man's well being. All went well for a while. People went into credit card hock up to their noses in order to provide 26% credit card interest to Wall Street, etc. And when that became untenable, flimsy mortgages were cranked out by the millions ensuring that every American who could hold a crayon could sign to purchase a home. To facilitate this all sorts of shaky 'mortgage instruments' were created -- balloon, (sign here Jeeter, you're gonna flip it in a year and make a hundred K on this house trailer) interest only, and finally negative balance mortgages where you only paid part of the interest and the rest was rolled back into the principal balance. And joy of joys you could refinance a couple of times while the inflated value of these houses was on the way up. Life was good for everybody. The bill was never gonna come due because, god in his wisdom, had deemed that capitalism would defy the second law of thermodynamics and expand forever. So every time a bank made a mortgage loan of say, $400,000, even though the debtor had never even made a payment yet, the loan was declared a bank asset and another $400,000 was loaned against it. Meanwhile, the Federal Reserve Bank yelled whoopee and printed another $800,000 in currency. Of course at some point the country had to run out of customers, so the loans got easier and easier. No matter that debt is not wealth. Wink and call it that and most folks won't even look up from their new big screen high resolution digital TVs. Problem was that all the jobs to pay for this stuff were stampeding off toward places in China with names containing a lot Xs, Zs and praying for a vowel. It was becoming clear that the entire economy was running on fumes. In fact less than fumes. It was running on the odor of paper. Mountains of the stuff. Bundles of mortgages and very strange securities and derivatives of unknown origin and value. Paper that stated its own worth and signed by some mystic hand no one could quite identify though the blurry signatures looked to read Greenspan, Paulson and Bernanke. But there was a rub. Things reached the point where there simply was not anything left to defraud the public out of, nothing left to steal from the nation's productive capability, no matter how much paper Jeeter and Maggie signed for that trailer house, no matter how secure Brian and Jennifer out there in Arlington, Virginia and Davis, California thought they were. So the only thing left to do was steal from future generations of Americans and accept an I.O.U. which the government would happily sign on behalf of the people and enforce. By the wildest coincidence, under the Bush administration this I.O.U. happened to tally up to about $700 billion.

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The Grapes of Wrath, 2008: How will our generation handle a Great Depression?