Weekend reading

July 18, 2009

The US-China Ponzi scheme
by Jon Markman

By unwittingly tying together their fortunes as they pursued their own interests, the 2 nations have put themselves on an economic path of mutually assured destruction.

Over the past decade, Americans were able to outspend their incomes by easily rolling their debts forward through serial home refinancing. The situation was never ideal, but it worked as long as the value of their collateral — their homes — kept rising.

Madoff clients’ households crashed, and now one-time millionaires are broke. The reality is that they were always broke; they just didn’t know it yet.

“People need to realize that China doesn’t actually have any real U.S. money,” Das says. “Unless they can turn in their bonds and exchange them for something else, they’re only paper assets. Yet if they try to exit the position, they’ll destabilize the dollar, and the value of the rest of their assets will plunge. And that’s not even their biggest problem. It’s that they also need to keep buying Treasurys, or interest rates will go up and their capital losses will be terrible.”

In short, Das says, Beijing thought it had discovered the perfect scheme for establishing independence from the West, yet it has instead made its dependence worse than ever. And he observes that one unspoken reason that China has gone whole-hog on its massive, $650 billion fiscal stimulus program — creating more factory capacity in a country that is already reeling from overcapacity — is that the effort gives it cover to stockpile copper, oil, iron ore and other hard assets that it considers to be better stores of value than dollars.

There is only one solution left: a long, slow, boring, lonely, soul-crushing process of digging out from under the piles of debt that got us into this mess.


The Seigniorage Curse
by Gregor MacDonald

Another country that now looks quite arrested in its development is the United States. But not because of an Oil Curse. Rather, the United States appears to have finally succumbed to its multi-decade “advantage” via dollarization. In dollarization, the US Dollar has been the world’s reserve currency, and the United States economy has “enjoyed” the freedom to borrow and print ad infinitum without the usual penalties.

Seigniorage had allowed us to stop earning our living, and eventually we “bundled up and packaged” our real estate. Interestingly, it’s only in the aftermath of the burst housing bubble that we observe how many Americans are being ‘forced to sell” their homes. In fact, Americans had already sold them.


Washington’s Dilemma: This Isn’t a Recession, It’s a Collapse
by Gregor MacDonald

Nothing in the public record since the year 2000 indicates that Larry Summers, Ben Bernanke, or Tim Geithner understood that we had been building a skyscraper of private sector debt in textbook blow-off style, since the deflation scare of 2001. Now, two years after FED repair operations began on the broken credit system, and over 3 years since US real estate topped in price, major portions of the country are staring at further home price declines in most major markets. Indeed, it appears that the same macro cycle of the last two Autumns is about to repeat, with more waves of foreclosure, more withdrawals from savings and investment to pay for living expenses, and the attendant bailouts of financial institutions that comes around each time.

[Seeking Alpha]

“Free is coming to an end.” -Gregor MacDonald


Max Keiser takes offense to Goldman Sachs story

July 17, 2009

Part I

Part II

But but but… I thought “well-capitalized” meant something

July 16, 2009

“Even as CIT Group Inc. teetered near collapse this week, neither the company nor its overlords at the Federal Reserve Board ever backed off their official position that the struggling lender was “well capitalized.”

“Coming from the world’s most powerful central bank, that designation used to mean something about a company’s financial strength and ability to absorb losses. Not anymore.

“Investors watched yesterday as yet another major financial- services company angled for a government bailout — this time unsuccessfully — while still sporting U.S. banking regulators’ highest capital rating. It’s a sure thing CIT won’t be the last.

“By labeling almost all its loans as investments instead, CIT got to avoid writing them down to market values.

“So, for capital purposes, the only difference between an insolvent CIT and a well-capitalized CIT was a mere utterance by management that it planned to keep holding the loans. No wonder so many zombie banks continue to roam the country. All they have to do is wish away their ruin, and the rules let them.“

“Most banks that failed during this crisis were considered well capitalized just prior to their failure.” -U.S. Treasury Department’s 88-page report outlining its regulatory overhaul plans


10:50 US Senator Bunning says FDIC’s Bair said up to 500 more banks could fail – DJ

DJ reports FDIC Chairman Sheila Bair believes up to 500 more banks could fail, a U.S. senator said Bair told him in a recent meeting. “She told us that unless something dramatic happens, we could lose up to 500 more banks,” Sen. Jim Bunning, R-Ky., said Thursday at a hearing of the Senate Banking Committee on the foreclosure crisis. Bunning said Bair made the remarks in a recent meeting. “That means that people who make mortgages in local places …. people that could really help in a foreclosure will not be there,” Bunning said.

[DJ Newswire]

“If you can’t be just, be arbitrary.”  -an Orange County Traffic Court Judge

Janet Tavakoli Q and A

July 16, 2009

More with Janet Tavakoli.

The future is so bright I gotta wear shades

July 15, 2009

So if you subtract out the US taxpayers ‘contributions’ to Goldman Sachs, they actually LOST $15 BILLION (18.4B – 3.4B).

That whiny little bitch Kenny-boy Lewis should be ousted as CEO because not only did he back the fuck down when threatened with losing his job over rescinding the ML acquisition- a weak bluff by Paulson I might add- but get this, even when he knew it wasn’t a good deal for shareholders, he didn’t stand up for shareolders. Why should shareholders keep him on board? But then whadoo I know, perhaps all CEOs are whiny little bitches instead of the masters of their respective universes when they gots to make the really tough decisions.

Boo-fucking -hoo Kenny-boy II.


Hmmm. let’s review the state of things:

Consumers are tapped out
Malinvestment in paper instead of productive businesses
Unemployment heading for 15%
Households only deleveraged from 133% to 128% (still way too fucking high)
Government spending propping up GDP (tiger eats own tail film at 11)
Wages and weekly hours performed both shrinking
Delinquencies, defaults, bankruptcies and foreclosures are all up, up. up
Debt-deflation for the forseeable future
Tax collection far below expectations for the foreseeable future (raising it won’t help)
State budget failures
An adminsitration that wants to stifle free speech
Redonkulous Republicrats vs. Democans  partisan bickering (that includes Mike Whitney)
No reform in financial markets
TBTF still the operating mandate
Banks have more than a $1 trillion in toxic assets on their balance sheets
Regulators still MIA (Hmmm I thought GS was no longer an IB? WTF this is GS they get to make their own rules)
Nothing has been fixed (“let’s set ’em up so we can knock ’em down again! I’m not rich enough yet!”)
Bubble economics is still preferred by policymakers 10:1
Still no plans to create a public exchange for deriviatives

..and the list just gets longer. [Mike Whitney]

After the stimulus, then what? Another stimulus? You gots to be fucking kidding me.

Bubble meter

July 13, 2009


Full Spectrum Dominance

July 13, 2009

Part I

Part II