Tuesday, September 30, 2008

A Fistfull of Dollars

Update: Citigroup buys out Wachovia Corp. banking operations for $2.16 billion after its share price collapsed due to nonperforming mortgages. Although the bank did not technically fail, shareholders have lost almost all of their value since they will receive only $1 per share in the deal. Wachovia's stock traded at $59 in April of 2006. Some stock analysts saw the development as a response to a run on Wachovia's bank deposits in the wake of Washington Mutual's seizure by the FDIC. Citigroup's share fell 12% after the deal was announced. [toon credit: Rex Babin]

{9/29/08}Perhaps Congress is finally having its fiscal epiphany: it will take a lot more than $700 billion to put Uncle Humpty Dumpty back together again. The House voted down the latest bailout plan for greedy capitalists on the Street of Broken Dreams. Some analysts say a bailout will be more on the order of $2 trillion dollars, or enough to devalue treasury instruments which really will be the end because then our foreign creditors (China and the Saudis) will finally pull the plug on us and take their surplus money elsewhere[1]. It may be painful, but a comeuppance is long overdue. Only the pain of a long recession similar to what Japan experienced in the 90's will cure the easy credit addiction of our FIRE economy {2/18/08}. Banks leveraged themselves as much as 30 times assets. And now that the bottom has fallen out of the real estate market, they are left with assets--in the form of collateralized debt obligations--worth less than 50% of their booked value. No other banker will lend to a bank that is counting near worthless investments as assets. Merrill Lynch, bought out by Bank of America recently, sold its toxic CDOs for 22 cents on the dollar.

To compound the problem the $500 trillion derivatives market is also deleveraging because of increasing defaults and no more money flowing into it. Many financial institutions are dependent on the shadow credit market to finance their daily operations. When that source of capital freezes as it has now, many bankruptcies will follow[2]. Capitalists and their handmaidens in Washington are trying to convince taxpayers that sometime down the road taxpayers may obtain a return on the toxic mortgage debt they want bought up by Uncle Humpty[3]. Don't count on it, Kimosabe! It is reasonable to expect that the most irredeemable of the bad debt will be dumped on the government. The market is not pricing the actual value of the securities because if it did, most of its current private holders would already be bankrupt. If the federal government exposure in a bailout is held at $2 trillion, it will add at least $1 trillion to the national debt or enough new debt to cause the Treasury bond market to fall. Not everybody gets rich in a capitalist society, Horatio Alger stories notwithstanding. Spending tax money to convert our economy to energy independence and improving infrastructure would have a better long term effect on the nation's economic health. Tell your congressman that you want the golden tasseled priests of Mamon brought to book, not introduced to Mo' Money, otherwise you might be standing in line for bread and not a fistfull of devalued dollars.
[1]"Unfortunately, I don't see the U.S. Treasury Department's rescue plan being effective without actually addressing the problems facing both the CDO [collateralized debt obligations] and the CDS [credit default swaps] markets. The Treasury Department's initiative will create more problems than they attempt to solve and will eventually saddle taxpayers with so much debt that they risk sinking the dollar, and worse, the U.S. government's investment grade rating. That would be calamitous." UK Market Oracle 9/28/08
[2] Based on recently released FDIC information 1,479 US banks and 158 savings & loans are at risk of failure. Of those with $5 billion or more in assets, 61 banks and 25 thrifts are heavily exposed to nonperforming mortgages.
[3] When FDR's New Deal bought up nonperforming mortgages in the Depression, the goverment managed to realize a small gain when the economy stabilized.

Saturday, September 27, 2008

McBush Shows Up

After he injected presidential politics into the rescue planning for The Street of Broken Dreams that prompted a dissent from laissez faire purists in the House, John McBush showed up in Oxford, Mississippi for the first presidential debate. But his performance is better described as a series of extended non-sequiturs. When asked how he would respond to the current financial crisis, he launched into a sometimes emotional discourse on government spending and the practice of budget earmarks. He never explained how government spending prompted capitalists to make hundreds of thousands of bad mortgage loans or create a shadow banking system free of government regulation. Nor did he explain how the discredited Reagan-era "trickle down" economics he advocates will restore economic health. He did however, indicate his distaste for bears, a singular bias he shares with his running mate, Sarah Palin. Gesturing with his "old pen" he vowed to eliminate the $3 million for studying ursine biology. No mention was made that the Pentagon spends $3 million about every 5 minutes[1] under the current fiscal program for which he voted. When Senator Obama reminded him of his intemperate language towards North Korea and Iran, he launched a sentimental paean to veterans, some of whom are still standing in line to get treatment for their war induced mental problems. He also had problems pronouncing the name Ahmed Ahmadinejad. May I suggest Senator you say, "Ah my dinnerjacket". That pronounciation is close enough, and we will all know who you mean. His favorite refrain for the evening was that the younger Senator from Illinois, "did not understand" foreign affairs because for one reason Obama refused to recognize the unqualified success of the "surge strategy" in Iraq. You just do not get it Senator: a "tactic" is something you use to implement a "strategy". Senator Obama rightly discounts the success of the increase in troop levels in Iraq. For one, it is merely one of several coincident reasons for less violence in Iraq. Two, the strategy of provoking jihadists in Iraq while discounting the actual locus of terrorism in Afghanistan is simply dumb[2]. McBush conclusively demonstrated last night that you can go to the forest (or Iraq, or Afghanistan or Vietnam), but still not see the trees.
[1] McBush did use the Navy's Littoral Combat Ship as an example of wasteful Pentagon spending. In August the National Defense magazine said the program could cost as much as $500 milion per ship due to delays and overruns. The original cost estimate was $220 million per ship. The first one built, USS Freedom, cost $631 million in actual dollars. The Navy is not sure the ship, designed for close shore operations of various types, can fill its intended functions.
[2] Senator Russ Finegold recently remarked at Georgetown University: "I have talked elsewhere at length about how this disastrous decision[to go to war in Iraq] has not only weakened our national economy – which is what bin Laden did to the Soviets in the 1980’s and has expressly set out to do to us -- it has created and worsened existing deficits in our global partnerships; jeopardized our national security; decreased the capacity of our military; and, in too many cases, sidetracked our diplomatic engagement and sucked up our foreign assistance resources." Senator Finegold refers to a video made by Bin Laden in September 2004 in which the master terrorist thanked Allah for the success of the "bleed-until-bankruptcy plan".

Friday, September 26, 2008

'Toontime: Fool You Twice

[credit: Jim Borgman]

Thursday, September 25, 2008

Tulip Time in America III

The largest bank failure in the history of the United States occurred today as the FDIC seized Washington Mutual, a northwest regional savings and loan. The Seattle based bank had $310 billion in assets, but was under severe liquidity pressure due to the credit squeeze gripping international capital markets. The previous largest failure was Continental Illinois National Bank with assets of $40 billion in 1984. Because JP Morgan-Chase immediately bought the banks assets for a mere $1.9 billion, the FDIC will not have to expend money from its insurance fund which it had to do when it seized IndyMac bank earlier{7/15/08}. JP Morgan will write down WaMu's bad mortgage loan portfolio by about $31 billion. WaMu got into trouble in 2006 when its loan department reported a loss of $48 million due to its sub-prime lending practices, notably "Option ARMs" which featured very low introductory payments and the option to defer loan interest, principal or both payments until later years.

Many economists doubt that the federal government's rush to put a money band aid on Wall Street will advert more financial failures or even a significant recession. A ranking Republican came out of White House conference Thursday and held up what he said was a five page list of economists opposing the rescue plan. Kenneth Rogoff, a Harvard economist and former IMF official whom I quoted previously, thinks some failures are necessary to clear out weak institutions as the industry undergoes a fundamental shift. The global financial system nearly melted down last week when investors pulled out en masse from money market funds and the short-term debt markets that corporate America needs to fund its day-to-day operations, but he thinks the dangers of a depression are overstated. He wrote in his column that better regulation is part of the answer, but "today's financial firm equity and bond holders must bear the main cost, or there is little hope they will behave more responsibly in the future." In other words, they must reap what they have sown. No argument here.

Tulip Time in America II

Update: After the fear of economic collapse was put into them by the Regime's financial experts congressional leaders have apparently reached agreement in principle on a gigantic bailout of the Street of Broken Dreams. 'Mo Money will arrive with some conditions attached such as controlling the lavish compensation packages of CEOs participating in the bailout, but fundamental reform of the credit markets probably will not be among the provisions. Politicians in Washington are good at performing symbolic acts, but impudent when it comes to making legislation that solves real problems. The current financial crisis was twenty-five years or more in the making, but the solution being proposed is a merely another temporary fix[1]. John McBush, one of the "Keating Five" but cleared of any wrongdoing, used the crisis as a timeout from the election campaign which is taking a turn towards his Democratic opponent. Not even naive Americans think a suspension of campaigning will help the situation because they understand that McBush is a symptom of the corruption in our political process, not a solution. They found out Sunday that his top campaign staff person, Rick Davis, was not long ago paid $2 million by Fannie Mae to lobby Senator John McCain against 'government intrusion' a conservative synonym for government regulation. According to the Senate Lobbying Database, the lobbying firm of Charlie Black, another of McCain's top aides, made at least $820,000 working for Freddie Mac from 1999 to 2004. The McCain campaign's vice-chair Wayne Berman and its congressional liaison John Green made $1.14 million working on behalf of Fannie Mae for lobbying firm Ogilvy Government Relations. The list of influence peddlers goes on.
[1] the Regime's draft proposal is just three pages long. See it here. The banking industry lobbying group, Financial Services Roundtable, is playing a major role in the negotiations. Democratic Senators like Christopher Dodd are resisting a quick fix without addressing questions of social equity. Dodd wants bankruptcy judges to be able to reset mortgages terms on a primary residence, something they can only do now on vacation homes and yachts. But the Roundtable says including relief for homeowners would be a "deal breaker".

(9/23/08)Lawmakers on Capitol Hill are having second and third thoughts about the repercussions, political and economic, of the enormous bailout under construction for the financial sector. Not since the Depression has the federal government undertaken on such a scale to manage capital markets that again proved unable to regulate themselves. Some Democratic congress members want a quid pro quo for the massive amounts of taxpayer dollars that will be needed to bring stability to shocked international markets in which commodity prices are rising and stock prices are falling. And well they should ask for some control of corporate governance. Heretofore "out of bounds" to regulators under socialized capitalism, it was out of control executive compensation that fueled the drive to originate imprudent home loans, create more securitized mortgage instruments, and take on more derivative risk in the lust for profits. Will the 'party of the people' sell out the middle class and cave in to what amounts to economic blackmail by the rentier class and its slavish adherents of discredited "Reganomics" in Washington? Or will they at last show some spine and demand debt relief for homeowners, re-regulation of the financial sector, and a government say in corporate governance, if not an actual equity stake in companies taking public money? Congress should ignore desperate pleas of failing speculators, proceed with deliberate speed, and get the bailout policy right because all of our fortunes depend on it. Put some social justice in American socialism by investing in real infrastructure and human resources not paper dreams.

Wednesday, September 24, 2008

For the Record with Governor Sarah Palin

"Hold me accountable.....We would never prohibit, or be less than enthusiasitc, about any kind of investigation"--public statement concerning "Troopergate" in July, 2008

"Todd and Sarah are scratching their heads you know...Why on earth hasn't--why is this guy[trooper Michael Wooten] still representing the department? He's a horrible recruiting tool. And, from their perspective, everybody's protecting him....on this issue she feels like it's--she doesn't know why there's been absolutely no action for a year on this issue. It's very troubling to her and the family. I can definitely relay that."--tape-recorded phone call by Frank Bailey, close aide of Governor Palin

Monday, September 22, 2008

Former Enemies Preserve Remaining Forest

Two impoverished African countries who have been entangled in years of tribal warfare have managed to take a positive step toward preserving our planet and its creatures. Trans-national preserves are rare and difficult to establish even between friendly neighbors, but endangered wildlife knows nothing of man's map lines and armed conflict. Rwanda and Burundi signed an agreement on September 10th creating the largest preserve of East African mountain forest, the Nyungwe-Kibira Landscape. The agreement was reached with the conciliation of the New York Bronx Zoo affiliated Wildlife Conservation Society. The society has been working on preserving habitat in the Albertine Rift area since the 1950s. According to experts, the Nyungwe-Kibira Landscape is inhabited by more wildlife species than anywhere else in the Albertine Rift--a network of valleys in Uganda, Rwanda, Democratic Republic of Congo, Burundi and Tanzania that lie alongside some of Africa's largest mountain ranges. The rift is considered a prime conservation area that is threatened by illegal harvesting of bamboo and timber, along with mining of gold and coltan. A derivative of coltan is used in consumer electronics products such as cell phones, DVD players, and computers. The mountain forests are also home to endangered primates including chimpanzees. Conservation officials from the two countries recognized the need for trans-boarder habitat preservation, and by creating the parks are setting an example for the rest of Africa.
[photo credit: ENS/ Nyungwe Forest, Rwanda]

Friday, September 19, 2008

Non-Negative News from Nature

Conservationists and animal lovers have won the legal battle to save wolves from slaughter! The Regime has reversed course on its plan to strip grey wolves in the northern Rockies of their protected status under the Endangered Species Act. You may recall my earlier post {5/8/08} about the temporary injunction issue by a federal district court in Billings, Montana prohibiting states from declaring an open season on wolves. That win convinced an otherwise stubborn administration that it would not prevail in court against environmental groups seeking to continue legal protection for recovering wolf populations. U.S. Fish and Wildlife officials ignored the best available science showing that wolf populations have not fully recovered. This means Wyoming, Montana and Idaho will not be allowed to begin the extermination of hundreds of wolves this fall as part of a massive public hunt-- the first in more than three decades. Over one hundred wolves around the Yellowstone basin were killed while their human friends labored in court to help them. If you helped to achieve this important victory through donations or activism, give yourself a pat on the back and be ready to help again.

Thursday, September 18, 2008

For the Record with Kenneth S. Rogoff

The United States would have to spend 5 to 10 times as much as it already has on bailouts, an amount closer to $1 trillion to $2 trillion--former chief IMF economist writing in The Financial Times today.

Update (9/19/08): Given the magnitude of the crisis and the risk of world wide depression the US government was literally forced to rescue the house of cards that is the 'Street of Broken Dreams' or subject its citizens to years of economic pain. It is not the first time nor probably the last but it is the largest private sector rescue in history, and irrefutably demonstrates that Wall Street is congenitally incapable of self-regulation. The decision to buy up almost worthless mortgage backed securities to provide relief to tottering financial institutions is similar to the liquidation of failing savings and loans in the 1980s by the Resolution Trust Corporation. That bailout of failing S&Ls cost taxpayers $125 billion. Government spokesmen of course claimed that they expect the US Treasury to be paid back, but do not bet on it. The bailout will cost billions if not trillions of dollars, and taxpayers will pay the bill. What I find irksome is that the bailout rewards Wall Street's voracious greed, and imprudent behavior by consumers trying to slice themselves a piece of the wealth pie. Assuming the enormous obligations means less money will be available for social programs like national health insurance that ordinary Americans want. Federal help must come with regulation of the derivatives markets and hedge funds, renewal of restrictions on banking activities and investments, and new stock market speculation controls. 'Deregulator' McBush's suggestion that firing the SEC chairman as a solution is simplistic non-sense. The twenty-five years of deregulation that he, Phil Gramm and other Reagan conservatives championed is what allowed this crisis to occur. Not reimposing controls over financial markets will only cause us to repeat this nightmare in another twenty-five years. So the next time some free market aficionado starts talking about the "miracle of the market" just laugh in his face and walk away.

Hedge Fund Short Sharks Consume Big UK Bank

UK's Market Oracle reports that short selling stock of HBOS (Halifax Bank of Scotland) that began in March [chart] after the bailout of US investment bank Bear Stearns has finally brought down the largest mortgage bank in the United Kingdom. Nearly one in three Britons are customers of the mortgage bank. In an emergency purchase sponsored by the Bank of England, Lloyd's bought out HBOS before it collapsed. HBOS stock crashed 60% in just three days. A similar action was taken by Bank of America when it purchased faltering broker dealer Merrill Lynch and mortgage company Countrywide Financial. The purchased prevented a further deterioration of the bank's precarious condition and a run on its assets by alarmed investors and lenders. However, the bank's stockholders will be the big losers as Lloyd's will undoubtedly pay a distressed price for the bank. Its stock last traded at L1.40 a share. More importantly to the global financial market is that the destruction of so much capital injects more fear into counterparts further restricting liquidity. The Federal Reserve announced another tranche of $180 billion in temporary currency swaps to stave off credit paralysis.

On this side of the pond our biggest thrift, Washington Mutual is looking for a buyer to solve its financial problems now that a private equity group has agreed to a sale. The group advanced the bank $7 billion in return for more shares in April. Since then the group has lost 75% of its equity value. A purchaser will not be easy to find given that the savings and loan has a lot of potentially bad mortgage debt on its books. The S&L originated billions in subprime loans. In July company executives revealed to analysts that it faced losses of $19 billion related to subprime lending. Last summer WaMu stock was trading at $57. On Wednesday its share price closed at $2.10.

Wackydoodle sez: "I sure 'nuff like to meet this feller, Moe Money. I got me a pig I'd like to sell 'em!"

Wednesday, September 17, 2008

Le Shorter: Prognosis Negative

"Risk mangement controls were ignored"--Hank Greenburg, former CEO of AIG

Tulip Time in America

More: Overwhelmed by the global financial consequences of AIG's bankruptcy, the US government relented late Tuesday and agreed to give the failing insurer an $85 billion loan. The action is an unprecedented and historic intrusion on the so-called "free market" at the expense of US taxpayers. Never before has the credit of the United States been extended to a privately owned financial firm on such a huge scale. But because AIG has become a worldwide insurer of esoteric financial instruments, the US Treasury was forced to help it or face the consequences of panic in world markets. Without doubt the notion of "free markets" regulating themselves without government "interference", popular among conservatives in Washington including the current GOP presidential candidate, has been totally discredited by the today's risky intervention. It is probably not the last either. Washington Mutual, the nation's largest savings and loan, is also on the edge of failure. This process of underwriting private investment risk, much of which has been clearly imprudent, with credit backed by public tax revenue is by definition, socialistic. But because the benefit is restricted to a relatively small class of investors it must be fairly termed socialism for the rich.

Update (9/16/08): Things are looking bleak for mega insurer AIG. Talks to rescue the giant firm are up against the hard guy, Mo' money. AIG needs in the neighborhood of $75 billion to meet liquidity and collateral needs, and nobody is coming forward with a handout. Recently the Feds plunked down $29 billion to underwrite the purchase of private investment bank Bear Stearns by JP Morgan Chase. Wall Streeters expected the same sugar daddy treatment for Lehman Brothers. But Secretary Paulson made it clear Monday no more public money should be used to bail out Wall Street firms dying from toxic mortgage shock. None of the private banks in the negotiations, JP Morgan Chase, Goldman Sachs or Morgan Stanley are willing to advance a credit line without central bank backing. New York's governor allowed the insurance company to borrow $20 billion from its solvent subsidiaries in a stock exchange deal, but that is not enough. Credit agencies downgraded AIG's rating last night, triggering collateral calls of $10.5 billion on derivative contracts (credit default swaps) it owns. If the Feds do not relent on not making you pay for Wall Street's greed the company will file for bankruptcy as early as tomorrow. The market impact of AIG going bankrupt could be even greater than Lehman Brothers' bankruptcy since the company became one of the largest insurers of mortgage-backed securities, intertwining it with major banks around the world. AIG sold credit default protection in the form of swaps on $57.8 billion worth of mortgage backed securities. Before now there were few credit defaults, so writing swap contracts was an easy way to make money. Swaps trading has become a major part of the financial system. The unregulated swaps market, which is heavily leveraged, is nearly four times as large as the U.S. stock market ($62 trillion). It touches most every major financial institution, hedge fund, and mutual fund manager in the world. And it has never been tested in a major deflationary crisis like the current one.
[photo credit: Mother Jones. Phil Gramm, co-chair of the McBush campaign and its "Econ Brain" inserted the "Commodity Futures Modernization Act" into a last minute omnibus spending bill in December 2000. The bill passed even against Senator Gramm's expectations. It prohibited regulation of swaps as well as energy trading, thus allowing Enron to run rampant in the California energy market costing consumers billions before it too collapsed. Gramm now works as a highly paid executive at Swiss bank, UBS.]

(9/15/08) Well Kimosabe, the biggest unraveling of the financial sector since 1929 finds the federal government shelling billions of your tax backed dollars into the black hole of the deflating real estate market. The feds did draw a line in the event horizon after saving its stepchildren, Freddie and Fannie, when it refused to buyout Lehman Brothers, the world's fourth largest investment bank. Barclay's and Bank of America pulled out of negotiations to rescue the 158 year old firm when Uncle Sugar refused to pony up any more over the weekend. The feds apparently made the weighty decision to let Lehman go under rather than risk the collapse of the US treasury bond market as foreign investors reappraise the credit worthiness of treasury bonds, and therefore the US dollar in the face of a stream of huge, unprecedented bailouts. Lehman's default on its derivatives exposure, estimated to be $200 billion, will send storm waves through the financial markets swamping its highly leveraged counterparts. Bank of America has bought securities broker Merrill Lynch in a government brokered deal to prevent its collapse. That is the second troubled institution B of A has purchased after buying Countrywide Financial earlier to avoid institutional collapse further shocking the markets. The dirty little secret is that most big western banks are insolvent[1]. So it is likely the federal government will be asked to undertake even larger rescues of financial institutions considered critical to avoiding a world-wide panic and depression, and to make cut rate loans to other distressed industries such as airlines, insurers[2] and auto manufacturers.
Wackydoodle sez: I don't mean to be a "whiner" but all these here "economic adjustments" are a givin' me a "mental recession"!
[1] UK Market Oracle 9/14/08
[2] The New York Federal Reserve Bank is in meetings with American International Group (AIG) the world's biggest insurance company. The New York state insurance commissioner has asked the federal government to loan AIG mo' money. News reports indicate that the Feds have hired Morgan Stanley to review its options concerning AIG. The insurer has lost $18 billion on guarantees of securitized mortgaged loans. AIG stock is down 80% this year.

Monday, September 15, 2008

Zimbabwe Victorious?

South African president Thabo Mbeki announced on Thursday of last week that an agreement had been reached on a power sharing arrangement between President Robert Mugabe and opposition leader Morgan Tsvangirai. Whether this means an end to violence and a return to normalcy in crisis torn Zimbabwe remains to be seen. Much needed foreign investment in the country will depend on it. Fighting in the streets of Harare erupted between the two main factions, Mugabe's Zanu-PF and Tsvangirai's MDC, after the signing ceremony held in a downtown hotel this morning. Riot police broke up the melee after thirty minutes, but MDC supporters remained singing and marching in the streets of the capital. Most observers believe that Tsvangirai will become Prime Minister and chair a council of ministers responsible for daily government operations while Mugabe will remain head of state and chair an executive cabinet of 31. The main sticking point appears to be who will control the army and the feared secret police (CIO). Populated by veterans of the fight for independence and fiercely loyal to former independence fighter Mugabe, it is probable that he will remain in control of state security. Tsvangirai will probably control the civilian police and the prison system. Details of the agreement are to be released today.

Saturday, September 13, 2008

Palin Hates Polar Bears

She has something in common with faux journalist Steve Colbert. Not only is the Alaska governor a climate change denier ("not manmade"--interview with Newsmax.com) but she also objected to listing the polar bear on the endangered species list, a step reluctantly taken by the Regime in the face of indisputable evidence that the rapidly shrinking polar ice cap is impacting ursus maritimus. In fact, according the Anchorage Daily News she misrepresented the findings of her own state biologists supporting the findings in nine studies used by the feds to justify the "threatened" listing. An e mail of October 9, 2007 released pursuant to a public information request by an U. of Alaska biologist shows that state biologists were at odds with the Palin administration over protecting the bear. Palin invoked her state's "comprehensive review" of the federal findings to argue publicly that listing polar bears as threatened was not justified by the available science. The official Alaska disputations are mostly about the accuracy of computer models predicting the future extect of sea ice. Gov. Palin said on Wednesday Alaska will sue Secretary of Interior Kempthorn over his decision. The biologist who obtained the e-mail, Rick Steiner, spent five months trying to release information about the state's decision making on the issue, suspecting state biologists were overruled by political considerations. He told the press,"Even the petroleum-loving Bush administration couldn't find a way around the science on this issue. "This perpetual denial of environmental harm posture is what gives Alaska a very bad image nationally and globally." I won't argue with you, professor. Not only is Sarah Palin unprepared to be President of the United States, she is willing to ignore or twist scientific opinion when it suits her extreme views. Seems we have already had enough of that kind of governing.
[photo: Sow and cubs rest on ice pack in the Beaufort Sea. A federal study shows that most pregnant females are now making their dens on land.]

Friday, September 12, 2008

'Toontime: Hockey Mom?

[ credit: Richard Crowson, Wichita Eagle]

Thursday, September 11, 2008

A Relevant Memorial

Of all the memorials today the one that makes most sense to me because it truly honors the many innocent victims is the one offered by Congressman Dennis Kucinich (D-OH). We are still fighting a war that has nothing to do with the terror of September 11, 2001. The war has everything to do with cynical manipulation of our emotions for geopolitical advantage by an incompetent and yet ruthless administration. I quote Mr. Kucinich:

We suffer in our remembrance of 9/11, because of the terrible loss of innocent lives on that grim day. We also suffer because 9/11 was seized as an opportunity to run a political agenda, which has set America on a course of the destruction of another nation and the destruction of our own Constitution. And we have become less secure as a result of the warped practice of pursing peace through the exercise of preemptive military strength. It is not simply 9/11 that needs to be remembered. We also need to remember the politicization of 9/11 and the polarizing narrative which followed, locking us into endless conflict, a war on terror which has wrought further terror worldwide and which has severely damaged our standing worldwide as an honorable, compassionate nation. As we were all victims of 9/11, so we have become victims of the interpretation of 9/11.

Before the Congress adjourns, I will bring forth a new proposal for the establishment of a National Commission on Truth and Reconciliation, which will have the power to compel testimony and gather official documents to reveal to the American people not only the underlying deception which has divided us, but in that process of truth seeking set our nation on a path of reconciliation.

Bad News for Salmon Lovers

The most detailed and comprehensive survey of North American freshwater fish in twenty years led by scientists from the US Geological Survey shows that 40% of freshwater species are in jeopardy of eventual extinction. Some of the fish families suffering declines include popular sport and food fish such as sturgeon, salmon and sunfish (which includes some bass species). The survey was conducted by a team of scientists from Canada, US and Mexico, and their results published in the journal, "Fisheries". Not surprising the reasons offered for the population declines are over-exploitation, loss of habitat due to human activity, and the introduction of non-native species. The fish at greatest risk are salmon and trout of the Pacific Coast and western mountain regions. [interactive map]. More than 60 percent of the salmon and trout had at least one population or subspecies in trouble, the report shows. Overall 280 species are counted as endangered and 190 considered threatened. ENS quotes USGS researcher and lead author Noel Burkhead as saying,"Fish are not the only aquatic organisms undergoing precipitous declines. "Freshwater crayfishes, snails and mussels are exhibiting similar or even greater levels of decline and extinction."

Wednesday, September 10, 2008

In the Path of Ike

Americans (61%) seem to want more offshore drilling and Big Nancy Pelosi is ready to accomodate them with a vote on opening the southeastern coast to offshore driling with some major strings attached like eliminating $17 billion in tax subsudies, but look at this graphic from Oildrum.com: The red line is the projected path of hurricane Ike as it moves into the central Texas coast. Red spots are rigs and platforms that will be damaged or destroyed by the hurricane. Blue spots are installations that will require evacuation and green ones are one that need to be shut in. Yellow are those requiring inspection before restarting. It does not seem to make a lot of sense to put 6% of the global refining capacity in the path of frequent and intensifying hurricanes.

Tuesday, September 09, 2008

Le Shorter: What the People Want

According to prominent national pollster Al Quinlin of the firm Greenburg, Quinlin Rosner there is no bigger issue in the election than America's energy policy. Americans correctly see that policy touches our security, our economy and even "the American way of life". In Quinlin's national polling on the subject, 81% of Americans think that our energy policy is on the wrong track. The top scoring policy options in order are: investing in solar, wind and ethanol technologies; developing environmentally friendly cars; developing new fuels for transportation. Other popular policy options are clamping down on oil speculators and ending tax subsidies to big oil companies. At least one presidential debate should be devoted solely to this critical subject.

Winning Hearts & Minds

One of the case study titles in General Petraeus' heralded staff re-write of the Army's field manual on counterinsurgency is, "Lose Moral Legitimacy, Lose the War". It seems that the US military personnel fighting the forgotten war in Afghanistan failed to read that case. High civilian casualty incidents due to indiscriminate fire are increasing as a result of renewed enemy strength. But the US and its NATO allies are indeed in danger of losing the war by further alienating the Afghan people and motivating assistance to the Taliban and Al Qaeda. In seven days of bombing attacks at the beginning of the war from October 11, 2001 to December 1, 2001 the US caused the greatest number of recorded civilian deaths :

  • October 11th- the farming village of Karam in Nangarhar Provice is bombed. 60 houses are destroyed and 160 civilians killed. The village had a population of 450;

  • October 18th - the central market of Sara Shamali in Kandahar is hit killing 47;

  • October 21st- a cluster bomb hits a military hospital and mosque in Harat missing the intended target of a military barracks, killing about 100 civilians;

  • October 23rd- 'Spooky' gun ships tear apart two farming villages north of Kandahar killing 93 civilians;

  • November 10th-the villages of Shah Aqa in the Kahkrez district are bombed causing perhaps as many as 300 civilian casualties;

  • November 18th-carpet bombing by B-52s kill a least 100 civilians in the province of Kunduz;

  • December 1st-B-52s dropped 1,000lb bombs on the village of Kama Ado during the attack on Tora Bora, 10 hours away by foot. Village elders say 156 of the village's 300 residents were killed.[1]

During the latest large scale incident on August 22, 2008 90 civilians were killed when US Special Forces called in air support including a AC-130 'Spooky' gunship [photo] sortie on Azizabad village in Herat province after a patrol searching for a Taliban commander, Mullah Siddiq, was ambushed. At first military spokesmen attempted to minimize the death toll to seven civilians, but a doctor's mobile phone video emerged showing about 40 bodies. The US military cited an embedded news correspondent for its wildly inaccurate death toll. The correspondent was none other than Fox Spews' Oliver North of Iran-Contra fame! [2] Despite the outrage over the mounting "collateral damage", NATO commanders seem unwilling to alter their air war tactics against a resourceful enemy embedded in a largely rural population living in mud brick huts, or risk more casualties to their infantry in ground operations against them. Human Rights Watch said in their latest report on civilian deaths due to coalition air operations, "There has been a massive and unprecedented surge in the use of airpower in Afghanistan in 2008. In response to increased insurgent activity, twice as many tons of bombs were dropped in 2007 than in 2006." After the release of the report, two more civilians were killed and ten injured in Sabari, Khost province when a malfunctioning weapon missed the intended target by about two miles.
[2] This is an example of Col. North's "impartiality" from the June 8,2004 edition of The Sean Hannity Show. NORTH: Every--every terrorist is hoping John Kerry gets elected. I'll say it. Every terrorist out there is hoping John Kerry is the next president of the United States.

Monday, September 08, 2008

12 Steps to Financial Armagedon

Professor of economics Nouriel Rubini has been the "Chicken Little" of the current economic crisis, warning of a possible catastrophic meltdown in the financial markets as a consequence of mortgage lending gone wild. Unfortunately for us, he has been remarkably prescient in his analysis. It's worth looking at his latest pronouncement in a letter to The Market Oracle. He sees the Federal Reserve's repeated intervention[1] to pump more credit into the market as an increasing concern that a deepening recession could lead to more financial losses thereby making recession more severe in a vicious deflationary spiral. The wholesale government seizure of the federally chartered mortgage institutions Fannie Mae and Freddie Mac[2] to prevent their total collapse is only one symptom of such a catastrophic deflation. Rubini identifies twelve stages in an extreme but increasingly probable economic scenario:
1. Between $4 and $6 trillion in household wealth will be wiped out in the continuing real estate price deflation. About 2.2 million foreclosures will result and 10 million homeowners will be "upside down"--mortgage debt exceeding equity.
2. Financial loses will spread outside the subprime lending sector now expected to result in losses of $250 to $300 billion. This is so because about 60% of US mortgages originated between 2005 and 2007 had "toxic" features similar to subprime lending. Total mortgage credit loses could reach $400 billion or more according to Goldman Sachs. Securitization of toxic mortgage loans spreads the virus to international capital markets, thereby constricting liquidity on a global basis.
3.The worsening recession will lead to defaults in unsecured consumer loans--credit cards, auto loans and student loans--spreading the credit crunch to smaller banks and lenders. Less consumer credit results in less consumer spending, one of the main drivers of our national economy.
4. Monoline underwriters--insurance companies that specialize in bond default insurance--are experiencing severe losses, and the losses will be higher than the current $10-$15 billion private rescue package being put together by regulators. Inevitable credit downgrades of monoline companies will lead to losses in money market funds that invested in them.
5.The commercial real estate loan market will follow the subprime market into meltdown since the loan standards were just a reckless.
6. Some large regional or national banks exposed to toxic securitized loans will go under. Northern Rock in the UK has already been taken over by the government. Countrywide Financial in the US was bailed out with a $55 billion loan from the FHLB, a quasi-public system for funding mortgage lenders [3].
7.Because of banks' inability to shift their high leverage loans through securitization or syndication, they are stuck with billions of such loans on their books at well below par. Losses from reckless leveraged buyouts will mount.
8. A severe recession will result in a tsunami of corporate defaults--above 10% compared to the usual 3.8%
9. What has been referred to as "the shadow banking system" or non-bank financial institutions like hedge funds, money market funds, investment banks, and securitized investment vehicles are exposed to market and credit risks but without the ace card of access to the central banking window. As a result these institutions will go bankrupt as they are increasingly unable to refinance their risky investments.
10. The market will begin pricing a severe recession probably after the traditional year-end rally. Long margin calls will go off leading to another round of stock shorting, increasing its downward slide. The bear market will persist with the S&P500 down about 28%. Some hedge funds with long equity positions will fail.
11.The liquidity crunch will finally reach the derivatives markets. Inter-bank lending will also dry up despite massive infusions of capital by governments.
12. The vicious circle of defaults, write-downs, credit contraction, capital reduction and forced asset sales below fundamental values will feed further contraction and losses [4]. The trigger for the next round of pain and consternation will be the credit downgrading of monoline insurers and the ensuing drop in the equity markets. Sovereign wealth funds will be unable to counteract the huge losses due to the moves from off-balance sheet to on-balance sheet and from shadow banking to formal banking-- a process termed credit disintermediation. Sovereign wealth funds have already injected $80 billion into the international system so far. Panic will spread as a number of large and systemically important institutions (like the two we have seen so far) become insolvent. A stock market crash could occur like the one in 1987 further exacerbating distress. As the Professor puts it, "In this meltdown scenario US and global financial markets will experience their most severe crisis in the last quarter of a century."
[1]Besides lowering the discount rate, every other step the Fed is taking is an attempt to regain control of the financial system: Term Auction Facility (TAF);Term Security Lending Facility (TSLF);Primary Dealer Credit Facility (PDCF); approval from Congress to buy unlimited government stakes in Fannie Mae and Freddie Mac stocks and bonds; waiver for private equity firms to invest in banks; suspension of FASB accounting rules for a year.
[2]$5 trillion of Fannie and Freddie debit, whatever book keeping tricks are deployed, is now US government debt against which illiquid housing stock and derivatives are set against. Therefore the US debt has effectively now doubled
[3] According to a former Bush advisor, the FDIC is expecting 95 bank failures in 2008. Nine have failed so far. The latest is Silver State Bank of Nevada. John McCain's son, Andrew, sat on its board of directors until July. BankUnited Financial Corp. is also in trouble. BankUnited is Florida's largest bank with 85 branches in 13 counties with total assets of $14.2 billion. In the first three quarters of last year, it reaped a profit of $23.2 million. The first three quarters of 2008 showed $200 million in losses. A huge 58% of the bank's "assets" are option ARMs. Nonperforming loans have soared 1,964%. The bank's stock price is down 91%.
[3]Respected financial guru Richard Russell (Dow Theory Letters) has similar concerns: “...the markets are telling us to prepare for hard times, and a global spate of the worst deflation to be seen in generations ...sophisticated money is cashing out, raising cash, preparing for world deflation. This is why gold has been sinking...why stocks have been falling. What I see is a coming world deflation."

Sunday, September 07, 2008

Le Shorter: US PERSON Angry?

What makes you say that, Mr. Bush? Perhaps we are "angry", as you dismissively phrased our evident concern and frustration in your convention video performance, because we do not wallow in delusion or engage in constant "happy talk" deception. We have the courage to face our nation's serious problems, both foreign and domestic, and to work towards solutions as progressives. I suggest that this is a much more adult approach to life than re-running "Ozzie and Harriet" in a continuous loop for the last 35 years.

Friday, September 05, 2008

'Toontime: Charlatan Says

[credit: Dwane Powell]
"I told ya, Shaz to keep your fingers crossed at the same time."

Thursday, September 04, 2008

Scorecard: Labor Still Loosing

I gave a speech in support of John Kerry at a local union hall back in '04. My title was "Downhill since Nixon". What I meant by that clever meme is that the middle class has been suffering a thirty-eight reversal of fortunes in terms of its relative standard of living and real wages. There was an upward blip during the Clinton years, but the trend has been overall downward. In other words, the rich are getting richer. Senator Obama is correct when he says that economic issues will decide this campaign because Americans tend to vote their pocketbooks, and there are a lot more middle and working class people in this country than rich folks. This probability should not give the Republicans cheer even if the issue distracts voters from the novelty of Governor Sarah Palin. Rutgers University just released a scorecard for labor that shows the median weekly earnings for American workers have not grown in real terms over the last eight years. Despite a very modest increase in the federal minimum wage to $6.55 during the eight years of the Regime, that wage is 40% less in inflation-adjusted dollars than it was a decade ago. 530,000 workers were subject to mass layoffs in the last years, a growth in numbers of 5%.

The economy as a whole is also doing poorly. The next president will face a record size $482 billion deficit in the federal budget or about 3% of the national economy in 2009. That percentage is smaller than the deficits of the late 80s that forced President Bill Clinton to renege on campaign promises and increase taxes to reduce the deficit. He did, however, leave office with a balanced budget and a robust economy. The ultimate size of the deficit is dependent on the nation's economic performance. Right now the US is experiencing a real estate market meltdown. Not since the 1930's has the U.S. had real estate deflation like the nation is experiencing now. As many as 1 in 15 homes are affected in especially hard hit markets like California, Nevada and Michigan. Some neighborhoods resemble ghost towns with rows of empty suburban homes. The subprime crises is fundamentally the result of free market aficionados deregulating the banking industry. In the end the crisis is expected to cost the real estate industry $1 trillion. Another sign of a stagnant economy is the rate of job creation. The US has the lowest rate of job creation in 40 years: 2.9% according to the Bureau of Economic Research. So much for the Charlatan's legacy: an expensive foreign adventure we did not need and stagflation to boot. Thank you, Mr. President. Is it any wonder John McCain does not want to be seen on the same stage in St. Paul?

Wednesday, September 03, 2008

Palin Past Under Scrutiny

Since McBush could not be bothered to vet Gov. Palin, the media and the Democrats are digging furiously into Sarah Palin's past. So far the best nugget seems to be the fact that her seventeen year daughter, Bristol, is expecting a child. A potentially damaging affiliation with the secessionist Alaska Independence Party has been denied by an AIP party official. But another official says Palin attended an AIP convention. Mark Chryson, chairman of the AIP from 1995 to 2002 -- told ABC News that "Palin was at the convention in 1994. She was there. Whether she was a card carrying secessonist Chryson cannot say. "She may have been, I do not know," he said. Their records don't go back that far. Her husband Todd was a member from 1995 to 2002, but has since dropped his affiliation. Palin's former evangelical church is also feeling the heat and glare of national media attention. The Wasilla Assembly of God church shut down its website Wednesday, saying that its server could not handle the traffic. The site contained speeches of the Pastor, Ed Kalnins, and a video of a speech delivered by Sarah Palin to a graduation ceremony in June. However, Huffington Post has posted parts of her speech on its site. In the speech Palin asked for prayers, "that our leaders, our national leaders, are sending [U.S. soldiers] out on a task that is from God. That's what we have to make sure that we're praying for, that there is a plan and that that plan is God's plan." Sounds like crusader talk to me. The photo is of high school varsity hockey player Levi Johnson, who describes himself on his My Face page as a "f**ckin' redneck" and who "will kick ass" if you mess with him. He fathered Bristol Palin's illegitimate child. Wackydoodle inquires: "He's a red blooded 'merican alright, but does he know anything about them furin affairs?"

Tuesday, September 02, 2008

'Toontime Extra: Deja Who?

Obama: "I don't have time for small politics."

Monday, September 01, 2008

McBush's VP Pick

Update: According to the London Times, John McCain met Sarah Palin only once before offering her the opportunity to run for Vice President of the United States on the Republican ticket. She flew into Flagstaff, Arizona last Wednesday where she also met Cindy McCain before being offered the position. Palin met McCain briefly at the National Governor's Conference in February. The Republican nominee is taking an extraordinary gamble on the choice of Governor Palin, and many in his party are openly questioning the thinking behind it. Obviously his choice is an effort to capitalize on the alienation of feminist voters who wanted Hilary Clinton on the Democratic ticket. But even women appear to be divided by the selection given Ms. Palin's embarrassingly shallow experience in high elected office. Because of McCain's advanced age and past four bouts with cancer, many voters feel that McCain needs a running mate who could step into the Oval office and beginning running the country immediately should that be necessary. Democratic partisans think McCain's unusual choice of running mate demonstrates his impetuous--some critics say volatile--temperament that makes him unsuited to be president. Judging from his acceptance speech, Senator Obama intends to exploit this meme in the campaign's final days. How the consumate Washington insider, Joe Biden, will handle the novice but appealing Governor Palin during the single debate for the vice-presidential candidates will be an awkward and interesting interaction to watch. If you think the debate will be a walkover on national security issues, Cindy McCain reminded us all on national television that "Alaska is the closest state to Russia". Only in America. [ upper photo: AP]

WHO? and WHAA? Think Obama is a cypher--what about a first term governor of Alaska who's previous elected office was serving as part-time mayor of an Alaskan village of 8,500? Still McBush's shocker pick is better than tapping Traitor Joe, and shows he is willing to go for broke. Gov. Sarah Palin, a former beauty queen and mother of five minor children, is under investigation for abuse of office. The investigation concerns whether she improperly pressured the state safety commissioner to fire a state trooper involved in a contentious divorce with her sister according to the Anchorage Daily News. ("Troopergate")
[photo: Miss Wasilla 1984, Anchorage Daily News photo archive]