Psst! Timmy.I think we have a problem

This monster on the left is supposed to be a hydra headed monster, a metaphor for the dangerous silliness going on in DC. You thought the banks were insolvent because the real estate market tanked because immigrant strawberry pickers were falling behind on their San Joaquin Valley mcmansions after their ARMs reset. Well actually it’s a little more complicated than that. George Soros the other day dropped a bomb predicting a big drop in commercial real estate in the US but actually ComRE has been imploding elsewhere. One of the German Government’s early bailouts was a real estate firm. So I decided to try to find out the percentages of loan composition on these banks balance sheets and this is what I found:
Residential mortgages account for only about one quarter off their loan portfolio(26%).
Commercial,Industrial, non farm nonresidential and construction loans amount to 40%. Public anger is growing to more bank bailouts and a drop in the value of banks commercial loan portfolios could trigger the next grand mal seizure in the banks not to mention in any derivatives or SIVs tied to commercial real estate. Hello AIG! Don’t Ask! Meanwhile over in Europe ahead of the G20 meeting in London, the President of the EU, Mirek Topolanek yesterday said the Obama economic policies are putting it on “The Road to Hell.” My sentiment exactly.


The Summers/Geithner Burka

I have spent the past 2 days looking at Trashy Tim’s latest regurgitation of Horrible Henry’s failed TARP program and the long blog I wrote examining the pros(none) and the cons(many) so depressed me that I sent it to my digital landfill and I will now try again. If you were hoping that that ill stared Obama Economic team might finally come up with a credible and fair plan to address the financial crisis, you had better think again. Henry Paulson’s plan was bad but it was 3 pages and it was pretty clear. This plan of Geithner and summers is anything but clear. It is vastly complicated and I think a disingenuous obfuscation designed from the outset to confuse and obscure what it is: a gussied up cash for trash program which is yet another attempt to bail out the banks and foist the losses on the taxpayer . We are early in the economic depression of this country and you have to keep in mind that we have a real hydra headed monster on our hands. This particular stupid plan is more than a pig with lipstick, It is a pig with lipstick under a burka. It is a way to avoid bank nationalization and prop up insolvent banks. It involves setting up yet another government entity to buy up nearly worthless toxic debt held by banks. In yet another end run around congress and the American people, it involves dragging in a a heretofore solvent FDIC to be its pimp.It would create a “public/private partnership” using very little private(3-7% it seems) and the rest taxpayer money loaned at low interest to private equity firms and hedge funds in a hokus pokus scheme to try to talk up the prices of this trash by a mysterious auction process . You see the banks are insolvent if you pay 30 cents on the dollar for this trash and some are probably insolvent even if you pay 60 cents on the dollar,which is what the banks think a lot of them are worth. So there is a spread between what the market thinks and what the banks think they are worth and Geithner wants this “partnership” to pay what the banks want rather than what the market wants. To attract the hedgies he has structured it so they get most of the upside and the taxpayer gets most of the the downside. The loans to the hedge funds are non recourse loans as well which is what the hedgehogs wanted, meaning that the loans are secured by the asset(ie., the trash). It looks like it was written by the hedgehogs for the hedgehogs. This plan has Larry Summers fingerprints all over it. You may recall he was fired from the Presidency of Harvard for degrading and derisive comments about women. Where did he go for his next job? To DE Shaw, a big NY hedge fund.
People of the United States! Wake up! Your government has been and is still being run by and for the moneyed and financial interests of Wall Street and the Banking and financial fat cats who care not at all for the economic future of your children. These people , the Treasury and the Fed ARE the government. Even the Congress is powerless and of course the congressmen in the important Banking and Finance committees get the bulk of their campaign contributions from banks,insurance and real estate interests. And the really really sad thing that hit me is that Barak Obama in this financial debacle is George Bush in blackface, just like Al Jolson. His whole election is starting to look like a fraud. Virtually nothing has changed at the Fed and at treasury. Geithner’s plans and Summer’s plans are Paulson’s plans. Bernanke’s plans are Greenspan’s plans. If Obama goes along with these Wall Street insiders in his economic cabinet, his presidency is doomed.
I was delighted to see a picture of Barak’s pretty wife with a rake or hoe turning over sod for the white house garden. As I looked at that picture, it occurred to me that the country voted for the wrong Obama.

Apocalypse Now

America, you are being had! You are being played like a tin kazoo. The AIG bonus babies are fleeing to the four corners pursued by IRS Suburbans as the 535 Washington clowns spout their phony outrage at $218 Million while they cover up their complicity at handing out $170 BILLION to Hank Paulson’s old bank and a collection of his European friends. The economic Keynesian national destruction continues in the beltway with the looting of the treasury led by Barak’s economic imbeciles. I wonder when the American People will wake up and realize that they are not citizens in a democracy but serfs of the Federal Reserve Banking Globalized World Government circa 1984. The latest news continues to worsen with the Fed Printing Reichsmarks at a torrid pace so they can buy more trash for cash from Freddie and Fannie as well as buying up Treasury Securities. It is a futile effort to stave off more asset price destruction and thus give the banks some breathing room , wishful thinking that these primarily real estate “assets” will stop losing value and finally these insolvent banks can resume lending and thus jump start John McCain’s American Dream. If I am reading Bernanke and the boys correctly, I think they still believe that the problem is a liquidity problem when it is almost certainly a debt problem. It seems so clear to a financial neophyte like myself. Why is it not clear to them? In the good old days of course the government would borrow to fund its deficit spending by peddling T bills to China and Japan to raise money but now it funds its deficits by buying its own debt to fund its deficit spending. Try to wrap your mind around that. We are living in a Keynesian Bizarroworld that even Jon Stewart cannot joke about. The CBO says the deficit will be more like $2 Trillion instead of a measly 1.75 as Barak promised. Oops. This rescue of the world’s biggest debt machine by yet more debt creation is insanity on steroids. The world is starting to think we are nuts. And they are right. The German Economics and Technology Minister was on PBS last night and he was at a loss for words when Paul Solman asked why Germany wasn’t spending more on stimulus like the good old US of A. European Industrial production fell 17.3% from Jan “08 to “09. Debt is imploding worldwide at the fastest rate in probably world history and Baraks bright idea for change is to create more debt? The dollar is dropping like a rock reversing a recent rise against other fiat currencies . The Administration is of course led by President Benanke and his Knights Templar at the Fed and they are well on their way to destroying what’s left of our economy printing digital money to buy up nearly worthless minimally negotiable mortgage securities to prop up a still overpriced real estate market. A 30 year mortgage of 1 % is too high if the house is overpriced. This will likely be the greatest depression of the last 150 years and the actions of our government by propping up insolvent enterprises is just delaying the inevitable rebuilding process and ultimately making it so much worse. We had massive asset price inflation fueled by the Greenspan Fed with banks leveraging their toxic mortgage “assets” and these assets are still dropping in value like a stone reverting to a true value and pulling the over leveraged bets and derivatives of financial institutions worldwide into a black hole. In the next year or two the American people will be needing money to eat and stay warm and where will the money for that come from? Somehow, SOMEHOW the American people need to grab these misguided greedy wall street bankers and their beltway politicians by the lapels and slam them up against the sheetrock and demand that they get it! It may take a French Revolution of sorts for that to happen but it could be closer than you think. The bankers and politicians have no shame, no guilt and they have destroyed the economic system of the world. In 1789 bankers and lenders were dragged from their mansions in France and torn to pieces by the mob. I would like to hope that our society has advanced sufficiently that this would not occur here but these folks need to be named and punished and the absurd spectacle of actually rewarding them really triggered a raw nerve in the lethargic mystified American public this week. I think this financial Armageddon could morph into a political Armageddon of retribution against the politicians and financial rogues who have so utterly destroyed America’s economic future.
There are far better ways to to mitigate this Depression than dragging bankers out of the Goldman Sachs Building and kicking their ribs in. Unfocused anger is potentially very destructive to a society and as imperfect as our political system is, it just may be possible to force our politicians to do what is needed. Here are my suggestions.
1. Force the banks and insurance companies and mortgage companies to do an honest accounting of their assets and debt. No bank can lend to another bank if they don’t know if that bank is solvent. Close them or nationalize them if they are insolvent.
2. Declare a moratorium on lending ANY more money to any financial entity, any commercial entity for a period of time, say 90 days. This will stop the rush mentality of doing something/anything(!) in Washington.
3. Stop foreclosures for 1 year. Offer the former inhabitants the ability to rent their homes at prevailing market rate.
4. End all collateralized debt obligations and regulate or abolish derivatives and hedge funds.
5. Capitalize solvent banks as needed and institute the same kind of banking regulations as were repealed by these same banking interests in the 1990’s.
6. End all business tax deductions for companies moving headquarters or production abroad.Have a national goal to return the US to a manufacturing economy.
7. Develop a crash program to provide a national transportation system of electrified rail, not high speed rail. Electrified Rail is a vastly cheaper and sustainable way to move cargo and people than our ribbons of asphalt and concrete with their short expensive life expectancy.
8.Nationalize Health Care like virtually every developed country in the world.
9. Bring our military home and close the 1000 odd overseas bases. Use our military to defend the country not defend globalized corporate interests.
10. Reduce energy consumption of all types by tax policy and conservation . Cap imported oil
use at a level similar to other developed economies. Most of the developed world use 30 to 50% of oil per capita as we in the US.
11. Barak Obama seems to be a diligent and intelligent president but he is getting horrific advice from a deeply flawed sector. Flood the White House with mail and email. Plant some doubt in his head that he just might be on the wrong course.Send mail to Michelle. She may whisper in his ear. If he is as smart as I think he is, he may yet figure out better options on his own.

American Democracy is Dead

Anyone who has seen “Shane” will recognize the backdrop as the Grand Tetons. The three well dressed men smiling and joking with each other are possibly among the most dangerous men on earth. They undoubtedly do not have that perception of themselves. They look relaxed because this is the look of the cognitive dissonant Federal Reserve male at rest. The guy in the tan blazer is Don Kohn, vice chair of the Fed. I think you know the other two, clueless Tim and dangerous Ben. They are attending the Jackson Hole Economic Symposium last August. The theme was “Maintaining stability in a changing financial system.” They are just weeks from taking the first steps in the destruction the economic future of our children. They will testify before Congress in September that they will provide transparency. They lied and they covered up and they concealed. Meanwhile over at AIG there was no stability being maintained so Ben and Hank Paulson said the US taxpayer needed to rescue the world’s largest insurance company because it wrote Credit Default Swap insurance to someone and now the claims were being filed and there was nowhere near enough money on hand to pay those claims. So now the US taxpayer had to pony up and pay those claims. Whaaaat? Gretchen Morgenson of the NY Times reported that Ben and Hank and Goldman Sachs met in September to bailout Hank Greenberg and his 350 man financial services arm of AIG over there in London. The people who paid their insurance premiums now wanted their money and the world’s largest insurance company had no way to pay them. And who was filing these claims that Hank Paulson wanted to rescue? Hank refused to say because revealing their names could harm their businesses. One was certainly obvious: Goldman Sachs. Hank’s old employer had to be one of the counterparties. If this sounds like a gigantic conflict of interest to have Hank’s old bank present at the negotiations, you are right and it shows how utterly corrupt our political system has become. The powerful banking and insurance interests have kidnapped and hijacked the US political system and it should have been obvious to anyone, but little was said at the time in our equally co opted media. The counterparties were paid off in secret and Ben and Hank steadfastly refused to reveal their names. Two days ago Don Kohn was still refusing to reveal those names but yesterday the Wall Street Journal somehow obtained the names of the counterparties and no surprise, they are the names of the largest and most powerful US and European banks, some of whom are already insolvent. Here is the list:

Covered Counterparties

Some banks that were paid by AIG after it was bailed out by the government

  • Goldman Sachs
  • Deutsche Bank
  • Merrill Lynch
  • Société Générale
  • Calyon
  • Barclays
  • Rabobank
  • Danske
  • HSBC
  • Royal Bank of Scotland
  • Banco Santander
  • Morgan Stanley
  • Wachovia
  • Bank of America
  • Lloyds Banking Group

Source: WSJ research

If this bailout of world banks by the US taxpayer makes you furious, it should. We as taxpayers must find some way to make the Fed and the banks accountable. It’s time to flood our representatives with letters demanding an end to this unimaginable bailout of world banks. How can this be happening? Their power must be restrained if we are to have any chance of saving what shred of our democracy that remains. I see no way except to abolish the Federal Reserve System and start from scratch with a new agency who is accountable to the citizens of the United States.

America:Cognitive Dissonance on Steroids

I’ve been falling behind a bit on my blog trying to study the Panic of 2008 and I find myself returning again and again to either pictures from the Great Depression like this gem by Margaret Bourke-White from 1937 or images of lying and liars . But the thought hit me the other day after watching Ben Bernanke in his latest committee appearance. In response to a question from Ron Widen of Oregon , he said if there was one thing that had made him mad, It was AIG. Ben said that the world’s largest insurance company had morphed into a giant hedge fund that happened to sell insurance. It may have made him mad but it didn’t stop him from adding another $30 Billion to the $150 Billion already shoveled at AIG. He slipped and dodged and feinted like Crazy Legs Hirsch(remember him?). Where is the money going to at AIG? To Whom? Why? Can’t say. It might impair confidence. Anyone with an economic IQ over 100 knows that it’s about the credit default swaps of AIG. Who’s getting the payouts? Paulson? Goldman Sachs? Sovereign Wealth funds like Abu Dhabi? Swiss banks? Confidence? It’s the same song and dance as when He and Crazy Legs Paulson stated last fall when they promised “transparency” in the TARP program. Who did the money go to? Can’t say. Might impair confidence. So Mr Bernanke, you are telling me that the trillions we are stealing from my children to bail out deadbeats and criminally incompetent enterprises largely given with minimal strings, are you telling me that the people of the United States do not have the right to know who is getting the money and how much? Yup. It’s confidence. Ben! We don’t have any friggin confidence! And it’s people like you and Tim Geithner and Larry Summers, Robert Rubin and gawd knows how many other Citigroup and Goldman Sachs bastard children out there in this and the last 4 administrations that have caused me to lose confidence! We have lost confidence in the entire financial system and nothing you have done since you succeeded the Ayn Rand troll Greenspan has inspired anything in the way of confidence in this citizen or in the markets. You have lied sir. You promised transparency and you have not delivered on your promise. But why should you. The Fed can do anything it chooses, say what it wants, spend what it wants withhold what it wants. It is accountable to no one. This is one horrible system and it illustrates how evil and powerful the now worldwide system of central banks and bankers are. They have amassed power at the expense of the citizenry and the governments of the world. But I guess it was when Barak told us to go out and buy stocks for the long term that I got the thousand yard stare. That’s when I realized that maybe there was something more to this mystery than misstatements, incompetence or lying. These guys are in the death throes of a malignant Cognitive Dissonance. Barak! What are you thinking? We’re broke! How the heck can we buy stocks or houses or cars if we’re broke? If the companies are broke! In fact how can you buy wars or F-22s or rebuild the infrastructure of GAZA(?!!!) if you’re broke? And now a $1.75 Trillion deficit:50% of the budget! Everything you say shows cognitive dissonance. I think now I’ve got it. Cognitive Dissonance:on steroids! The whole country has it. Hillary sure has it. Just a few months ago she was saying the Chinese holding almost 2 Trillion is US debt was a threat to national security but in her recent political lap dance in Bejiing she practically begged Wen Jiabao to please oh pretty puleeze….. buy some more T bills! Cognitive Dissonance. What else can it be? Cognitive Dissonance is that crummy feeling you get when you try to hold two contradictory ideas in your mind. You get dissonance when you realize the contradiction like those black folks in line below the picture of the American Dream. You are asking us to have confidence when no rational human being could possibly have confidence. And like all chronic sufferers of CD as I will now call it, in the face of massive evidence to the contrary, you persist in repeating your bailouts of banks and hedge funds and deadbeats. Ben you have to stop. You have to come clean and admit that you and Tim don’t know what you are doing. What is the extent of the CDS, CDO, CDLs and all the other toxic acronyms out there? Do you know? So tell us if you do! Anyone can see that your actions are sheer fiscal insanity. And stupid! Will Rogers said that”If stupidity got us into this mess, then why can’t it get us out?” We know what got us into this mess. We elected Ronnie Reagan who knew that cutting taxes and spending without strings was the way forward. It would trickle. And that pesky Paul Volker had to go. Ron now deep in the throes of incipient Alzheimer’s fired him in 1987 and gave us the jowly mumbling double speaking Greenspan who presided over two financial bubbles and caused the mother of all bubbles by promoting massive leveraged debt assumption, asset inflation, low interest money, more deregulation, repeal of the Glass-Stegall, bailout of the LTCM hedge fund, promotion of these new toxic instruments, massive credit expansion to anyone who could fog a mirror, unregulated derivatives and in the final insult, peddled this fabulous Ayn Rand financial neutron bomb orthodoxy to the world sending out callow MBA missionaries from the Sloan School and Harvard proselytizing at places as dissimilar as AIG and the Central bank of Iceland, urging them to use their new incomprehensible geek math models to turn paper into real money and the key concept of course was to leverage the living bejusuz out of every bet you made. That way you could get rich quicker. Greed is good you know. Sorry. I gotta go. It’s snowing and I need to plow.

Zombie Banks, Zombie Economy, Zombie Politicians

Do you recognize anyone here? Say John Thain or Hank Paulson? I definitely see Tim Geithner there to the right. I keep hearing about the Zombie banks and Ben Bernanke at the Fed really hates the term. But the term is absolutely precious. A zombie is a reanimated human corpse.

What better way to describe Citigroup or B of A or Wells Fargo. Zombies have no free will are are under the control of a distant sorcerer. Larry Summers, are you listening? Today I spent considerable time reading testimony from Bernake and interviews with Geithner as well as a transcript from Barak before the congress and I was ready to launch into another rant on prevarication and other forms of deception but it occurred to me that it is possible that they do not think they are lying or that lying to the public is acceptable if it serves a nobler purpose. This has been a tried and proven strategy from Machiavelli to Karl Rove and a few in between…….

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State”……………….Joseph Goebbels

I am afraid that it is more than the banks that are Zombies. I think it is our entire American Dream Economy that is zombified but most of us haven’t figured that out yet. I think that in this century we will be winding down the industrial economy as energy sources get ever more scarce and expensive . James Michael Greer who writes the Archdruid Report: has been writing about this postulated change to society for many years and he believes that our industrial society will over time become less industrial as it smashes headlong into resource and energy constraints. He thinks we are likely to go down in stairstep fashion as we exhaust our heretofore free fossil energy. JMG as he is known is a brilliant thinker and he has been unfairly characterized as a “doomer” and dismissed by the mainstream panglossian press. I happen to agree with many of JMG’s ideas but I don’t think the current depression has been largely caused by these factors raised by Greer. We are going through a classic debt and credit fueled expansion and collapse that we have seen on multiple occasions in the past 200 years commonly referred to in old books as a PANIC. It also is a great phrase and I intend to resurrect it on this blog as a term superior to “depression” which conjures up visions of sad faces and Prozac. This Panic was very much as inevitable as the Panics in 1929,1873,1867,1937 and 1819. Those previous panics led to years of depression just as I think this one will. The difference with this panic is more a matter of scale. I think this panic has the possibility of becoming the mother of all depressions because of the globalized interconnected nature of the credit and debt collapse. It is likely to be far worse than previous panics because the blunders have been worldwide in scope and because it involves strange and terrible structured investment vehicles as they have been called. I include all the various acronyms given to them like CDOs, CDSs and the gigantic derivatives market of swaps and bets and currency and commodity futures contracts which banks and hedge funds and corporations devised to mitigate risk. Now it’s all coming unglued at a level of magnitude clearly never dreamed by its mathematical model creators. These are models that only a Cray computer can understand. I do concede that all the counter party risk associated with this panic will probably not all implode at once and there is probably a chance that this world economic downturn will not be as bad as some people think but the simple fact is: no one really knows. Yikes! Even Ben Bernanke reassured us saying”We’re not completely in the dark.” That’s reassuring. I ran that through by Babelfish translation program and it came back in English as “We are completely in the dark.” And so the untouchables at Treasury and the Fed using flawed outdated Keynesian assumptions of growth and the economy keep plugging away at fixing the banks by pouring borrowed money into insolvent skyscrapers so they can again lend to companies who will go bankrupt and citizens who are broke and soon to be hungry sleeping in their Hummers in a Wall Mart parking lot. Here is my chief objection to this level of borrowing to bail out insolvent banks and corporations. Credit works only as long as the money borrowed can be repaid later:Principal + Interest. For that to happen you need growth . If you can persuade Abu Dhabi and China to buy 30 year bonds yielding 3.5% and your GDP growth exceeds 3.5% for the next 30 years, that debt will be serviced. If you have a steady state or contracting economy, it will not. It’s worked to some extent for the past 60 years because for various reasons the US had a monopoly in energy production and industrial production of goods and services the world needed. We used to be a manufacturing powerhouse with 26% of the workforce engaged in manufacturing in 1960. This had fallen to 9+% by 2006 . What do we make in the US now besides weapons and aircraft and heavy machinery that the world wants? We make very little here that our population needs and therein lies the tragedy of our manufacturing economy. For many years our growth has been fueled by relentless debt assumption by our citizens, our corporations and our government. If the world stops buying our debt or stops believing that we will ever pay off the debt, the party will end. There are several scenarios which could play out. These countries could fall into a depression and their exports to us could fall. This is now happening. Their economies could also collapse or go into a prolonged recession or depression. Their current account surpluses could disappear. Even if that doesn’t happen, these countries could decide that 3.5% is too low a rate of return if they see the dollar at risk because of inflation or because they fear that Fed might decide to devalue the dollar. But they are already in a bind because if they demand a higher rate of return than 3.5% they could see the value of their bonds fall because the value of bonds runs inversely to the yield. If they try to sell their bonds as the US is trying to issue new bonds, the market could become oversupplied with sellers. They must be fearful of future inflation in the US. So they are in a catch 22 position. It seemed so ironic to me that Hillary Clinton visited China and begged for the Chinese to continue buying our debt. This is the same Hillary who in the campaign said that being indebted to the Chinese was a threat to national security! Which is it Hillary? I think Hillary’s pleadings are a very ominous sign that the big fear of the administration is that unless we have countries stupid enough to buy our debt, the party will be soon over. And my final very important point is that if Greer is right, we are undergoing a paradigm shift in our economies primarily because of post Peak Oil. If rapid growth and rising industrial production is simply not possible, then the assumption of debt is also not sustainable, and therefore fundamental macroeconomic assumptions are fatally flawed. If we continue to borrow without the ability to pay off the debt, we will collapse economically and the greater risk is that we could collapse socially. Many countries have bounced back after defaulting on their debt. Spain defaulted eight times in the 19th century. But a civilization that collapses may not bounce back.

Stimulus Medicine

Readers of this site know I rack my brain trying to understand and explain how we got into this financial mess and what if anything we can do about it and after listening to Bernanke’s testimony and Obama’s address, I have finally found the solution and it is to the left and will have to be administered in massive doses as part of the stimulus package for it to work. Bernanke really boosted my confidence yesterday when he said addressing the Financial Services Panel:”We’re not making it up. We’re not completely in the dark.” If you don’t think that is bad enough, he really set every one’s mind at ease when he announced the end of the recession:…”the current recession will end in 2009 and 2010 will be a year of recovery.”
And Barkak confirmed Bernanke when he signed the stimulus bill last week saying:”Today marks the beginning of the end.” He may not know prescient that statement was.
Come on boys, open up. Take your medicine.
So what is a reasonable person (such as myself) to conclude? These guys are either deluded and incompetent or they are not telling the truth. The media tells us daily that the real need is to “restore confidence”. Get banks lending again. More syrup. Open up. We are told that the American people cannot take negative messages. So I guess that means, feed them positive messages.Tell them lies, lies and more lies. The Obama administration is obviously relying on the same people in Treasury and the Fed who were there with bush and clinton. These Keynesian bankers are bound and determined to save the hides of their banking cronies and not the hides of the American people. They should be focused on saving the American people but they are not. They are spending billions and trillions and there is nothing we or our political leaders can do to stop them. And why not? Because the Treasury and the Federal Reserve can do as they like. The Federal Reserve is no more “federal” than the Stagecoach Bar, our local bar here in Wilson….. It is a private organization to serve the interests of the banking establishment and if you or even Congress doesn’t like what they do, that’s tough. The Fed was set up in 1913 to control monetary and fiscal policy but it’s powers have increased over the years so that it is a defacto branch of the government not under the control of its citizens and is able to spend what it wants, when it wants and how it wants with the money of its citizens and those citizens still in diapers. The tragedy of the whole process is that there is not a broad cross section of people deciding on fiscal and economic and budgetary policy. Obama had a choice of economic advisers and diverging from the Citi and Goldman Sachs advisers of the past two administrations, but he didn’t, and this one choice has the potential to doom his presidency and our economy. Is it possible that these people do not understand how serious this economic meltdown is? I have to assume that they understand the global interconnections and the toxic assets and loans going bad right now in the entire world along with the other counter Party risks and deleveraging taking place everywhere. How could they not? We have an insolvent banking system. You don’t need “stress tests” to prove that. Geithner knows that. How could he not? He was at the NY Fed since 2003 for gosh sakes. In a recent blog I showed how Citi was insolvent and I established that from data I found from banking websites. My only conclusion is that as Bernanke said, he is “not completely in the dark.” They must be hoping something will change, that we will get a Deus Ex Machina and the toxic deleveraging will stop, that house prices and sales will not keep falling, that Iceland and Ireland and all of Eastern Europe will not default on their debt, that oil prices will not go up, that the stock market will not keep dropping and so forth. I have no confidence in their decision making abilities . In fairness to Ben and Barak, they have never seen anything like this happen and they are unwilling to admit that we have a falling knife or guillotine which no one can stop. So they have to keep lying and hoping. Our only hope is to try to mitigate these effects and try to save the American people from the worst blunders of the Wall Street bankers . And if Barak doen’t figure this out on his own pretty soon, we are doomed.

Another Leg Down

The news is not good if you’re the portfolio manager for Fidelity Investments. It seems that in the last quarter Fidelity convinced that financial stocks had hit bottom, loaded up on bank stocks and today they own over 3% of Citigroup. In mid 2007 Citi was a $55 stock. Today it is a $2.50 stock. That’s a drop of 95% in a year and a half. Another 5% and it will be zero which is more than it is worth but fear not, the economic keystone cops in the Obama administration applying failed Keynesian concepts are continuing to shovel money at insolvent banks, insurance companies, mortgage monsters like like AIG and fred and his bloated ugly misbegotten sister Fannie. It hasn’t worked and their solution, keep shoveling! Barak Obama , sweet man that he is has made disastrous choices picking his economic cabinet of Keynesian economists who have learned nothing and forgotten nothing. The last thing a president needs in an economic crisis are economists, bankers and Wall Street financiers advising him. They are destroying a presidency which has barely begun. They hum the Keynesian mantra of economic growth by extending credit and debt and “stimulus”. Paulson said the problem was a “liquidity crisis” and he flooded the markets with liquidity borrowed from our children. Paulson, Bernanke, and Bush said we needed more lending, more credit, more debt. It was never a liquidity crisis. It was a debt crisis but they didn’t get it and Obama and his cast of bozo economists don’t get it. It has not occurred to them that the very crisis at hand was caused by cheap credit, massive debt assumption and mindless consumption combined with a negative savings rate . Common sense would seem to indicate that the solution is not more of the same, turbocharged in overdrive with an afterburner. It has not occurred to them that people who are broke and over extended will not want to borrow. It has not occured to them that people in a half million dollar house worth $250,000 who are behind on their payments may not care if their new mortgage payment is only 31% of their income if they have no equity or no job. And what about the hardworking dummies who also live in houses underwater who HAVE been making their payments on time? No help for them. Just like it is no help for solvent banks. Give money to the failed banks, the failed homeowners. And borrow if from our children! They know that the latest in a series of boneheaded poorly thought out rescue plans for the housing problem isn’t a rescue of them, it’s another rescue for the mortgage companies and banks. The White House and Congress are solely focused on saving the very people who are their constituency:Wall Street corporations and the banks. The American people are not their constituency and they know it . They are focused on saving insolvent banks and corporations . Of course not all politicians believe this but the powerful ones do and therein lies the problem. If the banks and insolvent insurance companies are allowed to fail, a lot of wealthy investors, sovereign wealth funds, mutual funds and hedge funds and other corporations will lose a lot of money and this shadow government is going to do every thing it can to save its sorry hide, even if it means turning a bad recession into a worse depression or even worse, tearing the fabric of our society to shreds.


Kreppa is what they are calling it in Iceland, also known locally as Kreppaland. Kreppa is a common word uttered by Icelanders and roughly translated it means “Crisis” and is derived from an old Norse word. Icelanders have been living in a state of kreppa for these past months well chronicled from various blogs out of Iceland and especially my favorite online publication Iceland Review, you see frequent references to kreppa. Heimskreppa is a new variant and translates as Worldwide Crisis. To paraphrase John Kennedy, “We are all Icelanders, now. Icelanders are in a state of shock trying to grasp how they could have fallen so far as a country because of the utter evil greed and folly of their unregulated bankers who have destroyed the future of a proud nation. Businesses of all stripes are failing or will be failing in Iceland and even Iceland Review is at risk with staff being laid off. Sadly, some of the staff are immigrants who have lived there for many years and in a new twist of fate, may soon be deported. Manitoba is even advertising for skilled Icelanders as the largest population of Icelanders outside of Iceland reside in Manitoba which last accepted a wave of immigration from Iceland in the 1880’s. But what is an Icelander to do if they lose their job in a collapsing economy hopelessly in debt? The horrible scenario in Iceland desperately needs a Deus Ex Machina but that is a forlorn hope at this point and I suspect there are many Icelandic Citizens who will take Manitoba up on their offer to have a job and a home in a community of Icelanders even if it is in Canada. Perhaps some day they can return to their splendid icy island in the North Atlantic. I wonder if we will see other waves of immigration from the other countries on the verge of collapse like Ireland and Greece and Ukraine and a good portion of Eastern Europe but few countries will be eager to have more mouths to feed if this kreppa is a heimskreppa.
Meanwhile over here in bushobamaland things are not yet as grim as Reykjavik. A recent poll had over 30% of Americans opining that we are already in a depression but I wonder if those 30% even have an inkling of what a depression is or what it could mean as only people my mother’s age still remember the Great Depression. There are now many commentators starting to say that the actions being taken by the current assemblage of Keystone Cops are turning a bad recession into a depression and I would Like to examine those actions in a future blog.