Sic Semper Tyrannis

The Sunday Newsies

Ehud Barak was interviewed today by Zakariya. FZ did his best to press the Defense Minister on the subject of Israel's intentions toward Iran and quickly hit a stone wall. Actuall,y Barak stonewalled him on several subjects. The only thing that EB wanted to talk about was the coming fall of the Syrian government. It is tempting to think that Barak had some hidden purpose in appearing on TV this morning. Was there some message in his surly refusal to say anything about the Israeli cabinet's attitude toward Teheran? Perhaps not, perhaps he just likes the attention.

The Super-Committee. What a bunch of bums on both sides! It is clear now that neither side expected anything to come from this three month farce. I doubt if the sequestrations will ever take place. They can rescind them in the lame duck session after next year's election. The real struggle next year will be over the Bush tax structure which will end 1 January, 2013 unless renewed.

The CERN FTL issue is probably the really big story of the coming year. pl

 

"QUESTIONS FOR THE REPUBLICAN CANDIDATES ON THEIR ECONOMIC PROGRAMS"

By Robert K. Lifton

Listening to  the economic programs presented by the Republican candidates in their debates, I can’t reconcile them with the facts I have experienced in my own life. It would be very helpful to me, and I would think to other voters, to better understand the factual basis for these programs.  Here are a few of the matters I  hope the Republicans will explain, where their approach just doesn’t jibe with my experience.

The Republican program for bolstering the economy and creating jobs essentially focuses on two approaches: eliminating regulations and reducing taxes. Undoubtedly, there are some government regulations that are not necessary or not effective and even some regulations that may curtail a small number of jobs. I cannot understand, however, how getting rid of those regulations, which, by the way, will also eliminate the jobs of the regulators, will charge up the economy and create the millions of jobs necessary to significantly reduce unemployment and give employment to new entrants into the job market.  Furthermore, I also cannot understand how at a time when the nation is trying to reduce deficits and debt that lowering taxes on the wealthy will create jobs.

The Gilded Age and the GOP

 
"...the federal government adopted a series of far-reaching reforms to shield and empower citizens, safeguarding society’s democratic character. First came the regulation of business and banking to protect consumers, limit the power of individual corporations and prevent anti-competitive practices. The principle underlying measures such as the Sherman Antitrust Act (1890), the Pure Food and Drug Act (1906) and the Glass-Steagall Act (1933) — which insured bank deposits and separated investment from commercial banking — was that government was responsible for protecting society against the shortcomings of a market economy. The profit motive could not always be counted on to serve the public’s welfare."  Washpost

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I like Newport Rhode Island, a splendid place.  I spent my high school years in Maine so I love the lobsters and fried or steamed clams in Newport. I used to enjoy lecturing at the Naval War College there.  I especialy enjoy riding around the circular road that lies outside the gates of the "robber baron" "cottages" (as they called them).

It is painfully clear that the right wing of the Republican Party wants to return to a time when the structure of Americn Society created the excess wealth of the business elite that made possible such vulgar displays of money.  There were good things about that time.  Brtish peers of that era were heavily engaged in "throwing" their sons at thedaughters of the men who owned these "cottages."  PBS and the BBC tell us of this phenomenon frequently, but it was actually so.  The lineage of such families as the Astors and the Churchills makes that clear.  That spectacle would have been fun to watch.  There was also a lot of money given to the favorite "hobby horses" of the nouveau riche "aristocracy."

Why not?  There was no personal income tax.  There was little or no regulation of business conducted in the land.  There were no standards on medical drugs or food.  Life was good for the ruthless and the strong.

The Republican Right wants to return to that time.  This morning the idiot Steven Hayes, from the "Weekly Standard" speaking on FNS distorted the truth beyond recognition by claiming that the Republican Party merely wants to "re-structure" Medicare.  Not true, what they have said they want is to change Medicare into a private health insurance program.  Anyone who thinks about that, knows that what would result is a significant diminution in the delivery of  health care to the elderly.

The Republican Party, is it the party of lincoln?  No, it is not any longer.  What we are talking about is the party of JP Morgan and Diamond Jim Brady.  pl

http://www.washingtonpost.com/opinions/the-real-grand-bargain-coming-undone/2011/08/19/gIQA8wYiQJ_story.html

Obama prepares for surrender

 
"“The only reason this balanced approach isn’t on its way to becoming law right now is because a significant number of Republicans in Congress are insisting on a different approach, a cuts-only approach — an approach that doesn’t ask the wealthiest Americans or biggest corporations to contribute anything at all,” Mr. Obama said in his address. “And because nothing is asked of those at the top of the income scales, such an approach would close the deficit only with more severe cuts to programs we all care about — cuts that place a greater burden on working families.”"  NY Times

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I have thought for some time that the present struggle in Washington would end in defeat for the president.  Now, I am certain that is true.  His speech on 25 July was merely an attempt to cover himself in anticipation of that defeat.  He hopes that "sound bites" from that address can be played back to a citzenry enraged by the triumph of moneyed interests.

His defeat was inevitable in a situation in which the Tea Party types have enough votes in the House to block any deal that they won't accept.  The constitution is clear.  Money bills must originate in the House and that is where the Tea Party is strong enough to make its will prevail.

Obama is the proprietor of the Executive Branch of the government.  That is where the money is disbursed and services are provided.  Without money he cannot do either.  Some debt service would be possible and some minimal services could be possible with ongoing revenues but the net result would not be government as Americans have come to know it.

Obama has to run the parts of the government that "do things."  It is clear now that the only way he will get the money to do his job is to surrender.  He might as well get on with it.  pl

http://www.nytimes.com/2011/07/26/us/politics/26fiscal.html?_r=1&ref=us

The coming train wreck

 
It appears that President Washington's fear of the final effects of partisan political parties has proven correct. 

We are rapidly approaching  a point at which the US government's executive branch will adjudicate competing claims for bill paying using inadequate funds.

- Social Security payments (Are they payable from funds sequestered in the so call SS trust fund)  That is not clear to me.

- Medicare and Medicaid

- Defense expenses (O&M. procurement, pay, retired pay)

- All Else

    * State Department

    * Departent of Interior

    * Education

    * Department of Ariculture

ETC.

Let's have a discussion here as to what will be paid and with what.  pl 

Congressman Cantor's Investments

Adam L. Silverman, PhD*

Augustin L. in comments to COL Lang's recent post on Congressman Cantor remarked about and referenced the Congressman's investing in a fund that shorts the US.  Specifically Congressman Cantor has been invested in the ProShares UltraShort 20+ Year Treasury since at least the Summer of 2010.  Here's a link to all of his other publicly known personal financial information. (hat tip for all the links to Jonathon Easley at Salon.com's War Room)

* Adam L. Silverman is the Culture and Foreign Language Advisor at the US Army War College.  The views expressed here are his own and do not necessarily reflect those of the US Army War College or the US Army. 

Who Will Speak For The Unemployed? - By: Robert K. Lifton

 
As the count down continues to the beginning of August, our nation and the rest of the world waits to see whether Congressional Republicans and Democrats, working with the Obama Administration, can come together to raise the debt ceiling, allowing the government to borrow to fund its activities.  Assuming that Congress resolves that short-term issue, still looming is the much greater and tougher problem of lowering deficits and ultimately reducing the national debt.  Democrats as well as Republicans have accepted the idea that debt reduction is a must. The President appointed a bi-partisan commission headed by Democrat Erskine Bowles and former Republican Senator Alan Simpson that studied the problem and made recommendations about how to reduce the debt.

Gasoline prices and investors.

 
What role Wall Street investors play in the high cost of oil is a hotly debated topic in "Washington. Despite weak demand, the price of a barrel of crude oil surged more than 25 percent in the past year, reaching a peak of $113 May 2 before falling back to a range of $95 to $100 a barrel.

The Obama administration, the Bush administration before it and Congress have been slow to take steps to rein in speculators. On Tuesday, the Commodity Futures Trading Commission, a U.S. regulatory agency, charged a group of financial firms with manipulating the price of oil in 2008. But the commission hasn't enacted a proposal to limit the percentage of oil contracts a financial company can hold, while Congress remains focused primarily on big oil companies, threatening in hearings last week to eliminate their tax breaks because of the $38 billion in first-quarter profits the top six U.S. companies earned."  KC Star

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Jump ball! 

- There is no oil shortage presently driving high prices.

- We are being screwed by traders, hedge fund managers, etc.

-  The Saudis do not love us.  They will probably join in the "screwing" soon, if not already.

Go for it.  pl

Read more: http://www.kansascity.com/2011/05/25/2903397/saudis-often-warned-us-about-oil.html#ixzz1NlU59pvo

 

#Gasoline prices now are just market action

 
"Oil dropped to the lowest level this month on Tuesday as energy forecasters said the world's supply of oil will remain ample, and a prominent investment bank said prices are too high."  Boston Globe

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We haven't had a good oil price fight here for a while.  I am curious if you "peak oil" types think the high prices now are the product of long or short term shortages.

IMO, 30% of this is just speculative action in the markets operating at the margins of the spot market.

I am not a great admirer of Donald Trump but I heard him say the other day that there is a lot of crude afloat in tankers that can't be sold or placed ashore.  True?  pl

http://www.boston.com/business/articles/2011/04/12/oil_price_tumbles_on_supplies_and_goldman_pullback/

Public Goods, the Social Contract, and the Discussion that Americans Should be Having

Adam L. Silverman, PhD*

For a several months now, as I've worked on one project or another or interacting with colleagues and friends, I keep coming back to the same two broad concepts that Americans should be discussing, but seem to have lost sight off: what exactly are or should be public goods and what sort of social contract should we have to make sure that they are properly delivered.  While this is going to be a light on hyper links post, as it is essentially a thought piece, given the type of discussions that we usually have here at SST, and given what we all witnessed over the past two weeks regarding continuing resolutions and budgets, and what we'll unfortunately watch going forward as issues like the debt ceiling and the 2012 budget come up, as well as the next election cycle, the time seems right to try to write this up and post it.

Let me start by defining my terms.  I'm using public good to refer to anything that is or should be non-excludable and/or non-rivalrous or both.  Simply if anyone could or should partake of it and if partaking of it can not reduce the amount of it to be consumed by anyone, then something is or should be a public good.  In simpler parlance we generally equate things like roadways, a variety of essential services such as sewer and water and electric, education, defense, law enforcement, emergency services (fire and EMS), and even healthcare as public goods.  Another good way to define a public good, which is often easier to use because it doesn't use words like "non-rivalrous", is an item or service that individuals, or even groups, can not provide for themselves, that by their nature are accessible to everyone in a society, and which have to account for the lowest common denominator (ie it makes no difference what one's class, ethnicity, religion, gender, etc is).  

By social contract I'm referring to the agreements that we make as a society on issues of political, social, economic, and religious governance.  Usually in liberal democracies, which is what the US is supposed to be (of the republic type), this requires giving up some freedom or liberty in exchange for certain public goods; specifically goods and services that individuals or even groups of individuals can not produce or provide for themselves.  So the two concepts - public goods and social contract are linked and intertwined.

#Oil, Energy and the Markets

 
It has been pointed out to me that we (I) have been neglectful of the economic aspects of presently developing history.  Such issues as crude oil prices, "peak oil," and nuclear power alternatives are, or should be, in the forefront of our committee's considerations.

Therefore, I call upon you all in my capacity as chairman, to begin a renewed emphasis on energy issues in our discussions.

I propose an initial string on the subject of the mechanisms that control oil spot prices.  pl

 

#HARPER: THE ANGELIDES REPORT

 
On February 13, 2011, the Financial Crisis Inquiry Commission, known as the Angelides Commission, completed their one year mandate, and submitted a 500 page report to Congress.  That report is now a nationwide bestseller on both the New York Times and Washington Post list--and for good reason.  Don't be put off by the fact that this was a Congressionally-mandated investigation, or that a number of the Republican members of the commission issued dissenting reports.

The Debt Crisis

 
Dana Milbank

"Greece's national debt last year reached 113 percent of gross domestic product. The United States will hit that in about 2020, according to the Government Accountability Office, assuming policy continues as it has. And last year's U.S. budget deficit amounted to 9.9 percent of GDP, nearly rivaling Greece's 12.7 percent.

To pull Greece back from the edge, Papandreou has promised to cut the deficit to 3 percent of GDP by 2012. For the U.S. government to make an equivalent cut, it would have to shut down the Pentagon and a few other agencies: the departments of Agriculture, Commerce, Education, Health and Human Services, Energy, Homeland Security, Housing and Urban Development, the Interior, Justice, Labor, State, Transportation, the Treasury, and Veterans Affairs, plus the Environmental Protection Agency and NASA -- and even then we'd come up a few dollars short. "  Milbank

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That is my favorite picture of the columnist.  I do believe I have another of him as a jester.  I appreciate people who do not take themselves too seriously.

Well, there is nothing funny about his economic prophecy.  We have lived far too high on the hog.  We are in the process of going broke and the great majority seem oblivious.  The debt crisis is THE crisis.  Unless we relieve the financial burden of public debt, the United States is going to become a miserable place to live in about ten years.

All those people who are fretting over the erosion of constitutional rights in this country are going to have a lot more pressing things to obsess over.  Americans continue to live in a dreamworld in which they are entitled to the best of everything, security from violence, enough junk food to make them the fattest people in history and a Toyota in every driveway.   I suppose they would rather have a Ford now.

Let's sober up folks.  pl

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/08/AR2010030803491.html?hpid=opinionsbox1

On "Black Swans," "fat-tailed sheep" and future history.

"Any large-scale political unit is a complex system. Most great empires have a nominal central authority -- either a hereditary emperor or an elected president -- but in practice the power of any individual ruler is a function of the network of economic, social and political relations over which he or she presides. As such, empires exhibit many of the characteristics of other complex adaptive systems -- including the tendency to move from stability to instability quite suddenly.

The most recent and familiar example of precipitous decline is the collapse of the Soviet Union. With the benefit of hindsight, historians have traced all kinds of rot within the Soviet system back to the Brezhnev era and beyond. Perhaps, as the historian and political scientist Stephen Kotkin has argued, it was only the high oil prices of the 1970s that "averted Armageddon." But this did not seem to be the case at the time. The Soviet nuclear arsenal was larger than the U.S. stockpile. And governments in what was then called the Third World, from Vietnam to Nicaragua, had been tilting in the Soviets' favor for most of the previous 20 years.

Yet, less than five years after Mikhail Gorbachev took power, the Soviet imperium in central and Eastern Europe had fallen apart, followed by the Soviet Union itself in 1991. If ever an empire fell off a cliff, rather than gently declining, it was the one founded by Lenin."  Niall Ferguson

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The parallel is obvious and Feguson makes it specific later in the essay.  We are over-extended in many fields and the possibility of a sudden and catastrophic reversal looms.   People in the US do not realize that they are much poorer than they have been led to believe.  We will probably not see again the artificially high standard of living that we enjoyed so much.

Does anyone remember a little book by a Russian named Andrei Amalrik?  It was published in the 80s I believe.  It foretold the collapse of the USSR's planned economy.  In 1980 I was en route to Yemen for duty and went to a series of briefings at CIA as part of my preparation.  One of the lecturers was a retired CIA analyst who told us that the Soviet Union was a wildly distorted state that had one foot in the heavy industry needed to sustain their rivalry with NATO and the other foot in the 19th Century peasant economy of Tsarist Russia.  He, too, predicted collapse.  I didn't believe it at the time, but after years of associating with Soviets in Yemen I knew he had been correct.  The level of poverty at which Soviet personnel stationed in Yemen existed was pathetic.  They thought poor little Yemen was a land of milk and honey.  Soviet officers' wives would stand in tiny street stalls and bargain with Qat chewing shopkeepers over the price of a few eggs.  Meat, they never bought.  It was just too expensive.  The Soviet military mission was full of fairly senior officers with mouths full of rotten teeth.

The USSR fell with a crash that was astonishing.  pl

 

"Doomsday -- pros and cons" de Borchgrave

"U.S. share of global output continues to decline from year to year. Like General Motors Corp. and Ford, the United States has yielded share of the global market from one-third at the turn of the new century to one-quarter today. Was the rise of the rest the decline of the West?

Have U.S. commitments and responsibilities outstripped resources? The two anonymous billionaire voices were among the many now saying so in public opinion polls. They feel a paradigm shift is inevitable. We are yet to wean ourselves from the old paradigm: the $3 billion we borrow each and every day -- principally from China -- to maintain the world's highest standard of living, based on conspicuous consumption, at a time of growing world shortages. And when we are finally weaned, it will become glaringly obvious that we were living way beyond our means and that major belt-tightening is long overdue."  De Borchgrave

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Yup.  It's the end of days, or something.   I read the Stanley McChrystal "information operation" in the Wall Street Journal today.  Wow!  Jim Jones was on the tube yesterday trying to make it clear that Obama Administration policy in Afghanistan is "settled policy" (a neologism).  And today we have this virtual announcement of "push back" in a Murdoch Newscorp organ.  Is there a Rubicon in all this somewhere?  I understand that construction of permanent looking US facilities goes on apace in Afghanistan.  The Burger King is pleased.

Stanley wants to pull back out of the field in order to concentrate his forces on the population?  Hmmm.  This sounds familiar.  So, what will then happen in the "abandoned" countryside?  A sort of "Mosby's confederacy" with the Taliban confederation running an alternative government?  Maybe they will destroy themselves attacking us?  Could be, might be.  Na San or a couple of places I knew more intimately come to mind.

We live in interesting times.  pl

Ruminations on the Afghan "money pit," etc.

Afghanistan - Yesterday, I watched file footage of General McChrystal at his confirmation hearing.  In it he clearly said that he intended to wage a "comprehensive counterinsurgency campaign."  (paraphrasing).  I hadn't heard that before.  Well, he was honest.  I mistook him for someone else with different intentions.  Did the president and David Jones not know what he intended to do?  Did they not talk to him before giving him the job?  Did they not see that he would demand more troops?  Implicit in his stated intention is the task of creating a new and grand Afghanistan that will be a stout hearted ally of the United States in our quest to make the world an unsafe place for takfiri jihadi folk.  As I have said before, this is an enormous task, an enormously expensive task that will take a long time.  The American people will grow weary of the whole thing before transformation of Afghanistan is achieved.  They will demand an end in one way or another and we will then leave.  General McChrystal's "strategy review" is an interesting thing.  Since McChrystal already knew what he intended to do before he left for overseas to take command, what are the conferees strategizing about?  I suppose that it must be "the plan," in other words, how much to ask for and how fast.  McChrystal evidently assembled a group of COIN enthusiasts and a few strategery groupies from the think tanks to help him think this through.  They have decided that all out COIN (nation building) is the answer.  Surprise!!!  He is going to ask for more troops?  Of course he is.  What else could he possibly do, given his intentions?

The Economy- It seems to me quite possible that the economy will not be what it was, not for a long time, maybe never.  Our worship of "free trade" has caused us to export our manufacturing base while importing hundreds of billions of dollars in finished goods that we have been paying for with the credit derived from borrowing dollars from some of the countries to which we exported our capacity for making things other than numbers stored in computers.  Translation?  We are really a lot poorer than most people yet understand.  There may well be a "bounce" back out of this recession.  That will be driven by an illusion of well-being, but the underlying reality will still be there and it will catch up with us.  It would seem that Ross Perot was not so crazy when he talked about that "sucking sound" as jobs flowed out of the US in pursuit of "comparative advantage."  Will we still like "free trade" if it makes most of us poor?

2012 - People like Mitt Romney and Haley Barbour may have more of a future than one might have thought a while back, but what sane person will want the job?  pl

CNBC as a negative indicator, of everything.

Have these people ever gotten anything right?  On the Sunday news talkies, they pushed the idea that there would be no private investors for the government's toxic paper program.  Yesterday, the stock markets took off like a flock of startled geese in response to the program and the disappointment was clearly visible in the faces and voices of the money honeys and prognosticators.  The level of commitment to completely unregulated market function and the interests of the rich above all else is impressive.  Nothing else about CNBC is impressive.  I take that back.  Some of the women are impressive lookiing.  CNBC should be treated a a contrarian indicator.  "Fox Business?"  Hmmm...

The Obamanians have more things to do to sort out the economy:

- Suspend "mark to market" accounting for a bit. 

- Forget about "clawing back" the bonuses.  Contracts should not be violated.  The Senate will probably fulfill its purpose in this matter.

- The "up-tick" rule should be reinstated.

- Stop "naked shorting" as a practice.  Make it a felony if it is not already.

- Start regulating hedge funds and similar "casino" operations.

pl

"Business Cycle" or "Gotterdammerung?"

"The S&P Case-Shiller National Home Price Index reported that prices sank a record 18.2% during the last three months of 2008, compared with the same period in 2007.

Case-Shiller's index of 20 major metropolitan areas fell 18.5%, also a record.

"The broad downturn in the residential real estate market continues," said David Blitzer, chairman of the Index Committee at Standard & Poor's, in a statement. "There are very few, if any, pockets of turnaround that one can see in the data."

All 20 metro areas in the 20-city index recorded declines, with home prices falling more than 20% in eight of those cities. National home prices have dropped 26.7% since they peaked during the second quarter of 2006.

The decline does not seem to be slowing - just the opposite. The average home price dropped 2.52% between November and December in the 20 top metro areas. That was a larger increase than the 2.25% drop a month earlier."  CNN.com

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Ironically, the real estate market in Washington seems the least affected by all this.  We sit near the trough.

I wish to propose here an economic question for which I will, at least rhetorically, not admit of having an answer of my own.

Whether for crass political reasons or for genuine difference of opinion, the two American political parties are projecting diametrically opposed views of the nature of the present economic crisis and its probable outcome.

The Democrats state that the present depressed state of the economy is different both in quality and depth from any recession that we have seen since WW2.  They seem to believe that, if left to its fate, the economy of the United States and therefore probably of the world will spiral downward into a dark abyss from which it might well not climb for a long, long time.  In that pit would be; very high unemployment rates, deflation, low levels of investment, etc., We have not seen doctors and lawyers paid for their services with baskets of eggs and dead chickens for a long time, but that seems to be what the Democrats seem to think possible.

On the other hand the Republicans seem to think, or at least to say, that what is going on is really just the trough inherent in an exceptionally deep business cycle.  They seem to believe that if left alone the economy will "right" itself like a swamped boat, shrug off the water and rise to the surface.  Having that view, they say that all the money being appropriated and disbursed for "recovery" is just unnecessary and a surreptitious means to enactment of the Democrats' desired socialist re-structuring of the United States.  The belief in the "business cycle" theory of the crisis appears to be largely ideological, but subject to test by events, but the "socialist conspiracy" theory is, to some extent, supported by some of the items that the House Democrats chose to fund under the "stimulus" bill.  The Democrats would argue of course that all expenditures are stimulative.

I am curious to hear the arguments on both sides.  pl

PS  Watch your language.

 

Nationalize the Beggar Banks

"The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is to nationalize it."  Washpost.

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Roubini and Naseem Taleb (the Black Swan man) were on CNBC last week impatiently explaining to the money honeys and intellectually challenged staff pomposities that the financial system is so broken that it will not reconstruct itself and that the reason the financial system is broken is the unfortunate truth that it is largely populated by even greater (and often equally challenged) pomposities as the staffs of the 24/7 business news channels.  The news pomposities are those men of wisdom who bleat the numbers of the day and hope for a rise in the markets.

The big beggar banks are driven by people for whom greed and arrogance are the hallmarks of likely success in the "bidness."  Roubini says it simply - "Nationalize the big banks now, or nationalize them later under worse conditions."

I will not repeat at length my opinion of the financial traders, those "rational actors," who were indifferent to the likely effect of trading oil futures, mortgage based securities and other such instruments to the sky regardless of the sustainable short term prices of the underlying commodity.

The best that can be said of "this class of people" (Roubini quote) is that some of them had the wit to try to "call" the inevitable crashes in such a way that they had cashed out in time.

Let us hope that many of them failed to do that,  pl

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/12/AR2009021201602.html?nav=hcmoduletmv

"Who Is in the Middle?" Eduardo Porter

"There is such a thing as a straightforward middle. The nation’s median household income last year was $50,233. Half of all households earned more and half earned less. Some economists would define the middle class as those who earn between 75 percent and 125 percent of that — say households making between $37,500 and $63,000.

Development economists sometimes define the middle class as those making more than the bottom fifth of the population but less than the top fifth. In this country, that would include households making between $20,291 and $100,000. Of course, there are places — New York comes to mind — where $150,000 a year does not buy many of the trappings of wealth.

The heavy use of the term seems to be more than an appeal to people’s wallets. “Middle class” has become less a position on the income scale than a state of being. According to a poll by the Pew Research Center, a little more than half of Americans consider themselves middle class, including a third of those who make more than $150,000 per year. For many people, to be “middle class” is to work hard, to struggle to succeed, often against unfair forces. Forget the money."  Eduardo Porter

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Porter's essay is about the bourgeoisie, and who is in it.

"Forget the money" is the key phrase in the piece.  That is the essence of the thing. The whole argument about who is "middle class" in the US is altogether about the political and sociological "load" that attaches to the term.

Most Americans worship the idea of the Norman Rockwell life; solid houses of indeterminate age situated well back from curbside in a scene inspired by Frederick Olmstead's conception of "life in a garden setting," the PTA, the school board, the two cars, the 2 1/2 children who do moderately well in school, public higher education available in the background, Social Security, Medicare, probably church or synagogue (now mosque as well?), a comfortable retirement.  These are the things that most Americans think of as their birthright, their patrimony.

"We" have aspirations not too high, not too low, not very political at all.  We are not really interested in government except as a vehicle for the delivery of the goods of the bourgeois life. 

The truly rich live in a different world, a world where striving for the means of a comfortable life is absent, and self indulgence is generally reflected in the conception of "life as art form."  No matter, the truly rich are still a small group in spite of endless yuppy striving.

America the bourgeois, from sea to shining sea.

Our friend Fortunato had become something that was not bourgeois.  He and all the other fortunatos become something not bourgeois in the process of following their metier.  Is that one of the disturbing things about the rough men who guard you while you sleep?" pl

http://www.nytimes.com/2008/11/02/opinion/02sun3.html?_r=1&th&emc=th&oref=slogin

Merely An Observation

THIS IS NOT INVESTMENT ADVICE!!

One of our correspondents who shares my measured optimism concerning the financial markets offers the following observations:

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Companies which have less than 20% debt/equity ratio and at least

$1B in cash, a track record of profitability, and ratios which suggest

they are adequately capitalized to meet their short and long-term

obligations are:

GOOG

AAPL

CEO

QCOM

MON

RIMM

LFC

GLW

ADBE

BEN

TCK

DOX

WFR

SAY

MSFT

Google and Apple each have north of $10B in cash and zero debt.

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The screen that was run to identify them was:

Cash > $1B

Debt/Equity > 10%

Return on Equity > 5%

Return on Assets > 5%

Current Ratio > 2

Quick Ratio > 1

Earnings Growth Next 5 Years > 5%

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AGAIN.  THIS IS NOT INVESTMENT ADVICE

I am not invested in any of the above listed companies.  pl

The Bottom Approaches

As you probably know I think that 95% of the difficulties experienced recently in the markets is hokum based on the psychology of panic.

The recent panic among the ill educated but greed consumed trader class started with well intentioned mandates which directed the US banks to make mortgages to "red lined" populations.  That might have been harmless in a tightly regulated banking and investment system of systems, but the Bush Administration and their committed anti-regulation friends (in both parties) dumped the regulatory ballast over the side and freed the traders of any restraint.  The result was an orgy of speculative and trading excess in mortgages and mortgage derivatives that rode on a myriad of mortgages in the hands of many who could not possibly pay them off or even pay them at all for very long.

The bubble, like all bubbles, eventually burst, wiping out trillions in paper profits and some peoples' real money.  Confidence in the value of the banks declined following the realization of the potential worthlessness of the paper they were sitting on.  The contraction in credit between banks followed.

The panic in the trader class has been impressive.  It has been pumped up a lot by the trader fringe group employed by the financial media. 

But,  I think the bottom of the panicky slide is approaching.  A fire only burns so long as there is fuel.  The hedge fund managers and other such riff-raff have been busy de-leveraging themselves.  That means that they have been divesting assets in order to acquire cash with which to stabilize the companies that they run.  After all, the life style that enables them to stand at the bar in Ben Benson's and bellow boorishly to each other depends on money in the till.

We are nearing the bottom of the pile of fuel available.  The governments have done everything they could for the restoration of trading confidence.  The stage is set for the moment when investors and traders look around and see that huge, confidence devouring swings in the markets have eased.  At that moment it will be noticed that money is to be made at these prices and the game will resume.  pl

http://www.forbes.com/feeds/ap/2008/10/09/ap5530706.html

Will "Paulson" money flee the country?

"Dear Col.

Here is an idea for discussion on SST.

Questions:

If the bailout is approved, what is to keep the bailout money in the US?

Will the bailout result in a massive transfer of investment money out of the U.S?

What is to keep the international markets from importing junk into the US, cashing it for above market prices at the Treasury, and then exporting huge sums of money received to foreign countries?

Given the broad latitude for choice of assets purchased under the bailout, is there any real certitude that the money disbursed would help US institutions. The bill contains no provision limiting the mortgages and other bad assets to instruments secured by US realty.

Won't most of the money go overseas and do very little here?

Isn't it logical that once the traders start trading the securities destined for the bailout, that it is internationalized and can not be directed to help US institutions?

Just some thoughts from WP.

I enjoy your blog.

WP"

http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999%E2%80%932002)

Paulson's bill passes - now what?

"It is impossible to predict the final cost of the bailout but officials insist it will be far less than $700 billion. Because the Treasury will purchase and then resell assets, potentially at a higher price, there is a chance the program will break even or perhaps turn a profit.

The deal provides for tight oversight by two boards, including an independent Congressional panel. And requires the government to use its status as an large-scale owner of distressed, mortgage-backed securities to take more aggressive steps to prevent foreclosures.

The bill also seeks to limit the pay of executives of some companies that sell bad debt to the government, including restrictions on so-called “golden parachute” retirement plans.

It also provides several taxpayer protections, including a mechanism for the government to take an equity stake, in the form of stock warrants, in some of the firms that seek government help, which will give taxpayers a chance to make money should the companies profit in the months and years ahead.

And, if the rescue plan has lost money after five years, the bill requires the president to submit a plan to Congress for recouping the losses from the financial industry, perhaps through fees or a tax on securities transactions. "  NY Times

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With the provisions described in the last two paragraphs above, the bill is minimally aceptable.

Let us all hope that it does act to "unstick' the credit markets.  The passage of the House version of the bill was immediately followed by admissions on the part of many of those who had led the hysterical demands for the bill that they were uncertain that the new law would affect very much.

In the last few days there have been more and more indications that the claims that "main street" was deeply threatened have been exagerated or at least anticipatory rather than actual.

The financial media have done very poorly in all of this.  Very poorly indeed.  pl

http://www.nytimes.com/2008/10/04/business/economy/04bailout.html?pagewanted=2&_r=1&hp&adxnnl=1&adxnnlx=1223057039-KO1bcp56XbWIW47ZIpvplg

The "Deal" is not good enough yet...

Stripped of the "Bells and Whistles," the "Christmas Tree Ornaments," and other distractors, the basic bailout remains an arrangement in which the government of the US would:

- Buy bundles of securitized mortgage paper of various kinds from those willing to sell them.  These bundles would be bought for prices greater than their current value (why else would they be sold?) but less than they cost the sellers. (Again, why else....)

- The government will hold the paper until some of it evaluates to a level at which commercial buyers on a preferred list (not just anyone!  You there!  Forget it!) will be established.  The government will then sell the evaluated paper for less than it is then worth.  The rest of the paper? (the worthless part) Who knows? I would bet that the government (you and me) eats that part.

- The buyers of the "good" paper will then seek to enforce the terms of the loans.  Why else would they have bought it?

What a good deal for the taxpayer.

We are told that this crisis is about "main street" and not "Wall Street" and that it is about credit shrinkage, not the value of companies like Goldman Sachs where Paulson still has a lot of his money in a "blind" trust.   Financial media anchors plead desperately for proletarian plebeian understanding of the immediacy of the threat to every day life.  On one CNBC today, the winsome anchor trembled at the story of a woman in California who runs and owns an olive products business.  Her enterprise has been a success over the last years and she wants to expand through increased staffing and marketing.  Sadly, she went to the local banks and was turned down for a quarter million dollar loan.  This is a sad thing.  Sigh.  Sigh.  At the very end of the story the network felt obliged to add that after this story had been run earlier in the day, the olive merchant had received many calls from private investors and a couple of banks offering to loan her the money.  Anecdotal?  Yes, but much of what is being said about the end of credit operations is worse than anecdotal. It is mere rumor mongering and scare tactics.

The "Bells and Whistles" in the "rescue plan" are such nifty things as increased FDIC insurance limits, and an improvement of the AMT situation.  It is quite openly admitted that the "sweeteners" are just that.  They are designed to provide cover for members of the House in order to enable them to face voters in their constituencies.  The citizenry seems to be widely hostile to the basic deal that I outlined.  The citizenry is referred to with thinly concealed contempt by the financial media, most politicians and a lot of bloggers.  Well, the financial media speak for traders, not taxpayers.  Their reverential attitude toward people like Buffet is revealing.  Buffet is the proud owner of five billion dollars (newly purchased) of Goldman Sachs debt.  He said today that if the bailout is not passed he will have made a very bad bet.  We should take his advice about this?

The framers of the the Constitution deliberately created a system in which the House of Representatives is elected every two years and represents constituencies of a size that make members more vulnerable to the citizenry than the senate.  The Constitution also requires that all revenue bills originate in the House.

To overcome that "difficulty" Senator Dodd and friends have arranged to vote on a cleverly shaped non-revenue bill filled with "meatiness."  The purpose of this exercise is clearly to chivvy the House along into compliance with the received wisdom of the elites (and the moneyed).

If we accept the claim that the credit markets are in severe danger, then we citizens should demand a better deal for accepting a role.  Equity in the companies we are going to save is one possibility.  Alternatively, Paul O'Neill has recommended a federal guarantee for the value of the presently rotten paper so that it will trade like money.  That would be another way out that would not put taxpayers directly at risk.  The alternatives that do not depend on taxpayer exploitation have not been developed.

Citizen voters should remember what happens in the next few days.  pl

The TARP is welfare for Wall Street

"We are not on the verge of a new depression. The housing bubble collapse in California, Florida and a few other states is not enough to bring down the entire banking system. Investors who made mistakes in these markets should be held responsible and those who navigated the Fed-distorted market should be rewarded for their wisdom and prudence. Enacting the Paulson plan will not allow that to happen and our economy will suffer for it in the long run. The Japanese tried to prop up failed banks in the aftermath of the bursting of their twin bubbles and the result was 15 years of stagnation. Why are we emulating a strategy that is a demonstrable failure? A better alternative would be to allow capitalism to work as it should and stop the interventions of the Fed in the money market. Trust capitalism. It works."  Joseph Calhoun

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Amen.  The Wall Streeters like Paulson, the professors like Bernanke, and the true politicians like Pelosi have now managed to herd us toward a future in which government runs the private sector through "interventions" of the kind described in this article.

The members of the House of Representatives who have resisted this process of consolidation of the government and the plutocracy into one thing should be rewarded for their action.  Let us hope that a lot of them vote against the TARP.

Calhoun is right.  The markets will sort this mess out if given a chance to do so.  They are in the process of doing it now.   The TARP is the product of the desire of the wealthy to protect their equity in companies that have failed.  To some extent  the failure was caused by a misguided government policy of "guiding" banks to a policy of making foolish loans to people who had a low probability of success in re-paying them.  Cleverness and greed then played a large role in devising elaborate and fantastical schemes for securitizing "empty" loans, loan futures, and "slices" of loans into tradable junk.

Finance is a truly Darwinian "arena." If it is not, then it is merely another government department.  Is TARP a step on the path that leads to a planned economy?   pl

PS  Oil is at 101.15/bbl as I write.

http://www.realclearmarkets.com/articles/2008/09/in_times_of_crisis_trust_capit.html

No Paulson bail out!

“I think what Paulson hopes to do is say, ‘If you don’t do exactly what I want you to do, the whole world’s going to collapse on Tuesday’,” Gingrich said.

The former Speaker, talking to reporters at a lunch, added that he expects Democratic presidential candidate Sen. Barack Obama (Ill.) to back the plan. He predicted that, if Republican presidential candidate Sen. John McCain (Ariz.) ends up opposing the administration proposal, there will be an overnight “emergence of a McCain/reform wing of the Republican Party.”  The Hill

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Gingrich is right.   He may back down, but he got it right in these statements.  Paulson and Bernancke are trying to "bulldoze" the Congress and citizenry into accepting this plan.  They are doing it in just the same way that the Bush Administration "bulldozed" the people and the Congress into both the Patriot Act and war against Iraq.  The broadcast media are cooperating in this.

Well... There wasn't any Iraqi nuclear program left.  There was no cooperative relationship between Saddam's wretched government and al-Qa'ida.  There will be no "end of days" if Wall street is left to stew in its own broth.

Our friend, "WP," wrote to suggest an alternative way of dealing with the present economic crisis.  He writes that, at root, the crisis rests on the issue of defaulted and soon to be defaulted mortgages, mortgages that for the most part should not have existed.  Bad credit card debt is another big piece of the problem.  The huge structure of bubble debt created by unlimited trading of derivatives rests on consumer defaults.  "WP" suggests directly funding the consumers so that they can pay their debts.

Let the rest "Go South."  The worthwhile bits of the companies will be bought by other firms.  The death of the rest will serve as an example for the foolish and greedy.

American society in recent years has moved steadily in the direction of becoming one in which there are two classes, "les nobles," and everyone else.   That process will be slowed up for a few years by this disaster if the American taxpayer refuses to fund the nobles' grandchildren's trust funds.  pl

Download national_relief_program_for_consumer_mortgages_and_credit_card_defaults.doc

http://thehill.com/leading-the-news/gingrich-urges-vote-against-stupid-paulson-plan-2008-09-23.html

Revolution Anyone?

"Last week Barclays paid $1.75 billion to buy Lehman’s North American investment banking and capital markets business. It emerged over the weekend that Barclays had agreed to pay $2.5 billion in bonuses to Lehman bankers in the United States in a move that has angered stricken staff in London."  London Times

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So.....  While we have been told by the future tumbril riders (Paulson et al) that we all should agree to cough up 700 billion dollars to bail out Wall Street, the British bank, Barclays made a deal to pay off the people who wrecked Lehman Brothers so that they won't suffer the consequences of their own greed and stupidity....

I never really appreciated before what this country and Britain as well, evidently, have become.  pl

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4799674.ece

Paulson's Plan

I listened to Treasury Secretary Paulson a lot this morning as he explained the "plan."   Under his concept, the federal government will buy a great deal of presently worthless securitized mortgage debt, hold it for years and then sell it to someone who wants it, presumably because the value of the underlying real estate has gone up.  The institutions from which the federal government will buy the debt will play a large, perhaps decisive, role in setting the price at which they "are willing" to sell the now worthless debt to the federal government. 

Paulson hopes that the institutions that will be unburdened of this worthless paper will once again soar like eagles (wasn't there a song?).  This would seem likely to lead to high profitability for the unburdened institutions with lots of money for all.

Wait!  Not so fast!  Paulson is not enthusiastic about requiring the "unburdened" to give the government warrants for future stock sales to the government.  Such warrants would enable the tax suckers (us little people) to buy the companies at distressed prices (like, now prices) and sell the stock at later higher prices so that the Treasury of the United States (us tax suckers) could make money out of this whole thing.

Paulson also does not think that in return for the US government buying the nearly worthless mortgage securities, the "unburdened" should accept restrictions on executive compensation.  Why?  He believes that such a restriction would cause the presently burdened institutions to refuse to sell the government their "treasured" worthless paper.  Hmmm.

When asked why he thought the presently worthless mortgage "bundles" will become valuable some day "over the rainbow," he expressed faith in the future of America.  Bless him!  pl

If I do not understand this, explain it.  pl

http://www.bloomberg.com/apps/news?pid=20601087&sid=atwDaTfVQX64&refer=home

Saving the Yuppies

"Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."  NY Times

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What is it about these Republicans that makes them think they can dictate to the Federal Courts and Congress?  Is the passage in red not a challenge to the Supreme Court?

From other talk in the media it seems that it is at least being discussed that these defaulted mortgages shall be purchased by the federal government (us) by a process of "reverse auction" (???? say what?).  This is reported to be a method by which the banks would sell to the federal government at the "lowest price that they are willing to accept?"  That can't be right.  Sort it out for us all someone.

It is being said by some that these mortgages that we will own shortly, might be worth a lot of money someday and thus the tax stiffs (us) might be repaid with interest?  Does anyone understand how that would happen?

All in all this sounds like a scheme designed to save the hides of the semi-rich, and newly rich Yuppies on Wall Street, they who live by the lever.  I speak not of the truly rich.  They covered their asses against this possibility long ago.

What was it that Leona Helmsley said about the "little people?"  That was before she took up her new vocation as a laundress.  pl

http://www.nytimes.com/2008/09/21/business/21draftcnd.html?_r=1&ref=business&oref=slogin

Jingle Bells, Jingle Bells....

"Just like a child wishing for a Wii or an Xbox on Christmas Day, the market was hoping for some sort of RTC [Resolution Trust Corp.] type of arrangement, and there it was underneath the Christmas tree," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.

"It was the booster shot that the market was looking for," he added. "This was what we needed to happen, to remove those assets dwindling on balance sheets. And the short-sale rule, for the sector that it's targeting, will also help near term."   Marketwatch

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Does anyone think this is anything like over?  No?  Good, because it is not.  The "kiddies" on Wall Street and their playmates on 24/7 cable financial news are pathetically eager to believe that they will now be rescued by the grown ups so that they can go back to playing with the world economy as though it was the game of "Monopoly,"  but, in fact, someone is going to have to absorb the cost of all that rotten paper that the US Government is now going to buy.

The costs of this are being understated.  Anyone who thinks that this is going to cost less than a trillion dollars is smoking something reeel goood.

Then, there is the necessity of stopping these mischievous children from playing with the derivative Lego set again.  Right.

Joe Scarborough had a great thinker from CNBC on his morning fandango today.  This pompous bloviater went on and on and on about how this had all happened and guess what! None of the causes placed any blame on any of his playmates.  It just happened....

I would say that we are going to see a temporary recovery in the stock market which will last until the novelty wears thin.  Then we will see another plunge as people realize that nothing much has changed.

Oh, yes.  Oil!  That will start back down shortly.  How long shortly might be... We will see.  pl

http://www.marketwatch.com/news/story/us-stock-market-welcomes-bailout/story.aspx?guid=%7B06F0711D-301E-4184-BFE9-95960019D4B6%7D&dist=msr_5

'29 = '08 ?

"As for Wall Street, Mr. McCain blamed the meltdown on “unbridled corruption and greed.” He called for a commission to find out what happened and propose solutions. His diagnosis and his cure are misguided. The crisis on Wall Street is fundamentally a failure to do the things that temper, detect and punish corruption and greed. It was a failure to police the markets, to enforce rules, to heed and sound warnings and expose questionable products and practices.

The regulatory failure is rooted in a markets-are-good-government-is-bad ideology that has been ascendant as long as Mr. McCain has been in Washington and championed by his own party. If Mr. McCain adheres to some other belief system, we would like to hear about it."  Editorial   NY Times

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End of the world?  End of days?   The Manhattan Syndrome?  Soup kitchens coming?  Swan diving Wall Street grubbies?  Ragnarok?  The Rapture on the way?  A chicken in very few pots?

It looks bad folks, really, really bad.  Show me the way to go home.  Show me....

pl

http://www.nytimes.com/2008/09/17/opinion/17wed1.html?em